Aew Uk REIT (LSE:AEWU) — Investor Presentation

0:01 Good afternoon, ladies and gentlemen. Welcome to the AEW UK REIT PLC investor presentation. Throughout this presentation, investors have been in listen only mode. Questions are encouraged and could be submitted anytime via the Q and A tab situated in the right hand corner of your screen. Just click q and a, scroll to the bottom, type your question, and press send. Company may not be in a position to answer every question received during the meeting itself. However, the company will receive review all questions submitted today, we'll publish responses where it's appropriate to do so. These will be available via your investment company dashboard, and you'll be notified once they're ready for your review. I'd also like to remind you this presentation

0:33 is being recorded. Before we begin, we'd like to submit the following poll. And now I'd like to hand you over to Alex Short, portfolio manager, and Henry Butt, director AEW UK REIT PLC. Good afternoon. Thank you very much. So if we could move to the first slide, please. And so here, we have a quick reminder of the strategy strategy that we run for AEWU. I know lots of you will have seen this before, but for a quick reminder and for new joiners to the call, I will just remind you what we seek to do. So first off, we are geographically diversified. So we hold properties throughout The UK focusing on strong commercial locations. Obviously, for industrial, that tends to focus around good infrastructure and so on.

1:21 Our style of management is very much proactive. So you see lots of asset asset management deals going on, lots of value being added by our asset management team. So interaction with the tenants, so understanding the businesses that they run. We also tend to run a slightly shorter than benchmark lease expiry profile here. That's for a couple of reasons. One is we tend to find this on purchase when we buy slightly shorter leased assets. We tend to get a pricing advantage at the purchase point. We have also tended to find over a long period of time that when you have a lease event coming up, it gives you a really good reason to talk to your tenant. It makes engagement with the tenant much more proactive, and it tends to throw up opportunities to add value, whether that's by changing tenants or extending leases or whatever else it might be.

2:12 But we do find that the shorter lease profile works very well for us. We tend to like diversification as risk management tool. So you see diverse diversification in terms of the sectors that we choose and in terms of having a broad spread of tenants and locations and so on. Stock selection, of course, very important, limiting downside risks. So very often, we are looking at capital values per square foot as a baseline indicator of value. We often look at alternative use values at the point of purchase too. So downside risk, very important, as well, of course, as looking for the value add potential that we can buy as well. For a fairly long period of time now, we have run a fairly high weighting to business space, in particular to industrial properties, which we'll come back to. That served us very well.

3:08 And you won't be surprised to hear that we have had a very low retail warehousing, and that's, of course, has been helpful to performance too. We tend not to be entirely sector driven. We tend to be pretty focused on each specific asset that we're buying for you know, really for its own purposes. So whether we can add value, change use, or whatever we think is the reason for buying that particular asset. And the dividend is a key feature of this strategy. We have consistently paid the dividend in line, with the stated strategy at 2p per quarter, and we have done that now since the beginning of 2016. Most of the time, that dividend has been covered. More recently, we've had one or two quarters that have been uncovered by earnings, and I will come back to that in more detail in a moment.

3:59 Paying a relatively high dividend, of course, we tend to buy relatively high yielding properties. So typically, we'll look for assets somewhere between about seven and a half to 10% initial yield. Lot sizes, not hugely fussed on lot sizes. We have a maximum 10% into any single asset at the point of purchase, but somewhere between 2 and £15,000,000 tends to be our sweet spot. Moving on to the next slide, please.

4:30 So this slide is a quick snapshot of how the REIT was positioned at the end of September, so this current quarter that we're reporting on, of course. So slight growth again. Gross assets now just in excess of £200,000,000, 35 properties, and the initial yield profile that I've talked about. Importantly, of course, the reversionary yields being slightly higher than the initial yield tending to suggest that there is value still to come in this portfolio. Those numbers, of course, coming from our independent valuers, Knight Frank. On a like for like basis, our valuation is up again this quarter by just over £6,000,000, which gives us 3.1% quarterly valuation increase.

5:15 You can see as well that that we have sold a couple of assets this quarter. South Kirkby being an industrial property led to one of our larger tenants actually called Ardagh Glass. That one has sold and the sale has completed.

5:30 Henry will come back to those in due course, but significantly in excess of its purchase price and its recent quarterly valuation too. Basingstoke, that is a property also industrial that we have sold. It's exchanged. It hasn't yet completed, but we would expect that to happen fairly shortly. Debt, of course, part of this strategy, but relatively conservative levels of debt. Currently, loan to NAV of 29%. In due course, I would expect us to go back closer to our target there of 35%, And we are currently spending some of the proceeds of the couple of sales that we've done. And in due course, I would expect to see that debt increase again.

6:16 Debt, very accretive to our performance here. All in cost of debt at 1.4% is very helpful. The sector exposure pie chart on the bottom right of that slide, I think it's just worth noting that for the first time, I've asked that we split out the data here from standard retail, which is essentially high street retail to retail warehousing. And that is because I think we might start to see some quite distinct differences in, firstly, levels of tenant demand, and secondly, of course, therefore, performance. So I am starting to just look at those two, Obviously, side by side, but slightly separately. You will see with the completion of those two investment sales and with a couple of retail warehouse purchases, this whole sector exposure will change slightly, so industrials will come down from that 56% on that slide, down to more like 50, and retail warehousing will increase from what's currently 7% up to around 14%.

7:19 So some gentle sector change is going on, nothing extreme. Moving on to the next slide, please. The dividend yield, of course, we have already touched on dividend here being a very key part of this strategy. So 8p per share per annum split into the four quarterly payments each year of 2p. We are consistently the highest dividend payer here, consistently the highest dividend yield, and you can see AEWU again in the red bar on the far left of that slide again as the highest dividend payer. Moving forward to the next slide again, please. So the one thing that we do spend an awful lot of our time looking at, of course, is property level performance, accepting this is a REIT and is slightly prone to the vagaries of the stock market. We do tend to look in a lot of detail detail as our property level performance, and that's set out for you here on slide six.

8:21 You can see over each of those time periods, six months, twelve months, three years, and five significantly outperformed MSCI, which is good. Most notably, for the twelve month period, our outperformance was very nearly 12%, which is pleasing. Moving on to the next slide. Again, this is property level performance. This time, the same data, but split into weighted contribution by sector. So I think this really shows very clearly how it's been very beneficial to us to have that high industrial weighting and how it's also been equally beneficial to have a very low retail weight weighting here. But, generally, pretty happy with performance.

9:06 As I said, we have sold two industrial assets and bought a couple of retail warehouses. Not signaling the end of the industrial sector at all, just acknowledging that one or two of our assets have probably reached their peak in terms of valuation as far as we're concerned. So just rebalancing the portfolio slightly to ensure we keep performing strongly. Moving on, please. This slide then looks at our performance in terms of our share price. So in terms of our REIT peer group here, you can see AEWU at the top of that, performing pretty favorably on each basis, I think. So outperforming our, REIT peer group over each of those time periods again.

9:56 Moving on to the next slide. So I touched earlier on the dividend and the fact that, ordinarily, we would expect the dividend to be covered by earnings, but we have had a few time periods more recently where earnings have not fully covered the dividend. And that has been for a few reasons, partly, of course, the pandemic has meant that rent payment at one point was a little slower. And you, no doubt, will have seen in the press that we took legal action against two of our larger tenants who then paid their rent arrears, which was very helpful, and also encouraged a number of other tenants who had been slightly slow paying rent to pay their rent as well. So that in itself was helpful. We have also traded a few properties. So we've sold a few assets. We're reinvesting a few assets, and we wanted to be pretty pragmatic in terms of that reinvestment until the market was looking more settled.

10:47 We currently have a property under offer, and I would hope to be able to report that as a new purchase in the next week or so. Beyond that, we'll have one slightly smaller purchase to make, and then we will be back to full investment, and our usual level of gearing as well. That's, of course, very helpful to earnings. In addition to that, we've been doing some fairly expensive service charge works at an asset in Blackpool that has needed some repair works doing, and that is service charge recoverable, but one of our tenants there has been disputing that. And that also has meant the earnings have been reduced, but that tenant has now conceded they are genuine service charge works and has paid that amount in full. That, of course, will help along with the works in Blackpool, which will complete early in the new year.

11:36 That, of course, will help earnings as well. We've also chosen to sell an asset in Glasgow, which is an office. We've exchanged contracts to sell, but there are a couple of conditions to be met. One is that the purchaser achieves a residential planning consent, and the other is that we we deliver the building to them with vacant possession. So in emptying the tenants out of that building, of course, that has also had a very depressing effect on our earnings.

12:05 But in summary, once we have completed the works at Blackpool, sold our office in Glasgow, and reached full investment, we would expect to be back to a fully covered dividend. In terms of timing, I think that is most likely to be early in the New Year.

12:26 Henry, can I pass over to you to talk about rent collection and so on? Yeah. Certainly. Thanks, Alex. So if we move on to slide 11, this looks at our rent collection over the past seven quarters. And I think it's fair to say that we're delighted with our success, with the main headline being our success in court against two tenants who were not paying over £1,000,000 worth of rent, which we subsequently collected. Looking at the quarters since March 2020, you'll see that we are pretty much a 100% collected with the exception of this current quarter where we are 80% collected, but expect to see a first receive a further 15 of that rent during the quarter through monthly payments.

13:20 With the 5% outstanding, we expect to probably receive and get close to the 9900% collection rates that we have for the other quarters. I think quite a poignant sort of fact with this quarter is that we are probably around well, we're around 10 to 15% ahead of where we were in the March 21 rent collection, which shows that tenants now are more willing to pay and how we have engaged with our tenants over their rent payments over the past eighteen months, it has fed through, and they're now paying more on time. It it's probably also, though, worth noting that we are not back to pre pandemic rent collection levels where you would expect to be in the sort of the high 90% within the first weeks of the quarters.

14:09 But I think if we compare our rent collection to what we're seeing across the market, we are roughly sort of, I would say, five to 10% ahead of where other landlords are. And it's important to note that quite a lot of landlords for the quarters which fell early on in the pandemic still have roughly about 40 to 35% of rent arrears outstanding. So we've had a we've had a very good pandemic in terms of rent collection and which we're pretty delighted with. In terms of debt situation, we've passed all our banking covenants, and we continue to manage a prudent debt strategy. And then moving on to the NAV performance. As you can see, we've had a pretty stellar twelve months, which has mainly been driven by our valuation gains in our industrial sectors.

15:02 We've also seen some nice valuation gains in the office office sectors as well at our assets in Oxford and Bristol. We move on to the next slide, please, slide 12. So this slide sort of touches on the resilience of the portfolio over the past twenty four months. As Alex said, we're conservatively geared. We're just shy of 30%, 20.9% LTV at the moment. We have the debt runs at 1.4% per annum, which is accreted to performance. We've also converted the debt to rolling credit facility at no cost, which means we can repay and draw down debt without any penalties.

15:46 And we also have an in house debt team at AEW who have a strong relationship with RBSI who provide the debt facility for the REIT. We are well capitalized. The 15,200,000 cash and 9,500,000 debt as of September 30. But as Alex mentioned earlier on, it's a bit of a moving feast at the moment with the sale of basing stake recently completing on the October 15 and looking to invest, money shortly. We have a low exposure to retail, and that's, benefit us, over the past, twenty four months or so. And we've obviously split that into warehousing and standard retail now, and we're looking to to invest into the warehouse sector, which we think feel there's a good opportunity.

16:37 In terms of the rent collection, I've touched on that already, but we have had strong rent collection over the past eighteen months. In terms of the vacancy, we're currently at about five and a half percent excluding Glasgow. Glasgow, we're about 9%. We obviously have exchanged on the sale subject to VP, and we have recently completed on a surrender deal with the largest tenant in the building. We have one remaining tenant who we are in negotiations with, and the purchaser is making good progress with their planning. So we expect that vacancy to come down once we have exited out of Glasgow. And as I'm sure you can appreciate it, with a shorter lease structure strategy, the vacancy tends to sort of undulate more

17:24 than you would have in a longer income strategy. In terms of the low cap valve per square foot, we really like this because it gives us optionality to move properties across the used classes. For example, moving where retail warehousing, trade counter into industrial, office into hotel, residential use, the recent changes to the planning use class order with the new e use class is very much kind of lubricated the planning system in terms of the optionality with regards to those alternative uses. And also with asset management, as always, it's very much a part of our strategy with the shorter lease lengths. We have lots of exciting sort of opportunities down the line and some very sort of proactive negotiations and conversations with our existing tenants.

18:20 Moving on to slide 14. This touches on the performance over the past quarter. The NAV total return of 4.58%, that has been driven by the profit realized from the South Kirby sale and the valuation increases that we had seen and, obviously, strong rent collection. Capital growth has been the main driver with our valuations up 3.1%, mainly driven by our heavy weighted industrial holdings at 4.3%. But we've also seen some good performance from two of our offices in Oxford and Bristol, which I'll come on to later in the presentation.

19:03 The sales of South Kirkby and Basingstoke. South Kirkby completed prior to quarter end, whereas Basingstoke completed more recently on the October 15. They don't the the sale gains don't contribute to earnings, but they do drive the performance of the NAV. And we had gains of roughly 2,000,000 at South Kirkby and 2,000,000 at Basingstoke. So that has been driven driving the NAV performance. We still have a strong focus on industrial assets. We feel that there is rental growth still to come, and we're looking to capitalize on that through lease renewals, regears, and negotiations with existing tenants and new lettings. And that sort of feeds into our successful asset management story.

19:51 More recently in this quarter, we have had some good performance at Bristol having completed two deals recently there, nicely and above the ERV.

20:04 Slide 15. And this is sort of revisiting the success of the industrial market and our holdings. I mean, in a in a nutshell, it's all really about derived demand, the consumer feeding into the occupational demand. There is still a lack of good warehousing space, and therefore, there is an impact on rental growth and yield compression. You could argue that we have perfect conditions at the moment for this sector. And in terms of sort of the strategy building on those market conditions, in terms of the negotiations with existing tenants or new incoming tenants who are looking to take new space, we can be pretty bullish with our negotiations in terms of low incentives, longer terms than perhaps you might have got five years ago.

21:00 But sort of the most sort of notable difference in more recent times is is rents. I mean, in in the past, industrial rents, when you were doing a letting or a rent review, would move on by $5.10 p per square foot. Whereas now when we're negotiating with tenants, we'd happen to be moving on rents by 25p, 50p. So there's a real strong rental growth story, and that's also driving the performance of our industrial assets along with yield compression. This slide just touches on everything I've really just discussed. And you can see we've seen north of 30% valuation increase over the twelve months, which is sort of probably been sort of enhanced by what has happened with the pandemic. But we all know that industrial is very much this sort of invoke sector, and that's why it has performed so well.

21:55 Slide 17. So this looks at the sale of South Kirkby. If we look at the purchase information and sell Achieve, you'll see that we bought this property for £26 a square foot and ended up selling it for £50 a square foot. So so doubling its cap valve per square foot. We bought it in on a yield of an 11% net initial. So we had a very good income profile, which would have been accretive to the performance. And having sold it, we realized NIRA just shy of 20%. So we're delighted with this holding, selling it at 87% ahead of where we bought it at.

22:35 If we we decided to sell it because we renewed the lease at 13% ahead of the passing rent, which touched on that rental growth story I've mentioned. The tenants as well, there's sort of an ongoing trend where they were reluctant to renew for a longer term. That was the case before our ownership and was the case when we were in negotiations with them. So we felt that we had optimized the value of this asset and therefore decided to sell at well above the purchase price and that those the profits obviously contributed to the NAV performance. We move on to the next slide, please. So Basingstoke, which completed on the October 15, similar to South Kirkby.

23:23 As you can see, the price per square foot has nearly doubled in our time holding the asset. 9% net initial yield when we bought it in, selling out at six and a half percent.

23:35 And IRR in the mid teens, very happy there. I think the difference between this one and South Kirkby is actually there were some negatives, which we consider with the property being it's geared, long leasehold interest, and the access. And we felt that in a less hot market, that would feed into valuation and pricing. So we decided, having recently regeared the lease to op, we felt that we'd optimize the value. We thought we'd sell out, when the time was right. And, again, that has been a very good sell and case study for us. Move on to the next slide, please. So this touches on one of our office holdings. As you can see, the valuation has sort of troughed and but increased more recently, and that has really been driven by the rental growth story.

24:33 We have recently done two deals, one to Brone and Dolphin and one to Candine at £30 a square foot. The passing rent on the Candine renewal, for example, was at £2.22 pounds 81. So some really strong rental growth there. And with that new evidence, we've got some rent reviews coming up, and that's feeding through into the overall ERV of the property, and it's really sort of driven performance. And we've we've really it's a strong sort of asset management story, this property, in that we improved the common facilities on the Lower Ground Floor. We've had an ongoing rolling refurbishment program, and that has driven rents forward. And and we have more recently seen some some valuation performance and increase, which is which is good in a in a sector, which is everyone's a little bit vague about where it might go with what's happened over the past twenty four months.

25:29 Finally, if we move on to Oxford, we presented this slide before, but we've continued to keep it in the presentation because we've seen some more performance this quarter with the valuation up another £250,000. It's this it's a it's sort of a very sort of, compelling sort of asset management story. If you look, we've the current value is, at about £200 a square foot, and we feel that we can refurbish the space into life sciences, health care space for a £100 a square foot, which we can then rent for about £30 a square foot. And if you capitalize that off a yield of about 5%, you're at about £600 a square foot. So a very compelling asset management story instead of doubling your money. There's a huge amount of money chasing the sector at the moment.

26:17 And, yeah, we really we really like this holding, and it continues to perform very strongly for us. And we feel that there's more performance to come down the line. So that brings us to the market investment strategy outlook. So I'll hand back to Alex to cover for this. Thank you. Thanks, Henry. And so this slide gives some high level overviews of our thoughts on the market at the moment. So first off, the wider economy. Of course, it seems that The UK is now in a relatively strong recovery mode post pandemic, which is good news for us. We are absolutely seeing that in the in the investment market. So lots of interest when we sell assets. We tend to get very strong bids. And, of course, when we're buying assets, we are seeing sometimes a little more competition for some of the assets that we would like to buy.

27:13 Inflationary pressures, of course, building and speculation as to when interest rates will rise. That, of course, seems pretty likely. Interestingly, when I talk to tenants and clients alike, I keep hearing that staffing is often an issue in businesses, finding enough skilled staff. So it'll be interesting to see how that might impact on growth. Rent collection rates, of course, are recovering pretty strongly, but worth noting that AEWU has done very significantly better than the average. Henry, of course, went through our rent collection rates. And for each quarter, we are either at or very nearly at a 100% rent collection, and we would anticipate that will continue. We've seen a few changes to planning and use class orders, which is throwing up some new interesting opportunities both across the existing portfolio, and also in terms of assets that might therefore become interesting to buy. This particularly relates to some residential uses.

28:17 In terms of how all of this impacts us, I wouldn't expect to see a massive change to our portfolio weightings at the moment. So Henry talked a lot about industrial assets, and we still feel pretty positive about industrial overall. We've seen some pretty strong yield compression and strong rental growth, and we think rental growth will continue for some time ahead. Where we're selling our industrial assets, it's very much because we think those particular assets have reached their valuation peaks. We're just selling out those and recycling the cash into assets that we think will perform better going forwards for us. Sectors that I feel broadly relatively positive on, I think retail warehousing is, in some instances, quite interesting, and I think the leisure sector might see a relatively strong recovery too. So very selectively looking at those sectors now as potential purchases.

29:16 High street retail, I still feel relatively negative about, and we are still seeing pressure from tenants for rents to move downwards. So I suspect you won't see us buy an awful lot more retail warehousing high street retail going forwards unless, of course, we're buying it for a specific reason, an alternative use value, a planning gain, or something like that rather than just holding it as high street retail assets. We do have a strong pipeline of assets that we're currently considering at the moment. As I said earlier, we probably have one more purchase to make to take us back to full investment. Beyond that, there are a number of other assets that look very interesting. So if the opportunity was there, of course, we would like to raise capital to be able to buy those.

30:03 So in conclusion then on the last slide, please, I think, really, from us, you will see more of the same. Sector weightings perhaps adjusting very slightly, but as I said, selling out our assets that we think have reached their peak valuations. We do expect to continue paying the dividend. I think, hopefully, I've set out really quite clearly how we would expect earnings to recover. We have a very clear strategy as to where the earnings went and much more importantly, where the earnings are coming back from. So dividend, we think will continue to be paid, and that seems to be the guidance from our board of directors at the moment. So all in all, feeling pretty positive of about about what comes next.

30:52 We seem to have quite a lot of questions coming in, so I will let someone go through those and ask you some questions. Fantastic. That's great. Alex, Henry, thank you indeed for the presentation. Ladies and gentlemen, do please continue to submit your questions using the q and a tab situated in the top 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 that recording of the presentation along with a copy of the slides and the published q and a can be accessed via investor dashboard on the Investor Meet company platform. 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. As you rightly said, Alex, we had had a number of questions submitted during the meeting. We had a number of presubmitted questions as well, and perhaps I may just start with those.

31:38 The first one reads as follows. What are the prospects for creating value at the Westland site in Westland Supermere? Henry, do want to take that one? Yes. So it it's it's something that we're working through at the moment. One of the largest tenants, we feel, might be leaving the site, in the next twelve months or so. And that actually throws up an exciting sort of asset management angle where we could look to demolish the space, which is, you could argue, obsolete and build some new space, really sort of driving rents on forward, which would be valued off a stronger yield profile. The site is also surrounded by a lot of residential. So there are some residential alternative use angles, which we're exploring as well at the site.

32:32 But in general, touching on that residential angle, but looking to improve the the the space and drive rents forward and and get a stronger yield applied to that particular asset. Fantastic. That's great. Thank you indeed, Henry. We had a couple of questions come through in the live q and a session as well as pre submitted just talking about, you know, would you look to raise more capital? If so, by what means? What are the circumstances around that? And, you sort of including retail investors, if that's we've got any comments there, please. Sorry. I didn't completely hear all of that question, but I think this was around capital raising. Just around the capital raising. Yes. That's correct. You know, will you be looking to raise more capital? If so, by what means and in what circumstances would you want to go a capital raise? Would you look to include retail investors in in that process?

33:22 Okay. So capital raise, yes. Of course, we would like to raise capital. The strategy continues to be a little smaller than we would like it to be, and we know that some of our larger shareholder shareholders, particularly, would like a larger strategy for benefits such as liquidity and so on. So, yes, we would like to raise capital. We still continue to trade at a small discount. That, of course, makes it difficult to raise capital because to some extent that then comes at the expense of our existing shareholders. We do have the ability to issue via a tap at the moment. That is something that we might consider if we can find the right group of assets and, of course, if the share price is supportive.

34:10 I mean, I I think that's about the most complete answer I can give at the moment. We really do move to a small premium, I think. And then beyond that, we would be taking guidance from our broker as to the most appropriate way to proceed. Fantastic, Alex. Thank you. I think you have covered this one off multiple times, but just to be crystal clear for for any doubt, we have had a couple of questions through with regard to the dividend. Just on that basis, one of them reads, given the earnings continues to be less than the dividend, please comment on the sustainability of that dividend and whether that's continued to be funded from capital gains. And do you expect to still pay the two p dividend? How is that going to be funded? Just to reconfirm, I know you have mentioned it a number of times in the presentation just to make it crystal clear. Okay. So for the time period that we have paid that 2p per quarter dividend, that dates back to the beginning of two thousand and sixteen, and we have consistently paid that 2p every quarter throughout that time period.

35:04 My expectation is that the board will continue to do that, although they obviously have to keep that sensibly under review. If something fundamental shifted, that may change, but that's not my anticipation as things stand at the moment. Throughout that time period, earnings have mostly covered that dividend, but you do, of course, get periods where the earnings bounce around a little bit, and we have seen that a bit during the pandemic. We can see very clearly what has happened, and we can also see very clearly where it can be rebuilt, and we are very much on course to do that. When we talk about dividend cover with the board, it tends to be their consideration is if they consider in the medium to long term, the portfolio can sustain a cover dividend, they will continue to pay the 2p is generally the view they take.

35:56 I think, hopefully, we've been reasonably clear that this portfolio, once fully invested and once those couple of unusual items have completed, we will be back to a covered dividend. And so, yes, I would anticipate it as a policy remaining the same. Thank you very much indeed. Right. The next one we've got here is over whatever time period one chooses to look, the recent performance from present share price of the REIT looks pretty good. Do you expect the share price to continue rising? Unfortunately, we don't seem to be able to influence our share price very much. I would be pretty hopeful that our underlying property level performance will continue to be strong. We tend to trade at a a slight discount. We have over recent time periods moved to a small premium as well. We tend to trade better than our REIT peer group as you've seen on one of the earlier slides that we showed. It's an ongoing frustration that our share price seems to remain at a slight discount. But as I say, unfortunately, we don't seem to be able to do an awful lot to influence that.

36:59 Thank you, Alex. And the final pre submitted question we had is how can Servatly is the property in Black Pool, which is undergoing major works currently valued? So I'm sure everybody listening will know that all of our assets are independently valued by Knight Frank on a quarterly basis. So we don't influence the valuation. Those are Knight Frank numbers. The assets in Blackpool is an interesting one. It sits right on the seafront immediately next door to the Blackpool Tower, so it's very prominent. Tenants there include JD Weatherspoon, I suspect do pretty well with the tourist trade there. We also have Sports Direct there. So it it performs reasonably well. It has very large vacant upper floors, and I would love to find a way to extract some value from those.

37:51 It feels that they should be able to be a hotel or in a part hotel or that kind of use. As we are doing the capital works, which are coming through service charge contributions, we will see that valuation tick up on a quarterly basis as that money is spent on the property. Do I think it's conservatively valued? I think it's I think it's an attractive asset, and I think it's fairly valued. It is pretty difficult to extract value from these upper floors, but I'm confident at some point we will do that. And as I touched on earlier, a lot of retail still remains pretty challenging. This is no exception. But it's an asset that we like and we hope will continue to perform going forwards.

38:38 That's great. Thanks, Alex. Just moving into some of the live q and a now. We've got one question here. Chris, thank you for that. Many congratulations to the AEW team on another strong quarterly performance. Question really around vacancy rate. The vacancy rate at the last quarterly NAV update does not seem to be have been disclosed. Whilst we appreciate this is being temporary distorted due to the sale of Glasgow the Glasgow property, can the high level approach for reducing vacancy rates moving forward be shared or outlined? I can pick this one up if you want, Alex. So I I did touch on the vacancy. It's about 6% if you exclude Glasgow, 9% if you include it. Naturally, it does sort of undulate a bit with our strategy with shorter lease terms.

39:26 I can think of a few properties at the moment, which are vacant, where we're carrying out works. So we're carrying out works to a retail unit in Sheffield, which should be completed fairly shortly, and that will be on the market. We hope to let that unit once those works are completed. We're also doing some works at an industrial unit in Basilden. So quite often when there are vacancies, it's because we're carrying out some works with the view to positioning that space better for it to be relet. So the vacancy rate does sort of move around a bit, but it's it's it's bound to as part of our strategy. And we feel that at the existing percentage, we're we're comfortable with that. I see also that Chris has asked about about Laura Elkin and where has she gone. She's she's on maternity leave.

40:12 So and she will be back in the new year. So you'll you'll see Laura Laura in the next three months or so. That's wonderful. Thank you very much indeed, Henry. Our next question we got here is from Tim. Thank you, Tim. Do you tend to trade properties more frequently rather than hold properties for their rental income? So I'll take that one. No. We don't tend to trade properties. We do tend to buy them and hold them and collect their rental income. Typically, the times when we sell an asset is where we think we have maximized its value. So we're pretty regimented in terms of writing a business plan for each asset at the point of purchase and updating it on a regular basis. When we have reached the end of that business plan, we will review whether that's the best time to sell the asset.

40:59 So yeah. I mean, typically, we won't trade assets. It is all about maximizing their value and then selling them on. Of course, it's pretty expensive to be trading assets for no real purpose, so we tend to sell them where we think there is a significant gain that has been made or where we think we can very significantly outperform their current valuation as we have done with our two recent industrial sales. That's great. Thank you indeed, Alex. Next question from Gavin. Thank you, Gavin. Where can you buy warehouses that yield enough for the fund? The London Metrics and other focused warehouse REITs deal around 5%. What makes you think the subsector has further legs? So we do still see a lot of industrial assets which are yielding anywhere between 710%.

41:46 They are quite distinctly different assets, though. So, typically, they will be smaller. Typically, the point I made earlier, they'll be slightly shorter leases. We generally don't buy particularly new shiny looking warehouses. We tend to buy very well located, comparatively low capital value per square foot assets, where there's a shortage of supply, which means we tend to see very strong underlying tenant demand, and we see rental growth coming through as well. But yes, we do still see them, yeah, in quite significant quantity, actually. It's still a very active part of the market. That's great. Thank you, Alex. Got a question here from Tau. What proportion of the rent is linked to any inflationary measures? I forget the actual percentage that we're holding in this portfolio. Comparatively low, I'm going to say four or 5% will be explicitly linked to RPI. We're in the process of putting a new lease in place on Retail Warehouse Park where we are just considering whether we might put an RPI link in.

42:52 Virtually everything in this portfolio will be subject to standard open market rent reviews on a five yearly basis. That, of course, you would expect really to capture inflation over that time period. Worth noting with most inflationary linked leases as well, they'll be subject to caps and collars. So if you move into a period that is particularly showing strong inflationary numbers, you do run the risk of not actually capturing all that growth because you've got a a cap and collar in at, say, one and three or two and four or something like that. Again, worth noting in our industrial assets, we have quite routinely over recent years seen rental growth of 20 or 30%. That's fantastic. Alex Henry, thank you indeed. I think you've covered off all those questions you can from investors. And, of course, the company will review any further questions that are submitted today. And we'll publish responses on the Investor Meet company platform where it's appropriate to do so. Alex, perhaps I could just hand back to you just for a few final closing comments before we redirect the investors to give you some feedback, please.

43:54 Yeah. Of course. Just really from us, thank you very much for joining the call and, for listening to the update for this quarter. Looking forward, hopefully, you got the message that we feel fairly positive about what the future holds. So, yeah, thank you very much for joining us. That's fantastic. Alex Henry, thank you again for updating investors. Could I please ask investors not to close the session? It should be automatically redirected for the opportunity to provide your feedback in order the management can better understand your views and expectations. This will only take a few moments to complete and is greatly valued by the company. On behalf of the management team of AEW UK REIT PLC, we'd like to thank you for attending today's presentation. That now concludes today's session. Thank you very much indeed, and good afternoon.