Wrap Text
Full Year Results For The Year Ended 30 September 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")
9 December 2019
FULL YEAR RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2019
SECTOR DIVERSIFICATION AND WINNING CITIES STRATEGY UNDERPINS POTENTIAL TO DELIVER FURTHER INCOME AND CAPITAL GROWTH
Schroder European Real Estate Investment Trust plc, the company investing in European growth cities and regions, today
announces its audited full year results for the year ended 30 September 2019.
Operational highlights
- Agreed a conditional new long-term lease and capex programme at the Group's largest asset, Boulogne-Billancourt office
in Paris, providing future potential capital value and income upside
- Portfolio allocation to higher growth logistics sector increased to 20% (30 Sept 2018: 13%) with the acquisition of a French
logistics asset for EUR18.2 million
- Underlying property portfolio total return of 7.7% (excluding the impact of transaction costs) (30 September 2018: 10.8%)
- 100% of the portfolio's 13 institutional grade properties located in cities and regions of Continental Europe that are in the
top two quartiles of forecast economic growth
- Portfolio valued at EUR242.7 million (on a proportionally consolidated basis), reflecting an uplift of approximately 9.0% on purchase price
- Conclusion of 18 new leases and re-gears with a total annual rental income of EUR1.6 million, generating a c.2% increase in
annualised income on a like-for-like basis and secured at a weighted lease term of c.9 years. The overall unexpired lease
term across the portfolio is 5.0 years to first break and 6.4 years to expiry
- Achieved a Global Real Estate Sustainability Benchmark ('GRESB') Green Star for 2019
Financial highlights
- Net Asset Value ("NAV") of EUR182.1 million or 136.2 cps (30 September 2018: EUR182.1 million / 136.2 cps)
- Total dividends declared of 7.4 cps, in line with target of 5.5% annualised yield against the Euro IPO issue price
- EPRA / headline earnings of EUR10.5 million (30 September 2018: EUR10.8 million), resulting in dividend cover of 107%
(30 September 2018: 109%) and earnings per share ('EPS') / headline earnings per share ('HEPS') of 7.9 cents (30 September 2018: 8.1 cents)
- Profit for the year of EUR7.4 million (30 September 2018: EUR13.2 million), predominantly reflecting lower valuation gains
on investment properties
- NAV total return of 4.1% (30 September 2018: 7.5%), reflecting the impact of acquisition costs and one-off tax restructuring costs
- Loan to value ('LTV') of 29% (30 September 2018: 26%) at a weighted average total interest rate of 1.4%. Additional loans
completed post period take the LTV to 31%
Commenting, Sir Julian Berney, Chairman of the Board, said:
"2019 has been an important year in positioning SEREIT to deliver long-term income and capital growth. Our increasingly diversified portfolio
by sector, geography and tenant has underpinned a period of stable financial and operational performance, supporting the delivery of the
attractive and well covered dividend, whilst also improving the Company's defensive characteristics. At the same time, initiatives such as
the Paris Boulogne-Billancourt refurbishment and lease regear demonstrate the potential to generate strong shareholder returns from our strategy
of focusing on Winning European Cities, where all 13 of the Group's assets are situated."
Jeff O'Dwyer, Fund Manager for Schroder Real Estate Investment Management Limited, added:
"Property markets in our target cities are performing well. Whilst there are pockets of weakness, such as in the retail shopping centre sector,
our limited exposure to underperforming parts of the market and balanced portfolio helps mitigate us against these. Alongside progressing the Paris
redevelopment and other initiatives to further improve our income profile, the ambition for 2020 is that we will grow the portfolio via new acquisitions
in our target Winning cities, benefitting from both the macro trends supporting attractive real estate returns, as well as the Company's extensive
local market expertise."
The Company's Annual Report and Accounts for the year ended 30 September 2019 are being published in hard copy format
and an electronic copy will shortly be available to download from the Company's webpage www.schroders.co.uk/sereit. Please
click on the following link to view the document
https://senspdf.jse.co.za/documents/2019/JSE/ISSE/SCDE/FY19.pdf
The Company has submitted its Annual Report and Accounts to the National Storage Mechanism and it will shortly be available
for inspection at www.morningstar.co.uk/uk/NSM.
Dividend details will be released in a separate announcement.
For further information:
Schroder Real Estate Investment Management 020 7658 6000
Duncan Owen / Jeff O'Dwyer
Ria Vavakis 020 7658 2371
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 09.00 GMT 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 GMT / 1300 SA, registration for which can be accessed via:
https://www.brighttalk.com/webcast/1184/376008?utm_source=Schroder+Investments+Limited&utm_medium=brighttalk&utm_campaign=376008
Chairman's Statement
Asset management positioning the Company for growth
Overview
2019 has been an important year in positioning SEREIT to deliver long-term income and capital growth. New investments were made in the
logistics/industrial sector, returning the Company to full investment. This took the portfolio weighting in this higher growth sector to 20%,
compared to nil 18 months ago. There has also been success in progressing value-enhancing asset management initiatives, the most notable of
which is at the Company's Paris office investment Boulogne-Billancourt. A conditional agreement for a long-term lease has been signed with the
existing tenant Alten, in return for a comprehensive refurbishment of the building which is expected to start in mid-2020. This has the potential
to deliver both NAV return upside and improve the longer-term income and portfolio profile.
Real estate markets in our target cities generally remain stable, which has supported an overall portfolio valuation uplift. However, certain
sectors such as retail shopping centres are under pressure. The Company has seen this at its shopping centre in Seville, where rents and value
have declined. The Investment Manager is continuing to implement asset management initiatives across the portfolio to mitigate such market
risks.
Strategy
The Company's strategy is built around three core pillars, being: a focus on assets with strong fundamentals in Winning Cities and regions across
continental Europe; diversification across sectors and tenants; and execution of value-enhancing investment and asset management via on the
ground European teams.
All 13 of SEREIT's assets are situated in Winning Cities and regions, being those that are expected to generate higher and more sustainable levels
of economic growth than their national averages (Source: Oxford Economics). These locations are characterised by themes such as technological
and infrastructure improvements and urbanisation. Schroders uses its in-house economic and real estate research platform to assist with
identifying such locations and also advises on how to capitalise on broader macro and micro trends such as e-commerce.
The increased diversification provided by the portfolio improves the defensive characteristics of the Company. The strategy also provides
opportunities to tactically allocate between different sectors and investments to maximise returns. The portfolio is increasingly diversified by
location and sector, and has around 100 tenants with a broad spread of lease expiries and exposure to different industries. The increase in the
Company's weighting to the logistics/industrial sector and decrease in allocation to the retail sector is an example of a tactical strategic move
implemented over the past 18 months. This orientates the Company to sectors which are forecast to deliver higher rental growth going forward.
Execution of the strategy is implemented by the real estate teams that Schroders has located on the ground across eight key European markets,
including Paris and Frankfurt. This local presence is important in identifying sub-markets and assets benefiting from local market trends. It is also
key to being able to build relationships with tenants to execute asset management initiatives. This was demonstrated by the work done with
Alten to secure a conditional new long-term lease at the Paris Boulogne-Billancourt office investment.
Financial Results
Despite the challenging global political backdrop, the Company delivered stable financial results during the period. The NAV was unchanged at
EUR182.1 million (EUR1.362 per share), despite the one-off costs of the tax restructuring of EUR2 million. The conclusion of 18 new leases and regear
events generated a c.2% increase in annualised income underpinning dividend cover.
Balance sheet and debt
One new loan was completed during the year, an EUR8.6 million debt facility secured against the Rennes industrial acquisition. As at 30 September
2019 total third party debt was EUR73 million, representing a net loan to value ('LTV') of 29% against the overall gross asset value of the Group.
As announced post year end, the loan on the Saint-Cloud office building in Paris was increased by EUR4 million to EUR17 million and a new 3.5 year
loan of EUR3.7 million was also taken against the Rumilly logistics asset in France. This takes total third party debt to EUR81 million, representing a net
Loan to Value ('LTV') of approximately 31% against the overall gross asset value of the Company. The average weighted total interest rate of the
loans is 1.4% per annum and all interest rates are either fixed or have caps to mitigate the impact of rising interest rates. The weighted average
duration of the loans is 4.9 years.
The additional loans were drawn mainly to fund capital expenditure across the portfolio, including preliminary works at the Paris Boulogne-
Billancourt office investment. The comprehensive refurbishment of this asset, that is being undertaken as part of the agreement for the new
lease with Alten, is likely to be mainly funded with a new debt facility secured against that asset. This would take overall gearing to c.35%
LTV. In parallel, the Company continues to keep under review other means of growing its available capital, such as raising equity or asset sales, in
order to optimise the overall capital structure.
Dividend
The Company has declared a fourth interim dividend in respect of the year ended 30 September 2019 of 1.85 euro cents per share payable on
27 January 2020 to shareholders on the register on 10 January 2020. The total dividends in respect of the year amount to 7.4 euro cents per share.
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 and GBP share price as at 30 September 2019, this equates to an
annualised dividend yield of 5.9%.
The dividends in respect of the year are approximately 107% covered from net income from the portfolio. Dividend cover over the next two
years is expected to be reduced whilst the refurbishment of the Paris Boulogne-Billancourt office investment is completed. However, this project
will be accretive to NAV and will improve the longer term income profile and dividend cover of the Company, with a new 10 year lease to a
strong tenant being agreed in return for the refurbishment. In implementing the dividend strategy going forward, the Board will consider the
shorter term cash generation of the Company, alongside the longer term sustainable rental income from the portfolio.
Outlook
Initiatives such as the Paris Boulogne-Billancourt refurbishment and lease regear demonstrate the potential to generate strong shareholder
returns from our strategy of focusing on Winning European Cities and active asset management by local teams. Having a diverse portfolio of
properties and tenants presents other asset management opportunities to improve value and income. Equally, it also provides defensive
attributes if certain sectors or markets come under pressure, for example the exposure to the retail sector in the Seville shopping centre.
Alongside the quality of the portfolio, execution of asset management initiatives such as improving the occupancy of the Hamburg and Seville
assets will also reduce portfolio risk.
This will position the Company well to deliver on our long-term growth ambitions.
Sir Julian Berney Bt.
Chairman
6 December 2019
Investment Manager's Review
Focus on Winning Cities
Focus on growing net income and improving the portfolio's defensive characteristics.
Results
The Group's NAV at 30 September 2019, excluding non-controlling interests, was EUR182.1 million or 136.2 euro cents per share ('cps'),
representing no change over the year. Including dividends, the NAV total return over the period was 4.1%.
The NAV movement includes one-off costs relating to tax restructuring of EUR2 million (1.5 cps). The restructuring was undertaken in response to
changes to various European tax laws. The restructuring seeks to ensure the Company continues to have the most appropriate tax structure for
its investment activities, post the changes to the tax laws. The potential tax changes were flagged in the 2019 Half Year Report and further
details are provided in note 10 of the financial statements.
Deducting the interim dividend in respect of the quarter ending 30 June 2019, which was declared on 10 September 2019, and was paid on
21 October 2019 from income, the Company's NAV would have reduced to EUR179.6m or 134.3 euro cents per share. This dividend was fully covered
from income.
EPRA earnings were EUR10.5 million (2018: EUR10.8 million) and IFRS profit was EUR7.4 million (2018: EUR13.2 million).
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
NAV movement EURmillion(1) Cps(2) per cps(3)
As at 1 October 2018 182.1 136.2 -
Transaction costs of investments (1.0) (0.7) (0.5)
Capital expenditure (2.5) (1.9) (1.4)
Unrealised gain in valuation of the real estate portfolio 3.5 2.6 1.9
EPRA earnings(4) 10.5 7.8 5.7
Restructuring taxes (2.0) (1.5) (1.1)
Non-cash/capital items (1.1) (0.8) (0.6)
Dividends paid (7.4) (5.5) (4.0)
As at 30 September 2019 182.1 136.2 0.0
(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 on page 73 of the 2019 Report and Accounts.
Strategy
The strategy over the year has focused on the following key objectives:
- Achieving full investment, targeting Winning Cities and regions and high growth sectors;
- Executing asset management initiatives to enhance both the long-term rental profile and individual asset value;
- Improving the Company's net income profile to support the target dividend yield of 5.5%; and
- Managing portfolio risk in order to enhance the portfolio's defensive qualities.
Progress has been made in executing the strategy and activity over the year which has delivered:
- Acquisition of two industrial warehouses in Rennes, France, thereby increasing the Group's industrial warehousing weighting to 20% and
improving the portfolio diversification from a sector and tenant perspective;
- Return to full investment with 100% of the portfolio located in higher-growth cities;
- Agreeing a conditional heads of terms with Alten for a long-term lease in the Company's largest asset at Boulogne- Billancourt, Paris;
- Securing new lease agreements with three tenants for c.50% of the Hamburg space which were achieved at rents 13% above the business plan;
- Concluded 18 new lease and re-gear events (including Hamburg) across the portfolio, generating a c.2% increase in annualised income on a
like-for-like basis and secured at a weighted lease term of c.9 years;
- Completion of a EUR0.8 million capital expenditure programme to improve the quality of Metromar Shopping Centre, Seville. Together with the
opening of leisure specialist, Urban Planet, it will enhance the centre's defensive capabilities in an increasingly competitive local market and a
challenging retail sector;
- Maintained a high occupancy level of 94%, with an average portfolio unexpired lease term of 6.4 years and 5.0 years to break; and
- A prudent loan to value ('LTV') of 29%.
Our focus continues to be on executing asset management to drive income and total returns for the existing portfolio, managing risks and
positioning the Company for growth. The specific next steps therefore include:
1. Conclusion of key asset management initiatives;
a. Advancing the planning permit, detail design, construction tender and financing for the office investment in Boulogne-Billancourt, Paris;
b. Leasing the remaining vacant space in Hamburg; and
c. Continuing to actively manage the Company's sole shopping centre with a view to leasing vacant space and stabilising income.
2. Continue to actively engage with investors and consider new investment opportunities that can support the disciplined growth of the
Company in a way that will improve shareholder returns.
Market overview
Economic outlook
The eurozone is currently a two-speed economy. The slowdown in world trade and investment has hit manufacturers and output has fallen by
1% since late 2018. Conversely, the services sector continues to grow, supported by solid labour markets, rising consumption and government
spending. The risk is that the downturn in manufacturing deepens, possibly because of a disruptive Brexit or a further escalation of the trade
dispute and then spreads to the services sector. The ECB has begun to loosen policy, but its room to manoeuvre is limited, given that the main
financing rate is already at zero. However, low borrowing costs for governments provide some room for government stimulus. Schroders
forecasts that eurozone GDP will grow by 1% p.a. through 2019/20. Sweden, France and Spain will probably see faster growth, while Germany,
which has a relatively large manufacturing sector, is likely to lag behind.
Offices
The fall in office vacancy has slowed sharply this year, as demand has eased in step with the economy and as development has increased. Also,
in many markets vacancy of quality space in key inner city markets has virtually run out. At 6.4% the average office vacancy in major European
cities in mid-2019 was only slightly lower than at the end of 2018 (6.7%). While this could mark a turning point, we think that office rents are
unlikely to fall in most cities given that developers and lenders are generally cautious and new building is low by historical standards. We expect
office rental growth to slow, but remain positive through 2020/21, assuming the eurozone avoids a recession. Berlin, Madrid and Munich will
likely see the biggest rise in average grade office rents over the next two years of 3-4% p.a., but most other cities will see rental growth of
1.5-2.5% p.a.
Logistics/industrial
Despite a fall in lettings to manufacturers this year, overall demand for warehouses in Continental Europe remains strong. Online retailers
(e.g. Amazon, Zalando) have continued to expand and traditional retailers (e.g. Decathlon, IKEA) are also taking more space to support their online
sales. In general, the growth in demand has been matched by supply and while there is a shortage of land for big warehouses around Hamburg,
Munich and Rotterdam, occupiers have typically been willing to pre-let developments in smaller cities, provided they have an adequate labour
force and good road connections. In the first half of 2019 two-thirds of logistics take-up in Germany was outside the big seven cities. As a result,
rental growth in the logistics market has been limited to around 2% p.a., although some smaller warehouses, which are used for last mile
deliveries in cities and where supply is more constrained, have seen stronger rental growth.
Retail
Demand for retail space in Continental Europe is weak as retailers adapt to growing online competition and fewer shoppers in their stores. While
total retail sales in France and Germany could grow by 2-3% in 2019, store sales are likely to shrink. Several retailers have failed and even
successful retailers like Inditex have closed more stores than they have opened over the last 12 months and use the weakness of the sector to
renegotiate lease terms. In general shopping centres have been most affected, as hypermarkets have cut their non-food sales areas and clothing
retailers have contracted, but the number of empty shops in city centres is also rising. We expect that prime shopping centre rents will fall in
most European cities over the next three years and that prime shop rents will stagnate. The most defensive retail types are likely to be
convenience food stores and out-of-town retail warehouses with affordable rents.
Real estate portfolio
The Company owns a portfolio of 13 institutional grade properties valued at EUR242.7(3) million as at 30 September 2019 (30 September 2018:
EUR222.0 million). The properties are 94% let and located across 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 Company holds a 50% interest.
The top ten properties comprise 92% of the portfolio value:
Value
Rank Property Country Sector EURm % of total
1 Paris (B-B)(1) France Office 41.6 17%
2 Paris (SC)(2) France Office 37.9 16%
3 Berlin Germany Retail 26.9 11%
4 Seville(3) Spain Retail 23.5 10%
5 Apeldoorn Netherlands Mixed 20.0 8%
6 Rennes France Industrial 17.6 7%
7 Stuttgart Germany Office 17.2 7%
8 Hamburg Germany Office 16.7 7%
9 Frankfurt Germany Retail 11.5 5%
10 Venray Netherlands Industrial 10.3 4%
Top ten properties 223.2 92%
11-13 Remaining three properties Netherlands/France Industrial 19.5 8%
Total 242.7 100%
The table below sets out the top ten tenants which are from a diverse range of different industry segments and represent 68% of the portfolio:
Contracted rent WAULT break WAULT exp.
Rank Tenant Property EURm % of total (yrs) (yrs)
1 KPN Apeldoorn 2.5 15% 7.3 7.3
2 Alten Paris (B-B) 2.4 14% 1.5 1.5
3 Hornbach Berlin 1.6 10% 6.3 6.3
4 C-log Rennes 1.0 6% 11.4 11.4
5 Filassistance Paris (SC) 0.9 5% 2.3 7.3
6 Cereal Partners Rumilly 0.7 4% 5.6 6.6
7 DKL Venray 0.7 4% 9.0 9.0
8 LandBW Stuttgart 0.7 4% 6.4 6.8
9 Inventum Houten 0.6 3% 6.7 6.7
10 Ethypharm Paris (SC) 0.5 3% 1.7 7.3
Total top ten tenants 11.6 68% 5.6 6.3
Remaining tenants(3) 5.5 32% 3.9 6.5
Total(3) 17.1 100% 5.0 6.4
(1) B-B refers to Boulogne-Billancourt.
(2) SC refers to Saint-Cloud.
(3) Includes the Group's 50% share in the Seville property proportionally valued at EUR23.5 million.
The portfolio generates EUR17.1 million p.a. in contracted income and has an estimated market rental value of EUR17.9 million. The average unexpired
lease term is 5.0 years to first break and 6.4 years to expiry.
The lease expiry profile to earliest break is shown below. 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 EUR242.7 million2 reflects an increase of 9.0% (EUR20.1 million) compared to the combined purchase price. Transaction
costs have been fully recovered through valuation uplifts since acquisition.
Over the last 12 months, the underlying property portfolio generated a total property return of 7.7% (7.3% when including the impact from
transaction costs for the newly-acquired property in Rennes). Hereof, the portfolio income return amounted to 7.2% and the portfolio capital
return to 0.5% (net of capex).
The largest contributors to portfolio performance during the last 12 months were the Paris Saint-Cloud, Stuttgart, Apeldoorn, Hamburg, Venray
and Houten properties - all delivering above 10% total property returns. The Seville property was the main detractor from performance
delivering -7.8% total return over the last 12 months.
2 Includes the Group's 50% share in the Seville property proportionally valued at EUR23.5 million.
Transactions and asset management
Acquisition
Rennes, C-log
Asset strategy
Acquired in March for EUR17.3 million for income and growth benefits, being let off a long-term 12 year lease and located in one of France's fastest
growing regions from a GDP perspective.
Asset overview
Providing 23,852 sqm of institutional quality warehouse space across two adjacent buildings. The property is let to C-Log, the logistics subsidiary
of Groupe Beaumanoir, the international fashion retailer, which has invested significantly in equipping the building with automated technology.
The asset was acquired off a net initial yield of 5.9% and a capital value per sqm of EUR725.
During the hold period (six months to 30 September 2019), the property delivered a 5.0% total return.
Key activity and performance
The acquisition helped increase the Company's warehouse sector weighting to 20%, improved the portfolio unexpired lease term and overall
building quality.
Asset management
Paris, Boulogne-Billancourt
Asset strategy
Repositioning opportunity regarding an office investment let off modest rents and located in a supply-constrained location with competing
demands for uses.
Asset overview
6,800 sq.m office building located in an established market in Paris's Western Crescent providing occupiers the ability to live, work and socialise.
During the financial year to 30 September 2019, the property delivered a 4.2% total return. Further upside may be achieved following conclusion
of the key asset management activity below.
Key activity and performance
Signing (post period end) of a conditional long-term lease agreement with the Alten Group to occupy the entire premises, subject to
refurbishing the building to grade A standard. Advancement of planning permission, detail design and cost feasibility analysis. In conjunction
with the above we have progressed finance discussions with a number of lenders concerning the funding of refurbishment works. It will also
materially enhance the company's asset quality, income profile, Winning Cities exposure and tenant covenant strength. Completion of the
project has the potential to be accretive to the Company's NAV growth.
Asset management
Paris, Saint-Cloud
Asset strategy
Acquired for its attractive initial yield, diverse tenancy profile, modest rents and long-term potential to benefit from transport infrastructure
improvements (Grand Paris Express - Line 15 expansion).
Asset overview
15,800 sqm of office and storage accommodation located in 'Les Bureaux de la Colline', a well maintained 65,000 sqm office complex in Saint
Cloud, an upscale suburban city bordering Paris. The office space offers flexible accommodation with views over Paris, Parc de Saint-Cloud
and La Defense. Diverse tenancy profile with a high incidence of tenant retention given modest/affordable rents of c. EUR230/sqm.
During the financial year to 30 September 2019, the property delivered a 15.3% total return. The lease regears concluded during the year added
significant value.
Key activity and performance
In September 2019 the Investment Manager concluded two new leases. Level five to Ascott Informatique on a standard 3/6/9 year lease with
breaks and levels 6, 7 and 8 to Outscale on a new 6/9 year lease. Both leases reflect a 9% increase on previous rent.
Asset management
Seville, Metromar
Asset strategy
Spanish recovery play via the acquisition of a dominant urban shopping centre located in a fast growing suburb of Seville, Spain's fourth largest
city. The strategy over the year was to undertake a light refurbishment and strengthen the entertainment point of difference in order to defend
against competition.
Metromar is the portfolio's sole shopping centre and is one of only three assets in the retail sector. This sector has been most negatively
impacted by structural changes. Whilst the two other retail properties have few or single occupiers that are large and stable, as a shopping
centre Metromar has multiple tenants and has been negatively impacted with increased vacancy. We therefore remain constantly vigilant in our
management of the asset and are actively reviewing new occupiers and marketing of the centre.
Asset overview
23,500 sqm urban shopping centre with a tenancy mix centred on grocery, fashion and leisure that services a local, growing catchment. The
centre benefits from easy car access and is well serviced by public transport with frontage to the only train line that services this part of Seville to
the city centre, making the area a key residential growth corridor.
During the financial year to 30 September 2019 the property delivered a -7.8% total return. This was a result of weakening valuation yields to
reflect increased competition, structural shifts in retail and increased vacancy.
Key activity and performance
- Completed an EUR800,000 capital expenditure programme to improve the quality of the centre. Also added an additional leisure anchor,
trampoline specialist Urban Planet (opened August 2019).
- Initiated a programme to achieve a BREEAM in-use certification of four stars (very good) for building performance and five stars (excellent)
for management.
- Enhanced marketing to highlight the centre's points of difference around convenience, accessibility, entertainment and parking abundance
relative to competition.
These measures seek to mitigate the risks of a weakening retail sector and increasing local competition which have led to an increase in vacancy
in the centre. The measures increase the property's appeal to visitors and tenants.
Responsible and positive impact 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 the 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 Global Real Estate Sustainability Benchmark ('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 30 September 2019, the Group's total external debt was EUR73.0 million, across six loan facilities. This represents a conservative Loan to Value
of 29% against the Group's gross asset value.
The current blended all-in interest rate is 1.4%, significantly below the portfolio yield of 5.8% p.a, providing a favourable yield gap. The average
unexpired loan term is 5.0 years.
Outstanding
Lender Property Maturity date principal(1) Interest rate
Deutsche Pfandbriefbank AG Berlin/Frankfurt 30/06/2026 16,500,000 1.31%
Stuttgart/Hamburg 30/06/2023 14,000,000 0.85%
BRED Banque Populaire Paris (SC) 15/12/2024 13,000,000 3M Euribor + 1.30%
Munchener Hypothekenbank(1) Seville (50%) 22/05/2024 11,678,750 1.76%
HSBC Bank plc Netherlands industrial 27/09/2023 9,250,000 3M Euribor + 2.15%
Saar LB Rennes 28/03/2024 8,600,000 3M Euribor + 1.40%
Total 73,028,750
(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 three 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 French cap is 1.25% p.a. and 1% p.a. for The Netherlands loan.
As announced post year end, the Group completed a EUR4 million increase to its existing debt facility secured against the Saint-Cloud asset, with
Banque Populaire, taking the total loan to EUR17 million. The Group also completed a new 3.5 year loan of EUR3.7 million secured against the Rumilly
logistics asset in France. This takes total third party debt to EUR80.7 million, representing a net Loan to Value ('LTV') of approximately 31% against
the overall gross asset value of the Group. The average weighted total interest rate of all the loans in the portfolio, including these two new loan
amounts, is 1.4% p.a. and all interest rates are either fixed or have caps to mitigate the impact of rising interest rates. The weighted
average duration of the all the loans in the portfolio is 4.9 years.
Outlook
The Company's portfolio is 100% allocated to 'Winning Cities', those cities that will grow faster than their domestic economies from a GDP,
employment and population perspective. This has been the central theme to constructing the portfolio and is expected to position the Company
well for the future. This will be particularly important if risks around the economic and political backdrop increase.
We continue to focus on asset management as a means to grow shareholder returns. The Paris refurbishment initiative is a good case in point.
Successful completion will not only strengthen portfolio real estate fundamentals but also provide opportunity to deliver profits. Other asset
management initiatives, such as leasing vacant accommodation in Hamburg and Seville will also be important in supporting the income profile
of the Company.
The Company is well placed to deliver on its strategy.
Schroder Real Estate Investment Management Limited
6 December 2019
Strategic Review
Principal risks and uncertainties
The Board is responsible for the Company's system of risk management and internal control and for reviewing its effectiveness. The Board has
adopted a detailed matrix of principal risks affecting the Company's business as an investment trust and has established associated policies and
processes designed to manage and, where possible, mitigate those risks, which are monitored by the Audit and Valuation Committee on an
ongoing basis. This system assists the Board in determining the nature and extent of the risks it is willing to take in achieving the Company's
strategic objectives. Both the principal risks and the monitoring system are also subject to robust review at least annually. The last review took
place in November 2019.
Although the Board believes that it has a robust framework of internal control in place this can provide only reasonable, and not absolute,
assurance against material financial misstatement or loss and is designed to manage, not eliminate, risk.
The Board has considered the potential risks arising from the UK's departure from the European Union. Due to the Group's activities
predominantly being based in Europe, the Board does not consider the UK's departure will have any adverse impact, but continues to keep the
matter under review. Given the Company's UK listing, the board is also mindful that changes to public policy in the UK could impact the
Company in the future.
A summary of the principal risks and uncertainties faced by the Company which have remained unchanged throughout the year ended
30 September 2019, and actions taken by the Board and, where appropriate, its Committees, to manage and mitigate the Company's principal risks
and uncertainties, are set out in the table below.
Risk Mitigation and management
Investment policy and strategy
An inappropriate investment strategy, or The Board seeks to mitigate these risks by:
failure to implement the strategy, could lead to - Diversification of its property portfolio through its investment restrictions and guidelines which
underperformance and the share price being at are monitored and reported on by the Investment Manager
a larger discount, or smaller premium, to NAV. - Determining borrowing policy, and ensuring the Investment Manager operates within borrowing
This underperformance could be caused by restrictions and guidelines
incorrect sector and geographic weightings or a - Receiving from the Investment Manager timely and accurate management information including
loss of income through tenant failure, both of performance data, attribution analysis, property level business plans and financial projections
which could lead to a fall in the value of the - Monitoring the implementation and results of the investment process with the Investment
underlying portfolio. This fall in values would be Manager with a separate meeting devoted to strategy each year
amplified by the Company's - Reviewing marketing and distribution activity and considering the use of a discount control
external borrowings. mechanism as necessary
Investment management
The Investment Manager's investment strategy, The Board regularly reviews: the Investment Manager's compliance with the agreed investment
if inappropriate, may result in the Company restrictions, investment performance and risk against investment objectives and strategy; relative
underperforming the market and/or peer group performance; and the portfolio's risk profile. Appropriate strategies are employed to mitigate any
companies, leading to the Company and its negative impact of substantial changes in markets, including any potential disruption to capital
objectives becoming unattractive to investors. markets.
An annual review of the ongoing suitability of the Investment Manager is undertaken.
Economic and property market risk
The performance of the Company could be The Board considers economic conditions and the uncertainty around political events when making
affected by economic, currency and property investment decisions. The Board mitigates property market risk through the review of the
market risk. In the wider economy this could Company's strategy on a regular basis and discussions are held to ensure the strategy is still
include inflation or deflation, economic appropriate or if it needs updating.
recessions, movements in foreign exchange and
interest rates or other external shocks. The The assets of the Company are denominated in non-sterling currencies, predominantly the euro. No
performance of the underlying property currency hedging is planned for capital, but the Board periodically considers the hedging of
portfolio could also be affected by structural or dividend payments having regard to availability and cost.
cyclical factors impacting particular sectors (for
example, retail) or regions of the property The Board monitors gearing covenants closely and, where it considers risk has increased, maintains
market. an open dialogue with external debt providers.
Deterioration in certain real estate markets may
affect gearing covenants.
Custody
Safe custody of the Company's assets may be The Depositary verifies ownership and legal entitlement, and reports on safe custody of the
compromised through control failures. Company's assets, including cash.
The Depositary provides a quarterly report on its activities.
Gearing and leverage
The Company utilises credit facilities. These Gearing is monitored at quarterly board meetings and ad hoc as required and strict restrictions on
arrangements increase the funds available for borrowings imposed.
investment through borrowing. While this has
the potential to enhance investment returns in
rising markets, in falling markets the impact
could be detrimental to performance.
Accounting, legal and regulatory
The NAV and financial statements could be The Investment Manager has robust processes in place to ensure that accurate accounting records
inaccurate. are maintained and that evidence to support the financial statements is available to the Board and
the auditors. The Investment Manager operates established property accounting systems and has
Breaches of the UK Listing Rules, the Companies procedures in place to ensure that the quarterly NAV and gross asset value are calculated accurately.
Act 2006 or other regulations with which the The Board has appointed the Investment Manager as Alternative Investment Fund Manager in
Company is required to comply could lead to a accordance with the Alternative Investment Fund Managers Directive.
number of detrimental outcomes.
The quarterly and annual NAV has numerous levels of reviews including by the Board. Additional
Changes to law and regulation, including support is produced by the fund accountants to ensure financial data is complete and accurate.
retrospective changes, could impact the
Company's performance and position. An external audit is completed to provide an opinion on the financial statements which have been
reviewed by the Board of Directors.
The Investment Manager and Company Secretary monitor legal requirements to ensure that
adequate procedures and reminders are in place to meet legal requirements and obligations.
The Investment Manager undertakes full legal due diligence with advisers when transacting and
managing the Company's assets. All contracts entered into by the Company and its subsidiaries are
reviewed by the Company's legal and other advisers.
Confirmation of compliance with relevant laws and regulations received from key service providers.
Shareholder documents and announcements, including the Company's published Annual Report, are
subject to stringent review processes.
Procedures have been established to safeguard against unauthorised disclosure of inside
information.
The Board receives regular reporting on proposed changes to law and
regulation which could affect the Group's structure.
Valuation
Property valuations are inherently subjective External valuers provide independent valuation of all assets at least quarterly.
and uncertain, due to the individual nature of
each property. Members of the Audit and Valuation Committee meet with the external valuers to discuss the basis
of their valuations and their quality control processes on a quarterly basis. The Audit and Valuation
Committee includes an experienced chartered surveyor.
Service provider
The Company has delegated certain functions to Service providers are appointed subject to due diligence processes and with clearly documented
a number of service providers. Failure of contractual arrangements detailing service expectations.
controls, including as a result of cyber-hacking,
and poor performance of any service provider Regular reporting by key service providers is received and the quality of services provided is
could lead to disruption, reputational damage monitored.
or loss.
A review of annual audited internal controls reports from key service providers, including
confirmation of business continuity arrangements, is undertaken.
Risk assessment and internal controls
Risk assessment includes consideration of the scope and quality of the systems of internal control operating within key service providers, and
ensures regular communication of the results of monitoring by such providers to the Audit and Valuation Committee, including the incidence of
significant control failings or weaknesses that have been identified at any time and the extent to which they have resulted in unforeseen
outcomes or contingencies that may have a material impact on the Company's performance or condition. No significant control failings or
weaknesses were identified from the Audit and Valuation Committee's ongoing risk assessment which has been in place throughout the financial
year and up to the date of this report.
A full analysis of the financial risks facing the Company and its subsidiaries is set out in note 23 on pages 68 to 71 of the 2019 Report and Accounts.
Viability statement
The Board is required to give a statement on the Company's viability which considers the Company's current position and principal risks and
uncertainties together with an assessment of future prospects.
The Board conducted this review over a five year time horizon commencing from the date of this report which is selected to match the period
over which the Board monitors and reviews its financial performance and forecasting. The Investment Manager prepares five year total return
forecasts for the Continental European commercial real estate market. The Investment Manager uses these forecasts as part of analysing
acquisition opportunities as well as for its annual asset level business planning process. The Board receives an overview of the asset level
business plans which the Investment Manager uses to assess the performance of the underlying portfolio and therefore make investment
decisions such as disposals and investing capital expenditure. The Company's principal borrowings are for a weighted duration of 5.0 years and
the average unexpired lease term, assuming all tenants vacate at the earliest opportunity, is 5.0 years.
The Board's assessment of viability considers the principal risks and uncertainties faced by the Company, as detailed in the Strategic Review on
pages 27 and 28 of the 2019 Report and Accounts, which could negatively impact its ability to deliver the investment objective, strategy, liquidity
and solvency. This includes consideration of scenario stress testing and a cash flow model prepared by the Investment Manager that analyses the
sustainability of the Company's cash flows, dividend cover, compliance with bank covenants, general liquidity requirements and potential legal and
regulatory change for a five year period. These metrics are subject to a sensitivity analysis which involves flexing a number of the main assumptions
including macro-economic scenarios, delivery of specific asset management initiatives, rental growth and void/re-letting assumptions. The Board also
reviews assumptions regarding capital recycling and the Company's ability to refinance or extend financing facilities. Steps which are taken to mitigate
these risks as set out in the Strategic Review on pages 27 and 28 of the 2019 Report and Accounts are also taken into account.
Based on the assessment, the Directors have concluded that there is a reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the five year period of their assessment.
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 LTV covenant, interest cover ratio and rental income projections. They have not identified any material uncertainties
which would cast significant doubt on the Company's ability to continue as a going concern for a period of not less than 12 months from the
date of the approval of the financial statements. The Directors have satisfied themselves that the Company has adequate resources to continue
in operational existence for the foreseeable future.
After due consideration, the Board believes it is appropriate to adopt the going concern basis in preparing the financial statements.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report, the Strategic Report, the Report of the Directors, the Corporate Governance
Statement, the Remuneration Report and the financial statements in accordance with applicable law and regulation.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared
the Group and Company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European
Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of
the state of affairs of the Group and Company and of the profit or loss of the Group and Company for that period. In preparing these financial
statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgments and accounting estimates that are reasonable and prudent;
- state whether applicable IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and
explained in the financial statements; and
- Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business.
The Directors are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Company's
transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that
the financial statements and the Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements,
Article 4 of the IAS regulation.
The Investment Manager is responsible for the maintenance and integrity of the Company's webpages. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Directors confirmations
The Directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group and Company's position and performance, business model and strategy.
Each of the Directors, whose names and functions are listed on pages 30 and 31 of the 2019 Report and Accounts, confirm that to the best of their knowledge:
- the Group and Company financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a
true and fair view of the assets, liabilities, financial position and profit of the Group and profit of the Company; and;
- the Directors' Report includes a fair review of the development and performance of the business and the position of the Group and the
Company, together with a description of the principal risks and uncertainties that it faces; and
In the case of each Director in office at the date the Directors' Report is approved:
- so far as the Director is aware, there is no relevant audit information of which the Group and Company's auditors are unaware; and
- they have taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit
information and to establish that the Group and Company's auditors are aware of that information.
Consolidated and Company Statements of Comprehensive Income
For the year ended 30 September 2019
Group Group Company Company
year to year to year to year to
30/09/19 30/09/18 30/09/19 30/09/18
Note EUR'000 EUR'000 EUR'000 EUR'000
Rental and service charge income 3 18,667 19,900 - -
Other income 4 1,500 2,400 - -
Property operating expenses 5 (4,807) (6,458) - -
Net rental and related income 15,360 15,842 - -
Loss on disposal 14 - (29) - -
Net gain from fair value adjustment on investment property 13 3,530 4,939 - -
Realised gain on foreign exchange 24 6 1 6 1
Net change in fair value of financial instruments at fair value through profit
or loss 17 (304) (155) - -
Management fees receivable 6 - - 1,429 1,306
Dividends received 15,8 93 150 13,151 9,100
Expenses
Investment management fee 6 (1,904) (1,958) (1,904) (1,958)
Valuers' and other professional fees (953) (687) (448) (288)
Administrator's and accounting fees (342) (330) (156) (163)
Auditors' remuneration 7 (356) (269) (318) (232)
Directors' fees 9 (142) (115) (142) (115)
Other expenses 9 (183) (206) (141) (120)
Total expenses (3,880) (3,565) (3,109) (2,876)
Operating profit 14,805 17,183 11,477 7,531
Finance income 452 456 148 15
Finance costs (906) (962) - -
Net finance (costs)/income (454) (506) 148 15
Share of (loss)/profit from joint venture 15 (3,369) 407 - -
Profit before taxation 10,982 17,084 11,625 7,546
Taxation 10 (3,527) (1,517) (743) -
Profit for the year 7,455 15,567 10,882 7,546
Attributable to:
Owners of the parent 7,455 13,175 10,882 7,546
Non-controlling interests - 2,392 - -
7,455 15,567 10,882 7,546
Basic and diluted earnings per share attributable to owners of the parent 11 5.6c 9.9c - -
Profit for the year 7,455 15,567 10,882 7,546
Other comprehensive loss:
Other comprehensive loss items that may be reclassified to profit or loss:
Currency translation differences 24 (15) (4) (15) (4)
Total other comprehensive loss (15) (4) (15) (4)
Total comprehensive income for the year 7,440 15,563 10,867 7,542
Attributable to:
Owners of the parent 7,440 13,171 10,867 7,542
Non-controlling interests - 2,392 - -
7,440 15,563 10,867 7,542
All items in the above statement are derived from continuing operations.
Consolidated and Company Statements of Financial Position
As at 30 September 2019
Group Group Company Company
30/09/19 30/09/18 30/09/19 30/09/18
Note EUR'000 EUR'000 EUR'000 EUR'000
Assets
Non-current assets
Investment property 13 218,896 195,644 - -
Investment in subsidiaries 14 - - 128,180 125,998
Investment in joint venture 15 2,378 6,697 - -
Loans to joint ventures 15 10,035 10,035 - -
Non-current assets 231,309 212,376 128,180 125,998
Current assets
Trade and other receivables 16 6,341 12,537 37,695 35,506
Interest rate derivative contracts 17 17 188 - -
Cash and cash equivalents 18 16,053 15,738 4,035 4,792
Current assets 22,411 28,463 41,730 40,298
Total assets 253,720 240,839 169,910 166,296
Equity
Share capital 19 15,080 15,015 15,080 15,015
Share premium 30,043 29,912 30,043 29,912
Retained earnings/(accumulated losses) 4,430 4,397 (8,863) (12,323)
Other reserves 132,534 132,745 132,767 132,978
Total equity 182,087 182,069 169,027 165,582
Liabilities
Non-current liabilities
Interest-bearing loans and borrowings 20 60,692 52,150 - -
Deferred tax liability 10 1,521 912 - -
Non-current liabilities 62,213 53,062 - -
Current liabilities
Trade and other payables 21 8,967 5,081 883 714
Current tax liabilities 10 453 627 - -
Current liabilities 9,420 5,708 883 714
Total liabilities 71,633 58,770 883 714
Total equity and liabilities 253,720 240,839 169,910 166,296
Net asset value per ordinary share 22 136.2c 136.2c 126.4c 123.8c
Consolidated and Company Statements of Changes in Equity
For the year ended 30 September 2019
Non-
Share Share Retained Other controlling Total
capital premium earnings reserves Sub-total interests equity
Group Note EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
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 14 - - - - - (8,573) (8,573)
Unrealised foreign exchange (152) (303) - 455 - - -
Balance as at 30 September 2018 15,015 29,912 4,397 132,745 182,069 - 182,069
Profit for the year - - 7,455 - 7,455 - 7,455
Other comprehensive loss for the year - - - (15) (15) - (15)
Dividends paid 12 - - (7,422) - (7,422) - (7,422)
Unrealised foreign exchange 65 131 - (196) - - -
Balance as at 30 September 2019 15,080 30,043 4,430 132,534 182,087 - 182,087
Non-
Share Share Accumulated Other controlling Total
capital premium losses(1) reserves(1) Sub-total interests equity
Company Note EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Balance as at 1 October 2017 15,167 30,216 (10,437) 132,522 167,468 - 167,468
Profit for the year - - 7,546 - 7,546 - 7,546
Other comprehensive loss for the year - - (4) - (4) - (4)
Dividends paid 12 - - (9,428) - (9,428) - (9,428)
Unrealised foreign exchange (152) (304) - 456 - - -
Balance as at 30 September 2018 15,015 29,912 (12,323) 132,978 165,582 - 165,582
Profit for the year - - 10,882 - 10,882 - 10,882
Other comprehensive loss for the year - - - (15) (15) - (15)
Dividends paid 12 - - (7,422) - (7,422) - (7,422)
Unrealised foreign exchange 65 131 - (196) - - -
Balance as at 30 September 2019 15,080 30,043 (8,863) 132,767 169,027 - 169,027
(1) These reserves form the distributable reserves of the Company and may be used to fund distribution of profits to investors via dividend
payments. See note 1 for further detail.
Consolidated and Company Statements of Cash Flows
For the year ended 30 September 2019
Group Group Company Company
30/09/19 30/09/18 30/09/19 30/09/18
Note EUR'000 EUR'000 EUR'000 EUR'000
Operating activities
Profit before tax for the year 10,982 17,084 11,625 7,546
Adjustments for:
Loss on disposal 14 - 29 - -
Net gain from fair value adjustment on investment property 13 (3,530) (4,939) - -
Share of loss/(profit) of joint venture 15 3,369 (407) - -
Realised foreign exchange gains 24 (6) (1) (6) (1)
Finance income (452) (456) (148) (15)
Finance costs 906 962 - -
Net change in fair value of financial instruments through profit or loss 17 304 155 - -
Dividend income and interest classified as investing cash flows - - (9,521) -
Dividends received from joint venture 15 (93) (150) - -
Operating cash generated from before changes in working capital 11,480 12,277 1,950 7,530
Decrease/(increase) in trade and other receivables 6,308 (3,122) 1,078 (818)
Increase in trade and other payables 3,909 2,300 168 328
Cash generated from operations 21,697 11,455 3,196 7,040
Finance costs paid (1,027) (1,255) - -
Finance income received 452 456 8 15
Tax paid (3,092) (384) (743) -
Net cash generated from operating activities 18,030 10,272 2,461 7,055
Investing activities
Acquisition of investment property (18,281) (51,744) - -
Additions to investment property 13 (1,513) (248) - -
Investment in subsidiaries 14 - - 9,713 (7,415)
Proceeds from disposal 14 - 19,740 - -
Loans to subsidiary companies - - (5,500) -
Loan repayment from subsidiary company 14 - 7,215 - -
Investment in joint venture 950 - - -
Dividends received from joint venture 15 93 150 - -
Net cash used in investing activities (18,751) (24,887) 4,213 (7,415)
Financing activities
Proceeds from borrowings 20 8,600 13,000 - -
Interest rate cap purchased 17 (133) (227) - -
Dividends paid 12 (7,422) (9,428) (7,422) (9,428)
Share premium distribution 14 - (1,510) - -
Net cash generated from/(used in) financing activities 1,045 1,835 (7,422) (9,428)
Net increase/(decrease) in cash and cash equivalents for the year 324 (12,780) (748) (9,788)
Opening cash and cash equivalents 15,738 28,521 4,792 14,583
Effects of exchange rate change on cash (9) (3) (9) (3)
Closing cash and cash equivalents 18 16,053 15,738 4,035 4,792
Notes to the Financial Statements
1. Significant accounting policies
Schroder European Real Estate Investment Trust plc (the 'Company') is a closed-ended investment company incorporated in England and Wales.
The consolidated financial statements of the Company for the year ended 30 September 2019 comprise those of the Company and its
subsidiaries (together referred to as the 'Group'). The Group holds a portfolio of investment properties in Continental Europe. 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, England EC2Y 5AU.
Statement of compliance
The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards ('IFRS')
as adopted by the European Union ('EU') and interpretations issued by the International Financial Reporting Interpretations Committee ('IFRIC'),
and therefore comply with Article 4 of the EU IAS regulation, and in accordance with the Companies Act 2006.
The financial statements give a true and fair view and are in compliance with applicable legal and regulatory requirements and the Listing Rules
of the UK Listing Authority.
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 flows of the entities included in the consolidated
financial statements.
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 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 these financial statements relate to the carrying value of investment properties, as disclosed in
note 13, including those within joint ventures, which are stated at fair value. The fair value of investment property 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 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 taxation where recognition and measurement of liabilities relating to tax positions are uncertain.
Basis of consolidation
Subsidiaries
The consolidated financial statements comprise the financial statements of the Company and all of its subsidiaries drawn up to 30 September
each year. Subsidiaries are those entities, including special purpose entities, controlled by the Company. Control exists when the Company is
exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to
direct the activities of the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that
control commences until the date that control ceases. Where properties are acquired by the Group through corporate acquisitions, but the
acquisition does not meet the definition of a business combination, the acquisition is treated as an asset acquisition.
Non-controlling interests
Non-controlling interests are recognised on the basis of their share in the recognised amounts of a subsidiary's identifiable net assets. On the
balance sheet non-controlling interests are presented separately from the equity of the owners of the Parent. Profit or loss and total
comprehensive income for the period attributable to non-controlling interests are presented separately in the statement of comprehensive
income.
Transactions eliminated on consolidation
Intra-group balances, and any gains and losses arising from intra-group transactions, are eliminated in preparing the consolidated financial
statements. Gains arising from transactions with joint ventures are eliminated to the extent of the Group's interest in the entity. Losses are
eliminated in the same way as gains but only to the extent that there is no evidence of impairment. Non-controlling interests in the results and
equity of subsidiaries are shown separately in the consolidated statement of comprehensive income, statement of changes in equity and balance
sheet respectively.
Joint arrangements
Under IFRS 11, Joint Arrangements, the Group's investments in joint arrangements are classified as joint ventures. Interests in joint ventures are
accounted for using the equity method, after initially being recognised at cost, in the consolidated statement of financial position.
Under the equity method of accounting, the investments are initially recognised at cost and adjusted thereafter to recognise the Group's share
of the post-acquisition profits or losses of the investee in profit or loss.
When the Group's share of losses in an equity-accounted investment equals or exceeds its interest in the entity, including any other unsecured
long-term receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the other
entity. Unrealised gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group's interest in these
entities. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
Investment property
Investment property comprises land and buildings held to earn rental income together with the potential for capital growth.
Acquisitions and disposals are recognised on unconditional exchange of contracts. Acquisitions are initially recognised at cost, being the fair
value of the consideration given, including transaction costs associated with the investment property.
After initial recognition, investment properties are measured at fair value with unrealised gains and losses recognised in profit or loss. Realised
gains and losses on the disposal of properties are recognised in profit and loss in relation to carrying value at the beginning of the accounting
period. Fair value is based on the market valuations of the properties as provided by a firm of independent chartered surveyors at the reporting
date. Market valuations are carried out on a quarterly basis.
As disclosed in note 25, the Group leases out all owned properties on operating leases which are classified and accounted for as an investment
property where the Group holds it to earn rentals, capital appreciation, or both. Any such property leased under an operating lease is classified
as an investment property and carried at fair value.
Prepayments
Prepayments are carried at cost less any accumulated impairment losses.
Leases
Leases in which a significant portion of the risks and rewards of ownership are retained by another party, the lessor, are classified as operating
leases. Rental income, including prepayments, received under operating leases (net of any incentives granted by the lessor) are recognised in the
statement of comprehensive income on a straight-line basis over the period of the lease. Properties leased out under operating leases are
included as investment properties in the consolidated statement of financial position (note 13).
Financial assets and liabilities
Non-derivative financial assets and liabilities
Non-derivative financial assets and liabilities comprise trade and other receivables, cash and cash equivalents, loans and borrowings, and trade
and other payables. These are initially recognised at fair value and subsequently measured at amortised cost and discounted as appropriate. On
initial recognition the Group calculates the expected credit loss for non-derivative assets and liabilities based on lifetime expected credit losses
under the IFRS 9 simplified approach.
Cash and cash equivalents
Cash at bank, and short-term deposits that are held to maturity, are carried at cost. Cash and cash equivalents are defined as cash in hand,
demand deposits and short-term, highly liquid investments readily convertible to known amounts of cash and subject to insignificant risk of
changes in value. For the purposes of the statement of cash flows, cash and cash equivalents consist of cash in hand and short-term deposits at
banks with a term of no more than three months.
Loans and borrowings
Borrowings are recognised initially at fair value of the consideration received less attributable transaction costs. Subsequent to initial recognition,
interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the profit
and loss over the period of the borrowings on an effective interest basis.
Borrowing costs such as arrangement fees are capitalised and amortised over the loan term.
Derivative financial assets and liabilities
Derivative financial assets and liabilities comprise interest rate caps for hedging purposes (economic hedge). These are initially recognised at
cost and subsequently revalued at fair value, with the revaluation gains or losses immediately recorded in the statement of comprehensive
income.
Share capital
Ordinary shares, including treasury shares, are classified as equity when there is no obligation to transfer cash or other assets.
Share premium
Share premium represents the excess of proceeds received over the nominal value of new shares issued.
Other reserves
Other reserves mainly consists of a share premium reduction reserve arising from the conversion of share premium into a distributable reserve
and unrealised currency exchange gains and losses arising on the revaluation of sterling-denominated share capital and share premium at the
reporting date.
Dividends
Final dividends to the Company's shareholders are recognised as a liability in the Group's financial statements in the period in which the
dividends are approved by the Company's shareholders. Interim dividends are recognised when paid.
Impairment
Non-financial assets
The carrying amounts of the Group's non-financial assets, other than investment property but including joint ventures, are reviewed at each
reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount
is estimated.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value
in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to that asset.
For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from
continuing use that are largely independent of the cash inflows of other assets or groups of assets (the 'cash-generating unit').
An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount.
Impairment losses are recognised in the profit and loss.
Revenue
Rental income
Rental income from operating leases is recognised on a straight-line basis over the lease term. When the Group provides incentives to its
tenants, the cost of incentives is recognised over the lease term, on a straight-line basis, as a reduction of rental income.
Surrender premium income
Surrender premium income is recognised as revenue upon receipt.
Service charges
These include income in relation to service charges, directly recoverable expenditure and management fees. Revenue from providing services
is recognised in the accounting period in which the services are rendered. Revenue from services is recognised based on the actual service
provided to the end of the reporting period as a proportion of the total services to be provided and recognised over time.
Finance income and costs
Finance income comprises interest income on funds invested that are recognised in the statement of comprehensive income. Finance income is
recognised on an accruals basis.
Finance costs comprise interest expenses on borrowings that are recognised in the statement of comprehensive income. Attributable transaction
costs incurred in establishing the Group's credit facilities are deducted from the fair value of borrowings on initial recognition and are amortised
over the lifetime of the facilities through profit and loss. Finance expenses are accounted for on an effective interest basis.
Expenses
All expenses are accounted for on an accruals basis. They are recognised in the statement of comprehensive income in the year in which they are
incurred on an accruals basis.
Taxation
The Company and its subsidiaries are subject to income tax on any income arising on investment properties after deduction of debt financing
costs and other allowable expenses.
Income tax on the profit or loss for the year comprises current and deferred tax. Current tax is the expected tax payable on the taxable income
for the year, using tax rates enacted or substantially enacted at the reporting date, and any adjustment to tax payable in respect of previous
periods.
Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and
their carrying amounts in the consolidated financial statements. Deferred tax is determined using tax rates (and laws) that have been enacted, or
substantially enacted, by the date of the statement of financial position and are expected to apply when the related deferred income tax asset is
realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the
temporary differences can be utilised.
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.
Foreign currency translation
Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment
in which the entity operates (the 'functional currency').
The functional currency of all the entities in the Group is the euro, as this is the currency in which the majority of investment takes place and in
which the majority of income and expenses are incurred. The financial statements are also presented in euros.
Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the date of the transaction.
Foreign exchange gains and losses resulting from the settlement of such transactions are recognised in profit or loss in the statement of
comprehensive income.
Assets and liabilities held at the end of the reporting period are translated into the presentation currency at the exchange rate prevailing at that
date. Foreign exchange differences arising on translation to the presentation currency are recognised in other comprehensive income in the
statement of comprehensive income.
Equity held at the end of the reporting period is translated into the presentation currency at the exchange rate prevailing at that date. Foreign
exchange differences arising on translation to the presentation currency are recognised within equity.
2. New standards and interpretations
New standards and interpretations adopted by the Group
New standards, amendments or interpretations, effective for the first time for financial years beginning on or after 1 January 2018, have not had
a material impact on the Group or Company.
The Group has applied the following standards and amendments for the first time for its annual reporting period commencing 1 October 2018:
IFRS 9 - Financial instruments
IAS 39 is replaced with IFRS 9, resulting in changes in the recognition, measurement and classification of all financial assets excluding derivatives.
An expected credit loss model is introduced by IFRS 9, requiring expected credit losses to be recognised on all financial assets held at amortised
cost.
IFRS 9 adoption has not had an impact on the financial statements.
Classification and measurement
The Group reviewed its financial assets and assessed that the expected credit risk model should apply to the loan to the joint venture, cash and
cash equivalents, and trade receivables. IFRS 9 does not apply to any other assets held by the Group.
The 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.
Derivatives and hedging activity
Hedge accounting is not applied to the interest rate caps held as financial assets and are periodically revalued at fair value through profit or loss.
IFRS 9 does not change how interest rate caps held by the Group are measured and therefore has no material impact on the financial statements.
Impairment of financial assets
The Group's trade receivables are largely comprised of tenant receivables. For reasons set out in the Group's Credit Risk management in note 23,
the credit risk was deemed to be immaterial.
As disclosed in note 15, the Group has a loan receivable from the joint venture and on application of IFRS 9's credit risk model does not result in
recognition of a material loss allowance.
There is no material quantitative impact for the period ended 30 September 2019 upon application of this new accounting policy for assessing
asset impairment. The Group will continue to assess 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 makes up 79% of the Group's income and 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 3, the service charge income has been separated from rental income.
The Company does receive management fee income in the form of recharges to subsidiaries. However there is no performance element to the
management fee calculation, hence there is no change to the accounting for this income stream.
New standards and interpretations not yet adopted by the Group
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 and it is not a lessee of any other assets that would be in scope for IFRS 16.
IFRS 16 was effective from 1 January 2019 but has not been early adopted by the Group.
IFRS 3 - Business combinations
Amendments to IFRS 3 Business Combinations (subject to EU endorsement) and effective for financial years commencing on or after 1 January 2020
provides a revised framework for evaluating a business and introduces an optional 'concentration test'. The amendment will impact the
assessment and judgements used in determining whether future property transactions represent an asset acquisition or business combination.
As a result of the amendment it is expected that future transactions are more likely to be treated as an asset acquisition.
3. Rental and service charge income
Group Group Company Company
30/09/2019 30/09/2018 30/09/2019 30/09/2018
EUR'000 EUR'000 EUR'000 EUR'000
Rental income 14,691 13,708 - -
Service charge income 3,976 6,192 - -
18,667 19,900 - -
4. Other income
Other income relates to a lease surrender premium agreement pursuant to the Group's Hamburg office asset in Germany. EUR1.5 million was
received during the year ended 30 September 2019 and EUR2.4 million was received during the year ended 30 September 2018.
5. Property operating expenses
Group Group Company Company
30/09/2019 30/09/2018 30/09/2019 30/09/2018
EUR'000 EUR'000 EUR'000 EUR'000
Repairs and maintenance 2,119 1,756 - -
Service charge, insurance and utilities on vacant units 498 2,716 - -
Real estate taxes 1,589 1,587 - -
Property management fees 227 206 - -
Other 374 193 - -
4,807 6,458 - -
All the above amounts relate to service charge expenses which are all recoverable except for EUR831,000 (2018: EUR266,000).
6. Material agreements
Schroder Real Estate Investment Management Limited ('SREIM') is the Investment Manager to the Company. 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 Group. 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 year was EUR1,904,000 (2018: EUR1,958,000). At the year end EUR140,000 (2018: EUR318,000) was outstanding.
SREIM provides accounting services to the Group with a minimum contracted annual charge of EUR79,000 (GBP70,000). The total charge to the Group
was EUR99,000 (2018: EUR106,000). At the year end EUR8,000 (2018: EUR17,000) was outstanding.
SREIM provides administrative and company secretarial services to the Group with a contracted annual charge of EUR56,000 (GBP50,000). The total
charge to the Group was EUR57,000 (2018: EUR57,000). At the year end EUR5,000 (2018: EUR9,000) was outstanding.
Details of Directors' fees are disclosed in note 9.
Details of loans to Urban SEREIT Holdings Spain S.L., a related party, are disclosed in note 15.
The Company received management fees of EUR1,429,000 (2018: EUR1,306,000) from subsidiary companies during the year. The amounts recharged
to subsidiaries and outstanding are provided in the table below.
Fees recharged in the year to Fees outstanding as at
30 September 30 September
EUR'000 EUR'000
Subsidiary 2019 2018 2019 2018
SCI SEREIT Rumilly 59 16 14 16
SCI 221 Jean Jaures 281 326 69 388
SEREIT Berlin DIY Sarl 181 202 45 240
SEREIT Hamburg Sarl 111 127 55 151
SEREIT Stuttgart Sarl 112 121 28 144
SEREIT Frankfurt Sarl 78 89 19 106
SCI SEREIT Directoire 245 272 63 322
SEREIT Apeldoorn Sarl 135 115 33 115
SEREIT UV Sarl 139 38 35 38
SCI SEREIT Pleudihen 88 - 88 -
Total 1,429 1,306 449 1,520
7. Auditors' remuneration
The Group's total audit fees for the year are EUR356,000 (2018: EUR269,000) which include the Group's audit and the individual SPV audits fees.
The Company's total audit fees for the year were EUR318,000 (2018: EUR232,000) which only covers the Group audit fee.
The auditor did not perform any non-audit services for the Group during the year (2018: EUR6,000). The interim review fee was EUR50,000
(2018: EUR37,000) which is an assurance related non-audit service.
8. Dividends received
During the year the Group received dividends of EUR93,000 (2018: EUR150,000) from its joint venture operation Urban SEREIT Holdings Spain S.L.
(see note 15).
During the year the Company received dividends from its subsidiary undertakings. EUR2,680,000 (2018: EUR7,600,000) was received from SEREIT
(Jersey) Limited and EUR10,471,000 (2018: EUR1,500,000) was received from SEREIT Holdings Sarl. EUR9,521,000 of the dividend from SEREIT Holdings
Sarl was received as a contribution of shares in OPPCI SEREIT France and EUR950,000 was received as a cash distribution.
9. Other expenses
Group Group Company Company
30/09/2019 30/09/2018 30/09/2019 30/09/2018
EUR'000 EUR'000 EUR'000 EUR'000
Directors' and officers' insurance premium 10 9 10 9
Bank charges 61 37 7 8
Regulatory costs 53 32 43 42
Marketing 58 48 58 48
Other expenses 1 80 23 13
183 206 141 120
Directors' fees
Directors are the only officers of the Company and there are no other key personnel. The Directors' annual remuneration for services to the
Group was EUR124,742 (2018: EUR105,325), as set out in the Remuneration Report on pages 39 to 41 of the 2019 Report and Accounts. The total charge for directors' fees was
EUR142,000 (2018: EUR115,000), which included employer's National Insurance contributions.
10. Taxation
30/09/2019 30/09/2018
EUR'000 EUR'000
Current tax charge 2,918 1,078
Deferred tax charge 609 439
Tax expense in year 3,527 1,517
Reconciliation of effective tax rate
Profit before taxation 10,982 17,084
Effect of:
Tax charge at weighted average corporation tax rate of 16.19% (2018: 23.49%) 1,778 4,013
Tax exempt income (1,431) (3,912)
Tax adjustment on net revaluation loss 100 119
Capital gains tax 1,254 -
Real estate transfer tax 743 -
Current year loss for which no deferred tax is recognised 290 403
Tax adjustment of share of joint venture (profit)/loss 819 (139)
Minimum Luxembourg tax charges 60 152
Withholding tax (10) 618
Tax effect of property depreciation 52 100
Other permanent differences (128) 163
Total tax expense in the year 3,527 1,517
The effective tax rate is a weighted average of the tax rates in the countries the Group has operations.
A potential deferred tax asset of EUR290,000 (2018: EUR403,000) arose on tax losses which has not been provided for.
The current tax charge includes EUR1,997,000 of French taxes paid during the year in respect of a Group restructuring. The Group continues to
proactively monitor the appropriateness of its structure and adapt where necessary.
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 incompatible with European Union State Aid rules, to the extent that profits derive from activities performed within the UK.
The Group benefits from this exemption in respect of SEREIT (Jersey) Limited which provides financing to other group companies. The Group has
undertaken a review with its advisors and does not consider that a provision is currently required as a consequence of the ruling.
11. Earnings per share
Basic earnings per share
The basic earnings per share for the Group is calculated by dividing the net profit after tax attributable to ordinary shareholders of the Company
by the weighted average number of ordinary shares in issue during the year.
30/09/2019 30/09/2018
Net profit attributable to shareholders EUR7,455,000 EUR13,175,000
Weighted average number of ordinary shares in issue 133,734,686 133,734,686
Basic earnings per share (cents per share) 5.6 9.9
Diluted earnings per share
The Group has no dilutive potential ordinary shares and hence the diluted earnings per share is the same as the basic earnings per share in both
2018 and 2019.
Headline earnings per share
The headline earnings and diluted headline earnings for the Group is 7.9 euro cents per share (2018: 8.1 euro cents per share) as detailed on
page 75 of the 2019 Report and Accounts.
12. Dividends paid
Interim dividends of EUR7,422,000 (2018: EUR9,428,000) were paid to shareholders during the year as follows:
Ordinary Rate 30/09/2019
In respect of Shares (cents) EUR'000
Interim dividend paid on 25 January 2019 133,734,686 1.85 2,474
Interim dividend paid on 12 April 2019 133,734,686 1.85 2,474
Interim dividend paid on 22 July 2019 133,734,686 1.85 2,474
Total interim dividends paid 7,422
Ordinary Rate 30/09/2018
In respect of 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
The interim dividend for the quarter ended 30 June 2019 was paid on 21 October 2019. This was 1.85 euro cents per share and a total dividend
payment of EUR2,474,000 was made and would have brought the total dividend paid for the year to EUR9,896,000 (2018: EUR9,428,000).
13. Investment property
Freehold
Group EUR'000
Fair value as at 1 October 2017 202,563
Property acquisitions 48,169
Acquisition costs 3,973
Net gain from fair value adjustment on investment property 4,939
Disposals (64,000)
Fair value as at 30 September 2018 195,644
Property acquisitions 17,250
Acquisition costs 959
Additions 1,513
Net gain from fair value adjustment on investment property 3,530
Fair value as at 30 September 2019 218,896
There were no leasehold properties held during the year (2018: Nil). The value of the respective sectors held were as follows:
2019 2018
Sector EUR'000 EUR'000
Industrial 47,450 28,600
Retail (including retail warehousing) 38,350 37,650
Offices 133,096 129,394
Total 218,896 195,644
The fair value of investment properties as determined by the valuer totals EUR219,200,000 (2018: EUR195,950,000). The fair value of investment
properties disclosed above includes a tenant incentive adjustment of EUR304,000 (2018: EUR306,000).
The net valuation gain on investment property of EUR3,530,000 (2018: EUR4,939,000) consists of net property revaluation gains of EUR3,528,000
(2018: EUR5,108,000) and a movement of the above mentioned tenant incentive adjustment of EUR2,000 (2018: EUR169,000).
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 an 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.
The fee payable to Knight Frank is less than 5% of its total revenue in any year.
All investment properties are categorised within level 3 of the fair value hierarchy, as they use significant unobservable inputs. There have not
been any transfers between Levels during the year. 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 30 September
Retail (incl. retail
2019 Industrial warehouse) Office Total
Fair value (EUR'000)(3) 47,450 85,350 133,400 266,200
Area ('000 sq.m) 68.806 44.365 60.433 173.604
Net passing rent EUR per sq.m Range 39.78-99.84 94.73-141.07 61.78-355.86 39.78-355.86
per annum Weighted average(2) 48.70 105.55 193.91 139.70
Gross ERV EUR per sq.m Range 38.00-89.40 101.58-184.47 79.76-419.91 38.00-419.91
per annum Weighted average(2) 48.46 154.78 241.33 179.20
Net initial yield(1) (%) Range 5.64-7.45 4.70-5.38 2.13-11.52 2.13-11.52
Weighted average(2) 6.28 4.96 5.92 5.68
Equivalent yield (%) Range 5.50-7.00 5.10-6.48 4.10-10.44 4.10-10.44
Weighted average(2) 6.11 6.02 6.04 6.05
(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 EUR47.0 million which is disclosed within the summarised information within
note 15 as part of total assets.
Retail (including retail
2018 Industrial warehouse) Office Total
Fair value (EUR'000)(3) 28,600 89,650 129,700 247,950
Area ('000 sq.m) 43.666 44.336 60.423 148.425
Net passing rent EUR per sq.m Range 39.84-97.94 94.73-140.01 63.24-349.98 39.84-349.98
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
(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 15 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 Impact on fair value measurement
Unobservable input of significant increase in input of 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 are shown below:
Estimated movement in fair value of investment properties at 30 September Industrial Retail Office Total
2019 EUR'000 EUR'000 EUR'000 EUR'000
Increase in ERV by 5% 1,400 3,400 6,000 10,800
Decrease in ERV by 5% (1,400) (3,400) (6,100) (10,900)
Increase in net initial yield by 0.25% (1,750) (4,750) (7,100) (13,600)
Decrease in net initial yield by 0.25% 2,200 2,600 6,000 10,800
14. Investment in subsidiaries
2019 2018
Company EUR'000 EUR'000
Balance as at 1 October 125,998 118,583
Additions 2,182 7,415
Balance as at 30 September 128,180 125,998
During the year the Company invested EUR4,111,000 in SEREIT Holdings France SAS (SIIC), a new French company created to hold the Company's
investment in Rennes. Additional investments of EUR1,154,000 in SEREIT Holdings Sarl (2018: EUR7,415,000), EUR700 in SEREIT SCI SEREIT Directoire and
EUR10 in SCI 221 Jean-Jaures were made during the year.
As part of the restructure exercise the Company acquired EUR74,666,000 of shares in OPPCI SEREIT France and reduced its investment in SEREIT
(Jersey) Limited by EUR77,750,000.
The subsidiary companies listed below are those which were part of the Group as at 30 September 2019. Unless otherwise stated, they have
share capital consisting solely of ordinary shares that are held directly by the Group and the proportion of ownership of interests held equals the
voting rights held by the Group.
Undertaking Country of incorporation Group ownership Registered office address
SEREIT (Jersey) Limited Jersey 100% 22 Grenville Street, Jersey, JE4 8PX
SEREIT Finance Sarl Luxembourg 100% 5, rue Hohenhof L-1736 Senningerberg
SEREIT Holdings Sarl Luxembourg 100% 5, rue Hohenhof L-1736 Senningerberg
OPPCI SEREIT France France 100% 153 rue Saint Honore, 75001 Paris
SCI SEREIT Rumilly France 100% 8-10 rue Lamennais, 75008 Paris
SCI 221 Jean Jaures France 100% 8-10 rue Lamennais, 75008 Paris
SEREIT Berlin DIY Sarl Luxembourg 100% 5, rue Hohenhof L-1736 Senningerberg
SEREIT Hamburg Sarl Luxembourg 100% 5, rue Hohenhof L-1736 Senningerberg
SEREIT Stuttgart Sarl Luxembourg 100% 5, rue Hohenhof L-1736 Senningerberg
SEREIT Frankfurt Sarl Luxembourg 100% 5, rue Hohenhof L-1736 Senningerberg
SCI SEREIT Directoire France 100% 8-10 rue Lamennais, 75008 Paris
SEREIT Apeldoorn Sarl Luxembourg 100% 5, rue Hohenhof L-1736 Senningerberg
SEREIT UV Sarl Luxembourg 100% 5, rue Hohenhof L-1736 Senningerberg
SEREIT Holdings France SAS (SIIC) France 100% 8-10 rue Lamennais, 75008 Paris
SCI SEREIT Pleudihen France 100% 8-10 rue Lamennais, 75008 Paris
The Company set up a French permanent establishment in France during the year to hold its French investments.
On 31 July 2018 the Group disposed of its 70% holding of SCI Rennes Anglet. The net proceeds from sale were EUR19,974,000, including EUR29,000 of
sale costs, resulting in a loss on disposal of EUR29,000. Cash held in SCI Rennes Anglet on disposal was EUR234,000 which was deducted from the
above mentioned net sale proceeds to give proceeds on disposal of EUR19,740,000 as reported in the consolidated statement of cash flows. An inter-company
loan of EUR7,215,000 was repaid to the Group on disposal.
Following this disposal the Group derecognised its previously disclosed non-controlling interest. The value of this as at 30 September 2017 was
EUR7,691,000. Profits attributable to the non-controlling interest during the period up to disposal was EUR2,392,000 and a share premium distribution
of EUR1,510,000 was received. The value of the non-controlling interest derecognised at the date of disposal was EUR8,573,000.
15. Investment in joint venture
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.
2019 2018
Group EUR'000 EUR'000
Balance as at 1 October 6,697 6,290
Share premium repayment (950) -
Share of (loss)/profit for the year (3,276) 557
Dividends (93) (150)
Balance as at 30 September 2,378 6,697
The carrying value equals the fair value.
2019 2018
Summarised joint venture financial information: EUR'000 EUR'000
Total assets 50,078 58,444
Total liabilities (45,322) (45,050)
Net assets 4,756 13,394
Net asset value attributable to the Group 2,378 6,697
Revenues for the year 5,359 5,464
Total comprehensive (loss)/profit (6,552) 1,114
Total comprehensive (loss)/profit attributable to the Group (3,276) 557
In 2018 and 2019, within total liabilities of the joint venture, is a EUR23.4 million loan facility with Munchener Hypothekenbank eG. The facility
matures on 22 May 2024 and carries a fixed interest rate of 1.76% per annum payable quarterly. The facility was subject to a 0.3% arrangement
fee which is being amortised over the period of the loan. The debt has a LTV covenant of 60% and a minimum net rental income covenant. The lender
has a charge over the property owned by the Group with a value of EUR47.0 million. A pledge of all shares in the borrowing Group company
is in place.
A reduction in rental income has resulted in a requirement under the minimum net rental income covenant in the loan to retain all excess
income generated by the Seville property in the property owning SPV. This position will continue until the rental income increases sufficiently to
meet the level required under the loan.
In 2018 and 2019, within total liabilities of the joint venture, there is also a loan amount of EUR10.0 million owed to the Group. The loan is expected
to mature at the same time as the above-mentioned bank loan and carries a fixed interest rate of 4.37% per annum payable quarterly.
Both of the above-mentioned loans were in place during the prior year ended 30 September 2018 under the same terms.
16. Trade and other receivables
Group Group Company Company
2019 2018 2019 2018
EUR'000 EUR'000 EUR'000 EUR'000
Rent and service charges receivable 2,771 1,042 - -
Monies held by property managers 210 209 - -
Amounts due from subsidiary undertakings - - 37,662 35,467
VAT receivable 238 - - -
Rental and security deposits 2,049 1,446 - -
Other debtors and prepayments 1,073 9,840 33 39
6,341 12,537 37,695 35,506
Other debtors and prepayments includes tenant incentives of EUR304,000 (2018: EUR306,000). There were no provisions against the above amounts in
2019 (2018: Nil).
17. 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 consolidated financial statements at its fair value. The notional
value of the instrument is EUR13.0 million. As at 30 September 2019 the fair value of the interest rate cap was EUR10,000 (2018: EUR188,000),
giving a valuation decrease as shown within the statement of comprehensive income of EUR178,000.
During the year 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 consolidated financial statements at its fair value. As at
30 September 2019 the fair value of the interest rate cap was EUR3,000, giving a valuation decrease as shown in the statement of comprehensive
income of EUR84,000.
During the year the Group entered into an interest rate cap purchased for EUR46,000 from Landesbank Saar on 27 March 2019 in connection to a
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 consolidated financial statements at its fair value. As at
30 September 2019 the fair value of the interest rate cap was EUR4,000, giving a valuation decrease as shown in the statement of comprehensive
income of EUR42,000.
Transaction costs incurred in obtaining the instruments are amortised over the period of the above-mentioned loans.
18. Cash and cash equivalents
Group Group Company Company
30/09/2019 30/09/2018 30/09/2019 30/09/2018
EUR'000 EUR'000 EUR'000 EUR'000
Cash at bank and in hand 16,053 15,738 4,035 4,792
19. Share capital
Group Group Company Company
30/09/2019 30/09/2018 30/09/2019 30/09/2018
EUR'000 EUR'000 EUR'000 EUR'000
Ordinary share capital 15,080 15,015 15,080 15,015
Share capital
As at 30 September 2019, the share capital of the Company was represented by 133,734,686 ordinary shares (2018: 133,734,686 ordinary shares)
with a par value of 10.00 pence.
Issued share capital
As at 30 September 2019, the Company had 133,734,686 ordinary shares (2018: 133,734,686) in issue (no shares were held in treasury). The total
number of voting rights of the Company at 30 September 2019 was 133,734,686 (2018: 133,734,686).
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.
20. Interest-bearing loans and borrowings
This note provides information about the contractual terms of the Group's interest-bearing loans and borrowings. For more information about
the Group's exposure to interest rate risk see note 23.
Group Group Company Company
2019 2018 2019 2018
EUR'000 EUR'000 EUR'000 EUR'000
As at 1 October 52,150 58,772 - -
Receipt of borrowings 8,600 22,250 - -
Disposal - loans - (29,064) - -
Disposal - finance costs - 472 - -
Capitalisation of finance costs (181) (416) - -
Amortisation of finance costs 123 136 - -
As at 30 September 60,692 52,150 - -
Borrowings are removed from the statement of financial position when the obligation specified in the contract is discharged, cancelled or
expired. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least
twelve months after the reporting period.
Bank loan - HSBC Bank Plc
The Group has a loan facility of EUR9.25 million with HSBC Bank Plc which was entered into during the year ended 30 September 2018.
The total amount has been fully drawn and matures on 27 September 2023. It carries an interest rate which is the aggregate of the applicable
Euribor 3 months rate and a margin of 2.15% per annum payable quarterly. The facility was subject to a 1% arrangement fee which is being
amortised over the period of the loan. The debt has a LTV covenant of 62.5% and the interest cover should be above 275%.
The lender has a charge over properties owned by the Group with a value of EUR20,000,000. A pledge of all shares in the borrowing Group
company is in place.
Bank loan - BRED Banque Populaire
The Group entered into a loan facility totalling EUR13.0 million with BRED Banque Populaire which was entered into during the year ended 30 September 2018.
The total amount has been fully drawn and matures on 15 December 2024. The loan carries an interest rate which is the aggregate of the
applicable Euribor 3 months rate and a margin of 1.30% per annum payable quarterly. The facility was subject to an arrangement fee of EUR70,000
which is being amortised over the period of the loan. The debt has a LTV covenant of 60% and the ICR should be above 400%. The Group has
purchased an interest rate cap to have risk coverage on the variation of the interest rate.
The lender has a charge over property owned by the Group with a value of EUR37,900,000. A pledge of all shares in the borrowing Group company
is in place.
Bank loan - Deutsche Pfandbriefbank AG
The Group has two loan facilities totalling EUR30.50 million with Deutsche Pfandbriefbank AG which were entered into during the year ended
30 September 2016.
Of the total amount drawn, EUR14.0 million matures on 30 June 2023 and carries a fixed interest rate of 0.85% per annum payable quarterly; the
remaining EUR16.5 million matures on 30 June 2026 and carries a fixed interest rate of 1.31% per annum. An additional fixed fee of 0.30% per
annum was payable until certain conditions relating to the Frankfurt property were fulfilled on 30 December 2016. The facility was subject to a
0.35% arrangement fee which is being amortised over the period of the loan. The debt has a LTV covenant of 65% and the debt yield must be at
least 8%. Following City BKK's surrender in the Hamburg property, there is a debt yield waiver in place.
The lender has a charge over property owned by the Group with a value of EUR72,250,000. A pledge of all shares in the borrowing Group
companies is in place.
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 being amortised over the period of the loan. The debt has a LTV covenant of 64% and the interest cover should be above 220%.
A pledge of all shares in the borrowing Group company is in place.
21. Trade and other payables
Group Group Company Company
30/09/2019 30/09/2018 30/09/2019 30/09/2018
EUR'000 EUR'000 EUR'000 EUR'000
Rent received in advance 1,247 514 - -
Rental deposits 1,901 1,546 - -
Interest payable 58 9 - -
Retention payable 79 79 - -
Accruals 2,209 2,052 883 714
VAT payable - 297 - -
Trade payables 3,473 584 - -
8,967 5,081 883 714
All trade and other payables are interest free and payable within one year.
Included within the Group's accruals are amounts relating to management fees of EUR140,000 (2018: EUR318,000) and property expenses of EUR952,000
(2018: EUR770,000).
22. Net asset value per ordinary share
The NAV per ordinary share of 136.2 euro cents per share (2018: 136.2 euro cents per share) is based on the net assets attributable to ordinary
shareholders of the Group of EUR182,087,000 (2018: EUR182,069,000), and 133,734,686 ordinary shares in issue at 30 September 2019
(2018: 133,734,686 ordinary shares).
23. Financial instruments, properties and associated risks
Financial risk factors
The Group holds cash and liquid resources as well as having debtors and creditors that arise directly from its operations. The Group uses interest
rate caps when required to limit exposure to interest rate risks, but does not have any other derivative instruments.
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 and these are summarised below:
Market price risk
Rental income and the market value for properties are generally affected by overall conditions in the economy, such as changes in gross
domestic product, employment trends, inflation and changes in interest rates. Changes in gross domestic product may also impact employment
levels, which in turn may impact the demand for premises. Furthermore, movements in interest rates may also affect the cost of financing for real
estate companies.
Both rental income and property values may also be affected by other factors specific to the real estate market, such as competition from other
property owners; the perceptions of prospective tenants of the attractiveness, convenience and safety of properties; the inability to collect rents
because of bankruptcy or the insolvency of tenants; the periodic need to renovate, repair and re-lease space and the costs thereof; the costs of
maintenance and insurance, and increased operating costs.
The Board monitors the market value of investment properties by having independent valuations carried out quarterly by a firm of independent
chartered surveyors.
Included in market price risk is currency risk, credit risk and interest rate risk which are discussed further below.
Currency risk
The Group's policy is for Group entities to settle liabilities denominated in their functional currency with the cash generated from their own
operations in that currency. Where Group entities have liabilities in a currency other than their functional currency (and have insufficient reserves
of that currency to settle them), cash already in that currency will, where possible, be transferred from elsewhere within the Group. The functional
currency of all entities in the Group is the euro. Currency risk sensitivity has not been shown due to the small values of non euro transactions.
The table below details the Group's exposure to foreign currencies at the year end:
Group Group Company Company
30/09/2019 30/09/2018 30/09/2019 30/09/2018
Net assets EUR'000 EUR'000 EUR'000 EUR'000
Euros 182,312 182,206 169,252 165,719
Sterling (505) (201) (505) (201)
Rand 280 64 280 64
182,087 182,069 169,027 165,582
Credit risk
Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Group.
In the event of default by an occupational tenant, the Group will suffer a rental income shortfall and incur additional costs, including legal
expenses, in maintaining, insuring and re-letting the property.
The Investment Manager reviews reports prepared by Dun and Bradstreet or other sources, to assess the credit quality of the Group's tenants
and aims to ensure there is no excessive concentration of risk and that the impact of any default by a tenant is minimised.
In respect of credit risk arising from other financial assets, which comprise cash and cash equivalents and a loan to a joint venture, exposure to
credit risk arises from default of the counterparty with a maximum exposure equal to the carrying amounts of these instruments. In order to
mitigate such risks, cash is maintained with major international financial institutions with high quality credit ratings. Credit risk relating to the
joint venture loan is actively managed and the Group believes it does not carry any risk of impairment.
The table below shows the balance of cash and cash equivalents held with various financial institutions at the end of the reporting year.
Group
balance Company
at balance at
Ratings as at 30/09/2019 30/09/2019
Bank 30/09/2019 EUR'000 EUR'000
HSBC Bank plc AA- 105 105
ING Bank N.V. AA- 9,356 -
BNP Paribas A+ 891 -
BRED Banque Populaire A+ 20 -
Santander A 4,105 3,650
Societe Generale SA A 839 -
Commerzbank AG BBB+ 457 -
FirstRand Bank Limited BB+ 280 280
16,053 4,035
Group Company
balance balance at
Ratings as at at 30/09/2018 30/09/2018
Bank 30/09/2018 EUR'000 EUR'000
HSBC Bank plc AA- 575 525
ING Bank N.V. A+ 7,875 -
BNP Paribas A+ 584 -
BRED Banque Populaire A+ 2 -
Santander A 6,069 4,200
Commerzbank AG BBB+ 566 -
FirstRand Bank Limited BB+ 67 67
15,738 4,792
The maximum exposure to credit risk for rent and service charge receivables at the reporting date by type of sector was:
30/09/2019 30/09/2018
Carrying Carrying
amount amount
EUR'000 EUR'000
Office 2,315 827
Retail (including retail warehousing) 174 63
Industrial 282 152
2,771 1,042
Rent receivables which are past their due date, but which were not impaired at the reporting date, were:
30/09/2019 30/09/2018
Carrying Carrying
amount amount
EUR'000 EUR'000
0-30 days 2,771 1,042
31-60 days - -
61-90 days - -
91 days plus - -
2,771 1,042
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulties in meeting its financial obligations.
The Group's investments comprise of Continental European commercial property. Property and property-related assets are inherently difficult to
value due to the individual nature of each property. As a result, valuations are subject to substantial uncertainty. There is no assurance that the
estimates resulting from the valuation process will reflect the actual sale's price even where such sales occur shortly after the valuation date.
Investments in property are relatively illiquid. However, the Group has tried to mitigate this risk by investing in properties that it considers to be
good quality.
In certain circumstances, the terms of the Group's debt facilities entitle the lender to require early repayment and in such circumstances the
Group's ability to maintain dividend levels and the net asset value could be adversely affected. The Investment Manager prepares cash flows on
a rolling basis to ensure the Group can meet future liabilities as and when they fall due.
The following table indicates the undiscounted maturity analysis of the financial liabilities.
As at 30 September 2019 Carrying Expected 6 months 6 months More than
amount cash flows or less to 2 years 2-5 years 5 years
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Financial liabilities
Interest-bearing loans and borrowings
and interest 61,350 65,424 413 1,236 33,862 29,913
Trade and other payables 8,909 8,909 8,909 - - -
Total financial liabilities 70,259 74,333 9,322 1,236 33,862 29,913
Carrying Expected 6 months 6 months More than
amount cash flows or less to 2 years 2-5 years 5 years
As at 30 September 2018 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Financial liabilities
Interest-bearing loans and borrowings
and interest 52,750 57,034 351 1,057 2,109 53,517
Trade and other payables 4,775 4,775 4,775 - - -
Total financial liabilities 57,525 61,809 5,126 1,057 2,109 53,517
Interest rate risk
Exposure to market risk for changes in interest rates relates primarily to the Group's long-term debt obligations and to interest earned on cash
balances. As interest on the Group's long-term debt obligations is payable on a fixed-rate basis, or is capped, the Group has limited exposure to
interest rate risk, but is exposed to changes in fair value of long-term debt obligations driven by interest rate movements. As at 30 September 2019,
the fair value of the Group's loans was EUR61.4 million, which was equal to the carrying amount (2018: fair value and carrying amount EUR52.8 million).
A 1% increase or decrease in short-term interest rates would decrease or increase the annual income and equity by EUR0.1 million (2018: EUR0.1 million)
based on the net of cash and variable debt balances as at 30 September 2019.
Fair values
The fair values of financial assets and liabilities approximate their carrying values in the financial statements.
The fair value hierarchy levels are as follows:
- Level 1 - quoted prices (unadjusted) in active markets for identical assets and liabilities;
- Level 2 - inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices); and
- Level 3 - inputs for the asset or liability that are not based on observable market data (unobservable inputs).
There have been no transfers between Levels 1, 2 and 3 during the year (2018: none).
The following summarises the main methods and assumptions used in estimating the fair values of financial instruments and investment
property (which is a non-financial asset).
Investment property - Level 3
Fair value is based on valuations provided by an independent firm of chartered surveyors and registered appraisers. These values were
determined after having taken into consideration recent market transactions for similar properties in similar locations to the investment
properties held by the Group. The fair value hierarchy of investment property is level 3. See note 13 for further details.
Interest-bearing loans and borrowings - Level 2
Fair values are based on the present value of future cash flows discounted at a market rate of interest. Issue costs are amortised over the period
of the borrowings. As at 30 September 2019 the fair value of the Group's loans was equal to its book value.
Trade and other receivables/payables- Level 3
All receivables and payables are deemed to be due within one year and as such the notional amount is considered to reflect the fair value.
Derivatives - Level 2
Fair values of derivatives are based on current market conditions compared to the terms of the derivative agreements. Refer to note 17
for further detail.
Capital management
The Board's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future
development of the business. The objective is to ensure that it will continue as a going concern and to maximise return to its equity shareholders
through an appropriate level of gearing.
The Group's debt and capital structure comprises the following:
30/09/2019 30/09/2018
EUR'000 EUR'000
Debt
Loan facilities 60,750 52,159
Equity
Called-up share capital and share premium 45,123 44,927
Retained earnings and other reserves 136,964 137,142
Total equity 182,087 182,069
Total debt and equity 242,837 234,228
There were no changes in the Group's approach to capital management during the year.
The Company's capital structure is comprised of equity only.
24. Foreign exchange
During the year the Group incurred the following foreign currency gains and losses:
Realised currency gains of EUR6,000 (2018: EUR1,000) arose on sundry corporate expense transactions.
An unrealised currency loss of EUR15,000 (2018: EUR4,000 loss) arose when monetary assets and liabilities held by the Group were retranslated into
euros at the year end for reporting purposes.
Both of these realised and unrealised amounts appear within the statement of comprehensive income.
At each year end the Group retranslates its sterling-denominated share capital, share premium and other reserves into euros using the period
end exchange rate. At 30 September 2019, the cumulative unrealised currency loss arising on this retranslation was EUR28.5 million (2018: EUR29.2 million).
This amount appears within the statement of changes in equity as part of other reserves.
25. Operating leases
The Group leases out its investment property under operating leases. At 30 September 2019 the future minimum lease receipts under
non-cancellable leases are as follows:
30/09/2019 30/09/2018
The Group as a lessor EUR'000 EUR'000
Less than one year 12,013 13,365
Between one and five years 47,684 37,497
More than five years 43,602 21,177
103,299 72,039
The total above comprises the total contracted rent receivable as at 30 September 2019.
26. Related party transactions
Material agreements are disclosed in note 6 and loans to related parties are disclosed in Note 16. Directors' emoluments are disclosed in note 9.
Details of dividends received from the joint venture are disclosed in note 15.
Interest received and paid on loans to related parties are disclosed in the table below.
30/09/2019 30/09/2018
EUR'000 EUR'000
Interest paid by SCI Rennes Anglet - (37)
Interest received from Urban SEREIT Holdings Spain S.L. 333 445
27. Capital commitments
At 30 September 2019 the Group had capital commitments of EUR2,031,000 (2018: EUR293,590).
28. Employees
The Group has an employee who was appointed during the year by the French branch of the Company.
29. Post balance sheet events
On 24 October 2019 a further EUR4.0 million of debt was received in to SCI Directoire.
On 25 November 2019 EUR3.7 million of new debt was received in to SCI Rumilly.
EPRA and Headline Performance Measures (Unaudited)
As recommended by the European Public Real Estate Association ('EPRA'), performance measures are disclosed in the section below.
EPRA performance measures: summary table
30/09/2019 30/09/2018
Total Total
EUR'000 EUR'000
EPRA earnings 10,547 10,830
EPRA earnings per share 7.9 8.1
EPRA NAV 183,725 182,793
EPRA NAV per share 137.4 136.7
EPRA NNNAV 183,725 182,793
EPRA NNNAV per share 137.4 136.7
EPRA net initial yield 6.2% 6.4%
EPRA topped-up net initial yield 6.3% 6.4%
EPRA vacancy rate 6.0% 1.5%
a. EPRA Earnings and earnings per share
Represents total IFRS comprehensive income excluding realised and unrealised gains/losses on investment property, share of capital profit on
joint venture investments and changes in fair value of financial instruments, divided by the weighted average number of shares.
30/09/2019 30/09/2018
EUR'000 EUR'000
Total IFRS comprehensive income 7,440 15,563
Adjustments to calculate EPRA earnings:
Net gain from fair value adjustment on investment property (3,530) (4,939)
Exchange differences on monetary items (unrealised) 15 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 3,713 (8)
Non-controlling interest's net revenue - (692)
Deferred tax 609 439
Current tax - restructuring 1,997 -
Net change in fair value of financial instruments 304 155
EPRA earnings 10,548 10,830
Weighted average number of ordinary shares 133,734,686 133,734,686
IFRS earnings per share (cents per share) 5.6 9.9
EPRA earnings per share (cents per share) 7.9 8.1
b. EPRA NAV per share
Represents the NAV adjusted to exclude assets or liabilities not expected to crystallise in a long-term investment property model, divided by the
number of shares in issue.
30/09/2019 30/09/2018
EUR'000 EUR'000
IFRS Group NAV per financial statements 182,087 182,069
Deferred tax 1,521 912
Adjustment for fair value of financial instruments (17) (188)
Adjustments in respect of joint venture deferred tax 134 -
EPRA NAV 183,725 182,793
Shares in issue at end of year 133,734,686 133,734,686
IFRS Group NAV per share (cents per share) 136.2 136.2
EPRA NAV per share (cents per share) 137.4 136.7
c. EPRA NNNAV per share
Represents the EPRA NAV adjusted to include the fair value of debt, divided by the number of shares in issue.
30/09/2019 30/09/2018
EUR'000 EUR'000
EPRA NAV 183,725 182,793
Adjustments to calculate EPRA NNNAV:
Fair value of debt adjustment - -
EPRA NNNAV 183,725 182,793
EPRA NNNAV per share (cents per share) 137.4 136.7
d. EPRA net initial yield
Annualised rental income based on the cash rents passing at the balance sheet date, less non-recoverable property operating expenses, divided
by the grossed-up market value of the complete property portfolio.
The EPRA 'topped up' NIY is the EPRA NIY adjusted for unexpired lease incentives.
30/09/2019 30/09/2018
EUR'000 EUR'000
Investment property - share of subsidiaries 219,200 195,950
Investment property - share of joint ventures and funds 23,500 26,000
Complete property portfolio 242,700 221,950
Allowance for estimated purchasers' costs 16,989 15,537
Grossed-up completed property portfolio valuation 259,689 237,487
Annualised cash passing rental income 16,850 15,900
Property outgoings (800) (800)
Net annualised rent 16,050 15,100
Notional rent expiration of rent free periods 200 200
Topped-up net annualised rent 16,250 15,300
EPRA NIY 6.2% 6.4%
EPRA 'topped-up' NIY 6.3% 6.4%
e. Headline Earnings reconciliation
30/09/2019 30/09/2018
EUR'000 EUR'000
Total comprehensive profit 7,440 15,563
Adjustments to calculate Headline Earnings exclude:
Net valuation profit on investment property (3,530) (4,939)
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 3,713 (8)
Minority interests net revenue - (692)
Deferred tax 609 439
Current tax - restructuring 1,997 -
Net change in fair value of financial instruments 304 155
Headline Earnings 10,533 10,826
Weighted average number of ordinary shares 133,734,686 133,734,686
Headline Earnings per share (cents per share) 7.9 8.1
Headline earnings per share reflect the underlying performance of the Company calculated in accordance with the Johannesburg Stock
Exchange Listing requirements.
Status of announcement
2018 Financial Information
The figures and financial information for 2018 are extracted from the published Annual Report and Accounts for the year ended 30 September
2018 and do not constitute the statutory accounts for that year. The 2018 Annual Report and Accounts have been delivered to the Registrar of
Companies.
2019 Financial Information
The figures and financial information for 2019 are extracted from the Annual Report and Accounts for the year ended 30 September 2019 and
do not constitute the statutory accounts for the year. The 2019 Annual Report and Accounts include the Report of the Independent Auditors
which is unqualified and does not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The 2019 Annual
Report and Accounts will be delivered to the Registrar of Companies in due course.
Neither the contents of the Company's webpages nor the contents of any website accessible from hyperlinks on the Company's webpages (or
any other website) is incorporated into, or forms part of, this announcement.
9 December 2019
Sponsor: PSG Capital
Date: 09-12-2019 09:00:00
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