REG-AEW UK REIT plc Annual Financial Report
11/06/2018 07:05
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AEW UK REIT plc (AEWU)
Annual Financial Report
11-Jun-2018 / 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
The Board of AEW UK REIT plc (the 'Company') is pleased to announce
results for the 11 month period from 1 May 2017 to 31 March 2018.
The following text is copied from the Annual Report and Financial
Statements for the period ended 31 March 2018:
Strategic Report
Financial Highlights
Net Asset Value ('NAV') of £146.03 million and of 96.36 pence per share
- as at 31 March 2018 (30 April 2017: £118.67 million and 95.98 pence per
share).
- Operating profit before fair value changes of £9.60 million for the
period (year ended 30 April 2017: £9.81 million).
Unadjusted profit before tax ('PBT') of £9.82 million and of 7.17 pence
- per share for the period (year ended 30 April 2017: £6.10 million and of
5.04 pence per share).
- EPRA Earnings Per Share ('EPRA EPS')* for the period of 6.56 pence (year
ended 30 April 2017: 7.57 pence).
- Total dividends of 7.33 pence per share have been declared for the
period (year ended 30 April 2017: 8.00 pence per share).
- Total shareholder return* for the period was 3.65% (year ended 30 April
2017: 8.22%).
- The Company raised gross capital proceeds of £28.05 million for the
period (year ended 30 April 2017: £6.00 million).
The price of the Company's Ordinary Shares on the Main Market of the
- London Stock Exchange was 95.60 pence per share as at 31 March 2018 (30
April 2017: 99.56 pence per share).
As at 31 March 2018, the Company had a £60.00 million (30 April 2017:
- £40.00 million) term credit facility with the Royal Bank of Scotland
International Limited ('RBSi') and was geared to 26.00% of the Gross
Asset Value ('GAV') (30 April 2017: 19.31%).
The Company held cash balances totalling £4.71 million as at 31 March
- 2018 (30 April 2017: £3.65 million), of which £3.57 million (30 April
2017: £1.31 million) was held for the purposes of capital acquisitions.
*see Glossary below for definition of alternative performance measures
Property Highlights
The Company acquired ten properties during the period for a combined
purchase price of £60.11 million, excluding acquisition costs (year
ended 30 April 2017: five properties for £24.70 million), and disposed
- of one property for gross sales proceeds of £11.05 million (year ended
30 April 2017: one property for gross sales proceeds of £2.05 million).
As at 31 March 2018, the Company's property portfolio had a fair value
- of £192.34 million (30 April 2017: £137.82 million) and a historical
cost of £196.64 million (30 April 2017: £140.19 million).
- The majority of assets that have been acquired are fully let and the
portfolio has a vacancy rate of 7.10% (30 April 2017: 7.22%).
Rental income generated in the period under review was £12.33 million
- (year ended 30 April 2017: £12.15 million). The number of tenants as at
31 March 2018 was 104 (30 April 2017: 79).
- Portfolio net initial yield ('NIY') of 7.74% as at 31 March 2018 (30
April 2017: 7.63%).
Weighted average unexpired lease term ('WAULT') of 5.08 years (30 April
- 2017: 5.22 years) to break and 6.16 years (30 April 2017: 6.37 years) to
expiry.
The current period being reported is for the 11 months from 1 May 2017 to
31 March 2018. The prior period ended 30 April 2017 was a 12 month period
and so cannot be used as a direct comparator.
Chairman's Statement
Overview
I am pleased to present the audited results of AEW UK REIT plc (the
'Company') for the period from 1 May 2017 to 31 March 2018. This Annual
Report covers a period of 11 months following a change in year end from 30
April to 31 March, which was made in order to align the Company's
reporting dates with those of its peers in the UK commercial property
sector. As at 31 March 2018, the Company had
established a diversified portfolio of 36 commercial investment properties
throughout the UK with a portfolio value of £192.34 million. On a
like-for-like basis (like-for-like being the movement in the valuation
provided by the valuer of those properties which have been held for the
duration of the period in question), the Company's property portfolio
valuation increased by 3.95% over the 11 month period.
The Company's focus during the period remained on growth in a way that is
beneficial to its shareholders and this was achieved through the issue of
27.91 million new Ordinary Shares in October 2017. The shares were issued
at 100.50 pence per share, raising gross proceeds of £28.05 million. In a
climate of continued Brexit related uncertainty, this was a positive
result and has allowed the Investment Manager to continue to strengthen
and diversify the portfolio of assets. It has also contributed to the fall
in the ongoing charges ratio which is 1.24% for the period to 31 March
2018 (year ended 30 April 2017: 1.52%). The Initial Issue price
represented a premium of 3.76% to NAV, enabling the 2% issuance costs to
be absorbed without diluting the NAV.
In addition to growth, the Company has continued to deliver its target
dividend of 8.00 pence per share per annum and the Investment Manager has
remained focussed on sourcing assets which can deliver sustainable income
streams to support this dividend. During the quarter ended 31 July 2017,
preceding the Initial Issue, the Company was fully invested, having
utilised its capital proceeds in full, as well as all of its available
loan facility. This allowed the Company to achieve EPRA EPS of 2.10 pence
per share for the quarter ended 31 July 2017, ahead of the target dividend
of 2.00 pence per share, demonstrating the ability of the portfolio to
deliver an income yield which can sustain the Company's target dividend
when fully invested.
To supplement the high yielding profile of the portfolio, the Investment
Manager also continues to add value through active asset management. In
September 2017, the Company realised a valuation uplift on Valley Retail
Park, Belfast, selling the asset for £11.05 million. The property was
acquired in August 2015 for £7.15 million and following extensive asset
management and repositioning of the asset, the business plan had been
fully implemented and the Investment Manager took the opportunity to
realise a gain on historical cost of over £3 million.
This disposal, together with the share issue in October 2017, had a
temporary dilutive effect on EPRA EPS until the funds had been fully
invested in new acquisitions. During the period of investment following
the Initial Issue and up to the period end 31 March 2018, the Company made
seven further acquisitions totalling £49.49 million, fully utilising the
capital raised as well as an additional £17.50 million of debt, bringing
the gearing level up to 26.00% as at 31 March 2018. As at the period end,
the Company was again in the position of being fully invested, which
should enable it to cover its quarterly dividend target of 2.00 pence per
share.
The Company's shares traded at a premium to NAV for the majority of the
period and peaked at a premium of 8.88% in May 2017. In the three months
to 31 March 2018, the share price fell by 3.92%, which is a reflection of
the performance of the wider market, as the FTSE EPRA/NAREIT UK Index fell
in value by 4.91% over the same period. As at 31 March 2018, the Company's
share price was 95.60 pps, which is a 0.79% discount to NAV. The fall in
share price over the 11 month period, offset by total dividend payments of
7.33 pence per share, generated a shareholder total return of 3.65%,
compared with a NAV total return (see Glossary below for definition) of
8.70%.
During the period, a resolution was passed to amend the Company's
investment restrictions so that the value of properties, measured at the
time of each investment, in any one of the following sectors: offices;
retail warehouses; high street retail and industrial/warehouses will not
exceed 50% of the Company's GAV, previously this had been measured against
NAV. This has allowed the Company to purchase further properties in the
industrial sector, in which the Investment Manager continues to see
significant opportunities. The Board and the Investment Manager
continually review the investment strategy and investment restrictions in
order to maximise potential returns from an appropriate risk profile. Any
material change to the investment policy of the Company may only be made
with the prior approval of the shareholders.
Financial Results
Period from
1 May 2017 to Year ended
31 March 2018 30 April 2017
(audited) (audited)
Operating Profit before fair value changes 9,601 9,806
(£'000)
Operating Profit (£'000) 10,472 6,858
Profit after Tax (£'000) 9,820 6,099
Earnings Per Share (basic and diluted) 7.17 5.04
(pence)
EPRA Earnings Per Share (basic and diluted) 6.56 7.57
(pence)
Ongoing Charges (%) 1.24 1.52
Net Asset Value per share (pence) 96.36 95.98
EPRA Net Asset Value per share (pence) 96.34 95.95
Operating profit, profit after tax and earnings per share have all
increased significantly for the 11 months to 31 March 2018, compared with
the 12 months to 30 April 2017. This is largely a result of a positive
movement in the fair value of investment properties of £1.01 million (year
ended 30 April 2017: decrease of £3.16 million). These movements can be
attributed to both the positive effect
of asset management initiatives in the current period and positive yield
movement, particularly across our portfolio of industrial assets.
On the other hand, EPRA Earnings per Share, which excludes fair value
movements on investment property, has fallen to 6.56 pence per share or
7.16 pence per share pro-rated over 12 months (year ended 30 April 2017:
7.57 pence per share). This is largely a reflection of the cash drag from
the issue of new equity during the period. During the 11 months ended 31
March 2018, the Company raised gross equity proceeds of £28.05 million
(year ended 30 April 2017: £6.00 million).
The small increases in NAV per share and EPRA NAV per share reflect the
aforementioned valuation increases in the property portfolio.
Financing
The Company increased its credit facility to £60.00 million in March 2018,
following the share issue in October 2017.
The Company made three drawdowns during the period, utilising £3.49
million of the facility in July 2017, £7.50 million in February 2018 and
£10.00 million in March 2018. The total balance drawn as at 31 March 2018
was £50.00 million (30 April 2017: £29.01 million).
The loan attracts interest at 3 month LIBOR +1.4%, making an all-in rate
at 31 March 2018 of 2.11% (30 April 2017: 1.74%). The Company is protected
from a significant rise in interest rates as it has interest rate caps
with a combined notional value of £36.50 million (30 April 2017: £26.50
million), resulting in the loan being 73% hedged. A notional value of
£26.50 million is capped at 2.50%, and
£10.00 million at 2.00% (30 April 2017: £26.50 million at 2.50%).
As at 31 March 2018, the unexpired term of the facility was 2.6 years (30
April 2017: 3.5 years) and the gearing was 26.00% (30 April 2017: 19.31%)
(as calculated on the GAV of the investment portfolio).
At the Company's General Meeting on 17 October 2017, a resolution was
passed to increase the Company's maximum borrowing limit to 35% of GAV.
The long term gearing target remains 25% or less of GAV, but the Company
can borrow up to 35% of GAV in advance of an expected capital raise or
asset disposal. The Board and Investment Manager will continue to monitor
the level of gearing and the gearing target may change in future.
Dividends
The Company has continued to deliver on its target of paying annualised
dividends of 8.00 pence per share per annum. During the period, the
Company has declared and paid three quarterly dividends of 2.00 pence per
Ordinary Share and one dividend of 1.33 pence per Ordinary Share, which
relates to the two month period ended December 2017.
On 26 April 2018, the Board declared an interim dividend of 2.00 pence per
Ordinary Share in respect of the period from 1 January 2018 to 31 March
2018. This interim dividend was paid on 31 May 2018 to shareholders on the
register as at 11 May 2018. Including this dividend, the Company has paid
20.83 pence per share since launch.
The Directors will declare dividends taking into account the level of the
Company's net income and the Directors' view on the outlook for
sustainable recurring earnings. As such, the level of dividends paid may
increase or decrease from the current annual dividend of 8.00 pence per
share. Based on current market conditions, the Company expects to pay an
annualised dividend of 8.00 pence per share in respect of the financial
year ending 31 March 2019 and for the interim period to 30 September 2018.
Outlook
The Board and the Investment Manager are pleased with the strong income
returns delivered to our shareholders to date through the diversified and
high yielding property portfolio that has been established. Based on
annualised dividend payments of 8.00 pence per share, the Company delivers
a dividend yield of 8.37% as at 31 March 2018.
The Company has now established a stabilised portfolio and as such, we
expect to be able to more frequently deliver a covered dividend, with
recent acquisitions giving a significant boost to the initial yield of the
portfolio, which was 7.74% as at 31 March 2018.
There is also value to be gained through asset management initiatives. The
portfolio had a vacancy rate of 7.10% as at 31 March 2018 and has since
achieved sales comprising 1.9% of total vacancy with a further 1.3% under
offer to let. There is one planned capex project at Eastpoint Business
Park, Oxford, which is expected to increase the ERV and future potential
income from the asset once complete.
In the wider economic environment, prospects continue to be dominated by
Brexit negotiations, although it seems that some progress has been made
towards arriving at a trade deal. The ultimate outcome remains unknown,
and it remains difficult to assess the impact on the UK commercial
property market. For some businesses it seems this lack of clarity is
making it difficult to plan and invest, and it is hoped that negotiations
during the remainder of 2018 should bring about more certainty. Our
portfolio is relatively defensively positioned with regards to Brexit. We
have no central London exposure, where it is anticipated Brexit will have
the most significant impact. The Company's investment is primarily
focussed on strong, regional centres and exposure is well diversified both
geographically and by sector, which serves to mitigate risk.
Looking forward, our focus remains on continuing to grow the Company with
further share issues as part of the 12 month share issuance programme as
set out in the Company's Prospectus, subject to market conditions. The
Company has a strategy to raise funds at intervals in order to minimise
cash drag. Subject to future fund raising, the Investment Manager will
focus on finding further acquisitions which will deliver an attractive
return as part of a well-diversified portfolio.
Mark Burton
Chairman
8 June 2018
Business Model and Strategy
Introduction
AEW UK REIT plc is a real estate investment company listed on the premium
segment of the Official List of the UK Listing Authority 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 and intends
to continue to meet the necessary qualifying conditions to conduct its
affairs as a UK REIT.
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, retail warehouses, high
street retail and industrial/warehouse properties) to achieve a balanced
portfolio with a diversified tenant base.
Within the scope of restrictions set out below (under the heading
'Investment restrictions') the Company may invest up to 10% of its Net
Assets (at the time of investment) in the AEW UK Core Property Fund (the
'Core Fund').
The Company did not hold any investment in the Core Fund as at 31 March
2018 and does not intend to reinvest in the Core Fund, but will keep this
under review.
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. The Company will not, at
any time, conduct any trading activity which is significant in the context
of the business of the Company as a whole.
Investment Restrictions
The Company will invest and manage 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% of GAV;
- the Company may commit up to a maximum of 10% of its NAV (measured at
the commencement of the project) to development activities;
the value of properties, measured at the time of each investment, in any
- one of the following sectors: office properties, retail warehouses, high
street retail and industrial/warehouse properties will not exceed 50% of
GAV;
- investment in unoccupied and non-income producing assets will, at the
time of investment, not exceed 20% of NAV;
- 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%
of GAV.
The Directors currently 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 Corporation Tax Act 2010 (and the regulations
made thereunder).
In the event of a breach of the investment policy or restrictions, the
Investment Manager shall inform the Board upon becoming aware of such a
breach and if the Board considers the breach to be material, notification
will be made to a Regulatory Information Service and the Investment
Manager will look to resolve the breach.
Any material change to the investment policy 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 offered by pricing inefficiencies in smaller commercial
properties let on shorter occupational leases. The Company intends to
supplement 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 will be to invest in properties
which:
- typically have a value, on investment, of between £2.5 million and £15
million;
- have initial net yields, on investment, of typically between 7.5-10%;
- achieve across the whole Portfolio weighted average lease term of
between three to six years remaining;
- achieve, across the whole Portfolio, a diverse and broad spread of
tenants; and
- have some potential for asset management initiatives to include
refurbishment and re-lettings.
The Company's strategy is focused on delivering enhanced returns from the
smaller end (up to £15 million) of the UK commercial property market. The
Company believes that there are currently pricing inefficiencies in
smaller commercial properties relative to the long term pricing resulting
in a significant yield advantage, as demonstrated in the graphs below,
which the Company aims to exploit.
Please refer to Appendix 1 'Investing in smaller assets of <£15 million
can result in significant yield advantage', accessible through the link at
the end of this announcement.
How we add value
An Experienced Team
The investment management team average 19 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.
Please refer to Appendix 2 'Our Asset Management Process', accessible
through the link at the end of this announcement.
Strategy in Action
Acquiring a stable income stream on a site with a higher alternative use
value
London East Leisure Park, Dagenham
- Acquired March 2018
- A net initial yield of 5.8%, rising to 8% in September 2018
- WAULT of 13 years to break and potential to increase this in the short
term with asset management
- Acquisition price is underpinned by residential land values
Opportunities to drive rental growth and reduce vacancy
Diamond Business Park, Wakefield
- Acquired February 2018
- Low average passing rent of £2.65 per sq ft on let accommodation
creating potential for rental growth
- Reversionary yield of 11% once fully let
Repositioning an asset to maximise income
Pearl Assurance House, Nottingham
- Acquired May 2016
- Consent gained for residential conversion of office accommodation and
onward sale to a developer in April 2018
- Retention of ground floor accommodation providing an ongoing yield in
excess of 9%
Extending income streams to maximise value
Langthwaite Industrial Estate, South Kirkby
- Acquired in November 2015
- Leases renewed in July 2017 with no rent free period
- Valuation increase of 14% since purchase
Acquiring a strong income stream with potential to renew
Geddington Road, Corby
- Acquired February 2018
- Net initial yield of 10%
- Opportunity to extend the current lease to a global logistics specialist
- Adjoining logistics and residential development creates alternative use
value
Active asset management driving value in prime locations
Queen Square, Bristol
- Acquired December 2015 with c. 50% vacancy
- Fully let as at March 2018
- Valuation increase of 49% since purchase
Key Performance Indicators
KPI AND DEFINITION RELEVANCE TO STRATEGY PERFORMANCE
1. Net Initial Yield
A representation to The Net Initial Yield is an
the investor of what indicator of the ability of 7.74%
their initial net the Company to meet its
yield would be at a target dividend after at 31 March 2018
predetermined purchase adjusting for the upward
price after taking impacts of leverage and (30 April 2017:
account of all deducting operating costs. 7.63%)
associated costs, e.g.
void costs and rent
free periods.
2. True Equivalent
Yield An Equivalent Yield profile
in line with the Company's 8.20%
The average weighted target dividend yield shows
return a property will that, after costs, the at 31 March 2018
produce according to Company should have the
the present income and ability to meet its proposed (30 April 2017:
estimated rental value dividend through property 8.50%)
assumptions, assuming income.
the income is received
quarterly in advance.
A Reversionary Yield profile
3. Reversionary Yield that is in line with an
Initial Yield profile shows a 8.03%
The expected return potentially sustainable
the property will income stream that can be at 31 March 2018
used to meet dividends past
provide once rack the expiry of a property's (30 April 2017:
rented. current 8.37%)
leasing arrangements.
The Investment Manager
believes that current market
conditions present an
4. Weighted Average opportunity whereby assets
Unexpired Lease Term with a shorter unexpired
('WAULT') to expiry lease term are often 6.16 years
mispriced. It is also the
The average lease term Investment at 31 March 2018
remaining to expiry
across the portfolio, Manager's view that a shorter (30 April 2017:
weighted by contracted WAULT is useful for active 6.37 years)
rent. asset management as it allows
the Investment Manager to
engage in direct negotiation
with tenants rather than via
rent review mechanisms.
The Investment Manager
believes that current market
conditions present an
opportunity whereby assets
with a shorter unexpired
5. Weighted Average lease term are often
Unexpired Lease Term mispriced. As such, it is in
to break line with the Investment 5.08 years
Manager's strategy to acquire
The average lease term properties with a WAULT that at 31 March 2018
remaining to break, is generally shorter than the
across the portfolio benchmark. It is also the (30 April 2017:
weighted by contracted Investment Manager's view 5.22 years)
rent. that a shorter WAULT is
useful for active asset
management as it allows the
Investment Manager to engage
in direct negotiation with
tenants rather than via rent
review mechanisms.
6. NAV The NAV reflects the £146.03 million
Company's ability to grow the
NAV is the value of an portfolio and add value to it at 31 March 2018
entity's assets minus throughout the life cycle of
the value of its its assets. (30 April 2017:
liabilities. £118.67 million)
7. Leverage (Loan to The Company utilises 26.00%
Gross Asset Value) borrowings to enhance returns
over the medium term. at 31 March 2018
The proportion of our Borrowings will not exceed
property portfolio 35% of GAV (measured at (30 April 2017:
that is funded by drawdown) with a long term 19.31%)
borrowings. target of 25% or less of GAV.
8. Vacant ERV The Company's aim is to
minimise vacancy of the 7.10%
The space in the properties. A low level of
property portfolio structural vacancy provides at 31 March 2018
which is currently an opportunity for the
unlet, as a percentage Company to capture rental (30 April 2017:
of the total ERV of uplifts and manage the mix of 7.22%)
the portfolio.
tenants within a property.
9. Dividend The dividend reflects the 2.00 pps
Company's ability to deliver
Dividends declared in a sustainable income stream for the quarter
relation to the year. from its portfolio. ended 31 March
The Company targets a 2018 This
dividend of 8.00 pence supports an
per Ordinary Share per annualised
annum. dividend of 8.00
pps
The Ongoing Charges ratio
10. Ongoing Charges provides a measure of total
costs associated with 1.24%
The ratio of total managing and operating the
administration and Company, which includes the for the period
operating costs management fees due to the ended 31 March
expressed Investment Manager. The 2018
Investment Manager presents
as a percentage of this measure to provide (year ended 30
average NAV throughout investors with a clear April 2017:
the period. picture of operational costs 1.52%)
involved in running the
Company.
11. Profit before tax £9.82 million
PBT is a profitability The PBT is an indication of for the period
measure which the Company's financial ended 31 March
considers the performance for the period in 2018
Company's profit which its strategy is
before the payment of exercised. (year ended 30
income tax. April 2017: £6.10
million)
12. Total shareholder 3.65%
return
for the period
The percentage change This reflects the return seen ended 31 March
in the share price by shareholders on their 2018
assuming dividends are shareholdings.
reinvested to purchase (year ended 30
additional Ordinary April 2017:
Shares. 8.22%)
13. EPRA EPS
Earnings from core
operational
activities. A key 6.56 pps
measure of a company's
underlying operating for the period
results from its This reflects the Company's ended 31 March
property rental ability to generate earnings 2018
business and an from the portfolio which
indication of the underpins dividends. (year ended 30
extent to April 2017: 7.57
pps)
which current dividend
payments are supported
by earnings. See note
8 of the Financial
Statements.
Investment Manager's Report
Market Outlook
UK Economic Outlook
In April 2018, Q1 2018 growth was reported at 0.1% by the Office of
National Statistics ('ONS'), well below the expected 0.3% and the weakest
quarterly growth since 2012. This could trigger a downward revision for
the full year 2018 growth forecasts, following on from a weak performance
in 2017. UK growth for 2017 was reported at 1.8% by the ONS, the weakest
performance of the UK economy in five years, due to a sharp rise in
inflation squeezing household spending power.
This left the UK falling behind other major economies, such as the US and
Germany, which grew by 2.3% and 2.5% respectively, as the global recovery
begins to gather pace. The strength of the global economy, and the
competitive value of the pound, should boost growth in export-oriented
sectors. However, consumers continue to be squeezed by high inflation,
while uncertainty surrounding Brexit is deterring business investment.
The 2017 figures demonstrate the impact on household budgets, with
spending growing by 1.7%, which is the slowest rate of annual growth since
2012. This came as a result of inflation outpacing wage growth, driven by
the post-Brexit fall in Sterling. However for the three months to February
2018, ONS figures reported wage inflation (including bonuses) of 2.8%,
which exceeded cost inflation as the consumer price index ('CPIH') dipped
to 2.5% in February 2018.
Many thought that this, coupled with low unemployment levels, would allow
the Bank of England ('BoE') to make a second interest rate rise in May
2018, following a rise of 0.25% in November 2017, which was the first
increase in a decade. However, the recent slowdown in economic growth has
delayed any such increase, although it is anticipated that the BoE could
raise interest rates once or twice during the remainder of 2018 and 2019.
It is thought that the pace of rate rises will remain gradual and, with
growth now slowing, the prospect of higher interest rates and inflation
driven by growth should not be seen as a serious threat. Therefore we
anticipate interest rates to remain stable and supportive of the prospects
for UK growth.
UK Real Estate Outlook
Despite the economic pressures, we think that the property sector is set
for another strong year, primarily due to its relative high yield compared
with other sectors. The property market continues to show healthy spreads
over 10 year government bond yields, and is still in the advantageous
position of offering one of the highest yields from traditional asset
classes.
All property total returns were 1.7% for the three months ended 31 March
2018 (IPD Quarterly Index for standing investments) and the 12 month
return to 31 March 2018 was 9.3%. Overseas capital was a key feature of
the property market in 2017, with overseas buyers accounting for almost
half the 2017 UK investment. It is expected that the weight of money
targeting the sector will remain high in 2018 from overseas private wealth
investors attracted by the relative yield.
One of the main risks to the real estate market outlook will be the
possibility of a 'Hard Brexit'. Although a relatively favourable end
trading relationship is anticipated, with a transition period likely to
last until December 2020 following the UK's exit from the EU in 2019, we
still do not have a comprehensive agreement on the UK's long-term future
with the EU and there remains a risk that the UK could leave without a
trade deal. The outlook should become clearer during the remainder of
2018, but in the event that the future trading relationship includes
barriers to trade, the real estate occupier market could weaken.
The wider political landscape in the UK also contains risks, both in terms
of political leadership and policy, and specifically for the real estate
sector, which could face increased taxation and regulation. The November
2017 Budget proposed measures to end capital gains tax exemption for
overseas investors in commercial property from 2019, which could lead to
some moderation in overseas investment.
Sector Outlook
Retail
It has been well documented that the retail sector has weakened in many
areas and this has been reflected in financial difficulties for many
well-known high street names such as New Look and Toys R Us. Since
inception, the Company has positioned its retail purchases to take account
of this trend. Our retail assets are located in town and city centres with
large catchment populations and in many cases are supported by strong
alternative use values and asset management options. Indeed, Valley Retail
Park, Belfast, has been one of our strongest performing assets, as
detailed in the 'Portfolio Activity' section. While we remain cautious on
the retail sector, mispriced opportunities can still be found.
Industrial
The industrial sector remains robust and it represents the largest
proportion of our portfolio with 42%. We generally focus on assets with
low capital value in locations with good accessibility from the national
motorway network. In general, with the exception of large regional
logistics units, industrial values have not yet reached levels which
support the cost of new development, creating a tension between supply and
demand often resulting in significant rental growth. Total returns for the
industrials market were 19.6% for 2017 (IPD) and rental growth was 5.3%,
more than double the all-property average.
This has been demonstrated within the Company's portfolio, for example at
Sarus Court Industrial Estate, Runcorn, where new letting deals have moved
rental values from £4.50 per sq ft at purchase to £5.50 per sq ft today,
which has resulted in a valuation increase of 28% over the 29 months since
acquisition of the initial four units. We therefore believe that the
portfolio's low average passing rent from industrial property of £3.92 per
sq ft make it well placed to benefit from further rental growth and we
expect the sector to continue to be an area of opportunity for the Company
over the next year.
Offices
Offices represent the Company's second largest sector holding and in some
areas we have seen significant value growth. Locations with either high
levels of tenant demand or where purchase values are well below that of
surrounding residential uses are the focus of our stock selection process.
The implementation within the planning regime of permitted development
rights ('PDR') allowing for conversion to residential has contributed to a
shortage of office stock in some locations and this in turn has led to
rental growth in areas of robust occupational demand.
This remains an area where we see interesting opportunities to purchase
assets with attractive initial yields. Post purchase, the asset management
team work proactively, often implementing initiatives to drive rental
value at the same time as working on permitted residential consents to
improve the assets residual value ensuring downside protection. For
example, the Company's holding in Queen Square, Bristol, has benefited
from rental growth as a result of our asset management programme of
improvement and refurbishment. The average passing rent at purchase in
December 2015 date was under £17 per sq ft, compared to the latest leasing
interest at £24 per sq ft. Average rental growth of 44% has contributed to
an increase in value from £7.2 million at purchase to £10.7 million as at
31 March 2018.
Alternatives
The alternatives holding in the Company's portfolio works to diversify
risk and enhance performance. Alternatives are a growing allocation in
most balanced real estate portfolios and this is an area in which we have
significant expertise and would like to increase our holding. Our strategy
will focus on shorter lease profiles in economically robust areas where
tenants are trading profitably from the location. The assets will often
provide asset management opportunities, such as the ability to agree
longer leases with tenants who often prefer index linked rent reviews. It
is a growing sector of the market and presents opportunities to acquire
interesting assets at attractive prices, such as London East Leisure Park
in Dagenham, which was purchased by the Company in March 2018.
Pipeline
As demonstrated by the weight of the Company's purchases during the first
quarter of 2018, the opportunity persists to purchase assets across all
sectors, with attractive and sustainable yield profiles, along with the
potential for growth. The Company's investment strategy continues to focus
on well located assets, of comparatively small lot size with shorter than
average unexpired lease lengths that can be used to actively drive value
as part of a business plan. Our stock selection process also closely
examines alternative use values for each asset and selects those that
provide a strong recovery rate in a downside scenario.
Our pipeline of opportunities remains supportive of our target dividend of
8 pps per annum and our aim of providing an attractive total return from a
diversified portfolio of assets. In the short term, purchases will
continue to focus on business space and alternatives and will remain
opportunistic in the retail sector.
Financial Results
The Company continues to build on a diversified portfolio of properties
and as at 31 March 2018 held 36 investment properties (30 April 2017: 29
investment properties). Net rental income earned from the portfolio for
the 11 months ended 31 March 2018 was £11.22 million (year ended 30 April
2017: £11.07 million), contributing to an operating profit before fair
value changes and disposals of £9.60 million (year ended 30 April 2017:
£9.81 million).
The Company disposed of its remaining holding in the Core Fund on 9 May
2017 for total proceeds of £7.67 million. The Company had held an
ownership in the Core Fund since May 2015 and saw a total return of 13%
over the hold period. The units were sold at a price in excess of the Core
Fund's then most recent published NAV and generated a profit on disposal
of £0.07 million.
The portfolio has seen a gain of £1.01 million on revaluation of
investment property over the period (year ended 30 April 2017: loss of
£3.16 million). Performance was strongly supported by the Company's
industrial assets, which saw the greatest like-for-like increase in
valuation over the period of each sector. The Company's office and retail
warehousing portfolios also increased in valuation during the period on a
like-for-like basis. Geographically, performance was strongest in the
South West, North West, Eastern and West Midlands regions, while Scotland
was the only region with a negative like-for-like valuation movement,
highlighting continued uncertainty in occupational markets in this
location. That said, we are encouraged by signs of improvement that have
been seen here during the first quarter of 2018 and we are hopeful that
the current business plan will yield a more positive outcome during the
coming 12 months.
The Company reported a loss on disposal of investment properties of £0.22
million (year ended 30 April 2017: gain of £0.73 million), which wholly
relates to sales costs for the disposal of Valley Retail Park, Belfast, in
September 2017.
Administrative expenses, which include the Investment Manager's fee and
other costs attributable to the running of the Company, were £1.62 million
for the 11 month period (year ended 30 April 2017: £1.84 million) and
Ongoing Charges for the period were 1.24% (year ended 30 April 2017:
1.52%).
The Company incurred finance costs of £0.65 million during the period
(year ended 30 April 2017: £0.76 million).
The total profit before tax for the period of £9.82 million (year ended 30
April 2017: £6.10 million) equates to a basic earnings per share of 7.17
pence (year ended 30 April 2017: 5.04 pence).
The Company's Net Asset Value as at 31 March 2018 was £146.03 million or
96.36 pence per share ("pps") (30 April 2017: £118.67 million or 95.98
pps). This is an increase of 0.38 pps or 0.40%, with the underlying
movement in NAV set out in the table below:
Pence per share £ million
NAV as at 1 May 2017 95.98 118.67
Change in fair value of investment property 1.11 1.01
Change in fair value of derivatives (0.02) (0.02)
Loss on disposal of investment property (0.17) (0.22)
Profit on disposal of investments 0.04 0.07
Income earned for the period 9.07 12.33
Expenses and net finance costs for the period (2.47) (3.35)
Dividends paid (7.33) (9.99)
Issue of equity (net of costs) 0.15 27.53
NAV as at 31 March 2018 96.36 146.03
EPRA earnings per share for the 11 month period was 6.56 pps which, based
on dividends paid of 7.33 pps, reflects a dividend cover of 89.50%.
Financing
As at 31 March 2018, the Company had utilised £50.00 million (30 April
2017: £29.01 million) of an available £60.00 million (30 April 2017:
£40.00 million) credit facility with RBSi, maturing in October 2020.
Gearing as at 31 March 2018 was 26.00% (Loan to GAV) (30 April 2017:
19.31%). The loan attracts interest at LIBOR + 1.4% (30 April 2017: LIBOR
+ 1.4%). To mitigate the interest rate risk that arises as a result of
entering into a variable rate linked loan, the Company holds interest rate
caps on £36.51 million (30 April 2017: £26.51 million) of the loan at
strike rates of 2.5% on £26.51 million and 2.0% on £10.00 million (30
April 2017: 2.5% on £26.51 million), meaning that the loan is 73% hedged
(30 April 2017: 91%).
Portfolio Activity
The Company's objective is to build a diversified portfolio of commercial
properties throughout the UK. New acquisitions have been selected to
provide a sustainable income return and the potential for growth, whilst
also limiting downside risk. The majority of the Company's assets are
fully let and as at 31 March 2018, the Company had a vacancy rate of 7.10%
(30 April 2017: 7.22%). The following significant investment transactions
were made during the period:
Unit 1005, Sarus Court, Runcorn - In May 2017 the Company acquired Unit
1005 Sarus Court which completes the Company's acquisition of the whole
of the Sarus Court industrial estate, where five of the six units were
- already in the Company's ownership following acquisitions in 2015. Sarus
Court forms part of the wider Manor Park industrial estate,
strategically located to the west of Runcorn and five kilometres from
the Mersey Gateway Project, a new six lane bridge over the River Mersey
connecting the towns of Runcorn and Widnes and linking the M56 to M62.
The estate provides well specified, modern industrial units of between
11,000 and 17,000 sq ft, which are let to a number of light industrial
occupiers providing a WAULT of over three years to expiry across the
estate. Unit 1005, which is let to Dimension Data until 2020, offers
significant reversionary potential, with a passing rent of £4.50 per sq
ft which is more than 15% lower than a 2017 letting at 1003 Sarus Court
secured at £5.25 per sq ft. The purchase therefore not only offers
rental upside but brings the whole estate under the Company's ownership,
which will add value from an estate management perspective. The
acquisition pricing reflects a Net Initial Yield of 7.8% and a capital
value of £55 per sq ft.
Deeside Industrial Park - In July 2017 the Company announced the
acquisition of a c. 97,000 sq ft single-let industrial building in
Deeside, North Wales, for £4.31 million, reflecting a Net Initial Yield
of 7.9% and a capital value of £45 per sq ft. The asset, which is
- located within the established Deeside Industrial Park, is fully let to
global enterprise Magellan Aerospace, for a term of four years to break
and nine years to expiry. The current passing rent of £3.75 per sq ft is
significantly below that seen at other competing centres within the
North West, such as in Warrington and Manchester.
Deeside Industrial Park has been established since the 1970s and totals
in excess of 600 acres, comprising over 5 million sq ft of industrial
and warehouse accommodation attracting a variety of manufacturing and
distribution companies. The estate benefits from its close proximity to
the national motorway network, being within five miles of both the M56
and M53.
Storey's Bar Road, Peterborough - During July 2017 the Company announced
the acquisition of a c.184,000 sq ft single-let industrial building in
Peterborough, for £5.70 million, reflecting a Net Initial Yield of 8.64%
- and a capital value of c.£31 per sq ft. The asset, which is located
within the Eastern Industrial Estate, is fully let to Walstead
Investments Limited for a term of three years to expiry. The passing
rent of £2.88 per sq ft is low in comparison to some of the recent
lettings in the city and the immediate sub region.
- Core Fund - In May 2017, the Company announced the sale of its remaining
units in the Core Fund for total proceeds of £7.67 million.
The Company had held an ownership in the Core Fund since launch in May
2015 for the purpose of expediting its investment period and saw a total
return of 13% over the hold period. The units were sold at a price in
excess of the Core Fund's latest published NAV.
Valley Retail Park, Belfast - In September 2017 the Company completed
the disposal of the Valley Retail Park in Belfast for £11.05 million.
The Company originally purchased the 100,189 sq ft property for £7.15m
- in 2015 with a WAULT of only 3 years to break and vacancy in excess of
20%. The Company's proactive asset management activity has added
significant value with new lettings to Go Outdoors for a 20 year term
and Smyths Toys for a term of 15 years. A surrender premium of £1m was
also taken from outgoing tenant Harvey Norman.
After completion of the asset's business plan, it was felt to be the
most beneficial time to dispose in order to maximise shareholder return.
Commercial Road Portsmouth - In October 2017 the Company acquired
208-220 Commercial Road and 7-13 Crasswell Street, Portsmouth for
£6.37m, reflecting a net initial yield of 9.6%. The asset is fully let
- to seven retail tenants and one office tenant providing a WAULT of 3.6
years to expiry. The 12,475 sq ft retail property is situated within the
prime pedestrianised pitch of Commercial Road within Portsmouth's city
centre. The property is also directly opposite the main covered shopping
centre, The Cascades, which is anchored by Primark, H&M and Next.
As part of the 'Shaping Portsmouth' development initiative, the city is
set to receive £1 billion of investment from both public and private
sector organisations over the next 20 years.
Cedar House, Gloucester - In December 2017 the Company announced the
acquisition of Cedar House, Spa Road, Gloucester for £3.10 million. The
five-storey office block, which is located within the city centre
adjacent to Gloucester Park, was acquired for a price reflecting a low
- capital value of only £80 per sq ft and an attractive net initial yield
of 9.1%. The property is currently let to the Secretary of State for
Communities & Local Government for use as a Job Centre, with a short
unexpired lease term of 0.3 years. However, the tenant has already
served a Section 26 notice to renew the lease and as such the Investment
Manager has already agreed terms to extend this occupation.
The property is situated within a mixed office and residential area and
as such the Investment Manager believes that it provides good long-term
alternative use potential. Public transport is easily accessible, with
good links to Gloucester Railway Station and a central bus route. The
asset provides a total floor area of 38,427 sq ft and includes
substantial car parking facilities, with 103 spaces available.
Knowles Lane, Bradford - In January 2018, the Company completed the
purchase of Knowles Lane, Bradford, for £2.10 million. The asset is
fully let to one tenant, Pilkington UK Ltd., who have been in occupation
- for c.30 years. The property comprises an industrial warehouse and two
storey ancillary offices and was acquired for a price reflecting a low
capital value of £45 per sq ft and net initial yield of 7.2%. The
property is located two miles south of Bradford and eight miles to the
west of Leeds and is well located for the national motorway network.
Diamond Business Park, Wakefield - During February 2018, the Company
acquired Diamond Business Park in Wakefield comprising 201,543 sq ft of
- multi-let industrial and office accommodation. The property is let to 12
tenants and provides a WAULT of 2.6 years to break and 5.0 years to
expiry. The transaction of £4.18 million reflects a net initial yield of
11.5% and low capital value of £22 per sq ft and £430,000 per acre.
The large site of ten acres benefits from being situated in Wakefield,
an established industrial location. The business park is strategically
located at the intersection of the M1/M62 motorways, providing access to
Manchester, Liverpool, Sheffield and beyond to London. The adjoining
sites comprise recently developed residential accommodation highlighting
potential to add value through change of use in the future.
2 Geddington Road, Corby - Also in February 2018 the Company acquired 2
Geddington Road, Corby, an asset of 35 acres fully let to GEFCO UK Ltd,
a wholly owned subsidiary of GEFCO SA, a global provider of logistics
- services to manufacturers, with 3.3 years to expiry. The property
comprises a secure fenced site along with a modern industrial property
extending to 52,000 sq ft and is used by the tenant for the storage and
inspection of vehicles. The transaction of £12.40 million reflects an
attractive net initial yield of 10.0%.
A mix of commercial and residential development surrounds the site,
including the Eurohub logistics park and a 250-acre development site
being brought to the market by Frogmore and Mulberry Developments where
Eddie Stobart have recently signed up for a new 844,000 sq ft facility.
East London Leisure Park, Dagenham - During March 2018 the Company
acquired c. 72,000 sq ft of leisure accommodation forming the eastern
section of the London East Leisure Park, a purpose built leisure
- destination, for £11.37 million. The property currently houses Mecca
Bingo, McDonalds and Hollywood Bowl and provides a net initial yield of
5.8%, rising to 8% in September 2018 upon expiry of a rent free period,
with a WAULT of 12.6 years.
A major attraction of the park is its location, 11 miles east of Central
London and being highly accessible both via public transport but also
with close links to the A13 and M25. Dagenham is an area due to go
through major regeneration over the next ten years with the Council
recently setting out plans for the development of thousands of new homes
as well as a proposal for the first film studio to be built in London
for 25 years. The surrounding area comprises a mix of retail, industrial
and residential property.
Gresford Industrial Estate, Wrexham - During March 2018 the Company
acquired a single let industrial unit on the Gresford Industrial Estate,
Wrexham for a price of £9.98 million reflecting a low capital value of
£35 per sq ft. The property provides 279,541 sq ft leased to Plastipak
UK Limited for a further 14 years and comprises three units within a
self-contained site. The asset benefits from its location in Gresford
- Industrial Estate, approximately two miles north of Wrexham town centre,
with key motorway links across the North West via the A483. A key
feature of the building is its large power supply at 18 megawatts which
is rarely seen in buildings of this nature and could therefore be
attractive to future tenants. The asset provides a net initial yield
today of 8.3% with a fixed rental uplift due in 2022 taking the yield in
excess of 9%.
Acquisitions during the period
Unit 1005, Sarus Court, Runcorn
Purchase Price (£m): 0.61
Sector: Industrial
Area (sq ft): 11,097
NIY at acquisition (%): 7.8
WAULT to break as at 31 March 2018 (years): 2.5
Occupancy by ERV (%): 100
Constructed: 2002
Excel 95, Deeside
Purchase Price (£m): 4.31
Sector: Industrial
Area (sq ft): 96,597
NIY at acquisition (%): 7.9
WAULT to break as at 31 March 2018 years): 4.0
Occupancy by ERV (%): 100
Constructed: 1990s
Storeys Bar Road, Peterborough
Purchase Price (£m): 5.70
Sector: Industrial
Area (sq ft): 184,114
NIY at acquisition (%): 8.6
WAULT to break as at 31 March 2018 years): 3.0
Occupancy by ERV (%): 100
Constructed: 1988
Commercial Road, Portsmouth
Purchase Price (£m): 6.37
Sector: Standard Retail
Area (sq ft): 12,475
NIY at acquisition (%): 9.6
WAULT to break as at 31 March 2018 years): 3.3
Occupancy by ERV (%): 100
Constructed: 1980s
Cedar House, Gloucester
Purchase Price (£m): 3.10
Sector: Offices
Area (sq ft): 38.427
NIY at acquisition (%): 9.1
WAULT to break as at 31 March 2018 years): 6.0
Occupancy by ERV (%): 100
Constructed: 1970s
Knowles Lane, Bradford
Purchase Price (£m): 2.10
Sector: Industrial
Area (sq ft): 51,722
NIY at acquisition (%): 7.2
WAULT to break as at 31 March 2018 years): 6.5
Occupancy by ERV (%): 100
Constructed: 1970s
Diamond Business Park, Wakefield
Purchase Price (£m): 4.18
Sector: Industrial
Area (sq ft): 205,203
NIY at acquisition (%): 11.5
WAULT to break as at 31 March 2018 years): 2.6
Occupancy by ERV (%): 82.1
Constructed: 1970s
2 Geddington Road, Corby
Purchase Price (£m): 12.40
Sector: Other
Area (sq ft): 52,353
NIY at acquisition (%): 10.0
WAULT to break as at 31 March 2018 years): 3.3
Occupancy by ERV (%): 100
Constructed: 1990s
London East Leisure Park, Dagenham
Purchase Price (£m): 11.37
Sector: Other
Area (sq ft): 71,720
NIY at acquisition (%): 8.0
WAULT to break as at 31 March 2018 years): 12.6
Occupancy by ERV (%): 100
Constructed: 1990s
Gresford Industrial Estate, Wrexham
Purchase Price (£m): 9.98
Sector: Industrial
Area (sq ft): 279,541
NIY at acquisition (%): 8.3
WAULT to break as at 31 March 2018 years): 14.0
Occupancy by ERV (%): 100
Constructed: 1980s
Asset Management
We undertake active asset management to seek opportunities to achieve
rental growth, let vacant space and enhance value through initiatives such
as refurbishments. During the period, key asset management initiatives
have included:
- Langthwaite Industrial Estate, South Kirkby - In October 2017 the
Company completed the renewal of two leases with its largest tenant,
Ardagh Glass, on two warehouse buildings at the Langthwaite Industrial
Estate in South Kirkby, Yorkshire, located c.4 miles from Junction 38 of
the A1M and c.10 miles from Junction 37 of the M1. Ardagh Glass, whose
parent group's latest reported full year figures show annual turnover in
excess of EUR6,000 million, use the premises for storage and distribution
serving their nearby factories. The manufacturing group has taken the
units for an additional term with just under 3 years to expiry resulting
in a total valuation uplift for the Company of 14% since acquisition.
- Eastpoint Business Park, Oxford - The Company completed a new
letting of 2,800 sq ft of office accommodation to publishing company
Capstone at the Eastpoint Business Park in Oxford. The unit has been let
for a term of 5 years with a break option in year 3 at a rent of £15.50
per sq ft which is in excess of ERV.
- Queen Square, Bristol - In late summer 2017 the Company announced
that it had let 1,986 sq ft to Kingston Barnes, a construction recruitment
firm, at its office building at 40 Queen Square in central Bristol meaning
that the 38,301 sq ft Grade-A building is now fully let. We have
implemented a significant refurbishment programme at 40 Queen Square which
was acquired by the Company with c 50% vacancy. In line with the Company's
strategy of driving rental growth and adding value through active asset
management the asset has seen a valuation increase of 49% since purchase.
This latest transaction concludes six lettings totalling c 25,000 sq ft
within the last 12 months.
- Pearl Assurance House, Nottingham - After the period end, on 5
April 2018, the Company completed the part sale of Pearl Assurance House,
which was purchased by the Company in 2016 for £8.15 million. The sale of
£3.65 million comprises the first to the ninth floors of the building as
well as a ground floor reception and car parking spaces, providing a total
area of 41,262 sq ft. The transaction reflected a net initial yield of
6.9% and significantly reduces the overall vacancy level in the portfolio.
The Company will retain the fully let ground floor accommodation in this
busy city centre location, totalling 28,432 sq ft, let to national retail
operators including Costa Coffee, Poundland and Lakeland. The retained
element will provide the Company with an ongoing yield of 9.5% based on
its component value of £5.26 million.
Property Portfolio
Please refer to Appendix 3 'Since Inception', accessible through the link
at the end of this announcement.
Please refer to Appendix 4 'UK property locations as at 31 March 2018',
accessible through the link at the end of this announcement.
Summary by Sector as at 31 March 2018
Gross
Passing
Area Occupancy WAULT to Rental
by ERV break Income (£m)
Number of Valuation ('000
Properties sq ft) (%) (years) ERV
(£m) (£m)
Sector
Standard 4 23.9 147 96.3 3.9 2.5 1.9
Retail
Retail 2 9.5 68 100.0 5.4 0.8 0.8
Warehouse
Office 7 48.4 357 79.3 4.0 3.8 5.2
Industrial 20 81.2 2,161 98.4 5.4 7.3 7.5
Other 3 29.4 165 100.0 6.1 2.6 2.3
Total 36 192.4 2,898 92.9 5.1 17.0 17.7
Summary by Geographical Area as at 31 March 2018
Gross
Passing
Area Occupancy WAULT Rental
by ERV to Income
Geographical Number of Valuation ('000 break (£m) ERV
Area Properties sq ft) (%) (£m)
(£m) (years)
Greater 1 11.4 72 100.0 12.6 0.7 0.8
London
South East 5 28.7 195 89.3 3.6 2.7 2.4
South West 3 21.4 126 100.0 4.8 1.6 1.7
Eastern 5 20.9 345 100.0 4.2 1.8 1.9
West Midlands 4 16.9 397 100.0 4.3 1.8 1.8
East Midlands 2 21.3 122 86.0 3.9 2.0 1.9
North West 5 16.8 315 99.8 5.2 1.5 1.4
Yorkshire and 8 30.5 864 94.1 3.8 2.9 3.2
Humberside
Wales 2 14.5 376 100.0 11.1 1.3 1.3
Scotland 1 10.0 86 57.1 3.3 0.7 1.3
Total 36 192.4 2,898 92.9 5.1 17.0 17.7
Please refer to Appendix 5 'Properties by Market Value', accessible
through the link at the end of this announcement.
Market Value
Property Sector Region
Range (£m)
Top ten:
2 Geddington Road, Corby Other (Sui East Midlands 10.0 - 15.0
Generis)
London East Leisure Park, Other (Leisure) Greater London 10.0 - 15.0
Dagenham
40 Queen Square, Bristol Offices South West 10.0 - 15.0
225 Bath Street, Glasgow Offices Scotland 10.0 - 15.0
Gresford Industrial Estate, Industrial Wales 7.5 - 10
Wrexham
Pearl Assurance House, Offices East Midlands 7.5 - 10
Nottingham
Eastpoint Business Park, Offices South East 7.5 - 10
Oxford
Above Bar Street, Southampton Standard Retail South East 7.5 - 10
Barnstaple Retail Park Retail Warehouse South West 5.0 - 7.5
Langthwaite Grange Industrial Industrial Yorkshire and 5.0 - 7.5
Estate, South Kirby Humberside
The Company's top ten properties listed above comprise 49.1% of the total
value of the portfolio.
Market Value
Property Sector Region
Range (£m)*
Commercial Road, Portsmouth Standard Retail South East 5.0 - 7.5
Sarus Court Industrial Estate, Industrial North West 5.0 - 7.5
Runcorn
Storeys Bar Road, Peterborough Industrial Eastern 5.0 - 7.5
Odeon Cinema, Southend Other (Leisure) Eastern 5.0 - 7.5
Oak Park, Droitwich Industrial West Midlands 5.0 - 7.5
Euroway Trading Estate, Industrial Yorkshire and 5.0 - 7.5
Bradford Humberside
Apollo Business Park, Basildon Industrial Eastern <5.0
Bank Hey Street, Blackpool Standard Retail North West <5.0
Sandford House, Solihull Offices West Midlands <5.0
Excel 95, Deeside Industrial Wales <5.0
Fargate and Chapel Walk, Standard Retail Yorkshire and <5.0
Sheffield Humberside
Brockhurst Crescent, Walsall Industrial West Midlands <5.0
Diamond Business Park, Industrial Yorkshire and <5.0
Wakefield Humberside
Walkers Lane, St. Helens Industrial North West <5.0
Brightside Lane, Sheffield Industrial Yorkshire and <5.0
Humberside
Wella Warehouse, Basingstoke Industrial South East <5.0
Cedar House, Gloucester Offices South West <5.0
Eagle Road, Redditch Industrial West Midlands <5.0
Pipps Hill Industrial Estate, Industrial Eastern <5.0
Basildon
Vantage Point, Hemel Hempstead Offices Eastern <5.0
Magham Road, Rotherham Industrial Yorkshire and <5.0
Humberside
Knowles Lane, Bradford Industrial Yorkshire and <5.0
Humberside
Stoneferry Retail Park, Hull Retail Warehouse Yorkshire and <5.0
Humberside
Clarke Road, Milton Keynes Industrial South East <5.0
Moorside Road, Salford Industrial North West <5.0
Waggon Road, Mossley Industrial North West <5.0
Source: Valuation provided by Knight Frank LLP as at 31 March 2018.
Top Ten Tenants
Passing % of Portfolio
Tenant Property Rental Income Total Passing
(£'000) Rental Income
GEFCO UK Limited 2 Geddington Road, Corby 1,320 7.7
Plastipak UK Limited Gresford Industrial 883 5.2
Estate, Wrexham
Sandford House, Solihull
The Secretary of and Cedar House, 811 4.8
State
Gloucester
Ardagh Glass Limited Langthwaite Industrial 676 4.0
Estate, South Kirkby
Mecca Bingo Limited London East Leisure 625 3.7
Park, Dagenham
Egbert H Taylor & Oak Park, Droitwich 620 3.6
Company Limited
Odeon Cinemas Odeon Cinema, Southend 535 3.1
Barnstaple Retail Park
Sports Direct and Bank Hey Street, 525 3.1
Blackpool
Wyndeham Storeys Bar Road, 525 3.1
Peterborough Limited Peterborough
Advance Supply Chain Euroway Trading Estate, 428 2.5
(BFD) Limited Bradford
The Company's top ten tenants, listed above, represent 40.8% of the total
passing rental income of the portfolio.
Please refer to Appendix 6 'Lease Expiry Profile', accessible through the
link at the end of this announcement.
Alternative Investment Fund Manager ('AIFM')
AEW UK Investment Management LLP is authorised and regulated by the
Financial Conduct Authority 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 2018 30 April 2017
Leverage Gross Method Commitment Gross Commitment
Exposure Method Method Method
Maximum Limit 140% 140% 140% 140%
Actual 131% 134% 118% 124%
In accordance with the AIFM Directive, leverage is expressed as a
percentage of the Company's exposure to its NAV and adjusted in line with
the prescribed 'Gross' and 'Commitment' methods. The Gross method is
representative of the sum of the Company's positions after deducting cash
balances and without taking into account any hedging and netting
arrangements. The Commitment method is representative of the sum of the
Company's positions without deducting cash balances and taking into
account any hedging and netting arrangements. For the purposes of
evaluating the methods above, the Company's positions primarily reflect
its current borrowings and NAV.
Remuneration
The AIFM has adopted a Remuneration Policy which accords with the
principles established by AIFMD.
AIFMD Remuneration Code Staff includes the members of the AIFM's
Management Committee, those performing Control Functions, Department
Heads, Risk Takers and other members of staff that exert material
influence on the AIFM's risk profile or the AIFs it manages.
Staff are remunerated in accordance with the key principles of the firm's
remuneration policy, which include (1) promoting sound risk management;
(2) supporting sustainable business plans; (3) remuneration being linked
to non-financial criteria for Control Function staff; (4) incentivise
staff performance over longer periods of time; (5) award guaranteed
variable remuneration only in exceptional circumstances; and (6) having an
appropriate balance between fixed and variable remuneration.
As required under section 'Fund 3.3.5.R(5)' of the Investment Fund
Sourcebook, the following information is provided in respect of
remuneration paid by the AIFM to its staff. The information provided below
is provided for the year from 1 January 2017 to 31 December 2017, which is
in line with the most recent financial reporting period of the AIFM, and
relates to the total remuneration
of the entire staff of the AIFM.
Year ended
31 December 2017
Total remuneration paid to employees during financial
year:
a) remuneration, including, where relevant, any carried £2,342,893
interest paid by the AIFM
b) the number of beneficiaries 26
The aggregate amount of remuneration, broken down by:
a) senior management £604,938
b) members of staff £1,737,955
Fixed Variable Total
remuneration remuneration remuneration
Senior management £604,938 - £604,938
Staff £1,458,955 £279,000 £1,737,955
Total £2,063,893 £279,000 £2,342,893
AEW UK Investment Management LLP
8 June 2018
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 carried out a robust assessment of the principal risks
facing the Company, including those that would threaten its business
model, future performance, solvency or liquidity. Twice a year, the Audit
Committee reviews the adequacy and effectiveness of the Company's risk
management system. Some risks are not yet known and some that are
currently not deemed material, could turn out to be material in the
future. All principal risks are the same as detailed in the 2017 Annual
Report. Financial risk management and objectives and policies are further
detailed in Note 20 of the Financial Statements.
An analysis of the principal risks and uncertainties is set out below:
Principal risks and their potential
impact How risk is managed
REAL ESTATE RISKS
Property market
Any property market recession or future
deterioration in the property market
could, inter alia, (i) cause the Company
to realise its investments at lower
valuations; and (ii) delay the timings The Company has investment
of the Company's realisations. These restrictions in place to invest
risks could have a material adverse and manage its assets with the
effect on the ability of the Company to objective of spreading and
achieve its investment mitigating risk.
objective.
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
valuer (Knight Frank) to value
There may be an adverse effect on the the properties at fair value in
Company's profitability, the NAV and the accordance with accepted RICS
price of Ordinary Shares in cases where appraisal and valuation
properties are standards.
sold whose valuations have previously
been materially overstated.
Tenant covenant checks are
carried out on new tenants where
Tenant default there are concerns as to their
creditworthiness.
Failure by tenants to comply with their
rental obligations could affect the
income that the properties earn and the
ability of the Company to pay dividends Asset management team conducts
to its shareholders. ongoing monitoring and liaison
with tenants to manage potential
bad debt risk.
Asset management initiatives
Asset management initiatives, such as
refurbishment works, may prove to be Costs incurred on asset
more extensive, expensive and take management initiatives are
longer than anticipated. Cost overruns closely monitored against budgets
may have a material adverse effect on and reviewed in regular
the Company's profitability, the NAV and presentations to the Investment
the share price. Management Committee of the
Investment Manager.
Due diligence
Due diligence may not identify all the
risks and liabilities in respect of an The Company's due diligence
acquisition (including any relies on the work (such as legal
environmental, structural or operational reports on title, property
defects) that may lead to a material valuations, environmental,
adverse effect on the Company's building surveys) outsourced to
profitability, the Net Asset Value and third parties who have expertise
the price of the Company's Ordinary in their areas. Such third
Shares. parties have Professional
Indemnity cover in place.
Fall in rental rates
Rental rates may be adversely affected The Company mitigates this risk
by general UK economic conditions and through building a diversified
other factors that depress rental rates, property and tenant base with
including local factors relating to subsequent monitoring of
particular properties/locations (such as concentration to individual
increased competition). occupiers (top 10 tenants) and
sectors (geographical and sector
exposure).
Any fall in the rental rates for the
Company's properties may have a material
adverse effect on the Company's The Investment Manager holds
profitability, the NAV, the price of the quarterly meetings with its
Ordinary Shares and the Company's Investment Strategy Committee and
ability to meet interest and capital regularly meets the Board of
repayments on any debt facilities. Directors to assess whether any
changes in the market present
risks that should be addressed in
our strategy.
FINANCIAL RISKS
Breach of borrowing covenants
The Company has entered into a term
credit facility.
The Company monitors the use of
borrowings on an ongoing basis
Material adverse changes in valuations through weekly cash flow
and net income may lead to breaches in forecasting and quarterly risk
the LTV and interest cover ratio monitoring to monitor financial
covenants. covenants.
Interest rate rises The Company uses interest caps on
a significant notional value of
The Company's borrowings through a term the loan to mitigate the adverse
credit facility are subject to interest impact of possible interest rate
rate risk through changing LIBOR rates. rises.
Any increases in LIBOR rates may have an
adverse effect on the Company's ability
to pay dividends.
The Investment Manager and Board
of Directors monitor the level of
hedging and interest rate
movements to ensure that the risk
is managed appropriately.
Availability and cost of the credit
facility
The Company maintains a good
The term credit facility expires in relationship with the bank
October 2020. In the event that RBSi providing the term credit
does not renew the facility the Company facility.
may need to sell assets to repay the
outstanding loan. Any increase in the
financing costs of the facility on
renewal would adversely impact on the The Company monitors the
Company's profitability. projected usage and covenants of
the credit facility on a
quarterly basis.
CORPORATE RISKS
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
Failure by any service provider to carry monitored via regular calls and
out its obligations to the Company in face to face meetings and the use
accordance with the terms of its of Key Performance Indicators,
appointment could have a materially where relevant.
detrimental impact on the operation of
the Company.
Dependence on the Investment Manager
The Investment Manager is responsible
for providing investment management
services to the Company.
The Investment Manager has
The future ability of the Company to endeavoured to ensure that the
successfully pursue its investment principal members of its
objective and investment policy may, management team are suitably
among other things, depend on the incentivised.
ability of the Investment Manager to
retain its existing staff and/or to
recruit individuals of similar
experience and calibre.
Ability to meet objectives
The Company may not meet its investment
objective to deliver an attractive total
return to shareholders from investing The Company has an investment
predominantly in a portfolio of smaller policy to achieve a balanced
commercial properties in the United portfolio with a diversified
Kingdom. tenant base. The Company also has
investment restrictions in place
to limit exposure to potential
Poor relative total return performance risk factors. These factors
may lead to an adverse reputational mitigate the risk of fluctuations
impact that affects the Company's in returns.
ability to raise new capital.
TAXATION RISKS
Company REIT status
The Company has a UK REIT status that
provides a tax-efficient corporate
structure.
The Company monitors REIT
If the Company fails to remain a REIT compliance through the Investment
for UK tax purposes, its profits and Manager on acquisitions; the
gains will be subject to UK corporation Administrator on asset and
tax. distribution levels; the
Registrar and Broker on
shareholdings and the use of
third-party tax advisers to
Any change to the tax status or UK tax monitor REIT compliance
legislation could impact on the requirements.
Company's ability to achieve its
investment objectives and provide
attractive returns to shareholders.
POLITICAL/ECONOMIC RISKS
Political and macroeconomic events
present risks to the real estate and
financial markets that affect the The Board considers the impact of
Company and the business of our tenants. political and
The level of uncertainty that such
events bring has been highlighted in macroeconomic events when
recent times, most pertinently following reviewing strategy.
the EU referendum vote (Brexit) in June
2016.
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 period. Under that law they are required to prepare the
financial statements in accordance with International Financial Reporting
Standards as adopted by the European Union (IFRSs as adopted by the EU)
and applicable law.
Under company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state
of affairs of the Company and of its profit or loss for that period. In
preparing these financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable, relevant and
reliable;
• state whether they have been prepared in accordance with IFRSs as
adopted by the EU;
• assess the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern; and
• use the going concern basis of accounting unless they either intend to
liquidate the Company or to cease operations, or have no realistic
alternative but to do so.
The Directors are responsible for keeping adequate accounting records that
are sufficient to show and explain the Company's transactions and disclose
with reasonable accuracy at any time the financial position of the Company
and enable them to ensure that its financial statements comply with the
Companies Act 2006. They are responsible for such internal control as they
determine is necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to fraud or error,
and have general responsibility for taking such steps as are reasonably
open to them to safeguard the assets of the Company and to prevent and
detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible
for preparing a Strategic Report, Directors' Report, Directors'
Remuneration Report and Corporate Governance Statement that complies with
that law and those regulations.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in the UK governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
Responsibility statement of the Directors in respect of the Annual Report
and the Financial Statements
We confirm that to the best of our knowledge:
* the Financial Statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the Company;
and
* the Strategic Report includes a fair review of the development
and performance of the business and the position of the UK Company,
together with a description of the principal risks and uncertainties that
it faces.
We consider the Annual Report and the Financial Statements, taken as a
whole, is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company's position and
performance, business model and strategy.
On behalf of the Board
Mark Burton
Chairman
8 June 2018
Non-statutory Accounts
The financial information set out below does not constitute the Company's
statutory accounts for the period ended 31 March 2018 but is derived from
those accounts. Statutory accounts for the period ended 31 March 2018 will
be delivered to the Registrar of Companies in due course. The Independent
Auditor has reported on those accounts; their 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 their report
and (iii) did not contain a statement under Section 498 (2) or (3) of the
Companies Act 2006. The text of the Independent Auditors' Report can be
found in the Company's full Annual Report and the Financial Statements on
the Company's website.
Financial Statements
Statement of Comprehensive Income
for the period 1 May 2017 to 31 March 2018
For the period
Year ended
1 May 2017 to
Notes 30 April 2017
31 March 2018
£'000
£'000
Income
Rental and other income 3 12,330 12,503
Property operating expenses 4 (1,106) (1,434)
Net rental and other income 11,224 11,069
Dividend income 3 - 576
Net rental and dividend income 11,224 11,645
Other operating expenses 4 (1,539) (1,768)
Directors' remuneration 5 (84) (71)
Operating profit before fair value 9,601 9,806
changes
Change in fair value of investment 10 1,014 (3,159)
properties
(Loss)/profit on disposal of investment 10 (216) 731
properties
Change in fair value of investments 10 - (407)
Profit/(loss) on disposal of 10 73 (113)
investments
Operating profit 10,472 6,858
Finance expense 6 (652) (759)
Profit before tax 9,820 6,099
Taxation 7 - -
Profit after tax 9,820 6,099
Other comprehensive income - -
Total comprehensive income for the 9,820 6,099
period/year
Earnings per share (pence per share) 8 7.17 5.04
(basic and diluted)
The notes below form an integral part of these financial statements.
Statement of Changes in Equity
for the period 1 May 2017 to 31 March 2018
Total capital
Capital
Share and reserves
Share reserve and
For the period 1 May capital premium attributable to
2017 to 31 March 2018 Notes retained
£'000 account owners of the
earnings
£'000 Company
£'000
£'000
Balance at 1 May 2017 1,236 22,514 94,924 118,674
Total comprehensive - - 9,820 9,820
income
Ordinary Shares issued 18/19 279 27,771 - 28,050
Share issue costs 19 - (517) - (517)
Dividends paid 9 - - (9,993) (9,993)
Balance at 31 March 2018 1,515 49,768 94,751 146,034
Total capital
Capital
Share and reserves
Share reserve and
capital premium attributable to
Year ended 30 April 2017 Notes retained
£'000 account owners of the
earnings
£'000 Company
£'000
£'000
Balance at 1 May 2016 1,175 16,729 98,471 116,375
Total comprehensive - - 6,099 6,099
income
Ordinary Shares issued 18/19 61 5,938 - 5,999
Share issue costs 19 - (153) - (153)
Dividends paid 9 - - (9,646) (9,646)
Balance at 30 April 2017 1,236 22,514 94,924 118,674
The notes below form an integral part of these financial statements.
Statement of Financial Position
as at 31 March 2018
31 March 2018 30 April 2017
Notes
£'000 £'000
Assets
Non-Current Assets
Investment property 10 187,751 135,570
187,751 135,570
Current Assets
Investment property held for sale 10 3,650 -
Investments held for sale - 7,594
Receivables and prepayments 11 2,938 3,382
Other financial assets held at fair 12 26 31
value
Cash and cash equivalents 4,711 3,653
11,325 14,660
Total Assets 199,076 150,230
Non-Current Liabilities
Interest bearing loans and borrowings 13 (49,643) (28,740)
Finance lease obligations 15 (573) (55)
(50,216) (28,795)
Current Liabilities
Payables and accrued expenses 14 (2,779) (2,756)
Finance lease obligations 15 (47) (5)
(2,826) (2,761)
Total Liabilities (53,042) (31,556)
Net Assets 146,034 118,674
Equity
Share capital 18 1,515 1,236
Share premium account 19 49,768 22,514
Capital reserve and retained earnings 94,751 94,924
Total capital and reserves attributable
to equity holders 146,034 118,674
of the Company
Net Asset Value per share (pence per 8 96.36 pps 95.98 pps
share)
The financial statements were approved by the Board on 8 June 2018 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 period 1 May 2017 to 31 March 2018
For the period
Year ended
1 May 2017 to
30 April 2017
31 March 2018
£'000
£'000
Cash flows from operating activities
Operating profit 10,472 6,858
Adjustment for non-cash items:
Change in fair value of investment properties (1,014) 3,159
Change in fair value of investments - 407
Loss/(profit) on disposal of investment 216 (731)
properties
(Profit)/loss on disposal of investments (73) 113
Increase in other receivables and prepayments (701) (438)
Decrease in other payables and accrued (410) (283)
expenses
Net cash flow generated from operating 8,491 9,085
activities
Cash flows from investing activities
Purchase of investment properties (63,896) (28,062)
Disposal of investment properties 10,856 2,681
Disposal of investments 7,667 1,995
Net cash used in investing activities (45,373) (23,386)
Cash flows from financing activities
Proceeds from issue of ordinary share capital 28,050 5,999
Share issue costs (483) (153)
Loan draw down 20,990 14,760
Loan arrangement fees (165) -
Finance costs (458) (969)
Dividends paid (9,993) (9,646)
Net cash flow generated from financing 37,940 9,991
activities
Net increase/(decrease) in cash and cash 1,058 (4,310)
equivalents
Cash and cash equivalents at start of the 3,653 7,963
period/year
Cash and cash equivalents at end of the 4,711 3,653
period/year
Notes to the Financial Statements
for the period 1 May 2017 to 31 March 2018
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 UK
Listing Authority 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 Financial Reporting Standards ('IFRS') and
interpretations issued by the International Accounting Standards Board
('IASB') as adopted by the European Union ('EU IFRS').
The current period is for a period of 11 months, due to a change of the
year end of the Company from 30 April to 31 March. As a result the
comparative information disclosed is not directly comparable.
These financial statements have been prepared under the historical-cost
convention, except for investment property, investments 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
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 after 31 March 2018 or later periods. The following are
the most relevant to the Company and their impact on the financial
statements:
* IFRS 7 (Financial Instruments: Disclosures) amendments
regarding additional hedge accounting disclosures (applied when IFRS 9 is
applied);
* IFRS 9 Financial Instruments. The standard will replace IAS 39
Financial Instruments and contains two primary measurement categories for
financial assets (effective for annual periods beginning on or after 1
January 2018);
* IFRS 15 (Revenue from Contracts with Customers) issued in May
2014 and applies to an annual reporting period beginning on or after 1
January 2018;
* IFRS 16 (Leases): issued in January 2016 and is effective for
annual periods beginning on or after 1 January 2019; and
* IAS 40 Investment Property: effective for annual periods
beginning on or after 1 July 2018.
The adoption of new accounting standards issued and effective is not
expected to have a significant impact on the financial statements. The
IFRS 16 disclosure requirements will be considered in due course.
2.2 Significant accounting judgements and estimates
The preparation of financial statements in accordance with EU IFRS
requires the Directors of the Company to make judgements, estimates and
assumptions that affect the reported amounts recognised in the financial
statements. However, uncertainty about these assumptions and estimates
could result in outcomes that require a material adjustment to the
carrying amount of the asset or liability in the future.
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 Royal Institution of Chartered Surveyors ('RICS')
Appraisal and Valuation Standards.
ii) Valuation of investments
Investments in collective investment schemes are stated at NAV with any
resulting gain or loss recognised in profit or loss. The NAV value is
considered by the Directors to be the best reflection of fair value
available to the Company.
iii) Segmental information
In accordance with IFRS 8, the Company is organised into one main
operating segment being investment in property and property related
investments in the UK.
2.3 Going concern
The Directors have made an assessment of the Company's ability to continue
as a going concern and are satisfied that the Company has the resources to
continue in business for at least 12 months. Furthermore, the Directors
are not aware of any material uncertainties that may cast significant
doubt upon the Company's ability to continue as a going concern.
Therefore, the financial statements have been prepared on the going
concern basis.
2.4 Summary of significant accounting policies
The principal accounting policies applied in the preparation of these
financial statements are set out below.
a) Presentation currency
These financial statements are presented in Sterling, which is the
functional and presentational currency of the Company. The functional
currency of the Company is principally determined by the primary economic
environment in which it operates. The Company did not enter into any
transactions in foreign currencies during the year.
b) Revenue recognition
i) Rental income
Rental income receivable under operating leases is recognised on a
straight-line basis over the term of the lease, except for contingent
rental income, which is recognised when it arises. Incentives for lessees
to enter into lease agreements are spread evenly over the lease term, even
if the payments are not made on such a basis. The lease term is the
non-cancellable period of the lease together with any further term for
which the tenant has the option to continue the lease, where, at the
inception of the lease, the Directors are reasonably certain that the
tenant will exercise that option.
ii) Deferred income
Deferred income is rental income received in advance during the accounting
period.
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 of investment property requires the
use of estimates such as future cash flows from assets (such as lettings,
tenants' profiles, future revenue streams, capital values of fixtures and
fittings, plant and machinery, any environmental matters and the overall
repair and condition of the property) and discount rates applicable to
those cash flows.
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.
Gains or losses on the disposal of investment property are determined as
the difference between net disposal proceeds and the carrying value of the
asset at the date of disposal.
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 collective investment schemes
Investments in collective investment schemes are stated at fair value with
any resulting gain or loss recognised in profit or loss.
Investments are derecognised when they have been disposed of or the rights
to receive cash flow from the investments have expired or the Company has
transferred substantially all risks and rewards of ownership.
g) Investments in subsidiaries
AEW UK REIT 2015 Limited is the subsidiary of the Company. The subsidiary
was dormant during the reporting period. The investment in the subsidiary
is stated at cost less impairment and shown in note 17.
As permitted by Section 405 of the Companies Act 2006, the subsidiary is
not consolidated as its inclusion is not material for the purposes of
giving a true and fair view.
h) Investment property and investments held for sale
Investment property and investments are 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 and investments classified as held for sale are
included within current assets within the Statement of Financial Position
and measured at the fair value.
i) 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.
j) Cash and cash equivalents
Cash and short-term deposits in the Statement of Financial Position
comprise cash at bank and shortterm deposits with an original maturity of
three months or less.
k) Receivables and prepayments
Rent and other receivables are initially recognised at fair value and
subsequently at amortised cost. Provision is made when there is objective
evidence that the Company will not be able to recover balances in full.
l) 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 capitalized 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.
m) Other payables and accrued expenses
Other payables and accrued expenses are initially recognised at fair value
and subsequently held at amortised cost.
n) Rent deposits
Rent deposits represents cash received from tenants at inception of a
lease and are consequently transferred to the rent agent to hold on behalf
of the Company. These balances are held as creditors in the Statement of
Financial Position.
o) 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.
p) Impairment of financial assets
A financial asset not carried at fair value through profit or loss is
assessed at each reporting date to determine whether there is objective
evidence that it is impaired. A financial asset is impaired if objective
evidence indicates that a loss event has occurred after the initial
recognition of the asset, and that the loss event had a negative effect on
the estimated future cash flows of that asset that can be estimated
reliably.
q) 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.
r) Dividend payable to shareholders
Equity dividends are recognised when they become legally payable.
s) 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.
t) Finance leases
Finance leases are capitalised at the lease commencement, at the lower of
fair value of the property and present value of the minimum lease
payments, and held as a liability within the Statement of Financial
Position.
u) 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
substantially enacted at the period end date.
v) 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 11 month period to 31 March 2018, audited EPS and NAV
calculations under EPRA's methodology are included in note 8 and further
unaudited measures are included below.
3. Revenue
For the period
Year ended
1 May 2017 to
30 April 2017
31 March 2018
£'000
£'000
Gross rental income received 12,330 12,147
Dilapidation income received - 301
Other property income - 55
Total rental and other income 12,330 12,503
Dividend income:
Property income distribution* - 552
Dividend distribution - 24
- 576
Total Revenue 12,330 13,079
*Property income distribution (PID) arose on the investment in the AEW UK
Core Property Fund which holds property directly.
Rent receivable under the terms of the leases is adjusted for the effect
of any incentives agreed.
4. Expenses
For the period
Year ended
1 May 2017 to
30 April 2017
31 March 2018
£'000
£'000
Property operating expenses 1,106 1,434
Other operating expenses
Investment management fee 989 1,034
Auditor remuneration 88 88
Operating costs 462 646
Total other operating expenses 1,539 1,768
Total operating expenses 2,645 3,202
For the period
1 May 2017 to Year ended
31 March 2018 30 April 2017
Audit
Statutory audit of Annual Report and Accounts £65,000 £66,000
£65,000 £66,000
Non-audit
Review of Interim Report £23,000 £22,000
Renewal of Company's Prospectus* £30,000 £20,500
£53,000 £42,500
Total fees paid to KPMG LLP £118,000 £108,500
Percentage of total fees attributed to 45% 39%
non-audit services
* Charged to share premium account.
5. Directors' remuneration
For the period
Year ended
1 May 2017 to
30 April 2017
31 March 2018
£'000
£'000
Directors' fees 80 68
Tax and social security 4 3
Total remuneration 84 71
A summary of the Directors' remuneration is set out in the Directors'
Remuneration Report in the full Annual Report and Financial Statements.
The Company had no employees in either period.
6. Finance expense
For the period
Year ended
1 May 2017 to
30 April 2017
31 March 2018
£'000
£'000
Interest payable on loan borrowings 540 483
Amortisation of loan arrangement fee 79 78
Agency fee payable on loan borrowings (11) 21
Commitment fees payable on loan borrowings 20 60
628 642
Charge in fair value of interest rate 24 117
derivatives
Total 652 759
7. Taxation
For the period
Year ended
1 May 2017 to
30 April 2017
31 March 2018
£'000
£'000
Total tax charge - -
Analysis of tax charge in the period/year
Profit before tax 9,820 6,099
Theoretical tax at UK corporation tax 1,866 1,215
standard rate of 19.00% (2017: 19.92%)1
Adjusted for:
Exempt REIT income (1,700) (1,798)
UK dividends that are not taxable - (5)
Non deductible investment (profit)/losses (166) 588
Total tax charge - -
1Standard rate of corporation tax was 19% to 31 March 2018. The
corporation tax rate is to reduce to 17% with effect from 1 April 2020.
Factors that may affect future tax charges
At 31 March 2018 the Company has unrelieved management expenses of £8,056
(30 April 2017: £6,826). It is unlikely that the Company will generate
sufficient taxable income in the future to use these expenses to reduce
future tax charges and therefore no deferred tax asset has been
recognised.
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.
8. Earnings per share and NAV per share
For the period
Year ended
1 May 2017 to
30 April 2017
31 March 2018
Earnings per share:
Total comprehensive income (£'000) 9,820 6,099
Weighted average number of shares 136,894,561 121,084,416
Earnings per share (basic and diluted) 7.17 5.04
(pence)
EPRA earnings per share:
Total comprehensive income (£'000) 9,820 6,099
Adjustment to total comprehensive income:
Change in fair value of investment property (1,014) 3,159
(£'000)
Loss/(profit) on disposal of investment 216 (731)
property (£'000)
Change in fair value of investment (£'000) - 407
(Profit)/loss on disposal of investments (73) 113
(£'000)
Change in fair value of interest rate 24 117
derivatives (£'000)
Total EPRA Earnings (£'000) 8,973 9,164
EPRA earnings per share (basic and diluted) 6.56 7.57
(pence)
NAV per share:
Net assets (£'000) 146,034 118,674
Ordinary Shares 151,558,251 123,647,250
NAV per share (pence) 96.36 95.98
EPRA NAV per share:
Net assets (£'000) 146,034 118,674
Adjustments to net assets:
Other financial assets held at fair value (26) (31)
(£'000)
EPRA NAV (£'000) 146,008 118,643
EPRA NAV per share (pence) 96.34 95.95
Earnings per share (EPS) amounts are calculated by dividing profit for the
period attributable to ordinary equity holders of the Company by the
weighted average number of Ordinary Shares in issue during the period. As
at 31 March 2018, EPRA NNNAV was equal to IFRS NAV and as such a
reconciliation between the two measures has not been performed.
9. Dividends paid
For the period
Year ended
1 May 2017 to
30 April 2017
31 March 2018
£'000
£'000
Fourth interim dividend paid in respect of
the period 1 February 2017 to 30 April 2017 2,473 -
at 2.00p per Ordinary Share
First interim dividend paid in respect of the
period 1 May 2017 to 31 July 2017 at 2.00p 2,473 -
per Ordinary Share
Second interim dividend paid in respect of
the period 1 August 2017 to 31 October 2017 3,031 -
at 2.00p per Ordinary Share
Third interim dividend paid in respect of the
period 1 November 2017 to 31 December 2017 at 2,016 -
1.33p per Ordinary Share
Fourth interim dividend paid in respect of
the period 1 February 2016 to 30 April 2016 - 2,350
at 2.00p per Ordinary Share
First interim dividend paid in respect of the
period 1 May 2016 to 31 July 2016 at 2.00p - 2,350
per Ordinary Share
Second interim dividend paid in respect of
the period 1 August 2016 to 31 October 2016 - 2,473
at 2.00p per Ordinary Share
Third interim dividend paid in respect of the
period 1 November 2016 to 31 January 2017 at - 2,473
2.00p per Ordinary Share
Total dividends paid during the period/year 9,993 9,646
Fourth interim dividend declared in respect
of the period 1 January 2018 to 31 March 2018 3,031 -
at 2.00p per Ordinary Share*
Fourth interim dividend declared in respect
of the period 1 February 2017 to 30 April (2,473) -
2017 at 2.00p per Ordinary Share
Fourth interim dividend declared in respect
of the period 1 February 2017 to 30 April - 2,473
2017 at 2.00p per Ordinary Share**
Fourth interim dividend declared in respect
of the period 1 February 2016 to 30 April - (2,350)
2016 at 2.00p per Ordinary Share
Total dividends in respect of the period/year 10,551 9,769
* The fourth interim dividend declared is not included in the accounts as
a liability as at period ended 31 March 2018.
** The fourth interim dividend declared is not included in the accounts as
a liability as at year ended 30 April 2017.
10. Investments
10.a) Investment property
Investment 31 March 2018 30 April
property Investment Total 2017
property
freehold leasehold £'000 Total
£'000 £'000 £'000
UK investment property
As at beginning of the 115,845 21,975 137,820 114,340
period/year
Purchases in the period/year 51,005 13,181 64,186 28,146
Disposals in the period/year (11,050) - (11,050) (1,950)
Revaluation of investment (283) 1,669 1,386 (2,716)
property
Valuation provided by Knight 155,517 36,825 192,342 137,820
Frank
Adjustment for rent free debtor (1,561) (2,230)
Adjustment for rent guarantee - (80)
debtor
Adjustment for finance lease 620 60
obligations
Total investment property 191,401 135,570
Classified as:
Investment properties 187,751 135,570
Investment properties held for 3,650 -
sale
191,401 135,570
(Loss)/profit on disposal of
investment property
Net proceeds from disposals of
investment property during the 10,856 2,681
period/year
Cost of disposal (11,050) (1,950)
Lease incentives amortised in (22) -
current period/year
(Loss)/profit on disposal of (216) 731
investment property
Change in fair value of
investment property
Change in fair value before
adjustments for lease 1,386 (2,716)
incentives
Adjustment for movement in the
period/year:
in fair value for rent free (452) (1,148)
debtor
in fair value for rent 80 705
guarantee debtor
1,014 (3,159)
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 of investment property requires the
use of estimates, such as future cash flows from assets (based on
lettings, tenants' profiles, future revenue streams, capital values of
fixtures and fittings, plant and machinery, any environmental matters and
the overall repair and condition of the property) and discount rates
applicable to those flows.
10.b) Investment
For the period
Year ended
1 May 2017 to
30 April 2017
31 March 2018
Total £'000
Total £'000
Investment in AEW UK Core Property Fund
As at beginning of the period/year 7,594 10,109
Disposals in the period/year (7,594) (2,108)
Loss from change in fair value - (407)
Total Investment in AEW UK Core Property Fund - 7,594
Loss on disposal of the investment in AEW UK
Core Property Fund
Proceeds from disposals of investments during 7,667 1,995
the period/year
Cost of disposal (7,594) (2,108)
Profit/(loss) on disposal of investments 73 (113)
Valuation of investment
Investments in collective investment schemes were stated at NAV with any
resulting gain or loss recognised in profit or loss. Fair value is
assessed by the Directors based on the best available information.
As at 31 March 2018, the Company had no investment in the Core Fund.
10.c) Fair value measurement hierarchy
The following table provides the fair value measurement hierarchy for
investments:
31 March 2018
Significant Significant
Quoted prices observable unobservable
in
inputs inputs
active markets
(Level 2) (Level 3) Total
(Level 1)
£'000 £'000 £'000
£'000
Assets measured at fair
value
Investment property - - 191,401 191,401
- - 191,401 191,401
30 April 2017
Significant Significant
Quoted prices observable unobservable
in
inputs inputs
active markets
(Level 2) (Level 3) Total
(Level 1)
£'000 £'000 £'000
£'000
Assets measured at fair
value
Investment property - - 135,570 135,570
Investment in AEW UK - - 7,594 7,594
Core Property Fund
- - 143,164 143,164
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.
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 and investments are:
1) Estimated Rental Value ('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 input used in the fair value measurement
categorised within Level 3 of the fair value hierarchy of the entity's
investment is:
1) NAV
Increases/(decreases) in the NAV would result in a higher/(lower) 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 and investments are:
Fair Value Valuation Significant
Class Range
£'000 Technique Unobservable
Inputs
31 March 2018
£1.00 -
Investment Income ERV £145.00
property* 192,342 capitalisation
Equivalent yield 3.14% -
10.72%
30 April 2017
£2.00 -
Investment Income ERV £160.00
property* 137,820 capitalisation
Equivalent yield 6.94% -
10.27%
Investments 7,594 NAV NAV £1.1942
*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 and investments held at the end of the reporting
period.
With regards to both investment property and investments, 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 and loss.
The carrying amount of the assets and liabilities, detailed within the
Statement of Financial Position, is considered to be the same as their
fair value.
31 March 2018
Change in ERV Change in equivalent yield
£'000 £'000 £'000 £'000
Sensitivity analysis
+5% -5% +5% -5%
Resulting fair value of 203,903 188,297 185,985 206,943
investment property
30 April 2017
Change in Single Change in
Change in ERV
Swinging Price equivalent yield
£'000 £'000 £'000 £'000 £'000 £'000
Sensitivity analysis
+5% -5% +5% -5% +5% -5%
Resulting fair value of
- - 143,606 131,979 129,906 145,906
investment property
Resulting fair value of
7,974 7,214 - - - -
investment
11. Receivables and prepayments
31 March 2018 30 April 2017
£'000 £'000
Receivables
Rent debtor 1,074 461
Dividend receivable - 110
Other income debtors - 192
Rent agent float account 81 57
Other receivables 179 213
1,334 1,033
Rent free debtor 1,561 2,230
Rent guarantee debtor - 80
2,895 3,343
Prepayments
Property related prepayments 13 10
Capital prepayments - 1
Depositary services - 8
Listing fees 16 8
Other prepayments 14 12
43 39
2,938 3,382
The aged debtor analysis of receivables which are past due is as follows:
31 March 2018 30 April 2017
£'000 £'000
Less than three months 1,334 910
Between three and six months - 1
Between six and twelve months - 122
Total 1,334 1,033
12. Interest rate derivatives
31 March 2018 30 April 2017
£'000 £'000
At the beginning of the period/year 31 77
Interest rate cap premium paid 19 71
Changes in fair value of interest rate (24) (117)
derivatives
At the end of the period/year 26 31
To mitigate the interest rate risk that arises as a result of entering
into variable rate linked loans, the Company entered into interest rate
caps. The facilities have a combined notional value of £36.51 million with
£10.00 million at a strike rate of 2.0% and £26.51 million at a strike
rate of 2.5% (30 April 2017: £26.51 million at a strike rate of 2.5%) for
the relevant period in line with the life of the loan.
Fair value hierarchy
The following table provides the fair value measurement hierarchy for
interest rate derivatives:
Significant
Quoted prices in Significant
unobservable
active markets observable input Total
inputs
(Level 1) (Level 2) £'000
(Level 3)
£'000 £'000
Valuation £'000
31 March 2018 - 26 - 26
30 April 2017 - 31 - 31
The fair value of these contracts are recorded in the Statement of
Financial Position as at the period end.
There have been no transfers between level 1 and level 2 during the
period, nor have there been any transfers between level 2 and level 3
during the period.
The carrying amount of all assets and liabilities, detailed within the
Statement of Financial Position, is
considered to be the same as their fair value.
13. Interest bearing loans and borrowings
Bank borrowings
31 March 2018 30 April 2017
£'000 £'000
At the beginning of the period/year 29,010 14,250
Bank borrowings drawn in the period/year 20,990 14,760
Interest bearing loans and borrowings 50,000 29,010
Less: loan issue costs incurred (554) (388)
Plus: amortised loan issue costs 197 118
At the end of the period/year 49,643 28,740
Repayable between two and five years 50,000 29,010
Bank borrowings available but undrawn at the 10,000 10,990
period/year end
Total facility available 60,000 40,000
The Company has a £60.00 million (30 April 2017: £40.00 million) credit
facility with RBSi of which £50.00 million (30 April 2017: £29.01 million)
has been utilised as at 31 March 2018.
Under the terms of the Prospectus, the Company has a target gearing of 25%
Loan to GAV, but can borrow up to 35% Loan to GAV in advance of a capital
raise or asset disposal. As at 31 March 2018, the Company's gearing was
26.00% Loan to GAV (30 April 2017: 19.31%).
Under the terms of the loan facility, the Company can draw up to 35% Loan
to NAV at drawdown.
Borrowing costs associated with the credit facility are shown as finance
costs in note 6 to these Financial Statements.
Reconciliation to cash flows from financing activities
Bank borrowings
l£'000
Balance at 1 May 2017 28,740
Changes from financing cash flows
Loan draw down 20,990
Loan arrangement fees (166)
Total changes from financing cash flows 20,824
Other changes
Amortisation of loan issue costs 79
Total other changes 79
Balance at 31 March 2018 49,643
14. Payables and accrued expenses
31 March 2018 30 April 2017
£'000 £'000
Deferred income 993 1,513
Accruals 831 534
Other creditors 955 709
Total 2,779 2,756
15. Finance lease obligations
Finance leases are capitalised at the lease's commencement at the lower of
the fair value of the property and 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 finance leases:
31 March 2018 30 April 2017
£'000 £'000
Within one year 47 5
After one year but not later than five years 152 15
Later than five years 421 40
573 55
Total 620 60
16. Guarantees and commitments
As at 31 March 2018, there were capital commitments of £nil (30 April
2017: £48,628).
Operating lease commitments - as lessor
The Company has entered into commercial property leases on its investment
property portfolio. These noncancellable leases have a remaining term of
between zero and 24 years.
Future minimum rentals receivable under non-cancellable operating leases
as at 31 March 2018 are as follows:
31 March 2018 30 April 2017
£'000 £'000
Within one year 16,932 11,878
After one year but not more than five years 47,858 37,936
More than five years 37,574 27,640
Total 102,364 77,454
During the period ended 31 March 2018 there were contingent rents
totalling £149,192 (30 April 2017: £169,724) recognised as income.
17. Investment in subsidiary
The Company has a wholly owned subsidiary, AEW UK REIT 2015 Limited:
Country of
Name and company registration Principal Ordinary Shares
number activity 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 2018, the Company held one share being
100% of the issued share capital. AEW UK REIT 2015 Limited is wholly owned
by the Company and is dormant. The cost of the subsidiary is £0.01 (30
April 2017: £0.01). The registered office of AEW UK REIT 2015 Limited is
6th Floor, 65 Gresham Street, London, EC2V 7NQ.
18. Issued share capital
31 March 2018 30 April 2017
Number of Number of
£'000 £'000
Ordinary Shares Ordinary Shares
Ordinary Shares (nominal value
£0.01)
authorised, issued and fully
paid
At the beginning of the 1,236 123,647,250 1,175 117,510,000
period/year
Issued on admission to trading
on the London
- - 24 2,450,000
Stock Exchange on 16 September
2016
Issued on admission to trading
on the London
- - 37 3,687,250
Stock Exchange on 10 October
2016
Issued on admission to trading
on the London
279 27,911,001 - -
Stock Exchange on 24 October
2017
At the end of the year/period 1,515 151,558,251 1,236 123,647,250
On 24 October 2017, the Company issued 27,911,001 Ordinary Shares at a
price of 100.5 pence per share, pursuant to the Initial Placing, Initial
Offer for Subscription and Intermediaries Offer of the Share Issuance
Programme, as described in the prospectus published by the Company on 28
September 2017.
19. Share premium account
31 March 2018 30 April 2017
£'000 £'000
The share premium relates to amounts
subscribed for share capital in
excess of nominal value:
Balance at the beginning of the period/year 22,514 16,729
Share issue costs (paid and accrued) - (23)
Issued on admission to trading on the London
Stock Exchange on - 2,352
16 September 2016
Share issue cost (paid and accrued) - (42)
Issued on admission to trading on the London
Stock Exchange on - 3,586
10 October 2016
Share issue cost (paid and accrued) - (88)
Issued on admission to trading on the London
Stock Exchange on 27,771 -
24 October 2017
Share issue cost (paid and accrued) (517) -
Balance at the end of the period/year 49,768 22,514
20. Financial risk management and objectives and policies
20.1 Financial assets and liabilities
The Company's principal financial assets and liabilities are those derived
from its operations: receivables and prepayments, cash and cash
equivalents and payables and accrued expenses. The Company's other
principal financial liabilities are interest bearing loans and borrowings,
the main purpose of which is to finance the acquisition and development of
the Company's property portfolio.
Set out below is a comparison by class of the carrying amounts and fair
value of the Company's financial instruments that are carried in the
financial statements.
31 March 2018 30 April 2017
Book Value Fair Value Book Value Fair Value
£'000 £'000 £'000 £'000
Financial Assets
Investment in AEW UK Core - - 7,594 7,594
Property Fund
Receivables and prepayments1 1,334 1,334 1,033 1,033
Cash and cash equivalents 4,711 4,711 3,653 3,653
Other financial assets held at 26 26 31 31
fair value
Financial Liabilities
Interest bearing loans and 49,643 50,000 28,740 29,010
borrowings
Payables and accrued expenses2 1,683 1,683 643 643
Financial lease obligations 620 620 60 60
1 Excludes VAT, certain prepayments and other debtors
2 Excludes tax, VAT liabilities and deferred income
Interest rate derivatives are the only financial instruments classified as
fair value through profit and loss. All other financial assets and
financial liabilities are measured at amortised cost. All financial
instruments were designated in their current categories upon initial
recognition.
Fair value measurement hierarchy has not been applied to those classes of
asset and liability stated above which are not measured at fair value in
the financial statements. The difference between the fair value and book
value of these items is not considered to be material.
20.2 Financing management
The Company's activities expose it to a variety of financial risks: market
risk, real estate risk, credit risk and liquidity risk.
The Company's objective in managing risk is the creation and protection of
shareholder value. Risk is inherent in the Company's activities but it is
managed through a process of ongoing identification, measurement and
monitoring, subject to risk limits and other controls.
The principal risks facing the Company in the management of its portfolio
are as follows:
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 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.
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
31 March 2018 30 April 2017
£'000 £'000
Debtors (excluding incentives and prepayments) 1,334 1,033
Cash and cash equivalents 4,711 3,653
Total 6,045 4,686
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
>5 years Total
31 March 2018 Demand Months Months Years
£'000 £'000
£'000 £'000 £'000 £'000
Interest bearing loans and - - - 50,000 - 50,000
borrowings
Interest payable - 228 678 1,422 - 2,328
Payables and accrued expenses - 1,638 - - - 1,638
Finance lease obligation - - 51 205 3,128 3,384
- 1,866 729 51,627 3,128 57,350
On <3 3-12 1-5
>5 years Total
30 April 2017 Demand Months Months Years
£'000 £'000
£'000 £'000 £'000 £'000
Interest bearing loans and - - - 29,010 - 29,010
borrowings
Interest payable - 134 395 1,306 - 1,835
Payables and accrued expenses - 643 - - - 643
Finance lease obligation - - 5 20 425 450
- 777 400 30,336 425 31,938
21. Capital management
The primary objectives of the Company's capital management are to ensure
that it qualifies for the UK REIT status and complies with its banking
covenants.
To enhance returns over the medium term, the Company utilises borrowings
on a limited recourse basis for each investment or all or part of the
total portfolio. The Company's policy is to target a borrowing level of
25% loan to GAV and can borrow up to a maximum of 35% loan to GAV in
advance of a capital raise or asset disposal. It is currently anticipated
that the level of total borrowings will typically be at the level of 25%
of GAV (measured at drawdown).
Alongside the Company's borrowing policy, the Directors intend, at all
times, to conduct the affairs of the Company so as to enable the Company
to qualify as a REIT for the purposes of Part 12 of the CTA 2010 (and the
regulations made thereunder). The REIT status compliance requirements
include 90% distribution test, interest cover ratio, 75% assets test and
the substantial shareholder rule, all of which the Company remained
compliant with in this reporting period.
The monitoring of the Company's level of borrowing is performed primarily
using a Loan to GAV ratio, which is calculated as the amount of
outstanding debt divided by the total valuation of investment property and
property related investments. The Company Loan to GAV ratio at the period
end was 26.00% (30 April 2017: 19.31%).
Breaches in meeting the financial covenants would permit the bank to
immediately call loans and borrowings. During the year under review, the
Company did not breach any of its loan covenants, nor did it default on
any other of its obligations under its loan agreements.
22. Transactions with related parties
As defined by IAS 24 Related Parties Disclosures, parties are considered
to be related if one party has the ability to control the other party or
exercise significant influence over the other party in making financial or
operational decisions.
For the period ended 31 March 2018, 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 Board 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.
During the period, the Company incurred £988,612 (30 April 2017:
£1,033,637) in respect of investment management fees and expenses of which
£469,239 (30 April 2017: £252,850) was outstanding as at 31 March 2018.
On 1 May 2017, the Company had a holding of 6,359,440 shares in the Core
Fund, which were valued at £7,594,443. The investment is deemed to be with
a related party due to the common influence of the Investment Manager over
both parties. On 9 May 2017, the Company sold all of its holding in the
Core Fund for proceeds of £7,667,796.
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 27 April 2018, the Board declared its fourth interim dividend of 2.00
pence per share, in respect of the period from 1 January 2018 to 31 March
2018. This was paid on 31 May 2018, to shareholders on the register as at
11 May 2018. The ex-dividend date was 10 May 2018.
Property sales
On 5 April 2018, the Company completed the part disposal of Pearl
Assurance House, Nottingham. The Company sold the first to ninth floors of
the building, as well as a ground floor reception and car park spaces, for
gross proceeds of £3.65 million. The Company retains the fully let ground
floor accommodation.
EPRA Unaudited Performance Measures
Detailed below is a summary table showing the EPRA performance measures of
the Company
MEASURE AND DEFINITION PURPOSE PERFORMANCE
A key measure of a
1. EPRA Earnings company's underlying £8.97 million/6.56
operating results and pps EPRA earnings for
Earnings from operational an indication of the the 11 month period
activities. extent to which current to 31 March 2018 (30
dividend payments are April 2017: £9.16
supported by earnings. million/7.57 pps)
2. EPRA NAV Makes adjustments to
IFRS NAV to provide
Net asset value adjusted to stakeholders with the
include properties and other most relevant
investment interests at fair information on the fair £146.01 million/96.34
value and to exclude certain value of the assets and pps EPRA NAV as at 31
items not expected to liabilities within a March 2018 (30 April
crystallise in a long-term true real estate 2017: £118.64
investment property investment company with million/95.95 pps)
business. a long-term investment
strategy.
3. EPRA NNNAV Makes adjustments to
EPRA NAV to provide
EPRA NAV adjusted to include stakeholders with the
the fair values of: most relevant
information on the £146.03 million/96.36
(i) financial instruments; current fair value of pps EPRA NNNAV as at
all the assets and 31 March 2018 (30
(ii) debt and; liabilities within a April 2017: £118.67
real estate million/95.98 pps)
(iii) deferred taxes.
company.
4.1 EPRA Net Initial Yield
(NIY)
Annualised rental income
based on the cash rents A comparable measure
passing at the balance sheet for portfolio 7.73%
date, less non-recoverable valuations. This
property operating expenses, measure should make it EPRA NIY
divided by the market value easier for investors to
of the property, increased judge themselves, how as at 31 March 2018
with (estimated) purchasers' the valuation of (30 April 2017:
costs. portfolio X compares 7.12%)
with portfolio Y.
4.2 EPRA 'Topped-Up' NIY
A comparable measure
This measure incorporates an for portfolio
adjustment to the EPRA NIY valuations. This 8.52%
in respect of the expiration measure should make it
of rent-free periods (or easier for investors to EPRA 'Topped-Up' NIY
other unexpired lease judge themselves, how
incentives such as he valuation of as at 31 March 2018
discounted rent periods and portfolio X compares (30 April 2017:
step rents). with portfolio Y. 8.27%)
5. EPRA Vacancy
A 'pure' (%) measure of 7.10%
Estimated Market Rental investment property
Value (ERV) of vacant space space that is vacant, EPRA ERV as at 31
divided by ERV of the whole based on ERV. March 2018 (30 April
portfolio. 2017: 7.22%)
21.89%
EPRA Cost Ratio
(including direct
6. EPRA Cost Ratio vacancy costs) as at
31 March 2018 (30
Administrative and operating A key measure to enable April 2017: 24.20%)
costs (including and meaningful measurement
excluding costs of direct of the changes in a
vacancy) divided by gross company's operating
rental income. costs. 14.89%
EPRA Cost Ratio
(excluding direct
vacancy costs) as at
31 March 2018 (30
April 2017: 18.37%)
Calculation of EPRA Net Initial Yield and 'topped-up' Net Initial Yield
For the period
Year ended
1 May 2017 to
30 April 2017
31 March 2018
£'000
£'000
Investment property - wholly-owned 192,342 137,820
Allowance for estimated purchasers' costs 13,079 8,242
Gross up completed property portfolio 205,421 146,062
valuation
Annualised cash passing rental income 17,046 11,283
Property outgoings (1,174) (884)
Annualised net rents 15,872 10,399
Rent from expiry of rent-free periods and 1,626 1,685
fixed uplifts
'Topped-up' net annualised rent 17,498 12,084
EPRA Net Initial Yield 7.73% 7.12%
EPRA 'topped-up' Net Initial Yield 8.52% 8.27%
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 31 March 2018, 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 period and
future contracted rental uplifts.
Calculation of EPRA Vacancy Rate
For the period
Year ended
1 May 2017 to
30 April 2017
31 March 2018
£'000
£'000
Annualised potential rental value of vacant 1,254 951
premises
Annualised potential rental value for the 17,677 13,164
complete property portfolio
EPRA Vacancy Rate 7.10% 7.22%
Calculation of EPRA Cost Ratios
For the period
Year ended
1 May 2017 to
30 April 2017
31 March 2018
£'000
£'000
Administrative/operating expense per IFRS 2,729 3,272
income statement
Less: Net service charge costs - (335)
Ground rent costs (38) (104)
EPRA Costs (including direct vacancy costs) 2,691 2,833
Direct vacancy costs (861) (682)
EPRA Costs (excluding direct vacancy costs) 1,830 2,151
Gross Rental Income less ground rent costs 12,292 12,044
Less: service charge costs of rental income - (335)
11,709
Gross Rental Income 12,292
EPRA Cost Ratio (including direct vacancy 21.89% 24.20%
costs)
EPRA Cost Ratio (excluding direct vacancy 14.89% 18.37%
costs)
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 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 151,558,251
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 2018 Annual General Meeting
30 September 2018 Half-year end
December 2018 Announcement of half-yearly results
31 March 2019 Year end
June 2019 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 May 2017 to 31 July 2017
2,472,945
(payment made on 29 September 2017)
Interim dividend for the period 1 August 2017 to 31 October 3,031,165
2017 (payment made on 29 December 2017)
Interim dividend for the period 1 November 2017 to 31 December
2017 2,015,725
(payment made on 28 February 2018)
Interim dividend for the period 1 January 2018 to 31 March 2018
3,031,165
(payment made on 31 May 2018)
Total 10,551,000
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
6th Floor
65 Gresham Street
London
EC2V 7NQ
Investment Manager and AIFM
AEW UK Investment Management LLP
33 Jermyn Street
London
SW1Y 6DN
Tel: 020 7016 4880
Website: www.aewuk.co.uk
Property Manager
MJ Mapp
180 Great Portland Street
London
W1W 5QZ
Corporate Broker
Liberum
Ropemaker Place
25 Ropemaker Street
London
EC2Y 9LY
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
Link Alternative Fund Administrators Limited
Beaufort House
51 New North Road
Exeter
EX4 4EP
Company Secretary
Link Company Matters Limited
6th Floor
65 Gresham Street
London
EC2V 7NQ
Registrar
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol
BS13 8AE
Auditor
KPMG LLP
15 Canada Square
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 Financial Statements and the Notice of AGM
Printed copies of the Annual Report and Notice of the 2018 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 and Financial Statements will be submitted
shortly to the National Storage Mechanism ('NSM') and will be available
for inspection at www.morningstar.co.uk/uk/NSM.
Annual General Meeting
The AGM will be held on 12 September 2018 at 12 noon at The Cavendish
Hotel, 81 Jermyn Street, St. James', London SW1Y 6JF.
Glossary
AEW UK Core Property Fund
AEW UK Core Property Fund, a property authorised investment fund ('PAIF')
and a sub-fund of the (the 'Core Fund') AEW UK Real Estate Fund, an open
ended investment company.
AIC
Association of Investment Companies. This is the trade body for closed-end
Investment companies (www.theaic.co.uk).
AIFMD
Alternative Investment Fund Managers' Directive.
AIFM
Alternative Investment Fund Manager. The entity that provides portfolio
management and risk management services to the Company and which ensures
the Company complies with the AIFMD. The Company's AIFM is AEW UK
Investment Management LLP.
Company
AEW UK REIT plc.
Company Secretary
Link Company Matters Limited
Company website
www.aewukreit.com
Contracted rent
The annualised rent adjusting for the inclusion of rent subject to
rent-free periods.
Covenant strength
The strength of a tenant's financial status and its ability to perform the
covenants in the lease.
DTR
Disclosure Guidance and Transparency Rules, issued by the UKLA.
Earnings Per Share ('EPS')
Profit for the period attributable to equity shareholders divided by the
weighted average number of Ordinary Shares in issue during the period.
EPC
Energy Performance Certificate.
EPRA
European Public Real Estate Association, the industry body representing
listed companies in the real estate sector.
EPRA cost ratio (including direct vacancy costs)
The ratio of net overheads and operating expenses against gross rental
income (with both amounts excluding ground rents payable). Net overheads
and operating expenses relate to all administrative and operating
expenses.
EPRA cost ratio (excluding direct vacancy costs)
The ratio calculated above, but with direct vacancy costs removed from net
overheads and operating expenses balance.
EPRA Earnings Per Share
Recurring earnings from core operational activities. A key measure of a
company's underlying operating results from its property rental business
and an indication of the extent to which current dividend payments are
supported by earnings.
EPRA NAV
Net 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-term investment property business.
EPRA NNNAV
EPRA NAV adjusted to reflect the fair value of debt and derivatives and to
include deferred taxation on revaluations.
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, divided by
the fair value of the property, increased with (estimated) purchasers'
costs.
EPRA Topped-Up Net Initial Yield
This measure incorporates an adjustment to the EPRA NIY in respect of the
expiration of rent-free periods (or other unexpired lease incentives such
as discounted rent periods and step rents).
EPRA Vacancy Rate
Estimated Market Rental Value ('ERV') of vacant space as a percentage of
the ERV of the whole portfolio.
Equivalent Yield
The internal rate of return of the cash flow from the property, assuming a
rise to ERV at the next review or lease expiry. No future growth is
allowed for.
Estimated Rental Value ('ERV')
The external valuers' opinion as to the open market rent which, on the
date of the valuation, could reasonably be expected to be obtained on a
new letting or rent review of a property.
External Valuer
An independent external valuer of a property. The Company's External
Valuer is Knight Frank LLP.
Fair Value
The estimated amount for which a property should exchange on the valuation
date between a willing buyer and a willing seller in an arm's length
transaction after proper marketing and where parties had each acted
knowledgeably, prudently and without compulsion.
Fair value movement
An accounting adjustment to change the book value of an asset or liability
to its fair value.
FCA
The Financial Conduct Authority.
FRI lease
A lease which imposes full repairing and insuring obligations on the
tenant, relieving the landlord from all liability for the cost of
insurance and repairs.
Gross Asset Value ('GAV')
The aggregate value of the total assets of the Company as determined in
accordance with IFRS.
IASB
International Accounting Standards Board.
IFRS
International Financial Reporting Standards, as adopted by the European
Union.
Investment Manager
The Company's Investment Manager is AEW UK Investment Management LLP.
IPD
Investment Property Databank. An organisation supplying independent market
indices and portfolio benchmarks to the property industry.
IPO
The admission to trading on the London Stock Exchange's Main Market of the
share capital of the Company and admission of Ordinary Shares to the
premium listing segment of the Official List on 12 May 2015.
Lease incentives
Incentives offered to occupiers to enter into a lease. Typically this will
be an initial rent-free period, or a cash contribution to fit-out. Under
accounting rules the value of the lease incentive is amortised through the
Statement of Comprehensive Income on a straight-line basis until the lease
expiry.
Lease surrender
An agreement whereby the landlord and tenant bring a lease to an end other
than by contractual expiry or the exercise of a break option. This will
frequently involve the negotiation of a surrender premium by one party to
the other.
LIBOR
The London Interbank Offered Rate, the interest rate charged by one bank
to another for lending money.
Loan to Value ('LTV')
The value of outstanding loans and borrowings (before adjustments for
issue costs) expressed as a percentage of the combined valuation of the
property portfolio (as provided by the valuer) and the fair value of other
investments.
Net Asset Value ('NAV')
Net Asset Value is the equity attributable to shareholders calculated
under IFRS.
Net Asset Value per share
Equity shareholders' funds divided by the number of Ordinary Shares in
issue.
NAV Total Return
The percentage change in NAV, assuming that dividends paid to shareholders
are reinvested at NAV to purchase additional Ordinary Shares
Net equivalent yield
Calculated by the Company's External Valuers, equivalent yield is the
internal rate of return from an investment property, based on the gross
outlays for the purchase of a property (including purchase costs),
reflecting reversions to current market rent and items as voids and
non-recoverable expenditure but ignoring future changes in capital value.
The calculation assumes rent is received annually in arrears.
Net initial yield
The initial net rental income from a property at the date of purchase,
expressed as a percentage of the gross purchase price including the costs
of purchase.
Net rental income
Rental income receivable in the period after payment of ground rents and
net property outgoings.
Non-PID
Non-Property Income Distribution. The dividend received by a shareholder
of the Company arising from any source other than profits and gains of the
Tax Exempt Business of the Company.
Ongoing charges
The ratio of total administration and property operating costs expressed
as a percentage of average net asset value throughout the period.
Ordinary Shares
The main type of equity capital issued by conventional Investment
Companies. Shareholders are entitled to their share of both income, in the
form of dividends paid by the Company, and any capital growth.
Over-rented
Space where the passing rent is above the ERV.
Passing rent
The gross rent, less any ground rent payable under head leases.
PID
Property Income Distribution. A dividend received by a shareholder of the
Company in respect of profits and gains of the tax exempt business of the
Company.
Rack-rented
Space where passing rent is the same as the ERV.
REIT
A Real Estate Investment Trust. A company which complies with Part 12 of
the Corporation tax Act 2010. Subject to the continuing relevant UK REIT
criteria being met, the profits from the property business of a REIT,
arising from both income and capital gains, are exempt from corporation
tax.
Reversion
Increase in rent estimated by the Company's External Valuers, where the
passing rent is below the ERV.
Reversionary yield
The anticipated yield, which the initial yield will rise (or fall) to once
the rent reaches the ERV.
Share price
The value of a share at a point in time as quoted on a stock exchange. The
Company's Ordinary Shares are quoted on the Main Market of the London
Stock Exchange.
Share Price Total Return
The percentage change in the share price assuming dividends are reinvested
to purchase additional Ordinary Shares.
Total returns
The returns to shareholders calculated on a per share basis by adding
dividend paid in the period to the increase or decrease in the Share Price
or NAV. The dividends are assumed to have been reinvested in the form of
Ordinary Shares or Net Assets.
Total Shareholder Return
The percentage change in the share price assuming dividends are reinvested
to purchase additional Ordinary Shares.
Under-rented
Space where the passing rent is below the ERV.
UK Corporate Governance Code
A code issued by the Financial Reporting Council which sets out standards
of good practice in relation to board leadership and effectiveness,
remuneration, accountability and relations with shareholders. All
companies with a Premium Listing of equity shares in the UK are required
under the Listing Rules to report on how they have applied the Code in
their annual report and accounts.
Voids
The amount of rent relating to properties which are unoccupied and
generating no rental income. Stated as a percentage of ERV.
Weighted Average Unexpired Lease Term ('WAULT')
The average lease term remaining for first break, or expiry, across the
portfolio weighted by contracted rental income (including rent-frees).
Yield compression
Occurs when the net equivalent yield of a property decreases, measured in
basis points.
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
is neither incorporated into nor forms part of the above announcement.
══════════════════════════════════════════════════════════════════════════
Attachment
Document title: Appendices
Document: 1 http://n.eqs.com/c/fncls.ssp?u=MKGJVTELWP
══════════════════════════════════════════════════════════════════════════
ISIN: GB00BWD24154
Category Code: ACS
TIDM: AEWU
LEI Code: 21380073LDXHV2LP5K50
OAM Categories: 1.1. Annual financial and audit reports
Sequence No.: 5631
EQS News ID: 693965
End of Announcement EQS News Service
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