abrdn Euro Logistics - Full Year Results
21/04/2023 07:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20230421:nRSU9821Wa&default-theme=true
RNS Number : 9821W abrdn European Logistics Income plc 21 April 2023
20 April 2023
LEI: 213800I9IYIKKNRT3G50
abrdn European Logistics Income plc (the "Company")
FULL YEAR RESULTS FOR THE YEAR ENDED 31 DECEMBER 2022
Differentiated strategy underpinned by high indexation and occupier demand
delivers portfolio valuation resilience, with platform in place to capture
long-term income growth
abrdn European Logistics Income plc, the Continental European investor in
modern warehouses, which is managed by abrdn, announces its full year results
for the year to 31 December 2022.
Resilient NAV performance despite highly volatile macroeconomic backdrop;
maintained dividend supported by low-cost, fixed debt:
· Net asset value per ordinary share decreased by 7.75% to €1.19
(31 December 2021: €1.29), primarily driven by market-wide outward yield
movements as a result of rising interest rates
· IFRS NAV total return of -3.8% (31 December 2022: 12.4%)
· EPRA net tangible assets €1.25 (31 December 2021: €1.36)
· IFRS earnings per share of -4.51cents (31 December 2021: 15.43
cents)
· Loan to Value of 34% at 31 December (31 December 2021 25.1%)
· Low all-in cost of fixed term debt of 2.01%, with no major
refinancings due until mid-2025
· Dividend distributions of 5.64 euro cents per share paid in
respect of the year
· Attractive WAULT of 8.9 years (31 December 2021: 8 years) and
inflation linked lease profile, with 65% of current portfolio income subject
to full indexation
· A £38 million (€45.6 million) equity issuance completed in
February 2022
Increased exposure to high growth urban logistics sub sector and
indexation-driven, active management initiatives to support occupancy and
earnings growth optimisation
· Strong rent collection
· Portfolio value increased 14% to €759 million (31 December
2021: €666 million) reflecting new acquisitions; the like-for-like portfolio
valuation decreased by 4%, mainly as a result of the outward yield movement
witnessed in Q4
· State of the art Amazon-leased warehouse and parking deck
completed at Gavilanes, Madrid at a cost of €80.3 million on a 25 year lease
· Four further acquisitions completed for a total net consideration
of €44.7 million, taking the portfolio to 27 assets across five countries
and increasing the portfolio weighting towards high growth urban logistics
sector to 51%
· Annualised passing rent increased by 18% to €34.7 million (31
December 2021: €29.4 million)
· Income enhancing asset management successes including:
o Five year lease agreed with ADER on 7,375 sqm of previously vacant space
at Madrid Phase II, earlier than forecast and ahead of rental estimate
o Completion of Madrid Phase IV Amazon hub
o Delivery of highly sustainable warehouse extension at Waddinxveen, in the
Netherlands
o Post-period, a new 9.5 year lease with Dachser France at its La Creche,
Niort, property, 3% ahead of previous annual rent payable
· Further improvement in the Company's Global Real Estate
Sustainability Benchmark ('GRESB') score to 86/100, whilst maintaining its
high Green Star rating with 4 out of a maximum of 5 stars
Tony Roper, Chairman, abrdn European Logistics Income, commented:
"Our core focus over the coming months will be on optimising the current
portfolio in terms of both occupancy and earnings growth. We retain a strong
conviction in our investment strategy and during this period of inflationary
pressure, the Company's indexation characteristics should provide a level of
inflation protection alongside our attractive dividend yield. Furthermore, we
believe a combination of the portfolio valuation resilience versus other
commercial real estate funds and the growth prospects in our key markets
versus the UK provides an attractive differentiator for investors."
Troels Andersen, Lead Fund Manager, abrdn European Logistics Income, added:
"Continental European logistics real estate is well placed to navigate the
current high inflationary environment due to its CPI indexation
characteristics and robust market fundamentals. Backed by the tailwinds of
record-low vacancies and structural demand drivers, rental growth is expected
to retain its momentum in most European logistics hotspots.
"While lingering economic, political, and financial market uncertainties may
disrupt investment trends and present select occupational challenges in the
short-term, the favourable underlying trends including growing e-commerce
penetration, onshoring and supply chain reconfiguration/ modernisation should
remain important drivers for the sector."
-Ends-
For further information please contact:
abrdn +44 (0) 20 7463 6000
Luke Mason
Gary Jones
Investec Bank plc +44 (0) 20 7597 4000
David Yovichic
Denis Flanagan
FTI Consulting +44 (0) 20 3727 1000
Dido Laurimore
Richard Gotla
James McEwan
Financial Highlights as at 31 December 2022
Net asset value total return1 IFRS Net Asset Value IFRS Net Asset Value per share (€)1
(€'000)
2021: 12.4% 2021: 487,505 2021: 1.29
(3.8%) 489,977 1.19
Share price (Discount)/Premium to Ordinary dividend
total return1 Net Asset Value1 per share
2021: 12.46% 2021: 7.8% 2021: 5.64¢
(38.3%) (35.0%) 5.64¢
Ongoing Charges1 IFRS Earnings Per Share Portfolio valuation (€'000) 1
2021: 1.3% 2021: 15.43¢ 2021: 666,008
1.3% (4.51¢) 758,719
Number of Average lease length in years Loan-To-Value1
assets (excl breaks) (%)
2021: 23 2021: 8.0 2021: 25.1%
27 8.9 34.0%
Average building size (sqm) All-in fixed interest rate EPRA Net Tangible Assets per share (€) 1
2021: 23,403 2021: 1.43% 2021: 1.36
21,374 2.01% 1.25
1 Alternative Performance Measure
Overview
Chairman's Statement
Dear Shareholder,
I am pleased to present to you the Company's fifth Annual Report in respect of
the year ended 31 December 2022. I should also like to take this opportunity
to formally welcome our new lead manager, Troels Andersen, who joined us
back in October. With the support of the wider European team, there has been a
seamless transition with Troels, who is based in Copenhagen, picking up the
reins and quickly getting up to speed with our diversified European property
portfolio.
Following on from the Company's strong financial and operational performance
delivered in 2021, as key structural drivers boosted the logistics sector and
helped to deliver a double digit net asset value ("NAV") total return, 2022
was characterised by unpredictable political events, an economic slowdown and
surging inflation.
As the COVID pandemic eased, focus quickly turned to a global cost of living
crisis driven by high inflation. The war in Ukraine also had a significant
impact as central banks and governments tried to react to the conflicting
pressures of high inflation, rising interest rates, slowing economies and the
escalating cost of living. A risk-off theme led to valuations initially being
trimmed and then falling more materially as investors stood back to take stock
and bank base rates rose.
The impact on debt costs led to a declining flow of capital into real estate
generally and softening yields. We have not been immune to negative sentiment
despite robust occupier demand as our discount to net asset value widened in a
relatively short period of time.
With Eurozone inflation peaking in October 2022 at 10.6%, a final interest
rate hike in December from the European Central Bank marked a year of
disruption for financial markets and real estate investors. However, recent
data indicates that headline inflation has peaked as energy-driven increases
are beginning to slow. According to Capital Economics, core interest rates are
expected to rise throughout H1 2023 to peak at 3.5% by mid-year, providing
more certainty for investors to manage cash flows, before falling again into
2024.
We are highly aware of the broader economic challenges ahead for the remainder
of 2023 that could have a negative impact on valuations. However, we believe
that we are well placed in terms of the resilience of our increasingly
diversified portfolio, our fixed rate debt and the future earnings growth
driven by predominantly long-term indexed leases.
The 8.9 year portfolio WAULT and CPI indexation of the majority of our tenant
leases provides for this durability of income and a strong degree of inflation
protection which should partly ameliorate any decline in valuations.
65% of our annual income is subject to uncapped CPI indexation and the
majority of the remainder subject to capped indexation. Rent remains a small
element of our occupiers' overheads which can make it easier for them to
absorb increased lease costs.
Occupational demand has remained resilient for industrial property, as
companies continued to adapt to changes in retail habits, as well as a growing
need to strengthen supply chains given the previous three years of
disruptions. Supply levels of new logistics warehousing remain constrained
with limited new development due to increased interest rates and
construction costs, planning challenges and competition from alternative
uses, so further rental growth is likely even as economies have weakened.
Prime logistics in Germany, Netherlands, France and Spain is seeing
historically low vacancy rates and, with speculative development expected to
decline, we believe that vacancy rates will remain tight, which will keep
upward pressure on rents.
The segment of the market that we operate in has seen particularly fast
growth, which many believe is a permanent shift considering underlying
fundamentals. The acquisitions made during the year helped to further
diversify the portfolio and to reinforce a roster of high-quality tenants,
including Amazon. The Company's portfolio is 51% weighted by value to the
high-growth, urban logistics sector, the part of the market forecast to see
the greatest capital and rental growth over the medium to long-term.
Overview
As at 31 December 2022, the Company's property portfolio consisted of 27
assets located across five European countries and was independently valued at
€759 million (£666 million). The like-for-like portfolio valuation was
resilient throughout most of the year when compared to other parts of the
commercial real estate market, with a 6% decrease witnessed in Q4, as a result
of the market-wide outward yield movements caused by rising interest rates as
mentioned above.
In August, the Company announced the acquisition of two urban logistics
properties, in Bordeaux and Niort, France. The aggregate purchase price of
€23 million reflected a net initial yield ('NIY') of 4.0%. Both are leased
to logistics operator Dachser Intelligent Logistics, the German-owned global
third party logistics provider, operating as Dachser France.
In October, the Company announced the €9.3 million acquisition of an urban
logistics warehouse in Dijon, France, also leased to Dachser, representing a
4.2% NIY. In October, the Company also acquired a warehouse in Horst, the
Netherlands, for €12.2 million via a sale and leaseback deal with Limax, a
producer, packager and distributor of soft fruits and mushrooms. The tenant
critical asset with cold storage lies in an area known for its agrifood and
agricultural businesses.
During the year, the Investment Manager undertook a number of asset management
initiatives in Lodz and Warsaw as it continues to capture the portfolio's
indexation characteristics. We agreed a new 5 year lease with ADER at Unit 3,
part of Phase II of the Gavilanes site in Madrid. ADER provides distribution
services to companies in the freight and logistics sector. The annual
contracted rent of almost €470,000 per annum is fully CPI indexed and was in
line with expectations. We also completed the 2,500 sqm extension with our
tenant Combilo in Waddinxveen. The lease runs concurrent with the original,
with 11 years remaining, and generates additional rent of c. €250,000 per
annum, reflecting a yield of 5%. The extension complies with the latest energy
neutrality standards in the Netherlands and includes 16 rooftop solar
panels, resulting in an A+++ energy rating.
Post the year end, the Company agreed a new 9.5 year lease with Dachser France
at its La Creche, Niort, property, 3% ahead of previous annual rent payable
and significantly ahead of ERV, with full French ILAT indexation. Negotiations
are in train in relation to Avignon and Ede re-gears and further information
will be released shortly. The Company's Meung-sur-Loire asset remained vacant
at year end with the Investment Manager continuing to work hard with its
locally based transaction managers and brokers to find a suitable tenant.
Discussions are currently underway around potential short-term interest which
would boost income. The Board has also noted the intentions of electric van
manufacturer Arrival to consolidate operations in the US. Negotiations have
commenced around the two units that Arrival leases in Madrid. We are
optimistic that a suitable agreement will be reached allowing the Company to
re-let these very well located buildings and reduce any potential for a
decrease in income.
In addition to the above, the Investment Manager is in negotiations over the
potential sale of one of our assets, at or around current valuation. The
Company will announce further details on this when, and if, such sale
concludes.
As I have previously stated, our investment case is enhanced by the
competitive advantage provided through the Investment Manager's relationships
and market knowledge with its local teams based in key markets in Europe,
enabling it to originate and then execute on attractive acquisitions, as well
as leveraging this insight to improve the portfolio performance. The
Investment Manager has built a portfolio of assets diversified by both
geography and tenant in established distribution hubs and within close
proximity of cities with substantial labour pools and excellent transport
links. These critical factors should ensure that the Company's assets will
remain attractive to tenants, underpinning longer term valuations. Further
details on the composition of the portfolio and lease renewals are provided in
the Investment Manager's Report that follows.
Results
As at 31 December 2022 the audited Net Asset Value ("NAV") per Share was
€1.19 (GBp - 105.4p), a decrease of 7.75% compared with the NAV per Share of
€1.29 (GBp - 108.5p) at 31 December 2021. With the interim dividends
declared, this reflected a NAV total return of -3.8% for the year in euro
terms (+1.7% in sterling calculated on a quarterly basis).
The closing Ordinary Share price at 31 December 2022 was 68.5p (31 December
2021 - 117.0p), representing a discount to NAV per Share of 35.0%. The Board
monitors the share price discount regularly and whilst share buybacks may not
be a panacea for the impact of underlying economic issues that have afflicted
the wider real estate sector, the Board is aware that shareholders approved
their use at the most recent AGM in 2022. Available cash could be used for
this where deemed appropriate.
Dividends
First, second and third interim dividends in respect of the year ended 31
December 2022 of 1.41 euro cents per Ordinary Share were paid to Shareholders
on 24 June 2022, 23 September 2022 and 30 December 2022. These equated to 1.19
pence, 1.20 pence and 1.20 pence respectively.
On 17 February 2023, the Board declared a fourth interim dividend of 1.41 euro
cents per Ordinary Share (equivalent to 1.20p), which was paid to Shareholders
on 24 March 2023, making a total of 5.64 euro cents paid in respect of the
financial year under review. The equivalent sterling rate paid was 4.79p per
Share (2021 - 4.84p per Share).
The Company continues to pay quarterly interim dividends in line with its
policy with dividends declared in respect of the quarters ending on 31 March,
30 June, 30 September and 31 December. Shareholders may elect through the
registrar to receive dividend payments in Euros instead of Sterling. Once a
Shareholder has elected to receive dividends in Euros, then all future
dividends will be paid in Euros unless the Shareholder elects to switch back
to Sterling payments. The dividend target and any dividend payment may be made
up of both dividend income and income which is designated as an interest
distribution for UK tax purposes and therefore subject to the interest
streaming regime applicable to investment trusts.
Further details on this breakdown can be found under 'Results' below (page 21
of the published Annual Report and financial statements for the year ended 31
December 2022) and are reflected within the Company's dividend announcements.
Financing
Having witnessed the recent material interest rate fluctuations across the
continent, I am pleased to say that the Company's debt, provided by our
European partner banks, remains fixed in nature and secured on certain assets
or groups of assets within the portfolio. These non-recourse loans range in
maturities between 2.5 and 7.0 years with all-in interest rates ranging
between 1.1% and 3.0% per annum. Our earliest re-financings are not scheduled
until June 2025.
During the year fixed term loans totalling €108.6 million were arranged and
drawn with ING Spain, secured against the assets in Gavilanes, Madrid.
The Company maintains an uncommitted master loan facility ("Facility") with
Investec Bank plc for €70 million, which is currently undrawn. Under this
Facility, the Company may make requests for drawdowns at selected
short-duration tenors, as and when required, to fund acquisitions or for other
liquidity requirements and this was used to good effect during the purchase of
the Gavilanes assets. Within the Facility, Investec also makes available a
£3.3 million committed revolving credit facility which is carved out of the
total €70 million limit of the Facility.
The year-end gearing level was 34.0% (2021 - 25.1%) with an average all-in
interest rate of 2.06% on the total fixed term debt arrangements of €270.3
million.
ESG and Asset Management
The Investment Manager continues to seek to improve the sustainability
credentials of the portfolio and the results of the 2022 GRESB ('Global Real
Estate Sustainability Benchmark') survey saw the Company's portfolio achieve a
score of 86/100, representing continued improvement and an uplift on its 2021
GRESB survey score of 84/100. It also compares favourably versus the 79/100
average peer score and 74/100 overall average 2022 GRESB score.
The Company has maintained its high rating with 4 out of a maximum 5 stars and
outperformed the benchmark average score in most categories. The latest GRESB
scoring recognises the fundamental importance the Investment Manager places on
sustainability when acquiring and subsequently enhancing the Company's
portfolio. The improved performance score rewards the progress made with
regards to environmental, social and governance ("ESG") factors. These include
solar panel project initiatives, the tenant satisfaction survey, light
sustainability audits and nearly 100% data collection across the portfolio
linked to Envizi sustainable reporting software which is used to analyse
energy consumption. The Investment Manager obtains volumetric usage data on
energy use, waste disposal and water consumption for reporting and possible
cost savings. This data collection is useful for tenants enabling them to
analyse areas where they may be able to reduce emissions, become more
efficient and pare costs. In addition, all buildings have LED lighting and the
Investment Manager continues with plans to further enhance ESG credentials
going forward where possible.
Fuelled by increasing regulation, ESG matters will continue to dominate the
public and political sphere as stakeholders' concerns for transparency and
disclosure are enhanced. This includes our tenants, for whom ESG obligations
are an increasing priority. Considering environmental compliance, resource
use, social impact and governance is an integral part of a property
acquisition and management approach. The tightening of ESG regulation across
Europe and the current hikes in interest rates make the transformation into
higher rated assets important but, with increased legislation and mandatory
disclosures increasing, the risk associated with 'stranded assets' within real
estate portfolios will grow. We are more likely to see investors seeking to
avoid assets at risk of stranding and even incurring penalties for failing to
comply with tightening legislation. Our portfolio of relatively newer assets
stands us in good stead in this regard.
ESG is embedded within the Investment Manager's investment process and
although many of our assets are recently built, a programme continues to
identify areas where improvements can be made.
Sustainability is fundamental to our ability to create long-term value for all
stakeholders and the Investment Manager has defined and continues to implement
a strategy to support our sustainability targets for positive environmental
and socio-economic impacts. The ESG section provides further clarity on our
processes, including our further thoughts on establishing a net zero carbon
pathway.
Governance
The Company is a member of the Association of Investment Companies and seeks
to follow best practice regarding appropriate disclosure.
In accordance with good governance, the Directors offered to meet with a
number of our larger shareholders during the year to hear their views on the
Company and its performance. Directors are available to meet with investors to
discuss the Company in more detail at the AGM and may be contacted through the
Company Secretary at all other times.
The Board looks to undertake short annual site visits to view the properties
owned, meet with tenants where possible and members of local staff and
advisers of the Investment Manager. During the year the Board was pleased to
visit the Gavilanes and Coslada, Madrid, assets helping to better understand
the in-demand location, site layouts and meeting with abrdn's local
Madrid-based real estate team which has a focus on managing these assets for
us.
Following best practice, the whole Board is standing for re-election at the
forthcoming AGM and further details on each Director may be found on pages 72
and 73 of the published Annual Report and financial statements for the year
ended 31 December 2022.
Annual General Meeting
The Company's Annual General Meeting will be held in London on Monday, 12 June
2023 at 11:30am at Wallacespace, 15 Artillery Lane. London, E1 7HA.
The formal Notice of AGM may be found on page 169 of the published Annual
Report and financial statements for the year ended 31 December 2022.
Outlook
The portfolio is well diversified by property, tenant and geography, and
following the acquisitions completed in the year is 51% weighted towards urban
logistics warehouses. 18 of the 27 assets have been constructed since 2018.
Our tenant base is diversified across 51 tenants, consisting predominantly of
third-party logistics providers, e-commerce related businesses and grocery
focused vendors. Our tenants' businesses are generally well positioned in
areas which remain essential to the everyday operation of the modern economy.
Rising construction and financing costs and an uncertain economic landscape
will likely exacerbate an already delayed construction pipeline as we expect
construction activity to continue to weaken this year, with inflationary
pressures being felt throughout the supply chain.
This lack of new development, which is typically more sustainable,
energy-efficient buildings, and the delay in refurbishment projects
transforming older stock will put further pressure on occupiers who are
increasingly seeking best-in-class space, especially as corporate ESG
strategies increasingly restrict the leasing of buildings that are not green
certified.
A strong commitment to sustainability, demonstrated by the Company's improved
GRESB score, together with the inflation linked nature of the portfolio's
leases which are increasingly flowing through improving income, provides a
strong counterbalance to the yield expansion being witnessed. The Board is
mindful that continued yield expansion across the wider commercial real estate
sector in general could see bank loan covenants become more of a focus,
particularly if we see occupiers under increased pressure from the current
economic uncertainties and cost inflation. The Investment Manager maintains a
dialogue with banks and we retain assets that may be used for collateral in
such instances.
However, if the indicators suggesting inflation is nearing its peak across the
eurozone are borne out, there is likely to be a recovery in values in 2024,
especially if interest rates follow consensus forecasts in heading back down
towards 2%. Certainly there is evidence that investors are already looking at
opportunities once again in the market, and this should offer more positive
momentum later in the year. Whilst we will continue to screen for new
acquisitions, our core focus for the coming year will be on optimising the
current portfolio in terms of both occupancy and earnings growth. We retain a
strong conviction in our investment strategy and during this period of
inflationary pressure, the Company's indexation characteristics should provide
a level of inflation protection alongside our attractive dividend yield.
Tony Roper
Chairman
20 April 2023
Strategic Report
Overview of Strategy
The Company
The Company is a UK investment trust with a premium listing on the Main Market
of the London Stock Exchange. The Company invests in European logistics real
estate to achieve its investment objective noted below.
The Company was incorporated in England and Wales on 25 October 2017 with
registered number 11032222 and launched on 15 December 2017.
Change of Company name
In order to align the Company's name with the name of the Manager's business,
which changed to abrdn plc in 2021, the Company's name was changed to abrdn
European Logistics Income plc. This took effect from 1 January 2022. The
Company's ticker, ASLI, remained unchanged.
Investment Objective
The Company aims to provide a regular and attractive level of income return
together with the potential for long-term income and capital growth from
investing in high quality European logistics real estate.
Investment Policy
The Company aims to deliver the investment objective through investment in,
and active asset management of, a diversified portfolio of logistics real
estate assets in Europe. The Company will invest in a portfolio of single and
multi-let assets diversified by both geography and tenant throughout Europe,
predominantly targeting well-located assets at established distribution hubs
and within population centres. In particular, the Investment Manager will seek
to identify assets benefiting from long-term, index-linked, leases as well as
those which may benefit from structural change, and will take into account
several factors, including but not limited to:
· the property characteristics and whether they are appropriate for
the location (such as technical quality, ESG credentials, scale,
configuration, layout, transportation links, power supply, data connectivity,
manoeuvrability, layout flexibility, and overall operational efficiencies);
· the location and its role within European logistics (city,
regional, national or international distribution), key fundamentals
supporting logistics activity within the micro location such as proximity to
airport, port, transport nodes, multimodal transport infrastructure,
established warehousing hubs, transport corridors, population centres, labour
availability and market dynamics such as supply (of both land and existing
stock), vacancy rate and planned infrastructure upgrades;
· the terms of the lease(s) focusing on duration, inflation-linked
terms, ESG criteria, level of passing rent relative to market rent, the basis
for rent reviews, and the potential for capturing growth in market rental
income;
· the strength of the tenant's financial covenant;
· the business model of the tenant and their commitment to the
asset both in terms of capital expenditure and the role it plays in their
operations; and
· the potential to implement active asset management initiatives to
add value over the holding period.
The Company will invest either directly or through holdings in special purpose
vehicles, partnerships, or other structures. The Company may invest in forward
commitments when the Investment Manager believes that to do so would enhance
risk adjusted returns for Shareholders and/or secure an asset at an attractive
yield. The Company's active asset management activities are expected to focus
on adding value through:
· negotiating or renegotiating leases to increase/secure rental
income: managing vacancies;
· undertaking refurbishments to maintain liquidity;
· managing redevelopments as assets approach obsolescence;
· adding solar panels to reduce carbon emissions and generate
additional income streams;
· where appropriate, extending existing on-site buildings or
developing adjacent plots;
· refurbishment and redevelopment activity will, amongst other
things, focus on: enhancing occupier wellbeing; operational efficiencies;
energy efficiency;
· reducing carbon emissions; and elevating technological provision
as well as increasing lettable area.
The Company's active management of debt will effectively manage costs and risk
to enhance investment returns.
Diversification of Risk
The Company will at all times invest and manage its assets in a manner which
is consistent with the spreading of investment risk. The following investment
limits and restrictions will apply to the Company and its business which,
where appropriate, will be measured at the time of investment:
· the Company will only invest in assets located in Europe;
· no more than 50 per cent. of Gross Assets will be concentrated in
a single country;
· no single asset may represent more than 20 per cent. of Gross
Assets;
· forward commitments will be wholly or predominantly pre-let
and/or have the benefit of a rental guarantee and the Company's overall
exposure to forward commitments and development activity will be limited to 20
per cent. of Gross Assets;
· the Company's maximum exposure to any single developer will be
limited to 20 per cent. of Gross Assets;
· the Company will not invest in other closed-ended investment
companies;
· the Company will predominantly invest in assets with tenants
which have been classified by the Investment Manager's investment process, as
having strong financial covenants. However, the Company may, on an exceptional
basis, invest in an asset with a tenant with a lower financial covenant
strength (and/or with a short lease term) where the Investment Manager
believes that the asset can be leased on a longer term tenancy to a tenant
with strong financial covenants within a reasonable time period; and
· no single tenant will represent more than 20 per cent. of the
Company's annual gross income measured annually.
The Company will not be required to dispose of any asset or to rebalance the
Portfolio as a result of a change in the respective valuations of its assets.
The Company intends to conduct its affairs so as to continue to qualify as an
investment trust for the purposes of section 1158 and 1159 (and regulations
made thereunder) of the Corporation Tax Act 2010.
Borrowing and Gearing
The Company uses gearing with the objective of improving shareholder returns.
Debt is typically nonrecourse and secured against individual assets or groups
of assets with or without a charge over these assets, depending on the optimal
structure for the Company and having consideration to key metrics including
lender diversity, cost of debt, debt type and maturity profiles.
The aggregate borrowings are always subject to an absolute maximum, calculated
at the time of drawdown for a property purchase, of 50 per cent. of Gross
Assets. Where borrowings are secured against a group of assets, such group of
assets will not exceed 25 per cent. of Gross Assets in order to ensure that
investment risk remains suitably spread.
The Board has established gearing guidelines for the Alternative Investment
Fund Manager ("AIFM") in order to maintain an appropriate level and
structure of gearing within the parameters set out above. Under these
guidelines, aggregate asset level gearing will sit, as determined by the
Board, at or around 35 per cent of Gross Assets. This level may fluctuate as
and when new assets are acquired until longer term funding has been
established or whilst short-term asset management initiatives are being
undertaken.
The Board will keep the level of borrowings under review. In the event of a
breach of the investment guidelines and restrictions set out above, the AIFM
will inform the Board upon becoming aware of the same, and if the Board
considers the breach to be material, notification will be made to a Regulatory
Information Service and the AIFM will look to resolve the breach with the
agreement of the Board. The Directors may require that the Company's assets
are managed with the objective of bringing borrowings within the appropriate
limit while taking due account of the interests of shareholders. Accordingly,
corrective measures may not have to be taken immediately if this would be
detrimental to shareholders' interests.
Any material change to the Company's investment policy set out above will
require the approval of shareholders by way of an ordinary resolution at a
general meeting and the approval of the Financial Conduct Authority.
Non-material changes to the investment policy may be approved by the Board.
Comparative Index
The Company does not have a benchmark.
Duration
Although the Company does not have a fixed life, under the Company's articles
of association the Directors are required to propose an ordinary resolution
for the continuation of the Company at the Annual General Meeting to be held
in 2024 and then every third year thereafter.
Key Performance Indicators (KPIs)
The Board uses a number of financial performance measures to assess the
Company's success in achieving its objective and to determine the progress of
the Company in pursuing its Investment Policy. The main KPIs identified by the
Board in relation to the Company, which are considered at each Board meeting,
are as follows:
KPI Description
NAV Total Return(1) The Board considers the NAV total return to be the best indicator of
performance over time and is therefore the main indicator of performance used
by the Board. Performance for the year and since inception is set out on page
21 of the published Annual Report and financial statements for the year ended
31 December 2022.
The Company is targeting, for an investor in the Company at launch, a total
NAV return of 7.5 per cent. per annum (in € terms).
Share Price (on a total return basis)(1) The Board also monitors the price at which the Company's shares trade on a
total return basis over time. A graph showing the share price performance is
shown on page 22 of the published Annual Report and financial statements for
the year ended 31 December 2022.
Premium/ (Discount)(1) The premium/(discount) relative to the NAV per share represented by the share
price is monitored by the Board. A graph showing the share price
(discount)/premium relative to the NAV is shown on page 22 of the published
Annual Report and financial statements for the year ended 31 December 2022.
Dividends per Share The Board's aim is to pay a regular quarterly dividend enabling shareholders
to rely on a consistent stream of income. Dividends paid are set out on page
21 of the published Annual Report and financial statements for the year ended
31 December 2022. The Company is targeting, for an investor in the Company at
launch, an annual dividend yield of 5.0 per cent. per Ordinary Share (in €
terms).
Ongoing Charges Ratio ("OCR")(1) The OCR is the ratio of expenses as a percentage of average daily
shareholders' funds calculated in accordance with the industry standard. The
Board reviews the OCR regularly as part of its review of all expenses. The aim
is to ensure that the Company remains competitive and is able to deliver on
its yield target to Shareholders. The Company's OCR is disclosed on page 21 of
the published Annual Report and financial statements for the year ended 31
December 2022.
(1) Alternative Performance Measure - see glossary on pages 150 to 154 of the
published Annual Report and financial statements for the year ended 31
December 2022.
Manager
Under the terms of the Management Agreement, the Company has appointed abrdn
Fund Managers Limited as the Company's alternative investment fund manager
("AIFM") for the purposes of the AIFM Rules. The AIFM has delegated portfolio
management to the Danish Branch of abrdn Investments Ireland Limited which
acts as Investment Manager.
Pursuant to the terms of the Management Agreement, the AIFM is responsible
for portfolio and risk management on behalf of the Company and will carry out
the ongoing oversight functions and supervision and ensure compliance with the
applicable requirements of the AIFM Rules. The AIFM and the Investment Manager
are both legally and operationally independent of the Company.
Dividend Policy
Subject to compliance with all legal requirements the Company pays interim
dividends on a quarterly basis. The Company declares dividends in Euros,
but shareholders will receive dividend payments in Sterling unless electing
to receive payments in Euros through the Equiniti Shareview Portfolio website
or via CRESTPay. If applicable, the date on which the Euro/ Sterling exchange
rate is set will be announced at the time the dividend is declared.
Distributions made by the Company may take the form of either dividend income
or ''qualifying interest income'' which may be designated as interest
distributions for UK tax purposes.
Principal Risks and Uncertainties
Description Mitigating
Action
Strategic Risk: Strategic Objectives and Performance - The Company's strategic · The Company's strategy and objectives are regularly reviewed by
objectives and performance, both absolute and relative, become unattractive to the Board to ensure they remain appropriate and effective.
investors leading to a widening of the discount, potential hostile shareholder
actions and the Board fails to adapt the strategy and/or respond to investor · The Board receives regular presentations on the economy and also
demand. the property market to identify structural shifts and threats so that the
strategy can be adapted if necessary.
· There is regular contact with shareholders both through the
Risk has increased over the year Investment Manager and the broker with additional direct meetings undertaken
by the Chairman and other Directors. Board reports are prepared by the
Investment Manager detailing performance, NAV return and share price analysis
versus peers.
· Cash flow projections are prepared by the Investment Manager and
reviewed quarterly by the Board.
· Shareholder/market reaction to Company announcements is
monitored.
Investment and Asset Management Risk: · abrdn has real estate research and strategy teams which provide
performance forecasts for different sectors and regions.
Investment Strategy - Poorly judged investment strategy, regional allocation,
use of gearing, inability to deploy capital and the mis-timing of disposals · There is a team of experienced portfolio managers who have
and acquisitions, resulting in poor investment returns. detailed knowledge of the markets in which they operate.
· abrdn has a detailed investment process for both acquisitions and
disposals that require to be signed off internally before the Board reviews
Risk has decreased over the year any final decision.
· The Board is very experienced with Directors having a knowledge
of property markets.
There are a number of risks which, if realised, could have a material
adverse effect on the Company and its financial condition, performance and
prospects. The Board has carried out a robust assessment of the principal
risks as set out below, ordered by category of risk, together with a
description of the mitigating actions taken by the Board. The Board confirms
that it has a process in place for regularly reviewing emerging risks that may
affect the Company in the future. The Board collectively discusses with the
Manager areas where there may be emerging risk themes and maintains a register
of these. Such risks may include, but are not limited to, future pandemics,
cybercrime, and longer term climate change. In the event that an emerging risk
has gained significant weight or importance, that risk is categorised and
added to the Company's risk register and is monitored accordingly.
The principal risks associated with an investment in the Company's shares can
be found in the Company's latest Prospectus dated 8 September 2021, published
on the Company's website.
The Board is very mindful of ongoing events involving Russia and Ukraine which
have caused significant market volatility across Europe and the World. There
has been no discernible impact to date on our tenants located in Poland and
across the wider region. The indicators below show how the Board's views on
the stated risks have evolved over the last year. In all other respects, the
Company's principal risks and uncertainties have not changed materially since
the date of the Annual Report and are not expected to change materially for
the current financial year.
Investment and Asset Management Risk: · abrdn has experienced investment managers with extensive
development knowledge with in-depth research undertaken on each
Developing and refurbishing property - Increased construction costs, acquisition/development.
construction defects, delays, contractor failure, lack of development permits,
environmental and third party damage can all impact the resulting capital · Development contracts are negotiated by experienced teams
value and income from investments. supported by approved lawyers.
· Due diligence is undertaken on developers including credit checks
and current pipelines.
Risk is unchanged over the year
· Construction and risk insurance checked.
· Post completion the developer is responsible for defects and
monies are held in escrow for a period of time after handover.
Investment and Asset Management Risk: Health and Safety - Failure to identify · For new properties health and safety is included as a key part of
and mitigate major health & safety issues or to react effectively to an due diligence.
event leading to injury, loss of life, litigation and any ensuing financial
and reputational impact. · Asset managers visit buildings on a regular basis.
· Property managers are appointed by abrdn to monitor health &
safety in each building and reports are made to the asset managers on a
Risk is unchanged over the year monthly basis.
· Asset managers visit each building at least twice a year. Tenants
are responsible for day to day operations of the properties.
Investment and Asset Management Risk: Environment - Properties could be · The Investment Manager undertakes in depth research on each
negatively impacted by hazardous materials (for example asbestos or other property acquisition with environmental surveys and considers its impact on
ground contamination) or an extreme environmental event (e.g. flooding) or the the environment and local communities.
tenants' own operating activities could create environmental damage. Failure
to achieve environmental targets could adversely affect the Company's · The Investment Manager has adopted a thorough environmental
reputation and result in penalties and increased costs and reduced investor policy which is applied to all properties in the portfolio.
demand. Legislative changes relating to sustainability could affect the
viability of asset management initiatives. · Experienced advisers on environmental, social and governance
matters are consulted both internally (within the Investment Manager) and
externally where required.
Risk is unchanged over the year · The Investment Manager in conjunction with specialist advisers
continues to work on a net zero emissions roadmap for the Company
Financial Risks: Macroeconomic - · abrdn research teams take into account macroeconomic conditions
when collating forecasts. This research is fed into Investment Manager
Macroeconomic changes (e.g. levels of GDP, employment, inflation, interest decisions on purchases/sales and regional allocations.
rate and FX movements), political changes (e.g. new legislation) or structural
changes (e.g. new technology or demographics) negatively impact commercial · The portfolio is EU based and diversified across a number of
property values and the underlying businesses of tenants (market risk and different countries and also has a diverse tenant base seeking to minimise
credit risk). Falls in the value of investments could result in breaches of risk concentration.
loan covenants and solvency issues. Interest rate increases from historical
lows will impact strategy if unchanged when re-financings are required. · There is a wide range of lease expiry dates within the portfolio
Pressure on overall net revenue returns. in order to minimise re-letting risk.
· The Company has no exposure to speculative development
Risk has increased over the year · and forward funding is only undertaken where the development is
predominantly pre-let.
· Rigorous portfolio reviews are undertaken by the Investment
Manager and presented to the Board on a regular basis.
· Annual asset management plans are developed for each property and
individual investment decisions are subject to robust risk versus return
evaluation and approval.
· Most leases are indexed to provide increases in line with
movements in inflation and leverage is fixed to reduce the impact of interest
rate rises.
Financial Risks: Gearing - Gearing risk - an inappropriate level of gearing, · Regular covenant reporting to banks is undertaken as required.
magnifying investment losses in a declining market, could result in breaches
of loan covenants and threaten the Company's liquidity and solvency. An · The gearing target is set at an indicative 35% asset level limit
inability to secure adequate borrowing with appropriate tenor and competitive and an absolute Company limit of 50%.
rates could also negatively impact the Company. Earliest Company re-financing
required in 2025 but current conditions expected to impact banks' willingness · The Company's diversified European logistics portfolio,
to lend or seek tighter covenants. underpinned by its tenant base, should provide sufficient value and income in
a challenging market to meet the Company's future liabilities.
· The portfolio attracted competitive terms and interest rates from
Risk is unchanged over the year lenders for the Company's fixed term loan facilities. The Investment Manager
has relationships with multiple funders and wide access to different sources
of funding on both a fixed and variable basis.
· Financial modelling is undertaken and stress tested annually as
part of the Company's viability assessment and whenever new debt facilities
are being considered.
· Loan covenants are continually monitored and reported to the
Board on a quarterly basis and would also be reviewed as part of the disposal
process of any secured property.
Financial Risks: Liquidity Risk and FX Risk - The inability to dispose of · The diversified portfolio is geared towards an attractive sector.
property assets in order to meet financial commitments of the Company or A cash buffer is maintained and an overdraft facility is currently in place.
obtain funds when required for asset acquisition or payment of expenses or
dividends. Movements in foreign exchange and interest rates or other external · Investment is focused on mid-sized properties which is considered
events could affect the ability of the Company to pay its dividends. Yield the more liquid part of the sector.
expansion witnessed as valuations impacted by global economic concerns.
· The assets of the Company are denominated in a non-sterling
currency, predominantly the Euro. No currency hedging is planned for the
capital, but the Board periodically reviews the hedging of dividend payments
Risk has increased over the year having regard to availability and cost.
Financial Risks: Credit Risk - Credit Risk - the risk that the counterparty · The property portfolio has a balanced mix of investment grade
will be unable or unwilling to meet a commitment entered into by the Group: tenants and reflects diversity across business sectors. Rigorous due diligence
failure of a tenant to pay rent or failure of a deposit taker, future lender is performed on all prospective tenants and their financial performance
or a current exchange rate swap counterparty. continues to be monitored during their lease.
· Rent collection from tenants is closely monitored so that early
warning signs might be detected.
Risk is unchanged over the year
· Deposits are spread across various abrdn approved banks and AAA
rated liquidity funds.
Financial Risks: Insufficient Income · The Investment Manager seeks a good mix of tenants in properties.
A review of tenant risk and profile is undertaken using, for example, the Dun
Generation - Insufficient income generation due to macro-economic factors, & Bradstreet Failure Scoring method and tenant covenants are thoroughly
and/or due to inadequate asset management resulting in long voids or rent considered before a lease is granted.
arrears or insufficient return on cash; dividend cover falls to a level
whereby the dividend needs to be cut and/or the Company becomes unattractive · The abrdn team consists of asset managers on the ground who
to investors. Level of ongoing charges becomes excessive. undertake asset management reviews and implementation and there is a detailed
approval process within abrdn for lettings.
· At regular Board meetings forecast dividend cover is considered.
Risk has increased over the year There is regular contact with the broker and shareholders to ascertain, where
possible, views on dividend cover.
Regulatory Risks: Compliance - The regulatory, legal and tax environment in · The Company has an experienced Company Secretary and engages
which the Company's assets are located is subject to change and could lead to lawyers who will advise on changes once any new proposals are published. There
a sub-optimal corporate structure and result in increased tax charges or is regular contact with tax advisers in relation to tax computations and
penalties. Failure to comply with existing or new regulation. transfer pricing. Directors have access to updates on relevant regulatory
changes through the Company's professional advisers.
· The highest corporate governance standards are required from all
Risk is unchanged over the year key service providers and their performance is reviewed annually by the
Management Engagement Committee.
Operational Risks: Service Providers - Poor performance/inadequate procedures · abrdn has an experienced Investment Manager and Asset Management
at service providers leads to error, fraud, noncompliance with contractual Team.
agreements and/or with relevant legislation or the production of inaccurate or
insufficient information for the Company (NAV, Board Reports, Regulatory · The Company has engaged an experienced registrar: Equiniti is a
Reporting) or loss of regulatory authorisation. Key service providers include reputable worldwide organisation.
the AIFM, Company Secretary, the Depositary, the Custodian, the managing
agents, lending banks and the Company's Registrar. · All service providers have a strong control culture that is
regularly monitored.
· abrdn aims to meet all service providers once a year and the
Risk is unchanged over the year Management Engagement Committee reviews all major service providers annually.
· The Company has the ability to terminate contracts.
Operational Risks: Business continuity - · abrdn has a detailed business continuity plan in place with a
separate alternative working office if required and the ability for the
Business continuity risk to any of the Company's service providers or majority of its workforce to work from home.
properties, following a catastrophic event e.g. pandemic, terrorist attack,
cyber attack, power disruptions or civil unrest, leading to disruption of · abrdn has a dedicated Chief Information Security Officer who
service, loss of data etc. leads the Chief Information Security Office covering the following functions:
Security Operations & Delivery,
· Security Strategy, Architecture & Engineering, Data
Risk is unchanged over the year Governance & Privacy, Business Resilience, Governance & Risk, Security
& IT.
· Properties within the portfolio are all insured.
· The IT environment of service providers is reviewed as part of
the initial appointment and on an ongoing basis.
Promoting the Company
The Board recognises the importance of promoting the Company to prospective
investors both for improving liquidity and enhancing the value and rating of
the Company's shares. The Board believes an effective way to achieve this is
through subscription to, and participation in, the promotional programme run
by abrdn on behalf of a number of investment trusts under its management.
The Company's financial contribution to the programme is matched by abrdn.
abrdn's marketing team reports quarterly to the Board giving analysis of the
promotional activities as well as updates on the shareholder register and any
changes in the make up of that register.
The purpose of the programme is both to communicate effectively with existing
shareholders and to gain new shareholders with the aim of improving liquidity
and enhancing the value and rating of the Company's shares. Communicating
the long-term attractions of the Company is key and therefore the Company
also supports abrdn's investor relations programme which involves regional
roadshows, promotional and public relations campaigns.
Board Diversity
The Board recognises the importance of having a range of skilled,
experienced individuals with the right knowledge represented on the Board in
order to allow the Board to fulfil its obligations. The Board also
recognises the benefits and is supportive of the principle of diversity in its
recruitment of new Board members. The Board will not display any bias for age,
gender, race, sexual orientation, religion, ethnic or national origins, or
disability in considering the appointment of its Directors. The Board will
continue to ensure that any future appointments are made on the basis of merit
against the specification prepared for each appointment and, therefore, the
Company does not consider it appropriate to set diversity targets. At 31
December 2022, there were two male Directors and two female Directors on the
Board.
Sustainable and Responsible Investment Policy and Approach
Further details on abrdn's Sustainable and Responsible Investment Policy and
Approach for Direct Real Estate are available at abrdn.com (http://abrdn.com/)
.
Environmental, Social and Human Rights Issues
The Company has no employees as the Board has delegated day to day management
and administrative functions to abrdn Fund Managers Limited. There are
therefore no disclosures to be made in respect of employees. The Company's
socially responsible investment policy is outlined in the Investment Manager's
Review.
Due to the nature of the Company's business, being a Company that does not
offer goods and services to customers, the Board considers that it is not
within the scope of the Modern Slavery Act 2015 ("MSA"). The Company is
not required to make a slavery and human trafficking statement. The Board
considers the Company's supply chains, dealing predominantly with professional
advisers and service providers in the financial services industry, to be low
risk in relation to this matter. A copy of the Manager's statement in
compliance with the Modern Slavery Act is available for download at
abrdn.com (https://www.abrdn.com/en-gb)
The bulk of emissions relating to properties owned by the Company are the
responsibility of the tenants and any emissions relating to the Company's
registered office are the responsibility of abrdn plc. The Company has no
direct greenhouse gas emissions to report from the operations of its business,
although it is responsible for low emissions generated at certain properties
within its portfolio reportable under the Companies Act 2006 (Strategic Report
and Directors' Reports) Regulations 2013, see page 58 of the published Annual
Report and financial statements for the year ended 31 December 2022.
Viability Statement
The Company does not have a formal fixed period strategic plan but the Board
formally considers risks and strategy at least annually. The Board considers
the Company, with no fixed life, to be a long-term investment vehicle, but for
the purposes of this viability statement has decided that a period of three
years is an appropriate period over which to report. The Board considers
that this period reflects a balance between looking out over a long-term
horizon and the inherent uncertainties of looking out further than three
years.
In assessing the viability of the Company over the review period the Directors
have conducted a robust review of the principal risks focussing upon the
following factors:
· The principal risks detailed in the Strategic Report;
· The ongoing relevance of the Company's investment objective in
the current environment;
· The demand for the Company's shares evidenced by the historical
level of premium or discount;
· The level of income generated by the Company and the stability
of tenants;
· The level of gearing including the requirement to meet lending
covenants, negotiate new facilities and repay or refinance future facilities;
· The continuation vote required to be put to shareholders at the
AGM to be held in 2024; and
· The flexibility of the Company's bank facilities and putting
these facilities in place in time to meet commitments.
·
The Directors have reviewed summaries from the portfolio models prepared by
the Investment Manager which have been stress tested to highlight the
performance of the portfolio in a number of varying economic conditions
coupled with potential opportunities for mitigation. The Directors have also
stress tested the financial position of the Company with attention on upcoming
funding for acquisitions, and particularly the loss of a tenant in a French
asset.
The Company has prepared cash flow forecasts which reflect the potential
impact of reductions in rental income including reasonably possible downside
scenarios.
The impact of reductions in rental income could be mitigated through a
reduction in dividends to shareholders if considered necessary by the Board.
The Company has modelled severe but plausible downside scenarios, taking into
account specific tenant risks. These scenarios modelled reduced rental income
through to 2025 and the worst case model equates to an overall 40% reduction
of rental income per annum over that period.
Accordingly, taking into account the Company's current position and the
potential impact of its principal risks and uncertainties, the Directors have
a reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due for a period of three
years from the date of this Report subject to shareholders' approval of the
continuation vote required under the articles to be put to the AGM to be held
in 2024, noting that the Directors are unaware at this early stage of any
shareholder intentions to vote against such a resolution. In making this
assessment, the Board has considered that matters such as significant economic
uncertainty, stock market volatility and changes in investor sentiment could
have an impact on its assessment of the Company's prospects and viability in
the future.
s172 Statement
The Board is required to describe to the Company's shareholders how the
Directors have discharged their duties and responsibilities over the course of
the financial year under section 172 (1) of the Companies Act 2006 (the
"s172 Statement"). This s172 Statement requires the Directors to explain how
they have promoted the success of the Company for the benefit of its members
as a whole, taking into account the likely long-term consequences of
decisions, the need to foster relationships with all stakeholders and the
impact of the Company's operations on the environment.
The Board's philosophy is that the Company should operate in a transparent
culture where all parties are treated with respect and provided with the
opportunity to offer practical challenge and participate in positive debate
which is focused on the aim of achieving the expectations of shareholders and
other stakeholders alike. The Board reviews the culture and manner in which
the Investment Manager operates at its regular meetings and receives regular
reporting and feedback from the other key service providers.
Investment trusts are long-term investment vehicles, with no employees. The
Company's Board of Directors sets the investment mandate as published in the
most recent prospectus, monitors the performance of all service providers and
is responsible for reviewing strategy on a regular basis.
Key Stakeholders
The key stakeholder and service provider for the Company is the Alternative
Investment Fund Manager (the "Manager") and this relationship is reviewed at
each Board meeting and relationships with other service providers are reviewed
at least annually.
Shareholders are seen as key stakeholders in the Company. The Board seeks to
meet at least annually with shareholders at the Annual General Meeting. This
is seen as a very useful opportunity to understand the needs and views of the
shareholders. In between AGMs the Directors and Investment Manager also
conduct programmes of investor meetings with larger institutional, private
wealth and other shareholders to ensure that the Company is meeting their
needs. Such regular meetings may take the form of joint presentations with the
Investment Manager or meetings solely with a Director where any matters of
concern may be raised directly.
Our European partner lending banks are also key stakeholders. We leverage off
the Investment Manager's key relationships with a wide range of lending banks
and the Investment Manager has regular contact with these banks updating on
the portfolio and valuations and also on plans for new acquisitions or
disposals. The other key stakeholder group is that of the underlying tenants
that occupy space in the properties that the Company owns. The Board aims to
conduct a site visit at least annually with the aim of meeting tenants locally
and discussing their businesses and needs and assessing where improvements may
be made or expectations managed. The Investment Manager's asset managers are
tasked with conducting meetings with building managers and tenant
representatives in order to ensure the smooth running of the day to day
management of the properties. The Board receives reports on the tenants'
activities at its regular Board meetings.
The Board via the Management Engagement Committee also ensures that the views
of its service providers are heard and at least annually reviews these
relationships in detail. The aim is to ensure that contractual arrangements
remain in line with best practice, services being offered meet the
requirements and needs of the Company and performance is in line with the
expectations of the Board, Manager, Investment Manager and other relevant
stakeholders. Reviews will include those of the Company depositary, custodian,
share registrar, broker, legal adviser, lenders and auditor.
The Investment Manager's Report details the key investment decisions taken
during the year and subsequently. The Investment Manager has continued to
invest the Company's assets in accordance with the mandate provided by
shareholders at launch, under the oversight of the Board. In line with the
increased equity base, further gearing was introduced into the portfolio
with the aim of maintaining gearing at asset level at or around 35% over the
longer term. abrdn's dedicated treasury team was successful in negotiating the
debt facilities at competitive market rates, resulting in the Company's
blended all-in interest rate across all its debt being 2.01% which is to the
benefit of all shareholders. The Company has an uncommitted four year €70
million master facilities loan agreement with Investec Bank plc to provide
additional flexibility. This facility increases the Company's ability to
acquire new assets prior to any fresh equity raise and will reduce the impact
of cash drag on investment returns.
Details of how the Board and Investment Manager have sought to address
environmental, social and governance matters across the portfolio are
disclosed from page 55 of the published Annual Report and financial statements
for the year ended 31 December 2022.
The Company is just over five years old having been launched at the end of
2017. However, it is a long-term investor and the Board has established the
necessary procedures and processes to promote the long-term success of the
Company. The Board will continue to monitor, evaluate and seek to improve
these processes as the Company grows, to ensure that the investment
proposition is delivered to shareholders and other stakeholders in line with
their expectations.
Future
Many of the non-performance related matters likely to affect the Company in
the future are common across all closed ended investment companies, such as
the attractiveness of investment companies as investment vehicles,
geopolitical tensions and the impact of regulatory changes. These factors need
to be viewed alongside the outlook for the Company, both generally and
specifically, in relation to the portfolio. The Board's view on the general
outlook for the Company can be found in my Chairman's Statement whilst the
Investment Manager's views on the outlook for the portfolio are included in
the Investment Manager's Review.
Tony Roper
Chairman
20 April 2023
Results
Financial Highlights
31 December 2022 31 December 2021
Total assets (€'000) 817,783 728,386
Total equity shareholders' funds (net assets) (€'000) 489,977 487,505
Net asset value per share (euros)(1) 1.19 1.29
Net asset value per share (pence)(1) 105.43 108.50
Share price (mid market) (pence) 68.50 117.00
Market capitalisation (£'000) 282,339 438,050
Share price (discount)/premium to sterling net asset value(1) (35.0%) 7.8%
Dividends and earnings
Net asset value total return (€)(1) (3.8%) 12.4%
Dividends paid per share 5.64c (4.80p) 5.64c (4.84p)
Revenue reserves (€'000) 20,083 15,939
Total comprehensive return for year (€'000) (18,442) 44,443
Operating costs
Ongoing charges ratio (Group only expenses)(1) 1.3% 1.3%
Ongoing charges ratio (Group and property expenses)(1) 1.7% 1.8%
Performance (total return)
Year ended 31 December 2022 Year ended 31 December 2021 Since Launch % return
Share price(1) (38.3%) 12.4% (15.1%)
Net Asset Value (EUR)(1) (3.8%) 12.4% 29.2%
(1) Considered to be an Alternative Performance Measure (see Glossary on pages
150 to 154 of the published Annual Report and financial statements for the
year ended 31 December 2022 for more information).
Dividends declared in respect of the Financial Year to 31 December 2022
Dividend Distribution GBP pence Dividend Distribution EURO cents Equivalent Qualifying Interest GBP pence Qualifying Interest EURO cents Equivalent Ex-dividend Date Record Date Pay Date
First Interim 0.86 1.02 0.33 0.39 01/06/2022 06/06/2022 24/06/2022
Second Interim 0.95 1.11 0.25 0.30 01/09/2022 02/09/2022 23/09/2022
Third Interim 1.01 1.19 0.19 0.22 01/12/2022 02/12/2022 30/12/2022
Fourth Interim 1.00 1.18 0.20 0.23 02/03/2023 30/03/2023 24/03/2023
Total 3.82 4.50 0.97 1.14
Strategic Report
Investment Manager's Review
Having joined the investment management team responsible for managing the
Company's portfolio in October 2022, it is my pleasure to present my first
Manager's Review.
2022 Market Overview
The European logistics sector experienced another strong year in terms of
occupier fundamentals and leasing activity, whilst on the capital markets side
the picture was more mixed. Q4 2022 brought a steep investment slowdown due to
the rapid adjustment to the macro financial climate with rising interest rates
and bond yield expansion. The speed of the impact has been unprecedented but,
with prime logistics values impacted the quickest and hardest, this has also
led to investors returning to the market faster than in previous cycles as
they see opportunities, albeit transactions are still relatively low in
number.
Supply chains continue to move through a period of exceptional structural
change, backed by three key demand drivers. First, the Covid pandemic
accelerated many aspects of de-globalisation, stress-tested existing
distribution networks, and increased the need for companies to diversify their
supply chains. Second, we believe e-commerce remains an incremental demand
driver for the long-term, despite a slowdown in the growth rate; some pull
back in growth was naturally due after the e-commerce boom during the pandemic
where online sales penetration rates were artificially boosted by lockdowns.
Lastly, ESG and "net zero" considerations are beginning to play a clearer role
in logistics performance where tighter regulations from the European Union's
Energy Efficiency Directive combined with valuation guidance from the RICS,
will push tenants and investors to upgrade buildings to deliver more efficient
performance. This will further widen the gap between future-fit assets and
those facing obsolescence. When markets are undergoing a transformation,
such as in logistics, the choice of asset quality in the right location and
the future relevance of the building are increasingly critical factors.
Overall logistics leasing demand has been strong in recent years. Take up
across the 13 largest logistics markets exceeded an estimated 37.5 million
square metres in 2022, a 6% decrease on 2021 but 18% above the five-year
average. Germany, Poland, Netherlands, the UK and France saw the lion's share
of take up in 2022, accounting for around 78% of all leasing activity across
the 13 countries covered by Savills. While the share broadly reflects the size
of the economy, the rise of Poland and the relative importance of the
Netherlands in terms of logistics demand, represents the strategic roles these
markets play in the pan-European supply chain. In the context of continued
strong demand, the logistics supply outlook remains constrained in 2023. The
average European logistics vacancy rate fell by 50 basis points from 3.6% at
the end of 2021 to just 3.1% at the end of 2022, the lowest level on record.
In many markets the supply of high-quality space is negligible and most
leasing activity is driven by pre-lets or through the development process. The
undersupply of modern logistics space in good locations across the supply
chain means that cashflows should be increasingly resilient and strong income
growth should persist. For European logistics, the milder recession
expectation is supportive given the link between economic growth and logistics
activity.
A large proportion of European stock is no longer appropriate for today's
logistics requirements and requires modernisation, especially as regulatory
deadlines around energy efficiency approach. Current total supply growth of
c.8% for 2022 is expected to slow to c.7% p.a. in 2023 and likely level off
towards 4% in the longer term, according to Green Street. Two of the key
drivers of the expected limitations of new supply are increased financing and
development costs. 2022 has seen development economics deteriorate, with
estimated profit margins halving to c.15%, driven by higher construction input
costs (up 25% in 2022). The ESG factor cannot be underestimated as a further
constraining factor on future-fit logistics supply. In preparation for the net
zero transition, the Research and Energy Committee of the European Parliament
is finalising its position on the Energy Performance of Buildings Directive
which seeks to make the EU building sector climate neutral by 2050. However,
we are seeing more significant retrofitting and energy improvement costs
factored into cash flows and this is being accounted for in purchase prices or
valuations. Polarisation between prime and secondary assets will amplify as
limited new supply in most sectors becomes evident, while secondary and
tertiary properties begin to be penalised.
Industrial rents have experienced strong growth over the last two years, an
aspect of Europe that has lagged the UK and US markets. While yields have come
under pressure from higher debt costs, some of the yield impact is being
offset by rental growth or rent indexation built into many European lease
contracts. Open market prime logistics rents increased by an unweighted
average of 10.1% over the 12 months to the fourth quarter of 2022. Rents have
been rising consistently across geographies and we expect growth to continue
over the medium to long-term, as the vacancy rate is only around 3% in most
countries. Cash flows should become more resilient given this under supply and
the favorable growth drivers, with stronger growth potential in the more urban
areas where pressures on supply are more acute.
Investment values have declined as interest rates increased by 350 basis
points in the second half of 2022. Prime logistics yields had tightened to 3%
or below in the most sought-after locations. This was no longer supportable as
debt costs spiked and relative pricing against bonds weakened. However, given
the fundamentals and strength of investor sentiment towards long-term
structural demand drivers, when interest rates stabilise and commercial real
estate begins to attract increased investment again, we believe that the
logistics sector is well placed to recover lost performance over the short to
medium term.
Capital flows into European logistics real estate have increased to now
regularly reach 20% of total investment, up from 10% in 2013. The volume of
transactions closed in 2022 was unsurprisingly down from the record set in
2021, yet still 24% up on the five year average, despite the sharp fall in
investment in the latter stages of the year as buyer and seller pricing
expectations widened. The largest markets continue to be Germany, France,
The Netherlands and Spain.
Well diversified portfolio with strong urban profile well positioned for
future rental growth
Informed by the Manager's research and strategy teams, the Company continues
to pursue its high conviction strategy focusing on the most 'liquid' and
in-demand part of the European logistics market where both capital and rental
growth expectations are highest. Urban logistics and mid-sized ('mid-box')
warehouses are the areas of the market where supply / demand dynamics are the
strongest and the potential tenant base the largest. A typical mid-box
warehouse sits between 20,000 - 50,000 square metres in size and for urban
logistics, often called the 'final touch in the supply chain', building sizes
are generally smaller and located in close proximity to dense population
centres for speedier deliveries.
In July, the Company completed the well-flagged acquisition of Phase IV of the
Gavilanes portfolio, which has been developed as an exclusive hub for Amazon
with its own parking deck including supply for its electric vans and benefits
from a 25 year lease.
In August, the Company announced the acquisition of two urban logistics
properties, in Bordeaux and Niort, France for €23 million, reflecting a net
initial yield of 4.0% and leased to Dachser France with annual indexation.
Both offer medium term expansion opportunities. Built in 2005, the Bordeaux
asset totals 6,504 sqm on a total plot size of c. 29,000 sqm (22% site cover)
and is located only 8 km from the centre of Bordeaux, one of France's most
populated cities with fast access to the area's major arterial routes. The
Niort property, built in 2014, totals 3,939 sqm sitting on 44,000 sqm of land
and benefits from its proximity to the A10 motorway connecting to Paris and
Bordeaux.
In October, the Company announced the €9.3 million acquisition of an urban
logistics warehouse in Dijon, France, also leased to Dachser and representing
a 4.2% net initial yield. The 5,069 sqm Dijon property sits on a total plot
size of c.27,000 sqm on the main logistics 'backbone' in the area with
excellent arterial connectivity. Our Horst, Netherlands, property was also
acquired in October for €12.2 million as part of a sale and leaseback deal
with Limax, a producer, packager and distributor of soft fruits and mushrooms.
The freehold property, which covers a total land plot of c.40,500 sqm, also
provides ample scope for future extensions and benefited from a ten year lease
term at purchase subject to annual CPI capped indexation, with the price
reflecting a net initial yield of 3.8%. The property features rooftop solar
panels which enhance the portfolio's sustainability credentials, in line with
the Company's strategy.
With our focus on long-term, sustainable income, the future-proofing or
'second life' of our warehouses is an important consideration when acquiring
any new assets. Building specifications we consider important, amongst others,
are the eaves' height, floor-load capacity, number of loading doors,
manoeuvrability around the building, power supply and increasingly important,
a building's sustainability credentials.
Buildings positioned alongside main transport corridors, close to seaports,
infrastructural nodes, or in the case of urban logistics, close to large
population concentrations, are important criteria in analysing new acquisition
opportunities.
The Company's focus is solely on Continental Europe, where 75% of the
investable European logistics market can be found, providing a deep pool of
potential acquisition targets and strong diversification options, limiting
single market risk. A standard lease agreement on the Continent often includes
full annual CPI indexation of rents, thereby providing a strong hedge
against inflation which has become particularly relevant in today's
inflationary environment. Despite recent upward pressure, our investment
strategy continues to benefit from lower financing costs fixed with European
banks. Finally, e-commerce penetration is still at an early stage on the
Continent with strong forecast growth, creating an attractive investment
backdrop. Savills reported that Statista estimates an additional 13.2 million
shoppers will adopt e-commerce in Germany, UK, France, Italy and Spain by
2025, having grown by 47 million since 2017. Statista also forecast strong
growth in online sales in the food sector as more tech conscious generations
become earners and consumers.
Growth is expected to be strongest in the urban logistics sub sector,
especially assets in dominant cities that have warehousing supply constraints
and demand from different land uses, resulting in higher land costs and
ultimately underpinning higher rents. Parcel delivery specialists are
continuing to improve their services by reducing delivery times and thereby
transportation costs. Operating a logistics warehouse in close proximity to
their ultimate customer base is the best way to reduce their cost base with
rental and building costs materially less impactful than transportation costs.
Approximately 51% of the Company's portfolio by value comprises urban
logistics warehouses in locations such as Madrid, Frankfurt, Warsaw, Barcelona
and Den Hoorn located in the Netherlands between the cities of The Hague and
Rotterdam.
As at the Company's year-end, 18 out of the 27 warehouses held in the
portfolio were newly developed at the point of purchase and have been
constructed since 2018. The portfolio specifications are therefore very modern
and in line with tenant requirements. The portfolio is well diversified with
27 assets spread across five different countries. As at 31 December 2022,
Spain represented the largest geographic exposure in the portfolio by value
(35%), followed by the Netherlands (30%), France (14%), Poland (12%) and
Germany (9%).
Property Portfolio as at 31 December 2022
Country Location Built WAULT incl breaks WAULT excl breaks Q4 22
(years) (years) % of Portfolio
France Avignon 2018 4.6 7.4 6.8
France Meung sur Loire 2004 - - 2.9
France Bordeaux 2005 6.1 9.1 1.6
France Dijon 2004 8.0 11.0 1.3
France Niort 2014 0.7 0.7 1.5
Germany Erlensee 2018 5.1 10.9 5.5
Germany Florsheim 2015 5.3 5.7 3.5
Netherlands Den Hoorn 2020 7.6 7.6 7.4
Netherlands Ede 1999/ 2005 5.2 5.2 4.1
Netherlands Horst 2005 9.7 9.7 1.4
Netherlands Oss 2019 11.5 11.5 2.3
Netherlands 's Heerenberg 2009/ 2011 9.0 9.0 4.2
Netherlands Waddinxveen 1983/ 1994/ 2002/ 2018 10.9 10.9 5.9
Netherlands Zeewolde 2019 11.5 11.5 4.6
Poland Krakow 2018 2.8 2.8 4.1
Poland Lodz 2020 5.4 5.4 4.1
Poland Warsaw 2019 4.9 4.9 4.1
Spain Barcelona 2019 3.5 6.5 2.5
Spain Leon 2019 6.2 6.2 2.4
Spain Madrid - Coslada 1999 4.0 7.0 1.5
Spain Madrid - Gavilanes 1.1 2019 7.1 7.1 4.7
Spain Madrid - Gavilanes 1.2 2019 0.6 7.6 2.4
Spain Madrid - Gavilanes 2.1 2020 3.6 13.6 2.0
Spain Madrid - Gavilanes 2.2 2020 1.5 3.5 1.7
Spain Madrid - Gavilanes 2.3 2020 2.5 4.5 1.6
Spain Madrid - Gavilanes 3 2019 4.4 8.4 5.9
Spain Madrid - Gavilanes 4 2022 14.3 24.3 10.0
TOTAL - Q4 22 6.7 8.9 100.0
A strong tenant base with inflation linked income
Our key objective is generating long-term sustainable income streams in order
to pay an attractive quarterly dividend. 2022 saw the Company collect 100% of
total expected rent. With more than 60 lease agreements, the portfolio has a
diversified tenant base across different sectors. In addition to the regular
interaction of our asset and property managers with our tenants, their
covenant strength is monitored on a regular basis using a variety of data
sources including Dun & Bradstreet.
In terms of exposure by sector, third party logistics providers ("3PLs")
represent the largest segment at 35% of total portfolio rent. The 3PL market
continues to be buoyant, particularly those businesses specialising in parcel
deliveries; our exposure comprises DHL, which occupies our assets in Madrid
and Warsaw and Dachser occupying three assets in Niort, Dijon and Bordeaux,
France.
Both DHL and Dachser France each account for 4.2% of rental income in
aggregate. Manufacturers (19%) and companies related to the food industry
(19%) complete the top three. Food related companies often have a long history
and are of a scale that makes them stable income producers with supermarkets
like Biocoop or Carrefour and traders in food such as Combilo all performing
well during the pandemic. The retail exposure (13% of total rent), is largely
related to Netherlands based drugstore Kruidvat (part of the A.S Watson group)
operating its e-commerce platform and Decathlon, the global discount sports
retailer, whose products have been in high demand since the pandemic. The
direct exposure to e-commerce (10% of total rent) has increased from 3% last
year due to the addition of the state-of-the-art, last mile Amazon facility at
Gavilanes, Madrid. This is the largest asset in the portfolio by value.
A standard lease agreement on the Continent typically has annual CPI
indexation of rent which is not the standard in the UK. Having this annual
inflation protection has proved beneficial with rising energy prices and
supply chain issues driving inflation towards double digits in the Eurozone
towards the end of the year. 65% of the portfolio's current income has full
CPI or ILAT1 indexation, 27% has a cap at a level between 2-3%, 7% is German
threshold indexation and 1% other. 2022 inflation figures will flow through
and help to grow our 2023 income on existing leases which have an average
length of 6.7 years including break options and 8.9 years excluding breaks.
Strong rent collection and a low cost loan portfolio underpins the Company's
stated distribution policy. The loan portfolio is still young with asset
level loan facilities effected immediately after full deployment of capital.
Stress testing on the existing financial covenants such as Interest Cover
Ratios and Loan-To-Value (LTV) is conducted on a regular basis. In order to
diversify risk, the loan facilities have also been cross-collateralised with
groups of single-tenanted buildings or have diversified risk thanks to
multi-tenanted leasing structures.
Top 10 tenants based on current rents
Tenant Property Contracted rent Contracted rent WAULT incl. breaks WAULT excl. breaks
(€000 p.a.) (%) (years) (years)
1 Amazon Madrid - Gavilanes x 2 3,299 10% 11.3 19.1
2 A.G. van der Helm Den Hoorn 3,005 8% 7.4 7.4
3 Biocoop Avignon 2,450 7% 4.6 7.4
4 Combilo International B.V. Waddinxveen 2,173 6% 10.9 10.9
5 A.S. Watson B.V. Ede 1,663 5% 4.9 4.9
7 VSH Fittings B.V. Zeewolde 1,644 5% 11.5 11.5
6 Arrival Madrid - Gavilanes 1,614 5% 4.4 8.4
8 JCL Logistics 's Heerenberg 1,524 5% 9.0 9.0
9 DHL Madrid - Coslada; Warsaw 1,467 4% 4.7 5.4
10 DACHSER France Bordeaux; Niort; Dijon 1,455 4% 4.6 6.4
Subtotal 20,294 59% 7.9 8.4
Other tenants 14,388 41% 6.0 7.4
Portfolio as at 31 December 2022 34,682 100% 6.7 8.9
Loan portfolio 31 December 2022
Country Property Bank Existing loan (€million) End date Loan Duration in Years Interest (incl margin)
Germany Erlensee DZ HYP 17.8 January 2029 10 1.62%
Germany Flörsheim DZ HYP 12.4 January 2026 7 1.54%
France Avignon + Meung Sur Loire BAYERN LB 33.0 February 2026 7 1.57%
Netherlands Ede/Waddinxveen + Oss BERLIN HYP 44.2 June 2025 6 1.37%
Netherlands 's Heerenberg BERLIN HYP 11.0 June 2025 6 1.13%
Netherlands Zeewolde + Den Hoorn BERLIN HYP 43.2 January 2028 8 1.40%
Spain Coslada + Leon + Girona ING Bank 25.4 September 2025 3 3.01%
Spain Gavilanes Phase I + II + III ING Bank 44.0 July 2025 3 2.61%
Spain Gavilanes Phase IV ING Bank 39.3 September 2025 3 3.01%
Total 270.3 6 2.01%
Lease re-gears and additions
During the year there were a number of asset management initiatives delivered
on.
In August the Company agreed a new 5 year lease with ADER at the previously
vacant Unit 3, within Phase II at its Gavilanes site, Madrid. ADER provides
distribution services to companies in the freight and logistics sector and is
consolidating its operations in the Gavilanes area with the leasing of this
second, 7,375 sqm building. The letting is fully CPI indexed and accretive
to performance having completed well in advance of the guarantee timing
assumptions and at a rental level ahead of underwriting.
In Lodz, Poland, Tabiplast signed an 8-year lease over 1,600 sqm of space
ahead of expectations and the previous tenant's 3 year option.
In Krakow, a vacated unit was let on a new 3-year term to Gebrüder Weiss
ahead of previous rent and ERV. Also at the same asset, packaging company DS
Smith extended its lease by a further four years.
After staged incentives, these leases generate c. €778,000 of additional
annual income in aggregate.
Meanwhile, we are in the final stages of agreeing new arrangements at Ede and
Avignon which will be reported when signed.
2022 - Robust financial and operational performance impacted by increasing
market volatility
The NAV total return for 2022 was -3.8% (in euro terms) with the Company
delivering a solid 29.2% since launch. Despite Q4's portfolio valuation
decline of 6%, the end of year portfolio valuation stood at €759 million.
This is an increase from the 2021 year end portfolio valuation of €666
million following our additional purchases through the year and we have seen
total contracted rent grow to €34.7 million per annum from €29.4 million
at the end of 2021. With inflation remaining elevated across Europe, our
indexed linked leases will further grow our rental income and partly mitigate
any further outward yield movements. Despite continued macroeconomic
uncertainty, we are forecasting a stronger market later in the year and into
2024.
In terms of future growth, the portfolio continues to be positioned with a
focus on mid-boxes and urban logistics, the segment of the market which the
Investment Manager believes has continued potential, especially with respect
to rental growth. There are several options within the portfolio where value
may be added and where tenants may require additional space. One such example
from 2022 is the 2,500 sqm extension project completed in Waddinxveen in the
Netherlands on an adjacent piece of land owned by the tenant and all three of
the recent purchases in France have low site coverage and offer good expansion
potential.
Well diversified debt portfolio
At the end of 2022, the Company´s fixed debt facilities totalled €270.3
million at an average all-in rate of 2.01% and with a loan to value of 34%,
below the long-term target of 35%. The Company´s secured fixed rate debt
supports its investment objective with the earliest re-financing of debt
required in mid-2025.
The Company arranged asset level fixed rate bank debt financings in those
local markets where all-in loan costs were the lowest, such as Germany, the
Netherlands, France and Spain with dedicated real estate banks that are active
in this lending space.
The Company also benefits from its revolving credit facility agreement with
Investec Bank in the amount of €70 million which provides further
flexibility for the acquisition of new properties and / or for the
implementation of asset management initiatives. At the end of 2022 the
revolving credit facility agreement with Investec Bank was undrawn.
Outlook
We believe Continental European logistics real estate is well placed to
navigate the current high inflationary environment due to its CPI indexation
characteristics and robust market fundamentals. Backed by the tailwinds of
record-low vacancies and structural demand drivers, rental growth is
expected to retain momentum in most European logistics hotspots. While
lingering economic, political, and financial markets uncertainties may disrupt
investment trends in the short-term, the favourable underlying trends
including ongoing e-commerce penetration, onshoring and supply chain
reconfiguration/ modernisation should remain important drivers for the
sector.
We continue to prefer fringe city locations where land supply is more
constrained, and where tenant and investor demand is active. Good quality
assets in these locations are hard to source for tenants due to low levels of
new completions over the last ten years. The development pipeline is also
constrained by rapidly rising debt finance costs, together with high
construction and labour costs, planning difficulties and more stringent
controls over sustainability and efficiency ratings of new schemes. abrdn's
large and established local network and reputation provides a competitive
advantage when sourcing deals. abrdn is one of Europe's largest real estate
investors, managing approximately €53 billion of real estate, with €21
billion of logistics assets across 12 countries. Its eight offices across
Europe - London, Edinburgh, Frankfurt, Amsterdam, Madrid, Paris, Brussels
and Copenhagen - employ a total of 290 abrdn real estate colleagues including
portfolio managers, local transaction and asset managers and researchers.
Indeed, we are already seeing signs of interest returning to the sector with
increased investment activity in those markets that have already seen strong
pricing correction, such as in the Netherlands. Various successful capital
raises targeting the sector exclusively, or as part of multi-sector
strategies, have recently been announced providing ongoing evidence in the
longer-term conviction for the sector.
Troels Andersen
Fund Manager,
abrdn
20 April 2023
Property Portfolio as at 31 December 2022
Country Location Built WAULT incl breaks WAULT excl breaks Q4 22
(years) (years) % of Portfolio
France Avignon 2018 4.6 7.4 6.8
France Meung sur Loire 2004 - - 2.9
France Bordeaux 2005 6.1 9.1 1.6
France Dijon 2004 8.0 11.0 1.3
France Niort 2014 0.7 0.7 1.5
Germany Erlensee 2018 5.1 10.9 5.5
Germany Florsheim 2015 5.3 5.7 3.5
Netherlands Den Hoorn 2020 7.6 7.6 7.4
Netherlands Ede 1999/ 2005 5.2 5.2 4.1
Netherlands Horst 2005 9.7 9.7 1.4
Netherlands Oss 2019 11.5 11.5 2.3
Netherlands 's Heerenberg 2009/ 2011 9.0 9.0 4.2
Netherlands Waddinxveen 1983/ 1994/ 2002/ 2018 10.9 10.9 5.9
Netherlands Zeewolde 2019 11.5 11.5 4.6
Poland Krakow 2018 2.8 2.8 4.1
Poland Lodz 2020 5.4 5.4 4.1
Poland Warsaw 2019 4.9 4.9 4.1
Spain Barcelona 2019 3.5 6.5 2.5
Spain Leon 2019 6.2 6.2 2.4
Spain Madrid - Coslada 1999 4.0 7.0 1.5
Spain Madrid - Gavilanes 1.1 2019 7.1 7.1 4.7
Spain Madrid - Gavilanes 1.2 2019 0.6 7.6 2.4
Spain Madrid - Gavilanes 2.1 2020 3.6 13.6 2.0
Spain Madrid - Gavilanes 2.2 2020 1.5 3.5 1.7
Spain Madrid - Gavilanes 2.3 2020 2.5 4.5 1.6
Spain Madrid - Gavilanes 3 2019 4.4 8.4 5.9
Spain Madrid - Gavilanes 4 2022 14.3 24.3 10.0
TOTAL - Q4 22 6.7 8.9 100.0
Governance
Directors' Report
The Directors present their Report and the audited financial statements for
the year ended 31 December 2022.
Results and Dividends
Details of the Company's results and dividends are shown on page 21 of the
published Annual Report and financial statements for the year ended 31
December 2022. The dividend policy is disclosed in the Strategic Report.
Investment Trust Status
The Company was incorporated on 25 October 2017 (registered in England &
Wales No. 11032222) and has been accepted by HM Revenue & Customs as an
investment trust subject to the Company continuing to meet the relevant
eligibility conditions of Section 1158 of the Corporation Tax Act 2010 and the
ongoing requirements of Part 2 Chapter 3 Statutory Instrument 2011/2999 for
all financial periods commencing on or after 15 December 2017. The Directors
are of the opinion that the Company has conducted its affairs for the year
ended 31 December 2022 so as to enable it to comply with the ongoing
requirements for investment trust status.
Individual Savings Accounts
The Company has conducted its affairs so as to satisfy the requirements as a
qualifying security for Individual Savings Accounts. The Directors intend that
the Company will continue to conduct its affairs in this manner.
Share Capital
The Company's capital structure is summarised in note 16 to the financial
statements. At 31 December 2022, there were 412,174,356 fully paid Ordinary
shares of 1p each in issue. During the year no Ordinary shares were purchased
in the market for treasury or cancellation. On 4 February 2022, 34,545,455 new
Ordinary shares were issued at 110.0p per share at a premium to the prevailing
unaudited NAV.
Voting Rights, Share Restrictions and Amendments to Articles of Association
Ordinary shareholders are entitled to vote on all resolutions which are
proposed at general meetings of the Company.
The Ordinary shares carry a right to receive dividends. On a winding up,
after meeting the liabilities of the Company, the surplus assets will be paid
to Ordinary shareholders in proportion to their shareholdings.
There are no restrictions concerning the transfer of securities in the
Company; no special rights with regard to control attached to securities; no
agreements between holders of securities regarding their transfer known to the
Company; and no agreements which the Company is party to that might affect its
control following a takeover bid.
In accordance with the Companies Act, amendments to the Company's Articles of
Association may only be made by shareholders passing a special resolution in
general meeting.
Borrowings
A full breakdown of the Company's loan facilities is provided in note 14 to
the financial statements.
Management Agreement
Under the terms of a Management Agreement dated 17 November 2017 between the
Company and the AIFM, abrdn Fund Managers Limited (and amended by way of
side letters dated 25 May 2018, 22 February 2019 and 24 January 2023), the
AIFM was appointed to act as alternative investment fund manager of the
Company with responsibility for portfolio management and risk management of
the Company's investments. Under the terms of the Management Agreement, the
AIFM may delegate portfolio management functions to the Investment Manager and
is entitled to an annual management fee together with reimbursement of all
reasonable costs and expenses incurred by it and the Investment Manager in the
performance of its duties. Pursuant to the terms of the Management
Agreement, the AIFM is entitled to receive a tiered annual management fee
(the ''Annual Management Fee'') calculated by reference to the Net Asset Value
(as calculated under IFRS) on the following basis:
· On such part of the Net Asset Value that is less than or equal to
€1.25 billion, 0.75 per cent. per annum.
· On such part of the Net Asset Value that is more than €1.25
billion, 0.60 per cent. per annum.
The Annual Management Fee is payable in Euros quarterly in arrears, save for
any period which is less than a full calendar quarter.
The Company or the AIFM may terminate the Management Agreement by giving not
less than 12 months' prior written notice.
The AIFM has also been appointed by the Company under the terms of the
Management Agreement to provide day-to-day administration services to the
Company and provide the general company secretarial functions required by the
Companies Act. In this role, the AIFM will provide certain administrative
services to the Company which includes reporting the Net Asset Value,
bookkeeping and accounts preparation. Effective from March 2020 accounting and
administration services undertaken on behalf of the Company have been
delegated to Brown Brothers Harriman.
The AIFM has also delegated the provision of the general company secretarial
services to abrdn Holdings Limited.
Risk Management
Details of the financial risk management policies and objectives relative to
the use of financial instruments by the Company are set out in note 22 to the
financial statements.
The Board
The current Directors, Ms Gulliver, Mr Heawood, Mr Roper and Ms Wilde were the
only Directors who served during the year. In accordance with the Articles
of Association, each Director will retire from the Board at the Annual General
Meeting convened for 12 June 2023 and, being eligible, will offer himself or
herself for re-election to the Board. In accordance with Principle 23 of the
AIC's 2019 Code of Corporate Governance, each Director will retire annually
and submit themselves for re-election at the AGM.
The Board considers that there is a balance of skills and experience within
the Board relevant to the leadership and direction of the Company and that
all the Directors contribute effectively.
In common with most investment trusts, the Company has no employees.
Directors' & Officers' liability insurance cover has been maintained
throughout the year at the expense of the Company.
The Role of the Chairman and Senior Independent Director
The Chairman is responsible for providing effective leadership to the Board,
by setting the tone of the Company, demonstrating objective judgement and
promoting a culture of openness and debate. The Chairman facilitates the
effective contribution, and encourages active engagement, by each
Director. In conjunction with the Company Secretary, the Chairman ensures
that Directors receive accurate, timely and clear information to assist them
with effective decision-making. The Chairman leads the evaluation of the Board
and individual Directors, and acts upon the results of the evaluation process
by recognising strengths and addressing any weaknesses. The Chairman also
engages with major shareholders offering annual review meetings and ensures
that all Directors understand shareholder views.
The Senior Independent Director acts as a sounding board for the Chairman and
as an intermediary for other directors, when necessary. The Senior Independent
Director takes responsibility for an orderly succession process for the
Chairman, and leads the annual appraisal of the Chairman's performance and is
also available to shareholders to discuss any concerns they may have.
Corporate Governance
The Company is committed to high standards of corporate governance. The Board
is accountable to the Company's shareholders for good governance and this
statement describes how the Company has applied the principles identified in
the UK Corporate Governance Code as published in July 2018 (the "UK Code"),
which is available on the Financial Reporting Council's (the "FRC") website:
frc.org.uk (http://frc.org.uk/) .
The Board has also considered the principles and provisions of the AIC Code of
Corporate Governance as published in February 2019 (the "AIC Code"). The AIC
Code addresses the principles and provisions set out in the UK Code, as well
as setting out additional provisions on issues that are of specific relevance
to the Company. The AIC Code is available on the AIC's website: theaic.co.uk
(http://theaic.co.uk/) .
The Board considers that reporting against the principles and provisions of
the AIC Code, which has been endorsed by the FRC, provides more relevant
information to shareholders. The full text of the Company's Corporate
Governance Statement can be found on the Company's website:
eurologisticsincome.co.uk (http://eurologisticsincome.co.uk/) .
The Board confirms that, during the year, the Company complied with the
principles and provisions of the AIC Code and the relevant provisions of the
UK Code, except as set out below.
The UK Code includes provisions relating to:
· interaction with the workforce (provisions 2, 5 and 6);
· the need for an internal audit function (provision 26);
· the role and responsibility of the chief executive (provisions 9
and 14);
· previous experience of the chairman of a remuneration committee
(provision 32); and
· executive directors' remuneration (provisions 33 and 36 to 40).
The Board considers that these provisions are not relevant to the position of
the Company, being an externally managed investment company. In particular,
all of the Company's day-to-day management and administrative functions are
outsourced to third parties. As a result, the Company has no executive
directors, employees or internal operations. The Company has therefore not
reported further in respect of these provisions.
During the year ended 31 December 2022, the Board had four scheduled meetings
and a further 16 ad hoc Board meetings as well as numerous update calls. In
addition, the Audit Committee met three times and there was one meeting of the
Management Engagement Committee and one meeting of the Nomination Committee.
Between meetings the Board maintains regular contact with the Investment
Manager. The Directors have attended the following scheduled Board meetings
and Committee meetings during the year ended 31 December 2022 (with their
eligibility to attend the relevant meeting in brackets):
Director Board Audit MEC Nomination
Committee
T Roper(1) 4 (4) N/A 1 (1) 1 (1)
C Gulliver 4 (4) 3 (3) 1 (1) 1 (1)
D Wilde 4 (4) 3 (3) 1 (1) 1 (1)
J Heawood 4 (4) 3 (3) 1 (1) 1 (1)
(1) Mr Roper is not a member of the Audit Committee but attended all
meetings by invitation.
Policy on Tenure
The Board's policy on tenure is that Directors need not serve on the Board for
a limited period of time only. The Board does not consider that the length
of service of a Director is as important as the contribution he or she has to
make, and therefore the length of service will be determined on a case-by-case
basis. However, in accordance with corporate governance best practice and the
future need to refresh the Board over time, it is currently expected that
Directors will not typically serve on the Board beyond the Annual General
Meeting following the ninth anniversary of their appointment.
Board Committees
Audit Committee
The Audit Committee Report is on pages 86 to 87 of the published Annual Report
and financial statements for the year ended 31 December 2022.
Nomination Committee
All appointments to the Board of Directors are considered by the Nomination
Committee which, due to the relatively small size of the Board, comprises all
of the Directors and is chaired by the Chairman of the Company. The
Nomination Committee advises the Board on succession planning, bearing in mind
the balance of skills, knowledge and experience existing on the Board, and
will make recommendations to the Board in this regard. The Nomination
Committee also advises the Board on its balance of relevant skills, experience
and length of service of the Directors serving on the Board. The Board's
overriding priority when appointing new Directors in the future will be to
identify the candidate with the best range of skills and experience to
complement existing Directors. The Board recognises the benefits of diversity
and its policy on diversity is disclosed in the Strategic Report.
The Committee has put in place the necessary procedures to conduct, on an
annual basis, an appraisal of the Chairman of the Board, Directors' individual
self evaluation and a performance evaluation of the Board as a whole and its
Committees. In 2021 a thorough external evaluation was conducted by Lintstock
Limited, an independent third party evaluation service provider. In 2022 the
Board conducted an evaluation based upon completed questionnaires covering the
Board, individual Directors, the Chairman and the Audit Committee Chairman.
The Chairman then met each Director individually to review their responses
whilst the Senior Independent Director met with the Chairman to review his
performance.
In accordance with Principle 23 of the AIC's Code of Corporate Governance
which recommends that all directors of investment companies should be subject
to annual re-election by shareholders, all the members of the Board will
retire at the forthcoming Annual General Meeting and will offer themselves for
re-election. In conjunction with the evaluation feedback, the Committee has
reviewed each of the proposed reappointments and concluded that each of the
Directors has the requisite high level and range of business and financial
experience and recommends their re-election at the forthcoming AGM. Details of
the contributions provided by each Director during the year are disclosed on
pages 72 and 73 of the published Annual Report and financial statements for
the year ended 31 December 2022.
Management Engagement Committee
The Management Engagement Committee comprises all of the Directors and is
chaired by Mr Heawood. The Committee reviews the performance of the Manager
and Investment Manager and its compliance with the terms of the management and
secretarial agreement. The terms and conditions of the Manager's appointment,
including an evaluation of fees, are reviewed by the Committee on an annual
basis. Based upon the competitive management fee and expertise of the Manager,
the Committee believes that the continuing appointment of the Manager on the
terms agreed is in the interests of shareholders as a whole. The Committee
also at least annually reviews the Company's relationships with its other
service providers. These reviews aim to ensure that services being offered
meet the requirements and needs of the Company, provide value for money and
performance is in line with the expectations of stakeholders.
Remuneration Committee
Under the FCA Listing Rules, where an investment trust has only non-executive
directors, the Code principles relating to directors' remuneration do not
apply. Accordingly, matters relating to remuneration are dealt with by the
full Board, which acts as the Remuneration Committee.
The Company's remuneration policy is to set remuneration at a level to
attract individuals of a calibre appropriate to the Company's future
development. Further information on remuneration is disclosed in the
Directors' Remuneration Report on pages 82 to 84 of the published Annual
Report and financial statements for the year ended 31 December 2022.
Terms of Reference
The terms of reference of all the Board Committees may be found on the
Company's website eurologisticsincome.co.uk and copies are available from the
Company Secretary upon request. The terms of reference are reviewed and
re-assessed by the relevant Board Committee for their adequacy on an annual
basis.
Going Concern
In accordance with the Financial Reporting Council's guidance the Directors
have undertaken a rigorous review of the Company's ability to continue as a
going concern. The Board has set limits for borrowing and regularly reviews
the level of any gearing, cash flow projections and compliance with banking
covenants.
The Directors are mindful of the principal risks and uncertainties disclosed
on pages 13 to 17 and the Viability Statement on page 18 of the published
Annual Report and financial statements for the year ended 31 December 2022 and
have reviewed forecasts detailing revenue and liabilities and they believe
that the Company has adequate financial resources to continue its operational
existence for the foreseeable future and at least 12 months from the date of
this Annual Report. While the Company is obliged under its articles to hold a
continuation vote at the 2024 AGM, the Directors do not believe this should
automatically trigger the adoption of a basis other than going concern in line
with the Association of Investment Companies ("AIC") Statement of Recommended
Practice ("SORP") which states that it is usually more appropriate to prepare
financial statements on a going concern basis unless a continuation vote has
already been triggered and shareholders have voted against continuation.
Accordingly, the Directors believe that it is appropriate to continue to adopt
the going concern basis in preparing the financial statements. In coming to
this conclusion, the Board has also considered the impact, where feasible,
of the COVID-19 pandemic and other geopolitical economic turbulence. The
Investment Manager is in contact with tenants and third party suppliers and
continues to have a constructive dialogue with all parties. A range of
scenarios have been modelled looking at possible impact to cash flows in the
short to medium term and this is kept under regular review. Additional details
about going concern are disclosed in Note 28.
Management of Conflicts of Interest
The Board has a procedure in place to deal with a situation where a Director
has a conflict of interest. As part of this process, the Directors prepare a
list of other positions held and all other conflict situations that may need
to be authorised either in relation to the Director concerned or his/her
connected persons. The Board considers each Director's situation and decides
on any course of action required to be taken if there is a conflict, taking
into consideration what is in the best interests of the Company and whether
the Director's ability to act in accordance with his or her wider duties is
affected. Each Director is required to notify the Company Secretary of any
potential, or actual, conflict situations that will need authorising by the
Board. Authorisations given by the Board are reviewed at each Board meeting.
No Director has a service contract with the Company although Directors are
issued with letters of appointment upon appointment. No Director had any
interest in contracts with the Company during the year or subsequently.
The Board has adopted appropriate procedures designed to prevent bribery. The
Company receives periodic reports from its service providers on the
anti-bribery policies of these third parties. It also receives regular
compliance reports from the Manager.
The Criminal Finances Act 2017 introduced the corporate criminal offence of
"failing to take reasonable steps to prevent the facilitation of tax evasion".
The Board has confirmed that it is the Company's policy to conduct all of its
business in an honest and ethical manner. The Board takes a zero-tolerance
approach to the facilitation of tax evasion, whether under UK law or under the
law of any foreign country.
Accountability and Audit
The respective responsibilities of the Directors and the auditor in connection
with the financial statements are set out on pages 85 and 94 of the
published Annual Report and financial statements for the year ended 31
December 2022 respectively.
Each Director confirms that:
· so far as he or she is aware, there is no relevant audit
information of which the Company's auditor is unaware; and,
· each Director has taken all the steps that they ought to have
taken as a Director in order to make themselves aware of any relevant audit
information and to establish that the Company's auditor is aware of that
information.
Additionally there have been no important events since the year end that
impact this Annual Report.
The Directors have reviewed the level of non-audit services provided by the
independent auditor during the year amounting to £20,000 in respect of the
production of a Supplementary Prospectus (2021: £45,000 in connection with
the issue of a Prospectus in September 2021) and remain satisfied that the
auditor's objectivity and independence is being safeguarded.
Independent Auditor
The auditor, KPMG LLP, has indicated its willingness to remain in office. The
Directors will place a resolution before the Annual General Meeting to
re-appoint KPMG LLP as auditor for the ensuing year, and to authorise the
Directors to determine its remuneration.
Internal Control
The Board is ultimately responsible for the Company's system of internal
control and for reviewing its effectiveness and confirms that there is an
ongoing process for identifying, evaluating and managing the significant risks
faced by the Company. This process has been in place for the year under review
and up to the date of approval of this Annual Report and financial statements.
It is regularly reviewed by the Board and accords with the FRC Guidance.
The Board has reviewed the effectiveness of the system of internal control. In
particular, it has reviewed and updated the process for identifying and
evaluating the significant risks affecting the Company and policies by which
these risks are managed.
The Directors have delegated the investment management of the Company's assets
to members of the abrdn Group within overall guidelines, and this embraces
implementation of the system of internal control, including financial,
operational and compliance controls and risk management. Internal control
systems are monitored and supported by the abrdn Group's internal audit
function which undertakes periodic examination of business processes,
including compliance with the terms of the management agreement, and ensures
that recommendations to improve controls are implemented.
Risks are identified and documented through a risk management framework by
each function within the abrdn Group's activities. Risk includes financial,
regulatory, market, operational and reputational risk. This helps the internal
audit risk assessment model identify those functions for review. Any
weaknesses identified are reported to the Board, and timetables are agreed for
implementing improvements to systems. The implementation of any remedial
action required is monitored and feedback provided to the Board.
The significant risks faced by the Company have been identified as being
strategic; investment and asset management; financial; regulatory; and
operational.
The key components of the process designed by the Directors to provide
effective internal control are outlined below:
· the AIFM prepares forecasts and management accounts which allows
the Board to assess the Company's activities and review its performance;
· the Board and AIFM have agreed clearly defined investment
criteria, specified levels of authority and exposure limits. Reports on these
issues, including performance statistics and investment valuations, are
regularly submitted to the Board and there are meetings with the AIFM and
Investment Manager as appropriate;
· as a matter of course the AIFM's compliance department
continually reviews abrdn's operations and reports to the Board on a six
monthly basis;
· written agreements are in place which specifically define the
roles and responsibilities of the AIFM and other third party service providers
and, where relevant, ISAE3402 Reports, a global assurance standard for
reporting on internal controls for service organisations, or their
equivalents are reviewed;
· the Board has considered the need for an internal audit function
but, because of the compliance and internal control systems in place within
abrdn, has decided to place reliance on the Manager's systems and internal
audit procedures. At its March 2023 meeting, the Audit Committee carried out
an annual assessment of internal controls for the year ended 31 December 2022
by considering documentation from the AIFM and the Depositary, including the
internal audit and compliance functions and taking account of events since
31 December 2022. The results of the assessment, that internal controls are
satisfactory, were then reported to the Board at the subsequent Board meeting.
Internal control systems are designed to meet the Company's particular needs
and the risks to which it is exposed. Accordingly, the internal control
systems are designed to manage rather than eliminate the risk of failure to
achieve business objectives and by their nature can only provide reasonable
and not absolute assurance against mis-statement and loss.
Substantial Interests
The Board has been advised that the following shareholders owned 3% or more of
the issued Ordinary share capital of the Company at 31 December 2022 (based
upon 412,174,356 shares in issue):
Shareholder No. of % held
Ordinary shares held
East Riding of Yorkshire 33,000,000 8.0
Brewin Dolphin Ireland 25,134,996 6.1
Quilter Cheviot Investment Management 23,062,880 5.6
BlackRock 20,587,907 5.0
Investec Wealth & Investment 17,880,116 4.3
Brewin Dolphin, stockbrokers 16,713,524 4.1
Hargreaves Lansdown (EO) 16,516,569 4.0
Canaccord Genuity Wealth Management 16,502,020 4.0
CCLA Investment Management 16,197,976 3.9
Nottinghamshire County Council 12,324,013 3.0
Save as disclosed, there have been no significant changes notified in respect
of the above holdings between 31 December 2022 and 20 April 2023.
Relations with Shareholders
The Directors place a great deal of importance on communication with
shareholders. The Annual Report will be widely distributed to other parties
who have an interest in the Company's performance. Shareholders and investors
may obtain up to date information on the Company through the freephone
information service shown under Investor Information and on the Company's
website eurologisticsincome.co.uk (http://eurologisticsincome.co.uk/) .
abrdn Holdings Limited (aHL) has been appointed Company Secretary to the
Company. Whilst aHL is a wholly owned subsidiary of the abrdn Group, there is
a clear separation of roles between the Manager and Company Secretary with
different board compositions and different reporting lines in place. The Board
notes that, in accordance with Market Abuse Regulations, procedures are in
place to control the dissemination of information within the abrdn plc group
of companies when necessary. Where correspondence addressed to the Board is
received there is full disclosure to the Board. This is kept confidential if
the subject matter of the correspondence requires confidentiality.
The Board's policy is to communicate directly with shareholders and their
representative bodies without the involvement of representatives of the
Manager (including the Company Secretary and Investment
Manager) in situations where direct communication is required and usually a
representative from the Board is available to meet with major shareholders on
an annual basis in order to gauge their views.
The Notice of the Annual General Meeting, included within the Annual Report
and financial statements, is sent out at least 20 working days in advance of
the meeting. In normal circumstances, all Shareholders have the opportunity to
put questions to the Board or the Investment Manager, either formally at the
Company's Annual General Meeting or at the subsequent buffet luncheon for
Shareholders. Shareholders are, however, invited to send any questions for the
Board and/or the Investment Manager on the Annual Report by email to
European.Logistics@abrdn.com (http://European.Logistics@abrdn.com/) . The
Company Secretary is available to answer general shareholder queries at any
time throughout the year.
Annual General Meeting
The Annual General Meeting will be held on 12 June 2023 at 11:30 a.m. at
Wallacespace, 15 Artillery Lane, London, E1 7HA. In addition to the usual
resolutions the following matters will be proposed at the AGM:
Special Business Directors' Authority to Allot Relevant Securities
Approval is sought in Resolution 10, an ordinary resolution, to renew the
Directors' existing general power to allot shares but will also provide a
further authority (subject to certain limits) to grant rights to subscribe for
or to convert any security into shares under a fully pre-emptive rights issue.
The effect of Resolution 10 is to authorise the Directors to allot up to a
maximum of 272,035,075 shares in total (representing approximately 66% (as at
the latest practicable date before publication of this Annual Report) of the
existing issued share capital of the Company), of which a maximum of
136,017,537 shares (approximately 33% (as at the latest practicable date
before publication of this Annual Report) of the existing issued share
capital of the Company) may only be applied other than to fully pre-emptive
rights issues. This authority is renewable annually and will expire at the
conclusion of the next Annual General Meeting in 2024, or 30 June 2024,
whichever is earlier. The Directors do not have any immediate intention to
utilise this authority.
Special Business Disapplication of Pre-emption Rights
Resolution 11 is a special resolution that seeks to renew the Directors'
existing authority until the conclusion of the next Annual General Meeting to
make limited allotments of shares for cash of up to a maximum of 41,217,435
shares representing 10% of the issued share capital (as at the latest
practicable date before publication of this Annual Report) other than
according to the statutory pre-emption rights which require all shares issued
for cash to be offered first to all existing shareholders.
This authority includes the ability to sell shares that have been held in
treasury (if any), having previously been bought back by the Company. The
Board has established guidelines for treasury shares and will only consider
buying in shares for treasury at a discount to their prevailing NAV and
selling them from treasury at or above the then prevailing NAV.
New shares issued in accordance with the authority sought in Resolution 11
will always be issued at a premium to the NAV per Ordinary share at the time
of issue. The Board will issue new Ordinary shares or sell Ordinary shares
from treasury for cash when it is appropriate to do so, in accordance with its
current policy. It is therefore possible that the issued share capital of the
Company may change between the date of this document and the Annual General
Meeting and therefore the authority sought will be in respect of 10% of the
issued share capital as at the date of the Annual General Meeting rather than
the date of this document. This authority is renewable annually and will
expire at the conclusion of the Annual General Meeting in 2024 or 30 June
2024, whichever is earlier.
Special Business Purchase of the Company's Shares
Resolution 12 is a special resolution proposing to renew the Directors'
authority to make market purchases of the Company's shares in accordance with
the provisions contained in the Companies Act 2006 and the Listing Rules of
the Financial Conduct Authority. The minimum price to be paid per Ordinary
share by the Company will not be less than £0.01 per share (being the nominal
value) and the maximum price should not be more than the higher of (i) an
amount equal to 5% above the average of the middle market quotations for an
Ordinary share taken from the London Stock Exchange Daily Official List for
the five business days immediately preceding the date on which the Ordinary
share is contracted to be purchased; and (ii) the higher of the price of the
last independent trade and the current highest independent bid on the trading
venue where the purchase is carried out.
The Directors do not intend to use this authority to purchase the Company's
Ordinary shares unless to do so would result in an increase in NAV per share
and would be in the interests of Shareholders generally. The authority sought
will be in respect of 14.99% of the issued share capital as at the date of the
Annual General Meeting rather than the date of this document.
The Company's shares have traded at a premium to NAV per share for the
majority of the life of the Company since its launch, and therefore the
Company has not bought back any shares for treasury or cancellation. However,
the Board is very aware of the current wide share price discount to NAV and
regularly monitors this. The Directors view buybacks as a very useful tool for
seeking to assist in the management of the liquidity of the Company shares
which could be used in the future as one of a number of methods to address
imbalances of supply and demand which, arithmetically, can cause discounts to
NAV per share. Shares bought back would be purchased at a discount to the
prevailing NAV per share and the result would be accretive to the NAV for all
on-going shareholders.
The authority being sought will expire at the conclusion of the Annual General
Meeting in 2024 or 30 June 2024, whichever is earlier unless it is renewed
before that date. Any Ordinary shares purchased in this way will either be
cancelled and the number of Ordinary shares will be reduced accordingly or
under the authority granted in Resolution 11 above, may be held in treasury.
If Resolutions 10 to 12 are passed then an announcement will be made on the
date of the Annual General Meeting which will detail the exact number of
Ordinary shares to which each of these authorities relates.
These powers will give the Directors additional flexibility going forward and
the Board considers that it will be in the interests of the Company that such
powers be available. Such powers will only be implemented when, in the view
of the Directors, to do so will be to the benefit of Shareholders as a whole.
Special Business Notice of Meetings
Resolution 13 is a special resolution seeking to authorise the Directors to
call general meetings of the Company (other than Annual General Meetings) on
14 days' clear notice. This approval will be effective until the Company's
Annual General Meeting in 2024 or 30 June 2024 whichever is earlier. In order
to utilise this shorter notice period, the Company is required to ensure that
Shareholders are able to vote electronically at the general meeting called on
such short notice. The Directors confirm that, in the event that a general
meeting is called, they will give as much notice as practicable and will only
utilise the authority granted by Resolution 13 in limited and time sensitive
circumstances.
Dividend Policy
As a result of the timing of the payment of the Company's quarterly dividends,
the Company's Shareholders are unable to approve a final dividend each year.
In line with good corporate governance, the Board therefore proposes to put
the Company's dividend policy to Shareholders for approval at the Annual
General Meeting and on an annual basis.
Resolution 3 is an ordinary resolution to approve the Company's dividend
policy. The Company's dividend policy shall be that dividends on the Ordinary
shares are payable quarterly in relation to periods ending March, June,
September and December and the last dividend referable to a financial year end
will not be categorised as a final dividend that is subject to Shareholder
approval. It is intended that the Company will pay quarterly dividends
consistent with the expected annual underlying portfolio yield. The Company
has the flexibility in accordance with its Articles to make distributions from
capital.
Shareholders should note that references to ''dividends'' are intended to
cover both dividend income and income which is designated as an interest
distribution for UK tax purposes and therefore subject to the interest
streaming regime applicable to investment trusts.
Recommendation
Your Board considers Resolutions 10 to 13 to be in the best interests of the
Company and its members as a whole and most likely to promote the success of
the Company for the benefit of its members as a whole. Accordingly, your Board
unanimously recommends that Shareholders should vote in favour of all
Resolutions to be proposed at the AGM, as they intend to do in respect of
their own beneficial shareholdings amounting to 309,687 Ordinary shares.
By order of the Board
abrdn Holdings Limited - Company Secretary
280 Bishopsgate
London EC2M 4AG
20 April 2023
Statement of Directors' Responsibilities in Respect of the Annual Report and
the Financial Statements
The Directors are responsible for preparing the Annual Report and the Group
and parent Company financial statements in accordance with applicable law
and regulations.
Company law requires the Directors to prepare Group and parent Company
financial statements for each financial year. Under that law they are required
to prepare the Group financial statements in accordance with UK-adopted
international accounting standards and applicable law and have elected to
prepare the parent Company financial statements in accordance with UK
accounting standards and applicable law, including FRS 101 Reduced Disclosure
Framework.
Under company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Group and parent Company and of the Group's profit or loss for
that period. In preparing each of the Group and parent Company financial
statements, the Directors are required to:
· select suitable accounting policies and then apply them
consistently;
· make judgements and estimates that are reasonable, relevant,
reliable and prudent;
· for the Group financial statements, state whether they have been
prepared in accordance with UK-adopted international accounting standards;
· for the parent Company financial statements, state whether
applicable UK accounting standards have been followed, subject to any material
departures disclosed and explained in the parent Company financial statements;
· assess the Group and parent Company's ability to continue as a
going concern, disclosing, as applicable, matters related to going concern;
and
· use the going concern basis of accounting unless they either
intend to liquidate the Group or the parent Company or to cease operations, or
have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the parent Company's transactions and
disclose with reasonable accuracy at any time the financial position of the
parent Company and enable them to ensure that its financial statements comply
with the Companies Act 2006. They are responsible for such internal control as
they determine is necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to fraud or error, and
have general responsibility for taking such steps as are reasonably open to
them to safeguard the assets of the Group and to prevent and detect fraud and
other irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Strategic Report, Directors' Report, Directors' Remuneration
Report and Corporate Governance Statement that complies with that law and
those regulations.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in the UK governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
In accordance with Disclosure Guidance and Transparency Rule 4.1.14R, the
financial statements will form part of the annual financial report prepared
using the single electronic reporting format under the TD ESEF Regulation. The
auditor's report on these financial statements provides no assurance over the
ESEF format.
Responsibility statement of the Directors in respect of the annual financial
report
We confirm that to the best of our knowledge:
· the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the company and
the undertakings included in the consolidation taken as a whole; and
· the Strategic Report/Directors' Report includes a fair review of
the development and performance of the business and the position of the issuer
and the undertakings included in the consolidation taken as a whole, together
with a description of the principal risks and uncertainties that they face.
We consider the Annual Report and financial statements, taken as a whole, is
fair, balanced and understandable and provides the information necessary for
shareholders to assess the Group's position and performance, business model
and strategy.
By order of the Board
Tony Roper,
20 April 2023
Financial Statements
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2022
Year ended 31 December 2022 Year ended 31 December 2021
Notes Revenue €'000 Capital €'000 Total €'000 Revenue €'000 Capital €'000 Total €'000
REVENUE 2 29,686 - 29,686 23,283 - 23,283
Rental income
Property service charge income 6,237 - 6,237 3,435 - 3,435
Other operating income 676 - 676 219 - 219
Total Revenue 36,599 - 36,599 26,937 - 26,937
GAINS ON INVESTMENTS 9 - (40,432) (40,432) - 41,031 41,031
(Losses)/Gains on revaluation of investment properties
Total Income and (losses)/gains on investments 36,599 (40,432) (3,833) 26,937 41,031 67,968
EXPENDITURE (3,953) - (3,953) (2,756) - (2,756)
Investment management fee
Direct property expenses (2,501) - (2,501) (1,851) - (1,851)
Property service charge expenditure (6,237) - (6,237) (3,435) - (3,435)
SPV property management fees (255) - (255) (371) - (371)
Other expenses 3 (2,797) - (2,797) (1,735) - (1,735)
Total expenditure (15,743) - (15,743) (10,148) - (10,148)
Net operating return before finance costs 20,856 (40,432) (19,576) 16,789 41,031 57,820
FINANCE COSTS
Finance costs 4 (5,676) - (5,676) (3,449) - (3,449)
Effect of fair value adjustments on derivative financial instruments - 3,600 3,600 - - -
Effect of foreign exchange differences (115) 461 346 264 753 1,017
Net return before taxation 15,065 (36,371) (21,306) 13,604 41,784 55,388
Taxation 5 (1,029) 3,893 2,864 (651) (10,294) (10,945)
Net return for the year 14,036 (32,478) (18,442) 12,953 31,490 44,443
Total comprehensive return for the year 14,036 (32,478) (18,442) 12,953 31,490 44,443
Basic and diluted earnings per share 7 3.43¢ (7.94¢) (4.51¢) 4.50¢ 10.93¢ 15.43¢
The accompanying notes are an integral part of the financial statements.
The total column of the Consolidated Statement of Comprehensive Income is the
profit and loss account of the Group. All revenue and capital items in the
above statement derive from continuing operations. No operations were acquired
or discontinued during the year.
Consolidated Balance Sheet
For the year ended 31 December 2022
Notes As at 31 December 2022 As at 31 December 2021
Total Total €'000
€'000
NON-CURRENT ASSETS 9 776,616 683,878
Investment properties
Deferred tax asset 5 3,754 2,978
Total non-current assets 780,370 686,856
CURRENT ASSETS 10 12,570 11,175
Trade and other receivables
Cash and cash equivalents 11 20,262 23,280
Other assets 687 6,966
Derivative financial instruments 15 3,894 109
Total current assets 37,413 41,530
Total assets 817,783 728,386
CURRENT LIABILITIES 14 - 15,500
Bank loans
Lease liability 12 550 550
Trade and other payables 13 15,006 14,466
Derivative financial instruments 15 185 -
Total current liabilities 15,741 30,516
NON-CURRENT LIABILITIES 14 265,532 160,447
Bank loans
Lease liability 12 22,087 22,355
Deferred tax liability 5 24,446 27,563
Total non-current liabilities 312,065 210,365
Total liabilities 327,806 240,881
Net assets 489,977 487,505
SHARE CAPITAL AND RESERVES 16 4,717 4,309
Share capital
Share premium 17 269,546 225,792
Special distributable reserve 18 164,851 178,207
Capital reserve 19 30,780 63,258
Revenue reserve 20,083 15,939
Equity shareholders' funds 489,977 487,505
Net asset value per share 8 € 1.19 € 1.29
The Financial Statements on pages 95 to 137 of the published Annual Report and
financial statements for the year ended 31 December 2022 were approved and
authorised for issue by the Board of Directors on 20 April 2023 and signed
on its behalf by:
Caroline Gulliver
Independent Non-Executive Director
Company number: 11032222.
The accompanying notes are an integral part of the financial statements.
Consolidated Statement of Changes in Equity
For the year ended 31 December 2022
Notes Share capital €'000 Share premium €'000 Special distributable reserve €'000 Capital reserve €'000 Revenue reserve €'000 Total €'000
Balance at 31 December 2021 4,309 225,792 178,207 63,258 15,939 487,505
Share Issue 16/17 408 44,513 - - - 44,921
Share Issue costs 17 - (759) - - - (759)
Total Comprehensive return for the year - - - (32,478) 14,036 (18,442)
Dividends paid 6 - - (13,356) - (9,892) (23,248)
Balance at 31 December 2022 4,717 269,546 164,851 30,780 20,083 489,977
For the year ended 31 December 2021
Notes Share capital €'000 Share premium €'000 Special distributable reserve €'000 Capital reserve €'000 Revenue reserve €'000 Total €'000
Balance at 31 December 2020 2,756 61,691 185,661 31,768 11,720 293,596
Share Issue 16/17 1,553 166,924 - - - 168,477
Share Issue costs 17 - (2,823) - - - (2,823)
Total Comprehensive return for the year - - - 31,490 12,953 44,443
Dividends paid 6 - - (7,454) - (8,734) (16,188)
Balance at 31 December 2021 4,309 225,792 178,207 63,258 15,939 487,505
The accompanying notes are an integral part of the financial statements.
Consolidated Statement of Cash Flows
For the year ended 31 December 2022
Notes Year ended Year ended
31 December 2022 €'000 31 December 2021 €'000
CASH FLOWS FROM OPERATING ACTIVITIES (21,306) 55,388
Net return for the year before taxation
Adjustments for: 40,432 (41,031)
(Losses)/Gains on investment properties
Land Leasehold Liability decreases 267 265
Decrease/(Increase) in operating trade and other receivables 4,964 (9,089)
(Decrease)/Increase in operating trade and other payables (1,554) 2,939
Change in fair value of derivative financial instruments (3,600) -
Finance costs 4 5,676 3,449
Tax paid (1,070) (472)
Cash generated by operations 23,809 11,449
Net cash inflow from operating activities 23,809 11,449
CASH FLOWS FROM INVESTING ACTIVITIES (133,523) (193,475)
Purchase of investment properties
Derivative financial instruments - (83)
Net cash outflow from investing activities (133,523) (193,558)
CASH FLOWS FROM FINANCING ACTIVITIES 6 (23,248) (16,188)
Dividends paid
Bank loans interest paid (3,050) (1,311)
Bank loans drawn 154,547 68,860
Bank loans repaid (65,692) (36,500)
Proceeds from share issue 16/17 44,898 168,477
Issue costs relating to share issue 17 (759) (2,823)
Net cash inflow from financing activities 106,696 180,515
Net decrease in cash and cash equivalents (3,018) (1,594)
Opening balance 23,280 24,874
Closing cash and cash equivalents 20,262 23,280
REPRESENTED BY
Cash at bank 11 20,262 23,280
The accompanying notes are an integral part of the financial statements.
Notes to the Financial Statements
1. Accounting Policies
The consolidated financial statements of the Group for the year ended 31
December 2022 comprise the results of abrdn European Logistics Income plc and
its subsidiaries. The principal accounting policies adopted by the Group are
set out below, all of which have been applied consistently throughout the
year.
(a) Basis of Accounting
The consolidated financial statements have been prepared in accordance with
UK-adopted international accounting standards ("UK-adopted IFRS"), which
comprise standards and interpretations approved by the International
Accounting Standards Board ('IASB'), and International Accounting Standards
and Standing
Interpretations Committee interpretations approved by the International
Accounting Standards Committee ('IASC') that remain in effect, and to the
extent that they have been adopted by the United Kingdom, and the Listing
Rules of the UK Listing Authority.
The Consolidated Financial Statements of the Group have been prepared under
the historical cost convention as modified by the measurement of investment
property and derivative financial instruments at fair value. The
consolidated financial statements are presented in Euro.
In compliance with the AIC's Statement of Recommended Practice: Financial
Statements of Investment Trust Companies and Venture Capital Trusts (Issued
November 2014 and updated in October 2019 with consequential amendments), the
consolidated statement of comprehensive income is separated between capital
and revenue profits and losses.
New and revised standards and interpretations issued in the current year
The accounting policies adopted have been consistently applied throughout the
year presented, unless otherwise stated. This includes the below noted
Standards, Interpretations and annual improvements to IFRS that became
effective during the year, which the group has incorporated in the preparation
of the financial statements:
· Amendments to IAS 37 relating to Onerous Contracts effective 1
January 2022.
· Amendments to References to the Conceptual Framework in IFRS 3
(effective 1 January 2022). The amendment refers to the Conceptual Framework
issued in 2018 under which the definition of liabilities is broader than
that in the previous versions.
· Amendments to IAS 16: Property, Plant and Equipment
('PPE')-Proceeds before Intended Use (effective date 1 January 2022). The
amendments prohibit a Company from deducting from the cost of an item of PPE
any proceeds from selling items produced while making that item of PPE
available for its intended use.
Annual Improvements to IFRS Standards 2018-2020 (effective 1 January 2022):
IFRS 1 - Subsidiary as a first- time adopter. The amendment permits a
subsidiary that applies paragraph D16(a) of IFRS 1 to measure cumulative
translation differences using the amounts reported by its parent, based on the
parent's date of transition to IFRSs.
IFRS 9 - Financial Instruments - Fees in the '10 per cent' test for
derecognition of financial liabilities.
The amendment clarifies which fees an entity includes when it applies the '10
per cent' test in paragraph B3.3.6 of IFRS 9 in assessing whether to
derecognise a financial liability. An entity includes only fees paid or
received between the entity (borrower) and the lender, including fees paid or
received by either the entity or the lender on the other's behalf.
IFRS 16 - Leases - Lease incentives. The amendment to the Illustrative Example
13 accompanying IFRS 16 removes from the example the illustration of
reimbursement of leasehold improvements by the lessor in order to resolve any
potential confusion regarding the treatment of lease incentives that might
arise because of how lease incentives are illustrated in that example.
The Group has made no adjustments to its financial statements following the
above listed amendments and hence these are not discussed further.
Standard and Interpretations issued by IASB but not adopted by the United
Kingdom and not yet effective:
Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors to introduce a new definition for accounting estimates (effective date
1 January 2023).
Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice
Statements 2 Making Materiality Judgements (effective date 1 January 2023).
Amendments to IAS 12 Income Taxes - Deferred Tax Related to Assets and
Liabilities Arising from a Single Transaction (effective date 1 January 2023).
IFRS 17 Insurance Contracts - Establishes the principles for the recognition,
measurement, presentation and disclosure of insurance contracts (effective
date 1 January 2023).
The Group has not adopted any of these early and none are expected to have a
material impact on the financial statements of the group.
(b) Significant accounting judgements, estimates and assumptions
The preparation of the Group's financial statements requires the directors to
make judgements, estimates and assumptions that affect the amounts recognised
in the financial statements and contingent liabilities. However, uncertainty
about these judgements, assumptions and estimates could result in outcomes
that could require a material adjustment to the carrying amount of the asset
or liability affected in future periods.
Key estimation uncertainties
Fair value of investment properties: Investment property is stated at fair
value as at the balance sheet date as set out in note 9 to these financial
statements.
The determination of the fair value of investment properties requires the use
of estimates such as future cash flows from the assets, estimated inflation,
market rents, discount, capitalisation rates, estimated rental value and net
initial and net equivalent property yields. The estimate of future cash flows
includes consideration of the repair and condition of the property, lease
terms, future lease events, as well as other relevant factors for the
particular asset.
These estimates are based on local market conditions existing at the balance
sheet date.
(c) Basis of Consolidation
The consolidated financial statements comprise the accounts of the Company and
its subsidiaries drawn up to 31 December 2022, and are prepared on a going
concern basis. Subsidiaries are consolidated from the date on which control is
transferred to the Group and cease to be consolidated from the date on which
control is transferred out of the Group. The Group acquires subsidiaries that
own real estate properties. At the time of acquisition, the Group considers
whether the acquisition represents the acquisition of a business. The Group
accounts for an acquisition as a business combination where an integrated set
of activities is acquired in addition to the property. More specifically,
consideration is made with regard to the extent to which significant processes
are acquired and, in particular, the extent of ancillary services provided by
the Group (e.g. maintenance, cleaning, security, bookkeeping, hotel services,
and the like).
The significance of any process is judged with reference to the guidance in
IAS 40 on ancillary services. When the acquisition of subsidiaries does not
represent a business, it is accounted for as an acquisition of a group of
assets and liabilities. The cost of the acquisition is allocated to the assets
and liabilities acquired based upon their relative fair values, and no
goodwill or deferred tax is recognised.
See note 28 for further details on going concern.
(d) Functional and Presentation currency
Items included in the consolidated financial statements of the Group are
measured using the currency of the primary economic environment in which the
Company and its subsidiaries operate ("the functional currency") which in the
judgement of the Directors is Euro. The financial statements are also
presented in Euro. All figures in the consolidated financial statements are
rounded to the nearest thousand unless otherwise stated.
(e) Foreign Currency
Transactions denominated in foreign currencies are converted at the exchange
rate ruling at the date of the transaction. Monetary and non-monetary assets
and liabilities denominated in foreign currencies held at the financial year
end are translated using the foreign exchange rate ruling at that date. Any
gain or loss arising from a change in exchange rates subsequent to the date
of the transaction is included as an exchange gain or loss to capital or
revenue in the Consolidated Statement of Comprehensive Income as
appropriate. Foreign exchange movements on investments are included in the
Consolidated Statement of Comprehensive Income within gains on investments.
(f) Revenue Recognition
Rental income, including the effect of lease incentives, arising from
operating leases (including those containing fixed rent increases) is
recognised on a straight line basis over the lease term.
Service charge income represents the charge to tenants for services the Group
is obliged to provide under lease agreements. This income is recorded gross
within Income on the basis the Group is acting as principal, with any
corresponding cost shown within expenses.
Interest income is accounted for on an effective interest rate basis.
(g) Expenses
All expenses, including the management fee, are accounted for on an accruals
basis and are recorded through the revenue column of the Consolidated
Statement of Comprehensive Income. Gains or losses on investment properties
are recorded in the capital column.
(h) Taxation
Income tax expense represents the sum of the tax currently payable and
deferred tax.
Current tax
Current tax is defined as the expected tax payable or receivable on the
taxable income or loss for the year, using tax rates enacted or
substantively enacted at the balance sheet date, and any adjustment to tax
payable in respect of previous years.
Where corporation tax arises in subsidiaries, these amounts are charged to the
Consolidated Statement of Comprehensive Income. The current income tax charge
is calculated on the basis of the tax laws enacted or substantively enacted at
the date of the balance sheet in the countries where the Group operates.
The Manager periodically evaluates positions taken in tax returns with respect
to situations in which applicable tax regulation is subject to interpretation,
and establishes provisions where appropriate on the basis of amounts expected
to be paid to the tax authorities.
Deferred tax
Deferred tax is recognised on temporary differences between the carrying
amounts of assets and liabilities in the consolidated financial statements and
the corresponding tax bases used in the computation of taxable profit.
Deferred tax liabilities are generally recognised for all taxable temporary
differences. Deferred tax assets are generally recognised for all deductible
temporary differences to the extent that it is probable that taxable profits
will be available against which those deductible temporary differences can be
utilised. Such deferred tax assets and liabilities are not recognised if the
temporary difference arises from the initial recognition (other than in a
business combination) of assets and liabilities in a transaction that affects
neither the taxable profit nor the accounting profit. In addition, deferred
tax liabilities are not recognised if the temporary difference arises from the
initial recognition of goodwill.
Deferred tax liabilities and assets are measured at the tax rates that are
expected to apply in the year in which the liability is settled or the asset
realised, based on tax rates (and tax laws) that have been enacted or
substantively enacted by the end of the reporting period. The measurement of
deferred tax liabilities and assets reflects the tax consequences that would
follow from the manner in which the Group expects, at the end of the reporting
period, to recover or settle the carrying amount of its assets and
liabilities.
The carrying values of the Group's investment properties are assumed to be
realised by sale at the end of use.
The capital gains tax rate applied is that which would apply on a direct sale
of the property recorded in the Consolidated Balance Sheet regardless of
whether the Group would structure the sale via the disposal of the subsidiary
holding the asset, to which a different tax rate may apply. The deferred tax
is then calculated based on the respective temporary differences and tax
consequences arising from recovery through sale, and accounted for through the
capital reserve. (i) Investment Properties
Investment properties are initially recognised at cost, being the fair value
of consideration given, including transaction costs associated with the
investment property. Any subsequent capital expenditure incurred in improving
investment properties is capitalised in the year during which the expenditure
is incurred.
After initial recognition, investment properties are measured at fair value,
with the movement in fair value recognised in the Consolidated Statement of
Comprehensive Income and transferred to the Capital Reserve. Fair value is
based on the external valuation provided by Savills (2021: Savills and CBRE),
chartered surveyors, at the balance sheet date undertaken in accordance with
the RICS Valuation - Global Standards 2022, (Red Book), published by the
Royal Institution of Chartered Surveyors. The assessed fair value is reduced
by the carrying amount of any accrued income resulting from the spreading of
lease incentives and/or minimum lease payments.
On derecognition, gains and losses on disposals of investment properties are
recognised in the Consolidated Statement of Comprehensive Income.
(j) Distributions
Interim distributions payable to the holders of equity shares are recognised
in the Statement of Changes in Equity in the year in which they are paid. An
annual shareholder resolution is voted upon to approve the Group's
distribution policy.
(k) Lease Contracts
Operating Lease Contracts - the Group as Lessor
The Group has entered into commercial property leases on its investment
property portfolio. The Group has determined, based on an evaluation of the
terms and conditions of the arrangements, that it retains all the significant
risks and rewards of ownership of these properties and so accounts for leases
as operating leases.
Initial direct costs incurred in negotiating and arranging an operating lease
are added to the carrying amount of the leased asset and recognised as an
expense on a straight-line basis over the lease term.
Operating and Finance Lease Contracts - the Group as intermediate lessor
When the Group is an intermediate lessor, it accounts for its interest in the
head lease and the sub-lease separately. The Group assesses all leases where
it acts as an intermediate lessor, based on an evaluation of the terms and
conditions of the arrangements.
Any head leases identified as finance leases are capitalised at the lease
commencement present value of the minimum lease payments discounted at an
applicable discount rate as a right-of-use asset and leasehold liability. Each
lease payment is allocated between the liability and finance charges so as to
achieve a constant rate on the finance balance outstanding. The interest
element of the finance cost is charged to the Statement of Comprehensive
Income over the lease period.
(l) Share Issue Expenses
Incremental external costs directly attributable to the issue of shares that
would otherwise have been avoided are written off to share premium.
(m) Segmental Reporting
The Group is engaged in property investment in Europe. Operating results are
analysed on a geographic basis by country. In accordance with IFRS 8
'Operating Segments', financial information on business segments is presented
in note 20 of the Consolidated financial statements.
(n) Cash and Cash Equivalents
Cash and cash equivalents are defined as cash in hand, demand deposits, and
other short-term highly liquid investments readily convertible within three
months or less to known amounts of cash and subject to insignificant risk of
changes in value. (o) Financial instruments
Financial assets and financial liabilities are recognised when the Group
becomes a party to the contractual provisions of the instruments.
Financial assets and financial liabilities are initially measured at fair
value. Transaction costs that are directly attributable to the acquisition or
issue of financial assets and financial liabilities (other than financial
assets and financial liabilities at fair value through profit or loss) are
added to or deducted from the fair value of the financial assets or financial
liabilities, as appropriate, on initial recognition. Transaction costs
directly attributable to the acquisition of financial assets or financial
liabilities at fair value through profit or loss are recognised immediately in
the Consolidated Statement of Comprehensive Income.
Financial assets
Financial assets are measured at amortised cost, financial assets 'at fair
value through profit or loss' (FVTPL), or financial assets 'at fair value
through other comprehensive income' (FVOCI). The classification is based on
the business model in which the financial asset is managed and its contractual
cash flow characteristics. All purchases and sales of financial assets are
recognised on the trade date basis.
Financial assets at amortised cost
Financial assets at amortised cost are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active market.
Loans and receivables (including trade and other receivables, and others) are
subsequently measured at amortised cost using the effective interest method,
less any impairment. The Group holds the trade receivables with the objective
to collect the contractual cash flows.
Impairment of financial assets
The Group's financial assets are subject to the expected credit loss model.
For trade receivables, the Group applies the simplified approach permitted by
IFRS 9, which requires expected lifetime losses to be recognised from initial
recognition of the receivables. The expected loss rates are based on the
payment profiles of tenants over a period of twelve months before the
measurement date, and the corresponding historical credit losses experienced
within this period. The historical loss rates are adjusted to reflect current
and forward-looking information on macroeconomic factors affecting the
liability of the tenants to settle the receivable.
Such forward-looking information would include:
· significant financial difficulty of the issuer or counterparty;
or
· breach of contract, such as a default or delinquency in interest
or principal payments; or
· it becoming probable that the borrower will enter bankruptcy or
financial re-organisation; or
· the disappearance of an active market for that financial asset
because of financial difficulties. The Group's financial assets are subject to
the expected credit loss model. For trade receivables, the Group applies the
simplified approach permitted by IFRS 9, which requires expected lifetime
losses to be recognised from initial recognition of the receivables. The
expected loss rates are based on the payment profiles of tenants over a period
of twelve months before the measurement date, and the corresponding historical
credit losses experienced within this period. The historical loss rates are
adjusted to reflect current and forward-looking information on macroeconomic
factors affecting the liability of the tenants to settle the receivable.
Such forward-looking information would include:
· changes in economic, regulatory, technological and environmental
factors, (such as industry outlook, GDP, employment and politics);
· external market indicators; and
· tenant base.
Financial liabilities
Financial liabilities are classified as 'other financial liabilities'.
Other financial liabilities
Other financial liabilities (including borrowings and trade and other
payables) are subsequently measured at amortised cost using the effective
interest method. The effective interest method is a method of calculating the
amortised cost of a financial liability and of allocating interest expense
over the relevant year. The effective interest rate is the rate that exactly
discounts estimated future cash payments (including all fees paid or received
that form an integral part of the effective interest rate, transaction costs
and other premiums or discounts) through the expected life of the financial
liability, or (where appropriate) a shorter period, to the net carrying amount
on initial recognition.
(p) Derivative financial instruments
The Company used forward foreign exchange contracts to mitigate potential
volatility of income returns and to provide greater certainty as to the level
of Sterling distributions expected to be paid in respect of the year covered
by the relevant currency hedging instrument. It does not seek to provide a
long-term hedge for the Company's income returns, which will continue to be
affected by movements in the Euro/Sterling exchange rate over the longer term.
The Company used interest rate SWAPs and interest rate caps to mitigate
potential volatility in interest rates and income returns. Derivatives are
measured at fair value calculated by reference to forward exchange rates for
contracts with similar maturity profiles. Changes in the fair value of
derivatives are recognised in the Statement of Comprehensive Income.
(q) Reserves
Share Capital
This represents the proceeds from issuing Ordinary shares and is
non-distributable.
Share Premium
Share premium represents the excess consideration received over the par value
of Ordinary shares issued and is classified as equity and is
non-distributable. Incremental costs directly attributable to the issue of
Ordinary shares are recognised as a deduction from share premium.
Special Distributable Reserve
The special reserve is a distributable reserve to be used for all purposes
permitted by applicable legislation and practice, including the buyback of
shares and the payment of dividends.
Capital Reserve
The capital reserve is a distributable reserve subject to applicable
legislation and practice, and the following are accounted for in this reserve:
· gains and losses on the disposal of investment properties;
· increases and decreases in the fair value of investment
properties held at the year end, which are not distributable.
Revenue Reserve
The revenue reserve is a distributable reserve and reflects any surplus
arising from the net return on ordinary activities after taxation.
2. Rental Income
Year ended Year ended
31 December 2022 31 December 2021
€'000 €'000
Rental income 29,686 23,283
Total rental income 29,686 23,283
Included within rental income is amortisation of rent free periods granted.
3. Expenditure
Year ended Year ended
31 December 2022 31 December 2021
€'000 €'000
Professional fees 1,880 656
Directors' fees 186 182
Audit fee for statutory services(( 1 (#_ftn1) )) 317 275
Other expenses 219 382
Broker fees 54 69
Depositary fees 44 44
Stock exchange fees 20 66
Directors liability insurance expense 10 3
Registrar fees 52 43
Employer's NI 15 15
Total expenses 2,797 1,735
4. Finance Costs
Year ended Year ended
31 December 2022 31 December 2021
€'000 €'000
Interest on bank loans 4,262 2,587
Bank interest 684 606
Amortisation of loan costs 730 256
Total finance costs 5,676 3,449
5. Taxation
The Company is resident in the United Kingdom for tax purposes. The Company is
approved by HMRC as an investment trust under sections 1158 and 1159 of the
Corporation Tax Act 2010. In respect of each accounting year for which the
Company continues to be approved by HMRC as an investment trust the Company
will be exempt from UK taxation on its capital gains. The Company is, however,
liable to UK Corporation tax on its income. The Company is able to elect to
take advantage of modified UK tax treatment in respect of its ''qualifying
interest income'' for an accounting year referred to as the ''streaming''
regime. Under regulations made pursuant to the Finance Act 2009, the Company
may, if it so chooses, designate as an ''interest distribution'' all or part
of the amount it distributes to Shareholders as dividends, to the extent that
it has ''qualifying interest income'' for the accounting year. Were the
Company to designate any dividend it pays in this manner, it would be able to
deduct such interest distributions from its income in calculating its taxable
profit for the relevant accounting year. The Company should in practice be
exempt from UK corporation tax on dividend income received, provided that such
dividends (whether from UK or non-UK companies) fall within one of the
''exempt classes'' in Part 9A of the CTA 2010. In March 2021 the UK Government
confirmed an increase in the Corporation Tax Rate from 19% to 25% from 1 April
2023. This will not affect the Company's ability to take advantage of the
streaming regime as it currently does.
(a) Tax charge in the Group Statement of Comprehensive Income
Year ended 31 December 2022 Year ended 31 December 2021
Revenue €'000 Capital €'000 Total Revenue €'000 Capital €'000 Total €'000
€'000
Current taxation: 1,029 - 1,029 651 - 651
Overseas taxation
Deferred taxation: - (3,893) (3,893) - 10,294 10,294
Overseas taxation
Total taxation 1,029 (3,893) (2,864) 651 10,294 10,945
Reconciliation between the tax charge and the product of accounting
profit/(loss) multiplied by the applicable tax rate for the year ended 31
December 2022.
Year ended 31 December 2022 Year ended 31 December 2021
Revenue €'000 Capital €'000 Total Revenue €'000 Capital €'000 Total €'000
€'000
Net result before taxation 15,065 (36,371) (21,306) 13,604 41,784 55,388
Theoretical tax at UK corporation tax rate of 19% (2021: 20%) 2,862 (6,910) (4,048) 2,585 7,939 10,524
Effect of: - 3,171 3,171 229 - 229
Losses where no deferred taxes have been recognised
Impact of different tax rates on foreign jurisdictions (1,090) - (1,090) 1,262 2,355 3,617
Other 151 (154) (3) (2,602) - (2,602)
Impact of UK interest distributions from the Investment Trust (894) - (894) (823) - (823)
Total taxation on return 1,029 (3,893) (2,864) 651 10,294 10,945
(b) Tax in the Group Balance Sheet
Year ended Year ended
31 December 2022 €'000 31 December 2021 €'000
Deferred tax assets: 3,384 2,828
On tax losses
On other temporary differences 370 150
Total taxation 3,754 2,978
Year ended Year ended
31 December 2022 €'000 31 December 2021 €'000
Deferred tax liabilities: 973 -
Differences between tax base and derivative valuation
Differences between tax base and property valuation 23,473 27,563
Total taxation 24,446 27,563
Tax losses for which deferred tax asset was recognised expire as follows:
2022 2021
Tax losses carried forward Deferred tax asset Expiry date Tax losses carried forward Deferred tax asset Expiry date
Expire 2,564 432 2023-2027 4,430 714 2023-2027
Never expire 12,130 2,952 - 8,490 2,114 -
Total 14,694 3,384 12,920 2,828
In March 2021 the UK Government announced the UK Corporation tax rate is to
remain at 19% until April 2023, at which point it will be increased to 25%.
This is not expected to have a material impact on the Group.
No deferred tax asset has been recognised (2021: nil) on estimated UK tax
losses.
The Group has subsidiaries in France, Germany, Netherlands, Poland and Spain.
There are no changes to tax rates in each country expected to have a material
impact on the Group.
6. Dividends
Year ended Year ended
31 December 2022 31 December 2021
€'000 €'000
2021 Fourth interim dividend of 1.41c /1.21p per Share paid 5,812 3,447
25 March 2022
(2020 Fourth Interim: 1.41c /1.24p)
2022 First interim dividend of 1.41c/1.19p per Share paid 5,812 3,708
24 June 2022
(2021 First Interim: 1.41c /1.21p)
2022 Second interim dividend of 1.41c/1.20p per Share paid 5,812 3,708
23 September 2022
(2021 Second interim: 1.41c/1.21p)
2022 Third interim dividend of 1.41c/1.20p per Share paid 5,812 5,325
30 December 2022
(2021 Third interim: 1.41c/1.21p)
Total Dividends Paid 23,248 16,188
A fourth interim dividend of 1.41c/1.20p per share was paid on 24 March 2023
to Shareholders on the register on 3 March 2023. Although this payment
relates to the year ended 31 December 2022, under IFRS it will be accounted
for in the year in which it has been paid.
7. Earnings per Share (Basic and Diluted)
Year ended 31 December 2022 Year ended 31 December 2021
Revenue net return attributable to Ordinary shareholders (€'000) 14,036 12,953
Weighted average number of shares in issue during the year 408,956,423 288,114,820
Total revenue return per ordinary share 3.43¢ 4.50¢
Capital return attributable to Ordinary shareholders (€'000) (32,478) 31,490
Weighted average number of shares in issue during the year 408,956,423 288,114,820
Total capital return per ordinary share (7.94¢) 10.93¢
Earnings per ordinary share (4.51¢) 15.43¢
Earnings per Share is calculated on the revenue and capital return for the
year (before other comprehensive income) and is calculated using the weighted
average number of Shares in the year of 408,956,423 Shares (2021:
288,114,820 Shares).
8. Net Asset Value Per Share
2022 2021
Net assets attributable to shareholders (€'000) 489,977 487,505
Number of shares in issue at 31 December 412,174,356 377,628,901
Net asset value per share (€) 1.19 1.29
9. Investment Properties
2022 2021
€'000 €'000
Opening carrying value 683,878 448,418
Purchase at cost 128,278 191,877
Acquisition costs and capital expenditure 4,892 2,552
Valuation (losses)/gains (40,304) 40,683
Decrease in leasehold liability 180 265
Movements in lease incentives (308) 83
Total carrying value at 31 December 776,616 683,878
Valuation Methodology
Valuations were performed by Savills (2021: Savills and CBRE), an accredited
independent valuer with a recognised and relevant professional qualification.
The valuer has sufficient current local and national knowledge of the
particular property markets involved and has the skills and understanding to
undertake the valuations competently.
The Investment Manager appoints a suitable valuer (such appointment is
reviewed on a periodic basis) to undertake a valuation of all the direct real
estate investments on a quarterly basis. The valuation is undertaken in
accordance with the RICS Valuation - Global Standards ('Red Book Global
Standards') effective from 31 January 2022, published by the Royal Institution
of Chartered Surveyors.
The Investment Manager meets with the valuer on a quarterly basis to ensure
the valuer is aware of all relevant information for the valuation and any
change in the investments over the quarter. The Investment Manager then
reviews and discusses draft valuations with the valuer to ensure correct
factual assumptions are made prior to the valuer issuing a final valuation
report.
The fair value of completed investment property is determined using either the
discounted cash flow or traditional method. Discounted Cash Flow method is
based on the future annual net operating income over a hold period of 10
years. Growth and inflation are included explicitly in the cash flow forecast.
The valuer calculates the present value of cashflow generated by the
investment property plus the present value of the exit value at the end of the
10-year hold period. The cash flow is discounted at a rate the valuer
considers appropriate for the specific investment property. Where known, the
property valuer takes account of deleterious materials included in the
construction of the investment properties in arriving at its estimate of fair
value when the Investment Manager advises of the presence of such materials.
The majority of the leases are on a full repairing and insurance basis and as
such the Group is not liable for costs in respect of repairs or maintenance to
its investment properties. The traditional method requires an assessment of
rental value (the market rent) and a market-based yield. The yield can be
simply defined as the annual return on investment expressed as a percentage of
capital value. The traditional method can reflect income streams which are
under-rented and over-rented by incorporating risk within the yield choice
(i.e., an all risks yield) and by structuring the calculation appropriately,
for example a term and reversion for under-rented income streams and a
hardcore and top-slice for over-rented income streams. This will require the
valuer to reflect risk in each element of the calculation, e.g., increasing
the yield above the market in the top-slice to reflect the added risk of an
above market rent being paid for a specified period, or reducing the yield in
the term to reflect that a below market rent is being paid until the reversion
is due. These 'traditional' approaches are typically referred to as being
growth implicit, meaning that rental growth is built into the choice of yield
and not explicitly modelled within the calculation. As at 31 December 2022 the
German, French, Polish and Spanish assets were valued using the discounted
cash flow method, and Netherlands properties using the traditional method.
The fair value of investment properties amounted to €758,719,000. The
difference between the fair value and the value per the Consolidated Balance
Sheet at 31 December 2022 consists of adjustments for lease incentive assets
and the Den Hoorn lease liability separately recognised in the balance sheet
of £4,740,000 and £22,637,000 respectively. Further details of the Den Hoorn
lease are disclosed in note 12.
The following disclosure is provided in relation to the adoption of IFRS 13
Fair Value Measurement. All properties are deemed Level 3 for the purposes of
fair value measurement and the current use of each property is considered the
highest and best use.
Country and sector Fair Value €'000 Valuation techniques Key Unobservable inputs Range (weighted average)
Netherlands - Logistics 227,800 Traditional Method ERV €561,744 - €2,942,598 (€2,014,129)
Equivalent yield 3.70% - 4.71% (4.15%)
Germany - Logistics 68,170 Discounted Cash Flow Capitalisation rate 4.10% - 4.25% (4.16%)
Discount rate 4.95% - 5.20% (5.05%)
ERV €1,282,212 - €1,874,346
(€1,644,685)
France - Logistics 107,390 Discounted Cash Flow Capitalisation rate 3.50% - 4.30% (4.08%)
Discount rate 4.65% - 7.30% (5.90%)
ERV €430,900 - €2,016,869 (€1,380,297)
Poland - Logistics 93,600 Discounted Cash Flow Capitalisation rate 5.30% - 5.70% (5.48%)
Discount rate 6.80% - 7.35% (7.03%)
ERV €1,620,954 - €1,852,180
(€1,709,416)
Spain - Logistics 261,759 Discounted Cash Flow Capitalisation rate 3.75% - 6.00% (4.11%)
Discount rate 4.75% - 8.50% (5.53%)
ERV €464,624 - €2,568,852 (€1,503,010)
Sensitivity Analysis
The table below presents the sensitivity of the valuation to changes in the
most significant assumptions underlying the valuation of investment property.
All non-current assets other than financial instruments, deferred tax assets
and trade receivables are non-UK based.
Country and sector Assumption Movement Effect on Valuation
€'000
Netherlands - Logistics Equivalent Yield & ERV +100 basis points Equivalent Yield / -10% ERV (59,734)
-100 basis points Equivalent Yield / +10% ERV 90,862
Germany - Logistics Capitalisation and Discount +100 basis points (101,810)
France - Logistics
Poland - Logistics
Spain - Logistics
-100 basis points 163,035
ERV -10% ERV (17,454)
+10% ERV 15,248
10.Trade and Other Receivables
2022 2021
€'000 €'000
Trade receivables 8,070 5,981
Bad debts provision (634) (432)
VAT receivable 270 591
Lease incentives 4,740 5,035
Tax receivables 39 -
Other receivables 85 -
Total receivables 12,570 11,175
The ageing of Trade receivables is as follows:
2022 2021
€'000 €'000
Less than 6 months 7,584 3,704
Between 6 & 12 months 486 2,277
8,070 5,981
11. Cash and Cash Equivalents
2022 2021
€'000
€'000
Cash at bank 20,262 23,280
Total cash and cash equivalents 20,262 23,280
12. Leasehold Liability
2022 2021
€'000 €'000
Maturity analysis - contractual undiscounted cash flows 550 550
Less than one year
One to two years 550 550
Two to three years 550 550
Three to four years 550 550
Four to five years 550 550
More than five years 25,065 25,616
Total undiscounted lease liabilities 27,815 28,366
Lease liability included in the Consolidated Balance Sheet 550 550
Current
Non - current 22,087 22,355
Total lease liability included in the Consolidated Balance Sheet 22,637 22,905
On 15 January 2020 the Group acquired a new logistics warehouse in Den Hoorn.
The property is located on land owned by the local municipality and leased to
the Group on a perpetual basis. The Group reserves the option to acquire the
freehold ownership on 1 July 2044 for the total sum of €15,983,000. The
annual ground lease payments amount to €531,000 per annum, the present value
of these future payments (assuming the option to acquire the freehold is
exercised) being €22,637,000 as at 31 December 2022.
13. Trade and Other Payables
2022 2021
€'000 €'000
Rental income received in advance 4,035 1,964
Accrued acquisition and development costs 72 41
Management fee payable 1,937 931
VAT payable 1,221 643
Accruals 1,534 2,850
Trade payable 2,354 5,164
Tenant deposits 3,853 2,873
Total payables 15,006 14,466
14.Bank Loans
2022 2021
€'000 €'000
Bank borrowings drawn 270,270 177,100
Loan issue costs paid (6,055) (1,740)
Accumulated amortisation of loan issue costs 1,317 587
Total Bank Loans 265,532 175,947
2022 2021
€'000 €'000
Maturity less than 1 year - 15,500
Maturity beyond 1 year 265,532 160,447
Total payables 265,532 175,947
The above loans are secured on the following properties on a non-recourse
basis.
Property Country Loan (€'000) Start date End date Lender Fixed
Interest Rate
(Including Margin)
Erlensee Germany 17,800 20/02/2019 31/01/2029 DZ HYP 1.62%
Flörsheim Germany 12,400 18/02/2019 30/01/2026 DZ HYP 1.54%
Avignon + Meung Sur Loire France 33,000 12/02/2019 12/02/2026 Baryern LB 1.57%
Ede/Waddinxveen + Oss Netherlands 44,200 06/06/2019 06/06/2025 Berlin Hyp 1.37%
's Heerenberg Netherlands 11,000 27/06/2019 27/06/2025 Berlin Hyp 1.13%
Zeewolde + Den Hoorn Netherlands 43,200 15/01/2020 14/01/2028 Berlin Hyp 1.40%
Coslada + Leon + Girona Spain 25,345 26/09/2022 26/09/2025 ING Bank 3.01%
Gavilanes Phase I + II + III Spain 44,000 07/07/2022 07/07/2025 ING Bank 2.61%
Gavilanes Phase IV Spain 39,325 26/09/2022 26/09/2025 ING Bank 3.01%
270,270
Reconciliation of movements of liabilities to cash flows arising from
financing activities.
Bank borrowings €'000 Bank interest €'000 Financial Total
€'000
Derivatives
€'000
Balance at 1 January 2022 175,947 326 109 176,382
Cashflows from financing activities: - (3,050) - (3,050)
Bank loans interest paid
Bank loans drawn 154,547 - - 154,547
Bank loans repaid (65,692) - - (65,692)
Non- cash movement: -
Amortisation of capitalised borrowing costs 730 - - 730
Changes in fair value - - 3,600 3,600
Change in creditors for loan interest payable - 2,724 - 2,724
Balance at 31 December 2022 265,532 - 3,709 269,241
Bank borrowings €'000 Bank interest €'000 Financial Total
€'000
Derivatives €'000
Balance at 1 January 2021 143,331 1 26 143,358
Cashflows from financing activities: - (1,311) - (1,311)
Bank loans interest paid
Bank loans drawn 68,860 - - 68,860
Bank loans repaid (36,500) - - (36,500)
Non- cash movement: -
Amortisation of capitalised borrowing costs 256 - - 256
Changes in fair value - - 83 83
Change in creditors for loan interest payable - 1,636 - 1,636
Balance at 31 December 2021 175,947 326 109 176,382
15.Derivative Financial Instruments
2022 2021
€'000 €'000
Forward foreign exchange contracts (185) 109
Interest rate swap and caps 3,894 -
3,709 109
The Company employed currency hedging to provide greater certainty as to the
level of Sterling distributions paid in respect of the year. A forward FX
contract was entered into fixing the EUR: GBP exchange rate at €1.17:£1 for
the three interim distributions paid in the year, and the fourth interim
distribution paid after the year end. The forward FX in place at year end
relates solely to the fourth interim distribution payable.
AELI Madrid Logistics 1 has an agreement with ING Bank N.V for a loan facility
of €44 million at an interest rate payable of EURIBOR plus 1.15%. In order
to mitigate the interest rate risk, it entered a fixed floating interest
rate swap for the notional amount of €40 million against an all-in fixed
rate of 2.57% over the three year loan term. The remaining €4m drawn on
the loan facility is capped at 3.0%.
AELI Madrid Logistics 2 has an agreement with ING Bank N.V for a loan facility
of €64.67 million at an interest rate payable of EURIBOR plus 1.15%. In
order to mitigate the interest rate risk, it entered a fixed floating interest
rate swap for the notional amount of €60 million against an all-in fixed
rate of 3.01% over the three year loan term. The remaining €4.67m drawn on
the loan facility is capped at 3.0%.
16. Share Capital
2022 2021
€'000 €'000
Opening balance 4,309 2,756
Ordinary shares issued 408 1,553
Balance as at 31 December 4,717 4,309
Ordinary shareholders participate in all general meetings of the Company on
the basis of one vote for each share held. Each Ordinary share has equal
rights to dividends and equal rights to participate in a distribution arising
from a winding up of the Company. The Ordinary shares are not redeemable.
The Group commenced the year with 377,628 901 Ordinary shares in issue. On 2
February 2022, the Group increased its share capital by the issue of
34,545,455 new Ordinary Shares at 110p (€1.30) per share.
The number of Ordinary shares in issue at 31 December 2022 was 412,174,356.
The nominal value of each share is £0.01.
17. Share Premium
2022 2021
€'000 €'000
Opening balance 225,792 61,691
Premium arising on issue of new shares 44,513 166,924
Share issue costs deducted (759) (2,823)
Balance as at 31 December 269,546 225,792
The share premium arising in the year was converted to EUR using the issue
date exchange rate on 2 March 2022 of 1.18213091.
2022 2021
€'000 €'000
Opening balance 178,207 185,661
Dividends paid (13,356) (7,454)
Balance as at 31 December 164,851 178,207
18.Special Distributable Reserve
At a General Meeting held on 8 November 2017, a special resolution was passed
authorising, conditional on the issue of Ordinary shares by the Company, the
amount standing to the credit of the share premium account of the Company
following issue to be cancelled. In order to cancel the share premium account
the Company was required to obtain a Court Order, which was received on 13
March 2018. A Statement of Capital form was lodged at Companies House with a
copy of the Court Order on 16 March 2018. With effect from that date the
amount of the share premium account cancelled was credited as a special
distributable reserve in the Company's books of account. Further details of
the dividends paid from the special distributable reserve are provided in note
8 of the parent company accounts on page 136 of the published Annual Report
and financial statements for the year ended 31 December 2022.
19. Capital Reserves
Realised capital reserve Unrealised gains €'000 Total capital reserve
€'000 €'000
Opening balance (2) 63,260 63,258
Deferred taxation - 3,893 3,893
Fair value losses of investments - (40,432) (40,432)
Movement in fair value gains on derivative financial instruments - 3,600 3,600
Currency gains during the year - 461 461
Balance as at 31 December 2022 (2) 30,782 30,780
Realised capital reserve Unrealised gains Total capital reserve
€'000 €'000 €'000
Realised capital reserve Unrealised gains €'000 Total capital reserve
€'000 €'000
Opening balance (2) 31,770 31,768
Deferred taxation - (10,294) (10,294)
Fair value gains of investments - 41,031 41,031
Currency gains during the year - 753 753
Balance as at 31 December 2021 (2) 63,260 63,258
20.Operating Segments
The Group's reportable segments are the geographical areas in which it
operates. These operating segments reflect the components of the Group that
are regularly reviewed to allocate resources and assess performance. All
non-current assets are non-UK based.
2022 Netherlands €'000 Poland €'000 Germany €'000 Spain €'000 France €'000 Parent Total €'000
Company
€'000
Total assets 258,324 97,947 69,431 275,129 115,160 1,792 817,783
Total liabilities 134,913 6,564 33,663 111,143 39,083 2,440 327,806
Total Comprehensive return for the year (Revenue) 677 1,501 353 1,745 1,126 8,634 14,036
Total Comprehensive return for the year (Capital) (19,933) 3,202 (1,634) (11,337) (2,941) 165 (32,478)
Included in Total (24,762) 3,901 (1,742) (14,635) (3,194) - (40,432)
Comprehensive Income Net (loss)/gain from the fair value adjustment on
investment property
Rental income 10,398 4,605 2,950 8,395 3,338 - 29,686
2021 Netherlands €'000 Poland €'000 Germany €'000 Spain €'000 France €'000 Parent Total €'000
Company
€'000
Total assets 264,155 94,100 71,571 215,789 80,725 2,046 728,386
Total liabilities 139,464 6,608 34,134 6,663 37,206 16,806 240,881
Total Comprehensive return for the year (Revenue) 2,646 (969) (578) (14) 2,110 9,758 12,953
Total Comprehensive return for the year (Capital) 21,436 6,607 3,655 2,814 (3,022) - 31,490
Included in Total 29,636 7,708 4,580 2,319 (3,212) - 41,031
Comprehensive Income
Net gain/(loss) from the fair value adjustment on investment property
Rental income 10,368 3,634 2,846 2,306 4,129 - 23,283
21.Financial instruments and investment properties
Fair value hierarchy
IFRS 13 requires the Group to classify its financial instruments held at fair
value using a hierarchy that reflects the significance of the inputs used in
the valuation methodologies. These are as follows:
Level 1 - quoted prices in active markets for identical investments;
Level 2 - other significant observable inputs (including quoted prices for
similar investments, interest rates, prepayments, credit risk, etc.); and
Level 3 - significant unobservable inputs.
The following tables show an analysis of the fair values of investment
properties and derivative financial instruments recognised in the balance
sheet by level of the fair value hierarchy:
31 December 2022 Level 1 €'000 Level 2 €'000 Level 3 €'000 Total fair value €'000
Investment properties - - 776,616 776,616
31 December 2021 Level 1 €'000 Level 2 €'000 Level 3 €'000 Total fair value €'000
Investment properties - - 683,878 683,878
The lowest level of input is the underlying yields on each property which is
an input not based on observable market data.
31 December 2022 Level 1 €'000 Level 2 €'000 Level 3 €'000 Total fair value €'000
Derivative Financial Liability - (185) - (185)
Derivative Financial Asset - 3,894 - 3,894
31 December 2021 Level 1 €'000 Level 2 €'000 Level 3 €'000 Total fair value €'000
Derivative Financial Asset - 109 - 109
The lowest level of input is EUR:GBP exchange rate for forward foreign
currency contracts. The lowest level of inputs for Interest rate SWAPs and
Caps are current market interest rates and yield curve over the remaining term
of the instrument.
Bank Loans are measured at amortised cost. The fair value is estimated using
discounted cash flows with the current interest rates and yield curve
applicable to each loan. As at 31 December 2022 the estimated fair value of
the Groups Bank loans is €257,449,000 (2021: €156,058,000). The amortised
cost is €265,532,000 (2021: €160,447,000).
22.Risk Management
The Group's financial instruments comprise securities and other investments,
cash balances, loans and debtors and creditors that arise directly from its
operations; for example, in respect of sales and purchases awaiting
settlement, and debtors for accrued income. The Group also has the ability to
enter into derivative transactions in the form of forward foreign currency
contracts, futures and options, for the purpose of managing currency and
market risks arising from the Group's activities. The Group also has the
ability to enter into derivative transactions to hedge against fluctuations in
the cost of borrowing as a result of changes in interest rates.
The main risks the Group faces from its financial instruments are (a) market
price risk (comprising of (i) interest rate risk, (ii) foreign currency risk
and (iii) other price risk), (b) liquidity risk and (c) credit risk.
(a) Market price risk
The fair value or future cash flows of a financial instrument held by the
Group may fluctuate because of changes in market prices. This market risk
comprises three elements - interest rate risk, foreign currency risk and other
price risk.
(i) Market risk arising from interest rate risk
Interest rate movements may affect the level of income receivable on cash
deposits. The possible effects on fair value and cash flows that could arise
as a result of changes in interest rates are taken into account when making
investment and borrowing decisions.
Interest risk profile
The interest rate risk profile of the portfolio of financial assets and
liabilities at the year end were as follows:
As at 31 December 2022 Interest rate Local currency Foreign exchange rate Euro equivalent €'000
'000
%
Assets: 2.00 19,371 1.00 19,371
Euro
Pound Sterling 3.50 188 0.89 212
Polish Zloty 6.25 3,152 4.69 679
Total 20,262
As at 31 December 2021 Interest rate Local currency Foreign exchange rate Euro equivalent €'000
'000
%
Assets: (0.50) 21,994 1.00 21,994
Euro
Pound Sterling 0.25 149 0.84 177
Polish Zloty 1.25 5,080 4.60 1,109
Total 23,280
The floating rate assets consist of cash deposits on call earning interest at
prevailing market rates.
An increase of 100bps in interest rates as at the reporting date would have
increased the reported profit and equity shareholders' funds by €202,560
(2021: €23,280). Other Comprehensive Income and Capital Reserves would have
been €2,480,934 (2021: N/A) higher as a result of an increase in the fair
value of the derivative designated as interest rate swaps and €156,769
(2021: N/A) higher as a result of an increase in the fair value of the
derivative designated as interest rate caps on floating rate borrowings.
A decrease of 100bps in interest rates would have reduced the reported profit
and equity shareholders' funds by
€202,560 (2021: €23,280). Other Comprehensive Income and the Capital
Reserve would have been €2,528,315 (2021: N/A) lower as a result of a
decrease in the fair value of the derivative designated as interest rate swaps
and €91,392 (2021: N/A) lower as a result of a decrease in the fair value of
the derivative designated as interest rate caps on floating rate borrowings.
Other financial assets (eg debtors) are not subject to interest rate risk.
(ii) Market risk arising from foreign currency risk
The income and capital value of the Groups investments and liabilities can be
affected by exchange rate movements as some of the Group's assets and income
are denominated in currencies other than Euro which is the Group's reporting
currency.
The revenue account is subject to currency fluctuation arising from overseas
income.
Foreign currency risk profile
Foreign currency risk exposure by currency of denomination:
As at 31 December 2022 Net monetary exposure Total currency exposure
€'000
€'000
Pound Sterling 381 381
Złoty 679 679
Total foreign currency 1,060 1,060
Euro (287,699) (287,699)
Total (286,639) (286,639)
As at 31 December 2021 Net monetary exposure Total currency exposure
€'000
€'000
Pound Sterling 332 332
Złoty 1,109 1,109
Total foreign currency 1,441 1,441
Euro (197,814) (197,814)
Total (196,373) (196,373)
The asset allocation between specific markets can vary from time to time based
on the Investment Manager's opinion of the attractiveness of the individual
markets.
Foreign currency sensitivity
The following table details the Group's sensitivity to a 10% increase and
decrease in Sterling and Polish Zloty against the Euro and the resultant
impact that any such increase or decrease would have on net return before tax
and equity shareholders' funds. The sensitivity analysis includes only
outstanding foreign currency denominated monetary items and adjusts their
translation at the year end for a 10% change in foreign currency rates.
As at 31 December 2022 As at 31 December 2021 €'000
€'000
Zloty 68 111
Pound Sterling 38 33
(iii) Market risk arising from other price risk
Other price risks (i.e. changes in market prices other than those arising from
interest rate or currency risk) may affect the value of the quoted
investments. The carrying amount for financial assets approximates to the fair
value of trade and other receivables (note 10) and trade and other payables
(note 13).
Other price risk sensitivity
If the investment property valuation fell by 10% at 31 December 2022, the
decrease in total assets and return before tax would be €76m (2021: €66m).
If the investment property valuation rose by 10% at 31 December 2022, the
increase in total assets and return before tax would be €76m (2021: €66m).
Exposures vary throughout the year as a consequence of changes in the net
assets of the Group arising out of the investment property and risk management
processes.
(b) Liquidity risk
This is the risk that the Group will encounter difficulty in meeting
obligations associated with financial liabilities. All creditors are payable
within three months.
The Group's liquidity risk is managed by the Investment Manager placing cash
in liquid deposits and accounts. Liquidity risk is the risk that the Group
will encounter in realising assets or otherwise raising funds to meet
financial commitments and also includes:
The level of dividends and other distributions to be paid by the Group may
fluctuate and there is no guarantee that any such distributions will be paid.
The Group's target returns are targets only and are based on estimates and
assumptions about a variety of factors all of which are beyond the Group's
control and which may adversely affect the Group's ability to make its target
returns. The Group may not be able to implement its investment policy and
strategy in a manner that generates dividends in line with the target returns
or the Group's investment objective. Liquidity risk is not considered to be
significant.
(c) Credit risk
This is the risk of failure of the counterparty to a transaction to discharge
its obligations under that transaction that could result in the Group
suffering a loss.
The risk is not considered significant by the Board, and is managed as
follows:
The Group has acquired a portfolio of European logistics properties and has a
number of leases with tenants. In the event of default by a tenant, the
Group will suffer a rental shortfall and incur additional costs until the
property is re-let, including legal expenses, in maintaining, insuring and
re-letting the property. The Board receives regular reports on concentrations
of risk and any tenants in arrears. The Investment Manager monitors such
reports in order to anticipate and minimise the impact of defaults by tenants.
Cash is held only with reputable financial institutions with high quality
external credit ratings.
None of the Group's financial assets is secured by collateral.
The maximum credit risk exposure as at 31 December 2022 was €27.7m (2021:
€28.8m). This was due to trade receivables and cash as per notes 10 and 11.
All cash is placed with financial institutions with a credit rating of -A or
above. Bankruptcy or insolvency may cause the Group's ability to access cash
placed on deposit to be delayed or limited. Should the credit quality or the
financial position of the financial institutions currently employed
significantly deteriorate, the Investment Manager would move the cash holdings
to another financial institution. There are no significant concentrations of
liquidity risk within the Group.
(d) Taxation and Regulation risks
The Company must comply with the provisions of the Companies Act and, as the
shares are admitted to the premium segment of the Official List, the Listing
Rules and the Disclosure Guidance and Transparency Rules. A breach of the
Companies Act could result in the Company and/or the Board being fined or
being the subject of criminal proceedings. Breach of the Listing Rules could
result in the shares being suspended from listing. Legal and regulatory
changes could occur that may adversely affect the Company. The Company has
obtained UK Investment Trust Company status. The Company must comply with the
provisions of sections 1158 and 1159 of the Corporation Tax Act 2010 and Part
2 Chapter 1 of Statutory Instruments 2011/2999 to maintain this status.
Breaching these regulations could result in the Company paying UK Corporation
Tax it would otherwise be exempt from, adversely affecting the Company's
ability to pursue its investment objective.
Capital Management
The Group considers that capital comprises issued Ordinary shares and
long-term borrowings. The Group's capital is deployed in the acquisition and
management of subsidiaries in line with the Group's investment objective,
specifically to provide a regular and attractive level of income return
together with the potential for long-term income and capital growth from
investing in high quality European logistics real estate. The following
investment limits and restrictions apply to the Group and its business which,
where appropriate, are measured at the time of investment and once the Group
is fully invested:
· the Group will only invest in assets located in Europe;
· no more than 50 per cent. of Gross Assets will be concentrated in
a single country;
· no single asset may represent more than 20 per cent. of Gross
Assets;
· forward funded commitments will be wholly or predominantly
pre-let and the Group's overall exposure to forward funded commitments will be
limited to 20 per cent. of Gross Assets;
· the Group's maximum exposure to any single developer will be
limited to 20 per cent. of Gross Assets;
· the Group will not invest in other closed-ended investment
companies;
· the Group may only invest in assets with tenants which have been
classified by the Investment Manager's investment process as having strong
financial covenants; and
· no single tenant will represent more than 20 per cent. of the
Group's annual gross income measured annually.
The Group's principal use of cash will be to fund investments in accordance
with its investment policy, on-going operational expenses and to pay dividends
and other distributions to shareholders, as set out in the Prospectus. The
Group may from time to time have surplus cash (for example, following the
disposal of an investment). Pending reinvestment of such cash, it is expected
that any surplus cash will be temporarily invested in cash equivalents, money
market instruments, bonds, commercial paper or other debt obligations with
financial institutions or other counterparties having a single -A (or
equivalent) or higher credit rating as determined by an internationally
recognised rating agency; or ''government and public securities'' as defined
for the purposes of the FCA rules.
The Group monitors capital primarily through regular financial reporting and
also through a gearing policy. The Group intends to use gearing with the
objective of improving shareholder returns. Debt will typically be secured at
the asset level and potentially at the Group level with or without a charge
over some or all of the Group's assets, depending on the optimal structure for
the Group and having consideration to key metrics including lender diversity,
cost of debt, debt type and maturity profiles. Borrowings will typically be
non-recourse and secured against individual assets or groups of assets and the
aggregate borrowings at asset level will always be subject to an absolute
maximum, calculated at the time of drawdown for a property purchase, of 50 per
cent. of Gross Assets. Where borrowings are secured against a group of assets,
such group of assets shall not exceed 25 per cent. of Gross Assets in order to
ensure that investment risk remains suitably spread. The Board has established
gearing guidelines for the AIFM in order to maintain an appropriate level and
structure of gearing within the parameters set out above. Under these
guidelines, aggregate borrowings at asset level are expected to be at or
around 35 per cent. of gross assets. The Board will keep the level of
borrowings under review and the aggregate borrowings will always be subject to
the absolute maximum set at the time of the Group's launch, calculated at the
time of drawdown for a property purchase, of 50 per cent of Gross Assets. The
fair value of the Groups bank borrowings as at 31 December 2022 was
€270,270,000 (2021: €164,980,000).
Contractual undiscounted maturities
All financial liabilities presented as current are payable within 3 months.
The analysis of financial liabilities is below:
At 31 December 2022 Within 1 year €'000 1-2 years 2-5 years €'000 Over 5 years €'000 Total
€'000
€'000
Bank loans 4,836 4,836 214,634 61,337 285,643
Lease liability 550 550 1,650 25,065 27,815
Derivative financial instruments 185 - - - 185
Other liabilities 9,750 - - - 9,750
Total 15,321 5,386 216,284 86,402 323,393
At 31 December 2021 Within 1 year €'000 1-2 years 2-5 years €'000 Over 5 years €'000 Total
€'000
€'000
Bank loans 2,372 2,299 62,096 108,585 175,352
Lease liability 550 550 1,651 25,615 28,366
Other liabilities 11,859 - - - 11,859
Total 14,781 2,849 63,747 134,200 215,577
23. Related Party Transactions
The Company's Alternative Investment Fund Manager ('AIFM') throughout the year
was abrdn Fund Managers Limited ("aFML"). Under the terms of a Management
Agreement dated 17 November 2017 the AIFM is appointed to provide investment
management services, risk management services and general administrative
services including acting as the Company Secretary. The agreement is
terminable by either the Company or aFML on not less than 12 months' written
notice.
Under the terms of the agreement portfolio management services are delegated
by aFML to abrdn Investments
Ireland Limited ('aIIL'). The total management fees charged to the
Consolidated Statement of Comprehensive Income during the year were
€3,953,000 (2021: €2,756,000), of which €1,952,000 (2021: €931,000)
were payable at the year end. Under the terms of a Global Secretarial
Agreement between aFML and abrdn Holdings Limited ('aHL'), company secretarial
services are provided to the Company by aHL.
A Promotional and Marketing Budget fee of £175,000 (2021: £137,000) was
approved for 2022/2023 at the November 2022 Board meeting which is payable to
abrdn Investment Management Limited ('aIML').
The remuneration of Directors is detailed below. Further details on the
Directors can be found on pages 75 to 77 of the published Annual Report and
financial statements for the year ended 31 December 2022.
2022 2021
€'000 €'000
Caroline Gulliver 47 45
John Heawood 41 40
Tony Roper 57 57
Diane Wilde 41 40
Balance as at 31 December 186 182
Please note the above figures are all Euro, while those in the directors
remuneration report are stated in GBP. The Directors' shareholdings are
detailed below.
31 December 2022 Ordinary shares 31 December 2021 Ordinary shares
T Roper 102,812 92,812
C Gulliver 72,500 62,500
J Heawood 60,000 50,000
D Wilde 74,375 64,375
On 4 February 2022, the Director's increased their shareholdings by: T Roper
10,000, C Gulliver 10,000, J Heawood 10,000 and D Wilde 10,000.
24. Lease Analysis
The group leases out its investment properties under operating leases.
The future income under operating leases, based on the unexpired lease length
at the year end was as follows (based on total rents and excluding annual CPI
adjustments).
2022 2021
€'000 €'000
Less than one year 34,087 28,027
Between one and two years 32,708 27,372
Between two and three years 31,298 26,867
Between three and four years 28,985 25,748
Between four and five years 27,111 24,415
More than five years 154,893 100,195
Total 309,082 232,624
There is no single tenant with annual rental income greater than 10 per cent
of the Group's annual rental income at 31 December 2022.
The Group has entered into commercial property leases on its investment
property portfolio. These leases have remaining lease terms of between 1 and
26 years.
25. Post Balance Sheet Events
There were no post balance sheet events.
26. Capital Commitments
As at the 31 December 2022 the Group had capital commitments of €nil (2021:
€73.4m).
27. Ultimate Parent Company
In the opinion of the Directors on the basis of shareholdings reviewed by
them, the Company has no immediate or ultimate controlling party.
28. Going Concern
The Group and Company meets its longer term funding and working capital
requirements through a combination of cash balances, rental income and a
number of bank loans with different banks.
The Group ended the year with £20.3 million cash in hand, with the company's
€70 million master revolving credit facility undrawn, €3.3m of which is
committed and available on request to cover any short term liquidity gaps.
As detailed in Note 14, there are currently eight bank facilities, none of
which are due to expire before June 2025. Under the terms of the debt
agreements, each debt obligation is "ring fenced" within a sub-group of
property holding companies. These non-recourse loans range in maturities
between 2.5 and 6.1 years with all-in interest rates ranging between 1.10% and
3.01% per annum. All debts have a fixed rate or fixed rate nature by entering
into interest rate SWAPs and caps to manage exposure to potential interest
rate fluctuations.
The permitted loan-to-value ratios in the debt arrangements as at 31 December
2022 are between 45% and 65%.
The "hard breach" loan-to-value ratio covenants which give the lenders to
right to exercise their security are between 55% and 65%. If the lenders were
to adopt the valuations carried out for the purposes of these financial
statements as at 31 December 2022, the ratios would be between 32% and 52%. As
at 31st December 2022, there was no breach of loan-to-value ratio covenants.
The permitted interest coverage ratios in the debt arrangements as at 31
December 2022 are between 200% and 300%. The "hard breach" interest coverage
ratio covenants, which give the lenders to right to exercise their security
are between 200% and 300%. The latest calculated interest coverage ratios were
between 241% and 1033%. As at 31st December 2022, there was no breach of
interest coverage ratios.
The Board recognises the 35% share price discount to NAV, as at 31
December2022. The valuation of investment property is the main driver of the
NAV, and was determined by Savills as independent valuer. The Board is
satisfied that the valuation exercise was performed in accordance with RICS
Valuation - Global Standards. As such, the Board has full confidence in the
level of the NAV disclosed in the financial statements at the reporting date.
The Russian invasion of Ukraine has not materially impacted the Groups
portfolio. The Group has no assets or exposure to Russia or Ukraine but the
potential impact of contagion in the European and Global economy could,
however, impact the Group through a reduction in rental income, reduction in
investment property valuation and increased costs. The Directors note that the
real estate values have declined in the latter part of 2022 and in the event
that the real estate market deteriorates and valuations fall further, certain
loan-to-value ratio levels would rise closer to permitted ratio levels.
However, the Directors consider this will have no impact on the Group's
ability to continue as a going concern because:
. The Directors consider that in all cases there is sufficient or good
headroom on covenant ratios.
. The Group has a substantial cash balance, with the ability to increase those
amounts further with certain mitigating actions.
. The Group has substantial unsecured properties
. aELI, the parent company, is not itself a party to any of the debt contracts
(in any capacity including as borrower, guarantor or security provider). The
lenders would therefore not, in any event, have any recourse to the ultimate
parent under the debt contracts.
The Company has prepared cash flow forecasts which reflect these potential
impacts, including severe but plausible downside scenarios taking into account
specific tenant risks. The scenarios model reduced rental income through to
2023 and the worst case model equates to an overall 40% reduction of rental
income per annum over that period. The impact of reductions in rental income
and increased costs in these scenarios could be mitigated through a reduction
in dividends to shareholders if considered necessary by the Board.
While the Company cannot predict with any certainty the full potential impact
of these ongoing unpredictable political events, the financial forecasts
prepared, including the downside scenarios, indicate that the Company can
continue to operate as a going concern and meet its liabilities as they fall
due.
While the Company is obliged under its articles to hold a continuation vote at
the 2024 AGM, the Directors are unaware of any shareholder intentions to vote
against such a resolution. Accordingly, the Directors have a reasonable
expectation that the Company will be able to continue as a going concern and
meet its liabilities as they fall due for a period of at least 12 months from
the date of this report.
EPRA Financial Reporting (Unaudited)
Prepared in accordance with EPRA best practice recommendations (BPR) February
2022.
EPRA Performance Measures
31 December 2022 31 December 2021
Total Total
A. EPRA earnings (€'000) 14,497 15,176
A. EPRA earnings per share (cents) 3.54 5.27
B. EPRA Net Tangible Assets ("NTA") (€'000) 517,159 515,177
B. EPRA NTA per share (cents) 125.47 136.40
C. EPRA Net Reinstatement Value ("NRV") (€'000) 553,744 551,283
C. EPRA NRV per share (cents) 134.35 145.99
D. EPRA Net Disposal Value ("NDV")(€'000) 498,060 491,894
D. EPRA NDV per share (cents) 120.84 130.26
E. EPRA Net Initial Yield 3.96% 3.93%
E. EPRA topped-up Net Initial Yield 4.06% 4.02%
F. EPRA Vacancy Rate 3.61% 0.00%
G. EPRA Cost Ratios - including direct vacancy costs 32.02% 29.00%
G. EPRA Cost Ratios - excluding direct vacancy costs 30.96% 29.00%
H. EPRA Capital Expenditure (€m) 133,170 194,429
I. EPRA Like for Like Rental Growth 4.99% 1.30%
I. EPRA LTV 34.57% 24.80%
A. EPRA Earnings (€000) (18,442) 44,443
Earnings per IFRS income statement
Adjustments to calculate EPRA Earnings, exclude: - -
Net changes in value of investment properties 40,432 (41,031)
Deferred tax (3,893) 11,847
Changes in fair value of financial instruments EPRA Earnings (3,600) (83)
14,497 15,176
Weighted average basic number of shares ('000) 408,956 288,115
EPRA Earnings per share (cents per share) 3.54 5.27
31 December 2022 31 December 2021
Total Total
B. EPRA Net Tangible Assets ("NTA") (€'000) IFRS NAV 489,977 487,505
Exclude: 3,709 109
Fair value of financial instruments
Deferred tax in relation to fair value gains of Investment Property 23,473 27,563
517,159 515,177
Shares in issue at end of year ('000) 412,174 377,629
EPRA NAV per share (cents per share) 125.47 136.40
C. EPRA Net Reinstatement Value ("NRV") (€'000) 517,159 515,177
EPRA NTA
Real Estate Transfer Tax and other purchasers' costs EPRA NRV 36,585 36,106
553,744 551,283
EPRA NRV per share (cents per share) 134.35 145.99
D. EPRA Net Disposal Value ("NDV") (€'000) 489,977 487,505
IFRS NAV
Fair Value adjustment for Fixed Interest Debt EPRA NDV 8,083 4,389
498,060 491,894
EPRA NDV per share (cents per share) 120.84 130.26
E. EPRA Net Initial Yield and 'topped up' NIY disclosure (€'000) Investment 758,719 666,008
property - wholly owned
Less developments - -
Completed property portfolio
758,719 666,008
Allowance for estimated purchasers' costs 36,585 36,106
Gross up completed property portfolio valuation
795,304 702,114
Annualised cash passing rental income 33,994 29,445
Property outgoings (2,501) (1,851)
Annualised net rents
31,493 27,594
Add: notional rent expiration of rent free periods or other lease incentives 778 600
Topped-up net annualised rent
32,271 28,194
EPRA NIY 3.96% 3.93%
EPRA "topped-up" NIY 4.06% 4.02%
31 December 2022 31 December 2021
Total Total
F. EPRA Vacancy Rate 1,270 -
Estimated rental value of vacant space
Estimated rental value of whole portfolio 35,176 29,908
EPRA Vacancy Rate 3.61% 0%
G. EPRA Cost Ratios (€'000) 15,743 10,148
Administrative / property operating expense line per IFRS income statement
Net service charge costs / fees (6,237) (3,435)
EPRA Costs (including direct vacancy costs)
9,506 6,713
Direct vacancy costs (315) -
EPRA Costs (excluding direct vacancy costs)
9,191 6,713
Gross Rental income - per IFRS 29,686 23,283
EPRA Cost Ratio (including direct vacancy costs) 32.02% 29.00%
EPRA Cost Ratio (excluding direct vacancy costs) 30.96% 29.00%
Overhead and operating expenses capitalised - -
H. Property-related CapEx for the Group 132,754 194,104
Acquisitions
Investment Properties: 416 -
Non incremental Lettable Space
Incremental Lettable Space - 325
Total CapEx
133,170 194,429
Conversion from accrual to cash basis 353 (954)
Total CapEx on cash basis
133,523 193,475
I. Like For Like Rental Growth 10.25% (1.50%)
Rental income growth: Germany
Poland 7.55% 2.20%
France 4.86% 0.00%
Spain 2.40% 0.30%
Netherlands 4.16% 2.30%
4.99% 1.30%
31 December 2022 31 December 2021
Total Total
Rental income total* (€'000): 3,239 2,938
Germany
Poland 5,434 5,052
France 2,612 2,491
Spain 7,597 7,419
Netherlands 10,973 10,536
29,855 28,436
* Calculated based on lease agreements as at the reporting date. 68,170 70,000
Total portfolio value on which the like-for-like rental growth is based**
(€'000):
Germany
Poland 93,600 90,000
France 73,600 74,500
Spain 186,430 196,708
Netherlands 216,800 234,800
** Excludes investment properties acquired during the year with 31 December
2022 valuation of €120,119,000.
638,600 666,008
J. EPRA LTV (€'000) 270,270 177,100
Borrowings from Financial Institutions
Net payables 15,006 14,466
Exclude: (20,262) (23,280)
Cash and cash Equivalents
Net Debt (a)
265,014 168,286
Investment properties at fair value 758,719 666,008
Net receivables (excluding lease incentives) Total Property Value (b) 7,829 13,106
766,548 679,114
LTV (a/b) 34.57% 24.80%
Corporate Information
Alternative Investment Fund Managers Directive Disclosures (Unaudited)
abrdn Fund Managers Limited and the Company are required to make certain
disclosures available to investors in accordance with the Alternative
Investment Fund Managers Directive ('AIFMD'). Those disclosures that are
required to be made pre-investment are included within a pre-investment
disclosure document ('PIDD') which can be found on the Company's website
eurologisticsincome.co.uk (http://eurologisticsincome.co.uk/) . There have
been no material changes to the disclosures contained within the PIDD since
its last publication in November 2022.
The periodic disclosures as required under the AIFMD to investors are made
below:
. Information on the investment strategy, geographic and sector investment
focus and principal stock exposures are included in the Strategic Report.
. None of the Company's assets are subject to special arrangements arising
from their illiquid nature.
. The Strategic Report, note 22 to the Financial Statements and the PIDD
together set out the risk profile and risk management systems in place. There
have been no changes to the risk management systems in place in the period
under review and no breaches of any of the risk limits set, with no breach
expected.
. There are no new arrangements for managing the liquidity of the Company or
any material changes to the liquidity management systems and procedures
employed by aFML.
. All authorised Alternative Investment Fund Managers are required to comply
with the AIFMD Remuneration Code. In accordance with the Remuneration Code,
the Company's AIFM remuneration policy is available from the Company
Secretaries, abrdn Holdings Limited on request (see contact details on page
143 of the published Annual Report and financial statements for the year ended
31 December 2022) and the numerical remuneration in the disclosures in
respect of the AIFM's reporting period for the year ended 31 December 2022
are available on the Company's website.
Leverage
The table below sets out the current maximum permitted limit and actual level
of leverage for the Company:
Gross method Commitment method
Maximum level of leverage 365.0% 185.0%
Actual level at 154.8% 154.8%
31 December 2022
There have been no breaches of the maximum level during the period and no
changes to the maximum level of leverage employed by the Company. There is no
right of re-use of collateral or any guarantees granted under the leveraging
arrangement. Changes to the information contained either within this Annual
Report or the PIDD in relation to any special arrangements in place, the
maximum level of leverage which aFML may employ on behalf of the Company; the
right of use of collateral or any guarantee granted under any leveraging
arrangement; or any change to the position in relation to any discharge of
liability by the Depositary will be notified via a regulatory news service
without undue delay in accordance with the AIFMD.
The information above has been approved for the purposes of Section 21 of the
Financial Services and Markets Act 2000 (as amended by the Financial Services
Act 2012) by abrdn Fund Managers Limited which is authorised and regulated
by the Financial Conduct Authority
The Annual Financial Report Announcement is not the Company's statutory
accounts. The above results for the year ended 31 December 2022 are an
abridged version of the Company's full Annual Report and financial statements,
which have been approved and audited with an unqualified report and did not
include any reference to matters to which the auditor drew attention by way of
emphasis without qualifying the report, and did not contain a statement under
s.498 of the Companies Act 2006.
The Annual Report will be posted to shareholders in early May 2023 and
additional copies will be available from the registered office of the Company
and on the Company's website, eurologisticsincome.co.uk*
Please note that past performance is not necessarily a guide to the future and
that the value of investments and the income from them may fall as well as
rise and may be affected by exchange rate movements. Investors may not get
back the amount they originally invested.
*Neither the content of the Company's website nor the content of any website
accessible from hyperlinks on the Company's website (or any other website) is
(or is deemed to be) incorporated into, or forms (or is deemed to form) part
of this announcement.
1 (#_ftnref1) The Audit fee above reflects 2022 audit fee of €252,000
(2021: €218,400) and Subsidiary audit fees of €12,000 (2021:€12,790).
The non-audit services fees incurred in 2022 were £20,000 (2021:£45,000)
and are included in the share issue costs in note 17.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR PPUWACUPWGRU
Recent news on abrdn European Logistics Income
See all newsRCS - DL Invest Group ISR - DL Invest Group Statement Following ASLI AGM
abrdn Euro Logistics - Confirmation of €23.5m warehouse sale in Ede
Brief: abrdn European Logistics Income Signs Conditional Sale Agreement For Ede Warehouse
abrdn Euro Logistics - Doc re. Annual Report
Brief: abrdn European Logistics Income Board Continues to Engage With DL Invest on Mgmt Takeover Interest