Wrap Text
Half Year Results for the Six Months ended 31 March 2019
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
("SEREIT"/ the "Company" / "Group")
18 June 2019
HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 31 MARCH 2019
SUCCESSFUL ASSET MANAGEMENT AND INVESTMENT IN LOGISTICS ASSETS POSITIONS COMPANY TO DELIVER
FURTHER PORTFOLIO VALUATION AND INCOME UPLIFT
Schroder European Real Estate Investment Trust plc, the company investing in European growth cities and regions, today
announces its half year results for the six months ended 31 March 2019.
Key Highlights
- Agreed conditional heads of terms (post period end) for a new long-term lease and capex programme at the
Boulogne-Billancourt office investment in Paris, providing future potential capital value and income upside
- Increased portfolio weighting towards higher growth sectors, recycling EUR17.3 million of capital into two logistics
assets in France, reflecting an income yield of 5.9%
- Maintained delivery of attractive dividend yield of 5.5% against Net Asset Value ('NAV')
Financial highlights
- Net Asset Value ('NAV') of EUR182.8 million or 136.7 cps (30 September: EUR182.1 million or 136.2 cps), an increase over
the period of 0.4%
- NAV total return of 1.7% (31 March 2018: 6.1%)
- Underlying EPRA earnings of EUR5.4 million (31 March 2018: EUR6.5 million)
- Profit for the six months of EUR3.2 million (31 March 2018: EUR10.8 million, which included a number of one-off gains)
- Total dividends declared relating to the six months of 3.7 cps, in-line with target of 5.5% annualised yield against the
euro IPO issue price
- Dividend cover of 108% (31 March 2018: 100%)
- Loan to value ('LTV') of 28% (30 September 2018: 26%) at a weighted average total interest rate of 1.4%
Operational highlights
- 100% of the portfolio's 13 institutional grade properties located in the fastest growing cities and regions of
Continental Europe
- Improved portfolio diversification, increasing exposure to higher growth logistics warehouse sector from 13% to 19%
(31 March 2018: 0%)
- Maintained high portfolio occupancy of almost 100%, with a 6.5 years average lease term to expiry
- Ongoing execution of asset management initiatives across the portfolio:
- Agreed conditional heads of terms (post period end) for a new long-term lease and capex programme with
current tenant Alten, for 6,800 sqm, at the Boulogne-Billancourt office investment in Paris
- Completion of EUR0.8 million refurbishment program at the Metromar Shopping Centre in Seville to improve
centre vibrancy and visitor appeal
- Completed two new leases with tenants in the education and IT sectors for over c. 40% of space in Hamburg, at
rents above business strategy. Detailed discussions ongoing for a further two floors, representing an additional
c. 25% of space
- Current portfolio valued at EUR240 million* reflecting an uplift of approximately 7.8% on purchase price, with
transaction costs now fully recovered through valuation uplifts since acquisition
- Underlying property portfolio total return of 3.5% over six months (excluding the impact from transaction costs)
Commenting, Sir Julian Berney, Chairman of the Board, said:
"This has been an active six month period for the Company which has seen us make important progress, improving the
long-term income profile of the Company and increasing our exposure to higher growth regions and sectors. The Company
has an exciting asset management opportunity to invest into its Paris Boulogne-Billancourt office investment, potentially
delivering growth in rental income and capital value and improving the quality and defensive characteristics of the portfolio.
This is a good example of how our investment strategy of targeting assets with strong property fundamentals in European
Winning Cities provides opportunities for growth."
Jeff O'Dwyer, Fund Manager for Schroder Real Estate Investment Management Limited, added:
"The recent French logistics acquisition is further evidence of our focus on assembling a diversified portfolio in winning
cities and regions across continental Europe. The Company now has c. 20% of its assets in industrial warehousing, up from
0% twelve months ago. The majority of European real estate markets are performing well, particularly in Berlin, Frankfurt,
Hamburg, Stuttgart and Paris, those cities where the Company has the majority of its exposure. We continue to focus on
delivering our asset management programme and the optimal financing structure for this, in order to strengthen the
income and portfolio profile, and support our ambition to grow the size of the Company."
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 webpage www.schroders.co.uk/sereit.
The Company has submitted a pdf of the hard copy format of the Half Year Report to the National Storage Mechanism and
it will shortly be available for inspection at www.morningstar.co.uk/uk/NSM.
A further announcement will be made shortly to confirm the full timetable of the second interim dividend.
For further information:
Schroder Real Estate Investment Management 020 7658 6000
Duncan Owen / Jeff O'Dwyer
Ria Vavakis 01481 745212
Schroder Investment Management Limited
FTI Consulting 020 3727 1000
Dido Laurimore / Richard Gotla / Methuselah Tanyanyiwa
A presentation for analysts and investors will be held at 08.45 BST today at Schroders plc, 1 London Wall Place, London, EC2Y 5AU.
If you would like to attend, please contact James Lowe at Schroders on james.lowe@schroders.com or +44 (0)20 7658 2083.
A webcast presentation will take place at 1100 BST / 1200 SA, registration for which can be accessed via:
https://www.brighttalk.com/webcast/1184/360254?utm_source=Schroder+Investments+Limited&utm_medium=brighttalk&utm_cam
paign=360254&utm_source=ExactTarget&utm_medium=Email&utm_campaign=SEREIT+Notice+of+Results-+20190528_114347
* Includes the Group's 50% share of the Seville property proportionally valued at EUR26.4 million.
Chairman's Statement
Overview
SEREIT had an active six month period to 31 March 2019, with a continued focus on reinvesting sale proceeds, alongside a
programme of value-enhancing asset management activity. As a result, the Group is in a strengthened position, with a
further diversified portfolio, increased allocation to higher growth sectors and improved potential for longer-term income
and capital growth.
The acquisition of the Rennes logistics property (comprising two neighbouring warehouses) in March completed the
reinvestment of the proceeds from the profitable sale of the Casino supermarkets last year. The overall reinvestment of
these proceeds has been at higher income yields and has increased exposure to the higher growth logistics and industrial
sector. This forms part of the strategy to have a diversified income-generating portfolio focused on the Winning Cities and
regions of Continental Europe, balanced across different growth sectors.
The main asset management activity has been agreeing heads of terms (post-period end) with the tenant at the Boulogne-
Billancourt office investment in Paris for a new long-term lease commitment. As part of the agreement, SEREIT will plan to
undertake a significant capital expenditure programme to refurbish the building and the heads of terms are subject to a
number of conditions, including planning and financing. If concluded, it has the potential to deliver both NAV return upside
and improve the longer-term income and portfolio profile. Progressing this project is a key focus for the remainder of the
year, alongside other asset management initiatives such as securing further lease agreements for the remaining vacant
space at the Group's Hamburg office and Metromar shopping centre in Seville.
Results
The Company's NAV at 31 March 2019, excluding non-controlling interests, was EUR182.8 million or 136.7 euro cents per
share ("cps"), representing an increase of EUR0.7 million (0.5 cps / 0.4%) over the six month period. This movement includes
property transactions costs of EUR1 million (0.7 cps) associated with the Rennes acquisition. Including dividends, the NAV
total return over the period excluding these one-off items was 2.2% and was 1.7% including the one-off items.
The profit for the six month period ending 31 March 2019 was EUR3.2 million and EPRA earnings were EUR5.4 million.
The Board also notes that it is working with its advisers to assess the potential impact of proposed changes to various
European tax laws. Further detail is provided in note 7 of the condensed consolidated interim financial statements.
Strategy
The Group has a focused investment strategy, investing in good quality real estate located in Winning Cities and regions
across Continental Europe. Winning Cities and regions are those that are expected to generate higher and more sustainable
levels of economic growth, underpinned by themes such as urbanisation, demographics, technology and infrastructure
improvements. The portfolio of 13 assets is fully situated in locations with GDP growth forecasts in the top two quartiles of
all European regions (Source: Oxford Economics).
The portfolio is diversified by location, sector, tenants and lease expiry. This enables the Group to tactically orientate the
portfolio over time in order to benefit from structural economic and sociodemographic trends, also influenced by the
varying cycles across different cities and sectors. A recent example of this is the strategic reduction in the Group's retail
exposure and increase in the allocation to the higher growth logistics sector, which is now 19% of the portfolio, up from nil
12 months ago. Having this flexibility and diversification also assists in improving the defensive characteristics of the asset
base and the income profile over the long run.
The assets are managed by the Investment Manager's local real estate teams, which total 180 professionals based on the
ground across eight key markets in Europe. This local presence provides a competitive advantage in being able to identify
sub-markets and assets benefiting from local market trends and building relationships with tenants to execute asset
management initiatives. In addition, Schroders' in-house economic and real estate research platform assists the Group with
identifying and capitalising on broader macro and micro trends.
The Group is now fully invested, with the strategy for the remainder of the year being focused on supporting NAV and
income returns through current and planned active asset management. Delivering this strategy will underpin our ambition
to grow the Group in a disciplined way that will improve long-term shareholder returns. The delivery of these asset
management initiatives is also important to provide downside protection in a scenario where income and values come
under pressure as a result of a deterioration in the economic or real estate market backdrop.
Balance sheet and debt
During the period the Group completed a new EUR8.6 million debt facility secured against the Rennes industrial acquisition.
This loan takes the Group's total third party debt as at 31 March 2019 to EUR73.0million *, representing a Loan to Value ('LTV')
of approximately 28% against the overall gross asset value of the Group.
* Includes the Group's 50% share of external debt in the joint venture of EUR11.4m and excludes unamortised finance costs of EUR1.1m.
The Group has a strategy of maintaining a robust balance sheet and overall leverage is capped at 35% at the time of
borrowing the debt. The Group has six debt facilities in place, with an average weighted total interest rate of 1.40% per
annum. All interest rates are either fixed or capped to mitigate the risk of rising interest rates.
There is various asset management activity, such as the lease regear and refurbishment at the Boulogne-Billancourt office
in Paris, that will require capital investment and has the potential to provide attractive property returns. The Group has
some additional debt capacity and regularly reviews other means of growing its available capital, such as raising equity or
asset sales, in order to seek to optimise the overall capital structure for the Group's strategy.
Dividend
The Group has declared a second interim dividend in respect of the year ending 30 September 2019 of 1.85 euro cents per
share payable on 22 July 2019 to shareholders on the register at 5 July 2019. The first and second interim dividends in
respect of the year ending 30 September 2019 amount to 3.70 euro cents per share.
The dividends for the six month period are 108% covered from net income from the portfolio. This includes a positive net
impact of EUR1.26 million from the receipt of the final payment for the Hamburg lease surrender, which contributes towards
covering the void at that property whilst we complete the re-leasing. Excluding the Hamburg surrender premium receipt,
the dividend cover is 78%.
The latest declared dividend represents an annualised rate of 5.5% based on the euro equivalent of the issue price at
admission, again achieving the target dividend stated at IPO. Based on the Euro:GBP exchange rate as at 31 March 2019,
this equates to an annualised rate of 6.5% on the GBP issue price at IPO of 100 pence per share.
Asset management activity such as the lease regear at the Boulogne-Billancourt office investment will improve the longer-
term income profile of the Group, but will reduce dividend cover in the short term. In implementing the dividend strategy,
the Board will consider the shorter term cash generation of the Company, alongside the longer term sustainable rental
income from the portfolio.
Outlook
The global economic and political backdrop remains fragile. The Winning Cities we are invested in across Europe are better
placed than many in respect of these risks, as they have higher levels of economic activity and are positioned to benefit
from structural mega-themes such as urbanisation and infrastructure improvements. There are a number of opportunities
to generate attractive returns from asset management and outperformance of certain markets, but also pockets of caution
where income and value may come under pressure.
The Group has a high-quality, diverse portfolio. Execution of the asset management initiatives across the portfolio will both
strengthen the defensive characteristics of the Group and improve the long-term capital and income returns for
shareholders.
Sir Julian Berney Bt.
Chairman
18 June 2019
Investment Manager's Review
Results
The Group's NAV as at 31 March 2019 stood at EUR182.8 million (GBP157.3m), or 136.7 euro cents (118.0 pence) per share, achieving
a NAV total return of 1.7% over the six months to 31 March 2019.
The table below provides an analysis 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 per
NAV movement EURmillion(1) Cps(2) cps(3)
Brought forward as at 1 October 2018 182.1 136.2 -
Transaction costs of investments made during the period (1.0) (0.7) (0.5)
Capital expenditure (1.5) (1.1) (0.8)
Unrealised gain in valuation of the real estate portfolio 0.7 0.5 0.4
EPRA earnings(4) 5.4 4.0 2.9
Non-cash/capital items (0.4) (0.3) (0.2)
Dividends paid (2.5) (1.9) (1.4)
Carried forward as at 31 March 2019 182.8 136.7 0.4
(1) Management reviews the performance of the Group principally on a proportionally consolidated basis. As a result, figures quoted
in this table include the Group's share of the Seville joint venture on a line-by-line basis.
(2) Based on 133,734,686 shares.
(3) Percentage change based on the starting NAV as at 1 October 2018.
(4) EPRA earnings as reconciled in note 8 of the condensed consolidated financial statements
Market overview
Economic growth forecasts have been revised down over the last 3-6 months and Schroders forecasts now that Eurozone
economic growth will slow from 1.8% in 2018 to 1.25-1.5% p.a. through 2019-2020. While short-term growth was impacted by
political turmoil and uncertainty over the new Italian government, Brexit and the protests in France, the main weak spot is
manufacturing, reflecting slower growth in China and the US. Particularly Germany, with its big exposure to manufacturing, has
seen forecasts revised down sharply. By contrast, consumer spending remains stable, supported by very healthy labour markets,
higher pay awards, low inflation of around 1.5% p.a. and some softening in austerity measures combined with higher public sector
spending. The benign outlook for inflation means that the European Central Bank is likely to wait until 2020 before raising the
refinancing interest rate. The main upside risk is that consumer spending is stronger than forecast. The main downside risks are
continued lack of clarity on Brexit, an escalation of the US-China trade dispute and the threat of US-imposed tariffs on EU exports.
Offices
Most major European cities experienced a rise in office rents over the year to 31 March 2019. This widespread upswing reflects
the sustained increase in employment, particularly in technology and professional services over the last five years and low volumes
of completions. As a result, vacancy rates in Amsterdam, Brussels, the major German cities, Paris and Stockholm are at their lowest
level in fifteen years and there is a particular shortage of new and modern office space suitable for new workplace configurations.
At the same time, there remains a low level of new development. Consequently, while rental growth will probably start to slow,
we expect the increase in office rents to continue through 2019-2020.
Logistics/industrial
The industrial and logistics sector is also seeing strong demand and rising rents, driven by the cyclical improvement in the economy
and by the structural growth in online retailing. However, the increase in rents is less ubiquitous than in the office market and big
cities (e.g. Berlin, Madrid, Munich, Paris) are generally seeing faster rental growth than ports or other distribution hubs. The
difference is largely due to the greater availability of land for new building in the main logistics hubs of Benelux and the Ruhr, but
development in big cities is also being held back by low unemployment and a shortage of warehouse staff. This is encouraging
greater automation and, combined with the transition to electric vehicles, means that warehouses increasingly need to have a
good power supply.
Retail
Despite the growth in consumer spending, demand for retail space in continental Europe remains in structural decline. The key
challenge is the switch to online retail. The market is also being disrupted by discount retailers who are taking market share from
mid-market retailers and are unwilling to pay the same level of rent. The average vacancy rate in shopping centres has risen to
8% and shopping centre rents fell in most countries in 2018 (source: PMA). We believe that the most defensive retail types will
be shops in big city centres and tourist destinations, convenience stores, mid-sized supermarkets and out-of-town retail
warehouses selling bulky goods. We expect that department stores, shopping centres with a heavy reliance on clothing and
footwear, shops in smaller cities and hypermarkets will suffer a sustained fall in rents.
Strategy
The strategy over the period has focused on the following key objectives:
- Maintaining the annualised target dividend yield of 5.5%;
- Further strengthening of the portfolio's diversification qualities from a city, sector and income perspective;
- Achieving full investment through targeting Winning Cities and regions that experience higher levels of GDP, employment
and population growth than national averages;
- Execute asset management initiatives to improve both the long-term income profile and individual asset value; and
- Manage portfolio risk in order to enhance the portfolio's defensive qualities
Progress has been made in executing the strategy and activity over the period which has delivered the following:
- Acquisition of an industrial property in Rennes, France (comprising two neighbouring warehouses) increasing the
Company's industrial warehousing weighting to 19% and improving the portfolio diversification from a sector, tenancy, age
profile and unexpired lease term perspective;
- Agreeing conditional heads of terms (post-period end) with Alten regarding their longer term occupation in the Company's
largest asset in Boulogne Billancourt, Paris and refurbishment of this asset;
- Securing new lease agreements with two tenants over c.40% of the Hamburg space, achieved at rents above business plan
and in detailed discussions for a further two floors;
- 100% of the portfolio now located in higher growth cities and regions;
- Concluded three new leases and re-gears, generating a 9% increase in annualised income relative to previous rent at a
weighted lease term of 3 years
- Completion of a EUR0.8 million asset management initiative centred on improving the vibrancy, lighting, wayfaring and
signage for the Metromar Shopping Centre, Seville;
- Maintained the high occupancy level of 96%, with an average portfolio unexpired lease term of 6.5 years and 5.1 years to
break; and
- A prudent Loan to Value of 28%
Our focus continues to be on driving income and total returns for the existing portfolio, managing risks and continuing to seek
new investments to accelerate income growth. The specific next steps therefore include:
1. Conclusion of key asset management initiatives;
a) Advancing the formal lease pre-commitment for the office investment in Boulogne Billancourt, Paris and
progression of the redevelopment licences, construction contract and programme;
b) Leasing the remaining c. 60% of vacant space in Hamburg;
c) The opening of leisure specialist Urban Planet in Metromar, Seville which is expected in Q3 2019, which will add a
further point of difference to the scheme, enhancing its appeal in a competitive local market; and
2. Continue to actively engage with existing shareholders and potential new investors; and
3. Consider opportunities to grow the Group, taking a disciplined approach in a way that will improve long-term shareholder returns.
Acquisition update
The Group has continued to focus on acquiring properties that increase its allocation to the high growth industrial and logistics
sector and further diversify the portfolio.
In March 2019, the Group completed the acquisition of two neighbouring industrial warehouses near Rennes, in Brittany, France,
for EUR17.3 million, reflecting a net initial yield of 5.9%.
Providing 23,852 sq.m of institutional quality space across two adjacent buildings, the property is let on a 12 year lease to C-Log,
the logistics subsidiary of Groupe Beaumanoir, the international fashion retailer, which has invested significant capex in equipping
the building with automated technology.
The property is located at the junction of two major arterial routes and benefits from excellent sea, high speed rail and air
connectivity. In line with Schroders' Winning Cities strategy, Brittany is one of France's fastest growing regions in terms of GDP
and population growth.
Asset management update
Key asset management over the period has centred on Metromar (Seville) and Boulogne-Billancourt (Paris).
Metromar, Seville (retail shopping centre) Boulogne-Billancourt, Paris (office)
Asset overview Asset overview
23,500 sq.m urban shopping centre with a tenancy mix centred 6,800 sq.m office building located in an established market in
on grocery, fashion and leisure that services a local, growing Paris' Western Crescent
catchment
Asset strategy Asset strategy
Light refurbishment and strengthening of entertainment point Repositioning opportunity regarding an office investment let off
of difference to improve occupancy and local retail dominance modest rents and located in a supply constrained location with
competing demands for uses
Key activity Key activity
Dual strategy involving an EUR800,000 investment to improve Advancement of feasibility analysis regarding redevelopment
vibrancy, lighting, signage and wayfinding (completed April options. In conjunction we have agreed conditional heads of
2019) whilst adding an additional leisure anchor, trampoline terms (post-period end) with the sitting tenant regarding their
specialist Urban Planet (due to open in August 2019). Defensive pre-commitment to a new longer term lease, in return for us
measures to increase property's appeal to visitors and tenants refurbishing the building to grade A specification
and protect against new competition.
Reviewed the centre's BREEAM in-use certification. The
centre achieved a rating of four stars (very good) for building
performance and five stars (excellent) for management.
Other key asset management included signing two new leases in the Group's Hamburg investment:
1. First floor totalling c. 927 sq.m leased to IT services specialist, Sentinel Systemlosungen GmbH for a 7 year term with an
option for another 3 year term.
2. Fifth floor totalling c. 646 sq.m leased to education and training specialist Grone Wirtschaftsakademie GmbH for a 5 year term
with an option for another 5 year term.
The combined annual rental terms have been concluded above target.
We are also in detailed discussions for leasing a further two floors.
Real Estate Portfolio
Following the latest Rennes acquisition, the Group now owns a portfolio of thirteen institutional grade properties valued at
EUR240 million* as at 31 March 2019. The properties are 96% let and located across those Winning Cities and regions in France,
Germany, Spain and the Netherlands. All investments are 100% owned except for the Metromar shopping centre, Seville, where
the Group holds a 50% interest.
* Includes the Group's 50% share in the Seville property proportionally valued at EUR26.4m
The top 10 properties comprise 92% of the portfolio value:
Value
Rank Property Country Sector EURm % of total
1 Paris (B-B)* France Office 41.6 17%
2 Paris (SC)† France Office 35.6 15%
3 Berlin Germany Retail 26.9 11%
4 Seville Spain Retail 26.4 11%
5 Apeldoorn Netherlands Mixed 20.0 8%
6 Rennes France Industrial 17.6 7%
7 Stuttgart Germany Office 16.4 7%
8 Hamburg Germany Office 15.3 7%
9 Frankfurt Germany Retail 11.5 5%
10 Venray Netherlands Industrial 9.6 4%
Top 10 properties 220.9 92%
11-13 Remaining three properties Netherlands/France Industrial 19.0 8%
Total 239.9 100%
* B-B refers to Boulogne-Billancourt
† SC refers to Saint-Cloud
The table below sets out the top ten tenants which are from a diverse range of industry segments and represent 67% of the
portfolio:
Contracted rent
Rank Tenant Property EURm & of total Wault break (yrs) Wault expiry (yrs)
1 KPN Apeldoorn 2.4 14% 7.8 7.8
2 Alten Paris (B-B) 2.4 14% 2.0 2.0
3 Hornbach Berlin 1.6 9% 6.8 6.8
4 C-Log Rennes 1.1 7% 11.9 11.9
5 Filassistance Paris (SC) 0.9 5% 2.8 7.8
6 Cereal Partners France Rumilly 0.7 4% 6.1 7.1
7 DKL Venray 0.7 4% 9.5 9.5
8 Land BW Stuttgart 0.7 4% 6.9 7.3
9 Thesee Paris (SC) 0.6 3% 0.4 0.4
10 Inventum Industrial Houten 0.6 3% 7.2 7.2
Total top ten tenants 11.7 67% 6.0 6.5
Remaining tenants 5.5 33% 3.2 6.5
Total 17.2 100% 5.1 6.5
The portfolio generates EUR17.2 million p.a. in contracted income. The average unexpired lease term is 5.1 years to first break and
6.5 years to expiry.
The lease expiry profile to earliest break is shown on page 17 of the condensed consolidated interm financial statements.
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. In turn, this activity benefits NAV total return.
Portfolio performance
The current portfolio value of EUR240 million‡ reflects an increase of 7.8% (EUR17.4 million) compared to the combined purchase price.
Transaction costs have been fully recovered through valuation uplifts since acquisition.
‡ Includes the Group's 50% share in the Seville property proportionally valued at EUR26.4m
Overall, external valuations remained fairly flat over the six months to the end of March 2019. A notable exception was the
Hamburg property where the reduction in valuation was more than compensated for by the payment of the second tranche of
the lease surrender premium by former tenant, City BKK.
Over the last six months, the underlying property portfolio generated a total property return of 3.5% (non-annualised/3.1% when
including the impact from transaction costs for the newly-acquired property in Rennes). Hereof, portfolio income return
amounted to 3.8% and portfolio capital return to -0.3% (net of capex).
Sustainable investment
Our approach to responsible investment has been continually upgraded over the last few years and we are increasingly seeking
to assess and improve the positive impact of our investments. This involves incorporation of environmental, social and governance
issues as well as, importantly, the impact of our investments on the built environment and climate change risks and opportunities.
The Investment Manager is aware of the importance of the impact its activities have on local environments and the performance
of this area is being continually measured. It was a founding member of the UK Green Building Council in 2007 and in 2017 became
a member of the Better Buildings Partnership and a Fund Manager Member of GRESB.
Over the period, the Company had the Metromar shopping centre, Seville, reviewed from a BREEAM in-use perspective. The
centre achieved a rating of four stars (very good) for building performance and five stars (excellent) for management. Both these
ratings are expected to improve the portfolio's GRESB classification.
Finance
As at 31 March 2019, the Group's total external debt was EUR73.0 million*, across six loan facilities. This represents a conservative
loan to value of 28% against the Group's gross asset value.
* Includes the Group's 50% share of external debt in the joint venture of EUR11.4m and excludes unamortised
finance costs of EUR1.1m.
During the first six months of the financial year the Group completed one new debt facility with the newly acquired industrial
property in Rennes (comprising two neighbouring warehouses) being part financed with a EUR8.6 million loan.
The current blended all-in interest rate is 1.4%, significantly below the portfolio yield of 6.2% p.a, providing a favourable yield gap.
The average unexpired loan term is 5.5 years.
Outstanding
Lender Property Maturity date principal(1) Interest rate
Deutsche Pfandbriefbank Berlin/Frankfurt 30/06/2026 EUR16,500,000 1.31%
Stuttgart/Hamburg 30/06/2023 EUR14,000,000 0.85%
BRED Banque Populaire Paris (SC) 15/12/2024 EUR13,000,000 3M Euribor + 1.30%
Munchener Hypothekenbank(1) Seville (50%) 22/05/2024 EUR11,678,750 1.76%
HSBC Netherlands industrial 27/09/2023 EUR9,250,000 3M Euribor + 2.15%
Saar LB Rennes 28/03/2024 EUR8,600,000 3M Euribor + 1.40%
Total EUR73,028,750
(1) All statistics in the Investment Manager's report reflect a 50% ownership share of Seville. As a result, debt allocations for those
investments in the table above are similarly proportioned.
The German and Spanish loans are fixed rate for the duration of the loan term.
The French and Netherlands loans are based on a margin above 3 month Euribor. The Group has acquired interest rate caps to
limit future potential interest costs if Euribor were to increase. The strike rate on the Paris loan interest rate cap is 1.25% p.a., on
the Rennes loan cap is 1% p.a. and for the Netherlands loan is 1% p.a..
Outlook
GDP growth has slowed in Europe over the last six months, impacted by economic and political uncertainty. The majority of the
major real estate markets continue to perform well. Occupational demand in leading European cities such as Paris, Berlin,
Hamburg, Frankfurt and Amsterdam remains strong. In conjunction with this, the supply side remains balanced with disciplined
bank lending reducing speculative development. These are all characteristics for positive rental growth and investment demand.
Our immediate priority is centred on successfully executing our asset management programme. Successful conclusion of these
asset management initiatives will improve the portfolio's income profile. This should enhance value and better support our
continued ambition for the disciplined growth of the Company.
Schroder Real Estate Investment Management Limited
18 June 2019
Directors' Report
Principal risks and uncertainties
The principal risks and uncertainties with the Company's business fall into the following risk categories: investment policy and
strategic; economic and property market; investment management; custody; gearing and leverage; accounting, legal and
regulatory; valuation; and service provider. A detailed explanation of the risks and uncertainties in each of these categories can
be found on pages 27 to 30 of the Company's published Annual Report and Consolidated Financial Statements for the year
ended 30 September 2018. The Company is aware of potential changes to tax legislation, one retrospective, which, if
implemented, may impact the Company. The Company is monitoring these matters closely. Otherwise, these risks and
uncertainties have not materially changed during the six months ended 31 March 2019 and are not expected to change during
the remaining six months of the financial year.
Going concern
The Directors have examined significant areas of possible financial risk and have reviewed cash flow forecasts and compliance
with the debt covenants, in particular the loan to value covenants and interest cover ratios. They 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 condensed consolidated interim financial statements. The
Directors have satisfied themselves that the Group has adequate resources to continue in operational existence for the
foreseeable future.
Having assessed the principal risks and uncertainties, and the other matters discussed in connection with
the viability statement as set out on page 30 of the published Annual Report and Consolidated Financial Statements for the year
ended 30 September 2018, 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 2019. Related party transactions are disclosed in note 13 of the condensed
consolidated interim financial statements.
Statement of Directors' responsibilities
The Directors confirm that to the best of their knowledge:
- The half year report and condensed consolidated interim financial statements have been prepared in accordance with IAS
34 Interim Financial Reporting as adopted by the European Union; 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
18 June 2019
Condensed Consolidated Interim Statement of Comprehensive Income
For the period ended 31 March 2019
Six months to Six months to Year to
31 Mar 2019 31 Mar 2018 30 Sep 2018
EUR'000 EUR'000 EUR'000
Note (unaudited) (unaudited) (audited)
Rental and service charge income 2 8,945 10,347 19,900
Other income 3 1,500 2,400 2,400
Property operating expenses (2,423) (3,899) (6,458)
Net rental and related income 8,022 8,848 15,842
Loss on disposal - - (29)
Net (loss)/gain from fair value adjustment on investment
property 4 (1,566) 6,359 4,939
Realised gain on foreign exchange 4 1 1
Net change in fair value of financial instruments at fair value
through profit or loss 5 (200) (39) (155)
Dividends received from joint venture 6 - - 150
Expenses
Investment management fee 13 (947) (849) (1,958)
Valuers' and other professional fees (494) (309) (687)
Administrator's and accounting fees (165) (147) (330)
Auditors' remuneration (191) (134) (269)
Directors' fees 13 (72) (62) (115)
Other expenses (129) (119) (206)
Total expenses (1,998) (1,620) (3,565)
Operating profit 4,262 13,549 17,183
Finance income 226 378 456
Finance costs (402) (502) (962)
Net finance costs (176) (124) (506)
Share of (loss)/profit of joint venture 6 (71) 292 407
Profit before taxation 4,015 13,717 17,084
Taxation 7 (818) (815) (1,517)
Profit after taxation 3,197 12,902 15,567
Attributable to:
Owners of the parent 3,197 10,798 13,175
Non-controlling interests - 2,104 2,392
3,197 12,902 15,567
Basic and diluted earnings per share attributable to
owners of the parent 8 2.4c 8.1c 9.9c
Profit for the period/year 3,197 12,902 15,567
Other comprehensive income:
Other comprehensive loss items that may be reclassified to
profit or loss:
Currency translation differences (6) - (4)
Total other comprehensive loss (6) - (4)
Total comprehensive income for the period/year 3,191 12,902 15,563
Attributable to:
Owners of the parent 3,191 10,798 13,171
Non-controlling interests - 2,104 2,392
3,191 12,902 15,563
All items in the above statement are derived from continuing operations. The accompanying notes 1 to 16 form an integral part
of the condensed consolidated interim financial statements.
Condensed Consolidated Interim Statement of Financial Position
As at 31 March 2019
31 Mar 2019 30 Sep 2018 31 Mar 2018
Assets Notes EUR'000 EUR'000 EUR'000
Non-current assets (unaudited) (audited) (unaudited)
Investment property 4 213,174 195,644 166,173
Investment in joint venture 6 6,626 6,697 6,582
Loans to joint venture 10,035 10,035 10,035
Non-current assets 229,835 212,376 182,790
Trade and other receivables 5,773 12,537 850
Interest rate derivative contracts 5 121 188 232
Cash and cash equivalents 15,166 15,738 21,268
Current assets 21,060 28,463 22,350
Assets of disposal group held for sale - - 70,389
Total assets 250,895 240,839 275,529
Equity
Share capital 15,540 15,015 15,215
Share premium 30,959 29,912 30,310
Retained earnings 5,120 4,397 9,442
Other reserves 131,167 132,745 132,151
Equity attributable to owners of the parent 182,786 182,069 187,118
Non-controlling interest - - 9,795
Total equity 182,786 182,069 196,913
Liabilities
Non-current liabilities
Interest-bearing loans and borrowings 9 60,506 52,150 43,079
Deferred tax liability 7 1,061 912 883
Non-current liabilities 61,567 53,062 43,962
Current liabilities
Trade and other payables 5,619 5,081 3,980
Current tax liabilities 7 923 627 114
Current liabilities 6,542 5,708 4,094
Liabilities of disposal group held for sale - - 30,560
Total liabilities 68,109 58,770 78,616
Total equity and liabilities 250,895 240,839 275,529
Net Asset Value per ordinary share 11 136.7c 136.2c 139.9c
The accompanying notes 1 to 16 form an integral part of the condensed consolidated interim financial statements.
Condensed Consolidated Interim Statement of Changes in Equity
For the period ended 31 March 2019
Share Share Retained Other Owners of on-controlling Total
Note capital premium earnings reserves the parent interests equity
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Balance as at 1 October 2018 15,015 29,912 4,397 132,745 182,069 - 182,069
Profit for the period - - 3,197 - 3,197 - 3,197
Other comprehensive loss for the year - - - (6) (6) - (6)
Dividends paid 12 - - (2,474) - (2,474) - (2,474)
Unrealised foreign exchange 525 1,047 - (1,572) - - -
Balance as at 31 March 2019 (unaudited) 15,540 30,959 5,120 131,167 182,786 - 182,786
Balance as at 1 October 2017 15,167 30,215 650 132,294 178,326 7,691 186,017
Profit for the year - - 13,175 - 13,175 2,392 15,567
Other comprehensive loss for the
year - - - (4) (4) - (4)
Dividends paid 12 - - (9,428) - (9,428) - (9,428)
Share premium distribution - - - - - (1,510) (1,510)
Divestment of non-controlling
interests - - - - - (8,573) (8,573)
Unrealised foreign exchange (152) (303) - 455 - - -
Balance as at 30 September 2018 (audited) 15,015 29,912 4,397 132,745 182,069 - 182,069
Balance as at 1 October 2017 15,167 30,215 650 132,294 178,326 7,691 186,017
Profit for the period - - 10,798 - 10,798 2,104 12,902
Dividends paid 12 - - (2,006) - (2,006) - (2,006)
Unrealised foreign exchange 48 95 - (143) - - -
Balance as at 31 March 2018 (unaudited) 15,215 30,310 9,442 132,151 187,118 9,795 196,913
The accompanying notes 1 to 16 form an integral part of the condensed consolidated interim financial statements.
Condensed Consolidated Interim Statement of Cash Flows
For the period ended 31 March 2019
Six months to Six months to Year to
31 Mar 2019 31 Mar 2018 30 Sep 2018
Note EUR'000 EUR'000 EUR'000
(unaudited) (unaudited) (audited)
Operating activities
Profit before tax for the period/year 4,015 13,717 17,084
Adjustments for:
Loss on disposal - - 29
Net loss/(gain) from fair value adjustment on investment property 4 1,566 (6,359) (4,939)
Share of loss/(profit) of joint venture 6 71 (292) (407)
Realised foreign exchange gains (4) (1) (1)
Finance income (226) (378) (456)
Finance costs 402 502 962
Net change in fair value of financial instruments at fair value through profit or loss 5 200 39 155
Dividends received from joint venture 6 - - (150)
Operating cash generated before changes in working capital 6,024 7,228 12,277
Decrease/(Increase) in trade and other receivables 6,761 (113) (3,122)
Increase in trade and other payables 259 816 2,300
Cash generated from operations 13,044 7,931 11,455
Finance costs paid (569) (664) (1,255)
Finance income received 226 381 456
Tax paid 7 (373) (224) (384)
Net cash generated from operating activities 12,328 7,424 10,272
Investing activities
Acquisition of investment property (18,013) (21,070) (51,992)
Additions to investment property (878) (123) -
Proceeds from disposal of investment property - - 19,740
Receipt of loan repayment - - 7,215
Dividends received from joint venture 6 - - 150
Net cash used in investing activities (18,891) (21,193) (24,887)
Financing activities
Proceeds from borrowings 9 8,600 13,000 13,000
Interest rate cap purchased 5 (133) (227) (227)
Dividends paid 12 (2,474) (2,006) (9,428)
Share premium distribution - - (1,510)
Net cash generated from financing activities 5,993 10,767 1,835
Net decrease in cash and cash equivalents for the period/year (570) (3,002) (12,780)
Opening cash and cash equivalents 15,738 28,521 28,521
Effects of exchange rate change on cash (2) 1 (3)
Transfer to disposal group held for sale - (4,252) -
Closing cash and cash equivalents 15,166 21,268 15,738
The accompanying notes 1 to 16 form an integral part of the condensed consolidated financial statements
Notes to the Condensed Consolidated Interim Financial Statements
1. Significant accounting policies
The Company is a closed-ended investment company incorporated in England and Wales. The condensed consolidated interim
financial statements of the Company for the period ended 31 March 2019 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 1 London Wall Place, London EC2Y 5AU.
These condensed consolidated 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 2018 were approved by the Board of
Directors on 30 November 2018 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 consolidated interim financial statements have been reviewed and not audited.
Statement of compliance
The condensed consolidated 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 as adopted by the
European Union ("EU"). 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 2018.
The condensed consolidated interim financial statements have been prepared on the basis of the accounting policies set out in
the Group's consolidated financial statements for the year ended 30 September 2018. The consolidated financial statements for
the year ended 30 September 2018 have been prepared in accordance with International Financial Reporting Standards ("IFRS")
as adopted by the EU. 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 condensed consolidated interim 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 condensed consolidated interim financial statements and are consistent with those of the year end financial report.
During the period the Group adopted the following standards:
IFRS 9 - Financial instruments
The new standard results in changes in the classification of all financial assets excluding derivatives. This reclassification does
not have an impact on the financial statements.
The new standard introduces an expected credit loss model, requiring expected credit losses to be recognised on all financial
assets held at amortised cost.
This new IFRS 9 impairment model requires impairment allowances for all exposures from the time a loan is originated, based
on the deterioration of credit risk since initial recognition. If the credit risk has not increased significantly (Stage 1), IFRS 9
requires allowances based on twelve month expected losses. If the credit risk has increased significantly (Stage 2) and if the loan
is 'credit impaired' (Stage 3), the standard requires allowances based on lifetime expected losses. The assessment of whether a
loan has experienced a significant increase in credit risk varies by product and risk segment. It requires use of quantitative
criteria and experienced credit risk judgement.
The expected credit risk model has been applied to the joint venture loan and trade receivables. IFRS 9 does not apply to any
other assets held by the Group.
There is no material quantitative impact for the period ended 31 March 2019 upon application of this new accounting policy for
assessing asset impairment. The Group will continue to assess the financial assets periodically using the credit loss model and
recognise an expected credit loss if required.
IFRS 15 - Revenue from contracts with customers
The new standard sets out a five-step model for the recognition of revenue and establishes principles for reporting useful
information to users of financial statements about the nature, timing and uncertainty of revenues and cash flows arising from
an entity's contracts with customers. The new standard does not apply to rental income which is in the scope of IAS 17, but does
apply to service charge income, management and performance fees and trading property disposals. Adoption of IFRS 15 has not
had a quantitative impact upon the Group's financial statements. It has resulted in some minor qualitative disclosure in relation
to some revenue items, as detailed in Note 2 to the condensed consolidated interim financial statements, the service charge
income has been separated from rental income.
IFRS 16 - Leases
The new standard requires recognition on the balance sheet for the head rent payable by a lessee over the lease term. For
lessees, it will result in almost all leases being recognised on the balance sheet, as the distinction between operating and finance
leases will be removed. The accounting for lessors will not significantly change. These changes are not expected to have any
impact on the consolidated financial statements of the Group as it does not hold any leasehold properties.
IFRS 16 was effective from 1 January 2019 but has not been early adopted by the Group.
Going concern
The Directors have examined significant areas of possible financial risk including cash and cash requirements and compliance
with 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
condensed consolidated interim 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 financial statements in conformity with IFRS, as adopted by the EU, 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 the condensed consolidated interim financial statements relate to the carrying
value of investment properties (as disclosed in note 4, including those within joint ventures) which are stated at fair value. Fair
value is inherently subjective because the valuer makes assumptions which may not prove to be accurate. The Group uses
external professional valuers to determine the relevant amounts.
A key area of judgement is accounting for transactions. These include judgements on whether the criteria for assets and
liabilities held for sale have been met for transactions not yet completed; and accounting for transaction costs and contingent
consideration. Management use the most appropriate accounting treatment for each transaction and seek independent advice
where necessary.
Another key area of judgement is tax provisioning and disclosure. Management use external tax advisers to monitor changes to
Group's financial statements. Where changes to tax laws give rise to a contingent liability the Group discloses these
appropriately within the notes to the financial statements.
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 not aware of 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 2018.
The main risks arising from the Group's financial instruments and investment 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. Rental and service charge income
Six months to Six months to Year to
31 Mar 2019 31 Mar 2018 30 Sep 2018
EUR'000 EUR'000 EUR'000
(unaudited) (unaudited) (audited)
Rental income 6,976 6,688 13,708
Service charge income 1,969 3,659 6,192
Total 8,945 10,347 19,900
3. Other income
Other income relates to a lease surrender premium agreement pursuant to the Company's Hamburg office asset in Germany.
EUR1.5m was received in the six months ended 31 March 2019 and EUR2.4m was received during the year ended 30 September 2018.
4. Investment property
Freehold
EUR'000
Fair value at 30 September 2017 (audited) 202,563
Property acquisitions 21,127
Additions 124
Net valuation gain on investment property 6,359
Sub-total 230,173
Transfer to disposal group held for sale (64,000)
Fair value as at 31 March 2018 (unaudited) 166,173
Property acquisitions 27,042
Acquisition costs 3,849
Net valuation loss on investment property (1,420)
Fair value as at 30 September 2018 (audited) 195,644
Property acquisitions 18,211
Additions 885
Net valuation loss on investment property (1,566)
Fair value as at 31 March 2019 (unaudited) 213,174
The fair value of investment properties, as determined by the valuer, totals EUR213,530,000 (30 September 2018: EUR195,950,000)
with the valuation amount relating to a 100% 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 per the condensed consolidated interim financial statements of EUR213,174,000 includes a tenant incentive
adjustment of EUR356,000 (30 September 2018: EUR306,000).
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 - Global
Standards 2017, incorporating the International Valuations Standards, and RICS Professional Standards UK January 2014 (revised April 2015).
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) as at 31 March 2019 (unaudited).
Retail (including
Industrial retail warehouse) Office Total
Fair value (EUR'000) EUR46,280 EUR91,150 EUR128,900 EUR266,330(3)
Area ('000 sq.m) 68,806 44,365 60,429 173,600
Net passing rent Range 39.78-99.84 94.73-140.72 47.46-350.03 39.78-350.03
EUR per sq.m per annum Weighted average(2) 48.29 114.02 209.39 148.76
Gross ERV EUR per sq.m Range 38.00-89.40 101.58-187.50 79.76-419.91 38.00-419.91
per annum Weighted average(2) 48.44 158.43 239.77 178.69
Net initial yield(1) Range 5.64-7.43 4.79-5.38 1.79-11.40 1.79-11.40
Weighted average(2) 6.38 4.99 6.70 6.06
Equivalent yield Range 5.50-7.00 5.10-5.98 4.23-10.44 4.23-10.44
Weighted average(2) 6.25 5.76 6.17 6.04
Notes:
(1) Yields based on rents receivable after deduction of head rents and non-recoverables.
(2) Weighted by market value.
(3) This table includes the joint venture investment property valued at EUR52.8 million which is disclosed within the summarised
information within note 6 as part of total assets.
Quantitative information about fair value measurement using unobservable inputs (Level 3) as at 30 September 2018 (audited).
Retail (including
Industrial retail warehouse) Office Total
Fair value (EUR'000) 28,600 89,650 129,700 247,950(3)
Area ('000 sq.m) 43,666 44,336 60,423 148,425
Net passing rent Range 39.84-97.94 94.73-140.01 63.24-349.98 39.84-349.98
EUR per sq.m per annum Weighted average(2) 51.48 115.88 210.84 158.12
Gross ERV EUR per sq.m Range 38.00-89.43 101.58-189.45 76.76-419.91 38.00-419.91
per annum Weighted average(2) 51.61 159.74 239.88 189.19
Net initial yield(1) Range 6.04-7.33 4.90-5.52 2.46-11.00 2.46-11.00
Weighted average(2) 6.75 5.10 6.69 6.12
Equivalent yield Range 6.01-7.00 5.10-5.95 4.43-10.10 4.43-10.10
Weighted average(2) 6.62 5.78 6.15 6.07
Notes:
(1) Yields based on rents receivable after deduction of head rents and non-recoverables.
(2) Weighted by market value.
(3) This table includes the joint venture investment property valued at EUR52.0 million which is disclosed within the summarised
information within note 6 as part of total assets.
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:
Impact on fair value measurement of Impact on fair value measurement of
significant increase in input significant decrease 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 Retail Office Total
properties at 31 March 2019 (unaudited) EUR'000 EUR'000 EUR'000 EUR'000
Increase in ERV by 5% 1,350 3,550 2,000 6,900
Decrease in ERV by 5% -1,350 -3,550 -2,000 -6,900
Increase in net initial yield by 0.25% -1,850 -4,000 -6,400 -12,250
Decrease in net initial yield by 0.25% 2,050 4,400 7,100 13,550
Estimated movement in fair value of investment properties Industrial Retail Office Total
at 30 September 2018 (audited) EUR'000 EUR'000 EUR'000 EUR'000
Increase in ERV by 5% 800 3,500 5,700 10,000
Decrease in ERV by 5% -900 -3,500 -5,550 -9,950
Increase in net initial yield by 0.25% -1,150 -4,000 -6,000 -11,150
Decrease in net initial yield by 0.25% 1,100 4,350 6,700 12,150
5. Derivative financial instruments
The Group has an interest rate cap in place which was purchased for EUR227,000 from BRED Banque Populaire on 15 December
2017 in connection to a EUR13.0m loan facility drawn from the same bank with a maturity date of 15 December 2024. The interest
rate cap is 1.25% with a floating rate option being Euribor 3 months. In line with IFRS 9, this derivative is reported in the
condensed consolidated interim financial statements at its fair value. As at 30 September 2018 the fair value of the interest rate
cap was EUR188,000. The notional value of the instrument is EUR13.0 million. As at 31 March 2019 the fair value of the interest rate
cap was EUR58,000, giving a valuation decrease as shown within the Statement of Comprehensive Income of EUR130,000.
During the period the group entered into an interest rate cap purchased for EUR87,000 from HSBC Bank Plc on 31 October 2018 in
connection to a EUR9.25 million loan facility drawn from the same bank with a maturity date of 27 September 2023. The cap
interest rate is 1.0% with a floating rate option being Euribor 3 months. In line with IFRS 9, this derivative is reported in the
condensed consolidated interim financial statements at its fair value. As at 31 March 2019 the fair value of the interest rate cap
was EUR17,000, giving a valuation decrease as shown in the Statement of Comprehensive Income of EUR70,000.
During the period the Group entered into an interest rate cap purchased for EUR46,000 from Landesbank Saar on 27 March 2019
in connection with an EUR8.6 million loan facility drawn from the same bank with a maturity date of 27 March 2024. The interest
rate cap is 1.0% with a floating rate option being Euribor 3 months. In line with IFRS 9, this derivative is reported in the
condensed consolidated interim financial statements at its fair value. As at 31 March 2019 the fair value of the interest rate cap
was EUR46,000. There was no movement in the fair value of the interest rate cap as at 31 March 2019.
Transaction costs incurred in obtaining the instruments are amortised over the extended period of the above-mentioned loans.
6. Investment in joint ventures
The Group has a 50% interest in a joint venture called Urban SEREIT Holdings Spain S.L. The principal place of business of the
joint venture is Calle Velazquez 3, 4th Madrid 28001 Spain.
31 Mar 2019
EUR'000
Balance as at 1 October 2018 (audited) 6,697
Share of loss for the period (71)
Balance as at 31 March 2019 (unaudited) 6,626
31 Mar 2018
EUR'000
Balance as at 1 October 2017 (audited) 6,290
Share of profit for the year 442
Dividends (150)
Balance as at 31 March 2018 (unaudited) 6,582
30 Sep 2018
EUR'000
Balance as at 1 October 2017 (audited) 6,290
Share of profit for the year 557
Dividends (150)
Balance as at 30 September 2018 (audited) 6,697
31 Mar 2019 31 Mar 2018 30 Sep 2018
Summarised joint venture financial information: EUR'000 EUR'000 EUR'000
Total assets 58,861 59,586 58,444
Total liabilities (45,609) (46,422) (45,050)
Net assets 13,252 13,164 13,394
Net asset value attributable to the Group 6,626 6,582 6,697
Six months to Six months to Year to 30 Sep
31 Mar 2019 31 Mar 2018 2018
EUR'000 EUR'000 EUR'000
(unaudited) (unaudited) (audited)
Revenues 2,826 2,838 5,464
Total comprehensive (loss)/profit (142) 884 1,114
Total comprehensive (loss)/profit attributable to the Group (71) 442 557
7. Taxation
Six months to Six months to Year to
31 Mar 2019 31 Mar 2018 30 Sep 2018
EUR'000 EUR'000 EUR'000
(unaudited) (unaudited) (audited)
Current tax charge 669 405 1,078
Deferred tax charge 149 410 439
Tax expense in period/year 818 815 1,517
Current tax Deferred tax
liability liability
EUR'000 EUR'000
As at 1 October 2018 (audited) 627 912
Tax charge for the period 669 149
Tax paid during the period (373) -
Balance as at 31 March 2019 (unaudited) 923 1,061
Current tax Deferred tax
liability liability
EUR'000 EUR'000
As at 1 October 2017 (audited) (67) 473
Tax charge for the period 405 410
Tax paid during the period (224) -
Balance as at 31 March 2018 (unaudited) 114 883
Current tax Deferred tax
liability liability
EUR'000 EUR'000
As at 1 October 2017 (audited) (67) 473
Tax charge for the period 1,078 439
Tax paid during the period (384) -
Balance as at 30 September 2018 (audited) 627 912
Under the current Double Taxation Treaty between France and Luxembourg, dividends paid by OPPCI SEREIT France to SEREIT
Holdings are subject to withholding tax at a rate of 5% and are exempt from further taxation in Luxembourg. However, this
Treaty has been in the process of renegotiation. Proposed changes to the Treaty mean, amongst other things, that dividends
paid by OPPCI SEREIT France to SEREIT Holdings could be subject to 30% withholding tax and may incur further tax charges in
Luxembourg.
The new Double Taxation Treaty will come in to force on 1 January 2020, subject to the completion of the ratification process by
both governments. As at 31 March 2019 the Treaty had not been fully ratified. It is expected that the company will recognise an
additional deferred tax liability of EUR1.4m upon completion of the ratification process, reflecting the potential tax liability relating
to unrealised gains arising within OPPCI SEREIT France.
In April 2019 the European Commission ("EC") issued a ruling that a UK group financing exemption within the UK Controlled
Foreign Company rules was partially in breach of the European Union State aid rules. The Group has made claims to apply this
exemption in respect of SEREIT (Jersey) Limited which provides financing to other group companies, and this ruling may result in
additional tax liabilities becoming payable. The UK government has not yet indicated whether it intends to appeal against the
ruling, and nor has it published the mechanism for calculating the tax due. Accordingly the sum potentially payable cannot be
accurately measured at this time.
8. 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 translation differences, of EUR3,197,000 (six months to 31 March 2018: EUR10,798,000, for year ended 30
September 2018: EUR13,175,000) and the weighted average number of ordinary shares in issue during the period of 133,734,686
(six months to 31 March 2018: 133,734,686, year to 30 September 2018: 133,734,686).
EPRA* earnings reconciliation
Six months to Six months to Year to
31 Mar 2019 31 Mar 2018 30 Sep 2018
EUR'000 EUR'000 EUR'000
(unaudited) (unaudited) (audited)
Total IFRS comprehensive income 3,191 12,902 15,563
Adjustments to calculate EPRA Earnings:
Net loss/(gain) from fair value adjustment on investment property 1,566 (6,359) (4,939)
Currency translation differences (unrealised) 6 - 4
Loss on disposal of investment properties, development
properties held for investment and other interests - - 29
Withholding tax on profits on disposal - - 279
Share of joint venture loss/(gain) on investment property 264 (156) (8)
Non-controlling interest's net revenue - (378) (692)
Deferred tax 149 410 439
Net change in fair value of financial instruments 200 39 155
EPRA Earnings 5,376 6,458 10,830
Weighted average number of ordinary shares 133,734,686 133,734,686 133,734,686
IFRS Earnings per share (cents per share) 2.4 8.1 9.9
EPRA Earnings per share (cents per share) 4.0 4.8 8.1
Headline† earnings reconciliation
Six months to Six months to Year to
31 Mar 2019 31 Mar 2018 30 Sep 2018
EUR'000 EUR'000 EUR'000
(unaudited) (unaudited) (audited)
Total IFRS comprehensive income 3,191 12,902 15,563
Net valuation (loss)/profit on investment property 1,566 (6,359) (4,939)
Profits on disposal of investment properties, development
properties held for investment and other interests - - 29
Withholding tax on profits on disposal - - 279
Share of joint venture (loss)/gain on investment property 264 (156) (8)
Non-controlling interest's net revenue - (378) (692)
Deferred tax 149 410 439
Net change in fair value of financial instruments 200 39 155
Headline earnings 5,370 6,458 10,826
Weighted average number of ordinary shares 133,734,686 133,734,686 133,734,686
Headline Earnings per share (cents per share) 4.0 4.8 8.1
* European Public Real Estate Association ('EPRA') earnings per share reflects the underlying performance of the company calculated
in accordance with the EPRA guidelines.
† Headline earnings per share reflects the underlying performance of the company calculated in accordance with the Johannesburg Stock
Exchange listing requirements.
9. Interest-bearing loans and borrowings
Six months to
31 Mar 2019
As at 1 October 2018 (audited) 52,150
Drawdown of borrowings 8,600
Capitalisation of finance costs (299)
Amortisation of finance costs 55
As at 31 March 2019 (unaudited) 60,506
Year ended 30 Sep 2018
EUR'000
As at 1 October 2017 (audited) 58,772
Receipt of borrowings 22,250
Disposal - loans (29,064)
Disposal - finance costs 472
Capitalisation of finance costs (416)
Amortisation of finance costs 136
As at 30 September 2018 (audited) 52,150
Six months to 31 Mar 2018
EUR'000
As at 1 October 2017 (audited) 58,772
Drawdown of borrowings 13,000
Capitalisation of finance costs (204)
Amortisation of finance costs 72
71,640
Transfer to disposal group held for sal (28,561)
As at 31 March 2018 (unaudited) 43,079
Bank loan - Landesbank Saar
The Group entered into a loan facility of EUR8.6 million with Landesbank Saar on 27 March 2019.
The loan matures on 27 March 2024 and carries an interest rate of 1.40% plus EURIBOR 3 months per annum payable quarterly.
An additional 25bps is applied to the margin if the LTV is between 56% and 60% or 50bps if the LTV is above 60%. The facility
was subject to a EUR56,000 arrangement fee which is amortised over the period of the loan. The debt has an LTV covenant of 64%
and the HIC and PIC should each be above 220% each.
A pledge of all shares in the borrowing Group company is in place.
10. Issued capital and reserves
As at 31 March 2019, the Company has 133,734,686 ordinary shares in issue with a par value of 10.00 pence (no shares are held
in Treasury). The total number of voting rights in the Company is 133,734,686.
11. NAV per ordinary share
The NAV per ordinary share is based on the net assets excluding non-controlling interests at 31 March 2019 of EUR182,786,000 (30
September 2018: EUR182,069,000; 31 March 2018: EUR187,118,000) and 133,734,686 ordinary shares in issue at 31 March 2019 (30
September 2018: 133,734,686; 31 March 2018: 133,734,686).
12. Dividends paid
Six months ended 31 March 2019 (unaudited) Number of Rate
ordinary shares (cents) EUR'000
Interim dividend paid 25 January 2019 133,734,686 1.85 2,474
Six months ended 31 March 2018 (unaudited) Number of Rate
ordinary shares (cents) EUR'000
Interim dividend paid 19 January 2018 133,734,686 1.50 2,006
Number of Rate
Year ended 30 September 2018 (audited) ordinary shares (cents) EUR'000
Interim dividend paid on 19 January 2018 133,734,686 1.50 2,006
Interim dividend paid on 13 April 2018 133,734,686 1.85 2,474
Interim dividend paid on 20 July 2018 133,734,686 1.85 2,474
Interim dividend paid on 14 September 2018 133,734,686 1.85 2,474
Total interim dividends paid 9,428
13. Related party transactions
Schroder Real Estate Investment Management Limited is the Group'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 EUR947,000 (six
months ended 31 March 2018: EUR849,000, year ended 30 September 2018: EUR1,958,000). At 31 March 2019, EUR140,000 was
outstanding (six months ended 31 March 2018: EUR881,000, year ended 30 September 2018: EUR318,000).
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 2019 was EUR72,000 (six months ended 31 March 2018: EUR62,000, year ended 30
September 2018: EUR105,325) equivalent to GBP61,962. Each of the three directors owns 10,000 shares in the Company.
14. Contingent liability
There are no contingent liabilities other than those disclosed in note 7.
15. Capital commitments
At 31 March 2019 the Group had capital commitments of EUR821,000 (30 September 2018: EUR293,590,
31 March 2018: EUR400,000).
16. Post balance sheet events
There were no post balance sheet events.
18 June 2019
Sponsor: PSG Capital
Date: 18/06/2019 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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