AEW UK REIT plc (AEWU)
AEW UK REIT plc: Annual Financial Report
24-Jun-2021 / 07:00 GMT/BST
Dissemination of a Regulatory Announcement, transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
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AEW UK REIT PLC
Announcement of Full Year Results for the year ended 31 March 2021
AEW UK REIT PLC (the 'Company') which holds a diversified portfolio of 34 commercial investment properties throughout
the UK, is pleased to publish its full year results for the year ended 31 March 2021.
Mark Burton, Chairman of AEW UK REIT,?commented: "I am pleased to report a strong set of results for a year that began
at the start of a period of unprecedented economic uncertainty due to the outbreak of COVID-19. NAV, pre-tax profit,
and EPS all increased and we delivered strong returns to shareholders, demonstrating the resilience of the Company's
approach and our active asset management strategy. We are also pleased to maintain a dividend of 8.00 pence per share
('pps'). Our cautious approach to cash management, and the significant gains realised on the disposal of two assets
enabled the Company to meet these payments, while maintaining a comfortable cash and gearing position.
We have been assiduous in our pursuit of rent from tenants that have been able but unwilling to pay, while pursuing a
prudent policy for provision against expected credit losses. Although this contributed to the fall in EPRA EPS, we are
pleased with the successful outcome of the legal action to recover unpaid rent and the overall rent collection levels,
which reached 94% for each quarter since the start of the pandemic. We continue to believe the Company's assets are
strategically placed to provide investors with robust performance over the medium and long term."
Financial Highlights
* Net Asset Value ('NAV') of GBP157.08 million and of 99.15 pps as at 31 March 2021 (31 March 2020: GBP147.86 million and
of 93.13 pps).
* Operating profit before fair value changes of GBP10.73 million for the year (year ended 31 March 2020: GBP14.47 million).
* Profit before tax ('PBT')* of GBP22.17 million and earnings per share ('EPS') of 13.98 pps for the year (year ended 31
March 2020: GBP3.65 million and of 2.40 pps).
* EPRA Earnings Per Share ('EPRA EPS')* for the year of 6.19 pps (year ended 31 March 2020: 8.67 pps).
* Total dividends of 8.00 pps declared for the year (year ended 31 March 2020: 8.00 pps).
* Shareholder Total Return* for the year of 33.72% (year ended 31 March 2020: -17.89%).
* NAV Total Return* for the year of 15.06% (year ended 31 March 2020: 2.55%).
* The price of the Company's Ordinary Shares on the Main Market of the London Stock Exchange was 83.20 pps as at 31
March 2021 (31 March 2020: 68.20 pps).
* As at 31 March 2021, the Company had drawn GBP39.50 million (31 March 2020: GBP51.50 million) of a GBP60.00 million (31
March 2020: GBP60.00 million) term credit facility with the Royal Bank of Scotland International Limited ('RBSi') and was
geared to 25.15% of NAV (31 March 2020: 34.83%) (see note 14 below for further details).
* The Company held cash balances totalling GBP17.45 million as at 31 March 2020 (31 March 2020: GBP9.87 million).
* The Company received three EPRA awards during the year: EPRA Gold Medal for Financial Reporting; EPRA Silver Medal
for Sustainability Reporting and EPRA Most Improved Award for Sustainability Reporting. The Company has also been named
Best UK Real Estate Investment Trust in the Citywire Investment Trust Awards based upon its strong three year track
record.
Property Highlights
* As at 31 March 2021, the Company's property portfolio had a valuation of GBP179.00 million across 34 properties (31
March 2020: GBP189.30 million across 35 properties) as assessed by the valuer1 and a historical cost of GBP173.28 million
(31 March 2020: GBP197.12 million).
* The Company acquired one property during the year for a purchase price of GBP5.40 million, excluding acquisition costs
(year ended 31 March 2020: none). The Company made two disposals during the year with total gross sale proceeds of
GBP29.30 million (year ended 31 March 2020: none).
* The portfolio had an EPRA Vacancy Rate** of 8.96% as at 31 March 2021 (31 March 2020: 3.68%). Excluding vacancy
contributed by Bath Street, Glasgow, which was exchanged to be sold with the condition of vacant possession, the
vacancy rate was 5.58% (31 March 2020: 3.68%).
* Rental income generated in the year under review was GBP15.71 million (year ended 31 March 2020: GBP17.42 million). The
number of tenants as at 31 March 2021 was 99 (31 March 2020: 91).
* EPRA Net Initial Yield ('NIY')** of 7.37% as at 31 March 2021 (31 March 2020: 8.26%).
* Weighted Average Unexpired Lease Term ('WAULT')* of 4.43 years to break (31 March 2020: 4.26 years) and 6.71 years to
expiry (31 March 2020: 5.55 years).
* As at the date of this report, rent collection statistics for 2020 rental quarters and March 2021 quarter were as
follows:
Quarter %
March 2020 98
June 2020 98
September 2020 97
December 2020 97
March 2021 94
* See KPIs below for definition of alternative performance
measures.
** See Glossary in the full Annual Report and Financial
Statements for definition of alternative performance measures.
1 The valuation figure is reconciled to the fair value under
IFRS in note 11.
Enquiries
AEW UK
Alex Short Alex.Short@eu.aew.com
Nicki.Gladstone-ext@eu.aew.com
Nicki Gladstone
+44(0) 771 140 1021
Liberum Capital Darren.Vickers@liberum.com
Darren Vickers +44 (0)20 3100 2218
TB Cardew AEW@tbcardew.com
Ed Orlebar +44(0) 7738 724 630
Tania Wild +44(0) 7425 536 903
Lucas Bramwell +44(0) 7939 694 437
Chairman's Statement
Overview
I am pleased to present the audited annual results of AEW UK
REIT plc for the year ended 31 March 2021. As at 31 March 2021, the
Company owned a diversified portfolio of 34 commercial investment
properties throughout the UK with a value of GBP179.00 million.
The financial year began with a period of unprecedented economic
uncertainty due to the outbreak of COVID-19 and the associated
measures to contain the spread of the virus. These measures
continued throughout the year to varying degrees and have had a
profound impact on certain sectors, most notably retail and
leisure. To mitigate the increased risk posed by the uncertainty in
the wider economic environment, the Company adopted a cautious
approach to cash and debt management. Despite this, the Company has
maintained its quarterly dividend payments at the target level of
8.00 pps per annum throughout the year and increased its NAV per
share by 6.46%, providing a NAV total return of 15.06% (year ended
31 March 2020: 2.55%).
In May 2020, the Company disposed of 2 Geddington Road, Corby,
for gross proceeds of GBP18.80 million, delivering an internal rate
of return ('IRR') of 27%. This disposal allowed the effective
management of the Company's risk profile, and in July 2020,
GBP12.00 million of its RBSi loan facility was repaid in order to
provide appropriate headroom against its borrowing covenants. Since
the repayment, the Loan to NAV ratio has remained below 27% and was
25.15% as at 31 March 2021, against a soft covenant of 40%
(triggering an increase in the margin) and a hard covenant of
55%.
This disposal, and the loss of the Company's largest tenant at
the time, also resulted in a fall in rental income. The income
profile from the remainder of the portfolio remained largely
intact, with rent collection rates reaching at least 94% for all
quarters since the onset of the pandemic. The majority of rents
outstanding as at 31 March 2021 were attributable to tenants who
were financially able, but unwilling, to pay. Post year-end, the
Company announced the successful outcome of the legal action
against two well-funded national tenants to recover unpaid rent.
GBP0.52 million has been provided for as expected credit loss
relating to these tenants in these financial statements and
subsequent to the court ruling all rent arrears of these tenants
have been received. The prudent policy for provision against
expected credit losses contributed to a fall in EPRA EPS for the
year to 6.19 pps (year ended 31 March 2020: 8.67 pps), providing a
dividend cover of 77.4% (year ended 31 March 2020: 108.4%). Certain
asset management initiatives are also temporarily reducing earnings
potential. Remedial works are ongoing at Bank Hey Street,
Blackpool, including the reinstatement of its cathodic protection
system and comprehensive repairs to faience elevations and windows.
The nature of these repair works means that costs are expensed to
profit or loss as they are incurred, with a corresponding increase
expected to be seen in the revaluation of the property. The Company
has also exchanged to sell its property at Bath Street, Glasgow,
with the condition of vacant possession, and this property will
continue to operate at a high level of vacancy until the sale has
completed.
The Company has benefitted from its defensively positioned
portfolio, which achieved a total return of 14.8% over the year -
an outperformance of 10.7% relative to the Benchmark. Relatively
small lot sizes, geographical diversification and valuations that
are underpinned by alternative use value have all contributed to
limiting the downside during the period of unprecedented economic
uncertainty in the first half of the financial year. The improved
economic outlook in the second half of the year saw valuations
recover and the Company generated an increase in fair value of its
investment property of GBP5.32 million for the year, which has
largely been driven by the strong performance of the Company's
industrial assets. The pandemic has accelerated the trend towards
online retail, and consequently sentiment towards the industrial
and warehousing sector has improved. The Company benefits from a
high weighting towards industrials, which made up 60.8% of the
portfolio valuation as at 31 March 2021. Weightings in the retail
and leisure sectors, which have been most negatively affected by
the pandemic, remain low at 11.6% and 7.0% respectively.
Stock selection and active asset management continue to be key
features of the Company's strategy and drivers of performance. This
was evidenced in February 2021 by the completion of the sale of
Sandford House, Solihull, for gross proceeds of GBP10.50 million.
The asset was acquired in August 2015 for GBP5.40 million and the
Company invested no further capital in the asset during its hold
period. Significant value was gained from the completion of a
15-year lease in July 2020, with the existing tenant, the Secretary
of State for Communities and Local Government, and the asset
delivered an IRR in excess of 20% over the hold period. This
demonstrates how shorter income assets in strong locations can be
used to create value for shareholders.
As the economic outlook improves, the Investment Manager is
seeing more attractive investment opportunities coming to the
market, which the Company is well positioned to take advantage of
with its available cash and debt. In October 2020, the Company
acquired Westlands Distribution Park in Weston Super Mare for a
purchase price of GBP5.40 million and post year-end acquired Arrow
Point Retail Park, Shrewsbury, for a gross purchase price of
GBP8.35 million and 15-33 Union Street, Bristol, for a gross
purchase price of GBP10.19 million. The Company aims to make
further acquisitions in order to increase its earnings and dividend
cover.
The Company's share price was 83.20 pps as at 31 March 2021 (31
March 2020: 68.20 pps), representing a 16.1% discount to NAV.
During the year, the Company experienced periods of significant
discount in share price to NAV as a result of the conditions in the
wider market. In light of this, during October and November 2020,
the Company bought back 350,000 of its own shares for gross
consideration of GBP262,995, which had a positive impact on the
Company's NAV and EPRA EPS. Since the year end, the Company's share
price has increased to 95.00 pps as at the date of approval of this
report, representing a 4.19% discount to NAV.
We are delighted to announce that the Company has received three
EPRA awards during the year: EPRA Gold Medal for Financial
Reporting; EPRA Silver Medal for Sustainability Reporting and EPRA
Most Improved Award for Sustainability Reporting. The Company has
also been named Best UK Real Estate Investment Trust in the
Citywire Investment Trust Awards based upon its strong three-year
track record. These awards are a reflection of much hard work
committed to the Company by the Investment Manager and the Board
would like to thank the team at AEW and express its positivity and
confidence in the Investment Manager's ongoing ability to implement
the Company's strategy.
In September 2020, the Company passed a continuation vote at the
Annual General Meeting ('AGM'), and shareholders voted in favour of
an ordinary resolution to continue the Company's business as
currently constituted. We are pleased shareholders support our
belief in the Company's strategy and prospects for future
performance.
Financial Results Summary
Year ended
Year ended
31 March 2020
31 March 2021
Operating profit before fair value changes (GBP'000) 10,735 14,472
Operating profit (GBP'000) 23,102 5,072
Profit before tax (GBP'000) 22,172 3,652
Earnings Per Share (basic and diluted) (pence)* 13.98 2.40
EPRA Earnings Per Share (basic and diluted) (pence)* 6.19 8.67
Ongoing Charges (%) 1.36 1.34
Net Asset Value per share (pence) 99.15 93.13
*See note 9 of the Financial Statements for calculation.
Financing
The Company has a GBP60.00 million loan facility, of which it
had drawn a balance of GBP39.50 million as at 31 March 2021 (31
March 2020: GBP60.00 million facility; GBP51.50 million drawn),
producing the following measures of gearing:
Year ended Year ended
31 March 2021 31 March 2020
% %
Loan to NAV 25.15 34.83
Gross Loan to GAV 22.07 27.21
Net Loan to GAV (deducts cash balance from the outstanding loan value) 12.32 21.99
The unexpired term of the facility was 2.6 years as at 31 March
2021 (31 March 2020: 3.6 years). The loan incurs interest at 3
month LIBOR +1.4%, which equated to an all-in rate of 1.44% as at
31 March 2021 (31 March 2020: 2.10%).
The Company is protected from a significant rise in interest
rates and, as at the year end, had interest rate caps in effect
with a notional value of GBP51.00 million (31 March 2020: GBP36.51
million), resulting in the loan being 130% hedged (31 March 2020:
71%). These interest rate caps are effective for the remaining
period of the loan.
In June 2020, the Company completed an amendment to its loan
facility allowing the part repayment of the loan without reducing
the availability of the full GBP60.00 million facility, akin to a
revolving credit facility. The Company subsequently repaid GBP12.00
million of the facility in July 2020. As at 31 March 2021, the
Company had GBP15.48 million of the facility available up to the
maximum 35.00% Loan to NAV at drawdown.
Dividends
The Company has continued to deliver on its target of paying
dividends of 8.00 pps per annum. During the year, the Company
declared and paid four quarterly dividends of 2.00 pence per
Ordinary Share, in line with its target, which were 77.4% covered
by the Company's EPRA EPS of 6.19 pence. It remains the Company's
longer-term intention to continue to pay dividends in line with its
dividend policy and this will be kept under review given the
current COVID-19 situation. In determining future dividend
payments, regard will be given to the circumstances prevailing at
the relevant time, as well as the Company's requirement, as a UK
REIT, to distribute at least 90% of its distributable income
annually, which will remain a key consideration.
Outlook
The Board and Investment Manager are pleased with the strong
returns delivered to shareholders to date and with the resilience
demonstrated under stressed conditions following the onset of the
COVID-19 pandemic. The Company met its target dividends of 8.00 pps
for the year and, although these were only 77.4% covered by EPRA
EPS, significant gains were realised on the disposal of two assets
during the year. These gains supplemented cash flows from its
operating activities and allowed the dividend payments to be met
while maintaining a comfortable cash and gearing position and
without suffering an overall decline in NAV.
The lockdown period at the start of 2021 has reversed some of
the UK's economic recovery seen in the second half of 2020.
However, the general economic outlook is brighter for the second
half of 2021, following the effective rollout of the vaccination
programme and further easing of lockdown restrictions. We expect
this to be reflected in the real estate market in terms of improved
rent collection levels and the recovery of rental values and
property valuations. However, many tenants will have benefitted
from a range of government support schemes over the past year. As
these protective measures are removed, we may yet see a significant
surge in the number of corporate insolvencies, and so an element of
caution should be retained.
The pandemic has accelerated certain structural shifts in the
real estate market. We expect that this will present new challenges
and opportunities in certain sectors. We believe that the Company
is well placed to take advantage of these with its existing liquid
resources available. Growth of the Company also remains a key
objective and we hope that improved economic conditions and a
return of the share price to trading at a premium to NAV, will
enable this in the near future.
Mark Burton
Chairman
23 June 2021
Business Model and Strategy
Introduction
The Company is a real estate investment company listed on the
premium segment of the Official List of the FCA and traded on the
London Stock Exchange's Main Market. As part of its business model
and strategy, the Company has, and intends to maintain, UK REIT
status. HM Revenue and Customs has acknowledged that the Company
has met the necessary qualifying conditions to conduct its affairs
as a UK REIT and the Company intends to continue to do so.
Investment Objective
The investment objective of the Company is to deliver an
attractive total return to shareholders from investing
predominantly in a portfolio of smaller commercial properties in
the United Kingdom.
Investment Policy
In order to achieve its investment objective, the Company
invests in freehold and leasehold properties across the whole
spectrum of the commercial property sector (office properties,
industrial/warehouse properties, retail warehouses and high street
retail) resulting in a diversified tenant base.
Investment Restrictions
The Company invests and manages its assets with the objective of
spreading risk through the following investment restrictions: ? the
value of no single property, at the time of investment, will
represent more than 15.00% of GAV; ? the Company may commit up to a
maximum of 10.00% of its NAV (measured at the commencement of the
relevant project)
to development activities; ? the value of properties, measured
at the time of each investment, in any one of the following
sectors: office
properties, retail warehouses, high street retail and
industrial/warehouse properties will not exceed 60.00% of
GAV; ? investment in unoccupied and non-income producing assets
will, at the time of investment, not exceed 20.00% of NAV; ? the
Company may commit up to a maximum of 10.00% of the NAV (at the
time of investment) in the AEW UK Core Property
Fund (the 'Core Fund'). The Company disposed of its last
remaining units in the Core Fund in May 2017 and it is not
the current intention of the Directors to invest in the Core
Fund; ? the Company will not invest in other closed-ended
investment companies; and ? if the Company invests in derivatives
for the purposes of efficient portfolio and cash management, the
total
notional value of the derivatives at the time of investment will
not exceed, in aggregate, 35.00% of GAV.
The Directors currently intend, at all times, to conduct the
affairs of the Company so as to enable the Group to qualify as a
REIT for the purposes of Part 12 of the Corporation Tax Act 2010
('CTA') (and the regulations made thereunder).
The Company will at all times invest and manage its assets in a
way that is consistent with its objective of spreading investment
risk and in accordance with its published investment policy and
will not, at any time, conduct any trading activity which is
significant in the context of the business of the Company as a
whole.
In the event of a breach of the investment policy and investment
restrictions set out above, the Directors upon becoming aware of
such breach will consider whether the breach is material, and if it
is, notification will be made to a Regulatory Information
Service.
Any material change to the investment policy or investment
restrictions of the Company may only be made with the prior
approval of shareholders.
Our Strategy
The Company exploits what it believes to be the compelling
relative value opportunities currently offered by pricing
inefficiencies in smaller commercial properties let on shorter
occupational leases. The Company supplements this core strategy
with asset management initiatives to upgrade buildings and thereby
improve the quality of income streams. In the current market
environment, the focus is to invest in properties which: ?
typically have a value, on investment, of between GBP2.50 million
and GBP15.00 million; ? have initial net yields, on investment, of
typically between 7.5-10%; ? achieve across the whole portfolio an
average weighted lease term of between three to six years
remaining; ? achieve, across the whole portfolio, a diverse and
broad spread of tenants; and ? have potential for asset management
initiatives to include refurbishment and re-lettings.
How we add value
An Experienced Team
The investment management team averages 20 years working
together, reflecting stability and continuity.
Value Investing
The Investment Manager's investment philosophy is based on the
principle of value investing. The Investment Manager looks to
acquire assets with an income profile coupled with underlying
characteristics that underpin long-term capital preservation. As
value managers, the Investment Manager looks for assets where
today's pricing may not correspond to long-term fundamentals.
Active Asset Management
The Investment Manager has an in-house team of dedicated asset
managers with a strong focus on active asset management to enhance
income and add value to commercial properties.
Strategy in Action
Extending income streams and realising gains
Sandford House, Solihull ? The asset was acquired in August 2015
for GBP5.4 million and has been fully let to the Secretary of State
for
Communities and Local Government since this time, producing a
net income yield against the purchase price of 9.6%.
No further capital expenditure was spent on the asset during the
hold period. ? A 15-year lease agreement was signed with the tenant
in June 2020, increasing the rental income from the asset by
30%. ? The asset was sold in February 2021 for GBP10.5 million,
crystallising significant gains both against acquisition
price and against the valuation pre-letting.
Driving rental growth
Storeys Bar Road, Peterborough ? In November 2020 the Company
agreed a 15-year lease renewal with the existing tenant, Wyndeham
Peterborough Ltd. ? The renewal achieved an uplift in rent from
GBP2.95 per sq ft to GBP3.50 per sq ft, equating to an increase of
GBP115,000
per annum. ? The like-for-like valuation as provided by the
valuer increased by 20% over the year.
Seeking high-yielding assets supported by land and alternative
use value
2 Geddington Road, Corby ? The asset was acquired in February
2018 for GBP12.4 million and was fully let to Gefco UK Ltd during
the hold period,
producing a net income yield against the purchase price of 10%.
? The Company completed the sale of the asset in May 2020 for gross
proceeds of GBP18.8 million, generating an IRR of
27.2%.
Acquiring assets with low capital value and potential to add
value through asset management initiatives Westlands Distribution
Park, Weston-super-Mare ? In November 2020, the Company completed
the acquisition of the multi-let distribution park for a price of
GBP5.4
million. ? This reflects a capital value of GBP175,000 per acre
compared with nearby comparable land transactions which have
ranged between GBP350,000 and GBP500,000 per acre for other
commercial and residential uses. ? Short-term opportunities to add
value through lettings and renewals.
Key Performance Indicators
KPI AND DEFINITION
RELEVANCE TO STRATEGY TARGET PERFORMANCE
7.37%
1. EPRA NIY at 31 March
2021
A representation to the investor of what
their initial net yield would be at a The Company's EPRA NIY demonstrates the ability to
predetermined purchase price after generate income from its portfolio in the short-term in 7.50 -
taking account of all associated costs, order to meet its target dividend. 10.00% (31 March
e.g. void costs and rent free periods. 2020:
8.26%)
2. True Equivalent Yield 8.15%
The average weighted return a property at 31 March
will produce according 2021
to the present income and estimated
rental value ('ERV') assumptions, The Company's True Equivalent Yield demonstrates the 7.50 -
assuming the income is Company's ability to generate income, both from its 10.00% (31 March
existing leases and its ERVs, in order to meet its target 2020:
received quarterly in advance. dividend. 8.04%)
8.18%
3. Reversionary Yield at 31 March
2021
The expected return the property will A Reversionary Yield profile shows a potentially
sustainable income stream that can be used to meet 7.50 -
provide once rack-rented. dividends past the expiry of a property's current leasing 10.00%
arrangements. (31 March
2020:
7.90%)
6.71 years
4. WAULT to Expiry
The Investment Manager believes that current market at 31 March
The average lease term remaining to conditions present an opportunity whereby assets with a 2021
shorter unexpired lease term are often mispriced. It is
expiry across the portfolio, weighted also the Investment Manager's view that a shorter WAULT > 3
is useful for active asset management as it allows the years
by contracted rent. Investment Manager to engage in direct negotiation with (31 March
tenants rather than via rent-review mechanisms. 2020: 5.55
years)
4.43 years
5. WAULT to Break The Investment Manager believes that current market
conditions present an opportunity whereby assets with a at 31 March
The average lease term remaining to shorter unexpired lease term are often mispriced. As 2021
such, it is in line with the Investment Manager's
break, across the portfolio weighted strategy to acquire properties with a WAULT that is > 3
generally shorter than the benchmark. It is also the years
by contracted rent. Investment Manager's view that a shorter WAULT is useful (31 March
for active asset management as it allows the Investment 2020: 4.26
Manager to engage in direct negotiation with tenants years)
rather than via rent-review mechanisms.
GBP157.08
million
6. NAV at 31 March
2021
NAV is the value of an entity's assets Provides stakeholders with the most relevant information Increase
on the fair value of the assets and liabilities of the year
minus the value of its liabilities. Company.
on year (31 March
2020:
GBP147.86
million)
25.15%
The Company has changed the measure of its Leverage KPI at 31 March
from 'Loan to Gross Asset Value ('GAV')' to 'Loan to 2021
7. Leverage (Loan to NAV) NAV'. This is in line with the measure used in its
banking covenants and so is considered to be more
The proportion of the Company's net relevant to the Company's position. The target of 35%
assets that is funded by borrowings. Loan to NAV, which is the gearing limit at drawdown under (31 March
the RBSi facility, approximates to the previous target of 35% 2020:
25% Loan to GAV, which is the measure used in the 34.83%)
Company's Investment Guidelines. Gearing will continue to
be monitored using both measures, but will be reported on
the Loan to NAV basis.
8.96%/5.58%
excluding
vacancy
8. Vacant ERV contributed
by Glasgow*
The space in the property portfolio
which is currently unlet, as a The Company's aim is to minimise vacancy of the at 31 March
properties. A low level of structural vacancy provides an < 10.00% 2021
percentage of the total ERV of the opportunity for the Company to capture rental uplifts and
portfolio. manage the mix of tenants within a property.
(31 March
2020:
3.68%)
8.00 pps
9. Dividend
for the
Dividends declared in relation to the year ended
year. The Company targets a dividend of 31 March
8.00 pence per Ordinary Share per 2021
The dividend reflects the Company's ability to deliver a
annum. However, given the current sustainable income stream from its portfolio. 8.00 pps
COVID-19 situation, regard will be had
to the circumstances prevailing at the (year ended
relevant time in determining dividend 31 March
payments. 2020: 8.00
pps)
1.36%
for the
10. Ongoing Charges year ended
The Ongoing Charges ratio provides a measure of total 31 March
The ratio of total administration and costs associated with managing and operating the Company, 2021
operating costs expressed as a which includes the management fees due to the Investment
percentage of average NAV throughout the Manager. The Investment Manager presents this measure to < 1.50%
year. provide investors with a clear picture of operational
costs involved in running the Company. (year ended
31 March
2020:
1.34%)
GBP22.17
million/
13.98 pps
for the
11. Profit Before Tax ('PBT') year ended
31 March
PBT is a profitability measure which 2021
considers the Company's profit before
the payment of income tax. The PBT is an indication of the Company's financial
performance for the year in which its strategy is 8.00 pps
exercised. (year ended
31 March
2020: GBP3.65
million/
2.40 pps)
33.72%
for the
year ended
12. Shareholder Total Return 31 March
2021
The percentage change in the share price
assuming dividends are reinvested to This reflects the return seen by shareholders on their
purchase additional Ordinary Shares. shareholdings through share price movements and dividends 8.00%
received. (year ended
31 March
2020:
-17.89%)
6.19 pps
13. EPRA EPS
for the
Earnings from core operational year ended
activities. A key measure of a company's 31 March
underlying operating results from its 2021
property rental business and an This reflects the Company's ability to generate earnings
indication of the extent to which from the portfolio which underpins dividends. 8.00 pps
current dividend payments are supported
by earnings. See note 9 of the financial (year ended
statements. 31 March
2020: 8.67
pps)
*Glasgow has exchanged to be sold with the condition of vacant
possession.
Investment Manager's Report
Economic Review
A prolonged period of lockdown during Q1 2021 caused a
contraction of 1.5% in UK economic growth for the quarter. However,
the continued easing of restrictions throughout Q2 and a rapid
rollout of the vaccination programme is expected to bring about
relatively strong growth in the second half of 2021, with KPMG's
Economic Outlook published in March 2021 forecasting UK GDP growth
to be 4.6% for the whole year, compared with a 9.9% contraction in
2020. While rises in inflation rates are expected to accelerate
along with the economic recovery, inflation is forecast to be lower
than the Bank of England's 2% target by next year, allowing for a
continued period of low interest rates. KPMG forecast the economic
recovery to continue into 2022 with UK GDP growth of 5.6%.
Property Market Review
We take the view that UK real estate provides an attractive
risk-adjusted reward longer term, compared with the very low
risk-free rates on offer. Investors have largely held off from
property investment over the last 12 months, partly due to
disruption and changes to occupier behaviour due to the pandemic.
However, as the occupier market recovers, the number of
transactions is expected to increase. The pandemic has amplified
the polarisation in performance between individual sectors, which
was already in evidence beforehand.
Sector Review
Industrial
The sector has been continuing to grow for a number of years due
to the trend towards online shopping. Growth of this trend has
continued at an even faster pace than predicted prior to the
pandemic as social distancing has forced a change in shoppers'
habits. Changes in shoppers' behaviour are expected to lead to
increased take up of online sales, as a percentage of total sales,
over the medium to long term in all retail sectors.
In terms of emerging trends, there is some expectation that the
UK will begin to see an increase in localised production as a
result of supply chain disruption experienced during the pandemic.
If seen, this could further increase demand for industrial
accommodation and would lead to increased take up outside of the
currently favoured logistics sector instead being focused more on
traditional manufacturing accommodation which has seen a decline in
total stock over recent years.
The industrial sector represents the portfolio's largest sector
holding, with 60.8% of the valuation, which leaves the Company
well-placed to benefit from structural changes going forward. Our
focus is on assets with low capital values in locations with good
accessibility from the national motorway network.
The Company's industrial holding outperformed the Benchmark both
in terms of income return, with a relative outperformance of 3.4%,
and capital growth, with a relative outperformance of 0.8%.
Office
Nationwide lockdowns have brought about substantial increases in
remote working, with many companies indicating that they will move
towards a more flexible working model in the future, which suggests
that the physical office could become less important for some. KPMG
forecasts the unemployment rate to increase in 2021 and again in
2022 as government support schemes are wound down. As such, the
recovery in office demand and rental values in the sector are
expected to remain subdued. We anticipate an acceleration in demand
for offices with strong amenities post-pandemic as businesses try
to entice workers back.
Our office assets represent the second largest sector holding,
with 20.6% of the valuation. The focus has been on strong, regional
centres and a preference for town or city centres rather than
business park locations with weak surrounding amenity where demand
has generally not kept up. This was the strongest performing sector
relative to the Benchmark, achieving an outperformance of 12.5%,
which was largely driven by capital growth of 5.4% resulting from
key asset management transactions. In contrast, the office sector
suffered capital losses of 5.1% across the Benchmark.
Alternatives
This is a sector in which AEW as Investment Manager has
significant expertise and has seen a number of compelling
opportunities in the market. The Company's current alternatives
holding comprises assets within the leisure sector that have been
selected due to their defensive, value protection characteristics
as well as their high-income yield. As such, even though the income
streams and valuations have suffered from the impact of the
pandemic on this sector, the value of these assets is expected to
be below their long-term value assessment when considering their
value for alternative uses.
Assets held in alternative sectors comprise 7.0% of the 31 March
2021 valuation, all of which is within the leisure sector. The
Company's high yielding alternatives generated an income return
which outperformed by 3.0% relative to the Benchmark. Gains
realised on the disposal of 2 Geddington Road, Corby, offset
capital losses seen in the Company's leisure assets, meaning that
capital returns achieved outperformance of 8.0% relative to the
Benchmark.
Retail
The retail sector has suffered greatly due to the pandemic and
experienced an acceleration of trends already present in consumer
habits prior to the onset. The rise in online retail is expected to
continue, as retailers invest further in their online platforms and
move a larger proportion of their sales online. Yields are expected
to rise and changes in pricing are bringing about more
opportunities for the repurposing of retail assets for alternative
uses.
Retail represents 11.6% of the valuation and our retail assets
have performed slightly weaker than the Benchmark, as Central
London retail props up the Benchmark performance to some extent.
The Company's strictly regional holdings have suffered valuation
losses associated with the negative sentiment in the sector and
issues caused by the pandemic.
Property Portfolio
The Company made one acquisition during the year:
Westlands Distribution Park, Weston-super-Mare
In November 2020, the Company completed the acquisition of the
multi-let Westlands Distribution Park in Weston-super-Mare for a
purchase price of GBP5.4 million. The purchase price reflects a low
capital value of GBP175,000 per acre, providing potential for
future capital value growth based upon comparable land transactions
for other commercial and residential uses. The established 323,437
sq ft estate is let to 15 tenants including North Somerset District
Council who make up 30% of the income stream. It is located three
miles from the M5 Motorway and 20 miles south of Bristol city
centre.
The Company made the following acquisitions after the year
end:
Arrow Point Retail Park, Shrewsbury
In May 2021, the Company acquired Arrow Point Retail Park in
Shewsbury for a purchase price of GBP8.35 million. The established
retail park is located on a busy commercial estate and is fully
let. The estate provides a net initial yield of 8.7%, with low
passing rents compared with competing locations. It comprises a
modern purpose-built retail park constructed in 2007, arranged
across nine units with 176 car parking spaces, and is prominently
located within the main retail warehouse provision of Shrewsbury,
approximately 2.5 miles north east of the town centre.
Bristol
In June 2021, the Company acquired 15-33 Union Street for a
purchase price of GBP10.19 million. 15-33 Union Street occupies a
prominent location in Bristol city centre, opposite The Galleries
Shopping Centre and near Cabot Circus, Bristol's premier retail
destination. Located on a busy thoroughfare for pedestrians, the
65,238 sq ft site experiences high footfall and is ideally suited
for retail or leisure units. Constructed in 2001, the property
currently comprises five purpose built split-level retail or
leisure units over four floors and road access to both Union Street
and Fairfax Street. Four of the five units are let to three
household names and a successful local retailer. The remaining unit
is currently vacant, with the vendor providing a 12 month
guarantee. We are currently in discussions with a number of parties
who are keen to occupy this space. The location of the site has
been identified as a major regeneration area and it offers the
ability for further growth through development.
The Company made two disposals during the year:
2 Geddington Road, Corby
In May 2020, the Company completed the sale of 2 Geddington
Road, Corby, for a price of GBP18.8 million, achieving an IRR of
27.2%. The asset was acquired in February 2018 for GBP12.4 million
and had been fully let to Gefco UK Limited during the hold period,
producing a net income yield against the purchase price of 10%.
Sandford House, Solihull
In February 2021, the Company completed the sale of Sandford
House, Solihull, for a price of GBP10.5 million, achieving an IRR
of 19.5%. The asset was acquired in August 2015 for GBP5.4 million
and had been fully let to the Secretary of State for Communities
and Local Government since this time, producing a net income yield
against the purchase price of 9.6%. The Company had invested no
further capital in the asset during its hold period. A 15-year
lease agreement was signed with the tenant in July 2020, which
increased the asset's rental income by 30%.
Asset Management
The Company completed the following material asset management
transactions during the period: ? Bank Hey Street, Blackpool - In
May 2020, the Company signed a reversionary lease with existing
tenant, JD
Wetherspoon. This documents the removal of the tenant's break
option in 2025 and provides an additional 10-year
lease term taking the earliest expiry from 2025 to 2050. The
annual rent payable by the tenant has reduced from
GBP96,750 to GBP90,000 but the lease now provides five-yearly
fixed increases reflecting 1% per annum.
The Company is also continuing remedial works to its property in
Blackpool, which include the overhaul and reinstatement of its
cathodic protection system, and comprehensive repairs to faience
elevations and windows. Works have been budgeted at a total cost to
the Company of GBP1.7 million over two years. The nature of these
repair works means that as the costs are incurred, they will be
expensed to the Company's profit or loss, with a corresponding
increase expected to be seen in the revaluation of the property,
all else being equal. The works are expected to be completed by the
end of 2021. ? Bessemer Road, Basingstoke - In July 2020, the
Company completed a five-year lease renewal at its 58,000 sq ft
industrial premises in Basingstoke. The lease has been granted
with no rent free incentive given to the tenant and
secures a rental income to the Company 6% ahead of independent
valuer's estimated levels. The tenant has the
benefit of a break option in year three. ? Langthwaite Grange
Industrial Estate, South Kirkby - During August 2020, a lease
renewal was signed with the
Company's third largest tenant, Ardagh Glass. Rent payable under
the new lease has been agreed 13% ahead of both
independent valuer's estimated levels and the previous level of
passing rent. The lease is for a five-year term and
the tenant will benefit from four months' rent free and a tenant
break option after three years. ? Apollo Business Park, Basildon -
During September 2020, the Company completed a 5-year lease renewal
on 35,300 sq
ft of these multi-let industrial premises in Basildon. The lease
secures a rental income to the Company 4% ahead of
the independent valuer's estimated levels and 30% ahead of the
previous rental level. The tenant will benefit from
six months' rent free. ? Wheeler Gate, Nottingham - In September
2020, a five-year renewal lease was completed with Costa Coffee on
a 1,400
sq ft retail unit located in central Nottingham. The
reversionary lease documents the rebasing of Costa's rent from
GBP110,000 to GBP52,000 per annum in line with its estimated
rental value. The tenant benefits from nine months' rent
free. ? Bath Street, Glasgow - During October 2020, the Company
exchanged contracts to sell its 85,000 sq ft office holding
at 225 Bath Street in Glasgow city centre to a subsidiary
company of IQ Student Accommodation. The transaction is
conditional upon various matters including the grant of planning
permission for the development of a 480 bedroom
student housing development and achieving vacant possession.
Sale pricing will be determined following the approval
of all conditions according to an agreed matrix ranging from
GBP8.55 million to GBP9.30 million. Transaction pricing
reflects 98% of pricing levels being discussed by the parties
prior to the onset of the COVID-19 pandemic. ? Moorside Road,
Swinton - Following the administration of the previous tenant,
Nationwide Crash Repair Centres Ltd.,
a new letting was completed to HB Accident Repair Network Ltd.
during November 2020. The lease is for a 10-year
term and the starting rent of GBP122,500 per annum exceeds the
rental level of the previous tenants by GBP11,000 per
annum. The lease also provides for an RPI-linked review at year
five if the tenant remains in occupation. ? Storeys Bar Road,
Peterborough - In November 2020, the Company completed a 15-year
lease renewal with its existing
tenants, Wyndeham, achieving a net effective rental uplift from
GBP2.95 per sq ft to GBP3.50 per sq ft, increasing the
annual rent received from the asset by GBP115,000. The lease
provides for tenant break options at the end of years
three, six and nine and no incentives were granted to the
tenant. ? Sarus Court, Runcorn - A new letting to Di-tec Power Ltd.
was completed during December 2020 on 14,000 sq ft at
this multi-let industrial estate. The new lease is for a 10-year
term and includes an incentive of seven months'
rent free. The rental level of GBP5.65 per sq ft proves a new
high tone for the estate and exceeds the asset's
previous estimated rental value level of GBP5.50 per sq ft. ?
Gresford Industrial Estate, Wrexham - In March 2021, the Company
exchanged contracts on the acquisition of a 2.76
acre plot of land adjacent to its industrial holding at Wrexham
for a price of GBP60,200 and completed the purchase
post year-end in April 2021. The freehold vacant land, being
sold by administrators in auction, has rights over the
Company's existing ownership. Therefore, the purchase of this
land prevents any risks from third parties demanding
access. Plastipak, the tenant of the existing property is
potentially interested in expanding into this newly
acquired piece of land.
Vacancy
The portfolio's overall vacancy level now sits at 5.58%,
excluding vacancy contributed by the asset at 225 Bath Street,
Glasgow which, as discussed above, has now been exchanged for sale
for alternative use redevelopment. As a condition of the sale
agreement, full vacancy must be achieved in the building before the
sale can be completed. Including this asset, overall vacancy is
8.96%.
Financial Results
The Company's NAV as at 31 March 2021 was GBP157.08 million or
99.15 pps (31 March 2020: GBP147.86 million or 93.13 pps). This is
an increase of 6.02 pps or 6.46% over the year, with the underlying
movement in NAV set out in the table below:
pps
NAV as at 1 April 2020 93.13
Change in fair value of investment property 3.36
Gains realised on disposal of investment property 4.44
Change in fair value of derivatives (0.01)
Income earned for the period 10.07
Expenses and net finance costs for the period (3.88)
Dividends paid (8.00)
Share buybacks 0.04
NAV as at 31 March 2021 99.15
EPRA earnings per share for the year was 6.19 pps which, based
on dividends paid of 8.00 pps, reflects a dividend cover of
77.4%.
Financing
As at 31 March 2021, the Company has a GBP60.0 million loan
facility with RBSi, in place until October 2023, the details of
which are presented below:
31 March 2021 31 March 2020
Facility GBP60.00 million GBP60.00 million
Drawn GBP39.50 million GBP51.50 million
Gearing (Loan to NAV) 25.15% 34.83%
1.44% all-in 2.10% all-in
Interest rate
(LIBOR +1.4%) (LIBOR +1.4%)
Notional Value of Loan Balance Hedged 130.4% 70.9%
In June 2020, the Company amended the terms of its facility,
allowing the ability to make repayments and re-draw these amounts,
akin to a revolving credit facility. In July 2020, the Company
repaid GBP12.00 million of the facility.
Property Portfolio
Summary by Sector as at 31 March 2021
Like- Like-
for for
Gross Gross like like
passing passing ERV Rental
Vacancy WAULT rental rental rental rental
Area to income (GBPm) income (GBPpsf) income
Number Valuation by ERV break (GBPpsf) growth growth
of (sq ft) ERV (GBPm)
assets (GBPm) (%) (years) (GBPm) (GBPm) %
Sector
Industrial 21 108.85 2,659,440 6.52 3.93 8.52 3.21 9.72 3.65 8.33 (0.29) (3.44)
Offices 5 36.80 252,358 19.81 3.11 2.36 9.37 3.56 14.09 2.97 (0.38) (13.48)
Alternatives 2 12.55 112,355 0.00 7.35 1.50 13.31 1.23 10.99 1.73 0.00 0.00
Standard 5 15.20 168,917 9.48 4.59 2.06 12.17 1.51 8.96 2.07 (0.41) (16.53)
Retail
Retail 1 5.60 51,021 0.00 3.01 0.61 11.96 0.52 10.09 0.61 0.00 0.00
Warehouse
Portfolio 34 179.00 3,244,091 8.96* 4.43 15.05 4.64 16.54 5.10 15.71 (1.08) (6.80)
Summary by Geographical Area as at 31 March 2021
Like- Like-
Gross for for
Gross passing ERV Rental like like
Vacancy WAULT passing rental
Area to rental income (GBPpsf) income rental rental
Number Valuation by ERV break income (GBPm) (GBPpsf)
Geographical of (sq ft) ERV (GBPm) growth growth
area assets (GBPm) (%) (years) (GBPm)
(GBPm) %
Yorkshire and 8 38.17 1,027,801 4.93 2.84 3.23 3.14 3.64 3.53 3.20 (0.34) (9.60)
Humberside
South East 5 27.68 195,545 7.63 3.83 2.02 10.35 2.18 11.14 2.29 (0.35) (13.26)
Eastern 5 22.05 344,885 11.57 3.04 1.85 5.36 2.05 5.94 1.66 (0.23) (12.17)
South West 4 25.30 448,357 9.85 2.24 2.23 4.98 2.48 5.54 1.88 0.01 0.60
West Midlands 3 12.70 363,722 5.50 5.30 1.18 3.24 1.14 3.14 1.78 0.10 8.63
East Midlands 1 3.90 28,219 0.00 5.57 0.39 13.64 0.39 13.80 0.58 (0.11) (21.57)
North West 4 16.35 302,061 0.00 4.52 1.40 4.64 1.36 4.51 1.35 (0.09) (6.25)
Wales 2 16.10 376,138 0.00 8.08 1.25 3.31 1.39 3.69 1.31 0.00 0.00
Greater 1 9.25 71,720 0.00 10.62 0.96 13.40 0.75 10.45 1.01 0.00 0.00
London
Scotland 1 7.50 85,643 51.07 1.31 0.54 6.33 1.16 13.54 0.65 (0.07) (9.72)
Portfolio 34 179.00 3,244,091 8.96* 4.43 15.05 4.64 16.54 5.10 15.71 (1.08) (6.80)
*excluding the vacancy from 225 Bath Street Glasgow, which has
exchanged to be sold with the condition of vacant possession, the
vacancy rate is 5.58%.
Properties by Market Value as at 31 March 2021
Sector weighting by valuation - high industrial weighting and
low exposure to retail
Sector Percentage
Industrial 60.8%
Offices 20.6%
Standard retail 8.5%
Leisure 7.0%
Retail Warehouse 3.1%
Geographical weighting by valuation - highly diversified across
the UK
Region Percentage
Yorkshire and Humberside 21.3%
South East 15.5%
South West 14.1%
Eastern 12.3%
North West 9.1%
Wales 9.0%
West Midlands 7.1%
Rest of London 5.2%
Scotland 4.2%
East Midlands 2.2%
Properties by Market Value as at 31 March 2021
Market Value
Property Sector Region
Range
(GBPm)
Top 10:
1. Eastpoint Business Park, Oxford Offices South East 10.0-15.0
2. Gresford Industrial Estate, Wrexham Industrial Wales 10.0-15.0
3. 40 Queen Square, Bristol Offices South West 10.0-15.0
4. London East Leisure Park, Dagenham Leisure Rest of London 7.5-10.0
5. Langthwaite Grange Industrial Estate, South Kirkby Yorkshire and Humberside
Industrial 7.5-10.0
Yorkshire and Humberside
6. Lockwood Court, Leeds Industrial 7.5-10.0
7. Storeys Bar Road, Peterborough Industrial Eastern 7.5-10.0
8. 225 Bath Street, Glasgow Offices Scotland 7.5-10.0
9. Sarus Court Industrial Estate, Runcorn Industrial North West 5.0-7.5
Yorkshire and Humberside
10. Euroway Trading Estate, Bradford Industrial 5.0-7.5
The Company's top 10 properties listed above comprise 49.7% of
the total value of the portfolio.
Market Value
Property Sector Region
Range
(GBPm)
11. Apollo Business Park, Basildon Industrial Eastern 5.0 - 7.5
12. Brockhurst Crescent, Walsall Industrial West Midlands 5.0 - 7.5
13. Barnstaple Retail Park Retail Warehouse South West 5.0 - 7.5
14. Westlands Distribution Park, Weston Industrial South West 5.0 - 7.5
15. Walkers Lane, St. Helens Industrial North West <5.0
Yorkshire and Humberside
16. Diamond Business Park, Wakefield Industrial <5.0
17. Excel 95, Deeside Industrial Wales <5.0
18. Cranbourne House, Basingstoke Industrial South East <5.0
19. Oak Park, Droitwich Industrial West Midlands <5.0
20. Pearl Assurance House, Nottingham Standard Retail East Midlands <5.0
Yorkshire and Humberside
21. Brightside Lane, Sheffield Industrial <5.0
22. Above Bar Street, Southampton Standard Retail South East <5.0
23. Commercial Road, Portsmouth Standard Retail South East <5.0
24. Cedar House, Gloucester Offices South West <5.0
Yorkshire and Humberside
25. Magham Road, Rotherham Industrial <5.0
26. Odeon Cinema, Southend Leisure Eastern <5.0
27. Pipps Hill Industrial Estate, Basildon Industrial Eastern <5.0
28. Bank Hey Street, Blackpool Standard Retail North West <5.0
29. Eagle Road, Redditch Industrial West Midlands <5.0
30. Clarke Road, Milton Keynes Industrial South East <5.0
Yorkshire and Humberside
31. Knowles Lane, Bradford Industrial <5.0
32. Vantage Point, Hemel Hempstead Offices Eastern <5.0
33. Moorside Road, Salford Industrial North West <5.0
Yorkshire and Humberside
34. Fargate and Chapel Walk, Sheffield Standard Retail <5.0
Top 10 Tenants as at 31 March 2021
% of
Portfolio
Passing Total
Rental Passing
Income Rental
Tenant Sector Property (GBP'000) Income
1. Plastipak UK Limited Industrial Gresford Industrial Estate, Wrexham 883 5.7
2. Ardagh Glass Limited Industrial Langthwaite Industrial Estate, South Kirkby 763 4.9
3. Wyndeham Peterborough Storeys Bar Road, Peterborough 644 4.2
Limited Industrial
625 4.0
4. Mecca Bingo Limited Leisure London East Leisure Park, Dagenham
5. Harrogate Spring Water Industrial 603 3.9
Lockwood Court, Leeds
Leisure 535 3.5
6. Odeon Cinemas Odeon Cinema, Southend
Retail Barnstaple Retail Park and Bank Hey Street, 525 3.4
7. Sports Direct Blackpool
Egbert H Taylor & Co Ltd Industrial Oak Park, Droitwich 500 3.2
8.
Advance Supply Chain (BFD) Euroway Trading Estate, Bradford 467 3.0
9. Ltd Industrial
460 3.0
10. HFC Prestige Manufacturing Industrial Cranbourne House, Basingstoke
The Company's top 10 tenants, listed above, represent 38.8% of
the total passing rental income of the portfolio.
Alternative Investment Fund Manager ('AIFM')
AEW UK Investment Management LLP is authorised and regulated by
the FCA as a full-scope AIFM and provides its services to the
Company.
The Company has appointed Langham Hall UK Depositary LLP
('Langham Hall') to act as the depositary to the Company,
responsible for cash monitoring, asset verification and oversight
of the Company.
Information Disclosures under the AIFM Directive
Under the AIFM Directive, the Company is required to make
disclosures in relation to its leverage under the prescribed
methodology of the Directive.
Leverage
The AIFM Directive prescribes two methods for evaluating
leverage, namely the 'Gross Method' and the 'Commitment Method'.
The Company's maximum and actual leverage levels are as per
below:
31 March 2021 31 March 2020
Commitment Gross Commitment
Leverage Exposure Gross Method
Method Method Method
Maximum Limit 140% 140% 140% 140%
Actual 114% 125% 128% 135%
In accordance with the AIFM Directive, leverage is expressed as
a percentage of the Company's exposure to its NAV and adjusted in
line with the prescribed 'Gross' and 'Commitment' methods. The
Gross method is representative of the sum of the Company's
positions after deducting cash balances and without taking into
account any hedging and netting arrangements. The Commitment method
is representative of the sum of the Company's positions without
deducting cash balances and taking into account any hedging and
netting arrangements. For the purposes of evaluating the methods
above, the Company's positions primarily reflect its current
borrowings and NAV.
Remuneration
The AIFM has adopted a Remuneration Policy which accords with
the principles established by AIFMD. AIFMD Remuneration Code Staff
includes the members of the AIFM's Management Committee, those
performing Control Functions, Department Heads, Risk Takers and
other members of staff that exert material influence on the AIFM's
risk profile or the AIFs it manages.
Staff are remunerated in accordance with the key principles of
the firm's remuneration policy, which include 1. promoting sound
risk management; 2. supporting sustainable business plans; 3.
remuneration being linked to non-financial criteria for Control
Function staff; 4. incentivising staff performance over long
periods of time; 5. awarding guaranteed variable remuneration only
in exceptional circumstances; and 6. having an appropriate balance
between fixed and variable remuneration.
As required under section 'Fund 3.3.5.R(5)' of the Investment
Fund Sourcebook, the following information is provided in respect
of remuneration paid by the AIFM to its staff for the year ended 31
December 2020.
Year ended
31 December 2020
Total remuneration paid to employees during financial year:
a) remuneration, including, where relevant, any carried interest paid by the AIFM GBP2,893,979
b) the number of beneficiaries 25
The aggregate amount of remuneration of the AIFM Remuneration Code staff, broken down by:
a) senior management GBP767,350
b) members of staff GBP2,126,629
Fixed Variable Total
remuneration remuneration remuneration
Senior management GBP677,350 GBP90,000 GBP767,350
Staff GBP1,590,629 GBP536,000 GBP2,126,629
Total GBP2,267,979 GBP626,000 GBP2,893,979
Fixed remuneration comprises basic salaries and variable
remuneration comprises bonuses.
AEW UK Investment Management LLP
23 June 2021
Principal Risks and Uncertainties
The Company's assets consist primarily of UK commercial
property. Its principal risks are therefore related to the
commercial property market in general, but also to the particular
circumstances of the individual properties and the tenants within
the properties.
The Board has overall responsibility for reviewing the
effectiveness of the system of risk management and internal control
which is operated by the Investment Manager. The Company's ongoing
risk management process is designed to identify, evaluate and
mitigate the significant risks the Company faces.
At least twice a year, the Board undertakes a formal risk review
with the assistance of the Audit Committee, to assess the adequacy
and effectiveness of the Investment Manager and other service
providers' risk management and internal control processes.
The Board has carried out a robust assessment of the principal
and emerging risks facing the Company, including those that would
threaten its business model, future performance, solvency or
liquidity.
An analysis of the principal risks and uncertainties is set out
below. The risks below do not purport to be exhaustive as some
risks are not yet known and some risks are currently not deemed
material but could turn out to be material in the future.
Principal risks and their potential impact Risk
How risk is managed assessment
REAL ESTATE RISKS
1. Property market
Any property market recession or future deterioration in Probability:
the property market could, inter alia, (i) cause the Moderate to
Company to realise its investments at lower valuations; The Company has investment restrictions in place High
and (ii) delay the timings of the Company's to invest and manage its assets with the
realisations. These risks could have a material adverse objective of spreading and mitigating risk. Impact: High
effect on the ability of the Company to achieve its
investment objective. Movement:
Decrease
2. Property valuation
Property and property-related assets are inherently
difficult to value due to the individual nature of each
property. Probability:
The Company uses an independent external valuer Moderate
(Knight Frank LLP) to value the properties at
fair value in accordance with accepted RICS Impact: Low
There may be an adverse effect on the Company's appraisal and valuation standards. to Moderate
profitability, the NAV and the price of Ordinary Shares
in cases where properties are sold whose valuations have Movement:
previously been materially overstated. Decrease
Comprehensive due diligence is undertaken on all
new tenants. Tenant covenant checks are carried
3. Tenant default out on all new tenants where a default would have
a significant impact. Probability:
Failure by tenants to fulfil their rental High
obligations could affect the income that the properties Impact: High
earn and the ability of the Company to pay dividends to Asset management team conducts
its shareholders. Movement:
ongoing monitoring and liaison with tenants to Decrease
manage potential bad debt risk.
4. Asset management initiatives
Probability:
Asset management initiatives, such as refurbishment Costs incurred on asset management initiatives Low to
works, may prove to be more extensive, expensive and are closely monitored against budgets and Moderate
take longer than anticipated. Cost overruns may have a reviewed in regular presentations to the
material adverse effect on the Company's profitability, Investment Management Committee of the Investment Impact: Low
the NAV and the share price. Manager. to Moderate
Movement: No
change
5. Due diligence
Due diligence may not identify all the risks and Probability:
liabilities in respect of an acquisition (including any The Company's due diligence relies on work (such Low
environmental, structural or operational defects) that as legal reports on title, property valuations,
may lead to a material adverse effect on the Company's environmental and building surveys) outsourced to Impact:
profitability, the NAV and the price of the Company's third parties who have expertise in their areas. Moderate
Ordinary Shares. Such third parties have professional indemnity
cover in place. Movement: No
change
6. Fall in rental rates
Rental rates may be adversely affected by general UK The Company builds a diversified property and
economic conditions and other factors that depress tenant base with subsequent monitoring of
rental rates, including local factors relating to concentration to individual occupiers (top 10 Probability:
particular properties/locations (such as increased tenants) and sectors (geographical and sector Moderate to
competition). exposure). High
Impact:
Moderate to
Any fall in the rental rates for the Company's The Investment Manager holds quarterly meetings High
properties may have a material adverse effect on the with its Investment Strategy Committee and
Company's profitability, the NAV, the price of the regularly meets the Board of Directors to assess Movement: No
Ordinary Shares and the Company's ability to meet whether any changes in the market present risks change
interest and capital repayments on any debt facilities. that should be addressed in the Company's
strategy.
FINANCIAL RISKS
7. Breach of borrowing covenants
The Company has entered into a term credit facility. Probability:
Low to
The Company monitors the use of borrowings on an Moderate
ongoing basis through weekly cash flow
Material adverse changes in valuations and net income forecasting and quarterly risk monitoring to Impact: High
may lead to breaches in the LTV and interest cover ratio monitor financial covenants.
covenants. Movement:
Decrease
The Company uses interest caps on a significant
8. Interest rate rises (short term) notional value of the loan to mitigate the
adverse impact of possible interest rate rises. Probability:
The Company's borrowings through a term credit facility Low to
are subject to interest rate risk through changing LIBOR Moderate
rates. Any increases in LIBOR rates may have an adverse
effect on the Company's ability to pay dividends. The Investment Manager and Board of Directors Impact: Low
monitor the level of hedging and interest rate
movements to ensure that the risk is managed Movement: No
appropriately. change
The Company uses interest rate caps on a
9. Interest rate rises (long term) significant notional value of the loan to
mitigate the adverse impact of possible interest Probability:
The Company's borrowings through a term credit facility rate rises. High
are subject to interest rate risk through changing LIBOR
rates. Any increases in LIBOR rates may have an adverse Impact: Low
effect on the Company's ability to pay dividends. to Moderate
The Investment Manager and Board of Directors
monitor the level of hedging and interest rate Movement: No
movements to ensure that the risk is managed change
appropriately.
10. Availability and cost of debt The Company maintains a good relationship with
the bank providing the term credit facility. Probability:
The term credit facility expires in October 2023. In the Low to
event that RBSi does not renew the facility, the Company Moderate
may need to sell assets to repay the outstanding loan.
Any increase in the financing costs of the facility on The Company monitors the projected usage and Impact: High
renewal would adversely impact on the Company's covenants of the credit facility on a quarterly
profitability. basis. Movement: No
change
CORPORATE RISKS
11. Use of service providers
The Company has no employees and is reliant upon the
performance of third party service providers. Probability:
The performance of service providers in Moderate to
conjunction with their service level agreements High
is monitored via regular calls and face-to-face
Failure by any service provider to carry out its meetings and the use of key performance Impact:
obligations to the Company in accordance with the terms indicators, where relevant. Moderate
of its appointment could have a materially detrimental
impact on the operation of the Company. Movement: No
change
12. Dependence on the Investment Manager
The Investment Manager is responsible for providing
investment management services to the Company.
Probability:
Moderate
The Investment Manager has endeavoured to ensure Impact:
The future ability of the Company to successfully pursue that the principal members of its management team Moderate to
its investment objective and investment policy may, are suitably incentivised. High
among other things, depend on the ability of the
Investment Manager to retain its existing staff and/or Movement: No
to recruit individuals of similar experience and change
calibre.
13. Ability to meet objectives
The Company may not meet its investment objective to
deliver an attractive total return to shareholders from
investing predominantly in a portfolio of smaller The Company has an investment policy to achieve a Probability:
commercial properties in the United Kingdom. balanced portfolio with a diversified asset and High
tenant base. The Company also has investment
restrictions in place to limit exposure to Impact: High
potential risk factors. These factors mitigate
Poor relative total return performance may lead to an the risk of fluctuations in returns. Movement: No
adverse reputational impact that affects the Company's change
ability to raise new capital.
TAXATION RISKS
14. Company REIT status
The Company has a UK REIT status that provides a
tax-efficient corporate structure.
The Company monitors REIT compliance through the
If the Company fails to remain a REIT for UK tax Investment Manager on acquisitions; the Probability:
purposes, its profits and gains will be subject to UK Administrator on asset and distribution levels; Low
corporation tax. the Registrar and Broker on shareholdings and the
use of third-party tax advisers to monitor REIT Impact: High
compliance requirements.
Movement: No
Any change to the tax status or UK tax legislation could change
impact on the Company's ability to achieve its
investment objectives and provide attractive returns to
shareholders.
POLITICAL/ECONOMIC RISKS
15. General political/economic environment The Board considers the impact of political and
macroeconomic events when reviewing strategy.
Political and macroeconomic events present risks to the Probability:
real estate and financial markets that affect the High
Company and the business of its tenants. The level of
uncertainty that such events bring has been highlighted The UK's exit from the EU is not considered to Impact: High
in recent times, most pertinently the effects of the generate any risks specific to the Company and is
UK's exit from the EU in January 2021. not considered to have any material effect on the Movement: No
financial statements. change
16. COVID-19 The Manager is in close contact with tenants. The Probability:
Investment Manager has put in place social High
The economic disruption arising from the COVID-19 virus distancing measures as advised by the UK
could impact rental income receipts from tenants, the government. The Manager has maintained a close Impact: High
ability to access funding at competitive rates, maintain relationship with RBSi to ensure continuing
the Company's dividend policy and its adherence to the dialogue around covenants. Movement:
HMRC REIT regime, particularly if the UK government Decreasing
restrictions are in place for a prolonged period.
Stakeholder Engagement
s172 Statement
The Directors' overarching duty is to promote the success of the
Company for the benefit of its shareholders, having regard to the
interests of its stakeholders, as set out in section 172 of the
Companies Act 2006 (the 'Act'). The Directors have considered each
aspect of this section of the Act and consider that the information
set out below is particularly relevant in the context of the
Company's business as an externally managed investment company
which does not have any employees or suppliers.
We set out in the table below our key stakeholders, the nature
of their relationship with the Company and Board, their key
interests and how we engage with those stakeholders.
Our relationships with stakeholders are factored into Board
discussions and decisions made by the Board will consider the
impact on the stakeholders, in accordance with s172 of the Act.
Stakeholder
Interests Engagement
- Sustainable growth of
the Company and
Investors achieving target returns
- AGM, Annual Report,
Our shareholders are impacted directly by the financial performance of - Good relationship with regulatory
the Company the Company and Board announcements
through dividends and share price movements.
- Effective structure - Quarterly update
and control Framework report and other key
They also play an important role in monitoring the governance of the information published
Company. on the website
- Impact of the Company
on the wider community
and environment - Roadshows, meetings
and presentations via
the Investment Manager
- Reputation of the
Company
- Relationship with the
Service providers Company and Board
- Effective and regular
communication
Key functions of the Company are outsourced to third-party suppliers, - Fair contract terms
including investment management, property management, administration, and service-level
company secretarial, registrar, depositary and legal services. It is agreements
important to develop strong long-term working relationships with these - Service-level
providers to enhance the efficiency of the Company's operations, as agreements
well as that of the providers themselves.
- Reputation of the
Company
- Formal tender
processes where
appropriate
- The Company's
performance and
long-terms prospects
- Good communication and
relationship with the - Site visits and face
Company as landlord to face meetings
Tenants through the Investment
Manager
- Fair lease terms
The Company's strategy in relation to its individual assets will
directly affect the tenants in occupation of those assets. - Formal negotiations
- Long term strategy for
the asset in line with
the objectives of the - Ongoing communication
tenant's activities through the property
manager
- Impact of properties
and their business plans - Publishing of
The wider community and environment on the local economy Sustainability
Disclosure Report and
Greenhouse Gas
Emissions Statement
The Company's physical real estate assets have a direct impact on - Impact of properties
their local communities depending on their primary use and on the on the attractiveness
environment through their emissions and energy usage. and appeal of the local
area - GRESB reporting
- Energy efficiency and - Communication with
greenhouse gas emissions local authorities via
Investment Manager
Principal decisions made by the Board
The principal decisions made by the Board during the year are
summarised below.
The Board sought approval from shareholders for an amendment to the Company's investment
policy, increasing the single sector limit from 50% to 60% of GAV, to enable the Company to
Amendment to Investment acquire further assets in the industrial/warehouse sector should attractive opportunities
Policy arise.
In accordance with the Company's Articles of Association, the Board considered continuation of
the Company to be in the best interests of shareholders as a whole. The Company's strong
portfolio of high-yielding assets, which have outperformed the Benchmark for the current year,
Continuation vote has enabled the Company to consistently meet its dividend target, and deliver total returns to
shareholders towards the top of its peer group.
The Board is committed to delivering on its target of paying dividends of 8.00 pps per annum,
Dividends continuing the Company's track record in paying dividends at this level.
The Board approved a share buyback programme utilising cash available for this purpose. Details
of shares bought back during the year can be found in the Directors' Report in the full Annual
Share buybacks Report and Financial Statements.
The Board has continued its focus on responsible business practices. More details can be found
in the Directors' Report in the full Annual Report and Financial Statements.
Continued focus on
sustainability impact
and GRESB score
The Investment Manager meets regularly with its ESG consultant, Evora, to consider initiatives
to improve the Company's Global Real Estate Sustainability Benchmark ("GRESB") score.
Following completion of a competitive tender process, the Board made the decision to appoint
Appointment of new BDO LLP as Auditor of the Company for the year ending 31 March 2022 and for the period ending
Auditor 30 September 2021.
The Board is responsible for the ongoing review of investment activity and performance and the
control and supervision of the Investment Manager. During the year, the following key
investment activities were approved by the Board:
? the disposal of 2 Geddington Road, Corby;
? the amendment to the Company's loan facility to allow drawdown and subsequent repayment
without penalty, akin to a revolving credit facility;
Oversight of Investment
Manager and Review of
Investment Activities ? the acquisition of Westlands Distribution Park, Weston-super-Mare;
? the disposal of Sandford House, Solihull; and
? litigation strategy regarding tenants' arrears.
Further details of the property transactions can be found in the 'Property Portfolio' section
of the Investment Manager's Report.
Approval
The Strategic Report has been approved and signed on behalf of
the Board by:
Mark Burton
Chairman
23 June 2021
Extract from the Directors Report
Directors
Mark Burton, non-executive Chairman
Bimaljit ("Bim") Sandhu, non-executive Director
Katrina Hart, non-executive Director
Going Concern
The Directors have made an assessment of the Company's ability
to continue as a going concern, which takes into consideration the
uncertainty caused by the COVID-19 pandemic, as well as the
Company's cash flows, financial position, liquidity and borrowing
facilities.
As at 31 March 2021, the Company had a cash balance of GBP17.45
million and has subsequently acquired two properties, Arrow Point
Retail Park, Shrewsbury, for a gross purchase price of GBP8.35
million and 15-33 Union Street, Bristol, for a gross purchase price
of GBP10.19 million. The Company has also subsequently drawn
GBP11.00 million of its loan facility.
The Company had sufficient headroom against its borrowing
covenants when last reported in April 2020. The Company reported a
Loan to NAV of 25.15%, so had room for a GBP69.17 million fall in
NAV before reaching the maximum Loan to NAV of 45% per the
covenant. This limit can be increased to 55% when the option is
exercised by the Company and certain conditions are met, which
would allow for a further GBP15.96 million fall in NAV i.e. a total
fall of GBP85.13 million. The Company also passed its most recent
interest cover ratio ('ICR') tests in April 2021, reporting more
than double the cover required on both a historical and projected
basis.
The Company benefits from a secure, diversified income stream
from a tenancy profile which is not overly reliant on any one
tenant or sector. The Company has now collected over 90% of rents
for each collection quarter since the onset of the COVID-19
pandemic.
Taking this into consideration, the Directors have reviewed a
number of scenarios over 12 months from the date of approval of
these financial statements, including a worst case plausible
downside scenario which makes the following assumptions: ? failure
of 30-35% of tenants (by passing rent); ? collection of 75-80% of
remaining rents, with remaining collection deferred for two
quarters; ? no new lettings or renewals, other than those where
terms have already been agreed; ? a 10% fall in valuations; and ?
no new acquisitions or disposals other than those which have
completed since the year end (Arrow Point Retail Park,
Shrewsbury, and 15-33 Union Street, Bristol, as above).
In the above scenario, the Company is forecast to generate a
positive cash flow before dividend payments, however it would
generate a cash flow much lower than its target dividend of 8 pps
per annum. If no further drawdowns of the loan facility were made,
the Company would maintain a gearing of 37% throughout the forecast
period, meaning a headroom of over GBP43 million up to the 55%
covenant with the option exercised. The Company's cash could be
managed through the reduction and/or suspension of dividend
payments, which would allow the existing cash resources of c. GBP7
million at the date of approval of the financial statements to be
maintained.
In the above scenario, the Company is forecast to pass its ICR
tests during the 12 month forecast period with a minimum cover of
7.6:1, compared with the lower limit of 5:1. assuming that no
drawdowns or repayments of the facility were to be made. In the
unlikely event that the Company were to breach its ICR covenant, it
has the ability to cure the breach by placing cash on account with
the bank. In the extremely unlikely event that the full balance of
the facility was called in, the Company has certain liquid assets
which could be realised quickly at, or close to, valuation. The
Company could then continue to operate un-geared until it was able
to refinance.
Given the Company's substantial headroom against its borrowing
covenants, the Directors believe that the Company is well placed to
manage its financing and business risks, including those associated
with COVID-19, and the Directors are confident that the Company
will have sufficient funds to meet its liabilities as they fall due
for at least 12 months from the date of approval of the financial
statements and therefore the financial statements have been
prepared on a going concern basis.
Viability Statement
The Directors have also assessed the prospects of the Company
over a period longer than the 12 months required by the 'Going
Concern' provisions. The Board has considered the nature of the
Company's assets, liabilities and associated cash flows, and has
determined that five years up to 31 March 2026 is the maximum
timescale over which the performance of the Company can be forecast
with a material degree of accuracy and so is an appropriate period
over which to assess the Company's viability.
Considerations in support of the assessment of the Company's
viability over a five-year period include: ? the current unexpired
term under the Company's debt facility stands at 2.6 years, meaning
that financing is secure
for the majority of the period under consideration; ? the
Company's property portfolio has a WAULT of 6.71 years to expiry,
representing a secure income stream for the
period under consideration; ? the Company benefits from a
portfolio which is diversified in terms of sector and location,
mitigating the risk of
tenant default during the period; ? most leases contain a
five-year rent review pattern and therefore an assessment over five
years allows the
Directors to assess the impact of the portfolio's reversion
arising from rent reviews.
In assessing the Company's viability, the Board has carried out
a thorough review of the Company's business model, including future
performance, REIT compliance, liquidity, dividend cover and banking
covenant tests over a five-year period.
The business model is subject to annual sensitivity analysis,
which involves flexing a number of key assumptions underlying the
forecasts both individually and in aggregate for normal and
stressed conditions. The five-year review also considers whether
financing facilities will be renewed as required.
The following scenarios were tested, both individually and
combined, in an effort to represent a severe but plausible
scenario, which might reasonably be expected to arise as a result
of the outbreak of COVID-19, amongst other factors: ? reduced rent
collection; ? portion of rent written off completely; ? fall in
portfolio valuation; and ? increased periods of vacancy.
Based on the result of this analysis, the Directors have a
reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the
five-year period of their assessment.
Subsidiary Company
Details of the Company's subsidiary, AEW UK REIT 2015 Limited,
can be found in note 18 to the financial statements.
Financial Risk Management
The financial risk management objectives and policies can be
found in note 21 to the financial statements.
Requirements of the Listing Rules
Listing Rule 9.8.4 requires the Company to include specified
information in a single identifiable section of the annual report
or a cross reference table indicating where the information is set
out. The Directors confirm that there are no disclosures required
in relation to Listing Rule 9.8.4.
Related Party Transactions
Related party transactions during the year ended 31 March 2021
can be found in note 23 to the financial statements.
Post Balance Sheet Events
Post balance sheet events can be found in note 25 to the
financial statements.
The Directors' Report has been approved by the Board of
Directors and signed on its behalf by:
Mark Burton
Chairman
23 June 2021
Statement of Directors' Responsibilities in respect of the
Annual Report and Financial Statements
The Directors are responsible for preparing the Annual Report
and Financial Statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law they have
elected to prepare the financial statements in accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006/UK-adopted international
accounting standards and applicable law.
Under company law, the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and of its profit or
loss for that period. In preparing these financial statements, the
Directors are required to: ? select suitable accounting policies
and then apply them consistently; ? make judgements and estimates
that are reasonable, relevant and reliable; ? state whether they
have been prepared in accordance with international accounting
standards in conformity with the
requirements of the Companies Act 2006/UK-adopted international
accounting standards; ? assess the Company's ability to continue as
a going concern, disclosing, as applicable, matters related to
going
concern; and ? use the going concern basis of accounting unless
they either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
its financial statements comply with the Companies Act 2006. They
are responsible for such internal control as they determine is
necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error,
and have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Company and
to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors' Report,
Directors' Remuneration Report and Corporate Governance Statement
that comply with that law and those regulations.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the UK governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
We confirm that to the best of our knowledge: ? the financial
statements, prepared in accordance with the applicable set of
accounting standards, give a true and
fair view of the assets, liabilities, financial position and
profit of the Company; and ? the Directors' Report includes a fair
review of the development and performance of the business and the
position of
the Company, together with a description of the principal risks
and uncertainties that it faces.
We consider the Annual Report and Financial Statements, taken as
a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company's
position and performance, business model and strategy.
On behalf of the Board
Mark Burton
Chairman
23 June 2021
Non-statutory Accounts
The financial information set out below does not constitute the
Company's statutory accounts for the year ended 31 March 2021 but
is derived from those accounts. Statutory accounts for the year
ended 31 March 2021 will be delivered to the Registrar of Companies
in due course. The Independent Auditor has reported on those
accounts; its report was (i) unqualified, (ii) did not include a
reference to any matters to which the Independent Auditor drew
attention by way of emphasis without qualifying its report and
(iii) did not contain a statement under Section 498 (2) or (3) of
the Companies Act 2006. The text of the Independent Auditor's
Report can be found in the Company's full Annual Report and
Financial Statements on the Company's website.
Financial Statements
Statement of Comprehensive Income
for the year ended 31 March 2021
Year ended Year ended
31 March 31 March
Notes
2021 2020
GBP'000 GBP'000
Income
Rental and other income 3 17,491 17,790
Property operating expenses 4 (3,754) (1,324)
Impairment loss on trade receivables (944) (2)
Net rental and other income 12,793 16,464
Other operating expenses 5 (1,958) (1,877)
Directors' remuneration 6 (100) (115)
Operating profit before fair value changes 10,735 14,472
Change in fair value of investment properties 11 5,324 (9,444)
Realised gain on disposal of investment properties 11 7,043 44
Operating profit 23,102 5,072
Finance expense 7 (930) (1,420)
Profit before tax 22,172 3,652
Taxation 8 - -
Profit after tax 22,172 3,652
Other comprehensive income - -
Total comprehensive income for the year 22,172 3,652
Earnings per share (pps) (basic and diluted) 9 13.98 2.40
The notes below form an integral part of these financial
statements.
Statement of Changes in Equity
for the year ended 31 March 2021
Capital Total capital
Share reserve and reserves
For the year ended Share capital premium and attributable to
Notes
31 March 2021 GBP'000 account retained owners of the
GBP'000 earnings* Company
GBP'000 GBP'000
Buyback reserve
GBP'000
Balance at 1 April 2020 1,587 56,578 89,698 - 147,863
Total comprehensive income - - 22,172 - 22,172
Ordinary Shares bought back 19 - - - (263) (263)
Share buyback costs 19 - - - (2) (2)
Dividends paid 10 - - (12,691) - (12,691)
Balance at 31 March 2021 1,587 56,578 99,179 (265) 157,079
Capital Total capital
Share reserve and reserves
For the year ended Share capital premium and attributable to
Notes
31 March 2020 GBP'000 account retained owners of the
GBP'000 earnings* Buyback reserve Company
GBP'000 GBP'000 GBP'000
Balance at 1 April 2019 1,515 49,770 98,171 - 149,456
Total comprehensive income - - 3,652 - 3,652
Ordinary Shares issued 19/20 72 6,928 - - 7,000
Share issue costs 20 - (120) - - (120)
Dividends paid 10 - - (12,125) - (12,125)
Balance at 31 March 2020 1,587 56,578 89,698 - 147,863
* The capital reserve has arisen from the cancellation of part
of the Company's share premium account and is a distributable
reserve.
The notes below form an integral part of these financial
statements.
Statement of Financial Position
as at 31 March 2021
31 March 2021 31 March 2020
Notes
GBP'000 GBP'000
Assets
Non-Current Assets
Investment property 11 169,092 187,042
169,092 187,042
Current Assets
Investment property held for sale 11 7,251 -
Receivables and prepayments 12 6,977 7,351
Cash and cash equivalents 17,450 9,873
Other financial assets held at fair value 13 61 14
31,739 17,238
Non-Current Liabilities
Interest bearing loans and borrowings 14 (39,131) (51,047)
Lease obligations 16 (635) (635)
(39,766) (51,682)
Current Liabilities
Payables and accrued expenses 15 (3,938) (4,687)
Lease obligations 16 (48) (48)
(3,986) (4,735)
Total Liabilities (43,752) (56,417)
Net Assets 157,079 147,863
Equity
Share capital 19 1,587 1,587
Buyback reserve 19 (265) -
Share premium account 20 56,578 56,578
Capital reserve and retained earnings 99,179 89,698
Total capital and reserves attributable to equity holders 157,079 147,863
Net Asset Value per share (pps) 9 99.15 93.13
EPRA Net Tangible Assets per share (pps) 9 99.11 93.12
The financial statements were approved by the Board on 23 June
2021 and signed on its behalf by:
Mark Burton
Chairman
AEW UK REIT plc (Company number: 09522515)
The notes below form an integral part of these financial
statements.
Statement of Cash Flows
for the year ended 31 March 2021
Year ended Year ended
31 March 2021 31 March 2020
GBP'000 GBP'000
Cash flows from operating activities
Profit before tax 22,172 3,652
Adjustment for non-cash items:
Finance expenses 930 1,420
(Gain)/loss from change in fair value of investment property (5,324) 9,444
Realised gain on disposal of investment properties (7,043) (44)
Decrease/(increase) in other receivables and prepayments 374 (2,882)
(Decrease)/increase in other payables and accrued expenses (647) 1,424
Net cash flow generated from operating activities 10,462 13,014
Cash flows from investing activities
Purchase of and additions to investment properties (5,983) (358)
Disposal of investment properties 29,049 44
Net cash used in investing activities 23,066 (314)
Cash flows from financing activities
Proceeds from issue of Ordinary Share capital - 7,000
Share buyback cash paid (263) -
Share issue costs - (120)
Share buyback costs (2) -
Loan (repayment)/drawdown (12,000) 1,500
Arrangement loan facility fee paid (13) (39)
Premium for interest rate caps (63) -
Finance costs (919) (1,174)
Dividends paid (12,691) (12,125)
Net cash used in financing activities (25,951) (4,958)
Net increase in cash and cash equivalents 7,577 7,742
Cash and cash equivalents at start of the year 9,873 2,131
Cash and cash equivalents at end of the year 17,450 9,873
The notes below form an integral part of these financial
statements.
Notes to the Financial Statements
for the year ended 31 March 2021
1. Corporate information
AEW UK REIT plc (the 'Company') is a closed ended Real Estate
Investment Trust ('REIT') incorporated on 1 April 2015 and
domiciled in the UK. The registered office of the Company is 6th
Floor, 65 Gresham Street, London, EC2V 7NQ.
The Company's Ordinary Shares were listed on the Official List
of the FCA and admitted to trading on the Main Market of the London
Stock Exchange on 12 May 2015.
The nature of the Company's operations and its principal
activities are set out in the Strategic Report above.
2. Accounting policies
2.1 Basis of preparation
These financial statements are prepared and approved by the
Directors in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006
('Adopted IFRSs'). Following Brexit, the Company is required to use
the UK adopted international accounting standards for financial
years beginning after the 1 January 2021. These standards were
identical as of the 1 January 2021 and for the remainder of the
accounting period.
These financial statements have been prepared under the
historical cost convention, except for investment property and
interest rate derivatives that have been measured at fair
value.
The financial statements are presented in Sterling and all
values are rounded to the nearest thousand pounds (GBP'000), except
when otherwise indicated.
The Company is exempt by virtue of Section 402 of the Companies
Act 2006 from the requirement to prepare group financial
statements. These financial statements present information solely
about the Company as an individual undertaking.
New standards, amendments and interpretations
The Company has considered and applied the following new
standards and amendments to existing
standards which are required for the accounting period beginning
on 1 April 2020: ? Amendments to IFRS 16 COVID-19 Related Rent
Concessions, the amendments provide relief to lessees from
applying
IFRS 16 guidance on lease modification accounting for rent
concessions arising as a direct consequence of the
COVID-19 pandemic. The Company has not received any concessions
for its ground rent costs and therefore accounting
treatment has not been affected.
The following standards and amendments have been considered, but
have had no impact on the Company for the reporting period: ?
Amendments to IFRS 3: Definition of a Business, the amendment to
IFRS 3 Business Combinations clarifies that to be
considered a business, an integrated set of activities and
assets must include, at a minimum, an input and a
substantive process that, together, significantly contribute to
the ability to create output. Furthermore, it
clarifies that a business can exist without including all the
inputs and processes needed to create outputs. ? Amendments to IAS
1 and IAS 8 Definition of Material, the amendments provide a new
definition of material, the
amendments clarify that materiality will depend on the nature or
magnitude of information, either individually or
in combination with other information, in the context of the
financial statements. A misstatement of information is
material if it could reasonably be expected to influence
decisions made by the primary users. ? Revised Conceptual Framework
for Financial Reporting, the Conceptual Framework is not a
standard, and none of the
concepts contained therein override the concepts or requirements
in any standard. The revised Conceptual Framework
includes some new concepts, updated definitions and recognition
criteria for assets and liabilities and clarifies
some important concepts.
There are a number of new standards and amendments to existing
standards which have been published and are mandatory for the
Company's accounting periods beginning on or after 1 April 2021 or
later. The Company is not adopting these standards early. The
following are the most relevant to the Company: ? Interest Rate
Benchmark Reform - Phase 2 (Amendments to various standards: IFRS 9
'Financial Instruments', IAS 39
'Financial Instruments; Recognition and Measurement', IFRS 7
'Financial Instruments: Disclosures', IFRS 4
'Insurance Contracts' and IFRS 16 'Leases') ? Amendments to IAS
1 'Presentation of Financial Statements (effective 1 January 2022)
? Amendments to IFRS 3 'Business Combinations' (effective 1 January
2022)
The Company does not expect the adoption of the new accounting
standards issued but not yet effective to have a significant impact
on its financial statements.
2.2 Significant accounting judgements and estimates
The preparation of financial statements in accordance with IFRS
requires the Directors of the Company to make judgements, estimates
and assumptions that affect the reported amounts recognised in the
financial statements. However, uncertainty about these assumptions
and estimates could result in outcomes that require a material
adjustment to the carrying amount of the asset or liability in the
future.
There are not considered to be any judgements which have a
significant effect on the amounts recognised in the financial
statements, however, there is an estimate that will have a
significant effect on the amounts recognised in the financial
statements:
i) Valuation of investment property
The Company's investment property is held at fair value as
determined by the independent valuer on the basis of fair value in
accordance with the internationally accepted RICS Appraisal and
Valuation Standards. Details of the considerations made in respect
of the estimation are further detailed in note 11.
2.3 Segmental information
In accordance with IFRS 8, the Company considers each of its
properties to be an individual operating segment, which are
aggregated into one reporting segment, being investment in property
in the UK.
2.4 Going concern
The Directors have made an assessment of the Company's ability
to continue as a going concern, which takes into consideration the
uncertainty caused by the COVID-19 pandemic, as well as the
Company's cash flows, financial position, liquidity and borrowing
facilities.
As at 31 March 2021, the Company had a cash balance of GBP17.45
million and has subsequently acquired two properties, Arrow Point
Retail Park, Shrewsbury, for a gross purchase price of GBP8.35
million and 15-33 Union Street, Bristol, for a gross purchase price
of GBP10.19 million. The Company has also subsequently drawn
GBP11.00 million of its loan facility.
The Company had sufficient headroom against its borrowing
covenants when last reported in April 2020. The Company reported a
Loan to NAV of 25.15%, so had room for a GBP69.17 million fall in
NAV before reaching the maximum Loan to NAV of 45% per the
covenant. This limit can be increased to 55% when the option is
exercised by the Company and certain conditions are met, which
would allow for a further GBP15.96 million fall in NAV i.e. a total
fall of GBP85.13 million. The Company also passed its most recent
interest cover ratio ('ICR') tests in April 2021, reporting more
than double the cover required on both a historical and projected
basis.
The Company benefits from a secure, diversified income stream
from a tenancy profile which is not overly reliant on any one
tenant or sector. The Company has now collected over 90% of rents
for each collection quarter since the onset of the COVID-19
pandemic.
Taking this into consideration, the Directors have reviewed a
number of scenarios over 12 months from the date of approval of
these financial statements, including a worst case plausible
downside scenario which makes the following assumptions: ? failure
of 30-35% of tenants (by passing rent); ? collection of 75-80% of
remaining rents, with remaining collection deferred for two
quarters; ? no new lettings or renewals, other than those where
terms have already been agreed; ? a 10% fall in valuations; and ?
no new acquisitions or disposals other than those which have
completed since the year end (Arrow Point Retail Park,
Shrewsbury, and 15-33 Union Street, Bristol, as above).
In the above scenario, the Company is forecast to generate a
positive cash flow before dividend payments, however would generate
a cash flow much lower than its target dividend of 8 pps per annum.
If no further drawdowns of the loan facility were made, the Company
would maintain a gearing of 37% throughout the forecast period,
meaning a headroom of over GBP43 million up to the 55% covenant
with the option exercised. The Company's cash could be managed
through the reduction and/or suspension of dividend payments, which
would allow the existing cash resources of c. GBP7 million at the
date of approval of the financial statements to be maintained.
In the above scenario, the Company is forecast to pass its ICR
tests during the 12 month forecast period with a minimum cover of
7.6:1, compared with the lower limit of 5:1. assuming that no
drawdowns or repayments of the facility were to be made. In the
unlikely event that the Company were to breach its ICR covenant, it
has the ability to cure the breach by placing cash on account with
the bank. In the extremely unlikely event that the full balance of
the facility was called in, the Company has certain liquid assets
which could be realised quickly at, or close to, valuation. The
Company could then continue to operate un-geared until it was able
to refinance.
Given the Company's substantial headroom against its borrowing
covenants, the Directors believe that the Company is well placed to
manage its financing and business risks, including those associated
with COVID-19, and the Directors are confident that the Company
will have sufficient funds to meet its liabilities as they fall due
for at least 12 months from the date of the approval of the
financial statements have been prepared on a going concern
basis.
2.5 Summary of significant accounting policies
The principal accounting policies applied in the preparation of
these financial statements are set out below.
a) Presentation currency
These financial statements are presented in Sterling, which is
the functional and presentational currency of the Company. The
functional currency of the Company is principally determined by the
primary economic environment in which it operates. The Company did
not enter into any transactions in foreign currencies during the
year.
b) Revenue recognition
i) Rental income
Rental income receivable under operating leases is recognised on
a straight-line basis over the lease term.
Lease incentives, including rent free periods and payment to
tenants, are also allocated to the Statement of Comprehensive
Income on a straight-line basis over the lease term. The value of
resulting accrued rental income is deducted from the valuation as
provided by the valuer to arrive at the carrying value.
A modification to an operating lease in the form of a new lease
incentive is accounted for as a new lease from the effective date
of the modification. Any lease incentive existing on a modified
lease will then be spread evenly over the new remaining life of the
lease.
Contingent rental income is calculated based off actual turnover
and is recognised when it is raised.
Amounts received from tenants to terminate leases or to
compensate for dilapidations are recognised in the Statement of
Comprehensive Income when the right to receive them arises.
Service charge income receivable under operating leases is
charged based on budgeted service charge expenditure for a given
property over a given service charge year. This income is
recognised on a straight-line basis over the service charge year
and any balance credits or charges on reconciliation following the
end of the service charge year are recognised at the time they
arise.
ii) Deferred income
Deferred income is any rental income that has been invoiced to
the tenant but relates to future periods. It is reported as a
current liability in the Statement of Financial Position.
c) Dividend income
Dividend income is recognised in profit or loss on the date the
entity's right to receive a dividend is established.
d) Financing income and expenses
Financing income comprises interest receivable on funds
invested. Financing expenses comprise interest and other costs
incurred in connection with the borrowing of funds. Interest income
and interest payable are recognised in profit or loss as they
accrue, using the effective interest method.
e) Investment property
Property is classified as investment property when it is held to
earn rentals or for capital appreciation or both. Investment
property is measured initially at cost including transaction costs.
Transaction costs include transfer taxes and professional fees to
bring the property to the condition necessary for it to be capable
of operating. The carrying amount also includes the cost of
replacing part of an existing investment property at the time that
cost is incurred if the recognition criteria are met.
Subsequent to initial recognition, investment property is stated
at fair value. Gains or losses arising from changes in the fair
values are included in profit or loss.
Investment properties are valued by the independent valuer on
the basis of a full valuation with physical inspection at least
once a year. Any valuation of an immovable by the independent
valuer must be undertaken in accordance with the current issue of
RICS Valuation - Professional Standards (the 'Red Book').
The determination of the fair value is based upon the income
capitalisation approach. This approach involves applying
capitalisation yields to current and future rental streams net of
income voids arising from vacancies or rent-free periods and
associated running costs. These capitalisation yields and estimated
rental values are based on comparable property and leasing
transactions in the market using the valuer's professional
judgement and market observation. Other factors taken into account
in the valuations include the tenure of the property, tenancy
details, capital values of fixtures and fittings, environmental
matter and the overall repair and condition of the property.
For the purposes of these financial statements, the assessed
fair value is: ? reduced by the carrying amount of any accrued
income resulting from the spreading of lease incentives; and ?
increased by the carrying amount of leasehold obligations.
Investment property is derecognised when it has been disposed of
or permanently withdrawn from use and no future economic benefit is
expected after its disposal or withdrawal.
The profit on disposal is determined as the difference between
the net sales proceeds and the carrying amount of the asset at the
commencement of the accounting period plus capital expenditure in
the period.
Any gains or losses on the retirement or disposal of investment
property are recognised in the profit or loss in the year of
retirement or disposal.
f) Investments in subsidiaries
AEW UK REIT 2015 Limited is the subsidiary of the Company. The
subsidiary was dormant during the current and previous reporting
period. The investment in the subsidiary is stated at cost less
impairment and shown in note 18.
The Company has taken advantage of the exemption as permitted by
Section 405 of the Companies Act 2006, therefore the subsidiary is
not consolidated as its inclusion is not material for the purposes
of giving a true and fair view.
g) Investment property held for sale
Investment property is classified as held for sale when it is
being actively marketed at year end and it is highly probable that
the carrying amount will be recovered principally through a sale
transaction within 12 months.
Investment property classified as held for sale is included
within current assets within the Statement of Financial Position
and measured at fair value.
h) Derivative financial instruments
Derivative financial instruments, comprising interest rate caps
for hedging purposes, are initially recognised at fair value and
are subsequently measured at fair value, being the estimated amount
that the Company would receive or pay to terminate the agreement at
the period end date, taking into account current interest rate
expectations and the current credit rating of the Company and its
counterparties. Premiums payable under such arrangements are
initially capitalised into the Statement of Financial Position.
The Company uses valuation techniques that are appropriate in
the circumstances and for which sufficient data is available to
measure fair value, maximising the use of relevant observable
inputs and minimising the use of unobservable inputs significant to
the fair value measurement as a whole. Changes in fair value of
interest rate derivatives are recognised within finance expenses in
profit or loss in the period in which they occur.
i) Cash and cash equivalents
Cash and short-term deposits in the Statement of Financial
Position comprise cash at bank and short-term deposits with an
original maturity of three months or less.
j) Receivables
Rent and other receivables are initially recognised at fair
value and subsequently at amortised cost. Impairment provisions are
recognised based upon an expected credit loss model. The Company
has made an assessment of expected credit losses at each period
end, using the simplified approach where a lifetime expected loss
allowance is always recognised over the expected life of the
financial instrument. Any adjustment is recognised in profit or
loss as an impairment gain or loss.
Expected credit losses are assessed based on the Company's
historical credit loss experience, adjusted for factors which are
specific to the tenant and current and forecast economic conditions
in general. If confirmation is received that a trade receivable
will not be collected, the carrying value of the asset will be
written off against the associated impairment provision.
k) Capital prepayments
Capital prepayments are made for the purpose of acquiring future
property assets and held as receivables within the Statement of
Financial Position. When the asset is acquired, the prepayments are
capitalised as a cost of purchase. Where a purchase is not
successful, these costs are expensed within profit or loss as
abortive costs in the period.
l) Other payables and accrued expenses
Other payables and accrued expenses are initially recognised at
fair value and subsequently held at amortised cost.
m) Rent deposits
Rent deposits represent cash received from tenants at inception
of a lease and are subsequently transferred to the rent agent to
hold on behalf of the Company.
n) Interest bearing loans and borrowings
All loans and borrowings are initially recognised at fair value
less directly attributable transaction costs. After initial
recognition, interest bearing loans and borrowings are subsequently
measured at amortised cost using the effective interest method.
Borrowing costs are amortised over the lifetime of the facilities
through profit or loss.
When the lifetime of a floating rate facility is extended, and
this is considered to be a non-substantial modification, the
effective interest rate is revised to reflect changes in market
rates of interest.
o) Provisions
A provision is recognised in the Statement of Financial Position
when the Company has a present legal or constructive obligation as
a result of a past event, that can be reliably measured and is
probable that an outflow of economic benefits will be required to
settle the obligation. Provisions are determined by discounting the
expected future cash flows at a pre-tax rate that reflects risks
specific to the liability.
p) Dividend payable to shareholders
Equity dividends are recognised when they become legally
payable.
q) Share issue costs
The costs of issuing or reacquiring equity instruments (other
than in a business combination) are accounted for as a deduction
from equity.
r) Leases
Leases where the Company is lessee are capitalised at the lease
commencement, at present value of the minimum lease payments, and
held as both a right-to-use asset and a liability within the
Statement of Financial Position.
s) Taxes
Corporation tax is recognised in profit or loss except to the
extent that it relates to items recognised directly in equity, in
which case, it is recognised in equity.
As a REIT, the Company is exempt from corporation tax on the
profits and gains from its investments, provided it continues to
meet certain conditions as per REIT regulations.
Taxation on the profit or loss for the period not exempt under
UK REIT regulations comprises current and deferred tax. Current tax
is expected tax payable on any non-REIT taxable income for the
period, using tax rates applicable in the period.
Deferred tax is provided on temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. The amount of
deferred tax that is provided is based on the expected manner of
realisation or settlement of the carrying amount of assets and
liabilities, using tax rates enacted or substantively enacted at
the period end date.
t) European Public Real Estate Association
The Company has adopted European Public Real Estate Association
('EPRA') best practice recommendations, which it expects to broaden
the range of potential institutional investors able to invest in
the Company's Ordinary Shares. For the year to 31 March 2021,
audited EPS and NAV calculations under EPRA's methodology are
included in note 9 and further unaudited measures are included
below.
u) Capital and reserves
Share capital
Share capital is the nominal amount of the Company's Ordinary
Shares in issue.
Buyback reserve
Buyback reserve represents the cost of the Company's Ordinary
Shares reacquired by the Company.
Share premium
Share premium relates to amounts subscribed for share capital in
excess of nominal value less associated issue costs of the
subscriptions.
Capital reserve
The capital reserve represents the cancelled share premium less
dividends paid from this reserve. This is a distributable
reserve.
Retained earnings
Retained earnings represent the profits of the Company less
dividends paid from revenue profits to date. Unrealised gains on
the revaluation of investment properties contained within this
reserve are not distributable until they crystallise on the sale of
the investment property. The cumulative unrealised losses contained
within this reserve at 31 March 2020 is GBP5.44 million (31 March
2020: GBP10.76 million). 3. Revenue
Year ended Year ended
31 March 2021 31 March 2020
GBP'000 GBP'000
Rental income 15,714 17,418
Service charge income 1,535* -
Dilapidation income received 197 372
Lease surrender income 45 -
Total revenue 17,491 17,790
*For the current year, service charge income has been presented
gross to reflect the Company's role as principal in its agreements
with tenants whereas in comparative years they have been presented
net. The gross service charge income for the year ended 31 March
2020 was GBP1.82 million. The difference in presentation is
considered to be immaterial and has no impact on profit. 4.
Property operating expenses
Year ended Year ended
31 March 2021 31 March 2020
GBP'000 GBP'000
Recoverable service charge expense 1,5351 -
Non-recoverable service charge expense 1,1662 436
Other property operating expenses 1,053 888
Total property operating expenses 3,754 1,324
1 For the current year, recoverable service charge expenditure
has been presented gross to reflect the Company's role as principal
in its agreements with tenants whereas in comparative years they
have been presented net. The gross service charge expenditure for
the year ended 31 March 2020 was GBP1.82 million. The difference in
presentation is considered to be immaterial and has no impact on
profit.
2 Of the c. GBP1,166,000 non-recoverable service charge
expenditure, c. GBP768,000 relates to Bank Hey Street, Blackpool
which includes costs relating to the remedial works as detailed in
the Investment Manager's Report. 5. Other operating expenses
Year ended Year ended
31 March 2021 31 March 2020
GBP'000 GBP'000
Investment management fee 1,229 1,308
Operating costs 594 463
Auditor remuneration 135 106
Total other operating expenses 1,958 1,877
Year ended Year ended
31 March 2021 31 March 2020
GBP'000 GBP'000
Audit
Statutory audit of Annual Report and Financial Statements 110 82
110 82
Non-audit
ISRE 2410 review (interim review fee) 25 24
25 24
Total fees paid to KPMG LLP 135 106
Percentage of total fees attributed to non-audit services 19% 23% 6. Directors' remuneration
Year ended Year ended
31 March 2021 31 March 2020
GBP'000 GBP'000
Directors' fees 95 107
Tax and social security 5 8
Total remuneration 100 115
A summary of the Directors' remuneration is set out in the
Directors' Remuneration Report in the Full Annual Report and
Financial Statements.
There are no other members of key management personnel other
than the Directors. 7. Finance expenses
Year ended Year ended
31 March 2021 31 March 2020
GBP'000 GBP'000
Interest payable on loan borrowings 722 1,108
Amortisation of loan arrangement fee 97 110
Commitment fees payable on loan borrowings 95 54
914 1,272
Charge in fair value of interest rate derivatives 16 148
Total 930 1,420
8. Taxation
Year ended Year ended
31 March 2021 31 March 2020
GBP'000 GBP'000
Tax charge reconciliation:
Analysis of tax charge in the year
Profit before tax 22,172 3,652
Theoretical tax at UK corporation tax standard rate of 19% (2020: 19.00%)1 694
4,213
Adjusted for:
Exempt REIT income (1,863) (2,488)
Non-taxable investment profit (2,350) 1,786
Unrealised management expenses not recognised - 8
Total tax charge - -
Factors that may affect future tax charges
Due to the Company's status as a REIT and the intention to
continue meeting the conditions required to obtain approval as a
REIT in the foreseeable future, the Company has not provided
deferred tax on any capital gains and losses arising on the
revaluation or disposal of investments. 1 The Corporation Tax rate
will remain at 19% for the next financial year. As announced by the
Chancellor in the 2021 budget the tax rate will increase to 25%
from April 2023. 9. Earnings per share and NAV per share
Year ended Year ended
31 March 2021 31 March 2020
Earnings per share:
Total comprehensive income (GBP'000) 22,172 3,652
Weighted average number of shares 158,620,910 152,208,919
Earnings per share (basic and diluted) (pence) 13.98 2.40
EPRA earnings per share:
Total comprehensive income (GBP'000) 22,172 3,652
Adjustment to total comprehensive income:
Change in fair value of investment properties (GBP'000) (5,324) 9,444
Realised gain on disposal of investment properties (GBP'000) (7,043) (44)
Change in fair value of interest rate derivatives (GBP'000) 16 148
Total EPRA Earnings (GBP'000) 9,821 13,200
EPRA earnings per share (basic and diluted) (pence) 6.19 8.67
Net assets (GBP'000) 157,079 147,863
Ordinary Shares in issue 158,424,746 158,774,746
NAV per share (pence) 99.15 93.13
Earnings per share ('EPS') amounts are calculated by dividing
profit for the period attributable to ordinary equity holders of
the Company by the weighted average number of Ordinary Shares in
issue during the year.
Current measures Previous measures
EPRA EPRA EPRA EPRA EPRA
NTA NRV NDV NAV NNNAV
As at 31 March 2021
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
IFRS NAV attributable to shareholders 157,079 157,079 157,079 157,709 157,709
Mark-to-market adjustment of derivatives (61) (61) - (61) -
Real estate transfer tax and other purchasers' costs1 - 11,814 - - -
At 31 March 2021 157,018 168,832 157,079 157,018 157,079
Number of Ordinary Shares 158,424,746 158,424,746 158,424,746 158,424,746 158,424,746
NAV per share 99.11p 106.57p 99.15p 99.11p 99.15p
Current measures Previous measures
EPRA EPRA EPRA EPRA EPRA
NTA NRV NDV NAV NNNAV
As at 31 March 2020
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
IFRS NAV attributable to shareholders 147,863 147,863 147,863 147,863 147,863
Mark-to-market adjustment of derivatives (14) (14) - (14) -
Real estate transfer tax and other purchasers' costs1 - 12,494 - - -
At 31 March 2020 147,849 160,343 147,863 147,849 147,863
Number of Ordinary Shares 158,774,746 158,774,746 158,774,746 158,774,746 158,774,746
NAV per share 93.12p 100.99p 93.13p 93.12p 93.13p
1 EPRA Net Tangible Assets ('EPRA NTA') and EPRA Net Disposal
Value ('EPRA NDV') are calculated using property values in line
with IFRS, where values are net of Real Estate Transfer Tax
('RETT') and other purchasers' costs. RETT and other purchasers'
costs are added back when calculating EPRA Net Reinstatement Value
('EPRA NRV') and have been estimated at 6.6% of the net valuation
provided by Knight Frank. 10. Dividends paid
Year ended Year ended
31 March 2021 31 March 2020
Dividends paid during the year GBP'000 GBP'000
Represents four interim dividends of 2.00 pps each 12,691 12,125
Year ended Year ended
31 March 2021 31 March 2020
Dividends relating to the year
GBP'000 GBP'000
Represents four interim dividends of 2.00 pps each 12,684 12,269
Dividends paid during the year relate to Ordinary Shares only.
11. Investments
11.a) Investment property
31 March 2021
Investment Investment 31 March
property property Total 2020
freehold leasehold GBP'000 Total
GBP'000 GBP'000 GBP'000
UK investment property
As at beginning of the year 147,400 41,900 189,300 197,605
Purchases and capital expenditure in the year 5,977 6 5,983 358
Disposals in the year - (22,006) (22,006) -
Revaluation of investment properties 7,373 (1,650) 5,723 (8,663)
Valuation provided by Knight Frank 160,750 18,250 179,000 189,300
Adjustment to carrying value for lease incentive debtor (3,340) (2,941)
Adjustment for lease obligations* 683 683
Total investment property 176,343 187,042
Classified as:
Investment property held for sale# 7,251 -
Investment property 169,092 187,042
176,343 187,042
Change in fair value of investment property
Change in fair value before adjustments for lease incentives 5,723 (8,663)
Adjustment for movement in the year:
in value of lease incentive debtor (399) (781)
5,324 (9,444)
Gains realised on disposal of investment property
Net proceeds from disposals of investment property during the year 29,049 44
Fair value at beginning of period (22,006) -
(7,043) 44
* Adjustment in respect of minimum payment under head leases
separately included as a liability within the Statement of
Financial Position.
# 225 Bath Street, Glasgow, has been classified as held-for-sale
as contracts to sell the property were exchanged in October 2020
and it is expected that the transaction will be completed within
the next 12 months.
Valuation of investment property
Valuation of investment property is performed by Knight Frank
LLP, an accredited external valuer with recognised and relevant
professional qualifications and recent experience of the location
and category of the investment property being valued.
The valuation of the Company's investment property at fair value
is determined by the external valuer on the basis of market value
in accordance with the internationally accepted RICS Valuation -
Professional Standards (incorporating the International Valuation
Standards).
The determination of the fair value is based upon the income
capitalisation approach. This approach involves applying
capitalisation yields to current and future rental streams net of
income voids arising from vacancies or rent-free periods and
associated running costs. These capitalisation yields and estimated
rental values are based on comparable property and leasing
transactions in the market using the valuer's professional
judgement and market observation. Other factors taken into account
in the valuations include the tenure of the property, tenancy
details, capital values of fixtures and fittings, environmental
matter and the overall repair and condition of the property.
11.b) Fair value measurement hierarchy
The following table provides the fair value measurement
hierarchy for investments:
Significant observable Significant unobservable
Quoted prices in active markets inputs inputs Total
(Level 1)
(Level 2) (Level 3) GBP'000
GBP'000
GBP'000 GBP'000
Assets measured at fair
value
31 March 2021
- -
Investment property
176,343 176,343
31 March 2020
- - 187,042 187,042
Investment property
Explanation of the fair value hierarchy:
Level 1 - Quoted prices for an identical instrument in active
markets;
Level 2 - Prices of recent transactions for identical
instruments and valuation techniques using observable market data;
and
Level 3 - Valuation techniques using non-observable data.
There have been no transfers between Level 1 and Level 2 during
either period, nor have there been any transfers in or out of Level
3.
Sensitivity analysis to significant changes in unobservable
inputs within Level 3 of the hierarchy
The significant unobservable inputs used in the fair value
measurement categorised within Level 3 of the fair value hierarchy
of the entity's portfolio of investment property are: 1. ERV
2) Equivalent yield
Increases/(decreases) in the ERV (per sq ft per annum) in
isolation would result in a higher/(lower) fair value measurement.
Increases/(decreases) in the discount rate/yield in isolation would
result in a lower/(higher) fair value measurement.
The significant unobservable inputs used in the fair value
measurement, categorised within Level 3 of the fair value hierarchy
of the portfolio of investment property are as follows:
Fair Value Valuation Significant
Range
Class GBP'000 Technique Unobservable Inputs
31 March 2021
ERV GBP0.50 - GBP75.00
179,000 Income capitalisation
Investment property* Equivalent yield 5.76% - 10.37%
31 March 2020
ERV GBP0.50 - GBP105.00
189,300 Income capitalisation
Investment Property* Equivalent yield 5.71% - 10.54%
* Valuation per Knight Frank LLP.
Where possible, sensitivity of the fair values of Level 3 assets
are tested to changes in unobservable inputs against reasonable
alternatives.
Gains and losses recorded in profit or loss for recurring fair
value measurements categorised within Level 3 of the fair value
hierarchy are attributable to changes in unrealised gains or losses
relating to investment property held at the end of the reporting
period.
With regards to investment property, gains and losses for
recurring fair value measurements categorised within Level 3 of the
fair value hierarchy, prior to adjustment for rent free debtor and
rent guarantee debtor where applicable, are recorded in profit or
loss.
Change in ERV Change in equivalent yield
GBP'000 GBP'000 GBP'000 GBP'000
Sensitivity analysis +5% -5% +5% -5%
31 March 2021
Resulting fair value of investment property
183,818 168,394 170,487 187,847
31 March 2020
197,146 180,075 179,906 199,956
Resulting fair value of investment property
Change in ERV Change in equivalent yield
GBP'000 GBP'000 GBP'000 GBP'000
Sensitivity analysis +10% -10% +10% -10%
31 March 2021
Resulting fair value of investment property
191,699 160,864 162,986 197,965
31 March 2020
205,933 171,723 171,241 211,640
Resulting fair value of investment property
Change in ERV Change in equivalent yield
GBP'000 GBP'000 GBP'000 GBP'000
Sensitivity analysis +15% -15% +15% -15%
31 March 2021
Resulting fair value of investment property
199,642 153,345 156,136 209,264
31 March 2020
214,777 163,364 163,327 224,687
Resulting fair value of investment property
Given the current volatility in the property market, the above
levels of sensitivity of unobservable inputs are considered to
demonstrate plausible scenarios in the near future and a reasonable
resulting range of movement in valuation. 12. Receivables and
prepayments
31 March 2021 31 March 2020
GBP'000 GBP'000
Receivables
Rent debtor 3,252 2,579
Allowance for expected credit losses (995) (190)
Rent agent float account 724 1,486
Other receivables 627 115
Dilapidations receivable - 372
3,608 4,362
Lease incentive debtor 3,340 2,941
6,948 7,303
Prepayments
Property related prepayments 4 16
Other prepayments 25 32
29 48
Total 6,977 7,351
The aged debtor analysis of receivables is as follows:
31 March 2021 31 March 2020
GBP'000 GBP'000
Less than three months 3,416 4,317
Between three and six months 192 45
Between six and twelve months - -
Total 3,608 4,362
Expected credit losses have been assessed on receivables
balances on an individual tenant-by-tenant basis. The risk of
credit loss applied to each tenant is assessed based on information
including, but not limited to: external credit ratings; financial
statements; press information; previous experience of losses or
late payment; discussions with the property manager and the
tenant.
This assessment identified a number of receivables balances due
from tenants known to be in financial difficulty or having already
entered into a Company Voluntary Arrangement ('CVA') or
administration. In these instances, a provision against the full
balance of the receivable has been applied.
The assessment also identified receivables balances subject to
dispute by tenants who are financially stable but unwilling to pay.
The recoverability of these balances was subject to a decision by
the Court, and as such, an assessment of the probability of a
positive decision was made, and an appropriate provision rate was
applied against these balances and other receivables balances which
would have also been subject to application of the Court ruling.
Post year-end, the Court ruled in favour of the Company and these
balances were recovered in full.
The below table presents the exposure to these classes of
identified credit risk and the associated provision made against
the receivables balances:
Provision Provision
Rate
Receivables GBP'000 31 March 2021 31 March 2020
%
GBP'000 GBP'000
Identified financial difficulties 415 100 415 190
Subject to Court ruling 972 60 580 -
No identified financial difficulties
6,556 - - -
Total 7,943 - 995 190
The movement in the allowance for impairment in respect of trade
receivables during the year was as follows:
31 March 2021 31 March 2020
GBP'000 GBP'000
At the beginning of the year 190 39
Remeasurement of loss allowance 805 151
At the end of the year 995 4,362 13. Interest rate derivatives
31 March 2021 31 March 2020
GBP'000 GBP'000
At the beginning of the year 14 162
Interest rate cap premium paid 63 -
Changes in fair value of interest rate derivatives (16) (148)
At the end of the year 61 14
The Company is protected from a significant rise in interest
rates as it currently has interest rate caps in effect which cap
the interest rate at 1.00% on a notional value of GBP51.50 million.
As a result, the loan was 130% hedged as at 31 March 2021 (31 March
2020: 71%).
Fair value hierarchy
The following table provides the fair value measurement
hierarchy for interest rate derivatives:
Significant
Quoted prices in Significant
unobservable
active markets observable input Total
inputs
(Level 1) (Level 2) GBP'000
(Level 3)
GBP'000 GBP'000
Valuation date GBP'000
31 March 2021 - 61 - 61
31 March 2020 - 14 - 14
The fair value of these contracts are recorded in the Statement
of Financial Position as at the year end.
There have been no transfers between Level 1 and Level 2 during
the year, nor have there been any transfers between Level 2 and
Level 3 during the year.
The carrying amount of all assets and liabilities, detailed
within the Statement of Financial Position, is considered to be the
same as their fair value. 14. Interest bearing loans and
borrowings
31 March 2021 31 March 2020
GBP'000 GBP'000
At the beginning of the year 51,500 50,000
Bank borrowings drawn in the year - 1,500
Bank borrowings repaid in the year (12,000) -
Interest bearing loans and borrowings 39,500 51,500
Unamortised loan arrangement fees (369) (453)
At the end of the year 39,131 51,047
Repayable between 2 and 5 years 39,500 51,500
Undrawn facility at the year end 20,500 8,500
Total facility 60,000 60,000
The Company has a GBP60.00 million (31 March 2020: GBP60.00
million) credit facility with RBSi of which GBP39.50 million (31
March 2020: GBP51.50 million) has been utilised as at 31 March
2021.
Under the terms of the Prospectus, the Company has a target
gearing equivalent to 35.00% Loan to NAV. As at 31 March 2021, the
Company's gearing was 25.15% Loan to NAV (31 March 2020:
34.83%).
Under the terms of the loan facility, the Company can draw up to
35.00% Loan to NAV at drawdown. As at 31 March 2021, the Company
could draw a further GBP15.48 million up to the maximum 35.00% (31
March 2020: GBP0.25 million)
Borrowing costs associated with the credit facility are shown as
finance costs in note 7 to these financial statements.
31 March 2021 31 March 2020
Facility GBP60.00 million GBP60.00 million
Drawn GBP39.50 million GBP51.50 million
Gearing (Loan to GAV) 22.07% 27.21%
Gearing (Loan to NAV) 25.15% 34.83%
1.44% all-in 2.10% all-in
Interest rate (LIBOR + 1.4%) (LIBOR + 1.4%)
Notional value of Loan Balance Hedged 70.9%
130.4%
In line with recent announcements from the Bank of England and
the FCA, UK borrowings will be transitioning from the London
Interbank Offer Rate ('LIBOR') benchmark to Sterling Overnight
Index Average ('SONIA') benchmark in due course. There is expected
to be negligible cost involved in the borrowing facility
transition.
Reconciliation to cash flows from financing activities
31 March 2021 31 March 2020
GBP'000 GBP'000
Balance at the beginning of the year 51,047 49,476
Changes from financing cash flows
Loan drawdown - 1,500
Loan repaid (12,000) -
Loan arrangement fees (13) (39)
Total changes from financing cash flows (12,013) 1,461
Other changes
Amortisation of loan arrangement fees 97 110
Interest expense 722 1,108
Interest paid (824) (1,120)
Changes in loan interest payable 102 12
Total other changes 97 110
Balance at the end of the year 39,131 51,047
15. Payables and accrued expenses
31 March 2021 31 March 2020
GBP'000 GBP'000
Deferred income 2,567 2,906
Accruals 783 814
Other creditors 588 967
Total 3,938 4,687
16. Lease obligations as lessee
Leases as lessee are capitalised at the lease's commencement at
the present value of the minimum lease payments. The present value
of the corresponding rental obligations are included as
liabilities.
The following table analyses the minimum lease payments under
non-cancellable leases:
31 March 2021 31 March 2020
GBP'000 GBP'000
Not later than one year 48 48
Later than one year but not later than five years 159 159
Later than five years 476 476
635 635
Total 683 683
17. Guarantees and commitments
As at 31 March 2021, there were capital commitments of GBP67,667
(31 March 2020: GBPnil) relating to the
purchase of land adjacent to the Company's existing holding at
Gresford Industrial Estate, Wrexham.
Lease commitments - as lessor
The Company has entered into commercial property leases on its
investment property portfolio. These non-cancellable leases have a
remaining term of between zero and 24 years.
Future minimum rentals receivable under non-cancellable
operating leases as at 31 March 2021 are as follows:
31 March 2021 31 March 2020
GBP'000 GBP'000
Within one year 14,492 15,325
After one year but not more than five years 32,750 37,828
More than five years 22,726 24,596
Total 69,968 77,749
During the year ended 31 March 2021, there were contingent rents
totalling GBP204,623 (year ended 31 March 2020: GBP188,872)
recognised as income.
18. Investment in subsidiary
The Company has a wholly-owned subsidiary, AEW UK REIT 2015
Limited:
Country of registration
Name and company number Principal activity Ordinary Shares held
and incorporation
AEW UK REIT 2015 Limited
England and Wales Dormant 100%
(Company number 09524699)
AEW UK REIT 2015 Limited is a subsidiary of the Company
incorporated in the UK on 2 April 2015. At 31 March 2021, the
Company held one share, being 100% of the issued share capital. AEW
UK REIT 2015 Limited is dormant and the cost of the subsidiary is
GBP0.01 (31 March 2020: GBP0.01). The registered office of AEW UK
REIT 2015 Limited is 6th Floor, 65 Gresham Street, London, EC2V
7NQ.
19. Issued share capital
31 March 2021 31 March 2020
GBP'000 Number of Ordinary GBP'000 Number of Ordinary
Shares Shares
Ordinary Shares (nominal value GBP0.01 per share) authorised,
issued and fully paid
At the beginning of the year 1,587 158,774,746 1,515 151,558,251
Issued on admission to trading on the London Stock Exchange on
28 February 2020
- - 72 7,216,495
At the end of the year 1,587 158,774,746 1,587 158,774,746
Treasury Shares
At the beginning of the year - - - -
Share buybacks on 14 October 2020 (154) 200,000 - -
Share buybacks on 3 November 2020 (111) 150,000 - -
At the end of the year (265) 350,000 - -
Total Ordinary Share capital excluding treasury shares
1,587 158,424,746 1,587 158,774,746
During the year, 350,000 (31 March 2020: nil) Ordinary Shares
with a nominal value of GBP0.01 (31 March 2020: GBPnil) and
representing 0.22% of the issued share capital, were bought back
and placed in treasury for an aggregate consideration of GBP265,000
(31 March 2020: GBPnil). No Ordinary Shares were bought back for
cancellation (31 March 2020: nil). No Ordinary Shares were
cancelled from treasury during the year (31 March 2020: nil).
The allotted, called up and fully paid shares at 31 March 2021
consisted of 158,774,746 Ordinary Shares.
20. Share premium account
31 March 31 March
2021 2020
GBP'000 GBP'000
The share premium relates to amounts subscribed for share capital in excess of nominal value:
Balance at the beginning of the year 56,578 49,770
Issued on admission to trading on the London Stock Exchange on
- 6,928
28 February 2020
Share issue cost - (120)
Balance at the end of the year 56,578 56,578
21. Financial risk management objectives and policies
21.1 Financial assets and liabilities
The Company's principal financial assets and liabilities are
those derived from its operations: receivables and prepayments,
cash and cash equivalents and payables and accrued expenses. The
Company's other principal financial liabilities are interest
bearing loans and borrowings, the main purpose of which is to
finance the acquisition and development of the Company's property
portfolio.
Set out below is a comparison by class of the carrying amounts
and fair value of the Company's financial instruments that are
carried in the financial statements.
31 March 2021 31 March 2020
Book Value Fair Value Book Value Fair Value
GBP'000 GBP'000 GBP'000 GBP'000
Financial assets
Receivables1 3,608 3,608 4,362 4,362
Cash and cash equivalents 17,450 17,450 9,873 9,873
Other financial assets held at fair value 61 61 14 14
Financial liabilities
Interest bearing loans and borrowings 39,131 39,500 51,047 51,500
Payables and accrued expenses2 1,064 1,064 1,532 1,532
Financial lease obligations 683 683 683 683
1 Excludes lease incentive debtor and prepayments.
2 Excludes tax, VAT liabilities and deferred income.
Interest rate derivatives are the only financial instruments
classified as fair value through profit and loss. All other
financial assets and financial liabilities are measured at
amortised cost. All financial instruments were designated in their
current categories upon initial recognition.
Fair value measurement hierarchy has not been applied to those
classes of asset and liability stated above which are not measured
at fair value in the financial statements. The difference between
the fair value and book value of these items is not considered to
be material.
21.2 Financing management
The Company's activities expose it to a variety of financial
risks: market risk, real estate risk, credit risk and liquidity
risk.
The Company's objective in managing risk is the creation and
protection of shareholder value. Risk is inherent in the Company's
activities but it is managed through a process of ongoing
identification, measurement and monitoring, subject to risk limits
and other controls.
The principal risks facing the Company in the management of its
portfolio are as follows:
Market price risk
Market price risk is the risk that future values of investments
in direct property and related property investments will fluctuate
due to changes in market prices. To manage market price risk, the
Company diversifies its portfolio geographically in the United
Kingdom and across property sectors.
The disciplined approach to the purchase, sale and asset
management ensures that the value is maintained to its maximum
potential. Prior to any property acquisition or sale, detailed
research is undertaken to assess expected future cash flow. The
Investment Management Committee of the Investment Manager meets
twice monthly and reserves the ultimate decision with regards to
investment purchases or sales. In order to monitor property
valuation fluctuations, the Investment Manager meets with the
independent external valuer on a regular basis. The valuer provides
a property portfolio valuation quarterly, so any movements in the
value can be accounted for in a timely manner and reflected in the
NAV every quarter.
Real estate risk
The Company is exposed to the following risks specific to its
investment property:
Property investments are illiquid assets and can be difficult to
sell, especially if local market conditions are poor. Illiquidity
may also result from the absence of an established market for
investments, as well as legal or contractual restrictions on resale
of such investments. In addition, property valuation is inherently
subjective due to the individual characteristics of each property,
and thus, coupled with illiquidity in the markets, makes the
valuation in the investment property difficult and inexact.
No assurances can be given that the valuations of properties
will be reflected in the actual sale prices even where such sales
occur shortly after the relevant valuation date.
There can be no certainty regarding the future performance of
any of the properties acquired for the Company. The value of any
property can go down as well as up. Property and property-related
assets are inherently subjective as regards value due to the
individual nature of each property. As a result, valuations are
subject to uncertainty.
Real property investments are subject to varying degrees of
risk. The yields available from investments in real estate depend
on the amount of income generated and expenses incurred from such
investments.
There are additional risks in vacant, part vacant, redevelopment
and refurbishment situations, although these are not prospective
investments for the Company.
Credit risk
Credit risk is the risk that the counterparty (to a financial
instrument) or tenant (of a property) will cause a financial loss
to the Company by failing to meet a commitment it has entered into
with the Company.
It is the Company's policy to enter into financial instruments
with reputable counterparties. All cash deposits are placed with an
approved counterparty, The Royal Bank of Scotland International
Limited.
In respect of property investments, in the event of a default by
a tenant, the Company will suffer a rental shortfall and additional
costs concerning re-letting the property. The Investment Manager
monitors tenant arrears in order to anticipate and minimise the
impact of defaults by occupational tenants.
The table below shows the Company's exposure to credit risk:
As at As at
31 March 2021 31 March 2020
GBP'000 GBP'000
Receivables (excluding incentives and prepayments) 3,608 4,362
Cash and cash equivalents 17,450 9,873
Total 21,058 14,235
Liquidity risk
Liquidity risk arises from the Company's management of working
capital, the finance charges and principal repayments on its
borrowings. It is the risk that the Company will encounter
difficulty in meeting its financial obligations as they fall due,
as the majority of the Company's assets are investment properties
and therefore not readily realisable. The Company's objective is to
ensure it has sufficient available funds for its operations and to
fund its capital expenditure. This is achieved by continuous
monitoring of forecast and actual cash flows by management.
The table below summarises the maturity profile of the Company's
financial liabilities based on contractual undiscounted
payments:
On < 3 3-12 1-5 > 5
Total
31 March 2021 demand months months years years
GBP'000
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Interest bearing loans and borrowings - 142 427 40,388 - 40,957
Payables and accrued expenses - 1,064 - - - 1,064
Lease obligation - - 51 205 4,205 4,461
- 1,206 478 40,593 4,205 46,482
On <3 3-12 1-5 > 5
Total
31 March 2020 demand months months years years
GBP'000
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Interest bearing loans and borrowings - 270 811 54,203 - 55,284
Payables and accrued expenses - 1,532 - - - 1,532
Lease obligation - - 51 205 4,256 4,512
- 1,802 862 54,408 4,256 61,328
22. Capital management
The primary objectives of the Company's capital management are
to ensure that it continues to qualify for UK REIT status and
complies with its banking covenants.
To enhance returns over the medium term, the Company utilises
borrowings on a limited recourse basis for each investment or all
or part of the total portfolio. The Company's policy is to target a
borrowing level of 35.00% Loan to NAV and this is the maximum
gearing permitted at drawdown under the terms of the facility.
Alongside the Company's borrowing policy, the Directors intend,
at all times, to conduct the affairs of the Company so as to enable
the Company to qualify as a REIT for the purposes of Part 12 of the
CTA 2010 (and the regulations made thereunder). The REIT status
compliance requirements include: 90% distribution test, interest
cover ratio, 75% assets test and the substantial shareholder rule,
all of which the Company remained compliant with in this reporting
year.
The monitoring of the Company's level of borrowing is performed
primarily using a Loan to NAV ratio and is reported to the lender
on a quarterly basis against the financial covenants of the
facility. At the year-end, the Company had a Loan to NAV ratio of
25.15% (31 March 2020: 34.83%).
Breaches in meeting the financial covenants would permit the
bank to immediately call loans and borrowings. During the year
under review, the Company did not breach any of its loan covenants,
nor did it default on any of its other obligations under its loan
agreements.
23. Transactions with related parties
As defined by IAS 24 Related Parties Disclosures, parties are
considered to be related if one party has the ability to control
the other party or exercise significant influence over the other
party in making financial or operational decisions.
For the year ended 31 March 2021, the Directors of the Company
are considered to be the key management personnel. Details of
amounts paid to Directors for their services can be found within
note 6, Directors' remuneration and the Director's remuneration
report in the Full Annual Report and Financial Statements.
AEW UK Investment Management LLP is the Company's Investment
Manager and has been appointed as AIFM. Under the terms of the
Investment Management Agreement, the Investment Manager is
responsible for the day-to-day discretionary management of the
Company's investments subject to the investment objective and
investment policy of the Company and the overall supervision of the
Directors.
The Investment Manager is entitled to receive a quarterly
management fee in respect of its services calculated at the rate of
one-quarter of 0.9% of the prevailing NAV (excluding uninvested
proceeds from fundraisings).
During the year, the Company incurred GBP1,228,849 (31 March
2020: GBP1,308,301) in respect of investment management fees and
expenses, of which GBP315,825 (31 March 2020: GBP311,683) was
outstanding as at 31 March 2021.
24. Segmental information
The Board of Directors retains overall control of the Company
but the Investment Manager (AEW UK Investment Management LLP) has
certain authorities and fulfils the function of allocating resource
to, and assessing the performance of the Company's operating
segments and is therefore considered to be the Chief Operating
Decision Maker ('CODM'). In accordance with IFRS 8, the Company
considers each of its properties to be an individual operating
segment. The CODM allocates resources, and reviews the performance
of, the Company's portfolio on a property-by-property basis and
discrete financial information is available for each individual
property.
These operating segments have similar economic characteristics
and, as such, are aggregated into one reporting segment, being
investment in property and property-related investments in the
UK.
25. Events after reporting date
Dividend
On 28 April 2021, the Board declared its fourth interim dividend
of 2.00pps in respect of the period from 1 January 2021 to 31 March
2021. This was paid on 28 May 2021, to shareholders on the register
as at 1 May 2021. The ex-dividend date was 29 April 2021.
Property acquisitions
In May 2021, the Company acquired Arrow Point Retail Park in
Shrewsbury for a purchase price of GBP8.35 million. The established
retail park is located on a busy commercial estate and is fully
let. The estate provides a net initial yield of 8.7%.
In June 2021, the Company acquired 15-33 Union Street for a
purchase price of GBP10.19 million. 15-33 Union Street occupies a
prominent location in Bristol city centre, opposite The Galleries
Shopping Centre and near Cabot Circus, Bristol's premier retail
destination. Located on a busy thoroughfare for pedestrians, the
65,238 sq ft site experiences high footfall and is ideally suited
for retail or leisure units. Constructed in 2001, the property
currently comprises five purpose built split-level retail or
leisure units over four floors and road access to both Union Street
and Fairfax Street. Four of the five units are let to three
household names and a successful local retailer. The remaining unit
is currently vacant, with the vendor providing a 12 month
guarantee. We are currently in discussions with a number of parties
who are keen to occupy this space. The location of the site has
been identified as a major regeneration area and it offers the
ability for further growth through development.
Court ruling
Post year-end, the Company announced the successful outcome of
the legal action against two well-funded national tenants to
recover unpaid rent. GBP0.52 million has been provided for as
expected credit loss relating to these tenants in these financial
statements and subsequent to the court ruling all rent arrears of
these tenants have been received.
EPRA Unaudited Performance Measures
EPRA disclosures are widely used across the listed property
sector and, as such, have been presented below to aid comparison
with other companies in this sector.
Detailed below is a summary table showing the EPRA performance
measures of the Company
All EPRA performance measures have been calculated in line with
EPRA Best Practices Recommendations Guidelines which can be found
at www.epra.com.
MEASURE AND DEFINITION PURPOSE PERFORMANCE
GBP9.82 million/6.19
pps
1. EPRA Earnings A key measure of a company's underlying operating
results and an indication of the extent to which
Earnings for operational activities. current dividend payments are supported by
earnings. EPRA earnings for
year to 31 March
2021 (31 March 2020:
GBP13.20 million/8.67
pps)
2. EPRA Net Tangible Assets ('NTA') GBP157.02 million/99.11
pps
Assumes that entities buy and sell assets,
thereby crystallising certain levels of
unavoidable deferred tax.
EPRA NTA itas at 31
March 2021 (31 March
2020: GBP147.85 million
/93.12 pps)
3. EPRA Net Reinstatement Value ('NRV') GBP168.83 million/
106.57 pps
Assumes that entities never sell assets and
aims to represent the value required to
rebuild the entity.
EPRA NRV as at 31
The EPRA NAV set of metrics make adjustments to March 2021 (31 March
the NAV per the IFRS financial statements to 2020 GBP160.34 million/
provide stakeholders with the most relevant 100.99 pps)
information on the fair value of the assets and
4. EPRA Net Disposal Value liabilities of a real estate investment company,
under different scenarios.
('NDV')
GBP157.08 million/
Represents the shareholders' value under a 99.15pps
disposal scenario, where deferred tax,
financial instruments and certain other
adjustments are
EPRA NDV as at 31
calculated to the full extent of their March 2021 (31 March
liability, net of any resulting tax. 2020 GBP147.86 million/
93.13pps)
5. EPRA Net Initial Yield ('NIY')
A comparable measure for portfolio valuations.
Annualised rental income based on the cash 7.37%
rents passing at the balance sheet date, less
non-recoverable property operating expenses,
divided by the market value of the property, This measure should make it easier for investors
increased with (estimated) purchasers' costs. to judge themselves, how the valuation of EPRA NIY as at 31
portfolio X compares with portfolio Y. March 2021 (31 March
2020: 8.26%)
6. EPRA 'Topped-Up' NIY A comparable measure for portfolio valuations.
This measure incorporates an 8.12%
adjustment to the EPRA NIY in This measure should make it easier for investors
to judge themselves, how the valuation of
respect of the expiration of rent-free periods portfolio X compares with portfolio Y. EPRA 'Topped-Up' NIY
(or other unexpired lease incentives such as as at 31 March 2021
discounted rent periods and step rents). (31 March 2020:
8.66%)
A 'pure' (%) measure of investment property space
7. EPRA Vacancy Rate that is vacant, based on ERV. 8.96%
Estimated Market Rental Value ('ERV') of
vacant space divided by ERV of the whole
portfolio. EPRA Vacancy Rate as
at 31 March 2021 (31
March 2020: 3.68%)
32.94%
EPRA Cost Ratio
(including direct
vacancy costs) as at
31 March 2021 (31
8. EPRA Cost Ratio March 2020: 18.75%)
A key measure to enable meaningful measurement of
Administrative and operating costs (including the changes in a company's operating costs.
and excluding costs of direct vacancy) divided
by gross rental income. 22.58%
EPRA Cost Ratio
(excluding direct
vacancy costs) as at
31 March 2021 (31
March 2020: 13.76%)
9. EPRA Capital Expenditure
Property which has been held at both the GBP5.98 million for the
current and comparative balance sheet dates A measure used to illustrate change in comparable year ended
for which there has been no significant capital values.
development. 31 March 2021 (31
March 2020:
GBP0.36 million)
10. EPRA Like-for-like Rental Growth
Net growth generated by assets
-GBP1.08 million/-6.80
which were held by the Company throughout both % for the year
the current and comparable periods which there A measure used to illustrate change in comparable
has been no significant development which income values. ended 31 March 2021
materially impacts upon income. (31 March 2020: GBP0.29
million/1.71%)
Calculation of EPRA NTA, EPRA NRV and EPRA NDV
In October 2019, 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 Company has adopted these
new guidelines and applies them in the Annual Report for the year
ended 31 March 2021.
The Company considers EPRA NTA to be the most relevant NAV
measure for the Company and we are now reporting this as our
primary NAV measure, replacing our previously reported EPRA NAV and
EPRA NNAV per share metrics. EPRA NTA excludes the cumulative fair
value adjustments for debt-related derivatives which are unlikely
to be realised.
Earnings per share (EPS) amounts are calculated by dividing
profit for the period attributable to ordinary equity holders of
the Company by the weighted average number of Ordinary Shares in
issue during the year.
Current measures Previous measures
EPRA EPRA EPRA EPRA EPRA
NTA NRV NDV NAV NNNAV
As at 31 March 2021
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
IFRS NAV attributable to shareholders 157,079 157,079 157,079 157,709 157,709
Mark-to-market adjustment of derivatives (61) (61) - (61) -
Real estate transfer tax and other purchasers' costs1 - 11,814 - - -
At 31 March 2021 157,018 168,832 157,079 157,018 157,079
Number of Ordinary Shares 158,424,746 158,424,746 158,424,746 158,424,746 158,424,746
NAV Per share 99.11p 106.57p 99.15p 99.11p 99.15p
Current measures Previous measures
EPRA EPRA EPRA EPRA EPRA
NTA NRV NDV NAV NNNAV
As at 31 March 2020
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
IFRS NAV attributable to shareholders 147,863 147,863 147,863 147,863 147,863
Mark-to-market adjustment of derivatives (14) (14) - (14) -
Real estate transfer tax and other purchasers' costs1 - 12,494 - - -
At 31 March 2020 147,849 160,343 147,863 147,849 147,863
Number of Ordinary Shares 158,774,746 158,774,746 158,774,746 158,774,746 158,774,746
NAV Per share 93.12p 100.99p 93.13p 93.12p 93.13p
1 EPRA NTA and EPRA NDV are calculated using property values in
line with IFRS, where values are net of Real Estate Transfer Tax
(RETT) and other purchasers' costs. RETT and other purchasers'
costs are added back when calculating EPRA NRV, and have been
estimated at 6.6% of the net valuation provided by Knight
Frank.
Year ended Year ended
31 March 31 March
2021 2020
GBP'000 GBP'000
Investment property - wholly-owned 179,000 189,300
Allowance for estimated purchasers' costs at 6.6% 11,814 12,872
Grossed-up completed property portfolio valuation (B) 190,814 202,172
Annualised cash passing rental income 15,051 17,361
Property outgoings (993) (670)
Annualised net rents (A) 14,058 16,691
Rent from expiry of rent-free periods and fixed uplifts* 1,439 826
'Topped-up' net annualised rent (C) 15,497 17,517
EPRA NIY (A/B) 7.37% 8.26%
EPRA 'topped-up' NIY (C/B) 8.12% 8.66%
* rent-free periods expire by July 2021.
EPRA NIY basis of calculation
EPRA NIY is calculated as the annualised net rent, divided by
the grossed-up value of the completed property portfolio
valuation.
The valuation of the grossed-up completed property portfolio is
determined by the Company's external valuers as at 31 March 2021,
plus an allowance for estimated purchaser's costs. Estimated
purchaser's costs are determined by the relevant stamp duty
liability, plus an estimate by our valuers of agent and legal fees
on notional acquisition. The net rent deduction allowed for
property outgoings is based on the Company's valuers' assumptions
on future recurring non-recoverable revenue expenditure.
In calculating the EPRA 'topped-up' NIY, the annualised net rent
is increased by the total contracted rent from expiry of rent-free
periods and future contracted rental uplifts.
Calculation of EPRA Vacancy Rate
Year ended Year ended
31 March 2021 31 March 2020
GBP'000 GBP'000
641
Annualised potential rental value of vacant premises (A)
1,482
17,420
Annualised potential rental value for the complete property portfolio (B)
16,538
EPRA Vacancy Rate (A/B) 8.96% 3.68%
Calculation of EPRA Cost Ratios
Year ended
Year ended 31 March
31 March 2021 2020
GBP'000 GBP'000
Administrative/operating expense per IFRS income statement 3,319
5,221
Less: ground rent costs (66) (66)
EPRA costs (including direct vacancy costs) (A) 5,155 3,253
Direct vacancy costs (see Glossary in full Annual Report and Financial
Statements for further details) (865)
(1,622)
EPRA costs (excluding direct vacancy costs) (B) 2,388
3,533
Gross rental income less ground rent costs (C) 17,352
15,648
EPRA Cost Ratio (including direct vacancy costs) (A/C) 18.75%
32.94%
EPRA Cost Ratio (excluding direct vacancy costs) (B/C) 13.76%
22.58%
The Company has not capitalised any overhead or operating
expenses in the accounting years disclosed above.
Only costs directly associated with the purchase or construction
of properties as well as all subsequent value-enhancing capital
expenditure are capitalised.
Like-for-like rental growth
The table below sets out the like-for-like for rental growth of
the portfolio, by sector, in accordance with EPRA Best Practices
Recommendations.
Rental income Rental income Like-for-like Like-for-like
from like-for-like portfolio from like-for-like portfolio rental rental
Sector
2021 2020 growth growth
GBPm GBPm GBPm %
Industrial 8.14 8.43 (0.29) (3.44)
Office 2.44 2.82 (0.38) (13.48)
Leisure 1.55 1.55 - -
Standard Retail 2.07 2.48 (0.41) (16.53)
Retail Warehouse 0.61 0.61 - -
Total 14.81 15.89 (1.08) (6.80)
The like-for-like rental growth is based on changes in rental
income for those properties which have been held for the duration
of both the current and prior reporting years. This represents a
portfolio valuation, as assessed by the valuer, of GBP173.60
million (year ended 31 March 2020: GBP181.95 million).
Capital Expenditure
The table below sets out the capital expenditure of the
portfolio in accordance with EPRA Best Practice
Recommendations.
2021 2020
Sector
GBP'000 GBP'000
Acquisitions 5,778 -
Investment properties - no incremental lettable space 205 358
Total purchases and capital expenditure 5,983 358
Company Information
Share Register Enquiries
The register for the Ordinary Shares is maintained by
Computershare Investor Services PLC. In the event of queries
regarding your holding, please contact the Registrar on +44 (0)370
707 1341 or email: web.queries@computershare.co.uk. Please note
that from 19 July 2021, the Company's Registrar will change to Link
Group. Further information and details will be communicated at the
appropriate time.
Changes of name and/or address must be notified in writing to
the Registrar, at the address shown below. You can check your
shareholding and find practical help on transferring shares or
updating your details at www.investorcentre.co.uk. Shareholders
eligible to receive dividend payments gross of tax may also
download declaration forms from that website.
Share Information
Ordinary GBP0.01 Shares 158,424,746
SEDOL Number BWD2415
ISIN Number GB00BWD24154
Ticker/TIDM AEWU
Share Prices
The Company's Ordinary Shares are traded on the premium segment
of the Main Market of the London Stock Exchange.
Frequency of NAV publication:
The Company's NAV is released to the London Stock Exchange on a
quarterly basis and is published on the Company's website.
Annual and Half-Yearly Reports
Copies of the Annual and Half-Yearly Reports are available from
the Company's website.
Financial Calendar
8 September 2021 Annual General Meeting
30 September 2021 Half-year end
November 2021 Announcement of half-yearly results
31 March 2022 Year end
June 2022 Announcement of annual results
Dividends
The following table summarises the amounts distributed to equity
shareholders in respect of the period:
GBP
Interim dividend for the period 1 April 2020 to 30 June 2020
(payment made on 28 August 2020) 3,175,495
Interim dividend for the period 1 July 2020 to 30 September 2020 (payment made on 30 November 2020)
3,171,495
Interim dividend for the period 1 October 2020 to 31 December 2020
(payment made on 28 February 2021) 3,168,495
Interim dividend for the period 1 January 2021 to 31 March 2021
(payment made on 28 May 2021) 3,168,495
Total 12,683,980
Directors
Mark Burton (Non-executive Chairman)
Katrina Hart (Non-executive Director)
Bimaljit ("Bim") Sandhu (Non-executive Director)
Registered Office
6th Floor
65 Gresham Street
London
EC2V 7NQ
Company Website
www.aewukreit.com
Investment Manager and AIFM
AEW UK Investment Management LLP
33 Jermyn Street
London
SW1Y 6DN
Tel: 020 7016 4880
Website: www.aewuk.co.uk
Property Manager
Mapp
180 Great Portland Street
London
W1W 5QZ
Corporate Broker
Liberum
Ropemaker Place
25 Ropemaker Street
London
EC2Y 9LY
Legal Adviser
Gowling WLG (UK) LLP
4 More London Riverside
London
SE1 2AU
Depositary
Langham Hall UK LLP
8th Floor
1 Fleet Place
London
EC4M 7RA
Administrator
Link Alternative Fund Administrators Limited
Beaufort House
51 New North Road
Exeter
EX4 4EP
Company Secretary
Link Company Matters Limited
6th Floor
65 Gresham Street
London
EC2V 7NQ
Current Registrar (until 18 July 2021)
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS13 8AE
Registrar from 19 July 2021
Link Group
10th Floor
Central Square
29 Wellington Street
Leeds LS1 4DL
Current Auditor
KPMG LLP
15 Canada Square
Canary Wharf
London
E14 5GL
Valuer
Knight Frank LLP
55 Baker Street
London
W1U 8AN
Copies of the Annual Report and Financial Statements
Printed copies of the Annual Report will be sent to shareholders
shortly and will be available on the Company's website.
National Storage Mechanism
A copy of the Annual Report and Financial Statements will be
submitted shortly to the National Storage Mechanism ('NSM') and
will be available for inspection at
https://www.fca.org.uk/markets/primary-markets/regulatory-disclosures/
national-storage-mechanism.
LEI: 21380073LDXHV2LP5K50
END
-----------------------------------------------------------------------------------------------------------------------
ISIN: GB00BWD24154
Category Code: ACS
TIDM: AEWU
LEI Code: 21380073LDXHV2LP5K50
OAM Categories: 1.1. Annual financial and audit reports
Sequence No.: 113200
EQS News ID: 1210782
End of Announcement EQS News Service
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