Half Yearly Results

AEW UK REIT plc (AEWU)
Half Yearly Results

18-Nov-2020 / 07:00 GMT/BST
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18 November 2020

 

 

AEW UK REIT PLC (the "Company")

 

Interim Report and Financial Statements

for the six months ended 30 September 2020

 

Financial Highlights

 

Net Asset Value ('NAV') of £147.24 million and of 92.73 pence per share ('pps') as at 30 September 2020 (31 March 2020: £147.86 million and 93.13 pps).

Operating profit before fair value changes of £5.93 million for the period (six months ended 30 September 2019: £7.26 million).

Profit Before Tax ("PBT") of £5.72 million and 3.61 pps for the period (six months ended 30 September 2019: £4.16 million and 2.74 pps).

 

Shareholder Total Return for the period of 16.13% (six months ended 30 September 2019: 5.50%).

EPRA Earnings Per Share ('EPRA EPS') for the period of 3.41 pps (six months ended 30 September 2019: 4.37 pps). See below for the calculation of EPRA EPS.

 

Total dividends of 4.00 pps declared in relation to the period (six months ended 30 September 2019: 4.00 pps).

 

The price of the Company's Ordinary Shares on the London Stock Exchange was 75.20 pps as at 30 September 2020 (31 March 2020: 68.20 pps).

As at 30 September 2020, the Company had a balance of £39.50 million (31 March 2020: £51.50 million) of its £60.00 million (31 March 2020: £60.00 million) term credit facility with the Royal Bank of Scotland International Limited ('RBSi') and was geared with a Loan to NAV ratio of 26.83% (31 March 2020: 34.83%). The Company can draw £12.03 million of the remaining facility up to the maximum 35% Loan to NAV at drawdown (see note 13 below for further details).

 

The Company held cash balances totalling £13.36 million as at 30 September 2020 (31 March 2020: £9.87 million).

 

 

Property Highlights

 

As at 30 September 2020, the Company's property portfolio had a valuation of £171.36 million across 34 properties (31 March 2020: £189.30 million across 35 properties) as assessed by the valuer and a historical cost of £184.07 million (31 March 2020: £197.12 million).

 

The Company made no acquisitions during the period and disposed of one property, Geddington Road, Corby, for net proceeds of £18.68 million, realising a profit on disposal of £3.67 million.

 

The portfolio had an EPRA vacancy rate of 8.21%. Excluding 225 Bath Street, Glasgow, which has been exchanged for sale with a condition of vacant possession, the vacancy rate was 4.90% (31 March 2020: 3.68%).

 

Rental income generated during the period was £8.12 million (six months ended 30 September 2019: £8.78 million).

 

EPRA Net Initial Yield ('EPRA NIY') of 7.21% as at 30 September 2020 (31 March 2020: 8.26%).

 

Weighted Average Unexpired Lease Term ('WAULT') of 4.99 years to break and 6.48 years to expiry (31 March 2020: 4.26 years to break and 5.55 years to expiry).

 

Post period-end, in November 2020, the Company acquired a warehouse asset in Weston-Super-Mare for a purchase price of £5.40 million.

 

As at the date of this report, rent collection statistics were as follows for the March, June and September rental quarters:

 

Current Position as at 12 November 2020

March 2020

%

  June 2020

%

September 2020

%

Received

93

89

72

Monthly Payments Expected Prior to Quarter End

-

-

15

 

93

89

87

Agreed on longer term payment plans

4

3

4

Under Negotiation

2

4

4

 

99

96

95

Outstanding

1

4

5

Total

100

100

100

 

 

Chairman's Statement

 

Overview

I am pleased to report the unaudited interim results of AEW UK REIT plc (the 'Company') for the six months ended 30 September 2020. The Company had a diversified portfolio of 34 commercial investment properties throughout the UK with a value of £171.36 million as at 30 September 2020.

 

The Company's NAV has remained resilient over the period, having fallen by only 0.43% despite the uncertain economic backdrop caused by the ongoing COVID-19 pandemic. Although the valuation of the Company's property portfolio has fallen by 1.69% on a like-for-like basis over the period, the sale of 2 Geddington Road, Corby, at a price significantly ahead of its prevailing valuation, realised a profit on disposal of £3.67 million. This not only provided a boost to the Company's NAV, but improved the Company's position in terms of its cash and debt covenants, thus making the Company robustly positioned to deal with uncertainty resulting from the pandemic. The Company repaid £12.00 million of its debt facility in July 2020, resulting in a Loan to NAV ratio of 26.83% while maintaining a healthy cash balance of £13.36 million, both as at 30 September 2020.

 

The sale of Corby and the resulting loss of the Company's largest tenant at the time has contributed to a fall in rental income and therefore a fall in EPRA EPS, which was 3.41 pence for the period. Proceeds from the sale of Corby have now begun to be reinvested as our Investment Manager (AEW UK Investment Management LLP) is starting to see more attractive opportunities in the investment pipeline that should prove to be accretive to both NAV and earnings. The Company made one acquisition post period-end, acquiring a warehouse asset in Weston-Super-Mare for a purchase price of £5.40 million. The property shows strong potential for medium and long term value growth due to neighbouring land sales for residential development as well as offering an attractive income yield in the meantime. We hope that further opportunities such as this will allow the Company to increase its earnings over the coming quarters.

 

The Investment Manager continues to work with the Company's tenants in order to manage the difficulties posed by the pandemic. To date, the tenancy profile of the Company has remained largely intact, as the vacancy rate by ERV was just 4.9% as at 30 September 2020 (this excludes vacancy at the Company's property in Glasgow, which has exchanged to be sold with a condition of vacant possession. Portfolio level vacancy increases to 8.2% with this asset included). Rent collection rates have remained high for the March 2020, June 2020 and September 2020 rent quarters in comparison with the averages seen in the wider market and we expect that ultimate rates of collection, following the expiry of longer-term payment plans, should result in collection rates in excess of 90%. There are tenants who continue to face difficulties in the current environment and in such instances the Investment Manager has agreed a longer-term payment plan where rental income can be recovered in full over coming periods. A prudent assessment has been made of the recoverability of the Company's outstanding receivables, taking into account the uncertain economic climate, and a provision has been made in the financial statements for expected credit losses.

 

The active asset management approach of the Investment Manager has continued to add value and limit the downside in the current market. During the period, the Company has completed a number of lettings and lease renewals which are noted in more detail in the 'Asset Management' section of the Investment Manager's report. The most notable of these has been the 15-year lease renewal with the Secretary of State for Housing, Communities and Local Government at the Company's office asset, Sandford House, Solihull, which resulted in a 30% increase in rental income. In addition to its letting activity, the Company has begun to undertake remedial works to its property at Bank Hey Street, Blackpool, which include the overhaul and reinstatement of its cathodic protection system, and comprehensive repairs to faience elevations and windows. The nature of these repair works means that as the costs are incurred, they will be expensed to the Company's profit or loss, with a corresponding increase expected to be seen in the revaluation of the property.

 

The Company's share price was 75.20 pps as at 30 September 2020, representing an 18.90% discount to NAV. This reflects the declines experienced in equity markets in general and specifically in the real estate sector as a result of the COVID-19 pandemic. In light of the discount in share price to NAV and cash reserves available, post period-end the Company has bought back 350,000 of its own shares for gross consideration of £262,995, which will have a positive impact on the Company's NAV per share.

 

We are delighted to announce that the Company has received four awards during the year; EPRA Gold medal for Financial Reporting, EPRA Silver medal for Sustainability Reporting and EPRA Most Improved award for Sustainability Reporting. The Company has also been named Best UK Real Estate Investment Trust in the Citywire Investment Trust Awards based upon its strong three year track record. These awards are a reflection of much hard work committed to the Company by the Investment Manager and the Board would like to thank the team at AEW and express its positivity and confidence in the Investment Manager's ongoing ability to implement the Company's strategy.

 

Financial Results

 

 







6 month period from
1 April 2020 to 30 September 2020
(unaudited)
 

 







6 month period from
1 April 2019 to 30 September 2019
(unaudited)

 







12 month period from
1 April 2019 to 31 March 2020

(audited)

 

 

 

 

Operating Profit before fair value changes (£'000)

5,934

7,264

14,472

Operating Profit (£'000)

6,276

4,901

5,072

PBT (£'000)

5,724

4,159

3,652

Earnings Per Share (basic &diluted) (pence)

3.61

2.74

2.40

EPRA EPS (basic and diluted) (pence)

3.41

4.37

8.67

Ongoing Charges (%)

1.31

1.34

1.34

NAV per share (pence)

92.73

97.36

93.13

EPRA NAV per share (pence)

92.70

97.32

93.12

 

Financing

The Company has a £60.00 million loan facility, of which it had drawn a balance of £39.50 million as at 30 September 2020 (31 March 2020: £60.00 million facility; £51.50 million drawn), producing a Loan to NAV ratio of 26.83% (31 March 2020: 34.83%). During the period, the Company amended the facility to allow the flexibility to make repayments and re-draw these amounts, akin to a revolving credit facility.

 

The unexpired term of the facility was 3.1 years as at 30 September 2020 (31 March 2020: 3.6 years). The loan incurs interest at 3-month LIBOR +1.4%, which equated to an all-in rate of 1.47% as at 30 September 2020 (31 March 2020: 2.10%).

 

The Company is protected from a significant rise in interest rates as it has in place interest rate caps. Throughout the period and up to 19 October 2020, the Company had in effect interest rate caps on a notional value of £36.51 million of the loan, with £26.51 million capped at 2.50% and £10.00 million capped at 2.00%, which resulted in the loan balance being 92.4% hedged as at 30 September 2020. During the period, the Company paid a premium of £62,968 to enter into new interest rate caps effective from 20 October 2020 and for the remaining term of the loan, which cap the LIBOR rate at 1.00% on a notional value of £51.50 million.

 

As noted in the KPIs, the Company targets a long-term gearing of 35% Loan to NAV, which is the maximum gearing on drawdown of the RBSi loan facility. The Board and Investment Manager will continue to monitor the level of gearing and may adjust the gearing according to the Company's circumstances and perceived risk levels.

 

During the period, the Company obtained consent from its lender, RBSi, to waive the interest cover ratio ('ICR') tests within its loan agreement for July and October 2020, with the next proposed test being in January 2021, which was considered to be a prudent action given the economic environment. Irrespective of these waivers the Company would have passed its ICR tests for both July and October 2020.

 

Dividends

The Company has continued to deliver on its target of paying dividends of 8.00 pps per annum. During the period, the Company declared and paid two quarterly dividends of 2.00 pps, in line with its target. Dividends for the period were 85.25% covered by EPRA EPS.

 

It remains the Company's intention to continue to pay dividends in line with its dividend policy, however the outlook remains very uncertain given the current COVID-19 pandemic. 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

At the time of writing this report, the UK faces unprecedented economic uncertainty and it appears likely that the economy will continue to struggle for the remainder of 2020 and beyond. While we expect that this will continue to impact the property market, the Company remains well positioned to withstand these conditions as a result of its healthy cash position and borrowing covenant headroom. Since the onset of the pandemic, the Company has displayed stable NAV performance, reflecting the diversity of the portfolio, its low exposure to the retail sector and the fact that many of its assets benefit from viable alternative use potential, which limits downside risk and volatility. We are also encouraged by strong and improving rent collection levels to date.

 

In the near term, the Board and Investment Manager will continue to focus on minimising the impact of COVID-19 on its stakeholders and, as more attractive opportunities arise in the investment market, will aim to find suitable assets to build earnings back towards a fully covered dividend, following the sale of the Company's Corby asset. The developing economic conditions will be monitored closely and the Company's strategy adjusted accordingly. There has recently been some positive news regarding the development of a vaccine and it is hoped that its implementation will kick-start economic recovery and provide the conditions to enable growth of the Company to resume.

 

Mark Burton

Chairman

17 November 2020

 

 

Key Performance Indicators

 

 

KPI AND DEFINITION

 

RELEVANCE TO STRATEGY

 

TARGET

PERFORMANCE

1. EPRA NIY

A representation to the investor of what their initial net yield would be at a predetermined purchase price after taking account of all associated costs, e.g. void costs and rent free periods.

 

 

An EPRA NIY profile in line with the Company's target dividend yield shows that, after costs, the Company should have the ability to meet its target dividend through property income.

 

 

7.50 - 10.00%


7.21%

at 30 September 2020 (31 March 2020: 8.26%).

2. True Equivalent Yield

The average weighted return a property will produce according to the present income and estimated rental value assumptions, assuming the income is received quarterly in advance.

 
A True Equivalent Yield profile in line with the Company's target dividend yield shows that, after costs, the Company should have the ability to meet its proposed dividend through property income.

 

 

 7.50 - 10.00%


8.30%

at 30 September 2020 (31 March 2020: 8.04%).

3. Reversionary Yield

The expected return the property will provide once rack rented.

 

 

A Reversionary Yield profile that is in line with an Initial Yield profile shows a potentially sustainable income stream that can be used to meet dividends past the expiry of a property's current leasing arrangements.

 

 

7.50 - 10.00%


8.27%

at 30 September 2020 (31 March 2020: 7.90%).

4. WAULT to expiry

The average lease term remaining to expiry across the portfolio, weighted by contracted rent.

 

 

The Investment Manager believes that current market conditions present an opportunity whereby assets with a shorter unexpired lease term are often mispriced. It is also the Investment Manager's view that a shorter WAULT is useful for active asset management, particularly in certain growth sectors such as warehousing, as it allows the Investment Manager to engage in direct negotiation with tenants rather than via rent-review mechanisms.

 

>3 years


6.48 years

at 30 September 2020 (31 March 2020: 5.55 years).

5. WAULT to break

The average lease term remaining to break, across the portfolio weighted by contracted rent.

 

 

The Investment Manager believes that current market conditions present an opportunity whereby assets with a shorter unexpired lease term are often mispriced. As such, it is in line with the 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, particularly in certain growth sectors such as warehousing, as it allows the Investment Manager to engage in direct negotiation with tenants rather than via rent-review mechanisms.

 

>3 years


4.99 years

at 30 September 2020 (31 March 2020: 4.26 years).

6. NAV

NAV is the value of an entity's assets minus the value of its liabilities.

 

 

Provides stakeholders with the most relevant information on the fair value of the assets and liabilities of the Company.

 

 
Increase year-on-year


£147.24 million

at 30 September 2020 (31 March 2020: £147.86 million).

7. Leverage (Loan to NAV)

The proportion of the

Company's net assets that is funded by borrowings.

 

 

The Company has changed the measure of its Leverage KPI from 'Loan to Gross Asset Value ('GAV')' to 'Loan to NAV'. This is in line with the measure used in its banking covenants and so is considered to be more relevant to the Company's position.

The target of 35% Loan to NAV, which is the gearing limit at drawdown under the RBSi facility, approximates to the previous target of 25% Loan to GAV, which is the measure used in the Company's Investment Guidelines. Gearing will continue to be monitored using both measures.

 

35%


26.83 %

at 30 September 2020 (31 March 2020: 34.83%).

8. Vacant ERV

The space in the property portfolio which is currently unlet, as a percentage of the total ERV of the portfolio.

 

 

The Company's aim is to minimise vacancy of the properties. A low level of structural vacancy provides an opportunity for the Company to capture rental uplifts and manage the mix of tenants within a property.

 

 

<10.00%


8.21% / 4.90% excluding Glasgow

at 30 September 2020 (31 March 2020: 3.68%)

9. Dividend 

Dividends declared in relation to the year. The Company targets a dividend of 8.00 pence per Ordinary Share per annum. However, given the current COVID-19 situation, regard will be had to the circumstances prevailing at the relevant

time in determining dividend payments.

 

 

The dividend reflects the Company's ability to deliver a sustainable income stream from its portfolio.

 

 

4.00 pps (period to 30 September)


4.00 pps

for the six months to 30 September 2020.

This supports an annualised target of 8.00 pps (six months to 30 September 2019: 4.00 pps).

10. Ongoing Charges

The ratio of annualised administration and operating costs expressed as a percentage of average NAV throughout the period.

 

 

The Ongoing Charges ratio provides a measure of total costs associated with managing and operating the Company, which includes the management fees due to the Investment Manager. This measure is to provide investors with a clear picture of operational costs involved in running the Company.

 

 

<1.50%


1.31%

for the six months to 30 September 2020 (six months to 30 September 2019: 1.34%).

11. Profit Before Tax ('PBT')

PBT is a profitability measure which considers the Company's profit before the payment of income tax.

 

 

 The PBT is an indication of the Company's financial performance for the period in which its strategy is exercised.

 

 4.00 pps (period to

30 September)

 

£5.72 million/3.61 pps

for the six months to 30 September 2020 (six months to 30 September 2019: £4.16 million/2.74 pps).

12. Shareholder Total Return

The percentage change in the share price assuming dividends are reinvested to purchase additional Ordinary Shares.

 

 

This reflects the return seen by shareholders on their shareholdings through share price movements and dividends received.

 

 8.00%

 
16.13%

for the six months to 30 September 2020 (six months to 30 September 2019: 5.50%).

13. EPRA EPS

Earnings from core operational activities. A key measure of a company's underlying operating results from its property rental business and an indication of the extent to which current dividend payments are supported by earnings. See note 8.

 

 
This reflects the Company's ability to generate earnings from the portfolio which underpins dividends.

 

4.00 pps (period to

30 September)


3.41 pps

for the six months to 30 September 2020 (six months to 30 September 2019: 4.37 pps).

 

 

Investment Manager's Report

 

Economic Outlook

As a second wave of the COVID-19 pandemic leads to increased lockdown restrictions being implemented across the country, the UK faces continued uncertainty. The economy has already experienced contraction in the quarter to 30 June 2020 following a nationwide lockdown and KPMG's September 2020 UK Economic Outlook expects the economy to contract by 10.3% over the year as a whole. When the Government withdraws its job retention scheme, unemployment will be expected to rise and key indicators of short term economic outlook will be the extent of the impact of the second wave, the subsequent responses needed to contain the virus and further progress in the development of a vaccine.

 

The strength and timing of the economic recovery thereafter will largely depend on the success in implementing a vaccine, while a no deal Brexit scenario will also pose a risk. The KPMG Economic Outlook forecasts growth of 8.4% in 2021, assuming a vaccine is approved in January 2021 and an outline trade agreement is reached with the EU by the end of the transition period, with the economy forecast to reach pre-COVID-19 levels by the start of 2023. However, the picture is ever changing and it is difficult to place any significant reliance on forecasts with such variable assumptions. Inflation is expected to remain well below the Bank of England's 2% target, which should see the base rate remain at 0.1% or below until at least the end of 2021.

 

General recovery in the UK commercial property market is expected to track that of the wider UK economy although recovery in sub sectors of the property market will be driven by structural forces as well. A much publicised example of this includes the growth of online retail sales at the expense of physical stores, which has seen a divergence in the capital values of the retail and industrial warehousing sectors. This trend is an important one for the Company's portfolio due to its high weighting to industrial and warehousing property which makes up 52.9% of its property assets by value as at 30 September 2020. Given this weighting, the Company expects to continue its current trend of outperformance against the UK commercial property market as a whole. The high exposure to this sector is expected to continue to provide a resilient outlook for the Company's major performance indicators including net asset value, earnings and occupancy, despite wider economic uncertainty. The high portfolio weighting to warehouses is also expected to continue to provide a positive outlook for rent collection, which, based on levels seen to date since the start of the pandemic, is ultimately expected to well exceed 90% in each quarter.

 

This robust base will further be supported by the Investment Manager's proactive approach to asset management which, despite the ongoing pandemic, has delivered six new lettings in the portfolio since the start of UK-wide lockdowns in March 2020 across all major market sectors including retail. These lettings have secured ongoing rental income to the Company at a weighted average of 5% ahead of previous independent estimates.

 

Financial Results

The Company's NAV as at 30 September 2020 was £147.24 million or 92.73 pps (31 March 2020: £147.86 million or 93.13 pps). This is a decrease of 0.40 pps or 0.27% over the period.

 

EPRA EPS for the year was 3.41 pps which, based on dividends paid of 4.00 pps, reflects a dividend cover of 85.25%. The reduction in dividend cover has largely come about due to the loss of rental income following the disposal of 2 Geddington Road, Corby, in May 2020, which realised a profit on disposal of £3.67 million. Income from the remaining tenancy profile has remained largely intact. Collection rates have reached 93% and 89% for the March 2020 and June 2020 quarters respectively, with further payments expected to be received under longer-term payment plans. Of the outstanding arrears, £0.20 million has been provided for expected credit losses.

 

Financing

As at 30 September 2020, the Company has a £60.0 million loan facility with RBSi, in place until October 2023, the details of which are presented below:

 

 

30 September 2020

31 March 2020

Facility

£60.00 million

£60.00 million

Drawn

£39.50 million

£51.50 million

Gearing (Loan to NAV)

26.83%

34.83%

Interest rate

1.47% all-in (LIBOR + 1.40%)

2.10% all-in (LIBOR + 1.4%)

Notional Value of Loan Balance Hedged

92.40%

70.90%

 

 

On 24 June 2020, the Company announced an amendment to its facility, allowing the flexibility to make repayments and re-draw these amounts, akin to a revolving credit facility.

 

 

Property Portfolio

During the period, the Company disposed of 2 Geddington Road, Corby, for net proceeds of £18.68 million. The Company made no acquisitions during the period.

 

The Company made no acquisitions during the period and disposed of one property, Geddington Road, Corby, for net proceeds of £18.68 million, realising a profit on disposal of £3.67 million. The following tables illustrate the composition of the portfolio in relation to its properties, tenants and income streams:

 

 

Summary by Sector as at 30 September 2020

 

 

 

 

 

 

 

Sector

 

 

 

 


Number of

assets

 

 

 

 

 

Valuation

(£m)

 

 

 

 

 

Area

(sq ft)

 

 

 

 

Vacancy   

by ERV   

(%)   

 

 

 

 

WAULT to

break

(years)

 

 

Gross

passing

rental

income

(£m)

 

 

Gross

passing

rental

income

(£psf)

 

 

 

 

 

ERV

(£m)

 

 

 

 

 

ERV

(£psf)

 

 

 

 

Rental

income

(£m)

 

 

Like-

for like

rental

growth*

(£m)

 

 

Like-

for like

rental

growth*

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Industrial

20

90.61

2,336,087

5.13   

3.64

7.03

3.01

8.60

3.68

4.23

0.13

3.24

Office

6

45.85

286,909

2.76   

4.15

2.91

10.15

4.16

14.50

1.60

-0.08

-5.01

Alternatives

2

13.00

112,355

0.00   

7.85

1.50

13.31

1.28

11.44

0.96

0.04

3.41

Standard Retail

5

16.40

168,917

11.02   

4.82

2.06

12.17

1.65

9.76

1.03

-0.29

-22.15

Retail Warehouse

1

5.50

51,021

0.00   

3.51

0.61

11.96

0.52

10.09

0.30

0.00

0.07

 

 

 

 

 

 

 

 

 

 

 

 

 

Portfolio

34

171.36

2,955,289

8.21**

4.99

14.11

4.77

16.21

5.49

8.12

-0.20

-2.26

 

Summary by Geographical Area as at 30 September 2020

 

 

 

 

 

 


Geographical Area

 

 

 

 


Number of

assets

 

 

 

 

 

Valuation

(£m)

 

 

 

 

 

Area

(sq ft)

 

 

 

 

Vacancy   

by ERV    

(%)   

 

 

 

 

WAULT to

break

(years)

 

 

Gross

passing

rental

income

(£m)

 

 

Gross

passing

rental

income

(£psf)

 

 

 

 

 

ERV

(£m)

 

 

 

 

 

ERV

(£psf)

 

 

 

 

Rental

income

(£m)

 

 

Like-

for like

rental

growth*

(£m)

 

 

Like-

for like

rental

growth*

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Yorkshire and Humberside

8

34.46

1,027,801

4.59   

1.87

2.43

2.37

3.49

3.31

1.58

-0.03

-1.59

South East

5

25.83

195,545

8.95   

3.77

2.11

10.78

2.21

11.67

1.23

-0.18

-12.93

Eastern

5

20.50

344,885

11.36   

1.99

1.47

4.27

2.10

6.10

0.96

0.03

3.75

South West

3

20.60

125,004

0.00   

2.31

1.73

13.82

1.77

14.14

0.83

0.01

0.64

West Midlands

4

21.15

398,273

3.59   

7.21

1.84

4.62

1.75

4.69

0.96

0.03

2.69

East Midlands

1

4.00

28,219

0.00   

5.65

0.39

13.64

0.40

18.59

0.38

-0.07

-7.92

North West

4

13.87

302,061

6.11   

4.66

1.39

4.61

1.28

4.30

0.66

-0.04

-6.27

Wales

2

13.25

376,138

0.00   

8.58

1.25

3.31

1.30

3.44

0.64

0.00

0.52

Greater London

1

9.25

71,720

0.00   

11.12

0.96

13.40

0.75

10.45

0.52

0.05

10.05

Scotland

1

8.45

85,643

51.1   

1.49

0.54

6.33

1.16

13.54

0.36

0.00

2.52

 

 

 

 

 

 

 

 

 

 

 

 

 

Portfolio

34

171.36

2,955,289

8.21**

4.99

14.11

4.77

16.21

5.49

8.12

-0.20

-2.26

 

*like-for-like rental growth is for the six months ended 30 September 2020.

**excluding Glasgow, total vacancy is 4.90%.

Source: Knight Frank/AEW, 30 September 2020.

 

 

Individual Property Classifications

 

 

 

 

 

Market Value

 

Property

Sector

Region

Range (£m)

 

 

 

 

 

1

40 Queen Square, Bristol

Offices

South West

10.0 - 15.0

2

Eastpoint Business Park, Oxford

Offices

South East

10.0 - 15.0

3

Sandford House, Solihull

Offices

West Midlands

7.5 - 10.0

4

London East Leisure Park, Dagenham

Other (Leisure)

Greater London

7.5 - 10.0

5

Gresford Industrial Estate, Wrexham

Industrial

Wales

7.5 - 10.0

6

225 Bath Street, Glasgow

Offices

Scotland

7.5 - 10.0

7

Langthwaite Grange Industrial Estate, South Kirby

Industrial

Yorkshire and Humberside

7.5 - 10.0

8

Lockwood Court, Leeds

Industrial

Yorkshire and Humberside

5.0 - 7.5

9

Storeys Bar Road, Peterborough

Industrial

Eastern

5.0 - 7.5

10

Sarus Court Industrial Estate, Runcorn

Industrial

North West

5.0 - 7.5

 

The Company's top ten properties listed above comprise 50.1% of the total value of the portfolio.

 

 

 

 

 

Market Value

 

Property

Sector

Region

Range (£m)

 

 

 

 

 

11

Apollo Business Park, Basildon

Industrial

Eastern

5.0 - 7.5

12

Barnstaple Retail Park

Retail Warehouse

South West

5.0 - 7.5

13

Euroway Trading Estate, Bradford

Industrial

Yorkshire and Humberside

5.0 - 7.5

14

Brockhurst Crescent, Walsall

Industrial

West Midlands

5.0 - 7.5

15

Above Bar Street, Southampton

Standard Retail

South East

<5.0

16

Diamond Business Park, Wakefield

Industrial

Yorkshire and Humberside

<5.0

17

Cranbourne House, Basingstoke

Industrial

South East

<5.0

18

Excel 95, Deeside

Industrial

Wales

<5.0

19

Oak Park, Droitwich

Industrial

West Midlands

<5.0

20

Commercial Road, Portsmouth

Standard Retail

South East

<5.0

21

Pearl Assurance House, Nottingham

Standard Retail

East Midlands

<5.0

22

Walkers Lane, St. Helens

Industrial

North West

<5.0

23

Cedar House, Gloucester

Offices

South West

<5.0

24

Odeon Cinema, Southend

Other (Leisure)

Eastern

 

<5.0

25

Brightside Lane, Sheffield

Industrial

Yorkshire and Humberside

 

<5.0

26

Magham Road, Rotherham

Industrial

Yorkshire and Humberside

 

<5.0

27

Pipps Hill Industrial Estate, Basildon

Industrial

Eastern

 

<5.0

28

Bank Hey Street, Blackpool

Standard Retail

North West

 

<5.0

29

Eagle Road, Redditch

Industrial

West Midlands

 

<5.0

30

Clarke Road, Milton Keynes

Industrial

South East

 

<5.0

31

Knowles Lane, Bradford

Industrial

Yorkshire and Humberside

 

<5.0

32

Vantage Point, Hemel Hempstead

Offices

Eastern

 

<5.0

33

Moorside Road, Salford

Industrial

North West

 

<5.0

34

Fargate and Chapel Walk, Sheffield

Standard Retail

Yorkshire and Humberside

 

<5.0

 

 

Sector and Geographical Allocation by Market Value as at 30 September 2020

 

Sector Allocation

 

Sector

%

Standard Retail

9.6

Retail Warehouse

3.2

Offices

26.8

Industrial

52.8

Other

7.6

 

Geographical Allocation

 

Location

%

Greater London

5.4

South East

15.1

South West

12.1

Eastern

12.0

West Midlands

12.3

East Midlands

2.3

North West

8.1

Yorkshire and Humberside

20.1

Wales

7.7

Scotland

4.9

 

 

 

Top Ten Tenants

 

 

Tenant

Sector

Property

Passing

Rental

Income

(£'000)

% of

Portfolio

Total

Contracted

Rental

Income



1



The Secretary of State for Housing, Communities and Local Government

 

 

Office

 

 

Sandford House, Solihull and Cedar House, Gloucester

984

6.4

2

Plastipak UK Limited

Industrial

Gresford Industrial Estate, Wrexham

883

5.8

3

Ardagh Glass Limited

Industrial

Langthwaite Industrial Estate, South Kirkby

676

5.0

4

Mecca Bingo Limited

Leisure

London East Leisure Park, Dagenham

625

4.1

5

Harrogate Spring Water

Industrial

Lockwood Court, Leeds

603

3.9

6

Odeon Cinemas

Leisure

Odeon Cinema, Southend

535

3.5

7

Sports Direct

Retail

Barnstaple Retail Park and Bank Hey Street, Blackpool

525

3.4

8

Wyndeham Peterborough Limited

Industrial

Storeys Bar Road, Peterborough

525

3.4

9

Egbert H Taylor & Company Limited

Industrial

Oak Park, Droitwich

500

3.3

10

HFC Prestige Manufacturing

Industrial

Cranbourne House, Basingstoke

460

3.0

 

The Company's top ten tenants, listed above, represent 41.8% of the total passing rental income of the portfolio.

 

Asset Management

The Company completed the following material asset management transactions during the period:

 

Bank Hey Street, Blackpool - In May 2020, the Company signed a reversionary lease with existing tenant JD Wetherspoon. This documents the removal of the tenant's break option in 2025 and provides an additional 10-year lease term taking the earliest expiry from 2025 to 2050. The annual rent payable by the tenant has reduced from £96,750 to £90,000 but the lease now provides five-yearly fixed increases reflecting 1% per annum.

 

2 Geddington Road, Corby - On 22 May 2020, the Company disposed of its largest asset at 2 Geddington Road, Corby, for gross proceeds of £18.80 million, 25% ahead of the valuation level immediately prior and 52% ahead of its acquisition price in 2018. The asset had been delivering an income yield to the Company of 10% per annum.

 

Sandford House, Solihull - During June 2020, the Company completed a 15-year renewal lease with its existing tenant, the Secretary of State for Housing, 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 £5.4 million.

 

Bessemer Road, Basingstoke - In July 2020, the Company completed a 5-year lease renewal at its 58,000 sq ft industrial premises in Basingstoke. The lease has been granted with no rent free incentive given to the tenant and secures a rental income to the Company 6% ahead of independent valuer's estimated levels. The tenant has the benefit of a break option in year 3.

 

Langthwaite Grange Industrial Estate, South Kirkby - During August 2020, a lease renewal was signed with the Company's third largest tenant, Ardagh Glass. Rent payable under the new lease has been agreed 13% ahead of both independent valuer's estimated levels and the previous level of passing rent. The lease is for a five-year term and the tenant will benefit from four months' rent free and a tenant break option after three years.

 

Clarke Road, Milton Keynes and Moorside Road, Swinton - Nationwide Crash Repair Centres Limited, the tenant of this asset, which comprises 2% of the Company's annual rental income, appointed administrators on 3 September 2020 although subsequently, on 4 September 2020, the business was acquired by Redde Northgate Plc. Redde Northgate have confirmed that they intend to operate the Milton Keynes branch, the larger of the two within AEWU ownership, and negotiations are currently underway to extend the terms of this lease which should prove to be value accretive to the Company. Redde Northgate is a substantial and well capitalised business reporting profit before tax of over £60 million for the year ending 30 April 2019. The former Swinton branch of Nationwide Crash Repair Centres, representing 0.8% of the Company's annual rental income, will not be operated by Redde Northgate on an ongoing basis, however interest has already been received from a prospective new tenant.

 

Apollo Business Park, Basildon - During September 2020, the Company completed a 5-year lease renewal on 35,300 sq ft of these multi-let industrial premises in Basildon. The lease secures a rental income to the Company 4% ahead of independent valuer's estimated levels and 30% ahead of the previous rental level. The tenant will benefit from 6 months' rent free.

 

Wheeler Gate, Nottingham - In September 2020, a 5-year renewal lease was completed with Costa Coffee on a 1,400 sq ft retail unit located in central Nottingham. The reversionary lease documents the rebasing of Costa's rent from £110,000 to £52,000 per annum in line with its estimated rental value. The tenant benefits from 9 months' rent free.

 

Bath Street, Glasgow - During October 2020, the Company exchanged contracts to sell its 85,000 sq ft office holding at 225 Bath Street in Glasgow city centre to a subsidiary company of IQ Student Accommodation. The transaction is conditional upon various matters including the grant of planning permission for the development of a 480 bedroom student housing development. Sale pricing will be determined following the approval of all conditions according to an agreed matrix ranging from £8.55 to £9.30 million. Transaction pricing reflects 98% of pricing levels being discussed by the parties prior to the onset of the COVID-19 pandemic.

 

Bank Hey Street, Blackpool - The Company has begun to undertake remedial works to its property in Blackpool, which include the overhaul and reinstatement of its cathodic protection system, and comprehensive repairs to faience elevations and windows. Works have been budgeted at a total cost to the Company of £1.7 million over two years. The nature of these repair works means that as the costs are incurred, they will be expensed to the Company's profit or loss, with a corresponding increase expected to be seen in the revaluation of the property, all else being equal.

 

Weston Super Mare - Post period end, the Company acquired the multi-let Westlands Distribution Park in Weston Super Mare for a purchase price of £5.4 million. The purchase price reflects a low capital value of £175,000 per acre which provides strong potential for future capital value growth based upon nearby comparable land transactions which range between £350,000 and £500,000 per acre for other commercial and residential uses. The estate, located 3 miles from the M5 Motorway, provides a net initial yield of 6.4% which is expected to increase to at least 7.4% within the medium term. The average passing rent of £1.50 per sq ft also provides strong potential for rental growth. Tenants include North Somerset District Council who make up 30% of the income stream.

 

Vacancy - The portfolio's overall vacancy level now sits at 4.9%, excluding vacancy contributed by the asset at 225 Bath Street, Glasgow which, as discussed above, has now been exchanged for sale for alternative use redevelopment. As a condition of the sale agreement, full vacancy must be achieved in the building before the sale can be completed. Including this asset, overall vacancy is 8.21%.

 

 

AEW UK Investment Management LLP

 

17 November 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.

 

At least twice a year, the Board undertakes a formal 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 and emerging 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. The risks below do 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. Changes to the principal risks since the date of the Annual Report and Financial Statements for the year ended 31 March 2020 are indicated below.

 

Principal risks and their potential impact

How risk is managed

Risk assessment

REAL ESTATE RISKS

 

 

1. Property market

Any property market recession or future deterioration in the property market could, inter alia, (i) cause the Company to realise its investments at lower valuations; and (ii) delay the timings of the Company's  realisations. These risks could have a material adverse effect on the ability of the Company to achieve its investment objective.

 

 

The Company has investment restrictions in place to invest and manage its assets with the objective of spreading and mitigating risk.

 

 

Probability: High

Impact: High

Movement: No change

2. Property valuation

Property and property-related assets are inherently difficult to value due to the individual nature of each property.

 

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 Company uses an independent external valuer (Knight Frank LLP) to value the properties at fair value in accordance with accepted RICS appraisal and valuation standards.

 

 

Probability: Moderate

Impact: Low to Moderate

Movement: Decrease

3. Tenant default

Failure by tenants to fulfil their rental obligations could affect the income that the properties earn and the ability of the Company to pay dividends to its shareholders.

 

Comprehensive due diligence is undertaken on all new tenants. Tenant covenant checks are carried out on all new tenants where a default would have a significant impact.

 

Asset management team conducts ongoing monitoring and liaison with tenants to manage potential bad debt risk.

 

Probability: High

Impact: High

Movement: No change

4. Asset management initiatives

Asset management initiatives, such as refurbishment works, may prove to be more extensive, expensive and take longer than anticipated. Cost overruns may have a material adverse effect on the Company's profitability, the NAV and the share price.

 

 

Costs incurred on asset management initiatives are closely monitored against budgets and reviewed in regular presentations to the Investment Management Committee of the Investment Manager.

 

 

Probability:

Low to moderate
Impact: Low to moderate
Movement: Increase

5. Due diligence

Due diligence may not identify all the risks and liabilities in respect of an acquisition (including any environmental, structural or operational defects) that may lead to a material adverse effect on the Company's profitability, the NAV and the price of the Company's Ordinary Shares.

 

 

The Company's due diligence relies on work (such as legal reports on title, property valuations, environmental and building surveys) outsourced to third parties who have expertise in their areas. Such third parties have professional indemnity cover in place.

 

Probability: Low

Impact: Moderate

Movement: No change

6. Fall in rental rates

Rental rates may be adversely affected by general UK economic conditions and other factors that depress rental rates, including local factors relating to particular properties/locations (such as increased competition).

 

Any fall in the rental rates for the Company's properties may have a material adverse effect on 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.

 

 

The Company builds a diversified property and tenant base with subsequent monitoring of concentration to individual occupiers (top 10 tenants) and sectors (geographical and sector exposure).

 

The Investment Manager holds quarterly meetings with its Investment Strategy Committee and regularly meets the Board of Directors to assess whether any changes in the market present risks that should be addressed in the Company's strategy.

 

Probability: Moderate to High

Impact: Moderate to High

Movement: No change

FINANCIAL RISKS

 

 

7. Breach of borrowing covenants

The Company has entered into a term credit facility.

 

Material adverse changes in valuations and net income may lead to breaches in the LTV and interest cover ratio covenants.

 

 

The Company monitors the use of borrowings on an ongoing basis through weekly cash flow forecasting and quarterly risk monitoring to monitor financial covenants.

 

Probability:

Low to Moderate

Impact: High

Movement: No change

8. Interest rate rises (short term)

The Company's borrowings through a term credit facility are subject to interest rate risk through changing LIBOR rates. Any increases in LIBOR rates may have an adverse effect on the Company's ability to pay dividends.

 

 

The Company uses interest rate caps on a significant notional value of the loan to mitigate the adverse impact of possible interest rate rises.

 

The Investment Manager and Board of Directors monitor the level of hedging and interest rate movements to ensure that the risk is managed appropriately.

 

Probability:

Low to Moderate

Impact: Low

Movement: Decrease

9. Interest rate rises (long term)

The Company's borrowings through a term credit facility are subject to interest rate risk through changing LIBOR rates. Any increases in LIBOR rates may have an adverse effect on the Company's ability to pay dividends.

 

 

The Company uses interest rate caps on a significant notional value of the loan to mitigate the adverse impact of possible interest rate rises.

 

The Investment Manager and Board of Directors monitor the level of hedging and interest rate movements to ensure that the risk is managed appropriately.

 

Probability: High

Impact: Low to Moderate

Movement: Increase

10. Availability and cost of debt

The term credit facility expires in October 2023. In the event that RBSi does not renew the facility, the Company may need to sell assets to repay the outstanding loan. Any increase in the financing costs of the facility on renewal would adversely impact on the Company's profitability.

 

The Company maintains a good relationship with the bank providing the term credit facility.

 

The Company monitors the projected usage and covenants of the credit facility on a quarterly basis.

 

 

Probability:

Low to Moderate

Impact: High

Movement: No change

CORPORATE RISKS

 

 

11. Use of service providers

The Company has no employees and is reliant upon the performance of third party service providers.

 

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.

 

The performance of service providers in conjunction with their service level agreements is monitored via regular calls and face-to-face meetings and the use of key performance indicators, where relevant.

 

 

Probability: Moderate to High

Impact: Moderate

Movement: Increase

12. Dependence on the Investment Manager
The Investment Manager is responsible for providing investment management services to the Company.

 

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.

 

The Investment Manager has endeavoured to ensure that the principal members of its management team are suitably incentivised.

 

 

Probability: Moderate Impact: Moderate to High

Movement: No change

13. Ability to meet objectives

The Company may not meet its investment objective to deliver an attractive total return to shareholders from investing predominantly in a portfolio of smaller commercial properties in the United Kingdom.

 

Poor relative total return performance may lead to an adverse reputational impact that affects the Company's ability to raise new capital.

 

The Company has an investment policy to achieve a balanced portfolio with a diversified asset and tenant base. The Company also has investment restrictions in place to limit exposure to potential risk factors. These factors mitigate the risk of fluctuations in returns.

 

 

Probability: High

Impact: High

Movement: No change

TAXATION RISKS

 

 

14. Company REIT status

The Company has a UK REIT status that provides a tax-efficient corporate structure.

 

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.

 

The Company monitors REIT compliance through the Investment Manager on acquisitions; the Administrator on asset and distribution levels; the Registrar and Broker on shareholdings and the use of third-party tax advisers to monitor REIT

compliance requirements.

 

 

Probability: Low

Impact: High

Movement: No change

15. POLITICAL/ECONOMIC RISKS

 

 

15. General political/economic environment

Political and macroeconomic events present risks to the real estate and financial markets that affect the Company and the business of its tenants. The level of uncertainty that such events bring has been highlighted in recent times, most pertinently following the EU referendum vote (Brexit) in June 2016.

 

 
The Board considers the impact of political and macroeconomic events when reviewing strategy.

 

 

 Probability: High

Impact: High

Movement: No change

16. COVID-19

The economic disruption arising from the COVID-19 virus could impact rental income receipts from tenants, the ability to access funding at competitive rates, maintain the Company's dividend policy and its adherence to the HMRC REIT regime, particularly if the UK government restrictions are in place for a prolonged period.

 

The Investment Manager is in close contact with tenants. The Investment Manager has put in place social distancing measures as advised by the UK government. The Investment Manager has maintained a close relationship with RBSi to ensure continuing dialogue around covenants.

 

Probability: High

Impact: High

Movement: Increase

 

 

Interim Management Report and Directors' Responsibility Statement

 

Interim Management Report

The important events that have occurred during the period under review, the key factors influencing the financial statements and the principal risks and uncertainties for the remaining six months of the financial year are set out above.

 

Responsibility Statement

We confirm that to the best of our knowledge:

 

  • the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;

 

  •   the interim management report includes a fair review of the information required by:

 

  1. DTR 4.2.7R, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

 

  1. DTR 4.2.8R, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

 

On behalf of the Board

 

Mark Burton

Chairman

 

17 November 2020

 

 

Independent Review Report to AEW UK REIT PLC 

 

Conclusion 

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2020 which comprises the Condensed Statement of Comprehensive Income, Condensed Statement of Changes in Equity, Condensed Statement of Financial Position, Condensed Statement of Cash Flows and the related explanatory notes. 

 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2020 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the Disclosure Guidance and Transparency Rules ('the DTR') of the UK's Financial Conduct Authority ('the UK FCA'). 

 

Scope of review 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK.  A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.  We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. 

 

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit.  Accordingly, we do not express an audit opinion. 

 

Directors' responsibilities 

The half-yearly financial report is the responsibility of, and has been approved by, the Directors.  The Directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA. 

 

The annual financial statements of the Company are prepared in accordance with International Financial Reporting Standards as adopted by the EU. The Directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted by the EU. 

 

Our responsibility 

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. 

 

The purpose of our review work and to whom we owe our responsibilities

This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the DTR of the UK FCA.  Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose.  To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached. 

 

Matthew Williams

for and on behalf of KPMG LLP 

Chartered Accountants 

15 Canada Square

London

E14 5GL 

17 November 2020 

 

 

 

Financial Statements

 

Condensed Statement of Comprehensive Income

for the six months ended 30 September 2020

 

 

 

 

 

 

 

Notes

Period from 

1 April 2020 to 

30 September 

2020 

(unaudited)

£'000 

  Period from 

1 April 2019 to 

30 September

2019 

(unaudited)

£'000 

 

Year ended  

31 March 

2020  

(audited) 

£'000  

Income

 

 

 

 

Rental and other income

3

8,838 

8,777 

17,790  

Property operating expenses

4

(1,933)

(509)

(1,326)

Net rental and other income

 

6,905 

8,268 

16,464  

 

 

 

 

 

Other operating expenses

5

(971)

(1,004)

(1,992)

 

 

 

 

 

Operating profit before fair value changes

 

5,934 

7,264 

14,472  

 

 

 

 

 

Change in fair value of investment properties

10

(3,328)

(2,407)

(9,444)

Realised gains on disposal of investment properties

10

3,670 

44 

44 

 

 

 

 

 

Operating profit

 

6,276 

4,901 

5,072 

 

 

 

 

 

Finance expense

6

(552)

(742)

(1,420)

 

 

 

 

 

Profit before tax

 

5,724 

4,159 

3,652 

Taxation

7

- 

- 

- 

 

 

 

 

 

Profit after tax

 

5,724 

4,159 

3,652 

Other comprehensive income

 

- 

- 

- 

 

 

 

 

 

Total comprehensive income for the period

 

5,724 

4,159 

3,652 

 

 

 

 

 

Earnings per share (pence per share) (basic and diluted)

8

3.61 

2.74 

2.40 

 

 

 

 

 

 

The notes below form an integral part of these condensed financial statements.

 

 

 

Condensed Statement of Changes in Equity

for the six months ended 30 September 2020

 

 

 

 

 

For the period 1 April 2020 to

30 September 2020 (unaudited)

 

 

 

 

 

Notes

 

 

 

Share

capital

£'000

 

 

Share

premium

account

£'000

 

Capital 

reserve and 

retained 

earnings 

£'000 

Total capital 

and reserves 

attributable to 

owners of 

the Company 

£'000 

 

 

 

 

 

 

Balance as at 1 April 2020

 

1,587

56,578

89,698 

147,863 

 

 

 

 

 

 

Total comprehensive income

 

-

-

5,724

5,724

Dividends paid

9

-

-

(6,351)

(6,351)

Balance as at 30 September 2020

 

1,587

56,578

89,071

147,236

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total capital 

 

 

 

 

Capital 

and reserves 

 

 

 

Share 

reserve and 

attributable to 

 

 

Share

premium 

retained 

owners of 

For the period 1 April 2019 to

 

capital

account 

earnings 

the Company 

30 September 2019 (unaudited)

Notes

£'000

£'000 

£'000 

£'000 

Balance at 1 April 2019

 

1,515

49,770

98,171 

149,456 

 

 

 

 

 

 

Total comprehensive income

 

-

-

4,159 

4,159 

Dividends paid

9

-

-

(6,062)

(6,062)

Balance as at 30 September 2019

 

1,515

49,770

96,268 

147,553 

 

 

 

 

 

 

For the year ended 31 March 2020 (audited)

 

 

 

 

 

Notes

 

 

 

Share

capital

£'000

 

 

Share 

premium 

account 

£'000 

 

Capital 

reserve and 

retained 

earnings 

£'000 

Total capital 

and reserves 

attributable to 

owners of  

the Company 

£'000 

 

 

 

 

 

 

Balance at 1 April 2019

 

1,515

49,770 

98,171 

149,456 

 

 

 

 

 

 

Total comprehensive income

 

-

- 

3,652 

3,652 

Ordinary shares issued

 

72

6,928 

- 

7,000 

Share issue costs

 

-

(120)

- 

(120)

Dividends paid

9

-

-

(12,125)

(12,125)

Balance as at 31 March 2020

 

1,587

56,578 

89,698 

147,863 

 

The notes below form an integral part of these condensed financial statements.

 

 

 

 

Condensed Statement of Financial Position

as at 30 September 2020

 

 

 

 

 

 

Notes


 As at 

30 September 2020 

(unaudited)

£'000 


As at 

30 September 2019 

(unaudited)

£'000 


 As at 

31 March 2020 

(audited)

£'000 

Assets

 

 

 

 

Non-Current Assets

 

 

 

 

Investment property

10

160,601 

193,979 

187,042 

 

 

160,601 

193,979 

187,042 

 

 

 

 

 

Current Assets

 

 

 

 

Receivables and prepayments

11

9,063 

7,621 

7,351 

Other financial assets held at fair value

12

49 

58 

14 

Cash and cash equivalents

 

13,357 

2,012 

9,873 

 

 

22,469 

9,691 

17,238 

Held for sale assets

 

 

 

 

Investment property held for sale

10

8,212 

-

-

 

 

 

 

 

Total assets

 

191,282 

203,670 

204,280 

Non-Current Liabilities

 

 

 

 

Interest bearing loans and borrowings

13

(39,082)

(49,528)

(51,047)

Lease obligations

15

(635)

(636)

(635)

 

 

(39,717)

(50,164)

(51,682)

 

 

 

 

 

Current Liabilities

 

 

 

 

Payables and accrued expenses

14

(4,281)

(5,905)

(4,687)

Lease obligations

15

(48)

(48)

(48)

 

 

(4,329)

(5,953)

(4,735)

 

 

 

 

 

Total Liabilities

 

(44,046)

(56,117)

(56,417)

 

 

 

 

 

Net Assets

 

147,236 

147,553 

147,863 

 

 

 

 

 

Equity

 

 

 

 

Share capital

 

1,587 

1,515 

1,587 

Share premium account

 

56,578 

49,770 

56,578 

Capital reserve and retained earnings

 

89,071 

96,268 

89,698 

 

 

 

 

 

Total capital and reserves attributable to equity holders of the Company

 

147,236 

147,553 

147,863 

 

 

 

 

 

Net Asset Value per share (pps)

8

92.73 

97.36 

93.13 

 

 

 

 

 

 

The financial statements were approved by the Board of Directors on 17 November 2020 and were signed on its behalf by:

 

Mark Burton

Chairman

AEW UK REIT plc

Company number: 09522515

 

The notes below form an integral part of these condensed financial statements.

 

 

 

 

Condensed Statement of Cash Flows

for the six months ended 30 September 2020

 

 

Period from 

1 April 2020 to 

30 September

2020 

(unaudited)

£'000 


Period from 

1 April 2019 to 

30 September 2019 

(unaudited)

£'000 

 
Year ended 

31 March

2020

   (audited) 

£'000 

 

 

 

 

Cash flows from operating activities

 

 

 

Profit after tax

5,724 

4,159 

3,652 

 

 

 

 

Adjustment for non-cash items:

 

 

 

Finance expenses

552 

742 

1,420 

Loss from change in fair value of investment property

3,328 

2,407 

9,444 

Realised gains on disposal of investment property

(3,670)

(44)

(44)

Increase in other receivables and prepayments

(1,573)

(3,152)

(2,882)

(Decrease)/Increase in other payables and accrued expenses

(463)

2,640 

1,424 

Net cash generated from operating activities

3,898 

6,752 

13,014 

 

 

 

 

Cash flows from investing activities

 

 

 

Purchase of and additions to investment property

(106)

(257)

(358)

Proceeds of disposal of investment property

18,676 

44 

44 

Net cash generated from/(used in)  investing activities

18,570 

(213)

(314)

 

 

 

 

Cash flows from financing activities

 

 

 

Proceeds from issue of ordinary share capital

- 

- 

7,000 

Share issue costs

- 

- 

(120)

Loan draw down

- 

- 

1,500 

Loan repayment

12,000 

- 

- 

Arrangement loan facility fee paid

(13)

- 

(39)

Premiums on interest rate caps

(63)

- 

- 

Finance costs

(557)

(596)

(1,174)

Dividends paid

(6,351)

(6,062)

(12,125)

 

 

 

 

Net cash flow used in financing activities

(18,984)

(6,658)

(4,958)

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

3,484 

(119)

7,742 

Cash and cash equivalents at start of the period/year

9,873 

2,131 

2,131 

Cash and cash equivalents at end of the period/year

13,357 

2,012 

9,873 

 

 

 

 

 

The notes below form an integral part of these condensed financial statements.

 

 

Notes to the Condensed Financial Statements

for the six months ended 30 September 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.

 

 

2. Accounting policies

 

2.1 Basis of preparation

These interim condensed unaudited financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU, and should be read in conjunction with the Company's last financial statements for the year ended 31 March 2020. These condensed unaudited financial statements do not include all information required for a complete set of financial statements proposed in accordance with IFRS as adopted by the EU ('EU IFRS'). However, selected explanatory notes have been included to explain events and transactions that are significant in understanding changes in the Company's financial position and performance since the last financial statements.

 

The financial information contained in this Interim Report and Financial Statements for the six months ended 30 September 2020 and the comparative information for the year ended 31 March 2020 does not constitute statutory accounts as defined in sections 435(1) and (2) of the Companies Act 2006. Statutory accounts for the year ended 31 March 2020 have been delivered to the Registrar of Companies. The Auditor reported on those accounts. Its report was unqualified and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

 

A review of the interim financial information has been performed by the Auditor of the Company for issue on 17 November 2020.

 

The comparative figures disclosed in the condensed unaudited financial statements and related notes have been presented for both the six month period ended 30 September 2019 and year ended 31 March 2020 and as at 30 September 2019 and 31 March 2020.

 

These condensed unaudited 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 condensed unaudited financial statements are presented in Sterling and all values are rounded to the nearest thousand pounds (£'000), except when otherwise indicated.

 

The Company is exempt by virtue of section 402 of the Companies Act 2006 from the requirement to prepare group financial statements. These financial statements present information solely about the Company as an individual undertaking.

 

New standards, amendments and interpretations

There were a number of new standards and amendments to existing standards which are required for the Company's accounting periods beginning after 1 April 2020, which have been considered and applied. These being:

 

  • Amendments to IFRS 3 "Business Combinations", definition of a business
  • Amendments to IAS 1 "Presentation of Financial Statements" and IAS 8 "Accounting Policies, Changes in Accounting Estimates and Errors", definition of material
  • Revised Conceptual Framework for Financial Reporting
  • Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7)

 

The Company has applied the new standards and there has been no impact on the financial statements.

 

As a result of COVID-19 there was an amendment to IFRS 16, Leases, for COVID-19 related rent concessions. The amendment to the standard has been considered, however at the reporting date had not been required to be applied.

 

There are a number of new standards and amendments to existing standards which have been published and are mandatory for the Company's accounting periods beginning on or after 1 April 2021 or later. The Company has not early adopted any of these new or amended standards as the impact of the adoption is not considered to be significant.

 

2.2 Significant accounting judgements and estimates

The preparation of financial statements in accordance with IAS 34 requires the Directors of the Company to make judgements, estimates and assumptions that affect the reported amounts recognised in the financial statements. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability in the future.

 

i) Valuation of investment property

The Company's investment property is held at fair value as determined by the independent valuer on the basis of fair value in accordance with the internationally accepted Royal Institution of Chartered Surveyors ('RICS') Appraisal and Valuation Standards.

 

2.3 Segmental information

The Board of Directors retains overall control of the Company but the Investment Manager (AEW UK Investment Management LLP) has certain authorities and fulfils the function of allocating resource to, and assessing the performance of the Company's operating segments and is therefore considered to be the Chief Operating Decision Maker ('CODM').  In accordance with IFRS 8, the Company considers each of its properties to be an individual operating segment. The CODM allocates resources, and reviews the performance of, the Company's portfolio on a property-by-property basis and discrete financial information is available for each individual property.

 

These operating segments have similar economic characteristics and, as such, are aggregated into one reporting segment, being investment in property and property-related investments in the UK.

 

2.4 Going concern

The Directors assessed 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.

 

In that assessment the Directors' considered that the Company benefits from a diversified income stream from numerous tenants and sectors, which reduces risk. They also noted that:

 

  • The Company's rent collection has been strong with at least 90% of contracted rent either collected - or payment plans agreed - for each of the March, June and September 2020 quarters. Based on the contracted rent as at 30 September 2020, a reduction of 64% could be accommodated before breaching the interest cover ratio (ICR) covenant in the Company's debt arrangements;

 

  • Based on the property valuation at 30 September 2020, the Company had room for a £59m fall in valuations before reaching the maximum Loan to Value (LTV) covenant in the Company's debt arrangements. If certain conditions are met, a further £16m fall in values could be accommodated.

 

Finally, the Directors' note that the Company's cash flow can also be significantly managed through the adjustment of dividend payments.

 

Taking this into consideration, the Directors have reviewed a number of scenarios over 12 months, including a severe but plausible downside scenario which makes the following assumptions:

 

  • A reduction in rental income of 45% and collection of 70% of those 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; and
  • A 15% fall in property valuations.

 

Given the Company's financial position and headroom on covenants then even in this severe scenario, the Directors do not consider there are any material uncertainties in relation to the Company's ability to meets its liabilities as they fall due and continue in operation for a period of 12 months from the date of approval of these financial statements. They therefore consider the going concern basis adopted in the preparation of the interim financial statements is appropriate.

 

2.5 Summary of significant accounting policies

The principal accounting policies applied in the preparation of these financial statements are consistent with those applied within the Company's Annual Report and Financial Statements for the year ended 31 March 2020 except for the changes as detailed in note 2.1.

 

 

3. Revenue

 

 

Period from 

1 April 2020 to 

30 September 

2020 

(unaudited)

£'000 

Period from 

1 April 2019 to 

30 September 

2019 

(unaudited)

£'000 

 

Year ended 

31 March 

2020 

(audited)

£'000 

 

 

 

 

Gross rental income

8,124 

8,777 

17,418 

Service charge income

674*

  -

  -

Dilapidation income

40 

- 

372 

 

 

 

 

Total rental and other income

8,838 

8,777 

17,790 

 

 

 

 

 

Gross rental income includes adjustment for the effect of any incentives agreed.

 

*For the current period, service charge income has been presented gross to reflect the Company's role as principal in its agreements with tenants. In comparative periods, they have been presented net, however the difference in presentation is considered to be immaterial.

 

4. Property operating expenses

 

 

Period from 

1 April 2020 to 

30 September 

2020 

(unaudited)

£'000 

Period from 

1 April 2019 to 

30 September 

2019 

(unaudited)

£'000 

 

Year ended 

31 March 

2020 

(audited)

£'000 

 

 

 

 

Recoverable service charge expense

674*

- 

- 

Non-recoverable service charge expense

601#

143 

436 

Other property operating expenses

658 

366 

890 

 

 

 

 

Total property operating expenses

1,933 

509 

1,326 

 

 

 

 

 

* For the current period, recoverable service charge expenditure has been presented gross to reflect the Company's role as principal in its agreements with tenants. In comparative periods, they have been presented net, however the difference in presentation is considered to be immaterial.

 

# Of the c. £601,000 non-recoverable service charge expenditure c. £394,000 relates to Bank Hey Street, Blackpool which includes costs relating to the remedial works as detailed in the Investment Manager's Report.

 

5. Other operating expenses

 

 

Period from 

1 April 2020 to 

30 September 

2020 

(unaudited)

£'000 

Period from 

1 April 2019 to 

30 September 

2019 

(unaudited)

£'000 

 

Year ended 

31 March 

2020 

(audited)

£'000 

 

 

 

 

Investment management fee

579

665 

1,308 

Audit fee

30

24 

82 

ISRE 2410 review (interim review fee)

25

24 

24 

Operating costs

289

230 

463 

Directors' remuneration

48

61 

115 

 

 

 

 

Total other operating expenses

971

1,004 

1,992 

 

 

 

 

 

6. Finance expense

 

 

Period from 

1 April 2020 

to 

30 September 

2020 

(unaudited)

£'000 

Period from 

1 April 2019 

to 

30 September 

2019 

(unaudited)

£'000 

 

Year 

ended 

31 March 

2020 

(audited)

£'000 

 

 

 

 

Interest payable on loan borrowings

438 

556 

1,108 

Amortisation of loan arrangement fee

49 

53 

110 

Commitment fee payable on loan borrowings

37 

29 

54 

 

524 

638 

1,272 

Change in fair value of interest rate derivatives

28 

104 

148 

Total

552 

742 

1,420 

 

 

 

 

 

 

7. Taxation

 

 

Period from 

1 April 2020 to 

30 September 

2020 

(unaudited)

£'000 

Period from 

1 April 2019 to 

30 September 

2019 

(unaudited)

£'000 

Year 

ended 

31 March 

2020 

(audited)

£'000 

Analysis of charge in the period

 

 

 

Profit before tax

5,724 

4,159 

3,652 

 

 

 

 

Theoretical tax at UK corporation tax standard rate of 19% (30 September 2019: 19%; 31 March 2020: 19%)

1,088 

790 

694 

 

 

 

 

Adjusted for:

 

 

 

Exempt REIT income

(1,023)

(1,239)

(2,488)

Non taxable investment losses/(gains)

(65)

449 

1,794 

Total

-  

-  

-  

 

 

8. Earnings per share and NAV per share

 

 

Period from 

1 April 2020 to 

30 September 

2020 

(unaudited)

£'000 

Period from 

1 April 2019 to 

30 September 

2019 

 (unaudited)

£'000 

 

Year ended 

31 March 

2020 

(audited)

£'000 

Earnings per share:

 

 

 

Total comprehensive income (£'000)

5,724 

4,159 

3,652 

Weighted average number of shares

158,774,746 

151,558,251 

152,208,919 

EPS (basic and diluted) (pence)

3.61 

2.74 

2.40 

 

 

 

 

 

 

 

 

EPRA earnings per share:

Total comprehensive income (£'000)

5,724 

4,159 

3,652 

Adjustment to total comprehensive income:

 

 

 

Change in fair value of investment property (£'000)

3,328 

2,407 

9,444 

Realised gain on disposal of investment property (£'000)

(3,670)

(44)

(44)

Change in fair value of interest rate derivatives (£'000)

28 

104 

148 

Total EPRA Earnings (£'000)

5,410 

6,626 

13,200 

EPRA earnings per share (basic and diluted) (pence)

 

3.41 

4.37 

8.67 

 

 

 

 

NAV per share:

 

 

 

Net assets (£'000)

147,236 

147,553 

147,863 

Ordinary Shares

158,774,746 

151,558,251 

158,774,746 

NAV per share (pence)

92.73 

97.36 

93.13 

 

 

 

 

EPRA NAV per share:

 

 

 

Net assets (£'000)

147,236 

147,553 

147,863 

Adjustments to net assets:

 

 

 

Other financial assets held at fair value (£'000)

(49)

(58)

(14)

EPRA NAV (£'000)

147,187 

147,495 

147,849 

EPRA NAV per share (pence)

92.70 

97.32 

93.12 

 

 

 

 

Earnings per share amounts are calculated by dividing profit for the period attributable to ordinary equity holders of the Company by the weighted average number of Ordinary Shares in issue during the period. As at 30 September 2020, EPRA NNNAV was equal to IFRS NAV and as such a reconciliation between the two measures has not been presented.

 

 

9. Dividends paid

 

 

 

 

 

Dividends paid during the period

Period from 

1 April 2020 to 

30 September 

2020 

£'000 

Period from 

1 April 2019 to 

30 September 

2019 

£'000 

 

Year ended

31 March

2020

£'000

 

 

 

 

Represents two/two/four interim dividends of 2.00 pps each

6,351 

6,062 

12,125

 

 

 

 

 

Period from 

Period from 

 

 

1 April 2020 to 

1 April 2019 to 

Year ended

 

30 September 

30 September 

31 March

 

2020 

2019 

2020

Dividends relating to the period

£'000 

£'000 

£'000

 

 

 

 

Represents two/two/four interim dividends of 2.00 pps each

6,351 

6,062 

12,269

 

 

 

 

 

Dividends paid relate to Ordinary Shares only.

 

 

 

10. Investments

 

10.a) Investment property

 

 

Period from 1 April 2020 to

30 September 2020 (unaudited)

 

Investment 

properties 

freehold 

£'000 

Investment 

properties 

leasehold 

£'000 

Total 

£'000 

Period from 

1 April 2019 

to 30 September 

2019 

(unaudited)

Total 

£'000 

 

Year ended 

31 March 

2020 

(audited)

Total 

£'000 

UK Investment property

 

 

 

 

 

 

 

 

 

 

 

As at beginning of period

147,400 

41,900 

189,300 

197,605 

197,605 

Purchases and capital expenditure in the period

106 

- 

106 

257 

358 

Disposals in the period

- 

(15,006)

(15,006)

- 

- 

Revaluation of investment property

(4,901)

1,856 

(3,045)

(1,812)

  (8,663)

 

 

 

 

 

 

Valuation provided by Knight Frank

142,605 

28,750 

171,355 

196,050 

189,300 

 

 

 

 

 

 

Adjustment to fair value for lease incentive debtor

 

 

(3,225)

(2,755)

(2,941)

Adjustment for lease obligations*

 

 

683 

684 

683 

Total Investment property

 

 

168,813 

193,979 

187,042 

 

 

 

 

 

 

Classified as:

 

 

 

 

 

Investment property held sale#

 

 

8,212 

- 

- 

Investment property

 

 

160,601 

193,979 

187,042 

 

 

 

168,813 

193,979 

187,042 

 

 

 

 

 

 

Change in fair value of investment property

 

 

 

 

 

Change in fair value before adjustments for lease incentives

 

 

(3,045)

(1,812)

(8,663) 

Adjustment for movement in the period:

 

 

 

 

 

in value of lease incentive debtor

 

 

(283)

(595)

(781)

 

 

 

(3,328)

(2,407)

(9,444)

Gains realised on disposal of investment property

 

 

 

 

 

Net proceeds from disposals of investment property during the period

 

 

18,676 

44 

44 

Fair value at beginning of period

 

 

(15,006)

- 

 - 

Gains realised on disposal of investment property

 

 

3,670 

44 

44 

 

* Adjustment in respect of minimum payment under head leases separately included as a liability within the Condensed Statement of Financial Position.

 

# 225 Bath Street, Glasgow, has been classified as held-for-sale as at 30 September 2020. Contracts to sell the property were exchanged post period-end, details of which can be found in Note 18 to the Financial Statements.

 

 

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.

 

In the annual report to 31 March 2020 the report of the valuer included a material valuation uncertainty clause due to COVID 19 and its unknown impact at that point in time. This valuation uncertainty clause had been removed for the valuation provided as at 30 September 2020.

 

10.b) Fair value measurement hierarchy

The following table provides the fair value measurement hierarchy for non-current assets:

 

 

 

 

 


Assets measured at fair value


Quoted prices

in active

markets

(Level 1)

£'000

 

Significant

observable

inputs

(Level 2)

£'000

 

Significant

unobservable

inputs

(Level 3)

£'000

 

 

 

 

Total

£'000

 

 

 

 

 

30 September 2020

 

 

 

 

Investment property

-

-

168,813

168,813

 

 

 

 

 

30 September 2019

 

 

 

 

Investment property

-

-

193,979

193,979

 

 

 

 

 

31 March 2020

 

 

 

 

Investment property

-

-

187,042

187,042

 

 

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 the fair value hierarchy of the entity's portfolios of investment properties 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 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:

 

 

 

Class

 

Fair value

£'000

 

Valuation

technique

Significant

unobservable

inputs

 

 

Range

 

 

 

 

 

30 September 2020

 

 

 

 

Investment Property

171,355

Income capitalisation

ERV

Equivalent yield

£0.50- £95.00

6.23% - 10.48%

 

 

 

 

 

30 September 2019

 

 

 

 

Investment Property

196,050

Income capitalisation

ERV

Equivalent yield

£0.50- £127.00

5.95% - 9.69%

 

 

 

 

 

31 March 2020

 

 

 

 

Investment Property

189,300

Income capitalisation

ERV

Equivalent yield

£0.50- £105.00

5.71% - 10.54%

 

 

 

 

 

 

Fair value per Knight Frank LLP.

 

Where possible, sensitivity of the fair values of Level 3 assets are tested to changes in unobservable inputs to reasonable alternatives.

 

Gains and losses recorded in profit or loss for recurring fair value measurements categorised within Level 3 of the fair value hierarchy are attributable to changes in unrealised gains or losses relating to investment property and investments held at the end of the reporting period.

 

With regards to both investment property and investments, gains and losses for recurring fair value measurements categorised within Level 3 of the fair value hierarchy, prior to adjustment for rent free debtor and rent guarantee debtor, are recorded in profit and loss.

 

The tables below set out a sensitivity analysis for each of the key sources of estimation uncertainty with the resulting increase/(decrease) in the fair value of investment property.

 

 

Fair value

Change in ERV

Change in equivalent yield

 

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

Sensitivity Analysis

 

+5%

-5%

+5%

-5%

 

 

 

 

 

 

30 September 2020

171,355

176,434

161,957

163,582

179,481

 

 

 

 

 

 

30 September 2019

196,050

204,427

187,935

185,802

207,198

 

 

 

 

 

 

31 March 2020

189,300

197,146

180,075

179,906

199,956

 

 

 

Fair value

Change in ERV

Change in equivalent yield

 

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

Sensitivity Analysis

 

+10%

-10%

+10%

-10%

 

 

 

 

 

 

30 September 2020

171,355

183,940

154,933

156,710

188,744

 

 

 

 

 

 

30 September 2019

196,050

213,858

179,153

178,444

217,351

 

 

 

 

 

 

31 March 2020

189,300

205,933

171,723

171,251

211,640

 

 

 

Fair value

Change in ERV

Change in equivalent yield

 

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

Sensitivity Analysis

 

+15%

-15%

+15%

-15%

 

 

 

 

 

 

30 September 2020

171,355

191,497

147,893

150,433

199,087

 

 

 

 

 

 

30 September 2019

196,050

222,863

170,767

170,822

229,917

 

 

 

 

 

 

31 March 2020

189,300

214,777

163,364

163,327

224,687

 

 

 

 

11. Receivables and prepayments

 

 

30 September 

2020 

(unaudited)

£'000 

30 September 

2019 

(unaudited)

£'000 

31 March 

2020 

(audited)

£'000 

Receivables

 

 

 

Rent debtor

3,469 

2,789 

2,579 

Allowance for expected credit losses

(207)

(51)

(190)

Rent agent float account

2,056 

1,363 

1,486 

Dilapidations receivable

69 

- 

372 

Other receivables

368 

481 

115 

 

5,755 

4,582 

4,362 

 

 

 

 

Rent free debtor

3,225 

2,755 

2,941 

Prepayments

83 

284 

48 

Total

9,063 

7,621 

7,351 

 

The aged debtor analysis of receivables as follows:

 

 

30 September

2020

£'000

30 September

2019

£'000

31 March

2020

£'000

 

 

 

 

Less than three months due

4,206

4,257

4,317

Between three and six months due

1,549

325

45

 

 

 

 

Total

5,755

4,582

4,362

 

 

12. Interest rate derivatives

 

 

30 September

2020 

(unaudited)

£'000 

30 September 

2019 

(unaudited)

£'000 

31 March 

2020 

(audited)

£'000 

 

 

 

 

At the beginning of the period

14 

162 

162

Interest rate cap premium paid

63 

- 

-

Changes in fair value of interest rate derivatives

(28)

(104)

 (148)

 

 

 

 

At the end of the period

49 

58 

14

 

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 £36.51 million (31 March 2020: £36.51 million), with £26.51 million capped at 2.50% and £10.00 million capped at 2.00%, resulting in the loan being 92% hedged (31 March 2020: 71%). 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. During the period, the Company replaced its existing caps covering this period, which capped the interest rate at 2.00% on a notional value of £49.51 million, with new caps covering the same period capping the interest rate at 1.00% on a notional value of £51.50 million. The Company paid a premium of £62,968.

 

Fair Value hierarchy

The following table provides the fair value measurement hierarchy for interest rate derivatives:

 

 

Assets measured at fair value

 

 

 

 

 

Valuation date

 

Quoted prices 

in active 

markets 

(Level 1)

£'000 

 

Significant 

observable 

input 

(Level 2)

£'000 

 

Significant 

unobservable 

inputs 

(Level 3)

£'000 

 

 

 

 

Total

£'000

30 September 2020

- 

49 

- 

49

30 September 2019

- 

58 

- 

58

31 March 2020

- 

14 

- 

14

 

 

 

 

 

 

The fair value of these contracts is recorded in the Condensed Statement of Financial Position as at the period end.

 

There have been no transfers between Level 1 and Level 2 during the period, nor have there been any transfers between Level 2 and Level 3 during the period.

 

 

13. Interest bearing loans and borrowings

 

 

Bank borrowings drawn

30 September 

2020 

(unaudited)

£'000 

30 September

2019 

(unaudited)

£'000 

31 March 

2020 

(audited)

£'000 

At the beginning of the period

51,500 

50,000 

50,000 

Bank borrowings drawn in the period

- 

- 

1,500 

Bank borrowings repaid in the period

(12,000)

- 

- 

Interest bearing loans and borrowings

39,500 

50,000 

51,500 

 

 

 

 

Unamortised loan arrangement fees

(418)

(472)

(453)

At the end of the period

39,082 

49,528 

51,047 

 

 

 

 

Repayable between two and five years

39,500 

50,000 

51,500 

Bank borrowings available but undrawn in the period

20,500 

10,000 

8,500 

 

 

 

 

Total facility available

60,000 

60,000 

60,000 

 

 

 

 

 

 

 

 

 

The Company has a £60.00 million (31 March 2020: £60.00 million) credit facility with RBSi of which £39.50 million (31 March 2020: £51.50 million) has been utilised as at 30 September 2020.

 

The Company has a target gearing of 35% Loan to NAV, which is the maximum gearing on drawdown under the terms of the facility. As at 30 September 2020, the Company's gearing was 26.83% Loan to NAV (31 March 2020: 34.83%).

 

Borrowing costs associated with the credit facility are shown as finance costs in note 6 to these financial statements.

 

 

14. Payables and accrued expenses

 

 


30 September

2020

(unaudited)

£'000


30 September

2019

(unaudited)

£'000

31

March

2020

(audited)

£'000

 

 

 

 

Deferred income

2,835

3,312

2,906

Accruals

991

1,037

814

Other creditors

455

1,556

967

 

 

 

 

Total

4,281

5,905

4,687

 

 

 

 

 

 

15. Lease obligation 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 present value of the minimum lease payments under non-cancellable finance leases:

 

 

30 September 

2020 

(unaudited)

£'000 

30 September 

2019 

(unaudited)

£'000 

31 March 

2020 

(audited)

£'000 

Current

48 

48 

48 

Non Current

635 

636 

  635

 

 

 

 

Lease liabilities included in the Statement of Financial Position at 30 September 2020

 683 

 684 

 683 

 

 

16. Issued share capital

 

There was no change to the issued share capital during the period. The number of ordinary shares in issue and fully paid remains 151,774,746 of £0.01 each.

 

 

17. Transactions with related parties

 

As defined by IAS 24 Related Party Disclosures, parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions.

 

For the six months ended 30 September 2020, the Directors of the Company are considered to be the key management personnel. Directors' remuneration is disclosed in note 5.

 

The Company is party to an Investment Management Agreement with the Investment Manager, pursuant to which the Company has appointed the Investment Manager to provide investment management services relating to the respective assets on a day-to-day basis in accordance with their respective investment objectives and policies, subject to the overall supervision and direction of the Board of Directors.

 

Under the Investment Management Agreement, the Investment Manager receives a quarterly management fee which is calculated and accrued monthly at a rate equivalent to 0.9% per annum of NAV (excluding uninvested proceeds from fundraising).

 

During the period from 1 April 2020 to 30 September 2020, the Company incurred £578,821 (six months ended 30 September 2019: £665,344) in respect of investment management fees and expenses of which £304,595 was outstanding at 30 September 2020 (31 March 2020: £311,683).

 

 

18. Events after reporting date

 

Dividend

On 22 October 2020, the Board declared its second interim dividend of 2.00 pps in respect of the period from 1 July 2020 to 30 September 2020. The dividend payment will be made on 30 November 2020 to shareholders on the register as at 30 October 2020. The ex-dividend date was 29 October 2020.

 

The dividend of 2.00 pps was designated as an interim property income distribution ('PID'). Unless shareholders have elected to receive the PID gross, 20% tax will be deducted at source.

 

Property acquisitions

Post period-end, in November 2020, the Company acquired a warehouse asset in Weston-Super-Mare for a purchase price of £5.40 million.

 

Share buybacks

The Company's share capital consists of 158,774,746 Ordinary Shares, of which 350,000 are currently held by the Company as treasury shares. This reflects 350,000 Ordinary Shares having been bought back since the period end for a gross consideration of £262,995.

 

Bath Street, Glasgow

During October 2020, the Company exchanged contracts to sell its 85,000 sq ft office holding at 225 Bath Street in Glasgow city centre. The transaction is conditional upon various matters including the grant of planning permission for the development of a 480 bedroom student housing development. Sale pricing will be determined following the approval of all conditions according to an agreed matrix ranging from £8.55 to £9.30 million. Due to these conditions, there is some uncertainty as to the date of completion of the transaction, but there is considered to be a high probability that the transaction will complete within 12 months of the balance sheet date and, as such, the property has been classified as held-for-sale in these financial statements

 

 

EPRA 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.

 

MEASURE AND DEFINITION

PURPOSE

PERFORMANCE

 

 

 

1. EPRA Earnings

Earnings from operational activities.

 

A key measure of a company's underlying operating results and an indication of the extent to which current dividend payments are supported by earnings.

 

 

£5.41 million/3.41 pps

EPRA earnings for the six month period ended 30 September 2020 (six month period ended 30 September 2019: £6.63 million/4.37 pps)

2. EPRA NAV

NAV adjusted to include properties and other investment interests at fair value and to exclude certain items not expected to crystallise in a long-term investment property business.

 

Makes adjustments to IFRS NAV to provide stakeholders with the most relevant information on the fair value of the assets and liabilities within a true real estate investment company with a long-term investment strategy.

 

£147.19 million/92.70 pps EPRA NAV as at 30 September 2020 (At 31 March 2020: £147.85 million/ 93.12 pps)

3. EPRA NNNAV

EPRA NAV adjusted to include the fair values of:

(i) financial instruments;

(ii) debt; and

(iii) deferred taxes.

 

Makes adjustments to EPRA NAV to provide stakeholders with the most relevant information on the current fair value of all the assets and liabilities within a real estate company.

 

 

£147.24 million/92.73 pps EPRA NNNAV as at 30 September 2020

(At 31 March 2020: £147.86 million/93.13 pps)

4.1 EPRA NIY

Annualised rental income based on the cash rents passing at the balance sheet date, less non-recoverable property operating expenses, divided by the market value of the property, increased with (estimated) purchasers' costs.

 

 

A comparable measure for portfolio valuations. This measure should make it easier for investors to judge themselves, how the valuation of portfolio X compares with portfolio Y.

 

7.21%

EPRA NIY

as at 30 September 2020

(At 31 March 2020: 8.26%)

4.2 EPRA 'Topped-Up' NIY

This measure incorporates an adjustment to the EPRA NIY in respect of the expiration of rent-free periods (or other unexpired lease incentives such as discounted rent periods and step rents).

 

 

A comparable measure for portfolio valuations. This measure should make it easier for investors to judge themselves, how the valuation of portfolio X compares with portfolio Y.

 

8.39%

EPRA 'Topped-Up' NIY

as at 30 September 2020

(At 31 March 2020: 8.66%)

5. EPRA Vacancy

Estimated Market Rental Value ('ERV') of vacant space divided by ERV of the whole portfolio.

 

 

A "pure" (%) measure of investment property space that is vacant, based on ERV.

 

8.21%

EPRA vacancy

as at 30 September 2020

(At 31 March 2020: 3.68%)

6. EPRA Cost Ratio

Administrative and operating costs (including and excluding costs of direct vacancy) divided by gross rental income.

 

A key measure to enable meaningful measurement of the changes in a company's operating costs.

 

27.15%

EPRA Cost Ratio (including direct vacancy cost) as at

30 September 2020

(At 30 September 2019: 16.93%)

 

16.70%

EPRA Cost ratio excluding direct vacancy costs as at

30 September 2020

(At 30 September 2019: 13.76%) 

 

7. EPRA Capital Expenditure

Property which has been held at both the current and comparative balance sheet dates for which there has been no significant development.

 

Is used to illustrate change in comparable capital values.

 

£0.11 million for the period ended 30 September 2020

(31 March 2020: £0.29 million)

8. EPRA Like-for-like Rental Growth

Net income generated by assets which were held by the Company throughout both the current and comparable periods which there has been no significant development which materially impacts upon income.

 
Is used to illustrate change in comparable income values.

 

(£0.20 million)/(2.26%) for the period ended 30 September 2020 (31 March 2020: £0.29 million/1.71%)

 

 

Calculation of EPRA NIY and 'topped-up' NIY

 

 

 30 September  

2020  

£'000  

 

 

Investment property - wholly-owned

171,355  

Allowance for estimated purchasers' costs at 6.8%

11,652  

 

 

Grossed-up completed property portfolio valuation (B)

183,007  

 

 

Annualised cash passing rental income

14,144  

Property outgoings

(955) 

 

 

Annualised net rents (A)

13,189  

 

 

Rent from expiry of rent-free periods and fixed uplifts

2,169  

 

 

'Topped-up' net annualised rent (C)

  15,558  

 

 

EPRA NIY (A/B)

7.21%

 

 

EPRA 'topped-up' NIY (C/B)

8.39%

 

 

 

EPRA NIY basis of calculation

 

EPRA NIY is calculated as the annualised net rent, divided by the gross value of the completed property portfolio.

 

The valuation of grossed up completed property portfolio is determined by our external valuers as at 30 September 2020, plus an allowance for estimated purchasers' costs. Estimated purchasers' costs are determined by the relevant stamp duty liability, plus an estimate by our valuers of agent and legal fees on notional acquisition. The net rent deduction allowed for property outgoings is based on our valuers' assumptions on future recurring non-recoverable revenue expenditure.

 

In calculating the EPRA 'topped-up' NIY, the annualised net rent is increased by the total contracted rent from expiry of rent-free periods and future contracted rental uplifts.

 

 

Calculation of EPRA Vacancy Rate

 

 

30 September   

2020   

£'000   

Annualised potential rental value of vacant premises (A)

1,330   

Annualised potential rental value for the completed property portfolio (B)

16,211   

 

 

EPRA Vacancy Rate (A/B)

8.21%

 

 

Calculation EPRA Cost Ratios

 

 

30 September   

 

2020   

 

£'000   

 

 

Administrative/operating expense per IFRS income statement

2,230   

Less: Ground rent costs

(33)  

EPRA costs (including direct vacancy costs)

2,197   

 

 

Direct vacancy costs

(846)  

 

 

EPRA costs (excluding direct vacancy costs) (B)

1,351   

 

 

Gross rental income less ground rent costs (C)

8,091   

 

 

EPRA Cost Ratio (including direct vacancy costs) (A/C)

27.15%

EPRA Cost Ratio (excluding direct vacancy costs) (B/C)

16.70%

 

The Company has not capitalised any overhead or operating expenses in the accounting period 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

 

Shareholder 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. Shareholders eligible to receive dividend payments gross of tax may also download declaration forms from that website.

 

Share Information

Ordinary £0.01 Shares    158,774,746

SEDOL Number    BWD2415

ISIN Number     GB00BWD24154

Ticker/TIDM    AEWU

 

The Company's Ordinary Shares are traded on the Main Market of the London Stock Exchange.

 

Annual and Interim Reports

Copies of the Annual and Interim Reports are available from the Company's website: www.aewukreit.com.

 

Provisional Financial Calendar

 

31 March 2021

Year end

June 2021

Announcement of annual results

September 2021

Annual General Meeting

30 September 2021

Half-year end

November 2021

Announcement of interim results

 

 

Dividends

The following table summarises the dividends declared in relation to the period:

 

£

Interim dividend for the period 1 April 2020 to 30 June 2020 (payment made on 28 August 2020)

3,175,495

Interim dividend for the period 1 July 2020 to 30 September 2020 (payment to be made on 30 November 2020)

 3,175,495

Total

6,350,990

 

 

Independent Directors

Mark Burton (Non-executive Chairman)

Bimaljit ('Bim') Sandhu (Non-executive Director and Chairman of the Audit Committee)

Katrina Hart (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

London

E14 5GL

 

Valuer

Knight Frank LLP

55 Baker Street

London

W1U 8AN

 

 

Frequency of NAV publication:

The Company's NAV is released to the London Stock Exchange on a quarterly basis and is published on the Company's website.

 

National Storage Mechanism

A copy of the Interim Report will be submitted shortly to the National Storage Mechanism ('NSM') and will be available for inspection at https://www.fca.org.uk/markets/primary-markets/regulatory-disclosures/national-storage-mechanism.

 

 

LEI: 21380073LDXHV2LP5K50

 



ISIN: GB00BWD24154
Category Code: IR
TIDM: AEWU
LEI Code: 21380073LDXHV2LP5K50
OAM Categories: 1.2. Half yearly financial reports and audit reports/limited reviews
Sequence No.: 88041
EQS News ID: 1148838

 
End of Announcement EQS News Service

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