Annual Financial Report
21 April 2022
abrdn European Logistics Income plc (the "Company")
FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2021
Increased portfolio weighting towards higher growth urban logistics sector and focus on modern, sustainable buildings underpins double-digit NAV total return
abrdn European Logistics Income plc, the investor in modern Continental European warehouses, which is managed by abrdn, today announces its final results for the year to 31 December 2021.
Second consecutive year delivering double digit NAV total return with earnings growth set to benefit from portfolio's high lease indexation
· Net asset value per ordinary share increased by 7.5% to €1.29 (31 December 2020: €1.20)
· Share price total return of 12.4% (31 December 2020: 26.6%)
· NAV total return of 12.4% for the year, primarily driven by ongoing favourable yield movement
· IFRS earnings per share 15.4 euro cents for 2021 (31 December 2020: 14.8 euro cents)
· Loan to Value of 25.1% (all in cost of debt 1.4%)
· Dividends of 5.64 euro cents per share paid in respect of the period, in line with the target for the financial year
· Attractive inflation linked lease profile, with 70% of portfolios' current income subject to full indexation
· Growth strategy supported by two oversubscribed equity issues completed during the year, including a £125 million equity issuance in September 2021, with a further £38 million raised post-period end.
€274 million of acquisitions providing further diversification and enhancing portfolio's investment grade credentials
· Strong rent collection with 100% of rent due for the year collected
· Portfolio valued at €661 million (31 December 2020: €425 million), reflecting yield compression and new acquisitions; on a like for like basis, the portfolio value increased by 9.1%
· 10 warehouse acquisitions, totalling €274.1 million, taking the total portfolio to 24 modern properties (including one currently under construction leased to Amazon), diversified by geography and tenant, including:
o €227.3 million acquisition of a newly constructed last-mile logistics warehouse portfolio in Madrid, which will generate €7.7 million of annual contracted rent
o A 31,500 sqm warehouse in Lodz, Poland, for €28.1 million, reflecting a net initial yield of 5.6%
o The €18.7 million acquisition of a modern urban logistics warehouse in Barcelona, Spain, reflecting a net reversionary yield of 4.7%
· Weighted average unexpired lease term ("WAULT") of 8 years (31 December 2020: 11 years)
Awarded Sector Leader status with leading sustainability credentials:
· GRESB score of 84/100, which compares favourably with the 73/100 overall average 2021 GRESB score
· Long-term solar panel leases at the Company's Ede and Den Hoorn assets have delivered a capital uplift of approximately €1 million
Tony Roper, Chairman, commented:
"2021 was a stand-out year for the Company and for the wider European logistics real estate asset class. While the onset of the pandemic in early 2020 created significant uncertainty across all sectors, this ultimately led to an acceleration of the key structural drivers underpinning the logistics sector. Having been a first mover in the UK listed arena, making our initial investments in early 2018, the Company continues to benefit from sector tailwinds, delivering a double-digit net asset value total return for the second year running. The Company's 2021 sector leading GRESB rating was a further endorsement of our strategy."
Evert Castelein, Lead Fund Manager, added:
"With more than half the portfolio by value now weighted to high growth urban logistics assets, following the milestone Madrid acquisition which deployed the proceeds of September's capital raise within three months, the Company is well positioned to deliver further shareholder value. The attractive indexation characteristics of the portfolio leases and competitive advantage afforded by abrdn's extensive network of local real estate professionals across Europe further underpin the compelling investment case. 2021 was a record year for European logistics take up, with record low vacancy seen across a number of markets. We expect 2022 to continue in this vein, supporting favourable rental and capital growth."
-Ends-
For further information please contact:
abrdn plc +44 (0) 20 7463 6000
Luke Mason
Gary Jones
Investec Bank plc +44 (0) 20 7597 4000
David Yovichic
Denis Flanagan
FTI Consulting +44 (0) 20 3727 1000
Dido Laurimore
Richard Gotla
James McEwan
Financial Highlights as at 31 December 2021
|
Net asset value total return 1 |
|
|
|
2020: 13.6% |
2020: 293,596 |
2020: 1.20 |
|
12.4% |
487,505 |
1.29 |
|
Share price |
Premium to |
Ordinary dividend |
|
total return 1 |
Net Asset Value 1 |
per share |
|
2020: 26.6% |
2020: 0.5% |
2020: 5.64¢ |
|
12.4% |
6.9% |
5.64¢ |
|
Ongoing Charges 1 |
IFRS Earnings Per Share |
Portfolio valuation (€'000) 2 |
|
2020: 1.3% |
2020: 14.8¢ |
2020: 425,248 |
|
1.3% |
15.4¢ |
660,973 |
|
|
Average lease length in years |
|
|
assets |
(excl breaks) |
(%) |
|
2020: 14 |
2020: 11.0 |
2020: 31.4% |
|
23 |
8.0 |
25.1% |
|
Average building size (sqm) |
|
|
|
2020: 27,710 |
2020: 99.7% |
|
|
23,403
|
100%
|
1 Alternative Performance Measure 2 Excluding IFRS 16 lease liabilities. |
Overview
Chairman's Statement
Dear Shareholder,
It is a pleasure to present to you the Company's fourth Annual Report in respect of the year ended 31 December 2021.
2021 was a stand-out year for the Company and for the wider European logistics real estate asset class. While the onset of the pandemic in early 2020 created significant uncertainty across all sectors, this ultimately led to an acceleration of the key structural drivers impacting the logistics sector. Having been a first mover into the sector in the UK listed arena with our first investments in early 2018, the Company continued to benefit from these sector tailwinds, delivering a double digit net asset value ("NAV") total return for the second year running. The Company's 2021 sector leading GRESB rating was a further endorsement of our strategy.
It has been a difficult few months watching events unfold in Ukraine and our thoughts are with all of those affected. At a portfolio level, we are monitoring for any potential impact on our tenants and their businesses. Whilst to date there is no indication that these businesses have been impacted in any way, we stand ready to try to help wherever there may be a need.
The segment of the market that we operate in has seen extraordinarily fast growth, with little to suggest this is not a permanent shift. The €274 million of acquisitions during the year helped to further diversify the portfolio, with the landmark last-mile Madrid portfolio acquisition in particular adding further quality and a roster of high- quality tenants, including Amazon. Following completion of the Phase IV development shortly, the Company's portfolio will be 53% weighted by value to the high-growth, urban logistics sector, the part of the market which is forecast to see the strongest capital and rental growth over the medium term.
It was very pleasing to see the support shown from our existing shareholders as well as the introduction of some new names on the register as we raised additional funds to deliver on our ambition to scale the Company.
Importantly, the 8-year portfolio WAULT and CPI indexation of the majority of our tenant leases provides for a durability of income and a strong degree of inflation protection.
70% of our annual income is subject to uncapped CPI indexation and the majority of the remainder subject to capped indexation. At the same time, rent remains a small element of our occupiers' overheads.
Overview
As at 31 December 2021, the Company's property portfolio was independently valued at €661 million (£556 million), and consisted of 23 assets located across five European countries. The like-for-like portfolio valuation increase was predominantly driven by yield compression across the entire portfolio, reflecting the continued strength of the European logistics real estate market alongside the high-quality nature of the Company's portfolio. We are pleased to report that 100% of the rent due for the financial year has been collected.
In April 2021, the Company completed the purchase of a new warehouse in Łdź, Poland, for €28 million and this was followed in July by the acquisition of an urban logistics warehouse in Barcelona, Spain, for €18.7 million.
In December 2021, the Company announced the acquisition of a portfolio of newly constructed last-mile logistics warehouses with excellent sustainability credentials, located in Gavilanes in the first ring of Madrid, Spain, for a total acquisition price of €227 million. The best-in- class portfolio comprises seven newly constructed logistics warehouses, with a further warehouse and multi-story parking station in development let to Amazon for 25 years.
The Madrid portfolio is let to five tenants and expected to generate €7.7 million of annual contracted rent, with Amazon Europe accounting for 43% of this. The portfolio occupies a strategic micro location, with almost six million people accessible within a 30-minute drive time, and is near Madrid-Barajas International Airport and the Abroñigal intermodal freight terminal, providing good connectivity with the rest of Europe.
Our Investment Manager has the competitive advantage of being able to draw on the relationships and market knowledge of local abrdn teams across Europe, enabling it to originate and then execute on attractive acquisitions, as well as leveraging this insight to improve the portfolio performance. It has built a portfolio of assets diversified by both geography and tenant, in established distribution hubs and within close proximity of cities that have substantial labour pools and excellent transport links. Further details on the composition of the portfolio are provided in the Investment Manager's Report.
Results
As at 31 December 2021 the audited Net Asset Value ("NAV") per Share was €1.29 (GBp - 108.5p), an increase of 7.5% compared with the NAV per Share of €1.20 (GBp - 107.9p) at 31 December 2020. With the interim dividends declared, this reflected a NAV total return of 12.4% for the year in euro terms (+5.4% in sterling).
The closing Ordinary Share price at 31 December 2021 was 116.0p (31 December 2020 - 108.5p), representing a premium to NAV per Share of 6.9%. With dividends reinvested this represented a strong share price total return over the year of 12.4%.
Dividends
First, second and third interim dividends in respect of the year ended 31 December 2021 of 1.41 euro cents (equivalent to 1.21p) per Ordinary Share were paid to Shareholders on 25 June 2021, 24 September 2021 and 30 December 2021 respectively.
On 18 February 2022 the Board declared a fourth interim dividend of 1.41 euro cents per Ordinary Share (equivalent to 1.21p) which was paid to Shareholders on 25 March 2022, making a total of 5.64 euro cents paid in respect of the financial year under review. The equivalent sterling rate paid was 4.84p per Share (2020 - 4.96p per Share).
It is the intention to continue to pay quarterly interim dividends in line with our policy. Shareholders may elect to receive dividend payments in Euros instead of Sterling. A currency election period is effective from the record date of each dividend for approximately 10 days to permit Shareholders to make their currency choices. Once a Shareholder has elected to receive dividends in Euros, then all future dividends will be paid in Euros unless the Shareholder elects to switch back to Sterling payments. 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 below.
Share Issuance
In March 2021 the Company announced the oversubscribed issue of 18.45 million new Ordinary shares, raising gross proceeds of £19.4 million (equivalent to approximately €22.6 million). This was followed in October with the issuance of a further 114.7 million new Ordinary shares, raising gross proceeds of £125 million (equivalent to approximately €145.9 million). This issue was also oversubscribed with strong support from both existing and new investors and a scaling back exercise was undertaken due to the strong investor demand. Following the year end, on 4 February 2022 the Company issued a further 34,545,455 new Ordinary shares at a price of 110 pence per share in a placing and retail offer. This issue raised an additional £38 million (€45.6 million), enabling the Company to continue with its near-term acquisition strategy.
At the time of writing, the total number of shares in issue and therefore with voting rights in the Company is 412,174,356 shares.
Financing
Fixed term debt from banks is secured on certain assets or groups of assets within the portfolio. These non-recourse loans range in maturities between 3.2 and 6.7 years with all-in interest rates ranging between 1.10% and 1.62%
per annum.
In December the Company increased the asset level gearing on its Dutch portfolio by a further €17 million at an all-in interest rate of 1.34%.
In November the Company increased its uncommitted master facilities loan agreement (the "Facility") with Investec Bank plc from €40 million to €70 million. Under the Facility, the Company may make requests for drawdowns at selected short-duration tenors, as and when required, to fund acquisitions or for other liquidity requirements. Within the Facility, Investec also makes available a £3.3 million committed revolving credit facility ("RCF") which is carved out of the total €70 million limit of the Facility. This facility sits at the parent company level and provides added flexibility.
The year-end gearing level was 25.1% (2020 - 31.4%) with an average interest rate of 1.43% on the total fixed term debt arrangements of €161.6 million.
GRESB and Asset Management
The Investment Manager continues to focus on asset management initiatives, leveraging its network of locally based asset managers to enhance the value of the portfolio's assets. This includes initiatives around building extensions and improvements to sites both internally and externally for the benefit of tenants and their workforces and to enhance the future value of the assets. The planned extension to our Waddinxveen asset is a recent good example of this.
I was pleased to report that in October, the Company was awarded Sector Leader status and placed first in the Listed European Industrial - Distribution Warehouse segment, in the 2021 GRESB survey (Global Real Estate Sustainability Benchmark), reflecting the continued work that the Investment Manager has undertaken in improving the sustainability credentials of the portfolio. The portfolio maintained its four Green Stars out of a maximum of five.
The Company's 2021 GRESB score of 84/100 represented an improvement on its 2020 GRESB survey score of 79/100. It also compared favourably against the 64/100 average peer score and 73/100 overall average 2021 GRESB score.
This improved performance rewards the progress made with regards to environmental, social and governance ("ESG") factors. These include solar panel project initiatives, tenant satisfaction surveys, light sustainability audits and 100% data collection across the portfolio linked to Envizi sustainable reporting software which is used to analyse energy consumption. The Investment Manager obtains volumetric usage data on energy use, waste disposal and water consumption for reporting and possible cost savings. In addition, all buildings have LED lighting and the Investment Manager continues with plans to further enhance ESG credentials going forward.
ESG is embedded within the Investment Manager's investment process and although many of our assets are recently built, a programme of works continues to enhance areas where improvements can be made.
Sustainability is fundamental to our ability to create long-term value for all stakeholders and the Investment Manager has defined and continues to implement a strategy to support our sustainability targets for positive environmental and socio-economic impacts.
The ESG section gives further clarity on our processes including our initial thoughts on establishing a net zero carbon pathway.
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, the Directors offered to meet with a number of our substantial Shareholders during the year to hear their views on the Company and its performance. 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 looks to undertake short annual site visits to view the properties owned, meet 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 67 and 68 of the Annual Report and financial statements for the year ended 31 December 2021.
Change of Company name
In order to align the Company's name with the name of the Manager's business, which changed to abrdn plc, the Board resolved to change the Company's name to abrdn European Logistics Income plc. This took effect on 1 January 2022 with the Company's ticker, ASLI, remaining unchanged.
Annual General Meeting
It is currently the Board's intention to hold the Company's Annual General Meeting in London on Monday, 6 June 2022 at 12:30pm at the offices of abrdn plc, Bow Bells House, 1 Bread Street, London EC4M 9HH.
The formal Notice of AGM may be found on page 147 of the Annual Report and financial statements for the year ended 31 December 2021.
Market
Logistics remains a preferred real estate sector for investors, most recently demonstrated by the competition for Blackstone's €21 billion Mileway portfolio, a transaction that on completion will be far and away the largest ever in the European real estate sector. We are witnessing unprecedented disruption caused by systemic changes to the way global economies function. With businesses of all shapes and sizes being forced to future proof their supply chains, and as e-commerce penetration across Europe, which lags the UK, accelerates, so occupier demand has continued to strengthen with vacancy rates reaching historic lows.
Leasing 'tension' remains robust, particularly for urban logistics, with land values under pressure from competing uses and with income growth prospects stronger than for big-boxes, where risk is higher at lease maturity with a more limited potential tenant base and where replacement costs are more in line with capital costs.
Outlook
2021 was another successful year for the Company in terms of both acquisitions and NAV performance, as we continue to benefit from our early entry into what is a fast growing and dominant subsector. The €666 million portfolio is diversified by property, tenant and geography and following the completion of Phase IV in Madrid, it will comprise 13 urban logistics warehouses and 11 mid-box logistics warehouses, with 18 of the 24 assets constructed since 2018. Our tenant base is diversified across 50 tenants, consisting predominantly of third-party logistics providers, e-commerce related businesses and grocery-focused vendors. Our tenants' businesses are generally well positioned in areas which remain essential to the everyday operation of the modern economy.
A strong commitment to sustainability, demonstrated by the Company's sector-leading GRESB rating with four out of five stars awarded for 2021, together with the inflation linked nature of the portfolio's leases, provides a strong platform for further growth.
The Investment Manager's pipeline of logistics assets is regularly reviewed for quality of location and tenants, and the ability to ensure that they are future fit. We are expecting to shortly complete on an acquisition, located in the popular Venlo-Venray agrofood-dominated region in the Netherlands and we expect to also complete in the coming month or so on the purchases of a further three well-placed assets we have under exclusivity in France. One of the Board's priorities is to grow the Company, albeit in a disciplined manner, in order to enjoy the benefits that come with increased scale and liquidity providing our shareholders with income and capital growth. We retain a strong conviction in our investment strategy, which has allowed us to reward shareholders with an attractive and stable dividend, and continue to seek to grow and diversify the portfolio. During a period of rapid inflationary pressure, the Company's portfolio should provide continued growth with a level of inflation protection from CPI linked leases.
Tony Roper
Chairman
21 April 2022
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.
Change of Company name
As indicated at the time of the half yearly results, in order to align the Company's name with the name of the Manager's business, which recently changed to abrdn plc, the Board resolved to change the Company's name to abrdn European Logistics Income plc. This took effect from 1 January 2022. The Company's ticker, ASLI, remains unchanged.
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 active asset management of, a diversified portfolio of logistics real estate assets in Europe.
The Company will invest in a portfolio of single and multi-let 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 will seek 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 and whether they are appropriate for the location (such as technical quality, ESG credentials, scale, configuration, layout, transportation links, power supply, data connectivity, manoeuvrability, layout flexibility, and overall operational efficiencies);
. the location and its role within European logistics (city, regional, national or international distribution), key fundamentals supporting logistics activity within the micro location such as proximity to airport, port, transport nodes, multimodal transport infrastructure, established warehousing hubs, transport corridors, population centres, labour availability and market dynamics such as supply (of both land and existing stock), vacancy rate and planned infrastructure upgrades;
. the terms of the lease(s) focusing on duration, inflation- linked terms, ESG criteria, level of passing rent relative to market rent, the basis for rent reviews, and the potential for capturing growth in market rental income;
. the strength of the tenant's financial covenant;
. the business model of the tenant and their commitment to the asset both in terms of capital expenditure and the role it plays in their operations; and
. the potential to implement active asset management initiatives to add value over the holding period.
The Company will invest either directly or through holdings in special purpose vehicles, partnerships, or other structures. The Company may invest in forward commitments when the Investment Manager believes that to do so would enhance risk adjusted returns for Shareholders and/or secure an asset at an attractive yield.
The Company's active asset management activities are expected to focus on adding value through:
. negotiating or renegotiating leases to increase/secure rental income: managing vacancies;
. undertaking refurbishments to maintain liquidity;
. managing redevelopments as assets approach obsolescence;
. adding solar panels to reduce carbon emissions and generate additional income streams;
. where appropriate, extending existing on-site buildings or developing adjacent plots;
. refurbishment and redevelopment activity will, amongst other things, focus on: enhancing occupier wellbeing; operational efficiencies; energy efficiency;
. reducing carbon emissions; and elevating technological provision as well as increasing lettable area.
The Company's active management of debt will effectively manage costs and risk to enhance investment returns.
Diversification of Risk
The Company will at all times invest and manage its assets in a manner which is consistent with the spreading of investment risk. The following investment limits and restrictions will apply to the Company and its business which, where appropriate, will be measured at the time of investment:
. the Company 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 commitments will be wholly or predominantly pre-let and/or have the benefit of a rental guarantee and the Company's overall exposure to forward commitments and development activity will be limited to 20 per cent. of Gross Assets;
. the Company's maximum exposure to any single developer will be limited to 20 per cent. of Gross Assets;
. the Company will not invest in other closed-ended investment companies;
. the Company will predominantly invest in assets with tenants which have been classified by the Investment Manager's investment process, as having strong financial covenants. However, the Company may, on an exceptional basis, invest in an asset with a tenant with a lower financial covenant strength (and/or with a short lease term) where the Investment Manager believes that the asset can be leased on a longer term tenancy to a tenant with strong financial covenants within a reasonable time period; and
. no single tenant will represent more than 20 per cent. of the Company's annual gross income measured annually.
The Company will not be 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 intends to conduct its affairs so as to continue to qualify as an investment trust for the purposes of section 1158 and 1159 (and regulations made thereunder) of the Corporation Tax Act 2010.
Borrowing and Gearing
The Company uses gearing with the objective of improving shareholder returns. Debt is typically non- recourse and secured against individual assets or groups of assets with or without a charge over these 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.
The aggregate borrowings are always 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 will 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, aggregate asset level gearing will sit, as determined by the Board, at or around 35 per cent of Gross Assets. This level may fluctuate as and when new assets are acquired until longer term funding has been established or whilst short-term asset management initiatives are being undertaken.
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 shareholders' 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 2024 and then every third year thereafter.
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:
|
KPI |
Description
|
|
NAV Return (per share)1
|
The Board considers the 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 under Results below. 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). |
|
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 in the Annual Report and financial statements for the year ended 31 December 2021. |
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Premium/ (Discount)1
|
The premium/(discount) 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 in the Annual Report and financial statements for the year ended 31 December 2021. |
|
Dividends per Share
|
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 below under Results. 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). |
|
Ongoing Charges Ratio ("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 below. |
1 Alternative Performance Measure.
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 ("AIFM") for the purposes of the AIFM Rules. The AIFM has delegated portfolio management to the Amsterdam Branch of Aberdeen Standard Investments Ireland Limited which acts 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 pays interim dividends on a quarterly basis. The Company declares dividends in Euros, but shareholders will receive dividend payments in Sterling unless electing to receive payments in Euros through the Equiniti Shareview Portfolio website or via CRESTPay. If applicable, 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.
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 as set out below 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 Board collectively discusses with the Manager areas where there may be emerging risk themes and maintains a register of these. Such risks may include, but are not limited to, future pandemics, cybercrime, changes in interest rates and climate change. In the event that an emerging risk has gained significant weight or importance, that risk is categorised and added to the Company's risk register and is monitored accordingly.
The principal risks associated with an investment in the Company's shares can be found in the Company's latest Prospectus dated 8 September 2021, published on the Company's website.
The Board continues to monitor the residual impact of the UK's departure from the EU ("Brexit"). The Board and Manager do not believe that there will be a significant impact on the Company but continues to monitor the longer term impact and associated trends.
The Board has kept the risks related to the subsiding COVID-19 pandemic under regular review throughout the year and subsequently. The impact on the Company and its operations of the pandemic has been negligible through 2021 with rental income and services unaffected. The Board, through the Investment Manager, closely monitors all third party service arrangements and is pleased to report that it has not seen any reduction in the level of service provided to the Company.
The Board is very mindful of current events involving Russia and Ukraine which are causing significant market volatility across Europe and the World. Whilst difficult to predict the eventual outcome and naturally upsetting for all involved, there has been no discernible impact to date on our tenants located in Poland and across the wider region. 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.
|
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 to 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 the 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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. abrdn 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. . abrdn 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 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 and income from investments.
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. abrdn 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 abrdn 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 both internally (within the Investment Manager) and 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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. abrdn 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 of gearing, 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.
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. 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 would also be 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 buffer 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. . 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 reviews the hedging of dividend payments having regard to availability and cost.
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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.
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. The property portfolio has a balanced mix of investment grade 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 abrdn approved banks and AAA rated liquidity funds.
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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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. 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 abrdn team consists of asset managers on the ground who undertake asset management reviews and implementation and there is a detailed approval process within abrdn for lettings. . 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.
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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.
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. The Company has an experienced Company Secretary and engages lawyers 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 have access to updates on relevant regulatory changes through 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 AIFM, Company Secretary, the Depositary, the Custodian, the managing agents and the Company's Registrar.
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. abrdn has an experienced Investment 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. . abrdn aims 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.
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. abrdn 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. . abrdn has a dedicated Chief Information Security Officer who leads the Chief Information Security Office covering 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 abrdn on behalf of a number of investment trusts under its management.
The Company's financial contribution to the programme is matched by abrdn. abrdn's marketing team 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 abrdn'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. 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 2021, 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 AIFM are disclosed on page 50 of the Annual Report and financial statements for the year ended 31 December 2021.
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 ("MSA"). In addition the Company's turnover is 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.
A copy of the Manager's statement in compliance with the Modern Slavery Act is available for download at abrdn.com
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 abrdn plc. The Company has no direct greenhouse gas emissions to report from the operations of its business, although it is responsible for low emissions generated at certain properties within its portfolio reportable under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013, see page 53 of the Annual Report and financial statements for the year ended 31 December 2021.
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 attention on upcoming funding for acquisitions, and particularly the loss of a tenant in a French asset.
The Company has prepared cash flow forecasts which reflect the potential impact of further reductions in rental income due to a possible worsening COVID-19 situation, 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 2023 and the worst case model equates to an overall 20% 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.
The Board recognises that this assessment makes the assumption that the resolution to continue the Company, which will be put to shareholders at the sixth AGM of the Company, which will be held in 2024, is passed and subsequent triennial continuation resolutions are also passed.
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 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 this relationship 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.
This is seen as a very useful opportunity to understand the needs and views of the shareholders. In between AGMs the Directors and Investment 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 solely 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 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, legal adviser and auditor.
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. In line with the increased equity base, further gearing was introduced into the portfolio with the aim of maintaining gearing at asset level at or around 35% over the longer term. abrdn's dedicated treasury team 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 1.43% which is to the benefit of all shareholders. In October 2020 the Board announced that the Company had entered into a uncommitted four year €40 million master facilities loan agreement with Investec Bank plc which was increased in 2021 to €70 million to provide additional flexibility. This facility increases the Company's ability to acquire new assets prior to any fresh equity raise and will reduce the impact of cash drag on investment returns.
Details of how the Board and Investment Manager have sought to address environmental, social and governance matters across the portfolio are disclosed on pages 50 to 63 of the Annual Report and financial statements for the year ended 31 December 2021.
The Company is just over four years old 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 COVID-19 pandemic and its impact, the attractiveness of investment companies as investment vehicles, geopolitical tensions 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 in the Investment Manager's Review below.
Tony Roper
Chairman
21 April 2022
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Strategic Report Results |
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Financial Highlights |
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31 December 2021 |
31 December 2020 |
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Total assets (€'000) |
728,386 |
484,104 |
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Total equity shareholders' funds (net assets) (€'000) |
487,505 |
293,596 |
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Net asset value per share (euros) |
1.29 |
1.20 |
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Net asset value per share (pence) |
108.48 |
107.95 |
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Share price (mid market) (pence) |
117.00 |
108.50 |
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Market capitalisation (£'000) |
438,050 |
265,283 |
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Share price premium to sterling net asset value 1 |
7.8% |
0.5% |
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Dividends and earnings |
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Net asset value total return per share (€) 1 |
12.4% |
13.6% |
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Dividends paid per share |
5.64c (4.84p) |
5.64c (4.96p) |
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Revenue reserves (€'000) |
12,895 |
11,720 |
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Gain/(Loss) (€'000) |
44,443 |
35,389 |
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Operating costs |
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Ongoing charges ratio (Group only expenses) 1 |
1.3% |
1.3% |
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Ongoing charges ratio (Group and property expenses) 1 |
1.8% |
1.6% |
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Performance (total return) |
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Year ended 31 December 2021 |
Since Launch % return |
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Share price 1 |
12.4% |
37.6% |
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Net Asset Value (EUR) 1 |
12.4% |
34.3% |
1 Considered to be an Alternative Performance Measure.
Dividends declared in respect of the Financial Year to 31 December 2021 (cents)
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Dividend Distribution GBP pence |
Dividend Distribution EURO cents Equivalent2 |
Qualifying Interest GBP pence |
Qualifying Interest EURO cents Equivalent2 |
xd Date |
Record Date |
Pay Date |
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First Interim |
0.80 |
n/a |
0.41 |
n/a |
03/06/2021 |
04/06/2021 |
25/06/2021 |
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Second Interim |
0.95 |
n/a |
0.26 |
n/a |
02/09/2021 |
03/09/2021 |
24/09/2021 |
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Third Interim |
0.97 |
1.13 |
0.24 |
0.28 |
02/12/2021 |
03/12/2021 |
30/12/2021 |
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Fourth Interim |
1.01 |
1.18 |
0.20 |
0.23 |
03/03/2022 |
04/03/2022 |
25/03/2022 |
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Total |
3.73 |
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1.11 |
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2 The interim distributions are paid in GBP to shareholders on the register. However, with effect from the payment of the 3rd interim distribution, shareholders are able to make an election to receive distributions in euros.
Strategic Report
Our Unique Selling Points
abrdn European Logistics Income plc was launched in December 2017 and has already built a strategic position in the real estate market that the Board and Investment Manager believe will deliver the investment objective to shareholders over the longer term.
Our main USPs are listed below:
The Investment Manager has local teams on the ground that know the market
The property business is a local business. You have to speak the local language and have a network with brokers, developers, investors and owner-occupiers to find the best opportunities at the right price. abrdn is one of the largest real estate investors in Europe with over £50 billion of real estate under management. abrdn has local boots on the ground with 290 real estate professionals with expertise in fund management, research, transactions, asset management, financing and other specialist property activities.
Investing in the most liquid mid-box and strong growth segment of urban logistics
Durability of income stream is key for an income driven strategy.
The Investment Manager looks beyond the length of the initial lease contract to see if a warehouse has a second life after the lease matures. The mid-box section of the market, with building sizes reaching up to a maximum of 50,000 square metres, is where most of the leasing activity takes place providing us with options in the future. This means we operate in a more liquid area of the sector than the ultra 'big-box' part of the market where leasing options are more limited. Equally from a disinvestment perspective there will be limited numbers of potential investors who can take on these larger investment volumes. Our portfolio is now weighted towards urban logistics and this is where we have highest growth expectations. The urbanisation trend across Europe and the competition for shorter delivery times amongst parcel delivery specialists has created a higher demand for land in dense population areas resulting in higher land prices and stronger rental growth.
An increasingly diversified, high quality portfolio with long indexed leases to tenants
Durability of income streams will be achieved by acquiring the right warehouses in the right locations. The Company now has 23 buildings in the portfolio, of which 17 were new builds, in five European countries with 50 tenants providing good risk diversification. All buildings in the portfolio are either located alongside main transport corridors or within a short distance to dense population urban locations. Our buildings have modern specifications in terms of free height, floor load capacity, number of loading doors and yard depth, all features that are particularly important for e-commerce focused logistics operators. Average lease length is 8.0 years (excluding breaks) and all leases are index- linked, the majority with indexation uncapped.
A clear focus on the European Continent
This is a European strategy with a very clear focus on the European Continent and not the UK. There are several reasons for this. Firstly, e-commerce penetration has been materially behind that seen in the UK with high growth expected. Secondly, CPI-linked leases give a level of protection against inflation. Thirdly, the European market has seen lower long-term debt costs and finally, the region provides diversification options with 75% of the investable European market in continental Europe.
ESG is embedded in the investment philosophy resulting in a sector leading GRESB rating
abrdn, as a management house, has the ambition to become carbon neutral by 2050. As an investment company, the Company has a clear focus on improving the green performance of our buildings with the asset and property managers working closely with our tenants. One of the key focuses is the implementation of solar panels on the roofs of our buildings which are now on nine of our warehouses. The Company, through abrdn, is in the process of taking the first steps in describing a path to zero carbon emission.
The progress being made is clearly reflected in the 2021 GRESB survey with a maintained score of 4 out of a maximum 5 green stars and the award of Regional Sector Leader status making the Company the strongest performer in the peer-group with six listed strategies focusing on pan-European (including UK) logistics.
Modest gearing with attractive all-in costs
The Company has a modest long-term target Loan-To-Value ratio (LTV) of c. 35%, with a current LTV of 25% (as at 31 December 2021). The maximum LTV is 50% at the time of drawdown but the level of LTV 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. All-in costs of the current loan portfolio are 1.4%.
Low investment management fees
The investment management fee is set at a competitive rate of 75 basis points of NAV up to €1.25 billion which will drop to 60 basis points above this.
Strategic Report
2021 Accomplishments
In 2021 the logistics market once again showed its strength and resilience. Logistics has been growing in importance and scale thanks to changes in consumption behaviour and much needed supply chain reconfiguration. The success of the sector is also reflected in the Company's 2021 rent collection statistics, sitting at 100%. The strength of the sector and strong yield compression led to double-digit net asset value returns and strong outperformance of our targets. 2021 was also a transformational year with accelerated growth in terms of the number of assets we manage. Two successful oversubscribed capital raises generated an additional £144.4 million (€168.2 million) allowing the Investment Manager to purchase ten further warehouses for a total purchase price of €274.1 million and thus adding further diversification to our property portfolio.
With the growing urban profile of the strategy and the highest ESG rating in the peer group in the annual GRESB survey, the portfolio looks future-fit and well positioned for further growth. Having local teams on the ground is crucial in managing an international logistics portfolio and a key factor in abrdn's real estate offering. With these teams based around Europe, the Investment Manager is able to find good assets with competitive pricing and liaise far more easily with tenants helping to protect value by keeping them in good condition and to add value through active management.
ACQUISITIONS
April 2021: the Company finalised the acquisition of a new logistics warehouse in Lodz, Poland, for a net purchase price of €28.1 million.
July 2021: the Company finalised the acquisition of an urban logistics warehouse in Barcelona, Spain, for a net purchase price of €18.7 million.
December 2021: the Company finalised the acquisition of a portfolio of seven existing logistics warehouses with one ongoing development in Madrid, Spain (Gavilanes), for a net purchase price of €227.3 million.
FUNDING
March 2021: the Company issued 18.45 million new Ordinary shares, raising gross proceeds of £19.4 million (€22.3 million) at the issue price of 105.0 pence per share.
September 2021: the Company issued 114.7 million new Ordinary shares, raising gross proceeds of £125 million (€145.9 million) at the issue price of 109.0 pence per share.
November 2021: the Company signed a revised revolving credit facility agreement with Investec Bank, increasing the facility's capacity to €70 million, providing further flexibility in the acquisition of new properties.
December 2021: the Company increased by €17 million the fixed term debt on the existing Dutch portfolio at an all-in interest rate of 1.34% and with a remaining loan duration
of 4.6 years.
ESG
February 2021: the Investment Manager completed a tenant satisfaction survey undertaken by Keepfactor. The results of these surveys informs discussions with tenants and provides a better understanding of areas where improvements can be made.
June and September 2021: the Company completed the installation of rooftop solar panels on the Ede and Den Hoorn assets in the Netherlands generating annual income of €96,000 per annum, helping to reduce the carbon footprint of the building and providing clean, renewable on-site energy for the tenants.
October 2021: achieved BREEAM-in-Use certification for the warehouses in Den Hoorn, Ede and Waddinxveen in the Netherlands.
November 2021: the Company was awarded Sector Leader status in the annual GRESB survey with 84/100 points and a maintained 4 out of 5 Green Stars making the Company the strongest performer in the peer group of six listed strategies focusing on European logistics.
December 2021: the Investment Manager finalised its first analysis of the portfolio's carbon footprint with its appointed consultant Verco Advisory Services Limited as part of an ambition to create a detailed Net Zero Carbon strategy.
ASSET MANAGEMENT
Full year 2021: the Company collected 100% of total rent for the full calendar year 2021.
April 2021: a lease extension was signed, expiring in December 2031, with Maintrans in Flörsheim for 5,337 square metres with an annual starting rent of €315,000.
June 2021: saw the completion of the solar panel project in Ede, the Netherlands, reducing the carbon footprint of the buildings and generating an annual rent of €15,000.
September 2021: witnessed the completion of the solar panel project in Den Hoorn, the Netherlands, reducing the carbon footprint of the building and generating an annual rent of €81,000.
November 2021: the Company signed a Letter Of Intent with tenant Combilo for the extension of the warehouse in Waddinxveen, the Netherlands, which requires a total investment of €4.9 million and will generate a 5% yield.
POST PERIOD END HIGHLIGHTS
January 2022: to align with the Manager's parent company rebranding, the Company's name was changed to abrdn European Logistics Income plc.
February 2022: the Company issued an additional 34,545,455 new Ordinary shares, raising gross proceeds of £38 million (€45.6 million) at the issue price of 110.0 pence per share.
Strategic Report
Investment Manager's Review
2021 European Logistics - another strong year
Notwithstanding the unprecedented global impact of the pandemic, it is encouraging to witness economies across Europe recovering thanks to the positive impact of the mass vaccination roll-outs. While supply chains were disrupted at the start of the pandemic logistics has proven to be a very resilient asset class. Indeed, parts of the sector were beneficiaries of European lockdowns as changes in consumer behaviour accelerated, with more and more people buying online. E-commerce is the key driver behind the strong demand for logistics space, and this is further supported by the building up of inventory levels and the near-shoring, or re-siting, of manufacturing facilities away from Asia and back to Europe. Making long distance supply chains more resilient to external shocks is key within industry, as the pandemic and the recent blocking of the Suez Channel have taught us. For many years, the amount of new logistics space being developed has not been sufficient to keep up with demand resulting in a supply/demand imbalance and an average vacancy rate sitting at a historically low level of under 4%. The lack of modern warehouse stock and rising construction costs is underpinning rental growth, explaining why investors focusing on yield and growing income streams are trying to build their exposure to the sector.
Competition for product is fierce. However, abrdn's large and established local network and reputation provides a competitive advantage when sourcing the right deals for our clients. abrdn is one of Europe's largest real estate investors, managing approximately €53 billion of real estate, with €21 billion of logistics assets across 12 countries. Its eight offices across Europe - London, Edinburgh, Frankfurt, Amsterdam, Madrid, Paris, Brussels and Copenhagen - employ a total of 290 abrdn real estate colleagues including portfolio managers, local transaction and asset managers and researchers.
Portfolio with urban profile well positioned for future growth
In the four years since inception, the Company's strategy has been clear and focused on the most 'liquid' or in- demand part of the market where growth expectations are highest. Urban logistics and mid-sized ('mid-box') warehouses are the areas of the market where supply/ demand dynamics are the strongest and the potential tenant base the largest. A typical mid-box warehouse sits between 20,000 - 50,000 square metres in size and for urban logistics, often called the 'final touch in the supply chain', building sizes are generally smaller and located in close proximity to dense population centres.
With our focus on long-term, sustainable income, the future-proofing or 'second life' of our warehouses is an important consideration when acquiring new assets. Building specifications the Investment Manager considers important, amongst others, are the eaves' height, floor-load capacity, number of loading doors, manoeuvrability around the building and increasingly important, a building's sustainability credentials.
Buildings positioned alongside main transport corridors, close to seaports, infrastructural nodes or in the case of urban logistics, close to large population concentrations, are important criteria in analysing new acquisition opportunities. The big-box warehouse segment, often with building sizes over 100,000 square metres, is not a focus of our investment strategy, as the number of tenants that can occupy that size of space is limited thus reducing liquidity.
The Company's focus is Continental Europe, where 75% of the investable European logistics market can be found, providing a deep pool of potential acquisition targets and strong diversification options, limiting single market risk. A standard lease agreement on the Continent often includes full annual CPI indexation of rents, thereby providing a strong hedge against inflation. Despite recent upward pressure, our investment strategy continues to benefit from lower financing costs achievable from European banks. Finally, e-commerce penetration is still at an early stage on the Continent with strong forecast growth, creating an attractive investment backdrop.
Growth is expected to be strongest in the urban logistics sub sector, especially assets in dominant cities that have warehousing supply constraints and demand from different land uses, resulting in higher land costs and ultimately underpinning higher rents. Parcel delivery specialists are continuing to improve their services by reducing delivery times and thereby transportation costs. Operating a logistics warehouse in close proximity to their ultimate customer base is the best way to reduce their cost base with rental and building costs materially less impactful than transportation costs.
Approximately 53% of the Company's portfolio by value comprises urban logistics warehouses with locations such as Barcelona, Madrid, Frankfurt Rhine-Main, Warsaw and Den Hoorn located in the Netherlands between the cities of The Hague and Rotterdam. In 2021, nine of the ten assets acquired were urban logistics warehouses, all located in first ring city locations. In December 2021, the Company closed a milestone transaction in Gavilanes, Madrid, acquiring a portfolio of seven income-producing urban warehouses ("Phases I-III") with a further warehouse/parking station under development, with a completion date anticipated in Q2 2022 ("Phase IV"). The total investment cost was €227.3 million with a net initial yield of 3.4%. The largest tenant within this portfolio is Amazon, accounting for approximately 43% of total rental income with other tenants including the global supermarket retailer Carrefour, operating their first grocery e-commerce platform in Spain, electric vehicle manufacturer Arrival, electronics distributor MCR which boasts Amazon as its main client and Talentum, a marketing and distribution company with 130 employees across Spain and Asia. After London and Paris, Madrid is the third largest city in Europe and continues to grow with development land scarce. This portfolio is located in Galivanes, a key last-mile logistics hub located in the first ring of Madrid, only 17 kilometres south of Madrid city centre and with a population of approximately 6 million people accessible within a 30 minute drive.
We are extremely excited to see the completion of Phase IV of the Madrid portfolio, expected in Q2 2022. This asset comprises a state-of-the-art parcel delivery hub, optimised for last-mile delivery, let to Amazon on a 25 year lease (15 years to first break). The asset includes a multi-level van parking station, offering over 500 parking spaces and electric charging for last-mile delivery vans, significantly increasing the operational efficiency of the asset. As is typical of last-mile distribution units, the property has been configured for the high volume turnover of inventory with the asset's low site cover, multi-deck parking and large canopy with numerous an loading areas maximising the number of parcels which can be loaded and distributed. We believe this asset represents the next-generation of urban logistics warehousing and we look forward to seeing it become operational and income producing later this quarter.
In July 2021, we acquired an urban logistics warehouse located in the first ring of Barcelona for a net price of €18.7 million, yielding 3.7%. The asset is let to Mediapost and is highly reversionary, with a net reversionary yield on acquisition of 4.7%. Barcelona is supply constrained by nature due to the presence of the sea and the surrounding mountains making it very hard to replicate this building which is surrounded by residential units. This undersupply situation is clearly reflected in the low vacancy rates of 2.4% providing further confidence that this asset has strong upside potential.
An earlier transaction that the Company concluded in April 2021 was the purchase of a brand new, multi-tenanted warehouse in Lodz, Poland, for a net purchase price of €28.1 million and a net initial yield of 5.6%. Lodz is the third largest city in Poland and centrally located making it an ideal location for national distribution.
The warehouse is located on the Bosch-Siemens Campus and alongside a key intermodal rail terminal for the Silk Road railway connection between Asia and Europe.
Low labour costs have created a dominant manufacturing industry in Poland and Lodz, creating an attractive environment for tenants in this warehouse who work partly as subcontractors for these industries.
At the time of writing this report, the Company is in exclusive talks with regard to the purchase of a warehouse in the Netherlands. The building is located close to the German border in one of the main logistics hubs in the Netherlands. The Manager believes there is good potential for this asset as there is ample land available and the current site coverage of the building is only 16% of the plot against a market standard of around 50%. Having the flexibility to extend and possibly double the size of a building in the future is very attractive and can add value to the portfolio.
The Manager is also in exclusivity over a portfolio of three assets in France which have comparable low site coverage characteristics. It is expected that the purchase of these warehouses located across three different areas in France will complete in the coming weeks.
As at the Company's year-end, 17 out of the 23 warehouses held in the portfolio were newly developed at the point of purchase and have been constructed since 2018. This means specifications are very modern and in line with tenant requirements. The portfolio is well diversified with 23 buildings spread across five different countries. As at 31 December 2021, the Netherlands represented the largest geographic exposure in the portfolio by value (35%), followed by Spain (30%), Poland (14%), France (11%) and Germany (10%). Taking account of the development of the fourth phase of the recent Madrid deal, these estimated allocation percentages change to the following: Spain (36%), followed by the Netherlands (33%), Poland (12%), France (10%) and Germany (9%).
Property Portfolio as at 31 December 2021
|
Country |
Location |
Built |
WAULT 1 |
WAULT 2 |
Q4 2021 % of Portfolio Value |
Estimated % of Portfolio Value on completion of outstanding acquisition |
|
France |
Avignon |
2018 |
5.6 |
9.7 |
8.0 |
7.1 |
|
France |
Meung sur Loire |
2004 |
0.3 |
0.3 |
3.2 |
2.9 |
|
Germany |
Erlensee |
2018 |
5.9 |
8.2 |
6.5 |
5.8 |
|
Germany |
Flörsheim |
2015 |
3.1 |
6.8 |
4.0 |
3.6 |
|
Netherlands |
Den Hoorn |
2020 |
8.4 |
8.4 |
9.0 |
8.1 |
|
Netherlands |
Ede |
1999/2005 |
6.0 |
6.0 |
5.1 |
4.5 |
|
Netherlands |
Oss |
2019 |
12.5 |
12.5 |
2.8 |
2.5 |
|
Netherlands |
's Heerenberg |
2009/2011 |
10.0 |
10.0 |
5.1 |
4.5 |
|
Netherlands |
Waddinxveen |
1983/1994/ |
11.9 |
11.9 |
7.4 |
6.6 |
|
|
|
2002/2018 |
|
|
|
|
|
Netherlands |
Zeewolde |
2019 |
12.5 |
12.5 |
5.8 |
5.2 |
|
Poland |
Krakow |
2018 |
3.0 |
3.0 |
4.4 |
3.9 |
|
Poland |
Lodz |
2020 |
6.1 |
6.1 |
4.6 |
4.1 |
|
Poland |
Warsaw |
2019 |
5.9 |
5.9 |
4.6 |
4.1 |
|
Spain |
Barcelona |
2019 |
4.5 |
7.5 |
2.9 |
2.6 |
|
Spain |
Madrid (Coslada) |
1999 |
5.0 |
8.0 |
1.9 |
1.6 |
|
Spain |
Leon |
2019 |
7.2 |
7.2 |
2.7 |
2.4 |
|
Spain |
Madrid - Gavilanes 1.1 |
2019 |
8.1 |
8.1 |
5.6 |
5.0 |
|
Spain |
Madrid - Gavilanes 1.2 |
2019 |
1.6 |
8.6 |
3.1 |
2.8 |
|
Spain |
Madrid - Gavilanes 2.1 |
2020 |
4.6 |
14.6 |
2.4 |
2.2 |
|
Spain |
Madrid - Gavilanes 2.2 |
2020 |
2.5 |
4.5 |
2.0 |
1.8 |
|
Spain |
Madrid - Gavilanes 2.3 |
2020 |
- |
- |
1.9 |
1.6 |
|
Spain |
Madrid - Gavilanes 3 |
2019 |
5.4 |
9.4 |
7.0 |
6.3 |
|
TOTAL - as at 31 December 2021 |
|
6.6 |
8.0 |
100.0 |
89.2 |
|
|
Spain Madrid - Gavilanes 4 |
2021 |
15.0 |
25.0 |
|
10.8 |
|
|
TOTAL incl. Madrid Phase IV |
|
|
|
|
100.0 |
|
1 Weighted average unexpired lease term including break options.
2 Weighted average unexpired lease term excluding break options.
A strong tenant base with inflation linked income
Long-term sustainable income streams to pay quarterly dividends is one of the Manager's key objectives and for the full year 2021 the Company collected 100% of total rents due. With 50 tenants in the portfolio, there is a diversified tenant base across different sectors. The covenant strength of our tenants is monitored on a regular basis using a variety of data sources including Dun & Bradstreet. In terms of exposure by sector, third party logistics providers ("3PLs") represent the largest segment with 29% of total portfolio rent. 3PLs are thriving, particularly those specialised in parcel deliveries with DHL occupying our assets in Madrid and Warsaw as a good example, representing 4.6% of total rent. Manufacturers (20%) and companies related to the food industry (19%) complete the top three.
Food related companies often have a long history and are of a scale that makes them stable income producers with supermarkets like Biocoop or Carrefour and traders in food such as Combilo all holding up well during the pandemic. The retail exposure (14% of total rent), is largely related to Netherlands based drugstore Kruidvat (part of the A.S Watson group) and its e-commerce platform and Decathlon, the global discount sports retailer, whose products have been in high demand since the pandemic. The direct exposure to e-commerce (3% of total rent) will increase significantly in 2022 once Phase IV in Madrid, let to Amazon, is completed. This will be the largest asset in the portfolio by value. Wholesale currently represents 12% of total rent and is expected to reduce in 2022 when the administrator responsible for Office Depot, the tenant in Meung-sur-Loire, is due to vacate the warehouse. Pre-COVID, Office Depot's plan was to consolidate its French business within this building in combination with a large extension as the low site coverage provides for this option, which furthers its appeal to a new tenant. Our local French asset management team, alongside local agents are conducting site inspections with prospective tenants, with positive initial feedback. All the outstanding rent for 2021 has been paid for this asset.
A standard lease agreement on the Continent typically has annual CPI indexation of rents which is not the standard in the UK. Having this annual inflation protection is more important than ever with rising energy prices and supply chain issues driving inflation up to 5% in 2021 in the Eurozone. 70% of the portfolio's current income has full CPI or ILAT 3 indexation, 22% has a cap at a level between 2-3%, 7% is German threshold indexation and 1% other.
This 2021 inflation as it flows through will help to grow our 2022 income on our existing leases which have an average length of 6.6 years including break options and 8.0 years excluding breaks.
Strong rent collection and a low cost loan portfolio with good covenant headroom underpins the Company's stated distribution policy. The loan portfolio is still young with asset level loan facilities effected immediately after full deployment of capital from Q1 2019 onwards.
Stress testing on the existing financial covenants such as Interest Cover Ratios and Loan-To-Value (LTV) indicates a good level of headroom, even more so now that property values have increased strongly and all expected rents paid. In order to diversify risk, the loan facilities have also been cross-collateralised with groups of single-tenanted buildings or have diversified risk thanks to multi-tenanted leasing structures.
Top 10 tenants based on current rents
|
Tenant |
Property |
Contracted rent (€000 p.a.) |
Contracted rent (%) |
WAULT incl. breaks (years) |
WAULT excl. breaks (years) |
|
1 van der Helm |
Den Hoorn |
2,922 |
10% |
8.4 |
8.4 |
|
2 Biocoop |
Avignon (Noves) |
2,331 |
8% |
5.6 |
8.6 |
|
3 Combilo |
Waddinxveen |
1,879 |
6% |
11.9 |
11.9 |
|
4 VSH |
Zeewolde |
1,585 |
5% |
12.5 |
12.5 |
|
5 Kruidvat |
Ede |
1,518 |
5% |
6.6 |
6.6 |
|
6 JCL |
's Heerenberg |
1,485 |
5% |
10.0 |
10.0 |
|
7 Office Depot |
Meung sur Loire |
1,472 |
5% |
0.3 |
0.3 |
|
8 DHL |
Madrid, Warsaw |
1,352 |
5% |
6.6 |
7.7 |
|
9 Talentum |
Madrid |
1,322 |
4% |
8.1 |
8.1 |
|
10 Decathlon |
Leon |
1,061 |
4% |
7.2 |
7.2 |
|
Subtotal |
|
16,927 |
57% |
7.8 |
8.3 |
|
Other tenants |
|
12,518 |
43% |
6.1 |
7.5 |
|
Portfolio as at 31 |
December 2021 |
29,445 |
100% |
6.6 |
8.0 |
Loan portfolio
|
Country |
Property |
Bank |
Existing loan (€million) |
End date Loan |
Duration in Years |
Interest (incl margin) |
|
Germany |
Erlensee |
DZ Hyp |
17.8 |
January 2029 |
10 |
1.62% |
|
Germany |
Florsheim |
DZ Hyp |
12.4 |
January 2026 |
7 |
1.54% |
|
France |
Avignon + Meung sur Loire |
BayerbLB |
33.0 |
February 2026 |
7 |
1.57% |
|
Netherlands |
Ede + Oss + Waddinxveen |
Berlin Hyp |
44.2 |
June 2025 |
6 |
1.37% |
|
Netherlands |
's Heerenberg |
Berlin Hyp |
11.0 |
June 2025 |
6 |
1.13% |
|
Netherlands |
Den Hoorn + Zeewolde |
Berlin Hyp |
43.2 |
January 2028 |
8 |
1.40% |
|
Total |
|
|
161.6 |
|
7.26 |
1.43% |
2021 Performance - double digit returns for second year running
For the second year in a row, we are very pleased to have delivered a double digit NAV total return for shareholders. The NAV total return for 2021 was 12.4% (in euro terms) which was also equal to the 2021 total shareholder return. Assets held at the end of 2020 increased in value by 9.1%% during 2021, with additional valuation uplifts for the Barcelona and Lodz assets acquired during 2021. Valuation gains were predominantly driven by yield compression. Growth within the logistics sector is clearly reflected in increasing portfolio valuations. The two solar projects in Den Hoorn and Ede in the Netherlands added c.€1 million to portfolio value.
In terms of future growth, the portfolio has been positioned to focus on mid-boxes and urban logistics, the part of the market which the Investment Manager believes has good potential, especially with respect to rents. There are several options within the portfolio where value may be added and where a tenant may require additional space. A good example is the small extension project already underway in Waddinxveen in the Netherlands on an adjacent piece of land owned by the tenant which is to be purchased at an attractive yield.
Continent benefiting from low cost debt
Current gearing is 25% of gross asset value, materially below the long-term target of 35%.
The Company has arranged asset level fixed rate bank debt gearing in those markets where all-in loan costs are the lowest, such as France, Germany and the Netherlands with German banks particularly active in this space.
The average all-in cost of the loan portfolio is currently 1.4% which had an average loan duration of 7.3 years, of which 4.7 years remain. The most recent addition to the loan portfolio was a €17 million top-up on the existing Dutch loan portfolio at an all-in interest rate of 1.3% and a remaining loan duration of 4.6 years. During the year, the Company also revised its revolving credit facility agreement with Investec Bank, increasing the facility's capacity from €40 million to €70 million and providing further flexibility for the acquisition of new properties or for the implementation of asset management initiatives.
ESG: sector leading GRESB Rating 4
In 2015, the Paris climate agreement was signed stating an ambition to keep global warming below 2 degrees by the year 2050. Reducing carbon emissions is a crucial part of this target and has led to an increased awareness of ESG across the market. ESG is strongly embedded in the Investment Manager's investment process and driven by its dedicated ESG team. As an investment management house, abrdn is aiming for carbon neutrality by 2050.
The Company now measures the carbon footprint of its property portfolio and is taking advice on the required steps for reducing this. Our starting point is strong as the portfolio is modern, with the majority of assets constructed after 2018 resulting in good energy efficiency across the portfolio. LED lighting and rooftop solar panels further enhance the energy efficiency of the portfolio. In 2021, two solar panel projects were completed with panels installed in Den Hoorn and Ede, which added c.€1 million to portfolio value, bringing the total number of buildings with solar panels to nine. This is an efficient way to reduce carbon emissions whilst helping retain tenants in our buildings as many of these tenants have comparable sustainability ambitions and seek buildings with strong ESG credentials. Staying close to, and liaising with, our tenants is important to help us understand what is expected from abrdn as a manager and one of the reasons for implementing our annual tenant satisfaction survey.
A key objective is to have a portfolio of buildings that are future fit and attractive to current and potential tenants.
One of the milestones of the year was the result from the 2021 GRESB survey. This saw the Company being awarded 'Sector Leader' status and placed first in the peer group of six listed funds with strategies focusing on pan-European logistics. A score of 84 points out of 100 resulted in the Company maintaining 4 out 5 Green Stars and further improving on the 79/100 and 63/100 ratings awarded in the two preceding years.
4 Global Real Estate Sustainability Benchmark.
Outlook
The fundamentals supporting the logistics real estate sector continue to strengthen. Structural growth in e-commerce penetration and the resulting increase in demand for logistics space this creates continues to support and drive valuation growth. This is further supported as businesses of all shapes and sizes target larger inventories or reshoring their manufacturing activities back to Europe in order to make their supply chains more resilient. This comes after the COVID-19 pandemic and the Suez canal blockage highlighted how easily supply chains, which often operate to a 'just in time' model, can be disrupted.
The structural growth we have witnessed in the sector has led to record low vacancy rates and this is likely to continue with increasing demand and limited speculative development, particularly as increasing regulation and land scarcity limits scope to build.
European economies are cyclical and there are potential headwinds arising from the conflict in Ukraine increasing inflation. However, the pandemic highlighted the critical nature of logistics real estate which is reflected in our high rent collection statistics and double-digit total return performance over the last two years.
The number of investors seeking to increase their exposure to the sector continues unabated, attracted by the Continent's inflation protecting, indexed-linked leases and strong rental growth prospects due to the favourable supply/demand dynamics and ever rising construction costs. Having local teams on the ground with in-depth knowledge provides us with a significant advantage in this extremely competitive sector.
We believe that the sector will continue to out-perform, not only in 2022 but beyond. Our focus over the short term is completing the planned acquisitions which together with the ongoing asset management initiatives, will support further capital and income growth, underpinning an attractive dividend.
Evert Castelein
Fund Manager, abrdn
21 April 2022
Governance
Directors' Report
The Directors present their Report and the audited financial statements for the year ended 31 December 2021.
Results and Dividends
Details of the Company's results and dividends are shown above. The dividend policy is disclosed in the Strategic Report.
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 2021 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
The Company's capital structure is summarised in note 16 to the financial statements. At 31 December 2021, there were 377,628,901 fully paid Ordinary shares of 1p each in issue. During the year no Ordinary shares were purchased in the market for treasury or cancellation.
On 17 March 2021 18,450,000 new Ordinary shares were issued at 105.0p per share and on 1 October 2021 114,678,900 new Ordinary shares were issued at 109,0p per share. Subsequent to the year end, on 4 February 2022, a further 34,545,455 new Ordinary shares were issued at 110.0p. All new shares were issued at a premium to the prevailing unaudited NAVs.
Voting Rights, Share Restrictions and Amendments to Articles of Association
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.
In accordance with the Companies Act, amendments to the Company's Articles of Association may only be made by shareholders passing a special resolution in general meeting.
Borrowings
A full breakdown of the Company's loan facilities is provided in note 14 to the financial statements.
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 dated 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.
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 or the AIFM may terminate the Management Agreement by giving 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 22 to the financial statements.
The Board
The current Directors, Ms Gulliver, Mr Heawood, Mr Roper and Ms Wilde 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 6 June 2022 and, being eligible, will offer himself or herself for re-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 offering annual review meetings 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 full text of the Company's Corporate Governance Statement can be found on the Company's website, eurologisticsincome.co.uk .
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 2021, the Board had four scheduled meetings and a further 20 ad hoc Board meetings as well as numerous update calls. In addition, the Audit Committee met four times and there was one meeting of the Management Engagement Committee and one meeting of the Nomination Committee. Between meetings the Board maintains regular contact with the Investment Manager. The Directors have attended the following scheduled Board meetings and Committee meetings during the year ended 31 December 2021 (with their eligibility to attend the relevant meeting in brackets):
|
Director |
Board |
Audit Committee |
MEC |
Nomination |
|
T Roper 1 |
4 (4) |
N/A |
1 (1) |
1 (1) |
|
C Gulliver |
4 (4) |
4 (4) |
1 (1) |
1 (1) |
|
D Wilde |
4 (4) |
4 (4) |
1 (1) |
1 (1) |
|
J Heawood |
4 (4) |
4 (4) |
1 (1) |
1 (1) |
1 Mr Roper is not a member of the Audit Committee but attended all meetings by invitation.
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 79 and 80 of the Annual Report and financial statements for the year ended 31 December 2021.
Nomination Committee
All appointments to the Board of Directors are considered by the Nomination Committee which, due to the relatively small size of the Board, 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 above.
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 2021 a thorough external evaluation was conducted by Lintstock Limited, an independent third party evaluation service provider. The evaluation was based upon completed questionnaires covering the Board, individual Directors, the Chairman and the Audit Committee Chairman. The Chairman meets each Director individually to review their responses whilst the Senior Independent Director meets with the Chairman to review his performance. 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. The Company currently plans to conduct an externally facilitated evaluation of Board remuneration during 2022.
In accordance with Principle 23 of the AIC's Code of Corporate Governance which recommends that all directors of investment companies should be subject to annual re-election by shareholders, all the members of the Board will retire at the forthcoming Annual General Meeting and will offer themselves for re-election.
In conjunction with the evaluation feedback, the Committee has reviewed each of the proposed reappointments and concluded that each of the Directors has the requisite high level and range of business and financial experience and recommends their re-election at the forthcoming AGM. Details of the contributions provided by each Director during the year are disclosed on pages 65 and 66 of the Annual Report and financial statements for the year ended 31 December 2021.
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. The Committee also at least annually reviews the Company's relationships with its other service providers. These reviews aim to ensure that services being offered meet the requirements and needs of the Company and performance is in line with the expectations of stakeholders.
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.
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 and in the Viability Statement 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 and other geopolitical risks such as the Ukraine conflict.
The Investment 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 regular review.
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 23 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 the 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 78 and 88 of the Annual Report and financial statements for the year ended 31 December 2021.
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 £45,000+VAT in connection with the issue of a Prospectus in September 2021 (2020: £nil) 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 abrdn 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 abrdn 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 abrdn 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 strategic; investment and asset management; financial; regulatory; and operational.
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 abrdn's 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 abrdn, has decided to place reliance on the Manager's systems and internal audit procedures. At its March 2022 meeting, the Audit Committee carried out an annual assessment of internal controls for the year ended 31 December 2021 by considering documentation from the AIFM and the Depositary, including the internal audit and compliance functions and taking account of events since 31 December 2021. 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 2021 (based upon 377,628,901 shares in issue):
|
|
No. of Ordinary shares held |
|
|
East Riding of Yorkshire Brewin Dolphin Ireland |
31,000,000 25,541,893 |
8.2 6.8 |
|
Quilter Cheviot Investment Management |
21,307,505 |
5.6 |
|
CCLA Investment Management |
18,816,719 |
5.0 |
|
Canaccord Genuity Wealth Management (Retail) |
17,121,071 |
4.5 |
|
Hargreaves Lansdown, stockbrokers (EO) |
16,455,990 |
4.4 |
|
BlackRock |
15,535,171 |
4.1 |
|
Brewin Dolphin, stockbrokers |
14,255,934 |
3.8 |
|
Investec Wealth & Investment |
13,677,678 |
3.6 |
Following the Placing of new Ordinary shares on 4 February 2022, the Company is aware of the following substantial shareholders (based upon 412,174,356 shares in issue):
|
Shareholder |
No. of Ordinary shares held |
% held |
|
East Riding of Yorkshire |
33,000,000 |
8.0 |
|
Brewin Dolphin Ireland |
25,989,405 |
6.3 |
|
Quilter Cheviot Investment Management |
21,595,934 |
5.2 |
|
CCLA Investment Management |
18,798,522 |
4.6 |
|
Canaccord Genuity Wealth Management (Retail) |
18,178,139 |
4.4 |
|
Hargreaves Lansdown, stockbrokers (EO) |
17,961,497 |
4.4 |
|
BlackRock |
16,482,218 |
4.0 |
|
Investec Wealth & Investment |
15,678,497 |
3.8 |
|
Brewin Dolphin, stockbrokers |
14,871,966 |
3.6 |
|
CG Asset Management |
12,359,375 |
3.0 |
Save as disclosed, there have been no significant changes notified in respect of the above holdings between 31 December 2021 and 21 April 2022.
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 freephone information service shown under Investor Information and on the Company's website eurologisticsincome.co.uk .
Aberdeen Asset Management PLC (AAM) has been appointed Company Secretary to the Company.
Whilst AAM is a wholly owned subsidiary of the abrdn Group, there is a clear separation of roles between the Manager and Company Secretary with different board compositions and different reporting lines in place.
The Board notes that, in accordance with Market Abuse Regulations, procedures are in place to control the dissemination of information within the abrdn plc group of companies when necessary. Where correspondence addressed to the Board is received there is full disclosure to the Board. This is kept confidential if the subject matter of the correspondence requires confidentiality.
The Board's policy is to communicate directly with shareholders and their representative bodies without the involvement of representatives of the Manager (including the Company Secretary and 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.
n normal circumstances, all Shareholders 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. 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@abrdn.com. The Company Secretary is available to answer general shareholder queries at any time throughout the year.
Annual General Meeting
The Annual General Meeting will be held on 6 June 2022 at 12:30 p.m. at the offices of abrdn, Bow Bells House, 1 Bread Street, London EC4M 9HH. In addition to the usual resolutions the following matters will be proposed at the AGM:
Special Business Directors' Authority to Allot Relevant Securities
Approval is sought in Resolution 11, 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 11 is to authorise the Directors to allot up to a maximum of 272,035,075 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 136,017,537 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 2023, or 30 June 2023, whichever is earlier. The Directors do not have any immediate intention to utilise this authority.
Special Business Disapplication of Pre-emption Rights
Resolution 12 is a special resolution that seeks to renew the Directors' existing authority until the conclusion of the forthcoming Annual General Meeting to make limited allotments of shares for cash of up to a maximum of 41,217,435 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 12 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 Annual General Meeting in 2023 or 30 June 2023, whichever is earlier.
Special Business Purchase of the Company's Shares
Resolution 13 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 (i) 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.
Whilst the Company's shares have traded at a premium to NAV per share for the majority of the life of the Company since its launch, and therefore the Company has not bought back any shares for treasury or cancellation, the Directors view buybacks as a very useful tool for seeking to assist in the management of the liquidity of the Company shares which could be used in the future as one of a number of methods to address imbalances of supply and demand which, arithmetically, can cause discounts to NAV per share.
Shares bought back would be purchased at a discount to the prevailing NAV per share and the result would be accretive to the NAV for all on-going shareholders.
The authority being sought in Resolution 13 will expire at the conclusion of the Annual General Meeting in 2023 or 30 June 2023, 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 12 above, may be held in treasury.
If Resolutions 11 to 13 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 relates.
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 14 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 Annual General Meeting in 2023 or 30 June 2023 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 14 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, 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.
Resolution 4 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 11 to 14 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 all Resolutions to be proposed at the AGM, as they intend to do in respect of their own beneficial shareholdings amounting to 309,687 Ordinary shares.
By order of the Board
Aberdeen Asset Management PLC - Secretaries
Bow Bells House
1 Bread Street
London
EC4M 9HH
21 April 2022
Statement of Directors' Responsibilities in Respect of the Annual Report and the Financial Statements
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 United Kingdom (IFRSs as adopted by the UK) 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 UK;
. 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;
. that 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 position, performance, business model and strategy; and
. 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
21 April 2022
Financial Statements
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2021
|
|
Year ended 31 December 2021 |
Year ended 31 December 2020 |
||||||
|
Notes |
Revenue €'000 |
Capital €'000 |
Total €'000 |
Revenue €'000 |
Capital €'000 |
Total €'000 |
||
|
REVENUE |
|
|
|
|
|
|
|
|
|
Rental Income |
|
23,283 |
- |
23,283 |
20,257 |
- |
20,257 |
|
|
Property service charge income |
|
3,435 |
- |
3,435 |
3,096 |
- |
3,096 |
|
|
Other operating income |
|
219 |
- |
219 |
47 |
- |
47 |
|
|
Total Revenue |
2 |
26,937 |
- |
26,937 |
23,400 |
- |
23,400 |
|
|
GAINS ON INVESTMENTS Gains on revaluation of investment properties |
9 |
- |
41,031 |
41,031 |
- |
32,878 |
32,878 |
|
|
Total Income and gains on investments |
|
26,937 |
41,031 |
67,968 |
23,400 |
32,878 |
56,278 |
|
|
EXPENDITURE |
|
|
|
|
|
|
||
|
Investment management fee |
|
(2,756) |
- |
(2,756) |
(2,066) - |
(2,066) |
||
|
Direct property expenses |
|
(1,851) |
- |
(1,851) |
(1,305) - |
(1,305) |
||
|
Property service charge expenditure |
|
(3,435) |
- |
(3,435) |
(3,096) - |
(3,096) |
||
|
SPV property management fees |
|
(371) |
- |
(371) |
(139) - |
(139) |
||
|
Other expenses |
3 |
(1,735) |
- |
(1,735) |
(1,290) - |
(1,290) |
||
|
Total expenditure |
|
(10,148) |
- |
(10,148) |
(7,896) |
- |
(7,896) |
|
|
Net operating return before finance costs |
|
16,789 |
41,031 |
57,820 |
15,504 |
32,878 |
48,382 |
|
|
FINANCE COSTS |
|
|
|
|||||
|
Finance costs |
4 |
(3,449) |
- |
(3,449) |
(2,545) |
- |
(2,545) |
|
|
|
|
|
|
|||||
|
Effect of foreign exchange differences |
|
264 |
753 |
1,017 |
(892) |
301 |
(591) |
|
|
Net return before taxation |
|
13,604 |
41,784 |
55,388 |
12,067 |
33,179 |
45,246 |
|
|
Taxation |
5 |
(651) |
(10,294) |
(10,945) |
(228) |
(9,629) |
(9,857) |
|
|
Net return for the year |
|
12,953 |
31,490 |
44,443 |
11,839 |
23,550 |
35,389 |
|
|
|
|
|
|
|||||
|
Total comprehensive return for the period |
|
12,953 |
31,490 |
44,443 |
11,839 |
23,550 |
35,389 |
|
|
|
|
|
|
|||||
|
Basic and diluted earnings per share |
7 |
4.50¢ |
10.93¢ |
15.43¢ |
4.95¢ |
9.84¢ |
14.79¢ |
|
The accompanying notes are an integral part of the financial statements.
The total column of the Consolidated Statement of Comprehensive Income is the profit and loss account of the Group.
All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year.
Consolidated Balance Sheet
For the year ended 31 December 2021
|
Notes |
As at 31 December 2021 Total €'000 |
As at 31 December 2020 Total €'000 |
|
|
NON-CURRENT ASSETS Investment properties 9 Deferred tax asset 5 |
683,878 2,978 |
448,418 1,425 |
|
|
Total non-current assets |
686,856 |
449,843 |
|
|
CURRENT ASSETS |
|
|
|
|
Trade and other receivables |
10 |
11,175 |
9,286 |
|
Cash and cash equivalents |
11 |
23,280 |
24,874 |
|
Other Assets |
|
6,966 |
75 |
|
Derivative financial assets |
15 |
109 |
26 |
|
Total current assets |
41,530 |
34,261 |
|
|
|
|
||
|
Total assets |
728,386 |
484,104 |
|
|
CURRENT LIABILITIES |
|
|
|
|
Bank loans |
14 |
15,500 |
- |
|
Lease liability |
12 |
550 |
550 |
|
Trade and other payables |
13 |
14,466 |
8,291 |
|
Total current liabilities |
30,516 |
8,841 |
|
|
NON-CURRENT LIABILITIES |
|
|
|
|
Bank loans |
14 |
160,447 |
143,331 |
|
Lease liability |
12 |
22,355 |
22,620 |
|
Deferred tax liability |
5 |
27,563 |
15,716 |
|
Total non-current liabilities |
210,365 |
181,667 |
|
|
Total liabilities |
240,881 |
190,508 |
|
|
Net assets |
487,505 |
293,596 |
|
|
SHARE CAPITAL AND RESERVES |
|
|
|
|
Share capital |
16 |
4,309 |
2,756 |
|
Share premium |
17 |
225,792 |
61,691 |
|
Special distributable reserve |
18 |
178,207 |
185,661 |
|
Capital reserves |
19 |
63,258 |
31,768 |
|
Revenue reserve |
|
15,939 |
11,720 |
|
Equity shareholders' funds |
487,505 |
293,596 |
|
|
Net asset value per share |
8 |
€ 1.29 |
€ 1.20 |
Consolidated Statement of Changes in Equity
For the year ended 31 December 2021
|
Notes |
Share capital €'000 |
Share premium €'000 |
Special distributable reserve €'000 |
Capital reserve €'000 |
Revenue reserve €'000 |
Total €'000 |
|
|
Balance at 31 December 2020 |
|
2,756 |
61,691 |
185,661 |
31,768 |
11,720 |
293,596 |
|
Share Issue |
16/17 |
1,553 |
166,924 |
- |
- |
- |
168,477 |
|
Share Issue costs |
17 |
- |
(2,823) |
- |
- |
- |
(2,823) |
|
Total Comprehensive return for the period |
|
- |
- |
- |
31,490 |
12,953 |
44,443 |
|
Dividends paid |
6 |
- |
- |
(7,454) |
- |
(8,734) |
(16,188) |
|
Balance at 31 December 2021 |
4,309 |
225,792 |
178,207 |
63,258 |
15,939 |
487,505 |
|
For the year ended 31 December 2020
|
Notes |
Share capital €'000 |
Share premium €'000 |
Special distributable reserve €'000 |
Capital reserve €'000 |
Revenue reserve €'000 |
Total €'000 |
|
|
Balance at 31 December 2019 |
|
2,645 |
50,364 |
191,579 |
8,218 |
7,471 |
260,277 |
|
Share Issue |
16/17 |
111 |
11,442 |
- |
- |
- |
11,553 |
|
Share Issue costs |
17 |
- |
(115) |
- |
- |
- |
(115) |
|
Total Comprehensive return for the period |
|
- |
- |
- |
23,550 |
11,839 |
35,389 |
|
Dividends paid |
6 |
- |
- |
(5,918) |
- |
(7,590) |
(13,508) |
|
Balance at 31 December 2020 |
2,756 |
61,691 |
185,661 |
31,768 |
11,720 |
293,596 |
|
The accompanying notes are an integral part of the financial statements.
Consolidated Statement of Cash Flows
For the year ended 31 December 2021
|
Notes |
Year ended €'000 |
Year ended 31 December 2020 €'000 |
|
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
Net gain for the period before taxation |
|
55,388 |
45,246 |
|
Adjustments for: |
|
|
|
|
Gains on investment properties |
|
(41,031) |
(32,878) |
|
Land leasehold liability decreases |
|
265 |
257 |
|
(Increase)/Decrease in operating trade and other receivables |
|
(9,088) |
1,215 |
|
Increase/(Decrease) in operating trade and other payables |
|
2,939 |
(1,270) |
|
Finance costs |
4 |
3,449 |
2,545 |
|
Tax paid |
|
(473) |
(106) |
|
Cash generated by operations |
11,449 |
15,009 |
|
|
Net cash inflow from operating activities |
11,449 |
15,009 |
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
Purchase of investment properties |
(193,475) |
(46,223) |
|
|
Derivative financial instruments |
(83) |
(34) |
|
|
Net cash outflow from investing activities |
(193,558) |
(46,257) |
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
Dividends paid |
6 |
(16,188) |
(13,508) |
|
Bank loans interest paid |
|
(1,311) |
(1,588) |
|
Bank loans drawn |
|
68,860 |
35,201 |
|
Bank loans repaid |
|
(36,500) |
- |
|
Proceeds from share issue |
16/17 |
168,477 |
11,553 |
|
Issue costs relating to share issue |
17 |
(2,823) |
(115) |
|
Net cash inflow from financing activities |
180,515 |
31,543 |
|
|
|
|
||
|
Net (decrease)/increase in cash and cash equivalents |
(1,594) |
295 |
|
|
|
|
||
|
Opening balance |
24,874 |
24,579 |
|
|
|
|
||
|
Closing cash and cash equivalents |
23,280 |
24,874 |
|
|
REPRESENTED BY |
|
||
|
Cash at bank |
11 |
23,280 |
24,874 |
The accompanying notes are an integral part of the financial statements.
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 United Kingdom, and the Listing Rules of the UK Listing Authority.
The 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:
. Amendments to IFRS 9, IAS 39 and IFRS 7 - the amendments provide clarifications for specific hedge accounting requirements for the interest rate benchmark.
. Amendments to IFRS 16 - the amendments allow lessees not to account for rent concessions as lease modifications if they are a direct consequence of COVID-19 and meet certain conditions.
Standard and Interpretations issued by IASB but not adopted by the United Kingdom and not yet effective:
. IFRS 17 Insurance Contracts (effective 1 January 2023);
. Amendments to IAS 1 - Classification of liabilities as current or non-current (effective 1 January 2023);
. Amendments to IFRS 10, IAS 28 - Sale or Contribution of Assets between an investor and its Associate or Joint Venture (effective date deferred indefinitely).
The Group has made no adjustments to its financial statements following the above listed amendments and hence these are not discussed further.
(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 financial statements.
The determination of the fair value of investment properties requires the use of estimates such as future cash flows from the assets, estimate inflation, market rents, discount and capitalisation rates. 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 2021, and are prepared on a going concern basis. 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 acquiree 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.
See note 28 for further details on going concern.
(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 in the judgement of the Directors is Euro. The 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, including the effect of lease incentives, arising from operating leases (including those containing fixed rent increases) is recognised on a straight line basis over the lease term.
Service charge income represents the charge to tenants for services the Group is obliged to provide under lease agreements. This income is recorded gross within Income on the basis the Group is acting as principal, with any corresponding cost shown within expenses.
Interest income is accounted for on an effective interest rate basis.
(g) Expenses
All expenses, including the management fee, are accounted for on an accruals basis and are recorded through the revenue column of the Consolidated Statement of Comprehensive Income, except for gains or losses on investment properties which are recorded in the capital column.
(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 'net return 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.
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 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, and accounted for through the capital reserve.
(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.
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 and Savills, chartered surveyors, at the balance sheet date undertaken in accordance with the RICS Valuation - Global Standards 2020, (Red Book), published by the Royal Institution of Chartered Surveyors. 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.
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.
(j) Distributions
Interim distributions payable to the holders of equity shares are recognised in the 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) Lease Contracts
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.
Operating and Finance Lease Contracts - the Group as intermediate lessor
When the Group is an intermediate lessor, it accounts for its interest in the head lease and the sub-lease separately. The Group assesses all leases where it acts as an intermediate lessor, based on an evaluation of the terms and conditions of the arrangements. Any head leases identified as having a low value at the lease commencement date are classified as operating leases and accounts for the lease payments on a straight-line basis over the lease terms.
Any head leases identified as finance leases are capitalised at the lease commencement present value of the minimum lease payments discounted at an applicable discount rate as a right-of-use asset and leasehold liability.
Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The interest element of the finance cost is charged to the Statement of Comprehensive Income over the lease period.
(l) Share Issue Expenses
Incremental external costs directly attributable to the issue of shares that would otherwise have been avoided are written off to share premium.
(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 20 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.
Impairment of financial assets
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 twelve months before 31 December 2021, 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:
. 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 twelve months before 31 December 2021, 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.
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 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.
(p) 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.
(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 and is non-distributable. 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 by applicable legislation and practice, 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.
2. Revenue
|
|
Year ended 31 December 2021 €'000 |
Year ended 31 December 2020 €'000 |
|
Rental income |
23,283 |
20,257 |
|
Other income |
3,435 |
3,096 |
|
Property service charge income |
219 |
47 |
|
Total revenue |
26,937 |
23,400 |
Included within rental income is amortisation of rent free periods granted.
3. Expenditure
|
|
Year ended 31 December 2021 €'000 |
Year ended 31 December 2020 €'000 |
|
Professional fees |
656 |
375 |
|
Directors' fees |
182 |
169 |
|
Audit fee for statutory services 1 |
275 |
270 |
|
Other expenses |
382 |
301 |
|
Broker fees |
69 |
67 |
|
Depositary fees |
44 |
8 |
|
Stock exchange fees |
66 |
59 |
|
Directors' liability insurance expense |
3 |
4 |
|
Registrar fees |
43 |
24 |
|
Empoyers NI |
15 |
13 |
|
Total expenses |
1,735 |
1,290 |
1 The Audit fee above for 2021 reflects an audit fee of €218,400 which includes £45,000 paid in respect of non-audit services fees incurred in relation to the share issuance programme and the issue of a prospectus in September 2021 (2020: nil). Subsidiary audit fees of €12,790 are also included.
4. Finance Costs
|
|
Year ended 31 December 2021 €'000 |
Year ended 31 December 2020 €'000 |
|
Interest on bank loans |
2,587 |
1,998 |
|
Bank interest |
606 |
335 |
|
Amortisation of loan costs |
256 |
212 |
|
Total finance costs |
3,449 |
2,545 |
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. In March 2021 the UK Government confirmed an increase in the Corporation Tax Rate from 19% to 25% from 1 April 2023. This will not affect the Company's ability to take advantage of the streaming regime as it currently does.
Reconciliation between the tax charge and the product of accounting profit/(loss) multiplied by the applicable tax rate for the year ended 31 December 2021.
(a) Tax charge in the Group Statement of Comprehensive Income
|
|
Year ended |
Year ended |
||||
|
Revenue €'000 |
Capital €'000 |
Total €'000 |
Revenue €'000 |
Capital €'000 |
Total €'000 |
|
|
Current taxation: |
|
|
||||
|
Overseas taxation |
651 |
- |
651 |
228 |
- |
228 |
|
Deferred taxation: |
|
|
||||
|
Overseas taxation |
- |
10,294 |
10,294 |
- |
9,629 |
9,629 |
|
Total taxation |
651 |
10,294 |
10,945 |
228 |
9,629 |
9,857 |
|
|
Year ended |
Year ended |
||||
|
Revenue €'000 |
Capital €'000 |
Total €'000 |
Revenue €'000 |
Capital €'000 |
Total €'000 |
|
|
Net result before taxation |
13,604 2,585
229
1,262
(2,602)
(823) |
41,784 7,939
- 2,355 -
- |
55,388 10,524
229
3,617
(2,602)
(823) |
12,067 2,293
110
(1,381)
(81)
(713) |
33,179 6,304
- 3,325 -
- |
45,246 8,597
110
1,944
(81)
(713) |
|
Theoretical tax at UK corporation |
||||||
|
tax rate of 19% |
||||||
|
Effect of: |
||||||
|
Losses where no deferred taxes |
||||||
|
have been recognised |
||||||
|
Impact of different tax rates on |
||||||
|
foreign jurisdictions |
||||||
|
Expenses that are not deductible / |
||||||
|
income that is not taxable |
||||||
|
Impact of UK interest distributions |
||||||
|
from the Investment Trust |
||||||
|
Total taxation |
651 |
10,294 |
10,945 |
228 |
9,629 |
9,857 |
(b) Tax in the Group Balance Sheet
|
|
Year ended |
Year ended |
||||
|
Revenue €'000 |
Capital €'000 |
Total €'000 |
Revenue €'000 |
Capital €'000 |
Total €'000 |
|
|
Deferred tax assets: |
|
|
||||
|
On tax losses |
- |
2,828 |
2,828 |
- |
1,084 |
1,084 |
|
On other temporary differences |
- |
150 |
150 |
- |
341 |
341 |
|
Total taxation |
- |
2,978 |
2,978 |
- |
1,425 |
1,425 |
|
|
Year ended |
Year ended |
||||
|
Revenue €'000 |
Capital €'000 |
Total €'000 |
Revenue €'000 |
Capital €'000 |
Total €'000 |
|
|
Deferred tax liabilities: Differences between tax and property valuation |
- |
27,563 |
27,563 |
- |
15,716 |
15,716 |
|
Total taxation |
- |
27,563 |
27,563 |
- |
15,716 |
15,716 |
In March 2021 the UK Government announced the UK Corporation tax rate is to remain at 19% until April 2023, at which point it will be increased to 25%. This is not expected to have a material impact on the Group.
No deferred tax asset has been recognised (2020: nil) on estimated UK tax losses.
6. Dividends
|
|
Year ended €'000 |
Year ended €'000 |
|
|
2020 Fourth Interim dividend of 1.41c /(1.24p) per Share paid |
3,447 |
3,306 |
|
|
26 March 2021 |
|||
|
|
|
||
|
(2019 Fourth Interim: 1.41c/1.27p) |
|
|
|
|
2021 First Interim dividend of 1.41c (1.21p) per Share paid |
3,708 |
3,306 |
|
|
25 June 2021 |
|||
|
|
|
||
|
(2020 First Interim: 1.41c /1.24p) |
|
|
|
|
2021 Second Interim dividend of 1.41c (1.21p) per Share paid |
3,708 |
3,448 |
|
|
24 September 2021 |
|||
|
|
|
||
|
(2020 Second interim: 1.41c/1.24p) |
|
|
|
|
2021 Third Interim dividend of 1.41c (1.21p) per Share paid 30 |
5,325 |
3,448 |
|
|
December 2021 |
|||
|
|
|
||
|
(2020 Third interim: 1.41c/1.24p) |
|
|
|
|
Total Dividends Paid |
16,188 |
13,508 |
A fourth interim dividend of 1.41c/(1.21p) per share was paid on 25 March 2022 to Shareholders on the register on 4 March 2022. Although this payment relates to the year ended 31 December 2021, under IFRS it will be accounted for in the year in which it has been paid.
7. Earnings per Share (Basic and Diluted)
|
|
Year ended 31 December 2021 |
Year ended 31 December 2020 |
|
Revenue net return attributable to Ordinary shareholders (€'000) |
12,953 |
11,839 |
|
Weighted average number of shares in issue during the period |
288,114,820 |
239,213,116 |
|
Total revenue return per ordinary share |
4.50¢ |
4.95¢ |
|
Capital return attributable to Ordinary shareholders (€'000) |
31,490 |
23,550 |
|
Weighted average number of shares in issue during the period |
288,114,820 |
239,213,116 |
|
Total capital return per ordinary share |
10.93¢ |
9.84¢ |
|
Total return per ordinary share |
15.43¢ |
14.79¢ |
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 288,114,820 Shares
(2020: 239,213,116 Shares).
8. Net Asset Value Per Share
|
|
2021 |
2020 |
|
Net assets attributable to shareholders (€'000) |
487,505 |
293,596 |
|
Number of shares in issue at 31 December |
377,628,901 |
244,500,001 |
|
Net asset value per share (€) |
1.29 |
1.20 |
9. Investment Properties
|
|
2021 €'000 |
2020 €'000 |
|
Opening carrying value |
448,418 |
348,519 |
|
Purchase at cost and capital expenditure |
194,429 |
43,851 |
|
Gains on revaluation to fair value |
41,031 |
32,878 |
|
Purchase of leasehold interest (non cash) |
- |
23,170 |
|
Total carrying value at 31 December |
683,878 |
448,418 |
|
Gains on investment properties at fair value comprise: |
|
|
|
Valuation gains |
40,683 |
31,958 |
|
Decrease in leasehold liability |
265 |
(137) |
|
Movements in lease incentives |
83 |
1,057 |
|
|
41,031 |
32,878 |
Valuation Methodology
Valuations were performed by CBRE GmbH and Savills, both accredited independent valuers with a recognised and relevant professional qualification. The valuers have sufficient current local and national knowledge of the particular property markets involved and have 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 2020, (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 using the discounted cash flow method. 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 investment properties amounted to €666,008,000. The difference between the fair value and the value per the Consolidated Balance Sheet at 31 December 2021 consists of accrued income relating to the pre-payment for rent-free periods recognised over the life of the lease, and a lease asset relating to future use of the leasehold at Den Hoorn. These total €5,035,000 and €22,905,000 respectively. The rent incentive balance is recorded separately in the financial statements as a current asset, and the lease asset is offset by an equal and opposite lease liability.
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 |
234,800 |
Discounted Cash Flow |
Annual rent per sq m |
44.14 - 69.81 (59.85) |
|
Capitalisation rate |
3.60% - 4.78% (4.05%) |
|||
|
Discount rate |
4.15% - 5.25% (4.57%) |
|||
|
Germany - Logistics |
70,000 |
Discounted Cash Flow |
Annual rent per sq m |
65.97 - 66.04 (66.01) |
|
Capitalisation rate |
3.20% - 3.35% (3.26%) |
|||
|
Discount rate |
3.85% - 4.10% (3.95%) |
|||
|
France - Logistics |
74,500 |
Discounted Cash Flow |
Annual rent per sq m |
48.78 - 87.48 (76.37) |
|
Capitalisation rate |
4.30% - 5.00% - (4.50%) |
|||
|
Discount rate |
4.40% - 5.25% - (4.64%) |
|||
|
Poland - Logistics |
90,000 |
Discounted Cash Flow |
Annual rent per sq m |
48.20 - 65.42 - (54.53) |
|
Capitalisation rate |
5.05% - 5.65% - (5.27%) |
|||
|
Discount rate |
5.18% - 5.63% - (5.37%) |
|||
|
Spain - Logistics |
196,708 |
Discounted Cash Flow |
Annual rent per sq m |
32.51 - 70.18 - (54.15) |
|
Capitalisation rate |
3.75% - 5.65% - (4.10%) |
|||
|
Discount rate |
4.25% - 7.50% - (4.91%) |
Sensitivity Analysis
The table below presents the sensitivity of the valuation to changes in the most significant assumptions underlying the valuation of investment property.
|
Country and sector |
Assumption |
Movement |
Effect on Valuation €'000 |
|
Netherlands - Logistics |
Capitalisation and Discount rate |
+50 basis points |
(26,400) |
|
- 50 basis points |
33,800 |
||
|
Germany - Logistics |
Capitalisation and Discount |
+50 basis points |
(9,300) |
|
- 50 basis points |
12,800 |
||
|
France - Logistics |
Capitalisation and Discount rate |
+50 basis points |
(7,500) |
|
- 50 basis points |
9,200 |
||
|
Poland - Logistics |
Capitalisation and Discount rate |
+50 basis points |
(7,600) |
|
|
- 50 basis points |
9,200 |
|
|
Spain - Logistics |
Capitalisation and Discount rate |
+50 basis points |
(22,164) |
|
- 50 basis points |
28,826 |
10 Trade and Other Receivables
|
|
2021 €'000 |
2020 €'000 |
|
Trade debtors |
5,549 |
4,130 |
|
VAT receivable |
591 |
140 |
|
Lease incentives |
5,035 |
4,952 |
|
Other receivables |
- |
64 |
|
Total receivables |
11,175 |
9,286 |
The ageing of these receivables is as follows:
|
|
2021 €'000 |
2020 €'000 |
|
Less than 6 months |
5,580 |
8,769 |
|
Between 6 & 12 months |
5,595 |
517 |
|
|
11,175 |
9,286 |
11 Cash and Cash Equivalents
|
|
2021 2020 €'000 €'000 |
|
Cash at bank |
23,280 24,874 |
|
Total cash and cash equivalents |
23,280 24,874 |
12 Leasehold Liability
|
|
2021 €'000 |
2020 €'000 |
|
Maturity analysis - contractual undiscounted cash flows |
|
|
|
Less than one year |
550 |
550 |
|
One to five years |
2,201 |
2,201 |
|
More than five years |
25,615 |
26,165 |
|
Total undiscounted lease liabilities |
28,366 |
28,916 |
|
Lease liability included in the Consolidated Balance Sheet |
|
|
|
Current |
550 |
550 |
|
Non - current |
22,355 |
22,620 |
|
Total lease liability included in the Consolidated Balance Sheet |
22,905 |
23,170 |
On 15 January 2020 the Group acquired a new logistics warehouse in Den Hoorn. The property is on land owned by the local municipality and leased to the Group on a perpetual basis. The Group reserves the option to acquire the freehold ownership on 1 July 2044 for the total sum of €15,983,000. The annual ground lease payments amount to €531,000 per annum, the present value of these future payments being €22,905,000 as at 31 December 2021.
13 Trade and Other Payables
|
|
2021 €'000 |
2020 €'000 |
|
Rental income received in advance |
1,964 |
2,604 |
|
Accrued acquisition and development costs |
41 |
833 |
|
Management fee payable |
931 |
555 |
|
VAT payable |
643 |
811 |
|
Accruals |
2,850 |
1,048 |
|
Trade creditors |
5,164 |
1,236 |
|
Tenant deposits |
2,873 |
1,204 |
|
Total payables |
14,466 |
8,291 |
14 Bank Loans
|
|
2021 €'000 |
2020 €'000 |
|
Bank borrowings drawn Loan issue costs paid Accumulated amortisation of loan issue costs |
177,100 (1,740) 587 |
144,600 (1,599) 330 |
|
Total Bank Loans |
175,947 |
143,331 |
|
|
2021 €'000 |
2020 €'000 |
|
Maturity less than 1 year |
15,500 |
- |
|
Maturity beyond 1 year |
160,447 |
143,331 |
|
Total payables |
175,947 |
143,331 |
The above loans are secured on the following properties on a non-recourse basis.
|
Property |
Country |
Loan (€'000) |
Start date |
End date |
Lender |
Fixed Interest Rate |
|
Erlensee |
Germany |
17,800 |
20/02/2019 |
31/01/2029 |
DZ HYP |
1.62% |
|
Flörsheim |
Germany |
12,400 |
18/02/2019 |
30/01/2026 |
DZ HYP |
1.54% |
|
Avignon + Meung Sur Loire |
France |
33,000 |
12/02/2019 |
12/02/2026 |
BAYERN LB |
1.57% |
|
Ede/Waddinxveen + Oss |
Netherlands |
44,200 |
06/06/2019 |
06/06/2025 |
BERLIN HYP |
1.37% |
|
s Heerenberg |
Netherlands |
11,000 |
27/06/2019 |
27/06/2025 |
BERLIN HYP |
1.13% |
|
Zeewolde+Den Hoorn |
Netherlands |
43,200 |
15/01/2020 |
14/01/2028 |
BERLIN HYP |
1.40% |
|
Not property related |
United Kingdom |
15,500 |
15/10/2021 |
03/01/2022 |
INVESTEC |
3.75% |
|
|
|
177,100 |
|
|
|
|
15 Derivative Financial Instruments
|
|
2021 €'000 |
2020 €'000 |
|
Forward foreign exchange contracts |
109 |
26 |
|
|
109 |
26 |
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 €1.17:£1 for the three interim distributions paid in the year, and the fourth interim distribution paid after the year end. The forward FX in place at year end relates solely to the fourth interim distribution payable.
16 Share Capital
|
|
2021 €'000 |
2020 €'000 |
|
Opening balance |
2,756 |
2,645 |
|
Ordinary shares issued |
1,553 |
111 |
|
Balance as at 31 December |
4,309 |
2,756 |
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 Group commenced the year with 244,500 001 Ordinary shares in issue. On 16 March 2021, the Group increased its share capital by the issue of 18,450,000 new Ordinary Shares at 105p (€1.22) per share. On 1 October 2021, the Group increased its share capital by the issue of 114,678,900 new Ordinary Shares at 109p (€1.27) per share. The number of Ordinary shares in issue at 31 December 2021 was 377,628,901.
The nominal value of each share is £0.01.
17 Share Premium
|
|
2021 €'000 |
2020 €'000 |
|
Opening balance |
61,691 |
50,364 |
|
Premium arising on issue of new shares |
166,924 |
11,442 |
|
Share issue costs deducted |
(2,823) |
(115) |
|
Balance as at 31 December |
225,792 |
61,691 |
The share premium arising in the year was converted to EUR using the issue date exchange rate on 16 March 2021 of 1.16353482 and on 1 October 2021 of 1.16750143.
18 Special Distributable Reserve
|
|
2021 €'000 |
2020 €'000 |
|
Opening balance |
185,661 |
191,579 |
|
Dividends Paid |
(7,454) |
(5,918) |
|
Balance as at 31 December |
178,207 |
185,661 |
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.
19 Capital Reserves
|
|
Realised capital reserve €'000 |
Unrealised gains/(losses) €'000 |
Total capital Reserve €'000 |
|
Opening balance |
(2) |
31,770 |
31,768 |
|
Movement in deferred taxation |
- |
(10,294) |
(10,294) |
|
Movement in fair value gains of investments |
- |
41,031 |
41,031 |
|
Currency gains during the year |
- |
753 |
753 |
|
Balance as at 31 December |
(2) |
63,260 |
63,258 |
20 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.
|
2021 |
Netherlands €'000 |
Poland €'000 |
Germany €'000 |
Spain €'000 |
France €'000 |
Parent Company €'000 |
Total €'000 |
|
|
Total Assets |
264,155 |
94,100 |
71,571 |
215,789 |
80,725 |
2,046 |
728,386 |
|
|
Total Liabilities |
139,464 |
6,608 |
34,134 |
6,663 |
37,206 |
16,806 |
240,881 |
|
|
Total Comprehensive return for the period (Revenue) |
2,646 |
(969) |
(578) |
(14) |
2,110 |
9,758 |
12,953 |
|
|
Total Comprehensive return for the period (Capital) |
21,436 |
6,607 |
3,655 |
2,814 |
(3,022) |
- |
31,490 |
|
|
Included in Total |
|
|
|
|
|
|
|
|
|
Comprehensive Income |
|
|
|
|
|
|
|
|
|
Net gain from the fair value |
29,636 |
7,708 |
4,580 |
2,319 |
(3,212) |
- |
41,031 |
|
|
adjustment on investment |
||||||||
|
|
|
|
|
|
|
|
||
|
property |
|
|
|
|
|
|
|
|
|
Rental income |
10,368 |
3,634 |
2,846 |
2,306 |
4,129 |
- |
23,283 |
|
2020 |
Netherlands €'000 |
Poland €'000 |
Germany €'000 |
Spain €'000 |
France €'000 |
Parent Company €'000 |
Total €'000 |
|
|
Total Assets |
231,747 |
57,557 |
67,387 |
29,423 |
83,745 |
14,245 |
484,104 |
|
|
Total Liabilities |
113,681 |
3,407 |
33,038 |
1,138 |
38,389 |
855 |
190,508 |
|
|
Total Comprehensive return for the period (Revenue) |
2,376 |
(334) |
625 |
437 |
1,732 |
7,003 |
11,839 |
|
|
Total Comprehensive return for the period (Capital) |
14,999 |
865 |
3,721 |
490 |
3,622 |
(147) |
23,550 |
|
|
Included in Total |
|
|
|
|
|
|
|
|
|
Comprehensive Income |
|
|
|
|
|
|
|
|
|
Net gain from the fair value |
21,199 |
1,709 |
3,931 |
801 |
5,238 |
- |
32,878 |
|
|
adjustment on investment |
||||||||
|
|
|
|
|
|
|
|
||
|
property |
|
|
|
|
|
|
|
|
|
Rental income |
9,674 |
2,380 |
2,870 |
1,531 |
3,802 |
- |
20,257 |
21 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 2021 |
Level 1 €'000 |
Level 2 €'000 |
Level 3 €'000 |
Total fair value €'000 |
|
Investment properties |
- |
- |
683,878 |
683,878 |
|
31 December 2020 |
Level 1 €'000 |
Level 2 €'000 |
Level 3 €'000 |
Total fair value €'000 |
|
Investment properties |
- |
- |
448,418 |
448,418 |
The lowest level of input is the underlying yields on each property which is an input not based on observable market data.
|
31 December 2021 |
Level 1 €'000 |
Level 2 €'000 |
Level 3 €'000 |
Total fair value €'000 |
|
Derivative Financial Instruments |
- |
109 |
- |
109 |
|
31 December 2020 |
Level 1 €'000 |
Level 2 €'000 |
Level 3 €'000 |
Total fair value €'000 |
|
Derivative Financial Instruments |
- |
26 |
- |
26 |
The lowest level of input is EUR:GBP exchange rate.
22 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.
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 2021 |
Interest rate % |
Local currency '000 |
Foreign exchange rate |
Euro equivalent €'000 |
|
Assets: |
|
|
|
|
|
Euro |
(0.50) |
21,994 |
€1.00 |
21,994 |
|
Pound Sterling |
0.25 |
149 |
0.84 |
177 |
|
Polish Zloty |
1.25 |
5,080 |
4.60 |
1,109 |
|
Total |
23,280 |
|||
|
As at 31 December 2020 |
Interest rate % |
Local currency '000 |
Foreign exchange rate |
Euro equivalent €'000 |
|
Assets: |
|
|
|
|
|
Euro |
(0.50) |
23,594 |
€1.00 |
23,594 |
|
Pound Sterling |
0.10 |
726 |
0.90 |
807 |
|
Polish Zloty |
|
2,184 |
4.61 |
473 |
|
Total |
24,874 |
|||
The floating rate assets consist of cash deposits on call earning interest at prevailing market rates.
An increase of 0.1 per cent in interest rates as at the reporting date would have increased the reported profit and equity shareholders' funds by €23,280. A decrease of 0.1 per cent would have reduced the reported profit and equity shareholders' funds by €23,280. 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 2021 |
Investment exposure €'000 |
Net monetary exposure €'000 |
Total currency exposure €'000 |
|
Pound Sterling |
- |
332 |
332 |
|
Złoty |
51,852 |
1,109 |
52,961 |
|
Total foreign currency |
51,852 |
1,441 |
53,293 |
|
Euro |
632,026 |
(197,814) |
434,212 |
|
Total |
683,878 |
(196,373) |
487,505 |
|
As at 31 December 2020 |
Investment exposure €'000 |
Net monetary exposure €'000 |
Total currency exposure €'000 |
|
Pound Sterling |
- |
1,052 |
1,052 |
|
Złoty |
51,852 |
473 |
473 |
|
Total foreign currency |
51,852 |
1,525 |
1,525 |
|
Euro |
396,566 |
(156,347) |
292,071 |
|
Total |
448,418 |
(154,822) |
293,596 |
The asset allocation between specific markets can vary from time to time based on the Investment 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 and Polish Zloty against the Euro 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 €'000 |
As at 31 December 2020 €'000 |
|
Zloty |
110.9 |
47.3 |
|
Pound Sterling |
33.2 |
105.2 |
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. The carrying amount for financial assets approximates to the fair value of trade and other receivables (note 10) and trade and other payables (note 13).
Other price risk sensitivity
If the investment valuation fell by 10% at 31 December 2021, the decrease in total assets and return before tax would be €66m (2020: €43m). If the investment portfolio valuation rose by 10% at 31 December 2020, the increase in total assets and return before tax would be €66m (2020: €43m). 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 has 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 until the property is re-let, including legal expenses, in maintaining, insuring and re-letting the property. 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 2021 was €28.8m (2020 - €29.0m). This was due to trade receivables and cash as per notes 10 and 11.
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.
d. Taxation and Regulation risks
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. 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. The fair value of the Groups bank borrowings as at 31 December 2021 was €164,980,000 (2020: €150,121,000).
Contractual undiscounted maturities
All financial liabilities presented as current are payable within 3 months. The analysis of non-current financial liabilities is below:
|
At 31 December 2021 |
Within 1 year €'000 |
1-2 years €'000 |
2-5 years €'000 |
Over 5 years €'000 |
Total €'000 |
|
Bank loans |
2,373 |
2,299 |
62,096 |
108,585 |
175,352 |
|
Lease liability |
550 |
550 |
1,651 |
25,615 |
28,366 |
|
Total |
2,922 |
2,849 |
63,747 |
134,200 |
203,718 |
|
At 31 December 2020 |
Within 1 year €'000 |
1-2 years €'000 |
2-5 years €'000 |
Over 5 years €'000 |
Total €'000 |
|
Bank loans |
1,963 |
1,963 |
51,588 |
102,218 |
157,732 |
|
Lease liability |
550 |
550 |
1,651 |
26,165 |
28,916 |
|
Total |
2,513 |
2,513 |
53,239 |
128,383 |
186,648 |
23 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 €2,756,000 (2020: €2,066,000), of which €931,000 (2020: €555,000) 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.
A Promotional and Marketing Budget fee of £137,000 was approved for 2021/2022 at the November 2021 Board meeting which is payable to Aberdeen Asset Managers Limited ('AAML').
The remuneration of Directors is detailed below.
|
|
2021 €'000 |
2020 €'000 |
|
Caroline Gulliver |
45 |
43 |
|
John Heawood |
40 |
37 |
|
Tony Roper |
57 |
52 |
|
Diane Wilde |
40 |
37 |
|
Balance as at 31 December |
182 |
169 |
Please note the above figures are all Euro, while those in the directors remuneration report are stated in GBP.
The Directors' shareholdings are detailed below.
|
|
31 December 2021 Ordinary shares |
31 December 2020 Ordinary shares |
|
T Roper |
92,812 |
55,000 |
|
C Gulliver |
62,500 |
40,000 |
|
J Heawood |
50,000 |
30,000 |
|
D Wilde |
50,000 |
40,000 |
On 16 March 2021, the Director's increased their shareholdings by: T Roper 20,000, C Gulliver 10,000, J Heawood 10,000 and D Wilde 10,000.
On 1 October 2021, the Director's increased their shareholdings by: T Roper 17,812, C Gulliver 12,500, J Heawood 10,000 and D Wilde 14,375.
24 Lease Analysis
The group leases out its investment properties under operating leases.
The future income under operating leases, based on the unexpired lease length at the year end was as follows (based on total rents).
|
|
2021 €'000 |
2020 €'000 |
|
Less than one year |
28,027 |
22,443 |
|
Between one and two years |
27,372 |
22,061 |
|
Between two and three years |
26,867 |
21,781 |
|
Between three and four years |
25,748 |
21,446 |
|
Between four and five years |
24,415 |
20,664 |
|
More than five years |
100,195 |
140,045 |
|
Total |
232,624 |
248,440 |
The largest single tenant at the year end accounted for 10 per cent of the annualised rental income at 31 December 2021.
The Group has entered into commercial property leases on its investment property portfolio. These leases have remaining lease terms of between 1 and 26 years.
25 Post Balance Sheet Events
Equity Raise
The Company issued 34.5 million new Ordinary Shares at a price of 110 pence per share on 4 February 2022, raising gross proceeds of £38 million (€45.6 million). Following the issue of the new Ordinary shares, the total number of voting rights in the Company is 412,174,356. Details of the Directors participation in the share issue is included in note 23.
War between Russia and Ukraine
In 2014 Russia annexed Crimea, a mainly Russian speaking region of Ukraine. This lead to various separatist uprisings in the Donetsk and Luhansk regions of Ukraine. A peace deal in 2015 established a line of demarcation but since then, low-level fighting has continued. Post the Balance Sheet date, on 24th February 2022, Russia launched a full scale military operation in Ukraine.
As at the date of the report the Group did not hold any assets in Ukraine or Russia. The situation in the region is rapidly evolving and the Directors and the Manager continue to monitor the situation carefully and will take whatever steps are necessary and in the best interests of the Company's Shareholders. This includes but is not limited to ensuring that the requirements of all international sanctions are adhered to, actively managing the assets of the Group proactively to best manage risk and ensuring that the Manager and other key suppliers continue to operate all protections, protocols and monitoring of heightened cyber threats. The Group's key suppliers do not have operations in Ukraine or Russia and there is not expected to be any adverse impact from the military operation on the operational activities, processes and procedures of the Group.
26 Capital Commitments
As at the 31 December 2021 the Group had capital commitments of €73.4m in relation to the acquisition of Phase IV of the Sky Madrid portfolio.
27 Ultimate Parent Company
In the opinion of the Directors on the basis of shareholdings reviewed by them, the Company has no immediate or ultimate controlling party.
28 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.
Following the share issuance in February 2022 (€45.6m), expected purchase of assets in the second quarter of 2022, and the upcoming drawing of additional asset level debt to fund these acquisitions, the Group will have c.€20m cash reserves.
As detailed in note 14 there are currently six bank facilities, none of which are due to expire before June 2025. The Group also has an undrawn €70m revolving credit facility with Investec Bank, €3.3m of which is committed and available on request to cover any short-term liquidity gaps.
The ongoing COVID-19 pandemic, and the Russian invasion of Ukraine have not materially impacted the Groups portfolio. Rent collection for the year was 99.5%, and the Groups portfolio delivered a capital return of 8.3%.
The Group has no assets or exposure to Russia or Ukraine but the potential impact of contagion in the European and Global economy could, however, impact the Group through a reduction in rental income, reduction in investment property valuation and increased debt costs. The Company has prepared cash flow forecasts which reflect these potential impacts, including severe but plausible downside scenarios taking into account specific tenant risks and upcoming debt requirements. The impact of reductions in rental income and increased debt costs in these scenarios could be mitigated through, among other actions, a reduction in dividends to shareholders if considered necessary by the Board.
The scenarios model reduced rental income through to 2023 and the worst case model equates to an overall 20% 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 potential impact of these ongoing crises, the financial forecasts 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.
EPRA Financial Reporting (Unaudited)
In February 2022, EPRA issued new best practice recommendations (BPR) for financial guidelines on its definitions of NAV measures: EPRA net tangible assets (NTA), EPRA net reinvestment value (NRV) and EPRA net disposal value (NDV). The 2022 amendment to the EPRA BPR specifies an additional key metric - the EPRA LTV. The rationale behind each of these measures is set out below. The Group has adopted these new guidelines and applied them in this Annual Report.
EPRA Net Tangible Assets (NTA) is considered to be the most relevant NAV measure for the Group and will now report this as the primary non-IFRS NAV measure, replacing the previously reported EPRA NAV per share metrics.
Rationale:
EPRA Net Tangible Assets:
The underlying assumption behind the EPRA Net Tangible Assets calculation assumes entities buy and sell assets, thereby crystallising certain levels of deferred tax liability.
EPRA Net Reinstatement Value:
The objective of the EPRA Net Reinstatement Value measure is to highlight the value of net assets on a long-term basis. Assets and liabilities that are not expected to crystallise in normal circumstances such as the fair value movements on financial derivatives and deferred taxes on property valuation surpluses are therefore excluded. Since the aim of the metric is to also reflect what would be needed to recreate the company through the investment markets based on its current capital and financing structure, related costs such as real estate transfer taxes should be included.
EPRA Net Disposal Value:
Shareholders are interested in understanding the full extent of liabilities and resulting shareholder value if company assets are sold and/or if liabilities are not held until maturity. For this purpose, the EPRA Net Disposal Value provides the reader with a scenario where deferred tax, financial instruments, and certain other adjustments are calculated as to the full extent of their liability, including tax exposure not reflected in the Balance Sheet, net of any resulting taxation.
EPRA Loan-to-Value:
LTV is a widely used KPI in corporate reporting. However, there was no consistency nor comparability in how the metric was being calculated and reported across various listed real estate companies and different jurisdictions. The EPRA LTV introduces a consistent and comparable metric for the sector, with the aim to assess the gearing of the shareholder equity within a real estate company.
EPRA Performance Measures
|
|
31 December 2021 Total |
31 December 2020 Total |
|
A. EPRA earnings (€'000) |
15,189 |
12,106 |
|
A. EPRA earnings per share (cents) |
5.27 |
5.06 |
|
B. EPRA Net Tangible Assets ("NTA") (€'000) |
515,177 |
309,251 |
|
B. EPRA NTA per share (cents) |
136.40 |
126.48 |
|
C. EPRA Net Reinstatement Value ("NRV") (€'000) |
551,283 |
333,002 |
|
C. EPRA NRV per share (cents) |
145.99 |
136.20 |
|
D. EPRA Net Disposal Value ("NDV")(€'000) |
491,894 |
287,003 |
|
D. EPRA NDV per share (cents) |
130.26 |
117.38 |
|
E. EPRA Net Initial Yield |
3.93% |
4.54% |
|
E. EPRA topped-up Net Initial Yield |
4.02% |
4.66% |
|
F. EPRA Vacancy Rate |
0.0% |
0.0% |
|
F. EPRA Cost Ratios - including direct vacancy costs |
29% |
24% |
|
F. EPRA Cost Ratios - excluding direct vacancy costs |
29% |
24% |
|
G. EPRA Capital Expenditure (€m) |
194,429 |
43,856 |
|
H. EPRA Like for Like Rental Growth |
1.3% |
1.3% |
|
I. EPRA LTV |
24.8% |
29.5% |
|
|
31 December 2021 Total |
31 December 2020 Total |
|
A. EPRA Earnings (€000) |
|
|
|
Earnings per IFRS income statement |
44,443 |
35,389 |
|
Adjustments to calculate EPRA Earnings, exclude: |
- |
- |
|
Net changes in value of investment properties |
(41,031) |
(32,878) |
|
Deferred tax |
11,847 |
9,629 |
|
Changes in fair value of financial instruments |
(83) |
(34) |
|
EPRA Earnings |
15,176 |
12,106 |
|
Weighted average basic number of shares ('000) |
288,115 |
239,213 |
|
EPRA Earnings per share (cents per share) |
5.27 |
5.06 |
|
B. EPRA Net Tangible Assets ("NTA") (€'000) |
|
|
|
IFRS NAV |
487,505 |
293,596 |
|
Exclude: |
|
|
|
Fair value of financial instruments |
109 |
26 |
|
Deferred tax in relation to fair value gains of Investment Property |
27,563 |
15,629 |
|
|
515,177 |
309,251 |
|
Shares in issue at end of year ('000) |
377,629 |
244,500 |
|
EPRA NAV per share (cents per share) |
136.40 |
126.48 |
|
C. EPRA Net Reinstatement Value ("NRV") (€'000) |
|
|
|
EPRA NTA |
515,177 |
309,251 |
|
Real Estate Transfer Tax and other acquisition costs |
36,106 |
23,751 |
|
EPRA NRV |
551,283 |
333,002 |
|
EPRA NRV per share (cents per share) |
145.99 |
136.20 |
|
D. EPRA Net Disposal Value ("NDV") (€'000) |
|
|
|
IFRS NAV |
487,505 |
293,596 |
|
Fair Value of Fixed Interest Debt |
4,389 |
(6,593) |
|
EPRA NDV |
491,894 |
287,003 |
|
EPRA NDV per share (cents per share) |
130.26 |
117.38 |
|
|
31 December 2021 Total |
31 December 2020 Total |
|
E. EPRA Net Initial Yield and 'topped up' NIY disclosure (€'000) |
|
|
|
Investment property - wholly owned |
666,008 |
430,200 |
|
Less developments |
- |
- |
|
Completed property portfolio |
666,008 |
430,200 |
|
Allowance for estimated purchasers' costs |
36,106 |
23,751 |
|
Gross up completed property portfolio valuation |
702,114 |
453,951 |
|
Annualised cash passing rental income |
29,445 |
21,933 |
|
Property outgoings |
(1,851) |
(1,305) |
|
Annualised net rents |
27,594 |
20,628 |
|
Add: notional rent expiration of rent free periods or other lease incentives |
600 |
522 |
|
Topped-up net annualised rent |
28,194 |
21,150 |
|
EPRA NIY |
3.93% |
4.54% |
|
EPRA "topped-up" NIY |
4.02% |
4.66% |
|
F. EPRA Cost Ratios (€'000) |
|
|
|
Administrative / property operating expense line per IFRS income statement |
10,148 |
7,896 |
|
Net service charge costs/fees |
(3,435) |
(3,096) |
|
EPRA Costs (including direct vacancy costs) |
6,713 |
4,800 |
|
Direct vacancy costs |
- |
- |
|
EPRA Costs (excluding direct vacancy costs) |
6,713 |
4,800 |
|
Gross Rental income less ground rent costs - per IFRS |
23,283 |
20,257 |
|
EPRA Cost Ratio (including direct vacancy costs) |
29% |
24% |
|
EPRA Cost Ratio (excluding direct vacancy costs) |
29% |
24% |
|
Overhead and operating expenses capitalised (incl. share of joint ventures) |
- |
- |
|
|
31 December 2021 Total |
31 December 2020 Total |
|
G. Property-related CapEx |
|
|
|
Acquisitions |
194,104 |
43,856 |
|
Investment Properties: |
|
|
|
Incremental Lettable Space |
325 |
- |
|
Total CapEx |
194,429 |
43,856 |
|
Conversion from accrual to cash basis |
(954) |
2,367 |
|
Total CapEx on cash basis |
193,475 |
46,223 |
|
H. Like For Like Rental Growth |
|
|
|
Rental income growth: |
|
|
|
France |
0.0% |
0.8% |
|
Germany |
(1.5%) |
5.1% |
|
Netherlands |
2.3% |
0.2% |
|
Poland |
2.2% |
1.2% |
|
Spain |
0.3% |
0.0% |
|
Total |
1.3% |
1.3% |
|
I. EPRA LTV |
|
|
|
Borrowings from Financial Institutions |
177,100 |
144,600 |
|
Net payables |
14,466 |
8,291 |
|
Exclude: |
|
|
|
Cash and cash Equivalents |
(23,280) |
(24,874) |
|
Net Debt (a) |
168,286 |
128,017 |
|
Investment properties at fair value |
666,008 |
430,200 |
|
Net receivables (excluding lease incentives) |
13,106 |
4,409 |
|
Total Property Value (b) |
679,114 |
434,609 |
|
LTV (a/b) |
24.8% |
29.5% |
Corporate Information
Alternative Investment Fund Managers Directive Disclosures (Unaudited)
Aberdeen Standard Fund Managers Limited and the Company are required to make certain disclosures available to investors in accordance with the Alternative Investment Fund Managers Directive ('AIFMD').
Those disclosures that are required to be made pre-investment are included within a pre-investment disclosure document ('PIDD') which can be found on the Company's website eurologisticsincome.co.uk .
Leverage
The table below sets out the current maximum permitted limit and actual level of leverage for the Company:
|
|
Gross method |
Commitment method |
|
Maximum level of leverage |
365.0% |
185.0% |
|
Actual level at 31 December 2021
|
136% |
136% |
The periodic disclosures as required under the AIFMD to investors are made below:
. Information on the investment strategy, geographic and sector investment focus and principal stock exposures are included in the Strategic Report.
. None of the Company's assets are subject to special arrangements arising from their illiquid nature.
. The Strategic Report, note 22 to the Financial Statements and the PIDD together set out the risk profile and risk management systems in place. There have been no changes to the risk management systems in place in the period under review and no breaches of any of the risk limits set, with no breach expected.
. There are no new arrangements for managing the liquidity of the Company or any material changes to the liquidity management systems and procedures employed by ASFML.
. All authorised Alternative Investment Fund Managers are required to comply with the AIFMD Remuneration Code. In accordance with the Remuneration Code, the Company's AIFM remuneration policy is available from the Company Secretaries, Aberdeen Asset Management PLC on request (see contact details on page 133 of the Annual Report and financial statements for the year ended 31 December 2021) and the numerical remuneration in the disclosures in respect of the AIFM's reporting period for the year ended 31 December 2021 are available on the Company's website.
There have been no breaches of the maximum level during the period and no changes to the maximum level of leverage employed by the Company. There is no right of re-use of collateral or any guarantees granted under the leveraging arrangement. Changes to the information contained either within this Annual Report or the PIDD in relation to any special arrangements in place, the maximum level of leverage which ASFML may employ on behalf of the Company; the right of use of collateral or any guarantee granted under any leveraging arrangement; or any change to the position in relation to any discharge of liability by the Depositary will be notified via a regulatory news service without undue delay in accordance with the AIFMD.
The information above has been approved for the purposes of Section 21 of the Financial Services and Markets Act 2000 (as amended by the Financial Services Act 2012) by Aberdeen Standard Fund Managers Limited which is authorised and regulated by the Financial Conduct Authority.
The Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended 31 December 2021 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 early May 2022 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 12:30 p.m. on 6 June 2022 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 abrdn European Logistics Income plc
Aberdeen Asset Management PLC, Secretaries
21 April 2022
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