Aew Uk REIT (LSE:AEWU) — Q4 Results

0:01 Good afternoon, and welcome to the AEW UK REIT PLC Q4 Investor Presentation. The conference is recorded meeting. Investors will be in listen only mode. Questions are encouraged and could be submitted at any time via the Q and A tab situated in the right hand corner of your screen. Just simply type in your question and press send. The company may not be in a position to answer every question received during the meeting itself, but the company can review all questions submitted to their published 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 Laura Elgin, Portfolio Manager. Good afternoon.

0:32 Thanks, Paul, and hi there to everyone who's joining us today. As Paul has just said, I'm Laura Elkin. I'm the portfolio manager for AEWU. I have been away from the company for approximately twelve months on maternity leave, but I returned about two months ago. And very pleased to be back here with George and Henry and the rest of the team at AEW working on the company again.

1:03 So to to kick off today's presentation, just a reminder here of our strategy. We are value investors at AEWU, and we use value investment principles, to drive our performance, where we have shown a very strong level of outperformance against The UK commercial property market over the last coming up to now ten years. We also think, that today is a very exciting time, a very, hopefully, prosperous time to be a value investor. And we've got some slides coming up to demonstrate to you, on exactly why that is. So once we own assets, we, have an in house asset management team, and we use active asset management principles to drive a high level of income from our properties, which we have used to pay our market leading dividend for now thirty eight consecutive quarters.

2:04 And we also use our asset management to drive capital returns from our properties, which then leads to a high level of total return. And that is demonstrated in our outperformance of both the rest of The UK diversified property REIT peer group and also The UK commercial property market. Again, we've got some slides coming up to demonstrate that. Now a really important factor of our strategy is that we are not constrained by sector. And and, really, we think that's the only way to be a value investor is to be able to have the flexibility to look across the whole market and find value where we best see that from time to time.

2:48 And the beauty of diversification, is is that we can be nimble and and and, really across any market cycle. Most certainly most market cycles, we can find places in the market where we can we can we can drive value. And and that's, I think, has really been one of the keys to the outperformance and that really strong performance that we've driven from the company's portfolio over the last ten years. Again, we've got some examples coming up of this on assets that we've bought and sold, but hopefully, can see that in those movements, how we have moved between sectors to to to drive our our performance from the company's portfolio. For those of you who follow us closely, you would have seen that last week, we put out our shareholder update for the quarter.

3:39 And in that, we announced a valuation increase, albeit a fairly modest one. I'm really pleased to see that continuing in in the company as a as a continuing trend with the company for the past couple of quarters. That's occurring over a time when the rest of The UK commercial property market has some delivered some fairly subdued results, so we're really pleased with that. But despite that, ongoing value valuation increase in our portfolio, we still believe that our portfolio today represents a value proposition, and we think that's highlighted here in these low levels of average passing rent and average capital value per square foot that we're showing you here on the right hand side of this slide.

4:27 I'm just gonna pick out another one of the themes in in this sort of metrics of of investment criteria that we're showing you on on this slide as well. And just to point out that location is a very strong theme for us always when we're buying assets. We think that's always one of the most important keys to to, again, driving our our performance and and keeping that strong throughout various my market cycles. And as we talk about some of our assets today, hopefully, that will shine through as well. Gonna hand over to Henry, who is the assistant portfolio manager here, and we'll just touch on some high level statistics for the portfolio. Thanks, Laura. And hi, everyone. Good afternoon. So as Laura said, the valuation was up a smidge this quarter, up 1.42%, which is similar quarterly gains as it was in the previous quarter. So we now stand on a valuation of 204,500,000.

5:24 That was mainly driven by the industrial sector

5:28 and the high street retail sector within the portfolio. High Street was up just shy of 4%, and that was mainly driven by some asset management at our property in Bromley, let to next where we carried out a five year lease regear. And we conducted the new letting to climbing hangar at Union Street in Bristol. Also, quite a busy quarter for the industrial sector with a lease renewal at Bradford, to Pilkington, a tenant that's been in the property for over thirty five years. And having completed the refurbishment of Rumcorn, we completed the new letting at £8.50 per square foot, and we've got a case study later on in the presentation on that. Number of properties up to 33 having acquired our high street retail asset in Hitchin for 10,000,000 at 8.31%.

6:20 Similar the to previous quarter, the net initial yield and reversionary yield with about an 80 basis point gap really sort of demonstrating the reversionary, the rental growth prospects prospects built into the portfolio. Our vacancy rates tends to yo yo between about five to 10%. It was 9% last quarter. It's down now to seven and a half percent, and that's having carried out the letting, which I mentioned earlier to Climbing Hang in Bristol, Union Street. But also, we carried out a new letting to a premium gym operator in Bath at our office holding their Cambridge house. Our walk to break is four point one years, five point seven to expiry. We've historically said that we like shorter lease terms. It enables us to get to the cold face, negotiate with our tenants, and look to move rent on and achieve that reversion potential within the portfolio.

7:18 Debt unchanged from previous quarters. We have a 60,000,000 debt facility at a fixed rate of 2.96% until May 2027, a loan to gap of just or 25%. And we have more cash than normal. At the moment, we've got 19,000,000, which includes our usual £5,000,000 cash buffer. You'll be aware, obviously, we sold commentary at the back end of last year, and we're in the process of reinvesting the rest of that having made the hitch and purchase at the beginning of this year. Now total return of 1.9%, that obviously includes our two p dividend that we pay out. So now of a 174,440,000, breaking back to £1.10.

8:04 Our shares are trading at about £1.03, which is today, which is roughly about a 6% discount, which is obviously the narrowest in the market and statistic that we're we're proud of. And then just finishing with some performance, I'll just focus off the one year NAV total return 14.5, very similar to the one year total property return. Those property and NAV total returns have been recognized by the banner of rewards on the first slide, and we'd like to continue to be recognized for this performance. And then just finally, because of obviously the recent movements in and selling out of Coventry and buying into Hitchin terms of our weightings, we're still at just shy of 40% in the industrial sector. We like we like that. I think the the net initial yield and reversion metric is equally strong in that sector with with a net initial yield of 7.6 with reversion of 8.62.

9:00 So there's some really good rental growth to go after in that sector. Our retail warehousing exposure has come down to 12%, having sold out of the main chunk of Coventry, and our high street retail has increased since we bought Hitchin.

9:14 Handing back to no. Handing over to George. He's gonna touch on some performance. Thank you. Thank you, Henry, and and good afternoon, everybody. And for those who don't know me, my name is George Elliott, and I'm the fund controller of the company. So very much responsible for the finance and operations kind of back end of the business. Starting on this slide is is by far my favorite performance slide in the deck. And for me, what it really demonstrates is the fruit that this strategy has yielded over the last five or so years. Why I say five years is traditionally kind of our asset management plans typically have, like, a five year time horizon. You can see kind of point of intersection in this graph around 2019, 2020 where those really started to bear fruits.

10:07 And most encouragingly, in recent times, you can see our degree of outperformance widening and widening quite rapidly, actually, against what has been a very muted backdrop. Henry Law mentioned previously like for like valuation gains in the quarter and those being relatively minimal. So I'd like to just draw your horizon perspective a bit out to a year. And, actually, that figure on an annual basis is 6% year on year as a as a like for like valuation gain, which compared to the wider market is very significant and and very excellent performance. We've mentioned other themes like active asset managements. A lot of this NAV improvement you can see here and and what has been come to later, really good earnings performance has been driven by rental income growth in the portfolio. Lots of other lease events have have yielded lots of not only new rental income and new leases, but actually growing income on what was an existing lease portfolio.

11:01 For me, what I find most encouraging is that recently, the commercial property market in The UK has been very difficult. And yet, this as a strategy has not only delivered good performance, but improving performance over that time as well. I think of words like sustainability and resilience, and I feel like our portfolio really personifies that. The last thing to note here, you'll see on this kind of subheading of a ten point five percent five year in our total term. That's actually up from 10.3% as of September. So, again, that performance is continuing to improve and not just remaining stagnant. Thank you, Laura. So this here is a more granular overview of our peer group as defined by our corporate adviser, So I'm sure many of you are accustomed to some of the other names in this table.

11:53 Thankfully for this, as as is normally the case, there's a lot of green against our name. And as at December 2024, we had delivered the highest enough total return over all the time horizons that you can see here. And as at March, the highest share price total return as well over all those time periods.

12:11 Most encouragingly for me, of course, is our dividend yield continues to be one of the most attractive among our peers even with a comparatively much higher and stronger share rating as highlighted by a discount here. I I think it's important to highlight that we very much are an outlier when it comes to a discount. Our kind of one year average discount is around the 9% mark, and our next closest peer is around 20%. So we really have distinguished ourselves against all these other market players. Let's go to this one. Thank you. Now we go on to kind of property performance, really what underpins all this kind of NAV and share price total return that we've just presented to you. A few encouraging themes here for me are the longer term annualized performance, and you can see that's very consistent.

13:01 It's not been a one trick pony strategy where we've had one year of good performance that it's been subdued. Actually, our performance has been consistent over a very long period of time. And not only that, the actual degree of outperformance here, you can see over all time horizons, is actually very consistent in quantum, which again provides further assurance to me that what we are doing is delivering extraordinary results. Most remarkably for me, really, is the twelve month performance. We've had a lot of difficult macroeconomic events, even very recently, actually. And despite that, we've delivered an absolutely fantastic property total return. Of course, spearheaded by our disposal of Coventry late last year as well as the disposal of Oak Park even later even further historically in the year.

13:51 On to the next slide, sir. And then we come to the topic of of earnings per share, very much a hot topic and and also the notion of dividend cover. Now for those of you that have seen me present this slide before, you know that I like to draw you back kind of the summer of twenty twenty two where we had disposed around £40,000,000 worth of property. And for the two years subsequent to that or two and a half years, we've been on a journey of redeploying those disposal proceeds from relatively lower yielding properties into high yielding ones, of course, with the ambition to grow the profitability of the company and, therefore, its earnings per share. Now you will see that we have very successfully done that. Laura has mentioned concepts of value investing, and that's what this really shows.

14:38 Buying mispriced assets and growing their values through active asset management to not only deliver good capital returns, but as you can see here, very good income returns as well. We've mentioned this already, but over the last quarter or so, we've been sitting on a much higher amount of cash than normal.

14:58 Redeployments of that is expected in in the near term. I think it's also important to highlight that the Hitchin acquisition actually only occurred quite late into the first quarter. So that that kind of most recent quarterly EPS that we've reported of 1.71 doesn't actually fully account for the full for a full quarter's worth of owning that property. Yeah. I think I'm concerned about. Thank you. And here, so on the notion of dividend cover. Now you will have noted in relatively recent years, kind of 2022, 2023, we haven't been covered. And that is because of what I detailed on the slide previously where we've been on a strategic journey of redeploying proceeds and holding on to more cash than we wouldn't than we would normally.

15:44 Now, of course, our most recent year really bolsters my faith in this company and its ability to not only deliver a covered dividend, but

15:51 an over covered dividend. And I think it's, again, it's important to kind of expand our time horizon when viewing this company. And since IPO, it's delivered 94% coverage of its dividend, which is very, very strong, especially considering strategy, and it might have a slightly higher amount of churn in its portfolio than than most traditional REITs. Again, to reassure you as kind of an investor base, where there are times where we haven't got a fully covered dividend, We have a unique ability to utilize profits achieved on suppose and profitable disposals to top up that dividend and therefore enable sustainability of that dividend payments. And if we go on to the next slide, please, Laura. And this is what has enabled us to do that. So what I'm presenting here is every disposal we have made from this portfolio since its inception.

16:41 Now a few really important things to highlight. One is, we have delivered a 38% average sale price to purchase premium over all properties that we have disposed of, which is incredibly strong. Of course, commentary, has been a really good result most recently. And in the center of this graph, you might recall the sale of East Point Business Park in Oxford, which we sold for a huge profit having purchased it for around £8,200,000 at the start of the company's life, and then ultimately disposing it for £29,000,000.

17:13 I think what this graph shows is that it isn't just a again, it's not just a one off profitable sale. It's a consistent demonstrated pattern of behavior, and it's our ability to do that. So identifying these price assets and to sell them for a profit that has further made the strategy robust, not only in terms of our capital performance, but also in our income returns and our ability to pay our dividend. Go to the next slide, please. And I'm now going to hand hand back to Lauren Henry. Thank you.

17:43 Thanks, George. So at the outset of this presentation, I made the point that we thought that now was particularly a very exciting time in the commercial property market to be a value investor. And therefore, if there's one slide that I'd like you to take this theme away from today is is really a major point to dwell on, it's this one. And here we are showing you CBRE's UK commercial property value index, over a long time horizon. CBRE being, a major UK, property consultant and also the largest valuer of commercial property in The UK. So using their value index here as a proxy for, just, a measure of, value across UK commercial property assets.

18:35 And what we can see is that the point, of of time today represents the lowest, point in value, where commercial property is is at its lowest value point since this company IPO ed. And what we're expressing there is that the opportunities that we can find in the market today, represent the greatest opportunity, to to fulfill our strategy, that we have seen since since the company's launch. So a really exciting time to look at our pipeline, and that's that we've we've had a really interesting time doing that since the sale of of Coventry that we completed in December. And We completed the purchase of Hitchin, and I'll come on to talk about that shortly. And we have another acquisition that we'll be going through imminently.

19:27 Some rather frustrating delays there with our due diligence. Ordinarily, we would have liked to have had that capital invested a couple of weeks ago rather sooner, but some frustrating delays there nonetheless. But we do hope to have that capital fully invested again very shortly. I think another point to make about, the market opportunity today is that it is often in times of increased political uncertainty that we see a greater propensity to acquire mispriced assets in the market. We saw this following the Liz Trust mini budget where we, as George has just pointed out, had about 40,000,000 to reinvest. That was really opportune timing. And it's something that we're seeing again in the market today with various, sort of, political events occurring across the world.

20:21 We, are seeing a greater number of transactions across the property market taking place with limited marketing. So, I perhaps would would have, told you broadly, a couple of years ago that about 75% of our portfolio or the pipeline that we were seeing was acquired, through assets that had been widely marketed. I would say today, I would have expected that number to have fallen to about 50% in terms of an approximate number looking at our general pipeline. So with that lower level of marketing, we see less pricing transparency, and, that that that is an interesting time for us where we can find a great number of mispriced opportunities. And it's, of course, those mispriced opportunities that we look for as a value investor, that really help to drive our performance of tomorrow.

21:12 So not only are we seeing more, investment transactions taking place, off market or with limited marketing, we're also seeing this as a time, for the past couple of years, really, as a time of decreased transaction volumes. So there is less competition, in The UK commercial property market, less marketing, and that's really what, is some of the themes sort of behind this, time being a particularly interesting time and depressed values across the market, that we really think will drive the performance of tomorrow in our strategy. So moving on to this slide, which, just sets out here the asset that we acquired in Hitchin back in March.

22:01 And for those of you that don't know this location, Hitchin is an affluent market town in Hertfordshire. Looking back on some of the retail assets that we've owned in this strategy before, we would have generally focused on perhaps the sort of larger regional cities, and Hitchin being one of the smallest locations that we have acquired in. But I think in this specific example, it is very much warranted. The affluence in the location here, Hitchin is an attractive commuter market town. So a high level of affluence, and that's really reflected in the tenant lineup and how well they're trading. Of course, if our tenants are trading well, they want to remain in the property for the long term, they've got an ability to pay us a high level of rent, and that simply translates to a better better performance for the assets, and more security on our income streams.

22:56 So we bought the asset for an income yield of just under eight and a half percent, a capital value of just over £200 per square foot, a significant reduction there on the level of residential values in this location. So the kind of arbitrage we've got between those different uses here is is is very interesting in terms of the potential we've got for for long term alternative use. I'm not suggesting at all that we would look for alternative use in the short to medium term here because we have the property fully let and let to tenants who, as I said, are trading very strongly. So this asset looks really attractive for us at the moment. And I can see actually somebody had submitted the question as to which sectors do we think look most interesting in our pipeline over the next few months. The high street retail sector continuing to be one of those sectors and and really demonstrated here by this asset in Hitchin.

23:57 I'm just going to show you here, also, some some assets that sit within our wider pipeline. So at AEW UK, we have an in house investment team who are continuously tracking the market to look for the next opportunities. And we do that whether whether we have capital in the portfolio or not. I think that's really important because from time to time, we do receive off market offers for our properties, and sometimes we we choose to to to engage with those. And so it's always, I I think, very important for us as portfolio managers to be able to, have a sense of sort of, how our assets are comparing to what we're seeing in our pipeline. And and this pipeline is just really representative of of of that point that I made, two slides ago where I was pointing out, that opportunity for values being, significantly lower or at their lowest point today that we've seen in our pipeline for this company over the past ten years.

24:58 The pipeline here really just being representative of the types of assets that we have held in this portfolio both today and over the past ten years. So that's demonstrated in the high level of income yield, low levels of capital value. Of course, these are themes that you would have heard us talk about many times over the years, if you have have followed us, for some time. And and those are the, metrics that we look for to keep driving that dividend, and to keep attempting to replicate our, total return outperformance that that we have seen. Now for me, high income is a really interesting place to start if you are looking for strong returns. And if we look back for some years, in fact, over about as long sort of history of commercial property return results as as you can find. It is always the income return feature of total return as opposed to capital return. It is always the income return, which is the most stable composite of total return.

26:07 So if we are starting with a high level of income return that we have done our homework on and we believe is sustainable from an asset in that location, then we will we will have the strongest base on which then to grow that that income or deliver the strongest total return. So seeing that replicated here in our pipeline for us is very encouraging and and and really quite exciting. I mentioned at the start of the portfolio sorry, the start of the presentation that we have a a focus always on strong locations. And and and, again, you can see that here demonstrated here in in these assets which we are showcasing. We are showing you retail and leisure assets located in strong city centers and in the center of major connovations.

27:02 Where there are in industrial assets here, they are well located, close to motorway junctions, centrally located within the country. And these are the sort of driving factors that we have always looked for in our assets and continue to be shown here in our pipeline. Well, I'm gonna pick up some recent asset management transactions, which have happened in the quarter that we've just reported. So first, starting with our High Street retail unit or property, I should say, on Newton Street in Bristol. A significant nice chunk of property, 63,000 square feet. And as Laura said, this is well located.

27:51 There's a lot of residential development going on around here. And that bodes well given that we bought it off a cap out square foot of a £160 a square foot. If you compare that with alternative use values, residential values in this area of Bristol, then, you know, they're probably in the region of £600 a square foot. So we've got a really nice alternative use underwrite here. Not to sort of draw attention to bad news, but obviously, we had Wilcoes who went into administration a year or so ago at this property. And the asset management team have been busy looking to relet this space. And what we have done is that we have stripped the space back, and we have subdivided it and done two new leisure lettings. I think it's quite typical that we see a mix now of leisure sitting alongside retail, not only on our high streets, but also on our retail warehousing parks.

28:46 Historically, the sectors have been split between leisure and retail. Now you are seeing a wider variety of uses in more traditional retail assets, whether that be in city centers and on the edges of cities. And we bought in Roxy Lanes on the 1st Floor who already attended on the 2nd Floor, who have been trading so well that they wanted to take more space. And some of you might be aware that there's a bit of a a climbing wall craze in The UK, and we have done a large letting to climbing hangar, GRIP UK on the ground and basement levels. Now, obviously, what we like about these lettings not only them being new fresh income to two new exciting led users, but we deliberately made sure that those leases are all coterminous, which means that if we were to explore an alternative use residential in the medium to long term 2036, we'd be able to get full VP of those upper parts and take that space into another use. Probably also worth noting when we acquired this site, we did a little bit of work on actually being able to extend upwards here, which we think is a possibility.

30:00 So we could add massing to this site, which bodes well given all the residential activity going on in this area. So an asset that that is now fully yet let, and we will continue to hold it within the portfolio. Yeah. Thanks. So this is next in Bromley, Greater London assets. We acquired this for 8.7%. Again, a very low cap up square foot, which is typically what we do, a £100 per square foot, which is relatively very cheap for a Greater London location in terms of alternative use values. And we've held it for a couple of years now, and we bought it in q four twenty twenty two. You'll all be well aware that Next is a very strong business and trader on the high street.

30:52 And during COVID, a lot of retailers were going on to turn over rents. I think now that the retail sector has stabilized and more recently, there's been a lot of very positive news from well known retailers about how well they're trading. I think Waterstones are the most recent ones saying how their trade is really booming at the moment. Naturally, retailers want to go back onto fixed rents rather than turnover rents, but they appreciate that we've always got an eye on high income, but also, you know, here we've got a very well known, very strong tenant who is prepared to commit to a further five years. So what we've currently done is we've continued on the turnover deal until their lease expire in September 2025, at which point the rent goes to fixed level of 430 k for the next five years.

31:43 Now what we like about this deal as well is that we've managed to keep the lease outside the nineteen fifty four act. If you don't know, the nineteen fifty four act protects tenants, and so they they have a right to renew. Typically, most leases in The UK are inside the 54 act. In this instance, they're not. So, actually, on the last day of the lease, we could take this property back. Now we like that because it means that if we do have a better option, whether that be a sell to an owner occupier, and so at the time of this negotiation, we understood that Sports Direct were quite interested in buying this site, or a residential developer, there's the potential for 46 units at this site. We could choose to move it in that direction. But for the time being, we were very happy with the terms to next, and we're glad to have completed this deal recently.

32:36 So moving on to the industrial sector, we've touched on in our last couple of announcements that we've been carrying out a refurbishment project at our multilayer industrial estate in Runcorn. And it's good that that refurbishment is now bearing fruit. So just to look back, when we bought this site, the average passing rent was £55 10 per square foot. And at the point that the previous tenant left, they were paying a rent of £6 per £6 to £6.50 per square foot. And we have just completed letting of £8.50 per square foot, and we have an eye on achieving rents in excess of £9 per square foot. So you can really see in this case study, we're we're proving that that reversion potential within the portfolio, particularly in the industrial assets, we're managing to lock and crystallize that rental growth through lettings.

33:33 What we also like about this refurbishment is that, you know, you are actually improving the building. You're investing money into a new building, improving the specification, and also the environmental performance. And, if you are providing that quality of products, you are naturally gonna get a premium on the premium on the rent. Yes. We're delighted to have let this for a £137,500 per annum to a good tenant, and really crystallizing that strong rental growth. And then finally, another industrial asset, but a single let, multi let industrial asset. I mentioned this where I was giving you the portfolio updates at the beginning of this presentation. Pilkington, who hardened glass, and they've been here for thirty five years. You could say that they're very much wedded to the site.

34:24 Quite a large parent company, so negotiations negotiations have been more protracted than we had hoped, especially when they've been there for so long. But another really good example of rental growth over the years when we bought this asset, the rent was three pounds forty eight square foot. We carried out a rent review, when was it, in 2019 at £4.53, and we have recently renewed the lease on a ten year lease with a five year break at $5.78. So you can really see the rental growth story from 2018 to this point. Yeah. The the rent has increased by 65%, a £105 a £105,000 since acquisition, and it's a very uncomplicated asset for us.

35:15 The tenant likes being there, so it's great to have a nice long runway ahead of us. And we will hope to see some more rental increase at the revenue in five years' time. Hand back to Laura to conclude the presentation. Thank you. Thanks, guys, and thanks everyone for joining today. We'll pick up some questions very shortly, but just to say that, hopefully, some some of these these themes have come through in the presentation. But just to conclude, that we are now showing or able to show our our track record of outperformance coming up to ten years now. So it's our ten year anniversary later this month. So, hopefully, next quarter, we can show you what our numbers look like over a ten year period as well.

36:04 Very much excited about the value proposition that we see in in the pipeline in the commercial market today, but also in our existing portfolio, going back to those low capital values, low rents, but high yields that we always like to buy. Fantastic. Laura, thank you very much indeed, and thank you for the presentation today. Ladies and gentlemen, do please continue to submit your questions just using the Q and A tab situated on the right hand corner of your screen. Just while the team take a few moments to review those questions submitted today. I'd 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 your investor dashboard. As you can see, guys, we've had a number of questions, both pre submitted and submitted throughout today's presentation.

36:54 If I may just ask you to click on that Q and A tab, perhaps not at the top where appropriate to do so, read out the question. I'll pick up from you at the end. So there was a pre submitted question asking about which regions and sectors do we see most opportunity in over the next twelve to twenty four months. And I have touched that already, but I'm just gonna answer that, a bit more fully because I I I think it's, it's an interesting question. Clearly, I've made the point that we still see value on the high street, for those reasons that Henry's just stated when talking about Bromley, and and as demonstrated by the asset that we acquired in Hitchin. If we can buy assets in affluent locations where the capital values are well below residential values, where the tenants are trading very strongly for those high levels of initial yield.

37:45 That is effectively, the metric that we are looking for across all of our acquisitions. We say that we are sector agnostic, but, of course, in in looking across the market to see where we find value, certain themes emerge. So high street retail still being one of those. We also see opportunity in the leisure sector as well. And I think this is perhaps sort of represented by other other participants and other landlords in in the commercial property market, taking taking a view on on a sector as a whole and deciding that that sector is is not in favor at the moment. And we've seen, some indiscriminate sales across the leisure sector from larger portfolio owners, who are simply choosing to dump that sector because it's not in favor or doesn't sit within their current strategies.

38:38 And and for us, that is always a time of opportunity when other sellers decide to make sort of sweeping sector calls like that. It allows us to kind of sift through the the the assets that they are selling, and, of course, not all of them will be attractive to us. But we are are certainly finding some opportunity there, and, that's also been being driven by, an occupational basis. So as as Henry has demonstrated with our asset on Union Street in Bristol, We have got some incumbent leisure tenants there who are trading very strongly who have been keen to take more space. We have done a further letting to a leisure tenant. And on our retail warehousing park in Dewsbury, we have done a letting to Tenpin, the Tenpin bowling operator, which is a sector which is performing very strongly, and Tenpin are are really at the forefront of that.

39:31 So the leisure sector in terms of the operator performance has been much more robust than we might have expected, looking back some two to three years. So that's been really pleasing to see, and that combined with a a greater number of opportunities in that sector, is is leading to to some some opportunity in our pipeline there. We've got a question here from Nigel Chapman about, our nightclub assets in Cardiff, asking what went has gone on there. So we did actually announce that we had signed the lease from the previous, operator to a Phoenix Co, a couple of quarters ago now. So, it is still very much a nightclub use.

40:18 We come the previous tenant went to administration, and a new business was reborn out of that. In assigning the lease, we rebased the rent to a £150,000 per annum with a turnover top up. So should a traders trade well, then we would hope the rent would replicate the previous rent. But we have the tenant in there and trading. They've rebranded, and we keep our eyes, appealed for the first turnover statement, which will be coming through, hopefully, in the next couple of months. We have another question from Alex c. Should we expect any changes in assumptions from the valuer change? Well, of course, obviously, they're an independent valuer.

41:06 We sit down with them and go through several drafts and have done, obviously, historically with with Knight Frank. Values will make their own assumptions, whether that be rent free, or void periods periods. In terms of, like, capital contributions, CapEx, incentives, then, we can guide them based on negotiations that we're having with existing tenants. Just to sort of add to that change of value, we're currently going through a shadow valuation at the moment with their first new valuation campaign in June. So that's a process that we're working through and managing closely. I am just going to pick up on, a number of questions that have come through in relation to us looking at m and a opportunities, in the REIT sector and also our potential for capital raising.

42:06 I think just kind of grouping those together and and saying that given how how interesting we find our pipeline, how attractive we we see, the depth of the opportunity that we see in the market at the moment. We are on a pretty regular basis sitting down with both our board and our our corporate adviser to look at ways in which we could access that pipeline. So whether that's by growing the company, by issuing new equity if at all possible, or by m and a. And we analyze a lot of opportunities here and, would would move on some if they were proven to be, in shareholders' interest. So, yes, we absolutely are looking, at ways in which we could access that that that pipeline that we've shown you today.

42:58 We've got a question here from Roderick about the concept of of dividend increasing, which is a question we get every quarter, understandably. Of course, the first thing to say is that our dividend policy is at the discretion of our of our board. And so we, as manager, make a recommendation to our board, and this is at their discretion to prove it or not. Of course, I I can't comment on on future earnings earnings outlook. The important thing for me and actually a theme that was highly expressed to us for at least the last two years is that many of our investors had a preference for a sustainable dividend even if it were lower than than than a much, much punchier one, which has a high degree of risk in relation to our ability to pay it.

43:58 We feel very comfortable with our dividend policy at the moment, and I think it's important to remember not only on, like, a gross basis, is it one of the most compelling dividends in the entire sector, but also from a yield basis. It is also incredibly attractive and has been for a very long period of time. Of course, it goes without saying if there were if it financially was sustainable and sensible to do so, then we would look to maximize our dividend for the benefit of our shareholders. But we would never do that or recommend that to our board if it were the compromise of the financial security and sustainability of the business. Given how the business has performed for such a long period of time now, in a very award winning way, I feel encouraged by what our decision making has been on that topic thus far, and we'll continue to do so. Thanks, George. I'm just gonna pick up a last question here from Sarah g who addresses her question to George, sorry, but I'll take this one.

44:59 She's asking what makes AEW's ability to use capital returns to top up dividends unique. Now this is, a reference to the slides that we showed you, referencing our 10 earnings, and how our dividends had been paid and how our average dividend cover over that ten year period translated to a cover of 94%. And, of course, we have used our capital profit from sales to to then make up that on average 6% of the dividend from those capital profits. What makes us unique, is really just the the dividend policy and approach of our board. So it's not anything in the structure of the company or the legislation that makes us different.

45:46 It is simply in our board's approach to paying the dividend. Our board have taken the decision that they believe that those capital profits that we have generated within this strategy are so significant or they believe are so sustainable that they can rely on that over the course of the long term to from time to time when the dividend isn't covered by earnings. And, of course, we have grown earnings a lot over recent years. And but during those times, use those capital profits that our strategy generates to pay that. You will perhaps find other REITs having a more traditional approach and paying a dividend only through earnings. Now that can perhaps lead to a greater amount of instability in the dividend where our board have chosen to back the stability of our dividend, the continued payment of that 2p per share per quarter for thirty eight consecutive quarters. So over a very long time period, our board have taken that decision.

46:52 So what add one final comment on to what Laura said. What was the great test of that? COVID was the great test of that. And one must remember this company wants one of the only REITs in the whole country not to cut its dividend during COVID. The principle of being able to top up your dividend with capital profits isn't unique, but the degree to which we have done it and the consistency we have done it, I think is pretty unique, actually in the market. And we would not have won the city wire award for five years running in terms of now total return as well as the MSCI award for property total return of all listed property companies in this country if that weren't the case.

47:40 That that for me is the proof in the pudding. Any further questions? I don't think so. I think that I think you've covered off all the things. So thank you very much indeed for that. Of course, any further questions do come through, the team will have the ability to review those. And we'll publish responses where appropriate to do so on the Investor Meet company platform. Just before redirecting investors to provide you with their feedback, Laura, I don't know if you've got any further closing comments. If not, I'll pick up from you afterwards. Thank you. Thanks, Paul. Yeah. Just to reiterate that we are finding the current time a very fruitful time both in terms of our current portfolio and our pipeline as well. I'd also just finish by reminding investors of our website. We've got a very thorough website, which has a full list of all of our assets and has all of our news displayed on it, has information on the team, and, yeah, quarterly fact sheets, things like that, information about our presentations, aewukreit.com.

48:42 Please visit our website if you are looking for the information on the company. Fantastic. Thank you all for updating investors today. Can I please ask investors not to close the session? Should now automatically redirect it to provide your feedback, in order the team can better understand your views and expectations. This will only take a few moments to complete, and that is greatly valued by the company. On behalf of the management team of AEW UK REIT PLC, we would like to thank you for attending today's presentation. That concludes today's session, and good afternoon to you all.