Good afternoon and welcome to the AEW UK REIT plc investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged and can be submitted at any time via the Q&A tab situated on the right-hand corner of your screen. Simply type in your questions and press send. 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 publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll, and I'll now allow it to hand over to Henry Butt, Assistant Portfolio Manager. Good afternoon, sir.
Thank you very much, and good afternoon, everyone. Just a reminder to who we are. I'm Henry Butt, Assistant PM. I have been stepping in for Laura Elkin, the PM, now for the last year or so. Laura's actually back later this month, and to my right is George Elliott, fund controller, very much underneath the bonnet with all the numbers on the company. Looking at the first slide, which a lot of you will have seen if you've joined these presentations previously, this pretty much sums up what we do in a nutshell: high income and actively managed. By high income, what we are typically trying to do is we are buying from a pool of diversified U.K. core plus properties throughout the U.K., and we are very sector-agnostic in our approach.
We look at properties on a case-by-case basis, and we're typically buying properties and holding properties which are yielding net initial yields somewhere between 7% and 10%. Now, if we are buying or holding properties which are the lower spectrum of that yield profile, so close to 7% rather than 10%, the reason for that is that we are looking for short to medium-term reversion, and we have a reversion yield for a portfolio of 8.9% in comparison to a net initial yield of low 8%, which really shows the rental growth potential that we are trying to unlock within the portfolio, whether that be through rent reviews or asset management deals.
We say that asset management is very much the beating heart of the strategy, and what enables us to sort of go out and sort of add this value through asset management is that we are typically buying shorter lease profiles, so we have a WALT to expiry of around five years, a bit less to breaks, which is a point in time which we can engage with tenants and look to extend leases and add value. Now, what does this all mean, well, it all really feeds into our dividend, and you will note we've had another strong quarter of earnings.
At this point, I think it's probably worth mentioning that over the course of the past four quarters, we have added GBP 1.73 million of new income through larger material lease events, and that has really sort of bedded into the earnings accretion that we've seen over the past four quarters, as well as having a more stabilized tenant and property base, and having only carried out two transactions, two sales, JV, which and commentary within the past sort of nine months or so. Now, in terms of what it all means, it means that we can pay our GBP 0.02 per quarter dividend, which we have now done for 37 consecutive quarters since Q1 2016, a metric that we are very proud of, which obviously equates to GBP 0.08 per annum and a dividend yield of roughly 8%. Our share price more recently has been bobbing around GBP 1.
Now, the other aspect of what we're trying to do, other than sort of grow income and have high income, which enables us to pay out this high dividend, is we're looking to unlock capital outside through asset management. We have a low average book value of GBP 74 per sq ft. Now, if you compare that to the cost of building properties, excluding the price of land that those properties sit on, we're starting at a relatively low base, which enables us to add value through asset management, whether that's through extending leases, growing income, planning gain, looking at alternative uses, etc. We have an annualized 10.2% five-year total property return to 30 September 2024, which is outperforming the MSCI benchmark by 7.8%. Now, that's a very strong metric. Obviously, the bulk of that performance comes from income, but there's a lot of asset management.
Another strong metric which we continue to like to report is that we have a 38% average to sale to purchase price premium. We are very good at adding value, which trickles into our valuations, but then deciding when to crystallize those asset management gains by making sales. The most recent example of that is the disposal of Central Six in Coventry, which we sold just before Christmas. We're delighted that this performance is being recognized, and we announced in our previous NAV announcements that we had won two awards: the Citywire and Investment Trust Award, and the MSCI U.K. Property Trust Awards, both which are on three-year property and NAV total return. In this quarter that we're reporting to now, we won another award. We won the Investment Week Award, which is judged by a panel of 10 experts.
Moving on to our at-a-glance slide, this pretty much takes you through all sorts of the key metrics of the portfolio and the company. So this quarter, the valuation was up 1.22%. It was up just shy of 3% in the previous quarter, and that was principally driven by ERV growth within the industrial assets in the portfolio, which make up 40% of the sector weightings. We specifically saw that at two industrial assets: one in Basildon in the southeast, about half an hour away from the city of London, and Runcorn in the northwest. We've seen some really strong rental growth there, and that has fed through to valuation performance. Sentiment for the industrial sector has certainly improved in the previous quarter.
There was more. It was a more buoyant quarter in terms of investment activity, and that has trickled through into valuation performance alongside some nearing lease events on our properties in Wrexham, Sheffield, and Bradford. We've also seen some quite nice performance from our retail assets. In terms of asset management, particularly Dewsbury which actually is retail warehousing, but actually we carried out a significant letting to Tenpin there being a leisure asset, which is quite typical where retail parks are now having a wider variety of uses. And we've seen some nice performance as well from our two blocks of high street retail in Bristol being Union Street and Northgate House in Bath. So we still have 32 properties.
We did dispose of Coventry, but we are left with what is known as the Triangle site, which is three units, so the same amount of properties as reported in the previous quarter. What is worth noting is that actually our net initial yield of 8.16 and a reversion of 8.88, that gap has widened. So it's 72 basis points this quarter, and the previous quarter was 55 basis points. So there is more rental growth to go after, and that is obviously based on our valuers making estimates of what the ERVs for our properties are. So that's really meaningful. That means that there's more potential inherent growth within the portfolio.
The vacancy rate tends to yo-yo around between 5%- 10%, currently just shy of 9%, but probably worth noting that that percentage is actually about 6.8% if you factor in agreement for leases where we've exchanged, which obviously will complete once we have satisfied the conditions for those agreements. Looking at cash and debt, the debt position is the same with the GBP 60 million debt facility, just shy of 3% fixed until May '27. Capital cash, we have a significant amount of capital at the moment. Obviously, that is following the disposal of Coventry before Christmas in December. Once we sort of factor in the cash buffer that we like to hold and ongoing asset management initiatives and capital incentives, we roughly have about GBP 25 million to spend, and that is what's been taking up most of the mind in George's time.
We've been very much looking at an exciting portfolio of opportunities. Net performance of 2.73% for the quarter. Obviously, that includes the GBP 0.02 for dividend that we have paid out, and then just looking at the performance metrics here, five-year annualized net total return of 10.3%, 10.2% five-year annualized property total return. Some strong performance, as I alluded to on the first slide, and one-year property total return of 11.3%. We are property specialists, and those performance figures we're delighted by. Finally, before I hand over to George, just looking at the pie charts on the right, you'll see that the industrial percentage has increased as a result of selling the vast majority of Central Six Coventry, so we're at 40%. I think we're all very aware that that sector has performed very strongly of all the sectors.
And then if you look, we're pretty much evenly split between offices, alternatives, retail, and retail warehousing, which we're very satisfied with. But making that point again that we are sector-agnostic, we're not looking to do anything specific here in terms of our sector weighting, and it's very much sort of an organic process. Thank you. I'm going to hand over to George now.
Thank you, Henry, and good afternoon, everybody as well. So this slide really is telling the story of the company over the last 18-24 months, and to set the scene, you can see that I started this in the summer or late summer of 2022. Now, for those of you who aren't aware, at this point in time, we had sold out of about GBP 40 million worth of property. And since that time, we have been redeploying those proceeds into new properties whilst also selling out of some further lower-yielding properties during that time, ultimately with the intention of selling out of properties which are lower-yielding, crystallizing profits as a result, and reinvesting those proceeds into high-yielding properties. And you've noticed a few examples on here, which you've probably recognized from our RNS announcements.
I think it's important to highlight that over the last one or two years, especially when there's been economically distressed times, we have had uncovered dividends, and there's somewhat a degree of criticism levied at us for that and questions of sustainability of that dividend, and so what Henry and I have really been focused on over the last nine to 12 months is demonstrating that when this portfolio has stabilized and when there isn't property churn, not that churn is always necessarily a bad thing, sometimes it is correct to take profits, but actually, this portfolio delivers incredibly strong earnings performance. In our most recent NAV announcement, we've delivered underlying headline earnings of GBP 2.35, up from GBP 2.17 for the September 2024 quarter, so really strong, especially against that kind of comparative dividend of 2p.
I suppose it's also, as I've noticed on here, on kind of the far right of the graph, we've had some really, really strong performance by our tenants, which really demonstrates the quality of the tenants in our portfolio. Some really, really healthy turnover rates at the likes of Hollywood Bowl and Next in Bromley, and lastly, something I found particularly encouraging is not only has the portfolio itself stabilized, but so has our tenants' base. I'm generally seeing a lowering of current void costs. Tenants tend to be performing better in their underlying businesses as well, and what that has ultimately meant is that for us as landlords, our kind of void costs have lowered, and that's a further strength of our earnings performance, so good at the top and bottom line all around, which is very, very encouraging.
Just to look at this graph on the left-hand side, what is growing those earnings is selling lower-yielding properties in sort of low to mid-sixes and reinvesting into high-yielding properties, 8% plus, but then on the right-hand side, fully invested, as George said, stabilized, less property churn, and what has been taking our earnings from kind of 1.8% to being fully covered, that has been asset management. I mentioned that metric earlier on the presentation. We've added GBP 1.74 million of new income through significant material lettings and rent reviews in the last four quarters, and that is really feeding into these earnings, so two sort of distinct periods since Q4 2022, one investing into high-yielding properties and then more recently bedding down, focusing on asset management and looking to drive those earnings through asset management.
Thank you, Henry. This slide focuses on the notion of earnings cover and dividend cover, and you can see here that I have shown for each financial year up until the most recent one being 31 March 2024, the degree of under cover we have had and how those dividends have been topped up by profits crystallized on the disposal of properties. I suppose the first thing I wish to emphasize is that actually since inception, our cover has been very good. We've had 92% cover since inception up until March 2024, which is very strong, especially when considering the economic environment we have gone through over the last few years. Of course, over the last few quarters for FY25, we've had successive, very, very strong quarters with earnings performance, so my expectation is for us to be at or very near full cover on an annual basis.
I think the last thing that this slide really emphasizes is, yes, we have a very ambitious dividend, and we are really proud of our ability to sustainably pay that. To remind you, we didn't cut the dividends during COVID, and we were one of, if not the only REIT to do so. But this really emphasizes our total return focus. Yes, our portfolio is an income strategy, and we're really proud of our ability to generate strong income return on our properties. But it is those profitable sales taken at the correct time that also have fed into our ability to pay our dividends, and we would expect that to carry on being the case. Thank you. So on the subject of profitable disposals, this graph here shows every property the company has disposed of in its lifetime on a chronological basis.
So you can see Coventry on the far right there, where, to remind you, we sold part of the property being units one to 11 for a 60% fair price to purchase premium against the whole property in 2021. So a really, really strong result. Again, in the center of the graph, Oxford, actually, which was one of the properties we sold, where I mentioned earlier in the summer of 2022, again, for a very, very strong profit. So what I'm really trying to demonstrate in this slide here is it isn't pot luck that we've just managed to sell a property for decent profit, which has then just so happened to enable our dividend. This is a demonstrated pattern of behavior. A significant amount of work goes in from both Henry and I in ensuring that not only is that dividend affordable, but it is also affordable and resilient.
Are there any specific properties you wish to mention here?
No, I just think the sort of, yeah, the selling of Coventry, we took the decision to sell that asset. As I said, we'll come on to a slide on later in the presentation, but a lot of the asset management had been done. We hit the ground running at the time when we bought the property, and we significantly moved the income on. Now, you'll see that we've sort of reaped what we've sown in terms of the income and the earnings accretion. And yeah, as a PM, there is a decision to be made.
Do we sit and just collect the income from the property, which would have been completely fine, or do we sort of roll the dice and put that into the market and see if we can sell it for a yield profile, which is attractive in terms of crystallizing the profits from those asset management and then recycling into new asset management opportunities with a higher income than that was being thrown off by Coventry? So that was the decision that we made in May. We saw a sort of a mini crescendo in terms of investment activity, particularly in the quarter that we've just reported. More recently, it stalled a bit with gilts being as high as they have been. And that's an exciting sort of buying opportunity for us with the sale proceeds for Coventry.
So I think we timed that sale quite nicely, getting it done before Christmas, and we're excited by the prospect of reinvesting that money over the next quarter or so.
Thank you. And just to reiterate a statistic that Henry gave earlier on that slide is over the lifetime, the average fair price to purchase premium has been 38%. So it's not minimal. It's quite material and notable and something, again, we're very proud of. Coming on to this slide, which is, if I was to pick a favorite slide, it would probably be it. Now, this shows our NAV, total return on performance, against our benchmark. And as you can see, there's a few notable things here, chief of which is that actually our degree of outperformance has really significantly widened over the last few quarters against the context of an incredibly challenging time for commercial real estate. Now, what does this show to me, who really focuses on finances of this portfolio?
One, it demonstrates to me the resilience of the portfolio, its ability to perform not only in good economic times, but more difficult ones as well. And it's also a testament to the sustainable nature with which we look at the portfolio and how we drive performance in it. I suppose the key point I always make here is the point of intersection around late 2019. Now, this isn't a coincidence. The company had existed for four and a bit, nearing towards five years at this point. And our general business plans and how we approach a property when we buy it, we'll look at its initial five-year outlook. So actually, what you're seeing here is those asset management initiatives, the work that we do, that is just ultimately coming into fruition. And ultimately, that process has just carried on and on and on.
That outperformance has grown and grown as a result. I guess it really benefits the benefits of this portfolio. Sorry, it really showcases the benefits of this portfolio, which is that it's not a one-hit wonder. A lot of reasons, they can be thematic, whereas this has been consistent and it's been resilient and really has delivered upon its objective as an investment product. Now, coming on to this slide, the peers you can see here are those that we chiefly focus on, partly advised by our broker. A few key things I was going to pick up on here, one of which, staying on the theme of NAV performance, we have delivered the highest NAV total return across all those time periods that you can see there and by quite a significant margin.
In terms of share price total returns, as many of you are aware, there's been quite a lot of M&A activity in the sector for the last 18 months or so. And that has skewed short-term share price total returns. But for me, when I'm looking at this company and I'm always thinking with a longer-term hat on, which in my opinion is what REITs really were implemented for as an investment product, you can see that our five-year shareholder total returns are fantastic and by far and away the highest against our peers. I guess the concept of discounts is often something we are queried about. Our discounts have remained at around the kind of 8%-10% mark and has been quite sticky there. However, against our peers, again, this has been generally very good.
Certainly up until the end of last calendar year, the average discount among our peer group on a one-year basis was around 20%. We really are truly an outlier in terms of how our shares have performed against those of our peers. This slide is just a graphical representation of dividend yields. Henry mentioned earlier that our shares are at about an 8% yield at the moment. Of course, with the share price weakness across the sector six or so months ago, that figure was actually at around 9.3%. Incredibly compelling. Regional REITs, as many of you are probably aware, are somewhat in distress. I tend to discard them as a basis of comparison when looking at our yield. But I think this graph really shows how attractive and compelling we are against our peers and as a product on a standalone basis.
We now come on to property returns, which ultimately drive our NAV returns, which one hopes will drive our share price returns, so as you can see here, we've outperformed our benchmark across all time periods again and in a very strong and consistent way. I think the thing that I find most comforting or encouraging about this graph is that actually the degree of outperformance is relatively similar over almost time bases. Again, what that's indicating to me is that the portfolio is consistent in the performance it delivers and it's consistently good performance, and lastly, before I hand back to Henry, this slide here shows a more detailed analysis of property total returns on a sector-by-sector basis for the 12 months of September 2024. Now, again, as you can see here, we've outperformed in all sectors, both driven by capital and income return.
The things I find most encouraging about this graph, though, is that it is truly how strong our income returns are. And what that's really showcasing is our asset management efficiency, our active approach, and our ability to invest in our own portfolio as opposed to relying on property churn in order to deliver attractive returns. Thank you, Henry. Back to you. Thanks, George. This slide covers our recent disposal, Central Six in Coventry, as we've touched on it a few times before in this presentation. Hopefully, I don't sound like a broken record. But yeah, we sold the main sort of run of retail warehousing units, one to 11, and we've held on to the Triangle site where a JV between a developer and the council, they have the option to buy that from us this summer. We will see what happens there.
But in the meantime, we will continue to collect the income from those units. But just to trigger your memories, we've done a lot of asset management at this property since we acquired it in November 2021. We bought in Aldi and The Food Warehouse, which is Iceland, and a tenant called MyDentist. And I think that really kind of shows what's happening in the retail warehousing sector at the moment. Typically, historically, retail warehousing parks have either been bulky good or fashion-led. And what has happened at Central Six is we've bought into them a wider variety of tenants, kind of almost replicating our old-fashioned high streets. Naturally, that kind of feeds into footfall, which feeds into the rents that tenants are willing to pay and then the investment value. So it's been a very strong performer for us.
We bought it for GBP 16.41 million, yielding us 11% net initial yield, and since we've owned the property, we have grown the income by 24%. We had 24% vacancy of ERV, and we've grown the net operating income by 54% since inception, so that is through those new lettings to Aldi and The Food Warehouse, but also re-gearing leases with the likes of Next and TK Maxx. Yeah, on the 13th of December, we successfully disposed of the main run of retail warehousing units for GBP 26.25 million at 7.49%, so selling at a yield in the mid-sevens with the intention of reinvesting that into properties yielding in excess of 8%, so hopefully, as high as 10% now is what our focus on at the moment.
So it's been a really strong case study for us in terms of what we do: buying the assets, low-cap out to sq ft, high-yielding day one, adding the income, improving the properties' investment credentials through a stronger tenant lineup, extending leases, improving the environmental performance alongside those lettings, and then deciding when to cash in our chips and dispose the asset in what has been a relatively buoyant retail warehousing market in comparison to other sectors more recently. So yeah, it's been a great story, and we'd like to sort of blow our trumpet about it now. We've reported on it consistently because there's been so much going on. So yeah, a property that we're delighted to have owned and now sold for a strong premium.
So just moving on to some asset management, which is kind of ongoing or more sort of themes which we're seeing within the existing portfolio. So this slide looks at the industrial sector, which represents 40% of the portfolio's assets. The sector was up 2.01% for the quarter, which is roughly GBP 1.5 million on a like-for-like basis. We have a WALT in the industrial sector for around five years, which replicates the entire portfolio. But the reversionary potential is quite significant within the industrial assets. So we have a reversion yield of 8.77% compared to net initial yield of 7.23%. So it's a significant rental growth that we are planning to go after, whether that be through rent reviews, lease re-gears, or actually tenants leaving and doing new lettings. It's not necessarily a bad thing if a tenant does go.
It enables us to go in and improve the asset through refurbishment and achieve even higher rents, and we've more recently been carrying out refurbishments at our smaller industrial units in Runcorn, and we're looking to achieve some really strong rental growth there, and we're seeing that within the portfolio, but it's a wider U.K. theme. We've had about six% rental growth up to October this year, and that growth going forward is going to be about 5.5%. So we're very much feeding into this pattern that we're seeing across the U.K., but we're seeing some yeah, we're outperforming that in terms of the rental growth that we're capturing. I think also the average industrial book value of GBP 47 sq ft just shows that the rents are relatively cheap and there are asset management opportunities, and these three assets on this slide are sort of examples of that.
Starting on the left, we've got Bradford. Tenants have been at this site now for 35 years. You could sum what's in and when into the site. We moved on the rent by GBP 1 in 2021, and it was relatively low at GBP 3.50 when we acquired the asset in 2017. We're currently working on a lease renewal with the potential of extending that lease and growing the income. Sarus Court, we had some bad news about a year ago with a tenant and two units going to administration. They're paying a rent of GBP 6.50. As I said, making the best out of a bad situation. We've gone in, we've refurbished these units, we've improved the environmental credentials, and we are currently in the process of reletting these units and looking to crystallize some strong rental growth in the northwest and in the sort of multi-let small industrial sector.
St Helens, this is occupied by an agricultural manufacturing dealer supplying machinery to the U.K. agricultural industry. It's their U.K. HQ. They are owned by a JV between a Japanese and Scandinavian company, so very strong tenants. There is a significant amount of yard here which they use. We are aware that they have their eyes peeled for potential alternatives to our property, but we're not concerned about that because we've seen some strong rental growth here, and my gut feel is that they probably will look to engage, but it's an asset management opportunity that we'll be working on over the course of the next six months. Finally, we quite often talk about buying high-yielding, high-income-producing assets, but always having a plan B and making sure that the assets we buy are underwritten by alternative use values and vacant possession values.
We would typically want to have at least 75% of their investment value underwritten by alternative use values, whether that be residential, student, hotel. The Oxford example earlier on, that was life sciences. And there's four assets here where I think the bullet points which have been highlighted in green just show the more obvious short to medium-term asset management angles, but there are longer-term alternative use angles. So Next and Bromley, a very strong trader for Next. We bought this off a net initial yield of 8.7%, but then look at that low capital value per sq ft of GBP 100 per sq ft in comparison to what residential values in Bromley are, which is GBP 550 to GBP 650 a sq ft. So a really good underlying plan B.
Next has been trading well here, and we've been banking GBP 190K roughly of turnover rent, which is significantly higher than we assumed on purchase. So great story with Next, but if all fails, we've got this plan B. Union Street, we've been busy there. We had Wilko's leave. We've carried out a letting to Roxy Leisure, and we're working on another letting there at the moment. So some asset management opportunities, but again, bought GBP 161 a sq ft in comparison to residential values and Bristol of GBP 600 a sq ft. There's a lot going on here with regards to residential development. Actually, there's a picture of this asset on the conclusion slide, and you'll see there's a tower going up. Gloucester, we have the Secretary of State in here. They've been ticking over for a number of years.
There probably will be a conversation with them shortly about whether they want to extend their lease. But again, if the property were to come vacant, we have residential consent for 45 units here. So I suspect this might be an asset that we would look to potentially sell to a residential developer if the occupational story didn't continue beyond the lease expiry. And Cambridge House, we bought this asset quite recently in Bath. It's a freehold non-listed property in Bath. We bought it in the wake of Liz Truss's mini-budget. We've got a cracking price for it. Residential values in Bath, as I'm sure you can appreciate, are very high, GBP 600 per sq ft, plus in comparison to the value that we acquired this asset for at GBP 233 per sq ft. But again, in the short- term, we've been quite busy.
We've carried out letting to Zara, which is a click and collect, opposite their main store in the Southport Shopping Centre, sorry, Southgate Shopping Centre, and more recently, we've exchanged an agreement for lease with Marchon, who are a premium gym offering, so short-term asset management, adding income, but having that option to potentially seek more extreme returns of alternative uses. So to conclude, it's been another strong quarter, so we're delighted to report that. We've had great net per share and a dividend covered by EPRA earnings now for three consecutive quarters, so as I said, we are the fruits of our labor in terms of working on asset management and growing income through all those lease events that we've been working on for the past year or so. Not only are those deals adding value, I mentioned the GBP 1.74 million, but they're also mitigating void costs.
If units are vacant, you are picking up the insurance cost, the service charge, and the rates after a period of time. So you're mitigating those void costs as well. We continue to prove that we can crystallize asset management gains through successful sales, that 38% average sale to purchase price. We've done that again with Coventry, delivering an IRR of around 16%, 60% premium to the purchase price. So we're delighted to continue that track record of successful sales. We have the proceeds of Coventry, roughly GBP 25 million, to deploy on an attractive pipeline of assets. I see there's been a question about our pipeline and where do we source investment opportunities from. We have an in-house investment team at AEW. I sit down with them twice a week, and we go through a whole array of opportunities that are introduced to us.
That is where we source our deals. I believe that, yeah, we saw Coventry prior to Christmas. I believe that the market has softened more recently with what's happened in the gilt market. I think it's an exciting buying opportunity at the moment. We would look to replace, replenish the income from Coventry with new assets. It's probably worth noting that that money at the moment is held in an interest-bearing bank account. We're earning interest on that in a high-interest rate environment. That is accretive as well. The reversion potential in the portfolio of 8.9, I think that is a very strong metric. It really shows that we can continue to pay this look to try and keep this high-income strategy going, setting the asset managers on the course of capturing potential for rental growth.
We have low book values of GBP 74 a sq ft and average rents of GBP 6.66. That's showing that we're starting from a lower base level. So we have opportunities to go after, and we're delighted to have that low cost of debt at 2.96% fixed until May 27, which obviously feeds into the performance. So thank you. Henry, George, thank you very much for your presentation this afternoon. Ladies and gentlemen, please do continue to submit your questions. Just by using the Q&A tab situated on the top right-hand corner of your screen.
Just while the company takes a few moments to review those questions submitted today, I'd like to remind you that the recording of this presentation, along with a copy of the slides and the published Q&A, can be accessed via your investor dashboard. As you can see, we received a number of questions throughout today's presentation.
And Henry, could I please ask you to read out the questions and give responses where appropriate to do so? And I'll pick up from you at the end. Yeah, sure. We'll just run through these. So Tim V, we had the question to you about how do you find target properties for purchase? I hope I answered that in the conclusion. So say we sit down with our investment team, we see a lot of opportunities across all sectors within the U.K. Another question from Tim V on what the level of rent is. We don't report the collection rate these days because we feel that it's less relevant to do so. Obviously, we reported it pretty extensively during COVID, but our rent collection is in the high 90s, so 98% plus. So strong rent collection, and George alluded to that earlier on in the presentation.
If I was quickly going to add to that, to be demonstrative, within the first two weeks of quarter end for most recent quarter, we had already collected 94% of the rent. And more to the point of slightly more techy accounting points. But in terms of the bad debt provision, i.e., those rent arrears which we don't think we're going to recover, there was virtually no increase quarter on quarter. So when I stated earlier that our tenant base has really stabilized and performing well, I meant it. And one of the great markers of that is actually debt recovery, of course. And it is very strong at the moment. We've had some actually very good wins recently where some historic arrears have been recovered as well. So that's something I feel particularly encouraged by. Another question here from Andrew S.
Looking at sales to purchase premiums, the worst performance here includes geographic outliers on the coast, Portsmouth, Blackpool, Hull. Does this imply that better performance can be achieved through heartland areas such as the Midlands and the key corridor? It's a good question. The first chairman of Landsec, he coined the phrase "location, location, location." We obviously say in our investment criteria, we buy in strong locations. I think it's worth saying that Portsmouth, Blackpool, and Hull, yes, they are all coastal towns, but they were all retail assets. Obviously, that is the sector which has been through most turmoil recently, very much been through the storm in that sector and very much out the other side. We are quite enthusiastic about the high street retail sector. Not only had the sector experienced the pressures of obviously the shift online, but also COVID.
We find ourselves in 2025. Actually, the high street is in a stronger place. The tenants that are still there are the ones that have been through this really, really tough time. And so it's a sector that we feel is a good opportunity for investment opportunities. But yeah, I think I'd be ignorant to sort of dismiss that sort of location is obviously not important. And we very much factor all the property criteria when we're looking at buying assets. If I answer this question from John C, which states dividends have been held at 2.3p since 2016, inflation has eroded the real value of this return. Do you see a point when you might be able to increase annual dividend? Of course, dividend growth is always the goal. And this question is given to us each quarter.
I think it's very important to remind everybody that on a growth basis, our dividend is very large and very compelling. It's important our dividend not only is high and attractive, but it's also sustainable. We will always look to grow the dividend if we can. And of course, it's important to remember that the dividend is our board, our external board's decision. We will always seek to maximize the dividend as best as we can. But please keep in mind that it has to be sustainable. And I think there's just as much value in its sustainability as there is in its kind of growth size as well. Question here from Johnson L. Where do you believe we are in the U.K. commercial property cycle? If there is an upturn in sentiment, do you believe your value-oriented approach will still achieve outperformance?
I mean, it's hard to, I feel like we've been sort of calling the bottom of the market now for a while. I think we have seen very much a U-shaped bottom. I think what is telling is that obviously we took the decision to sell Coventry in the summer. We completed that disposal in December. And we've obviously had our eyes peeled for investment opportunities. And there are some quite exciting ones out there. As I said earlier on in the presentation, I feel that the momentum that the investment market, the U.K. investment market, was building in the past quarter has stalled slightly more recently, with obviously kind of the headwinds of, I suppose, the U.S. election and what's happened with gilts. But that is a good sort of hunting ground for us. And I think we will continue to source quite exciting opportunities.
We've been alluding to sort of green shoots. I think those green shoots will hopefully continue to sprout going forward in 2025. I think also for us, all we really have to go on when answering that question is our historical performance. It was only a few years ago that property went through a period of performing very well and we outperformed them as well. I think one must also remember during COVID, I tried to stay away from the concept of being stock pickers and doing that very well. But I think Henry and his team are very good at ensuring that the portfolio reflects the attractive attitudes towards property at that time. So if we did want to crystallize profitable sales, we can. We've done that during all phases of the economic cycle.
Not to overplay ourselves, but do I think our outperformance can be maintained during different economic times or better ones? Yes, I do. Another question from Andrew S. Do you foresee the forthcoming employers' national insurance increase putting any negative pressures on rental increases and companies appraise their cost base? Good question. I think it will certainly have an impact on those businesses' profitability and the affordability of rents. I think probably most of the sector where we feel this is probably going to pinch the most is in kind of like the casual dining sector where the margins are smaller. And I think to a certain extent, kind of where those pressures will be alleviated on the high street is business rates, non-domestic rates. So providing smaller businesses with rates relief. But it's going to be interesting to see how this plays out.
Obviously, it's early days, but I think it's a good remark and something that we are very mindful of when we're sourcing new opportunities. Question here from Tim V. Can you talk through your shareholder register? What percentage is retail institutional? So when we IPO'd roughly 10 years ago, the shareholder register was the majority was from an institutional background. As the company has evolved, there has been a shift to a higher percentage of retail investors who are naturally attracted to the high dividend yield that we pay out at eight pence per annum. We are consistently meeting with, well, with yourselves, the retail holders and our institutional investors each quarter to update them on the performance of the company. There's a question here about the growth of the company. Obviously, we would love to grow the company.
We really hope that the sort of strong performance, particularly more recently, and given the opportunities that we're seeing with our investment pipeline, enables us to grow, whether that be sort of organically through raising new capital and finding these new exciting investment opportunities sourced. But also we continue to keep our eyes peeled for M&A activity and opportunities there. There are a few questions here in relation to our level of debt, refinancing plans for it. So I think I'll address those in one go. I think the first reassuring remark to make is that refinancing of the debt is already very much on our radar. We in fact have a dedicated session with our board to start really discussing this in a few months' time, which is two years ahead of when we would wish to refinance or when the current known expiry occurs.
I think one key remark to make is with our debt facility prior to the one we have now, we actually refinanced that every year before its expiry, and it's because we acknowledged that our specialist team here really actually that was probably the best time to do it. And of course, it turned out to be the right call. Had we held that facility to its expiry, we would have been in a much worse position debt-wise now. So to reassure you, it's something we think about a long way in advance. Am I looking to increase the level of gearing on the portfolio? No, would be my short answer given the current interest rate environment. It's also important to remember that we have an investment restriction of a 25% loan to GAV, and we are around that now.
I think there's so much potential in this portfolio to amplify returns by actually investing in what we already have as opposed to necessitating the need to draw down further debt in order to fund further purchases. That's never really been our mantra or how we approach driving earnings growth or NAV returns in our portfolio. But yeah, my overriding comment is it's something we're very much thinking about. We have a specialist team who are analyzing it all the time, and I can assure you that we will take it very seriously and act on it well in advance like we did last time. I think the one here to ask is how we calculate our management fees. They're based on 0.9% of NAV as opposed to share price. Tim V, what level of property developments are you prepared to do? At what point would you sell onto the developer?
Naturally, given sort of the strategy of high income and continuing to pay out our GBP 0.02 per quarter dividend, development opportunities aren't ones that we're necessarily going after. Obviously, if we buy investments with a high level of vacancy, it is impactful in terms of our earnings. So we're typically buying sort of well-let properties, but there naturally will be development opportunities. But I would say that the intention to sort of fund those development opportunities, if they're sizable, is probably quite unlikely from the company. Don't get me wrong. If we had a drive-through restaurant pod opportunity on a leisure park or retail warehousing park, then we would probably fund that because the build cost of those is roughly about GBP 1 million. We are not sort of concerned by rolling up our sleeves and doing refurbishments on offices or on industrial units.
But I think buying sort of more sizable development opportunities, given the high income that we like to pay out to our shareholders, sort of significant development projects when it's the main sort of asset management angle of that property is unlikely. But smaller bits of development around the edges, certainly we would look at. A question here from Gordon. Are there any thoughts on increasing the size, liquidity, and scope of the REIT through merger acquisition with another quality REIT? If not, why not? I suppose I would answer this in a similar way to the debt questions. Henry and I have spent and continue to spend a significant amount of time looking at such opportunities. So very much so. We are open to that.
Of course, we think our performance of the company to speak to itself. We deem ourselves to be a very strong candidate for any such activity. I suppose, again, to reassure you, we have somewhat gone through an exercise of looking at actually every listed REIT in this country and assessing them as an opportunity, the merits of them, and actually the feasibility. We have frequent recurring conversations with our corporate advisor, Panmure Liberum, as well as our board. It's something we're very cognizant of. It's something we're doing a lot of work on. If the right opportunity came, we would do it as long as it was to the benefit of our existing shareholder base. That is the fundamental and obvious point for me to make.
We would only do something if it was going to be to the benefit of the company and to its shareholders. Thanks, George. Question here from Andrew S. How much help and knowledge input do you receive by being part of the wider AEW organization? Well, a lot. So in terms of how kind of we work as the investment manager, we have an asset management team. So they are looking after the properties on a day-by-day basis. We have an investment team. They're sourcing the opportunities and working with the asset management team when a decision needs to be made on whether to sell the assets. We have an in-house debt team, as George alluded to earlier on, who very much have their finger on the pulse with regards to the debt side of the business.
Myself and Laura, we kind of, Laura's background is actually from the investment side of things, myself, asset management, and then we have the fund operation side of the business. We have the investor relations side of the business. So there are lots of departments which sit under the umbrella of AEW, which is obviously a significant asset manager of commercial property throughout the world, owned by Natixis, subsequently owned by BPCE Group, one of the largest investment banks in the world. So yeah, a lot of firepower at AEW and sort of down and up the food chain as far as BPCE is concerned. Question here from Chris B. Sorry, I missed a lot of the presentation. Is there any case with the right sectors that you are looking to redeploy the proceeds from the assets you sell into?
We look at investments on a case-by-case basis, as I said earlier on. We're not particularly going after a particular sector. I think it's probably worth noting that if we were to buy industrials, we'd be buying them on lower day-one yields, and we would have to feel quite compelled by the asset management strategy and the rental growth that we could go after. Also sort of acknowledging that we've got 40% industrials already, and then the other sectors make up roughly 10%-15% each. Yeah, we look at the bricks and mortar value of those assets. Where that money is redeployed, it could end up in any of the sectors. As I said, we look at the individual properties, but those individual properties in those sectors have slightly different investment criteria and benefits.
So you might get more tenant churn and higher income on leisure and retail warehousing. You'll get lower income on industrials and potentially less asset management, but you might have more significant CapEx requirements. So it's very much factored in as part of the investment process. And that's why we are sort of careful in looking at properties individually rather than being focused on a sector. When investors focus on a sector, that's when they make bad decisions. And that's where actually we have bought some really great properties in the past where larger institutions have said, "We're selling out of the high street. We're selling out of retail warehousing. We need to reallocate X to Y." And that's where we've picked up some really exciting opportunities in the past. Got time. Just one or two more. This is an easy answer.
From Martin P, asking about our ongoing charges ratio and disclosure on AJ Bell. This is frustrating. I mean, to make you all aware, there's been a lot of upheaval in the investment trust space with regards to cost disclosures. We actually made the effort to actively engage with Hargreaves Lansdown in how we produce data and what they wanted to see. So us and our broker actually spoke with a representative there directly who oversees the cost disclosures and the information they wanted to see, and we kind of acted accordingly. So you'll see on our key information documents on our website and our EMT and all other cost disclosure documents that we have disclosed our ongoing charges ratio as per our annual and half-year reports. And that is what we will continue to do until new regulatory updates become made.
I will once again engage with AJ Bell and ask them to update their database. But thank you for flagging that. We've had two questions here from Chris B and Sarah G on our asset in Cardiff, which has seen valuation decline since we acquired it. I think it's worth noting that people have felt less well off in the past couple of years. And as a result of that, people are spending less money on certain leisure activities. It's funny, like the ten-pin bowling sector has fared really well recently. An example of that is the letting we did in Dewsbury. However, nightclubbing and the nighttime economy have struggled more recently. And it's kind of a double-edged sword with people being less inclined to go out and also obviously the increasing utility costs and inflation, etc. So our nightclub in Cardiff has struggled.
The tenants did go into administration, and we have assigned that lease now to Phoenix Co, and we have rebased that rent at GBP 175,000 with a turnover top-up. And we would hope that as the purse strings loosen and people feel more positive about the economy, the wider economy going forward, that the trade off the back of a rebrand and sort of a new chapter at Circuit Nightclub in Cardiff will improve and that sort of use will continue going into the future. I think it's also worth noting though that the book value of that asset is relatively very cheap. And when we bought the asset, we looked at alternative use values. It's strategically well located in Cardiff City Centre. The demographics and the strong university give us alternative angles at that asset.
There is also the potential to maybe split off the ground floor and do one or two lettings and take back the upper part. So there are various angles that we can explore. But for the time being, we're happy to work with the tenants and continue to see the nightclub use go into sort of the future. I'm afraid it's 3:00 P.M., so we've done our hour. I would like to thank you all very much for joining. Again, it's been a strong quarter, NAV growth, and a dividend covered by earnings now for three consecutive quarters. We will continue to work on asset management initiatives and getting that committed money redeployed going forward. Thank you for your continued support and catch up at the end of next quarter.
Yes, thank you all.
Henry, George, thank you for updating investors today.
Could I please ask investors not to close the session as you'll 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 it will be greatly valued by the company. On behalf of the management team of AEW UK REIT plc, we'd like to thank you for attending today's presentation, and good afternoon to you all.