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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Aew Uk Reit Plc | LSE:AEWU | London | Ordinary Share | GB00BWD24154 | ORD GBP0.01 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 87.20 | 87.00 | 87.20 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Real Estate Investment Trust | 20.72M | -11.33M | -0.0715 | -12.20 | 138.15M |
From Apr 2019 to Apr 2024
TIDMAEWU
RNS Number : 5151K
AEW UK REIT PLC
10 July 2017
AEW UK REIT PLC
The Board of AEW UK REIT plc (the 'Company') is pleased to announce the annual results for the year from
1 May 2016 to 30 April 2017.
The following text is copied from the Annual Report and Financial Statements for the year ended 30 April 2017:
Strategic Report
Financial Highlights
-- Net Asset Value ('NAV') of GBP118.67 million and of 95.98 pence per share as at 30 April 2017 (2016: GBP116.38 million and 99.03 pence per share).
-- Operating profit before fair value changes and disposals of GBP9.81 million for the year ended 30 April 2017 (2016: GBP6.31 million).
-- Unadjusted profit before tax ('PBT') of GBP6.10 million and of 5.04 pence per share for the year ended 30 April 2017 (2016: GBP4.64 million and of 4.83 pence per share).
-- Total dividends of 8.0 pence per share have been declared for the year ended 30 April 2017 (2016: 5.5 pence per share).
-- The Company raised total gross proceeds of GBP6.00 million for the year ended 30 April 2017 (2016: GBP117.68 million).
-- The price of the Company's Ordinary Shares on the Main Market of the London Stock Exchange was 99.56 pence per share as at 30 April 2017 (30 April 2016: 100.00 pence per share).
-- As at 30 April 2017, the Company had a GBP40 million (2016: GBP40 million) term credit facility with The Royal Bank of Scotland International Limited ('RBSi') and was geared to 19.31% of the Gross Asset Value (2016: 10.51%). On 8 May 2017, the Company reduced the facility from GBP40 million to GBP32.5 million.
-- The Company held cash balances totalling GBP3.65 million as at 30 April 2017 (2016: GBP7.96 million) of which GBP1.31 million (2016: GBP4.94 million) was held for the purpose of capital acquisitions.
-- Net revenue (being total comprehensive income before fair value changes) of GBP9.05m and of 7.49 pence per share.
Property Highlights
-- The Company acquired five properties during the year ended 30 April 2017 (2016: 25 properties) and disposed of one property (2016: nil).
-- As at 30 April 2017, the Company's property portfolio had a fair value of GBP137.82 million (2016: GBP114.34 million) as compared to the combined purchase price of the portfolio of GBP133.09 million (2016: GBP110.64 million) (excluding purchase costs), representing an increase of GBP4.73 million (2016: GBP3.70 million), or 3.55% (2016: 3.35%).
-- The majority of assets that have been acquired are fully let and the portfolio has a vacancy rate of 7.22% (2016: 3.16%).
-- Rental income generated in the year was GBP12.15 million (2016: GBP6.15 million). The number of tenants as at 30 April 2017 was 79 (2016: 56).
-- Average portfolio net initial yield of 7.63% (2016: 8.38%).
-- Weighted average unexpired lease term of 5.2 years (2016: 4.9 years) to break and 6.4 years (2016: 6.1 years) to expiry.
-- A further two properties have been acquired for GBP4.92 million (excluding purchase costs) since the year end generating a further GBP0.41 million per annum in passing rent.
All comparative figures relate to the period from 1 April 2015 to 30 April 2016. Prior period was longer than 12 months so cannot be used as a direct comparator.
Chairman's Statement
Overview
I am pleased to present the second annual audited results of AEW UK REIT plc (the 'Company') for the financial year from 1 May 2016 to 30 April 2017.
It has been a very interesting and challenging year due to the uncertainty and market volatility created by various geopolitical and economic events.
In the aftermath of the EU referendum in June 2016, and in common with other REITs, the Company's share price fell to a low of 90 pence per Ordinary Share. I am pleased to see that the share price has recovered steadily and in recent months has reached its pre-Brexit levels of 102 pence per Ordinary Share. Furthermore our share price relative to NAV has been trading at a premium since mid-February 2017 and as at 30 April 2017 was at a premium of 3.7%.
The valuation of the Company's property portfolio fell by 1.8% in the period from May 2016 to July 2016, following the EU referendum result. This was in comparison to a fall of 3% in capital values of direct properties as measured by MSCI (IPD UK Monthly Property Index), a global independent provider of market indices, over the same period. I was encouraged by the resilience of the portfolio to the initial market uncertainty; our exposure to market risk was no doubt mitigated through having a diversified portfolio. On a like-for-like basis, the Company's property portfolio valuation increased slightly by 0.2% during the financial year.
During the financial year, the Company made a decision to sell down its investment in the AEW UK Core Property Fund (the 'Core Fund') with the aim of reinvesting the proceeds into direct property holdings. This investment in the Core Fund was accretive to the Company's performance during the initial ramp up phase but has proved less relevant to the Company's strategy as the portfolio has matured. The Company sold 20.8% of its shares in the Core Fund on 1 February 2017 at a premium of 2% to NAV and the remaining shares were sold on 9 May 2017 at a 1.5% premium to NAV. This investment has yielded a total return of 13% during the hold period.
The Company raised a further GBP6.0 million during its financial year through the issuance of new Ordinary Shares. These proceeds, together with amounts raised from the sale of investment properties (GBP2.8 million), proceeds raised from the Core Fund investment (totalling GBP9.6 million) and loan drawdowns under the debt facility (totalling GBP14.8 million), have been used to invest in new properties. During the financial year, the Company acquired a further five properties for a total of GBP24.7 million (excluding acquisition costs), and a further two properties have been acquired since the year end for a total of GBP4.9 million.
As at 30 April 2017, the Company had established a diversified portfolio of 29 commercial investment properties throughout the UK with a weighted average total equivalent yield of 8.5%.
Financial Results
The Company has continued to deliver an attractive total return, including significant dividend income, as it continues to follow its investment policy against a backdrop of uncertain political and economic conditions.
Under International Financial Reporting Standards ('IFRS') as adopted by the European Union, our operating profit for the year to 30 April 2017 was GBP6.86 million (30 April 2016: GBP4.86 million), with total comprehensive income of GBP6.10 million (30 April 2016: GBP4.64 million). Basic earnings per share ('EPS') for the year were 5.04 pence (30 April 2016: 4.83 pence).
Under European Public Real Estate Association ('EPRA') methodology, EPS for the year was 7.57 pence (30 April 2016: 6.33 pence) and the NAV per share at 30 April 2017 was 95.95 pence (30 April 2016: 98.97 pence). A full list of EPRA performance figures can be found below.
The audited NAV per share as at 30 April 2017 was 95.98 pence (30 April 2016: 99.03 pence), prior to adjusting for the interim dividend for the period 1 February 2017 to 30 April 2017 of two pence per Ordinary Share.
The Company had ongoing charges of 1.52% (30 April 2016: 1.14%) for the year under review. The main driver of the increase in ongoing charges during the 2016/17 financial was due to the Company paying a full management fee to AEW UK Investment Management of 0.9% on NAV.
The Company's property portfolio has been independently valued by Knight Frank in accordance with the RICS Valuation - Professional Standards (the 'Red Book'). As at 30 April 2017, the Company's portfolio had a fair value of GBP137.8 million as compared with the combined purchase price of the portfolio of GBP133.1 million (excluding purchase costs), an increase of GBP4.7 million or 3.5%.
Financing
On 18 May 2016, the Company amended the terms of its loan facility with RBSi to increase the facility limit from 20% to 30% of NAV measured at drawdown. This amendment has enabled the Company to utilise the facility up to an amount calculated as the equivalent of 25% of the Gross Asset Value ('GAV') (measured at drawdown), which is the maximum gearing limit as set out in the Company's Prospectus.
During the financial year to 30 April 2017, the Company made utilisation requests totalling GBP14.8 million (30 April 2016: GBP14.3 million), bringing the total drawdown amount under the facility to GBP29.0 million (30 April 2016: GBP14.3 million).
The loan attracts interest at three month LIBOR +1.4%, making an all-in rate at 30 April 2017 of 1.736% (30 April 2016: 1.988%). The Company is protected from a significant rise in interest rates as it has interest rate caps with a combined notional value of GBP26.5 million and a strike rate of 2.5%.
As at 30 April 2017, the unexpired term of the facility was 3.5 years and the gearing was 19.3% (as calculated on the GAV of the investment portfolio).
On 11 May 2017, the Company amended the terms of its facility with RBSi, extending the availability period to 31 March 2019 and reducing the facility limit from GBP40 million to GBP32.5 million to mitigate the cost of non-utilisation fees.
Dividends
The Company continued to deliver on its target of declaring dividends of two pence per Ordinary Share per quarter. During the financial year, the Company declared and paid four quarterly dividends of two pence per Ordinary Share.
On 30 May 2017, the Board declared an interim dividend of two pence per Ordinary Share, in respect of the period from 1 February 2017 to 30 April 2017. This interim dividend was paid on 30 June 2017.
Board and Governance
During the year, the Board conducted a review of AEW UK Investment Management LLP (the 'Investment Manager') and the Investment Management Agreement. The Board concluded that the continuing appointment of the Investment Manager was appropriate and in the best interests of shareholders and that the terms and conditions of the Investment Manager's continuing appointment remained appropriate.
The Board also discussed the potential recruitment of a new Director and on 5 June 2017 appointed Katrina Hart as an independent non-executive Director.
Shareholder engagement
The Company has continued to develop its relations with investors. In particular, a new website (www.aewukreit.com) has been launched with the aim of improving communications and allowing users to sign up for email alerts to gain access to the latest Company news and information. Furthermore, the Company's daily share price has been added to the Investment Companies (Direct Property) section of the Financial Times. We look forward to welcoming shareholders at our Annual General Meeting ('AGM') on 12 September 2017.
Outlook
The Board and the Investment Manager are confident of continuing to deliver strong returns for our shareholders through the diversified and high yielding property portfolio that has been established. We believe that the Company's property portfolio is well positioned and there are a number of active asset management initiatives ongoing that should grow the income stream and provide opportunities for further capital value enhancement.
In the period since the Statement of Financial Position at 30 April 2017, the Company has acquired a further two properties totalling GBP4.9 million (excluding acquisition costs) and generating a further GBP0.4 million per annum in rent.
It is still unknown how the impact of Brexit will unfold and it is likely we will need to wait for some time to know the terms of the UK's exit from the EU and how this will impact on the UK commercial property market. In this period of uncertainty there is a higher chance that the Bank of England will keep interest rates at historical lows and this will maintain the fundamentals of property demand as investors search for yield.
Our current focus is to continue to grow the Company and subject to market conditions, look to raise additional capital. This will enable the Company to take advantage of economies of scale in its cost base and to allow the Manager to capitalise on the interesting market opportunities it sees.
The Investment Manager remains focused on searching for properties in locations that exhibit low levels of supply, with a particular focus on properties underwritten by vacant possession values and therefore less exposed to capital erosion.
Mark Burton
Chairman
7 July 2017
Business Model and Strategy
Our Business
Introduction
AEW UK REIT plc is a real estate investment company listed on the premium segment of the Official List of the UK Listing Authority and traded on the London Stock Exchange's Main Market. As part of its business model and strategy, the Company has and intends to maintain UK REIT status. HM Revenue and Customs has acknowledged that the Company has met and intends to continue to meet the necessary qualifying conditions to conduct its affairs as a UK REIT.
Investment Objective
The investment objective of the Company is to deliver an attractive total return to shareholders from investing predominantly in a portfolio of smaller commercial properties in the United Kingdom.
Investment Policy
In order to achieve its investment objective the Company invests in freehold and leasehold properties across the whole spectrum of the commercial property sector (office properties, retail warehouses, high street retail and industrial/warehouse properties) to achieve a balanced portfolio with a diversified tenant base.
Within the scope of restrictions set out below (under the heading 'Investment Restrictions') the Company may invest up to 10% of its Net Assets (at the time of investment) in the AEW UK Core Property Fund and up to 10% of its Net Assets (measured at the commencement of the project) in development opportunities, with the intention of holding any completed development as an investment.
As at 30 April 2017, the Company held an investment valued at GBP7.59 million in AEW UK Core Property Fund, representing 6.4% of its Net Assets as at that date. The AEW UK Core Property Fund is a property authorised investment fund ('PAIF') managed by the Investment Manager which has a similar investment policy to that of the Company. The investment by the Company into the AEW UK Core Property Fund is not subject to management fees or performance fees otherwise charged to investors in the AEW UK Core Property Fund by the Investment Manager. The investment was sold on 9 May 2017 and as at the date of this report the Company does not intend to reinvest in the AEW UK Core Property Fund but will keep this under review.
The Company will at all times invest and manage its assets in a way that is consistent with its objective of spreading investment risk and in accordance with its published investment policy. The Company will not, at any time, conduct any trading activity which is significant in the context of the business of the Company as a whole.
Investment Restrictions
The Company will invest and manage its assets with the objective of spreading risk through the following investment restrictions:
-- the value of no single property, at the time of investment, will represent more than 15% of GAV;
-- the Company may commit up to a maximum of 10% of its NAV (measured at the commencement of the project) to development activities;
-- the value of properties, measured at the time of each investment, in any one of the following sectors: office properties, retail warehouses, high street retail and industrial/warehouse properties will not exceed 50% of NAV;
-- investment in unoccupied and non-income producing assets will, at the time of investment, not exceed 20% of NAV;
-- the Company will not invest in other closed-ended investment companies; and
-- if the Company invests in derivatives for the purposes of efficient portfolio and cash management, the total notional value of the derivatives at the time of investment will not exceed, in aggregate, 20% of GAV.
The Directors currently intend, at all times, to conduct the affairs of the Company so as to enable the Company to qualify as a REIT for the purposes of Part 12 of the CTA 2010 (and the regulations made thereunder).
In the event of a breach of the investment policy or restrictions, the Investment Manager shall inform the Board upon becoming aware of such a breach and if the Board considers the breach to be material, notification will be made to a Regulatory Information Service and the Investment Manager will look to resolve the breach.
Any material change to the investment policy of the Company may only be made with the prior approval of shareholders.
Our Strategy
The Company currently intends to exploit what it believes to be the compelling relative value opportunities offered by pricing inefficiencies in smaller commercial properties let on shorter occupational leases. The Company intends to supplement this core strategy with asset management initiatives to upgrade buildings and thereby improve the quality of income streams.
In the current market environment the focus will be to invest in properties which:
-- typically have a value, on investment, of less than GBP15 million; -- have initial net yields, on investment, of typically between 8-10%;
-- achieve, across the whole Portfolio, a weighted average lease term of between four to six years remaining;
-- achieve, across the whole Portfolio, a diverse and broad spread of tenants; and
-- have some potential for asset management initiatives to include refurbishment and re-lettings.
The Company may also invest up to a maximum of 10% of its NAV in the Core Fund. The Core Fund has an investment policy that is similar to that of the Company although generally it may invest in smaller value properties than those to be purchased by the Company. The Investment Manager has a stock allocation process that determines how property investments are allocated to the Company, Core Fund and any funds managed by the Investment Manager.
The Directors, rather than the Investment Manager, determine when to divest the Company's holding in the Core Fund.
The Company's strategy is focused on delivering enhanced returns from the smaller end (up to GBP15 million) of the UK commercial property market. The Company believes that there are currently pricing inefficiencies in smaller commercial properties relative to the long term pricing resulting in a significant yield advantage, as demonstrated in the graphs below, which the Company aims to exploit.
http://www.rns-pdf.londonstockexchange.com/rns/5151K_1-2017-7-7.pdf
How we add value
An Experienced Team
The investment management team average 18 years working together, reflecting stability and continuity.
Value Investing
The Investment Manager's investment philosophy is based on the principle of value investing. The Investment Manager looks to acquire assets with an income profile coupled with underlying characteristics that underpin long-term capital preservation. As value managers, the Investment Manager looks for assets where today's pricing may not correspond to long-term fundamentals.
Active Asset Management
The Investment Manager has an in-house team of dedicated asset managers with a strong focus on active asset management to enhance income and add value to commercial properties.
Our Asset Management Process
http://www.rns-pdf.londonstockexchange.com/rns/5151K_3-2017-7-7.pdf
Strategy in Action
Acquiring a stable income stream in a strong occupational market
Pipps Hill Industrial Estate, Basildon
-- A strong, south east industrial location that has seen significant rental growth over the past 18 months
-- Fully let on a new 10 year lease -- Rack rented at GBP6 per sq ft
-- Acquisition pricing supported by the asset's underlying vacant possession value, limiting any downside risk
Improving the quality of an income stream
Cranbourne House, Basingstoke
-- The tenant contracted to remove its 2017 break clause providing two years of additional income to 2019
-- Lease assigned to new group parent company HFC Prestige Manufacturing Limited who offer a more robust covenant strength than the existing tenant, Wella Holdings Limited
-- The tenant has since undertaken refurbishment works further demonstrating their commitment to the building
Adding value in strong occupational markets
Odeon, Southend on Sea
-- An uplift of GBP30,000 per annum was achieved for the outstanding 2012 rent review -- Negotiations have now commenced on the 2017 rent review which could yield further uplift
Driving rental growth and reducing vacancy
Queen Square, Bristol
-- Seven lettings secured on over 20,000 sq ft have led to the repositioning of the asset -- Occupancy level of 94% as compared to 54% at the time of purchase in December 2015
Repositioning an asset and maximising value
Valley Retail Park, Belfast
-- Planning consent has been granted for the development of two restaurant pods within the existing car park on the site. The addition of such units to the park would be expected not only to increase overall visitor numbers but improve dwell times on the park, leading to greater potential for rental growth
-- The now fully let retail park is under offer for sale following its successful repositioning and completed lettings to anchor tenants Go Outdoors and Smyths Toys
Key Performance Indicators
Hot Features
Premium
KPI AND DEFINITION RELEVANCE TO STRATEGY PERFORMANCE
1. Triple Net Initial
Yield The Triple Net Initial 7.63%
A representation to Yield is in line with at 30 April 2017
the investor of what the Company's target dividend (2016: 8.38%).
their initial net yield meaning that, after
yield would be at costs, the Company should
a predetermined purchase have the ability to meet
price after taking its target dividend through
account of all associated property income.
costs. E.g. void costs
and rent free periods.
2. True Equivalent
Yield An Equivalent Yield profile 8.50%
The average weighted in line with the Company's at 30 April 2017
return a property target dividend yield (2016: 8.36%).
will produce according shows that, after costs,
to the present income the Company should have
and estimated rental the ability to meet its
value assumptions, proposed dividend through
assuming the income property income.
is received quarterly
in advance.
3. Reversionary Yield
The expected return A Reversionary Yield profile 8.37%
the property will that is in line with an at 30 April 2017
provide once rack Initial Yield profile (2016: 8.27%).
rented. shows a potentially sustainable
income stream that can
be used to meet dividends
past the expiry of a property's
current leasing arrangements.
4. Weighted Average
Unexpired Lease Term
to expiry The Investment Manager 6.37 years
The average lease believes that current at 30 April 2017
term remaining to market conditions present (2016: 6.08 years).
expiry across the an opportunity whereby
portfolio, weighted assets with a shorter
by contracted rent. unexpired lease term are
often mispriced. It is
also the Investment Manager's
view that a shorter WAULT
is useful for active asset
management as it allows
the Investment Manager
to engage in direct negotiation
with tenants rather than
via rent review mechanisms.
5. Weighted Average
Unexpired Lease Term
to break 5.22 years
The average lease The Investment Manager at 30 April 2017
term remaining to believes that current (2016: 4.94 years).
break, across the market conditions present
portfolio weighted an opportunity whereby
by contracted rent. assets with a shorter
unexpired lease term are
often mispriced. As such,
it is in line with the
Investment Managers strategy
to acquire properties
with a WAULT that is generally
shorter than the benchmark.
It is also the Investment
Manager's view that a
shorter WAULT is useful
for active asset management
as it allows the Investment
Manager to engage in direct
negotiation with tenants
rather than via rent review
mechanisms.
6. NAV
Net asset value (NAV) The NAV reflects the Company's GBP118.67 million
is the value of an ability to grow the portfolio at 30 April 2017
entity's assets minus and add value to it throughout (2016: GBP116.38
the value of its liabilities. the life cycle of its million).
assets.
7. Leverage (Loan
to Gross Asset Value) 19.31%
The proportion of The Company utilises borrowings at 30 April 2017
our property portfolio to enhance returns over (2016: 10.51%).
that is funded by the medium term. Borrowings
borrowings. will not exceed 25% of
GAV (measured at drawdown).
8. Vacant ERV
The space in the property The Company's aim is to 7.22%
portfolio which is minimise vacancy of the at 30 April 2017
currently unlet, as properties. A low level (2016: 3.16%).
a percentage of the of structural vacancy
total ERV of the portfolio. provides an opportunity
for the Company to capture
rental uplifts and manage
the mix of tenants within
a property.
9. Development Exposure
The exposure to real By nature of its high 0%
estate development yielding strategy, the at 30 April 2017
or property development Company will limit its (2016: 0%).
encompassing activities exposure to property developments
that range from the which would lead to a
purchase of land for temporary reduction in
improvement to material income. It will consider
refurbishments. limited or infill development
to the extent that this
will not detract from
a property's income.
10. Dividend
Dividends declared The dividend reflects 2.0 pence per share
in relation to the the Company's ability for the quarter
year. The Company to deliver a sustainable to 30 April 2017
targets a dividend income stream from its (quarter to 30
of between eight and portfolio. April 2016: 2.0
nine pence per Ordinary pence per share).
Share per annum.
8.0 pence per share
for the year ended
30 April 2017 (2016:
5.5 pence per share).
11. Ongoing Charges
The ratio of total The Ongoing Charges ratio 1.52%
administration and provides a measure of for the year ended
operating costs expressed total costs associated 30 April 2017 (2016:
as a percentage of with managing and operating 1.14%).
average net asset the Company, which includes
value throughout the the management fees due
period. to the Investment Manager.
The Investment Manager
presents this measure
to provide investors with
a clear picture of operational
costs involved in running
the Company.
12. Profit before
tax The PBT is an indication GBP6.10 million
Profit before tax of the Company's financial for the year ended
('PBT') is a profitability performance for the period 30 April 2017
measure which considers in which its strategy (2016: GBP4.64
the Company's profit is exercised. million)
before the payment
of income tax.
Investment Manager's Report
Financial Results
Operating profit before fair value changes and disposals was GBP9.81 million for the year ended 30 April 2017 (2016: GBP6.31 million). The Company has continued to build a diversified portfolio of properties and as at 30 April 2017 held 29 direct property investments (2016: 25).
Net rental income earned from this portfolio during the year under review amounts to GBP11.07 million (2016: GBP6.88 million). NAV as at 30 April 2017 was GBP118.67 million (2016: GBP116.38 million).
The Company received dividends during the year totalling GBP0.58 million (2016: GBP0.65 million) from its investment in the Core Fund. On 1 February 2017, the Company disposed of part of its holding in the Core Fund for proceeds of GBP2.00 million, and the remaining holding at 30 April 2017 was valued at GBP7.59 million. After the year-end the Company fully disposed of the remaining holding for proceeds of GBP7.62 million.
A loss of GBP3.16 million (2016: GBP1.94 million) has arisen on the revaluation of investment properties across the portfolio, comprising GBP1.66 million (2016: GBP5.64 million) of costs associated with asset purchases initially capitalised on acquisition and GBP1.50 million of unrealised losses (2016: GBP3.70 million of unrealised gains) across the portfolio.
Administration expenses, which include the Investment Manager's fee and other costs attributable to the running of the Company for the year, were GBP1.84 million (2016: GBP1.22 million). The Company's Ongoing Charges for the year is 1.52% (2016: 1.14%).
The Company has incurred finance costs of GBP0.76 million during the year under review (2016: GBP0.23 million).
The total profit before tax for the period of GBP6.10 million (2016: GBP4.64 million) equates to basic earnings per share of 5.04 pence (2016: 4.83 pence).
The Company's Net Asset Value as at 30 April 2017 was GBP118.67 million or 95.98 pence per share ('pps') compared with GBP116.38 million or 99.03 pps as at 30 April 2016. This reflected a decrease of 3.05 pps or 3.08%, with the underlying movement in NAV set out in the table below:
Pence per share
(pps) GBP million
NAV as at 1 May 2016 99.03 116.38
Change in fair value of investment
property (2.70) (3.16)
Change in fair value of investments (0.40) (0.41)
Gains on disposal of investment property 0.59 0.73
Loss on disposal of investments (0.09) (0.11)
Income earned for the year 10.80 13.08
Expenses and net finance costs for
the year (3.31) (4.03)
Dividends paid (8.00) (9.65)
Issue of equity (net of costs) 0.06 5.84
NAV as at 30 April 2017 95.98 118.67
Net revenue over the year was 7.49 pps which, based on dividends paid of 8 pps, reflected a dividend cover of 93.63%.
Valuation
The Company's property portfolio has been independently valued by Knight Frank in accordance with the RICS Valuation - Professional Standards Global January 2014, including the International Valuations Standards, and RICS Professional Standards UK January 2014 (revised April 2015). References to 'the Red Book' refer to either or both of these documents, as applicable. The properties have been valued on the basis of Fair Value in accordance with the RICS Valuation - Professional Standards VVPS4 (1.5) Fair Value and VPGA1 Valuations for Inclusion in Financial Statements, which adopt the definition of Fair Value used by the International Accounting Standards Board.
As at 30 April 2017, the Company's portfolio had a fair value of GBP137.82 million (2016: GBP114.34 million).
Portfolio Activity
Our objective is to build a diversified portfolio of commercial properties throughout the UK. New acquisitions have been selected to provide an income return that is both sustainable and provides the potential for growth as well as limiting downside risk. The majority of assets that have been acquired are fully let and the portfolio had a vacancy rate (as a % of ERV) of 7.22% (2016: 3.16%) as at 30 April 2017. The following significant investment transactions took place during the year:
3/4 Apollo Business Park, Basildon - In April 2017, the Company announced the acquisition of a c.69,000 sq ft multi-let industrial building in Basildon, Essex for GBP4.55 million, reflecting an attractive net initial yield of 7.8% and low capital value of GBP66 per sq ft Basildon has seen strong commercial rental performance over the past 18 months and the low passing rents currently received from the asset provide excellent potential for growth going forward.
3/4 1 Bentalls, Pipps Hill Industrial Estate, Basildon - In April 2017, the Company acquired a c.33,000 sq ft single-let industrial building located on the established Pipps Hill Industrial Estate. The purchase price of GBP2.00 million reflected an attractive net initial yield of 9.3%, a reversionary yield of 8.8% and a low capital value of GBP64 per sq ft. The building is let on a 10 year lease from the acquisition date at a rent of GBP6 per sq ft.
3/4 Euroway, Bradford - In December 2016, the Company announced the acquisition of a c.144,000 sq ft logistics warehouse in Bradford for GBP4.95 million, reflecting a net initial yield of 8.1%, reversionary yield of 8.9% and capital value of GBP34 per sq ft. The tenant has recently signed a new eight year lease highlighting their commitment to the location.
3/4 Pearl House, Nottingham - In May 2016, the Company announced the GBP8.15 million acquisition of a mixed use retail and office property in Nottingham, prominently located with frontage to Wheeler Gate and Old Market Square, within the retailing core of the City Centre. The property of 71,260 sq ft is let to six retail tenants, including Poundland, Costa and Lakeland, and nine office tenants, providing a WAULT at acquisition of approximately 4.5 years to break and 5.2 years to expiry. The acquisition provides an initial yield of 9.0%, a reversionary yield of 9.9% and a capital value per sq ft of GBP114.
3/4 Bank Hey Street, Blackpool - Also in May 2016, the Company acquired a retail and leisure asset in Blackpool, prominently located directly adjacent to the famous Blackpool Tower, for a price of GBP5.05 million. The property comprises 100,079 sq ft and has three retail units at ground floor and basement levels, which are let to the strong covenants of Poundland, Sports Direct and J D Wetherspoons, providing a WAULT of approximately 7.5 years to break and 10 years to expiry. The upper three floors of the property are currently vacant and have been de-listed for rating purposes but offer potential for alternative use occupation and future asset management due to their comparatively low acquisition price.
3/4 11-15 Fargate, Sheffield - During the year, the Company completed the leasehold disposal of vacant upper parts above prime rental units for a price of GBP710,000, against an assumed acquisition value of GBP250,000.
3/4 Castlegate Business Park, Salisbury - In February 2017, the Company completed the disposal of its building in Salisbury, which had become vacant in September 2016, for a price of GBP2.05 million. The sales price exceeded both its valuation at the date of sale and the original acquisition price of the asset.
Asset Management
We undertake active asset management to seek opportunities to achieve rental growth, let vacant space and enhance value through initiatives such as refurbishments. During the year, key asset management initiatives have included:
3/4 Valley Retail Park, Belfast - Planning consent has been granted for the development of two restaurant pods within the existing car park on the site. The addition of leisure units to the park would be expected not only to increase overall visitor numbers but improve dwell times on the park, leading to greater potential for rental growth. The fully let retail park is now under offer for sale following its successful repositioning and completed lettings to anchor tenants Go Outdoors and Smyths Toys.
3/4 Eastpoint Business Park, Oxford - The Company has agreed a lease renewal on a 5,600 sq ft suite with the existing tenant. The new lease provides three years of additional income at a rent of GBP14.50 per sq ft, in line with ERV expectations.
3/4 Queen Square, Bristol - The Company has secured a letting of over 5,000 sq ft of ground floor office space on a ten year lease with a tenant break option at year five, achieving a rental level that is GBP1.50 per sq ft ahead of the expected ERV at the time of purchase. The letting is the seventh occupational transaction to be completed by the Company since acquisition and takes the asset to an occupancy level of 94% as compared to 54% at the time of purchase in December 2015.
3/4 Pearl House, Nottingham - The Company received consent for the change of use from office to 36 residential flats under Permitted Development Rights on the upper floors. However, the Company intends to keep the building in its current use as offices for the foreseeable future and as such signed a letting of the entire third floor for five years at a rent of GBP13.78 per sq ft against an ERV of cGBP12 per sq ft when the property was acquired in May 2016.
3/4 Cranbourne House, Basingstoke - In return for receiving the landlord's consent to assign the lease to parent company HFC Prestige Manufacturing Limited, Wella Holdings Limited contracted to remove its 2017 break clause giving the Company two years of additional income to 2019, at GBP410,000 per annum, plus a six months rental guarantee. The tenant is now also carrying out refurbishment works to the building, further demonstrating its commitment to the location.
3/4 Odeon Cinema, Southend - An uplift of GBP30,000 per annum was achieved for the outstanding 2012 rent review and taking the rent payable by Odeon from GBP505,000 to GBP535,000, backdated to 29 September 2012. Negotiations have now commenced on the 2017 rent review which could yield further uplift.
Financing
As at 30 April 2017, the Company had a GBP40 million (2016: GBP40 million) credit facility with RBSi, maturing in October 2020. On 8 May 2017, the Company completed an amendment to the terms of its facility with RBSi. The total commitment has been reduced from GBP40.0 million to GBP32.5 million and the availability period has been extended to 31 March 2019.
As at 30 April 2017, the Company has utilised GBP29.01 million (2016: GBP14.25 million) of its GBP40 million facility with RBSi. Gearing as at 30 April 2017 was 19.3% (2016: 10.5%) (Loan to GAV). The loan attracts interest at LIBOR + 1.4% (2016: LIBOR + 1.4%). To mitigate the interest rate risk that arises as a result of entering into a variable rate linked loan, the Company holds interest rate caps on GBP26.51 million (2016: GBP14.25 million) of the loan at a strike rate of 2.5% (2016: 2.5%), resulting in the loan being 91% (2016: 100%) hedged.
Transactions after Statement of Financial Position Date
On 4 May 2017, the Company acquired Unit 1005, Sarus Court which completes the Company's acquisition of the whole of the Sarus Court industrial estate, where the Company already owned five of the six units following acquisitions in 2015. The estate provides well specified, modern industrial units of between 11,000 and 17,000 sq ft, which are let to a number of light-industrial occupiers on a WAULT of over four years. Sarus Court forms part of the wider Manor Park industrial estate, strategically located to the west of Runcorn and five kilometres from the Mersey Gateway Project, a new six lane bridge over the River Mersey connecting the towns of Runcorn and Widnes and linking the M56 to the M62. The project is due for completion in autumn 2017.
On 9 May 2017, the Company sold its remaining units in the Core Fund for total proceeds of GBP7.62 million. The Company has held an ownership in the Core Fund since launch in May 2015 for the purpose of expediting its investment period and saw a total return of 13% over the hold period. The units have now been sold at a price in excess of the Core Fund's latest published NAV, with proceeds to fund direct investments in the portfolio.
On 29 June 2017 the Company acquired Unit 34, First Avenue, Deeside for GBP4.31 million. The property provides a WAULT of approximately 5 years to break and 10 years to expiry. The acquisition provides an initial yield of 7.9%, a reversionary yield of 7.9% and a capital value per sq ft of GBP45.
Market Outlook
UK Economic Outlook
We continue to see a mixed bag of economic indicators in the aftermath of Brexit and, although the process to leave the EU has now begun, the dominant theme remains that of uncertainty. Many economists had predicted an immediate and significant impact on the UK economy following the vote to leave the EU. Although these predictions did not come to pass, the UK economy suffered a slowdown in the opening months of 2017, as a rise in living costs impacted consumer spending. GDP growth fell to 0.3% in the first quarter of 2017 from 0.7% in the previous quarter (Office of National Statistics). The pound's sharp fall since the Brexit vote has lifted inflation to its highest level for more than three years (Office of National Statistics CPIH Measure of Inflation), putting pressure on consumers' incomes.
The general election on 8 June 2017 created further uncertainty around what happens next with the UK's negotiation to exit the EU, which is likely to continue to prolong caution from investors and tenants.
Brexit negotiations and political uncertainty may continue to slow down the UK economy but the impact on the real estate market should be mitigated by low interest rates. It is hoped that the UK economy will continue to show resilience and the International Monetary Fund has revised its UK growth forecast, now envisaging the economy expanding by 2.0% in 2017, compared with forecasts of 1.1% and 1.5% made in October 2016 and January 2017 respectively.
UK Real Estate Outlook
The property market has proven to be resilient following the initial shock of the Brexit referendum, with MSCI data showing that the market has started to regain the value it lost in the immediate aftermath of the Brexit vote. Central London has the greatest uncertainty over occupier demand but overseas investors are still showing a strong appetite for safe haven assets in the global hub. The shares of the major REITs with significant development exposure to the capital are, however, still at a substantial discount to pre-Brexit prices, reflecting the heightened uncertainty of future demand in the key occupier markets where rental growth is a more important driver of total returns due to the lower (prime) initial yields.
Outside central London there are fewer concerns about occupier demand and the greatest risk to property values is if the economy slips towards recession. Occupiers still seem to be adopting a pragmatic approach to their property needs and so portfolio income returns remain attractive to investors who continue to search for yield in this low interest rate environment. We sense that the weight of institutional money targeting the sector is back to pre-Brexit levels and, if anything, a low level of transactions is as much due to lack of willing sellers because multi-asset investors view property as an attractive alternative to historically low bond yields.
We are not surprised, however to see investors often focussing on the prime end of the market which, at times of uncertainty, tends to be redefined by length of lease and quality of tenant covenant rather than location. Pricing is then driven largely by the yield premium offered by property investments above gilts.
http://www.rns-pdf.londonstockexchange.com/rns/5151K_4-2017-7-7.pdf
We see risks to future returns from looking at property as being cheap (relative to gilts) rather than acknowledging that this period of historically low bond yields is unlikely to be maintained, particularly if inflation continues to rise. In our experience there are risks to capital preservation when strategies focus solely on relative income yields at the expense of property fundamentals. The Company aims to deliver an attractive total return to shareholders from investing predominantly in a portfolio of smaller commercial properties in strong commercial locations across the UK. In the Investment Manager's view, it is therefore not as susceptible to capital value erosion as will be experienced by holders of prime asset portfolios.
In terms of sector focus, we foresee the best total returns in the industrial and logistics warehousing sectors. This is driven in part by online retailers' requirements for distribution hubs around big cities and major infrastructure hubs to enable them to deliver goods more efficiently to shoppers' homes. Forecast total returns for industrial property are 7.1% annualised for 2016-2020 (Colliers International Real Estate Investment Forecasts Q3 2016).
Alternative Investment Fund Manager ('AIFM')
AEW UK Investment Management LLP is authorised and regulated by the Financial Conduct Authority as a full-scope AIFM and provides its services to the Company.
The Company has appointed Langham Hall UK Depositary LLP ('Langham Hall') to act as the depositary to the Company, responsible for cash monitoring, asset verification and oversight of the Company.
Information Disclosures under the AIFM Directive
Under the AIFM Directive, the Company is required to make disclosures in relation to its leverage under the prescribed methodology of the Directive.
Leverage
The AIFM Directive prescribes two methodologies for evaluating leverage, namely the 'Gross Method' and the 'Commitment Method'. The Company's maximum and actual leverage levels are as per below:
30 April 2017 30 April 2016
----------- ---------------------------- -----------------------------------
Leverage Commitment Commitment Method
Exposure Gross Method Method Gross Method
----------- --------------- ----------- --------------- ------------------
Maximum
Limit 140% 140% 140% 140%
Actual 118% 124% 105% 112%
In accordance with the AIFM Directive, leverage is expressed as a percentage of the Company's exposure to its NAV and adjusted in line with the prescribed Gross and Commitment Method. The gross method is representative of the sum of the Company's positions after deducting cash balances and without taking into account any hedging and netting arrangements. The Commitment Method is representative of the sum of the Company's positions without deducting cash balances and taking into account any hedging and netting arrangements. For the purposes of evaluating the methods above, the Company's positions primarily reflect its current borrowings and NAV.
Remuneration
The AIFM has adopted a Remuneration Policy which accords with the principles established by AIFMD.
AIFMD Remuneration Code Staff includes the members of the AIFM's Management Committee, those performing Control Functions, Department Heads, Risk Takers and other members of staff that exert material influence on the AIFM's risk profile or the AIFs it manages.
Staff are remunerated in accordance with the key principles of the firm's remuneration policy, which include (1) promoting sound risk management; (2) supporting sustainable business plans; (3) remuneration being linked to non-financial criteria for Control Function staff; (4) incentivise staff performance over longer periods of time; (5) award guaranteed variable remuneration only in exceptional circumstances; and (6) having an appropriate balance between fixed and variable remuneration.
As required under section 'Fund 3.3.5.R(5)' of the Investment Fund Sourcebook, the following information is provided in respect of remuneration paid by the AIFM to its staff. The information provided below is provided for the year from 1 January 2016 to 31 December 2016, which is in line with the most recent financial reporting period of the AIFM, and relates to the total remuneration of the entire staff of the AIFM.
Year ended
31 December
2016
Total remuneration paid to employees during financial
year:
a) remuneration, including, where relevant, any carried
interest paid by the AIF GBP2,113,652
b) the number of beneficiaries 26
The aggregate amount of remuneration, broken down
by:
a) senior management GBP604,939
b) members of staff GBP1,508,713
Fixed Variable Total
remuneration remuneration remuneration
Senior management GBP604,939 - GBP604,939
Staff GBP1,212,913 GBP295,800 GBP1,508,713
Total GBP1,817,852 GBP295,800 GBP2,113,652
Fixed remuneration comprises basic salaries and variable remuneration comprises bonuses.
http://www.rns-pdf.londonstockexchange.com/rns/5151K_-2017-7-7.pdf
The Company's top ten properties as at 30 April 2017 as set out below comprise 58.9% of the portfolio value:
Top Ten Properties
Market Value
Range
Property Name (GBP) Sector
-------------------------------------- ------------- -----------------
225 Bath Street, Glasgow 10 - 15m Office
Valley Retail Park, Belfast 10 - 15m Retail warehouse
69-75 Above Bar Street, Southampton 7.5 - 10m Standard retail
Pearl Assurance House, Nottingham 7.5 - 10m Standard retail
Eastpoint Business Park, Oxford 7.5 - 10m Office
40 Queen Square, Bristol 7.5 - 10m Office
Barnstaple Retail Park, Barnstaple <7.5m Retail warehouse
Langthwaite Grange Industrial Estate, <7.5m Industrial
South Kirkby
Odeon Cinema, Southend on Sea <7.5m Other
Oak Park Rylands Lane, Droitwich <7.5m Industrial
The table below sets out the Company's top ten tenants as at 30 April 2017, representing 38.9% of the passing rent of the property portfolio:
Top Ten Tenants
Passing Rent As % of Total
Tenant (GBP'000) Passing Rent
---------------------------------------- --------------- ----------------
Ardagh Glass Limited 676 5.6
Egbert H. Taylor & Company Limited 625 5.1
Odeon Cinemas 535 4.4
The Secretary of State for Communities
and Local Government 511 4.2
Advance Supply Chain (BFD) Limited 428 3.5
Poundland Limited 414 3.4
HFC Prestige Manufacturing Limited 410 3.4
Go Outdoors Limited 400 3.3
Barclays Bank plc 375 3.1
ROM Group Limited 350 2.9
The chart below shows the lease expiry profile tenants and the percentage of passing rent expiring at various intervals.
http://www.rns-pdf.londonstockexchange.com/rns/5151K_2-2017-7-7.pdf
AEW UK Investment Management LLP
7 July 2017
Principal Risks and Uncertainties
The Company's assets consist primarily of UK commercial property. Its principal risks are therefore related to the commercial property market in general, but also to the particular circumstances of the individual properties and the tenants within the properties.
The Board has carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. Twice a year, the Audit Committee reviews the adequacy and effectiveness of the Company's risk management system. Some risks are not yet known and some that are currently not deemed material, could turn out to be material in the future. All principal risks are the same as detailed in the 2016 Annual Report, with the exception of the inclusion of political/economic risks that have been added following the EU referendum in June 2016 and a financial risk relating to the availability and cost of the credit facility. Financial risk management and objectives and policies are further detailed in Note 20 of the Financial Statements.
An analysis of the principal risks and uncertainties is set out below:
Principal risks and their potential How risk is managed
impact
REAL ESTATE RISKS
Tenant default
Failure by tenants to comply Tenant covenant checks are carried
with their rental obligations out on new tenants where there
could affect the income that are concerns as to their creditworthiness.
the properties earn and the ability
of the Company to pay dividends Asset management team conducts
to its Shareholders. ongoing monitoring and liaison
with tenants to manage potential
bad debt risk.
Asset management initiatives
Asset management initiatives Costs incurred on asset management
such as refurbishment works, initiatives are closely monitored
may prove to be more extensive, against budgets and reviewed
expensive and take longer than in regular presentations to the
anticipated. Cost overruns may Investment Management Committee
have a material adverse effect of the Investment Manager.
on the Company's profitability,
the NAV and the share price.
Due diligence
Due diligence may not identify The Company's due diligence relies
all the risks and liabilities on the work (such as legal reports
in respect of an acquisition on title, property valuations,
(including any environmental, environmental, building surveys)
structural or operational defects) outsourced to third parties who
that may lead to a material adverse have expertise in their areas.
effect on the Company's profitability, Such third parties have Professional
the Net Asset Value and the price Indemnity cover in place.
of the Company's Ordinary Shares.
Fall in rental rates
Rental rates may be adversely The Company mitigates this risk
affected by general UK economic through building a diversified
conditions and other factors property and tenant base with
that depress rental rates, including subsequent monitoring of concentration
local factors relating to particular to individual occupiers (top
properties/locations (such as 10 tenants) and sectors (geographical
increased competition). and sector exposure).
Any fall in the rental rates Quarterly meetings are held with
for the Company's properties the Investment Strategy Committee
may have a material adverse effect of the Investment Manager and
on the Company's profitability, Board of Directors to assess
the NAV, the price of the Ordinary whether any changes with the
Shares and the Company's ability market present risks that should
to meet interest and capital be addressed in our strategy.
repayments on any debt facilities.
Property market
Any property market recession The Company has investment restrictions
or future deterioration in the in place to invest and manage
property market could, inter its assets with the objective
alia, (i) cause the Company to of spreading and mitigating risk.
realise its investments at lower
valuations; (ii) delay the timings
of the Company's realisations.
These risks could have a material
adverse effect on the ability
of the Company to achieve its
investment objective.
Property valuation
Property and property-related The Company uses an independent
assets are inherently difficult valuer (Knight Frank) to value
to value due to the individual the properties at fair value
nature of each property. in accordance with accepted RICS
appraisal and valuation standards.
There may be an adverse effect
on the Company's profitability,
the NAV and the price of Ordinary
Shares in cases where properties
are sold whose valuations have
previously been materially overstated.
FINANCIAL RISKS
Breach of borrowing covenants
The Company has entered into The Company monitors the use
a term credit facility. of borrowings on an ongoing basis
through weekly cash flow forecasting
Material adverse changes in valuations and quarterly risk monitoring
and net income may lead to breaches to monitor financial covenants.
in the LTV and interest cover
ratio covenants.
Interest rate rises
The Company's borrowings through An interest rate cap of 2.5%
a term credit facility are subject is in place to mitigate the adverse
to interest rate risk due to impact of possible interest rate
changing LIBOR rates. Any increases rises.
in LIBOR rates may have an adverse
effect on the Company's ability
to pay dividends.
Availability and cost of the
credit facility The Company maintains a good
The term credit facility expires relationship with the bank providing
in October 2020. In the event the term credit facility.
that RBSi does not renew the
facility the Company may need The Company monitors the projected
to sell assets to repay the outstanding usage and covenants of the credit
loan. Any increase in the financing facility on a quarterly basis.
costs of the facility on renewal
would adversely impact on the
Company's profitability.
CORPORATE RISKS
Use of service providers
The Company has no employees The performance of service providers
and is reliant upon the performance in conjunction with their service
of third party service providers. level agreements is monitored
via regular calls and face to
Failure by any service provider face meetings and the use of
to carry out its obligations Key Performance Indicators, where
to the Company in accordance relevant.
with the terms of its appointment
could have a materially detrimental
impact on the operation of the
Company.
Dependence on the Investment
Manager The Investment Manager has endeavoured
The Investment Manager is responsible to ensure that the principal
for providing investment management members of its management team
services to the Company. are suitably incentivised.
The future ability of the Company
to successfully pursue its investment
objective and investment policy
may, among other things, depend
on the ability of the Investment
Manager to retain its existing
staff and/or to recruit individuals
of similar experience and calibre.
Ability to meet objectives
The Company may not meet its The Company has an investment
investment objective to deliver policy to achieve a balanced
an attractive total return to portfolio with a diversified
shareholders from investing predominantly tenant base. The Company also
in a portfolio of smaller commercial has investment restrictions in
properties in the United Kingdom. place to limit exposure to potential
risk factors. These factors mitigate
Poor relative total return performance the risk of fluctuations in returns.
may lead to an adverse reputational
impact that affects the Company's
ability to raise new capital.
TAXATION RISKS
Company REIT status
The Company has a UK REIT status The Company monitors REIT compliance
that provides a tax-efficient through the Investment Manager
corporate structure. on acquisitions; the Administrator
on asset and distribution levels;
If the Company fails to remain the Registrar and Broker on shareholdings
a REIT for UK tax purposes, its and the use of third-party tax
profits and gains will be subject advisors to monitor REIT compliance
to UK corporation tax. requirements.
Any change to the tax status
or UK tax legislation could impact
on the Company's ability to achieve
its investment objectives and
provide attractive returns to
shareholders.
POLITICAL/ECONOMIC RISKS
Political and macroeconomic events The Board considers the impact
present risks to the real estate of political and
and financial markets that affect macroeconomic events when reviewing
the Company and the business strategy.
of our tenants. The level of
uncertainty that such events
bring has been highlighted in
recent times, most pertinently
following the EU referendum vote
(Brexit) in June 2016.
Portfolio
1 Bentalls, Pipps Hill Industrial Estate, Basildon
New 10 year lease, very strong occupational market
Property characteristics Adding value
Property type Industrial 1. The tenant has been in occupation
since the 1990s and will be
investing in improvements to
the building over the next
year.
2. The lease provides for annual
rental uplifts of 2% per annum.
Area 32,932 sq ft
Purchase price
GBP2.1m (GBP65 per
sq ft)
Purchase yield 8.8%
Constructed 1980s
Vendor Tenant
Lease Investment summary
Tenants New 10 year lease to 1. Established industrial estate.
Merson
Signs Ltd. 2. Lack of Grade A industrial
floor space in the region has
caused secondary rents to grow
by c.10% over the past 12 months.
Rent Passing rent of GBP6
per sq ft.
349 Moorside Road, Swinton, Salford
Income longer than portfolio level WAULT, strong covenant
Property characteristics Adding value
Property type Industrial 1. The current lease provides
a strong income stream.
Area 24,307 sq ft
Purchase price
GBP1.28m
Purchase yield 7.64%
Constructed 2010
Vendor Private
Lease Investment summary
Tenants Single let with an 1. Strong covenant.
unexpired term of 6.3
years. Secured against 2. Income longer than portfolio
National Crash Repair level WAULT.
Centre Ltd.
3. Well located a short distance
from the M60 Manchester Ring
Motorway.
4. Modern building.
Rent Low passing rent of
GBP4.25 per sq ft.
710 Brightside Lane, Sheffield
Long income, higher alternative use potential
Property characteristics Adding value
Property type Industrial 1. Potential to increase rent
at review.
2. Potential for medium to
long term redevelopment for
higher value uses including
trade counter and motor dealership.
Area 121,733 sq ft
Purchase price
GBP3.50m
Purchase yield 8.82%
Constructed 1960s
Vendor Property Company
Lease Investment summary
Tenants Single let for a further 1. Prominent frontage to busy
12 years with a tenant arterial route.
break option in
9.5 years. 2. Tenant wedded to the location
having significantly invested
in the roof.
3. Low capital value per sq
ft and low passing rent.
4. Long term income.
5. Surrounding sites currently
being redeveloped for higher
value uses.
Rent Average passing rent
of GBP2.87 per sq ft
Apollo Business Park, Basildon
Low passing rents, very strong occupational market
Property characteristics Adding value
Property type Industrial 1. Low passing rents of GBP5.50
per sq ft compared to ERV of
GBP6.25.
2. 50% of the income secured
against a very strong covenant.
Area 68,813 sq ft
Purchase price
GBP4.6m (GBP66 per
sq ft)
Purchase yield 7.8%
Constructed 1970s
Vendor Property Company
Lease Investment summary
Tenants Multi let to 4 tenants. 1. Established industrial estate.
WAULT of 3.4 years 2. Lack of Grade A industrial
to breaks. floor space in the region has
caused secondary rents to grow
Largest tenant is Amari by c.10% over the past 12 months.
Plastics
Plc (53% of passing
rent).
Rent Passing rent of GBP5.50
per sq ft.
Barbot Hall Industrial Estate Magham Road, Rotherham
Single let industrial unit in established location, reversionary potential
Property characteristics Adding value
Property type Industrial 1. Reversionary potential -
ERV of c.GBP3.25 per sq ft.
2. Negotiate lease renewal
on expiry of the current lease
in December 2018. Sapa are
wedded to the location due
to their distribution network.
3. Established industrial location.
Area 81,979 sq ft
Purchase price
GBP2.17m
Purchase yield 8.50%
Vendor Property Company
Lease Investment summary
Tenants Single let to Sapa 1. Increasing levels of occupier
Components UK Ltd with demand within the surrounding
a WAULT of 1.7 years area.
to expiry.
2. Lack of new development
has created a shortage of competing
stock.
3. Strong tenant covenant.
4. Low passing rent.
Rent Average passing rent
of
GBP2.38 per sq ft.
Brockhurst Crescent, Walsall
Three fully let industrial units, strategically located near the M6
Property characteristics Adding value
Property type Industrial 1. Fixed rental uplifts in
2017 taking the running yield
to 11.0%.
2. Opportunity to negotiate
a reversionary lease with an
existing tenant to extend the
income.
Area 136,171 sq ft
Purchase price
GBP3.85m
Purchase yield 9.80%
Vendor Property Company
Lease Investment summary
Tenants Multi-let to Tata Steel 1. Established industrial location
and Micheldever Tyres just off the M6 at Junction
providing a WAULT of 9.
4.9 years expiry.
2. Fully let.
3. Attractive net initial yield
4. Shortage of low rented industrial
accommodation within the surrounding
area.
Rent Average passing rent
of GBP2.96 per sq ft.
Carrs Coatings, North Moons Industrial Estate, Redditch
Established industrial location, strong tenant demand
Property characteristics Adding value
Property type Industrial 1. The lease provides for annual
RPI uplifts.
2. Strong demand from owner
occupiers within the wider
area due to lack of supply.
Area 37,992 sq ft
Purchase price
GBP2.00m
Purchase yield 9.5%
Vendor Property Company
Lease Investment summary
Tenants Carrs Coatings Limited 1. Attractive initial yield.
11.3 years unexpired
term. 2. Long income providing annual
fixed uplifts in line with
RPI.
3. Located within a very well
established industrial location.
4. Purchase price c.85% underpinned
by vacant possession value.
Rent Average passing rent
of GBP5.35 per sq ft.
Clarke Road, Milton Keynes
Income longer than portfolio level WAULT, strong covenant
Property characteristics Adding value
Property type Industrial 1. The current lease provides
a strong income stream.
Area 28,348 sq ft
Purchase price
GBP1.53m
Purchase yield 7.66%
Constructed 1980s
Vendor Private
Lease Investment summary
Tenants Single let with an 1. Strong covenant.
unexpired term of 6.3
years. Secured against 2. Income longer than portfolio
National Crash Repair level WAULT.
Centre Ltd.
3. South east location.
Rent Average passing rent
of GBP4.73. per sq
ft.
Cleaver House, Runcorn
Attractive yield, improving industrial location
Property characteristics Adding value
Property type Industrial 1. The location is set to benefit
from the completion of the
Mersey Gateway Project in 2017
which will link Runcorn with
the M56 to M62.
2. The unit was acquired following
the acquisition by the Company
of the wider Sarus Court estate.
Cleaver House therefore assists
in providing a more efficient
control of estate management.
3. Potential for rental growth
against an ERV of GBP5.25 per
sq ft.
Area 16,154 sq ft
Purchase price
GBP0.91m
Purchase yield 7.92%
Constructed 1990s
Vendor Private
Lease Investment summary
Tenants Single let with an 1. Established industrial location.
unexpired term of 3.9
years, 10 months to 2. High quality, modem accommodation
break. compared to the competing offer.
3. Fully let.
Rent Passing rent of GBP4.71
per sq ft.
Cranbourne House, Bessemer Road, Basingstoke
Modern, single let industrial unit in prime South East location
Property characteristics Adding value
Property type Industrial 1. Removal of tenant break
option has provided an additional
two years term certain.
2. Assignment to new group
parent company provides a more
robust covenant.
Area 58,445 sq ft
Purchase price
GBP3.39m
Purchase yield 10.00%
Vendor Property Company
Lease Investment summary
Tenants Fully let to HFC Prestige 1. Established South East industrial
Manufacturing Ltd with location.
a WAULT of 2.7 years
to break and expiry. 2. Modern accommodation.
3. Increasing levels of occupier
demand.
4. Lack of new development.
5. Strong tenant covenant.
Rent Average passing rent
of GBP7.01 per sq ft.
Euroway, Bradford
Located just off the M62, low passing rent
Property characteristics Adding value
Property type Industrial 1. Previous owner completed
GBP400,000 of works to the
roof and yard.
2. Tenant has been in occupation
since
2009 and has recently extended
the lease, creating an unexpired
term of 8 years.
Area 143,765 sq ft
Purchase price
GBP4.95m (GBP34 per
sq ft)
Purchase yield 8.1%
Constructed 1980s
Vendor Property Company
Lease Investment summary
Tenants Fully let to Advanced 1. Strong distribution location
Processing providing excellent access
Ltd with 8 years unexpired. to the motorway network.
2. Located directly adjacent
to regional hub for Marks &
Spencer.
3. Low passing rent of GBP3
per sq ft is well below ERV
due to lack of available stock
in the area.
Rent Passing rent of GBP3
per sq ft.
Lea Green Industrial Estate, Walkers Lane, St Helen's
Single let industrial unit, long term income stream
Property Characteristics Adding value
Property type Industrial 1. Minimal asset management
required due to long lease.
2. Some reversionary potential
at review.
Area 93,588 sq ft
Purchase price
GBP3.44m
Purchase yield 8.24%
Vendor Property Company
Lease Investment summary
Tenants Single let to Kverneland 1. Established industrial location.
Group
UK Ltd with a WAULT 2. New lease to embedded tenant.
of 8.4 years to expiry
with no break option. 3. Attractive WAULT.
4. Strong tenant covenant.
Rent GBP3.25 per sq ft.
Oak Park, Rylands Lane, Elmley Lovett, Droitwich
Industrial complex let to a strong covenant
Property characteristics Adding value
Property type Industrial 1. Investment value strongly
underpinned by underlying site
value.
2. Potential future change
of use to residential, subject
to planning.
Area 188,555 sq ft
Purchase price
GBP6.62m
Purchase yield 10.40%
Vendor Receivership sale
Lease Investment summary
Tenants Single let to Taylor 1. Established industrial location.
Bins (trading name)
providing a WAULT of 2. Fully let to a strong covenant.
5.5 years to expiry.
3. High yielding and stable
income stream.
Rent Average passing rent
of GBP3.29 per sq ft.
Sarus Court, Runcorn
Attractive yield, improving industrial location
Property characteristics Adding value
Property type Industrial 1. The location is set to benefit
from the completion of the
Mersey Gateway Project in 2017
which will link Runcorn with
the M56 to M62.
2. The Company has since acquired
two further units on the same
estate, to provide more efficient
control of estate management.
3. Potential for rental growth
against an ERV of GBP5.25 per
sq ft.
Area 56,123 sq ft
Purchase price
GBP3.37m
Purchase yield 8.00%
Vendor Property Company
Lease Investment summary
Tenants Multi-let to two tenants 1. Established industrial location.
providing a WAULT of
3.7 years to break 2. High quality, modern accommodation
and 4.4 years to expiry. compared to the competing offer.
3. Fully let.
Rent Average passing rent
of GBP4.80 per sq ft.
Units 16 and 16a, Langthwaite Business Park, South Kirkby
High yielding industrial units
Property characteristics Adding value
Property type Industrial 1. Negotiations under way with
the current tenant to extend
the lease due to their requirement
to remain within the local
area.
2. High yielding industrial
units located in Yorkshire,
as short distance from the
A1(M).
Area 230,850 sq ft
Purchase price
GBP5.80m
Purchase yield 11.00%
Vendor Property Company
Lease Investment summary
Tenants Fully let to Ardagh 1. Strategically located for
Glass Ltd with the tenant due to other nearby
a WAULT of 4 months facilities.
to breaks
and 6 months to expiry. 2. Low capital value.
3. Shortage of availability
in the local market.
4. 5A1 covenant strength (Dun
& Bradstreet).
Rent Average passing rent
of GBP2.95 per sq ft.
Waggon Road, Mossley, Ashton Under Lyne
Income longer than portfolio level WAULT, strong covenant
Property characteristics Adding value
Property type Industrial 1. The current lease provides
a strong income stream.
Area 12,836 sq ft
Purchase price
GBP0.28m
Purchase yield 11.1%
Constructed 1980s
Vendor Private
Lease Investment summary
Tenants Single let with an 1. Strong covenant.
unexpired term of 6.3
years. Secured against 2. Income longer than portfolio
National Crash Repair level WAULT.
Centre Ltd.
3. Well located a short distance
from the M60 Manchester Ring
Motorway.
Rent Low passing rent of
GBP2.50 per sq ft.
40 Queen Square, Bristol
Prime Bristol Office Location, refurbishment potential
Property characteristics Adding value
Property type Office 1. Active asset management
program to refurbish and relet
vacant space has repositioned
the asset and taken occupancy
levels from 54% at purchase
to 94%.
2. Improvements undertaken
on the common facilities will
continue to drive rental growth.
Area 38,326 sq ft
Purchase price
GBP7.20m
Purchase yield 8.70%
Vendor Fund
Lease Investment summary
Tenants Multi-let to 8 tenants 1. Prime office location in
with 6% ERV vacancy. central Bristol.
WAULT of 3.0 years
to break and 4.9 years 2. Increasing levels of occupier
to expiry. demand is driving rental growth.
Rent Average passing rent
of GBP20.30 per sq
ft (on let space).
Bath Street, Glasgow
City centre location, attractive yield profile
Property characteristics Adding value
Property type Office 1. The current low passing
rents make the building well
placed to benefit from future
rental growth.
2. Requires minimal capex going
forward e.g. improvement of
tenant amenity space on the
ground floor.
Area 88,159 sq ft
Purchase price
GBP12.20m
Purchase yield 10.00%
Constructed 1980s
Vendor Fund
Lease Investment summary
Tenants Let to 4 tenants providing 1. Multi-let city centre office
a WAULT of 3.2 years building.
to break and 5.9 years
to expiry. 2. Comprehensively refurbished
in 2008.
3. Shortage of competing stock
for this size of floor plate.
Rent Average passing rent
of GBP14.68 per sq
ft.
Eastpoint Business Park, Oxford
Major south east city, improving occupier demand
Property characteristics Adding value
Property type Office 1. 12,700 sq ft under offer
to an existing tenant for a
new 10 year term.
2. Capital expenditure of GBP160,000
spent refreshing common parts.
Area 74,266 sq ft
Purchase price
GBP8.20m
Purchase yield 9.40%
Constructed 1980s
Vendor Property Company
Lease Investment summary
Tenants 5 tenants providing 1. Majority refurbished office
a WAULT of 6.5 years park with good road links.
to break and 9.5 years
to expiry. 2. Constrained supply and improving
occupier demand in a key south
east location.
3. Low capital value per sq
ft.
Rent Average passing rent
of GBP10.30 per sq
ft.
Pearl House, Wheeler Gate, Nottingham
Major city centre location, high passing footfall
Property characteristics Adding value
Property type Retail with office 1. Complete office lease renewals.
uppers Various tenants have renewal
leases in solicitors hands.
2. Change of use of the larger
floor plate office accommodation
to a gym, subject to planning.
3. Potential to sell of the
office floors for change of
use in the longer term, subject
to planning.
Area 71,260 sq ft
Purchase price
GBP8.15m
Purchase yield 9.0%
Vendor Property Company
Lease Investment summary
Tenants Multi let to 16 tenants 1. Major city centre retail
with a pitch with high footfall.
WAULT of 5.1 years
to break and 5.6 years 2. Well configured retail units.
to expiry.
3. Office upper floors providing
50% of the income from potential for a range of alternative
national uses. Prior approval consent
retailers including received for change of use
Poundland, Costa Coffee for 36 residential flats.
and Lakeland.
Rent Office c.GBP12 per
sq ft. Wheeler Gate
Retail c.GBP100 ITZA.
Sandford House, Solihull
Prime office location, tenant wedded to the location
Property characteristics Adding value
Property type Office 1. Potential to regear the
lease with the current tenant.
2016 break option was not operated.
2. Refurbishment potential
in the short term could increase
rental value.
3. Ability to extend the building,
subject to planning.
Area 34,418 sq ft
Purchase price
GBP5.40m
Purchase yield 10.90%
Constructed 1988
Vendor Fund
Lease Investment summary
Tenants Government tenant with 1. Prime Birmingham office
2.7 years to break location.
and to expiry.
2. Significant improvement
in occupier demand over the
past two years.
3. Government tenant is strongly
wedded to the location - Border
Force have disclosed a new
requirement but are very unlikely
to move before break date.
4. Potential to refurbish in
the short to medium term to
increase rental value.
Rent Average passing rent
of GBP14.90 per sq
ft.
Vantage Point, Hemel Hempstead
Low capital value per sq ft, strong and improving occupier market
Property characteristics Adding value
Property type Office 1. Refurbishment potential
if the first floor tenant breaks
their lease and in the medium
term ERV could increase to
GBP15 per sq ft on refurbished
accommodation.
Area 18,466 sq ft
Purchase price
GBP2.18m
Purchase yield 8.40%
Constructed 1980
Vendor Private vendor
Lease Investment summary
Tenants Fully let to 2 tenants 1. Established south east business
providing a WAULT of park location.
5.4 years to break
and 7.4 years to expiry. 2. Strong south east office
occupational market.
3. Low passing rent.
4. Low capital value per sq
ft.
Rent Average passing rent
of GBP10.49 per sq
ft
Barnstaple Retail Park, Station Road, Barnstaple
Fully let on rebased rents, established location
Property characteristics Adding value
Property type Retail warehouse 1. Low base rents could create
potential for future rental
growth.
Area 51,021 sq ft
Purchase price
GBP6.79m
Purchase yield 8.50%
Constructed 1988
Vendor Charity
Lease Investment summary
Tenants B&Q, Sports Direct 1. Retail warehousing scheme
and Poundland. WAULT located within an established
of 6.9 years to expiry. destination area.
2. Fully let to national occupiers
on rebased rents.
3. Average weighted unexpired
term of 6.9 years.
4. Attractive and stable yield
profile.
Rent Average passing rent
of GBP11.97 per sq
ft.
Stoneferry Retail Park, Hull
Prominent location, attractive yield
Property characteristics Adding value
Property type Retail warehouse 1. Potential to agree a surrender
with Wren Kitchens if an alternative
tenant can be found.
2. Improve signage and access.
Area 17,656 sq ft
Purchase price
GBP2.16m
Purchase yield 10.00%
Constructed 1994
Vendor Fund
Lease Investment summary
Tenants Fully let to 3 tenants 1. Good prominence to a major
providing a WAULT of roundabout junction.
4.8 years to expiry.
2. Established retail warehousing
location.
3. Attractive and stable yield
profile in medium to long term.
Rent Average passing rent
of GBP12.95 per sq
ft.
Valley Retail Park, Newtownabbey, Belfast
Modern scheme, attractive yield profile
Property characteristics Adding value
Property type Retail warehouse 1. Agreed surrender with Harvey
Norman.
2. Let vacant units.
3. Potential addition of leisure
and coffee pod.
Area 100,189 sq ft
Purchase price
GBP7.15m
Purchase yield 14.00%
Constructed 2003
Vendor Asset Manager
Lease Investment summary
Tenants Let to 5 tenants providing 1. Modern scheme.
a WAULT of 10.5 years
to break and 13.1 years 2. Attractive yield profile.
to expiry.
3. Low vacancy level within
the surrounding area.
4. Ability to offer space at
a discount to surrounding schemes.
5. Halfords trading strongly.
6. Wider interpretation of
bulky goods planning consent
than rest of UK.
Rent Average passing rent
of GBP9.75 per sq ft.
11/15 Fargate, 18/36 Chapel Walk, Sheffield
Prime retailing location, attractive yield profile
Property characteristics Adding value
Property type Retail 1. Sale of vacant upper parts
to a student housing developer
has been completed.
2. Potential for future rental
growth.
Area 34,362 sq ft
Purchase price
GBP5.30m
Purchase yield 8.90%
Vendor Fund
Lease Investment summary
Tenants Multi-let to 7 tenants 1. Prime retail location within
providing a WAULT of Top 25 retailing city.
4.3 years to break
and 7.0 years to expiry. 2. Low passing rent on the
prime units.
3. Further retail development
nearby will help to draw more
footfall into the city centre.
Rent Passing rent of GBP135
per sq ft on the prime
units.
69 - 75 Above Bar Street, Southampton
Top 20 retailing centre, improving occupier demand
Property characteristics Adding value
Property type Retail 1. Potential to increase rental
value in the medium term due
to rental growth within the
wider area.
Area 21,936 sq ft
Purchase price
GBP9.25m
Purchase yield 8.75%
Constructed 1993
Vendor Fund
Lease Investment summary
Tenants Fully let to 3 tenants 1. Top 20 retail centre.
providing a WAULT of
4.2 years to expiry. 2. Property located just a
short walk from the prime pitch
and between the two main covered
centres.
3. Improving occupier demand
and potential for rental growth
going forward.
Rent Average passing rent
of GBP197.00 per sq
ft In Terms of Zone
A ('ITZA').
Bank Hey Street, Blackpool
Strong tenant covenants, asset management opportunities
Property characteristics Adding value
Property type Retail with vacant 1. Potential sale of upper
uppers parts (no rates liability)
on a long-leasehold basis.
2. Sports Direct are also interested
in expanding within the building.
Area 100,079 sq ft
Purchase price
GBP5.05m
Purchase yield 9.5%
Vendor Property Company
Lease Investment summary
Tenants Multi-let to national 1. Iconic location directly
occupiers adjacent to the Blackpool Tower.
JD Wetherspoon, Poundland
and 2. Blackpool has seen a resurgence
Sports Direct. in visitor numbers to 13 million
in 2014.
WAULT of 6.7 years
to break and 9.2 years 3. Attractive net initial yield.
to expiry.
4. Tenants reporting very strong
trade.
Rent GBP5.80 per sq ft.
Odeon Cinema, Victoria Circus, Southend on Sea
Prominent south east town centre location, strong underlying trade
Property characteristics Adding value
Property type Leisure 1. Outstanding 2012 rent review
now settled at an uplift of
GBP30,000 pa.
2. 2017 rent review commenced
which could yield further uplift.
3. Negotiate lease extension
with the tenant. Potential
to negotiate future lease extensions
to add significant value through
indexation.
Area 40,635 sq ft
Purchase price
GBP5.70m
Purchase yield 8.40%
Vendor Institution
Lease Investment summary
Tenants Fully let to Odeon 1. Prominently located on the
Cinemas Ltd providing High Street and a short distance
a WAULT of 5.4 years from the train station.
to expiry.
2. Only cinema within 25 minute
drive time.
3. 5A1 covenant strength (Dun
& Bradstreet).
4. Tenant trading strongly.
5. Attractive yield and stable
income steam.
Rent Average passing rent
of GBP13.16 per sq
ft.
Diversity, Social and Environmental Matters
Diversity
In 2016, the Board approved and adopted a diversity policy. The policy acknowledges the importance of diversity, including gender diversity, for the Company.
The Board has established the following objectives for achieving diversity on the Board:
-- All Board appointments will be made on merit, in the context of the skills, knowledge and experience that are needed for the Board to be effective.
-- Any long lists of potential directors to include diverse candidates of appropriate merit.
-- When engaging with executive search firms, the Company will only engage with those firms who have signed up to the voluntary Code of Conduct on gender diversity and best practice.
When selecting a new non-executive Director, the Board reviewed a list of candidates from diverse backgrounds and after meeting with several of them, selected Katrina Hart as she was the most qualified candidate.
The Directors do not have service contracts. There are three male Directors and one female Director.
Social, Community and Employee Responsibility
The Company has no direct social, community or employee responsibilities. The Company has no employees and accordingly no requirement to separately report in this area as the management of the portfolio has been delegated to the Investment Manager.
The Investment Manager is an equal opportunities employer who respects and seeks to empower each individual and the diverse cultures, perspectives, skills and experiences within its workforce.
The Company is not within the scope of the Modern Slavery Act 2015 because it has not exceeded the turnover threshold and is therefore not obliged to make a slavery and human trafficking statement. The Directors are satisfied that, to the best of their knowledge, the Company's principal suppliers, which are listed below, comply with the provisions of the UK Modern Slavery Act 2015.
Environmental Policy
The Investment Manager acquires and manages properties on behalf of the Company. It is recognised that these activities have both direct and indirect environmental impacts.
The Investment Manager has a Sustainable and Responsible Investment ('SRI') policy. This can be found on the Investment Manager's website www.aewuk.com.
The Investment Manager believes environmentally responsible fund management means being active, on the ground every day. As part of this process, the Investment Manager submits disclosures to GRESB, the Global Real Estate Sustainability Benchmark. GRESB is an industry driven organisation committed to assessing the sustainability of real estate portfolios (public, private and direct) around the globe.
The Investment Manager is in the process of submitting the Company's GRESB assessment for the period from 1 May 2016 to 30 April 2017 and will receive the results of this assessment in September 2017 when it which will be made available on the Company's website.
As an investment company, the Company's own direct environmental impact is minimal and greenhouse gas ('GHG') emissions are therefore negligible. Information on the GHG emissions in relation to the Company's property portfolio are disclosed on pages 61 and 62 of the Directors' Report in the full Annual Report and Financial Statements.
The Strategic Report has been approved and signed on behalf of the Board by:
Mark Burton
Chairman
7 July 2017
Statement of Directors' Responsibilities in respect of the Annual Report and Financial Statements
The Directors are responsible for preparing the Annual Report and Financial Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with IFRSs as adopted by the EU and applicable law.
Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the directors are required to:
-- select suitable accounting policies and then apply them consistently; -- make judgements and estimates that are reasonable and prudent; -- state whether they have been prepared in accordance with IFRSs as adopted by the EU; and
-- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the company and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Responsibility statement of the directors in respect of the Annual Report and Financial Statements
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company taken as a whole; and
-- the Strategic Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties it faces.
We consider the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.
On behalf of the Board
Mark Burton
Chairman
7 July 2017
Non-statutory Accounts
The financial information set out below does not constitute the Company's statutory accounts for the period ended 30 April 2017 but is derived from those accounts. Statutory accounts for the period ended 30 April 2017 will be delivered to the Registrar of Companies in due course. The Auditor has reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditors' Report can be found in the Company's full Annual Report and Accounts on the Company's website.
Statement of Comprehensive Income
for the year ended 30 April 2017
For the period
Year ended 1 April 2015
to
30 April 2017 30 April 2016
Notes GBP'000 GBP'000
-------------- ---------------
Income
Rental and other income 3 12,503 7,185
Property operating expenses 4 (1,434) (300)
-------------- ---------------
Net rental and other income 11,069 6,885
Dividend income 3 576 653
-------------- ---------------
Net rental and dividend income 11,645 7,538
Investment management fee 4 (1,034) (653)
Auditor remuneration 4 (88) (95)
Operating costs 4 (646) (403)
Directors' remuneration 5 (71) (72)
-------------- ---------------
Operating profit before fair
value changes and disposals 9,806 6,315
Change in fair value of investment
property 10 (3,159) (1,935)
Gains on disposal of investment
property 10 731 -
Change in fair value of investments 10 (407) 482
Loss on disposal of investments 10 (113) -
-------------- ---------------
Operating profit 6,858 4,862
Finance expense 6 (759) (226)
-------------- ---------------
Profit before tax 6,099 4,636
Taxation 7 - -
-------------- ---------------
Profit after tax 6,099 4,636
Other comprehensive income - -
-------------- ---------------
Total comprehensive income for
the year/period 6,099 4,636
-------------- ---------------
Earnings per share (pence per
share) (basic and diluted) 8 5.04 4.83
-------------- ---------------
The notes below form an integral part of these financial statements.
Statement of Changes in Equity
for the year ended 30 April 2017
Total capital
Capital and reserves
Share reserve attributable
and to
premium retained owners of
the
Share capital account earnings Company
For the year ended 30 Notes GBP'000 GBP'000 GBP'000 GBP'000
April 2017
-------------- --------- --------- --------------
Balance at beginning
of the year 1,175 16,729 98,471 116,375
Total comprehensive income - - 6,099 6,099
Ordinary Shares issued 18/19 61 5,938 - 5,999
Share issue costs 19 - (153) - (153)
Dividends paid 9 - - (9,646) (9,646)
-------------- --------- --------- --------------
Balance at 30 April 2017 1,236 22,514 94,924 118,674
-------------- --------- --------- --------------
Total capital
Capital and reserves
Share reserve attributable
and to
premium retained owners of
the
For the period 1 April Share capital account earnings Company
2015 to 30 April 2016 Notes GBP'000 GBP'000 GBP'000 GBP'000
-------------- --------- --------- --------------
Balance at beginning
of the period - - - -
Total comprehensive income - - 4,636 4,636
Ordinary Shares issued 18/19 1,175 116,505 - 117,680
Share issue costs 19 - (2,211) - (2,211)
Cancellation of share
premium - (97,565) 97,565 -
Dividends paid 9 - - (3,730) (3,730)
-------------- --------- --------- --------------
Balance at 30 April 2016 1,175 16,729 98,471 116,375
-------------- --------- --------- --------------
The notes below form an integral part of these financial statements.
Statement of Financial Position
as at 30 April 2017
30 April 2017 30 April 2016
Notes GBP'000 GBP'000
-------------- --------------
Assets
Non-Current Assets
Investment property 10 135,570 114,387
Investments 10 - 10,109
-------------- --------------
135,570 124,496
Current Assets
Investments held for sale 10 7,594 -
Receivables and prepayments 11 3,382 2,962
Other financial assets held
at fair value 12 31 77
Cash and cash equivalents 3,653 7,963
-------------- --------------
14,660 11,002
Total assets 150,230 135,498
-------------- --------------
Non-Current Liabilities
Interest bearing loans and borrowings 13 (28,740) (14,250)
Finance lease obligations 15 (55) (1,791)
-------------- --------------
(28,795) (16,041)
Current Liabilities
Payables and accrued expenses 14 (2,756) (2,959)
Finance lease obligations 15 (5) (123)
-------------- --------------
(2,761) (3,082)
Total Liabilities (31,556) (19,123)
-------------- --------------
Net Assets 118,674 116,375
-------------- --------------
Equity
Share capital 18 1,236 1,175
Share premium account 19 22,514 16,729
Capital reserve and retained
earnings 94,924 98,471
Total capital and reserves attributable
to equity holders of the Company 118,674 116,375
-------------- --------------
Net Asset Value per share (pence 95.98 pps
per share) 8 99.03 pps
-------------- --------------
The financial statements were approved by the Board on 7 July 2017 and signed on its behalf by:
Mark Burton
Chairman
AEW UK REIT plc
Company number: 09522515
The notes below form an integral part of these financial statements.
Statement of Cash Flows
for the year ended 30 April 2017
For the period
For the year 1 April 2015
ended to
30 April 2017 30 April 2016
GBP'000 GBP'000
---------------- ---------------
Cash flows from operating activities
Operating profit 6,858 4,862
Adjustment for non-cash items:
Loss from change in fair value of
investment property 3,159 1,935
Loss/(gain) from change in fair value
of investments 407 (482)
Gains on disposal of investment properties (731) -
Loss on disposal of investments 113 -
Change in fair value of interest rate
derivatives - (14)
Increase in other receivables and
prepayments (438) (2,962)
(Decrease)/increase in other payables
and accrued expenses (283) 2,936
Net cash flow generated from operating
activities 9,085 6,275
---------------- ---------------
Cash flows from investing activities
Purchase of investment property (28,062) (114,408)
Purchase of investments - (9,627)
Disposal of investment property 2,681 -
Disposal of investments 1,995 -
---------------- ---------------
Net cash used in investing activities (23,386) (124,035)
---------------- ---------------
Cash flows from financing activities
Proceeds from issue of ordinary share
capital 5,999 117,680
Share issue costs (153) (2,211)
Loan draw down 14,760 14,250
Finance costs (969) (266)
Dividends paid (9,646) (3,730)
----------------
Net cash flow generated from financing
activities 9,991 125,723
---------------- ---------------
Net (decrease)/increase in cash and
cash equivalents (4,310) 7,963
Cash and cash equivalents at the start 7,963 -
of the year/period
Cash and cash equivalents at the end
of the year/period 3,653 7,963
---------------- ---------------
The notes below form an integral part of these financial statements.
Notes to the Financial Statements
for the year ended 30 April 2017
1. Corporate information
AEW UK REIT plc (the 'Company') is a closed ended Real Estate Investment Trust ('REIT') incorporated on 1 April 2015 and domiciled in the UK. The registered office of the Company is located at 40 Dukes Place, London, EC3A 7NH.
The Company's Ordinary Shares were listed on the Official List of the UK Listing Authority and admitted to trading on the Main Market of the London Stock Exchange on 12 May 2015.
The nature of the Company's operations and its principal activities are set out in the Strategic Report.
2. Accounting policies
2.1 Basis of preparation
These financial statements are prepared and approved by the Directors in accordance with International Financial Reporting Standards ('IFRS') and interpretations issued by the International Accounting Standards Board ('IASB') as adopted by the European Union ('EU IFRS').
The prior period is for a period of greater than 12 months, being the first audited period from the date of incorporation. As a result the comparative information disclosed is not directly comparable.
These financial statements have been prepared under the historical-cost convention, except for investment property, investments and interest rate derivatives that have been measured at fair value, and the investment in the subsidiary which is held at cost less impairment.
The financial statements are presented in Sterling and all values are rounded to the nearest thousand pounds (GBP'000), except when otherwise indicated.
The Company is exempt by virtue of Section 402 of the Companies Act 2006 from the requirement to prepare group financial statements. These financial statements present information solely about the Company as an individual undertaking.
New standards, amendments and interpretations
There are a number of new standards and amendments to existing standards which have been published and are mandatory for the Company's accounting periods beginning after 30 April 2017 or later periods, but the Company has decided not to adopt them early. The following are the most relevant to the Company and their impact on the financial statements:
-- IFRS 9 Financial Instruments. The standard will replace IAS 39 Financial Instruments and contains two primary measurement categories for financial assets (effective for annual periods beginning on or after 1 January 2018);
-- IFRS 12 Disclosure of Interests in Other Entities: amended by annual improvements to IFRS Standards 2014-2016 cycle (effective for annual periods beginning on or after 1 January 2017);
-- IFRS 15 Revenue from contracts. The standard replaces IAS 11 Construction Contracts, IAS 18 Revenue. The standard introduces a new revenue recognition model that recognises revenue either at a point in time or over time (effective for annual periods beginning on or after 1 January 2018);
-- IFRS 16 Leases: introduction of a single, on-balance sheet accounting model (effective for annual periods beginning on or after 1 January 2019). The disclosure requirements of IFRS 16 will be considered in due course;
-- IAS 7 Statement of Cash Flows: The amendments require disclosures that enable evaluation of changes in liabilities arising from financing activities, including both changes arising from cash flow and non-cash changes (effective for annual periods beginning on or after 1 January 2017); and
-- IAS 40 Investment Property: Amendments by Transfers of Investment Property (effective for annual periods beginning on or after 1 July 2018).
2.2 Significant accounting judgements and estimates
The preparation of financial statements in accordance with EU IFRS requires the Directors of the Company to make judgements, estimates and assumptions that affect the reported amounts recognised in the financial statements. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability in the future.
i) Valuation of investment property
The valuations of the Company's investment property will be at fair value as determined by the independent valuer on the basis of fair value in accordance with the internationally accepted Royal Institution of Chartered Surveyors ('RICS') Appraisal and Valuation Standards.
ii) Valuation of investments
Investments in collective investment schemes are stated at fair value with any resulting gain or loss recognised in profit or loss. Fair value is assessed by the Directors based on the best available information.
The value of the Company's interest in the Core Fund is stated at NAV of the Core Fund as at 30 April 2017 (30 April 2016: single swinging price). The Directors, in consultation with the Company's professional advisers, have adopted the amended estimation technique from 31 October 2016 in order to provide a better reflection of fair value of the Company's holding in the Core Fund.
iii) Segmental information
In accordance with IFRS 8, the Company is organised into one main operating segment being investment in property and property related investments in the UK.
2.3 Going concern
The Directors have made an assessment of the Company's ability to continue as a going concern and are satisfied that the Company has the resources to continue in business for at least 12 months. Furthermore, the Directors are not aware of any material uncertainties that may cast significant doubt upon the Company's ability to continue as a going concern. Therefore, the financial statements have been prepared on the going concern basis.
2.4 Summary of significant accounting policies
The principal accounting policies applied in the preparation of these financial statements are set out below.
a) Presentation currency
These financial statements are presented in Sterling, which is the functional and presentational currency of the Company. The functional currency of the Company is principally determined by the primary economic environment in which it operates. The Company did not enter into any transactions in foreign currencies during the year.
b) Revenue recognition
i) Rental income
Rental income receivable under operating leases is recognised on a straight-line basis over the term of the lease, except for contingent rental income, which is recognised when it arises.
Incentives for lessees to enter into lease agreements are spread evenly over the lease term, even if the payments are not made on such a basis. The lease term is the non-cancellable period of the lease together with any further term for which the tenant has the option to continue the lease, where, at the inception of the lease, the directors are reasonably certain that the tenant will exercise that option.
ii) Deferred income
Deferred income is rental income received in advance during the accounting period.
c) Dividend income
Dividend income is recognised in profit or loss on the date the entity's right to receive a dividend is established.
d) Financing income and expenses
Financing income comprises interest receivable on funds invested. Financing expenses comprise interest and other costs incurred in connection with the borrowing of funds. 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.
e) Investment property
Property is classified as investment property when it is held to earn rentals or for capital appreciation or both. Investment property is measured initially at cost including transaction costs. Transaction costs include transfer taxes and professional fees to bring the property to the condition necessary for it to be capable of operating. The carrying amount also includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met.
Subsequent to initial recognition, investment property is stated at fair value. Gains or losses arising from changes in the fair values are included in profit or loss.
Investment properties are valued by the independent valuer on the basis of a full valuation with physical inspection at least once a year. Any valuation of an Immovable by the independent valuer must be undertaken in accordance with the current issue of RICS Valuation - Professional Standards (the 'Red Book').
The determination of the fair value of investment property requires the use of estimates such as future cash flows from assets (such as lettings, tenants' profiles, future revenue streams, capital values of fixtures and fittings, plant and machinery, any environmental matters and the overall repair and condition of the property) and discount rates applicable to those assets.
For the purposes of these financial statements, the assessed fair value is:
-- reduced by the carrying amount of any accrued income resulting from the spreading of lease incentives; and
-- increased by the carrying amount of leasehold obligations.
Investment property is derecognised when it has been disposed of or permanently withdrawn from use and no future economic benefit is expected after its disposal or withdrawal.
Gains or losses on the disposal of investment property are determined as the difference between net disposal proceeds and the carrying value of the asset in the previous full period financial statements.
Any gains or losses on the retirement or disposal of investment property are recognised in the profit or loss in the year of retirement or disposal.
f) Investments in collective investment schemes
Investments in collective investment schemes are stated at fair value with any resulting gain or loss recognised in profit or loss.
Investments are derecognised when they have been disposed of or the rights to receive cash flow from the investments have expired or the Company has transferred substantially all risks and rewards of ownership.
g) Investments in subsidiaries
AEW UK REIT 2015 Limited is the subsidiary of the Company. The subsidiary was dormant during the reporting period. The investment in the subsidiary is stated at cost less impairment and shown in note 17.
As permitted by Section 405 of the Companies Act 2006, the subsidiary is not consolidated as its inclusion is not material for the purposes of giving a true and fair view.
h) Investment property and investments held for sale
Investment property and investments are classified as held for sale when it is highly probable that the carrying amount will be recovered principally through a sale transaction.
Investment property and investments classified as held for sale are included within current assets within the Statement of Financial Position and measured at the lower of their carrying amount and fair value less costs to sell. Any gains or losses between the fair value and the carrying value in the year are recognised in the Statement of Comprehensive Income under change in fair value.
i) Derivative financial instruments
Derivative financial instruments, comprising interest rate caps for hedging purposes, are initially recognised at fair value and are subsequently measured at fair value, being the estimated amount that the Company would receive or pay to terminate the agreement at the period end date, taking into account current interest rate expectations and the current credit rating of the Company and its counterparties. Premiums payable under such arrangements are initially capitalised into the Statement of Financial Position.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs significant to the fair value measurement as a whole. Changes in fair value of interest rate derivatives are recognised within finance expenses in profit or loss in the period in which they occur.
j) Cash and cash equivalents
Cash and short-term deposits in the Statement of Financial Position comprise cash at bank and short-term deposits with an original maturity of three months or less.
k) 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 Company will not be able to recover balances in full.
l) Capital prepayments
Capital prepayments are made for the purpose of acquiring future property assets, and held as receivables within the Statement of Financial Position. When the asset is acquired, the prepayments are 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.
m) Other payables and accrued expenses
Other payables and accrued expenses are initially recognised at fair value and subsequently held at amortised cost.
n) Rent deposits
Rent deposits represents cash received from tenants at inception of a lease and are consequently transferred to the rent agent to hold on behalf of the Company. These balances are held as creditors in the Statement of Financial Position.
o) Interest bearing loans and borrowings
All loans and borrowings are initially recognised at fair value less directly attributable transaction costs. After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Borrowing costs are amortised over the lifetime of the facilities through profit or loss.
p) Impairment of financial assets
A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.
q) Provisions
A provision is recognised in the Statement of Financial Position when the Company has a present legal or constructive obligation as a result of a past event, that can be reliably measured and is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects risks specific to the liability.
r) Dividend payable to shareholders
Equity dividends are recognised when they become legally payable.
s) Share issue costs
The costs of issuing or reacquiring equity instruments (other than in a business combination) are accounted for as a deduction from equity.
t) Finance leases
Finance leases are capitalised at the lease commencement, at the lower of fair value of the property and present value of the minimum lease payments, and held as a liability within the Statement of Financial Position.
u) Taxes
Corporation tax is recognised in profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
As a REIT, the Company is exempt from corporation tax on the profits and gains from its investments, provided it continues to meet certain conditions as per REIT regulations.
Taxation on the profit or loss for the period not exempt under UK REIT regulations comprises current and deferred tax. Current tax is expected tax payable on any non-REIT taxable income for the period, using tax rates applicable in the period.
Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax that is provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the period end date.
v) European Public Real Estate Association
The Company has adopted European Public Real Estate Association ('EPRA') best practice recommendations, which it expects to broaden the range of potential institutional investors able to invest in the Company's Ordinary Shares. For the year ended 30 April 2017, audited EPS and NAV calculations under EPRA's methodology are included in note 8 and further unaudited measures are included below.
3. Revenue
Period
Year ended 1 April 2015
30 April to
2017 30 April 2016
GBP'000 GBP'000
----------- ---------------
Gross rental income received 12,147 6,153
Surrender premium received - 1,000
Dilapidation income received 301 19
Other property income 55 13
----------- ---------------
Total rental and other income 12,503 7,185
----------- ---------------
Dividend income:
Property income distribution* 552 629
Dividend distribution 24 24
-----------
576 653
----------- ---------------
Total Revenue 13,079 7,838
----------- ---------------
* Property income distribution ('PID') arises on the investment in the Core Fund which holds property directly.
Rent receivable under the terms of the leases, is adjusted, for the effect of any incentives agreed.
4. Expenses
Period
1 April 2015
Year ended to
30 April 30 April
2017 2016
GBP'000 GBP'000
----------- --------------
Property operating expenses 1,434 300
Investment management fee 1,034 653
Auditor remuneration 88 95
Operating costs 646 403
----------- --------------
Total 3,202 1,451
----------- --------------
Period
Year ended 1 April 2015
30 April to
2017 30 April
2016
Audit
Statutory audit of Annual Report and Accounts GBP66,000 GBP65,000
Statutory audit of initial accounts for - GBP20,000
the period ended 31 October 2015
------------- --------------
GBP66,000 GBP85,000
Non-audit
Review of Interim Report GBP22,000 GBP10,000*
Services provided as Reporting Accountant - GBP40,000
at IPO
Renewal of Company's Prospectus GBP20,500 -
------------- --------------
GBP42,500 GBP50,000
------------- --------------
Total fees paid to KPMG LLP GBP108,500 GBP135,000
------------- --------------
Percentage of total fees attributed to
non-audit services 39% 37%
* The lower fee for review of the Company's Interim Report for the period ended 31 October 2015 was agreed in consideration of the work already completed in the statutory audit of the initial accounts for that same period.
The Company has no employees.
5. Directors' remuneration
Period
1 April 2015
Year ended to
30 April 30 April
2017 2016
GBP'000 GBP'000
----------- --------------
Directors' fees 68 69
Tax and social security 3 3
----------- --------------
Total remuneration 71 72
----------- --------------
A summary of the Directors' remuneration is set out in the Directors' Remuneration Report in the full Annual Report and Accounts.
The Company had no employees in either period.
6. Finance expense
Period
Year ended 1 April 2015
30 April to
2017 30 April
GBP'000 2016
GBP'000
------------- --------------
Interest payable on loan borrowings 483 110
Amortisation of loan arrangement fee 78 40
Agency fee payable on loan borrowings 21 11
Commitment fees payable on loan borrowings 60 51
------------- --------------
642 212
Change in fair value of interest rate derivatives 117 14
------------- --------------
Total 759 226
------------- --------------
7. Taxation
Period
1 April 2015
to
30 April 2016
GBP'000
---------------
Year ended
30 April
2017
GBP'000
----------- ---------------
Total tax charge - -
----------- ---------------
Reconciliation of tax charge for the
year / period
Profit before tax 6,099 4,636
----------- ---------------
Theoretical tax at UK corporation tax
standard rate of 19.92% (2016: 20%)(1) 1,215 927
Adjusted for:
Exempt REIT income (1,798) (1,119)
UK dividend that are not taxable (5) (99)
Non deductible investment losses 588 291
----------- ---------------
Total tax charge - -
----------- ---------------
(1) Standard rate of corporation tax 20% to 31 March 2017, 19% from 1 April 2017. The corporation tax rate is to reduce to 17% with effect from 1 April 2020.
Factors that may affect future tax charges
At 30 April 2017 the Company has unrelieved management expenses of GBP6,826 (30 April 2016: GBP4,182). It is unlikely that the Company will generate sufficient taxable income in the future to use these expenses to reduce future tax charges and therefore no deferred tax asset has been recognised.
Due to the Company's status as a REIT and the intention to continue meeting the conditions required to obtain approval as a REIT in the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.
8. Earnings per share and NAV per share
Period
Year ended 1 April 2015
to
30 April 2017 30 April
2016
-------------- -------------
Earnings per share:
Total comprehensive income (GBP'000) 6,099 4,636
-------------- -------------
Weighted average number of shares 121,084,416 96,022,424
-------------- -------------
Earnings per share (basic and diluted)
(pence) 5.04 4.83
-------------- -------------
EPRA earnings per share:
Total comprehensive income (GBP'000) 6,099 4,636
Adjustment to total comprehensive income:
Unrealised loss from change in fair value
of investment property (GBP'000) 3,159 1,935
Realised gain on disposal of investment
property (GBP'000) (731) -
Loss/(gain) from change in fair value
of investment (GBP'000) 407 (482)
Realised loss on disposal of investments
(GBP'000) 113 -
Change in fair value of interest rate
derivatives (GBP'000) 117 (14)
-------------- -------------
Total EPRA Earnings (GBP'000) 9,164 6,075
-------------- -------------
EPRA earnings per share (basic and diluted)
(pence) 7.57 6.33
-------------- -------------
NAV per share:
Net assets (GBP'000) 118,674 116,375
-------------- -------------
Ordinary Shares 123,647,250 117,510,000
-------------- -------------
NAV per share (pence) 95.98 99.03
-------------- -------------
EPRA NAV per share:
Net assets (GBP'000) 118,674 116,375
Adjustments to net assets:
Other financial assets held at fair value
(GBP'000) (31) (77)
-------------- -------------
EPRA NAV (GBP'000) 118,643 116,298
-------------- -------------
EPRA NAV per share (pence) 95.95 98.97
-------------- -------------
Earning per share (EPS) amounts are calculated by dividing profit for the period attributable to ordinary equity holders of the Company by the weighted average number of Ordinary Shares in issue during the period. As at 30 April 2017, EPRA NNNAV was equal to IFRS NAV and as such a reconciliation between the two measures has not been performed.
9. Dividends paid
For the year ended 30 April 2017
GBP'000
Fourth interim dividend paid in respect
of the period 1 February
2016 to 30 April 2016 at 2p per Ordinary
Share 2,350
First interim dividend paid in respect
of the period 1 May 2016 to 31
July 2016 at 2p per Ordinary Share 2,350
Second interim dividend paid in respect
of the period 1 August
2016 to 31 October 2016 at 2p per Ordinary
Share 2,473
Third interim dividend paid in respect
of the period ended 1
November 2016 to 31 January 2017 at 2p
per Ordinary Share 2,473
Total dividends paid during the year 9,646
Fourth interim dividend declared for the
period 1 February 2017 to
30 April 2017 at 2p per Ordinary Share* 2,473
Fourth interim dividend declared for the
period 1 February 2016 to
30 April 2016 at 2p per Ordinary Share (2,350)
--------
Total dividends in respect of the year 9,769
--------
Paid as
Property income distributions at 6.95p
per Ordinary Share 8,471
Ordinary dividends at 1.05p per Ordinary
Share 1,298
--------
Total 9.769
--------
For the period 1 April 2015 to 30 April
2016
GBP'000
First interim dividend paid in respect
of the period ended 31 October 2015 at
1.5p per Ordinary Share 1,507
Second interim dividend paid in respect
of the period 1 November 2015 to 14 December
2015 at 0.75p per Ordinary Share 754
Third interim dividend paid in respect
of the period 15 December 2015 to 31 January
2016 at 1.25p per Ordinary Share 1,469
Total dividends paid during the period 3,730
Fourth interim dividend declared for the
period 1 February 2016 to
30 April 2016 at 2p per Ordinary Share 2,350
--------
Total dividends in respect of the period 6,080
--------
Paid as
Property income distributions at 5.5p per
Ordinary Share 6,080
--------
Total 6,080
--------
*The fourth interim dividend declared is not included in the accounts as a liability as at 30 April 2017.
10. Investments
10.a) Investment property
30 April 2017
Investment
Investment Property 30 April
property leasehold 2016
freehold Total Total
GBP'000 GBP'000 GBP'000 GBP'000
------------- ------------------- ---------- -----------
UK Investment property
As at beginning of the year/period 92,390 21,950 114,340 -
Purchases in the year/period 27,481 665 28,146 114,408
Disposals in the year/period (1,950) - (1,950) -
Revaluation of investment property (2,076) (640) (2,716) (68)
Valuation provided by Knight
Frank 115,845 21,975 137,820 114,340
------------- ------------------- ---------- -----------
Adjustment to fair value for
rent free debtor (2,230) (1,082)
Adjustment to fair value for
rent guarantee debtor (80) (785)
Adjustment for finance lease
obligations 60 1,914
Total Investment property 135,570 114,387
---------- -----------
Change in fair value of investment
property
Loss from change in fair value (2,716) (68)
Adjustment for movement in
the year/period:
in fair value for rent free
debtor (1,148) (1,082)
in fair value for rent guarantee
debtor 705 (785)
(3,159) (1,935)
---------- -----------
Gains on sale of the investment
property
Proceeds from disposals of
investment property during 2,681 -
the year/period
Cost of disposal (1,950) -
Gains on disposal of investment 731 -
property
---------- -----------
Valuation of investment property
Valuation of investment property is performed by Knight Frank LLP, an accredited external valuer with recognised and relevant professional qualifications and recent experience of the location and category of the investment property being valued.
The valuation of the Company's investment property at fair value is determined by the external valuer on the basis of fair value in accordance with the internationally accepted RICS Valuation - Professional Standards (incorporating the International Valuation Standards).
The determination of the fair value of investment property requires the use of estimates, such as future cash flows from assets (based on lettings, tenants' profiles, future revenue streams, capital values of fixtures and fittings, plant and machinery, any environmental matters and the overall repair and condition of the property) and discount rates applicable to those flows.
10.b) Investment
Period
Year ended 1 April 2015
30 April to
2017 30 April
Total 2016
Total
GBP'000 GBP'000
------------- --------------
Investment in AEW UK Core Property Fund
As at the beginning of the year/period 10,109 -
Purchases in the year/period - 9,627
Disposals in the year/period (2,108) -
(Loss)/gain from change in fair value (407) 482
------------- --------------
Total Investment in AEW UK Core Property
Fund 7,594 10,109
------------- --------------
Loss on disposal of the investment in
AEW UK Core Property Fund
Proceeds from disposals of investments 1,995 -
during the year/period
Cost of disposal (2,108) -
------------- --------------
Loss on disposal of investments (113) -
------------- --------------
As at 30 April 2017, the investment in the Core Fund was held for sale and is measured above in accordance with IFRS 5, Non Current Assets Held for Sale and Discontinued Operations and reflected within Current Assets in the Statement of Financial Position. The remaining investment was disposed of on 9 May 2017 as described in note 24.
Valuation of investment
Investments in collective investment schemes are stated at fair value with any resulting gain or loss recognised in profit or loss. Fair value is assessed by the Directors based on the best available information.
The value of investment in the Core Fund as at 30 April 2017 is based on the latest NAV (30 April 2016: single swinging price) of the Core Fund as the Directors consider this to be a more accurate approximation of fair value.
10.c) Fair value measurement hierarchy
The following table provides the fair value measurement hierarchy for investments:
30 April 2017
Significant Significant
Quoted prices observable unobservable
in
active markets inputs inputs
(Level 1) (Level 2) (Level 3) Total
GBP'000 GBP'000 GBP'000 GBP'000
---------------- ------------- ------------- --------
Assets measured at
fair value
Investment property - - 135,570 135,570
Investment in AEW UK
Core Property Fund - - 7,594 7,594
---------------- ------------- ------------- --------
- - 143,164 143,164
---------------- ------------------------------------ ------------- --------
30 April 2016
Significant Significant
Quoted prices observable unobservable
in
active markets inputs inputs
(Level 1) (Level 2) (Level 3) Total
GBP'000 GBP'000 GBP'000 GBP'000
---------------- ------------- ------------- --------
Assets measured at
fair value
Investment property - - 114,387 114,387
Investment in AEW UK
Core Property Fund - - 10,109 10,109
---------------- ------------- ------------- --------
- - 124,496 124,496
---------------- ------------------------------------ ------------- --------
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 portfolio of investment property and investments are:
1) Estimated Rental Value ('ERV')
2) Equivalent yield
Increases/(decreases) in the ERV (per sq ft per annum) in isolation would result in a higher/(lower) fair value measurement. Increases/(decreases) in the discount rate/yield (and exit or yield) in isolation would result in a lower/(higher) fair value measurement.
The significant unobservable input used in the fair value measurement categorised within Level 3 of the fair value hierarchy of the Company's investment is:
1) NAV
The Company has updated its accounting policy with regard to the value of investments in the Core Fund to now be based on NAV which is considered to be the best approximation of fair value by the Directors.
Increases/(decreases) in the NAV would result in a higher/(lower) fair value measurement.
The significant unobservable inputs used in the fair value measurement, categorised within Level 3 of the fair value hierarchy of the portfolio of investment property and investments are:
Fair Value Valuation Significant
Class GBP,000 Technique Unobservable Inputs Range
-------------------- ----------- ---------------------- -------------------- ----------------
30 April 2017
Investment property 137,820 Income capitalisation ERV GBP2.00 -
GBP160.00
Equivalent yield 6.94% - 10.27%
Investments 7,594 NAV NAV GBP1.1942
-------------------- ----------- ---------------------- -------------------- ----------------
30 April 2016
Investment property 114,340 Income capitalisation ERV GBP2.00 -
GBP160.00
Equivalent yield 6.70% - 11.90%
Investments 10,109 Market capitalisation Single swinging GBP1.2581
price
-------------------- ----------- ---------------------- -------------------- ----------------
The single swinging price on investments is equal to the last announced unit price for collective investment schemes as at the Statement of Financial Position date.
Where possible, sensitivity of the fair values of Level 3 assets are tested to changes in unobservable inputs against reasonable alternatives.
Gains and losses recorded in profit or loss for recurring fair value measurements categorised within Level 3 of the fair value hierarchy are attributable to changes in unrealised gains or losses relating to investment property and investments held at the end of the reporting period.
With regards to both investment property and investments, gains and losses for recurring fair value measurements categorised within Level 3 of the fair value hierarchy, prior to adjustment for rent free debtor and rent guarantee debtor where applicable, are recorded in profit and loss.
The carrying amount of the assets and liabilities, detailed within the Statement of Financial Position, is considered to be the same as their fair value.
30 April 2017
Change in Change in Change in
NAV ERV equivalent
yield
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Sensitivity analysis +5% -5% +5% -5% +5% -5%
------------------------- -------- -------- -------- -------- -------- --------
Resulting fair value
of investment property - - 143,606 131,979 129,906 145,906
Resulting fair value
of investments 7,974 7,214 - - - -
------------------------- -------- -------- -------- -------- -------- --------
30 April 2016
Change in single Change in Change in
swinging price ERV equivalent
yield
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Sensitivity analysis +5% -5% +5% -5% +5% -5%
------------------------- --------- -------- -------- -------- -------- --------
Resulting fair value
of investment property - - 119,303 109,166 107,815 121,126
Resulting fair value
of investments 10,615 9,604 - - - -
------------------------- --------- -------- -------- -------- -------- --------
11. Receivables and prepayments
30 April 30 April
2017 2016
GBP'000 GBP'000
--------- ---------
Receivables
Rent debtor 461 622
Dividend receivable 110 193
Other income debtors 192 -
Rent agent float account 57 92
Other receivables 213 29
--------- ---------
1,033 936
Rent free debtor 2,230 1,082
Rent guarantee debtor 80 785
--------- ---------
3,343 2,803
--------- ---------
Prepayments
Property related prepayments 10 130
Capital prepayments 1 19
Depositary services 8 8
Listing fees 8 2
Other prepayments 12 -
--------- ---------
39 159
--------- ---------
Total 3,382 2,962
--------- ---------
The aged debtor analysis of receivables which are past due is as follows:
30 April 30 April
2017 2016
GBP'000 GBP'000
--------- ---------
Less than three months due 910 573
Between three and six months due 1 331
Between six and twelve months due 122 32
--------- ---------
Total 1,033 936
--------- ---------
12. Interest rate derivatives
30 April 30 April
2017 2016
GBP'000 GBP'000
--------- ---------
At the beginning of the year/period 77 -
Interest rate cap premium paid 71 91
Changes in fair value of interest rate
derivatives (117) (14)
---------
At the end of the year/period 31 77
--------- ---------
To mitigate the interest rate risk that arises as a result of entering into variable rate linked loans, the Company entered into an interest rate cap with the combined notional value of GBP26.51 million (2016: GBP14.25 million) and a strike rate of 2.5% (2016: 2.5%) for the relevant period in line with the life of the loan.
The total premium payable in the year towards securing the interest rate caps was GBP71,304 (2016: GBP91,000).
Fair Value hierarchy
The following table provides the fair value measurement hierarchy for interest rate derivatives:
Significant
Quoted prices Significant unobservable
in
active markets observable inputs
input
(Level 1) (Level 2) (Level 3) Total
Valuation date GBP'000 GBP'000 GBP'000 GBP'000
---------------- ---------------- ------------ ------------- --------
30 April 2017 - 31 - 31
30 April 2016 - 77 - 77
---------------- ---------------- ------------ ------------- --------
The fair value of these contracts are recorded in the Statement of Financial Position as at the year end.
There have been no transfers between level 1 and level 2 during the year, nor have there been any transfers between level 2 and level 3 during the year.
The carrying amount of the assets and liabilities, detailed within the Statement of Financial Position, is considered to be the same as their fair value.
13. Interest bearing loans and borrowings
Bank borrowings
30 April 30 April
2017 2016
GBP'000 GBP'000
--------- ---------
At the beginning of the year/period 14,250 -
Bank borrowings drawn in the year/period 14,760 14,250
--------- ---------
Interest bearing loans and borrowings 29,010 14,250
--------- ---------
Less: loan issue costs incurred (388) (40)
Plus: amortised loan issue costs 118 40
As at 30 April 28,740 14,250
--------- ---------
Repayable between two and five years 29,010 14,250
Bank borrowings available but undrawn in
the year/period 10,990 25,750
Total facility available 40,000 40,000
--------- ---------
The Company entered into a GBP40 million credit facility with The Royal Bank of Scotland International Limited on 20 October 2015, of which GBP10.99 million remained undrawn as at the year end (2016: GBP40 million credit facility, GBP25.75 million undrawn and term to maturity of 4.47 years).
Borrowing costs associated with the credit facility are shown as finance expenses in note 6 to these financial statements.
The term to maturity as at the year end is 3.47 years.
Since the end of the reporting period, the amount of the credit facility available has been reduced to GBP32.5 million.
The Company has used this facility to continue to invest in properties once the net IPO proceeds had been fully invested. The facility can be used up to 30% loan to Net Asset Value measured at drawdown.
14. Payables and accrued expenses
30 April 30 April
2017 2016
GBP'000 GBP'000
--------- ---------
Deferred income 1,513 1,675
Accruals 534 1,008
Other creditors 709 276
---------
Total 2,756 2,959
--------- ---------
15. Finance lease obligations
Finance leases are capitalised at the lease's commencement at the lower of the fair value of the property and the present value of the minimum lease payments. The present value of the corresponding rental obligations are included as liabilities.
The following table analyses the minimum lease payments under non-cancellable finance leases:
30 April 30 April
2017 2016
GBP'000 GBP'000
--------- ---------
Not later than one year 5 123
--------- ---------
Later than one year but not later than
five years 15 372
Later than five years 40 1,419
--------- ---------
55 1,791
--------- ---------
Total 60 1,914
--------- ---------
16. Guarantees and commitments
As at 30 April 2017, there were capital commitments of GBP48,628 relating to alteration and refurbishment works at the property 225 Bath Street, Glasgow.
Operating lease commitments - as lessor
The Company has entered into commercial property leases on its investment property portfolio. These non-cancellable leases have a remaining term of between zero and 23 years.
Future minimum rentals receivable under non-cancellable operating leases as at 30 April 2017 are as follows:
30 April 30 April
2017 2016
GBP'000 GBP'000
--------- ---------
Within one year 11,878 9,902
After one year but not more than five years 37,936 31,651
More than five years 27,640 23,401
---------
Total 77,454 64,954
--------- ---------
During the year ended 30 April 2017 there were contingent rents totalling GBP169,724 (30 April 2016: GBPnil) recognised as income.
17. Investment in subsidiary
The Company has a wholly owned subsidiary, AEW UK REIT 2015 Limited:
Name and company Country of registration
number and incorporation Principal activity Ordinary Shares
held
------------------- ------------------------- -------------------- ----------------
AEW UK REIT 2015
Limited (Company
number 09524699) England and Wales Dormant 100%
AEW UK REIT 2015 Limited is a subsidiary of the Company incorporated in the UK on 2 April 2015. At 30 April 2017, the Company held one share being 100% of the issued share capital. AEW UK REIT 2015 Limited is wholly owned by the Company and is dormant. The cost of the subsidiary is GBP0.01 (30 April 2016: GBP0.01). The registered office of AEW UK REIT 2015 Limited is 40 Dukes Place, London, EC3A 7NH.
18. Issued Share Capital
30 April 2017 30 April 2016
Number of Number of
GBP'000 Ordinary Shares GBP'000 Ordinary
Shares
-------- ---------------- -------- ------------
Ordinary Shares (nominal value
GBP0.01)
authorised, issued and fully
paid
At the beginning of the year/period 1,175 117,510,000 - 1
Issued on admission to trading
on the London
Stock Exchange on 12 May 2015 - - 1,005 100,499,999
Issued on admission to trading
on the London
Stock Exchange on 15 December
2015 - - 170 17,010,000
Issued on admission to trading
on the London
Stock Exchange on 16 September
2016 24 2,450,000 - -
Issued on admission to trading
on the London
Stock Exchange on 10 October
2016 37 3,687,250 - -
-------- ---------------- -------- ------------
At the end of the year/period 1,236 123,647,250 1,175 117,510,000
-------- ---------------- -------- ------------
On 16 September 2016, the Company issued 2,450,000 Ordinary Shares at a price of 97 pence per share in the form of a tap issue under authority granted on 7 September 2016 at the AGM. On 10 October 2016 the Company issued 3,687,250 Ordinary Shares at a price of 98.25 pence per share in the form of a tap issue under authority granted on 7 September 2016 at the AGM.
The initial raising by the Company involved the issue of Ordinary Shares to relevant subscribers at 100 pence per Ordinary Share.
19. Share premium account
Period
Year ended 1 April
30 April 2015 to
2017 30 April
GBP'000 2016
GBP'000
------------- ----------
The share premium relates to amounts subscribed
for share capital in
excess of nominal value:
Balance at the beginning of the year/period 16,729 -
Issued on admission to trading on the London Stock
Exchange on 12 May 2015 - 99,495
Share issue costs (paid and accrued) - (1,930)
Transfer to capital reduction account - (97,565)
Issued on admission to trading on the London Stock
Exchange on
15 December 2015 - 17,010
Share issue costs (paid and accrued) (23) (281)
Issued on admission to trading on the London Stock
Exchange on 2,352 -
16 September 2016
Share issue cost (paid and accrued) (42) -
Issued on admission to trading on the London Stock
Exchange on 3,586 -
10 October 2016
Share issue cost (paid and accrued) (88) -
------------- ----------
Balance at the end of the year/period 22,514 16,729
------------- ----------
20. Financial risk management and objectives and policies
20.1 Financing instruments
The Company's principal financial assets and liabilities are those derived from its operations: receivables and prepayments, cash and cash equivalents and payables and accrued expenses. The Company's other principal financial liabilities are interest bearing loans and borrowings, the main purpose of which is to finance the acquisition and development of the Company's property portfolio.
Set out below is a comparison by class of the carrying amounts and fair value of the Company's financial instruments that are carried in the financial statements.
30 April 2017 30 April 2016
Book Value Fair Value Book Value Fair Value
GBP'000 GBP'000 GBP'000 GBP'000
----------- ----------- ----------- -----------
Financial Assets
Investment in AEW UK Core
Property Fund 7,594 7,594 10,109 10,109
Receivables and prepayments(1) 1,033 1,033 936 936
Cash and cash equivalents 3,653 3,653 7,963 7,963
Other financial assets held
at
fair value 31 31 77 77
Financial Liabilities
Interest bearing loans
and borrowings 28,740 29,010 14,250 14,250
Payables and accrued expenses(2) 2,156 2,156 2,712 2,712
Finance lease obligations 60 60 1,914 1,914
----------- ----------- ----------- -----------
(1) Excludes VAT, certain prepayments and other debtors
(2) Excludes tax and VAT liabilities
Interest rate derivatives are the only financial instruments classified as fair value through profit and loss. All other financial assets are classified as loans and receivables and all financial liabilities are measured at amortised cost. All financial instruments were designated in their current categories upon initial recognition.
Fair value measurement hierarchy has not been applied to those classes of asset and liability stated above which are not measured at fair value in the financial statements. The difference between the fair value and book value of these items is not considered to be material.
20.2 Financing management
The Company's activities expose it to a variety of financial risks: market risk, real estate risk, credit risk and liquidity risk.
The Company's objective in managing risk is the creation and protection of shareholder value. Risk is inherent in the Company's activities but it is managed through a process of ongoing identification, measurement and monitoring, subject to risks limits and other controls.
The principal risks facing the Company in the management of its portfolio are as follows:
20.3 Market price risk
Market price risk is the risk that future values of investments in direct property and related property investments will fluctuate due to changes in market prices. To manage market price risk, the Company diversifies its portfolio geographically in the United Kingdom and across property sectors.
The disciplined approach to the purchase, sale and asset management ensures that the value is maintained to its maximum potential. Prior to any property acquisition or sale, detailed research is undertaken to assess expected future cash flow. The Investment Management Committee ('IMC') of the Investment Manager, meets monthly and reserves the ultimate decision with regards to investment purchases or sales. In order to monitor property valuation fluctuations, the IMC and the Portfolio Management Team of the Investment Manager meet with the independent external valuer on a regular basis. The valuer provides a property portfolio valuation quarterly, so any movements in the value can be accounted for in a timely manner and reflected in the NAV every quarter.
20.4 Real Estate risk
The Company is exposed to the following risks specific to its investments in investment property:
Property investments are illiquid assets and can be difficult to sell, especially if local market conditions are poor. Illiquidity may also result from the absence of an established market for investments, as well as legal or contractual restrictions on resale of such investments. In addition, property valuation is inherently subjective due to the individual characteristics of each property, and thus, coupled with illiquidity in the markets, makes the valuation in the scheme property difficult and inexact.
No assurances can be given that the valuations of properties will be reflected in the actual sale prices even where such sales occur shortly after the relevant valuation date.
There can be no certainty regarding the future performance of any of the properties acquired for the Company. The value of any property can go down as well as up. Property and property-related assets are inherently subjective as regards value due to the individual nature of each property. As a result, valuations are subject to uncertainty.
Real property investments are subject to varying degrees of risk. The yields available from investments in real estate depend on the amount of income generated and expenses incurred from such investments.
There are additional risks in vacant, part vacant, redevelopment and refurbishment situations although these are not prospective investments for the Company.
20.5 Credit risk
Credit risk is the risk that the counterparty (to a financial instrument) or tenant (of a property) will cause a financial loss to the Company by failing to meet a commitment it has entered into with the Company.
It is the Company's policy to enter into financial instruments with reputable counterparties. All cash deposits are placed with an approved counterparty, The Royal Bank of Scotland International Limited.
In respect of property investments, in the event of a default by a tenant, the Company will suffer a rental shortfall and additional costs concerning re-letting the property. The Investment Manager monitors tenant arrears in order to anticipate and minimise the impact of defaults by occupational tenants.
The table below shows the Company's exposure to credit risk:
As at As at
30 April 30 April 2016
2017
GBP'000 GBP'000
--------- --------------
Debtors (excluding incentives and prepayments) 1,033 936
Cash and cash equivalents 3,653 7,963
---------
Total 4,686 8,899
--------- --------------
20.6 Liquidity risk
Liquidity risk arises from the Company's management of working capital and the finance charges and principal repayments on its borrowings. It is the risk the Company will encounter difficulty in meeting its financial obligations as they fall due as the majority of the Company's assets are investment properties and therefore not readily realisable. The Company's objective is to ensure it has sufficient available funds for its operations and to fund its capital expenditure. This is achieved by continuous monitoring of forecast and actual cash flows by management.
The table below summarises the maturity profile of the Company's financial liabilities based on contractual undiscounted payments:
On < 3 3 - 12 1 - 5
demand months months years > 5 years Total
30 April GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2017
---------- --------- --------- --------- ---------- ---------
Interest
bearing
loans and
borrowings - - - 29,010 - 29,010
Interest
payable - 134 395 1,306 - 1,835
Payables
and accrued
expenses - 2,156 - - - 2,156
Finance
lease obligations - - 5 20 425 450
---------- --------- --------- --------- ---------- ---------
- 2,290 400 30,336 425 33,451
------------------------------- --------- --------- --------- ---------- ---------
On < 3 3 - 12 1 - 5
demand months months years > 5 years Total
30 April GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2016
--------- -------- -------- -------- ---------- --------
Interest
bearing
loans and
borrowings - - - 14,250 - 14,250
Interest
payable - 102 301 1,400 - 1,803
Payables
and accrued
expenses - 2,712 - - - 2,712
Finance
lease obligations - - 123 372 1,419 1,914
--------- -------- -------- -------- ---------- --------
- 2,814 424 16,022 1,419 20,679
------------------------------ -------- -------- -------- ---------- --------
21. Capital management
The primary objectives of the Company's capital management is to ensure that it qualifies for the UK REIT status and remains within its quantitative banking covenants.
To enhance returns over the medium term, the Company utilises borrowings on a limited recourse basis for each investment or all or part of the total portfolio. The Company's policy is such that its borrowings will not exceed 25% of GAV (measured at drawdown) of each investment or the total portfolio. It is currently anticipated that the level of total borrowings will typically be at the level of 20% of GAV (measured at drawdown).
Alongside the Company's borrowing policy, the Directors intend, at all times, to conduct the affairs of the Company so as to enable the Company to qualify as a REIT for the purposes of Part 12 of the CTA 2010 (and the regulations made thereunder). The REIT status compliance requirements include 90% distribution test, interest cover ratio, 75% assets test and the substantial shareholder rule, all of which the Company remained compliant with in this reporting period.
The monitoring of the Company's level of borrowing is performed primarily using a Loan to GAV ratio. The Loan to GAV Ratio is calculated as the amount of outstanding debt divided by the total assets of the Company, which includes the valuation of the investment property portfolio. The Company Loan to GAV ratio at the year end was 19.31% (30 April 2016: 10.51%).
Breaches in meeting the financial covenants would permit the bank to immediately call loans and borrowings. During the year under review, the Company did not breach any of its loan covenants, nor did it default on any other of its obligations under its loan agreements.
22. Transaction with related parties
As defined by IAS 24 Related Party Disclosures, parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions.
For the period ended 30 April 2017, the Directors of the Company are considered to be the key management personnel. Details of amounts paid to Directors for their services can be found within note 5, Directors' remuneration.
The Company is party to an Investment Management Agreement with the Investment Manager, pursuant to which the Company has appointed the Investment Manager to provide investment management services relating to the respective assets on a day-to-day basis in accordance with their respective investment objectives and policies, subject to the overall supervision and direction of the Boards of Directors.
Under the Investment Management Agreement the Investment Manager receives a management fee which is calculated and accrued monthly at a rate equivalent to 0.9% per annum of NAV (excluding un-invested fund raising proceeds) and paid quarterly. The investment by the Company into the Core Fund is not subject to management fees or performance fees otherwise charged to investors in the AEW UK Core Property Fund by the Investment Manager. During the year, the Company incurred GBP1,033,637 (2016: GBP652,706) in respect of investment management fees and expenses of which GBP252,850 (2016: GBP230,631) was outstanding at 30 April 2017.
On 1 May 2016, the Company had a holding of 8,035,272 shares (share class E) in the Core Fund, which were purchased for a cost of GBP9,627,000 (net of equalisation) on 1 June 2015. The investment is deemed to be with a related party due to the common influence of the Investment Manager over both parties. During the year, the Company disposed of 1,675,832 shares in the Core Fund for consideration of GBP1,995,248. As at 30 April 2017, the Company held 6,359,440 shares in the Core Fund which were valued at GBP7,594,443. The Company disposed of its remaining holding in the Core Fund after the year-end, as detailed in note 24.
23. Segmental information
Management has considered the requirements of IFRS 8 'operating segments'. The source of the Company's diversified revenue is from the ownership of investment properties across the UK. Financial information on a property by property basis is provided to senior management of the Investment Manager and Directors, which collectively comprise the chief operating decision maker. Responsibilities are not defined by type or location, each property being managed individually and reported on for the Company as a whole directly to the Board of Directors. Therefore, the Company is considered to be engaged in a single segment of business, being property investment and in one geographical area, United Kingdom.
24. Events after reporting date
Dividend
On 30 May 2017, the Board declared its interim dividend of two pence per share, in respect of the period from 1 February 2017 to 30 April 2017. This was paid on 30 June 2017, to shareholders on the register as at 9 June 2017. The ex-dividend date was 8 June 2017.
Property acquisitions
On 4 May 2017 the Company acquired Unit 1005, Sarus Court for GBP0.61 million. This completes the Company's acquisition of the whole of the Sarus Court industrial estate. The property provides a WAULT of approximately 3.7 years to expiry. The acquisition provides an initial yield of 7.8%, a reversionary yield of 9.1% and a capital value per sq ft of GBP55.
On 29 June 2017 the Company acquired Unit 34, First Avenue, Deeside for GBP4.31 million. The property provides a WAULT of approximately 5 years to break and 10 years to expiry. The acquisition provides an initial yield of 7.9%, a reversionary yield of 7.9% and a capital value per sq ft of GBP45.
Disposal of investments
On 9 May 2017, the Company sold its remaining investment in the Core Fund for GBP7.62 million. This sale represented a gain of GBP0.03 million based on its carrying value as at 30 April 2017.
Amendment to the Credit Facility
On 8 May 2017, the Company completed an amendment to the terms of its facility with RBSi. The total commitment has been reduced from GBP40.0 million to GBP32.5 million and the availability period has been extended to 31 March 2019.
EPRA Unaudited Performance Measures
Detailed below is a summary table showing the EPRA performance measures of the Company
MEASURE AND DEFINITION PURPOSE PERFORMANCE
---------------------------------- ------------------------------ ------------------------------
1. EPRA Earnings
Earnings from operational A key measure of a GBP9.16 million/7.57
activities. company's underlying pps
operating results and EPRA earnings for the
an indication of the year
extent to which current ended 30 April 2017
dividend payments are (2016:
supported by earnings. GBP6.08 million/6.33
pps)
2. EPRA NAV
Net asset value adjusted Makes adjustments to GBP118.64 million/95.95
to include properties IFRS NAV to provide pps
and other investment stakeholders with the EPRA NAV as at 30 April
interests at fair value most relevant information 2017 (2016: GBP116.30
and to exclude certain on the fair value of million/98.97 pps)
items not expected the assets and liabilities
to crystallise in a within a true real
long-term investment estate investment company
property business. with a long-term investment
strategy.
3. EPRA NNNAV
EPRA NAV adjusted to Makes adjustments to GBP118.67 million/95.98
include the fair values EPRA NAV to provide pps
of: stakeholders with the EPRA NNNAV as at 30
(i) financial instruments; most relevant information April 2017 (2016: GBP116.38
(ii) debt and; on the current fair million/99.03 pps)
(iii) deferred taxes. value of all the assets
and liabilities within
a real estate company.
4.1 EPRA Net Initial
Yield (NIY)
Annualised rental income A comparable measure 7.12%
based on the cash rents for portfolio valuations. EPRA NIY
passing at the balance This measure should as at 30 April 2017
sheet date, less non-recoverable make it easier for (2016: 8.01%)
property operating investors to judge
expenses, divided by themselves, how the
the market value of valuation of portfolio
the property, increased X compares with portfolio
with (estimated) purchasers' Y.
costs.
4.2 EPRA 'Topped-Up'
NIY A comparable measure 8.27%
This measure incorporates for portfolio valuations. EPRA 'Topped-Up' NIY
an adjustment to the This measure should as at 30 April 2017
EPRA NIY in respect make it easier for (2016: 8.56%)
of the expiration of investors to judge
rent-free periods (or themselves, how the
other unexpired lease valuation of portfolio
incentives such as X compares with portfolio
discounted rent periods Y.
and step rents).
5. EPRA Vacancy
Estimated Market Rental A "pure" (%) measure 7.22%
Value (ERV) of vacant of investment property EPRA ERV
space divided by ERV space that is vacant, as at 30 April 2017
of the whole portfolio. based on ERV. (2016: 3.16%)
6. EPRA Cost Ratio
Administrative and A key measure to enable Including direct vacancy
operating costs (including meaningful measurement costs
and excluding costs of the changes in a EPRA Cost Ratio 15.37%
of direct vacancy) company's operating as at 30 April 2017
divided by gross rental costs. (2016: 12.23%)
income. 9.54% EPRA Cost ratio
excluding direct vacancy
costs as at 30 April
2017 (2016: 10.90%)
Calculation of EPRA Net Initial Yield and 'topped-up' Net Initial Yield
Period
Year ended 1 April 2015
30 April to 30 April
2017 2016
GBP'000 GBP'000
----------- -------------
Investment property - wholly-owned 137,820 114,340
Allowance for estimated purchasers'
costs 8,242 6,632
----------- -------------
Gross up completed property portfolio
valuation 146,062 120,972
----------- -------------
Annualised passing rental income 11,283 9,842
Property outgoings (884) (148)
----------- -------------
Annualised net rents 10,399 9,694
----------- -------------
Rent from expiry of rent-free periods
and fixed uplifts 1,685 655
----------- -------------
'Topped-up' net annualised rent 12,084 10,349
----------- -------------
EPRA Net Initial Yield 7.12% 8.01%
EPRA 'topped-up' Net Initial Yield 8.27% 8.56%
EPRA Net Initial Yield (NIY) basis of calculation
EPRA NIY is calculated as the annualised net rent, divided by the gross value of the completed property portfolio.
The valuation of grossed up completed property portfolio is determined by our external valuers as at 30 April 2017, plus an allowance for estimated purchaser's costs. Estimated purchaser's costs are determined by the relevant stamp duty liability, plus an estimate by our valuers of agent and legal fees on notional acquisition. The net rent deduction allowed for property outgoings is based on our valuers' assumptions on future recurring non-recoverable revenue expenditure.
In calculating the EPRA 'topped-up' NIY, the annualised net rent is increased by the total contracted rent from expiry of rent-free periods and future contracted rental uplifts where defined as not in lieu of growth. Overall 'topped-up' NIY is calculated by adding any other contracted future uplift to the 'topped-up' net annualised rent.
Calculation of EPRA Vacancy Rate
Year ended Period
30 April 1 April 2015
2017 to 30 April
GBP'000 2016
GBP'000
-------------
Annualised potential rental value of vacant
premises 951 342
Annualised potential rental value for the
complete property portfolio 13,164 10,821
EPRA Vacancy Rate 7.22% 3.16%
------------- ---------------
Calculation of EPRA Cost Ratios
2017 2016
GBP'000 GBP'000
------------- ---------------
Administrative/operating expense per IFRS
income statement 3,272 1,523
Less: Performance & management fees (1,034) (653)
Other fees and commission (335) (70)
Ground rent costs (104) (64)
------------- ---------------
EPRA Costs (including direct vacancy costs) 1,799 736
Direct vacancy costs (682) (80)
------------- ---------------
EPRA Costs (excluding direct vacancy costs) 1,117 656
------------- ---------------
Gross Rental Income less ground rent costs 12,148 6,089
Less: service charge costs of rental income (104) (70)
------------- ---------------
Gross rental income 12,044 6,019
------------- ---------------
EPRA Cost Ratio (including direct vacancy
costs) 15.37% 12.23%
EPRA Cost Ratio (excluding direct vacancy
costs) 9.54% 10.90%
Company Information
Share Register Enquiries
The register for the Ordinary Shares is maintained by Computershare Investor Services PLC. In the event of queries regarding your holding, please contact the Registrar on 0370 889 4069 or email: web.queries@computershare.co.uk
Changes of name and/or address must be notified in writing to the Registrar, at the address shown on below. You can check your shareholding and find practical help on transferring shares or updating your details at www.investorcentre.co.uk. Shareholders eligible to receive dividend payments gross of tax may also download declaration forms from that website.
Share Information Ordinary GBP0.01 Shares 123,647,250 SEDOL Number BWD2415 ISIN Number GB00BWD24154 Ticker/TIDM AEWU
Share Prices
The Company's Ordinary Shares are traded on the Main Market of the London Stock Exchange.
Annual and Half-Yearly Reports
Copies of the Annual and Half-Yearly Reports are available from the Company's website.
Financial Calendar
12 September 2017 Annual General Meeting 31 October 2017 Half-year end December 2017 Announcement of half-yearly results 30 April 2018 Year end July 2018 Announcement of annual results
Dividends
The following table summarises the amounts distributed to equity shareholders in respect of the year:
GBP
----------
Interim dividend for the period 1 May 2016
to 31 July 2016 2,350,200
Interim dividend for the period 1 August
2016 to 31 October 2016 2,472,945
Interim dividend for the period 1 November
2016 to 31 January 2017 2,472,945
Interim dividend for the period 1 February
2017 to 30 April 2017 2,472,945
----------
Total 9,769,035
----------
Directors
Mark Burton* (Non-executive Chairman)
James Hyslop (Non-executive Director)
Bimaljit ("Bim") Sandhu* (Non-executive Director)
Katrina Hart* (Non-executive Director)
* independent of the Investment Manager
Registered Office
40 Dukes Place
London
EC3A 7NH
Investment Manager and AIFM
AEW UK Investment Management LLP
33 Jermyn Street
London
SW1Y 6DN
Tel: 020 7016 4880
Website: www.aewuk.co.uk
Property Manager
Jones Lang LaSalle Limited
22 Hanover Square
London
W1S 1JA
Corporate Broker
Fidante Capital
1 Tudor Street
London
EC4Y 0AH
Legal Adviser to the Company
Gowling WLG (UK) LLP
4 More London Riverside
London
SE1 2AU
Depositary
Langham Hall UK LLP
5 Old Bailey
London
EC4M 7BA
Administrator
Capita Sinclair Henderson Limited
Beaufort House
51 New North Road
Exeter
EX4 4EP
Company Secretary
Capita Company Secretarial Services Limited
40 Dukes Place
London
EC3A 7NH
Registrar
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol
BS13 8AE
Auditors
KPMG LLP
15 Canada Square
London
E14 5GL
Valuer
Knight Frank LLP
55 Baker Street
London
W1U 8AN
Frequency of NAV publication:
The Company's NAV is released to the London Stock Exchange on a quarterly basis and is published on the Company's website.
Copies of the Annual Report and Notice of AGM
Printed copies of the Annual Report and Notice of the 2017 Annual General Meeting will be sent to shareholders shortly and will be available on the Company's website.
National Storage Mechanism
A copy of the Annual Report will be submitted shortly to the National Storage Mechanism ('NSM') and will be available for inspection at the NSM, which is situated at www.morningstar.co.uk/uk/NSM.
Annual General Meeting
The AGM will be held on 12 September 2017 at 12 noon at The Cavendish Hotel, 81 Jermyn Street, St. James', London SW1Y 6JF.
The content of the Company's web-pages and the content of any website or pages which may be accessed through hyperlinks on the Company's web-pages or this announcement is neither incorporated into nor forms part of the above announcement.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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July 10, 2017 02:00 ET (06:00 GMT)
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