Interim / Quarterly Report • Oct 31, 2016
Interim / Quarterly Report
Open in ViewerOpens in native device viewer
Interim Report and Financial Statements for the six months ended 31 October 2016
| Financial Highlights | 1 |
|---|---|
| Property Highlights | 1 |
| Chairman's Statement | 2-3 |
| Key Performance Indicators | 4-5 |
| Investment Manager's Report | 6-10 |
| Principal Risks and Uncertainties | 11 |
| Directors' Responsibilities Statement | 12 |
| Independent Review Report | 13 |
| Financial Statements | |
| Condensed Consolidated Statement of Comprehensive Income | 14 |
| Condensed Consolidated Statement of Changes in Equity | 15-16 |
| Condensed Consolidated Statement of Financial Position | 17 |
| Condensed Consolidated Statement of Cash Flows | 18 |
| Notes to the Condensed Consolidated Financial Statements | 19-34 |
| EPRA Unaudited Performance Measures | 35-37 |
| Company Information | 38-39 |
| Glossary | 40-42 |
I am pleased to present the unaudited interim results of AEW UK REIT plc (the 'Company') forthe period from 1 May 2016 to 31 October 2016. The Company has continued to implement itsinvestment policy and meet the investment objective to deliver an attractive total return to shareholdersfrom investing predominately in a portfolio ofsmaller commercial propertiesin the UK.
On 20 May 2016 the Company held a General Meeting atwhich resolutionsto allot up to 11,740,000 Ordinary Shares and to allot up to 250,000,000 Ordinary Sharesin connectionwith a share issuance programmewere passed. This hasresulted in the creation of 6,137,250 Ordinary Shares and raised £6.00 million forfuture investment. The Company'sissued share capital increased to 123,647,250 Ordinary Shares representing a 5.2% increase from 30 April 2016 and reflects continued support for ourstrategy and our portfolio from our shareholders.
The Company'sInvestment Manager, AEW UK Investment Management LLP (the 'Investment Manager'),will be investing the net proceedsfrom the recent capital raisingsto further develop the established portfolio of commercial properties throughout the UK via a pipeline of available opportunities.
In the six monthsto 31 October 2016, the Company has acquired two propertiestotalling £13.20 million (excluding acquisition costs) and generated a further £1.41 million per annum in passing rent.
As at 31 October 2016, the Company has established a diversified portfolio of 27 commercial investment propertiesthroughout the UK with aweighted average total equivalent yield of 8.65%.
The financial resultsreflect an encouraging performance by the Company's portfolio asit implements itsinvestment policy in a backdrop of uncertain political conditions.
UnderInternational Financial Reporting Standards('IFRS') as adopted by the European Union, our operating profit forthe six monthsto 31 October 2016 was £0.89 million,with total comprehensive income of £0.49 million. Basic earnings pershare ('EPS') forthe period were 0.42 pence. Thisincludes net valuation losses of £3.73 million on the revaluation ofinvestment properties acrossthe portfolio and a valuation loss on the investment in the AEW UKCore Property Fund (the 'AEW Core Fund') of £0.80 million. Adjusting for these valuation losses and finance costs of £0.40 million, adjusted earnings pershare forthe periodwere 3.87 pence.
Under European Public Real Estate Association ('EPRA') methodology earnings per share ('EPS') for the period was 3.81 pence and the NAV per share at 31 October 2016 was 95.47 pence. A full list of EPRA performance figures can be found on pages 35 to 37.
The unaudited NAV per share as at 31 October 2016 was 95.47 pence, priorto adjusting forthe 2nd interim dividend forthe period of 2.00 pence per share.
The Company has Ongoing Charges of 1.67% forthe period underreview.
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 2016, the Company's Portfolio had a FairValue of £125.89 million as compared with the combined purchase price ofthe Portfolio of £123.58 million (excluding purchase costs), an increase of £2.31 million or 1.87%.
The Company's Facility with RBSI expiresin 2020. During the six month period to 31 October 2016, the Company made a utilisation request for £12.26 million bringing the total drawdown amount underthe Facility to £26.51 million.
As at 31 October 2016, the unexpired term ofthe Facilitywas 4 years and the gearingwas 19.6% (as calculated on the GAV of the investment portfolio).
The loan attractsinterest at 3 month LIBOR +1.4% making an all in rate at 31 October 2016 of 1.923%. The Company is protected from a rise in interest rates as it has interest rate CAPswith a combined notional value of £26.51 million and a strike rate of 2.5% forthe relevant period in line with the life of the loan.
The Company has developed its portfolio to sustain an income stream to deliver a target of declaring dividends of 2.00 pence per Ordinary Share per quarter.
During the period, the Company paid an interim dividend on 30 September 2016 of 2.00 pence perOrdinary Share related to the period from 1 May 2016 to 31 July 2016.
On 15 November 2016, the Board declared a second interim dividend of 2.00 pence perOrdinary Share, in respect ofthe period from 1 August 2016 to 31 October 2016. Thissecond interim dividend is to be paid on 31 December 2016.
The Company'sstrategy is aligned to delivering strong relative returnsforshareholdersthrough the diversified and high income yielding property portfolio that has been established to date. Thisisfurtherstrengthened by active asset management initiativesto provide opportunitiesforfurther capital value enhancement and preservation.
We have nowseen two valuation datessince the EU referendum result in June 2016 and are encouraged by howthe value ofthe portfolio hasstabilised and by itsresilience to market uncertainty. In the period between May 2016 to July 2016 the portfolio valuation fell by 1.81%. In comparison, the capital values of direct properties as measured by MSCI fell by 3% overthe same period to July 2016. Since July 2016, our valuers have removed their caveat reflecting a lack of post-Brexit transactional evidence from our valuations and have applied a modest level of post-Brexit capital growth of 0.33% in the period August 2016 to October 2016. This compares favourably to a fall of 0.8% in capital values of direct properties as measured by MSCI overthe same 3-month period to October 2016.
There has been a varying range of views amongst market commentators evaluating the potential impacts ofthe recent EU referendum result on the UK economy,which in turn has caused great market volatility. Although this outcome represented an initialshock to the financial markets, intervention by the Bank of England and government action hassomewhatstabilised the event. The Board and Investment Manager are confident that opportunities available to the Companywill continue to present themselvesto enable the Company to execute the strategy successfully to deliver profitable growth.
Mark Burton Chairman 8 December 2016
Triple Net Initial Yield is a representation to the investor of what theirinitial net yieldwould be at a predetermined purchase price aftertaking account of all associated costs. E.g. void costs and rent free periods.
The fall in the Company'striple net initial yield is due to an increase in portfolio vacancy since 30 April 2016 that the manager considers being a temporary position. As at 31 October 2016 the vacancy levelwas 8.70%. Following the completion of lettings and salesthat are currently under offerthe Company's expected portfolio vacancy levelwill reduce to 7.00%.
The averageweighted yield a propertywill produce according to the present income and estimated rental value assumptions, assuming the income isreceived quarterly in advance.
The expected yield the propertywill provide once rack rented.
Weighted average unexpired lease term to expiry isthe average lease term remaining to expiry, acrossthe portfolioweighted by contracted rent.
Weighted average unexpired lease term to break isthe average lease term remaining to break, acrossthe portfolioweighted by contracted rent.
NAV isthe value of an entity's assets minusthe value ofits liabilities.
The proportion of our property portfolio that isfunded by borrowings.
at 31 October 2016 (30 April 2016: 8.38%).
at 31 October 2016 (30 April 2016: 8.36%).
at 31 October 2016 (30 April 2016: 8.27%).
at 31 October 2016 (30 April 2016: 6.08 years).
5.3 years at 31 October 2016 (30 April 2016: 4.94 years).
at 31 October 2016 (30 April 2016: £116.38 million).
at 31 October 2016 (30 April 2016: 10.5%).
The Vacant ERV ofthe space in the property portfoliowhich is currently unlet, as a percentage ofthe total ERV ofthe portfolio.
The exposure to real estate development or property development encompassing activitiesthat range from the purchase ofland for development to material refurbishments.
Dividend declared in relation to the year. The Company targets a dividend yield of between 8 to 9% per annum on the Initial Public Offering ('IPO') issue price,when fully invested.
The ratio oftotal administration and property operating costs expressed as a percentage of average net asset value through the period.
Profit before tax is a profitability measurewhich considersthe Company's profit before the payment of corporate income tax.
at 31 October 2016 (30 April 2016: 3.16%).
at 31 October 2016 (30 April 2016: 0%).
forthe quarterto 31 October 2016. Thissupports an annualised target of 8.00 pence per share.
at 31 October 2016 (30 April 2016: 1.14%).
for the period 1 May 2016 to 31 October 2016.
(for the period from inception to 30 April 2016: £4.64 million).
The investment objective of the Group is to deliver an attractive total return to Shareholders from investing predominantly in a portfolio of smaller commercial properties in the United Kingdom.
In order to achieve its investment objective the Group invests in freehold and leasehold properties across the whole spectrum of the commercial property sector (office properties, retail warehouses, high street retail and industrial/warehouse properties) to achieve a balanced portfolio with a diversified tenant base.
Within the scope of restrictions set out below (under the heading "Investment Restrictions") the Group may invest up to 10 per cent. of its Net Assets (at the time of investment) in the AEW UK Core Property Fund and up to 10 per cent. of its net assets for investment (measured at the commencement of the project) in development opportunities, with the intention of holding any completed development as an investment.
The Group currently intends to exploit what it believes to be the compelling relative value opportunities offered by pricing inefficiencies in smaller commercial properties let on shorter occupational leases. The Group intends to supplement this core strategywith asset management initiatives to upgrade buildings and thereby improve the quality of income streams.
Note: Equivalent yield is a weighted average of the initial yield and reversionary yield, and represents the yield property will produce based upon the timing of the income received.
The Group has acquired two assets in the period from 1 May 2016 to 31 October 2016which are summarised below. Thistakesthe total number of direct assets held to 27. Proceedsfrom the Company'srecent fund raising activity are also fully committed to transactions which are currently under offer.
Property Type: Retail and Leisure Property Type: Retail and Office Area: 100,079 sq ft Area: 71,260 sq ft Purchase Price: £5.05m Purchase Price: £8.15m Purchase Yield: 9.6% Purchase Yield: 7.3%
Reversionary Yield: 7.1% Reversionary Yield: 9.4%
The Company has a diversified portfolio of properties and as at 31 October 2016 holds 27 investment properties. Unadjusted profitwas £0.49 million, and operating profit before investment property and investment revaluationswas £4.99 million forthe period 1 May 2016 to 31 October 2016.
Net rental income earned from this portfolio during the period amounts to £5.54 million.
NAV as at 31 October 2016 was £118.05 million.
The Company received dividends during the period totalling £0.32 million from itsinvestment in the AEW Core Fund. However, the valuation ofthe investment ofthe AEW Core Fund has decreased from £9.63 million on acquisition to £9.32 million at 31 October 2016.
On 28 July 2016, in the interest oftreating investorsfairly, the Authorised Corporate Director ofthe AEW Core Fund exercised its powers to swing the AEW Core Fund's pricing basisto a bid basiswith a fair value dilution reduction of 5%, representing an overall discount to the AEW Core Fund NAV of 6.4%. This decision to change the pricing basisled to a revaluation ofthe Company's AEW Core Fund holding as at 31 July 2016 to £8.65 million, from £10.11 million as at 30 April 2016 (being 1.25p pershare). On 30 September 2016, the decision to implement the change in pricing basis and fair value dilution reductionwaslifted and the value has nowincreased to £9.32 million.
In orderto provide a betterreflection offair value than the single swinging price in current market conditions, a recommendation by the Investment Managerto adopt an amended valuation methodology to a NAV basiswas accepted by the Directors.
A loss of £3.73 million has arisen on the revaluation ofinvestment properties acrossthe portfolio. The Company also has a gain on disposal of £0.41 million for one of the properties sold from its portfolio.
Administration expenses,which include the Investment Manager's Fee and other costs attributable to the running ofthe Company forthe period,were £0.87 million. The Company's Ongoing Chargesforthe period is 1.67%. The Company incurred finance costs of £0.40 million during the period.
The total profit before tax forthe period of £0.49 million, equatesto basic earnings pershare of 0.42 pence.
The Company's property portfolio has been independently valued by Knight Frank in accordancewith the RICS Valuation – Professional Standards Global January 2014, including the International Valuations Standards, and RICS Professional Standards UK January 2014 (revised April 2015). Referencesto "the Red Book"referto either or both ofthese documents, as applicable. The properties have been valued on the basis of FairValue in accordancewith the RICS Valuation – Professional Standards VVPS4 (1.5) FairValue and VPGA1 ValuationsforInclusion in Financial Statements,which adopt the definition of FairValue used by the International Accounting Standards Board.
As at 31 October 2016, the Company's Portfolio had a FairValue of £125.89 million.
In return for the landlord's consentto assign the lease toHFC Prestige Manufacturing Limited,WellaHoldings Limited contracted to remove their 2017 break clause giving the Company an extra two years of guaranteed income to 2019 at £410,000 p.a. plus a 6 month rental guarantee. The tenant is nowalso carrying out refurbishmentworksto the building demonstrating their commitment to the location.
We have obtained an uplift of £30,000 per annum forthe outstanding 2012 rent reviewfrom £505,000 to £535,000 backdated to 29 September 2012. Negotiations have nowcommenced on the 2017 rent review. We have also joined the Southend Town Centre Action Groupwhich unitesthe interests of Southend'sretailers and landlords, making representations on planning, parking and out of town schemes.
The portfolio'ssecond largest tenant did not exercise its break option in 2017 and is nowcontracted to stay in occupation for a further two years until 2019. We are looking at variouslong term optionsforthis central Solihull property including residential, retail or a second office building.
We have completed on the disposal ofthe vacant upper parts(250 yearlong leasehold) for a price of £710,000. The median sale estimation at the time of acquisition (September 2015)was £250,000.
We completed a 15 yearleasewith Smyths Toys on units 5 & 6 at £200,000 p.a. Thisresulted in a fully letscheme.
During the six month period, the Company has made a utilisation request for £12.26 million bringing the total drawdown amount under the Facility to £26.51 million.
As at 31 October 2016, the unexpired term ofthe Facilitywasfour years and the gearingwas 19.6% (as calculated on the loan to value of the investment portfolio).
The loan attractsinterest at 3 month LIBOR +1.4%. The Company is protected from a rise in interest rates asit hasinterest rate CAPswith a combined notional value of £26.51 million and a strike rate of 2.5% forthe relevant period in linewith the life ofthe loan.
Expectations continue to be dominated by somewhat polarised perceptions ofthe effect ofthe EU referendum, although there are other economic factors and risksin the global economywhich are likely to play a more significant part in the UK's economic performance over 2017 and beyond.
GDP growth in the third quarterwas estimated to be 0.5%, a reduction on the second quarter's 0.7%, but betterthan the consensus estimate of 0.3%. It is possible that the construction sector's output has been underestimated, however,which should mean that the final estimatewill be revised upwards. The GDP forecast for 2016 full yearis 2.0% to 2.2%, close to that of 2015,which islikely to make the UK the best performer ofthe G7 countries. The expectations are that growthwill drop to around 1% next year, although forecasts are generally being revised upwardsin light of 2016's outturn.
Consumer confidence has quickly recovered afterthe EU referendum, and consumerspending remainsstrong,with retailsales volume growing by 4.1% overthe 12-monthsto September 2016. Most ofthe sales growth is, however, occurring online,with much ofthe residue attributable to concentrated growth in touristspending, leaving little forthe rest ofthe sector.
In the 12-months ending September 2016, CPI inflation rose to 1.0% from 0.6% in August. With a fall in the value ofsterling, it is inevitable that import priceswill add to inflationary pressuresin the coming months, and the consensus expectation isfor 2.5% inflation for 2017. Although thatwould breach the Bank of England'sinflation target, it is unlikely that interest rateswill be raised in the near future, particularly asthe cause ofthe rise in inflation is expected to be a one-offevent.
Nevertheless, having reached historic lows, gilt yields – alongwith most ofthewesternworld's government bonds – have been slowly risingwith growing investor concerns over central banks' abilitiesto manage the economies. Thiswill increase the cost of capital but, in our opinion, notso significantly asto affect asset values.
Despite recent economic turbulence, the outlook forUK commercial property remains positive forthe foreseeable future. The real estate sectorremains attractive from an economic fundamental viewasthe yield gap to government bondsremainssignificant.
During the course ofthe yearwe have seen robust tenant demand across most of ourregional portfolio and looking forward,we expect thisto continue to lead to rental growth acrossthe regionsforwell located property. As a result,we continue to expect income to be the main component ofreturns as opposed to recent yearswhen total returns have largely been driven by capital growthwhich has now slowed. The Company iswell positioned to benefit from increasesin rental values due to the portfolio's diverse spread ofwell located, income producing properties across the UK.
In terms ofsectorfocus,we continue to foresee the best returnsto be in the industrial/logisticssector. Thisis driven mainly by online retailers' requirementsfor distribution premises, ranging from larger national and regional hubsto smallerlocal depotsto meet the growing demand for more expedient delivery times.
The Investment Manageris authorised and regulated by the Financial Conduct Authority as a full-scope AIFM and providesitsservicesto the Group.
The Investment Manager has appointed Langham Hall UKDepositary LLP ("Langham Hall") to act asthe depositary to the Group and they are responsible for cash monitoring, asset verification and oversight ofthe Group.
AEW UK Investment Management LLP 8 December 2016
The principal risks and uncertaintiesthe Group faces are described in detail on pages 21 to 23 ofthe 2016 Annual Report, and are summarised below.
The Board considersthat the principal risks and uncertainties as presented in the 2016 Annual Reportwere unchanged during the period. However, the Board has considered the result ofthe EU referendum in June 2016 and updated the principal risks belowto reflect this.
• The Group has a UK REIT statusthat provides a tax-efficient corporate structure. Any change to the tax status orin UK legislation could impact on the Group's ability to achieve itsinvestment objectives and provide attractive returnsto 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 adverse political and economic eventsthat adversely impact on the Group'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
8 December 2016
We have been engaged by the Company to reviewthe condensed set of financial statements in the half-yearly financial report for the six months ended 31 October 2016 which comprises the Condensed Consolidated Statement of Comprehensive Income, Condensed Consolidated Statement of Changes in Equity, Condensed Consolidated Statement of Financial Position, the Condensed Consolidated Statement of Cash Flows and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financialstatements.
Thisreport is made solely to the Company in accordance with the terms of our engagement to assist the Group in meeting the requirements of the Disclosure Guidance and Transparency Rules ('the DTR') of the UK's Financial Conduct Authority ('the UK FCA'). Our review has been undertaken so thatwe 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, forthisreport, orfor the conclusions we have reached.
The half-yearly financial report isthe 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 Group are prepared in accordance with IFRSs as adopted by the EU. The condensed set of financialstatements included in this half-yearly financial report has been prepared in accordancewith IAS 34 Interim Financial Reporting as adopted by the EU.
Our responsibility isto express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on ourreview.
We conducted ourreviewin accordance with International Standard on Review Engagements (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 of interim financial information consists of making enquiries, primarily of personsresponsible for financial and accounting matters, and applying analytical and otherreviewprocedures. A reviewissubstantially lessin scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) 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.
Based on ourreview, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 October 2016 is not prepared, in all material respects, in accordancewith IAS 34 as adopted by the EU and the DTR ofthe UK FCA.
Bill Holland for and on behalf of KPMG LLP Chartered Accountants 15 Canada Square London E14 5GL
8 December 2016
for the six months ended 31 October 2016
| Period from 1 May 2016 to 31 October 2016 |
Period from 1 May 2015 to 31 October 2015 |
Period from 1 April 2015 to 30 April 2016 |
||
|---|---|---|---|---|
| Notes | (unaudited) £'000 |
(unaudited) £'000 |
(audited)* £'000 |
|
| Income | ||||
| Rental and other income | 3 | 6,054 | 1,532 | 7,185 |
| Property operating expenses | (517) | (21) | (300) | |
| Net rental and other income | 5,537 | 1,511 | 6,885 | |
| Dividend income | 3 | 326 | 274 | 653 |
| Net rental and dividend income | 5,863 | 1,785 | 7,538 | |
| Other operating expenses | 4 | (874) | (413) | (1,223) |
| Operating profit before fair value changes | 4,989 | 1,372 | 6,315 | |
| Change in fair value of investment properties | 9 | (3,726) | (2,666) | (1,935) |
| Realised gains on disposal of investment properties | 410 | – | – | |
| Change in fair value of investments | 9 | (779) | 312 | 482 |
| Operating profit/(loss) | 894 | (982) | 4,862 | |
| Finance expense | 5 | (401) | (9) | (226) |
| Profit/(loss) before tax | 493 | (991) | 4,636 | |
| Taxation | 6 | – | – | – |
| Profit/(loss) after tax | 493 | (991) | 4,636 | |
| Other comprehensive income | – | – | – | |
| Total comprehensive income/(loss) for the period | 493 | (991) | 4,636 | |
| Earnings per share (pence per share) (basic and diluted) |
0.42 | (1.05) | 4.83 |
The notes on pages 19 to 34 form an integral part of these condensed consolidated financial statements.
for the six months ended 31 October 2016
| For the period 1 May 2016 to 31 October 2016 (unaudited) |
Notes | Share capital £'000 |
Share premium account £'000 |
Capital reserve and retained earnings £'000 |
Total capital and reserves attributable to owners of the Group £'000 |
|---|---|---|---|---|---|
| Balance as at 1 May 2016 | 1,175 | 16,729 | 98,471 | 116,375 | |
| Profit for the period Other comprehensive income |
– – |
– – |
493 – |
493 – |
|
| Total comprehensive income | – | – | 493 | 493 | |
| Ordinary shares issued Share issue costs Dividends paid |
14,15 15 8 |
61 – – |
5,938 (120) – |
– – (4,700) |
5,999 (120) (4,700) |
| Balance as at 31 October 2016 | 1,236 | 22,547 | 94,264 | 118,047 | |
| For the period 1 May 2015 to 31 October 2015 (unaudited) |
Notes | Share capital £'000 |
Share premium account £'000 |
Capital reserve and retained earnings £'000 |
Total capital and reserves attributable to owners of the Group £'000 |
| Balance as at 1 May 2015 Loss for the period Other comprehensive income |
– – – |
– – – |
– (991) – |
– (991) – |
|
| Total comprehensive loss for the period | – | – | (991) | (991) | |
| Ordinary shares issued Share issue costs Cancellation of share premium |
14,15 15 |
1,005 – – |
99,495 (1,930) (97,565) |
– – 97,565 |
100,500 (1,930) – |
Balance as at 31 October 2015 1,005 – 96,574 97,579
The notes on pages 19 to 34 form an integral part of these condensed consolidated financial statements.
for the six months ended 31 October 2016
| Ordinary shares issued 14,15 |
1,175 – |
116,505 (2,211) |
– – |
117,680 (2,211) |
|---|---|---|---|---|
| Total comprehensive income for the period | – | – | 4,636 | 4,636 |
| Other comprehensive income | – | – | – | – |
| Profit for the period | – | – | 4,636 | 4,636 |
| Balance as at 1 April 2015 | – | – | – | – |
| For the period 1 April 2015 to 30 April 2016 (audited) Notes |
Share capital £'000 |
Share premium account £'000 |
Capital reserve and retained earnings £'000 |
and reserves attributable to owners of the Group* £'000 |
The notes on pages 19 to 34 form an integral part of these condensed consolidated financial statements.
as at 31 October 2016
| As at | As at | As at | ||
|---|---|---|---|---|
| 31 October 2016 (unaudited) |
31 October 2015 (unaudited)* |
30 April 2016 (audited) |
||
| Notes | £'000 | £'000 | £'000 | |
| Assets | ||||
| Non-Current Assets | ||||
| Investment property | 9 | 125,734 | 70,178 | 114,387 |
| Investments | 9 | 9,330 | 9,940 | 10,109 |
| 135,064 | 80,118 | 124,496 | ||
| Current Assets | ||||
| Receivables and prepayments | 10 | 4,600 | 1,839 | 2,962 |
| Cash and cash equivalents | 10,155 | 16,987 | 7,963 | |
| Other financial assets held at fair value | 11 | 78 | – | 77 |
| 14,833 | 18,826 | 11,002 | ||
| Total assets | 149,897 | 98,944 | 135,498 | |
| Non-Current Liabilities | ||||
| Interest bearing loans and borrowings | 12 | (26,201) | – | (14,250) |
| Finance lease obligations | (1,582) | – | (1,791) | |
| (27,783) | – | (16,041) | ||
| Current Liabilities | ||||
| Payables and accrued expenses | 13 | (3,949) | (1,365) | (2,959) |
| Finance lease obligations | (118) | – | (123) | |
| (4,067) | (1,365) | (3,082) | ||
| Total Liabilities | (31,850) | (1,365) | (19,123) | |
| Net Assets | 118,047 | 97,579 | 116,375 | |
| Equity | ||||
| Share capital | 14 | 1,236 | 1,005 | 1,175 |
| Share premium account | 15 | 22,547 | – | 16,729 |
| Capital reserve and retained earnings | 94,264 | 96,574 | 98,471 | |
| Total capital and reserves attributable to | ||||
| equity holders of the Group | 118,047 | 97,579 | 116,375 | |
| Net Asset Value per share (pence per share) | 7 | 95.47 | 97.09 | 99.03 |
The financialstatements on pages 14 to 34were approved by the Board ofDirectors on 8 December 2016 andwere signed on its behalf by:
Chairman AEW UK REIT plc Company number: 09522515
The notes on pages 19 to 34 form an integral part of these condensed consolidated financial statements.
for the six months ended 31 October 2016
| Period from 1 May 2016 to 31 October 2016 (unaudited) £'000 |
Period from 1 May 2015 to 31 October 2015 (unaudited) £'000 |
Period from 1 April 2015 to 30 April 2016 (audited)* £'000 |
|
|---|---|---|---|
| Cash flows from operating activities | |||
| Operating profit/(loss) | 894 | (982) | 4,862 |
| Adjustment for non-cash items: | |||
| Loss from change in fair value of investment property | 3,726 | 2,666 | 1,935 |
| Loss/(gain) from change in fair value of investments | 779 | (312) | (482) |
| Realised gains on disposal of investment properties | (410) | – | – |
| Changes in fair value of interest rate derivatives | (70) | – | (14) |
| Increase in other receivables and prepayments | (1,638) | (1,727) | (2,962) |
| Increase in other payables and accrued expenses | 981 | 960 | 2,936 |
| Net cash flow generated from operating activities | 4,262 | 605 | 6,275 |
| Cash flows from investing activities | |||
| Purchase of investment properties | (15,587) | (72,551) | (114,408) |
| Purchase of investments | – | (9,628) | (9,627) |
| Disposal of investment properties | 710 | – | – |
| Net cash used in investing activities | (14,877) | (82,179) | (124,035) |
| Cash flows from financing activities | |||
| Proceeds from issue of ordinary share capital | 5,999 | 100,500 | 117,680 |
| Share issue costs | (117) | (1,930) | (2,211) |
| Loan draw down | 12,260 | – | 14,250 |
| Arrangement loan facility fee paid | (348) | – | (40) |
| Finance costs | (287) | (9) | (226) |
| Dividends paid | (4,700) | – | (3,730) |
| Net cash flow generated from financing activities | 12,807 | 98,561 | 125,723 |
| Net increase in cash and cash equivalents | 2,192 | 16,987 | 7,963 |
| Cash and cash equivalents at start of the period | 7,963 | – | – |
| Cash and cash equivalents at end of the period | 10,155 | 16,987 | 7,963 |
The notes on pages 19 to 34 form an integral part of these condensed consolidated financial statements.
for the six months ended 31 October 2016
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. AEW UK REIT 2015 Limited is a subsidiary of the Company, incorporated in the UK on 2 April 2015. At 31 October 2016, the Company continued holding one share being 100% of the issued share capital. AEW UK REIT 2015 Limited is wholly owned by the Company (together known as the 'Group') and is currently dormant.
The comparative information for the period from 1 April 2015 to 30 April 2016 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The auditors 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. However, it did draw attention to an emphasis of matter due to the need to issue revised accounts for the period 1 April 2015 to 30 April 2016.
These half-yearly condensed consolidated unaudited financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting, and should be read in conjunction with the Group's last consolidated financial statements for the period ended 30 April 2016. These condensed consolidated unaudited financial statements do not include all information required for a complete set of IFRS financial statements, however, selected explanatory notes have been included to explain events and transactions that are significant in understanding changes in the Group'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 Group and was approved for issue on 8 December 2016.
The comparative figures disclosed in the condensed consolidated unaudited financial statements and related notes have been presented for the six month period to 31 October 2015 as required by IAS 34. However, as the Group did not trade prior to 1 May 2015, the amounts now presented for the period 1 May 2015 to 31 October 2015 are the same as previously reported for that period except for earnings per share due to a recalculation of weighted average number of shares for the period 1 May 2015 to 31 October 2015.
The interim report and financial statements for the period 1 April 2015 to 31 October 2015 represents a seven month period, therefore has not been adopted as a comparative.
Although not required by IAS 34, the comparative figures as at 31 October 2015 for the Condensed Consolidated Statement of Financial Position and 30 April 2016 for the Condensed Consolidated Statement of Comprehensive Income, Condensed Consolidated Statement of Changes in Equity and Condensed Consolidated Statement of Cash Flows and related notes have included on a voluntary basis.
These consolidated condensed unaudited financial statements have been prepared under the historicalcost convention, except for investment property, investments and interest rate derivatives that have been measured at fair value.
The consolidated condensed unaudited financial statements are presented in Sterling and all values are rounded to the nearest thousand pound (£'000), except when otherwise indicated.
As the subsidiary AEW UK REIT 2015 Limited is dormant and has no balances material for consolidation, these consolidated condensed unaudited financial statements are representative of the accounts of the Group and Company.
for the six months ended 31 October 2016
There are a number of new standards and amendments to existing standards which have been published and are mandatory for the Group's accounting periods beginning after 1 November 2016 or later periods, but the Group has decided not to early adopt them. The following are the most relevant to the Group:
There are no new IFRS or IFRIC interpretations that are not yet effective that would have a material impact on the Group's financial statements.
The preparation of financial statements in accordance with EU IFRS requires the Directors of the Group 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 valuations of the Group's investment property will be at fair value as determined by the independent valuer on the basis of market 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 fair value with any resulting gain or loss recognised in profit or loss. Fair value is assessed by the Directors based on the best available information.
The value of the Company's interest in the AEW Core Fund as at 31 October 2016 has been amended to value the holding in the Core Fund at its 31 October 2016 NAV. The Directors, in consultation with the Company's professional advisers, have adopted the amended valuation methodology as at 31 October 2016 in order to provide a better reflection of fair value of the Company's holding in the Core Fund.
for the six months ended 31 October 2016
In accordance with IAS 39, the Group carries its interest rate derivatives at fair value. The fair values are estimated by the loan counterparty with revaluation occurring on a quarterly basis. The counterparties will use a number of assumptions in determining the fair values including estimations over future interest rates and therefore future cash flows. The fair value represents the net present value of the difference between the cash flows produced by the contracted rate and the valuation rate.
In accordance with IFRS 8, the Group is organised into one main operating segment. All of the Group's activities are interrelated, and each activity is dependent on the others. Accordingly, all significant operating decisions are based upon analysis of the Group as one segment. The financial results from this segment are equivalent to the financial statements of the Group as a whole.
The Directors have made an assessment of the Group's ability to continue as a going concern and are satisfied that the Group 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 Group'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 Group's Annual Report and Accounts as at 30 April 2016.
for the six months ended 31 October 2016
| Period from | Period from | Period from | |
|---|---|---|---|
| 1 May 2016 to | 1 May 2015 to | 1 April 2015 to | |
| 31 October | 31 October | 30 April | |
| 2016 | 2015 | 2016 | |
| (unaudited) | (unaudited) | (audited) | |
| £'000 | £'000 | £'000 | |
| Gross rental income received | 5,847 | 1,513 | 6,153 |
| Surrender premium received | – | – | 1,000 |
| Dilapidation income received | 204 | 19 | 19 |
| Other property income | 3 | – | 13 |
| Total rental and other income | 6,054 | 1,532 | 7,185 |
| Dividend income: | |||
| Property income distribution* | 313 | 264 | 629 |
| Dividend distribution | 13 | 10 | 24 |
| 326 | 274 | 653 | |
| Total Revenue | 6,380 | 1,806 | 7,838 |
* Property income distribution ('PID') is received from the investment in the AEW UK Core Property Fund which holds property directly. Rent available under the terms of the leases, is adjusted, for the effect of any incentives agreed.
| Period from 1 May 2016 to 31 October 2016 (unaudited) |
Period from 1 May 2015 to 31 October 2015 (unaudited) |
Period from 1 April 2015 to 30 April 2016 (audited) |
|
|---|---|---|---|
| Investment management fee | £'000 526 |
£'000 204 |
£'000 653 |
| Auditor remuneration | 48 | 28 | 95 |
| Operation costs | 266 | 144 | 403 |
| Directors' remuneration | 34 | 37 | 72 |
| Total | 874 | 413 | 1,223 |
for the six months ended 31 October 2016
| Period from | Period from | Period from | |
|---|---|---|---|
| 1 May 2016 to | 1 May 2015 to | 1 April 2015 to | |
| 31 October | 31 October | 30 April | |
| 2016 | 2015 | 2016 | |
| (unaudited) | (unaudited) | (audited) | |
| £'000 | £'000 | £'000 | |
| Interest payable on loan borrowings | 244 | – | 110 |
| Amortisation of loan arrangement fee | 39 | 9 | 40 |
| Agency fee payable on loan borrowings | 10 | – | 11 |
| Commitment fee payable on loan borrowings | 38 | – | 51 |
| 331 | 9 | 212 | |
| Change in fair value of interest rate derivatives | 70 | – | 14 |
| Total | 401 | 9 | 226 |
| Period from | Period from | Period from | |
|---|---|---|---|
| 1 May 2016 to | 1 May 2015 to | 1 April 2015 to | |
| 31 October | 31 October | 30 April | |
| 2016 | 2015 | 2016 | |
| (unaudited) | (unaudited) | (audited) | |
| £'000 | £'000 | £'000 | |
| Analysis of charge in the period | |||
| Profit/(loss) before tax | 493 | (991) | 4,636 |
| Theoretical tax at UK corporation tax standard rate of 20% | 98 | (198) | 927 |
| Adjusted for: | |||
| Exempt REIT income | (868) | (273) | (1,119) |
| UK dividend not taxable | (45) | – | (99) |
| Non taxable investment losses | 815 | 471 | 291 |
| Total | – | – | – |
for the six months ended 31 October 2016
| Period from 1 May 2016 to |
Period from 1 May 2015 to |
Period from 1 April 2015 to |
|
|---|---|---|---|
| 31 October 2016 (unaudited) |
31 October 2015 (unaudited) |
30 April 2016 (audited) |
|
| Net attributable to Ordinary Shareholders | |||
| Total comprehensive income /(loss)(£'000) | 493 | (991) | 4,636 |
| Weighted average number of shares* | 118,563,367 | 94,491,848 | 96,022,424 |
| Basic earnings/(loss) per share (pence) | 0.42 | (1.05) | 4.83 |
| Adjustment to revenue: | |||
| Unrealised loss from change in fair value of investment property (£'000) |
3,726 | 2,666 | 1,935 |
| Realised gain on disposal of investment properties (£'000) | (410) | – | – |
| Loss/(gain) from change in fair value of investments (£'000) |
779 | (312) | (482) |
| Change in fair value of interest rate derivatives (£'000) |
(70) | – | (14) |
| EPRA earnings per share (basic and diluted) (pence) | 3.81 | 1.44 | 6.33 |
| Net assets (£'000) | 118,047 | 97,579 | 116,375 |
| Ordinary shares in issue | 123,647,250 | 100,500,000 | 117,510,000 |
| NAV per share (pence) | 95.47 | 97.09 | 99.03 |
| Other financial assets held at fair value (£'000) | (78) | – | (77) |
| EPRA NAV per share (pence) | 95.41 | 97.09 | 98.97 |
* Based on the weighted average number of Ordinary Shares in issue throughout the period.
for the six months ended 31 October 2016
| Period from | Period from | Period from | |
|---|---|---|---|
| 1 May 2016 to | 1 May 2015 to | 1 April 2015 to | |
| 31 October | 31 October | 30 April | |
| 2016 | 2015 | 2016 | |
| (unaudited) | (unaudited) | (audited) | |
| £'000 | £'000 | £'000 | |
| Fourth dividend paid in respect of the period | |||
| ended 30 April 2016 at 2p per Ordinary Share | 2,350 | – | – |
| First dividend paid in respect of the period | |||
| ended 31 July 2016 at 2p per Ordinary Share | 2,350 | – | – |
| First dividend paid in respect of the period | |||
| ended 31 October 2015 at 1.5p per Ordinary Share | – | – | 1,507 |
| Second dividend paid in respect of the period 1 November 2015 to 14 December 2015 at |
|||
| 0.75p per Ordinary Share | – | – | 754 |
| Third dividend paid in respect of the period 15 December 2015 to 31 January 2016 at |
|||
| 1.25p per Ordinary Share | – | – | 1,469 |
| Total dividends paid during the period | 4,700 | – | 3,730 |
| Fourth dividend paid in respect of the period ended 30 April 2016 at 2p per Ordinary Share |
– | – | 2,350 |
| Second interim dividend declared for the period 1 August 2016 to 31 October 2016 at |
|||
| 2p per Ordinary Share | 2,473 | – | – |
| Total dividends in respect of the period | 7,173 | – | 6,080 |
for the six months ended 31 October 2016
| Period from 1 May 2016 to | Period from | Period from | |||
|---|---|---|---|---|---|
| 31 October 2016 (unaudited) | 1 May 2015 | 1 April 2015 | |||
| Investment properties freehold £'000 |
Investment properties leasehold £'000 |
Total £'000 |
to 31 October 2015 (unaudited) Total £'000 |
to 30 April 2016 (audited) Total £'000 |
|
| UK Investment property | |||||
| As at beginning of period | 89,045 | 25,295 | 114,340 | – | – |
| Purchases in the period | 15,587 | – | 15,587 | 72,844 | 114,408 |
| Disposals in the period | (300) | – | (300) | – | – |
| Revaluation of investment property | (1,182) | (2,560) | (3,742) | (1,479) | (68) |
| Valuation provided by Knight Frank | 103,150 | 22,735 | 125,885 | 71,365 | 114,340 |
| Adjustment to fair value for rent free debtor | (1,716) | (88) | (1,082) | ||
| Adjustment to fair value for rent guarantee debtor | (135) | (1,099) | (785) | ||
| Adjustment for finance lease obligations* | 1,700 | – | 1,914 | ||
| Total Investment property | 125,734 | 70,178 | 114,387 | ||
| Change in fair value of investment property | |||||
| Loss from change in fair value | (3,742) | (1,479) | (68) | ||
| Adjustment for movement in the period: | |||||
| in fair value for rent free debtor | (634) | (88) | (1,082) | ||
| in fair value for rent guarantee debtor | 650 | (1,099) | (785) | ||
| (3,726) | (2,666) | (1,935) |
* Adjustment in respect of minimum payment under head leases separately included as a liability within the Statement of Financial Position.
Valuation of investment property is performed by Knight Frank LLP, an accredited external valuer with recognised and relevant professional qualifications and recent experience of the location and category of the investment property being valued.
The valuation of the Group'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).
for the six months ended 31 October 2016
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 | Period from | |
|---|---|---|---|
| 1 May 2016 to | 1 May 2015 | 1 April 2015 | |
| 31 October | to 31 October | to 30 April | |
| 2016 | 2015 | 2016 | |
| (unaudited) | (unaudited) | (audited) | |
| Total | Total | Total | |
| £'000 | £'000 | £'000 | |
| Investment in AEW UK Core Property Fund | |||
| As at beginning of period | 10,109 | – | – |
| Purchases in period | – | 9,628 | 9,627 |
| (Loss)/gain from change in fair value | (779) | 312 | 482 |
| Total Investment in AEW UK Core Property Fund | 9,330 | 9,940 | 10,109 |
Investments in collective investment schemes are stated at fair value with any resulting gain or loss recognised in profit or loss. Fair value is assessed by the Directors based on the best available information.
The value of investments in the AEW Core Fund is based on the latest NAV of the AEW Core Fund as the Directors consider this to be the best approximation of fair value.
The following table provides the fair value measurement hierarchy for non-current assets:
| 31 October 2016 | ||||
|---|---|---|---|---|
| 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 properties | – | – | 125,734 | 125,734 |
| Investment in AEW UK Core Property Fund | – | – | 9,330 | 9,330 |
| – | – | 135,064 | 135,064 |
for the six months ended 31 October 2016
| 31 October 2015 | |||
|---|---|---|---|
| Significant | Significant | ||
| Total | |||
| £'000 | £'000 | £'000 | £'000 |
| 70,178 | |||
| – | – | 9,940 | 9,940 |
| – | – | 80,118 | 80,118 |
| Significant | Significant | ||
| Quoted prices in | observable | unobservable | |
| active markets | inputs | inputs | |
| (Level 1) | (Level 2) | (Level 3) | Total |
| £'000 | £'000 | £'000 | £'000 |
| 114,387 | |||
| – | – | 10,109 | 10,109 |
| Quoted prices in active markets (Level 1) – – |
observable inputs (Level 2) – – |
unobservable inputs (Level 3) 70,178 30 April 2016 114,387 |
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
– – 124,496 124,496
Level 3 – Valuation techniques using non-observable data.
The Group has considered sensitivity analysis for assets measured at fair value and recognises the significant unobservable inputs relating to investment property and investments.
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 property are:
Increases (decreases) in the ERV (per sq ft p.a.) in isolation would result in a higher (lower) fair value measurement. Increases (decreases) in the discount rate/yield (and exit or yield) in isolation would result in a lower (higher) fair value measurement.
for the six months ended 31 October 2016
The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy of the entity's investment is:
1) NAV
The Group has updated its accounting policy with regard to the value of investments in the AEW Core Fund to now be based on NAV which is considered to be the best approximation of fair value by the Directors.
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 2016 | ||||
| Investment Property | 125,885 | Income capitalisation | ERV | £2.00 – £160.00 |
| Equivalent yield | 6.99% – 11.03% | |||
| Investments | 9,330 | Market capitalisation | NAV | £1.1612 |
| 31 October 2015 | ||||
| Investment Property | 71,365 | Income capitalisation | ERV | £2.50 – £150.00 |
| Equivalent yield | 6.50% – 11.00% | |||
| Investments | 9,940 | Market capitalisation | Single swinging price | £1.2370 |
| 30 April 2016 | ||||
| Investment Property | 114,340 | Income capitalisation | ERV | £2.00 – £160.00 |
| Equivalent yield | 6.70% – 11.90% | |||
| Investments | 10,109 | Market capitalisation | Single swinging price | £1.2581 |
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 realised and 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 Consolidated Statement of Financial Position, is considered to be the same as their fair value.
for the six months ended 31 October 2016
| 31 October | 31 October | 30 April | |
|---|---|---|---|
| 2016 | 2015 | 2016 | |
| £'000 | £'000 | £'000 | |
| Receivables | |||
| Rent debtor | 2,155 | 314 | 622 |
| Rent free debtor | 1,716 | 88 | 1,082 |
| Rent guarantee debtor | 135 | 1,099 | 785 |
| Dividend receivable | 146 | 215 | 193 |
| Capital VAT recoverable | – | 113 | – |
| Rent agent float account | 51 | – | 92 |
| Other receivables | 309 | – | 29 |
| 4,512 | 1,829 | 2,803 | |
| Prepayments | |||
| Property related prepayments | 57 | 2 | 149 |
| Depositary services | 7 | 7 | 8 |
| Listing fees | 3 | 1 | 2 |
| Other prepayments | 21 | – | – |
| 88 | 10 | 159 | |
| Total | 4,600 | 1,839 | 2,962 |
| 31 October 2016 £'000 |
31 October 2015 £'000 |
30 April 2016 £'000 |
|
|---|---|---|---|
| At the beginning of the period | 77 | – | – |
| Interest rate cap premium paid | 71 | – | 91 |
| Changes in fair value of interest rate derivatives | (70) | – | (14) |
| Total | 78 | – | 77 |
To mitigate the interest rate risk that arises as a result of entering into variable rate linked loans, the Group entered into an interest rate CAP during the period, with the combined notional value of £26.51 million and a strike rate of 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 £71,000.
for the six months ended 31 October 2016
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 2016 | – | 78 | – | 78 |
| 31 October 2015 | – | – | – | – |
| 30 April 2016 | – | 77 | – | 77 |
The fair value of these contracts are recorded in the Consolidated 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 Consolidated Statement of Financial Position, is considered to be the same as their fair value.
| Bank borrowings drawn | |||
|---|---|---|---|
| 31 October 2016 £'000 |
31 October 2015 £'000 |
30 April 2016 £'000 |
|
| At the beginning of the period | 14,250 | – | – |
| Bank borrowings drawn in the period | 12,260 | – | 14,250 |
| Interest bearing loans and borrowings | 26,510 | – | 14,250 |
| Less: loan issue costs incurred | (388) | – | (40) |
| Plus: amortised loan issue costs | 79 | – | 40 |
| At the end of the period | 26,201 | – | 14,250 |
| Repayable between 1 and 2 years | – | – | – |
| Repayable between 2 and 5 years | 26,510 | – | 14,250 |
| Repayable in over 5 years | – | – | – |
| Total | 26,510 | – | 14,250 |
for the six months ended 31 October 2016
The Group entered into a £40 million credit facility with RBSI on 20 October 2015, of which £13.49 million remained undrawn as at the period end.
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 4 years.
| 31 October 2016 £'000 |
31 October 2015 £'000 |
30 April 2016 £'000 |
|
|---|---|---|---|
| Deferred income | 3,122 | 548 | 1,675 |
| Accruals | 526 | 78 | 1,008 |
| Other creditors | 301 | 739 | 276 |
| Total | 3,949 | 1,365 | 2,959 |
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 |
| £'000 | Number of Ordinary Shares |
|
|---|---|---|
| Ordinary Shares issued and fully paid | ||
| At the beginning of the period | – | 1 |
| Issued on admission to trading on the London Stock Exchange on 12 May 2015 | 1,005 | 100,499,999 |
| At the end of the period | 1,005 | 100,500,000 |
for the six months ended 31 October 2016
For the period 1 April 2015 to 30 April 2016
| £'000 | Number of Ordinary Shares |
|
|---|---|---|
| Ordinary Shares issued and fully paid | ||
| At the beginning of the period | – | 1 |
| Issued on admission to trading on the London Stock Exchange on 12 May 2015 | 1,005 | 100,499,999 |
| Issued on admission to trading on the London Stock Exchange on 15 December 2015 | 170 | 17,010,000 |
| At the end of the period | 1,175 | 117,510,000 |
On 16 September 2016, the Company issued 2,450,000 Ordinary Shares at a price of 97 pence per share in the form of a tap issue under authority granted on 7 September 2016 at the Annual General Meeting.
On 10 October 2016 the Company issued 3,687,250 Ordinary Shares at a price of 98.25 pence per share in the form of tap issue under authority granted on 7 September 2016 at the Annual General Meeting.
| Period from 1 May 2016 to |
Period from 1 May 2015 to |
Period from 1 April 2015 to |
|
|---|---|---|---|
| 31 October 2016 £'000 |
31 October 2015 £'000 |
30 April 2016 £'000 |
|
| The share premium relates to amounts subscribed for share capital in excess of nominal value: |
|||
| Balance at the beginning of the period | 16,729 | – | – |
| Issued on admission to trading on the London Stock Exchange on 12 May 2015 |
– | 99,495 | 99,495 |
| Share issue costs (paid and accrued) | – | (1,930) | (1,930) |
| Transfer to capital reduction account | – | (97,565) | (97,565) |
| Issued on admission to trading on the London Stock Exchange on 15 December 2015 |
– | – | 17,010 |
| Share issue costs (paid and accrued) | (23) | – | (281) |
| Issued on admission to trading on the London Stock Exchange on 16 September 2016 |
2,352 | – | – |
| Share issue cost (paid and accrued) | (42) | – | – |
| Issued on admission to trading on the London Stock Exchange on 10 October 2016 |
3,586 | – | – |
| Share issue cost (paid and accrued) | (55) | – | – |
| Balance at the end of the period | 22,547 | – | 16,729 |
for the six months ended 31 October 2016
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 2016, the Directors of the Company are considered to be the key management personnel.
The Group 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 Boards of Directors.
During the period 1 May 2016 to 31 October 2016, the Company incurred £525,776 (31 October 2015: £203,829; 30 April 2016: £652,706) in respect of investment management fees and expenses of which £253,769 was outstanding at 31 October 2016 (31 October 2015: £139,724; 30 April 2016: £230,631).
On 15 November 2016, the Board declared its second interim dividend of 2.00 pence per share, in respect of the period from 1 August 2016 to 31 October 2016, as reflected in note 8. This is to be paid on 31 December 2016 to shareholders on the register as at 25 November 2016. The ex-dividend date was 24 November 2016.
On 15 November 2016, the Board declared that the Company will look to sell down its holding in the AEW Core Fund and reinvest the proceeds from sale into direct property holdings.
On 25 November 2016, Euroway Trading Estate, was purchased for £4.95 million (net of acquisition costs). This property is a 144,000 sq ft logistics warehouse in Bradford. This acquisition provides a net initial yield of 8.1%, a reversionary yield of 8.9% and a capital value per sq ft of £34.
rental income.
| 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. |
£4.52 million/3.81 pps EPRA earnings for the period to 31 October 2016 (£6.08 million/6.33 pps for the period to 30 April 2016) |
| 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. |
£117.97 million/95.41 pps EPRA NAV as at 31 October 2016 (£116.30 million/98.97 pps as at 30 April 2016) |
| 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. |
£118.05 million/95.47 pps EPRA NNNAV as at 31 October 2016 (£116.38 million/99.03 pps as at 30 April 2016) |
| 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. |
7.85% EPRA NIY as at 31 October 2016 (8.01% as at 30 April 2016) |
| 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. |
7.85% EPRA 'Topped-Up' NIY as at 31 October 2016 (8.56% as at 30 April 2016) |
| 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. |
8.70% EPRA ERV as at 31 October 2016 (3.16% as at 30 April 2016) |
| 6. EPRA Cost Ratio | ||
| Administrative and operating costs (including and excluding costs of direct vacancy) divided by gross |
A key measure to enable meaningful measurement of the changes in a company's operating costs. |
Including direct vacancy costs EPRA Cost Ratio 11.49% as at 31 October 2016 (12.23% as at |
9.31% EPRA Cost ratio excluding direct vacancy costs as at 31 October 2016 (10.90% as at 30 April 2016)
30 April 2016)
| Calculation of EPRA Net Initial Yield and 'topped-up' Net Initial Yield | ||
|---|---|---|
| ------------------------------------------------------------------------- | -- | -- |
| 31 October | |
|---|---|
| 2016 £'000 |
|
| Investment property – wholly-owned | 125,885 |
| Allowance for estimated purchasers' costs | 8,560 |
| Gross up completed property portfolio valuation | 134,445 |
| Annualised cash passing rental income | 11,203 |
| Property outgoings | (655) |
| Annualised net rents | 10,548 |
| Rent expiration of rent-free periods and fixed uplifts | – |
| 'Topped-up' net annualised rent | 10,548 |
| EPRA Net Initial Yield | 7.85% |
| EPRA 'topped-up' Net Initial Yield | 7.85% |
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 2016, plus an allowance for estimated purchasers' costs. Estimated purchasers' costs are determined by the relevantstamp 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 upliftswhere defined as not in lieu of growth. Overall 'topped-up' NIY is calculated by adding any other contracted future uplift to the 'topped-up' net annualised rent.
| 31 October 2016 £'000/% |
|
|---|---|
| Annualised potential rental value of vacant premises | 1,069 |
| Annualised potential rental value for the completed property portfolio | 12,291 |
| EPRA Vacancy Rate | 8.70% |
| Calculation of EPRA Cost Ratios | |
| 31 October 2016 £'000 |
|
| Administrative/operating expense per IFRS income statement | 1,390 |
| Less: Performance & management fees | (526) |
| Other fees and commission | (128) |
| Ground rent costs | (90) |
| EPRA Costs (including direct vacancy costs) | 646 |
| Direct vacancy costs | (123) |
| EPRA Costs (excluding direct vacancy costs) | 523 |
| Gross Rental Income less ground rent costs | 5,756 |
| Less: service charge costs of rental income | (128) |
| Gross rental income | 5,628 |
| EPRA Cost Ratio (including direct vacancy costs) | 11.49% |
| EPRA Cost Ratio (excluding direct vacancy costs) | 9.31% |
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 39. You can check your shareholding and find practical help on transferring shares or updating your details atwww.investorcentre.co.uk.
| Ordinary Shares | 123,647,250 |
|---|---|
| SEDOL Number | BWD2415 |
| ISIN Number | GB00BWD24154 |
The Company's Ordinary Shares are traded on the Main Market ofthe London Stock Exchange.
Copies ofthe Annual and Half-Yearly Reports are available from the Company'swebsite
| 30 April 2017 | Year end |
|---|---|
| July 2017 | Announcement of annual results |
| September 2017 | Annual General Meeting |
| 31 October 2017 | Half-year End |
| December 2017 | Announcement of half-yearly results |
The following table summarisesthe amountsrecognised as distributionsto equity shareholdersin the period:
| £ | |
|---|---|
| Dividend for the period 1 February 2016 to 30 April 2016 | 2,350,200 |
| Dividend for the period 1 May 2016 to 31 July 2016 | 2,350,200 |
| Total | 4,700,400 |
Mark Burton (Non-executive Chairman) James Hyslop (Non-executive Director) Bimaljit (''Bim'') Sandhu (Non-executive Director)
40 Dukes Place London EC3A 7NH
AEW UK Investment Management LLP 33 Jermyn Street London SW1Y 6DN
Tel: 020 7016 4800 Website: www.aeweurope.com
Jones Lang LaSalle Limited 22 Hanover Square London W1S 1JA
Fidante Capital 1 Tudor Street London EC4Y 0AH
Gowling WLG (UK) LLP 4 More London Riverside London SE1 2AU
FTI Consulting 200 Aldersgate Aldersgate Street London EC1A 4HD
www.fticonsulting.com
Langham Hall UK LLP 5 Old Bailey London EC4M 7BA
Capita SinclairHenderson Limited Beaufort House 51 New North Road Exeter EX4 4EP
Capita Company Secretarial Services Limited 40 Dukes Place London EC3A 7NH
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 Group's NAV isreleased to the London Stock Exchange on a quarterly basis and is published on the Group'swebsite.
| AEW UK Core Property 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 of Investment 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 management servicesto the Company andwhich ensuresthe Company complieswith the AIFMD. The Company's AIFM is AEW UK Investment Management UK LLP. |
| Company | AEW UK REIT plc. |
| Company Secretary | Capita Company Secretarial Services Limited. |
| Contracted rent | The annualised rent adjusting for the inclusion of rent subject to rent-free periods. |
| Covenant strength | The strength of a tenant's financialstatus and its ability to perform the covenantsin the lease. |
| DTR | Disclosure and Transparency Rules, issued by the United Kingdom Listing Authority. |
| 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 companies in 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 expensesrelate 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 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 towhich current dividend payments are supported by earnings. |
| EPRA NAV | Net Asset Value adjusted to include properties and otherinvestment 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 ofthe property, increasedwith (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 incentivessuch as discounted rent periods and step rents). |
|
| EPRA Vacancy Rate | Estimated Market Rental Value ('ERV') of vacant space as a percentage of the ERV of the whole portfolio. |
| Equivalent Yield | The internal rate of return of the 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 as to the open market rentwhich, on the date ofthe valuation, could reasonably be expected to be obtained on a new letting orrent reviewof a property. |
| External Valuer | An independent external valuer of a property. The Company's External Valueris Knight Frank LLP. |
| Fair value | The estimated amount for which a property should exchange on the valuation date between a willing buyer and a willing seller in an arm's length transaction after proper marketing and where 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 of the Company as determined in accordance with IFRS. |
| Group | AEW UK REIT plc and itssubsidiary, AEW UK REIT 2015 Limited. |
| 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 UK 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 of the Company and admission ofOrdinary Shares to the premium listing segment of the Official List on 12 May 2015. |
| Lease incentives | Incentives offered to occupiers to enter into a lease. Typically thiswill be an initial rent-free period, or a cash contribution to fit-out. Under accounting rulesthe value of the lease incentive is amortised through the Income Statement on a straight-line basis until the lease expiry. |
| Lease Surrender | An agreementwhereby the landlord and tenant bring a lease to an end otherthan by contractual expiry or the 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. |
| Net Asset Value ('NAV') | Net Asset Value is the equity attributable to shareholders calculated underIFRS. |
| Net Asset Value per share | Equity shareholders' funds divided by the number ofOrdinary Sharesin issue. |
| Net equivalent yield | Calculated by the Group's External Valuers, equivalent yield is the internal rate of return from an investment property, based on the gross outlaysforthe purchase of a property (including purchase costs), reflecting reversionsto current market rent and items as voids and non-recoverable expenditure but ignoring future changes in capital value. The calculation assumes rent isreceived annually in arrears. |
| Net initial yield | The initial net rental income from a property at the date of purchase, expressed as a percentage of the 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 of the Tax Exempt Business of the Group. |
| Ongoing charges | The ratio of total 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 ofthe tax exempt business ofthe Group. |
| Rack-rented | Spacewhere passing rent is the same as the ERV. |
| REIT | A Real Estate Investment Trust. A companywhich complieswith Part 12 of the 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 below the ERV. |
| Reversionary yield | The anticipated yield,which the initial yieldwill rise (or fall) to once the rent reaches the 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. |
| Share Price Total Return | The percentage change in the share price assuming dividends are reinvested to purchase additional Ordinary Shares. |
| Total returns | The returns to shareholders calculated on a per share 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 ofOrdinary Shares or Net Assets. |
| Under-rented | Spacewhere the passing rent is below the 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 howthey have applied the Code in their annual report and accounts. |
|
| Voids | The amount ofrent relating to properties which 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 4845 www.aeweurope.com
France 8-12 rue des Pirogues de Bercy 75012 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
Building tools?
Free accounts include 100 API calls/year for testing.
Have a question? We'll get back to you promptly.