Aew Uk Reit Q3 Earnings Call Highlights

Aew Uk Reit (LON:AEWU) highlighted what management described as another strong quarter during its Q3 update presentation, pointing to asset management gains, a profitable sale completed during the period, and “very strong earnings” that contributed to a slightly higher net asset value (NAV) overall.

Strategy and portfolio snapshot

Portfolio Manager Laura Elkin reiterated that the company’s approach remains unchanged after nearly 11 years: a sector-agnostic value strategy focused on strong locations, high income, and buying at relatively low capital values per square foot. Elkin said the team’s emphasis on active management is aimed at maximizing both income and capital value.

Elkin said the REIT has paid dividends for 41 consecutive quarters. In the latest quarter, she said a small dip in portfolio values was outweighed by asset management gains and a profitable sale, resulting in a slightly higher NAV.

On portfolio metrics, Elkin reported the REIT owns 34 properties with more than 130 tenants. Net initial yield was described as “just over 8%,” compared with a reversionary yield of 8.84%, which management framed as an indicator of potential income growth available through leasing and other initiatives. Vacancy stood at just under 6%, which Elkin said is within the REIT’s typical 5% to 10% operating range and is consistent with its hands-on approach to creating leasing opportunities.

By sector, Elkin said industrials accounted for 37% of the portfolio. Retail exposure has increased in recent years, with high street retail and retail warehousing together totaling about 35%. Offices remain a relatively small allocation at around 10%.

Performance discussion versus peers and benchmark

Portfolio Manager Henry (who leads asset management) reviewed longer-term performance, citing a 9.3% ten-year annualized NAV total return and an 11.1% five-year annualized NAV total return through September 2025. He said the strategy’s diversification helped drive a divergence from peers starting around 2019, when the portfolio had a high weighting to industrials (greater than 55% at the time) and relatively low retail exposure (about 13% combined across high street and retail warehousing).

Henry also pointed to the portfolio’s weighted average unexpired lease term (WAULT) of around 4 to 5 years as supportive of value creation, because it creates recurring opportunities to engage tenants on renewals, regears, and rent changes.

On property returns, he cited outperformance versus the MSCI benchmark of 6.7% over five years and 4.7% over ten years. He characterized results as consistent across longer periods, while noting more muted recent performance that he linked to the portfolio not being fully invested following a sale, with proceeds later reinvested.

Henry also discussed the REIT’s 10-year return composition, emphasizing the consistency of income (around 8%) and describing a pattern of countercyclical buying and selling—selling offices ahead of COVID, taking profits on industrial assets at higher valuations, and then recycling proceeds into higher-yielding retail and leisure opportunities. He said prior disposals have generated an average sales price premium of 38% versus purchase price, a statistic management said it was “very proud of.”

Market backdrop and acquisition pipeline

Elkin argued that the current commercial property market remains an attractive buying environment. She said average U.K. commercial property values fell around 22% after late 2022, following the “Liz Truss mini budget,” and have not recovered, which she attributed primarily to higher interest rates and low investment volumes. With interest rates beginning to trend down and market conditions showing signs of normalizing, she said the pipeline still offers what management views as unusually strong value opportunities.

Elkin said the REIT’s current acquisition pipeline is yielding on average close to 9%. She added that management continues to see attractive opportunities in high street retail and leisure—sectors she described as “unloved” by many institutional investors—where the team believes careful selection can deliver sustainable income at advantageous pricing. In industrials, she said the outlook remains positive but competition for prime assets is intense; management is therefore focusing on select opportunities, including single-let industrial assets. For offices, she said the sector is “very interesting” but unlikely to become a significant portion of the strategy due to capex intensity and the narrower subset of stock meeting strong location and ESG standards. In retail warehousing, she said capital is again competing for assets and suggested the REIT may be a net seller, citing the prior sale of a retail warehousing park in Coventry in November 2024 at what she described as a significant capital profit.

Asset management highlights: Barnstaple and Hitchin

Henry outlined the REIT’s main value-add levers, including new lettings, renewals, rent reviews, lease regears, planning initiatives, and selective refurbishment work, often alongside ESG improvements. He also cited more specialized tools such as lease surrenders, dilapidations, and structuring leases outside the Landlord and Tenant Act to strengthen negotiating leverage at expiry.

He highlighted Barnstaple Retail Park as a key example. The REIT bought the asset in June 2018 for £6.8 million at a reported 8.5% net initial yield. Recent actions included:

• A new 15-year lease to Farmfoods at £125,000 per year;
• A letting to Wren at £98,500 per year (reported the prior quarter);
• A £125,000 dilapidations receipt from Sports Direct during the quarter; and
• A lease regear with B&Q, extending the term by an additional 7.5 years and increasing rent, which Henry said lifted the valuation by £900,000, or 12%, for the quarter.

He also discussed the Hitchin acquisition completed around March 2025 for £10 million at an 8.3% net initial yield. Management sold a small office element located behind the main retail component, which Henry said increased the net running yield to 8.7% and generated a capital profit.

Dividend, debt, tenant health, and other investor questions

In Q&A, Elkin said the REIT does not currently have plans to increase the dividend, but noted that as a REIT it must distribute 90% of its income; if that requirement resulted in distributions exceeding the current level, the company would be obligated to pay it.

Management clarified that a change in disclosure regarding the debt facility’s end date—from May 2027 to July 2027—reflected a timing clarification with the lender rather than a change to the facility’s terms. Elkin said the company is already working with an in-house debt team and feels “very positive” about refinancing prospects, adding that pricing available currently did not appear concerning and was not expected to negatively impact the dividend.

Elkin also said management is working with the board on ways to grow the equity base, with the aim of improving share liquidity, reducing the cost base, and enabling the REIT to pursue more opportunities from what it described as a strong pipeline. She said M&A is one potential route under assessment.

On tenant quality and rent collections, Henry said the tenant base was strong and that rent collection at that point in the quarter was roughly 95%, with some tenants paying monthly. He said collections were “as good as it has been for a number of years,” and that the REIT was not seeing the same level of restructures and administrations previously experienced, particularly in retail.

Henry discussed a valuation decline at an industrial asset in Basildon after one of two tenants left. Management plans to seek redevelopment planning, arguing the existing configuration has become economically obsolete. He cited estimated rental values on a new build of about £15 per square foot—nearly double current passing rents—but said higher construction costs and a reduced footprint needed to meet modern occupier requirements weighed on residual values.

Management also provided an update on a Cardiff nightclub asset, noting the lease had been assigned to Neos 13 with rent rebased to £150,000 per year plus turnover rent. Henry said the company had built up £50,000 of additional rent and said trading was going well, citing Cardiff’s university population and upcoming seasonal demand around the Six Nations.

On sustainability, Henry said the REIT uses lease events and periods of vacancy to improve EPC ratings in line with evolving minimum energy efficiency standards, and that it maintains asset sustainability plans across the portfolio, including initiatives such as biodiversity improvements, EV charging, and solar PV where applicable.

About Aew Uk Reit (LON:AEWU)

AEW UK REIT invests in UK commercial property assets in strong locations, adopting a value investment strategy to deliver attractive returns for its shareholders.

The Company invests in mispriced assets where it believes value can be created through asset management initiatives. AEW UK REIT assesses an asset’s potential for investment returns based upon its own fundamental merits and is therefore unconstrained by sector.

AEW UK REIT has provided investors with a stable dividend of 8p per share per annum, paid since Q1 2016.