Aew Uk Reit Stock

Good morning, and welcome to the AEW U.K. REIT plc Investor Update. [Operator Instructions] Before we begin, I would like to submit the following poll. And I would now like to hand you over to Portfolio Manager, Laura Elkin.

Good morning, everyone. Thank you very much for joining us. I'm Laura Elkin, I'm the Portfolio Manager for AEW U.K. REIT plc.

Hi, everyone. I'm Henry Butt. I'm Assistant Portfolio Manager and Lead Asset Manager on the portfolio.

So this quarter, we have had to prerecord our quarterly update to you. And so I'm afraid that there won't be a chance for any Q&A today. But if you do have any questions following today's presentation, please get in touch with us either through our Investor Relations department or via the question-and-answer section of the Investor Meet Company website. And we will endeavor to respond to those questions where appropriate. And then we believe that next quarter, we will be joining you as normal live and with the Q&A function fully up and running.

So we recently put out our NAV announcement, and we'll come on to talk about some really strong updates that we've had during the company -- for the company during the quarter. We've had some really strong letting activity that we're excited to be able to talk to you about. But just coming back to the overall strategy and talking about that at high level on these first few slides. So the strategy that we run at AEWU is the strategy that we have always run here for the past 11 years. And to describe that strategy in a sentence, we are sector-agnostic value investors. So that really means that we look across the whole of the commercial property market to find value across different market cycles.

We look to maximize income. So that is important to us for our delivery of our dividend of 2p per share per quarter, which we have paid out now very consistently since our IPO. Income is very important to us to seek that on our purchases, but we very closely analyze the income stream of the purchases that we make to make sure that, that income is sustainable. And hopefully, that is demonstrated to you in the consistency of the payment of that dividend.

And once we own our assets, we very actively manage them to unlock capital upside, again, demonstrated in our strong total return, where we have outperformed the MSCI benchmark over each time period since our IPO. We've got some of our investment criteria just noted here on the right-hand side of the page. And for me, the #1 point that sticks out here is a focus for our buying in strong commercial locations. This is something we look for in everything that we're buying. So I've mentioned the income that we're looking for, but the location is really, really important. It is going to ensure that our properties can perform well over the long term and continue to be let and deliver that income stream.

And hopefully, with some of the examples of asset management that we've got to talk about this quarter, we can demonstrate that to you in the healthy level of tenant demand that we've recently seen. We've got noted at the bottom of the page here, some awards that we have won during the course of the past 10 years. And most notably, the Citywire award, which we have won 6 consecutive years which is based upon the calculation of our 3-year net asset value return.

So just picking up on this slide at a glance as at 30th of June 2026, very much a bird's-eye view of the company as at that date. GBP 215.7 million valuation with 34 assets. And worth noting that prior to the quarter end, we exchanged on the disposal of a nightclub in Cardiff, and we have completed that acquisition on the 23rd of July, and we've got a slide coming up on that. So actually, as at this point of this recording, we actually have 33 properties but 34 as at the end of the quarter.

I want to draw your attention to the net initial yield and reversionary yield. You can see there's a substantial difference, 7.28% net initial yield in comparison to 8.87% reversionary yield. So that shows the income rental growth potential embedded within the portfolio. I think it's worth saying as well that actually that net initial yield for this quarter has come off a little bit, and that is partly because we have some rent frees, for example, at an industrial asset in St. Helens. We've got a slide on that later on in the presentation. We've had a rent-free period kick in at -- next in Bromley, where -- next were entitled to a rent-free period having completed a refurbishment of their units.

And we've also recently completed a lettings -- 2 lettings actually at Runcorn where they are rent-free. So despite that vacancy rate of 6.43% coming down and from about 10% in the March quarter, the net initial yield is a little bit suppressed because there's these kind of rent frees, which tenants are benefiting from, and they should burn off over the next 6 to 12 months, and you'd expect to see that net initial yield creep up with all other things in the portfolio being equal.

Cash and debt, we continue to have a GBP 60 million debt facility, which expires in July next year at a fixed rate of 2.96%. You'll see that we've got a fair bit of cash at the moment. Quite a lot of that is attributed to asset management opportunities we see today within the portfolio, and we typically have a GBP 5 million buffer. And as Laura said, we've continued to pay out our 2p per quarter dividend. That's something that we're very proud of doing.

And then finally, just touching on these pie charts on the right-hand side, very little change in the sector weighting. We are sector agnostic. But where we find ourselves today, our highest sector weighting is in industrials and in retail, which is split between the high street and retail warehousing with those 2 sectors sort of really diverging in kind of the post-COVID era. And as you can see, properties dotted out throughout the country. Laura made the point earlier on that location is very important, but that's a very specific location rather than us typically trying to buy in certain regions of the U.K.

Handing back to Laura to cover a NAV performance slide.

Thanks, Henry. And so here, we are showing you our NAV total return performance since our IPO and versus our AIC peer group. AEWU delivering a close to 9.5% 10-year annualized NAV total return. So significantly stronger than the rest of that peer group. And you will see AEWU's performance start to pull away in 2019. And that's really after 4 years of running this strategy. And the 2 main reasons for that is that at the time, AEWU had about a 50% weighting to industrials. And that market started to see a lot of growth at that time around the inception of the pandemic.

At this time also, though, we started to see a lot of our business plans within AEWU reaching maturity, and we started to make our first strategic disposals. And those of you who know us well know that we like to buy short to mid-length income so that we can have those very real conversations with our tenants in order to move rents on and to see our business plans through to fruition. So again, it's no surprise to me that around that time, we started to see our performance diverge because of how active our strategy is in both property level as in buying and selling and knowing when to buy and sell, but also at tenant level, of course, in our occupation.

So the following slide shows our property level total return versus the MSCI benchmark over various time frames. And for me, it's really the consistency of our outperformance over the last 10 years. And over, I think, all but one of these time frames, AEWU's property level total return is more than double that of the wider MSCI benchmark.

Now Henry will talk to you on the next slide and really point out the reasons why -- how we can attribute that outperformance to various decisions we've made at portfolio level and parts of our strategy.

Thanks, Laura. So yes, this slide very much covering the life cycle of the strategy. And you can see where the performance has been coming from the blue bar, which runs right through the middle here, very much the meat in the sandwich, and that is the income that the property has been throwing off. And with the red bars being capital performance. And the performance of the strategy has very much been attributed to a number of things.

First, obviously, income. We are very much not a strategy, which is trying to board the right train at the right time and hoping for yield compression. We will obviously look to add value through asset management and through cycles. But income is very much the bedrock of what we do. And as you can see, that blue bar runs consistently right through this chart. It dips off a little bit around 2022 when we were actually looking to achieve maximum values in 2 assets, one in Glasgow and one in Oxford, where we had to take on a higher percentage of vacancy. But as you can see, it's pretty consistent around the 8% mark, not surprising given kind of where our share price is trading and where our dividend is at 8p per annum.

And two other main themes here really is diversification. We have the ability because we're sector agnostic to roll with the punches and pick and choose where we feel that there is value opportunities and countercyclical buying. So we were buying secondary industrials kind of in 2017, 2018. We were selling out of longer offices pre-COVID when you could argue that actually the office sector was probably at its most mature with obviously the more recent disruption that's had kind of with the return to the office in the post-COVID era.

Kind of following COVID, we were selling industrials where we've done quite a lot of asset management, selling out at kind of low 6% net initial yields and then reinvesting that into retail, which obviously had very much gone sort of through a storm with kind of COVID, high street closing and the growth of e-commerce. And so we felt there was really good value there. And actually, more recently, we've seen very much a renaissance kind of on the high street and in particular, high street retail, two sectors which are -- they've got a bit of wind in their sails at the moment. So we're seeing some performance there.

And I think kind of the final theme on this chart is kind of really knowing when to cash in your chips. We have business plans at the point that we acquire assets. We like to hit the ground running. We really like to get under the bonnet of our assets and add value. But having done that and grown income, if we see opportunities which excite us in our pipeline, we will look typically to dispose of assets in the kind of 6%, 7% net initial yields and reinvest that into high-yielding assets with asset management opportunities.

And this chart here just tracks all our sales throughout the life cycle of the company, a 41% average sales purchase price premium. Oxford sticks out like a sore thumb in the middle there. We sold that at around 250% premium to its acquisition price. That was an alternative use play where we took on a higher extent of vacancy. But more recently, on the right-hand side of this graph, we have been selling out of industrials kind of in the low 6s. We sold a industrial asset with vacant possession in Deeside rather than actually take on a rather capital-intensive refurbishment project and then crystallize value there. We actually sort of leapfrogged that asset management initiative and actually sold to an owner-occupier for a price similar to what the investment value would have been had we done a letting.

And obviously, there's the Coventry Central Six asset. We grew the net operating income about 50% there. That was lots of asset management, bringing in a wider variety of tenants I think it would probably be wrong with me not to touch on the red bars. I think it's fair to say in the case of kind of Portsmouth and Blackpool, they were both retail assets, high street retail assets. And despite what I've just said about there being renaissance on the high street, I think that is true. But it really has to be sort of the best-in-class properties.

The high street has shortened in recent years. And these assets, which we bought a while ago, had -- were in slightly more peripheral retail areas in Blackpool, for example, the Houndshill, which is the shopping center there was trying to take a lot of our -- pinch a lot of our tenants and take them into the shopping center. So in those instances, the case of actually filling those assets, trying to maximize income and then actually deciding to, well, throw in the towel, not necessarily, but decide to sell them at the right point of time and move on for opportunities elsewhere.

Henry, I'm just touching here on this slide on the current market opportunity, which we think is very strong, and we see a lot of very attractive buying opportunity in our pipeline, which we continuously track using our investment team. So I'm showing you here CBRE's value index as a proxy for capital values across the commercial property market. And we can see that they have been quite suppressed since late 2022. That is, of course, because of what we've seen in interest rates. But it is also true that over that time frame, we have seen significantly lower volumes than we would normally see coming through the commercial property market. So far fewer properties reaching the market and far fewer buyers for them.

Now that makes it quite an interesting time for a value investor because we tend to see that at times in the market of low volumes, we see less pricing transparency and more propensity for mispricing in the market. And as a value investor, that is, of course, what we are looking for. So what we're showing you here is what we think is the strongest buying opportunity that we've seen since our IPO.

And we're tracking currently about GBP 200 million worth of buying opportunities cross sector with a weighting in single-let industrials, in high street retail, in leisure and very much representative of what we have bought in the portfolio to date, yielding 8.5% plus and with some prospects for rental growth as well. So a very strong buying opportunity that we are exploring routes with our Board to try and access at the moment.

So Henry touched on one of the previous slides about making sales and knowing when to sell. And we pride ourselves on sort of knowing when to buy and when to sell in different assets in different sectors, quite often countercyclically within AEWU strategy. And often, we would, of course, like that to be maximizing our receipts. But here, unfortunately, this is not quite such a success story. And we have made a sale that completed just post the quarter end that we have recently announced, in order to move on from losses related to this asset. So this nightclub in Cardiff was acquired. Apologies, the purchase date up there is showing incorrectly. We bought this in late 2021 for GBP 3.6 million, and we have sold it for GBP 1.5 million, but at a significant premium to the asset's current valuation.

The asset was bought really aiming to benefit from a kind of post-COVID recovery in this sector, which due to kind of social change and the cost of living crisis that we've seen in this country over the past few years isn't something that materialized. So yes, I guess being sort of fairly upfront about that. Of course, we're disappointed about the performance of this asset, but we consider it to be more important to make a sale that's profitable to current book value and move on when we see very attractive buying opportunities in our pipeline that I just set out.

So on to the asset management section of this presentation. So this is our industrial single-let unit in St. Helens in the Northwest. It is let to a tenant called Kverneland Group, and they essentially sell large agricultural machinery and parts. And this is a U.K. HQ -- quarters over in Norway. And I believe it is owned by a large Japanese conglomerate. So it's a 94,000 square foot unit. We bought it for GBP 3.45 million at GBP 37 a square foot. So very low capital value per square foot if you compare that to what it would cost to rebuild this, which would be probably a price at about GBP 120 a square foot, and that's obviously excluding the price of the land of a net initial yield of 8.2%. So growing off some really good day 1 income exactly what we want.

So again, attractive yield, a low capital value. There was about 9 years left to the tenant when we bought it. And with it being a very well-located asset close to major motorway links, we obviously were anticipating some really strong rental growth for this asset. And we have just now captured that through a 10-year lease renewal, moving on the rent by 42%. So that's moving it on from the level of rent that it was previously paying, which was GBP 389,000 and which was set about 5 years ago when there was an open market rent review. So we've moved on that rent to GBP 6.15 a square foot, a 48% increase.

And over the past 2 quarters, given that this completed very close to quarter end, we've really seen some strong valuation performance on this asset and with the value increasing by GBP 1 million over the March and the June quarter collectively. We have previously mentioned Runcorn having done a new letting a couple of quarters ago. But this quarter, we completed 2 more new lettings. You may all recall about a year or so ago, we got 3 units back from CJ Services, who were paying a rent of GBP 6.50. It's never a great thing having more vacancy with your portfolio, but there's always a silver lining because it's an opportunity to move rents on and crystallize rental growth, and that was very much the case here.

The units were also a little bit tired. So we had the ability to improve them through refurbishments and improve their environmental performance. So at the EPCs of these 3 units are now at B, where previously they were at D rating. And as you will see in this slide, we have done 2 new lettings, one at GBP 9.50 and at GBP 9.55 to two good tenants taking 10-year leases. So moving on those rents significantly and getting two new really good tenants. So it's been a very good kind of asset management story. And it's really good to actually to follow through with your business plans and see that value enhancement.

So this chart really here is looking at the opportunity within the industrial portfolio. I've included some bullet points here, which quite a lot of you will be familiar with because we've reported these statistics, obviously updated for this quarter in previous presentations. So the statistics for the industrial sector tends to be more acute than portfolio-wide. So we have a smaller WAULT to break and to expiry for the industrial assets than we do for the rest of the portfolio at 2.48 years and 4.84, respectively, which means that the asset management opportunities are closer to where we are today than they would be elsewhere in the portfolio.

We have a stronger reversion potential, so a reversion yield of 9.56% in comparison to a lower net initial yield of 6.12%, which kind of makes sense because industrials are valued more keenly than other sectors currently and a very low average passing rent of GBP 3.48 per square foot in comparison to a rent of GBP 4.86 per square foot. I think it's fair to say that based on some of the examples that we've given over the past few quarters, that ERV actually could be stronger. That's CBRE's assessment of ERV, and we tend to be beating those assessments. So do bear that in mind when you're thinking about the opportunity within the industrial sector within the portfolio.

And I touched on this earlier on about the cap per square foot of the St. Helens asset, but our industrial book value at GBP 48 a square foot, which is relatively very low when you think about the cost of replacing these industrial assets, as I said, GBP 120 a square foot. But just touching on this bar chart here, the dash lines are essentially showing the cumulative rental growth between now and 2030. And we believe that there's 18.2% cumulative rental growth within our industrial assets between now and that point in time in comparison to Knight Frank's forecast, which is just shy of 14%. So our assets are outperforming Knight Frank's rental growth forecast.

I think it's probably worth noting as well that these are -- this rental growth is 18.2% is attributed to lease events and ERVs, which CBRE have put on those assets when those lease events come up. So the Knight Frank estimate of rental growth is not -- that's not factored into our rental growth forecast. Now I think looking at this chart, it's quite obvious that there's a lot to go after in this year, 2026 and 2027, where there's as much rental growth is higher than 10% in 2027. But then we have a number of quieter years in '28, '29, 2030. Now that might initially look quite strange, but you will all appreciate that typically in the U.K., lease cycles tend to be on a 5-year basis.

So if we are capturing rental growth through rent reviews and lease renewals in 2026 and 2027, it would mean that the next lease event will be in 2031 and 2032, which obviously falls off this graph with it only going out to 2030. So I think it's start to say that we've got a very busy next couple as well, this year and next year. We then might have a bit of a quieter period over '28, '29, 2030. But do bear in mind that the rents that we are agreeing in '26 and '27 will then subsequently be grown by these rental growth forecasts. And then in 2030 and 2031, we will start to look to push on those rents again. So it's not like saying the asset management opportunity is falling off a cliff in 2028. It certainly isn't. This rental growth story will very much continue, but we will just go through a quieter 2-year period.

And we could also possibly consider some sales from that portfolio in that period of time where the rental growth is coming through a bit less if we think that's advantageous for the portfolio.

Yes, which we've done on a number of occasions over the past couple of years going back to that chart that I showed earlier on in the presentation.

Thanks. So I'm just going to talk about a letting that we undertook during the quarter and was recently announced at our asset at 40 Queen Square in Bristol. Again, apologies, the purchase price on a number of new slides is wrong. So this asset was acquired in 2016. So this has been quite a long-term hold for us, and we've seen some really strong rental performance coming from this asset. So just looking back to 2016, we bought the asset with around 50% vacancy and with average passing rents of about GBP 17 per square foot.

And within about 18 months of owning the asset, we had it fully let and with rents up to about GBP 20 per square foot. Over the course of the last 8 years, we have continued to move those rents up. And we've seen really strong performance from this asset. And it really just goes to show sort of touching on my comments on going back to the very first slide of this presentation on how a focus on well-located assets really can sort of future-proof strategies because from 2017 to today, we have seen the overall rent on let space from this asset increase from GBP 20 per square foot up to about GBP 35.

Now of course, during that time frame, we've seen office rents on -- across the rest of the market struggle very significantly. So this asset has really bucked the trend that we've seen in the wider sector because of how well located it is, because of the quality of the building, because of the surrounding amenity, because of the refurbishments that we've done on a piecemeal basis to this building. So during the quarter, we completed a letting to IWG who took occupation of the building during June. Now IWG being the overall company name for some of the serviced office brands, including Regus, and they are in this building now operating under their Signature brand.

They had been operating nearby but had to move from their previous space. So have brought with them a number of tenants who they had in their previous space. So we've kind of hit the ground running here in this location. I think it's really representative this letting of kind of changes that we're seeing across the office market. At AEWU, we have always strongly said that we very much believe in office occupation where it is well located, where it has strong surrounding amenity, where it has good ESG credentials.

And tenants now are often requiring increased flexibility and hence, the need for -- the growing need really for this serviced office requirement. So the building is now fully let and IWG are in the process of ramping up their occupancy and bringing it to maturity, having taken occupation in June. And on this next slide, it's really just a kind of graphical representation, showing you both rent per square foot on let space in this building and the overall income level that we are expecting to receive. And as you can see, our estimates for the full year '26 and '27 are increasing significantly and showing further growth coming in the income stream from this building.

Actually, in 2027, we are still projecting -- well, some upcoming vacancy on smaller suites in the building such that in 2028, we're actually projecting even more growth from the overall income stream from this building and further growth also on the IWG income stream as that also reaches a greater level of maturity. So whilst we may have a more flexible occupation style in place with IWG, in actual fact, once -- once their business plan here reaches maturity, the level of income that we're projecting to receive from them even at an occupational level less than 100% exceeds the level of ERV as projected by our valuers. So we believe that this is a very positive letting for this building that we have completed during the quarter.

The final asset management slide is on Tanner Row, York. We updated on this, I think, back in kind of March when administrators were appointed, it was PwC. And obviously, since that time, for us, in York, very little has changed. The lights are on, the car park's operating and PwC have continued to pay rents, albeit not on a quarterly basis, but on a monthly basis in arrears, also paying service charge and insurance.

So that's very good news and bearing in mind that obviously, about 30 sites were closed. We've included this slide here just to kind of give you an update. We have had a fair bit of communication with PwC and understand and I'm sure this has been alluded to in the press as well that the business will be sold, and I'm sure there will be announcements on that in the national press in the coming weeks. So for the time being, it's just a case of sort of sitting tight and seeing what happens. We suspect and when the business is acquired that the lease, which is an administration will be assigned from the administrators to the new company.

So we very much actually see this as an opportunity. I mentioned earlier on how administrations possibly can have silver linings, and we would hope that's the case here. But just finally, to point out, we bought this asset off a low capital value per square foot, very much kind of the investment philosophy of the AEWU. So if the doomsday scenario was that the tenant were to go, we're holding off a low capital value per square foot, which lends itself to alternative uses. Throughout this process, we've actually had alternative use developers interest in this site. You'll appreciate that York is a very well-known and U.K. city with a strong university, fantastic rail links, and this is actually located within York city walls, a very land-constrained city. So yes, there is a plan B and C, but it looks like a plan A to keep this building income producing is very much on the cards, and we look forward to providing you with updates in due course.

Yes. I think it's fair to say we feel quite positive about -- about the concept of the NCP business being sold with this lease in place. We know what we have here is a very profitably trading car park, and we are hopeful that ultimately, that business will end up in the hands of someone who is better capitalized than the previous business, which will, of course, hopefully lead to more positives coming through to the asset itself.

Well, thank you all for joining us today. We hope that you have read our shareholder update this quarter. We hope that you have heard today the positive news that we have on lettings during the quarter, we certainly feel very, very pleased about what we've achieved. And of course, that feeds through to our dividend, which continues to be paid very consistently. And again, also consistently, the delivery of our NAV total returns and outperforming the MSCI benchmark over numerous time frames and in the most recent time frames as well. But looking at the portfolio, we still believe it represents a value proposition with low book values, low passing rents, opportunities for rental growth coming forward and a really strong pipeline as well.

So thank you for joining us today, and we look forward to hopefully seeing you again next quarter and in future periods when we do hope that we can reengage with you on a live question-and-answer session as well. Thank you.

Thank you very much.

Good morning, ladies and gentlemen, and welcome to the AEW U.K. REIT plc Q4 update. [Operator Instructions] Before we begin, we'd like to submit the following poll. And as usual, we'd be grateful for your participation. I'd now like to hand over to today's management team, Henry, Laura. Good morning.

Thanks, Mark, and thanks, everyone, for joining us today. As Mark said, this is our Q4 update on the company. And before we start today, I'd just like to address perhaps some of you have seen some announcements or press articles linking AEW U.K. REIT with a possible merger with Alternative Income REIT in recent weeks. It was announced by both of the companies yesterday afternoon that a recommendable position between the 2 Boards hasn't been reached. And I would urge shareholders to have a look at both of the 2.8 announcements, the withdrawal announcements from those discussions by both companies yesterday afternoon for more information in respect of that.

Now what we can say is governed by the regulations of the City Code on mergers and takeovers. So I'm afraid I can't say any more than that to you today. But please do look at those announcements, and you will understand that, of course, we can't take questions on that matter either. But in respect of any other part of the presentation today, please do submit your questions, and we can take those at the end. So for anyone who I haven't met before or spoken to before, I'm Laura Elkin. I'm the Portfolio Manager for AEWU. Henry and I have been managing AEWU at AEW UK now for coming up to 11 years. It's the same strategy that we have been running throughout that time.

We are sector-agnostic value investors, which means that we can look with an AEWU strategy across the whole of the U.K. commercial property market to find value [indiscernible] in time. And we like to think that that is key to the outperformance of AEWU strategy over the course of the last 11 years, and that outperformance has really been sustained. And we think that's because the strategy is nimble, able to operate countercyclically between the different property subsectors. So being not constrained by sector, we think, is a really key part of our strategy being able to deliver that high income and outperformance to our shareholders.

We also think that, that strategy really speaks to the strength of our team. So as value stock pickers, as value asset managers, we think that those are some key strengths of our team and hopefully displayed to you in the high level of dividend that we have paid out now for 42 consecutive quarters and also in the attractive, very strong total returns, showing very strong outperformance over the MSCI index in the U.K. over that 10-year period. Just pointing to the things that we do buy. When we're looking for assets to acquire, we have a very strong focus on location. And again, we think that helps to future-proof our assets and our business plans. If through the course of a hold period, which can last for numerous years, things change and perhaps tenants' businesses change. It is that location, which clearly in these real assets cannot change. So it's something that we focused on very strongly at purchase.

Also because we deliver that high level of dividend, we love to buy high levels of income. Now we think there are a lot of opportunities to buy high income, but actually relatively few that deliver that income stream sustainably. We think it is absolutely our job, our main homework on deciding which assets to acquire is choosing those that we think have that sustainable income stream that can deliver that -- continue to deliver that high income and high earnings level, which feeds through to the dividend into perpetuity during our hold period. Just moving on to the next slide, which shows a snapshot of our financials as at the end of March, which was our financial year-end. We have 34 properties in the portfolio, 130 tenants, so showing a really strong level of granularity and diversification in our income stream there. We always point you to our initial yield and reversionary yield differential, which is figures which are decided by our independent valuer, CBRE.

And you'll see that, that gap is clearly wide, demonstrating the company's ability to grow income. Actually, this quarter, that gap is wider than normal. Our net initial yield for this quarter has come down slightly because we have a number of vacancies in the portfolio. You will have noticed our earnings for the quarter are down slightly, and that is what's represented here. So I'm going to just touch on a few properties which are leading to that. So we have a tenant in Southampton, Barclays, who had been a long-term tenant of the company who vacated. We have that unit under offer to another tenant to take occupation. So we expect the initial yield to increase in future periods because of that.

We also have some quite significant vacancy at the moment in an asset in Queen Square in Bristol, which has been a long-term holder of ours. We are actively doing some refurbishment work at that property at the moment with a view that we have a tenant who will take space in that building once these works complete and hoping that, that will complete next quarter. So whilst the initial yield has come down, leading to earnings being slightly down in the quarter, we expect that and have a clear route to seeing some strong recovery in that in coming periods.

And obviously, then the differential up to the rest of the reversionary yield, demonstrating really strong potential for rental growth. And Henry will talk about some examples of where we expect that to come from on slides coming up. So again, as I've just described, our vacancy rate is up slightly again this quarter, but we do expect that to come down in future periods and in fact, by next quarter as those business plans continue to progress.

I'm just going to touch on our debt position. We have a single term loan in the company with a current -- a very favorable rate of just under 3%. Now that loan does come to maturity in just over 12 months' time. We have an in-house debt team at AEWU, who you will have heard us refer to before. And they are continuously sourcing debt products for other activities going on at AEW U.K. And for me, that provides an awful lot of comfort to know that this team is very well tapped into the market. We have already spoken to a number of lenders, including our incumbent lender to gain terms.

And we have every confidence that we will achieve a successful refinancing over the course of the next 12 months. I'll hand over to Henry, who can talk through some of our performance.

Thank you, Laura, and good morning, everyone. So this first slide looks at our NAV total return versus the peer group. A 9.4% 5-year annualized NAV total return and a 9% 10-year annualized NAV total return. Many of you will have seen this slide before, and it's good to see those lines still diverging on the right-hand side as at June '25, we would like to -- we will provide a more up-to-date version of this in the next presentation. I think the main 2 themes that I kind of want to touch on here is where our performance diverges from the peer group. That happened around kind of 2019, 2020.

And the reason for that was, one, because of our high weighting in sheds of about 55% at the time. We also had a low weighting to retail. Obviously, at that time, we had the COVID pandemic. There was a move to e-commerce away from traditional retail, and we had some really strong valuation performance then. And also because we have shorter lease profiles, roughly kind of 3 years to break, 5 years to expiry, it's no coincidence that our performance moves away in 2019 to 2020 because that is when we are engaging with tenants, extending leases and adding income.

Next slide, please. This slide looks at the property total return versus the MSCI benchmark and looks at our outperformance. Just looking at the right-hand side of this slide first. I think what is great to see here is the consistency of the performance and outperformance over a 7- and 10-year period, both at 9.4% total property return. Over the 5-year period, the performance was the strongest, and that is no surprise because that is when we had the highest weighting of industrials. Over 3 years, the outperformance is the strongest, and that was because we had a very successful sale for an alternative use at Oxford Business Park, which we sold for Life Sciences. More recently, the performance is a little bit more muted, but it's worth bearing in mind that we weren't fully invested for the last 12-month period.

We sold Coventry in December 2024, and we reinvested those proceeds in March with the asset purchase in Hitchin and then June with the asset purchase in Leicester. There's quite a lot going on in this slide, but I think all this information is important because it really does show the journey that we have been on over the past 10 years. There are sort of 3 themes that I'd like to touch on when I present this slide. I think the first is the consistency of the income. It's that blue bar running right through the middle of this chart. As you can see, that income is consistently at around 8%, which is no surprise given the dividend policy that the Board pays out. The income does slightly drop off a little bit kind of 2021, 2022. That is because we are a total return strategy, and we had to take on a higher vacancy to maximize value at a number of assets, the most relevant one being the Oxford Business Park, which I mentioned shortly ago.

I think the second theme here is a countercyclical strategy. We are buying sheds in 2017, 2018. We're selling them in kind of 2022, 2023. We are buying retail when it's sort of going through the eye of the storm, and we think there's some really good value there. More recently, we've been buying leisure. We had a low weighting in offices. We have a low weighting in offices more recently. And obviously, people are still figuring out the return to office, but it's good to see more and more people returning to the offices. I think the third theme here is just like knowing when to sell your assets. We are constantly sort of at least fortnightly monthly having sell and hold meetings. And we take the decision to cash in our chips and sell the assets at the right time, which obviously leads to this strong performance.

And here are all the disposals since the beginning of AEWU. As you can see, a 41% average sale to purchase price premium. I suppose the general theme here is that more recently, we've been selling out of lower-yielding industrials for yields kind of in the low 6s and recycling that cash into high-yielding assets, 8%, 9% plus. So the most recent disposal was actually a small vacant office, which was included when we bought a chunk of retail in Hitchin. And we sold that in a couple of quarters ago for twice what it was held in the book value at GBP 1 million.

Thanks, Henry. I'm just going to take over here and touch on what we believe here is this kind of persisting purchase opportunity that exists in the market and has been running for quite some time now. But we're looking at our pipeline, we believe that this is still a strong opportunity today. So this very wiggly red line that we're showing you on the chart is using the CBRE average value index, CBRE being the U.K.'s largest valuer of commercial properties, so effectively using their kind of value index as a proxy for values across the whole commercial property market. And you can see here over the last 20-odd years, some significant peaks and troughs as you would have expected to see associated with these quite significant global and U.K. political events.

We've marked right in the middle of the chart there, AEWU's IPO. And clearly, values have been quite sort of tumultuous during that time as well. So actually, what this chart reminds me is that I feel that our strategy has performed very strongly in order to be able to deliver the kind of total return performance that it has done during a time when values have been this challenging. But if we look at the last 3 years of this chart, we'll see that red line wiggle down quite significantly post the Liz Truss' Premiership to below the average line and having not recovered since then. Now of course, interest rates have been a significant factor in that. And the outlook there has really sort of wobbled over the course of the last quarter with kind of global political events. And we will see how that progresses.

But something else is kind of underlying this, and that has been quite a significant reduction in the volume of investment transactions taking place in U.K. commercial property. And actually, this is more sort of centered than the overall numbers would suggest because a strong concentration of those transactions that have to have taken place have been in the prime industrial market. So outside of that, with overall volumes being lower, actually, the volumes in other sectors have been quite significantly lower because of that strong concentration. So in the types of sectors, which AEWU's strategy leads us to [indiscernible] at the moment, those that are high yielding, those that we think are kind of trading below their long-term fundamentals actually are showing even stronger value than we see across the general market.

So when we look at our pipeline today for the reasons that I've just set out, we see strong ability to buy sustainable yield, often at levels in excess of 9%. We see assets that we think represent significant value. So just to demonstrate to you here that, that is still persisting through today. Now we sometimes get asked the question if we would just look to sell out from significant parts of our portfolio in order to access that pipeline. Of course, though, with values being lower, therefore, isn't a general seller's market either. We look to, and as Henry has just demonstrated in the previous chart, make sales from our assets at opportune times where we think the value of those assets can be maximized in the current market.

So that is why we will not look to make a kind of blanket sale from our portfolio in order to access this pipeline opportunity. But of course, the property subsectors move independently from each other. And there are certain sectors in which we might look to sell assets, and we have talked before about how we may look to be net sellers in retail warehousing. Henry's got an asset coming up where we have recently completed some significantly strong asset management. So that could be a candidate for that. Handing back to Henry with more asset management.

Thank you, Laura. And here is that asset, Barnstaple Retail Park. We've owned this for a while now. We bought it back in June 2018. We bought it off an 8.5% net initial yield. We liked and it was fully let off sensible rents with a decent unexpired lease term, attractive yield profile and an established location. I mean we tend to like retail warehousing because it is well located on kind of the edges of large urban areas, and they have typically low site densities, which means intensification of that use is a possibility, whether that be drive-through pods, EV charging or actually if you sort of -- the use in its existing state is obsolete, you could redevelop for last mile logistics or they are typically quite good residential sites. So we do like retail warehousing, and that sector is particularly buoyant at the moment.

Hence, one of the reasons why we are considering selling this asset alongside some most recent asset management activity. As you can see here, we've carried out 3 letting events. We did a new letting to Farmfoods, a new 15-year lease. We did a new 10-year lease to Wren. And actually, we considered selling this asset at the end of last year. But what it actually did, it acted as a catalyst for a lease regear with B&Q. We did that regear last quarter. So apologies if a lot of this information you've already heard. So it's more for sort of new listeners. But we've successfully completed that deal with B&Q. And now we are considering selling this asset. So sort of keep your eyes peeled for news over the next 3 to 6 months.

This is our asset in Hitchin. We bought it, as I said, in March last year. We've kind of hit the ground running on asset management here.

And this quarter, we've reported that we've done a 5-year lease renewal with Next, obviously, a very well-known high street retailer at GBP 150,000. So really good to secure one of those anchor tenants alongside with M&S here. It's positioned on Bancroft, which is sort of the main retail section in Hitchin, which is a affluent commuter town only sort of 25 minutes from Central London on a train. And last quarter, we also reported that we sold off the vacant office, which sat at the back of this retail to a local investor. And in doing so, we have driven that net initial yield. We bought it off an 8.3% net initial yield, and that running yield now is at 8.7% having sold off that vacancy.

Finally, I thought it was important to include a slide on York. You will have seen that we announced earlier this month that NCP had gone into administration. So PwC were appointed on the 16th of March. And then subsequent to that, on the 27th of March, NCP shut 22 sites permanently. Just wanted to let you all know that NCP continued to operate from Tanner Row in York. and they are paying a month -- sorry, paying rent monthly in arrears rather than paying it quarterly. So it's still operational, and we're still collecting rent. However, you understand that AEWU is a very active asset manager.

So we're considering all opportunities here. That is obviously, of course, working with PwC and NCP, but also considering that short- to medium-term scenario alongside other asset management options, whether that be other operators or potential alternative uses. And that alternative use being a particularly important point, we acquired this asset off a good high yield, but also off a relatively low capital value per square foot, GBP 100 a square foot we bought it off. And that is very much a theme of AEWU's investment style. When we're buying investments, we are also looking at vacant possession values and alternative use values, which means that in the event of something like this happening, a significant amount of value doesn't fall away. As you'll see, we only lost 7.94% of value this quarter following the announcement of the administration. And that is because the asset was hold off a relatively low cap value per square foot, and therefore, there are options that we can explore here.

Finally, slide here just touches on our industrial sector. And the metrics here are probably sort of more acute than they are portfolio-wise. So we have a smaller WAULT to break and to expiry in the industrial sector then across the portfolio. So 2.53 years to break and 4.58 years to expiry. We have a stronger reversionary potential in the mid-9% from a lower net initial yield of around 6.75%. So that means there's a lot of rental growth that the asset management team are looking to go and capture. We have a low passing rent of GBP 3.65 per square foot compared to GBP 4.87. And I think it's worth noting that, that ERV is CBRE, our independent valuer's assessment of ERV. And quite typically, we are doing better than those ERVs. So there's an argument that the reversion potential is stronger than what these metrics show here.

And just going back to that sort of point about capital value per square foot, which I've just referred to on York, the industrial assets are held off a cap value per square foot of GBP 48 a square foot, which is relatively really cheap. If you compare that to what it costs to build industrial properties at GBP 120 a square foot, which excludes the value of land, we're in a really, really strong position here. And there are 3 assets here. Much of these leasing events we have reported in previous quarters, but I've continued to keep them in because I think it's -- they illustrate the opportunity going forward. As you can see at Bradford, we significantly moved the rent on from GBP 3.50 when we bought the asset to rent as high as GBP 5.75 today. At Sarus Court, in the past year or so, we have actually carried out a number of refurbishments here. We bought this asset off rents of GBP 5 a square foot, which was deemed rack-rented at the time. More recently, we've achieved a letting at GBP 8.50. We have 2 more units, which we are currently under offer on and looking to beat that rate per square foot of GBP 8.50. And hopefully, we can report good news on that in due course. And then at Sheffield, we bought this large manufacturing unit, which produces reinforced steel for HS2 off a relatively really low rent of GBP 2.78. And last quarter or so, we increased the rent to GBP 4.25. So some really strong rental growth coming through in more recent years. Handing back to Laura to conclude the presentation. Thank you very much.

Thanks, Henry, and thank you all for joining us today. Hopefully, we've been able to demonstrate our confidence in the portfolio going forward. Clearly, with these real assets, there are hurdles to manage over the course of time as we've clearly faced this quarter with NCP. But because our strategy is based on strong fundamentals of location, as I set out at the start of the presentation and just ensuring that even if these unexpected things or unwanted things happen during an asset's business plan, we have other routes to securing value. And because of the strong location there in the York and because of the low capital value at which we acquired that asset, we have a number of active business plans that we are working on at the moment, which we believe will show full, if not a very strong level of recovery of the asset's capital value. So we have strong confidence in our portfolio. We believe it still represents a value proposition as at today. And hopefully, you're all encouraged by the continuation of our market-leading level of dividends this quarter as decided by the Board.

That's great. Laura, Henry, thank you very much indeed for updating investors. [Operator Instructions] A full recording of today's presentation will be available via Investor Meet Company dashboard. Laura, Henry, you've had a number of questions from investors this morning. Thank you to everybody for your engagement. If I may just hand back to you, ask you to read the questions, and then I'll pick up from you at the end.

Yes. Thanks, Mark. Just having looked through these. So there's an interesting question been put forward by Steven R. And Steven says, in the recent update, there have been valuation declines, a rent-free period to secure a letting and 2 new vacancies. Do we consider this to be a sign of growing weakness in our sector of the market or just a sort of coincidence of unfortunate events occurring at the same time? I'll perhaps kind of just start to answer that, and then I'll kind of hand over to you for your thoughts as well, Henry. But I think it's probably important to point out that overall, in this quarter, our portfolio has seen valuation uplift and an overall level, that's uplift of 0.5%, which might not sound very material, but I think against the backdrop of what's happened globally this quarter and also considering what we've been through this quarter with NCP and seeing a significant down valuation of that asset alone to still come out of this quarter with an overall valuation uplift.

I actually think that is a signal of strength in our portfolio. And we pointed to it in the announcement that we put out last Friday that a lot of that, sort of, valuation strength and valuation uplift is continuing to be delivered by -- more driven by ongoing process in our asset management business plans. And Henry has pointed to some of them there in his last slide. So that's in Runcorn with hopefully more rental growth being seen and lettings coming up. That's work -- a lot of work that we've been doing Square in Bristol, which will lead to a significant letting hopefully taking very soon there. So I actually read a lot of positivity into our activity recently. But yes, anything to add there, Henry. Sorry, I've probably...

No, I obviously agree with all of what Laura said. I mean just on the sort of the letting activity, it's very typical when you carry out a letting transaction or renewal or a lease regear that there is going to be an incentive. That typically comes in the form of a rent-free period. But quite often, it can come also in the form of a capital incentive. That CapEx, which is put on the table is more typical when a incoming tenant has a significant fit out. So it's very much a part of the property industry that these incentives are given.

And just touching on the void periods, Laura referred to our vacancy rate at the beginning of the presentation, which is just shy of 10%. That vacancy rate tends to yo-yo between about 10% and 5%. And actually, if you factor in business plan vacancies, i.e., assets which we potentially would like to demolish to create an IOS, which is an industrial open storage opportunity or residential and the opportunity at Bristol, that vacancy rate is about as low as 5%. So it really does sort of fluctuate quarter-on-quarter. But I think the important thing, which sort of also sort of points in the direction of our lower weighted average unexpired lease term is that having void periods and shorter lease lengths is not a bad thing. Like it is -- it's a point in time where you can move on value and grow rents. And the Runcorn example is classically that. We unfortunately had a tenant vacate, 2 units came back. That tenant was paying GBP 6 a square foot -- we're now doing lettings at GBP 8.50, and we might go beyond that. So it's not a bad thing. It is an opportunity in the short to medium term.

Yes, agreed. I'd just point to as well, we've talked about how, and you will have seen our earnings were lower this quarter than they had been, I think, in the past 2 quarters. And specifically, last quarter, the company's earnings were off the top of my head, about 2.3p. So whilst, yes, we have reported slightly lower earnings this quarter, and we're pointing to improvement in that, hopefully, in the future. Yes, let's be cognizant of the fact that they were -- our dividend was more than covered by earnings last quarter.

I'm going to turn to a question from Matt H, who is asking how much upside is there from leasing, rent reviews or repositioning of the existing assets? So in order to answer that question, I think the best way that we can do that is to look at the difference between our initial yield and our reversion yield as determined by CBRE. So that is our independent valuer. So these are not our own numbers. And hopefully, that brings -- having also pointed to the fact during this presentation that CBRE are the U.K.'s largest valuer of commercial property. But hopefully, that brings an element of kind of security to those numbers to our shareholders. And that significant difference between the initial yield and reversionary yield being the amount of income upside that there is in the portfolio.

And to what Henry has just said, linking that with our shorter-than-average weighted unexpired lease term of around 3 to 4 years rather than some competitors which have longer, that simply means that we are able to access that reversionary yield more quickly. And yes, in the last quarter, we have seen some rents come down, and that -- those would have been estimated to drop for some time. So reversionary yields on those properties would have been lower. We were perhaps benefiting from excess yield on those assets, i.e., a significantly higher level of yield in the shorter term because we have knowledge that, that reversionary yield was going to come down. So that kind of overall blended reversionary yield on the portfolio being significantly higher, hopefully provides you with a significant amount of comfort that we can capture rental growth in future periods.

I'm just going to pick up generally on the subject of possible mergers between AEWU and another listed or for that matter, private companies. Now I said at the start of the presentation, of course, we are not able to comment on specifics here. And of course, activity of the past few weeks. Please do go and look at the announcements that were put out yesterday for more information on that. Now others are asking what would be the advantages to the company of trying to complete some M&A or a merger with another company, whether that's listed or otherwise? And of course, we can talk more generally about that. And to say that we would like to be able to access a greater capital pool such that we could access those pipeline assets and the current market opportunity that we have described to you on that slide where we were talking about the strength of our pipeline at the moment.

We would also like to achieve greater scale in the company. We believe that some of our competitors do have a lower operating cost ratio due to their size. Now I absolutely don't believe that ours isn't favorable, but scale would assist in bringing that down, which is something that our Board and AEWU believe would be favorable to our shareholders. And in addition to that, we would also look for any company which we would possibly merge with to bring accretion to our performance on a forward-looking basis. And of course, if we were able to secure a transaction which achieves that, then that would be beneficial to our shareholders as well.

So we are not looking to -- you would have heard our Chairman, if you've heard him speak, say before, as he has said numerous times, and I think it's probably in our annual report, that we are not looking to grow for growth's sake. We are looking to grow where there is a strongly accretive or beneficial position for the shareholders. And we believe that it wouldn't be right to do that if that wasn't the case. So we have that motivation behind taking those actions. Paul W. has asked a question about the nightclub that we own in Cardiff and its trade. There was a recent update within the company about that. Do you want to answer that question?

Yes. So we did the lease a number of years ago. We signed the lease actually from the previous operator who went into administration to a Phoenix Co. And since that nightclub has been trading pretty well. I think it's worth noting the nightclub sort of industry in general has changed quite a lot and is having to sort of roll the punches and sort of try and sort of think of new ideas to sort of bring people into their nightclubs. But we all know that Cardiff has a large student population. It's a buzzing city, particularly when the rugby is on.

And we've seen some good turnover rent come through on this asset on top of the base rent at around GBP 50,000 a year. And worth noting that when we were doing that lease regear, the tenant is not going to agree to a level of turnover rent, which it feels that it is going to be financially punitive to them. They're going to agree to a sensible turnover rent, which obviously we assessed alongside previous turnover projections. So it's good to be getting a turnover rent because there were potential sort of projections that actually turnover might not have been coming, but it's good to see. And let's see what we get in the not-so-distant future.

I can just see that someone else has asked a question about whether or not we have some urgency behind trying to scale our strategy prior to a refinancing. I'm just going to state that those 2 events aren't linked. We don't feel -- well, we know from conversations that we've had with lenders about refinancing, including our incumbent finance, there is no requirement to have scale there before that's completed. So those 2 things are not linked at all. I'm just going to take a final question from Alan T, who is asking the question it seems to be to compare us to a competitor REIT and asking which one he should perhaps be buying. I'm not going to name which competitor he's mentioned there. I would simply point to perhaps our dividends level is higher.

And I would urge anyone sort of in that position asking themselves that question to have a look at the property total returns the respective companies are delivering here because ours, as Henry has demonstrated on these slides, has been consistently one of the strongest, if not the strongest in the peer group and has delivered that on an annualized basis over a good few number of years now. So yes, I think we'll leave that there. Thank you very much, everyone, for joining. It's very good to be able to update you again this quarter, and we look forward to doing so next quarter as well.

That's great. Henry, Laura, thank you very much indeed for updating investors. If I could please ask investors not to close this session as we'll now automatically redirect you in order that you can provide your feedback. On behalf of the team from AEW U.K. REIT plc, thank you once again for your time, and enjoy the rest of your day.

Good morning, and welcome to the AEW UK REIT plc Q3 Update. [Operator Instructions] The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and will publish those responses where it's is appropriate to do so. Before we begin, I would like to submit the following poll.

And I would now like to hand you over to Portfolio Manager, Laura Elkin. Good morning.

Thanks, Alex, and good morning, everyone. Apologies. We are broadcasting to you with the camera off today just due to some technical problems. But hopefully, you'll be able to see us back again for the next quarter.

So hi, good morning, everyone. I'm Laura Elkin, I'm the Portfolio Manager for AEW UK REIT. We are going to start today with just a couple of slides informing you about our strategy. And this is the same strategy that we have been running for the past, gosh, coming up to 11 years now for AEWU. It's a strategy that really plays to the strength of our team. So that is as stock pickers, as asset managers and just as real property geeks because all of our teams here are chartered surveyors. So we very much know the ins and outs of property and how to maximize value.

And if I had to describe that strategy in one sentence, I would say that we are sector-agnostic value investors. And that means that we can look across the whole of the U.K. commercial property market to find pockets of value where we see it best from time to time. And that generally sees us always buying strong locations to make sure that we can maximize tenant demand and investor demand for our properties going forward. We like to buy assets that offer high levels of income because we believe that, that is the best starting place for outperformance.

And we also like to buy assets that at the time of purchase, we are paying a price that represents a low capital value per square foot. And this is so that we can start off with not only a defensive capital starting point, but also have a platform for growth going forward. Now once we own those assets, we very actively manage them to maximize income, which is hopefully demonstrated to you by our dividend, which is one of the highest in the investment company space and has been paid now for -- consistently for 41 consecutive quarters, so effectively since the completion of our initial ramp-up.

We also work very hard to maximize the capital value of our assets, too. Now anyone who follows our news stream will see that we put out our shareholder update and dividend announcement yesterday. And another really strong quarter for the company. We've had some great asset management gains during the quarter, which Henry will come on to talk about shortly. A slight dip in value, but only very small there, which was also outweighed by a profitable sale that we made during the quarter as well. So NAV slightly up.

What's really positive for me in the announcement that we put out yesterday is that we were able to announce very strong earnings for the quarter. And that follows on from having a very strong year for earnings during our full year ending March '25 as well. And for me, that really speaks to how we have worked very hard to grow income in the company over that time period, but also how we are currently in a fairly stable period for the portfolio, sorry, having been fully invested since last summer. We have been fully invested for that time period, and that is reflected in those earnings, too.

So the next slide is showing us here just some high-level statistics on the company. You'll see that we currently own 34 properties with just over 130 tenants. Our net initial yield at just over 8% compares very favorably to our reversionary yield at 8.84%. That gap between that initial yield and reversionary yield is determined by our independent valuers and really reflective of the kind of income growth that they believe we could achieve in this portfolio. Of course, not all tomorrow, but this is what we are spending time on our hard work asset managing to try and close that gap really and increase the income stream of our current portfolio.

The vacancy rate there at just under 6% is about what I would expect to see it over the long run. It kind of very often bounces between 5% and 10%. As you will hear us talk about today and as many of you will know, we very actively manage this portfolio. So you will rarely see us with a 0 vacancy rate. We like having some vacancy here because it gives us assets to play with. It lets us talk to the tenants. It allows us to bring units to the market and drive rental income. So that is very important for our asset management strategy, and it's just where we would like it to be.

I'm just going to touch as well on the bottom pie chart here on the right-hand side of the page, which shows you our current sector weightings in the portfolio. You'll see that we still have a very strong weighting towards industrial at 37%. We've been building up our retail exposure, both on the high street and in retail warehousing over the past couple of years. So those 2 retail sectors combined now total about 35%. We have always had a fairly low exposure to the office market, and that has certainly assisted our capital values in recent years. And you will see that there at just 10% of the portfolio.

I'll hand over to Henry now, who can talk through some slides on our recent performance.

Thank you, Laura, and good morning, everyone. So this first slide looks at our NAV total return performance versus the peer group, 9.3% 10-year annualized NAV total return to September 2025 and 11.1% 5-year annualized NAV total return to September 2025. Now the main point I want to draw your attention to here is where we see our performance diverge from the peer group in 2019.

Now this happened for 2 main reasons. One, you'll all be aware, obviously, that was the time of COVID. And at that time, we had a very high weighting to industrials and greater than 55% at the time. We also had a very low retail weighting, which was about 13% combined across high street retail and retail warehousing. So that really sort of highlights the benefits of a diverse strategy. So we were overweight in industrials, underweight in retail. Obviously, we're all aware that the industrials performed very well during that period. And we obviously saw a huge trend in e-retailing and obviously, the high street and retail warehousing did suffer to an extent because obviously, of people being kept in their homes.

The other main point I'd like to point about is the performance moving away because of the weighted average unexpired lease term of the portfolio, and it's around 4 to 5 years generally. And that is obviously the point in time where the asset management team engage with tenants on lease expiries or where there might be a break option, and there will be lease renewals or lease regears. And through that asset management mechanism, we are either sort of moving on rents or extending leases and obviously adding value. So it's not a surprise that we see our performance move away then.

This next slide looks at our property total return versus the MSCI benchmark, which is what we report to. 5-year property total return outperformance of 6.7% and 10-year outperformance of 4.7%. So as you can see, this is 6 months, 12 months going up to a 10-year performance. Just drawing your attention to 7 years and 10 years. I think what is impressive here is the consistency of our performance and outperformance. So over 10 years, it's double of the MSCI benchmark.

Over the 5-year period, the performance is the strongest. That is at the time when we had such a high weighted sheds. And more recently, we've been selling those sheds at yields kind of around 6% and reinvesting that into higher-yielding assets in the retail sectors. At 3 years, you'll see obviously the performance isn't as strong. But I think what's impressive here is that our outperformance is the strongest over this time period being a 7.2% outperformance to the MSCI benchmark. And then more recently, over the 6- and 12-month periods, the performance is a little bit muted, but that's probably because we have not been fully invested.

So we sold Coventry in December last year, and we reinvested those proceeds into Leicester and Hitchin, which obviously you are aware about.

So this next slide looks at our 10-year track record. As Laura said, we went through our 10-year track record earlier this year. And apologies, there's quite a lot going on in this chart. But if you sort of move your eye from left to right, this tracks where the total return has been coming from 2017 to today.

And I suppose there's kind of 3 main themes from this chart. I think the first is the consistency of the income. So that blue bar, which is very much the meat in the sandwich on this chart, just running straight through the middle at around 8%, which is obviously not surprising, bearing in mind that, that's what we typically buy our properties at net initial yields of 8% plus. It does dip off a little bit around 2022, but that was because we were looking to achieve a total return strategy on 2 assets, which led us to having higher vacancy, and that was Oxford and Glasgow, both which we sold to developers for alternative uses.

But as you can see, that consistent income running right through the middle here. I think the other two themes are countercyclical buying and selling and the benefits of diversification. So with regards to countercyclical buying and selling, we were buying industrials and offices kind of in the late teens. We were selling elderly offices just before COVID, but obviously, the office sector took a bit of a hit. We crystallized lots of profits on industrials at the top of the market. And then we've been recycling those lower-yielding industrial sales into high-yielding retail purchases more recently.

In terms of benefits of diversification, I've touched on this already. At COVID, we were underweight in retail, we were overweight in industrial. And more recently, when the office sector has had a tough time as a result of sort of the return to the office in the post-COVID era, we've been underweight in offices.

I think finally, what is kind of underpinning this total performance is alternative uses. As Laura said, we are value investors. So when we're buying assets, we're always looking at vacant possession values and alternative use angles. And I think my final point on this, it's all very well and good buying the right assets and asset managing, but it's important to make the right decision when to sell assets and so cash in your chips and crystallize those profits to get that total return.

This chart you've seen many times before, if you've been joining these presentations over the years. We haven't included the very small Hitchin sale in this one. As I said, it was a small office, which sat behind the main sort of retail fair in Hitchin. But as you can see, a 38% average sales purchase price premium, a statistic that we're very proud of. And as I said, we've been selling out of lower-yielding assets more recently, mainly in the shed sector and reinvesting into higher-yielding assets in the leisure and retail sectors.

Handing back to Laura to talk about the investment opportunity. Thank you.

Thanks, Henry. So we believe that the current property investment market represents a very strong buying opportunity for our company. And this slide really sets out the backdrop for why we think that is. So what we're showing you here is average commercial property values over the last 20 or so years. And what you can see is that since late 2022 when the country experienced the Liz Truss mini-budget as part of her premiership, commercial property values fell significantly around 22% on average at that time, and they haven't recovered since.

Now the main reason for that is, of course, because interest rates have been very high for that period. But another reason is that the commercial property investment market has been seeing very low volumes during that time frame. So really, what we're saying is that with average commercial property values at their lowest point now really since AEW's IPO, which is marked on the center of the chart here. Now the time now, the opportunities that we see in our pipeline represent the strongest buying opportunity from a capital value and perspective capital value growth opportunity that we have seen.

Now we don't expect this position to persist into the long run. Of course, we have seen interest rates start to track down. We see signs that the commercial property investment market is starting to return to normal. But when we look at our pipeline, this very strong opportunity set still persists, and we would like to try and find some ways to take advantage of that, which as Henry has partly touched on there is sort of why from time to time, you will see us reach the end of an asset business plan and where we feel that the income and capital value of that asset has been maximized, we will recycle that into another value opportunity where we can enact our strategy.

And what I'm showing you on the next slide here is really just the inverse of that. Of course, if capital values are at their lowest, then it sort of goes hand-in-hand with that, that the yields that we can achieve from these properties are at their highest. And as we've set out to you with this strategy, we are looking to buy low capital values per square foot and high-yielding assets. So really, that our pipeline today does absolutely represent a very strong set for what we are looking for. And we find a pipeline currently to offer many interesting high-yielding opportunities.

Now just a bit more detail on that really and as to the particular sectors where we're seeing those opportunities. Our pipeline as a whole is yielding on average close to 9%, which looks to be very attractive for our strategy. But where are we finding that across the sectors? Now if you follow our company, you will have noticed that during the course of last year, we made two acquisitions, one in the high street sector and one in the leisure sector. And those sectors are still very much where we are seeing a strong opportunity set for AEWU.

We are finding well-located, high-yielding opportunities and also seeing that those sectors are, to a certain extent, unloved by other institutional investors. And that always represents a time of opportunity for us because where other investors are viewing the whole sector quite negatively, we can look within that sector to cherry pick the opportunities that we think are attractive and represent sustainable income opportunities for an advantageous price. As value investors, this is absolutely what we're looking for.

We believe that some investors are being a bit too negative on the outlook -- occupational outlook for some of these assets. Now of course, these sectors are facing a number of headwinds. So we have to be very selective about not only the location but how those tenants are trading as well. And that is what we have done in buying in these sectors over recent years. And we will continue to do so with opportunities that we see here as well.

Turning to the industrial sector. This is one that we feel very positive about as well. Personally, I would feel pretty positive about the outlook for almost the entirety of the industrial sector. But of course, this is a sector that is being chased quite strongly by a significant amount of other capital as well. It's certainly the sector in which most capital that's in the commercial property investment market is currently looking. So there's much more competition here. So we have to be more selective about the types of assets that we're buying. We won't find the high yields that we're looking for at the prime end. And also that capital is chasing multi-let estates as well.

So we see a lot of opportunity in single-let industrials, and we still see opportunity there in our pipeline as well. You would see from some of our recent announcements. And if you follow our company, you would have heard Henry talk about some really quite significant wins that he's had in recent weeks and months with increasing rental values on some of our single-let industrials. So we are more than happy to buy those assets because we see an income advantage in the yield on day 1, but also because we know from examples in our portfolio that we can drive the rental values going forward there as well.

Just turning to the office sector. As I said before, this is our smallest sector exposure at the moment. And it's a sector which, of course, has been through quite a tumultuous occupational time over recent years following the pandemic. Personally, I absolutely believe in the office sector in big city center locations where there's a lot of surrounding amenity and where the buildings offer sort of top-level ESG credentials as well. But really, if we look at the office stock within the U.K. that part of that sector that offers those very strong credentials really represents quite a small part of that overall market. And there are quite a lot of office opportunities out there that would concern me for their lack of amenity or weaker location and also would require a significant amount of capital expenditure going forward.

So whilst I find it a very interesting sector, I don't think it would ever form a very significant part of this strategy. Firstly, because we are looking to distribute a high level of income and offices are rather intensive in terms of their life cycle and the capital expenditure that they require. So we may selectively find some strong buying opportunities here, but I think it's less likely that we are likely to build up a large sector exposure within offices.

Turning lastly to retail warehousing, also a sector that I like. But again, there is quite a lot of capital chasing this sector at the moment as well. So whilst we might selectively see opportunities, I would imagine that we are most likely to be net sellers in retail warehousing, perhaps as demonstrated by our most recent large sale of an asset going back to November 2024 now when we sold out of our retail warehousing park in Coventry for significant capital profit. We may look to do that where we can maximize the capital performance of some of our other retail warehousing assets in the portfolio as well.

So I've kind of alluded to a couple of asset management wins that we've had in the portfolio recently there, but I'll hand back to Henry, who can talk about that in a bit more detail.

Thanks, Laura. So yes, this slide really is just a kind of summary of what myself and the asset management team at AEW are doing as a means of adding value. I mean what we're really trying to do is grow income streams, lengthen and improve tenant leases, add value through the planning system, whether that be a change of use or we're actually getting planning for something else with regards to the existing use refurbish properties where required. That doesn't typically mean offices. You can be refurbishing industrials, stripping out retail units as shells to then let to new tenants. And as a part of that process, we tend to be improving ESG credentials. And I see that there's a pre-submitted question on that, which I'll come on to in due course.

Now we're delivering this sort of value add through new lettings, lease renewals, lease regears. And if you don't know what that is, that is when you will be extending a lease or surrendering the lease and doing a new lease sort of halfway through a term because you feel that there's a benefit to obviously, to ourselves and the value. And obviously, a tenant would be willing to do that as well.

Rent reviews, we've had some recently -- some really good wins in the industrial sector, particularly with regards to rent reviews. We reported a very significant increase at ROM in Sheffield last quarter. Lease surrenders as well. And there are instances where tenants would like to leave early and in return are prepared to pay you a large capital sum. We don't mind that because it actually reduces our void period and enables us to sort of get on with some asset management ahead of time.

Slightly more sort of niche asset management opportunities. We have dilapidation settlements. We just reported GBP 125,000 dilapidation receipt from Sports Direct at Barnsley this quarter. Maybe taking a lease outside the Landlord and Tenant Act, that means that as a landlord, you hold more cards on expiry because the tenant doesn't have the right to renew. So therefore, you can be a little bit more aggressive in your asset management angles. A case of us being very successful with that historically was at Corby where the tenant had a lease outside the act.

So essentially, it meant that we could change their locks on the last day of their lease, so we could really negotiate hard on the lease renewal. As it turns out, we sold that asset to an owner occupier. They were obviously willing to buy it because they knew they could get the asset themselves without having to go down sort of more sort of painful sort of procedural L&T steps. And we also look to put sort of break options in or look to use break options as a means of sort of adding value and creating a point in time where we can negotiate with the tenant to change things in the lease.

So I mean the strategy sort of in a nutshell is kind of identifying assets in our pipeline. We then very much sit down, strategize, have an asset management plan. So it means that we can sort of hit the ground running when we buy assets. We're growing income. We're adding value through lengthening leases or through the planning system. And then as Laura said, we're making the decision to sell these assets at the right time and crystallizing those profits and then recycling them into more yieldy assets.

So this is Barnsley Retail Park, where we've had a number of asset management wins recently. And just to recap, we bought this back in June 2018 for GBP 6.8 million, GBP 133 a square foot throwing off an 8.5% net initial yield at the time of purchase. So some nice income there. And if you compare that price per square foot to what it would cost to build this unit, it is very favorable. It would probably cost more to build that. I'd probably say around GBP 150 a square foot to build these units. And obviously, that's excluding the value of the land.

It was fully let and had a nice WALT of 8.6 years, attractive yield, a good site and a low site coverage. So retail warehousing tends to have a low site coverage, which means that there can be site intensification. So that could potentially be a drive-thru coffee restaurant here, for example, which does benefit you in terms of alternative uses.

Anyway, in terms of what we've done more recently in terms of the asset management side of things, we did a new 15-year lease to Farmfoods at a rent of GBP 125,000 a year. We reported that several quarters ago. In doing that letting, we refurbished the unit, and we had the dilapidation receipts from Sports Direct, having obviously proved that loss by them spending that money on that unit. Last quarter, we did a letting to REM at GBP 98,500 a year. And then this quarter, we've had a very good asset management win.

B&Q had about 7 years left on their lease. We engaged with them. We had a little bit of competitive tension here because we had another tenant who had expressed interest in an overriding lease, which is a bit of a technical property term, but essentially, they were prepared to take a lease longer than B&Q's, paying us a sort of a profit rent, which would have enabled them to get owner-occupier possession at the expiry of B&Q's lease. We used that as leverage on B&Q to regain the lease, add an additional 7.5 years of term and to move the rent on.

So a really good asset management win. And as you can see, we moved the valuation by GBP 900,000, representing a 12% increase this quarter. So a great asset management win to report this quarter. This is the Hitchin asset that we bought about -- well, roughly this time last year, I think it was about March time 2025. We are including this in this presentation because, as Laura said, we have recently sold off a small office, which sits behind the main retail component of this asset, which sits on Bancroft, which is the prime retail area in Hitchin, a very affluent commuter town about 25 minutes away on the train north of London.

So we bought this asset, as I said, back in March '25, GBP 10 million, a low capital per square foot of GBP 213 a square foot, so relatively cheap of an 8.3% net initial yield. Now the office had vacancy. We did have a vendor guarantee, but that was going to expire in a couple of months' time. So we've now sold up that office, and it has boosted the net running yield to 8.7%. So exactly what we want in terms of income and a nice capital profit for the company.

Thank you very much. Handing back to Laura to conclude the presentation.

Thanks, Henry, and thanks, everyone, for joining us today. Yes. So hopefully, it's clear that we are feeling very positive about the outlook for our current portfolio and its performance, but also for the investment pipeline and the assets that we are able to acquire at the moment. And hopefully, our strong 10-year track record gives confidence to investors that we are able to maximize those values, maximize that income stream and deliver some strong performance through the company's strategy as well.

I'd just add that we are, I guess, because of the very strong pipeline that we see and I mentioned that we are able to access that as we recycle assets. But of course, that only really creates a fairly limited appetite for reinvestment within the company. We are working with our Board to look at ways in which we can grow the equity base of our company. And this is something that we have been focusing on for quite some time, and we will very much continue to do so during the course of this year, really just so that we can provide to investors more liquidity in our shares and reduce the cost base of the company as we grow. So a benefit to investors and also so that we can access some of that strong pipeline as well. So that is a very clear focus that we have with our Board at the moment.

Now just -- I can say that we've had quite a few questions submitted. Thank you very much for those during the presentation. I'll just pick up one of these, first of all, and I can see quite a few of you asking a question certainly of this nature, but just to pick up one of them. Asking if we have any plans to increase the dividend payment from the company at the moment.

So the answer to that question is that we don't have any live plans at the moment. But of course, as I think one of you has pointed out in asking this question that as a REIT we are required to distribute 90% of our income stream to our investors. So if we reach the position where we -- in distributing that amount, that would see us exceeding the 2p, then of course, we are required by regulation to do that. And of course, our Board and ourselves would see that as a very successful position to be in.

So we would welcome that if we think that, that is in the best interest of the company and if we can maximize the earnings to that stage, which, of course, we would like to work towards in the long run, but we don't have any plans to do that as of today.

Henry, do you want to pick up this question on the environmental?

Yes, we've got a question here saying, what are you doing to make your portfolio more environmentally sustainable?

So as I said earlier on, we have a relatively low WALT to expiry of around 5 years. Now that really benefits us in terms of environmental performance because, obviously, it is a point in time where we can look to engage with our tenants. I'm sure most of you are aware of the minimum energy efficiency standards in the U.K., which is looking to improve EPCs to Cs by 2027 and Bs by 2029, albeit those time frames are being reviewed. So yes, at the point where we are looking to renew leases or we take space back and bearing in mind our vacancy is between sort of 5% and 10%, we will be looking to improve those EPC ratings. So I think that's kind of -- that's the sort of lowest hanging fruit, the most kind of obvious asset management angle.

With regards to the assets that we are not single-let or on full repairing insuring leases where we have control, so where there are service charges, for example, which is typically more like offices and multi-let retail warehousing parks or industrials. We can improve the environmental performance of those assets. We have asset sustainability plans for all of our assets, and we can improve biodiversity through landscaping and trying to promote a wider variety of flora and fauna. We also are looking at like EV charging and PV. So it's very much a part of what the asset managers do as their day jobs.

Thanks, Henry. I'm just going to pick up a question. I can't find it now, but I read it a minute ago. It's here somewhere. From Chris B. here, who is very eagle eyed and noticed that in the RNS that we put out yesterday, we stated that the term of our debt facility was July 2027, whereas we previously stated that it was May 2027.

Yes, just to clarify, that isn't as a result of any changes in our debt facility that we've had now for about 4 years. That is really just due to a clarification between us and our lender in when that term was ending. So no, there's been no changes in the facility. And I can see other people asking some questions about debt facility.

So debt facility, as we've just said, expires in July 2027. And we have an in-house debt team here at AEW who work not only on AEW UK REIT, but other strategies that we run here as well or certainly run by colleagues. Henry and I, of course, work exclusively on AEWU.

Now the reason why I'm mentioning that is because it means that, that debt team here know a variety of lenders across the market and are really always in touch with lenders sourcing debt. And for us, that's very advantageous because it means that they have strong relationships. They very much have their finger on the pulse in terms of where terms can be agreed in the most favorable fashion for our company. And of course, that relates to pricing as well.

So we are already working with that team and having them report back to our Board very frequently in terms of that refinancing that we have coming up. And we feel very positive about the kind of terms and also the pricing that we'll be able to secure going forward. Now we're hopeful that between now and when we have to find something there, the interest rates will continue to track down and fingers very much crossed for that. But fair to say that as we sit here today, the kind of pricing that's on offer for us today in order to renew that facility doesn't look concerning, and I don't think would be negatively impactful on our dividend going forward. So a very positive outlook on that front.

I'm just going to pick up on another range of questions that quite a few of you have put forward. So I talked about the company having an objective for growth, a very strong objective to growth and whether or not that sees us looking at M&A opportunities.

Yes, it absolutely does. And we have really done a lot of work on that over the past couple of years, but particularly last year and at the current time as well. So we are very much assessing opportunities. And if we believe that they are in the best interest of shareholders, then we will look to pursue them, absolutely.

Someone else just asking the question about the rating of our shares versus NAV and relative to our peers. Now AEWU's shares, of course, have been trading at the narrow discount, I believe, across that peer group of diversified U.K. REITs. And of course, we've seen during Q4 2025, trading at premium occasionally.

And somebody is asking why is that?

I mean I'd like to think that, that is a reflection of the fact that we pay the highest dividend that we have had the highest level of total return. I would like to think that our strategy is, therefore, viewed as being one of the most successful amongst those peers and having delivered the strongest return. So for me, that is really why we have achieved the highest rating in our shares.

A few questions I can pick up here. So we've got one from Dan C. Please, can you comment on the quality of tenants and whether any of them struggling with rent payments?

We alluded to this in the announcement that actually we've got a very strong tenant base at the moment. It's obviously quite early in the quarter, and we roughly have about sort of 95% of our tenants have paid their quarterly rents. And obviously, some of our tenants on monthly rents as well. So that figure is slightly sort of inflated because of that. But I would say that at this point in time, rent collection is probably as good as it has been for a number of years. So that's not something that concerns me. And I think it's -- we're not seeing the same level of restructures and CVAs and administrations that we have seen, particularly in the retail sector.

Obviously, the retail sector has been through a very tough time. We're very much through the eye of the storm now. So I think those retailers that have survived, they've survived a really challenging period. And there's been a lot written recently about sort of the renaissance of the high street. I think as long as you have kind of the best located high street retail assets, I think it's a pretty safe place to be. And yes, the sort of the retail life has definitely got a bit of life in it at the moment.

Another question here, we mentioned that our industrial assets in Basel have fallen in value this quarter because of two tenants there had left.

We have taken the decision to go for planning to redevelop this property. The asset has kind of been well let since we bought it back in 2017 to two main tenants. We've seen some nice rental growth. However, it is felt that the space in its existing configuration is a little bit economically obsolete. And there are sort of ERVs that we could hit on the new build of about GBP 15 a square foot, which is almost twice as much as what the current passing rents are. We obviously saw a fall in value because the existing units is around 70,000 square foot.

With the industrial market today, occupier requirements are sort of very specific, and it's essential to have a 40-meter yard. So in doing that, we've had to reduce the floor and the footprint by about 10,000 square foot. You will appreciate the build costs have increased quite significantly over the last 5 years. I think sort of back pre-COVID, you could build a small industrial warehouse of about 10,000 square foot for about GBP 80 a square foot, whereas now those costs are sort of about GBP 130 a square foot, so have increased quite significantly.

So unfortunately, those higher build costs, a smaller footprint and with exit yields being softer than they were kind of at the pump of the industrial market a couple of years ago prior to this budget has just meant that residual land values for industrials and all properties actually are not as strong as they were historically.

Another question here on the Nightclub in Cardiff, how is it trading? Yes, a number of quarters ago, we signed the lease to a newco, Neos 13, and we rebased the rent to GBP 150,000 a year with the turnover rent. And you would have seen in this recent announcement that we have just booked GBP 50,000 of turnover rent. So it's good to see that we're getting that additional rent and the Nightclub has -- is at a new stage and is trading well. Obviously, you will all appreciate that Cardiff is a strong university city, and we have the 6 nations just around the corner, and that is the time when this Nightclub trades its strongest. So hopefully, some good performance going into 2026.

That's great. Henry, Laura, if I may just jump back in there, and thank you for addressing those questions for investors today. And of course, the company can review all questions submitted today, and will publish those responses on the Investor Meet Company platform. But Laura, before I redirect investors to provide you with their feedback, which is most particularly important to the company, could I please ask you for a few closing comments?

Yes. Thanks all for joining us today. It's been great to update you again. I'd just say if you're looking for information on the company in the meantime, please do go on our website. We display our full portfolio on the website. We also have these videos shown. We have sort of a range of contact details for the company and also our news flow as well with all of the company's RNSs.

We have also worked recently with Investor Meet Company to put out a series of short videos, just providing a bit more detail on our strategy, focusing in on that and particularly asset management and also some of the other opportunity areas that we see in the portfolio. So if you haven't seen those, please check those out as well. I believe they have been released over the course of January so far. So it should be available on the platform. But otherwise, thank you very much and look forward to catching up again next quarter.

Fantastic. Thank you very much, Laura, Henry, for updating investors today. Could I please ask investors not to close this session as you will now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete, and 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, and good morning to you all.