Aew Uk REIT (LSE:AEWU) — Investor Presentation June NAV

0:00 Good afternoon, and welcome to the AEW UK REIT PLC Investor Presentation. The company may not be in a position to answer every question received during the meeting itself. However, the company can review questions submitted today and publish responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll. I'd now like to hand you over to Henry Bart, assistant portfolio manager. Good afternoon.

0:29 Thank you, Paul. Good afternoon, everyone. Thank you for joining myself and George today. Just as a reminder, I am Henry Butt, the assistant portfolio manager for AEW UK REIT PLC in the currently whilst Laura Elkin, the portfolio manager, is off from maternity leave. Laura's back in February 2025. So in the meantime, George and I are looking after the portfolio.

0:58 So just moving to the first slide. If you've joined this presentation before, this will be well known to you this slide. Essentially, a sort of a snapshot of what we are and what we're trying to do, high income and actively managed, and that is what we're trying to do in a nutshell. When we are buying properties, we are buying them with value investment principles. And by that, what we mean is that we are looking at the underlying bricks and mortar value of the properties that we are buying whilst also trying to buy assets which are yielding as net initial yields, day one yields in excess of seven or 8% with reversion to come. So I. Rental growth, which we can capture through lease events and active asset management.

1:49 And when we're buying these assets, we are trying to do two things. We're trying to maximize income, in doing so, we have managed to pay out our 2p per quarter dividend now consistently since q one two thousand and sixteen, which is 35 consecutive quarters, a statistic that we're very proud about. And we're also trying to unlock capital upside, and we do that through asset management, which we say is the beating heart of our strategy. And with that asset management, we have managed to achieve an eight point nine percent five year total property return to March 2024. I'm afraid we don't have the June, statistics yet, but we will report those in the next quarterly update. And in doing so, we have outperformed the MSCI benchmark who we report against by 6.8%.

2:40 Now it's important to emphasize what enables us to do that is that we are looking at properties on a case by case basis. We are not sector constrained, and therefore, the mix of our portfolio is very organic. We don't say we want to be in a particular sector and therefore only focus on those assets. We sit down a couple of times a week and look at stock selection, and we will look at each of those assets on a case by case basis, looking at the asset management opportunities, the value to go after, but most importantly, the day one yield. Just moving to the investment criteria on the right hand side here. Nothing has changed here. We are sector agnostic, as I said, UK commercial property, strong locations with low levels of supply. That is important to us because it means that we can be on the front foot with our tenants and look to move on rents.

3:33 Net initial yield between 710%. More recently, we've been buying, at yields in excess of 8%. It's a good, buying, market out there. There's a lot of mispricing, so therefore, we can get some attractive day one yields. The fifth and the sixth bullet point on the investment criteria important to us. There are existing metrics from the portfolio as at, June. £74 per square foot, capital value on average across the portfolio. Now that is a very important metric because if you compare that to the cost of building buildings, I e, a £100 per square foot for industrial retail warehousing or higher than £200 a square foot for offices or residential, That value of 74 per pounds per square foot is relatively very cheap. And you have that bricks and mortar value, but it also has that high income of 8% on top of that, throwing off those income returns.

4:30 A low average passing rent across the portfolio of £6.70 per square foot. This is, lowered by a higher weighting in industrial properties, which have a lower per square foot rate to offices or retail warehousing or retail. But I like this metric because it does emphasize the reversionary potential of the portfolio. And we have a reversionary yield of 8.6%, which shows the rental growth embedded within the portfolio, which we can go after through asset management. We have a shorter than average, WOAT, which is a weighted average unexpired lease term. So we are able to engage with our tenants to move on rents and extend leases that add value. And as I said, our values are underwritten by vacant possession values. So that's in the event that the building becomes vacant, you could sell it for close to what your investment value is, residual land values, and alternative use values.

5:22 And we're very proud that we are recognized for this performance. We have a raft of rewards here at the bottom of this slide. We have now won the Citi Y Investment Trust award for four years on the trot, which is based on three year NAV total returns. This at a glance at a glance slide really is a 30,000 feet view of the company, a valuation of 215,800,000, which was up 2.4% this quarter.

5:56 It was principally driven by retail warehousing gains mainly at Dewsbury, Barnesville, and Coventry, not through, yield compression, but through active asset management. There's a slide later on Coventry where we've completed a number of deals over the past two years. Barnesville, we're advancing negotiations with an incoming tenant, which had an impact on the value. And Dewsbury, which we alluded to in the NAV announcement, we've exchanged on an agreement for lease to 10 pin. There's not a slide in this presentation because we will share those details with you once that letting has completed. So a busy quarter for the retail warehousing assets within the portfolio. We saw some strong performance from our industrial sector as a result of exchanging on the sale of at a 33% premium to the March valuation, which subsequently moved the valuation up to that level.

6:45 And we have had a quieter quarter in the office and high street retail, sectors where there is a fair bit of, asset management ongoing. We've got some refurbishments at our offices in Bath and Bristol, and the reletting of the former Wilkes in Union Street is progressing. So a quarter quarter, and I would expect there to be some valuation pops going forward once we get asset management deals over the line. 33 properties, actually now 32 having completed on the sale of Droit, which which we announced on the July 24. A net initial yield of 8.19%, reversion of 8.65% showing the rental growth that we're going after. A vacancy rate of 9.36%, which has increased from 6.3% in the previous quarter.

7:32 This is a result of us disclaiming the leases, which means the leases are essentially torn up, which were administration with CJ Services and Wilco. We've done that because we want to take the units back so we can carry out works to enable relettings of those units. I've said historically that we don't necessarily mine vacancies. Every portfolio needs an element of churn to be able to add value through bringing in new tenants and pushing on rents. That's very much the case with the CJ services and the Wilco space. We like to blow our own trumpet on our debt facility. We have a £60,000,000 facility, which is in place with Agfae. We have an in house debt team at AEW who have their finger very much on the pulse with regards to the debt markets and advised advised us to refinance a year earlier than our previous debt facility, which was with which was with RBSI.

8:27 We did so, and we locked in that 2.96% rate until May 2027, which puts us in very good stead considering what's going on in the debt markets at the moment. A NAV of 167,790,000, that's up 3.1% since March, a 5.04% total return of NAV, which obviously includes the 2p per dividend which we paid out. Our share price as at the June 30 was 85.3p. It hit 94 this week, so we've seen some quite, strong share price performance more more recently. And we would hope that that would continue as, investors look to smaller cap companies and as we hopefully get closer to an interest rate cut.

9:14 In terms of performance, 8.9% now for three and five year annualized property total return and 8.8 for five year annualized NAV total return. So some strong performance there. And just finally, before I hand over to George, our sector weightings, will change, in the next quarter now that we've sold Droitwitz. So our industrial weighting will come down, But currently, we're at 37% industrial and 37% retail, which is split into retail warehousing and high street. Those two sectors have diverged in the post COVID era and then smaller holdings in offices and alternatives. But just to reemphasize, we are sector agnostic, and this is very much organic in its makeup rather than being deliberate.

10:02 Handing over to George.

10:08 Thank you, Henry, and good afternoon, everybody. So I thought kind of the first slide, we we talk about earnings. And why I particularly like this slide is because it it talks about the journey of the company over the last eighteen to twenty four months. Now some of you may recall that towards the end of summer twenty twenty two, we had sold, a number of properties and were sitting on around £40,000,000 worth of cash. And since that time, we've been reinvesting those monies, at the same time as disposing of lower yielding assets and recycling those proceeds into high yielding ones. And, of course, most recently, that's culminated in a in a very strong quarter for earnings. Now we took we took the decision this quarter to state an an underlying earnings, and I'm I'm slightly hesitant to use the word underlying.

11:02 It's more a case of a like for like earnings for the previous quarter. Much of the messaging we've wished given these presentations previously is is talking about this return to dividend cover and earnings growth. And I'm aware that billing a substantial turnover end such as that which we note here of Hollywood Bowl can sometimes distort that image and that journey. But yeah. So I very recently very encouraged by how our earnings have continued to increase, and I think an important thing to state is it it is my expectation that how the current trajectory has gone would continue. Are there any of these specific sales purchases that you wish to touch on further? Yeah. So I think we've we've mentioned in our NAV announcement that there's some exciting asset management, and that is kind of feeding into this return to to cover. You know, 1.92 underlying earnings being 96% covered. And, obviously, because of the sort of the makeup of the portfolio and the the range of tenants, there are bound to always be sort of one off events, which sort of either enhance your earnings or or dull it. You know, we obviously allude that to that in our announcements.

12:14 I mean, in terms of moving away from kind of existing asset management in the existing portfolio, in terms of sales and purchases, the period has very much been characterized by selling out of lower yielding assets, typically industrials in the low sixes and reinvesting into high yielding assets. So, you know, we sold vacant possession industrial units in d side, obviously, giving us no income. We sold two industrial units in Yorkshire for a blended net initial yield of 6.2% this time last year, and we reinvested those proceeds into a multi storey car park in York at 9.3% day one yield and the mixed use building that we bought in Bath at 8%. So that really has been they're the sort of the two themes. A lot of asset management, growing the income within the existing assets, but also selling out a lower yielding assets and buying high yielding ones. And we expect that sort of trend to continue going forward. We will be making, probably more sales in the forthcoming year and looking to reinvest into high yielding assets. And I think, despite there being a lack of interesting opportunities at the moment, it's not particularly a surprise, given that we're sort of moving into the sort of the depths of summer, but we'd expect that to pick up, and, you know, going into the year, especially still against the backdrop of of rates cuts as well. So I think it's gonna be, you know, quite a sort of exciting period going forward.

13:43 Thank you. Translating that that notion of earnings into very much the hot topic, which is, of course, dividend cover.

13:51 When we first introduced this slide last quarter, and and I decided to keep it in. And really why it's important is because, yes, there's an acknowledgment in in in recent years that the dividend cover has suffered, and and that's partly due to actually the fundamental strategy we have been pursuing. But, of course, when one looks since incorporation of the company, dividend cover actually stands at over 91. And with our recent earnings performance and and very much where my expectation is where earnings will go, I would expect that figure to increase. And then just for the added benefit of of readers of this, I've included the the value in pence of what the cover has been, which is in those kind of lighter blue bars on that slide. And and very encouragingly, that is now starting to narrow, and I very much expect for it to continue to narrow.

14:46 Thank you, I suppose partly referencing that slide and and and why this slide is particularly important is we like to really focus on the fact that we are a total return strategy. So, admittedly, yes, REITs generally are viewed as an income play, and and very much so our focus is on maximizing rents and and driving income returns. But, of course, we are also property experts. And we are value investors, and we seek to find opportunities to buy and sell properties, thus enabling the crystallization of profits and gains on those disposals. And what this what this slide depicts here is this is every disposal the company has made since incorporation. And as you can see, the kind of the average sales purchase price premium has been 36% across all these properties.

15:36 Of course, some of you may recall Oxford sitting there in the middle very much, the outlier. That was a property we bought in 2015 or 2016 for just over 8,000,000. We sold that for 29,000,000 in the summer of twenty twenty two. I also wanted to just focus on these two more recent red bars being Blackpool and Portsmouth. For me, these are just important as the wins and and the big gains because very much what is important about our business is, at times, being able to acknowledge when we run the course on a certain property. We we've done everything we can to drive value, drive income in that asset. And sometimes, the most astute thing to do is to is to draw the line, sell the property, and refocus those proceeds and reinvest them into more meaningful opportunities.

16:24 And, of course, we've added Joy at which to the end here being our being our most recent disposal. Were there any others you wish to touch on? No. I think you've I think you've covered everything, George. Okay. Moving on to slide nine then. So this is the manifestation of our active asset management strategy, driving income returns, selling properties at profits. And, ultimately, the result of that is NAV outperformance. So what this graph shows is our NAV outperformance versus our peer group. There are a few key themes to pick up on here. One is you'll see the outperformance really starts to commence in late twenty nineteen, early twenty twenty, and that is no coincidence.

17:12 As Henry mentioned earlier, our our is around five years, and you will see that since the company incorporated in 2015, this is where that five year period really starts to kick in. This is where we start to see the benefits of our asset manager initiatives, improving the lease portfolio, undertaking meaningful works on properties to drive capital improvements. And most encouragingly, of course, actually, in more recent times is even though we've been in a very challenging macroeconomic environment, especially for the commercial property sector, the degree of outperformance has actually started to widen. And we'll come on to that in later slides when we focus more on the property performance. And to reiterate the statistic Henry said earlier, we've got a five year annualized NAV total return of 8.8%, which is very, very strong.

17:59 Moving on then to our to our peer group comparison matrix, one of the best term. So we've just been discussing NAV total returns, and and they're on the far right of your screen there. And as you can see, as at March 2024, over all stated time periods, we are the leader amongst all our peers. And by no small margin, you know, one especially focuses on the three and five year basis, we are we are an outlier. We are well ahead of of even the closest peer. Share price total returns have have been interesting, in the year to date. Of course, as I'm sure many of you are aware, there's been various utterings in the sector of of m and a activity, and that's a somewhat skewed share price performance.

18:46 When I when I look at the business in in my role, I'm always thinking on the long term sustainable performance, is, which of course, how many people view REITs as a long term investment. And I'm also encouraged by on a three and five year basis, we are also the head of our of our peer group. And the last two statistics here really to focus on are are our dividend yield and our discount to NAV. Of course, in more recent times, our discount to NAV has widened, and this is something we've really queried with our broker. And, really, it's just market sentiment as as unfortunate as that is. Although, as Henry said earlier, I'm I'm very encouraged by the recent share price performance. We're now starting to see that discount narrowing. And lastly, on our on our dividend yield, of course, the one benefit of the discount widening is our dividend yield has and it being above 9% now is a very, very strong metric.

19:41 And if we go on to the next slide, this graphically shows that. So as you can see, after discounting for regional REIT, which I tend to exclude given its financial difficulty, we are at least 1% higher in dividend dividend yield terms. We need no nearest period. And in fact, actually, this quarter, it's in excess of 1.5% higher. I find that particularly compelling.

20:07 Moving on. So slides twelve and thirteen are drilling down into our property performance. Now as you will see here, over all the stated time periods, we far outperformed the MSCI benchmark. Most encouraging most encouragingly for me actually is is the three, five, and seven year performance where you will see our forms is actually very consistent in numerical terms. I feel that's really testament to the defensive and sustainable nature of our strategy. And the last thing to point out is, although this data is still as as at March, you'll see at the title of the graph a stated figure of 6.82% outperformance. That actually was a widening from the December 23 position where that figure stood at 6.65.

20:52 So I find that very encouraging that not only is our performance still extremely strong, its actual outperformance in comparison to the market is continuing to widen.

21:02 And lastly, this slide drills down into our performance on a sector by sector basis, both in terms of capital and income return basis. You will see that we've outperformed the benchmark in the last twelve months across all property sectors. Particularly of interest is the fact that industrials were the only sector that delivered a positive capital performance. Now the conclusion that can be drawn from that is that actually what is driving our outperforms is our income returns. And this is a direct result of our asset management strategy, our active asset management strategy. It's improving leases. It's driving on rents. It's managing costs. And that is ultimately what is delivering our performance at what is quite a difficult time for the market.

21:48 Back to you, Henry. Thank you, George. So, moving on to our most recent disposal. We made an announcement on the day before the announcement on the July 24 that we had completed the sale of Droid Witch. I mentioned earlier on in the presentation that exchanging this unconditionally was what

22:12 increased the value and gave was the main contributor to the valuation performance for the industrial sector this quarter. So just to touch on a few metrics for this asset, a 189,000 square foot. When we bought this asset back in December 2015, it was single let to Egbert Taylor who manufacture commercial bins. And overall sort of nine year hold period, Egbert Taylor have downsized to about 50% of the site, which has left us with a fair bit of asset management in reletting the units that they had moved out of, appreciating that Egbert Taylor still are the anchor tenant on the site.

22:50 So we bought the property for 5,620,000, a low cap out square foot of £30 a square foot. But, actually, if you compare that to the long income that we had from Egbert Taylor, then, you know, that was really good value at the time. Yielding is 10.4%. So these are the types of assets that we will be continuing to buy going forward. However, obviously, things changed over the the lifespan of this property. So we sold it at a 33% premium to the March valuation for 6,300,000, and that initial yield was 7.95%. Now the reason we sold this is because we carried out a number of lettings over the course of the past twelve months, letting several units to new tenants. And we felt the next phase of asset management would be quite capital intensive. Now we are not shy of refurbishment projects.

23:41 But in this instance, we thought that the the ERV that we could go after didn't really justify the potential capital expenditure that we would have to spend on the buildings. There was also a sort of a plan b, which would be an open storage, which would lead to demolition of some units. Open storage is a sector which is quite in vogue at the moment, partly because there's a lack of good secondary space and also because rents in primary logistics and warehouses are so high now. So open storage is becoming a theme. However, we kinda thought we'd roll the dice on this one. We felt that there would be a sort of a a good amount of demand from high net worth individuals for this asset, and we ended up selling it, as I said, for a very healthy premium to valuation.

24:31 And those proceeds can be reinvested in some really exciting asset management opportunities within the portfolio. We're currently, as I said, carrying out some refurbishment at our office in Bristol, Queen Square. We're also carrying out refurbishment of two industrial units in Runcorn. We have the 10 pin letting, which is subject to land works, which is exchanged, and those works are ongoing. So there's a lot of exciting asset management which we could use these sale proceeds. Well, those these proceeds will fuel that asset management, and there probably will be a little bit of money left over to maybe buy one small asset. That said, we are typically now trying to buy slightly larger lot sizes in excess of 5,000,000. So I think it would be strange to be buying an asset of about 1 to £1,500,000 given this point of time. So I think we would keep that money up our sleeve for more asset management, or we would roll it in with a larger sum of money for future sales, obviously, subject to any other sales within the portfolio going forward.

25:36 So, if you've joined this presentation before, you're probably sick to death of hearing us talk about Coventry, so apologies. I I think it's best to say this might be the last time we present slide because our asset management, for the time being is is very much done here. Just as a as a recap, we bought the property for 16,410,000 with a day one net initial yield of 7.8% with a reversion of 12.8, so very typical metrics for AEWU. And what we have done since owning the assets, which was bought in q four twenty twenty one, is we have moved the 24% vacancy, to the property we now being fully let, which has increased the contracted rent by just shy of £500,000.

26:23 And if you actually look at how much we've increased the net operating income, which obviously factors in the void costs that we had on the 24% of vacancy. We've grown the net net operating income by in excess of 50%. So, you know, fantastic. This is exactly what we're trying to do within the existing portfolio.

26:42 We, through the relaxing of the planning system, have brought in some new tenants. So Aldi, the food warehouse, which are Iceland, MyDentist, and Salvation Army. So replicating what we think of as our old high streets, a range of different retailers, moving the retail warehouse and park away from either fashion or bulky goods. We've carried out lease regears with Next, Boots, TK Maxx, and Burger King. So we've got a really, really good diverse pool of tenants here, and that will ultimately drive footfall, and footfall ultimately pushes on rents. If rents increase, the occupier demand increases, that naturally feeds into investment performance. So it's really a kind of a a perfect storm in a good way here. We also have managed to make every single EPC for the unit an a and b, and that's important. If institutions are gonna end up buying these assets, they want strong environmental performance as do we.

27:36 And we have a number of other ESG initiatives ongoing,

27:39 solar, EV charging, and a range of biodiversity initiatives throughout the site. So this really is a great example of the type of asset management that we do at AEW. So this is a new slide. It's our industrial asset in Peterborough, and I think the two sort of main things I wanna touch on here are its underlying capital value per square foot, which when we bought this property, it was of £31 a square foot. So similar to Droitwich, but this is let actually on a fifteen year lease, and the tenant's only three years in. So really, really cheap underlying value on this asset with twelve years left on the lease. It's twelve years with three year r RPI increases.

28:24 When we bought the property, their passing rent was £2.85, which is very cheap. We subsequently moved the rent to £3.50 having done a regear in April 21. We've subsequently increased that rent by £80,000 a year to £3.94. And what's fantastic is the rent, it's not over rented in in existing state. We think ERVs for this unit are probably in excess of £4 a square foot. So that doesn't have an impact on, the yield that the valuers will be using to value this off, which is quite technical. But it it really has been it's a good asset. As I say, we've seen some nice rental growth since we've owned it, and that rental growth will continue. The RPI reviews have collars and caps of two and four, and it's nice, sensible rent. It's led to a tenant that works that operates in the printing sector.

29:16 And, actually, even though that sector has, to some extent, been on the back foot recently with, obviously, people spending more time reading newspapers and magazines on their iPhones and on their iPads. And the sector has consolidated and actually, Wallstead, the tenant of the market leader. So we feel that this tenant is actually strong going forwards. And, also, it's probably fair to say that they're quite well into this property inside. There's millions of pounds of printing machinery in there. So it's a good example of an industrial asset that we like to hold and maybe buy going forward as well.

29:54 On ESG, other than sort of asset management, sort of sustainability plans that we have ongoing for all the properties within the portfolio where we're looking to improve, for example, bike facilities and sustainable travel and bat hotels and bug boxes and a wider variety of flora and foreigners on our sites. The most important thing at the moment is is EPCs and the minimum energy efficiency standards. And over the course of the past sort of year, since April 23, we've been trying to move our EPC ratings into the kind of c and b category. We do have five g's, but I'm not concerned about these. They don't keep me awake at night because three of them are in an office building that in due course, we will look to demolish and create some open storage, which we'll be able to rent out or maybe develop some smaller new

30:48 industrial units at our site in Wakefield. And then there are two more which are an existing unit, which is not let, so therefore, it's not in reach of knees. But if we had an offer for that unit, we would be able to put in some new LED lights, and we would be able to enhance that EPC score to see. So it's something we're very much in control of. And organically, because we have the benefits of shorter lease lengths, and therefore,

31:12 more and more of a churn at lease events, we would hope to push these EP scores in the direction of c c's and b's going forward. So to conclude, so as George touched on there, we have had consistent sort of quarterly earnings growth since June 23. June 23, our earnings were at 1.75, and the underlying figure, as of this quarter is 1.92. But, obviously, the total earnings were 2.26, which were boosted by the Hollywood Bowl turnover rent that George mentioned and a reverse of some service judge works at Union Street. There are some really exciting asset management opportunities in the portfolio.

31:58 Those are growing the income in the of the of the of the company, but also they are mitigating void costs, and that's important. So it's a sort of double whammy in terms of boosting those earnings. We remain very sort of vigilant of what's going on with our tenant base and what's going on with the wider economy.

32:19 In the event that we do have tenants that do wobble a bit. But as I said, I don't think that is a concern. As I said, it can present an opportunity. We can very much make the best out of a bad situation. And I've touched obviously on the CJ service admin and the work admin where we are in the process of doing production works and letting those units. So that's exciting, and actually that can be beneficial.

32:42 That is the reason why we have a slightly higher cash waiting at the moment so we can sort of feed that into these asset management opportunities to grow the income. I'm gonna regurgitate the statistic, which I did earlier on, about our book value being £74 a square foot in our loan rents. We really like to be in this place. It means that there's value to go after with a with a relatively low cap out per square foot, and there's income to go and hunt for as well. That is, illustrated by our reversion, re yield at 8.6%. That is what the asset management team restructured to go after and go and, crystallize. We continue to very much think of the portfolio as a total return strategy. Sales, are important to us. It enables us to crystallize asset management gains and recycle that capital into high yielding assets with asset management opportunities for us to go after.

33:37 And we have we're proud of that 36% average sale to purchase price premium. And this is all sort of founded on the £60,000,000 debt facility at two point nine six to May 27, which we acknowledge is a good place to be given what's going on in the wider debt markets currently. So thank you very much. We will move on and answer some questions. Fantastic. Thank you very much indeed for the presentation. Ladies and gentlemen, do please continue to submit your questions using the Q and A tab situated in the right hand corner of your screen. Just while the team take a few moments to review those questions submitted today, I'd

34:15 like to remind you the recording of the presentation along with a copy of the slides and the published Q and A can be accessed via our investor dashboard. As you can see, we've received a number of questions throughout today's presentation. And if I may, just ask you to click on that q and a tab and start from the top and read out the questions where appropriate to do so, and I'll pick up from you at the end. Okay. Fine. So we have the first question here saying, can you clarify the position regarding the tax indemnity? I'm puzzled as I understand that the company was being indemnified for the amount of tax payable already provided for and also presumably already reflected in that. So, HMRC are yet to confirm the exact amount. When they do confirm the amount, that will be paid and will be indemnified by AEW UK Investment Management.

35:02 As we have said previously, it will have no financial bearing on the company whatsoever. So it's just something that we're working through. We had hoped that we would know that this quarter, and we now hope that we will know by next quarter. Question here saying, will the wind up of home REIT impact AEW as AEW received management fee income? It's very important to stress that AEW is a completely separate portfolio management team and asset management team and investment management team. So we operate entirely separately, so it will have no bearing on AEW whatsoever. We now have a question about discounts. It states the discount is substantially above the average. What's the company going to do to address this as investors and nursing losses over every period in the last five years?

36:04 So there's a few points I'd touch on here. One is, yes, as I alluded to in the presentation, the discount has recently widened, and and, really, that's to do with wider market sentiment. And, of course, in more recent times, we started to see that narrow, and it's very much my hope and expectation that that trend would continue. But one must remember that over the last year, our average discount has been around 7%. And, of course, actually, there was a period of time, certainly in 2022 when we disposed of Oxford that we're actually as a as a premium to NAV. As a business, we've undertaken a a variety of initiatives to improve the marketing efforts of the company. Henry and I have have met with various investors, and and some of you may have seen the Capital Access Group research note on the AIC website. And of these are efforts to promote knowledge of the company in the market in the hope of supporting its share price.

37:01 Of course, there's only so much we control. Market sentiment is one thing that we we can do our best to, to mitigate on on a idiosyncratic basis. But, as of now, our efforts are very much focused in promoting the business and supporting that share price as best as we can. So question here from David S. You mentioned you were seeing mispricing in the market. Do you have enough liquidity to take advantage of these opportunities? And what's the strategy to recycle the portfolio? Well, what I would say is that you'll be aware that we do sort of carry out a lot of disposal of existing assets and recycling that. That theme is very much gonna continue.

37:47 Obviously, we have only just sold Droitwich, appreciating that it is we it's the July 3, so the investment market does slow up. But I I'm happy to say that we will we anticipate there to be further sales over the course of the next six months, which means there will be acquisitions as well. And that is principally being driven by us doing what we have always done in crystallizing asset management gains, but also because we feel that there are some exciting opportunities out there and some good mispricing, particularly in larger chunks of high street retail offices in good towns and cities a bit like the properties that we have recently bought in Bath and Bromley. So we hope that we would find more opportunities like that. So we certainly have our eyes on disposals and recycling that those proceeds into new buying opportunities.

38:49 Question here from Adrian W. When do you anticipate some growth in the dividend? It's been static for a few years now. I think it's important to stress that, the dividend policy, is very much decided by our board rather than the investment manager, AEW. So that is the decision of the board. And, obviously, we continue to inform our investors of that when we make our quarterly announcements. Question here from Mark B. Have there been changes to the management of AEW UK? I observed that Laura Elkin isn't on this call. No. They haven't. And I said at the beginning of this presentation that Laura is currently on maternity leave.

39:35 So Laura will be back with us in February. And for the time being, I am in the hot seat as portfolio manager, but Laura will be back and resuming her role in February next year. Question here from Ashley r. Can you please deal detail the team around you and what resources you can draw on? What involvement do you have as a PM team in the ongoing day to day asset management and portfolio by itself? So if people if people don't know much about AEW, AEW was founded in Boston, United States Of America, and is a specialist investment and asset manager of real estate.

40:26 We have about 40,000,000,000 in management in Europe and same in America, and we have a UK office, which is where George and I are sitting today. In our office, we have a dedicated asset management team, a dedicated investment management team, a dedicate dedicated debt advisory team and fund operations team. So separate teams all focusing and specializing in their area of expertise. For example, I started my time at AEW ten years ago in the asset management team, and I've worked my way up. So my bread and butter, my trade really is asset management. But, obviously, more recently, I've moved into portfolio management. So in terms of how we operate, the portfolio management team, so myself and George, will sit down with the asset managers weekly or fortnightly to discuss the existing 32 properties within the portfolio. We go through business plans, and we all chat through what we're gonna do to try and add value.

41:30 And in terms of the investment side of things, we have a hold sell meeting, where we go through the portfolio and decide which assets may or may not need selling, for a range of reasons. And we sit down weekly, if not twice a week, depending on the stock that we're seeing with the investment team and looking at new opportunities. So it it works very well. I think that those specialist departments are very much a contributor to the strong performance of the company over the last ten years. So question here from Martin g. Do you anticipate any move in The UK to mandate landlords to install solar PV capacity, e g similar to the obligations in France?

42:21 World Green, does this make financial sense? So I can only really speak on my experience of solar panels. If you have a full repair and ensuring lease, which is the majority of our properties within the portfolio. If you're going to install solar, you first need the permission of the tenant because they are responsible for the upkeep of the property. So, therefore, by putting solar panels on the roof, you need their permission because, obviously, if any damaged cause would be their responsibility. So you need to work through that. You also need to make sure that your property is fit to install those solar panels. You also need to have a connection with the grid. So you need to speak to National Grid to make sure that you can do that.

43:07 And the reason being that if you have surplus electricity produced, which the tenant isn't using, you need to essentially sell that back to the grid. The alternative is that you can have batteries on your site, but that is a bit of a sticky wicket because batteries are very flammable, and therefore, insurance premium goes up. The the general sort of financial metrics behind solar panels is that actually you can generate electricity and sell it to your tenants cheaper than what they are currently buying off the grid. So you make money. They save money. But there are several sort of hoops to jump through, but the returns are fairly exciting. You can get sort of an IRR over, like, a fifteen to twenty year period of about in excess of 10%, obviously, depending on the scheme.

43:58 So it is something that we do look at. There is potentially a plan to do it at Dewsbury. As I said, we had exchanged the lease with Tenpin there who have a sort of strong focus on ESG. But, obviously, our sort of our main goal is is is sort of the nuts and bolts of property investment management and and dealing with the tenants. Of course, we would like to make the portfolio greener, and we will always continue to review solar opportunities. Question here from Mark B. Can you tell us about your pipeline of recycling capital release from recent assets? It's probably too soon to include a pipeline slide. We might include one in the next quarter.

44:45 There are some good opportunities out there. I think the the heaviest mispricing is actually in the office sector. So there's some really good deals to go at there. However, it's probably fair to say that I'm a little bit twitchy about the refurbishment costs associated with offices at the moment, particularly bearing in mind that tenants are only prepared to take three to five year leases. And there's less rental growth in the sector. And it's becoming quite polarized in the offices. You really have to be sort of the best in class, the best located, and the best environmental performance. But I think there are some good office buying opportunities out there. I also think, you know, flipping out on the head, very different sets of offices, there's some really good leisure opportunities out there. Strangely, sort of in the cost of living crisis, people naturally feel that people have less money to spend, and therefore, that's having a negative impact on the ledger sector.

45:39 But we actually alluded to it on our announcement, the success of the bowling sector in particular, having done that letting with Tenpin and obviously build three years of turnover rent from Hollywood Bowl where in the three years prior to the most recent three years, there had been no turnover rent. So that that stresses the success of the leisure sector. And, actually, I prime prime leisure yields are sort of kind of 10%. So that's perfect for AEWU, and then typically that's on longer leases as well, with review mechanisms, so we could go after rental growth. So I think leisure is an exciting opportunity, as is offices mainly because of mispricing. But I I I think there are also some really good opportunities in larger chunks of real estate in good towns and cities as as well as are our recent purchases in Bath and Bromley.

46:27 A question from Gordon m. How important is it to AEW to get the dividend fully covered? Is there any scope for fractionally growing the dividend increasing from historical two p per quarter? So I suppose that there's two elements to that question. How important is dividend cover? My initial response to that would be we wouldn't place so much emphasis in this presentation on earnings and dividend cover if it were not ultimately important to us. Of course, our focus and and much of what is my role in this business is paving the way to achieving that and very much keeping the focus on doing that. However, as Henry and I alluded to in the presentation, we do very much have a total return hat on as well.

47:20 REITs, of course, are an income play traditionally. That's how they are viewed. But it is no coincidence that we've managed to afford and pay our dividend for so long. Our ability to do that has been facilitated not just by, you know, the fantastic portfolio of tenants we have and the growing rents we've been able to achieve, which is also selling properties for profit and supplementing the dividend where needed. And and the other part of the question about fractionally increasing the dividend, as Henry said, of course, it's the AEW board that decides what our dividend policy is. However, I do feel it's important to remember that on a gross basis, our dividend is market leading. It's extremely competitive, and it's spitting out a dividend yield well in excess of 9% now and way ahead of our peers, which I feel is very compelling.

48:10 Of course, where we can deliver further return to shareholders, that would always be considered by our board, but I I can't really comment on on future earnings or future affordability of dividends. Question here from Andrew s. Are you and George Laura dedicated to the REIT, or do you work more widely for AEW for AEW? We are dedicated to the REIT completely 100%. So I think it's what I myself and Laura have historically worked on other strategies at AEW. But I think that, is a good thing because, it's good to sort of work up and down the risk curve. So I have done a bit of work on a longer income alternative funds in my early days at AEW. I've also worked on core plus strategies. So I think that sort of is good experience when obviously working on a core core plus strategy like AEW.

49:12 And I also have worked on a on a value add, strategy, but the decision was made to solely focus on on AEW REIT, which is testament to us, really, wanting to deliver all our source to this company and fully focus on it. Another question from Andreas. Do the challenges recently faced by other REITs provide any purchase opportunities for AEW? Yes. Very much so. Obviously, with our share price at a discount at the moment, raising new capital, is tricky. We very much have our eyes peeled on corporate acquisitions, but the most important thing is that we would never really, look to sink our teeth into a merger or corporate transactions as as it must be to the benefit of our shareholders. Yep. So that is the most important thing.

50:04 Question from Richard b, what is position with your night club in Cardiff, which is under administration? So it's still under administration. The tenant is still trading out of there with the administrator paying rent. That is obviously a good thing. So we are still getting the rent that we were perceiving prior to the administration on the February 1. We are in the process of assigning that lease to Phoenix Co, but to sort of if you're on the ground, it would it would appear nothing has changed. The rent will be reduced, but we feel that that is obviously, you know, to our benefit and the tenants. It means it's a more sustainable investment going forward. And there will be a turnover provision, which means that, obviously, we will benefit if the tenant trades well as per the examples that we have shared in prior quarters.

50:56 For example, Hollywood Bowl more recently, Sports Direct, etcetera. So question here is saying, AEW in the past talked about opportunities in existing portfolios such as drive thru coffee pods at the gym in Scotland. There's land previously been purchased. How are these opportunities progressing? Are there any more opportunities identified? Great results. Thanks. Thank you and team for your hard work. Well, thank you for the thanks. In terms of drive through restaurants, we have, for example, an existing one at our retail warehouse in Park in Dewesbury, let's KFC, where there is a lease negotiation ongoing.

51:41 And I think my high level summary on on those drive through restaurants is that actually there's been some really strong rental growth performance in recent years as the sector has very much become well known. And and, obviously, you know, we will all know that you drive around The UK, these drive thrus are incredibly busy. So it's been really some really strong rental growth. However, at the same time, the build costs have really increased. So the profit that you will be going after in building these obviously very small, and they're about fifteen fifteen hundred square feet, has actually shrunk, based on my recent understanding, despite the rents increasing so much. And, also, as the, sector has matured, there are a much wider variety of franchises, and therefore, you don't necessarily get, a really strong yield applied to the tenant that is taking that restaurant, which will obviously be the group of elite subject to the pod being built. So it's it's in my experience, there seem to be less of these opportunities at the moment. You know, we've seen these drive thrus popping up all over The UK, and, obviously, the more that pop up, the less opportunities that are gonna go forward.

53:02 And as I said, I I have, in my earlier days at AEW, built two of these in a value add fund. So I've got experience doing it, and, obviously, I have my my eye on other opportunities. I think the Glasgow one in particular is quite hard because of the access, which is frustrating because there is a really nice chunk of land there which could be developed for that use. So question here from Andrew S. Do you have a viewpoint on the overall size of AEW, which is very modest in terms of the universe of other REITs? So I think the first obvious point to make here is a reiteration of what Henry said a few moments ago. If we were to undertake any corporate activity, the first fundamental criteria that must meet is that it must be for the best betterment of our shareholders and must not jeopardize them.

53:57 Much of my role and and Henry's role, actually, over the last twelve, eighteen months, especially with all the utterings of m and a in our industry, has been assessing these opportunities, and it's something that we, remain extremely cognizant of. Of course, it would be, optimal for the company to be more liquid, to high to have a higher NAV, and that's something we are always going to maintain a focus on. But, of course, that would never be at the of our ultimate strategy and focus, which is driving income and and and gains in in the portfolio that we already have. Question here from Richard S. Are you a good landlord? Or put another way, where do your tenants sit in your asset management focus priorities?

54:49 Are we good landlords? Well, if you if I might sort of touch on what we've reported on Coventry, for example. In doing a lot of the asset management there, we have obviously spent significant amounts of money on the units, and that's always delivering units which are fit for purpose for the incoming tenants. We've also put on the table capital contributions as incentives to get tenants in. So, if you take that as an example, yes, of course, we're a good we're a good landlord. I think, what I always really like, about sort of getting out on the road and inspecting our properties is is is meeting tenants and and inspecting the properties and really sort of realizing that we have a range of properties which are obviously providing a a, you know, an important function to The UK economy.

55:34 And I think it's important that the landlord and tenant relationship is a good one. It's very much not a case of the landlord looking to just squeeze as much value out of their asset, and and they know that they can do that by putting pressure on the tenant. It's very much a a mutual relationship. The tenant benefits, obviously, from good space that they can operate their business out of. And in return, we collect the rent and, you know, our investors benefit. So, yeah, there's there's it's only gonna be detrimental if your relationship with your tenant is a bad one. You you wanna you want it to be a good one because that ultimately will be the foundations for strong investment performance. There's a question here about share and shifts. How does overall ownership of shares split between retail investors, wealth managers, and other holders?

56:25 I actually recently did an analysis into this. Of course, it changes every day. But in terms of our retail holding, at the time I did the analysis and the information I could garner was at least 50%, and I'm sure it'd be no surprise to many of you who are likely on these platforms, the likes of Hargreaves Interactive Investor, AJ Bell, former big four portion of our register, but there are also a huge diversity of wealth managers. I can't state exact figures, but I can say that the retail holdings at least 50%. Is there anything else we have? There's a question here from FM. What's the market looking like? When are you expecting it to change, and what sectors are you going to invest in going forward?

57:13 I kind of think I've I've answered this question, but I think that there it's well, it's been a very slow year as far as the investment market is is concerned. It's the that transaction volumes are significantly less than they were post GFC and post Brexit. So that really shows how the high interest rate environment has really slowed up the investment market. I think it's probably fair to say that people are starting to accept that higher interest rates are the norm now, and there are starting to be more, cash buyers in the market. I feel that, September will be will be will quite interesting because I really feel that there probably will be a point where stock increases.

58:01 There will be some buying opportunities. Obviously, we will have an eye on disposal as well because, obviously, we need those funds to buy new assets. I think that's I think that's all everything answered, Paul. Fantastic. Thank you very much indeed for covering all those questions. Of course, any further questions do come through, you will have the ability to review those, and we can publish responses on the Investor Me company platform. Before redirecting investors to provide their feedback, which know is particularly important to you and the team, Henry, could I ask you for a few closing comments, please? Thank you, Paul. Thank you all for joining us today. I hope that we have provided more meat to the bone with regards to our most recent announcement.

58:47 The company is is in a is in a good state of affairs, as I said, with some exciting asset management opportunities ongoing. I wish you all a good summer, and I look forward to presenting to you again in the autumn. Fantastic. Henry George, thanks for updating investors today. Can I please ask investors not to close this session? Should be automatically redirected to provide your feedback in order the team can better understand your views and expectations. This will only take a moment to complete, and I hope you're greatly valued by the company. On behalf of the management team of AEW UK REIT PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all.