23 July 2020

AEW UK REIT Plc (the "Company")

NAV Update and Dividend Declaration

AEW UK REIT plc (LSE: AEWU) (the "Company"), which, as at 23 July 2020, directly owns a diversified portfolio of 34 regional UK commercial property assets, announces its unaudited Net Asset Value ("NAV") and interim dividend for the three month period ended 30 June 2020.

Highlights

• The Company today announces an interim dividend of 2.00 pence per share for the three months ended 30 June 2020, in line with the targeted annual dividend of 8.00 pence per share. 
• EPRA earnings per share ("EPRA EPS") for the quarter of 1.81 pence (31 March 2020: 2.12 pence).
• NAV of £148.24 million or 93.37 pence per share as at 30 June 2020 (31 March 2020: £147.86 million or 93.13 pence per share).
• NAV total return of 2.40% for the quarter (31 March 2020: -2.17%).
• During the quarter, the Company disposed of 2 Geddington Road, Corby, for gross proceeds of £18.80 million, 25% ahead of prior valuation. The property was purchased for £12.40 million in February 2018.
• EPRA occupancy 95.70% (31 March 2020: 96.32%). During the quarter, the Company completed a lease renewal with the Secretary of State for Housing, Communities and Local Government at Sandford House, Solihull for term of 15 years at a rent of £662,785 per annum. The property's valuation increased by 37% over the quarter.
• For the rental quarter commencing on 24 June, 84% of rent has been collected or is expected to be received under monthly payment plans prior to quarter end. A further 6% of income is expected to be received under agreed, longer term payment plans with an additional 4% still under negotiation. 
• The Company remains conservatively geared with a gross loan to value ratio of 30.03% (31 March 2020: 27.21%). The Company had a cash balance of £28.09 million and net loan to value ratio of 13.65% as at 30 June 2020. Post quarter-end, the Company repaid £12.00 million of the facility, reducing the gross loan to value to 23.03%.

Alex Short and Laura Elkin, Portfolio Managers, AEW UK REIT, commented:

"We are very pleased to be able to announce today an increase in NAV for the quarter providing a NAV total return of 2.4%. We are also confirming an interim dividend of 2 pence per share for the quarter, in line with the annual dividend target of 8 pence per share.  This success is a result of two main factors, firstly, the unceasing hard work carried out by our asset management team whose proactive approach is such a key piece of the AEWU strategy.  Asset Management gains have resulted in two significantly NAV accretive wins for the Company during the period at our asset in Solihull and our former asset in Corby.  Both of these transactions are examples of the Investment Manager's major business plans reaching fruition and it has been very encouraging to see our assets demonstrating such resilience in the current market.  The second factor here is the defensive nature of the portfolio assets which has always been a focus for us when selecting stock for AEWU.  This, combined with the portfolio's majority weighting in the industrial sector, we believe will continue to provide a robust base for investors' capital.

Another major Management focus in recent weeks has been to take steps to ensure that the Company has the ability to retain its conservative outlook towards its borrowings across a range of market conditions, including the current.  We have therefore taken a number of steps during the period including amending the facility to allow unrestricted rights of repayment and draw down which will allow AEWU to bring its borrowing below its long term target of 25% in the short term whilst not prejudicing its ability to access borrowing over the long term.  Another action taken has been to obtain a waiver of interest cover covenant tests until 2021 with the lender pledging further support past this date if needed.  These changes were enacted despite banking covenants having been passed with significant headroom at their most recent test date in April and without increase in cost of debt.  We would like to thank our lender RBS International for their support to the Company.

A highlight of the Company's announcement today is confirmation of the  Company's dividend of 2p per share for the quarter to 30 June 2020.  We are very pleased to be able to announce this as it shows the continuation of the Company's track record, now in excess of 4 years, in paying dividends at this level.  Our outstanding performance in achieving the sale of Corby during May at a level 25% ahead of valuation, has created a significant profit in cash reserves that we can call on at this time.  Going forward, we would hope to see normalisation in our rent collection that will continue to support the dividend at this level over the long term.

The aforementioned sale of Corby leaves the Company holding a significant cash balance which we believe is advantageous in current market conditions as it increases Management optionality.  We have held regular discussions with Directors over recent weeks to assess potential uses of this capital.  We also believe that the investment market will continue to yield attractive purchasing opportunities over coming weeks and months and we are currently analysing a number of opportunities within our pipeline."

The like-for-like valuation decrease for the quarter of £2.81 million (1.61%) by sector is broken down as follows:

Net Asset Value

47.8% of the Company's portfolio valuation as at 30 June 2020, which includes all of its assets that do not sit within the industrial sector, 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. The industrial sector was removed from this clause a short time prior to the valuation date. 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 30 June 2020 was £148.24 million, or 93.37 pence per share. This reflects an increase of 0.26% compared with the NAV per share as at 31 March 2020. The Company's NAV total return, which includes the interim dividend for the period from 1 January 2020 to 31 March 2020 of 2.00 pence per share, was 2.40% for the three-month period ended 30 June 2020. As at 30 June 2020, the Company owned investment properties with a fair value of £171.49 million.

The NAV attributable to the ordinary shares has been calculated under International Financial Reporting Standards. It incorporates the independent portfolio valuation as at 30 June 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 30 June 2020.

Dividend

Dividend declaration

The Company today announces an interim dividend of 2.00 pence per share for the period from 1 April 2020 to 30 June 2020. The dividend payment will be made on 28 August 2020 to shareholders on the register as at 31 July 2020.  The ex-dividend date will be 30 July 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 30 June 2020 was 1.81 pence (31 March 2020: 2.12 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.

Financing

Equity and share buy-back

The Company's share capital consists of 158,774,746 Ordinary Shares and there was no movement during the quarter.

The Board announces that it has approved a share buy-back programme utilising cash available for this purpose. Liberum Capital Limited has been appointed in connection with the buy-back programme and can use its discretion to buy-back shares within set parameters.

Shareholders should be aware that a purchase of shares by the Company on any trading day may represent a significant proportion of the daily trading volume in the shares and could exceed 25 per cent of the average daily trading volume of the preceding 20 business days.

Debt

The Company had borrowings of £51.50 million as at 30 June 2020, producing a gross loan to value of 30.03% and a net loan to value of 13.65%.

During the quarter, the Company amended its loan facility to allow the flexibility to make repayments and re-draw these amounts, akin to a revolving credit facility, without incurring additional fees or increasing the loan margin. On 20 July 2020, the Company repaid £12.00 million of the facility, reducing the gross loan to value to 23.03%.

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, during the quarter, 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 and, during the period of the waiver, the Company intends to maintain its usual interest payments on the loan.

The loan continues to attract interest at LIBOR + 1.4% and as a result is currently benefitting from the reduction in LIBOR rates. The Company's all in interest rate as at 30 June 2020 was 2.05%.

To mitigate the risk of interest rates rising, the Company has interest rate caps effective for the remaining term of the loan. During the quarter, the Company, replaced it existing interest rate caps covering the period from October 2020 to October 2023, which capped the interest rate at 2.0% on a notional value of £49.51 million, with new caps covering the same period capping the interest rate at 1.0% on a notional value of £51.50 million. The Company paid a premium of £62,968.

Rent Collection

The Investment Manager maintains close contact with all tenants, which has been particularly relevant over recent months where rent collection across the real estate sector has proved more challenging than usual. As at the date of this announcement, the Company had collected the following rental payments for the rental quarter commencing 24 June 2020,  expressed as a percentage of the quarter's total rental income:

In respect of the quarter commencing on the 25 March 2020, the Company reports that 86% of rents have now been collected with a further 8% of payments expected to be received over coming periods by way of agreed payment plans which, once received, will total 94%.

It should be noted that this is an evolving picture with further payments being received each day.

Asset Management Update

During the quarter the Company completed the following asset management transactions:

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 £96,750 to £90,000 but the lease now provides five yearly fixed increases reflecting 1% per annum.

2 Geddington Road, Corby - On 22 May 2020, the Company disposed of its largest asset at 2 Geddington Road, Corby, for gross proceeds of £18.80 million, 25% ahead of valuation level immediately prior and 52% ahead of its acquisition price in 2018.  The asset had been delivering an income stream to the Company of 10% per annum.

Sandford House, Solihull - During June 2020, the Company completed a 15 year renewal lease with its existing tenant, the Secretary of State for Housing, Communities and Local Government. The agreement documents the increase of rental income from the property by 30% as well as providing for five yearly open market rent reviews and a tenant break option at year 10. The tenant intends to carry out a full refurbishment of the property over coming weeks requiring no capital payment by the Company either by way of refurbishment cost or capital incentive to the tenant. In addition, no rent free incentive has been granted to the tenant. Throughout its hold period the Company has so far received a net income yield from the asset in excess of 9% per annum against its purchase price of £5.4 million.

Bessemer Road, Basingstoke - Post period end, the Company has completed a 5 year lease renewal at its 58,000 sq ft industrial premises in Basingstoke.  The lease has been granted with no rent free incentive given to the tenant and secures a rental income to the Company 6% ahead of independent valuer's estimated levels.  The tenant has the benefit of a break option in year 3.

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 €71.2bn of assets under management as at 31 March 2020. 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 March 2020, AEW Group managed €33.5bn of real estate assets on behalf of a number of funds and separate accounts with over 420 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

LEI: 21380073LDXHV2LP5K50