DJ AEW UK REIT plc: Half-yearly Results
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AEW UK REIT plc (AEWU) AEW UK REIT plc: Half-yearly Results 15-Nov-2018 / 07:00 GMT/BST Dissemination of a Regulatory Announcement, transmitted by EQS Group. The issuer is solely responsible for the content of this announcement. AEW UK REIT PLC Interim Report and Financial Statements for the six months ended 30 September 2018 Financial Highlights ? Unaudited Net Asset Value ('NAV') of GBP151.65 million and 100.06 pence per share as at 30 September 2018 (31 March 2018: GBP146.03 million and 96.36 pence per share). ? Operating profit before fair value changes of GBP6.86 million for the period (six months to 31 October 2017: GBP4.96 million). ? Unadjusted profit before tax ('PBT') of GBP11.68 million and 7.71 pence per share for the period (six months to 31 October 2017: GBP6.99 million and 5.60 pence per share). ? EPRA Earnings Per Share ('EPRA EPS') for the period were 4.10 pence (six months to 31 October 2017: 3.73 pence). See below for more details. ? Total dividends of 4.00 pence per share have been declared for the period (six months to 31 October 2017: 4.00 pence per share). ? Total shareholder return for the period was 3.56% (six months to 31 October 2017: 5.17%). See below for more details. ? NAV total return for the period was 7.99% (six months to 31 October 2017: 6.06%). See below for definition. ? The price of the Company's Ordinary Shares on the Main Market of the London Stock Exchange was 95.01 pence per share as at 30 September 2018 (31 March 2018: 95.60 pence per share). ? As at 30 September 2018, the Company had a GBP60.00 million (31 March 2018: GBP60.00 million) term credit facility with The Royal Bank of Scotland International Limited ('RBSI') and was geared to 25.84% of the Gross Asset Value (31 March 2018: 26.00%). ? Since the period end, the Company has extended the term of its loan facility with RBSI by three years up to 22 October 2023. ? The Company held cash balances totalling GBP8.15 million as at 30 September 2018 (31 March 2018: GBP4.71 million), of which GBP7.40 million (31 March 2018: GBP3.57 million) was held for the purpose of capital acquisitions. Property Highlights ? As at 30 September 2018, the Company's property portfolio had a fair value of GBP193.53 million (31 March 2018: GBP192.34 million) and a historical cost (including purchase costs and capital expenditure) of GBP191.92 million (31 March 2018: GBP196.64 million), representing an increase of GBP1.61 million (31 March 2018: decrease of GBP4.30 million), or 0.84% (31 March 2018: decrease of 2.19%). ? The majority of assets that have been acquired are fully let and the portfolio had a vacancy rate of 3.27% as at 30 September 2018 (31 March 2018: 7.10%). ? Rental income generated in the period was GBP8.46 million (six months to 31 October 2017: GBP6.50 million). The number of tenants as at 30 September 2018 was 95 (31 March 2018: 104). ? Average portfolio Net Initial Yield of 7.90% (31 March 2018: 7.74%). See below for more details. ? Weighted average unexpired lease term ('WAULT') of 5.00 years (31 March 2018: 5.08 years) to break and 6.18 years (31 March 2018: 6.16 years) to expiry. See below for more details. Chairman's Statement Overview I am pleased to present the unaudited interim results of the Company for the six month period from 1 April 2018 to 30 September 2018. As at 30 September 2018, the Company had established a diversified portfolio of 36 commercial investment properties throughout the UK with a value of GBP193.53 million. On a like-for-like basis, the portfolio valuation increased by 3.10% over the six months. At the start of the period, the Company was fully invested. As such, the key focus has been on demonstrating the portfolio's ability to deliver income returns to support the Company's dividend target. Dividends of 4.00 pence per share have been declared in relation to the six month period, in line with the target of 8.00 pence per share per annum. These dividends were fully covered by EPRA EPS, which were 4.10 pence, reflecting the high-yielding nature of the portfolio. The Directors believe that this level of earnings can be sustained over the coming quarters, based on the portfolio's current leasing profile and expectations of lease renewals and rent reviews. Towards the end of 2017 and at the beginning of 2018, the Company deployed the proceeds of the most recent capital raise in October 2017. From the date of the share issue and up to 31 March 2018, the Company made seven acquisitions totalling GBP49.72 million, which fully utilised the capital raised, as well as an additional GBP17.50 million of debt. These acquisitions provided a boost to earnings during this reporting period, as the seven assets had a combined Net Initial Yield equating to 9.1% on the purchase price and generated a combined rental income of GBP2.41 million or 1.59 pence per share to bring our EPRA earnings back in line with the dividend target, having been diluted following the capital raise. An important factor in achieving such returns from high yielding new investments has been the Investment Manager's implementation of the Company's Investment Strategy through a robust stock selection process. However, active asset management has also played a key role in maximising returns and value from the existing portfolio. The vacancy rate has fallen from 7.10% at 31 March 2018 to 3.27% as at 30 September 2018, partly as a result of new lettings during the period. The most notable of these were the letting of Orion House in Oxford at a contracted rent of GBP179,410 per annum and the letting of Third Floor, Bath Street, Glasgow at a contracted rent of GBP88,608 per annum. Lease renewals have also been completed at First Floor, Queen Square, Bristol, increasing the contracted rent from GBP66,623 to GBP94,500 per annum and at Cedar House, Gloucester, increasing contracted rent from GBP300,000 to GBP321,000 per annum. The other contributor to the fall in vacancy rate has been the Company's divestment of largely vacant premises. The Company disposed of Floors 1-9, Pearl House, Nottingham, in April 2018, retaining the fully let ground floor accommodation. Further to this, 18-36 Chapel Walk, Sheffield, was sold in August 2018 with the fully let adjoining units, 11-15 Fargate, Sheffield, being retained. This brought in combined gross disposal proceeds of GBP4.55 million and eliminated c. 26% of the vacant Estimated Rental Value ('ERV') as at 31 March 2018. The Company will benefit from lower void costs and the sales proceeds contributed to GBP7.40 million cash available for investment as at 30 September 2018, allowing the potential to further enhance earnings in future, should appropriate opportunities arise. The Company's share price was 95.01 pence per share as at 30 September 2018, representing a 5.05% discount to NAV. The share price has been trading at a discount to NAV since 30 June 2018, having reached a peak for the period at 99.40 pence per share, or a 3.15% premium to NAV, on 9 May 2018. Over the six month period, the Company generated a shareholder total return of 3.56% and a NAV Total Return of 7.99%. Financial Results 6 month 6 month period from period from 11 month 1 April 2018 1 May 2017 to period from to 30 31 October September 2018 2017 (unaudited) (unaudited) 1 May 2017 to 31 March 2018 (audited) GBP'000 GBP'000 GBP'000 Operating Profit 6,859 4,960 9,601 before fair value changes (GBP'000) Operating Profit 12,334 7,297 10,472 (GBP'000) Profit after Tax 11,678 6,989 9,820 (GBP'000) Earnings Per Share 7.71 5.60 7.17 (basic and diluted) (pence) EPRA Earnings Per 4.10 3.73 6.56 Share (basic and diluted) (pence) Ongoing Charges 1.26 1.30 1.24 (%) Net Asset Value 100.06 97.80 96.36 per share (pence) EPRA Net Asset 100.06 97.78 96.34 Value per share (pence) Financing There were no drawdowns or repayments of the loan facility during the period and the Company's loan balance remained at GBP50.00 million as at 30 September 2018 (31 October 2017: GBP32.50 million; 31 March 2018: GBP50.00 million), producing a gearing of 25.84% (31 October 2017: 22.0%; 31 March 2018: 26.00%). The amount available under the facility was GBP60.00 million as at 30 September 2018 (31 October 2017: GBP40.00 million; 31 March 2018: GBP60.00 million). The unexpired term of the facility was 2.1 years as at 30 September 2018 (31 October 2017: 3.0 years; 31 March 2018: 2.6 years) Since the period end, the Company has extended the term of the facility by three years up to 22 October 2023, to mitigate the financing risk ahead of Brexit. The margin
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remains unchanged, and this attractively priced facility is accretive to the Company's performance. The loan attracted interest at 3 month LIBOR +1.4%, which equated to an all-in rate of 2.16% as at 30 September 2018 (31 October 2017: 1.69%; 31 March 2018: 2.11%). The Company is protected from a significant rise in interest rates as it has interest rate caps with a combined notional value of GBP36.51 million (31 October 2017: GBP26.51 million; 31 March 2018: GBP36.50 million), resulting in the loan being 73% hedged (31 October 2017: 82%; 31 March 2018: 73%). The long term gearing target remains 25% or less, however the Company can borrow up to 35% of Gross Asset Value ('GAV') in advance of an expected capital raise or asset disposal. The Board and Investment Manager will continue to monitor the level of gearing and may adjust the target gearing according to the Company's circumstances and perceived risk levels. Dividends The Company has continued to deliver on its target of paying annualised dividends of 8.00 pence per share per annum. During the period, the Company has declared and paid two quarterly dividends of two pence per Ordinary Share, exactly in line with its target. On 22 October 2018, the Board declared an interim dividend of two pence per Ordinary Share in respect of the period from 1 July 2018 to 30 September 2018. This interim dividend will be paid on 30 November 2018 to shareholders on the register as at 2 November 2018. The Directors will declare dividends taking into account the current level of the Company's earnings and the Directors' view on the outlook for sustainable recurring earnings. As such, the level of dividends paid may increase or decrease from the current annual dividend of 8.00 pence per share. Based on current market conditions and expected returns on its rental business, the Company expects to pay an annualised dividend of 8.00 pence per share in respect of the year ending 31 March 2019 and for the interim period ending 30 September 2019. Outlook The Board and the Investment Manager are pleased with the strong income returns delivered to shareholders to date. Based on annualised dividend payments of 8.00 pence per share, the Company delivered a dividend yield of 8.42% as at 30 September 2018. The Company was fully invested at the start of the period and achieved returns during the period which fully covered its dividend payments. The Board expects this level of returns to continue, based on the projected income from the portfolio which had a Net Initial Yield of 7.90% and a Reversionary Yield of 7.71% as at 30 September 2018. Whilst the vacancy rate has been reduced significantly during the period, to 3.27% as at 30 September 2018, there is still further value to be gained through asset management initiatives in the short term. The portfolio has a WAULT of 5.00 years to break and 6.18 years to expiry and those lease events arising in the near future will provide the opportunity to increase and extend income streams from certain assets. A balance of GBP7.40 million cash for investment as at 30 September 2018 will allow the Company to take advantage of opportunities for acquisitions or capex projects, which could also enhance income streams and add value to the portfolio. In the wider economic environment, Britain's exit from the European Union ('EU') is approaching and by the end of 2018 it should be clear whether this is to be with or without a trade deal. Whilst the general opinion is that a "no deal" scenario would have a negative impact on the property market, it is hoped that some clarity will make it easier for businesses to plan and invest, regardless of the outcome. We consider the portfolio to be defensively positioned in the event of a no deal Brexit, with no exposure to London offices - the sector most likely to be negatively impacted. The Company's investment is primarily focussed on strong, regional centres and exposure is well diversified both geographically and by sector, which serves to mitigate risk. Looking forward, our focus remains on continuing to grow the Company with share issues as part of a 12-month share issuance programme, subject to market conditions. The Investment Manager will focus on finding further acquisitions which will deliver an attractive return as part of a well-diversified portfolio. Mark Burton Chairman 14 November 2018 Key Performance Indicators KPI AND DEFINITION RELEVANCE TO PERFORMANCE STRATEGY 1. Net Initial Yield The Net Initial 7.90% Yield is in line with the Company's target dividend A representation to yield meaning that, at 30 September 2018 the investor of what after costs, the (31 March 2018: their initial net Company should have 7.74%). yield would be at a the ability to meet predetermined its target dividend purchase price after through property taking account of income. all associated costs. E.g. void costs and rent free periods 2. True Equivalent An Equivalent Yield 7.92% Yield profile in line with the Company's target dividend yield shows that, after costs, at 30 September 2018 The average weighted the Company should (31 March 2018: return a property have the ability to 8.20%). will produce meet its proposed according to the dividend through present income and property income. estimated rental value assumptions, assuming the income is received quarterly in advance. 3. Reversionary A Reversionary Yield 7.71% Yield profile that is in line with an Initial Yield profile shows a potentially at 30 September 2018 The expected return sustainable income (31 March 2018: the property will stream that can be 8.03%). provide once rack used to meet rented. dividends past the expiry of a property's current leasing arrangements. 4. Weighted Average The Investment 6.18 years Unexpired Lease Term Manager believes to expiry that current market conditions present an opportunity at 30 September 2018 whereby assets with (31 March 2018: 6.16 The average lease a shorter unexpired years). term remaining to lease term are often expiry across the mispriced. It is portfolio, weighted also the Investment by contracted rent. 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 The Investment 5.00 years Unexpired Lease Term Manager believes to break that current market conditions present an opportunity at 30 September 2018 whereby assets with (31 March 2018: 5.08 The average lease a shorter unexpired years). term remaining to lease term are often break, across the mispriced. It is portfolio weighted also the Investment by contracted rent. 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 The NAV reflects the GBP151.65 million Company's ability to grow the portfolio and add value to it NAV is the value of throughout the life at 30 September 2018 an entity's assets cycle of its assets. (31 March 2018: minus the value of GBP146.03 million). its liabilities. 7. Leverage (Loan to The Company utilises 25.84% GAV) borrowings to enhance returns over the medium term. Borrowings will not at 30 September 2018 The proportion of exceed 35% of GAV (31 March 2018: the property (measured at 26.00%). portfolio that is drawdown) with a funded by long term target of borrowings. 25% or less of GAV. 8. Vacant ERV The Company's aim is 3.27% to minimise vacancy of the properties. A low level of The space in the structural vacancy at 30 September 2018 property portfolio provides an (31 March 2018: which is currently opportunity for the 7.10%). unlet, as a Company to capture percentage of the rental uplifts and total ERV of the manage the mix of portfolio. tenants within a property. 9. Dividend The dividend 4.00 pence per share reflects the Company's ability to deliver a Dividend declared in sustainable income for the six months to relation to the stream from its 30 September 2018. year. The Company portfolio. targets a dividend of 8.00 pence per Ordinary Share per This supports an annum. annualised target of
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8.00 pence per share (six months to 31 October 2017: 4.00 pence per share). 10. Ongoing Charges The Ongoing Charges 1.26% ratio provides a measure of total costs associated The ratio of total with managing and for the six months to administration and operating the 30 September 2018 operating costs Company, which (six months to 31 expressed as a includes the October 2017: 1.30%). percentage of management fees due average NAV to the Investment throughout the Manager. This period. measure is to provide investors with a clear picture of operational costs involved in running the Company. 11. Profit Before The PBT is an GBP11.68 million Tax indication of the Company's financial performance for the period in which its for the six months to PBT is a strategy is 30 September 2018 profitability exercised. (six months to 31 measure which October 2017: GBP6.99 considers the million). Company's profit before the payment of income tax. 12. Total This reflects the 3.56% Shareholder Return return seen by shareholders on their shareholdings. for the six months to The percentage 30 September 2018 change in the share (six months to 31 price assuming October 2017: 5.17%). dividends are reinvested to purchase additional Ordinary Shares. 13. EPRA EPS This reflects the 4.10 pence per share Company's ability to generate earnings from the portfolio Earnings from core which underpins for the six months to operational dividends. 30 September 2018 activities. A key (six months to 31 measure of a October 2017: 3.73 company's underlying pence per share). operating results from its property rental business and an indication of the extent to which current dividend payments are supported by earnings. See note 7. Investment Manager's Report MARKET OUTLOOK UK Economic Outlook A spell of adverse weather conditions, "the Beast from the East", contributed to a temporary dip in output in the first quarter of 2018. Momentum has recovered and GDP growth is expected to have bounced back to 0.4% for Q2 2018, which saw a rise in consumer spending encouraged by a summer heatwave, the royal wedding and the football World Cup. Unemployment has also remained at its lowest level since the mid-1970s. This Q2 performance encouraged the Monetary Policy Committee (the "MPC") to vote to increase interest rates from 0.50% to 0.75% in August 2018. This is after rates were increased by 0.25% in November 2017, and came despite concerns about the economic impact if the UK leaves the EU without a trade deal. The Bank of England governor, Mark Carney, suggested that there would be a further increase in interest rates if economic growth continued to recover, however it was also signalled that there could be a reversal in sentiment in the event of a disorderly Brexit. The longer term outlook remains uncertain as global economic growth has begun to soften with tariff wars between the US and China having an impact. Although UK unemployment has remained low, wage growth has struggled to keep up with inflation and real wage growth was only 0.1% for the three months to 30 June 2018. One of the key sources of uncertainty remains that of Brexit and the possibility of the UK leaving the EU without a trade deal. This is a very real possibility after European Council President, Donald Tusk, rejected Theresa May's proposals at an EU summit in September 2018. Although the Irish border issue remains a stumbling block, it is hoped that the outlook will become clearer during the remaining months of 2018. The EU had been considering a special summit in November 2018 to agree the terms of the UK's withdrawal, however a lack of progress during September and October 2018 could mean that December 2018 will be the final opportunity to reach an agreement. If the UK government cannot deliver a Brexit deal, the possibility of a general election could also bring about further uncertainty in terms of political leadership and policy. However, against this mixed economic outlook, UK property continues to perform well. UK Real Estate Outlook The UK commercial property market continues to perform strongly, driven by an annual income return of over 5% for the year to June 2018 (IPD). The yield gap between property and the risk-free rate has remained well above the long-run average during 2018 and the upswing in the property cycle has been extended by a prolonged period of low interest rates and the weight of investment. Although official interest rates were raised during August 2018, expectations are that upward pressure on property yields is not imminent. The lack of clarity regarding the Brexit terms remains a major concern for the market however, it is generally acknowledged that any impact would be felt most strongly in the office sector, particularly in the City of London. The results of negotiations during the remainder of 2018 should give more clarity as to the final outcome however, we have seen a weakening in investment activity across the market as a whole so far in 2018, compared with the comparative period of 2017. We are seeing notable polarisation between performance delivered by the sectors, with industrials delivering higher total returns and the retail market continuing to struggle with poor sales and numerous company voluntary arrangements ('CVA's). Sector Outlook Industrial The industrial sector continues to outperform other sectors, delivering total returns of 5.1% for Q2 2018 (IPD), and represents the largest proportion of our portfolio with 44% of the valuation and 43% of the total passing rental income. The strong performance is in part due to retailers investing heavily in their supply chains to meet logistics demands but is also as a result of a lack of any significant development activity undertaken in smaller units during the current cycle. As tenant demand is increasing there is limited supply of stock and this is leading to rental growth in strong locations across the country. Rental growth in the industrial sector has been witnessed in the Company's portfolio with our average industrial Estimated Rental Value ('ERV') increasing from GBP3.47 per sq ft to GBP3.53 per sq ft over the six months ended 30 September 2018. Rental growth, either at or above expectations, has been crystallised at units in Runcorn and Wakefield, where lease renewals and new lettings have been achieved at rents higher than ERV. We expect to see continued growth in the industrial sector, both in terms of income and capital value, and are seeing attractive opportunities for acquisitions. Offices Total returns for the offices sector were 1.6% for Q2 2018 (IPD), with Central London Offices outperforming offices in the rest of the UK. We expect office rents outside London to remain stable in the coming years, as development in most cities has already peaked. Higher residential values and the relaxation of planning controls mean that many towns and cities are losing both office and industrial space. For this reason, our stock selection process often focuses on locations where purchase values are well below that of surrounding residential uses, as well as focussing on locations with high levels of tenant demand. Our office holding, the second largest with 22% of portfolio valuation, has provided opportunities for asset management initiatives to drive rental value as well as achieve permitted residential consents to improve assets' residual value and ensure downside protection. During the six months ended 30 September 2018, notable lettings were made at Glasgow, Oxford and Gloucester, contributing an additional c. GBP289,000 contracted rent and helping to increase the valuation of the Company's office portfolio by 9.75% on a like-for-like basis. Alternatives There has been a recent trend towards non-mainstream sectors, as investors seek to benefit from greater diversification as well as accessing long-term income trends. The alternatives sector achieved total returns of 2.6% for Q2 2018 (IPD). Indeed, we have taken advantage of opportunities to invest in the alternative sectors at attractive levels of pricing. Two of the Company's most recent acquisitions, being a large secure parking facility in Corby, and a leisure park in Dagenham, acquired in February and March 2018 respectively, provide accretive levels of income as well as capital growth potential. We expect the alternatives sector to grow further as investors seek long income or higher yields. It is a sector in which we have significant expertise and will continue to seek opportunities. Retail Structural issues have been seen most notably in the retail sector where a number of administrations, CVA's and store rationalisations by occupiers have turned investor sentiment against the sector and this is reflected in total returns of just 0.5% for Q2 2018 (IPD). The Company has defensively
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positioned its retail acquisitions to take account of recent trends and our retail assets are located in town and city centres with large catchment populations and in many cases are supported by strong alternative use values and asset management options. As a result, our income streams to date have not been significantly impacted by CVAs. Financial Results Net rental income earned from the portfolio for the six months ended 30 September 2018 was GBP7.83 million (six months ended 31 October 2017: GBP5.86 million; 11 months ended 31 March 2018: GBP11.22 million), contributing to an operating profit before fair value changes and disposals of GBP6.86 million (six months ended 31 October 2017: GBP4.96 million; 11 months ended 31 March 2018: GBP9.60 million). The portfolio has seen a gain of GBP5.65 million in fair value of investment property over the period (six months ended 31 October 2017: GBP2.48 million; 11 months ended 31 March 2018: GBP1.01 million). The Company reported a loss on disposal of investment properties of GBP0.18 million (six months ended 31 October 2017: GBP0.22 million; 11 months ended 31 March 2018: GBP0.22 million), which relates to the disposals of Floors 1-9, Pearl House, Nottingham and 18-36, Chapel Walk, Sheffield. Administrative expenses, which include the Investment Manager's fee and other costs attributable to the running of the Company, were GBP0.97 million for the six month period (six months ended 31 October 2017: GBP0.90 million; 11 months ended 31 March 2018: GBP1.62 million). The Company incurred finance costs of GBP0.66 million during the period (six months ended 31 October 2017: GBP0.31 million; 11 months ended 31 March 2018: GBP0.65 million). The total profit before tax for the period of GBP11.68 million (six months ended 31 October 2017: GBP6.99 million; 11 months ended 31 March 2018: GBP9.82 million) equates to a basic earnings per share of 7.71 pence (six months ended 31 October 2017: 5.60 pence; 11 months ended 31 March 2018: 7.17 pence). The Company's NAV as at 30 September 2018 was GBP151.65 million or 100.06 pence per share ('pps') (31 October 2017: GBP148.22 million or 97.80 pence per share; 31 March 2018: GBP146.03 million or 96.36 pence per share). This is an increase of 3.70 pps or 3.84% over the six months, with the underlying movement in NAV set out in the table below: Pence per share GBP million NAV at 1 April 2018 96.36 146.03 Change in fair value of investment 3.73 5.65 property Change in fair value of derivatives (0.01) (0.02) Loss on disposal of investment (0.12) (0.18) property Income earned for the period 5.58 8.46 Expenses and net finance costs for the (1.48) (2.23) period Dividends paid (4.00) (6.06) NAV at 30 September 2018 100.06 151.65 EPRA earnings per share for the six month period were 4.10 pps which, based on dividends paid of 4.00 pps, reflects a dividend cover of 102.50%. Financing As at 30 September 2018, the Company had utilised GBP50.00 million (31 March 2018: GBP50.00 million) of an available GBP60.00 million (31 March 2018: GBP60.00 million) credit facility with RBSI, maturing in October 2020. Gearing as at 30 September 2018 was 25.84% (Loan to GAV) (March 2018: 26.00%). The loan attracts interest at LIBOR + 1.4% (31 March 2018: 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 GBP36.51 million (31 March 2018: GBP36.51 million) of the loan at strike rates of 2.5% on GBP26.51 million and 2.0% on GBP10.00 million (31 March 2018: 2.5% on GBP26.51 million and 2.0% on GBP10 million), meaning that the loan is 73% hedged (31 March 2018: 73%). On 22 October 2018, the Company extended the term of the loan facility by three years up to 22 October 2023. The Company has also entered into additional interest rate caps on a notional value of GBP46.51 million, effective from 20 October 2020 to 19 October 2023. The interest rate is capped at 2.00% per annum. The Company paid a premium of GBP512,000. Portfolio Activity There were no acquisitions made during the period. The following part disposals were made during the period: · Pearl Assurance House was purchased by the Company in May 2016 for GBP8.15 million. On 5 April 2018, the Company completed the sale of its office accommodation for gross proceeds of GBP3.65 million. The sale comprised the first to ninth floors, a ground floor reception and car parking spaces, providing a total area of 41,262 sq ft. The Company has retained the ground floor accommodation in the busy city centre location, totalling 28,432 sq ft, let to national retail operators including Costa Coffee, Poundland and Lakeland. The retained element provides a Net Initial Yield of 9.63% as at 30 September 2018, based on its valuation of GBP5.20 million. · On 6 August 2018, the Company completed the sale of 18-36, Chapel Walk, Sheffield for gross proceeds of GBP0.90 million. The units sold were 47.10% vacant by floor area. The Company has retained the fully let adjacent units 11/15 Fargate, totalling 5,495 sq ft. Asset Management We undertake active asset management to achieve rental growth, let vacant space and enhance value through initiatives such as refurbishments. During the period, key asset management initiatives have included: · Orion House, Oxford - In August 2018, the Company completed the letting of Orion House, Eastpoint Business Park, Oxford, to Genesis Cancer Care UK Limited. The lease is for a term of 25 years, at a rent of GBP179,410 per annum. There are five-yearly, upward only rent reviews linked to the Retail Price Index ('RPI') measure of inflation and the tenant benefits from a 12 month rent free period, followed by six years at half rent. The valuation of the property increased by 22.7% over the period, largely thanks to this transaction. · 225 Bath Street, Glasgow - In July 2018, the Company completed the letting of Third Floor East, 225 Bath Street, Glasgow, to International Correspondence Schools Limited. The lease is for a term of five years, with a tenant break option at the end of the third year, at a rent of GBP88,608 per annum. The tenant benefits from a ten month rent free period. Over the six months, the valuation of the property fell by 7.50%, despite the letting, which largely reflects the difficult local market conditions. · Cedar House, Gloucester - In June 2018, the Company completed a lease renewal to the Secretary of State for Communities and Local Government at its Cedar House office building in Gloucester. The property was acquired in December 2017 with the expectation of achieving a new three year lease at the passing rent of GBP300,000 per annum and this has been significantly exceeded with a 10 year lease at a rent of GBP321,000 per annum. No rent free incentive was offered to the tenant. As a result of this asset management initiative, the value of the building has risen by 20.3% over the six months. · 40 Queen Square, Bristol - In June 2018, the Company completed a reversionary lease renewal with tenant Ramboll Whitbybird Ltd. A ten year lease was signed to commence at the expiry of the tenant's current lease in November, although the tenant has the option to break at the end of the fifth year. The letting at a rent of GBP94,500 per annum proved a new high rental tone for unrefurbished space within the building at GBP23.00 per sq ft, as compared to a passing rent of GBP16.84 per sq ft. This represents an increase in rental income of 37% and the property saw an overall valuation uplift over the period of 13.08%. The property's valuation as at 30 September 2018 is 68.05% higher than its price at acquisition in December 2015. · Diamond Business Park, Wakefield - During June 2018, a new letting was completed at Diamond Business Park, Wakefield which was acquired by the Company in February 2018. Unit 7, totalling c. 13,700 sq ft, has been let to Wow Interiors Yorkshire Ltd for a six year term with tenant break options in years 2 and 4. Stepped rental increases have been agreed so that, if the tenant remains in occupation for the full term, the average rent received equates to GBP3.30 per sq ft as compared to an ERV of GBP3.00 per sq ft. The value of the building rose by 5.39% over the six month period. · Sarus Court, Runcorn - During the quarter the Investment Manager documented two rent reviews with CJ Services, its largest tenant at Sarus Court, Runcorn. The rent reviews at Units 1 and 2 date back to January 2017 and result in a combined rate of GBP5.25 per sq ft net effective. This supports a headline rent of c. GBP5.75 per sq ft which is GBP0.25 ahead of the property's ERV at the time of the letting. The property has seen an increase in valuation of 6.38% over the period. · Commercial Road, Portsmouth - the Company has completed a ten year lease renewal with Greggs Plc at its retail property located on Commercial Road, Portsmouth. The new rent of GBP20,500 per annum exceeds the unit's ERV at the time of letting by 11%. Greggs have been in occupation of the unit for ten years and have the option to break the lease after five years. Over the six months, the property's valuation fell by 4.24%, which reflects the general sentiment in the retail sector. Summary by Sector as at 30 September 2018 Gross Passing Occupancy WAULT Rental
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DJ AEW UK REIT plc: Half-yearly Results -5-
by to Number of Valuation Area ERV break Income ERV Sector Properties (GBPm) ('000 (%) (years) (GBPm) (GBPm) sq ft) Standard 5 25.95 169 99.9 3.8 2.78 2.16 Retail Retail 2 9.35 69 100.0 4.9 0.84 0.78 Warehouse Office 6 43.40 287 88.5 4.2 3.24 4.09 Industrial 20 84.88 2,160 98.9 5.1 7.28 7.62 Other 3 29.95 165 100.0 6.2 2.82 2.34 Total 36 193.53 2,850 96.7 5.0 16.96 16.99 Summary by Geographical Area as at 30 September 2018 Gross Passing Occupancy WAULT Rental to Number of Valuation Area by ERV break Income ERV Geographical Properties (GBPm) ('000 (%) (years) (GBPm) (GBPm) Area sq ft) Rest of 1 11.45 72 100.0 12.1 0.97 0.84 London South East 5 30.20 195 97.0 4.3 2.58 2.47 South West 3 23.40 125 100.0 4.3 1.73 1.75 Eastern 5 22.63 345 100.0 3.7 1.83 2.02 West 4 17.85 397 100.0 4.2 1.69 1.70 Midlands East 2 18.08 81 100.0 3.5 1.85 1.40 Midlands North West 5 16.35 315 99.8 4.7 1.47 1.35 Yorkshire 8 29.60 858 97.2 3.8 2.86 3.01 and Humberside Wales 2 14.72 376 100.0 10.6 1.25 1.29 Scotland 1 9.25 86 65.8 2.8 0.73 1.16 Total 36 193.53 2,850 96.7 5.0 16.96 16.99 Sector and Geographical Allocation by Market Value as at 30 September 2018 Sector Allocation Sector % Standard Retail 13 Retail Warehouse 5 Offices 23 Industrial 44 Other 15 Geographical Allocation Geographical % Rest of London 6 South East 16 South West 12 Eastern 12 West Midlands 9 East Midlands 9 North West 8 Yorkshire & Humberside 15 Wales 8 Scotland 5 Properties by Market Value Market Value Property Sector Region Range (GBPm) 1 2 Geddington Other (Sui East Midlands 10.0-15.0 Road, Corby Generis) 2 40 Queen Square, Offices South West 10.0-15.0 Bristol 3 Eastpoint 10.0-15.0 Business Park, Oxford Offices South East 4 London East 10.0-15.0 Leisure Park, Dagenham Other (Leisure) Rest of London 5 225 Bath Street, Offices Scotland 7.5-10.0 Glasgow 6 Above Bar 7.5-10.0 Street, Southampton Standard Retail South East 7 Gresford 7.5-10.0 Industrial Estate, Wrexham Industrial Wales 8 Apollo Business 5.0-7.5 Park, Basildon Industrial Eastern 9 Barnstaple Retail Warehouse South West 5.0-7.5 Retail Park 10 Commercial Road, 5.0-7.5 Portsmouth Standard Retail South East The Company's top ten properties listed above comprise 49.0% of the total value of the portfolio. Market Value Property Sector Region Range (GBPm) 11 Euroway Trading Yorkshire and Estate, Bradford Humberside Industrial 5.0-7.5 12 Langthwaite 5.0-7.5 Grange Industrial Estate, South Kirkby Yorkshire and Humberside Industrial 13 Oak Park, Industrial West Midlands 5.0-7.5 Droitwich 14 Odeon Cinema, Other (Leisure) Eastern 5.0-7.5 Southend 15 Pearl Assurance 5.0-7.5 House, Nottingham Standard Retail East Midlands 16 Sarus Court 5.0-7.5 Industrial Estate, Runcorn Industrial North West 17 Storeys Bar 5.0-7.5 Road, Peterborough Industrial Eastern 18 Bank Hey Street, Standard Retail North West<5.0 Blackpool Yorkshire and<5.0 Humberside 19 Brightside Lane, Industrial Sheffield 20 Brockhurst<5.0 Crescent, Walsall Industrial West Midlands 21 Cedar House, Offices South West<5.0 Gloucester 22 Clarke Road, Industrial South East<5.0 Milton Keynes 23 Diamond Business Yorkshire and<5.0 Park, Wakefield Humberside Industrial 24 Eagle Road, Industrial West Midlands<5.0 Redditch 25 Excel 95, Industrial Wales<5.0 Deeside 26 Fargate and Yorkshire and<5.0 Chapel Walk, Humberside Sheffield Standard Retail Yorkshire and<5.0 Humberside 27 Knowles Lane, Industrial Bradford Yorkshire and<5.0 Humberside 28 Magham Road, Industrial Rotherham 29 Moorside Road, Industrial North West<5.0 Salford 30 Pipps Hill<5.0 Industrial Estate, Basildon Industrial Eastern 31 Sandford House, Offices West Midlands<5.0 Solihull Yorkshire and<5.0 Humberside 32 Stoneferry Retail Warehouse Retail Park, Hull 33 Vantage Point,<5.0 Hemel Hempstead Offices Eastern 34 Waggon Road, Industrial North West<5.0 Mossley 35 Walkers Lane, Industrial North West<5.0 St. Helens 36 Wella Warehouse, Industrial South East<5.0 Basingstoke Top Ten Tenants % of Portfolio Passing Total Rental Passing Income Rental Tenant Property (GBP'000) Income 1 GEFCO UK Limited 2 Geddington Road, 1,320 7.8 Corby 2 Plastipak UK Limited Gresford Industrial 883 5.2 Estate, Wrexham 3 The Secretary of Sandford House, 832 4.9 State Solihull and Cedar House, Gloucester 4 Ardagh Glass Limited Langthwaite Industrial 676 4.0 Estate, South Kirkby 5 Mecca Bingo Limited London East Leisure 625 3.7 Park, Dagenham 6 Egbert H Taylor & 620 3.7 Company Limited Oak Park, Droitwich 7 Odeon Cinemas Odeon Cinema, Southend 535 3.2 8 Sports Direct Barnstaple Retail Park 525 3.1 and Bank Hey Street, Blackpool 9 Wyndeham Storeys Bar Road, 525 3.1 Peterborough Limited Peterborough 10 Advance Supply Chain Euroway Trading 428 2.5 (BFD) Limited Estate, Bradford The Company's top ten tenants, listed above, represent 41.2% of the total passing rental income of the portfolio. Principal Risks and Uncertainties The principal risks and uncertainties the Company faces are described in detail on pages 36 to 39 of the 2018 Annual Report, and are summarised below. The Board considers that the principal risks and uncertainties as presented in the 2018 Annual Report were unchanged during the period. REAL ESTATE RISKS · A property market recession or deterioration in the property market could, inter alia (i) cause the Company to realise its investments at lower valuations; (ii) delay the timings of the Company's realisations. · Properties are inherently difficult to value. There may be a material adverse effect on the Company's profitability, the NAV and the share price where properties are sold that were previously materially overstated or understated.
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DJ AEW UK REIT plc: Half-yearly Results -6-
· Failure by tenants to pay rental obligations would reduce income and the ability of the Company to pay dividends. · Cost overruns from asset management initiatives may have a material adverse effect on the Company's profitability, the NAV and the share price. · Due diligence may not identify all the risks and liabilities in respect of an acquisition. · A fall in rental rates may have a material adverse effect on the Company's profitability, the NAV and the share price. FINANCIAL RISKS · Material adverse changes in valuations and net income may lead to breaches in the Loan to Value ('LTV') and interest cover ratio covenants of the Company's loan facility. · The Company is subject to the risk of rising LIBOR rates on its borrowings. Increases in LIBOR may adversely affect the Company's ability to pay dividends. · The Company has a credit facility with RBSI which expires in 2023. In the event that RBSI do not renew the facility, the Company may have to sell assets in order to repay the outstanding loan. CORPORATE RISKS · The Company has no employees and is reliant upon the performance of third party service providers. Failure by any service provider could have a detrimental impact on the operations of the Company. · The Company is dependent on the continuance of the Investment Manager. · Poor relative total return performance may lead to an adverse reputational impact that affects the Company's ability to raise new capital. TAXATION RISKS · The Company has a UK REIT status that provides a tax-efficient corporate structure. Any change to the tax status or in UK legislation could impact the Company's ability to achieve its investment objectives and provide attractive returns to Shareholders. POLITICAL / ECONOMIC RISK · Following the vote to leave the EU in the June 2016 referendum, uncertainty remains surrounding the EU exit process and timing. There could be further political and economic events that adversely impact the Company's performance. Responsibility Statement of the Directors in Respect of the Interim Financial Report We confirm that to the best of our knowledge: * the 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 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 entity 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 AEW UK REIT plc website at www.aewukreit.com [1] Mark Burton Chairman 14 November 2018 Independent Review Report to AEW UK REIT plc Conclusion We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2018 which comprises the Condensed Statement of Comprehensive Income, Condensed Statement of Changes in Equity, Condensed Statement of Financial Position, Condensed Statement of Cash Flows and the related explanatory notes. Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2018 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the Disclosure Guidance and Transparency Rules (the 'DTR') of the UK's Financial Conduct Authority (the 'UK FCA'). Scope of review We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Directors' responsibilities The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA. The annual financial statements of the Company are prepared in accordance with International Financial Reporting Standards as adopted by the EU. The Directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted by the EU. Our responsibility Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. The purpose of our review work and to whom we owe our responsibilities This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached. Bill Holland for and on behalf of KPMG LLP Chartered Accountants 15 Canada Square London E14 5GL 14 November 2018 Financial Statements Condensed Statement of Comprehensive Income for the six months ended 30 September 2018 Period from Period from Period from 1 April 2018 to 1 May 2017 to 1 May 2017 to 30 September 31 October 31 March 2018 2017 2018 (unaudited) (unaudited) (audited)* Notes GBP'000 GBP'000 GBP'000 Income Rental and 3 8,459 6,496 12,330 other income Property 4 (630) (641) (1,106) operating expenses Net rental 7,829 5,855 11,224 and other income Other 4 (970) (895) (1,623) operating expenses Operating 6,859 4,960 9,601 profit before fair value changes Change in 9 5,653 2,480 1,014 fair value of investment properties Loss on 9 (178) (216) (216) disposal of investment properties Profit on 9 - 73 73 disposal of investments Operating 12,334 7,297 10,472 profit Finance 5 (656) (308) (652) expense Profit 11,678 6,989 9,820 before tax Taxation 6 - - - Profit after 11,678 6,989 9,820 tax Other - - - comprehensiv e income Total 11,678 6,989 9,820 comprehensiv e income for the period Earnings per 7 7.71 5.60 7.17 share (pence per share) (basic and diluted) The notes below form an integral part of these 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. Condensed Statement of Changes in Equity for the six months ended 30 September 2018 Total capital Capital and reserves Share reserve and attributable to Share premium retained owners of For the capital account earnings the Company period 1 April 2018 to 30 Notes GBP'000 GBP'000 GBP'000 GBP'000 September 2018 (unaudited) Balance as 1,515 49,768 94,751 146,034 at 1 April 2018 Total - - 11,678 11,678 comprehensi ve income Share issue 17 - 3 - 3 costs Dividends 8 - - (6,062) (6,062) paid Balance as 1,515 49,771 100,367 151,653
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DJ AEW UK REIT plc: Half-yearly Results -7-
at 30 September 2018 Total capital Capital and reserves Share reserve and attributable to Share premium retained owners of For the capital account earnings the Company period 1 May 2017 to 31 October Notes GBP'000 GBP'000 GBP'000 GBP'000 2017 (unaudited) Balance at 1,236 22,514 94,924 118,674 1 May 2017 Total - - 6,989 6,989 comprehensi ve income Ordinary 16,17 279 27,771 - 28,050 shares issued Share issue 17 - (546) - (546) costs Dividends 8 - - (4,946) (4,946) paid Balance as 1,515 49,739 96,967 148,221 at 31 October 2017 Total capital Capital and reserves Share reserve and attributable to Share premium retained owners of For the 11 capital account earnings the Company* month period 1 May 2017 to 31 March Notes GBP'000 GBP'000 GBP'000 GBP'000 2018 (audited) Balance at 1,236 22,514 94,924 118,674 1 May 2017 Total - - 9,820 9,820 comprehensi ve income Ordinary 16,17 279 27,771 - 28,050 shares issued Share issue 17 - (517) - (517) costs Dividends 8 - - (9,993) (9,993) paid Balance as 1,515 49,768 94,751 146,034 at 31 March 2018 The notes below form an integral part of these 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. Condensed Statement of Financial Position as at 30 September 2018 As at As at As at 30 September 31 October 2017 31 March 2018 2018 (unaudited) (unaudited)* (audited) Notes GBP'000 GBP'000 GBP'000 Assets Non-Current Assets Investment 9 192,519 147,030 187,751 property 192,519 147,030 187,751 Current Assets Investment 9 - - 3,650 property held for sale Receivables 10 3,394 2,204 2,938 and prepayments Other 11 9 24 26 financial assets held at fair value Cash and cash 8,145 34,537 4,711 equivalents 11,548 36,765 11,325 Total assets 204,067 183,795 199,076 Non-Current Liabilities Interest 12 (49,714) (32,259) (49,643) bearing loans and borrowings Finance lease 14 (573) (591) (573) obligations (50,287) (32,850) (50,216) Current Liabilities Payables and 13 (2,080) (2,677) (2,779) accrued expenses Finance lease 14 (47) (47) (47) obligations (2,127) (2,724) (2,826) Total (52,414) (35,574) (53,042) Liabilities Net Assets 151,653 148,221 146,034 Equity Share capital 16 1,515 1,515 1,515 Share premium 17 49,771 49,739 49,768 account Capital 100,367 96,967 94,751 reserve and retained earnings Total capital 151,653 148,221 146,034 and reserves attributable to equity holders of the Company Net Asset 7 100.06 97.80 96.36 Value per share (pence per share) The financial statements were approved by the Board of Directors on 14 November 2018 and were signed on its behalf by: Mark Burton Chairman AEW UK REIT plc Company number: 09522515 The notes below form an integral part of these condensed consolidated financial statements. * Although not required by IAS 34, the comparative figures for the previous interim period and related notes have been included on a voluntary basis. Condensed Statement of Cash Flows for the six months ended 30 September 2018 Period from Period from Period from 1 April 1 May 2017 to 1 May 2017 to 2018 to 30 31 October 2017 31 March 2018 September 2018 (unaudited) (unaudited) (audited)* GBP'000 GBP'000 GBP'000 Cash flows from operating activities Operating profit 12,334 7,297 10,472 Adjustment for non-cash items: Gain from change in (5,653) (2,480) (1,014) fair value of investment property Loss on disposal of 178 216 216 investment property Profit on disposal - (73) (73) of investments Decrease/(increase) 455 666 (701) in other receivables and prepayments Decrease in other (385) (1,178) (409) payables and accrued expenses Net cash generated 6,019 4,448 8,491 from operating activities Cash flows from investing activities Purchase of (506) (17,939) (63,896) investment property Disposal of 4,508 10,858 10,856 investment property Disposal of - 7,667 7,667 investments Net cash generated 4,002 586 (45,373) from/(used in) investing activities Cash flows from financing activities Proceeds from issue - 28,050 28,050 of ordinary share capital Share issue costs (31) (453) (483) Loan draw down - 3,490 20,990 Loan arrangement - - (166) fees Finance costs (494) (291) (458) Dividends paid (6,062) (4,946) (9,993) Net cash (used (6,587) 25,850 37,940 in)/generated from financing activities Net increase in cash 3,434 30,884 1,058 and cash equivalents Cash and cash 4,711 3,653 3,653 equivalents at start of the period Cash and cash 8,145 34,537 4,711 equivalents at end of the period The notes below form an integral part of these 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 Condensed Financial Statements for the six months ended 30 September 2018 1. Corporate information AEW UK REIT plc (the 'Company') is a closed ended Real Estate Investment Trust ('REIT') incorporated on 1 April 2015 and domiciled in the UK. The comparative information for the 11 month period ended 31 March 2018 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The auditors reported on those accounts; its report was unqualified, and did not contain a statement under section 498(2) or (3) of the Companies Act 2006. 2. Accounting policies 2.1 Basis of preparation These interim 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 Company's last financial statements for the 11 month period ended 31 March 2018. These 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 Company's financial position and performance since the last financial statements. A review of the interim financial information has been performed by the Independent Auditor of the Company for issue on 14 November 2018. The comparative figures disclosed in the condensed unaudited financial statements and related notes have been presented for both the six month period ended 31 October 2017 and 11 month period ended 31 March 2018 and as at 31 October 2017 and 31 March 2018. Although not required by IAS 34, the comparative figures as at 31 October 2017 for the Condensed Statement of Financial Position and for the 11 month period ended 31 March 2018 for the Condensed Statement of Comprehensive Income, Condensed Statement of Changes in Equity and Condensed Statement of Cash Flows and related notes have been included on a voluntary basis. These condensed unaudited financial statements have been prepared under the historical-cost convention, except for investment property and interest rate
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DJ AEW UK REIT plc: Half-yearly Results -8-
derivatives that have been measured at fair value. The condensed unaudited 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 were a number of new standards and amendments to existing standards which are required for the Company's accounting periods beginning after 1 January 2018, which have been considered and applied. These being: * IFRS 7 (Financial Instruments: Disclosures) which will require considerations around additional hedge accounting disclosures in the annual report; and * IFRS 9 (Financial Instruments). This standard has replaced IAS 39 Financial Instruments and contains two primary measurement categories for financial assets, the effect to the Company's current accounting policies covering the measurement of financial instruments and the estimation of impairment is immaterial; and * IFRS 15 (Revenue from Contracts with Customers) issued in May 2014 and applies to an annual reporting period beginning on or after 1 January 2018, the Company's revenue primarily relates to property rental income which is outside the scope of IFRS 15. 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 1 April 2018 or later periods. The following are the most relevant to the Company and their impact on the financial statements: * 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 April 2018 has been considered and is not considered 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 Company to make judgements, estimates and assumptions that affect the reported amounts recognised in the financial statements. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability in the future. i) Valuation of investment property The Company's investment property is held at fair value as determined by the independent valuer on the basis of fair value in accordance with the internationally accepted Royal Institution of Chartered Surveyors ('RICS') Appraisal and Valuation Standards. 2.3 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. 2.4 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. 2.5 Summary of significant accounting policies The principle accounting policies applied in the preparation of these financial statements are consistent with those applied within the Company's Annual Report and Financial Statements for the 11 month period ended 31 March 2018 except for the changes as detailed in note 2.1. 3. Revenue Period from Period from Period from 1 April 2018 to 1 May 2017 to 1 May 2017 to 30 September 31 October 31 March 2018 2017 2018 (unaudited) (unaudited) (audited) GBP'000 GBP'000 GBP'000 Gross rental income 8,456 6,495 12,330 received Other property 3 1 - income Total rental and 8,459 6,496 12,330 other income Rent receivable under the terms of the leases is adjusted for the effect of any incentives agreed. 4. Expenses Period from Period from Period from 1 April 2018 to 1 May 2017 to 1 May 2017 to 30 September 31 October 31 March 2018 2017 2018 (unaudited) (unaudited) (audited) GBP'000 GBP'000 GBP'000 Property operating 630 641 1,106 expenses Other operating expenses Investment 648 519 989 management fee Auditor remuneration 43 41 88 Operating costs 226 292 462 Directors' 53 43 84 remuneration Total other 970 895 1,623 operating expenses Total operating 1,600 1,536 2,729 expenses 5. Finance expense Period from Period from Period from 1 April 2018 to 1 May 2017 to 1 May 2017 to 30 September 31 October 31 March 2018 2017 2018 (unaudited) (unaudited) (audited) GBP'000 GBP'000 GBP'000 Interest payable 540 268 540 on loan borrowings Amortisation of 71 41 79 loan arrangement fee Agency fee payable 2 (10) (11) on loan borrowings Commitment fee 26 2 20 payable on loan borrowings 639 301 628 Change in fair 17 7 24 value of interest rate derivatives Total 656 308 652 6. Taxation Period from Period from Period from 1 April 2018 to 1 May 2017 to 1 May 2017 to 30 September 31 October 31 March 2018 2017 2018 (unaudited) (unaudited) (audited) GBP'000 GBP'000 GBP'000 Total tax charge - - - Analysis of charge in the period Profit before tax 11,678 6,989 9,820 Theoretical tax 2,219 1,328 1,866 at UK corporation tax standard rate of 19% (31 October 2017: 19%; 31 March 2018: 19%) Adjusted for: Exempt REIT (1,178) (884) (1,700) income Non taxable (1,041) (444) (166) investment gains Total - - - 7. Earnings per share and NAV per share Period from Period from Period from 1 April 2018 to 1 May 2017 to 1 May 2017 to 30 September 31 October 31 March 2018 2017 2018 (unaudited) (unaudited) (audited) Earnings per share Total 11,678 6,989 9,820 comprehensive income (GBP'000) Weighted average 151,558,251 124,860,772 136,894,561 number of shares Earnings per 7.71 5.60 7.17 share (basic and diluted) (pence) EPRA earnings per 11,678 6,989 9,820 share: Total comprehensive income (GBP'000) Adjustment to total comprehensive income: Change in fair (5,653) (2,480) (1,014) value of investment property (GBP'000) Loss on disposal 178 216 216 of investment property (GBP'000) Profit on - (73) (73) disposal of investments (GBP'000) Change in fair 17 7 24 value of interest rate derivatives (GBP'000) Total EPRA 6,220 4,659 8,973 Earnings (GBP'000) EPRA earnings per 4.10 3.73 6.56 share (basic and diluted) (pence) NAV per share: Net assets 151,653 148,221 146,034 (GBP'000) Ordinary Shares 151,558,251 151,558,251 151,558,251 NAV per share 100.06 97.80 96.36 (pence) EPRA NAV per share: Net assets 151,653 148,221 146,034 (GBP'000) Adjustments to net assets: Other financial (9) (24) (26) assets held at fair value (GBP'000) EPRA NAV (GBP'000) 151,644 148,197 146,008 EPRA NAV per 100.06 97.78 96.34 share (pence) EPS amounts are calculated by dividing profit for the period attributable to
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DJ AEW UK REIT plc: Half-yearly Results -9-
ordinary equity holders of the Company by the weighted average number of Ordinary Shares in issue during the period. As at 30 September 2018, EPRA NNNAV was equal to IFRS NAV and as such a reconciliation between the two measures has not been presented. 8. Dividends paid Period from Period from Period from 1 April 2018 to 1 May 2017 to 1 May 2017 to 30 September 31 October 31 March 2018 2017 2018 (unaudited) (unaudited) (audited) Per Ordinary Share GBP'000 GBP'000 GBP'000 Fourth interim 3,031 - - dividend paid in respect of the period 1 January 2018 to 31 March 2018 at 2.00p First interim 3,031 - - dividend paid in respect of the period 1 April 2018 to 30 June 2018 at 2.00p Fourth interim - 2,473 2,473 dividend paid in respect of the period 1 February 2017 to 30 April 2017 at 2.00p First interim - 2,473 2,473 dividend paid in respect of the period 1 May 2017 to 31 July 2017 at 2.00p Second interim - - 3,031 dividend paid in respect of the period 1 August 2017 to 31 October 2017 at 2.00p Third interim - - 2,016 dividend paid in respect of the period 1 November 2017 to 31 December 2017 at 2.00p Total dividends 6,062 4,946 9,993 paid during the period Second interim 3,031 - - dividend declared in respect of the period 1 July 2018 to 30 September 2018 at 2.00p* Fourth interim (3,031) - - dividend declared in respect of the period 1 January 2018 to 31 March 2018 at 2.00p Second interim - 2,473 - dividend declared in respect of the period 1 August 2017 to 31 October 2017 at 2.00p** Fourth interim - - 3,031 dividend declared in respect of the period 1 January 2018 to 31 March 2018 at 2.00p*** Fourth interim - (2,473) (2,473) dividend declared in respect of the period 1 February 2017 to 30 April 2017 at 2.00p Total dividends in 6,062 4,946 10,551 respect of the period * Dividends declared after the period end are not included in the financial statements as a liability as at period end 30 September 2018. ** Dividends declared after the period end are not included in the financial statements as a liability as at period end 31 October 2017. *** Dividends declared after the period end are not included in the financial statements as a liability as at period end 31 March 2018. 9. Investments 9.a) Investment property Period from 1 April 2018 to 30 September 2018 (unaudited) Period from Period from 1 May 2017 1 May 2017 to 31 to 31 October March 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 155,517 36,825 192,342 137,820 137,820 beginning of period Purchases 121 30 151 18,309 64,186 in the period Disposals (4,628) - (4,628) (11,050) (11,050) in the period Revaluation 3,520 2,145 5,665 2,706 1,386 of investment property Valuation 154,530 39,000 193,530 147,785 192,342 provided by Knight Frank Adjustment (1,631) (1,393) (1,561) for rent free debtor Adjustment 620 638 620 for finance lease obligations Total 192,519 147,030 191,401 Investment property Classified as: Investment 192,519 147,030 187,751 properties Investment - - 3,650 properties held for sale 192,519 147,030 191,401 Change in fair value of investment property Change in 5,665 2,706 1,386 fair value before adjustments for lease incentives Adjustment for movement in the period: in value (12) (306) (452) for rent free debtor in value - 80 80 for rent free guarantee debtor 5,653 2,480 1,014 Loss on disposal of the investment property Net 4,508 10,858 10,856 proceeds from disposals of investment property during the period Cost of (4,628) (11,050) (11,050) disposal Lease (58) (24) (22) incentives amortised in current period Loss on (178) (216) (216) disposal of investment 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 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.b) Investment Period from Period from Period from 1 April 2018 1 May 2017 1 May 2017 to 30 September to 31 October to 31 March 2018 2017 2018 (unaudited) (unaudited) (audited) Total Total Total GBP'000 GBP'000 GBP'000 Investment in AEW UK Core Property Fund As at beginning of - 7,594 7,594 period Disposals in the - (7,594) (7,594) period Total Investment in - - - AEW UK Core Property Fund Profit on disposal of the investment in AEW UK Core Property Fund Proceeds from - 7,667 7,667 disposals of investments during the period Cost of disposal - (7,594) (7,594) Profit on disposal - 73 73 of investments Valuation of investments Investments in collective investment schemes are stated at NAV with any resulting gain or loss recognised in profit or loss. Fair value is assessed by the Directors based on the best available information. As at 30 September 2018, the Company had no investment in the AEW UK Core Property Fund. 9.c) Fair value measurement hierarchy The following table provides the fair value measurement hierarchy for non-current assets: 30 September 2018 Significant Significant Quoted prices observable unobservable in active inputs inputs markets (Level 1) (Level 2) (Level 3) Total GBP'000 GBP'000 GBP'000 GBP'000 Assets measured at fair value Investment - - 192,519 192,519 property - - 192,519 192,519 31 October 2017 Significant Significant Quoted prices observable unobservable in active inputs inputs markets (Level 1) (Level 2) (Level 3) Total GBP'000 GBP'000 GBP'000 GBP'000 Assets measured at fair value Investment - - 147,030 147,030 property - - 147,030 147,030 31 March 2018 Significant Significant Quoted prices observable unobservable in active inputs inputs markets (Level 1) (Level 2) (Level 3) Total GBP'000 GBP'000 GBP'000 GBP'000 Assets measured at fair value Investment - - 191,401 191,401 property
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- - 191,401 191,401 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 are: Significant Fair Valuation unobservable value Class GBP'000 technique inputs Range 30 September 2018 Investment 193,530 Income ERV GBP1.00 - Property capitalisatio GBP127.00 n Equivalent yield 4.23% - 12.09% 31 October 2017 Investment 147,785 Income ERV GBP2.50 - Property capitalisatio GBP160.00 n Equivalent yield 6.79% - 9.72% 31 March 2018 Investment 192,342 Income ERV GBP1.00 - Property capitalisatio GBP145.00 n Equivalent yield 3.14% - 10.72% 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 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, are recorded in profit and loss. The carrying amount of the assets and liabilities, detailed within the Condensed Statement of Financial Position, is considered to be the same as their fair value. 30 September 2018 Fair Change in ERV Change in equivalent value yield GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 Sensitivity +5% -5% +5% -5% Analysis Resulting 193,530 200,241 183,820 181,321 203,387 fair value of investment property 31 October 2017 Fair Change in ERV Change in equivalent value yield GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 Sensitivity +5% -5% +5% -5% Analysis Resulting 147,785 154,000 141,059 139,125 156,441 fair value of investment property 31 March 2018 Fair Change in ERV Change in equivalent value yield GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 Sensitivity +5% -5% +5% -5% Analysis Resulting 192,342 203,903 188,297 185,985 fair value of investment property 206,943 10. Receivables and prepayments 30 September 31 October 31 March 2018 2017 2018 (unaudited) (unaudited) (audited) GBP'000 GBP'000 GBP'000 Receivables Rent debtor 1,283 653 1,074 Rent agent float account 184 58 81 Other receivables 221 44 179 1,688 755 1,334 Rent free debtor 1,631 1,393 1,561 3,319 2,148 2,895 Prepayments Property related prepayments 47 30 13 Depositary services - 7 - Listing fees 4 4 16 Other prepayments 24 15 14 75 56 43 Total 3,394 2,204 2,938 The aged debtor analysis of receivables as follows: 30 September 31 October 31 March 2018 2017 2018 GBP'000 GBP'000 GBP'000 Less than three months due 1,688 755 1,334 Between three and six months - - - due Between six and twelve months - - - due Total 1,688 755 1,334 11. Interest rate derivatives 30 September 31 October 31 March 2018 2017 2018 (unaudited) (unaudited) (audited) GBP'000 GBP'000 GBP'000 At the beginning of the 26 31 31 period Interest rate cap premium - - 19 paid Changes in fair value of (17) (7) (24) interest rate derivatives At the end of the period 9 24 26 To mitigate the interest rate risk that arises as a result of entering into variable rate linked loans, the Company has entered into interest rate caps. The facilities have a combined notional value of GBP36.51 million with GBP10.00 million at a strike rate of 2.0% and GBP26.51 million at a strike rate of 2.5% (31 March 2018: GBP10.00 million at a strike rate of 2.0% and GBP26.51 million at a strike rate of 2.5%) for the relevant period in line with the life of the loan. Fair Value hierarchy The following table provides the fair value measurement hierarchy for interest rate derivatives: Assets measured at fair value Quoted prices Significant Significant in active observable unobservable markets input inputs (Level 1) (Level 2) (Level 3) Total Valuation date GBP'000 GBP'000 GBP'000 GBP'000 30 September - 9 - 9 2018 31 October 2017 - 24 - 24 31 March 2018 - 26 - 26 The fair value of these contracts are recorded in the Condensed Statement of Financial Position as at the period end. There have been no transfers between Level 1 and Level 2 during the period, nor have there been any transfers between Level 2 and Level 3 during the period. The carrying amount of the assets and liabilities, detailed within the Condensed Statement of Financial Position, is considered to be the same as their fair value. 12. Interest bearing loans and borrowings Bank borrowings drawn 30 September 31 October 31 March 2018 2017 2018 (unaudited) (unaudited) (audited) GBP'000 GBP'000 GBP'000 At the beginning of the 50,000 29,010 29,010 period Bank borrowings drawn in the - 3,490 20,990 period Interest bearing loans and 50,000 32,500 50,000 borrowings Less: loan issue costs (554) (400) (554) incurred Plus: amortised loan issue 268 159 197 costs At the end of the period 49,714 32,259 49,643 Repayable between two and 50,000 32,500 50,000 five years Bank borrowings available 10,000 7,500 10,000 but undrawn in the period Total facility available 60,000 40,000 60,000 The Company has a GBP60.0 million (31 March 2018: GBP60.0 million) credit
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facility with RBSI of which GBP50.0 million (31 March 2018: GBP50.0 million) has been utilised as at 30 September 2018. Under the terms of the Prospectus, the Company has a target gearing of 25% loan to GAV, but can borrow up to 35% loan to GAV in advance of a capital raise or asset disposal. As at 30 September 2018, the Company's gearing was 25.84% loan to GAV (31 March 2018: 26.00%). Under the terms of the loan facility, the Company can draw up to 35% loan to NAV at drawdown. Borrowing costs associated with the credit facility are shown as finance costs in note 5 to these financial statements. 13. Payables and accrued expenses 30 September 31 October 31 March 2018 2017 2018 (unaudited) (unaudited) (audited) GBP'000 GBP'000 GBP'000 Deferred income 929 1,223 993 Accruals 467 532 831 Other creditors 684 922 955 Total 2,080 2,677 2,779 14. Finance lease obligations Finance leases are capitalised at the lease's commencement at 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 September 31 October 31 March 2018 2017 2018 (unaudited) (unaudited) (unaudited) GBP'000 GBP'000 GBP'000 Not later than one year 47 47 47 Later than one year but 152 154 152 not later than five years Later than five years 421 437 421 573 591 573 Total 620 638 620 15. Guarantees and commitments 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 24 years. Future minimum rentals receivable under non-cancellable operating leases as at 30 September 2018 are as follows: 30 September 31 October 31 March 2018 2017 2018 (unaudited) (unaudited) (unaudited) GBP'000 GBP'000 GBP'000 Within one year 16,133 12,965 16,932 After one year but not 41,730 35,313 47,858 more than five years More than five years 27,663 11,524 37,574 Total 85,526 59,802 102,364 During the period ended 30 September 2018, there were contingent rents totalling GBP53,564 (31 October 2017: GBP113,953, 31 March 2018: GBP149,492). 16. Issued Share Capital For the period 1 April 2018 to 30 September 2018 Number of GBP'000 Ordinary Shares Ordinary Shares issued and fully paid At the beginning and end of the period 1,515 151,558,251 For the period 1 May 2017 to 31 October 2017 Number of GBP'000 Ordinary Shares Ordinary Shares issued and fully paid At the beginning of the period 1,236 123,647,250 Issued on admission to trading on the 279 27,911,001 London Stock Exchange on 24 October 2017 At the end of the period 1,515 151,558,251 For the period 1 May 2017 to 31 March 2018 Number of GBP'000 Ordinary Shares Ordinary Shares issued and fully paid At the beginning of the period 1,236 123,647,250 Issued on admission to trading on the 279 27,911,001 London Stock Exchange on 24 October 2017 At the end of the period 1,515 151,558,251 17. Share premium account Period from Period from Period from 1 April 2018 to 1 May 2017 to 1 May 2017 to 30 September 31 October 31 March 2018 2017 2018 (unaudited) (unaudited) (audited) GBP'000 GBP'000 GBP'000 Balance at the 49,768 22,514 22,514 beginning of the period Issued on - 27,771 27,771 admission to trading on the London Stock Exchange on 24 October 2017 Share issue costs 3 (546) (517) Balance at the end 49,771 49,739 49,768 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. For the six months ended 30 September 2018, the Directors of the Company are considered to be the key management personnel. Directors remuneration is disclosed in note 4. 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. During the period 1 April 2018 to 30 September 2018, the Company incurred GBP648,247 (six months ended 31 October 2017: GBP519,373; eleven months ended 31 March 2018: GBP988,612) in respect of investment management fees and expenses of which GBP327,990 was outstanding at 30 September 2018 (31 October 2017: GBP259,276; 31 March 2018: GBP469,239). 19. Events after reporting date Dividend On 22 October 2018, the Board declared its second interim dividend of 2.00 pence per share in respect of the period from 1 July 2018 to 30 September 2018. The dividend payment will be made on 30 November 2018 to shareholders on the register as at 2 November 2018. The ex-dividend date was 1 November 2018. The dividend of 2.00 pence per share was designated 1.50 pence per share as an interim property income distribution ("PID") and 0.50 pence per share as an interim ordinary dividend ("non-PID"). Unless shareholders have elected to receive the PID gross, 20% tax will be deducted at source, while the non-PID is paid gross. Financing On 22 October 2018, the Company extended the term of the loan facility by three years up to 22 October 2023. Further details on the extension are included in the Chairman's Statement above. 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 A key measure of GBP6.22 million/4.10 operational activities. a company's pps underlying operating results and an indication of the extent to EPRA earnings for the which current six month period dividend payments ended 30 September are supported by 2018 (six month earnings. period ended 31 October 2017: GBP4.66 million/3.73 pps) 2. EPRA NAV Net asset value adjusted Makes adjustments GBP151.64 to include properties to IFRS NAV to million/100.06 pps and other investment provide EPRA NAV as at 30 interests at fair value stakeholders with September 2018 (At 31 and to exclude certain the most relevant March 2018: GBP146.01 items not expected to information on million/ 96.34 pps) crystallise in a the fair value of long-term investment the assets and property business. liabilities within a true real estate investment company with a long-term investment strategy. 3. EPRA NNNAV EPRA NAV adjusted to Makes adjustments GBP151.65 include the fair values to EPRA NAV to million/100.06 pps of: provide EPRA NNNAV as at 30 stakeholders with September 2018 the most relevant information on (i) financial the current fair instruments; value of all the (At 31 March 2018: assets and GBP146.03 million/96.36 liabilities pps) within a real (ii) debt; and estate company. (iii) deferred taxes. 4.1 EPRA Net Initial Yield ('NIY')
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Annualised rental income based on the cash rents passing at the balance sheet date, less A comparable 7.89% non-recoverable property measure for operating expenses, portfolio divided by the market valuations. This value of the property, measure should EPRA NIY increased with make it easier (estimated) purchasers' for investors to costs. judge themselves, how the valuation as at 30 September of portfolio X 2018 compares with portfolio Y. (At 31 March 2018: 7.73%) 4.2 EPRA 'Topped-Up' NIY This measure A comparable 8.06% incorporates an measure for adjustment to the EPRA portfolio NIY in respect of the valuations. This expiration of rent-free measure should EPRA 'Topped-Up' NIY periods (or other make it easier unexpired lease for investors to incentives such as judge themselves, discounted rent periods how the valuation as at 30 September and step rents). of portfolio X 2018 compares with portfolio Y. (At 31 March 2018: 8.52%) 5. EPRA Vacancy Estimated Market Rental A "pure" (%) 3.27% Value ('ERV') of vacant measure of space divided by ERV of investment the whole portfolio. property space that is vacant, EPRA vacancy based on ERV. as at 30 September 2018 (At 31 March 2018: 7.10%) 6. EPRA Cost Ratio Administrative and A key measure to 18.68% operating costs enable meaningful (including and excluding measurement of costs of direct vacancy) the changes in a divided by gross rental company's EPRA Cost Ratio income. operating costs. (including direct vacancy cost) as at 30 September 2018 (At 31 October 2017: 23.60%) 14.96% EPRA Cost ratio excluding direct vacancy costs as at 30 September 2018 (At 31 October 2017: 15.54%) Calculation of EPRA Net Initial Yield and 'topped-up' Net Initial Yield 30 September 2018 GBP'000 Investment property - wholly-owned 193,530 Allowance for estimated purchasers' cost 13,160 Gross up completed property portfolio valuation 206,690 Annualised cash passing rental income 16,975 Property outgoings (659) Annualised net rents 16,316 Rent expiration of rent-free periods and fixed 345 uplifts 'Topped-up' net annualised rent 16,661 EPRA Net Initial Yield 7.89% EPRA 'topped-up' Net Initial Yield 8.06% 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 September 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 30 September 2018 GBP'000 Annualised potential rental value of vacant 556 premises Annualised potential rental value for the 16,988 completed property portfolio EPRA Vacancy Rate 3.27% Calculation of EPRA Cost Ratios 30 September 2018 GBP'000 Administrative/operating expense per IFRS income 1,600 statement Less: Ground rent costs (25) EPRA Costs (including direct vacancy costs) 1,575 Direct vacancy costs (314) EPRA Costs (excluding direct vacancy costs) 1,261 Gross Rental Income 8,430 EPRA Cost Ratio (including direct vacancy costs) 18.68% EPRA Cost Ratio (excluding direct vacancy costs) 14.96% Company Information Share Register Enquiries The register for the Ordinary Shares is maintained by Computershare Investor Services PLC. In the event of queries regarding your holding, please contact the Registrar on 0370 889 4069 or email: web.queries@computershare.co.uk. Changes of name and/or address must be notified in writing to the Registrar, at the address shown below. You can check your shareholding and find practical help on transferring shares or updating your details at www.investorcentre.co.uk [2]. Share Information Ordinary GBP0.01 Shares 151,558,251 SEDOL Number BWD2415 ISIN Number GB00BWD24154 Ticker/TIDM AEWU The Company's Ordinary Shares are traded on the Main Market of the London Stock Exchange. Annual and Interim Reports Copies of the Annual and Interim Reports are available from the Company's website: www.aewukreit.com [1]. Provisional Financial Calendar 31 March 2019 Year end June 2019 Announcement of annual results September 2019 Annual General Meeting 30 September 2019 Half-year end November 2019 Announcement of interim results Dividends The following table summarises the dividends declared in relation to the period: GBP Interim dividend for the period 1 April 2018 to 30 3,031,165 June 2018 (payment made on 31 August 2018) Interim dividend for the period 1 July 2018 to 30 3,031,165 September 2018 (payment to be made on 30 November 2018) Total 6,062,330 Directors Mark Burton* (Non-executive Chairman) James Hyslop (Non-executive Director) Bimaljit ("Bim") Sandhu* (Non-executive Director) Katrina Hart* (Non-executive Director) Registered Office 6th Floor 65 Gresham Street London EC2V 7NQ Investment Manager AEW UK Investment Management LLP 33 Jermyn Street London SW1Y 6DN Tel: 020 7016 4880 Website: www.aewuk.co.uk Property Manager M J Mapp 180 Great Portland Street London W1W 5QZ Corporate Broker Liberum Ropemaker Place 25 Ropemaker Street London EC2Y 9LY Legal Adviser to the Company Gowling WLG (UK) LLP 4 More London Riverside London SE1 2AU Depositary Langham Hall UK LLP 5 Old Bailey London EC4M 7BA Administrator Link Alternative Fund Administrators Limited Beaufort House 51 New North Road Exeter EX4 4EP Company Secretary Link Company Matters Limited 6th Floor 65 Gresham Street London EC2V 7NQ Registrar Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS13 8AE Auditor KPMG LLP 15 Canada Square London E14 5GL Valuer Knight Frank LLP 55 Baker Street London W1U 8AN *Independent of the Investment Manager. 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. National Storage Mechanism A copy of the Interim 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 [3]. ISIN: GB00BWD24154 Category Code: IR TIDM: AEWU LEI Code: 21380073LDXHV2LP5K50 OAM Categories: 1.2. Half yearly financial reports and audit reports/limited reviews Sequence No.: 6547 EQS News ID: 746151 End of Announcement EQS News Service
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