NAV Update and Dividend Declaration

26 January 2018

NAV Update and Dividend Declaration for the two months to 31 December 2017

AEW UK REIT plc (LSE: AEWU) ("the Company"), which, as at 26 January 2018, directly owns a diversified portfolio of 32 regional UK commercial property assets, announces its unaudited Net Asset Value ("NAV") and interim dividend for the two month period ended 31 December 2017.

Highlights

·      The Company is reporting on a two month reporting period from 1 November 2017 to 31 December 2017 in order to align quarter-end dates and dividend payments with the change in the Company's period end to 31 March 2018.

·      At 31 December 2017, fair value independent valuation of the property portfolio was £151.59 million (31 October 2017: £147.79 million), following one acquisition during the period for £3.10 million. On a like-for-like basis the valuation of the property portfolio increased by £0.70 million (0.47%) over the two month period (three month period ended 31 October 2017: £2.09 million and 1.50%).

·      From 31 December 2017, the whole of Sarus Court Industrial Estate is being treated as a single property. Prior to this, the 6 units had been split into 3 separate holdings, as they were purchased on different dates. This has had the effect of reducing the reported number of properties from 33 to 31 as at 31 December 2017, including one acquisition during the period.

·      NAV of £147.34 million or 97.21 pence per share (31 October 2017: £148.22 million or 97.80 pence per share).

·      EPRA earnings per share ("EPRA EPS") for the two month period of 1.09 pence per share (three months to 31 October 2017: 1.65 pence per share).

·      Interim dividend of 1.33 pence per share announced for the two months ended 31 December 2017.

·      NAV total return of 1.47% for the two months ended 31 December 2017.

·      The Company remains conservatively geared with a gross loan to value ratio of 21.44% (31 October 2017: 21.99%).

·      At 31 December 2017, the Company held £28.32 million cash for investment with a further £7.50 million of loan facility available for new investment. On 24 January 2018, the Company completed the purchase of Knowles Lane, Bradford, for £2.10 million. As at 26 January 2018, the Company has unconditionally exchanged to purchase Geddington Road, Corby, for £12.40 million, which is due to complete on 16 February 2018. The Company has a further two assets under offer for a combined purchase price of £15.78 million.

·      Portfolio and asset management activity during the period included:

o  Acquisition of Cedar House, a single let office building in Gloucester for £3.10 million.  The asset is fully let and provides a net initial yield of 9.1%.

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

"We have now made good progress on investing the £28 million that was raised in October 2017 with another new acquisition that was announced during December 2017, yielding just over 9%.  The asset, acquired for c. £3 million, comprises an office building in Gloucester which we expect will remain occupied by the Secretary of State for Communities & Local Government for the coming few years and provides good potential to add value in the medium term by way of conversion to residential use.  The remainder of the equity raise is now fully allocated to assets that are under offer and well progressed in due diligence and, as such, we expect to be making further acquisition announcements shortly, subject to prevailing market conditions.  During 2017 we saw a significant focus in the market on long leased properties and as a result, saw compelling buying opportunities for the Company's strategy which continues to find yield premium by investing in smaller lot size properties let on shorter than average leases in sustainable locations. 

Capital growth of the Company's assets has continued over the two month period with like-for-like valuation growth of 0.47% and, as was seen throughout 2017, this was focused mainly within the industrial sectors.  The Company is well placed to benefit from this, having an industrial weighting of over 40%.  This growth figure compares well to the like-for-like growth reported by the Company throughout the year although, due to the Company's change of year end, the reporting period is one month shorter."

Net Asset Value

The Company's unaudited NAV as at 31 December 2017 was £147.34 million, or 97.21 pence per share. This reflects a decrease of 0.60% per share compared with the NAV as at 31 October 2017. This is due to having paid a full quarter's dividend (relating to the three month period ended 31 October 2017) during the two month reporting period. The Company's NAV total return, which includes the interim dividend for the period from 1 August 2017 to 31 October 2017 (of 2.0 pence per share), is 1.47% for the two month period ended 31 December 2017. As at 31 December 2017, the Company owned investment properties with a fair value of £151.59 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 December 2017 and income for the period, but does not include a provision for the interim dividend for the two month period to 31 December 2017.

Dividend

The Company today announces an interim dividend of 1.33 pence per share for the period from 1 November 2017 to 31 December 2017. The dividend payment will be made on 28 February 2018 to shareholders on the register as at 9 February 2018. The ex-dividend date will be 8 February 2018.

In order to align dividend payments with the Company's new accounting period end, in respect of the two month period ended 31 December 2017, the Company announces a dividend at a rate of two-thirds of the 2 pence per share dividend currently being paid for a three month period. Including the dividend for the period to 31 December 2017, the Company will have paid 18.83 pence per share since launch.

The dividend of 1.33 pence per share will be designated 1.33 pence per share as an interim property income distribution ("PID").

The EPRA EPS for the two month period was 1.09 pence (three months ended 31 October 2017: 1.65 pence). Extrapolating EPRA EPS over a three month period would give 1.64 pence. This is roughly in line with EPRA EPS for the three months ended October 2017, as the proceeds of the capital raise in October are yet to be fully invested. As at 26 January 2018, the Company has invested a further £14.50 million in two assets and has two assets under offer for a combined purchase price of £15.78 million.   

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 pence per share, over the 12 months ended 30 April 2017.  Based on the current market conditions, the Company expects to pay an annualised dividend of 8 pence per share in respect of the financial period ending 31 March 2018 and for the interim period to 30 September 2018.

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

The Company's borrowings remained at £32.50 million throughout the period, representing a gross loan to value ratio of 21.44% as at 31 December 2017. The Company has an available facility of £40.0 million, which allows the Company to make further drawdowns on new investments. 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, the Company has entered into interest rate caps on £26.51 million of the total balance of the loan at a strike rate of 2.5%, resulting in the loan being 82% hedged. The Investment Manager and the Company will keep the level of gearing under review and, if appropriate, will look to increase the facility.

Portfolio activity and asset management

Cedar House, Gloucester

In December 2017 the Company announced the acquisition of Cedar House, Spa Road, Gloucester for £3.10 million.  The five-storey office block, which is located within the city centre adjacent to Gloucester Park, was acquired for a price reflecting a low capital value of only £80 per sq. ft. and an attractive net initial yield of 9.1%. The property is currently let to the Secretary of State for Communities & Local Government for use as a Job Centre, with a short unexpired lease term of 0.3 years. However, the tenant has already served a Section 26 notice to renew the lease and as such the Investment Manager believes that the income can be extended. 

The property is situated within a mixed office and residential area and as such the Investment Manager believes that it provides good long-term alternative use potential. Public transport is easily accessible, with good links to Gloucester Railway Station and a central bus route.  The asset provides a total floor area of 38,427 sq. ft. and includes substantial car parking facilities, with 103 spaces available.

Knowles Lane, Bradford

After the period-end, 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 7.2%. The property is located 2 miles south of Bradford and 8 miles to the west of Leeds and is well located for the national motorway network.

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 £10 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 £150 million in 32 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 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 €57.7 billion of assets under management as at 30 September 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 30 September 2017, AEW Group managed €26.6 billion in value in properties of all types located in 15 countries, with over 380 staff. The Investment Manager is a 50:50 joint venture between the principals of the Investment Manager and AEW.