Annual Financial Report
ABERDEEN STANDARD EUROPEAN LOGISTICS INCOME PLC
Legal Entity Identifier (LEI): 213800I9IYIKKNRT3G50
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2019
1. STRATEGIC REPORT - COMPANY SUMMARY AND FINANCIAL HIGHLIGHTS
Financial Highlights as at 31 December 2019
|
Net asset value total return 1 |
Net Asset Value (€'000) |
Net asset value per share (€) |
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2019: 8.6% 2018: (3.0)% 2 |
2019: 260,277 2018: 202,073 |
2019: 1.11 2018: 1.08 |
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Share price total return 1 |
Premium/(Discount) to Net Asset Value 1 |
Ordinary dividend per share |
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2019: (7.0)% 2018: 3.0% 3 |
2019: (4.0)% 2018: 5.7% |
2019: 5.75¢ 2018: 1.7p |
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|
|
|
|
Ongoing Charges 1 |
IFRS Earnings Per Share |
Portfolio valuation (€'000) |
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2019: 1.5% 2018: 0.8% |
2019: 9.6¢ 2018: (2.5)¢ |
2019: 348,519 2018: 148,918 |
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Number of assets |
Average lease length in years |
Loan-To-Value (%) |
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2019: 13 2018: 6 |
2019: 9.7 2018: 12.3 |
2019: 28.4% 2018: n/a |
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Average building size (sqm) |
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2019: 26,421 |
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1 Alternative Performance Measurements - see glossary on page 111 of the published Annual Report for the year ended 31 December 2019.
2 Period from incorporation on 25 October 2017 to 31 December 2018.
3 Period from launch on 15 December 2017 to 31 December 2018.
2. CHAIRMAN'S STATEMENT
Dear Shareholder,
It is a pleasure to present to you the second Annual Report of the Company in respect of the year ended 31 December 2019.
However, it is sad to note that as I write this report the whole world is still in the grip of the COVID-19 pandemic which looks set to have a far-reaching impact on many people, businesses and the global economy. Consequently, the following is to a great extent a statement of historical record. Many of our tenants are involved in the logistics of deliveries whether that be the important food supply chain, pharmaceuticals or the now increasingly required direct to home delivery service.
Notwithstanding the fact that some of these businesses are working flat out, our Investment Manager's teams continue to remain in close contact with all our tenants to be ready to address concerns as and when they might arise.
Overview
The Company's successful launch in December 2017 was followed by an issue of 47,000,000 new Ordinary Shares in July 2019 which raised gross proceeds of approximately £46.4 million (equivalent to approximately €51.7 million at the then prevailing exchange rate).
The net proceeds of the second cash raise were invested in accordance with the Company's Investment Policy over the second half of 2019 in a number of warehouses in Europe helping to diversify further our asset and tenant base.
Our Investment Manager has consistently invested with the aim of creating a portfolio of assets diversified by both geography and tenant throughout Europe, predominantly targeting well-located assets in established distribution hubs and within close proximity of cities that have excellent transport links.
The Company seeks to target for an investor at launch an annual yield of 5.0 per cent. per Ordinary Share and a total Shareholder return (NAV total return) of 7.5 per cent. per annum (each in Euro terms). The longer-term nature and CPI indexation of the leases that we have signed with tenants provides for a durability of income that should support our targets once we are clear of the pandemic and its ramifications.
Results
The audited Net Asset Value ("NAV") per Share as at 31 December 2019 was €1.11 (GBp - 94.21p), compared with the NAV per Share of €1.08 (GBp - 96.7p) at the end of 2018, reflecting, with the interim dividends declared, a NAV total return of 8.6% for the year in euro terms.
The closing Ordinary Share price at 31 December 2019 was 90.40p (31 December 2018 - 102.25p), representing a discount to NAV per Share of 4.0%. At the date of this report the latest closing price was 96.1p reflecting, predominantly, the extreme volatility in global share prices and general investment uncertainty witnessed since the outbreak of the COVID-19 pandemic.
COVID-19
It is clear that many economies across Europe and underlying business sectors will be suffering from the government enforced lockdowns that we have witnessed and the massive fall in global trade seen as a consequence but we continue to work closely with our tenants in an attempt to understand issues that they may be facing and to help where possible.
The Investment Manager's asset managers have been in discussions with a number of our tenants to understand their short-term financial difficulties where raised and assess where genuine challenges exist which may be alleviated by alternative rent solutions. These include short-term deferral of payments into H2 2020 and lease extensions in combination with short rent free periods rather than any rent reductions.
At the end of April 2020 all rents due from all of our tenants for Q1 2020 had been paid in full. At that time, the Company had also received payments reflecting 67% of rents due from tenants in respect of the Q2 payment date. A further update from the Company has indicated this to have risen to 75% and this is expected to increase further to 82% in due course. Of the 18% outstanding, c.€820,000 will be deferred, with €720,000 of this due for payment by December 2020 and €100,000 due prior to June 2022. The balance together with an additional €340,000 of rent payable for 2020 to 2022 is expected to be foregone in exchange for longer lease terms currently under advanced negotiation. Lease extensions are expected to be agreed for up to five years. As a result, the Company expects that it will collect approximately 95% of Q2 rental income by December 2020.
The Board, via the Investment Manager, continues to monitor closely rent collections, cash forecasts, loan covenants and the working practices of the Company's suppliers and the impact that COVID-19 has had on all stakeholders.
Dividends
First and second interim dividends in respect of the year ended 31 December 2019 of 1.41 euro cents (equivalent to 1.27p) per Ordinary Share were paid to Shareholders on 10 July 2019 and 7 October 2019 respectively. A third interim dividend of 1.41 euro cents (equivalent to 1.27p) per Ordinary Share was declared on 19 November 2019 and paid to Shareholders on 20 December 2019. On 24 February 2020 the Board declared a fourth interim dividend of 1.41 euro cents per Ordinary Share (equivalent to 1.27p) which was paid to Shareholders on 27 March 2020, making a total of 5.64 euro cents paid in respect of the financial year under review. The equivalent sterling rate paid was 5.08p per Share.
On 26 May 2020 the Board declared a first interim dividend of 1.41 euro cents (equivalent to 1.24p) per Ordinary Share payable on 26 June 2020 to Ordinary Shareholders on the register on 5 June 2020. The Board is very aware of the part that income plays in our investors' portfolios, particularly at this time. It is encouraging to note the rent collection statistics to date and the agreements that our Investment Manager has negotiated with some of our tenants with respect to rent deferrals to later in the financial year.
Despite current levels of cash reserves the Board will be mindful of any further impact to tenants from the COVID-19 virus. It is the intention to continue to pay quarterly interim dividends in line with our policy where to do so will still give the Company sufficient financial headroom. Dividends are declared in respect of the quarters ending on the following dates: 31 March, 30 June, 30 September and 31 December in each year. The dividend target and any dividend payment may be made up of both dividend income and income which is designated as an interest distribution for UK tax purposes and therefore subject to the interest streaming regime applicable to investment trusts. Further details on this breakdown can be found on page 17 of the published Annual Report for the year ended 31 December 2019.
Portfolio
Since my last report at the half yearly stage, the portfolio has seen two new additions in the second half of 2019 in Warsaw, Poland and Coslada (Madrid), Spain for a total value of €36.7 million.
In October, the Company completed the purchase of a newly built, fully income producing logistics warehouse in Warsaw for a purchase price of €27.5 million with rental payments made in euros. This asset incorporates a cross-dock facility leased to DHL who selected this area for city distribution operations due to its proximity to the city centre. The Company also acquired an urban located cross-dock logistics warehouse in Coslada, Spain, for a value of €9.2 million, considered by the Investment Manager to be one of the best locations for last-mile logistics in Spain which has an attractive income profile and is fully leased to DHL, the world's largest logistics company, on a renewed ten year CPI indexed lease.
Since the year end, the Company completed the acquisition of an urban located logistics warehouse in Den Hoorn, the Netherlands, in January for a net value of €49.9 million. This is a newly built warehouse located between the cities of the Hague and Rotterdam with LED lighting and solar roof panels adding sustainable credentials to this investment. This last purchase takes the portfolio to a total of fourteen properties spread across five countries.
Notwithstanding the short term impact expected from the developing global economic crisis, the durability of the income that we expect to generate given the length of the indexed leases, our mix of tenants and the quality of the locations, I believe over the long term will provide Shareholders with a well-diversified portfolio which will enable the Company to meet its investment objective.
Further details on the composition of the portfolio are provided in the Investment Manager's Report.
Financing
Over the course of the year the Investment Manager's treasury team has continued to source fixed term debt from banks which is secured on certain assets or groups of assets within the portfolio. These non-recourse loans range in maturities between six and ten years with interest rates ranging between 0.94% and 1.62% per annum.
As part of the acquisition of the property in Den Hoorn, the Company finalised and drew down long term financing secured on the properties at Den Hoorn and Zeewolde in the Netherlands. The secured facility was arranged with Berlin HYP AG for a total value of €35.7 million at an all-in interest rate of 1.25% and fixed for an eight year term, bringing asset level gearing close to 35% of GAV which remains the Company's target level.
The current average interest rate on the total fixed term debt arrangements of €144.6 million is 1.4%. The Board continues to keep the level of borrowings under review with the aggregate borrowings always subject to the absolute maximum set at 50 per cent. of gross assets, calculated at the time of drawdown for a property purchase. The actual level of gearing may fluctuate over the Company's life as and when new assets are acquired or whilst short term asset management initiatives are being undertaken. Banking covenants are reviewed by the Investment Manager on a regular basis particularly with the stresses currently being witnessed in other real estate sectors due to COVID-19.
Governance
The Company is a member of the Association of Investment Companies and seeks to follow best practice regarding appropriate disclosure.
In accordance with good governance, two Directors met with a number of our Shareholders during the year to hear their views on the Company and its performance since launch. Directors are available to meet with investors to discuss the Company in more detail throughout the year and may be contacted through the Company Secretary.
The Board undertook a site visit during the year to view three of the properties owned in the Netherlands, met with tenants where possible and members of local staff and advisers of the Investment Manager.
Following best practice, the whole Board is standing for re-election at the forthcoming AGM and further details on each Director may be found on pages 44 and 45 of the published Annual Report for the year ended 31 December 2019.
Annual General Meeting
It is currently the Board's intention to hold the Company's Annual General Meeting in London on 30 June 2020 at 2:00 p.m. at the offices of Aberdeen Standard Investments, Bow Bells House, 1 Bread Street, London EC4M 9HH.
The formal Notice of AGM may be found from page 115 of the published Annual Report for the year ended 31 December 2019.
On 23 March 2020, the UK Government announced compulsory Stay at Home Measures to manage the COVID-19 pandemic in the UK. These measures provided, among other things, that public gatherings were not permitted and that leaving one's home should only be for essential purposes. Whilst there has been some limited relaxation of these restrictions, it is clear that social distancing will be required for the foreseeable future and that, if possible, people should stay at home. As the safety, security and health of the Company's Shareholders, their guests and our advisers, including the Investment Manager's personnel, is of paramount importance the Board is changing how the AGM will be held this year. Whilst the AGM will be held at the offices of Aberdeen Standard Investments in London, it will be functional only and follow the minimum legal requirements for an AGM. Only the formal business set out in the Notice will be considered, with no attendance by the Investment Manager and no refreshments. As there is a strong possibility that Government guidance in June will continue to discourage public gatherings, Shareholders are strongly discouraged from attending the meeting and indeed entry may be refused if Government guidance so requires. Arrangements will be made by the Company to ensure that a minimum number of Shareholders required to form a quorum will attend the meeting in order that the meeting may proceed.
A presentation from the Investment Manager, along with the AGM results, will be made available to shareholders on the Company's website shortly after the AGM.
In taking these steps, the Board is trying to balance the requirement under company law to hold an AGM so that the matters that it needs to seek Shareholder approval for can be considered, whilst operating in a rapidly changing environment where public gatherings are restricted. The Board strongly encourages all Shareholders to exercise their votes in respect of the meeting in advance by completing the enclosed form of proxy, or letter of direction for those who hold shares through the Aberdeen Standard Investments savings plans. This should ensure that your votes are registered in the event that physical attendance at the AGM is not possible or restricted.
The proposed resolutions are explained fully in the Directors' Report on pages 51 to 52 of the published Annual Report for the year ended 31 December 2019. We always welcome questions from our Shareholders at the AGM but this year, given the format and the prevailing circumstances, we would ask Shareholders to submit their questions to the Board prior to the meeting. The Board and/or Investment Manager will respond to all such questions received either before or after the AGM. You may submit questions on the Company, the Annual Report and the Notice of AGM in advance to European.Logistics@aberdeenstandard.com
The situation in relation to COVID-19 continues to evolve and the Company will update Shareholders on any changes to the above arrangements for the AGM through its website at www.eurologisticsincome.co.uk . Shareholders are advised to check the Company's website for updates. We trust that Shareholders will be understanding and supportive of this approach.
Outlook
Notwithstanding the unprecedented economic environment we are now operating within, the Board and Investment Manager continue to believe that logistics will remain one of the most favoured sectors for investors in the coming years. The logistics industry is experiencing unprecedented disruption as a result of systemic changes to the way global economies are functioning and these challenges are manifesting themselves in different ways across different sectors. So far, logistics assets have benefited from additional occupier demand arising from necessary supply chain restructuring.
New technology is creating challenges for supply chains as clients demand frequency and more complexity whilst the nature of ecommerce, where Europe has lagged the UK, has increasingly required operators to adapt faster to future shifts in consumption, particularly so since the start of European lockdowns Our Investment Manager has built a portfolio of fourteen properties, predominantly around 30,000 square metres in size located close to cities, airports and major motorway routes. These urban fringe facilities while structured for current tenants tend to be in the more liquid part of the sector where reconfiguration is easier and tenant demand strongest helping to provide facilities with optionality at the maturity of a lease. Leasing 'tension' has been robust with land values under pressure from competing uses and with income growth prospects potentially stronger than for ultra big-boxes where risk is higher at maturity of the lease as the number of potential occupiers are limited.
We continue to seek to understand our tenants' requirements and the Investment Manager undertakes a regular tenant survey whilst asset managers maintain crucial communications. The implementation of green leases is an area where the Investment Manager is seeking to obtain volumetric usage data on energy use, waste disposal and water consumption in the future for further reporting and possible cost savings. ESG is embedded within the Investment Manager's investment process and although many of our assets are recently built, a programme of works is being followed to enhance areas where improvements can be made. The addition of solar panels for green energy and other initiatives should enhance our scoring for the next GRESB Survey and benefit tenant relationships as businesses become far more aware of sustainability issues. Now more than ever the Investment Manager's people on the ground act as an important conduit to our tenants, seeking to maintain clear communication links to understand how they are operating, their concerns and their requirements for the future.
Notwithstanding the troubling times that we find ourselves in, many of our tenants' businesses are well positioned in areas which remain essential to the everyday operation of an economy. E-commerce and the move to on-line shopping and delivery may well be bolstered by the impact of COVID-19 when recovery comes. Despite the disruption this is causing, the fundamentals for investment in logistics real estate assets remains strong.
Further details about the Company and the assets in which it is invested are available together with the 2019 prospectus, monthly factsheet and Company announcements on our website at: www.eurologisticsincome.co.uk
Tony Roper
Chairman 27 May 2020
3. INVESTMENT MANAGER'S REVIEW
Our Portfolio
A diversified portfolio with modern specifications in established logistics locations
Setting aside the unprecedented economic environment we now find ourselves in post year end, in a little over 2 years since the launch of the Company we have invested €400 million in the purchase of 14 warehouses across 5 countries in Europe1. Durability of the income stream has been a key focus for this income driven strategy which the Investment Manager believes can only be achieved by a selective approach targeting the more liquid 'mid-box' segment of the logistics market with a preference for warehouses with modern specifications in established locations. We have now built up exposure in the urban segment of the logistics market where there are high growth expectations related to the scaling up of e-commerce and where many parcel delivery specialists are seeking to get closer to their end consumers.
The lockdowns experienced across Europe can only have encouraged this increasing trend of change in consumer spending.
ASI's local transaction managers have sourced quality assets, all fully leased with long indexed leases to tenants in line with the Company's investment policy giving confidence that the Company should be well positioned to deliver investors' income and capital growth expectations over the long term.
ASI has local teams on the ground that know the market ASI is the second largest real estate investor in Europe with currently around €40 billion of assets under management. The Group has local offices across Europe, 25 in total of which 11 are real estate hubs. The property business is a local business. Speaking the local language, having a network with the main participants and understanding the merits of the market is essential to finding the right warehouses and paying the right price. ASI's access to deals is in part demonstrated by the fact that the Investment Manager has closed 9 out of 14 transactions for properties within the portfolio on an 'off-market' basis, meaning direct contact with the seller without any further competition from other potential buyers. ASI's strong reputation as a serious real estate investor with an in-depth knowledge of complex transactions is extremely helpful in the often competitive logistics market that certainly existed before COVID-19. With a quality portfolio assembled, it is extremely important, even more so in these challenging times, to build and maintain relationships with our tenants and understand their businesses and requirements, whilst keeping our buildings in excellent condition and adding value where we can. This is the main responsibility of our local asset managers, of which there are over 80 across Europe. The fact that we have local ASI transaction and asset managers across Europe is what helps to set us apart from many other investors.
Since the launch of the Company, the team has investigated more than 170 investment opportunities across Europe representing a total investment value of €9.1 billion resulting in 37 bids (€1.5 billion) of which 19 were accepted by the vendors resulting in an exclusive position and start of the due diligence process finally resulting in 5 rejections and 14 deals closed.
Rejecting a deal during due diligence is never ideal but it is a potential outcome of such in-depth analysis on the legal, technical, fiscal and commercial aspects of a transaction so that we fully understand all the risks we could be taking through the addition of an asset to the portfolio. On behalf of the Company the Investment Manager has issued or considered bids in: Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, the Netherlands, Norway, Poland, Portugal, Slovenia, Spain and Sweden, once again illustrating the access to a wide range of markets through local teams.
A well-diversified, quality portfolio with long indexed leases. The team at ASI are stock-pickers, building a high conviction portfolio from the bottom-up, with buildings considered to deliver stable and growing cash-flows in normal market conditions. This does not mean that we do not take top-down views on markets. Since launch, our focus has been very much on the European Continent and not the UK. There are good reasons for this. First of all, the UK was more advanced in the cycle with prime yields already close to 4% in 2018 against approximately 5%+ for prime stock on the Continent. Secondly, financing costs were more attractive on the Continent where German banks have been very active. All-in costs for a 7 year loan facility could easily cost 100 bps less on the Continent, creating a wider yield spread with the property yield. And lastly, a standard lease agreement on the Continent typically has full CPI indexation of the annual rent providing an inflation hedge.
A key focus for the Company has been the durability of income streams. This means we are not buying bespoke warehouses with long leases in solitary locations. We have invested in warehouses that will have a second life thanks to modern building specifications in terms of free height, floor load capacity, number of loading doors and yard depth. All of these features are highly relevant for logistics operators nowadays. Also all warehouses are located alongside main transportation corridors, or close to large population centres or airports, where logistics activity can be found, making these very liquid investments, both from an occupier and an investor perspective.
1 Including Den Hoorn in the Netherlands which closed in January 2020 for a net purchase price of €49.9 million.
We have built a well-diversified property portfolio with 14 buildings in 5 European countries and 33 tenants creating good risk diversification. Eight buildings were newly constructed and have been erected between 2018 and 2020 showing the low average age of the portfolio and also highlighting the good relationships we have with project developers. Average lease length is almost 10 years all with indexed leases to tenants.
As at 31 December 2019 The Netherlands is the largest market in the portfolio with an allocation of 47%, followed by France (18%), Germany (15%), Poland (13%) and Spain (7%). The high allocation to the Netherlands is a very conscious decision as the Netherlands holds a strong position as gateway to the Western Europe market with excellent road connections to Schiphol airport and the port of Rotterdam, the largest port in Europe. The Investment Manager is in discussions with the developer of the Zeewolde property with regards a small flooring defect in relation to the depth of heating pipes where racking has been installed. The tenant's operations continue uninterrupted and we expect a satisfactory outcome to these discussions. In Avignon temporary chilling equipment has been installed for the tenant whilst the developer resolves an issue around compliance with local regulations. No liability falls upon the Company with any additional costs deemed payable by the developer.
Performance over the year
With the capital raise undertaken during 2019 and recent strong valuation uplifts seen for many of our properties, we ended the year with a property portfolio valued at €348.5 million with total assets of €383.0 million. This excludes the acquisition of the Den Hoorn property which completed in January 2020. The year-end net asset value of €1.11 per share, when accounting for dividends paid and reinvested, on a total return basis, reflects a total return for the year of 8.6% per share in euro terms. It was pleasing to see the strong uplift in the portfolio valuation over the final quarter of 2019. The 4% quarterly valuation 2 Including Den Hoorn in the Netherlands which closed in January 2020 for a net purchase price of €49.9 million.
increase in Q4 illustrated the continued supply and demand imbalance for real estate within key European logistics hubs and highlighted the level of investor demand within this growing sector. While largely driven by a contraction in yields, an increase in market rents, particularly in Germany where Erlensee and Flörsheim performed strongly, was also a key driver in the portfolio valuation uplift.
Durable income streams driving future performance
All properties held within the portfolio were income producing at the year end with long leases. This includes a rental guarantee in respect of the office space at Ede for a value of €257,000 per annum available until July 2023 while the Investment Manager seeks a suitable tenant.
The weighted average unexpired lease term is 9.7 years excluding breaks and 8.8 years if including breaks. Long leases mean we are able to benefit from yearly indexation for a longer period of time. There are local differences with indexation though. In the UK, typically, rents may be reviewed regularly or increased at the maturity of a lease by negotiation whereas on the Continent leases are predominantly indexed each year using the Consumer Price Index (CPI) as a basis. There can be local differences, for example the French L'indice des Loyers des Activités Tertiaries (ILAT) is an index based on a combination of construction costs, CPI and GDP growth. In Germany, the indexation of rents is only triggered once the cumulative CPI indexation rate of the preceding years exceeds a certain threshold which is then implemented by a certain portion of that threshold. Part of ASI's due diligence process when considering a purchase is a check on the financial strength of the tenants to ensure, as much as possible, that a tenant is able to pay the rent for the foreseeable future. ASI has used the Dun & Bradstreet Failure Scoring system as the main source to check on tenants' solvency and as a relative measure of risk. However, we can also leverage off of the knowledge of ASI's financial equity analysts if there are reasons for a more in-depth analysis. The average credit rating at the year end was 78 out of 100 points and could then have been considered as 'strong'. Of course since the year end, and with the onset of the COVID-19 pandemic, many businesses have been required to close or scale back operations. During this difficult period we are keeping in close contact with our tenants seeking to better understand the impact to their businesses and how we may work together to address their concerns and provide support.
Prior to the emergence of COVID-19, there was an undersupply situation across Europe with high demand for modern logistics space and a lack of sufficient new builds. At the same time, construction costs and land prices were increasing all resulting in upward pressure on rents. The Company had started to see signs of this in the portfolio, reflected more recently for example in 4% higher market rents applied by our valuation adviser for our German assets.
Top 10 tenants based on current rents
|
Tenant |
Property |
Contracted Rent (€000 p.a.) |
Contracted Rent (%) |
WAULT (years)2 |
|
|
1 2 3 4 5 6 7 8 9 10 |
Biocoop Combilo Kruidvat VSH Fittings Office Depot JCL Decathlon Orangeworks Bergler Lynka |
Avignon (Noves) Waddinxveen Ede Zeewolde Meung Sur Loire 's Heerenberg Leon Oss Erlensee Krakow |
2,311 1,814 1,597 1,532 1,447 1,431 1,054 840 504 504 |
12 10 8 8 8 8 6 4 3 3 |
10.6 13.9 8.6 14.5 6.8 12.0 9.2 14.5 9.8 7.9 |
|
|
Subtotal |
|
13,034 |
70 |
11.0 |
|
|
Other tenants |
|
6,005 |
30 |
6.7 |
|
|
Portfolio at 31/12/2019 |
|
19,039 |
100 |
9.7 |
|
|
Van der Helm |
Den Hoorn |
2,808 |
|
10.0 |
|
|
|
|
|
||
|
Portfolio including Den Hoorn purchase |
21,847 |
|
9.7 |
||
Modest gearing with attractive all-in costs
Financing costs on the Continent remain very attractive, particularly when compared to the UK. The Company has used gearing in those markets where all-in loan costs are lowest, such as France, Germany and the Netherlands, where German banks have been very active. All-in costs of the loan portfolio is currently 1.4% with an average loan duration of 7.3 years of which 6.3 years are remaining.
The Company's stated Investment Policy targets a long term target Loan to Value ratio (LTV) of 35% at asset level. This may fluctuate through the use of shorter term loan facilities and in advance of cash raises allowing the Company to commit to further opportunities as they arise.
Property Portfolio as at 31 December 2019
As at the year end the current portfolio LTV was 28.4%, but including the Den Hoorn purchase in January 2020 it will be close to 35%. The maximum LTV stated in the original prospectus is 50% at the time of a specific drawdown. On a temporary basis the Company's LTV could rise above 35% with the use of a credit line which would allow us to buy a warehouse or implement an asset-management initiative, typically ahead of a capital raise in order to reduce a potential cash-drag. The Company has been in discussions with a range of lenders considering a small Group level loan facility that would enable the Investment Manager to undertake further asset purchases or asset management initiatives.
|
Country |
Location |
SPA signed |
Closing |
Built |
WAULT (years)1 |
% of portfolio2 |
|
Germany |
Flörsheim |
Dec-17 |
Feb-18 |
2015 |
8.2 |
5.9 |
|
France |
Avignon |
Jul-18 |
Oct-18 |
2018 |
10.4 |
11.8 |
|
Netherlands |
Ede |
Aug-18 |
Aug-18 |
1999/ 2005 |
7.9 |
7.0 |
|
Netherlands |
Oss (forward funding) |
Oct-18 |
Jul-19 |
2019 |
14.5 |
4.2 |
|
Netherlands |
Zeewolde (forward funding) |
Nov-18 |
Jun-19 |
2019 |
14.5 |
7.5 |
|
Netherlands |
Waddinxveen |
Nov-18 |
Nov-18 |
1983/ 1994/ |
13.9 |
8.8 |
|
|
|
|
|
2002/ 2018 |
|
|
|
Germany |
Erlensee |
Jun-18 |
Feb-19 |
2018 |
8.3 |
9.4 |
|
Spain |
Leon |
Jul-18 |
Mar-19 |
2019 |
9.2 |
4.4 |
|
France |
Meung-sur-Loire |
Nov-18 |
Feb-19 |
2004 |
6.8 |
6.3 |
|
Poland |
Krakow |
Feb-19 |
Feb-19 |
2018 |
4.8 |
6.5 |
|
Netherlands |
's Heerenberg |
Jun-19 |
Jul-19 |
2009/2011 |
12.0 |
6.4 |
|
Poland |
Warsaw |
Sep-19 |
Oct-19 |
2019 |
7.7 |
6.9 |
|
Spain |
Madrid |
Dec-19 |
Dec-19 |
1999 |
10.0 |
2.5 |
|
TOTAL (1) |
|
|
|
|
9.7 |
87.5 |
Property acquired post 31 December 2019
|
Country |
Location |
SPA signed |
Closing |
Built |
WAULT (years)1 |
% of portfolio2 |
|
Netherlands |
Den Hoorn |
Dec-19 |
Jan-20 |
2020 |
10.0 |
12.5 |
|
TOTAL (2) |
|
|
|
|
10.0 |
12.5 |
|
TOTAL (1+2) |
|
|
|
|
9.7 |
100.0 |
1 Weighted average unexpired lease term excluding break options.
2 Relative to Q4 valuations and net purchase prices of asset with signed SPA.
COVID-19 and Outlook
As mentioned in the Chairman's Statement, the Investment Manager and its people on the ground continue to maintain close and regular contact with our tenants in an attempt to support any of those that may be struggling over the short term due to Europe wide lockdowns and business interruption. In the main discussions have reached their conclusion and where rental deferrals have been agreed the great proportion of these are expected to be deferred to later in 2020. Updates issued by the Company in April and May provide detail to investors. Where our tenants have requested rent free periods we have negotiated extended lease terms in consideration of immediate reductions which provides greater certainty for the longer term.
Despite the obvious short term disruption caused by the COVID-19 pandemic, as countries and their economies start to get back to work we still view the logistics sector as being one that will perform well and attract continued investment. New people are adopting ecommerce for every day purchases, particularly older generations. Growing confidence and familiarity with this form of retailing is likely to accelerate the growth in the share of spending through ecommerce platforms which will drive the demand for logistics. Another demand driver is rising inventory levels as companies experience elevated risks to their supply chains whilst trying to make lines more resilient to shocks and, for the same reason, the onshoring of activities bringing production back closer to home and resulting in increased manufacturing locations. Despite short term challenges experienced by tenants, we expect the logistics market to perform well in the mid-term thanks to strong demand drivers in a market that is heavily under-supplied across Europe. Core and Core+ sustainable strategies like this it is expected will be most resilient as businesses alter their supply chains and increase technology in response to changing consumer demands.
Aberdeen Standard Investments Ireland Limited
27 May 2020
4. STRATEGIC REPORT - OVERVIEW OF STRATEGY
The Company
The Company is a UK investment trust with a premium listing on the Main Market of the London Stock Exchange. The Company invests in European logistics real estate to achieve its investment objective noted below.
The Company was incorporated in England and Wales on 25 October 2017 with registered number 11032222 and launched on 15 December 2017.
Investment Objective
The Company aims to provide a regular and attractive level of income return together with the potential for long term income and capital growth from investing in high quality European logistics real estate.
Investment Policy
The Company aims to deliver the investment objective through investment in, and management of, a diversified portfolio of ''big box'' logistics warehouses and ''last mile'' urban logistics assets in Europe.
The Company invests in a portfolio of assets diversified by both geography and tenant throughout Europe, predominantly targeting well-located assets at established distribution hubs and within population centres.
In particular, the Investment Manager seeks to identify assets benefitting from long-term, index-linked, leases as well as those which may benefit from structural change, and will take into account several factors, including but not limited to:
- the property characteristics (such as location, building quality, scale, transportation links, workforce availability and operational efficiencies);
- the terms of the lease (focusing on duration, inflation-linked terms, the basis for rent reviews and the potential for growth in rental income); and
- the strength of the tenant's financial covenant.
The Company may forward fund the development of, or commit to the forward purchase of, new assets when the Investment Manager believes that to do so would enhance returns for shareholders and/or secure an asset at an attractive yield. The Company intends that forward funded or forward purchased assets will be wholly or predominantly pre-let at the time the investments are committed to.
Diversification of Risk
The Company manages its assets at all times in a manner which is consistent with the spreading of investment risk. The following investment limits and restrictions apply to the Company and its business which, where appropriate, will be measured at the time of investment and once the Company is fully invested:
- the Company only invests in assets located in Europe;
- no more than 50 per cent. of Gross Assets may be concentrated in a single country;
- no single asset may represent more than 20 per cent. of Gross Assets;
- forward funded commitments must be predominantly pre-let and the Company's overall exposure to forward funded commitments is limited to 20 per cent. of Gross Assets;
- the Company's maximum exposure to any single developer is limited to 20 per cent. of Gross Assets;
- the Company will not invest in other closed-ended investment companies;
- the Company may only invest in assets with tenants which have been classified by the Investment Manager's investment process as having strong financial covenants; and
- no single tenant may represent more than 20 per cent. of the Company's annual gross income measured annually.
The Company is not required to dispose of any asset or to rebalance the Portfolio as a result of a change in the respective valuations of its assets.
The Company conducts its affairs so as to qualify as an investment trust for the purposes of section 1158 of the Corporation Tax Act 2010.
Borrowing and Gearing
The Company employs gearing with the objective of improving shareholder returns. Debt is typically secured at the asset level and potentially at the Company level with or without a charge over some or all of the Company's assets, depending on the optimal structure for the Company and having consideration to key metrics including lender diversity, cost of debt, debt type and maturity profiles.
Borrowings are typically non-recourse and secured against individual assets or groups of assets and the aggregate borrowings will always be subject to an absolute maximum, calculated at the time of drawdown for a property purchase, of 50 per cent. of Gross Assets. Where borrowings are secured against a group of assets, such group of assets shall not exceed 25 per cent. of Gross Assets in order to ensure that investment risk remains suitably spread.
The Board has established gearing guidelines for the Alternative Investment Fund Manager ("AIFM") in order to maintain an appropriate level and structure of gearing within the parameters set out above. Under these guidelines, the Investment Manager seeks to maintain aggregate asset level borrowings at or around 35% of Gross Asset Value. These limits may be exceeded from time to time particularly through the use of short term financing facilities as the Investment Manager seeks to manage certain aspects of the portfolio, including, for example, building extensions. These limits may be exceeded in the short term from time to time.
The Board will keep the level of borrowings under review. In the event of a breach of the investment guidelines and restrictions set out above, the AIFM will inform the Board upon becoming aware of the same, and if the Board considers the breach to be material, notification will be made to a Regulatory Information Service and the AIFM will look to resolve the breach with the agreement of the Board. The Directors may require that the Company's assets are managed with the objective of bringing borrowings within the appropriate limit while taking due account of the interests of shareholders. Accordingly, corrective measures may not have to be taken immediately if this would be detrimental to shareholder interests.
Any material change to the Company's investment policy set out above will require the approval of shareholders by way of an ordinary resolution at a general meeting and the approval of the Financial Conduct Authority. Non-material changes to the investment policy may be approved by the Board.
Comparative Index
The Company does not have a benchmark.
Duration
Although the Company does not have a fixed life, under the Company's articles of association the Directors are required to propose an ordinary resolution for the continuation of the Company at the Annual General Meeting to be held in 2025 and then every third year thereafter.
Manager
Under the terms of the Management Agreement, the Company has appointed Aberdeen Standard Fund Managers Limited as the Company's alternative investment fund manager for the purposes of the AIFM Rules. The AIFM has delegated portfolio management to the Amsterdam Branch of Aberdeen Standard Investments Ireland Limited as Investment Manager.
Pursuant to the terms of the Management Agreement, the AIFM is responsible for portfolio and risk management on behalf of the Company and will carry out the on-going oversight functions and supervision and ensure compliance with the applicable requirements of the AIFM Rules. The AIFM and the Investment Manager are both legally and operationally independent of the Company.
Dividend Policy
Subject to compliance with all legal requirements the Company intends to pay interim Sterling dividends on a quarterly basis. The Company will declare dividends in Euros, but shareholders will receive dividend payments in Sterling. The date on which the Euro/Sterling exchange rate is set will be announced at the time the dividend is declared. Distributions made by the Company may take the form of either dividend income or ''qualifying interest income'' which may be designated as interest distributions for UK tax purposes.
The Company targets an annual yield of 5.0 per cent. per Ordinary Share for an investor at launch whilst continuing to aim for a total NAV return of 7.5 per cent. per annum (each in Euro terms).
Key Performance Indicators (KPIs)
The Board uses a number of financial performance measures to assess the Company's success in achieving its objective and to determine the progress of the Company in pursuing its Investment Policy. The main KPIs identified by the Board in relation to the Company, which are considered at each Board meeting, are as follows:
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KPI |
Description |
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NAV Return (per share) 1 |
The Board considers the Company's NAV total return to be the best indicator of performance over time and is therefore the main indicator of performance used by the Board. Performance for the year and since inception is set out on page 17 of the published Annual Report for the year ended 31 December 2019. The Company is targeting, for an investor in the Company at launch, a total NAV return of 7.5 per cent. per annum (in € terms).
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Share Price (on a total return basis) 1 |
The Board also monitors the price at which the Company's shares trade on a total return basis over time. A graph showing the share price performance is shown on page 18 of the published Annual Report for the year ended 31 December 2019.
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(Discount)/ Premium 1 |
The (discount)/premium relative to the NAV per share represented by the share price is closely monitored by the Board. A graph showing the share price (discount)/premium relative to the NAV is shown on page 18 of the published Annual Report for the year ended 31 December 2019. |
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Dividend |
The Board's aim is to pay a regular quarterly dividend enabling shareholders to rely on a consistent stream of income. Dividends paid are set out on page 17 of the published Annual Report for the year ended 31 December 2019. The Company is targeting, for an investor in the Company at launch, an annual dividend yield of 5.0 per cent. per Ordinary Share (in € terms).
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Ongoing Charges Ration ("OCR") 1 |
The OCR is the ratio of expenses as a percentage of average daily shareholders' funds calculated in accordance with the industry standard. The Board reviews the OCR regularly as part of its review of all expenses. The aim is to ensure that the Company remains competitive and is able to deliver on its yield target to Shareholders. The Company's OCR is disclosed on page 17 of the published Annual Report for the year ended 31 December 2019.
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1 Alternative Performance Measurements - see glossary on page 111 of the published Annual Report for the year ended 31 December 2019.
Principal Risks and Uncertainties
There are a number of risks which, if realised, could have a material adverse effect on the Company and its financial condition, performance and prospects. The Board has carried out a robust assessment of the principal risks set out in the table below and overleaf together with a description of the mitigating actions taken by the Board. The Board confirms that it has a process in place for regularly reviewing emerging risks that may affect the Company in the future. The principal risks associated with an investment in the Company's shares can be found in the Company's latest Prospectus dated 5 July 2019, published on the Company's website. The Board reviews the risks and uncertainties faced by the Company regularly. The new, key risk, that has emerged for the Company since the end of the period under review is the outbreak of the global COVID-19 pandemic which has disrupted businesses and contributed to stock market volatility from which the Company has not been immune. The longer term effects of the virus are unknown.
The Board has sought assurances from its key service providers, including the Investment Manager, that they are each invoking business continuity procedures and appropriate contingency arrangements to ensure that they are able to continue to meet their contractual obligations to the Company. In all other respects, the Company's principal risks and uncertainties have not changed materially since the date of the Annual Report and are not expected to change materially for the current financial year.
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Description |
Mitigating Action |
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Strategic Risk: Strategic Objectives and Performance The Company's strategic objectives and performance, both absolute and relative, become unattractive to investors leading a widening of the discount, potential hostile shareholder actions and the Board fails to adapt the strategy and/or respond to investor demand. |
- The Company's strategy and objectives are regularly reviewed by Board to ensure they remain appropriate and effective. - The Board receives regular presentations on the economy and also the property market to identify structural shifts and threats so that the strategy can be adapted if necessary. - There is regular contact with shareholders both through the Investment Manager and the broker with additional direct meetings undertaken by the Chairman and other directors. - Board reports are prepared by the Investment Manager detailing performance, NAV return and share price analysis versus peers. - Cash flow projections are prepared by the Investment Manager and reviewed quarterly by the Board. - Shareholder/market reaction to Company announcements is monitored. |
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Investment and Asset Management Risk: Investment Strategy Poorly judged investment strategy, regional allocation, use of gearing, inability to deploy capital and the mis-timing of disposals and acquisitions, resulting in poor investment returns.
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- ASI has real estate research teams which provide performance forecasts for different sectors and regions. - There is a team of experienced portfolio managers who have detailed knowledge of the markets in which they operate. - ASI has a detailed investment process for both acquisitions and disposals that require to be signed off internally before the Board reviews any final decision. - The Board is very experienced with certain Directors having a knowledge of property markets.
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Investment and Asset Management Risk: Developing and refurbishing property Increased construction costs, construction defects, delays, contractor failure, lack of development permits, environmental and third party damage can all impact the resulting capital value from investments.
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- ASI has experienced investment managers with extensive development knowledge with in-depth research undertaken on each acquisition/ development - Development contracts are negotiated by experienced teams supported by approved lawyers. - Due diligence is undertaken on developers including credit checks and current pipelines. - Construction and risk insurance checked. - Post completion the developer is responsible for defects and monies are held in escrow for a period of time after handover. |
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Investment and Asset Management Risk: Health and Safety Failure to identify and mitigate major health & safety issues or to react effectively to an event leading to injury, loss of life, litigation and any ensuing financial and reputational impact.
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- For new properties health and safety is included as a key part of due diligence. - Asset managers visit buildings on a regular basis. - Property managers are appointed by ASI to monitor health & safety in each building and reports are made to the asset managers on a monthly basis. - Asset managers visit each building at least twice a year. - Tenants are responsible for day to day operations of the properties. |
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Investment and Asset Management Risk: Environment Properties could be negatively impacted • by hazardous materials (for example asbestos or other ground contamination) or an extreme environmental event (e.g. flooding) or the tenants' own operating activities could create environmental damage. Failure to achieve environmental targets could adversely affect the Company's reputation and result in penalties and increased costs and reduced investor demand. Legislative changes relating to sustainability could affect the viability of asset management initiatives.
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- The Investment Manager undertakes in depth research on each property acquisition with environmental surveys and considers its impact on the environment and local communities. - The Investment Manager has adopted a thorough environmental policy which is applied to all properties in the portfolio. - Experienced advisers on environmental, social and governance matters are consulted externally where required |
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Financial Risks Macroeconomic Macroeconomic changes (e.g. levels of GDP, employment, inflation, interest rate and FX movements), political changes (e.g. new legislation) or structural changes (e.g. new technology or demographics) negatively impact commercial property values and the underlying businesses of tenants (market risk and credit risk). Falls in the value of investments could result in breaches of loan covenants and solvency issues.
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- ASI Research teams take into account macroeconomic conditions when collating forecasts. This research is fed into Investment Manager decisions on purchases/sales and regional allocations. - The portfolio is EU based and diversified across a number of different countries and also has a diverse tenant base seeking to minimise risk concentration. - There is a wide range of lease expiry dates within the portfolio in order to minimise re-letting risk. - The Company has no exposure to speculative development and forward funding is only undertaken where the development is predominantly pre-let. - Rigorous portfolio reviews are undertaken by the Investment Manager and presented to the Board on a regular basis. - Annual asset management plans are developed for each property and individual investment decisions are subject to robust risk versus return evaluation and approval.
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Financial Risks: Gearing Gearing risk - an inappropriate level ofgearing, magnifying investment losses in a declining market, could result in breaches of loan covenants and threaten the Company's liquidity and solvency. An inability to secure adequate borrowing with appropriate tenor and competitive rates could also negatively impact the Company. |
- Regular covenant reporting to banks is undertaken as required. - The gearing target is set at an indicative 35% asset level limit and an absolute Company limit of 50%. - The Company's diversified European logistics portfolio, underpinned by its tenant base, should provide sufficient value and income in a challenging market to meet the Company's future liabilities. - The portfolio has attracted very competitive terms and interest rates from lenders for the Company's loan facilities. - The Investment Manager has relationships with multiple funders and wide access to different sources of funding on both a fixed and variable basis. - Financial modelling is undertaken and stress tested annually as part of the Company's viability assessment and whenever new debt facilities are being considered. - Loan covenants are continually monitored and reported to the Board on a quarterly basis and also reviewed as part of the disposal process of any secured property. |
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Financial Risks: Liquidity Risk and FX Risk The inability to dispose of property assets in order to meet financial commitments of the Company or obtain funds when required for asset acquisition or payment of expenses or dividends. Movements in foreign exchange and interest rates or other external events could affect the ability of the Company to pay its dividends.
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- The diversified portfolio is geared towards a favoured sector. - A cash cushion is maintained and an overdraft facility is currently in place. - Investment is focused on mid-sized properties which is considered the more liquid part of the sector.
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Financial Risks: Credit Risk
Credit Risk - the risk that the counterparty will be unable or unwilling to meet a commitment entered into by the Group: failure of a tenant to pay rent or failure of a deposit taker, future lender or a current exchange rate swap counterparty . |
- The property portfolio has a balanced mix of generally good quality tenants and reflects diversity across business sectors. - Rigorous due diligence is performed on all prospective tenants and their financial performance continues to be monitored during their lease. - Rent collection from tenants is closely monitored so that early warning signs might be detected. - Deposits are spread across various ASI approved banks and AAA rated liquidity funds. - The assets of the Company are denominated in a non-sterling currency, predominantly the Euro. No currency hedging is planned for the capital, but the Board periodically considers the hedging of dividend payments having regard to availability and cost. |
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Financial Risks: Insufficient Income Generation Insufficient income generation due to macro-economic factors including the current COVID-19 pandemic, and/or due to inadequate asset management resulting in long voids or rent arrears or insufficient return on cash; dividend cover falls to a level whereby the dividend needs to be cut and/ or the Company becomes unattractive to investors. Level of ongoing charges becomes excessive.
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- At regular Board meetings forecast dividend cover is considered. There is regular contact with the broker and shareholders to ascertain, where possible, views on dividend cover. The Investment Manager seeks a good mix of tenants in properties. - A review of tenant risk and profile is undertaken using, for example, the Dun & Bradstreet Failure Scoring method and tenant covenants are thoroughly considered before a lease is granted. - The ASI team consists of asset managers on the ground who undertake asset management reviews and implementation and there is a detailed approval process within ASI for lettings.
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Regulatory Risks: Compliance The regulatory, legal and tax environment in which the Company's assets are located is subject to change and could lead to a sub-optimal corporate structure and result in increased tax charges or penalties. |
- The Company has an experienced Company Secretary who will advise on changes once any new proposals are published. There is regular contact with tax advisers in relation to tax computations and transfer pricing. - Directors receive regular updates on relevant regulatory changes from the Company's professional advisers. - The highest corporate governance standards are required from all key service providers and their performance is reviewed annually by the Management Engagement Committee. |
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Operational Risks: Service Providers Poor performance/inadequate procedures at service providers leads to error, fraud, non-compliance with contractual agreements and/or with relevant legislation or the production of inaccurate or insufficient information for the Company (NAV, Board Reports, Regulatory Reporting) or loss of regulatory authorisation. Key service providers include the Manager, Company Secretary, the Depositary, the Custodian, the managing agents and the Company's Registrar.
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- ASI have an experienced Fund Manager and Property Administration Team. - The Company has engaged an experienced registrar: Equiniti is a reputable worldwide organisation. - All service providers have a strong control culture that is regularly monitored. - ASI aim to meet all service providers once a year and the Management Engagement Committee reviews all major service providers annually. - The Company has the ability to terminate contracts.
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Operational Risks: Business continuity Business continuity risk to any of the Company's service providers or properties, following a catastrophic event e.g.pandemic, terrorist attack, cyber attack, power disruptions or civil unrest, leading to disruption of service, loss of data etc |
- ASI has a detailed business continuity plan in place with a separate alternative working office if required and the ability for the majority of its workforce to work from home. - ASI has a dedicated Chief Information Security Officer who leads the Chief Information Security Office (including the following functions: Security Operations & Delivery, Security Strategy, Architecture & Engineering, Data Governance & Privacy, Business Resilience, Governance & Risk (Security & IT). - Properties within the portfolio are all insured. - The IT environment of service providers is reviewed as part of the initial appointment and on an ongoing basis. |
Promoting the Company
The Board recognises the importance of promoting the Company to prospective investors both for improving liquidity and enhancing the value and rating of the Company's shares. The Board believes an effective way to achieve this is through subscription to, and participation in, the promotional programme run by the Manager on behalf of a number of investment trusts under its management. The Company's financial contribution to the programme is matched by the Manager. The Manager reports quarterly to the Board giving analysis of the promotional activities as well as updates on the shareholder register and any changes in the make up of that register.
The purpose of the programme is both to communicate effectively with existing shareholders and to gain new shareholders with the aim of improving liquidity and enhancing the value and rating of the Company's shares. Communicating the long-term attractions of the Company is key and therefore the Company also supports the Manager's investor relations programme which involves regional roadshows, promotional and public relations campaigns.
Board Diversity
The Board recognises the importance of having a range of skilled, experienced individuals with the right knowledge represented on the Board in order to allow the Board to fulfil its obligations. The Board also recognises the benefits and is supportive of the principle of diversity in its recruitment of new Board members.
The Board will not display any bias for age, gender, race, sexual orientation, religion, ethnic or national origins, or disability in considering the appointment of its Directors. However, the Board will continue to ensure that any future appointments are made on the basis of merit against the specification prepared for each appointment and, therefore, the Company does not consider it appropriate to set diversity targets. At 31 December 2019, there were two male Directors and two female Directors on the Board.
Socially Responsible Investment Policy
Further details on the socially responsible investment policies adopted by the Manager are disclosed on page 37 of the published Annual Report for the year ended 31 December 2019.
Environmental, Social and Human Rights Issues
The Company has no employees as the Board has delegated day to day management and administrative functions to Aberdeen Standard Fund Managers Limited. There are therefore no disclosures to be made in respect of employees. The Company's socially responsible investment policy is outlined in the Investment Manager's Review.
Due to the nature of the Company's business, being a Company that does not offer goods and services to customers, the Board considers that it is not within the scope of the Modern Slavery Act 2015 because it has turnover below the threshold of £36 million. The Company is therefore not required to make a slavery and human trafficking statement. In any event, the Board considers the Company's supply chains, dealing predominantly with professional advisers and service providers in the financial services industry, to be low risk in relation to this matter.
Emissions relating to properties owned by the Company are the responsibility of the tenants and any emissions relating to the Company's registered office are the responsibility of the Manager. The Company therefore has no greenhouse gas emissions to report from the operations of its business, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013.
Viability Statement
The Company does not have a formal fixed period strategic plan but the Board formally considers risks and strategy at least annually. The Board considers the Company, with no fixed life, to be a long term investment vehicle, but for the purposes of this viability statement has decided that a period of three years is an appropriate period over which to report. The Board considers that this period reflects a balance between looking out over a long term horizon and the inherent uncertainties of looking out further than three years.
In assessing the viability of the Company over the review period the Directors have conducted a robust review of the principal risks focussing upon the following factors:
- The principal risks detailed in the Strategic Report;
- The ongoing relevance of the Company's investment objective in the current environment;
- The demand for the Company's shares evidenced by the historical level of premium or discount;
- The level of income generated by the Company;
- The level of gearing including the requirement to negotiate new facilities and repay or refinance future facilities; and
- The flexibility of the Company's bank facilities and putting these facilities in place in time to meet commitments.
The Directors have reviewed summaries from the portfolio models prepared by the Investment Manager which have been stress tested to highlight the performance of the portfolio in a number of varying economic conditions coupled with potential opportunities for mitigation. The Directors have also stress tested the financial position of the Company with particular attention on the economic impact of COVID-19. The COVID-19 pandemic is expected to impact the Company through a reduction in rental income and potential reduction in investment property valuation. The Company has prepared cash flow forecasts which reflect the expected impact of COVID-19, including reasonably possible downside scenarios. The impact of reductions in rental income could be mitigated through a reduction in dividends to shareholders if considered necessary by the Board. The Company has modelled severe but plausible downside scenarios, taking into account specific tenant risks. These scenarios modelled reduced rental income through to 2022 and the worst case model equates to an overall 33% reduction of rental income per annum over that period.
Accordingly, taking into account the Company's current position and the potential impact of its principal risks and uncertainties, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due for a period of three years from the date of this Report. In making this assessment, the Board has considered that matters such as significant economic uncertainty, stock market volatility and changes in investor sentiment could have an impact on its assessment of the Company's prospects and viability in the future. In undertaking this review the Directors have also considered the impact of the COVID-19 pandemic.
s172 Statement
The Board is required to describe to the Company's shareholders how the Directors have discharged their duties and responsibilities over the course of the financial year under section 172 (1) of the Companies Act 2006 (the "s172 Statement"). This s172 Statement requires the Directors to explain how they have promoted the success of the Company for the benefit of its members as a whole, taking into account the likely long term consequences of decisions, the need to foster relationships with all stakeholders and the impact of the Company's operations on the environment.
The Board's philosophy is that the Company should operate in a transparent culture where all parties are treated with respect and provided with the opportunity to offer practical challenge and participate in positive debate which is focused on the aim of achieving the expectations of shareholders and other stakeholders alike. The Board reviews the culture and manner in which the Investment Manager operates at its regular meetings and receives regular reporting and feedback from the other key service providers.
Investment trusts are long-term investment vehicles, with a recommended holding period of five or more years with no employees. The Company's Board of Directors sets the investment mandate as published in the most
recent prospectus, monitors the performance of all service providers and is responsible for reviewing strategy on a regular basis.
The key service provider for the Company is the Alternative Investment Fund Manager (the "Manager") and the relationship with the Manager is reviewed at each Board meeting and relationships with other service providers are reviewed at least annually. Shareholders are seen as key stakeholders in the Company. The Board seeks to meet at least annually with shareholders at the Annual General Meeting and this includes informal meetings with them over lunch following the formal business of the AGM. This is seen as a very useful opportunity to understand the needs and views of the shareholders. In between AGMs the Directors and Manager also conduct programmes of investor meetings with larger institutional, private wealth and other shareholders to ensure that the Company is meeting their needs. Such regular meetings may take the form of joint presentations with the Investment Manager or meetings with a Director where any matters of concern may be raised directly.
The other key stakeholder group is that of the underlying tenants that occupy space in the properties that the Company owns. The Board aims to conduct a site visit at least annually with the aim of meeting tenants locally and discussing their businesses and needs and assessing where improvements may be made or expectations managed. The Investment Manager's asset managers are tasked with conducting meetings with building managers and tenant representatives in order to ensure the smooth running of the day to day management operations of the properties. The Board receives reports on the tenants' activities at its regular Board meetings. The Board via the Management Engagement Committee also ensures that the views of its service providers are heard and at least annually reviews these relationships in detail. The aim is to ensure that contractual arrangements remain in line with best practice, services being offered meet the requirements and needs of the Company and performance is in line with the expectations of the Board, Manager, Investment Manager and other relevant stakeholders. Reviews will include those of the Company depositary, custodian, share registrar, broker and auditor.
During the COVID-19 lock down the Board and the Manager have continued to work effectively from home under the government guidelines. With regular reporting by the Manager the Board has continued to have oversight of the Company's service providers and their continued operations during this period.
The Investment Manager's Report details the key investment decisions taken during the year and subsequently. The Investment Manager has continued to invest the Company's assets in accordance with the mandate provided by shareholders at launch, under the oversight of the Board. During the year further gearing was introduced into the portfolio with the aim of maintaining gearing at asset level at or around 35% over the longer term. The Manager has been successful in negotiating the debt facilities at competitive market rates, resulting in the Company's blended all-in interest rate across all its debt being 1.4% which is to the benefit of all shareholders. In July 2019 the Board took the decision to undertake a further equity fund raising exercise resulting in an additional £46.4m of new equity which the Manager has invested. Increasing the size of the Company directly benefits shareholders by spreading the fixed cost base of the Company over a larger asset base and diversifying the portfolio by asset and tenant base.
Details of how the Board and Manager and Investment Manager have sought to address environmental, social and governance matters across the portfolio are disclosed on pages 37 to 42 of the published Annual Report for the year ended 31 December 2019.
The Company is still in its infancy having been launched at the end of 2017. However, it is a long term investor and the Board has established the necessary procedures and processes to promote the long term success of the Company. The Board will continue to monitor, evaluate and seek to improve these processes as the Company grows, to ensure that the investment proposition is delivered to shareholders and other stakeholders in line with their expectations.
Future
Many of the non-performance related matters likely to affect the Company in the future are common across all closed ended investment companies, such as the current COVID-19 pandemic and its impact, the attractiveness of investment companies as investment vehicles, and the impact of regulatory changes. These factors need to be viewed alongside the outlook for the Company, both generally and specifically, in relation to the portfolio. The Board's view on the general outlook for the Company can be found in my Chairman's Statement whilst the Investment Manager's views on the outlook for the portfolio are included on page 26 of the published Annual Report for the year ended 31 December 2019.
Tony Roper
Chairman
27 May 2020
5. EXTRACTS FROM THE DIRECTORS' REPORT
The Directors present their Report and the audited financial statements for the year ended 31 December 2019.
Results and Dividends
Details of the Company's results and dividends are shown on page 17 of the published Annual Report for the year ended 31 December 2019. The dividend policy is disclosed in the Strategic Report on page 9 of the published Annual Report for the year ended 31 December 2019.
Investment Trust Status
The Company was incorporated on 25 October 2017 (registered in England & Wales No. 11032222) and has been accepted by HM Revenue & Customs as an investment trust subject to the Company continuing to meet the relevant eligibility conditions of Section 1158 of the Corporation Tax Act 2010 and the ongoing requirements of Part 2 Chapter 3 Statutory Instrument 2011/2999 for all financial periods commencing on or after 15 December 2017. The Directors are of the opinion that the Company has conducted its affairs for the year ended 31 December 2019 so as to enable it to comply with the ongoing requirements for investment trust status.
Individual Savings Accounts
The Company has conducted its affairs so as to satisfy the requirements as a qualifying security for Individual Savings Accounts. The Directors intend that the Company will continue to conduct its affairs in this manner.
Share Capital
On 5 July 2019, the Company announced the intention to raise further funds through a placing, open offer and offer for subscription seeking to incrementally add to and further diversify the portfolio. On 26 July 2019, the Board announced that the Company had raised gross proceeds of approximately £46.4 million (equivalent to approximately €51.8 million at the then prevailing exchange rate). Applications had been received for 47,000,000 new Ordinary shares of 1p (new Shares) which were subsequently issued at the issue price of 98.75p per Share. Application was made for the admission of the new Shares to the premium segment of the Official List and to trading on the London Stock Exchange's main market for listed securities on 31 July 2019. Following the issue of these new Shares, the total number of Shares in issue and therefore the voting rights in the Company is now 234,500,001 Shares.
The Company's capital structure is summarised in note 15 to the financial statements. At 31 December 2019, there were 234,500,001 fully paid Ordinary shares of 1p each in issue. During the year no Ordinary shares were purchased in the market for treasury or cancellation and, except as noted above, no further new Ordinary shares were issued.
Voting Rights and Share Restrictions
Ordinary shareholders are entitled to vote on all resolutions which are proposed at general meetings of the Company. The Ordinary shares carry a right to receive dividends. On a winding up, after meeting the liabilities of the Company, the surplus assets will be paid to Ordinary shareholders in proportion to their shareholdings.
There are no restrictions concerning the transfer of securities in the Company; no special rights with regard to control attached to securities; no agreements between holders of securities regarding their transfer known to the Company; and no agreements which the Company is party to that might affect its control following a takeover bid.
Borrowings
A full breakdown of the Company's loan facilities is provided in note 4 to the financial statements on page 99 of the published Annual Report for the year ended 31 December 2019.
Management Agreement
Under the terms of a Management Agreement dated 17 November 2017 between the Company and the AIFM, Aberdeen Standard Fund Managers Limited (and amended by way of side letters on 22 February 2019 and 25 May 2018), the AIFM was appointed to act as alternative investment fund manager of the Company with responsibility for portfolio management and risk management of the Company's investments. Under the terms of the Management Agreement, the AIFM may delegate portfolio management functions to the Investment Manager and is entitled to an annual management fee together with reimbursement of all reasonable costs and expenses incurred by it and the Investment Manager in the performance of its duties.
Pursuant to the terms of the Management Agreement, the AIFM is entitled to receive a tiered annual management fee (the ''Annual Management Fee'') calculated by reference to the Net Asset Value (as calculated under IFRS) on the following basis:
- On such part of the Net Asset Value that is less than or equal to €1.25 billion, 0.75 per cent. per annum.
- On such part of the Net Asset Value that is more than €1.25 billion, 0.60 per cent. per annum.
No annual management fee was charged on uninvested funds until such time as 75 per cent. of the initial Net Proceeds from launch had been invested , which happened during 2018. The Annual Management Fee is payable in Euros quarterly in arrears, save for any period which is less than a full calendar quarter.
The Company may terminate the Management Agreement by giving the AIFM not less than 12 months' prior written notice.
The AIFM has also been appointed by the Company under the terms of the Management Agreement to provide
day-to-day administration services to the Company and provide the general company secretarial functions required by the Companies Act. In this role, the AIFM will provide certain administrative services to the Company which includes reporting the Net Asset Value, bookkeeping and accounts preparation. Effective from March 2020 accounting and administration services undertaken on behalf of the Company have been delegated to Brown Brothers Harriman.
The AIFM has also delegated the provision of the general company secretarial services to Aberdeen Asset Management PLC.
Risk Management
Details of the financial risk management policies and objectives relative to the use of financial instruments by the Company are set out in note 21 to the financial statements.
The Board
The current Directors, Ms Gulliver, Mr Heawood, Mr Roper and Ms Wilde, together with Mr Pascal Duval who retired from the Board on 11 June 2019, were the only Directors who served during the year. In accordance with the Articles of Association, each Director will retire from the Board at the Annual General Meeting convened for 30 June 2020 and, being eligible, will offer himself or herself for election to the Board. In accordance with Principle 23 of the AIC's 2019 Code of Corporate Governance, each Director will retire annually and submit themselves for re-election at the AGM.
The Board considers that there is a balance of skills and experience within the Board relevant to the leadership and direction of the Company and that all the Directors contribute effectively.
In common with most investment trusts, the Company has no employees. Directors' & Officers' liability insurance cover has been maintained throughout the period at the expense of the Company.
The Role of the Chairman and Senior Independent Director
The Chairman is responsible for providing effective leadership to the Board, by setting the tone of the Company, demonstrating objective judgement and promoting a culture of openness and debate. The Chairman facilitates the effective contribution, and encourages active engagement, by each Director. In conjunction with the Company Secretary, the Chairman ensures that Directors receive accurate, timely and clear information to assist them with effective decision-making. The Chairman leads the evaluation of the Board and individual Directors, and acts upon the results of the evaluation process by recognising strengths and addressing any weaknesses. The Chairman also engages with major shareholders and ensures that all Directors understand shareholder views.
The Senior Independent Director acts as a sounding board for the Chairman and as an intermediary for other directors, when necessary. The Senior Independent Director takes responsibility for an orderly succession process for the Chairman, and leads the annual appraisal of the Chairman's performance and is also available to shareholders to discuss any concerns they may have.
Corporate Governance
The Company is committed to high standards of corporate governance. The Board is accountable to the Company's shareholders for good governance and this statement describes how the Company has applied the principles identified in the UK Corporate Governance Code as published in July 2018 (the "UK Code"), which is available on the Financial Reporting Council's (the "FRC") website: frc.org.uk .
The Board has also considered the principles and provisions of the AIC Code of Corporate Governance as published in February 2019 (the "AIC Code"). The AIC Code addresses the principles and provisions set out in the UK Code, as well as setting out additional provisions on issues that are of specific relevance to the Company. The AIC Code is available on the AIC's website: theaic.co.uk .
The Board considers that reporting against the principles and provisions of the AIC Code, which has been endorsed by the FRC provides more relevant information to shareholders.
The Board confirms that, during the year, the Company complied with the principles and provisions of the AIC Code and the relevant provisions of the UK Code, except as set out below.
The UK Code includes provisions relating to:
- interaction with the workforce (provisions 2, 5 and 6);
- the need for an internal audit function (provision 26);
- the role and responsibility of the chief executive (provisions 9 and 14);
- previous experience of the chairman of a remuneration committee (provision 32); and
- executive directors' remuneration (provisions 33 and 36 to 40).
The Board considers that these provisions are not relevant to the position of the Company, being an externally managed investment company. In particular, all of the Company's day-to-day management and administrative functions are outsourced to third parties. As a result, the Company has no executive directors, employees or internal operations. The Company has therefore not reported further in respect of these provisions.
During the year ended 31 December 2019, the Board had four scheduled meetings and a further 13 ad hoc Board meetings as well as numerous update calls. In addition, the Audit Committee met three times and there were two meetings of the Management Engagement Committee and three meetings of the Nomination Committee Between meetings the Board maintains regular contact with the Manager and Investment Manager. In addition to an organised site visit to inspect three properties in the Netherlands, Directors have attended the following scheduled Board meetings and Committee meetings during the year ended 31 December 2019 (with their eligibility to attend the relevant meeting in brackets):
|
Director |
Board |
Audit Committee |
MEC |
Nomination |
|
T Roper1 |
4 (4) |
1 (1) |
2 (2) |
3 (3) |
|
C Gulliver |
4 (4) |
3 (3) |
2 (2) |
3 (3) |
|
D Wilde |
4 (4) |
3 (3) |
2 (2) |
3 (3) |
|
J Heawood |
4 (4) |
3 (3) |
2 (2) |
3 (3) |
1 Mr Roper was appointed Chairman on 11 June 2019 and ceased membership of the Audit Committee from that date.
Policy on Tenure
The Board's policy on tenure is that Directors need not serve on the Board for a limited period of time only.
The Board does not consider that the length of service of a Director is as important as the contribution he or she has to make, and therefore the length of service will be determined on a case-by-case basis. However, in accordance with corporate governance best practice and the future need to refresh the Board over time, it is currently expected that Directors will not typically serve on the Board beyond the Annual General Meeting following the ninth anniversary of their appointment.
Board Committees Audit Committee
The Audit Committee Report is on pages 57 and 58 of the published Annual Report for the year ended 31 December 2019.
Nomination Committee
All appointments to the Board of Directors are considered by the Nomination Committee which comprises all of the Directors and is chaired by the Chairman of the Company. The Nomination Committee advises the Board on succession planning, bearing in mind the balance of skills, knowledge and experience existing on the Board, and will make recommendations to the Board in this regard.
The Nomination Committee also advises the Board on its balance of relevant skills, experience and length of service of the Directors serving on the Board. The Board's overriding priority when appointing new Directors in the future will be to identify the candidate with the best range of skills and experience to complement existing Directors. The Board recognises the benefits of diversity and its policy on diversity is disclosed in the Strategic Report on page 14 of the published Annual Report for the year ended 31 December 2019.
The Committee has put in place the necessary procedures to conduct, on an annual basis, an appraisal of the Chairman of the Board, Directors' individual self evaluation and a performance evaluation of the Board as a whole and its Committees. In 2019 questionnaires covering the Board, individual Directors, the Chairman and the Audit Committee Chairman were completed. The Chairman then met each Director individually to review their responses.
This evaluation highlighted certain areas of further focus such as continuing professional development but concluded that collectively the Board has a very relevant and appropriate balance of experience, knowledge of property markets, legal regulation, promotion and financial accounting and continues to work in an effective manner. Consideration will be given to conducting an externally facilitated evaluation in the future.
Management Engagement Committee
The Management Engagement Committee comprises all of the Directors and is chaired by Mr Heawood.
The Committee reviews the performance of the Manager and Investment Manager and its compliance with the terms of the management and secretarial agreement.
The terms and conditions of the Manager's appointment, including an evaluation of fees, are reviewed by the Committee on an annual basis. Based upon the competitive management fee and expertise of the Manager, the Committee believes that the continuing appointment of the Manager on the terms agreed is in the interests of shareholders as a whole.
Remuneration Committee
Under the FCA Listing Rules, where an investment trust has only non-executive directors, the Code principles relating to directors' remuneration do not apply.
Accordingly, matters relating to remuneration are dealt with by the full Board, which acts as the Remuneration Committee.
The Company's remuneration policy is to set remuneration at a level to attract individuals of a calibre appropriate to the Company's future development. Further information on remuneration is disclosed in the Directors' Remuneration Report on pages 53 to 55 of the published Annual Report for the year ended 31 December 2019.
Terms of Reference
The terms of reference of all the Board Committees may be found on the Company's website eurologisticsincome.co.uk and copies are available from the Company Secretary upon request. The terms of reference are reviewed and re-assessed by the relevant Board committee for their adequacy on an annual basis.
Going Concern
In accordance with the Financial Reporting Council's guidance the Directors have undertaken a rigorous review of the Company's ability to continue as a going concern.
The Board has set limits for borrowing and regularly reviews the level of any gearing, cash flow projections and compliance with banking covenants.
The Directors are mindful of the principal risks and uncertainties disclosed on pages 10 to 14 and the Viability Statement on page 14 of the published Annual Report for the year ended 31 December 2019 and have reviewed forecasts detailing revenue and liabilities and they believe that the Company has adequate financial resources to continue its operational existence for the foreseeable future and at least 12 months from the date of this Annual Report.
Accordingly, the Directors believe that it is appropriate to continue to adopt the going concern basis in preparing the financial statements. In coming to this conclusion, the Board has also considered the impact where feasible of the COVID-19 pandemic. The Manager is in contact with tenants and third party suppliers and continues to have a constructive dialogue with all parties. A range of scenarios have been modelled looking at possible impact to cash flows in the short to medium term and this is kept under review as the situation develops.
Management of Conflicts of Interest
The Board has a procedure in place to deal with a situation where a Director has a conflict of interest. As part of this process, the Directors prepare a list of other positions held and all other conflict situations that may need to be authorised either in relation to the Director concerned or his/her connected persons. The Board considers each Director's situation and decides on any course of action required to be taken if there is a conflict, taking into consideration what is in the best interests of the Company and whether the Director's ability to act in accordance with his or her wider duties is affected. Each Director is required to notify the Company Secretary of any potential, or actual, conflict situations that will need authorising by the Board. Authorisations given by the Board are reviewed at each Board meeting.
No Director has a service contract with the Company although Directors are issued with letters of appointment upon appointment. The Directors' interests in contractual arrangements with the Company are as shown in note 22 to the financial statements. No other Directors had any interest in contracts with the Company during the year or subsequently.
The Board has adopted appropriate procedures designed to prevent bribery. The Company receives periodic reports from its service providers on the anti-bribery policies of these third parties. It also receives regular compliance reports from the Manager.
The Criminal Finances Act 2017 has introduced the corporate criminal offence of "failing to take reasonable steps to prevent the facilitation of tax evasion". The Board has confirmed that it is the Company's policy to conduct all of its business in an honest and ethical manner. The Board takes a zero-tolerance approach to facilitation of tax evasion, whether under UK law or under the law of any foreign country.
Accountability and Audit
The respective responsibilities of the Directors and the auditor in connection with the financial statements are set out on pages 56 and 65 of the published Annual Report for the year ended 31 December 2019 respectively.
Each Director confirms that:
- so far as he or she is aware, there is no relevant audit information of which the Company's auditor is unaware; and,
- each Director has taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information.
Additionally there have been no important events since the period end that impact this Annual Report.
The Directors have reviewed the level of non-audit services provided by the independent auditor during the year amounting to €41,300 (2018: €45,000) for reporting accountant services provided to the Company in connection with the Prospectus issued in July 2019, together with the independent auditor's procedures in connection with the provision of such services, and remain satisfied that the auditor's objectivity and independence is being safeguarded.
Independent Auditor
The auditor, KPMG LLP, has indicated its willingness to remain in office. The Directors will place a resolution before the Annual General Meeting to re-appoint KPMG LLP as auditor for the ensuing year, and to authorise the Directors to determine its remuneration.
Internal Control
The Board is ultimately responsible for the Company's system of internal control and for reviewing its effectiveness and confirms that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Company. This process has been in place for the year under review and up to the date of approval of this Annual Report and financial statements. It is regularly reviewed by the Board and accords with the FRC Guidance.
The Board has reviewed the effectiveness of the system of internal control. In particular, it has reviewed and updated the process for identifying and evaluating the significant risks affecting the Company and policies by which these risks are managed.
The Directors have delegated the investment management of the Company's assets to members of the Standard Life Aberdeen Group within overall guidelines, and this embraces implementation of the system of internal control, including financial, operational and compliance controls and risk management. Internal control systems are monitored and supported by the Standard Life Aberdeen Group's internal audit function which undertakes periodic examination of business processes, including compliance with the terms of the management agreement, and ensures that recommendations to improve controls are implemented.
Risks are identified and documented through a risk management framework by each function within the Standard Life Aberdeen Group's activities. Risk includes financial, regulatory, market, operational and reputational risk. This helps the internal audit risk assessment model identify those functions for review. Any weaknesses identified are reported to the Board, and timetables are agreed for implementing improvements to systems.
The implementation of any remedial action required is monitored and feedback provided to the Board.
The significant risks faced by the Company have been identified as being financial; operational; and compliance-related.
The key components of the process designed by the Directors to provide effective internal control are outlined below:
- the AIFM prepares forecasts and management accounts which allows the Board to assess the Company's activities and review its performance;
- the Board and AIFM have agreed clearly defined investment criteria, specified levels of authority and exposure limits. Reports on these issues, including performance statistics and investment valuations, are regularly submitted to the Board and there are meetings with the AIFM and Investment Manager as appropriate;
- as a matter of course the AIFM's compliance department continually reviews Aberdeen Standard Investments' operations and reports to the Board on a six monthly basis;
- written agreements are in place which specifically define the roles and responsibilities of the AIFM and other third party service providers and, where relevant, ISAE3402 Reports, a global assurance standard for reporting on internal controls for service organisations, or their equivalents are reviewed;
- the Board has considered the need for an internal audit function but, because of the compliance and internal control systems in place within Aberdeen Standard Investments, has decided to place reliance on the Manager's systems and internal audit procedures; and
- at its March 2020 meeting, the Audit Committee carried out an annual assessment of internal controls for the year ended 31 December 2019 by considering documentation from the AIFM, Investment Manager and the Depositary, including the internal audit and compliance functions and taking account of events since 31 December 2019. The results of the assessment, that internal controls are satisfactory, were then reported to the Board at the subsequent Board meeting.
Internal control systems are designed to meet the Company's particular needs and the risks to which it is exposed. Accordingly, the internal control systems are designed to manage rather than eliminate the risk of failure to achieve business objectives and by their nature can only provide reasonable and not absolute assurance against mis-statement and loss.
Substantial Interests
The Board has been advised that the following shareholders owned 3% or more of the issued Ordinary share capital of the Company at 31 December 2019:
|
Shareholder |
No. of Ordinary shares held |
% held |
|
East Riding of Yorkshire |
28,000,000 |
11.9 |
|
Brewin Dolphin Capital & Investments (Ireland) |
20,830,473 |
8.9 |
|
CCLA Investment Management |
20,003,567 |
8.5 |
|
Quilter Cheviot Investment Management |
16,559,138 |
7.1 |
|
Canaccord Genuity Wealth Management |
12,569,096 |
5.4 |
|
AJ Bell, stockbrokers |
9,354,740 |
4.0 |
|
Hargreaves Lansdown, stockbrokers |
9,271,490 |
3.9 |
|
Aberdeen Standard Capital International |
8,586,001 |
3.7 |
|
Aberdeen Standard Investments |
8,354,235 |
3.6 |
There have been no significant changes notified in respect of the above holdings between 31 December 2019 and 27 May 2020.
Relations with Shareholders
The Directors place a great deal of importance on communication with shareholders. The Annual Report will be widely distributed to other parties who have an interest in the Company's performance. Shareholders and investors may obtain up to date information on the Company through the Manager's freephone information service and the Company's website eurologisticsincome.co.uk.
The Board's policy is to communicate directly with shareholders and their representative bodies without the involvement of the Standard Life Aberdeen Group (either the Company Secretary or the Investment Manager) in situations where direct communication is required and usually a representative from the Board is available to meet with major shareholders on an annual basis in order to gauge their views.
The Notice of the Annual General Meeting, included within the Annual Report and financial statements, is sent out at least 20 working days in advance of the meeting.
In normal circumstances, all Shareholders normally have the opportunity to put questions to the Board or the Investment Manager, either formally at the Company's Annual General Meeting or at the subsequent buffet luncheon for Shareholders. This year, due to the UK Government's compulsory Stay at Home measures to manage the COVID-19 pandemic in the UK, Shareholders are unlikely to be able to attend the AGM and no refreshments will be provided. Shareholders are however invited to send any questions for the Board and or the Investment Manager on the Annual Report by email to European.Logistics@aberdeenstandard.com. The Company Secretary is available to answer general shareholder queries at any time throughout the year.
Annual General Meeting
Special Business Directors' Authority to Allot Relevant Securities
Approval is sought in Resolution 10, an ordinary resolution, to renew the Directors' existing general power to allot shares but will also provide a further authority (subject to certain limits) to grant rights to subscribe for or to convert any security into shares under a fully pre-emptive rights issue. The effect of Resolution 10 is to authorise the Directors to allot up to a maximum of 154,770,000 shares in total (representing approximately 66% (as at the latest practicable date before publication of this Annual Report) of the existing issued share capital of the Company), of which a maximum of 77,385,000 shares (approximately 33% (as at the latest practicable date before publication of this Annual Report) of the existing issued share capital of the Company) may only be applied other than to fully pre-emptive rights issues. This authority is renewable annually and will expire at the conclusion of the next Annual General Meeting in 2021, or June 2021, whichever is earlier. The Directors do not have any immediate intention to utilise this authority.
Special Business Disapplication of Pre-emption Rights Resolution 11 is a special resolution that seeks to renew the Directors' existing authority until the conclusion of the next Annual General Meeting to make limited allotments of shares for cash of up to a maximum of 23,450,000 shares representing 10% of the issued share capital (as at the latest practicable date before publication of this Annual Report) other than according to the statutory pre-emption rights which require all shares issued for cash to be offered first to all existing shareholders.
This authority includes the ability to sell shares that have been held in treasury (if any), having previously been bought back by the Company. The Board has established guidelines for treasury shares and will only consider buying in shares for treasury at a discount to their prevailing NAV and selling them from treasury at or above the then prevailing NAV.
New shares issued in accordance with the authority sought in Resolution 11 will always be issued at a premium to the NAV per Ordinary share at the time of issue.
The Board will issue new Ordinary shares or sell Ordinary shares from treasury for cash when it is appropriate to do so, in accordance with its current policy. It is therefore possible that the issued share capital of the Company may change between the date of this document and the Annual General Meeting and therefore the authority sought will be in respect of 10% of the issued share capital as at the date of the Annual General Meeting rather than the date of this document. This authority is renewable annually and will expire at the conclusion of the next Annual General Meeting in 2021 or June 2021, whichever is earlier.
Special Business Purchase of the Company's Shares Resolution 12 is a special resolution proposing to renew the Directors' authority to make market purchases of the Company's shares in accordance with the provisions contained in the Companies Act 2006 and the Listing Rules of the Financial Conduct Authority. The minimum price to be paid per Ordinary share by the Company will not be less than £0.01 per share (being the nominal value) and the maximum price should not be more than the higher of an amount equal to 5% above the average of the middle market quotations for an Ordinary share taken from the London Stock Exchange Daily Official List for the five business days immediately preceding the date on which the Ordinary share is contracted to be purchased; and (ii) the higher of the price of the last independent trade and the current highest independent bid on the trading venue where the purchase is carried out.
The Directors do not intend to use this authority to purchase the Company's Ordinary shares unless to do so would result in an increase in NAV per share and would be in the interests of Shareholders generally. The authority sought will be in respect of 14.99% of the issued share capital as at the date of the Annual General Meeting rather than the date of this document.
The authority being sought in Resolution 12 will expire at the conclusion of the Annual General Meeting in 2021, or June 2021, whichever is earlier unless it is renewed before that date. Any Ordinary shares purchased in this way will either be cancelled and the number of Ordinary shares will be reduced accordingly or under the authority granted in Resolution 11 above, may be held in treasury.
If Resolutions 10 to 12 are passed then an announcement will be made on the date of the Annual General Meeting which will detail the exact number of Ordinary shares to which each of these authorities relate.
These powers will give the Directors additional flexibility going forward and the Board considers that it will be in the interests of the Company that such powers be available. Such powers will only be implemented when, in the view of the Directors, to do so will be to the benefit of Shareholders as a whole.
Special Business Notice of Meetings
Resolution 13 is a special resolution seeking to authorise the Directors to call general meetings of the Company (other than Annual General Meetings) on 14 days' clear notice. This approval will be effective until the Company's next Annual General Meeting in 2021 or June 2021 whichever is earlier. In order to utilise this shorter notice period, the Company is required to ensure that Shareholders are able to vote electronically at the general meeting called on such short notice. The Directors confirm that, in the event that a general meeting is called, they will give as much notice as practicable and will only utilise the authority granted by Resolution 13 in limited and time sensitive circumstances.
Dividend Policy
As a result of the timing of the payment of the Company's quarterly dividends, the Company's Shareholders are unable to approve a final dividend each year. In line with good corporate governance and as reported last year, the Board therefore proposes to put the Company's dividend policy to Shareholders for approval at the Annual General Meeting and on an annual basis thereafter.
Resolution 3 is an ordinary resolution to approve the Company's dividend policy. The Company's dividend policy shall be that dividends on the Ordinary Shares are payable quarterly in relation to periods ending March, June, September and December and the last dividend referable to a financial year end will not be categorised as a final dividend that is subject to Shareholder approval. It is intended that the Company will pay quarterly dividends consistent with the expected annual underlying portfolio yield. The Company has the flexibility in accordance with its Articles to make distributions from capital.
Shareholders should note that references to ''dividends'' are intended to cover both dividend income, and income which is designated as an interest distribution for UK tax purposes and therefore subject to the interest streaming regime applicable to investment trusts.
Recommendation
Your Board considers Resolutions 10 to 13 to be in the best interests of the Company and its members as a whole and most likely to promote the success of the Company for the benefit of its members as a whole. Accordingly, your Board unanimously recommends that Shareholders should vote in favour of Resolutions 10 to 13 to be proposed at the AGM, as they intend to do in respect of their own beneficial shareholdings amounting to 155,000 Ordinary shares.
By order of the Board
Aberdeen Asset Management PLC - Secretaries
Bow Bells House 1 Bread Street
London EC4M 9HH 27 May 2020
6. FINANCIAL HIGHLIGHTS
|
|
31 December 2019 |
31 December 2018 |
|
Total assets (€'000) |
382,981 |
210,730 |
|
Total equity shareholders' funds (net assets) (€'000) |
260,277 |
202,073 |
|
Net asset value per share (euros) |
1.11 |
1.08 |
|
Net asset value per share (pence) |
94.21 |
96.70 |
|
Share price (mid market) (pence) |
90.40 |
102.25 |
|
Market capitalisation (£'000) |
211,988 |
191,719 |
|
Share price (discount)/ premium to sterling net asset value1 |
(4.0)% |
5.7% |
|
|
|
|
|
Dividends and earnings |
|
|
|
Net asset value total return per share (€)1 |
8.6% |
3.0% |
|
Dividends paid per share |
5.75c (5.11p) |
1.70p |
|
Revenue reserves (€'000) |
7,471 |
40 |
|
Gain/(Loss) (€'000) |
19,429 |
(3,740) |
|
|
|
|
|
Operating costs |
|
|
|
Ongoing charges ratio (Group only expenses)1 |
1.5% |
0.8% |
|
Ongoing charges ratio (Group and property expenses)1 |
1.7% |
0.9% |
Performance (total return)
|
|
Year ended |
Since Launch |
|
Share price1 |
(6.99)% |
(3.36)% |
|
Net Asset Value (EUR)1 |
8.63% |
5.26% |
1 Considered to be an Alternative Performance Measure (see Glossary on page 111 of the published Annual Report for the year ended 31 December 2019 for more information).
Dividends declared in respect of the Financial Year to 31 December 2019 (pence)
|
Dividend Distribution |
Qualifying Interest |
xd |
Record date |
Payment date |
|
|
First Interim |
0.94 |
0.33 |
20-Jun-19 |
21-Jun-19 |
10-Jul-19 |
|
Second Interim |
1.19 |
0.08 |
19-Sep-19 |
20-Sep-19 |
07-Oct-19 |
|
Third Interim |
1.04 |
0.23 |
28-Nov-19 |
29-Nov-19 |
20-Dec-19 |
|
Fourth Interim |
0.90 |
0.37 |
04-Mar-20 |
05-Mar-20 |
26-Mar-20 |
|
Total |
4.07 |
1.01 |
|
|
|
7. STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the Group and parent Company financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Group and parent Company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU) and applicable law and have elected to prepare the parent Company financial statements in accordance with UK accounting standards, including FRS 101 Reduced Disclosure Framework.
Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent Company and of their profit or loss for that period. In preparing each of the Group and parent Company financial statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable, relevant, reliable and prudent;
- for the Group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU;
- for the parent Company financial statements, state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the parent company financial statements;
- assess the Group and parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and
- use the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Responsibility statement of the Directors in respect of the annual financial report
We confirm that to the best of our knowledge:
- the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole;
- the Strategic Report and Directors' Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
We consider the Annual Report and financial statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for Shareholders
to assess the group's position and performance, business model and strategy.
By order of the Board
Tony Roper
27 May 2020
8. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2019
|
|
|
For the period |
|||||
|
Notes |
Revenue €'000 |
Capital €'000 |
Total €'000 |
Revenue €'000 |
Capital €'000 |
Total €'000 |
|
|
REVENUE |
|
|
|
|
|
||
|
Rental Income |
|
13,376 |
- |
13,376 |
2,323 |
- |
2,323 |
|
Property service charge income |
|
2,233 |
- |
2,233 |
- |
- |
- |
|
Other operating income |
|
23 |
- |
23 |
211 |
- |
211 |
|
Total Revenue |
2 |
15,632 |
- |
15,632 |
2,534 |
- |
2,534 |
|
GAINS/(LOSSES) ON INVESTMENTS Gains/(losses) on Revaluation of investment properties |
9 |
- |
16,852 |
16,852 |
- |
(4,080) |
(4,080) |
|
Total Income and gains/(losses) on investments |
|
15,632 |
16,852 |
32,484 |
2,534 |
(4,080) |
(1,546) |
|
EXPENDITURE |
|
|
|
|
|
||
|
Investment management fee |
|
(1,695) |
- |
(1,695) |
(587) |
- |
(587) |
|
Direct property expenses |
|
(265) |
- |
(265) |
(225) |
- |
(225) |
|
Property service charge expenditure |
|
(2,233) |
- |
(2,233) |
- |
- |
- |
|
SPV property management fees |
|
(154) |
- |
(154) |
(26) |
- |
(26) |
|
Other expenses |
3 |
(1,728) |
- |
(1,728) |
(1,005) |
- |
(1,005) |
|
Total expenditure |
|
(6,075) |
- |
(6,075) |
(1,843) |
- |
(1,843) |
|
9,557 |
16,852 |
26,409 |
691 |
(4,080) |
(3,389) |
||
|
FINANCE COSTS |
|
|
|
||||
|
Finance costs |
4 |
(1,411) |
- |
(1,411) |
(658) |
- |
(658) |
|
|
|
|
|
||||
|
Net return before taxation |
|
8,146 |
16,852 |
24,998 |
33 |
(4,080) |
(4,047) |
|
Taxation |
5 |
(415) |
(4,662) |
(5,077) |
- |
- |
- |
|
Net return for the year/period |
|
7,731 |
12,190 |
19,921 |
33 |
(4,080) |
(4,047) |
|
OTHER COMPREHENSIVE INCOME TO BE RECLASSIFIED TO PROFIT OR LOSS |
|
|
|
|
|
||
|
Currency translation differences on capital proceeds |
|
- |
136 |
136 |
- |
407 |
407 |
|
Currency translation on conversion of distribution payments |
|
- |
(328) |
(328) |
7 |
(107) |
(100) |
|
Effect of foreign exchange differences |
|
(300) |
- |
(300) |
- |
- |
- |
|
Other comprehensive (loss)/profit |
|
(300) |
(192) |
(492) |
7 |
300 |
307 |
|
|
|
|
|
||||
|
Total comprehensive return for the period |
|
7,431 |
11,998 |
19,429 |
40 |
(3,780) |
(3,740) |
|
|
|
|
|
||||
|
Basic and diluted earnings/(loss) per share |
7 |
3.72¢ |
5.86¢ |
9.58¢ |
0.02¢ |
(2.47¢) |
(2.45¢) |
9. CONSOLIDATED BALANCE SHEET
As at 31 December 2019
|
Notes |
As at 31 December 2019 Total €'000 |
As at 31 December 2018 Total €'000 |
|
|
NON-CURRENT ASSETS Investment properties |
9 |
348,519 |
148,918 |
|
|
348,519 |
148,918 |
|
|
CURRENT ASSETS |
|
|
|
|
Trade and other receivables |
10 |
9,883 |
11,679 |
|
Cash and cash equivalents |
11 |
24,579 |
50,133 |
|
Total current assets |
34,462 |
61,812 |
|
|
|
|
||
|
Total assets |
382,981 |
210,730 |
|
|
CURRENT LIABILITIES |
|
|
|
|
Trade and other payables |
12 |
9,352 |
8,657 |
|
Derivative financial instruments |
14 |
8 |
- |
|
Total current liabilities |
9,360 |
8,657 |
|
|
NON-CURRENT LIABILITIES |
|
|
|
|
Bank Loans |
13 |
107,916 |
- |
|
Deferred tax liability |
5 |
5,428 |
- |
|
Total non-current liabilities |
113,344 |
- |
|
|
Total liabilities |
122,704 |
8,657 |
|
|
Net assets |
260,277 |
202,073 |
|
|
SHARE CAPITAL AND RESERVES |
|
|
|
|
Share capital |
15 |
2,645 |
2,122 |
|
Share premium |
16 |
50,364 |
- |
|
Special distributable reserve |
17 |
191,579 |
203,691 |
|
Capital reserve |
18 |
8,218 |
(3,780) |
|
Revenue reserve |
|
7,471 |
40 |
|
Equity shareholders' funds |
260,277 |
202,073 |
|
|
Net asset value per share |
8 |
€ 1.11 |
€1.08 |
10. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2019
|
Notes |
Share capital €'000 |
Share premium €'000 |
Special distributable reserve €'000 |
Capital reserve €'000 |
Revenue reserve €'000 |
Total €'000 |
|
|
Balance at 31 December 2018 |
|
2,122 |
- |
203,691 |
(3,780) |
40 |
202,073 |
|
Share Issue |
15/16 |
523 |
51,147 |
- |
- |
- |
51,670 |
|
Share Issue costs |
16 |
- |
(783) |
- |
- |
- |
(783) |
|
Total Comprehensive return for the year |
|
- |
- |
- |
11,998 |
7,431 |
19,429 |
|
Dividends paid |
6 |
- |
- |
(12,112) |
- |
- |
(12,112) |
|
Balance at 31 December 2019 |
2,645 |
50,364 |
191,579 |
8,218 |
7,471 |
260,277 |
|
For the period 25 October 2017 to 31 December 2018
|
Notes |
Share capital €'000 |
Share premium €'000 |
Special distributable reserve €'000 |
Capital reserve €'000 |
Revenue reserve €'000 |
Total €'000 |
|
|
Balance at 25 October 2017 |
|
- |
- |
- |
- |
- |
- |
|
Original Share Issue |
15/16 |
2,122 |
210,102 |
- |
- |
- |
212,224 |
|
Share Issue costs |
16 |
- |
(2,875) |
- |
- |
- |
(2,875) |
|
Share premium conversion |
|
- |
(207,227) |
207,227 |
- |
- |
- |
|
Total Comprehensive return for the period |
|
- |
- |
- |
(3,780) |
40 |
(3,740) |
|
Dividends paid |
6 |
- |
- |
(3,536) |
- |
- |
(3,536) |
|
Balance at 31 December 2018 |
2,122 |
- |
203,691 |
(3,780) |
40 |
202,073 |
|
11. CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2019
|
Notes |
Year ended 31 December 2019
€'000 |
For the period €'000 |
|
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
Net gain/(loss) for the period before taxation |
|
19,921 |
(4,047) |
|
Adjustments for: |
|
|
|
|
(Gains)/Losses on investment properties |
9 |
(16,852) |
4,080 |
|
Decrease/(increase) in operating trade and other receivables |
10 |
1,796 |
(11,679) |
|
Increase in operating trade and other payables |
12 |
6,123 |
8,657 |
|
Finance costs |
4 |
1,411 |
658 |
|
Tax paid |
5 |
- |
- |
|
Cash generated by operations |
12,399 |
(2,331) |
|
|
Net cash inflow/(outflow) from operating activities |
12,399 |
(2,331) |
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
Purchase of investment properties |
9 |
(182,749) |
(152,998) |
|
Derivative financial instruments |
|
8 |
- |
|
Currency translation differences |
|
(492) |
307 |
|
Net cash outflow from investing activities |
(183,233) |
(152,691) |
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
Dividends paid |
6 |
(12,112) |
(3,536) |
|
Finance costs |
4 |
(1,411) |
(658) |
|
Bank loans drawn |
13 |
107,916 |
- |
|
Proceeds from share issue |
15/16 |
51,670 |
212,224 |
|
Issue costs relating to share issue |
16 |
(783) |
(2,875) |
|
Net cash inflow from financing activities |
145,280 |
205,155 |
|
|
|
|
||
|
Net (decrease)/increase in cash and cash equivalents |
(25,554) |
50,133 |
|
|
|
|
||
|
Opening balance |
50,133 |
- |
|
|
|
|
||
|
Closing cash and cash equivalents |
24,579 |
50,133 |
|
|
|
|
|
|
|
REPRESENTED BY |
|
|
|
|
Cash at bank |
11 |
24,579 |
6,279 |
|
Money market funds |
11 |
- |
43,854 |
|
|
24,579 |
50,133 |
|
12. NOTES TO THE FINANCIAL STATEMENTS
1. Accounting Policies
The principal accounting policies adopted by the Group are set out below, all of which have been applied consistently throughout the period.
(a) Basis of Accounting
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS'), which comprise standards and interpretations approved by the International Accounting Standards Board ('IASB'), and International Accounting Standards and Standing Interpretations Committee interpretations approved by the International Accounting Standards Committee ('IASC') that remain in effect, and to the extent that they have been adopted by the European Union, and the Listing Rules of the UK Listing Authority.
The audited Consolidated Financial Statements of the Group have been prepared under the historical cost convention as modified by the measurement of investment property and derivative financial instruments at fair value. The consolidated financial statements are presented in Euro.
In compliance with the AIC's Statement of Recommended Practice: Financial Statements of Investment Trust Companies and Venture Capital Trusts (Issued November 2014 and updated in October 2019 with consequential amendments), the consolidated statement of comprehensive income is separated between capital and revenue profits and losses.
New and revised standards and interpretations issued in the current period
The accounting policies adopted have been consistently applied throughout the period presented, unless otherwise stated. This includes the below noted Standards and Interpretations that became effective during the period, which the group has incorporated in the preparation of the financial statements:
- IFRS 16 Leases ("IFRS 16") replaces IAS 17 Leases ("IAS 17") and is effective for annual periods beginning on or after 1 January 2019. The key changes are the lessee and lessor accounting models are no longer symmetrical.
- For lessees, the accounting for leases will change to a new single lessee accounting model, requiring recognition of a right-of-use asset (right to use underlying leased asset) and a lease liability (obligation to make lease payments) for a lease with a term greater than 12 months, exclusion to recognition is if the underlying asset is of a low value when new.
- For lessors, this remains relatively unchanged - IFRS 16 retains IAS 17's distinction of finance and operating lease however, IFRS 16 has introduced changes for the lessor where the lessor acts as an intermediate lessor in the lease contract.
- The Group has made an assessment of the leases, where the Group acts as intermediate lessor in the lease agreement, and has identified that the Group has no investment properties held on leased land. Subsequent to the year end the Group acquired a property on leased land which will be included in the 2020 financial statements in compliance with the requirement of IFRS 16.
- The Group has made no adjustments to its financial statements following adoption of IFRS 16.
- IFRIC 23 Uncertainty over Income Tax Treatments ("IFRIC 23") is effective for annual periods beginning on or after 1 January 2019. IFRIC 23 clarifies the recognition and measurement requirements in IAS 12 Income Taxes when there is uncertainty over income tax treatments. The Group has made no adjustments to its financial statement following adoption of IFRIC 23 and hence not discussed further.
- There are a number of amended standards issued which are effective from annual periods beginning on or after 1 January 2020. The Group does not anticipate these to have a material impact on the annual consolidated financial statements of the Group and hence not discussed and are detailed below:
- Amendments to IAS 1 Presentation of Financial Statements ("IAS 1") and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors ("IAS 8") definition of material.
- An amendment of IFRS 3 Business Combinations ("IFRS 3") definition of business.
(b) Significant accounting judgements, estimates and assumptions
The preparation of the Group's financial statements requires the directors to make judgements, estimates and assumptions that affect the amounts recognised in the financial statements and contingent liabilities. However, uncertainty about these judgements, assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in future periods.
Key estimation uncertainties
Fair value of investment properties: Investment property is stated at fair value as at the balance sheet date as set out in note 9 to these accounts.
The determination of the fair value of investment properties requires the use of estimates such as future cash flows from the assets. The estimate of future cash flows includes consideration of the repair and condition of the property, lease terms, future lease events, as well as other relevant factors for the particular asset.
These estimates are based on local market conditions existing at the balance sheet date.
(c) Basis of Consolidation and Going Concern
The consolidated financial statements comprise the accounts of the Company and its subsidiaries drawn up to 31 December 2019. Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred to the former owners of the acquire and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition by acquisition basis, either at fair value or at the non-controlling interest's proportionate share of the recognised amounts of acquiree's identifiable net assets. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill.
If the total of consideration transferred, non-controlling interest recognised and previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the consolidated statement of comprehensive income.
Going Concern
The Group and Company meets its longer term funding and working capital requirements through a combination of cash balances, rental income and a number of bank loans with different banks (see note 13). Following the purchase of Den Hoorn (January 2020 €49.9m) and a further loan advance of €35.7m, also January 2020, the Group had cash resources of approximately €8m. In addition, the Company is due a repayment of VAT paid on the property at Leon amounting to €3.2 million. Repayment is expected shortly.
As detailed in note 13 there are five bank facilities none of which are due to expire before June 2025. The new loan utilised in January 2020 has a redemption date of 14 January 2028. The Group also has an undrawn £6m overdraft with Societe Generale.
The existence of the COVID-19 crisis is expected to impact the Group through a reduction in rental income and potential reduction in investment property valuation. The Company has prepared cash flow forecasts which reflect the expected impact of COVID-19, including severe but plausible downside scenarios taking into account specific tenant risks. The impact of reductions in rental income in the scenarios could be mitigated through a reduction in dividends to shareholders if considered necessary by the Board.
The scenarios model reduced rental income through to 2022 and the worst case model equates to an overall 33% reduction of rental income per annum over that period. There are no anticipated breaches of loan to value covenants as a result of reasonably possible reductions in property values or rental income. Regarding interest cover covenants of those three bank loans subject to financial covenants, two are secured over multiple properties. This affords the Group headroom on the interest cover covenants under all scenarios. The third bank loan is secured over only one property, with a single tenant, and as such is more exposed to the risk of rental reductions. The Group is able to mitigate this risk through a combination of maintaining sufficient cash resources under the modelled scenarios to, as permitted under the provisions of the loan facility agreement, potentially cure a breach should it occur, or provide additional security, or let the property should it become vacant. While the Company cannot predict with any certainty the full impact of the COVID-19 crisis the financial forecast prepared, including the downside scenarios, indicate that it can continue to operate as a going concern and meet its liabilities as they fall due.
Accordingly, the Directors have a reasonable expectation that the Company will be able to continue as a going concern and meet its liabilities as they fall due for a period of at least 12 months from the date of this report.
(d) Functional and Presentation currency
Items included in the consolidated financial statements of the Group are measured using the currency of the primary economic environment in which the Company and its subsidiaries operate ("the functional currency") which is Euro. The consolidated financial statements are also presented in Euro. All figures in the consolidated financial statements are rounded to the nearest thousand unless otherwise stated.
(e) Foreign Currency
Transactions denominated in foreign currencies are converted at the exchange rate ruling at the date of the transaction. Monetary and non-monetary assets and liabilities denominated in foreign currencies held at the financial period end are translated using London closing foreign exchange rates at the financial period end. Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included as an exchange gain or loss to capital or revenue in the Consolidated Statement of Comprehensive Income as appropriate. Foreign exchange movements on investments are included in the Consolidated Statement of Comprehensive Income within gains on investments.
(f) Revenue Recognition
Rental income, excluding VAT, arising from operating leases (including those containing stepped and fixed rent increases) is accounted for in the Consolidated Statement of Comprehensive Income on a straight line basis over the lease term. Lease premiums paid and rent free periods granted, are recognised as assets and are amortised over the non-cancellable lease term.
Interest income is accounted for on an accruals basis and included in operating income.
(g) Expenses
All expenses are accounted for on an accruals basis. The Group's investment management fees, finance costs and all other expenses are charged through the Consolidated Statement of Comprehensive Income. Service charge costs, to the extent they are not recoverable from tenants, are accounted for on an accruals basis and are included in total expenditure. All expenses are recorded through the revenue column of the Consolidated Statement of Comprehensive Income, except for gains or losses on investment properties.
(h) Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
Current tax
The tax currently payable is based on taxable profit for the period. Taxable profit differs from 'profit before tax' as reported in the Consolidated Statement of Comprehensive Income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group's current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.
Where corporation tax arises in subsidiaries, these amounts are charged to the Consolidated Statement of Comprehensive Income. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the date of the balance sheet in the countries where the Group operates.
The Manager periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation, and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred tax
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the Consolidated financial statements and the corresponding tax bases used in the computation of taxable profit.
Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. In addition, deferred tax liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill.
Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
The carrying values of the Group's investment properties are assumed to be realised by sale at the end of use. The capital gains tax rate applied is that which would apply on a direct sale of the property recorded in the Consolidated Balance Sheet regardless of whether the Group would structure the sale via the disposal of the subsidiary holding the asset, to which a different tax rate may apply. The deferred tax is then calculated based on the respective temporary differences and tax consequences arising from recovery through sale.
(i) Investment Properties
Investment properties are initially recognised at cost, being the fair value of consideration given, including transaction costs associated with the investment property. Any subsequent capital expenditure incurred in improving investment properties is capitalised in the period during which the expenditure is incurred and included within the book cost of the property.
After initial recognition, investment properties are measured at fair value, with the movement in fair value recognised in the Consolidated Statement of Comprehensive Income and transferred to the Capital Reserve. Fair value is based on the external valuation provided by CBRE GmbH, chartered surveyors, at the balance sheet date. The assessed fair value is reduced by the carrying amount of any accrued income resulting from the spreading of lease incentives and/or minimum lease payments.
On derecognition, gains and losses on disposals of investment properties are recognised in the Consolidated Statement of Comprehensive Income.
Recognition and derecognition occurs when the risks and rewards of ownership of the properties have transferred between a willing buyer and a willing seller.
Investment property is transferred to current assets held for sale when it is expected that the carrying amount will be recovered principally through sale rather than from continuing use. For this to be the case, the property must be available for immediate sale in its present condition, subject only to terms that are usual and customary for sales of such property and its sale must be highly probable.
The Group may enter into forward funding agreements with third party developers in respect of certain properties. Under these agreements the Group will make payments to the developer as construction progresses. The value of these payments is assessed and certified by an expert and capitalised in the period during which the expenditure is incurred and included within the book cost of the property.
Investment properties are recognised for accounting purposes upon completion of contract. Properties purchased under forward funding contracts are recognised at certified value to date.
(j) Distributions
Interim distributions payable to the holders of equity shares are only recognised in the Consolidated Statement of Changes in Equity in the period in which they are paid. An annual shareholder resolution is voted upon to approve the Group's distribution policy.
(k) Operating Lease Contracts - the Group as Lessor
The Group has entered into commercial property leases on its investment property portfolio. The Group has determined, based on an evaluation of the terms and conditions of the arrangements, that it retains all the significant risks and rewards of ownership of these properties and so accounts for leases as operating leases. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised as an expense on a straight-line basis over the lease term.
(l) Share Issue Expenses
Incremental external costs directly attributable to the issue of shares that would otherwise have been avoided are written off to the share premium reserve.
(m) Segmental Reporting
The Group is engaged in property investment in Europe. Operating results are analysed on a geographic basis by country. In accordance with IFRS 8 'Operating Segments', financial information on business segments is presented in note 19 of the Consolidated financial statements.
(n) Cash and Cash Equivalents
Cash and cash equivalents are defined as cash in hand, demand deposits, and other short-term highly liquid investments readily convertible within three months or less to known amounts of cash and subject to insignificant risk of changes in value.
(o) Financial instruments
Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the instruments.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in the Consolidated Statement of Comprehensive Income.
Financial assets
Financial assets are measured at amortised cost, financial assets 'at fair value through profit or loss' (FVTPL), or financial assets 'at fair value through other comprehensive income' (FVOCI). The classification is based on the business model in which the financial asset is managed and its contractual cash flow characteristics. All purchases and sales of financial assets are recognised on the trade date basis.
Financial assets at amortised cost
Financial assets at amortised cost are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.
Loans and receivables (including trade and other receivables, bank balances and cash, and others) are measured at amortised cost using the effective interest method, less any impairment. The Group holds the trade receivables with the objective to collect the contractual cash flows. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the effect of discounting is immaterial.
Impairment of financial assets
Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected.
For all other financial assets, objective evidence of impairment could include:
- significant financial difficulty of the issuer or counterparty; or
- breach of contract, such as a default or delinquency in interest or principal payments; or
- it becoming probable that the borrower will enter bankruptcy or financial re-organisation; or
- the disappearance of an active market for that financial asset because of financial difficulties. The Group's financial assets are subject to the expected credit loss model. For trade receivables, the Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables. The expected loss rates are based on the payment profiles of tenants over a period of 12 months before 31 December 2019, and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the liability of the tenants to settle the receivable. Such forward-looking information would include:
- changes in economic, regulatory, technological and environmental factors, (such as industry outlook, GDP, employment and politics);
- external market indicators; and
- tenant base.
Derecognition of financial assets
The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received. On derecognition of a financial asset in its entirety, the difference between the asset's carrying amount and the sum of the consideration received and receivable is recognised in the Consolidated Statement of Comprehensive Income.
(p) Financial liabilities
Financial liabilities are classified as 'other financial liabilities'.
Other financial liabilities
Other financial liabilities (including borrowings and trade and other payables) are subsequently measured at amortised cost using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only when, the Group's obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in the Consolidated Statement of Comprehensive Income.
(q) Reserves
Share Capital
This represents the proceeds from issuing Ordinary shares and is non-distributable.
Share Premium
Share premium represents the excess consideration received over the par value of Ordinary shares issued and is classified as equity. Incremental costs directly attributable to the issue of Ordinary shares are recognised as a deduction from share premium.
Special Distributable Reserve
The special reserve is a distributable reserve to be used for all purposes permitted, including the buyback of shares and the payment of dividends.
Capital Reserve
The capital reserve is a distributable reserve subject to applicable legislation and practice, and the following are accounted for in this reserve:
- gains and losses on the disposal of investment properties;
- increases and decreases in the fair value of investment properties held at the period end, which are not distributable.
Revenue Reserve
The revenue reserve is a distributable reserve and reflects any surplus arising from the net return on ordinary activities after taxation.
(r) Derivative financial instruments
The Company used forward foreign exchange contracts to mitigate potential volatility of income returns and to provide greater certainty as to the level of Sterling distributions expected to be paid in respect of the period covered by the relevant currency hedging instrument, it does not seek to provide a long-term hedge for the Company's income returns, which will continue to be affected by movements in the Euro/Sterling exchange rate over the longer term.
Derivatives are measured at fair value calculated by reference to forward exchange rates for contracts with similar maturity profiles. Changes in the fair value of derivatives are recognised in the Statement of Comprehensive Income as revenue or capital depending on their nature.
2. Revenue
|
|
Year ended 31 December 2019 €'000 |
Period ended 31 December 2018 €'000 |
|
Rental income |
13,376 |
2,323 |
|
Other income |
23 |
211 |
|
Property service charge income |
2,233 |
- |
|
Total revenue |
15,632 |
2,534 |
Included within rental income is amortisation of rent free periods granted.
3. Expenditure
|
|
Year ended 31 December 2019 €'000 |
Period ended 31 December 2018 €'000 |
|
Professional fees |
1,017 |
353 |
|
Directors' fees |
170 |
213 |
|
Audit fee for statutory services1 |
138 |
137 |
|
Other expenses |
216 |
112 |
|
Broker fees |
58 |
68 |
|
Depositary fees |
24 |
26 |
|
Stock exchange fees |
42 |
20 |
|
Directors liability insurance expense |
10 |
20 |
|
Registrar fees |
40 |
18 |
|
Custody expense |
- |
17 |
|
Employers NI |
13 |
13 |
|
Savings scheme expense |
- |
8 |
|
Total expenses |
1,728 |
1,005 |
1 The auditor was paid €41,300 (exclusive of VAT) in respect of non-audit services relating to their role as reporting accountant for the additional issue of ordinary shares in the year. This cost is included within share issue costs in note 16. The Audit fee above reflects the 2019 audit fee of €115,000 and irrecoverable VAT of €23,000.
4. Finance Costs
|
|
Year ended 31 December 2019 €'000 |
Period ended 31 December 2018 €'000 |
|
Liquidity fund interest paid |
37 |
658 |
|
Interest on bank loans |
1,158 |
- |
|
Bank interest |
98 |
- |
|
Amortisation of loan costs |
118 |
- |
|
Total finance costs |
1,411 |
658 |
The Company held cash in the Aberdeen Global Liquidity Fund plc which charges interest. Throughout the period the interest rate on this euro denominated fund was negative.
5. Taxation
The Company is resident in the United Kingdom for tax purposes. The Company is approved by HMRC as an investment trust under sections 1158 and 1159 of the Corporation Tax Act 2010. In respect of each accounting period for which the Company continues to be approved by HMRC as an investment trust the Company will be exempt from UK taxation on its capital gains. The Company is, however, liable to UK Corporation tax on its income. The Company is able to elect to take advantage of modified UK tax treatment in respect of its ''qualifying interest income'' for an accounting period referred to as the ''streaming'' regime. Under regulations made pursuant to the Finance Act 2009, the Company may, if it so chooses, designate as an ''interest distribution'' all or part of the amount it distributes to Shareholders as dividends, to the extent that it has ''qualifying interest income'' for the accounting period. Were the Company to designate any dividend it pays in this manner, it would be able to deduct such interest distributions from its income in calculating its taxable profit for the relevant accounting period. The Company should in practice be exempt from UK corporation tax on dividend income received, provided that such dividends (whether from UK or non-UK companies) fall within one of the ''exempt classes'' in Part 9A of the CTA 2010.
A reconciliation between the tax charge and the product of accounting profit/(loss) multiplied by the applicable tax rate for the year ended 31 December 2019.
(a) Tax charge in the Group Statement of Comprehensive Income
|
|
Year ended |
Period ended |
||||
|
Revenue €'000 |
Capital €'000 |
Total €'000 |
Revenue €'000 |
Capital €'000 |
Total €'000 |
|
|
Current taxation: Overseas taxation
Deferred taxation: Overseas taxation |
415
- |
-
4,662 |
415
4,662 |
-
- |
-
- |
-
- |
|
|
415 |
4,662 |
5,077 |
- |
- |
- |
|
|
Year ended |
Period ended |
||||
|
Revenue €'000 |
Capital €'000 |
Total €'000 |
Revenue €'000 |
Capital €'000 |
Total €'000 |
|
|
Net result before taxation |
8,146 |
16,852 |
24,998 |
33 |
(4,080) |
(4,047) |
|
Theoretical tax at UK |
1,548 |
3,202 |
4,750 |
6 |
(775) |
(769) |
|
corporation tax rate of 19% |
|
|
|
|
|
|
|
Effect of: |
|
|
|
|
|
|
|
Tax Losses arising |
(782) |
- |
(782) |
- |
775 |
775 |
|
Income not taxable |
(351) |
(3,202) |
(3,553) |
(6) |
- |
(6) |
|
Taxation on return |
415 |
- |
415 |
- |
- |
- |
(b) Tax in the Group Balance Sheet
|
|
Year ended |
Period ended |
||||
|
Revenue €'000 |
Capital €'000 |
Total €'000 |
Revenue €'000 |
Capital €'000 |
Total €'000 |
|
|
Deferred tax assets: On tax losses |
- |
766 |
766 |
- |
- |
- |
|
|
- |
766 |
766 |
- |
- |
- |
|
|
Year ended |
Period ended |
||||
|
Revenue €'000 |
Capital €'000 |
Total €'000 |
Revenue €'000 |
Capital €'000 |
Total €'000 |
|
|
Deferred tax liabilities Differences between tax and property revaluation |
- |
5,428 |
5,428 |
- |
- |
- |
|
Taxation on return |
- |
5,428 |
5,428 |
- |
- |
- |
6. Dividends
|
|
Year ended €'000 |
Period ended 31 December 2018 €'000 |
|
2018 Third interim dividend of 1.3p per share paid 22 March 2019 |
2,856 |
- |
|
2019 First interim dividend of 1.41c (1.27p) paid 10 July 2019 |
2,644 |
1,461 |
|
(2018 First interim: 0.7p) |
|
|
|
2019 Second interim dividend of 1.41c (1.27p) paid 7 October 2019 |
3,306 |
2,075 |
|
(2018 Second interim: 1.0p) |
|
|
|
2019 Third interim dividend of 1.41c (1.27p) paid 20 December 2019 |
3,306 |
|
|
|
12,112 |
3,536 |
A fourth interim dividend of 1.41c/1.27p per share was paid on 27 March 2020 to Shareholders on the register on 24 February 2020. Although this payment relates to the year ended 31 December 2019, under IFRS it will be accounted for in the year in which it has been paid. A portion of this dividend will be paid from the revenue reserve.
7. Earnings per Share (Basic and Diluted)
|
|
Year ended |
Period ended |
|
Revenue net profit attributable to Ordinary shareholders (€'000) |
7,731 |
33 |
|
Weighted average number of shares in issue during the period |
207,845,206 |
165,415,705 |
|
Total revenue return per ordinary share |
3.72¢ |
0.02¢ |
|
Capital return attributable to Ordinary shareholders (€'000) |
12,190 |
(4,080) |
|
Weighted average number of shares in issue during the period |
207,845,206 |
165,415,705 |
|
Total capital return per ordinary share |
5.86¢ |
(2.47¢) |
|
Total return per ordinary share |
9.58¢ |
(2.45¢) |
Earnings per share is calculated on the revenue and capital loss for the period (before other comprehensive income) and is calculated using the weighted average number of shares in the period of 207,845,206 (2018: 165,415,705 shares).
8. Net Asset Value Per Share
|
|
2019 |
2018 |
|
Net assets attributable to shareholders (€'000) |
260,277 |
202,073 |
|
Number of shares in issue at 31 December |
234,500,001 |
187,500,001 |
|
Net asset value per share (€) |
1.11 |
1.08 |
The Company announced an unaudited NAV of €260,720,000 as at 31 December 2019 on 28 February 2020. An additional €443,000 of accrued expenditure represents the difference between the unaudited NAV and the above. The Net asset value per share (€) is changed from 111.2c to 111.0c.
9. Investment Properties
|
|
2019 €'000 |
2018 €'000 |
|
Opening carrying value Purchases at cost Gains / (losses) on revaluation to fair value |
148,918 182,749 16,852 |
- 152,998 (4,080) |
|
Total carrying value at 31 December |
348,519 |
148,918 |
|
Losses on investment properties at fair value comprise |
|
|
|
Valuation gains/(losses) |
15,514 |
(3,813) |
|
Movements in lease incentives |
1,338 |
(267) |
|
|
16,852 |
(4,080) |
Valuation Methodology
Valuations were performed by CBRE GmbH, an accredited independent valuer with a recognised and relevant professional qualification. The valuer has sufficient current local and national knowledge of the particular property markets involved and has the skills and understanding to undertake the valuations competently.
The Investment Manager appoints a suitable valuer (such appointment is reviewed on a periodic basis) to undertake a valuation of all the direct real estate investments on a quarterly basis. The valuation is undertaken in accordance with the RICS Valuation - Global Standards 2017, (Red Book), published by the Royal Institution of Chartered Surveyors.
The Investment Manager meets with the valuer on a quarterly basis to ensure the valuer is aware of all relevant information for the valuation and any change in the investments over the quarter. The Investment Manager then reviews and discusses draft valuations with the valuer to ensure correct factual assumptions are made prior to the valuer issuing a final valuation report.
The fair value of completed investment property is determined predominantly using the income capitalisation method, and in two instances the discounted cash flow method. The income capitalisation method is based on capitalising the net income stream at an appropriate yield. In establishing the net income stream the valuer has reflected the current rent payable to lease expiry, at which point the valuer has assumed that each unit will be re-let at their opinion of estimated rental value. The valuer has made allowances for vacancies and rent-free periods where appropriate, as well as deducting non- recoverable costs where applicable. The appropriate yield is selected on the basis of the location of the building, its quality, tenant credit quality and lease terms amongst other factors. The discounted cash flow method approach is based on estimations of the investment property's ability to generate future annual net operating income over a hold period of 10 years. Growth and inflation are included explicitly in the cash flow forecast. The valuer calculates the present value of cashflow generated by the investment property plus the present value of the exit value at the end of the 10-year hold period. The cash flow is discounted at a rate the valuer considers appropriate for the specific investment property.
The Property Valuer takes account of deleterious materials included in the construction of the investment properties in arriving at its estimate of Fair Value when the Investment Manager advises of the presence of such materials.
The majority of the leases are on a full repairing and insurance basis and as such the Group is not liable for costs in respect of repairs or maintenance to its investment properties.
The fair value of these investment properties amounted to €350,125,000. The difference between the fair value and the value per the Consolidated balance sheet at 31 December 2019 consists of accrued income relating to the pre-payment for rent-free periods recognised over the life of the lease totalling €1,606,000 which is separately recorded in the financial statements as a current asset.
The following disclosure is provided in relation to the adoption of IFRS 13 Fair Value Measurement. All properties are deemed Level 3 for the purposes of fair value measurement and the current use of each property is considered the highest and best use.
|
Country and sector |
Fair Value €'000 |
Valuation techniques |
Key Unobservable inputs |
Range (weighted average) |
|
Netherlands - Logistics |
135,500 |
Income Capitalisation and Discounted Cash Flow |
Annual rent per sq ft Capitalisation rate |
42.26 - 67.02 (54.54) 5.05% - 5.55% (5.34%) |
|
Germany - Logistics |
61,300 |
Discounted Cash Flow and Income Capitalisation |
Annual rent per sq ft Capitalisation rate |
64.92 - 67.67 (66.61) 3.8% - 3.95% (3.89%) |
|
France - Logistics |
72,400 |
Discounted Cash Flow |
Annual rent per sq ft |
47.94 - 90.07 (75.41) |
|
|
|
|
Capitalisation rate |
4.90% - 5.00% (4.93%) |
|
Poland - Logistics |
53,400 |
Income Capitalisation and |
Annual rent per sq ft |
38.56 - 64.2 (51.76) |
|
|
|
Discounted Cash Flow |
Capitalisation rate |
5.5% - 6.25% (5.86%) |
|
Spain - Logistics |
27,525 |
Discounted Cash Flow |
Annual rent per sq ft |
17.98 - 32.28 (27.08) |
|
|
|
|
Capitalisation rate |
4.75% - 6% (5.54%) |
Sensitivity Analysis
The table below presents the sensitivity of the valuation to changes in the most significant assumptions underlying the valuation of investment property. As the majority of Investment Properties are valued using the Income Capitalisation method, this is the most significant assumption analysed.
|
Country and sector |
Assumption |
Movement |
Effect on Valuation |
|
Netherlands - Logistics |
Capitalisation rate Capitalisation rate Capitalisation rate Capitalisation rate Capitalisation rate |
+50 basis points - 50 basis points +50 basis points - 50 basis points +50 basis points - 50 basis points +50 basis points - 50 basis points +50 basis points - 50 basis points |
(11,900) 14,100 (6,900) 8,800 (6,400) 7,700 (4,100) 4,800 (2,425) 2,875 |
|
Germany - Logistics |
|||
|
France - Logistics |
|||
|
Poland - Logistics |
|||
|
Spain - Logistics |
10. Trade and Other Receivables
|
|
2019 €'000 |
2018 €'000 |
|
Rents receivable |
3,327 |
1,174 |
|
Accrued income |
160 |
226 |
|
VAT receivable |
3,310 |
- |
|
Cash held by Solicitors |
165 |
975 |
|
Lease incentives |
1,606 |
267 |
|
Deferred tax |
766 |
- |
|
Other receivables |
549 |
9,037 |
|
Total receivables |
9,883 |
11,679 |
The ageing of these receivables is as follows:
|
|
2019 €'000 |
2018 €'000 |
|
Less than 6 months |
5,813 |
11,679 |
|
Between 6 & 12 months |
4,070 |
- |
|
Over 12 months |
- |
- |
|
|
9,883 |
11,679 |
11. Cash and Cash Equivalents
|
|
2019 |
2018 |
|
€'000 |
€'000 |
|
|
Cash at bank |
24,579 |
6,279 |
|
Money market funds |
- |
43,854 |
|
Total cash and cash equivalents |
24,579 |
50,133 |
12. Trade and Other Payables
|
|
2019 €'000 |
2018 €'000 |
|
Rental income received in advance |
2,224 |
710 |
|
Accrued acquisition and development costs |
1,521 |
5,930 |
|
Management fees payable |
471 |
563 |
|
All other fees payable |
651 |
1,454 |
|
VAT payable |
670 |
- |
|
Other payables |
11 |
- |
|
Accruals |
659 |
- |
|
Trade creditors |
1,948 |
- |
|
Tenant deposits |
1,197 |
- |
|
Total payables |
9,352 |
8,657 |
13. Bank Loans
|
|
2019 €'000 |
2018 €'000 |
|
Bank borrowings drawn |
108,900 |
- |
|
Loan issue costs paid |
(1,102) |
- |
|
Accumulated amortisation of loan issue costs |
118 |
- |
|
Total Bank Loans |
|
- |
|
Property |
Country |
Loan |
Start date |
End date |
Lender |
Interest Rate |
|
|
|
(€'000) |
|
|
|
|
|
Erlensee |
Germany |
17,800 |
20/02/2019 |
31/01/2029 |
DZ HYP |
1.62% |
|
Florsheim |
Germany |
12,400 |
18/02/2019 |
30/01/2026 |
DZ HYP |
1.54% |
|
Avignong + Meung Sur Loire |
France |
33,000 |
12/02/2019 |
12/02/2026 |
BAYERN LB |
1.57% |
|
(Ede/Waddinxveen) + Oss |
Netherlands |
37,700 |
06/06/2019 |
06/06/2025 |
BERLIN HYP |
(1.22%) 1.05% |
|
's Heerenberg |
Netherlands |
8,000 |
27/06/2019 |
27/06/2025 |
BERLIN HYP |
0.94% |
|
|
|
108,900 |
|
|
|
|
14. Derivative Financial Instruments
|
|
2019 €'000 |
2018 €'000 |
|
Forward foreign exchange contracts |
8 |
- |
|
|
8 |
- |
The Company employed currency hedging to provide greater certainty as to the level of Sterling distributions paid in respect of the year. A forward FX contract was entered into fixing the EUR: GBP exchange rate at €1.11:£1 for the three interim distributions paid in the year.
15. Share Capital
|
|
2019 |
2018 |
|
€'000 |
€'000 |
|
|
Opening Balance |
2,122 |
- |
|
Manager's shares issued in the period |
- |
56 |
|
Manager's shares redeemed in the period |
- |
(56) |
|
Ordinary shares issued on incorporation |
- |
1 |
|
Ordinary shares issued |
523 |
2,121 |
|
As at 31 December |
2,645 |
2,122 |
Ordinary shareholders participate in all general meetings of the Company on the basis of one vote for each share held.
Each Ordinary share has equal rights to dividends and equal rights to participate in a distribution arising from a winding up of the Company. The Ordinary shares are not redeemable.
The total number of shares authorised, issued and fully paid at IPO was 187,500,001. The nominal value of each share is £0.01 and amount paid for each share was £1.00. Share proceeds were received in tranches between 15 and 18 December 2017 and converted to Euro at a rate of £1:€1.131868907.
On incorporation, the issued share capital of the Company was one Ordinary Share of a nominal value of £0.01, which was subscribed for by Aberdeen Asset Management PLC. On 8 November 2017 the Company issued 50,000 Management Shares of a nominal value of £1.00 each which were subscribed for by Aberdeen Asset Management PLC. The Management Shares were fully paid up and were redeemed immediately following the Initial admission out of the proceeds of the Initial Issue. The Management Shares redeemable at any time (subject to the provisions of the Companies Act) by the Company and carried the right to receive a fixed annual dividend equal to 0.01 per cent. of the nominal amount of each of the Management Shares payable on demand. For so long as there are shares of any other class in issue, the holders of the Management Shares did not have any right to receive notice of or vote at any general meeting of the Company.
On 31 July 2019, the Group increased its share capital by the issue of 47,000,000 new Ordinary Shares at 98.75p (€1.09) per share.
16. Share Premium
|
|
2019 |
2018 |
|
€'000 |
€'000 |
|
|
Opening Balance |
- |
- |
|
Premium arising on issue of new shares |
51,147 |
210,102 |
|
Share issue costs deducted |
(783) |
(2,875) |
|
Transfer to special distributable reserve |
- |
(207,227) |
|
Balance at 31 December |
50,364 |
- |
The share premium was converted to EUR using the issue date exchange rate of 1.0827021 (2018: 1.131869).
17. Special Distributable Reserve
|
|
2019 €'000 |
2018 €'000 |
|
Opening Balance |
203,691 |
- |
|
Transfer from share premium account |
- |
207,227 |
|
Dividends Paid |
(12,112) |
(3,536) |
|
Balance at 31 December |
191,579 |
203,691 |
At a General Meeting held on 8 November 2017, a special resolution was passed authorising, conditional on the issue of Ordinary shares by the Company, the amount standing to the credit of the share premium account of the Company following issue to be cancelled. In order to cancel the share premium account the Company was required to obtain a Court Order, which was received on 13 March 2018. A Statement of Capital form was lodged at Companies House with a copy of the Court Order on 16 March 2018. With effect from that date the amount of the share premium account cancelled was credited as a special distributable reserve in the Company's books of account.
18. Capital Reserves
|
|
Realised capital reserve €'000 |
Unrealised gains/(losses) €'000 |
Total capital reserve €'000 |
|
As at 31 December 2018 |
345 |
(4,125) |
(3,780) |
|
Movement in deferred taxation |
- |
(4,662) |
(4,662) |
|
Movement in fair value gains of |
- |
16,852 |
16,852 |
|
Investments |
|
|
|
|
Currency (losses)/gains during the year |
(200) |
8 |
(192) |
|
Balance at 31 December 2019 |
145 |
8,073 |
8,218 |
|
|
Realised capital reserve €'000 |
Unrealised losses €'000 |
Total capital reserve €'000 |
|
As at 25 October 2017 Movement in fair value losses of investments Realised currency gains/(losses) during the year |
- -
345 |
- (4,080)
(45) |
- (4,080)
300 |
|
Balance at 31 December 2018 |
345 |
(4,125) |
(3,780) |
19. Operating Segments
The Group's reportable segments are the geographical areas in which it operates. These operating segments reflect the components of the Group that are regularly reviewed to allocate resources and assess performance.
|
2019 |
Netherlands €'000 |
Poland €'000 |
Germany €'000 |
Spain €'000 |
France €'000 |
Parent Company €'000 |
Total €'000 |
|
Total Assets |
142,387 |
56,872 |
63,252 |
32,416 |
77,258 |
10,796 |
382,981 |
|
Total Liabilities |
47,825 |
3,183 |
32,953 |
1,776 |
36,007 |
1,055 |
122,704 |
|
Total Comprehensive return for the |
4,622 |
449 |
1,759 |
563 |
3,208 |
(3,170) |
7,431 |
|
period (Revenue) |
|
|
|
|
|
|
|
|
Total Comprehensive return for the |
1,588 |
1,575 |
2,638 |
1,222 |
(200) |
5,175 |
11,998 |
|
period (Capital) |
|
|
|
|
|
|
|
|
Included in Total Comprehensive |
|
|
|
|
|
|
|
|
Income |
|
|
|
|
|
|
|
|
Net gain / (loss) from the fair value |
5,455 |
1,622 |
5,315 |
2,197 |
2,263 |
- |
16,852 |
|
adjustment on investment property |
|
|
|
|
|
|
|
|
Rental income |
5,319 |
1,324 |
2,494 |
637 |
3,602 |
- |
13,376 |
|
2018 |
Netherlands €'000 |
Germany €'000 |
Spain €'000 |
France €'000 |
Parent Company €'000 |
Total €'000 |
|
Total Assets |
89,772 |
24,081 |
1,689 |
47,726 |
47,462 |
210,730 |
|
Total Liabilities |
6,211 |
439 |
20 |
1,386 |
601 |
8,657 |
|
Total Comprehensive return for the |
828 |
932 |
(26) |
322 |
(2,016) |
40 |
|
period (Revenue) |
|
|
|
|
|
|
|
Total Comprehensive return for the |
(3,427) |
(266) |
|
(387) |
300 |
(3,780) |
|
period (Capital) |
|
|
|
|
|
|
|
Included in Total Comprehensive |
|
|
|
|
|
|
|
Income |
|
|
|
|
|
|
|
Net gain / (loss) from fair value |
(3,427) |
(266) |
- |
(387) |
- |
(4,080) |
|
adjustment on investment property |
|
|
|
|
|
|
|
Rental income |
885 |
1,025 |
- |
413 |
- |
2,323 |
20. Financial instruments and investment properties Fair value hierarchy
IFRS 13 requires the Group to classify its financial instruments held at fair value using a hierarchy that reflects the significance of the inputs used in the valuation methodologies. These are as follows:
Level 1 - quoted prices in active markets for identical investments;
Level 2 - other significant observable inputs (including quoted prices for similar investments, interest rates, prepayments, credit risk, etc.); and
Level 3 - significant unobservable inputs.
The following table shows an analysis of the fair values of investment properties recognised in the balance sheet by level of the fair value hierarchy:
|
31 December 2019 |
Level 1 €'000 |
Level 2 €'000 |
Level 3 €'000 |
Total fair value €'000 |
|
Investment properties |
- |
- |
348,519 |
348,519 |
|
31 December 2018 |
Level 1 €'000 |
Level 2 €'000 |
Level 3 €'000 |
Total fair value €'000 |
|
Investment properties |
- |
- |
148,918 |
148,918 |
The lowest level of input is the underlying yields on each property which is an input not based on observable market data.
|
31 December 2019 |
Level 1 €'000 |
Level 2 €'000 |
Level 3 €'000 |
|
Derivative Financial Instruments |
- |
8 |
- |
The lowest level of input is EUR:GBP exchange rate.
21. Risk Management
The Group's financial instruments comprise securities and other investments, cash balances, loans and debtors and creditors that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement, and debtors for accrued income. The Group also has the ability to enter into derivative transactions in the form of forward foreign currency contracts, futures and options, for the purpose of managing currency and market risks arising from the Group's activities. No derivatives transactions were undertaken during the year.
The main risks the Group faces from its financial instruments are (a) market price risk (comprising of (i) interest rate risk, (ii) foreign currency risk and (iii) other price risk), (b) liquidity risk and (c) credit risk.
(a) Market price risk
The fair value or future cash flows of a financial instrument held by the Group may fluctuate because of changes in market prices. This market risk comprises three elements - interest rate risk, foreign currency risk and other price risk.
(i) Market risk arising from interest rate risk
Interest rate movements may affect the level of income receivable on cash deposits.
The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment and borrowing decisions.
Interest risk profile
The interest rate risk profile of the portfolio of financial assets and liabilities at the year end were as follows:
|
As at 31 December 2019 |
Interest rate % |
Local currency '000 |
Foreign exchange rate |
Euro equivalent €'000 |
|
Assets: |
|
|
|
|
|
Euro |
(0.60) |
23,393 |
€1.00 |
23,393 |
|
Pound Sterling |
0.07 |
1,005 |
0.85 |
1,186 |
|
Total |
24,579 |
|||
|
As at 31 December 2018 |
Interest rate % |
Local currency '000 |
Foreign exchange rate |
Euro equivalent €'000 |
|
Assets: |
|
|
|
|
|
Euro |
(0.60) |
46,774 |
€ 1.00 |
46,774 |
|
Pound Sterling |
0.07 |
3,015 |
0.89757 |
3,359 |
|
Total |
50,133 |
|||
The floating rate assets consist of cash deposits on call earning interest at prevailing market rates.
An increase of 1 per cent in interest rates as at the reporting date would have increased the reported profit by
€501,000. A decrease of 1 per cent would have reduced the reported profit by €501,000. Other financial assets (eg debtors) are not subject to interest rate risk.
(ii) Market risk arising from foreign currency risk
The income and capital value of the Groups investments and liabilities can be affected by exchange rate movements as some of the Group's assets and income are denominated in currencies other than Euro which is the Group's reporting currency.
The revenue account is subject to currency fluctuation arising from overseas income.
Foreign currency risk profile
Foreign currency risk exposure by currency of denomination:
|
As at 31 December 2019 |
Investment exposure €'000 |
Net monetary exposure €'000 |
Total currency exposure €'000 |
|
Pound Sterling |
- |
4,652 |
4,652 |
|
Total foreign currency |
- |
4,652 |
4,652 |
|
Euro |
348,519 |
(92,894) |
255,625 |
|
Total |
348,519 |
(88,242) |
260,277 |
|
As at 31 December 2018 |
Investment exposure €'000 |
Net monetary exposure €'000 |
Total currency exposure €'000 |
|
Danish krone |
- |
6 |
6 |
|
Norwegian krone |
- |
26 |
26 |
|
Pound Sterling |
- |
3,129 |
3,129 |
|
Total foreign currency |
- |
3,161 |
3,161 |
|
Euro |
148,918 |
49,994 |
198,912 |
|
Total |
148,918 |
53,155 |
202,073 |
The asset allocation between specific markets can vary from time to time based on the manager's opinion of the attractiveness of the individual markets.
Foreign currency sensitivity
The following table details the Group's sensitivity to a 10% increase and decrease in sterling against the relevant foreign currencies and the resultant impact that any such increase or decrease would have on net return before tax and equity shareholders' funds. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the year end for a 10% change in foreign currency rates.
|
|
As at 31 December 2019 €'000 |
As at 31 December 2018 €'000 |
|
Danish krone |
- |
0.6 |
|
Norwegian krone |
- |
2.6 |
|
Pound Sterling |
465.2 |
312.9 |
(iii) Market risk arising from other price risk
Other price risks (i.e. changes in market prices other than those arising from interest rate or currency risk) may affect the value of the quoted investments.
Other price risk sensitivity
If the investment valuation fell by 10% at 31 December 2019, the impact on net return before tax and equity shareholders' funds would have been negative €35m. If the investment portfolio valuation rose by 10% at 31 December 2019, the impact on net return before tax and equity shareholders' funds would have been positive €35m. Exposures vary throughout the period as a consequence of changes in the net assets of the Group arising out of the investment and risk management processes.
(b) Liquidity risk
This is the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities. All creditors are payable within three months.
The Group's liquidity risk is managed by the Investment Manager placing cash in liquid deposits and accounts. Liquidity risk is the risk that the Group will encounter in realising assets or otherwise raising funds to meet financial commitments and also includes:
- The level of dividends and other distributions to be paid by the Group may fluctuate and there is no guarantee that any such distributions will be paid.
- The Group's target returns are targets only and are based on estimates and assumptions about a variety of factors all of which are beyond the Group's control and which may adversely affect the Group's ability to make its target returns. The Group may not be able to implement its investment policy and strategy in a manner that generates dividends in line with the target returns or the Group's investment objective. Liquidity risk is not considered to be significant.
(c) Credit risk
This is the risk of failure of the counterparty to a transaction to discharge its obligations under that transaction that could result in the Group suffering a loss.
The risk is not considered significant by the Board, and is managed as follows:
The Group acquired a portfolio of European logistics properties and has a number of leases with tenants. In the event of default by a tenant, the Group will suffer a rental shortfall and incur additional costs, including legal expenses, in maintaining, insuring and re-letting the property until it is re-let. The Board receives regular reports on concentrations of risk and any tenants in arrears. The Investment Manager monitors such reports in order to anticipate and minimise the impact of defaults by tenants. Cash is held only with reputable financial institutions with high quality external credit ratings.
None of the Group's financial assets is secured by collateral.
The maximum credit risk exposure as at 31 December 2019 was €34.2m (2018 - €61.8m). This was due to trade receivables and cash as per notes 10 and 11.
(d) Taxation and Regulation risks
All cash is placed with financial institutions with a credit rating of -A or above. Bankruptcy or insolvency may cause the Group's ability to access cash placed on deposit to be delayed or limited. Should the credit quality or the financial position of the financial institutions currently employed significantly deteriorate, the Investment Manager would move the cash holdings to another financial institution. There are no significant concentrations of liquidity risk within the Group.
The Company must comply with the provisions of the Companies Act and, as the shares are admitted to the premium segment of the Official List, the Listing Rules and the Disclosure Guidance and Transparency Rules.
A breach of the Companies Act could result in the Company and/or the Board being fined or being the subject of criminal proceedings. Breach of the Listing Rules could result in the shares being suspended from listing. Legal and regulatory changes could occur that may adversely affect the Company. Changes in the regulation of companies may adversely affect the value of the Portfolio and the ability of the Company to pursue its investment objective. The Company has obtained UK Investment Trust Company status. The Company must comply with the provisions of sections 1158 and 1159 of the Corporation Tax Act 2010 and Part 2 Chapter 1 of Statutory Instruments 2011/2999 to maintain this status. Breaching these regulations could result in the Company paying UK Corporation Tax it would otherwise be exempt from, adversely affecting the Company's ability to pursue its investment objective.
Capital Management
The Group considers that capital comprises issued Ordinary shares and long term borrowings. The Group's capital is deployed in the acquisition and management of subsidiaries in line with the Group's investment objective.
Specifically to provide a regular and attractive level of income return together with the potential for long term income and capital growth from investing in high quality European logistics real estate.
The following investment limits and restrictions apply to the Group and its business which, where appropriate, are measured at the time of investment and once the Group is fully invested:
- the Group will only invest in assets located in Europe;
- no more than 50 per cent. of Gross Assets will be concentrated in a single country;
- no single asset may represent more than 20 per cent. of Gross Assets;
- forward funded commitments will be wholly or predominantly pre-let and the Group's overall exposure to forward funded commitments will be limited to 20 per cent. of Gross Assets;
- the Group's maximum exposure to any single developer will be limited to 20 per cent of Gross Assets;
- the Group will not invest in other closed-ended investment companies;
- the Group may only invest in assets with tenants which have been classified by the Investment Manager's investment process as having strong financial covenants; and
- no single tenant will represent more than 20 per cent. of the Group's annual gross income measured annually.
The Group's principal use of cash will be to fund investments in accordance with its investment policy, on-going operational expenses and to pay dividends and other distributions to shareholders, as set out in the Prospectus. The Group may from time to time have surplus cash (for example, following the disposal of an investment). Pending reinvestment of such cash, it is expected that any surplus cash will be temporarily invested in cash equivalents, money market instruments, bonds, commercial paper or other debt obligations with financial institutions or other counterparties having a single -A (or equivalent) or higher credit rating as determined by an internationally recognised rating agency; or ''government and public securities'' as defined for the purposes of the FCA rules.
The Group monitors capital primarily through regular financial reporting and also through a gearing policy. The Group intends to use gearing with the objective of improving shareholder returns. Debt will typically be secured at the asset level and potentially at the Group level with or without a charge over some or all of the Group's assets, depending on the optimal structure for the Group and having consideration to key metrics including lender diversity, cost of debt, debt type and maturity profiles. Borrowings will typically be non-recourse and secured against individual assets or groups of assets and the aggregate borrowings at asset level will always be subject to an absolute maximum, calculated at the time of drawdown for a property purchase, of 50 per cent. of Gross Assets. Where borrowings are secured against a group of assets, such group of assets shall not exceed 25 per cent. of Gross Assets in order to ensure that investment risk remains suitably spread. The Board has established gearing guidelines for the AIFM in order to maintain an appropriate level and structure of gearing within the parameters set out above. Under these guidelines, aggregate borrowings at asset level are expected to be at or around 35 per cent. of gross assets. The Board will keep the level of borrowings under review and the aggregate borrowings will always be subject to the absolute maximum set at the time of the Group's launch, calculated at the time of drawdown for a property purchase, of 50 per cent. of Gross Assets.
22. Related Party Transactions
The Company's Alternative Investment Fund Manager ('AIFM') throughout the period was Aberdeen Standard Fund Managers Limited ("ASFML"). Under the terms of a Management Agreement dated 17 November 2017 the AIFM is appointed to provide investment management services, risk management services and general administrative services including acting as the Company Secretary. The agreement is terminable by either the Company or ASFML on not less than 12 months' written notice.
Under the terms of the agreement portfolio management services are delegated by ASFML to Aberdeen Standard Investments Ireland Limited ('ASIIL'). The total management fees charged to the Consolidated Statement of Comprehensive Income during the period were €1,695,000 (2018: €587,000), of which €471,000 (2018: €563,000) were payable at the period end. Under the terms of a Global Secretarial Agreement between ASFML and Aberdeen Asset Management PLC ('AAM PLC'), company secretarial services are provided to the Company by AAM PLC.
The remuneration of Directors is detailed below. Further details on the Directors can be found on pages 44 to 45 of the published Annual Report for the year ended 31 December 2019.
|
|
2019 |
2018 |
|
€'000 |
€'000 |
|
|
Pascal Duval |
21 |
51 |
|
Caroline Gulliver |
40 |
45 |
|
John Heawood |
34 |
39 |
|
Tony Roper |
41 |
39 |
|
Diane Wilde |
34 |
39 |
|
|
170 |
213 |
Please note the above figures are all Euro, while those in the directors remuneration report are stated in GBP. Mr Duval retired on 11 June 2019.
The Directors' shareholdings are detailed below. On 31 July 2019 Mr Roper acquired 15,000 shares, Ms Gulliver acquired 15,000 shares, Ms Wilde acquired 20,000 shares and Mr Heawood acquired 10,000 shares all transactions having been undertaken as part of the Placing, Open Offer and Offer for Subscription at 98.75p per share.
|
|
31 December 2019 Ordinary shares |
31 December 2018 Ordinary shares |
|
T Roper |
45,000 |
30,000 |
|
C Gulliver |
40,000 |
25,000 |
|
J Heawood |
30,000 |
20,000 |
|
D Wilde |
40,000 |
20,000 |
|
P Duval1 |
n/a |
30,000 |
1 Retired as a Director on 11 June 2019.
The Company invested in the Aberdeen Standard Liquidity fund which is managed by Aberdeen Standard Fund Managers Limited. As at 31 December 2019 the Company invested €0 in the Fund (2018: €43.9m). No additional fees are payable to Aberdeen Standard Fund Managers Limited as a result of this investment. Due to negative interest rates, interest of €98,000 (2018: €658,000) was incurred.
23. Lease Analysis
The group leases out its investment properties under operating leases.
The future income under non-cancellable operating leases, based on the unexpired lease length at the year end was as follows (based on total rents).
|
|
2019 €'000 |
2018 €'000 |
|
Less than one year |
19,039 |
6,894 |
|
Between one and five years |
74,014 |
26,485 |
|
Over five years |
106,778 |
40,499 |
|
Total |
199,831 |
73,878 |
24. Post Balance Sheet Events
Following the year end the Group completed the acquisition of an asset in Den Hoorn, The Netherlands. The Group also drew external debt secured against 2 assets, Den Hoorn and Zeewolde.
The outbreak of the Novel Coronavirus ("COVID-19") in 2020 has resulted in significant loss of life, adversely impacted global commercial activity and contributed to significant volatility in certain equity and debt markets. The global impact of the outbreak is rapidly evolving and on 11 March 2020, the World Health Organization declared a pandemic. Many countries have reacted by instituting quarantines, prohibitions on travel and the closure of offices, businesses, schools, retail stores and other public venues. Businesses are also implementing similar precautionary measures.
Such measures, as well as the general uncertainty surrounding the dangers and impact of COVID-19, are creating significant disruption in supply chains and economic activity and are having a particularly adverse impact on transportation, hospitality, tourism, entertainment and other industries. The impact of COVID-19 has led to significant volatility and declines in the global public equity markets and it is uncertain how long this volatility will continue. As COVID-19 continues to spread, the potential impacts, including a global, regional or other economic recession, are increasingly uncertain and difficult to assess.
The outbreak of COVID-19 and the resulting financial and economic market uncertainty could have a significant adverse impact on the Company, including the fair value of its investments. The most significant conditions relating to COVID-19 arose after the reporting period and as a result the Directors consider the emergence of the COVID-19 Coronavirus pandemic to be a non-adjusting post balance sheet event. Any future impact on the Company is likely to be in connection with the assessment of the fair value of investments and stability of rental income at future dates.
At the date of reporting it is not possible to quantify the future financial impact of COVID-19 on the Company's investments or rental income with any degree of certainty, other than as already announced to the market through an RIS. The Directors will continue to closely analyse and review the impact of COVID-19 and will take appropriate action as required.
25. Capital Commitments
As at the 31 December 2019 the Group had capital commitments of €49.9m in relation to the acquisition at Den Hoorn, the Netherlands.
26. Ultimate Parent Company
In the opinion of the Directors on the basis of shareholdings advised to them, the Company has no immediate or ultimate controlling party.
SUSTAINABILITY
EPRA FINANCIAL REPORTING (UNAUDITED)
One of EPRA's aims is to improve the transparency, comparability and relevance of the published results of listed real estate companies in Europe. EPRA performance measures calculated in line with 'Best Practice Recommendation Guidelines - November 2016' are therefore enclosed.
EPRA Performance Measures
|
|
31 December 2019 Total |
31 December 2018 Total |
|
EPRA earnings (€'000) |
7,247 |
340 |
|
EPRA earnings per share (cents) |
3.49 |
0.18 |
|
EPRA NAV (€'000) |
264,947 |
202,073 |
|
EPRA NAV per share (cents) |
112.98 |
107.77 |
|
EPRA NNNAV (€'000) |
260,277 |
202,073 |
|
EPRA NNNAV per share (cents) |
110.99 |
107.77 |
|
EPRA Net Initial Yield |
4.74% |
1.68% |
|
EPRA topped-up Net Initial Yield |
5.10% |
1.78% |
|
EPRA Vacancy Rate |
0.0% |
0.0% |
|
EPRA Cost Ratios - including direct vacancy costs |
29% |
79% |
|
EPRA Cost Ratios - excluding direct vacancy costs |
29% |
79% |
|
A. EPRA Earnings (€000) |
|
|
|
Earnings per IFRS income statement |
19,429 |
(3,740) |
|
Adjustments to calculate EPRA Earnings, exclude: |
|
|
|
Net changes in fair value of investment properties |
(16,852) |
(4,080) |
|
Deferred tax |
4,662 |
- |
|
Changes in fair value of financial instruments |
8 |
- |
|
EPRA Earnings |
7,247 |
340 |
|
Weighted average basic number of shares |
207,845 |
187,500 |
|
EPRA Earnings per share (cents per share) |
3.49 |
0.18 |
|
B. EPRA Net Asset Value (€000) |
|
|
|
IFRS NAV |
260,277 |
202,073 |
|
Exclude |
|
|
|
Fair value of financial instruments |
8 |
- |
|
Deferred tax adjustment |
4,662 |
|
|
|
264,947 |
202,073.00 |
|
Shares in issue at end of year |
2,345,000 |
1,875,000 |
|
EPRA NAV per share (cents per share) |
112.98 |
107.77 |
|
|
31 December 2019 Total |
31 December 2018 Total |
|
C. EPRA Triple Net Asset Value (NNNAV) |
|
|
|
EPRA NAV |
264,947 |
202,073 |
|
Fair value of financial instruments |
(8) |
- |
|
Deferred tax adjustment |
(4,662) |
- |
|
EPRA NNNAV |
260,277 |
202,073 |
|
EPRA NNNAV cents per share |
110.99 |
107.77 |
|
D. EPRA Net Initial Yield and 'topped up' NIY disclosure |
|
|
|
Investment property - wholly owned |
350,125 |
149,185 |
|
Less developments |
- |
(23,740) |
|
Completed property portfolio |
350,125 |
125,445 |
|
Allowance for estimated purchasers' costs |
17,145 |
5,279 |
|
Gross up completed property portfolio valuation |
367,270 |
130,724 |
|
Annualised cash passing rental income |
17,717 |
2,391 |
|
Property outgoings |
(319) |
(198) |
|
Annualised net rents |
17,398 |
2,193 |
|
Add: notional rent expiration of rent free periods or other lease |
1,322 |
138 |
|
Incentives |
|
|
|
Topped-up net annualised rent |
18,720 |
2,331 |
|
EPRA NIY |
4,74% |
1.68% |
|
EPRA "topped-up" NIY |
5.10% |
1.78% |
|
E. EPRA Cost Ratios |
|
|
|
Administrative / property operating expense line per IFRS |
6,075 |
1,843 |
|
income statement |
|
|
|
Less recoverable service charge |
(2,233) |
- |
|
Direct vacancy costs |
- |
- |
|
EPRA Costs (excluding direct vacancy costs) |
3,842 |
1,843 |
|
Gross Rental income less ground rent costs |
13,376 |
2,323 |
|
EPRA Cost Ratio (including direct vacancy costs) |
29% |
79% |
|
EPRA Cost Ratio (excluding direct vacancy costs) |
29% |
79% |
The Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended 31 December 2019 are an abridged version of the Company's full Annual Report and financial statements, which have been approved and audited with an unqualified report and did not include any reference to matters to which the auditor drew attention by way of emphasis without qualifying the report, and did not contain a statement under s.498 of the Companies Act 2006.
The Annual Report will be posted to shareholders in June 2020 and additional copies will be available from the registered office of the Company and on the Company's website, eurologisticsincome.co.uk*
The Annual General Meeting will be held at 2:00 pm on 30 June 2020 at Bow Bells House, 1 Bread Street, London EC4M 9HH.
Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise and may be affected by exchange rate movements. Investors may not get back the amount they originally invested.
*Neither the content of the Company's website nor the content of any website accessible from hyperlinks on the Company's website (or any other website) is (or is deemed to be) incorporated into, or forms (or is deemed to form) part of this announcement.
For Aberdeen Standard European Logistics Income PLC
Aberdeen Asset Management PLC, Secretaries
27 May 2020
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
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