Aew Uk Reit Regulatory News (AEWU)

27 April 2018

NAV Update and Dividend Declaration for the three months to 31 March 2018

AEW UK REIT plc (LSE: AEWU) ("the Company"), which, as at 27 April 2018, directly owns a diversified portfolio of 36 regional UK commercial property assets, announces its unaudited Net Asset Value ("NAV") and interim dividend for the three month period ended 31 March 2018.

Highlights

· At 31 March 2018, the fair value independent valuation of the property portfolio was £192.34 million (31 December 2017: £151.59 million), following five acquisitions during the period totalling £40.02 million. On a like-for-like basis the valuation of the property portfolio increased by £0.74 million (0.48%) over the quarter (two months to 31 December 2017: £0.70 million and 0.47%).

· NAV of £146.03 million or 96.36 pence per share (31 December 2017: £147.34 million or 97.21 pence per share). This decrease is largely due to purchase costs totalling £2.35 million relating to the acquisition of five properties during the quarter. Excluding purchase costs, the NAV would have increased by £1.04 million to £148.38 million or 97.91 pence per share.

· EPRA earnings per share ("EPRA EPS") for the quarter of 1.76 pence per share (two months to 31 December 2017: 1.09 pence per share).

· The Company today announces an interim dividend of 2.00 pence per share for the three months ended 31 March 2018.

· NAV total return of 0.50% for the three months ended 31 March 2018.

· The Company remains conservatively geared with a gross loan to value ratio of 26.00% (31 December 2017: 21.44%). During the quarter, the Company increased its loan facility with the Royal Bank of Scotland International Limited ('RBSi') from £40.00 million to £60.00 million and made drawdowns totalling £17.50 million, increasing the total debt drawn to £50.00 million as at 31 March 2018.

· At 31 March 2018, the Company held £3.57 million cash for investment and on 5 April 2018 completed the sale of the Floors 1-9, Pearl House, Nottingham, for gross proceeds of £3.65 million.

· Portfolio and asset management activity during the period included:

o The acquisition of Knowles Lane, Bradford, for £2.10 million on 24 January 2018. The property comprises an industrial warehouse and two storey ancillary offices and provides a net initial yield of 7.1%.

o The acquisition of Diamond Business Park, Wakefield, for £4.18 million on 5 February 2018. The multi-let asset comprises an industrial and office element and provides a net initial yield of 8.5% and a weighted average unexpired lease term (WAULT) of 5.0 years to expiry.

o The acquisition of 2 Geddington Road, Corby, for £12.40 million on 19 February 2018. The asset provides a net initial yield of 10.0% and a WAULT of 3.5 years to expiry and the site is used by the tenant for the storage and inspection of vehicles.

o The acquisition of Units 6, 6a and 7 London East Leisure Park, Dagenham, for £11.37 million on 23 March 2018. The leisure asset currently houses Mecca Bingo, McDonalds and Hollywood Bowl and provides a net initial yield of 5.8%, rising to 8% in September, and a WAULT of 12.8 years to expiry.

o The acquisition at Gresford Industrial Park, Wrexham, for £9.98 million on 23 March 2018. This industrial asset is leased to Plastipak UK Limited and provides a net initial yield of 8.3% and a WAULT of 14.0 years to expiry.

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

"We are pleased to have seen a busy quarter for acquisitions with five new properties added to the portfolio with a value of just over £40 million. These new acquisitions provide a net initial yield of 8.1%, rising to 8.7% in September, and a reversionary yield of 8.3% which are supportive of our target annual dividend of 8 pence per share. The new acquisitions also provide a WAULT to break of 8.8 years that will have a positive impact on the average length of income received across the portfolio which was 4.5 years at the end of December. We are also encouraged by the strength of our current pipeline, and the continued wealth of buying opportunities that the Company has been taking advantage of since IPO.

The acquisitions completed during the quarter have also allowed us to increase the Company's debt levels back towards the long term loan to value target of 25% which should also assist performance. During the period a total of £17.50 million was drawn following the extension of the Company's existing debt facility however, with the exception of specific acquisitions ahead of an equity fundraising or asset disposal, we will continue to target an amount equivalent to 25% of the Gross Asset Value.

We also exchanged contracts on the sale of offices in Nottingham, a strategic disposal for the portfolio that we outlined in our business plan since their acquisition. The disposal removes c. 1.9% of the portfolio's overall vacancy as well as the ongoing need for capital expenditure associated with letting the offices. Completion of the sale occurred post period end and the Company now retains the fully let retail accommodation in a busy city centre location at an attractive yield.

We continue to see selected new strong investment opportunities across all sectors and use our expert stock selection skills to identify and analyse these. There remains a heavy weighting towards the industrial sector within our pipeline and given the continued positive valuation performance of c. 2% across the Company's industrial portfolio this quarter and the current low average passing rent of £3.44 per sq ft, we consider that this segment in particular looks well placed to benefit from further growth."

Net Asset Value

The Company's unaudited NAV as at 31 March 2018 was £146.03 million, or 96.36 pence per share. This reflects a decrease of 0.89% per share compared with the NAV as at 31 December 2017. This decrease is largely due to purchase costs totalling £2.35 million relating to the acquisition of five properties during the quarter. The Company's NAV total return, which includes the interim dividend for the period from 1 November 2017 to 31 December 2017 (of 1.33 pence per share), is 0.50% for the three month period ended 31 March 2018. As at 31 March 2018, the Company owned investment properties with a fair value of £192.34 million.

The NAV attributable to the ordinary shares has been calculated under International Financial Reporting Standards and incorporates the independent portfolio valuation as at 31 March 2018 and income for the period, but does not include a provision for the interim dividend for the three month period to 31 March 2018.

Dividend

The Company today announces an interim dividend of 2.00 pence per share for the period from 1 January 2018 to 31 March 2018. The dividend payment will be made on 31 May 2018 to shareholders on the register as at 11 May 2018. The ex-dividend date will be 10 May 2018.

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 2018 was 1.76 pence (two months ended 31 December 2017: 1.09 pence). The Company has seen an increase in EPRA EPS during the quarter, as it invested the remainder of its capital proceeds, as well as a further £17.50 million of debt into direct, income producing property assets. The Directors expect that, all else being equal, a full quarter's income from the newly acquired assets will allow the Company's EPRA EPS to meet the 2.00 pence per share target quarterly dividend. Further to this, on 5 April 2018, the Company disposed of Floors 1-9, Pearl Assurance House, Nottingham, of which c. 54% was vacant by ERV. Re-investment of the £3.65 million proceeds into high yielding assets will provide a further increase in potential earnings.

The Directors will declare dividends taking into account the level of the Company's net income and the Directors' view on the outlook for sustainable recurring earnings. As such, the level of dividends paid may increase or decrease from the current annual dividend of 8.00 pence per share, as declared pro-rata for the 11 months to 31 March 2018. Based on the current market conditions, the Company expects to pay an annualised dividend of 8.00 pence per share in respect of the financial period ending 31 March 2019.

Investors should note that this target is for illustrative purposes only, based on current market conditions and is not intended to be, and should not be taken as, a profit forecast or estimate. Actual returns cannot be predicted and may differ materially from this illustrative figure. There can be no assurance that the target will be met or that any dividend or total return will be achieved.

Financing

Equity

The Company's issued share capital consists of 151,558,251 Ordinary Shares.

Debt

On 12 February 2018, the Company utilised the remaining £7.50 million of its £40.00 million credit facility with RBSi. On 8 March 2018, the available facility was increased from £40.00 million to £60.00 million, which will allow the Company to increase its gearing ahead of any future capital raise, in accordance with the guidelines of the Prospectus, and reduce the impact of cash drag. The Company utilised £10.00 million of the increased facility on 15 March 2018, taking the total amount drawn to £50.00 million. As at 31 March 2018, the Company was geared at a gross loan to value of 26.00% and a net loan to value of 23.55%.

The loan continues to attract interest at LIBOR + 1.4%. To mitigate the interest rate risk that arises as a result of entering into a variable rate linked loan, on 26 February 2018 the Company entered into interest rate caps on a notional value of a further £10.00 million, becoming effective from 20 April 2018 and with a cap rate of 2.0%. As at 31 March 2018, the Company had entered into interest rate caps on £36.51 million of the total value of the loan, with £26.51 million at a 2.5% cap rate and £10.00 million at a 2.0% cap rate, resulting in the loan being 73% hedged. The Investment Manager and the Company will keep the levels of gearing and hedging under review.

Portfolio activity and asset management

Knowles Lane, Bradford

In January, the Company completed the purchase of Knowles Lane, Bradford, for £2.10 million. The asset is fully let to one tenant, Pilkington UK Ltd, who have been in occupation for c. 30 years. The property comprises an industrial warehouse and two storey ancillary offices and was acquired for a price reflecting a low capital value of £45 per sq ft and a net initial yield of 7.1%. The property is located two miles south of Bradford and eight miles to the west of Leeds and is well located for the national motorway network.

Diamond Business Park, Wakefield

During February, the Company acquired Diamond Business Park in Wakefield comprising 201,543 sq ft of multi-let industrial and office accommodation. The property is let to 12 tenants and provides a WAULT of 2.6 years to break and 5.0 years to expiry. The transaction of £4.18 million reflects a net initial yield of 8.5% and low capital value of £22 per sq ft and £430,000 per acre.

The large site of ten acres benefits from being situated in Wakefield, an established industrial location. The business park is strategically located at the intersection of the M1/M62 motorways, providing access to Manchester, Liverpool, Sheffield and beyond to London. The adjoining sites comprise recently developed residential accommodation highlighting potential to add value through change of use in the future.

2 Geddington Road, Corby

Also in February the Company acquired 2 Geddington Road, Corby, an asset of 35 acres fully let to GEFCO UK Ltd, a wholly owned subsidiary of GEFCO SA, a global provider of logistics services to manufacturers, with 3.5 years to expiry. The property comprises a secure fenced site along with a modern industrial property extending to 52,000 sq ft and is used by the tenant for the storage and inspection of vehicles. The transaction of £12.40 million reflects an attractive net initial yield of 10.0%.

A mix of commercial and residential development surrounds the site, including the Eurohub logistics park and a 250-acre development site being brought to the market by Frogmore and Mulberry Developments where Eddie Stobart have recently signed up for a new 844,000 sq ft facility.

Gresford Industrial Estate, Wrexham

During March the Company acquired a single let industrial unit on the Gresford Industrial Estate, Wrexham for a price of £9.98 million reflecting a low capital value of £35 per sq ft. The property provides 279,541 sq ft leased to Plastipak UK Limited for a further 14 years and comprises three units within a self-contained site. The asset benefits from its location in Gresford Industrial Estate, approximately two miles north of Wrexham town centre, with key motorway links across the North West via the A483. A key feature of the building is its large power supply at 18 megawatts which is rarely seen in buildings of this nature and could therefore be attractive to future tenants. The asset provides a net initial yield today of 8.3% with a fixed rental uplift due in 2022 taking the yield in excess of 9%.

East London Leisure Park, Dagenham

During March the Company acquired c. 72,000 sq ft of leisure accommodation forming the eastern section of the London East Leisure Park, a purpose built leisure destination, for £11.37 million. The property currently houses Mecca Bingo, McDonalds and Hollywood Bowl and provides a net initial yield of 5.8%, rising to 8% in September 2018 upon expiry of a rent free period, with a WAULT of 12.8 years.

A major attraction of the park is its location, 11 miles east of Central London and being highly accessible both via public transport but also with close links to the A13 and M25. Dagenham is an area due to go through major regeneration over the next ten years with the Council recently setting out plans for the development of thousands of new homes as well as the first film studio to be built in London for 25 years. The surrounding area comprises a mix of retail, industrial and residential property.

Pearl Assurance House, Nottingham

Post period end the Company has completed the part sale of Pearl Assurance House, which was purchased by the Company in 2016 for £8.15 million. The sale of £3.65 million comprises the first to the ninth floors of the building as well as a ground floor reception and car parking spaces, providing a total area of 41,262 sq ft. The transaction reflected a net initial yield of 6.9% and reduces the overall vacancy level in the portfolio by 1.9%.

The Company will retain the fully let ground floor accommodation in this busy city centre location, totalling 28,432 sq ft, let to national retail operators including Costa Coffee, Poundland and Lakeland. The retained element will provide the Company with an ongoing yield of 9.5% based on its component value of £5.26 million.

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.

Since its IPO in May 2015, the Company has invested over £190 million in 36 assets. It 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. Whilst occupational demand in strategic locations remains, securing tenants on shorter leases allows AEWU to crystallise value through rent reviews and lease re‐gears.

AEWU is currently paying a dividend of 8.00 pence per share p.a..

AEW UK Investment Management LLP employs a well-resourced team comprising 25 individuals covering investment, asset management, operations and strategy. It is part of AEW Group, one of the world's largest real estate managers, with €58.6 billion of assets under management as at 31 December 2017. 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 2017, AEW Group managed €28.4 billion in value in properties of all types located in 15 countries, with over 390 staff. The Investment Manager is a 50:50 joint venture between the principals of the Investment Manager and AEW.