AEW UK REIT PLC
in cases where properties are sold whose valuations have Movement:
previously been materially overstated. Decrease
Comprehensive due diligence is undertaken on all
new tenants. Tenant covenant checks are carried
3. Tenant default out on all new tenants where a default would have
a significant impact. Probability:
Failure by tenants to fulfil their rental High
obligations could affect the income that the properties Impact: High
earn and the ability of the Company to pay dividends to Asset management team conducts
its shareholders. Movement:
ongoing monitoring and liaison with tenants to Decrease
manage potential bad debt risk.
4. Asset management initiatives
Probability:
Asset management initiatives, such as refurbishment Costs incurred on asset management initiatives Low to
works, may prove to be more extensive, expensive and are closely monitored against budgets and Moderate
take longer than anticipated. Cost overruns may have a reviewed in regular presentations to the
material adverse effect on the Company's profitability, Investment Management Committee of the Investment Impact: Low
the NAV and the share price. Manager. to Moderate
Movement: No
change
5. Due diligence
Due diligence may not identify all the risks and Probability:
liabilities in respect of an acquisition (including any The Company's due diligence relies on work (such Low
environmental, structural or operational defects) that as legal reports on title, property valuations,
may lead to a material adverse effect on the Company's environmental and building surveys) outsourced to Impact:
profitability, the NAV and the price of the Company's third parties who have expertise in their areas. Moderate
Ordinary Shares. Such third parties have professional indemnity
cover in place. Movement: No
change
6. Fall in rental rates
Rental rates may be adversely affected by general UK The Company builds a diversified property and
economic conditions and other factors that depress tenant base with subsequent monitoring of
rental rates, including local factors relating to concentration to individual occupiers (top 10 Probability:
particular properties/locations (such as increased tenants) and sectors (geographical and sector Moderate to
competition). exposure). High
Impact:
Moderate to
Any fall in the rental rates for the Company's The Investment Manager holds quarterly meetings High
properties may have a material adverse effect on the with its Investment Strategy Committee and
Company's profitability, the NAV, the price of the regularly meets the Board of Directors to assess Movement: No
Ordinary Shares and the Company's ability to meet whether any changes in the market present risks change
interest and capital repayments on any debt facilities. that should be addressed in the Company's
strategy.
FINANCIAL RISKS
7. Breach of borrowing covenants
The Company has entered into a term credit facility. Probability:
Low to
The Company monitors the use of borrowings on an Moderate
ongoing basis through weekly cash flow
Material adverse changes in valuations and net income forecasting and quarterly risk monitoring to Impact: High
may lead to breaches in the LTV and interest cover ratio monitor financial covenants.
covenants. Movement:
Decrease
The Company uses interest caps on a significant
8. Interest rate rises (short term) notional value of the loan to mitigate the
adverse impact of possible interest rate rises. Probability:
The Company's borrowings through a term credit facility Low to
are subject to interest rate risk through changing LIBOR Moderate
rates. Any increases in LIBOR rates may have an adverse
effect on the Company's ability to pay dividends. The Investment Manager and Board of Directors Impact: Low
monitor the level of hedging and interest rate
movements to ensure that the risk is managed Movement: No
appropriately. change
The Company uses interest rate caps on a
9. Interest rate rises (long term) significant notional value of the loan to
mitigate the adverse impact of possible interest Probability:
The Company's borrowings through a term credit facility rate rises. High
are subject to interest rate risk through changing LIBOR
rates. Any increases in LIBOR rates may have an adverse Impact: Low
effect on the Company's ability to pay dividends. to Moderate
The Investment Manager and Board of Directors
monitor the level of hedging and interest rate Movement: No
movements to ensure that the risk is managed change
appropriately.
10. Availability and cost of debt The Company maintains a good relationship with
the bank providing the term credit facility. Probability:
The term credit facility expires in October 2023. In the Low to
event that RBSi does not renew the facility, the Company Moderate
may need to sell assets to repay the outstanding loan.
Any increase in the financing costs of the facility on The Company monitors the projected usage and Impact: High
renewal would adversely impact on the Company's covenants of the credit facility on a quarterly
profitability. basis. Movement: No
change
CORPORATE RISKS
11. Use of service providers
The Company has no employees and is reliant upon the
performance of third party service providers. Probability:
The performance of service providers in Moderate to
conjunction with their service level agreements High
is monitored via regular calls and face-to-face
Failure by any service provider to carry out its meetings and the use of key performance Impact:
obligations to the Company in accordance with the terms indicators, where relevant. Moderate
of its appointment could have a materially detrimental
impact on the operation of the Company. Movement: No
change
12. Dependence on the Investment Manager
The Investment Manager is responsible for providing
investment management services to the Company.
Probability: (MORE TO FOLLOW) Dow Jones Newswires
June 24, 2021 02:03 ET (06:03 GMT)
