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Annual Financial Report

27th Jun 2025 07:00

RNS Number : 6517O
AEW UK REIT PLC
27 June 2025
 

27 June 2025

 

AEW UK REIT plc

 

Announcement of Full Year Results for the year ended 31 March 2025

 

Robin Archibald, Chairman of AEW UK REIT plc, commented:

"We are very pleased with the strong performance across the portfolio, which evidences the effectiveness of the Company's active and sector-agnostic strategy and its ability to enhance shareholder value through active management. As the Company passes its 10-year milestone, AEW's industry-leading returns have enabled the Manager to pay a covered dividend of 8 pence per share this year, which it has now been paid for the ninth consecutive full year since inception.

AEW is enthusiastic about the current opportunities in the UK market and believes that now is an excellent time to deploy capital. Given this, the Board and the Manager will look to exploit these to appropriately scale the strategy, including the issuance of equity, should this be in the existing shareholders' interests."

 

Financial Highlights

· Net Asset Value ('NAV') of £174.44 million and 110.11 pence per share ('pps') as at 31 March 2025 (31 March 2024: £162.75 million and 102.73 pps) up 7.18%.

· NAV Total Return for the period of 15.29% (31 March 2024: 4.98%).

· Operating profit before fair value changes of £15.586 million for the year (31 March 2024: £13.363 million) up 16.64%.

· Shareholder total return* for the year of 28.68% (31 March 2024: 1.85%).

· Profit before tax ('PBT')* of £24.37 million (31 March 2024: £9.09 million) up 168.10%.

· Earnings per share ('EPS') of 15.37 pps for the year (2024: 5.71 pps) up 169.18%

· EPRA Earnings Per Share ('EPRA EPS')* for the year of 9.0 pps (year ended 31 March 2024: 7.29 pps), resulting in a dividend cover of 112.50x.

· Total dividends of 8.00 pps declared for the year (year ended 31 March 2024: 8.00 pps), consistently paid since Q1 2016 (38 consecutive quarters).

· The price of the Company's Ordinary Shares on the Main Market of the London Stock Exchange was 101.4 pps as at 31 March 2025 (31 March 2024: 85.80 pps).

· As at 31 March 2025, the Company had drawn £60.00 million (31 March 2024: £60.00 million) of a £60.00 million (31 March 2024: £60.00 million) term credit facility with AgFe and was geared to 25.01% of GAV (31 March 2024: 28.97%)***.

· The Company held cash and restricted cash balances totalling £27.78 million as at 31 March 2025 (31 March 2024: £11.40 million). Following the acquisition of Freemans Leisure Park, Leicester, the Company had cash balances totalling £16.63 million.

Property Highlights

· As at 31 March 2025, the Company's property portfolio had a valuation of £204.55 million across 33 properties (31 March 2024: £210.69 million across 36 properties) as assessed by the Valuer1 and a historical cost of £207.96 million (31 March 2024: £214.66 million).

· Over the year, the Company delivered 14.8% property total return for the year, double that of the MSCI benchmark performance of 7.4%, further building on the outperformance achieved in previous years.

· The Company won five awards, including the Citywire Investment Trust Award in the 'UK Property' category for the fifth successive year, the 'Property' category at the Investment Week Investment Company of the Year awards, and the Listed Fund award at the MSCI UK Property Investment Awards.

· The Company acquired one property during the year for a total purchase price of £10.00 million, excluding acquisition costs, and one property post-period end for 11.15 million (year ended 31 March 2024: two properties for a purchase price of £21.52 million).

· The Company made one disposal and one part-disposal during the year with total gross sale proceeds of £32.55 million (year ended 31 March 2024: five disposals with total gross sale proceeds of £26.95 million).

· The portfolio had an EPRA Vacancy Rate** of 7.50% as at 31 March 2025 (31 March 2024: 6.38%).

· Rental income generated in the year under review was £18.85 million (year ended 31 March 2024: £19.89 million). The number of tenants as at 31 March 2025 was 124 (31 March 2024: 133).

· EPRA Net Initial Yield ('NIY')** of 7.97% as at 31 March 2025 (31 March 2024: 8.02%).

· Weighted Average Unexpired Lease Term ('WAULT')* of 4.12 years to break (31 March 2024: 4.27 years) and 5.73 years to expiry (31 March 2024: 5.60 years).

[1] The valuation figure is reconciled to the fair value under IFRS in note 13 of the Annual Report.

* See KPIs on pages 11 to 14 of the Annual Report for definition of alternative performance measures.

** See Glossary on pages 155 to 158 of the Annual Report for definition of alternative performance measures.

*** See note 15 on pages 124 and 125 of the Annual Report for further details.

Contact details

AEW UK

Henry Butt

[email protected]

+44(0) 20 7016 4869

AEW Investor Relations

[email protected]

 

Company Secretary

MUFG Corporate Governance Limited

[email protected]

+44 (0) 333 300 1950

 

 

Cardew Group

 

aew@cardewgroup.com

Tania Wild

Henry Crane

+44 (0) 7425 536 903

+44 (0) 7918 207 157

 

 

Panmure Liberum

Darren Vickers

+44 (0) 20 3100 2222

 

 

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 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 income streams. AEWU is currently paying an annualised dividend of 8p per share. The Company was listed on the Official List of the Financial Conduct Authority and admitted to trading on the Main Market of the London Stock Exchange on 12 May 2015. www.aewukreit.com

 

LEI: 21380073LDXHV2LP5K50

 

About AEW

AEW is one of the world's largest real estate asset managers, with €78.8bn of assets under management as at 31 March 2025. AEW has over 920 employees, with its main offices located in Boston, London, Paris, and Singapore, and offers a wide range of real estate investment products, including comingled funds, separate accounts, and securities mandates across the full spectrum of investment strategies. AEW represents the real estate asset management platform of Natixis Investment Managers, one of the largest asset managers in the world.

As at 31 March 2025, AEW managed €37.2bn of real estate assets in Europe on behalf of a number of strategies and separate accounts. AEW has over 515 employees based in 11 offices across Europe and has a long track record of implementing core, value-add, and opportunistic investment strategies on behalf of its clients. In the last five years, AEW has invested and divested a total volume of €18.5bn of real estate across European markets.

www.aew.com

AEW UK Investment Management LLP is the Investment Manager. AEW is a group of companies that includes AEW Europe SA and its subsidiaries, as well as affiliated company AEW Capital Management, L.P. in North America and its subsidiaries. AEW Europe SA, together with its subsidiaries AEW UK Investment Management LLP, AEW S.à.r.l., AEW Invest GmbH, and AEW SAS, is a European real estate investment manager with headquarters offices in Paris and London. AEW Europe SA and AEW Capital Management, L.P. are owned by Natixis Investment Managers. Natixis Investment Managers is an international asset management group based in Paris, France, that is principally owned by Natixis, a French investment banking and financial services firm. Natixis is principally owned by BPCE, France's second-largest banking group.

Disclaimer

This communication cannot be relied upon as the basis on which to make a decision to invest in AEWU. This communication does not constitute an invitation or inducement to subscribe to any particular investment. Issued by AEW UK Investment Management LLP, 8 Bishopsgate, London, EC2N 4BQ.Company number: OC367686 England. Authorised and regulated by the Financial Conduct Authority.

 

Chairman's Statement

 

Overview

During the year, the Company has continued its strong run of performance, despite a challenging economic backdrop. Since its inception ten years ago, the Company has consistently paid annualised dividends of 8p per share and realised significant capital profits. Earnings from the portfolio have also grown each year for the past three years. This demonstrates how AEWU can deliver strong returns, using its value-focused and sector-agnostic approach to acquire mispriced assets throughout varying market conditions.

 

The investment style of the Company is articulated on page 5 of the Annual Report. Key to its success has been active management of the portfolio and to maximise both income and capital returns. In the current market environment, the Manager believes that a significant number of attractively priced opportunities could be pursued, should the Company have more available cash to deploy, a subject which the Board is actively considering.

 

Investment and share price performance

The statistics on page 3 of the Annual Report demonstrate a strong financial return for the year to 31 March 2025. Shareholder total return of 28.7% (2024: 1.9% and 121.7% since inception on an annualised basis) and net asset value total return of 15.3% (2024: 5.0% and 136.1% since inception) show both strong portfolio performance and a significant re-rating of the Company's share price during the year.

 

 

AEW UK REIT plc Property Performance vs. Benchmark for 12 months to 31 March 2025

 

Performance Metric

AEW UK REIT (%)

Benchmark (%)*

Capital Growth

6.0

2.6

Income Return

8.8

4.8

Total Return

14.8

7.4

Source: MSCI 31 March 2025

\* The Benchmark refers to MSCI/AREF PFI Balanced Funds Quarterly Property Index

 

 

With a property total return of 14.8% (2024: 6.7% and annualised 8.5% since inception) the significant benefit of the Company's value-driven strategy can be seen. The Manager's review on pages 15 to 35 of the Annual Report provides detail of how portfolio performance has been achieved, including gains made on disposals, the proceeds of which have all been deployed following the purchase of Freemans Leisure Park, Leicester, after year-end.

 

The Manager has achieved total return outperformance relative to both the MSCI Balanced Funds Quarterly Property Index and its listed peer group, which, along with its high annual dividend, has helped keep the share price rating much closer to net asset value than for many of the Company's peers.

 

Dividends

The Company continues to pay quarterly dividends of 2p per share (as it has done for 38 consecutive quarters), which were covered by earnings for the year. It is the sustainability of the dividend, rather than its growth, that remains the Board's focus. Based on a year-end share price of 101.4p and portfolio valuation level, this produces respective yields of 7.9% and 8.0%, as well as a reversionary yield of 8.8%.

 

The Company remains committed to paying its quarterly dividend of 2p per share predominantly from income, but also using a total return approach. In periods where the annual dividend of the Company is uncovered by earnings, owing to the Manager's active strategy, the dividend is maintained using capital profits from property disposals.

 

Gearing

The Company has a fully-drawn debt facility of £60m, which is due to mature in May 2027, with a fixed interest rate of 2.959%, representing a 25.0% Loan to Gross Asset Value ratio. The loan covenants all have significant headroom.

 

The use of gearing and the Company's ability to refinance is monitored closely by Board and Manager alike. When practical and economical to do so, the Company will be refinanced whilst recognising that the expected interest cost on a future facility is unlikely to be as competitive as it was when the current facility was negotiated. That said, it is currently expected that this refinancing will not create materially different earnings performance than the Company has been able to achieve over the previous 10 years.

 

Portfolio

At year-end, the Company had a diversified portfolio of 33 UK commercial properties. The average lot size was £6.2m, with occupancy of 92.5% from 124 tenants and cash of £27.8m.

 

During the year, the Company disposed of two assets: Oak Park Industrial Estate and Units 1-11 of Central Six Retail Park. The sale prices achieved, of £32.6m in aggregate, reflected a blended net initial yield of 7.6%, and a respective 12% and 60% premium to their purchase prices.

 

The purchase of a high-street retail asset in Hitchin was completed in May 2025, with an attractive net initial yield of 8.3%. Deployment of the remainder of the disposal proceeds was complete post-year-end via the acquisition of Freemans Leisure Park, Leicester.

 

Governance

During the year, the Board established delegated authorities for operations of the Board, particularly responsibilities for nominations, remuneration, management engagement and risk, and appointed a Senior Independent Director.

 

As part of the review of Board responsibilities, Board remuneration was refined to reflect individual responsibilities and the commitment expected of a small and fully engaged Board. I would like to thank my Board colleagues for their considerable efforts during the year, and the former Chair and Audit Chair for presiding over the excellent long-term performance of the Company.

 

The Company has been adversely impacted by the PRIIPs reporting regime, where cost disclosures are in the opinion of the Board, misleading for investors in a property company, albeit a property investment company with sub-contracted management. Both the Board and the Manager, in common with many other investment companies, have made detailed submissions to the FCA to that effect.

 

Awards

During the year, the Company's performance and business practices were recognised by the receipt of five industry awards that reflect well on the Company and its performance. The Company won the Citywire investment trust award in the 'UK Property' category for the fifth consecutive year, an award given to the investment company with the highest NAV total returns over an annualised three-year period. The Company also won the 'Listed Funds' category in the 2023 MSCI UK Property Investment Awards, an award given to the listed fund displaying the highest annualised three-year property total return for the three years to 31 December 2023. Lastly, the Company won the 'Property' category at the Investment Week Awards for the second consecutive year.

 

The Company has also been awarded by the European Public Real Estate Association ("EPRA"), a gold medal for its high standard of financial reporting, and for the first time, a gold medal for its standard of sustainability reporting, improving on the previously awarded silver medal.

 

Outlook

At a time of much corporate activity in the UK listed property sector, the Board and Manager will look to exploit growth opportunities for the Company, including the potential issuance of equity, with the protection of existing shareholders' interests being first and foremost, rather than pursuing 'growth for growth's sake'. Appropriate scaling of AEWU's strategy is expected to bring shareholder benefits including improved liquidity in the Company's shares, a reduction in the operating cost ratio and greater investment scope in the portfolio.

 

The Manager is enthusiastic about the current buying opportunities in the UK property market, believing that now is an ideal time to deploy capital, as property values are at their lowest point since the Company's IPO. With a proven track record of stock selection, the Manager expects that acquisitions made in the near term would yield strong performance in the future.

 

Against an unpredictable economic backdrop, fiscal and interest rate pressures, and destabilising geo-political events, the challenge is to present the Company's excellent investment case, to continue to manage the portfolio for income and capital profits and to maintain a strong rating on the Company's shares and liquidity in the secondary market. We are working with AEW to build on the excellent results for this financial year.

 

Robin Archibald

Chairman

 

26 June 2025

 

Attribution Analysis of Financial Results

The Company's NAV as at March 2025 was £174.44 million or 110.11 pps (31 March 2024: £162.75 million or 102.73 pps). This represents an increase of 7.38 pps or 7.18% over the 12-month period, with the underlying movement in NAV set out in the chart below:

 

 

Pps

NAV as at 1 April 2024

102.73

Portfolio acquisition costs

(0.03)

Loss on sale of investments

(0.41)

Capital expenditure

(1.77)

Valuation changes in property portfolio

8.58

Income earned for the period

13.10

Expenses for the period

(4.09)

Dividends paid

(8.00)

NAV as at 31 March 2025

110.11

 

Financing

As at 31 March 2025, the Company has a £60.00 million loan Facility with AgFe, in place until May 2027, the details of which are presented below:

 

31 March 2025

31 March 2024

Facility

£60.00 million

£60.00 million

Drawn

£60.00 million

£60.00 million

Gearing (Loan to GAV)

25.01%

28.97%

Gearing (Loan to NAV)

34.40%

36.87%

Interest rate

2.959%

fixed

2.959%

fixed

Notional Value of Loan Balance Hedged

 

N/A

 

N/A

 

Shares in Issue

158,774,746*

158,774,746*

* including 350,000 treasury shares

 

 

Investment Manager's Report

 

Difficult market conditions often provide opportunities for the Company's actively managed strategy. Despite the challenging backdrop, the Company achieved a 5.9% like-for-like valuation gain in its portfolio for the year, testament to its value-focused strategy of investing in mispriced assets where we believe income can be grown, and value created, through active asset management. This valuation performance has culminated in the Company delivering 14.8% property total return for the year, double that of the MSCI index benchmark performance of 7.4%, further building upon the outperformance achieved in previous years. Following the purchase of Freemans Leisure Park, Leicester, subsequent to the year-end, the Company is once again fully invested.

 

Industrial

 

Investment activity gathered momentum throughout the year, with Q4 2024 marking the strongest quarter since Q3 2022. Total industrial investment volumes for 2024 finished at £8.4 billion, up from £6.5 billion recorded in 2023.

 

During the period, the occupier market for industrial property grew notably, with transaction volumes increasing by 20% compared to the previous year. Distribution companies continued to be the main driver, representing 38% of the market. Manufacturing firms, however, contributed the most significant increase in take-up, with a 36% rise in 2024 compared to the previous year.

 

Average market rental levels continued to grow, rising by 5.5% during 2024, albeit a slowdown in growth compared to 7.6% recorded in 2023. Despite increased occupier demand, the overall vacancy rate rose, climbing from 5.5% at the end of 2023 to 7.3% by the close of 2024. This was principally due to higher levels of development activity.

 

Industrial property remains the largest constituent the Company's portfolio standing at 38%. In recent years, several sales have decreased the Company's exposure to the sector. Disposals have been driven by a decision to crystallise capital profits from asset management gains and trade in lower-yielding assets in favour of those offering higher yields, such as in retail sector. The Company's sale of Oak Park, Droitwich during the period was typical of this activity.

 

The portfolio's outperformance of the benchmark in this sector during the period was driven by a high income return. With a low average passing rent of only £3.62 per sq. ft., the sector is expected to continue to deliver strong income growth in the future.

 

Retail

 

During the period, the all-retail vacancy rate remained stable, proving that physical retail is expected to remain a core component of occupiers' business strategies going forward. This has been a trend that we have seen across the retail warehousing sector since 2021, however, the same can also now be said for the high street, particularly prime locations. As such, a cautious and location-specific sense of optimism has returned to the high street, boosted by the first quarter of 2025, which showed a discernible upward trend in retail sales, despite usually being the quietest quarter of the year. Further sales growth is anticipated throughout 2025, driven by an expected increase in real household income and further interest rate cuts. The impact on retailers of the National Insurance and minimum wage hikes is expected to provide challenges, but occupier distress is currently limited, and many national retailers have reported strong trade, including Next, Footasylum, DFS, and Waterstones.

 

Over the course of the past few years, the Company has been counter-cyclically buying retail, increasing its portfolio weighting to 35%. Counter-cyclical buying has allowed the Company to access higher yields, which has benefitted the Company's performance in this sector relative to the benchmark. The Company's portfolio also recorded a significantly greater capital return during the period which was predominantly driven by Central Six Retail Park in Coventry. This asset was sold during the period crystalising an approximate 60% premium to the purchase price, having increased the net operating income by circa 54% during its hold period.

 

We are of the view that the existing retail assets in the portfolio will continue to perform strongly. This is evidenced by the Company's recent acquisition of Bancroft in Hitchin, which is fully-let to a range of strong-performing national retailers and purchased for a net initial yield of 8.3%. We continue to see an attractive pipeline of retail assets in the UK's investment market. Our focus remains on strong locations underwritten by alternative use values and tenants who are known to trade profitably.

 

Offices

 

Despite a recent improvement in investor sentiment, particularly at the top end of the market, investment activity continued to waver throughout 2024, with transactional volumes 24% below the five-year average. In 2024, growth in office-based employment in the UK stagnated somewhat after a significant rise in 2023. Nevertheless, leasing activity saw a slight uptick over the year, reflecting tenants' preparations for future expansion.

 

Across the UK's major regional office markets, total leased space for 2024 surpassed the five-year average of four million sq. ft. demonstrating occupational momentum heading into 2025. Of particular interest to the Company, due to its exposure at Northgate House and Cambridge House, both in Bath, was the flexible office market, which continued its expansion, attracting a broader range of tenants than in previous years, particularly from the financial and professional services sectors.

 

The focus for both occupiers and investors continues to be on the best quality space, both in terms of specification and location. Vacancy in newly completed and Grade A space is just 3% of the total stock, and here rents have stabilised. In secondary locations and for Grade B stock and worse, rents are still on a downward trajectory. Sentiment toward secondary and tertiary assets remains subdued, driven by concerns of future obsolescence and refurbishment cost.

 

The Company holds a low exposure to the office market at only 12% of portfolio value across three assets, one of which has retail and leisure on the ground floor level. These assets have been selected for their location, with their investment values supported by alternative use values. As such, the portfolio's office assets have experienced a greater level of resilience than the wider market in recent years as demonstrated by the Company's performance versus the benchmark during the period.

 

Alternatives

 

In the leisure market, which constitutes 14% of the Company's portfolio, experiential leisure has led the occupier recovery, with tenpin bowling and competitive social operators reporting growing profitability during the period. Despite the squeeze on consumer discretionary spend, this sub-sector has, over the past 10 years, helped fuel a significant increase in leisure take-up across the UK's largest cities, averaging more than 30%. Around 75% of this growth has been through conversion of existing units, likely former retail and office space, rather than new development, a clear sign of repositioning in action.

 

Improved box office sales will be key to regaining widespread investor confidence in the cinema sector. Both Odeon and Vue refinanced in H1 2024, providing greater stability for the sector, with all operators predicting a return to profit in 2025. The health and fitness sector continues to experience growth, particularly at the premium and budget end of the market.

 

The Company's portfolio outperformed the benchmark during the period both in terms of income and capital return. This was driven predominantly by a key letting to Tenpin in Dewsbury. This letting was undertaken in competition with traditional retail tenants, with the terms secured as leisure use being considered more lucrative than retail.

 

Sources:

Savills UK | Market in Minutes: UK Commercial - February 2025

UK Real Estate Navigator

UK Real Estate Market Outlook 2025

Reflecting on the UK Industrial and logistics market in 2024 and looking forward to 2025

 

 

Property Portfolio

 

Sector weighting by valuation - high industrial weighting and low exposure to offices

 

Sector

Percentage

Industrial

38%

Offices

12%

Other

14%

High Street Retail

21%

Retail Warehouse

14%

 

Geographical weighting by valuation - highly diversified across the UK

Region

Percentage

Yorkshire and Humberside

15%

South East

4%

Eastern

10%

South West

27%

West Midlands

21%

East Midlands

2%

North West

8%

Wales

7%

Rest of London

5%

Scotland

1%

 

 

 

Like-For-Like Valuation Movement for the Year

 

 

Valuation 31 March 2025

 

Like-For-Like Valuation Movement for the Year

Sector

Valuation (£M)

% of Portfolio

LFL Movement(£M)

LFL Movement (%)

Industrial

78.60

38.42

4.63

6.26

High Street Retail

43.80

21.41

2.25

7.10

Other

28.90

14.13

0.48

1.67

Retail Warehouses

28.65

14.01

3.93

15.90

Office

24.60

12.03

(0.45)

(1.80)

Total

204.55

100.00

10.84

5.89*

* This is the overall weighted average like-for-value valuation increase of the portfolio.

 

AEW UK REIT Top Ten Assets

 

At year-end, the portfolio's top 10 assets constituted 50.1% of the overall portfolio value. As detailed in the full Annual Report, these are diversified across both sector and geography.

 

 

Property

Sector

Sq. Ft

Market Value Range (£m)

1.

Wrexham, Gresford Industrial Estate

Industrial

279,541

10.0 - 15.0

2.

Bath, Northgate House

Retail

67,020

10.0 - 15.0

3.

Dagenham, London East Leisure Park

Leisure

102,400

10.0 - 15.0

4.

Bath, Cambridge House

Office

51,132

10.0 - 15.0

5.

Bristol, 40 Queen Square

Office

36,433

10.0 - 15.0

6.

York, 25 George Hudson Street

Other

19,326

10.0 - 15.0

7.

Hitchin, Bancroft

Retail

47,118

5.0 - 10.0

8.

Shrewsbury, Arrow Retail Park

Retail Warehouse

94,891

5.0 - 10.0

9.

Bristol, Union Street

Retail

68,875

5.0 - 10.0

10. 

Basildon, Apollo Business Park

Industrial

68,813

5.0 - 10.0

 

 

Investment Update

 

The Company made one acquisition during the year:

 

Hitchin, Bancroft (high street retail)

In March, the Company completed the purchase of a freehold, high-street retail asset at 13/13A, 114-119, 121-123 Bancroft and 3-4 Portmill Lane in the affluent commuter town of Hitchin for £10,000,000. The purchase price reflects an attractive net initial yield of 8.31% and a capital value of £213 per sq. ft.

 

The property provides accommodation of 47,118 sq. ft. across 12 retail units and a standalone office building, as well as car parking and service yards. The retail elements of the property are fully let to a strong line-up of 14 tenants, with recent leasing activity evidencing the strength of the location. Major tenants include Marks & Spencer plc, Next Group plc, Vodafone Ltd, The White Company and Holland & Barrett. The vacant office element to the rear provides various asset management options in the short-to-medium term, including new lettings or residential conversion.

 

The Company made one disposal and one part-disposal during the year:

 

Droitwich, Oak Park Industrial Estate (industrial)

In July 2024, the Company completed the sale of Oak Park Industrial Estate, Droitwich, for £6,300,000, reflecting a net initial yield of 7.95% and a capital value of £33 per sq. ft. A sale at this price represented a circa 33% premium to the 31 March 2024 valuation. Following the completion of three new lettings during 2023, which added £272,000 of annual rental income, the property was fully let. With impending capital expenditure on refurbishment, it was believed that the value of the asset in the medium term had been maximised. The industrial estate was bought in December 2015 for £5,625,000, reflecting a 10.4% net initial yield and a capital value of £30 per sq. ft.

Coventry, Central Six Retail Park (retail warehouse)

In December 2024, the Company completed the part-disposal of units 1-11 of Central Six Retail Park, Coventry, for £26,250,000, reflecting a net initial yield of 7.49% and a capital value of £213 per sq. ft. The sale price represented a 60% premium to the purchase price of the entire property which was acquired in November 2021 for £16,411,000 (£110 per sq. ft.), and a 6.7% premium to the 30 June 2024 valuation, being the latest valuation date prior to agreeing sale terms.

 

During its ownership, the Company increased occupancy from 24% to 100% and increased the net operating income by circa 54% by undertaking lettings to tenants including Aldi Stores Limited, Iceland Foods Limited, Next Group plc, Boots UK Ltd, and TJX UK (TK Maxx).

 

Excluding the remaining part of the retail park (Units 12, A(1), A(2) and B), known as the 'triangle site', which the Company has retained, the sale delivered an IRR of circa 15%.

 

Asset Management Update

 

The Company completed the following material asset management transactions during the year:

 

Bradford, Knowles Lane (industrial)

The Company completed a lease renewal with Pilkington United Kingdom Limited at an increased rent of £265,000 per annum. The previous rent (payable until September 2024) was £208,000 per annum, representing a 27% increase. On the fifth anniversary of the lease term, there is an open market rent review, as well as a tenant-only break option.

 

Peterborough, Storey's Bar Road (industrial)

The Company settled Walstead Peterborough Limited's three yearly RPI rent review (2% collar and 4% cap, compounded annually) at £724,861 per annum (£3.94 per sq. ft.), an £80,462 per annum (12.5%) increase on the previous passing rent of £644,399 per annum (£3.50 per sq. ft.). Despite this notable uplift, the single-let industrial unit is still considered 'under-rented' with an ERV greater than £4.00 per sq. ft.

 

Redditch, Eagle Road, North Moons Industrial Estate (industrial)

The Company settled Carrs Coatings Ltd's August 2024 annual uncapped RPI rent review at £304,809 per annum (£8.02 per sq. ft.), representing a £10,461 per annum (circa 3.6%) increase.

 

Runcorn, Sarus Court (industrial)

The Company completed a speculative refurbishment project of units 1001 and 1003, formerly let to CJ Services. The works comprised roof improvements, respraying of external elevations, internal strip-out and decoration, and replacing M&E services to improve the EPC ratings to a B. The cost of the works was £811,578, excluding professional fees.

 

Following practical completion of the project, the Company completed a new lease of Unit 1001 to ODL Europe Ltd. The tenant has entered a straight five-year lease paying a rent of £137,530 per annum (£8.50 per sq. ft.). The tenant has been granted a three-month rent-free incentive. The previous passing rent, prior to refurbishment, was £6.50 per sq. ft. In carrying out the refurbishment, the Company has crystalised significant rental growth from the previous rent.

 

Wakefield, Diamond Business Park (industrial)

Following a statutory demand being served on the last remaining office tenant of Diamond House, AFI-Uplift Ltd ("AFI"), due to service charge and insurance arrears of £210,967, AFI has paid all of their arrears and surrendered their lease, which was due to expire in November 2027. An early surrender will enable demolition of the entire block, facilitating an industrial open storage letting on the estate.

 

Weston-super-Mare, Westlands Distribution Park (industrial)

The Company settled North Somerset District Council's April 2024 open market rent review at £110,000 per annum (£3.61 per sq. ft.), representing a 14% increase on the previous passing rent.

 

The Company also settled Container Team Limited's outstanding June 2024 open market rent review at £99,000 per annum, representing a 90% increase on the previous passing rent of £52,000 per annum. The increase in rent reflects the current strength of the UK's IOS (industrial outdoor storage) occupational market.

 

The Company completed a three-year lease renewal of Unit 3A with Weston & District Community Transport Ltd at a rent of £12,000 per annum. On the first anniversary of the lease term, there is a mutual rolling break option.

 

Bromley, Next (retail)

The Company agreed Next's annual turnover top-up rent for the year to 28 September 2024 at £200,791 in addition to the base rent of £350,000 per annum.

 

The Company subsequently completed a lease regear with Next, who will enter a five-year reversionary lease effective from September 2025 in return for rebasing the rent at a fixed amount of £430,000 per annum with nine months' rent-free, subject to Next completing a refurbishment of the store. Next will continue to pay the existing base rent of £350,000 per annum plus a turnover rent equal to 8% of turnover above £3.5 million until September this year. With the lease regear remaining outside the 1954 Act, this is advantageous to the Company, with the property being an attractive opportunity for a residential developer or an owner-occupier.

 

Bristol, Union Street (retail)

Having completed subdivision works to the former Wilko unit, separating the ground and basement levels from the first floor, the Company completed a new letting of the first floor to Roxy Lanes (Bristol) Ltd (Roxy), who already occupy the second floor of the building. Roxy entered into a new lease until 2036, conterminous with their existing lease of the second floor. The rent, which will be reviewed to RPI (1.50% collar and 4.0% cap, compounded annually) in 2026 and 2031, is £95,000 per annum (£10.55 per sq. ft.) and is guaranteed by Roxy Leisure Holdings Ltd. Roxy was granted a 12-month rent-free period and a £95,000 capital contribution as a letting incentive.

 

The Company also completed a new lease of the ground and basement levels to Grip-UK Ltd (trading as Climbing Hanger), who operate the space as a climbing and bouldering centre. The tenant has entered a 12-year lease, with a tenant break option on the expiry of the tenth year, paying a rent of £300,000 per annum. There will be a five yearly rent review in line with compounded CPI (2% collar and 4% cap). The tenant has been granted a 12-month rent-free period.

 

Sheffield, Fargate (retail)

The Company completed a new lease to fashion retailer, Blue Banana Retail Limited. The tenant has entered into a 10-year lease, with a tenant break option on the expiry of the fifth year, paying a rent of £55,000 per annum. There will be a five yearly-rent review to RPI compounded annually (1% collar and 3% cap). The tenant has been granted a seven-month rent-free period.

 

Cardiff, Circuit Nightclub (other)

The Company completed an assignment of CC Stim UK Tradeco 5 Ltd's (in administration) lease to Neos 13 Ltd. There was a simultaneous variation of the lease, revising the rent from £300,000 per annum to a base rent of £175,000 per annum, together with an additional 'top-up' rent equivalent to 0% of turnover where turnover exceeds £1.75m per annum, with an aggregate of the combined base rent and turnover rent to be capped at £300,000 per annum. The variation also provides a mutual break clause allowing either party to exercise a break on 1 February or 1 August in any year after August 2026.

 

Dagenham, London East Leisure Park (other)

Following a protracted exchange of correspondence with Original Bowling Company Limited (trading as Hollywood Bowl), the turnover rent equating to £276,120 (£92,040 per annum) was billed.

 

Barnstaple, Barnstaple Retail Park (retail warehouse)

The Company completed a letting of Unit 2 to Farmfoods Limited, who have taken a 15-year lease, with a tenant break option at the expiry of the tenth year, at a rent of £125,000 per annum (£13.00 per sq. ft.). No rent-free incentive was given, but the unit's externals were refurbished by the Company, with the cost recovered through a dilapidations settlement with the former tenant.

Coventry, Central Six Retail Park (retail warehouse)

On 9 December 2024, the Company simultaneously exchanged an agreement for surrender with TUI UK Retail Limited (TUI) and an agreement for lease with Superdrug Stores Plc (Superdrug) for Unit 10. The agreements are conditional upon TUI carrying out works to Unit 10 and a capital contribution of £31,000 from the Company. Once the conditions have been satisfied, Superdrug will enter into a new 10-year lease, with a tenant-only break option in year five, at a rent of £158,760 per annum (£18 per sq. ft.). The letting includes a 12-month rent-free incentive.

 

The Company completed a lease with new tenant, Salvation Army Trading Company Ltd, for Unit 12. The tenant entered a new lease expiring in November 2032, with a tenant-only break option at the end of the fifth year, at a rent of £140,000 per annum (£13.97 per sq. ft.). The letting includes a nine-month rent-free incentive.

 

The Company completed a new lease with TUI UK Retail Limited (TUI) for Unit A (2) on a five-year term, with a tenant-only break option at the end of year three, at a rent of £75,000 per annum (£43.55 per sq. ft.). The letting includes a six-month rent-free incentive and a tenant break penalty equivalent to 12 months' rent. The Company provided a £174,000 capital contribution for strip-out and subdivision works of the former American Golf unit.

 

The Company completed a new lease of Unit A (1) to Costa Limited. The tenant has entered a lease expiring in November 2032, with a tenant break option on the expiry of the fifth year, paying a rent of £65,000 per annum. There will be a five-yearly open market rent review capped at 2.5%, compounded annually. The tenant has been granted a six-month rent-free period.

 

Dewsbury, The Railway Centre (retail warehouse)

The Company completed a 25-year lease with leisure operator, Tenpin Limited, of the former Mecca Bingo space. The lease provides a passing rent of £378,470 per annum (£13.59 per sq. ft.), with five-yearly compounded CPI reviews (1% collar and 3% cap). There is a tenant break option in year 17.5. At the time of Mecca Bingo vacating, the unit had an ERV of £8.00 per sq. ft. A £1,550,000 capital contribution was given as a tenant incentive, with the Company carrying out strip-out and enabling works at a cost of £383,352.

 

Bath, Cambridge House (office)

The Company completed a new lease on the ground and floors with premium gym operator, Marchon Bath Ltd (trading as Marchon). The tenant has entered a straight 10-year lease paying a rent of £70,000 per annum. Lease completion was subject to the completion of circa £90,000 landlord strip-out works. There will be a five-yearly upwards only rent review to the higher of open market or annually compounded RPI (2% collar and 4% cap). The tenant has been granted a 12-month rent-free period. This will be Marchon's fourth location, including White City and Stratford, both in London, as well as Harpenden.

 

Bristol, 40 Queen Square (office)

A circa £200,000 refurbishment project has commenced on the former Ramboll Whitbybird (Ramboll) space on the first floor (north). Ramboll's dilapidation liability was settled at £37,888; therefore, net capital expenditure equates to approximately £162,000. Approximately £450,000 has been spent undertaking a refurbishment project of vacant space on the first floor (north) as well as the building's communal reception area. About two-thirds of the cost invested in the building during the period has been recoverable from tenants via service charges and dilapidations payments.

 

 

Alternative Investment Fund Manager ('AIFM')

AEW UK Investment Management LLP is authorised and regulated by the FCA as a full-scope AIFM and provides its services to the Company.

 

The Company has appointed Langham Hall UK Depositary LLP ('Langham Hall') to act as the depositary to the Company, responsible for cash monitoring, asset verification, and oversight of the Company.

 

 

Information Disclosures under the AIFM Directive

Under the AIFM Directive, the Company is required to make disclosures in relation to its leverage under the prescribed methodology of the Directive.

 

Leverage

The AIFM Directive prescribes two methods for evaluating leverage, namely the 'Gross Method' and the 'Commitment Method'. The Company's maximum and actual leverage levels are as per below:

 

 

 

31 March 2025

31 March 2024

Leverage Exposure

Gross Method

Commitment

 Method

Gross

Method

Commitment

Method

Maximum Limit

140%

140%

140%

140%

Actual

118%

134%

130%

137%

 

In accordance with the AIFM Directive, leverage is expressed as a percentage of the Company's exposure to its NAV and adjusted in line with the prescribed 'Gross' and 'Commitment' methods. The Gross method is representative of the sum of the Company's positions after deducting cash balances and without taking into account any hedging and netting arrangements. The Commitment method is representative of the sum of the Company's positions without deducting cash balances and taking into account any hedging and netting arrangements. For the purposes of evaluating the methods above, the Company's positions primarily reflect its current borrowings and NAV.

 

 

Remuneration

The AIFM has adopted a Remuneration Policy which accords with the principles established by AIFMD. AIFMD Remuneration Code Staff includes the members of the AIFM's Management Committee, those performing Control Functions, Department Heads, Risk Takers and other members of staff that exert material influence on the AIFM's risk profile or the AIFs it manages.

 

Staff are remunerated in accordance with the key principles of the firm's remuneration policy, which include:

 

- promoting sound risk management;

- supporting sustainable business plans;

- remuneration being linked to non-financial criteria for Control Function staff;

- incentivising staff performance over long periods of time;

- awarding guaranteed variable remuneration only in exceptional circumstances; and

- having an appropriate balance between fixed and variable remuneration.

 

 

As required under section 'Fund 3.3.5.R(5)' of the Investment Fund Sourcebook, the following information is provided in respect of remuneration paid by the AIFM to its staff for the year ended to 31 December 2024.

 

 

Year ended

31 December 2024

Total remuneration paid to employees during the financial year:

 

a) remuneration, including, where relevant, any carried interest paid by the AIFM

£11,779,657

b) the number of beneficiaries

74

 

The aggregate amount of remuneration of the AIFM Remuneration Code staff, broken down by:

a) senior management

£3,948,361

b) members of staff

£7,831,296

 

 

 

 

Fixed

remuneration

Variable

remuneration

Total

remuneration

 

 

 

 

Senior management

£2,129,944

£1,818,417

£3,948,361

Staff

£5,553,932

£2,277,364

£7,831,296

Total

£7,683,876

£4,095,781

£11,779,657

 

Fixed remuneration comprises basic salaries and variable remuneration comprises bonuses.

 

 

Strategy Commentary

AEWU invests in and actively asset manages a value-focused portfolio of high-yielding commercial properties across the UK.

 

The Company capitalises on value opportunities that arise from pricing inefficiencies in the sector. The AEWU team have proven their expertise in identifying these opportunities throughout market cycles over a 10-year period.

 

These mispriced opportunities present significant potential for income growth and value creation through active asset management, as evidenced by the Company's market leading returns.

 

We believe that a true value strategy is best enacted without sector constraint. AEWU seeks value across the entire UK commercial property universe and analyses investment opportunities based on their individual merits.

 

Investment Criteria

We typically target properties that meet the following criteria:

 

Net Initial Yields: We seek net initial yields at purchase ranging between 7% and 10%, in order to maintain a high level of income across the portfolio.

 

Rental Growth Potential: We focus on properties with low passing rents, which present opportunities for income growth.

 

Value Investment Style: We prioritise the acquisition of assets with low capital values at purchase when compared to their alternative use and vacant possession values. This provides optionality in business plans and protects investors' capital throughout market cycles.

 

Lot Size: We typically invest in assets at purchase prices under £20 million as we find less competitive appetite in this lot size category leads to a greater propensity for mispricing.

 

Strong Commercial Locations: We focus on strong commercial locations, enabling us to leverage tenant demand and enhance the overall performance of our portfolio.

 

Active Asset Management

Once acquired, we employ a proactive asset management strategy that focuses on:

 

Growing Income Streams: Enhancing rental income through a dynamic approach to lease events and expert knowledge of markets.

 

Extending and Improving Tenant Leases: Negotiating longer leases and improved terms to secure stable income.

 

Adding Value through Planning: Utilising the planning system to enhance property value.

 

Refurbishing Properties: Undertaking refurbishments where necessary to maintain the competitiveness and appeal of the property.

 

Enhancing ESG Credentials: Improving the environmental, social, and governance (ESG) standards of our properties.

 

Outcomes of Our Strategy

This comprehensive approach enables us to achieve the following:

 

Maximise Income

We have consistently paid a quarterly dividend of 2 pence per share since Q1 2016, currently delivering one of the highest dividend yields in the UK commercial property sector.

 

Unlock Capital Upside

Annualised total property return of 11.2% over the five years ending 31 March 2025.

 

Outperformance of the MSCI benchmark by 7.7% over the same period. 

 

Since inception, we have achieved an average sale price premium of 38% over purchase price from 20 asset sales, crystallising significant profits for shareholders.

 

At times when the dividend is not fully covered by EPRA earnings, the Company supplements its net earnings by distributable reserves derived from capital profits on property disposals.

 

 

AEW UK Investment Management LLP

26 June 2025

 

FURTHER INFORMATION

 

The financial information does not constitute the Company's financial statements for the periods ended 31 March 2025 or 31 March 2024 but is derived from those financial statements. Financial statements for the year ended 31 March 2024 have been delivered to the Registrar of Companies, and those for the year ended 31 March 2025 will be delivered following the Company's Annual General Meeting. The auditor's reports on both the 31 March 2024 and 31 March 2025 financial statements were unqualified; did not draw attention to any matters by way of emphasis; and did not contain statements under section 498 (2) or (3) of the Companies Act 2006.

 

AEW UK REIT PLC's annual report and accounts for the year ended 31 March 2025 (which includes the notice of meeting for the Company's AGM) will be available today on www.aewukreit.com.

 

It will also be submitted shortly in full, unedited text to the Financial Conduct Authority's National Storage Mechanism and will be available for inspection at data.fca.org.uk/#/nsm/nationalstoragemechanism in accordance with DTR 6.3.5(1A) of the Financial Conduct Authority's Disclosure Guidance and Transparency Rules.

 

LEI: 21380073LDXHV2LP5K50

 

END

 

 

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