AEW UK REIT has published its Annual Report and Financial Statements for the year ended 30 April 2017.
Highlights:
- Net Asset Value of £118.67m or 95.98p per share as at 30 April 2017 (2016: £116.38m and 99.03p).
- Operating profit before fair value changes and disposals of £9.81m for the year ended 30 April 2017 (2016: £6.31m).
- Unadjusted profit before tax (‘PBT’) of £6.10m and of 5.04p for the year ended 30 April 2017 (2016: £4.64m and of 4.83p).
- Total dividends of 8.0p have been declared for the year ended 30 April 2017 (2016: 5.5p).
- AEW UK REIT raised total gross proceeds of £6.00m for the year ended 30 April 2017 (2016: £117.68m).
- The price of AEW UK REIT’s ordinary Shares on the Main Market of the London Stock Exchange was 99.56p as at 30 April 2017 (30 April 2016: 100.00p).
- As at 30 April 2017, AEW UK REIT had a £40m (2016: £40m) term credit facility with The Royal Bank of Scotland International Limited (‘RBSi’) and was geared to 19.31% of the Gross Asset Value (2016: 10.51%). On 8 May 2017, AEW UK REIT reduced the facility from £40m to £32.5m.
- AEW UK REIT held cash balances totalling £3.65m as at 30 April 2017 (2016: £7.96m) of which £1.31m (2016: £4.94m) was held for the purpose of capital acquisitions.
- Net revenue (being total comprehensive income before fair value changes) of £9.05m and of 7.49p.
Portfolio:
- AEW UK REIT acquired five properties during the year ended 30 April 2017 (2016: 25 properties) and disposed of one property (2016: nil).
- As at 30 April 2017, AEW UK REIT’s property portfolio had a fair value of £137.82m (2016: £114.34m) as compared to the combined purchase price of the portfolio of £133.09m (2016: £110.64m) (excluding purchase costs), representing an increase of £4.73m (2016: £3.70m), or 3.55% (2016: 3.35%).
- The majority of assets that have been acquired are fully let and the portfolio has a vacancy rate of 7.22% (2016: 3.16%).
- Rental income generated in the year was £12.15m (2016: £6.15m). The number of tenants as at 30 April 2017 was 79 (2016: 56).
- Average portfolio net initial yield of 7.63% (2016: 8.38%).
- Weighted average unexpired lease term of 5.2 years (2016: 4.9 years) to break and 6.4 years (2016: 6.1 years) to expiry.
- A further two properties have been acquired for £4.92m (excluding purchase costs) since the year end generating a further £0.41m per annum in passing rent.
Mark Burton, the chairman, said: “In the aftermath of the EU referendum in June 2016, and in common with other REITs, the Company’s share price fell to a low of 90 pence per Ordinary Share. I am pleased to see that the share price has recovered steadily and in recent months has reached its pre-Brexit levels of 102 pence per Ordinary Share. Furthermore our share price relative to NAV has been trading at a premium since mid-February 2017 and as at 30 April 2017 was at a premium of 3.7%.
The valuation of the Company’s property portfolio fell by 1.8% in the period from May 2016 to July 2016, following the EU referendum result. This was in comparison to a fall of 3% in capital values of direct properties as measured by MSCI (IPD UK Monthly Property Index), a global independent provider of market indices, over the same period. I was encouraged by the resilience of the portfolio to the initial market uncertainty; our exposure to market risk was no doubt mitigated through having a diversified portfolio. On a like-for-like basis, the Company’s property portfolio valuation increased slightly by 0.2% during the financial year.
During the financial year, the Company made a decision to sell down its investment in the AEW UK Core Property Fund (the ‘Core Fund’) with the aim of reinvesting the proceeds into direct property holdings. This investment in the Core Fund was accretive to the Company’s performance during the initial ramp up phase but has proved less relevant to the Company’s strategy as the portfolio has matured. The Company sold 20.8% of its shares in the Core Fund on 1 February 2017 at a premium of 2% to NAV and the remaining shares were sold on 9 May 2017 at a 1.5% premium to NAV. This investment has yielded a total return of 13% during the hold period.
The Company raised a further GBP6.0 million during its financial year through the issuance of new Ordinary Shares. These proceeds, together with amounts raised from the sale of investment properties (GBP2.8 million), proceeds raised from the Core Fund investment (totalling GBP9.6 million) and loan drawdowns under the debt facility (totalling GBP14.8 million), have been used to invest in new properties. During the financial year, the Company acquired a further five properties for a total of GBP24.7 million (excluding acquisition costs), and a further two properties have been acquired since the year end for a total of GBP4.9 million.
As at 30 April 2017, the Company had established a diversified portfolio of 29 commercial investment properties throughout the UK with a weighted average total equivalent yield of 8.5%.
The Board and the Investment Manager are confident of continuing to deliver strong returns for our shareholders through the diversified and high yielding property portfolio that has been established. We believe that the Company’s property portfolio is well positioned and there are a number of active asset management initiatives ongoing that should grow the income stream and provide opportunities for further capital value enhancement.
In the period since the Statement of Financial Position at 30 April 2017, the Company has acquired a further two properties totalling GBP4.9 million (excluding acquisition costs) and generating a further GBP0.4 million per annum in rent.
It is still unknown how the impact of Brexit will unfold and it is likely we will need to wait for some time to know the terms of the UK’s exit from the EU and how this will impact on the UK commercial property market. In this period of uncertainty there is a higher chance that the Bank of England will keep interest rates at historical lows and this will maintain the fundamentals of property demand as investors search for yield.
Our current focus is to continue to grow the Company and subject to market conditions, look to raise additional capital. This will enable the Company to take advantage of economies of scale in its cost base and to allow the Manager to capitalise on the interesting market opportunities it sees.
The Investment Manager remains focused on searching for properties in locations that exhibit low levels of supply, with a particular focus on properties underwritten by vacant possession values and therefore less exposed to capital erosion”
AEWU : AEW UK REIT says Brexit impact still unknown