AEW UK REIT PLC
directly affect the tenants in occupation of those assets. - Formal negotiations
- Long term strategy for
the asset in line with
the objectives of the - Ongoing communication
tenant's activities through the property
manager
- Impact of properties
and their business plans - Publishing of
The wider community and environment on the local economy Sustainability
Disclosure Report and
Greenhouse Gas
Emissions Statement
The Company's physical real estate assets have a direct impact on - Impact of properties
their local communities depending on their primary use and on the on the attractiveness
environment through their emissions and energy usage. and appeal of the local
area - GRESB reporting
- Energy efficiency and - Communication with
greenhouse gas emissions local authorities via
Investment Manager
Principal decisions made by the Board
The principal decisions made by the Board during the year are summarised below.
The Board sought approval from shareholders for an amendment to the Company's investment
policy, increasing the single sector limit from 50% to 60% of GAV, to enable the Company to
Amendment to Investment acquire further assets in the industrial/warehouse sector should attractive opportunities
Policy arise.
In accordance with the Company's Articles of Association, the Board considered continuation of
the Company to be in the best interests of shareholders as a whole. The Company's strong
portfolio of high-yielding assets, which have outperformed the Benchmark for the current year,
Continuation vote has enabled the Company to consistently meet its dividend target, and deliver total returns to
shareholders towards the top of its peer group.
The Board is committed to delivering on its target of paying dividends of 8.00 pps per annum,
Dividends continuing the Company's track record in paying dividends at this level.
The Board approved a share buyback programme utilising cash available for this purpose. Details
of shares bought back during the year can be found in the Directors' Report in the full Annual
Share buybacks Report and Financial Statements.
The Board has continued its focus on responsible business practices. More details can be found
in the Directors' Report in the full Annual Report and Financial Statements.
Continued focus on
sustainability impact
and GRESB score
The Investment Manager meets regularly with its ESG consultant, Evora, to consider initiatives
to improve the Company's Global Real Estate Sustainability Benchmark ("GRESB") score.
Following completion of a competitive tender process, the Board made the decision to appoint
Appointment of new BDO LLP as Auditor of the Company for the year ending 31 March 2022 and for the period ending
Auditor 30 September 2021.
The Board is responsible for the ongoing review of investment activity and performance and the
control and supervision of the Investment Manager. During the year, the following key
investment activities were approved by the Board:
? the disposal of 2 Geddington Road, Corby;
? the amendment to the Company's loan facility to allow drawdown and subsequent repayment
without penalty, akin to a revolving credit facility;
Oversight of Investment
Manager and Review of
Investment Activities ? the acquisition of Westlands Distribution Park, Weston-super-Mare;
? the disposal of Sandford House, Solihull; and
? litigation strategy regarding tenants' arrears.
Further details of the property transactions can be found in the 'Property Portfolio' section
of the Investment Manager's Report. Approval
The Strategic Report has been approved and signed on behalf of the Board by:
Mark Burton
Chairman
23 June 2021
Extract from the Directors Report
Directors
Mark Burton, non-executive Chairman
Bimaljit ("Bim") Sandhu, non-executive Director
Katrina Hart, non-executive Director
Going Concern
The Directors have made an assessment of the Company's ability to continue as a going concern, which takes into consideration the uncertainty caused by the COVID-19 pandemic, as well as the Company's cash flows, financial position, liquidity and borrowing facilities.
As at 31 March 2021, the Company had a cash balance of GBP17.45 million and has subsequently acquired two properties, Arrow Point Retail Park, Shrewsbury, for a gross purchase price of GBP8.35 million and 15-33 Union Street, Bristol, for a gross purchase price of GBP10.19 million. The Company has also subsequently drawn GBP11.00 million of its loan facility.
The Company had sufficient headroom against its borrowing covenants when last reported in April 2020. The Company reported a Loan to NAV of 25.15%, so had room for a GBP69.17 million fall in NAV before reaching the maximum Loan to NAV of 45% per the covenant. This limit can be increased to 55% when the option is exercised by the Company and certain conditions are met, which would allow for a further GBP15.96 million fall in NAV i.e. a total fall of GBP85.13 million. The Company also passed its most recent interest cover ratio ('ICR') tests in April 2021, reporting more than double the cover required on both a historical and projected basis.
The Company benefits from a secure, diversified income stream from a tenancy profile which is not overly reliant on any one tenant or sector. The Company has now collected over 90% of rents for each collection quarter since the onset of the COVID-19 pandemic.
Taking this into consideration, the Directors have reviewed a number of scenarios over 12 months from the date of approval of these financial statements, including a worst case plausible downside scenario which makes the following assumptions: ? failure of 30-35% of tenants (by passing rent); ? collection of 75-80% of remaining rents, with remaining collection deferred for two quarters; ? no new lettings or renewals, other than those where terms have already been agreed; ? a 10% fall in valuations; and ? no new acquisitions or disposals other than those which have completed since the year end (Arrow Point Retail Park,
Shrewsbury, and 15-33 Union Street, Bristol, as above).
In the above scenario, the Company is forecast to generate a positive cash flow before dividend payments, however it would generate a cash flow much lower than its target dividend of 8 pps per annum. If no further drawdowns of the loan facility were made, the Company would maintain a gearing of 37% throughout the forecast period, meaning a headroom of over GBP43 million up to the 55% covenant with the option exercised. The Company's cash could be managed through the reduction and/or suspension of dividend payments, which would allow the existing cash resources of c. GBP7 million at the date of approval of the financial statements to be maintained.
In the above scenario, the Company is forecast to pass its ICR tests during the 12 month forecast period with a minimum cover of 7.6:1, compared with the lower limit of 5:1. assuming that no drawdowns or repayments of the facility were to be made. In the unlikely event that the Company were to breach its ICR covenant, it has the ability to cure the breach by placing cash on account with the bank. In the extremely unlikely event that the full balance of the facility was called in, the Company has certain liquid assets which could be realised quickly at, or close to, valuation. The Company could then continue to operate un-geared until it was able to refinance.
Given the Company's substantial headroom against its borrowing covenants, the Directors believe that the Company is well placed to manage its financing and business risks, including those associated with COVID-19, and the Directors are confident that the Company will have sufficient funds to meet its liabilities as they fall due for at least 12 months from the date of approval of the financial statements and therefore the financial statements have been prepared on a going concern basis.
Viability Statement
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June 24, 2021 02:03 ET (06:03 GMT)
