TIDMASLI
RNS Number : 7024W
Aberdeen Standard Eur Lgstc Inc PLC
23 April 2019
ABERDEEN STANDARD EUROPEAN LOGISTICS INCOME PLC
Legal Entity Identifier (LEI): 213800I9IYIKKNRT3G50
ANNUAL FINANCIAL REPORT FOR THE PERIODED 31 DECEMBER 2018
1. STRATEGIC REPORT - COMPANY SUMMARY AND FINANCIAL HIGHLIGHTS
Financial Highlights (1)
Net asset value total Net Asset Value (EUR'000) Net asset value per
return (2) share (EUR)
-2.98% 202,073 1.08
Share price total Premium/Discount to Ordinary dividend per
return (2) net asset share
value
+3.02% +5.7% 3.0p
Ongoing Charges (2) IFRS Earnings Per Share Properties in Portfolio
0.98% -2.45c 6
(1) The Company was launched on 15 December 2017 and there are
no comparative figures available for 2017.
(2) Alternative Performance Measure
2. CHAIRMAN'S STATEMENT
Dear Shareholder
It is a pleasure to present to you the first full report of the
Company covering the period from our initial public offering and
launch up until 31 December 2018.
Logistics is a story of growth. The successful launch of the
Company (or "ASELI") in December 2017 proves that investors have
recognised the opportunity to invest in a market that is benefiting
from the rise of e-commerce and further globalisation. These
developments have a large impact on the logistics supply chain and
can be seen as one of the driving forces behind healthy occupier
demand. The under supply of suitable properties situated in many
European markets makes logistics one of the most attractive
investment categories for investors interested in investment in
real estate.
Overview
The Company was launched on 15 December 2017 raising gross
proceeds of GBP187.5 million (EUR 212.0 million) following a
Placing and Offer for Subscription of Ordinary Shares (the
"IPO").
In accordance with the Company's investment policy, the net
proceeds of the IPO have been carefully invested over the ensuing
months into a diversified portfolio of high quality "big box"
logistics warehouses and assets across Europe. Our Investment
Manager has deployed capital with the aim of creating a portfolio
of assets diversified by both geography and tenant throughout
Europe, targeting good quality, well-located assets at established
distribution hubs and within close proximity to cities with
excellent transport links.
The audited Net Asset Value ("NAV") per Share as at 31 December
2018 was EUR1.08, reflecting a NAV total return of -2.98% in the
period. This return is mainly attributable to the impact of
transaction costs on acquiring properties reflecting the fact that
the Company was in its initial investment period in 2018. The
closing share price at 31 December 2018 was 102.25p per Ordinary
share having launched at 100p per share.
Dividends
Interim dividends of 0.7p, 1.0p and 1.3p per Ordinary share,
were paid in September 2018, December 2018 and March 2019 in
respect of the period from initial launch to 31 December 2018. This
was in accordance with the intention stated in the IPO Prospectus
to target total dividends of 3.0p per Ordinary Share during the
investment phase. The Company intends to declare quarterly interim
dividends to shareholders, with dividends declared in respect of
the quarters ending on the following dates: 31 March, 30 June, 30
September and 31 December in each year. The dividend target and any
dividend payment may be made up of both dividend income and income
which is designated as an interest distribution for UK tax purposes
and therefore subject to the interest streaming regime applicable
to investment trusts.
Portfolio
Over the period, finding the right assets at the right price in
what has proved to be a very competitive market has been one of the
Investment Manager's key challenges. By the end of 2018 the Company
had secured nine investments with one further opportunity in due
diligence, in five different countries. Such a well-diversified
portfolio was created with the help of the Investment Manager's
local transaction managers which is one of the Company's key
selling points. The tenth acquisition of a freehold warehouse
located in Krakow Poland was subsequently announced in March 2019.
The portfolio now consists of ten modern, high quality warehouses,
six of which are new.
The durability of the income that we expect to generate given
the length of the leases; all indexed, the covenant strength of the
tenants; all strong, and the quality of the locations now provides
shareholders with a well-diversified portfolio which should enable
the Company to meet its investment objective. The Board has been
very closely involved in the acquisition of each property, with
multiple ad-hoc meetings, regular reporting and monthly
interactions with the Investment Manager. Further details on the
composition of the portfolio are provided in the Investment
Manager's Review.
Yield
The Board has closely monitored the development of the European
logistics market over the past twelve months and is conscious of
the very strong market demand for logistics assets across much of
developed Europe. This has resulted in a material degree of yield
compression. At the same time, ongoing demand for assets of the
high quality seen in the Company's portfolio is expected to result
in a marked uplift in their capital value over time, adding to the
total return.
During the Investment Manager's series of investor updates with
some of the Company's largest shareholders held in November 2018,
discussions focused on the Company's total return characteristics
and distribution targets and, in particular, whether the then
current level of gearing and/or target return should be reviewed
given the market conditions referred to above. Following
shareholder feedback, the Board determined in December 2018 that it
would be in the best interests of shareholders as a whole to
maintain gearing at or around 35 per cent. of gross assets, rather
than implementing a higher gearing strategy at this stage of the
market cycle in an effort to counteract the effects of decreasing
yields.
The Board will keep the level of borrowings under review and the
aggregate borrowings will always be subject to the absolute maximum
set at the time of the Company's launch, calculated at the time of
drawdown for a property purchase, of 50 per cent. of Gross
Assets.
As a result of this yield compression, the Company is now
seeking to target for an investor at launch an annual dividend
yield of 5.0 per cent. per Ordinary Share (reduced from the 5.5 per
cent. level indicated at launch). The total shareholder NAV return
target remains at 7.5 per cent. per annum (each in Euro terms).
Amendment to Management Fee
As the Company continues to grow in the fast-moving sector of
European real estate, the Board and the Manager agreed that the
annual management fee applied to the first EUR500 million of assets
would be reduced from 0.95 per cent. to 0.75 per cent. per annum of
the net asset value as calculated under the management
agreement.
Regulatory Changes
There have been a number of regulatory changes implemented or
announced since the Company's launch. Investors should be aware
that the Packaged Retail and Insurance Based Investment Products
("PRIIP") Regulation that requires the Manager, as the Company's
PRIIPs manufacturer to prepare a Key Information Document ("KID")
in respect of the Company. The KID must be made available by the
Manager to retail investors prior to a prospective investor making
an investment decision and is available via the website. The
Manager is responsible for the information contained in the KID and
investors should note that the methodologies for calculating the
costs, returns and performance scenarios found in the KID, as well
as the notes that are found alongside those numbers, are all
prescribed by regulation and may not reflect returns expected of
the Company. In particular, the likely ongoing charges for the
Company are based on estimated costs for the establishment of the
Company's portfolio which are likely to be much higher in the first
year than in subsequent years.
Data protection rights were harmonised across the European Union
following the implementation of the General Data Protection
Regulation ("GDPR") on 25 May 2018. The Board has taken the
necessary steps to seek appropriate assurances from its third-party
service providers to ensure compliance with the new
regulations.
Annual General Meeting
The Company's first Annual General Meeting will be held in
London on 11 June 2019 at 12.30 p.m. at the offices of Aberdeen
Standard Investments, Bow Bells House, 1 Bread Street, London EC4M
9HH. The formal Notice of AGM may be found on page 100 of the
published Annual Report. There will be a presentation from the
Investment Manager and an opportunity to meet the Directors and
Investment Manager over a light buffet lunch after the formal AGM
has closed. I look forward very much to seeing as many shareholders
as possible at the AGM in London.
Shareholders will find enclosed with this Annual Report a Form
of Proxy for use in connection with the AGM. Whether or not you
propose to attend the AGM, you are encouraged to complete the Form
of Proxy in accordance with the instructions printed on it and
return in the prepaid envelope as soon as possible but in any event
so as to be received no later than 12:30pm on 7 June 2019.
Completion of a Form of Proxy does not prevent you from attending
and voting in person at the AGM if you wish to do so.
Outlook
In March 2019, as a result of the uncertainties that a hard
BREXIT might create, your Manager carried out a reorganisation of
its European subsidiaries and created a new Dublin based entity for
its investment management business in Europe: Aberdeen Standard
Investments Ireland Limited. As part of that reorganisation, the
Manager's Amsterdam office (where the team that manages the
Company's portfolio is based) became a branch office of the new
Dublin subsidiary. In addition, your Board has undertaken a review
of any likely impacts of BREXIT on the Company and has concluded
that the effect on foreign exchange is likely to be the most
material, given that the Company's income is predominantly in Euros
and dividends are payable to shareholders in Sterling. With a
well-diversified portfolio of assets spread across five countries
and a range of tenants enjoying long indexed leases, the Board does
not consider that BREXIT will impact the Company significantly. We
would expect to see continued healthy demand for well-located
logistics buildings offering occupiers the benefits of easy access
to their markets and the opportunity to continue to build their
delivery capabilities.
Looking ahead, the Board and Investment Manager believe that
Real Estate logistics will stay one of the most favoured sectors
for investors as it is undersupplied and supported by structural
changes.
The Board and the Investment Manager remain confident that the
market for European logistics assets will continue to offer many
attractive investment opportunities in the future, and the
intention remains to seek to grow the Company through further
equity issuance in the coming months when appropriate, alongside
the deployment of the associated debt in accordance with the
Company's prevailing gearing guidelines.
For 2019, the main aim will be to manage the portfolio in the
best possible way together with the local asset managers and
generate the maximum amount of income from the assets that we hold
in the portfolio while ensuring its prime quality. The European
logistics market is sizeable and growing, with the sector
benefiting from rapid take-up of facilities and long
inflation-linked leases to quality tenants. The Board believes that
Europe maintains a clear advantage in terms of yields and low
financing costs and that strong demand when combined with the lack
of suitable product reinforces the scope for further capital and
income growth in the years ahead.
Further details about the Company and the assets in which it is
invested are available together with the prospectus, monthly
factsheet and Company announcements on our website at:
eurologisticsincome.co.uk.
Directorate Change
Finally, I would like to inform Shareholders that, having
recently taken on a full time senior executive role with global
responsibilities at an organisation based in Paris, I have
concluded that I will not be able to devote the necessary time
required of the role of Chairman or Director to the Company going
forward. As a result, I have decided to step down from the Board of
the Company at the conclusion of the AGM and therefore I will not
stand for election at that meeting. It has been a pleasure to be
involved with the Company from before its launch and through its
first financial period and I am confident that the remaining Board
members will continue to support the next successful stage of the
Company's development. However, I leave the Company in good hands
as I and my fellow Directors are delighted to report that Tony
Roper, who has a wide experience of the sector, has agreed to take
on the role as Chairman with effect from my standing down. The
Directors have also considered the ongoing requirements of the
Board in light of the range of skills and experience represented by
the remaining Directors and have concluded that there is no need to
add an additional Board member at this time.
Pascal Duval
Chairman
18 April 2019
3. MANAGER'S REVIEW
Since the IPO in December 2017 the Company has built a
well-diversified property portfolio with modern logistics
warehouses in established logistics locations across Europe. All
warehouses are fully let with long indexed leases to good covenant
tenants. This is in line with the strategy described at the
Company's launch and we believe they will be able to generate a
durable income stream for investors in the future.
Local resources key to success
One of the key strengths of ASI is the presence of local feet on
the ground in the main markets across Europe which gives us the
capacity to build and manage a pan-European logistics property
portfolio. More than 20 transaction managers, based locally, give
us access to on- and off-market deals thanks to their local network
with developers, brokers, banks, investors and end-users. Once in
the portfolio, there is a pool of 80 asset managers across the
European business responsible for keeping the warehouses in good
shape and our tenants satisfied, with the aim of keeping the
portfolio fully income producing and adding value through active
management where possible.
Over the period under review the Investment Manager has
investigated over 120 investment opportunities across Europe
representing a total investment value of EUR5.6 billion resulting
in 30 bids (EUR0.9 billion). 13 bids were accepted leading to
exclusivity and the start of the due diligence process. Three of
these opportunities were rejected during due diligence for
different reasons leaving 10 investments, of which 6 were closed by
the end of 2018. Rejecting a potential investment during due
diligence is always disappointing but is a potential outcome of an
in-depth analysis of the legal, technical, fiscal and commercial
aspects of a transaction. We want to fully understand all the risks
we are taking by adding an asset to the portfolio. Five out of the
10 opportunities were sourced on an off-market basis, meaning we
negotiated directly with the sellers, without direct competition
from other investors.
Countries where the Company has issued or considered a bid are:
Belgium, Denmark, Finland, France, Germany, Ireland, Italy, the
Netherlands, Norway, Poland, Portugal, Slovenia, Spain and Sweden,
once again illustrating the access your Investment Manager has to a
wide range of markets through our local teams.
Well-diversified property portfolio with modern
specifications
The Investment Manager's team is proud of the good quality stock
it was able to invest in and at the right price. After launch in
December 2017, the priority was to deploy the GBP187.5 million of
capital raised first and to put financing in place soon thereafter.
We have had a disciplined approach by investing the capital in
properties where we have strong convicton they will provide a
decent return in the future. All acquisitions are supported by
external property valuations to ensure we do not overpay,
potentially leaving room for further capital appreciation in the
near future.
By the end of 2018, the Company had 6 assets in the portfolio, 3
assets with signed SPAs and one asset in due diligence which was
signed and closed in February 2019. The property portfolio is
well-diversified with 10 warehouses in 5 different countries and 26
tenants. The Netherlands is the largest market represented in the
portfolio with an expected allocation of 39% once all developments
have been completed, followed by France (26%), Germany (20%),
Poland (9%) and Spain (6%).
The country allocation is the result of our bottom-up approach
in trying to find the best investment opportunity regardless of the
country location.
The high quality of the portfolio is illustrated by how recently
several of the warehouses in the portfolio were built. Six of them
are new and delivered in 2018 or still under construction with a
delivery date expected in early 2019. This also explains the
somewhat longer period of time needed between signing the SPA and
the actual closing of some of these purchases. For example, the
acquisitions in Oss and Zeewolde are both forward funding
developments currently under construction with SPAs signed in
October and November 2018 but completion dates expected in June and
July 2019 respectively. For both developments, the Company will
receive compensation during the construction phase in the form of
an interest payment applied to the monthly instalments paid to the
developer. The properties in Avignon, Leon and Erlensee are all
forward commitments where the Company agreed a purchase price
before completion of the project. In Krakow the building was
constructed in 2018. The main advantage of newly built properties
is the modern specification in line with the requirements of
today's end-users of logistics space.
The number of loading doors, the eaves, office to logistics
space ratio, layout of the building, yard depth and floor load
capacity are some of the key features of a logistics building we
carefully consider as these are important for our end-users.
Besides building specifications we carefully consider the quality
of the location which needs to be well-established and easily
accessible by road, water or railway or located close to an
airport.
Quality of location and building are our key areas of focus.
Lease length and covenant strength of the tenant are equally
important to us, although we try to look beyond the length of the
existing lease contract and not simply to buy an income stream. So
taking a view on the second life of the property is very important
in order to be able to generate a durable and stable income stream
in the future. We believe all our warehouses in the portfolio fit
these quality requirements.
Property Portfolio as at 31 December 2018
Country Location SPA signed Closing Built WAULT % of portfolio2
(years)1
Germany Flörsheim Dec 17 Feb 18 2015 8.2 8.0
France Avignon Jul 18 Oct 18 2018 12.1 16.9
Netherlands Ede Aug 18 Aug 18 1999/ 2005 8.8 9.8
Netherlands Oss (forward funding) Oct 18 Jul 19 2019 15.0 5.9
Zeewolde (forward
Netherlands funding) Nov 18 Jun 19 2019 15.0 11.0
Netherlands Waddinxveen Nov 18 Nov 18 1983/ 1994/ 14.9 12.5
2002/ 2018
TOTAL (1) 12.3 64.1
Property acquired post 31 December 2018
Country Location SPA signed Closing Built WAULT % of portfolio2
(years)1
Germany Erlensee Jun 18 Feb 19 2018 6.1 12.2
Spain Leon Jul 18 Apr 19 2019 10.0 5.8
France Meung-sur-Loire Nov 18 Feb 19 2004 7.8 8.9
Poland Krakow Feb 19 Feb 19 2018 4.8 9.0
TOTAL (2) 6.8 35.9
TOTAL (1+2) 10.2 100.0
1 Weighted average unexpired lease term excluding break options
assuming average lease length of developments at completion.
2 Based on assets in portfolio and agreed purchase prices of assets with signed SPAs.
Stable income one of the key performance drivers
All properties in the portfolio will be fully income producing
when they complete, with signed leases and long maturities to good
covenant tenants in place.
By the end of 2018, the weighted average unexpired lease term of
the property portfolio (WAULT) was estimated at 10.9 years,
including breaks, and 12.3 years, excluding breaks. If all
transactions to be closed post the period end are included the
WAULT will be 9.3 years, including breaks, and 10.2 years,
excluding breaks.
Part of our due diligence process prior to purchase is to check
on the financial strength of the tenants. Dun & Bradstreet is
our main source to check a tenant's solvency, but we also use our
financial equity analysts if there are reasons for a more in-depth
analysis. By the end of 2018 the average weighted credit rating of
the tenants in the portfolio was 79 points, which is considered
strong. This rating will be 75 points once all deals have been
completed.
Lease contracts within Europe are typically indexed every year
with the Consumer Price Index (CPI) as a basis. There can be local
differences, for example the French L'indice des loyers des
activités tertiaries (ILAT) which is an index based on a
combination of construction costs, CPI and GDP growth. In Germany,
the indexation of rents is only triggered once the cumulative CPI
indexation rate of the preceding years exceeds a certain threshold
which is then implemented by a certain portion of that
threshold.
The undersupplied logistics market in Europe makes us believe
there is space for rental growth in the future. This view is
supported by increasing construction costs making it harder for new
developments to compete with existing rent levels. We believe this
potential is not fully reflected in the market rents based on our
valuations as at 31 December 2018. Those valuations are also
distorted by the two assets in Avignon and Erlensee as both are
partially cooled, for the storage of fruit and vegetables,
resulting in higher rents to compensate for the extra investment in
the installations.
Capital growth through active asset management
One of the key drivers of capital growth in the logistics sector
has been a strong inward yield shift in the last 10 years. Since
2009, prime yields in Europe have dropped from an average of 7.8%
to 5.1% by the end of 2018 strongly driven by healthy market
fundamentals, low interest rates and strong investor demand.
At this point of the cycle, the occupier market should become a
stronger driver of performance than the capital market. Yield
compression is expected to slow down in the near term. Rental
growth will become a growing component of capital appreciation,
supported by low vacancy rates and inflation coming through in
indexation of rents. Furthermore, given low construction levels, we
expect void rates to become lower, supporting income growth
prospects.
In addition to positive market fundamentals, we intend to add
value by actively managing the property portfolio using our local
asset managers. We maintain a close working relationship with
tenants with the aim
of keeping them satisfied and retaining the occupancy rate, and
therefore income, at the highest possible level. Also, there are
realistic opportunities to expand the lot size of some of the
buildings in the portfolio with the potential to realise a
development profit.
Capital growth reflected in higher valuations
Since the launch of the Company, property values have increased
by 1.1% to the end of 2018. This is based on year end valuations
and purchase prices excluding acquisition costs. The capital growth
is mainly driven by an inward yield movement.
Capital appreciation will also be triggered via annual
indexation of rents and market rental growth supported by strong
demand for logistics, a lack of supply and increasing construction
costs for new developments.
Income further boosted by low financing costs
As referred to earlier, strategy has been focused on deploying
the capital raised during IPO before putting bank financing in
place. Bank financing has been prioritised in those markets where
financing costs are lowest.
First financings were drawn down after the year end in February
2019 in order to complete the transaction in Meung-sur-Loire. Bank
financing of EUR33 million was obtained by putting a
cross-collateralized loan facility in place on the two French
assets in Avignon and Meung-sur-Loire. The loan maturity is 7 years
fixed with an all-in interest rate of 1.56% per annum. Two more
loan facilities were drawn by the end of February 2019 in Erlensee
(EUR 17.8 million, 7 years fixed with an all-in interest rate of
1.62%) and Flörsheim (EUR 12.4 million, 10 years fixed with an
all-in interest rate of 1.54%). The next step is to put financing
in place on a combination of warehouses in the Netherlands where
financing costs are amongst the lowest in Europe in order to fund
the final closings and bring the loan to value of the portfolio
close to the target level of around 35%.
The Company is also intending to put in place a sterling
revolving credit facility, of approximately GBP6 million.
This facility will be used (if needed) to finance any liquidity
gaps in the cash-flow of the Company.
Logistics market outlook
We believe that many of the key drivers behind the demand for
logistics space in Europe remain strong and are likely to be
long-term and structural in nature rather than linked to the
economic cycle. There is evidence of logistics rental growth in
some European markets, and we expect this to pick up for key
logistics hubs and urban locations, where supply constraints start
to come into play. A stabilisation of yields will lead to a
stabilisation of new development projects competing for tenants,
and increased construction costs are likely to also influence
asking rents.
The high demand for logistics investment from real estate
investors has resulted in a sharp re-pricing of the sector, with
average prime logistics yields in Europe coming down from 5.5% to
5.1% over the last 12 months. We are still optimistic regarding the
performance of logistics real estate investments at the current
pricing, but we believe stock picking is increasingly important as
yields become lower. Rental growth prospects are very different
across sub-markets and locations, and need to be factored into
acquisition considerations.
In response to the strength of the logistics market rally,
Aberdeen Standard Investments surveyed a wide range of warehouse
and distribution centre occupiers (conducting interviews with 123
supply chain specialists in 29 countries) to examine the true
strength of the occupier base. The survey "The European Logistics
Survey - the trends shaping the future of Logistics Property"
revealed some new trends emerging in the European logistics sector.
These include shifts in technological influence across the supply
chain, a surprising level of engagement in sustainability
initiatives and results that reinforce the shift of demand towards
the consumer and urban locations. However, these trends create
substantial tensions between policy, the environment, competing
uses and the need to satisfy last mile parcel delivery on a scale
never seen before in Europe. The results confirm your Investment
Manager's view that the momentum in the sector is likely to be
sustained, but with an increasing level of complexity.
The impact of logistics operations on the environment is also a
critical part of sustainability strategies being employed in the
sector. We believe this preference from occupiers is something we
should be increasingly focused on, both for new acquisitions and in
our asset management plans for logistics properties currently held
within the Company's portfolio.
Environment, society and governance (ESG) also matters for
logistics occupiers
One of the main drivers behind ESG is public policy.
As sustainable logistics becomes a top public policy issue,
governments have begun enacting environmental standards for
logistics property development and applying penalties for excess
emissions from vehicles. The pressure from distributors is also
significant and drives the implementation of this type of solution
as they are increasingly demanding that warehouse operators
demonstrate environmental credentials. An increasing number of
distributors are not only adopting sustainable practices
internally, but they take it a step further and are demanding that
their logistics partners are committed to sustainable business
processes. All of this suggests that ESG initiatives will become
standard practice in warehouses across Europe.
Summary and implications
The logistics market in Europe is setting new records across
almost all variables. Tenant and investment demand are at record
highs, vacancy is almost negligible in key locations and the
evolution of consumption patterns is driving last mile parcel
delivery activity to levels not previously recorded. These strong
fundamentals are driving investment yields towards, and in some
cases beyond, previous lows.
While the overall prognosis for logistics is positive, we
believe there will be a growing differentiation between different
types of logistics property. The changing drivers of demand, such
as shorter supply chains resulting from greater mechanisation in
the manufacturing process or the growth in business to consumer
(B2C) e-commerce, will have a differentiating influence on the
demand for different types of space and ultimately the income
growth prospects for investors.
Careful attention will need to be paid to investments that
constitute suitable urban logistics locations, with even ageing
stock likely to be attractive to tenants and investors if the
location is good enough. In contrast, given the growing cost
pressures for contract logistics providers, there will be an
increasing focus on the location and structural suitability of
properties in more peripheral locations with transport and fuel
costs rising. In a sector at the forefront of such attention and
technological change, it has never been more important to track the
changing trends in the logistics market.
Aberdeen Standard Investments Ireland Limited
18 April 2019
4. STRATEGIC REPORT - OVERVIEW OF STRATEGY
The Company
The Company is a UK investment trust with a premium listing on
the Main Market of the London Stock Exchange. The Company invests
in European logistics real estate to achieve its investment
objective noted below.
The Company was incorporated in England and Wales on 25 October
2017 with registered number 11032222 and launched on 15 December
2017 raising gross proceeds of GBP187.5 million (EUR212.0
million).
Investment Objective
The Company aims to provide a regular and attractive level of
income return together with the potential for long term income and
capital growth from investing in high quality European logistics
real estate.
Investment Policy
The Company aims to deliver the investment objective through
investment in, and management of, a diversified portfolio of "big
box" logistics warehouses and "last mile" urban logistics assets in
Europe.
The Company invests in a portfolio of assets diversified by both
geography and tenant throughout Europe, predominantly targeting
well-located assets at established distribution hubs and within
population centres.
In particular, the Investment Manager seeks to identify assets
benefitting from long-term, index-linked, leases as well as those
which may benefit from structural change, and will take into
account several factors, including but not limited to:
- the property characteristics (such as location, building
quality, scale, transportation links, workforce availability and
operational efficiencies);
- the terms of the lease (focusing on duration, inflation-linked
terms, the basis for rent reviews and the potential for growth in
rental income); and
- the strength of the tenant's financial covenant.
The Company may forward fund the development of, or commit to
the forward purchase of new assets when the Investment Manager
believes that to do so would enhance returns for shareholders
and/or secure an asset at an attractive yield. The Company intends
that forward funded or forward purchased assets will be wholly or
predominantly pre-let at the time the investments are committed
to.
Diversification of Risk
The Company manages its assets at all times in a manner which is
consistent with the spreading of investment risk. The following
investment limits and restrictions apply to the Company and its
business which, where appropriate, will be measured at the time of
investment and once the Company is fully invested:
- the Company only invests in assets located in Europe;
- no more than 50 per cent. of Gross Assets may be concentrated in a single country;
- no single asset may represent more than 20 per cent. of Gross Assets;
- forward funded commitments must be predominantly pre-let and
the Company's overall exposure to forward Funded commitments is
limited to 20 per cent. of Gross Assets;
- the Company's maximum exposure to any single developer is
limited to 20 per cent. of Gross Assets;
- the Company will not invest in other closed-ended investment companies;
- the Company may only invest in assets with tenants which have
been classified by the Investment Manager's investment process as
having strong financial covenants; and
- no single tenant may represent more than 20 per cent. of the
Company's annual gross income measured annually.
The Company is not required to dispose of any asset or to
rebalance the Portfolio as a result of a change in the respective
valuations of its assets.
The Company conducts its affairs so as to qualify as an
investment trust for the purposes of section 1158 of the
Corporation Tax Act 2010.
Borrowing and Gearing
The Company employs gearing with the objective of improving
shareholder returns. Debt is typically secured at the asset level
and potentially at the Company level with or without a charge over
some or all of the Company's assets, depending on the optimal
structure for the Company and having consideration to key metrics
including lender diversity, cost of debt, debt type and maturity
profiles.
Borrowings are typically non-recourse and secured against
individual assets or groups of assets and the aggregate borrowings
will always be subject to an absolute maximum, calculated at the
time of drawdown for a property purchase, of 50 per cent. of Gross
Assets.
Where borrowings are secured against a group of assets, such
group of assets shall not exceed 25 per cent. of Gross Assets in
order to ensure that investment risk remains suitably spread.
The Board has established gearing guidelines for the Alternative
Investment Fund Manager ("AIFM") in order to maintain an
appropriate level and structure of gearing within the parameters
set out above. Under these guidelines, aggregate borrowings are not
expected to exceed 35 per cent. of Gross Assets. These limits may
be exceeded in the short term from time to time.
The Board will keep the level of borrowings under review. In the
event of a breach of the investment guidelines and restrictions set
out above, the AIFM will inform the Board upon becoming aware of
the same, and if the Board considers the breach to be material,
notification will be made to a Regulatory Information Service and
the AIFM will look to resolve the breach with the agreement of the
Board. The Directors may require that the Company's assets are
managed with the objective of bringing borrowings within the
appropriate limit while taking due account of the interests of
shareholders. Accordingly, corrective measures may not have to be
taken immediately if this would be detrimental to shareholder
interests.
Any material change to the Company's investment policy set out
above will require the approval of shareholders by way of an
ordinary resolution at a general meeting and the approval of the UK
Listing Authority. Non-material changes to the investment policy
may be approved by the Board.
Comparative Index
The Company does not have a benchmark.
Investment Manager
Under the terms of the Management Agreement, the Company has
appointed Aberdeen Standard Fund Managers Limited as the Company's
alternative investment fund manager for the purposes of the AIFM
Rules. The AIFM has delegated portfolio management to the Amsterdam
Branch of Aberdeen Standard Investments Ireland Limited as
Investment Manager.
Pursuant to the terms of the Management Agreement, the AIFM is
responsible for portfolio and risk management on behalf of the
Company and will carry out the on-going oversight functions and
supervision and ensure compliance with the applicable requirements
of the AIFM Rules. The AIFM and the Investment Manager are both
legally and operationally independent of the Company.
Dividend Policy
Subject to compliance with all legal requirements the Company
intends to pay interim Sterling dividends on a quarterly basis. The
Company will declare dividends in Euros, but shareholders will
receive dividend payments in Sterling. The date on which the
Euro/Sterling exchange rate is set will be announced at the time
the dividend is declared; and a further announcement will be made
once such exchange rate has been set. Distributions made by the
Company may take the form of either dividend income or "qualifying
interest income" which may be designated as interest distributions
for UK tax purposes. It is expected that the majority of the
Company's distributions will take the form of dividend income,
rather than qualifying interest income, in the period during which
the proceeds of the Initial Issue are invested; with the proportion
increasing to a significant majority once that investment process
has been completed.
At launch the Company confirmed a target annual dividend yield
on the issue price of 100p of 5.5 per cent. per Ordinary share. On
20 December 2018 the Company confirmed that the Board had concluded
that the Company's distribution target should be amended.
This decision had been taken to ensure that the Company can
achieve a sustainable and fully covered dividend over the long term
and maintain sufficient cash reserves, without compromising on the
very high quality of the Company's portfolio as and when further
logistics assets are acquired. The Company is therefore now seeking
to target an annual yield of 5.0 per cent. per Ordinary Share
whilst continuing to aim for a total NAV return of 7.5 per cent.
per annum (each in Euro terms).
Key Performance Indicators (KPIs)
The Board uses a number of financial performance measures to
assess the Company's success in achieving its objective and to
determine the progress of the Company in pursuing its investment
policy. The main KPIs identified by the Board in relation to the
Company, which are considered at each Board meeting, are as
follows:
KPI Description
NAV Return (per share) The Board considers the Company's NAV
total return to be the best indicator
of performance over time and is therefore
the main indicator of performance used
by the Board. The figure for the period
since inception is set out on page 14
of the published Annual Report. The Company
is targeting, for an investor in the
Company at launch a total NAV return
of 7.5 per cent. per annum (in EUR terms).
Share Price (on a total The Board also monitors the price at
return basis) which the Company's shares trade on a
total return basis over time. A graph
showing the total NAV return and the
share price performance is shown on page
15 of the published Annual Report.
Discount/Premium to NAV The discount/premium relative to the
NAV per share represented by the share
price is closely monitored by the Board.
A graph showing the share price premium/(discount)
relative to the NAV is shown on page
15 of the published Annual Report.
Dividend The Board's aim is to maintain or increase
the Ordinary dividend so that shareholders
can rely on a consistent stream of income.
Dividends paid since launch are set out
on page 14 of the published Annual Report.
The Company is targeting, for an investor
in the Company at launch, an annual dividend
yield of 5.0 per cent. per Ordinary Share
(in EUR terms).
Ongoing Charges Ratio ("OCR") The OCR is the ratio of expenses as a
percentage of average daily shareholders'
funds calculated in accordance with the
industry standard. The Board reviews
the OCR regularly as part of its review
of all expenses. The aim is to ensure
that the Company remains competitive
and is able to deliver on its yield target
to Shareholders. The Company's OCR is
disclosed on page 14 of the published
Annual Report.
Principal Risks and Uncertainties
There are a number of risks which, if realised, could have a
material adverse effect on the Company and its financial condition,
performance and prospects. The Board has carried out a robust
assessment of these risks set out in the table overleaf together
with a description of the mitigating actions taken by the Board.
The principal risks associated with an investment in the Company's
shares are published quarterly on the Company's factsheet and they
can be found in the Company's IPO Prospectus dated 17 November
2017, both of which are on the Company's website. The Board reviews
the risks and uncertainties faced by the Company regularly.
In addition to these risks, the outcome and potential impact of
the UK Government's Brexit discussions with the European Union are
still unclear at the time of writing, and this remains an economic
risk for the Company in the meantime. In all other respects, the
Company's principal risks and uncertainties have not changed
materially since the date of the Annual Report and are not expected
to change materially for the current financial year.
Description Mitigating Action
Investment strategy and objectives
The setting of an unattractive strategic The Board keeps the level of premium
proposition to the market and the or discount at which the Company's
failure to adapt to changes in investor shares trade, as well as the investment
demand may lead to the Company becoming objective and policy, under review
unattractive to investors, a decreased at its regular Board meetings
demand for shares and a widening where the Board reviews updates
discount. from the Investment Manager, investor
relations reports and reports
from the Broker on the market.
In particular, the Board is updated
at each Board meeting on the make
up of, and any movements in, the
shareholder register.
Investing in Real Estate
The Company invests in unquoted The Board believes that the Investment
European logistics real estate to Manager's ability to source suitable
achieve its objective of providing investments is a key competitive
its shareholders with a regular advantage. Investment opportunities
and attractive level of income return are the subject of close scrutiny
together with the potential for and analysis and extensive due
long term income and capital growth. diligence by the Investment Manager
A significant or material fall in prior to an investment being made.
the value of the property market The Company aims to hold its investments
could affect the ability of the over the long term and pay a fully
Company to meet its investment objective. covered dividend from income received
Furthermore, the Company needs to from its tenants. The Company
retain and in some cases procure seeks to put in place long term
suitable tenants for its investments. rental agreements to smooth issues
associated with short term market
movements.
The Investment Manager regularly
monitors the covenant strength
of the underlying tenants.
Investment portfolio, investment
management The Board sets, and monitors,
Investing outside of the investment its investment restrictions and
restrictions and guidelines set guidelines, and receives regular
by the Board could result in poor board reports which include performance
performance and an inability to reporting on the implementation
meet the Company's objectives, as of the investment policy, the
well as the shares trading at a investment process and application
discount to the NAV. The use of of the guidelines. The Investment
gearing requires the Company to Manager attends all Board meetings.
operate within its debt covenants The Board also monitors the Company's
which could result in the need to share price relative to the NAV.
sell properties which would impact Loan covenant compliance is monitored
NAV. closely by the Manager and the
Manager aims to use fixed rate,
long term debt and ensure that
the LTV is relatively low.
Financial obligations
The ability of the Company to meet The Board has set a gearing limit
its financial obligations, or increasing and receives regular updates on
the level of gearing, could result the actual gearing levels the
in the Company becoming over-geared Company has reached from the Investment
or unable to take advantage of potential Manager together with the assets
opportunities and result in a loss and liabilities of the Company
of value in the Company's shares. at each Board meeting. In addition,
Aberdeen Standard Fund Managers
Limited, as AIFM, has set an overall
leverage limit of 185% on a commitment
basis (365% on a gross notional
basis).
Valuation
The valuation of properties in the External valuers provide an independent
portfolio is a subjective process. valuation of all assets quarterly.
Members of the Audit Committee
meet with the Investment Manager's
head of valuation to discuss the
basis of the valuations and the
valuation process.
Financial and regulatory
The financial risks associated with The financial risks associated
the portfolio could result in losses with the Company include market
to the Company. In addition, failure risk, liquidity risk, interest
to comply with relevant regulation rate risk and credit risk, all
(including cross-border tax regulations, of which are mitigated by the
health and safety compliance, the Investment Manager.
Companies Act, Corporation Tax Act, The Board relies upon the AIFM
the Financial Services and Markets to ensure the Company's compliance
Act, the Alternative Investment with applicable regulations and
Fund Managers Directive, Accounting from time to time employs external
Standards and the listing rules, advisers to advise on specific
disclosure and prospectus rules) issues.
may have an impact on the Company.
Operational
The Company is dependent on third The Board receives reports from
parties for the provision of all the AIFM on internal controls
systems and services (in particular, and risk management at each Board
those of Aberdeen Standard Investments) meeting. It receives assurances
and any control failures and gaps from all its significant service
in these systems and services could providers, as well as back to
result in a loss or damage to the back assurance where applicable.
Company. In addition, the Management Engagement
Committee undertakes an annual
review of the key third
party service providers to the
Company.
Economic and property risk
The Company could be affected by The Board considers economic conditions
economic, currency and property and the uncertainty around political
market risk. This could include events when making investment
inflation or deflation, economic decisions. The Board mitigates
recessions, movements in foreign property market risk through the
exchange and interest rates or other review of the Group's strategy
external shocks including the uncertainties on a regular basis and discussions
associated with BREXIT. are held to ensure the strategy
is still appropriate or if it
needs updating.
The assets of the Company are
denominated in non-sterling currency,
predominantly the euro. No currency
hedging is planned for capital
but the Board periodically considers
the hedging of dividend payments
having regard to availability
and cost.
Promoting the Company
The Board recognises the importance of promoting the Company to
prospective investors both for improving liquidity and enhancing
the value and rating of the Company's shares. The Board believes an
effective way to achieve this is through subscription to, and
participation in, the promotional programme run by the Manager on
behalf of a number of investment trusts under its management. The
Company's financial contribution to the programme is matched by the
Manager. The Manager reports quarterly to the Board giving analysis
of the promotional activities as well as updates on the shareholder
register and any changes in the make up of that register.
The purpose of the programme is both to communicate effectively
with existing shareholders and to gain new shareholders with the
aim of improving liquidity and enhancing the value and rating of
the Company's shares. Communicating the long-term attractions of
your Company is key and therefore the Company also supports the
Manager's investor relations programme which involves regional
roadshows, promotional and public relations campaigns.
Board Diversity
The Board recognises the importance of having a range of
skilled, experienced individuals with the right knowledge
represented on the Board in order to allow the Board to fulfil its
obligations. The Board also recognises the benefits and is
supportive of the principle of diversity in its recruitment of new
Board members.
The Board will not display any bias for age, gender, race,
sexual orientation, religion, ethnic or national origins, or
disability in considering the appointment of its Directors.
However, the Board will continue to ensure that any future
appointments are made on the basis of merit against the
specification prepared for each appointment and, therefore, the
Company does not consider it appropriate to set diversity targets.
At 31 December 2018, there were three male Directors and two female
Directors on the Board.
Socially Responsible Investment Policy
Further details on the socially responsible investment policies
adopted by the Manager are disclosed on page 85 of the published
Annual Report.
Environmental, Social and Human Rights Issues
The Company has no employees as the Board has delegated day to
day management and administrative functions to Aberdeen Standard
Fund Managers Limited. There are therefore no disclosures to be
made in respect of employees. The Company's socially responsible
investment policy is outlined in the Investment Manager's
Review.
Due to the nature of the Company's business, being a company
that does not offer goods and services to customers, the Board
considers that it is not within the scope of the Modern Slavery Act
2015 because it has turnover below the threshold of GBP36 million.
The Company is therefore not required to make a slavery and human
trafficking statement. In any event, the Board considers the
Company's supply chains, dealing predominantly with professional
advisers and service providers in the financial services industry,
to be low risk in relation to this matter.
Emissions relating to properties owned by the Company are the
responsibility of the tenants and any emissions relating to the
Company's registered office are the responsibility of the Manager.
The Company therefore has no greenhouse gas emissions to report
from the operations of its business, nor does it have
responsibility for any other emissions producing sources under the
Companies Act 2006 (Strategic Report and Directors' Reports)
Regulations 2013.
Viability Statement
The Company does not have a formal fixed period strategic plan
but the Board formally considers risks and strategy at least
annually. The Board considers the Company, with no fixed life, to
be a long term investment vehicle, but for the purposes of this
viability statement has decided that a period of three years is an
appropriate period over which to report. The Board considers that
this period reflects a balance between looking out over a long term
horizon and the inherent uncertainties of looking out further than
three years.
In assessing the viability of the Company over the review period
the Directors have conducted a robust review of the principal risks
focussing upon the following factors:
- The principal risks detailed in the Strategic Report;
- The ongoing relevance of the Company's investment objective in the current environment;
- The demand for the Company's shares evidenced by the
historical level of premium and or discount;
- The level of income generated by the Company;
- The level of gearing including the requirement to negotiate
new facilities and repay or refinance future facilities; and
- The flexibility of the Company's bank facilities and putting
these facilities in place in time to meet commitments.
The Directors have reviewed summaries from the portfolio models
prepared by the Investment Manager which have been stress tested to
highlight the performance of the portfolio in a number of varying
economic conditions coupled with potential opportunities for
mitigation.
Accordingly, taking into account the Company's current position
and the potential impact of its principal risks and uncertainties,
the Directors have a reasonable expectation that the Company will
be able to continue in operation and meet its liabilities as they
fall due for a period of three years from the date of this Report.
In making this assessment, the Board has considered that matters
such as significant economic or stock market volatility, a
substantial reduction in the liquidity of the portfolio, or changes
in investor sentiment could have an impact on its assessment of the
Company's prospects and viability in the future.
Future
Many of the non-performance related trends likely to affect the
Company in the future are common across all closed ended investment
companies, such as the attractiveness of investment companies as
investment vehicles, the impact of regulatory changes and BREXIT
uncertainties. These factors need to be viewed alongside the
outlook for the Company, both generally and specifically, in
relation to the portfolio. The Board's view on the general outlook
for the Company can be found in my Chairman's Statement whilst the
Investment Manager's views on the outlook for the portfolio are
included in the Investment Manager's Review.
Pascal Duval
Chairman
18 April 2019
5. EXTRACTS FROM THE DIRECTORS' REPORT
The Directors present their Report and the audited financial
statements for the period ended 31 December 2018.
Results and Dividends
Details of the Company's results and dividends are shown on page
14 of the published Annual Report. The dividend policy is disclosed
in the Strategic Report.
Investment Trust Status
The Company was incorporated on 25 October 2017 (registered in
England & Wales No. 11032222) and has been accepted by HM
Revenue & Customs as an investment trust subject to the Company
continuing to meet the relevant eligibility conditions of Section
1158 of the Corporation Tax Act 2010 and the ongoing requirements
of Part 2 Chapter 3 Statutory Instrument 2011/2999 for all
financial periods commencing on or after 15 December 2017. The
Directors are of the opinion that the Company has conducted its
affairs for the period ended 31 December 2018 so as to enable it to
comply with the ongoing requirements for investment trust
status.
Individual Savings Accounts
The Company has conducted its affairs so as to satisfy the
requirements as a qualifying security for Individual Savings
Accounts. The Directors intend that the Company will continue to
conduct its affairs in this manner.
Share Capital
On incorporation, the issued share capital of the Company was
one Ordinary Share of a nominal value of GBP0.01, which was
subscribed for by Aberdeen Asset Management PLC. On 8 November 2017
the Company issued 50,000 Management Shares of a nominal value of
GBP1.00 each which were subscribed for by Aberdeen Asset Management
PLC.
Pursuant to a Placing and Offer for Subscription for Ordinary
shares the Company confirmed on 13 December 2017 that it had raised
gross proceeds of GBP187,500,000 (EUR212,000,000). On 15 December
2017 the Company confirmed that 187,500,001 Ordinary Shares had
been allotted and admitted to trading on the Main Market of the
London Stock Exchange. Immediately upon initial admission the
50,000 Management Shares were redeemed in full.
The Company's capital structure is summarised in note 13 to the
financial statements. At 31 December 2018, there were 187,500,001
fully paid Ordinary shares of 1p each in issue. During the year no
Ordinary shares were purchased in the market for treasury or
cancellation and no further new Ordinary shares were issued.
Cancellation of Share Premium Account
On 16 March 2018, the Company's share premium account of
EUR207,227,000 was cancelled pursuant to a Court Order dated 13
March 2018, in order to create a special distributable reserve for
all permitted purposes including the payment of dividends.
Voting Rights and Share Restrictions
Ordinary shareholders are entitled to vote on all resolutions
which are proposed at general meetings of the Company. The Ordinary
shares carry a right to receive dividends. On a winding up, after
meeting the liabilities of the Company, the surplus assets will be
paid to Ordinary shareholders in proportion to their
shareholdings.
There are no restrictions concerning the transfer of securities
in the Company; no special rights with regard to control attached
to securities; no agreements between holders of securities
regarding their transfer known to the Company; and no agreements
which the Company is party to that might affect its control
following a takeover bid.
Borrowings
At the period end the Company had no external borrowings.
Subsequent to the period end the Group drew down external debt
secured against four assets, Florsheim, Erlensee, Avignon and Meung
sur Loire.
Management Agreement
Under the terms of a Management Agreement dated 17 November 2017
between the Company and the AIFM, Aberdeen Standard Fund Managers
Limited (and amended by way of side letters on 22 February 2019 and
25 May 2018), the AIFM has been appointed, with effect from Initial
Admission, to act as alternative investment fund manager of the
Company with responsibility for portfolio management and risk
management of the Company's investments. Under the terms of the
Management Agreement, the AIFM may delegate portfolio management
functions to the Investment Manager.
Under the terms of the Management Agreement, the AIFM is
entitled to an annual tiered management fee together with
reimbursement of all reasonable costs and expenses incurred by it
and the Investment Manager in the performance of its duties.
Pursuant to the terms of the Management Agreement, the AIFM is
entitled, with effect from Initial Admission, to receive a tiered
annual management fee (the "Annual Management Fee") calculated by
reference to the Net Asset Value (as calculated under IFRS) on the
following basis:
- On such part of the Net Asset Value that is less than or equal
to EUR500 million, 0.951 per cent. per annum.
- On such part of the Net Asset Value that is more than EUR500
million but less than or equal to EUR1.25 billion, 0.75 per cent.
per annum.
- On such part of the Net Asset Value that is more than EUR1.25
billion, 0.60 per cent. per annum.
1 On 20 December 2018 the Company announced that the annual
management fee chargeable on the first Eur500 million of assets was
reduced from 0.95 per cent. to 0.75 per cent. of the Net Asset
Value.
No Annual Management Fee was charged on uninvested funds until
such time as 75 per cent. of the Net Proceeds had been invested.
The Annual Management Fee is payable in Euros quarterly in arrears,
save for any period which is less than a full calendar quarter.
The initial term of the Management Agreement is two years
commencing on 15 December 2017 (the "Initial Term"). The Company
may terminate the Management Agreement by giving the AIFM not less
than 12 months' prior written notice such notice not to expire
prior to the end of the Initial Term.
The AIFM has also been appointed by the Company under the terms
of the Management Agreement to provide day-to-day administration
services to the Company and provide the general company secretarial
functions required by the Companies Act. In this role, the AIFM
will provide certain administrative services to the Company which
includes reporting the Net Asset Value, bookkeeping and accounts
preparation. The AIFM has delegated the provision of these
accounting and administration services to State Street Bank and
Trust Company (London Branch).
The AIFM has also delegated the provision of the general company
secretarial services to Aberdeen Asset Management PLC.
Risk Management
Details of the financial risk management policies and objectives
relative to the use of financial instruments by the Company are set
out in note 19 to the financial statements.
The Board
The current Directors, Messrs P Duval, J Heawood, T Roper, Ms
Gulliver and Ms Wilde were each appointed to the Board on 8
November 2017 and, together with Mr N Heather (appointed 25 October
2017 and resigned 8 November 2017) and Mr J Reed (appointed 25
October 2017 and resigned 8 November 2017), were the only Directors
who served during the period since incorporation. In accordance
with the Articles of Association, with the exception of Mr Duval,
each Director will retire from the Board at the Annual General
Meeting convened for 11 June 2019 and, being eligible, will offer
himself or herself for election to the Board. As referred to in the
Chairman's Statement, Mr Duval has indicated that he intends to
retire at the AGM and will not be seeking election. In accordance
with Principle 3 of the AIC's 2016 Code of Corporate Governance, it
is the intention of the Board that in 2020 and thereafter each
Director will retire annually and submit themselves for re-election
at the AGM. The Board considers that there is a balance of skills
and experience within the Board relevant to the leadership and
direction of the Company and that all the Directors contribute
effectively.
In common with most investment trusts, the Company has no
employees. Directors' & Officers' liability insurance cover has
been maintained throughout the period at the expense of the
Company.
Corporate Governance
The Company is committed to high standards of corporate
governance. The full text of the Company's Corporate Governance
Statement can be found on the Company's website:
eurologisticsincome.co.uk. The Board is accountable to the
Company's shareholders for good governance and, as required by the
Listing Rules of the UK Listing Authority, has applied the
principles identified in the UK Corporate Governance Code
(published in April 2016). The UK Corporate Governance Code is
available on the Financial Reporting Council's website:
frc.org.uk.
The Board has considered the principles and recommendations of
the 2016 AIC Code of Corporate Governance (AIC Code) by reference
to the AIC Corporate Governance Guide for Investment Companies (AIC
Guide). The AIC Code, as explained by the AIC Guide, addresses all
the principles set out in the UK Corporate Governance Code, as well
as setting out additional principles and recommendations on issues
which are of specific relevance to the Company.
The Company has complied throughout the accounting period with
the relevant provisions contained within the AIC Code and the
relevant provisions of the UK Corporate Governance Code except as
set out below.
The UK Corporate Governance Code includes provisions relating
to:
- the role of the chief executive (A.1.2);
- executive directors' remuneration (D.2.1 and D.2.2);
- and the need for an internal audit function (C.3.6).
For the reasons set out in the AIC Code, and as explained in the
UK Corporate Governance Code, the Board considers that these
provisions are not relevant to the position of the Company, being
an externally-managed investment company. In particular, all of the
Company's day-to-day management and administrative functions are
outsourced to third parties. As a result, the Company has no
executive directors, employees or internal operations.
The Company has therefore not reported further in respect of
these provisions.
The Board notes the content of the new UK Code of Corporate
Governance published by the FRC in July 2018 (the "2018 UK Code"),
which is applicable for accounting periods beginning on or after 1
January 2019, and the new AIC Code of Corporate Governance
published in February 2019 (the "2019 AIC Code"). The Board expects
the Company to be compliant with the relevant provisions of the
2018 UK Code and the 2019 AIC Code for the year ending 31 December
2019.
During the period ended 31 December 2018, the Board had nine
scheduled meetings and a further five ad hoc Board meetings as well
as numerous update calls. In addition, the Audit Committee met
twice and there were no meetings of the Management Engagement
Committee and Nomination Committees. Between meetings the Board
maintains regular contact with the Manager and Investment Manager.
Directors have attended the following scheduled Board meetings and
Committee meetings during the period ended 31 December 2018 (with
their eligibility to attend the relevant meeting in brackets):
Director Board Audit Committee
P Duval 9 (9) n/a
C Gulliver 9 (9) 2 (2)
J Heawood 9 (9) 2 (2)
T Roper 9 (9) 2 (2)
D Wilde 9 (9) 2 (2)
Policy on Tenure
The Board's policy on tenure is that Directors need not serve on
the Board for a limited period of time only.
The Board does not consider that the length of service of a
Director is as important as the contribution he or she has to make,
and therefore the length of service will be determined on a
case-by-case basis.
Board Committees Audit Committee
The Audit Committee Report is on pages 44 and 45 of the
published Annual Report.
Nomination Committee
All appointments to the Board of Directors are considered by the
Nomination Committee which comprises all of the Directors and is
chaired by the Chairman of the Company. The Nomination Committee
advises the Board on succession planning, bearing in mind the
balance of skills, knowledge and experience existing on the Board,
and will make recommendations to the Board in this regard.
The Nomination Committee also advises the Board on its balance
of relevant skills, experience and length of service of the
Directors serving on the Board. The Board's overriding priority
when appointing new Directors in the future will be to identify the
candidate with the best range of skills and experience to
complement existing Directors. The Board recognises the benefits of
diversity and its policy on diversity is referred to in the
Strategic Report on page 12 of the published Annual Report.
Management Engagement Committee
The Management Engagement Committee comprises all of the
Directors except Ms Gulliver and is chaired by Mr Heawood. The
Committee reviews the performance of the Manager and its compliance
with the terms of the management and secretarial agreement. The
terms and conditions of the Manager's appointment, including an
evaluation of fees, are reviewed by the Committee on an annual
basis. Based upon the competitive management fee and expertise of
the Investment Manager, the Committee believes that the continuing
appointment of the Investment Manager on the terms agreed is in the
interests of shareholders as a whole.
Remuneration Committee
Under the FCA Listing Rules, where an investment trust has only
non-executive directors, the Code principles relating to directors'
remuneration do not apply.
Accordingly, matters relating to remuneration are dealt with by
the full Board, which acts as the Remuneration Committee.
The Company's remuneration policy is to set remuneration at a
level to attract individuals of a calibre appropriate to the
Company's future development. Further information on remuneration
is disclosed in the Directors' Remuneration Report on pages 40 to
42 of the published Annual Report.
Terms of Reference
The terms of reference of all the Board Committees may be found
on the Company's website eurologisticsincome.co.uk and copies are
available from the Company Secretary upon request. The terms of
reference are reviewed and re-assessed by the relevant Board
committee for their adequacy on an annual basis.
Going Concern
In accordance with the Financial Reporting Council's guidance
the Directors have undertaken a rigorous review of the Company's
ability to continue as a going concern.
The Board has set limits for borrowing and regularly reviews the
level of any gearing, cash flow projections and compliance with
banking covenants.
The Directors are mindful of the principal risks and
uncertainties disclosed in the Strategic Report and the Viability
Statement in the Strategic Report and have reviewed forecasts
detailing revenue and liabilities and they believe that the Company
has adequate financial resources to continue its operational
existence for the foreseeable future and at least 12 months from
the date of this Annual Report. Accordingly, the Directors believe
that it is appropriate to continue to adopt the going concern basis
in preparing the Financial Statements.
Management of Conflicts of Interest
The Board has a procedure in place to deal with a situation
where a Director has a conflict of interest. As part of this
process, the Directors prepare a list of other positions held and
all other conflict situations that may need to be authorised either
in relation to the Director concerned or his connected persons. The
Board considers each Director's situation and decides on any course
of action required to be taken if there is a conflict, taking into
consideration what is in the best interests of the Company and
whether the Director's ability to act in accordance with his or her
wider duties is affected. Each Director is required to notify the
Company Secretary of any potential, or actual, conflict situations
that will need authorising by the Board. Authorisations given by
the Board are reviewed at each Board meeting.
No Director has a service contract with the Company although
Directors are issued with letters of appointment upon appointment.
The Directors' interests in contractual arrangements with the
Company are as shown in note 20 to the financial statements. No
other Directors had any interest in contracts with the Company
during the period or subsequently.
The Board has adopted appropriate procedures designed to prevent
bribery. The Company receives periodic reports from its service
providers on the anti-bribery policies of these third parties. It
also receives regular compliance reports from the Manager.
The Criminal Finances Act 2017 has introduced the corporate
criminal offence of "failing to take reasonable steps to prevent
the facilitation of tax evasion". The Board has confirmed that it
is the Company's policy to conduct all of its business in an honest
and ethical manner.
The Board takes a zero-tolerance approach to facilitation of tax
evasion, whether under UK law or under the law of any foreign
country.
Accountability and Audit
The respective responsibilities of the Directors and the auditor
in connection with the financial statements are set out on pages 43
and 52 respectively of the published Annual Report.
Each Director confirms that:
- so far as he or she is aware, there is no relevant audit
information of which the Company's auditor is unaware; and,
- each Director has taken all the steps that they ought to have
taken as a Director in order to make themselves aware of any
relevant audit information and to establish that the Company's
auditor is aware of that information.
Additionally there have been no important events since the
period end that impact this Annual Report.
The Directors have reviewed the level of non-audit services
provided by the independent auditor during the period amounting to
GBP48,000 for reporting accountant services provided to the Company
in connection with the IPO Launch Prospectus in December 2017,
together with the independent auditor's procedures in connection
with the provision of such services, and remain satisfied that the
auditor's objectivity and independence is being safeguarded.
Independent Auditor
The auditor, KPMG LLP, has indicated its willingness to remain
in office. The Directors will place a resolution before the Annual
General Meeting to re-appoint KPMG LLP as auditor for the ensuing
year, and to authorise the Directors to determine its
remuneration.
Internal Control
The Board is ultimately responsible for the Company's system of
internal control and for reviewing its effectiveness and confirms
that there is an ongoing process for identifying, evaluating and
managing the significant risks faced by the Company. This process
has been in place for the period under review and up to the date of
approval of this Annual Report and financial statements. It is
regularly reviewed by the Board and accords with the FRC
Guidance.
The Board has reviewed the effectiveness of the system of
internal control. In particular, it has reviewed and updated the
process for identifying and evaluating the significant risks
affecting the Company and policies by which these risks are
managed.
The Directors have delegated the investment management of the
Company's assets to members of the Standard Life Aberdeen Group
within overall guidelines, and this embraces implementation of the
system of internal control, including financial, operational and
compliance controls and risk management. Internal control systems
are monitored and supported by the Standard Life Aberdeen Group's
internal audit function which undertakes periodic examination of
business processes, including compliance with the terms of the
management agreement, and ensures that recommendations to improve
controls are implemented.
Risks are identified and documented through a risk management
framework by each function within the Standard Life Aberdeen
Group's activities. Risk includes financial, regulatory, market,
operational and reputational risk. This helps the internal audit
risk assessment model identify those functions for review. Any
weaknesses identified are reported to the Board, and timetables are
agreed for implementing improvements to systems.
The implementation of any remedial action required is monitored
and feedback provided to the Board.
The significant risks faced by the Company have been identified
as being financial; operational; and compliance-related.
The key components of the process designed by the Directors to
provide effective internal control are outlined below:
- the AIFM prepares forecasts and management accounts which
allow the Board to assess the Company's activities and review its
performance;
- the Board and AIFM have agreed clearly defined investment
criteria, specified levels of authority and exposure limits.
Reports on these issues, including performance statistics and
investment valuations, are regularly submitted to the Board and
there are meetings with the AIFM and Investment Manager as
appropriate;
- as a matter of course the AIFM's compliance department
continually reviews Aberdeen Standard Investments' operations and
reports to the Board on a six monthly basis;
- written agreements are in place which specifically define the
roles and responsibilities of the AIFM and other third party
service providers and, where relevant, ISAE3402 Reports, a global
assurance standard for reporting on internal controls for service
organisations, or their equivalents are reviewed;
- the Board has considered the need for an internal audit
function but, because of the compliance and internal control
systems in place within Aberdeen Standard Investments, has decided
to place reliance on the Manager's systems and internal audit
procedures; and
- at its April 2019 meeting, the Audit Committee carried out an
annual assessment of internal controls for the period ended 31
December 2018 by considering documentation from the AIFM,
Investment Manager and the Depositary, including the internal audit
and compliance functions and taking account of events since 31
December 2018. The results of the assessment, that internal
controls are satisfactory, were then reported to the Board at the
next Board meeting.
Internal control systems are designed to meet the Company's
particular needs and the risks to which it is exposed. Accordingly,
the internal control systems are designed to manage rather than
eliminate the risk of failure to achieve business objectives and by
their nature can only provide reasonable and not absolute assurance
against mis-statement and loss.
Substantial Interests
The Board has been advised that the following shareholders owned
3% or more of the issued Ordinary share capital of the Company at
31 December 2018:
Shareholder No. of Ordinary %
shares held held
East Riding of Yorkshire 20,000,000 10.7%
Aberdeen Standard Investments 15,360,001 8.1%
Investec Wealth & Investment Ireland 14,162,288 7.4%
Quilter Cheviot Investment Management 12,979,345 7.1%
CCLA Investment Management 12,635,581 6.7%
Canaccord Genuity Wealth Management
(Retail) 10,475,420 5.9%
Hargreaves Lansdown, stockbrokers 8,829,539 5.0%
AJ Bell Stockbrokers 8,403,172 4.4%
Canaccord Genuity Wealth
Management 6,827,535 3.2%
JM Finn Stockbrokers 5,833,497 3.3%
There have been no significant changes notified in respect of
the above holdings between 31 December 2018 and 18 April 2019.
Relations with Shareholders
The Directors place a great deal of importance on communication
with shareholders. The Annual Report will be widely distributed to
other parties who have an interest in the Company's performance.
Shareholders and investors may obtain up to date information on the
Company through the Manager's freephone information service and the
Company's website eurologisticsincome.co.uk.
The Board's policy is to communicate directly with shareholders
and their representative bodies without the involvement of the
Standard Life Aberdeen Group (either the Company Secretary or the
Investment Manager) in situations where direct communication is
required and usually a representative from the Board is available
to meet with major shareholders on an annual basis in order to
gauge their views.
The Notice of the Annual General Meeting, included within the
Annual Report and financial statements, is sent out at least 20
working days in advance of the meeting. All shareholders have the
opportunity to put questions to the Board or the Investment
Manager, either formally at the Company's Annual General Meeting or
at the subsequent buffet luncheon for shareholders. The Company
Secretary is available to answer general shareholder queries at any
time throughout the year.
Annual General Meeting
Special Business Directors' Authority to Allot Relevant
Securities
Approval is sought in Resolution 11, an ordinary resolution, to
renew the Directors' existing general power to allot shares but
will also provide a further authority (subject to certain limits)
to grant rights to subscribe for or to convert any security into
shares under a fully pre-emptive rights issue. The effect of
Resolution 11 is to authorise the Directors to allot up to a
maximum of 123,750,000 shares in total (representing approximately
66% (as at the latest practicable date before publication of this
Annual Report) of the existing issued share capital of the
Company), of which a maximum of 61,875,000 shares (approximately
33% (as at the latest practicable date before publication of this
Annual Report) of the existing issued share capital of the Company)
may only be applied other than to fully pre-emptive rights issues.
This authority is renewable annually and will expire at the
conclusion of the next Annual General Meeting in 2020, or June
2020, whichever is earlier. The Directors do not have any immediate
intention to utilise this authority.
Special Business Disapplication of Pre-emption Rights
Resolution 12 is a special resolution that seeks to renew the
Directors' existing authority until the conclusion of the next
Annual General Meeting to make limited allotments of shares for
cash of up to a maximum of 18,750,000 shares representing 10% of
the issued share capital (as at the latest practicable date before
publication of this Annual Report) other than according to the
statutory pre-emption rights which require all shares issued for
cash to be offered first to all existing shareholders.
This authority includes the ability to sell shares that have
been held in treasury (if any), having previously been bought back
by the Company. The Board has established guidelines for treasury
shares and will only consider buying in shares for treasury at a
discount to their prevailing NAV and selling them from treasury at
or above the then prevailing NAV.
New shares issued in accordance with the authority sought in
Resolution 12 will always be issued at a premium to the NAV per
Ordinary share at the time of issue.
The Board will issue new Ordinary shares or sell Ordinary shares
from treasury for cash when it is appropriate to do so, in
accordance with its current policy. It is therefore possible that
the issued share capital of the Company may change between the date
of this document and the Annual General Meeting and therefore the
authority sought will be in respect of 10% of the issued share
capital as at the date of the Annual General Meeting rather than
the date of this document. This authority is renewable annually and
will expire at the conclusion of the next Annual General Meeting in
2020 or June 2020, whichever is earlier.
Special Business Purchase of the Company's Shares
Resolution 13 is a special resolution proposing to renew the
Directors' authority to make market purchases of the Company's
shares in accordance with the provisions contained in the Companies
Act 2006 and the Listing Rules of the Financial Conduct Authority.
The minimum price to be paid per Ordinary share by the Company will
not be less than GBP0.01 per share (being the nominal value) and
the maximum price should not be more than the higher of an amount
equal to 5% above the average of the middle market quotations for
an Ordinary share taken from the London Stock Exchange Daily
Official List for the five business days immediately preceding the
date on which the Ordinary share is contracted to be purchased; and
(ii) the higher of the price of the last independent trade and the
current highest independent bid on the trading venue where the
purchase is carried out.
The Directors do not intend to use this authority to purchase
the Company's Ordinary shares unless to do so would result in an
increase in NAV per share and would be in the interests of
shareholders generally. The authority sought will be in respect of
14.99% of the issued share capital as at the date of the Annual
General Meeting rather than the date of this document.
The authority being sought in Resolution 13 will expire at the
conclusion of the Annual General Meeting in 2020, or June 2020,
whichever is earlier unless it is renewed before that date. Any
Ordinary shares purchased in this way will either be cancelled and
the number of Ordinary shares will be reduced accordingly or under
the authority granted in Resolution 13 above, may be held in
treasury.
If Resolutions 11 to 13 are passed then an announcement will be
made on the date of the Annual General Meeting which will detail
the exact number of Ordinary shares to which each of these
authorities relate.
These powers will give the Directors additional flexibility
going forward and the Board considers that it will be in the
interests of the Company that such powers be available. Such powers
will only be implemented when, in the view of the Directors, to do
so will be to the benefit of shareholders as a whole.
Special Business Notice of Meetings
Resolution 14 is a special resolution seeking to authorise the
Directors to call general meetings of the Company (other than
Annual General Meetings) on 14 days' clear notice. This approval
will be effective until the Company's next Annual General Meeting
in 2020. In order to utilise this shorter notice period, the
Company is required to ensure that shareholders are able to vote
electronically at the general meeting called on such short notice.
The Directors confirm that, in the event that a general meeting is
called, they will give as much notice as practicable and will only
utilise the authority granted by Resolution 14 in limited and time
sensitive circumstances.
Dividend Policy
As a result of the timing of the payment of the Company's
quarterly dividends, the Company's shareholders are unable to
approve a final dividend each year. In line with good corporate
governance, the Board therefore proposes to put the Company's
dividend policy to shareholders for approval at the Annual General
Meeting and on an annual basis thereafter.
The Company's dividend policy shall be that dividends on the
Ordinary Shares are payable quarterly in relation to periods ending
March, June, September and December and the last dividend referable
to a financial year end will not be categorised as a final dividend
that is subject to shareholder approval. It is intended that the
Company will pay quarterly dividends consistent with the expected
annual underlying portfolio yield. The Company has the flexibility
in accordance with its Articles to make distributions from
capital.
6. FINANCIAL HIGHLIGHTS
31 December 2018
Total assets (EUR'000) 210,730
Total equity shareholders' funds (net assets)
(EUR'000) 202,073
Net asset value per share (euros) 1.08
Net asset value per share (pence) 96.7
Share price (mid market) (pence) 102.25
Market capitalisation (GBP'000) 191,719
Share price premium to sterling net asset value 5.7%
Dividends and earnings
Total shareholder return per share1 3.0%
Dividends per share 1.7p
Revenue reserves (EUR'000) 40
Loss (EUR'000) (3,740)
Operating costs
Ongoing charges ratio (Group only expenses)1 0.98%
Ongoing charges ratio (Group and property expenses)1 1.21%
Performance (total return GBP)
Since Launch % return
Share price1 3.0%
NAV total return (EUR) per Ordinary share1 -2.98%
7. STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report
and the Group and parent Company financial statements in accordance
with applicable law and regulations.
Company law requires the directors to prepare Group and parent
Company financial statements for each financial year. Under that
law they are required to prepare the Group financial statements in
accordance with International Financial Reporting Standards as
adopted by the European Union (IFRSs as adopted by the EU) and
applicable law and have elected to prepare the parent Company
financial statements in accordance with UK accounting standards,
including FRS 101 Reduced Disclosure Framework.
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and parent Company and of
their profit or loss for that period. In preparing each of the
Group and parent Company financial statements, the directors are
required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable, relevant, reliable and prudent;
- for the Group financial statements, state whether they have
been prepared in accordance with IFRSs as adopted by the EU;
- for the parent Company financial statements, state whether
applicable UK accounting standards have been followed, subject to
any material departures disclosed and explained in the parent
company financial statements;
- assess the Group and parent Company's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern; and
- use the going concern basis of accounting unless they either
intend to liquidate the Group or the parent Company or to cease
operations, or have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group and
parent Company's transactions and disclose with reasonable accuracy
at any time the financial position of the parent Company and enable
them to ensure that its financial statements comply with the
Companies Act 2006. They are responsible for such internal control
as they determine is necessary to enable the preparation of
financial statements that are free from material misstatement,
whether due to fraud or error, and have general responsibility for
taking such steps as are reasonably open to them to safeguard the
assets of the Group and to prevent and detect fraud and other
irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors' Report,
Directors' Remuneration Report and Corporate Governance Statement
that complies with that law and those regulations.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
company's website. Legislation in the UK governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
Responsibility statement of the directors in respect of the
annual financial report
We confirm that to the best of our knowledge:
- the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the company and the undertakings included in the consolidation
taken as a whole;
- the Strategic Report and Directors' Report includes a fair
review of the development and performance of the business and the
position of the Company and the undertakings included in the
consolidation taken as a whole, together with a description of the
principal risks and uncertainties that they face.
We consider the Annual Report and financial statements, taken as
a whole, is fair, balanced and understandable and provides the
information necessary for shareholders
to assess the group's position and performance, business model
and strategy.
By order of the Board
Pascal Duval
18 April 2019
8. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the period 25 October 2017 to 31 December 2018
Period ended
31 December
2018
Revenue Capital Total
Notes EUR'000 EUR'000 EUR'000
REVENUE
Rental Income 2 2,323 - 2,323
Other operating income 211 - 211
Total Revenue 2,534 - 2,534
LOSSES ON INVESTMENTS
Loss on Revaluation of investment
properties 9 - (4,080) (4,080)
Total Income and losses on investments 2,534 (4,080) (1,546)
EXPITURE
Investment management fee (587) - (587)
Direct property expenses (225) - (225)
SPV property management fee (26) - (26)
Other expenses 3 (1,005) - (1,005)
Total expenditure (1,843) - (1,843)
Net operating return before finance costs 691 (4,080) (3,389)
FINANCE COSTS
Finance costs 4 (658) - (658)
Net return before taxation 33 (4,080) (4,047)
Taxation on loss 5 - - -
Net return for the period 33 (4,080) (4,047)
OTHER COMPREHENSIVE INCOME TO BE RECLASSIFIED
TO PROFIT OR LOSS
Currency translation differences on initial
capital proceeds - 407 407
Currency translation on conversion of
distribution payments 7 (107) (100)
Other comprehensive income 7 300 307
Total comprehensive return for the period 40 (3,780) (3,740)
Basic and diluted earnings/(loss)
per share 7 0.02c (2.47c) (2.45c)
EPRA earnings per share1 0.18c
The accompanying notes are an integral part of the financial
statements.
1 See reconciliation of EPRA earnings per share within EPRA
performance measures.
9. CONSOLIDATED BALANCE SHEET
As at 31 December 2018
As at 31 December
2018
Notes Total
EUR'000
NON-CURRENT ASSETS
Investment properties 9 148,918
148,918
CURRENT ASSETS
Trade and other receivables 10 11,679
Cash and cash equivalents 11 50,133
Total current assets 61,812
Total assets 210,730
CURRENT LIABILITIES
Trade and other payables 12 8,657
Total current liabilities 8,657
Net current assets 53,155
Net assets 202,073
SHARE CAPITAL AND RESERVES
Share capital 13 2,122
Special distributable reserve 15 203,691
Capital reserve 16 (3,780)
Revenue reserve 40
Equity shareholders' funds 202,073
Net asset value per share 8 EUR1.08
EPRA Net asset value per share1 EUR 1.08
1 See reconciliation of EPRA Net asset value per share within
EPRA performance measures.
The accompanying notes are an integral part of the financial
statements
10. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the period 25 October 2017 to 31 December 2018
Special
Share Share distributable Capital Revenue
capital premium reserve reserve reserve Total
Notes EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Balance at 25 October - - - - - -
2017
Original Share Issue 13/14 2,122 210,102 - - - 212,224
Share Issue costs 14 - (2,875) - - - (2,875)
Share premium conversion 14/15 - (207,227) 207,227 - - -
Total Comprehensive
return for - - - (3,780) 40 (3,740)
the period
Dividends paid 6 - - (3,536) - - (3,536)
Balance at 31 December 2018 2,122 - 203,691 (3,780) 40 202,073
The accompanying notes are an integral part of the financial
statements.
11. CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2018
Period Ended 31
December 2018
Notes EUR'000
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period before taxation (4,047)
Adjustments for:
Losses on investment properties 9 4,080
Increase in operating trade and other
receivables 10 (11,679)
Increase in operating trade and other
payables 12 2,727
Finance costs 4 658
Cash used in operations (8,261)
Tax paid 5 -
Net cash outflow from operating activities (8,261)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investment properties 9 (147,068)
Currency translation differences 307
Net cash outflow from investing activities (146,761)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (3,536)
Liquidity fund interest paid 4 (658)
Proceeds from original share issue 13/14 212,224
Issue costs relating to original share
issue 14 (2,875)
Net cash inflow from financing activities 205,155
Net increase in cash and cash equivalents 50,133
Opening balance -
Closing cash and cash equivalents 50,133
REPRESENTED BY
Cash at bank 11 6,279
Money market funds 11 43,854
50,133
The accompanying notes are an integral part of the financial
statements.
12. NOTES TO THE FINANCIAL STATEMENTS
1. Accounting Policies
The principal accounting policies adopted by the Group are set
out below, all of which have been applied consistently throughout
the period.
(a) Basis of Accounting
The consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards
('IFRS'), which comprise standards and interpretations approved by
the International Accounting Standards Board ('IASB'), and
International Accounting Standards and Standing Interpretations
Committee interpretations approved by the International Accounting
Standards Committee ('IASC') that remain in effect, and to the
extent that they have been adopted by the European Union, and the
Listing Rules of the UK Listing Authority.
The audited Consolidated Financial Statements of the Group have
been prepared under the historical cost convention as modified by
the measurement of investment property and derivative financial
instruments at fair value. The consolidated financial statements
are presented in Euro.
In compliance with the AIC's Statement of Recommended Practice:
Financial Statements of Investment Trust Companies and Venture
Capital Trusts (Issued November 2014 and updated in February 2018
with consequential amendments), the consolidated statement of
comprehensive income is separated between capital and revenue
profits and losses.
New and revised standards and interpretations issued in the
current period
The accounting policies adopted have been consistently applied
throughout the period presented, unless otherwise stated. This
includes the below noted Standards and Interpretations that became
effective during the period, which the group has incorporated in
the preparation of the financial statements:
- IFRS 9 Financial instruments: classification and measurement
- IFRS 15 Revenue from Contracts with Customers
- Amendments to IAS 40: Transfers of Investment Property
- FRIC Interpretation 22: Foreign Currency Transactions and Advance Consideration
- Amendments IFRS 15 - Revenue
Standards and Interpretations issued by IASB and adopted by the
EU but not yet effective
At the date of authorisation of these financial statements the
following Standards and Interpretations were in issue but not yet
effective:
- IFRS 16 Leases (effective 1 January 2019); sets out the
principle for the recognition, measurement, presentation and
disclosure of leases for both the lessee and lessor. The impact of
this standard has been assessed by the Group in full. The Group is
aware lessor accounting remains substantially unchanged and any
impact on the Group's financial statements is expected to be
insignificant. Should the Group own leasehold properties these
leases would be in scope of IFRS 16. All the Group's investment
properties are however owned on a freehold basis.
- IFRIC Interpretation 23: Uncertainty over Income Tax Treatments (effective 1 January 2019);
- Amendments to IFRS 9: Prepayment Features with Negative
Compensation (effective 1 January 2019);
Standards and Interpretations issued by IASB but not adopted by
the EU and not yet effective
- IFRS 17 Insurance Contracts (effective 1 January 2021);
- Amendments to IFRS 3: Business Combinations (effective 1 January 2020)
- Amendments to IAS 28: Long-term Interests in Associates and
Joint Ventures (effective 1 January 2019);
- Annual Improvements to IFRS Standards 2015 - 2017 Cycle (effective 1 January 2019);
- Amendments IAS 19 - Employee Benefits (effective 1 January 2019)
- Amendments IAS 1 - Presentation of Financial Statements (effective 1 January 2020)
- Amendments IAS 8 - Accounting Policies, Changes in Accounting
Estimates and Errors (effective 1 January 2020)
- Amendments to References to the Conceptual Framework in IFRS
Standards (effective 1 January 2020)
The Group believes that the application of these Standards and
Interpretations will not have a material effect on the consolidated
financial statements.
(b) Significant accounting judgements, estimates and assumptions
The preparation of the Group's financial statements requires the
directors to make judgements, estimates and assumptions that affect
the amounts recognised in the financial statements and contingent
liabilities. However, uncertainty about these judgements,
assumptions and estimates could result in outcomes that could
require a material adjustment to the carrying amount of the asset
or liability affected in future periods.
Key estimation uncertainties
Fair value of investment properties: Investment property is
stated at fair value as at the balance sheet date as set out in
note 9 to these accounts.
The determination of the fair value of investment properties
requires the use of estimates such as future cash flows from the
assets. The estimate of future cash flows includes consideration of
the repair and condition of the property, lease terms, future lease
events, as well as other relevant factors for the particular
asset.
These estimates are based on local market conditions existing at
the balance sheet date.
(c) Basis of Consolidation
The consolidated financial statements comprise the accounts of
the Company and its subsidiaries drawn up to 31 December 2018.
Subsidiaries are consolidated from the date on which control is
transferred to the Group and cease to be consolidated from the date
on which control is transferred out of the Group. The Group applies
the acquisition method to account for business combinations. The
consideration transferred for the acquisition of a subsidiary is
the fair value of the assets transferred, the liabilities incurred
to the former owners of the acquiree and the equity interests
issued by the Group. The consideration transferred includes the
fair value of any asset or liability resulting from a contingent
consideration arrangement. Identifiable assets acquired and
liabilities and contingent liabilities assumed in a business
combination are measured initially at their fair values at the
acquisition date. The Group recognises any non-controlling interest
in the acquiree on an acquisition by acquisition basis, either at
fair value or at the non-controlling interest's proportionate share
of the recognised amounts of acquiree's identifiable net assets.
The excess of the consideration transferred, the amount of any
non-controlling interest in the acquiree and the acquisition date
fair value of any previous equity interest in the acquiree over the
fair value of the identifiable net assets acquired is recorded as
goodwill.
If the total of consideration transferred, non-controlling
interest recognised and previously held interest measured is less
than the fair value of the net assets of the subsidiary acquired in
the case of a bargain purchase, the difference is recognised
directly in the consolidated statement of comprehensive income.
(d) Functional and Presentation currency
Items included in the consolidated financial statements of the
Group are measured using the currency of the primary economic
environment in which the Company and its subsidiaries operate ("the
functional currency") which is Euro. The consolidated financial
statements are also presented in Euro. All figures in the
consolidated financial statements are rounded to the nearest
thousand unless otherwise stated.
(e) Foreign Currency
Transactions denominated in foreign currencies are converted at
the exchange rate ruling at the date of the transaction. Monetary
and non-monetary assets and liabilities denominated in foreign
currencies held at the financial period end are translated using
London closing foreign exchange rates at the financial period end.
Any gain or loss arising from a change in exchange rates subsequent
to the date of the transaction is included as an exchange gain or
loss to capital or revenue in the Consolidated Statement of
Comprehensive Income as appropriate. Foreign exchange movements on
investments are included in the Consolidated Statement of
Comprehensive Income within gains on investments.
(f) Revenue Recognition
Rental income, excluding VAT, arising from operating leases
(including those containing stepped and fixed rent increases) is
accounted for in the Consolidated Statement of Comprehensive Income
on a straight line basis over the lease term. Lease premiums paid
and rent free periods granted, are recognised as assets and are
amortised over the non-cancellable lease term.
Interest income is accounted for on an accruals basis and
included in operating income.
(g) Expenses
All expenses are accounted for on an accruals basis. The Group's
investment management fees, finance costs and all other expenses
are charged through the Consolidated Statement of Comprehensive
Income. Service charge costs, to the extent they are not
recoverable from tenants, are accounted for on an accruals basis
and are included in total expenditure. All expenses are recorded
through the revenue column of the Consolidated Statement of
Comprehensive Income, except for gains or losses on investment
properties.
(h) Taxation
Income tax expense represents the sum of the tax currently
payable and deferred tax.
Current tax
The tax currently payable is based on taxable profit for the
period. Taxable profit differs from 'profit before tax' as reported
in the Consolidated Statement of Comprehensive Income because of
items of income or expense that are taxable or deductible in other
years and items that are never taxable or deductible. The Group's
current tax is calculated using tax rates that have been enacted or
substantively enacted by the end of the reporting period.
Where corporation tax arises in subsidiaries, these amounts are
charged to the Consolidated Statement of Comprehensive Income. The
current income tax charge is calculated on the basis of the tax
laws enacted or substantively enacted at the date of the balance
sheet in the countries where the Group operates.
The Manager periodically evaluates positions taken in tax
returns with respect to situations in which applicable tax
regulation is subject to interpretation, and establishes provisions
where appropriate on the basis of amounts expected to be paid to
the tax authorities.
Deferred tax
Deferred tax is recognised on temporary differences between the
carrying amounts of assets and liabilities in the Consolidated
financial statements and the corresponding tax bases used in the
computation of taxable profit.
Deferred tax liabilities are generally recognised for all
taxable temporary differences. Deferred tax assets are generally
recognised for all deductible temporary differences to the extent
that it is probable that taxable profits will be available against
which those deductible temporary differences can be utilised. Such
deferred tax assets and liabilities are not recognised if the
temporary difference arises from the initial recognition (other
than in a business combination) of assets and liabilities in a
transaction that affects neither the taxable profit nor the
accounting profit. In addition, deferred tax liabilities are not
recognised if the temporary difference arises from the initial
recognition of goodwill.
Deferred tax liabilities are recognised for taxable temporary
differences associated with investments in subsidiaries except
where the Group is able to control the reversal of the temporary
difference and it is probable that the temporary difference will
not reverse in the foreseeable future. Deferred tax assets arising
from deductible temporary differences associated with such
investments are only recognised to the extent that it is probable
that there will be sufficient taxable profits against which to
utilise the benefits of the temporary differences and they are
expected to reverse in the foreseeable future. The carrying amount
of deferred tax assets is reviewed at the end of each reporting
period and reduced to the extent that it is no longer probable that
sufficient taxable profits will be available to allow all or part
of the asset to be recovered. Deferred tax liabilities and assets
are measured at the tax rates that are expected to apply in the
period in which the liability is settled or the asset realised,
based on tax rates (and tax laws) that have been enacted or
substantively enacted by the end of the reporting period. The
measurement of deferred tax liabilities and assets reflects the tax
consequences that would follow from the manner in which the Group
expects, at the end of the reporting period, to recover or settle
the carrying amount of its assets and liabilities.
The carrying values of the Group's investment properties are
assumed to be realised by sale at the end of use. The capital gains
tax rate applied is that which would apply on a direct sale of the
property recorded in the Consolidated Balance Sheet regardless of
whether the Group would structure the sale via the disposal of the
subsidiary holding the asset, to which a different tax rate may
apply. The deferred tax is then calculated based on the respective
temporary differences and tax consequences arising from recovery
through sale.
(i) Investment Properties
Investment properties are initially recognised at cost, being
the fair value of consideration given, including transaction costs
associated with the investment property. Any subsequent capital
expenditure incurred in improving investment properties is
capitalised in the period during which the expenditure is incurred
and included within the book cost of the property.
After initial recognition, investment properties are measured at
fair value, with the movement in fair value recognised in the
Consolidated Statement of Comprehensive Income and transferred to
the Capital Reserve. Fair value is based on the external valuation
provided by CBRE, chartered surveyors, at the balance sheet
date.
The assessed fair value is reduced by the carrying amount of any
accrued income resulting from the spreading of lease incentives
and/or minimum lease payments.
On derecognition, gains and losses on disposals of investment
properties are recognised in the Consolidated Statement of
Comprehensive Income.
Recognition and derecognition occurs when the risks and rewards
of ownership of the properties have transferred between a willing
buyer and a willing seller.
Investment property is transferred to current assets held for
sale when it is expected that the carrying amount will be recovered
principally through sale rather than from continuing use. For this
to be the case, the property must be available for immediate sale
in its present condition, subject only to terms that are usual and
customary for sales of such property and its sale must be highly
probable.
The Group has entered into forward funding agreements with third
party developers in respect of certain properties. Under these
agreements the Group will make payments to the developer as
construction progresses. The value of these payments is assessed
and certified by an expert and capitalised in the period during
which the expenditure is incurred and included within the book cost
of the property.
Investment properties are recognised for accounting purposes
upon completion of contract. Properties purchased under forward
funding contracts are recognised at certified value to date.
(j) Distributions
Interim distributions payable to the holders of equity shares
are only recognised in the Consolidated Statement of Changes in
Equity in the period in which they are paid. An annual shareholder
resolution is voted upon to approve the Group's distribution
policy.
(k) Operating Lease Contracts - the Group as Lessor
The Group has entered into commercial property leases on its
investment property portfolio. The Group has determined, based on
an evaluation of the terms and conditions of the arrangements, that
it retains all the significant risks and rewards of ownership of
these properties and so accounts for leases as operating leases.
Initial direct costs incurred in negotiating and arranging an
operating lease are added to the carrying amount of the leased
asset and recognised as an expense on a straight-line basis over
the lease term.
(l) Share Issue Expenses
Incremental external costs directly attributable to the issue of
shares that would otherwise have been avoided are written off to
the share premium reserve.
(m) Segmental Reporting
The Group is engaged in property investment in Europe. Operating
results are analysed on a geographic basis by country. In
accordance with IFRS 8 'Operating Segments', financial information
on business segments is presented in note 17 of the Consolidated
financial statements.
(n) Cash and Cash Equivalents
Cash and cash equivalents are defined as cash in hand, demand
deposits, and other short-term highly liquid investments readily
convertible within three months or less to known amounts of cash
and subject to insignificant risk of changes in value.
(o) Financial instruments
Financial assets and financial liabilities are recognised when
the Group becomes a party to the contractual provisions of the
instruments.
Financial assets and financial liabilities are initially
measured at fair value. Transaction costs that are directly
attributable to the acquisition or issue of financial assets and
financial liabilities (other than financial assets and financial
liabilities at fair value through profit or loss) are added to or
deducted from the fair value of the financial assets or financial
liabilities, as appropriate, on initial recognition. Transaction
costs directly attributable to the acquisition of financial assets
or financial liabilities at fair value through profit or loss are
recognised immediately in the Consolidated Statement of
Comprehensive Income.
Financial assets
Financial assets are measured at amortised cost, financial
assets 'at fair value through profit or loss' (FVTPL), or financial
assets 'at fair value through other comprehensive income' (FVOCI).
The classification is based on the business model in which the
financial asset is managed and its contractual cash flow
characteristics. All purchases and sales of financial assets are
recognised on the trade date basis.
Financial assets at amortised cost
Financial assets at amortised cost are non-derivative financial
assets with fixed or determinable payments that are not quoted in
an active market.
Loans and receivables (including trade and other receivables,
bank balances and cash, and others) are measured at amortised cost
using the effective interest method, less any impairment. The Group
holds the trade receivables with the objective to collect the
contractual cash flows. Interest income is recognised by applying
the effective interest rate, except for short-term receivables when
the effect of discounting is immaterial.
Impairment of financial assets
Financial assets, other than those at FVTPL, are assessed for
indicators of impairment at the end of each reporting period.
Financial assets are considered to be impaired when there is
objective evidence that, as a result of one or more events that
occurred after the initial recognition of the financial asset, the
estimated future cash flows of the investment have been
affected.
For all other financial assets, objective evidence of impairment
could include:
- significant financial difficulty of the issuer or counterparty; or
- breach of contract, such as a default or delinquency in interest or principal payments; or
- it becoming probable that the borrower will enter bankruptcy or financial re-organisation; or
- the disappearance of an active market for that financial asset
because of financial difficulties.
The Group's financial assets are subject to the expected credit
loss model. For trade receivables, the Group applies the simplified
approach permitted by IFRS 9, which requires expected lifetime
losses to be recognised from initial recognition of the
receivables. The expected loss rates are based on the payment
profiles of tenants over a period of 12 months before 31 December
2018, and the corresponding historical credit losses experienced
within this period. The historical loss rates are adjusted to
reflect current and forward-looking information on macroeconomic
factors affecting the liability of the tenants to settle the
receivable. Such forward-looking information would include:
- changes in economic, regulatory, technological and
environmental factors, (such as industry outlook, GDP, employment
and politics);
- external market indicators; and
- tenant base.
--
Derecognition of financial assets
The Group derecognises a financial asset when the contractual
rights to the cash flows from the asset expire, or when it
transfers the financial asset and substantially all the risks and
rewards of ownership of the asset to another party. If the Group
neither transfers nor retains substantially all the risks and
rewards of ownership and continues to control the transferred
asset, the Group recognises its retained interest in the asset and
an associated liability for amounts it may have to pay. If the
Group retains substantially all the risks and rewards of ownership
of a transferred financial asset, the Group continues to recognise
the financial asset and also recognises a collateralised borrowing
for the proceeds received. On derecognition of a financial asset in
its entirety, the difference between the asset's carrying amount
and the sum of the consideration received and receivable is
recognised in the Consolidated Statement of Comprehensive
Income.
(p) Financial liabilities
Financial liabilities are classified as 'other financial
liabilities'.
Other financial liabilities
Other financial liabilities (including borrowings and trade and
other payables) are subsequently measured at amortised cost using
the effective interest method. The effective interest method is a
method of calculating the amortised cost of a financial liability
and of allocating interest expense over the relevant period. The
effective interest rate is the rate that exactly discounts
estimated future cash payments (including all fees and points paid
or received that form an integral part of the effective interest
rate, transaction costs and other premiums or discounts) through
the expected life of the financial liability, or (where
appropriate) a shorter period, to the net carrying amount on
initial recognition.
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only
when, the Group's obligations are discharged, cancelled or they
expire. The difference between the carrying amount of the financial
liability derecognised and the consideration paid and payable is
recognised in the Consolidated Statement of Comprehensive
Income.
(q) Reserves
Share Capital
This represents the proceeds from issuing ordinary shares and is
non-distributable.
Share Premium
Share premium represents the excess consideration received over
the par value of ordinary shares issued and is classified as
equity. Incremental costs directly attributable to the issue of
ordinary shares are recognised as a deduction from share
premium.
Special Distributable Reserve
The special reserve is a distributable reserve to be used for
all purposes permitted, including the buyback of shares and the
payment of dividends.
Capital Reserve
The capital reserve is a distributable reserve subject to
applicable legislation and practice, and the following are
accounted for in this reserve:
- gains and losses on the disposal of investment properties;
- increases and decreases in the fair value of investment
properties held at the period end, which are not distributable.
Revenue Reserve
The revenue reserve is a distributable reserve and reflects any
surplus arising from the net return on ordinary activities after
taxation.
2. Rental Income
Period ended 31 December
2018
EUR'000
Rental income 2,323
Total rental income 2,323
Included within rental income is amortisation of rent free
periods granted.
3. Other Expenses
Period ended 31 December
2018
EUR'000
Professional fees 353
Directors' fees 213
Audit fees for statutory audit1 137
Other expenses 112
Broker fees 68
Depositary fees 26
Stock exchange fees 20
Directors liability insurance expense 20
Registrar fees 18
Custody expense 17
Employers NI 13
Savings scheme expense 8
Total expenses 1,005
1 The auditor was paid EUR45,000 (exclusive of VAT) in respect
of non-audit services relating to their role as reporting
accountant for initial public offering. This cost is included
within share issue costs in note 14.The Audit fee above reflects
the 2018 audit fee of EUR86,000 and work undertaken on the initial
accounts of EUR34,000 plus irrecoverable VAT of EUR17,000.
4. Finance Costs
Period ended 31 December
2018
EUR'000
Liquidity fund interest paid 658
Total finance costs 658
The Company holds cash in the Aberdeen Global Liquidity Fund plc
which charges interest. Throughout the period the interest rate on
this euro denominated fund was negative.
5. Taxation
The Company is resident in the United Kingdom for tax purposes.
The Company is approved by HMRC as an investment trust under
sections 1158 and 1159 of the Corporation Tax Act 2010.
In respect of each accounting period for which the Company
continues to be approved by HMRC as an investment trust the Company
will be exempt from UK taxation on its capital gains.
The Company is, however, liable to UK Corporation tax on its
income. The Company is able to elect to take advantage of modified
UK tax treatment in respect of its "qualifying interest income" for
an accounting period referred to as the "streaming" regime. Under
regulations made pursuant to the Finance Act 2009, the Company may,
if it so chooses, designate as an "interest distribution" all or
part of the amount it distributes to shareholders as dividends, to
the extent that it has "qualifying interest income" for the
accounting period. Were the Company to designate any dividend it
pays in this manner, it would be able to deduct such interest
distributions from its income in calculating its taxable profit for
the relevant accounting period. The Company should in practice be
exempt from UK corporation tax on dividend income received,
provided that such dividends (whether from UK or non-UK companies)
fall within one of the "exempt classes" in Part 9A of the CTA
2009.
A reconciliation between the tax charge and the product of
accounting profit/(loss) multiplied by the applicable tax rate for
the period ended 31 December 2018.
Period ended
Revenue Capital 31 December
EUR'000 EUR'000 2018
EUR'000
Net result before taxation 33 (4,080) (4,047)
UK Corporation tax rate
of 19% 6 (775) (769)
Effect of:
Tax losses arising - 775 775
Income not taxable (6) - (6)
Taxation on return - - -
Within the Group's subsidiaries tax losses of EUR565,000 arose
on which no deferred tax asset is recognised, as it is not certain
there will be future taxable profits to off-set these losses
against.
6. Dividends
Period ended 31
December 2018
EUR'000
2018 First Interim dividend of 0.7p per share
paid 28 September 2018 1,461
2018 Second Interim dividend of 1p per share
paid 20 December 2018 2,075
Total Dividends Paid 3,536
A third interim dividend of 1.3p per share was paid on 22 March
2019 to shareholders on the register on 8 March 2019. Although this
payment relates to the period ended 31 December 2018, under IFRS it
will be accounted for in the period during which it was paid.
7. Earnings per Share (Basic And Diluted)
Period ended 31 December
2018
Revenue return attributable to Ordinary
shareholders (EUR'000) 33
Weighted average number of shares in issue
during the period 165,415,705
Total revenue return per Ordinary share 0.02c
Capital return attributable to Ordinary
shareholders (EUR'000) (4,080)
Weighted average number of shares in issue
during the period 165,415,705
Total capital return per Ordinary share (2.47c)
Total return per Ordinary share (2.45c)
Earnings per share is calculated on the revenue and capital
return for the period (before other comprehensive income) and is
calculated using the weighted average number of shares in issue
during the period of 165,415,705 shares.
8. Net Asset Value per Share
2018
Net assets attributable to shareholders
(EUR'000) 202,073
Number of shares in issue at 31 December
2018 187,500,001
Net asset value per share (EUR) 1.08
9. Investment Properties
2018
EUR'000
Opening cost Purchases at cost -
Losses on revaluation 152,998
(4,080)
Total Carrying value at 31 December 2018 148,918
Loss on investment properties at Fair value
comprise: Valuation losses
Movement in lease incentives (3,813)
(267)
(4,080)
Valuation Methodology
Valuations were performed by CBRE Limited, an accredited
independent valuer with a recognised and relevant professional
qualification. The valuer has sufficient current local and national
knowledge of the particular property markets involved and has the
skills and understanding to undertake the valuations
competently.
The Investment Manager appoints a suitable valuer (such
appointment is reviewed on a periodic basis) to undertake a
valuation of all the direct real estate investments on a quarterly
basis. The valuation is undertaken in accordance with the RICS
Valuation - Global Standards 2017, (Red Book), published by the
Royal Institution of Chartered Surveyors.
The Investment Manager meets with the valuer on a quarterly
basis to ensure the valuer is aware of all relevant information for
the valuation and any change in the investments over the quarter.
The Investment Manager then reviews and discusses draft valuations
with the valuer to ensure correct factual assumptions are made
prior to the valuer issuing a final valuation report.
The fair value of completed investment property is determined
using the income capitalisation method. The income capitalisation
method is based on capitalising the net income stream at an
appropriate yield. In establishing the net income stream the valuer
has reflected the current rent payable to lease expiry, at which
point the valuer has assumed that each unit will be re-let at their
opinion of estimated rental value. The valuer has made allowances
for vacancies and rent-free periods where appropriate, as well as
deducting non- recoverable costs where applicable. The appropriate
yield is selected on the basis of the location of the building, its
quality, tenant credit quality and lease terms amongst other
factors.
The Property Valuer takes account of deleterious materials
included in the construction of the investment properties in
arriving at its estimate of Fair Value when the Investment Manager
advises of the presence of such materials.
The majority of the leases are on a full repairing and insurance
basis and as such the Group is not liable for costs in respect of
repairs or maintenance to its investment properties.
The fair value of these investment properties amounted to
EUR149,185,000. The difference between the fair value and the value
per the Consolidated balance sheet at 31 December 2018 consists of
accrued income relating to the pre-payment for rent-free periods
recognised over the life of the lease totalling EUR267,000 which is
separately recorded in the financial statements as a current
asset.
The following disclosure is provided in relation to the adoption
of IFRS 13 Fair Value Measurement. All properties are deemed Level
3 for the purposes of fair value measurement and the current use of
each property is considered the highest and best use.
Country and sector Fair Value Key Unobservable Range
EUR'000 inputs (weighted average)
Netherlands - Logistics 82,918 Annual rent per sq 41.14 - 67.01
ft (53.10)
Capitalisation rate 4.86% - 5.51%
(5.12%)
Germany - Logistics 21,200 Annual rent per sq 63.98 (63.98)
ft
Capitalisation rate 5.50% (5.50%)
France - Logistics 44,800 Annual rent per sq 85.13 (85.13)
ft
Capitalisation rate 4.60% (4.60%)
Sensitivity Analysis
The table below presents the sensitivity of the valuation to
changes in the most significant assumptions underlying the
valuation of investment property.
Country and sector Assumption Movement Effect on valuation
Capitalisation
Netherlands - Logistics rate +50 basis points (4,870)
- 50 basis points 5,365
Capitalisation
Germany - Logistics rate +50 basis points (1,900)
- 50 basis points 2,400
Capitalisation
France - Logistics rate +50 basis points (4,000)
- 50 basis points 2,400
10. Trade And Other Receivables
2018
EUR'000
Rents receivable 1,174
Accrued income 226
Cash held by Solicitors 975
Lease incentives 267
Other receivables 9,037
Total receivables 11,679
The ageing of these receivables is as follows:
2018
EUR'000
11,679
Less than 6 months Between 6 & 12 months -
Over 12 months -
11,679
11. Cash And Cash Equivalents
2018
EUR'000
Cash at bank 6,279
Money market funds 43,854
Total cash and cash equivalents 50,133
12. Trade And Other Payables
2018
EUR'000
Rental income received in advance 710
Accrued acquisition and development costs 5,930
Management fees payable 563
All other fees payable 1,454
Total payables 8,657
Other payables include tenant deposits of EUR636,000.
13. Share Capital
2018
EUR'000
As at 25 October 2017 -
Management shares issued in the period 56
Management shares redeemed in the period (56)
Ordinary shares issued on incorporation 1
Ordinary shares issued on admission 2,121
As at 31 December 2018 2,122
Ordinary shareholders participate in all general meetings of the
Company on the basis of one vote for each share held.
Each Ordinary share has equal rights to dividends and equal
rights to participate in a distribution arising from a winding up
of the Company. The Ordinary shares are not redeemable.
The total number of shares authorised, issued and fully paid is
187,500,001. The nominal value of each share is GBP0.01 and amount
paid for each share was GBP1.00. Share proceeds were received in
tranches between 15 and 18 December 2017 and converted to Euro at a
rate of GBP1:EUR1.1318689.
On incorporation, the issued share capital of the Company was
one Ordinary Share of a nominal value of GBP0.01, which was
subscribed for by Aberdeen Asset Management PLC. On 8 November 2017
the Company issued 50,000 Management Shares of a nominal value of
GBP1.00 each which were subscribed for by Aberdeen Asset Management
PLC. The Management Shares were fully paid up and were redeemed
immediately following the Initial admission out of the proceeds of
the Initial Issue. The Management Shares redeemable at any time
(subject to the provisions of the Companies Act) by the Company and
carried the right to receive a fixed annual dividend equal to 0.01
per cent. of the nominal amount of each of the Management Shares
payable on demand. For so long as there are shares of any other
class in issue, the holders of the Management Shares did not have
any right to receive notice of or vote at any general meeting of
the Company.
14. Share Premium
2018
EUR'000
Balance at 25 October 2017 -
Premium arising on issue of new shares @ 99p 210,102
Share issue costs deducted (2,875)
Transfer to special distributable reserve (207,227)
Balance at 31 December 2018 -
The share premium was converted to EUR using the issue date
exchange rate of 1.131869.
15. Special Distributable Reserve
2018
EUR'000
Balance at 25 October 2017 -
Transfer from share premium account Dividends
Paid 207,227
(3,536)
Balance at 31 December 2018 203,691
At a General Meeting held on 8 November 2017, a special
resolution was passed authorising, conditional on the issue of
Ordinary shares by the Company, the amount standing to the credit
of the share premium account of the Company following issue to be
cancelled. In order to cancel the share premium account the Company
was required to obtain a Court Order, which was received on 13
March 2018. A Statement of Capital form was lodged at Companies
House with a copy of the Court Order on 16 March 2018. With effect
from that date the amount of the share premium account cancelled
was credited as a special distributable reserve in the Company's
books of account.
16. Capital Reserves
Total capital
reserve
EUR'000
As at 25 October 2017
Movement in fair value losses of investments
Currency translation differences (4,080)
300
Balance at 31 December 2018 (3,780)
17. Operating Segments
The Group's reportable segments are the geographical areas in
which it operates. These operating segments reflect the components
of the Group that are regularly reviewed to allocate resources and
assess performance.
Parent
Netherlands Germany Spain France Company Total
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Total Assets 89,772 24,081 1,689 47,726 47,462 210,730
Total
Liabilities 6,211 439 20 1,386 601 8,657
Total
Comprehensive
return for
the 828 932 (26) 322 (2,016) 40
period
(Revenue)
Total
Comprehensive
return for
the (3,427) (266) - (387) 300 (3,780)
period
(Capital)
Included in
Total
Comprehensive
Income
Net gain /
(loss)
from fair
value (3,427) (266) - (387) - (4,080)
adjustment on
investment
property
Rental income 885 1,025 - 413 - 2,323
18. Financial instruments and investment properties Fair value hierarchy
IFRS 13 requires the Group to classify its financial instruments
held at fair value using a hierarchy that reflects the significance
of the inputs used in the valuation methodologies. These are as
follows:
Level 1 - quoted prices in active markets for identical
investments;
Level 2 - other significant observable inputs (including quoted
prices for similar investments, interest rates, prepayments, credit
risk, etc.); and
Level 3 - significant unobservable inputs.
The following table shows an analysis of the fair values of
investment properties recognised in the balance sheet by level of
the fair value hierarchy:
Level 1 Level 2 Level 3 Total fair
31 December 2018 EUR'000 EUR'000 EUR'000 value
EUR'000
Investment properties - - 148,918 148,918
The lowest level of input is the underlying yields on each
property which is an input not based on observable market data.
19. Risk Management
The Group's financial instruments comprise securities and other
investments, cash balances, loans and debtors and creditors that
arise directly from its operations; for example, in respect of
sales and purchases awaiting settlement, and debtors for accrued
income. The Group also has the ability to enter into derivative
transactions in the form of forward foreign currency contracts,
futures and options, for the purpose of managing currency and
market risks arising from the Group's activities. No derivatives
transactions were undertaken during the year.
The main risks the Group faces from its financial instruments
are (a) market price risk (comprising of (i) interest rate risk,
(ii) currency risk and (iii) other price risk), (b) liquidity risk
and (c) credit risk.
(a) Market price risk
The fair value or future cash flows of a financial instrument
held by the Group may fluctuate because of changes in market
prices. This market risk comprises three elements - interest rate
risk, foreign currency risk and other price risk.
(i) Market risk arising from interest rate risk
Interest rate movements may affect the level of income
receivable on cash deposits.
The possible effects on fair value and cash flows that could
arise as a result of changes in interest rates are taken into
account when making investment and borrowing decisions.
(ii) Interest risk profile
The interest rate risk profile of the portfolio of financial
assets and liabilities at the year end were as follows:
Interest Local Foreign exchange Euro equivalent
rate currency rate EUR'000
As at 31 December % '000
2018
Assets:
Euro (0.60) 46,774 EUR 1.00 46,774
Pound Sterling 0.07 3,015 0.89757 3,359
Total 50,133
The floating rate assets consist of cash deposits on call
earning interest at prevailing market rates.
An increase of 1 per cent in interest rates as at the reporting
date would have increased the reported profit by EUR501,000. A
decrease of 1 per cent would have reduced the reported profit by
EUR501,000. Other financial assets (eg debtors) are not subject to
interest rate risk.
(iii) Market risk arising from foreign currency risk
The income and capital value of the Groups investments and
liabilities can be affected by exchange rate movements as some of
the Group's assets and income are denominated in currencies other
than Euro which is the Group's reporting currency.
The revenue account is subject to currency fluctuation arising
from overseas income.
Foreign currency risk profile
Foreign currency risk exposure by currency of denomination:
Investment exposure Net monetary Total currency
EUR'000 exposure exposure
As at 31 December 2018 EUR'000 EUR'000
Danish krone Norwegian krone - 6 6
Pound Sterling - 26 26
- 3,129 3,129
Total overseas investments - 3,161 3,161
Euro 148,918 49,994 198,912
Total 148,918 53,155 202,073
The asset allocation between specific markets can vary from time
to time based on the manager's opinion of the attractiveness of the
individual markets.
Foreign currency sensitivity
The following table details the Group's sensitivity to a 10%
increase and decrease in sterling against the relevant foreign
currencies and the resultant impact that any such increase or
decrease would have on net return before tax and equity
shareholders' funds. The sensitivity analysis includes only
outstanding foreign currency denominated monetary items and adjusts
their translation at the year end for a 10% change in foreign
currency rates.
As at 31 December 2018
EUR'000
Danish krone Norwegian krone 0.6
Pound Sterling 2.6
312.9
(iv) Market risk arising from other price risk
Other price risks (i.e. changes in market prices other than
those arising from interest rate or currency risk) may affect the
value of the quoted investments.
Other price risk sensitivity
If the investment valuation fell by 10% at 31 December 2018, the
impact on net return before tax and equity shareholders funds would
have been negative EUR15m. If the investment portfolio valuation
rose by 10% at 31 December 2018, the impact on net return before
tax and equity shareholders funds would have been positive EUR15m.
Exposures vary throughout the period as a consequence of changes in
the net assets of the Group arising out of the investment and risk
management processes.
(b) Liquidity risk
This is the risk that the Group will encounter difficulty in
meeting obligations associated with financial liabilities. All
creditors are payable within three months.
The Group's liquidity risk is managed by the Investment Manager
placing cash in liquid deposits and accounts. Liquidity risk is the
risk that the Group will encounter in realising assets or otherwise
raising funds to meet financial commitments and also includes:
- The level of dividends and other distributions to be paid by
the Group may fluctuate and there is no guarantee that any such
distributions will be paid.
- The Group's target returns are targets only and are based on
estimates and assumptions about a variety of factors all of which
are beyond the Group's control and which may adversely affect the
Group's ability to make its target returns. The Group may not be
able to implement its investment policy and strategy in a manner
that generates dividends in line with the target returns or the
Group's investment objective. Liquidity risk is not considered to
be significant.
(c) Credit risk
This is the risk of failure of the counterparty to a transaction
to discharge its obligations under that transaction that could
result in the Group suffering a loss.
The risk is not considered significant by the Board, and is
managed as follows:
The Group is currently acquiring a portfolio of European
logistics properties. This will result in the group having a number
of leases with tenants. In the event of default by a tenant, the
Group will suffer a rental shortfall and incur additional costs,
including legal expenses, in maintaining, insuring and re-letting
the property until it is re-let. The Board receives regular reports
on concentrations of risk and any tenants in arrears. The
Investment Manager monitors such reports in order to anticipate and
minimise the impact of defaults by tenants. Cash is held only with
reputable financial institutions with high quality external credit
ratings.
None of the Group's financial assets is secured by
collateral.
The maximum credit risk exposure as at 31 December 2018 was
EUR61.8m. This was due to trade receivables and cash as per notes
10 and 11.
(d) Taxation and Regulation risks
All cash is placed with financial institutions with a credit
rating of -A or above. Bankruptcy or insolvency may cause the
Group's ability to access cash placed on deposit to be delayed or
limited. Should the credit quality or the financial position of the
financial institutions currently employed significantly
deteriorate, the Investment Manager would move the cash holdings to
another financial institution. There are no significant
concentrations of liquidity risk within the Group.
The Company must comply with the provisions of the Companies Act
and, as the shares are admitted to the premium segment of the
Official List, the Listing Rules and the Disclosure Guidance and
Transparency Rules.
A breach of the Companies Act could result in the Company and/or
the Board being fined or being the subject of criminal proceedings.
Breach of the Listing Rules could result in the shares being
suspended from listing. Legal and regulatory changes could occur
that may adversely affect the Company. Changes in the regulation of
companies may adversely affect the value of the Portfolio and the
ability of the Company to pursue its investment objective. The
Company has obtained UK Investment Trust Company status. The
Company must comply with the provisions of sections 1158 and 1159
of the Corporation Tax Act 2010 and Part 2 Chapter 1 of Statutory
Instruments 2011/2999 to maintain this status. Breaching these
regulations could result in the Company paying UK Corporation Tax
it would otherwise be exempt from, adversely affecting the
Company's ability to pursue its investment objective.
Capital Management
The Group considers that capital comprises issued Ordinary
shares and long term borrowings. The Group's capital is deployed in
the acquisition and management of subsidiaries in line with the
Group's investment objective.
Specifically to provide a regular and attractive level of income
return together with the potential for long term income and capital
growth from investing in high quality European logistics real
estate.
The following investment limits and restrictions will apply to
the Group and its business which, where appropriate, will be
measured at the time of investment and once the Group is fully
invested:
- the Group will only invest in assets located in Europe;
- no more than 50 per cent. of Gross Assets will be concentrated in a single country;
- no single asset may represent more than 20 per cent. of Gross Assets;
- forward funded commitments will be wholly or predominantly
pre-let and the Group's overall exposure to forward funded
commitments will be limited to 20 per cent. of Gross Assets;
- the Group's maximum exposure to any single developer will be
limited to 20 per cent of Gross Assets;
- the Group will not invest in other closed-ended investment companies;
- the Group may only invest in assets with tenants which have
been classified by the Investment Manager's investment process as
having strong financial covenants; and
- no single tenant will represent more than 20 per cent. of the
Group's annual gross income measured annually.
The Group's principal use of cash will be to fund investments in
accordance with its investment policy, on-going operational
expenses and to pay dividends and other distributions to
shareholders, as set out in the Prospectus. The Group may from time
to time have surplus cash (for example, following the disposal of
an investment). Pending reinvestment of such cash, it is expected
that any surplus cash will be temporarily invested in cash
equivalents, money market instruments, bonds, commercial paper or
other debt obligations with financial institutions or other
counterparties having a single -A (or equivalent) or higher credit
rating as determined by an internationally recognised rating
agency; or "government and public securities" as defined for the
purposes of the FCA rules.
The Group monitors capital primarily through regular financial
reporting and also through a gearing policy. The Group intends to
use gearing with the objective of improving shareholder returns.
Debt will typically be secured at the asset level and potentially
at the Group level with or without a charge over some or all of the
Group's assets, depending on the optimal structure for the Group
and having consideration to key metrics
including lender diversity, cost of debt, debt type and maturity
profiles. Borrowings will typically be non-recourse and secured
against individual assets or groups of assets and the aggregate
borrowings will always be subject to an absolute maximum,
calculated at the time of drawdown for a property purchase, of 50
per cent. of Gross Assets. Where borrowings are secured against a
group of assets, such group of assets shall not exceed 25 per cent.
of Gross Assets in order to ensure that investment risk remains
suitably spread. The Board has established gearing guidelines for
the AIFM in order to maintain an appropriate level and structure of
gearing within the parameters set out above. Under these
guidelines, aggregate borrowings are expected to be at or around 35
per cent. of gross assets. The Board will keep the level of
borrowings under review and the aggregate borrowings will always be
subject to the absolute maximum set at the time of the Group's
launch, calculated at the time of drawdown for a property purchase,
of 50 per cent. of Gross Assets.
20. Related Party Transactions
The Company's Alternative Investment Fund Manager ('AIFM')
throughout the period was Aberdeen Standard Fund Managers Limited
("ASFML"). Under the terms of a Management Agreement dated 17
November 2017 the AIFM is appointed to provide investment
management services, risk management services and general
administrative services including acting as the Company Secretary.
The agreement is terminable by either the Company or ASFML on not
less than 12 months' written notice, following 2 years from the
date of Admission of the Company to the London Stock Exchange.
Under the terms of the agreement portfolio management services
are delegated by ASFML to Aberdeen Standard Investments Ireland
Limited ('ASIIL'). The total management fees charged to the
Consolidated Statement of Comprehensive Income during the period
were EUR587,000, of which EUR563,000 were payable at the period
end. Under the terms of a Global Secretarial Agreement between
ASFML and Aberdeen Asset Management PLC ('AAM PLC'), company
secretarial services are provided to the Company by AAM PLC.
The remuneration of Directors is detailed below. Further details
on the Directors can be found on pages 30 to 32 of the published
Annual Report.
2018
EUR'000
Pascal Duval 51
Caroline Gulliver 45
John Heawood 39
Tony Roper 39
Diane Wilde 39
213
Please note the above figures are all Euro, while those in the
directors remuneration report are stated in GBP.
21. Lease Analysis
The Group leases out its investment properties under operating
leases.
The future income under non-cancellable operating leases, based
on the unexpired lease length at the year end was as follows (based
on total rents)
2018
EUR'000
Less than one year 6,894
Between one and five years 26,485
Over five years 40,499
Total 73,878
22. Post Balance Sheet Events
Following the period end the Group completed the acquisitions of
assets in Leon, Krakow, Meung Sur Loire and Erlensee. The Group
also drew external debt secured against 4 assets, Florsheim,
Erlensee, Avignon and Meung sur Loire.
23. Capital Commitments
As at the 31 December 2018 the Group had capital commitments of
EUR91.2m, specifically:
- EUR33.3m relating to the purchase of a property in Erlensee,
Germany. The acquisition completed in February 2019.
- EUR22.4m relating to the purchase of a property in
Meung-sur-Loire, France. The acquisition completed in February
2019.
- EUR13.8m relating to the forward purchase of a property in
Leon, Spain. The acquisition completed in April 2019.
- EUR9m relating to the forward funding of a property in Oss, Netherlands.
- EUR12.7m relating to the forward funding of a property in Zeewolde, Netherlands.
24. Ultimate Parent Company
In the opinion of the Directors on the basis of shareholdings
advised to them, the Company has no immediate or ultimate
controlling party.
SUSTAINABILITY
EPRA FINANCIAL REPORTING (UNAUDITED)
One of EPRA's aims is to improve the transparency, comparability
and relevance of the published results of listed real estate
companies in Europe. EPRA performance measures calculated in line
with 'Best Practice Recommendation Guidelines - November 2016' are
therefore enclosed.
EPRA Performance Measures
31 December 2018
Total
EPRA earnings (EUR'000) 340
EPRA earnings per share (cents) 0.18
EPRA NAV (EUR'000) 202,073
EPRA NAV per share (cents) 107.77
EPRA NNNAV (EUR'000) 202,073
EPRA NNNAV per share (cents) 107.77
EPRA Net Initial Yield 1.68%
EPRA topped-up Net Initial Yield 1.78%
EPRA Vacancy Rate 0.0%
EPRA Cost Ratios - including direct vacancy costs 79%
EPRA Cost Ratios - excluding direct vacancy costs 79%
A. EPRA Earnings
Earnings per IFRS income statement (EUR'000) (3,740)
Adjustments to calculate EPRA Earnings, exclude:
Net changes in value of investment properties
(EUR'000) 4,080
EPRA Earnings (EUR'000) 340
Basic number of shares 187,500,001
EPRA Earnings per share (cents) 0.18
B. EPRA Net Asset Value
IFRS NAV (EUR'000) 202,073
Shares in issue at end of year 1,875,001
EPRA NAV per share (cents) 107.77
C. EPRA Triple Net Asset Value (NNNAV)
EPRA NAV (EUR'000) 202,073
EPRA NNNAV (EUR'000) 202,073
EPRA NNNAV per share (cents) 107.77
D. EPRA Net Initial Yield and 'topped up' NIY
disclosure
Investment property - wholly owned 149,185
Less developments (23,740)
Completed property portfolio 125,445
Allowance for estimated purchasers' costs 5,279
Gross up completed property portfolio valuation 130,724
Annualised cash passing rental income 2,391
Property outgoings (198)
Annualised net rents 2,193
Add: notional rent expiration of rent free periods
or other lease incentives 138
Topped-up net annualised rent 2,331
EPRA NIY 1.68%
EPRA "topped-up" NIY 1.78%
E. EPRA Cost Ratios
Administrative / property operating expense line
per IFRS income statement 1,843
EPRA Costs (including direct vacancy costs) 1,843
Direct vacancy costs -
EPRA Costs (excluding direct vacancy costs) 1,843
Gross Rental income less ground rent costs 2,323
EPRA Cost Ratio (including direct vacancy costs) 79%
EPRA Cost Ratio (excluding direct vacancy costs) 79%
The Annual Financial Report Announcement is not the Company's
statutory accounts. The above results for the period ended 31
December 2018 are an abridged version of the Company's full Annual
Report and financial statements, which have been approved and
audited with an unqualified report and did not include any
reference to matters to which the auditor drew attention by way of
emphasis without qualifying the report, and did not contain a
statement under s.498 of the Companies Act 2006.
The Annual Report will be posted to shareholders in May 2019 and
additional copies will be available from the registered office of
the Company and on the Company's website,
eurologisticsincome.co.uk*
The Annual General Meeting will be held at 12.30 pm on 11 June
2019 at Bow Bells House, 1 Bread Street, Edinburgh EH2 2BY.
Please note that past performance is not necessarily a guide to
the future and that the value of investments and the income from
them may fall as well as rise and may be affected by exchange rate
movements. Investors may not get back the amount they originally
invested.
*Neither the content of the Company's website nor the content of
any website accessible from hyperlinks on the Company's website (or
any other website) is (or is deemed to be) incorporated into, or
forms (or is deemed to form) part of this announcement.
For Aberdeen Standard European Logistics Income PLC
Aberdeen Asset Management PLC, Secretaries
18 April 2019
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR LLFFDSAITLIA
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