Aew Uk REIT (LSE:AEWU) — Q3 Investor Presentation

0:01 Good afternoon, ladies and gentlemen, and welcome to the AEW UK REIT PLC Q3 Investor Presentation. Throughout this presentation, investors will be in listen only mode. Questions are encouraged and will be submitted any time via the Q and A tab situated in the right hand corner of your screen. To click Q and A, scroll to the bottom, type your question and press send. The company will review all questions submitted today, and we'll publish responses where it's appropriate to do so. And these will be available via our Investor Meet company dashboard, and you'll be notified once they're ready for your review. I'd also like to remind you this presentation

0:32 is being recorded. Before we begin, we'd like to submit the following poll. I'd now like to hand you over to Alex Shaw, portfolio manager, and Henry Butt, director of AEW UK REIT PLC. Good afternoon. Thank you very much, Paul. Good afternoon, everybody. Thank you very much for joining us. If we could move to the first slide, please. So this, of course, is our quarterly update for the quarter ending June, but I'll start with a high level reminder of what we do in this particular strategy for this REIT. So first off, we are invested entirely in UK property, and we run a diversified strategy. So by location, by sector, and by tenant type, we're diversified, and we feel that gives us, a good way to manage risk through the property as an asset class.

1:23 You will likely have seen a similar presentation before from us, and and will remember that we generally buy slightly shorter than average occupational leases. That's slightly shorter than the benchmark. We tend to find that not only do we get a better yield on purchase as we do that, but also generally, shorter leases give us the opportunity to talk to our tenants. And very often when we're talking to our tenants, it means that we get the opportunity to add value by doing asset management deals with them. So whether the lease event is an expiry or a break or a rent review, we tend to find that that is the way that most of our asset management deals start, and you'll see later in the presentation some examples of where that's worked really well for us, and we have managed to add value to these assets.

2:11 And the downside risk here is very important as well. We tend to manage that very carefully through our stock selection process. So what we like to see at the point of purchase is that the vacant possession value of any particular asset will generally be 80% or more of the purchase price that we're paying. Having a low capital value per square foot, of course, tends to give us very good optionality. So if at some point in the future we decide that it's helpful to move that property, for instance, into a different use, having a low start value, a low capsule value per square foot tends to give us better prospects to be able to do that and to add value. One of the, more unusual features of this REIT is that we pay a high dividend. So the highest in the peer group, we pay 8p per share per annum.

3:04 We split that into quarterly dividends of 2p per share, and we've paid that consistently now since quarter one two thousand and sixteen. And for the vast majority of that time, that dividend has been covered as well. So the directors have continued to express their confidence in paying that dividend going forwards. In terms of investment criteria for buying assets, we generally will buy initial yields of seven and a half percent plus, and our average lot size will tend to be between two and fifteen. Somewhere around £10,000,000 is probably our sweet spot. The slightly shorter than average unexpired lease term we have already talked about, so we'll move on to the next slide, please. So this slide gives us a quick overview of the REIT as it was at the end of June. So this, of course, being our quarterly update.

3:56 Our gross asset value now is about £210,000,000 as you can see, and we have 36 properties. So a good spread of risk. The reversionary yield importantly remains higher than our net initial yield. That's, of course, means that in the estimation of Knight Frank, who are the independent valuers here, there is more rental value to come from this portfolio, and we tend to agree with them. Performance for this quarter has been particularly strong with total returns in excess of 10%. And you can see from those valuation figures that about seven and a half percent of that has come from capital value increases, predominantly from our industrial properties, but also some of our office assets have performed extremely well. And we'll come back to that in more detail in a moment.

4:45 Our vacancy rate is around five and a half percent, which is where we would expect it to be. It's slightly artificially raised at the moment by the sale of an office asset in Glasgow with where, we've exchanged conditional upon providing the purchaser with vacant possession. So we're in the process of removing tenants from that building. But excluding Glasgow, the vacancy rate at five and a half percent is very much where we would like it to be. Debt, you can see on the right hand side of that column, we tend to run a fairly conservative debt strategy. The LTV at the moment, you can see, is just about 30%. You might see that increase slightly towards 35% as we reinvest some of the proceeds of recent sales to get back to our full investment capacity.

5:31 And the all in cost of debt here is about 1.4% per annum, so it's very accretive to performance. And we recently migrated this to be a rolling credit facility, so we can draw and repay debt at will without incurring any penalties. So a good prudent debt strategy for the REIT. Cash available at the moment, you can see is £12,300,000. We have actually just exchanged contracts to sell to industrial assets, so that will increase slightly. And with a a good interesting pipeline of assets to buy, you'll see some new assets coming into this REIT in the relatively short term. And very quickly on the pie chart on the bottom right of that page, I mentioned earlier that we have chosen to have our largest weighting in the industrial sector, and you can see from that chart that we have been currently around 57% in industrial.

6:24 That will reduce slightly with the sale of those two assets,

6:28 but it has served us very well in terms of performance in the last year or so. And likewise, our very low retail weighting has also been very beneficial to performance, which you'll see as we come on to performance slides. Moving on to the next slide, please. So this slide looks at the dividend, which I have mentioned is the highest in the peer group, and you can see The UK REIT there, in red on the extreme left of that page being the highest amongst the REIT peer group. That particular 8% is taken from a share price in mid July. Of course, that moves around slightly a day at a time, but at 8p per share per annum, we do pay the highest dividend in the peer group. Next slide, please. So moving on from here, we're now looking at property performance, the underlying property performance.

7:21 And, again, you can see that the REIT is in red and the MSCI benchmark is in blue. You can see over each of these time periods, so six months, twelve months, and three years, the REIT has really quite strongly outperformed the benchmark. And we're very pleased that for the twelve months ending June 21, we are nearly 12% ahead of the benchmark in terms of our annual performance, which is very pleasing. Next slide, please. This is much the same data for the twelve months to June, '20, '21. And here, we have split this performance data into sectors, so you can see the weighted contribution of each of the sectors.

8:08 On the left, you can see the total return of the combined portfolio and then sectors beyond that. And you can see that having a high weighting to industrial and a very low weighting to retail has been particularly helpful in terms of our total return. Moving forwards, please. So this slide, we are now looking at the REIT performance against the REIT peer group. So AEW UK REIT, you can see, is at the top of that chart. And you can see that we have been the peer group leader in terms of NAV total return and share price total return over twelve months and three years, and NAV total return for the six months as well. So pretty strong performance against the REIT peer group as well.

8:56 Onto the next slide, please. So this slide goes back to dividend cover, which I have been saying is so important to us. So the dividend being the highest in the peer group, and, of course, we predominantly need it to be covered by earnings and for the vast majority of the time since we have been paying this dividend, back at the beginning of 2016. For nearly all of that time, the dividend has indeed been covered. Pandemic times, of course, have made us take on a slightly more prudent strategy in terms of selling a couple of assets to crystallize some pretty high profits, and then being slightly, more thoughtful perhaps than we usually would be in terms of reinvestment. So we had some money that we could have spent last September, and we chose not to because that felt like a fairly uncertain time in the market. So instead, we repaid some debt and sat on some capital.

9:51 We're now in the process of reinvesting and seeing really interesting opportunities out there, but I think this gives you an idea of how we will be back to full dividend cover. So first off, the level of uncover is relatively small, so we've been in excess of 80% covered. Heading back to full investment and back to our desired level of gearing, along with completing some capital expenditure works as our assets in Blackpool, we would expect to be back to full cover by early next year. It's also worth mentioning on this slide that you've probably seen in the press that we took two of our larger tenants to court. And for unpaid rent, they were claiming that rent was not due during the pandemic.

10:40 We contested that through the courts and won. That prompted both of those tenants to pay all of their rent arrears, and that, of course, has also been very helpful to dividend cover. So for the quarter ending June, we were actually covered to a 107% of our dividend. So all looking very promising moving forwards at the moment. And at this point, I will hand over to Henry to talk through some of this in more detail. Thanks, Alex. And so, moving on to Slide 10. Much of this slide touches on the last slide, which Alex has just discussed. But in a nutshell, there's the three things which have had an impact on earnings and dividend cover over the past year or so.

11:25 And one being bad debts and two and three being asset management initiatives. We took a very prudent approach with regards to our bad debt provision at the outset of the pandemic, having a bad debt provision of roughly GBP 950,000, which had an impact on earnings of 0.0 per share. However, as Alex just mentioned, as a result of the successful legal action against two of our wealth under tenants, we recovered that rent. And as of this quarter, we reversed that doubtful debt provision and we had an impact of 0.37p this quarter alone. Moving on to the asset management initiatives, which have had an impact on earnings.

12:11 And the remedial works at Blackpool have had an impact of about 0.13p per quarter. And however, it is worth noting that, obviously, as we spend money on the property, the valuation of the property will increase, which will be accretive to performance going forward. In terms of the sale at Glasgow, that is conditional on vacant possession and planning. So having a high element of vacant possession, naturally, there's no income and there are costs associated with holding that vacant space. So that has had an impact on earnings as well. If we look at the elements of which have been accretive to performance, I'm touching on the disposals, which I will touch on later on the presentation. We sold two properties this year, one in Corby and one in Solihull, realizing a total gains of £7,000,000 equating to 4.4p per share as per the April 20 valuations.

13:07 So this was not only accretive, but it also, as Alex said, contributed to the directors' confidence in paying out the dividend this year. And we took the prudent decision to hold back that money over the last twelve months whilst we've been sick of the pandemic. And now we're looking to reinvest that. And as Alex said, there's some really exciting opportunities in the pipeline. With regards to those exciting opportunities, we bought two properties in the last couple of quarters, one being Shrewsbury, a retail warehouse and park and another in Bristol being a mixed retail and leisure use. And these have had an impact of 0.3p per share and per quarter. In terms of the pipeline, it's a bit of a moving feast. We currently have about $12,300,000 to invest, which assumes a 5,000,000 cash buffer.

13:57 But if you take into consideration the sale of Glasgow, which happened at the early part of twenty twenty two, and the two industrial sales, which Alex has mentioned, and we will have more money. But as I said, it's very much a moving picture at the moment. We move on to Slide 11, please or no, Slide 12. Thank you. Slide 12, now this focuses on our rent collection over the past eighteen months. And I think it's fair to say that we're delighted with our success, having collected 99% to 98% in 2020 and being at 96% for March this year and currently 83% for the June quarter. With regards to this quarter, actually, that percentage should be higher. But given our new perks in Bristol, a couple of our large tenants have actually is the process of housekeeping, getting them to pay their rents to the new landlords.

14:50 But I think the most important thing with regards to this quarter is that if we compare it to the March quarter, we're about 10% ahead of where we were. So that kind of shows that with the retail and leisure industries opening up, tenants are much more willing to pay on time. And obviously, the success of our legal proceedings has sort of sent a message to our tenants that they should be paying if they can afford to pay. Touching on debt, Alex has covered this point earlier on. But as we run a debt at approximately 1.4% per annum, which is accretive to performance with an LTV of around 30 to 35%. It's worth mentioning that we have a specialist in house debt team who have a very close relationship with RBSI. So that really helps in that regard.

15:37 And then the final five bullet points on Slide 12 show our NAV over the past five quarters with this quarter being the highest quarter's NAV total return since we launched in the summer of twenty fifteen. If we move on Slide 13, please. So Slide 13 covers some sort of points as to why the portfolio has been so resilient in such a tumultuous time. The portfolio is concerned to be geared, which we've already been touched on, just shy of 30%, well capitalized with $8,400,000 cash and just shy of $9,000,000 loan facility. That's assuming obviously the $12 to $5,000,000 cash buffer, as I said, is a bit of a moving piece with regards to sales and purchases.

16:28 We have a low exposure to retail at 18%, albeit this has actually increased since we bought our properties in Bristol and Shrewsbury. It was 12% in the previous quarter. We still have a very high weighting in industrial, which is very much the sector in vague at the moment. However, that percentage will come down a bit having top sliced off two of our industrial holdings. Low vacancy, which Alex has covered with the exception of Glasgow. And a very low capital value per square foot, which is very useful when it comes to asset managing in the short to medium and long term because you have the optionality to move properties into existing uses. And that process has very much been lubricated more recently with the government's changes to the planning system with the new e use class order.

17:16 And accretive asset management deals have also very much been a part of the strategy over the past twelve to eighteen months with a high percentage of industrial properties. We have been doing deals throughout the pandemic rather than sitting on our hands and not being able to get any traction with our tenants. So that has really driven performance as well. If we move on to Slide 15, please. Slide 15 covers our record 10% NAV total return this quarter, with some key highlights being the like for like valuation increase of 7.5%, mainly driven by industrial holdings, at 10.6%. In previous quarters, we thought that our industrial holdings were conservatively valued and having taken the two assets to the market, which have exchanged, the outcome of those is tricking through into evaluation. So we feel that our value our industrial properties are valued correctly now.

18:17 In terms of total returns since December 19, the fund has just done just shy of 25%. We've been very we were successful obviously in our legal proceedings against these two wealth under national tenants, and that helps us with other tenants who were struggling, who weren't holding to their payment plans. So we've been very good in collecting our rents. There's still very much a focus on the industrial sector. We still think that there will be rent growth in that sector and that touched on the point which Alex mentioned earlier on the presentation about having a reversion strong reversion yields and we think there will be yield compression in that sector as well. And touching on that accretive asset management point again, over the past quarter, we've done a number of deals to mention a few. We pushed a break notice out at British Heart Foundation in Shrewsbury to December 24.

19:11 We did a new letting at 25% above ERV at our industrial estate in Wakefield. And we recently completed a new five year lease to Bruin and Dolphin, a strong covenant strength at GBP 30 a square foot and our office in Bristol against the previous passing rent of 22 a

19:27 square foot. So we continue to do some good accretive asset management deals. We move on to Slide 16, please. Slide 16 revisits the success of the industrial markets over the past twelve to twenty four months. So it's all really sort of down to drive demand. There is strong consumer demand for e retailing, and that naturally trickles through into occupational demand and then into the investment market with yields coming in alongside rental growth. We are conscious though that with values increasing and rents still moving upwards that developers start bringing new stock to market. And so we keep a very close eye on that and that naturally will lead to some sales where we feel like we've optimized the value of our industrial holdings.

20:20 Albeit developers are slightly sort of conscious that there are very increased and still in construction costs at the moment. So that is slightly sort of holding the amounts like coming to the market. In terms of those two industrial assets, which we have recently exchanged on, we decided to take these market properties to the market to sell, one being in South Kirkby and the other, Basingstoke. South Kirkby, we decided to sell because we had recently completed a regat in the latter half of twenty twenty. The tenant there is a long standing tenant, but they weren't prepared to take a longer term. And with their lease ending in 2025, having regeared that lease at about 13% above the RV, We are sort of conscious that if they were to go in 2025, there'd be quite significant CapEx costs with refurbs and stuff like that. So we made the decision to sell this property because we felt like we had maximized value with the lease renewal completed to 2025.

21:24 And regarding basin stake, again, we extended the lease here in the latter half of twenty twenty at about 10 above ERV. We're conscious here that it's a long leasehold, a geared long leasehold. So we felt like we'd optimize the value there. So we made a decision to sell this asset having optimized the value on it. We move on to the next slide, please. So Slide 17 is really just illustrative of the industrial performance over the past five quarters. You can see that the industrial properties were up 6.1% and then 10.16% to 10.6% this quarter. So a very strong performance in the industrial holdings, which reflects the market.

22:10 We move on to Slide 18, please. So Slide 18 covers an office property that we have in Oxford, which has been a very strong performer for us this quarter. The reason why this asset has performed so strongly, when we bought it back in 2015, it was very much regarded as an office park and on the outskirts of Oxford. However, we completed the twenty five year lease to Genesis, who are specialists cancer treatment, for outpatients. And in doing that letting, we naturally move the use of this property from sort of traditional out of town office more into medical and life sciences.

22:57 And at the moment, especially with COVID, there's a severe lack of supply for that sector in the like places like Oxford and Cambridge. And there's a huge weight of money chasing this sector. And to give an example, Legal and General bought a Cambridge

23:15 Science part to the market It's about six months or so ago, creating about 60,000,000. I think they ended up selling it for about 90,000,000. They had about a billion pounds chasing that asset with about 25 offers. So there's a lot of demand for this section at moment, which is partly because it's very much in vogue, but also because people realize the importance of it given what's happened with the pandemic and there's a lack of supply. So ultimately, there's going be some really strong rental growth in this sector. Sector. So understandably, we have seen some very strong valuation performance on this asset with its value up 83% since we purchased it and 40% up in the last year alone. If we move on to the next slide.

24:02 So this covers our office holding in Solihull, which I'm sure you all be well aware of. We took the decision to sell this property back in February this year.

24:12 And that was because we had recently completed the new fifteen year lease to the sector of states, with no incentives and an uplift a rental uplift of 30%. So we really felt that we had optimized the value of this asset. And even though a fifteen year lease is a long lease, we realized that at the end of that lease, there would potentially be quite considerable costs associated with refurbishing the building. There was also the likelihood of costs associated with extending the head lease. Also, we at the time we sold this property, there was a lot of demand, a very strong government backed income. So we felt it was a good opportunity to sell this property. And it's also worth mentioning that having done the regear, the yields which this property was throwing off was about 6.5%, which is not necessarily good for paying out the dividend being AP per annum.

25:05 We move on to the next slide, please. Corby, so we sold this property in sort of mid-twenty twenty. So I'm sure it's been reported on before, but just touching on it because we mentioned it in terms of the earnings per share. I think this property is a good one to sort of speak about because it really does show that in terms of asset management, if you know exactly what your tenants are doing and you know your property well and you know your local market well, you really can achieve some very good results. And in this instance, we had the existing tenant, Gefco, who are a car storage business. This lease actually expired last month this year, but this was over a year ago. And we knew that British car auctions on the adjacent site were very keen on it. So we played off British car auctions with the existing tenant who had an unprotected lease ending July 21.

26:04 And in doing so, we managed to optimize value and we realized that, that would be a sell to British car auctions at GBP 18,800,000, which is roughly 50% ahead of what we bought the property for. So another very strong performance for us, which we're delighted with.

26:22 We move on to the next slide, which covers the pipeline. I won't cover the investment attributes because Alex has already mentioned those earlier on. But in a nutshell, we're looking at 7.5% to 10%. And it's important to mention that we aren't really sector driven. We look at each asset on sort of a case by case basis. And so if you look at our our three most recent purchases, the piece of land that we bought in Wrexham is an adjacent piece of land to an existing holding of ours. The tenant in the Industrial Building is a company called Plastic Pack making plastic bottles. And we have been in discussions with them for the last year or so about potentially looking at doing a recycling facility. So when we realized that we could buy in this piece of land at such a low value, it was an opportunity that we couldn't miss. So we bought the top of that piece of land for £60,000 in auction.

27:16 And we're having conversations now with the existing

27:18 tenant about potentially growing them onto that land, which would be a great asset management deal. And in terms of two more straightforward acquisitions, we bought this retail warehouse in Shrewsbury, which sits very much in the battlefield of Shrewsbury's retail warehousing market. The property is anchored by Charlie's who are similar to B and Q, and this is their best performing store in The UK. And we're already into conversations with them about renewing their lease. But what we particularly liked about this property other than its income profile is that the rents are very low. So actually, if the retail housing angle didn't play off, you could very quickly look to rotate this into trade counter or light industrial at similar rents. And actually in doing so, you'd probably benefit from improved yields.

28:09 Say, there's an alternative use angle play there as well, as well as off ticking all the box in terms of its current income profile.

28:16 And then similarly, but in a different sector, the asset that we just bought in Bristol, we know Bristol very well. We bought lots of properties in and around this area in other funds. We again like this property because it's throwing off a good income. The tenants that have been there have been there since 2001, and we think they'll be there the medium to long term. But if all failed, this property could very easily be repositioned into an alternative use, whether that be offices or hotel, students accommodation. It's a good capital square for the £160 a square foot which for a sizable chunk of Bristol City Centre is very attractive. So we're very happy with this purchase again. And finally, if we move on to the next slide, which covers the pipeline.

29:05 As you can see, we're looking at these two assets at the moment, which are fairly chunky assets. Starting with Coventry, we like Coventry similarly to Tradesbury and Bristol in that it is providing good income for the REIT. It is in a very prominent position. It's literally as you get out the train station in Coventry, it's just to your left. It's a five minute walk from the city center and it's got some really strong tenants. There's also some really exciting asset management, which could potentially be done on this site. Audi are very interested as a possible upside with Next as well. So we like this because it is ticking the box in terms of its income profile, but there's some very accretive asset management down the line.

29:47 And then finally, the Birmingham assets. I think what is most important here is you can see just shy of £70 a square foot. I mean, typically, secondary sort of industrial products and sort of more peripheral locations would be valued at that price. And we are looking at this because it's a sizable chunk of property in Birmingham City Center, opposite to landmark redevelopment sites and very next and very close to the HS2 Station. So it's also providing a great income profile and like Bristol has a great asset management play with some good tenants and providing income at the moment. So we really like this as well and we think it's a great opportunity to bring it into the company. So at that point, I'll I'll hand back over to Alex who will look to conclude.

30:34 Thank you. Thanks, Henry. So, I mean, hopefully, we have covered all of the major points. Obviously, it's been a very strong quarter in terms of NAV total return and in terms of income and so on. The earnings are well back on track to give us a fully covered dividend by early next year again. We've got an interesting pipeline of assets, and we seem to have a lot of questions coming through along with quite a lot of nice comments about performance. So thank you for all of those. And I will hand back to Paul, and I'll take questions from there. Thank you. That's fantastic. Alex Henry, thank you very much indeed for your presentation. And ladies and gentlemen, do please continue to submit your questions using the Q and A tab situated on the right hand corner of your screen. But just while the team take a few moments to review those investor questions submitted already, I'd like to remind you the recording of this presentation along with a copy of the slides and the published q and a can be accessed via investor dashboard on the InvestoMeet company platform.

31:34 I'd also like to remind you that your feedback is important to the company. And immediately after the presentation has ended, you'll be redirected for the opportunity to provide your feedback in order the company can better understand your views and expectations. Alex Henry, as you said, Alex, we've received a number of questions both pre submitted and during the event itself. Perhaps if I may just start with a couple of the pre submitted questions. The first one reads as follows: Question from a very appreciative shareholder. Your post COVID performance is no flash in the pan, but the continuation of an example of great portfolio positioning. Thank you very much. With the share price approaching NAV, are you contemplating an equity raise? And that does echo a couple of questions we've had in during the live events as well. Okay. So I'll take that question. I mean, the answer is yes. We're obviously very pleased that our share price seems to have been creeping up, so we have more recently been at a small premium for most of the time.

32:27 We would very much like to raise capital if the the opportunity is there to do so. We have got some really interesting assets in pipeline, and we are expecting a lot of new assets to come online when everybody's back from their various summer holidays in September. We think it's a great time in the market for us to grow slightly because there are some interesting opportunities out there. So, yes, given the right circumstances in a way that looks after our existing shareholders who've been very supportive, yes, we would like to grow if we can. That's fantastic. Thanks, Alex. The next one we've got here is what sector type and opportunity types are you being drawn towards for future acquisitions? So I've seen on the questions being submitted online as well quite a lot of questions about why we are down weighting our industrial portfolio and seemingly up weighting our retail portfolio. So I will try and address some of those questions all in this answer if I can.

33:28 I mean, in summary, we have only exchanged to sell two of our industrial assets. So industrial will still remain a very significantly overweight sector for us, and we are not proposing a wholesale shift in our sector allocation. And the assets that we've sold, as Henry covered in the presentation, are really ones where we feel we've maximized their value, and actually, they're moving towards a slightly higher risk profile at this point. So particularly the one in Basingstoke being a geared leasehold interest, that had performed extremely strongly for us. We had done a deal there with the tenants, so we had a longer lease and a stronger tenant covenant than the point at which we purchased it. So it's been a very strong performer and it felt the right time to say goodbye to it.

34:14 And similar comments to the asset that we have exchanged contracts to sell in South Kirkby in Yorkshire. And the tenant there is one of the largest in the portfolio. They hold two industrial units. They have a manufacturing facility nearby, and they have other storage facilities nearby. And again, it's performed very strongly for us, the tenant has become more difficult to deal with in terms of renegotiating lease terms, and we felt the risk there was becoming on the downside. So that was the decision to sell that asset. And in terms of new purchases, assets that we're looking at are very much stock specific, not particularly seeking to allocate to any particular sector. And we have, of course, bought our retail warehousing in Shrewsbury.

35:03 The reason for that purchase is because it has a comparatively high initial yield. It has a very low rental value, so it's in a very established retail warehouse area in Shrewsbury, and it's the lowest rented retail park in that area. So we would expect the rents to to maintain that income return for us, and, of course, an income return of 8.7% is very accretive to performance for us. We have already managed to do a deal there with a tenant within the first few weeks of owning the assets, and we're in fairly advanced discussions with the biggest tenants on the site to take a new lease there as well. So, it's a purchase we're very happy with. In terms of underpinning the risk of it being a retail asset, at £88 per square foot, that price point would allow us to migrate this asset to trade counter use if we needed to do so. So if the retail, demand fell away in that location, we could move that towards trade counter use and still make it profitable deal. So we felt that was a good risk adjusted return asset for us.

36:06 And the assets in Bristol is retail and leisure. Price point, 8% initial yield and a capital value of a £160 per square foot. And Bristol is a location that as a team, we know very well. Some of our other strategies also own assets in Bristol. It gives us the possibility to to work in combination with some of our other strategies to maximize value for all of the various funds. We do not plan a wholesale redevelopment here, but we think this location will benefit from other landlords carrying out large scale redevelopments in the near vicinity. So in terms of occupier interest and rental growth, we think that we will be the beneficiary of that. We also have here a vacant upper floor where we are in advanced negotiations with a tenant to take that space from us.

36:57 Worth pointing out that at a £160 per square foot, that capital value is roughly half the capital value of our Bristol office asset that has performed so well for us. So again, in terms of risk adjusted returns, we think that is a good buy for the REIT. No particular desire to move this from predominantly industrial to predominantly retail though. As I say, much more stock specific than that. Fantastic. Thanks, Alex. Let's just move on to some of the questions we've had during the meeting, I may. The first one reads this from Tal. For the long term, is there any scope for a slow but steady increase in dividends? K. So this is a question that we have actually been asked quite a lot over the time that we've been managing this REIT.

37:42 So we launched this REIT via an IPO back in May 2015. And as I said during the presentation, we've consistently paid this 8p per share since the beginning of two thousand and sixteen at the end of our ramp up period. So exactly in line with the guidance that we gave at the IPO. We have been asked whether it might be possible to grow that dividend. I suspect it is unlikely. And the reason that I say that more than anything is because I think to grow it significantly, we would take on board an increased level of risk, and I don't think most of our shareholders really have the appetite for us to do that. We've also found in terms of what our investors want us to do, for every investor that we have that asks us whether we might be able to grow that dividend, we have another investor that will say to us they feel concerned about the level of risk we're taking on to pay that dividend in the first place. So it's really trying to find this middle ground of where investors would like us to be. And hopefully, paid it consistently for such a long period of time now, we've demonstrated that we can continue to do that.

38:44 Dividend growth though, I think, is less likely. Fantastic. Thanks, Alex. Next we've got here is from Andrew. Alex mentioned a target initial yield of seven and a half to 10%. It's becoming more difficult to achieve. It's actually not, and this is perhaps one of the reasons that we are becoming more sector ambivalent. So less less inclined to buy only industrial property. Industrial, of course, has tended to be higher yielding, but we have seen some yield compression in our industrial portfolio. And obviously, we've been the beneficiaries of that during this quarter in terms of our total return. But overall though, everything in the pipeline that we're looking at is well within that yield profile. So, no, going forwards, we're confident that we can continue to buy, in that bracket of the seven and a half to 10%.

39:38 Thanks, Alex. Next one here from Simon is, what do you consider the optimum level of gearing? So we tend to be fairly pragmatic with our gearing. We have always targeted an LTV of somewhere between thirty and thirty five. And as we reach full investment again over the next couple of quarters, you will probably see us target 35. We're currently at about 30. That we think is probably the sweet spot for this strategy. Thanks, Alex. Next one here from Graham. Do you have a target for annual nav growth? Do we have a target for annual NAV growth? No. I wouldn't say we have a target for annual NAV growth. Our stated aim, of course, is that we pay that dividend. This is very much an income strategy. No. I wouldn't say that we we target particular NAV growth. I would say, though, that we look very carefully at our underlying property performance.

40:33 As far as I know, we're one of the few REITs that benchmarks ourselves against the MSCI index, so we are consistently looking at our property performance against, a peer group. And, obviously, our aim will be to outperform the peer group, and we have done that very strongly over every time period that's monitored. So that really is the aim is to continue. Sounds like a good plan. Right. The next one we've got here is from Richard, which is which geographic regions performed strongest in the last quarter? I don't know if I know the answer to that off the top of my head. Henry, can you help with that? No. I wouldn't really say it's anything to do with geographical regions. Would I mean, it's it's more sort of sector driven really at the moment as we touched on in the presentation.

41:22 So we don't really we're not focused on Southeast. We're just looking at value and good underlying property fundamentals. So buying properties where there's a good occupational market, low supply. And so it's not really regional driven, no. That's fantastic. You very much indeed. I've got one I think there's one final question we probably have time for. In previous presentation, you mentioned possible change of use ops in leisure assets. Is there any progress on this? And that's from John. So we have two leisure assets. We have one in Southendron Sea, which is a cinema, and that is no immediate plan to change the use of that scheme. And the other leisure asset we have is in East London in Dagenham.

42:15 And that is really quite a large site that we purchased half of, and our core fund purchased the other half of. We split the legal title so there's no shared ownership. And the core fund are actively looking at changing their half of the site and to a residential use. And we have a much longer unexpired lease term here. I think our average unexpired lease term here is still around seven or eight years. We have no plans to change it to residential in the short term, but it is zoned for residential use in the local plan. Assuming our core fund is successful in their conversion to residential, we would expect, to be able to piggyback on the back of that success. But for the time being, this is a property that performs very well in its own right as a leisure property. So that is a longer term underpin in terms of value for that site.

43:09 Okay. That's great. Thank you very much indeed. I think one question we we've just come through, which I think we have covered off. But just in case there's anything further to add, the pandemic has seen a major shift to last mile logistics. Do you see opportunities in distressed retail, purchase to rezone, and residential mixed use, something you've just covered off there. But just in case there's anything further to add on that, that's from Phil. I mean, I I think that is a fairly large subject area. But as a very small summary, yes, I I think there is some very distressed pricing in retail. And I think very selectively, there are some interesting opportunities out there. And I think knowing the town or the city that you're buying in very well is going to be crucial to success here. I don't personally think that retail footfall is going to make any particular quick recovery, which was part of the question that I just saw on screen. I I think there probably has been quite a long term shift to online shopping.

44:09 I think click and collect is perhaps an area that that still has got a long way to go in terms of its potential. So, I mean, this is my personal view. It's not a view that we're implementing as a strategy yet, but I wonder whether the retailers might start trying to adapt some of their retail warehousing, which is obviously quite car focused on a slightly more efficient click and collect service. But I think that is one for the future, and, of course, we're keeping a pretty close eye on what's going on in the retail market. That's fantastic, Alex. Look, thank you so much for addressing the questions. And Henry, thank you indeed as well. Of course, the company will review all questions that have been submitted by investors today. And thank you very much for submitting so many questions and answers will be published or appropriate to do so on the investor me company platform.

44:58 Just on that basis, Alice, perhaps I could just ask you just for a few final words to wrap up before we redirect the investors to give you some feedback, please. Yeah. I mean, most of all, thank you very much for joining us. We really do appreciate the time that you've all taken to listen to the update. Hopefully, it's been a fairly positive quarter for everybody. And going forward, we're obviously expressing confidence in terms of the dividend and asset management deals to come and so on. So thank you all very much for your support. That's fantastic. Alex Henry, thank you again for updating investors today. Could I please ask investors not to close the session? You'll be automatically redirected for the opportunity to provide your feedback in order that the team can better understand your views and expectations. This will only take a few moments to complete, and it's greatly valued by the company.

45:44 On behalf of the management team of AEW UK REIT PLC, we'd like to thank you for attending today's presentation. That concludes today's session.