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AEW UK REIT plc (AEWU)

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Thursday 15 November, 2018

AEW UK REIT plc

Half-yearly Results

AEW UK REIT plc (AEWU)
AEW UK REIT plc: Half-yearly Results

15-Nov-2018 / 07:00 GMT/BST
Dissemination of a Regulatory Announcement, transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.


AEW UK REIT PLC

 

Interim Report and Financial Statements

for the six months ended 30 September 2018

 

Financial Highlights

 

Unaudited Net Asset Value ('NAV') of £151.65 million and 100.06 pence per share as at 30 September 2018 (31 March 2018: £146.03 million and 96.36 pence per share).

Operating profit before fair value changes of £6.86 million for the period (six months to 31 October 2017: £4.96 million).

Unadjusted profit before tax ('PBT') of £11.68 million and 7.71 pence per share for the period (six months to 31 October 2017: £6.99 million and 5.60 pence per share).

EPRA Earnings Per Share ('EPRA EPS') for the period were 4.10 pence (six months to 31 October 2017: 3.73 pence). See below for more details.

Total dividends of 4.00 pence per share have been declared for the period (six months to 31 October 2017: 4.00 pence per share).

Total shareholder return for the period was 3.56% (six months to 31 October 2017: 5.17%). See below for more details.
 

NAV total return for the period was 7.99% (six months to 31 October 2017: 6.06%). See below for definition.
 

The price of the Company's Ordinary Shares on the Main Market of the London Stock Exchange was 95.01 pence per share as at 30 September 2018 (31 March 2018: 95.60 pence per share).

As at 30 September 2018, the Company had a £60.00 million (31 March 2018: £60.00 million) term credit facility with The Royal Bank of Scotland International Limited ('RBSI') and was geared to 25.84% of the Gross Asset Value (31 March 2018: 26.00%).

Since the period end, the Company has extended the term of its loan facility with RBSI by three years up to 22 October 2023.
 

The Company held cash balances totalling £8.15 million as at 30 September 2018 (31 March 2018: £4.71 million), of which £7.40 million (31 March 2018: £3.57 million) was held for the purpose of capital acquisitions.

 

 

Property Highlights

 

As at 30 September 2018, the Company's property portfolio had a fair value of £193.53 million (31 March 2018: £192.34 million) and a historical cost (including purchase costs and capital expenditure) of £191.92 million (31 March 2018: £196.64 million), representing an increase of £1.61 million (31 March 2018: decrease of £4.30 million), or 0.84% (31 March 2018: decrease of 2.19%).
 

The majority of assets that have been acquired are fully let and the portfolio had a vacancy rate of 3.27% as at 30 September 2018 (31 March 2018: 7.10%).

Rental income generated in the period was £8.46 million (six months to 31 October 2017: £6.50 million). The number of tenants as at 30 September 2018 was 95 (31 March 2018: 104).
 

Average portfolio Net Initial Yield of 7.90% (31 March 2018: 7.74%). See below for more details.
 

Weighted average unexpired lease term ('WAULT') of 5.00 years (31 March 2018: 5.08 years) to break and 6.18 years (31 March 2018: 6.16 years) to expiry. See below for more details.

 

 

 

Chairman's Statement

 

Overview

I am pleased to present the unaudited interim results of the Company for the six month period from 1 April 2018 to 30 September 2018. As at 30 September 2018, the Company had established a diversified portfolio of 36 commercial investment properties throughout the UK with a value of £193.53 million. On a like-for-like basis, the portfolio valuation increased by 3.10% over the six months.

 

At the start of the period, the Company was fully invested. As such, the key focus has been on demonstrating the portfolio's ability to deliver income returns to support the Company's dividend target. Dividends of 4.00 pence per share have been declared in relation to the six month period, in line with the target of 8.00 pence per share per annum. These dividends were fully covered by EPRA EPS, which were 4.10 pence, reflecting the high-yielding nature of the portfolio. The Directors believe that this level of earnings can be sustained over the coming quarters, based on the portfolio's current leasing profile and expectations of lease renewals and rent reviews.

 

Towards the end of 2017 and at the beginning of 2018, the Company deployed the proceeds of the most recent capital raise in October 2017. From the date of the share issue and up to 31 March 2018, the Company made seven acquisitions totalling £49.72 million, which fully utilised the capital raised, as well as an additional £17.50 million of debt. These acquisitions provided a boost to earnings during this reporting period, as the seven assets had a combined Net Initial Yield equating to 9.1% on the purchase price and generated a combined rental income of £2.41 million or 1.59 pence per share to bring our EPRA earnings back in line with the dividend target, having been diluted following the capital raise.

 

An important factor in achieving such returns from high yielding new investments has been the Investment Manager's implementation of the Company's Investment Strategy through a robust stock selection process. However, active asset management has also played a key role in maximising returns and value from the existing portfolio. The vacancy rate has fallen from 7.10% at 31 March 2018 to 3.27% as at 30 September 2018, partly as a result of new lettings during the period. The most notable of these were the letting of Orion House in Oxford at a contracted rent of £179,410 per annum and the letting of Third Floor, Bath Street, Glasgow at a contracted rent of £88,608 per annum. Lease renewals have also been completed at First Floor, Queen Square, Bristol, increasing the contracted rent from £66,623 to £94,500 per annum and at Cedar House, Gloucester, increasing contracted rent from £300,000 to £321,000 per annum.

 

The other contributor to the fall in vacancy rate has been the Company's divestment of largely vacant premises. The Company disposed of Floors 1-9, Pearl House, Nottingham, in April 2018, retaining the fully let ground floor accommodation. Further to this, 18-36 Chapel Walk, Sheffield, was sold in August 2018 with the fully let adjoining units, 11-15 Fargate, Sheffield, being retained. This brought in combined gross disposal proceeds of £4.55 million and eliminated c. 26% of the vacant Estimated Rental Value ('ERV') as at 31 March 2018. The Company will benefit from lower void costs and the sales proceeds contributed to £7.40 million cash available for investment as at 30 September 2018, allowing the potential to further enhance earnings in future, should appropriate opportunities arise.

 

The Company's share price was 95.01 pence per share as at 30 September 2018, representing a 5.05% discount to NAV. The share price has been trading at a discount to NAV since 30 June 2018, having reached a peak for the period at 99.40 pence per share, or a 3.15% premium to NAV, on 9 May 2018. Over the six month period, the Company generated a shareholder total return of 3.56% and a NAV Total Return of 7.99%.

 

 

 

Financial Results

 

 

6 month

period from

1 April 2018 to 30 September 2018 (unaudited)

£'000

6 month

period from

1 May 2017 to 31 October 2017 (unaudited)

£'000

 

11 month

period from

1 May 2017 to 31 March 2018 (audited) £'000

 

 

 

 

Operating Profit before fair value changes (£'000)

6,859

4,960

9,601

Operating Profit (£'000)

12,334

7,297

10,472

Profit after Tax (£'000)

11,678

6,989

9,820

Earnings Per Share (basic and diluted) (pence)

7.71

5.60

7.17

EPRA Earnings Per Share (basic and diluted) (pence)

4.10

3.73

6.56

Ongoing Charges (%)

1.26

1.30

1.24

Net Asset Value per share (pence)

100.06

97.80

96.36

EPRA Net Asset Value per share (pence)

100.06

97.78

96.34

 

 

Financing

There were no drawdowns or repayments of the loan facility during the period and the Company's loan balance remained at £50.00 million as at 30 September 2018 (31 October 2017: £32.50 million; 31 March 2018: £50.00 million), producing a gearing of 25.84% (31 October 2017: 22.0%; 31 March 2018: 26.00%). The amount available under the facility was £60.00 million as at 30 September 2018 (31 October 2017: £40.00 million; 31 March 2018: £60.00 million).

 

The unexpired term of the facility was 2.1 years as at 30 September 2018 (31 October 2017: 3.0 years; 31 March 2018: 2.6 years) Since the period end, the Company has extended the term of the facility by three years up to 22 October 2023, to mitigate the financing risk ahead of Brexit. The margin remains unchanged, and this attractively priced facility is accretive to the Company's performance.

 

The loan attracted interest at 3 month LIBOR +1.4%, which equated to an all-in rate of 2.16% as at 30 September 2018 (31 October 2017: 1.69%; 31 March 2018: 2.11%). The Company is protected from a significant rise in interest rates as it has interest rate caps with a combined notional value of £36.51 million (31 October 2017: £26.51 million; 31 March 2018: £36.50 million), resulting in the loan being 73% hedged (31 October 2017: 82%; 31 March 2018: 73%).

 

The long term gearing target remains 25% or less, however the Company can borrow up to 35% of Gross Asset Value ('GAV') in advance of an expected capital raise or asset disposal. The Board and Investment Manager will continue to monitor the level of gearing and may adjust the target gearing according to the Company's circumstances and perceived risk levels.

 

Dividends

The Company has continued to deliver on its target of paying annualised dividends of 8.00 pence per share per annum. During the period, the Company has declared and paid two quarterly dividends of two pence per Ordinary Share, exactly in line with its target.

 

On 22 October 2018, the Board declared an interim dividend of two pence per Ordinary Share in respect of the period from 1 July 2018 to 30 September 2018. This interim dividend will be paid on 30 November 2018 to shareholders on the register as at 2 November 2018.

 

The Directors will declare dividends taking into account the current level of the Company's earnings and the Directors' view on the outlook for sustainable recurring earnings. As such, the level of dividends paid may increase or decrease from the current annual dividend of 8.00 pence per share. Based on current market conditions and expected returns on its rental business, the Company expects to pay an annualised dividend of 8.00 pence per share in respect of the year ending 31 March 2019 and for the interim period ending 30 September 2019.

 

Outlook

The Board and the Investment Manager are pleased with the strong income returns delivered to shareholders to date. Based on annualised dividend payments of 8.00 pence per share, the Company delivered a dividend yield of 8.42% as at 30 September 2018.

 

The Company was fully invested at the start of the period and achieved returns during the period which fully covered its dividend payments. The Board expects this level of returns to continue, based on the projected income from the portfolio which had a Net Initial Yield of 7.90% and a Reversionary Yield of 7.71% as at 30 September 2018.

 

Whilst the vacancy rate has been reduced significantly during the period, to 3.27% as at 30 September 2018, there is still further value to be gained through asset management initiatives in the short term. The portfolio has a WAULT of 5.00 years to break and 6.18 years to expiry and those lease events arising in the near future will provide the opportunity to increase and extend income streams from certain assets. A balance of £7.40 million cash for investment as at 30 September 2018 will allow the Company to take advantage of opportunities for acquisitions or capex projects, which could also enhance income streams and add value to the portfolio.

 

In the wider economic environment, Britain's exit from the European Union ('EU') is approaching and by the end of 2018 it should be clear whether this is to be with or without a trade deal. Whilst the general opinion is that a "no deal" scenario would have a negative impact on the property market, it is hoped that some clarity will make it easier for businesses to plan and invest, regardless of the outcome. We consider the portfolio to be defensively positioned in the event of a no deal Brexit, with no exposure to London offices - the sector most likely to be negatively impacted. The Company's investment is primarily focussed on strong, regional centres and exposure is well diversified both geographically and by sector, which serves to mitigate risk.

 

Looking forward, our focus remains on continuing to grow the Company with share issues as part of a 12-month share issuance programme, subject to market conditions. The Investment Manager will focus on finding further acquisitions which will deliver an attractive return as part of a well-diversified portfolio.

 

 

Mark Burton

Chairman

14 November 2018

 

 

Key Performance Indicators

 

KPI AND DEFINITION

 

RELEVANCE TO STRATEGY

PERFORMANCE

1. Net Initial Yield

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 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.

 

7.90%

at 30 September 2018 (31 March 2018: 7.74%).

2. True Equivalent Yield

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.

 

An Equivalent Yield profile in line with the Company's target dividend yield shows that, after costs, the Company should have the ability to meet its proposed dividend through property income.

 

7.92%

at 30 September 2018 (31 March 2018: 8.20%).

3. Reversionary Yield

The expected return the property will provide once rack rented.

 

A Reversionary Yield profile that is in line with 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.

 

7.71%

at 30 September 2018 (31 March 2018: 8.03%).

 

4. Weighted Average Unexpired Lease Term to expiry

The average lease term remaining to expiry across the portfolio, weighted by contracted rent.

 

The Investment Manager believes that current market conditions present an opportunity whereby assets with a shorter unexpired lease term are often mispriced. It is also 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

 

6.18 years

at 30 September 2018 (31 March 2018: 6.16 years).

5. Weighted Average Unexpired Lease Term to break

The average lease term remaining to break, across the portfolio weighted by contracted rent.

 

The Investment Manager believes that current market conditions present an opportunity whereby assets with a shorter unexpired lease term are often mispriced. It is also 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.

 

5.00 years

at 30 September 2018 (31 March 2018: 5.08 years).

6. NAV

NAV is the value of an entity's assets minus the value of its liabilities.

 

The NAV reflects the Company's ability to grow the portfolio and add value to it throughout the life cycle of its assets.

 

£151.65 million

at 30 September 2018 (31 March 2018: £146.03 million).

7. Leverage (Loan to GAV)

The proportion of the property portfolio that is funded by borrowings.

 

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.

 

25.84%

at 30 September 2018 (31 March 2018: 26.00%).

8. Vacant ERV

The space in the property portfolio which is currently unlet, as a percentage of the total ERV of the portfolio.

 

The Company's aim is to 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.

 

3.27%

at 30 September 2018 (31 March 2018: 7.10%).

9. Dividend 

Dividend declared in relation to the year. The Company targets a dividend of 8.00 pence per Ordinary Share per annum.

 

The dividend reflects the Company's ability to deliver a sustainable income stream from its portfolio.

 

4.00 pence per share

for the six months to 30 September 2018.

This supports an annualised target of 8.00 pence per share (six months to 31 October 2017: 4.00 pence per share).

 

10. Ongoing Charges

The ratio of total administration and operating costs expressed as a percentage of average NAV throughout the period.

 

The Ongoing Charges ratio provides a measure of total costs associated with managing and operating the Company, which includes the management fees due to the Investment Manager. This measure is to provide investors with a clear picture of operational costs involved in running the Company.

 

1.26%

for the six months to 30 September 2018 (six months to 31 October 2017: 1.30%).

11. Profit Before Tax

PBT is a profitability measure which considers the Company's profit before the payment of income tax.

 

The PBT is an indication of the Company's financial performance for the period in which its strategy is exercised.

£11.68 million

for the six months to 30 September 2018 (six months to 31 October 2017: £6.99 million).

12. Total Shareholder Return

The percentage change in the share price assuming dividends are reinvested to purchase additional Ordinary Shares.

 

This reflects the return seen by shareholders on their shareholdings.

3.56%

for the six months to 30 September 2018 (six months to 31 October 2017: 5.17%).

13. EPRA EPS

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.

 

This reflects the Company's ability to generate earnings from the portfolio which underpins dividends.

4.10 pence per share

for the six months to 30 September 2018 (six months to 31 October 2017: 3.73 pence per share).

 

 

Investment Manager's Report

 

MARKET OUTLOOK

 

UK Economic Outlook

A spell of adverse weather conditions, "the Beast from the East", contributed to a temporary dip in output in the first quarter of 2018. Momentum has recovered and GDP growth is expected to have bounced back to 0.4% for Q2 2018, which saw a rise in consumer spending encouraged by a summer heatwave, the royal wedding and the football World Cup. Unemployment has also remained at its lowest level since the mid-1970s.

 

This Q2 performance encouraged the Monetary Policy Committee (the "MPC") to vote to increase interest rates from 0.50% to 0.75% in August 2018. This is after rates were increased by 0.25% in November 2017, and came despite concerns about the economic impact if the UK leaves the EU without a trade deal.

 

The Bank of England governor, Mark Carney, suggested that there would be a further increase in interest rates if economic growth continued to recover, however it was also signalled that there could be a reversal in sentiment in the event of a disorderly Brexit.

 

The longer term outlook remains uncertain as global economic growth has begun to soften with tariff wars between the US and China having an impact. Although UK unemployment has remained low, wage growth has struggled to keep up with inflation and real wage growth was only 0.1% for the three months to 30 June 2018.

 

One of the key sources of uncertainty remains that of Brexit and the possibility of the UK leaving the EU without a trade deal. This is a very real possibility after European Council President, Donald Tusk, rejected Theresa May's proposals at an EU summit in September 2018. Although the Irish border issue remains a stumbling block, it is hoped that the outlook will become clearer during the remaining months of 2018. The EU had been considering a special summit in November 2018 to agree the terms of the UK's withdrawal, however a lack of progress during September and October 2018 could mean that December 2018 will be the final opportunity to reach an agreement. If the UK government cannot deliver a Brexit deal, the possibility of a general election could also bring about further uncertainty in terms of political leadership and policy.

 

However, against this mixed economic outlook, UK property continues to perform well.

 

UK Real Estate Outlook

The UK commercial property market continues to perform strongly, driven by an annual income return of over 5% for the year to June 2018 (IPD). The yield gap between property and the risk-free rate has remained well above the long-run average during 2018 and the upswing in the property cycle has been extended by a prolonged period of low interest rates and the weight of investment. Although official interest rates were raised during August 2018, expectations are that upward pressure on property yields is not imminent.

 

The lack of clarity regarding the Brexit terms remains a major concern for the market however, it is generally acknowledged that any impact would be felt most strongly in the office sector, particularly in the City of London. The results of negotiations during the remainder of 2018 should give more clarity as to the final outcome however, we have seen a weakening in investment activity across the market as a whole so far in 2018, compared with the comparative period of 2017. We are seeing notable polarisation between performance delivered by the sectors, with industrials delivering higher total returns and the retail market continuing to struggle with poor sales and numerous company voluntary arrangements ('CVA's).

 

Sector Outlook

 

Industrial

The industrial sector continues to outperform other sectors, delivering total returns of 5.1% for Q2 2018 (IPD), and represents the largest proportion of our portfolio with 44% of the valuation and 43% of the total passing rental income. The strong performance is in part due to retailers investing heavily in their supply chains to meet logistics demands but is also as a result of a lack of any significant development activity undertaken in smaller units during the current cycle. As tenant demand is increasing there is limited supply of stock and this is leading to rental growth in strong locations across the country.

 

Rental growth in the industrial sector has been witnessed in the Company's portfolio with our average industrial Estimated Rental Value ('ERV') increasing from £3.47 per sq ft to £3.53 per sq ft over the six months ended 30 September 2018. Rental growth, either at or above expectations, has been crystallised at units in Runcorn and Wakefield, where lease renewals and new lettings have been achieved at rents higher than ERV. We expect to see continued growth in the industrial sector, both in terms of income and capital value, and are seeing attractive opportunities for acquisitions.

 

Offices

Total returns for the offices sector were 1.6% for Q2 2018 (IPD), with Central London Offices outperforming offices in the rest of the UK. We expect office rents outside London to remain stable in the coming years, as development in most cities has already peaked. Higher residential values and the relaxation of planning controls mean that many towns and cities are losing both office and industrial space. For this reason, our stock selection process often focuses on locations where purchase values are well below that of surrounding residential uses, as well as focussing on locations with high levels of tenant demand.

 

Our office holding, the second largest with 22% of portfolio valuation, has provided opportunities for asset management initiatives to drive rental value as well as achieve permitted residential consents to improve assets' residual value and ensure downside protection. During the six months ended 30 September 2018, notable lettings were made at Glasgow, Oxford and Gloucester, contributing an additional c. £289,000 contracted rent and helping to increase the valuation of the Company's office portfolio by 9.75% on a like-for-like basis.

 

Alternatives

There has been a recent trend towards non-mainstream sectors, as investors seek to benefit from greater diversification as well as accessing long-term income trends. The alternatives sector achieved total returns of 2.6% for Q2 2018 (IPD). Indeed, we have taken advantage of opportunities to invest in the alternative sectors at attractive levels of pricing. Two of the Company's most recent acquisitions, being a large secure parking facility in Corby, and a leisure park in Dagenham, acquired in February and March 2018 respectively, provide accretive levels of income as well as capital growth potential. We expect the alternatives sector to grow further as investors seek long income or higher yields. It is a sector in which we have significant expertise and will continue to seek opportunities.

 

Retail

Structural issues have been seen most notably in the retail sector where a number of administrations, CVA's and store rationalisations by occupiers have turned investor sentiment against the sector and this is reflected in total returns of just 0.5% for Q2 2018 (IPD). The Company has defensively positioned its retail acquisitions to take account of recent trends and our retail assets are located in town and city centres with large catchment populations and in many cases are supported by strong alternative use values and asset management options. As a result, our income streams to date have not been significantly impacted by CVAs.

 

Financial Results

Net rental income earned from the portfolio for the six months ended 30 September 2018 was £7.83 million (six months ended 31 October 2017: £5.86 million; 11 months ended 31 March 2018: £11.22 million), contributing to an operating profit before fair value changes and disposals of £6.86 million (six months ended 31 October 2017: £4.96 million; 11 months ended 31 March 2018: £9.60 million).

 

The portfolio has seen a gain of £5.65 million in fair value of investment property over the period (six months ended 31 October 2017: £2.48 million; 11 months ended 31 March 2018: £1.01 million).

 

The Company reported a loss on disposal of investment properties of £0.18 million (six months ended 31 October 2017: £0.22 million; 11 months ended 31 March 2018: £0.22 million), which relates to the disposals of Floors 1-9, Pearl House, Nottingham and 18-36, Chapel Walk, Sheffield.

 

Administrative expenses, which include the Investment Manager's fee and other costs attributable to the running of the Company, were £0.97 million for the six month period (six months ended 31 October 2017: £0.90 million; 11 months ended 31 March 2018: £1.62 million).

 

The Company incurred finance costs of £0.66 million during the period (six months ended 31 October 2017: £0.31 million; 11 months ended 31 March 2018: £0.65 million).

 

The total profit before tax for the period of £11.68 million (six months ended 31 October 2017: £6.99 million; 11 months ended 31 March 2018: £9.82 million) equates to a basic earnings per share of 7.71 pence (six months ended 31 October 2017: 5.60 pence; 11 months ended 31 March 2018: 7.17 pence).

 

The Company's NAV as at 30 September 2018 was £151.65 million or 100.06 pence per share ('pps') (31 October 2017: £148.22 million or 97.80 pence per share; 31 March 2018: £146.03 million or 96.36 pence per share). This is an increase of 3.70 pps or 3.84% over the six months, with the underlying movement in NAV set out in the table below:

 

 

 

Pence per share

£ million

 

 

 

NAV at 1 April 2018

96.36 

146.03 

Change in fair value of investment property

3.73 

5.65 

Change in fair value of derivatives

(0.01)

(0.02)

Loss on disposal of investment property

(0.12)

(0.18)

Income earned for the period

5.58 

8.46 

Expenses and net finance costs for the period

(1.48)

(2.23)

Dividends paid

(4.00)

(6.06)

NAV at 30 September 2018

100.06 

151.65 

 

EPRA earnings per share for the six month period were 4.10 pps which, based on dividends paid of 4.00 pps, reflects a dividend cover of 102.50%.

 

Financing

As at 30 September 2018, the Company had utilised £50.00 million (31 March 2018: £50.00 million) of an available £60.00 million (31 March 2018: £60.00 million) credit facility with RBSI, maturing in October 2020. Gearing as at 30 September 2018 was 25.84% (Loan to GAV) (March 2018: 26.00%). The loan attracts interest at LIBOR + 1.4% (31 March 2018: LIBOR + 1.4%). To mitigate the interest rate risk that arises as a result of entering into a variable rate linked loan, the Company holds interest rate caps on £36.51 million (31 March 2018: £36.51 million) of the loan at strike rates of 2.5% on £26.51 million and 2.0% on £10.00 million (31 March 2018: 2.5% on £26.51 million and 2.0% on £10 million), meaning that the loan is 73% hedged (31 March 2018: 73%).

 

On 22 October 2018, the Company extended the term of the loan facility by three years up to 22 October 2023. The Company has also entered into additional interest rate caps on a notional value of £46.51 million, effective from 20 October 2020 to 19 October 2023. The interest rate is capped at 2.00% per annum. The Company paid a premium of £512,000.

 

Portfolio Activity

There were no acquisitions made during the period. The following part disposals were made during the period:

 

  • Pearl Assurance House was purchased by the Company in May 2016 for £8.15 million. On 5 April 2018, the Company completed the sale of its office accommodation for gross proceeds of £3.65 million. The sale comprised the first to ninth floors, a ground floor reception and car parking spaces, providing a total area of 41,262 sq ft.

 

The Company has retained the ground floor accommodation in the busy city centre location, totalling 28,432 sq ft, let to national retail operators including Costa Coffee, Poundland and Lakeland. The retained element provides a Net Initial Yield of 9.63% as at 30 September 2018, based on its valuation of £5.20 million.

 

  • On 6 August 2018, the Company completed the sale of 18-36, Chapel Walk, Sheffield for gross proceeds of £0.90 million. The units sold were 47.10% vacant by floor area. The Company has retained the fully let adjacent units 11/15 Fargate, totalling 5,495 sq ft.

 

Asset Management

We undertake active asset management to achieve rental growth, let vacant space and enhance value through initiatives such as refurbishments. During the period, key asset management initiatives have included:

 

  • Orion House, Oxford - In August 2018, the Company completed the letting of Orion House, Eastpoint Business Park, Oxford, to Genesis Cancer Care UK Limited. The lease is for a term of 25 years, at a rent of £179,410 per annum. There are five-yearly, upward only rent reviews linked to the Retail Price Index ('RPI') measure of inflation and the tenant benefits from a 12 month rent free period, followed by six years at half rent. The valuation of the property increased by 22.7% over the period, largely thanks to this transaction.

 

  • 225 Bath Street, Glasgow - In July 2018, the Company completed the letting of Third Floor East, 225 Bath Street, Glasgow, to International Correspondence Schools Limited. The lease is for a term of five years, with a tenant break option at the end of the third year, at a rent of £88,608 per annum. The tenant benefits from a ten month rent free period. Over the six months, the valuation of the property fell by 7.50%, despite the letting, which largely reflects the difficult local market conditions.

 

  • Cedar House, Gloucester - In June 2018, the Company completed a lease renewal to the Secretary of State for Communities and Local Government at its Cedar House office building in Gloucester. The property was acquired in December 2017 with the expectation of achieving a new three year lease at the passing rent of £300,000 per annum and this has been significantly exceeded with a 10 year lease at a rent of £321,000 per annum. No rent free incentive was offered to the tenant. As a result of this asset management initiative, the value of the building has risen by 20.3% over the six months.

 

  • 40 Queen Square, Bristol - In June 2018, the Company completed a reversionary lease renewal with tenant Ramboll Whitbybird Ltd. A ten year lease was signed to commence at the expiry of the tenant's current lease in November, although the tenant has the option to break at the end of the fifth year. The letting at a rent of £94,500 per annum proved a new high rental tone for unrefurbished space within the building at £23.00 per sq ft, as compared to a passing rent of £16.84 per sq ft. This represents an increase in rental income of 37% and the property saw an overall valuation uplift over the period of 13.08%. The property's valuation as at 30 September 2018 is 68.05% higher than its price at acquisition in December 2015.

 

  • Diamond Business Park, Wakefield - During June 2018, a new letting was completed at Diamond Business Park, Wakefield which was acquired by the Company in February 2018. Unit 7, totalling c. 13,700 sq ft, has been let to Wow Interiors Yorkshire Ltd for a six year term with tenant break options in years 2 and 4. Stepped rental increases have been agreed so that, if the tenant remains in occupation for the full term, the average rent received equates to £3.30 per sq ft as compared to an ERV of £3.00 per sq ft. The value of the building rose by 5.39% over the six month period.

 

  • Sarus Court, Runcorn - During the quarter the Investment Manager documented two rent reviews with CJ Services, its largest tenant at Sarus Court, Runcorn. The rent reviews at Units 1 and 2 date back to January 2017 and result in a combined rate of £5.25 per sq ft net effective. This supports a headline rent of c. £5.75 per sq ft which is £0.25 ahead of the property's ERV at the time of the letting. The property has seen an increase in valuation of 6.38% over the period.

 

  • Commercial Road, Portsmouth - the Company has completed a ten year lease renewal with Greggs Plc at its retail property located on Commercial Road, Portsmouth. The new rent of £20,500 per annum exceeds the unit's ERV at the time of letting by 11%. Greggs have been in occupation of the unit for ten years and have the option to break the lease after five years. Over the six months, the property's valuation fell by 4.24%, which reflects the general sentiment in the retail sector.

 

 

Summary by Sector as at 30 September 2018

 

 

 

 

 

 

 

Gross

 

 

 

 

 

 

 

Passing

 

 

 

 

 

Occupancy by

WAULT to

Rental

 

 

Number of

Valuation

Area

ERV

break

Income

ERV

Sector

Properties

(£m)

('000 sq ft)

(%)

(years)

(£m)

(£m)

 

 

 

 

 

 

 

 

Standard Retail

5

25.95

169

99.9

3.8

2.78

2.16

Retail Warehouse

2

9.35

69

100.0

4.9

0.84

0.78

Office

6

43.40

287

88.5

4.2

3.24

4.09

Industrial

20

84.88

2,160

98.9

5.1

7.28

7.62

Other

3

29.95

165

100.0

6.2

2.82

2.34

 

 

 

 

 

 

 

 

Total

36

193.53

2,850

96.7

5.0

16.96

16.99

 

 

Summary by Geographical Area as at 30 September 2018

 

 

 

 

 

 

Gross

 

 

 

 

 

 

 

Passing

 

 

 

 

 

Occupancy

WAULT to

Rental

 

 

Number of

Valuation

Area

by ERV

break

Income

ERV

Geographical Area

Properties

(£m)

('000 sq ft)

(%)

(years)

(£m)

(£m)

 

 

 

 

 

 

 

 

Rest of London

1

11.45

72

100.0

12.1

0.97

0.84

South East

5

30.20

195

97.0

4.3

2.58

2.47

South West

3

23.40

125

100.0

4.3

1.73

1.75

Eastern

5

22.63

345

100.0

3.7

1.83

2.02

West Midlands

4

17.85

397

100.0

4.2

1.69

1.70

East Midlands

2

18.08

81

100.0

3.5

1.85

1.40

North West

5

16.35

315

99.8

4.7

1.47

1.35

Yorkshire and Humberside

8

29.60

858

97.2

3.8

2.86

3.01

Wales

2

14.72

376

100.0

10.6

1.25

1.29

Scotland

1

9.25

86

65.8

2.8

0.73

1.16

 

 

 

 

 

 

 

 

Total

36

193.53

2,850

96.7

5.0

16.96

16.99

 

 

 

 

Sector and Geographical Allocation by Market Value as at 30 September 2018

 

Sector Allocation

 

Sector

%

Standard Retail

13

Retail Warehouse

5

Offices

23

Industrial

44

Other

15

 

Geographical Allocation

 

Geographical

%

Rest of London

6

South East

16

South West

12

Eastern

12

West Midlands

9

East Midlands

9

North West

8

Yorkshire & Humberside

15

Wales

8

Scotland

5

 

 

Properties by Market Value

 

 

 

 

 

Market Value

 

Property

Sector

Region

Range (£m)

 

 

 

 

 

1

2 Geddington Road, Corby

Other (Sui Generis)

East Midlands

10.0-15.0

2

40 Queen Square, Bristol

Offices

South West

10.0-15.0

3

Eastpoint Business Park, Oxford

 

Offices

 

South East

10.0-15.0

4

London East Leisure Park, Dagenham

 

Other (Leisure)

 

Rest of London

10.0-15.0

5

225 Bath Street, Glasgow

Offices

Scotland

7.5-10.0

6

Above Bar Street, Southampton

 

Standard Retail

 

South East

7.5-10.0

7

Gresford Industrial Estate, Wrexham

 

Industrial

 

Wales

7.5-10.0

8

Apollo Business Park, Basildon

 

Industrial

 

Eastern

5.0-7.5

9

Barnstaple Retail Park

Retail Warehouse

South West

5.0-7.5

10

Commercial Road, Portsmouth

 

Standard Retail

 

South East

5.0-7.5

 

 

 

 

 

The Company's top ten properties listed above comprise 49.0% of the total value of the portfolio.

 

 

 

 

Market Value

 

Property

Sector

Region

Range (£m)

 

 

 

 

 

11

Euroway Trading Estate, Bradford

 

Industrial

Yorkshire and Humberside

 

5.0-7.5

12

Langthwaite Grange Industrial Estate, South Kirkby

 

 

Industrial

 

Yorkshire and Humberside

5.0-7.5

13

Oak Park, Droitwich

Industrial

West Midlands

5.0-7.5

14

Odeon Cinema, Southend

Other (Leisure)

Eastern

5.0-7.5

15

Pearl Assurance House, Nottingham

 

Standard Retail

 

East Midlands

5.0-7.5

16

Sarus Court Industrial Estate, Runcorn

 

Industrial

 

North West

5.0-7.5

17

Storeys Bar Road, Peterborough

 

Industrial

 

Eastern

5.0-7.5

18

Bank Hey Street, Blackpool

Standard Retail

North West

<5.0

 

19

 

Brightside Lane, Sheffield

 

Industrial

Yorkshire and Humberside

<5.0

20

Brockhurst Crescent, Walsall

 

Industrial

 

West Midlands

<5.0

21

Cedar House, Gloucester

Offices

South West

<5.0

22

Clarke Road, Milton Keynes

Industrial

South East

<5.0

23

Diamond Business Park, Wakefield

 

Industrial

Yorkshire and Humberside

<5.0

24

Eagle Road, Redditch

Industrial

West Midlands

<5.0

25

Excel 95, Deeside

Industrial

Wales

<5.0

26

Fargate and Chapel Walk, Sheffield

 

Standard Retail

Yorkshire and Humberside

<5.0

 

27

 

Knowles Lane, Bradford

 

Industrial

Yorkshire and Humberside

<5.0

 

28

 

Magham Road, Rotherham

 

Industrial

Yorkshire and Humberside

<5.0

29

Moorside Road, Salford

Industrial

North West

<5.0

30

Pipps Hill Industrial Estate, Basildon

 

Industrial

 

Eastern

<5.0

31

Sandford House, Solihull

Offices

West Midlands

<5.0

 

32

 

Stoneferry Retail Park, Hull

 

Retail Warehouse

Yorkshire and Humberside

<5.0

33

Vantage Point, Hemel Hempstead

 

Offices

 

Eastern

<5.0

34

Waggon Road, Mossley

Industrial

North West

<5.0

35

Walkers Lane, St. Helens

Industrial

North West

<5.0

36

Wella Warehouse, Basingstoke

Industrial

South East

<5.0

 

 

 

 

 

 

Top Ten Tenants

 

 

 

 

 

% of

 

 

 

 

Portfolio

 

 

 

Passing

Total

 

 

 

Rental

Passing

 

 

 

Income

Rental

 

Tenant

Property

(£'000)

Income

 

 

 

 

 

1

GEFCO UK Limited

2 Geddington Road, Corby

1,320

7.8

2

Plastipak UK Limited

Gresford Industrial Estate, Wrexham

883

5.2

3

The Secretary of State

Sandford House, Solihull and Cedar House, Gloucester

832

4.9

4

Ardagh Glass Limited

Langthwaite Industrial Estate, South Kirkby

676

4.0

5

Mecca Bingo Limited

London East Leisure Park, Dagenham

625

3.7

6

Egbert H Taylor & Company Limited

 

Oak Park, Droitwich

620

3.7

7

Odeon Cinemas

Odeon Cinema, Southend

535

3.2

8

Sports Direct

Barnstaple Retail Park and Bank Hey Street, Blackpool

525

3.1

9

Wyndeham Peterborough Limited

Storeys Bar Road, Peterborough

525

3.1

10

Advance Supply Chain (BFD) Limited

Euroway Trading Estate, Bradford

428

2.5

 

The Company's top ten tenants, listed above, represent 41.2% of the total passing rental income of the portfolio.

 

 

Principal Risks and Uncertainties

 

The principal risks and uncertainties the Company faces are described in detail on pages 36 to 39 of the 2018 Annual Report, and are summarised below.

 

The Board considers that the principal risks and uncertainties as presented in the 2018 Annual Report were unchanged during the period.

 

REAL ESTATE RISKS

 

  • A property market recession or deterioration in the property market could, inter alia (i) cause the Company to realise its investments at lower valuations; (ii) delay the timings of the Company's realisations.

 

  • Properties are inherently difficult to value. There may be a material adverse effect on the Company's profitability, the NAV and the share price where properties are sold that were previously materially overstated or understated.

 

  • Failure by tenants to pay rental obligations would reduce income and the ability of the Company to pay dividends.

 

  • Cost overruns from asset management initiatives may have a material adverse effect on the Company's profitability, the NAV and the share price.

 

  • Due diligence may not identify all the risks and liabilities in respect of an acquisition.

 

  • A fall in rental rates may have a material adverse effect on the Company's profitability, the NAV and the share price.

 

FINANCIAL RISKS

 

  • Material adverse changes in valuations and net income may lead to breaches in the Loan to Value ('LTV') and interest cover ratio covenants of the Company's loan facility.

 

  • The Company is subject to the risk of rising LIBOR rates on its borrowings. Increases in LIBOR may adversely affect the Company's ability to pay dividends.

 

  • The Company has a credit facility with RBSI which expires in 2023. In the event that RBSI do not renew the facility, the Company may have to sell assets in order to repay the outstanding loan.

 

CORPORATE RISKS

 

  • The Company has no employees and is reliant upon the performance of third party service providers. Failure by any service provider could have a detrimental impact on the operations of the Company.

 

  • The Company is dependent on the continuance of the Investment Manager.

 

  • Poor relative total return performance may lead to an adverse reputational impact that affects the Company's ability to raise new capital.

 

TAXATION RISKS

 

  • The Company has a UK REIT status that provides a tax-efficient corporate structure. Any change to the tax status or in UK legislation could impact the Company's ability to achieve its investment objectives and provide attractive returns to Shareholders.

 

POLITICAL / ECONOMIC RISK

 

  • Following the vote to leave the EU in the June 2016 referendum, uncertainty remains surrounding the EU exit process and timing. There could be further political and economic events that adversely impact the Company's performance.

 

 

Responsibility Statement of the Directors in Respect of the Interim Financial Report

 

We confirm that to the best of our knowledge:

 

*       the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;

 

*        the interim management report includes a fair review of the information required by:

 

(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

 

(b)  DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

 

A list of the Directors is maintained on the AEW UK REIT plc website at www.aewukreit.com 

 

Mark Burton

Chairman

 

14 November 2018

 

 

Independent Review Report to AEW UK REIT plc

 

Conclusion

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 30 September 2018 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 financial statements in the half-yearly financial report for the six months ended 30 September 2018 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') of the UK's Financial Conduct Authority (the 'UK FCA').

 

Scope of review

We conducted our review in 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 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 all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Directors' responsibilities

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 of the UK FCA. 

 

The annual financial statements of the Company are prepared in accordance with 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

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.

 

The purpose of our review work and to whom we owe our responsibilities

This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the DTR of the UK FCA. Our review has 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 our review work, 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

 

14 November 2018

 

 

Financial Statements

 

Condensed Statement of Comprehensive Income

for the six months ended 30 September 2018

 

 

 

Period from

  Period from

Period from  

 

 

1 April 2018 to 

1 May 2017 to

1 May 2017 to  

 

 

30 September 

31 October

31 March  

 

 

2018 

2017 

2018  

 

 

(unaudited)

(unaudited)

(audited)*

 

Notes

£'000 

£'000 

£'000  

Income

 

 

 

 

Rental and other income

3

8,459 

6,496 

12,330  

Property operating expenses

4

(630)

(641)

(1,106) 

Net rental and other income

 

7,829 

5,855 

11,224   

 

 

 

 

 

Other operating expenses

4

(970)

(895)

(1,623) 

 

 

 

 

 

Operating profit before fair value changes

 

6,859 

4,960 

9,601  

 

 

 

 

 

Change in fair value of investment properties

9

5,653 

2,480 

1,014  

Loss on disposal of investment properties

9

(178)

(216)

(216) 

Profit on disposal of investments

9

- 

73 

73  

 

 

 

 

 

Operating profit

 

12,334 

7,297 

10,472  

 

 

 

 

 

Finance expense

5

(656)

(308)

(652) 

 

 

 

 

 

Profit before tax

 

11,678 

6,989 

9,820  

Taxation

6

- 

- 

-  

 

 

 

 

 

Profit after tax

 

11,678 

6,989 

9,820  

Other comprehensive income

 

- 

- 

-  

 

 

 

 

 

Total comprehensive income for the period

 

11,678 

6,989 

9,820  

 

 

 

 

 

Earnings per share (pence per share) (basic and diluted)

7

7.71 

5.60 

7.17  

 

 

 

 

 

 

The notes below form an integral part of these condensed financial statements.

 

* Although not required by IAS 34, the comparative figures for the preceding full reporting period and related notes have been included on a voluntary basis.

 

 

Condensed Statement of Changes in Equity

for the six months ended 30 September 2018

 

 

 

 

 

 

Total capital 

 

 

 

 

Capital 

and reserves 

 

 

 

Share

reserve and 

attributable to 

 

 

Share

premium

retained 

owners of 

For the period 1 April 2018 to

 

capital

account

earnings 

the Company 

30 September 2018 (unaudited)

Notes

£'000

£'000

£'000 

£'000 

 

 

 

 

 

 

Balance as at 1 April 2018

 

1,515

49,768

94,751 

146,034 

 

 

 

 

 

 

Total comprehensive income

 

-

-

11,678 

11,678 

Share issue costs

17

-

3

- 

3 

Dividends paid

8

-

-

(6,062)

(6,062)

 

 

 

 

 

 

Balance as at 30 September 2018

 

1,515

49,771

100,367 

151,653 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total capital 

 

 

 

 

Capital 

and reserves 

 

 

 

Share 

reserve and 

attributable to 

 

 

Share

premium 

retained 

owners of 

For the period 1 May 2017 to

 

capital

account 

earnings 

the Company 

31 October 2017 (unaudited)

Notes

£'000

£'000 

£'000 

£'000 

Balance at 1 May 2017

 

1,236

22,514 

94,924 

118,674 

 

 

 

 

 

 

Total comprehensive income

 

-

- 

6,989 

6,989 

Ordinary shares issued

16,17

279

27,771 

- 

28,050 

Share issue costs 

17

-

(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 11 month period 1 May 2017 to 31 March 2018 (audited)

 

Notes

capital

£'000

account 

£'000 

earnings 

£'000 

the Company*

£'000 

 

 

 

 

 

 

Balance at 1 May 2017

 

1,236

22,514 

94,924 

118,674 

 

 

 

 

 

 

Total comprehensive income

 

-

- 

9,820 

9,820 

Ordinary shares issued

16,17

279

27,771 

- 

28,050 

Share issue costs

17

-

(517)

- 

(517)

Dividends paid

8

-

- 

(9,993)

(9,993)

 

 

 

 

 

 

Balance as at 31 March 2018

 

1,515

49,768 

94,751 

146,034 

 

The notes below form an integral part of these condensed financial statements.

 

* Although not required by IAS 34, the comparative figures for the preceding full reporting period and related notes have been included on a voluntary basis.

 

 

Condensed Statement of Financial Position

as at 30 September 2018

 

 

 

As at 

As at 

As at 

 

 

30 September 2018 

31 October 2017 

31 March 2018 

 

 

(unaudited) 

(unaudited)*

(audited)

 

Notes

£'000 

£'000 

£'000 

Assets

 

 

 

 

Non-Current Assets

 

 

 

 

Investment property

9

192,519

147,030 

187,751 

 

 

192,519

147,030 

187,751 

 

 

 

 

 

Current Assets

 

 

 

 

Investment property held for sale

9

- 

- 

3,650 

Receivables and prepayments

10

3,394 

2,204 

2,938 

Other financial assets held at fair value

11

9 

24 

26 

Cash and cash equivalents

 

8,145 

34,537 

4,711 

 

 

11,548 

36,765 

11,325 

 

 

 

 

 

Total assets

 

204,067 

183,795 

199,076 

Non-Current Liabilities

 

 

 

 

Interest bearing loans and borrowings

12

(49,714)

(32,259)

(49,643)

Finance lease obligations

14

(573)

(591)

(573)

 

 

(50,287)

(32,850)

(50,216)

 

 

 

 

 

Current Liabilities

 

 

 

 

Payables and accrued expenses

13

(2,080)

(2,677)

(2,779)

Finance lease obligations

14

(47)

(47)

(47)

 

 

(2,127)

(2,724)

(2,826)

 

 

 

 

 

Total Liabilities

 

(52,414)

(35,574)

(53,042)

 

 

 

 

 

Net Assets

 

151,653 

148,221 

146,034 

 

 

 

 

 

Equity

 

 

 

 

Share capital

16

1,515 

1,515 

1,515 

Share premium account

17

49,771 

49,739 

49,768 

Capital reserve and retained earnings

 

100,367 

96,967 

94,751 

 

 

 

 

 

Total capital and reserves attributable to equity holders of the Company

 

151,653 

148,221 

146,034 

 

 

 

 

 

Net Asset Value per share (pence per share)

7

100.06 

97.80 

96.36 

 

 

 

 

 

 

The financial statements were approved by the Board of Directors on 14 November 2018 and were signed on its behalf by:

 

Mark Burton

Chairman

AEW UK REIT plc

Company number: 09522515

 

The notes below form an integral part of these condensed consolidated financial statements.

 

* Although not required by IAS 34, the comparative figures for the previous interim period and related notes have been included on a voluntary basis.

 

 

Condensed Statement of Cash Flows

for the six months ended 30 September 2018

 

 

Period from 

Period from 

Period from 

 

1 April 2018 to 

1 May 2017 to 

1 May 2017 to 

 

30 September 2018 

31 October 2017 

31 March 2018 

 

(unaudited)

(unaudited)

(audited)* 

 

£'000 

£'000 

£'000 

 

 

 

 

Cash flows from operating activities

 

 

 

Operating profit

12,334 

7,297 

10,472 

 

 

 

 

Adjustment for non-cash items:

 

 

 

Gain from change in fair value of investment property

(5,653)

(2,480)

(1,014)

Loss on disposal of investment property

178 

216 

216 

Profit on disposal of investments

- 

(73)

(73)

Decrease/(increase) in other receivables and prepayments

455 

666 

(701)

Decrease in other payables and accrued expenses

(385)

(1,178)

(409)

 

 

 

 

Net cash generated from operating activities

6,019 

4,448 

8,491 

 

 

 

 

Cash flows from investing activities

 

 

 

Purchase of investment property

(506)

(17,939)

(63,896)

Disposal of investment property

4,508

10,858 

10,856 

Disposal of investments

- 

7,667 

7,667 

 

 

 

 

Net cash generated from/(used in) investing activities

4,002 

586 

(45,373)

 

 

 

 

Cash flows from financing activities

 

 

 

Proceeds from issue of ordinary share capital

- 

28,050 

28,050 

Share issue costs

(31)

(453)

(483)

Loan draw down

- 

3,490 

20,990 

Loan arrangement fees

- 

- 

(166)

Finance costs

(494)

(291)

(458)

Dividends paid

(6,062)

(4,946)

(9,993)

 

 

 

 

Net cash (used in)/generated from financing activities

(6,587)

25,850 

37,940 

 

 

 

 

Net increase in cash and cash equivalents

3,434 

30,884 

1,058 

 

 

 

 

Cash and cash equivalents at start of the period

4,711 

3,653 

3,653 

 

 

 

 

Cash and cash equivalents at end of the period

8,145 

34,537 

4,711 

 

 

 

 

 

The notes below form an integral part of these condensed financial statements.

 

* Although not required by IAS 34, the comparative figures for the preceding full reporting period and related notes have been included on a voluntary basis.

 

 

Notes to the Condensed Financial Statements

for the six months ended 30 September 2018

 

1. Corporate information

AEW UK REIT plc (the 'Company') is a closed ended Real Estate Investment Trust ('REIT') incorporated on 1 April 2015 and domiciled in the UK.

 

The comparative information for the 11 month period ended 31 March 2018 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The auditors reported on those accounts; its report was unqualified, and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

 

2. Accounting policies

 

2.1 Basis of preparation

These interim condensed unaudited financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU, and should be read in conjunction with the Company's last financial statements for the 11 month period ended 31 March 2018. 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 for issue on 14 November 2018.

 

The comparative figures disclosed in the condensed unaudited financial statements and related notes have been presented for both the six month period ended 31 October 2017 and 11 month period ended 31 March 2018 and as at 31 October 2017 and 31 March 2018.

 

Although not required by IAS 34, the comparative figures as at 31 October 2017 for the Condensed Statement of Financial Position and for the 11 month period ended 31 March 2018 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 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.

 

New standards, amendments and interpretations

There were a number of new standards and amendments to existing standards which are required for the Company's accounting periods beginning after 1 January 2018, which have been considered and applied. These being:

 

* IFRS 7 (Financial Instruments: Disclosures) which will require considerations around additional hedge accounting disclosures in the annual report; and

 

* IFRS 9 (Financial Instruments). This standard has replaced IAS 39 Financial Instruments and contains two primary measurement categories for financial assets, the effect to the Company's current accounting policies covering the measurement of financial instruments and the estimation of impairment is immaterial; and

 

* IFRS 15 (Revenue from Contracts with Customers) issued in May 2014 and applies to an annual reporting period beginning on or after 1 January 2018, the Company's revenue primarily relates to property rental income which is outside the scope of IFRS 15.  

 

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 April 2018 or later periods. The following are the most relevant to the Company and their impact on the financial statements:

 

* IFRS 16 (Leases) issued in January 2016 and is effective for annual periods beginning on or after 1 January 2019.

 

The impact of the adoption of new accounting standards issued and becoming effective for accounting periods beginning on or after 1 April 2018 has been considered and is not considered to be significant. The IFRS 16 disclosure requirements will be considered in due course.

 

2.2 Significant accounting judgements and estimates

The preparation of financial statements in accordance with IAS 34 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.

 

i) Valuation of investment property

The Company's investment property is held at fair value as determined by the independent valuer on the basis of fair value in accordance with the internationally accepted Royal Institution of Chartered Surveyors ('RICS') Appraisal and Valuation Standards.

 

2.3 Segmental information

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.

 

2.4 Going concern

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.

 

2.5 Summary of significant accounting policies

The principle 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 11 month period ended 31 March 2018 except for the changes as detailed in note 2.1.

 

 

3. Revenue

 

 

Period from

Period from

Period from

 

1 April 2018 to

1 May 2017 to

1 May 2017 to

 

30 September

31 October

31 March

 

2018

2017

2018

 

(unaudited)

(unaudited)

(audited)

 

£'000

£'000

£'000

 

 

 

 

Gross rental income received

8,456

6,495

12,330

Other property income

3

1

-

 

 

 

 

Total rental and other income

8,459

6,496

12,330

 

 

 

 

 

Rent receivable under the terms of the leases is adjusted for the effect of any incentives agreed.

 

 

4. Expenses

 

 

Period from

Period from

Period from

 

1 April 2018 to

1 May 2017 to

1 May 2017 to

 

30 September

31 October

31 March

 

2018

2017

2018

 

(unaudited)

(unaudited)

(audited)

 

£'000

£'000

£'000

 

 

 

 

Property operating expenses

630

641

1,106

 

 

 

 

Other operating expenses

 

 

 

Investment management fee

648

519

989

Auditor remuneration

43

41

88

Operating costs

226

292

462

Directors' remuneration

53

43

84

 

 

 

 

Total other operating expenses

970

895

1,623

 

 

 

 

Total operating expenses

1,600

1,536

2,729

 

 

 

 

 

 

5. Finance expense

 

 

Period from

Period from 

Period from 

 

1 April 2018 to

1 May 2017 to 

1 May 2017 to 

 

30 September

31 October 

31 March 

 

2018

2017 

2018 

 

(unaudited)

(unaudited)

(audited)

 

£'000

£'000 

£'000 

Interest payable on loan borrowings

540

268 

540 

Amortisation of loan arrangement fee

71

41 

79 

Agency fee payable on loan borrowings

2

(10)

(11)

Commitment fee payable on loan borrowings

26

2 

20 

 

639

301 

628 

Change in fair value of interest rate derivatives

17

7 

24 

 

 

 

 

Total

656

308 

652 

 

 

 

 

 

 

6. Taxation

 

 

Period from 

Period from 

Period from 

 

1 April 2018 to 

1 May 2017 to 

1 May 2017 to 

 

30 September 

31 October 

31 March 

 

2018 

2017 

2018 

 

(unaudited)

(unaudited)

(audited)

 

£'000 

£'000 

£'000

Total tax charge

 

- 

- 

- 

Analysis of charge in the period

 

 

 

Profit before tax

11,678 

6,989 

9,820 

 

 

 

 

Theoretical tax at UK corporation tax standard rate of 19% (31 October 2017: 19%; 31 March 2018: 19%)

2,219 

1,328 

1,866 

 

 

 

 

Adjusted for:

 

 

 

Exempt REIT income

(1,178)

(884)

(1,700)

Non taxable investment gains

(1,041)

(444)

(166)

 

 

 

 

Total

- 

- 

- 

 

 

7. Earnings per share and NAV per share

 

 

Period from 

Period from 

Period from 

 

1 April 2018 to 

1 May 2017 to 

1 May 2017 to 

 

30 September 

31 October 

31 March 

 

2018 

(unaudited)

2017 

 (unaudited)

2018 

(audited)

Earnings per share

 

 

 

Total comprehensive income (£'000)

11,678 

6,989 

9,820 

Weighted average number of shares

151,558,251 

124,860,772 

136,894,561 

Earnings per share (basic and diluted) (pence)

7.71 

5.60 

7.17 

 

 

 

 

 

 

 

 

EPRA earnings per share:

Total comprehensive income (£'000)

11,678 

6,989 

9,820 

Adjustment to total comprehensive income:

 

 

 

Change in fair value of investment property (£'000)

(5,653)

(2,480)

(1,014)

Loss on disposal of investment property (£'000)

178 

216 

216 

Profit on disposal of investments (£'000)

- 

(73)

(73)

Change in fair value of interest rate derivatives (£'000)

17 

7 

24 

Total EPRA Earnings (£'000)

6,220 

4,659 

8,973 

EPRA earnings per share (basic and

diluted) (pence)

4.10 

3.73 

6.56 

 

 

 

 

NAV per share:

 

 

 

Net assets (£'000)

151,653 

148,221 

146,034 

Ordinary Shares

151,558,251 

151,558,251 

151,558,251 

NAV per share (pence)

100.06 

97.80 

96.36 

 

 

 

 

EPRA NAV per share:

 

 

 

Net assets (£'000)

151,653 

148,221 

146,034 

Adjustments to net assets:

 

 

 

Other financial assets held at fair value (£'000)

(9)

(24)

(26)

EPRA NAV (£'000)

151,644 

148,197 

146,008 

EPRA NAV per share (pence)

100.06 

97.78 

96.34 

 

 

 

 

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. As at 30 September 2018, EPRA NNNAV was equal to IFRS NAV and as such a reconciliation between the two measures has not been presented.

 

 

8. Dividends paid

 

 

Period from 

Period from 

Period from 

 

1 April 2018 to 

1 May 2017 to 

1 May 2017 to

 

30 September 

31 October 

31 March 

 

2018 

2017 

2018 

 

(unaudited)

(unaudited)

(audited)

Per Ordinary Share

£'000 

£'000 

£'000 

 

 

 

 

Fourth interim dividend paid in respect of the period 1 January 2018 to 31 March 2018 at 2.00p

3,031 

- 

- 

First interim dividend paid in respect of the period 1 April 2018 to 30 June 2018 at 2.00p

3,031 

- 

- 

Fourth interim dividend paid in respect of the period 1 February 2017 to 30 April 2017 at 2.00p

- 

2,473 

2,473 

First interim dividend paid in respect of the period 1 May 2017 to 31 July 2017 at 2.00p

- 

2,473 

2,473 

Second interim dividend paid in respect of the period 1 August 2017 to 31 October 2017 at 2.00p

- 

- 

3,031 

Third interim dividend paid in respect of the period 1 November 2017 to 31 December 2017 at 2.00p

- 

- 

2,016 

 

 

 

 

Total dividends paid during the period

 

6,062 

4,946 

9,993 

Second interim dividend declared in respect of the period 1 July 2018 to 30 September 2018 at 2.00p*

3,031 

- 

- 

Fourth interim dividend declared in respect of the period 1 January 2018 to 31 March 2018 at 2.00p

(3,031)

- 

- 

Second interim dividend declared in respect of the period 1 August 2017 to 31 October 2017 at 2.00p**

- 

2,473 

- 

Fourth interim dividend declared in respect of the period 1 January 2018 to 31 March 2018 at 2.00p***

- 

- 

3,031 

Fourth interim dividend declared in respect of the period 1 February 2017 to 30 April 2017 at 2.00p

- 

(2,473)

(2,473)

 

 

 

 

Total dividends in respect of the period

6,062 

4,946 

10,551 

 

* Dividends declared after the period end are not included in the financial statements as a liability as at period end 30 September 2018.

** Dividends declared after the period end are not included in the financial statements as a liability as at period end 31 October 2017.

*** Dividends declared after the period end are not included in the financial statements as a liability as at period end 31 March 2018.

 

 

9. Investments

 

9.a) Investment property

 

 

Period from 1 April 2018 to

 

 

 

30 September 2018 (unaudited)

 

 

 

 

 

 

Period from 

Period from 

 

 

 

 

1 May 2017 

1 May 2017 

 

 

 

 

to 31 October 

to 31 March 

 

Investment 

Investment 

 

2017 

2018 

 

properties 

properties 

 

(unaudited)

(audited)

 

freehold 

leasehold 

Total 

Total 

Total 

 

£'000 

£'000 

£'000 

£'000 

£'000 

UK Investment property

 

 

 

 

 

 

 

 

 

 

 

As at beginning of period

155,517 

36,825 

192,342 

137,820 

137,820 

Purchases in the period

121 

30 

151 

18,309 

64,186 

Disposals in the period

(4,628)

- 

(4,628)

(11,050)

(11,050)

Revaluation of investment property

3,520 

2,145 

5,665 

2,706 

1,386 

 

 

 

 

 

 

Valuation provided by Knight Frank

154,530 

39,000 

193,530 

147,785 

192,342 

 

 

 

 

 

 

Adjustment for rent free debtor

 

 

(1,631)

(1,393)

(1,561)

Adjustment for finance lease obligations

 

 

620 

638 

620 

Total Investment property

 

 

192,519

147,030 

191,401 

 

 

 

 

 

 

Classified as:

 

 

 

 

 

Investment properties

 

 

192,519

147,030

187,751

Investment properties held for sale

 

 

-

-

3,650

 

 

 

192,519

147,030

191,401

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of investment property

 

 

 

 

 

Change in fair value before adjustments for lease incentives

 

 

5,665 

2,706 

1,386 

Adjustment for movement in the period:

 

 

 

 

 

in value for rent free debtor

 

 

(12)

(306)

(452)

in value for rent free guarantee debtor

 

 

- 

80 

80 

 

 

 

5,653

2,480 

1,014

Loss on disposal of the investment property

 

 

 

 

 

Net proceeds from disposals of investment property during the period

 

 

4,508 

10,858 

10,856 

Cost of disposal

 

 

(4,628)

(11,050)

(11,050)

Lease incentives amortised in current period

 

 

(58)

(24)

(22)

Loss on disposal of investment property

 

 

(178)

(216)

(216)

 

 

Valuation of investment property

Valuation of investment property is performed by Knight Frank LLP, an accredited external valuer with recognised and relevant professional qualifications and recent experience of the location and category of the investment property being valued.

 

The valuation of the Company's investment property at fair value is determined by the external valuer on the basis of market value in accordance with the internationally accepted RICS Valuation - Professional Standards (incorporating the International Valuation Standards).

 

The determination of the fair value 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.

 

9.b) Investment

 

 

Period from 

Period from 

Period from 

 

1 April 2018 

1 May 2017 

1 May 2017 

 

to 30 September 

to 31 October 

to 31 March 

 

2018 

2017 

2018 

 

(unaudited)

(unaudited)

(audited)

 

Total 

Total 

Total 

 

£'000 

£'000 

£'000 

Investment in AEW UK Core Property Fund

 

 

 

As at beginning of period

- 

7,594 

7,594 

Disposals in the period

- 

(7,594)

(7,594)

 

 

 

 

Total Investment in AEW UK Core Property Fund

- 

- 

- 

 

 

 

 

Profit on disposal of the investment in AEW UK Core Property Fund

 

 

 

Proceeds from disposals of investments during the period

- 

7,667 

7,667 

Cost of disposal

- 

(7,594)

(7,594)

Profit on disposal of investments

- 

73 

73 

 

Valuation of investments

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 30 September 2018, the Company had no investment in the AEW UK Core Property Fund.

 

 

9.c) Fair value measurement hierarchy

The following table provides the fair value measurement hierarchy for non-current assets:

 

 

30 September 2018

 

 

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

-

-

192,519

192,519

 

 

 

 

 

 

-

-

192,519

192,519

 

 

 

 

 

 

 

31 October 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

-

-

147,030

147,030

 

 

 

 

 

 

-

-

147,030

147,030

 

 

 

 

 

 

 

31 March 2018

 

 

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

-

-

191,401

191,401

 

 

 

 

 

 

-

-

191,401

191,401

 

 

Explanation of the fair value hierarchy:

 

Level 1 - Quoted prices for an identical instrument in active markets;

 

Level 2 - Prices of recent transactions for identical instruments and valuation techniques using observable market data; and

 

Level 3 - Valuation techniques using non-observable data.

 

Sensitivity analysis to significant changes in unobservable inputs within Level 3 of the hierarchy

The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy of the entity's 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 inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy of the portfolio of investment property are:

 

 

 

 

Significant

 

 

Fair value

Valuation

unobservable

 

Class

£'000

technique

inputs

Range

 

 

 

 

 

30 September 2018

 

 

 

 

Investment Property

193,530

Income capitalisation

ERV

Equivalent yield

£1.00 - £127.00

4.23% - 12.09%

 

 

 

 

 

31 October 2017

 

 

 

 

Investment Property

147,785

Income capitalisation

ERV

Equivalent yield

£2.50 - £160.00

6.79% - 9.72%

 

 

 

 

 

31 March 2018

 

 

 

 

Investment Property

192,342

Income capitalisation

ERV

Equivalent yield

£1.00 - £145.00

3.14% - 10.72%

 

 

 

 

 

 

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.

 

 

30 September 2018

 

 

Fair value

Change in ERV

Change in equivalent yield

 

 

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

 

Sensitivity Analysis

 

+5%

-5%

+5%

-5%

 

Resulting fair value of investment property

193,530

200,241

183,820

181,321

203,387

 

 

 

 

 

 

 

 

31 October 2017

 

 

Fair value

Change in ERV

Change in equivalent yield

 

 

£'000

£'000

£'000

£'000

£'000

 

Sensitivity Analysis

 

+5%

-5%

+5%

-5%

 

 

 

 

 

 

 

Resulting fair value of investment property

147,785

154,000

141,059

139,125

156,441

 

 

 

 

 

 

 

 

31 March 2018

 

 

Fair value

Change in ERV

Change in equivalent yield

 

 

£'000

£'000

£'000

£'000

£'000

 

Sensitivity Analysis

 

+5%

-5%

+5%

-5%

 

 

 

 

 

 

 

 

Resulting fair value of investment property

192,342

203,903

188,297

185,985

 

206,943

 
             

 

 

10. Receivables and prepayments

 

 

30 September 

31 October 

31 March 

 

2018 

2017 

2018 

 

(unaudited)

(unaudited)

(audited)

 

£'000 

£'000 

£'000 

Receivables

 

 

 

Rent debtor

1,283 

653 

1,074 

Rent agent float account

184 

58 

81 

Other receivables

221 

44 

179 

 

1,688 

755 

1,334 

 

 

 

 

Rent free debtor

1,631 

1,393 

1,561 

 

3,319 

2,148 

2,895 

 

 

 

 

Prepayments

 

 

 

Property related prepayments

47 

30 

13 

Depositary services

- 

7 

- 

Listing fees

4 

4 

16 

Other prepayments

24 

15 

14 

 

75 

56 

43 

 

 

 

 

Total

3,394 

2,204 

2,938 

 

 

 

 

 

The aged debtor analysis of receivables as follows:

 

 

30 September

31 October

31 March

 

2018

2017

2018

 

£'000

£'000

£'000

 

 

 

 

Less than three months due

1,688

755

1,334

Between three and six months due

-

-

-

Between six and twelve months due

-

-

-

 

 

 

 

Total

1,688

755

1,334

 

 

11. Interest rate derivatives

 

 

30 September

31 October 

31 March 

 

2018 

2017 

2018 

 

(unaudited)

(unaudited)

(audited)

 

£'000 

£'000 

£'000 

 

 

 

 

At the beginning of the period

26 

31 

31 

Interest rate cap premium paid

- 

- 

19 

Changes in fair value of interest rate derivatives

(17)

(7)

(24)

 

 

 

 

At the end of the period

9 

24 

26 

 

To mitigate the interest rate risk that arises as a result of entering into variable rate linked loans, the

Company has entered into interest rate caps. The facilities have a combined notional value of £36.51 million with £10.00 million at a strike rate of 2.0% and £26.51 million at a strike rate of 2.5% (31 March 2018: £10.00 million at a strike rate of 2.0% and £26.51 million at a strike rate of 2.5%) for the relevant period in line with the life of the loan.

 

Fair Value hierarchy

The following table provides the fair value measurement hierarchy for interest rate derivatives:

 

 

Assets measured at fair value

 

 

Quoted prices 

 

Significant 

 

Significant 

 

 

in active 

observable 

unobservable 

 

 

markets 

input 

inputs 

 

 

(Level 1)

(Level 2)

(Level 3)

Total

Valuation date

£'000 

£'000 

£'000 

£'000

30 September 2018

-  

9 

-  

9

31 October 2017

-  

24 

-  

24

31 March 2018

-  

26 

-  

26

 

 

 

 

 

 

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.

 

 

12. Interest bearing loans and borrowings

 

 

Bank borrowings drawn

 

30 September 

31 October 

31 March 

 

2018 

2017 

2018 

 

(unaudited)

(unaudited)

(audited)

 

£'000 

£'000 

£'000 

At the beginning of the period

50,000 

29,010 

29,010 

Bank borrowings drawn in the period

- 

3,490 

20,990 

Interest bearing loans and borrowings

50,000 

32,500 

50,000 

 

 

 

 

Less: loan issue costs incurred

(554)

(400)

(554)

Plus: amortised loan issue costs

268 

159 

197 

 

 

 

 

At the end of the period

49,714 

32,259 

49,643 

 

 

 

 

Repayable between two and five years

50,000 

32,500 

50,000 

Bank borrowings available but undrawn in the period

10,000 

7,500 

10,000 

 

 

 

 

Total facility available

60,000 

40,000 

60,000 

 

 

 

 

 

 

 

 

The Company has a £60.0 million (31 March 2018: £60.0 million) credit facility with RBSI of which £50.0 million (31 March 2018: £50.0 million) has been utilised as at 30 September 2018.

 

Under the terms of the Prospectus, the Company has a target gearing of 25% loan to GAV, but can borrow up to 35% loan to GAV in advance of a capital raise or asset disposal. As at 30 September 2018, the Company's gearing was 25.84% loan to GAV (31 March 2018: 26.00%).

 

Under the terms of the loan facility, the Company can draw up to 35% loan to NAV at drawdown.

 

Borrowing costs associated with the credit facility are shown as finance costs in note 5 to these financial statements.

 

 

13. Payables and accrued expenses

 

 

30 September

31 October

31 March

 

2018

2017

2018

 

(unaudited)

(unaudited)

(audited)

 

£'000

£'000

£'000

 

 

 

 

Deferred income

929

1,223

993

Accruals

467

532

831

Other creditors

684

922

955

 

 

 

 

Total

2,080

2,677

2,779

 

 

 

 

 

 

14. Finance lease obligations

 

Finance leases are capitalised at the lease's commencement at the present value of the minimum lease payments. The present value of the corresponding rental obligations are included as liabilities

 

The following table analyses the minimum lease payments under non-cancellable finance leases:

 

 

30 September 

31 October 

31 March 

 

2018 

2017 

2018 

 

(unaudited)

(unaudited)

(unaudited)

 

£'000 

£'000 

£'000 

Not later than one year

47 

47 

47 

 

 

 

 

Later than one year but not later than five years

152 

154 

152 

Later than five years

421 

437 

421 

 

 

 

 

 

573 

591 

573 

 

 

 

 

Total

620 

638 

620 

 

 

15. Guarantees and commitments

 

Operating lease commitments - as lessor

The Company has entered into commercial property leases on its investment property portfolio. These non-cancellable leases have a remaining term of between zero and 24 years.

 

Future minimum rentals receivable under non-cancellable operating leases as at 30 September 2018 are as follows:

 

 

30 September 

31 October 

31 March 

 

2018 

2017 

2018 

 

(unaudited)

(unaudited)

(unaudited)

 

£'000 

£'000 

£'000 

Within one year

16,133 

12,965 

16,932 

After one year but not more than five years

41,730 

35,313 

47,858 

More than five years

27,663 

11,524 

37,574 

 

 

 

 

Total

85,526 

59,802 

102,364 

 

During the period ended 30 September 2018, there were contingent rents totalling £53,564 (31 October 2017: £113,953, 31 March 2018: £149,492).

 

 

16. Issued Share Capital

 

For the period 1 April 2018 to 30 September 2018

 

 

 

 

Number of

 

£'000

Ordinary Shares

 

 

 

Ordinary Shares issued and fully paid

 

 

At the beginning and end of the period

1,515

151,558,251

 

 

 

 

 

For the period 1 May 2017 to 31 October 2017

 

 

 

 

Number of

 

£'000

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

 

 

 

 

 

For the period 1 May 2017 to 31 March 2018

 

 

 

 

Number of

 

£'000

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

 

 

 

 

 

17. Share premium account

 

 

Period from

Period from 

Period from 

 

1 April 2018 to

1 May 2017 to 

1 May 2017 to 

 

30 September

31 October 

31 March 

 

2018

2017 

2018 

 

(unaudited)

(unaudited)

(audited)

 

£'000

£'000 

£'000 

Balance at the beginning of the period

49,768

22,514

22,514

Issued on admission to trading on the London Stock Exchange on 24 October 2017

-

27,771

27,771

Share issue costs

3

(546)

(517)

 

 

 

 

Balance at the end of the period

49,771

49,739 

49,768