AEW UK REIT plc: Sale announcement and update statement (1053989)

 
 AEW UK REIT plc (AEWU) 
AEW UK REIT plc: Sale announcement and update statement 
 
26-May-2020 / 07:00 GMT/BST 
Dissemination of a Regulatory Announcement, transmitted by EQS Group. 
The issuer is solely responsible for the content of this announcement. 
 
            26 May 2020 
 
      AEW UK REIT Plc (the "Company") 
 
      Sale announcement and update statement 
 
  Further to its announcement on 20 April 2020, the Company today provides a 
            further update in respect of recent activity. 
 
            Sales and Asset Management Update 
 
 The Investment Manager's active management approach continues to be a major 
feature of the Company's strategy and, notwithstanding the current uncertain 
      situation relating to COVID-19, it is pursuing a number of potentially 
            accretive negotiations. 
 
Most notably, it has now completed the sale of its asset at Geddington Road, 
Corby, for a price of GBP18.8 million. The asset was acquired in February 2018 
for GBP12.4 million and has been fully let to Gefco UK Limited since this time 
   producing net income yield against the purchase price of 10%. The 35 acre 
    site, which due to its specialist use has been held within the Company's 
allocation to 'Other' sectors, has been the Company's largest asset by value 
with a valuation level as reported in the Company's half year report for the 
period ended 30 September 2019 in the region of GBP10-15 million. The lease to 
    Gefco had an unexpired term of just over 1 year at the date of sale. The 
    Company has not invested any capital expenditure in the asset during its 
            hold period. 
 
   Alex Short, Portfolio Manager, AEW UK REIT, commented: "The completion of 
        this sale will deliver to the Company an IRR in excess of 30% which, 
    particularly at the current time, highlights the defensive nature of the 
     Company's strategy. Seeking mispriced assets and those that have higher 
 alternative use values as well as high levels of income, has been a feature 
     of the strategy since IPO. As the portfolio matures these assets create 
    opportunities for significant value to be added and, as evidenced by the 
         Corby disposal, we are now seeing a number of these positions reach 
            fruition". 
 
     Following completion of the above sale, the Company holds cash of c GBP27 
    million and reports an estimated loan to value ratio of 25.6%, including 
 cash (31 March 2020: 26.0%). As a further result of the sale, the Company's 
   annual rental income will fall by GBP1.32 million until further investments 
  are made. The Investment Manager's fee will also reduce proportionately as 
  management fees are not charged by AEW on amounts held in cash. The Board, 
      in conjunction with the Manager, is evaluating the optimum use of cash 
    balances in the current environment. The Investment Manager continues to 
monitor opportunities for investment and believes that market conditions may 
 facilitate an increased number of attractive pipeline opportunities. In the 
       meantime, the Company's high cash weighting reflects its conservative 
            approach to the current situation and provides it with increased 
            flexibility. 
 
   The Company also reports the following asset management transactions that 
            have completed so far in 2020: 
 
 Bath Street, Glasgow - in January 2020, the Company completed a new letting 
 of 6,700 sq ft to SPS Doorguard Ltd. The lease provides a 10 year term with 
   a tenant break option at year 5 and a rent of GBP92,250 per annum. The unit 
            had been vacant prior to letting. 
 
   Queen Square, Bristol - During February 2020 a new letting of 1,300 sq ft 
    was completed. The letting of the un-refurbished suite proves a new high 
       rental tone for the building of GBP27.14 per sq ft, 55% higher than the 
   previous level of passing rent. The new letting provides annual income of 
             GBP17,250. 
 
  Oak Park, Droitwich - In March 2020, the Company completed a lease renewal 
    with tenant Egbert Taylor on two industrial units. The renewal takes the 
  tenant's weighted average unexpired lease term from 2.7 years to 4.7 years 
 but also reduces its demised accommodation from 190,000 sq ft to 100,000 sq 
 ft. Total income received on the asset has fallen from GBP600,000 to GBP500,000 
   per annum but rental value per sq ft has increased by 57%. The Investment 
     Manager is exploring potential for higher value alternative uses on the 
            remainder of the site. 
 
 Pearl Assurance House, Nottingham - in March 2020, a reversionary lease was 
       completed with Lakeland Ltd on a 4,300 sq ft retail unit providing an 
     unexpired lease term of c 6 years. The reversionary lease documents the 
 rebasing of Lakeland's rent from GBP155,000 to GBP90,000 per annum in line with 
            its estimated rental value. 
 
          Bank Hey Street, Blackpool - During May 2020, the Company signed a 
  reversionary lease with existing tenant JD Wetherspoon. This documents the 
  removal of the tenant's break option in 2025 and provides an additional 10 
    year lease term taking the earliest expiry from 2025 to 2050. The annual 
rent payable by the tenant has reduced from GBP96,750 to GBP90,000 but the lease 
           now provides five yearly fixed increases reflecting 1% per annum. 
 
            Financing 
 
       Whilst the Company passed its banking covenant tests with significant 
headroom in April, in order to be prudent in the current market environment, 
     the Company has obtained consent from its lender, RBS International, to 
       waive the interest cover tests within its loan agreement for July and 
October with the next proposed test date being January 2021. The lender also 
    conveyed a willingness to review the position again in December based on 
circumstances then prevailing. The Company is not required to place funds on 
      account or to comply with additional terms in order to qualify for the 
waiver. During the period of the waiver, the Company expects to maintain its 
            usual interest payments on the loan. 
 
The Company also confirms that it has traded down it's 2% interest rate cap, 
    using the embedded value to buy an interest rate cap with nominal amount 
  GBP51.5 million, being the entirety of its drawn loan amount. The new strike 
     rate is 1% and the term remains October 2023, the expiry of the current 
    facility. The new interest rate cap provides protection against interest 
 rate rises at a 1% lower rate each year for a one-off cost of GBP63k equating 
            to 4 bps per year. 
 
            Rent Collection Update 
 
     The Investment Manager has continued to maintain close contact with all 
tenants over recent weeks. At the date of this announcement, 75% of rent has 
     so far been collected, expressed as a percentage of the March quarter's 
    total rental income; however, this figure is expected to increase to 87% 
  once payments have been received both from tenants making monthly payments 
       and those on longer term payment plans which have not yet fallen due. 
   Subject to the agreement of potential asset management transactions, this 
    would increase to 90%. Amounts that remain outstanding as at the date of 
   this announcement (i.e. those which have fallen due but have not yet been 
paid) are being pursued by the Company and are subject to ongoing engagement 
          between the Manager and the tenant. There are some tenants who are 
     experiencing difficulties in the current environment and the Company is 
       sympathetic to their situation. Unfortunately, there are a few larger 
 tenants who have significant financial resources and the ability to pay who 
  are refusing to do so or even to enter into dialogue. The Company shall be 
     pursuing these tenants when legally able to do so and charging the full 
            default interest rate allowed within their lease agreements. 
 
          Current Position   As at 22 May 2020 As at 22 May 2019 
                  Received                 75%               96% 
 Monthly Payments Expected                  5%                3% 
 Prior to Quarter End - 23 
                      June 
  Longer term payment plan                  7%                0% 
                    agreed 
                                           87%               99% 
       Under Negotiation -                  2%                0% 
  pending the agreement of 
potential asset management 
              transactions 
                                           90%               99% 
               Outstanding                 10%                1% 
                     Total                100%              100% 
 
  It should be noted that the figures above reflect an evolving picture with 
            further payments being received each day. 
 
     In addition to the above the Manager reports that none of the Company's 
     tenants have filed for administration at the date of this announcement. 
 
            For further information, please contact: 
 
                        AEW UK 
                    Alex Short          [e-mail] 
                                          [phone] 
                   Laura Elkin         [e-mail] 
 
                                          [phone] 
               Nicki Gladstone [e-mail] 
                                          [phone] 
             Company Secretary 
  Link Company Matters Limited     [e-mail] 
                                          [phone] 
 
                     TB Cardew               [e-mail] 
                    Ed Orlebar           [phone] 
                Lucas Bramwell           [phone] 
 
               Liberum Capital 
Gillian Martin / Owen Matthews           [phone] 
 
            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 GBP15 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, raising GBP100.5m. 
             Since IPO it has raised a further GBP58m. 
 
 The Company 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. 
 
            AEWU is currently paying an annualised dividend of 8p per share. 
 
            www.aewukreit.com [1] [2] 
 
            About AEW UK Investment Management LLP 
 
AEW UK Investment Management LLP employs a well-resourced team comprising 26 
 individuals covering investment, asset management, operations and strategy. 
   It is part of AEW Group, one of the world's largest real estate managers, 
  with EUR69.5bn of assets under management as at 31December 2019. AEW Group 
         comprises AEW SA and AEW Capital Management L.P., a U.S. registered 
   investment manager and their respective subsidiaries. In Europe, as at 31 
 December 2019, AEW Group managed EUR33bn of real estate assets on behalf of 
    a number of funds and separate accounts with over 400 staff located in 9 
        offices. The Investment Manager is a 50:50 joint venture between the 
principals of the Investment Manager and AEW. In May 2019, AEW UK Investment 
 Management LLP was awarded Property Manager of the Year at the Pensions and 
            Investment Provider Awards. 
 
            www.aewuk.co.uk [3] 
 
LEI: 21380073LDXHV2LP5K50 
 
ISIN:           GB00BWD24154 
Category Code:  MSCH 
TIDM:           AEWU 
LEI Code:       21380073LDXHV2LP5K50 
OAM Categories: 3.1. Additional regulated information required to be 
                disclosed under the laws of a Member State 
Sequence No.:   65656 
EQS News ID:    1053989 
 
End of Announcement EQS News Service 
 
 
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(END) Dow Jones Newswires

May 26, 2020 02:00 ET (06:00 GMT)