The Company has benefitted from its defensively positioned portfolio, which achieved a total return of 14.8% over the year - an outperformance of 10.7% relative to the Benchmark. Relatively small lot sizes, geographical diversification and valuations that are underpinned by alternative use value have all contributed to limiting the downside during the period of unprecedented economic uncertainty in the first half of the financial year. The improved economic outlook in the second half of the year saw valuations recover and the Company generated an increase in fair value of its investment property of GBP5.32 million for the year, which has largely been driven by the strong performance of the Company's industrial assets. The pandemic has accelerated the trend towards online retail, and consequently sentiment towards the industrial and warehousing sector has improved. The Company benefits from a high weighting towards industrials, which made up 60.8% of the portfolio valuation as at 31 March 2021. Weightings in the retail and leisure sectors, which have been most negatively affected by the pandemic, remain low at 11.6% and 7.0% respectively.

Stock selection and active asset management continue to be key features of the Company's strategy and drivers of performance. This was evidenced in February 2021 by the completion of the sale of Sandford House, Solihull, for gross proceeds of GBP10.50 million. The asset was acquired in August 2015 for GBP5.40 million and the Company invested no further capital in the asset during its hold period. Significant value was gained from the completion of a 15-year lease in July 2020, with the existing tenant, the Secretary of State for Communities and Local Government, and the asset delivered an IRR in excess of 20% over the hold period. This demonstrates how shorter income assets in strong locations can be used to create value for shareholders.

As the economic outlook improves, the Investment Manager is seeing more attractive investment opportunities coming to the market, which the Company is well positioned to take advantage of with its available cash and debt. In October 2020, the Company acquired Westlands Distribution Park in Weston Super Mare for a purchase price of GBP5.40 million and post year-end acquired 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 aims to make further acquisitions in order to increase its earnings and dividend cover.

The Company's share price was 83.20 pps as at 31 March 2021 (31 March 2020: 68.20 pps), representing a 16.1% discount to NAV. During the year, the Company experienced periods of significant discount in share price to NAV as a result of the conditions in the wider market. In light of this, during October and November 2020, the Company bought back 350,000 of its own shares for gross consideration of GBP262,995, which had a positive impact on the Company's NAV and EPRA EPS. Since the year end, the Company's share price has increased to 95.00 pps as at the date of approval of this report, representing a 4.19% discount to NAV.

We are delighted to announce that the Company has received three EPRA awards during the year: EPRA Gold Medal for Financial Reporting; EPRA Silver Medal for Sustainability Reporting and EPRA Most Improved Award for Sustainability Reporting. The Company has also been named Best UK Real Estate Investment Trust in the Citywire Investment Trust Awards based upon its strong three-year track record. These awards are a reflection of much hard work committed to the Company by the Investment Manager and the Board would like to thank the team at AEW and express its positivity and confidence in the Investment Manager's ongoing ability to implement the Company's strategy.

In September 2020, the Company passed a continuation vote at the Annual General Meeting ('AGM'), and shareholders voted in favour of an ordinary resolution to continue the Company's business as currently constituted. We are pleased shareholders support our belief in the Company's strategy and prospects for future performance.

Financial Results Summary 


 
                                                                   Year ended 
                                                     Year ended 
                                                                   31 March 2020 
                                                     31 March 2021 
Operating profit before fair value changes (GBP'000)   10,735        14,472 
Operating profit (GBP'000)                             23,102        5,072 
Profit before tax (GBP'000)                            22,172        3,652 
Earnings Per Share (basic and diluted) (pence)*      13.98         2.40 
EPRA Earnings Per Share (basic and diluted) (pence)* 6.19          8.67 
Ongoing Charges (%)                                  1.36          1.34 
Net Asset Value per share (pence)                    99.15         93.13

*See note 9 of the Financial Statements for calculation.

Financing

The Company has a GBP60.00 million loan facility, of which it had drawn a balance of GBP39.50 million as at 31 March 2021 (31 March 2020: GBP60.00 million facility; GBP51.50 million drawn), producing the following measures of gearing: 


                                                                       Year ended    Year ended 
                                                                       31 March 2021 31 March 2020 
                                                                       %             % 
Loan to NAV                                                            25.15         34.83 
Gross Loan to GAV                                                      22.07         27.21 
Net Loan to GAV (deducts cash balance from the outstanding loan value)  12.32        21.99

The unexpired term of the facility was 2.6 years as at 31 March 2021 (31 March 2020: 3.6 years). The loan incurs interest at 3 month LIBOR +1.4%, which equated to an all-in rate of 1.44% as at 31 March 2021 (31 March 2020: 2.10%).

The Company is protected from a significant rise in interest rates and, as at the year end, had interest rate caps in effect with a notional value of GBP51.00 million (31 March 2020: GBP36.51 million), resulting in the loan being 130% hedged (31 March 2020: 71%). These interest rate caps are effective for the remaining period of the loan.

In June 2020, the Company completed an amendment to its loan facility allowing the part repayment of the loan without reducing the availability of the full GBP60.00 million facility, akin to a revolving credit facility. The Company subsequently repaid GBP12.00 million of the facility in July 2020. As at 31 March 2021, the Company had GBP15.48 million of the facility available up to the maximum 35.00% Loan to NAV at drawdown.

Dividends

The Company has continued to deliver on its target of paying dividends of 8.00 pps per annum. During the year, the Company declared and paid four quarterly dividends of 2.00 pence per Ordinary Share, in line with its target, which were 77.4% covered by the Company's EPRA EPS of 6.19 pence. It remains the Company's longer-term intention to continue to pay dividends in line with its dividend policy and this will be kept under review given the current COVID-19 situation. In determining future dividend payments, regard will be given to the circumstances prevailing at the relevant time, as well as the Company's requirement, as a UK REIT, to distribute at least 90% of its distributable income annually, which will remain a key consideration.

Outlook

The Board and Investment Manager are pleased with the strong returns delivered to shareholders to date and with the resilience demonstrated under stressed conditions following the onset of the COVID-19 pandemic. The Company met its target dividends of 8.00 pps for the year and, although these were only 77.4% covered by EPRA EPS, significant gains were realised on the disposal of two assets during the year. These gains supplemented cash flows from its operating activities and allowed the dividend payments to be met while maintaining a comfortable cash and gearing position and without suffering an overall decline in NAV.

The lockdown period at the start of 2021 has reversed some of the UK's economic recovery seen in the second half of 2020. However, the general economic outlook is brighter for the second half of 2021, following the effective rollout of the vaccination programme and further easing of lockdown restrictions. We expect this to be reflected in the real estate market in terms of improved rent collection levels and the recovery of rental values and property valuations. However, many tenants will have benefitted from a range of government support schemes over the past year. As these protective measures are removed, we may yet see a significant surge in the number of corporate insolvencies, and so an element of caution should be retained.

The pandemic has accelerated certain structural shifts in the real estate market. We expect that this will present new challenges and opportunities in certain sectors. We believe that the Company is well placed to take advantage of these with its existing liquid resources available. Growth of the Company also remains a key objective and we hope that improved economic conditions and a return of the share price to trading at a premium to NAV, will enable this in the near future.

Mark Burton

Chairman

23 June 2021

Business Model and Strategy

Introduction

The Company is a real estate investment company listed on the premium segment of the Official List of the FCA and traded on the London Stock Exchange's Main Market. As part of its business model and strategy, the Company has, and intends to maintain, UK REIT status. HM Revenue and Customs has acknowledged that the Company has met the necessary qualifying conditions to conduct its affairs as a UK REIT and the Company intends to continue to do so.

Investment Objective

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