Aew Uk REIT (LSE:AEWU) — Three month period ended 30 June 2021

0:01 Good afternoon, ladies and gentlemen. Welcome to the AEW UK REIT PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time via the Q and A tab that's situated on the right hand corner of your screen. Please just simply type in your questions at any time and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, all questions will be reviewed with responses published on the investor meet company platform where it is appropriate to do so. Before we begin, I would like to submit

0:33 the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And now I'd like to hand you over to portfolio manager, Laura Elkin. Good afternoon. Thanks very much, Jake. Good afternoon, everyone, and thank you for joining us. Firstly, apologies for starting a few minutes late this afternoon. IT issues. I'm sure you'll all understand. I'm Laura Elkin, the portfolio manager for AEW UK REIT, and I'm joined by Henry Butt, the assistant portfolio manager. So we'll start today with just a brief reminder of our strategy for anyone that's new to us. We're an active strategy with the following main aims. So firstly, to maximize income, we pay a dividend of 2p per share per quarter that we have now consistently paid for twenty seven consecutive quarters.

1:30 We are the only REIT in our peer group to to have not cut or suspended our dividend during the pandemic, two matters for which we are very proud. Our second main aim is to unlock capital upside, and our annual annualized NAV total return, since just after IPO has been just over 12 and a half percent. So, again, very excellent, on that measure. We use value investment principles to identify mispriced assets. We've got a slide coming up in terms of, what this means to us, but value investment is a theme that you will hear us repeated throughout the presentation. We are not sector constrained, so we can seek value across all areas of the market at any time as we see fit.

2:23 On the way in, this means that each asset is appraised in terms of its own merit. But once established and once properties are within the portfolio, we think that this is more likely to drive countercyclical performance from the portfolio. An example of this has been in the last two quarters where the strongest performance on a capital perspective has come from our office assets. So value investment, how do we apply that when it comes to buying assets? We focus on strong commercial locations with low levels of competing supply. Our net initial yields at purchase are typically between 7% or just below and up to 10%.

3:10 That is shown from the both the existing portfolio and from our current investment pipeline, again, which we have more detail to come and talk about later in the presentation.

3:27 Capital values at which we hold the portfolio and also our average levels of passing rent are both very low. And this is compared to just general values across the property market and also against the replacement values of our assets. And we think this is particularly important at the moment. We think it leads the portfolio to be well positioned for defensive performance going forward. When we're buying assets, we also often buy shorter occupational leases. As lease events can can create value add opportunities, it also means that we're buying assets at the lowest value point in their life cycle. So, again, coming back to that defensive starting point.

4:20 Just on to the next slide, some high level statistics on the portfolio. We have 37 properties, a 131 tenant. And at present, our net initial yield is five and a half percent. So this is particularly low at the moment due to two sales that we have coming through the portfolio. You will have heard us talk about these before, Glasgow and also Oxford. Once the proceeds from both of these sales, which are due to complete later this month, have been reinvested,

4:57 then our income levels will be much more supportive of the dividend. And we can talk about that pipeline of assets coming up. But once we have invested into that pipeline of assets, then we expect to be fully covered for the company's dividend at 2p per share per quarter. Something else just to touch on on this page is our NAV pence per share, which was published last week at a 126.5p. Because the exchange of the sale of Oxford happened after the date of that valuation that entered into the calculation for that NAV, there is a further 2.5p that is expected to come through on that NAV because of the sale of Oxford.

5:52 So moving forward to the next slide, we've talked about how our strategy of maximizing income and actively managing our value asset helps assets helps to drive performance. And here are the results, which all of our team are incredibly proud of. We launched this strategy in 2015, but it took until 2018 for the results of our active style to be begin to lead to significant outperformance, and you can see that on the chart here. This is because our average lease length of purchase, approximately three to five years, explains how it takes us a few years to get our business plans established and up to maturity, from which point we can really start start to drive value creation.

6:42 So our expert team have now been running this strategy for seven years, and we think the results here speak for themselves. Moving on to a few more performance slides. This shows AEWU against its UK REIT diversified peer group. We are amongst the highest dividend payer and have the most stable dividend. As I said earlier, being the only REIT in this group who did not cut or suspend its dividend during the pandemic. The next slide again looks at our performance at a company level with that same REIT peer group. You'll see share price performance on the left hand side and NAV performance on the right hand side.

7:30 AEWU performs very strongly on all time periods, but particularly over that long dated time period. Turning to our performance at an asset level, we compare here the performance from AEW's portfolio to the MSCI All Property Index. Here, our cumulative five year outperformance, has been just shy of 17¢, so we think that's pretty outstanding. On a six month basis, you'll see that we slightly lag behind the benchmark, but we're not concerned about that. Once the full sale price for Oxford has been factored into this, then that will boost, and we expect that position to normalize.

8:24 On the next slide, we show the same data, this time on a twelve month basis and shown by property sector. A few things to point out here. Firstly, in industrials, we are outperforming and clearly industrials has been a very strongly performing part of the property market. I think I think what this highlights is that within the benchmark, a significant value that's that's showing here in the benchmark is from more prime assets. So so very much at the prime end of the industrial market. And I think the fact that we are outperforming this quarter is showing the impact of rising debt costs and and and the impact that they have had on prime yields.

9:17 And showing our own portfolio as a contrast where starting yields are significantly higher, that we have much more headroom built into the strategy to provide a buffer here for what's happening in the wider economy. Moving on to the office sector. I've already touched on the fact that we have seen some outperformance against the benchmark from our office assets, and we're really pleased to see that. Driven by our asset management, and as I've said, we expect our asset management in this strategy being a significant driver for performance to continue to provide that countercyclically. In retail, we do lag behind.

10:05 The benchmark strong performance from retail is strongly driven by retail warehousing. Now in our portfolio, we have some retail warehousing assets that have been acquired in the past eighteen months and for which we are working on some pretty exciting business plans with a lot of activity going on behind the scenes. So I again, I'm not concerned about this. I believe that our performance from our retail warehousing assets, although some has already been delivered, will be significantly felt in periods to come. I'll now hand over to Henry Henry who will talk about some of the assets in more detail. Thank you. Good afternoon. Looking at this slide. So this looks at our our debt facility.

10:56 As you would have seen in May this year, we we refinanced, and we thought it was particularly important to refinance at the time given the inflationary environment that we're in, and we thought it was prudent to fix the company's, loan now rather than sort of run the risk of rising interest rates going forward. So as you can see in this slide, we secured a new £60,000,000 five year loan facility with Agfae, who an asset manager specializing in debt based investments. The loan is fixed, just shy of 3% at 2.959%. And if you look to the chart on the right of the bullet points here, you'll see that the all in cost of borrowing, is sort of, increasing towards 5% currently, as of June.

11:47 So we're we're very happy to have secured a rate below 3% for the next five years. It's also probably worth noting that in doing so, we sold our interest cap for £743,000. So another good result having refinanced. Moving on to the next slide. This touches on a lot of what Laura has said already about being value investors. When we buy properties, we typically look at alternative uses, as a comparison to the investment value. So, typically, those those, alternative use values will be 75% plus. In some instances, actually, even more than the investment value. And we really like that because it gives us the flexibility to move from different uses if the original, number one asset management initiative doesn't, succeed and well, not succeed or we can we can change. And you you well, you've seen that in Oxford and other properties within the portfolio.

12:57 At the same time, we're always focusing on making sure that when we buy these properties from day one that we have the income there.

13:05 And asset management really is sort of the beating heart of what AEWU is doing, and that alongside a very strong income story, means that we can really maximize returns for our investors.

13:21 Now regarding maximizing returns for our investors, the next two slides look at, six properties which we've sold in the past two years plus. And as you can see, we have an average sale premium at 65% ahead of the acquisition price. And that is really down to good asset management, and then when the time is right, crystallizing these profits, taking the money off the table, and deciding to sell those assets at the right time. So if we start with Colby, this was a car, storage facility. We ended up selling this property to an adjacent occupier. There was one year left on the lease. The existing tenant didn't have security, so we essentially go in and change the the locks in the last day of their lease.

14:10 And this occupier on the other side of the road paid a a premium to buy this asset and to occupy it themselves. A very strong performer, collected 10% throughout its whole period and its disposal that we're absolutely delighted with. Moving on to Basingstoke in South Kirkby, we sold these at the end of last year. As you can see, it's 7387% ahead of the acquisition price. And at both these properties, we did lease regears at 15% roughly ahead of ERV. And with the industrial market being as strong as it was at the back end of last year, we decided to sell these assets, crystallizing our profits, having done the lease renewals. We felt particularly with these two assets that actually in a slightly less than strong strong industrial market that the pricing would have come off more so than other assets.

15:03 For Basingstoke because it was a long leasehold with not brilliant access and for South Kirkby because the tenant was never willing to commit to a longer term future there. And we felt that if they were to go in five years' time, there would be some CapEx. So we decided to tick these ones out and, and take our profits off the table.

15:24 Moving on to this next slide, Swinton, this is an asset which sold at 6% ahead of the acquisition price. That that, little chart there, it seems quite small in comparison to option on the far right, but I'll come on to that. We've exchanged on this asset and should be completing on the disposal this week. It's the smallest holding in the portfolio. We decided to sell this one, having renewed the lease last year on a ten year lease at a pound above ERV, and we felt that the time was right to sell this one too. So that exchanged, a couple of weeks ago and was mentioned in our recent NAV announcement. Solihull, we've covered this slide in previous presentations. A very strong performer selling 94% ahead of the acquisition price. We regid the lease here to the secretary of state, an immigration office in particular.

16:17 The, alternative use value, VP value of this asset was 90% of the investment value. So we did have various other sort of asset management angles up our sleeve. However, we we renewed the lease to the government, and there's a lot of money chasing these fifteen year RPI leases, so a very successful sale in that instance. And then finally, moving on to Oxford, 254% ahead of the purchase price. This is very much, because of two things, some very good asset management, also, selling at the right time. The medical life science sector is very hot at the moment, and you'll see we have managed to exchange the property at 29,000,000. The property was valued at, 15,500,000, only a quarter before we sold it. So a very strong performer. And if we move on to the next slide, there's a bit more detail on this one.

17:16 So as you can see, we bought the property at 8,200,000, a fantastic net initial yield on day one of 9.4%. We've sold it for 29,000,000. What's really driven the price here was the asset management. We managed to secure change of use to d one, medical, life sciences, health care. We moved it away from a more traditional out of town office. And in doing so, we secured a fantastic letting to Genesis, a cancer care tenant, on a twenty five year RPI lease, And that really sort of cemented this location and this property for life sciences. And rather than doing the refurbishment, we decided to put this in the market and and knowing that there was a huge waste of money chasing these types of assets.

18:03 And, we have obviously exchanged the property for a price of 29,000,000 against the valuation in the June valuation of '25, so sixteen percent ahead. So there's there's further $2.2.5 p to be realized in the next, NAV announcement, but an absolutely fantastic result, which we're absolutely delighted with.

18:28 Moorside Road, I've I've touched on this. This is just a slide which touches on the details, which I just mentioned on the previous slide. But as you can see, we bought this in just north of a million, 9% net initial yield. At the point of disposal, it was yielding, just high, just north of six and a half percent. So, the yield had obviously there's some yield compression there. We did the the lease renewal at a pound above the RV, and we've sold it for 60% ahead of what we bought it for. So another great result, crystallizing some asset management profit. This next slide actually looks at some asset management in action. This is currently a hold, and, we don't have any plans selling anytime shortly. But, you can see this is kind of what we are doing with our industrial holdings.

19:25 The reversion rate the the portfolio is actually is pretty reversion rate. We've got some I think the average rent in our industrial holdings is around £33 50. And with a shorter walk than other sort of, landlords, we really feel like we can sort of capture and capitalize on this, reversion potential. And this is exemplified by this slide where we did a new five year exact lease, moved the rent on by 14%, and that strong rental growth pushed the valuation on, this quarter by 27%, £1,900,000. And as I said, that really reflects the existing industrial holdings within the portfolio.

20:07 We actually carried out a little bit of CapEx here just to make the unit present better. And having PC those works, we we got the interest and we scaled very quickly. So a great asset management deal, and, hopefully, lots more of these types of deals to come down the line.

20:27 40 Queen Square in Bristol, we've spoken about this asset in previous presentations, but we've continued to keep it in this presentation because the theme continues. We are still seeing further rental growth in this building. Last time we spoke to you, we were talking about achieving rents, in the mid thirties, per square foot. But since then, we have, transacted on a letting at £40 a square foot, and that's off the back of a rolling refurbishment plan. So we are still seeing increased in rental growth in this property alongside rolling refurbishment. It very much touches on that asset management theme. We also particularly like this property because we feel that in the office sector, it is occupation, the tenants are becoming very focused on to the best buildings in the best locations with good environmental performance, and that is certainly true of this asset.

21:22 There's an EPC rating of b on this asset, so it's very well positioned in terms of knees. It's in a very, very good office location, and and that is all feeding through to this rental growth story, which has really driven the valuation performance that we've seen in the last couple of years. So moving on to a few of our recent retail warehouse, acquisitions. You've seen that we bought Dewsbury in June this year. Retail warehousing Dewsbury is just, Southwest Of Leeds. We bought this property in at 4,700,000, a net initial yield of 9.4 with some great reversion potential, reversion yield of 10.8%. So well known tenants, Mecha Bingo, Sports Direct, KFC, and Jisc.

22:11 And

22:12 we're sort of hitting the ground running in this one. We've already got a conversation going with Mecha Bingo who want to stay. They've said they want to stay in the sit in space that they already occupy. However, we are potentially looking at maybe bringing in a gym use, and also some maybe more retail warehousing, home bargains is the name that springs to mind. There's also the potential conversation and asset management angle of bringing in another car, drive through here, sitting alongside KFC. And we've been talking to Taco Bell who are interested. And, actually, PureGym would potentially be interested in doing a stand alone gym, development actually on the car park if if we can pull that up as well. So a lot of asset management from day one on this, and it's also yielding nine nine and a half percent. So it really does exemplify kind of what we're buying. You know, great income day one, but a lot of capital upside down the line, and our asset management team is really focusing on on trying to bring that forward.

23:12 And the next slide is Shrewsbury, which is a property we've held for over a year now. And this shows kind of what we've done in the year here where we have regeared the lease to, Charlie's, the anchor tenant, well ahead of ERV. And as you'll see in the bottom bullet point in the slide, we've moved the valuation already from 8,350,000 to 10,000,000. So it's a really good value add.

23:38 We bought it off a net initial yield of eight and 8.7%. It'll be it's yielding close to eight now having done that deal. We've secured that tenant, which is fantastic news. Now we really like this asset as well because it's very much kind of within the the battlefield of Shores Beach retail warehousing, but the rents are are relatively low. So, actually, we could quite easily move this used to a trade counter like industrial unit use if the retail warehousing did fail. But having done that letter to Charlie's, we've got we feel that it it's it's pretty strong here in terms of the occupational, demand going forward. So, you know, it's a great a great result having only held the property for one year. I'm gonna hand back to Laura now who's gonna touch on the investment pipeline, which sort of mirrors some of the asset management we're doing on some of the properties in the retail warehouse sector.

24:32 Thank you. Thanks, Henry. So we've known for, obviously, a few weeks and months now that we have the sale of Glasgow coming up, with completion on the August 19, and Oxford's now due to complete on the August 10. So those sales together will deliver to us sales receipts in the order of about 40,000,000.

24:56 For for some weeks and months now, we have been focusing with our investment team on the investment pipeline and looking in the market to see which assets we can buy. We now have all of that 40,000,000 of sales proceeds allocated to assets that are under offer and exclusivity with us. So we're really, really pleased with that position, to have achieved that even before those sales complete.

25:23 There's clearly a due diligence, process that we are currently going through with with assets of various stages, but we very hope to be able to buy these assets as quickly as we possibly can. Now looking at, at these types of assets, we can speak about them in in more detail. But at high level, the average initial yield from this group of assets is just over 8%. So comparing that to the current portfolio net initial yield, which I mentioned at the start of the call and and and said was currently quite suppressed, at five and a half percent. So with this initial yield at just over eight, that will clearly be accretive to that, and assist the company in paying its dividend and covering its dividends through its earnings, as it aims to do, in the way that that we've we've, discussed.

26:15 The pipeline assets form fall over a range of of different market sectors. We've talked about the way that we look don't specifically look look to go out and buy specific sectors. We analyze each asset on its own merit, and that's absolutely what we've been doing. We've been looking for value, looking across all market sectors to to where we can find value, and that has led to us coming up with this short list of assets.

26:41 In saying that though, sort of various themes have formed here. We haven't found any assets on this pipeline, for example, in the industrial sector. And clearly, we've bought a lot there in the past but I think just representative of where those values are now. There are a number of retail warehousing assets, and we continue to like that sector, and a number of leisure assets also. So starting and taking each of these in turn, firstly, retail warehousing in Swindon. This is an asset with a very low level of passing rent and a market which is already very established and performing strongly. I say low level of passing rent on this site, rents are in the region of £12.50 to £13 per square foot, whereas a prime retail warehousing park located very near to this has rents in excess of £25.

27:36 Because we know that competing parts in this location are being redeveloped for alternative uses, for example, residential and industrial, We see this as an established location where competition will be getting tighter and therefore providing a good basis for rental growth here.

27:56 The next asset in Swindon, this one I think looks really interesting. It is a multilet leisure block in the town center. Part of of the site is let to Morrisons, although it's a vacant Morrisons supermarket. So Morrisons have ceased trading here. Although they have a long lease in place, so this represents quite a significant liability for the company. We're in discussions to look to surrender that Morrison's lease and let the space to a number of leisure operators, which would boost trades then for the existing leisure operators across the rest of the scheme and provide further tenant diversification.

28:43 We're in in conversations with various leisure tenants in that respect at the moment. And and if the lettings that we're in discussion at the moment take place, it will lead to a running yield on this asset of well into double digits, which I think looking at the location and the profile of this looks extremely attractive to us.

29:05 Moving on to the next page, some retail warehousing in Coventry. Now we already own a retail warehousing park in Coventry, so we very much are aware from the cold face of of asset management that that how strong this market is and how many tenants are interested in the town currently. In the park that we currently own, as Henry has said, that sort of more traditional lineup of retail warehousing tenants that you would have expected to have seen is moving in diversified place where you would perhaps have leisure and food operators moving in and and open a one traditional supermarkets as well. And that is is the route we are going down with with the park, the multilet park.

29:52 This unit sits nearby and because we know that the traditional retail warehouse occupiers are under some some competition from from those incoming tenants. This one, again, looks looks attractive on that basis. The store is known to trade well for this tenant. It's a top quartile performer and a low passing rent of £9 per square foot. There is also perhaps a potential to intensify the development with a drive through restaurant having offered on part of the car park too. The next asset down in Central Cardiff. I've learned recently that Cardiff is home to The UK's eighth largest university, and this site sits almost halfway between the university campus and the city center.

30:41 High levels of passing footfall. It's a supermarket and provides an attractive level of income.

30:51 Onto the next slide. Two more assets starting with Glasgow. Again, another retail warehousing asset, low passing rent, a significant amount of passing traffic. The top asset though, the hotel in Birmingham, we have this under offering and I think it looks fairly interesting.

31:14 Quite a high level of income as compared to where you would normally see Travelodge hotels trading. So so accretive to our dividend. And and I think, to run aside, I was pleasantly surprised to be able to achieve the terms that we have on this asset given the level at which these assets would be expected to trade. The location sits halfway between Birmingham CBD and the airport, trading at a high level of occupancy close to 90%.

31:44 A fairly long lease for us at thirteen years and interestingly, five yearly uncapped RPI reviews. So starting with initial yield of just over seven, by by November 2025, that yield should reach just under 9%.

32:07 I'll hand back to Henry now, who will talk through some ESG updates. Thanks. So I've just I've just skipped on to slide 28 because this really does kind of capture everything that we're we're trying to do at the moment, in the portfolio. But sort of two areas really kind of stand out, at the moment. I mentioned earlier on when I was talking about Bristol, the the asset being well positioned in terms of, MEES, which is the minimum energy efficiency standards that landlords required, getting their properties to an EPC of b or better by 2030. And

32:52 we're doing exactly that across the portfolio. We've screened the portfolio in terms of the EPC ratings, and we are looking to improve all those EPCs, going forward towards that date to 2030. The sooner, the better, really. Now the portfolio is well positioned in in the sense that because we have, a shorter role profile and because we are at the coalface, negotiating lettings, refurbishments, etcetera, with incoming tenants, we feel that there are opportunities to improve the environmental performance, of our properties more often than, let's say, a a long lease strategy where there might be a twenty five year lease in place where the tenant has a full repair and insuring lease and is solely responsible for the environment performance of that building, and a landlord can't really get involved.

33:44 By also sort of agreeing those, leases, we're also insisting our green clauses to be included in the lease provisions, which means that we can collaborate with our tenants to improve the environmental performance. And that might not necessarily be EV charging or solar panels. It might also be doing other ESG things like building back boxes and bulk hotels, improving biodiversity, planting trees. So there's lots of various ways that you can look at this. And then the second sort of aspect of what we're really doing on the ESG side of things is making sure that we really engage with our tenants, and we collect as much of their utility data as as possible. Now where we manage properties through our managing agents, Max, that information is much already available. But where, you have single lets for repairing and assuring, leases, that is when the collaboration and having the conversation with your tenants really, really important to get that information. Once you have that information,

34:43 you really then can start to plot out how you're gonna improve the environment performance of the building. So those really are the two areas. Data, working with your tenants, and really focusing on the EPC. That's what we're trying to do on the ground as asset management at the moment. And, obviously, this is all looked at very much. So when we're we're buying the property from day one, and we have assets stated as the action plans, which really sort of plot out what we're gonna do and how we're gonna improve the environment performance alongside the asset management. I'm gonna hand back to Laura now who will conclude. Thanks, Henry. So I think we are very pleased with another strong quarter of performance. A very important quarter for us, though, containing our refinancing. We were very pleased to get that done and incredibly pleased at the level at which we were able to achieve.

35:35 We have more strong performance and performance that we expect to continue to be strong. But in the way that we deliver that through our asset management, we expect it to be countercyclical. In terms of our our sales, I'm really pleased to have Oxford now exchanged. And the fact that we have that the cash from those sales fully allocated now to a very attractive pipeline of asset makes us feel very encouraged for the future also. Thank you. Laura Henry, that's great. And thank you very much indeed for your presentation this afternoon. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab that's situated on the top right hand corner of your screen. But just while the team takes a few moments to review those questions that were submitted already, I would like to remind you that recording of this presentation along with a copy of slides and the published q and a can be accessed via your investor dashboard.

36:36 Henry, Laura, as you can see, we have received a number of questions throughout today's presentation. Thank you to all the investors for submitting their questions. I will shortly invite you to address those where it's appropriate to do so. But perhaps before doing so, if I may, we did have a number of pre submitted questions as well from investors. And if I may, I wanted to start off the q and a session with these. The first one that we have here reads as follows. Despite lots of activity, EPS is below DPS. Is there any possibility of sustained EPS growth so we could get some DPS growth? Thanks, Jake. So, yes, it's absolutely fair to say that our earnings have been significantly diluted recently, by the Glasgow scale as a condition of which we had to bring the asset to vacancy.

37:24 But now also it's been impacted, with Oxford too, which to a much lesser scale has seen some vacancy creep into the assets in as much as prospective buyers have looked at the asset as a development site, and that has helped us to drive and maximize it sale pricing. So during this time, earnings have, of course, been topped up to meet the dividend level using cash generated from the profitable sales that we've made recently. But once capital is is reinvested in line with that current investment pipeline that I've just run through today that is under exclusivity, then earnings are expected to be in line with the dividend going forward.

38:11 So that will be, I think, clearly quite transformative for the dividend to be back to that level. In terms of dividend growth, I think all I can say is that we once we we get back to dividend cover, we're focused on on total return for the company. But, of course, as a REIT, we are bound to pay out 90%, at least 90% of our income as a dividend in the long term. So clearly, that route could, the future, lead to growth. Thank you very much for that, Laura. The second, pre submitted question that we have here is about Glasgow. I'm reading this for us. What is so problematic about the Glasgow sites? So I think I I I wouldn't describe the the Glasgow sale as being problematic.

39:03 I think it's running, to be honest, pretty much as we would expect it to. So just a a recap of what we've been through here. Some eighteen months ago, it was identified with Glasgow that the assets value would be maximized, through a change of use to student housing. And that sale to a student housing developer IQ was exchanged, but that was subject to planning. And the period since then has simply been to reflect the time that is required for a change of use consent for such a major planning application. The planning application was in fact approved back in January of this year, but but what we've been experiencing since then is is the expiry of the mandatory judicial review period that follows any application of this type. So so it's just very formulaic what is happening currently in Glasgow.

40:00 But we're really pleased to say that that judicial review period, expires on the August 19, and that will allow the sale to complete. So it Glasgow has been problematic, and that it has left us our course of chosen course of action has left us quite uncovered on the dividend, but I would not say that the sale has been problematic. More just reflective of the length of time that this type of transaction can take. That's great. And the third and final pre submitted question that we have, I believe you touched on briefly throughout the presentation, but perhaps if there's any more color you can add to this. It reads as follows. Are you planning to move into mixed site use perhaps with residential or more retail? So we do already own various mixed use assets.

40:55 Bristol Union Street, for example, is a mixed leisure and retail asset within the portfolio. And these are absolutely a feature of our of our investment pipeline and will continue to be so. I don't think you would see us move into residential sectors, but, yes, mixed use assets do feature on our pipeline. But as we've always said, we very much analyze each asset based on its own merit. That's great. Well, I'm just saying that if we did have an existing use, we would and we got a sort of a change of use, then we wouldn't necessarily be building out that change of use. We probably rather we we would have felt like we had added value through the planning process, and that might be the point at which we might decide to sell the property rather than move one new get the planning and then convert to an alternative use. It's probably also worth saying that with the new EU's class, that actually a lot of properties, like particular sort of retail warehousing, you're actually getting a mix of different uses now anyway.

42:06 So traditional retail warehousing is attracting leisure tenants. It's attracting, food uses. You have drive throughs, restaurants. So that it's it's changing in that in in that regard as well. Thank you very much for that. And that concludes the pre submitted questions questions that we had coming from investors ahead of today's event. And Henry Laura, as you can see, we've also received a number of questions throughout today's presentation. So thank you to all the investors for their engagement this afternoon. If I could please just hand back to you to run through that Q and A tab where appropriate to do so. If you could please just read out the questions and give your response, and then I'll pick up from you at the end. Thank you. Yep. So, I mean, Paul f, at your last presentation, you had a relatively high vacancy rate. Can you run through how this has evolved this past quarter?

42:59 Well, this this touches on what Laura has has said, previously about Glasgow and Oxford. Obviously, the asset management strategy there were to get vac vacancy, as a means of being able to convert, Glasgow into student and Oxford to move it into the life sciences medical use. Now that we have exchanged on those sales and they will be completing, that will have an impact on our vacancy rate. But, you know, as I said earlier on, we do have a shorter lease pro, lease profile. It does mean that space tenants do move out, and there are more lease events. But that really is where we sort of have the opportunity to do lettings at above the RV to better, stronger tenants on longer terms and really add the value, which, you know, as I said, is the kind of the beating heart of what AEW is trying to do. So we're comfortable with the vacancy, and we and we see it as an opportunity.

44:01 Yeah. I think it's also worth adding there that once Glasgow and Oxford are sold, our vacancy level is likely to be around 7%. And at those kinds of levels, invested in the pipeline, that that we have under offer, then that does still allow us to, meet the dividend payments going forward. So, another question. Chris b, afternoon. Good set of results. Congratulation once again. Thank you very much, Chris. Two questions, if I may. Can an update be given about the land at Chester Road, Crestford? Is is still interested in this? And two, have the works at Blackpool now been completed?

44:47 Thanks in advance, Chris. So regarding the land at Wrexham, you may recall that we this piece of land came up in auction, for a very small, price. I think it was below a £100,000. Obviously, it made a lot of sense buying in this land. Now PlasterPac have, been speaking to us for a number of years about potentially a recycling facility on this site. The fact that we have this additional land means that we can potentially explore that. But it's also worth noting that yard space is also is very important to industrial units, and industrial units typically have site coverage around 30 to 50%. 50% will be too high.

45:32 About 40 is is bang on. So buying in adjacent land, which means you can improve your, the size of your yard, is also very beneficial to an industrial holding as as well as redeveloping on on that land. And then the Glasgow question, well, I think we've we've answered that time and time again. The sale has exchanged, and we're very much looking forward to it completing. Oh, yeah. Sorry. Blackpool. Yes. So black the Blackpool works have, have, completed. We are we feel like we're now sort of getting on the front foot again and exploring various asset management initiatives there. Thanks, Henry. I'll pick up a question from, Jonathan b.

46:20 He has asked, read the pipeline. The unit let to Morrisons in Swindon has been vacant for around two years. Notwithstanding proposed change of use to leisure, do we have any concerns about the longer term viability of this asset? Sometimes we or it can be quite interesting to see when we put an asset under offer, and this is a comment more generally. We can start to get under the skin. It it gives us having an asset under offer gives us a certain level of authority, shall we say, when it comes to speaking to the tenants and speaking to other occupiers in the market. We can speak from a much more informed place than we would be if we were just considering an asset, for example.

47:07 And and I thought this asset looked attractive before we put it under offer, but I have to say that in doing further work post agreeing pricing and being under off from the asset. I think I like it even more. We've been having some very positive conversations with Morrisons and I have been quite surprised at the positivity of the leisure market in this location and some of the very attractive and quite competitive offers offers we have received from numerous leisure operators to take space. Now, I think probably going back some two years, I don't think that this scheme, if you're familiar with it, Jonathan, had the right lineup of of tenant mix.

47:53 I think there are perhaps too many restaurants and not enough large leather leisure operators. It was really just a Morrison's with a few restaurants. But I think if we look to improve that mix and that has already been started now in this location with a large letting done to Boom Battle Bars, you were trading very strongly there. I think that sets a precedent for that type of of of of large leisure box here performing well. So we're quite encouraged by the work that we've done on this asset so far. I would just now turn to a question that I can no longer see. I'm so sorry. I am not sure who submitted this question, but, basically, the question was around Oxford. And to explain early in May, we, of course sorry. It's it's Tom f who I've not noticed asked this question. Tom, you have asked back in May, we announced that Oxford had gone under offer at 37,000,000 as a transaction price. And, of course, when we announced last week, the transaction price for Oxford Oxford is now 29,000,000.

49:08 So, yeah, absolutely to explain what what has gone on there. So back in May when we put that asset under offer, it was valued at around 15,000,000, and we had hopes of bringing it to the market. And at the time, being honest, we had thought at a level of around mid twenties would be a really strong outcome here. The assets then went under offer for life sciences redevelopment at 37,000,000. And, of course, we were very pleasantly surprised, but we were very surprised that pricing had reached that level. And I think that was quite indicative of the kind of bubble characteristics that you see in certain markets and we've certainly seen here in the exponential price growth of life science assets.

49:58 Fast forward a few weeks from agreeing about it, it became fairly clear that that buyer wanted to backtrack on that level of pricing. And and I think it's really just for that that reason. The UK economy was was starting to face various headwinds that we can now all see a little more clearly. And back in May, that's why, as I say, was backtracking. Now because we had had the asset out in the market, we had various under bidders on the asset. And from speaking to all of them, it became apparent that most of them now were at late twenties level. And we were really keen to try and secure the delivery of this sale in in in the most reliable way that we possibly could going forward.

50:48 So the boat the buyer that we selected in the end was a party that we knew would be very reliable. And hence, we have now transacted with them to exchange contracts at 29,000,000, which I think when it first happened, we felt somewhat disappointed in seeing that level come away from 37. But actually, if we reflect on that now, had we gone under offer and and achieved 29,000,000 first off, we would have been incredibly pleased. And of course, now on reflection, we are incredibly pleased with the outcome of that sale. I think, you know, reflective of of of the timing, I think we we we timed that sale very well in bay in being able to maximize the the outcome from the life sciences sector nonetheless.

51:42 Question from Mohammed. Do you see rental yields increasing in the long run? Well, if you go back to our second slide, which is at a glance, you'll see that we have the net initial yield at five and a half percent and reversion yield of the portfolio at 7.4%. So I think this illustrates that, yes, we do feel that there is a lot of rental growth to come in the portfolio, and that touches on, the industrial example that I gave earlier on where we'd move the rental by 14%. So, yes, to answer your question. Yeah. I think also, you'll note that there's perhaps a theme if you go back through some of our NAV announcements and if if you, go back through some of these presentations that we've done. I think we quite, regularly exceed the valuers' estimated rental value levels.

52:34 Particularly in our industrials, that's been happening in in in industrials for us. On the rental side with our passing rent at at £3.50, there is some way to go. So I'm just reiterating yes in answer to to your question there as the values have stated. But actually, in reality, there could could be more to come from there. There's a question from asking whether we expect to see any economic stresses impacting the portfolio. And clearly, we we sit in a sort of with an economic outlook today that's better is potentially got some volatility in certain areas. We've got increasing cost of debt, probably further increasing interest rates, and a war going on in another part of Europe impacting large parts of our economy.

53:36 I think I think what I would say about that is coming back to our theme as having a focus on value investment. I think that provides us with a defensive outlook because we hold our assets. Coming back to, I think, one of the first points that I mentioned on the call today was that our book value for our assets averages at £75 per square foot and our average rent at £5 per square foot. I don't I can't really think of a more defensive place in the market in which you could sit. And with us driving a lot of our performance through asset management rather than just through yield compression, I think we expect that to deliver countercyclical performance.

54:34 Yes. A question here. Is ESG focused a result of regulation or voluntary? Well, I think I think, ultimately, the government, has to be the driver, at tackling extreme climate change. And, you know, and and that is why they have put in, obviously, these meetings regulations. Property has a huge carbon footprint. It's it's one of the the largest contributors to greenhouse gases. But, I mean, I think everyone is is of the realization now that climate change is on us. I mean, we've obviously just experienced these very high temperatures only a week or so ago. And I think as as as professionals, we all want to have it have an impact and try and do our best to tackle climate change. And I know that speaks true of the asset management team at AEW.

55:32 So, yes, it is being led by the government, but also why why would you not want to improve the environment for your building? It ultimately means you'll be able to achieve higher rents, attract a larger pool of tenants, and ultimately drive the investment value of your property. So, yes, government's leaving the top, but we also very much want to do it as investment managers. So I think, that brings the, questions to a close. So I just wanna say thank you very much, for joining us today. Hope you found the presentation interesting. And, obviously, if there are any further questions, please do let us know. And please remember that these slides are available online as well after Henry, Laura, that's great. And thank you very much for being so generous of your time there and addressing all of those questions that came in from investors this afternoon. And, of course, if there are any further questions that are submitted today, we'll make these available to you immediately after the presentation has ended for you to review. And ladies and gentlemen, we'll publish all those responses where it's appropriate to do so on the investment company platform.

56:32 Laura, perhaps you're redirecting those on the call to provide you their feedback, which I know is particularly important to yourselves and the company. If I could please just ask you for a few closing comments to wrap up with, that'd be great. Yeah. Thank you very much, Jake. Well, thank you for joining us again today, everyone. 've had another very strong quarter and we very much hope that that will continue. We've put in an exciting few weeks ahead investing the capital from our sales. And we really look forward to getting our dividend covered again through cash. Laura Henry, that's Graham. Thank you very much indeed for taking the time to update investors today. Can I please ask investors not to close this session as you will now be automatically redirected for the opportunity to provide your feedback in order the management team can better understand your views and expectations?

57:18 This will only take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of AEW UK REIT PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all.