Good afternoon, and welcome to the AEW UK REIT PLC investor presentation. Throughout this recorded meeting, investors will be in listen-only mode. Questions are encouraged and can be submitted at any time by the Q&A tab situated in the right-hand corner of your screen. Just simply type in your question and press send. The company may not be in a position to answer every question received 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, we'd like to submit the following poll. I'd now like to hand you over to Henry Butt, Assistant Portfolio Manager. Good afternoon.
Thank you, Paul. Good afternoon, everyone. Thank you for joining myself and George today. Just as a reminder, I am Henry Butt, the Assistant Portfolio Manager for AEW UK REIT PLC. In the hot seat currently, whilst Laura Elkin, the Portfolio Manager, is off on maternity leave. Laura's back in February 2025. So in the meantime, George and I are looking after the portfolio. So just moving to the first slide, if you've joined this presentation before, this will be well known to you, this slide. Essentially a sort of a snapshot of what we are and what we're trying to do. High income and actively managed, and that is what we're trying to do in a nutshell.
When we are buying properties, we are buying them with value investment principles, and by that, what we mean is that we are looking at the underlying bricks and mortar value of the properties that we are buying, whilst also trying to buy assets which are yielding us net initial yields, day one yields, in excess of 7% or 8%, with reversion to come. So i.e., rental growth, which we can capture through lease events and active asset management. And when we're buying these assets, we are trying to do two things: We are trying to maximize income, and in doing so, we have managed to pay out our GBP 0.02 per quarter dividend now consistently since Q1 2016, which is 35 consecutive quarters, a statistic that we're very proud about.
We're also trying to unlock capital upside, and we do that through asset management, which we say is the beating heart of our strategy. With that asset management, we have managed to achieve an 8.9% five-year total property return to March 2024. I'm afraid we don't have the June statistics yet, but we will report those in the next quarterly update. In doing so, we have outperformed the MSCI benchmark, who we report against, by 6.8%. Now, it's important to emphasize, what enables us to do that is that we are looking at properties on a case-by-case basis. We are not sector constrained, and therefore, the mix of our portfolio is very organic. We don't say we want to be in a particular sector and therefore only focus on those assets.
We sit down a couple of times a week and look at stock selection, and we will look at each of those assets on a case-by-case basis, looking at the asset management opportunities, the value to go after, but most importantly, the day one yield. Just moving to the investment criteria, on the right-hand side here. Nothing has changed here. We are sector agnostic, as I said, UK commercial property, strong locations with low levels of supply. That is important to us because it means that we can be on the front foot with our tenants and look to move on rents. Net initial yields between 7% and 10%. More recently, we've been buying, at yields in excess of 8%. It's a good, buying market out there. There's a lot of mispricing, so therefore, we can get some attractive day one yields.
The fifth and the sixth bullet point on the investment criteria are important to us. They are existing metrics from the portfolio as at June. GBP 74 per sq ft capital value on average across the portfolio. Now, that is a very important metric, because if you compare that to the cost of building buildings, i.e., GBP 100 per sq ft for industrial retail warehousing, or higher than GBP 200 a sq ft for offices or residential, that value of GBP 74 pounds per sq ft is relatively very cheap, and you have that bricks and mortar value, but it also has that high income of 8% on top of that, throwing off those income returns. A low average passing rent across the portfolio of GBP 6.70 per sq ft.
This is lowered by a higher weighting in industrial properties, which have a lower per sq ft rate to offices or retail warehousing or retail. But I like this metric because it does emphasize the reversionary potential of the portfolio, and we have a reversionary yield of 8.6%, which shows the rental growth embedded within the portfolio, which we can go after through asset management. We have a shorter than average WALT, which is a weighted average unexpired lease term, so we are able to engage with our tenants to move on rents and extend leases at value. As I said, our values are underwritten by vacant possession values, so that's in the event that the building becomes vacant, you could sell it for close to what your investment value is, residual land values and alternative use values.
We're very proud that we are recognized for this performance. We have a raft of awards here at the bottom of this slide. We have now won the Citywire Investment Trust Award for four years on the trot, which is based on three-year NAV total returns. This at a glance slide really is a 30,000 feet view of the company. A valuation of GBP 215.8 million, which was up 2.4% this quarter. It was principally driven by retail warehousing gains, mainly at Dewsbury, Barnstaple, and Coventry, not through yield compression, but through active asset management. There's a slide later on Coventry, where we've completed a number of deals over the past two years. Barnstaple, we're advancing negotiations with an incoming tenant, which had an impact on the value.
And Dewsbury, which we alluded to in the NAV announcement, we've exchanged on an agreement for lease to Tenpin. There's no slide in this presentation because we will share those details with you once that letting has completed. So a busy quarter for the retail warehousing assets within the portfolio. We saw some strong performance from our industrial sector as a result of exchanging on the sale of Droitwich, at a 33% premium to the March valuation, which subsequently moved the valuation up to that level. And we have had a quieter quarter in the office and high street retail sectors, where there is a fair bit of asset management ongoing. We've got some refurbishments at our offices in Bath and Bristol, and the reletting of the former Wilko's in Union Street is progressing.
So a quieter quarter, and I would expect there to be some valuation pops going forward once we get asset management deals over the line. 33 properties, actually now 32, having completed on the sale of Droitwich, which we announced on the 24th of July, a net initial yield of 8.19%, reversion of 8.65%, showing the rental growth that we're going after. A vacancy rate of 9.36%, which has increased from 6.3% in the previous quarter. This is a result of us disclaiming the leases, which means the leases are essentially torn up, which were in administration with CJ Services and Wilko. We've done that because we want to take the units back so we can carry out works to enable relettings of those units.
I've said historically, that we don't necessarily mind vacancies. Every portfolio needs an element of churn to be able to add value through bringing in new tenants and pushing on rents, and that's very much the case with the C.J. Services and the Wilko space. We like to blow our own trumpet on our debt facility. We have a GBP 60 million facility, which is in place with AgFe. We have an in-house debt team at AEW, who have their finger very much on the pulse with regards to the debt markets and advised us to refinance a year earlier than our previous debt facility, which was with RBSI.
We did so, and we locked in that 2.96% rate until May 2027, which puts us in very good stead considering what's going on in the debt markets at the moment. A NAV of GBP 167.79 million, that's up 3.1% since March, a 5.04% total return of NAV, which obviously includes the GBP 0.02 per dividend, which we paid out. Our share price, as at the 3rd of June, was GBP 0.853, it hit GBP 0.94 this week, so we've seen some quite strong share price performance more recently. And we would hope that that will continue as investors look to smaller cap companies, and as we hopefully get closer to an interest rate cut.
In terms of performance, 8.9% now for three- and five-year annualized property total return, and 8.8% for five-year annualized NAV total return. So there's some strong performance there. And just finally, before I hand over to George, our sector weightings will change in the next quarter now that we've sold Droitwich, so our industrial weighting will come down. But currently, we're at 37% industrial and 37% retail, which is split into retail, warehousing, and high street. Those two sectors have diverged in the post-COVID era, and then smaller holdings in offices and alternatives. But just to reemphasize, we are sector agnostic, and this is very much organic in its makeup rather than being deliberate. Handing over to George.
Thank you, Henry, and good afternoon, everybody. So I thought we'd kind of the first forward slide, we talk about earnings, and why I particularly like this slide is because it talks about the journey of the company over the last 18-24 months. Now, some of you may recall that towards the end of summer, 2022, we had sold a number of properties and were sitting on around GBP 40 million worth of cash. And since that time, we've been reinvesting those monies, at the same time as disposing of lower yielding assets and recycling those proceeds into higher yielding ones. And of course, most recently, that's culminated in a very strong quarter for earnings. Now, we took the decision this quarter to state an underlying earnings, and I'm slightly hesitant to use the word underlying.
It's more a case of a like-for-like earnings for the previous quarter. Much of the messaging we've wished to give in these presentations previously is talking about this return to dividend cover and earnings growth. And I'm aware that billing a substantial turnover rent, such as that which we note here at Hollywood Bowl, can sometimes distort that image and that journey. But yeah, so I'm very recently, very encouraged by how our earnings have continued to increase, and I think an important thing to state is that it is my expectation that how the current trajectory has gone, would continue. Are there any specific sales or purchases that you wish to touch on further?
Yeah, I think we've mentioned in our NAV announcement that there's some exciting asset management, and that is kind of feeding into this return to cover.
Mm-hmm.
You know, 1.92 underlying earnings being 96% covered, and obviously, because of the sort of, the makeup of the portfolio and the, the range of tenants, there are bound to always be sort of one-off events, which sort of either enhance your earnings-
Yeah
You know, we obviously allude to that in our announcements. I mean, in terms of moving away from kind of existing asset management in the existing portfolio, in terms of sales and purchases, the period has very much been characterized by selling out some lower yielding assets, typically industrials, in the low 6s, and reinvesting into high yielding assets. So, you know, we sold vacant possession industrial units in Deeside, obviously giving us no income. We sold two industrial units in Yorkshire for a blended net initial yield of 6.2% this time last year, and we've reinvested those proceeds into a multi-story car park in York at 9.3% day one yield, and the mixed use building that we bought in Bath at 8%.
So that really has been. They're the sort of the two themes, a lot of asset management, growing the income within the existing assets, but also selling out our lower yielding assets and buying high yielding ones. And we expect that sort of trend to continue going forward. We will be making probably more sales in the forthcoming year and looking to reinvest into higher yielding assets. And I think, despite there being a lack of interesting opportunities at the moment, it's not particularly a surprise, given that we're sort of moving into the depths of summer. But we'd expect that to pick up, and, you know, going into the year, especially as it gets the back draw from, of rate cuts as well. So I think it's gonna be, you know, quite a sort of exciting period going forward.
Thank you. Translating that notion of earnings into very much the hot topic, which is, of course, dividend cover. When we first introduced this slide last quarter, and I decided to keep it in, and really why it's important is because, yes, there's an acknowledgement in recent years that the dividend cover has suffered, and that's partly due to actually the fundamental strategy we have been pursuing. But of course, when one looks since incorporation of the company, dividend cover actually stands at over 91%. And with our recent earnings performance and very much where my expectation is for where earnings will go, I would expect that figure to increase.
And then just for the added benefit of readers of this, I've included the value in pence of what the cover has been, which is in those kind of lighter blue bars on that slide, and very encouragingly, that is now starting to narrow, and I very much expect it to continue to narrow.
Thank you, Henry. I suppose partly referencing that slide and why this slide is particularly important is we like to really focus on the fact that we are a total return strategy. So admittedly, yes, REITs generally are viewed as an income play, and very much so, our focus is on maximizing rents and driving income returns.
But of course, we are also property experts, we are value investors, and we seek to find opportunities to buy and sell properties, thus enabling the crystallization of profits and gains on those disposals. And what this, what this slide depicts here is, this is every disposal the company has made since incorporation. And as you can see, the kind of the average sales purchase price premium has been 36% across all these properties. Of course, some of you may recall Oxford sitting there in the middle, very much, the outlier. That was a property we bought in 2015 or 2016 for just over GBP 8 million, and we sold that for GBP 29 million in the summer of 2022. I also wanted to just focus on these two more recent red bars, being Blackpool and Portsmouth.
For me, these are just as important as the wins and the, and the big gains, because very much what is important about our business is, at times, being able to acknowledge when we've run the course on a certain property. We've done everything we can to drive value and drive income in that asset, and sometimes the most astute thing to do is to draw the line, sell the property, and refocus those proceeds and reinvest them into more meaningful opportunities. And of course, we've added Droitwich to the end here, being our most recent disposal. Were there any others you wanted to touch on?
No, I think you've, I think you've covered everything, George.
Okay, moving on to slide nine then. So this is the manifestation of our active asset management strategy, driving income returns, selling properties at profit. And ultimately, the result of that is NAV outperformance. So what this graph shows is our NAV outperformance versus our peer group. There are a few key themes to pick up on here. One is, you'll see the outperformance really starts to commence in late 2019, early 2020, and that is no coincidence. As Henry mentioned earlier, our WALT is around five years, and you'll see that since the company incorporated in 2015, this is where that five-year period really starts to kick in. This is where we start to see the benefit of our asset management initiatives, improving the lease portfolio, undertaking meaningful works on our properties to drive capital improvement.
Most encouragingly, of course, actually in more recent times, is even though we've been in a very challenging macroeconomic environment, especially for the commercial property sector, the degree of outperformance has actually started to widen, and we'll come onto that later in later slides when we focus more on the property performance. To reiterate the statistic Henry said earlier, we've got a five-year annualized NAV total return of 8.8%, which is very, very strong. Moving on then to our peer group comparison matrix, for want of a better term. So we've just been discussing NAV total returns, and they're on the far right of your screen there. And as you can see, as at March 2024, over all stated time periods, we are the leader among all our peers.
By no small margin, you know, if one especially focuses on the 3- and 5-year basis, we are, we are an outlier. We are well ahead of, of even the closest peer. Share price total returns have, have been interesting in the year to date. Of course, as I'm sure many of you are aware, there's been various utterings in the sector of, of M&A activity, and that has somewhat skewed share price performance. When I, when I look at the business in, in my role, I'm always thinking on the long term sustainable performance, which is, of course, how many people view REITs as a long-term investment. I'm also encouraged by on a 3- and 5-year basis, we are also the head of our, of our peer group.
And the last two statistics here really to focus on are our dividend yield and our discount to NAV. Of course, in more recent times, our discount to NAV has widened, and this is something we've really queried with our broker, and really, it's just market sentiment, as unfortunate as that is. Although, as Henry said earlier, I'm very encouraged by the recent share price performance. We're now starting to see that discount narrowing. And lastly, on our dividend yield, of course, the one benefit of the discount widening is our dividend yield has improved, and it being above 9% now is a very, very strong metric. And if we go on to the next slide, this graphically shows that.
So as you can see, after discounting for Regional REIT, which I tend to exclude, given its financial difficulty, we are at least 1% higher in dividend, dividend yield terms than even our nearest peer. And in fact, actually this quarter, it's in excess of 1.5% higher. I find that particularly compelling. Moving on. So slides 12 and 13 are drilling down into our property performance. Now, as you will see here, over all the stated time periods, we far outperform the MSCI benchmark. Most encouragingly for me, actually, is the 3-, 5-, and 7-year performance, where you will see our performance is actually very consistent in numerical terms. I feel that's really testament to the defensive and sustainable nature of our strategy.
The last thing to point out is, although this data is still as at March, you'll see at the title of the graph a stated figure of 6.82% outperformance. That actually was a widening from the December 2023 position, where that figure stood at 6.65. So I find that very encouraging, that not only is our performance still extremely strong, its actual outperformance in comparison to the market is continuing to widen. And lastly, this slide drills down into our property performance on a sector-by-sector basis, both in terms of capital and income return basis. You will see that we've outperformed the benchmark in the last 12 months across all property sectors. Particularly of interest is the fact that industrials were the only sector that delivered a positive capital performance.
Now, the conclusion that can be drawn from that, is that actually what is driving our outperformance is our income returns, and this is a direct result of our asset management strategy, our active asset management strategy. It's improving leases, it's driving on rents, it's managing costs, and that is ultimately what is delivering our performance at what is quite a difficult time for the market. Back to you, Henry.
Thank you, George. So, moving on to our most recent disposal. We made an announcement on the, the day before the NAV announcement, on the twenty-fourth of July, that we had completed the sale of Droitwich. I mentioned earlier on in the presentation that and exchanging this unconditionally was what increased the value and gave was the main contributor to the valuation performance for the industrial sector this quarter. So just to touch on a few metrics for this asset, 189,000 sq ft.
When we bought this asset back in December 2015, it was single let to Egbert Taylor, who manufacture commercial bins, and over our sort of 9-year hold period, Egbert Taylor have downsized to about 50% of the site, which has left us with a fair bit of asset management in re-letting the units that they had moved out of. Appreciating that Egbert Taylor still are the anchor tenant on the site. So we bought the property for GBP 5.62 million, a low cap rate per square foot of £30 a sq ft, but actually, if you compare that to the long income that we had from Egbert Taylor, then, you know, that was really good value at the time, yielding us 10.4%. So these are the types of assets that we will be continuing to buy going forward.
However, obviously, things changed over the lifespan of this property. So we sold it at a 33% premium to the March valuation for GBP 6.3 million, a net initial yield of 7.95%. Now, the reason we sold this is because we carried out a number of lettings over the course of the past 12 months, letting several units to new tenants. And we felt that the next phase of asset management would be quite capital intensive. Now, we are not shy of refurbishment projects, but in this instance, we thought that the ERV that we could go after didn't really justify the potential capital expenditure that we would have to spend on the buildings. There was also a sort of a plan B, which would potentially be in open storage, which would lead to demolition of some units.
Open storage is a sector which is quite in vogue at the moment, partly because there's a lack of good secondary space, and also because rents and primary logistics and warehouses are so high now, so open storage is becoming a theme. However, we kind of thought we'd roll the dice on this one. We felt that there would be a sort of good amount of demand from high net worth individuals for this asset, and we ended up selling it, as I said, for a very healthy premium to valuation. Those proceeds can be reinvested in some really exciting asset management opportunities within the portfolio. We're currently, as I said, carrying out some refurbishment at our office in Bristol, Queen Square. We're also carrying out refurbishment of two industrial units in Runcorn.
We have the Tenpin letting, which is subject to landlord works, which is exchanged, and those works are ongoing. So there's a lot of exciting asset management, which we can use these sale proceeds. Those proceeds will fuel that asset management, and there probably will be a little bit of money left over to maybe buy one small asset. That said, we are typically now trying to buy slightly larger lot sizes in excess of GBP 5 million. So I think it would be strange to be buying an asset of about GBP 1-1.5 million pounds, given this point in time. So I think we would keep that money up our sleeve for more asset management, or we would roll it in with a larger sum of money for future sales, obviously subject to any other sales within the portfolio going forward.
So, if you've joined this presentation before, you're probably sick to death of hearing us talk about Coventry, so apologies. I think it's fair to say this might be the last time we present this slide, because our asset management, for the time being, is very much done here. Just as a recap, we bought the property for GBP 16.41 million, with a day one net initial yield of 7.8%, with a reversion of 12.8%. So very typical metrics for AEW. And what we have done since owning the asset, which was bought in Q4 of 2021, is we have moved the 24% vacancy to the property now being fully let, which has increased the contracted rent by just shy of GBP 500,000.
And if you actually look at how much we've increased the net operating income, which obviously factors in the void costs that we had on the 24% of vacancy, we've grown the net-net operating income by in excess of 50%. So, you know, fantastic. This is exactly what we're trying to do within the existing portfolio. We, through the relaxing of the planning system, have brought in some new tenants, so Aldi, The Food Warehouse, which are Iceland, mydentist and The Salvation Army. So replicating what we think of as our old high streets, a range of different retailers, moving the retail warehousing park away from either fashion or bulky goods. We've carried out lease regears with Next, Boots, TK Maxx, and Burger King.
So we've got a really, really good, diverse pool of tenants here, and that will ultimately drive footfall, and footfall ultimately pushes on rents. If rents increase, the occupied demand increases, that naturally feeds into investment performance. So it's really a kind of a, a perfect storm in a good way here. We also have managed to make every single EPC for the units an A or B. That's important. If institutions are gonna end up buying these assets, they want strong environmental performance, as do we. And we have a number of other ESG initiatives ongoing, solar, EV charging, and a range of biodiversity initiatives throughout the site. So this really is a great example of the type of asset management that we do at AEW. So this is a new slide.
It's our industrial asset in Peterborough, and I think the two sort of main things I want to touch on here are its underlying capital value per square foot, which, when we bought this property, was 31 GBP per sq ft. So similar to Droitwich, but this is let actually on a 15-year lease, and the tenant's only three years in, so really, really cheap underlying value on this asset, with 12 years left on the lease. It's 12 years with three-year RPI increases. When we bought the property, the passing rent was 2.85 GBP, which is very cheap. We subsequently moved the rent to 3.50 GBP, having done a regear in April 2021. We've subsequently increased that rent by 80,000 GBP a year to 3.94 GBP.
What's fantastic is the rent, it's not over-rented in its existing state. We think ERVs for this unit are probably in excess of GBP 4 a sq ft. So that doesn't have an impact on the yield that the valuers will be using to value this off, which is quite technical. But it really has been... It's a good asset. As I say, we've seen some nice rental growth since we've owned it, and that rental growth will continue. The RPI reviews have collars and caps of 2 and 4. And it's a nice, sensible rent. It's let to a tenant that works that operates in the printing sector.
Actually, even though that sector has to some extent been on the back foot recently, with obviously people spending more time reading newspapers and magazines on their iPhones and on their iPads, the sector has consolidated and actually would say the tenant are the market leader. So we feel that this tenant is actually strong going forward. And also, it's probably fair to say that they're quite wed into this property inside. There's millions of GBP of printing machinery in there. So it's a good example of an industrial asset that we like to hold and maybe buy going forward as well.
On ESG, other than sort of asset management, sort of, sustainability plans that we have ongoing for all the properties within the portfolio, where we're looking to improve, for example, bike facilities and sustainable travel and bat hotels and bug boxes and a wider variety of flora and faunas on our sites. The most important thing at the moment is EPCs and the minimum energy efficiency standards. And over the course of the past year, since April 2023, we've been trying to move our EPC ratings into the kind of C and B category. We do have five Gs, but I'm not concerned about these.
They don't keep me awake at night, because three of them are in an office building that, in due course, we will look to demolish and create some open storage, which we'll be able to rent out, or maybe develop some smaller, new, industrial units at our site in Wakefield. And then there are two more, which are an existing unit, which is not let, so therefore, is not in breach of these. But if we had an offer for that unit, we would be able to put in some new LED lights, and we would be able to enhance that EPC score to C.
So it's something we're very much in control of, and organically, because we have the benefit of shorter lease lengths, and therefore, more, more of a churn of lease events, we will hope to push these EPC scores in the direction of C, Cs and Bs going forward. So to conclude, so as George touched on earlier, we have had consistency of quarterly earnings growth since June 2023. June 2023, our earnings were at 1.75, and the underlying figure, as of this quarter, is 1.92, but obviously, the total earnings were 2.26, which were boosted by the Hollywood Bowl turnover rent that George mentioned, and a reverse of some service charge works at Union Street. There are some really exciting asset management opportunities in the portfolio.
Those are growing the income in the company, but also they're mitigating void costs, and that's important. So, it's a sort of double whammy in terms of boosting those earnings. We remain very sort of vigilant of what's going on with our tenant base and what's going on with the wider economy. In the event that we do have tenants that do wobble a bit, but as I said, I don't think that is a concern. As I said, it can present an opportunity, and we can very much make the best out of a bad situation. And I've touched, obviously, on the C.J. Services admin and the Wilko admin, where we are in the process of doing refurbishment works and letting those units. So that's exciting, and actually, that can be beneficial.
That is the reason why we have a slightly higher cash weighting at the moment, so we can sort of feed that into these asset management opportunities to grow the income. I'm gonna regurgitate the statistic, which I did earlier on about our book value being 74 GBP per sq ft in our known rents. We really like to be in this place. It means that there's value to go after with a, with a relatively low cap rate per sq ft, and there's income to go and hunt for as well. That is illustrated by our reversionary yield at 8.6%. That is what the asset management team are instructed to go after and go and crystallize. We continue to very much think of the portfolio as a total return strategy. Sales are important to us.
It enables us to crystallize asset management gains and recycle that capital into high-yielding assets with asset management opportunities for us to go after. We're proud of that 36% average sale to purchase price premium. This is all sort of founded on the GBP 60 million debt facility at 2.96% to May 2027, which we acknowledge is a good place to be, given what's going on in the wider debt markets currently. Thank you very much. We will move on and answer some questions.
Fantastic. Thank you very much indeed for the presentation. Ladies and gentlemen, do please continue to submit your questions using the Q&A tab situated in the right-hand corner of your screen. Just while the team take a few moments to review those questions submitted today, I'd like to remind you, the recording of the 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've received a number of questions throughout today's presentation, and if I may, just ask you to click on that Q&A tab and, start from the top, and read out the questions where appropriate to do so, and I'll pick up from you at the end.
Okay, fine. So we have a first question here saying: "Can you clarify the position regarding the tax indemnity? I'm puzzled, as I understand that the company was being indemnified for the amount of tax payable already provided for, and also presumably already reflected in that." So, HMRC are yet to confirm the exact amount. When they do confirm the amount, that will be paid and will be indemnified by AEW UK Investment Management. As we have said previously, it will have no financial bearing on the company whatsoever. So it's just something that we're working through. We had hoped that we would know that, this quarter, and we now hope that we will know by next quarter.
Question here saying: "Will the wind up of Home REIT impact AEW, as AEW received management fee income?" It's very important to stress that AEW UK is a completely separate portfolio management team, and asset management team, and investment management team. So we operate entirely separately, so it will have no bearing on AEW UK whatsoever.
We now have a question about discounts. It states, "The discount is substantially above the average. What's the company going to do to address this, as investors are nursing losses over every period in the last five years?" So there's a few points I'd touch on here. One is, yes, as I alluded to in the presentation, the discount has recently widened, and really, that's to do with wider market sentiment. And of course, in more recent times, we've started to see that narrow, and it's very much my hope and expectation that that trend would continue. But one must remember that over the last year, our average discount has been around 7%, and of course, actually, there was a period of time, certainly in 2022, when we disposed of Oxford, that we were actually at a premium to NAV.
As a business, we've undertaken a variety of initiatives to improve the marketing efforts of the company. Henry and I have met with various investors, and some of you may have seen the Capital Access Group research note on the AIC website. And all of these are efforts to promote knowledge of the company in the market in the hope of supporting its share price. Of course, there's only so much we control. Market sentiment is one thing that we can do our best to mitigate on an idiosyncratic basis. But as of now, our efforts are very much focused in promoting the business and supporting that share price as best as we can.
So question here from David S: You mentioned you were seeing mispricing in the market. Do you have enough liquidity to take advantage of these opportunities, and what's the strategy to recycle the portfolio? Well, what I would say is that, you'll be aware that, we do sort of carry out a lot of, disposal of existing assets and recycling that. That theme is very much gonna continue. Obviously, we've only just sold Droitwich. Appreciating that it is, it's the third of July, so the investment market does slow up.
I'm happy to say that we will, we anticipate there to be, further sales over the course of the next six months, which means there will be acquisitions as well, and that is principally being driven by us doing what we have always done in crystallizing asset management gains, but also because we feel that there are some exciting opportunities out there and some good mispricing, particularly in larger chunks of high street retail offices in good towns and cities, a bit like the properties that we have recently bought in Bath and Bromley. We hope that we would find more opportunities like that. We certainly have our eyes on disposals and recycling those proceeds into new buying opportunities. Question here from Adrian W: When do you anticipate some growth in the dividend?
It's been static for a few years now. I think it's important to stress that, the dividend policy, is very much decided by our board rather than the investment manager, AEW. So that is the decision of the board. And obviously, we continue to inform our investors of that when we make our, quarterly announcements. Question here from Mark B: Have there been changes to the management of AEW UK? I observe that Laura Elkin isn't on this call. And no, there haven't. And I said, at the beginning of this presentation, that Laura is currently on maternity leave. So Laura, will be back with us in February. And for the time being, I am in the hot seat, as portfolio manager, but Laura will be back and, resuming her role in February next year.
Question here from Ashley R: Can you please detail the team around you and what resources you can draw on? What involvement do you have as a PM team in the ongoing day-to-day asset management and portfolio buy, sell? So, people, if people don't know much about AEW, AEW was founded in Boston, United States of America, and is a specialist investment and asset manager of real estate. We have about $40 billion in management in Europe, and same in America, and we have a UK office, which is where George and I are sitting today. In our office, we have a dedicated asset management team, a dedicated investment management team, a dedicated debt advisory team and fund operations team. So separate teams all focusing and specializing in their area of expertise.
For example, I started my time at AEW 10 years ago in the asset management team and have worked my way up. So my bread and butter, my trade really is asset management. But obviously, more recently, I've moved into portfolio management. So in terms of how we operate, the portfolio management team, so myself and George, will sit down with the asset managers, weekly or fortnightly to discuss the existing 32 properties within the portfolio. We go through business plans, and we all chat through what we're gonna do to try and add value. In terms of the investment side of things, we have a hold/sell meeting, where we go through the portfolio and decide which assets may or may not need selling, for a range of reasons.
We sit down weekly, if not twice a week, depending on the stock that we're seeing with the investment team, looking at new opportunities. So it, it works very well. I think that, those specialist departments are very much, a contributor to the strong performance of the company over the last 10 years. So question here from Martin G: Do you anticipate any move in the UK to mandate landlords to install solar PV capacity, e.g., similar to the obligations in France? While green, does this make financial sense? So I can only really speak on my experience of solar panels.
If you have a full repairing and insuring lease, which is the majority of our properties within the portfolio, if you are going to install solar, you first need the permission of the tenant because they are responsible for the upkeep of the property. So therefore, by putting solar panels on the roof, you need their permission, because obviously any damage caused would be their responsibility, so you need to work through that. You also need to make sure that your property is fit to install those solar panels. You also need to have a connection with the grid, so you need to speak to National Grid to make sure that you can do that.
The reason being that if you have surplus electricity produced, which the tenant isn't using, you need to essentially sell that back to the grid. The alternative is that you can have batteries on your site, but that is a bit of a sticky wicket, because batteries are very flammable, and therefore, your insurance premium goes up. The general sort of financial metrics behind solar panels is that actually you can generate electricity and sell it to your tenants at cheaper than what they are currently buying off the grid. So you make money, they save money. But there are several sort of hoops to jump through. But the returns are fairly exciting. You can get sort of an IRR over like a 15- to 20-year period, of about in excess of 10%, obviously, depending on the scheme.
So it is something that we do look at. There is potentially a plan to do it at Dewsbury. As I said, we're exchanging the lease with Tenpin there, who have a sort of strong focus on ESG. But obviously, our sort of main goal is sort of the nuts and bolts of property investment management and dealing with the tenant. Of course, we would like to make the portfolio greener, and we will always continue to review solar opportunities. Question here from Mark B: Can you tell us about your pipeline recycling capital release from recent assets? It's probably too soon to include a pipeline slide. We might include one in the next quarter. There are some good opportunities out there.
I think the heaviest mispricing is actually in the office sector, so there's some really good deals to go at there. However, it's probably fair to say that I'm a little bit twitchy about the refurbishment costs associated with offices at the moment, particularly bearing in mind that tenants are only prepared to take 3-5-year leases, and there's less rental growth in the sector, and it's becoming quite polarized in that offices, you really have to be sort of the best in class, the best located, and the best environmental performance. But I think there are some good office buying opportunities out there. I also think, you know, flipping around the head, a very different set of offices, there's some really good leisure opportunities out there.
Strangely, sort of in the cost of living crisis, people naturally feel that people have less money to spend, and therefore, that's having a negative impact on the leisure sector. But we actually alluded to it in our NAV announcement, the success of the bowling sector in particular, having done that letting with Tenpin, and obviously, full three years of turnover rent from Hollywood Bowl, where in the three years prior to the most recent three years, there had been no turnover rent. So that, that stresses the success of the leisure sector. And actually, I, prime, prime leisure yields are sort of, kind of 9%-10%, so that's perfect for AEW UK. And they're typically let on longer leases as well, with review mechanisms, so we can go after rental growth.
So I think leisure is an exciting opportunity, as is offices, mainly because of mispricing. But I think there are also some really good opportunities in larger chunks of real estate in good towns and cities, as are our recent purchases of Bath and Bromley.
A question from Gordon M: How important is it to AEW to get the dividend fully covered? Is there any scope for fractionally growing the dividend, increasing from the historical 2p per quarter? So I suppose there, there's two elements to that question. How important is dividend cover? My initial response to that would be, we wouldn't place so much emphasis in this presentation on earnings and dividend cover if it were not ultimately important to us. Of course, our focus, and much of what is my role in this business, is paving the way to achieving that, and very much keeping the focus on doing that. However, as Henry and I alluded to in the presentation, we do very much have a total return hat on as well. REITs, of course, are an income play. Traditionally, that's how they are viewed.
But it is no coincidence that we've managed to afford and pay our dividend for so long. Our ability to do that has been facilitated not just by, you know, the fantastic portfolio tenants we have and, and the growing rents we've been able to achieve, but it is also selling properties for profit and supplementing the dividend where needed. And the, and the other part of the question about fractionally increasing the dividend, as Henry said, of course, it's the AEW board that decides what our dividend policy is. However, I do feel it's important to remember that on a growth basis, our dividend is market leading. It's extremely competitive, and it's splitting out a dividend yield well in excess of 9% now, and way ahead of our peers, which I feel is very compelling.
Of course, where we can deliver further return to shareholders, that would always be considered by our board. But I can't really comment on future earnings or the future affordability of dividends.
Question here from Andrew S: Are you and George, Laura dedicated to the REIT, or do you work more widely for AEW, for AEW? We are dedicated to the REIT, completely 100% so. I think it's myself and Laura have historically worked on other strategies at AEW. But I think that is a good thing because it's good to sort of work up and down the risk curve. So I have done a bit of work on a longer income alternative fund in my early days at AEW. I've also worked on core plus strategies, so I think that sort of is good experience when obviously working on a core, core plus strategy like AEW UK.
And I also have worked on a value add strategy, but the decision was made to solely focus on AEW REIT, which is testament to us really wanting to deliver all our resources to this company and fully focus on it.
Another question from Andreas: Do the challenges recently faced by other REITs provide any purchase opportunities for AEW? Yes, very much so. Obviously, with our share price at a discount at the moment, raising new capital is tricky. We very much have our eyes peeled on corporate acquisitions, but the most important thing is that we would never really look to sink our teeth into a merger or corporate transaction as it must be to the benefit of our shareholders.
Yep.
So that is the most important thing. Question from Richard B: What is the position with your nightclub in Cardiff, which is under administration? So it's still under administration. The tenant is still trading out of there with the administrator paying rent. That is obviously a good thing. So we are still getting the rent that we were receiving prior to the administration on the first of February. We are in the process of assigning that lease to a Phoenix co. But to sort of, if you're on the ground, it would, it would appear nothing has changed. The rent will be reduced, but we feel that that is obviously, you know, to our benefit and the tenant's. It means it's a more sustainable investment going forward.
And there will be a turnover provision, which means that obviously we will benefit if the tenant trades well, as per the examples that we have shared in prior quarters, for example, Hollywood Bowl, more recently, Sports Direct, Poundland, et cetera. So a question here saying, AEW in the past talked about opportunities in the existing portfolio, such as drive-through coffee pods at the gym in Scotland. There's land previously being purchased. How are these opportunities progressing? Are there any more opportunities identified? Great results, thanks. Thank you and team for your hard work. Well, thank you for the thanks. In terms of drive-through restaurants, we have, for example, an existing one at our retail warehousing park in Dewsbury, let to KFC, where there is a lease negotiation ongoing.
I think my high-level summary on those drive-through restaurants is that actually, there's been some really strong rental growth performance in recent years as the sector has very much become well known, and obviously, we will all know that you drive around the UK, and these drive-throughs are incredibly busy. So there's been some really strong rental growth. However, at the same time, their build costs have really increased. So the profit that you will be going after in building these obviously very small, and they're about 1,500 sq ft, has actually shrunk based on my recent understanding despite the rents increasing so much.
And also, as the sector has matured, there are a much wider variety of franchises, and therefore, you don't necessarily get a really strong yield applied to the tenant that is taking that restaurant, which will obviously be an agreement for lease subject to the pod being built. So it's. In my experience, there seem to be less of these opportunities at the moment. You know, we've seen these drive-throughs popping up all over the UK, and obviously, the more that pop up, the less opportunities there are gonna go forward. And that's to say, I have, in my earlier days at AEW, built two of these in a value add fund, so I've got experience doing it, and obviously, I have my eye on other opportunities.
I think the Glasgow one in particular is quite hard because of the access, which is frustrating because there is a really nice chunk of land there, which could be developed for that use.
There's a question here from Andrew S: Do you have a viewpoint on the overall size of AEW, which is very modest in terms of the universe of other REITs? So I think the first obvious point to make here is a reiteration of what Henry said a few moments ago. If we were to undertake any corporate activity, the first fundamental criteria that must meet is that it must be for the betterment of our shareholders and must not jeopardize them. Much of my role and, and Henry's role, actually, over the last 12, 18 months, especially with all the utterings of M&A in our industry, has been assessing these opportunities, and it's something that we remain extremely cognizant of.
Of course, it would be optimal for the company to be more liquid, to have a higher NAV, and that's something we are always going to maintain a focus on. But of course, that would never be at the jeopardy of our ultimate strategy and focus, which is driving income and gains in the portfolio that we already have.
Question here from Richard S: Are you a good landlord? Or put another way, where do your tenants sit in your asset management focus priorities? Are we good landlords? Well, if I might sort of touch on what we've reported on Coventry, for example. In doing a lot of the asset management there, we have obviously spent significant amounts of money on the units, and that was obviously delivering units which are fit for purpose for the incoming tenants. We've also put on the table capital contributions as an incentive to get tenants in. So, if you take that as an example, yes, of course, we're a good landlord. I think.
What I always really like about sort of getting out on the road and inspecting our properties is meeting tenants and inspecting the properties, and really sort of realizing that we have a range of properties which are obviously providing, you know, an important function to the UK economy. I think it's important that the landlord and tenant relationship is a good one. It's very much not a case of the landlord looking to just squeeze as much value out of their asset, and they know that they can do that by putting pressure on the tenant. It's very much a mutual relationship. The tenant benefits, obviously, from good space that they can operate their business out of, and in return, we collect the rent and, you know, our investors benefit.
So, there's—it's only gonna be detrimental if your relationship with your tenant is a bad one. You wanna. You want it to be a good one, because that ultimately will be the foundations for strong investment performance.
There's a question here about share ownerships. How does overall ownership of shares split between retail investors, wealth managers, and other holders? I actually recently did an analysis into this. Of course, it changes every day. But in terms of our retail holding, at the time I did the analysis and the information I could garner, was at least 50%, and I'm sure it'd be no surprise to many of you who are likely on these platforms, the likes of Hargreaves, interactive investor, AJ Bell, form a big portion of our register. But there are also a huge diversity of wealth managers. I can't state exact figures, but I can say that the retail holdings at least 50%. Is there anything else we haven't?
There's a question here from FM: What's the market looking like? When are you expecting it to change, and what sectors are you going to invest in going forward? I kind of think I've answered this question, but I think that there, it's... Well, it's been a very slow year as far as the investment market is concerned. It's the transaction volumes are significantly less than they were, post GFC and post-Brexit, so that really shows how the higher interest rate environment has really slowed up the investment market. I think it's probably fair to say that people are starting to accept that higher interest rates are the norm now, and there are starting to be more cash buyers in the market.
I feel that September will be well quite interesting, because I really feel that there probably will be a point where stock increases, and there will be some buying opportunities. Obviously, we will have an eye on disposals as well, because obviously we need those funds to buy new assets. I think that's all, everything answered, Paul.
Fantastic. Thank you very much indeed for covering off those questions. Of course, any further questions do come through, you will have the ability to review those, and we can publish responses on the Investor Meet Company platform. Before redirecting investors for their feedback, which is particularly important to you and the team, Henry, can I just ask you for a few closing comments, please?
Thank you, Paul. Thank you all for joining us today. I hope that we have provided more meat to the bone with regards to our most recent announcement. The company is in a good state of affairs, as I said, with some exciting asset management opportunities ongoing. I wish you all a good summer, and look forward to presenting to you again in the autumn.
Fantastic. Henry, George, thanks for updating investors today. Can I please ask investors not to close this session? You should be automatically redirected to provide your feedback, in order the team can better understand your views and expectations. This will only take a moment to complete, and it would 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.