AEW UK REIT has sold its largest asset for £18.8m.
The car park asset at Geddington Road, Corby, was acquired in February 2018 for £12.4m and is fully let to Gefco UK for just over one year.
AEW UK said it had not invested any capital expenditure in the asset during its hold period, which has produced a net income yield of 10% against the purchase price and an IRR in excess of 30%.
The 35-acre asset was last valued in the price range of £10-15m in September 2019, so this sale is good news for AEW UK especially considering the current climate and the short term lease.
The site’s development potential was something that AEW UK’s portfolio manager Alex Short said the company has taken advantage of in the sale.
“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,” she said. “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 sale, AEW UK holds cash of £27m and reports an estimated loan to value ratio of 25.6%, including cash.
The company’s annual rental income will fall by £1.32m following the sale until further investments are made.
Rent Collection Update
The company has now collected 75% of rent, which is expected to increase to 87% once payments have been received from tenants making monthly payments and those on longer term payment plans that have not yet fallen due.
AEW UK said a few larger tenants with significant financial resources and the ability to pay were “refusing to do so or even to enter into dialogue”, and so it would be “pursuing these tenants when legally able to do so and charging the full default interest rate allowed within their lease agreements”.
Financial position
While the company passed its banking covenant tests with significant headroom in April, AEW UK 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 company said it 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 said it expects to maintain its usual interest payments on the loan.
AEW UK also said it had traded down it’s 2% interest rate cap, using the embedded value to buy an interest rate cap with nominal amount £51.5m, 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 £63,000 equating to 4 bps per year.
AEWU : AEW UK REIT sells car park and updates on covid-19