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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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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· 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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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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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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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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