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AEW UK REIT plc (AEWU)

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Monday 20 April, 2020

AEW UK REIT plc

COVID-19 Statement, NAV Update and Dividend Declaration

AEW UK REIT plc (AEWU)
AEW UK REIT plc: COVID-19 Statement, NAV Update and Dividend Declaration

20-Apr-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.


20 April 2020

 

AEW UK REIT Plc (the "Company")

 

COVID-19 Statement, NAV Update and Dividend Declaration

 

AEW UK REIT plc (LSE: AEWU) (the "Company"), which, as at 20 April 2020, directly owns a diversified portfolio of 35 regional UK commercial property assets, announces its COVID-19 statement, unaudited Net Asset Value ("NAV") and interim dividend for the three month period ended 31 March 2020.

 

Highlights

 

  • The Company today announces an interim dividend of 2.00 pence per share for the three months ended 31 March 2020, in line with the targeted annual dividend of 8.00 pence per share.  This dividend is more than covered by EPRA earnings per share ("EPRA EPS") for the quarter of 2.12 pence per share.
  • NAV of £147.86 million or 93.13 pence per share as at 31 March 2020.
  • 64% of rent has so far been collected for the current quarter.  This figure is expected to increase to 75% once payments have been received from tenants making monthly payments. Pending the agreement of potential asset management transactions, this could then increase to 85% once negotiations have completed.
  • The Company remains conservatively geared with a gross loan to value ratio of 27.21% (31 December 2019: 26.30%). Having raised gross capital proceeds of £7m during the quarter, the Company had a cash balance of £9.87 million and net loan to value ratio of 21.99% as at 31 March 2020. The Company expects to pass all banking covenant tests for this quarter with significant headroom when they are measured at the end of April.
  • Strongly performing underlying property portfolio producing the highest level of income return and the second highest total return when compared with the MSCI UK Balanced Funds Quarterly Property Index for the 12 month period to 31 December 2019 (latest index data available).

 

COVID-19 statement

 

Since the onset of the COVID-19 situation, the Investment Manager, in close liaison with the Board of Directors, has been working unremittingly to minimise the impact and ensure that the Company is well-positioned to withstand the challenges. The health and well-being of all members of the team and individuals involved in the Company is paramount and the Company is pleased to report that all individuals are well. Furthermore, the business continuity measures which the Company has implemented are operating effectively with the Investment Manager able to continue to manage the Company's portfolio of properties efficiently. All desk-based operations are functioning well and none of the Investment Manager's employees have been furloughed.

 

As with many other real estate companies and REITs, the focus over recent weeks has been on ensuring that rents due for the quarter are paid and collected efficiently and an update on the Company's progress in doing that is provided below.

 

Whilst the Investment Manager and the Board of Directors believe that the full impacts of COVID-19 on both the UK economy and the real estate market are yet to become clear, the Company exhibits a number of features which make it as robustly positioned as possible to deal with the ongoing situation:

 

  • Low leverage - The Company remains conservatively geared with a gross loan to value ratio of 27.21% (31 December 2019: 26.30%).  Banking covenants in respect of loan to value and interest cover both benefit from significant headroom and the Company expects to pass all covenant tests for this quarter with headroom at the end of April.  Furthermore, the cost of the Company's debt is calculated relative to LIBOR and, although it does have interest rate caps in place to limit any future increase in this cost, it is currently benefitting from the recent reduction in rates.  The Company's all-in interest rate as at 31 March 2020 was 2.10%.

 

  • Well capitalised - Following the Company's recent Placing, it has a strong cash position of £9.87 million. 

 

  • Low vacancy level - Vacancy level remains very low at 3.68%. The portfolio has now maintained a vacancy level below 4% for seven consecutive quarters.

 

  • Strong industrial weighting - The portfolio benefits from a high industrial weighting of 48.2% and a low weighting towards those market sectors more immediately affected by the current situation namely, retail (12.4%) and leisure (7.8%).

 

  • Diversified portfolio - the Company's portfolio comprises 35 properties let to 91 tenants in strong commercial, regional locations where there are few alternatives for tenants to relocate.  The Company's largest tenant accounts for 7.6% of passing rental income and a total of 76% of the Company's tenant base are classed as either government bodies, essential services, large international companies or benefit from online trading. The Investment Manager continues to monitor tenants' financial positions and prospects on an ongoing basis.

 

  • Active management of assets - The Investment Manager's active management approach led to 12 lettings being completed during the year to 31 December 2019, with annual headline income achieved 9% ahead of estimated rental value from independent valuers.  The Investment Manager continues to pursue its active management strategies notwithstanding the current uncertain situation relating to COVID-19, with a number of negotiations ongoing. 

 

  • Strongly performing underlying property portfolio - The portfolio produced the highest level of income return and the second highest total return compared with the MSCI UK Balanced Funds Quarterly Property Index for the 12 month period to 31 December 2019 (latest index data available).  The portfolio has also outperformed the index producing 3.1% total return outperformance on an annualised basis over the past 3 years. 

 

Rent Collection

The Investment Manager maintains close contact with all tenants, which has been particularly relevant over recent weeks where rent collection across the real estate sector has proved more challenging than usual. As at the date of this announcement, the Company has collected the following rental payments expressed as a percentage of the quarter's total rental income:

 

Current Position

 

As at 17 April 2020

As at 17 April 2019

Received

 

  64%

  83%

Monthly Payments Expected Prior to Quarter End

 

  11%

  9%

 

 

75%

92%

Under Negotiation - pending the agreement of potential asset management transactions

 

  10%

  -

 

 

85%

92%

 

Outstanding

 

15%

8%

Total

 

100%

100%

 

It should be noted that this is 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 as at the date of this announcement.

 

NAV Update

 

At 31 March 2020, the fair value independent valuation of the property portfolio was £189.30 million (31 December 2019: £195.80 million). On a like-for-like basis the valuation of the property portfolio decreased by £6.50 million (3.32%) over the quarter (31 December 2019: decrease of £0.25 million and 0.13%).  Property valuations across the UK have been reported on the basis of 'material valuation uncertainty' in line with guidance from the RICS. Other highlights are as follows:

 

  • NAV of £147.86 million or 93.13 pence per share (31 December 2019: £147.38 million or 97.24 pence per share).

 

  • EPRA earnings per share ("EPRA EPS") for the quarter of 2.12 pence per share (31 December 2019: 2.18 pence per share).

 

  • EPRA occupancy 96.32% (31 December 2019: 96.14%).

 

  • NAV total return of -2.17% for the three months ended 31 March 2020 (three months ended 31 December 2019: 1.93%).

 

Dividend

 

Dividend declaration

The Company today announces an interim dividend of 2.00 pence per share for the period from 1 January 2020 to 31 March 2020. The dividend payment will be made on 29 May 2020 to shareholders on the register as at 1 May 2020.  The ex-dividend date will be 30 April 2020.

 

The dividend of 2.00 pence per share will be designated 2.00 pence per share as an interim property income distribution ("PID").

 

The EPRA EPS for the three-month period to 31 March 2020 was 2.12 pence (31 December 2019: 2.18 pence).

 

 

 

Dividend outlook

It remains the Company's intention to continue to pay future dividends in line with its dividend policy, however the outlook remains unclear given the current COVID-19 situation. In determining future dividend payments, regard will be had to the circumstances prevailing at the relevant time, as well as the Company's requirement, as a UK REIT, to distribute at least 90% of its distributable income annually, which will remain a key consideration.

 

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

"We are currently seeing an unprecedented period of uncertainty within UK and global markets and understandably, this is having an impact on real estate markets.  This is demonstrated within our property valuation this quarter and also by the fact that the property valuation, in line with guidance given by the RICS to the UK real estate market as a whole, is issued with material uncertainty.

Features inherent in the Company give us comfort however, that it is as well-positioned as possible in the current time.  Firstly, the high and very stable level of earnings generated from the portfolio represent a strong starting point in times of increased volatility.  Looking at UK real estate return components since the inception of the MSCI index, income is by far the least volatile providing a much more resilient profile even in times of large capital declines. The Company's ability to generate both high and stable earnings is demonstrated by its dividend of 2p per share per quarter which has been reliably paid each quarter for four years now and was most recently covered to 106%.

Furthermore, the Company's strong focus towards industrial property at over 48% is expected to provide a robust base, both during the crisis and also for recovery once normal life resumes. We can already see that the restrictions that have been placed on all of our lives have led to a significant drop off in trade for retail and leisure operators.  In the industrial sector however, we see supermarkets and online retailers looking to take on additional space in order to deal with increased capacity and UK manufacturers rising to new production challenges with an entrepreneurial spirit.

Another area which provides us with some optimism is in connection with ongoing asset management transactions. As Manager of the Company, AEW's very active approach to asset management is a major feature of its investment strategy and proven by the portfolio's outperformance of the MSCI UK Balanced Index at property level over various time periods. Since restrictions have been sanctioned in the UK, we have seen some of the portfolio's potentially most accretive value plays continue to progress and, in addition, some new opportunities have come to light during this time.  We continue to work assets hard in order to maximise value. This can be demonstrated by the portfolio's very low vacancy level, which has now remained below 4% for seven consecutive quarters.

Turning to the valuation, movement per sector can be seen below with the impact in retail sectors being felt most acutely. Strong valuation uplift for the quarter came from the Company's asset in Corby, shown within 'other', due to improved occupational market conditions.  The like-for-like valuation decrease for the quarter of £6.50 million (3.32%) is detailed as follows by sector":

Sector

Valuation 31 March 2020

Valuation movement for the quarter

 

£ million

%

£ million 

%

Industrial

91.20

48.2

(3.68)

(3.87)

Office

44.90

23.7

(0.35)

(0.77)

Other

29.80

15.7

0.13

0.42

Retail

23.40

12.4

(2.60)

(10.00)

Total

189.30

100.0

(6.50)

(3.32)

 

 

Net Asset Value

The Net Asset Value ("NAV") as at 31 March 2020 is subject to material uncertainty following the Standing Independent Valuer's determination of material valuation uncertainty as per VPS 3 and VPGA 10 of the RICS Red Book Global, due to the unprecedented set of circumstances surrounding the COVID-19 Global Pandemic. Consequently, less certainty and a higher degree of caution should be attached to the NAV. This set of circumstances is not unique to the Company and is being reported by all major UK Commercial RICS registered property valuers at this time.

 

The Company's unaudited NAV as at 31 March 2020 was £147.86 million, or 93.13 pence per share. This reflects a decrease of 4.23% compared with the NAV per share as at 31 December 2019. The Company's NAV total return, which includes the interim dividend for the period from 1 October 2019 to 31 December 2019 of 2.00 pence per share, is -2.17% for the three-month period ended 31 December 2019. As at 31 March 2020, the Company owned investment properties with a fair value of £189.30 million.

 

 

Pence per share 

£ million 

NAV at 1 January 2020

97.24

147.38

Valuation change in property portfolio

(4.28)

(6.59)

Valuation change in derivatives

(0.02)

(0.04)

Income earned for the period

2.95

4.54

Expenses and net finance costs for the period

(0.83)

(1.28)

Interim dividend paid

(2.00)

(3.03)

 

93.06

140.98

Issue of equity (net of costs)

0.07

6.88

NAV at 31 March 2020

93.13

147.86

 

The NAV attributable to the ordinary shares has been calculated under International Financial Reporting Standards. It incorporates the independent portfolio valuation as at 31 March 2020, which is subject to material uncertainty and income for the period, but does not include a provision for the interim dividend for the three month period to 31 March 2020.

 

Financing

 

Equity

During the quarter, the Company raised gross proceeds of £7 million at 97 pence per share pursuant to the Placing under its Placing Programme, which expired on 28 February 2020. The Company issued 7,216,495 new Ordinary Shares which were admitted to listing on the premium listing segment of the Official List and to trading on the Main Market of London Stock Exchange Group plc on 28 February 2020 ("Admission"). Following Admission, the Company's issued share capital consists of 158,774,746 Ordinary Shares.

 

Following the capital raise, the Company holds a cash balance of £9.87 million as at 31 March 2020.

 

Debt

The Company has borrowings of £51.50 million, producing a gross loan to value of 27.21% and a net loan to value of 21.99%. The Company expects to pass all banking covenant tests for this quarter with significant headroom when they are calculated at the end of April.

 

The loan continues to attract interest at LIBOR + 1.4% and as a result is currently benefitting from the reduction in rates. The Company's all in interest rate as at 31 March 2020 was 2.10%.

 

To mitigate the interest rate risk of interest rates rising, the Company has entered into interest rate caps on £36.51 million of the total value of the loan (£26.51 million at 2.5% cap rate and £10.00 million at 2.0% cap rate) up to October 2020, resulting in the loan being 71% hedged.  

 

The loan term runs to October 2023 and the Company has entered into additional interest rate caps covering the period from October 2020 to October 2023, capping a notional value of £46.51 million at LIBOR of 2.0% per annum, which represents 90% of the current £51.50 million loan balance.  The Investment Manager and the Board will keep the levels of gearing and hedging under review.

 

 

 

 

Enquiries

 

AEW UK

 

Alex Short

[email protected]

 

+44(0) 20 7016 4848

Laura Elkin

[email protected]

+44(0) 20 7016 4869

Nicki Gladstone

[email protected]

 

+44(0) 7711 401 021

Company Secretary

 

Link Company Matters Limited

[email protected]

 

+44(0) 1392 477 500

 

 

TB Cardew

[email protected]

Ed Orlebar

+44 (0) 7738 724 630

Lucas Bramwell

+44 (0) 7939 694 437

 

 

Liberum Capital

 

Gillian Martin/Owen Matthews

+44 (0) 20 3100 2000

 

 

 

 

 

 

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 £15 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 £100.5m. Since IPO it has raised a further £58m.

 

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 

 

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 €69.5bn of assets under management as at 31 December 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 €33bn 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



ISIN: GB00BWD24154
Category Code: MSCL
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.: 59032
EQS News ID: 1024535

 
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