AEW UK REIT PLC NAV Update and Dividend Declaration (9504O)

TIDMAEWU

RNS Number : 9504O

AEW UK REIT PLC

25 August 2017

25 August 2017

NAV Update and Dividend Declaration for the three months to 31 July 2017

AEW UK REIT plc (LSE: AEWU) ("the Company"), which, as at 25 August 2017, directly owns a diversified portfolio of 32 regional UK commercial property assets, announces its quarterly unaudited Net Asset Value ("NAV") and interim dividend for the three month period ended 31 July 2017.

Highlights

-- The Company is now fully invested, having utilised the total available loan facility and reinvested the proceeds from selling its remaining investment in the AEW UK Core Property Fund (the "Core Fund") during the quarter.

-- Fair value independent valuation of the property portfolio increased to GBP150.38 million (30 April 2017: GBP137.82 million), primarily as a result of three new acquisitions totalling GBP10.62 million. On a like-for-like basis the valuation of the property portfolio increased by GBP1.94 million (1.41%) (30 April 2017: GBP1.10 million and 0.85%) over the quarter.

-- NAV of GBP119.76 million or 96.86 pence per share (30 April 2017: GBP118.68 million or 95.98 pence per share).

-- EPRA earnings per share for the period of 2.10 pence per share (30 April 2017: 1.84 pence per share).

   --     Interim dividend of 2.0 pence per share announced for the quarter ended 31 July 2017. 

-- The Company remains conservatively geared with a gross loan to value ratio of 21.6% (30 April 2017: 19.9%) and net loan to value ratio of 19.4% (30 April 2017: 17.4%).[i]

   --     Ongoing portfolio and asset management activity during the period included: 

o Acquisition of an industrial asset in Runcorn for GBP0.61 million completing the Company's ownership of the entire Sarus Court industrial estate. The acquisition pricing reflects a Net Initial Yield of 7.8% and a capital value of GBP55 per sq ft.

o Acquisition of a 97,000 sq ft single-let industrial building located on the established Deeside Industrial Park, North Wales, for GBP4.30 million, reflecting a Net Initial Yield of 7.9% and a capital value of GBP45 per sq ft. The low passing rent is significantly below that seen at other competing centres within the North West.

o Acquisition of a 182,000 sq ft single-let industrial building in Peterborough, for GBP5.70 million, reflecting a Net Initial Yield of 8.64% and a capital value of GBP31 per sq ft.

o Disposal of the Company's remaining units in the Core Fund for total proceeds of GBP7.62 million. The Company had held an ownership in the Core Fund since launch in May 2015 for the purpose of expediting its investment period. The units have now been sold at a price in excess of the Core Fund's latest published NAV, and the proceeds have been used for direct investment.

o Post period end, final letting completed at 40 Queen Square, Bristol, achieving six lettings totalling just less than 25,000 sq ft within the last 12 months.

Alex Short, Portfolio Manager, AEW UK REIT, commented:

"Despite some uncertainty caused by the General Election, the performance of the Company's assets has continued strongly over the past quarter with like-for-like valuation growth of 1.4% recorded. This compares favourably to MSCI data which shows that the market as a whole delivered growth of 1.1% over the quarter to 30 June 2017 on a "standing investment" basis (excluding transactions and developments). We are particularly pleased with the capital appreciation delivered by the Company's industrial assets which have seen the strongest growth of all of the sectors in which the Company is invested, at an average of 2.8% within the quarter.

The portfolio has been particularly well placed to benefit from this movement with its high weighting towards the industrial sector where many of our recent acquisitions have been focused. Following the three industrial acquisitions in the quarter, the Company is now fully invested, including utilisation of the proceeds from the sale of the Core Fund units. The new acquisitions in Runcorn, Deeside and Peterborough are all in locations which exhibit low levels of supply alongside robust tenant demand and a low level of passing rent.

Occupier markets have also shown resilience over the period as evidenced by the Company having completed its final letting at 40 Queen Square in Bristol. Further to this, we have seen significant progress in other key occupational transactions over the quarter for which further announcements are expected to be made in due course. These successes will help to secure and lengthen the Company's income stream and ensure its sustainability for future performance. This quarter sees the dividend return to being fully covered. The increase in earnings is partly attributable to non-recurring items of 0.14 pence per share in the quarter.

In addition to the performance of the portfolio itself we are also pleased by the resilient performance of the Company's share price which has maintained a robust premium to NAV for over 6 months now. We are confident this will assist in growing the Company to provide enhanced liquidity to the Company's shareholders. As such, we highlight that we continue to see a strong pipeline of available stock at yields which would be accretive to the current portfolio. Over recent weeks we have seen an increased number of attractive opportunities in the retail and office sectors and we therefore expect that future acquisitions will represent a more balanced spread of property sectors, rather than being concentrated in the industrial sector as we have seen over past quarters. In line with our strategy we continue to focus on finding future acquisitions which will deliver an attractive return from a well-diversified regional portfolio."

Net Asset Value

The Company's unaudited NAV as at 31 July 2017 was GBP119.76 million, or 96.86 pence per share. This reflects an increase of 0.92% per share compared with the NAV as at 30 April 2017, or a NAV total return including the interim dividend for the period from 1 February 2017 to 30 April 2017 (of 2.0 pence per share), of 3.06%. As at 31 July 2017, the Company owned investment properties with a fair value of GBP150.38 million. The Company disposed of all of its remaining investment in the Core Fund for proceeds of GBP7.62 million during the quarter.

 
                                           Pence per   GBP million 
                                               share 
 NAV at 1 May 2017                             95.98        118.68 
 Portfolio acquisition costs                  (0.60)        (0.75) 
  Realised gain on sale of investments          0.04          0.05 
 Capital expenditure                          (0.11)        (0.13) 
 Valuation change in property portfolio         1.46          1.80 
 Valuation change in derivatives              (0.01)        (0.01) 
 Income earned for the period                   2.67          3.30 
 Expenses and net finance costs for 
  the period                                  (0.57)        (0.71) 
 Interim dividend paid                        (2.00)        (2.47) 
 NAV at 31 July 2017                           96.86        119.76 
 

The NAV attributable to the ordinary shares has been calculated under International Financial Reporting Standards and incorporates the independent portfolio valuation as at 31 July 2017 and income for the period, but does not include a provision for the interim dividend for the period to 31 July 2017.

The Company did not receive any dividends during the quarter from its investment in the Core Fund.

Dividend

The Company today announces an interim dividend of 2.0 pence per share for the period from 1 May 2017 to 31 July 2017. The dividend payment will be made on 29 September 2017 to shareholders on the register as at 8 September 2017. The ex-dividend date will be 7 September 2017.

The dividend of 2.0 pence per share will be designated 2.0 pence per share as an interim property income distribution ('PID').

The EPRA earnings per share for this period were 2.10 pence (30 April 2017: 1.84 pence). The increase in earnings per share is partly attributable to non-recurring items of 0.14 pence per share in the quarter, including business rates credits and back-dated turnover rent received.

At the time of the Company's IPO, AEW UK Investment Management LLP (the "Investment Manager") provided guidance that they would assemble a portfolio supporting a target dividend between 8 to 9 pence per share. The initial portfolio has now been assembled and the Company has paid a 2 pence per share dividend for each quarter since January 2016. The Board of Directors are of the view that over the medium term this level of dividend is supportable from earnings on the current portfolio; accordingly, the Board has resolved to pay a 2 pence per share dividend for this quarter, as with previous periods. With this dividend, the Company will have paid 15.5 pence per share since launch.

Going forward, it has always been the intention to grow the Company, which is currently trading strongly in the market. Accordingly, subject to market conditions, the Company will look to raise additional capital during 2017. At the time of any significant fund raise, the Board will review the level of capital targeted to be raised and the assets likely to be acquired, together with the existing assets, activity and market prospects at the time and may issue further dividend guidance at such time, if appropriate. The Company will continue to focus its investment in relative value opportunities offered by pricing inefficiencies in smaller commercial properties let on shorter occupational leases.

Investors should note that this target is for illustrative purposes only, based on current market conditions and is not intended to be, and should not be taken as, a profit forecast or estimate. Actual returns cannot be predicted and may differ materially from this illustrative figure. There can be no assurance that the target will be met or that any dividend or total return will be achieved.

Financing

Equity

The Company's issued share capital consists of 123,647,250 Ordinary Shares.

Debt

On 20 July 2017, the Company utilised the remaining GBP3.49 million of its loan facility with RBS International, thereby bringing its drawdowns to GBP32.50 million as at 31 July 2017 and representing a gross loan to value ratio of 21.6%. The loan attracts interest at LIBOR + 1.4%. To mitigate the interest rate risk that arises as a result of entering into a variable rate linked loan, the Company has entered into interest rate caps on GBP26.51 million of the total balance of the loan at a strike rate of 2.5%, resulting in the loan being 82% hedged. The Investment Manager and the Company will keep the level of gearing under review and, if appropriate, will look to increase the facility.

Portfolio activity and asset management

Unit 1005, Sarus Court, Runcorn

In May 2017 the Company acquired Unit 1005 Sarus Court which completes the Company's acquisition of the whole of the Sarus Court industrial estate, where five of the six units were already in the Company's ownership following acquisitions in 2015. Sarus Court forms part of the wider Manor Park industrial estate, strategically located to the west of Runcorn and five kilometres from the Mersey Gateway Project, a new six lane bridge over the River Mersey connecting the towns of Runcorn and Widnes and linking the M56 to M62. The project is due for completion in Autumn 2017.

The estate provides well specified, modern industrial units of between 11,000 and 17,000 sq ft, which are let to a number of light-industrial occupiers providing a WAULT (weighted average unexpired lease term) of over four years across the estate. Unit 1005, which is let to Dimension Data until 2020, offers significant reversionary potential, with a passing rent of GBP4.50 per sq ft which is more than 15% lower than a recent letting at 1003 Sarus Court secured at GBP5.25 per sq ft. The purchase therefore not only offers rental upside but brings the whole estate under the Company's ownership, which will add value from an estate management perspective. The acquisition pricing reflects a Net Initial Yield of 7.8% and a capital value of GBP55 per sq ft

Deeside Industrial Park

In July 2017 the Company announced the acquisition of a 97,000 sq ft single-let industrial building in Deeside, North Wales, for c. GBP4.3 million, reflecting a Net Initial Yield of 7.9% and a capital value of GBP45 per sq ft. The asset, which is located within the established Deeside Industrial Park, is fully let to global enterprise Magellan Aerospace, for a term of just under five years to break and just under ten years to expiry. The current passing rent of GBP3.75 per sq ft is significantly below that seen at other competing centres within the North West, such as in Warrington and Manchester.

Deeside Industrial Park has been established since the 1970s and totals in excess of 600 acres, comprising over 5 million sq ft of industrial and warehouse accommodation attracting a variety of manufacturing and distribution companies. The estate benefits from its close proximity to the national motorway network, being within 5 miles of both the M56 and M53.

Storey's Bar Road, Peterborough

During July 2017 the Company announced the acquisition of a c.182,000 sq ft single-let industrial building in Peterborough, for c.GBP5.7 million, reflecting a Net Initial Yield of 8.64% and a capital value of c.GBP31 per sq ft. The asset, which is located within the Eastern Industrial Estate, is fully let to Walstead Investments Limited for a term of just under four years to expiry. The passing rent of GBP2.88 per sq ft is low in comparison to some of the recent lettings in the city and the immediate sub region. Peterborough has seen robust occupational performance over the past 24 months with overall vacancy levels for properties over 150,000 sq ft falling below 4%.

Core Fund

In May 2017, the Company announced the sale of its remaining units in the Core Fund for total proceeds of GBP7.62 million.

The Company had held an ownership in the Core Fund since launch in May 2015 for the purpose of expediting its investment period and saw a total return of 13% over the hold period. The units have now been sold at a price in excess of the Core Fund's latest published NAV, with the proceeds used to fund direct investments in the portfolio.

Queen Square, Bristol

Post period end, the Company has announced that its 38,000 sq ft office building located in the prestigious Central Bristol, Queen Square has now been fully let following lettings to six various occupiers totalling c. 25,000 sq. ft within the last 12 months. The building, acquired in December 2015, was 46% vacant at this time, and has shown strong performance due to the strength of the Bristol office market and the targeted refurbishment programme undertaken by the Company.

 
 Enquiries 
 AEW UK 
 Alex Short                    [e-mail] 
                               [phone] 
 Nicki Gladstone               [e-mail] 
                               [phone] 
 Company Secretary 
 Capita Company Secretarial    T: 01392 477 653 
  Services 
 
 Temple Bar Advisory 
 Tom Allison                   [e-mail] 
                               M: [phone] 
                                020 
 Ed Orlebar                    [e-mail] 
                               T: 020 7002 1080 
 Lucy Featherstone             [e-mail] 
                               T: [phone] 
                               M: [phone] 
                                663 
 

Notes to Editors

About AEW UK REIT

AEW UK REIT plc (LSE: AEWU) aims to deliver an attractive total return to shareholders by investing predominantly in smaller commercial properties (typically less than GBP10 million), on shorter occupational leases, in strong commercial locations across the United Kingdom. The Company was listed on the Official List of the UK Listing Authority and admitted to trading on the Main Market of the London Stock Exchange on 12 May 2015.

Since its IPO in May 2015, the Company has invested over GBP150 million in 32 assets. It is currently invested in office, retail, industrial and leisure assets, with a focus on active asset management, repositioning the properties and improving the quality of the income stream. Whilst occupational demand in strategic locations remains, securing tenants on shorter leases allows AEWU to crystallise value through rent reviews and lease re--gears.

AEWU is currently paying a dividend of 8p per share p.a. and targets a total annual return, over the medium term, in excess of 12% on the IPO issue price, net of all fees.

Real estate investment specialist AEW UK Investment Management LLP is a joint venture between the management team, which together has an average of 25 years of real estate experience, and AEW, which has EUR19.1 billion of real estate assets under management in Europe. AEW UK Investment Management LLP has a strong and expert asset management team, with a proven record of identifying and delivering value from real estate assets across all sectors.

[i] Net loan to value is gross loan to value after consideration of cash balances as at 31 July 2017.

This information is provided by RNS

The company news service from the London Stock Exchange

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August 25, 2017 02:00 ET (06:00 GMT)