25 April 2024
LEI:
213800I9IYIKKNRT3G50
abrdn European Logistics
Income plc
FULL YEAR RESULTS FOR THE
YEAR ENDED 31 DECEMBER 2023
Improving macroeconomic
backdrop and portfolio indexation provides platform for earnings
growth
abrdn European Logistics Income
plc ("ASLI" or the "Company"), the Continental European investor in
modern warehouses, which is managed by abrdn, announces its full
year results for the year to 31 December 2023.
NAV
impacted by continued sector-wide asset re-pricing due to higher
interest rate environment; low all-in cost of fixed debt
underpinning balance sheet resilience
· Net
asset value per ordinary share decreased
by 21.4% to 93.4 cents (31 December 2022: 118.9 cents), primarily
driven by market-wide outward yield movements as a result of the
higher interest rate environment
· IFRS
NAV total return of -17.1% (31 December 2022: -3.8%)
· EPRA
net tangible assets 95.7 cents (31 December 2022: 123.7
cents)
· IFRS
earnings per share of -19.8 cents (31 December 2022: -4.5
cents)
· Loan
to Value of 38.7% (31 December 2022: 34.0%)
· Low
all-in cost of fixed term debt of 2.00% (31 December 2022: 2.01%),
with no major refinancings due until mid-2025
Indexation-driven, active management initiatives to drive
improved portfolio occupancy and earnings growth; disposals of more
mature assets proving asset class liquidity and strengthening cash
position:
· Portfolio value of €634 million (31 December 2022: €759
million), including a like-for-like valuation decrease of 14.4%,
largely driven by continued outward yield movement
· Completed the disposal of a warehouse in Leon, Northern
Spain, for €18.5 million, reflecting a small premium to the 31
December 2022 valuation
· Post
year-end, completed the disposal of a vacant French warehouse,
previously occupied by Office Depot in Meung sur Loire, for €17.5
million, reflecting a small discount to the 30 September 2023
valuation and in line with the 31 December 2023
valuation
· Attractive WAULT of 8.4 years (31 December 2022: 8.9 years)
and inflation linked lease profile, with 65% of the portfolio
income subject to full indexation
· Annualised passing rent of €32.2 million (31 December 2022:
€30.6 million), with like-for-like growth of 5% on held
assets*
· Completed six lease events across 81,175 sqm, totalling €4.8
million of annualised rent, including:
o 9.5 year lease with Dachser France at its La Creche, Niort,
property, 3% ahead of previous annual rent payable
o 12-year lease extension agreed with Biocoop on 28,500 sqm at
its highly sustainable warehouse near Avignon, France, generating
an annual contracted rent of €2.5 million
o Five-year lease extension with AS Watson (Kruidvat) at its
39,840 sqm single-tenant warehouse in Ede, the Netherlands,
reflecting a 4% increase on the previous passing rent
o Post-period end, a new 3 plus 2 year lease with METHOD
Advanced Logistics for 5,130 sqm of highly sustainable logistics
space in Madrid, Spain, 8.7% above the previous passing
rent
· 95%
of expected annual rent due during the year collected
· Reflecting the modern, purpose built nature of the portfolio,
the Company continued year-on-year improvement with a sector
leading five stars out of five awarded in the Global Real Estate
Sustainability Benchmark ('GRESB') survey
· In
November, the Board announced the launch of a Strategic Review,
enabling it to consider more fully the basis on which the Company
might best deliver value to shareholders as a whole.
Tony Roper, Chairman, abrdn European Logistics Income,
commented:
"While the market looks set to
improve in the second half of 2024 and into 2025, and the post
period transactions and letting activity achieved by the Investment
Manager supports this, challenges will remain for the real estate
sector, primarily as a result of higher for longer interest
rates.
"The Board is continuing with its
Strategic Review, as it considers all options available that offer
maximum value for shareholders, and expects to issue a further
update in May.
"The logistics market remains
well-positioned in terms of its fundamentals. While vacancy rose
across the sector in Europe in the last year, we believe that the
worst of these increases has passed, with speculative development
pipelines contracting. In addition, the portfolio remains well
diversified by property, tenant and geography and our tenants'
businesses are generally well positioned in areas which remain
essential to the everyday operation of the modern
economy."
Troels Andersen, Lead Fund Manager, abrdn European Logistics
Income, added:
"Continental European logistics
real estate is well placed to recover from a difficult market
position due to the longer-term structural drivers underpinning the
sector including ongoing e-commerce penetration, onshoring and
supply chain modernisation. Whilst we have been encouraged by the
resilience of the occupational market, rental growth is still
expected to outperform historic averages and beat inflation in most
European logistics hotspots. This will support our
near-term focus to deliver earnings growth,
principally through letting up the vacant space in Spain and
capturing the portfolio's attractive indexation
characteristics."
*excluding rent free incentives
and vacant assets
-Ends-
For further information please
contact:
abrdn +44 (0) 20 7463 6000
Ben Heatley
Gary Jones
Investec Bank plc +44 (0) 20 7597 4000
David Yovichic
Denis Flanagan
FTI Consulting +44 (0) 20 3727 1000
Dido Laurimore
Richard Gotla
James McEwan
Highlights as at 31 December
2023
Net asset value total return (EUR) (%) 1
|
IFRS
net asset value (€'000)
|
Net
asset value per share (¢)1
|
2022:
(3.8)
|
2022:
489,977
|
2022:
118.9
|
(17.1)
|
384,928
|
93.4
|
Share price total
|
Discount to net asset
value
|
Ordinary dividend
paid
|
return (GBP) (%)1
|
per share (%)
1
|
per share (¢)
|
2022:
(38.3)
|
2022:
(35.0)
|
2022:
5.64
|
(3.5)
|
(24.1)
|
5.64
|
Ongoing
charges ratio (%)1
|
IFRS
earnings per share (¢)
|
Portfolio valuation (€'000)
|
2022:
1.3
|
2022:
(4.5)
|
2022:
758,719
|
1.6
|
(19.8)
|
633,806
|
Number
of
|
Average lease length excl breaks
|
Gearing1
|
properties
|
(Years)
|
(%)
|
2022:
27
|
2022:
8.9
|
2022:
34.0
|
26
|
8.4
|
38.7
|
Average building size (sqm)
|
All-in
fixed interest rate (%)
|
EPRA
net tangible assets per share (¢)1
|
2022:
21,374
|
2022:
2.01
|
2022:
123.7
|
20,940
|
2.00
|
95.7
|
Overview
Chairman's Statement
Dear Shareholder,
I am pleased to present the
Company's sixth Annual Report in respect of the year ended 31
December 2023.
2023 continued as 2022 ended, with
global macro events driving market sentiment, a continued economic
slowdown and high inflation. Rapidly rising interest rates saw the
cost of debt increase which led to a decline in the flow of capital
into the real estate sector and a significant softening of
yields.
This contrasted with the strong
market fundamentals at the Company's inception in 2017, a period
which saw the sector attracting considerable amounts of capital,
encouraged by supportive debt markets. This underpinned falling
property yields and an increase in capital values. The recent
sharp rise in interest rates to combat high levels of inflation has
resulted in property yields moving out to reflect the higher cost
of capital, with asset values subsequently falling. Such
fluctuations are a reminder that real estate markets are inherently
cyclical in nature. With investors fearing continued valuation
falls and seeking to lower their risk profiles, share price
discounts to NAV have been persistently wide, not only in the REIT
sector but also the wider investment trust sector.
Whilst the logistics sector
fundamentals remain compelling, a combination of this challenging
backdrop and the lack of a clear pathway to reaching full dividend
cover in the near future resulted in the Board launching a
strategic review in November 2023. This is allowing us to look at
all sensible options to deliver shareholders' value. At the time of
writing, this review is still underway. It is too early to
tell whether this will lead to any corporate activity for the
Company, but the Board will communicate with shareholders as soon
as it feels in a position to say further. In the meantime, the
Company is required under its articles to hold a continuation vote
at its forthcoming AGM in June, and at this stage the Board
recommends that shareholders vote in favour of this resolution to
enable the Board to continue to a sensible conclusion in seeking
best value for all shareholders.
Market overview
December 2023 saw the end of seven
consecutive months of falling Eurozone inflation figures, resulting
in the money markets adjusting their expectations. However with the
deposit rate held at 4%, valuations continue to come under
pressure. Looking forward, our Investment Manager believes that the
most significant value correction is behind us and the negative
pressure on yields, which has lagged the UK, will plateau later
this year.
Future occupational demand looks
set to be determined by two key trends: stabilising growth amongst
eCommerce operators and a continued trend towards onshoring amongst
manufacturers. The logistics market is characterised by rising
occupier demand, limited supply in core markets and high barriers
to developing new assets in prime locations.
The onshoring of operations should
be a long-term trend over the next decade. While it could lead to a
tangible boost in take-up in the near term, we do not believe it
will result in the same explosive growth that the increase in
online shopping led to over the last decade. Data from a European
Central Bank survey points to an increasing number of firms
expecting to increase their sourcing of production inputs from
within the EU, compared to a declining number of firms sourcing
their inputs externally.
The prime logistics markets in
Germany, Netherlands, France, and Spain, where the majority of the
portfolio is focused, continue to witness near-historically low
vacancy rates. With speculative development expected to remain low
due to increased costs and regulation, we expect vacancy rates to
remain tight, which will keep upward pressure on indexed
rents.
Company overview
As at 31 December 2023, the
Company's property portfolio was independently valued at €633.8
million (31 December 2022: €758.7 million), and consisted of 26
assets (2022: 27 assets) located across five European countries.
The like-for-like portfolio valuation (excluding the sold Leon
warehouse) fell over the year by 14.4% as a result of the impact of
the higher interest rate backdrop on investor sentiment and debt
costs.
In May 2023, the Company announced
the completion of the first sale from its portfolio, the 32,645 sqm
Decathlon- leased warehouse, in Leon, Northern Spain, to SCPI Iroko
Zen, for €18.5 million. The disposal price reflected a small
premium to the December 2022 valuation and crystalised a 20% gross
profit. It generated an attractive IRR, improved the cash position,
reduced gearing and the all-in-interest rate, whilst reducing our
retail related exposure to a Spanish location which the Investment
Manager felt could be more challenging in the future.
Pleasingly during the year the
Investment Manager agreed a number of lease regears, more detail of
which can be found in the Investment Manager's Report that follows.
These included
· A
new 9.5 year lease with Dachser France in La Creche, Niort, with
the rent 3% ahead of the previous annual rent payable and
significantly ahead of ERV. Importantly for revenue generation,
uncapped annual ILAT indexation was agreed.
· A
new 12 year lease with Biocoop over the Avignon, France, property
generating annual contracted rent of €2.5 million, equating to €86
per sqm with full annual French ILAT indexation with no cap. Both
of these facilities serve as strategically important locations for
our tenants.
In March 2024 we sold the vacant
Meung-sur-Loire warehouse for €17.5 million, reflecting a small
discount to the September 2023 valuation and in line with the
December 2023 valuation. As one of the portfolio's older assets and
with an eye on location and the potential capital expenditure
required to improve its sustainability credentials, the Board
agreed with the Investment Manager that this was a sensible sale,
with the proceeds strengthening the Company's balance sheet, which
was one of the key 2023 priorities.
Shareholders should be aware of
the situation the Company faced over the electric vehicle company
Arrival's units located in Gavilanes, Madrid. Despite lengthy
negotiations and continued legal proceedings, with the limited
possibility of obtaining any surrender premium or rent due to
Arrival's deteriorating financial situation, following the advice
of the Investment Manager, the Company deemed it sensible to
negotiate a surrender of the lease and to obtain possession of the
units for re-leasing as quickly as possible. It is pleasing to note
that the 5,130 sqm unit was quickly leased in March to Spanish
company Method Logistics, at a rent 8.7% ahead of the Arrival
passing rent. The Getafe area remains attractive to many companies
and there is good interest being shown for the remaining
units.
The Company's investment case is
enhanced by the competitive advantage provided through the
Investment Manager's relationships and market knowledge, with its
local teams based in key markets in Europe, enabling it to
originate and then execute on attractive acquisitions. It has built
a portfolio of assets diversified by both geography and tenant, in
established distribution hubs and within close proximity of cities
that have substantial labour pools and excellent transport links,
all important factors and underpinning the appeal of the assets for
tenants and longer term valuations and revenue earning
abilities.
Further details on the composition
of the portfolio and lease renewals are provided in the Investment
Manager's Report that follows.
Results
As at 31 December 2023 the audited
Net Asset Value ("NAV") per Share was 93.4 euro cents (GBp -
81.2p), a decrease of 21.5% compared with the NAV per Share of
118.9 euro cents (GBp - 105.4p) at 31 December 2022. With the
interim dividends declared, this reflected a NAV total return of
-17.1% for the year in euro terms (-19.0% in sterling).
The closing Ordinary Share price
at 31 December 2023 was 61.6p (31 December 2022 - 68.5p),
representing a discount to NAV per Share of 24.1% (31 December 2022
- 35.0%).
Dividends
First, second and third interim
dividends in respect of the year ended 31 December 2023 of 1.41
euro cents per Ordinary Share were paid to Shareholders on 23 June
2023, 22 September 2023 and 29 December 2023. These equated
to 1.23 pence, 1.22 pence and 1.23 pence respectively.
In light of the initial response
to the previously announced Strategic Review, the Board and its
advisers were keen to ensure that the Company was optimally
positioned, and that it maintains maximum flexibility to allow it
to advance any particular proposal. As a result, the Board took the
decision, announced on 19 February 2024, to forego declaring a
fourth interim distribution in respect of the quarter ended 31
December 2023. With the Strategic Review ongoing and to maintain
flexibility, it is likely that the Company will also forego paying
a dividend in relation to the quarter ended March 2024.
Normally distributions may be made
up of both dividend income and income which is designated as an
interest distribution for UK tax purposes and therefore subject to
the interest streaming regime applicable to investment trusts.
Further details on this breakdown can be found on page 23
of the published Annual Report and financial
statements for the year ended 31 December 2023 and are
reflected within the Company's dividend announcements.
Financing
The Company's debt provided by our
European partner banks remains fixed in nature and secured on
certain assets or groups of assets within the portfolio. These
non-recourse loans range in maturities between 1.4 (mid-2025)
and 5.1 years with all-in interest rates
ranging between 1.10% and 3.11% per annum. Full details can be
found in note 14 on page 125 of the published Annual Report and
financial statements for the year ended 31 December
2023.
The Company maintains
an uncommitted
master loan
facility ("Facility") with Investec Bank plc for €70 million, which is
currently undrawn. Under this Facility, the Company may make requests for drawdowns at selected short- duration tenors,
as and
when required,
to fund
acquisitions or for other liquidity requirements
and this
was used
to good effect during
the purchase of the Gavilanes, Madrid, assets. Within the Facility,
Investec also makes available a £3.3 million committed revolving
credit facility which is carved out of the total €70 million limit
of the Facility. This facility sits at the parent company
level and provides added flexibility. There were no drawdowns
against this facility during 2023.
The year-end gearing level was
38.7% (2022 - 34.0%) with an average all-in interest rate of 2.0%
(2022: 2.01%) on the total fixed term debt arrangements of €259.5
million (2022: 270.3 million).
GRESB and Asset
Management
The Investment Manager continues
to seek to improve the sustainability credentials
of the portfolio and the results of the 2023 GRESB ('Global Real
Estate Sustainability Benchmark') survey saw the Company's
portfolio achieve another year-on-year increase, with a score of
89/100 representing continued improvement and an uplift on
its 2022 GRESB survey score of 86/100. It also compares favourably
versus the 81/100 average peer score and 75/100 overall average
2023 GRESB score.
The Company was awarded a maximum
five stars in the 2023 GRESB awards, achieving a welcome first
place in its peer group of diversified funds investing across
Europe (European industrial: distribution warehouse).
In addition, the Company attained
the top-rated gold level awarded by EPRA for compliance with its
'Best Practice Recommendations' in financial reporting.
The latest GRESB scoring continues
to recognise
the fundamental importance that the Investment Manager places on
sustainability when acquiring and subsequently enhancing
the Company's
portfolio. The
improved performance score rewards the progress made with regards
to environmental,
social and
governance ("ESG")
factors.
The Company has executed several
sustainability-led initiatives during the period, building on the
significant progress made improving the credentials of our
portfolio of Grade-A, modern properties. These included:
· High
tenant data coverage which has helped to inform carbon performance
and feed into our net zero plans
· Ongoing assessment of the operational performance of the
portfolio, through BREEAM In-Use assessments and sustainability
audits identifying actions to improve performance
· A
portfolio-wide occupier engagement programme
· 100%
of landlord energy procured from renewable sources
· 34%
of the portfolio by floor area with solar PV with ongoing reviews
across the estate for further additions
· 96%
of assets by floor area with EPC's A-B
The Company has set a net zero
carbon target of 2050 across all emissions (Scopes 1, 2 and 3), and
the Company's strategy for achieving net zero carbon is fully
detailed on page 65 of the published Annual
Report and financial statements for the year ended 31 December
2023. ESG is embedded within the Investment Manager's investment
and asset management processes and although many of our assets were
new when purchased, a programme of works continues to enhance areas
where improvements can be made. The ESG section of the
published Annual Report and Financial statements for the year ended
31 December 2023 gives further clarity on these
processes.
Governance and Board
Change
The Company is a member of the
Association of Investment Companies and seeks to follow best
practice regarding appropriate disclosure.
In accordance with good
governance, the Directors offer to meet with our substantial
shareholders during the year to hear their views on the Company and
its performance. Following the announcement of the Strategic
Review, Directors together with the Company's advisers have met
with many of our larger shareholders to understand their views on
the Company and how they would like to see it positioned. The
Directors may be contacted through the Company
Secretary.
The Board looks to undertake short
annual site visits to view the properties owned, meet with tenants
where possible and members of local staff and advisers of the
Investment Manager. During the year the Board was pleased to visit
the German assets helping to better understand their locations,
site layouts and meeting with abrdn's local well-resourced
Frankfurt-based real estate team which has a focus on managing
these assets for us.
With the Company having been
launched in December 2017, the Directors have been considering
succession planning. With this in mind, Diane Wilde has confirmed
that she will retire and not stand for re-election at the AGM in
June. I would like to thank Diane for all her efforts since joining
the Board. Following best practice, the remaining three Directors
will stand for re-election at the forthcoming AGM and further
details on each Director may be found on pages 80 and 81 of the
published Annual Report and financial statements for the year ended
31 December 2023. No decision on a replacement Board member will be
taken until the Strategic Review has been concluded and the
direction of the Company is known.
Strategic Review
As at the date of this report, the
Board is continuing to undertake a Strategic Review of the options
available to the Company, and is being advised on this by the
Company's broker, Investec, and by Savills, who have been retained
to give strategic property advice. The Board is considering all
options available that offer maximum value for shareholders
including, but not limited to, continuing with the current
investment objective, selling the entire issued share capital of
the Company or a managed wind- down of the Company's portfolio and
returning monies to shareholders.
The Company has received a number
of indicative non-binding proposals. However, there can be no
certainty at this stage that the final terms of any proposal will
prove to be sufficiently attractive to merit a Board recommendation
to the Company's shareholders.
All proposals received will be
analysed and considered in the light of feedback received from
shareholders and the value that could be best achieved when looking
at current and forecast market conditions. The Board welcomes the
support shown by shareholders, both before and during this process,
and will update shareholders on the progress or the outcome of the
Strategic Review as soon as the process allows.
Annual General Meeting and
Continuation Vote
The Company's Annual General
Meeting will be held in London on Monday, 24 June 2024 at 09:00 am
at the offices of FTI Consulting, 200 Aldersgate, Aldersgate
Street, London EC1A 4HD.
The formal Notice of AGM may be
found on page 182 of the Annual Report and financial statements for
the year ended 31 December 2023.
This year the Company is required by its Articles to hold a
continuation vote. With the Strategic Review still ongoing, the
Board recommends
that shareholders
vote in
favour of the
Company's continuation to ensure that the review can be completed properly and the optimal outcome for shareholders
delivered. It
is the
Board's current
expectation that the result of the Strategic Review will be announced ahead of
the AGM,
so shareholders
should have
the benefit of
a clear
picture of
the proposed
way forward
by the
time that they
are asked
to vote.
Should the
Board not
be in
a position to
communicate the
outcome (or
likely outcome)
of the Strategic Review ahead of the AGM, the Board would ensure that shareholders were provided with the
opportunity to vote on the future direction of the Company as and
when the Review was completed (unless the proposed course of action
arising from the Strategic Review in and of itself required a
shareholder vote).
Outlook
While the market looks set to
improve in H2 2024 and into 2025, and the post period transactions
and letting activity achieved by the Investment Manager supports this, challenges will
remain for
the real
estate sector,
primarily as
a result
of higher-for-longer interest
rates. Crucially
for us, the
logistics market
remains well-positioned in
terms of its
fundamentals. While vacancy rose across the sector in Europe in the last year, we believe that vacancy levels have settled with
speculative development pipelines
contracting.
Several factors are driving an increased focus among occupiers on
the type
of prime,
modern and
sustainable warehouses that our portfolio contains.
Many occupiers
have put a
greater focus
on more
energy-efficient space
following the energy price shock and modern warehouses are
more suitable
for implementing
automation processes,
whereas older warehouses often have specifications
which are unsuitable for the machinery needed. In addition, they are
more flexible
and thoughtfully
designed, built
around integrating new supply chain management technologies like RFID
(radio frequency
identification technology).
The portfolio remains well
diversified by property, tenant and geography and our tenants' businesses
are generally well positioned
in areas
which remain
essential to
the everyday
operation of
the modern
economy. A
strong commitment
to sustainability, demonstrated
by the
Company's increased GRESB rating with five Green
stars awarded for 2023, together with the
inflation-linked nature of the portfolio's
leases, has provided a counterbalance to the yield expansion witnessed.
Positive tailwinds from structural
demand drivers should continue to benefit the portfolio. The impact
of increasing online shopping penetration, the need to build
greater resilience into supply chains, and the aim of reducing the
environmental impact of distribution operations will continue to
generate strong demand for high-quality, sustainable warehouse
space and the portfolio remains well positioned to benefit from
these trends.
In parallel to the abovementioned
Strategic Review process, the near-term focus for the Investment
Manager is to continue improving the earnings position, principally
through letting up the vacant space in Spain and capturing the
portfolio's attractive indexation characteristics.
Whilst this has been a hugely
frustrating period, the Board reiterates its thanks for the support
shown by shareholders, both before and during this process. It
hopes to update shareholders on the outcome as soon as a
conclusion has been reached, which should
be in advance of the Company's AGM.
Tony Roper
Chairman
25 April 2024
Strategic Report
Overview of Strategy
The Company is a UK investment
trust with a premium listing on the Main Market of the London Stock
Exchange. The Company invests in European logistics real estate to
achieve its investment objective noted below.
The Company was incorporated in
England and Wales on 25 October 2017 with registered number
11032222 and launched on 15 December 2017.
As indicated in the Chairman's
Statement, on 27 November 2023, the Board announced that it was
undertaking a strategic review of the options available to the
Company (the "Strategic
Review"). The Board is considering all
options available to the Company that offer maximum value for the
shareholders including, but not limited to, undertaking some form
of consolidation, combination, merger or comparable corporate
action, selling the entire issued share capital of the Company
(which would be conducted under the framework of a "formal sale
process" in accordance with the City Code on Takeovers and Mergers
(the "Code")),
and selling the Company's portfolio and returning monies to
shareholders. There is no certainty that any changes will result
from the Strategic Review and, for the avoidance of doubt, a
continuation of the Company's current investment strategy with a
rebased target dividend level is a potential outcome of the
Strategic Review.
Investment Objective
The Company aims to provide a
regular and attractive level of income return together with the
potential for long-term income and capital growth from investing in
high quality European logistics real estate.
Investment Policy
The Company aims to deliver the
investment objective through investment in, and active asset
management of, a diversified portfolio of logistics real estate
assets in Europe.
The Company will invest in a
portfolio of single and multi-let assets diversified by both
geography and tenant throughout Europe, predominantly targeting
well-located assets at established distribution hubs and within
population centres. In particular, the Investment
Manager will seek to identify
assets benefiting from long- term, index-linked, leases as well as
those which may benefit from structural change, and will take into
account several factors, including but not limited to:
· the property characteristics and
whether they
are appropriate
for the
location (such
as technical
quality, ESG
credentials, scale, configuration,
layout, transportation links,
power supply,
data connectivity, manoeuvrability, layout
flexibility, and
overall operational efficiencies);
· the
location and its role within European logistics (city, regional,
national or international distribution), key fundamentals
supporting logistics activity within the micro location such as
proximity to airport, port, transport nodes, multimodal transport
infrastructure, established warehousing hubs, transport corridors,
population centres, labour availability and market
dynamics such as supply (of both land and
existing stock), vacancy rate and planned infrastructure
upgrades;
· the
terms of the lease(s) focusing on duration, inflation- linked
terms, ESG criteria, level of passing rent relative to market rent,
the basis for rent reviews, and the potential for capturing growth
in market rental income;
· the
strength of the tenant's financial covenant;
· the
business model of the tenant and their commitment to the asset both
in terms of capital expenditure and the role it plays in their
operations; and
· the
potential to implement active asset management initiatives to add
value over the holding period.
The Company will invest either
directly or through holdings in special purpose vehicles,
partnerships, or other structures. The Company may invest in
forward commitments when the Investment Manager believes that to do
so would enhance risk adjusted returns for Shareholders and/or
secure an asset at an attractive yield.
The Company's active asset
management activities are expected to focus on adding value
through:
· negotiating or renegotiating leases to increase/secure rental
income, managing vacancies;
· undertaking refurbishments to maintain liquidity;
· managing redevelopments as assets approach
obsolescence;
· adding solar panels to reduce carbon emissions and generate
additional income streams;
· where appropriate, extending existing on-site buildings or
developing adjacent plots;
· refurbishment and redevelopment activity will, amongst other
things, focus on: enhancing occupier wellbeing; operational
efficiencies; energy efficiency;
· reducing carbon emissions; and elevating technological
provision as well as increasing lettable area.
The Company's active management of
debt will effectively manage costs and risk seeking to enhance
investment returns.
Diversification of Risk
The Company will at all times
invest and manage its assets in a manner which is consistent with
the spreading of investment risk. The following investment limits
and restrictions will apply to the Company and its business which,
where appropriate, will be measured at the time of
investment:
· the
Company will only invest in assets located in Europe;
· no
more than 50 per cent. of Gross Assets will be concentrated in a
single country;
· no
single asset may represent more than 20 per cent. of Gross
Assets;
· forward commitments will be wholly or predominantly pre-let
and/or have the benefit of a rental guarantee and the Company's
overall exposure to forward commitments and development activity
will be limited to 20 per cent. of Gross Assets;
· the
Company's maximum exposure to any single developer will be limited
to 20 per cent. of Gross Assets;
· the
Company will not invest in other closed-ended investment
companies;
· the
Company will predominantly invest in assets with tenants which have
been classified by the Investment Manager's investment process, as
having strong financial covenants. However, the Company may, on an
exceptional basis, invest in an asset with a tenant with a lower
financial covenant strength (and/or with a short lease term) where
the Investment Manager believes that the
asset can be leased on a longer term tenancy to a tenant with
strong financial covenants within a reasonable time period;
and
· no
single tenant will represent more than 20 per cent. of the
Company's annual gross income measured annually.
The Company will not be required
to dispose of any asset or to rebalance the Portfolio as a result
of a change in the respective valuations of its assets.
The Company intends to conduct its
affairs so as to continue to qualify as an investment trust for the
purposes of section 1158 and 1159 (and regulations made thereunder)
of the Corporation Tax Act 2010.
Borrowing and Gearing
The Company uses gearing with the
objective of improving shareholder returns. Debt is typically non-
recourse and secured against individual assets or groups of assets
with or without a charge over these assets, depending on the
optimal structure for the Company and having consideration to key
metrics including lender
diversity, cost of debt, debt type
and maturity profiles.
The aggregate borrowings are
always subject to an absolute maximum, calculated at the time of
drawdown for a property purchase, of 50 per cent. of Gross Assets.
Where borrowings are secured against a group of assets, such group
of assets will not exceed 25 per cent. of Gross Assets in order to
ensure that investment risk remains suitably spread.
The Board has established gearing
guidelines for the Alternative Investment Fund Manager ("AIFM") in
order to maintain an appropriate level and structure of gearing
within the parameters set out above. Under these guidelines,
aggregate asset level gearing will sit, as determined by the Board,
at or around 35 per cent of Gross Assets. This level may fluctuate
as and when new assets are acquired until longer term funding has
been established or whilst short-term asset management initiatives
are being undertaken.
The Board will keep the level of
borrowings under review. In the event of a breach of the investment
guidelines and restrictions set out above, the AIFM will inform the
Board upon becoming aware of the same, and if the Board considers
the breach to be material, notification will be made to a
Regulatory Information Service and the AIFM will look to resolve
the breach with the agreement of the Board. The Directors may
require that the Company's assets are managed with the objective of
bringing borrowings within the appropriate limit while taking due
account of the interests of shareholders. Accordingly, corrective
measures may not have to be taken immediately if this would be
detrimental to shareholders' interests.
Any material change to the
Company's investment policy set out above will require the approval
of shareholders by way of an ordinary resolution at a general
meeting and the approval of the Financial Conduct Authority.
Non-material reasonable changes to the investment policy may be
approved by the Board.
Comparative Index
The Company does not have a
benchmark.
Duration
Although the Company does not have
a fixed life, under the Company's articles of association the
Directors are required to propose an ordinary resolution for the
continuation of the Company at the Annual General Meeting to be
held in 2024 and then every third year thereafter. While the Board
continues to evaluate the options resulting from the ongoing
strategic review, a resolution proposing that the Company continue
as an investment trust is included in the Notice
for the Annual General Meeting scheduled to be
held on 24 June 2024. Please also refer to the Going Concern
section within the Directors' Report on page 85 of the published
Annual Report and financial statements for the year ended 31
December 2023.
Key Performance Indicators
(KPIs)
The Board uses a number of
financial performance measures to assess the Company's success in
achieving its objective and to determine the progress of the
Company in pursuing its Investment Policy. The main KPIs identified
by the Board in relation to the Company, which are considered at
each Board meeting, are as follows:
KPI
|
Description
|
Net asset value total return
(EUR)1
|
The Board considers the NAV total
return to be the best indicator of performance over time and is
therefore the main indicator of performance used by the Board.
Performance for the year and since inception is set out on page 24
of the published Annual Report and financial statements for the
year ended 31 December 2023.
The Company is targeting, for an
investor in the Company at launch, a total NAV return of 7.5 per
cent. per annum (in € terms).
|
Share price total return
(GBP)1
|
The Board also monitors the price
at which the Company's shares trade on a total return basis over
time. A graph showing the share price performance is shown on page
24 of the published Annual Report and
financial statements for the year ended 31 December
2023.
|
Premium/(Discount)1
|
The premium/(discount) relative to
the NAV per share represented by the share price is monitored by
the Board. A graph showing the share price (discount)/premium
relative to the NAV is shown on page 24 of
the published Annual Report and financial statements for the year
ended 31 December 2023.
|
Dividends per Share
|
The Board's aim is to pay a
regular quarterly dividend enabling shareholders to rely on a
consistent stream of income. Dividends paid are set out on page
23 of the published Annual Report and
financial statements for the year ended 31 December 2023. The
Company is targeting, for an investor in the Company at launch, an
annual dividend yield of 5.0 per cent. per Ordinary Share (in €
terms).
|
Ongoing charges ratio
("OCR")1
|
The OCR is the ratio of expenses
as a percentage of average daily shareholders' funds calculated in
accordance with the industry standard. The Board reviews the OCR
regularly as part of its review of all expenses. The aim is to
ensure that the Company remains competitive and is able to deliver
on its yield target to Shareholders. The Company's OCR is disclosed
on page 23 of the published Annual Report
and financial statements for the year ended 31 December
2023.
|
1 Alternative Performance Measure - see glossary on pages 161
to 165 of the published Annual Report and
financial statements for the year ended 31 December
2023.
Manager
Under the terms of the Management
Agreement, the Company has appointed abrdn Fund Managers Limited as
the Company's alternative investment fund manager ("AIFM") for the
purposes of the AIFM Rules. The AIFM has delegated portfolio
management to the Danish Branch of abrdn Investments Ireland
Limited which acts as Investment Manager.
Pursuant to the terms of the
Management Agreement, the AIFM is responsible for portfolio and
risk management on behalf of the Company and will carry out the on-
going oversight functions and supervision and ensure compliance
with the applicable requirements of the AIFM Rules. The AIFM and
the Investment Manager are both legally and operationally
independent of the Company.
Dividend Policy
Subject to compliance with all
legal requirements the Company normally pays interim dividends on a
quarterly basis. The Company declares dividends in Euros, but
shareholders will receive dividend payments in Sterling unless
electing to receive payments in Euros through the Equiniti
Shareview Portfolio website or via CRESTPay.
If applicable, the date on which
the Euro/Sterling exchange rate is set will be announced at the
time the dividend is declared. Distributions made by the Company
may take the form of either dividend income or ''qualifying
interest income'' which may be designated as interest distributions
for UK tax purposes. With the strategic review still underway, the
Company announced the suspension of the fourth interim dividend for
2023 to maintain the maximum flexibility to allow it to advance any
particular proposal.
Principal Risks and
Uncertainties
There are a number of risks which,
if realised, could have a material adverse effect on the Company
and its financial condition, performance and prospects. The Board
has carried out a robust assessment of the principal risks as set
out below, ordered by category of risk, together with a description
of the mitigating actions taken by the Board.
The Board confirms that it has a
process in place for regularly reviewing emerging risks that may
affect the Company in the future. The Board collectively discusses
with the Manager areas where there may be emerging risk themes and
maintains a register of these. Such risks may include, but are not
limited to, future pandemics,
the use of AI, cybercrime, and
longer term climate change. In the event that an emerging risk has
gained significant weight or importance, that risk is categorised
and added to the Company's risk register and is monitored
accordingly. The principal risks associated with an investment in
the Company's shares can be found in the Company's latest
Prospectus dated 8 September 2021, published on the Company's
website.
The Board continues to be very
mindful of ongoing geopolitical events which have caused
significant market volatility across Europe and the World. There
has been no discernible impact to date on our tenants across the
wider region. The indicators below show how the Board's views on the stated risks have evolved over the
last year.
Description
|
Mitigating Action
|
Risk
|
Strategic Risk: Strategic
Objectives
and Performance
- The Company's
strategic objectives and performance, both absolute and relative,
become unattractive to investors leading to a widening of the
discount, potential hostile shareholder actions and the Board fails
to adapt the strategy and/or respond to investor demand.
|
· The
Company's strategy and objectives are regularly reviewed by the
Board to ensure they remain appropriate and effective. The Company
announced in November 2023 a strategic review and this remains
ongoing at the date of this report.
· The
Board receives regular presentations on the economy and also the
property market to identify structural shifts and threats so that
the strategy can be adapted if necessary.
· There is regular contact with shareholders both through the
Investment Manager and the broker with additional direct meetings
undertaken by the Chairman and other Directors.
· Board reports are prepared by the Investment Manager
detailing performance, NAV return and share price analysis versus
peers.
· Cash
flow projections are prepared by the Investment Manager and
reviewed quarterly by the Board.
· Shareholder/market reaction to Company announcements is
monitored.
|
Increasing
|
Investment and Asset Management
Risk: Investment Strategy - Poorly judged
investment strategy, regional allocation, use of gearing, inability
to deploy capital and the mis-timing of disposals and acquisitions,
resulting in poor investment returns.
|
· abrdn has real estate research and strategy teams which
provide performance forecasts for different sectors
· and
regions.
· There is a team of experienced portfolio managers who have
detailed knowledge of the markets in which they operate.
· abrdn has a detailed investment process for both acquisitions
and disposals that require to be signed off internally before the
Board reviews any final decision.
· The
Board is very experienced with Directors having a knowledge of
property markets.
|
Stable
|
Investment and Asset Management
Risk: Developing and refurbishing property - Increased construction costs, construction defects, delays,
contractor failure, lack of development permits, environmental and
third party damage can all impact the resulting capital value and
income from investments.
|
· abrdn has experienced investment managers with extensive
development knowledge with in-depth research undertaken on each
acquisition/development.
· Development contracts are negotiated by experienced teams
supported by approved lawyers.
· Due
diligence is undertaken on developers including credit checks and
current pipelines.
· Construction and risk insurance checked.
· Post
completion the developer is responsible for defects and monies are
held in escrow for a period of time after handover.
|
Stable
|
Investment and Asset Management
Risk: Health and Safety - Failure to
identify and mitigate major health and safety issues or to react
effectively to an event leading to injury, loss of life, litigation
and any ensuing financial and reputational impact.
|
· For
new properties health and safety is included as a key part of due
diligence.
· Asset managers visit buildings on a regular basis.
· Property managers are appointed by abrdn to monitor health
and safety in each building and reports are made to the asset
managers on a monthly basis.
· Asset managers visit each building at least twice a
year.
· Tenants are responsible for day to day operations of the
properties.
|
Stable
|
Investment and Asset Management
Risk: Environment - Properties could be
negatively impacted by hazardous materials (for example asbestos or
other ground contamination) or an extreme environmental event (e.g.
flooding) or the tenants' own operating activities could create
environmental damage. Failure to achieve environmental targets
could adversely affect the Company's reputation and result in
penalties and increased costs and reduced investor demand.
Legislative changes relating to sustainability could affect the
viability of asset management initiatives.
|
· The
Investment Manager undertakes in depth research on each property
acquisition with environmental surveys and considers its impact on
the environment and
· local communities.
· The
Investment Manager has adopted a thorough environmental policy
which is applied to all properties in the portfolio.
· Experienced advisers on environmental, social and governance
matters are consulted both internally (within the Investment
Manager) and externally where required.
· The
Investment Manager in conjunction with specialist advisers has
worked on a roadmap for the Company to reach a net zero emissions
target date of 2050.
|
Stable
|
Financial Risks:
Macroeconomic - Macroeconomic changes
(e.g. levels of GDP, employment, inflation, interest rate and FX
movements), political changes (e.g. new legislation) or structural
changes (e.g. new technology or demographics) negatively impact
commercial property values and the underlying businesses of tenants
(market risk and credit risk). Falls in the value of investments
could result in breaches of loan covenants and solvency issues.
Interest rate increases from historical lows will impact strategy
if unchanged when re-financings are required. Pressure on overall
net revenue returns.
|
· abrdn research teams take into account macroeconomic
conditions when collating forecasts. This research is fed into
Investment Manager decisions on purchases/sales and regional
allocations.
· The
portfolio is EU based and diversified across a number of different
countries and also has a diverse tenant base seeking to minimise
risk concentration.
· There is a wide range of lease expiry dates within the
portfolio in order to minimise re-letting risk.
· The
Company has no exposure to speculative development and forward
funding is only undertaken where the development is predominantly
pre-let.
· Rigorous portfolio reviews are undertaken by the Investment
Manager and presented to the Board on a regular basis.
· Annual asset management plans are developed for each property
and individual investment decisions are subject to robust risk
versus return evaluation and approval.
· Most
leases are indexed to provide increases in line with movements in
inflation and leverage is fixed to reduce the impact of interest
rate rises.
|
Stable
|
Financial Risks: Gearing
- Gearing risk - an inappropriate level of
gearing, magnifying investment losses in a declining market, could
result in breaches of loan covenants and threaten the Company's
liquidity and solvency. An inability to secure adequate borrowing
with appropriate tenor and competitive rates could also negatively
impact the Company. Earliest Company re-financing required in 2025
but current conditions expected to impact banks' willingness to
lend or seek tighter covenants.
|
· Regular covenant reporting to banks is undertaken as
required.
· The
gearing target is set at an indicative 35% asset level limit and an
absolute Company limit of 50%.
· The
Company's diversified European logistics portfolio, underpinned by
its tenant base, should provide sufficient value and income in a
challenging market to meet the Company's future
liabilities.
· The
portfolio attracted competitive terms and interest rates from
lenders for the Company's fixed term loan facilities.
· The
Investment Manager has relationships with multiple funders and wide
access to different sources of funding on both a fixed and variable
basis.
· Financial modelling is undertaken and stress tested annually
as part of the Company's viability assessment and whenever new debt
facilities are being considered.
· Loan
covenants are continually monitored and reported to the Board on a
quarterly basis and would also be reviewed as part of the disposal
process of any secured property.
|
Increasing
|
Financial Risks: Liquidity Risk
and FX Risk - The inability to dispose of
property assets in order to meet financial commitments of the
Company or obtain funds when required for asset acquisition or
payment of expenses or dividends. Movements in foreign exchange and
interest rates or other external events could affect the ability of
the Company to pay its dividends. Yield expansion witnessed as
valuations impacted by global economic concerns.
|
· The
diversified portfolio is geared towards an attractive
sector.
· A
cash buffer is maintained and an overdraft facility is currently in
place.
· Investment is focused on mid-sized properties which is
considered the more liquid part of the sector.
· The
assets of the Company are denominated in a non- sterling currency,
predominantly the Euro. No currency hedging is planned for the
capital, but the Board periodically reviews the hedging of dividend
payments having regard to availability and cost.
|
Increasing
|
Financial Risks: Credit
Risk - Credit Risk - the risk that the
tenant/counterparty will be unable or unwilling to meet a
commitment entered into by the Group: failure of a tenant to pay
rent or failure of a deposit taker, future lender or a current
exchange rate swap counterparty.
|
· The
property portfolio has a balanced mix of investment grade tenants
and reflects diversity across business sectors.
· Rigorous due diligence is performed on all prospective
tenants and their financial performance continues to be monitored
during their lease.
· Rent
collection from tenants is closely monitored so that early warning
signs might be detected.
· Deposits are spread across various abrdn approved banks and
AAA rated liquidity funds.
|
Increasing
|
Financial Risks: Insufficient
Income Generation - Insufficient income
generation due to macro-economic factors, and/or due to inadequate
asset management resulting in long voids or rent arrears or
insufficient return on cash; dividend cover falls to a level
whereby the dividend needs to be cut and/or the Company becomes
unattractive to investors. Level of ongoing charges becomes
excessive.
|
· The
Investment Manager seeks a good mix of tenants in properties. A
review of tenant risk and profile is undertaken using, for example,
the Dun & Bradstreet Failure Scoring method and tenant
covenants are thoroughly considered before a lease is
granted.
· The
abrdn team consists of asset managers on the ground who undertake
asset management reviews and implementation and there is a detailed
approval process within abrdn for lettings. The Investment Manager
through its teams on the ground seeks to manage voids and any
non-payment of rent.
· At
regular Board meetings forecast dividend cover is considered. There
is regular contact with the broker and shareholders to ascertain,
where possible, views on dividend cover.
|
Increasing
|
Regulatory Risks:
Compliance - The regulatory, legal and tax
environment in which the Company's assets are located is subject to
change and could lead to a sub-optimal corporate structure and
result in increased tax charges or penalties. Failure to comply
with existing or new regulation.
|
· The
Company has an experienced Company Secretary and engages lawyers
who will advise on changes once any new proposals are published.
There is regular contact with tax advisers in relation to tax
computations and transfer pricing.
· Directors have access to updates on relevant regulatory
changes through the Company's professional advisers.
· The
highest corporate governance standards are required from all key
service providers and their performance is reviewed annually by the
Management Engagement Committee.
|
Stable
|
Operational Risks: Service
Providers - Poor performance/inadequate
procedures at service providers leads to error, fraud, non-
compliance with contractual agreements and/or with relevant
legislation or the production of inaccurate or insufficient
information for the Company (NAV, Board Reports, Regulatory
Reporting) or loss of regulatory authorisation. Key service
providers include the AIFM, Company Secretary, the Depositary, the
Custodian, the managing agents, lending banks and the Company's
Registrar.
|
· abrdn has an experienced Investment Manager and Asset
Management Team.
· The
Company has engaged an experienced registrar: Equiniti is a
reputable worldwide organisation.
· All
service providers have a strong control culture that is regularly
monitored.
· abrdn aims to meet all service providers once a year and the
Management Engagement Committee reviews all major service providers
annually.
· The
Company has the ability to terminate contracts.
|
Stable
|
Operational Risks: Business
continuity - Business continuity risk to
any of the Company's service providers or properties, following a
catastrophic event e.g. pandemic, terrorist attack, cyber attack,
power disruptions or civil unrest, leading to disruption of
service, loss of data etc.
|
· abrdn has a detailed business continuity plan in place with a
separate alternative working office if required and the ability for
the majority of its workforce to work from home.
· abrdn has a dedicated Chief Information Security Officer who
leads the Chief Information Security Office covering the following
functions: Security Operations & Delivery, Security Strategy,
Architecture & Engineering, Data Governance & Privacy,
Business Resilience, Governance & Risk, Security &
IT.
· Properties within the portfolio are all insured.
· The
IT environment of service providers is reviewed as part of the
initial appointment and on an ongoing basis.
|
Stable
|
Promoting the Company
The Board recognises the
importance of promoting the Company to prospective investors both
for improving liquidity and enhancing the value and rating of the
Company's shares. The Board believes an effective way to achieve
this is through subscription to, and participation in, the
promotional programme run by abrdn on behalf of a number of
investment trusts under its management.
The Company's financial
contribution to the programme is matched by abrdn. abrdn's
marketing team reports quarterly to the Board giving analysis of
the promotional activities as well as updates on the shareholder
register and any changes in the make up of that
register.
The purpose of the programme is
both to communicate effectively with existing shareholders and to
gain new shareholders with the aim of improving liquidity and
enhancing the value and rating of the Company's shares.
Communicating the long-term attractions of the Company is key and
therefore the Company also supports abrdn's investor relations
programme which involves regional roadshows, promotional and public
relations campaigns.
Board Diversity
The Board recognises the
importance of having a range of skilled, experienced individuals
with the right knowledge represented on the Board in order to allow
the Board to fulfil its obligations. The Board also recognises the
benefits and is supportive of the principle of diversity in its
recruitment of new Board members. The Board will not display any
bias for age, gender, race, sexual orientation, religion, ethnic or
national origins, or disability in considering the appointment of
its Directors. The Board will continue to ensure that any future
appointments are made on the basis of merit against the
specification prepared for each appointment and, therefore, the
Company does not consider it appropriate to set diversity targets.
At 31 December 2023, there were two male Directors and two female
Directors on the Board.
The Board commenced detailed
discussions on succession planning in October 2023 before the
announcement of the strategic review. The Board expects to consider
succession planning fully once again when the result of the
strategic review is known.
Sustainable and Responsible
Investment Policy and Approach
Further details on abrdn's
Sustainable and Responsible Investment Policy and Approach for
Direct Real Estate are available at abrdn.com.
Environmental, Social and Human
Rights Issues
The Company has no employees as
the Board has delegated day to day management and administrative
functions to abrdn Fund Managers Limited. There are therefore no
disclosures to be made in respect of employees. The Company's
socially responsible investment policy is outlined in the
Investment Manager's Review.
Due to the nature of the Company's
business, being a Company that does not offer goods and services to
customers, the Board considers that it is not within the scope of
the Modern Slavery Act 2015 ("MSA").
The Company is not required to
make a slavery and human trafficking statement. The Board considers
the Company's supply chains, dealing predominantly with
professional advisers and service providers in the financial
services industry, to be low risk in relation to this
matter.
A copy of the Manager's statement
in compliance with the Modern Slavery Act is available for download
at abrdn.com
The bulk of emissions relating to
properties owned by the Company are the responsibility of the
tenants and any emissions relating to the Company's registered
office are the responsibility of abrdn plc. The Company has no
direct greenhouse gas emissions to report from the operations of
its business, although it is responsible for low emissions
generated at certain properties within its portfolio reportable
under the Companies Act 2006 (Strategic Report and Directors'
Reports) Regulations 2013, see page 75 of
the published Annual Report and financial statements for the year
ended 31 December 2023.
Viability Statement
The Company does not have a formal
fixed period strategic plan but the Board formally considers risks
and strategy at least annually. The Board considers the Company,
with no fixed life, to be a long-term investment vehicle, but for
the purposes of this viability statement has decided that a period
of three years is an appropriate period over which to report. The
Board considers that this period reflects a balance between looking
out over a long-term horizon and the inherent uncertainties of
looking out further than three years.
In assessing the viability of the
Company over the review period the Directors have conducted a
robust review of the principal risks focusing upon the following
factors:
· The
status of the ongoing Strategic Review;
· The
principal risks detailed in the Strategic Report;
· The
ongoing relevance of the Company's investment objective in the
current environment;
· The
demand for the Company's shares evidenced by the historical level
of premium or discount;
· The
level of income generated by the Company and the stability of
tenants;
· The level of gearing including the requirement to meet lending covenants,
negotiate new
facilities and
repay or
refinance future
facilities;
· The
continuation vote required to be put to shareholders at the AGM to
be held in 2024; and
· The
flexibility of the Company's bank facilities and putting these
facilities in place in time to meet commitments.
The Directors have reviewed
summaries from the portfolio models prepared by the Investment
Manager which have been stress tested to highlight the performance
of the portfolio in a number of varying economic conditions coupled
with potential opportunities for mitigation. The Directors have
also stress tested the financial position of the Company with
attention on the proceeds from the disposal of the asset in France
and refinancing of loans in 2025.
The Company has prepared cash flow
forecasts which reflect the potential impact of reductions in
rental income including reasonably possible downside
scenarios.
The impact of reductions in rental
income could be mitigated through a reduction in dividends to
shareholders if considered necessary by the Board.
The Company has modelled severe
but plausible downside scenarios, taking into account specific
tenant risks. These scenarios modelled reduced rental income
through to 2026 with the worst case scenario modelling to an
overall 40% reduction of rental income per annum over that
period.
The Board and Manager regularly
monitor the permitted and 'hard breach' loan-to-value covenants on
the Company's eight loan facilities. Further details on loan
covenants are provided in Note 1(a) to the financial statements on
page 110 of the published Annual Report
and financial statements for the year ended 31 December 2023. There
were no breaches of the loan-to-value covenants based upon the
valuations adopted at year end. The Directors believe that the
liquidity in the Group and £70m revolving credit facility could be
used for partial repayment of a loan in the event of any future
breaches.
Accordingly, taking into account
the Company's current position and the potential impact of its
principal risks and uncertainties, the Directors have a reasonable
expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due for a period of three
years from the date of this Report subject to the material
uncertainty and outcome of Strategic Review as outlined in note
1(a) and shareholders' approval of the continuation vote required
under the articles to be put to the AGM to be held in 2024, noting
that the Directors are unaware at this early stage of any
shareholder intentions to vote against such a resolution. In making
this assessment, the Board has considered that matters such as
significant economic uncertainty, stock market volatility and
changes in investor sentiment could have an impact on its
assessment of the Company's prospects and viability in the
future.
s172 Statement
The Board is required to describe
to the Company's shareholders how the Directors have discharged
their duties and responsibilities over the course of the financial
year under section 172 (1) of the Companies Act 2006 (the "s172
Statement"). This s172 Statement requires the Directors to explain
how they have promoted the success of the Company for the benefit
of its members as a whole, taking into account the likely long-term
consequences
of decisions, the need to foster
relationships with all stakeholders and the impact of the Company's
operations on the environment.
The Board's philosophy is that the
Company should operate in a transparent culture where all parties
are treated with respect and provided with the opportunity to offer
practical challenge and participate in positive debate which is
focused on the aim of achieving the expectations of shareholders
and other stakeholders alike. The Board reviews the culture and
manner in which the Investment Manager operates at its regular
meetings and receives regular reporting and feedback from the other
key service providers.
Investment trusts are long-term
investment vehicles, with no employees. The Company's Board of
Directors sets the investment mandate as published in the most
recent prospectus, monitors the performance of all service
providers and is responsible for reviewing strategy on a regular
basis.
Key Stakeholders
A key stakeholder and service
provider for the Company is the Alternative Investment Fund Manager (the "Manager") and this relationship is reviewed at each
Board meeting and relationships with other service providers are
reviewed at least annually.
Shareholders are seen as key stakeholders in the Company. The Board seeks
to meet at least annually with shareholders at the Annual General
Meeting. This is seen as a very useful opportunity to understand
the needs and views of the shareholders. In between AGMs the
Directors and Investment Manager also conduct programmes of
investor meetings with larger institutional, private wealth and
other shareholders to ensure that the Company is meeting their
needs. Such regular meetings may take the form of joint meetings or
solely with a Director where any matters of concern may be raised
directly.
Our European partner lending banks are
also key stakeholders. We leverage off the Investment Manager's key
relationships with a wide range of lending banks and the Investment
Manager has regular contact with these banks updating them on the
portfolio and valuations and also on plans for new acquisitions or
disposals.
The other key stakeholder group is
that of the underlying tenants
that occupy space in the properties that the
Company owns. The Board aims to conduct a site visit at least
annually with the aim of meeting tenants locally and discussing
their businesses and needs and assessing where improvements may be
made or expectations managed. The Investment Manager's asset
managers are tasked with conducting meetings with building managers
and tenant representatives in order to ensure the smooth running of
the day to day management of the properties. The Board receives
reports on the tenants' activities at its regular Board
meetings.
The Board via the Management
Engagement Committee also ensures that the views of its service
providers are heard and at least annually reviews these
relationships in detail. The aim is to ensure that contractual
arrangements remain in line with best practice, services being
offered meet the requirements and needs of the Company and
performance is in line with the expectations of the Board, Manager,
Investment Manager and other relevant stakeholders. Reviews will
include those of the Company depositary, custodian, share
registrar, broker, legal adviser, lenders and auditor.
The Investment Manager's Report
details the key investment decisions taken during the year and
subsequently. The Investment Manager has continued to invest the
Company's assets in accordance with the mandate provided by
shareholders at launch, under the oversight of the Board. The
Company aims to maintain gearing at asset level at or around 35%
over the longer term. abrdn's dedicated treasury team has
negotiated the debt facilities at competitive market rates,
resulting in the Company's blended all-in interest rate across all
its debt being 2.00% which is to the benefit of all shareholders.
The Company has an uncommitted four year €70 million master
facilities loan agreement with Investec Bank plc to provide
additional flexibility which expires in October 2024. This facility
increases the Company's ability to acquire new assets prior to any
fresh equity raise and will reduce the impact of cash drag on
investment returns.
Details of how the Board and
Investment Manager have sought to address environmental, social and
governance matters across the portfolio are disclosed from page 57
onwards of the published Annual Report and
financial statements for the year ended 31 December
2023.
The Company is just over six years
old having been launched at the end of 2017. However, it is a
long-term investor and the Board has established the necessary
procedures and processes to promote the long-term success of the
Company. The Board will continue to monitor, evaluate and seek to
improve these processes as the Company grows, to ensure that the
investment proposition is delivered to shareholders and other
stakeholders in line with their expectations.
Future
With exception of the Strategic
Review, many of the non-performance related matters likely to
affect the Company in the future are common across all closed ended
investment companies, such as the attractiveness of investment
companies as investment vehicles, geopolitical tensions and the
impact of regulatory changes. These factors need to be viewed
alongside the outlook for the Company, both generally and
specifically, in relation to the portfolio. The Board's view on the
general outlook for the Company can be found in my Chairman's
Statement whilst the Investment Manager's views on the outlook for
the portfolio are included on page 37 of
the published Annual Report and financial statements for the year
ended 31 December 2023.
Tony Roper
Chairman
25 April 2024
Results
Financial Highlights
|
31
December 2023
|
31
December 2022
|
Total assets (€'000)
|
693,892
|
817,783
|
Total equity shareholders' funds
(net assets) (€'000)
|
384,928
|
489,977
|
Net asset value per share
(cents)1
|
93.4
|
118.9
|
Net asset value per share
(pence)1
|
81.2
|
105.4
|
Share price - (mid market)
(pence)
|
61.6
|
68.5
|
Market capitalisation (£'000)
|
253,899
|
282,339
|
Discount to net asset value per
share (%)1
|
(24.1)
|
(35.0)
|
|
|
|
Dividends and earnings
|
|
|
Net asset value total return per
share (EUR) (%)1
|
(17.1)
|
(3.8)
|
Dividends declared per
share
|
4.23c
(3.68p)
|
5.64c
(4.80p)
|
Revenue reserves (€'000)
|
22,766
|
20,083
|
Loss (€'000)
|
(81,801)
|
(18,442)
|
|
|
|
Operating costs
|
|
|
Ongoing charges ratio (excluding
property costs) (%)1
|
1.6
|
1.3
|
Ongoing charges ratio (including
property costs) (%)1
|
2.4
|
1.7
|
Performance (total return)
|
|
|
Year ended 31 December 2023
|
Year ended 31 December 2022
|
Since
Launch
|
%
|
%
|
%
|
Share price (GBP)1
(3.5)
|
(38.3)
|
(18.1)
|
Net asset value (EUR)1
(17.1)
|
(3.8)
|
7.2
|
Dividends declared in respect of the
Financial Year to 31 December 2023
|
Dividend distribution
GBP pence
|
Dividend distribution
Euro cents equivalent2
|
Qualifying interest
GBP pence
|
Qualifying interest
Euro cents equivalent2
|
ex-dividend
date
|
Record
date
|
Pay date
|
First interim
|
0.94
|
1.08
|
0.29
|
0.33
|
01/06/2023
|
02/06/2023
|
23/06/2023
|
Second interim
|
1.11
|
1.28
|
0.11
|
0.13
|
31/08/2023
|
01/09/2023
|
22/09/2023
|
Third interim
|
0.86
|
0.98
|
0.37
|
0.43
|
30/11/2023
|
01/12/2013
|
29/12/2023
|
Fourth interim3
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Total
|
2.91
|
3.34
|
0.77
|
0.89
|
|
|
|
1 Considered to be an Alternative Performance Measure (see
Glossary on pages 161 to 165 of the published Annual Report and
financial statements for the year ended 31 December 2023 for more
information).
2 The
interim distributions are paid in GBP to shareholders on the
register. However, shareholders are able to make an election to
receive distributions in euros.
3 On 19
February 2024, the Board announced that the Company would forego
the fourth interim distribution for the quarter ended 31 December
2023, which historically has been declared in February and paid in
March each year. This was to give maximum flexibility during the
strategic review process.
Strategic Report
Investment Manager's
Review
Having joined the investment
management team responsible for managing the Company's portfolio in
October 2022, it is my pleasure on behalf of the entire fund
management team to present my second Investment Manager's Review,
covering the financial year ending in December 2023.
2023 Market Overview
Short-term fundamentals
The European logistics
sector experienced a tougher year in terms of occupier fundamentals and leasing activity, while
capital markets
also remained
quiet. Although
inflation cooled to 2.6% in the Eurozone in February 2024, the higher interest
rate environment
and fiscal
drag in
the economy have
weighed on
economic growth
and investor
sentiment.
Borrowing costs remain high for
investors and tenants are taking a more cautious approach to
leasing. This has meant the market has been slower than anticipated
in rebuilding momentum.
Logistics leasing demand, which has been strong in recent years, cooled in 2023, with total take up of 29 million square
metres representing a 24% year on year decrease. Although this
indicates a
deceleration in
the market
in-line with slower economic growth, take up was still 9% above the long-term
average. 2023
quarter-on-quarter take up did gather some momentum, however,
with over
8 million square
metres of
take up
recorded in
Q4, which
was just a 7% reduction
on the same quarter in 2022. With 2022 delivering the second
highest take up volume on record, the Q4 2023 outcome can be
considered a positive sign for the leasing market. With H2 coming
in 17% above the first half of 2023, the occupier market is
carrying improving momentum into 2024.
Regionally, there was a clear
trend with more mature and larger logistics markets seeing the
sharpest slowdowns in 2023, while smaller, less mature markets such
as Belgium, Ireland and Italy saw the most resilient leasing
activity. However, this hides the fact that the largest
markets typically had very strong years in 2021 and 2022, so some
of the slowdown can be considered a natural transition back to more
typical levels of long-term demand. The UK, Germany, Netherlands
and Spain all saw take up drop year-on-year by more than
20%.
The type of demand is also
shifting. In most markets, newer entrants such as Amazon have
established their bulk inbound distribution hubs and regional
fulfilment centres and are now switching to focus on efficiencies
in their Local or "last mile" delivery stations in city fringe
locations. This has also contributed to a lower level of
overall take up, as demand has switched to
smaller 10,000 to 40,000 square metre mid-box units, from the
larger units in high demand in previous years. The largest deal
ever recorded in Poland was signed in 2023, with a Chinese
e-commerce operator taking 265,000 square metres of
space.
A lack of modern, fit for purpose stock also remains a limiting
factor for
take up
in good
locations. With
rents continuing to rise, leasing tensions in Europe's logistics hotspots are
still evident.
While vacancy
rates increased
over the course of 2023, rising by 205 basis points to an average of 5.4%, there is clear evidence that a slowdown in construction
activity is
having a
stabilising influence,
evidenced by an 11 basis points decline in Q4 2023, significantly
below the
average for
the year.
The highest vacancy rates are in
Poland, Spain and the UK, where rates are all in excess of 6%,
while the tightest supply situations are found in Ireland, Denmark,
Czech Republic and Netherlands. However, at the
city level and in the most desirable fringe city locations, supply
of good quality and modern logistics properties remains very low
and competition between tenants is pushing up
rents.
We can see this relationship
when comparing
rental growth with vacancy rates. As vacancy declined through the pandemic,
rents gradually
increased at
a faster
pace with a
strong correlation between
the two.
However, during 2023, prime rental growth has continued to exceed inflation
and at
the same
time vacancy
rates have
increased. This is because competition for modern best- in-class
logistics facilities remains
strong, while
secondary buildings in weaker locations typically
represent the
bulk of the
increasing supply
in the
market. It
is important
to differentiate between
the vacancy of increasingly obsolete older warehousing stock and
modern logistics facilities in high demand.
According to data from Savills,
prime rents increased by 11% in 2023 on average, sustaining the
same rate seen in 2022. However, there was a slowdown in Q4 2023
when rents increased by 1.5% during the quarter.
Looking ahead, the undersupply of
modern logistics space in good locations across the supply chain
means that cashflows should be increasingly resilient and strong
income growth should persist. For European logistics, the milder
recession expectation is supportive given the link between economic
growth and logistics activity.
Long-term fundamentals
Supply chains continue to move
through a period of exceptional structural change, backed by four
key demand drivers.
· The
Covid pandemic accelerated many aspects of de- globalisation,
stress-tested existing distribution networks, and increased the
need for companies to diversify their supply chains.
· e-commerce remains an incremental demand driver for the
long-term, despite a slowdown in the growth rate; some pull back in
growth was naturally due after the e-commerce boom during the
pandemic where online sales penetration rates were artificially
boosted by lockdowns.
· On-shoring has been an incrementally more
important driver of demand over the last decade, but this has recently accelerated
as a result of supply chain disruption through the
Gulf of
Aden and
the Suez
Canal. Rising
tensions in the Middle East doubled international shipping costs
in late
2023, resulting
in supply
chains re-routing
goods. Volatility in variable costs, rising fixed costs and increased supply
chain risks
as well
as broader
de- globalisation pressures, are increasing supply
chain diversification and the need to be closer to end users.
· Lastly, ESG and "net zero" considerations
are beginning
to play a
clearer role
in logistics
performance, where tighter regulations
from the
European Union's
Energy Efficiency
Directive combined with valuation guidance from the RICS, will push tenants and investors to upgrade buildings to deliver
more efficient
performance. This
will further
widen the gap between future-fit assets
and those
facing obsolescence. When
markets are
undergoing a
transformation, such as in logistics, the choice of asset quality in the right location and the future relevance of the building are increasingly critical
factors.
A large proportion of European
stock is no longer appropriate for today's logistics requirements
and requires modernisation, especially as regulatory deadlines
around energy efficiency approach. Current total supply growth of
c.8% for 2023 is expected to slow to c.4% p.a. in 2024 and likely
level off in the longer term, according to Green Street. Two of the
key drivers of the expected limitations of new supply are increased
financing and development costs. 2023 saw development economics
deteriorate, with estimated profit margins halving to c.15%, driven
by higher construction input costs (up 25% in 2022).
The ESG factor cannot be
underestimated as a further constraining factor on future-fit
logistics supply. In preparation for the net zero transition, the
Research and Energy Committee of the European Parliament is
finalising its position on the Energy Performance of Buildings
Directive which seeks to make the EU building sector carbon neutral
by 2050. However, we are seeing more significant retrofitting and
energy improvement costs factored into cash flows and this is being
accounted for in purchase prices or valuations. Polarisation
between prime and secondary assets will amplify as limited new
supply in most sectors becomes evident, while secondary and
tertiary properties begin to be penalised.
Values and capital
flows
Industrial rents have experienced
strong growth over the last two years, an aspect of Europe that has
lagged the UK and US markets. While yields have come under pressure
from higher debt costs, some of this has been partially offset by rental growth or rent indexation built into many European lease contracts. 2023 gradually saw a stabilisation in
logistics yields
in Continental
Europe, with
the sector experiencing more
resilience than
other sectors
such as offices
and the
lagging residential sector.
Investment values have declined as interest rates increased. Prime logistics yields had tightened to 3% or below in the most sought-after
locations. This
was no
longer supportable as debt costs spiked and relative pricing against bonds weakened. However,
given the
fundamentals and
strength of
investor sentiment towards
long-term structural demand
drivers, when
interest rates
stabilise and
commercial real
estate begins
to attract
increased investment again,
we believe that the logistics sector is well
placed to recover lost performance over the short to medium
term.
Capital flows into European
logistics real estate have increased to now regularly reach roughly
20% of total investment, up from 10% in 2013. The volume of
transactions closed in 2023 was unsurprisingly down from the record
set in 2021, and 50% below the level reached in 2022. The largest
markets continue to be Germany, France, The Netherlands and Spain.
Where markets have seen the sharpest repricing (the UK,
Netherlands, Germany and Nordics) we are starting to see investor
demand return and values stabilise. In the UK, yields have shown
some signs of tightening under increased investor competition,
although it is too early to tell if this is the start of a new
phase in the cycle.
Well diversified, liquid portfolio
with strong urban profile
Fully aligned with the Manager's research and strategy teams, the
Company continues
to pursue
its high
conviction strategy focusing on the most 'liquid' and in-demand part of the European logistics
market where
both capital
and rental growth
expectations are
highest. Urban
logistics and
mid-sized ('mid-box') warehouses are the areas of the market where supply / demand dynamics are the strongest and
the potential
tenant base
the largest.
A typical
mid-box warehouse sits between 10,000 - 50,000 square metres in size and for urban logistics, often called the 'final touch in the supply chain', building sizes are generally smaller
and located in
close proximity
to dense
population centres for speedier
deliveries.
With our focus on long-term,
sustainable income, the future-proofing or 'second life' of our
warehouses is an important consideration when acquiring any new
assets. Building specifications we consider important, amongst
others, are the eaves' height, floor-load capacity, number of
loading doors, manoeuvrability around the building, power supply
and increasingly important, a building's sustainability
credentials.
Buildings positioned alongside
main transport corridors, close to seaports, infrastructural nodes,
or in the case of urban logistics, close to large population
concentrations, are important criteria in analysing new acquisition
opportunities.
The Company's focus is solely on
Continental Europe, which provides a deep pool of potential
acquisition targets and strong diversification options, limiting
single market risk. A standard lease agreement on the Continent
often includes full annual CPI indexation of rents, thereby
providing a strong hedge against inflation which has become
particularly relevant in today's inflationary environment. Despite
recent upward pressure, our investment strategy continues to
benefit from lower financing costs fixed with European banks.
Finally, e-commerce penetration is still at an earlier stage on the
Continent with strong growth forecast, creating an attractive
investment backdrop. Statista also forecasts strong growth in
online sales in the food sector as more tech conscious generations
become earners and consumers.
Growth is expected to be strongest
in the urban logistics sub sector, especially those assets located
in dominant cities that have warehousing supply constraints and
where demand is coming from different land uses, resulting in
higher land costs and ultimately underpinning higher rents.
Parcel delivery
specialists are
continuing to
improve their services by reducing delivery
times and
thereby transportation costs. Operating a logistics warehouse in close
proximity to
their ultimate
customer base
is the
best way to
reduce their
cost base
with rental
and building
costs materially less impactful than transportation
costs.
Approximately 50% of the Company's
portfolio by value comprises urban logistics warehouses in
locations such as Madrid, Frankfurt, Warsaw, Barcelona and Den
Hoorn located in the Netherlands between the cities of The Hague
and Rotterdam.
As at the Company's year-end, 16
out of the 26 warehouses held in the portfolio were newly developed
at the point of purchase and have been
constructed since 2018. The portfolio specifications are therefore
very modern and in line with tenant requirements. The portfolio is
well diversified and spread across five different countries.
As at 31 December 2023, the Netherlands represented the largest
geographic exposure in the portfolio by value (30.2%), followed by
Spain (29.8%), France (15.7%), Poland (14.3%) and Germany
(10.0%).
Asset Management
Initiatives
2023 was a hugely challenging year
with valuation declines witnessed across all geographies and
sub-sectors. Despite sector re-pricing and a weakening of investor
sentiment, the markets remained active for the right
stock.
In all for the Company, we
completed eight transactions covering 144,000 square metres of
space, involving €8.2 million in annualised rent. This comprised
six lease extensions, one sale, and agreeing terms committing to
another which was completed post year end.
During the first quarter the Company agreed a 9.5 year
lease renewal with Dachser France in La Creche, Niort. The new rent achieved a 3% uplift on the previous annual rent payable
and significantly
ahead of
ERV, reflecting
the tenant-critical nature
of the
asset. The
strategic significance of the location and the continued upward pressure on
real rents
also supported
the tenant
agreeing to uncapped annual ILAT indexation, with the next uplift effective
January 2025.
Also in Q1, the Company secured a
new 12 year lease re-gear with Biocoop at its Avignon property,
generating annual contracted rent of €2.5 million, again with full
annual French ILAT indexation with no cap. The 'HQE Excellent' climate-controlled
facility serves
as a strategically important location for Biocoop, which operates a unique multi-professional cooperative model,
supporting a
network of over
570 organic
stores promoting
local production
in order to
limit transportation and
support local
economies. The asset also generates
€165,000 per annum of additional income from rooftop solar
panels.
In May, the Company completed a
5-year lease extension at its single-tenant warehouse in Ede, the
Netherlands. The new extended lease with pharmaceutical
retailer AS Watson (trading as Kruidvat) moved the expiry out from
2028 to July 2033 and provides for future upward- only indexation
capped at 4% per annum.
There was steady leasing activity
in Poland, with two lease extensions agreed in Krakow. A lease
extension for 3 years was agreed with MaxFliz home interiors at
their 8,842 sq m facility, moves the expiry out to July 2027,
reflecting their ongoing commitment to the strong location
supporting their future operations. Also in Krakow, Chef's Culinar
agreed to a 3-year extension moving the expiry at their 1,339 sq m
unit out to November 2026.
In Lodz, Poland, a lease extension
was agreed, with EGT Logistics, moving the lease expiry at their
1,634 sq m facility out to March 2027.
In May, the Company announced the
sale of its 32,645 sqm warehouse, in Leon, northern Spain for €18.5
million. The price reflected a premium to the Q4 2022 valuation and
crystalised a 20% gross profit. The Company had acquired the asset,
let previously to Decathlon, in 2018 for €15.3 million.
Post year-end 2023 the Company
sold its vacant French asset at Meung sur Loire, which completed on
25 March 2024. The price represented a modest discount to the Q3
2023 valuation, with the proceeds being used to further strengthen
the Company's balance sheet.
This was a good result in exiting
an asset that would require substantial capex, especially with an
eye to our net zero emissions target.
In Madrid, the Company is now
carrying 7% of the portfolio void at Phase 1B Gavilanes (which was
vacated in August 2023) as well as accounting for the void
following the surrender of the units occupied by
Arrival.
Despite continued efforts to
secure both a surrender premium, which had previously been agreed
with Arrival, and the outstanding rental payments for 2023, we were
unable to reach a satisfactory conclusion. The Company previously
noted Arrival's announcement and SEC filing regarding bridge
financing and in the continued absence of a satisfactory
conclusion, legal proceedings to recoup monies owed continued. Off
the back of good occupier interest in the properties, the Company
has secured the surrender of the lease agreement with Arrival to
take full possession of the units. Whilst it is extremely
disappointing, the Company took the decision to take full control
of the assets in order to maximise revenue going forward.
Reflecting the ongoing demand for Grade-A, highly sustainable
logistics space in Spain, a new lease has been agreed for 5,131 sqm
of the space, at a rent 8.7% above the previous passing rent, with
Spanish transportation company METHOD Advanced
Logistics.
In October 2023 the Company
announced that it had been awarded a maximum five stars in the 2023
Global Real Estate Sustainability Benchmark ('GRESB') awards,
achieving first place in its peer group of diversified funds
investing across Europe (European industrial: distribution
warehouse). This was a welcome achievement and progressively
increased scoring over 2021 and 2022.
Property portfolio as at 31
December 2023
Country
|
Location
|
Built
|
WAULT incl
breaks (years)
|
WAULT excl
breaks (years)
|
2023
% of Portfolio
|
France
|
Avignon
|
2018
|
10.7
|
10.7
|
7.9
|
France
|
Meung sur Loire
|
2004
|
-
|
-
|
2.8
|
France
|
Bordeaux
|
2005
|
5.1
|
8.1
|
1.8
|
France
|
Dijon
|
2004
|
6.0
|
9.0
|
1.4
|
France
|
Niort
|
2014
|
8.0
|
11.0
|
1.8
|
Germany
|
Erlensee
|
2018
|
4.2
|
4.2
|
6.0
|
Germany
|
Florsheim
|
2015
|
4.3
|
4.3
|
4.0
|
Netherlands
|
Den Hoorn
|
2020
|
6.3
|
6.3
|
7.2
|
Netherlands
|
Ede
|
1999/
2005
|
9.7
|
9.7
|
4.1
|
Netherlands
|
Horst
|
2005
|
8.7
|
8.7
|
1.4
|
Netherlands
|
Oss
|
2019
|
10.5
|
10.5
|
2.4
|
Netherlands
|
's Heerenberg
|
2009/
2011
|
8.0
|
8.0
|
4.4
|
Netherlands
|
Waddinxveen
|
1983/
1994/ 2002/
|
9.9
|
9.9
|
6.2
|
|
|
2018
/2022
|
|
|
|
Netherlands
|
Zeewolde
|
2019
|
10.5
|
10.5
|
4.5
|
Poland
|
Krakow
|
2018
|
2.6
|
2.6
|
4.8
|
Poland
|
Lodz
|
2020
|
4.5
|
4.5
|
4.8
|
Poland
|
Warsaw
|
2019
|
4.2
|
4.2
|
4.7
|
Spain
|
Barcelona
|
2019
|
2.5
|
5.5
|
2.7
|
Spain
|
Madrid - Coslada
|
1999
|
3.0
|
7.0
|
1.6
|
Spain
|
Madrid - Gavilanes 1A
|
2019
|
6.1
|
6.1
|
4.4
|
Spain
|
Madrid - Gavilanes 1B
|
2019
|
-
|
-
|
2.1
|
Spain
|
Madrid - Gavilanes 2A
|
2020
|
2.6
|
12.6
|
2.0
|
Spain
|
Madrid - Gavilanes 2B
|
2020
|
1.5
|
1.5
|
1.5
|
Spain
|
Madrid - Gavilanes 2C
|
2020
|
1.5
|
3.5
|
1.5
|
Spain
|
Madrid - Gavilanes 3A/B/C
|
2019
|
-
|
-
|
5.0
|
Spain
|
Madrid - Gavilanes 4
|
2022
|
13.3
|
23.3
|
9.0
|
TOTAL
|
|
|
7.0
|
8.4
|
100.0
|
A strong tenant base with
inflation linked income
Our key objective remains the
generation of long-term sustainable income streams in order to pay
an attractive quarterly dividend.
2023 saw the Company collect 95%
of total expected rent, with the shortfall attributable to Arrival.
With more than 50 lease agreements, the portfolio has a diversified
tenant base across different sectors. In addition to the regular
interaction of our asset and property managers with our tenants,
their covenant strength is monitored on a regular basis using a
variety of data sources including Dun & Bradstreet.
In terms of exposure by segment,
third party logistics providers ("3PLs") represent the largest at
37% of total portfolio rent. The 3PL market continues to be
buoyant, particularly those businesses specialising in parcel
deliveries; our exposure comprises DHL, which occupies our assets
in Madrid and Warsaw and Dachser occupying three assets in Niort,
Dijon and Bordeaux, France.
The combination of both DHL and
Dachser France accounts for 9.4% of rental income in aggregate,
across 5 units and 3 countries. Manufacturers (20%) and companies
related to the food industry (19%) complete the top three. Food
related companies such as supermarkets like Biocoop or Carrefour
and traders in food such as Combilo and Limax all performed well
during the pandemic. The retail exposure (8.3% of total rent) is
accounted for by Netherlands based drugstore Kruidvat (part of the
A.S Watson group) operating its e-commerce platform. The direct
exposure to e-commerce (9.1% of total rent) is accounted for by the
holding of the state-of-the-art, last mile Amazon facility at
Gavilanes, Madrid. This is the largest asset in the portfolio by
value.
Standard lease agreements on the
Continent typically have annual CPI indexation of rent. This is not
the standard in the UK. Having this annual inflation protection has
proved beneficial with rising energy prices and supply chain issues
driving inflation well into double digits in the Eurozone towards
the end of 2022 and throughout 2023. 65% of the portfolio's current
income has full CPI or ILAT indexation, which undoubtedly helped to
grow 2023 income.
The Company's existing leases have
an average length of 7.0 years including break options and 8.4
years excluding breaks to lease expiry.
Top 10 tenants based on current
rents
Tenant
|
Property
|
Contracted
rent (€000 p.a.)
|
Contracted
rent (%)
|
WAULT incl.
breaks (years)
|
WAULT excl.
breaks (years)
|
1 A.G. van der
Helm
|
Den Hoorn
|
3,435
|
10.7%
|
6.3
|
6.3
|
2 Amazon
|
Madrid - Gavilanes 4
|
2,647
|
8.2%
|
13.3
|
23.3
|
3 Combilo
International B.V.
|
Waddinxveen
|
2,228
|
6.9%
|
9.9
|
9.9
|
4 Biocoop
|
Avignon
|
2,177
|
6.8%
|
10.7
|
10.7
|
5 JCL Logistics
Benelux B.V.
|
's Heerenberg
|
1,744
|
5.4%
|
8.0
|
8.0
|
7 Aalberts integrated
piping systems B.V.
|
Zeewolde
|
1,706
|
5.3%
|
10.5
|
10.5
|
6 A.S. Watson
|
Ede
|
1,664
|
5.2%
|
9.7
|
9.7
|
8 DHL
|
Madrid - Coslada; Warsaw
|
1,558
|
4.8%
|
3.7
|
4.4
|
9 DACHSER France
|
Bordeaux; Niort; Dijon
|
1,481
|
4.6%
|
6.5
|
9.5
|
10 Primera Línea Logística,
S.L.
|
Madrid - Gavilanes 1A
|
1,361
|
4.2%
|
6.1
|
6.1
|
Subtotal
|
|
20,001
|
62.1%
|
|
|
Other tenants
|
|
12,177
|
37.9%
|
|
|
Portfolio as at 31 December
2023
|
32,178
|
100.0%
|
7.0
|
8.4
|
Excludes income from Arrival in
Madrid 3 where lease was surrendered in February 2024.
Loan portfolio 31 December
2023
Country
|
Property
|
Lender
|
Loan (€million)
|
End date
|
Duration (years)
|
Fixed interest rate (incl margin)
|
Germany
|
Erlensee
|
DZ Hyp
|
17.8
|
January 2029
|
10
|
1.62%
|
Germany
|
Florsheim
|
DZ Hyp
|
12.4
|
January 2026
|
7
|
1.54%
|
France
|
Avignon + Meung sur Loire
|
BayernLB
|
33.0
|
February 2026
|
7
|
1.57%
|
Netherlands
|
Ede + Oss + Waddinxveen
|
Berlin Hyp
|
44.2
|
June 2025
|
6
|
1.35%
|
Netherlands
|
's Heerenberg
|
Berlin Hyp
|
11.0
|
June 2025
|
6
|
1.10%
|
Netherlands
|
Den Hoorn + Zeewolde
|
Berlin Hyp
|
43.2
|
January 2028
|
8
|
1.38%
|
Spain
|
Madrid Gavilanes 4 + Madrid
Coslada + Barcelona
|
ING Bank
|
53.9
|
September 2025
|
3
|
3.11%
|
Spain
|
Madrid Gavilanes 1 + 2 +
3
|
ING Bank
|
44.0
|
July 2025
|
3
|
2.72%
|
Total
|
|
|
259.5
|
|
|
2.00%
|
Well diversified debt
portfolio
During 2023 interest rates have remained high across the continent.
The Company's
debt from
its European
partner banks remains fixed in nature and secured on certain assets or groups of assets within the portfolio. These non-recourse loans, which
include no
parent company
guarantees, range
in maturities between 1.4 and 5.1 years with all-in interest rates
ranging between
1.10% and
3.11% per
annum. During the
year €10.8
million was
repaid following
the sale
of Leon in
April 2023.
At the end of 2023, the Company´s
fixed debt facilities totalled €259.5 million at an average all-in
rate of 2.0% and with a loan-to-value of 38.7%, slightly above the
long- term target of 35%. The Company´s secured fixed rate debt
supports its investment objective with the earliest re-financing of
debt required in mid-2025.
The Company arranged asset level fixed rate bank debt financings
in those
local markets
where all-in
loan costs were
the lowest,
such as
Germany, the
Netherlands, France and Spain with dedicated real estate banks that are active in this lending space. Stress testing on the existing financial
covenants such
as Interest
Cover Ratios
and Loan-To-Value
(LTV) is
conducted on
a regular
basis. In
order to
diversify risk,
the loan
facilities have
also been
cross-collateralised with groups of single-tenanted
buildings or
have diversified
risk thanks
to multi-tenanted
leasing structures.
The Company also benefits from its
revolving credit facility agreement with Investec Bank for the
amount of €70 million which provides further flexibility for the
acquisition of new properties and / or for the implementation of
asset management initiatives. At the end of 2023 the revolving
credit facility agreement with Investec Bank was undrawn. Within
the facility, Investec also makes available a £3.3 million
committed revolving credit facility which is carved out of the
total €70 million limit of the facility. This facility sits
at the parent company level and provides added
flexibility.
Outlook
We believe Continental European
logistics real estate is well placed to recover from a difficult
market position due to the robust market fundamentals. Backed by
the tailwinds of low vacancies and structural demand drivers,
rental growth is expected to outperform historic averages and beat
inflation in most European logistics hotspots. While
lingering economic, political, and financial markets uncertainties
may disrupt investment trends in the short- term, the favourable
underlying trends including ongoing e-commerce penetration,
onshoring and supply chain reconfiguration/modernisation should
remain important drivers for the sector.
We continue to prefer fringe city
locations where land supply is more constrained, and where tenant
and investor demand is active. Good quality assets in these
locations are hard to source for tenants due to low levels of new
builds over the last ten years and low construction activity going
forwards. The development pipeline is also constrained by rapidly
rising financing costs, together with high construction and labour
costs, planning difficulties and more stringent controls over
sustainability and efficiency ratings of new schemes.
The immediate focus for us is to
continue improving the earnings position, principally through
letting up the vacant space in Spain and capturing the portfolio's
attractive indexation characteristics.
abrdn's large and established
local network and reputation provides a competitive advantage when
sourcing deals and implementing initiatives. abrdn is one of
Europe's largest real estate investors, managing approximately £43
billion of real estate, with over £15 billion of logistics assets
across 12 countries. Its eight offices across Europe - London,
Edinburgh, Frankfurt, Amsterdam, Madrid, Paris, Brussels and
Copenhagen - employ over 300 abrdn real estate colleagues including
portfolio managers, local transaction and asset managers and
researchers.
We are starting to see signs of
interest returning to the sector with increased investment activity
in those markets that have already seen strong pricing correction,
such as in the UK and the Netherlands. Various successful capital
raises targeting the sector exclusively, or as part of multi-sector
strategies, have recently been announced providing evidence in the
longer-term conviction for the sector.
Troels Andersen
Fund Manager, abrdn
25 April 2024
Property portfolio as at 31
December 2023
Property
|
Tenure
|
Principal Tenant
|
2023
valuation (€m)
|
1
France, Avignon
|
Freehold
|
Biocoop
|
50.4
|
2
France, Meung sur Loire
|
Freehold
|
Vacant
|
17.5
|
3
France, Dijon
|
Freehold
|
Dachser
|
8.7
|
4
France, Niort
|
Freehold
|
Dachser
|
11.4
|
5
France, Bordeaux
|
Freehold
|
Dachser
|
11.5
|
6
Germany, Erlensee
|
Freehold
|
Bergler
|
38.1
|
7
Germany, Flörsheim
|
Freehold
|
Ernst Schmitz
|
25.1
|
8
Poland, Krakow
|
Freehold
|
Lynka
|
30.2
|
9
Poland, Lodz
|
Freehold
|
Compal
|
30.5
|
10
Poland, Warsaw
|
Freehold
|
DHL
|
29.7
|
11
Spain, Barcelona
|
Freehold
|
Mediapost
|
16.8
|
12
Spain, Madrid - Coslada
|
Freehold
|
DHL
|
10.0
|
13
Spain, Madrid - Gavilanes 1A
|
Freehold
|
Talentum
|
28.4
|
14
Spain, Madrid - Gavilanes 1B
|
Freehold
|
Vacant
|
13.3
|
15
Spain, Madrid - Gavilanes 2A
|
Freehold
|
Carrefour
|
12.5
|
16
Spain, Madrid - Gavilanes 2B
|
Freehold
|
MCR
|
9.8
|
17
Spain, Madrid - Gavilanes 2C
|
Freehold
|
Servicios Empresariales
Ader
|
9.6
|
18
Spain, Madrid - Gavilanes 3A/B/C
|
Freehold
|
Arrival2
|
31.5
|
19
Spain, Madrid - Gavilanes 4 (2 buildings)
|
Freehold
|
Amazon
|
57.1
|
20
Netherlands, Den Hoorn
|
Leasehold
|
Van der Helm
|
45.5
|
21
Netherlands, Ede
|
Freehold
|
AS Watson (Kruidvat)
|
25.9
|
22
Netherlands, Horst
|
Freehold
|
Limax
|
8.8
|
23
Netherlands, Oss
|
Freehold
|
Orangeworks
|
15.4
|
24
Netherlands, 's Heerenberg
|
Freehold
|
JCL Logistics
|
28.0
|
25
Netherlands, Waddinxveen
|
Freehold
|
Combilo International
|
39.5
|
26
Netherlands, Zeewolde
|
Freehold
|
VSH Fittings
|
28.6
|
Market Value as at 31 December
2023
|
633.8
|
Less operating lease incentives
|
(4.5)
|
Total market value less operating lease incentive debtor
|
629.3
|
Add IFRS 16 leasehold asset1
|
24.4
|
Total per Balance Sheet (Investment
properties &
Investment property held-for-sale)
|
653.7
|
Governance
Directors' Report
The Directors present their Report
and the audited financial statements for the year ended 31 December
2023.
Results and Dividends
Details of the Company's results
and dividends are shown on page 23 of the published Annual Report
and financial statements for the year ended 31 December 2023. The
dividend policy is disclosed in the Strategic Report on page
14 of the published Annual Report and
financial statements for the year ended 31 December
2023.
Investment Trust Status
The Company was incorporated on 25
October 2017 (registered in England & Wales No. 11032222) and
has been accepted by HM Revenue & Customs as an investment
trust subject to the Company continuing to meet the relevant
eligibility conditions of Section 1158 of the Corporation Tax Act
2010 and the ongoing requirements of Part 2 Chapter 3 Statutory
Instrument 2011/2999 for all financial periods commencing on or
after 15 December 2017. The Directors are of the opinion that the
Company has conducted its affairs for the year ended 31 December
2023 so as to enable it to comply with the ongoing requirements for
investment trust status.
Individual Savings
Accounts
The Company has conducted its
affairs so as to satisfy the requirements as a qualifying security
for Individual Savings Accounts. The Directors intend that the
Company will continue to conduct its affairs in this
manner.
Share Capital
The Company's capital structure is
summarised in note 16 to the financial statements. At 31 December
2023, there were 412,174,356 fully paid Ordinary shares of 1p each
in issue. During the year no Ordinary shares were purchased in the
market for treasury or cancellation and no Ordinary shares were
issued or sold from Treasury.
Voting Rights, Share Restrictions
and Amendments to Articles of Association
Ordinary shareholders are entitled
to vote on all resolutions which are proposed at general meetings
of the Company. The Ordinary shares carry a right to receive
dividends. On a winding up, after meeting the liabilities of
the Company, the surplus assets will be paid to Ordinary
shareholders in proportion to their shareholdings.
There are no restrictions
concerning the transfer of securities in the Company; no special
rights with regard to control attached to
securities; no agreements between holders of securities regarding
their transfer known to the Company; and
no agreements which the Company is party to that might affect its
control following a takeover bid. In
accordance with
the Companies
Act, amendments
to the
Company's Articles of Association may only be made by shareholders
passing a
special resolution in general meeting.
Borrowings
A full breakdown of the Company's
loan facilities is provided in note 14 to the financial
statements.
Management Agreement
Under the terms of a Management
Agreement dated 17 November 2017 between the Company and the AIFM,
abrdn Fund Managers Limited (and amended by way of side letters
dated 25 May 2018, 22 February 2019 and 24 January 2023), the AIFM
was appointed to act as alternative investment fund manager of the
Company with responsibility for portfolio management and risk
management of the Company's investments. Under the terms of the
Management Agreement, the AIFM may delegate portfolio management
functions to the Investment Manager and is entitled to an annual
management fee together with reimbursement of all reasonable costs
and expenses incurred by it and the Investment Manager in the
performance of its duties.
Pursuant to the terms of the
Management Agreement, the AIFM is entitled to
receive a tiered annual management fee (the ''Annual Management
Fee'') calculated by reference to the Net Asset Value (as
calculated under IFRS) on the following basis:
· On
such part of the Net asset value that is less than or equal to
€1.25 billion, 0.75 per cent. per annum.
· On
such part of the Net asset value that is more than €1.25 billion,
0.60 per cent. per annum.
The annual management fee is
payable in Euros quarterly in arrears, save for any period which is
less than a full calendar quarter.
The Company or the AIFM may
terminate the Management Agreement by giving not less than 12
months' prior written notice.
The AIFM has also been appointed
by the Company under the terms of the Management Agreement to
provide day-to-day administration services to the Company and
provide the general company secretarial functions required by the
Companies Act. In this role, the AIFM will provide certain
administrative services to the Company which includes reporting the
Net Asset Value, bookkeeping and accounts preparation. Effective
from March 2020 accounting and administration services undertaken
on behalf of the Company have been delegated to Brown Brothers
Harriman.
The AIFM has also delegated the
provision of the general company secretarial services to abrdn
Holdings Limited.
Risk Management
Details of the financial risk
management policies and objectives relative to the use of financial
instruments by the Company are set out in note 22 to the financial
statements.
The Board
The current Directors,
Ms Gulliver,
Mr Heawood,
Mr Roper and
Ms Wilde
were the
only Directors
who served
during the year.
With the
exception of
Ms Wilde
who will
be retiring from
the Board
at the
conclusion of
the Annual
General Meeting, in accordance with the Articles of Association, each Director
will retire
from the
Board at
the Annual
General Meeting convened for 24 June 2024 and, being eligible, will
offer himself
or herself
for re-election
to the Board.
In accordance
with Principle
23 of
the AIC's
2019 Code of
Corporate Governance, each Director will retire annually and
submit themselves
for re-election
at the
AGM.
The Board considers that there is
a balance of skills and experience within the Board relevant to the
leadership and direction of the Company and that all the Directors
contribute effectively.
In common with most investment
trusts, the Company has no employees. Directors' & Officers'
liability insurance cover has been maintained throughout the year
at the expense of the Company.
Board Diversity
As indicated in the Strategic Report, the Board recognises the
importance of
having a
range of
skilled, experienced
individuals with the right knowledge represented
on the Board
in order
to allow
it to
fulfil its
obligations. The
Board also recognises the benefits and is supportive of, and will give due regard to, the principle of diversity in its recruitment of new
Board members.
The Board
will not
display any
bias for age,
gender, race,
sexual orientation, socio-economic
background, religion, ethnic or national origins or disability in considering the
appointment of Directors. The Board will continue to ensure that
all appointments are made on the basis of merit against the
specification prepared for each appointment. The Board takes
account of the targets set out in the FCA's Listing Rules, which
are set out below.
As an externally managed
investment company, the Board employs no executive staff, and
therefore does not have a chief executive officer
(CEO) or a chief financial officer (CFO) - both of which are deemed
senior board positions by the FCA. However, the Board considers the
Chair of the Audit Committee to be a senior board position and the
following disclosure is made on this basis. Other senior board
positions recognised by the FCA are chair of the board and senior
independent director (SID). In addition, the Board has
resolved that the Company's year end date be the most appropriate
date for disclosure purposes.
The following information has been
voluntarily disclosed by each Director and is correct as at 31
December 2023. The Company has initiated a search for a new non
executive Director although the process is currently on hold.
Following completion of, and subject to the conclusions of, the
Strategic Review which is currently ongoing, the Board expects
that, the Company will aim to be in compliance with the
recommendations of the Parker Review on diversity in the UK
boardroom by June 2025.
Board as at 31 December
2023
|
Number
of Board
Members
|
Percentage of the
Board
|
Number
of Senior Positions
on the Board3
|
Men
|
2
|
50%
|
1
|
Women1
|
2
|
50%
|
2
|
Prefer not to say
|
-
|
|
-
|
|
|
|
|
White British or other White (including minority-white groups)
|
4
|
100%
|
3
|
Minority Ethnic2
|
-
|
-
|
0
|
Prefer not to say
|
-
|
-
|
-
|
1 Meets
target that at least 40% of Directors are women as set out in LR
9.8.6R (9)(a)(i).
2 Does
not currently meet target that at least one Director is from a
minority ethnic background as set out in LR 9.8.6R
(9)(a)(iii).
3 Senior
positions defined as Chair, Audit Chair and Senior Independent
Director.
The Role of the Chairman and
Senior Independent Director
The Chairman is responsible for
providing effective leadership to the Board, by setting the tone of
the Company, demonstrating objective judgement and promoting a
culture of openness and debate. The Chairman facilitates the
effective contribution, and encourages active engagement, by each
Director. In conjunction with the Company Secretary, the
Chairman ensures that Directors receive accurate, timely and clear
information to assist them with effective decision- making. The
Chairman leads the evaluation of the Board and individual
Directors, and acts upon the results of the evaluation process by
recognising strengths and addressing any weaknesses. The Chairman
also engages with major shareholders offering annual review
meetings and ensures that all Directors understand shareholder
views.
The Senior Independent Director
acts as a sounding board for the Chairman and as an intermediary
for other directors, when necessary. The Senior Independent
Director takes responsibility for an orderly succession process for
the Chairman, and leads the annual appraisal of the Chairman's
performance and is also available to shareholders to discuss any
concerns they may have.
Corporate Governance
The Company is committed to high
standards of corporate governance. The Board is accountable to the
Company's shareholders for good governance and this statement
describes how the Company has applied the principles identified in
the UK Corporate Governance Code as published in July 2018 (the "UK
Code"), which is available on the Financial Reporting Council's
(the "FRC") website: frc.org.uk.
The Board has also considered the
principles and provisions of the AIC Code of Corporate Governance
as published in February 2019 (the "AIC Code"). The AIC Code
addresses the principles and provisions set out in the UK Code, as
well as setting out additional provisions on issues that are of
specific relevance to the Company. The AIC Code is available on the
AIC's website: theaic.co.uk.
The Board considers that reporting
against the principles and provisions of the AIC Code, which has
been endorsed by the FRC, provides more relevant information to
shareholders. The full text of the Company's Corporate Governance
Statement can be found on the Company's website:
eurologisticsincome.co.uk.
The Board confirms that, during
the year, the Company complied with the principles and provisions
of the AIC Code and the relevant provisions of the UK Code, except
as set out below.
The UK Code includes provisions
relating to:
· interaction with the workforce (provisions 2, 5 and
6);
· the
need for an internal audit function (provision 26);
· the
role and responsibility of the chief executive (provisions 9 and
14);
· previous experience of the chairman of a remuneration
committee (provision 32); and
· executive directors' remuneration (provisions 33 and 36 to
40).
The Board considers that these
provisions are not relevant to the position of the Company, being
an externally managed investment company. In particular, all of the
Company's day-to-day management and administrative functions are
outsourced to third parties. As a result, the Company has no
executive directors, employees or internal operations. The Company
has therefore not reported further in respect of these
provisions.
During the year ended 31 December
2023, the Board had four scheduled meetings and over 14 other ad
hoc Board meetings as well as numerous update calls. In addition,
the Audit Committee met three times and there was one meeting of
the Management Engagement Committee and one meeting of the
Nomination Committee. Between meetings the Board maintains regular
contact with the Investment Manager. The Directors have attended
the following scheduled Board meetings and Committee meetings
during the year ended 31 December 2023 (with their eligibility to
attend the relevant meeting in brackets):
Director
|
Board
|
Audit
Committee
|
MEC
|
Nomination
|
T Roper1
|
4
(4)
|
N/A
|
1
(1)
|
2
(2)
|
C Gulliver
|
4
(4)
|
3
(3)
|
1
(1)
|
2
(2)
|
D Wilde
|
4
(4)
|
3
(3)
|
1
(1)
|
2
(2)
|
J Heawood
|
4
(4)
|
3
(3)
|
1
(1)
|
2
(2)
|
1 Mr
Roper is not a member of the Audit Committee but attended all
meetings by invitation.
Policy on Tenure
The Board's policy on tenure is
that Directors need not serve on the Board for a limited period of
time only. The Board does not consider that the length of
service of a Director is as important as the contribution he or she
has to make, and therefore the length of service will be determined
on a case-by-case basis. However, in accordance with corporate
governance best practice and the future need to refresh the Board
over time, it is currently expected that Directors will not
typically serve on the Board beyond the Annual General Meeting
following the ninth anniversary of their appointment.
Board Committees
Audit Committee
The Audit Committee Report is on
pages 95 to 97 of the published Annual Report and financial
statements for the year ended 31 December 2023.
Nomination Committee
All appointments to the Board of
Directors are considered by the Nomination Committee which, due to
the relatively small size of the Board, comprises all of the
Directors and is chaired by the Chairman of the Company. The
Nomination Committee advises the Board on succession planning,
bearing in mind the balance of skills, knowledge and experience
existing on the Board, and will make recommendations to the Board
in this regard. The Nomination Committee also advises the Board on
its balance of relevant skills, experience and length of service of
the Directors serving on the Board. The Board's overriding priority
when appointing new Directors in the future will be to identify the
candidate with the best range of skills and experience to
complement existing Directors. The Board recognises the benefits of
diversity and its policy on diversity is disclosed in the Strategic
Report and also on page 83 of the published Annual Report and
financial statements for the year ended 31 December
2023.
The Committee has put in place the
necessary procedures to conduct, on an annual basis, an appraisal
of the Chairman of the Board, Directors' individual self evaluation
and a performance evaluation of the Board as a whole and its
Committees. In 2023 the Board conducted an evaluation based upon
completed questionnaires covering the Board, individual Directors,
the Chairman and the Audit Committee Chairman. The Chairman then
met each Director individually to review their responses whilst the
Senior Independent Director met with the Chairman to review his
performance.
In accordance with Principle 23 of
the AIC's Code of Corporate Governance which recommends that all
directors of investment companies should be subject to annual
re-election by shareholders, all the members of the Board with the
exception of Ms Wilde, will retire at the forthcoming Annual
General Meeting and will offer themselves for re-election. As part
of the Board's succession planning, Ms Wilde will be retiring from
the Board at the conclusion of the Annual General Meeting. In
conjunction with the evaluation feedback, the Committee has
reviewed each of the proposed reappointments and concluded that
each of the Directors has the requisite high level and range of
business and financial experience and recommends their re-election
at the forthcoming AGM. Details of the contributions provided by
each Director during the year are disclosed on pages 80 and
81 of the published Annual Report and
financial statements for the year ended 31 December
2023.
The Board has initiated the search
for a new independent non executive Director but the process is on
hold whilst the strategic review is concluded. Succession planning
will be considered again once the result of the review is
known.
Management Engagement
Committee
The Management Engagement
Committee comprises all of the Directors and is chaired by Mr
Heawood.
The Committee reviews the
performance of the Manager and Investment Manager and its
compliance with the terms of the management and secretarial
agreement. The terms and conditions of the Manager's appointment,
including an evaluation of fees, are reviewed by the Committee on
an annual basis. Based upon the competitive management fee and
expertise of the Manager, the Committee believes that the
continuing appointment of the Manager on the terms agreed is in the
interests of shareholders as a whole. The Committee also at least
annually reviews the Company's relationships with its other service
providers. These reviews aim to ensure that services being offered
meet the requirements and needs of the Company, provide value for
money and performance is in line with the expectations of
stakeholders.
Remuneration Committee
Under the FCA Listing Rules, where
an investment trust has only non-executive directors, the Code
principles relating to directors' remuneration do not apply.
Accordingly, matters relating to remuneration are dealt with by the
full Board, which acts as the Remuneration Committee.
The Company's remuneration policy
is to set remuneration at a level to attract individuals of a
calibre appropriate to the Company's future development. Further
information on remuneration is disclosed in the Directors'
Remuneration Report on pages 91 to 93 of
the published Annual Report and financial statements for the year
ended 31 December 2023.
Terms of Reference
The terms of reference of all the
Board Committees may be found on the Company's website
eurologisticsincome.co.uk
and copies are available from the Company
Secretary upon request. The terms of reference are reviewed and
re-assessed by the relevant Board Committee for their adequacy on
an annual basis.
Going Concern
In accordance with the Financial
Reporting Council's guidance the Directors have undertaken a
rigorous review of the Company's ability to continue as a going
concern. The Board has set limits for borrowing and regularly
reviews the level of any gearing, cash flow projections and
compliance with banking covenants.
The Directors are mindful of the
principal risks and uncertainties disclosed above and the Viability
Statement on page 20 of the published Annual Report and financial
statements for the year ended 31 December 2023 and have reviewed
forecasts detailing revenue and liabilities and they believe that
the Company has adequate financial resources to continue its
operational existence for the foreseeable future and at least 12
months from the date of this Annual Report.
In coming to this conclusion, the
Board has also considered the impact of geopolitical and economic
turbulence on the Company's and its investments. The Investment
Manager is in contact with tenants and
third party suppliers and continues to have a constructive dialogue
with all parties. A range of
scenarios have been modelled looking at possible impact to cash
flows in the short to medium term and this is kept under regular
review.
While the Company is obliged under
its articles to hold a continuation vote at the 2024 AGM, the
Directors do not believe this should automatically trigger the
adoption of a basis other than going concern in
line with the Association of Investment Companies ("AIC") Statement
of Recommended Practice ("SORP") which states that it is usually
more appropriate to prepare financial statements on a going concern
basis unless a continuation vote has already been triggered and
shareholders have voted against continuation.
On 27 November 2023, the Board
announced that it was undertaking a Strategic Review. The Board is
considering all options available to the Company. There is no
certainty that any changes will result from the Strategic Review
and, for the avoidance of doubt, a continuation of the Company's
current investment strategy with a rebased target dividend level is
a potential outcome of the Strategic Review. The matters referred
to above indicate existence of material uncertainty. Nevertheless,
the Directors believe that it is appropriate to continue to adopt
the going concern basis in preparing the financial
statements. Additional details about going concern are
disclosed in note 1(a).
Management of Conflicts of
Interest
The Board has a procedure in place
to deal with a situation where a Director has a conflict of
interest. As part of this process, the Directors prepare a list of
other positions held and all other conflict situations that may
need to be authorised either in relation to the Director concerned
or his/her connected persons. The Board considers each Director's
situation and decides on any course of action required to be taken
if there is a conflict, taking into consideration what is in the
best interests of the Company and whether the Director's ability to
act in accordance with his or her wider duties is affected. Each
Director is required to notify the Company Secretary of any
potential, or actual, conflict situations that will need
authorising by the Board. Authorisations given by the Board are
reviewed at each Board meeting.
No Director has a service contract
with the Company although Directors are issued with letters of
appointment upon appointment. No Director had any interest in
contracts with the Company during the year or
subsequently.
The Board has adopted appropriate
procedures designed to prevent bribery. The Company receives
periodic reports from its service providers on the anti-bribery
policies of these third parties. It also receives regular
compliance reports from the Manager.
The Criminal Finances Act 2017
introduced the corporate criminal offence of "failing to take
reasonable steps to prevent the facilitation of tax evasion". The
Board has confirmed that it is the Company's policy to conduct all
of its business in an honest and ethical manner. The Board takes a
zero-tolerance approach to the facilitation of tax evasion, whether
under UK law or under the law of any foreign country.
Accountability and
Audit
The respective responsibilities of
the Directors and the auditor in connection with the financial
statements are set out on pages 94 and 105 of the published Annual
Report and financial statements for the year ended 31 December 2023
respectively.
Each Director confirms
that:
· so
far as he or she is aware, there is no relevant audit information
of which the Company's auditor is unaware; and,
· each
Director has taken all the steps that they ought to have taken as a
Director in order to make themselves aware of any relevant audit
information and to establish that the Company's auditor is aware of
that information.
Additionally there have been no
important events since the year end that impact this Annual
Report.
The Directors have reviewed the
level of non-audit services provided by the independent auditor
during the year amounting to £nil (2022: £20,000 in respect of the
production of a Supplementary Prospectus) and remain satisfied that
the auditor's objectivity and independence is being
safeguarded.
Independent Auditor
The auditor, KPMG LLP, has
indicated its willingness to remain in office. The Directors will
place a resolution before the Annual General Meeting to re-appoint
KPMG LLP as auditor for the ensuing year, and to authorise the
Directors to determine its remuneration.
Internal Control
The Board is ultimately
responsible for the Company's system of internal control and for
reviewing its effectiveness and confirms that there is an ongoing
process for identifying, evaluating and managing the significant
risks faced by the Company. This process has been in place for the
year under review and up to the date of approval of this Annual
Report and financial statements. It is regularly reviewed by the
Board and accords with the FRC Guidance.
The Board has reviewed the
effectiveness of the system of internal control. In particular, it
has reviewed the process for identifying and evaluating the
significant risks affecting the Company and policies by which these
risks are managed.
The Directors have delegated the
investment management of the Company's assets to members of the
abrdn Group within overall guidelines, and this embraces implementation of
the system
of internal
control, including
financial, operational and compliance controls and risk management.
Internal control systems are monitored and
supported by the abrdn Group's internal audit function which
undertakes periodic examination of
business processes, including compliance with the terms of the
management agreement, and ensures that recommendations to improve
controls are implemented.
Risks are identified and
documented through a risk management framework by each function
within the abrdn Group's activities. Risk includes financial,
regulatory, market, operational and reputational risk. This helps
the abrdn group internal audit risk assessment model identify those
functions for review. Any weaknesses identified are reported to the
Board, and timetables are agreed for implementing improvements to
systems.
The implementation of any remedial
action required is monitored and feedback provided to the
Board.
The significant risks faced by the
Company have been identified as being strategic; investment and
asset management; financial; regulatory; and
operational.
The key components of the process
designed by the Directors to provide effective internal control are
outlined below:
· the
AIFM prepares forecasts and management accounts which allows the
Board to assess the Company's activities and review its
performance;
· the
Board and AIFM have agreed clearly defined investment criteria,
specified levels of authority and exposure limits. Reports on these
issues, including performance statistics and investment valuations,
are regularly submitted to the Board and there are meetings with
the AIFM and Investment Manager as appropriate;
· as a
matter of course the AIFM's compliance department continually
reviews abrdn's operations and reports to the Board on a six
monthly basis;
· written agreements are in place which specifically define the
roles and responsibilities of the AIFM and other third party
service providers and, where relevant, ISAE3402 Reports, a global
assurance standard for reporting on internal controls for service
organisations, or their equivalents are reviewed;
· the
Board has considered the need for an internal audit function but,
because of the compliance and internal control systems in place
within abrdn, has decided to place reliance on the Manager's
systems and internal audit procedures. At its April 2024 meeting,
the Audit Committee carried out an annual assessment of internal
controls for the year ended 31 December 2023 by considering
documentation from the AIFM and the Depositary, including the
internal audit and compliance functions and taking account of
events since 31 December 2023. The results of the assessment, that
internal controls are satisfactory, were then reported to the Board
at the subsequent Board meeting.
Internal control systems are
designed to meet the Company's particular needs and the risks to
which it is exposed. Accordingly, the internal control systems are
designed to manage rather than eliminate the risk of failure to
achieve business objectives and by their nature can only provide
reasonable and not absolute assurance against mis-statement and
loss.
Substantial Interests
The Board has been advised that
the following shareholders owned 3% or more of the issued Ordinary
share capital of the Company at 31 December 2023 (based upon
412,174,356 shares in issue):
Fund Manager
|
Shares
at 31-Dec-2023
|
% at
31-Dec-2023
|
East Riding of Yorkshire
|
33,000,000
|
8.0
|
RBC Brewin Dolphin Ireland
|
29,494,068
|
7.2
|
Quilter Cheviot Investment
Management
|
25,053,097
|
6.1
|
BlackRock
|
22,762,321
|
5.5
|
Investec Wealth & Investment
|
21,545,349
|
5.2
|
Hargreaves Lansdown, stockbrokers
(EO)
|
18,562,445
|
4.5
|
RBC Brewin Dolphin, stockbrokers
|
16,494,252
|
4.0
|
Canaccord Genuity Wealth
Management (Retail)
|
13,730,263
|
3.3
|
Interactive Investor
(EO)
|
12,453,748
|
3.0
|
On 2 April 2024, Asset Value
Investors Limited notified the Company that its total holding of
Ordinary shares was 24,732,890 representing 6.0% of the issued
class of capital. Save as disclosed, there have been no
significant
changes notified in respect of the
above holdings between 31 December 2023 and 25 April
2024.
Relations with
Shareholders
The Directors place a great deal
of importance on communication with shareholders. The Annual Report
will be widely distributed to other parties who have an interest in
the Company's performance. Shareholders and investors may obtain up
to date information on the Company through the freephone
information service shown under Investor Information and on the
Company's website eurologisticsincome.co.uk.
abrdn Holdings Limited (aHL) has
been appointed Company Secretary to the Company. Whilst aHL is a
wholly owned subsidiary of the abrdn Group, there is a clear
separation of roles between the Manager and Company Secretary with
different board compositions and different reporting lines in
place. The Board notes that, in accordance with Market Abuse
Regulations, procedures are in place to control the dissemination
of information within the abrdn plc group of companies when
necessary. Where correspondence addressed to the Board is received
there is full disclosure to the Board. This is kept confidential if
the subject matter of the correspondence requires
confidentiality.
The Board's policy is to
communicate directly with shareholders and their representative
bodies without the involvement of representatives of the Manager
(including the Company Secretary and Investment Manager) in
situations where direct communication is required and usually a
representative from the Board is available to meet with major
shareholders on an annual basis in order to gauge their
views.
The Notice of the Annual General
Meeting, included within the Annual Report and financial
statements, is sent out at least 20 working days in advance of the
meeting. In normal circumstances, all Shareholders have the
opportunity to put questions to the Board or the Investment
Manager, either formally at the Company's Annual General Meeting or
at the subsequent buffet luncheon for Shareholders. Shareholders
are, however, invited to send any questions for the Board and/or
the Investment Manager on the Annual Report by email to
European.Logistics@abrdn.com.
The Company Secretary is available to answer
general shareholder queries at any time throughout the
year.
Annual General Meeting
The Annual General Meeting will be
held on 24 June 2024 at the offices of FTI Consulting, 200
Aldersgate, Aldersgate Street London, EC1A 4HD at 9:00 a.m. In
addition to the usual resolutions the following matters will be
proposed at the AGM:
Special Business Directors'
Authority to Allot Relevant Securities
Approval is sought in Resolution
9, an ordinary resolution, to renew the Directors' existing general
power to allot shares but will also provide a further authority
(subject to certain limits) to grant rights to subscribe for or to
convert any security into shares under a fully pre-emptive rights
issue. The effect of Resolution 9 is to authorise the Directors to
allot up to a maximum of 272,035,075 shares in total (representing
approximately 66% (as at the latest practicable date before
publication of this Annual Report) of the existing issued share
capital of the Company), of which a maximum of 136,017,537 shares
(approximately 33% (as at the latest practicable date before
publication of this Annual Report) of the existing issued share
capital of the Company) may only be applied other than to fully
pre-emptive rights issues. This authority is renewable annually and
will expire at the conclusion of the next Annual General Meeting in
2025, or 30 June 2025, whichever is earlier. The Directors do not
have any immediate intention to utilise this authority.
Special Business Disapplication of
Pre-emption Rights
Resolution 10 is a special
resolution that seeks to renew the Directors' existing authority
until the conclusion of the next Annual General Meeting to make
limited allotments of shares for cash of up to a maximum of
41,217,435 shares representing 10% of the issued share capital (as
at the latest practicable date before publication of this Annual
Report) other than according to the statutory pre-emption rights
which require all shares issued for cash to be offered first to all
existing shareholders.
This authority includes the
ability to sell shares that have been held in treasury (if any),
having previously been bought back by the Company. The Board has
established guidelines for treasury shares and will only consider
buying in shares for treasury at a discount to their prevailing NAV
and selling them from treasury at or above the then prevailing
NAV.
New shares issued in accordance
with the authority sought in Resolution 10 will always be issued at
a premium to the NAV per Ordinary share at the time of issue. The
Board will issue new Ordinary shares or sell Ordinary shares from
treasury for cash when it is appropriate to do so, in accordance
with its current policy. It is therefore possible that the issued
share capital of the Company may change between the date of this
document and the Annual General Meeting and therefore the authority
sought will be in respect of 10% of the issued share capital as at
the date of the Annual General Meeting rather than the date of this
document. This authority is renewable annually and will expire at
the conclusion of the Annual General Meeting in 2025 or 30 June
2025, whichever is earlier.
Special Business Purchase of the
Company's Shares
Resolution 11 is a special
resolution proposing to renew the Directors' authority to make
market purchases of the Company's shares in accordance with the
provisions contained in the Companies Act 2006 and the Listing
Rules of the Financial Conduct Authority. The minimum price to be
paid per Ordinary share by the Company will not be less than £0.01
per share (being the nominal value) and the maximum price should
not be more than the higher of (i) an amount equal to 5% above the
average of the middle market quotations for an Ordinary share taken
from the London Stock Exchange Daily Official List for the five
business days immediately preceding the date on which the Ordinary
share is contracted to be purchased; and (ii) the higher of the
price of the last independent trade and the current highest
independent bid on the trading venue where the purchase is carried
out.
The Directors do not intend to use
this authority to purchase the Company's Ordinary shares unless to
do so would result in an increase in NAV per share and would be in
the interests of Shareholders generally. The authority sought will
be in respect of 14.99% of the issued share capital as at the date
of the Annual General Meeting rather than the date of this
document.
The Company's shares have traded at a premium to NAV per share for the majority of the life of the Company since its
launch, and
therefore the
Company has
not bought back
any shares
for treasury
or cancellation.
However, the Board is very aware of the current wide share price discount
to NAV
and regularly
monitors this.
The Directors
view buybacks as a very useful tool for seeking to assist in the management of the liquidity of the Company shares which
could be
used in
the future
as one
of a number of methods
to address
imbalances of
supply and
demand which,
arithmetically, can cause discounts to NAV per share.
Shares bought back would be purchased at a
discount to the prevailing NAV per share and the result would be
accretive to the NAV for all on-going
shareholders.
The authority being sought will
expire at the conclusion of the Annual General Meeting in 2025 or
30 June 2025, whichever is earlier unless it is renewed before that
date. Any Ordinary shares purchased in this way will either be
cancelled and the number of Ordinary shares will be reduced
accordingly or under the authority granted in Resolution 10 above,
may be held in treasury.
If Resolutions 9 to 11 are passed
then an announcement will be made on the date of the Annual General
Meeting which will detail the exact number of Ordinary shares to
which each of these authorities relates.
These powers will give the
Directors additional flexibility going forward and the Board
considers that it will be in the interests of the Company that such
powers be available. Such powers will only be implemented when, in
the view of the Directors, to do so will be to the benefit of
Shareholders as a whole.
Special Business Notice of
Meetings
Resolution 12 is a special
resolution seeking to authorise the Directors to call general
meetings of the Company (other than Annual General Meetings) on 14
days' clear notice. This approval will be effective until the
Company's Annual General Meeting in 2025 or 30 June 2025 whichever
is earlier. In order to utilise this shorter notice period, the
Company is required to ensure that Shareholders are able to vote
electronically at the general meeting called on such short notice.
The Directors confirm that, in the event that a general meeting is
called, they will give as much notice as practicable and will only
utilise the authority granted by Resolution 12 in limited and time
sensitive circumstances.
Special Business Continuation of
Company
In accordance with Article 163.2
the Directors are required to propose an ordinary resolution that
the Company continue its business as presently constituted (the
"Continuation Resolution") at the sixth annual general
meeting of the Company and every third annual general meeting
thereafter. Accordingly, Resolution 13 is an ordinary resolution
proposing that the Company continue its business as presently
constituted. With the Strategic Review still ongoing, the Board
recommends that shareholders vote in favour of the Company's
continuation to ensure that the review can be completed properly
and the best outcome for shareholders delivered. It is the Board's
current expectation that the result of the Strategic Review will be
announced ahead of the AGM, so shareholders should have the benefit
of a clear picture of the proposed way forward by the time that
they are asked to vote. Should the Board not be in a position to
communicate the outcome (or likely outcome) of the Strategic Review
ahead of the AGM, the Board would ensure that shareholders were
provided with the opportunity to vote on the future direction of
the Company as and when the Review was completed (unless the
proposed course of action arising from the Strategic Review in and
of itself required a shareholder vote).
If the Continuation Resolution is
not passed, the Articles require the Directors to cease further
investment, the properties in the Company's portfolio to be sold in
an orderly fashion as market demand appears and the net funds,
determined by the Directors as available for distribution, to be
distributed to Shareholders.
Dividend Policy
As a result of the timing of the
payment of the Company's quarterly dividends, the Company's
Shareholders are unable to approve a final dividend each year. In
line with good corporate governance, the Board therefore proposes
to put the Company's dividend policy to Shareholders for approval
at the Annual General Meeting and on an annual basis.
Resolution 13 is an ordinary
resolution to approve the Company's dividend policy. The Company's
dividend policy shall be that dividends on the Ordinary shares are
payable quarterly in relation to periods ending March, June,
September and December and the last dividend referable to a
financial year end will not be categorised as a final dividend that
is subject to Shareholder approval. It is intended that the
Company will pay quarterly dividends consistent with the expected
annual underlying portfolio yield. The Company has the flexibility
in accordance with its Articles to make distributions from
capital.
Shareholders should note that
references to ''dividends'' are intended to cover both dividend
income and income which is designated as an interest distribution
for UK tax purposes and therefore subject to the interest streaming
regime applicable to investment trusts.
Recommendation
Your Board considers Resolutions 9
to 13 to be in the best interests of the Company and its members as
a whole and most likely to promote the success of the Company for
the benefit of its members as a whole. Accordingly, your
Board unanimously recommends that Shareholders should vote in
favour of all Resolutions to be proposed at the AGM, as they intend
to do in respect of their own beneficial shareholdings amounting to
347,187 Ordinary shares.
By order of the Board
abrdn Holdings Limited - Company
Secretaries and Registered Office
280 Bishopsgate London EC2M
4AG
25 April 2024
Statement of Directors'
Responsibilities in Respect of the Annual Report and the Financial
Statements
The Directors are responsible for
preparing the Annual Report and the Group and parent Company
financial statements in accordance with applicable law and
regulations.
Company law requires the Directors
to prepare Group and parent Company financial statements for each
financial year. Under that law they are required to prepare the
Group financial statements in accordance with UK-adopted
international accounting standards and applicable law and have
elected to prepare the parent Company financial statements in
accordance with UK accounting standards and applicable law,
including FRS 101 Reduced Disclosure Framework.
Under company law the Directors
must not approve the financial statements unless they are satisfied
that they give a true and fair view of the state of affairs of the
Group and parent Company and of the Group's profit or loss for that
period. In preparing each of the Group and parent Company financial
statements, the Directors are required to:
· select suitable accounting policies and then apply them
consistently;
· make
judgements and estimates that are reasonable, relevant, reliable
and prudent;
· for
the Group financial statements, state whether they have been
prepared in accordance with UK-adopted international accounting
standards;
· for
the parent Company financial statements, state whether applicable
UK accounting standards
· have
been followed, subject to any material departures disclosed and
explained in the parent Company financial statements;
· assess the Group and parent Company's ability to continue as
a going concern, disclosing, as applicable, matters related to
going concern; and
· use
the going concern basis of accounting unless they either intend to
liquidate the Group or the parent Company or to cease operations,
or have no realistic alternative but to do so.
The Directors are responsible for
keeping adequate accounting records that are sufficient to show and
explain the parent Company's transactions and disclose with
reasonable accuracy at any time the financial position of the
parent Company and enable them to ensure that its financial
statements comply with the Companies Act 2006. They are responsible
for such internal control as they determine is necessary to enable
the preparation of financial statements that are free from material
misstatement, whether due to fraud or error, and have general
responsibility for taking such steps as are reasonably open to them
to safeguard the assets of the Group and to prevent and detect
fraud and other irregularities.
Under applicable law and
regulations, the Directors are also responsible for preparing a
Strategic Report, Directors' Report, Directors' Remuneration Report
and Corporate Governance Statement that complies with that law and
those regulations.
The Directors are responsible for
the maintenance and integrity of the corporate and financial
information included on the Company's website. Legislation in the
UK governing the preparation and dissemination of financial
statements may differ from legislation in other
jurisdictions.
In accordance with Disclosure
Guidance and Transparency Rule 4.1.14R, the financial statements
will form part of the annual financial report prepared using the
single electronic reporting format under the TD ESEF Regulation.
The auditor's report on these financial statements provides no
assurance over the ESEF format.
Responsibility statement of the
Directors in respect of the annual financial report
We confirm that to the best of our
knowledge:
· the
financial statements, prepared in accordance with the applicable
set of accounting standards, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the
company and the undertakings included in the consolidation taken as
a whole; and
· the
Strategic Report/Directors' Report includes a fair review of the
development and performance of the business and the position of the
issuer and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face.
We consider the Annual Report and
financial statements, taken as a whole, is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Group's position and performance,
business model and strategy.
By order of the Board
Tony Roper
25 April 2024
Financial Statements
Consolidated Statement of
Comprehensive Income
For the year ended 31 December
2023
|
Year ended 31 December
2023
|
Year ended 31 December
2022
|
Notes
|
Revenue
€'000
|
Capital
€'000
|
Total
€'000
|
Revenue
€'000
|
Capital
€'000
|
Total
€'000
|
REVENUE
|
|
|
|
|
|
|
|
Rental income
|
2
|
33,435
|
-
|
33,435
|
29,686
|
-
|
29,686
|
Property service charge
income
|
|
8,095
|
-
|
8,095
|
6,237
|
-
|
6,237
|
Other operating income
|
|
540
|
-
|
540
|
676
|
-
|
676
|
Total revenue
|
|
42,070
|
-
|
42,070
|
36,599
|
-
|
36,599
|
GAINS/(LOSSES) ON INVESTMENTS
|
|
|
|
|
|
|
|
Gains on disposal of investment
properties
|
9
|
-
|
133
|
133
|
-
|
-
|
-
|
Change in fair value of investment
properties
|
9
|
-
|
(106,878)
|
(106,878)
|
-
|
(40,432)
|
(40,432)
|
Total income and gains / (losses)
on investments
|
|
42,070
|
(106,745)
|
(64,675)
|
36,599
|
(40,432)
|
(3,833)
|
EXPENDITURE
|
|
|
|
|
|
|
Investment management fee
|
|
(3,193)
|
-
|
(3,193)
|
(3,953)
-
|
(3,953)
|
Direct property expenses
|
|
(3,155)
|
-
|
(3,155)
|
(2,276)
-
|
(2,276)
|
Property service charge
expenditure
|
|
(8,095)
|
-
|
(8,095)
|
(6,237)
-
|
(6,237)
|
SPV property management
fees
|
|
(232)
|
-
|
(232)
|
(255)
-
|
(255)
|
Impairment loss on trade
receivables
|
|
(1,237)
|
-
|
(1,237)
|
(225)
-
|
(225)
|
Other expenses
|
3
|
(3,583)
|
-
|
(3,583)
|
(2,797)
-
|
(2,797)
|
Total expenditure
|
|
(19,495)
|
-
|
(19,495)
|
(15,743)
|
-
|
(15,743)
|
Net operating return / (loss)
before finance costs
|
|
22,575
|
(106,745)
|
(84,170)
|
20,856
|
(40,432)
|
(19,576)
|
FINANCE COSTS
|
|
|
|
Finance costs
|
4
|
(8,002)
|
(110)
|
(8,112)
|
(5,676)
|
-
|
(5,676)
|
Gains arising from the
derecognition of derivative financial
|
|
-
|
313
|
313
|
-
-
|
-
|
instruments
|
|
|
|
|
|
|
Effect of fair value adjustments
on derivative financial
|
|
-
|
(1,706)
|
(1,706)
|
-
3,600
|
3,600
|
instruments
|
|
|
|
|
|
|
Effect of foreign exchange differences
|
|
(67)
|
(146)
|
(213)
|
(115)
461
|
346
|
Net return before taxation
|
|
14,506
|
(108,394)
|
(93,888)
|
15,065
|
(36,371)
|
(21,306)
|
Taxation
|
5
|
(1,327)
|
13,414
|
12,087
|
(1,029)
|
3,893
|
2,864
|
Net return for the year
|
|
13,179
|
(94,980)
|
(81,801)
|
14,036
|
(32,478)
|
(18,442)
|
|
|
|
|
Total comprehensive return /
(loss) for the year
|
|
13,179
|
(94,980)
|
(81,801)
|
14,036
|
(32,478)
|
(18,442)
|
|
|
|
|
Basic and diluted earnings per
share
|
7
|
3.2¢
|
(23.0¢)
|
(19.8¢)
|
3.4¢
|
(7.9¢)
|
(4.5¢)
|
The accompanying notes are an
integral part of the financial statements.
The total column of the
Consolidated Statement of Comprehensive Income is the profit and
loss account of the Company.
All revenue and capital items in
the above statement derive from continuing operations. No
operations were acquired or discontinued during the
year.
Consolidated Balance
Sheet
As at 31 December 2023
Notes
|
As at 31
December 2023
€'000
|
As at 31
December 2022
€'000
|
NON-CURRENT ASSETS
Investment properties Deferred tax
asset
|
9
5
|
636,187
4,896
|
776,616
3,754
|
Total non-current assets
|
641,083
|
780,370
|
CURRENT ASSETS
|
|
|
|
Investment property held for
sale
|
9
|
17,500
|
-
|
Trade and other receivables
|
10
|
14,682
|
12,570
|
Cash and cash equivalents
|
11
|
18,061
|
20,262
|
Other assets
|
|
876
|
687
|
Derivative financial assets
|
15
|
1,690
|
3,894
|
Total current assets
|
52,809
|
37,413
|
|
|
Total assets
|
693,892
|
817,783
|
CURRENT LIABILITIES
|
|
|
|
Lease liability
|
12
|
659
|
550
|
Trade and other payables
|
13
|
16,353
|
15,006
|
Derivative financial instruments
|
15
|
-
|
185
|
Total current liabilities
|
17,012
|
15,741
|
NON-CURRENT LIABILITIES
|
|
|
|
Bank loans
|
14
|
256,524
|
265,532
|
Lease liability
|
12
|
23,694
|
22,087
|
Deferred tax liability
|
5
|
11,734
|
24,446
|
Total non-current liabilities
|
291,952
|
312,065
|
Total liabilities
|
308,964
|
327,806
|
Net assets
|
384,928
|
489,977
|
SHARE CAPITAL AND
RESERVES
|
|
|
|
Share capital
|
16
|
4,717
|
4,717
|
Share premium
|
17
|
269,546
|
269,546
|
Special distributable reserve
|
18
|
152,099
|
164,851
|
Capital reserve
|
19
|
(64,200)
|
30,780
|
Revenue reserve
|
|
22,766
|
20,083
|
Equity shareholders' funds
|
384,928
|
489,977
|
Net asset value per share
(cents)
|
8
|
93.4
|
118.9
|
The financial statements on pages
106 to 148 of the published Annual Report and financial statements
for the year ended 31 December 2023 were approved and authorised
for issue by the Board of Directors on 25 April 2024 and signed on
its behalf by:
Caroline Gulliver
Independent Non-Executive
Director
Company number:
11032222.
The accompanying notes are an
integral part of the financial statements.
Consolidated Statement of Changes in Equity
For the year ended 31 December
2023
Notes
|
Share
capital
€'000
|
Share premium
€'000
|
Special distributable
reserve
€'000
|
Capital reserve
€'000
|
Revenue reserve
€'000
|
Total
€'000
|
Balance at 31 December
2022
|
|
4,717
|
269,546
|
164,851
|
30,780
|
20,083
|
489,977
|
Total comprehensive return for the year
|
|
-
|
-
|
-
|
(94,980)
|
13,179
|
(81,801)
|
Dividends paid
|
6
|
-
|
-
|
(12,752)
|
-
|
(10,496)
|
(23,248)
|
Balance at 31 December
2023
|
4,717
|
269,546
|
152,099
|
(64,200)
|
22,766
|
384,928
|
|
|
|
|
|
|
|
For the year ended 31 December
2022
Notes
|
Share
capital
€'000
|
Share premium
€'000
|
Special distributable
reserve
€'000
|
Capital reserve
€'000
|
Revenue reserve
€'000
|
Total
€'000
|
Balance at 31 December
2021
|
|
4,309
|
225,792
|
178,207
|
63,258
|
15,939
|
487,505
|
Share Issue
|
16/17
|
408
|
44,513
|
-
|
-
|
-
|
44,921
|
Share issue costs
|
17
|
-
|
(759)
|
-
|
-
|
-
|
(759)
|
Total comprehensive return for the year
|
|
-
|
-
|
-
|
(32,478)
|
14,036
|
(18,442)
|
Dividends paid
|
6
|
-
|
-
|
(13,356)
|
-
|
(9,892)
|
(23,248)
|
Balance at 31 December
2022
|
4,717
|
269,546
|
164,851
|
30,780
|
20,083
|
489,977
|
The accompanying notes are an
integral part of the financial statements.
Consolidated Statement of Cash Flows
For the period ended 31 December
2023
Notes
|
Year ended 31 December 2023
€'000
|
Year ended 31 December 2022
€'000
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
Net return for the year before
taxation
|
|
(93,888)
(21,306)
|
Adjustments for:
|
|
|
Change in fair value of investment
properties
|
|
106,878
40,432
|
Gains on disposal of investment
properties
|
|
(133)
-
|
(Increase)/decrease in lease
liability
|
|
272
267
|
(Increase)/Decrease in trade and
other receivables
|
|
(2,300)
4,964
|
Increase/(Decrease) in trade and
other payables
|
|
10
(1,554)
|
Change in fair value of derivative
financial instruments
|
|
1,706
(3,600)
|
Result arising from the
derecognition of derivative financial instruments
|
|
(313)
-
|
Finance costs
|
4
|
8,112
5,676
|
Tax paid
|
|
(1,092)
(1,070)
|
Cash generated by operations
|
19,252
|
23,809
|
Net cash inflow from operating
activities
|
19,252
|
23,809
|
CASH FLOWS FROM INVESTING
ACTIVITIES
|
|
|
Capital expenditure and cost of
disposal
|
(898)
|
(133,523)
|
Disposal of investment
properties
|
18,500
|
-
|
Net cash inflow/ (outflow) from
investing activities
|
17,602
|
(133,523)
|
CASH FLOWS FROM FINANCING
ACTIVITIES
|
|
|
Dividends paid
|
6
|
(23,248)
(23,248)
|
Bank loans interest paid
|
|
(5,202)
(3,050)
|
Early termination fees
|
|
(110)
-
|
Bank loans drawn
|
|
-
154,547
|
Bank loans repaid
|
14
|
(10,808)
(65,692)
|
Proceeds from derivative financial
instruments
|
14
|
313
-
|
Proceeds from share issue
|
16/17
|
-
44,898
|
Issue costs relating to share
issue
|
17
|
-
(759)
|
Net cash (outflow)/ inflow from
financing activities
|
(39,055)
|
106,696
|
|
|
Net decrease in cash and cash
equivalents
|
(2,201)
|
(3,018)
|
|
|
Opening balance 31 December
2022
|
20,262
|
23,280
|
|
|
Closing cash and cash equivalents
|
18,061
|
20,262
|
REPRESENTED BY
|
|
Cash at bank
|
11
|
18,061
|
20,262
|
The accompanying notes are an
integral part of the financial statements.
Notes to the Financial Statements
1. Accounting policies
The consolidated financial
statements of the Group for the year ended 31 December 2023
comprise the results of abrdn European Logistics Income plc and its
subsidiaries. The principal accounting policies adopted by the
Group are set out below, all of which have been applied
consistently throughout the year.
(a) Basis of accounting
The consolidated financial
statements have been prepared in accordance with UK-adopted
international accounting standards ("UK-adopted IFRS"), which
comprise standards and interpretations approved by the
International Accounting Standards Board ('IASB'), and
International Accounting Standards and Standing Interpretations
Committee interpretations approved by the International Accounting
Standards Committee ('IASC') that remain in effect, and to the
extent that they have been adopted by the United Kingdom, and the
Listing Rules of the UK Listing Authority.
The consolidated financial
statements of the Group have been prepared under the historical
cost convention as modified by the measurement of investment
property, investment property held for sale, and derivative
financial instruments at fair value. The consolidated financial
statements are presented in Euro.
In compliance with the AIC's
Statement of Recommended Practice: Financial Statements of
Investment Trust Companies and Venture Capital Trusts (Issued
November 2014 and updated in October 2019 with consequential
amendments), the consolidated statement of comprehensive income is
separated between capital and revenue profits and
losses.
Going Concern
Following the announcement on 27th
November 2023 and as at the date of approval of the annual report,
the Board is undertaking a strategic review of the options
available to the Company (the "Strategic Review").
The Board is considering all
options that offer maximum value for the shareholders including,
but not limited to, undertaking some form of consolidation,
combination, merger, or comparable corporate action, selling the
entire issued share capital of the Company, and selling the
Company's portfolio and returning monies to shareholders. In
addition, the Company is required under its articles to hold a
continuation vote at its forthcoming AGM in June 2024. The Board
has recommended that shareholders vote in favour of the
continuation of the Company to enable the Board to pursue a
sensible conclusion in seeking the best value for all
shareholders.
The Company has received a number
of indicative non-binding proposals. There can be no certainty at
this stage that the final terms of any proposal will prove to be
sufficiently attractive to merit a Board recommendation to the
Company's shareholders. A continuation of the Company's current
investment strategy with a rebased target dividend level can be a
potential outcome of the Strategic Review.
The Company has prepared cash flow
forecasts, including severe but plausible downside scenarios taking
into account specific tenant risks. The cash flow forecasts assumed
a continuation of the Company's current investment strategy with a
rebased target dividend level. The scenarios model reduced rental
income through to 2024 and the worst case scenario models to an
overall 40% reduction of rental income per annum over that period.
The impact of reductions in rental income and increased costs in
these scenarios could be mitigated through a reduction in dividends
to shareholders if considered necessary by the Board.
The Group and Company meets its
longer term funding and working capital requirements through a
combination of cash balances, rental income and a number of bank
loans with different banks.
The Group ended the year with
€18.1 million cash in hand, with the Company's €70 million master
revolving credit facility undrawn, €3.3m of which is committed and
available on request to cover any short term liquidity
gaps.
As detailed in note 14, there are
currently eight bank facilities, none of which are due to expire
before June 2025. Under the terms of the debt agreements, each debt
obligation is "ring fenced" within a sub-group of property holding
companies. These non-recourse loans range in maturities between 1.5
and 5.1 years with all-in interest rates ranging between 1.10% and
3.11% per annum. All debts have a fixed rate or fixed rate nature
by entering into interest rate SWAPs and caps to manage exposure to
potential interest rate fluctuations.
The permitted loan-to-value ratios
in the debt arrangements as at 31 December 2023 are between 45% and
60% (soft breach limits). The "hard breach" loan-to-value ratio
covenants which give the lenders to right to exercise their
security are between 55% and 65%.
If the lenders were to adopt the
valuations carried out for the purposes of these financial
statements as at 31 December 2023, the ratios would be between 39%
and 64%. For the year ended 31 December 2023, there were no
breaches of loan-to-value ratio covenants. Based on the most recent
covenant submissions to lenders, there is one facility with less
than 5% headroom to soft breach. The Directors believe the
liquidity within the Group and €70m revolving credit facility could
be used for partial repayment of the loan in the event of a breach
of LTV limits on this facility.
The permitted interest coverage
ratios in the debt arrangements as at 31 December 2023 are between
200% and 300%. The "hard breach" interest coverage ratio covenants,
which give the lenders to right to exercise their security are
between 200% and 300%.
The latest calculated interest
coverage ratios were between 236% and 1291%. For the year ended 31
December 2023, there were no breach of interest coverage ratios.
Based on the most recent covenant submissions to lenders, there is
one facility with ICR headroom of less than 50%. Due to the
property being let to multiple tenants on long leases, the
likelihood of further reduction in ICR on this loan is
limited.
The Board recognises the 24% share
price discount to NAV, as at 31 December 2023 (35% as at 31
December 2022). The valuation of investment property is the main
driver of the NAV, and was determined by Savills as independent
valuer. The Board is satisfied that the valuation exercise was
performed in accordance with RICS Valuation - Global Standards. As
such, the Board has full confidence in the level of the NAV
disclosed in the financial statements at the reporting
date.
The ongoing Russian invasion of
Ukraine has not materially impacted the Group's portfolio. The
Group has no assets or exposure to Russia or Ukraine but the
potential impact of contagion in the European and Global economy
could, however, impact the Group through a reduction in rental
income, reduction in investment property valuation and increased
costs. The Directors note that the real estate values have
continued to decline in 2023 and in the event that the real estate
market deteriorates and valuations fall further, certain
loan-to-value ratio levels would rise closer to permitted ratio
levels. However, the Directors consider this will have no impact on
the Group's ability to continue as a going concern
because:
. The
Directors consider that in most cases there is sufficient or good
headroom on covenant ratios.
. The
Group has a substantial cash balance, with the ability to increase
those amounts further with certain mitigating actions.
. The
Group has substantial unsecured properties.
. The
Parent Company is not itself a party to any of the debt contracts
(in any capacity including as borrower, guarantor or security
provider). The lenders would therefore not, in any event, have any
recourse to the ultimate parent under the debt
contracts.
While the Company cannot predict
the outcome of the above matters, based on the financial forecasts
prepared the Directors believe it remains appropriate to prepare
the financial statements on a going concern basis.
Nevertheless, the ongoing
Strategic Review referred to above indicates the existence of a
material uncertainty related to events or conditions that may cast
significant doubt on the Group's and Company's ability to continue
as a going concern and that the Group and Company may therefore be
unable to realise their assets and discharge their liabilities in
the normal course of business. The financial statements do not
include any adjustments that would be necessary if this basis were
inappropriate.
New and revised standards and
interpretations issued in the current year
The accounting policies adopted
have been consistently applied throughout the year presented,
unless otherwise stated. This includes the below noted Standards,
Interpretations and annual improvements to IFRS that became
effective during the year, which the group has incorporated in the
preparation of the financial statements:
Annual Improvements to IFRS
Standards 2018-2020 (effective 1 January 2023):
IFRS 17 Insurance Contracts - This
standard replaced IFRS 4, which permitted a wide variety of
practices in accounting for insurance contracts. IFRS 17
fundamentally changes the accounting by all entities that issue
insurance contracts.
IAS 1 and IFRS Practice Statement
2 - The amendments aim to help entities provide accounting policy
disclosures that are more useful by:
a) Replacing the
requirement for entities to disclose their 'significant accounting
policies' with a requirement to disclose 'material accounting
policy information', and
b) adding guidance on how
entities apply the concept of materiality in making decisions about
accounting policy disclosures.
IAS 8 - The amendments clarify the
distinction between changes in accounting estimates and changes in
accounting policies and the correction of errors. Also, they
clarify how entities use measurement techniques and inputs to
develop accounting estimates.
IAS 12 - Deferred tax related to
assets and liabilities arising from a single transaction. These
amendments require companies to recognise deferred tax on
transactions that, on initial recognition, give rise to equal
amounts of taxable and deductible temporary differences.
IAS 12 - International tax reform.
These amendments give companies temporary relief from accounting
for deferred taxes arising from the Minimum Tax Implementation
Handbook international tax reform. The amendments also introduce
targeted disclosure requirements for affected companies.
The Group has made no adjustments
to its financial statements following the above amendments and
hence these are not discussed further.
Standards and Interpretations
issued by IASB but not adopted by the United Kingdom and not yet
effective:
Amendment to IFRS 16 - Leases on
sale and leaseback. These amendments include requirements for sale
and leaseback transactions in IFRS 16 to explain how an entity
accounts for a sale and leaseback after the date of the
transaction. Sale and leaseback transactions where some or all the
lease payments are variable lease payments that do not depend on an
index or rate are most likely to be impacted.
Amendment to IAS 1 - Non-current
liabilities with covenants. These amendments clarify how conditions
with which an entity must comply within twelve months after the
reporting period affect the classification of a
liability.
The amendments also aim to improve
information an entity provides related to liabilities subject to
these conditions.
Amendment to IAS 7 and IFRS 7 -
Supplier finance. These amendments require disclosures to enhance
the transparency of supplier finance arrangements and their effects
on an entity's liabilities, cash flows and exposure to liquidity
risk. The disclosure requirements are the IASB's response to
investors' concerns that some companies' supplier finance
arrangements are not sufficiently visible, hindering investors'
analysis.
Amendments to IAS 21 - Lack of
Exchangeability. An entity is impacted by the amendments when it
has a transaction or an operation in a foreign currency that is not
exchangeable into another currency at a measurement date for a
specified purpose. A currency is exchangeable when there is an
ability to obtain the other currency (with a normal administrative
delay), and the transaction would take place through a market or
exchange mechanism that creates enforceable rights and
obligations.
The Group has not adopted any of
these early and none are expected to have a material impact on the
financial statements of the Group.
(b) Significant
accounting judgements, estimates and assumptions
The preparation of the Group's
financial statements requires the directors to make judgements,
estimates and assumptions that affect the amounts recognised in the
financial statements and contingent liabilities. However,
uncertainty about these judgements, assumptions and estimates could
result in outcomes that could require a material adjustment to the
carrying amount of the asset or liability affected in future
periods.
Key estimation
uncertainties
Fair value of investment
properties: Investment property is stated at fair value as at the
balance sheet date as set out in note 9 to these financial
statements.
The determination of the fair
value of investment properties requires the use of estimates such
as future cash flows from the assets, estimated inflation, market
rents, discount, capitalisation rates, estimated rental value and
net initial and net equivalent property yields. The estimate of
future cash flows includes consideration of the repair and
condition of the property, lease terms, future lease events, as
well as other relevant factors for the particular asset.
These estimates are based on local
market conditions existing at the balance sheet date.
(c) Basis of
consolidation
The consolidated financial
statements comprise the accounts of the Company and its
subsidiaries drawn up to 31 December 2023. Subsidiaries are
consolidated from the date on which control is transferred to the
Group and cease to be consolidated from the date on which control
is transferred out of the Group. The Group acquires subsidiaries
that own real estate properties. At the time of acquisition, the
Group considers whether the acquisition represents the acquisition
of a business. The Group accounts for an acquisition as a business
combination where an integrated set of activities is acquired in
addition to the property. More specifically, consideration is made
with regard to the extent to which significant processes are
acquired and, in particular, the extent of ancillary services
provided by the Group (e.g. maintenance, cleaning, security,
bookkeeping, and the like).
The significance of any process is
judged with reference to the guidance in IAS 40 on ancillary
services. When the acquisition of subsidiaries does not represent a
business, it is accounted for as an acquisition of a group of
assets and liabilities. The cost of the acquisition is allocated to
the assets and liabilities acquired based upon their relative fair
values, and no goodwill or deferred tax is recognised.
(d)
Functional and presentation currency
Items included in the consolidated
financial statements of the Group are measured using the currency
of the primary economic environment in which the Company and its
subsidiaries operate ("the functional currency") which in the
judgement of the Directors is Euro. The financial statements are
also presented in Euro. All figures in the consolidated financial
statements are rounded to the nearest thousand unless otherwise
stated.
(e)
Foreign currency
Transactions denominated in
foreign currencies are converted at the exchange rate ruling at the
date of the transaction. Monetary and non-monetary assets and
liabilities denominated in foreign currencies held at the financial
year end are translated using the foreign exchange rate ruling at
that date. Any gain or loss arising from a change in exchange rates
subsequent to the date of the transaction is included as an
exchange gain or loss to capital or revenue in the Consolidated
Statement of Comprehensive Income as appropriate. Foreign exchange
movements on investments are included in the Consolidated Statement
of Comprehensive Income within gains on investments.
(f)
Revenue recognition
Rental income, including the
effect of lease incentives, arising from operating leases
(including those containing fixed rent increases) is recognised on
a straight line basis over the lease term.
Service charge income represents
the charge to tenants for services the Group is obliged to provide
under lease agreements. This income is recorded gross within Income
on the basis the Group is acting as principal, with any
corresponding cost shown within expenses.
Interest income is accounted for
on an effective interest rate basis.
(g) Expenses
All expenses, including the
management fee, are accounted for on an accruals basis and are
recorded through the revenue column of the Consolidated Statement
of Comprehensive Income. Gains or losses on investment properties
are recorded in the capital column.
(h) Taxation
Income tax expense represents the
sum of the tax currently payable and deferred tax.
Current tax
Current tax is defined as the
expected tax payable or receivable on the taxable income or loss
for the year, using tax rates enacted or substantively enacted at
the balance sheet date, and any adjustment to tax payable in
respect of previous years.
Where corporation tax arises in
subsidiaries, these amounts are charged to the Consolidated
Statement of Comprehensive Income. The current income tax charge is
calculated on the basis of the tax laws enacted or substantively
enacted at the date of the balance sheet in the countries where the
Group operates.
The Manager periodically evaluates
positions taken in tax returns with respect to situations in which
applicable tax regulation is subject to interpretation, and
establishes provisions where appropriate on the basis of amounts
expected to be paid to the tax authorities.
Deferred tax
Deferred tax is recognised on
temporary differences between the carrying amounts of assets and
liabilities in the consolidated financial statements and the
corresponding tax bases used in the computation of taxable profit.
Deferred tax liabilities are generally recognised for all taxable
temporary differences. Deferred tax assets are generally recognised
for all deductible temporary differences to the extent that it is
probable that taxable profits will be available against which those
deductible temporary differences can be utilised. Such deferred tax
assets and liabilities are not recognised if the temporary
difference arises from the initial recognition (other than in a
business combination) of assets and liabilities in a transaction
that affects neither the taxable profit nor the accounting profit.
In addition, deferred tax liabilities are not recognised if the
temporary difference arises from the initial recognition of
goodwill.
Deferred tax liabilities and
assets are measured at the tax rates that are expected to apply in
the year in which the liability is settled or the asset realised,
based on tax rates (and tax laws) that have been enacted or
substantively enacted by the end of the reporting period. The
measurement of deferred tax liabilities and assets reflects the tax
consequences that would follow from the manner in which the Group
expects, at the end of the reporting period, to recover or settle
the carrying amount of its assets and liabilities.
The carrying values of the Group's
investment properties are assumed to be realised by sale at the end
of use. The capital gains tax rate applied is that which would
apply on a direct sale of the property recorded in the Consolidated
Balance Sheet regardless of whether the Group would structure the
sale via the disposal of the subsidiary holding the asset, to which
a different tax rate may apply. The deferred tax is then calculated
based on the respective temporary differences and tax consequences
arising from recovery through sale, and accounted for through the
capital reserve.
(i)
Investment properties
Investment properties are
initially recognised at cost, being the fair value of consideration
given, including transaction costs associated with the investment
property. Any subsequent capital expenditure incurred in improving
investment properties is capitalised in the year during which the
expenditure is incurred.
After initial recognition,
investment properties are measured at fair value, with the movement
in fair value recognised in the Consolidated Statement of
Comprehensive Income and transferred to the Capital Reserve. Fair
value is based on the external valuation provided by Savills (2022:
Savills), chartered surveyors, at the balance sheet date undertaken
in accordance with the RICS Valuation - Global Standards 2023, (Red
Book), published
by the Royal Institution of
Chartered Surveyors. The assessed fair value is reduced by the
carrying amount of any accrued income resulting from the spreading
of lease incentives and/or minimum lease payments.
On derecognition, gains and losses
on disposals of investment properties are recognised in the
Consolidated Statement of Comprehensive Income.
Investment Property held for
sale
A non-current asset or a group of
assets containing a non-current asset (a disposal group) is
classified as held for sale if its carrying amount will be
recovered principally through sale rather than through continuing
use, it is available for immediate sale and sale is highly probable
within one year. On initial classification as held for sale,
non-current assets and disposal groups are measured at the lower of
previous carrying amount and fair value less costs to sell with any
adjustments taken to profit or loss.
(j)
Distributions
Interim distributions payable to
the holders of equity shares are recognised in the Statement of
Changes in Equity in the year in which they are paid. An annual
shareholder resolution is voted upon to approve the Group's
distribution policy.
(k)
Lease contracts
Operating lease contracts - the
Group as lessor
The Group has entered into
commercial property leases on its investment property portfolio.
The Group has determined, based on an evaluation of the terms and
conditions of the arrangements, that it retains all the significant
risks and rewards of ownership of these properties and so accounts
for leases as operating leases.
Initial direct costs incurred in
negotiating and arranging an operating lease are added to the
carrying amount of the leased asset and recognised as an expense on
a straight-line basis over the lease term.
Operating and finance lease
contracts - the Group as intermediate lessor
When the Group is an intermediate
lessor, it accounts for its interest in the head lease and the
sub-lease separately. The Group assesses all leases where it acts
as an intermediate lessor, based on an evaluation of the terms and
conditions of the arrangements.
Any head leases identified as
finance leases are capitalised at the lease commencement present
value of the minimum lease payments discounted at an applicable
discount rate as a right-of-use asset and leasehold
liability.
Each lease payment is allocated
between the liability and finance charges so as to achieve a
constant rate on the finance balance outstanding. The interest
element of the finance cost is charged to the Statement of
Comprehensive Income over the lease period.
(l)
Share issue expenses
Incremental external costs
directly attributable to the issue of shares that would otherwise
have been avoided are written off to share premium.
(m) Segmental
reporting
The Group is engaged in property
investment in Europe. Operating results are analysed on a
geographic basis by country. In accordance with IFRS 8 'Operating
Segments', financial information on business segments is presented
in note 20 of the Consolidated financial statements.
(n)
Cash and cash equivalents
Cash and cash equivalents are
defined as cash in hand, demand deposits, and other short-term
highly liquid investments readily convertible within three months
or less to known amounts of cash and subject to insignificant risk
of changes in value.
(o)
Financial instruments
Financial assets and financial
liabilities are recognised when the Group becomes a party to the
contractual provisions of the instruments.
Financial assets and financial
liabilities are initially measured at fair value. Transaction costs
that are directly attributable to the acquisition or issue of
financial assets and financial liabilities (other than financial
assets and financial liabilities at fair value through profit or
loss) are added to or deducted from the fair value of the financial
assets or financial liabilities, as appropriate, on initial
recognition. Transaction costs directly attributable to the
acquisition of financial assets or financial liabilities at fair
value through profit or loss are recognised immediately in the
Consolidated Statement of Comprehensive Income.
Financial assets
Financial assets are measured at
amortised cost, financial assets 'at fair value through profit or
loss' (FVTPL), or financial assets 'at fair value through other
comprehensive income' (FVOCI). The classification is based on the
business model in which the financial asset is managed and its
contractual cash flow characteristics.
All purchases and sales of
financial assets are recognised on the trade date basis.
Financial assets at amortised
cost
Financial assets at amortised cost
are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market.
Loans and receivables (including
trade and other receivables, and others) are subsequently measured
at amortised cost using the effective interest method, less any
impairment. The Group holds the trade receivables with the
objective to collect the contractual cash flows.
Impairment of financial
assets
The Group's financial assets are
subject to the expected credit loss model. For trade receivables,
the Group applies the simplified approach permitted by IFRS 9,
which requires expected lifetime losses to be recognised from
initial recognition of the receivables. The expected loss rates are
based on the payment profiles of tenants over a period of twelve
months before the measurement date, and the corresponding
historical credit losses experienced within this period. The
historical loss rates are adjusted to reflect current and
forward-looking information on macroeconomic factors affecting the
liability of the tenants to settle the receivable.
Such forward-looking information
would include:
. significant financial difficulty of the issuer or
counterparty; or
. breach
of contract, such as a default or delinquency in interest or
principal payments; or
. it
becoming probable that the borrower will enter bankruptcy or
financial re-organisation; or
. the
disappearance of an active market for that financial asset because
of financial difficulties. The Group's financial assets are subject
to the expected credit loss model. For trade receivables, the Group
applies the simplified approach permitted by IFRS 9, which requires
expected lifetime losses to be recognised from initial recognition
of the receivables. The expected loss rates are based on the
payment profiles of tenants over a period of twelve months before
the measurement date, and the corresponding historical credit
losses experienced within this period. The historical loss rates
are adjusted to reflect current and forward-looking information on
macroeconomic factors affecting the liability of the tenants to
settle the receivable.
Such forward-looking information
would include:
. changes
in economic, regulatory, technological and environmental factors,
(such as industry outlook, GDP, employment and
politics);
. external market indicators; and
. tenant
base.
Financial liabilities
Financial liabilities are
classified as 'other financial liabilities'.
Other financial
liabilities
Other financial liabilities
(including borrowings and trade and other payables) are
subsequently measured at amortised cost using the effective
interest method. The effective interest method is a method of
calculating the amortised cost of a financial liability and of
allocating interest expense over the relevant year. The effective
interest rate is the rate that exactly discounts estimated future
cash payments (including all fees paid or received that form an
integral part of the effective interest rate, transaction costs and
other premiums or discounts) through the expected life of the
financial liability, or (where appropriate) a shorter period, to
the net carrying amount on initial recognition.
(p) Derivative financial
instruments
The Company used forward foreign
exchange contracts to mitigate potential volatility of income
returns and to provide greater certainty as to the level of
Sterling distributions expected to be paid in respect of the year
covered by the relevant currency hedging instrument. It does not
seek to provide a long-term hedge for the
Company's income returns, which
will continue to be affected by movements in the Euro/Sterling
exchange rate over the longer term.
The Company used interest rate
SWAPs and interest rate caps to mitigate potential volatility in
interest rates and income returns. Derivatives are measured at fair
value calculated by reference to forward exchange rates for
contracts with similar maturity profiles. Changes in the fair value
of derivatives are recognised in the Statement of Comprehensive
Income.
(q) Reserves
Share capital
This represents the proceeds from
issuing Ordinary shares and is non-distributable.
Share premium
Share premium represents the
excess consideration received over the par value of Ordinary shares
issued and is classified as equity and is non-distributable.
Incremental costs directly attributable to the issue of Ordinary
shares are recognised as a deduction from share premium.
Special distributable
reserve
The special reserve is a
distributable reserve to be used for all purposes permitted by
applicable legislation and practice, including the buyback of
shares and the payment of dividends.
Capital reserve
The capital reserve is a
distributable reserve subject to applicable legislation and
practice, and the following are accounted for in this
reserve:
. gains
and losses on the disposal of investment properties;
. increases and decreases in the fair value of investment
properties held at the year end, which are not
distributable.
Revenue reserve
The revenue reserve is a
distributable reserve and reflects any surplus arising from the net
return on ordinary activities after taxation.
2. Rental Income
|
Year ended
Year ended
31
December 2023
31 December 2022
€'000
€'000
|
Rental income
|
33,435
29,686
|
Total rental income
|
33,435
29,686
|
Included within rental income is
amortisation of rent free periods granted.
3. Expenditure
|
Year ended 31 December 2023
€'000
|
Year ended 31 December 2022
€'000
|
Professional fees
|
2,438
|
1,880
|
Audit fee for statutory
services
|
412
|
317
|
Directors' fees
|
193
|
186
|
Depositary fees
|
122
|
44
|
Registrar fees
|
47
|
52
|
Stock exchange fees
|
37
|
20
|
Broker fees
|
93
|
54
|
Directors liability insurance
expense
|
26
|
10
|
Employers NI
|
15
|
15
|
Other expenses
|
200
|
219
|
Total expenses
|
3,583
|
2,797
|
Audit fee for statutory services
includes parent audit fee of £253,000 (2022: £220,000) and
subsidiary audit fee of
€24,100 (2022:
€12,000).
Non-audit services' fees incurred
in 2023 were £ nil (2022: £20,000 included in share issue
costs).
4. Finance
costs
|
Year ended 31 December 2023
€'000
|
Year ended 31 December 2022
€'000
|
Interest on bank loans
|
5,478
|
4,262
|
Amortisation of loan
costs
|
2,129
|
730
|
Other finance charges
|
395
|
684
|
Early loan repayment
cost
|
110
|
-
|
Total finance costs
|
8,112
|
5,676
|
The early loan repayment costs of
€110,000 relate to costs for repayment of loan following the sale
of a warehouse in Leon during the year. This cost is classified as
capital in the Consolidated Statement of Comprehensive
Income.
5. Taxation
The Company is resident in the
United Kingdom for tax purposes. The Company is approved by HMRC as
an investment trust under sections 1158 and 1159 of the Corporation
Tax Act 2010. In respect of each accounting year for which the
Company continues to be approved by HMRC as an investment trust the
Company will be exempt from UK taxation on its capital gains. The
Company is, however, liable to UK Corporation tax on its income.
The Company is able to elect to take advantage of modified UK tax
treatment in respect of its ''qualifying interest income'' for an
accounting year referred to as the ''streaming'' regime. Under
regulations made pursuant to the Finance Act 2009, the Company may,
if it so chooses, designate as an ''interest distribution'' all or
part of the amount it distributes to Shareholders as dividends, to
the extent that it has ''qualifying interest income'' for the
accounting year. Were the Company to designate any dividend it pays
in this manner, it would be able to deduct such interest
distributions from its income in calculating its taxable profit for
the relevant accounting year. The Company should in practice be
exempt from UK corporation tax on dividend income received,
provided that such dividends (whether from UK or non-UK companies)
fall within one of the ''exempt classes'' in Part 9A of the CTA
2010. The Corporate tax rate increased from 19% to 25% on 1 April
2023.
(a) Tax charge in the Group
Statement of Comprehensive Income
|
Year ended 31 December 2023
|
Year ended 31 December
2022
|
Revenue
€'000
|
Capital
€'000
|
Total
€'000
|
Revenue
€'000
|
Capital
€'000
|
Total
€'000
|
Current taxation: Overseas
taxation
Deferred taxation: Overseas taxation
|
1,327
-
|
440
(13,854)
|
1,767
(13,854)
|
1,029
-
|
-
(3,893)
|
1,029
(3,893)
|
Total taxation
|
1,327
|
(13,414)
|
(12,087)
|
1,029
|
(3,893)
|
(2,864)
|
Current taxation of €440,000
relates to tax paid on disposal of investment property.
Reconciliation between the tax
charge and the product of accounting profit/(loss) multiplied by
the applicable tax rate for the year ended 31 December
2023.
|
Year ended
31 December 2023
|
Year ended 31 December
2022
|
Revenue
€'000
|
Capital
€'000
|
Total
€'000
|
Revenue
€'000
|
Capital
€'000
|
Total
€'000
|
Net result before taxation
|
14,506
3,413
- (1,460)
459
(1,085)
|
(108,394)
(25,495)
13,535
(1,855)
401
-
|
(93,888)
(22,082)
13,535
(3,315)
860
(1,085)
|
15,065
2,862
- (1,090)
151
(894)
|
(36,371)
(6,910)
3,171
- (154)
-
|
(21,306)
(4,048)
3,171
(1,090)
(3)
(894)
|
Theoretical tax at UK corporation
tax
|
blended rate of 23.52% (19% to 1
April
|
2023 and 25% from 1 April
2023)
|
Effect of:
|
Losses where no deferred taxes
have
|
been recognised
|
Impact of different tax rates on
foreign
|
jurisdictions
|
Expenses that are not deductible
/
|
income that is not taxable
|
Impact of UK interest
distributions from
|
the Investment Trust
|
Total taxation on return
|
1,327
|
(13,414)
|
(12,087)
|
1,029
|
(3,893)
|
(2,864)
|
(b) Tax in the Group Balance
Sheet
|
2023
€'000
|
2022
€'000
|
Deferred tax assets:
On overseas tax losses
On other temporary
differences
|
4,740
156
|
3,384
370
|
Total taxation on
return
|
4,896
|
3,754
|
|
2023
€'000
|
2022
€'000
|
Deferred tax
liabilities:
Differences between tax and
derivative valuation Differences between tax and property
valuation
|
422
11,312
|
973
23,473
|
Total taxation on
return
|
11,734
|
24,446
|
The Corporate tax rate increased
from 19% to 25% on 1 April 2023.
The amount of unutilised tax
losses and tax credits for which no deferred tax asset is
recognised in the Profit & Loss account was €nil (2022: €nil).
No deferred tax asset has been
recognised (2022: nil) on estimated UK tax losses.
The Group has subsidiaries in
France, Germany, Netherlands, Poland and Spain. There are no
changes to tax rates in each country expected to have a material
impact on the Group.
Tax losses for which deferred tax
asset was recognised expire as follows:
|
2023
|
|
|
2022
|
Tax losses carried forward
€'000
|
Deferred tax asset
€'000
|
Expiry date
|
Tax losses carried forward
€'000
|
Deferred tax asset
€'000
|
Expiry date
|
Expire
|
2,645
|
563
|
2024-2027
|
2,564
|
432
|
2023-2027
|
Never expire
|
16,828
|
4,177
|
-
|
12,130
|
2,952
|
-
|
Total
|
19,473
|
4,740
|
|
14,694
|
3,384
|
|
6. Dividends
|
Year ended 31 December 2023
€'000
|
Year ended 31 December 2022
€'000
|
|
2022 Fourth Interim dividend of
1.41c /1.20p per share paid
|
5,812
|
5,812
|
|
24 March 2023
|
|
|
|
|
(2021 Fourth Interim: 1.41c
/1.21p)
|
|
|
|
2023 First Interim dividend of
1.41c/1.23p per share paid
|
5,812
|
5,812
|
|
23 June 2023
|
|
|
|
|
(2022 First Interim: 1.41c
/1.19p)
|
|
|
|
2023 Second Interim dividend of
1.41c/1.22p per share paid
|
5,812
|
5,812
|
|
22 September 2023
|
|
|
|
|
(2022 Second interim:
1.41c/1.20p)
|
|
|
|
2023 Third Interim dividend of
1.41c/1.23p per share paid
|
5,812
|
5,812
|
|
29 December 2023
|
|
|
|
|
(2022 Third interim:
1.41c/1.20p)
|
|
|
|
Total dividends paid
|
23,248
|
23,248
|
|
On 19 February 2024 the Board
announced that the Company would forego payment of the fourth
interim distribution for the quarter ended 31 December 2023, which
has historically been declared in February and paid in March each
year.
7. Earnings per share
(Basic and Diluted)
|
Year ended 31 December 2023
|
Year ended 31 December 2022
|
Revenue net return attributable to
Ordinary shareholders (€'000)
|
13,179
|
14,036
|
Weighted average number of shares
in issue during the year
|
412,174,356
|
408,956,423
|
Total revenue return per ordinary
share
|
3.2¢
|
3.4¢
|
Capital return attributable to
Ordinary shareholders (€'000)
|
(94,980)
|
(32,478)
|
Weighted average number of shares
in issue during the year
|
412,174,356
|
408,956,423
|
Total capital return per ordinary
share
|
(23.0¢)
|
(7.9¢)
|
Total return per ordinary
share
|
(19.8¢)
|
(4.5¢)
|
Earnings per share is calculated
on the revenue and capital loss for the year (before other
comprehensive income) and is calculated using the weighted average
number of shares in the period of 412,174,356 shares (2022:
408,956,423 shares).
8. Net asset value per
share
|
2023
|
2022
|
Net assets attributable to
shareholders (€'000)
|
384,928
|
489,977
|
Number of shares in issue at 31
December
|
412,174,356
|
412,174,356
|
Net asset value per
share
|
93.4¢
|
118.9¢
|
9. Investment
properties
|
2023
€'000
|
2022
€'000
|
Opening carrying value
|
776,616
|
683,878
|
Purchase at cost
|
-
|
128,278
|
Acquisition costs, disposal costs
and capital expenditure
|
329
|
4,892
|
Proceeds from disposal of
investment property
|
(18,500)
|
-
|
Realised gain on
disposal
|
133
|
-
|
Right of use asset
reassessment
|
1,988
|
-
|
Valuation losses
|
(106,935)
|
(40,304)
|
Movements in lease
incentives
|
328
|
180
|
Decrease in leasehold
liability
|
(272)
|
(308)
|
Transfer to Investment property
held for sale
|
(17,500)
|
-
|
Total carrying value at 31
December
|
636,187
|
776,616
|
On 3 May 2023 the Company
announced the sale of a warehouse, in Leon, Northern Spain, for
€18,500,000 which generated a realised gain on disposal of
€133,000.
The Meung-Sur-Loire warehouse in
France was classified as held of sale as at 31 December 2023 and
was valued at €17.5m (2022: €22.1m). The asset was disposed of on
25 March 2024.
Valuation methodology
The Investment Manager
appoints a
suitable valuer
(such appointment
is reviewed
on a periodic basis) to undertake a valuation of all the direct real estate investments
on a quarterly basis. The valuation is undertaken in accordance with the RICS Valuation - Global Standards ('Red Book Global Standards')
effective from
31 January
2022, published
by the Royal
Institution of
Chartered Surveyors.
Valuations were performed by Savills (2022: Savills), an accredited independent valuer
with a
recognised and
relevant professional qualification. The
valuer has
sufficient current local and national knowledge of the particular property markets involved
and has
the skills
and understanding
to undertake
the valuations
competently.
The Investment Manager
meets with
the valuer
on a quarterly basis to ensure the valuer is aware of all relevant information for
the valuation
and any
change in
the investments
over the
quarter. The
Investment Manager then reviews and discusses draft valuations with the valuer to ensure correct factual assumptions are made prior to the valuer issuing a final valuation report.
Where known,
the property
valuer takes
account of
deleterious materials included
in the
construction of
the investment
properties in
arriving at
its estimate
of fair
value when
the Investment
Manager advises
of the
presence of
such materials.
The majority
of the
leases are
on a full repairing and insurance basis and as such the Group is not liable for costs in respect of repairs or maintenance to its investment properties.
The fair value of investment property is determined using either the discounted cash flow or traditional method. Choice
of methodology
for a
particular jurisdiction is determined by the valuers independently, based
on local
market practices. Both valuation methodologies are
in accordance
with RICS
guidelines and
used in
determining the
fair value of
investment properties.
Discounted cash flow methodology
is based on the future annual net cash flow over a hold period of
10 years. The calculation of fair value using this method
includes:
. Present
value of the cashflow generated through the future net operating
income from the investment property over the hold
period.
. Present
value of the exit value (sale price) at the end of the 10-year hold
period.
The rate used to calculate the present value of cashflow is the Discount Rate. The rate used to calculate the exit value at the end of hold period is called the Capitalisation
Rate (exit
cap rate).
Fair value
is calculated
using rates
that the
valuer considers appropriate for the specific investment property.
The traditional method
requires an
assessment of
rental value
(the market
rent) and
a market-based
yield. The
yield can
be simply
defined as
the annual
return on
investment expressed as a percentage of capital value. The traditional method
can reflect
income streams
which are
under-rented and
over-rented by
incorporating risk within the yield choice (i.e., an all risks yield) and by structuring the calculation appropriately,
for example
a term
and reversion
for under-rented
income streams
and a
hardcore and
top-slice for
over-rented income streams. This will require the valuer to reflect risk in each element of the calculation, e.g., increasing the yield above the market in the top-slice to reflect the added risk of an above market rent being paid for a specified period, or reducing the yield in the term to
reflect that a below market rent is being paid until the reversion is due. These 'traditional'
approaches are
typically referred to as being growth implicit, meaning that rental growth is built into the choice of yield and not explicitly modelled within the calculation.
As at 31 December 2023 and 31
December 2022 the German, French, Polish and Spanish assets were
valued using the discounted cash flow method, and Netherlands
properties using the traditional method. The fair value of
investment properties amounted to €633,806,000 (2022:
€758,719,000).
The difference between the fair
value and the value per the Consolidated Balance Sheet at 31
December 2023 consists of adjustments for the asset held for sale
of €17.5million in Meung sur Loire, and for lease incentive assets
and the Den Hoorn lease liability separately recognised in the
balance sheet of €4,472,000 and €24,353,000 respectively (2022:
€4,740,000 and €22,637,000). Further details of the Den Hoorn lease
are disclosed in note 12.
The following disclosure is
provided in relation to the adoption of IFRS 13 Fair Value
Measurement. All properties are deemed Level 3 for the purposes of
fair value measurement and the current use of each property is
considered the highest and best use.
Country and sector
|
Fair
Value
2023
€'000
|
Fair
Value
2022
€'000
|
Valuation techniques
|
Key Unobservable inputs
|
Range (weighted average)
2023
|
Range (weighted average)
2022
|
|
Netherlands - Logistics
|
191,700
|
227,800
|
Traditional Method
|
ERV
|
€578,180
- €3,242,079
(€2,192,655)
|
€561,744
- €2,942,598
(€2,014,129)
|
|
|
|
|
|
Equivalent yield
|
4.58% -
5.65% (4.98%)
|
3.70% -
4.71% (4.15%)
|
|
Germany -
|
63,200
|
68,170
|
Discounted
|
Capitalisation rate
|
4.60% - 4.65% (4.63%)
|
4.10% - 4.25% (4.16%)
|
|
Logistics
|
Cash Flow
|
|
Discount rate
|
5.60% -
6.10% (5.80%)
|
4.95% -
5.20% (5.05%)
|
|
|
|
ERV
|
€1,486,034 - €2,088,971
(€1,849,513)
|
€1,282,212 - €1,874,346
(€1,644,685)
|
|
France -
|
99,380
|
107,390
|
Discounted
|
Capitalisation rate
|
4.50% - 5.25% (4.75%)
|
3.50% - 4.30% (4.08%)
|
|
Logistics
|
Cash Flow
|
|
Discount rate
|
6.00% -
8.00% (6.45%)
|
4.65% -
7.30% (5.90%)
|
|
|
|
ERV
|
€430,900
- €2,590,794
(€1,704,072)
|
€430,900
- €2,016,869
(€1,380,297)
|
|
Poland -
|
90,390
|
93,600
|
Discounted
|
Capitalisation rate
|
6.10% - 6.50% (6.28%)
|
5.30% - 5.70% (5.48%)
|
|
Logistics
|
Cash Flow
|
|
Discount rate
|
7.65% -
8.05% (7.80%)
|
6.80% -
7.35% (7.03%)
|
|
|
|
ERV
|
€1,843,811 - €2,099,948
(€1,955,779)
|
€1,620,954 - €1,852,180
(€1,709,416)
|
|
Spain -
|
189,136
|
261,759
|
Discounted
|
Capitalisation rate
|
4.75% - 5.00% (4.89%)
|
3.75% - 6.00% (4.11%)
|
|
Logistics
|
Cash Flow
|
|
Discount rate
|
6.25% -
7.50% (6.78%)
|
4.75% -
8.50% (5.53%)
|
|
|
|
ERV
|
€486,749
- €2,568,852
(€1,546,589)
|
€464,624
- €2,568,852
(€1,503,010)
|
|
Sensitivity analysis
The table below presents the
sensitivity of the valuation to changes in the most significant
assumptions underlying the valuation of investment
property.
All non-current assets other than
financial instruments, deferred tax assets and trade receivables
are non-UK based.
Country and sector
|
Assumption
|
Movement
|
Effect
on Valuation
2023
€'000
|
Effect
on Valuation
2022
€'000
|
|
Netherlands -
|
Equivalent Yield
|
+100 basis points Equivalent
Yield
|
(32,613)
|
(46,058)
|
|
Logistics
|
|
|
-100 basis points Equivalent
Yield
|
49,116
|
73,665
|
|
|
ERV
|
-10% ERV
|
(14,444)
|
(15,937)
|
|
|
|
+10% ERV
|
14,571
|
15,691
|
|
Germany - Logistics France -
Logistics Poland - Logistics Spain - Logistics
|
Capitalisation
|
+100 basis points
|
(46,886)
|
(67,483)
|
|
-100 basis points
|
70,530
|
109,982
|
|
Discount
|
+100 basis points
|
(32,213)
|
(39,516)
|
|
-100 basis points
|
35,405
|
43,556
|
|
ERV
|
-10% ERV
|
(25,854)
|
(17,454)
|
|
+10% ERV
|
22,978
|
15,248
|
|
10.Trade and other
receivables
|
2023
€'000
|
2022
€'000
|
Trade debtors
|
11,197
|
8,070
|
Bad debt provisions
|
(1,821)
|
(634)
|
Lease incentives
|
4,472
|
4,740
|
Tax receivables
|
562
|
39
|
VAT receivable
|
270
|
270
|
Other receivables
|
2
|
85
|
Total receivables
|
14,682
|
12,570
|
Lease incentives include accrued
income resulting from the spreading of lease incentives and/or
minimum lease payments over the term of the lease. A proportion of
this balance relates to period over 12 months.
The ageing of trade debtors is as
follows:
|
2023
€'000
|
2022
€'000
|
Less than 6 months
|
9,433
|
7,584
|
Between 6 & 12
months
|
1,493
|
486
|
Over 12 months
|
271
|
-
|
Total receivables
|
11,197
|
8,070
|
11.Cash and cash
equivalents
|
2023
2022
€'000
€'000
|
Cash at bank
|
18,061
20,262
|
Total cash and cash equivalents
|
18,061
20,262
|
12. Leasehold liability
|
2023
€'000
|
2022
€'000
|
Maturity analysis - contractual
undiscounted cash flows
|
|
|
Less than one year
|
659
|
550
|
One to two years
|
659
|
550
|
Two to three years
|
659
|
550
|
Three to four years
|
659
|
550
|
Four to five years
|
659
|
550
|
More than five years
|
26,218
|
25,065
|
Total undiscounted lease
liabilities
|
29,513
|
27,815
|
Lease liability included in the
statement of financial position
|
|
|
Current
|
659
|
550
|
Non - Current
|
23,694
|
22,087
|
Total lease liability included in
the statement of financial position
|
24,353
|
22,637
|
On 15 January 2020 the Group
acquired a logistics warehouse in Den Hoorn. The property is
located on land owned by the local municipality and leased to the
Group on a perpetual basis. The Group reserves the option to
acquire the freehold ownership on 1 July 2044 for the total sum of
€15,983,000. The annual ground lease payments amount to €659,000
per annum, the present value of these future payments (assuming the
option to acquire the freehold is exercised) being €24,353,000 as
at 31 December 2023.
13. Trade
and other payables
|
2023
€'000
|
2022
€'000
|
Trade payables
|
4,729
|
2,354
|
Tenant deposits
|
4,008
|
3,853
|
Rental income received in
advance
|
3,994
|
4,035
|
VAT payable
|
1,172
|
1,221
|
Accruals
|
1,681
|
1,534
|
Management fee payable
|
729
|
1,937
|
Accrued acquisition and
development costs
|
40
|
72
|
Total payables
|
16,353
|
15,006
|
14.Bank loans
|
2023
€'000
|
2022
€'000
|
Bank borrowing drawn
|
259,462
|
270,270
|
Loan issue costs paid
|
(6,384)
|
(6,055)
|
Accumulated amortisation of loan
issue costs
|
3,446
|
1,317
|
Total bank loans
|
256,524
|
265,532
|
|
2023
€'000
|
2022
€'000
|
Maturity less than 1
year
|
-
|
-
|
Maturity above 1 year
|
256,524
|
265,532
|
Total receivables
|
256,524
|
265,532
|
The above loans are secured on the
following properties on a non-recourse basis.
Country
|
Property
|
Lender
|
Loan (€'000)
|
Start
date
|
End
date
|
Fixed interest rate (including margin)
|
Germany
|
Erlensee
|
DZ Hyp
|
17,800
|
20/02/2019
|
31/01/2029
|
1.62%
|
Germany
|
Flörsheim
|
DZ Hyp
|
12,400
|
18/02/2019
|
30/01/2026
|
1.54%
|
France
|
Avignon + Meung Sur
Loire
|
BayernLB
|
33,000
|
12/02/2019
|
12/02/2026
|
1.57%
|
Netherlands
|
Ede + Oss + Waddinxveen
|
Berlin Hyp
|
44,200
|
06/06/2019
|
06/06/2025
|
1.35%
|
Netherlands
|
's Heerenberg
|
Berlin Hyp
|
11,000
|
27/06/2019
|
27/06/2025
|
1.10%
|
Netherlands
|
Den Hoorn + Zeewolde
|
Berlin Hyp
|
43,200
|
15/01/2020
|
14/01/2028
|
1.38%
|
Spain
|
Madrid Gavilanes 4 + Madrid
Coslada + Barcelona
|
ING Bank
|
53,862
|
26/09/2022
|
26/09/2025
|
3.11%
|
Spain
|
Madrid Gavilanes 1 + 2 +
3
|
ING Bank
|
44,000
|
07/07/2022
|
07/07/2025
|
2.72%
|
|
|
|
259,462
|
|
|
2.00%
|
Reconciliation of movements of
liabilities to cash flows arising from financing
activities.
|
Bank borrowings
|
Bank interest
|
Financial Derivatives
|
Total
|
€'000
|
€'000
|
€'000
|
€'000
|
Balance at 1 January
2023
|
265,532
|
-
|
3,709
|
269,241
|
Cash flow from financing
activities:
|
|
|
|
|
Bank loans interest
repaid
|
-
|
(5,202)
|
-
|
(5,202)
|
Bank loans repaid
|
(10,808)
|
-
|
-
|
(10,808)
|
Non-cash movement:
|
|
|
|
|
Amortisation of capitalised
borrowing costs
|
2,129
|
-
|
-
|
2,129
|
Capitalised borrowing
costs
|
(329)
|
-
|
-
|
(329)
|
Termination of derivative
financial instruments
|
-
|
-
|
(313)
|
(313)
|
Changes in fair value of financial
instruments
|
-
|
-
|
(1,706)
|
(1,706)
|
Change in creditors for loan
interest payable
|
-
|
5,218
|
-
|
5,218
|
Balance at 31 December
2023
|
256,524
|
16
|
1,690
|
258,230
|
|
|
|
|
|
|
Bank borrowings
|
Bank interest
|
Financial Derivatives
|
Total
|
|
€'000
|
€'000
|
€'000
|
€'000
|
Balance at 1 January
2022
|
175,947
|
326
|
109
|
176,382
|
Cash flow from financing
activities:
|
|
|
|
|
Bank loans interest
paid
|
-
|
(3,050)
|
-
|
(3,050)
|
Bank loans drawn
|
154,547
|
-
|
-
|
154,547
|
Bank loans repaid
|
(65,692)
|
-
|
-
|
(65,692)
|
Non-cash movement:
|
|
|
|
|
Amortisation of capitalised
borrowing costs
|
730
|
-
|
-
|
730
|
Changes in fair value of financial
instruments
|
-
|
-
|
3,600
|
3,600
|
Change in creditors for loan
interest payable
|
-
|
2,724
|
-
|
2,724
|
Balance at 31 December
2022
|
265,532
|
-
|
3,709
|
269,241
|
15.Derivative financial
instruments
|
2023
€'000
|
2022
€'000
|
Forward foreign exchange
contracts
Interest rate swap
|
-
1,690
|
(185)
3,894
|
|
1,690
|
3,709
|
In 2022 the Company employed
currency hedging to provide greater certainty as to the level of
Sterling distributions paid in respect of the year. A forward FX
contract was entered into fixing the EUR: GBP exchange rate at
€1.17:£1.
Such currency hedging was not used
during 2023.
During the 2022 financial year
AELI Leon entered into an agreement with ING Bank N.V for a loan
facility of€25.35 million at an interest rate payable of EURIBOR
plus 1.9%. In order to mitigate the interest rate risk, it entered
a fixed floating interest rate swap for the notional amount of
€23.52 million against an all-in fixed rate of 3.05% over the three
year loan term expiring September 2025. The remaining €1.83 million
drawn on the loan facility is capped at all- in fixed rate of
4.15%. On 3 May 2023 the Company announced the sale Leon and
repayment of loan of €10.81 million. Following repayment of the
loan, the company terminated €8.98 million of interest rate swaps
and €1.83 million cap realising a gain on termination of
€313,000.
AELI Madrid Logistics 1 has an
agreement with ING Bank N.V for a loan facility of €44 million at
an interest rate payable of EURIBOR plus 1.15%. In order to
mitigate the interest rate risk, it entered a fixed floating
interest rate swap for the notional amount of €40 million against
an all-in fixed rate of 2.57% over the three year loan term
expiring July 2025.The remaining €4 million drawn on the loan
facility is capped at all-in fixed rate of 4.15%.
AELI Madrid Logistics 2 has an
agreement with ING Bank N.V for a loan facility of €39.3 million at
an interest rate payable of EURIBOR plus 1.15%. In order to
mitigate the interest rate risk, it entered a fixed floating
interest rate swap for the notional amount of €36.5 million against
an all-in fixed rate of 3.05% over the three year loan
term
expiring September 2025. The
remaining €2.8 million drawn on the loan facility is capped at
all-in fixed rate of 4.15%.
16.Share capital
|
2023
€'000
|
2022
€'000
|
Opening balance
Ordinary shares issued
|
4,717
-
|
4,309
408
|
Balance as at 31
December
|
4,717
|
4,717
|
Ordinary shareholders participate
in all general meetings of the Company on the basis of one vote for
each share held.
Each Ordinary share has equal
rights to dividends and equal rights to participate in a
distribution arising from a winding up of the Company. The Ordinary
shares are not redeemable.
The number of Ordinary shares
authorised, issued and fully paid at 31 December 2023 was
412,174,356 (2022: 412,174,356).
The nominal value of each share is
£0.01.
17. Share premium
|
2023
€'000
|
2022
€'000
|
Opening balance
Premium arising on issue of new
shares Share issue costs deducted
|
269,546
-
-
|
225,792
44,513
(759)
|
Balance as at 31
December
|
269,546
|
269,546
|
18. Special distributable reserve
|
2023
€'000
|
2022
€'000
|
Opening balance
|
164,851
|
178,207
|
Dividends paid
|
(12,752)
|
(13,356)
|
Balance as at 31
December
|
152,099
|
164,851
|
At a General Meeting held on 8
November 2017, a special resolution was passed authorising,
conditional on the issue of Ordinary shares by the Company, the
amount standing to the credit of the share premium account of the
Company following issue to be cancelled. In order to cancel the
share premium account the Company was required to obtain a Court
Order, which was received on 13 March 2018. A Statement of Capital
form was lodged at Companies House with a copy of the Court Order
on 16 March 2018. With effect from that date the amount of the
share premium account cancelled was credited as a special
distributable reserve in the Company's books of account. Further
details of the dividends paid from the special distributable
reserve are provided in note 8 of the parent company
accounts.
19. Capital reserves
|
Realised
capital
reserve
€'000
|
Unrealised gains/(losses)
€'000
|
Total
capital
reserve
€'000
|
Opening balance
|
(2)
|
30,782
|
30,780
|
Deferred taxation
|
1,124
|
12,730
|
13,854
|
Change in fair value of
investments
|
1,933
|
(108,811)
|
(106,878)
|
Gains on disposal of investment
properties
|
133
|
-
|
133
|
Taxation on disposal of investment properties
|
(440)
|
-
|
(440)
|
Early loan repayments costs
|
(110)
|
-
|
(110)
|
Movement in fair value gains on
derivative financial instruments
|
-
|
(1,706)
|
(1,706)
|
Gains arising from the
derecognition of derivative financial instruments
|
313
|
-
|
313
|
Currency gains during the
year
|
-
|
(146)
|
(146)
|
Balance as at 31 December 2023
|
2,951
|
(67,151)
|
(64,200)
|
|
Realised
capital
reserve
€'000
|
Unrealised gains/(losses)
€'000
|
Total
capital
reserve
€'000
|
Opening balance
|
(2)
|
63,260
|
63,258
|
Deferred taxation
|
-
|
3,893
|
3,893
|
Fair value losses of
investments
|
-
|
(40,432)
|
(40,432)
|
Movement in fair value gains on
derivative financial instruments
|
-
|
3,600
|
3,600
|
Currency gains during the
year
|
-
|
461
|
461
|
Balance as at 31 December
2022
|
(2)
|
30,782
|
30,780
|
20.Operating segments
The Group's reportable segments
are the geographical areas in which it operates. These operating
segments reflect the components of the Group that are regularly
reviewed to allocate resources and assess performance.
2023
|
Netherlands
€'000
|
Poland
€'000
|
Germany
€'000
|
Spain
€'000
|
France
€'000
|
Parent Company
€'000
|
Total
€'000
|
|
Total Assets
|
224,723
|
94,759
|
64,670
|
198,564
|
108,816
|
2,360
|
693,892
|
|
Total Liabilities
|
128,459
|
5,832
|
33,044
|
100,070
|
40,107
|
1,452
|
308,964
|
|
Total Comprehensive return
for the year (Revenue)
|
3,588
|
1,623
|
182
|
(2,568)
|
197
|
10,157
|
13,179
|
|
Total Comprehensive return
for the year (Capital)
|
(28,319)
|
(2,126)
|
(4,319)
|
(54,376)
|
(6,031)
|
191
|
(94,980)
|
|
Included in Total
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
Net change in fair
value
|
(36,416)
|
(2,892)
|
(4,913)
|
(54,187)
|
(8,470)
|
-
|
(106,878)
|
|
adjustment on
investment
|
|
|
|
|
|
|
|
|
|
property
|
|
|
|
|
|
|
|
|
Rental income
|
11,808
|
5,068
|
3,242
|
9,259
|
4,058
|
-
|
33,435
|
|
2022
|
Netherlands
€'000
|
Poland
€'000
|
Germany
€'000
|
Spain
€'000
|
France
€'000
|
Parent Company
€'000
|
Total
€'000
|
|
Total Assets
|
258,324
|
97,947
|
69,431
|
275,129
|
115,160
|
1,792
|
817,783
|
|
Total Liabilities
|
134,913
|
6,564
|
33,663
|
111,143
|
39,083
|
2,440
|
327,806
|
|
Total Comprehensive return
for the year (Revenue)
|
677
|
1,501
|
353
|
1,745
|
1,126
|
8,634
|
14,036
|
|
Total Comprehensive return
for the year (Capital)
|
(19,933)
|
3,202
|
(1,634)
|
(11,337)
|
(2,941)
|
165
|
(32,478)
|
|
Included in Total
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
Net (loss)/gain from
the
|
(24,762)
|
3,901
|
(1,742)
|
(14,635)
|
(3,194)
|
-
|
(40,432)
|
|
fair value adjustment
on
|
|
|
|
|
|
|
|
|
|
investment property
|
|
|
|
|
|
|
|
|
Rental income
|
10,398
|
4,605
|
2,950
|
8,395
|
3,338
|
-
|
29,686
|
|
21.Financial instruments and
investment properties
Fair value hierarchy
IFRS 13 requires the Group to
classify its financial instruments held at fair value using a
hierarchy that reflects the significance of the inputs used in the
valuation methodologies. These are as follows:
Level 1 - quoted prices in active
markets for identical investments;
Level 2 - other significant
observable inputs (including quoted prices for similar investments,
interest rates, prepayments, credit risk, etc.); and
Level 3 - significant unobservable
inputs.
The following table shows an
analysis of the fair values of investment properties recognised in
the balance sheet by level of the fair value hierarchy:
31 December 2023
|
Level 1
€'000
|
Level 2
€'000
|
Level 3
€'000
|
Total
fair value
€'000
|
Investment properties
|
-
|
-
|
636,187
|
636,187
|
Investment property
held-for-sale
|
-
|
-
|
17,500
|
17,500
|
31 December 2022
|
Level 1
€'000
|
Level 2
€'000
|
Level 3
€'000
|
Total
fair value
€'000
|
Investment properties
|
-
|
-
|
776,616
|
776,616
|
The lowest level of input is the
underlying yields on each property which is an input not based on
observable market data.
31 December 2023
|
Level 1
€'000
|
Level 2
€'000
|
Level 3
€'000
|
Total
fair value
€'000
|
Derivative financial
asset
|
-
|
1,690
|
-
|
1,690
|
31 December 2022
|
Level 1
€'000
|
Level 2
€'000
|
Level 3
€'000
|
Total
fair value
€'000
|
Derivative financial
liability
|
-
|
(185)
|
-
|
(185)
|
Derivative financial
asset
|
-
|
3,894
|
-
|
3,894
|
The lowest level of input is
EUR:GBP exchange rate for forward foreign currency contracts. The
lowest level of inputs for Interest rate SWAPs and Caps are current
market interest rates and yield curve over the remaining term of
the instrument.
31 December 2023
|
Level 1
€'000
|
Level 2
€'000
|
Level 3
€'000
|
Total
fair value
€'000
|
Bank loans
|
-
|
253,667
|
-
|
253,667
|
31 December 2022
|
Level 1
€'000
|
Level 2
€'000
|
Level 3
€'000
|
Total
fair value
€'000
|
Bank loans
|
-
|
257,449
|
-
|
257,449
|
Bank loans are measured at
amortised cost. The fair value is estimated using discounted cash
flows with the current interest rates and yield curve applicable to
each loan. As at 31 December 2023 the estimated fair value of the
Group's bank loans is €253,667,000 (2022: €257,449,000). The
amortised cost is €256,524,000 (2022: €265,532,000).
22. Risk
management
The Group's financial instruments
comprise securities and other investments, cash balances, loans and
debtors and creditors that arise directly from its operations; for
example, in respect of sales and purchases awaiting settlement, and
debtors for accrued income. The Group also has the ability to enter
into derivative transactions in the form of forward foreign
currency contracts, futures and options, for the purpose of
managing currency and market risks arising from the Group's
activities. The Group also has the ability to enter into derivative
transactions to hedge against fluctuations in the cost of borrowing
as a result of changes in interest rates.
The main risks the Group faces
from its financial instruments are (a) market price risk
(comprising of (i) interest rate risk, (ii) foreign currency risk
and (iii) other price risk), (b) liquidity risk and (c) credit
risk.
(a) Market price
risk
The fair value or future cash
flows of a financial instrument held by the Group may fluctuate
because of changes in market prices. This market risk comprises
three elements - interest rate risk, foreign currency risk and
other price risk.
(i) Market risk arising from
interest rate risk
Interest rate movements may affect
the level of income receivable on cash deposits. The possible
effects on fair value and cash flows that could arise as a result
of changes in interest rates are taken into account when making
investment and borrowing decisions.
Interest risk profile
The interest rate risk profile of
the portfolio of financial assets and liabilities at the year end
were as follows:
As at 31 December 2023
|
Interest
rate
%
|
Local currency
'000
|
Foreign exchange
rate
|
Euro equivalent
€'000
|
Assets:
|
|
|
|
|
Euro
|
4.00
|
17,457
|
1.00
|
17,457
|
Pound Sterling
|
5.25
|
180
|
0.87
|
207
|
Polish Zloty
|
5.25
|
1,723
|
4.35
|
397
|
Total
|
18,061
|
As at 31 December 2022
|
Interest
rate
%
|
Local currency
'000
|
Foreign exchange
rate
|
Euro equivalent
€'000
|
Assets:
|
|
|
|
|
Euro
|
2.00
|
19,371
|
1.00
|
19,371
|
Pound Sterling
|
3.50
|
188
|
0.89
|
212
|
Polish Zloty
|
6.25
|
3,152
|
4.69
|
679
|
Total
|
20,262
|
The floating rate assets consist
of cash deposits on call earning interest at prevailing market
rates.
An increase of 100bps in interest rates as at the reporting date would have increased the reported profit and equity
shareholders' funds by €180,610 (2022: €202,560). Other Comprehensive Income
and Capital
Reserves would have been €1,253,958 (2022:
€2,480,934) higher as a result of an increase in the fair value of the derivative designated
as interest
rate swaps
and €63,684
(2022: €156,769)
higher as
a result
of an
increase in
the fair
value of the
derivative designated as interest rate caps on floating rate borrowings.
A decrease of 100bps in interest
rates would have reduced the reported profit and equity
shareholders' funds by €180,610
(2022: €202,560).
Other Comprehensive Income
and the
Capital Reserve
would have
been €1,253,952
(2022: €2,528,315) lower as a result of a decrease in the fair value of the derivative designated as interest rate swaps
and €29,261
(2022: €91,392)
lower as
a result
of a decrease in the fair value of the derivative designated as interest
rate caps
on floating
rate borrowings.
Other financial assets and liabilities (e.g. debtors, creditors) are not subject to interest rate risk. The rates of interest on the bank loans are fixed or hedged until the end of their term hence not subject to any interest rate risk.
Further details
are disclosed
in Note
14.
(ii) Market risk arising from
foreign currency risk
The income and capital value of
the Groups investments and liabilities can be affected by exchange
rate movements as some of the Group's assets and income are
denominated in currencies other than Euro which is the Group's
reporting currency.
The revenue account is subject to
currency fluctuation arising from overseas income.
Foreign currency risk
profile
Foreign currency risk exposure by
currency of denomination:
As at 31 December 2023
|
Net
monetary
exposure
€'000
|
Total
currency
exposure
€'000
|
Pound Sterling
|
(680)
|
(680)
|
Polish Złoty
|
397
|
397
|
Total foreign currency
|
(283)
|
(283)
|
Euro
|
(268,476)
|
(268,476)
|
Total
|
(268,759)
|
(268,759)
|
As at 31 December 2022
|
Net
monetary
exposure
€'000
|
Total
currency
exposure
€'000
|
Pound Sterling
|
381
|
381
|
Polish Złoty
|
679
|
679
|
Total foreign currency
|
1,060
|
1,060
|
Euro
|
(287,699)
|
(287,699)
|
Total
|
(286,639)
|
(286,639)
|
The asset allocation between
specific markets can vary from time to time based on the Investment
Manager's opinion of the attractiveness of the individual
markets.
Foreign currency
sensitivity
The following table details the
Group's sensitivity to a 10% increase and decrease in Sterling and
Polish Zloty against the Euro and the resultant impact that any
such increase or decrease would have on net return before tax and
equity shareholders' funds. The sensitivity analysis includes only
outstanding foreign currency denominated monetary items and adjusts
their translation at the year end for a 10% change in
foreign.
|
As at 31
December 2023 As at 31
December 2022
€'000
€'000
|
Polish Zloty
|
40
68
|
Pound Sterling
|
(68)
38
|
(iii) Market risk
arising from other price risk
Other price risks (i.e. changes in
market prices other than those arising from interest rate or
currency risk) may affect the value of the quoted investments. The
carrying amount for financial assets approximates to the fair value
of trade and other receivables (note 10) and trade and other
payables (note 13).
Other price risk
sensitivity
If the investment property valuation
fell by
10% at
31 December
2023, the
decrease in
total assets
and return before
tax would
be €63m
(2022: €76m).
If the
investment property valuation
rose by
10% at
31 December
2023, the increase in total assets and return before tax would be €63m (2022: €76m). Exposures vary throughout the year as a consequence of changes in the net assets of the Group arising out of the investment property and risk management processes.
(b) Liquidity
risk
This is the risk that the Group
will encounter difficulty in meeting obligations associated with
financial liabilities. All creditors are payable within three
months.
The Group's liquidity risk is
managed by the Investment Manager placing cash in liquid deposits
and accounts. Liquidity risk is the risk that the Group will
encounter in realising assets or otherwise raising funds to meet
financial commitments and also includes:
The level of dividends and other
distributions to be paid by the Group may fluctuate and there is no
guarantee that any such distributions will be paid.
The Group's target returns are
targets only and are based on estimates and assumptions about a
variety of factors all of which are beyond the Group's control and
which may adversely affect the Group's ability to make its target
returns. The Group may not be able to implement its investment
policy and strategy in a manner that generates dividends in line
with the target returns or the Group's investment objective.
Liquidity risk is not considered to be significant.
(c) Credit
risk
This is the risk of failure of the
counterparty to a transaction to discharge its obligations under
that transaction that could result in the Group suffering a
loss.
The risk is not considered
significant by the Board, and is managed as follows:
The Group has acquired a portfolio
of European logistics properties and has a number of leases with
tenants. In the event of default by a tenant, the Group will suffer
a rental shortfall and incur additional costs until the property is
re-let, including legal expenses, in maintaining, insuring and
re-letting the property. The Board receives regular reports on
concentrations of risk and any tenants in arrears. The Investment
Manager monitors such reports in order to anticipate and minimise
the impact of defaults by tenants. Cash is held only with reputable
financial institutions with high quality external credit
ratings.
None of the Group's financial
assets is secured by collateral.
The maximum credit risk exposure
as at 31 December 2023 was €28.3m (2022: €27.7m). This was due to
trade receivables and cash as per notes 10 and 11.
All cash is placed with financial
institutions with a credit rating of -A or above. Bankruptcy or
insolvency may cause the Group's ability to access cash placed on
deposit to be delayed or limited. Should the credit quality or the
financial position of the financial institutions currently employed
significantly deteriorate, the Investment Manager would move the
cash holdings to another financial institution. There are no
significant concentrations of liquidity risk within the
Group.
(d) Taxation and Regulation
risks
The Company must comply with the
provisions of the Companies Act and, as the shares are admitted to
the premium segment of the Official List, the Listing Rules and the
Disclosure Guidance and Transparency Rules.
A breach of the Companies Act
could result in the Company and/or the Board being fined or being
the subject of criminal proceedings. Breach of the Listing Rules
could result in the shares being suspended from listing.
Legal and regulatory changes could
occur that may adversely affect the Company. The Company has
obtained UK Investment Trust Company status. The Company must
comply with the provisions of sections 1158 and 1159 of the
Corporation Tax Act 2010 and Part 2 Chapter 1 of Statutory
Instruments 2011/2999 to maintain this status. Breaching these
regulations could result in the Company paying UK Corporation Tax
it would otherwise be exempt from, adversely affecting the
Company's ability to pursue its investment objective.
Capital management
The Group considers that capital
comprises issued Ordinary shares and long-term borrowings. The
Group's capital is deployed in the acquisition and management of
subsidiaries in line with the Group's investment objective,
specifically to provide a regular and attractive level of income
return together with the potential for long-term income and capital
growth from investing in high quality European logistics real
estate. The following investment limits and restrictions apply to
the Group and its business which, where appropriate, are measured
at the time of investment and once the Group is fully
invested:
. the
Group will only invest in assets located in Europe;
. no more
than 50 per cent. of Gross Assets will be concentrated in a single
country;
. no
single asset may represent more than 20 per cent. of Gross
Assets;
. forward
funded commitments will be wholly or predominantly pre-let and the
Group's overall exposure to forward funded commitments will be
limited to 20 per cent. of Gross Assets;
. the
Group's maximum exposure to any single developer will be limited to
20 per cent. of Gross Assets;
. the
Group will not invest in other closed-ended investment
companies;
. the
Group may only invest in assets with tenants which have been
classified by the Investment Manager's investment process as having
strong financial covenants; and
. no
single tenant will represent more than 20 per cent. of the Group's
annual gross income measured annually.
The Group's principal use of cash
will be to fund investments in accordance with its investment
policy, on-going operational expenses and to pay dividends and
other distributions to shareholders, as set out in the Prospectus.
The Group may from time to time have surplus cash (for example,
following the disposal of an investment).
Pending reinvestment of such cash,
it is expected that any surplus cash will be temporarily invested
in cash equivalents, money market instruments, bonds, commercial
paper or other debt obligations with financial institutions or
other counterparties having a single -A (or equivalent) or higher
credit rating as determined by an internationally recognised rating
agency; or ''government and public securities'' as defined for the
purposes of the FCA rules.
The Group monitors capital
primarily through regular financial reporting and also through a
gearing policy. The Group intends to use gearing with the objective
of improving shareholder returns. Debt will typically be secured at
the asset level and potentially at the Group level with or without
a charge over some or all of the Group's assets, depending on the
optimal structure for the Group and having consideration to key
metrics including lender diversity, cost of debt, debt type and
maturity profiles. Borrowings will typically be non-recourse and
secured against individual assets or groups of assets and the
aggregate borrowings at asset level will always be subject to an
absolute maximum, calculated at the time of drawdown for a property
purchase, of 50 per cent. of Gross Assets. Where borrowings are
secured against a group of assets, such group of assets shall not
exceed 25 per cent. of Gross Assets in order to ensure that
investment risk remains suitably spread. The Board has established
gearing guidelines for the AIFM in order to maintain an appropriate
level and structure of gearing within the parameters set out above.
Under these guidelines, aggregate borrowings at asset level are
expected to be at or around 35 per cent. of gross assets. The Board
will keep the level of borrowings under review and the aggregate
borrowings will always be subject to the absolute maximum set at
the time of the Group's launch, calculated at the time of drawdown
for a property purchase, of 50 per cent of Gross Assets. The fair
value of the Groups bank borrowings as at 31 December 2023 was
€259,462,000 (2022: €270,270,000).
Contractual undiscounted
maturities
All financial liabilities
presented as current are payable within 3 months. The analysis of
financial liabilities is below:
As at 31 December 2023
|
Within 1
year
€'000
|
1-2
years
€'000
|
2-5
years
€'000
|
Over 5
years
€'000
|
Total
€'000
|
Bank loans
|
5,182
|
156,823
|
90,759
|
17,824
|
270,588
|
Lease liability
|
659
|
659
|
1,977
|
26,218
|
29,513
|
Trade liabilities
|
16,353
|
-
|
-
|
-
|
16,353
|
Total
|
22,194
|
157,482
|
92,736
|
44,042
|
316,454
|
As at 31 December 2022
|
Within 1
year
€'000
|
1-2
years
€'000
|
2-5
years
€'000
|
Over 5
years
€'000
|
Total
€'000
|
Bank loans
|
4,836
|
4,836
|
214,634
|
61,337
|
285,643
|
Lease liability
|
550
|
550
|
1,650
|
25,065
|
27,815
|
Derivative financial instruments
|
185
|
-
|
-
|
-
|
185
|
Trade liabilities
|
9,750
|
-
|
-
|
-
|
9,750
|
Total
|
15,321
|
5,386
|
216,284
|
86,402
|
323,393
|
23.Related party
transactions
The Company's Alternative
Investment Fund Manager ('AIFM') throughout the year was abrdn Fund
Managers Limited ("aFML"). Under the terms of a Management
Agreement dated 17 November 2017 the AIFM is appointed to provide
investment management services, risk management services and
general administrative services including acting as the Company
Secretary. The agreement is terminable by either the Company or
aFML on not less than 12 months' written notice.
Under the terms of the agreement
portfolio management services are delegated by aFML to abrdn
Investments Ireland Limited ('aIIL'). The total management fees
charged to the Consolidated Statement of Comprehensive Income
during the year were €3,193,000 (2022: €3,953,000), of which
€729,000 (2022: €1,952,000) were payable at the year end. Under the
terms of a Global Secretarial Agreement between aFML and abrdn
Holdings Limited ('aHL'), company secretarial services are provided
to the Company by aHL.
A Promotional and Marketing Budget
fee of £214,000 (2022: £175,000) was approved for 2022/2023 at the
November 2022 Board meeting which is payable to abrdn Investment
Management Limited ('aIML').
The remuneration of Directors is
detailed below. Further details on the Directors can be found on
pages 80 to 81 of the published Annual
Report and financial statements for the year ended 31 December
2023.
|
2023
€'000
|
2022
€'000
|
Caroline Gulliver
|
49
|
47
|
John Heawood
|
41
|
41
|
Tony Roper
|
62
|
57
|
Diane Wilde
|
41
|
41
|
Balance as at 31
December
|
193
|
186
|
Please note the above figures are
all Euro, while those in the Directors' Remuneration Report are
stated in GBP. The Directors' shareholdings are detailed
below.
31
December 2023 Ordinary shares
|
31 December 2022 Ordinary shares
|
T Roper
|
122,812
|
102,812
|
C Gulliver
|
90,000
|
72,500
|
J Heawood
|
60,000
|
60,000
|
D Wilde
|
74,375
|
74,375
|
During 2023 the Directors
increased their shareholdings by: T Roper 20,000 on 24 May 2023 and
C Gulliver 17,500 on 24 May 2023.
24.Lease analysis
The group leases out its
investment properties under operating leases.
The future income under operating
leases, based on the unexpired lease length at the year end was as
follows (based on total rents and excluding annual CPI
adjustments).
|
2023
€'000
|
2022
€'000
|
Less than one year
|
33,884
|
34,087
|
Between one and two
years
|
32,370
|
32,708
|
Between two and three
years
|
29,584
|
31,298
|
Between three and four
years
|
26,086
|
28,985
|
Between four and five
years
|
23,689
|
27,111
|
Over five years
|
89,742
|
154,893
|
Total cash and cash
equivalents
|
235,355
|
309,082
|
The largest single tenant at the
year end accounted for 10.7 per cent of the annualised rental
income at 31 December 2023.
The Group has entered into
commercial property leases on its investment property portfolio.
These leases have remaining lease terms of between 1 and 18
years.
25.Post balance sheet
events
On 25 March 2024, the Group sold
the Meung-Sur-Loire warehouse in France for €17.5m, realising a
loss of €0.4m.
As at 31 December 2023, the
property was valued at €17.5m (2022: €22.1m). Following completion
of sale, €11m was repaid to Bayern LB reducing the total loan
balance to €248.5m and LTV to 37.7%.
26.Capital commitments
As at the 31 December 2023 the
Group had capital commitments of €nil (2022: €nil).
27.Ultimate parent
company
In the opinion of the Directors on
the basis of shareholdings reviewed by them, the Company has no
immediate or ultimate controlling party.
Corporate Information
EPRA Financial Reporting
(Unaudited)
Prepared in accordance with EPRA
best practice recommendations (BPR) February 2022.
EPRA Performance Measures
|
31 December 2023
Total
|
31
December 2022
Total
|
A. EPRA Earnings (€'000)
|
13,033
14,497
|
A. EPRA Earnings per share
(cents)
|
3.2
3.5
|
B. EPRA Net tangible assets
("NTA") (€'000)
|
394,550
509,741
|
B. EPRA Net tangible assets per
share (cents)1
|
95.7
123.7
|
C. EPRA Net reinstatement value
("NRV") (€'000)
|
430,527
546,326
|
C. EPRA Net reinstatement value
per share (cents)
|
104.5
132.5
|
D. EPRA Net disposal value
("NDV")(€'000)
|
387,785
498,060
|
D. EPRA Net disposal value per
share (cents)
|
94.1
120.8
|
E. EPRA Net initial yield
(%)
|
4.4
4.0
|
E. EPRA topped-up net initial
yield (%)
|
4.4
4.1
|
F. EPRA Vacancy rate (%)
|
6.0
3.6
|
G. EPRA Cost ratios - including
direct vacancy costs (%)
|
34.1
32.0
|
G. EPRA Cost ratios - excluding
direct vacancy costs (%)
|
32.4
31.0
|
H. EPRA Capital expenditure
(€'000)
|
139
133,170
|
I. EPRA Like for like rental
growth (%)
|
1.8
5.0
|
J. EPRA LTV (%)
|
40.0
34.6
|
1 Defined
as an Alternative Performance Measure.
|
|
A.
EPRA Earnings (€000)
|
|
Earnings per IFRS income
statement
|
(81,801)
(18,442)
|
Adjustments to calculate EPRA
Earnings, exclude:
|
|
Changes in value of investment
properties
|
106,878
40,432
|
Gains on disposal of investment
properties
|
(133)
-
|
Tax on profits on disposals
|
440
-
|
Deferred tax
|
(13,854)
(3,893)
|
Gains on termination of financial
instruments
|
(313)
-
|
Early loan repayment cost
|
110
-
|
Changes in fair value of financial
instruments
|
1,706
(3,600)
|
EPRA Earnings
|
13,033
|
14,497
|
Weighted average basic number of
shares
|
412,174
|
408,956
|
EPRA Earnings per share
(cents)
|
3.2
|
3.5
|