Q3 NAV Announcement

abrdn European Logistics Income plc

27 November 2023

 

LEI: 213800I9IYIKKNRT3G50

abrdn European Logistics Income plc

Portfolio Update and Unaudited Net Asset Value as at 30 September 2023

Alignment with structurally supported Continental European tenant-critical urban and mid-box warehouses

27 November 2023 - abrdn European Logistics Income plc (the "Company" or "ASLI"), the Company which invests in a diversified portfolio of European logistics real estate, announces its unaudited quarterly Net Asset Value ("NAV") for the quarter ended 30 September 2023.

Summary

·      The portfolio declined 4.9% to €659.75 million (30 June 2023: €693.5 million), driven by continued outward yield movement but with key medium-term economic indicators starting to improve

·      NAV per Ordinary share decreased by 7.8% to 99.8c (GBp - 86.3p) (30 June 2023: 108.3c (GBp - 92.9p)), reflecting a NAV total return, with quarterly distributions reinvested, of -12.7% in Euro terms (-14.6% in sterling) for the 9 months to 30 September 2023

·      EPRA Net Tangible Assets decreased by 7.8% to 104.3c per Ordinary share (30 June 2023 - 113.1c)

·      Lease extension completed with Chef's Culinar at the Company's warehouse in Krakow, Poland, extending the expiry to November 2026, at a 10%+ uplift on the valuer's ERV

·      Portfolio WAULT of 7.2 years to break and 8.6 years to expiry

·      Ranked first in its peer group in the 2023 GRESB (Global Real Estate Sustainability Benchmark) awards, achieving 89/100 points and a 5-star rating

·      Third interim dividend for 2023 of 1.41c (GBP - 1.23p) declared, payable on 29 December 2023

·      37.1% Loan to Value ('LTV'), with the Investec €70 million facility undrawn at the quarter end. The Company's fixed debt facilities totalled €259.5 million at an average all-in interest rate of 2.0%, with no re-financings until mid-2025

·      As announced separately today, commencement of a Strategic Review to explore all options available to the Company.

Troels Andersen, Lead Fund Manager, abrdn, commented:

"Despite cooling to 2.9% as of October 2023, investors remain focused on inflation and the future path of central bank interest rate decisions. Having increased by 25 basis points in September to reach a record 4%, the ECB deposit rate is expected to have now peaked. This backdrop and the weakening Eurozone economy has continued to drive real estate market sentiment, despite the ongoing resilience in the occupational market. With a significant value correction already behind us, we believe the negative pressure on yields, which has lagged the UK, is close to plateauing.

"The key long-term structural drivers underpinning the logistics sector's rental and capital growth prospects remain in place however. E-commerce, near-shoring and supply chain modernisation are all set to drive demand for future-fit logistics properties in good locations, which is where our portfolio is 100% aligned."

Performance

The independent unaudited external valuation of the Company's property portfolio undertaken by Savills (UK) Limited decreased by €33.7 million, or 4.9%, in the quarter. The Spanish assets witnessed the biggest decline (-11.2%), followed by France (-2.4%) and the Netherlands (-2.0%) and Poland (-1.5%). The German portfolio valuation was broadly flat.

For the nine month period to 30 September 2023, the Company's net asset value total return with quarterly distributions reinvested was -12.7% in Euro terms (-14.6% in sterling terms). As at 30 September 2023, the Company's share price was 62.6p, and as at the date of this announcement the share price was 56.8p.

Sector Leading GRESB Rating

The Company was pleased to be awarded a maximum five stars in the 2023 Global Real Estate Sustainability Benchmark ('GRESB') awards, achieving first place in its peer group of diversified funds investing across Europe (European industrial: distribution warehouse).

The Company delivered another year-on-year improvement in its annual score and reclaimed first place in its peer group, with a score of 89 points, up from 86 points in 2022. This compares to the peer group average score of 81 points and an overall GRESB average of 75 points.

In addition, the Company attained the top-rated gold level awarded by EPRA for compliance with its 'Best Practice Recommendations' in financial reporting.

The Company has executed several sustainability-led initiatives during the past year, building on the significant progress it has made improving the credentials of its portfolio of Grade-A, modern properties. These include:

·      High tenant data coverage which has helped to inform carbon performance and feed into net zero plans

·      Ongoing assessment of the operational performance of the portfolio, through BREEAM In-Use assessments and sustainability audits identifying actions to improve performance

·      A portfolio-wide occupier engagement programme

·      100% of landlord energy procured from renewable sources

·      34% of portfolio by floor area with solar PV with ongoing reviews across the estate

·      96% of assets by floor area with EPC's A-B.

Dividend

The Directors have declared a third interim distribution for the year ending 31 December 2023 of 1.41 euro cents (equivalent to 1.23 pence) per Ordinary share, which is unchanged from the previous quarter. The third interim dividend will be paid in sterling on 29 December 2023 to Ordinary shareholders on the register on 1 December 2023 (ex-dividend date of 30 November 2023).

Rent Collection & Asset Management

As at the date of this announcement, 93% of the expected rental income for the quarter ended 30 September 2023 has been collected. The outstanding balance predominantly comprises monies owed from electric vehicle manufacturer Arrival.

The Company's discussions with Arrival are ongoing following the tenant's previously publicly stated intention to consolidate operations in the US and its more recent notice of a sale process. Despite the efforts of the Investment Manager to secure both a material surrender premium, which had previously been agreed, and the outstanding rental payments for 2023, the Company has as yet been unable to reach a satisfactory conclusion with Arrival's advisers. The Company has noted Arrival's recent announcement and SEC filing regarding its successful bridge financing arrangement and in the absence of a satisfactory conclusion legal proceedings to recoup monies owed continue. Concurrently, the Investment Manager is in active discussions seeking new tenants for both of the Arrival LEED Gold accredited units and the smaller LEED Silver-rated Amazon unit in Getafe.

The Manager and its on-the-ground local teams are aggressively targeting the voids and are looking at the largest void (by area) on the basis of a letting or sale. Available cash from any sale would underpin the Company's balance sheet further and reduce LTV with other accretive measures under consideration including a share buyback.

During the quarter, the Company signed a lease extension with Chef's Culinar at its warehouse in Krakow, Poland. The new lease extends the expiry out to November 2026 with the agreed rental at a 10%+ uplift on the valuer's ERV.

The weighted average unexpired lease term (to break) now stands at 7.2 years with the weighted average lease term (to expiry) now 8.6 years.

Debt Financing

At the end of the quarter, the Company's fixed debt facilities totalled €259.5 million at an average all-in interest rate of 2%, the earliest re-financing of debt required in mid-2025. The current loan-to-value of 37.1% is marginally above the Company's target of c.35%.

Strategic Review

In light of recent macro and company specific challenges, the Board has today separately announced the commencement of a Strategic Review to explore all options available to the Company ahead of the Continuation Vote scheduled for the Annual General Meeting in June 2024.

Breakdown of NAV Movement

Set out below is a breakdown of the change to the unaudited net asset value per Ordinary Share over the period from 1 July 2023 to 30 September 2023. The unaudited net asset value has been prepared under International Financial Reporting Standards ("IFRS").

EPRA Net Tangible Assets per share is 104.3 euro cents, which excludes deferred tax liability.

	Per Share (€cents)	Attributable Assets (€m)	Comment
Net assets as at 30 June 2023	108.3	446.4
Unrealised decrease in valuation of property portfolio	(8.2)	(33.7)	Portfolio of 26 assets - capital values decreased by 4.9% over the quarter
Acquisition costs incurred during the period	0.1	0.4
Income earned for the period	1.9	8.0	Income from the property portfolio and associated running costs
Expenses for the period	(1.1)	(4.8)
Deferred tax asset	0.3	1.2	Net deferred tax asset on the difference between book cost and fair value of the portfolio
Interest rate swaps and caps/floors mark to market revaluation	(0.1)	(0.4)	Movement in the mark-to-market value of interest rate swap and options hedge maturing in 2025 to fix interest rates of bank loans drawn by Spanish SPV's
Dividend declared 18 August 2023 with pay date 22 September 2023	(1.4)	(5.8)	Distribution of 1.41 euro cents per Ordinary share
Net assets as at 30 September 2023	99.8	411.3

Net Asset Value analysis as at 30 September 2023 (unaudited)

	€m	% of net assets
Fair value of Property Portfolio*	655.4	159.3%
Cash	19.8	4.8%
Other Assets	23.2	5.6%
Total Assets	698.4	169.7%
External Debt (net of unamortised financing cost)	(256.1)	(62.3)%
Other Liabilities	(15.2)	(3.7)%
Deferred tax liability	(15.8)	(3.7)%
Total Net Assets	411.3	100.0%

*After lease incentive adjustment

The NAV per share at 30 September 2023 is based on 412,174,356 shares of 1 pence each, being the total number of Ordinary shares in issue at that time. As at the date of this announcement, the Company's share capital consists of 412,174,356 Ordinary shares with voting rights.

The Board is not aware of any other significant events or transactions which have occurred between 30 September 2023 and the date of publication of this statement which would have a material impact on the financial position of the Company.

Details of the Company and its property portfolio may be found on the Company's website at: http://www.eurologisticsincome.co.uk

For further information please contact:

abrdn Fund Managers Limited                                          [phone]

Ben Heatley

Gary Jones

Investec Bank plc                                                                 [phone]

David Yovichic

Denis Flanagan

FTI Consulting                                                                       [phone]

Dido Laurimore

Richard Gotla

James McEwan

 

END