REG-AEW UK REIT plc AEW UK REIT plc: Annual Financial Report
23/06/2020 07:05
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AEW UK REIT plc (AEWU)
AEW UK REIT plc: Annual Financial Report
23-Jun-2020 / 07:00 GMT/BST
Dissemination of a Regulatory Announcement, transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
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AEW UK REIT PLC
Announcement of Full Year Results for the year ended 31 March 2020
AEW UK REIT PLC (the 'Company') which holds a diversified portfolio of 35 commercial investment properties
throughout the UK, is pleased to publish its full year results for the year ended 31 March 2020.
Summary Highlights
• Net Asset Value ('NAV')** of £147.86 million and of 93.13 pence per share ('pps') as at 31 March 2020
(31 March 2019:£149.46 million and 98.61 pps)
• Rental income generated was £17.42 million (year ended 31 March 2019: £17.18 million)
• Operating profit before fair value changes of £14.47 million (year ended 31 March 2019: £13.52 million)
• Profit before tax ('PBT')* of £3.65 million and EPS of 2.40 pps (year ended 31 March 2019: £15.54
million and of 10.26 pps)
• EPRA Earnings Per Share ('EPRA EPS')* of 8.67 pps (year ended 31 March 2019: 8.07 pps)
• Total dividends of 8.00 pps declared (year ended 31 March 2019: 8.00 pps) with a dividend cover of
108.38%
• Cash balances totalling £9.87 million as at 31 March 2020 (31 March 2019: £2.13 million) having raised
gross proceeds of £7.00 million via a share placing in February 2020. Following the disposal of 2
Geddington Road, Corby the Company had a cash balance of £27.28 million as at 19 June 2020
• The portfolio delivered strong results relative to the MSCI/AREF PFI Balanced Funds Quarterly Property
Index, outperforming with a total return of 3.5% largely driven by the portfolio's high yielding
assets, which generated a strong income return of 8.2% over the year
• The portfolio has a high weighting towards the industrial sector which has maintained its position as
one of the most resilient market sectors, both in terms of occupational and investment market sentiment
• Since the year-end the Company disposed of 2 Geddington Road, Corby, for gross proceeds of £18.80
million delivering an IRR in excess of 30%
Mark Burton, Chairman of AEW UK REIT, commented: "We are pleased with the overall performance of the
Company, which, for a second consecutive year, has improved its performance in EPRA EPS, while also
achieving a dividend of 8 pence per share. The end of the financial year saw the outbreak of COVID-19 and
the focus of the Board and Investment Manager has been on minimising the impact on the Company and
stakeholders. We believe the Company's assets are strategically placed to continue to provide investors
with robust performance over the medium and long term. The Board is encouraged by the fact that, despite
the uncertainty that has been caused by the outbreak of COVID-19, a number of ongoing asset management
transactions are currently being negotiated by the Manager whose active management style is a principal
feature of the Company's strategy seeking to maximise both income and capital returns to shareholders. With
a number of these key discussions ongoing it is hoped that further value can be added."
Enquiries
AEW UK
Alex Short 1 Alex.Short@eu.aew.com
2 Nicki.Gladstone-ext@eu.aew.com
Nicki Gladstone
+44(0) 771 140 1021
Liberum Capital Gillian.Martin@liberum.com
Gillian Martin +44 (0)20 3100 2217
TB Cardew 3 AEW@tbcardew.com
Ed Orlebar +44(0) 7738 724 630
Tania Wild +44(0) 7425 536 903
Lucas Bramwell +44(0) 7939 694 437
Financial Highlights
* Net Asset Value ('NAV')* of £147.86 million and of 93.13 pence per share ('pps') as at 31 March 2020 (31
March 2019: £149.46 million and 98.61 pps).
* Operating profit before fair value changes of £14.47 million for the year (year ended 31 March 2019:
£13.52 million).
* Profit before tax ('PBT')* of £3.65 million and EPS of 2.40 pps for the year (year ended 31 March 2019:
£15.54 million and of 10.26 pps).
* EPRA Earnings Per Share ('EPRA EPS')* for the year of 8.67 pps (year ended 31 March 2019: 8.07 pps).
* Total dividends of 8.00 pps declared for the year (year ended 31 March 2019: 8.00 pps).
* Shareholder Total Return* for the year of -17.89% (year ended 31 March 2019: 5.44%).
* The price of the Company's Ordinary Shares on the Main Market of the London Stock Exchange was 68.20 pps
as at 31 March 2020 (31 March 2019: 92.80 pps).
* As at 31 March 2020, the Company had drawn £51.50 million (31 March 2019: £50.00 million) of a £60.00
million (31 March 2019: £60.00 million) term credit facility with the Royal Bank of Scotland International
Limited ('RBSi') and was geared to 27.21% of the Gross Asset Value ('GAV')* (31 March 2019: 25.30%) (see
note 21 of the Financial Statements below).
* The Company held cash balances totalling £9.87 million as at 31 March 2020 (31 March 2019: £2.13 million)
having raised gross proceeds of £7.00 million via a share placing in February 2020. Following the disposal
of 2 Geddington Road, Corby, the Company had a cash balance of £27.28 million as at 19 June 2020.
Property Highlights
* As at 31 March 2020, the Company's property portfolio had a valuation of £189.30 million across 35
properties (31 March 2019: £197.61 million across 35 properties) as assessed by the valuer# and a
historical cost of £197.12 million (31 March 2019: £196.86 million).
* The Company acquired no properties during the year (year ended 31 March 2019: one property for £6.93
million). The Company made no disposals during the year (year ended 31 March 2019: two full disposals and
two part disposals for gross sales proceeds of £6.80 million).
* The portfolio had an EPRA Vacancy Rate** of 3.68% as at 31 March 2020 (31 March 2019: 2.99%).
* Rental income generated in the year under review was £17.42 million (year ended 31 March 2019: £17.18
million). The number of tenants as at 31 March 2020 was 91 (31 March 2019: 95).
* EPRA Net Initial Yield ('NIY')** of 8.26% as at 31 March 2020 (31 March 2019: 7.62%).
* Weighted Average Unexpired Lease Term ('WAULT')* of 4.26 years to break (31 March 2019: 4.87 years) and
5.55 years to expiry (31 March 2019: 6.10 years).
* Post year-end, in May 2020, the Company disposed of 2 Geddington Road, Corby, for gross proceeds of
£18.80 million.
* Post year-end, in June 2020, the Company completed a 15 year renewal lease with the Secretary of State
for Communities and Local Government at its Solihull office, Sandford House. The agreement documents the
increase of rental income from the property by 30%.
* As at the date of this report, 84% of the rent due for the March 2020 quarter has been collected.
* See KPIs below for definition of alternative performance measures.
** See Glossary in the full Annual Report and Financial Statements for definition of alternative
performance measures.
# The valuation figure is reconciled to the fair value under IFRS in Note 10.
Chairman's Statement
Overview
I am pleased to present the audited annual results of AEW UK REIT plc for the year ended 31 March 2020. As
at 31 March 2020, the Company owned a diversified portfolio of 35 commercial investment properties
throughout the UK with a value of £189.30 million.
The Company has improved its performance in terms of EPRA EPS for a second consecutive year; increasing
from 8.07 pence for the prior year to 8.67 pence for the year under review. However, the end of this
financial year brought an unprecedented period of uncertainty to the UK and global markets, which is
ongoing as at the date of this report, as a result of the outbreak of COVID-19. This has negatively
impacted the fair value of the Company's investment properties, which fell by £9.44 million during the year
and consequently the Company's NAV per share, which fell by 5.56% for the year. The Company's shares are
also trading at a discount to NAV, having briefly traded at a premium to NAV at the start of 2020, prior to
the COVID-19 outbreak.
As a result of the pandemic, the primary focus of the Board and Investment Manager has recently been on
minimising the impact of COVID-19 on the Company and its stakeholders. Business continuity measures in
place are allowing the Board, the Investment Manager and the Company's service providers to continue to
operate effectively. Immediately prior to the publication of this report, the Company had collected 84% of
the rents due on 25 March 2020, however we are expecting collection rates to fall again for the June
quarter, as tenants have been adversely affected by the period of lockdown. Amounts that remain outstanding
are being pursued or are the matter of ongoing engagement between the Manager and the tenant. There are
some tenants who are experiencing difficulties in the current environment and the Company is sympathetic to
their situation. In these cases, the Company has agreed a payment plan where rental amounts can be fully
recovered by the Company over coming periods. Unfortunately, there are a few larger tenants who have
significant financial resources and the ability to pay who are refusing to do so or enter into dialogue.
The Company shall be pursuing these tenants when legally able to do so and charging the full default
interest rates per the lease agreements. To date, the Company has not granted any rent free periods to
tenants where asset management gains were not also made.
Although the full impact of COVID-19 on the UK economy and real estate market is yet to become clear, the
Board considers the Company to be well positioned to withstand this period of uncertainty due to its cash
resources and levels of headroom in respect of its loan covenants. The Board also considers that the
Company's assets are strategically placed to continue to provide investors with robust performance over
medium and long term horizons. This is expected to be the case due to the portfolio's high weighting
towards the industrial sector which, despite the recent lockdown period, has maintained its position as one
of the most resilient market sectors, both in terms of occupational and investment market sentiment.
Furthermore, the Manager's value investment style which focuses on exploiting mispriced investment
opportunities that are trading below their long term fundamental value is considered to create a defensive
position in respect of capital preservation.
The Board is encouraged by the fact that, despite the uncertainty that has been caused by the outbreak of
COVID-19, there are a number of ongoing asset management transactions currently being negotiated by the
Manager, as evidenced by the 15 year lease renewal to the Secretary of State for Communities and Local
Government that has now completed at the Company's premises in Solihull. The renewal documented a 30%
increase in passing rent and is expected to result in significant value increase for the asset when the
portfolio is revalued at the end of this month. The successful conclusion of this business plan at the
current time, following on from the profitable sale of Corby in May, both highlight the durability of the
Company's strategy during more volatile markets. The Board feels that the recent completion of these asset
management transactions is a credit to the Investment Manager's active management style which is a
principal feature of the Company's strategy. With a number of asset management discussions still ongoing
it is hoped that both income and capital returns to shareholders can be maximised further.
Since the year-end the Company has disposed of 2 Geddington Road, Corby, for gross proceeds of £18.80
million. The Board considers that the profitable sale represents a positive outcome to the Manager's
business plan for the asset, particularly given wider market conditions at the time. The sale has
delivered to the Company an IRR in excess of 30% due in part to the asset's net income yield of 10% against
its purchase price produced throughout its hold period. Proceeds from the sale leave the company well
placed to take advantage of investment opportunities that may arise over coming weeks and months as a
result of the current economic environment.
The Company raised gross capital proceeds of £7.00 million in February 2020 which has contributed to a
healthy cash balance of £9.87 million as at 31 March 2020. This has since risen to £27.28 million as at 19
June 2020 following the aforementioned disposal.
AEW UK REIT plc Property Performance vs. Benchmark for 12 months to 31 March 2020
The Company's portfolio has again delivered strong results relative to the MSCI/AREF PFI Balanced Funds
Quarterly Property Index ('the Benchmark'), outperforming the Benchmark with a total return of 3.5%. Total
return was largely driven by the portfolio's high yielding assets generating a strong income return of 8.2%
over the year. While capital growth was negative overall, the portfolio is defensively positioned in terms
of geographical diversification and composition by sector. As at 31 March 2020, the portfolio valuation
comprised just 12.4% of its value in retail assets and 7.8% in leisure which has helped to limit the
potential downside arising from events that are affecting the wider economy and these sectors in
particular.
The Company's consistent income returns have enabled it to continue to pay quarterly dividends of 2.00
pence per share throughout the year, meeting its target of 8.00 pence per share per annum. Dividends were
fully covered by the Company's EPRA EPS of 8.67 pence.
The Investment Manager's active approach to asset management has resulted in a vacancy rate of just 3.68%
which has been maintained below 4% for seven consecutive quarters up to and including the quarter ended 31
March 2020. However, given the problems that tenants are generally experiencing we are expecting vacancy
rates to increase in the coming year.
The Company's share price was 68.20 pence per share as at 31 March 2020 (31 March 2019: 92.80 pence per
share), representing a 26.77% discount to NAV. This reflects the declines experienced in the equity markets
in general and specifically in real estate as a result of the COVID-19 outbreak.
Financial Results Summary
Year ended
Year ended
31 March 2019
31 March 2020
Operating profit before fair value changes (£'000) 14,472 13,524
Operating profit (£'000) 5,072 17,226
Profit before tax (£'000) 3,652 15,544
Earnings Per Share (basic and diluted) (pence) 2.40 10.26
EPRA Earnings Per Share (basic and diluted) (pence) 8.67 8.07
Ongoing Charges (%) 1.34 1.40
Net Asset Value per share (pence) 93.13 98.61
EPRA Net Asset Value per share (pence) 93.12 98.51
Financing
The Company has a £60.00 million loan facility, of which it had drawn a balance of £51.50 million as at 31
March 2020 (31 March 2019: £60.00 million facility; £50.00 million drawn), producing the following measures
of gearing.
Year ended Year ended
31 March 2020 31 March 2019
% %
Loan to NAV 34.83 33.45
Gross Loan to GAV 27.21 25.30
Net Loan to GAV (deducts cash balance from the outstanding loan value) 21.99 24.37
The unexpired term of the facility was 3.6 years as at 31 March 2020 (31 March 2019: 4.6 years). The loan
incurs interest at 3 month LIBOR +1.4%, which equated to an all-in rate of 2.10% as at 31 March 2020 (31
March 2019: 2.32%).
The Company is protected from a significant rise in interest rates and, as at the year end, had interest
rate caps in effect with a combined notional value of £36.51 million (31 March 2019: £36.51 million), with
£26.51 million capped at 2.50% and £10.00 million capped at 2.00%, resulting in the loan being 71% hedged
(31 March 2019: 73%). These interest rate caps are effective until 19 October 2020. The Company has
additional interest rate caps covering the remaining period of the loan from 20 October 2020 to 23 October
2023. After the year-end, the Company replaced its existing caps covering this period, which capped the
interest rate at 2.0% on a notional value of £49.51 million, with new caps covering the same period capping
the interest rate at 1.0% on a notional value of £51.50 million. The Company paid a premium of £62,968.
During October 2019, the Company announced that it had completed an amendment to its loan facility,
increasing the 'Loan to NAV' covenant from 45% to 55% (subject to certain conditions). There were no
changes to the margin currently charged under the facility. The long term gearing target remains 25% or
less of GAV, however the Company can borrow up to 35% of GAV in advance of an expected capital raise or
asset disposal. The Board and Investment Manager will continue to monitor the level of gearing and may
adjust the target gearing according to the Company's circumstances and perceived risk levels.
Subsequent to the year-end, on the 26 May 2020, the Company announced that it had obtained consent from its
lender, RBS International, to waive the interest cover tests within its loan agreement for July and October
with the next proposed test date being January 2021. The lender also conveyed a willingness to review the
position again in December based on circumstances prevailing. The Board considers this to have been
prudent action in the current market environment.
Dividends
The Company has continued to deliver on its target of paying dividends of 8.00 pence per share per annum.
During the year, the Company declared and paid four quarterly dividends of 2.00 pence per Ordinary Share,
in line with its target, which were fully covered by the Company's EPRA EPS of 8.67 pence. It remains the
Company's longer-term intention to continue to pay dividends in line with its dividend policy, however the
outlook is highly uncertain in the short term given the current outbreak of COVID-19. In determining future
dividend payments, regard will be had to the circumstances prevailing at the relevant time, as well as the
Company's requirement, as a UK REIT, to distribute at least 90% of its distributable income annually, which
will remain a key consideration.
Outlook
The Board and Investment Manager are pleased with the strong income returns delivered to shareholders to
date. The Company has met its dividend target of 8.00 pps for the year, which was 108.38% covered by EPRA
EPS. The outlook for the UK economy and real estate market still faces huge uncertainty and it is likely
that the Company will see further reduced levels of rent collection in the near term, as tenants continue
to feel the impact of lockdown restrictions on their cash flows. However, the Company is well placed to
withstand these circumstances due to its healthy cash position and borrowing covenant headroom, as well as
its diversified portfolio and low exposure to retail. It is hoped that the easing of lockdown measures will
allow many businesses to resume some level of operations and kick start the economic recovery, eventually
providing conditions to enable further growth of the Company. In the meantime, the Board will monitor
closely the developing situation in consideration of the Company's strategy and the Investment Manager will
be working closely with tenants in order to minimise impact on the Company's income profile.
Finally, I would like to remind investors that the Company will hold a continuation vote at the Annual
General Meeting ('AGM') to be held on 9 September 2020. Under the provision of the Company's Articles, the
Board will propose an ordinary resolution that the Company continues its business as presently
constituted. Together with my fellow Board members, and the Investment Manager, I would like to express my
ongoing belief in the Company's Strategy and to express the confidence that we have for its future
performance for the various reasons that are discussed herewith. The Board, as set out later within this
report, therefore welcomes shareholder attendance at the AGM if it is appropriate to do so in light of
current circumstances.
Mark Burton
Chairman
22 June 2020
Business Model and Strategy
Introduction
The Company is a real estate investment company listed on the premium segment of the Official List of the
FCA and traded on the London Stock Exchange's Main Market. As part of its business model and strategy, the
Company has, and intends to maintain, UK REIT status. HM Revenue and Customs has acknowledged that the
Company has met the necessary qualifying conditions to conduct its affairs as a UK REIT and the Company
intends to continue to do so.
Investment Objective
The investment objective of the Company is to deliver an attractive total return to shareholders from
investing predominantly in a portfolio of smaller commercial properties in the United Kingdom.
Investment Policy
In order to achieve its investment objective, the Company invests in freehold and leasehold properties
across the whole spectrum of the commercial property sector (office properties, industrial/warehouse
properties, retail warehouses and high street retail) to achieve a balanced portfolio with a diversified
tenant base.
Investment Restrictions
The Company invests and manages its assets with the objective of spreading risk through the following
investment restrictions:
• the value of no single property, at the time of investment, will represent more than 15.00% of GAV;
• the Company may commit up to a maximum of 10.00% of its NAV (measured at the commencement of the
project) to development activities;
• the value of properties, measured at the time of each investment, in any one of the following sectors:
office properties, retail warehouses, high street retail and industrial/warehouse properties will not
exceed 50.00% of GAV. The 50.00% sector limit may be increased to 60.00% as part of the Investment
Manager's efficient portfolio management whereby the Investment Manager determines it appropriate to
pursue an attractive investment opportunity which could cause the 50.00% sector limit to be exceeded on
a short-term basis pending a repositioning of the portfolio through a sale of assets or other means;
• investment in unoccupied and non-income producing assets will, at the time of investment, not exceed
20.00% of NAV;
• the Company may commit up to a maximum of 10.00% of the NAV (at the time of investment) in the AEW UK
Core Property Fund (the 'Core Fund'). The Company disposed of its last remaining units in the Core Fund
in May 2017 and it is not the current intention of the Directors to invest in the Core Fund;
• the Company will not invest in other closed-ended investment companies; and
• if the Company invests in derivatives for the purposes of efficient portfolio and cash management, the
total notional value of the derivatives at the time of investment will not exceed, in aggregate, 35.00%
of GAV.
The Directors currently intend, at all times, to conduct the affairs of the Company so as to enable the
Group to qualify as a REIT for the purposes of Part 12 of the Corporation Tax Act 2010 ('CTA') (and the
regulations made thereunder).
The Company will at all times invest and manage its assets in a way that is consistent with its objective
of spreading investment risk and in accordance with its published investment policy and will not, at any
time, conduct any trading activity which is significant in the context of the business of the Company as a
whole.
In the event of a breach of the investment policy and investment restrictions set out above, the Directors
upon becoming aware of such breach will consider whether the breach is material, and if it is, notification
will be made to a Regulatory Information Service.
Any material change to the investment policy or investment restrictions of the Company may only be made
with the prior approval of shareholders.
Our Strategy
As the ramifications of COVID-19 become clearer, it is possible that our strategy might adapt with
prevailing market conditions, but for now we continue to follow our successful strategy since inception as
below:
The Company exploits what it believes to be the compelling relative value opportunities currently offered
by pricing inefficiencies in smaller commercial properties let on shorter occupational leases. The Company
supplements this core strategy with asset management initiatives to upgrade buildings and thereby improve
the quality of income streams. In the current market environment, the focus is to invest in properties
which:
• typically have a value, on investment, of between £2.50 million and £15.00 million;
• have initial net yields, on investment, of typically between 7.5-10%;
• achieve across the whole portfolio an average weighted lease term of between three to six years
remaining;
• achieve, across the whole portfolio, a diverse and broad spread of tenants; and
• have potential for asset management initiatives to include refurbishment and re-lettings.
The Company's strategy is focused on delivering enhanced returns from the smaller end (up to £15.00
million) of the UK commercial property market. The Company believes that there are currently pricing
inefficiencies in smaller commercial properties relative to the long-term pricing resulting in a
significant yield advantage, which the Company aims to exploit.
How we add value
An Experienced Team
The investment management team averages 20 years working together, reflecting stability and continuity.
Value Investing
The Investment Manager's investment philosophy is based on the principle of value investing. The Investment
Manager looks to acquire assets with an income profile coupled with underlying characteristics that
underpin long-term capital preservation. As value managers, the Investment Manager looks for assets where
today's pricing may not correspond to long-term fundamentals.
Active Asset Management
The Investment Manager has an in-house team of dedicated asset managers with a strong focus on active asset
management to enhance income and add value to commercial properties.
Strategy in Action
Driving rental growth
Queen Square, Bristol
• A letting completed during February 2020 proves a new high rental tone for the building of £27.14 per
sq ft, a 55% increase above the previous passing rent for the suite.
• The building has an occupancy level of 100% (54% at purchase in December 2015). During this time,
growth of 66% has been achieved in value and 18% in income.
Maintaining high occupancy levels
Diamond Business Park, Wakefield
• Since purchase in early 2018, occupancy level has increased from 82% to 92%.
• Four lettings were completed during 2019 creating income of £125,000 per annum.
• Passing rent has increased by 9% during the year.
Lengthening income streams to boost net asset value
Brockenhurst Crescent, Walsall
• During September 2019, the Company completed a new lease extending the income stream from 3 to 8 years.
• The rent remained the same with the concession of only 9 months rent free.
• Valuation uplift of 3% was recorded on completion.
Driving income levels above estimated rental value
Knowles Lane, Bradford
• In September 2019, the Company documented the settlement of a rent review representing a 14% increase
on the previous rent and which was also ahead of the valuer's estimated rental value.
Key Performance Indicators
KPI AND DEFINITION RELEVANCE TO STRATEGY TARGET PERFORMANCE
1. EPRA NIY
A representation to the
investor of what their EPRA NIY is in line with the Company's 8.26%
initial net yield would be at target dividend yield meaning that,
a predetermined purchase after costs, the Company should have the 7.50 - 10.00% at 31 March 2020 (31
price after taking account of ability to meet its target dividend March 2019: 7.62%)
all associated costs, e.g. through property income.
void costs and rent free
periods.
2. True Equivalent Yield
The average weighted return a
property will produce
according A True Equivalent Yield profile in line 8.04%
with the Company's target dividend yield
to the present income and ERV shows that, after costs, the Company 7.50 - 10.00% at 31 March 2020 (31
assumptions, assuming the should have the ability to meet its March 2019: 7.94%)
income is proposed dividend through property
income.
received quarterly in
advance.
3. Reversionary Yield
A Reversionary Yield profile that is in 7.90%
The expected return the line with an Initial Yield profile shows
property will a potentially sustainable income stream 7.50 - 10.00% at 31 March 2020 (31
that can be used to meet dividends past March 2019: 7.75%)
provide once rack-rented. the expiry of a property's current
leasing arrangements.
4. WAULT to expiry
The Investment Manager believes that
The average lease term current market conditions present an 5.55 years
remaining to opportunity whereby assets with a
shorter unexpired lease term are often at 31 March 2020 (31
expiry across the portfolio, mispriced. It is also the Investment > 3 years March 2019: 6.10
weighted Manager's view that a shorter WAULT is years)
useful for active asset management as it
by contracted rent. allows the Investment Manager to engage
in direct negotiation with tenants
rather than via rent review mechanisms.
The Investment Manager believes that
5. WAULT to break current market conditions present an
opportunity whereby assets with a
The average lease term shorter unexpired lease term are often 4.26 years
remaining to mispriced. As such, it is in line with
the Investment Manager's strategy to at 31 March 2020 (31
break, across the portfolio acquire properties with a WAULT that is > 3 years March 2019: 4.87
weighted generally shorter than the benchmark. It years)
is also the Investment Manager's view
by contracted rent. that a shorter WAULT is useful for
active asset management as it allows the
Investment Manager to engage in direct
negotiation with tenants rather than via
rent review mechanisms.
6. NAV
£147.86 million
NAV is the value of an Provides stakeholders with the most
entity's assets relevant information on the fair value Increase year at 31 March 2020 (31
of the assets and liabilities of the March 2019: £149.46
minus the value of its Company. on year million)
liabilities.
25% long term
27.21%
7. Leverage (Loan to GAV) The Company utilises borrowings to and 35% in
enhance returns over the medium term. at 31 March 2020 (31
The proportion of our Borrowings will not exceed 35% of GAV advance of March 2019: 25.30%)
property portfolio that is (measured at drawdown) with a long-term
funded by borrowings. target of 25% or less of GAV. a disposal or
capital raise
8. Vacant ERV
The space in the property The Company's aim is to minimise vacancy 3.68%
portfolio which is currently of the properties. A low level of
unlet, as a structural vacancy provides an < 10.00% at 31 March 2020 (31
opportunity for the Company to capture March 2019: 2.99%)
percentage of the total ERV rental uplifts and manage the mix of
of the portfolio. tenants within a property.
9. Dividend
Dividends declared in
relation to the year. The 8.00 pps
Company targets a dividend of
8.00 pence per Ordinary Share for the year ended 31
per annum. However, given the The dividend reflects the Company's March 2020 (year
current COVID-19 situation, ability to deliver a sustainable income 8.00 pps ended 31 March 2019:
regard will be had to the stream from its portfolio. 8.00 pps)
circumstances prevailing at
the relevant time in
determining dividend
payments.
10. Ongoing Charges The Ongoing Charges ratio provides a 1.34%
measure of total costs associated with
The ratio of total managing and operating the Company, for the year ended 31
administration and operating which includes the management fees due March 2020 (year
costs expressed as a to the Investment Manager. The < 1.50% ended 31 March 2019:
percentage of average NAV Investment Manager presents this measure 1.40%)
throughout the year. to provide investors with a clear
picture of operational costs involved in
running the Company.
£3.65 million/2.40
11. Profit before tax ('PBT') pps
PBT is a profitability for the year ended 31
measure which considers the The PBT is an indication of the March 2020 (year
Company's profit before the Company'sfinancial performance for the 8.00 pps ended 31 March 2019:
payment of income tax. year in which its strategy is exercised. £15.54 million/10.26
pps)
12. Shareholder Total Return -17.89%
The percentage change in the This reflects the return seen by for the year ended 31
share price assuming shareholders on their shareholdings March 2020 (year
dividends are reinvested to through share price movements and 8.00% ended 31 March 2019:
purchase additional Ordinary dividends received. 5.44%)
Shares.
13. EPRA EPS
Earnings from core
operational activities. A key 8.67 pps
measure of a company's
underlying operating results for the year ended 31
from its property rental This reflects the Company's ability to March 2020 (year
business and an indication of generate earnings from the portfolio 8.00 pps ended 31 March 2019:
the extent to which current which underpins dividends. 8.07 pps)
dividend payments are
supported by earnings. See
note 8 of the Financial
Statements.
Investment Manager's Report
Economic Outlook
The current outlook for the global and UK economy is heavily dependent on ever-changing assumptions made
about the COVID-19 pandemic and related government policies. As such it is difficult to forecast with any
degree of certainty and the reliance placed on any forecasts should be limited. KPMG forecasts published in
May 2020 expect the UK economy to contract by 7.2% in 2020, recovering in 2021 with GDP growth reaching
6.1%. These forecasts predict a W-shaped recession with a relatively fast recovery, with economic activity
and property values expected to be approaching normal levels by mid to late 2021.
However, some forecasts predict a deeper and more prolonged downside and a weaker recovery. This is highly
dependent on developments in containing the spread of the virus, which could include finding a vaccine.
Property Outlook
It is expected that UK commercial property investment volumes will fall to levels last seen during the 2008
financial crisis during Q2 and Q3 of 2020. The full impact of the current crisis is yet to become clear;
but the recovery in the UK commercial property investment market will likely mirror that of the UK economy.
Thereafter we expect certain characteristics of the market to return, potentially more forcefully than
before. These include a polarisation of the market between the best and worst performing sectors, with
occupier demand being driven by structural forces as much as by the health of the economy in general. A
clear example of this has been the growth of online retail at the expense of physical stores, which has
seen a divergence in the capital values of the retail and industrial warehousing sectors.
Sector Outlook
Industrial
The sector has seen continued growth for a number of years thanks to the trend towards online shopping and
therefore the increased need for warehousing and logistics units. This shift is expected to continue at an
even faster pace than predicted prior to the pandemic as a result of social distancing forcing a change in
shoppers' habits. This is being seen particularly in the grocery sector where growth of c 30% is expected
in 2020 and has led to most grocery retailers needing to occupy additional warehouse space. Current changes
to shopper behaviour are expected to lead to increased take up of online sales, as a percentage of total
sales, over the medium to long term in all retail sectors which should lead to an increase in demand for
warehousing.
In terms of emerging trends, there is an expectation that the UK will begin to see an increase in localised
production as a result of supply chain disruption seen during the pandemic. This could further increase
demand for industrial accommodation but, unlike the above, would lead to increased take up outside of the
currently favoured logistics sector in favour of more traditional manufacturing accommodation which has
seen a decline in total stock over recent years.
The industrial sector represents the portfolio's largest sector holding, with 48.18% of the valuation,
which leaves the Company well-placed to benefit from structural changes going forward. Our focus is on
assets with low capital values in locations with good accessibility from the national motorway network.
Total return for the year from our industrial assets was 4.7%, slightly below benchmark, as the strong
income return of 8.1% was offset by negative capital growth.
Office
The office sector on the whole has proven to be resilient, providing solid income and global flows of
investment into the UK. We consider that development in most UK cities outside London has already peaked,
which should help to maintain stable rental growth. However, the sector could see longer term structural
changes as a result of the current lockdown. A prolonged period of working from home could lead to
businesses changing to adopt more flexible working practices and reducing office space, putting pressure on
the office market, especially for serviced office operators, and increasing the potential for
office-to-residential conversions where viable.
Our office assets represent the second largest sector holding, with 23.72% of the valuation. The focus has
been on strong, regional centres and a preference for town or city centres rather than business park
locations with weak surrounding amenity where demand has generally not kept up. This was the second
strongest performing sector within the portfolio for the year relative to the benchmark, thanks to key
asset management transactions adding significant capital value, achieving outperformance of 7.1%.
Alternatives
This is a sector in which AEW UK as Investment Manager have significant expertise and, up until the
commencement of the current period of uncertainty, had continued to see compelling opportunities. The
Company's alternatives holding comprises assets within the leisure and car parking sectors that have seen
selected due to their defensive, value protection characteristics as well as their high income yield. As
such, even if some occupation levels are negatively impacted as a result of the current pandemic, as is
expected in the leisure sector, the value of assets held in these sectors is expected to be below their
long term assessment of worth, particularly when considering their value for alternative uses.
Assets held in alternative sectors comprise 15.74% of the 31 March 2020 valuation, of which 7.8% is within
the leisure sector. As a whole, our alternatives assets provided the best return relative to the Benchmark
over the year, achieving outperformance of 7.3%, which was driven by an income return of 9.3%.
Retail
The retail sector had been facing difficulties before the outbreak of COVID-19, due to the changing habits
of consumers, namely the adoption of online shopping in preference to visiting outlets. These changes in
shopping habits could well be accelerated by the outbreak and although we might see a surge in footfall
once lockdown restrictions are lifted, this is unlikely to halt the long-term structural decline in the
sector. Over time we expect to see opportunities for conversion of redundant retail space into alternative
uses and consider our retail assets to be well positioned, with the majority located in town and city
centres where there is healthy demand for competing uses.
Retail represents the portfolio's smallest sector holding, with just 12.36% of the valuation, which
somewhat mitigates the risk associated with the sector at a portfolio level. Our retail assets have
performed weakly relative to the Benchmark, as strong Central London retail performance underpins the
Benchmark performance to a great extent. The Company's strictly regional holdings have suffered significant
valuation losses associated with the negative sentiment in the sector.
Asset Management
The Company completed the following material asset management transactions during the year:
• Eastpoint Business Park, Oxford - During May 2019 a lease renewal was completed with Innovista
International on a 3,000 sq ft office suite. The lease, which runs for a three year term, provides for
a rent of £30,000 per annum and a tenant incentive equivalent to six months rent free.
• Diamond Business Park, Wakefield - In June 2019, the Company completed a new letting to tenant CB
Imports on 23,000 sq ft of industrial accommodation at this multi-let estate. The lease runs for a
three year term and provides a rent of £79,750 per annum. No rental incentives were granted.
Within the estate, three other lettings were completed during the year producing a total rental income of
£41,750 per annum. This includes a February 2020 letting that the Company completed with Texlogistics Ltd
at a rent of £33,250 per annum. The lease provides a five year term certain and no rental incentives were
granted.
Since purchase in early 2018, occupancy level has increased from 82% to 92%. Passing rent per sq ft has
increased by 14%.
• Brockhurst Crescent, Walsall - In September 2019, the Company completed the simultaneous surrender and
re-letting of Unit 1, Brockhurst Crescent, Walsall. The rent received from the Industrial property will
continue unchanged at £231,728 per annum however, the new lease provides for a term of eight years,
compared to three years remaining under the previous lease. The incoming tenant will benefit from a
nine month rent free period.
• Knowles Lane, Bradford - In September 2019, the Company settled a rent review at this industrial
property documenting a new passing rent of £182,500. This represents a 14% increase on the previous
rent and which was ahead of the valuer's estimated rental value at the date of signing.
• Cranbourne House, Basingstoke - In September 2019, a lease extension for a term of six months was
completed with HFC Prestige Manufacturing in Basingstoke. Due to the short extension period, a rental
level was agreed 46% ahead of the previous passing rent. The tenant has now agreed terms in principle
with the Company for a further lease renewal.
• Fargate, Sheffield - Following the CVA of Paperchase in early 2019, the tenant remains in full
occupation of the 3,000 sq ft store and did not action a break option in October 2019. H Samuel renewed
occupation of their 2,400 sq ft unit in September 2019 at nil rent but with a rolling break actionable
by both landlord and tenant.
• Lockwood Court, Leeds - During December 2019, the Company completed a new lease with tenant Harrogate
Spring Water for a 10 year term on the 187,700 sq ft industrial unit. The new lease provides for a rent
of £603,340 and mirrors the terms previously in place with tenant LWS Yorkshire Ltd, a logistics
provider to Harrogate Spring Water. The new lease provides the Company with a significantly stronger
tenant counterparty.
• 225 Bath Street, Glasgow - In January 2020, the Company completed a new letting of 6,700 sq ft to SPS
Doorguard Ltd. The lease provides a 10 year term with a tenant break option at year five and a rent of
£92,250 per annum. The lease was granted with 18 months rent free.
Within the same building the Company has been made aware of tenant Sedgwick's intention to vacate the
premises in August 2020. Sedgwick currently occupy 21,100 sq ft and pay an annual rent of £284,275 per
annum. We are exploring alternative uses for the building including student accommodation and residential.
• 40 Queen Square, Bristol - During February 2020 a new letting of 1,300 sq ft was completed with
existing tenant Candide Ltd. The letting of the un-refurbished suite proves a new high rental tone for
the building of £27.14 per sq ft, 55% higher than the previous level of passing rent on this suite. The
lease provides for a term of five years at a rent of £34,250 per annum with an incentive of half rent
payable for the first 12 month period.
• Oak Park, Droitwich - In March 2020, the Company completed a lease renewal with tenant Egbert Taylor on
101,000 sq ft of industrial accommodation in this West Midlands location. The renewal takes the
tenant's weighted average unexpired lease term from three years to five years at a combined rent of
£500,000 per annum over two leases. We are exploring potential for higher value alternative uses on the
site and as such, the new leases contain a landlord only break option every 18 months in order to
provide access to the site if this is required in order to maximise value.
• Pearl Assurance House, Nottingham - In March 2020, a reversionary lease was completed with Lakeland Ltd
on a 4,300 sq ft retail unit fronting Wheeler Gate in the heart of Nottingham City Centre. The new
lease provides a c. six year term. The lease also documents the rebasing of Lakeland's rent from
£155,000 per annum to £90,000 per annum in line with its estimated rental value.
• 2 Geddington Road, Corby - On 22 May 2020, the Company disposed of its asset at 2 Geddington Road,
Corby, for gross proceeds of £18.80 million, delivering an IRR in excess of 30%.
• Sandford House, Solihull - During June 2020, the Company completed a 15 year renewal lease with its
existing tenant, the Secretary of State for Communities and Local Government. The agreement documents
the increase of rental income from the property by 30% as well as providing for five yearly open market
rent reviews and a tenant break option at year 10. The tenant intends to carry out a full refurbishment
of the property over coming weeks requiring no capital payment by the Company either by way of
refurbishment cost or capital incentive to the tenant. In addition, no rent free incentive has been
granted to the tenant. Throughout its hold period the Company has so far received a net income yield
from the asset in excess of 9% per annum against its purchase price of £5.4 million.
Financial Results
The Company's Net Asset Value as at 31 March 2020 was £147.86 million or 93.13 pps (31 March 2019: £149.46
million or 98.61 pps). This is a decrease of 5.48 pps or 5.56% over the year, with the underlying movement
in NAV set out in the table below:
PPS
NAV as at 1 April 2019 98.61
Change in fair value of investment property (6.14)
Change in fair value of derivatives (0.09)
Income earned for the year 11.70
Expenses and net finance costs for the year (3.02)
Dividends paid (8.00)
Issue of equity (net of costs) 0.07
NAV as at 30 September 2019 93.13
EPRA earnings per share for the year was 8.67 pps which, based on dividends paid of 8.00 pps, reflects a
dividend cover of 108.38%.
Financing
As at 31 March 2020, the Company had a £60.0 million loan facility with RSBi, in place until October 2023,
the details of which are presented below:
31 March 2020 31 March 2019
Facility £60.00 million £60.00 million
Drawn £51.50 million £50.00 million
Gearing (Loan to GAV) 27.21% 25.30%
Gearing (Loan to NAV) 34.83% 33.45%
2.10% all-in 2.32% all-in
Interest rate
(LIBOR + 1.4%) (LIBOR + 1.4%)
Notional Value of Loan Balance Hedged 70.9% 73.0%
On 9 October 2019, the Company announced that it had completed an amendment to its loan facility to
increase the hard loan to NAV covenant from 45% to 55% (subject to certain conditions), although the target
gearing remains as set out in the Prospectus. The margin charged under the facility will be determined by
the Company's Loan to NAV ratio as follows:
Loan to NAV Margin (%)
< 40% 1.40
40 - 45% 2.50
> 45% or at the Company's request* 2.00
* in these circumstances, certain conditions must be met, including the provision of security over a
certain value of the Company's assets.
The margin in effect has remained at 1.40% throughout the year.
Financial covenants
In April 2020, the Company reported the following in respect of its borrowing covenant tests:
Limit 31 March 2020 31 March 2019
Loan to NAV <55% 34.83% 33.45%
Historical Interest Cover Ratio <5:1 7.0 10.7
Projected Interest Cover Ratio <5:1 10.1 11.1
Property Portfolio
The Company has not made any acquisitions or disposals during the year. The following tables analyse the
portfolio by sector and geographical area:
Summary by Sector as at 31 March 2020
Like- Like-
Net for for
Gross Gross like like
Passing Passing ERV rental
Vacancy WAULT rental rental rental rental
Area to income income (£psf) income
Number Valuation by ERV break (£m) (£psf) growth* growth*
of (sq ft) ERV (£m)
assets (£m) (%) (years) (£m) (£) %
Sector
Industrial 20 91.20 2,336,087 1.48 3.83 8.16 3.49 8.47 3.62 8.09 0.41 5.49
Offices 6 44.90 286,776 9.09 3.12 3.41 11.89 4.28 14.94 3.37 0.17 5.30
Alternatives 3 29.80 164,708 0.00 5.06 2.81 17.10 2.38 14.44 2.87 0.05 1.78
Standard 5 17.90 168,917 7.09 3.94 2.30 13.61 1.78 10.51 2.49 -0.34 -12.02
Retail
Retail 1 5.50 51,021 0.00 4.01 0.61 11.96 0.51 10.09 0.61 0.00 0.00
Warehouse
Portfolio 35 189.30 3,007,509 3.68 4.26 17.29 5.75 17.42 5.79 17.43 0.29 1.71
Summary by Geographical Area as at 31 March 2020
Like- Like-
Net
Gross Gross for for
passing passing ERV rental like like
Vacancy WAULT rental rental
Area to income income (£psf) income rental rental
Number Valuation by ERV break (£m) (£psf)
Geographical of (sq ft) ERV (£m) growth* growth*
Area assets (£m) (%) (years) (£m)
(£) %
Yorkshire
and 8 33.52 1,027,801 1.48 2.35 3.23 3.14 3.40 3.31 3.19 0.30 11.19
Humbersidea
South East 5 26.95 195,545 9.30 4.12 2.59 13.24 2.28 11.67 2.64 -0.03 -1.12
Eastern 5 21.65 344,885 0.00 3.08 1.90 5.51 2.10 6.10 1.89 0.02 1.07
South West 3 21.30 125,004 0.00 2.80 1.73 13.82 1.77 14.14 1.68 0.02 1.20
West 4 19.20 398,140 0.00 3.79 1.69 4.24 1.87 4.69 1.71 -0.11 -6.05
Midlands
East 2 19.15 80,572 0.00 2.39 1.85 23.01 1.50 18.59 1.83 -0.02 -1.08
Midlands
North West 4 14.18 302,061 5.77 3.41 1.27 4.22 1.30 4.30 1.44 0.01 0.70
Wales 2 14.05 376,138 0.00 9.08 1.24 3.31 1.29 3.44 1.31 0.00 0.00
Greater 1 10.60 71,720 0.00 11.62 0.96 13.40 0.75 10.45 1.01 0.05 5.21
London
Scotland 1 8.70 85,643 26.16 1.50 0.83 9.65 1.16 13.54 0.73 0.05 7.46
Portfolio 35 189.30 3,007,509 3.68 4.26 17.29 5.75 17.42 5.79 17.43 0.29 1.71
* Like-for-like rental growth is the growth in net rental income on properties owned throughout the current
and previous periods under review.
These properties had a value of £181.95 million as at 31 March 2020, as assessed by Knight Frank.
Properties by Market Value as at 31 March 2020
Sector weighting by passing rent - high industrial weighting and low exposure to retail
Sector Percentage
Industrial 48.2
Offices 23.7
Alternatives 15.7
Standard retail 9.5
Retail Warehouse 2.9
Geographical weighting by valuation - highly diversified across the UK
Region Percentage
Yorkshire & Humberside 17.7
South East 14.2
Eastern 11.5
South West 11.3
West Midlands 10.1
East Midlands 10.1
North West 7.5
Wales 7.4
Greater London 5.6
Scotland 4.6
Market Value
Property Sector Region
Range (£m)
Top ten:
1. 2 Geddington Road, Corby Other (Car parking) East Midlands 10.0 - 15.0
2. 40 Queen Square, Bristol Offices South West 10.0 - 15.0
3. Eastpoint Business Park, Oxford Offices South East 10.0 - 15.0
Greater
4. London East Leisure Park, Dagenham Other (Leisure) London
10.0 - 15.0
5. Gresford Industrial Estate, Wrexham Industrial Wales 7.5 - 10.0
6. 225 Bath Street, Glasgow Offices Scotland 7.5 - 10.0
7. Lockwood Court, Leeds Industrial Yorkshire and 5.0 - 7.5
Humberside
8. Sanford House, Solihull Offices West Midlands 5.0 - 7.5
9. Langthwaite Grange Industrial Estate, South Industrial Yorkshire and Humberside 5.0 - 7.5
Kirkby
10. Storeys Bar Road, Peterborough Industrial Eastern 5.0 - 7.5
The Company's top 10 properties listed above comprise 49.7% of the total value of the portfolio.
Market Value
Property Sector Region
Range (£m)
11. Apollo Business Park, Basildon Industrial Eastern 5.0 - 7.5
12. Sarus Court Industrial Estate, Runcorn Industrial North West 5.0 - 7.5
13. Barnstaple Retail Park Retail Warehouse South West 5.0 - 7.5
14. Euroway Trading Estate, Bradford Industrial Yorkshire and 5.0 - 7.5
Humberside
15. Above Bar Street, Southampton Standard Retail South East 5.0 - 7.5
16. Brockhurst Crescent, Walsall Industrial West Midlands 5.0 - 7.5
17. Oak Park, Droitwich Industrial West Midlands <5.0
18. Excel 95, Deeside Industrial Wales <5.0
19. Diamond Business Park, Wakefield Industrial Yorkshire and <5.0
Humberside
20. Commercial Road, Portsmouth Standard Retail South East <5.0
21. Odeon Cinema, Southend Other (Leisure) Eastern <5.0
22. Pearl Assurance House, Nottingham Standard Retail East Midlands <5.0
23. Walkers Lane, St. Helens Industrial North West <5.0
24. Cedar House, Gloucester Offices South West <5.0
25. Cranbourne House, Basingstoke Industrial South East <5.0
26. Brightside Lane, Sheffield Industrial Yorkshire and <5.0
Humberside
27. Magham Road, Rotherham Industrial Yorkshire and <5.0
Humberside
28. Pipps Hill Industrial Estate, Basildon Industrial Eastern <5.0
29. Bank Hey Street, Blackpool Standard Retail North West <5.0
30. Eagle Road, Redditch Industrial West Midlands <5.0
31. Clarke Road, Milton Keynes Industrial South East <5.0
32. Knowles Lane, Bradford Industrial Yorkshire and <5.0
Humberside
33. Vantage Point, Hemel Hempstead Offices Eastern <5.0
34. Moorside Road, Salford Industrial North West <5.0
35. Fargate and Chapel Walk, Sheffield Standard Retail Yorkshire and <5.0
Humberside
Top 10 Tenants as at 31 March 2020
% of
Portfolio
Passing Total
Rental Passing
Income Rental
Tenant Sector Property (£'000) Income
1. GEFCO UK Limited Industrial 2 Geddington Road, Corby 1,320 7.6
2. Plastipak UK Limited Industrial Gresford Industrial Estate, Wrexham 883 5.1
3. The Secretary of State Government body Sandford House, Solihull and Cedar 832 4.8
House, Gloucester
4. Ardagh Glass Limited Industrial Langthwaite Industrial Estate, South 676 3.9
Kirkby
5. Mecca Bingo Limited Leisure London East Leisure Park, Dagenham 625 3.6
6. Harrogate Spring Water Industrial Lockwood Court, Leeds 603 3.5
7. HFC Prestige Manufacturing Industrial Cranbourne House, Basingstoke 600 3.5
8. Odeon Cinemas Leisure Odeon Cinema, Southend 535 3.1
9. Sports Direct Retail Barnstaple Retail Park and Bank Hey 525 3.0
Street, Blackpool
10. Wyndeham Peterborough Limited Industrial Storeys Bar Road, Peterborough 525 3.0
The Company's top 10 tenants, listed above, represent 41.1% of the total passing rental income of the
portfolio.
Approximately £2.94 million of the Company's current contracted income stream is subject to an expiry or
break within the 12 month period commencing 1 April 2020. Of this amount, £1.1 million (38%) is already
subject to an agreed renewal in principle with a further £1.3 million (44%) where we are currently engaged
in active renewal discussions and where tenants are expected to remain in occupation subject to agreeing
final lease terms. We expect to engage further tenants in renewal discussion throughout the period. To
date, tenants that have served notice to vacate within this period and have made clear that they intend to
do so amount to c. £0.49 million (17%), the majority of which is attributed to Sedgwick in Glasgow (as
noted in the Asset Management section) where the Company is exploring redevelopment for alternative use.
Alternative Investment Fund Manager ('AIFM')
AEW UK Investment Management LLP is authorised and regulated by the FCA as a full-scope AIFM and provides
its services to the Company.
The Company has appointed Langham Hall UK Depositary LLP ('Langham Hall') to act as the depositary to the
Company, responsible for cash monitoring, asset verification and oversight of the Company.
Information Disclosures under the AIFM Directive
Under the AIFM Directive, the Company is required to make disclosures in relation to its leverage under the
prescribed methodology of the Directive.
Leverage
The AIFM Directive prescribes two methods for evaluating leverage, namely the 'Gross Method' and the
'Commitment Method'. The Company's maximum and actual leverage levels are as per below:
31 March 2020 31 March 2019
Commitment Gross Commitment
Leverage Exposure Gross Method
Method Method Method
Maximum Limit 140% 140% 140% 140%
Actual 128% 135% 132% 134%
In accordance with the AIFM Directive, leverage is expressed as a percentage of the Company's exposure to
its NAV and adjusted in line with the prescribed 'Gross' and 'Commitment' methods. The Gross method is
representative of the sum of the Company's positions after deducting cash balances and without taking into
account any hedging and netting arrangements. The Commitment method is representative of the sum of the
Company's positions without deducting cash balances and taking into account any hedging and netting
arrangements. For the purposes of evaluating the methods above, the Company's positions primarily reflect
its current borrowings and NAV.
Remuneration
The AIFM has adopted a Remuneration Policy which accords with the principles established by AIFMD. AIFMD
Remuneration Code Staff includes the members of the AIFM's Management Committee, those performing Control
Functions, Department Heads, Risk Takers and other members of staff that exert material influence on the
AIFM's risk profile or the AIFs it manages.
Staff are remunerated in accordance with the key principles of the firm's remuneration policy, which
include
1. promoting sound risk management;
2. supporting sustainable business plans;
3. remuneration being linked to non-financial criteria for Control Function staff;
4. incentivise staff performance over long periods of time;
5. award guaranteed variable remuneration only in exceptional circumstances; and
6. having an appropriate balance between fixed and variable remuneration.
As required under section 'Fund 3.3.5.R(5)' of the Investment Fund Sourcebook, the following information is
provided in respect of remuneration paid by the AIFM to its staff for the year ended 31 December 2019.
Year ended
31 December 2019
Total remuneration paid to employees during financial year:
a) remuneration, including, where relevant, any carried interest paid by the AIFM £2,920,641
b) the number of beneficiaries 29
The aggregate amount of remuneration of the AIFM Remuneration Code staff, broken down by:
a) senior management £738,634
b) members of staff £2,182,007
Fixed Variable Total
remuneration remuneration remuneration
Senior management £658,634 £80,000 £738,634
Staff £1,542,947 £639,060 £2,182,007
Total £2,201,581 £719,060 £2,920,641
Fixed remuneration comprises basic salaries and variable remuneration comprises bonuses.
AEW UK Investment Management LLP
22 June 2020
Principal Risks and Uncertainties
The Company's assets consist primarily of UK commercial property. Its principal risks are therefore related
to the commercial property market in general, but also to the particular circumstances of the individual
properties and the tenants within the properties.
The Board has overall responsibility for reviewing the effectiveness of the system of risk management and
internal control which is operated by the Investment Manager. The Company's ongoing risk management process
is designed to identify, evaluate and mitigate the significant risks the Company faces.
Twice each year, the Board undertakes a risk review with the assistance of the Audit Committee, to assess
the adequacy and effectiveness of the Investment Manager and other service providers' risk management and
internal control processes.
The Board has carried out a robust assessment of the principal risks facing the Company, including those
that would threaten its business model, future performance, solvency or liquidity.
An analysis of the principal risks and uncertainties is set out below. This does not purport to be
exhaustive as some risks are not yet known and some risks are currently not deemed material but could turn
out to be material in the future.
Principal risks and their potential impact How risk is managed Risk assessment
REAL ESTATE RISKS
1. Property market
Any property market recession or future
deterioration in the property market could, The Company has investment
inter alia, (i) cause the Company to realise restrictions in place to invest Probability: High
its investments at lower valuations; and (ii) and manage its assets with the
delay the timings of the Company's objective of spreading and Impact: High
realisations. These risks could have a material mitigating risk.
adverse effect on the ability of the Company to Movement: Increase
achieve its investment objective.
2. Property valuation
Property and property-related assets are
inherently difficult to value due to the
individual nature of each property.
There may be an adverse effect on the Company's
profitability, the NAV and the price of The Company uses an independent
Ordinary Shares in cases where properties are external valuer (Knight Frank Probability: High
sold whose valuations have previously been LLP) to value the properties at
materially overstated. fair value in accordance with Impact: Low to Moderate
accepted RICS appraisal and
valuation standards. Movement: Increase
The report of the valuer on the property
valuations as at 31 March 2020 contains a
material valuation uncertainty clause due to
COVID-19 and its unknown impact at that point
in time as shown in note 10 of the financial
statements.
Comprehensive due diligence is
undertaken on all new tenants.
Tenant covenant checks are
3. Tenant default carried out on all new tenants
where a default would have a
Failure by tenants to fulfil their rental significant impact. Probability: High
obligations could affect the income that the
properties earn and the ability of the Company Impact: High
to pay dividends to its shareholders.
Asset management team conducts Movement: Increase
ongoing monitoring and liaison
with tenants to manage potential
bad debt risk.
4. Asset management initiatives
Asset management initiatives, such as Costs incurred on asset
refurbishment works, may prove to be more management initiatives are
extensive, expensive and take longer than closely monitored against budgets Probability: Low
anticipated. Cost overruns may have a material and reviewed in regular
adverse effect on the Company's profitability, presentations to the Investment Impact: Low
the NAV and the share price. Management Committee of the
Investment Manager. Movement: No change
5. Due diligence
Due diligence may not identify all the risks The Company's due diligence
and liabilities in respect of an acquisition relies on work (such as legal
(including any environmental, structural or reports on title, property Probability: Low
operational defects) that may lead to a valuations, environmental and
material adverse effect on the Company's building surveys) outsourced to Impact: Moderate
profitability, the NAV and the price of the third parties who have expertise
Company's Ordinary Shares. in their areas. Such third Movement: No change
parties have professional
indemnity cover in place.
6. Fall in rental rates
Rental rates may be adversely affected by The Company builds a diversified
general UK economic conditions and other property and tenant base with
factors that depress rental rates, including subsequent monitoring of
local factors relating to particular concentration to individual
properties/locations (such as increased occupiers (top 10 tenants) and
competition). sectors (geographical and sector
exposure). Probability: Moderate to
High
Any fall in the rental rates for the Company's Impact: Moderate to High
properties may have a material adverse effect The Investment Manager holds
on the Company's profitability, the NAV, the quarterly meetings with its Movement: Increase
price of the Ordinary Shares and the Company's Investment Strategy Committee and
ability to meet interest and capital repayments regularly meets the Board of
on any debt facilities. Directors to assess whether any
changes in the market present
risks that should be addressed in
the Company's strategy.
FINANCIAL RISKS
7. Breach of borrowing covenants
The Company has entered into a term credit
facility.
The Company monitors the use of Probability: Low to
borrowings on an ongoing basis Moderate
through weekly cash flow
Material adverse changes in valuations and net forecasting and quarterly risk Impact: High
income may lead to breaches in the LTV and monitoring to monitor financial
interest cover ratio covenants. covenants. Movement: No change
The Company uses interest caps on
a significant notional value of
8. Interest rate rises the loan to mitigate the adverse
impact of possible interest rate
The Company's borrowings through a term credit rises. Probability: Moderate to
facility are subject to interest rate risk High
through changing LIBOR rates. Any increases in
LIBOR rates may have an adverse effect on the Impact: Low
Company's ability to pay dividends. The Investment Manager and Board
of Directors monitor the level of Movement: Decrease
hedging and interest rate
movements to ensure that the risk
is managed appropriately.
The Company maintains a good
9. Availability and cost of debt relationship with the bank
providing the term credit
The term credit facility expires in October facility. Probability: Low to
2023. In the event that RBSi does not renew the Moderate
facility, the Company may need to sell assets
to repay the outstanding loan. Any increase in Impact: High
the financing costs of the facility on renewal The Company monitors the
would adversely impact on the Company's projected usage and covenants of Movement: Increase
profitability. the credit facility on a
quarterly basis.
CORPORATE RISKS
10. Use of service providers
The Company has no employees and is reliant
upon the performance of third party service
providers. The performance of service
providers in conjunction with
their service level agreements is Probability: Moderate
monitored via regular calls and Impact: Moderate
Failure by any service provider to carry out face-to-face meetings and the use
its obligations to the Company in accordance of key performance indicators, Movement: Increase
with the terms of its appointment could have a where relevant.
materially detrimental impact on the operation
of the Company.
11. Dependence on the Investment Manager
The Investment Manager is responsible for
providing investment management services to the
Company.
The Investment Manager has
endeavoured to ensure that the
The future ability of the Company to principal members of its Probability: Moderate
successfully pursue its investment objective management team are suitably Impact: Moderate to High
and investment policy may, incentivised.
Movement: Increase
among other things, depend on the ability of
the Investment Manager to retain its existing
staff and/or to recruit individuals of similar
experience and calibre.
12. Ability to meet objectives
The Company may not meet its investment The Company has an investment
objective to deliver an attractive total return policy to achieve a balanced
to shareholders from investing predominantly in portfolio with a diversified
a portfolio of smaller commercial properties in asset and tenant base. The
the United Kingdom. Company also has investment Probability: High
restrictions in place to limit
exposure to potential risk Impact: High
factors. These factors mitigate
Poor relative total return performance may lead the risk of fluctuations in Movement: Increase
to an adverse reputational impact that affects returns.
the Company's ability to raise new capital.
TAXATION RISKS
13. Company REIT status
The Company has a UK REIT status that provides
a tax-efficient corporate structure.
The Company monitors REIT
compliance through the Investment
Manager on acquisitions; the
If the Company fails to remain a REIT for UK Administrator on asset and
tax purposes, its profits and gains will be distribution levels; the Probability: Low
subject to UK corporation tax. Registrar and Broker on
shareholdings and the use of Impact: High
third-party tax advisers to
monitor REIT compliance Movement: No change
Any change to the tax status or UK tax requirements.
legislation could impact on the Company's
ability to achieve its investment objectives
and provide attractive returns to shareholders.
14. POLITICAL/ECONOMIC RISKS
Political and macroeconomic events present
risks to the real estate and financial markets
that affect the Company and the business of its
tenants. The level of uncertainty that such The Board considers the impact of Probability: High
events bring has been highlighted in recent political and macroeconomic
times, most pertinently following the EU events when reviewing strategy. Impact: High
referendum vote (Brexit) in June 2016.
Movement: Increase
EMERGING RISKS
Probability: Definite
The Manager is in close contact
The economic disruption arising from the with tenants. The Manager has put Impact: High
COVID-19 virus could impact rental income in place social distancing
receipts from tenants, the ability to access measures as advised by the UK Movement: This was an
funding at competitive rates, maintain the government. The Manager has unprecedented and
Company's dividend policy and its adherence to maintained a close relationship unforeseen risk. The
the HMRC REIT regime, particularly if the UK with RBSi to ensure continuing Company continues to work
government restrictions are in place for a dialogue around covenants. closely with all parties
prolonged period. through this disruptive
period.
Stakeholder Engagement
s172 Statement
The Directors' overarching duty is to promote the success of the Company for the benefit of its
shareholders, having regard to the interests of its stakeholders, as set out in section 172 of the
Companies Act 2006 (the 'Act'). The Directors have considered each aspect of this section of the Act and
consider that the information set out below is particularly relevant in the context of the Company's
business as an externally managed investment company which does not have any employees or suppliers.
We set out in the table below our key stakeholders, the nature of their relationship with the Company and
Board, their key interests and how we engage with those stakeholders.
Our relationships with stakeholders are factored into Board discussions and decisions made by the Board
will consider the impact on the stakeholders, in accordance with s172 of the Act.
Stakeholder
Interests Engagement
- Sustainable growth of the
Company and achieving target
returns
Investors
- Good relationship with the - AGM, Annual Report,
Our shareholders are impacted directly by the Company and Board regulatory announcements
financial performance of the Company through
dividends and share price movements.
- Effective structure and - Quarterly update report and
control other key information
They also play an important role in published on the website
monitoring the governance of the Company. Framework
- Roadshows, meetings and
- Impact of the Company on the
wider community and presentations via the
environment Investment Manager
- Reputation of the Company
Service providers
- Relationship with the
Key functions of the Company are outsourced Company and Board
to third-party suppliers, including - Effective and regular
investment management, property management, communication
administration,
- Fair contract terms and
company secretarial, registrar, depositary service-level agreements
and legal services. It is important to - Service-level agreements
develop strong long-term working
relationships with these providers to enhance
the efficiency of the Company's operations, - Reputation of the Company
as well as that of the providers themselves. - Formal tender processes
where appropriate
- The Company's performance
and long-terms prospects
- Good communication and
Tenants relationship with the Company - Site visits and face to face
as landlord meetings through the
Investment Manager
The Company's strategy in relation to its
individual assets will directly affect the - Fair lease terms
tenants in occupation of those assets. - Formal negotiations
- Long term strategy for the
asset in line with the - Ongoing communication
objectives of the tenant's through the property manager
activities
The wider community and environment
- Impact of properties and - Publishing of Sustainability
their business plans on the Disclosure Report and
local economy Greenhouse Gas Emissions
The Company's physical real estate assets Statement
have a direct impact on their local
communities depending on their primary use
and on the environment through their - Impact of properties on the
emissions and energy usage. attractiveness and appeal of - GRESB reporting
the local area
- Communication with local
- Energy efficiency and authorities via Investment
greenhouse gas emissions Manager
Approval
The Strategic Report has been approved and signed on behalf of the Board by:
Mark Burton
Chairman
22 June 2020
Extract from the Directors Report
Directors
Mark Burton, non-executive Chairman
Bimaljit ("Bim") Sandhu, non-executive Director
Katrina Hart, non-executive Director
Going Concern
The Directors have made an assessment of the Company's ability to continue as a going concern, which takes
into consideration the uncertainty surrounding the outbreak of COVID-19, as well as the Company's cash
flows, financial position, liquidity and borrowing facilities.
As at 31 March 2020, the Company had a cash balance of £9.87 million and has subsequently disposed of one
property, Geddington Road, Corby, for gross proceeds of £18.80 million, providing further liquidity.
The Company had sufficient headroom against its borrowing covenants when last reported in April 2020, which
can be found in the Investment Manager's Report above. The Company reported a Loan to NAV of 34.8%, so had
room for a £33.4 million fall in NAV before reaching the maximum Loan to NAV of 45% per the covenant. This
limit can be increased to 55% when the option is exercised by the Company and certain conditions are met,
which would allow for a further £20.8 million fall in NAV i.e. a total fall of £54.2 million. The Company
also passed its most recent interest cover ratio ('ICR') test, reporting on the quarter to 31 March 2020. A
waiver of the next two tests for the quarters to 30 June and 30 September 2020 has been successfully
negotiated with RBSi, as a result of conditions in the wider economic environment. This will be reviewed
again in relation to the test covering the quarter to 31 December 2020 and beyond as required.
The Company benefits from a secure, diversified income stream from a tenancy profile which is not overly
reliant on any one tenant or sector. As at the date of this report, 84% of the rent due for the March 2020
quarter has been collected..
Taking this into consideration, the Directors have reviewed a number of scenarios over 12 months,
including an extreme, but plausible, downside scenario which makes the following assumptions:
* Failure of 25% to 30% of tenants (by passing rent);
* Collection of c.50% of remaining rents on the quarter date, with remaining collection deferred for three
quarters;
* No new lettings or renewals, other than those where terms have already been agreed;
* A 25% fall in valuations;
* No new acquisitions or disposals;
* 3-month GBP LIBOR at 0.5%; and
* Passing of the continuation vote in September 2020.
The Company's cash resources available of £27.28 million (as at 19 June 2020) are sufficient to cover any
losses incurred in the above scenario over the 12 month assessment period and surplus cash available could
be used to manage the Company's gearing, maintaining a Loan to NAV ratio below 40% and therefore the margin
at 1.4%. Details of the margin charged under the facility can be found in the Investment Manager's Report
above. The Company's cash flow can also be managed through the adjustment of dividend payments and
reduction of outflows on capital expenditure and acquisitions.
In the above scenario, the Company is forecast to pass its ICR tests for the quarters to December 2020 and
March 2021, albeit with marginal headroom, assuming that a portion of the debt would have to be repaid in
order to keep the margin at 1.4%. The Directors are confident that further waivers of the ICR test could be
extended throughout the assessment period should economic conditions not improve and have had informal
discussions with the lender in this respect. In the unlikely event that the Company were to breach its ICR
covenant, it has the ability to 'cure' the breach by placing cash on account with the bank. In the
extremely unlikely event that the full balance of the facility was called in, the Company has certain more
attractive assets with long leases and good quality tenants which could be realised at, or close to,
valuation. The Company could then continue to operate un-geared.
As such, having assessed the worst case plausible scenario for the assessment period, the Directors are not
aware of any material uncertainties in relation to the Company's ability to continue in operation for a
period of 12 months from the date of approval of these financial statements. Given the Company's
substantial cash balance and headroom against its borrowing covenants, the Directors believe that the
Company is well placed to manage its financing and business risks, including those associated with
COVID-19, and the Board is of the opinion that the going concern basis adopted in the preparation of the
Annual Report is appropriate.
Viability Statement
The Directors have also assessed the prospects of the Company over a period longer than the 12 months
required by the 'Going Concern' provisions. The Board has considered the nature of the Company's assets,
liabilities and associated cash flows, and has determined that five years up to 31 March 2025 is the
maximum timescale over which the performance of the Company can be forecast with a material degree of
accuracy and so is an appropriate period over which to assess the Company's viability.
Considerations in support of the assessment of the Company's viability over a five-year period include:
• the current unexpired term under the Company's debt facility stands at 3.6 years, meaning that
financing is secure for the majority of the period under consideration;
• the Company's property portfolio has a WAULT of 5.55 years to expiry, representing a secure income
stream for the period under consideration;
• the Company benefits from a portfolio which is diversified in terms of sector and location, mitigating
the risk of tenant default during the period;
• most leases contain a five-year rent review pattern and therefore an assessment over five years allows
the Directors to assess the impact of the portfolio's reversion arising from rent reviews.
In assessing the Company's viability, the Board has carried out a thorough review of the Company's business
model, including future performance, REIT compliance, liquidity, dividend cover and banking covenant tests
over a five year period.
The business model is subject to annual sensitivity analysis, which involves flexing a number of key
assumptions underlying the forecasts both individually and in aggregate for normal and stressed conditions.
The five year review also considers whether financing facilities will be renewed as required.
The following scenarios were tested, both individually and combined, in an effort to represent a severe but
plausible scenario, which might reasonably be expected to arise as a result of the outbreak of COVID-19,
amongst other factors:
• reduced rent collection
• portion of rent written off completely
• fall in portfolio valuation
• increased periods of vacancy
Based on the result of this analysis, the Directors have a reasonable expectation that the Company will be
able to continue in operation and meet its liabilities as they fall due over the five-year period of their
assessment.
Subsidiary Company
Details of the Company's subsidiary, AEW UK REIT 2015 Limited, can be found in Note 17 to the Financial
Statements.
Financial Risk Management
The financial risk management objectives and policies can be found in Note 20 to the Financial Statements.
Share Capital
Share Issues
At a general meeting held on 12 September 2018, the Company was granted authority to allot up to (i) 250
million Ordinary Shares of £0.01 each in the capital of the Company and/or (ii) 250 million convertible
redeemable preference shares ('C Shares') of £0.01 each in the capital of the Company pursuant to a
potential Share Issuance Programme. The Company published its Prospectus in relation to the Share Issuance
Programme on 1 March 2019.
At the AGM held on 12 September 2019, the Company was granted the authority to allot Ordinary Shares up to
an aggregate nominal amount of £151,558 on a non pre-emptive basis. No Ordinary Shares have been allotted
under this authority and the authority will expire at the conclusion of the 2020 AGM.
On 26 February 2020, the Company successfully raised gross proceeds of £7 million under the Company's
Placing Programme which expired on 28 February 2020. 7,216,495 new Ordinary Shares were issued and allotted
at a price of 97 pence per Ordinary Share.
As at 31 March 2020, the Company had 158,774,746 Ordinary Shares in issue.
Requirements of the Listing Rules
Listing Rule 9.8.4 requires the Company to include specified information in a single identifiable section
of the annual report or a cross reference table indicating where the information is set out. The Directors
confirm that there are no disclosures required in relation to Listing Rule 9.8.4.
Related Party Transactions
Related party transactions during the year ended 31 March 2020 can be found in Note 22 to the Financial
Statements.
Post Balance Sheet Events
Post balance sheet events can be found in Note 24 to the Financial Statements.
The Directors' Report has been approved by the Board of Directors and signed on its behalf by:
Mark Burton
Chairman
22 June 2020
Statement of Directors' Responsibilities in respect of the Annual Report and Financial Statements
The Directors are responsible for preparing the Annual Report and Financial Statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law,
they are required to prepare the financial statements in accordance with International Financial Reporting
Standards as adopted by the European Union (IFRS as adopted by the EU) and applicable law.
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 Company and of its profit or loss for that
period. In preparing these financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable, relevant and reliable;
• state whether they have been prepared in accordance with IFRS as adopted by the EU;
• assess the 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 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 Company's transactions and disclose with reasonable accuracy at any time the financial position
of the 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
Company 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 comply 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.
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 of the Company; and
• the Strategic Report includes a fair review of the development and performance of the business and the
position of the Company, together with a description of the principal risks and uncertainties that it
faces.
We consider the Annual Report and the Financial Statements, taken as a whole, is fair, balanced and
understandable and provides the information necessary for shareholders to assess the Company's position and
performance, business model and strategy.
On behalf of the Board
Mark Burton
Chairman
22 June 2020
Non-statutory Accounts
The financial information set out below does not constitute the Company's statutory accounts for the year
ended 31 March 2020 but is derived from those accounts. Statutory accounts for the year ended 31 March 2020
will be delivered to the Registrar of Companies in due course. The Independent Auditor has reported on
those accounts; its report was (i) unqualified, (ii) did not include a reference to any matters to which
the Independent Auditor drew attention by way of emphasis without qualifying its report and (iii) did not
contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Independent
Auditor's Report can be found in the Company's full Annual Report and Financial Statements on the Company's
website.
Financial Statements
Statement of Comprehensive Income
for the year ended 31 March 2020
Year ended Year ended
31 March 31 March
Notes
2020 2019
£'000 £'000
Income
Rental and other income 3 17,790 17,183
Property operating expenses 4 (1,326) (1,462)
Net rental and other income 16,464 15,721
Other operating expenses 4 (1,877) (2,075)
Directors' remuneration 5 (115) (122)
Operating profit before fair value changes 14,472 13,524
Change in fair value of investment properties 10 (9,444) 4,184
Realised gain/(loss) on disposal of investment properties 44 (482)
Operating profit 5,072 17,226
Finance expense 6 (1,420) (1,682)
Profit before tax 3,652 15,544
Taxation 7 - -
Profit after tax 3,652 15,544
Other comprehensive income - -
Total comprehensive income for the year 3,652 15,544
Earnings per share (pps) (basic and diluted) 8 2.40 10.26
The notes below form an integral part of these financial statements.
Statement of Changes in Equity
for the year ended 31 March 2020
Total capital
Capital
Share and reserves
reserve and
For the year ended Share capital premium attributable to
Notes retained
31 March 2020 £'000 account owners of the
earnings*
£'000 Company
£'000
£'000
Balance at 1 April 2019 1,515 49,770 98,171 149,456
Total comprehensive income - - 3,652 3,652
Ordinary shares issued 18/19 72 6,928 - 7,000
Share issue costs 19 - (120) - (120)
Dividends paid 9 - - (12,125) (12,125)
Balance at 31 March 2020 1,587 56,578 89,698 147,863
Total capital
Capital
Share and reserves
reserve and
For the year ended Share capital premium attributable to
Notes retained
31 March 2019 £'000 account owners of the
earnings
£'000 Company
£'000
£'000
Balance at 1 April 2018 1,515 49,768 94,751 146,034
Total comprehensive income - - 15,544 15,544
Share issue costs 19 - 2 - 2
Dividends paid 9 - - (12,124) (12,124)
Balance at 31 March 2019 1,152 49,770 98,171 149,456
* The capital reserve has arisen from the cancellation of part of the Company's share premium account and
is a distributable reserve.
The notes below form an integral part of these financial statements.
Statement of Financial Position
as at 31 March 2020
31 March 2020 31 March 2019
Notes
£'000 £'000
Assets
Non-Current Assets
Investment property 10 187,042 196,129
187,042 196,129
Current Assets
Receivables and prepayments 11 7,351 4,469
Other financial assets held at fair value 12 14 162
Cash and cash equivalents 9,873 2,131
17,238 6,762
Total Assets 204,280 202,891
Non-Current Liabilities
Interest bearing loans and borrowings 13 (51,047) (49,476)
Lease obligations 15 (635) (636)
(51,682) (50,112)
Current Liabilities
Payables and accrued expenses 14 (4,687) (3,275)
Lease obligations 15 (48) (48)
(4,735) (3,323)
Total Liabilities (56,417) (53,435)
Net Assets 147,863 149,456
Equity
Share capital 18 1,587 1,515
Share premium account 19 56,578 49,770
Capital reserve and retained earnings 89,698 98,171
Total capital and reserves attributable to equity holders 147,863 149,456
Net Asset Value per share (pps) 8 93.13pps 98.61 pps
The financial statements were approved by the Board on 22 June 2020 and signed on its behalf by:
Mark Burton
Chairman
AEW UK REIT plc (Company number: 09522515)
The notes below form an integral part of these financial statements.
Statement of Cash Flows
for the year ended 31 March 2020
Year ended Year ended
31 March 2020 31 March 2019
£'000 £'000
Cash flows from operating activities
Profit before tax 3,652 15,544
Adjustment for non-cash items:
Finance expenses 1,420 1,682
Loss/(gain) from change in fair value of investment property 9,444 (4,184)
Realised (gain)/loss on disposal of investment properties (44) 482
Increase in other receivables and prepayments (2,882) (1,318)
Increase in other payables and accrued expenses 1,424 587
Net cash flow generated from operating activities 13,014 12,793
Cash flows from investing activities
Purchase of and additions to investment properties (358) (7,945)
Disposal of investment properties 44 6,629
Net cash used in investing activities (314) (1,316)
Cash flows from financing activities
Proceeds from issue of ordinary share capital 7,000 -
Share issue costs (120) (32)
Loan drawdown 1,500 -
Arrangement loan facility fee paid (39) (294)
Premiums for interest rate caps - (531)
Finance costs (1,174) (1,076)
Dividends paid (12,125) (12,124)
Net cash used in financing activities (4,958) (14,057)
Net increase/(decrease) in cash and cash equivalents 7,742 (2,580)
Cash and cash equivalents at start of the year 2,131 4,711
Cash and cash equivalents at end of the year 9,873 2,131
Notes to the Financial Statements
for the year ended 31 March 2020
1. Corporate information
AEW UK REIT plc (the 'Company') is a closed ended Real Estate Investment Trust ('REIT') incorporated on 1
April 2015 and domiciled in the UK. The registered office of the Company is 6th Floor, 65 Gresham Street,
London, EC2V 7NQ.
The Company's Ordinary Shares were listed on the Official List of the FCA and admitted to trading on the
Main Market of the London Stock Exchange on 12 May 2015.
The nature of the Company's operations and its principal activities are set out in the Strategic Report
above.
2. Accounting policies
2.1 Basis of preparation
These financial statements are prepared and approved by the Directors in accordance with IFRS and
interpretations issued by the International Accounting Standards Board ('IASB') as adopted by the European
Union ('EU IFRS').
These financial statements have been prepared under the historical cost convention, except for investment
property and interest rate derivatives that have been measured at fair value.
The financial statements are presented in Sterling and all values are rounded to the nearest thousand
pounds (£'000), except when otherwise indicated.
The Company is exempt by virtue of Section 402 of the Companies Act 2006 from the requirement to prepare
group financial statements. These financial statements present information solely about the Company as an
individual undertaking.
New standards, amendments and interpretations
The following new standards and amendments to existing standards have been published and approved
by the EU. The Company has applied the following standards from 1 April 2019, with the year ended 31 March
2020 being the first year end reported under the standards:
• IFRS 16 Leases. In January 2016, the IASB published the final version of IFRS 16 Leases. IFRS 16
specifies how an IFRS reporter will recognise, measure, present and disclose leasing arrangements. The
new standard results in almost all leases held as lessee being recognised on the balance sheet, as the
distinction between operating and finance leases is removed. However, IFRS 16 has not impacted
operating leases held by the Company where the Company is lessor.
Under IFRS 16, where the Company is lessee, it now recognises the right-to-use asset in the Consolidated
Statement of Financial Position at the present value of future lease payments cash flows.
In addition, a financial liability is also recognised in the Consolidated Statement of Financial Position
which is valued at the present value of future lease payments cash flows.
A reconciliation of the presentation under IFRS 16 versus IAS 17 has not been presented, as there was
an immaterial impact on the net assets. There were no new lease liabilities arising during the year.
Accordingly, comparative amounts have not been restated.
The following have been considered, but have had no impact on the Company for the reporting period:
• Amendments to IFRS 9;
• IFRIC 23, Uncertainty over Income Tax Treatments;
• Amendments to IAS 28 Long Term Interests in Associates and Joint Ventures; and
• Amendments to IAS 19 Plan Amendment, Curtailment or Settlement.
The following new standards and amendments to existing standards have been published and approved by the
EU, and are mandatory for the Company's accounting periods beginning after 1 April 2020 or later periods:
• Definition of Material - amendments to IAS 1 and IAS 8;
• Annual improvements to IFRS 2015-2017 Cycle: amendments to IFRS 3 Business Combinations, IFRS 11 Joint
Arrangements, IAS 12 Income Taxes and IAS 23 Borrowing Costs;
• IFRS 17 - Insurance Contracts; and
• Revised Conceptual Framework for financial reporting: The IASB has issued a revised Conceptual
Framework for future standard setting decisions. No changes will be made to any of the current
standards.
The Company does not expect the adoption of new accounting standards issued but not yet effective to have a
significant impact on its financial statements.
2.2 Significant accounting judgements and estimates
The preparation of financial statements in accordance with EU IFRS requires the Directors of the Company to
make judgements, estimates and assumptions that affect the reported amounts recognised in the financial
statements. However, uncertainty about these assumptions and estimates could result in outcomes that
require a material adjustment to the carrying amount of the asset or liability in the future.
There are not considered to be any judgements which have a significant effect on the amounts recognised in
the financial statements, however, there is an estimate that will have a significant effect on the amounts
recognised in the financial statements:
i) Valuation of investment property
The Company's investment property is held at fair value as determined by the independent valuer on the
basis of fair value in accordance with the internationally accepted RICS Appraisal and Valuation Standards.
2.3 Segmental information
In accordance with IFRS 8, the Company is organised into one main operating segment being investment in
property in the UK.
2.4 Going concern
The Directors have made an assessment of the Company's ability to continue as a going concern, which takes
into consideration the uncertainty surrounding the outbreak of COVID-19, as well as the Company's cash
flows, financial position, liquidity and borrowing facilities.
As at 31 March 2020, the Company had a cash balance of £9.87 million and has subsequently disposed of one
property, Geddington Road, Corby, for gross proceeds of £18.80 million, providing further liquidity.
The Company had sufficient headroom against its borrowing covenants when last reported in April 2020, which
can be found in the Investment Manager's Report above. The Company reported a Loan to NAV of 34.8%, so had
room for a £33.4 million fall in NAV before reaching the maximum Loan to NAV of 45% per the covenant. This
limit can be increased to 55% when the option is exercised by the Company and certain conditions are met,
which would allow for a further £20.8 million fall in NAV i.e. a total fall of £54.2 million. The Company
also passed its most recent interest cover ratio ('ICR') test, reporting on the quarter to 31 March 2020. A
waiver of the next two tests for the quarters to 30 June and 30 September 2020 has been successfully
negotiated with RBSi, as a result of conditions in the wider economic environment. This will be reviewed
again in relation to the test covering the quarter to 31 December 2020 and beyond as required.
The Company benefits from a secure, diversified income stream from a tenancy profile which is not overly
reliant on any one tenant or sector. As at the date of this report, 84% of the rent due for the March 2020
quarter has been collected.
Taking this into consideration, the Directors have reviewed a number of scenarios over 12 months,
including an extreme, but plausible, downside scenario which makes the following assumptions:
* Failure of 25% to 30% of tenants (by passing rent);
* Collection of c.50% of remaining rents on the quarter date, with remaining collection deferred for three
quarters;
* No new lettings or renewals, other than those where terms have already been agreed;
* A 25% fall in valuations;
* No new acquisitions or disposals;
* 3-month GBP LIBOR at 0.5%; and
* Passing of the continuation vote in September 2020.
The Company's cash resources available of £27.28 million (as at 19 June 2020) are sufficient to cover any
losses incurred in the above scenario over the 12 month assessment period and surplus cash available could
be used to manage the Company's gearing, maintaining a Loan to NAV ratio below 40% and therefore the margin
at 1.4%. Details of the margin charged under the facility can be found in the Investment Manager's Report
above. The Company's cash flow can also be managed through the adjustment of dividend payments and
reduction of outflows on capital expenditure and acquisitions.
In the above scenario, the Company is forecast to pass its ICR tests for the quarters to December 2020 and
March 2021, albeit with marginal headroom, assuming that a portion of the debt would have to be repaid in
order to keep the margin at 1.4%. The Directors are confident that further waivers of the ICR test could be
extended throughout the assessment period should economic conditions not improve and have had informal
discussions with the lender in this respect. In the unlikely event that the Company were to breach its ICR
covenant, it has the ability to 'cure' the breach by placing cash on account with the bank. In the
extremely unlikely event that the full balance of the facility was called in, the Company has certain more
attractive assets with long leases and good quality tenants which could be realised at, or close to,
valuation. The Company could then continue to operate un-geared.
As such, having assessed the worst case plausible scenario for the assessment period, the Directors are not
aware of any material uncertainties in relation to the Company's ability to continue in operation for a
period of 12 months from the date of approval of these financial statements. Given the Company's
substantial cash balance and headroom against its borrowing covenants, the Directors believe that the
Company is well placed to manage its financing and business risks, including those associated with
COVID-19, and the Board is of the opinion that the going concern basis adopted in the preparation of the
Annual Report is appropriate.
2.5 Summary of significant accounting policies
The principal accounting policies applied in the preparation of these financial statements are set out
below.
a) Presentation currency
These financial statements are presented in Sterling, which is the functional and presentational currency
of the Company. The functional currency of the Company is principally determined by the primary economic
environment in which it operates. The Company did not enter into any transactions in foreign currencies
during the year.
b) Revenue recognition
i) Rental income
Rental income receivable under operating leases is recognised on a straight-line basis over the term of the
lease. Rental income is invoiced in advance, except for contingent rental income, which is calculated based
off prior turnover and is recognised when it is raised. Any modification to an operating lease is accounted
for as a new lease from the effective date of the modification, considering any prepaid or accrued lease
payments relating to the original lease as part of the lease payments for the new lease. Any lease
incentive existing on a modified lease will then be spread evenly over the new remaining life of the lease.
Rent adjustments based on open market estimated rental values are only recognised once the review has been
finalised.
Amounts received from tenants to terminate leases or to compensate for dilapidations are recognised in the
Statement of Comprehensive Income when the right to receive them arises.
Incentives for lessees to enter into lease agreements are spread evenly over the lease term, even if the
payments are not made on such a basis. The lease term is the non-cancellable period of the lease together
with any further term for which the tenant has the option to continue the lease, where, at the inception of
the lease, the Directors are reasonably certain that the tenant will exercise that option.
ii) Deferred income
Deferred income is any rental income that has been invoiced to the tenant but relates to future periods, it
is reported as a current liability on the Statement of Financial Position.
c) Dividend income
Dividend income is recognised in profit or loss on the date the entity's right to receive a dividend is
established.
d) Financing income and expenses
Financing income comprises interest receivable on funds invested. Financing expenses comprise interest and
other costs incurred in connection with the borrowing of funds. Interest income and interest payable are
recognised in profit or loss as they accrue, using the effective interest method.
e) Investment property
Property is classified as investment property when it is held to earn rentals or for capital appreciation
or both. Investment property is measured initially at cost including transaction costs. Transaction costs
include transfer taxes and professional fees to bring the property to the condition necessary for it to be
capable of operating. The carrying amount also includes the cost of replacing part of an existing
investment property at the time that cost is incurred if the recognition criteria are met.
Subsequent to initial recognition, investment property is stated at fair value. Gains or losses arising
from changes in the fair values are included in profit or loss.
Investment properties are valued by the independent valuer on the basis of a full valuation with physical
inspection at least once a year. Any valuation of an immovable by the independent valuer must be undertaken
in accordance with the current issue of RICS Valuation - Professional Standards (the 'Red Book').
The determination of the fair value is based upon the income capitalisation approach. This approach
involves applying capitalisation yields to current and future rental streams net of income voids arising
from vacancies or rent-free periods and associated running costs. These capitalisation yields and estimated
rental values are based on comparable property and leasing transactions in the market using the valuer's
professional judgement and market observation. Other factors taken into account in the valuations include
the tenure of the property, tenancy details, capital values of fixtures and fittings, environment matter
and the overall repair and condition of the property.
For the purposes of these financial statements, the assessed fair value is:
• reduced by the carrying amount of any accrued income resulting from the spreading of lease incentives;
and
• increased by the carrying amount of leasehold obligations.
Investment property is derecognised when it has been disposed of or permanently withdrawn from use and no
future economic benefit is expected after its disposal or withdrawal.
The profit on disposal is determined as the difference between the net sales proceeds and the carrying
amount of the asset at the commencement of the accounting period plus capital expenditure in the period.
Any gains or losses on the retirement or disposal of investment property are recognised in the profit or
loss in the year of retirement or disposal.
f) Investments in subsidiaries
AEW UK REIT 2015 Limited is the subsidiary of the Company. The subsidiary was dormant during the current
and previous reporting period. The investment in the subsidiary is stated at cost less impairment and shown
in note 17.
The Company has taken advantage of the exemption as permitted by Section 405 of the Companies Act 2006,
therefore the subsidiary is not consolidated as its inclusion is not material for the purposes of giving a
true and fair view.
g) Investment property held for sale
Investment property is classified as held for sale when it is being actively marketed at year end and it is
highly probable that the carrying amount will be recovered principally through a sale transaction within 12
months.
Investment property classified as held for sale is included within current assets within the Statement of
Financial Position and measured at fair value.
h) Derivative financial instruments
Derivative financial instruments, comprising interest rate caps for hedging purposes, are initially
recognised at fair value and are subsequently measured at fair value, being the estimated amount that the
Company would receive or pay to terminate the agreement at the period end date, taking into account current
interest rate expectations and the current credit rating of the Company and its counterparties. Premiums
payable under such arrangements are initially capitalised into the Statement of Financial Position.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient
data is available to measure fair value, maximising the use of relevant observable inputs and minimising
the use of unobservable inputs significant to the fair value measurement as a whole. Changes in fair value
of interest rate derivatives are recognised within finance expenses in profit or loss in the period in
which they occur.
i) Cash and cash equivalents
Cash and short-term deposits in the Statement of Financial Position comprise cash at bank and short-term
deposits with an original maturity of three months or less.
j) Receivables
Rent and other receivables are initially recognised at fair value and subsequently at amortised cost.
Impairment provisions are recognised based upon an expected credit loss model. The Company has made an
assessment of expected credit losses at each period end, using the simplified approach where a lifetime
expected loss allowance is always recognised over the expected life of the financial instrument. Any
adjustment is recognised in profit or loss as an impairment gain or loss.
Expected credit losses are assessed based on the Company's historical credit loss experience, adjusted for
factors which are specific to the tenant and current and forecast economic conditions in general. If
confirmation is received that a trade receivable will not be collected, the carrying value of the asset
will be written off against the associated impairment provision.
k) Capital prepayments
Capital prepayments are made for the purpose of acquiring future property assets and held as receivables
within the Statement of Financial Position. When the asset is acquired, the prepayments are capitalised as
a cost of purchase. Where a purchase is not successful, these costs are expensed within profit or loss as
abortive costs in the period.
l) Other payables and accrued expenses
Other payables and accrued expenses are initially recognised at fair value and subsequently held at
amortised cost.
m) Rent deposits
Rent deposits represent cash received from tenants at inception of a lease and are subsequently transferred
to the rent agent to hold on behalf of the Company.
n) Interest bearing loans and borrowings
All loans and borrowings are initially recognised at fair value less directly attributable transaction
costs. After initial recognition, interest bearing loans and borrowings are subsequently measured at
amortised cost using the effective interest method. Borrowing costs are amortised over the lifetime of the
facilities through profit or loss.
When the lifetime of a floating rate facility is extended, and this is considered to be a non-substantial
modification, the effective interest rate is revised to reflect changes in market rates of interest.
o) Provisions
A provision is recognised in the Statement of Financial Position when the Company has a present legal or
constructive obligation as a result of a past event, that can be reliably measured and is probable that an
outflow of economic benefits will be required to settle the obligation. Provisions are determined by
discounting the expected future cash flows at a pre-tax rate that reflects risks specific to the liability.
p) Dividend payable to shareholders
Equity dividends are recognised when they become legally payable.
q) Share issue costs
The costs of issuing or reacquiring equity instruments (other than in a business combination) are accounted
for as a deduction from equity.
r) Leases
Leases where the Company is lessee are capitalised at the lease commencement, at present value of the
minimum lease payments, and held as both a right-to-use asset and a liability within the Statement of
Financial Position.
s) Taxes
Corporation tax is recognised in profit or loss except to the extent that it relates to items recognised
directly in equity, in which case, it is recognised in equity.
As a REIT, the Company is exempt from corporation tax on the profits and gains from its investments,
provided it continues to meet certain conditions as per REIT regulations.
Taxation on the profit or loss for the period not exempt under UK REIT regulations comprises current and
deferred tax. Current tax is expected tax payable on any non-REIT taxable income for the period, using tax
rates applicable in the period.
Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax
that is provided is based on the expected manner of realisation or settlement of the carrying amount of
assets and liabilities, using tax rates enacted or substantively enacted at the period end date.
t) European Public Real Estate Association
The Company has adopted European Public Real Estate Association ('EPRA') best practice recommendations,
which it expects to broaden the range of potential institutional investors able to invest
in the Company's Ordinary Shares. For the year to 31 March 2020, audited EPS and NAV calculations under
EPRA's methodology are included in note 8 and further unaudited measures are included below.
u) Capital and reserves
Share capital
Share capital is the nominal amount of the Company's ordinary shares in issue.
Share premium
Share premium relates to amounts subscribed for share capital in excess of nominal value less associated
issue costs of the subscriptions.
Capital reserve
The capital reserve represents the cancelled share premium less dividends paid from this reserve. This is a
distributable reserve.
Retained earnings
Retained earnings represent the profits of the Company less dividends paid from revenue profits to date.
Unrealised gains on the revaluation of investment properties contained within this reserve are not
distributable until they crystallise on the sale of the investment property. The cumulative unrealised
losses contained within this reserve at 31 March 2020 is £10.76m (31 March 2019: £1.32m).
3. Revenue
Year ended Year ended
31 March 2020 31 March 2019
£'000 £'000
Rental income received
Dilapidation income received 17,418 17,179
Other property income 372 -
Total revenue - 4
17,790 17,183
Rent receivable under the terms of the leases is adjusted for the effect of any incentives agreed.
4. Expenses
Year ended Year ended
31 March 2020 31 March 2019
£'000 £'000
Property operating expenses 1,326 1,462
Other operating expenses
Investment management fee 1,308 1,302
Auditor remuneration 106 98
Prospectus drafting costs - 181
Other operating costs 463 494
Total other operating expenses 1,877 2,075
Total operating expenses 3,203 3,537
Year ended Year ended
31 March 2020 31 March 2019
£'000 £'000
Audit
Statutory audit of Annual Report and Financial Statements 82 75
82 75
Non-audit
Review of Interim Report 24 23
Renewal of Company's Prospectus - 31
- 54
Total fees paid to KPMG LLP 106 129
Percentage of total fees attributed to non-audit services 23% 42%
5. Directors' remuneration
Year ended Year ended
31 March 2020 31 March 2019
£'000 £'000
Directors' fees 107 114
Tax and social security 8 8
Total remuneration 115 122
A summary of the Directors' remuneration is set out in the Directors' Remuneration Report in the Full
Annual Report and Financial Statements.
There are no other members of key management personnel other than the Directors.
6. Finance expenses
Year ended Year ended
31 March 2020 31 March 2019
£'000 £'000
Interest payable on loan borrowings 1,108 1,103
Amortisation of loan arrangement fee 110 127
Agency fee payable on loan borrowings - 3
Commitment fees payable on loan borrowings 54 54
1,272 1,287
Charge in fair value of interest rate derivatives 148 395
Total 1,420 1,682
7. Taxation
Year ended Year ended
31 March 2020 31 March 2019
£'000 £'000
Total tax comprises
Analysis of tax charge in the year
Profit before tax 3,652 15,544
Theoretical tax at UK corporation tax standard rate of 19.00% (2019: 19.00%)1 694 2,953
Adjusted for:
Exempt REIT income (2,488) (2,257)
Non taxable investment profit 1,786 (704)
Unrealised management expenses not recognised 8 8
Total tax charge - -
Factors that may affect future tax charges
Due to the Company's status as a REIT and the intention to continue meeting the conditions required to
obtain approval as a REIT in the foreseeable future, the Company has not provided deferred tax on any
capital gains and losses arising on the revaluation or disposal of investments.
1 The Corporation Tax rate will remain at 19% for the next financial year as announced in the 2020 budget
rather than being reduced to 17% as previously announced.
8. Earnings per share and NAV per share
Year ended Year ended
31 March 2020 31 March 2019
Earnings per share:
Total comprehensive income (£'000) 3,652 15,544
Weighted average number of shares 152,208,919 151,558,251
Earnings per share (basic and diluted) (pence) 2.40 10.26
EPRA earnings per share:
Total comprehensive income (£'000) 3,652 15,544
Adjustment to total comprehensive income:
Change in fair value of investment properties (£'000) 9,444 (4,184)
Realised (gain)/loss on disposal of investment properties (£'000) (44) 482
Change in fair value of interest rate derivatives (£'000) 148 395
Total EPRA Earnings (£'000) 13,200 12,237
EPRA earnings per share (basic and diluted) (pence) 8.67 8.07
NAV per share:
Net assets (£'000) 147,863 149,456
Ordinary Shares 158,774,746 151,558,251
NAV per share (pence) 93.13 98.61
EPRA NAV per share:
Net assets (£'000) 147,863 149,456
Adjustments to net assets:
Other financial assets held at fair value (£'000) (14) (162)
EPRA NAV (£'000) 147,849 149,294
EPRA NAV per share (pence) 93.12 98.51
Earnings per share (EPS) amounts are calculated by dividing profit for the period attributable to ordinary
equity holders of the Company by the weighted average number of Ordinary Shares in issue during the period.
As at 31 March 2020, EPRA NNNAV was equal to IFRS NAV and, as such, a reconciliation between the two
measures has not been presented.
9. Dividends paid
Year ended Year ended
31 March 2020 31 March 2019
Dividends paid during the period £'000 £'000
Represents four interim dividends of 2.00 pps each 12,125 12,124
Year ended Year ended
Dividends relating to the period 31 March 2020 31 March 2019
£'000 £'000
Represents four interim dividends of 2.00 pps each 12,269* 12,124
Dividends paid during the period relate to Ordinary Shares only.
* Dividends relating to the period has increased due to the issue of new shares in February 2020, therefore
the fourth interim dividend at 2.00pps was increased.
10. Investments
10.a) Investment property
31 March 2020
Investment Investment 31 March
property property Total 2019
freehold leasehold £'000 Total
£'000 £'000 £'000
UK investment property
As at beginning of the year 159,080 38,525 197,605 192,342
Purchases and capital expenditure in the year 363 (5) 358 7,590
Disposals in the year - - - (7,053)
Revaluation of investment properties (12,043) 3,380 (8,663) 4,726
Valuation provided by Knight Frank 147,400 41,900 189,300 197,605
Adjustment to fair value for lease incentive debtor (2,941) (2,160)
Adjustment for finance lease obligations* 683 684
Total investment property 187,042 196,129
Gain/(loss) on disposal of the investment property
Net proceeds from disposals of investment property during the 44 6,629
year
Carrying value at date of sale ‑ (7,053)
Lease incentives amortised in current year - (58)
Gain/(loss) realised on disposal of investment property 44 (482)
Change in fair value of investment property
Change in fair value before adjustments for lease incentives (8,663) 4,726
Adjustment for movement in the year:
in value of lease incentive debtor (781) (542)
(9,444) 4,184
* Adjustment in respect of minimum payment under head leases separately included as a liability within the
Statement of Financial Position
Valuation of investment property
Valuation of investment property is performed by Knight Frank LLP, an accredited external valuer with
recognised and relevant professional qualifications and recent experience of the location and category of
the investment property being valued.
The valuation of the Company's investment property at fair value is determined by the external valuer on
the basis of market value in accordance with the internationally accepted RICS Valuation - Professional
Standards (incorporating the International Valuation Standards).
The determination of the fair value is based upon the income capitalisation approach. This approach
involves applying capitalisation yields to current and future rental streams net of income voids arising
from vacancies or rent-free periods and associated running costs. These capitalisation yields and estimated
rental values are based on comparable property and leasing transactions in the market using the valuer's
professional judgement and market observation. Other factors taken into account in the valuations include
the tenure of the property, tenancy details, capital values of fixtures and fittings, environmental matter
and the overall repair and condition of the property.
The report of the valuer on the property valuations as at 31 March 2020 contains the following material
valuation uncertainty clause due to COVID-19 and its unknown impact at that point in time.
"The outbreak of COVID-19, declared by the World Health Organisation as a "Global Pandemic" on 11 March
2020, has impacted global financial markets. Travel restrictions have been implemented by many countries.
In the UK, market activity is being impacted in all sectors.
As at the valuation date, we consider that we can attach less weight to previous market evidence for
comparison purposes, to inform opinions of value. Indeed, the current response to COVID-19 means that we
are faced with an unprecedented set of circumstances on which to base a judgement. Our valuations are
therefore reported on the basis of 'material valuation uncertainty' per VPGA 10 of the RICS Valuation -
Global Standards. Consequently, less certainty - and a higher degree of caution - should be attached to our
valuations than would normally be the case.
Given the unknown future impact that COVID-19 might have on the real estate market, we recommend that you
keep the valuations under frequent review."
10.b) Fair value measurement hierarchy
The following table provides the fair value measurement hierarchy for investments:
Significant observable Significant unobservable
Quoted prices in active inputs inputs Total
markets (Level 1)
(Level 2) (Level 3) £'000
£'000
£'000 £'000
Assets measured at fair
value
31 March 2020
- - 187,042 187,042
Investment property
31 March 2019
- - 196,129 196,129
Investment property
Explanation of the fair value hierarchy:
Level 1 - Quoted prices for an identical instrument in active markets;
Level 2 - Prices of recent transactions for identical instruments and valuation techniques using observable
market data; and
Level 3 - Valuation techniques using non-observable data.
There have been no transfers between Level 1 and Level 2 during either period, nor have there been any
transfers in or out of Level 3.
Sensitivity analysis to significant changes in unobservable inputs within Level 3 of the hierarchy
The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the
fair value hierarchy of the entity's portfolio of investment property are:
1) ERV
2) Equivalent yield
Increases/(decreases) in the ERV (per sq ft per annum) in isolation would result in a higher/(lower) fair
value measurement. Increases/(decreases) in the discount rate/yield in isolation would result in a
lower/(higher) fair value measurement.
The significant unobservable inputs used in the fair value measurement, categorised within Level 3 of the
fair value hierarchy of the portfolio of investment property are as follows:
Fair Value Valuation Significant
Class Range
£'000 Technique Unobservable Inputs
31 March 2020
ERV £0.50 - £105.00
Investment property* 189,300 Income capitalisation
Equivalent yield 5.71% - 10.54%
31 March 2019
ERV £1.00 - £127.00
Investment Property* 197,605 Income capitalisation
Equivalent yield 5.87% - 10.25%
* Valuation per Knight Frank LLP.
Where possible, sensitivity of the fair values of Level 3 assets are tested to changes in unobservable
inputs against reasonable alternatives.
Gains and losses recorded in profit or loss for recurring fair value measurements categorised within Level
3 of the fair value hierarchy are attributable to changes in unrealised gains or losses relating to
investment property held at the end of the reporting period.
With regards to investment property, gains and losses for recurring fair value measurements categorised
within Level 3 of the fair value hierarchy, prior to adjustment for rent free debtor and rent guarantee
debtor where applicable, are recorded in profit or loss.
The carrying amount of the assets and liabilities, detailed within the Statement of Financial Position, is
considered to be the same as their fair value.
Change in ERV Change in equivalent yield
£'000 £'000 £'000 £'000
Sensitivity analysis +5% -5% +5% -5%
31 March 2020
197,146 180,075 179,906 199,956
Resulting fair value of investment property
31 March 2019
205,803 189,720 187,352 208,707
Resulting fair value of investment property
Change in ERV Change in equivalent yield
£'000 £'000 £'000 £'000
Sensitivity analysis +10% -10% +10% -10%
31 March 2020
205,933 171,723 171,241 211,640
Resulting fair value of investment property
31 March 2019
215,108 181,156 179,876 219,000
Resulting fair value of investment property
Change in ERV Change in equivalent yield
£'000 £'000 £'000 £'000
Sensitivity analysis +15% -15% +15% -15%
31 March 2020
214,777 163,364 163,327 224,687
Resulting fair value of investment property
31 March 2019
223,971 172,984 172,210 231,633
Resulting fair value of investment property
Given the current volatility in the property market, the above levels of sensitivity of unobservable inputs
are considered to demonstrate plausible scenarios in the near future and a reasonable resulting range of
movement in valuation.
11. Receivables and prepayments
31 March 2020 31 March 2019
£'000 £'000
Receivables
Rent debtor 2,579 1,438
Allowance for expected credit losses (190) (39)
Rent agent float account 1,486 92
Dilapidations receivable 372 -
Other receivables 115 420
4,362 1,911
Lease incentive debtor 2,941 2,160
7,303 4,071
Prepayments
Property related prepayments 16 4
Other prepayments 32 394
48 398
Total 7,351 4,469
The aged debtor analysis of receivables is as follows:
31 March 2020 31 March 2019
£'000 £'000
Less than three months 4,317 1,911
Between three and six months 45 -
Between six and twelve months - -
Total 4,362 1,911
12. Interest rate derivatives
31 March 2020 31 March 2019
£'000 £'000
At the beginning of the year 162 26
Interest rate cap premium paid - 531
Changes in fair value of interest rate derivatives (148) (395)
At the end of the year/period 14 162
The Company is protected from a significant rise in interest rates as it currently has interest rate caps
in effect with a combined notional value of £36.51 million (31 March 2019: £36.51 million), with £26.51
million capped at 2.50% and £10.00 million capped at 2.00%, resulting in the loan being 71% hedged (31
March 2019: 73%). These interest rate caps are effective until 19 October 2020. The Company has additional
interest rate caps covering the remaining period of the loan from 20 October 2020 to 23 October 2023. After
the year-end, the Company replaced its existing caps covering this period, which capped the interest rate
at 2.0% on a notional value of £49.51 million, with new caps covering the same period capping the interest
rate at 1.0% on a notional value of £51.50 million. The Company paid a premium of £62,968.
Fair value hierarchy
The following table provides the fair value measurement hierarchy for interest rate derivatives:
Significant
Quoted prices in Significant
unobservable
active markets observable input Total
inputs
(Level 1) (Level 2) £'000
(Level 3)
£'000 £'000
Valuation £'000
31 March 2020 - 14 - 14
31 March 2019 - 162 - 162
The fair value of these contracts are recorded in the Statement of Financial Position as at the year end.
There have been no transfers between Level 1 and Level 2 during the period, nor have there been any
transfers between Level 2 and Level 3 during the year.
The carrying amount of all assets and liabilities, detailed within the Statement of Financial Position, is
considered to be the same as their fair value.
13. Interest bearing loans and borrowings
Bank borrowings
31 March 2020 31 March 2019
£'000 £'000
At the beginning of the year/period 50,000 50,000
Bank borrowings drawn in the year 1,500 -
Interest bearing loans and borrowings 51,500 50,000
Unamortised loan arrangement fees (453) (524)
At the end of the year 51,047 49,476
Repayable between 2 and 5 years 51,500 50,000
Undrawn facility at the year end 8,500 10,000
Total facility 60,000 60,000
The Company has a £60.00 million (31 March 2019: £60.00 million) credit facility with RBSi of which £51.50
million (31 March 2019: £50.00 million) has been utilised as at 31 March 2020.
Under the terms of the Prospectus, the Company has a target gearing of 25% Loan to GAV, but can borrow up
to 35% Loan to GAV in advance of a capital raise or asset disposal. As at 31 March 2020, the Company's
gearing was 27.21% Loan to GAV (31 March 2019: 25.30%).
Under the terms of the loan facility, the Company can draw up to 35% Loan to NAV at drawdown. As at 31
March 2020, the Company could draw a further £0.25 million up to the maximum 35% (31 March 2019: £2.31
million).
Borrowing costs associated with the credit facility are shown as finance costs in note 6 to these financial
statements.
31 March 2020 31 March 2019
Facility £60.00 million £60.00 million
Drawn £51.50 million £50.00 million
Gearing (Loan to GAV) 27.21% 25.30%
Gearing (Loan to NAV) 34.83% 33.45%
2.10% all-in 2.32% all-in
Interest rate
(LIBOR + 1.4%) (LIBOR + 1.4%)
Notional value of Loan Balance Hedged 70.9% 73.0%
On 9 October 2019, the Company announced that it had completed an amendment to its loan facility to
increase the hard loan to NAV covenant from 45% to 55% (subject to certain conditions), although the target
gearing remains as set out in the Prospectus. There are no changes to the margin currently charged under
the facility. Upcoming LIBOR reforms have been considered and their impact on the Company is expected to be
immaterial, so no further disclosures have been added.
Reconciliation to cash flows from financing activities
Bank borrowings
31 March 2020 31 March 2019
£'000 £'000
Balance at the beginning of the year 49,476 49,643
Changes from financing cash flows
Loan drawdown 1,500 -
Loan arrangement fees (39) (294)
Total changes from financing cash flows 1,461 (294)
Other changes
Amortisation of loan arrangement fees 110 127
Interest expense 1,108 1,103
Interest paid (1,120) (1,021)
Changes in loan interest payable (12) 82
Total other changes 110 127
Balance at the end of the year 51,047 49,476
14. Payables and accrued expenses
31 March 2020 31 March 2019
£'000 £'000
Deferred income 2,906 1,137
Accruals 814 1,189
Other creditors 967 949
Total 4,687 3,275
15. Lease obligations as lessee
Leases as lessee are capitalised at the lease's commencement at the present value of the minimum lease
payments. The present value of the corresponding rental obligations are included as liabilities.
The following table analyses the minimum lease payments under non-cancellable leases:
31 March 2020 31 March 2019
£'000 £'000
Within one year 48 48
After one year but not more than five years 159 160
More than five years 476 476
Non-Current 635 636
Total 683 684
16. Guarantees and commitments
As at 31 March 2020, there were capital commitments of nil (31 March 2019: £210,588).
Lease commitments - as lessor
The Company has entered into commercial property leases on its investment property portfolio. These
non-cancelable leases have a remaining term of between zero and 24 years.
Future minimum rentals receivable under non-cancellable operating leases as at 31 March 2020 are as
follows:
31 March 2020 31 March 2019
£'000 £'000
Within one year 15,325 16,387
After one year but not more than five years 37,828 41,304
More than five years 24,596 29,513
Total 77,749 87,204
During the year ended 31 March 2020 there were contingent rents totalling £188,872 (year ended 31 March
2019: £67,591) recognised as income.
17. Investment in subsidiary
The Company has a wholly-owned subsidiary, AEW UK REIT 2015 Limited:
Country of registration
Name and company number Principal activity Ordinary Shares held
and incorporation
AEW UK REIT 2015 Limited
England and Wales Dormant 100%
(Company number 09524699)
AEW UK REIT 2015 Limited is a subsidiary of the Company incorporated in the UK on 2 April 2015. At 31 March
2020, the Company held one share, being 100% of the issued share capital. AEW UK REIT 2015 Limited is
dormant and the cost of the subsidiary is £0.01 (31 March 2019: £0.01). The registered office of AEW UK
REIT 2015 Limited is 6th Floor, 65 Gresham Street, London, EC2V 7NQ.
18. Issued share capital
31 March 2020 31 March 2019
£'000 Number of Ordinary Shares £'000 Number of Ordinary Shares
Ordinary Shares (nominal value £0.01 per
share) authorised, issued and fully paid
At the beginning of the year 1,515 151,558,251 1,515 151,558,251
Issued on admission to trading on the 72 7,216,495 - -
London Stock Exchange on 28 February 2020
At the end of the year 1,587 158,774,746 1,515 151,558,251
19. Share premium account
31 March 31 March
2020 2019
£'000 £'000
The share premium relates to amounts subscribed for share capital in excess of nominal
value:
Balance at the beginning of the year 49,770 49,768
Issued on admission to trading on the London Stock Exchange on
6,928 -
28 February 2020
Share issue cost (paid and accrued) (120) 2
Balance at the end of the year 56,578 49,770
20. Financial risk management objectives and policies
20.1 Financial assets and liabilities
The Company's principal financial assets and liabilities are those derived from its operations: receivables
and prepayments, cash and cash equivalents and payables and accrued expenses. The Company's other principal
financial liabilities are interest bearing loans and borrowings, the main purpose of which is to finance
the acquisition and development of the Company's property portfolio.
Set out below is a comparison by class of the carrying amounts and fair value of the Company's financial
instruments that are carried in the financial statements.
31 March 2020 31 March 2019
Book Value Fair Value Book Value Fair Value
£'000 £'000 £'000 £'000
Financial assets
Receivables1 4,362 4,362 1,911 1,911
Cash and cash equivalents 9,873 9,873 2,131 2,131
Other financial assets held at fair value 14 14 162 162
Financial liabilities
Interest bearing loans and borrowings 51,047 51,500 49,476 50,000
Payables and accrued expenses2 1,532 1,532 1,923 1,923
Financial lease obligations 683 683 684 684
1 Excludes lease incentive debtor & prepayments.
2 Excludes tax, VAT liabilities and deferred income.
Interest rate derivatives are the only financial instruments classified as fair value through profit and
loss. All other financial assets and financial liabilities are measured at amortised cost. All financial
instruments were designated in their current categories upon initial recognition.
Fair value measurement hierarchy has not been applied to those classes of asset and liability stated above
which are not measured at fair value in the financial statements. The difference between the fair value and
book value of these items is not considered to be material.
20.2 Financing management
The Company's activities expose it to a variety of financial risks: market risk, real estate risk, credit
risk and liquidity risk.
The Company's objective in managing risk is the creation and protection of shareholder value. Risk is
inherent in the Company's activities but it is managed through a process of ongoing identification,
measurement and monitoring, subject to risk limits and other controls.
The principal risks facing the Company in the management of its portfolio are as follows:
Market price risk
Market price risk is the risk that future values of investments in direct property and related property
investments will fluctuate due to changes in market prices. To manage market price risk, the Company
diversifies its portfolio geographically in the United Kingdom and across property sectors.
The disciplined approach to the purchase, sale and asset management ensures that the value is maintained to
its maximum potential. Prior to any property acquisition or sale, detailed research is undertaken to assess
expected future cash flow. The Investment Management Committee of the Investment Manager meets twice
monthly and reserves the ultimate decision with regards to investment purchases or sales. In order to
monitor property valuation fluctuations, the Investment Manager meets with the independent external valuer
on a regular basis. The valuer provides a property portfolio valuation quarterly, so any movements in the
value can be accounted for in a timely manner and reflected in the NAV every quarter.
Real estate risk
The Company is exposed to the following risks specific to its investment property:
Property investments are illiquid assets and can be difficult to sell, especially if local market
conditions are poor. Illiquidity may also result from the absence of an established market for investments,
as well as legal or contractual restrictions on resale of such investments. In addition, property valuation
is inherently subjective due to the individual characteristics of each property, and thus, coupled with
illiquidity in the markets, makes the valuation in the investment property difficult and inexact.
No assurances can be given that the valuations of properties will be reflected in the actual sale prices
even where such sales occur shortly after the relevant valuation date.
There can be no certainty regarding the future performance of any of the properties acquired for the
Company. The value of any property can go down as well as up. Property and property-related assets are
inherently subjective as regards value due to the individual nature of each property. As a result,
valuations are subject to uncertainty.
Real property investments are subject to varying degrees of risk. The yields available from investments in
real estate depend on the amount of income generated and expenses incurred from such investments.
There are additional risks in vacant, part vacant, redevelopment and refurbishment situations, although
these are not prospective investments for the Company.
Credit risk
Credit risk is the risk that the counterparty (to a financial instrument) or tenant (of a property) will
cause a financial loss to the Company by failing to meet a commitment it has entered into with the Company.
It is the Company's policy to enter into financial instruments with reputable counterparties. All cash
deposits are placed with an approved counterparty, The Royal Bank of Scotland International Limited.
In respect of property investments, in the event of a default by a tenant, the Company will suffer a rental
shortfall and additional costs concerning re-letting the property. The Investment Manager monitors tenant
arrears in order to anticipate and minimise the impact of defaults by occupational tenants.
The table below shows the Company's exposure to credit risk:
As at As at
31 March 2020 31 March 2019
£'000 £'000
Receivables (excluding incentives and prepayments) 4,362 1,911
Cash and cash equivalents 9,873 2,131
Total 14,235 4,042
Liquidity risk
Liquidity risk arises from the Company's management of working capital, the finance charges and principal
repayments on its borrowings. It is the risk that the Company will encounter difficulty in meeting its
financial obligations as they fall due, as the majority of the Company's assets are investment properties
and therefore not readily realisable. The Company's objective is to ensure it has sufficient available
funds for its operations and to fund its capital expenditure. This is achieved by continuous monitoring of
forecast and actual cash flows by management.
The table below summarises the maturity profile of the Company's financial liabilities based on contractual
undiscounted payments:
On < 3 3-12 1-5 > 5
Total
31 March 2020 demand months months years years
£'000
£'000 £'000 £'000 £'000 £'000
Interest bearing loans and borrowings - 270 811 54,203 - 55,284
Payables and accrued expenses - 1,532 - - - 1,532
Lease obligation - - 51 205 4,256 4,512
- 1,802 862 54,408 4,256 61,328
On <3 3-12 1-5 > 5
Total
31 March 2019 demand months months years years
£'000
£'000 £'000 £'000 £'000 £'000
Interest bearing loans and borrowings - 290 877 54,145 - 55,312
Payables and accrued expenses - 1,923 - - - 1,923
Finance lease obligation - - 51 205 4,307 4,563
- 2,213 928 54,350 4,307 61,798
21. Capital management
The primary objectives of the Company's capital management are to ensure that it continues to qualify for
UK REIT status and complies with its banking covenants.
To enhance returns over the medium term, the Company utilises borrowings on a limited recourse basis for
each investment or all or part of the total portfolio. The Company's policy is to target a borrowing level
of 25% loan to GAV and it can borrow up to a maximum of 35% loan to GAV in advance of a capital raise or
asset disposal. It is currently anticipated that the level of total borrowings will typically be at the
level of 25% of GAV (measured at drawdown).
Alongside the Company's borrowing policy, the Directors intend, at all times, to conduct the affairs of the
Company so as to enable the Company to qualify as a REIT for the purposes of Part 12 of the CTA 2010 (and
the regulations made thereunder). The REIT status compliance requirements include: 90% distribution test,
interest cover ratio, 75% assets test and the substantial shareholder rule, all of which the Company
remained compliant with in this reporting year.
The monitoring of the Company's level of borrowing is performed primarily using a Loan to GAV ratio, which
is calculated as the amount of outstanding debt divided by the total valuation of investment property. The
Company Loan to GAV ratio at the year end was 27.21% (31 March 2019: 25.30%).
Breaches in meeting the financial covenants would permit the bank to immediately call loans and borrowings.
During the year under review, the Company did not breach any of its loan covenants, nor did it default on
any other of its obligations under its loan agreements.
22. Transactions with related parties
As defined by IAS 24 Related Parties Disclosures, parties are considered to be related if one party has the
ability to control the other party or exercise significant influence over the other party in making
financial or operational decisions.
For the year ended 31 March 2020, the Directors of the Company are considered to be the key management
personnel. Details of amounts paid to Directors for their services can be found within note 5, Directors'
remuneration and the Director's remuneration report in the Full Annual Report and Financial Statements.
AEW UK Investment Management LLP is the Company's Investment Manager and has been appointed as AIFM. Under
the terms of the Investment Management Agreement, the Investment Manager is responsible for the day-to-day
discretionary management of the Company's investments subject to the investment objective and investment
policy of the Company and the overall supervision of the Directors.
The Investment Manager is entitled to receive a quarterly management fee in respect of its services
calculated at the rate of one-quarter of 0.9% of the prevailing NAV (excluding uninvested proceeds from
fundraisings).
During the year, the Company incurred £1,308,301 (31 March 2019: £1,302,153) in respect of investment
management fees and expenses, of which £311,683 (31 March 2019: £328,323) was outstanding as at 31 March
2020.
23. Segmental information
Management has considered the requirements of IFRS 8 'operating segments'. The source of the Company's
diversified revenue is from the ownership of investment properties across the UK. Financial information on
a portfolio basis is provided to senior management of the Investment Manager and the Directors, which
collectively comprise the chief operating decision maker. The properties are managed on a portfolio basis
and the chief operating decision maker assesses performance and makes resource allocation decisions at the
portfolio level (being the total investment property portfolio held by the company). Therefore, the Company
is considered to be engaged in a single segment of business, being property investment and in one
geographical area, the United Kingdom.
24. Events after reporting date
Dividend
On 20 April 2020, the Board declared its fourth interim dividend of 2.00pps in respect of the period from 1
January 2020 to 31 March 2020. This was paid on 29 May 2020, to shareholders on the register as at 1 May
2020. The ex-dividend date was 30 April 2020.
Property sales
On 22 May 2020, the Company disposed of its asset at 2 Geddington Road, Corby, for gross proceeds of £18.80
million, delivering an IRR in excess of 30%.
Interest Rate Caps
After the year-end, the Company replaced it existing caps covering the period from October 2020 to October
2023, which capped the interest rate at 2.0% on a notional value of £49.51 million, with new caps covering
the same period capping the interest rate at 1.0% on a notional value of £51.50 million. The Company paid a
premium of £62,968.
Solihull
In June 2020, the Company completed a 15 year renewal lease with the Secretary of State for Communities and
Local Government at is Solihull office, Sandford House. The agreement documents the increase of rental
income from the property by 30%.
EPRA Unaudited Performance Measures
Detailed below is a summary table showing the EPRA performance measures of the Company
All EPRA performance measures have been calculated in line with EPRA Best Practices Recommendations
Guidelines which can be found at 4 www.epra.com.
MEASURE AND DEFINITION PURPOSE PERFORMANCE
A key measure of a company's £13.20 million/8.67 pps
1. EPRA Earnings underlying operating results and an
indication of the extent to which EPRA earnings for year to
Earnings from operational activities. current dividend payments are
supported by earnings. 31 March 2020 (31 March 2019:
£12.24 million/8.07 pps)
2. EPRA NAV
Makes adjustments to IFRS NAV to
Net asset value adjusted to include provide stakeholders with the most £147.85 million/93.12 pps
properties and other investment relevant information on the fair
interests at fair value and to exclude value of the assets and liabilities EPRA NAV as at 31 March
certain items not expected to within a true real estate investment
crystallise in a long-term investment company with a long-term investment 2020 (31 March 2019:
property business. strategy.
£149.29 million/98.51 pps)
3. EPRA NNNAV
EPRA NAV adjusted to include the fair Makes adjustments to EPRA NAV to £147.86 million/93.13 pps
values of: provide stakeholders with the most
relevant information on the current EPRA NNNAV as at 31 March
(i) financial instruments; fair value of all the assets and
liabilities within a real estate 2020 (31 March 2019:
(ii) debt; and company.
£149.46 million/98.61 pps)
(iii) deferred taxes.
4.1 EPRA NIY
Annualised rental income based on the
cash rents passing at the balance sheet A comparable measure for portfolio
date, less non-recoverable property valuations. This measure should make 8.26%
operating expenses, divided by the it easier for investors to judge
market value of the property, increased themselves, how the valuation of EPRA NIY as at 31 March 2020
with (estimated) purchasers' costs. portfolio X compares with portfolio (31 March 2019: 7.62%)
Y.
4.2 EPRA 'Topped-Up' NIY
A comparable measure for portfolio 8.66%
This measure incorporates an adjustment valuations. This measure should make
to the EPRA NIY in respect of the it easier for investors to judge EPRA 'Topped-Up' NIY
expiration of rent-free periods (or themselves, how the valuation of
other unexpired lease incentives such as portfolio X compares with portfolio as at 31 March 2020 (31 March
discounted rent periods and step rents). Y.
2019: 8.58%)
5. EPRA Vacancy Rate
A 'pure' (%) measure of investment 3.68%
ERV of vacant space divided by ERV of property space that is vacant, based
the whole portfolio. on ERV. EPRA ERV as at 31 March 2020
(31 March 2019: 2.99%)
18.75%
EPRA Cost Ratio (including
direct vacancy costs) as at
31 March 2020 (31 March 2019:
6. EPRA Cost Ratio 21.04%)
Administrative and operating costs A key measure to enable meaningful
(including and excluding costs of direct measurement of the changes in a
vacancy) divided by gross rental income. company's operating costs. 13.76%
EPRA Cost Ratio (excluding
direct vacancy costs) as at
31 March 2020 (31 March 2019:
15.81%)
7. EPRA Capital Expenditure
Property which has been held at both the £0.29 million for the year
current and comparative balance sheet Is used to illustrate change in ended 31 March 2020 (31 March
dates for which there has been no comparable capital values. 2019: £0.40 million)
significant development.
8. EPRA Like-for-like Rental Growth
Net income generate by assets which were
held by the Company throughout both the
current and comparable periods £0.29 million/1.71% for the
Is used to illustrate change in year
which there has been no significant comparable income values.
development which materially impacts ended 31 March 2020 (31 March
upon income. 2019: -£1.05 million/-9.54%)
Calculation of EPRA Net Initial Yield ('NIY') and 'topped-up' NIY
Year ended Year ended
31 March 31 March
2020 2019
£'000 £'000
Investment property - wholly-owned 189,300 197,605
Allowance for estimated purchasers' costs at 6.8% 12,872 13,437
Grossed-up completed property portfolio valuation (B) 202,172 211,042
Annualised cash passing rental income 17,361 16,725
Property outgoings (670) (651)
Annualised net rents (A) 16,691 16,074
Rent from expiry of rent-free periods and fixed uplifts 826 2,023
'Topped-up' net annualised rent (C) 17,517 18,097
EPRA NIY (A/B) 8.26% 7.62%
EPRA 'topped-up' NIY (C/B) 8.66% 8.58%
EPRA NIY basis of calculation
EPRA NIY is calculated as the annualised net rent, divided by the grossed-up value of the completed
property portfolio valuation.
The valuation of the grossed-up completed property portfolio is determined by the Company's external
valuers as at 31 March 2020, plus an allowance for estimated purchaser's costs. Estimated purchaser's costs
are determined by the relevant stamp duty liability, plus an estimate by our valuers of agent and legal
fees on notional acquisition. The net rent deduction allowed for property outgoings is based on the
Company's valuers' assumptions on future recurring non-recoverable revenue expenditure.
In calculating the EPRA 'topped-up' NIY, the annualised net rent is increased by the total contracted rent
from expiry of rent-free periods and future contracted rental uplifts.
Calculation of EPRA Vacancy Rate
Year ended Year ended
31 March 2020 31 March 2019
£'000 £'000
Annualised potential rental value of vacant premises (A) 641 522
Annualised potential rental value for the complete property portfolio (B) 17,420 17,484
EPRA Vacancy Rate (A/B) 3.68% 2.99%
Calculation of EPRA Cost Ratios
Year ended Year ended
31 March 2020 31 March 2019
£'000 £'000
Administrative/operating expense per IFRS income statement 3,319 3,660
Less: ground rent costs (66) (58)
EPRA costs (including direct vacancy costs) (A) 3,253 3,602
Direct vacancy costs (see Glossary in full Annual Report for further (865) (895)
details)
EPRA costs (excluding direct vacancy costs) (B) 2,388 2,707
Gross rental income less ground rent costs (C) 17,352 17,121
EPRA Cost Ratio (including direct vacancy costs) (A/C) 18.75% 21.04%
EPRA Cost Ratio (excluding direct vacancy costs) (B/C) 13.76% 15.81%
The Company has not capitalised any overhead or operating expenses in the accounting years disclosed above.
Only costs directly associated with the purchase or construction of properties as well as all subsequent
value-enhancing capital expenditure are capitalised.
Company Information
Share Register Enquiries
The register for the Ordinary Shares is maintained by Computershare Investor Services PLC. In the event of
queries regarding your holding, please contact the Registrar on +44 (0)370 707 1341 or email:
5 web.queries@computershare.co.uk.
Changes of name and/or address must be notified in writing to the Registrar, at the address shown below.
You can check your shareholding and find practical help on transferring shares or updating your details at
6 www.investorcentre.co.uk. Shareholders eligible to receive dividend payments gross of tax may also
download declaration forms from that website.
Share Information
Ordinary £0.01 Shares 158,774,746
SEDOL Number BWD2415
ISIN Number GB00BWD24154
Ticker/TIDM AEWU
Share Prices
The Company's Ordinary Shares are traded on the premium segment of the Main Market of the London Stock
Exchange.
Frequency of NAV publication:
The Company's NAV is released to the London Stock Exchange on a quarterly basis and is published on the
Company's website.
Annual and Half-Yearly Reports
Copies of the Annual and Half-Yearly Reports are available from the Company's website.
Financial Calendar
9 September 2020 Annual General Meeting
30 September 2020 Half-year end
November 2020 Announcement of half-yearly results
31 March 2021 Year end
June 2021 Announcement of annual results
Dividends
The following table summarises the amounts distributed to equity shareholders in respect of the period:
£
Interim dividend for the period 1 April 2019 to 30 June 2019
3,031,165
(payment made on 30 August 2019)
Interim dividend for the period 1 July 2019 to 30 September 2019 (payment made on 29 November 3,031,165
2019)
Interim dividend for the period 1 October 2019 to 31 December 2019
3,031,165
(payment made on 28 February 2020)
Interim dividend for the period 1 January 2020 to 31 March 2020
3,175,495
(payment made on 29 May 2020)
Total 12,268,990
Directors
Mark Burton (Non-executive Chairman)
Katrina Hart (Non-executive Director)
Bimaljit (''Bim'') Sandhu (Non-executive Director)
Registered Office
6th Floor
65 Gresham Street
London
EC2V 7NQ
Investment Manager and AIFM
AEW UK Investment Management LLP
33 Jermyn Street
London
SW1Y 6DN
Tel: 020 7016 4880
Website: www.aewuk.co.uk
Property Manager
Mapp
180 Great Portland Street
London
W1W 5QZ
Corporate Broker
Liberum
Ropemaker Place
25 Ropemaker Street
London
EC2Y 9LY
Legal Adviser
Gowling WLG (UK) LLP
4 More London Riverside
London
SE1 2AU
Depositary
Langham Hall UK LLP
8th Floor
1 Fleet Place
London
EC4M 7RA
Administrator
Link Alternative Fund Administrators Limited
Beaufort House
51 New North Road
Exeter
EX4 4EP
Company Secretary
Link Company Matters Limited
6th Floor
65 Gresham Street
London
EC2V 7NQ
Registrar
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol
BS13 8AE
Auditor
KPMG LLP
15 Canada Square
Canary Wharf
London
E14 5GL
Valuer
Knight Frank LLP
55 Baker Street
London
W1U 8AN
Copies of the Annual Report and Financial Statements and the Notice of AGM
Printed copies of the Annual Report will be sent to shareholders shortly and will be available on the
Company's website.
National Storage Mechanism
A copy of the Annual Report and Financial Statements will be submitted shortly to the National Storage
Mechanism ('NSM') and will be available for inspection at
7 https://www.fca.org.uk/markets/primary-markets/regulatory-disclosures/national-storage-mechanism.
LEI: 21380073LDXHV2LP5K50
END
═══════════════════════════════════════════════════════════════════════════════════════════════════════════
ISIN: GB00BWD24154
Category Code: ACS
TIDM: AEWU
LEI Code: 21380073LDXHV2LP5K50
OAM Categories: 1.1. Annual financial and audit reports
Sequence No.: 71268
EQS News ID: 1075547
End of Announcement EQS News Service
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