Aew Uk REIT (LSE:AEWU) — Investor Presentation

0:01 Good afternoon, ladies and gentlemen, and welcome to the AEW UK REIT PLC Investor Presentation. Of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and we'll publish our responses where it's appropriate to do so. Before we begin, as usual, we would just like to

0:31 submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to the team from AEW UK REIT. Henry, good afternoon, sir. Thank you very much, and good afternoon, everyone. Thank you for joining us today for our quarterly investor me company presentation. Just to introduce myself, I'm Henry Butts. I'm the assistant portfolio manager. I have stepped in, whilst Laura Elkin, the portfolio manager, is away off on maternity leave. Laura will be back in February next year. And this is George Elliott, my colleague, who works closely with me day in, day out on the portfolio. So just going on to the first slide. This is our usual, sort of snapshot of kind of what we do at AEW.

1:24 Our sort of catchphrase is high income and actively managed. We are value investors. And by that, what we mean is that we are looking to maximize income and unlock capital upside. And asset management is very important to us in driving our returns. In terms of maximizing income, we have now paid out our 2p per share dividend consistently since q one twenty sixteen, which is 36 consecutive quarters. And if I just touch on this quarter alone, we have added an extra just shy of £600,000 per annum, which represents about 3.2% of the portfolio of income. And back in March, we had another, £500,000 of income through asset management. And in June, we added another 220 k of asset management.

2:13 So in the past nine months, we really have been doing a lot of asset management, which has been driving our income and driving our earnings. And that is the journey which has taken us back to being, fully covered in terms of our dividend, and we'll touch on that later on the presentation. And in terms of unlocking capital upside through asset management, we are delighted by our our property return. We have an 8.9% annualized five year property return to the June 30 at 2024, which is outperforming the benchmark by just shy of 7%. So some really strong performance. One of the things that enables us to get this performance is we're not constrained by sectors. We won't follow the herd. We will look at properties on a case by case basis when we're buying investments.

3:03 And that means that we can really sort of look to buy in mispriced assets. And then just touching on the investment criteria here on the right hand side of this slide, we're typically buying in UK core plus commercial properties. We focus on strong commercial locations with low levels of supply. That low level of supply is important to us because it means that there's it would it feeds into driving rents. We're typically buying properties with net initial yields between 710%. Low book values of £74 a square foot. Now we always include this metric because it's important because if you compare it alongside, the cost of constructing a property, whether that be an industrial or retail warehousing unit of a £100 a square foot, or residential offices at £250 per square foot plus.

3:59 £74 per square foot for investments, which are yielding around 8% with rental growth is relatively really good value, and that is why we say we're value investors. We have a low average passing rent of £7.07 across the entire portfolio, and that demonstrates the reversionary potential in the portfolio, which is 8.6%, as of this quarter. And in terms of the asset management and sort of looking at the bricks and mortar value, when we buy investments, not only are we looking for higher income, but we're looking to make sure that those investments are underpinned by alternative use of values, whether that be a VP value in the case of an industrial unit, for example, if the tenant if a tenant were to vacate, you could sell that to an owner occupier, and all alternative uses. For example, converting a vacant office building into student, which we have done in the past, vacant offices moving them into life sciences, which we've done in the past, or other sort of, uses like hotel or more rest or residential, you know, being the obvious one.

5:04 So we're delighted that we are being recognized by this performance as well, and we now won the City Wire Investment Award for four years on the trot, which is based on three year NAV total returns. And this quarter, we were delighted to win the MSCI UK property investment awards as well, which is done on three year property total returns.

5:27 So this slide really is a bird's eye view, of the company, and I'll just go through a lot of the sort of key metrics. So the valuation, £215,600,000. It was up just shy of 3%, 2.94% to be exact this quarter, and that was principally driven by our retail warehousing assets. The retail warehousing sector was up 8.87%, and that was being driven by asset management. We carried out three new lettings at our retail warehouse parks in Dewsbury, Barnstool, and Coventry, and that was adding that £600,000. So that really has sort of driven the value in that sector alone. We saw some performance in the industrial sector, which was just up just above 2%, and that was driven by actually rental growth rather than yield compression.

6:22 However, I would say that with obviously one interest rate cuts and other interest rate cuts anticipated, the expectation is actually that the industrial sector probably will have some quite good capital performance going forward. But more recently, we have seen performance from that sector through rental growth. I think it's probably worth just touching on the other sectors being office and high street retail, those two ones in particular. We've had a quieter couple of quarters, whilst we work on asset management plans. We've got some office refurbishments going on in Bristol and Bath. So the anticipation is to sort of we'll work through those, and, hopefully, we'll see see some performance when those asset management initiatives come to fruition. We have 32 properties now, down one from the previous quarter because we sold a multilept industrial state in Droitwich.

7:11 The net initial yield of 8.09, reversion of 8.64, which is very important. That is the rental growth. That is what our asset managers have set out to go and try and achieve to move on the income, which obviously feeds through into our earnings and the dividends that we pay out. I mentioned those lettings in those retail warehousing assets earlier on. As a result, our vacancy rate has dropped this quarter from six points from 9.4% in June to 6.77 this quarter, so it's good to see our vacancy rate falling. However, I always like to say that we quite don't mind having, a sort of five to 10% vacancy because it's quite good to have a bit of churn within the portfolio. In terms of going after that reversion, you need a bit of churn. You need tenants vacating. You need the opportunities to do rent reviews, to move rents on, etcetera. So we don't mind a bit of a bit of void.

8:05 The wealth of four point five years to break and five point nine to expiry. As I said, that sort of is similar to the the vacancy rate story. If there are lease events, that gives us the ability to add value and to move on rents. In terms of our debt position, it is unchanged. We have a £60,000,000 debt facility, which we have locked in until May 2027. We're delighted to have done that a year in advance to our previous facility expiring and securing a very competitive rate of 2.96 all in, which is obviously very competitive given the debt environment that we are in.

8:43 We have, £6,200,000 of capital, for deployment. That's on top of our usual £5,000,000 buffer. Now this might strike you as being quite a lot. It it is it's probably more than we normally would have, but I think it's it's worth noting that a lot of this, money has been allocated to asset management initiatives. As I said, we had we have a couple of office refurbishments planned in Bristol and Bath. We've just finished industrial refurbishment of two units in Rumcon with a further refurbishment there. So a lot of this money is actually being attributed to asset management. And you will note that through our last couple of NAV announcements, we have been saying that the money has been is is being allocated to these initiatives, and that is what's gonna really drive income. And we're now seeing that with a return to dividend cover.

9:34 In terms of our NAV, a £172,760,000, which is up 2.96 since June. That is a a NAV total return of 4.85, percent, which includes the 2p dividend that we pay. Our discount, when we as at the December 3 was 9.8. That has narrowed more recently with our share price moving closer to a pound. I think we're standing at about 9p today. Just to finish, performance, I'm gonna just quote the five year ones here. So five year annualized NAV total return and property total return of 9.6, which is very strong. And then finally, before I hand over to George, in terms of our sector weightings, as I said, it's very organic organic.

10:22 We don't chase particular sector. We don't follow the herd. We're not looking to offload offices or offload high street retail. We actually feel that there's some really good value there. We have about 35 in industrials, which has come down from its highest point of 60%, which was kind of during the pandemic where that sector was faring really well. That weighting has come down more recently because we've been selling out of lower yielding industrial assets. And what has happened is that we've recycled that into high yielding assets, which have tended to be mixed use retail predominantly lead, assets, and that's why we've seen our retail exposure increase, over the past year or so. Thank you, Henry, and good afternoon, everybody. Many of you will probably be accustomed with this this slide now, and what it seeks to demonstrate is is a story of the company over the last eighteen months or so.

11:17 To refresh your memories, in in the summer of twenty twenty two, we had sold 40,000,000 odd quids worth of property. And since that time, we have been taking on a program of selling out of what were those low yielding assets and reinvesting into higher yielding ones. We've noted a a number of examples here, and you'll have seen separate r and s announcement for them in the past. For example, Lockwood Court and Euroway were sold for kind of a weighted average yield of around 6.2, 6.8%, whereas Matalan and Preston was around 9%. But for this quarterly presentation, I wish to really draw your attention to the right side of this graph, and and that's our recent performance. As Henry's already noted, fantastically, we are we are back to full dividend cover, something that I know many of you have articulated on our investor forums was very important to you.

12:12 I think the thing that I really wanted to focus on in respect of this was Henry and I often detail themes such as value investment, active asset management strategy, total return focus. And what really is a demonstration of that is this graph. Naturally, when you are value investors, sometimes you will sell out of properties. You will crystallize profit, and there will be a passage of time where you're reinvesting those monies and deploying them into high yielding assets. And ultimately, this graph is showing what the benefit of that is. Henry also noted previously the award you've won, the city wire award for the nav performance and the MSCI award for property performance. And ultimately, we would not have achieved those were it not for those disposals and then strategic following acquisitions.

13:04 I suppose some specific events have driven our underlying pawns recently. We've had some fantastic wins in long standing arrears recoveries from some somewhat tricky tenants. And what really that is symptomatic of is much of the pain over the last eighteen months, much of that instability in the economic environment that's impacted, tenants' financial security. We're kind of seeing way in a way now, and that further is contributing to earnings. So not only have Henry and his team delivered really excellent top line performance in growing our rental income, but also in terms of the cost base and things like bad debt write offs, etcetera. We're seeing those start to narrow. And, ultimately, that is a reflection of what is a really high quality stabilized portfolio.

13:54 Thanks. Dividend cover always a hot topic. I've I've touched on it. Again, you will see in those kind of more recent bars, the the last three or four. Yes. There was a period of time where we were covering those dividends with those profits crystallized on profitable sales. And as you'll see in our most recent financial year to March 2024, that has chiefly been covered by earnings. Now, naturally, the logical conclusion is based on this course's performance, and, I see no reason for that, trend not to continue. One would hope that that kind of margin of what needs to be covered or topped up by profits will continue to narrow, which for the financial sustainability of of the company and its dividend, is really encouraging.

14:49 And this slide, again, I feel is like a is a real testament to a lot of those themes that I noted earlier. Again, I'm I'm probably going to sound like a bit of a broken record. We've we've talked about these in previous presentations, but, ultimately, our ability to cover our dividend with profitable sales is not by luck. It's a demonstrated behavior. You'll see this graph that shows all the disposals the company has made since incorporation. As you can see, a vast majority of those have been profitable. The subheading here, kind of a 36% average sale price to purchase premium, which is a really, really strong result. And and the last kind of element to touch on this side is you'll see there's a few red bars here. And what those really are a reflection of, these are actually very small assets in comparison to these large ones we made profits on, is that sometimes when the asset management story is finished for a property, we will make the decision to sell out of that property and redirect those proceeds into more high yielding assets with profit potential.

16:02 I've always been a a huge fan of this graph, which touches on our performance compared to our our peer group. A few key themes that actually run off some since last course is I talked in pre in the previous course about this kind of outperformance and the degree of it widening. That is still continuing to occur to occur. You can see kind of on that far right of the graph, our outperformance margin is actually increasing. And, really, to me, looking at the finances of this company, what does that tell me? Well, it tells me that our strategy, our active asset management strategy, the fact that we've been able to invest in our own performance, drive rental income growth in it, as Henry has said, as opposed to being dependent on buying new properties or churn has meant that we've been able to grow our NAV base in what has been actually a very difficult time for the market.

16:56 The only other kind of key theme I always pick up on this slide is that kind of point of intersection in early twenty twenty. That isn't a coincidence. The business, as you know, is incorporated in 2015. And typically, for many of our properties, they kind of have a five year business plan that we will, set out to achieve upon purchase. And as you can see here, it's at that point in time 2020, five years after the business started, that we really started to realize the gains from our asset management initiatives in both capital performance and income growth. And that and we are seeing more and more of that in recent times as as Henry has touched on. This table is a more granular breakdown of a variety of performance metrics against our against our peer group.

17:44 I mean, great themes to pick out on this are as that's June. I mean, we're still raise waiting for the NAV data from a lot of our peers. But as at June, we delivered the highest, NAV returns across all the time periods shown here. Share price returns have been more interesting. Of course, many of you are aware about m and a activity in the sector, and that has somewhat skewed share prices in in the short term for some of our peers. But when I look at this, I'm always focusing on the longer term, which when I look at a a real estate investment trust as an asset class, I'm thinking about long term performance. Has it been sustainable? And as you can see here, by far, we have delivered the highest five year share price total return. And we've already touched on themes of dividend yields. Our our dividend yield at the moment is still in excess of 8%, which is really attractive.

18:33 And and that's with a narrowing discount. As you would note in previous calls, that that was in excess of 9%. So I still feel the company's presenting a very compelling case.

18:45 We can skip by this slide because it's just a graph representation, but as you can see, our dividend is still really strong in comparison to our peers. And now we come on to to property performance. As as Henry noted, we we were delighted to recently be awarded, the MSCI listed property award for for UK property, and that was for the highest three year annualized total property performance. Now as you can see here across all time periods, we have we have vastly outperformed the benchmark, and and this is really demonstrating the output of Henry and his team's work in both capital and income terms, which we'll come on to a bit later. For me, what is most encouraging is looking at the five year and seven year bars here, you can see that our our performance, both in terms of on our road and in comparison to the benchmark, is very consistent.

19:41 Now what that tells me is there isn't huge volatility in our performance. We've consistently given this outperformance, and hence the award we've won. And lastly, what this graph looks at is over the last twelve months, again, to June 2024 as we're still waiting for the September MSCI data, we have outperformed the benchmark in all sectors. Now interestingly, industrials were the only sectors you can see here that's delivered positive capital performance. Now what that tells me is that actually our outperformance in more recent times on a property basis is due to our income return. Now what that really is, again, is a reflection of the active asset management approach. It's delivering that rental income growth that Henry spoke about earlier, and it's also being mindful of our cost base and also targeting much of our organizational effort towards that. So I'm really, really

20:39 encouraged by our property forms, which feeds into our performance, which one would hope it has done in more recent times to feed into our share price performance. Thank you, Hannah. So this slide just touches on our most recent disposal. It's been a it's been a less busy period for us in terms of sales and purchases, which obviously we've touched on at length already. And we have announced previously that we have sold this asset because we had a delayed completion. But just to sort of go over it again, it's a multilayer industrial estate. We bought it back in December 2015, the 5,620,000, £30 a square foot. So remember that point I made earlier about its comparison in terms of its investment value to what it would cost to rebuild this asset excluding the value

21:34 of the land, and we bought it off a 10.4% net initial yield. So, you know, exactly what we want in terms of its income profile and paying out that dividend. We've held it for a number of years, you'll see, just shy of ten. And I think what has changed is that it was single let to one tenant called Egbert Taylor who actually had downsized and consolidated into one large unit on the estate.

21:55 And what we have been doing over the last couple of years is getting those, units relet, and we did that and, achieved a a new £272,000 worth of rent. And there's quite a sort of crude expression in property called fill it and flog it. And in this instance, we got these units let to an array of smaller tenants. And we didn't really have that much appetite to spend more money on this property in terms of

22:23 refurbishments going forward, which were probably an inevitability in two, three years' time. So what we decided to do with the sort of bit of momentum gathering in the industrial sector is we decided to sort of cash out our chips and and sort of roll the dice and see where the investment market for this would be. And we actually had a couple of some special purchase and local high net worth come forward and offer some really good prices, And we ended up achieving a sale price 33% of the March valuation. Now it's the March valuation is is relevant because we exchanged ahead of the June valuation, which meant the the exchange price was factored into June valuation.

23:02 Hence why we're looking back as far as March, and delivering a 9% IRR to the company. Now we're not sort of an an IRR driven strategy, but, you know, that's a pretty pretty solid solid return all around. So, yeah, just one of our more recent assets, we've decided to sell, as I said, because we kind of felt like we've done the asset management, and it was time to to move on.

23:27 Now just touching on a bit of the retail warehousing asset management, that we've been doing over the past, six months or so. So we've got two sort of main deals across the line, in the quarter that we're reporting. And the first is a new letting to Tenpin in Dewsbury in Yorkshire. So previously, the unit was let to Mac Bingo, and there was a conversation initially about them staying for five years, but they decided to go prematurely ahead of their lease expiry. And we managed to agree an early surrender with them and a dilapidation settlement at about 208. I think it was £285,000 to lapse settlement. Now what we've done is we have secured a new letting to Tenpin, a strong covenant. We've taken a twenty five year lease, and it's worth noting that there is a break after seventy and a half years

24:21 at a rent of £378,470, which breaks back to £13.59 per square foot versus an ERV that we had, when the unit became vacant of £8 a square foot. So not you know, we talk about the reversionary potential in the portfolio. That is based on ERVs. In this instance, we have achieved letting in advance well ahead of ERV. So that sort of implies that there's even potentially more reversion in the portfolio as long as we can sort of outperform our ERVs. Now, typically, when you carry out these longer lettings to leisure tenants that have higher fit out costs, You have and the reviews tend to be linked to CPI rather than having open market reviews. So we've got CPI reviews here now with a 1% collar and a 3% cap. So we pretty much can track the rental growth every five years with this tenant occupation.

25:21 And you will appreciate, though, that quite a lot of money was spent on the property in order to facilitate this letting. And quite often, we have investors say, crikey, that's quite a bit of money to have put up front to get this letting.

25:32 We can get our head around that because, actually, they're paying a very full rent, and they're taking a longer term, and they're investing a lot of their own money in the assets. So that really sort of gets us comfortable with doing this letting. So we saw some really strong valuation performance this quarter from this asset. And as we continue to pay the next two installments of Capcom, we would expect to see some further valuation performance as well as money is spent on the building with Tempur opening their store, we'd we'd anticipate in February next year. Moving on to Barnstable Barnstable Retail Park, we had Sports Direct, vacate, their units, and we quite quickly managed to relet this unit to Farm Foods on a fifteen year lease with a breaking year ten at a rent equivalent ERV in this instance of a 125 k, £13 with similar rent, to the rent that we achieved at Tenpin and Dewsbury.

26:27 And probably worth noting that the unit is smaller, and Dewesbury was a leisure letting rather than a retail letter letting. And, typically, retail lettings would have higher rents, especially when they're on smaller units. And so that's just a little bit of sort of background to those ERVs. In this instance, it's a retailer. It's not a leisure operator. There's less, fit out costs. They're taking shorter lease terms, so there's open market reviews, in the fifth and tenth tenths years, and there was a lot less incentive here. We carried out some refurbishment to the unit, which we expect to recover from sports direct through dilapidations who were the previous tenants. So a nice left one to do. The unit is fully let again, and, yeah, it's basically exactly sort of what we like to do. As I said, meant going back to that churn. You know, it's quite nice to have tenants vacating because then you have the option to improve your assets through refurbishments and bringing in new tenants who spend their own capital on the properties.

27:29 So to conclude, so continued growth in NAV per share and a dividend covered by EPRA earnings for the second consecutive quarter. We're delighted by that, and not may it continue. Quarterly earnings growth of 1.75 to 2.17p on an underlying basis since June 2023. As George said, we had a lot of disposals back then. It's taken us a time to get that money reinvested to really see the benefit of those new investments and to focus on asset management in in the existing portfolio, which has led us build those earnings back to where we are today. Asset management, you know, in terms of driving income is also very important, mitigating void costs. When we have a void, not only are you losing out of the income, but there are void costs. So you can be paying rates. You can be paying service charge insurance. So actually filling those vacant units has a sort of double whammy in terms of driving earnings.

28:30 We remain sort of aware of kind of what's going on in the economic background, but, you know, perhaps sometimes when you have tenants that fall in difficult times, that is an opportunity. We've alluded to the refurbishments we're carrying out in Rumcorn, where the previous tenant was paying a rent of £6.50 per square foot. We feel like we can really better those rents, so it does present opportunities as well. I said we had quite a high cash weighting, which was being allocated towards asset management, but also it's worth mentioning that that is in an interest bearing bank account. So we're getting some some income from that, which is obviously naturally feeding into our earnings performance. Low capital values per square foot, as I said, £74 a square foot, which means we've got some really good sort of foundations in terms of being able to drive value relatively low, which shows that there's value to go after.

29:22 Reversionary potential, with the reversion yield of 8.6 in the portfolio. We have a great track record still of crystallizing gains on sales, a 36% average sale to purchase price premium with joint which being a nice premium to the March valuation. And, again, we always like to sort of blow our trumpet on that low cost of debt, 2.96% fixed until May 2027. Thank you very much. Thanks, all. Perfect. Henry George, if I may just jump back in there. Thank you very much indeed for your presentation this afternoon. Ladies and gentlemen, please do continue to submit your questions just by using the Q and A tab that's situated on the right hand corner of your screen. But just while the team take a few moments just to review those questions that were submitted already, I'd just like to remind you that a recording of this presentation along with a copy of the slides and the published Q and A can all be accessed via your investor dashboard.

30:18 Guys, as you can see there, we have received a number of questions throughout your presentation this afternoon. And thank you to all of those on the call for taking the time to submit their questions. But guys, at this point, if I may just hand back to you just to read out those questions and give your responses where it's appropriate to do so. And if I pick up from you at the end, that would be great. Thank you. Sure. So we have a question here. Please, can you resist request to increase the dividend? I prefer to see a stronger dividend cover and growing NAV from reinvestment. Well, sort of on that point, obviously, as I said, we we're delighted to go get back to full cover. We're gonna sort of very much focus on doing what we have been doing. You know, it's worth noting that we pay the the highest gross dividend amongst our peers.

31:03 So it's still it's already high, but it's also worth noting that, obviously, dividend policy is decision of the board, rather than us, the investment manager. Another question here. Are there any potential benefits to be gained through merging with another REIT? Well, as George said, there's been a lot of activity in the sector. And, of course, we have our eyes peeled opportunities. But it's also just worth noting that, you know, we would only ever really look to an merger and m and a activity if it was for the benefit of our shareholders. And, you know, that is the most important thing. But, naturally, we would love to grow, because we, you know, we have we do remain we do remain small, so we will continue to look at opportunities.

32:01 We've covered different questions. What is that one? So I've got a question from Sarah g that says, in your two new lettings to bowling operators, you gave capital contribution to one and the rent free period to the other. What are the benefits and downsides of each approach? I suppose the the first obvious comment to make is that is a Capcom is an upfront cash cost. So from a cash flow perspective, it is more testing.

32:50 I, of course, exist in the accounting world. And so both actually, from the accounting perspective, don't that they have the same impact. You're spreading those incentives over the life of the lease, which ultimately feeds into what our EPS is. I suppose from a commercial perspective, with you and your team, Harriet, what would lead you to to offer a cap on it in favor of a rent free or vice versa? It's a funny one, really. I mean, it's it's always very much dependent on kind of what the tenant wants. You know, as I said, I think it's more it's more typical that tenants who are taking shorter leases would rather a rent free incentive or a tenant renewing.

33:35 However, when you have a tenant who is coming in and spending a vast amount of money on on the property, for example, you know, Tenpin, who are coming in and putting in a multilane bowling alleys and laser quest and bars and f and b and stuff like that, You know, they they want money to be able to invest in the property. So you do typically see it upfront in capital contributions, and they actually can be staged as well. So, like, a rent free period would typically go on over a number of months. Whereas in terms of the cap con, you might pay some of it or, like, you know, a quarter of it, half of it when you complete the lease. But then because you obviously want to see the tenant actually committing to doing those works, you would perhaps pay, like, the the second half when the works are PC'd or the or the second third when the works PC'd, and then the final third when the property is open and functioning, which is kind of which is the case in Tenpin.

34:37 Got a question here from Roy L that's got two elements to it. So the first part is, what's the process of recon the process of reconsolidation continues? What role might AEW play in this? The second part is if you were to refinance £60,000,000 debt today, what would it cost? I mean, we we've touched on the first point already. I think the only addition I would make to Henry's response about reconsolidation and m and a activity is it is very much a part of our day to day work at the moment. It it is looking and assessing at these opportunities. I think to shareholders, one thing I wish to reassure you of is that this is not something we are passive in respect to. It's something that we actively are looking at all the time.

35:22 But as Henry says, the first prerequisite with doing anything of that nature is that it must be for the benefit of our shareholders. Now there are potentially opportunities out there. The REIT world is well, unfortunately, now increasing smaller space in terms of the number of actors in that. But, yes, it is something that we look at. In terms of the role we might play, I don't I don't wish to to speculate, given the strong performance of the company, I would like to think that we could very much be on if we were to play a role that we would be on the front foot of that and the architect of it. And in terms of refinancing the debt now, what would it cost? I mean, amongst our other AEW funds outside of of the REITs, none of us have refinanced recently. So I I can't give an exact figure of what our current lenders are sort of offering, nor do I wish to speculate on debt markets, but I would assume something around the 5% mark would would probably seem somewhat sensible. Of course, it totally depends on, well, the budget towards the end this week and what happens with monetary policy. Probably worth mentioning. We have, like, an in house debt team at and they very much have their finger on the pulse as to what's going on in the debt markets. And I mentioned when I was touching on the debt facility that we decided to refinance a year ahead of our previous facility with RBSI expiring.

36:54 Our debt teams knew what was coming, knew the storm that was coming, and they said, guys, it'd be we really recommend you sort of locking in something now rather than waiting twelve months. So we have a we have a close eye on that, and we're very fortunate to have an in house debt team. And to add to that as well, there's a question here by Charles h about how we're going to manage refinancing risk. I think one important point to notice is that AEW, as a wider business amongst all its funds, has a very close relationship with some lenders, so certain funds might actually use the same lender. Now that is commercially to our advantage, and actually, often we can get advantageous rates. As you can see, our rolling rate of 2.96% is very compelling with our provider being Agfa and actually Agfa loans to some of the other AEW UK funds as well. So we have that to our benefits, and that is something that we're actively we would actually use to mitigate our risk.

37:51 Another question there. Which one? So we've got a question from FM. Which sector are going to look to invest in, e g offices, retail, industrials for value? Well, we we don't chase a particular sector. We have an in house investment team. We do stock selection then well, I do stock selection twice a week, and we see an array of properties across all the sectors. And I we're not in any way going after a particular sector. I think it would be quite nice to buy an industrial asset because I feel that the rental growth story more recently has been very compelling. And I also feel that we will see some some yield tightening going forward. So it'd be quite nice to sort of board that train at the right time again. Obviously, the sector got absolutely whacked when interest rates don't increase, and obviously, developers withdrew from the market.

38:47 So I think it'd be quite nice to sort of maybe buy new industrial assets and do a bit of asset management on that. I mean, previously, more recently, we have been buying retail assets, good chunks of high street retail, maybe mixed use with some offices above in good towns and cities. So we bought in Greater London and Bromley and in Bath. But, yeah, I mean, it's it's a bit of a mixed bag. You know, when you're when you're looking at stock selection, you can sort of you can go and chase yield a little bit, and that typically might be more in, like, retail warehousing, high street retail, or you could look to invest in lower yielding kit, maybe the industrials, but there is quite a good rental growth story there. Whereas in the retail sector, the rental growth rents tend to have rebased a little bit more recently.

39:39 But as I say, it's it's very sort of case by case basis. We're sector agnostic, and we will always look at the underlying sort of value of those assets. So sometimes you can be looking at asset stock there and think, okay. This ticks ticks the box in terms of his income profile and potential rental growth. And then we'll go back to look at how it breaks back to a square foot value, and we'll think, yikes. Actually, you know, in terms of its alternative use value, there's a lot of value locked into the leases here, and we need to make sure that we've got a good underwrite to alternative uses. There's a good question here from Martin p, which says, will your ongoing charges disclosed be reduced now that the FCA has changed the rules of disclosure? Now I'm I'm not sure how many of you on this call are aware of this, but very recently, there's been a somewhat chaotic disruption into how investment trusts like ourselves present our costs in things like our key information document and and things called EMTs, which basically cost disclosure documents.

40:44 Now we've received advice on this both from a legal perspective and from our corporate adviser who who are. And, really, different market participants are making different choices. Some are just showing nil for all their costs, which we didn't really agree with. And so the position we have landed on and as a compromise is, you will likely be accustomed to seeing the ongoing charges ratio disclosed in our annual report. That is the number we have decided to include in our EMT, which the likes of Harvey's Landsdown uses for the basis of their cost disclosures on their platform, etcetera. It's an ever evolving landscape at the moment. There's a lot of senior figures in the industry currently debating the matter. So as and when further guidance is given, we we we may amend what we have done. But for now, I would place predominant attention on the ongoing charges figures that we disclose in our half year and full year reports.

41:47 Lastly, a question from Charles O. Might it be appropriate to pay off some debts since it's unlikely to be possible to refinance on such good terms as presently enjoyed. Of course, that's potentially something we may consider doing. I I could I can possibly comment on what we're going to do with our debt or or what the debt environment's going to be like three years now from now or two and a half years when when our debt runs up. What I will say is if that is the sensible thing to do, then, of course, this is something we would consider. The basic maths is that if we can obtain a return using that money that exceeds whatever might be the refinance rate, then it is still financially the optimal decision generally and on a simple basis to to keep having that debt. But, yes, that is absolutely something we will consider.

42:35 I think that is Yeah. Absolutely. Yeah. Henry, George, thank you. That's great. And thank you very much indeed for being so generous of your time then addressing all of those questions that came in for investors this afternoon. And, of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended just for you to review to then add any additional responses, of course, where it's appropriate to do so. And we'll publish all those responses out on the platform. But, Henry, perhaps before really just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company, if I could please just ask you for a few closing comments just to wrap up with, that'd be great. Yes. Thank you. Well, thanks all for joining us again today, and thank you for your questions.

43:20 I hope we've given you a fruitful update, and you are sort of buoyed by the recent performance. Obviously, as George and I said, it's good to see NAV growth per share and and a dividend covered for a second consecutive quarter. And, you know, you have to say that's that's the rewards from the asset management that we've been doing over the past six months, and, yeah, we will continue to look to do that going forward. So thanks again, and see you all in the New Year. Henry, that's great. And thank you once again for updating investors this afternoon. Could I please ask investors not to close this session? You'll now be automatically redirected for the opportunity to provide your feedback in order the management team can really better understand your views and expectations.

44:07 This will only take a few moments to complete, but I'm sure it'll be 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 now concludes today's session. So good afternoon to you all.