Alternative Inc Regulatory News (AIRE)

AEW UK Long Lease REIT plc ("AEWL" or "the Group")

LEI: 213800MPBIJS12Q88F71

31 October 2018

NAV Update and Dividend Declaration for the quarter ended 30 September 2018

AEW UK Long Lease REIT plc (LSE: AEWL) (the "Group"), which directly owns a diversified portfolio of 17 regional UK commercial property assets, announces its unaudited Net Asset Value ('NAV') and interim dividend for the quarter ended 30 September 2018.

Alex Short, Portfolio Manager, AEW UK Long Lease REIT, commented: "Across the portfolio, we have now seen two consecutive quarters of valuation growth, reflecting the strength of the individual assets that have been acquired and the favourable levels of pricing that we have been able to acquire them at. We currently see interesting purchasing opportunities in the market and are tracking a healthy pipeline across alternative and industrial property sectors." 

Highlights

· EPRA earnings per share ("EPRA EPS") for the quarter of 1.27 pence per share (quarter to 30 June 2018: 1.25 pence per share).

· The Group today declares an interim dividend of 1.375 pence per share for the quarter ended 30 September 2018 bringing the total since IPO to 4.625) pence per share. This dividend is to be paid on 30 November 2018 to shareholders on the register on 9 November 2018. The Company targets an annual dividend of 5.5 pence per Share, with an ambition to grow in future years by the rate of inflation.

· At 30 September 2018, the fair value independent valuation of the property portfolio was £103.98 million (30 June 2018: £99.09 million), following one acquisition during the quarter which cost £3.94 million (see below). On a like-for-like basis, the valuation of the property portfolio increased by £0.95 million (0.96%) over the quarter (quarter to 30 June 2018: £3.43 million or 3.67%)

· Unaudited NAV increased to £76.94 million or 95.58 pence per share (30 June 2018: £76.42 million or 94.94 pence per share), an increase of 0.68%

· The IPO proceeds have now been fully invested, along with the £30 million of debt utilised. The Company has increased the available debt facility in order to make further acquisitions.

· Portfolio activity during the period included the acquisition of Eurolink Industrial Estate, Sittingbourne for £3.94 million on 13 September 2018. This property comprises two warehouse buildings totalling 43,636 sq ft let to Dore Metals Services Southern Ltd, which has had its headquarters on the site since 2007. The lease provides a new 15 year term expiring in September 2033 and has 5 yearly RPI linked rent reviews. The transaction reflects a net initial yield of 6.3%.

Alex Short, Portfolio Manager, AEW UK Long Lease REIT, commented

Across the portfolio, we have now seen two consecutive quarters of valuation growth which reflects the strength of the individual assets that have been acquired by the Company and the favourable levels of pricing that we have been able to acquire them at. Rents received from the portfolio have grown by 1% on a like for like basis over the quarter which is line with income growth expectations that were set out to investors at the time of IPO. This growth also shows the assets in the portfolio performing in line with the Company's strategy, key to which is the stable income stream, growing in line with inflation.

With the acquisition of the Sittingbourne industrial during September, the Company's portfolio is now fully invested and geared with exposure also gained to this strong south east sub-market. Across the assets that we manage we have been seeing, and continue to see, very strong performance from industrial assets both in terms of capital and rental growth, and as such have chosen to include this exposure up to the permitted level alongside the portfolios focus on alternative real estate sectors. Our outlook is positive in relation to the Company's ability to more fully cover its dividend in future quarters given the level of earnings that will be received from this new acquisition. 

We currently see interesting purchasing opportunities in the market and are tracking a healthy pipeline of attractively priced assets across alternative and industrial property sectors. As such, we have agreed terms with our existing debt provider Canada Life to extend the current facility to provide additional funds for investment. We expect that these funds will be invested quickly in opportunities that will provide accretive performance to the existing portfolio.

Net Asset Value

The Group's unaudited NAV as at 30 September 2018 was £76.94 million, or 95.58 pence per share. This reflects an increase of 0.68% per share compared with the NAV as at 30 June 2018. This increase is largely due to the valuation uplift during the quarter. As at 30 September 2018, the Group owned 17 investment properties with a fair value of £103.98 million.

The NAV attributable to the ordinary shares has been calculated under International Financial Reporting Standards as adopted by the European Union and incorporates the Group's individually valued property portfolio as at 30 September 2018 and income for the quarter, but does not include a provision for the interim dividend for the quarter ended 30 September 2018.

The income earned for the period includes an accrual for the minimum contractual uplifts defined within the index linked lease agreements. In the event that inflation is greater than these minimum contractual uplifts, the income realised will be greater than that currently accrued. 

Dividend

The Board has today declared an interim dividend of 1.375 pence per share for the period from 1 July 2018 to 30 September 2018. The dividend payment will be made on 30 November 2018 to shareholders on the register as at 9 November 2018. The ex-dividend date will be 8 November 2018.

The dividend of 1.375 pence per share will all be designated as a property income distribution ("PID").

The EPRA EPS for the quarter ended 30 September 2018 was 1.27 pence (quarter ended 30 June 2018: 1.25 pence).

Based on target dividends as set out within the Group's Prospectus, the Board is targeting an aggregate dividend of 5.50 pence per share per annum.

Investors should note that any dividend targets are 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.

Debt

As at 30 September 2018, the Group had utilised all of its £30 million fixed interest loan facility with Canada Life Investments and at that date was geared at a loan to Gross Asset Value ('GAV') of 28.1 %. The facility has a fixed interest cost of 3.05% per annum and is repayable on the 20 October 2025.

The Board has agreed terms to increase the Group's loan facility with Canada Life Investments by £11 million to £41 million. The additional £11 million will bear interest at a margin of 2.65%, and on a weighted basis with the 1.9% margin paid on the existing £30 million loan, the whole loan bears interest at a margin of 2.1%. 

Portfolio Activity

Eurolink Industrial Estate, Sittingbourne

In September, the Group announced the acquisition of two industrial buildings on the Eurolink Industrial Estate, Sittingbourne, for £3.94 million. This property comprises two warehouse buildings totalling 43,636 sq ft let to Dore Metals Services Southern Ltd, which has had its headquarters on the site since 2007. The lease provides a new 15 year term expiring in September 2033 and has 5 yearly RPI linked rent reviews. The transaction reflects a net initial yield of 6.3%.

The site is located on the established Eurolink Industrial Estate in central Sittingbourne, with excellent access to the M2 and M20 and one mile from Sittingbourne station. Other occupiers in the vicinity include Everest and B+M Steel. The surrounding area comprises a mix of residential, industrial and commercial uses.

Following this transaction, the Equity raised at IPO has been fully invested and the Group has utilised the entirety of its £30m debt facility. 

Inflation linked rent reviews

91% of the portfolio's income stream is reviewed periodically, on an upward only basis, in line with inflation. Of this inflation linked income, 75% is grown in line with the Retail Price Index and 25% in line with the Consumer Price Index. The Board consider this to be a strong position for the Group as the Retail Price Index has shown, on average, a 1% per annum premium over the Consumer Price Index over the past 12 months. 

Sector weightings

The sector weighting, by value, of the property portfolio as at 30 September 2018 was: Hotels 23.2%; Industrial 23.0%; Car showrooms 14.0%; Student accommodation 11.3%; Residential care homes 10.6%; Leisure 9.3%; Power station 4.7%; and Petrol station 3.9%.

Future publications

The Group's September 2018 Quarterly Investment Report will be available on the Group's website on 1 November 2018. 

About AEW UK Long Lease REIT

AEW UK Long Lease REIT plc (LSE: AEWL) aims to generate secure and predictable income return in sustainable real terms, whilst at least maintaining capital values in real terms. AEWL invests in a diversified portfolio of UK properties, with an attractive entry yield, predominately in alternative and specialist sectors. It invests in a diverse range of sectors that are underrepresented in institutional portfolios including leisure, healthcare, education, hotels, student accommodation, supported living and automotive. At its IPO on June 6 2017, AEWL raised £80.5m from institutional and retail investors. At least 85% of the gross passing rent from the portfolio's leases contain inflation linked rent reviews, and average initial unexpired leases in excess of 18 years at the time of investment. AEWL's investment manager is AEW UK Investment Management LLP. Further information on the AEWL is available at: www.aewukllreit.com.About AEW UK Investment Management LLP

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 just over €62bn of assets under management as at 30 June 2018. 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 30 June 2018, AEW Group managed nearly €30bn in value in properties of all types located in 14 countries, with close to 400 staff. The Investment Manager is a 50:50 joint venture between the principals of the Investment Manager and AEW.

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