AEW UK REIT plc (AEWU) Earnings Call Transcript & Summary

Good afternoon, and welcome to the AEW UK REIT plc Q4 Investor Presentation. [Operator Instructions] Before we begin, we'd like to submit the following poll. I'd now like to hand you over to Laura Elkin, Portfolio Manager. Good afternoon.

Thanks, Paul, and hi to everyone who's joining us today. As Paul has just said, I'm Laura Elkin. I'm the Portfolio Manager for AEW. I have been away from the company for approximately 12 months on maternity leave, but I returned about 2 months ago. And very pleased to be back here with George and Henry and the rest of the team at AEW working on the company again. So to kick off today's presentation, just a reminder here of our strategy, we are value investors at AEWU. And we use value investment principles to drive our performance where we have shown a very strong level of outperformance against the U.K. commercial property market over the last coming up to now 10 years. We also think that today is a very exciting time, and a very, hopefully, prosperous time to be a value investor. And we've got some slides coming up to demonstrate to you on exactly why that is. So once we own assets, we have an in-house asset management team, and we use active asset management principles to drive a high level of income from our properties, which we have used to pay our market-leading dividend for now 38 consecutive quarters. And we also use our asset management to drive capital returns from our properties, which then leads to a high level of total return. And that -- and it demonstrated in our outperformance of both the rest of the U.K. diversified property REIT peer group and also the U.K. commercial property market. Again, we've got some slides coming up to demonstrate that. Now a really important factor of our strategy is that we are not constrained by the sector. And really, we think that's the only way to be a value investor is to be able to have the flexibility to look across the whole market and find value where we best see that from time to time. And the beauty of diversification is that we can be nimble and really across any market cycle and most -- certainly most market cycles, we can find places in the market where we can drive value. And that, I think, has really been one of the keys to the outperformance and that really strong performance that we've driven from the company's portfolio over the last 10 years. Again, we've got some examples coming up of this on assets that we bought and sold, but hopefully you can see that in those movements, how we have moved between sectors to drive our performance from the company's portfolio. For those of you who follow us closely would have seen that last week, we put out our shareholder update for the quarter. And in that, we announced a valuation increase, albeit a fairly modest one. I'm really pleased to see that continuing in the company -- as a continuing trend with the company for the past couple of quarters, and that's occurring over a time when the rest of the U.K. commercial property market has delivered some very subdued results. So we're really pleased with that. But despite that ongoing valuation increase in our portfolio, we still believe that our portfolio today represents a value proposition. And we think that's highlighted here in these low levels of average passing rent and average capital value per square foot that we're showing you here on the right-hand side of this slide. I'm just going to pick out another one of the themes in this metrics of investment criteria that we're showing you on this slide as well. And just to point out that location is a very strong theme for us always when we're buying assets. We think that's always one of the most important keys to, again, driving our performance and keeping that strong throughout various market cycles. And as we talk about some of our assets today, hopefully, that will shine through as well. I'm going to hand over to Henry, who is the System Portfolio Manager here, and we'll just touch on some high-level statistics for the portfolio.

Thanks, Laura, and hi, everyone. Good afternoon. So as Laura said, the valuation was up a smidge this quarter, up 1.42%, which is similar quarterly gains as it was in the previous quarter. So we now stand at a valuation of GBP 204.5 million. That was mainly driven by the industrial sector and the high street retail sector within the portfolio. High street was up just shy of 4%. And that was mainly driven by some asset management at our property in Bromley to next where we carried out a 5-year lease regave. And we conducted a new letting to Climbing Hanger at Union Street in Bristol. Also quite a busy quarter for the industrial sector with a lease renewal at Bradford to [indiscernible] the tenant that's been in the property for over 35 years. And having completed the refurbishment of Runcorn, we completed the new letting at GBP 8.50 per square foot, and we've got a case study later on in the presentation on that. Number of properties up to 33 having acquired our high street retail asset in Hitchin, for GBP 10 million at 8.31%. And similar to previous quarter, the net initial yield and reversionary yield with about an 80 basis point gap really sort of demonstrating the reversion, the rental growth prospects built into the portfolio. Our vacancy rate tends to year ago between about 5% to 10%. It was 9% last quarter. It's down now to 7.5%, and that's having carried out the letting, which I mentioned earlier, to Climbing Hanger in Bristol, Union Street, but also, we carried out a new letting to a premium gym operator in Bath at our office holding the Cambridge House. I wanted to break is 4.1 years, 5.7% to expiry. We've historically said that we like shorter lease terms. It enables us to get to the call, negotiate with our alternative to tenants and look to move rent on and achieve that reversion potential within the portfolio. Debt unchanged from previous quarters. We have a GBP 60 million debt facility at a fixed rate of 2.96% until May 2027, a loan to GAV of just 25% and we have more cash than normal. At the moment, we've got GBP 19 million, which includes our usual GBP 5 million cash buffer. You'll be aware that obviously, we sold Coventry at the back end of last year, and we're in the process of reinvesting the rest of that having made the Hitchin purchase at the beginning of this year. NAV total return of 1.9% that obviously includes our 2P dividend that we pay out. So NAV of GBP 174.4 million, breaking back to GBP 1.10. And our shares are trading at about GBP 1.3, which is today, which is roughly about a 6% discount, which is obviously the narrowest in the market and statistic that we're proud of. And then just finishing with some performance, I'll just focus on the 1-year NAV total return of 14.5%, very similar to the 1-year total property return. Those property and NAV total returns have been recognized by the banner of awards on the first slide, and we're delighted to continue to be recognized for this performance. And then just finally, because of obviously the recent movements in selling out of Coventry and buying into Hitchin in terms of our weightings, we're still at just shy of 40% in the industrial sector. We like that, I think the net initial yield and reversion metric is equally strong in that sector with a net initial yield of 7.6% with reversion of 8.62%. So there's some really good rental growth to go after in that sector. Our retail warehousing exposure has come down to 12% having sold out of the main chunk of Coventry and our High Street retail has increased since we bought Hitchin. Handing back to -- handing over to George, who's going to touch on some performance. Thank you.

Thank you, Henry, and good afternoon, everybody. And for those who don't know me, my name is George Elliot, and I'm the fund controller of the company. So very much responsible for the finance and operations kind of back end of the business. Starting on this slide, is, by far, my favorite performance slide in the deck. And for me, what it really demonstrates is the fruit that this strategy has yielded over the last 5-or-so years. And why I say 5 years is traditionally kind of our asset management plans typically have 5-year time horizon. You can see kind of the point of insection in this graph around 2019, 2020, where those really started to bear fruit. And most encouragingly, in recent times, you can see our degree of outperformance widening and widening quite rapidly actually against what has been a very muted backdrop. Henry, Laura mentioned previously like-for-like valuation gains in the quarter and has been relatively minimal. So I'd like to just draw your horizon perspective a bit out to a year. And actually that figure on an annual basis is 6% year-on-year as a like-for-like valuation gain, which compared to the wider market is very significant and very excellent performance. We've mentioned other things like active asset management. A lot of this NAV improvement you can see here and what has been come to later, really good earnings performance has been driven by rental income growth in the portfolio. Lots of other lease events have yielded lots of not only new rental income and new leases, but actually growing income on what was an existing lease portfolio. For me, what I find most encouraging is that recently, the commercial property market in the U.K. has been very difficult. And yet this as a strategy has not only delivered good performance, but improving performance over that time as well. I think of words like sustainability and resilience. And I feel like our portfolio really summarize that. The last thing to note here, you'll see on subheading a 10.5% 5-year NAV total return. That's actually up from 10.3% as at September. So again, that performance is continuing to improve and not just remaining stagnant. Thank you, Laura. So this here is a more granular overview of our peer group as defined by our corporate adviser, Panmure Liberum. So I'm sure many of you are accustomed to some of the other names in this table. Thankfully for this, as is normally the case, there's a lot of green against our name. And as at December 2024, we have delivered the highest NAV total return over all the time horizons that you can see here. And at that March, the highest share price total return as well over all those time periods. Most encouragingly for me, of course, is our dividend yield continues to be one of the most attractive among our peers, even with a comparatively much higher and stronger share rating and as highlighted by discount here. I think it's important to [indiscernible] very much are an outlier when it comes to a discount. Our kind of 1-year average discount is around the 9% mark, and our next closest peer is around 20%. So we really have distinguished ourselves against all these other market players. And [indiscernible] kind of property performance, really what underpins all this kind of NAV share price total return that we just presented to you. A few encouraging themes here for me are the longer-term annualized performance, and you can see that's very consistent. It's not been a one-trick pony strategy where we've had 1-year of good performance that it's been subdued. Actually, our performance has been consistent over a very long period of time. And not only that, the actual degree of our performance here, you can see over all time horizon is actually very consistent in quantum, which again provides further assurance to me that what we are doing is delivering extraordinary results. Most remarkably for me really is the 12-month performance. We've had a lot of difficult macroeconomic events even very recently actually. And despite that, we've delivered an absolutely fantastic property total return, of course, spearheaded by our disposal of Coventry late last year as well as the disposal of [indiscernible] and even further historically in the year. And then we come to the topic of earnings per share, very much a hot topic and also the notion of dividends cover. Now for those of you that have seen me present this slide before, I'd like to draw you back to kind of the summer of 2022, where we have disposed of around GBP 40 million worth of property. And for the 2 years subsequent to that or 2.5 years, we've been on a journey of redeploying those disposal proceeds from relatively lower-yielding properties into high-yielding ones, of course, with the ambition to grow the profitability of the company and therefore, its EPRA earnings per share. Now you will see that we have very successfully done that. Laura has mentioned concept of value investing, and that's what this really shows, buying mispriced assets and growing their value through active asset management to not only deliver good capital returns, but as you can see here, very good income returns as well. We've mentioned this already, but over the last quarter or so, we've been sitting on a much higher amount of cash than normal, redeployment of that is expected in the near term. I think it's also important to highlight that the Hitchin acquisition actually only occurred quite late into the first quarter. So that kind of most recent quarterly EPS that we reported of 1.71 doesn't actually fully account for a full quarter worth of owning that property. Yes, I think -- and here, so on the notion of dividend cover. Now you will have noted in relatively recent years, kind of 2022, 2023, we haven't been covered, and that is because of what I detailed on the slide previously, where we've been on a strategic journey of redeploying proceeds and holding on to more cash than we would normally. Now of course, our most recent year really bolsters my faith in this company and its ability to not only deliver a covered dividend, but an overcovered dividend. And I think again, it's important to kind of expand our time horizon when viewing this company. And since IPO, it's delivered 94% coverage of its dividend, which is very, very strong, especially considering the strategy and it might have a slightly higher amount of churn in its portfolio than most traditional REITs. Again, to reassure you as kind of an investor base, where there are times where we haven't got fully covered dividends, we have a unique ability to utilize profits achieved on dispos and profitable disposals to top up that dividend and therefore, enable sustainability of that dividend payment. And if we go to the next slide, please, Laura. And this is what has enabled us to do that. So what I'm presenting here is every disposal we have made from this portfolio since its inception. Now a few really important things to highlight. One is we have delivered a 38% average sale price to purchase premium over all properties that we have disposed of, which is incredibly strong. Of course, Coventry has been a really good result most recently. And in the center of this graph, you might recall the sale of Eastpoint Business Park in Oxford, which we sold for a huge profit, having purchased it for around GBP 8.2 million at the start of the company's life, and then ultimately disposing it to GBP 29 million. I think what this graph shows is that it isn't just -- again, it's not just a one-off profitable sale. It's a consistent demonstrated customer behavior. And it's our ability to do that to identify those price assets and to sell them for a profit that is where we made the strategy robust, not only in terms of our capital performance but also in our income returns and our ability to pay our dividend. I'm now going to hand back to Laura and Henry. Thank you.

Thanks, George. And so at the outset of this presentation, I made the point that we thought that now was particularly a very exciting time and in the commercial property market to be a value investor. And therefore there's one slide that I'd like you to take the theme away from today is really a major point to dwell on. It's this one. And here, we are showing you CBREs, U.K. Commercial Property Value Index over a long-time horizon. CBRE being a major U.K. property consultant and also the largest value of commercial property in the U.K. So using their value index here as a proxy for just a measure of value across U.K. commercial property assets. And what we can see is that the point of time today represents the lowest point in value, where commercial property is at its lowest value point since this company IPO-ed. And what we're expressing there is that the opportunities that we can find in the market today represent the greatest opportunity to fulfill our strategy that we have seen since the company's launch. So a really exciting time to look at our pipeline, and that's that we've had a really interesting time doing that, and since the sale of Coventry that we completed in December. And we completed the purchase of Hitchin, and I'll come on to talk about that shortly. And we have another acquisition that we'll be going through imminently. Some rather frustrating delays there with our due diligence. Ordinarily, we would like to have had that capital invested a couple of weeks ago rather sooner, but some frustrating delays there, nonetheless, but we do hope to have that capital fully invested again very shortly. I think another point to make about the market opportunity today is that it is often in times of increased political uncertainty that we see a greater propensity to acquire mispriced assets in the market. We saw this following the [ Live Trust ] mini budget, where we, as George has just pointed out, had about GBP 40 million to reinvest. That was really opportune timing. And it's something that we're seeing again in the market today with various sort of political events occurring across the world. We are seeing a greater number of transactions across the property market taking place with limited marketing. So I perhaps would have told you broadly a couple of years ago that about 75% of our portfolio or the pipeline that we were seeing was acquired through assets that had been widely marketed. And I would say today, I would have expected that number to have fallen to about 50% in terms of an approximate number looking at our general pipeline. So with that lower level of marketing, we see less pricing transparency. And that is an interesting time for us where we can find a greater number of mispriced opportunities. And it's, of course, those mispriced opportunities that we look for as a value investor that really helps drive our performance of tomorrow. So not only are we seeing more investment transactions taking place off market or with limited marketing, we are also seeing this as a time for the past couple of years really and as a time of decreased transaction volumes. So there is less competition in the U.K. commercial property market, less marketing, and that's really what is some of the themes sort of behind this time being a particularly interesting time and depressed values across the market that we really think will drive the performance of tomorrow in our strategy. So moving on to this slide, which just sets up here the asset that we acquired in Hitchin back in March. For those of you that don't know this location, Hitchin is an affluent market town in Hartford. Looking back on some of the retail assets that we've owned in this strategy before, we would have generally focused on perhaps the sort of larger regional cities and Hitchin being one of the smallest locations that we have acquired in. But I think in this specific example, it is very much warranted. The affluence in the location here. Hitchin is an attractive commuter market town. So a high level of affluence, and that's really reflected in the tenant lineup and how well they are trading. Of course, if our tenants are trading well, they want to remain in the property for the long term, they've got an ability to pay us a high level of rent and that simply translates to a better performance for the asset and more security on our income streams. So we bought the asset for an income yield of just under 8.5%, a capital value of just over GBP 200 per square foot, a significant reduction there on the level of residential values in this location. So the kind of arbitrage we've got between those different uses here is very interesting in terms of the potential we've got for long-term alternative use. I'm not suggesting at all that we would look for alternative use in the short to medium term here because we have the property fully let and let the tenants who, as I said, are trading very strongly. So this asset looks really attractive for us at the moment. And I can see actually somebody had submitted the question as to which sectors do, we think look most interesting in our pipeline over the next few months. The High Street retail sector continuing to be one of those sectors and really demonstrated here by this asset in Hitchin. I'm just going to show you here also some assets that sit within our wider pipeline. So at AEW UK, we have an in-house investment team who are continuously tracking the market to look for the next opportunities. And we do that whether we have capital in the portfolio or not. I think that's really important because from time to time, we do receive off-market offers for our properties and sometimes we choose to engage with those. So it's always, I think, very important for us as portfolio managers to be able to have a sense of sort of how our assets are comparing to what we're seeing in our pipeline. And this pipeline is just really representative of that point that I made 2 slides ago where I was pointing out and that opportunity for value being significantly lower. We're at the lowest point today that we've seen in our pipeline for this company over the past 10 years. The pipeline here really just being representative of the types of assets that we have held in this portfolio, both today and over the past 10 years. So that's demonstrated in the high level of income yield, low levels of capital value. Of course, these are themes that you would have heard us talk about many times over the years, if you have followed us for some time. And those are the metrics that we look for to keep driving that dividend and to keep attempting to replicate our total return outperformance that we have seen. Now for me, high income is a really interesting place to start if you are looking for strong returns. If we look back for some years, in fact, over about as long sort of history of commercial property return results as you can find. It is always the income return feature of total return as opposed to capital return. It is always the income return, which is the most stable constant of total return. So if we are starting with a high level of income return that we have done our homework on and we believe is sustainable from an asset in that location, then we will have the strongest space on which then to grow that income or deliver the strongest total return. So seeing that replicated here in our pipeline for us is very encouraging and really quite exciting. I mentioned at the start of the portfolio -- sorry, at the start of the presentation that we have a focus always on strong locations. And again, you can see that here -- demonstrated here in these assets, which we are showcasing. We are showing you retail, and leisure assets located in strong city centers and in the center of major conurbations, where there are industrial assets here, they are well located, close to motorway junctions, centrally located within the country. And these are the sort of driving factors that we have always looked for in our assets and continue to be shown here in our pipeline.

Well, I'm going to pick up some recent asset management transactions, which have happened in the quarter that we've just reported. So first, starting with our High Street retail unit or property, should I say, on Union Street in Bristol, a significant nice chunk of property 63,000 square feet. And as Laura said, this is well located. There's a lot of residential development going on around here. And that bodes well given that we bought it off a [indiscernible] square foot of GBP 160 a square foot. If you compare that with alternative use values, residential values in this area of Bristol, they're probably in the region of GBP 600 a square foot. So we've got a really nice alternative use underwrite here. Not to sort of draw attention to bad news, but obviously, we had Wilco who went into administration a year or so ago at this property. And the asset management team have been busy looking to relet this space. And what we have done is that we have stripped the space back and we have subdivided it and done 2 new leisure lettings. I think it's quite typical that we see a mix now of leisure sitting alongside retail, not only on our high streets, but also on our retail warehousing parks. Historically, the sectors have been split between leisure and retail. Now you are seeing a wider variety of uses in more traditional retail assets, whether that be in city centers and on the edges of cities. And we bought in Roxy Lanes on the first floor who already tenant on the second floor and who have been trading so well that they wanted to take more space. And some of you might be aware that there's a bit of a climbing wall craze in the U.K., and we have done a large letting to Climbing Hanger, [indiscernible] U.K. on the ground and basement levels. Now obviously, what we like about these lettings is not only being new fresh and income 2 new exciting uses, but we deliberately made sure that those leases are all can turn this, which means that if we were to explore an alternative use residential in the medium to long-term, 2036, we'd be able to get full VP of those upper parts and take that space into another use. Probably also worth noting when we acquired this site, we did a little bit of work on actually being able to extend upwards here, which we think is a possibility. So we could add mapping to this site, which bodes well given all the residential activity going on in this area. So an asset that is now fully let, and we will continue to hold it within the portfolio. So this is -- next in Bromley, Greater London assets. We acquired this for 8.7%. Again, a very low capital per square foot, which is typically what we do GBP 100 a square foot, which is relatively very cheap for a Greater London location in terms of alternative use values. And we've held it for a couple of years now, and we bought it in Q4 2022. You'll all be well aware that Next is a very strong business and trader on the High Street. And during COVID, a lot of retailers were going on to turnover rents. I think now that the retail sector has stabilized and more recently, there's been a lot of very positive news from well-known retailers about how well they're trading. I think the most recent ones say how the trade is really booming at the moment. Naturally, retailers want to go back on to fixed rents rather than turnover rents. But they appreciate that we've always got an eye on high income, but also here, we've got a very well-known, very strong tenant who is prepared to commit to a further 5 years. So what we've done is we've continued on the turnover deal until their lease expire in September 2025, at which point the rent goes to fixed level of GBP 430,000 for the next 5 years. Now what we like about this deal as well is that we've managed to keep the lease outside the 1954 Act. If you don't know the 1954 Act protects tenants and so they have a right to renew. Typically, most leases in the U.K. are inside the 54 Act. In this instance, they're not. So actually, on the last day of the lease, we could take this property back. Now we like that because it means that if we do have a better option, whether that be a sell to an owner occupier, so at the time of this negotiation, we understood that sports direct were quite interested in buying the site or a residential developer, there's a potential for 46 units at this site, we could choose to move it in that direction. But for the time being, and we're very happy with the terms to Next, and we're glad to have completed this deal recently. So moving on to the industrial sector. We've touched on in our last couple of announcements that we've been carrying out a refurbishment project at our multi-let estate in Bradford, and it's good that, that refurbishment is now bearing fruit. So just to look back, when we bought this site, the average passing rent was GBP 5.10 per square foot. And at the point that the previous tenant left, they were paying a rent of GBP 6 to GBP 6.50 per square foot. And we have just completed the letting of GBP 8.50 per square foot, and we have an eye on achieving rents in excess of GBP 9 per square foot. So you can really see in this case study, we're proving that, that reversion potential within the portfolio, particularly in the industrial assets, we're managing to lock and crystallize that rental growth through lettings. What we also like about this refurbishment is that you are actually improving the building. You're investing money into a new building, improving the specification and also the environmental performance. And obviously, if you are providing that quality of product, you are naturally going to get a premium on the rent. Yes, we're delighted to have let this for GBP 137,000 per annum to a good tenant and really crystallizing that strong rental growth. And then finally, another industrial asset, but a single-let multi-let industrial asset. I mentioned this when I was giving you the portfolio update at the beginning of this presentation, Pilkington, who hardened glass and they've been here for 35 years. You can say that they're very much wedded to the site. Quite a large parent company, so negotiations have been more protracted than we had hoped, especially when they've been there for so long. But another really good example of rental growth over the years when we bought this asset, the rent was GBP 3.48 per square foot. We carried out a rent review when was it in 2019 at GBP 4.53. And we have recently renewed the lease on a 10-year lease with a 5-year break of GBP 5.78. So you can really see the rental growth story from 2018 to this point. Yes, the rent has increased by 65%, GBP 105,000 since acquisition. And it's a very uncomplicated asset for us. The tenant likes being there. So it's great to have a nice long runway ahead of us, and we will hope to see some more rental increase at the revenue in 5 years' time. Hand back to Laura to conclude the presentation. Thank you.

Thanks, guys, and thanks, everyone, for joining today. We'll pick up some questions very shortly, but just to say that hopefully, some of these themes have come through in the presentation, but just to conclude, that we are now showing -- we're able to show our track record of outperformance coming up to 10 years now. So it's our 10-year Anniversary later this month. So hopefully, next quarter, we can show you what our numbers look like over a 10-year period as well. I'm very much excited about the value proposition that we see in the pipeline in the commercial property market today, but also in our existing portfolio, going back to those low capital values and low rents, but high yields that we always like to buy.

Fantastic. Laura, thank you very much indeed. Thank you for the presentation today. [Operator Instructions]

So there was a pre-submitted question asking about which regions and sectors do we see most opportunity in over the next 12 to 24 months? And I have on that already, but I'm just going to answer that a bit more fully because I think it's an interesting question. Clearly, I've made the point that we still see value on the High Street for those reasons that Henry has just stated, we're talking about [indiscernible] and as demonstrated by the asset that we acquired in Hitchin. We can buy assets in affluent locations where the capital values are well below residential values where the tenants are trading very strongly for those high levels of initial yield, that is effectively the metrics that we are looking for across all of our acquisitions. And we say that we are sector agnostic, but of course, in looking across the market to see where we find value and certain themes emerge. So High Street retail still being one of those. We also see opportunity in the leisure sector as well. And I think this is perhaps sort of represented by other participants in -- other landlords in the commercial property market. Taking a view on a sector as a whole and deciding that, that sector is not in favor at the moment. And we've seen some indiscriminate sales across the leisure sector from larger portfolio owners who are simply choosing to dump that sector because it's not in favor or doesn't fit within their current strategies. And for us, that is always a time of opportunity when other sellers decided to make sort of sweeping sector calls like that. It allows us to kind of sift through the assets that they are selling. And of course, not all of them will be attractive to us. But we are certainly finding some opportunity there. And that's also being driven by an occupational basis. So as Henry has demonstrated with our assets on Union Street in Bristol, we have got some incumbent leisure tenants there who are trading very strongly who've been keen to take more space. And we've done a further letting to a leisure tenant. And on our retail warehousing park in Dewsbury, we have done a letting to Tenpin. The Tenpin [ bowling ] operator, which is a sector which is performing very strongly, and Tenpin are really at the forefront of that. So the leisure sector in terms of the operator performance has been much more robust than we might have expected looking back 2 to 3 years. So that's been really pleasing to see. And that combined with a greater number of opportunities in that sector is leading to some opportunity in our pipeline there.

We've got a question here from Nigel Chapman about our Nightclub assets in Cardiff, asking what went -- has gone on there. So we did actually announce that we had signed the lease from the previous operator to a Phoenix Co a couple of quarters ago now. So it is still very much a nightclub use. Recon, the previous tenant went to administration and a new business was reborn out of that. In assigning the lease, we rebased the rent to GBP 150,000 per annum with a turnover top-up. So should it trade well, then we would hope that the rent would replicate the previous rent. But we have the tenant in there and trading they've rebranded, and we keep our eyes appealed for the first turnover statement, which will be coming through hopefully within the next couple of months. We have another question from Alex [indiscernible]. Should we expect any changes in assumptions for the valuer change? Well, of course, obviously, they're an independent valuer. We sit down with them and go through several drafts and have done obviously historically with Knight Frank's. Valuers will make their own assumptions, whether that be rent-free or void periods. In terms of like capital contributions, CapEx, incentives, then we can guide them based on negotiations that we are having with existing tenants. Just to sort of add to that change in value, we're currently going through a shadow valuation at the moment with the first new valuation campaign in June. And so that's a process that we're working through and managing closely.

I am just going to pick up on a number of questions that have come through in relation to us looking at M&A opportunities in the REIT sector, and also our potential for capital raising. I think just kind of grouping those together and saying that -- given how interesting we find our pipeline, how attractive we see the depth of the opportunity that we see in the market at the moment. We are on a pretty regular basis sitting down with both our Board and our corporate adviser to look at ways in which we could access that pipeline. So whether that's by growing the company by issuing new equity if the tool possible or by M&A. And we analyze a lot of opportunities here, and would move on some if they were proven to be in shareholders' interest. So yes, we absolutely are looking at ways in which we could access that pipeline that we've shown you today.

We've got a question here from Roderick about concept of dividend increasing, which is a question we get every quarter understandably. Of course, the first thing to say is that our dividend policy is at the discretion of our Board. And so we, as manager make a recommendation to our Board. And this is at the discretion to prove or not. Of course, I can't comment on future earnings outlook. I think the important thing for me and actually a theme that was highly expressed to us for at least the last 2 years is that many of our investors had a preference for a sustainable dividend even if it were lower than a much, much punchier one, which has a high degree of risk in relation to our ability to pay it. We feel very comfortable with our dividend policy at the moment. I think it's important to remember, not only on a gross basis, is it one of the most compelling dividends in the entire sector, but also from a yield basis, it is also incredibly attractive and has been for a very long period of time. Of course, it goes without saying if it's financially more sustainable and sensible to do so, then we would look to maximize our dividend for the benefit of our shareholders. But we would never do that to recommend that to our Board, if it were at the compromise of the financial security and sustainability of the business. And given how the business has performed for such a long period of time now in a very award-winning way, I feel encouraged by what the decision-making has been on that topic thus far, and we'll continue to do so.

Thanks, George. I'm just going to pick up a last question here from [indiscernible], who addressed the question to George, sorry, but I'll take this one. She's asking what makes AEW's ability to use capital returns to top up dividends unique? Now this is a reference to the slide that we showed you referencing our 10-year earnings and how our dividends have been paid and how our average dividend cover over that 10-year period translated to a cover of 94%. And of course, we have used our capital profit from sales to then make up that on average 6% of the dividend from those capital. What makes us unique is really just the dividend policy and approach of our Board. So it's not anything in the structure of the company or the legislation that makes us different. It is simply in our Board's approach to paying the dividend. Our Board has taken the decision that they believe that those capital profits that we have generated within this strategy are so significant or they believe are so sustainable that they can rely on that over the course of the long-term to from time to time when the dividend isn't covered by earnings. And of course, we have grown earnings a lot over recent years. But during those times, use those capital profits that our strategy generates to pay that. You will perhaps find other REITs having a more traditional approach and paying a dividend only through earnings. Now that can perhaps lead to a greater amount of instability in the dividend where our Board have chosen to back the stability of our dividend, the continued payment of that 2p per share per quarter for 38 consecutive quarters. So over a very long time period, our Board have taken that decision.

To add one final comment on to what Laura said, what was the great test of that? COVID was a great test of that. And one must remember this company one of the only REITs in the whole country not to cut its dividend during COVID. The principle of being able to top up your dividend of cat profit isn't unique. But the degree to which we have done it and the consistency we have done it; I think is pretty unique actually in the market. And we would not have won the Citywire award for 5 years running in terms of total return as well as the MSCI award for property total return of all listed property companies in the country if that weren't the case. That for me is the proof in the pudding. Any further questions?

I think you've covered off all themes. So thank you very much indeed for that. Of course, any further questions do come through, the team will have the ability to review those, and we publish responses where appropriate to do so on the Investor Meet Company platform. Just before redirecting investors to provide you with their feedback, Laura, I don't know if you've got any further closing comments. If not, I can pick up from you afterwards.

Thanks, Paul. Yes, just to reiterate, that we are finding at the current time, a very fruitful time both in terms of our current portfolio and our pipeline as well. And I'd also just finish by reminding investors of our website. We've got a very thorough website, which has a full list of all of our assets and has all of our news displayed on it, has information on the team. And -- yes, quarterly fact sheets, things like that information about our presentations, aewukreit.com. Please visit our website if you are looking for the information on the company.

Fantastic. Thank you all for updating investors today. Can I please ask investors not to close the session, you should now automatically redirected to provide your feedback in order the team can better understand your views and expectations. This only take a few moments to complete and that's greatly valued by the company. On behalf of the management team of AEW UK REIT plc, I'd like to thank you for attending today's presentation. That concludes today's session, and good afternoon to you all.