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Half Year Report And Accounts
Schroder European Real Estate Investment Trust PLC
(Incorporated in England and Wales)
Registration number: 09382477
JSE Share Code: SCD
LSE Ticker: SERE
ISIN number: GB00BY7R8K77
SCHRODER EUROPEAN REAL ESTATE INVESTMENT TRUST PLC
HALF YEAR REPORT AND ACCOUNTS
CLOSE TO FULL INVESTMENT AND FURTHER PROGRESS ON DELIVERING DIVIDEND TARGET YIELD
Schroder European Real Estate Investment Trust plc ("SEREIT" or the "Company"), the Company
investing in European growth cities, hereby submits its Half Year Report for the period
ended 31 March 2017 as required by the UK Listing Authority's Disclosure Guidance
and Transparency Rule 4.2.
The Half Year Report is also being published in hard copy format and an electronic copy of that
document will shortly be available to download from the Company's website
www.schroders.co.uk/its. Please click on the following link to view the document:
The Company has submitted a pdf of the hard copy format of its Half Year Report to the
National Storage Mechanism and it will shortly be available for inspection at
www.morningstar.co.uk/uk/NSM.
Financial Highlights for six months ending 31 March 2017:
- Net Asset Value ("NAV") total return of 2.5% (30 September 2016: -4.6%);
- NAV of EUR175.9 million, or 131.5 euro cents (111.7 pence) per share, an increase of
11.4% over the period including a gross equity raise of EUR16.7 million (FY16: EUR157.8
million / 130.2 cps);
- EPRA earnings of EUR2.6 million (10 months to September 2016: EUR1.0 million), reflecting
growth in rental income from acquisitions;
- Total dividends declared relating to half year of 2.2cps (including 1.2cps to be paid by
way of a second interim dividend in July 2017) representing a 29% increase on prior half
year; Further progress on delivering target dividend yield stated at IPO of 5.5% (based
on euro equivalent IPO issue price) once fully invested;
- Profit for 6 months of EUR4.2 million (10 months to 30 September 2016: -EUR2.7 million),
reflecting additional rental income from acquisitions, property acquisition costs and
valuation uplifts of portfolio;
- Loan to Value ('LTV') of 22% based on gross asset value of the Company, with a
weighted average interest rate of 1.19% and weighted average duration of 7.3 years.
Operational highlights for six months ending 31 March 2017:
- Acquisition of an office building in Paris for EUR30 million with a net property income yield of
9.5%, taking the portfolio value to EUR182.7 million (FY16: EUR148.2 million);
- Portfolio comprises eight retail and office properties with c. 100% occupancy, strong
income profile and asset management upside;
- 100% of the portfolio is located in winning cities and regions expected to generate higher
levels of economic growth;
- Portfolio to benefit from structural trends of urbanisation, demographics, infrastructure
improvements and economic recovery in Europe;
- Portfolio valued at approximately 6.7% above purchase price.
Post period end, EUR26 million acquisition in Spain:
- Completed acquisition of a 50% share in a JV with Schroder managed Immobilien
Europa Direkt of a shopping centre in Seville, Spain for EUR26.2 million (excluding costs)
providing a net property income yield of 6.2%;
- Portfolio now comprises nine assets with a value of EUR208.9 million and 4.8 years average
lease term;
- New loan drawn against Seville acquisition taking overall LTV to 26% at a weighted
interest costs of 1.3% and a weighted duration of 7.3 years;
- EUR30 million remaining investment capacity (including additional debt).
Sir Julian Berney Bt, Non-Executive Chairman of the Company, commented:
"This has been a period of good progress for the Company, against a background of political
and economic uncertainty, and we are making further progress on delivering our target 5.5% dividend yield as
we complete the investment programme, providing shareholders with sustainable long-term
income and the potential for capital growth.
Tony Smedley, SEREIT Investment Manager, added:
"The Company is now almost fully invested in institutional quality, income-producing commercial real
estate, in those cities and regions in western continental Europe that demonstrate above
average growth prospects and long term structural themes such as urbanisation.
"We continue to focus on maximising investment performance and diversifying the portfolio
through the acquisition of well-located assets that offer an attractive income profile and the
potential for long term income and capital growth. This will be supported by a prudent debt
strategy that enhances income returns from the portfolio without compromising the balance
sheet. With an identified pipeline of properties and an increasingly favourable market backdrop,
we look forward to the next stages of the Company's growth."
Enquiries:
Duncan Owen/Tony Smedley
Schroder Real Estate Investment Management Limited Tel: 020 7658 6000
Ria Vavakis
Schroder Investment Management Limited Tel: 020 7658 2371
Dido Laurimore/Ellie Sweeney/Richard Gotla Tel: 020 3727 1000
FTI Consulting
//LEI number: 549300BHT1Z8NI4RLP52
Chairman's Statement
Overview
Following our launch just over a year ago, and subsequent equity placings during 2016, the Company is
now close to being fully invested. The focus remains on delivering investment performance from the
property portfolio and exploring further opportunities to grow the Company.
In 2017 we have added two assets to the portfolio: the Saint Cloud office building in Paris for EUR30 million
in February and the Metromar Shopping Centre in Seville, Spain subsequent to the period end in May for
EUR26.2 million, the latter being our first acquisition outside France and Germany.
These investments grow the Company's net earnings and increase the dividend capacity.
The target cities in Europe are demonstrating positive levels of investor and occupier demand supporting
continued performance, our investment strategy and growth ambitions.
Results
The Company's net asset value ("NAV") at 31 March 2017, excluding non-controlling interests, was
EUR175.9 million or 131.5 euro cents per share (GBP149.3 million or 111.7 pence per share). Including
dividends the NAV total return over the period was 2.5%.
Portfolio
The portfolio valuation has risen by 2.5% to EUR182.7million during the period from 1 October 2016. This valuation increase
includes the valuation uplift from the newly-acquired Saint Cloud, Paris asset against its purchase price.
Approximately following the acquisition in Seville post period end, the portfolio value increased to
approximately EUR209 million.
The Company now owns nine institutional grade office and retail assets across winning cities and
regions in France, Germany and Spain. These are beneficiaries of improving economic growth and the
long term theme of urbanisation. This diversified portfolio provides both a stable income base as a result
of its high occupancy rates and also the opportunity for long-term capital growth through active asset
management.
Strategy
The key strategic objective is to continue growing the Company in a disciplined and accretive way that
improves earnings, shareholder value and brings benefits such as improved liquidity and economies of
scale. This was an objective set out at launch and, as long as the market opportunity remains attractive,
is one to which the Board remains committed.
During the period, the Company raised EUR16.7 million of gross proceeds from an equity placing to fund further
investments. The Company currently has authority to issue up to a further 10% of its share capital.
Further investments to support growth will be focused in those locations in Europe which are growing
most quickly. These assets are likely to benefit from strengthening occupier demand to support
investment performance. The seven locally based investment teams across Europe, and the in-house
research at Schroders, offer a competitive advantage with the execution of this strategy.
Debt strategy
Including the new loan for the acquisition of the Metromar Shopping Centre in Seville, the Company has
total third party debt of EUR60.4 million representing a prudent Loan to Value ("LTV") of 26%.
The Company is focused on maintaining a robust balance sheet and overall leverage is capped at 35%
at the time of drawing debt. Debt is used with the objective of improving shareholder returns with the
Company's average weighted interest rate on its debt facilities being 1.30% compared to the average net
initial property yield on the portfolio of 6.1%. Given the positive yield spread it is likely the Company will
draw further debt facilities and target overall gearing at around the capped level.
Dividend
The Company has declared a second interim dividend in respect of the year-ending 30 September 2017 of 1.2
euro cents per share payable on 7 July 2017 to shareholders on the register on 23 June 2017. This represents
the third consecutive increase in dividend rates since the Company's IPO.
The latest declared dividend represents an annualised rate of 3.5% based on the euro equivalent of the
issue price at admission. The Company is targeting an annualised euro dividend yield of 5.5% based on
the euro equivalent share price as at admission and fully covered by contractual income receivable from
the portfolio.
Outlook
The Company has executed the strategy outlined at IPO and has constructed a portfolio aligned to the
investment objective. It provides shareholders with a regular and attractive level of income together with
the potential for long-term income and capital growth.
Recent political developments and economic data suggest the backdrop in Western Europe is stable,
which is expected to have a positive impact on the local real estate markets. Alongside this, occupier
demand may also be further strengthened as the outcome of the Brexit negotiations becomes clearer.
Some international businesses have already made announcements about relocating operations to
Continental European cities in which the Company is already invested. Such winning cities are also likely
to be more resilient in the event of a change in market conditions.
We will continue to implement the strategy and actively manage the portfolio in order to maximise
investment performance. This will be important in supporting the growth of the Company.
Sir Julian Berney Bt.
Chairman
24 May 2017
Investment Manager's Report
Results
The Company's NAV as at 31 March 2017 stood at EUR175.9 million, or 131.5 euro cents
(111.7 pence) per share, and achieved a NAV total return of 2.5% for the six months ended
31 march 2017.
The table below provides a breakdown of the movement in NAV during the reporting period as well as a
corresponding reconciliation in the movement in the NAV cents per share:
% change
Net Asset Value ("NAV") Movement EUR million Cps per cps
Brought forward as at 1 October 2016(1) 157.8 130.2 -
Net equity raise impact 16.4 0.1 0.1
NAV post equity raise 174.2 130.3 -
Transaction costs of investments made during the period(2) (3.0) (2.2) (1.7)
Unrealised gain in valuation of the property portfolio 4.6 3.4 2.6
Post tax net revenue 2.6 1.9 1.5
Dividends paid (2.5) (1.9) (1.5)
Carried forward as at 31 March 2017 175.9 131.5 1.0
Management reviews the performance of the Company principally on a proportionally consolidated
basis. As a result, figures quoted in this table include the Company's share of joint ventures on a line-by-
line basis and exclude non-controlling interests in the Company's subsidiaries.
(1) NAV as at 30 September 2016 based on the number of shares pre-equity October raise of
121,234,686; all other numbers are based on the number of shares subsequent to the equity raise of
133,734,686 shares.
(2) Represents mainly transaction costs for the Saint Cloud purchase. There was no other Capital expenditure
on the portfolio during the period.
Market overview
The Eurozone economy is displaying a number of positive indicators. GDP is growing above trend;
business confidence is strong; unemployment fell to 9.5% in March and core inflation is steady at 1%.
The Investment Manager expects the Eurozone economy to grow by 1.5%-1.8% p.a. through 2017-2018. While higher
energy prices will dampen consumer spending a little, the improvement in the world economy, and last
year's depreciation of the euro against the dollar, should help exports and that, in turn, should support an
increase in business investment. Germany, the Nordics and Spain are likely to lead while France and
Italy will probably lag behind.
Office
Most European cities saw an increase in prime office rents last year. Sustained growth in Eurozone
employment over the last three to four years has meant that a lot of the office space which was vacant in
2013 has now been reoccupied. The other supporting factor has been high residential prices which have
encouraged developers to convert obsolete office space into apartments and discouraged them from
building new offices. We think that the rise in office rents has a lot further to run, particularly in winning
cities such as Hamburg, Paris and Stuttgart.
Retail
While the recovery in employment is boosting retail sales in continental Europe, a lot of the sales growth
is online rather than through physical stores. The internet now accounts for around 10% of retail sales in
France and Germany and, although the percentage is lower in southern Europe, it is increasing.
Accordingly, the Company's strategy is to focus on mid-sized supermarkets, convenience stores and
retail warehouses selling goods which are relatively internet immune.
Industrial
Despite the rapid growth of online sales, industrial rental growth has been modest, partly because
logistics operators work on thin margins and partly because of the supply of large distribution
warehouses has increased. Smaller industrial estates which are benefiting from the growth in "last mile"
deliveries and urban logistics in built-up areas appear better value.
Investment markets
Strong competition between domestic and foreign investors caused further yield compression with prime
office yields in many major cities now at 3.0-3.5%. While that might suggest that European real estate is
now expensive by historic standards, the investment market is different from the last cycle in several key
respects. First, prime yields are currently 2-3% above 10 year government bond yields, whereas in 2007
they were 0-1% below. Second, investors have not bought indiscriminately and whereas the gap
between prime and secondary office yields narrowed to 0.3% in 2007-2008, it is currently around 1.25%
(source: CBRE).
Property portfolio
As at 31 March 2017 the Company owned eight properties independently valued at EUR182.7 million,
reflecting a net initial yield of 6.1% against valuation.
Post reporting period end the Company completed the purchase of a EUR52.4 million shopping centre
in Seville, Spain reflecting a net initial yield of 6.2%. The acquisition was made via a 50:50 joint venture
with another Schroder-advised fund, Immobilien Europa Direkt (IED). Following completion, this
purchase has increased the portfolio value to approximately EUR209 million meaning the Company is close
to being fully invested.
The statistics all reflect a 50% ownership of Seville and a 70% ownership of the Biarritz and Rennes assets.
Lease expiry profile
The assets are fully-let generating EUR14.1 million p.a. contracted income. The average unexpired lease
term, including Seville, is 4.8 years to first break and 7.1 years to expiry (5.1 years and 6.8 years
excluding Seville).
The near-term lease expiries provide asset management opportunities to renegotiate leases, extend weighted
average unexpired lease terms, improve income security and generate rental growth.
Top ten tenants
As at 31 March 2017 the ten largest tenants account for 81% of contracted rents. This falls to 68%
following the completion of Seville.
Valuation
The 31 March 2017 valuation of EUR182.7 million reflects an increase of 6.7% compared to the combined
purchase price of the eight asset portfolio. Almost 90% of the transaction costs have been recovered
through valuation uplifts since acquisition.
The portfolio valuation, excluding transaction costs has risen by 2.5% during the period from 1 October 2016.
This valuation increase is also reflecting the valuation uplift from the newly-aqcuired Saint Cloud, Paris asset
against its purchase price.
Strategy and investment
The Company invests in European growth cities and targets institutional quality, income-producing
commercial real estate in major continental European cities and regions. Consistent with this strategy,
over the half year to 31 March 2017, the Group acquired an additional investment in Paris for a total
purchase price, excluding costs, of approximately EUR30 million.
Post period end, the Group acquired a fifty per cent interest in a retail asset in Seville, Spain for EUR26.2
million bringing the total portfolio to EUR209 million. Further details of these two assets are provided below:
Saint Cloud, Paris , France ('Le Directoire')
With completion in February 2017, this asset was the Group's eighth investment and the second in
Paris. The property was acquired for c.EUR30 million at a net initial yield of approximately 9.5%. The
investment is located in Saint Cloud, a mixed use office and residential area that will benefit from a new
train station on the Grand Paris extension. The investment is fully let at modest rents and is a good
example of the strategy to invest in growth cities and micro locations where there are competing
demands for different uses and that will benefit from infrastructure enhancements. The business plan is
centred on a rolling refurbishment and establishing tenant relations to maintain the attractive yield and
improve income security.
Metromar, Seville, Spain ('Metromar')
Metromar is the Group's first investment outside of its core markets of France and Germany. The EUR52.4
million (100%) acquisition generates a 6.2% net yield and was made via a 50:50 joint venture with the
Schroder-advised Immobilien Europa Direkt (IED). The 23,500 sqm shopping centre is let to 50 tenants,
anchored by a Mercadona grocery supermarket and other major occupiers including Zara, Mango, Sfera,
H&M, Pull & Bear, Stradivarius, Bershka and Cortefiel. The centre also has an enhanced leisure offering
compared with peers including a 12 screen cinema and a number of restaurants. The centre trades well
with an annual footfall of four million people of which 50% are classified as 'walk-in' and a dominant local
catchment. The asset business plan is focused on redesigning the leisure offer and improving the
energy, vibrancy and consumer appeal. There are a number of added value initiatives already in hand to
improve value.
Asset management activity
The initial portfolio provides a solid foundation of income to support the Company's income distribution
objective. In addition, there are a range of asset management initiatives to be implemented as follows:
- Lease extension in Le Directoire where an existing tenant will take an additional 550 sqm;
- Creating new income sources such as a new antenna license (EUR15,000 p.a.) and letting vacant
storage space (EUR30,000 p.a.);
- Surrendering the lease to City BKK in Hamburg in return for a capital payment and agreeing new
leases with sub-tenants; and
- New letting in Metromar to a new children's leisure operator to grow revenue, increase footfall
and provide an additional point of difference to strengthen the dominance of this scheme in its
local catchment.
Finance
The use of leverage is assessed on an asset-by-asset basis secured against those properties
that are most suitable for debt financing and where financing costs and terms are attractive.
As at 31 March 2017 the Company's total external third party bank debt was EUR48.7 million across three
loan facilities. This represents a loan to value of 22% against the Company's gross asset value. The
loans drawn are secured against the four German properties in Berlin, Frankfurt, Stuttgart and Hamburg
and the two retail assets in Biarritz and Rennes.
The blended all-in interest rate as at 31 March 2017 was 1.19%, significantly below the portfolio yield of 6.1% p.a.
The average unexpired loan term was 7.3 years.
Financing has been drawn against the Seville asset post period end. The loan has a seven year duration at an LTV of
approximately 45% and all-in fixed rate of 1.76%. Following this, portfolio level the blended all-in interest rate is 1.3% and
the loan to value is 26%. The average unexpired loan term remains at 7.3 years.
The German and Spanish loans are fixed rate for the duration of the loan term. The French loan is based
on a margin above 3 month Euribor and the Company has acquired an interest rate cap to limit future
potential interest costs if Euribor were to increase. The strike rate on the cap is 1.25% p.a. The market
value of the interest cap is positive at EUR0.3 million as at end of March 2017.
Outlook
A high quality, income-producing portfolio in growing European cities and regions has been established.
The portfolio has both an attractive, long-term income stream and value add potential.
Investing the final EUR30 million of available capital will result in a fully invested portfolio of approximately
EUR230 million. This should enable a 5.5% dividend yield on the IPO issue price to be fully covered by income.
The economic recovery in the target markets is robust and rents are growing at a faster rate than for
many years. The investment opportunity therefore remains compelling and the team continues to identify
attractive opportunities in growth markets. Maximising shareholder value remains the Company's priority.
This will be done through actively managing the existing portfolio and continuing to find value in the
market to support the Company's growth ambitions.
Tony Smedley
Head of Continental European Investment
Schroder Real Estate Investment Management Limited
24 May 2017
Principal risks and uncertainties
The principal risks and uncertainties with the Company's business fall into the following risk categories:
strategic; investment management; custody; gearing and leverage; accounting, legal and regulatory; and
service provider. A detailed explanation of the risks and uncertainties in each of these categories can be
found on pages 28 and 29 of the Company's published Annual Report and Accounts for the year ended
30 September 2016. These risks and uncertainties have not materially changed during the six months
ended 31 March 2017 and are not expected to change during the remaining six months of the financial year.
Going concern
Having assessed the principal risks and uncertainties, and the other matters discussed in connection
with the viability statement as set out on page 29 of the published Annual Report and Accounts for the
year ended 30 September 2016, the Directors consider it appropriate to adopt the going concern basis in
preparing the accounts.
Related party transactions
There have been no transactions with related parties that have materially affected the financial position
or the performance of the Company during the six months ended 31 March 2017.
Directors' Responsibilities Statement
The Directors confirm that to the best of their knowledge:
- the condensed consolidated set of half year financial statements has been prepared in accordance with
IAS 34 Interim Financial Reporting; and
- the Interim Management Report includes a fair review of the information required by 4.2.7R and 4.2.8R
of the Financial Conduct Authority's Disclosure Guidance and Transparency Rules.
Sir Julian Berney Bt.
Chairman
24 May 2017
Condensed Consolidated Statement of Comprehensive Income
Six months to Six months to Year to
31/03/2017 31/03/2016 30/09/2016
Note EUR000 EUR000 EUR000
(unaudited) (unaudited) (audited)
Rental income 7,416 - 4,891
Property operating expenses (2,011) - (969)
Net rental and related income 5,405 - 3,922
Net profit/(loss) from fair value 3 1,588 (650) (4,537)
adjustment on investment property
Realised loss on foreign exchange (6) (314) (101)
Net change in fair value of financial 158 - (60)
instruments through profit or loss
Expenses
Investment management fee (962) (540) (1,402)
Valuers' and other professional fees (418) (125) (425)
Administrators and accounting fee (146) (88) (185)
Auditors' remuneration (148) (62) (161)
Directors' fees (64) (67) (129)
Other expenses (155) (27) (122)
Total expenses (1,893) (909) (2,424)
Operating profit/(loss) before net 5,252 (1,873) (3,200)
finance costs
Finance income 5 2 5
Finance costs (471) (2) (157)
Net finance costs (466) - (152)
Profit/(loss) before income tax 4,786 (1,873) (3,352)
Income tax expense (158) (5) (47)
Profit/(loss) for the period 4,628 (1,878) (3,399)
Other comprehensive profit/(loss)
items that may be subsequently
reclassified to profit or loss
Currency translation differences 35 (247) (226)
Total other comprehensive
profit/(loss) 35 (247) (226)
Total comprehensive income/(loss)
for the period attributable to the 4,663 (2,125) (3,625)
equity holders
Total comprehensive profit/(loss)
attributable to:
Owners of the parent 4,246 (2,125) (2,742)
Non-controlling interests 417 - (883)
4,663 (2,125) (3,625)
Basic and diluted profit/(loss) per 2 3.2c (1.7c) (2.9c)
share attributable to the equity
holders during the period
(expressed in EUR per share)
All items in the above statement are derived from continuing operations. The accompanying notes 1 to
11 form an integral part of the condensed consolidated financial statements.
Condensed Consolidated Statement of Financial Position
31/03/2017 30/09/2016 31/03/2016
Assets Notes EUR000 EUR000 EUR000
Non-current assets (unaudited) (audited) (unaudited)
Investment property 3 199,881 165,365 65,650
Non-current assets 199,881 165,365 65,650
Trade and other receivables 3,542 2,377 7,351
Interest rate derivative contracts 4 359 200 -
Cash and cash equivalents 42,977 58,476 91,454
Current assets 46,878 61,053 98,805
Total assets 246,759 226,418 164,455
Equity
Share capital 5 15,751 13,994 15,298
Share premium 31,379 14,882 16,270
Retained earnings (1,817) (3,486) (2,125)
Other reserves 130,597 132,370 129,948
Issued capital and reserves attributable to 175,910 157,760 159,391
owners
Non-controlling interest 7,221 6,804 -
Equity 183,131 164,564 159,391
Liabilities
Non-current liabilities
Interest-bearing loans and borrowings 6 58,707 58,724 -
Deferred tax 141 30 -
Non-current liabilities 58,848 58,754 -
Current liabilities
Trade and other payables 4,729 3,084 5,059
Current income tax liabilities 51 16 5
Current liabilities 4,780 3,100 5,064
Total liabilities 63,628 61,854 5,064
Total equity and liabilities 246,759 226,418 164,455
Net Asset Value per ordinary share 7 136.9c 135.7c 131.5c
The accompanying notes 1 to 11 form an integral part of the condensed consolidated financial
statements.
Condensed Consolidated Statement of Changes in Equity
For the period from 1 October 2016 to 31 March 2017 (unaudited)
Group Non-
Share Share Retained Other Owners of controlling Total
Note capital premium earnings reserves the parent interests equity
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
Balance as at 30 September 13,994 14,882 (3,486) 132,370 157,760 6,804 164,564
2016
Total comprehensive income - - 4,211 35 4,246 417 4,663
Dividends paid 8 - - (2,542) - (2,542) - (2,542)
New equity issuance 1,390 15,288 - (232) 16,446 - 16,446
Share premium reduction - - - - - - -
Unrealised foreign exchange 367 1,209 - (1,576) - - -
Investment from non-controlling - - - - - - -
interest
Balance as at 31 March 2017 15,751 31,379 (1,817) 130,597 175,910 7,221 183,131
For the period from 1 October 2015 to 31 March 2016 (unaudited)
Group Non-
Share Share Retained Other Owners controlling Total
Note capital premium earnings reserves of the interests equity
parent
EUR000 EUR000 EUR000 EUR000 EUR000 EUR'000 EUR'000
Balance as at 30 September - - - - - - -
2015
Loss for the period - - (2,125) - (2,125) - (2,125)
Dividends paid - - - - - - -
New equity issuance 16,576 149,874 - (4,934) 161,516 - 161,516
Share premium reduction - (122,156) - 122,156 - - -
Unrealised foreign exchange (1,278) (11,448) - 12,726 - - -
Investment from non-controlling - - - - - - -
interest -
Balance as at 31 March 2016 15,298 16,270 (2,125) 129,948 159,391 - 159,391
The accompanying notes 1 to 11 form an integral part of the condensed consolidated financial statements.
Condensed Consolidated Statement of Cash Flows
Six months to Six months to Year to
31/03/2017 31/03/2016 30/09/2016
Note EUR000 EUR'000 EUR'000
(unaudited) (unaudited) (audited)
Operating activities
Profit/(loss) before tax for the year 4,786 (1,873) (3,352)
Adjustments for:
Net valuation profit/(loss) on fair 3 (1,588) 650 4,537
value adjustment in investment
property
Realised foreign exchange losses 6 314 101
Finance income (5) - (5)
Finance expense 471 - 157
Movement in fair value of derivative (158) - 60
interest rate contracts
Operating cash generated/(used) 3,512 (909) 1,498
before changes in working capital
Increase in trade and other (1,614) (742) (2,376)
receivables
Increase in trade and other payables 2,288 1,379 2,728
Cash generated from/(used in) 4,186 (272) 1,850
operations
Interest rate cap purchased - - (260)
Finance costs paid (424) (2) (903)
Interest received 5 2 5
Tax paid (12) - -
Net cash generated/used in 3,755 (272) 692
operating activities
Investing Activities
Acquisition of investment property (33,185) (62,736) (169,647)
Payments in advance for investment - (6,609) -
property
Net cash used in investing (33,185) (69,345) (169,647)
activities
Financing Activities
New bank loan advance - - 56,500
New loan advance - non-controlling - - 10,753
interest
Loan repayment - non-controlling - - (7,689)
interest
New equity - non controlling interest - - 7,687
Share issue net proceeds 16,446 161,632 161,477
Dividends paid 8 (2,542) - (970)
Net cash generated from financing 13,904 161,632 227,758
activities
Net increase/(decrease) in cash (15,526) 92,015 58,803
and cash equivalents for the year
Opening cash and cash 58,476 - -
equivalents
Foreign exchange losses 27 (561) (327)
Closing cash and cash 42,977 91,454 58,476
equivalents
The accompanying notes 1 to 11 form an integral part of the condensed consolidated financial
statements
Notes to the financial statements
1. Significant accounting policies
The Company is a closed-ended investment company incorporated in England and Wales. The
condensed interim financial statements of the Company for the period ended 31 March 2017 comprise
those of the Company and its subsidiaries (together referred to as the "Group"). The shares of the
Company are listed on the London Stock Exchange (Primary listing) and the Johannesburg Stock Exchange
(Secondary listing). The registered office of the Company is 31 Gresham Street, London, EC2V 7QA.
These condensed interim financial statements do not comprise statutory accounts within the meaning of
section 434 of the Companies Act 2006. Statutory accounts for the year ended 30 September 2016 were
approved by the Board of Directors on 13 December 2016 and were delivered to the Registrar of
Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of
matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.
These condensed interim financial statements have been reviewed and not audited.
Statement of compliance
The condensed interim financial statements have been prepared in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom Financial Conduct Authority and IAS 34 Interim Financial
Reporting. They do not include all of the information required for the full annual financial statements and
should be read in conjunction with the consolidated financial statements of the Group as at and for the
year ended 30 September 2016. The condensed interim financial statements have been prepared on the
basis of the accounting policies set out in the Group's annual financial statements for the year ended 30
September 2016. The financial statements for the year ended 30 September 2016 have been prepared in
accordance with International Financial Reporting Standards ("IFRS") as issued by the International
Accounting Standards Board. The Group's annual financial statements refer to new Standards and
Interpretations none of which had a material impact on the financial statements.
Basis of preparation
The financial statements are presented in euros rounded to the nearest thousand. They are prepared on
a going concern basis, applying the historical cost convention except for the measurement of investment
property and derivative financial instruments that have been measured at fair value.
The accounting policies have been consistently applied to the results, assets, liabilities and cash flow of
the entities included in the consolidated financial statements and are consistent with those of the year
end financial report.
Going concern
The Directors have examined significant areas of possible financial risk including cash and cash
requirements and the debt covenants. The Directors have not identified any material uncertainties which
would cast significant doubt on the Group's ability to continue as a going concern for a period of not less
than twelve months from the date of the approval of the financial statements. The Directors have satisfied
themselves that the Group has adequate resources to continue in operational existence for the
foreseeable future.
Use of estimates and judgements
The preparation of interim financial statements requires management to make judgements, estimates and
assumptions that affect the application of policies and the reported amounts of assets and liabilities,
income and expenses. These estimates and associated assumptions are based on historical experience
and various other factors that are believed to be reasonable under the circumstances, the results of
which form the basis of making judgements about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these estimates. The estimates and
underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimates are revised and in any future periods affected.
The most significant estimates made in preparing these financial statements relate to the carrying value
of investment properties, including those within joint ventures, which are stated at fair value. The Group
uses external professional valuers to determine the relevant amounts.
Segmental reporting
The Directors are of the opinion that the Group is engaged in a single segment of business, being
property investment, and in one geographical area, Continental Europe. The chief operating decision
maker is considered to be the Board of Directors who are provided with consolidated IFRS information on
a quarterly basis.
Financial risk factors
The Directors are of the opinion that there have been no significant changes to the financial risk profile of
the Group since the end of the last annual financial reporting period for the year ended 30 September
2016 of which they are aware.
The main risks arising from the Group's financial instruments and properties are: market price risk,
currency risk, credit risk, liquidity risk and interest rate risk. The Board regularly reviews and agrees
policies for managing each of these risks.
2. Basic and Diluted Earnings per share
The basic and diluted earnings per share for the Group is based on the net profit for the period excluding
non-controlling interests and currency transaction differences, of EUR4,211,00 and the weighted average
number of ordinary shares in issue during the period of 131,811,609.
EPRA(1) earnings reconciliation
Six months to Six months Year to
31/03/2017 to 30/09/2016
31/03/2016
EUR000 EUR000 EUR000
Profit/(loss) attributable to equity holders 4,211 (1,878) (3,584)
Adjustments to calculate EPRA Earnings
exclude:
Net valuation gain/(loss) on investment property (1,588) 650 4,537
Changes in fair value of financial instruments (111) - 60
Deferred tax 111 - -
EPRA profit/(loss) 2,623 (1,228) 1,013
Weighted average number of ordinary shares 131,811,609 113,640,347 118,319,687
IFRS earnings/(loss) per share (cents per 3.2 (1.7) (2.9)
share)
EPRA earnings/(loss) per share (cents per 2.0 (1.1) 0.9
share)
(1) EuropeanPublic Real Estate Association ('EPRA') earnings per share reflects the underlying
performance of the company calculated in accordance with the EPRA guidelines.
Headline(2) Earnings reconciliation
Six months to Six months Year to
31/03/2017 to 30/09/2016
31/03/2016
EUR000 EUR000 EUR000
Profit/(loss) after tax 4,663 (1,878) (3,625)
Adjustments to calculate Headline Earnings
exclude:
Net valuation loss on investment property (1,588) 650 4,537
Adjustment for Minority Interests net revenue (370) - (185)
Finance costs: interest rate cap (158) - 60
Headline earnings 2,547 (1,228) 787
Weighted average number of ordinary shares 131,811,609 113,640,347 118,319,687
Headline and diluted headline earnings per 1.9 (1.1) (0.7)
share (cents per share)
(2)Headline earnings per share reflect the underlying performance of the company calculated in
accordance with the Johannesburg Stock Exchange listing requirements.
3. Investment property
Leasehold Freehold Total
EUR000 EUR000 EUR000
Fair value as at 31 March 2016 - 65,650 65,650
Additions - 103,602 103,602
Net valuation gain/(loss) on investment property - (3,887) (3,887)
Fair value as at 30 September 2016 - 165,365 165,365
Additions - 32,928 32,928
Net valuation gain/( loss) on investment property - 1,588 1,588
Fair value as at 31 March 2017 - 199,881 199,881
Fair value of investment properties, as determined by the valuer, totals EUR200,000,000 (30 September
2016: EUR165,500,000) with the valuation amount relating to a hundred per cent ownership share for all the
assets in the portfolio.
None of this amount is attributable to trade or other receivables in connection with lease incentives. The
fair value of investment properties disclosed above includes a tenant incentive adjustment of EUR119,000
(30 September 2016: EUR135,000).
The fair value of investment property has been determined by Knight Frank LLP, a firm of independent
chartered surveyors, who are registered independent appraisers. The valuation has been undertaken in
accordance with the RICS Valuation - Professional Standards January 2014 Global and UK Edition,
issued by the Royal Institution of Chartered Surveyors (the "Red Book") including the International
Valuation Standards.
The properties have been valued on the basis of "Fair Value" in accordance with the RICS Valuation -
Professional Standards VPS4(1.5) Fair Value and VPGA1 Valuations for Inclusion in Financial
Statements which adopt the definition of Fair Value used by the International Accounting Standards Board.
The valuation has been undertaken using appropriate valuation methodology and the valuer's
professional judgement. The valuer's opinion of Fair Value was primarily derived using recent
comparable market transactions on arm's length terms, where available, and appropriate valuation
techniques (The Investment Method).
The properties have been valued individually and not as part of a portfolio.
All investment properties are categorised as Level 3 fair values as they use significant unobservable
inputs. There have not been any transfers between levels during the period. Investment properties have
been classed according to their real estate sector. Information on these significant unobservable inputs
per class of investment property is disclosed below:
Quantitative information about fair value measurement using unobservable inputs (Level 3)
Industrial Retail Office Other Total
(including
retail
warehouse)
Fair value - EUR94.5m EUR105.5m - EUR200m
(EURm)
Area ('000 sq - 50.273 35.504 - 85.777
m)
Net passing Range - 94.73 - 131.03 - - 94.73 - 345.10
rent Weighted 145.32 345.10 178.68
EUR psm per average(2) 108.54 241.50
annum
Gross ERV Range - 96.45 - 126.12 - - 96.45 - 413.10
psm per Weighted 157.80 413.10 194.51
annum average(2) 112.66 267.84
Net initial Range - 4.62 - 5.72 4.68 - 9.08 - 4.62 - 9.08
yield(1) Weighted 5.25 6.50 5.91
average(2)
Equivalent Range - 4.60 - 5.93 4.56 - 7.50 - 4.56 - 7.50
yield Weighted 5.27 5.58 5.43
average(2)
Notes:
(1) Yields based on rents receivable after deduction of head rents and non-recoverables
(2) Weighted by Market Value
Sensitivity of measurement to variations in the significant unobservable inputs
The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the
fair value hierarchy of the Group's property portfolio, together with the impact of significant movements in
these inputs on the fair value measurement, are shown below:
Unobservable input Impact on fair value Impact on fair value measurement
measurement of significant of significant decrease in input
increase in input
Passing rent Increase Decrease
Gross ERV Increase Decrease
Net initial yield Decrease Increase
Equivalent yield Decrease Increase
There are interrelationships between the yields and rental values as they are partially determined by
market rate conditions. The sensitivity of the valuation to changes in the most significant inputs per class
of investment property is shown below:
Estimated movement in fair
value of investment Industrial EUR Retail EUR Office EUR Other EUR Total EUR
properties at 31 March 2017
Increase in ERV by 5% - +EUR2,875,000 +EUR4,700,000 - +EUR7,575,000
Decrease in ERV by 5% - -EUR3,000,000 -EUR4,700,000 - -EUR7,700,000
Increase in net initial yield by - -EUR4,350,000 -EUR5,350,000 - -EUR9,700,000
0.25%
Decrease in net initial yield by - +EUR4,700,000 +EUR5,850,000 - +EUR10,500,000
0.25%
4. Derivative financial instruments
The group has an interest rate cap in place purchased for EUR260,000 from Credit Agricole Corporate and
Investment Bank on 10 August 2016 in connection to a EUR26.0 million loan facility drawn from the same
bank with a maturity date of July 2023. The cap interest rate is 1.25% with a floating rate option being
Euribor 3 months. In line with IFRS 9 this derivative is reported in the financial statements at its fair value.
As at 31 March 2017 the fair value of the interest rate cap was EUR359,000 reflecting an increase in the
interest rate curve since the interest rate cap was purchased. Transaction costs incurred in obtaining the
instrument are being amortised over the extended period of the above mentioned loan.
5. Issued capital and reserves
Share capital
The share capital of the Company is represented by 133,734,686 Ordinary Shares with a par value of
10.00 pence.
Issued and fully paid share capital
As at 1 October 2016 the Company had 121,234,686 ordinary shares in issue.
On 28 October 2016 a further 12,500,000 shares were allotted under the placing programme at a price of
GBP1.20 per share. Issue costs in relation to this placing were EUR232,000.
As at the date of this Report, the Company has 133,734,686 ordinary shares in issue (no shares are held
in Treasury). The total number of voting rights of the Company is 133,734,686.
6. Interest-bearing loans and borrowings
Six months to Year ended
31/03/2017 30/09/2016
EUR000 EUR000
Brought forward 58,724 -
Receipt of borrowings - 67,523
Repayment of borrowings - (7,689)
Capitalisation of finance costs (81) (861)
Amortisation of finance costs 64 21
Carried forward 58,707 58,724
Bank Loan - Deutsche Pfandbriefbank AG
On 3 August 2016 the Group entered into two loan facilities totalling EUR30.50 million with Deutsche
Pfandbriefbank AG.
Of the total amount drawn EUR14.0 million matures on 30 June 2023 and carries a fixed interest rate of
0.85% payable quarterly; the remaining EUR16.5 million matures on 30 June 2026 and carries a fixed
interest rate of 1.31%.
The facility was subject to a 0.35% arrangement fee which is being amortised over the period of the loan.
The debt has an LTV covenant of 65% and the debt yield must be at least 8.0%
The lender has a charge over property owned by the Group with a value of EUR67,700,000. A pledge of all
shares in the borrowing Group companies is in place.
Bank Loan - Credit Agricole Corporate and Investment Bank
The Group entered into a EUR26.0 million loan facility with Credit Agricole Corporate and Investment Bank
on 29 July 2016.
The facility matures on 29 July 2023 and carries an interest rate of 1.35% plus Euribor 3 months per
annum payable quarterly. The facility was subject to a 0.85% arrangement fee which is being amortised
over the period of the loan.
The debt has an LTV covenant of 65% and the interest cover ratio should be above 200%.
The loan is collateralised by property assets owned by the Group with a carrying value of EUR57,800,000.
Business Partner Loan - Mercialys
On 28 June 2016 the Group entered into a EUR10.75 million loan facility with Mercialys, a 30% minority
investor in the share capital of SCI Rennes Anglet, a 70% owned subsidiary of the Group. The loan
matures on 28 June 2031 and carries an interest rate of 2.08% payable annually. The interest can be
capitalised if not paid. On 1 August 2016 EUR7.69 million was repaid leaving a loan balance outstanding as
at 31 March 2017 of EUR3.06 million.
7. NAV per ordinary share
The NAV per ordinary share is based on the net assets of EUR183,131,000 (30 September 2016:
EUR164,564,000, 31 March 2016: EUR159,391,000) and 133,734,686 ordinary shares in issue at the Statement
of Financial Position reporting date (30 September 2016: 121,234,686, 31 March 2016: 121,234,686).
8. Dividends paid
In respect of the six months ended 31 March 2017 Number of Rate 31/03/2017
ordinary shares (cents) EUR000
Second interim dividend for the year ended 30 September
2016, dividend paid 27 January 2017 133,734,686 0.9 1,205
First interim dividend for the year ended 30 September 2017, 133,734,686 1.0 1,337
dividend paid 17 March 2017
Total 1.9 2,542
In respect of the year ended 30 September 2016 Number of Rate 30/09/2016
ordinary shares (cents) EUR000
First interim dividend for the year ended 30 September 2016,
dividend paid 7 September 2016 121,234,686 0.8 970
Total 0.8 970
9. Related party transactions
Schroder Real Estate Investment Management Limited is the Company's Investment Manager.
The Investment Manager is entitled to a fee, together with reasonable expenses, incurred in the
performance of its duties. The fee is payable monthly in arrears and shall be an amount equal to one
twelfth of the aggregate of 1.1% of the EPRA NAV of the Company. The Investment Management
Agreement can be terminated by either party on not less than twelve months written notice, such notice
not to expire earlier than the third anniversary of admission, or on immediate notice in the event of certain
breaches of its terms or the insolvency of either party. The total charge to profit and loss during the period
was EUR962,000 (six months ended 31 March 2016: EUR540,000, year ended 30 September 2016:
EUR1,402,000). At the period end EUR480,000 was outstanding (six months ended 31 March 2016: EUR540,000,
year ended 30 September 2016: EUR438,000).
Directors are the only officers of the Company and there are no other key personnel. The Directors'
remuneration for services to the group for the six months ended 31 March 2017 was EUR64,000 (six months
ended 31 March 2016: EUR67,000, year ended 30 September 2016: EUR129,000) equivalent to GBP54,055.
10. Capital commitments
At 31 March 2017 the Group had no capital commitments (30 September 2016: GBPNil).
11. Post balance sheet events
Acquisition of Investment Property
In May 2017 the Group exchanged and completed on a purchase of a fifty per cent share of a shopping
centre in Seville, Spain.
The transaction was structured as a JV with another Schroder-advised Fund, Immobilien Europa Direkt,
with the Group paying approximately EUR26.2 million for its fifty per cent share excluding costs.
The acquisition was part funded by a new loan facility secured against the asset. The Group's share
of this debt is EUR11.68 million representing a loan to value of approximately 45%. The respective loan term
is 7 years and the interst rate is fixed at 1.76% per annum.
25 May 2017
Sponsor: PSG Capital
Date: 25/05/2017 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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