Aew Uk REIT (LSE:AEWU) — Investor Presentation

0:01 Good morning, ladies and gentlemen. Welcome to the AEW UK REIT PLC investor presentation. Throughout this presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time via the Q and A tab situated in the right hand corner of your screen. Simply type in your question and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company review all questions submitted today and publish responses where it's appropriate to do so. These will be available via your Investor Me Company dashboard. I'd also like to remind you that this presentation is being recorded.

0:32 Before we begin, we'd like to submit the following poll. I'd now like to hand you over to Laura Elkin and Alex Short, Portfolio Manager of AEW UK REIT PLC and Richard Tanat, Managing Director of AEW. Good morning. Good morning, everybody. I hope you can hear me okay with various technology we're using these days. If I can start on Slide three and give you a corporate overview. AEW as a group is a very large global real estate manager. You can see we have EUR 60,000,000,000, 65,000,000,000 of assets under management around the world. Offices in all the main regions, and we manage significant core real estate around the world. So that makes us one of the largest managers with quite a lot of headcount around various locations.

1:22 We have pretty broad experience these days and we focus on obviously research trying to give us an edge against the competition. If we move on to Slide four, we're committed to real estate. It's one of the most important things when I came to form AEW UK to have a committed real estate partner. We only invest in real estate. We own half of AEW UK, which gives us strong alignment with investors, the remainder owned by the French group, Natixis. Very stable team. We're working through quite a few cycles now twenty or so years later. Some of us have worked nearly thirty years together in the team. So a very stable long term team and a record of outperformance going back many decades actually.

2:13 And you can see here the REIT has done pretty well against the MSCI standard open ended fund benchmark as long as the core fund, which I'm the portfolio manager for.

2:24 Consistent investment pipeline, because we're such a large manager, we have great contacts and we've been doing this for a few decades. We have pretty good deal flow, which is quite important when we're moving in and out to different types of submarkets. The ownership of the investment process, I think, gives a consistent approach to different cycles,

2:48 highly. Now I'm gonna pass over to Alex Shaw to talk to you a little bit about the early parts of the REIT. Alex, over to you. Thanks, Richard. Okay. So to introduce myself, I am portfolio manager for this REIT, and I manage this portfolio jointly with Laura Elkin, who I will pass over to shortly to talk through some of the other slides. Slide six, though, is a high level overview of the strategy that we run-in AEW UK. The REIT that we're talking about today at AEWU, is geographically diversified. So we tend to use diversification as a risk management tool, and we have a wide variety of assets now across The UK.

3:35 And the focus is often on buying shorter than average occupational leases and then asset managing our buildings very heavily to add value both in terms of capital value and in terms of improving the income stream. And we've got a lot of examples coming up where we have successfully managed to do that. And a lot of the success of, the performance in this portfolio comes from very careful stock selection in the first place. So we're very happy with the assets that we own, and we look at we look at our prospective purchases on a number of different levels, often looking to utilize alternative use value when we're appraising value as well, which, again, we will come back to. Probably the most key feature of this reach, we think, for most of our investors is the fact that we pay really quite a high dividend. So we pay a dividend of 8p per share per annum, and that is split into 2p per quarter.

4:34 And we have done that successfully for something like the last fifteen quarters, which takes us all the way back to the beginning of 2016. And indeed, we have continued to do that this year even with the various complications that this pandemic has caused for everybody. In terms of our investment criteria in stock selection, we generally buy assets with initial yields of somewhere between about seven and a half and 10%. We run a slightly shorter than average weighted lease expiry profile, so generally somewhere between three and six years. And as I said, we then we then look to perhaps extend leases and add value. And, again, back to this point, a diverse range of tenants and a diverse range of sectors and locations.

5:22 Moving on to the next slide. A brief overview of how the portfolio is positioned at the moment. So first off, we have 34 assets and 85 tenants, so good diversification. You can see that the net initial yield at seven and a quarter is lower than the reversionary yield. That's really important. That tends to imply that our independent value is knight frank. Think that it there is further quite significant value to come from these assets. And the other point that I want to pick up on here is our sector exposure, so the sectors that we've chosen to allocate to. The two most important features that I'd like to pick out here are how very light we are now on retail. So standard retail, you can see, is there at 13% of the portfolio.

6:11 By contrast, we have more than half of this portfolio in industrial property, which has been performing very well for us, and and we have some examples of that coming up in a moment. Debt, also important. So you can see on the lower half of the left hand bar there, debt at, an LTV of around 27%, slightly lower than our target, which we tend to try and run somewhere between thirty and thirty five, all in cost of debt, really good value at less than one and a half percent per annum. So really accretive to, performance and, obviously, of course, to our ability to pay that dividend.

6:52 Vacancy rate, also low. We like to try and run it at about 5%. We have an asset. You can see the asterisk on the bottom right. We have an asset in Glasgow where we've exchanged contracts to sell. Once we have completed on that sale, our vacancy rate will be at that 4.9. It's slightly artificially high at the moment because we've been trying to secure vacant possession of that particular building. Moving on to the next slide. So again, back to our dividend yield, you can see based off the share price, this, was calculated back at the end of October. We tend to have the highest dividend yield in this peer group. You can see there on the extreme left in red, we're at 10.6, and that's based on that share price and, of course, is back to the 8p per share.

7:45 Next slide, please. And so one of the things that we're particularly proud of is our underlying property performance, which you can see here is very strong, and we have, in fact, just been, presented with an award for being, the best performer in the sector. Here, you can see our performance set against the MSCI benchmark. So the REIT in red and the benchmark in blue and over each of these time periods, three months, twelve months, and three years, we are quite significantly outperforming the benchmark, which, of course, we are delighted about.

8:25 This slide now is essentially the same data, but now is split into sectors. So you can see the contribution to our total performance based on each sector, and important to note here that this is a weighted contribution. So, of course, industrial performing very strongly and comprises 53% of our portfolio. So, again, very pleasing numbers here for us. And the next slide here, we have our performance at the top here. You can see, AEW UK REIT. This is our performance set against a peer group of REITs, which have broadly, broadly similar criteria. And, again, you can see on each of these basis, we perform very well.

9:16 And and at this point, I will hand over to Laura to to continue with the presentation. Thanks, Alex, and thanks, everyone, for joining today. If we haven't spoken before, I'm Laura Elkin, and I've been working on the AEWU portfolio since IPO and now sit jointly as Portfolio Manager with Alex. So starting on Slide 13. We'd like the focus of today's call to be about our outlook for the portfolio over coming periods. However, after the year we've just been through, think it would be wrong not to touch on what our main responses have been to the pandemic to date.

9:59 So, of course, one of our main areas of focus this year has been on rent collection. And and to provide a benchmark for this, pre COVID nineteen, our rent collections levels would have been on average achieving about 98% prior to the end of each quarter benchmark with near enough 100% collection following thereafter. Collection levels since March this year have, of course, been lower, but we have now collected over 92% of total rents due to us since the start of the pandemic, which is certainly a strong number comparative to other balanced funds. The figures on this slide suggesting that this collection level will increase further accounts for amounts to be received under longer term payment plans.

10:53 And these, we expect to take our collection levels since the start of the pandemic to at least 95%. Another main focus for our time this year has been on monitoring our debt facility. So debt within AEW is always intended to be conservative, and this was already the case back in early March. However, since this time, we have made some changes which have increased caution in our approach and will help us to limit debt associated risk even further over the long run. A major change to the facility that we have in place, that we made during the year was to convert the structure from a term loan with no ability to repay to a revolving structure under which repayments can be made.

11:43 And this change was completed at no additional cost to the company. We have now used this new ability in recent weeks to repay about £12,000,000 of the loan to reduce short term debt exposure. However, we plan to return to our gearing target over the first half of next year, which, as a reminder, is 35% loan to net asset value. On this slide, lastly, but certainly not least, because it's a matter of which we are very proud, our NAV performance during the year relative to other balanced funds and the market index has been very robust. This has been in part built into the portfolio through its sector weighting, which has provided us with more defensive valuations and also ongoing asset management opportunities.

12:40 In addition to this, though, we have taken the benefit of some more unique opportunities to add value during the course of the year. The most significant of these was our decision to sell our largest asset in Corby, and we took this decision really to prove the defensive nature of AEWU's strategy and NAV at a time when the market was doubting these. However, we've got a slide coming up later in the pack which touches on Corby in more detail, so I won't dwell too much on this point now.

13:14 Moving on to Slide 14. This slide sets out why we think AEW is now so well positioned and is a culmination of things that both Alex and I have discussed so far. So I won't repeat these to you by reading through the slide. What I would say though is that if there are two things to take from this slide, I hope that it would be, firstly, if you are looking for a concise list of reasons why AEWU continues to be strategically well placed even in today's quite changeable environment, this is where I would point you. Secondly, the sixth comment here, which describes average capital value per square foot across the portfolio.

14:01 Obviously, the point here is that capital value per square foot is very low. And this is low by design and has been a feature of our stock selection for AEW since day one. And throughout the remainder of this presentation, you'll hear us talk about the defensive benefits and opportunities we think that this low capital value per square foot in the portfolio opens up for us. So I think back over to you now, Richard, to talk through our market outlook. Thank you, Laura. So I'll talk a little bit about how we see the market outlook. And obviously, we've seen another twist in the tail of the COVID and Brexit talks over the weekend alone really.

14:48 So really interesting market for a value manager like AEW to operate in. We've seen, of course, sadly, The UK economy being one of the hardest hit by COVID-nineteen in just about every measure. But fundamentally, the second spike that we're seeing now doesn't seem to have extreme mortality rates as it works its way through the Northern Hemisphere winter. Responses, obviously, bouncing around, as you might expect, but generally more muted than what we saw in the first

15:23 What's, of course, very promising is recent progress on the vaccine rollout, which has given in investment terms a rapid reversal in direct market sentiment, particularly to warehouse and business based assets. So we've obviously gone from an early stage bear market in real estate to now where in the last few months, pending what's going on in the press over the last few days, we're definitely seeing significantly more optimism, particularly focusing on the warehouse assets that have been in vogue for a few years now. Brexit continues to rumble forward. I mean, again, it seems more and more likely we might get a deal at some stage, somewhere soon.

16:09 It seems to be it's following a sort of normal European discussion model. On the portfolio though, rent collections that Laurel has talked you through are very good really. I mean back in the summer, people were saying we will get 20% rent collections and that's actually proved to be wrong by quite a significant margin and the REIT has done particularly well despite the ongoing moratoriums with some of our tenants on recovery. We've seen removal of the uncertainty clause from valuers, who are now actually starting to look at positive moves in valuation quite significantly in many cases. What we saw though in the early days of the pandemic was quite a difference really in how quoted markets, let's say, land securities reacted compared with the direct market. So direct market had a relatively muted response to the first lockdown where the quoted markets were very heavily sold off.

17:08 Since the vaccine came through, these of course have rallied very strongly. In the background though, while we've been working our way through lockdowns, for a value manager like AEW, there's been very help fully significant changes in something called the youth classes order, which governs how we can move buildings from one use to another use. And when we are actually looking for protection by alternate use plays on many assets, These relaxations, which are continuing and look like they could go quite a long way further, are particularly helpful for many of our assets. Now it's interesting in the vaccine rally that we're seeing that seems to be very strong in a direct market in the warehouse sectors. But actually, in the quota sectors, we're seeing quite strong movements in retail stocks and the like. So I think maybe the thing to watch out for is as we emerge hopefully, from the COVID crisis in the spring of next year, that some of the retail and leisure assets out there could start looking quite attractive relative to perhaps their view today.

18:19 I'll talk about each of the sectors just quickly, and then Laura and Alex will talk you through in some detail. The warehouse sector is has been very interesting for the fund and for the market generally. Now for a number of years in the late 80s and early 1990s, warehouses were relatively unloved. And for the last ten years or so, we've seen significant moves for the obvious reasons of online shopping alike towards warehouses. We remain positive on these assets and some are benefiting from use Class C, but I think we're starting to have a few supply concerns. So we think like many strategies, warehousing won't be a strategy forever for real estate funds.

19:05 Alternatives are obviously a very broad sector now in real estate. They go from nursing homes through to doctor surgeries and into leisure parks. Obviously, parks been particularly hardly hard hit during the downturn. And I think we think some significant benefits will actually also come through the sector from the youth Class E. But I think we'll see a combination of an increasing demand as we come out of lockdown and also perhaps some value creation from some of these assets falling into Class E. Offices we've marked as negative and you'll see this well, you've seen this quite working its way through this portfolio with the sale of Solihull. So we're concerned here that really homeworking may affect the longer term supply development balance as supply demand balance.

19:58 And we're also seeing many retail sites, which we'll come on to later, looking like they may end up being moved into office use in some of the bigger cities in The UK, which leads me on to retailing. I think we feel the headwinds of retailing are gonna remain, but pricing has become very, very distressed for many retail assets such that really the retail use in some sites in cities like Bristol and Birmingham is almost academic to the value of the land that underpins them, which can be reused for senior living, for residential, for office use. So I think that's where we see the attractions here in some of our biggest cities with a wide variety of alternate use plays possible.

20:44 We're seeing the pricing at this point really say that the ability for retail recovery is almost a free option in the pricing of some of these assets. On portfolio management side, as we've been talking about, we're very focused on rent collection. We're working our way through the various challenges that we have regard. Asset management transactions on industrial continuing along their predirectional travel with rents being increased and leases being lengthened. The assets that have alternate use optionality are expected to be of increasing importance for portfolios like this. And you'll see this across the core fund or indeed in this REIT.

21:30 And use Class E is really under the radar for many people, but looking like it will help that process of releasing value on many of our assets. On that note, I'll pass back to Alex to take you through the next slide, and then I'll wrap up at the end. Thank you.

21:53 So moving forward now to look in more detail at offices. So first off, about 27% of this portfolio is held in offices, so just over a quarter. Richard's obviously talked, as an overview about offices already, and as he said, we do have our concerns. That said, the offices that we currently hold, we are pretty pleased with. They're generally in very strong locations, so we hold offices in centers like Bristol, Oxford, Solihull, and so on, and they've performed very well for us.

22:29 The whole working from home thing, of course, is a complication, and it's very hard to see exactly how that might play out over time. And the one thing I do think is that most people that I speak to seem to indicate that they would like the variety of some working at home and some working in the office. And even as an example today, running a call like this, ideally, we would have been able to invite investors into an office and side by side run conference like this as well so people have the option which they prefer to do. I think worth saying here as well, we don't own offices in Central London, so particularly city Of London and West End, where offices are very expensive both in terms of rent per square foot and in terms of yield.

23:15 And my personal view is those might be the ones that suffer hardest if people decide that they are going to continue working at home. That commute into London, of course, for some people, they make quite a long journey to do that. Perhaps perhaps that's the area that might be hit hardest if offices do suffer, and, of course, we don't own any London offices, which is a position I'm fairly pleased about. We do also, as Richard said, look for alternative use values. So, generally, when we assess offices, we're assessing them in terms of their value as an office, but also for the future whether they would happily convert to another use and add additional value that way. We actually have a couple of examples of that coming up in a moment so you can understand in more detail what I mean there.

24:04 And then going forwards, there are some offices in the pipeline of assets that we're considering. We have cash to invest at the moment, and offices remain on the radar, although with a cautious view and with alternative use value being ever more important in their appraisal. Moving forward to the next slide. So first off on the left, we have an example of, an office that we own in Oxford. So this sits on the Ring Road just on the outskirts of Oxford right next to the Oxford Science Park. So really strong location.

24:41 Five buildings here, multilet. It was actually the first asset that we bought for the REIT and has performed really strongly for us. And the major added value initiative here though has been to change the use of some of these offices, and let them to a company called Genesis who operate private cancer care hospitals for the treatment of outpatients. When we first bought this site, they had one office which was already being run as a cancer hospital. They have subsequently taken a second and are now in discussions with us to take a third. These are buildings where the tenant likes to put a long lease, generally a twenty five year lease, and generally inflation linked uncapped RPI rent reviews, which is incredibly helpful for value.

25:30 And the reason being because their fit out is so extraordinarily expensive. Their fit out probably costs more than the value of the building that they're taking from us, so they need to secure their possession of this asset in the long term. For us in terms of added value, it's very, very, accretive to our performance. So that is a strategy we're very happy to continue pursuing with that tenant. The other assets on this page, Bath Street Glasgow. In terms of its rental performance, this asset, frankly, has disappointed. It's proved to be hard to keep it full of tenants. And, of course, where you have a lack of tenant demand, you tend not to see rental growth. So in terms of its rental performance, this building has been pretty flat for us.

26:16 We felt that the, the vote as to whether Scotland would separate from the rest of The UK really damaged tenant interest in in that location, and it's really taken an awful long time to recover. But here, the strategy of alternative use value has paid off really well for us. And this is the asset that I referred to earlier, which we have exchanged contracts to sell this asset, and it will form an alternative use now of residential. So going forward, this is being sold to a developer who will convert this building and most likely into student accommodation. And that, price has been agreed during the pandemic, and it reflects 98% of the value, at which this building was valued before the onset of the pandemic. So you can see that that valuation has proved to be fairly resilient despite everything else that's been going on.

27:13 Moving forwards, this is Sanford House in Sollyhole, another office office asset which has been a great success for us. This one was bought back in July 2015, so one of our earlier purchases. It was bought for just over £5,000,000 with a relatively short unexpired lease term to the secretary of state. So great tenant, but short lease term. We were very confident here though that this tenant would need to remain in this building, and that has, of course, proven to be the case. So more recently, we've put a new fifteen year lease in place here. It's also the new lease has been at a really quite significant higher rental value, a 30% increase on the previous rent. We've had to offer this tenant no incentives at all, so no rent free periods, no capital contributions, or anything of that sort.

28:07 The building has recently exchanged contracts to sell, and the price is is significantly ahead of our purchase price. So

28:16 in the order of £10,000,000, and that will give us an IRR over our hold period of around 30%. So a big success from that building. And here, I will pass you back to Laura. Thanks, Alex. So here on slide 20 to cover off our views on the industrial wet and warehousing sector, Demand here has only been fueled by the pandemic, which is a matter that has been, of course, well publicized. Of course, though the headlines often touch on the prime end of the market where yields have been achieved sub 4% and tenants such as Amazon compete with major food retailers for ever increasing space.

29:02 This is not the type of industrial and warehousing assets owned within AEW. Our assets are typically smaller secondhand accommodation. However, we noticed that demand at the prime end of the market has a knock on effect across the entire sector as land being bid up for prime logistics inhibits the pipeline for other warehousing and industrial supply. So what does this mean for AEW? We continue to see rental growth from the industrial assets within the portfolio, and this is demonstrated by various leasing transactions that have been completed during the year. These examples are shown on the following slides, but really a major driver for this rental growth to continue going forward is expected to be the very low levels of passing rent in the AEW industrial portfolio are currently only £3.40 per square foot.

30:01 The implications for this on our investment pipeline are that we continue to see opportunity in industrials, but on a selective basis. We're quite mindful of yields having been compressed. So when we assess pipeline assets, we are alongside yield using low capital value per square foot and low capital value per acre as indicators of value. A great example of this is the asset in Western Supermer that we acquired for the company in November. This is a well located multilet industrial estate a short distance from the M5 with 30% of the income being received from a council tenant. The acquisition price, however, equated to only 175,000 per acre, which provides strong potential for future capital value growth based on nearby comparable land transactions, which range from between 350,000 to 500,000 per acre for other commercial and residential uses.

31:06 So moving on to some of those examples of rental growth we've seen in the industrial assets during the course of this year. And these are shown on Slides twenty and twenty one together. So together, these showcase fixed leasing transactions in the sector completed during the course of the year, of which we are immensely pleased. They comprise four lease renewals and two rent reviews that have been achieved on average 11% ahead of Knight Frank's estimated rental value.

31:43 And worth stressing in the case of each lease renewal, they are all with existing tenants, so no marketing void period. And as you can see from the slide, there has been very limited rent free incentive given as well. None of the rental levels arising from these transactions were negatively impacted by COVID. These successes, we think, really highlight the benefits of the strategy's focus on major locations, close to motorway junctions and with low levels of competing supply. So moving on to Slide 23.

32:26 This may well be a repeat of a slide that some of you have seen before, so apologies if this is the case. However, we have included it here as it highlights really the strength behind the industrial market and that we were able to sell this asset in Corby during the course of this year at a level 25% ahead of its

32:47 valuation back in May, which was, of course, at the height of the COVID nineteen pandemic in The UK. Back to you, Alex.

33:06 Thanks, Laura. Okay. So taking over again on slide 24, which covers the retail and leisure markets. We grouped these two together because as you can see, they are a fairly small part of our portfolio, leisure comprising 8% and retail 13%. And as the heading says, and as we have already covered on Richard's overview, these are sectors which have seen pretty extraordinary challenges. Obviously, retail in the Southeast, again, being closed at very short notice. A lot of leisure properties have been closed for the vast majority of this year, so a very challenging time.

33:45 Worth saying though that this is particularly for retail, this is not a very new phenomenon that that retail is having a difficult time. Of course, over the longer period, there has already been quite a significant move away from, the high street and towards online Internet shopping.

34:03 And I think perhaps the, whole coronavirus pandemic has accelerated that move and made it even more difficult for some of these tenants. But it is something that we've always been conscious of, and, of course, we have positioned our purchases for precisely, that scenario. And the assets that we hold tend to be in big locations. We are fairly forensic about analyzing the success of the individual assets, so we tend to buy shops that do trade well. So if, for instance, there was a CVA, it's a perhaps a unit that you would expect the retailer to continue trading from after the, after the CVA. So there are some real positives across the portfolio as well.

34:52 Moving forwards to some of our assets, we can perhaps display this best for you. So the the assets that we've got up here, you can see Nottingham and Portsmouth. Importantly here, we have actually managed to renew leases to these tenants during this year. So during the whole coronavirus pandemic, we have managed to put new leases in place here, and you can see they are pretty sensible deals as well. So looking across that chart, you can see the lease terms ranging from six years, five years, three years, and at rents, which are in line with our value as estimated rental value as well. So no huge discounts being offered here. And also either with no incentives or very proportionate rent free incentives, which you would generally expect to see in these markets anyway.

35:41 So there is some positive news coming out of our retail portfolio. And, as Richard has touched on already, some of these assets looking forward hold really quite significant alternative use value as well. So whether that is for mixed use development, residential use development, or so on, so those are always appraisals that we are running on our assets as well. Moving on to, Dagenham. This is a leisure asset. So we hold two leisure assets in this portfolio. One is a cinema in Southend On Sea where Odeon is the tenant, and they continue to talk to us about a lease extension there. And then this particular asset, this leisure park in Dagenham.

36:27 And so here, we have had some success already. So the McDonald's that's on that site, we have extended the lease there, which, of course, has been very helpful.

36:37 The main value play going forwards though, as well as that income return, which we currently collect of seven and a half percent. Looking to the future, we think this is most likely to become, a residential redevelopment. So the value at which we hold this asset, of course, independently valued by Knight Frank, reflects a value of about £3,300,000 per acre. Land in this location though, which is consented for residential use has a value way in excess of that, though, at £5,000,000 an acre. So a significant increase in value. And helpfully here, this site is already identified in the local authority plan as being zoned for residential use. So we feel that in the short term, that income return of seven and a half percent is very helpful and very accretive to our ability to pay that dividend.

37:31 And in the medium to longer term, we would expect to see really quite a significant value increase here by converting to residential. The final slide in this particular sector looks at our overview appraisal of the assets that we hold. And now we feel fairly positive about most of the assets that we hold here. So in terms of alternative use potential in the retail and leisure sectors of the portfolio, we think that around 5% of them will offer a strong alternative use value, and those are avenues that we will continue to explore. Approximately 15%, we like the assets in terms of we think those occupiers will want to stay in place. They play they pay good levels of rent.

38:22 They pay in line with the estimated rental value, and they are now pretty high yielding and accretive to, our income return and our dividend. And then finally, we have one asset constituting around 1% of the portfolio that we think is pretty challenged, and that is an asset that's in the medium term we might well look to sell. But overall, the picture across our retail and our leisure assets, we think, is pretty positive. Laura, back to you again. Thanks. So moving on to talk about ESG in the portfolio. Slide 29 sets out a summary of our AEW UK wide ESG policy, which I won't dwell on for too long.

39:12 But if you have any particular questions here, please feel free to ask in the Q and A. Also, a full copy of the policy can be found on our website. What I would highlight here is the REIT's GRESB score for 2020, which has been awarded in recent weeks. GRES, for anyone who is not familiar, is the benchmark for global real estate sustainability. And AEWU has been a member of the GRES benchmark since 2016. But what's really encouraging to see, and we've actually seen most years since we started taking part in this benchmark, but particularly this year, from 2019 to 2020, the score for AEW has seen an improvement.

40:01 And this is a particularly big achievement given the initiatives we have implemented during the year and also overall average scores for GRES participants fell during the course of this year. So it's very encouraging to see that we are bucking the trend. Slide 30, however, I think is much more relevant for our day to day portfolio management in terms of ESG application. Some of the initiatives shown here are already in action across the REIT and to name just a few of these. For example, using 100% green energy in our managed assets where this is supply is landlord controlled. Fitting things like showers and bike parking into office assets to encourage green commuting.

40:50 We have looked into fitting electric charging points to offices where it's viable. And another example, giving our managing agents a target of zero to landfill also from our managed assets. These are all policies that we are currently implementing. Other initiatives, however, such as monitoring of energy and water consumption within our assets are matters that we are continuing to invest in. We have historically not had visibility on energy usage in our single let assets on full repairing and ensuring leases just due to the way that this remains in the tenant's control. However, this is an area that we are looking to make improvements with the trial rollout of smart meters in some of our largest assets next year.

41:40 Further initiatives during 2021 will also include identifying assets in which we can improve on-site biodiversity through planting example, where these costs can be covered through the asset service charge. So I think that brings us firmly to the conclusion today, although I know that we'll be following up with some questions shortly. The main theme, I think, to take away from this presentation is that we are very pleased with the portfolio's positioning going forward in that it is both conservative from a risk perspective, at the same time as offering what have been over the past twelve months index outperforming opportunities for income and value growth.

42:33 Paul, I think that's back over to you. Fantastic. That's great. Laura, Alex, Richard, thank you very much indeed. Ladies and gentlemen, do please continue to submit your questions using the Q and A tab situated in the right hand corner of your screen. I just want the company to 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 your Investor Dashboard on the Investor Meet Company platform. David. You, David. Expectations. David, Laura, Alex, Richard, I know I haven't given you perhaps a great amount of time to review those questions submitted, but perhaps I could hand back to you, Laura, and where appropriate to do so, if you could read out the question and respond, that'd be great.

43:26 Yes. Thank you for that, Paul. So thank thank you to everyone who who's taken the time to write to us. Due to to the quite high number of questions that have been submitted, we probably won't have time in today's time slot to get around to responding to all of these. But we will select some of the most frequently asked to to answer now. And with those that that think Paul has already said we can't answer today, we will look to publish responses on the Investor Meat Company website after the call. So please keep an eye out for these. We've had quite a number of questions submitted in various forms querying a similar theme, which is the continuation of the company's dividend at its current level.

44:12 So if you don't mind, I'll aim to address all of these queries jointly now. Before I do, though, perhaps just a reminder of two important aspects when discussing the dividend. Firstly, that for regulatory reasons, we are unable to provide dividend forecasts to the market. And secondly, a reminder that the dividend level paid by AEW is set each quarter by the company's Board of Directors. So while this is undertaken following recommendations from Alex and I and the rest of the team at AEW, it is not our final decision to make. But that said, both Alex and I and the Board, we're very aware of the importance of the dividend to this company, and we recognize that it is often the main reason why people choose to hold AEW shares.

45:08 So considering all of this, perhaps it's more accurate to phrase this question, what is our outlook for the company's earnings? And what are some of the considerations that are kept in mind when the Board is deciding upon the level of dividend to declare? So taking each of these in turn and starting with earnings over the medium term, when we undertake modeling for our internal purposes, these models show that once the portfolio is fully reinvested and geared back to target levels, it does have the ability to return to income producing levels, of at least 2p per share per quarter. And and I think worth saying that this is the case even with an element of economic stress built in at the moment, which is, of course, very encouraging for us to see.

46:04 As a reminder of what the portfolio can achieve, for the twelve months preceding the onset of the COVID-nineteen pandemic in The UK, the company was paying a dividend of £02 per quarter, which was more than 100% covered by its earnings. So these internal models that we undertake to examine the portfolio's earnings over the medium term are shared with the Board so that they are aware of the portfolio's potential when it comes to making their decision on the dividend. Therefore, the Board's decision on the level at which to pay out AEWU's dividend isn't solely based on the level of earnings generated discretely within that quarter. For example, the decision over the past few quarters has been taken to support the partially uncovered payment of the 2p since the sale of Corby.

46:59 And clearly, this decision was taken with the backdrop of a very profitable and NAV accretive sale, significant availability of capital and that medium term earnings outlook that we have discussed. So I hope that gives enough color around the decision making process for the company's dividend level. The exact level of dividends will continue to be decided by the Board each quarter. Another question that we've been asked, and I believe follows on from that first question, is what are sorry, what impact are recent asset sales such as Solihull expected to have on the dividend? And why was the decision taken to divest further whilst the dividend remains uncovered?

47:51 So firstly, to touch on the dividend impact of this particular sale, I think the same comments I've made in that first response also apply here. The decision on dividend payment in any one quarter is not taken in isolation. So sale proceeds held as cash in the portfolio over a short period of time would not necessarily be expected to materially impact on the dividend over that period so long as we can see an attractive near term investment pipeline and as long as the company is well capitalized. This attractive investment pipeline is something that we do currently see, but to assist with the company's earnings maximization in both the current period and the coming quarter, we have agreed a delayed completion of the Solihull asset to the February 1.

48:41 Effectively, this means that we will continue to receive income from the asset until this date. Secondly, why the decision to make further sales now? The new lease to the government at Solihull was signed earlier this year. And at the same time, competition for government income in the wider property market has increased. So sale timing now, certainly in our view, maximizes capital returns, which, alternatively, could likely start to erode if, say, your timing was delayed. The next question I think we can pick up is when do you expect to be back at the target gearing level? And, Alex, if it's okay, I'll hand that one over to you.

49:31 Yeah. Thanks, Gloria. That's fine. So target gearing. So first off, we're saying we tend to run our debt policies very conservatively. We have a specialist in house debt team that have worked very closely with RBSI who provide our debt. I mean, going back before the pandemic anyway, but in particular this year, and we've put a lot of measures in place to make sure that we are running our our gearing policy very conservatively. In terms of getting back to our target level of gearing, which is around 35%, I would estimate we could do that in the relatively short term. So I would have thought in the first half of two thousand and twenty one. We have quite a significant pipeline of assets that we're looking at now as prospective purchases.

50:20 Once we have finalized which ones of those we're going to target and we've put the appropriate debt in place, I think, as I say, I think the first six months of the year is a sensible target for us. Thanks, Alex. And then another question that's come up, if you wouldn't mind answering. We've had several successful asset management initiatives this year. How much scope is there to add value through lease events in 2021? Yeah. I can pick that one up. So, yes, it has been a pretty busy year for asset management with the likes of Solihull and Corby and so on. In terms of looking forward, though, I still feel pretty optimistic that this portfolio has a lot more to offer. So we have a lot of ongoing conversations with quite a number of tenants in terms of things like extending leases, that is generally very accretive to value for us.

51:17 We keep coming back to this theme of alternative use value. And, I suspect there will be some alternative use value gains here. One in particular springs to mind, which if we're successful, will be a huge step change in the value of that particular asset, which is fairly exciting. I also think it's quite a useful indication that Knight Frank who value for us have our reversionary yield about a point and a half higher than our initial yield. That tends to suggest that in their view, over the next eighteen months or so when we reach a lease expiry, their view is that the rental value of that asset should increase at the point of lease expiry. So that would tend to suggest on that basis as well that Knight Frank expect our rental values to increase. And, of course, where you have rental values increasing, ordinarily, you would also expect to see capital value increases.

52:12 So I feel positive that we still have a lot to come here. Thanks, Alex. Another question that's been asked that I'll pick out. With other REITs suffering, are there opportunities to either buy cheap assets or work collaboratively with them? Richard, can I pass that one over to you? Thanks, Laura, certainly. So I think this is a very interesting area, something we've looked at quite closely. Let's deal in segments. In terms of buying cheap assets, yes, I think we will see some very cheap assets coming in the, as we said, the leisure and retail space where they can be repurposed into other uses. I think we're seeing that already.

53:04 And some of those will be coming from the distressed REIT sector. And as far as actually working more widely with other managements to look at maybe on average decreasing the cost of managing these structures and increasing their scale. I think we see the problems coming there that clearly most management teams are very keen to work too collaboratively with other managers. And we also see some reluctance from many of the investor groups as well, I think. So very interesting on paper, something we continue to look at, but still seems to be relatively thorny to actually achieve at the end of the day. Richard. Thank you.

53:54 Another question that's been submitted is, will AEWU consider share buyback if the discount to NAV widens further? And I'll I'll just address the answer to that question. So share buybacks are on the agenda for AEW's strategy, really as proven by the fact that we have already undertaken a number of limited buybacks during the year. So it's something that we have done and we'll consider again in future depending on the stage in the market and the level of the company's discount. Think what we are mindful of not doing is undertaking a large buyback program, which given periods of of of market instability like like we are currently in, may not prove to be the best use of of the company's capital over the long term. So, of course, for example, if if we were to make a a very material buyback to boost the share price in the short term and then further negative news was released and that benefit to the share price that was made because of the buyback was then reduced again, that capital would have have not been put to its best use, I think, for the company's long term strategy.

55:23 So whilst it is quite disappointing for us as as managers, and I think given all of the good news that we've seen from the portfolio and that we expect still to come to see the level of discount on the shares, as as it is today, I think really in order to to really take action here if if that action is is is through capital method, it's something that we can perhaps really only address once once a a period of of better stability is reached. So I think really just to message that this is definitely on the agenda and methods of trying to reduce the current level of discount are definitely on our agenda.

56:13 Another question and perhaps a final question, very mindful of our time slot today that I'll just raise. We've had a question asked, what about the 5% of rents that remain uncollected? What will happen to those? So I think just to perhaps refer to comments I made earlier during this presentation, which commented that we collected 92% of rent, which was owed to us since the start of the pandemic and that we expected that to increase to 95% through the receipt of rents owed to us under payment plans. Of course, that leaves a further 5%. Now that 5%, we definitely don't intend to just leave. So that 5% will not just be cast aside and written off.

57:08 That 5% of rents, we are actually currently pursuing at the moment where we have the legal ability to do so and where we think tenants are capitalized enough in order to to pursue. And certainly, we have some large amounts that fall into that category. So I think in that 95% that I mentioned earlier that we are very much hoping to achieve, that is is really a 95% that that we see a route through to collection. Certainly, we we hope to exceed that 95% through the other methods that we are now pursuing. So apologies, know that there are so many other questions that we haven't had the time to address today, but just conscious of our time slot.

57:58 Worth reminding you that other questions will be addressed on the Investor Me Company website in due course, so please keep an eye out for them. Paul, back to you. Fantastic, Laura. Thank you, and thank you to Alex and Richard also. And I think you have addressed a good number of those questions. But as Laura just mentioned, the company will review all questions submitted by investors today, we'll publish those back on the Investor Me company platform. Just conscious of time as we're coming up to the hour, and I know feedback is important to you guys. Richard, perhaps I could just ask you for a few final words just to wrap up, please. Thank you very much. Well, first, thank you everybody for joining us today, and, obviously, we look forward to seeing your further questions over 2021. I think the only thing I would summarize is that after what's been a very, very volatile year in terms of investor sentiment, the landscape for 2021 for a value manager such as AEW does look quite interesting with a combination of very strong markets in the warehouse sector, which we own a lot of and very distressed markets elsewhere.

59:09 So I think we see that as an interesting backdrop. And hopefully, by springtime, we can have perhaps a more positive conversation on the opportunities that are thrown up. Richard, thank you indeed. Thank you again to Laura, Alex and Richard for updating investors today. Investors not to close the sessions. You will now automatically be redirected for the opportunity to provide your feedback. If you've accessed the meeting from our website, the feedback page will appear in front of you. If you've accessed via the link sent in the email, you'll be asked to log in to submit your feedback. And do please, take the couple of minutes it takes to do it. Your your value and your opinion is very important to the company. On behalf of UK REIT PLC, a, investors would like to, thank you very much for attending today's presentation. Thank you very much indeed. Good morning.