DJ AEW UK REIT plc: Annual Financial Report
AEW UK REIT plc (AEWU)
AEW UK REIT plc: Annual Financial Report
23-Jun-2020 / 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
Announcement of Full Year Results for the year ended 31 March 2020
AEW UK REIT PLC (the 'Company') which holds a diversified portfolio of 35 commercial investment
properties throughout the UK, is pleased to publish its full year results for the year ended 31
March 2020.
Summary Highlights
· Net Asset Value ('NAV')** of GBP147.86 million and of 93.13 pence per share ('pps') as at 31 March
2020 (31 March 2019:GBP149.46 million and 98.61 pps)
· Rental income generated was GBP17.42 million (year ended 31 March 2019: GBP17.18 million)
· Operating profit before fair value changes of GBP14.47 million (year ended 31 March 2019: GBP13.52
million)
· Profit before tax ('PBT')* of GBP3.65 million and EPS of 2.40 pps (year ended 31 March 2019:
GBP15.54 million and of 10.26 pps)
· EPRA Earnings Per Share ('EPRA EPS')* of 8.67 pps (year ended 31 March 2019: 8.07 pps)
· Total dividends of 8.00 pps declared (year ended 31 March 2019: 8.00 pps) with a dividend cover
of 108.38%
· Cash balances totalling GBP9.87 million as at 31 March 2020 (31 March 2019: GBP2.13 million) having
raised gross proceeds of GBP7.00 million via a share placing in February 2020. Following the
disposal of 2 Geddington Road, Corby the Company had a cash balance of GBP27.28 million as at 19
June 2020
· The portfolio delivered strong results relative to the MSCI/AREF PFI Balanced Funds Quarterly
Property Index, outperforming with a total return of 3.5% largely driven by the portfolio's high
yielding assets, which generated a strong income return of 8.2% over the year
· The portfolio has a high weighting towards the industrial sector which has maintained its
position as one of the most resilient market sectors, both in terms of occupational and investment
market sentiment
· Since the year-end the Company disposed of 2 Geddington Road, Corby, for gross proceeds of
GBP18.80 million delivering an IRR in excess of 30%
Mark Burton, Chairman of AEW UK REIT,?commented :?"We are pleased with the overall performance of
the Company, which, for a second consecutive year, has improved its performance in EPRA EPS, while
also achieving a dividend of 8 pence per share. The end of the financial year saw the outbreak of
COVID-19 and the focus of the Board and Investment Manager has been on minimising the impact on the
Company and stakeholders. We believe the Company's assets are strategically placed to continue to
provide investors with robust performance over the medium and long term. The Board is encouraged by
the fact that, despite the uncertainty that has been caused by the outbreak of COVID-19, a number of
ongoing asset management transactions are currently being negotiated by the Manager whose active
management style is a principal feature of the Company's strategy seeking to maximise both income
and capital returns to shareholders. With a number of these key discussions ongoing it is hoped that
further value can be added."
Enquiries
AEW UK
Alex Short Alex.Short@eu.aew.com
Nicki Gladstone Nicki.Gladstone-ext@eu.aew.com
+44(0) 771 140 1021
Liberum Capital Gillian.Martin@liberum.com
Gillian Martin +44 (0)20 3100 2217
TB Cardew AEW@tbcardew.com
Ed Orlebar +44(0) 7738 724 630
Tania Wild +44(0) 7425 536 903
Lucas Bramwell +44(0) 7939 694 437
Financial Highlights
* Net Asset Value ('NAV')* of GBP147.86 million and of 93.13 pence per share ('pps') as at 31 March
2020 (31 March 2019: GBP149.46 million and 98.61 pps).
* Operating profit before fair value changes of GBP14.47 million for the year (year ended 31 March
2019: GBP13.52 million).
* Profit before tax ('PBT')* of GBP3.65 million and EPS of 2.40 pps for the year (year ended 31 March
2019: GBP15.54 million and of 10.26 pps).
* EPRA Earnings Per Share ('EPRA EPS')* for the year of 8.67 pps (year ended 31 March 2019: 8.07
pps).
* Total dividends of 8.00 pps declared for the year (year ended 31 March 2019: 8.00 pps).
* Shareholder Total Return* for the year of -17.89% (year ended 31 March 2019: 5.44%).
* The price of the Company's Ordinary Shares on the Main Market of the London Stock Exchange was
68.20 pps as at 31 March 2020 (31 March 2019: 92.80 pps).
* As at 31 March 2020, the Company had drawn GBP51.50 million (31 March 2019: GBP50.00 million) of a
GBP60.00 million (31 March 2019: GBP60.00 million) term credit facility with the Royal Bank of Scotland
International Limited ('RBSi') and was geared to 27.21% of the Gross Asset Value ('GAV')* (31 March
2019: 25.30%) (see note 21 of the Financial Statements below).
* The Company held cash balances totalling GBP9.87 million as at 31 March 2020 (31 March 2019: GBP2.13
million) having raised gross proceeds of GBP7.00 million via a share placing in February 2020.
Following the disposal of 2 Geddington Road, Corby, the Company had a cash balance of GBP27.28 million
as at 19 June 2020.
Property Highlights
* As at 31 March 2020, the Company's property portfolio had a valuation of GBP189.30 million across 35
properties (31 March 2019: GBP197.61 million across 35 properties) as assessed by the valuer# and a
historical cost of GBP197.12 million (31 March 2019: GBP196.86 million).
* The Company acquired no properties during the year (year ended 31 March 2019: one property for
GBP6.93 million). The Company made no disposals during the year (year ended 31 March 2019: two full
disposals and two part disposals for gross sales proceeds of GBP6.80 million).
* The portfolio had an EPRA Vacancy Rate** of 3.68% as at 31 March 2020 (31 March 2019: 2.99%).
* Rental income generated in the year under review was GBP17.42 million (year ended 31 March 2019:
GBP17.18 million). The number of tenants as at 31 March 2020 was 91 (31 March 2019: 95).
* EPRA Net Initial Yield ('NIY')** of 8.26% as at 31 March 2020 (31 March 2019: 7.62%).
* Weighted Average Unexpired Lease Term ('WAULT')* of 4.26 years to break (31 March 2019: 4.87
years) and 5.55 years to expiry (31 March 2019: 6.10 years).
* Post year-end, in May 2020, the Company disposed of 2 Geddington Road, Corby, for gross proceeds
of GBP18.80 million.
* Post year-end, in June 2020, the Company completed a 15 year renewal lease with the Secretary of
State for Communities and Local Government at its Solihull office, Sandford House. The agreement
documents the increase of rental income from the property by 30%.
* As at the date of this report, 84% of the rent due for the March 2020 quarter has been collected.
* See KPIs below for definition of alternative performance measures.
** See Glossary in the full Annual Report and Financial Statements for definition of alternative
performance measures.
# The valuation figure is reconciled to the fair value under IFRS in Note 10.
Chairman's Statement
Overview
I am pleased to present the audited annual results of AEW UK REIT plc for the year ended 31 March
2020. As at 31 March 2020, the Company owned a diversified portfolio of 35 commercial investment
properties throughout the UK with a value of GBP189.30 million.
The Company has improved its performance in terms of EPRA EPS for a second consecutive year;
increasing from 8.07 pence for the prior year to 8.67 pence for the year under review. However, the
end of this financial year brought an unprecedented period of uncertainty to the UK and global
markets, which is ongoing as at the date of this report, as a result of the outbreak of COVID-19.
This has negatively impacted the fair value of the Company's investment properties, which fell by
GBP9.44 million during the year and consequently the Company's NAV per share, which fell by 5.56% for
the year. The Company's shares are also trading at a discount to NAV, having briefly traded at a
premium to NAV at the start of 2020, prior to the COVID-19 outbreak.
As a result of the pandemic, the primary focus of the Board and Investment Manager has recently been
on minimising the impact of COVID-19 on the Company and its stakeholders. Business continuity
measures in place are allowing the Board, the Investment Manager and the Company's service providers
to continue to operate effectively. Immediately prior to the publication of this report, the Company
had collected 84% of the rents due on 25 March 2020, however we are expecting collection rates to
fall again for the June quarter, as tenants have been adversely affected by the period of lockdown.
Amounts that remain outstanding are being pursued or are the matter of ongoing engagement between
the Manager and the tenant. There are some tenants who are experiencing difficulties in the current
environment and the Company is sympathetic to their situation. In these cases, the Company has
agreed a payment plan where rental amounts can be fully recovered by the Company over coming
periods. Unfortunately, there are a few larger tenants who have significant financial resources and
the ability to pay who are refusing to do so or enter into dialogue. The Company shall be pursuing
these tenants when legally able to do so and charging the full default interest rates per the lease
agreements. To date, the Company has not granted any rent free periods to tenants where asset
management gains were not also made.
Although the full impact of COVID-19 on the UK economy and real estate market is yet to become
clear, the Board considers the Company to be well positioned to withstand this period of uncertainty
due to its cash resources and levels of headroom in respect of its loan covenants. The Board also
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considers that the Company's assets are strategically placed to continue to provide investors with
robust performance over medium and long term horizons. This is expected to be the case due to the
portfolio's high weighting towards the industrial sector which, despite the recent lockdown period,
has maintained its position as one of the most resilient market sectors, both in terms of
occupational and investment market sentiment. Furthermore, the Manager's value investment style
which focuses on exploiting mispriced investment opportunities that are trading below their long
term fundamental value is considered to create a defensive position in respect of capital
preservation.
The Board is encouraged by the fact that, despite the uncertainty that has been caused by the
outbreak of COVID-19, there are a number of ongoing asset management transactions currently being
negotiated by the Manager, as evidenced by the 15 year lease renewal to the Secretary of State for
Communities and Local Government that has now completed at the Company's premises in Solihull. The
renewal documented a 30% increase in passing rent and is expected to result in significant value
increase for the asset when the portfolio is revalued at the end of this month. The successful
conclusion of this business plan at the current time, following on from the profitable sale of Corby
in May, both highlight the durability of the Company's strategy during more volatile markets. The
Board feels that the recent completion of these asset management transactions is a credit to the
Investment Manager's active management style which is a principal feature of the Company's strategy.
With a number of asset management discussions still ongoing it is hoped that both income and capital
returns to shareholders can be maximised further.
Since the year-end the Company has disposed of 2 Geddington Road, Corby, for gross proceeds of
GBP18.80 million. The Board considers that the profitable sale represents a positive outcome to the
Manager's business plan for the asset, particularly given wider market conditions at the time. The
sale has delivered to the Company an IRR in excess of 30% due in part to the asset's net income
yield of 10% against its purchase price produced throughout its hold period. Proceeds from the sale
leave the company well placed to take advantage of investment opportunities that may arise over
coming weeks and months as a result of the current economic environment.
The Company raised gross capital proceeds of GBP7.00 million in February 2020 which has contributed to
a healthy cash balance of GBP9.87 million as at 31 March 2020. This has since risen to GBP27.28 million
as at 19 June 2020 following the aforementioned disposal.
AEW UK REIT plc Property Performance vs. Benchmark for 12 months to 31 March 2020
The Company's portfolio has again delivered strong results relative to the MSCI/AREF PFI Balanced
Funds Quarterly Property Index ('the Benchmark'), outperforming the Benchmark with a total return of
3.5%. Total return was largely driven by the portfolio's high yielding assets generating a strong
income return of 8.2% over the year. While capital growth was negative overall, the portfolio is
defensively positioned in terms of geographical diversification and composition by sector. As at 31
March 2020, the portfolio valuation comprised just 12.4% of its value in retail assets and 7.8% in
leisure which has helped to limit the potential downside arising from events that are affecting the
wider economy and these sectors in particular.
The Company's consistent income returns have enabled it to continue to pay quarterly dividends of
2.00 pence per share throughout the year, meeting its target of 8.00 pence per share per annum.
Dividends were fully covered by the Company's EPRA EPS of 8.67 pence.
The Investment Manager's active approach to asset management has resulted in a vacancy rate of just
3.68% which has been maintained below 4% for seven consecutive quarters up to and including the
quarter ended 31 March 2020. However, given the problems that tenants are generally experiencing we
are expecting vacancy rates to increase in the coming year.
The Company's share price was 68.20 pence per share as at 31 March 2020 (31 March 2019: 92.80 pence
per share), representing a 26.77% discount to NAV. This reflects the declines experienced in the
equity markets in general and specifically in real estate as a result of the COVID-19 outbreak.
Financial Results Summary
Year ended
Year ended
31 March 2019
31 March 2020
Operating profit before fair value 14,472 13,524
changes (GBP'000)
Operating profit (GBP'000) 5,072 17,226
Profit before tax (GBP'000) 3,652 15,544
Earnings Per Share (basic and 2.40 10.26
diluted) (pence)
EPRA Earnings Per Share (basic and 8.67 8.07
diluted) (pence)
Ongoing Charges (%) 1.34 1.40
Net Asset Value per share (pence) 93.13 98.61
EPRA Net Asset Value per share 93.12 98.51
(pence)
Financing
The Company has a GBP60.00 million loan facility, of which it had drawn a balance of GBP51.50 million as
at 31 March 2020 (31 March 2019: GBP60.00 million facility; GBP50.00 million drawn), producing the
following measures of gearing.
Year ended Year ended
31 March 2020 31 March 2019
% %
Loan to NAV 34.83 33.45
Gross Loan to GAV 27.21 25.30
Net Loan to GAV (deducts cash 21.99 24.37
balance from the outstanding loan
value)
The unexpired term of the facility was 3.6 years as at 31 March 2020 (31 March 2019: 4.6 years). The
loan incurs interest at 3 month LIBOR +1.4%, which equated to an all-in rate of 2.10% as at 31 March
2020 (31 March 2019: 2.32%).
The Company is protected from a significant rise in interest rates and, as at the year end, had
interest rate caps in effect with a combined notional value of GBP36.51 million (31 March 2019: GBP36.51
million), with GBP26.51 million capped at 2.50% and GBP10.00 million capped at 2.00%, resulting in the
loan being 71% hedged (31 March 2019: 73%). These interest rate caps are effective until 19 October
2020. The Company has additional interest rate caps covering the remaining period of the loan from
20 October 2020 to 23 October 2023. After the year-end, the Company replaced its existing caps
covering this period, which capped the interest rate at 2.0% on a notional value of GBP49.51 million,
with new caps covering the same period capping the interest rate at 1.0% on a notional value of
GBP51.50 million. The Company paid a premium of GBP62,968.
During October 2019, the Company announced that it had completed an amendment to its loan facility,
increasing the 'Loan to NAV' covenant from 45% to 55% (subject to certain conditions). There were no
changes to the margin currently charged under the facility. The long term gearing target remains 25%
or less of GAV, however the Company can borrow up to 35% of 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.
Subsequent to the year-end, on the 26 May 2020, the Company announced that it had obtained consent
from its lender, RBS International, to waive the interest cover tests within its loan agreement for
July and October with the next proposed test date being January 2021. The lender also conveyed a
willingness to review the position again in December based on circumstances prevailing. The Board
considers this to have been prudent action in the current market environment.
Dividends
The Company has continued to deliver on its target of paying dividends of 8.00 pence per share per
annum. During the year, the Company declared and paid four quarterly dividends of 2.00 pence per
Ordinary Share, in line with its target, which were fully covered by the Company's EPRA EPS of 8.67
pence. It remains the Company's longer-term intention to continue to pay dividends in line with its
dividend policy, however the outlook is highly uncertain in the short term given the current
outbreak of COVID-19. In determining future dividend payments, regard will be had to the
circumstances prevailing at the relevant time, as well as the Company's requirement, as a UK REIT,
to distribute at least 90% of its distributable income annually, which will remain a key
consideration.
Outlook
The Board and Investment Manager are pleased with the strong income returns delivered to
shareholders to date. The Company has met its dividend target of 8.00 pps for the year, which was
108.38% covered by EPRA EPS. The outlook for the UK economy and real estate market still faces huge
uncertainty and it is likely that the Company will see further reduced levels of rent collection in
the near term, as tenants continue to feel the impact of lockdown restrictions on their cash flows.
However, the Company is well placed to withstand these circumstances due to its healthy cash
position and borrowing covenant headroom, as well as its diversified portfolio and low exposure to
retail. It is hoped that the easing of lockdown measures will allow many businesses to resume some
level of operations and kick start the economic recovery, eventually providing conditions to enable
further growth of the Company. In the meantime, the Board will monitor closely the developing
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situation in consideration of the Company's strategy and the Investment Manager will be working
closely with tenants in order to minimise impact on the Company's income profile.
Finally, I would like to remind investors that the Company will hold a continuation vote at the
Annual General Meeting ('AGM') to be held on 9 September 2020. Under the provision of the Company's
Articles, the Board will propose an ordinary resolution that the Company continues its business as
presently constituted. Together with my fellow Board members, and the Investment Manager, I would
like to express my ongoing belief in the Company's Strategy and to express the confidence that we
have for its future performance for the various reasons that are discussed herewith. The Board, as
set out later within this report, therefore welcomes shareholder attendance at the AGM if it is
appropriate to do so in light of current circumstances.
Mark Burton
Chairman
22 June 2020
Business Model and Strategy
Introduction
The Company is a real estate investment company listed on the premium segment of the Official List
of the FCA and traded on the London Stock Exchange's Main Market. As part of its business model and
strategy, the Company has, and intends to maintain, UK REIT status. HM Revenue and Customs has
acknowledged that the Company has met the necessary qualifying conditions to conduct its affairs as
a UK REIT and the Company intends to continue to do so.
Investment Objective
The investment objective of the Company is to deliver an attractive total return to shareholders
from investing predominantly in a portfolio of smaller commercial properties in the United Kingdom.
Investment Policy
In order to achieve its investment objective, the Company invests in freehold and leasehold
properties across the whole spectrum of the commercial property sector (office properties,
industrial/warehouse properties, retail warehouses and high street retail) to achieve a balanced
portfolio with a diversified tenant base.
Investment Restrictions
The Company invests and manages its assets with the objective of spreading risk through the
following investment restrictions:
· the value of no single property, at the time of investment, will represent more than 15.00% of
GAV;
· the Company may commit up to a maximum of 10.00% of its NAV (measured at the commencement of the
project) to development activities;
· the value of properties, measured at the time of each investment, in any one of the following
sectors: office properties, retail warehouses, high street retail and industrial/warehouse
properties will not exceed 50.00% of GAV. The 50.00% sector limit may be increased to 60.00% as
part of the Investment Manager's efficient portfolio management whereby the Investment Manager
determines it appropriate to pursue an attractive investment opportunity which could cause the
50.00% sector limit to be exceeded on a short-term basis pending a repositioning of the portfolio
through a sale of assets or other means;
· investment in unoccupied and non-income producing assets will, at the time of investment, not
exceed 20.00% of NAV;
· the Company may commit up to a maximum of 10.00% of the NAV (at the time of investment) in the
AEW UK Core Property Fund (the 'Core Fund'). The Company disposed of its last remaining units in
the Core Fund in May 2017 and it is not the current intention of the Directors to invest in the
Core Fund;
· the Company will not invest in other closed-ended investment companies; and
· if the Company invests in derivatives for the purposes of efficient portfolio and cash
management, the total notional value of the derivatives at the time of investment will not exceed,
in aggregate, 35.00% of GAV.
The Directors currently intend, at all times, to conduct the affairs of the Company so as to enable
the Group to qualify as a REIT for the purposes of Part 12 of the Corporation Tax Act 2010 ('CTA')
(and the regulations made thereunder).
The Company will at all times invest and manage its assets in a way that is consistent with its
objective of spreading investment risk and in accordance with its published investment policy and
will not, at any time, conduct any trading activity which is significant in the context of the
business of the Company as a whole.
In the event of a breach of the investment policy and investment restrictions set out above, the
Directors upon becoming aware of such breach will consider whether the breach is material, and if it
is, notification will be made to a Regulatory Information Service.
Any material change to the investment policy or investment restrictions of the Company may only be
made with the prior approval of shareholders.
Our Strategy
As the ramifications of COVID-19 become clearer, it is possible that our strategy might adapt with
prevailing market conditions, but for now we continue to follow our successful strategy since
inception as below:
The Company exploits what it believes to be the compelling relative value opportunities currently
offered by pricing inefficiencies in smaller commercial properties let on shorter occupational
leases. The Company supplements this core strategy with asset management initiatives to upgrade
buildings and thereby improve the quality of income streams. In the current market environment, the
focus is to invest in properties which:
· typically have a value, on investment, of between GBP2.50 million and GBP15.00 million;
· have initial net yields, on investment, of typically between 7.5-10%;
· achieve across the whole portfolio an average weighted lease term of between three to six years
remaining;
· achieve, across the whole portfolio, a diverse and broad spread of tenants; and
· have potential for asset management initiatives to include refurbishment and re-lettings.
The Company's strategy is focused on delivering enhanced returns from the smaller end (up to GBP15.00
million) of the UK commercial property market. The Company believes that there are currently pricing
inefficiencies in smaller commercial properties relative to the long-term pricing resulting in a
significant yield advantage, which the Company aims to exploit.
How we add value
An Experienced Team
The investment management team averages 20 years working together, reflecting stability and
continuity.
Value Investing
The Investment Manager's investment philosophy is based on the principle of value investing. The
Investment Manager looks to acquire assets with an income profile coupled with underlying
characteristics that underpin long-term capital preservation. As value managers, the Investment
Manager looks for assets where today's pricing may not correspond to long-term fundamentals.
Active Asset Management
The Investment Manager has an in-house team of dedicated asset managers with a strong focus on
active asset management to enhance income and add value to commercial properties.
Strategy in Action
Driving rental growth
Queen Square, Bristol
· A letting completed during February 2020 proves a new high rental tone for the building of
GBP27.14 per sq ft, a 55% increase above the previous passing rent for the suite.
· The building has an occupancy level of 100% (54% at purchase in December 2015). During this
time, growth of 66% has been achieved in value and 18% in income.
Maintaining high occupancy levels
Diamond Business Park, Wakefield
· Since purchase in early 2018, occupancy level has increased from 82% to 92%.
· Four lettings were completed during 2019 creating income of GBP125,000 per annum.
· Passing rent has increased by 9% during the year.
Lengthening income streams to boost net asset value
Brockenhurst Crescent, Walsall
· During September 2019, the Company completed a new lease extending the income stream from 3 to 8
years.
· The rent remained the same with the concession of only 9 months rent free.
· Valuation uplift of 3% was recorded on completion.
Driving income levels above estimated rental value
Knowles Lane, Bradford
· In September 2019, the Company documented the settlement of a rent review representing a 14%
increase on the previous rent and which was also ahead of the valuer's estimated rental value.
Key Performance Indicators
KPI AND RELEVANCE TO TARGET PERFORMANCE
DEFINITION STRATEGY
1. EPRA NIY 8.26%
A representation EPRA NIY is in 7.50 - 10.00% at 31 March 2020
to the investor line with the (31 March 2019:
of what their Company's 7.62%)
initial net target dividend
yield would be yield meaning
at a that, after
predetermined costs, the
purchase price Company should
after taking have the
account of all ability to meet
associated its target
costs, e.g. void dividend
costs and rent through
free periods. property
income.
2. True 8.04%
Equivalent Yield
A True 7.50 - 10.00% at 31 March 2020
The average Equivalent (31 March 2019:
weighted return Yield profile 7.94%)
a property will in line with
produce the Company's
according target dividend
yield shows
that, after
costs, the
to the present Company should
income and ERV have the
assumptions, ability to meet
assuming the its proposed
income is dividend
through
property
income.
received
quarterly in
advance.
3. Reversionary 7.90%
Yield
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A Reversionary 7.50 - 10.00% at 31 March 2020
The expected Yield profile (31 March 2019:
return the that is in line 7.75%)
property will with an Initial
Yield profile
shows a
potentially
provide once sustainable
rack-rented. income stream
that can be
used to meet
dividends past
the expiry of a
property's
current leasing
arrangements.
4. WAULT to 5.55 years
expiry
The Investment > 3 years at 31 March 2020
The average Manager (31 March 2019:
lease term believes that 6.10 years)
remaining to current market
conditions
present an
opportunity
expiry across whereby assets
the portfolio, with a shorter
weighted unexpired lease
term are often
mispriced. It
is also the
by contracted Investment
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. WAULT to 4.26 years
break
The Investment > 3 years at 31 March 2020
The average Manager (31 March 2019:
lease term believes that 4.87 years)
remaining to current market
conditions
present an
opportunity
break, across whereby assets
the portfolio with a shorter
weighted unexpired lease
term are often
mispriced. As
such, it is in
by contracted line with the
rent. Investment
Manager's
strategy to
acquire
properties with
a WAULT that is
generally
shorter than
the benchmark.
It is also the
Investment
Manager's view
that a shorter
WAULT is useful
for active
asset
management as
it allows the
Investment
Manager to
engage in
direct
negotiation
with tenants
rather than via
rent review
mechanisms.
6. NAV GBP147.86 million
NAV is the value Provides Increase year at 31 March 2020
of an entity's stakeholders (31 March 2019:
assets with the most GBP149.46 million)
relevant
information on on year
the fair value
minus the value of the assets
of its and liabilities
liabilities. of the Company.
7. Leverage 27.21%
(Loan to GAV)
The Company 25% long term at 31 March 2020
The proportion utilises (31 March 2019:
of our property borrowings to 25.30%)
portfolio that enhance returns
is funded by over the medium and 35% in
borrowings. term.
Borrowings will
not exceed 35%
of GAV advance of
(measured at
drawdown) with
a long-term
target of 25% a disposal or
or less of GAV.
capital raise
8. Vacant ERV 3.68%
The space in the The Company's< 10.00% at 31 March 2020
property aim is to (31 March 2019:
portfolio which minimise 2.99%)
is currently vacancy of the
unlet, as a properties. A
low level of
structural
vacancy
percentage of provides an
the total ERV of opportunity for
the portfolio. the Company to
capture rental
uplifts and
manage the mix
of tenants
within a
property.
9. Dividend 8.00 pps
Dividends The dividend 8.00 pps for the year
declared in reflects the ended 31 March
relation to the Company's 2020 (year ended
year. The ability to 31 March 2019:
Company targets deliver a 8.00 pps)
a dividend of sustainable
8.00 pence per income stream
Ordinary Share from its
per annum. portfolio.
However, given
the current
COVID-19
situation,
regard will be
had to the
circumstances
prevailing at
the relevant
time in
determining
dividend
payments.
10. Ongoing 1.34%
Charges
The Ongoing< 1.50% for the year
The ratio of Charges ratio ended 31 March
total provides a 2020 (year ended
administration measure of 31 March 2019:
and operating total costs 1.40%)
costs expressed associated with
as a percentage managing and
of average NAV operating the
throughout the Company, which
year. includes the
management fees
due to the
Investment
Manager. The
Investment
Manager
presents this
measure to
provide
investors with
a clear picture
of operational
costs involved
in running the
Company.
11. Profit GBP3.65
before tax million/2.40 pps
('PBT')
The PBT is an 8.00 pps
indication of for the year
PBT is a the ended 31 March
profitability Company'sfinanc 2020 (year ended
measure which ial performance 31 March 2019:
considers the for the year in GBP15.54
Company's profit which its million/10.26
before the strategy is pps)
payment of exercised.
income tax.
12. Shareholder -17.89%
Total Return
This reflects 8.00% for the year
The percentage the return seen ended 31 March
change in the by shareholders 2020 (year ended
share price on their 31 March 2019:
assuming shareholdings 5.44%)
dividends are through share
reinvested to price movements
purchase and dividends
additional received.
Ordinary Shares.
13. EPRA EPS 8.67 pps
Earnings from This reflects 8.00 pps for the year
core operational the Company's ended 31 March
activities. A ability to 2020 (year ended
key measure of a generate 31 March 2019:
company's earnings from 8.07 pps)
underlying the portfolio
operating which underpins
results from its dividends.
property rental
business and an
indication of
the extent to
which current
dividend
payments are
supported by
earnings. See
note 8 of the
Financial
Statements.
Investment Manager's Report
Economic Outlook
The current outlook for the global and UK economy is heavily dependent on ever-changing assumptions
made about the COVID-19 pandemic and related government policies. As such it is difficult to
forecast with any degree of certainty and the reliance placed on any forecasts should be limited.
KPMG forecasts published in May 2020 expect the UK economy to contract by 7.2% in 2020, recovering
in 2021 with GDP growth reaching 6.1%. These forecasts predict a W-shaped recession with a
relatively fast recovery, with economic activity and property values expected to be approaching
normal levels by mid to late 2021.
However, some forecasts predict a deeper and more prolonged downside and a weaker recovery. This is
highly dependent on developments in containing the spread of the virus, which could include finding
a vaccine.
Property Outlook
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It is expected that UK commercial property investment volumes will fall to levels last seen during the 2008 financial crisis during Q2 and Q3 of 2020. The full impact of the current crisis is yet to become clear; but the recovery in the UK commercial property investment market will likely mirror that of the UK economy. Thereafter we expect certain characteristics of the market to return, potentially more forcefully than before. These include a polarisation of the market between the best and worst performing sectors, with occupier demand being driven by structural forces as much as by the health of the economy in general. A clear example of this has been the growth of online retail at the expense of physical stores, which has seen a divergence in the capital values of the retail and industrial warehousing sectors. Sector Outlook Industrial The sector has seen continued growth for a number of years thanks to the trend towards online shopping and therefore the increased need for warehousing and logistics units. This shift is expected to continue at an even faster pace than predicted prior to the pandemic as a result of social distancing forcing a change in shoppers' habits. This is being seen particularly in the grocery sector where growth of c 30% is expected in 2020 and has led to most grocery retailers needing to occupy additional warehouse space. Current changes to shopper behaviour are expected to lead to increased take up of online sales, as a percentage of total sales, over the medium to long term in all retail sectors which should lead to an increase in demand for warehousing. In terms of emerging trends, there is an expectation that the UK will begin to see an increase in localised production as a result of supply chain disruption seen during the pandemic. This could further increase demand for industrial accommodation but, unlike the above, would lead to increased take up outside of the currently favoured logistics sector in favour of more traditional manufacturing accommodation which has seen a decline in total stock over recent years. The industrial sector represents the portfolio's largest sector holding, with 48.18% of the valuation, which leaves the Company well-placed to benefit from structural changes going forward. Our focus is on assets with low capital values in locations with good accessibility from the national motorway network. Total return for the year from our industrial assets was 4.7%, slightly below benchmark, as the strong income return of 8.1% was offset by negative capital growth. Office The office sector on the whole has proven to be resilient, providing solid income and global flows of investment into the UK. We consider that development in most UK cities outside London has already peaked, which should help to maintain stable rental growth. However, the sector could see longer term structural changes as a result of the current lockdown. A prolonged period of working from home could lead to businesses changing to adopt more flexible working practices and reducing office space, putting pressure on the office market, especially for serviced office operators, and increasing the potential for office-to-residential conversions where viable. Our office assets represent the second largest sector holding, with 23.72% of the valuation. The focus has been on strong, regional centres and a preference for town or city centres rather than business park locations with weak surrounding amenity where demand has generally not kept up. This was the second strongest performing sector within the portfolio for the year relative to the benchmark, thanks to key asset management transactions adding significant capital value, achieving outperformance of 7.1%. Alternatives This is a sector in which AEW UK as Investment Manager have significant expertise and, up until the commencement of the current period of uncertainty, had continued to see compelling opportunities. The Company's alternatives holding comprises assets within the leisure and car parking sectors that have seen selected due to their defensive, value protection characteristics as well as their high income yield. As such, even if some occupation levels are negatively impacted as a result of the current pandemic, as is expected in the leisure sector, the value of assets held in these sectors is expected to be below their long term assessment of worth, particularly when considering their value for alternative uses. Assets held in alternative sectors comprise 15.74% of the 31 March 2020 valuation, of which 7.8% is within the leisure sector. As a whole, our alternatives assets provided the best return relative to the Benchmark over the year, achieving outperformance of 7.3%, which was driven by an income return of 9.3%. Retail The retail sector had been facing difficulties before the outbreak of COVID-19, due to the changing habits of consumers, namely the adoption of online shopping in preference to visiting outlets. These changes in shopping habits could well be accelerated by the outbreak and although we might see a surge in footfall once lockdown restrictions are lifted, this is unlikely to halt the long-term structural decline in the sector. Over time we expect to see opportunities for conversion of redundant retail space into alternative uses and consider our retail assets to be well positioned, with the majority located in town and city centres where there is healthy demand for competing uses. Retail represents the portfolio's smallest sector holding, with just 12.36% of the valuation, which somewhat mitigates the risk associated with the sector at a portfolio level. Our retail assets have performed weakly relative to the Benchmark, as strong Central London retail performance underpins the Benchmark performance to a great extent. The Company's strictly regional holdings have suffered significant valuation losses associated with the negative sentiment in the sector. Asset Management The Company completed the following material asset management transactions during the year: · Eastpoint Business Park, Oxford - During May 2019 a lease renewal was completed with Innovista International on a 3,000 sq ft office suite. The lease, which runs for a three year term, provides for a rent of GBP30,000 per annum and a tenant incentive equivalent to six months rent free. · Diamond Business Park, Wakefield - In June 2019, the Company completed a new letting to tenant CB Imports on 23,000 sq ft of industrial accommodation at this multi-let estate. The lease runs for a three year term and provides a rent of GBP79,750 per annum. No rental incentives were granted. Within the estate, three other lettings were completed during the year producing a total rental income of GBP41,750 per annum. This includes a February 2020 letting that the Company completed with Texlogistics Ltd at a rent of GBP33,250 per annum. The lease provides a five year term certain and no rental incentives were granted. Since purchase in early 2018, occupancy level has increased from 82% to 92%. Passing rent per sq ft has increased by 14%. · Brockhurst Crescent, Walsall - In September 2019, the Company completed the simultaneous surrender and re-letting of Unit 1, Brockhurst Crescent, Walsall. The rent received from the Industrial property will continue unchanged at GBP231,728 per annum however, the new lease provides for a term of eight years, compared to three years remaining under the previous lease. The incoming tenant will benefit from a nine month rent free period. · Knowles Lane, Bradford - In September 2019, the Company settled a rent review at this industrial property documenting a new passing rent of GBP182,500. This represents a 14% increase on the previous rent and which was ahead of the valuer's estimated rental value at the date of signing. · Cranbourne House, Basingstoke - In September 2019, a lease extension for a term of six months was completed with HFC Prestige Manufacturing in Basingstoke. Due to the short extension period, a rental level was agreed 46% ahead of the previous passing rent. The tenant has now agreed terms in principle with the Company for a further lease renewal. · Fargate, Sheffield - Following the CVA of Paperchase in early 2019, the tenant remains in full occupation of the 3,000 sq ft store and did not action a break option in October 2019. H Samuel renewed occupation of their 2,400 sq ft unit in September 2019 at nil rent but with a rolling break actionable by both landlord and tenant. · Lockwood Court, Leeds - During December 2019, the Company completed a new lease with tenant Harrogate Spring Water for a 10 year term on the 187,700 sq ft industrial unit. The new lease provides for a rent of GBP603,340 and mirrors the terms previously in place with tenant LWS Yorkshire Ltd, a logistics provider to Harrogate Spring Water. The new lease provides the Company with a significantly stronger tenant counterparty. · 225 Bath Street, Glasgow - In January 2020, the Company completed a new letting of 6,700 sq ft to SPS Doorguard Ltd. The lease provides a 10 year term with a tenant break option at year five and a rent of GBP92,250 per annum. The lease was granted with 18 months rent free. Within the same building the Company has been made aware of tenant Sedgwick's intention to vacate the premises in August 2020. Sedgwick currently occupy 21,100 sq ft and pay an annual rent of GBP284,275 per annum. We are exploring alternative uses for the building including student accommodation and residential. · 40 Queen Square, Bristol - During February 2020 a new letting of 1,300 sq ft was completed with existing tenant Candide Ltd. The letting of the un-refurbished suite proves a new high rental tone for the building of GBP27.14 per sq ft, 55% higher than the previous level of passing rent on this suite. The lease provides for a term of five years at a rent of GBP34,250 per annum with an incentive of half rent payable for the first 12 month period.
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· Oak Park, Droitwich - In March 2020, the Company completed a lease renewal with tenant Egbert
Taylor on 101,000 sq ft of industrial accommodation in this West Midlands location. The renewal
takes the tenant's weighted average unexpired lease term from three years to five years at a
combined rent of GBP500,000 per annum over two leases. We are exploring potential for higher value
alternative uses on the site and as such, the new leases contain a landlord only break option
every 18 months in order to provide access to the site if this is required in order to maximise
value.
· Pearl Assurance House, Nottingham - In March 2020, a reversionary lease was completed with
Lakeland Ltd on a 4,300 sq ft retail unit fronting Wheeler Gate in the heart of Nottingham City
Centre. The new lease provides a c. six year term. The lease also documents the rebasing of
Lakeland's rent from GBP155,000 per annum to GBP90,000 per annum in line with its estimated rental
value.
· 2 Geddington Road, Corby - On 22 May 2020, the Company disposed of its asset at 2 Geddington
Road, Corby, for gross proceeds of GBP18.80 million, delivering an IRR in excess of 30%.
· Sandford House, Solihull - During June 2020, the Company completed a 15 year renewal lease with
its existing tenant, the Secretary of State for Communities and Local Government. The agreement
documents the increase of rental income from the property by 30% as well as providing for five
yearly open market rent reviews and a tenant break option at year 10. The tenant intends to carry
out a full refurbishment of the property over coming weeks requiring no capital payment by the
Company either by way of refurbishment cost or capital incentive to the tenant. In addition, no
rent free incentive has been granted to the tenant. Throughout its hold period the Company has so
far received a net income yield from the asset in excess of 9% per annum against its purchase
price of GBP5.4 million.
Financial Results
The Company's Net Asset Value as at 31 March 2020 was GBP147.86 million or 93.13 pps (31 March 2019:
GBP149.46 million or 98.61 pps). This is a decrease of 5.48 pps or 5.56% over the year, with the
underlying movement in NAV set out in the table below:
PPS
NAV as at 1 April 2019 98.61
Change in fair value of investment property (6.14)
Change in fair value of derivatives (0.09)
Income earned for the year 11.70
Expenses and net finance costs for the year (3.02)
Dividends paid (8.00)
Issue of equity (net of costs) 0.07
NAV as at 30 September 2019 93.13
EPRA earnings per share for the year was 8.67 pps which, based on dividends paid of 8.00 pps,
reflects a dividend cover of 108.38%.
Financing
As at 31 March 2020, the Company had a GBP60.0 million loan facility with RSBi, in place until October
2023, the details of which are presented below:
31 March 2020 31 March 2019
Facility GBP60.00 million GBP60.00 million
Drawn GBP51.50 million GBP50.00 million
Gearing (Loan to GAV) 27.21% 25.30%
Gearing (Loan to NAV) 34.83% 33.45%
Interest rate 2.10% all-in 2.32% all-in
(LIBOR + 1.4%) (LIBOR + 1.4%)
Notional Value of Loan Balance 70.9% 73.0%
Hedged
On 9 October 2019, the Company announced that it had completed an amendment to its loan facility to
increase the hard loan to NAV covenant from 45% to 55% (subject to certain conditions), although the
target gearing remains as set out in the Prospectus. The margin charged under the facility will be
determined by the Company's Loan to NAV ratio as follows:
Loan to NAV Margin (%)
< 40% 1.40
40 - 45% 2.50
> 45% or at the Company's request* 2.00
* in these circumstances, certain conditions must be met, including the provision of security over a
certain value of the Company's assets.
The margin in effect has remained at 1.40% throughout the year.
Financial covenants
In April 2020, the Company reported the following in respect of its borrowing covenant tests:
Limit 31 March 2020 31 March 2019
Loan to NAV<55% 34.83% 33.45%
Historical Interest Cover<5:1 7.0 10.7
Ratio
Projected Interest Cover<5:1 10.1 11.1
Ratio
Property Portfolio
The Company has not made any acquisitions or disposals during the year. The following tables analyse
the portfolio by sector and geographical area:
Summary by Sector as at 31 March 2020
Gross Gross ERV Net Like- Like-
Passi Passi
ng ng
renta renta
l l (GBPpsf) rental for for
incom incom like like
e e
(GBPm) (GBPpsf
Area Vacancy WAULT ) income
to rental rental
break
Number Valuation (sq by ERV (GBPm)
of ft) growth* growth*
assets (years)
(GBPm) (%) ERV
(GBPm) (GBP) %
Sector
Industrial 20 91.20 2,33 1.48 3.83 8.16 3.49 8.47 3.62 8.09 0.41 5.49
6,08
7
Offices 6 44.90 286, 9.09 3.12 3.41 11.89 4.28 14.94 3.37 0.17 5.30
776
Alternatives 3 29.80 164, 0.00 5.06 2.81 17.10 2.38 14.44 2.87 0.05 1.78
708
Standard 5 17.90 168, 7.09 3.94 2.30 13.61 1.78 10.51 2.49 -0.34 -12.02
Retail 917
Retail 1 5.50 51,0 0.00 4.01 0.61 11.96 0.51 10.09 0.61 0.00 0.00
Warehouse 21
Portfolio 35 189.30 3,00 3.68 4.26 17.29 5.75 17.42 5.79 17.43 0.29 1.71
7,50
9
Summary by Geographical Area as at 31 March 2020
Gross Gross ERV Net Like- Like-
passi passi
ng ng
renta renta
l l (GBPpsf) rental for for
incom incom like like
e e
(GBPm) (GBPpsf
Area Vacancy WAULT ) income
to rental rental
break
Geographical Number Valuation (sq by ERV ERV (GBPm)
Area of ft) (GBPm) growth* growth*
assets (years)
(GBPm) (%)
(GBP) %
Yorkshire 8 33.52 1,02 1.48 2.35 3.23 3.14 3.40 3.31 3.19 0.30 11.19
and 7,80
Humbersidea 1
South East 5 26.95 195, 9.30 4.12 2.59 13.24 2.28 11.67 2.64 -0.03 -1.12
545
Eastern 5 21.65 344, 0.00 3.08 1.90 5.51 2.10 6.10 1.89 0.02 1.07
885
South West 3 21.30 125, 0.00 2.80 1.73 13.82 1.77 14.14 1.68 0.02 1.20
004
West 4 19.20 398, 0.00 3.79 1.69 4.24 1.87 4.69 1.71 -0.11 -6.05
Midlands 140
East 2 19.15 80,5 0.00 2.39 1.85 23.01 1.50 18.59 1.83 -0.02 -1.08
Midlands 72
North West 4 14.18 302, 5.77 3.41 1.27 4.22 1.30 4.30 1.44 0.01 0.70
061
Wales 2 14.05 376, 0.00 9.08 1.24 3.31 1.29 3.44 1.31 0.00 0.00
138
Greater 1 10.60 71,7 0.00 11.62 0.96 13.40 0.75 10.45 1.01 0.05 5.21
London 20
Scotland 1 8.70 85,6 26.16 1.50 0.83 9.65 1.16 13.54 0.73 0.05 7.46
43
Portfolio 35 189.30 3,00 3.68 4.26 17.29 5.75 17.42 5.79 17.43 0.29 1.71
7,50
9
* Like-for-like rental growth is the growth in net rental income on properties owned throughout the
current and previous periods under review.
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These properties had a value of GBP181.95 million as at 31 March 2020, as assessed by Knight Frank.
Properties by Market Value as at 31 March 2020
Sector weighting by passing rent - high industrial weighting and low exposure to retail
Sector Percentage
Industrial 48.2
Offices 23.7
Alternatives 15.7
Standard retail 9.5
Retail Warehouse 2.9
Geographical weighting by valuation - highly diversified across the UK
Region Percentage
Yorkshire & Humberside 17.7
South East 14.2
Eastern 11.5
South West 11.3
West Midlands 10.1
East Midlands 10.1
North West 7.5
Wales 7.4
Greater London 5.6
Scotland 4.6
Property Sector Region Market
Value
Range (GBPm)
Top ten:
1. 2 Geddington Other (Car East Midlands 10.0 - 15.0
Road, Corby parking)
2. 40 Queen Square, Offices South West 10.0 - 15.0
Bristol
3. Eastpoint Offices South East 10.0 - 15.0
Business Park,
Oxford
4. London East Other (Leisure) Greater
Leisure Park, London
Dagenham
10.0 - 15.0
5. Gresford Industrial Wales 7.5 - 10.0
Industrial
Estate, Wrexham
6. 225 Bath Street, Offices Scotland 7.5 - 10.0
Glasgow
7. Lockwood Court, Industrial Yorkshire and
Leeds Humberside 5.0 - 7.5
8. Sanford House, Offices West Midlands 5.0 - 7.5
Solihull
9. Langthwaite Industrial Yorkshire and 5.0 - 7.5
Grange Humberside
Industrial
Estate, South
Kirkby
10. Storeys Bar Industrial Eastern 5.0 - 7.5
Road,
Peterborough
The Company's top 10 properties listed above comprise 49.7% of the total value of the portfolio.
Property Sector Region Market Value
Range (GBPm)
11. Apollo Industrial Eastern 5.0 - 7.5
Business Park,
Basildon
12. Sarus Court Industrial North West 5.0 - 7.5
Industrial
Estate,
Runcorn
13. Barnstaple Retail Warehouse South West 5.0 - 7.5
Retail Park
14. Euroway Industrial Yorkshire and
Trading Humberside 5.0 - 7.5
Estate,
Bradford
15. Above Bar Standard Retail South East 5.0 - 7.5
Street,
Southampton
16. Brockhurst Industrial West Midlands 5.0 - 7.5
Crescent,
Walsall
17. Oak Park, Industrial West Midlands<5.0
Droitwich
18. Excel 95, Industrial Wales<5.0
Deeside
19. Diamond Industrial Yorkshire and
Business Park, Humberside <5.0
Wakefield
20. Commercial Standard Retail South East<5.0
Road,
Portsmouth
21. Odeon Cinema, Other (Leisure) Eastern<5.0
Southend
22. Pearl Standard Retail East Midlands<5.0
Assurance
House,
Nottingham
23. Walkers Lane, Industrial North West<5.0
St. Helens
24. Cedar House, Offices South West<5.0
Gloucester
25. Cranbourne Industrial South East<5.0
House,
Basingstoke
26. Brightside Industrial Yorkshire and
Lane, Humberside <5.0
Sheffield
27. Magham Road, Industrial Yorkshire and
Rotherham Humberside <5.0
28. Pipps Hill Industrial Eastern<5.0
Industrial
Estate,
Basildon
29. Bank Hey Standard Retail North West<5.0
Street,
Blackpool
30. Eagle Road, Industrial West Midlands<5.0
Redditch
31. Clarke Road, Industrial South East<5.0
Milton Keynes
32. Knowles Lane, Industrial Yorkshire and
Bradford Humberside <5.0
33. Vantage Point, Offices Eastern<5.0
Hemel
Hempstead
34. Moorside Road, Industrial North West<5.0
Salford
35. Fargate and Standard Retail Yorkshire and
Chapel Walk, Humberside <5.0
Sheffield
Top 10 Tenants as at 31 March 2020
% of
Portfolio
Passing Total
Rental Passing
Income Rental
Tenant Sector Property (GBP'000) Income
1. GEFCO UK Industrial 2 Geddington 7.6
Limited Road, Corby 1,320
2. Plastipak UK Industrial Gresford 883 5.1
Limited Industrial
Estate,
Wrexham
832 4.8
3. The Government Sandford
Secretary of body House,
State Solihull and
Cedar House,
Gloucester
676 3.9
4. Ardagh Glass Industrial Langthwaite
Limited Industrial
Estate, South
Kirkby
625 3.6
5. Mecca Bingo Leisure London East
Limited Leisure Park,
Dagenham
603 3.5
6. Harrogate Industrial Lockwood
Spring Water Court, Leeds
600 3.5
7. HFC Prestige Industrial Cranbourne
Manufacturin House,
g Basingstoke
8. Odeon Leisure Odeon Cinema, 535 3.1
Cinemas Southend
9. Sports Retail Barnstaple 525 3.0
Direct Retail Park
and Bank Hey
Street,
Blackpool
525 3.0
10. Wyndeham Industrial Storeys Bar
Peterborough Road,
Limited Peterborough
The Company's top 10 tenants, listed above, represent 41.1% of the total passing rental income of
the portfolio.
Approximately GBP2.94 million of the Company's current contracted income stream is subject to an
expiry or break within the 12 month period commencing 1 April 2020. Of this amount, GBP1.1 million
(38%) is already subject to an agreed renewal in principle with a further GBP1.3 million (44%) where
we are currently engaged in active renewal discussions and where tenants are expected to remain in
occupation subject to agreeing final lease terms. We expect to engage further tenants in renewal
discussion throughout the period. To date, tenants that have served notice to vacate within this
period and have made clear that they intend to do so amount to c. GBP0.49 million (17%), the majority
of which is attributed to Sedgwick in Glasgow (as noted in the Asset Management section) where the
Company is exploring redevelopment for alternative use.
Alternative Investment Fund Manager ('AIFM')
AEW UK Investment Management LLP is authorised and regulated by the FCA as a full-scope AIFM and
provides its services to the Company.
The Company has appointed Langham Hall UK Depositary LLP ('Langham Hall') to act as the depositary
to the Company, responsible for cash monitoring, asset verification and oversight of the Company.
Information Disclosures under the AIFM Directive
Under the AIFM Directive, the Company is required to make disclosures in relation to its leverage
under the prescribed methodology of the Directive.
Leverage
The AIFM Directive prescribes two methods for evaluating leverage, namely the 'Gross Method' and the
'Commitment Method'. The Company's maximum and actual leverage levels are as per below:
31 March 2020 31 March 2019
Leverage Gross Method Commitment Gross Commitment
Exposure
Method Method Method
Maximum 140% 140% 140% 140%
Limit
Actual 128% 135% 132% 134%
In accordance with the AIFM Directive, leverage is expressed as a percentage of the Company's
exposure to its NAV and adjusted in line with the prescribed 'Gross' and 'Commitment' methods. The
Gross method is representative of the sum of the Company's positions after deducting cash balances
and without taking into account any hedging and netting arrangements. The Commitment method is
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representative of the sum of the Company's positions without deducting cash balances and taking into
account any hedging and netting arrangements. For the purposes of evaluating the methods above, the
Company's positions primarily reflect its current borrowings and NAV.
Remuneration
The AIFM has adopted a Remuneration Policy which accords with the principles established by AIFMD.
AIFMD Remuneration Code Staff includes the members of the AIFM's Management Committee, those
performing Control Functions, Department Heads, Risk Takers and other members of staff that exert
material influence on the AIFM's risk profile or the AIFs it manages.
Staff are remunerated in accordance with the key principles of the firm's remuneration policy, which
include
1) promoting sound risk management;
2) supporting sustainable business plans;
3) remuneration being linked to non-financial criteria for Control Function staff;
4) incentivise staff performance over long periods of time;
5) award guaranteed variable remuneration only in exceptional circumstances; and
6) having an appropriate balance between fixed and variable remuneration.
As required under section 'Fund 3.3.5.R(5)' of the Investment Fund Sourcebook, the following
information is provided in respect of remuneration paid by the AIFM to its staff for the year ended
31 December 2019.
Year ended
31 December 2019
Total remuneration paid to employees during
financial year:
a) remuneration, including, where relevant, any GBP2,920,641
carried interest paid by the AIFM
b) the number of beneficiaries 29
The aggregate amount of remuneration of the
AIFM Remuneration Code staff, broken down by:
a) senior management GBP738,634
b) members of staff GBP2,182,007
Fixed Variable Total
remuneration remuneration remuneration
Senior management GBP658,634 GBP80,000 GBP738,634
Staff GBP1,542,947 GBP639,060 GBP2,182,007
Total GBP2,201,581 GBP719,060 GBP2,920,641
Fixed remuneration comprises basic salaries and variable remuneration comprises bonuses.
AEW UK Investment Management LLP
22 June 2020
Principal Risks and Uncertainties
The Company's assets consist primarily of UK commercial property. Its principal risks are therefore
related to the commercial property market in general, but also to the particular circumstances of
the individual properties and the tenants within the properties.
The Board has overall responsibility for reviewing the effectiveness of the system of risk
management and internal control which is operated by the Investment Manager. The Company's ongoing
risk management process is designed to identify, evaluate and mitigate the significant risks the
Company faces.
Twice each year, the Board undertakes a risk review with the assistance of the Audit Committee, to
assess the adequacy and effectiveness of the Investment Manager and other service providers' risk
management and internal control processes.
The Board has carried out a robust assessment of the principal risks facing the Company, including
those that would threaten its business model, future performance, solvency or liquidity.
An analysis of the principal risks and uncertainties is set out below. This does not purport to be
exhaustive as some risks are not yet known and some risks are currently not deemed material but
could turn out to be material in the future.
Principal risks and How risk is managed Risk assessment
their potential
impact
REAL ESTATE RISKS
1. Property market
Any property market The Company has investment Probability:
recession or future restrictions in place to High
deterioration in the invest and manage its
property market assets with the objective
could, inter alia, of spreading and
(i) cause the mitigating risk. Impact: High
Company to realise
its investments at
lower valuations;
and (ii) delay the Movement:
timings of the Increase
Company's
realisations. These
risks could have a
material adverse
effect on the
ability of the
Company to achieve
its investment
objective.
2. Property
valuation
The Company uses an Probability:
Property and independent external High
property-related valuer (Knight Frank LLP)
assets are to value the properties at
inherently difficult fair value in accordance
to value due to the with accepted RICS Impact: Low to
individual nature of appraisal and valuation Moderate
each property. standards.
Movement:
Increase
There may be an
adverse effect on
the Company's
profitability, the
NAV and the price of
Ordinary Shares in
cases where
properties are sold
whose valuations
have previously been
materially
overstated.
The report of the
valuer on the
property valuations
as at 31 March 2020
contains a material
valuation
uncertainty clause
due to COVID-19 and
its unknown impact
at that point in
time as shown in
note 10 of the
financial
statements.
3. Tenant default
Failure by tenants Comprehensive due Probability:
to fulfil their diligence is undertaken on High
rental obligations all new tenants. Tenant
could affect the covenant checks are
income that the carried out on all new
properties earn and tenants where a default Impact: High
the ability of the would have a significant
Company to pay impact.
dividends to its
shareholders. Movement:
Increase
Asset management team
conducts ongoing
monitoring and liaison
with tenants to manage
potential bad debt risk.
4. Asset management
initiatives
Costs incurred on asset Probability:
Asset management management initiatives are Low
initiatives, such as closely monitored against
refurbishment works, budgets and reviewed in
may prove to be more regular presentations to
extensive, expensive the Investment Management Impact: Low
and take longer than Committee of the
anticipated. Cost Investment Manager.
overruns may have a
material adverse Movement: No
effect on the change
Company's
profitability, the
NAV and the share
price.
5. Due diligence
Due diligence may The Company's due Probability:
not identify all the diligence relies on work Low
risks and (such as legal reports on
liabilities in title, property
respect of an valuations, environmental
acquisition and building surveys) Impact:
(including any outsourced to third Moderate
environmental, parties who have expertise
structural or in their areas. Such third
operational defects) parties have professional
that may lead to a indemnity cover in place. Movement: No
material adverse change
effect on the
Company's
profitability, the
NAV and the price of
the Company's
Ordinary Shares.
6. Fall in rental
rates
The Company builds a Probability:
Rental rates may be diversified property and Moderate to
adversely affected tenant base with High
by general UK subsequent monitoring of
economic conditions concentration to
and other factors individual occupiers (top
that depress rental 10 tenants) and sectors Impact:
rates, including (geographical and sector Moderate to
local factors exposure). High
relating to
particular
properties/locations
(such as increased Movement:
competition). Increase
The Investment Manager
holds quarterly meetings
with its Investment
Strategy Committee and
regularly meets the Board
Any fall in the of Directors to assess
rental rates for the whether any changes in the
Company's properties market present risks that
may have a material should be addressed in the
adverse effect on Company's strategy.
the Company's
profitability, the
NAV, the price of
the Ordinary Shares
and the Company's
ability to meet
interest and capital
repayments on any
debt facilities.
FINANCIAL RISKS
7. Breach of
borrowing covenants
The Company monitors the Probability:
The Company has use of borrowings on an Low to Moderate
entered into a term ongoing basis through
credit facility. weekly cash flow
forecasting and quarterly
risk monitoring to monitor Impact: High
financial covenants.
Movement: No
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change
Material adverse
changes in
valuations and net
income may lead to
breaches in the LTV
and interest cover
ratio covenants.
8. Interest rate
rises
The Company uses interest Probability:
The Company's caps on a significant Moderate to
borrowings through a notional value of the loan High
term credit facility to mitigate the adverse
are subject to impact of possible
interest rate risk interest rate rises.
through changing Impact: Low
LIBOR rates. Any
increases in LIBOR
rates may have an
adverse effect on Movement:
the Company's Decrease
ability to pay
dividends. The Investment Manager and
Board of Directors monitor
the level of hedging and
interest rate movements to
ensure that the risk is
managed appropriately.
9. Availability and
cost of debt
The Company maintains a Probability:
The term credit good relationship with the Low to Moderate
facility expires in bank providing the term
October 2023. In the credit facility.
event that RBSi does
not renew the Impact: High
facility, the
Company may need to
sell assets to repay
the outstanding Movement:
loan. Any increase Increase
in the financing The Company monitors the
costs of the projected usage and
facility on renewal covenants of the credit
would adversely facility on a quarterly
impact on the basis.
Company's
profitability.
CORPORATE RISKS
10. Use of service
providers
The performance of service Probability:
The Company has no providers in conjunction Moderate
employees and is with their service level Impact:
reliant upon the agreements is monitored Moderate
performance of third via regular calls and
party service face-to-face meetings and
providers. the use of key performance
indicators, where Movement:
relevant. Increase
Failure by any
service provider to
carry out its
obligations to the
Company in
accordance with the
terms of its
appointment could
have a materially
detrimental impact
on the operation of
the Company.
11. Dependence on
the Investment
Manager
The Investment Manager has Probability:
endeavoured to ensure that Moderate
The Investment the principal members of Impact:
Manager is its management team are Moderate to
responsible for suitably incentivised. High
providing investment
management services
to the Company.
Movement:
Increase
The future ability
of the Company to
successfully pursue
its investment
objective and
investment policy
may,
among other things,
depend on the
ability of the
Investment Manager
to retain its
existing staff
and/or to recruit
individuals of
similar experience
and calibre.
12. Ability to meet
objectives
The Company has an Probability:
The Company may not investment policy to High
meet its investment achieve a balanced
objective to deliver portfolio with a
an attractive total diversified asset and
return to tenant base. The Company Impact: High
shareholders from also has investment
investing restrictions in place to
predominantly in a limit exposure to
portfolio of smaller potential risk factors. Movement:
commercial These factors mitigate the Increase
properties in the risk of fluctuations in
United Kingdom. returns.
Poor relative total
return performance
may lead to an
adverse reputational
impact that affects
the Company's
ability to raise new
capital.
TAXATION RISKS
13. Company REIT
status
The Company monitors REIT Probability:
The Company has a UK compliance through the Low
REIT status that Investment Manager on
provides a acquisitions; the
tax-efficient Administrator on asset and
corporate structure. distribution levels; the Impact: High
Registrar and Broker on
shareholdings and the use
of third-party tax
advisers to monitor REIT Movement: No
compliance requirements. change
If the Company fails
to remain a REIT for
UK tax purposes, its
profits and gains
will be subject to
UK corporation tax.
Any change to the
tax status or UK tax
legislation could
impact on the
Company's ability to
achieve its
investment
objectives and
provide attractive
returns to
shareholders.
14. POLITICAL/ECONOMIC RISKS
Political and The Board considers the Probability:
macroeconomic events impact of political and High
present risks to the macroeconomic events when
real estate and reviewing strategy.
financial markets
that affect the Impact: High
Company and the
business of its
tenants. The level
of uncertainty that Movement:
such events bring Increase
has been highlighted
in recent times,
most pertinently
following the EU
referendum vote
(Brexit) in June
2016.
EMERGING RISKS
The economic The Manager is in close Probability:
disruption arising contact with tenants. The Definite
from the COVID-19 Manager has put in place
virus could impact social distancing measures
rental income as advised by the UK
receipts from government. The Manager Impact: High
tenants, the ability has maintained a close
to access funding at relationship with RBSi to
competitive rates, ensure continuing dialogue
maintain the around covenants. Movement: This
Company's dividend was an
policy and its unprecedented
adherence to the and unforeseen
HMRC REIT regime, risk. The
particularly if the Company
UK government continues to
restrictions are in work closely
place for a with all
prolonged period. parties through
this disruptive
period.
Stakeholder Engagement
s172 Statement
The Directors' overarching duty is to promote the success of the Company for the benefit of its
shareholders, having regard to the interests of its stakeholders, as set out in section 172 of the
Companies Act 2006 (the 'Act'). The Directors have considered each aspect of this section of the Act
and consider that the information set out below is particularly relevant in the context of the
Company's business as an externally managed investment company which does not have any employees or
suppliers.
We set out in the table below our key stakeholders, the nature of their relationship with the
Company and Board, their key interests and how we engage with those stakeholders.
Our relationships with stakeholders are factored into Board discussions and decisions made by the
Board will consider the impact on the stakeholders, in accordance with s172 of the Act.
Stakeholder Interests Engagement
Investors
Our shareholders are - Sustainable - AGM, Annual Report,
impacted directly by growth of the regulatory
the financial Company and announcements
performance of the achieving target
Company through returns
dividends and share
price movements.
- Quarterly update
report and other key
- Good information published
relationship with on the website
They also play an the Company and
important role in Board
monitoring the
governance of the
Company.
- Roadshows, meetings
and
- Effective
structure and
control
presentations via the
Investment Manager
Framework
- Impact of the
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Company on the
wider community
and environment
- Reputation of
the Company
Service providers
Key functions of the - Relationship - Effective and
Company are with the Company regular communication
outsourced to and Board
third-party
suppliers, including
investment
management, property
management,
administration,
- Service-level
- Fair contract agreements
terms and
company secretarial, service-level
registrar, depositary agreements
and legal services.
It is important to
develop strong
long-term working
relationships with - Formal tender
these providers to processes where
enhance the appropriate
efficiency of the - Reputation of
Company's operations, the Company
as well as that of
the providers
themselves.
- The Company's
performance and
long-terms
prospects
Tenants
The Company's - Good - Site visits and face
strategy in relation communication and to face meetings
to its individual relationship with through the Investment
assets will directly the Company as Manager
affect the tenants in landlord
occupation of those
assets.
- Formal negotiations
- Fair lease terms
- Ongoing
- Long term communication through
strategy for the the property manager
asset in line with
the objectives of
the tenant's
activities
The wider community
and environment
The Company's
physical real estate
assets have a direct
impact on their local - Impact of - Publishing of
communities depending properties and Sustainability
on their primary use their business Disclosure Report and
and on the plans on the local Greenhouse Gas
environment through economy Emissions Statement
their emissions and
energy usage.
- Impact of - GRESB reporting
properties on the
attractiveness and
appeal of the
local area
- Communication with
local authorities via
Investment Manager
- Energy
efficiency and
greenhouse gas
emissions
Approval
The Strategic Report has been approved and signed on behalf of the Board by:
Mark Burton
Chairman
22 June 2020
Extract from the Directors Report
Directors
Mark Burton, non-executive Chairman
Bimaljit ("Bim") Sandhu, non-executive Director
Katrina Hart, non-executive Director
Going Concern
The Directors have made an assessment of the Company's ability to continue as a going concern, which
takes into consideration the uncertainty surrounding the outbreak of COVID-19, as well as the
Company's cash flows, financial position, liquidity and borrowing facilities.
As at 31 March 2020, the Company had a cash balance of GBP9.87 million and has subsequently disposed
of one property, Geddington Road, Corby, for gross proceeds of GBP18.80 million, providing further
liquidity.
The Company had sufficient headroom against its borrowing covenants when last reported in April
2020, which can be found in the Investment Manager's Report above. The Company reported a Loan to
NAV of 34.8%, so had room for a GBP33.4 million fall in NAV before reaching the maximum Loan to NAV of
45% per the covenant. This limit can be increased to 55% when the option is exercised by the Company
and certain conditions are met, which would allow for a further GBP20.8 million fall in NAV i.e. a
total fall of GBP54.2 million. The Company also passed its most recent interest cover ratio ('ICR')
test, reporting on the quarter to 31 March 2020. A waiver of the next two tests for the quarters to
30 June and 30 September 2020 has been successfully negotiated with RBSi, as a result of conditions
in the wider economic environment. This will be reviewed again in relation to the test covering the
quarter to 31 December 2020 and beyond as required.
The Company benefits from a secure, diversified income stream from a tenancy profile which is not
overly reliant on any one tenant or sector. As at the date of this report, 84% of the rent due for
the March 2020 quarter has been collected..
Taking this into consideration, the Directors have reviewed a number of scenarios over 12 months,
including an extreme, but plausible, downside scenario which makes the following assumptions:
* Failure of 25% to 30% of tenants (by passing rent);
* Collection of c.50% of remaining rents on the quarter date, with remaining collection deferred for
three quarters;
* No new lettings or renewals, other than those where terms have already been agreed;
* A 25% fall in valuations;
* No new acquisitions or disposals;
* 3-month GBP LIBOR at 0.5%; and
* Passing of the continuation vote in September 2020.
The Company's cash resources available of GBP27.28 million (as at 19 June 2020) are sufficient to
cover any losses incurred in the above scenario over the 12 month assessment period and surplus cash
available could be used to manage the Company's gearing, maintaining a Loan to NAV ratio below 40%
and therefore the margin at 1.4%. Details of the margin charged under the facility can be found in
the Investment Manager's Report above. The Company's cash flow can also be managed through the
adjustment of dividend payments and reduction of outflows on capital expenditure and acquisitions.
In the above scenario, the Company is forecast to pass its ICR tests for the quarters to December
2020 and March 2021, albeit with marginal headroom, assuming that a portion of the debt would have
to be repaid in order to keep the margin at 1.4%. The Directors are confident that further waivers
of the ICR test could be extended throughout the assessment period should economic conditions not
improve and have had informal discussions with the lender in this respect. In the unlikely event
that the Company were to breach its ICR covenant, it has the ability to 'cure' the breach by placing
cash on account with the bank. In the extremely unlikely event that the full balance of the facility
was called in, the Company has certain more attractive assets with long leases and good quality
tenants which could be realised at, or close to, valuation. The Company could then continue to
operate un-geared.
As such, having assessed the worst case plausible scenario for the assessment period, the Directors
are not aware of any material uncertainties in relation to the Company's ability to continue in
operation for a period of 12 months from the date of approval of these financial statements. Given
the Company's substantial cash balance and headroom against its borrowing covenants, the Directors
believe that the Company is well placed to manage its financing and business risks, including those
associated with COVID-19, and the Board is of the opinion that the going concern basis adopted in
the preparation of the Annual Report is appropriate.
Viability Statement
The Directors have also assessed the prospects of the Company over a period longer than the 12
months required by the 'Going Concern' provisions. The Board has considered the nature of the
Company's assets, liabilities and associated cash flows, and has determined that five years up to 31
March 2025 is the maximum timescale over which the performance of the Company can be forecast with a
material degree of accuracy and so is an appropriate period over which to assess the Company's
viability.
Considerations in support of the assessment of the Company's viability over a five-year period
include:
· the current unexpired term under the Company's debt facility stands at 3.6 years, meaning that
financing is secure for the majority of the period under consideration;
· the Company's property portfolio has a WAULT of 5.55 years to expiry, representing a secure
income stream for the period under consideration;
· the Company benefits from a portfolio which is diversified in terms of sector and location,
mitigating the risk of tenant default during the period;
· most leases contain a five-year rent review pattern and therefore an assessment over five years
allows the Directors to assess the impact of the portfolio's reversion arising from rent reviews.
In assessing the Company's viability, the Board has carried out a thorough review of the Company's
business model, including future performance, REIT compliance, liquidity, dividend cover and banking
covenant tests over a five year period.
The business model is subject to annual sensitivity analysis, which involves flexing a number of key
assumptions underlying the forecasts both individually and in aggregate for normal and stressed
conditions. The five year review also considers whether financing facilities will be renewed as
required.
The following scenarios were tested, both individually and combined, in an effort to represent a
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severe but plausible scenario, which might reasonably be expected to arise as a result of the
outbreak of COVID-19, amongst other factors:
· reduced rent collection
· portion of rent written off completely
· fall in portfolio valuation
· increased periods of vacancy
Based on the result of this analysis, the Directors have a reasonable expectation that the Company
will be able to continue in operation and meet its liabilities as they fall due over the five-year
period of their assessment.
Subsidiary Company
Details of the Company's subsidiary, AEW UK REIT 2015 Limited, can be found in Note 17 to the
Financial Statements.
Financial Risk Management
The financial risk management objectives and policies can be found in Note 20 to the Financial
Statements.
Share Capital
Share Issues
At a general meeting held on 12 September 2018, the Company was granted authority to allot up to (i)
250 million Ordinary Shares of GBP0.01 each in the capital of the Company and/or (ii) 250 million
convertible redeemable preference shares ('C Shares') of GBP0.01 each in the capital of the Company
pursuant to a potential Share Issuance Programme. The Company published its Prospectus in relation
to the Share Issuance Programme on 1 March 2019.
At the AGM held on 12 September 2019, the Company was granted the authority to allot Ordinary Shares
up to an aggregate nominal amount of GBP151,558 on a non pre-emptive basis. No Ordinary Shares have
been allotted under this authority and the authority will expire at the conclusion of the 2020 AGM.
On 26 February 2020, the Company successfully raised gross proceeds of GBP7 million under the
Company's Placing Programme which expired on 28 February 2020. 7,216,495 new Ordinary Shares were
issued and allotted at a price of 97 pence per Ordinary Share.
As at 31 March 2020, the Company had 158,774,746 Ordinary Shares in issue.
Requirements of the Listing Rules
Listing Rule 9.8.4 requires the Company to include specified information in a single identifiable
section of the annual report or a cross reference table indicating where the information is set out.
The Directors confirm that there are no disclosures required in relation to Listing Rule 9.8.4.
Related Party Transactions
Related party transactions during the year ended 31 March 2020 can be found in Note 22 to the
Financial Statements.
Post Balance Sheet Events
Post balance sheet events can be found in Note 24 to the Financial Statements.
The Directors' Report has been approved by the Board of Directors and signed on its behalf by:
Mark Burton
Chairman
22 June 2020
Statement of Directors' Responsibilities in respect of the Annual Report and Financial Statements
The Directors are responsible for preparing the Annual Report and Financial Statements in accordance
with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under
that law, they are required to prepare the financial statements in accordance with International
Financial Reporting Standards as adopted by the European Union (IFRS as adopted by the EU) and
applicable law.
Under company law, the Directors must not approve the financial statements unless they are satisfied
that they give a true and fair view of the state of affairs of the Company and of its profit or loss
for that period. In preparing these financial statements, the Directors are required to:
· select suitable accounting policies and then apply them consistently;
· make judgements and estimates that are reasonable, relevant and reliable;
· state whether they have been prepared in accordance with IFRS as adopted by the EU;
· assess the Company's ability to continue as a going concern, disclosing, as applicable, matters
related to going concern; and
· use the going concern basis of accounting unless they either intend to liquidate the Company or
to cease operations, or have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting records that are sufficient to show
and explain the Company's transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that its financial statements comply
with the Companies Act 2006. They are responsible for such internal control as they determine is
necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error, and have general responsibility for taking such steps
as are reasonably open to them to safeguard the assets of the Company and to prevent and detect
fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic
Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that
comply with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial
information included on the Company's website. Legislation in the UK governing the preparation and
dissemination of financial statements may differ from legislation in other jurisdictions.
We confirm that to the best of our knowledge:
· the Financial Statements, prepared in accordance with the applicable set of accounting
standards, give a true and fair view of the assets, liabilities, financial position and profit of
the Company; and
· the Strategic Report includes a fair review of the development and performance of the business
and the position of the Company, together with a description of the principal risks and
uncertainties that it faces.
We consider the Annual Report and the Financial Statements, taken as a whole, is fair, balanced and
understandable and provides the information necessary for shareholders to assess the Company's
position and performance, business model and strategy.
On behalf of the Board
Mark Burton
Chairman
22 June 2020
Non-statutory Accounts
The financial information set out below does not constitute the Company's statutory accounts for the
year ended 31 March 2020 but is derived from those accounts. Statutory accounts for the year ended
31 March 2020 will be delivered to the Registrar of Companies in due course. The Independent Auditor
has reported on those accounts; its report was (i) unqualified, (ii) did not include a reference to
any matters to which the Independent Auditor drew attention by way of emphasis without qualifying
its report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act
2006. The text of the Independent Auditor's Report can be found in the Company's full Annual Report
and Financial Statements on the Company's website.
Financial Statements
Statement of Comprehensive Income
for the year ended 31 March 2020
Notes Year ended Year ended
31 March 31 March
2020 2019
GBP'000 GBP'000
Income
Rental and other income 3 17,790 17,183
Property operating expenses 4 (1,326) (1,462)
Net rental and other income 16,464 15,721
Other operating expenses 4 (1,877) (2,075)
Directors' remuneration 5 (115) (122)
Operating profit before fair value 14,472 13,524
changes
Change in fair value of investment 10 (9,444) 4,184
properties
Realised gain/(loss) on disposal of 44 (482)
investment properties
Operating profit 5,072 17,226
Finance expense 6 (1,420) (1,682)
Profit before tax 3,652 15,544
Taxation 7 - -
Profit after tax 3,652 15,544
Other comprehensive income - -
Total comprehensive income for the 3,652 15,544
year
Earnings per share (pps) (basic and 8 2.40 10.26
diluted)
The notes below form an integral part of these financial statements.
Statement of Changes in Equity
for the year ended 31 March 2020
For the year Notes Share Share Capital Total capital
ended capital
premium reserve and reserves
31 March 2020 GBP'000 and
account attributable
retained to
GBP'000
earnings* owners of the
GBP'000 Company
GBP'000
Balance at 1 1,515 49,770 98,171 149,456
April 2019
Total - - 3,652 3,652
comprehensive
income
Ordinary 18/19 72 6,928 - 7,000
shares issued
Share issue 19 - (120) - (120)
costs
Dividends 9 - - (12,125) (12,125)
paid
Balance at 31 1,587 56,578 89,698 147,863
March 2020
For the year Notes Share Share Capital Total capital
ended capital
premium reserve and reserves
31 March 2019 GBP'000 and
account attributable
retained to
GBP'000
earnings owners of the
GBP'000 Company
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GBP'000
Balance at 1 1,515 49,768 94,751 146,034
April 2018
Total - - 15,544 15,544
comprehensive
income
Share issue 19 - 2 - 2
costs
Dividends 9 - - (12,124) (12,124)
paid
Balance at 31 1,152 49,770 98,171 149,456
March 2019
* The capital reserve has arisen from the cancellation of part of the Company's share premium
account and is a distributable reserve.
The notes below form an integral part of these financial statements.
Statement of Financial Position
as at 31 March 2020
Notes 31 March 2020 31 March 2019
GBP'000 GBP'000
Assets
Non-Current Assets
Investment property 10 187,042 196,129
187,042 196,129
Current Assets
Receivables and prepayments 11 7,351 4,469
Other financial assets held at 12 14 162
fair value
Cash and cash equivalents 9,873 2,131
17,238 6,762
Total Assets 204,280 202,891
Non-Current Liabilities
Interest bearing loans and 13 (51,047) (49,476)
borrowings
Lease obligations 15 (635) (636)
(51,682) (50,112)
Current Liabilities
Payables and accrued expenses 14 (4,687) (3,275)
Lease obligations 15 (48) (48)
(4,735) (3,323)
Total Liabilities (56,417) (53,435)
Net Assets 147,863 149,456
Equity
Share capital 18 1,587 1,515
Share premium account 19 56,578 49,770
Capital reserve and retained 89,698 98,171
earnings
Total capital and reserves 147,863 149,456
attributable to equity holders
Net Asset Value per share 8 93.13pps 98.61 pps
(pps)
The financial statements were approved by the Board on 22 June 2020 and signed on its behalf by:
Mark Burton
Chairman
AEW UK REIT plc (Company number: 09522515)
The notes below form an integral part of these financial statements.
Statement of Cash Flows
for the year ended 31 March 2020
Year ended Year ended
31 March 2020 31 March 2019
GBP'000 GBP'000
Cash flows from operating activities
Profit before tax 3,652 15,544
Adjustment for non-cash items:
Finance expenses 1,420 1,682
Loss/(gain) from change in fair 9,444 (4,184)
value of investment property
Realised (gain)/loss on disposal of (44) 482
investment properties
Increase in other receivables and (2,882) (1,318)
prepayments
Increase in other payables and 1,424 587
accrued expenses
Net cash flow generated from 13,014 12,793
operating activities
Cash flows from investing activities
Purchase of and additions to (358) (7,945)
investment properties
Disposal of investment properties 44 6,629
Net cash used in investing (314) (1,316)
activities
Cash flows from financing activities
Proceeds from issue of ordinary 7,000 -
share capital
Share issue costs (120) (32)
Loan drawdown 1,500 -
Arrangement loan facility fee paid (39) (294)
Premiums for interest rate caps - (531)
Finance costs (1,174) (1,076)
Dividends paid (12,125) (12,124)
Net cash used in financing (4,958) (14,057)
activities
Net increase/(decrease) in cash and 7,742 (2,580)
cash equivalents
Cash and cash equivalents at start 2,131 4,711
of the year
Cash and cash equivalents at end of 9,873 2,131
the year
Notes to the Financial Statements
for the year ended 31 March 2020
1. Corporate information
AEW UK REIT plc (the 'Company') is a closed ended Real Estate Investment Trust ('REIT') incorporated
on 1 April 2015 and domiciled in the UK. The registered office of the Company is 6th Floor, 65
Gresham Street, London, EC2V 7NQ.
The Company's Ordinary Shares were listed on the Official List of the FCA and admitted to trading on
the Main Market of the London Stock Exchange on 12 May 2015.
The nature of the Company's operations and its principal activities are set out in the Strategic
Report above.
2. Accounting policies
2.1 Basis of preparation
These financial statements are prepared and approved by the Directors in accordance with IFRS and
interpretations issued by the International Accounting Standards Board ('IASB') as adopted by the
European Union ('EU IFRS').
These financial statements have been prepared under the historical cost convention, except for
investment property and interest rate derivatives that have been measured at fair value.
The financial statements are presented in Sterling and all values are rounded to the nearest
thousand pounds (GBP'000), except when otherwise indicated.
The Company is exempt by virtue of Section 402 of the Companies Act 2006 from the requirement to
prepare group financial statements. These financial statements present information solely about the
Company as an individual undertaking.
New standards, amendments and interpretations
The following new standards and amendments to existing standards have been published and approved
by the EU. The Company has applied the following standards from 1 April 2019, with the year ended 31
March 2020 being the first year end reported under the standards:
· IFRS 16 Leases. In January 2016, the IASB published the final version of IFRS 16 Leases. IFRS 16
specifies how an IFRS reporter will recognise, measure, present and disclose leasing arrangements.
The new standard results in almost all leases held as lessee being recognised on the balance
sheet, as the distinction between operating and finance leases is removed. However, IFRS 16 has
not impacted operating leases held by the Company where the Company is lessor.
Under IFRS 16, where the Company is lessee, it now recognises the right-to-use asset in the
Consolidated Statement of Financial Position at the present value of future lease payments cash
flows.
In addition, a financial liability is also recognised in the Consolidated Statement of Financial
Position which is valued at the present value of future lease payments cash flows.
A reconciliation of the presentation under IFRS 16 versus IAS 17 has not been presented, as there
was
an immaterial impact on the net assets. There were no new lease liabilities arising during the year.
Accordingly, comparative amounts have not been restated.
The following have been considered, but have had no impact on the Company for the reporting period:
· Amendments to IFRS 9;
· IFRIC 23, Uncertainty over Income Tax Treatments;
· Amendments to IAS 28 Long Term Interests in Associates and Joint Ventures; and
· Amendments to IAS 19 Plan Amendment, Curtailment or Settlement.
The following new standards and amendments to existing standards have been published and approved by
the EU, and are mandatory for the Company's accounting periods beginning after 1 April 2020 or later
periods:
· Definition of Material - amendments to IAS 1 and IAS 8;
· Annual improvements to IFRS 2015-2017 Cycle: amendments to IFRS 3 Business Combinations, IFRS 11
Joint Arrangements, IAS 12 Income Taxes and IAS 23 Borrowing Costs;
· IFRS 17 - Insurance Contracts; and
· Revised Conceptual Framework for financial reporting: The IASB has issued a revised Conceptual
Framework for future standard setting decisions. No changes will be made to any of the current
standards.
The Company does not expect the adoption of new accounting standards issued but not yet effective to
have a significant impact on its financial statements.
2.2 Significant accounting judgements and estimates
The preparation of financial statements in accordance with EU IFRS requires the Directors of the
Company to make judgements, estimates and assumptions that affect the reported amounts recognised in
the financial statements. However, uncertainty about these assumptions and estimates could result in
outcomes that require a material adjustment to the carrying amount of the asset or liability in the
future.
There are not considered to be any judgements which have a significant effect on the amounts
recognised in the financial statements, however, there is an estimate that will have a significant
effect on the amounts recognised in the financial statements:
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 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 in the UK.
2.4 Going concern
The Directors have made an assessment of the Company's ability to continue as a going concern, which
takes into consideration the uncertainty surrounding the outbreak of COVID-19, as well as the
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Company's cash flows, financial position, liquidity and borrowing facilities.
As at 31 March 2020, the Company had a cash balance of GBP9.87 million and has subsequently disposed
of one property, Geddington Road, Corby, for gross proceeds of GBP18.80 million, providing further
liquidity.
The Company had sufficient headroom against its borrowing covenants when last reported in April
2020, which can be found in the Investment Manager's Report above. The Company reported a Loan to
NAV of 34.8%, so had room for a GBP33.4 million fall in NAV before reaching the maximum Loan to NAV of
45% per the covenant. This limit can be increased to 55% when the option is exercised by the Company
and certain conditions are met, which would allow for a further GBP20.8 million fall in NAV i.e. a
total fall of GBP54.2 million. The Company also passed its most recent interest cover ratio ('ICR')
test, reporting on the quarter to 31 March 2020. A waiver of the next two tests for the quarters to
30 June and 30 September 2020 has been successfully negotiated with RBSi, as a result of conditions
in the wider economic environment. This will be reviewed again in relation to the test covering the
quarter to 31 December 2020 and beyond as required.
The Company benefits from a secure, diversified income stream from a tenancy profile which is not
overly reliant on any one tenant or sector. As at the date of this report, 84% of the rent due for
the March 2020 quarter has been collected.
Taking this into consideration, the Directors have reviewed a number of scenarios over 12 months,
including an extreme, but plausible, downside scenario which makes the following assumptions:
* Failure of 25% to 30% of tenants (by passing rent);
* Collection of c.50% of remaining rents on the quarter date, with remaining collection deferred for
three quarters;
* No new lettings or renewals, other than those where terms have already been agreed;
* A 25% fall in valuations;
* No new acquisitions or disposals;
* 3-month GBP LIBOR at 0.5%; and
* Passing of the continuation vote in September 2020.
The Company's cash resources available of GBP27.28 million (as at 19 June 2020) are sufficient to
cover any losses incurred in the above scenario over the 12 month assessment period and surplus cash
available could be used to manage the Company's gearing, maintaining a Loan to NAV ratio below 40%
and therefore the margin at 1.4%. Details of the margin charged under the facility can be found in
the Investment Manager's Report above. The Company's cash flow can also be managed through the
adjustment of dividend payments and reduction of outflows on capital expenditure and acquisitions.
In the above scenario, the Company is forecast to pass its ICR tests for the quarters to December
2020 and March 2021, albeit with marginal headroom, assuming that a portion of the debt would have
to be repaid in order to keep the margin at 1.4%. The Directors are confident that further waivers
of the ICR test could be extended throughout the assessment period should economic conditions not
improve and have had informal discussions with the lender in this respect. In the unlikely event
that the Company were to breach its ICR covenant, it has the ability to 'cure' the breach by placing
cash on account with the bank. In the extremely unlikely event that the full balance of the facility
was called in, the Company has certain more attractive assets with long leases and good quality
tenants which could be realised at, or close to, valuation. The Company could then continue to
operate un-geared.
As such, having assessed the worst case plausible scenario for the assessment period, the Directors
are not aware of any material uncertainties in relation to the Company's ability to continue in
operation for a period of 12 months from the date of approval of these financial statements. Given
the Company's substantial cash balance and headroom against its borrowing covenants, the Directors
believe that the Company is well placed to manage its financing and business risks, including those
associated with COVID-19, and the Board is of the opinion that the going concern basis adopted in
the preparation of the Annual Report is appropriate.
2.5 Summary of significant accounting policies
The principal accounting policies applied in the preparation of these financial statements are set
out below.
a) Presentation currency
These financial statements are presented in Sterling, which is the functional and presentational
currency
of the Company. The functional currency of the Company is principally determined by the primary
economic environment in which it operates. The Company did not enter into any transactions in
foreign currencies during the year.
b) Revenue recognition
i) Rental income
Rental income receivable under operating leases is recognised on a straight-line basis over the term
of the lease. Rental income is invoiced in advance, except for contingent rental income, which is
calculated based off prior turnover and is recognised when it is raised. Any modification to an
operating lease is accounted for as a new lease from the effective date of the modification,
considering any prepaid or accrued lease payments relating to the original lease as part of the
lease payments for the new lease. Any lease incentive existing on a modified lease will then be
spread evenly over the new remaining life of the lease.
Rent adjustments based on open market estimated rental values are only recognised once the review
has been finalised.
Amounts received from tenants to terminate leases or to compensate for dilapidations are recognised
in the Statement of Comprehensive Income when the right to receive them arises.
Incentives for lessees to enter into lease agreements are spread evenly over the lease term, even if
the payments are not made on such a basis. The lease term is the non-cancellable period of the lease
together with any further term for which the tenant has the option to continue the lease, where, at
the inception of the lease, the Directors are reasonably certain that the tenant will exercise that
option.
ii) Deferred income
Deferred income is any rental income that has been invoiced to the tenant but relates to future
periods, it is reported as a current liability on the Statement of Financial Position.
c) Dividend income
Dividend income is recognised in profit or loss on the date the entity's right to receive a dividend
is established.
d) Financing income and expenses
Financing income comprises interest receivable on funds invested. Financing expenses comprise
interest and other costs incurred in connection with the borrowing of funds. Interest income and
interest payable are recognised in profit or loss as they accrue, using the effective interest
method.
e) Investment property
Property is classified as investment property when it is held to earn rentals or for capital
appreciation or both. Investment property is measured initially at cost including transaction costs.
Transaction costs include transfer taxes and professional fees to bring the property to the
condition necessary for it to be capable of operating. The carrying amount also includes the cost of
replacing part of an existing investment property at the time that cost is incurred if the
recognition criteria are met.
Subsequent to initial recognition, investment property is stated at fair value. Gains or losses
arising from changes in the fair values are included in profit or loss.
Investment properties are valued by the independent valuer on the basis of a full valuation with
physical inspection at least once a year. Any valuation of an immovable by the independent valuer
must be undertaken in accordance with the current issue of RICS Valuation - Professional Standards
(the 'Red Book').
The determination of the fair value is based upon the income capitalisation approach. This approach
involves applying capitalisation yields to current and future rental streams net of income voids
arising from vacancies or rent-free periods and associated running costs. These capitalisation
yields and estimated rental values are based on comparable property and leasing transactions in the
market using the valuer's professional judgement and market observation. Other factors taken into
account in the valuations include the tenure of the property, tenancy details, capital values of
fixtures and fittings, environment matter and the overall repair and condition of the property.
For the purposes of these financial statements, the assessed fair value is:
· reduced by the carrying amount of any accrued income resulting from the spreading of lease
incentives; and
· increased by the carrying amount of leasehold obligations.
Investment property is derecognised when it has been disposed of or permanently withdrawn from use
and no future economic benefit is expected after its disposal or withdrawal.
The profit on disposal is determined as the difference between the net sales proceeds and the
carrying amount of the asset at the commencement of the accounting period plus capital expenditure
in the period.
Any gains or losses on the retirement or disposal of investment property are recognised in the
profit or loss in the year of retirement or disposal.
f) Investments in subsidiaries
AEW UK REIT 2015 Limited is the subsidiary of the Company. The subsidiary was dormant during the
current and previous reporting period. The investment in the subsidiary is stated at cost less
impairment and shown in note 17.
The Company has taken advantage of the exemption as permitted by Section 405 of the Companies Act
2006, therefore the subsidiary is not consolidated as its inclusion is not material for the purposes
of giving a true and fair view.
g) Investment property held for sale
Investment property is classified as held for sale when it is being actively marketed at year end
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and it is highly probable that the carrying amount will be recovered principally through a sale
transaction within 12 months.
Investment property classified as held for sale is included within current assets within the
Statement of Financial Position and measured at fair value.
h) Derivative financial instruments
Derivative financial instruments, comprising interest rate caps for hedging purposes, are initially
recognised at fair value and are subsequently measured at fair value, being the estimated amount
that the Company would receive or pay to terminate the agreement at the period end date, taking into
account current interest rate expectations and the current credit rating of the Company and its
counterparties. Premiums payable under such arrangements are initially capitalised into the
Statement of Financial Position.
The Company uses valuation techniques that are appropriate in the circumstances and for which
sufficient data is available to measure fair value, maximising the use of relevant observable inputs
and minimising the use of unobservable inputs significant to the fair value measurement as a whole.
Changes in fair value of interest rate derivatives are recognised within finance expenses in profit
or loss in the period in which they occur.
i) Cash and cash equivalents
Cash and short-term deposits in the Statement of Financial Position comprise cash at bank and
short-term deposits with an original maturity of three months or less.
j) Receivables
Rent and other receivables are initially recognised at fair value and subsequently at amortised
cost. Impairment provisions are recognised based upon an expected credit loss model. The Company has
made an assessment of expected credit losses at each period end, using the simplified approach where
a lifetime expected loss allowance is always recognised over the expected life of the financial
instrument. Any adjustment is recognised in profit or loss as an impairment gain or loss.
Expected credit losses are assessed based on the Company's historical credit loss experience,
adjusted for factors which are specific to the tenant and current and forecast economic conditions
in general. If confirmation is received that a trade receivable will not be collected, the carrying
value of the asset will be written off against the associated impairment provision.
k) Capital prepayments
Capital prepayments are made for the purpose of acquiring future property assets and held as
receivables within the Statement of Financial Position. When the asset is acquired, the prepayments
are capitalised as a cost of purchase. Where a purchase is not successful, these costs are expensed
within profit or loss as abortive costs in the period.
l) Other payables and accrued expenses
Other payables and accrued expenses are initially recognised at fair value and subsequently held at
amortised cost.
m) Rent deposits
Rent deposits represent cash received from tenants at inception of a lease and are subsequently
transferred to the rent agent to hold on behalf of the Company.
n) Interest bearing loans and borrowings
All loans and borrowings are initially recognised at fair value less directly attributable
transaction costs. After initial recognition, interest bearing loans and borrowings are subsequently
measured at amortised cost using the effective interest method. Borrowing costs are amortised over
the lifetime of the facilities through profit or loss.
When the lifetime of a floating rate facility is extended, and this is considered to be a
non-substantial modification, the effective interest rate is revised to reflect changes in market
rates of interest.
o) Provisions
A provision is recognised in the Statement of Financial Position when the Company has a present
legal or constructive obligation as a result of a past event, that can be reliably measured and is
probable that an outflow of economic benefits will be required to settle the obligation. Provisions
are determined by discounting the expected future cash flows at a pre-tax rate that reflects risks
specific to the liability.
p) Dividend payable to shareholders
Equity dividends are recognised when they become legally payable.
q) Share issue costs
The costs of issuing or reacquiring equity instruments (other than in a business combination) are
accounted for as a deduction from equity.
r) Leases
Leases where the Company is lessee are capitalised at the lease commencement, at present value of
the minimum lease payments, and held as both a right-to-use asset and a liability within the
Statement of Financial Position.
s) Taxes
Corporation tax is recognised in profit or loss except to the extent that it relates to items
recognised directly in equity, in which case, it is recognised in equity.
As a REIT, the Company is exempt from corporation tax on the profits and gains from its investments,
provided it continues to meet certain conditions as per REIT regulations.
Taxation on the profit or loss for the period not exempt under UK REIT regulations comprises current
and deferred tax. Current tax is expected tax payable on any non-REIT taxable income for the period,
using tax rates applicable in the period.
Deferred tax is provided on temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount
of deferred tax that is provided is based on the expected manner of realisation or settlement of the
carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the
period end date.
t) European Public Real Estate Association
The Company has adopted European Public Real Estate Association ('EPRA') best practice
recommendations, which it expects to broaden the range of potential institutional investors able to
invest
in the Company's Ordinary Shares. For the year to 31 March 2020, audited EPS and NAV calculations
under EPRA's methodology are included in note 8 and further unaudited measures are included below.
u) Capital and reserves
Share capital
Share capital is the nominal amount of the Company's ordinary shares in issue.
Share premium
Share premium relates to amounts subscribed for share capital in excess of nominal value less
associated issue costs of the subscriptions.
Capital reserve
The capital reserve represents the cancelled share premium less dividends paid from this reserve.
This is a distributable reserve.
Retained earnings
Retained earnings represent the profits of the Company less dividends paid from revenue profits to
date. Unrealised gains on the revaluation of investment properties contained within this reserve are
not distributable until they crystallise on the sale of the investment property. The cumulative
unrealised losses contained within this reserve at 31 March 2020 is GBP10.76m (31 March 2019: GBP1.32m).
3) Revenue
Year ended Year ended
31 March 2020 31 March 2019
GBP'000 GBP'000
Rental income received
Dilapidation income received 17,418 17,179
Other property income 372 -
Total revenue - 4
17,790 17,183
Rent receivable under the terms of the leases is adjusted for the effect of any incentives agreed.
4) Expenses
Year ended Year ended
31 March 2020 31 March 2019
GBP'000 GBP'000
Property operating expenses 1,326 1,462
Other operating expenses
Investment management fee 1,308 1,302
Auditor remuneration 106 98
Prospectus drafting costs - 181
Other operating costs 463 494
Total other operating expenses 1,877 2,075
Total operating expenses 3,203 3,537
Year ended Year ended
31 March 2020 31 March 2019
GBP'000 GBP'000
Audit
Statutory audit of Annual Report and 82 75
Financial Statements
82 75
Non-audit
Review of Interim Report 24 23
Renewal of Company's Prospectus - 31
- 54
Total fees paid to KPMG LLP 106 129
Percentage of total fees attributed 23% 42%
to non-audit services
5) Directors' remuneration
Year ended Year ended
31 March 2020 31 March 2019
GBP'000 GBP'000
Directors' fees 107 114
Tax and social security 8 8
Total remuneration 115 122
A summary of the Directors' remuneration is set out in the Directors' Remuneration Report in the
Full Annual Report and Financial Statements.
There are no other members of key management personnel other than the Directors.
6) Finance expenses
Year ended Year ended
31 March 2020 31 March 2019
GBP'000 GBP'000
Interest payable on loan borrowings 1,108 1,103
Amortisation of loan arrangement fee 110 127
Agency fee payable on loan - 3
borrowings
Commitment fees payable on loan 54 54
borrowings
1,272 1,287
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Charge in fair value of interest 148 395
rate derivatives
Total 1,420 1,682
7) Taxation
Year ended Year ended
31 March 2020 31 March 2019
GBP'000 GBP'000
Total tax comprises
Analysis of tax charge in the year
Profit before tax 3,652 15,544
Theoretical tax at UK corporation 694 2,953
tax standard rate of 19.00% (2019:
19.00%)1
Adjusted for:
Exempt REIT income (2,488) (2,257)
Non taxable investment profit 1,786 (704)
Unrealised management expenses not 8 8
recognised
Total tax charge - -
Factors that may affect future tax charges
Due to the Company's status as a REIT and the intention to continue meeting the conditions required
to obtain approval as a REIT in the foreseeable future, the Company has not provided deferred tax on
any capital gains and losses arising on the revaluation or disposal of investments.
1 The Corporation Tax rate will remain at 19% for the next financial year as announced in the 2020
budget rather than being reduced to 17% as previously announced.
8) Earnings per share and NAV per share
Year ended Year ended
31 March 2020 31 March 2019
Earnings per share:
Total comprehensive income (GBP'000) 3,652 15,544
Weighted average number of shares 152,208,919 151,558,251
Earnings per share (basic and 2.40 10.26
diluted) (pence)
EPRA earnings per share:
Total comprehensive income (GBP'000) 3,652 15,544
Adjustment to total comprehensive
income:
Change in fair value of investment 9,444 (4,184)
properties (GBP'000)
Realised (gain)/loss on disposal of (44) 482
investment properties (GBP'000)
Change in fair value of interest 148 395
rate derivatives (GBP'000)
Total EPRA Earnings (GBP'000) 13,200 12,237
EPRA earnings per share (basic and 8.67 8.07
diluted) (pence)
NAV per share:
Net assets (GBP'000) 147,863 149,456
Ordinary Shares 158,774,746 151,558,251
NAV per share (pence) 93.13 98.61
EPRA NAV per share:
Net assets (GBP'000) 147,863 149,456
Adjustments to net assets:
Other financial assets held at fair (14) (162)
value (GBP'000)
EPRA NAV (GBP'000) 147,849 149,294
EPRA NAV per share (pence) 93.12 98.51
Earnings per share (EPS) amounts are calculated by dividing profit for the period attributable to
ordinary equity holders of the Company by the weighted average number of Ordinary Shares in issue
during the period. As at 31 March 2020, EPRA NNNAV was equal to IFRS NAV and, as such, a
reconciliation between the two measures has not been presented.
9) Dividends paid
Year ended Year ended
31 March 2020 31 March 2019
Dividends paid during the period GBP'000 GBP'000
Represents four interim dividends of 12,125 12,124
2.00 pps each
Year ended Year ended
Dividends relating to the period
31 March 2020 31 March 2019
GBP'000 GBP'000
Represents four interim dividends of 12,269* 12,124
2.00 pps each
Dividends paid during the period relate to Ordinary Shares only.
* Dividends relating to the period has increased due to the issue of new shares in February 2020,
therefore the fourth interim dividend at 2.00pps was increased.
10) Investments
10.a) Investment property
31 March 2020
Investment Investment Total 31 March
property property GBP'000 2019
freehold leasehold Total
GBP'000 GBP'000 GBP'000
UK investment property
As at beginning of the 159,080 38,525 197,605 192,342
year
Purchases and capital 363 (5) 358 7,590
expenditure in the year
Disposals in the year - - - (7,053)
Revaluation of (12,043) 3,380 (8,663) 4,726
investment properties
Valuation provided by 147,400 41,900 189,300 197,605
Knight Frank
Adjustment to fair value (2,941) (2,160)
for lease incentive
debtor
Adjustment for finance 683 684
lease obligations*
Total investment 187,042 196,129
property
Gain/(loss) on disposal
of the investment
property
Net proceeds from 44 6,629
disposals of investment
property during the year
Carrying value at date - (7,053)
of sale
Lease incentives - (58)
amortised in current
year
Gain/(loss) realised on 44 (482)
disposal of investment
property
Change in fair value of
investment property
Change in fair value (8,663) 4,726
before adjustments for
lease incentives
Adjustment for movement
in the year:
in value of lease (781) (542)
incentive debtor
(9,444) 4,184
* Adjustment in respect of minimum payment under head leases separately included as a liability
within the Statement of Financial Position
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 is based upon the income capitalisation approach. This approach
involves applying capitalisation yields to current and future rental streams net of income voids
arising from vacancies or rent-free periods and associated running costs. These capitalisation
yields and estimated rental values are based on comparable property and leasing transactions in the
market using the valuer's professional judgement and market observation. Other factors taken into
account in the valuations include the tenure of the property, tenancy details, capital values of
fixtures and fittings, environmental matter and the overall repair and condition of the property.
The report of the valuer on the property valuations as at 31 March 2020 contains the following
material valuation uncertainty clause due to COVID-19 and its unknown impact at that point in time.
"The outbreak of COVID-19, declared by the World Health Organisation as a "Global Pandemic" on 11
March 2020, has impacted global financial markets. Travel restrictions have been implemented by many
countries. In the UK, market activity is being impacted in all sectors.
As at the valuation date, we consider that we can attach less weight to previous market evidence for
comparison purposes, to inform opinions of value. Indeed, the current response to COVID-19 means
that we are faced with an unprecedented set of circumstances on which to base a judgement. Our
valuations are therefore reported on the basis of 'material valuation uncertainty' per VPGA 10 of
the RICS Valuation - Global Standards. Consequently, less certainty - and a higher degree of caution
- should be attached to our valuations than would normally be the case.
Given the unknown future impact that COVID-19 might have on the real estate market, we recommend
that you keep the valuations under frequent review."
10.b) Fair value measurement hierarchy
The following table provides the fair value measurement hierarchy for investments:
Quoted Significant Significant Total
prices in observable unobservable
active inputs inputs
markets
(Level 1) GBP'000
(Level 2) (Level 3)
GBP'000
GBP'000 GBP'000
Assets
measured at
fair value
31 March 2020 - - 187,042 187,04
2
Investment
property
31 March 2019 - - 196,129 196,12
9
Investment
property
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.
There have been no transfers between Level 1 and Level 2 during either period, nor have there been
any transfers in or out of Level 3.
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
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the fair value hierarchy of the entity's portfolio of investment property are:
1) 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 as follows:
Fair Valuation Significant Range
Value
Class
Technique Unobservable
GBP'000 Inputs
31 March 2020
189,300 Income ERV GBP0.50 -
Investment capitalisatio GBP105.00
property* n
Equivalent
yield 5.71% -
10.54%
31 March 2019
197,605 Income ERV GBP1.00 -
Investment capitalisatio GBP127.00
Property* n
Equivalent
yield 5.87% -
10.25%
* Valuation per Knight Frank LLP.
Where possible, sensitivity of the fair values of Level 3 assets are tested to changes in
unobservable inputs against reasonable alternatives.
Gains and losses recorded in profit or loss for recurring fair value measurements categorised within
Level 3 of the fair value hierarchy are attributable to changes in unrealised gains or losses
relating to investment property held at the end of the reporting period.
With regards to investment property, gains and losses for recurring fair value measurements
categorised within Level 3 of the fair value hierarchy, prior to adjustment for rent free debtor and
rent guarantee debtor where applicable, are recorded in profit or loss.
The carrying amount of the assets and liabilities, detailed within the Statement of Financial
Position, is considered to be the same as their fair value.
Change in ERV Change in equivalent yield
GBP'000 GBP'000 GBP'000 GBP'000
Sensitivity +5% -5% +5% -5%
analysis
31 March 2020 197,146 180,075 179,906 199,956
Resulting
fair value of
investment
property
31 March 2019 205,803 189,720 187,352 208,707
Resulting
fair value of
investment
property
Change in ERV Change in equivalent yield
GBP'000 GBP'000 GBP'000 GBP'000
Sensitivity +10% -10% +10% -10%
analysis
31 March 2020 205,933 171,723 171,241 211,640
Resulting
fair value of
investment
property
31 March 2019 215,108 181,156 179,876 219,000
Resulting
fair value of
investment
property
Change in ERV Change in equivalent yield
GBP'000 GBP'000 GBP'000 GBP'000
Sensitivity +15% -15% +15% -15%
analysis
31 March 2020 214,777 163,364 163,327 224,687
Resulting
fair value of
investment
property
31 March 2019 223,971 172,984 172,210 231,633
Resulting
fair value of
investment
property
Given the current volatility in the property market, the above levels of sensitivity of unobservable
inputs are considered to demonstrate plausible scenarios in the near future and a reasonable
resulting range of movement in valuation.
11) Receivables and prepayments
31 March 2020 31 March 2019
GBP'000 GBP'000
Receivables
Rent debtor 2,579 1,438
Allowance for expected credit losses (190) (39)
Rent agent float account 1,486 92
Dilapidations receivable 372 -
Other receivables 115 420
4,362 1,911
Lease incentive debtor 2,941 2,160
7,303 4,071
Prepayments
Property related prepayments 16 4
Other prepayments 32 394
48 398
Total 7,351 4,469
The aged debtor analysis of receivables is as follows:
31 March 2020 31 March 2019
GBP'000 GBP'000
Less than three months 4,317 1,911
Between three and six months 45 -
Between six and twelve months - -
Total 4,362 1,911
12) Interest rate derivatives
31 March 2020 31 March 2019
GBP'000 GBP'000
At the beginning of the year 162 26
Interest rate cap premium paid - 531
Changes in fair value of interest (148) (395)
rate derivatives
At the end of the year/period 14 162
The Company is protected from a significant rise in interest rates as it currently has interest rate
caps in effect with a combined notional value of GBP36.51 million (31 March 2019: GBP36.51 million),
with GBP26.51 million capped at 2.50% and GBP10.00 million capped at 2.00%, resulting in the loan being
71% hedged (31 March 2019: 73%). These interest rate caps are effective until 19 October 2020. The
Company has additional interest rate caps covering the remaining period of the loan from 20 October
2020 to 23 October 2023. After the year-end, the Company replaced its existing caps covering this
period, which capped the interest rate at 2.0% on a notional value of GBP49.51 million, with new caps
covering the same period capping the interest rate at 1.0% on a notional value of GBP51.50 million.
The Company paid a premium of GBP62,968.
Fair value hierarchy
The following table provides the fair value measurement hierarchy for interest rate derivatives:
Quoted prices Significant Significant Total
in
observable unobservable GBP'000
active markets input
inputs
(Level 1) (Level 2)
(Level 3)
GBP'000 GBP'000
Valuation GBP'000
31 March 2020 - 14 - 14
31 March 2019 - 162 - 162
The fair value of these contracts are recorded in the Statement of Financial Position as at the year
end.
There have been no transfers between Level 1 and Level 2 during the period, nor have there been any
transfers between Level 2 and Level 3 during the year.
The carrying amount of all assets and liabilities, detailed within the Statement of Financial
Position, is considered to be the same as their fair value.
13) Interest bearing loans and borrowings
Bank borrowings
31 March 2020 31 March
2019
GBP'000
GBP'000
At the beginning of the year/period 50,000 50,000
Bank borrowings drawn in the year 1,500 -
Interest bearing loans and 51,500 50,000
borrowings
Unamortised loan arrangement fees (453) (524)
At the end of the year 51,047 49,476
Repayable between 2 and 5 years 51,500 50,000
Undrawn facility at the year end 8,500 10,000
Total facility 60,000 60,000
The Company has a GBP60.00 million (31 March 2019: GBP60.00 million) credit facility with RBSi of which
GBP51.50 million (31 March 2019: GBP50.00 million) has been utilised as at 31 March 2020.
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 31 March 2020,
the Company's gearing was 27.21% Loan to GAV (31 March 2019: 25.30%).
Under the terms of the loan facility, the Company can draw up to 35% Loan to NAV at drawdown. As at
31 March 2020, the Company could draw a further GBP0.25 million up to the maximum 35% (31 March 2019:
GBP2.31 million).
Borrowing costs associated with the credit facility are shown as finance costs in note 6 to these
financial statements.
31 March 2020 31 March 2019
Facility GBP60.00 million GBP60.00 million
Drawn GBP51.50 million GBP50.00 million
Gearing (Loan to GAV) 27.21% 25.30%
Gearing (Loan to NAV) 34.83% 33.45%
Interest rate 2.10% all-in 2.32% all-in
(LIBOR + 1.4%) (LIBOR + 1.4%)
Notional value of Loan Balance 70.9% 73.0%
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Hedged
On 9 October 2019, the Company announced that it had completed an amendment to its loan facility to
increase the hard loan to NAV covenant from 45% to 55% (subject to certain conditions), although the
target gearing remains as set out in the Prospectus. There are no changes to the margin currently
charged under the facility. Upcoming LIBOR reforms have been considered and their impact on the
Company is expected to be immaterial, so no further disclosures have been added.
Reconciliation to cash flows from financing activities
Bank borrowings
31 March 31 March 2019
2020
GBP'000
GBP'000
Balance at the beginning of the year 49,476 49,643
Changes from financing cash flows
Loan drawdown 1,500 -
Loan arrangement fees (39) (294)
Total changes from financing cash 1,461 (294)
flows
Other changes
Amortisation of loan arrangement fees 110 127
Interest expense 1,108 1,103
Interest paid (1,120) (1,021)
Changes in loan interest payable (12) 82
Total other changes 110 127
Balance at the end of the year 51,047 49,476
14) Payables and accrued expenses
31 March 2020 31 March 2019
GBP'000 GBP'000
Deferred income 2,906 1,137
Accruals 814 1,189
Other creditors 967 949
Total 4,687 3,275
15) Lease obligations as lessee
Leases as lessee 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 leases:
31 March 2020 31 March 2019
GBP'000 GBP'000
Within one year 48 48
After one year but not more than 159 160
five years
More than five years 476 476
Non-Current 635 636
Total 683 684
16. Guarantees and commitments
As at 31 March 2020, there were capital commitments of nil (31 March 2019: GBP210,588).
Lease commitments - as lessor
The Company has entered into commercial property leases on its investment property portfolio. These
non-cancelable leases have a remaining term of between zero and 24 years.
Future minimum rentals receivable under non-cancellable operating leases as at 31 March 2020 are as
follows:
31 March 2020 31 March 2019
GBP'000 GBP'000
Within one year 15,325 16,387
After one year but not more than 37,828 41,304
five years
More than five years 24,596 29,513
Total 77,749 87,204
During the year ended 31 March 2020 there were contingent rents totalling GBP188,872 (year ended 31
March 2019: GBP67,591) recognised as income.
17. Investment in subsidiary
The Company has a wholly-owned subsidiary, AEW UK REIT 2015 Limited:
Name and Country of Principal Ordinary Shares
company number registration activity held
and
incorporation
AEW UK REIT England and Dormant 100%
2015 Limited Wales
(Company number
09524699)
AEW UK REIT 2015 Limited is a subsidiary of the Company incorporated in the UK on 2 April 2015. At
31 March 2020, the Company held one share, being 100% of the issued share capital. AEW UK REIT 2015
Limited is dormant and the cost of the subsidiary is GBP0.01 (31 March 2019: GBP0.01). The registered
office of AEW UK REIT 2015 Limited is 6th Floor, 65 Gresham Street, London, EC2V 7NQ.
18. Issued share capital
31 March 2020 31 March 2019
GBP'000 Number of GBP'000 Number of
Ordinary Ordinary
Shares Shares
Ordinary
Shares
(nominal
value
GBP0.01 per
share)
authorised
, issued
and fully
paid
At the 1,515 151,558,251 1,515 151,558,251
beginning
of the
year
Issued on 72 7,216,495 - -
admission
to trading
on the
London
Stock
Exchange
on 28
February
2020
At the end 1,587 158,774,746 1,515 151,558,251
of the
year
19. Share premium account
31 March 31 March
2020 2019
GBP'000 GBP'000
The share premium relates to amounts
subscribed for share capital in excess of
nominal value:
Balance at the beginning of the year 49,770 49,768
Issued on admission to trading on the London 6,928 -
Stock Exchange on
28 February 2020
Share issue cost (paid and accrued) (120) 2
Balance at the end of the year 56,578 49,770
20. Financial risk management objectives and policies
20.1 Financial assets and liabilities
The Company's principal financial assets and liabilities are those derived from its operations:
receivables and prepayments, cash and cash equivalents and payables and accrued expenses. The
Company's other principal financial liabilities are interest bearing loans and borrowings, the main
purpose of which is to finance the acquisition and development of the Company's property portfolio.
Set out below is a comparison by class of the carrying amounts and fair value of the Company's
financial instruments that are carried in the financial statements.
31 March 2020 31 March 2019
Book Value Fair Value Book Value Fair Value
GBP'000 GBP'000 GBP'000 GBP'000
Financial
assets
Receivables1 4,362 4,362 1,911 1,911
Cash and cash 9,873 9,873 2,131 2,131
equivalents
Other 14 14 162 162
financial
assets held at
fair value
Financial
liabilities
Interest 51,047 51,500 49,476 50,000
bearing loans
and borrowings
Payables and 1,532 1,532 1,923 1,923
accrued
expenses2
Financial 683 683 684 684
lease
obligations
1 Excludes lease incentive debtor & prepayments.
2 Excludes tax, VAT liabilities and deferred income.
Interest rate derivatives are the only financial instruments classified as fair value through profit
and loss. All other financial assets and financial liabilities are measured at amortised cost. All
financial instruments were designated in their current categories upon initial recognition.
Fair value measurement hierarchy has not been applied to those classes of asset and liability stated
above which are not measured at fair value in the financial statements. The difference between the
fair value and book value of these items is not considered to be material.
20.2 Financing management
The Company's activities expose it to a variety of financial risks: market risk, real estate risk,
credit risk and liquidity risk.
The Company's objective in managing risk is the creation and protection of shareholder value. Risk
is inherent in the Company's activities but it is managed through a process of ongoing
identification, measurement and monitoring, subject to risk limits and other controls.
The principal risks facing the Company in the management of its portfolio are as follows:
Market price risk
Market price risk is the risk that future values of investments in direct property and related
property investments will fluctuate due to changes in market prices. To manage market price risk,
the Company diversifies its portfolio geographically in the United Kingdom and across property
sectors.
The disciplined approach to the purchase, sale and asset management ensures that the value is
maintained to its maximum potential. Prior to any property acquisition or sale, detailed research is
undertaken to assess expected future cash flow. The Investment Management Committee of the
Investment Manager meets twice monthly and reserves the ultimate decision with regards to investment
purchases or sales. In order to monitor property valuation fluctuations, the Investment Manager
meets with the independent external valuer on a regular basis. The valuer provides a property
portfolio valuation quarterly, so any movements in the value can be accounted for in a timely manner
and reflected in the NAV every quarter.
Real estate risk
The Company is exposed to the following risks specific to its investment property:
Property investments are illiquid assets and can be difficult to sell, especially if local market
conditions are poor. Illiquidity may also result from the absence of an established market for
investments, as well as legal or contractual restrictions on resale of such investments. In
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addition, property valuation is inherently subjective due to the individual characteristics of each
property, and thus, coupled with illiquidity in the markets, makes the valuation in the investment
property difficult and inexact.
No assurances can be given that the valuations of properties will be reflected in the actual sale
prices even where such sales occur shortly after the relevant valuation date.
There can be no certainty regarding the future performance of any of the properties acquired for the
Company. The value of any property can go down as well as up. Property and property-related assets
are inherently subjective as regards value due to the individual nature of each property. As a
result, valuations are subject to uncertainty.
Real property investments are subject to varying degrees of risk. The yields available from
investments in real estate depend on the amount of income generated and expenses incurred from such
investments.
There are additional risks in vacant, part vacant, redevelopment and refurbishment situations,
although these are not prospective investments for the Company.
Credit risk
Credit risk is the risk that the counterparty (to a financial instrument) or tenant (of a property)
will cause a financial loss to the Company by failing to meet a commitment it has entered into with
the Company.
It is the Company's policy to enter into financial instruments with reputable counterparties. All
cash deposits are placed with an approved counterparty, The Royal Bank of Scotland International
Limited.
In respect of property investments, in the event of a default by a tenant, the Company will suffer a
rental shortfall and additional costs concerning re-letting the property. The Investment Manager
monitors tenant arrears in order to anticipate and minimise the impact of defaults by occupational
tenants.
The table below shows the Company's exposure to credit risk:
As at As at
31 March 2020 31 March 2019
GBP'000 GBP'000
Receivables (excluding incentives 4,362 1,911
and prepayments)
Cash and cash equivalents 9,873 2,131
Total 14,235 4,042
Liquidity risk
Liquidity risk arises from the Company's management of working capital, the finance charges and
principal repayments on its borrowings. It is the risk that the Company will encounter difficulty in
meeting its financial obligations as they fall due, as the majority of the Company's assets are
investment properties and therefore not readily realisable. The Company's objective is to ensure it
has sufficient available funds for its operations and to fund its capital expenditure. This is
achieved by continuous monitoring of forecast and actual cash flows by management.
The table below summarises the maturity profile of the Company's financial liabilities based on
contractual undiscounted payments:
31 March 2020 On< 3 3-12 1-5 > 5 Total
demand months months years years GBP'000
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Interest bearing loans - 270 811 54,203 - 55,284
and borrowings
Payables and accrued - 1,532 - - - 1,532
expenses
Lease obligation - - 51 205 4,256 4,512
- 1,802 862 54,408 4,256 61,328
31 March 2019 On<3 3-12 1-5 > 5 Total
demand months months years years GBP'000
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Interest bearing loans - 290 877 54,145 - 55,312
and borrowings
Payables and accrued - 1,923 - - - 1,923
expenses
Finance lease - - 51 205 4,307 4,563
obligation
- 2,213 928 54,350 4,307 61,798
21. Capital management
The primary objectives of the Company's capital management are to ensure that it continues to
qualify for UK REIT status and complies with its banking covenants.
To enhance returns over the medium term, the Company utilises borrowings on a limited recourse basis
for each investment or all or part of the total portfolio. The Company's policy is to target a
borrowing level of 25% loan to GAV and it can borrow up to a maximum of 35% loan to GAV in advance
of a capital raise or asset disposal. It is currently anticipated that the level of total borrowings
will typically be at the level of 25% of GAV (measured at drawdown).
Alongside the Company's borrowing policy, the Directors intend, at all times, to conduct the affairs
of the Company so as to enable the Company to qualify as a REIT for the purposes of Part 12 of the
CTA 2010 (and the regulations made thereunder). The REIT status compliance requirements include: 90%
distribution test, interest cover ratio, 75% assets test and the substantial shareholder rule, all
of which the Company remained compliant with in this reporting year.
The monitoring of the Company's level of borrowing is performed primarily using a Loan to GAV ratio,
which is calculated as the amount of outstanding debt divided by the total valuation of investment
property. The Company Loan to GAV ratio at the year end was 27.21% (31 March 2019: 25.30%).
Breaches in meeting the financial covenants would permit the bank to immediately call loans and
borrowings. During the year under review, the Company did not breach any of its loan covenants, nor
did it default on any other of its obligations under its loan agreements.
22. Transactions with related parties
As defined by IAS 24 Related Parties 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 year ended 31 March 2020, the Directors of the Company are considered to be the key
management personnel. Details of amounts paid to Directors for their services can be found within
note 5, Directors' remuneration and the Director's remuneration report in the Full Annual Report and
Financial Statements.
AEW UK Investment Management LLP is the Company's Investment Manager and has been appointed as AIFM.
Under the terms of the Investment Management Agreement, the Investment Manager is responsible for
the day-to-day discretionary management of the Company's investments subject to the investment
objective and investment policy of the Company and the overall supervision of the Directors.
The Investment Manager is entitled to receive a quarterly management fee in respect of its services
calculated at the rate of one-quarter of 0.9% of the prevailing NAV (excluding uninvested proceeds
from fundraisings).
During the year, the Company incurred GBP1,308,301 (31 March 2019: GBP1,302,153) in respect of
investment management fees and expenses, of which GBP311,683 (31 March 2019: GBP328,323) was outstanding
as at 31 March 2020.
23. Segmental information
Management has considered the requirements of IFRS 8 'operating segments'. The source of the
Company's diversified revenue is from the ownership of investment properties across the UK.
Financial information on a portfolio basis is provided to senior management of the Investment
Manager and the Directors, which collectively comprise the chief operating decision maker. The
properties are managed on a portfolio basis and the chief operating decision maker assesses
performance and makes resource allocation decisions at the portfolio level (being the total
investment property portfolio held by the company). Therefore, the Company is considered to be
engaged in a single segment of business, being property investment and in one geographical area, the
United Kingdom.
24. Events after reporting date
Dividend
On 20 April 2020, the Board declared its fourth interim dividend of 2.00pps in respect of the period
from 1 January 2020 to 31 March 2020. This was paid on 29 May 2020, to shareholders on the register
as at 1 May 2020. The ex-dividend date was 30 April 2020.
Property sales
On 22 May 2020, the Company disposed of its asset at 2 Geddington Road, Corby, for gross proceeds of
GBP18.80 million, delivering an IRR in excess of 30%.
Interest Rate Caps
After the year-end, the Company replaced it existing caps covering the period from October 2020 to
October 2023, which capped the interest rate at 2.0% on a notional value of GBP49.51 million, with new
caps covering the same period capping the interest rate at 1.0% on a notional value of GBP51.50
million. The Company paid a premium of GBP62,968.
Solihull
In June 2020, the Company completed a 15 year renewal lease with the Secretary of State for
Communities and Local Government at is Solihull office, Sandford House. The agreement documents the
increase of rental income from the property by 30%.
EPRA Unaudited Performance Measures
Detailed below is a summary table showing the EPRA performance measures of the Company
All EPRA performance measures have been calculated in line with EPRA Best Practices Recommendations
Guidelines which can be found at www.epra.com [1].
MEASURE AND DEFINITION PURPOSE PERFORMANCE
1. EPRA Earnings
Earnings from A key measure of GBP13.20 million/8.67
operational activities. a company's pps
underlying
operating results
and an indication
of the extent to EPRA earnings for
which current year to
dividend payments
are supported by
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earnings.
31 March 2020 (31
March 2019: GBP12.24
million/8.07 pps)
2. EPRA NAV
Net asset value adjusted Makes adjustments GBP147.85 million/93.12
to include properties to IFRS NAV to pps
and other investment provide
interests at fair value stakeholders with
and to exclude certain the most relevant
items not expected to information on EPRA NAV as at 31
crystallise in a the fair value of March
long-term investment the assets and
property business. liabilities
within a true
real estate 2020 (31 March 2019:
investment
company with a
long-term
investment GBP149.29 million/98.51
strategy. pps)
3. EPRA NNNAV
EPRA NAV adjusted to Makes adjustments GBP147.86 million/93.13
include the fair values to EPRA NAV to pps
of: provide
stakeholders with
the most relevant
information on EPRA NNNAV as at 31
(i) financial the current fair March
instruments; value of all the
assets and
liabilities
within a real 2020 (31 March 2019:
(ii) debt; and estate company.
GBP149.46 million/98.61
(iii) deferred taxes. pps)
4.1 EPRA NIY
Annualised rental income A comparable 8.26%
based on the cash rents measure for
passing at the balance portfolio
sheet date, less valuations. This
non-recoverable property measure should EPRA NIY as at 31
operating expenses, make it easier March 2020 (31 March
divided by the market for investors to 2019: 7.62%)
value of the property, judge themselves,
increased with how the valuation
(estimated) purchasers' of portfolio X
costs. compares with
portfolio Y.
4.2 EPRA 'Topped-Up' NIY
This measure A comparable 8.66%
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 31 March 2020
and step rents). of portfolio X (31 March
compares with
portfolio Y.
2019: 8.58%)
5. EPRA Vacancy Rate
ERV of vacant space A 'pure' (%) 3.68%
divided by ERV of the measure of
whole portfolio. investment
property space
that is vacant, EPRA ERV as at 31
based on ERV. March 2020 (31 March
2019: 2.99%)
6. EPRA Cost Ratio
Administrative and A key measure to 18.75%
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 costs) as at
31 March 2020 (31
March 2019: 21.04%)
13.76%
EPRA Cost Ratio
(excluding direct
vacancy costs) as at
31 March 2020 (31
March 2019: 15.81%)
7. EPRA Capital
Expenditure
Is used to GBP0.29 million for the
Property which has been illustrate change year ended 31 March
held at both the current in comparable 2020 (31 March 2019:
and comparative balance capital values. GBP0.40 million)
sheet dates for which
there has been no
significant development.
8. EPRA Like-for-like
Rental Growth
Net income generate by
assets which were held
by the Company
throughout both the Is used to GBP0.29 million/1.71%
current and comparable illustrate change for the year
periods in comparable
income values.
ended 31 March 2020
which there has been no (31 March 2019:
significant development -GBP1.05
which materially impacts million/-9.54%)
upon income.
Calculation of EPRA Net Initial Yield ('NIY') and 'topped-up' NIY
Year ended Year ended
31 March 31 March
2020 2019
GBP'000 GBP'000
Investment property - wholly-owned 189,300 197,605
Allowance for estimated purchasers' costs 12,872 13,437
at 6.8%
Grossed-up completed property portfolio 202,172 211,042
valuation (B)
Annualised cash passing rental income 17,361 16,725
Property outgoings (670) (651)
Annualised net rents (A) 16,691 16,074
Rent from expiry of rent-free periods and 826 2,023
fixed uplifts
'Topped-up' net annualised rent (C) 17,517 18,097
EPRA NIY (A/B) 8.26% 7.62%
EPRA 'topped-up' NIY (C/B) 8.66% 8.58%
EPRA NIY basis of calculation
EPRA NIY is calculated as the annualised net rent, divided by the grossed-up value of the completed
property portfolio valuation.
The valuation of the grossed-up completed property portfolio is determined by the Company's external
valuers as at 31 March 2020, plus an allowance for estimated purchaser's costs. Estimated
purchaser's costs are determined by the relevant stamp duty liability, plus an estimate by our
valuers of agent and legal fees on notional acquisition. The net rent deduction allowed for property
outgoings is based on the Company's 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
Year ended Year ended
31 March 2020 31 March 2019
GBP'000 GBP'000
Annualised potential rental value of 641 522
vacant premises (A)
Annualised potential rental value 17,420 17,484
for the complete property portfolio
(B)
EPRA Vacancy Rate (A/B) 3.68% 2.99%
Calculation of EPRA Cost Ratios
Year ended Year ended
31 March 2020 31 March 2019
GBP'000 GBP'000
Administrative/operating expense per 3,319 3,660
IFRS income statement
Less: ground rent costs (66) (58)
EPRA costs (including direct vacancy 3,253 3,602
costs) (A)
Direct vacancy costs (see Glossary (865) (895)
in full Annual Report for further
details)
EPRA costs (excluding direct vacancy 2,388 2,707
costs) (B)
Gross rental income less ground rent 17,352 17,121
costs (C)
EPRA Cost Ratio (including direct 18.75% 21.04%
vacancy costs) (A/C)
EPRA Cost Ratio (excluding direct 13.76% 15.81%
vacancy costs) (B/C)
The Company has not capitalised any overhead or operating expenses in the accounting years disclosed
above.
Only costs directly associated with the purchase or construction of properties as well as all
subsequent value-enhancing capital expenditure are capitalised.
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 +44 (0)370 707 1341 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]. Shareholders eligible to receive dividend payments
gross of tax may also download declaration forms from that website.
Share Information
Ordinary GBP0.01 Shares 158,774,746
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SEDOL Number BWD2415
ISIN Number GB00BWD24154
Ticker/TIDM AEWU
Share Prices
The Company's Ordinary Shares are traded on the premium segment of the Main Market of the London
Stock Exchange.
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.
Annual and Half-Yearly Reports
Copies of the Annual and Half-Yearly Reports are available from the Company's website.
Financial Calendar
9 September 2020 Annual General Meeting
30 September 2020 Half-year end
November 2020 Announcement of half-yearly results
31 March 2021 Year end
June 2021 Announcement of annual results
Dividends
The following table summarises the amounts distributed to equity shareholders in respect of the
period:
GBP
Interim dividend for the period 1 April 2019 to 30 3,031,165
June 2019
(payment made on 30 August 2019)
Interim dividend for the period 1 July 2019 to 30 3,031,165
September 2019 (payment made on 29 November 2019)
Interim dividend for the period 1 October 2019 to 31 3,031,165
December 2019
(payment made on 28 February 2020)
Interim dividend for the period 1 January 2020 to 31 3,175,495
March 2020
(payment made on 29 May 2020)
Total 12,268,990
Directors
Mark Burton (Non-executive Chairman)
Katrina Hart (Non-executive Director)
Bimaljit ("Bim") Sandhu (Non-executive Director)
Registered Office
6th Floor
65 Gresham Street
London
EC2V 7NQ
Investment Manager and AIFM
AEW UK Investment Management LLP
33 Jermyn Street
London
SW1Y 6DN
Tel: 020 7016 4880
Website: www.aewuk.co.uk
Property Manager
Mapp
180 Great Portland Street
London
W1W 5QZ
Corporate Broker
Liberum
Ropemaker Place
25 Ropemaker Street
London
EC2Y 9LY
Legal Adviser
Gowling WLG (UK) LLP
4 More London Riverside
London
SE1 2AU
Depositary
Langham Hall UK LLP
8th Floor
1 Fleet Place
London
EC4M 7RA
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
Canary Wharf
London
E14 5GL
Valuer
Knight Frank LLP
55 Baker Street
London
W1U 8AN
Copies of the Annual Report and Financial Statements and the Notice of AGM
Printed copies of the Annual Report will be sent to shareholders shortly and will be available on
the Company's website.
National Storage Mechanism
A copy of the Annual Report and Financial Statements will be submitted shortly to the National
Storage Mechanism ('NSM') and will be available for inspection at
https://www.fca.org.uk/markets/primary-markets/regulatory-disclosures/national-storage-mechanism
[3].
LEI: 21380073LDXHV2LP5K50
END
ISIN: GB00BWD24154
Category Code: ACS
TIDM: AEWU
LEI Code: 21380073LDXHV2LP5K50
OAM Categories: 1.1. Annual financial and audit reports
Sequence No.: 71268
EQS News ID: 1075547
End of Announcement EQS News Service
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(END) Dow Jones Newswires
June 23, 2020 02:00 ET (06:00 GMT)
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