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

LEI: 213800MPBIJS12Q88F71

22 May 2019

Meridian Metals Update and NAV Update for the quarter ended 31 March 2019

 AEW UK Long Lease REIT plc (LSE: AEWL) (the "Group"), which owns a diversified portfolio of 19 regional UK commercial property assets, can today update investors on the leases of three properties previously let to Meridian Metal Trading Limited ("MMT") and also announces its unaudited Net Asset Value ('NAV') for the quarter ended 31 March 2019.

Meridian Metal Update

·      On 3 April 2019, the Group announced that MMT, the tenant occupying three industrial assets, had appointed Administrators.  As a consequence, the value of the three assets have been included in the 31 March 2019 valuation at their vacant possession value of £6.80 million, a fall of £3.95 million from the 31 December 2018 valuation of £10.75 million. Prior to going into administration MMT paid the full rent due for the quarter ending 24 June 2019.

·      On 9 May 2019, we announced that the assets and business of Meridian Metal Trading Limited ("MMT") had been acquired by Meridian Steel Limited ("Meridian Steel"), a newly incorporated wholly owned subsidiary of Duferco International Trading Holding S.A. ("DITH").

·      We are pleased to announce that earlier today the leases have been assigned to Meridian Steel for all three properties. Under the terms of the new lease arrangements, the passing rental income for the three industrial assets, two located in Dudley and one in Sheffield, will remain unchanged at £659,000, following an initial 12-month rent free period. The leases, which will run for a period of eight years, are linked to the Retail Price Index, with annual reviews and are all guaranteed by DITH.

·      Following the assignment of the leases, Knight Frank LLP, AEWL's independent valuer, has valued the properties at £8.85 million.  The impact of this revised valuation would increase the Group's reported NAV based on the balance sheet as at 31 March 2019 (see below) by £2.05 million (2.55 pence per share).

 
Highlights for the quarter ended 31 March 2019

·      EPRA earnings per share ("EPRA EPS") for the quarter decreased by 2.1% to 1.39 pence per share (quarter to 31 December 2018: 1.42 pence per share) (unaudited), which represents dividend cover for the quarter of 101%. 

·      For the first 9 months of the Company's current financial year, EPRA earnings were 4.09 pence per share (unaudited) reflecting dividend cover for the 9 months of 99.2%.  The EPRA EPS include an accrual to reflect the minimum contracted uplifts under the Group's leases, without this accrual, the cash earnings were 3.54 pence per share (unaudited) reflecting 85.8% cash dividend cover for the 9 month period.

·      At 31 March 2019, the independent fair valuation of the property portfolio was £111.14 million (31 December 2018: £112.23 million).  The valuation of £111.14 million includes the acquisition of YMCA Nursery, Southampton, which increased the valuation by £2.06 million, a fall in the valuation of the Meridian Metals properties (see Meridian Metals Update above) by £3.95 million and a valuation increase of £0.80 million across the rest of the portfolio. On a like-for-like basis, there has been a decrease of £3.15 million (2.81%) over the quarter (quarter to 31 December 2018:  increase of £1.60 million or 1.54%). 

·      Unaudited NAV decreased to £75.04 million, 93.22 pence per share (31 December 2018: £78.46 million, 97.46 pence per share), a fall of 4.35%.

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

"Prior to going into Administration MMT settled its full rent due in respect of the quarter ending 24 June 2019.  We are very pleased to have secured assignments of all three leases at our Dudley and Sheffield sites, minimising the overall impact on the valuation of the portfolio.

All other properties in the portfolio either retained or increased their value during the quarter. 

Investor demand in the long lease sector of the market generally remains robust and AEW UK remains committed to achieving the best outcome for the investors of AEWL".

Net Asset Value

As at 31 March 2019, the Group owned 19 investment properties with a fair value of £111.14 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 property portfolio individually valued on a 'Red Book' valuation basis as at 31 March 2019 and income for the quarter, but does not include a provision for the interim dividend for the quarter ended 31 March 2019, as declared on 9 May 2019.

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

Debt

On 11 January 2019, the Group increased its loan facility by £11 million with its existing lender, Canada Life Investments, taking the total loan drawn down to £41 million.  As at 31 March 2019, the Group had utilised all of its £41 million fixed interest loan facility with Canada Life Investments and at that date was geared at a loan to Gross Asset Value ('GAV') of 35.3%.   The weighted average interest cost of the Group's increased facility is 3.19% and the facility is repayable on the 20 October 2025.

Portfolio Activity

YMCA Nursery, 53 Victoria Road, Southampton

On 18 April 2019, the Group completed the acquisition of a nursery property in central Southampton for £2.1 million, reflecting a net initial yield of 5.9%.  The property at 53 Victoria Road, was purchased by way of a sale and leaseback agreement with YMCA Fairthorne Group, a regional operation of the charity YMCA, the world's largest youth charity.  The lease arrangement provides the Group with an income stream of 25 years, which will increase annually in line with the Consumer Price Index.  The 8,097 sq ft property comprises a modern, purpose-built nursery facility forming part of the Centenary Quay development, which has seen the addition of some 1,500 new homes since 2012.

Inflation linked rent reviews

92% of the portfolio's income stream is reviewed periodically, on an upward only basis, in line with inflation; with 71% and 21% of the portfolio indexed to RPI and CPI respectively. 

Sector weightings

The sector weightings, by value, of the property portfolio as at 31 March 2019 were: Hotels 21.9%; Industrial 18.3%; Residential care homes 16.3%; Car showrooms 13.6%; Student accommodation 10.9%; Leisure 8.7%; Power station 4.4%; Petrol station 4.0%; and Nursery 1.9%.

Profit Estimate

The EPRA EPS constitutes a profit estimate for the purposes of Rule 28 of the Takeover Code (the "Profit Estimate").  The Profit Estimate has been prepared based on the unaudited management accounts for the quarter ended 31 March 2019.  The Directors confirm that the Profit Estimate remains valid and had been properly compiled on the basis of the assumptions stated and that the basis of accounting used is consistent with the Group's accounting policies.  Given that the period to which the Profit Estimate relates has been completed, there are no other principal assumptions underpinning the Profit Estimate.

Future publications

The Group's March 2019 Quarterly Investment Report will be available on the Group's website on 24 May 2019.

- ENDS -

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