ATLANTIC LEAF PROPERTIES LIMITED Six months ended 31 August 2018
STATE OF THE UK MARKET
ECONOMIC ENVIRONMENT Brexit Uncertainty remains • Investment sentiment remains mixed • Property transactions volumes still strong • Impact on industrial market could be positive • CVAs (Company Voluntary Arrangements) 2018 has had an increase in CVAs to the detriment of landlords • British Property Federation (BPF) are lobbying against the CVA process given the punitive impact on • landlords Given the challenging retail environment, CVAs stand to have a large impact on both high street and • retail overall however the industrial and logistics sectors remains fairly resilient Interest rates 2017 saw the first increase in 10 years - rates still inherently low - further increase expected • Not expected to have a major impact on commercial real estate pricing • Average UK prime property yield stands at 5.3% for the year while UK 10 year bonds are at 1.69% • Still a positive carry between yield and interest rate • 3
PROPERTY ENVIRONMENT INDUSTRIAL SECTOR INDUSTRIAL ANNUAL RENTAL GROWTH FORECASTS (%) • Consistently the best performing sector in the market. • Expectation is for the trend to continue. 6,0 6,0 5,0 • Occupiers looking to protect themselves against Brexit by ensuring 5,0 4,0 4,0 they have sufficient capacity in the market. 3,0 3,0 • ALP have 70% exposure to this sector. 2,0 2,0 1,0 1,0 0,0 Growth 0,0 Distribution Standard • Demand and pricing remain firm. warehouses industrials • Ongoing rental growth across the industrial sector in 2018. 2012-2016 2017 2018-2022 OFFICE SECTOR RETAIL SECTOR RETAIL MARKET OUTLOOK • The valuation of shopping centres showing • Yields have softened, other than in major Prime Rents: decline metropolitan areas Limited opportunities for rental • Outlook remains negative • A lack of stock should drive future growth, with rents continuing to soften • ALP has no exposure to shopping centres but demand particularly in the SE and across secondary centres. does have targeted exposure to retail regional cities and keep vacancy levels Prime Yields: • Weakness in the retail market is expected in check. to persist. Predominantly stable with outward • Relatively positive sentiment should movement in secondary locations support occupier demand, but flexibility Growth will remain a key driver Supply: • ALP has 20% exposure to the regional • A weaker economic outlook, the business Availability is expected to tick up going office sector. rates revaluation and the ongoing structural forward, as CVAs and store closures change in the sector are just a few of the continue Growth headwinds facing the UK retail sector, which Demand: continues to see an ongoing reduction in • Overseas capital continues to target the Demand remains selective focusing on demand for physical space. UK office market due to attractive yields. key locations 4
FINANCIAL SUMMARY
SIX MONTHS ENDED IN REVIEW SOLID PERFORMANCE FOR THE PERIOD £12.3 million NET RENTAL REVENUE* £11.4 million (Aug 2017) Net Property Income £1.8 million EARNINGS +19% FROM JV** Nil (Aug 2017) £9.0 million DISTRIBUTABLE Distributable EARNINGS £6.4 million (Aug 2017) Earnings +41% ADJUSTED 4.76 pence EARNINGS 4.51 pence (Aug 2017) PER SHARE * Net Rental income includes straight line lease adjustments relating to rent free 4.65 pence Dividend DIVIDEND incentive periods but excludes inflation related straight line lease adjustments PER SHARE 4.5 pence (Aug 2017) +3.33% and nets off tenant expenses against tenant recoveries ** Excludes fair value adjustments in JV NAV PER SHARE 1.08 1.09 (Aug 2017) 6
STATEMENT OF FINANCIAL POSITION 31 Aug 2018 28 Feb 2018 £’m £’m Investment Properties 333.4 319.4 Investment in JV 24.5 25.8 Listed investments 4.1 7.1 Cash 8.4 6.6 *Interest bearing borrowings (164.2) (153,0) Fair value of derivatives (0.4) (0.6) Other net assets/(liabilities) (2.3) (1.1) Net assets 203.5 204.2 *Interest Bearing Borrowings (164.2) (153.0) Long term interest bearing borrowings (102.5) (131.8) Short term interest bearing borrowings (61.7) (21.2) 7
NAV RECONCILIATION TABLE GBP PENCE NAV – 28 Feb 18 108,06 Dividend paid - May 18 (4,60) Clean NAV 103,46 Fair value adjustments: Properties (net)* (0,46) Other (listed investments and swaps) (0,06) Distributable earnings 6 months ended 31 Aug 18 4,76 NAV – 31 Aug 18 107,70 Dividend payable - Nov 18 (4,65) Clean NAV 103,05 * Brecon (£1,71m), Thomas Cook £580k, Newcastle £180k, McBrides £100k and Upton (£132k) 8
ADJUSTED EARNINGS 16 GBP millions 0,7 1,8 14 0,6 12,3 12 -1,7 10 9,0 -2,7 -0,8 8 6 4 2 0 Net Earnings from Other income Property operating Other operating Finance costs Tax expense Distributable rental income joint venture expenses expenses earnings 9
SUMMARISED BALANCE SHEET 400 GBP millions 8,4 4,1 24,5 333,3 300 203,5 200 0,4 164,2 2,2 100 0 Investment Investment in Listed investment Cash* Interest bearing Fair value Other Net assets Property Joint Venture debt of derivatives net liabilities *Cash held for dividend 10
DEBT MATURITY PROFILE REFINANCE WILL RESULT IN A 4 YEAR WEIGHTED AVERAGE DEBT MATURITY TERM • Concluded refinance of existing debt of £115m owing to HSBC • Terms agreed to refinance existing debt of £23m owing to Santander • Maturity of the new debt - October 2022/23: o Will result in a weighted average maturity profile of 4 years on the date of the refinance • Weighted average cost of funding will increase to approx. 3.5%-3.6% depending on applicable swap rates • Once implemented, current portion of long-term debt will shift to non-current in the balance sheet • The refinance removes the risk of possible disruption in the finance market that could be caused by Brexit in 2019 and 2020 11
KEY FINANCIAL METRICS (INCLUDING PRO-FORMA BASED ON DEBT REFINANCE) LOAN TO VALUE RATIO* (%) INTEREST COVER RATIO** COST OF DEBT (%) MATURITY DEBT (YEARS) DEBT HEDGED* (%) 49 47 47 3,7 46 74 3,6 3,6 3.6 3,3 3.3 4,1 66 66 66 3.2 3.2 2,9 2,0 1,5 Feb 17 Feb 18 Aug 18 Proforma Feb 17 Feb 18 Aug18 Proforma Feb 17 Feb 18 Aug 18 Proforma Feb 17 Feb 18 Aug 18 Proforma Feb 17 Feb 18 Aug 18 Proforma ALL DEBT COVENANTS HAVE BEEN MET. IMPACT ON THE DEBT REFINANCE IN THE CURRENT YEAR HAS BEEN ILLUSTRATED AS A PROFORMA *On a gross proportional look through to the JV debt 12 ** The calculation of the ICR ratio has been amended to: (Operating Income less straight line lease income)/Interest Expense
ASSET MANAGEMENT
PROPERTY PORTFOLIO – 31 AUGUST 2018 SALIENT DETAILS SECTOR SPREAD (by value) Feb 2018 Aug 2018 AUM – Direct assets (£m) 319 333 28-Feb-18 31-Aug-18 10% 13% AUM - % share of DFS assets (£m) 45 45 No of properties 59 59 66% 70% No of tenants 15 33 20% 21% Property forward yield 7.1% 7.1% WALT (years) 10.66 10 Vacancy (sq ft) 2.6% 2.85% Industrial warehouse/logistics Office Retail warehouse TENANT CLASSIFICATION (by income) REGIONAL SPREAD (by value) 4% 2% 2% 3% 3%2% 2% North West 23% 3% 8% North East Booker DFS 3% 31% West Midlands Santander Halfords 3% South West 8% DHL Thomas Cook 4% East Midlands Epwin Other 4% Scotland E. ON B&M 5% York & the humber 12% 16% Inspirepac Buffaload South East 5% Gestamp EE 12% Eask Anglia 6% Bauer Robert McBride 11% Wales 14% 7% 7% 14
ASSET MANAGEMENT INITIATIVES Successful implementation of the sale of non-core assets Disposal of • Property was sold for £1.2m reflecting a 6% NIY and resulting in an after tax IRR of 21%. • Epwin asset in Will assist in future revaluations due to price achieved on this sale • Upton - June 18 Successfully acquired the Freehold interest in the property • Booker, Post acquisition, management have completed the term extension for the existing leasehold interest from 38 • Newcastle to 125 years This has resulted in a £180,000 uplift in the value of the leasehold interest and through improving the Lease Re-gear • freehold ground rent, has also maintained the value of the freehold interest at the purchase price. Lease re-gear has been completed resulting in assignment of lease to stronger covenant of Smurfit Kappa and • Inspirepac/ extending leases by 5 years to provide a WALT of 13.4 years Smurfit Kappa The rent reviews on both assets have also been agreed which results in a 11% increase (£95,000 per annum) • Following successful onboarding of the asset lease renewals and new lettings have reduced the overall vacancy • Deacon Park, rate to circa 0.5% of the total lettable space from 2-3% when acquired Knowsley Result is positive income growth • New leasing initiative has been agreed to redevelop unutilised space within the building Additional income • Will result in £18K of additional income and open discussions for a further lease extension Thomas Cook • Property 15
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