REG - AEW UK LongLeaseREIT - Half-year Report <Origin Href="QuoteRef">AEWL.L</Origin> - Part 2
21/02/2018 07:05
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properties in the UK. Poor relative total return performance may lead to an adverse reputational impact that affects the wider Group's ability to raise new capital and
new funds.
Taxation risks
Group REIT status
The Group has a UK REIT status that provides a tax-efficient corporate structure. If the Group fails to remain a REIT for UK tax purposes, its profits and gains will be The Group monitors REIT compliance through the Investment Manager on acquisitions; the Administrator on asset and distribution levels; the Registrar and Broker on shareholdings and the use of third-party tax advisors to monitor REIT compliance requirements.
subject to UK corporation tax. Any change to the tax status or in UK tax legislation could impact on the Group's ability to achieve its investment objectives and provide
attractive returns to shareholders.
UK Exit from the European Union ('EU')
A referendum was held on 23 June 2016 to decide whether the UK should remain
in the EU. A vote was given in favour of the UK leaving the EU ('Brexit'). The
extent of the impact of Brexit on the Group will depend in part on the nature
of the arrangements that are put in place between the UK and the EU following
the eventual Brexit and the extent to which the UK continues to apply laws
that are based on EU Legislation. It could also potentially make it more
difficult for the Group to raise capital in the EU and/or increase the
regulatory compliance burden on the Group.
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE INTERIM FINANCIAL
REPORT
We confirm that to the best of our knowledge:
- the consolidated set of financial statements has been prepared in accordance
with IAS 34 Interim Financial Reporting as adopted by the EU;
- the interim management report includes a fair review of the information
required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an
indication of important events that have occurred since incorporation to 31
December 2017 and their impact on the consolidated set of financial
statements; and a description of the principal risks and uncertainties for the
remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being
related party transactions that have taken place since incorporation to 31
December 2017 and that have materially affected the financial position or
performance of the entity during that period; and any changes in the related
party transactions that could do so.
A list of the Directors is set out below.
By order of the Board
Steve Smith
Chairman
20 February 2018
INDEPENDENT REVIEW REPORT TO AEW UK LONG LEASE REIT PLC
Conclusion
We have been engaged by the Company to review the set of financial statements
in the half-yearly financial report for the period 18 April 2017 to 31
December 2017 which comprises the Consolidated Statement of Comprehensive
Income, Consolidated Statement of Changes in Equity, Consolidated Statement of
Financial Position, Consolidated Statement of Cash Flows and the related
explanatory notes.
Based on our review, nothing has come to our attention that causes us to
believe that the set of financial statements in the half-yearly financial
report for the period 18 April 2017 to 31 December 2017 is not prepared, in
all material respects, in accordance with IAS 34 Interim Financial Reporting
as adopted by the EU and the Disclosure Guidance and Transparency Rules (the
'DTR') of the UK's Financial Conduct Authority (the 'UK FCA').
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 Review of Interim Financial Information
Performed by the Independent Auditor of the Entity issued by the Auditing
Practices Board for use in the UK. A review of interim financial information
consists of making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review procedures.
We read the other information contained in the half-yearly financial report
and consider whether it contains any apparent misstatements or material
inconsistencies with the information in the set of financial statements.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the Directors. The Directors are responsible for preparing the
half-yearly financial report in accordance with the DTR of the UK FCA.
The annual financial statements of the Group are prepared in accordance with
International Financial Reporting Standards as adopted by the EU. The
Directors are responsible for preparing the set of financial statements
included in the half-yearly financial report in accordance with IAS 34 as
adopted by the EU.
Our responsibility
Our responsibility is to express to the Company a conclusion on the set of
financial statements in the half-yearly financial report based on our review.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the Company in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the DTR of the
UK FCA. Our review has been undertaken so that we might state to the Company
those matters we are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company for our review work, for this
report, or for the conclusions we have reached.
Bill Holland
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
20 February 2018
FINANCIAL STATEMENTS
Consolidated Statement of Comprehensive Income
For the period from 18 April 2017 to 31 December 2017
Notes 18 April 2017 to 31 December 2017 (unaudited) £'000
Rental income 3 666
Property operating expenses 4 (3)
Net rental income 663
Other operating expenses 4 (409)
Operating profit before fair value changes 254
Change in fair value of investment properties 9 (4,491)*
Operating loss (4,237)
Finance expense 5 (6)
Loss before tax (4,243)
Taxation 6 -
Loss after tax (4,243)
Other comprehensive income -
Total comprehensive loss for the period (4,243)
Loss per share (pence per share) (basic and diluted) 7 (6.51)
The accompanying notes form an integral part of these financial statements.
*This includes a fair value gain of £0.07 million on properties held over the
period and a write down of £4.56 million of portfolio acquisition costs.
Consolidated Statement of Changes in Equity
For the period from 18 April 2017 to 31 December 2017
For the period from 18 April 2017 to 31 December 2017 (unaudited) Notes Share capital £'000 Share premium account £'000 Capital reserve and retained earnings £'000 Total capital and reserves attributable to owners of the Group £'000
Balance as at 18 April 2017 - - - -
Ordinary shares issued 14/15 805 79,695 - 80,500
Share issue costs 15 - (1,573) - (1,573)
Cancellation of share premium 15 - (78,122) 78,122 -
Total comprehensive loss - - (4,243) (4,243)
Dividends paid 8 - - (403) (403)
Balance as at 31 December 2017 805 - 73,476 74,281
The accompanying notes form an integral part of these financial statements.
Consolidated Statement of Financial Position
As at 31 December 2017
Notes As at 31 December 2017 (unaudited) £'000
Assets
Non-current Assets
Investment property 9 71,349
71,349
Current Assets
Receivables and prepayments 10 301
Cash and cash equivalents 3,878
4,179
Total Assets 75,528
Current Liabilities
Payables and accrued expenses 11 (1,247)
(1,247)
Total Liabilities (1,247)
Net Assets 74,281
Equity
Share capital 14 805
Share premium account 15 -
Capital reserve and retained earnings 73,476
Total capital and reserves attributable to equity holders of the Group 74,281
Net Asset Value per share (pence per share) 7 92.27
The financial statements were approved by the Board of Directors on 20
February 2018 and were signed on its behalf by:
Steve Smith
Chairman
AEW UK Long Lease REIT plc
Company number: 10727886
The accompanying notes form an integral part of these consolidated financial
statements.
Consolidated Statement of Cash Flows
For the period from 18 April 2017 to 31 December 2017
18 April 2017 to 31 December 2017 (unaudited)£'000
Cash flows from operating activities
Operating loss (4,237)
Adjustment for non-cash items:
Loss from change in fair value of investment property 4,491
Increase in other receivables and prepayments (204)
Increase in other payables and accrued expenses 564
Net cash generated from operating activities 614
Cash flows from investing activities
Purchase of investment property (75,157)
Net cash used in investing activities (75,157)
Cash flows from financing activities
Proceeds from issue of ordinary share capital 80,500
Share issue costs (1,573)
Finance costs (103)
Dividends paid (403)
Net cash generated from financing activities 78,421
Net increase in cash and cash equivalents
3,878
Cash and cash equivalents at start of the period -
Cash and cash equivalents at end of the period 3,878
The accompanying notes form an integral part of these consolidated financial
statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the period from 18 April 2017 to 31 December 2017
1. Corporate information
AEW UK Long Lease REIT plc (the 'Company') is a closed ended Real Estate
Investment Trust ('REIT') incorporated on 18 April 2017 and domiciled in the
UK. The registered office of the Company is located at 6th Floor, 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 6 June 2017.
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'). A review of the interim
financial information has been performed by the Independent Auditor of the
Group and was approved for issue on 20 February 2018.
These consolidated financial statements have been prepared under the
historical-cost convention, except for investment property that has been
measured at fair value.
The consolidated financial statements are presented in pound sterling and all
values are rounded to the nearest thousand pounds (£'000), except when
otherwise indicated.
The financial information contained in this interim report does not constitute
full statutory accounts as defined in Section 434 of the Companies Act 2006.
Basis of consolidation
The consolidated financial statements for the interim period ended 31 December
2017 incorporate the financial statements of AEW UK Long Lease REIT plc and
its subsidiaries (the 'Group'). Subsidiaries are entities controlled by the
Company, being AEW UK Long Lease REIT 2017 Limited and AEW UK Long Lease REIT
Holdco Limited. IFRS 10 outlines the requirements for the preparation of
consolidated financial statements, requiring an entity to consolidate the
results of all investees it is considered to control. Control exists where an
entity is exposed to variable returns and has the ability to affect those
returns through its power over the investee.
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 Group's accounting periods
beginning after 1 January 2018 or later periods, but the Group has decided not
to adopt them early. The following are the most relevant to the Group:
- IFRS 7 (Financial Instruments: Disclosures) amendments regarding additional
hedge accounting disclosures (applied when IFRS 9 is applied);
- IFRS 9 (Financial Instruments) 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;
and
- IFRS 16 (Leases) issued in January 2016 and is effective for annual periods
beginning on or after 1 January 2019.
The Group does not expect the adoption of new accounting standards issued but
not yet effective to have a significant impact on the Financial Statements.
2.2 Significant accounting judgements and estimates
The preparation of financial statements in accordance with EU IFRS requires
the Directors of the Group 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.
Estimates:
In the process of applying the Group's accounting policies, management has
made the following estimates, which have the most significant effect on the
amounts recognised in the consolidated financial information:
i) Valuation of investment property
The fair value of investment property is determined, by independent property
valuation experts, to be the estimated amount for which a property should
exchange on the date of the valuation in an arm's length transaction.
Properties have been valued on an individual basis. The valuation experts use
recognised valuation techniques, applying the principles of both IAS 40 and
IFRS13.
The valuations have been prepared in accordance with the R- Part 2: For the preceding part double click ID:nRSU4116Fa
short-term deposits with an original
maturity of three months or less.
f) Receivables and prepayments
Rent and other receivables are recognised at their original invoiced value.
Where the time value of money is material, receivables are discounted and then
held at amortised cost. Provision is made when there is objective evidence
that the Group will not be able to recover balances in full. Balances are
written off when the probability of recovery is assessed as being remote.
g) Capital prepayments
Capital prepayments are made for the purpose of acquiring future property
assets, and held as receivables within the Consolidated Statement of Financial
Position. When the asset is acquired, the prepayments are capitalised as a
cost of purchase. Where a purchase is not successful, these costs are expensed
within profit or loss as abortive costs in the period.
h) Other payables and accrued expenses
Other payables and accrued expenses are initially recognised at fair value and
subsequently held at amortised cost.
i) Rent deposits
Rent deposits represent cash received from tenants at inception of a lease and
are consequently transferred to the rent agent to hold on behalf of the Group.
These balances are held as creditors in the Consolidated Statement of
Financial Position.
j) 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.
k) 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.
l) Provisions
A provision is recognised in the Consolidated Statement of Financial Position
when the Group 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.
m) Dividend payable to shareholders
Equity dividends are recognised when they become legally payable.
n) 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.
o) 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 Group 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.
p) European Public Real Estate Association
The Group 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 period ended 31 December 2017, EPS and NAV calculations under EPRA's
methodology are included in note 7 and further unaudited measures are included
below.
3. Rental income
18 April 2017 to 31 December 2017
(unaudited)
£'000
Gross rental income received 666
Total rental income 666
4. Expenses
18 April 2017 to 31 December 2017
(unaudited)
£'000
Property operating expenses 3
Other operating expenses
Investment management fee 105
Auditor remuneration 52
Operating costs 192
Directors' remuneration 60
Total other operating expenses 409
Total operating expenses 412
5. Finance expense
18 April 2017 to 31 December 2017
(unaudited)
£'000
Other interest 6
Total 6
6. Taxation
18 April 2017 to
31 December
2017
(unaudited)
£'000
Total tax charge -
Analysis:
Loss before tax (4,243)
Theoretical tax at 19% (806)
Adjusted for:
Exempt REIT income (47)
Non taxable investment losses 853
Total -
The Company obtained REIT status on 13 October 2017, at which point any gains
or losses arising from property business have been extinguished. As such, no
deferred tax asset or liability has been recognised in the current period.
7. Earnings per share and NAV per share
Period from
18 April 2017 to
31 December 2017
(unaudited)
£'000
Net attributable to Ordinary shareholders:
Loss after tax (£'000) (4,243)
Weighted average number of shares* 65,211,240
Basic loss per share (pence) (6.51)
Adjustment to revenue:
Change in fair value of investment property (£'000) 4,491
Total EPRA Earnings (£'000) 248
EPRA earnings per share (basic and dilutes) (pence) 0.38
NAV per share and EPRA NAV per share:
Net assets (£'000) 74,281
Ordinary Shares 80,500,000
NAV per share and EPRA NAV per share (pence) 92.27
EPS amounts are calculated by dividing loss for the period attributable to
ordinary equity holders of the Company by the weighted average number of
Ordinary Shares in issue during the period. EPRA NNNAV is equal to IFRS NAV
and as such a reconciliation between the two measures has not been performed.
8. Dividends paid
18 April 2017 to 31 December 2017
(unaudited)
£'000
First interim dividend paid in respect of the period from incorporation to 30
September 2017 at 0.50p per Ordinary Share
403
Total dividends paid during the period 403
Second interim dividend declared in respect of the period 1 October 2017 to 31
December 2017 at 0.50p per Ordinary Share*
403
Total dividends paid in respect of the period 806
* Dividends declared after the period end are not included in the financial
statements as a liability.
9. Investments
9.1) Investment property
Period from 18 April 2017 to 31 December 2017 (unaudited)
Investment Investment Total
Properties Properties £'000
Freehold leasehold
£'000 £'000
UK Investment property
As at beginning of period - - -
Purchases in period 49,896 25,944 75,840
Revaluation of investment property (2,866) (1,555) (4,421)
Valuation provided by Knight Frank 47,030 24,389 71,419
Adjustment to fair value for straight lining of lease income (70)
Total Investment property 71,349
Change in fair value of investment property
Loss from change in fair value (4,421)
Adjustment to fair value for straight lining of lease income (70)
Total change in fair value (4,491)
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 Group'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 (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 flows.
9.2) Fair value measurement hierarchy
The following table provides the fair value measurement hierarchy for
non-current assets:
31 December 2017 (unaudited)
Quoted prices in active markets (Level1) Significant observable inputs (Level 2) Significant unobservable inputs Total £'000
£'000 £'000 (Level 3)
£'000
Asset measured at fair value
Investment property* - - 71,419 71,419
- - 71,419 71,419
* before adjustments to fair value for straight lining of lease income.
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
portfolios of investment properties 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 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:
Class Fair value Valuation technique Significant unobservable inputs Range
£'000
31 December 2017
Investment property 71,419 Income capitalisation ERV £4.50-£16.25
Equivalent yield 5.04%-7.63%
Where possible, sensitivity of the fair values of Level 3 assets are tested to
changes in unobservable inputs to reasonable alternatives.
31 December 2017
Change in ERV Change in equivalent yield
£'000 £'000 £'000 £'000
Sensitivity Analysis +5% -5% +5% -5%
Resulting fair value of investment property 71,653 71,038 67,672 75,297
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.
10. Receivables and prepayments
31 December 2017
(unaudited)
£'000
Receivables
Rent debtor 26
VAT receivable 100
126
Accrued income from straight lining of lease income 70
196
Prepayments
Unamortised finance costs 97
Other prepayments 8
105
Total 301
11. Payables and accrued expenses
31 December 2017
(unaudited)
£'000
Deferred income 290
Accruals 204
Other creditors 753
Total 1,247
12. Guarantees and commitments
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 4 and 116 years.
Future minimum rentals receivable under non-cancellable operating leases as at
31 December 2017 are as follows:
31 December 2017
(unaudited)
£'000
Within one year 4,045
After one year but not more than five years 16,090
More than five years 81,018
Total 101,153
During the period ended 31 December 2017 there were nil contingent rents
recognised as income.
13. Investment in subsidiary
The Company has two wholly owned subsidiaries disclosed below:
Name and company number Country of registration and incorporation Principal activity Ordinary Shares held
AEW UK Long Lease REIT Holdco Limited England and Wales Real Estate Company 1
(Company number 11052186)
AEW UK Long Lease REIT 2017 Limited England and Wales Real Estate Company 1
(Company number 10754641)
AEW UK Long Lease REIT Holdco Limited is a subsidiary of the Company
incorporated in the UK on 7 November 2017. As at 31 December 2017, the Company
owns 100% of the issued share capital. The registered office of AEW UK Long
Lease REIT Holdco Limited is 6th Floor 65 Gresham Street, London, England,
EC2V 7NQ.
AEW UK Long Lease REIT 2017 Limited is a subsidiary of the Company
incorporated in the UK on 4 May 2017. As at 31 December 2017, the Company owns
100% of the issued share capital. The registered office of AEW UK Long Lease
REIT 2017 Limited is 6th Floor 65 Gresham Street, London, England, EC2V 7NQ.
14. Issued share capital
For the period 18 April 2017 to 31 December 2017
£'000 Number of Ordinary Shares
Ordinary Shares issued and fully paid
At the beginning of the period - 1
Issued on admission to trading on the London Stock Exchange on 6 June 2017 805 80,499,999
At the end of the period 805 80,500,000
On 6 June 2017, the Company issued 80,499,999 Ordinary Shares at a price of
100.00 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 31 May 2017.
15. Share premium account
18 April 2017 to
31 December
2017
(unaudited)
£'000
The share premium relates to amounts subscribed for share capital in excess of
nominal value:
Balance at the beginning of the period -
Issued on admission to trading on the London Stock Exchange on 6 June 2017 79,695
Share issue costs (1,573)
Cancellation of share premium (78,122)
Balance at the end of the period -
16. Capital reserve
On 26 July 2017, the Company by way of Special Resolution, cancelled the value
of its share premium account, by an Order of the High Court of Justice,
Chancery Division. As a result of this cancellation, £78,122,172 has been
transferred from the share premium oyal Institution of
Chartered Surveyors ("RICS") Valuation - Professional Standard January 2014
(revised April 2015) ("the Red Book"). Factors reflected include current
market conditions, annual rentals, lease lengths and location. The significant
methods and assumptions used by valuers in estimating the fair value of
investment property are set out in note 9.
2.3 Segmental information
In accordance with IFRS 8, the Directors are of the opinion that the Group is
engaged into one main operating segment, being investment property in the UK.
2.4 Going concern
The Directors have made an assessment of the Group's ability to continue as a
going concern and are satisfied that the Group has the resources to continue
in business for at least 12 months from the date of these financial
statements. Furthermore, the Directors are not aware of any material
uncertainties that may cast significant doubt upon the Group's ability to
continue as a going concern. Therefore, the financial statements have been
prepared on the going concern basis.
2.5 Summary of significant accounting policies
The principal accounting policies applied in the preparation of these
financial statements are set out below.
a) Presentation currency
These financial statements are presented in pound sterling, which is the
functional and presentational currency of the Group. The functional currency
of the Group is principally determined by the primary economic environment in
which it operates. The Group did not enter into any transactions in foreign
currencies during the period.
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) 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. All financing expenses are recognised in profit or loss in
the period in which they occur. Interest income and interest payable are
recognised in profit or loss as they accrue, using the effective interest
method.
d) 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 assets.
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.
Any gains or losses on the retirement or disposal of investment property are
recognised in profit or loss in the year of retirement or disposal.
e) Cash and cash equivalents
Cash and short-term deposits in the Consolidated Statement of Financial
Position comprise cash at bank and short-term deposits with an original
maturity of three months or less.
f) Receivables and prepayments
Rent and other receivables are recognised at their original invoiced value.
Where the time value of money is material, receivables are discounted and then
held at amortised cost. Provision is made when there is objective evidence
that the Group will not be able to recover balances in full. Balances are
written off when the probability of recovery is assessed as being remote.
g) Capital prepayments
Capital prepayments are made for the purpose of acquiring future property
assets, and held as receivables within the Consolidated Statement of Financial
Position. When the asset is acquired, the prepayments are capitalised as a
cost of purchase. Where a purchase is not successful, these costs are expensed
within profit or loss as abortive costs in the period.
h) Other payables and accrued expenses
Other payables and accrued expenses are initially recognised at fair value and
subsequently held at amortised cost.
i) Rent deposits
Rent deposits represent cash received from tenants at inception of a lease and
are consequently transferred to the rent agent to hold on behalf of the Group.
These balances are held as creditors in the Consolidated Statement of
Financial Position.
j) 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.
k) 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.
l) Provisions
A provision is recognised in the Consolidated Statement of Financial Position
when the Group 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.
m) Dividend payable to shareholders
Equity dividends are recognised when they become legally payable.
n) 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.
o) 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 Group 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.
p) European Public Real Estate Association
The Group has adopted European Pubaccount, into the capital reserve. The
capital reserve is classed as a distributable reserve.
17. Financial risk management and objectives and policies
The Group's activities expose it to a variety of financial risks: market risk,
credit risk, liquidity risk and further risks inherent to investing in
investment property. The Group's objective in managing risk is the creation
and protection of shareholder value. Risk is inherent in the Group'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 Group in the management of its portfolio are as
follows:
17.1 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 Group diversifies its
portfolio geographically in the UK and across property sectors.
The disciplined approach to the purchase, sale and assets 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") meets monthly and
reserves the ultimate decision with regards to investments purchases or sales.
In order to monitor property valuation fluctuations, the IMC and the Portfolio
Management Team meet with the independent external valuer on a regular basis.
The valuer provides a property portfolio valuation quarterly, so any movements
in the value can be accounted for in a timely manner and reflected in the NAV
every quarter.
17.2 Real estate risk
The Group is exposed to the following risks specific to its investments in
investment property:
Property investments are illiquid assets and valuing is difficult. Real estate
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 Group. 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 Group.
17.3 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 Group by failing to
meet a commitment it has entered into with the Group.
It is the Group's policy to enter into financial instruments with reputable
counterparties. All cash deposits are placed with an approved counterparty,
Royal Bank of Scotland.
In respect of property investments, in the event of a default by a tenant, the
Group 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 Group's exposure to credit risk:
As at 31 December
2017
(unaudited)
£'000
Debtors (excluding straight lining and prepayments) 126
Cash and cash equivalents 3,878
Total 4,004
17.4 Liquidity risk
Liquidity risk arises from the Group's management of working capital and the
finance charges and principal repayments on its borrowings. It is the risk the
Group will encounter difficulty in meeting its financial obligations as they
fall due as the majority of the Group's assets are investment properties and
therefore not readily realisable. The Group's objective is to ensure it has
enough 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 below table summarises the maturity profile of the Group's financial
liabilities based on contractual undiscounted payments.
31 December 2017 On demand <3 months 3-12 months 1-5 years >5 years Total
£'000 £'000 £'000 £'000 £'000 £'000
Payables and accrued expenses - 1,247 - - - 1,247
Total - 1,247 - - - 1,247
17.5 Fair value of financial instruments
There is no material difference between the carrying amount and fair value of
the Group's financial instruments.
18. Transactions with related parties
As defined by IAS 24 Related Party Disclosures, parties are considered to be
related if one party has the ability to control the other party or exercise
significant influence over the other party in making financial or operational
decisions.
Subsidiaries
AEW UK Long Lease REIT plc as at 31 December 2017 owns 100% controlling stake
in AEW UK Long Lease REIT 2017 Limited and AEW UK Long Lease REIT Holdco
Limited respectively.
Directors
For the period 18 April 2017 to 31 December 2017, the Directors of the Group
are considered to be the key management personnel. Directors' remuneration is
disclosed in note 4.
Investment Manager
The Group is party to an Investment Management Agreement with the Investment
Manager, pursuant to which the Group 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
0.75% per annum of NAV (excluding un-invested fund raising proceeds) and paid
quarterly. During the period 18 April 2017 to 31 December 2017, the Group
incurred £105,084 in respect of investment management fees and expenses of
which £105,084 was outstanding at 31 December 2017.
19. Events after reporting date
Dividend
On 24 January 2018, the Board declared its second interim dividend of 0.50
pence per share in respect of the period from 1 October 2017 to 31 December
2017. This is to be paid on 28 February 2018 to shareholders on the register
as at 2 February 2018. The ex-dividend date will be 1 February 2018.
Credit facility
The Group entered into a £30 million term loan facility with Canada Life
Investments on 5 January 2018.
The term facility is up to 35% loan to property value, provided on a portfolio
basis. The loan is fixed to October 2025 at a total rate of 3.05% per annum.
On 19 January 2018, the Group drew down on its £30m loan facility and used
£18.1 million (net of acquisition costs) on three property acquisitions.
Property acquisitions
The Group made three further acquisitions on 23 January 2018 for a combined
total of £18.1 million (net of acquisition costs).
The first two acquisitions are a set of two industrial units in Dudley and
Sheffield, bought for £10.1 million. Both properties are let to Meridian
Metal Trading Ltd and subject to five yearly rent reviews linked to RPI, with
annual uplifts between 1% and 4%. Together, the properties have a WAULT of 15
years to expiry and reflects a net initial yield of 6.0%.
The Group also acquired Mercure City Hotel on Ingram Street, Glasgow for £8.0
million, The asset is let to Jupiter Hotels Limited, with annual rent reviews
linked to RPI. This property has a WAULT of 18.5 years and reflects a net
initial yield of 6.5%.
EPRA UNAUDITED PERFORMANCE MEASURES
Detailed below is a summary table showing the EPRA performance measures of the
Company
Measure and definition Purpose Performance
1. EPRA Earnings
Earnings from operational activities. A key measure of a company's underlying operating results and an indication of £0.25 million/0.38 pps
the extent to which current dividend payments are supported by earnings.
EPRA earnings for the period 18 April 2017 to 31 December 2017
2. EPRA NAV
Net asset value adjusted to include properties and other investment interests Makes adjustments to IFRS NAV to provide stakeholders with the most relevant £74.28 million/92.27 pps
at fair value and to exclude certain items not expected to crystallise in a information on the fair value of the assets and liabilities within a true real
long-term investment property business. estate investment company with a long-term investment strategy. EPRA NAV as at 31 December 2017
3. EPRA NNNAV
EPRA NAV adjusted to include the fair values of: Makes adjustments to EPRA NAV to provide stakeholders with the most relevant £74.28 million/92.27 pps
information on the current fair value of all the assets and liabilities within
(i) financial instruments; a real estate company. EPRA NNNAV as at
(ii) debt; and 31 December 2017
(iii) deferred taxes.
4.1 EPRA Net Initial Yield ('NIY')
Annualised rental income based on the cash rents passing at the balance sheet A comparable measure for portfolio valuations. This measure should make it 5.45%
date, less non-recoverable property operating expenses, divided by the market easier for investors to judge themselves, how the valuation of portfolio X
value of the property, increased with compares with portfolio Y. EPRA NIY
(estimated) purchasers' costs.
as at 31 December 2017
4.2 EPRA 'Topped-Up' NIY
This measure incorporates an A comparable measure for portfolio valuations. This measure should make it 6.73%
easier for investors to judge themselves, how the valuation of portfolio X
adjustment to the EPRA NIY in compares with portfolio Y. EPRA 'Topped-Up' NIY
respect of the expiration of rent-free periods (or other unexpired lease as at 31 December 2017
incentives such as discounted rent periods and step rents).
5. EPRA Vacancy
Estimated Market Rental Value ('ERV') of vacant space divided by ERV of the A "pure" (%) measure of investment property space that is vacant, based on 0%
whole portfolio. ERV.
EPRA vacancy
as at 31 December 2017
6. EPRA Cost Ratio
Administrative and operating costs (including and excluding costs of direct A key measure to enable meaningful measurement of the changes in a company's 61.90%
vacancy) divided by gross rental income.
operating costs. EPRA Cost Ratio as at
31 December 2017
Calculation of EPRA Net Initial Yield and 'topped-up' Net Initial Yield
31 December
2017
£'000
Investment property - wholly-owned 71,419
Allowance for estimated purchasers' costs 4,856
Gross up completed property portfolio valuation 76,275
Annualised cash passing rental income 4,166
Property outgoings (5)
Annualised net rents 4,161
Rent expiration of rent-free periods and fixed uplifts 971
'Topped-up' net annualised rent 5,132
EPRA Net Initial Yield 5.45%
EPRA 'topped-up' Net Initial Yield 6.73%
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 December 2017, plus an allowance for estimated
purchasers' costs. Estimated purchasers' costs are determined by the relevant
stamp duty liability, plus an estimate by our valuers of agent and legal fees
on notional acquisition. The net rent deduction allowed for property outgoings
is based on our valuers' assumptions on future recurring non-recoverable
revenue expenditure.
In calculating the EPRA 'topped-up' NIY, the annualised net rent is increased
by the total contracted rent from expiry of rent-free periods and future
contracted rental uplifts.
Calculation of EPRA Vacancy Rate
31 December
2017
£'000
Annualised potential rental value of vacant premises -
Annualised potential rental value for the completed property portfolio 4,265
EPRA Vacancy Rate 0%
Calculation of EPRA Cost Ratios
31 December
2017
£'000
Administrative/operating expenses per IFRS income statement 412
EPRA Costs (including and excluding direct vacancy costs) 412
Gross Rental Income 666
EPRA Cost Ratio (including direct vacancy costs) 61.90%
EPRA Cost Ratio (excluding direct vacancy costs) 61.90%
COMPANY INFORMATION
Share Register Enquiries
The register for the Ordinary Shares is maintained by Computershare Investor
Services PLC. In the event of queries regarding your holding, please contact
the Registrar on 0370 889 4069 or email: web.queries@computershare.co.uk
(mailto: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 (http://www.investorcentre.co.uk) .
Share Information
Ordinary £0.01 Shares 80,500,000
SEDOL Number BDVK708
ISIN Number GB00BDVK7088
Ticker/TIDM AEWL
Share Prices
The Company's Ordinary Shares are traded on the Main Market of the London
Stock Exchange.
Annual and Interim Reports
Copies of the Interim Report will be available from the Company's website.
Provisional Financial Calendar
31 December 2018 Half-year end
February 2018 Announcement of interim results
30 June 2018 Year end
September 2018 Announcement of annual results
October 2018 Annual General Meeting
Dividends
The following table summarises the amounts recognised as distributions to
equity shareholders in the period:
£
Interim dividend for the period 18 April 2017 to 30 September 2017 (payment 402,500
made on 30 November 2017)
Interim dividend for the period 1 October 2017 to 31 December 2017 (payment to 402,500
be made on 28 February 2018)
Total 805,000
Directors Depositary
Steve Smith* (Non-executive Chairman) Langham Hall UK Depositary LLP
George Henshilwood* (Non-executive Director) 5 Old Bailey
Jim Prower* (Non-executive Director) London
Alan Sippetts* (Non-executive Director) EC4M 7BA
Registered Office Administrator
6th Floor Link Alternative Fund Administrators Limited
65 Gresham Street Beaufort House
London 51 New North Road
EC2V 7NQ Exeter
EX4 4EP
Investment Manager Company Secretary
AEW UK Investment Management LLP Link Company Matters Limited
33 Jermyn Street 6th Floor
London 65 Gresham Street
SW1Y 6DN London
Tel: 020 7016 4880 EC2V 7NQ
Website: www.aewuk.clic 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 period ended 31 December 2017, EPS and NAV calculations under EPRA's
methodology are included in note 7 and further unaudited measures are included
below.
3. Rental income
18 April 2017 to 31 December 2017(unaudited)£'000
Gross rental income received 666
Total rental income 666
4. Expenses
18 April 2017 to 31 December 2017(unaudited)£'000
Property operating expenses 3
Other operating expenses
Investment management fee 105
Auditor remuneration 52
Operating costs 192
Directors' remuneration 60
Total other operating expenses 409
Total operating expenses 412
5. Finance expense
18 April 2017 to 31 December 2017(unaudited)£'000
Other interest 6
Total 6
6. Taxation
18 April 2017 to 31 December 2017 (unaudited)£'000
Total tax charge -
Analysis:
Loss before tax (4,243)
Theoretical tax at 19% (806)
Adjusted for:
Exempt REIT income (47)
Non taxable investment losses 853
Total -
The Company obtained REIT status on 13 October 2017, at which point any gains
or losses arising from property business have been extinguished. As such, no
deferred tax asset or liability has been recognised in the current period.
7. Earnings per share and NAV per share
Period from 18 April 2017 to 31 December 2017 (unaudited)£'000
Net attributable to Ordinary shareholders:
Loss after tax (£'000) (4,243)
Weighted average number of shares* 65,211,240
Basic loss per share (pence) (6.51)
Adjustment to revenue:
Change in fair value of investment property (£'000) 4,491
Total EPRA Earnings (£'000) 248
EPRA earnings per share (basic and dilutes) (pence) 0.38
NAV per share and EPRA NAV per share:
Net assets (£'000) 74,281
Ordinary Shares 80,500,000
NAV per share and EPRA NAV per share (pence) 92.27
EPS amounts are calculated by dividing loss for the period attributable to
ordinary equity holders of the Company by the weighted average number of
Ordinary Shares in issue during the period. EPRA NNNAV is equal to IFRS NAV
and as such a reconciliation between the two measures has not been performed.
8. Dividends paid
18 April 2017 to 31 December 2017(unaudited)£'000
First interim dividend paid in respect of the period from incorporation to 30 September 2017 at 0.50p per Ordinary Share 403
Total dividends paid during the period 403
Second interim dividend declared in respect of the period 1 October 2017 to 31 December 2017 at 0.50p per Ordinary Share* 403
Total dividends paid in respect of the period 806
* Dividends declared after the period end are not included in the financial
statements as a liability.
9. Investments
9.1) Investment property
Period from 18 April 2017 to 31 December 2017 (unaudited)
Investment Properties Freehold £'000 Investment Properties leasehold £'000 Total £'000
UK Investment property
As at beginning of period - - -
Purchases in period 49,896 25,944 75,840
Revaluation of investment property (2,866) (1,555) (4,421)
Valuation provided by Knight Frank 47,030 24,389 71,419
Adjustment to fair value for straight lining of lease income (70)
Total Investment property 71,349
Change in fair value of investment property
Loss from change in fair value (4,421)
Adjustment to fair value for straight lining of lease income (70)
Total change in fair value (4,491)
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 Group'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 (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 flows.
9.2) Fair value measurement hierarchy
The following table provides the fair value measurement hierarchy for
non-current assets:
31 December 2017 (unaudited)
Quoted prices in active markets (Level1)£'000 Significant observable inputs (Level 2)£'000 Significant unobservable inputs (Level 3)£'000 Total £'000
Asset measured at fair value
Investment property* - - 71,419 71,419
- - 71,419 71,419
* before adjustments to fair value for straight lining of lease income.
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
portfolios of investment properties 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 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:
Class Fair value £'000 Valuation technique Significant unobservable inputs Range
31 December 2017
Investment property 71,419 Income capitalisation ERVEquivalent yield £4.50-£16.255.04%-7.63%
Where possible, sensitivity of the fair values of Level 3 assets are tested to
changes in unobservable inputs to reasonable alternatives.
31 December 2017
Change in ERV Change in equivalent yield
£'000 £'000 £'000 £'000
Sensitivity Analysis +5% -5% +5% -5%
Resulting fair value of investment property 71,653 71,038 67,672 75,297
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.
10. Receivables and prepayments
31 December 2017(unaudited)£'000
Receivables
Rent debtor 26
VAT receivable 100
126
Accrued income from straight lining of lease income 70
196
Prepayments
Unamortised finance costs 97
Other prepayments 8
105
Total 301
11. Payables and accrued expenses
31 December 2017(unaudited)£'000
Deferred income 290
Accruals 204
Other creditors 753
Total 1,247
12. Guarantees and commitments
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 4 and 116 years.
Future minimum rentals receivable under non-cancellable operating leases as at
31 December 2017 are as follows:
31 December 2017(unaudited)£'000
Within one year 4,045
After one year but not more than five years 16,090
More than five years 81,018
Total 101,153
During the period ended 31 December 2017 there were nil contingent rents
recognised as income.
13. Investment in subsidiary
The Company has two wholly owned subsidiaries disclosed below:
Name and company number Country of registration and incorporation Principal activity Ordinary Shares held
AEW UK Long Lease REIT Holdco Limited(Company number 11052186) England and Wales Real Estate Company 1
AEW UK Long Lease REIT 2017 Limited(Company number 10754641) England and Wales Real Estate Company 1
AEW UK Long Lease REIT Holdco Limited is a subsidiary of the Company
incorporated in the UK on 7 November 2017. As at 31 December 2017, the Company
owns 100% of the issued share capital. The registered office of AEW UK Long
Lease REIT Holdco Limited is 6th Floor 65 Gresham Street, London, England,
EC2V 7NQ.
AEW UK Long Lease REIT 2017 Limited is a subsidiary of the Company
incorporated in the UK on 4 May 2017. As at 31 December 2017, the Company owns
100% of the issued share capital. The registered office of AEW UK Long Lease
REIT 2017 Limited is 6th Floor 65 Gresham Street, London, England, EC2V 7NQ.
14. Issued share capital
For the period 18 April 2017 to 31 December 2017
£'000 Number of Ordinary Shares
Ordinary Shares issued and fully paid
At the beginning of the period - 1
Issued on admission to trading on the London Stock Exchange on 6 June 2017 805 80,499,999
At the end of the period 805 80,500,000
On 6 June 2017, the Company issued 80,499,999 Ordinary Shares at a price of
100.00 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 31 May 2017.
15. Share premium account
18 April 2017 to 31 December 2017 (unaudited)£'000
The share premium relates to amounts subscribed for share capital in excess of nominal value:
Balance at the beginning of the period -
Issued on admission to trading on the London Stock Exchange on 6 June 2017 79,695
Share issue costs (1,573)
Cancellation of share premium (78,122)
Balance at the end of the period -
16. Capital reserve
On 26 July 2017, the Company by way of Special Resolution, cancelled the value
of its share premium account, by an Order of the High Court of Justice,
Chancery Division. As a result of this cancellation, £78,122,172 has been
transferred from the share premium account, into the capital reserve. The
capital reserve is classed as a distributable reserve.
17. Financial risk management and objectives and policies
The Group's activities expose it to a variety of financial risks: market risk,
credit risk, liquidity risk and further risks inherent to investing in
investment property. The Group's objective in managing risk is the creation
and protection of shareholder value. Risk is inherent in the Group'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 Group in the management of its portfolio are as
follows:
17.1 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 Group diversifies its
portfolio geographically in the UK and across property sectors.
The disciplined approach to the purchase, sale and assets 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") meets monthly and
reserves the ultimate decision with regards to investments purchases or sales.
In order to monitor property valuation fluctuations, the IMC and the Portfolio
Management Team meet with the independent external valuer on a regular basis.
The valuer provides a property portfolio valuation quarterly, so any movements
in the value can be accounted for in a timely manner and reflected in the NAV
every quarter.
17.2 Real estate risk
The Group is exposed to the following risks specific to its investments in
investment property:
Property investments are illiquid assets and valuing is difficult. Real estate
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 Group. 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 Group.
17.3 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 Group by failing to
meet a commitment it has entered into with the Group.
It is the Group's policy to enter into financial instruments with reputable
counterparties. All cash deposits are placed with an approved counterparty,
Royal Bank of Scotland.
In respect of property investments, in the event of a default by a tenant, the
Group 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 Group's exposure to credit risk:
As at 31 December 2017(unaudited)£'000
Debtors (excluding straight lining and prepayments) 126
Cash and cash equivalents 3,878
Total 4,004
17.4 Liquidity risk
Liquidity risk arises from the Group's management of working capital and the
finance charges and principal repayments on its borrowings. It is the risk the
Group will encounter difficulty in meeting its financial obligations as they
fall due as the majority of the Group's assets are investment properties and
therefore not readily realisable. The Group's objective is to ensure it has
enough 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 below table summarises the maturity profile
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Property Manager Registrar
Workman LLP Computershare Investor Services PLC
Alliance House The Pavilions
12 Caxton Street Bridgwater Road
London SW1 0QS Bristol
BS13 8AE
Corporate Broker Auditor
Fidante Capital KPMG LLP
1 Tudor Street 15 Canada Square
London London
EC4Y 0AH E14 5GL
Legal Adviser to the Company Valuer
Gowling WLG (UK) LLP Knight Frank LLP
4 More London Riverside 55 Baker Street
London London
SE1 2AU W1U 8AN
* Independent of the Investment Manager.
This information is provided by RNS
The company news service from the London Stock Exchange
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