Atlantic Leaf Properties Limited Six months ended 31 August 2019
Contents Overview UK Market Financial results Asset management Debt & hedging Closing and summary 2
Overview
Overview We may be small, but we are well positioned in the right sector Average WALT Industrial Average cost of debt assets property yields 7.45% 3.53% 9.01 79% Retail Forward yield On current exposure on NAV share price Near 12% Reduced Near 10% at current to 1% in GBP exchange rates 4
Overview 79% of portfolio now industrial Sold retail Increased New debt Interim warehouse debt hedging facility with distribution joint venture to over Lloyds bank 4.5 pence £22m RCF £22.8m 90% per share Redeployed Two new leases On the downside, proceeds into five concluded Thomas Cook (tenant industrial assets in Peterborough property) went into Haydock (vacant) liquidation post half and Brecon £39.9m year-end (subject to CVA) 5
What we set out to achieve – first 6 months Strategic objectives Asset management HOW HAVE WE DONE HOW HAVE WE DONE Reduce Maintain exposure to income levels Total revenue £12.9m vs Sale of DFS has removed retail sector £11.8m direct retail exposure Evaluate opportunistic Change in the Always being worked on transactions asset mix over Proceeds fully re-invested time in 5 industrial logistics assets Reducing LTVs over the LTV at 48% with a strategy medium term Reduce tenant to reduce further concentration 2 Booker assets (contract risk exchanged) - £7m Target distribution 4.5 pence interim distribution, of 10 pence for still aiming for a full year 2019/2020 distribution of 10 pence Conclude new lease at Brecon New leases signed with Law Potential LSE Distribution (Haydock) and and Haydock Now a UK REIT – first step listing B&M (Brecon) 6
UK Market
Current UK economic environment Political standstill Retail environment challenging • Brexit delays prolong uncertainty • Pressure on retailers • Slow down in major decisions • Fears that the UK was sliding into recession have eased, after the economy • Investment funds sitting on sidelines posted its strongest monthly growth in July (0.3% vs 0.1% forecast) since January. Rolling three-month GDP growth Global interest rates 1.0% - historically low swap rates 0.8% 0.6% • Increased probability of a no deal Brexit 0.4% has floored rates 0.2% • Extremely flat yield curve 0.0% • BOE voted unanimously to keep -0.2% interest rates on hold -0.4% 3 months ended 8
UK property market Atlantic Leaf is well positioned in the industrial sector Property overview (UK) Investment transaction volumes (cumulative) • The industrial sector has seen yield compression in recent years. Vacant space down whilst the solid fundamentals drive growth • Institutions have decreased their investment activity and a slowing UK economy and a fast-approaching Brexit deadline has made those already heavily invested in the UK more cautious • The struggling retail sector shows little sign of improvement with occupier demand continuing to fall sharply across the sector Retail failures Prime yields (Q2, 2019) 9
Financial Results
2019/2020 Half year review Adjusted Net rental Adjusted earnings earnings revenue* per share £12.9 million £8.5 million 4.5 pence Net rental revenue £12.3 million £8.6 million 4.6 pence +4.5% (Aug 2018) (Aug 2018) (Aug 2018) Dividend EPRA earnings EPRA NAV Interim distribution per share per share per share 4.5p - full year aim 10p 4.50 pence 4.9 pence £1.02 4.65 pence 4.9 pence £1.04 (Feb 2019) (Aug 2018) (Aug 2018) * Net rental revenue includes straight line lease adjustments relating to rent free incentive periods but excludes inflation related straight line lease adjustments 11
Adjusted earnings Cost and interest ratios have remained consistent 16 14 (0.2) 0.1 0.4 (1.4) 12.9 (3.3) 12 10 8.5 8 millions 6 4 2 0 Net Earnings from joint Other income Property operating Other operating Finance costs Adjusted earnings rental income venture expenses expenses 12
Statement of financial position £5.76 million of undrawn debt facilities 31 Aug 2019 31 Aug 2018 £’m £’m Investment properties – direct 367.5 333.4 – right of use 16.0 - Investment in JV - 24.5 Listed Investments 3.0 4.1 Cash 4.2 8.4 *Interest bearing borrowings (179.8) (164.2) ^Long term Lease liabilities (16.0) - Fair value of derivatives (3.6) (0.4) Other net assets/(liabilities) (1.3) (2.2) Net assets 190.0 195.3 *Interest bearing borrowings (179.8) (164.2) Short term interest bearing borrowings (6.3) (61.7) Long term interest bearing borrowings (173.5) (102.5) ^ Brought onto balance sheet through application of IFRS 16 13
EPRA NAV reconciliation 28 Feb 2019 Pence EPRA NAV on 1 March 2019 103.90 Dividends paid – May ’19 (4.65) (1.24) Fair value adjustments (0.87) - Properties (net) (0.36) - Other (straight lining, listed investments, debt and swaps) 4.40 Profit for the period EPRA NAV at 31 August 2019 102.40 Dividend to be paid October 2019 (4.50) 14
Asset Management
Property Portfolio – 31 August 2019 SALIENT DETAILS Sector spread (by value) Aug 2019 Feb 2019 AUM – Direct assets (£m) 367 329 28 February 2019 31 August 2019 1% AUM - JV assets (£m) 0 43 10% 20% No of properties 54 59 No of tenants 37 34 20% Property forward yield* 7.45% 7.13% WALT (years)* 9.01 9.42 79% 70% Vacancy (sq ft)* 0.5% 2.7% Industrial warehouse/logistics Office Retail warehouse *Notes: excluding Thomas Cook: ● Forward yield – 7.09% ● WALT (years) – 8.88 ● Vacancy – 2.10% Tenant classification (by income) Regional spread (by value) North West 23% West Midlands 31% North East 17% East Midlands 15% Other 14% 16
Lynchwood House, Peterborough Good building in a good location which should attract interest Thomas Cook liquidation • Still in occupation, liquidation could continue for Impact on Earnings: 3 – 5 months during which rent is still collected • Cannot determine in the current year • Various letting agents approached until more details on liquidation but a • Options include maximum of 0.3 pence ‒ Splitting up the space • Potential £1,4m impact on earnings ‒ Re-letting as a whole for 20/21 (0.7) pence if not re-let for • Initial feedback full year ‒ Modern specification and low rental ‒ 45 minutes from London ‒ Limited other supply in Peterborough region Impact on NAV: • Building • Valuation has been written down by ‒ Recently renovated and high spec £1,6m at 31 August. ‒ Lends itself to multi-let • Valuations would be restored once • Peterborough re-tenanted ‒ Strong and growing regional location ‒ Low cost of occupation (£12 psf) 17
Lynchwood House, Peterborough Prudent view to write down value at half year Current Leasing Market • Bauer occupy 35% of total space Valuations: • Current vacancy rate of 4% on built office stock • Previous directors’ valuation • Permitted development (PD) of office to £25.6m (NIY 7.12%) ‒ residential has seen supply rapidly fall. In • Current directors’ valuation recent years, c.600,000 sq ft has been purchased for conversion £24.0m ‒ • A lack of supply for good refurbished and Grade A office accommodation in Peterborough Assumptions include: • Quoting headline rentals on Grade A stock in • Void + holding costs period Peterborough are £17.00 psf • Rent free provision for incentive • Rentals in excess of £15 psf are achievable (Thomas Cook paying £12) • Targeted £12-£15 psf • Normal incentives to new tenants will be • Capex £750,000 to split into provided smaller units 18
New leases Two key leases concluded Haydock: (previously vacant) Brecon: (CVA with previous tenant) • Law Distribution Limited • B&M Retail Limited • 12 year FRI lease • 15 year FRI lease • 2 year break (objective to remove at • No break end of October 2019) • Headline rental of £315,600 • Headline rental of £652,770 (£12.61/sq ft) (£4.50/sq ft) • Rent review 5 yearly to market rent • Rent review 5 yearly to RPI (1 -3% • Replaces Homebase who were in a collar and cap) CVA – a good outcome for ALP • Building operating at capacity (only 2 week vacancy) • New 60,000 sq ft extension under consideration with tenant 19
Sale of DFS JV Investment had a positive impact on returns for Atlantic Leaf – timing of exit considered good Benefits Redeployment: £39m of direct property acquired • Reduced our exposure to retail to 1% Total net property income of £2.69m • Yields on this type of asset continue to weaken Total floor area of 561,082 sq ft • Proceeds redeployed into five industrial and logistics assets Blended WAULT of 7.93 years Blended NIY of 6.67% Weighted annual rent of £4.79 psf Impact on earnings Debt from Lloyds for £22m at all-in • Overall IRR on investment approx. 9% cost of 3.3% • £1m realised capital loss in current year Total return on equity of 8.5% ‒ We had already written down in prior year Rental growth: • Earnings from the associate for the year of 41% subject to fixed RPI increases £350k netted off against this loss in the Strong rental growth anticipated financials over next 5 years 20
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