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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
Aew Uk Long Lease Reit Plc | LSE:AEWL | London | Ordinary Share | GB00BDVK7088 | 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% | 72.50 | 72.00 | 73.00 | 0.00 | 01:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
0 | 0 | N/A | 0 |
TIDMAEWL
RNS Number : 2018R
AEW UK Long Lease REIT PLC
27 February 2019
AEW UK LONG LEASE REIT PLC (the 'Company')
Announcement of Interim Report and Financial Statements for the six months ended 31 December 2018
AEW UK Long Lease REIT plc ('the Company'), which directly owns a diversified portfolio of commercial investment properties, predominately in the alternative property sectors, is pleased to publish its interim report and financial statements for the six months from 1 July 2018 to 31 December 2018.
Steve Smith, Chairman of AEW UK Long Lease REIT, commented: "Over the past 6 months, the fund has continued to execute the strategy laid out at its IPO. In particular, the two most recent dividends declared have been in line with the target annual dividend of 5.5 pence per share, supported by the strong portfolio of assets acquired to date. The diversification of the portfolio by sector, tenants and geographical regions is generating attractive yields and predictable income streams through long leases, of which 92% of income has contractual exposure to inflation. We continue to see a number of interesting market opportunities and as such are focussed on raising additional equity to support future growth."
Enquiries AEW UK Alex Short alex.short@eu.aew.com Laura Elkin laura.elkin@eu.aew.com Nicki Gladstone Nicki.Gladstone-ext@eu.aew.com +44(0) 771 140 1021 Cenkos Securities plc Tom Scrivens +44 (0)20 7397 1915 Sapna Shah +44 (0)20 7397 1922 TB Cardew aew@tbcardew.com Ed Orlebar +44(0) 7738 724 630 Lucy Featherstone +44(0) 7789 374 663
FINANCIAL HIGHLIGHTS
-- Unaudited Net Asset Value ('NAV') of GBP78.46 million and of 97.46 pence per share as at 31 December 2018 (30 June 2018: GBP76.42 million and 94.93 pence per share).
-- Operating profit before fair value changes of GBP2.67 million for the half year (18 April 2017 to 31 December 2017: GBP0.25 million).
-- Profit before tax ('PBT') of GBP4.15 million and 5.15 pence per share for the half year (18 April 2017 to 31 December 2017: Loss of GBP4.24 million and of 6.51 pence per share for the half year, of which GBP4.56 million and 6.99 pence related to acquisition costs written off).
-- EPRA Earnings per Share ('EPRA EPS') for the half year were 2.69 pence (18 April 2017 to 31 December 2017: 0.38 pence). See below for more details.
-- Total dividends of 2.75 pence per share have been declared for the half year (18 April 2017 to 31 December 2017: 1.00 pence per share).
-- The price of the Company's Ordinary Shares on the Main Market of the London Stock Exchange was 88.82 pence per share as at 31 December 2018 (30 June 2018: 90.24 pence per share).
-- As at 31 December 2018, the Group had a GBP30 million loan facility with Canada Life Investments and was geared to 27.7% of the Gross Asset Value ('GAV') (30 June 2018: 27.7%).
-- Since the half year end, the Group increased its loan facility by GBP11 million with its existing lender, Canada Life Investments, taking the total loan drawn down to GBP41 million. The weighted average interest cost of the Group's increased facility is 3.19% and the facility is repayable on 20 October 2025.
PROPERTY HIGHLIGHTS
-- Weighted average unexpired lease term ('WAULT') of 21.5 years (30 June 2018: 21.8 years) to the earlier of break and expiry and 23.4 years to expiry (30 June 2018: 24.0 years). See below for more details.
-- As at 31 December 2018, the Group's property portfolio had a fair value of GBP112.23 million (30 June 2018: GBP99.09 million).
-- The assets acquired are fully let as at 31 December 2018 (30 June 2018: 99.7% occupancy).
-- Rental and other income generated in the half year was GBP3.33 million (18 April 2017 to 31 December 2017: GBP0.67 million). The number of tenants as at 31 December 2018 was 23 (30 June 2018: 21).
-- The portfolio has annualised contracted rental income of GBP6.55 million as at 31 December 2018 (30 June 2018: GBP5.64 million).
-- The portfolio has an average Net Initial Yield ('NIY') of 5.41% (30 June 2018: 5.29%).
CHAIRMAN'S STATEMENT
Overview
I am pleased to present the unaudited interim consolidated results of the Group for the six-month period from 1 July 2018 to 31 December 2018 (the 'period').
As at 31 December 2018, the Group had invested GBP106.16 million (excluding purchase costs) in acquiring a diversified portfolio of 18 commercial investment properties throughout the UK. At the period end, the Group's property portfolio (the 'Portfolio') has been independently valued by Knight Frank LLP in accordance with the RICS Valuations - Professional Standards (the 'Red Book') at a fair value of GBP112.23 million, an increase of GBP6.07 million (or 5.72% before purchase costs) since IPO.
To date, the Group has delivered on its targets at the time of the Company's IPO. The portfolio has a NIY of 5.41%, a WAULT to break of 21.5 years and a WAULT to expiry of 23.4 years, and 92% of the income is linked to inflation (RPI or CPI).
Financial Results
1 July 2018 18 April 2017 18 April 2017 to to to 31 December 31 December 30 June 2018 2017 2018 (unaudited) (unaudited) (audited) Operating profit before fair value changes (GBP'000) 2,670 254 2,445 Operating profit / (loss) (GBP'000) 4,650 (4,237) (408) Profit / (loss) after tax (GBP'000) 4,148 (4,243) (895) Earnings / (loss) per share (basic and diluted) (pence) 5.15 (6.51) (1.25) EPRA earnings per share (basic and diluted) (pence) 2.69 0.38 2.74 NAV per share (pence) 97.46 92.27 94.93 EPRA NAV per share (pence) 97.46 92.27 94.93 ------------ -------------- --------------
The Group has ongoing charges of 1.5% for the period (31 December 2017: 0.93%; 30 June 2018: 1.36%), which are a measure of annualised fund level operating costs for the period as a percentage of NAV.
Financing
As at 31 December 2018, the Group had utilised all of its GBP30 million fixed-interest loan facility with Canada Life Investments.
In December 2018, the Group agreed an increase of GBP11 million to its loan facility with existing lender Canada Life Investments, taking the total loan facility to GBP41 million. The weighted average interest cost of the Group's GBP41 million facility is 3.19% and the facility is repayable on 20 October 2025. The additional GBP11 million loan facility was fully drawn on 11 January 2019, and was used to fund the GBP6.65 million acquisition of Nailsea, Bristol.
As at 31 December 2018, the unexpired term of the facility was 6.8 years and the Loan to Value ('LTV') was 27.7% (as calculated on the Gross Asset Value ('GAV').
Dividends
The Company is now fully invested and during the period has begun to pay dividends of 1.375 pence per share, in line with the annual target of 5.5 pence per share and the stated dividend policy set out in the Company's Prospectus.
Please refer to Note 8 below for details on the dividends paid.
Outlook
The Group has executed its strategy since the IPO and delivered on its stated objectives. In particular, the two most recent dividends declared have been in line with the target annual dividend of 5.5 pence per share.
A strong portfolio of assets has been acquired, diversified by sector, tenants and geographical regions, at attractive yields that generate predictable income streams through long leases, of which 92% of income has contractual exposure to inflation.
Since 31 December 2018, the Group completed on the acquisition of Nailsea, Bristol for GBP6.65 million (net of purchase costs) that generates a further GBP0.41 million per annum in passing rent. This acquisition was financed using the Canada Life Investments facility extension of GBP11 million. The Group has a further property under offer which, if purchased, will also be funded through the debt facility.
Following the recent acquisitions, the Board and the Investment Manager, taking full account of the regressive impact of acquisition costs, believe that we have delivered a competitive total return over the period and with inflationary rent escalation will be competitive in potentially turbulent markets in the coming period.
Our current focus is to continue to grow the Company by raising additional equity, to enable the Company to gain economies of scale in its fixed cost base and to allow the Investment Manager to capitalise on the interesting market opportunities it sees.
I would like to thank our shareholders, my fellow Directors and AEW UK for their continued support.
Steve Smith
Chairman
26 February 2019
UMAUDITED KEY PERFORMANCE INDICATORS ('KPIs')
KPI and definition Relevance to strategy Performance ----------------------------------- ------------------------------- --------------------- 1. NIY 5.41% A representation to The NIY is an indicator at 31 December the investor of what of the ability of the 2018 (30 June their initial net yield Company to meet its 2018: 5.29%). would be at a predetermined target dividend after purchase price after adjusting for the upward taking account of all impact of leverage associated costs (e.g. and deducting operating void costs and rent costs. free periods). 2. WAULT to break and 21.5 years to expiry break and 23.4 The average lease term years to expiry remaining to expiry The WAULT is a key at 31 December across the portfolio, measure of the quality 2018 (30 June weighted by contracted of our portfolio. Long 2018: 21.8 years rent. leases underpin the to break and 24.0 security of our future years to expiry). income. 3. NAV GBP78.46 million NAV is the value of Provides stakeholders at 31 December an entity's assets minus with the most relevant 2018 (30 June the value of its liabilities. information on the 2018: GBP76.42 fair value of the assets million). and liabilities of the Group. 4. Dividend 2.75 pence per Dividends declared in The dividend reflects share relation to the period. the Company's ability for the six months The Company targets to deliver a sustainable to 31 December a dividend of 5.50 pence income stream from 2018. This supports per Ordinary Share per its portfolio. an annualised annum once fully invested target of 5.50 and leveraged. pence per share (18 April 2017 to 31 December 2017: 1.00 pence per share). 5. Leverage (Loan to 27.7% GAV) The proportion of the The Group utilises at 31 December portfolio that is funded borrowings to enhance 2018 by borrowings. returns over the medium term. (30 June 2018: 27.7%) Borrowing will not exceed 40% of GAV (measured at drawdown) with a long-term target of 30% or less of GAV. 6. Ongoing Charges The ratio of total administration The Ongoing Charges 1.5% and operating costs ratio provides a measure for the six months expressed as a percentage of total costs associated to 31 December of average NAV throughout with managing and operating 2018 the period. the Group, which includes (18 April 2017 the management fees to 31 December due to the Investment 2017 0.93%) Manager. This measure is to provide investors with a clear picture of operational costs involved in running the Group. 7. Total Shareholder 1.47% Return This reflects the return for the six months The percentage change seen by shareholders to 31 December in the share price assuming on their shareholdings. 2018 (18 April dividends are reinvested to 31 December to purchase additional 2017: 2.75%) Ordinary Shares. 8. PBT GBP4.148 million PBT is a profitability The PBT is an indication for the six months measure which considers of the Group's financial to 31 December the Group's profit before performance for the 2018 (18 April the payment of income period in which its 2017 to 31 December tax. strategy is exercised. 2017: loss of GBP4.243 million)
EPRA UNAUDITED PERFORMANCE MEASURES
Detailed below is a summary table showing the EPRA performance measures of the Group
MEASURE AND DEFINITION PURPOSE PERFORMANCE ----------------------------------- ------------------------------ ----------------------------- 1. EPRA Earnings Earnings from operational A key measure of a GBP2.17 million/ 2.69 activities. Group's underlying pence per share operating results and EPRA earnings for the an indication of the six month period ended extent to which current 31 December 2018. dividend payments are (Period 18 April 2017 supported by earnings. to 31 December 2017: GBP0.25 million/ 0.38 pence per share) 2. EPRA NAV NAV adjusted to include Makes adjustments to GBP78.46 million/ 97.46 properties and other IFRS NAV to provide pence per share investment interests stakeholders with the EPRA NAV as at 31 December at fair value and to most relevant information 2018 (At 30 June 2018: exclude certain items on the fair value of GBP76.42 million/ 94.93 not expected to crystallise the assets and liabilities pence per share) in a long-term investment within a true real property business. estate investment company with a long-term investment strategy. 3. EPRA NNNAV EPRA NAV adjusted to Makes adjustments to GBP78.46 million/ 97.46 include the fair values EPRA NAV to provide pence per share of: stakeholders with the EPRA NNNAV as at (i) financial instruments; most relevant information 31 December 2018 (ii) debt; and on the current fair (At 30 June 2018: (iii) deferred taxes. value of all the assets GBP76.42 million/ 94.93 and liabilities within pence per share) a real estate company. 4.1 EPRA NIY Annualised rental income A comparable measure 5.43% based on the cash rents for portfolio valuations. EPRA NIY passing at the balance This measure should as at 31 December 2018 sheet date, less non-recoverable make it easier for (At 30 June 2018: 5.28%) 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 6.75% This measure incorporates for portfolio valuations. EPRA 'Topped-Up' NIY an adjustment to the This measure should as at EPRA NIY in respect make it easier for 31 December 2018 of the expiration of investors to judge (At 30 June 2018: 6.50%) 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 0% Value ('ERV') of vacant of investment property EPRA vacancy as at space divided by ERV space that is vacant, 31 December 2018 of the whole portfolio. based on ERV. (At 30 June 2018: 0.27%) 6. EPRA Cost Ratio Administrative and A key measure to enable 19.36% operating costs (including meaningful measurement EPRA Cost Ratio (including and excluding costs of the changes in a direct vacancy cost), of direct vacancy) company's operating as at divided by gross rental costs. 31 December 2018 income. (At 31 December 2017: 61.90%) 18.86% EPRA Cost Ratio (excluding direct vacancy cost), as at 31 December 2018 (at 31 December 2017: 61.90%)
INVESTMENT MANAGER'S REPORT
Market Outlook
UK Economic Outlook
In the second half of 2018, inflation slowed to 2.2% per annum (RPI/CPI) as both import cost-linked inflation and oil price appreciation were moderate. This is in line with our expectations that inflation is to gradually move towards the Bank of England inflation target of 2%. This will enable the Group to continue to grow its rental income stream as 92% of its rental income as at 31 December 2018 is inflation linked.
UK GDP growth for Q4 2018 is now expected at 0.3%, down from 0.6% in Q3 2018. This brings the full-year 2018 growth expectation to 1.4%, down from 1.8% earlier in the year. GDP growth is, however, forecast to rebound to 2% by 2020, based on a strong chance that the current political indecision could lead to a softer Brexit and an extension of the date on which the UK leaves the EU. That said, the real possibility of a no-deal Brexit remains and, with the UK government looking increasingly unstable, it is expected that GDP growth in this eventuality would remain subdued, albeit in positive territory.
The UK labour market remains strong with unemployment remaining at a more than 40-year low of 4.1% in October 2018. The tightening labour market has finally lifted annual pay growth to 3.3% in the three months to October 2018. Combined with 2.2% inflation for 2018, this does provide for some real pay improvement. Despite this, consumer spending is expected to slow slightly to 1.4% in 2019 from 1.7% projected for 2018.
UK Real Estate Outlook
Both in absolute terms and relative to other markets, UK property market returns continue to show a healthy spread over 10-year government bond yields. Strong investor demand for commercial property continues and for the time being we continue to see yields remaining stable in the most sought after areas of the market, predominantly in large logistics assets, prime industrial, and in the long-leased market.
On the tenant demand side, we see a rather polarised position highlighting to managers and investors alike the importance of robust and informed stock selection. Despite an uncertain outlook surrounding the UK's exit from the EU, we have seen strong take up in the industrial sector leading to rental growth of 4.2% throughout 2018 according to MSCI, down slightly from 5.3% in 2017, but outperforming other major property sectors for the ninth consecutive quarter. The regional office sector has also recorded healthy recent performance with GVA reporting a 4.3% rise in net effective rents over the year to September 2018 across the 9 largest centres. Take up for Q3 2018 exceeded 2 million sq ft which is 63% ahead of the ten-year quarterly average.
A contrast to this is seen across the majority of the retail sector, where the impact of declining footfall continues to hit the headlines, with the exception of a few large dominant centres where rental growth has been recorded at modest levels.
We are conscious that there is strong competition amongst investors looking to buy in the limited universe of long-let inflation-linked income properties and we have seen this first hand when acquiring properties. This has led to yield compression of our own assets.
We have seen a couple of higher profile REIT flotations being cancelled in recent months that highlight the difficulty in raising and deploying capital in the current UK market. Nevertheless, we are optimistic that we can continue to build an attractive portfolio with the properties in our pipeline and deliver compelling returns to our shareholders.
Financial Results
Net rental income earned from the portfolio for the six months ended 31 December 2018 was GBP3.33 million (18 April 2017 to 31 December 2017: GBP0.67 million; 18 April 2017 to 30 June 2018: GBP3.60 million), contributing to an operating profit before fair value changes of GBP2.67 million (18 April 2017 to 31 December 2017: GBP0.25 million; 18 April 2017 to 30 June 2018: GBP2.45 million).
The portfolio has seen a gain of GBP1.98 million in fair value of investment property over the period (18 April 2017 to 31 December 2017: loss of GBP4.49 million; 18 April 2017 to 30 June 2018: loss of GBP2.85 million).
Administrative expenses, which include the Investment Manager's fee and other costs attributable to the running of the Group, were GBP0.66 million for the period (18 April 2017 to 31 December 2017: GBP0.41 million; 18 April 2017 to 30 June 2018: GBP1.15 million).
The Group incurred finance costs of GBP0.50 million during the period (18 April 2017 to 31 December 2017: GBP0.01 million; 18 April 2017 to 30 June 2018: GBP0.49 million).
The total PBT for the period of GBP4.15 million (18 April 2017 to 31 December 2017: loss before tax of GBP4.24 million; 18 April 2017 to 30 June 2018: loss before tax of GBP0.89 million) equates to a basic earnings per share of 5.15 pence per share (18 April 2017 to 31 December 2017: loss of 6.51 pence per share; 18 April 2017 to 30 June 2018: loss of 1.25 pence per share).
The Group's NAV as at 31 December 2018 was GBP78.46 million or 97.46 pence per share (18 April 2017 to 31 December 2017: GBP74.28 million; 18 April 2017 to 30 June 2018: GBP76.42 million). This is an increase of 2.52 pence per share or 2.66% over the six months, with the underlying movement in NAV set out in the table below:
Pence per share GBP million --------------------------------------------- ---------- ------------ NAV as at 1 July 2018 94.935 76.42 Portfolio acquisition costs (0.714) (0.58) Change in fair value of investment property 3.174 2.56 Income earned for the period 4.137 3.33 Expenses for the period (1.443) (1.16) Dividends paid during the period (2.625) (2.11) ---------- ------------ NAV at 31 December 2018 97.464 78.46 ---------- ------------
EPRA EPS for the six-month period was 2.69 pence per share which, based on dividends declared of 2.75 pence per share, reflects a dividend cover of 97.82%.
Dividend
Refer to Note 8 below for details.
Financing
As at 31 December 2018, the Group had fully utilised its GBP30 million loan facility with Canada Life Investments (30 June 2018: fully utilised). This term facility, which expires in October 2025, allows up to 35% loan to property value, provided on a portfolio basis.
On 14 December 2018, the Group extended the amount of the facility by GBP11 million to a total of GBP41 million. The Group fully utilised this GBP11 million on 11 January 2019.
The weighted average interest cost of the Group's GBP41 million facility is 3.19% and the facility is repayable on 20 October 2025.
Portfolio Activity during the Period
During the period, the Group's property portfolio was subject to a total like-for-like valuation uplift of 2.41%.
The Group acquired an industrial warehousing property located on the Eurolink Industrial Estate, Sittingbourne for GBP3.94 million. This property comprises two warehouse buildings totalling 43,636 sq ft and is fully let to Dore Metals Services Southern Ltd, which has had its headquarters on the site since 2007. The lease provides a new 15-year term expiring in September 2033 and also has 5-yearly rental uplifts in line with RPI. The transaction reflected an attractive NIY of 6.3%. To the end of the period, the asset had already seen a valuation uplift of 4.2%.
During the period, the Group also exchanged unconditionally on a purchase agreement to acquire a 62-room, purpose-built care home located in affluent Nailsea approximately 8 miles south west of Bristol. The purchase completed on 15 January 2019. The property is fully let, on a new 30-year lease, operated by Handsale Ltd, an established national provider of care services for the elderly. A new 30-year fully repairing and insuring lease has been granted by the Group from the date of the acquisition providing the Group with annual rental uplifts in line with RPI, with a minimum uplift level of 1% and a cap of 4%. The facilities of the home and its care provision have been rated as being 'Good' by the Care Quality Commission and, in addition, the home has a history of high occupancy rates combined with a high percentage of private pay residents. The acquisition was funded through the extension of the Group's debt facility.
Property Portfolio as at 31 December 2018
Summary by Sector
Gross Passing Occupancy WAULT Rental Number Valuation By ERV To break Income ERV of Sector Properties (GBPm) (%) (years) (GBPm) (GBPm) ----------- ---------- ---------- --------- -------- ------- Hotel 3 24.20 100.0 17.4 1.43 1.43 Industrial 4 24.20 100.0 29.7 1.45 1.44 Car showroom 2 14.85 100.0 13.2 0.90 0.90 Petrol filing station 1 4.30 100.0 14.5 0.21 0.21 Student Housing 1 12.10 100.0 22.6 0.64 0.62 Care Home 3 17.98 100.0 29.9 1.06 1.06 Leisure 3 9.70 100.0 13.4 0.56 0.58 Power Station 1 4.90 100.0 13.2 0.30 0.30 ----------- ---------- ---------- --------- -------- ------- Total 18 112.23 100.0 21.5 6.55 6.54 ----------- ---------- ---------- --------- -------- -------
Summary by Geographical Area
Gross Passing Occupancy WAULT Rental Number Valuation By ERV To break Income ERV of Geographical Area Properties (GBPm) (%) (years) (GBPm) (GBPm) ----------- ---------- ---------- --------- -------- ------- West Midlands 3 24.00 100.0 19.9 1.41 1.39 North West 2 21.45 100.0 38.0 1.17 1.14 South East 3 17.25 100.0 13.9 0.92 0.93 Yorkshire and Humberside 3 12.93 100.0 15.7 0.79 0.80 South West 2 13.30 100.0 26.1 0.78 0.81 London 2 6.70 100.0 10.8 0.37 0.39 North East 1 3.00 100.0 18.2 0.20 0.19 Eastern 1 4.90 100.0 13.2 0.30 0.30 Scotland 1 8.70 100.0 17.8 0.61 0.59 ----------- ---------- ---------- --------- -------- ------- Total 18 112.23 100.0 21.5 6.55 6.54 ----------- ---------- ---------- --------- -------- -------
The tables below illustrate the sector and geographical weightings of the Group's property portfolio as at 31 December 2018, based on valuations as at that date.
Geographical Allocation
Eastern 4.4% North West 19.1% Scotland 7.8% South East 15.4% South West 11.8% West Midlands 21.3% Yorkshire & Humberside 11.5% North East 2.7% Inner London 4.0% Outer London 2.0%
Sector Allocation
Industrial 21.6% Leisure 8.6% Hotel 21.6% Medical/Care 16.0% Car Showroom 13.2% Student 10.8% Power Station 4.4% Petrol Station 3.8%
Income Allocation by Type
RPI 71% Open Market Value Reviews 8% CPI 21%
Income by Credit Risk
b- 2% bb 26% bbb- 33% bbb 23% bbb+ 16%
Top Ten Tenants
% of Annual Portfolio Passing Total Rental Passing Income Rental Tenant Property (GBP'000) Income ----------------------------- ----------------------------------------------------- ---------- ---------- Meridian Metal Trading Grazebrook Industrial Estate, Dudley and Provincial Limited Park, Sheffield 659 10.1 Lyndon Croft Care Centre, Solihull and Westerlands Prime Life Limited Care Village, Brough 651 9.9 Mears Group Plc Bramall Court, Salford 635 9.7 Juniper Hotels Limited Mercure City Hotel, Glasgow 608 9.3 Motorpoint Limited Motorpoint, Birmingham 500 7.6 Premier Inn Hotels Limited Premier Inn, Camberley 449 6.9 Handsale Limited Nailsea, Bristol 408 6.2 Volkswagen Group UK Limited Audi, Huddersfield 396 6.0 Travelodge Hotel Limited Travelodge, Swindon 350 5.3 Hoddesdon Energy Limited Hoddesdon Energy, Hoddesdon 300 4.6
The Group's top ten tenants, listed above, represent 75.6% of the total passing rental income of the portfolio.
PRINCIPAL RISKS AND UNCERTAINTIES
The Group's assets consist primarily of UK commercial property. Its principal risks are therefore related to the commercial property market in general, but also to the particular circumstances of the individual properties and the tenants within the properties.
The Board has overall responsibility for reviewing the effectiveness of the systems of risk management and internal control which is operated by the Investment Manager. The Group's ongoing risk management process is designed to identify, evaluate and mitigate the significant risks the Group faces.
Twice each year, the Board undertakes a risk review with the assistance of the Audit Committee, to assess the adequacy and effectiveness of the Investment Manager's risk management and internal control processes.
The Audit Committee considers that the principal risks and uncertainties as presented on pages 26 to 31 of our 2018 Annual Report have changed as follows:
KEY PERFORMANCE INDICATORS ("KPIs")
Principal risks and their potential impact Risk assessment REAL ESTATE RISKS 1. Tenant default Failure by tenants to comply with their rental Probability: Moderate obligations could affect the income that the to high properties earn and the ability of the Group Impact: Moderate to pay dividends to its Shareholders. to high Change in period: Increase due to heightened UK economic uncertainty 2. Portfolio concentration Any downturn in the UK and its economy or Probability: Low regulatory changes in the UK could have a Impact: Low to moderate material adverse effect on the Group's operations or financial condition. Greater concentration Change in period:
of investments in any one sector or exposure None to the creditworthiness of any one tenant or tenants may lead to greater volatility in the value of the Group's investments, NAV and the Share price. 3. Property defects Due diligence may not identify all the risks Probability: Low and liabilities in respect of an acquisition Impact: Moderate (including any environmental, structural or operational defects) that may lead to a material Change in period: adverse effect on the Group's profitability, None the NAV and its Share price. 4. Rate of inflation Rent review provisions may have contractual Probability: Low limits to the increases that may be made as Impact: Low to moderate a result of the rate of inflation. If inflation is in excess of such contractual limits, the Change in period: Group may not be able to deliver targeted None returns to shareholders. 5. Property market Any property market recession or future deterioration Probability: Moderate in the property market could, inter alia; Impact: Moderate (i) lead to an increase in tenant defaults; to high (ii) make it harder for the Group to attract new tenants for its properties; (iii) lead Change in period: to a lack of finance available to the Group; Increase due to general (iv) cause the Group to realise its investments uncertainty at lower valuations; and (v) delay the timings of the Group's realisations. Furthermore, property is inherently difficult to value due to the individual nature of each property. Any of these factors could have a material adverse effect on the ability of the Group to achieve its investment objective and have an adverse effect on the Group's profitability, the NAV and the Share price. 6. Investments will be illiquid The Group invests in commercial properties. Probability: Low Such investments are illiquid; they may be Impact: Low difficult for the Group to sell and the price achieved on any realisation may be at a discount Change in period: to the prevailing valuation of the relevant None property. BORROWING RISKS 7. Breach of borrowing covenants The Group has entered into a term loan facility Probability: Low which increased on 11 January 2019. Impact: High Material adverse changes in valuations and Change in period: net income may lead to breaches in the LTV Increase and interest cover ratio covenants. due to the increased use of debt post-period If the Group is unable to operate within its end debt covenants, this could lead to default and the loan facility being recalled. This may result in the Group selling properties to repay the loan facility and this is likely to lead to a fall in its NAV. CORPORATE RISKS 8. Use of service providers The Group has no employees and is reliant Probability: Low upon the performance of third-party service to moderate providers. Impact: Moderate Failure by any service provider to carry out Change in period: its obligations to the Group in accordance None with the terms of its appointment could have a materially detrimental impact on the operation of the Group. 9. Dependence on the Investment Manager The Investment Manager is responsible for Probability: Low providing investment management services to Impact: High the Group. Change in period: The future ability of the Group to pursue None successfully its investment objective and investment policy may, among other things, depend on the ability of the Investment Manager to retain its staff and/or to recruit individuals of similar experience and calibre. 10. Ability to meet objectives The Group may not meet its investment objective Probability: Low to deliver an attractive total return to shareholders Impact: Moderate from investing predominantly in a portfolio of commercial properties in the UK. Change in period: Decrease Poor relative total return performance may due to the progress lead to an adverse reputational impact that achieved in meeting affects the Group's ability to raise new capital objectives and new funds. TAXATION RISK 11.Group REIT status The Group has a UK REIT status that provides Probability: Low a tax-efficient corporate structure. Impact: High If the Group fails to remain a REIT for UK Change in period: tax purposes, its profits and gains will be None subject to UK corporation tax. Any change to the tax status or in UK tax legislation could impact on the Group's ability to achieve its investment objective and provide attractive returns to Shareholders. 12.POLITICAL/ECONOMIC RISKS Political and macroeconomic events present Probability: Moderate risks to the real estate and financial markets to high that affect the Group and the business of Impact: Moderate our tenants. The level of uncertainty that to high such events bring has been highlighted in recent times, most pertinently as a result Change in period: of the EU referendum vote (Brexit) in June Increase 2016. The arrangements that would be put in due to lack of certainty place between the UK and the EU following and imminent EU departure Brexit could impact the health of the UK economy, date of 29 March make it more difficult for the Group to raise 2019 capital and/or increase the regulatory compliance burden on the Group.
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE INTERIM FINANCIAL REPORT
We confirm that to the best of our knowledge:
- the consolidated condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;
- the interim management report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the consolidated condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Company during that period; and any changes in the related party transactions described in the last annual report that could do so.
A list of the Directors is maintained on the Company's website at www.aewukllreit.com.
Steve Smith
Chairman
26 February 2019
FINANCIAL STATEMENTS
Consolidated Condensed Statement of Comprehensive Income
for the six months ended 31 December 2018
Period from Period from Six months from 18 April 2017 18 April 2017 1 July 2018 to to to 31 December 31 December 30 June 2018 2017 2018* (unaudited) (unaudited) (audited) Notes GBP'000 GBP'000 GBP'000 ---------------- --------------- --------------- Income Rental and other income 3 3,330 666 3,600 Property operating expenses 4 (75) (3) (105) ---------------- --------------- --------------- Net rental and other income 3,255 663 3,495 Other operating expenses 4 (585) (409) (1,050) ---------------- --------------- --------------- Operating profit before fair value changes 2,670 254 2,445 Change in fair value of investment properties 9 1,980 (4,491) (2,853) ---------------- --------------- --------------- Operating profit/(loss) 4,650 (4,237) (408) Finance expense 5 (502) (6) (487) ---------------- --------------- --------------- Profit/(loss) before tax 4,148 (4,243) (895) Taxation 6 - - - ---------------- --------------- ---------------
Profit/(loss) after tax 4,148 (4,243) (895) Other comprehensive income - - - ---------------- --------------- --------------- Total comprehensive income/(loss) for the period 4,148 (4,243) (895) ---------------- --------------- --------------- Earnings/(loss) per share (pence per share) (basic and diluted) 7 5.15 (6.51) (1.25) ---------------- --------------- ---------------
The accompanying notes form an integral part of these consolidated condensed financial statements.
*Although not required by IAS 34, the comparative figures for the preceding full reporting period and related notes have been included on a voluntary basis.
Consolidated Condensed Statement of Changes in Equity
for the six months ended 31 December 2018
Total capital Capital and reserves reserve attributable Share and to premium retained owners of the Share capital account earnings Group Notes GBP'000 GBP'000 GBP'000 GBP'000 -------------- --------- ---------- --------------- For the six months from 1 July 2018 to 31 December 2018 (unaudited) Balance as at 1 July 2018 805 - 75,617 76,422 Total comprehensive income - - 4,148 4,148 Dividends paid 8 - - (2,113) (2,113) -------------- --------- ---------- --------------- Balance as at 31 December 2018 805 - 77,652 78,457 -------------- --------- ---------- --------------- Total capital Capital and reserves reserve attributable Share and to For the period 18 April premium retained owners of the 2017 to Share capital account earnings Group 31 December 2017 (unaudited) GBP'000 GBP'000 GBP'000 GBP'000 Balance as at 18 April 2017 - - - - Total comprehensive loss - - (4,243) (4,243) Ordinary shares issued 16,17 805 79,695 - 80,500 Share issue costs 17 - (1,573) - (1,573) Cancellation of share premium 17 - (78,122) 78,122 - Dividends paid 8 - - (403) (403) -------------- --------- ---------- --------------- Balance as at 31 December 2017 805 - 73,476 74,281 -------------- --------- ---------- --------------- For the period 18 April Total capital 2017 to Capital and reserves 30 June 2018 (audited) reserve attributable Share and to premium retained owners of the Share capital account earnings Group* GBP'000 GBP'000 GBP'000 GBP'000 Balance as at 18 April 2017 - - - - Total comprehensive loss - - (895) (895) Ordinary shares issued 16,17 805 79,695 - 80,500 Share issue costs 17 - (1,573) - (1,573) Cancellation of share premium 17 - (78,122) 78,122 - Dividends paid 8 - - (1,610) (1,610) -------------- --------- ---------- --------------- Balance as at 30 June 2018 805 - 75,617 76,422 -------------- --------- ---------- ---------------
The accompanying notes form an integral part of these consolidated condensed financial statements.
*Although not required by IAS 34, the comparative figures for the preceding full reporting period and related notes have been included on a voluntary basis.
Consolidated Condensed Statement of Financial Position
as at 31 December 2018
As at As at As at 31 December 31 December 30 June 2018 2017 2018 (unaudited) (unaudited)* (audited) Notes GBP'000 GBP'000 GBP'000 ------------- -------------- ------------ Assets Non-Current Assets Investment property 9 112,051 71,349 99,243 ------------- -------------- ------------ 112,051 71,349 99,243 Current Assets Receivables and prepayments 10 2,147 301 1,121 Cash and cash equivalents 3,112 3,878 6,594 Restricted cash - - 1,362 ------------- -------------- ------------ 5,259 4,179 9,077 Total Assets 117,310 75,528 108,320 ------------- -------------- ------------ Non-Current Liabilities Interest bearing loans and borrowings 12 (29,483) - (29,434) Finance lease obligations 13 (480) - (478) ------------- -------------- ------------ (29,963) - (29,912) Current Liabilities Payables and accrued expenses 11 (8,856) (1,247) (1,952) Finance lease obligations 13 (34) - (34) ------------- -------------- ------------ (8,890) (1,247) (1,986) Total Liabilities (38,853) (1,247) (31,898) ------------- -------------- ------------ Net Assets 78,457 74,281 76,422 ------------- -------------- ------------ Equity Share capital 16 805 805 805 Share premium account 17 - - - Capital reserve and retained earnings 77,652 73,476 75,617 ------------- -------------- ------------ Total capital and reserves attributable to equity holders of the Company 78,457 74,281 76,422 ------------- -------------- ------------ Net Asset Value per share (pence per share) 7 97.46 92.27 94.93 ============= ============== ============
The accompanying notes form an integral part of these consolidated condensed financial statements.
*Although not required by IAS 34, the comparative figures for the preceding full reporting period and related notes have been included on a voluntary basis.
The financial statements were approved by the Board of Directors on 26 February 2019 and were signed on its behalf by:
Steve Smith
Chairman
AEW UK Long Lease REIT plc
Company number: 10727886
Consolidated Condensed Statement of Cash Flows
for the six months to 31 December 2018
Six months Period from from 18 April Period from 1 July 2018 2017 to 18 April 2017 to 31 December to 31 December 2017 30 June 2018 (unaudited) 2018* (unaudited) GBP'000 (audited) GBP'000 GBP'000 ------------- ------------- --------------- Cash flows from operating activities Operating profit/(loss) 4,650 (4,237) (408) Adjustment for non-cash items: (Gain)/loss from change in fair value of investment property (1,980) 4,491 2,853 Increase in other receivables and prepayments (1,030) (204) (1,121) Increase in other payables and accrued expenses 14 564 1,534 ------------- ------------- --------------- Net cash flow generated from operating activities 1,654 614 2,858 ------------- ------------- --------------- Cash flows from investing activities Purchase of investment properties (3,927) (75,157) (101,461) ------------- ------------- --------------- Net cash used in investing activities (3,927) (75,157) (101,461) ------------- ------------- --------------- Cash flows from financing activities Proceeds from issue of ordinary share capital - 80,500 80,500 Share issue costs - (1,573) (1,573) Loan draw down - - 28,638 Use of restricted cash 1,362 - - Arrangement loan facility fee paid - - (609) Finance costs (458) (103) (241) Dividends paid (2,113) (403) (1,518) ------------- ------------- --------------- Net cash flow generated from financing activities (1,209) 78,421 105,197 ------------- ------------- --------------- Net (decrease)/increase in cash and cash equivalents (3,482) 3,878 6,594 Cash and cash equivalents at start of the period 6,594 - - ------------- ------------- --------------- Cash and cash equivalents at end of the period 3,112 3,878 6,594 ------------- ------------- ---------------
The accompanying notes form an integral part of these consolidated condensed financial statements.
* Although not required by IAS 34, the comparative figures for the preceding full reporting period and related notes have been included on a voluntary basis.
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
for the six months to 31 December 2018
1. Corporate information
The Company is a closed-ended Real Estate Investment Trust ('REIT') incorporated on 18 April 2017 and domiciled in the UK. The registered office of the Company is located at 6th Floor, 65 Gresham Street, London, EC2V 7NQ.
The Company's Ordinary Shares were listed on the Official List of the UK Listing Authority and admitted to trading on the Main Market of the London Stock Exchange on 6 June 2017.
The comparative information for the nine month period ended 31 December 2017 does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006.
2. Accounting policies
2.1 Basis of preparation
These interim consolidated condensed unaudited financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU, and should be read in conjunction with the Group's last financial statements for the fifteen-month period ended 30 June 2018. These consolidated condensed unaudited financial statements do not include all information required for a complete set of financial statements proposed in accordance with IFRS as adopted by the EU ('EU IFRS'), however, selected explanatory notes have been included to explain events and transactions that are significant in understanding changes in the Group's financial position and performance since the last financial statements.
The comparative figures disclosed in the consolidated condensed unaudited financial statements and related notes have been presented for both the nine-month period ended 31 December 2017 and fifteen-month period ended 30 June 2018 and as at 31 December 2017 and 30 June 2018.
Although not required by IAS 34, the comparative figures as at 31 December 2017 for the Consolidated Condensed Statement of Financial Position and for the fifteen-month period ended 30 June 2018 for the Consolidated Condensed Statement of Comprehensive Income, Consolidated Condensed Statement of Changes in Equity and Consolidated Condensed Statement of Cash Flows and related notes have been included on a voluntary basis.
These consolidated condensed unaudited financial statements have been prepared under the historical-cost convention, except for investment property that has been measured at fair value. The consolidated condensed unaudited financial statements are presented in Sterling and all values are rounded to the nearest thousand pounds (GBP'000), except when otherwise indicated.
Basis of consolidation
The consolidated condensed unaudited financial statements for the six months ended 31 December 2018 incorporate the financial statements of the Company and its subsidiaries (the 'Group'). Subsidiaries are entities controlled by the Group, being AEW UK Long Lease REIT 2017 Limited and AEW UK Long Lease REIT Holdco Limited. IFRS 10 outlines the requirements for the preparation of consolidated financial statements, requiring an entity to consolidate the results of all investees it is considered to control. Control exists where an entity is exposed to variable returns and has the ability to affect those returns through its power over the investee.
New standards, amendments and interpretations
There are a number of new standards and amendments to existing standards which have been published and are mandatory for the Group's accounting periods beginning on or after 1 January 2019.
The following is the most relevant to the Group:
-- IFRS 16 (Leases) issued in January 2016 and is effective for annual periods beginning on or after 1 January 2019
The impact of the adoption of new accounting standards issued and becoming effective for accounting periods beginning on or after 1 July 2018 has been considered and is not deemed to be significant. The IFRS 16 disclosure requirements will be considered in due course.
2.2 Significant accounting judgements and estimates
The preparation of financial statements in accordance with IAS 34 requires the Directors of the Group to make judgements, estimates and assumptions that affect the reported amounts recognised in the financial statements. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability in the future.
i) Valuation of investment property
The Group's investment property is held at fair value as determined by the independent valuer on the basis of fair value in accordance with the internationally accepted Royal Institution of Chartered Surveyors ('RICS') Appraisal and Valuation Standards.
2.3 Segmental information
In accordance with IFRS 8, the Directors are of the opinion that the Group is engaged in one main operating segment, being investment property in the UK.
2.4 Going concern
The Directors have made an assessment of the Group's ability to continue as a going concern and are satisfied that the Group has the resources to continue in business for at least 12 months. Furthermore, the Directors are not aware of any material uncertainties that may cast significant doubt upon the Group's ability to continue as a going concern. Therefore, the consolidated condensed unaudited financial statements have been prepared on the going concern basis.
2.5 Summary of significant accounting policies
The principal accounting policies applied in the preparation of these consolidated condensed unaudited financial statements are consistent with those applied within the Group's Annual Report and Financial Statements for the fifteen-month period to 30 June 2018 except for the changes as detailed in note 2.1.
3. Rental income
Six months from Period from Period from 1 July 2018 18 April 2017 18 April 2017 to to to 31 December 31 December 30 June 2018 2017 2018 (unaudited) (unaudited) (audited) GBP'000 GBP'000 GBP'000 ------------- --------------- --------------- Gross rental income received 3,024 596 3,226 Spreading of tenant incentives and guaranteed fixed rental uplifts 305 70 359 Other property income 1 - 15 Total rental and other income 3,330 666 3,600 ------------- --------------- ---------------
4. Expenses
Six months from Period from Period from 1 July 2018 18 April 2017 18 April 2017 to to to 31 December 31 December 30 June 2018 2017 2018 (unaudited) (unaudited) (audited) GBP'000 GBP'000 GBP'000 ------------- --------------- --------------- Property operating expenses 75 3 105 ------------- --------------- --------------- Other operating expenses Investment management fee 283 105 363 Auditor remuneration 66 52 116 Operating costs 198 192 458 Directors' remuneration 38 60 113 ------------- --------------- --------------- Total other operating expenses 585 409 1,050 ------------- --------------- --------------- Total operating expenses 660 412 1,155 ------------- --------------- ---------------
5. Finance expense
Six months from Period from Period from 1 July 2018 18 April 2017 18 April 2017 to to to 31 December 31 December 30 June 2018 2017 2018 (unaudited) (unaudited) (audited) GBP'000 GBP'000 GBP'000 ------------- --------------- --------------- Interest payable on loan borrowings 463 - 419 Amortisation of loan arrangement fee 39 6 43 Other finance costs - - 25 ------------- --------------- --------------- Total 502 6 487 ------------- --------------- ---------------
6. Taxation
Six months from Period from Period from 1 July 2018 18 April 18 April 2017 to 2017 to to 31 December 31 December 30 June 2018 2017 2018 (unaudited) (unaudited) (audited) GBP'000 GBP'000 GBP'000 ------------- ------------- --------------- Tax charge comprises: Analysis of tax charge in the period Profit/(loss) before tax 4,148 (4,243) (895) ------------- ------------- --------------- Theoretical tax at UK corporation tax standard rate of 19.00% (31 December 2017:19.00%, 2018:19.00%) 788 (806) (170) Adjusted for: Exempt REIT income (788) (47) 170 Non taxable investment - 853 - losses ------------- ------------- --------------- Total - - - ------------- ------------- ---------------
The Group obtained REIT status on 13 October 2017, at which point any gains or losses arising from property business have been extinguished. As such, no deferred tax asset or liability has been recognised in the six month period.
Factors that may affect future tax charges
Due to the Group's status as a REIT and the intention to continue meeting the conditions required to retain approval as a REIT in the foreseeable future, the Group has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.
7. Earnings/(loss) per share and NAV per share
Six months from Period from Period from 1 July 2018 18 April 18 April 2017 to 2017 to to 31 December 31 December 30 June 2018 2017 2018 (unaudited) (unaudited) (audited) ------------- ------------- --------------- Earnings/(loss) per share Total comprehensive income/(loss) (GBP'000) 4,148 (4,243) (895) ------------- ------------- --------------- Weighted average number of shares 80,500,000 65,211,240 71,514,806 ------------- ------------- --------------- Earnings/(loss) loss per share (basic and diluted)(pence) 5.15 (6.51) (1.25) ------------- ------------- --------------- EPRA earnings per share: Total comprehensive income/(loss) (GBP'000) 4,148 (4,243) (895) Adjustment to total comprehensive income/(loss): Change in fair value of investment properties (GBP'000) (1,980) 4,491 2,853 ------------- ------------- --------------- Total EPRA earnings (GBP'000) 2,168 248 1,958 ------------- ------------- --------------- EPRA earnings per share (basic and diluted) (pence) 2.69 0.38 2.74 ------------- ------------- --------------- Adjusted earnings per share: EPRA earnings (basic and diluted) (GBP'000) 2,168 248 1,958 ------------- ------------- --------------- Adjustments: Rental income recognised in respect of tenant incentives and guaranteed fixed rental uplifts (GBP'000) (305) (70) (359) Amortisation of loan arrangement fee (GBP'000) 39 6 43 ------------- ------------- --------------- Adjusted earnings (basic and diluted) (GBP'000) 1,902 184 1,642 ------------- ------------- --------------- Adjusted earnings per share (basic and diluted) (pence) 2.36 0.28 2.30 ------------- ------------- --------------- NAV per share: Net assets (GBP'000) 78,457 74,281 76,422 ------------- ------------- --------------- Ordinary shares in issue 80,500,000 80,500,000 80,500,000 ------------- ------------- --------------- NAV per share (pence) 97.46 92.27 94.93 ------------- ------------- ---------------
EPS amounts are calculated by dividing the profit/(loss) for the period attributable to ordinary equity holders of the Company by the weighted average number of Ordinary Shares in issue during the period. EPRA NAV and EPRA NNNAV are equal to the NAV presented in the Consolidated Condensed Statement of Financial Position under IFRS and there are no adjusting items. As such, a reconciliation between these measures has not been presented.
8. Dividends paid
Six months Period from Period from from 18 April 18 April 2017 1 July 2018 2017 to to to 31 December 30 June 31 December 2017 2018 2018 (unaudited) (audited) (unaudited) GBP'000 GBP'000 GBP'000 First interim dividend paid in respect of the period from incorporation to 30 September 2017 at 0.50p per Ordinary Share - 403 402 ------------- ------------- --------------- Second interim dividend paid in respect of the period 1 October 2017 to 31 December 2017 at 0.50p per Ordinary Share* - - 402 ------------- ------------- --------------- Third interim dividend paid in respect of the period 1 January 2018 to 31 March 2018 at 1.00p per Ordinary Share - - 806 ------------- ------------- --------------- First interim dividend paid in respect of the period from 1 April 2018 to 30 June 2018 at 1.25p per share 1,006 - - ------------- ------------- --------------- Second interim dividend paid in respect of the period from 1 July 2018 to 30 September 2018 at 1.375p per share 1,107 - - ------------- ------------- --------------- Total dividends paid during the period 2,113 403 1,610 ------------- ------------- ---------------
9. Investments
9.1) Investment property
Six months from 1 July 2018 to 31 December 2018 (unaudited) Period from Period from 18 April 18 April 2017 2017 to to 31 December 30 June Investment Investment 2017 2018 properties properties (unaudited) (audited) freehold leasehold Total Total Total GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 ------------ ------------ --------- ------------- --------------- UK Investment property As at beginning of year/period 53,740 45,350 99,090 - - Purchases and capital expenditure in the period 11,299 (444) 10,855 75,840 101,591 Revaluation of investment property 541 1,744 2,285 (4,421) (2,501) ------------ ------------ --------- ------------- --------------- Valuation 65,580 46,650 112,230 71,419 99,090 ------------ ------------ --------- ------------- --------------- Adjustment to fair value for rent smoothing (693) (70) (359) Adjustment for finance lease obligations 514 - 512 --------- ------------- --------------- Total Investment property 112,051 71,349 99,243 --------- ------------- --------------- Change in fair value of investment property Change in fair value before adjustments for lease incentives 2,285 (4,421) (2,501) Movements in finance lease (1) - 7 Adjustment to fair value for rent smoothing of lease income (304) (70) (359) --------- ------------- --------------- 1,980 (4,491) (2,853) --------- ------------- ---------------
Valuation of investment property
Valuation of investment property is performed by Knight Frank LLP and Savills (UK) Limited, accredited independent external valuers with recognised and relevant professional qualifications and recent experience of the location and category of the investment property being valued. Of the GBP112.23 million valuation, GBP105.58 million was provided by Knight Frank LLP and GBP6.65 million by Savills (UK) Limited.
The valuation of the Group's investment property at fair value is determined by the external valuer on the basis of market value in accordance with the internationally accepted RICS Valuation - Professional Standards (incorporating the International Valuation Standards).
The determination of the fair value of investment property requires the use of estimates such as future cash flows from assets (such as lettings, tenants' profiles, future revenue streams, capital values of fixtures and fittings, plant and machinery, any environmental matters and the overall repair and condition of the property) and discount rates applicable to those flows.
9.2) Fair value measurement hierarchy
The following table provides the fair value measurement hierarchy for non-current assets:
Quoted prices in active Significant Significant markets observable unobservable (Level inputs inputs 1) (Level 2) (Level 3) Total GBP'000 GBP'000 GBP'000 GBP'000 ----------- ------------- -------------- --------- 31 December 2018 Asset measured at fair value Investment property* - - 112,230 112,230 ------------ -------------- -------------- --------- - - 112,230 112,230 ------------ -------------- -------------- --------- Quoted prices in active Significant Significant markets observable unobservable (Level inputs inputs 1) (Level 2) (Level 3) Total 31 December 2017 GBP'000 GBP'000 GBP'000 GBP'000 Asset measured at fair value Investment property* - - 71,419 71,419 ------------ -------------- -------------- --------- - - 71,419 71,419 ------------ -------------- -------------- --------- Quoted prices in active Significant Significant markets observable unobservable (Level inputs inputs 1) (Level 2) (Level 3) Total 30 June 2018 GBP'000 GBP'000 GBP'000 GBP'000 Asset measured at fair value Investment property* - - 99,090 99,090 ------------ -------------- -------------- --------- - - 99,090 99,090 ------------ -------------- ---------------------- -------------- ---------
* before adjustments to fair value for straight lining of lease income.
Explanation of the fair value hierarchy:
Level 1 - Quoted prices for an identical instrument in active markets;
Level 2 - Prices of recent transactions for identical instruments and valuation techniques using observable market data; and
Level 3 - Valuation techniques using non-observable data.
Sensitivity analysis to significant changes in unobservable inputs within Level 3 of the hierarchy
The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy of the entity's portfolios of investment properties are:
1) Estimated Rental Value ('ERV')
2) Equivalent yield
Increases/(decreases) in the ERV (per sq ft per annum) in isolation would result in a higher/(lower) fair value measurement. Increases/(decreases) in the discount rate/yield in isolation would result in a lower/(higher) fair value measurement.
The significant unobservable inputs used in the fair value measurement, categorised within Level 3 of the fair value hierarchy of the portfolio of investment property and investments are:
Significant Fair value unobservable Class GBP'000 Valuation technique inputs Range -------------------- ----------- ---------------------- -------------- ----------------- 31 December 2018 ERV GBP3.74-GBP21.96 Equivalent 4.75%-6.89% Investment property 112,230 Income capitalisation yield -------------------- ----------- ---------------------- -------------- ----------------- 31 December 2017 ERV GBP4.50-GBP16.25 Equivalent 5.04%-7.63% Investment property 71,419 Income capitalisation yield -------------------- ----------- ---------------------- -------------- ----------------- 30 June 2018 ERV GBP3.50-GBP21.96 Equivalent 4.90%-7.06% Investment property 99,090 Income capitalisation yield -------------------- ----------- ---------------------- -------------- -----------------
Where possible, sensitivity of the fair values of Level 3 assets are tested to changes in unobservable inputs to reasonable alternatives.
Gains and losses recorded in profit or loss for recurring fair value measurements categorised within Level 3 of the fair value hierarchy are attributable to changes in unrealised gains or losses relating to investment property held at the end of the reporting period.
The carrying amount of the assets and liabilities, detailed within the Consolidated Condensed Statement of Financial Position, is considered to be the same as their fair value.
31 December 2018 Fair Value Change in equivalent Change in ERV yield GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 ----------- -------- ----------- ---------- Sensitivity Analysis +5% -5% +5% -5% Resulting fair value of investment property 112,230 113,199 111,480 108,497 116,383 ----------- -------- -------- ----------- ---------- 31 December 2017 Fair Value Change in equivalent Change in ERV yield GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 ----------- -------- -------- ----------- ---------- Sensitivity Analysis +5% -5% +5% -5% Resulting fair value of investment property 71,419 71,653 71,038 67,672 75,297 ----------- -------- -------- ----------- ---------- 30 June 2018 Fair Value Change in equivalent Change in ERV yield GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 -------- -------- ----------- ---------- Sensitivity Analysis +5% -5% +5% -5% Resulting fair value of investment property 99,090 100,194 98,288 94,152 104,744 ------------ -------- -------- ----------- ----------
Gains and losses recorded in profit or loss for recurring fair value measurements categorised within Level 3 of the fair value hierarchy are attributable to changes in unrealised gains or losses relating to investment property and investments held at the end of the reporting period.
There have been no transfers between Level 1 and Level 2 during any of the periods nor have there been any transfers in or out of Level 3.
10. Receivables and prepayments
31 December 31 December 30 June 2018 2017 (unaudited) (unaudited) 2018 GBP'000 GBP'000 (audited) GBP'000 ------------- ------------- ----------- Receivables Rent debtor 526 26 304 Other receivables 1,581 100 425 ------------- ------------- ----------- 2,107 126 729 Accrued income - 70 359 2,107 196 1,088 Prepayments Unamortised finance costs - 97 - Other prepayments 40 8 33 ------------- ------------- ----------- 40 105 33 ------------- ------------- ----------- Total 2,147 301 1,121 ------------- ------------- -----------
The aged debtor analysis of receivables which are past due is as follows:
31 December 31 December 30 June 2018 2017 (unaudited) (unaudited) 2018 GBP'000 GBP'000 (audited) GBP'000 ------------- ------------- ----------- Less than three months due 1,414 126 304 Between three and six months due 693 - 425 Between six and twelve months - - - due ------------- ------------- ----------- Total 2,107 126 729 ------------- ------------- -----------
11. Payables and accrued expenses
31 December 31 December 30 June 2018 2017 (unaudited) (unaudited) 2018 GBP'000 GBP'000 (audited) GBP'000 ------------- ------------- ----------- Deferred income 1,010 290 657 Accruals 276 204 262 Property acquisition costs* 7,076 - - Other creditors 494 753 1,033 ------------- ------------- ----------- Total 8,856 1,247 1,952 ------------- ------------- -----------
* Represents amount payable (including purchase costs) for Nailsea, Bristol. This property exchanged unconditionally on 21 December 2018 and completed on 17 January 2019. See Note 19 for further details.
12. Interest bearing loans and borrowings
31 December 31 December 30 June 2018 2017 2018 (unaudited) (unaudited) (audited) GBP'000 GBP'000 GBP'000 ------------- ------------- ----------- Bank borrowings drawn At the beginning of the period 30,000 - - Bank borrowings drawn in the period - - 30,000 ------------- ------------- ----------- Interest bearing loans and borrowings 30,000 - 30,000 ------------- ------------- ----------- Less: loan issue costs incurred (556) - (566) Plus: amortised loan issue 39 - - costs ------------- ------------- ----------- At the end of the period 29,483 - 29,434 ------------- ------------- ----------- Repayable between 1 and 2 - - - years Repayable between 2 and 5 30,000 - - years Repayable over 5 Years - - 30,000 ------------- ------------- ----------- Total facility available 30,000 - 30,000 ------------- ------------- -----------
The Group entered into a GBP30 million term loan facility with Canada Life Investments on 5 January 2018.
On 11 January 2019, the Group increased its loan facility by GBP11 million with its existing lender, Canada Life Investments, taking the total loan drawn down to GBP41 million. The weighted average interest cost of the Group's increased facility is 3.19% and is repayable on 20 October 2025.
Borrowing costs associated with the credit facility are shown as finance costs in Note 5 to these Consolidated Condensed Financial Statements.
13. Finance lease obligations
Finance leases are capitalised at the lease's commencement at the lower of the fair value of the property and the present value of the minimum lease payments. The present value of the corresponding rental obligations are included as liabilities.
The following table analyses the minimum lease payments under non-cancellable finance leases for each of the following periods:
31 December 31 December 2018 2017 (unaudited) (unaudited) 30 June GBP'000 GBP'000 2018 GBP'000 ------------- ------------- ---------- Within one year 34 - 34 ------------- ------------- ---------- After one year but not more than five years 150 - 150 More than five years 330 - 328 ------------- ------------- ---------- Total 514 - 512 ------------- ------------- ----------
14. Guarantees and commitments
Operating lease commitments - as lessor
The Company has entered into commercial property leases on its investment property portfolio. These noncancellable leases have a remaining term of between 3 and 115 years.
Future minimum rentals receivable under non-cancellable operating leases as at 31 December 2018 are as follows:
31 December 31 December 30 June 2018 2017 (unaudited) (unaudited) 2018 GBP'000 GBP'000 (audited) GBP'000 ------------- ------------- ----------- Within one year 6,142 4,045 5,738 After one year but not more than five years 24,590 16,090 23,187 More than five years 116,763 81,018 102,427 ------------- ------------- ----------- Total 147,495 101,153 131,352 ------------- ------------- -----------
During the six months ended 31 December 2018 there were nil contingent rents recognised as income (31 December 2017: GBPnil, 30 June 2018: GBPnil).
15. Investment in subsidiaries
The Company has two wholly-owned subsidiaries disclosed below:
Country of Name and company registration Date of incorporation Principal Ordinary number and incorporation activity Shares held ---------------------------- -------------------- ------------------------- ------------- -------------- AEW UK Long Lease REIT Holdco Limited England and 7 November Real Estate (Company number 11052186) Wales 2017 Company 73,158,502* AEW UK Long Lease REIT 2017 Limited England and Real Estate (Company number 10754641) Wales 4 May 2017 Company 73,158,501*
*Ordinary shares of GBP1.00 each
AEW UK Long Lease REIT plc as at 31 December 2018 owns 100% controlling stake of AEW UK Long Lease REIT Holdco Limited.
AEW UK Long Lease REIT Holdco Limited holds 100% of AEW UK Long Lease REIT 2017 Limited.
Both AEW UK Long Lease REIT Holdco Limited and AEW UK Long Lease REIT 2017 Limited are registered at 6th Floor, 65 Gresham Street, London, England, EC2V 7NQ.
16. Issued share capital
Number of Ordinary GBP'000 Shares -------- ------------- For the six months from 1 July 2018 to 31 December 2018 (unaudited) Ordinary Shares issued and fully paid At the beginning and end of the period 805 80,500,000 -------- ------------- Number of Ordinary GBP'000 Shares -------- ------------- For the period 18 April 2017 to 31 December 2017 (unaudited) Ordinary Shares issued and fully paid At the beginning of the period - 1 Issued on admission to trading on the London Stock Exchange on 6 June 2017 805 80,499,999 -------- ------------- At the end of the period 805 80,500,000 -------- ------------- Number of Ordinary GBP'000 Shares -------- ------------- For the period 18 April 2017 to 30 June 2018 (audited) Ordinary Shares issued and fully paid At the beginning of the period - 1 Issued on admission to trading on the London Stock Exchange on 6 June 2017 805 80,499,999 -------- ------------- At the end of the period 805 80,500,000 -------- -------------
17. Share premium account
Six months Period from Period from from 18 April 18 April 2017 1 July 2018 2017 to to to 31 December 30 June 31 December 2017 2018 2018 (unaudited) (audited) (unaudited) GBP'000 GBP'000 GBP'000 -------------- ------------- --------------- The share premium relates to amounts subscribed for share capital in excess of nominal value: Balance at the beginning - - - of the period Issued on admission to trading on the London Stock Exchange on 6 June 2017 - 79,695 79,695 Share issue costs - (1,573) (1,573) Cancellation of share premium - (78,122) (78,122)
-------------- ------------- --------------- Balance at the end of - - - the period -------------- ------------- ---------------
18. Transactions with related parties
As defined by IAS 24 Related Party Disclosures, parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions.
Subsidiaries
AEW UK Long Lease REIT plc as at 31 December 2018 owns 100% controlling stake in AEW UK Long Lease REIT Holdco Limited and AEW UK Long Lease REIT 2017 Limited respectively.
Directors
For the six months ended 31 December 2018, the Directors of the Group are considered to be the key management personnel. Directors' remuneration is disclosed in Note 4.
Investment Manager
The Group is party to an Investment Management Agreement, with the Investment Manager, pursuant to which the Group has appointed the Investment Manager to provide investment management services relating to the respective assets on a day-to-day basis in accordance with their respective investment objectives and policies, subject to the overall supervision and direction of the Board of Directors.
Under the Investment Management Agreement, the Investment Manager receives a management fee which is calculated and accrued monthly at a rate equivalent to 0.75% per annum of NAV (excluding un-invested fund raising proceeds) and paid quarterly. During the six months ended 31 December 2018, the Group incurred GBP282,952 (period 18 April 2017 to 31 December 2017: GBP105,084, period 18 April 2017 to 30 June 2018: GBP362,589) in respect of investment management fees and expenses of which GBP143,511 was outstanding at 31 December 2018 (period ended 31 December 2017: GBP105,084, period ended 30 June 2018: GBP128,793).
19. Events after reporting date
Dividend
On 31 January 2019, the Board declared its second interim dividend of 1.375 pence per share in respect of the period from 1 October 2018 to 31 December 2018. This will be paid on 28 February 2019 to shareholders on the register as at 8 February 2019. The ex-dividend date was 7 February 2019.
Credit facility
On 11 January 2019, the Group increased its loan facility by GBP11 million with its existing lender, Canada Life Investments, taking the total loan drawn down to GBP41 million. The weighted average interest cost of the Group's increased facility is 3.19% and is repayable on 20 October 2025.
Property acquisitions
On 17 January 2019, the Group announced the completion of the acquisition of a Care Home in Nailsea, Bristol for GBP6.65 million, reflecting a NIY of 5.8%, comprising a 62-room, purpose built care home located in an affluent suburb approximately 8 miles south west of Bristol, fully let, on a new 30 year lease, operated by Handsale Ltd, an established national provider of care services for the elderly. A new 30-year fully repairing and insuring lease has been granted by the Group from the date of the acquisition providing the Group with annual rental uplifts in line with RPI, with a minimum uplift level of 1% and a cap of 4%.
On 18 February 2019, the Group acquired the long leasehold interest of 53 Victoria Road, Woolston for GBP2.06 million from YMCA Nursery by way of a sale and leaseback. The purchase price reflects a NIY of 5.9%. This asset comprises a modern, purpose built nursery facility close to Southampton City Centre and the Centenary Quay development which has seen the development of some 1,500 new homes since 2012. The property is fully let to the charity operator YMCA Fairthorne Limited, a regional operation of the YMCA, the world's largest youth charity and provides the Group with an income stream of 25 years from completion of the acquisition which will increase annually in line with RPI.
EPRA UNAUDITED PERFORMANCE MEASURES CALCULATIONS
Calculation of EPRA NIY and 'topped-up' NIY
31 December 31 December 30 June 2018 2017 2017 GBP'000 GBP'000 GBP'000 ------------ ------------ --------- Investment property - wholly-owned 112,230 71,419 99,090 Allowance for estimated purchasers' costs 7,632 4,856 6,738 ------------ ------------ --------- Gross up completed property portfolio valuation 119,862 76,275 105,828 ------------ ------------ --------- Annualised cash passing rental income 6,550 4,166 5,638 Property outgoings (40) (5) (48) ------------ ------------ --------- Annualised net rents 6,510 4,161 5,590 ------------ ------------ --------- Expiration of rent-free periods and fixed rent uplifts 1,584 971 1,284 ------------ ------------ --------- 'Topped-up' net annualised rent 8,094 5,132 6,874 ------------ ------------ --------- EPRA NIY 5.43% 5.45% 5.28% EPRA 'topped-up' NIY 6.75% 6.73% 6.50%
EPRA NIY basis of calculation
EPRA NIY is calculated as the annualised net rent, divided by the gross value of the completed property portfolio.
The valuation of grossed up completed property portfolio is determined by our external valuers as at 31 December 2018, plus an allowance for estimated purchasers' costs. Estimated purchasers' costs are determined by the relevant stamp duty liability, plus an estimate by our valuers of agent and legal fees on notional acquisition. The net rent deduction allowed for property outgoings is based on our valuers' assumptions on future recurring non-recoverable revenue expenditure.
In calculating the EPRA 'topped-up' NIY, the annualised net rent is increased by the total contracted rent from expiry of rent-free periods and future contracted rental uplifts.
Calculation of EPRA Vacancy Rate
31 December 31 December 30 June 2018 2017 2018 GBP'000 GBP'000 GBP'000 ------------ ------------ --------- Annualised potential rental value of vacant premises - - 16 Annualised potential rental value for the completed property portfolio 6,537 4,265 5,841 ------------ ------------ --------- EPRA Vacancy Rate 0% 0% 0.27% ------------ ------------ ---------
Calculation of EPRA Cost Ratios
31 December 31 December 30 June 2018 2017 2018 GBP'000 GBP'000 GBP'000 ------------ ------------ --------- Administrative/operating expenses per IFRS income statement 660 412 1,155 Less: Ground rent costs (18) - - ------------ ------------ --------- EPRA Costs (including direct vacancy costs) 642 412 1,155 Direct vacancy costs (18) - - EPRA Costs (excluding direct - - vacancy costs) 642 Gross Rental Income 3,311 666 3,226 ------------ ------------ --------- EPRA Cost Ratio (including direct vacancy costs) 19.36% 61.90% 35.80% EPRA Cost Ratio (excluding direct vacancy costs) 18.86% 61.90% 35.80%
COMPANY INFORMATION
Share Register Enquiries
The register for the Ordinary Shares is maintained by Computershare Investor Services PLC. In the event of queries regarding your holding, please contact the Registrar on 0370 707 1874 or email: web.queries@computershare.co.uk.
Changes of name and/or address must be notified in writing to the Registrar, at the address shown below. You can check your shareholding and find practical help on transferring shares or updating your details at www.investorcentre.co.uk. Shareholders eligible to receive dividend payments gross of tax may also download declaration forms from that website.
Share Information
Ordinary GBP0.01 Shares 80,500,000 SEDOL Number BDVK708 ISIN Number GB00BDVK7088 Ticker/TIDM AEWL
Share Prices
The Company's Ordinary Shares are traded on the Main Market of the London Stock Exchange.
Annual and Interim Reports
Copies of the Interim Report will be available from the Group's website at www.aewukllreit.com.
Provisional Financial Calendar
31 December 2018 Half-year end February 2019 Announcement of interim results 30 June 2019 Year end September 2019 Announcement of annual results October 2019 Annual General Meeting Directors Depositary Steve Smith (Independent Non-executive Langham Hall UK Depositary Chairman) LLP Jim Prower (Independent Non-executive 5 Old Bailey Director) London Alan Sippetts (Independent Non-executive EC4M 7BA Director) Registered Office Administrator 6th Floor Link Alternative Fund Administrators 65 Gresham Street Limited London Beaufort House EC2V 7NQ 51 New North Road Exeter EX4 4EP Investment Manager Company Secretary AEW UK Investment Management LLP Link Company Matters Limited 33 Jermyn Street 6th Floor London 65 Gresham Street SW1Y 6DN London Tel: 020 7016 4880 EC2V 7NQ Website: www.aewuk.co.uk Property Manager Registrar Workman LLP Computershare Investor Services Alliance House PLC 12 Caxton Street The Pavilions London Bridgwater Road SW1H 0QS Bristol BS13 8AE Corporate Broker Auditor Cenkos Securities Plc KPMG LLP 6 7 8 Tokenhouse Yard 15 Canada Square London London EC2R 7AS E14 5GL Legal Adviser to the Company Valuer Gowling WLG (UK) LLP Knight Frank LLP 4 More London Riverside 55 Baker Street London London SE1 2AU W1U 8AN
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
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