Atlantic Leaf Properties Limited Six months ended 31 August 2019 - - PowerPoint PPT Presentation

Atlantic Leaf Properties Limited

Six months ended 31 August 2019

Contents

2

Overview Financial results Asset management Closing and summary Debt & hedging UK Market

Overview

Overview

4

We may be small, but we are well positioned in the right sector

Average property yields Average cost of debt WALT Industrial assets Retail exposure Forward yield

• n NAV

On current share price

7.45% 3.53% 9.01 79% Reduced to 1% Near 10% in GBP Near 12%

at current exchange rates

Overview

5

79% of portfolio now industrial

Sold retail warehouse joint venture Redeployed proceeds into five industrial assets New debt facility with Lloyds bank Two new leases concluded On the downside, Thomas Cook (tenant in Peterborough property) went into liquidation post half year-end Increased debt hedging to over Interim distribution Haydock (vacant) and Brecon (subject to CVA) £22.8m £39.9m £22m RCF 90%

4.5 pence per share

Asset management

What we set out to achieve – first 6 months

6

Strategic objectives

HOW HAVE WE DONE

Reduce exposure to retail sector Sale of DFS has removed direct retail exposure Change in the asset mix over time Proceeds fully re-invested in 5 industrial logistics assets Conclude new lease at Brecon and Haydock New leases signed with Law Distribution (Haydock) and B&M (Brecon) Reduce tenant concentration risk 2 Booker assets (contract exchanged) - £7m Maintain income levels Total revenue £12.9m vs £11.8m Evaluate

• pportunistic

transactions Always being worked on Target distribution

• f 10 pence for

2019/2020 4.5 pence interim distribution, still aiming for a full year distribution of 10 pence Reducing LTVs

• ver the

medium term LTV at 48% with a strategy to reduce further

HOW HAVE WE DONE

Potential LSE listing Now a UK REIT – first step

UK Market

Current UK economic environment

• Brexit delays prolong uncertainty
• Slow down in major decisions
• Investment funds sitting on sidelines

8 Rolling three-month GDP growth

• 0.4%
• 0.2%

0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 3 months ended

• Pressure on retailers
• Fears that the UK was sliding into

recession have eased, after the economy posted its strongest monthly growth in July (0.3% vs 0.1% forecast) since January.

• Increased probability of a no deal Brexit

has floored rates

• Extremely flat yield curve
• BOE voted unanimously to keep

interest rates on hold

Political standstill Retail environment challenging Global interest rates

• historically low swap rates

UK property market

9

• 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 Property overview (UK) Investment transaction volumes (cumulative) Retail failures Prime yields (Q2, 2019)

Atlantic Leaf is well positioned in the industrial sector

Financial Results

2019/2020 Half year review

Net rental revenue

+4.5%

* Net rental revenue includes straight line lease adjustments relating to rent free incentive periods but excludes inflation related straight line lease adjustments

Net rental revenue*

£12.9 million

£12.3 million

(Aug 2018)

Adjusted earnings per share

4.5 pence

4.6 pence

(Aug 2018)

11

Adjusted earnings

£8.5 million

£8.6 million

(Aug 2018)

Interim distribution

4.5p - full year

aim 10p

Dividend per share

4.50 pence

4.65 pence

(Aug 2018)

EPRA NAV per share £1.04

(Feb 2019)

£1.02

EPRA earnings per share

4.9 pence

4.9 pence

(Aug 2018)

Adjusted earnings

12.9 8.5 0.4 0.1 (0.2) (1.4) (3.3) 2 4 6 8 10 12 14 16

Net rental income Earnings from joint venture Other income Property operating expenses Other operating expenses Finance costs Adjusted earnings

millions

12

Cost and interest ratios have remained consistent

Statement of financial position

31 Aug 2019 £’m 31 Aug 2018 £’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)

13

^ Brought onto balance sheet through application of IFRS 16

£5.76 million of undrawn debt facilities

EPRA NAV reconciliation

28 Feb 2019 Pence EPRA NAV on 1 March 2019 103.90 Dividends paid – May ’19 (4.65) Fair value adjustments (1.24)

• Properties (net)

(0.87)

• Other (straight lining, listed investments, debt and swaps)

(0.36) Profit for the period 4.40 EPRA NAV at 31 August 2019 102.40 Dividend to be paid October 2019 (4.50)

14

Asset Management

79% 20% 1%

31 August 2019 Industrial warehouse/logistics Office Retail warehouse

Property Portfolio – 31 August 2019

SALIENT DETAILS

Aug 2019 Feb 2019

AUM – Direct assets (£m) 367 329 AUM - JV assets (£m) 43 No of properties 54 59 No of tenants 37 34 Property forward yield* 7.45% 7.13% WALT (years)* 9.01 9.42 Vacancy (sq ft)* 0.5% 2.7%

Sector spread (by value) Tenant classification (by income) Regional spread (by value)

23% 17% 14% 15% 31%

North West West Midlands North East East Midlands Other

70% 20% 10%

28 February 2019

16

*Notes: excluding Thomas Cook:

• Forward yield – 7.09% ● WALT (years) – 8.88 ● Vacancy – 2.10%

Lynchwood House, Peterborough

• Still in occupation, liquidation could continue for

3 – 5 months during which rent is still collected

• Various letting agents approached
• Options include

‒ Splitting up the space ‒ Re-letting as a whole

• Initial feedback

‒ Modern specification and low rental ‒ 45 minutes from London ‒ Limited other supply in Peterborough region

• Building

‒ Recently renovated and high spec ‒ Lends itself to multi-let

• Peterborough

‒ Strong and growing regional location ‒ Low cost of occupation (£12 psf)

17

Impact on Earnings:

• Cannot determine in the current year

until more details on liquidation but a maximum of 0.3 pence

• Potential £1,4m impact on earnings

for 20/21 (0.7) pence if not re-let for full year Impact on NAV:

• Valuation has been written down by

£1,6m at 31 August.

• Valuations would be restored once

re-tenanted Thomas Cook liquidation Good building in a good location which should attract interest

Lynchwood House, Peterborough

18

• Bauer occupy 35% of total space
• Current vacancy rate of 4% on built office stock
• Permitted development (PD) of office to

residential has seen supply rapidly fall. In recent years, c.600,000 sq ft has been purchased for conversion

• A lack of supply for good refurbished and

Grade A office accommodation in Peterborough

• Quoting headline rentals on Grade A stock in

Peterborough are £17.00 psf

• Rentals in excess of £15 psf are achievable

(Thomas Cook paying £12)

• Normal incentives to new tenants will be

provided Current Leasing Market Valuations:

• Previous directors’ valuation

‒

£25.6m (NIY 7.12%)

• Current directors’ valuation

‒

£24.0m Assumptions include:

• Void + holding costs period
• Rent free provision for incentive
• Targeted £12-£15 psf
• Capex £750,000 to split into

smaller units Prudent view to write down value at half year

New leases

19

Haydock: (previously vacant)

• Law Distribution Limited
• 12 year FRI lease
• 2 year break (objective to remove at

end of October 2019)

• Headline rental of £652,770

(£4.50/sq ft)

• Rent review 5 yearly to RPI (1 -3%

collar and cap)

• Building operating at capacity
• New 60,000 sq ft extension under

consideration with tenant Brecon: (CVA with previous tenant)

• B&M Retail Limited
• 15 year FRI lease
• No break
• Headline rental of £315,600

(£12.61/sq ft)

• Rent review 5 yearly to market rent
• Replaces Homebase who were in a

CVA – a good outcome for ALP (only 2 week vacancy) Two key leases concluded

Sale of DFS JV

20

Benefits

• Reduced our exposure to retail to 1%
• Yields on this type of asset continue to weaken
• Proceeds redeployed into five industrial and

logistics assets Impact on earnings

• Overall IRR on investment approx. 9%
• £1m realised capital loss in current year

‒ We had already written down in prior year

• Earnings from the associate for the year of

£350k netted off against this loss in the financials Redeployment:



£39m of direct property acquired



Total net property income of £2.69m



Total floor area of 561,082 sq ft



Blended WAULT of 7.93 years



Blended NIY of 6.67%



Weighted annual rent of £4.79 psf



Debt from Lloyds for £22m at all-in cost of 3.3%



Total return on equity of 8.5%

Rental growth:



41% subject to fixed RPI increases



Strong rental growth anticipated

• ver next 5 years

Investment had a positive impact on returns for Atlantic Leaf – timing of exit considered good

Valuations at half-year

21

• Industrial Yields remain constant, notable slowdown in volume and market depth
• Offices Core regional city yields flat, long income attractive to investors
• Haydock Revaluation expected once short term break removed
• Brecon Repositioned with B&M lease – uplift in valuation anticipated
• Booker

Asset sales at our carrying value support existing portfolio valuations Key will be rent review and removal of the 2025 break for further uplift

• The portfolio has been revalued down by £1.7 million primarily relating to the

Peterborough building ‒ 0.5% of the gross AUM

• No indication of material movements in valuations at this stage

‒ Will be confirmed during year end valuations

Sectors Individual assets Summary Our valuations remain conservative and robust

Asset management focus area

22

• Booker – Feb 2020
• DHL – Dec 2019
• Reduce tenant concentration risk

‒

Contracts have been exchanged to sell two smaller Booker assets – due 31 October 2019 (£7m)

• Asset sales have been redeployed into growth asset class

‒

Successfully completed the purchase of 5 new industrial units

‒

Diversified industrial and logistics portfolio

‒

Multi-let industrial – difficult to find in this market

• Need to manage leases even if they have long duration – to protect values against

shortening leases

• Will use lease re-gears to maximise value on assets
• Focus on rent reviews and achieving best rental uplift

Focus on closing current rent reviews Continue working on asset composition Pro-active asset management

23

Re-gears

• Booker – leverage on upcoming review to

remove break/re-gear numerous leases

• Santander, Newcastle – possible re-gear

with negotiations ongoing

• EE – currently negotiating terms of re-gear

with tenant

• Serco – agreed to extend all leases to Jan

2023 with no additional incentives for the renewal

Asset management focus area

Rent reviews in current period

• EE – good rental increase by c.12% to

£811,421pa in May 2019

• Robert McBride, St Helens – good rental

increase (Mar 2019)

• DHL Runcorn – min increase of c.12%

(Dec 2019)

• Booker Portfolio – fixed minimum

increase of 13.14% (Feb 2020)

• The latter 2 will have good impact on

2020/21 year

Booker (long leaseholds)

– to protect values

• Basingstoke – HOT’s with Council. Extend

from 88 years to 125 years

• Norwich – in negotiations
• Bristol (Avonmouth) – in negotiations
• Aldershot – in negotiations

Site development

• Law Distribution, Haydock – feasibility to

construct further c.60 000 sq ft for tenant

• completed. Negotiating terms for space
• Should have a positive impact on

valuation and yields

Our new assets

• 1. Koito – Droitwich Spa

SALIENT DETAILS

• No. of properties

1 Location West Midlands Sector Industrial Tenure Freehold Site coverage 42% Area (sq ft) 177 694 Net rental (£ pa) 824 500 Net rental (£/sq ft) 4.64 Valuation (£’m) 11.89 NIY 6.50% Capital Value (£/sq ft) 67 25

LEASE/COVENANT

Tenant Koito Europe Limited Guarantor/surety n/a Dun & Bradstreet credit rating 5A1 WALT – expiry/break (years) 14.6/9.6 Next rent review Dec 2023 Rent review provision OMRV

• 2. Kerry Logistics – Manchester

SALIENT DETAILS

• No. of properties

1 Location North West Sector Industrial Tenure Freehold Site coverage 57% Area (sq ft) 62 429 Net rental (£ pa) 296 350 Net rental (£/sq ft) 4.75 Valuation (£’m) 4.45 NIY 6.25% Capital Value (£/sq ft) 71 26

LEASE/COVENANT

Tenant Kerry Logistics Ltd Guarantor/surety n/a Dun & Bradstreet credit rating 3A1 WALT – expiry (years) 4.8 Next rent review Mar 2024 (expiry) Rent review provision OMRV

• 3. Cassellie – Leeds

SALIENT DETAILS

• No. of properties

1 Location North East Sector Industrial Tenure Freehold Site coverage 58% Area (sq ft) 91 832 Net rental (£ pa) 459 570 Net rental (£/sq ft) 5.0 Valuation (£’m) 5.8 NIY 7.43% Capital Value (£/sq ft) 63 27

LEASE/COVENANT

Tenant Cassellie Limited Guarantor/surety Mobility Group Limited Dun & Bradstreet credit rating Cassellie - O 3 / Mobility - 1 A3 WALT – expiry/break (years) 10.0/5.0 Next rent review Jun 2024 Rent review provision OMRV

AAS

• 4. Assa Abloy – Wolverhampton

SALIENT DETAILS

• No. of properties

1 Location West Midlands Sector Industrial Tenure Freehold Site coverage 40% Area (sq ft) 120 341 Net rental (£ pa) 512 000 Net rental (£/sq ft) 4.25 Valuation (£’m) 7.10 NIY 7.26% Capital Value (£/sq ft) 59 28

LEASE/COVENANT

Tenant Assa Abloy Limited Guarantor/surety n/a Dun & Bradstreet credit rating 5A1 WALT – expiry (years) 4.2 Next rent review Jul 2021 Rent review provision RPI subject to 2% - 4% Collar & Cap

• 5. Lockwood Group – Denby

29

LEASE/COVENANT

Tenant Lockwood Group Limited Guarantor/surety n/a Dun & Bradstreet credit rating 2A2 WALT – expiry (years) 14.76 Next rent review Jun 2024 Rent review provision Higher of OMRV or RPI subject to 1% -3% Collar & Cap

SALIENT DETAILS

• No. of properties

1 Location East Midlands Sector Industrial Tenure Freehold Site coverage 46% Area (sq ft) 108 786 Net rental (£ pa) 597 291 Net rental (£/sq ft) 5.49 Valuation (£’m) 9.06 NIY 6.00% Capital Value (£/sq ft) 83

Debt & Hedging

Lender Amount

• f RCF

LTV Term to maturity Margin (bps) Capital repayments

Debt funding

• New £22m Revolving Credit Facility was entered into with Lloyds bank

‒ Excellent margins achieved ‒ +1 +1 Option to extend at the consent of the bank ‒ Used to fund the purchase of 5 new properties

31

Strategically important new funding relationship Summarised terms of funding Lloyds £22m 48% 3 years 180 None

Hedging

• Swap rates dropped to historically low levels

‒

The new debt entered into with Lloyds was hedged at a fixed rate of 0.71%

‒

Additional hedging was entered into post 31 Aug at a fixed rate of 0.58%

‒

Total debt hedged increased from 75% to 90%

‒

Current effective weighted average swap rate of portfolio: 1.22%

32

Increased hedging at excellent swap rates will protect against adverse interest rate movements

Key financial metrics

47% 46% 48% 48%

Feb 17 Feb 18 Feb 19 Aug 19

Loan to value ratio* (%)

4.0 4.2 3.9 3.9

Feb 17 Feb 18 Feb 19 Aug 19

3.2% 3.2% 3.3% 3.5%

Feb 17 Feb 18 Feb 19 Aug 19

2.9 2.0 4.0 3.4

Feb 17 Feb 18 Feb 19 Aug 19

Interest cover ratio Cost of debt (%) Maturity debt (years)

74% 66% 77% 81% 90%

Feb 17 Feb 18 Feb 19 Aug 19 Sep 19

Debt hedged* (%)

* On a gross proportional look through to the JV debt in 2018 but excluded in 2019 due to sale

33

Debt covenants have been met. Increased hedging entered into during the current year

Cash flow

• As a UK REIT Atlantic Leaf has to distribute at least 90% of its property income
• Debt amortisations are currently £1.25m per quarter
• Target to reduce LTV over time will reduce quarterly amortisations
• LTV will be reduced:

– Asset sales from time to time – New debt drawn at 48% with no amortisation

34

No large short term capital commitments

Closing & summary

Outlook 2019/2020

36

• Re-letting strategy for Peterborough
• Reduce tenant concentration risk – already started (two

Bookers sold in October 2019)

• Key rent reviews of Booker and DHL

Asset management

• bjectives
• Evaluate opportunistic transactions/asset sales to maximise

earnings and support the NAV

• New acquisitions in for full second half earnings
• Capital raises – now not opportune but remains key for future

growth

• We have moved our asset base further into well performing

industrial sector

Strategy and earnings

Solid base of assets to produce earnings

Annexure A:

Selected properties

Lynchwood House - Peterborough

SALIENT DETAILS

• No. of properties

1 Location North East Sector Office Tenure Freehold Site coverage 18% Area (sq ft) 177 621 Net rental (£ pa) - Bauer 646 325 Net rental (£/sq ft) 10.32 Valuation (£’m) 24 Capital Value (£/sq ft) 135 38 Thomas Cook strategy

• Operating costs to be mitigated short term through

business wind-down, rates relief and rationalisation of

• perating costs
• Occupational strategy underway with multiple agents
• Professional team appointed to re-configure multi-let

environment

• Target to create a high-end multi-let office environment

at affordable rents

Property already sublet with Bauer occupying 35% - lends itself to multi-let options

LEASE/COVENANT

Tenant Bauer Guarantor/surety H Bauer Publishing Dun & Bradstreet credit rating 5A1 WALT – expiry/break (years) 3.56 Next rent review n/a Rent review provision n/a

Booker Portfolio

SALIENT DETAILS

• No. of properties

30 Location UK (21) Scotland (9) Sector Industrial Tenure Freehold (16) Leasehold (14) Site coverage 30% – 50% Area (sq ft) 1 746 074 Net rental (£ pa) 7 376 352 Net rental (£/sq ft) 4.22 Valuation (£’m) 96.64 NIY 7.15% Capital Value (£/sq ft) 55 LEASE/COVENANT

Tenant Giant Booker Limited/Booker Limited Guarantor/surety Giant Bidco Limited Dun & Bradstreet credit rating 5A1 WALT – expiry/break (years) 11.25(6.25) Next rent review Feb 2020 Rent review provision 5 yearly to higher of 2.5% pa or MR Comments The next rent review in February 2020

• ffers fixed rental growth of 13.14%

39

Law Distribution – Haydock

SALIENT DETAILS

• No. of properties

1 Location North West Sector Distribution Tenure Leasehold (133 years) Site coverage 36% Area (sq ft) 144 973 Net rental (£ pa) 652 770 Net rental (£/sq ft) 4.50 Valuation (£’m) 7.92 NIY 6.60% Capital Value (£/sq ft) 55 40

LEASE/COVENANT

Tenant Law Distribution Guarantor/surety n/a Dun & Bradstreet credit rating 2A1 WALT – expiry/break (years) 11.73/1.73 Next rent review May 2024 Rent review provision RPI (1 -3% Collar & Cap)

B&M – Brecon

SALIENT DETAILS

• No. of properties

1 Location Wales Sector Retail warehouse Tenure Freehold Site coverage 35% Area (sq ft) 25 028 Net rental (£ pa) 315 600 Net rental (£/sq ft) 12.61 Valuation (£’m) 4.3 NIY 6.25% Capital Value (£/sq ft) 172 41

LEASE/COVENANT

Tenant B&M Retail Limited Guarantor/surety n/a Dun & Bradstreet credit rating 5A1 WALT – expiry (years) 15.0 Next rent review Sep 2024 Rent review provision OMRV

Annexure B: Shareholder analysis

99 53 105 119 78 76 71 90 96 20 40 60 80 100 120 140 31 Aug 17 30 Nov 17 28 Feb 18 31 May 18 31 Aug 18 30 Nov 18 28 Feb 19 31 May 19 31 Aug 19 51,952 119,974 24,640 73,977 81,890 71,248 57,124 47,768 53,694 60,000 120,000 180,000 31 Aug 17 30 Nov 17 28 Feb 18 31 May 18 31 Aug 18 30 Nov 18 28 Feb 19 31 May 19 31 Aug 19 4.2% 5.1% 2.8% 2.9% 4.8% 4.6% 3.9% 3.2% 3.1% 0% 1% 2% 3% 4% 5% 6% 31 Aug 17 30 Nov 17 28 Feb 18 31 May 18 31 Aug 18 30 Nov 18 28 Feb 19 31 May 19 31 Aug 19

Shareholders & liquidity

43 Average number of shares traded per day over quarter Total number of shareholders Percentage of issued shares traded over last 100 trading days Days to trade R100m

395 487 486 546 569 200 400 600 800 31 Aug 17 28 Feb 18 31 Aug 18 28 Feb 19 31 Aug 19

Key Shareholders/Fund Managers

44

Continue to add institutional investors on the register

No Shares Percentage held 1 Vukile Property Fund Limited 65 958 606 34.90% 2 Sentinel Retirement Fund 49 064 517 25.96% 3 Visio Capital Management 14 508 781 7.68% 4 Atlantic Property Investments Limited 9 448 825 5.00% 5 Coronation Fund Managers 6 132 567 3.25% 6 Absa Asset Management 5 199 921 2.75% 7 LCIP (Pty) Ltd 5 062 266 2.68% 8 Mazi Capital 4 559 346 2.41% 9 Old Mutual Group 4 392 144 2.32% 10 Namibian GIPF 4 336 651 2.29% 11 Prescient Investment Management 3 393 036 1.80% 12 Truffle Asset Management 3 312 250 1.75% 175 368 910 92.79%

23 September 2019

Annexure C: UK REIT distributions

UK REIT - Distributions

• Atlantic Leaf

distributions subject to a UK withholding tax of 20% ‒ SA/UK DTA: Individuals can claim back 5% from HMRC

• Individuals subject to

5% dividends tax on Strate

• Effective tax rate of

20%

46

SA Resident Individuals SA Corporates and REITS

• Atlantic Leaf

subject to a UK withholding tax of 20% ‒ SA/UK DTA: Corporates can claim back 5% from HMRC

• No further

dividends tax

• Taxed in the same

way as before ‒ No UK withholding tax ‒ 20% dividend tax

• n individuals

‒ No dividend tax on corporates

Non Property income Property income (PIDs)

47

This document is not, nor is it intended to be, any financial, investment, trading, tax, legal, accounting, actuarial or other professional advice (“advice”). Atlantic Leaf Properties Limited (“Atlantic Leaf”), their agents and affiliates, are dealing with you exclusively on the basis that you have sufficient knowledge, experience and/or professional financial, tax, legal and other advice to undertake your own assessment of the information. The views in this document are those of Atlantic Leaf and are subject to change, and Atlantic Leaf has no obligation to update its views or the information in this

• document. This document does not aim to notify you of any possible risks, direct or indirect, in undertaking a transaction and counterparties should ensure that

they fully understand and obtain professional advice in respect of the terms of the transaction, including the relevant risk factors and any legal, tax and accounting consideration applicable to them, prior to transacting. The information contained in this publication has been obtained from sources that Atlantic Leaf believes are reliable but we do not represent or warrant that it is accurate or complete. The information may be based on assumptions or market conditions and my change without notice. Market fluctuations and changes in exchange rates may have an effect on the value or price of investments. Past performance is not a guide to future investment performance. This document is confidential and the recipient may not distribute it to other persons without prior written consent of Atlantic Leaf. Distribution of this information may be restricted by law and persons who come into possession of this document should seek advice on and observe any restrictions. Neither Atlantic Leaf nor any of its affiliates or agents accepts any liability whatsoever for any direct, indirect or consequential damages or loss arising from any use of or reliance on this documentation or its contents. No proposal put forward in this document is intended to be binding upon Atlantic Leaf or any of its affiliates or agents whether by way of agreement, representation or otherwise. Atlantic Leaf will not be obliged to carry out any proposals or fulfill any terms mentioned herein. All terms hereby proposed are subject to, among other things, obtaining the necessary mandate appointment for Atlantic Leaf, completion of due diligence as required and execution of the documentation.

26 New Street, St Helier, Jersey JE2 3RA