The Board is committed to the highest standards of corporate governance and recognises its responsibility to serve the interests of shareholders by creating sustainable growth and shareholder value over the medium to long-term, whilst also reducing or mitigating risk.
As an AIM quoted company, Urban Logistics REIT plc is required to declare which recognised corporate governance code it has adopted and state how that code has been applied. The Board has decided to adopt the Quoted Companies Alliance Corporate Governance Code (the “QCA Code”) as it considers it to be suitable for the current size and stage of development of the Company. The QCA Code has been considered and applied where appropriate.
The Board is ultimately responsible for providing overall leadership of the Company. It determines the Company’s strategy, investment objectives and investment policy and has responsibility for the Company’s activities, including reviewing investment activity, performance and business conduct, as well as developing and complying with the principles of good corporate governance.
The Board is also responsible for controlling and supervising the Manager, Pacific Capital Partners Limited.
The Board has determined that the Chairman, Nigel Rich CBE, Jonathan Gray and Bruce Anderson are independent. Jonathan Gray has been appointed as the Senior Independent Director. As Richard Moffitt and Mark Johnson have an interest in the Manager, they are not considered independent and exclude themselves from voting on matters that involve Pacific Capital Partners Limited, or where there is a perceived potential conflict of interest. Whilst not independent, the Board considers that both Richard and Mark remain able to provide constructive challenge and scrutiny to the Board, as well as valuable and relevant skills and experience.
The Directors believe that the Board is well balanced and that between the Directors, it possesses sufficient breadth of skills, variety of backgrounds, relevant experience and knowledge to ensure it functions correctly and is not dominated by any one Director. There are no Executive Directors.
The Board holds formal scheduled meetings each quarter, with additional ad hoc meetings as required. These meetings are typically held at the Company’s head office and are subject to a quorum of three Directors.
The Board follows a formal agenda at its quarterly meetings, which the Company circulates in advance of the meeting. This agenda includes reviewing investment performance, assessing the progress of new investment opportunities, reviewing the Group’s strategy in the context of a broader market outlook, reviewing the Group’s historical financial performance and future forecasting, an update on investor relations and an update on any regulatory or compliance issues advised by the Manager or other advisers.
When considering investment opportunities, the Board reviews detailed proposals prepared by the Manager and approves investment decisions, as appropriate.
All Directors are expected to attend Board and Committee meetings and to devote sufficient time to the Company’s affairs to fulfil their duties as Directors.
The Board has delegated a number of responsibilities to its Audit, Nomination and Management Engagement Committees. Each Committee has prepared appropriate Terms of Reference which have been reviewed and approved by the Board. Further information on each Committee can be found below.
The Nomination Committee was established in April 2017 and comprises the independent Directors and Mark Johnson, and is chaired by Nigel Rich. The Committee identifies and approves candidates to fill Board vacancies, using external search consultants where appropriate.
The Company has established a valuation committee which comprises all of the Directors with Richard Moffitt as the Chairman of the committee. The Valuation Committee meets at least four times a year at appropriate times in the Company’s valuation cycle or as otherwise required. The Valuation Committee’s main function is to review the property valuation report produced by the Valuer.
The Audit Committee comprises Bruce Anderson as Chairman, Nigel Rich, Jonathan Gray and Mark Johnson, all of whom, except for Mark Johnson are independent non-executive directors.
The role of the Audit Committee is to review and report to the Board of Directors on financial reporting, internal control and risk management. It has also considered the independence, effectiveness and performance of the external auditor and the audit process. The key responsibilities and principal activities of the Committee are as follows:
- Make recommendations to the Board of Directors that the Interim Report, Annual Report and financial statements were fair, balanced and understandable and provided the necessary information for Shareholders to assess the Group’s position and performance, business model and strategy;
- To review any formal announcements on the Group’s financial performance, including as assessment of the estimates and judgements.
- The appropriateness of the interim and year end individual property valuations and the independence of the external valuers.
- To review the Manager’s system of internal control and risk management.
- Review any changes in accounting policies that may impact the financial statements.
- To review and approve the external auditor’s terms of engagement, remuneration and tenure of appointment.
The Board has not established a Remuneration Committee as it currently has no Executive Directors or employees.
The Manager and Management Engagement Committee
The Company has established a management engagement committee which comprises all of the Directors, save Richard Moffitt, with Jonathan Gray as the Chairman of the committee. The Management Engagement Committee meets at least once a year. The Management Engagement Committee’s main function is to review and make recommendations on any proposed amendment to the Relationship Agreement and the Investment Management Agreement and keep under review the performance of the Company and examine the effectiveness of the its internal control systems.
Under the Investment Management Agreement, the Board has delegated day-to-day responsibility for running the Company to the Manager. Richard Moffitt and Christopher Turner, on behalf of the Manager, deal with all the property transactions including rentals. They are supported administratively by appropriate people from the Manager’s professional staff. Richard Moffitt and Christopher Turner report to the Board at each meeting and other members of the management team attend as required.
The Manager regularly use for its purchase and sales of assets, M1 Agency LLP, a limited liability partnership in which Richard Moffitt has an interest. Each transaction is reviewed by the Manager excluding Richard Moffitt and by the Independent Directors to ensure that the fees payable are in line with market fees and practice.
The Board formally reviews the Manager’s performance each year, to allow the Board to state, if appropriate, that the Manager’s continued appointment is in shareholders’ interests and is in accordance with the Listing Rules.
In August 2017 the Independent Directors, on behalf of the Company, agreed a new arrangement with the Manager. Under the previous Management Agreement, the Manager received a management fee payable half yearly in arrears and no fee was paid until Shareholders received an annual dividend yield (by reference to the IPO issue price of 100.00p) of at least 6.0 per cent.
Following the Share Placing in August 2017 which raised £53 million, the Company and the Manager agreed to a new management fee such that the existing arrangement was replaced with a management fee of 0.95 per cent. per annum of the Group's EPRA NAV, payable quarterly in arrears.
The Board believes that the success of the Company depends, in part, on the future performance of the Manager. The Directors also recognise the importance of ensuring that the Manager is incentivised and identifies closely with the success of the Company. Accordingly, at the time of the IPO, the Company adopted the LTIP for the benefit of the Manager and its’ Management Team. This was also amended in August 2017 and details are below.
Existing arrangement crystallised
20.0 per cent. of the Company's total return over eight per cent. per annum from the date of IPO to 13 July 2017 (being the day immediately prior to the announcement of the proposed Placing) was crystallised and the resulting value paid by way of the issue of 520,557 Ordinary Shares to Pacific Industrial LLP (an affiliate of the Manager) (the "LTIP Shares") at Admission of the August 2017 Placing Shares and subject to a lock-in until the third anniversary of the IPO, April 2019.
New arrangement of an LTIP
The new LTIP has an EPRA NAV element and a share price element and will be assessed on: (i) 30 September 2020 (the "First Calculation Date"); and (ii) 30 September 2023 (the "Second Calculation Date").
The EPRA NAV element is 10 per cent. of the excess of the EPRA NAV per Ordinary Share return over an annualised nine per cent. hurdle, multiplied by the number of Ordinary Shares in issue at relevant calculation date. The share price element will be 10 per cent. of the excess of the share price return over an annualised nine per cent. hurdle, multiplied by the number of Ordinary Shares in issue at the relevant calculation date.
For further information on the calculations, please refer to note 11 to the financial statements in the latest Annual Report.
We are very proud of our approach to communications with our shareholders as we recognise the value in positive shareholder engagement. Our website is kept up to date with information to help our investors keep in touch and understand our business and we have found our shareholder roadshows to discuss our results to be a popular and effective way for us to meet with shareholders and develop our understanding of their needs and expectations.
The Company encourages two-way communication with both its institutional and private investors and responds quickly to all queries received either orally or in writing. All shareholders have at least 21 days’ notice of the AGM, where all directors and committee members are available to answer questions.
At the AGM all votes are dealt with on a show of hands and the number of proxy votes cast is indicated. Votes on separate issues are proposed as separate resolutions. The Manager also regularly updates the Board with the views of shareholders and analysts.
Conflicts of interest
The Articles of Association allow the Board to authorise potential conflicts of interest that may arise, subject to imposing limits or conditions when giving authorisation if this is appropriate.
Only independent Directors (who have no interest in the matter being considered) will be able to take the relevant decision and, in taking the decision, the Directors must act in a way they consider will be most likely to promote the Group’s success. Procedures have been established to monitor actual and potential conflicts of interest on a regular basis, and the Board is satisfied that these procedures are working effectively.
The Manager is responsible for operating the Group’s system of internal control and reviewing of the effectiveness of this. Such a system is designed to manage, rather than eliminate, the risk of failure to achieve business objectives and can provide only reasonable but not absolute assurance against material misstatement or loss.
Anti-bribery and corruption
The Manager has a zero-tolerance policy and is committed to carrying out business fairly, honestly and openly. The Manager undertakes annual regulatory training on AML, anti-bribery and corruption and there is a whistle blowing policy with the Manager which the Board has reviewed.
Financial and business information
The Board is responsible for preparing the Annual Report. As the Directors’ Responsibility Statement confirms, the Board believes its Annual Report, taken as a whole, is fair, balanced and understandable, and provides the information necessary to assess the Group’s performance.
Urban Logistics REIT is a UK registered company with securities admitted to trading on AIM of the London Stock Exchange which is a Multilateral Trading Facility (MTF) and therefore falls within the scope of The Takeover Code.