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, has announced its quarterly unaudited Net Asset Value (“NAV”) and interim dividend for the three month period ended 31 July 2017.
- 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 £150.38 million (30 April 2017: £137.82 million), primarily as a result of three new acquisitions totalling £10.62 million. On a like-for-like basis the valuation of the property portfolio increased by £1.94 million (1.41%) (30 April 2017: £1.10 million and 0.85%) over the quarter.
- NAV of £119.76 million or 96.86 pence per share (30 April 2017: £118.68 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:
- Acquisition of an industrial asset in Runcorn for £0.61 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 £55 per sq ft.
- Acquisition of a 97,000 sq ft single-let industrial building located on the established Deeside Industrial Park, North Wales, for £4.30 million, reflecting a Net Initial Yield of 7.9% and a capital value of £45 per sq ft. The low passing rent is significantly below that seen at other competing centres within the North West.
- Acquisition of a 182,000 sq ft single-let industrial building in Peterborough, for £5.70 million, reflecting a Net Initial Yield of 8.64% and a capital value of £31 per sq ft.
- Disposal of the Company’s remaining units in the Core Fund for total proceeds of £7.62 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.
- 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.”
[i] Net loan to value is gross loan to value after consideration of cash balances as at 31 July 2017.