REG - AEW UK REIT PLC - Annual Financial Report <Origin Href="QuoteRef">AEWU.L</Origin> - Part 5
10/07/2017 07:05
- Part 5: For the preceding part double click ID:nRSJ5151Kd
£'000 Ordinary Shares £'000 Ordinary Shares
Ordinary Shares (nominal value £0.01) authorised, issued and fully paid
At the beginning of the year/period 1,175 117,510,000 - 1
Issued on admission to trading on the London
Stock Exchange on 12 May 2015 - - 1,005 100,499,999
Issued on admission to trading on the London
Stock Exchange on 15 December 2015 - - 170 17,010,000
Issued on admission to trading on the London
Stock Exchange on 16 September 2016 24 2,450,000 - -
Issued on admission to trading on the London
Stock Exchange on 10 October 2016 37 3,687,250 - -
At the end of the year/period 1,236 123,647,250 1,175 117,510,000
On 16 September 2016, the Company issued 2,450,000 Ordinary Shares at a price of 97 pence per share in the form of a tap
issue under authority granted on 7 September 2016 at the AGM. On 10 October 2016 the Company issued 3,687,250 Ordinary
Shares at a price of 98.25 pence per share in the form of a tap issue under authority granted on 7 September 2016 at the
AGM.
The initial raising by the Company involved the issue of Ordinary Shares to relevant subscribers at 100 pence per Ordinary
Share.
19. Share premium account
Year ended 30 April 2017 £'000 Period 1 April 2015 to 30 April 2016£'000
The share premium relates to amounts subscribed for share capital in excess of nominal value:
Balance at the beginning of the year/period 16,729 -
Issued on admission to trading on the London Stock Exchange on 12 May 2015 - 99,495
Share issue costs (paid and accrued) - (1,930)
Transfer to capital reduction account - (97,565)
Issued on admission to trading on the London Stock Exchange on 15 December 2015 - 17,010
Share issue costs (paid and accrued) (23) (281)
Issued on admission to trading on the London Stock Exchange on 16 September 2016 2,352 -
Share issue cost (paid and accrued) (42) -
Issued on admission to trading on the London Stock Exchange on 10 October 2016 3,586 -
Share issue cost (paid and accrued) (88) -
Balance at the end of the year/period 22,514 16,729
20. Financial risk management and objectives and policies
20.1 Financing instruments
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.
30 April 2017 30 April 2016
Book Value Fair Value Book Value Fair Value
£'000 £'000 £'000 £'000
Financial Assets
Investment in AEW UK Core Property Fund 7,594 7,594 10,109 10,109
Receivables and prepayments1 1,033 1,033 936 936
Cash and cash equivalents 3,653 3,653 7,963 7,963
Other financial assets held at fair value 31 31 77 77
Financial Liabilities
Interest bearing loans and borrowings 28,740 29,010 14,250 14,250
Payables and accrued expenses2 2,156 2,156 2,712 2,712
Finance lease obligations 60 60 1,914 1,914
1 Excludes VAT, certain prepayments and other debtors
2 Excludes tax and VAT liabilities
Interest rate derivatives are the only financial instruments classified as fair value through profit and loss. All other
financial assets are classified as loans and receivables and all financial liabilities are measured at amortised cost. All
financial instruments were designated in their current categories upon initial recognition.
Fair value measurement hierarchy has not been applied to those classes of asset and liability stated above which are not
measured at fair value in the financial statements. The difference between the fair value and book value of these items is
not considered to be material.
20.2 Financing management
The Company's activities expose it to a variety of financial risks: market risk, real estate risk, credit risk and
liquidity risk.
The Company's objective in managing risk is the creation and protection of shareholder value. Risk is inherent in the
Company's activities but it is managed through a process of ongoing identification, measurement and monitoring, subject to
risks limits and other controls.
The principal risks facing the Company in the management of its portfolio are as follows:
20.3 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 ('IMC') of the Investment Manager, meets monthly and reserves the ultimate decision
with regards to investment purchases or sales. In order to monitor property valuation fluctuations, the IMC and the
Portfolio Management Team of the Investment Manager meet 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.
20.4 Real Estate risk
The Company is exposed to the following risks specific to its investments in 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 scheme
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.
20.5 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
30 April 2017 30 April 2016
£'000 £'000
Debtors (excluding incentives and prepayments) 1,033 936
Cash and cash equivalents 3,653 7,963
Total 4,686 8,899
20.6 Liquidity risk
Liquidity risk arises from the Company's management of working capital and the finance charges and principal repayments on
its borrowings. It is the risk 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
30 April 2017 demand£'000 months£'000 months£'000 years£'000 > 5 years£'000 Total£'000
Interest bearing loans and borrowings - - - 29,010 - 29,010
Interest payable - 134 395 1,306 - 1,835
Payables and accrued expenses - 2,156 - - - 2,156
Finance lease obligations - - 5 20 425 450
- 2,290 400 30,336 425 33,451
On < 3 3 - 12 1 - 5
demand months months years > 5 years Total
30 April 2016 £'000 £'000 £'000 £'000 £'000 £'000
Interest bearing loans and borrowings - - - 14,250 - 14,250
Interest payable - 102 301 1,400 - 1,803
Payables and accrued expenses - 2,712 - - - 2,712
Finance lease obligations - - 123 372 1,419 1,914
- 2,814 424 16,022 1,419 20,679
21. Capital management
The primary objectives of the Company's capital management is to ensure that it qualifies for the UK REIT status and
remains within its quantitative 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 such that its borrowings will not exceed 25% of GAV (measured
at drawdown) of each investment or the total portfolio. It is currently anticipated that the level of total borrowings will
typically be at the level of 20% of GAV (measured at drawdown).
Alongside the Company's borrowing policy, the Directors intend, at all times, to conduct the affairs of the Company so as
to enable the Company to qualify as a REIT for the purposes of Part 12 of the CTA 2010 (and the regulations made
thereunder). The REIT status compliance requirements include 90% distribution test, interest cover ratio, 75% assets test
and the substantial shareholder rule, all of which the Company remained compliant with in this reporting period.
The monitoring of the Company's level of borrowing is performed primarily using a Loan to GAV ratio. The Loan to GAV Ratio
is calculated as the amount of outstanding debt divided by the total assets of the Company, which includes the valuation of
the investment property portfolio. The Company Loan to GAV ratio at the year end was 19.31% (30 April 2016: 10.51%).
Breaches in meeting the financial covenants would permit the bank to immediately call loans and borrowings. During the year
under review, the Company did not breach any of its loan covenants, nor did it default on any other of its obligations
under its loan agreements.
22. Transaction with related parties
As defined by IAS 24 Related Party 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 period ended 30 April 2017, the Directors of the Company are considered to be the key management personnel. Details
of amounts paid to Directors for their services can be found within note 5, Directors' remuneration.
The Company is party to an Investment Management Agreement with the Investment Manager, pursuant to which the Company has
appointed the Investment Manager to provide investment management services relating to the respective assets on a
day-to-day basis in accordance with their respective investment objectives and policies, subject to the overall supervision
and direction of the Boards of Directors.
Under the Investment Management Agreement the Investment Manager receives a management fee which is calculated and accrued
monthly at a rate equivalent to 0.9% per annum of NAV (excluding un-invested fund raising proceeds) and paid quarterly. The
investment by the Company into the Core Fund is not subject to management fees or performance fees otherwise charged to
investors in the AEW UK Core Property Fund by the Investment Manager. During the year, the Company incurred £1,033,637
(2016: £652,706) in respect of investment management fees and expenses of which £252,850 (2016: £230,631) was outstanding
at 30 April 2017.
On 1 May 2016, the Company had a holding of 8,035,272 shares (share class E) in the Core Fund, which were purchased for a
cost of £9,627,000 (net of equalisation) on 1 June 2015. The investment is deemed to be with a related party due to the
common influence of the Investment Manager over both parties. During the year, the Company disposed of 1,675,832 shares in
the Core Fund for consideration of £1,995,248. As at 30 April 2017, the Company held 6,359,440 shares in the Core Fund
which were valued at £7,594,443. The Company disposed of its remaining holding in the Core Fund after the year-end, as
detailed in note 24.
23. Segmental information
Management has considered the requirements of IFRS 8 'operating segments'. The source of the Company's diversified revenue
is from the ownership of investment properties across the UK. Financial information on a property by property basis is
provided to senior management of the Investment Manager and Directors, which collectively comprise the chief operating
decision maker. Responsibilities are not defined by type or location, each property being managed individually and reported
on for the Company as a whole directly to the Board of Directors. Therefore, the Company is considered to be engaged in a
single segment of business, being property investment and in one geographical area, United Kingdom.
24. Events after reporting date
Dividend
On 30 May 2017, the Board declared its interim dividend of two pence per share, in respect of the period from 1 February
2017 to 30 April 2017. This was paid on 30 June 2017, to shareholders on the register as at 9 June 2017. The ex-dividend
date was 8 June 2017.
Property acquisitions
On 4 May 2017 the Company acquired Unit 1005, Sarus Court for £0.61 million. This completes the Company's acquisition of
the whole of the Sarus Court industrial estate. The property provides a WAULT of approximately 3.7 years to expiry. The
acquisition provides an initial yield of 7.8%, a reversionary yield of 9.1% and a capital value per sq ft of £55.
On 29 June 2017 the Company acquired Unit 34, First Avenue, Deeside for £4.31 million. The property provides a WAULT of
approximately 5 years to break and 10 years to expiry. The acquisition provides an initial yield of 7.9%, a reversionary
yield of 7.9% and a capital value per sq ft of £45.
Disposal of investments
On 9 May 2017, the Company sold its remaining investment in the Core Fund for £7.62 million. This sale represented a gain
of £0.03 million based on its carrying value as at 30 April 2017.
Amendment to the Credit Facility
On 8 May 2017, the Company completed an amendment to the terms of its facility with RBSi. The total commitment has been
reduced from £40.0 million to £32.5 million and the availability period has been extended to 31 March 2019.
EPRA Unaudited Performance Measures
Detailed below is a summary table showing the EPRA performance measures of the Company
MEASURE AND DEFINITION PURPOSE PERFORMANCE
1. EPRA EarningsEarnings from operational activities. A key measure of a company's underlying operating results and an indication of the extent to which current dividend payments are supported by earnings. £9.16 million/7.57 ppsEPRA earnings for the yearended 30 April 2017 (2016:£6.08 million/6.33 pps)
2. EPRA NAVNet asset value adjusted to include properties and other investment interests at fair value and to exclude certain items not expected to crystallise in a long Makes adjustments to IFRS NAV to provide stakeholders with the most relevant information on the fair value of the assets and liabilities within a true real estate investment company with a long-term investment £118.64 million/95.95 ppsEPRA NAV as at 30 April 2017 (2016: £116.30 million/98.97 pps)
-term investment property business. strategy.
3. EPRA NNNAVEPRA NAV adjusted to include the fair values of:(i) financial instruments;(ii) debt and;(iii) deferred taxes. Makes adjustments to EPRA NAV to provide stakeholders with the most relevant information on the current fair value of all the assets and liabilities within a real estate company. £118.67 million/95.98 ppsEPRA NNNAV as at 30 April 2017 (2016: £116.38 million/99.03 pps)
4.1 EPRA Net Initial Yield (NIY)Annualised rental income based on the cash rents passing at the balance sheet date, less non-recoverable property operating expenses, A comparable measure for portfolio valuations. This measure should make it easier for investors to judge themselves, how the valuation of portfolio X compares with portfolio Y. 7.12%EPRA NIYas at 30 April 2017 (2016: 8.01%)
divided by the market value of the property, increased with (estimated) purchasers' costs.
4.2 EPRA 'Topped-Up' NIYThis measure incorporates an adjustment to the EPRA NIY in respect of the expiration of rent-free periods (or other unexpired lease incentives A comparable measure for portfolio valuations. This measure should make it easier for investors to judge themselves, how the valuation of portfolio X compares with portfolio Y. 8.27%EPRA 'Topped-Up' NIYas at 30 April 2017 (2016: 8.56%)
such as discounted rent periods and step rents).
5. EPRA VacancyEstimated Market Rental Value (ERV) of vacant space divided by ERV of the whole portfolio. A "pure" (%) measure of investment property space that is vacant, based on ERV. 7.22%EPRA ERVas at 30 April 2017 (2016: 3.16%)
6. EPRA Cost RatioAdministrative and operating costs (including and excluding costs of direct vacancy) divided by gross rental income. A key measure to enable meaningful measurement of the changes in a company's operating costs. Including direct vacancy costsEPRA Cost Ratio 15.37%as at 30 April 2017 (2016: 12.23%)9.54% EPRA Cost ratio excluding direct vacancy costs as at 30 April 2017 (2016: 10.90%)
Calculation of EPRA Net Initial Yield and 'topped-up' Net Initial Yield
Period
Year ended30 April 2017£'000 1 April 2015 to 30 April 2016£'000
Investment property - wholly-owned 137,820 114,340
Allowance for estimated purchasers' costs 8,242 6,632
Gross up completed property portfolio valuation 146,062 120,972
Annualised passing rental income 11,283 9,842
Property outgoings (884) (148)
Annualised net rents 10,399 9,694
Rent from expiry of rent-free periods and fixed uplifts 1,685 655
'Topped-up' net annualised rent 12,084 10,349
EPRA Net Initial Yield 7.12% 8.01%
EPRA 'topped-up' Net Initial Yield 8.27% 8.56%
EPRA Net Initial Yield (NIY) basis of calculation
EPRA NIY is calculated as the annualised net rent, divided by the gross value of the completed property portfolio.
The valuation of grossed up completed property portfolio is determined by our external valuers as at 30 April 2017, 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 our 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 where defined as not in lieu of growth. Overall 'topped-up' NIY is
calculated by adding any other contracted future uplift to the 'topped-up' net annualised rent.
Calculation of EPRA Vacancy Rate
Year ended30 April 2017£'000 Period1 April 2015 to 30 April 2016£'000
Annualised potential rental value of vacant premises 951 342
Annualised potential rental value for the complete property portfolio 13,164 10,821
EPRA Vacancy Rate 7.22% 3.16%
Calculation of EPRA Cost Ratios
2017 2016
£'000 £'000
Administrative/operating expense per IFRS income statement 3,272 1,523
Less: Performance & management fees (1,034) (653)
Other fees and commission (335) (70)
Ground rent costs (104) (64)
EPRA Costs (including direct vacancy costs) 1,799 736
Direct vacancy costs (682) (80)
EPRA Costs (excluding direct vacancy costs) 1,117 656
Gross Rental Income less ground rent costs 12,148 6,089
Less: service charge costs of rental income (104) (70)
Gross rental income 12,044 6,019
EPRA Cost Ratio (including direct vacancy costs) 15.37% 12.23%
EPRA Cost Ratio (excluding direct vacancy costs) 9.54% 10.90%
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 0370 889 4069 or email: web.queries@computershare.co.uk
Changes of name and/or address must be notified in writing to the Registrar, at the address shown on below. You can check
your shareholding and find practical help on transferring shares or updating your details at 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 123,647,250
SEDOL Number BWD2415
ISIN Number GB00BWD24154
Ticker/TIDM AEWU
Share Prices
The Company's Ordinary Shares are traded on the Main Market of the London Stock Exchange.
Annual and Half-Yearly Reports
Copies of the Annual and Half-Yearly Reports are available from the Company's website.
Financial Calendar
12 September 2017 Annual General Meeting
31 October 2017 Half-year end
December 2017 Announcement of half-yearly results
30 April 2018 Year end
July 2018 Announcement of annual results
Dividends
The following table summarises the amounts distributed to equity shareholders in respect of the year:
£
Interim dividend for the period 1 May 2016 to 31 July 2016 2,350,200
Interim dividend for the period 1 August 2016 to 31 October 2016 2,472,945
Interim dividend for the period 1 November 2016 to 31 January 2017 2,472,945
Interim dividend for the period 1 February 2017 to 30 April 2017 2,472,945
Total 9,769,035
Directors
Mark Burton* (Non-executive Chairman)
James Hyslop (Non-executive Director)
Bimaljit (''Bim'') Sandhu* (Non-executive Director)
Katrina Hart* (Non-executive Director)
* independent of the Investment Manager
Registered Office
40 Dukes Place
London
EC3A 7NH
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
Jones Lang LaSalle Limited
22 Hanover Square
London
W1S 1JA
Corporate Broker
Fidante Capital
1 Tudor Street
London
EC4Y 0AH
Legal Adviser to the Company
Gowling WLG (UK) LLP
4 More London Riverside
London
SE1 2AU
Depositary
Langham Hall UK LLP
5 Old Bailey
London
EC4M 7BA
Administrator
Capita Sinclair Henderson Limited
Beaufort House
51 New North Road
Exeter
EX4 4EP
Company Secretary
Capita Company Secretarial Services Limited
40 Dukes Place
London
EC3A 7NH
Registrar
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol
BS13 8AE
Auditors
KPMG LLP
15 Canada Square
London
E14 5GL
Valuer
Knight Frank LLP
55 Baker Street
London
W1U 8AN
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.
Copies of the Annual Report and Notice of AGM
Printed copies of the Annual Report and Notice of the 2017 Annual General Meeting will be sent to shareholders shortly and
will be available on the Company's website.
National Storage Mechanism
A copy of the Annual Report will be submitted shortly to the National Storage Mechanism ('NSM') and will be available for
inspection at the NSM, which is situated at www.morningstar.co.uk/uk/NSM.
Annual General Meeting
The AGM will be held on 12 September 2017 at 12 noon at The Cavendish Hotel, 81 Jermyn Street, St. James', London SW1Y
6JF.
The content of the Company's web-pages and the content of any website or pages which may be accessed through hyperlinks on
the Company's web-pages or this announcement is neither incorporated into nor forms part of the above announcement.
This information is provided by RNS
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