REG-AEW UK REIT plc AEW UK REIT plc: Annual Financial Report
24/06/2021 07:05
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AEW UK REIT plc (AEWU)
AEW UK REIT plc: Annual Financial Report
24-Jun-2021 / 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 2021
AEW UK REIT PLC (the 'Company') which holds a diversified portfolio of 34 commercial investment properties
throughout the UK, is pleased to publish its full year results for the year ended 31 March 2021.
Mark Burton, Chairman of AEW UK REIT, commented: "I am pleased to report a strong set of results for a year
that began at the start of a period of unprecedented economic uncertainty due to the outbreak of COVID-19.
NAV, pre-tax profit, and EPS all increased and we delivered strong returns to shareholders, demonstrating
the resilience of the Company's approach and our active asset management strategy. We are also pleased to
maintain a dividend of 8.00 pence per share ('pps'). Our cautious approach to cash management, and the
significant gains realised on the disposal of two assets enabled the Company to meet these payments, while
maintaining a comfortable cash and gearing position.
We have been assiduous in our pursuit of rent from tenants that have been able but unwilling to pay, while
pursuing a prudent policy for provision against expected credit losses. Although this contributed to the
fall in EPRA EPS, we are pleased with the successful outcome of the legal action to recover unpaid rent and
the overall rent collection levels, which reached 94% for each quarter since the start of the pandemic. We
continue to believe the Company's assets are strategically placed to provide investors with robust
performance over the medium and long term."
Financial Highlights
* Net Asset Value ('NAV') of £157.08 million and of 99.15 pps as at 31 March 2021 (31 March 2020: £147.86
million and of 93.13 pps).
* Operating profit before fair value changes of £10.73 million for the year (year ended 31 March 2020:
£14.47 million).
* Profit before tax ('PBT')* of £22.17 million and earnings per share ('EPS') of 13.98 pps for the year
(year ended 31 March 2020: £3.65 million and of 2.40 pps).
* EPRA Earnings Per Share ('EPRA EPS')* for the year of 6.19 pps (year ended 31 March 2020: 8.67 pps).
* Total dividends of 8.00 pps declared for the year (year ended 31 March 2020: 8.00 pps).
* Shareholder Total Return* for the year of 33.72% (year ended 31 March 2020: -17.89%).
* NAV Total Return* for the year of 15.06% (year ended 31 March 2020: 2.55%).
* The price of the Company's Ordinary Shares on the Main Market of the London Stock Exchange was 83.20 pps
as at 31 March 2021 (31 March 2020: 68.20 pps).
* As at 31 March 2021, the Company had drawn £39.50 million (31 March 2020: £51.50 million) of a £60.00
million (31 March 2020: £60.00 million) term credit facility with the Royal Bank of Scotland International
Limited ('RBSi') and was geared to 25.15% of NAV (31 March 2020: 34.83%) (see note 14 below for further
details).
* The Company held cash balances totalling £17.45 million as at 31 March 2020 (31 March 2020: £9.87
million).
* The Company received three EPRA awards during the year: EPRA Gold Medal for Financial Reporting; EPRA
Silver Medal for Sustainability Reporting and EPRA Most Improved Award for Sustainability Reporting. The
Company has also been named Best UK Real Estate Investment Trust in the Citywire Investment Trust Awards
based upon its strong three year track record.
Property Highlights
* As at 31 March 2021, the Company's property portfolio had a valuation of £179.00 million across 34
properties (31 March 2020: £189.30 million across 35 properties) as assessed by the valuer1 and a historical
cost of £173.28 million (31 March 2020: £197.12 million).
* The Company acquired one property during the year for a purchase price of £5.40 million, excluding
acquisition costs (year ended 31 March 2020: none). The Company made two disposals during the year with
total gross sale proceeds of £29.30 million (year ended 31 March 2020: none).
* The portfolio had an EPRA Vacancy Rate** of 8.96% as at 31 March 2021 (31 March 2020: 3.68%). Excluding
vacancy contributed by Bath Street, Glasgow, which was exchanged to be sold with the condition of vacant
possession, the vacancy rate was 5.58% (31 March 2020: 3.68%).
* Rental income generated in the year under review was £15.71 million (year ended 31 March 2020: £17.42
million). The number of tenants as at 31 March 2021 was 99 (31 March 2020: 91).
* EPRA Net Initial Yield ('NIY')** of 7.37% as at 31 March 2021 (31 March 2020: 8.26%).
* Weighted Average Unexpired Lease Term ('WAULT')* of 4.43 years to break (31 March 2020: 4.26 years) and
6.71 years to expiry (31 March 2020: 5.55 years).
* As at the date of this report, rent collection statistics for 2020 rental quarters and March 2021 quarter
were as follows:
Quarter %
March 2020 98
June 2020 98
September 2020 97
December 2020 97
March 2021 94
* 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.
1 The valuation figure is reconciled to the fair value under IFRS in note 11.
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 3 Darren.Vickers@liberum.com
Darren Vickers +44 (0)20 3100 2218
TB Cardew 4 AEW@tbcardew.com
Ed Orlebar +44(0) 7738 724 630
Tania Wild +44(0) 7425 536 903
Lucas Bramwell +44(0) 7939 694 437
Chairman's Statement
Overview
I am pleased to present the audited annual results of AEW UK REIT plc for the year ended 31 March 2021. As
at 31 March 2021, the Company owned a diversified portfolio of 34 commercial investment properties
throughout the UK with a value of £179.00 million.
The financial year began with a period of unprecedented economic uncertainty due to the outbreak of COVID-19
and the associated measures to contain the spread of the virus. These measures continued throughout the year
to varying degrees and have had a profound impact on certain sectors, most notably retail and leisure. To
mitigate the increased risk posed by the uncertainty in the wider economic environment, the Company adopted
a cautious approach to cash and debt management. Despite this, the Company has maintained its quarterly
dividend payments at the target level of 8.00 pps per annum throughout the year and increased its NAV per
share by 6.46%, providing a NAV total return of 15.06% (year ended 31 March 2020: 2.55%).
In May 2020, the Company disposed of 2 Geddington Road, Corby, for gross proceeds of £18.80 million,
delivering an internal rate of return ('IRR') of 27%. This disposal allowed the effective management of the
Company's risk profile, and in July 2020, £12.00 million of its RBSi loan facility was repaid in order to
provide appropriate headroom against its borrowing covenants. Since the repayment, the Loan to NAV ratio has
remained below 27% and was 25.15% as at 31 March 2021, against a soft covenant of 40% (triggering an
increase in the margin) and a hard covenant of 55%.
This disposal, and the loss of the Company's largest tenant at the time, also resulted in a fall in rental
income. The income profile from the remainder of the portfolio remained largely intact, with rent collection
rates reaching at least 94% for all quarters since the onset of the pandemic. The majority of rents
outstanding as at 31 March 2021 were attributable to tenants who were financially able, but unwilling, to
pay. Post year-end, the Company announced the successful outcome of the legal action against two well-funded
national tenants to recover unpaid rent. £0.52 million has been provided for as expected credit loss
relating to these tenants in these financial statements and subsequent to the court ruling all rent arrears
of these tenants have been received. The prudent policy for provision against expected credit losses
contributed to a fall in EPRA EPS for the year to 6.19 pps (year ended 31 March 2020: 8.67 pps), providing a
dividend cover of 77.4% (year ended 31 March 2020: 108.4%). Certain asset management initiatives are also
temporarily reducing earnings potential. Remedial works are ongoing at Bank Hey Street, Blackpool, including
the reinstatement of its cathodic protection system and comprehensive repairs to faience elevations and
windows. The nature of these repair works means that costs are expensed to profit or loss as they are
incurred, with a corresponding increase expected to be seen in the revaluation of the property. The Company
has also exchanged to sell its property at Bath Street, Glasgow, with the condition of vacant possession,
and this property will continue to operate at a high level of vacancy until the sale has completed.
The Company has benefitted from its defensively positioned portfolio, which achieved a total return of 14.8%
over the year - an outperformance of 10.7% relative to the Benchmark. Relatively small lot sizes,
geographical diversification and valuations that are underpinned by alternative use value have all
contributed to limiting the downside during the period of unprecedented economic uncertainty in the first
half of the financial year. The improved economic outlook in the second half of the year saw valuations
recover and the Company generated an increase in fair value of its investment property of £5.32 million for
the year, which has largely been driven by the strong performance of the Company's industrial assets. The
pandemic has accelerated the trend towards online retail, and consequently sentiment towards the industrial
and warehousing sector has improved. The Company benefits from a high weighting towards industrials, which
made up 60.8% of the portfolio valuation as at 31 March 2021. Weightings in the retail and leisure sectors,
which have been most negatively affected by the pandemic, remain low at 11.6% and 7.0% respectively.
Stock selection and active asset management continue to be key features of the Company's strategy and
drivers of performance. This was evidenced in February 2021 by the completion of the sale of Sandford House,
Solihull, for gross proceeds of £10.50 million. The asset was acquired in August 2015 for £5.40 million and
the Company invested no further capital in the asset during its hold period. Significant value was gained
from the completion of a 15-year lease in July 2020, with the existing tenant, the Secretary of State for
Communities and Local Government, and the asset delivered an IRR in excess of 20% over the hold period. This
demonstrates how shorter income assets in strong locations can be used to create value for shareholders.
As the economic outlook improves, the Investment Manager is seeing more attractive investment opportunities
coming to the market, which the Company is well positioned to take advantage of with its available cash and
debt. In October 2020, the Company acquired Westlands Distribution Park in Weston Super Mare for a purchase
price of £5.40 million and post year-end acquired Arrow Point Retail Park, Shrewsbury, for a gross purchase
price of £8.35 million and 15-33 Union Street, Bristol, for a gross purchase price of £10.19 million. The
Company aims to make further acquisitions in order to increase its earnings and dividend cover.
The Company's share price was 83.20 pps as at 31 March 2021 (31 March 2020: 68.20 pps), representing a 16.1%
discount to NAV. During the year, the Company experienced periods of significant discount in share price to
NAV as a result of the conditions in the wider market. In light of this, during October and November 2020,
the Company bought back 350,000 of its own shares for gross consideration of £262,995, which had a positive
impact on the Company's NAV and EPRA EPS. Since the year end, the Company's share price has increased to
95.00 pps as at the date of approval of this report, representing a 4.19% discount to NAV.
We are delighted to announce that the Company has received three EPRA awards during the year: EPRA Gold
Medal for Financial Reporting; EPRA Silver Medal for Sustainability Reporting and EPRA Most Improved Award
for Sustainability Reporting. The Company has also been named Best UK Real Estate Investment Trust in the
Citywire Investment Trust Awards based upon its strong three-year track record. These awards are a
reflection of much hard work committed to the Company by the Investment Manager and the Board would like to
thank the team at AEW and express its positivity and confidence in the Investment Manager's ongoing ability
to implement the Company's strategy.
In September 2020, the Company passed a continuation vote at the Annual General Meeting ('AGM'), and
shareholders voted in favour of an ordinary resolution to continue the Company's business as currently
constituted. We are pleased shareholders support our belief in the Company's strategy and prospects for
future performance.
Financial Results Summary
Year ended
Year ended
31 March 2020
31 March 2021
Operating profit before fair value changes (£'000) 10,735 14,472
Operating profit (£'000) 23,102 5,072
Profit before tax (£'000) 22,172 3,652
Earnings Per Share (basic and diluted) (pence)* 13.98 2.40
EPRA Earnings Per Share (basic and diluted) (pence)* 6.19 8.67
Ongoing Charges (%) 1.36 1.34
Net Asset Value per share (pence) 99.15 93.13
*See note 9 of the Financial Statements for calculation.
Financing
The Company has a £60.00 million loan facility, of which it had drawn a balance of £39.50 million as at 31
March 2021 (31 March 2020: £60.00 million facility; £51.50 million drawn), producing the following measures
of gearing:
Year ended Year ended
31 March 2021 31 March 2020
% %
Loan to NAV 25.15 34.83
Gross Loan to GAV 22.07 27.21
Net Loan to GAV (deducts cash balance from the outstanding loan value) 12.32 21.99
The unexpired term of the facility was 2.6 years as at 31 March 2021 (31 March 2020: 3.6 years). The loan
incurs interest at 3 month LIBOR +1.4%, which equated to an all-in rate of 1.44% as at 31 March 2021 (31
March 2020: 2.10%).
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 notional value of £51.00 million (31 March 2020: £36.51 million), resulting in
the loan being 130% hedged (31 March 2020: 71%). These interest rate caps are effective for the remaining
period of the loan.
In June 2020, the Company completed an amendment to its loan facility allowing the part repayment of the
loan without reducing the availability of the full £60.00 million facility, akin to a revolving credit
facility. The Company subsequently repaid £12.00 million of the facility in July 2020. As at 31 March 2021,
the Company had £15.48 million of the facility available up to the maximum 35.00% Loan to NAV at drawdown.
Dividends
The Company has continued to deliver on its target of paying dividends of 8.00 pps 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 77.4% covered by the Company's EPRA EPS of 6.19 pence. It remains the Company's
longer-term intention to continue to pay dividends in line with its dividend policy and this will be kept
under review given the current COVID-19 situation. In determining future dividend payments, regard will be
given 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 returns delivered to shareholders to date and
with the resilience demonstrated under stressed conditions following the onset of the COVID-19 pandemic. The
Company met its target dividends of 8.00 pps for the year and, although these were only 77.4% covered by
EPRA EPS, significant gains were realised on the disposal of two assets during the year. These gains
supplemented cash flows from its operating activities and allowed the dividend payments to be met while
maintaining a comfortable cash and gearing position and without suffering an overall decline in NAV.
The lockdown period at the start of 2021 has reversed some of the UK's economic recovery seen in the second
half of 2020. However, the general economic outlook is brighter for the second half of 2021, following the
effective rollout of the vaccination programme and further easing of lockdown restrictions. We expect this
to be reflected in the real estate market in terms of improved rent collection levels and the recovery of
rental values and property valuations. However, many tenants will have benefitted from a range of government
support schemes over the past year. As these protective measures are removed, we may yet see a significant
surge in the number of corporate insolvencies, and so an element of caution should be retained.
The pandemic has accelerated certain structural shifts in the real estate market. We expect that this will
present new challenges and opportunities in certain sectors. We believe that the Company is well placed to
take advantage of these with its existing liquid resources available. Growth of the Company also remains a
key objective and we hope that improved economic conditions and a return of the share price to trading at a
premium to NAV, will enable this in the near future.
Mark Burton
Chairman
23 June 2021
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) resulting in 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
relevant 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 60.00% of GAV;
• 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
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.
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
Extending income streams and realising gains
Sandford House, Solihull
• The asset was acquired in August 2015 for £5.4 million and has been fully let to the Secretary of State
for Communities and Local Government since this time, producing a net income yield against the purchase
price of 9.6%. No further capital expenditure was spent on the asset during the hold period.
• A 15-year lease agreement was signed with the tenant in June 2020, increasing the rental income from the
asset by 30%.
• The asset was sold in February 2021 for £10.5 million, crystallising significant gains both against
acquisition price and against the valuation pre-letting.
Driving rental growth
Storeys Bar Road, Peterborough
• In November 2020 the Company agreed a 15-year lease renewal with the existing tenant, Wyndeham
Peterborough Ltd.
• The renewal achieved an uplift in rent from £2.95 per sq ft to £3.50 per sq ft, equating to an increase
of £115,000 per annum.
• The like-for-like valuation as provided by the valuer increased by 20% over the year.
Seeking high-yielding assets supported by land and alternative use value
2 Geddington Road, Corby
• The asset was acquired in February 2018 for £12.4 million and was fully let to Gefco UK Ltd during the
hold period, producing a net income yield against the purchase price of 10%.
• The Company completed the sale of the asset in May 2020 for gross proceeds of £18.8 million, generating
an IRR of 27.2%.
Acquiring assets with low capital value and potential to add value through asset management initiatives
Westlands Distribution Park, Weston-super-Mare
• In November 2020, the Company completed the acquisition of the multi-let distribution park for a price
of £5.4 million.
• This reflects a capital value of £175,000 per acre compared with nearby comparable land transactions
which have ranged between £350,000 and £500,000 per acre for other commercial and residential uses.
• Short-term opportunities to add value through lettings and renewals.
Key Performance Indicators
KPI AND DEFINITION RELEVANCE TO STRATEGY TARGET PERFORMANCE
1. EPRA NIY 7.37%
A representation to the at 31 March 2021
investor of what their initial The Company's EPRA NIY demonstrates the
net yield would be at a ability to generate income from its
predetermined purchase price portfolio in the short-term in order to 7.50 - 10.00%
after taking account of all meet its target dividend. (31 March 2020: 8.26%)
associated costs, e.g. void
costs and rent free periods.
2. True Equivalent Yield
The average weighted return a 8.15%
property will produce
according at 31 March 2021
to the present income and The Company's True Equivalent Yield
estimated rental value demonstrates the Company's ability to 7.50 - 10.00%
('ERV') assumptions, assuming generate income, both from its existing (31 March 2020: 8.04%)
the income is leases and its ERVs, in order to meet
its target dividend.
received quarterly in advance.
3. Reversionary Yield 8.18%
The expected return the A Reversionary Yield profile shows a at 31 March 2021
property will potentially sustainable income stream
that can be used to meet dividends past 7.50 - 10.00%
provide once rack-rented. the expiry of a property's current
leasing arrangements. (31 March 2020: 7.90%)
4. WAULT to Expiry
The Investment Manager believes that 6.71 years
The average lease term current market conditions present an
remaining to opportunity whereby assets with a at 31 March 2021
shorter unexpired lease term are often
expiry across the portfolio, mispriced. It is also the Investment > 3 years
weighted Manager's view that a shorter WAULT is
useful for active asset management as it (31 March 2020: 5.55
by contracted rent. allows the Investment Manager to engage years)
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 4.43 years
The average lease term shorter unexpired lease term are often
remaining to mispriced. As such, it is in line with at 31 March 2021
the Investment Manager's strategy to
break, across the portfolio acquire properties with a WAULT that is > 3 years
weighted generally shorter than the benchmark. It
is also the Investment Manager's view (31 March 2020: 4.26
by contracted rent. that a shorter WAULT is useful for years)
active asset management as it allows the
Investment Manager to engage in direct
negotiation with tenants rather than via
rent-review mechanisms.
6. NAV £157.08 million
NAV is the value of an at 31 March 2021
entity's assets Provides stakeholders with the most Increase year
relevant information on the fair value
minus the value of its of the assets and liabilities of the on year
liabilities. Company. (31 March 2020:
£147.86 million)
The Company has changed the measure of
its Leverage KPI from 'Loan to Gross 25.15%
Asset Value ('GAV')' to 'Loan to NAV'.
This is in line with the measure used in at 31 March 2021
7. Leverage (Loan to NAV) its banking covenants and so is
considered to be more relevant to the
The proportion of the Company's position. The target of 35%
Company's net assets that is Loan to NAV, which is the gearing limit (31 March 2020:
funded by borrowings. at drawdown under the RBSi facility, 35% 34.83%)
approximates to the previous target of
25% Loan to GAV, which is the measure
used in the Company's Investment
Guidelines. Gearing will continue to be
monitored using both measures, but will
be reported on the Loan to NAV basis.
8. Vacant ERV 8.96%/5.58% excluding
vacancy contributed by
The space in the property The Company's aim is to minimise vacancy Glasgow*
portfolio which is currently of the properties. A low level of
unlet, as a structural vacancy provides an at 31 March 2021
opportunity for the Company to capture < 10.00%
percentage of the total ERV of rental uplifts and manage the mix of
the portfolio. tenants within a property.
(31 March 2020: 3.68%)
9. Dividend
Dividends declared in relation 8.00 pps
to the year. The Company
targets a dividend of 8.00 for the year ended 31
pence per Ordinary Share per March 2021
The dividend reflects the Company's
annum. However, given the ability to deliver a sustainable income 8.00 pps
current COVID-19 situation, stream from its portfolio.
regard will be had to the (year ended 31 March
circumstances prevailing at 2020: 8.00 pps)
the relevant time in
determining dividend payments.
1.36%
10. Ongoing Charges The Ongoing Charges ratio provides a
measure of total costs associated with for the year ended 31
The ratio of total managing and operating the Company, March 2021
administration and operating which includes the management fees due
costs expressed as a to the Investment Manager. The < 1.50%
percentage of average NAV Investment Manager presents this measure
throughout the year. to provide investors with a clear (year ended 31 March
picture of operational costs involved in 2020: 1.34%)
running the Company.
£22.17 million/13.98
pps
11. Profit Before Tax ('PBT')
for the year ended 31
PBT is a profitability measure March 2021
which considers the Company's
profit before the payment of
income tax. The PBT is an indication of the
Company's financial performance for the 8.00 pps (year ended 31 March
year in which its strategy is exercised. 2020: £3.65
million/2.40 pps)
33.72%
12. Shareholder Total Return
for the year ended 31
The percentage change in the March 2021
share price assuming dividends This reflects the return seen by
are reinvested to purchase shareholders on their shareholdings
additional Ordinary Shares. through share price movements and 8.00%
dividends received. (year ended 31 March
2020: -17.89%)
13. EPRA EPS
6.19 pps
Earnings from core operational
activities. A key measure of a for the year ended 31
company's underlying operating March 2021
results from its property This reflects the Company's ability to
rental business and an generate earnings from the portfolio 8.00 pps
indication of the extent to which underpins dividends.
which current dividend (year ended 31 March
payments are supported by 2020: 8.67 pps)
earnings. See note 9 of the
financial statements.
*Glasgow has exchanged to be sold with the condition of vacant possession.
Investment Manager's Report
Economic Review
A prolonged period of lockdown during Q1 2021 caused a contraction of 1.5% in UK economic growth for the
quarter. However, the continued easing of restrictions throughout Q2 and a rapid rollout of the vaccination
programme is expected to bring about relatively strong growth in the second half of 2021, with KPMG's
Economic Outlook published in March 2021 forecasting UK GDP growth to be 4.6% for the whole year, compared
with a 9.9% contraction in 2020. While rises in inflation rates are expected to accelerate along with the
economic recovery, inflation is forecast to be lower than the Bank of England's 2% target by next year,
allowing for a continued period of low interest rates. KPMG forecast the economic recovery to continue into
2022 with UK GDP growth of 5.6%.
Property Market Review
We take the view that UK real estate provides an attractive risk-adjusted reward longer term, compared with
the very low risk-free rates on offer. Investors have largely held off from property investment over the
last 12 months, partly due to disruption and changes to occupier behaviour due to the pandemic. However, as
the occupier market recovers, the number of transactions is expected to increase. The pandemic has amplified
the polarisation in performance between individual sectors, which was already in evidence beforehand.
Sector Review
Industrial
The sector has been continuing to grow for a number of years due to the trend towards online shopping.
Growth of this trend has continued at an even faster pace than predicted prior to the pandemic as social
distancing has forced a change in shoppers' habits. Changes in shoppers' 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.
In terms of emerging trends, there is some expectation that the UK will begin to see an increase in
localised production as a result of supply chain disruption experienced during the pandemic. If seen, this
could further increase demand for industrial accommodation and would lead to increased take up outside of
the currently favoured logistics sector instead being focused more on 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 60.8% 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.
The Company's industrial holding outperformed the Benchmark both in terms of income return, with a relative
outperformance of 3.4%, and capital growth, with a relative outperformance of 0.8%.
Office
Nationwide lockdowns have brought about substantial increases in remote working, with many companies
indicating that they will move towards a more flexible working model in the future, which suggests that the
physical office could become less important for some. KPMG forecasts the unemployment rate to increase in
2021 and again in 2022 as government support schemes are wound down. As such, the recovery in office demand
and rental values in the sector are expected to remain subdued. We anticipate an acceleration in demand for
offices with strong amenities post-pandemic as businesses try to entice workers back.
Our office assets represent the second largest sector holding, with 20.6% 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 strongest
performing sector relative to the Benchmark, achieving an outperformance of 12.5%, which was largely driven
by capital growth of 5.4% resulting from key asset management transactions. In contrast, the office sector
suffered capital losses of 5.1% across the Benchmark.
Alternatives
This is a sector in which AEW as Investment Manager has significant expertise and has seen a number of
compelling opportunities in the market. The Company's current alternatives holding comprises assets within
the leisure sector that have been selected due to their defensive, value protection characteristics as well
as their high-income yield. As such, even though the income streams and valuations have suffered from the
impact of the pandemic on this sector, the value of these assets is expected to be below their long-term
value assessment when considering their value for alternative uses.
Assets held in alternative sectors comprise 7.0% of the 31 March 2021 valuation, all of which is within the
leisure sector. The Company's high yielding alternatives generated an income return which outperformed by
3.0% relative to the Benchmark. Gains realised on the disposal of 2 Geddington Road, Corby, offset capital
losses seen in the Company's leisure assets, meaning that capital returns achieved outperformance of 8.0%
relative to the Benchmark.
Retail
The retail sector has suffered greatly due to the pandemic and experienced an acceleration of trends already
present in consumer habits prior to the onset. The rise in online retail is expected to continue, as
retailers invest further in their online platforms and move a larger proportion of their sales online.
Yields are expected to rise and changes in pricing are bringing about more opportunities for the repurposing
of retail assets for alternative uses.
Retail represents 11.6% of the valuation and our retail assets have performed slightly weaker than the
Benchmark, as Central London retail props up the Benchmark performance to some extent. The Company's
strictly regional holdings have suffered valuation losses associated with the negative sentiment in the
sector and issues caused by the pandemic.
Property Portfolio
The Company made one acquisition during the year:
Westlands Distribution Park, Weston-super-Mare
In November 2020, the Company completed the acquisition of the multi-let Westlands Distribution Park in
Weston-super-Mare for a purchase price of £5.4 million. The purchase price reflects a low capital value of
£175,000 per acre, providing potential for future capital value growth based upon comparable land
transactions for other commercial and residential uses. The established 323,437 sq ft estate is let to 15
tenants including North Somerset District Council who make up 30% of the income stream. It is located three
miles from the M5 Motorway and 20 miles south of Bristol city centre.
The Company made the following acquisitions after the year end:
Arrow Point Retail Park, Shrewsbury
In May 2021, the Company acquired Arrow Point Retail Park in Shewsbury for a purchase price of £8.35
million. The established retail park is located on a busy commercial estate and is fully let. The estate
provides a net initial yield of 8.7%, with low passing rents compared with competing locations. It comprises
a modern purpose-built retail park constructed in 2007, arranged across nine units with 176 car parking
spaces, and is prominently located within the main retail warehouse provision of Shrewsbury, approximately
2.5 miles north east of the town centre.
Bristol
In June 2021, the Company acquired 15-33 Union Street for a purchase price of £10.19 million. 15-33 Union
Street occupies a prominent location in Bristol city centre, opposite The Galleries Shopping Centre and near
Cabot Circus, Bristol's premier retail destination. Located on a busy thoroughfare for pedestrians, the
65,238 sq ft site experiences high footfall and is ideally suited for retail or leisure units. Constructed
in 2001, the property currently comprises five purpose built split-level retail or leisure units over four
floors and road access to both Union Street and Fairfax Street. Four of the five units are let to three
household names and a successful local retailer. The remaining unit is currently vacant, with the vendor
providing a 12 month guarantee. We are currently in discussions with a number of parties who are keen to
occupy this space. The location of the site has been identified as a major regeneration area and it offers
the ability for further growth through development.
The Company made two disposals during the year:
2 Geddington Road, Corby
In May 2020, the Company completed the sale of 2 Geddington Road, Corby, for a price of £18.8 million,
achieving an IRR of 27.2%. The asset was acquired in February 2018 for £12.4 million and had been fully let
to Gefco UK Limited during the hold period, producing a net income yield against the purchase price of 10%.
Sandford House, Solihull
In February 2021, the Company completed the sale of Sandford House, Solihull, for a price of £10.5 million,
achieving an IRR of 19.5%. The asset was acquired in August 2015 for £5.4 million and had been fully let to
the Secretary of State for Communities and Local Government since this time, producing a net income yield
against the purchase price of 9.6%. The Company had invested no further capital in the asset during its hold
period. A 15-year lease agreement was signed with the tenant in July 2020, which increased the asset's
rental income by 30%.
Asset Management
The Company completed the following material asset management transactions during the period:
• Bank Hey Street, Blackpool - In May 2020, the Company signed a reversionary lease with existing tenant,
JD Wetherspoon. This documents the removal of the tenant's break option in 2025 and provides an
additional 10-year lease term taking the earliest expiry from 2025 to 2050. The annual rent payable by
the tenant has reduced from £96,750 to £90,000 but the lease now provides five-yearly fixed increases
reflecting 1% per annum.
The Company is also continuing remedial works to its property in Blackpool, which include the overhaul and
reinstatement of its cathodic protection system, and comprehensive repairs to faience elevations and
windows. Works have been budgeted at a total cost to the Company of £1.7 million over two years. The nature
of these repair works means that as the costs are incurred, they will be expensed to the Company's profit or
loss, with a corresponding increase expected to be seen in the revaluation of the property, all else being
equal. The works are expected to be completed by the end of 2021.
• Bessemer Road, Basingstoke - In July 2020, the Company completed a five-year lease renewal at its 58,000
sq ft industrial premises in Basingstoke. The lease has been granted with no rent free incentive given
to the tenant and secures a rental income to the Company 6% ahead of independent valuer's estimated
levels. The tenant has the benefit of a break option in year three.
• Langthwaite Grange Industrial Estate, South Kirkby - During August 2020, a lease renewal was signed with
the Company's third largest tenant, Ardagh Glass. Rent payable under the new lease has been agreed 13%
ahead of both independent valuer's estimated levels and the previous level of passing rent. The lease is
for a five-year term and the tenant will benefit from four months' rent free and a tenant break option
after three years.
• Apollo Business Park, Basildon - During September 2020, the Company completed a 5-year lease renewal on
35,300 sq ft of these multi-let industrial premises in Basildon. The lease secures a rental income to
the Company 4% ahead of the independent valuer's estimated levels and 30% ahead of the previous rental
level. The tenant will benefit from six months' rent free.
• Wheeler Gate, Nottingham - In September 2020, a five-year renewal lease was completed with Costa Coffee
on a 1,400 sq ft retail unit located in central Nottingham. The reversionary lease documents the
rebasing of Costa's rent from £110,000 to £52,000 per annum in line with its estimated rental value. The
tenant benefits from nine months' rent free.
• Bath Street, Glasgow - During October 2020, the Company exchanged contracts to sell its 85,000 sq ft
office holding at 225 Bath Street in Glasgow city centre to a subsidiary company of IQ Student
Accommodation. The transaction is conditional upon various matters including the grant of planning
permission for the development of a 480 bedroom student housing development and achieving vacant
possession. Sale pricing will be determined following the approval of all conditions according to an
agreed matrix ranging from £8.55 million to £9.30 million. Transaction pricing reflects 98% of pricing
levels being discussed by the parties prior to the onset of the COVID-19 pandemic.
• Moorside Road, Swinton - Following the administration of the previous tenant, Nationwide Crash Repair
Centres Ltd., a new letting was completed to HB Accident Repair Network Ltd. during November 2020. The
lease is for a 10-year term and the starting rent of £122,500 per annum exceeds the rental level of the
previous tenants by £11,000 per annum. The lease also provides for an RPI-linked review at year five if
the tenant remains in occupation.
• Storeys Bar Road, Peterborough - In November 2020, the Company completed a 15-year lease renewal with
its existing tenants, Wyndeham, achieving a net effective rental uplift from £2.95 per sq ft to £3.50
per sq ft, increasing the annual rent received from the asset by £115,000. The lease provides for tenant
break options at the end of years three, six and nine and no incentives were granted to the tenant.
• Sarus Court, Runcorn - A new letting to Di-tec Power Ltd. was completed during December 2020 on 14,000
sq ft at this multi-let industrial estate. The new lease is for a 10-year term and includes an incentive
of seven months' rent free. The rental level of £5.65 per sq ft proves a new high tone for the estate
and exceeds the asset's previous estimated rental value level of £5.50 per sq ft.
• Gresford Industrial Estate, Wrexham - In March 2021, the Company exchanged contracts on the acquisition
of a 2.76 acre plot of land adjacent to its industrial holding at Wrexham for a price of £60,200 and
completed the purchase post year-end in April 2021. The freehold vacant land, being sold by
administrators in auction, has rights over the Company's existing ownership. Therefore, the purchase of
this land prevents any risks from third parties demanding access. Plastipak, the tenant of the existing
property is potentially interested in expanding into this newly acquired piece of land.
Vacancy
The portfolio's overall vacancy level now sits at 5.58%, excluding vacancy contributed by the asset at 225
Bath Street, Glasgow which, as discussed above, has now been exchanged for sale for alternative use
redevelopment. As a condition of the sale agreement, full vacancy must be achieved in the building before
the sale can be completed. Including this asset, overall vacancy is 8.96%.
Financial Results
The Company's NAV as at 31 March 2021 was £157.08 million or 99.15 pps (31 March 2020: £147.86 million or
93.13 pps). This is an increase of 6.02 pps or 6.46% over the year, with the underlying movement in NAV set
out in the table below:
pps
NAV as at 1 April 2020 93.13
Change in fair value of investment property 3.36
Gains realised on disposal of investment property 4.44
Change in fair value of derivatives (0.01)
Income earned for the period 10.07
Expenses and net finance costs for the period (3.88)
Dividends paid (8.00)
Share buybacks 0.04
NAV as at 31 March 2021 99.15
EPRA earnings per share for the year was 6.19 pps which, based on dividends paid of 8.00 pps, reflects a
dividend cover of 77.4%.
Financing
As at 31 March 2021, the Company has a £60.0 million loan facility with RBSi, in place until October 2023,
the details of which are presented below:
31 March 2021 31 March 2020
Facility £60.00 million £60.00 million
Drawn £39.50 million £51.50 million
Gearing (Loan to NAV) 25.15% 34.83%
1.44% all-in 2.10% all-in
Interest rate
(LIBOR +1.4%) (LIBOR +1.4%)
Notional Value of Loan Balance Hedged 130.4% 70.9%
In June 2020, the Company amended the terms of its facility, allowing the ability to make repayments and
re-draw these amounts, akin to a revolving credit facility. In July 2020, the Company repaid £12.00 million
of the facility.
Property Portfolio
Summary by Sector as at 31 March 2021
Like- Like-
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) (£m) %
Sector
Industrial 21 108.85 2,659,440 6.52 3.93 8.52 3.21 9.72 3.65 8.33 (0.29) (3.44)
Offices 5 36.80 252,358 19.81 3.11 2.36 9.37 3.56 14.09 2.97 (0.38) (13.48)
Alternatives 2 12.55 112,355 0.00 7.35 1.50 13.31 1.23 10.99 1.73 0.00 0.00
Standard 5 15.20 168,917 9.48 4.59 2.06 12.17 1.51 8.96 2.07 (0.41) (16.53)
Retail
Retail 1 5.60 51,021 0.00 3.01 0.61 11.96 0.52 10.09 0.61 0.00 0.00
Warehouse
Portfolio 34 179.00 3,244,091 8.96* 4.43 15.05 4.64 16.54 5.10 15.71 (1.08) (6.80)
Summary by Geographical Area as at 31 March 2021
Like- Like-
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)
(£m) %
Yorkshire
and 8 38.17 1,027,801 4.93 2.84 3.23 3.14 3.64 3.53 3.20 (0.34) (9.60)
Humberside
South East 5 27.68 195,545 7.63 3.83 2.02 10.35 2.18 11.14 2.29 (0.35) (13.26)
Eastern 5 22.05 344,885 11.57 3.04 1.85 5.36 2.05 5.94 1.66 (0.23) (12.17)
South West 4 25.30 448,357 9.85 2.24 2.23 4.98 2.48 5.54 1.88 0.01 0.60
West 3 12.70 363,722 5.50 5.30 1.18 3.24 1.14 3.14 1.78 0.10 8.63
Midlands
East 1 3.90 28,219 0.00 5.57 0.39 13.64 0.39 13.80 0.58 (0.11) (21.57)
Midlands
North West 4 16.35 302,061 0.00 4.52 1.40 4.64 1.36 4.51 1.35 (0.09) (6.25)
Wales 2 16.10 376,138 0.00 8.08 1.25 3.31 1.39 3.69 1.31 0.00 0.00
Greater 1 9.25 71,720 0.00 10.62 0.96 13.40 0.75 10.45 1.01 0.00 0.00
London
Scotland 1 7.50 85,643 51.07 1.31 0.54 6.33 1.16 13.54 0.65 (0.07) (9.72)
Portfolio 34 179.00 3,244,091 8.96* 4.43 15.05 4.64 16.54 5.10 15.71 (1.08) (6.80)
*excluding the vacancy from 225 Bath Street Glasgow, which has exchanged to be sold with the condition of
vacant possession, the vacancy rate is 5.58%.
Properties by Market Value as at 31 March 2021
Sector weighting by valuation - high industrial weighting and low exposure to retail
Sector Percentage
Industrial 60.8%
Offices 20.6%
Standard retail 8.5%
Leisure 7.0%
Retail Warehouse 3.1%
Geographical weighting by valuation - highly diversified across the UK
Region Percentage
Yorkshire and Humberside 21.3%
South East 15.5%
South West 14.1%
Eastern 12.3%
North West 9.1%
Wales 9.0%
West Midlands 7.1%
Rest of London 5.2%
Scotland 4.2%
East Midlands 2.2%
Properties by Market Value as at 31 March 2021
Market Value
Property Sector Region
Range
(£m)
Top 10:
1. Eastpoint Business Park, Oxford Offices South East 10.0-15.0
2. Gresford Industrial Estate, Wrexham Industrial Wales 10.0-15.0
3. 40 Queen Square, Bristol Offices South West 10.0-15.0
4. London East Leisure Park, Dagenham Leisure Rest of London 7.5-10.0
5. Langthwaite Grange Industrial Estate, South Kirkby Yorkshire and Humberside
Industrial 7.5-10.0
Yorkshire and Humberside
6. Lockwood Court, Leeds Industrial 7.5-10.0
7. Storeys Bar Road, Peterborough Industrial Eastern 7.5-10.0
8. 225 Bath Street, Glasgow Offices Scotland 7.5-10.0
9. Sarus Court Industrial Estate, Runcorn Industrial North West 5.0-7.5
Yorkshire and Humberside
10. Euroway Trading Estate, Bradford Industrial 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. Brockhurst Crescent, Walsall Industrial West Midlands 5.0 - 7.5
13. Barnstaple Retail Park Retail Warehouse South West 5.0 - 7.5
14. Westlands Distribution Park, Weston Industrial South West 5.0 - 7.5
15. Walkers Lane, St. Helens Industrial North West <5.0
Yorkshire and Humberside
16. Diamond Business Park, Wakefield Industrial <5.0
17. Excel 95, Deeside Industrial Wales <5.0
18. Cranbourne House, Basingstoke Industrial South East <5.0
19. Oak Park, Droitwich Industrial West Midlands <5.0
20. Pearl Assurance House, Nottingham Standard Retail East Midlands <5.0
Yorkshire and Humberside
21. Brightside Lane, Sheffield Industrial <5.0
22. Above Bar Street, Southampton Standard Retail South East <5.0
23. Commercial Road, Portsmouth Standard Retail South East <5.0
24. Cedar House, Gloucester Offices South West <5.0
Yorkshire and Humberside
25. Magham Road, Rotherham Industrial <5.0
26. Odeon Cinema, Southend Leisure Eastern <5.0
27. Pipps Hill Industrial Estate, Basildon Industrial Eastern <5.0
28. Bank Hey Street, Blackpool Standard Retail North West <5.0
29. Eagle Road, Redditch Industrial West Midlands <5.0
30. Clarke Road, Milton Keynes Industrial South East <5.0
Yorkshire and Humberside
31. Knowles Lane, Bradford Industrial <5.0
32. Vantage Point, Hemel Hempstead Offices Eastern <5.0
33. Moorside Road, Salford Industrial North West <5.0
Yorkshire and Humberside
34. Fargate and Chapel Walk, Sheffield Standard Retail <5.0
Top 10 Tenants as at 31 March 2021
% of
Portfolio
Passing Total
Rental Passing
Income Rental
Tenant Sector Property (£'000) Income
1. Plastipak UK Limited Industrial Gresford Industrial Estate, Wrexham 883 5.7
2. Ardagh Glass Limited Industrial Langthwaite Industrial Estate, South Kirkby 763 4.9
3. Wyndeham Peterborough Limited Storeys Bar Road, Peterborough 644 4.2
Industrial
4. Mecca Bingo Limited Leisure London East Leisure Park, Dagenham 625 4.0
5. Harrogate Spring Water Industrial 603 3.9
Lockwood Court, Leeds
Leisure 535 3.5
6. Odeon Cinemas Odeon Cinema, Southend
Barnstaple Retail Park and Bank Hey Street,
Retail Blackpool 525 3.4
7. Sports Direct
Egbert H Taylor & Co Ltd Industrial Oak Park, Droitwich 500 3.2
8.
Advance Supply Chain (BFD) Ltd Euroway Trading Estate, Bradford 467 3.0
9. Industrial
10. HFC Prestige Manufacturing Industrial Cranbourne House, Basingstoke 460 3.0
The Company's top 10 tenants, listed above, represent 38.8% of the total passing rental income of the
portfolio.
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 2021 31 March 2020
Commitment Gross Commitment
Leverage Exposure Gross Method
Method Method Method
Maximum Limit 140% 140% 140% 140%
Actual 114% 125% 128% 135%
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. incentivising staff performance over long periods of time;
5. awarding 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 2020.
Year ended
31 December 2020
Total remuneration paid to employees during financial year:
a) remuneration, including, where relevant, any carried interest paid by the AIFM £2,893,979
b) the number of beneficiaries 25
The aggregate amount of remuneration of the AIFM Remuneration Code staff, broken down by:
a) senior management £767,350
b) members of staff £2,126,629
Fixed Variable Total
remuneration remuneration remuneration
Senior management £677,350 £90,000 £767,350
Staff £1,590,629 £536,000 £2,126,629
Total £2,267,979 £626,000 £2,893,979
Fixed remuneration comprises basic salaries and variable remuneration comprises bonuses.
AEW UK Investment Management LLP
23 June 2021
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.
At least twice a year, the Board undertakes a formal 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 and emerging 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. The risks below do 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, inter
alia, (i) cause the Company to realise its The Company has investment Probability: Moderate
investments at lower valuations; and (ii) delay restrictions in place to invest and to High
the timings of the Company's realisations. These manage its assets with the objective
risks could have a material adverse effect on the of spreading and mitigating risk. Impact: High
ability of the Company to achieve its investment
objective. Movement: Decrease
2. Property valuation
Property and property-related assets are
inherently difficult to value due to the
individual nature of each property. The Company uses an independent
external valuer (Knight Frank LLP) Probability: Moderate
to value the properties at fair
value in accordance with accepted Impact: Low to
There may be an adverse effect on the Company's RICS appraisal and valuation Moderate
profitability, the NAV and the price of Ordinary standards.
Shares in cases where properties are sold whose Movement: Decrease
valuations have previously been materially
overstated.
Comprehensive due diligence is
undertaken on all new tenants.
Tenant covenant checks are carried
3. Tenant default out on all new tenants where a
default would have a significant
Failure by tenants to fulfil their rental impact. Probability: High
obligations could affect the income that the Impact: High
properties earn and the ability of the Company to
pay dividends to its shareholders. Asset management team conducts Movement: Decrease
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 management Probability: Low to
refurbishment works, may prove to be more initiatives are closely monitored Moderate
extensive, expensive and take longer than against budgets and reviewed in
anticipated. Cost overruns may have a material regular presentations to the Impact: Low to
adverse effect on the Company's profitability, Investment Management Committee of Moderate
the NAV and the share price. the Investment Manager.
Movement: No change
5. Due diligence
Due diligence may not identify all the risks and The Company's due diligence relies
liabilities in respect of an acquisition on work (such as legal reports on
(including any environmental, structural or title, property valuations, Probability: Low
operational defects) that may lead to a material environmental and building surveys)
adverse effect on the Company's profitability, outsourced to third parties who have Impact: Moderate
the NAV and the price of the Company's Ordinary expertise in their areas. Such third
Shares. parties have professional indemnity Movement: No change
cover in place.
6. Fall in rental rates
The Company builds a diversified
Rental rates may be adversely affected by general property and tenant base with
UK economic conditions and other factors that subsequent monitoring of
depress rental rates, including local factors concentration to individual
relating to particular properties/locations (such occupiers (top 10 tenants) and
as increased competition). sectors (geographical and sector Probability: Moderate
exposure). to High
Impact: Moderate to
Any fall in the rental rates for the Company's High
properties may have a material adverse effect on The Investment Manager holds
the Company's profitability, the NAV, the price quarterly meetings with its Movement: No change
of the Ordinary Shares and the Company's ability Investment Strategy Committee and
to meet interest and capital repayments on any regularly meets the Board of
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 forecasting
Material adverse changes in valuations and net and quarterly risk monitoring to Impact: High
income may lead to breaches in the LTV and monitor financial covenants.
interest cover ratio covenants. Movement: Decrease
The Company uses interest caps on a
8. Interest rate rises (short term) significant notional value of the
loan to mitigate the adverse impact
The Company's borrowings through a term credit of possible interest rate rises.
facility are subject to interest rate risk Probability: Low to
through changing LIBOR rates. Any increases in Moderate
LIBOR rates may have an adverse effect on the
Company's ability to pay dividends. The Investment Manager and Board of Impact: Low
Directors monitor the level of
hedging and interest rate movements Movement: No change
to ensure that the risk is managed
appropriately.
The Company uses interest rate caps
on a significant notional value of
9. Interest rate rises (long term) the loan to mitigate the adverse
impact of possible interest rate
The Company's borrowings through a term credit rises. Probability: High
facility are subject to interest rate risk
through changing LIBOR rates. Any increases in Impact: Low to
LIBOR rates may have an adverse effect on the Moderate
Company's ability to pay dividends. The Investment Manager and Board of
Directors monitor the level of Movement: No change
hedging and interest rate movements
to ensure that the risk is managed
appropriately.
10. Availability and cost of debt The Company maintains a good
relationship with the bank providing
The term credit facility expires in October 2023. the term credit facility. Probability: Low to
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 the Impact: High
financing costs of the facility on renewal would The Company monitors the projected
adversely impact on the Company's profitability. usage and covenants of the credit Movement: No change
facility on a quarterly basis.
CORPORATE RISKS
11. 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 monitored via Probability: Moderate
regular calls and face-to-face to High
Failure by any service provider to carry out its meetings and the use of key
obligations to the Company in accordance with the performance indicators, where Impact: Moderate
terms of its appointment could have a materially relevant.
detrimental impact on the operation of the Movement: No change
Company.
12. Dependence on the Investment Manager
The Investment Manager is responsible for
providing investment management services to the
Company.
The Investment Manager has Probability: Moderate
endeavoured to ensure that the Impact: Moderate to
The future ability of the Company to successfully principal members of its management High
pursue its investment objective and investment team are suitably incentivised.
policy may, among other things, depend on the Movement: No change
ability of the Investment Manager to retain its
existing staff and/or to recruit individuals of
similar experience and calibre.
13. Ability to meet objectives
The Company may not meet its investment objective
to deliver an attractive total return to The Company has an investment policy
shareholders from investing predominantly in a to achieve a balanced portfolio with
portfolio of smaller commercial properties in the a diversified asset and tenant base.
United Kingdom. The Company also has investment Probability: High
restrictions in place to limit
exposure to potential risk factors. Impact: High
These factors mitigate the risk of
Poor relative total return performance may lead fluctuations in returns. Movement: No change
to an adverse reputational impact that affects
the Company's ability to raise new capital.
TAXATION RISKS
14. 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
If the Company fails to remain a REIT for UK tax acquisitions; the Administrator on
purposes, its profits and gains will be subject asset and distribution levels; the Probability: Low
to UK corporation tax. Registrar and Broker on
shareholdings and the use of Impact: High
third-party tax advisers to monitor
REIT compliance requirements. Movement: No change
Any change to the tax status or UK tax
legislation could impact on the Company's ability
to achieve its investment objectives and provide
attractive returns to shareholders.
POLITICAL/ECONOMIC RISKS
15. General political/economic environment The Board considers the impact of
political and macroeconomic events
Political and macroeconomic events present risks when reviewing strategy.
to the real estate and financial markets that
affect the Company and the business of its Probability: High
tenants. The level of uncertainty that such
events bring has been highlighted in recent The UK's exit from the EU is not Impact: High
times, most pertinently the effects of the UK's considered to generate any risks
exit from the EU in January 2021. specific to the Company and is not Movement: No change
considered to have any material
effect on the financial statements.
16. COVID-19 The Manager is in close contact with
tenants. The Investment Manager has
The economic disruption arising from the COVID-19 put in place social distancing Probability: High
virus could impact rental income receipts from measures as advised by the UK
tenants, the ability to access funding at government. The Manager has Impact: High
competitive rates, maintain the Company's maintained a close relationship with
dividend policy and its adherence to the HMRC RBSi to ensure continuing dialogue Movement: Decreasing
REIT regime, particularly if the UK government around covenants.
restrictions are in place for a prolonged 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
Investors returns
- AGM, Annual Report,
Our shareholders are impacted directly by the - Good relationship with the regulatory announcements
financial performance of the Company Company and Board
through dividends and share price movements.
- Quarterly update report and
- Effective structure and other key information
control Framework published on the website
They also play an important role in monitoring
the governance of the Company.
- Impact of the Company on - Roadshows, meetings and
the wider community and presentations via the
environment Investment Manager
- Reputation of the Company
Service providers
- Relationship with the
Company and Board
Key functions of the Company are outsourced to - Effective and regular
third-party suppliers, including investment communication
management, property management, administration,
company secretarial, registrar, depositary and - Fair contract terms and
legal services. It is important to develop service-level agreements
strong long-term working relationships with - Service-level agreements
these providers to enhance the efficiency of the
Company's operations, as well as that of the
providers themselves. - Reputation of the Company
- Formal tender processes
where appropriate
- The Company's performance
and long-terms prospects
- Good communication and
relationship with the Company
Tenants as landlord - Site visits and face to
face meetings through the
Investment Manager
The Company's strategy in relation to its - Fair lease terms
individual assets will directly affect the
tenants in occupation of those assets. - Formal negotiations
- Long term strategy for the
asset in line with the
objectives of the tenant's - Ongoing communication
activities through the property manager
The wider community and environment - Impact of properties and
their business plans on the - Publishing of
local economy Sustainability Disclosure
Report and Greenhouse Gas
The Company's physical real estate assets have a Emissions Statement
direct impact on their local communities
depending on their primary use and on the - Impact of properties on the
environment through their emissions and energy attractiveness and appeal of
usage. the local area - GRESB reporting
- Energy efficiency and - Communication with local
greenhouse gas emissions authorities via Investment
Manager
Principal decisions made by the Board
The principal decisions made by the Board during the year are summarised below.
The Board sought approval from shareholders for an amendment to the
Company's investment policy, increasing the single sector limit from 50%
Amendment to Investment Policy to 60% of GAV, to enable the Company to acquire further assets in the
industrial/warehouse sector should attractive opportunities arise.
In accordance with the Company's Articles of Association, the Board
considered continuation of the Company to be in the best interests of
shareholders as a whole. The Company's strong portfolio of high-yielding
Continuation vote assets, which have outperformed the Benchmark for the current year, has
enabled the Company to consistently meet its dividend target, and
deliver total returns to shareholders towards the top of its peer group.
The Board is committed to delivering on its target of paying dividends
of 8.00 pps per annum, continuing the Company's track record in paying
Dividends dividends at this level.
The Board approved a share buyback programme utilising cash available
for this purpose. Details of shares bought back during the year can be
Share buybacks found in the Directors' Report in the full Annual Report and Financial
Statements.
The Board has continued its focus on responsible business practices.
More details can be found in the Directors' Report in the full Annual
Report and Financial Statements.
Continued focus on sustainability
impact and GRESB score
The Investment Manager meets regularly with its ESG consultant, Evora,
to consider initiatives to improve the Company's Global Real Estate
Sustainability Benchmark ("GRESB") score.
Following completion of a competitive tender process, the Board made the
decision to appoint BDO LLP as Auditor of the Company for the year
Appointment of new Auditor ending 31 March 2022 and for the period ending 30 September 2021.
The Board is responsible for the ongoing review of investment activity
and performance and the control and supervision of the Investment
Manager. During the year, the following key investment activities were
approved by the Board:
• the disposal of 2 Geddington Road, Corby;
• the amendment to the Company's loan facility to allow drawdown and
subsequent repayment without penalty, akin to a revolving credit
facility;
Oversight of Investment Manager and
Review of Investment Activities
• the acquisition of Westlands Distribution Park, Weston-super-Mare;
• the disposal of Sandford House, Solihull; and
• litigation strategy regarding tenants' arrears.
Further details of the property transactions can be found in the
'Property Portfolio' section of the Investment Manager's Report.
Approval
The Strategic Report has been approved and signed on behalf of the Board by:
Mark Burton
Chairman
23 June 2021
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 caused by the COVID-19 pandemic, as well as the Company's cash flows,
financial position, liquidity and borrowing facilities.
As at 31 March 2021, the Company had a cash balance of £17.45 million and has subsequently acquired two
properties, Arrow Point Retail Park, Shrewsbury, for a gross purchase price of £8.35 million and 15-33 Union
Street, Bristol, for a gross purchase price of £10.19 million. The Company has also subsequently drawn
£11.00 million of its loan facility.
The Company had sufficient headroom against its borrowing covenants when last reported in April 2020. The
Company reported a Loan to NAV of 25.15%, so had room for a £69.17 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 £15.96 million fall in NAV
i.e. a total fall of £85.13 million. The Company also passed its most recent interest cover ratio ('ICR')
tests in April 2021, reporting more than double the cover required on both a historical and projected basis.
The Company benefits from a secure, diversified income stream from a tenancy profile which is not overly
reliant on any one tenant or sector. The Company has now collected over 90% of rents for each collection
quarter since the onset of the COVID-19 pandemic.
Taking this into consideration, the Directors have reviewed a number of scenarios over 12 months from the
date of approval of these financial statements, including a worst case plausible downside scenario which
makes the following assumptions:
• failure of 30-35% of tenants (by passing rent);
• collection of 75-80% of remaining rents, with remaining collection deferred for two quarters;
• no new lettings or renewals, other than those where terms have already been agreed;
• a 10% fall in valuations; and
• no new acquisitions or disposals other than those which have completed since the year end (Arrow Point
Retail Park, Shrewsbury, and 15-33 Union Street, Bristol, as above).
In the above scenario, the Company is forecast to generate a positive cash flow before dividend payments,
however it would generate a cash flow much lower than its target dividend of 8 pps per annum. If no further
drawdowns of the loan facility were made, the Company would maintain a gearing of 37% throughout the
forecast period, meaning a headroom of over £43 million up to the 55% covenant with the option exercised.
The Company's cash could be managed through the reduction and/or suspension of dividend payments, which
would allow the existing cash resources of c. £7 million at the date of approval of the financial statements
to be maintained.
In the above scenario, the Company is forecast to pass its ICR tests during the 12 month forecast period
with a minimum cover of 7.6:1, compared with the lower limit of 5:1. assuming that no drawdowns or
repayments of the facility were to be made. 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 liquid assets
which could be realised quickly at, or close to, valuation. The Company could then continue to operate
un-geared until it was able to refinance.
Given the Company's substantial 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 Directors are confident that the Company will have sufficient funds to meet its liabilities as they
fall due for at least 12 months from the date of approval of the financial statements and therefore the
financial statements have been prepared on a going concern basis.
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 2026 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 2.6 years, meaning that financing
is secure for the majority of the period under consideration;
• the Company's property portfolio has a WAULT of 6.71 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; and
• 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 18 to the financial
statements.
Financial Risk Management
The financial risk management objectives and policies can be found in note 21 to the financial statements.
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 2021 can be found in note 23 to the financial
statements.
Post Balance Sheet Events
Post balance sheet events can be found in note 25 to the financial statements.
The Directors' Report has been approved by the Board of Directors and signed on its behalf by:
Mark Burton
Chairman
23 June 2021
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 have elected to prepare the financial statements in accordance with international accounting standards
in conformity with the requirements of the Companies Act 2006/UK-adopted international accounting standards
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 international accounting standards in
conformity with the requirements of the Companies Act 2006/UK-adopted international accounting
standards;
• 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 Directors' 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 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
23 June 2021
Non-statutory Accounts
The financial information set out below does not constitute the Company's statutory accounts for the year
ended 31 March 2021 but is derived from those accounts. Statutory accounts for the year ended 31 March 2021
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 2021
Year ended Year ended
31 March 31 March
Notes
2021 2020
£'000 £'000
Income
Rental and other income 3 17,491 17,790
Property operating expenses 4 (3,754) (1,324)
Impairment loss on trade receivables (944) (2)
Net rental and other income 12,793 16,464
Other operating expenses 5 (1,958) (1,877)
Directors' remuneration 6 (100) (115)
Operating profit before fair value changes 10,735 14,472
Change in fair value of investment properties 11 5,324 (9,444)
Realised gain on disposal of investment properties 11 7,043 44
Operating profit 23,102 5,072
Finance expense 7 (930) (1,420)
Profit before tax 22,172 3,652
Taxation 8 - -
Profit after tax 22,172 3,652
Other comprehensive income - -
Total comprehensive income for the year 22,172 3,652
Earnings per share (pps) (basic and diluted) 9 13.98 2.40
The notes below form an integral part of these financial statements.
Statement of Changes in Equity
for the year ended 31 March 2021
Capital Total capital
Share reserve and reserves
For the year ended Share capital premium and attributable to
Notes
31 March 2021 £'000 account retained owners of the
£'000 earnings* Company
£'000 £'000
Buyback reserve
£'000
Balance at 1 April 2020 1,587 56,578 89,698 - 147,863
Total comprehensive income - - 22,172 - 22,172
Ordinary Shares bought back 19 - - - (263) (263)
Share buyback costs 19 - - - (2) (2)
Dividends paid 10 - - (12,691) - (12,691)
Balance at 31 March 2021 1,587 56,578 99,179 (265) 157,079
Capital Total capital
Share reserve and reserves
For the year ended Share capital premium and attributable to
Notes
31 March 2020 £'000 account retained owners of the
£'000 earnings* Buyback reserve Company
£'000 £'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 19/20 72 6,928 - - 7,000
Share issue costs 20 - (120) - - (120)
Dividends paid 10 - - (12,125) - (12,125)
Balance at 31 March 2020 1,587 56,578 89,698 - 147,863
* 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 2021
31 March 2021 31 March 2020
Notes
£'000 £'000
Assets
Non-Current Assets
Investment property 11 169,092 187,042
169,092 187,042
Current Assets
Investment property held for sale 11 7,251 -
Receivables and prepayments 12 6,977 7,351
Cash and cash equivalents 17,450 9,873
Other financial assets held at fair value 13 61 14
31,739 17,238
Non-Current Liabilities
Interest bearing loans and borrowings 14 (39,131) (51,047)
Lease obligations 16 (635) (635)
(39,766) (51,682)
Current Liabilities
Payables and accrued expenses 15 (3,938) (4,687)
Lease obligations 16 (48) (48)
(3,986) (4,735)
Total Liabilities (43,752) (56,417)
Net Assets 157,079 147,863
Equity
Share capital 19 1,587 1,587
Buyback reserve 19 (265) -
Share premium account 20 56,578 56,578
Capital reserve and retained earnings 99,179 89,698
Total capital and reserves attributable to equity holders 157,079 147,863
Net Asset Value per share (pps) 9 99.15 93.13
EPRA Net Tangible Assets per share (pps) 9 99.11 93.12
The financial statements were approved by the Board on 23 June 2021 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 2021
Year ended Year ended
31 March 2021 31 March 2020
£'000 £'000
Cash flows from operating activities
Profit before tax 22,172 3,652
Adjustment for non-cash items:
Finance expenses 930 1,420
(Gain)/loss from change in fair value of investment property (5,324) 9,444
Realised gain on disposal of investment properties (7,043) (44)
Decrease/(increase) in other receivables and prepayments 374 (2,882)
(Decrease)/increase in other payables and accrued expenses (647) 1,424
Net cash flow generated from operating activities 10,462 13,014
Cash flows from investing activities
Purchase of and additions to investment properties (5,983) (358)
Disposal of investment properties 29,049 44
Net cash used in investing activities 23,066 (314)
Cash flows from financing activities
Proceeds from issue of Ordinary Share capital - 7,000
Share buyback cash paid (263) -
Share issue costs - (120)
Share buyback costs (2) -
Loan (repayment)/drawdown (12,000) 1,500
Arrangement loan facility fee paid (13) (39)
Premium for interest rate caps (63) -
Finance costs (919) (1,174)
Dividends paid (12,691) (12,125)
Net cash used in financing activities (25,951) (4,958)
Net increase in cash and cash equivalents 7,577 7,742
Cash and cash equivalents at start of the year 9,873 2,131
Cash and cash equivalents at end of the year 17,450 9,873
The notes below form an integral part of these financial statements.
Notes to the Financial Statements
for the year ended 31 March 2021
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 international
accounting standards in conformity with the requirements of the Companies Act 2006 ('Adopted IFRSs').
Following Brexit, the Company is required to use the UK adopted international accounting standards for
financial years beginning after the 1 January 2021. These standards were identical as of the 1 January 2021
and for the remainder of the accounting period.
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 Company has considered and applied the following new standards and amendments to existing
standards which are required for the accounting period beginning on 1 April 2020:
• Amendments to IFRS 16 COVID-19 Related Rent Concessions, the amendments provide relief to lessees from
applying IFRS 16 guidance on lease modification accounting for rent concessions arising as a direct
consequence of the COVID-19 pandemic. The Company has not received any concessions for its ground rent
costs and therefore accounting treatment has not been affected.
The following standards and amendments have been considered, but have had no impact on the Company for the
reporting period:
• Amendments to IFRS 3: Definition of a Business, the amendment to IFRS 3 Business Combinations clarifies
that to be considered a business, an integrated set of activities and assets must include, at a minimum,
an input and a substantive process that, together, significantly contribute to the ability to create
output. Furthermore, it clarifies that a business can exist without including all the inputs and
processes needed to create outputs.
• Amendments to IAS 1 and IAS 8 Definition of Material, the amendments provide a new definition of
material, the amendments clarify that materiality will depend on the nature or magnitude of information,
either individually or in combination with other information, in the context of the financial
statements. A misstatement of information is material if it could reasonably be expected to influence
decisions made by the primary users.
• Revised Conceptual Framework for Financial Reporting, the Conceptual Framework is not a standard, and
none of the concepts contained therein override the concepts or requirements in any standard. The
revised Conceptual Framework includes some new concepts, updated definitions and recognition criteria
for assets and liabilities and clarifies some important concepts.
There are a number of new standards and amendments to existing standards which have been published and are
mandatory for the Company's accounting periods beginning on or after 1 April 2021 or later. The Company is
not adopting these standards early. The following are the most relevant to the Company:
• Interest Rate Benchmark Reform - Phase 2 (Amendments to various standards: IFRS 9 'Financial
Instruments', IAS 39 'Financial Instruments; Recognition and Measurement', IFRS 7 'Financial
Instruments: Disclosures', IFRS 4 'Insurance Contracts' and IFRS 16 'Leases')
• Amendments to IAS 1 'Presentation of Financial Statements (effective 1 January 2022)
• Amendments to IFRS 3 'Business Combinations' (effective 1 January 2022)
The Company does not expect the adoption of the 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 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.
Details of the considerations made in respect of the estimation are further detailed in note 11.
2.3 Segmental information
In accordance with IFRS 8, the Company considers each of its properties to be an individual operating
segment, which are aggregated into one reporting 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 caused by the COVID-19 pandemic, as well as the Company's cash flows,
financial position, liquidity and borrowing facilities.
As at 31 March 2021, the Company had a cash balance of £17.45 million and has subsequently acquired two
properties, Arrow Point Retail Park, Shrewsbury, for a gross purchase price of £8.35 million and 15-33 Union
Street, Bristol, for a gross purchase price of £10.19 million. The Company has also subsequently drawn
£11.00 million of its loan facility.
The Company had sufficient headroom against its borrowing covenants when last reported in April 2020. The
Company reported a Loan to NAV of 25.15%, so had room for a £69.17 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 £15.96 million fall in NAV
i.e. a total fall of £85.13 million. The Company also passed its most recent interest cover ratio ('ICR')
tests in April 2021, reporting more than double the cover required on both a historical and projected basis.
The Company benefits from a secure, diversified income stream from a tenancy profile which is not overly
reliant on any one tenant or sector. The Company has now collected over 90% of rents for each collection
quarter since the onset of the COVID-19 pandemic.
Taking this into consideration, the Directors have reviewed a number of scenarios over 12 months from the
date of approval of these financial statements, including a worst case plausible downside scenario which
makes the following assumptions:
• failure of 30-35% of tenants (by passing rent);
• collection of 75-80% of remaining rents, with remaining collection deferred for two quarters;
• no new lettings or renewals, other than those where terms have already been agreed;
• a 10% fall in valuations; and
• no new acquisitions or disposals other than those which have completed since the year end (Arrow Point
Retail Park, Shrewsbury, and 15-33 Union Street, Bristol, as above).
In the above scenario, the Company is forecast to generate a positive cash flow before dividend payments,
however would generate a cash flow much lower than its target dividend of 8 pps per annum. If no further
drawdowns of the loan facility were made, the Company would maintain a gearing of 37% throughout the
forecast period, meaning a headroom of over £43 million up to the 55% covenant with the option exercised.
The Company's cash could be managed through the reduction and/or suspension of dividend payments, which
would allow the existing cash resources of c. £7 million at the date of approval of the financial statements
to be maintained.
In the above scenario, the Company is forecast to pass its ICR tests during the 12 month forecast period
with a minimum cover of 7.6:1, compared with the lower limit of 5:1. assuming that no drawdowns or
repayments of the facility were to be made. 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 liquid assets
which could be realised quickly at, or close to, valuation. The Company could then continue to operate
un-geared until it was able to refinance.
Given the Company's substantial 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 Directors are confident that the Company will have sufficient funds to meet its liabilities as they
fall due for at least 12 months from the date of the approval of the financial statements have been prepared
on a going concern basis.
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 lease term.
Lease incentives, including rent free periods and payment to tenants, are also allocated to the Statement of
Comprehensive Income on a straight-line basis over the lease term. The value of resulting accrued rental
income is deducted from the valuation as provided by the valuer to arrive at the carrying value.
A modification to an operating lease in the form of a new lease incentive is accounted for as a new lease
from the effective date of the modification. Any lease incentive existing on a modified lease will then be
spread evenly over the new remaining life of the lease.
Contingent rental income is calculated based off actual turnover and is recognised when it is raised.
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.
Service charge income receivable under operating leases is charged based on budgeted service charge
expenditure for a given property over a given service charge year. This income is recognised on a
straight-line basis over the service charge year and any balance credits or charges on reconciliation
following the end of the service charge year are recognised at the time they arise.
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 in 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, environmental 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 18.
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 2021, audited EPS and NAV calculations under EPRA's methodology
are included in note 9 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.
Buyback reserve
Buyback reserve represents the cost of the Company's Ordinary Shares reacquired by the Company.
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 £5.44 million (31 March 2020: £10.76 million).
3. Revenue
Year ended Year ended
31 March 2021 31 March 2020
£'000 £'000
Rental income 15,714 17,418
Service charge income 1,535* -
Dilapidation income received 197 372
Lease surrender income 45 -
Total revenue 17,491 17,790
*For the current year, service charge income has been presented gross to reflect the Company's role as
principal in its agreements with tenants whereas in comparative years they have been presented net. The
gross service charge income for the year ended 31 March 2020 was £1.82 million. The difference in
presentation is considered to be immaterial and has no impact on profit.
4. Property operating expenses
Year ended Year ended
31 March 2021 31 March 2020
£'000 £'000
Recoverable service charge expense 1,5351 -
Non-recoverable service charge expense 1,1662 436
Other property operating expenses 1,053 888
Total property operating expenses 3,754 1,324
1 For the current year, recoverable service charge expenditure has been presented gross to reflect the
Company's role as principal in its agreements with tenants whereas in comparative years they have been
presented net. The gross service charge expenditure for the year ended 31 March 2020 was £1.82 million. The
difference in presentation is considered to be immaterial and has no impact on profit.
2 Of the c. £1,166,000 non-recoverable service charge expenditure, c. £768,000 relates to Bank Hey Street,
Blackpool which includes costs relating to the remedial works as detailed in the Investment Manager's
Report.
5. Other operating expenses
Year ended Year ended
31 March 2021 31 March 2020
£'000 £'000
Investment management fee 1,229 1,308
Operating costs 594 463
Auditor remuneration 135 106
Total other operating expenses 1,958 1,877
Year ended Year ended
31 March 2021 31 March 2020
£'000 £'000
Audit
Statutory audit of Annual Report and Financial Statements 110 82
110 82
Non-audit
ISRE 2410 review (interim review fee) 25 24
25 24
Total fees paid to KPMG LLP 135 106
Percentage of total fees attributed to non-audit services 19% 23%
6. Directors' remuneration
Year ended Year ended
31 March 2021 31 March 2020
£'000 £'000
Directors' fees 95 107
Tax and social security 5 8
Total remuneration 100 115
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.
7. Finance expenses
Year ended Year ended
31 March 2021 31 March 2020
£'000 £'000
Interest payable on loan borrowings 722 1,108
Amortisation of loan arrangement fee 97 110
Commitment fees payable on loan borrowings 95 54
914 1,272
Charge in fair value of interest rate derivatives 16 148
Total 930 1,420
8. Taxation
Year ended Year ended
31 March 2021 31 March 2020
£'000 £'000
Tax charge reconciliation:
Analysis of tax charge in the year
Profit before tax 22,172 3,652
Theoretical tax at UK corporation tax standard rate of 19% (2020: 19.00%)1 694
4,213
Adjusted for:
Exempt REIT income (1,863) (2,488)
Non-taxable investment profit (2,350) 1,786
Unrealised management expenses not recognised - 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 by the Chancellor in
the 2021 budget the tax rate will increase to 25% from April 2023.
9. Earnings per share and NAV per share
Year ended Year ended
31 March 2021 31 March 2020
Earnings per share:
Total comprehensive income (£'000) 22,172 3,652
Weighted average number of shares 158,620,910 152,208,919
Earnings per share (basic and diluted) (pence) 13.98 2.40
EPRA earnings per share:
Total comprehensive income (£'000) 22,172 3,652
Adjustment to total comprehensive income:
Change in fair value of investment properties (£'000) (5,324) 9,444
Realised gain on disposal of investment properties (£'000) (7,043) (44)
Change in fair value of interest rate derivatives (£'000) 16 148
Total EPRA Earnings (£'000) 9,821 13,200
EPRA earnings per share (basic and diluted) (pence) 6.19 8.67
Net assets (£'000) 157,079 147,863
Ordinary Shares in issue 158,424,746 158,774,746
NAV per share (pence) 99.15 93.13
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 year.
Current measures Previous measures
EPRA EPRA EPRA EPRA EPRA
NTA NRV NDV NAV NNNAV
As at 31 March 2021
£'000 £'000 £'000 £'000 £'000
IFRS NAV attributable to shareholders 157,079 157,079 157,079 157,709 157,709
Mark-to-market adjustment of derivatives (61) (61) - (61) -
Real estate transfer tax and other - 11,814 - - -
purchasers' costs1
At 31 March 2021 157,018 168,832 157,079 157,018 157,079
Number of Ordinary Shares 158,424,746 158,424,746 158,424,746 158,424,746 158,424,746
NAV per share 99.11p 106.57p 99.15p 99.11p 99.15p
Current measures Previous measures
EPRA EPRA EPRA EPRA EPRA
NTA NRV NDV NAV NNNAV
As at 31 March 2020
£'000 £'000 £'000 £'000 £'000
IFRS NAV attributable to shareholders 147,863 147,863 147,863 147,863 147,863
Mark-to-market adjustment of derivatives (14) (14) - (14) -
Real estate transfer tax and other - 12,494 - - -
purchasers' costs1
At 31 March 2020 147,849 160,343 147,863 147,849 147,863
Number of Ordinary Shares 158,774,746 158,774,746 158,774,746 158,774,746 158,774,746
NAV per share 93.12p 100.99p 93.13p 93.12p 93.13p
1 EPRA Net Tangible Assets ('EPRA NTA') and EPRA Net Disposal Value ('EPRA NDV') are calculated using
property values in line with IFRS, where values are net of Real Estate Transfer Tax ('RETT') and other
purchasers' costs. RETT and other purchasers' costs are added back when calculating EPRA Net Reinstatement
Value ('EPRA NRV') and have been estimated at 6.6% of the net valuation provided by Knight Frank.
10. Dividends paid
Year ended Year ended
31 March 2021 31 March 2020
Dividends paid during the year £'000 £'000
Represents four interim dividends of 2.00 pps each 12,691 12,125
Year ended Year ended
Dividends relating to the year 31 March 2021 31 March 2020
£'000 £'000
Represents four interim dividends of 2.00 pps each 12,684 12,269
Dividends paid during the year relate to Ordinary Shares only.
11. Investments
11.a) Investment property
31 March 2021
Investment Investment 31 March
property property Total 2020
freehold leasehold £'000 Total
£'000 £'000 £'000
UK investment property
As at beginning of the year 147,400 41,900 189,300 197,605
Purchases and capital expenditure in the year 5,977 6 5,983 358
Disposals in the year - (22,006) (22,006) -
Revaluation of investment properties 7,373 (1,650) 5,723 (8,663)
Valuation provided by Knight Frank 160,750 18,250 179,000 189,300
Adjustment to carrying value for lease incentive debtor (3,340) (2,941)
Adjustment for lease obligations* 683 683
Total investment property 176,343 187,042
Classified as:
Investment property held for sale# 7,251 -
Investment property 169,092 187,042
176,343 187,042
Change in fair value of investment property
Change in fair value before adjustments for lease incentives 5,723 (8,663)
Adjustment for movement in the year:
in value of lease incentive debtor (399) (781)
5,324 (9,444)
Gains realised on disposal of investment property
Net proceeds from disposals of investment property during 29,049 44
the year
Fair value at beginning of period (22,006) -
(7,043) 44
* Adjustment in respect of minimum payment under head leases separately included as a liability within the
Statement of Financial Position.
# 225 Bath Street, Glasgow, has been classified as held-for-sale as contracts to sell the property were
exchanged in October 2020 and it is expected that the transaction will be completed within the next 12
months.
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.
11.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 2021
- -
Investment property 176,343 176,343
31 March 2020
- - 187,042 187,042
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 2021
ERV £0.50 - £75.00
Investment property* 179,000 Income capitalisation
Equivalent yield 5.76% - 10.37%
31 March 2020
ERV £0.50 - £105.00
Investment Property* 189,300 Income capitalisation
Equivalent yield 5.71% - 10.54%
* 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.
Change in ERV Change in equivalent yield
£'000 £'000 £'000 £'000
Sensitivity analysis +5% -5% +5% -5%
31 March 2021
Resulting fair value of investment property
183,818 168,394 170,487 187,847
31 March 2020
197,146 180,075 179,906 199,956
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 2021
Resulting fair value of investment property
191,699 160,864 162,986 197,965
31 March 2020
205,933 171,723 171,241 211,640
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 2021
Resulting fair value of investment property
199,642 153,345 156,136 209,264
31 March 2020
214,777 163,364 163,327 224,687
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.
12. Receivables and prepayments
31 March 2021 31 March 2020
£'000 £'000
Receivables
Rent debtor 3,252 2,579
Allowance for expected credit losses (995) (190)
Rent agent float account 724 1,486
Other receivables 627 115
Dilapidations receivable - 372
3,608 4,362
Lease incentive debtor 3,340 2,941
6,948 7,303
Prepayments
Property related prepayments 4 16
Other prepayments 25 32
29 48
Total 6,977 7,351
The aged debtor analysis of receivables is as follows:
31 March 2021 31 March 2020
£'000 £'000
Less than three months 3,416 4,317
Between three and six months 192 45
Between six and twelve months - -
Total 3,608 4,362
Expected credit losses have been assessed on receivables balances on an individual tenant-by-tenant basis.
The risk of credit loss applied to each tenant is assessed based on information including, but not limited
to: external credit ratings; financial statements; press information; previous experience of losses or late
payment; discussions with the property manager and the tenant.
This assessment identified a number of receivables balances due from tenants known to be in financial
difficulty or having already entered into a Company Voluntary Arrangement ('CVA') or administration. In
these instances, a provision against the full balance of the receivable has been applied.
The assessment also identified receivables balances subject to dispute by tenants who are financially stable
but unwilling to pay. The recoverability of these balances was subject to a decision by the Court, and as
such, an assessment of the probability of a positive decision was made, and an appropriate provision rate
was applied against these balances and other receivables balances which would have also been subject to
application of the Court ruling. Post year-end, the Court ruled in favour of the Company and these balances
were recovered in full.
The below table presents the exposure to these classes of identified credit risk and the associated
provision made against the receivables balances:
Provision Provision
Rate
Receivables £'000 31 March 2021 31 March 2020
%
£'000 £'000
Identified financial difficulties 415 100 415 190
Subject to Court ruling 972 60 580 -
No identified financial difficulties 6,556 - -
-
Total 7,943 - 995 190
The movement in the allowance for impairment in respect of trade receivables during the year was as follows:
31 March 2021 31 March 2020
£'000 £'000
At the beginning of the year 190 39
Remeasurement of loss allowance 805 151
At the end of the year 995 4,362
13. Interest rate derivatives
31 March 2021 31 March 2020
£'000 £'000
At the beginning of the year 14 162
Interest rate cap premium paid 63 -
Changes in fair value of interest rate derivatives (16) (148)
At the end of the year 61 14
The Company is protected from a significant rise in interest rates as it currently has interest rate caps in
effect which cap the interest rate at 1.00% on a notional value of £51.50 million. As a result, the loan was
130% hedged as at 31 March 2021 (31 March 2020: 71%).
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 date £'000
31 March 2021 - 61 - 61
31 March 2020 - 14 - 14
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 year, 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.
14. Interest bearing loans and borrowings
31 March 2021 31 March 2020
£'000 £'000
At the beginning of the year 51,500 50,000
Bank borrowings drawn in the year - 1,500
Bank borrowings repaid in the year (12,000) -
Interest bearing loans and borrowings 39,500 51,500
Unamortised loan arrangement fees (369) (453)
At the end of the year 39,131 51,047
Repayable between 2 and 5 years 39,500 51,500
Undrawn facility at the year end 20,500 8,500
Total facility 60,000 60,000
The Company has a £60.00 million (31 March 2020: £60.00 million) credit facility with RBSi of which £39.50
million (31 March 2020: £51.50 million) has been utilised as at 31 March 2021.
Under the terms of the Prospectus, the Company has a target gearing equivalent to 35.00% Loan to NAV. As at
31 March 2021, the Company's gearing was 25.15% Loan to NAV (31 March 2020: 34.83%).
Under the terms of the loan facility, the Company can draw up to 35.00% Loan to NAV at drawdown. As at 31
March 2021, the Company could draw a further £15.48 million up to the maximum 35.00% (31 March 2020: £0.25
million)
Borrowing costs associated with the credit facility are shown as finance costs in note 7 to these financial
statements.
31 March 2021 31 March 2020
Facility £60.00 million £60.00 million
Drawn £39.50 million £51.50 million
Gearing (Loan to GAV) 22.07% 27.21%
Gearing (Loan to NAV) 25.15% 34.83%
1.44% all-in 2.10% all-in
Interest rate (LIBOR + 1.4%) (LIBOR + 1.4%)
Notional value of Loan Balance Hedged 70.9%
130.4%
In line with recent announcements from the Bank of England and the FCA, UK borrowings will be transitioning
from the London Interbank Offer Rate ('LIBOR') benchmark to Sterling Overnight Index Average ('SONIA')
benchmark in due course. There is expected to be negligible cost involved in the borrowing facility
transition.
Reconciliation to cash flows from financing activities
31 March 2021 31 March 2020
£'000 £'000
Balance at the beginning of the year 51,047 49,476
Changes from financing cash flows
Loan drawdown - 1,500
Loan repaid (12,000) -
Loan arrangement fees (13) (39)
Total changes from financing cash flows (12,013) 1,461
Other changes
Amortisation of loan arrangement fees 97 110
Interest expense 722 1,108
Interest paid (824) (1,120)
Changes in loan interest payable 102 12
Total other changes 97 110
Balance at the end of the year 39,131 51,047
15. Payables and accrued expenses
31 March 2021 31 March 2020
£'000 £'000
Deferred income 2,567 2,906
Accruals 783 814
Other creditors 588 967
Total 3,938 4,687
16. 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 2021 31 March 2020
£'000 £'000
Not later than one year 48 48
Later than one year but not later than five years 159 159
Later than five years 476 476
635 635
Total 683 683
17. Guarantees and commitments
As at 31 March 2021, there were capital commitments of £67,667 (31 March 2020: £nil) relating to the
purchase of land adjacent to the Company's existing holding at Gresford Industrial Estate, Wrexham.
Lease commitments - as lessor
The Company has entered into commercial property leases on its investment property portfolio. These
non-cancellable leases have a remaining term of between zero and 24 years.
Future minimum rentals receivable under non-cancellable operating leases as at 31 March 2021 are as follows:
31 March 2021 31 March 2020
£'000 £'000
Within one year 14,492 15,325
After one year but not more than five years 32,750 37,828
More than five years 22,726 24,596
Total 69,968 77,749
During the year ended 31 March 2021, there were contingent rents totalling £204,623 (year ended 31 March
2020: £188,872) recognised as income.
18. 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
2021, 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 2020: £0.01). The registered office of AEW UK REIT
2015 Limited is 6th Floor, 65 Gresham Street, London, EC2V 7NQ.
19. Issued share capital
31 March 2021 31 March 2020
£'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 1,587 158,774,746 1,515 151,558,251
Issued on admission to trading on the
London Stock Exchange on 28 February 2020
- - 72 7,216,495
At the end of the year 1,587 158,774,746 1,587 158,774,746
Treasury Shares
At the beginning of the year - - - -
Share buybacks on 14 October 2020 (154) 200,000 - -
Share buybacks on 3 November 2020 (111) 150,000 - -
At the end of the year (265) 350,000 - -
Total Ordinary Share capital excluding
treasury shares
1,587 158,424,746 1,587 158,774,746
During the year, 350,000 (31 March 2020: nil) Ordinary Shares with a nominal value of £0.01 (31 March 2020:
£nil) and representing 0.22% of the issued share capital, were bought back and placed in treasury for an
aggregate consideration of £265,000 (31 March 2020: £nil). No Ordinary Shares were bought back for
cancellation (31 March 2020: nil). No Ordinary Shares were cancelled from treasury during the year (31 March
2020: nil).
The allotted, called up and fully paid shares at 31 March 2021 consisted of 158,774,746 Ordinary Shares.
20. Share premium account
31 March 31 March
2021 2020
£'000 £'000
The share premium relates to amounts subscribed for share capital in excess of nominal
value:
Balance at the beginning of the year 56,578 49,770
Issued on admission to trading on the London Stock Exchange on
- 6,928
28 February 2020
Share issue cost - (120)
Balance at the end of the year 56,578 56,578
21. Financial risk management objectives and policies
21.1 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 2021 31 March 2020
Book Value Fair Value Book Value Fair Value
£'000 £'000 £'000 £'000
Financial assets
Receivables1 3,608 3,608 4,362 4,362
Cash and cash equivalents 17,450 17,450 9,873 9,873
Other financial assets held at fair value 61 61 14 14
Financial liabilities
Interest bearing loans and borrowings 39,131 39,500 51,047 51,500
Payables and accrued expenses2 1,064 1,064 1,532 1,532
Financial lease obligations 683 683 683 683
1 Excludes lease incentive debtor and 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.
21.2 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 2021 31 March 2020
£'000 £'000
Receivables (excluding incentives and prepayments) 3,608 4,362
Cash and cash equivalents 17,450 9,873
Total 21,058 14,235
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 2021 demand months months years years
£'000
£'000 £'000 £'000 £'000 £'000
Interest bearing loans and borrowings - 142 427 40,388 - 40,957
Payables and accrued expenses - 1,064 - - - 1,064
Lease obligation - - 51 205 4,205 4,461
- 1,206 478 40,593 4,205 46,482
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
22. 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 35.00% Loan to NAV and this is the maximum gearing permitted at drawdown under the terms of the facility.
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 NAV ratio and is
reported to the lender on a quarterly basis against the financial covenants of the facility. At the
year-end, the Company had a Loan to NAV ratio of 25.15% (31 March 2020: 34.83%).
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 of its other obligations under its loan agreements.
23. 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 2021, 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 6, 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 £1,228,849 (31 March 2020: £1,308,301) in respect of investment
management fees and expenses, of which £315,825 (31 March 2020: £311,683) was outstanding as at 31 March
2021.
24. Segmental information
The Board of Directors retains overall control of the Company but the Investment Manager (AEW UK Investment
Management LLP) has certain authorities and fulfils the function of allocating resource to, and assessing
the performance of the Company's operating segments and is therefore considered to be the Chief Operating
Decision Maker ('CODM'). In accordance with IFRS 8, the Company considers each of its properties to be an
individual operating segment. The CODM allocates resources, and reviews the performance of, the Company's
portfolio on a property-by-property basis and discrete financial information is available for each
individual property.
These operating segments have similar economic characteristics and, as such, are aggregated into one
reporting segment, being investment in property and property-related investments in the UK.
25. Events after reporting date
Dividend
On 28 April 2021, the Board declared its fourth interim dividend of 2.00pps in respect of the period from 1
January 2021 to 31 March 2021. This was paid on 28 May 2021, to shareholders on the register as at 1 May
2021. The ex-dividend date was 29 April 2021.
Property acquisitions
In May 2021, the Company acquired Arrow Point Retail Park in Shrewsbury for a purchase price of £8.35
million. The established retail park is located on a busy commercial estate and is fully let. The estate
provides a net initial yield of 8.7%.
In June 2021, the Company acquired 15-33 Union Street for a purchase price of £10.19 million. 15-33 Union
Street occupies a prominent location in Bristol city centre, opposite The Galleries Shopping Centre and near
Cabot Circus, Bristol's premier retail destination. Located on a busy thoroughfare for pedestrians, the
65,238 sq ft site experiences high footfall and is ideally suited for retail or leisure units. Constructed
in 2001, the property currently comprises five purpose built split-level retail or leisure units over four
floors and road access to both Union Street and Fairfax Street. Four of the five units are let to three
household names and a successful local retailer. The remaining unit is currently vacant, with the vendor
providing a 12 month guarantee. We are currently in discussions with a number of parties who are keen to
occupy this space. The location of the site has been identified as a major regeneration area and it offers
the ability for further growth through development.
Court ruling
Post year-end, the Company announced the successful outcome of the legal action against two well-funded
national tenants to recover unpaid rent. £0.52 million has been provided for as expected credit loss
relating to these tenants in these financial statements and subsequent to the court ruling all rent arrears
of these tenants have been received.
EPRA Unaudited Performance Measures
EPRA disclosures are widely used across the listed property sector and, as such, have been presented below
to aid comparison with other companies in this sector.
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 5 www.epra.com.
MEASURE AND DEFINITION PURPOSE PERFORMANCE
A key measure of a company's £9.82 million/6.19 pps
1. EPRA Earnings underlying operating results and an
indication of the extent to which
Earnings for operational activities. current dividend payments are
supported by earnings. EPRA earnings for year to 31
March 2021 (31 March 2020:
£13.20 million/8.67 pps)
2. EPRA Net Tangible Assets ('NTA')
£157.02 million/99.11 pps
Assumes that entities buy and sell
assets, thereby crystallising certain
levels of unavoidable deferred tax.
EPRA NTA itas at 31 March 2021
(31 March 2020: £147.85
million/93.12 pps)
3. EPRA Net Reinstatement Value
('NRV')
£168.83 million/106.57 pps
Assumes that entities never sell
assets and aims to represent the value
required to rebuild the entity.
EPRA NRV as at 31 March 2021
The EPRA NAV set of metrics make (31 March 2020 £160.34
adjustments to the NAV per the IFRS million/100.99 pps)
4. EPRA Net Disposal Value financial statements to provide
stakeholders with the most relevant
('NDV') information on the fair value of the
assets and liabilities of a real
Represents the shareholders' value estate investment company, under £157.08 million/99.15pps
under a disposal scenario, where different scenarios.
deferred tax, financial instruments
and certain other adjustments are
EPRA NDV as at 31 March 2021
calculated to the full extent of their (31 March 2020 £147.86
liability, net of any resulting tax. million/93.13pps)
5. EPRA Net Initial Yield ('NIY')
A comparable measure for portfolio
Annualised rental income based on the valuations.
cash rents passing at the balance 7.37%
sheet date, less non-recoverable
property operating expenses, divided
by the market value of the property, This measure should make it easier for
increased with (estimated) purchasers' investors to judge themselves, how the EPRA NIY as at 31 March 2021
costs. valuation of portfolio X compares with (31 March 2020: 8.26%)
portfolio Y.
6. EPRA 'Topped-Up' NIY A comparable measure for portfolio
valuations.
This measure incorporates an
adjustment to the EPRA NIY in 8.12%
This measure should make it easier for
respect of the expiration of rent-free investors to judge themselves, how the
periods (or other unexpired lease valuation of portfolio X compares with
incentives such as discounted rent portfolio Y. EPRA 'Topped-Up' NIY as at 31
periods and step rents). March 2021 (31 March 2020:
8.66%)
A 'pure' (%) measure of investment
property space that is vacant, based
7. EPRA Vacancy Rate on ERV. 8.96%
Estimated Market Rental Value ('ERV')
of vacant space divided by ERV of the
whole portfolio. EPRA Vacancy Rate as at 31
March 2021 (31 March 2020:
3.68%)
32.94%
EPRA Cost Ratio (including
direct vacancy costs) as at 31
8. EPRA Cost Ratio March 2021 (31 March 2020:
18.75%)
Administrative and operating costs A key measure to enable meaningful
(including and excluding costs of measurement of the changes in a
direct vacancy) divided by gross company's operating costs.
rental income. 22.58%
EPRA Cost Ratio (excluding
direct vacancy costs) as at 31
March 2021 (31 March 2020:
13.76%)
9. EPRA Capital Expenditure
Property which has been held at both £5.98 million for the year
the current and comparative balance A measure used to illustrate change in ended
sheet dates for which there has been comparable capital values.
no significant development. 31 March 2021 (31 March 2020:
£0.36 million)
10. EPRA Like-for-like Rental Growth
Net growth generated by assets
which were held by the Company -£1.08 million/-6.80 % for the
throughout both the current and A measure used to illustrate change in year
comparable periods which there has comparable income values.
been no significant development which ended 31 March 2021 (31 March
materially impacts upon income. 2020: £0.29 million/1.71%)
Calculation of EPRA NTA, EPRA NRV and EPRA NDV
In October 2019, EPRA issued new best practice recommendations (BPR) for financial guidelines on its
definitions of NAV measures: EPRA Net Tangible Assets (NTA), EPRA Net Reinvestment Value (NRV) and EPRA Net
Disposal Value (NDV). The Company has adopted these new guidelines and applies them in the Annual Report for
the year ended 31 March 2021.
The Company considers EPRA NTA to be the most relevant NAV measure for the Company and we are now reporting
this as our primary NAV measure, replacing our previously reported EPRA NAV and EPRA NNAV per share metrics.
EPRA NTA excludes the cumulative fair value adjustments for debt-related derivatives which are unlikely to
be realised.
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 year.
Current measures Previous measures
EPRA EPRA EPRA EPRA EPRA
NTA NRV NDV NAV NNNAV
As at 31 March 2021
£'000 £'000 £'000 £'000 £'000
IFRS NAV attributable to shareholders 157,079 157,079 157,079 157,709 157,709
Mark-to-market adjustment of derivatives (61) (61) - (61) -
Real estate transfer tax and other - 11,814 - - -
purchasers' costs1
At 31 March 2021 157,018 168,832 157,079 157,018 157,079
Number of Ordinary Shares 158,424,746 158,424,746 158,424,746 158,424,746 158,424,746
NAV Per share 99.11p 106.57p 99.15p 99.11p 99.15p
Current measures Previous measures
EPRA EPRA EPRA EPRA EPRA
NTA NRV NDV NAV NNNAV
As at 31 March 2020
£'000 £'000 £'000 £'000 £'000
IFRS NAV attributable to shareholders 147,863 147,863 147,863 147,863 147,863
Mark-to-market adjustment of derivatives (14) (14) - (14) -
Real estate transfer tax and other - 12,494 - - -
purchasers' costs1
At 31 March 2020 147,849 160,343 147,863 147,849 147,863
Number of Ordinary Shares 158,774,746 158,774,746 158,774,746 158,774,746 158,774,746
NAV Per share 93.12p 100.99p 93.13p 93.12p 93.13p
1 EPRA NTA and EPRA NDV are calculated using property values in line with IFRS, where values are net of Real
Estate Transfer Tax (RETT) and other purchasers' costs. RETT and other purchasers' costs are added back when
calculating EPRA NRV, and have been estimated at 6.6% of the net valuation provided by Knight Frank.
Year ended Year ended
31 March 31 March
2021 2020
£'000 £'000
Investment property - wholly-owned 179,000 189,300
Allowance for estimated purchasers' costs at 6.6% 11,814 12,872
Grossed-up completed property portfolio valuation (B) 190,814 202,172
Annualised cash passing rental income 15,051 17,361
Property outgoings (993) (670)
Annualised net rents (A) 14,058 16,691
Rent from expiry of rent-free periods and fixed uplifts* 1,439 826
'Topped-up' net annualised rent (C) 15,497 17,517
EPRA NIY (A/B) 7.37% 8.26%
EPRA 'topped-up' NIY (C/B) 8.12% 8.66%
* rent-free periods expire by July 2021.
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 2021, 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 2021 31 March 2020
£'000 £'000
Annualised potential rental value of vacant premises (A) 641
1,482
Annualised potential rental value for the complete property portfolio (B) 17,420
16,538
EPRA Vacancy Rate (A/B) 8.96% 3.68%
Calculation of EPRA Cost Ratios
Year ended Year ended
31 March 2021 31 March 2020
£'000 £'000
Administrative/operating expense per IFRS income statement 3,319
5,221
Less: ground rent costs (66) (66)
EPRA costs (including direct vacancy costs) (A) 5,155 3,253
Direct vacancy costs (see Glossary in full Annual Report
and Financial Statements for further details) (865)
(1,622)
EPRA costs (excluding direct vacancy costs) (B) 3,533 2,388
Gross rental income less ground rent costs (C) 15,648 17,352
EPRA Cost Ratio (including direct vacancy costs) (A/C) 18.75%
32.94%
EPRA Cost Ratio (excluding direct vacancy costs) (B/C) 13.76%
22.58%
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.
Like-for-like rental growth
The table below sets out the like-for-like for rental growth of the portfolio, by sector, in accordance with
EPRA Best Practices Recommendations.
Rental income Rental income Like-for-like Like-for-like
from like-for-like portfolio from like-for-like portfolio rental rental
Sector
2021 2020 growth growth
£m £m £m %
Industrial 8.14 8.43 (0.29) (3.44)
Office 2.44 2.82 (0.38) (13.48)
Leisure 1.55 1.55 - -
Standard Retail 2.07 2.48 (0.41) (16.53)
Retail Warehouse 0.61 0.61 - -
Total 14.81 15.89 (1.08) (6.80)
The like-for-like rental growth is based on changes in rental income for those properties which have been
held for the duration of both the current and prior reporting years. This represents a portfolio valuation,
as assessed by the valuer, of £173.60 million (year ended 31 March 2020: £181.95 million).
Capital Expenditure
The table below sets out the capital expenditure of the portfolio in accordance with EPRA Best Practice
Recommendations.
2021 2020
Sector
£'000 £'000
Acquisitions 5,778 -
Investment properties - no incremental lettable space 205 358
Total purchases and capital expenditure 5,983 358
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:
web.queries@computershare.co.uk. Please note that from 19 July 2021, the Company's Registrar will change to
Link Group. Further information and details will be communicated at the appropriate time.
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 158,424,746
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
8 September 2021 Annual General Meeting
30 September 2021 Half-year end
November 2021 Announcement of half-yearly results
31 March 2022 Year end
June 2022 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 2020 to 30 June 2020
(payment made on 28 August 2020) 3,175,495
Interim dividend for the period 1 July 2020 to 30 September 2020 (payment made on 30 November
2020)
3,171,495
Interim dividend for the period 1 October 2020 to 31 December 2020
(payment made on 28 February 2021) 3,168,495
Interim dividend for the period 1 January 2021 to 31 March 2021
(payment made on 28 May 2021) 3,168,495
Total 12,683,980
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
Company Website
www.aewukreit.com
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
Current Registrar (until 18 July 2021)
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS13 8AE
Registrar from 19 July 2021
Link Group
10th Floor
Central Square
29 Wellington Street
Leeds LS1 4DL
Current 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
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
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ISIN: GB00BWD24154
Category Code: ACS
TIDM: AEWU
LEI Code: 21380073LDXHV2LP5K50
OAM Categories: 1.1. Annual financial and audit reports
Sequence No.: 113200
EQS News ID: 1210782
End of Announcement EQS News Service
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References
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