REG - AEW UK LongLeaseREIT - Half-year Report
AEW UK LONG LEASE REIT PLC (the 'Company')
Announcement of Interim Report and Financial Statements for the six months ended 31 December 2018
AEW UK Long Lease REIT plc ('the Company'), which directly owns a diversified portfolio of commercial investment properties, predominately in the alternative property sectors, is pleased to publish its interim report and financial statements for the six months from 1 July 2018 to 31 December 2018.
Steve Smith, Chairman of AEW UK Long Lease REIT, commented: "Over the past 6 months, the fund has continued to execute the strategy laid out at its IPO. In particular, the two most recent dividends declared have been in line with the target annual dividend of 5.5 pence per share, supported by the strong portfolio of assets acquired to date. The diversification of the portfolio by sector, tenants and geographical regions is generating attractive yields and predictable income streams through long leases, of which 92% of income has contractual exposure to inflation. We continue to see a number of interesting market opportunities and as such are focussed on raising additional equity to support future growth."
Enquiries
AEW UK
Alex Short
Laura Elkin
Nicki Gladstone
Nicki.Gladstone-ext@eu.aew.com
+44(0) 771 140 1021
Cenkos Securities plc
Tom Scrivens
Sapna Shah
+44 (0)20 7397 1915
+44 (0)20 7397 1922
TB Cardew
Ed Orlebar
Lucy Featherstone
+44(0) 7738 724 630
+44(0) 7789 374 663
FINANCIAL HIGHLIGHTS
• Unaudited Net Asset Value ('NAV') of £78.46 million and of 97.46 pence per share as at 31 December 2018 (30 June 2018: £76.42 million and 94.93 pence per share).
• Operating profit before fair value changes of £2.67 million for the half year (18 April 2017 to 31 December 2017: £0.25 million).
• Profit before tax ('PBT') of £4.15 million and 5.15 pence per share for the half year (18 April 2017 to 31 December 2017: Loss of £4.24 million and of 6.51 pence per share for the half year, of which £4.56 million and 6.99 pence related to acquisition costs written off).
• EPRA Earnings per Share ('EPRA EPS') for the half year were 2.69 pence (18 April 2017 to 31 December 2017: 0.38 pence). See below for more details.
• Total dividends of 2.75 pence per share have been declared for the half year (18 April 2017 to 31 December 2017: 1.00 pence per share).
• The price of the Company's Ordinary Shares on the Main Market of the London Stock Exchange was 88.82 pence per share as at 31 December 2018 (30 June 2018: 90.24 pence per share).
• As at 31 December 2018, the Group had a £30 million loan facility with Canada Life Investments and was geared to 27.7% of the Gross Asset Value ('GAV') (30 June 2018: 27.7%).
• Since the half year end, the Group increased its loan facility by £11 million with its existing lender, Canada Life Investments, taking the total loan drawn down to £41 million. The weighted average interest cost of the Group's increased facility is 3.19% and the facility is repayable on 20 October 2025.
PROPERTY HIGHLIGHTS
• Weighted average unexpired lease term ('WAULT') of 21.5 years (30 June 2018: 21.8 years) to the earlier of break and expiry and 23.4 years to expiry (30 June 2018: 24.0 years). See below for more details.
• As at 31 December 2018, the Group's property portfolio had a fair value of £112.23 million (30 June 2018: £99.09 million).
• The assets acquired are fully let as at 31 December 2018 (30 June 2018: 99.7% occupancy).
• Rental and other income generated in the half year was £3.33 million (18 April 2017 to 31 December 2017: £0.67 million). The number of tenants as at 31 December 2018 was 23 (30 June 2018: 21).
• The portfolio has annualised contracted rental income of £6.55 million as at 31 December 2018 (30 June 2018: £5.64 million).
• The portfolio has an average Net Initial Yield ('NIY') of 5.41% (30 June 2018: 5.29%).
CHAIRMAN'S STATEMENT
Overview
I am pleased to present the unaudited interim consolidated results of the Group for the six-month period from 1 July 2018 to 31 December 2018 (the 'period').
As at 31 December 2018, the Group had invested £106.16 million (excluding purchase costs) in acquiring a diversified portfolio of 18 commercial investment properties throughout the UK. At the period end, the Group's property portfolio (the 'Portfolio') has been independently valued by Knight Frank LLP in accordance with the RICS Valuations - Professional Standards (the 'Red Book') at a fair value of £112.23 million, an increase of £6.07 million (or 5.72% before purchase costs) since IPO.
To date, the Group has delivered on its targets at the time of the Company's IPO. The portfolio has a NIY of 5.41%, a WAULT to break of 21.5 years and a WAULT to expiry of 23.4 years, and 92% of the income is linked to inflation (RPI or CPI).
Financial Results
1 July 2018 to
18 April 2017 to
18 April 2017 to
31 December
31 December
30 June
2018
2017
2018
(unaudited)
(unaudited)
(audited)
Operating profit before fair value changes (£'000)
2,670
254
2,445
Operating profit / (loss) (£'000)
4,650
(4,237)
(408)
Profit / (loss) after tax (£'000)
4,148
(4,243)
(895)
Earnings / (loss) per share (basic and diluted) (pence)
5.15
(6.51)
(1.25)
EPRA earnings per share (basic and diluted) (pence)
2.69
0.38
2.74
NAV per share (pence)
97.46
92.27
94.93
EPRA NAV per share (pence)
97.46
92.27
94.93
The Group has ongoing charges of 1.5% for the period (31 December 2017: 0.93%; 30 June 2018: 1.36%), which are a measure of annualised fund level operating costs for the period as a percentage of NAV.
Financing
As at 31 December 2018, the Group had utilised all of its £30 million fixed-interest loan facility with Canada Life Investments.
In December 2018, the Group agreed an increase of £11 million to its loan facility with existing lender Canada Life Investments, taking the total loan facility to £41 million. The weighted average interest cost of the Group's £41 million facility is 3.19% and the facility is repayable on 20 October 2025. The additional £11 million loan facility was fully drawn on 11 January 2019, and was used to fund the £6.65 million acquisition of Nailsea, Bristol.
As at 31 December 2018, the unexpired term of the facility was 6.8 years and the Loan to Value ('LTV') was 27.7% (as calculated on the Gross Asset Value ('GAV').
Dividends
The Company is now fully invested and during the period has begun to pay dividends of 1.375 pence per share, in line with the annual target of 5.5 pence per share and the stated dividend policy set out in the Company's Prospectus.
Please refer to Note 8 below for details on the dividends paid.
Outlook
The Group has executed its strategy since the IPO and delivered on its stated objectives. In particular, the two most recent dividends declared have been in line with the target annual dividend of 5.5 pence per share.
A strong portfolio of assets has been acquired, diversified by sector, tenants and geographical regions, at attractive yields that generate predictable income streams through long leases, of which 92% of income has contractual exposure to inflation.
Since 31 December 2018, the Group completed on the acquisition of Nailsea, Bristol for £6.65 million (net of purchase costs) that generates a further £0.41 million per annum in passing rent. This acquisition was financed using the Canada Life Investments facility extension of £11 million. The Group has a further property under offer which, if purchased, will also be funded through the debt facility.
Following the recent acquisitions, the Board and the Investment Manager, taking full account of the regressive impact of acquisition costs, believe that we have delivered a competitive total return over the period and with inflationary rent escalation will be competitive in potentially turbulent markets in the coming period.
Our current focus is to continue to grow the Company by raising additional equity, to enable the Company to gain economies of scale in its fixed cost base and to allow the Investment Manager to capitalise on the interesting market opportunities it sees.
I would like to thank our shareholders, my fellow Directors and AEW UK for their continued support.
Steve Smith
Chairman
26 February 2019
UMAUDITED KEY PERFORMANCE INDICATORS ('KPIs')
KPI and definition
Relevance to strategy
Performance
1. NIY
A representation to the investor of what their initial net yield would be at a predetermined purchase price after taking account of all associated costs (e.g. void costs and rent free periods).
The NIY is an indicator of the ability of the Company to meet its target dividend after adjusting for the upward impact of leverage and deducting operating costs.
5.41%
at 31 December 2018 (30 June 2018: 5.29%).
2. WAULT to break and expiry
The average lease term remaining to expiry across the portfolio, weighted by contracted rent.
The WAULT is a key measure of the quality of our portfolio. Long leases underpin the security of our future income.
21.5 years to break and 23.4 years to expiry
at 31 December 2018 (30 June 2018: 21.8 years to break and 24.0 years to expiry).
3. NAV
NAV is the value of an entity's assets minus the value of its liabilities.
Provides stakeholders with the most relevant information on the fair value of the assets and liabilities of the Group.
£78.46 million
at 31 December 2018 (30 June 2018: £76.42 million).
4. Dividend
Dividends declared in relation to the period. The Company targets a dividend of 5.50 pence per Ordinary Share per annum once fully invested and leveraged.
The dividend reflects the Company's ability to deliver a sustainable income stream from its portfolio.
2.75 pence per share
for the six months to 31 December 2018. This supports an annualised target of 5.50 pence per share (18 April 2017 to 31 December 2017: 1.00 pence per share).
5. Leverage (Loan to GAV)
The proportion of the portfolio that is funded by borrowings.
The Group utilises borrowings to enhance returns over the medium term.
Borrowing will not exceed 40% of GAV (measured at drawdown) with a long-term target of 30% or less of GAV.
27.7%
at 31 December 2018
(30 June 2018: 27.7%)
6. Ongoing Charges
The ratio of total administration and operating costs expressed as a percentage of average NAV throughout the period.
The Ongoing Charges ratio provides a measure of total costs associated with managing and operating the Group, which includes the management fees due to the Investment Manager. This measure is to provide investors with a clear picture of operational costs involved in running the Group.
1.5%
for the six months to 31 December 2018
(18 April 2017 to 31 December 2017 0.93%)
7. Total Shareholder Return
The percentage change in the share price assuming dividends are reinvested to purchase additional Ordinary Shares.
This reflects the return seen by shareholders on their shareholdings.
1.47%
for the six months to 31 December 2018 (18 April to 31 December 2017: 2.75%)
8. PBT
PBT is a profitability measure which considers the Group's profit before the payment of income tax.
The PBT is an indication of the Group's financial performance for the period in which its strategy is exercised.
£4.148 million
for the six months to 31 December 2018 (18 April 2017 to 31 December 2017: loss of £4.243 million)
EPRA UNAUDITED PERFORMANCE MEASURES
Detailed below is a summary table showing the EPRA performance measures of the Group
MEASURE AND DEFINITION
PURPOSE
PERFORMANCE
1. EPRA Earnings
Earnings from operational activities.
A key measure of a Group's underlying operating results and an indication of the extent to which current dividend payments are supported by earnings.
£2.17 million/ 2.69 pence per share
EPRA earnings for the six month period ended 31 December 2018.
(Period 18 April 2017 to 31 December 2017: £0.25 million/ 0.38 pence per share)
2. EPRA NAV
NAV 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.
Makes adjustments to IFRS NAV to provide stakeholders with the most relevant information on the fair value of the assets and liabilities within a true real estate investment company with a long-term investment strategy.
£78.46 million/ 97.46 pence per share
EPRA NAV as at 31 December 2018 (At 30 June 2018:
£76.42 million/ 94.93 pence per share)
3. EPRA NNNAV
EPRA NAV adjusted to include the fair values of:
(i) financial instruments;
(ii) debt; and
(iii) deferred taxes.
Makes adjustments to EPRA NAV to provide stakeholders with the most relevant information on the current fair value of all the assets and liabilities within a real estate company.
£78.46 million/ 97.46 pence per share
EPRA NNNAV as at
31 December 2018
(At 30 June 2018:
£76.42 million/ 94.93 pence per share)
4.1 EPRA NIY
Annualised rental income based on the cash rents passing at the balance sheet date, less non-recoverable property operating expenses, divided by the market value of the property, increased with (estimated) purchasers' costs.
A comparable measure for portfolio valuations. This measure should make it easier for investors to judge themselves, how the valuation of portfolio X compares with portfolio Y.
5.43%
EPRA NIY
as at 31 December 2018
(At 30 June 2018: 5.28%)
4.2 EPRA 'Topped-Up' NIY
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).
A comparable measure for portfolio valuations. This measure should make it easier for investors to judge themselves, how the valuation of portfolio X compares with portfolio Y.
6.75%
EPRA 'Topped-Up' NIY as at
31 December 2018
(At 30 June 2018: 6.50%)
5. EPRA Vacancy
Estimated Market Rental Value ('ERV') of vacant space divided by ERV of the whole portfolio.
A "pure" (%) measure of investment property space that is vacant, based on ERV.
0%
EPRA vacancy as at
31 December 2018
(At 30 June 2018: 0.27%)
6. EPRA Cost Ratio
Administrative and operating costs (including and excluding costs of direct vacancy) divided by gross rental income.
A key measure to enable meaningful measurement of the changes in a company's operating costs.
19.36%
EPRA Cost Ratio (including direct vacancy cost), as at
31 December 2018
(At 31 December 2017: 61.90%)
18.86% EPRA Cost Ratio (excluding direct vacancy cost), as at 31 December 2018 (at 31 December 2017: 61.90%)
INVESTMENT MANAGER'S REPORT
Market Outlook
UK Economic Outlook
In the second half of 2018, inflation slowed to 2.2% per annum (RPI/CPI) as both import cost-linked inflation and oil price appreciation were moderate. This is in line with our expectations that inflation is to gradually move towards the Bank of England inflation target of 2%. This will enable the Group to continue to grow its rental income stream as 92% of its rental income as at 31 December 2018 is inflation linked.
UK GDP growth for Q4 2018 is now expected at 0.3%, down from 0.6% in Q3 2018. This brings the full-year 2018 growth expectation to 1.4%, down from 1.8% earlier in the year. GDP growth is, however, forecast to rebound to 2% by 2020, based on a strong chance that the current political indecision could lead to a softer Brexit and an extension of the date on which the UK leaves the EU. That said, the real possibility of a no-deal Brexit remains and, with the UK government looking increasingly unstable, it is expected that GDP growth in this eventuality would remain subdued, albeit in positive territory.
The UK labour market remains strong with unemployment remaining at a more than 40-year low of 4.1% in October 2018. The tightening labour market has finally lifted annual pay growth to 3.3% in the three months to October 2018. Combined with 2.2% inflation for 2018, this does provide for some real pay improvement. Despite this, consumer spending is expected to slow slightly to 1.4% in 2019 from 1.7% projected for 2018.
UK Real Estate Outlook
Both in absolute terms and relative to other markets, UK property market returns continue to show a healthy spread over 10-year government bond yields. Strong investor demand for commercial property continues and for the time being we continue to see yields remaining stable in the most sought after areas of the market, predominantly in large logistics assets, prime industrial, and in the long-leased market.
On the tenant demand side, we see a rather polarised position highlighting to managers and investors alike the importance of robust and informed stock selection. Despite an uncertain outlook surrounding the UK's exit from the EU, we have seen strong take up in the industrial sector leading to rental growth of 4.2% throughout 2018 according to MSCI, down slightly from 5.3% in 2017, but outperforming other major property sectors for the ninth consecutive quarter. The regional office sector has also recorded healthy recent performance with GVA reporting a 4.3% rise in net effective rents over the year to September 2018 across the 9 largest centres. Take up for Q3 2018 exceeded 2 million sq ft which is 63% ahead of the ten-year quarterly average.
A contrast to this is seen across the majority of the retail sector, where the impact of declining footfall continues to hit the headlines, with the exception of a few large dominant centres where rental growth has been recorded at modest levels.
We are conscious that there is strong competition amongst investors looking to buy in the limited universe of long-let inflation-linked income properties and we have seen this first hand when acquiring properties. This has led to yield compression of our own assets.
We have seen a couple of higher profile REIT flotations being cancelled in recent months that highlight the difficulty in raising and deploying capital in the current UK market. Nevertheless, we are optimistic that we can continue to build an attractive portfolio with the properties in our pipeline and deliver compelling returns to our shareholders.
Financial Results
Net rental income earned from the portfolio for the six months ended 31 December 2018 was £3.33 million (18 April 2017 to 31 December 2017: £0.67 million; 18 April 2017 to 30 June 2018: £3.60 million), contributing to an operating profit before fair value changes of £2.67 million (18 April 2017 to 31 December 2017: £0.25 million; 18 April 2017 to 30 June 2018: £2.45 million).
The portfolio has seen a gain of £1.98 million in fair value of investment property over the period (18 April 2017 to 31 December 2017: loss of £4.49 million; 18 April 2017 to 30 June 2018: loss of £2.85 million).
Administrative expenses, which include the Investment Manager's fee and other costs attributable to the running of the Group, were £0.66 million for the period (18 April 2017 to 31 December 2017: £0.41 million; 18 April 2017 to 30 June 2018: £1.15 million).
The Group incurred finance costs of £0.50 million during the period (18 April 2017 to 31 December 2017: £0.01 million; 18 April 2017 to 30 June 2018: £0.49 million).
The total PBT for the period of £4.15 million (18 April 2017 to 31 December 2017: loss before tax of £4.24 million; 18 April 2017 to 30 June 2018: loss before tax of £0.89 million) equates to a basic earnings per share of 5.15 pence per share (18 April 2017 to 31 December 2017: loss of 6.51 pence per share; 18 April 2017 to 30 June 2018: loss of 1.25 pence per share).
The Group's NAV as at 31 December 2018 was £78.46 million or 97.46 pence per share (18 April 2017 to 31 December 2017: £74.28 million; 18 April 2017 to 30 June 2018: £76.42 million). This is an increase of 2.52 pence per share or 2.66% over the six months, with the underlying movement in NAV set out in the table below:
Pence per
share
£ million
NAV as at 1 July 2018
94.935
76.42
Portfolio acquisition costs
(0.714)
(0.58)
Change in fair value of investment property
3.174
2.56
Income earned for the period
4.137
3.33
Expenses for the period
(1.443)
(1.16)
Dividends paid during the period
(2.625)
(2.11)
NAV at 31 December 2018
97.464
78.46
EPRA EPS for the six-month period was 2.69 pence per share which, based on dividends declared of 2.75 pence per share, reflects a dividend cover of 97.82%.
Dividend
Refer to Note 8 below for details.
Financing
As at 31 December 2018, the Group had fully utilised its £30 million loan facility with Canada Life Investments (30 June 2018: fully utilised). This term facility, which expires in October 2025, allows up to 35% loan to property value, provided on a portfolio basis.
On 14 December 2018, the Group extended the amount of the facility by £11 million to a total of £41 million. The Group fully utilised this £11 million on 11 January 2019.
The weighted average interest cost of the Group's £41 million facility is 3.19% and the facility is repayable on 20 October 2025.
Portfolio Activity during the Period
During the period, the Group's property portfolio was subject to a total like-for-like valuation uplift of 2.41%.
The Group acquired an industrial warehousing property located on the Eurolink Industrial Estate, Sittingbourne for £3.94 million. This property comprises two warehouse buildings totalling 43,636 sq ft and is fully let to Dore Metals Services Southern Ltd, which has had its headquarters on the site since 2007. The lease provides a new 15-year term expiring in September 2033 and also has 5-yearly rental uplifts in line with RPI. The transaction reflected an attractive NIY of 6.3%. To the end of the period, the asset had already seen a valuation uplift of 4.2%.
During the period, the Group also exchanged unconditionally on a purchase agreement to acquire a 62-room, purpose-built care home located in affluent Nailsea approximately 8 miles south west of Bristol. The purchase completed on 15 January 2019. The property is fully let, on a new 30-year lease, operated by Handsale Ltd, an established national provider of care services for the elderly. A new 30-year fully repairing and insuring lease has been granted by the Group from the date of the acquisition providing the Group with annual rental uplifts in line with RPI, with a minimum uplift level of 1% and a cap of 4%. The facilities of the home and its care provision have been rated as being 'Good' by the Care Quality Commission and, in addition, the home has a history of high occupancy rates combined with a high percentage of private pay residents. The acquisition was funded through the extension of the Group's debt facility.
Property Portfolio as at 31 December 2018
Summary by Sector
Gross
Passing
Occupancy
WAULT
Rental
Number of
Valuation
By ERV
To break
Income
ERV
Sector
Properties
(£m)
(%)
(years)
(£m)
(£m)
Hotel
3
24.20
100.0
17.4
1.43
1.43
Industrial
4
24.20
100.0
29.7
1.45
1.44
Car showroom
2
14.85
100.0
13.2
0.90
0.90
Petrol filing station
1
4.30
100.0
14.5
0.21
0.21
Student Housing
1
12.10
100.0
22.6
0.64
0.62
Care Home
3
17.98
100.0
29.9
1.06
1.06
Leisure
3
9.70
100.0
13.4
0.56
0.58
Power Station
1
4.90
100.0
13.2
0.30
0.30
Total
18
112.23
100.0
21.5
6.55
6.54
Summary by Geographical Area
Gross
Passing
Occupancy
WAULT
Rental
Number of
Valuation
By ERV
To break
Income
ERV
Geographical Area
Properties
(£m)
(%)
(years)
(£m)
(£m)
West Midlands
3
24.00
100.0
19.9
1.41
1.39
North West
2
21.45
100.0
38.0
1.17
1.14
South East
3
17.25
100.0
13.9
0.92
0.93
Yorkshire and Humberside
3
12.93
100.0
15.7
0.79
0.80
South West
2
13.30
100.0
26.1
0.78
0.81
London
2
6.70
100.0
10.8
0.37
0.39
North East
1
3.00
100.0
18.2
0.20
0.19
Eastern
1
4.90
100.0
13.2
0.30
0.30
Scotland
1
8.70
100.0
17.8
0.61
0.59
Total
18
112.23
100.0
21.5
6.55
6.54
The tables below illustrate the sector and geographical weightings of the Group's property portfolio as at 31 December 2018, based on valuations as at that date.
Geographical Allocation
Eastern
4.4%
North West
19.1%
Scotland
7.8%
South East
15.4%
South West
11.8%
West Midlands
21.3%
Yorkshire & Humberside
11.5%
North East
2.7%
Inner London
4.0%
Outer London
2.0%
Sector Allocation
Industrial
21.6%
Leisure
8.6%
Hotel
21.6%
Medical/Care
16.0%
Car Showroom
13.2%
Student
10.8%
Power Station
4.4%
Petrol Station
3.8%
Income Allocation by Type
RPI
71%
Open Market Value Reviews
8%
CPI
21%
Income by Credit Risk
b-
2%
bb
26%
bbb-
33%
bbb
23%
bbb+
16%
Top Ten Tenants
% of
Annual
Portfolio
Passing
Total
Rental
Passing
Income
Rental
Tenant
Property
(£'000)
Income
Meridian Metal Trading Limited
Grazebrook Industrial Estate, Dudley and Provincial Park, Sheffield
659
10.1
Prime Life Limited
Lyndon Croft Care Centre, Solihull and Westerlands Care Village, Brough
651
9.9
Mears Group Plc
Bramall Court, Salford
635
9.7
Juniper Hotels Limited
Mercure City Hotel, Glasgow
608
9.3
Motorpoint Limited
Motorpoint, Birmingham
500
7.6
Premier Inn Hotels Limited
Premier Inn, Camberley
449
6.9
Handsale Limited
Nailsea, Bristol
408
6.2
Volkswagen Group UK Limited
Audi, Huddersfield
396
6.0
Travelodge Hotel Limited
Travelodge, Swindon
350
5.3
Hoddesdon Energy Limited
Hoddesdon Energy, Hoddesdon
300
4.6
The Group's top ten tenants, listed above, represent 75.6% of the total passing rental income of the portfolio.
PRINCIPAL RISKS AND UNCERTAINTIES
The Group's assets consist primarily of UK commercial property. Its principal risks are therefore related to the commercial property market in general, but also to the particular circumstances of the individual properties and the tenants within the properties.
The Board has overall responsibility for reviewing the effectiveness of the systems of risk management and internal control which is operated by the Investment Manager. The Group's ongoing risk management process is designed to identify, evaluate and mitigate the significant risks the Group faces.
Twice each year, the Board undertakes a risk review with the assistance of the Audit Committee, to assess the adequacy and effectiveness of the Investment Manager's risk management and internal control processes.
The Audit Committee considers that the principal risks and uncertainties as presented on pages 26 to 31 of our 2018 Annual Report have changed as follows:
KEY PERFORMANCE INDICATORS ("KPIs")
Principal risks and their potential impact
Risk assessment
REAL ESTATE RISKS
1. Tenant default
Failure by tenants to comply with their rental obligations could affect the income that the properties earn and the ability of the Group to pay dividends to its Shareholders.
Probability: Moderate to high
Impact: Moderate to high
Change in period: Increase
due to heightened UK economic uncertainty
2. Portfolio concentration
Any downturn in the UK and its economy or regulatory changes in the UK could have a material adverse effect on the Group's operations or financial condition. Greater concentration of investments in any one sector or exposure to the creditworthiness of any one tenant or tenants may lead to greater volatility in the value of the Group's investments, NAV and the Share price.
Probability: Low
Impact: Low to moderate
Change in period: None
3. Property defects
Due diligence may not identify all the risks and liabilities in respect of an acquisition (including any environmental, structural or operational defects) that may lead to a material adverse effect on the Group's profitability, the NAV and its Share price.
Probability: Low
Impact: Moderate
Change in period: None
4. Rate of inflation
Rent review provisions may have contractual limits to the increases that may be made as a result of the rate of inflation. If inflation is in excess of such contractual limits, the Group may not be able to deliver targeted returns to shareholders.
Probability: Low
Impact: Low to moderate
Change in period: None
5. Property market
Any property market recession or future deterioration in the property market could, inter alia; (i) lead to an increase in tenant defaults; (ii) make it harder for the Group to attract new tenants for its properties; (iii) lead to a lack of finance available to the Group; (iv) cause the Group to realise its investments at lower valuations; and (v) delay the timings of the Group's realisations. Furthermore, property is inherently difficult to value due to the individual nature of each property.
Any of these factors could have a material adverse effect on the ability of the Group to achieve its investment objective and have an adverse effect on the Group's profitability, the NAV and the Share price.
Probability: Moderate
Impact: Moderate to high
Change in period: Increase due to general uncertainty
6. Investments will be illiquid
The Group invests in commercial properties. Such investments are illiquid; they may be difficult for the Group to sell and the price achieved on any realisation may be at a discount to the prevailing valuation of the relevant property.
Probability: Low
Impact: Low
Change in period: None
BORROWING RISKS
7. Breach of borrowing covenants
The Group has entered into a term loan facility which increased on 11 January 2019.
Material adverse changes in valuations and net income may lead to breaches in the LTV and interest cover ratio covenants.
If the Group is unable to operate within its debt covenants, this could lead to default and the loan facility being recalled. This may result in the Group selling properties to repay the loan facility and this is likely to lead to a fall in its NAV.
Probability: Low
Impact: High
Change in period: Increase
due to the increased use of debt post-period end
CORPORATE RISKS
8. Use of service providers
The Group has no employees and is reliant upon the performance of third-party service providers.
Failure by any service provider to carry out its obligations to the Group in accordance with the terms of its appointment could have a materially detrimental impact on the operation of the Group.
Probability: Low to moderate
Impact: Moderate
Change in period: None
9. Dependence on the Investment Manager
The Investment Manager is responsible for providing investment management services to the Group.
The future ability of the Group to pursue successfully its investment objective and investment policy may, among other things, depend on the ability of the Investment Manager to retain its staff and/or to recruit individuals of similar experience and calibre.
Probability: Low
Impact: High
Change in period: None
10. Ability to meet objectives
The Group may not meet its investment objective to deliver an attractive total return to shareholders from investing predominantly in a portfolio of commercial properties in the UK.
Poor relative total return performance may lead to an adverse reputational impact that affects the Group's ability to raise new capital and new funds.
Probability: Low
Impact: Moderate
Change in period: Decrease
due to the progress achieved in meeting objectives
TAXATION RISK
11.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 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 objective and provide attractive returns to Shareholders.
Probability: Low
Impact: High
Change in period: None
12.POLITICAL/ECONOMIC RISKS
Political and macroeconomic events present risks to the real estate and financial markets that affect the Group and the business of our tenants. The level of uncertainty that such events bring has been highlighted in recent times, most pertinently as a result of the EU referendum vote (Brexit) in June 2016. The arrangements that would be put in place between the UK and the EU following Brexit could impact the health of the UK economy, make it more difficult for the Group to raise capital and/or increase the regulatory compliance burden on the Group.
Probability: Moderate to high
Impact: Moderate to high
Change in period: Increase
due to lack of certainty and imminent EU departure date of 29 March 2019
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE INTERIM FINANCIAL REPORT
We confirm that to the best of our knowledge:
- the consolidated condensed 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 during the first six months of the financial year and their impact on the consolidated condensed 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 in the first six months of the current financial year and that have materially affected the financial position or performance of the Company during that period; and any changes in the related party transactions described in the last annual report that could do so.
A list of the Directors is maintained on the Company's website at www.aewukllreit.com.
Steve Smith
Chairman
26 February 2019
FINANCIAL STATEMENTS
Consolidated Condensed Statement of Comprehensive Income
for the six months ended 31 December 2018
Notes
Six months from
1 July 2018 to
31 December
2018
(unaudited)
£'000
Period from
18 April 2017 to
31 December
2017
(unaudited)
£'000
Period from
18 April 2017 to
30 June
2018*
(audited)
£'000
Income
Rental and other income
3
3,330
666
3,600
Property operating expenses
4
(75)
(3)
(105)
Net rental and other income
3,255
663
3,495
Other operating expenses
4
(585)
(409)
(1,050)
Operating profit before fair value changes
2,670
254
2,445
Change in fair value of investment properties
9
1,980
(4,491)
(2,853)
Operating profit/(loss)
4,650
(4,237)
(408)
Finance expense
5
(502)
(6)
(487)
Profit/(loss) before tax
4,148
(4,243)
(895)
Taxation
6
-
-
-
Profit/(loss) after tax
4,148
(4,243)
(895)
Other comprehensive income
-
-
-
Total comprehensive income/(loss) for the period
4,148
(4,243)
(895)
Earnings/(loss) per share (pence per share) (basic and diluted)
7
5.15
(6.51)
(1.25)
The accompanying notes form an integral part of these consolidated condensed financial statements.
*Although not required by IAS 34, the comparative figures for the preceding full reporting period and related notes have been included on a voluntary basis.
Consolidated Condensed Statement of Changes in Equity
for the six months ended 31 December 2018
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
For the six months from 1 July 2018 to 31 December 2018 (unaudited)
Balance as at 1 July 2018
805
-
75,617
76,422
Total comprehensive income
-
-
4,148
4,148
Dividends paid
8
-
-
(2,113)
(2,113)
Balance as at 31 December 2018
805
-
77,652
78,457
For the period 18 April 2017 to
31 December 2017 (unaudited)
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
-
-
-
-
Total comprehensive loss
-
-
(4,243)
(4,243)
Ordinary shares issued
16,17
805
79,695
-
80,500
Share issue costs
17
-
(1,573)
-
(1,573)
Cancellation of share premium
17
-
(78,122)
78,122
-
Dividends paid
8
-
-
(403)
(403)
Balance as at 31 December 2017
805
-
73,476
74,281
For the period 18 April 2017 to
30 June 2018 (audited)
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
-
-
-
-
Total comprehensive loss
-
-
(895)
(895)
Ordinary shares issued
16,17
805
79,695
-
80,500
Share issue costs
17
-
(1,573)
-
(1,573)
Cancellation of share premium
17
-
(78,122)
78,122
-
Dividends paid
8
-
-
(1,610)
(1,610)
Balance as at 30 June 2018
805
-
75,617
76,422
The accompanying notes form an integral part of these consolidated condensed financial statements.
*Although not required by IAS 34, the comparative figures for the preceding full reporting period and related notes have been included on a voluntary basis.
Consolidated Condensed Statement of Financial Position
as at 31 December 2018
Notes
As at
31 December
2018
(unaudited)
£'000
As at
31 December
2017
(unaudited)*
£'000
As at
30 June
2018
(audited)
£'000
Assets
Non-Current Assets
Investment property
9
112,051
71,349
99,243
112,051
71,349
99,243
Current Assets
Receivables and prepayments
10
2,147
301
1,121
Cash and cash equivalents
3,112
3,878
6,594
Restricted cash
-
-
1,362
5,259
4,179
9,077
Total Assets
117,310
75,528
108,320
Non-Current Liabilities
Interest bearing loans and borrowings
12
(29,483)
-
(29,434)
Finance lease obligations
13
(480)
-
(478)
(29,963)
-
(29,912)
Current Liabilities
Payables and accrued expenses
11
(8,856)
(1,247)
(1,952)
Finance lease obligations
13
(34)
-
(34)
(8,890)
(1,247)
(1,986)
Total Liabilities
(38,853)
(1,247)
(31,898)
Net Assets
78,457
74,281
76,422
Equity
Share capital
16
805
805
805
Share premium account
17
-
-
-
Capital reserve and retained earnings
77,652
73,476
75,617
Total capital and reserves attributable to equity holders of the Company
78,457
74,281
76,422
Net Asset Value per share (pence per share)
7
97.46
92.27
94.93
The accompanying notes form an integral part of these consolidated condensed financial statements.
*Although not required by IAS 34, the comparative figures for the preceding full reporting period and related notes have been included on a voluntary basis.
The financial statements were approved by the Board of Directors on 26 February 2019 and were signed on its behalf by:
Steve Smith
Chairman
AEW UK Long Lease REIT plc
Company number: 10727886
Consolidated Condensed Statement of Cash Flows
for the six months to 31 December 2018
Six months from
1 July 2018 to
31 December
2018
(unaudited)
£'000
Period from
18 April 2017 to
31 December
2017
(unaudited)
£'000
Period from
18 April 2017 to
30 June
2018*
(audited)
£'000
Cash flows from operating activities
Operating profit/(loss)
4,650
(4,237)
(408)
Adjustment for non-cash items:
(Gain)/loss from change in fair value of investment property
(1,980)
4,491
2,853
Increase in other receivables and prepayments
(1,030)
(204)
(1,121)
Increase in other payables and accrued expenses
14
564
1,534
Net cash flow generated from operating activities
1,654
614
2,858
Cash flows from investing activities
Purchase of investment properties
(3,927)
(75,157)
(101,461)
Net cash used in investing activities
(3,927)
(75,157)
(101,461)
Cash flows from financing activities
Proceeds from issue of ordinary share capital
-
80,500
80,500
Share issue costs
-
(1,573)
(1,573)
Loan draw down
-
-
28,638
Use of restricted cash
1,362
-
-
Arrangement loan facility fee paid
-
-
(609)
Finance costs
(458)
(103)
(241)
Dividends paid
(2,113)
(403)
(1,518)
Net cash flow generated from financing activities
(1,209)
78,421
105,197
Net (decrease)/increase in cash and cash equivalents
(3,482)
3,878
6,594
Cash and cash equivalents at start of the period
6,594
-
-
Cash and cash equivalents at end of the period
3,112
3,878
6,594
The accompanying notes form an integral part of these consolidated condensed financial statements.
* Although not required by IAS 34, the comparative figures for the preceding full reporting period and related notes have been included on a voluntary basis.
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
for the six months to 31 December 2018
1. Corporate information
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, 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 6 June 2017.
The comparative information for the nine month period ended 31 December 2017 does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006.
2. Accounting policies
2.1 Basis of preparation
These interim consolidated condensed unaudited financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU, and should be read in conjunction with the Group's last financial statements for the fifteen-month period ended 30 June 2018. These consolidated condensed unaudited financial statements do not include all information required for a complete set of financial statements proposed in accordance with IFRS as adopted by the EU ('EU IFRS'), however, selected explanatory notes have been included to explain events and transactions that are significant in understanding changes in the Group's financial position and performance since the last financial statements.
The comparative figures disclosed in the consolidated condensed unaudited financial statements and related notes have been presented for both the nine-month period ended 31 December 2017 and fifteen-month period ended 30 June 2018 and as at 31 December 2017 and 30 June 2018.
Although not required by IAS 34, the comparative figures as at 31 December 2017 for the Consolidated Condensed Statement of Financial Position and for the fifteen-month period ended 30 June 2018 for the Consolidated Condensed Statement of Comprehensive Income, Consolidated Condensed Statement of Changes in Equity and Consolidated Condensed Statement of Cash Flows and related notes have been included on a voluntary basis.
These consolidated condensed unaudited financial statements have been prepared under the historical-cost convention, except for investment property that has been measured at fair value. The consolidated condensed unaudited financial statements are presented in Sterling and all values are rounded to the nearest thousand pounds (£'000), except when otherwise indicated.
Basis of consolidation
The consolidated condensed unaudited financial statements for the six months ended 31 December 2018 incorporate the financial statements of the Company and its subsidiaries (the 'Group'). Subsidiaries are entities controlled by the Group, 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 on or after 1 January 2019.
The following is the most relevant to the Group:
• IFRS 16 (Leases) issued in January 2016 and is effective for annual periods beginning on or after 1 January 2019
The impact of the adoption of new accounting standards issued and becoming effective for accounting periods beginning on or after 1 July 2018 has been considered and is not deemed to be significant. 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 IAS 34 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.
i) Valuation of investment property
The Group'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.
2.3 Segmental information
In accordance with IFRS 8, the Directors are of the opinion that the Group is engaged in 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. 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 consolidated condensed unaudited 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 consolidated condensed unaudited financial statements are consistent with those applied within the Group's Annual Report and Financial Statements for the fifteen-month period to 30 June 2018 except for the changes as detailed in note 2.1.
3. Rental income
Six months from
1 July 2018 to
31 December
2018
(unaudited)
£'000
Period from
18 April 2017 to
31 December
2017
(unaudited)
£'000
Period from
18 April 2017 to
30 June
2018
(audited)
£'000
Gross rental income received
3,024
596
3,226
Spreading of tenant incentives and guaranteed fixed rental uplifts
305
70
359
Other property income
1
-
15
Total rental and other income
3,330
666
3,600
4. Expenses
Six months from
1 July 2018 to
31 December
2018
(unaudited)
£'000
Period from
18 April 2017 to
31 December
2017
(unaudited)
£'000
Period from
18 April 2017 to
30 June
2018
(audited)
£'000
Property operating expenses
75
3
105
Other operating expenses
Investment management fee
283
105
363
Auditor remuneration
66
52
116
Operating costs
198
192
458
Directors' remuneration
38
60
113
Total other operating expenses
585
409
1,050
Total operating expenses
660
412
1,155
5. Finance expense
Six months from
1 July 2018 to
31 December
2018
(unaudited)
£'000
Period from
18 April 2017 to
31 December
2017
(unaudited)
£'000
Period from
18 April 2017 to
30 June
2018
(audited)
£'000
Interest payable on loan borrowings
463
-
419
Amortisation of loan arrangement fee
39
6
43
Other finance costs
-
-
25
Total
502
6
487
6. Taxation
Six months from
1 July 2018 to
31 December
2018
(unaudited)
£'000
Period from
18 April 2017 to
31 December
2017
(unaudited)
£'000
Period from
18 April 2017 to
30 June
2018
(audited)
£'000
Tax charge comprises:
Analysis of tax charge in the period
Profit/(loss) before tax
4,148
(4,243)
(895)
Theoretical tax at UK corporation tax standard rate of 19.00%
(31 December 2017:19.00%,
2018:19.00%)
788
(806)
(170)
Adjusted for:
Exempt REIT income
(788)
(47)
170
Non taxable investment losses
-
853
-
Total
-
-
-
The Group 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 six month period.
Factors that may affect future tax charges
Due to the Group's status as a REIT and the intention to continue meeting the conditions required to retain approval as a REIT in the foreseeable future, the Group has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.
7. Earnings/(loss) per share and NAV per share
Six months from
1 July 2018 to
31 December
2018
(unaudited)
Period from
18 April 2017 to
31 December
2017
(unaudited)
Period from
18 April 2017 to
30 June
2018
(audited)
Earnings/(loss) per share
Total comprehensive income/(loss) (£'000)
4,148
(4,243)
(895)
Weighted average number of shares
80,500,000
65,211,240
71,514,806
Earnings/(loss) loss per share (basic and diluted)(pence)
5.15
(6.51)
(1.25)
EPRA earnings per share:
Total comprehensive income/(loss) (£'000)
4,148
(4,243)
(895)
Adjustment to total comprehensive income/(loss):
Change in fair value of investment properties (£'000)
(1,980)
4,491
2,853
Total EPRA earnings (£'000)
2,168
248
1,958
EPRA earnings per share (basic and diluted) (pence)
2.69
0.38
2.74
Adjusted earnings per share:
EPRA earnings (basic and diluted) (£'000)
2,168
248
1,958
Adjustments:
Rental income recognised in respect of tenant incentives and guaranteed fixed rental uplifts (£'000)
(305)
(70)
(359)
Amortisation of loan arrangement fee (£'000)
39
6
43
Adjusted earnings (basic and diluted) (£'000)
1,902
184
1,642
Adjusted earnings per share
(basic and diluted) (pence)
2.36
0.28
2.30
NAV per share:
Net assets (£'000)
78,457
74,281
76,422
Ordinary shares in issue
80,500,000
80,500,000
80,500,000
NAV per share (pence)
97.46
92.27
94.93
EPS amounts are calculated by dividing the profit/(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 NAV and EPRA NNNAV are equal to the NAV presented in the Consolidated Condensed Statement of Financial Position under IFRS and there are no adjusting items. As such, a reconciliation between these measures has not been presented.
8. Dividends paid
Six months from
1 July 2018 to
31 December
2018
(unaudited)
£'000
Period from
18 April 2017 to
31 December
2017
(unaudited)
£'000
Period from
18 April 2017 to
30 June
2018
(audited)
£'000
First interim dividend paid in respect of the period from incorporation to 30 September 2017 at 0.50p per Ordinary Share
-
403
402
Second interim dividend paid in respect of the period 1 October 2017 to 31 December 2017 at 0.50p per Ordinary Share*
-
-
402
Third interim dividend paid in respect of the period 1 January 2018 to 31 March 2018 at 1.00p per Ordinary Share
-
-
806
First interim dividend paid in respect of the period from 1 April 2018 to 30 June 2018 at 1.25p per share
1,006
-
-
Second interim dividend paid in respect of the period from 1 July 2018 to 30 September 2018 at 1.375p per share
1,107
-
-
Total dividends paid during the period
2,113
403
1,610
9. Investments
9.1) Investment property
Six months from 1 July 2018 to
31 December 2018 (unaudited)
Investment
properties
freehold
£'000
Investment
properties
leasehold
£'000
Total
£'000
Period from
18 April 2017 to
31 December
2017
(unaudited)
Total
£'000
Period from
18 April 2017 to
30 June
2018
(audited)
Total
£'000
UK Investment property
As at beginning of year/period
53,740
45,350
99,090
-
-
Purchases and capital expenditure in the period
11,299
(444)
10,855
75,840
101,591
Revaluation of investment property
541
1,744
2,285
(4,421)
(2,501)
Valuation
65,580
46,650
112,230
71,419
99,090
Adjustment to fair value for rent smoothing
(693)
(70)
(359)
Adjustment for finance lease obligations
514
-
512
Total Investment property
112,051
71,349
99,243
Change in fair value of investment property
Change in fair value before adjustments for lease incentives
2,285
(4,421)
(2,501)
Movements in finance lease
(1)
-
7
Adjustment to fair value for rent smoothing of lease income
(304)
(70)
(359)
1,980
(4,491)
(2,853)
Valuation of investment property
Valuation of investment property is performed by Knight Frank LLP and Savills (UK) Limited, accredited independent external valuers with recognised and relevant professional qualifications and recent experience of the location and category of the investment property being valued. Of the £112.23 million valuation, £105.58 million was provided by Knight Frank LLP and £6.65 million by Savills (UK) Limited.
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:
Quoted
prices in
active
markets
(Level 1)
£'000
Significant
observable
inputs
(Level 2)
£'000
Significant
unobservable
inputs
(Level 3)
£'000
Total
£'000
31 December 2018
Asset measured at fair value
Investment property*
-
-
112,230
112,230
-
-
112,230
112,230
31 December 2017
Quoted
prices in
active
markets
(Level 1)
£'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
30 June 2018
Quoted
prices in
active
markets
(Level 1)
£'000
Significant
observable
inputs
(Level 2)
£'000
Significant
unobservable
inputs
(Level 3)
£'000
Total
£'000
Asset measured at fair value
Investment property*
-
-
99,090
99,090
-
-
99,090
99,090
* 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 2018
Investment property
112,230
Income capitalisation
ERV
Equivalent yield
£3.74-£21.96
4.75%-6.89%
31 December 2017
Investment property
71,419
Income capitalisation
ERV
Equivalent yield
£4.50-£16.25
5.04%-7.63%
30 June 2018
Investment property
99,090
Income capitalisation
ERV
Equivalent yield
£3.50-£21.96
4.90%-7.06%
Where possible, sensitivity of the fair values of Level 3 assets are tested to changes in unobservable inputs to reasonable alternatives.
Gains and losses recorded in profit or loss for recurring fair value measurements categorised within Level 3 of the fair value hierarchy are attributable to changes in unrealised gains or losses relating to investment property held at the end of the reporting period.
The carrying amount of the assets and liabilities, detailed within the Consolidated Condensed Statement of Financial Position, is considered to be the same as their fair value.
31 December 2018
Fair Value
Change in ERV
Change in equivalent yield
£'000
£'000
£'000
£'000
£'000
Sensitivity Analysis
+5%
-5%
+5%
-5%
Resulting fair value of investment property
112,230
113,199
111,480
108,497
116,383
31 December 2017
Fair Value
Change in ERV
Change in equivalent yield
£'000
£'000
£'000
£'000
£'000
Sensitivity Analysis
+5%
-5%
+5%
-5%
Resulting fair value of investment property
71,419
71,653
71,038
67,672
75,297
30 June 2018
Fair Value
Change in ERV
Change in equivalent yield
£'000
£'000
£'000
£'000
£'000
Sensitivity Analysis
+5%
-5%
+5%
-5%
Resulting fair value of investment property
99,090
100,194
98,288
94,152
104,744
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.
There have been no transfers between Level 1 and Level 2 during any of the periods nor have there been any transfers in or out of Level 3.
10. Receivables and prepayments
31 December 2018
(unaudited)
£'000
31 December 2017
(unaudited)
£'000
30 June
2018
(audited)
£'000
Receivables
Rent debtor
526
26
304
Other receivables
1,581
100
425
2,107
126
729
Accrued income
-
70
359
2,107
196
1,088
Prepayments
Unamortised finance costs
-
97
-
Other prepayments
40
8
33
40
105
33
Total
2,147
301
1,121
The aged debtor analysis of receivables which are past due is as follows:
31 December 2018
(unaudited)
£'000
31 December 2017
(unaudited)
£'000
30 June
2018
(audited)
£'000
Less than three months due
1,414
126
304
Between three and six months due
693
-
425
Between six and twelve months due
-
-
-
Total
2,107
126
729
11. Payables and accrued expenses
31 December 2018
(unaudited)
£'000
31 December 2017
(unaudited)
£'000
30 June
2018
(audited)
£'000
Deferred income
1,010
290
657
Accruals
276
204
262
Property acquisition costs*
7,076
-
-
Other creditors
494
753
1,033
Total
8,856
1,247
1,952
* Represents amount payable (including purchase costs) for Nailsea, Bristol. This property exchanged unconditionally on 21 December 2018 and completed on 17 January 2019. See Note 19 for further details.
12. Interest bearing loans and borrowings
31 December
2018
(unaudited)
£'000
31 December
2017
(unaudited)
£'000
30 June
2018
(audited)
£'000
Bank borrowings drawn
At the beginning of the period
30,000
-
-
Bank borrowings drawn in the period
-
-
30,000
Interest bearing loans and borrowings
30,000
-
30,000
Less: loan issue costs incurred
(556)
-
(566)
Plus: amortised loan issue costs
39
-
-
At the end of the period
29,483
-
29,434
Repayable between 1 and 2 years
-
-
-
Repayable between 2 and 5 years
30,000
-
-
Repayable over 5 Years
-
-
30,000
Total facility available
30,000
-
30,000
The Group entered into a £30 million term loan facility with Canada Life Investments on 5 January 2018.
On 11 January 2019, the Group increased its loan facility by £11 million with its existing lender, Canada Life Investments, taking the total loan drawn down to £41 million. The weighted average interest cost of the Group's increased facility is 3.19% and is repayable on 20 October 2025.
Borrowing costs associated with the credit facility are shown as finance costs in Note 5 to these Consolidated Condensed Financial Statements.
13. 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 for each of the following periods:
31 December 2018
(unaudited)
£'000
31 December 2017
(unaudited)
£'000
30 June
2018
£'000
Within one year
34
-
34
After one year but not more than five years
150
-
150
More than five years
330
-
328
Total
514
-
512
14. 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 3 and 115 years.
Future minimum rentals receivable under non-cancellable operating leases as at 31 December 2018 are as follows:
31 December 2018
(unaudited)
£'000
31 December 2017
(unaudited)
£'000
30 June
2018
(audited)
£'000
Within one year
6,142
4,045
5,738
After one year but not more than five years
24,590
16,090
23,187
More than five years
116,763
81,018
102,427
Total
147,495
101,153
131,352
During the six months ended 31 December 2018 there were nil contingent rents recognised as income (31 December 2017: £nil, 30 June 2018: £nil).
15. Investment in subsidiaries
The Company has two wholly-owned subsidiaries disclosed below:
Name and company number
Country of registration and incorporation
Date of incorporation
Principal activity
Ordinary Shares held
AEW UK Long Lease REIT Holdco Limited
(Company number 11052186)
England and Wales
7 November 2017
Real Estate Company
73,158,502*
AEW UK Long Lease REIT 2017 Limited
(Company number 10754641)
England and Wales
4 May 2017
Real Estate Company
73,158,501*
*Ordinary shares of £1.00 each
AEW UK Long Lease REIT plc as at 31 December 2018 owns 100% controlling stake of AEW UK Long Lease REIT Holdco Limited.
AEW UK Long Lease REIT Holdco Limited holds 100% of AEW UK Long Lease REIT 2017 Limited.
Both AEW UK Long Lease REIT Holdco Limited and AEW UK Long Lease REIT 2017 Limited are registered at 6th Floor, 65 Gresham Street, London, England, EC2V 7NQ.
16. Issued share capital
£'000
Number of Ordinary Shares
For the six months from 1 July 2018 to 31 December 2018 (unaudited)
Ordinary Shares issued and fully paid
At the beginning and end of the period
805
80,500,000
£'000
Number of Ordinary Shares
For the period 18 April 2017 to 31 December 2017 (unaudited)
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
£'000
Number of Ordinary Shares
For the period 18 April 2017 to 30 June 2018 (audited)
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
17. Share premium account
Six months from
1 July 2018 to
31 December
2018
(unaudited)
£'000
Period from
18 April 2017 to
31 December
2017
(unaudited)
£'000
Period from
18 April 2017 to
30 June
2018
(audited)
£'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
79,695
Share issue costs
-
(1,573)
(1,573)
Cancellation of share premium
-
(78,122)
(78,122)
Balance at the end of the period
-
-
-
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 2018 owns 100% controlling stake in AEW UK Long Lease REIT Holdco Limited and AEW UK Long Lease REIT 2017 Limited respectively.
Directors
For the six months ended 31 December 2018, 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 six months ended 31 December 2018, the Group incurred £282,952 (period 18 April 2017 to 31 December 2017: £105,084, period 18 April 2017 to 30 June 2018: £362,589) in respect of investment management fees and expenses of which £143,511 was outstanding at 31 December 2018 (period ended 31 December 2017: £105,084, period ended 30 June 2018: £128,793).
19. Events after reporting date
Dividend
On 31 January 2019, the Board declared its second interim dividend of 1.375 pence per share in respect of the period from 1 October 2018 to 31 December 2018. This will be paid on 28 February 2019 to shareholders on the register as at 8 February 2019. The ex-dividend date was 7 February 2019.
Credit facility
On 11 January 2019, the Group increased its loan facility by £11 million with its existing lender, Canada Life Investments, taking the total loan drawn down to £41 million. The weighted average interest cost of the Group's increased facility is 3.19% and is repayable on 20 October 2025.
Property acquisitions
On 17 January 2019, the Group announced the completion of the acquisition of a Care Home in Nailsea, Bristol for £6.65 million, reflecting a NIY of 5.8%, comprising a 62-room, purpose built care home located in an affluent suburb approximately 8 miles south west of Bristol, fully let, on a new 30 year lease, operated by Handsale Ltd, an established national provider of care services for the elderly. A new 30-year fully repairing and insuring lease has been granted by the Group from the date of the acquisition providing the Group with annual rental uplifts in line with RPI, with a minimum uplift level of 1% and a cap of 4%.
On 18 February 2019, the Group acquired the long leasehold interest of 53 Victoria Road, Woolston for £2.06 million from YMCA Nursery by way of a sale and leaseback. The purchase price reflects a NIY of 5.9%. This asset comprises a modern, purpose built nursery facility close to Southampton City Centre and the Centenary Quay development which has seen the development of some 1,500 new homes since 2012. The property is fully let to the charity operator YMCA Fairthorne Limited, a regional operation of the YMCA, the world's largest youth charity and provides the Group with an income stream of 25 years from completion of the acquisition which will increase annually in line with RPI.
EPRA UNAUDITED PERFORMANCE MEASURES CALCULATIONS
Calculation of EPRA NIY and 'topped-up' NIY
31 December
2018
£'000
31 December
2017
£'000
30 June
2017
£'000
Investment property - wholly-owned
112,230
71,419
99,090
Allowance for estimated purchasers' costs
7,632
4,856
6,738
Gross up completed property portfolio valuation
119,862
76,275
105,828
Annualised cash passing rental income
6,550
4,166
5,638
Property outgoings
(40)
(5)
(48)
Annualised net rents
6,510
4,161
5,590
Expiration of rent-free periods and fixed rent uplifts
1,584
971
1,284
'Topped-up' net annualised rent
8,094
5,132
6,874
EPRA NIY
5.43%
5.45%
5.28%
EPRA 'topped-up' NIY
6.75%
6.73%
6.50%
EPRA 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 2018, 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
2018
£'000
31 December
2017
£'000
30 June
2018
£'000
Annualised potential rental value of vacant premises
-
-
16
Annualised potential rental value for the completed property portfolio
6,537
4,265
5,841
EPRA Vacancy Rate
0%
0%
0.27%
Calculation of EPRA Cost Ratios
31 December
2018
£'000
31 December
2017
£'000
30 June
2018
£'000
Administrative/operating expenses per IFRS income statement
660
412
1,155
Less: Ground rent costs
(18)
-
-
EPRA Costs (including direct vacancy costs)
642
412
1,155
Direct vacancy costs
(18)
-
-
EPRA Costs (excluding direct vacancy costs)
642
-
-
Gross Rental Income
3,311
666
3,226
EPRA Cost Ratio (including direct vacancy costs)
19.36%
61.90%
35.80%
EPRA Cost Ratio (excluding direct vacancy costs)
18.86%
61.90%
35.80%
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 707 1874 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
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 Group's website at www.aewukllreit.com.
Provisional Financial Calendar
31 December 2018
Half-year end
February 2019
Announcement of interim results
30 June 2019
Year end
September 2019
Announcement of annual results
October 2019
Annual General Meeting
Directors
Steve Smith (Independent Non-executive Chairman)
Jim Prower (Independent Non-executive Director)
Alan Sippetts (Independent Non-executive Director)
Depositary
Langham Hall UK Depositary LLP
5 Old Bailey
London
EC4M 7BA
Registered Office
6th Floor
65 Gresham Street
London
EC2V 7NQ
Administrator
Link Alternative Fund Administrators Limited
Beaufort House
51 New North Road
Exeter
EX4 4EP
Investment Manager
AEW UK Investment Management LLP
33 Jermyn Street
London
SW1Y 6DN
Tel: 020 7016 4880
Website: www.aewuk.co.uk
Company Secretary
Link Company Matters Limited
6th Floor
65 Gresham Street
London
EC2V 7NQ
Property Manager
Workman LLP
Alliance House
12 Caxton Street
London
SW1H 0QS
Registrar
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol
BS13 8AE
Corporate Broker
Cenkos Securities Plc
6 7 8 Tokenhouse Yard
London
EC2R 7AS
Auditor
KPMG LLP
15 Canada Square
London
E14 5GL
Legal Adviser to the Company
Gowling WLG (UK) LLP
4 More London Riverside
London
SE1 2AU
Valuer
Knight Frank LLP
55 Baker Street
London
W1U 8AN
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.ENDIR BCGDDGBDBGCL
Recent news on Alternative Income REIT
See all newsREG - Alternative Inc REIT - Change of Investment Adviser
AnnouncementREG - Alternative Inc REIT - Results for the half year ended 31 December 2023
AnnouncementREG - Alternative Inc REIT - NAV, Dividend Declaration and Portfolio Valuation
AnnouncementREG - Alternative Inc REIT - Acquisition of Virgin Active in Streatham
AnnouncementREG - Alternative Inc REIT - Result of AGM
Announcement