Annual Report • Oct 31, 2017
Annual Report
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Interim Report and Financial Statements for the six months ended 31 October 2017
| Financial Highlights | 1 |
|---|---|
| Property Highlights | 1 |
| Chairman's Statement | 2-4 |
| Key Performance Indicators | 5-7 |
| Investment Manager's Report | 8-14 |
| Principal Risks and Uncertainties | 15 |
| Directors' Responsibilities Statement | 16 |
| Independent Review Report | 17 |
| Financial Statements | |
| Condensed Statement of Comprehensive Income | 18 |
| Condensed Statement of Changes in Equity | 19-20 |
| Condensed Statement of Financial Position | 21 |
| Condensed Statement of Cash Flows | 22 |
| Notes to the Condensed Financial Statements | 23-39 |
| EPRA Unaudited Performance Measures | 40-42 |
| Company Information | 43-44 |
| Glossary | 45-47 |
I am pleased to present the unaudited interim results ofthe Company forthe period from 1 May 2017 to 31 October 2017.
The Company began the period in May 2017 by completing the sale ofthe remaining units held in the AEW UKCore Property Fund ('Core Fund'), raising £7.7 million. These proceedswere used to acquire propertiesin Runcorn and Deeside for a total of £5.2 million. In July 2017, the Company acquired Wyndeham, Peterborough for £5.7 million, partially funded via a £3.5 million drawdown from the Company'sloan facilitywith The Royal Bank of Scotland International Limited ('RBSi') and partially using remaining cash following the Core Fund disposal.
Following these transactions, the Company had fully utilised both cash of £121.3 million raised in share placingssince itsinception in May 2015, and itsloan facilitywith RBSi of £32.5m. With this being the first quarterwith a fully invested portfolio the Company yielded EPRA EPS of 2.10 pence from 1 May 2017 to 31 July 2017, in linewith the Company target of a 2 pence quarterly dividend.
The Company hassince disposed ofValley Retail Park, Belfast in September 2017 for £11.05 million. This propertywas acquired in August 2015 for £7.15 million and following extensive asset management, repositioning and implementing the business plan, the propertywassold, realising a significant gain against historical cost. The reported loss of £0.22 million compared to the carrying value in the six month period ended 31 October 2017 represents the selling costs.
During the period underreview, I am pleased to report that the Company'sshare price consistently traded at a premium to NAV, ranging from 4.2% to a peak of 8.9%, enabling the Company to raise further capital. In October 2017, the Company issued 27.91 million new Ordinary Shares at 100.5 pence pershare, raising gross proceeds of £28.05 million. In a climate of Brexit related uncertainty, thiswas a positive result and is expected to benefit ourshareholders by improving liquidity in the shares and furtherreducing the ongoing charges ratio. The Initial Issue price represented a premium of 3.76% to NAV, enabling the issuance costs to be absorbed without diluting NAV.
The Initial Issue ofthe 12 month share issuance programme, togetherwith the sale of Belfast, will have a temporary dilutive impact on EPS until these funds are fully deployed in newproperty acquisitions. The Company purchased a property in Portsmouth for £6.4 million on 31 October and the Company expectsto commitsubstantially all the net proceeds ofthe Initial Issuewithin 3 months. It remainsthe Company's target to pay a fully covered 2 pence per share dividend once fully invested.
Over the six month period, dividend payments combined with an increase in share price of 0.94% produced a total shareholder return of 5.17%.
As at 31 October 2017, the Company had established a diversified portfolio of 32 commercial investment propertiesthroughout the UK with a weighted average true equivalent yield of 8.2%.
Underlying property valuations have shown like-for-like increases during the two quarterly valuation reviewsin July and October 2017 of 1.33% and 1.5% respectively.
| Period from 1 May 2017 to 31 October 2017 (unaudited) |
Period from 1 May 2016 to 31 October 2016 (unaudited) |
Year ended 30 April 2017 (audited) £'000 |
|
|---|---|---|---|
| Operating Profit before fair value changes (£'000) | 4,960 | 4,989 | 9,806 |
| Operating Profit (£'000) | 7,297 | 894 | 6,858 |
| Profit after Tax (£'000) | 6,989 | 493 | 6,099 |
| Earnings Per Share (basic and diluted) (pence) | 5.60 | 0.42 | 5.04 |
| EPRA Earnings Per Share (basic and diluted) (pence) | 3.73 | 3.81 | 7.57 |
| Ongoing Charges (%) | 1.30 | 1.67 | 1.52 |
| Net Asset Value per share (pence) | 97.80 | 95.47 | 95.98 |
| EPRA Net Asset Value per share (pence) | 97.78 | 95.41 | 95.95 |
Operating profit and profit aftertax have seen significant increases in comparison with the six months to 31 October 2016, as a result of changes in the fair value of investment properties, being a £2.48 million increase for the six months to 31 October 2017 (six months to 31 October 2016: decrease of £3.73 million; twelve monthsto 30 April 2017: decrease of £3.16 million). These movements can be attributed to both the positive effect of asset management initiativesin the current period and positive yield movement, particularly across our portfolio of industrial assets.
The Ongoing Chargesratio has decreased significantly comparedwith both the six monthsto 31 October 2016 and the twelve months to 30 April 2017. This comes asthe Company continuesto raise newcapital, but certain overhead costsremain fixed, allowing the Company to benefit from economies ofscale.
NAV pershare increased by 1.9% overthe six monthsto 31 October 2017,which reflectsthe aforementioned valuation increasesin the property portfolio. The Company's property portfolio has been independently valued by Knight Frank in accordancewith the RICS Valuation – Professional Standards(the 'Red Book'). As at 31 October 2017, the Company's Portfolio had a FairValue of £147.8 million, an increase of £4.9 million or 3.4% on the combined purchase price ofthe Portfolio of £142.9 million (excluding purchase costs).
During the six month period to 31 October 2017, the Company made utilisation requeststotalling £3.5 million, bringing the total drawdown amount under the loan facility to £32.5 million.
On 17 October 2017, the Company amended the terms ofitsloan facilitywith RBSi to increase the facility limit from £32.5 million to £40 million.
The loan attractsinterest at 3 month LIBOR +1.4%, making an all-in rate at 31 October 2017 of 1.69% (31 October 2016: 1.92% ; 30 April 2017: 1.74%). The Company is protected from a significant rise in interest rates asit hasinterest rate CAPswith a combined notional value of £26.5 million and a strike rate of 2.5%.
As at 31 October 2017, the unexpired term of the facility was 3.0 years and the gearing was 22.0% (as calculated on the Gross Asset Value ('GAV') of the investment portfolio).
At the Company's General Meeting on 17 October 2017, a resolutionwas passed to increase the Company's maximum borrowing limit to 35% ofGAV. The long term gearing target remains 25% orless ofGAV.
The Company has continued to deliver on itstarget of declaring dividends oftwo pence perOrdinary Share per quarter.
On 1 December2017,the Board declared an interim dividend oftwo pence perOrdinary Share, in respect ofthe period from 1 August 2017 to 31October2017. Thisinterim dividendwill be paid on 29 December2017 to shareholders on the register as at 15 December2017.
The Directorswill declare dividendstaking into account the level ofthe Company's net income and the Directors' viewon the outlook for sustainable recurring earnings. As such, the level of dividends paid may increase or decrease from the current annual dividend of 8 pence pershare. Based on current market conditions, the Company expectsto pay an annualised dividend of 8 pence pershare in respect ofthe financial period ending 31 March 2018 and forthe interim period to 30 September 2018.
In orderto align dividend paymentswith the Company's newaccounting period, in respect ofthe 3 month period to 31 October 2017, the Company expects to pay a dividend of 2 pence pershare and then, in respect ofthe 2 month period to 31 December 2017, it currently intendsto pay a further dividend at a rate oftwo-thirds ofthe 2 pence pershare dividend currently being paid for a three month period (reflecting the two month period). With the dividend to the period to 31 October 2017, the Company will have paid 17.5 pence per share since launch.
The Board are pleasedwith the strong total returns delivered to ourshareholdersto date through the diversified and high-yielding property portfolio that has been established by the Investment Manager. The Company has delivered totalshareholderreturns of 5.17% over the 6 months to 31 October 2017 and of 10.90% over the 12 months to 31 October 2017.
At the Company'srecent General Meeting a resolutionwas passed to amend the Company'sInvestment Restrictionsso that the value of properties, measured at the time of each investment, in any one ofthe following sectors: office properties, retailwarehouses, high street retail and industrial/warehouse properties will not exceed 50 per cent of GAV, compared with NAV previously. This change enables the Company to purchase further propertiesin the Industrialsector, inwhich the Investment Manager continuesto see significant opportunities. The sectorweightings may change in the future in linewith the Investment Manager's viewof market opportunities at the time.
In the Company's Annual Report forthe year ended 30 April 2017, Iwrote that "it is still unknown how the impact of Brexit will unfold and it is likely we will need to wait for some time to know the terms of the UK's exit from the EU and how this will impact on the UK commercial property market". AsIwrite, thisstill remainsthe case six monthslater. We await to hearthe outcome offurther Brexit negotiations and to see if the recent interest rate rise of 0.25% by the Bank of England has any impact on the economy and the property market.
Looking forward, ourfocusremains on continuing to growthe Companywith furthershare issues as part of the 12 month share issuance programme asset out in the Company's Prospectus,subject to market conditions. The Company has a strategy to raise funds at intervals in order to minimise cash drag.
The Investment Manager continuesto focus on adding value to the existing portfolio and on finding future acquisitionswhich will deliver an attractive return as part of awell diversified portfolio. We look forward to announcing newacquisitions and asset management deals in the near future.
Finally, please note that the Company is changing its financial year end from 30 April to 31 March. As a result, our next Annual Report will cover a period of eleven monthsfrom 1 May 2017 to 31 March 2018. This change has been made to align the Company'sreporting dates with those of its peers in the UK commercial property sector.
Mark Burton Chairman 6 December 2017
A representation to the investor of what their initial net yield would be at a predetermined purchase price after taking account of all associated costs. E.g. void costs and rent free periods.
The average weighted return a property will produce according to the present income and estimated rental value assumptions, assuming the income is received quarterly in advance.
The expected return the propertywill provide once rack rented.
The average lease term remaining to expiry across the portfolio, weighted by contracted rent.
The Triple Net Initial Yield is in line with the Company's target dividend yield meaning that, after costs, the Company should have the ability to meet its target dividend through property income.
An Equivalent Yield profile in linewith the Company's target dividend yield shows that, after costs, the Company should have the ability to meet its proposed dividend through property income.
A Reversionary Yield profile that isin linewith an Initial Yield profile shows a potentially sustainable income stream that can be used to meet dividends past the expiry of a property's current leasing arrangements.
The Investment Manager believesthat current market conditions present an opportunity whereby assets with a shorter unexpired lease term are often mispriced. It is also the Investment Manager's viewthat a shorterWAULT is useful for active asset management as it allows the Investment Managerto engage in direct negotiation with tenants rather than via rent review mechanisms.
at 31 October 2017 (30 April 2017: 7.63%).
at 31 October 2017 (30 April 2017: 8.50%).
at 31 October 2017 (30 April 2017: 8.37%).
at 31 October 2017 (30 April 2017: 6.37 years).
The average lease term remaining to break, across the portfolio weighted by contracted rent.
6. NAV
NAV is the value of an entity's assets minus the value of its liabilities.
The proportion of our property portfolio that is funded by borrowings.
The space in the property portfolio which is currently unlet, as a percentage of the total ERV of the portfolio.
Dividends declared in relation to the year. The Company targets a dividend of 8.0 pence per Ordinary Share per annum.
the Investment Manager's view that a shorter WAULT is useful for active asset management as it allows the Investment Manager to engage in direct negotiation with tenants rather than via rent review mechanisms.
The Investment Manager believes that current market conditions present an opportunity whereby assets with a shorter unexpired lease term are often mispriced. As such, it is in line with the Investment Manager's strategy to acquire properties with a WAULT that is generally shorter than the benchmark. It is also
The NAV reflects the Company's ability to grow the portfolio and add value to it throughout the life cycle of its assets.
The Company utilises borrowings to enhance returns over the medium term. Borrowings will not exceed 35% of GAV (measured at drawdown) with a long term target of 25% or less of GAV.
The Company's aim isto minimise vacancy of the properties. A low level of structural vacancy provides an opportunity for the Company to capture rental uplifts and manage the mix of tenants within a property.
The dividend reflects the Company's ability to deliver a sustainable income stream from its portfolio.
4.57 years at 31 October 2017 (30 April 2017: 5.22 years).
at 31 October 2017 (30 April 2017: £118.67 million).
at 31 October 2017 (30 April 2017: 19.31%).
at 31 October 2017 (30 April 2017: 7.22%).
for the quarter to 31 October 2017. This supports an annualised target of 8.0 pence per share.
The ratio of total administration and operating costs expressed as a percentage of average NAV throughout the period.
PBT is a profitability measurewhich considersthe Company's profit before the payment of income tax.
The percentage change in the share price assuming dividends are reinvested to purchase additional Ordinary Shares.
Earnings from core operational activities. A key measure of a company's underlying operating results from its property rental business and an indication of the extent to which current dividend payments are supported by earnings. See note 7.
TheOngoing Chargesratio provides a measure of total costs associated with managing and operating the Company, which includes the management fees due to the Investment Manager. The Investment Managerpresentsthis measure to provide investors with a clear picture of operational costs involved in running the Company.
The PBT is an indication ofthe Company's financial performance forthe period inwhich its strategy is exercised.
Thisreflectsthe return seen by shareholders on their shareholdings.
Thisreflectsthe Company's ability to generate earnings from the portfolio which underpins dividends.
for the six months to 31 October 2017 (30 April 2017: 1.52%).
for the six months to 31 October 2017 (six months to 31 October 2016: £0.49 million).
for the six months to 31 October 2017 (six months to 31 October 2016: 2.73%).
for the six months to 31 October 2017 (six months to 31 October 2016: 3.81 pps).
Following a resilient response in the immediate aftermath ofthe Brexit vote, UK economic growth slowed in the first half of 2017 as inflation rose sharply,squeezing household spending power. Therewas a slight pick-up in Q3 2017 due to a stronger performance by the industrialsector, but expectations are that growthwill remain subdued. The UK isforecast to growby 1.5% in both 2017 and 2018 (Oxford Economics Country Economic Forecast UK), largely owing to continued uncertainty about the outcome of Brexit negotiations, which are projected to undermine investment decisions.
In November 2017, the Bank of England raised interest ratesforthe first time in more than 10 years,with the Monetary Policy Committee (MPC) citing the rising inflation, lowunemployment levels and stronger global economic growth asreasons behind the increase. Bank of England governor, Mark Carney, hassaid that the Bank expected the UK economy to growat about 1.7% per annum overthe next fewyears,which could result in furtherinterest rate increases. The current interest rate rise,which merely reversed the cut afterthe EU referendum result, is unlikely to have a significant effect on growth, asinterest rates are still at the lowsseen since the financial crisis. Howeverfurtherrisesin the short term could have a greaterimpact.
Looking ahead, Mr Carney hassaid:"The biggest determinate of our outlook is going to be those negotiations ongoing on Brexit – both a transition deal to a new arrangement and what is the longer form arrangement with the European Union."
The impactwhich rising inflation and interest rates have on the gilts curvewill ultimately impact the relative pricing of property. For "traditional property",we are a longway through the cycle and property fundamentals are in some sectorsrelativelyweak at thistime of uncertainty. However, property isstill in the advantageous position of offering one ofthe highest yieldsfrom traditional asset classes and the yield gap isrelatively high. Our viewisthat thisis because fixed income yields are low and unattractive, and that the rise in interest rates could see the yield gap start to close.
We do however believe that in an environment of normalising interest rates, rising in response to growing economic activity, it will be real estate strategies that focus more on the underlying value of the property fundamentals that should perform well, where the quality of the asset dictates the sustainability of income and the ability to capture income growth driven by the strength of the real economy. The Company aimsto deliver an attractive total return to shareholdersfrom investing predominantly in a portfolio ofsmaller commercial propertiesin strong commercial locations acrossthe UK. In the Investment Manager's view, it istherefore not assusceptible to capital value erosion as may be experienced by holders of prime asset portfolios.
In terms ofsectorfocus, demand from logistics operatorsremainsstrong in a supply constrained market,which issupporting strong investor demand thatseemsto have spread to all parts ofthe industrial market. Elsewhere there isstrong competition among investors who can only buy long, investment grade income as a proxy for historically lowfixed-income yields, but there is still good value to be found in a steady volume oftraditional core opportunities being offered to the market. With much focusin the market on longerleased properties,we are seeing some compelling buying opportunitiesin ourstrategywhich continuesto find yield premium by investing in smallerlotsize properties, let on shorterthan average leases, butwith a focus on sustainable locations and replicable income streams.
The Company has £39.9 million (cash forinvestment and debt facility) forfurther acquisitions ofwhich £22.9 million is under offer(as 30 November 2017).
The investment objective ofthe Company isto deliver an attractive total return to shareholdersfrom investing predominantly in a portfolio of smaller commercial properties in the United Kingdom.
In orderto achieve itsinvestment objective the Company investsin freehold and leasehold properties acrossthewhole spectrum ofthe commercial property sector(office properties, retailwarehouses, high street retail, industrial/warehouse and alternative properties) to achieve a balanced portfoliowith a diversified tenant base.
The Company exploitswhat it believesto be the compelling relative value opportunities offered by pricing inefficienciesin smaller commercial propertieslet on shorter occupational leases. The Company intendsto supplement this core strategywith asset management initiativesto upgrade buildings and thereby improve the quality ofincome streams. In the current market environment the focus will be to invest in properties which:
The Company'sstrategy isfocused on delivering enhanced returnsfrom the smaller end (up to £15 million) ofthe UK property market. The Company believesthat there are currently pricing inefficienciesin smaller commercial propertiesrelative to the long term pricing resulting in a significant yield advantagewhich the Company hopesto exploit. Thisis demonstrated in the graphs below;
Note: Equivalent yield is a weighted average of the initial yield and reversionary yield, and represents the yield which the property will produce based on the timing of the income received.
The Company isinvested in a diversified portfolio of commercial propertiesthroughout the UK. Newacquisitions have been selected to provide a sustainable income return and the potential for growth,whilst also limiting downside risk. The majority ofthe Company's assets are fully let and, as at 31 October 2017, the Company had a vacancy rate of 8.59% (30 April 2017: 7.22%). The following significant investment transactionswere made during the period:
Wyndeham, Peterborough in July 2017, the Company announced the acquisition of a c.182,000 sq ftsingle-let industrial building in Peterborough for £5.7 million, reflecting a Net Initial Yield of 8.64% and a capital value of c.£31 persq ft. The asset,which islocated within the Eastern Industrial Estate, isfully let to Walstead Investments Limited for a term ofjust under 4 yearsto expiry. The passing rent of £2.88 per sq ft is low in comparison to some of the recent lettings in the city and the immediate vicinity of the property.
• Commercial Road, Portsmouth in October 2017, the Company acquired 208-220 Commercial Road and 7-13 Crasswell Street, Portsmouth, for £6.37 million. The asset provides a Net Initial Yield of 9.6% and isfully let to seven retail tenants and one office tenant, providing a WAULT of 4 yearsto expiry. The 12,475 sq ft retail property issituatedwithin the prime pedestrianised pitch of Commercial Roadwithin Portsmouth's city centre.
As at 31 October 2017, the Company's portfolio had a fair value of £147.79 million (30 April 2017: £137.82 million). The increase of £9.97 million is represented by the acquisition of four properties for a combined purchase price of £16.99 million, the disposal of one propertywith carrying value of £11.05 million and a like-for-like valuation increase of £4.03 million overthe period.
We undertake active asset management to seek opportunitiesto achieve rental growth, let vacantspace and enhance value through initiativessuch asrefurbishments. During the period, key asset management initiativesincluded:
The belowgraph illustratesthe Company'sincome, capital and total returns against the AREF/IPD UKQuarterly Balanced Fund Index (referred to as BMK below) as at 31 July 2017.
Source: AREF/IPD UK Quarterly Balanced Fund Index as at 30 June 2017, AEW data, calculated by AEW using MSCI methodology as at July 2017. 2016 shows calendar year, 2017 is year to date. Analysis is conducted on a "Standing Investment" basis i.e. exclusive of transaction costs and development activity.
Total returns achieved by the Company have materially exceeded those produced by the benchmark over all the time frames since the Company's inception in May 2015.
The belowchartsillustrate the sector and geographicalweightings ofthe Company's property portfolio as at 31 October, based on
At 31 October 2017 At 31 October 2017
The Company continuesto build on a diversified portfolio of properties and as at 31 October 2017 holds 32 investment properties (30 April 2017: 29 investment properties). Net rental income earned from the portfolio for the six months ended 31 October 2017 was £5.86 million (six months to 31 October 2016: £5.54 million; twelve months to 30 April 2017: £11.07 million), contributing to an operating profit before fair value changes and disposals of £4.96 million (six monthsto 31 October 2016: £4.99 million; twelve months to 30 April 2017: £9.81 million).
The Company disposed ofitsremaining holding in the Core Fund on 9 May 2017 fortotal proceeds of £7.67 million. The Company had held an ownership in the Core Fund since May 2015 and sawa total return of 13% overthe hold period. The unitswere sold at a price in excess ofthe Core Fund'sthen most recent published NAV and generated a profit on disposal of £0.07 million.
Administrative expenses,which include the Investment Manager'sfee and other costs attributable to the running ofthe Company,were £0.90 million for the period (six months to 31 October 2016: £0.87 million; twelve months to 30 April 2017: £1.84 million) and Ongoing Charges for the period were 1.30% (six months to 31 October 2016: 1.67%; twelve months to 30 April 2017: 1.52%).
The Company incurred finance costs of £0.31 million during the period (six months to 31 October 2016: £0.40 million; twelve months to 30 April 2017: £0.76 million). Included in these costsis a decrease in fair value ofinterest rate derivatives of £0.01 million forthe six months to 31 October 2017 (six months to 31 October 2016: £0.07 million; twelve months to 30 April 2017: £0.12 million).
The total profit before tax forthe period of £6.99 million (six monthsto 31 October 2016: £0.49 million; twelve monthsto 30 April 2017: £6.10 million) equates to a basic earnings per share of 5.60 pence (six months to 31 October 2016: 0.42 pence; twelve months to 30 April 2017: 5.04 pence). Thisincrease islargely due to gainsin the fair value ofinvestment properties of £2.48 million forthe six months to 31 October 2017 compared with losses of £3.73 million for the six months to 31 October 2016.
The Company's NAV as at 31 October 2017was £148.22 million or 97.80 pence pershare ("pps") (31 October 2016: £118.05 million or 95.47 pps; 30 April 2017: £118.67 million or 95.98 pps). Thisis an increase of 1.82 pps or 1.90%,with the underlying movement in NAV set out in the table below:
| Pence per share |
£ million | |
|---|---|---|
| NAV at 1 May 2017 | 95.98 | 118.68 |
| Change in fair value of investment property | 2.05 | 2.48 |
| Change in fair value of derivatives | (0.01) | (0.01) |
| Loss on disposal of investment property | (0.17) | (0.22) |
| Profit on disposal of investments | 0.05 | 0.07 |
| Rental and other income earned for the period | 5.22 | 6.50 |
| Expenses and net finance costs for the period | (1.47) | (1.84) |
| Dividends paid | (4.00) | (4.94) |
| Issue of equity (net of costs) | 0.15 | 27.50 |
| NAV at 31 October 2017 | 97.80 | 148.22 |
EPRA EPS forthe period was 3.73 pps (six months to 31 October 2016: 3.81 pps)which, based on dividends paid of 4 pps, reflects a dividend cover of 93.25%. As the Company continues to grow, EPRA EPS is adversely impacted by the time lag between raising and investing newcapital. Howeverthe Companywill benefit from a lower ongoing chargesratio and, once the capital proceeds have been fully invested, the Company expects to be able to sustain a fully covered dividend at 8 pps per annum.
As at 31 October, the Company had utilised £32.50 million (30 April 2017: £29.01 million) of an available £40 million credit facility with RBSi, maturing in October 2020. Gearing as at 31 Octoberwas 22.0% (Loan to GAV) (30 April 2017: 19.3%). The loan attractsinterest at LIBOR + 1.4% (30 April 2017: LIBOR + 1.4%). To mitigate the interest rate risk that arises as a result of entering into a variable rate linked loan, the Company holdsinterest rate caps on £26.51 million (30 April 2017: £26.51 million) ofthe loan at a strike rate of 2.5% (30 April 2017: 2.5%), meaning that the loan is 82% hedged (30 April 2017: 91%).
AEW UK Investment Management LLP 6 December 2017
The principal risks and uncertaintiesthe Company faces are described in detail on pages 26 to 29 of the 2017 Annual Report, and are summarised below.
The Board considersthat the principal risks and uncertainties as presented in the 2017 Annual Reportwere unchanged during the period.
• The Company has a UK REIT statusthat provides a tax-efficient corporate structure. Any change to the tax status orin UK legislation could impact on the Company's ability to achieve its investment objectives and provide attractive returns to Shareholders.
• Following the vote to leave the EU in the June 2016 referendum, uncertainty remainssurrounding the EU exit process and timing. There could be further political and economic eventsthat adversely impact on the Company's performance.
We confirm that to the best of our knowledge:
A list ofthe Directorsis maintained on the AEW UK REIT plcwebsite atwww.aewukreit.com
By order ofthe Board
Mark Burton Chairman
6 December 2017
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 October 2017 which comprises the Condensed Statement of Comprehensive Income, Condensed Statement of Changes in Equity, Condensed Statement of Financial Position, Condensed Statement of Cash Flows and the related explanatory notes.
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financialstatements in the half-yearly financial report for the six months ended 31 October 2017 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the Disclosure Guidance and Transparency Rules("the DTR") ofthe UK's Financial Conduct Authority ("the UK FCA").
We conducted our review in accordancewith International Standard on ReviewEngagements(UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review ofinterim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of allsignificant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR ofthe UK FCA.
The annual financial statements of the Company are prepared in accordancewith International Financial Reporting Standards as adopted by the EU. The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted by the EU.
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Thisreport is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements ofthe DTR ofthe UK FCA. Ourreviewhas been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for ourreviewwork, for this report, or for the conclusions we have reached.
Bill Holland for and on behalf of KPMG LLP Chartered Accountants 15 Canada Square London E14 5GL
6 December 2017
for the six months ended 31 October 2017
| Period from | Period from | |||
|---|---|---|---|---|
| 1 May 2017 | 1 May 2016 | Year ended | ||
| to 31 October | to 31 October | 30 April | ||
| 2017 | 2016 | 2017 | ||
| (unaudited) | (unaudited) | (audited)* | ||
| Notes | £'000 | £'000 | £'000 | |
| Income | ||||
| Rental and other income | 3 | 6,496 | 6,054 | 12,503 |
| Property operating expenses | 4 | (641) | (517) | (1,434) |
| Net rental and other income | 5,855 | 5,537 | 11,069 | |
| Dividend income | 3 | – | 326 | 576 |
| Net rental and dividend income | 5,855 | 5,863 | 11,645 | |
| Other operating expenses | 4 | (895) | (874) | (1,839) |
| Operating profit before fair value changes | 4,960 | 4,989 | 9,806 | |
| Change in fair value of investment properties | 9 | 2,480 | (3,726) | (3,159) |
| (Loss)/profit on disposal of investment properties | 9 | (216) | 410 | 731 |
| Change in fair value of investments | 9 | – | (779) | (407) |
| Profit/(loss) on disposal of investments | 9 | 73 | – | (113) |
| Operating profit | 7,297 | 894 | 6,858 | |
| Finance expense | 5 | (308) | (401) | (759) |
| Profit before tax | 6,989 | 493 | 6,099 | |
| Taxation | 6 | – | – | – |
| Profit after tax | 6,989 | 493 | 6,099 | |
| Other comprehensive income | – | – | – | |
| Total comprehensive income for the period/year | 6,989 | 493 | 6,099 | |
| Earnings per share (pence per share) | ||||
| (basic and diluted) | 7 | 5.60 | 0.42 | 5.04 |
The notes on pages 23 to 39 form an integral part ofthese condensed financialstatements.
* Although not required by IAS 34, the comparative figuresforthe preceding year end and related notes have been included on a voluntary basis.
for the six months ended 31 October 2017
| For the period 1 May 2017 to 31 October 2017 (unaudited) |
Notes | Share capital £'000 |
Share premium account £'000 |
Capital reserve and retained earnings £'000 |
Total capital and reserves attributable to owners of the Company £'000 |
|---|---|---|---|---|---|
| Balance as at 1 May 2017 | 1,236 | 22,514 | 94,924 | 118,674 | |
| Total comprehensive income | – | – | 6,989 | 6,989 | |
| Ordinary shares issued | 15,16 | 279 | 27,771 | – | 28,050 |
| Share issue costs | 16 | – | (546) | – | (546) |
| Dividends paid | 8 | – | – | (4,946) | (4,946) |
| Balance as at 31 October 2017 | 1,515 | 49,739 | 96,967 | 148,221 |
| Total capital | |||||
|---|---|---|---|---|---|
| Capital | and reserves | ||||
| Share | reserve and | attributable to | |||
| Share | premium | retained | owners of | ||
| For the period 1 May 2016 to 31 October 2016 | capital | account | earnings | the Company | |
| (unaudited) | Notes | £'000 | £'000 | £'000 | £'000 |
| Balance at 1 May 2016 | 1,175 | 16,729 | 98,471 | 116,375 | |
| Total comprehensive income | – | – | 493 | 493 | |
| Ordinary shares issued | 15,16 | 61 | 5,938 | – | 5,999 |
| Share issue costs | 16 | – | (120) | – | (120) |
| Dividends paid | 8 | – | – | (4,700) | (4,700) |
| Balance as at 31 October 2016 | 1,236 | 22,547 | 94,264 | 118,047 |
The notes on pages 23 to 39 form an integral part ofthese condensed financialstatements.
for the six months ended 31 October 2017
| Total capital | ||||
|---|---|---|---|---|
| Capital | and reserves | |||
| Share | reserve and | attributable to | ||
| Share | premium | retained | owners of | |
| capital | account | earnings | the Company* | |
| Notes | £'000 | £'000 | £'000 | £'000 |
| 1,175 | 16,729 | 98,471 | 116,375 | |
| – | – | 6,099 | 6,099 | |
| 15,16 | 61 | 5,938 | – | 5,999 |
| 16 | – | (153) | – | (153) |
| 8 | – | – | (9,646) | (9,646) |
| 1,236 | 22,514 | 94,924 | 118,674 | |
The notes on pages 23 to 39 form an integral part ofthese condensed financialstatements.
* Although not required by IAS 34, the comparative figuresforthe preceding year end and related notes have been included on a voluntary basis.
as at 31 October 2017
| As at | As at | As at | ||
|---|---|---|---|---|
| 31 October 2017 | 31 October 2016 | 30 April 2017 | ||
| (unaudited) | (unaudited)* | (audited) | ||
| Notes | £'000 | £'000 | £'000 | |
| Assets | ||||
| Non-Current Assets | ||||
| Investment property | 9 | 147,030 | 125,734 | 135,570 |
| Investments | 9 | – | 9,330 | – |
| 147,030 | 135,064 | 135,570 | ||
| Current Assets | ||||
| Investments held for sale | 9 | – | – | 7,594 |
| Receivables and prepayments | 10 | 2,204 | 4,600 | 3,382 |
| Other financial assets held at fair value | 11 | 24 | 78 | 31 |
| Cash and cash equivalents | 34,537 | 10,155 | 3,653 | |
| 36,765 | 14,833 | 14,660 | ||
| Total assets | 183,795 | 149,897 | 150,230 | |
| Non-Current Liabilities | ||||
| Interest bearing loans and borrowings | 12 | (32,259) | (26,201) | (28,740) |
| Finance lease obligations | 14 | (591) | (1,582) | (55) |
| (32,850) | (27,783) | (28,795) | ||
| Current Liabilities | ||||
| Payables and accrued expenses | 13 | (2,677) | (3,949) | (2,756) |
| Finance lease obligations | 14 | (47) | (118) | (5) |
| (2,724) | (4,067) | (2,761) | ||
| Total Liabilities | (35,574) | (31,850) | (31,556) | |
| Net Assets | 148,221 | 118,047 | 118,674 | |
| Equity | ||||
| Share capital | 15 | 1,515 | 1,236 | 1,236 |
| Share premium account | 16 | 49,739 | 22,547 | 22,514 |
| Capital reserve and retained earnings | 96,967 | 94,264 | 94,924 | |
| Total capital and reserves attributable to equity holders of the Company |
148,221 | 118,047 | 118,674 | |
| Net Asset Value per share (pence per share) | 7 | 97.80 | 95.47 | 95.98 |
The financialstatements on pages 18 to 39were approved by the Board ofDirectors on 6 December2017 and were signed on its behalf by:
Mark Burton
Chairman
AEW UK REIT plc Company number: 09522515
The notes on pages 23 to 39 form an integral part ofthese condensed financialstatements.
* Although not required by IAS 34, the comparative figuresforthe preceding period end and related notes have been included on a voluntary basis.
for the six months ended 31 October 2017
| Period from | Period from | For the | |
|---|---|---|---|
| 1 May 2017 to 31 October 2017 (unaudited) |
1 May 2016 to | year ended | |
| 31 October | 30 April | ||
| 2016 | 2017 | ||
| (unaudited) | (audited)* | ||
| £'000 | £'000 | £'000 | |
| Cash flows from operating activities | |||
| Operating profit | 7,297 | 894 | 6,858 |
| Adjustment for non-cash items: | |||
| (Gain)/loss from change in fair value of investment property | (2,480) | 3,726 | 3,159 |
| Loss from change in fair value of investments | – | 779 | 407 |
| Loss/(profit) on disposal of investment property | 216 | (410) | (731) |
| (Profit)/loss on disposal of investments | (73) | – | 113 |
| Decrease/(increase) in other receivables and prepayments | 666 | (1,638) | (438) |
| (Decrease)/increase in other payables and accrued expenses | (1,178) | 981 | (283) |
| Net cash generated from operating activities | 4,448 | 4,332 | 9,085 |
| Cash flows from investing activities | |||
| Purchase of investment property | (17,939) | (15,587) | (28,062) |
| Disposal of investment property | 10,858 | 710 | 2,681 |
| Disposal of investments | 7,667 | – | 1,995 |
| Net cash generated from/(used in) investing activities | 586 | (14,877) | (23,386) |
| Cash flows from financing activities | |||
| Proceeds from issue of ordinary share capital | 28,050 | 5,999 | 5,999 |
| Share issue costs | (453) | (117) | (153) |
| Loan draw down | 3,490 | 12,260 | 14,760 |
| Finance costs | (291) | (705) | (969) |
| Dividends paid | (4,946) | (4,700) | (9,646) |
| Net cash generated from financing activities | 25,850 | 12,737 | 9,991 |
| Net increase/(decrease) in cash and cash equivalents | 30,884 | 2,192 | (4,310) |
| Cash and cash equivalents at start of the period/year | 3,653 | 7,963 | 7,963 |
| Cash and cash equivalents at end of the period/year | 34,537 | 10,155 | 3,653 |
The notes on pages 23 to 39 form an integral part ofthese condensed financialstatements.
* Although not required by IAS 34, the comparative figuresforthe preceding year end and related notes have been included on a voluntary basis.
for the six months ended 31 October 2017
AEW UK REIT plc (the 'Company') is a closed ended Real Estate Investment Trust ('REIT') incorporated on 1 April 2015 and domiciled in the UK.
The comparative information for the year to 30 April 2017 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The auditor reported on those accounts; their report was unqualified, and did not contain a statement under section 498(25) or (23) of the Companies Act 2006.
These interim condensed unaudited financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting, and should be read in conjunction with the Company's last financial statements for the year ended 30 April 2017. These condensed unaudited financial statements do not include all information required for a complete set of financial statements proposed in accordance with IFRS as adopted by the EU ("EU IFRS"), however, selected explanatory notes have been included to explain events and transactions that are significant in understanding changes in the Company's financial position and performance since the last financial statements. A review of the interim financial information has been performed by the Independent Auditor of the Company and was approved for issue on 6 December 2017.
The comparative figures disclosed in the condensed unaudited financial statements and related notes have been presented for both the six month period to 31 October 2016 and year ended 30 April 2017 and as at 31 October 2016 and 30 April 2017.
Although not required by IAS 34, the comparative figures as at 31 October 2016 for the Condensed Statement of Financial Position and for the year ended 30 April 2017 for the Condensed Statement of Comprehensive Income, Condensed Statement of Changes in Equity and Condensed Statement of Cash Flows and related notes have been included on a voluntary basis.
These condensed unaudited financial statements have been prepared under the historical-cost convention, except for investment property, investments and interest rate derivatives that have been measured at fair value.
The condensed unaudited financial statements are presented in Sterling and all values are rounded to the nearest thousand pounds (£'000), except when otherwise indicated.
The Company is exempt by virtue of Section 402 of the Companies Act 2006 from the requirement to prepare group financial statements. These financial statements present information solely about the Company as an individual undertaking.
There are a number of new standards and amendments to existing standards which have been published and are mandatory for the Company's accounting periods beginning after 1 November 2017 or later periods, but the Company has decided not to adopt them early. The following are the most relevant to the Company and their impact on the financial statements:
for the six months ended 31 October 2017
The Company does not expect the adoption of new accounting standards issued but not yet effective to have a significant impact on the Financial Statements.
The preparation of financial statements in accordance with EU IFRS requires the Directors of the Company to make judgements, estimates and assumptions that affect the reported amounts recognised in the financial statements. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability in the future.
The Company's investment property is held at fair value as determined by the independent valuer on the basis of fair value in accordance with the internationally accepted Royal Institution of Chartered Surveyors ('RICS') Appraisal and Valuation Standards.
Investments in collective investment schemes are stated at NAV with any resulting gain or loss recognised in profit or loss. The NAV value is considered by the Directors to be the best reflection of fair value available to the Company.
In accordance with IFRS 8, the Company is organised into one main operating segment being investment in property and property related investments in the UK.
The Directors have made an assessment of the Company's ability to continue as a going concern and are satisfied that the Company has the resources to continue in business for at least 12 months. Furthermore, the Directors are not aware of any material uncertainties that may cast significant doubt upon the Company's ability to continue as a going concern. Therefore, the financial statements have been prepared on the going concern basis.
The principal accounting policies applied in the preparation of these financial statements are consistent with those applied within the Company's Annual Report and Financial Statements for the year ended 30 April 2017.
for the six months ended 31 October 2017
| Period from | Period from | ||
|---|---|---|---|
| 1 May 2017 to | 1 May 2016 to | Year ended | |
| 31 October | 31 October | 30 April | |
| 2017 | 2016 | 2017 | |
| (unaudited) | (unaudited) | (audited) | |
| £'000 | £'000 | £'000 | |
| Gross rental income received | 6,495 | 5,847 | 12,147 |
| Dilapidation income received | – | 204 | 301 |
| Other property income | 1 | 3 | 55 |
| Total rental and other income | 6,496 | 6,054 | 12,503 |
| Dividend income: | |||
| Property income distribution* | – | 313 | 552 |
| Dividend distribution | – | 13 | 24 |
| – | 326 | 576 | |
| Total Revenue | 6,496 | 6,380 | 13,079 |
* Property income distribution ('PID') arose on the investment in the Core Fund which holds property directly.
Rent receivable under the terms of the leases is adjusted for the effect of any incentives agreed.
| Period from | Period from | ||
|---|---|---|---|
| 1 May 2017 to | 1 May 2016 to | Year ended | |
| 31 October | 31 October | 30 April | |
| 2017 | 2016 | 2017 | |
| (unaudited) | (unaudited) | (audited) | |
| £'000 | £'000 | £'000 | |
| Property operating expenses | 641 | 517 | 1,434 |
| Other operating expenses | |||
| Investment management fee | 519 | 526 | 1,034 |
| Auditor remuneration | 41 | 48 | 88 |
| Operating costs | 292 | 266 | 646 |
| Directors' remuneration | 43 | 34 | 71 |
| Total other operating expenses | 895 | 874 | 1,839 |
| Total operating expenses | 1,536 | 1,391 | 3,273 |
for the six months ended 31 October 2017
| Period from | Period from | ||
|---|---|---|---|
| 1 May 2017 to | 1 May 2016 to | Year ended | |
| 31 October | 31 October | 30 April | |
| 2017 | 2016 | 2017 | |
| (unaudited) | (unaudited) | (audited) | |
| £'000 | £'000 | £'000 | |
| Interest payable on loan borrowings | 268 | 244 | 483 |
| Amortisation of loan arrangement fee | 41 | 39 | 78 |
| Agency fee payable on loan borrowings | (10) | 10 | 21 |
| Commitment fee payable on loan borrowings | 2 | 38 | 60 |
| 301 | 331 | 642 | |
| Change in fair value of interest rate derivatives | 7 | 70 | 117 |
| Total | 308 | 401 | 759 |
| Period from | Period from | ||
|---|---|---|---|
| 1 May 2017 to | 1 May 2016 to | Year ended | |
| 31 October | 31 October | 30 April | |
| 2017 | 2016 | 2017 | |
| (unaudited) | (unaudited) | (audited) | |
| £'000 | £'000 | £'000 | |
| Total tax charge | – | – | – |
| Analysis of charge in the period/year | |||
| Profit before tax | 6,989 | 493 | 6,099 |
| Theoretical tax at UK corporation tax standard rate | |||
| of 19% (31 October 2016: 20%; 30 April 2017: 19.92%) | 1,328 | 98 | 1,215 |
| Adjusted for: | |||
| Exempt REIT income | (884) | (868) | (1,798) |
| UK dividends that are not taxable | – | (45) | (5) |
| Non deductable investment losses | (444) | 815 | 588 |
| Total | – | – | – |
for the six months ended 31 October 2017
| Period from 1 May 2017 to 31 October 2017 |
Period from 1 May 2016 to 31 October 2016 |
Year ended 30 April 2017 |
|
|---|---|---|---|
| Earnings per share: | |||
| Total comprehensive income (£'000) | 6,989 | 493 | 6,099 |
| Weighted average number of shares | 124,860,772 | 118,563,367 | 121,084,416 |
| Earnings per share (basic and diluted) (pence) | 5.60 | 0.42 | 5.04 |
| EPRA earnings per share: | |||
| Total comprehensive income (£'000) Adjustment to total comprehensive income: |
6,989 | 493 | 6,099 |
| Change in fair value of investment property (£'000) | (2,480) | 3,726 | 3,159 |
| Loss/(profit) on disposal of investment property (£'000) | 216 | (410) | (731) |
| Loss/(gain) from change in fair value of investment (£'000) |
– | 779 | 407 |
| (Profit)/loss on disposal of investments (£'000) | (73) | – | 113 |
| Change in fair value of interest rate derivatives (£'000) | 7 | (70) | 117 |
| Total EPRA Earnings (£'000) | 4,659 | 4,518 | 9,164 |
| EPRA earnings per share (basic and diluted) (pence) | 3.73 | 3.81 | 7.57 |
| NAV per share: | |||
| Net assets (£'000) | 148,221 | 118,047 | 118,674 |
| Ordinary Shares | 151,558,251 | 123,647,250 | 123,647,250 |
| NAV per share (pence) | 97.80 | 95.47 | 95.98 |
| EPRA NAV per share: | |||
| Net assets (£'000) | 148,221 | 118,047 | 118,674 |
| Adjustments to net assets: | |||
| Other financial assets held at fair value (£'000) | (24) | (78) | (31) |
| EPRA NAV (£'000) | 148,197 | 117,969 | 118,643 |
| EPRA NAV per share (pence) | 97.78 | 95.41 | 95.95 |
EPS amounts are calculated by dividing profit for the period attributable to ordinary equity holders of the Company by the weighted average number of Ordinary Shares in issue during the period. EPRA NNNAV is equal to IFRS NAV and as such a reconciliation between the two measures has not been performed.
for the six months ended 31 October 2017
| Period from | Period from | ||
|---|---|---|---|
| 1 May 2017 to | 1 May 2016 to | Year ended | |
| 31 October 2017 | 31 October 2016 | 30 April 2017 | |
| £'000 | £'000 | £'000 | |
| Fourth interim dividend paid in respect of the period 1 February 2017 to 30 April 2017 at 2p per Ordinary Share |
2,473 | – | – |
| First interim dividend paid in respect of the period 1 May 2017 to 31 July 2017 at 2p per Ordinary Share |
2,473 | – | – |
| Fourth interim dividend paid in respect of the period 1 February 2016 to 30 April 2016 at 2p per Ordinary Share |
– | 2,350 | 2,350 |
| First interim dividend paid in respect of the period 1 May 2016 to 31 July 2016 at 2p per Ordinary Share |
– | 2,350 | 2,350 |
| Second interim dividend paid in respect of the period 1 August 2016 to 31 October 2016 at 2p per Ordinary Share |
– | – | 2,473 |
| Third interim dividend paid in respect of the period 1 November 2016 to 31 January 2017 at 2p per Ordinary Share |
– | – | 2,473 |
| Total dividends paid during the period/year | 4,946 | 4,700 | 9,646 |
| Second interim dividend declared in respect of the period 1 August 2017 to 31 October 2017 at 2p per Ordinary Share* |
2,473 | – | – |
| Fourth interim dividend declared in respect of the period 1 February 2017 to 30 April 2017 at 2p per Ordinary Share |
(2,473) | – | – |
| Second interim dividend declared in respect of the period 1 August 2016 to 31 October 2016 at 2p per Ordinary Share* |
– | 2,473 | – |
| Fourth interim dividend declared in respect of the period 1 February 2017 to 30 April 2017 at 2p per Ordinary Share* |
– | – | 2,473 |
| Fourth interim dividend declared in respect of the period 1 February 2016 to 30 April 2016 at 2p per Ordinary Share |
– | (2,350) | (2,350) |
| Total dividends in respect of the period/year | 4,946 | 4,823 | 9,769 |
* Dividends declared after the period end are not included in the financial statements as a liability.
for the six months ended 31 October 2017
| Period from 1 May 2017 to 31 October 2017 (unaudited) |
Period from 1 May 2016 to 31 October |
Year ended 30 April |
|||
|---|---|---|---|---|---|
| Investment properties freehold £'000 |
Investment properties leasehold £'000 |
Total £'000 |
2016 (unaudited) Total £'000 |
2017 (audited) Total £'000 |
|
| UK Investment property | |||||
| As at beginning of period/year | 115,845 | 21,975 | 137,820 | 114,340 | 114,340 |
| Purchases in the period/year | 18,309 | – | 18,309 | 15,587 | 28,146 |
| Disposals in the period/year | (11,050) | – | (11,050) | (300) | (1,950) |
| Revaluation of investment property | 956 | 1,750 | 2,706 | (3,742) | (2,716) |
| Valuation provided by Knight Frank | 124,060 | 23,725 | 147,785 | 125,885 | 137,820 |
| Adjustment to fair value for rent free debtor | (1,393) | (1,716) | (2,230) | ||
| Adjustment to fair value for rent guarantee debtor | – | (135) | (80) | ||
| Adjustment for finance lease obligations | 638 | 1,700 | 60 | ||
| Total Investment property | 147,030 | 125,734 | 135,570 | ||
| Change in fair value of investment property | |||||
| Gain/(loss) from change in fair value Adjustment for movement in the period/year: |
2,706 | (3,742) | (2,716) | ||
| in fair value for rent free debtor | (306) | (634) | (1,148) | ||
| in fair value for rent guarantee debtor | 80 | 650 | 705 | ||
| 2,480 | (3,726) | (3,159) | |||
| (Loss)/profit on sale of the investment property | |||||
| Net proceeds from disposals of investment property during the period/year | 10,858 | 710 | 2,681 | ||
| Cost of disposal | (11,050) | (300) | (1,950) | ||
| Lease incentives amortised in current period/year | (24) | – | – | ||
| (Loss)/profit on disposal of investment property | (216) | 410 | 731 |
Valuation of investment property is performed by Knight Frank LLP, an accredited external valuer with recognised and relevant professional qualifications and recent experience of the location and category of the investment property being valued.
for the six months ended 31 October 2017
The valuation of the Company's investment property at fair value is determined by the external valuer on the basis of market value in accordance with the internationally accepted RICS Valuation – Professional Standards (incorporating the International Valuation Standards).
The determination of the fair value of investment property requires the use of estimates such as future cash flows from assets (such as lettings, tenants' profiles, future revenue streams, capital values of fixtures and fittings, plant and machinery, any environmental matters and the overall repair and condition of the property) and discount rates applicable to those flows.
| Period from Period from 1 May 2017 to 1 May 2016 31 October to 31 October 2017 2016 (unaudited) (unaudited) Total Total £'000 £'000 Investment in AEW UK Core Property Fund |
Year ended 30 April 2017 (audited) Total |
|---|---|
| £'000 | |
| As at beginning of period/year 7,594 10,109 |
10,109 |
| Disposals in the period/year (7,594) – |
(2,108) |
| Loss from change in fair value – (779) |
(407) |
| Total Investment in AEW UK Core Property Fund – 9,330 |
7,594 |
| Profit/(loss) on disposal of the investment in AEW UK Core Property Fund |
|
| Proceeds from disposals of investments during the period/year 7,667 – |
1,995 |
| Cost of disposal (7,594) – |
(2,108) |
| Profit/(loss) on disposal of investments 73 – |
Investments in collective investment schemes are stated at NAV with any resulting gain or loss recognised in profit or loss. Fair value is assessed by the Directors based on the best available information.
As at 31 October 2017, the Company had no investment in the Core Fund.
for the six months ended 31 October 2017
The following table provides the fair value measurement hierarchy for non-current assets:
| 31 October 2017 | ||||
|---|---|---|---|---|
| Quoted prices in active markets (Level 1) £'000 |
Significant observable inputs (Level 2) £'000 |
Significant unobservable inputs (Level 3) £'000 |
Total £'000 |
|
| Assets measured at fair value | ||||
| Investment property | – | – | 147,030 | 147,030 |
| – | – | 147,030 | 147,030 | |
| 31 October 2016 | ||||
| Significant | Significant | |||
| Quoted prices in | observable | unobservable | ||
| active markets | inputs | inputs | ||
| (Level 1) | (Level 2) | (Level 3) | Total | |
| £'000 | £'000 | £'000 | £'000 | |
| Assets measured at fair value | ||||
| Investment property | – | – | 125,734 | 125,734 |
| Investment in AEW UK Core Property Fund | – | – | 9,330 | 9,330 |
| – | – | 135,064 | 135,064 | |
| 30 April 2017 | ||||
| Significant | Significant | |||
| Quoted prices in | observable | unobservable | ||
| active markets | inputs | inputs | ||
| (Level 1) | (Level 2) | (Level 3) | Total | |
| £'000 | £'000 | £'000 | £'000 | |
| Assets measured at fair value | ||||
| Investment property | – | – | 135,570 | 135,570 |
| Investment in AEW UK Core Property Fund | – | – | 7,594 | 7,594 |
| – | – | 143,164 | 143,164 |
for the six months ended 31 October 2017
Level 1 – Quoted prices for an identical instrument in active markets;
Level 2 – Prices of recent transactions for identical instruments and valuation techniques using observable market data; and
Level 3 – Valuation techniques using non-observable data.
The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy of the entity's portfolios of investment properties are:
1) Estimated Rental Value ('ERV')
2) Equivalent yield
Increases/(decreases) in the ERV (per sq ft per annum) in isolation would result in a higher/(lower) fair value measurement. Increases/(decreases) in the discount rate/yield in isolation would result in a lower/(higher) fair value measurement.
The significant unobservable input used in the fair value measurement categorised within Level 3 of the fair value hierarchy of the entity's investment is:
1) NAV
Increases/(decreases) in the NAV would result in a higher/(lower) fair value measurement.
The significant unobservable inputs used in the fair value measurement, categorised within Level 3 of the fair value hierarchy of the portfolio of investment property and investments are:
| Class | Fair value £'000 |
Valuation technique |
Significant unobservable inputs |
Range |
|---|---|---|---|---|
| 31 October 2017 | ||||
| Investment Property | 147,785 | Income capitalisation | ERV Equivalent yield |
£2.50 – £160.00 6.79% – 9.72% |
| 31 October 2016 | ||||
| Investment Property | 125,885 | Income capitalisation | ERV Equivalent yield |
£2.00 – £160.00 6.99% – 11.03% |
| Investments | 9,330 | Market capitalisation | NAV | £1.1612 |
| 30 April 2017 | ||||
| Investment Property | 137,820 | Income capitalisation | ERV Equivalent yield |
£2.00 – £160.00 6.94% – 10.27% |
| Investments | 7,594 | NAV | NAV | £1.1942 |
for the six months ended 31 October 2017
Where possible, sensitivity of the fair values of Level 3 assets are tested to changes in unobservable inputs to reasonable alternatives.
Gains and losses recorded in profit or loss for recurring fair value measurements categorised within Level 3 of the fair value hierarchy are attributable to changes in unrealised gains or losses relating to investment property and investments held at the end of the reporting period.
With regards to both investment property and investments, gains and losses for recurring fair value measurements categorised within Level 3 of the fair value hierarchy, prior to adjustment for rent free debtor and rent guarantee debtor, are recorded in profit and loss.
The carrying amount of the assets and liabilities, detailed within the Condensed Statement of Financial Position, is considered to be the same as their fair value.
| 31 October 2017 | |||||
|---|---|---|---|---|---|
| Change in ERV | Change in equivalent yield | ||||
| £'000 | £'000 | £'000 | £'000 | ||
| Sensitivity Analysis | +5% | -5% | +5% | -5% | |
| Resulting fair value of investment property | 154,000 | 141,059 | 139,125 | 156,441 | |
| 31 October 2016 | |||||
| Change in ERV | Change in equivalent yield | ||||
| £'000 | £'000 | £'000 | £'000 | ||
| Sensitivity Analysis | +5% | -5% | +5% | -5% | |
| Resulting fair value of investment property | 131,540 | 120,505 | 118,895 | 133,605 |
| 30 April 2017 | |||||
|---|---|---|---|---|---|
| Change in ERV | Change in equivalent yield | ||||
| £'000 | £'000 | £'000 | £'000 | ||
| Sensitivity Analysis | +5% | -5% | +5% | -5% | |
| Resulting fair value of investment property | 143,606 | 131,979 | 129,906 | 145,906 |
for the six months ended 31 October 2017
| 31 October | 31 October | 30 April | |
|---|---|---|---|
| 2017 | 2016 | 2017 | |
| £'000 | £'000 | £'000 | |
| Receivables | |||
| Rent debtor | 653 | 2,155 | 461 |
| Dividend receivable | – | 146 | 110 |
| Other income debtors | – | – | 192 |
| Rent agent float account | 58 | 51 | 57 |
| Other receivables | 44 | 309 | 213 |
| 755 | 2,661 | 1,033 | |
| Rent free debtor | 1,393 | 1,716 | 2,230 |
| Rent guarantee debtor | – | 135 | 80 |
| 2,148 | 4,512 | 3,343 | |
| Prepayments | |||
| Property related prepayments | 30 | 57 | 10 |
| Capital prepayments | – | – | 1 |
| Depositary services | 7 | 7 | 8 |
| Listing fees | 4 | 3 | 8 |
| Other prepayments | 15 | 21 | 12 |
| 56 | 88 | 39 | |
| Total | 2,204 | 4,600 | 3,382 |
for the six months ended 31 October 2017
| 31 October 2017 £'000 |
31 October 2016 £'000 |
30 April 2017 £'000 |
|
|---|---|---|---|
| At the beginning of the period/year | 31 | 77 | 77 |
| Interest rate cap premium paid | – | 71 | 71 |
| Changes in fair value of interest rate derivatives | (7) | (70) | (117) |
| At the end of the period/year | 24 | 78 | 31 |
To mitigate the interest rate risk that arises as a result of entering into variable rate linked loans, the Company entered into an interest rate CAP, with the combined notional value of £26.51 million (2017: £26.51 million) and a strike rate of 2.5% (2017: 2.5%) for the relevant period in line with the life of the loan.
The total premium payable in the period towards securing the interest rate caps was £nil.
The following table provides the fair value measurement hierarchy for interest rate derivatives:
| Valuation date | Quoted prices in active markets (Level 1) £'000 |
Significant observable input (Level 2) £'000 |
Significant unobservable inputs (Level 3) £'000 |
Total £'000 |
|---|---|---|---|---|
| 31 October 2017 | – | 24 | – | 24 |
| 31 October 2016 | – | 78 | – | 78 |
| 30 April 2017 | – | 31 | – | 31 |
The fair value of these contracts are recorded in the Condensed Statement of Financial Position as at the period end.
There have been no transfers between Level 1 and Level 2 during the period, nor have there been any transfers between Level 2 and Level 3 during the period.
The carrying amount of the assets and liabilities, detailed within the Condensed Statement of Financial Position, is considered to be the same as their fair value.
for the six months ended 31 October 2017
| Bank borrowings drawn | ||||
|---|---|---|---|---|
| 31 October | 31 October | 30 April | ||
| 2017 | 2016 | 2017 | ||
| £'000 | £'000 | £'000 | ||
| At the beginning of the period/year | 29,010 | 14,250 | 14,250 | |
| Bank borrowings drawn in the period/year | 3,490 | 12,260 | 14,760 | |
| Interest bearing loans and borrowings | 32,500 | 26,510 | 29,010 | |
| Less: loan issue costs incurred | (400) | (388) | (388) | |
| Plus: amortised loan issue costs | 159 | 79 | 118 | |
| At the end of the period/year | 32,259 | 26,201 | 28,740 | |
| Repayable between 2 and 5 years | 32,500 | 26,510 | 29,010 | |
| Bank borrowings available but undrawn in the period/year | 7,500 | 13,490 | 10,990 | |
| Total facility available | 40,000 | 40,000 | 40,000 |
The Company entered into a £40.0 million credit facility with RBSi on 20 October 2015. On 11 May 2017, the Company reduced its available loan facility from £40.0 million to £32.5 million and on 17 October 2017, the Company increased the available facility back to £40.0 million. At the period end, £7.5 million remained undrawn.
Borrowing costs associated with the credit facility are shown as finance costs in note 5 to these financial statements.
The term to maturity as at the period end is 2.97 years.
| 31 October 2017 £'000 |
31 October 2016 £'000 |
30 April 2017 £'000 |
|
|---|---|---|---|
| Deferred income | 1,223 | 3,122 | 1,513 |
| Accruals | 532 | 526 | 534 |
| Other creditors | 922 | 301 | 709 |
| Total | 2,677 | 3,949 | 2,756 |
for the six months ended 31 October 2017
Finance leases are capitalised at the lease's commencement at the lower of the fair value of the property and the present value of the minimum lease payments. The present value of the corresponding rental obligations are included as liabilities.
The following table analyses the minimum lease payments under non-cancellable finance leases:
| 31 October 2017 £'000 |
31 October 2016 £'000 |
30 April 2017 £'000 |
|
|---|---|---|---|
| Not later than one year | 47 | 118 | 5 |
| Later than one year but not later than five years | 154 | 432 | 15 |
| Later than five years | 437 | 1,150 | 40 |
| 591 | 1,582 | 55 | |
| Total | 638 | 1,700 | 60 |
For the period 1 May 2017 to 31 October 2017
| £'000 | Number of Ordinary Shares |
|
|---|---|---|
| Ordinary Shares issued and fully paid | ||
| At the beginning of the period | 1,236 | 123,647,250 |
| Issued on admission to trading on the London Stock Exchange on 24 October 2017 | 279 | 27,911,001 |
| At the end of the period | 1,515 | 151,558,251 |
On 24 October 2017, the Company issued 27,911,001 Ordinary Shares at a price of 100.5 pence per share pursuant to the Initial Placing, Initial Offer for Subscription and Intermediaries Offer of the Share Issuance Programme, as described in the prospectus published by the Company on 28 September 2017.
For the period 1 May 2016 to 31 October 2016
| £'000 | Number of Ordinary Shares |
|
|---|---|---|
| Ordinary Shares issued and fully paid | ||
| At the beginning of the period | 1,175 | 117,510,000 |
| Issued on admission to trading on the London Stock Exchange on 16 September 2016 | 24 | 2,450,000 |
| Issued on admission to trading on the London Stock Exchange on 10 October 2016 | 37 | 3,687,250 |
| At the end of the period | 1,236 | 123,647,250 |
for the six months ended 31 October 2017
For the year ended 30 April 2017
| £'000 | Number of Ordinary Shares |
|
|---|---|---|
| Ordinary Shares issued and fully paid | ||
| At the beginning of the year | 1,175 | 117,510,000 |
| Issued on admission to trading on the London Stock Exchange on 16 September 2016 | 24 | 2,450,000 |
| Issued on admission to trading on the London Stock Exchange on 10 October 2016 | 37 | 3,687,250 |
| At the end of the year | 1,236 | 123,647,250 |
| Period from | Period from | ||
|---|---|---|---|
| 1 May 2017 to | 1 May 2016 to | Year ended | |
| 31 October | 31 October | 30 April | |
| 2017 | 2016 | 2017 | |
| £'000 | £'000 | £'000 | |
| The share premium relates to amounts subscribed for share capital in excess of nominal value: |
|||
| Balance at the beginning of the period/year | 22,514 | 16,729 | 16,729 |
| Share issue costs (paid and accrued) | – | (23) | (23) |
| Issued on admission to trading on the London Stock Exchange on 16 September 2016 |
– | 2,352 | 2,352 |
| Share issue cost (paid and accrued) | – | (42) | (42) |
| Issued on admission to trading on the London Stock Exchange on 10 October 2016 |
– | 3,586 | 3,586 |
| Share issue cost (paid and accrued) | – | (55) | (88) |
| Issued on admission to trading on the London Stock Exchange on 24 October 2017 |
27,771 | – | – |
| Share issue cost | (546) | – | – |
| Balance at the end of the period/year | 49,739 | 22,547 | 22,514 |
for the six months ended 31 October 2017
As defined by IAS 24 Related Party Disclosures, parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions.
For the six months ended 31 October 2017, the Directors' of the Company are considered to be the key management personnel. Directors' remuneration is disclosed in note 4.
The Company is party to an Investment Management Agreement with the Investment Manager, pursuant to which the Company has appointed the Investment Manager to provide investment management services relating to the respective assets on a day-to-day basis in accordance with their respective investment objectives and policies, subject to the overall supervision and direction of the Board of Directors.
Under the Investment Management Agreement the Investment Manager receives a management fee which is calculated and accrued monthly at a rate equivalent to 0.9% per annum of NAV (excluding un-invested fund raising proceeds) and paid quarterly.
During the period 1 May 2017 to 31 October 2017, the Company incurred £519,373 (31 October 2016: £525,776; 30 April 2017: £1,033,637) in respect of investment management fees and expenses of which £259,276 was outstanding at 31 October 2017 (31 October 2016: £253,769; 30 April 2017: £252,850).
On 1 May 2017, the Company had a holding of 6,359,440 shares in the Core Fund, which were valued at £7,594,443. The investment was deemed to be with a related party due to the common influence of the Investment Manager over both parties. On 9 May 2017, the Company sold its remaining investment in the Core Fund for proceeds of £7.67 million.
On 1 December 2017, the Board declared its second interim dividend of 2.00 pence per share in respect of the period from 1 August 2017 to 31 October 2017. This is to be paid on 29 December 2017 to shareholders on the register as at 15 December 2017. The ex-dividend date will be 14 December 2017.
| MEASURE AND DEFINITION | PURPOSE | PERFORMANCE |
|---|---|---|
| 1. EPRA Earnings Earnings from operational activities. |
A key measure of a company's underlying operating results and an indication of the extent to which current dividend payments are supported by earnings. |
£4.66 million/3.73 pps EPRA earnings for the six month period to 31 October 2017 (six month period to 31 October 2016: £4.52 million/3.81 pps) |
| 2. EPRA NAV | ||
| Net asset value adjusted to include properties and other investment interests at fair value and to exclude certain items not expected to crystallise in a long-term investment property business. |
Makes adjustments to IFRS NAV to provide stakeholders with the most relevant information on the fair value of the assets and liabilities within a true real estate investment company with a long-term investment strategy. |
£148.20 million/97.78 pps EPRA NAV as at 31 October 2017 (At 30 April 2017: £118.64 million/95.95 pps) |
| 3. EPRA NNNAV EPRA NAV adjusted to include the fair values of: (i) financial instruments; (ii) debt; and (iii) deferred taxes. |
Makes adjustments to EPRA NAV to provide stakeholders with the most relevant information on the current fair value of all the assets and liabilities within a real estate company. |
£148.22 million/97.80 pps EPRA NNNAV as at 31 October 2017 (At 30 April 2017: £118.67 million/95.98 pps) |
| 4.1 EPRA Net Initial Yield ('NIY') Annualised rental income based on the cash rents passing at the balance sheet date, less non-recoverable property operating expenses, divided by the market value of the property, increased with (estimated) purchasers' costs. |
A comparable measure for portfolio valuations. This measure should make it easier for investors to judge themselves, how the valuation of portfolio X compares with portfolio Y. |
7.39% EPRA NIY as at 31 October 2017 (At 30 April 2017: 7.12%) |
| 4.2 EPRA 'Topped-Up' NIY This measure incorporates an adjustment to the EPRA NIY in respect of the expiration of rent-free periods (or other unexpired lease incentives such as discounted rent periods and step rents). |
A comparable measure for portfolio valuations. This measure should make it easier for investors to judge themselves, how the valuation of portfolio X compares with portfolio Y. |
7.79% EPRA 'Topped-Up' NIY as at 31 October 2017 (At 30 April 2017: 8.27%) |
| 5. EPRA Vacancy Estimated Market Rental Value ('ERV') of vacant space divided by ERV of the whole portfolio. |
A "pure" (%) measure of investment property space that is vacant, based on ERV. |
8.59% EPRA vacancy as at 31 October 2017 (At 30 April 2017: 7.22%) |
| 6. EPRA Cost Ratio Administrative and operating costs (including and excluding costs of direct vacancy) divided by gross rental income. |
A key measure to enable meaningful measurement of the changes in a company's operating costs. |
23.60% EPRA Cost Ratio (including direct vacancy cost) as at 31 October 2017 (At 30 April 2017: 24.20%) 15.54% EPRA Cost ratio excluding direct vacancy costs as at 31 October 2017 |
(At 30 April 2017: 18.37%)
| 31 October 2017 |
|
|---|---|
| £'000 | |
| Investment property – wholly-owned | 147,785 |
| Allowance for estimated purchasers' costs | 10,049 |
| Gross up completed property portfolio valuation | 157,834 |
| Annualised cash passing rental income | 12,653 |
| Property outgoings | (984) |
| Annualised net rents | 11,669 |
| Rent expiration of rent-free periods and fixed uplifts | 621 |
| 'Topped-up' net annualised rent | 12,290 |
| EPRA Net Initial Yield | 7.39% |
| EPRA 'topped-up' Net Initial Yield | 7.79% |
EPRA NIY is calculated asthe annualised net rent, divided by the gross value ofthe completed property portfolio.
The valuation of grossed up completed property portfolio is determined by our external valuers as at 31 October 2017, plus an allowance for estimated purchasers' costs. Estimated purchasers' costs are determined by the relevant stamp duty liability, plus an estimate by our valuers of agent and legal fees on notional acquisition. The net rent deduction allowed for property outgoingsis based on our valuers' assumptions on future recurring non-recoverable revenue expenditure.
In calculating the EPRA 'topped-up' NIY, the annualised net rent isincreased by the total contracted rent from expiry ofrent-free periods and future contracted rental uplifts.
| 31 October 2017 £'000 |
|
|---|---|
| Annualised potential rental value of vacant premises | 1,190 |
| Annualised potential rental value for the completed property portfolio | 13,849 |
| EPRA Vacancy Rate | 8.59% |
| Calculation of EPRA Cost Ratios | |
| 31 October 2017 £'000 |
|
| Administrative/operating expense per IFRS income statement | 1,536 |
| Less: Ground rent costs | (4) |
| EPRA Costs (including direct vacancy costs) | 1,532 |
| Direct vacancy costs | (523) |
| EPRA Costs (excluding direct vacancy costs) | 1,009 |
| Gross Rental Income | 6,491 |
| EPRA Cost Ratio (including direct vacancy costs) | 23.60% |
| EPRA Cost Ratio (excluding direct vacancy costs) | 15.54% |
The registerforthe Ordinary Sharesis maintained by Computershare Investor Services PLC. In the event of queriesregarding your holding, please contact the Registrar on 0370 889 4069 or email:[email protected].
Changes of name and/or address must be notified inwriting to the Registrar, at the addressshown on page 44. You can check your shareholding and find practical help on transferring shares or updating your details atwww.investorcentre.co.uk.
| Ordinary £0.01 Shares | 151,558,251 |
|---|---|
| SEDOL Number | BWD2415 |
| ISIN Number | GB00BWD24154 |
| Ticker/TIDM | AEWU |
The Company's Ordinary Shares are traded on the Main Market ofthe London Stock Exchange.
Copies of the Annual and Interim Reports are available from the Company'swebsite.
| 31 March 2018 | Year end (the Company is changing its financial year end from 30 April to 31 March. As a result, our next Annual Reportwill cover a period of eleven months from 1 May 2017 to 31 March 2018) |
|---|---|
| June 2018 | Announcement of annual results |
| September 2018 | Annual General Meeting |
| 30 September 2018 | Half-year End |
| November 2018 | Announcement of interim results |
The following table summarisesthe amountsrecognised as distributionsto equity shareholdersin the period:
| £ | |
|---|---|
| Interim dividend for the period 1 May 2017 to 31 July 2017 (payment made on 30 September 2017) | 2,472,945 |
| Dividend for the period 1 August 2017 to 31 October 2017 (payment to be made on 29 December 2017) | 3,031,165 |
| Total | 5,504,110 |
Mark Burton*(Non-executive Chairman) James Hyslop (Non-executive Director) Bimaljit (''Bim'') Sandhu*(Non-executive Director) Katrina Hart*(Non-executive Director)
6th Floor 65 Gresham Street London EC2V 7NQ
AEW UK Investment Management LLP 33 Jermyn Street London SW1Y 6DN
Tel: 020 7016 4880 Website: www.aewuk.co.uk
M J Mapp 180 Great Portland Street London W1W 5QZ
Fidante Capital 1 Tudor Street London EC4Y 0AH
Gowling WLG (UK) LLP 4 More London Riverside London SE1 2AU
* Independent of the Investment Manager.
Langham Hall UK LLP 5 Old Bailey London EC4M 7BA
LinkAlternative Fund Administrators Limited Beaufort House 51 NewNorth Road Exeter EX4 4EP
Link Company Matters Limited 6th Floor 65 Gresham Street London EC2V 7NQ
Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS13 8AE
KPMG LLP 15 Canada Square London E14 5GL
Knight Frank LLP 55 Baker Street London W1U 8AN
Frequency of NAV publication:
The Company's NAV isreleased to the London Stock Exchange on a quarterly basis and is published on the Company's website.
| AEW UK Core Property Fund (the 'Core Fund') |
AEW UKCore Property Fund, a property authorised investment fund ('PAIF') and a sub-fund ofthe AEW UK Real Estate Fund, an open ended investment company. |
|---|---|
| AIC | Association ofInvestment Companies. Thisisthe trade body for Closed-end Investment Companies (www.theaic.co.uk). |
| AIFMD | Alternative Investment Fund Managers Directive. |
| AIFM | Alternative Investment Fund Manager. The entity that provides portfolio management and risk managementservicesto the Company andwhich ensuresthe Company complieswith the AIFMD. The Company's AIFM is AEW UK Investment Management LLP. |
| Company | AEW UK REIT plc. |
| Company Secretary | Link Company Matters Limited. |
| Contracted rent | The annualised rent adjusting forthe inclusion ofrentsubject to rent-free periods. |
| Covenant strength | The strength of a tenant's financialstatus and its ability to perform the covenantsin the lease. |
| DTR | Disclosure Guidance and Transparency Rules, issued by the UKLA. |
| Earnings Per Share ('EPS') | Profit forthe period attributable to equity shareholders divided by theweighted average number of Ordinary Shares in issue during the period. |
| EPC | Energy Performance Certificate. |
| EPRA | European Public Real Estate Association, the industry body representing listed companiesin the real estate sector. |
| EPRA cost ratio (including direct vacancy costs) |
The ratio of net overheads and operating expenses against grossrental income (with both amounts excluding ground rents payable). Net overheads and operating expenses relate to all administrative and operating expenses. |
| EPRA cost ratio (excluding direct vacancy costs) |
The ratio calculated above, butwith direct vacancy costsremoved from net overheads and operating expenses balance. |
| EPRA Earnings Per Share | Recurring earningsfrom core operational activities. A key measure of a company's underlying operating results from its property rental business and an indication of the extent to which current dividend payments are supported by earnings. |
| EPRA NAV | NAV adjusted to include properties and other investment interests at fair value and to exclude certain items not expected to crystallise in a long-term investment property business. |
| EPRA NNNAV | EPRA NAV adjusted to reflect the fair value of debt and derivatives and to include deferred taxation on revaluations. |
| EPRA Net Initial Yield ('NIY') | Annualised rental income based on the cash rents passing at the balance sheet date, less non recoverable property operating expenses, divided by the fair value of the property, increased with (estimated) purchasers' costs. |
| EPRA Topped-Up Net Initial Yield This measure incorporates an adjustment to the EPRA NIY in respect ofthe expiration ofrent-free periods (or other unexpired lease incentives such as discounted rent periods and step rents). |
|
| EPRA Vacancy Rate | Estimated Market Rental Value of vacantspace as a percentage ofthe ERV ofthewhole portfolio. |
| Equivalent Yield | The internal rate ofreturn ofthe cash flowfrom the property, assuming a rise to ERV at the next reviewor lease expiry. No future growth is allowed for. |
|---|---|
| Estimated Rental Value ('ERV') | The external valuer's opinion asto the open market rentwhich, on the date ofthe valuation, could reasonably be expected to be obtained on a new letting or rent review of a property. |
| External Valuer | An independent external valuer of a property. The Company's External Valueris Knight Frank LLP. |
| Fair value | The estimated amount forwhich a property should exchange on the valuation date between awilling buyer and awilling sellerin an arm'slength transaction after proper marketing andwhere parties had each acted knowledgeably, prudently andwithout compulsion. |
| Fair value movement | An accounting adjustment to change the book value of an asset orliability to itsfair value. |
| FCA | The Financial Conduct Authority. |
| FRI lease | A lease which imposes full repairing and insuring obligations on the tenant, relieving the landlord from all liability for the cost of insurance and repairs. |
| Gross Asset Value | The aggregate value ofthe total assets ofthe Company as determined in accordancewith IFRS. |
| IASB | International Accounting Standards Board. |
| IFRS | International Financial Reporting Standards, as adopted by the European Union. |
| Investment Manager | The Company'sInvestment Manageris AEW UK Investment Management LLP. |
| IPD | Investment Property Databank. An organisation supplying independent market indices and portfolio benchmarksto the property industry. |
| IPO | The admission to trading on the London Stock Exchange's Main Market ofthe share capital ofthe Company and admission ofOrdinary Sharesto the premium listing segment ofthe Official List on 12 May 2015. |
| Lease incentives | Incentives offered to occupiersto enterinto a lease. Typically thiswill be an initial rent-free period, or a cash contribution to fit-out. Under accounting rulesthe value ofthe lease incentive is amortised through the Statement of Comprehensive Income on a straight-line basis until the lease expiry. |
| Lease Surrender | An agreement whereby the landlord and tenant bring a lease to an end other than by contractual expiry orthe exercise of a break option. Thiswill frequently involve the negotiation of a surrender premium by one party to the other. |
| LIBOR | The London InterbankOffered Rate, the interest rate charged by one bank to anotherforlending money. |
| Loan to Value ('LTV') | The value of outstanding loans and borrowings (before adjustments for issue costs) expressed as a percentage of the combined valuation of the property portfolio (as provided by the valuer) and the fair value of other investments. |
| Net Asset Value ('NAV') | Net Asset Value isthe equity attributable to shareholders calculated underIFRS. |
| Net Asset Value per share | Equity shareholders' funds divided by the number of Ordinary Shares in issue. |
| Net equivalent yield | Calculated by the Company's External Valuers, equivalent yield is the internal rate of return from an investment property, based on the gross outlays for the purchase of a property (including purchase costs), reflecting reversionsto current market rent and items as voids and non-recoverable expenditure but ignoring future changesin capital value. The calculation assumesrent isreceived annually in arrears. |
| Net initial yield | The initial net rental income from a property at the date of purchase, expressed as a percentage ofthe gross purchase price including the costs of purchase. |
| Net rental income | Rental income receivable in the period after payment of ground rents and net property outgoings. |
| Non-PID | Non-Property Income Distribution. The dividend received by a shareholder ofthe Company arising from any source otherthan profits and gains ofthe Tax Exempt Business ofthe Company. |
|---|---|
| Ongoing charges | The ratio oftotal administration and property operating costs expressed as a percentage of average NAV throughout the period. |
| Ordinary Shares | The main type of equity capital issued by conventional Investment Companies. Shareholders are entitled to their share of both income, in the form of dividends paid by the Company, and any capital growth. |
| Over-rented | Spacewhere the passing rent is above the ERV. |
| Passing rent | The grossrent, less any ground rent payable under head leases. |
| PID | Property Income Distribution. A dividend received by a shareholder ofthe Company in respect of profits and gains of the tax exempt business of the Company. |
| Rack-rented | Spacewhere passing rent isthe same asthe ERV. |
| REIT | A Real Estate Investment Trust. A companywhich complieswith Part 12 ofthe Corporation tax Act 2010. Subject to the continuing relevant UK REIT criteria being met, the profitsfrom the property business of a REIT, arising from both income and capital gains, are exempt from corporation tax. |
| Reversion | Increase in rent estimated by the Company's External Valuers,where the passing rent is belowthe ERV. |
| Reversionary yield | The anticipated yield,which the initial yieldwill rise (orfall) to once the rent reachesthe ERV. |
| Share price | The value of a share at a point in time as quoted on a stock exchange. The Company's Ordinary Shares are quoted on the Main Market ofthe London Stock Exchange. |
| Total returns | The returnsto shareholders calculated on a pershare basis by adding dividend paid in the period to the increase or decrease in the Share Price ofNAV. The dividends are assumed to have been reinvested in the form of Ordinary Shares or Net Assets. |
| Total Shareholder Return | The percentage change in the share price assuming dividends are reinvested to purchase additional Ordinary Shares. |
| Under-rented | Spacewhere the passing rent is belowthe ERV. |
| UK Corporate Governance Code A code issued by the Financial Reporting Councilwhich sets outstandards of good practice in relation to board leadership and effectiveness, remuneration, accountability and relationswith shareholders. All companieswith a Premium Listing of equity sharesin the UK are required underthe Listing Rulesto report on how they have applied the Code in their annual report and accounts. |
|
| Voids | The amount ofrent relating to propertieswhich are unoccupied and generating no rental income. Stated as a percentage of ERV. |
| Weighted Average Unexpired Lease Term ('WAULT') |
The average lease term remaining for first break, or expiry, acrossthe portfolioweighted by contracted rental income (including rent-frees). |
| Yield compression | Occurs when the net equivalent yield of a property decreases, measured in basis points. |
United Kingdom 33 Jermyn Street London SW1Y 6DN
+44 20 7016 4880 www.aewuk.co.uk
France 22 Rue Du Docteur Lancereaux 75008 Paris France
+33 1 78 40 92 00 www.aeweurope.com
United States of America Two Seaport Lane Boston MA 02210 United States
+1 617 261 9334 www.aew.com
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