TIDMSERE
RNS Number : 1132E
Schroder Eur Real Est Inv Trust PLC
28 June 2023
28 June 2023
SCHRODER EUROPEAN REAL ESTATE INVESTMENT TRUST PLC
("SEREIT"/ the "Company" / "Group")
HALF YEAR RESULTS FOR THE SIX MONTHSED 31 MARCH 2023
Continental Europe occupier trends and portfolio indexation
underpins valuation resilience; dividend to be rebased to reflect
rising interest rate backdrop and capital deployment strategy
Schroder European Real Estate Investment Trust plc, the company
investing in European growth cities and regions, announces its half
year results for the six months ended 31 March 2023.
50 basis points of outward yield movement, partially offset by
asset management initiatives, supports portfolio valuation
resilience:
-- Net Asset Value ("NAV") total return of -4.7% based on an
IFRS loss of EUR8.7 million (31 March 2022: 5.5% total return /
EUR10.9 million IFRS profit), predominantly driven by market wide
outward yield shift as a result of interest rate increases
-- Underlying EPRA earnings increased over 50% to EUR3.8 million
(31 March 2022: EUR2.5 million)
-- Strong balance sheet with cash reserves of EUR23 million and
loan to value (LTV) of 32% gross of cash and 23% net of cash.
Average cost of drawn debt (interest-only) of 2.5%
-- In Q4 2022, the Company's management team completed the early
refinancing of its largest debt facility at a modest 85bp margin
with no covenants for five years. Loan principal was extended from
EUR14m to EUR18m to provide additional balance sheet
flexibility.
Decision to rebase dividend to provide full cover reflects
refinancing cost uncertainty and patient capital deployment
strategy:
-- Announcement of a second interim dividend of 1.85 euro cents
per share ("cps"), bringing the total dividends declared relating
to the six months of the current financial year to 3.7 euro cps,
c.80% covered by recurring earnings
-- Reflecting the potential impact of higher interest costs on
the Company's earnings and more patient capital deployment
strategy, the quarterly target minimum dividend will be rebased to
1.48 euro cps per quarter (80% of the previous level), commencing
with the third interim dividend payable in October 2023. This will
allow management to be more patient deploying cash reserves into
attractive investment opportunities that are likely to arise, as
well as enabling the immediate payment of a fully covered
dividend.
Attractive indexation characteristics and strong occupational
demand to drive earnings growth:
-- Direct property portfolio independently valued at EUR220.2
million, reflecting a -4.6%, or EUR9.7 million, like-for-like
decrease over the period
-- Increased portfolio exposure to high growth industrial sector
with c.EUR11 million acquisition of an award winning property in
Alkmaar, the Netherlands, with excellent sustainability
credentials, including on site renewable energy and EPC rating of
A+
-- Concluded eight new leases and re-gears totalling c. 2,000
sqm generating EUR0.4 million of contracted rent, at a weighted
lease term of three years
-- Further improvement to the portfolio's sustainability credentials including:
-- BREEAM certification for the Stuttgart office
-- Advancement of on-site renewable energy at Houten industrial investment
-- c. 80% of landlord-procured electricity on renewable energy
and improved tenant data collection and education
-- 100% of rent due collected
-- 100% of the portfolio leases indexed to inflation, including 80% annually
Sir Julian Berney Bt., Chairman, commented:
"Notwithstanding the economic headwinds, the Board is pleased by
the portfolio's sector and winning city allocations, strong rent
collection and indexation characteristics, which together with
management's asset management expertise has enhanced valuation
resilience versus the UK-focused listed peer group. The Board,
however, is clear in its intention to be prudent in deploying the
remaining investment capacity, retaining capital in the short term
and rebasing the dividend to a quarterly minimum dividend of 80% of
the current level. Whilst the current wider market uncertainty
persists, this is a proactive move that we are convinced will
protect shareholder value over the long term, providing significant
flexibility and enabling us to pay a covered dividend that can be
grown over time."
Jeff O'Dwyer, Fund Manager for Schroder Real Estate Investment
Management Limited, added:
"Whilst we continue to operate in an environment where the
pricing of risk, value and liquidity is challenging, the Company is
well positioned, with a strong balance sheet and an ability to
refinance on the best available terms as and when required.
Recognising evolving occupier trends, our near-term capital
deployment will be focused on select sustainability-led capex
initiatives in the current portfolio, which we believe will best
optimise earnings growth and asset liquidity, thereby driving
longer term returns."
The Half Year Report is also being published in hard copy format
and an electronic copy of that document will shortly be available
to download from the Company's webpage www.schroders.co.uk/sereit .
Please click on the following link to view the document:
http://www.rns-pdf.londonstockexchange.com/rns/1132E_1-2023-6-27.pdf
The Company has submitted a pdf of the hard copy format of the
Half Year Report to the National Storage Mechanism and it will
shortly be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism .
A further announcement will be made shortly to confirm the full
timetable of the second interim dividend.
Enquiries:
Jeff O'Dwyer
Schroder Real Estate Investment Management 020 7658 6000
Shilla Pindoria
Schroder Investment Management Limited 020 7658 6000
-------------------------------------
Dido Laurimore / Richard Gotla / Oliver 020 3727 1000
Parsons Schroderrealestate@fticonsulting.com
FTI Consulting
-------------------------------------
A presentation for analysts and investors will be held at 9.00
a.m. BST/10.00 a.m. SAST today. Registration for which can be
accessed via:
https://registration.duuzra.com/form/SEREInterim
If you would like to attend, please contact James Lowe at
Schroders on james.lowe@schroders.com or +44 (0)20 7658 2083.
Half Year Report and Condensed Consolidated Interim Financial
Statements for the six month period ended 31 March 2023
Chairman's Statement
Overview
I am pleased to report the unaudited interim results for the six
month period ended 31 March 2023. Against a challenging backdrop,
the Company has delivered a relatively good set of financial
results, underpinned by strong occupancy, the portfolio's
indexation characteristics and the quality of assets in Winning
Cities and Regions of Continental Europe. The NAV total return was
-4.7% over the period and reflected a EUR11.8 million decline in
the portfolio value, net of capex and tenant incentives, or -5.1%
on a like-for-like basis. Commercial real estate values have been
falling across the UK and Europe as a result of general economic
and political uncertainty, investors' pricing of risk and
availability and cost of financing.
Rent collection has been strong and, excluding Seville, stands
at 100% for the six months to 31 March 2023, demonstrating the
strength of underlying covenants. Overall, the Board is pleased
with the resilience of the portfolio and the Investment Manager's
efforts in delivering on its asset management programme. Having a
diversified portfolio with local management teams who truly
understand their local markets and with a strong track record in
managing sustainability improvements will be increasingly important
in managing risk and protecting shareholder value.
Whilst we have witnessed yields across the portfolio deteriorate
by 50 basis points ('bp'), this has been offset by positive
indexation assisting with rental growth. Whilst this valuation
decline compares very favourably with the UK-listed peer group,
there remains considerable uncertainty over the pace at which
investor sentiment will rebound in a meaningful way, given the
persistently high interest rate environment. Whilst the Company's
strong cash position and operational resilience enabled the
quarterly dividend of 1.85 euro cents per share to be maintained in
the financial period, we have consistently stated that we would
review the dividend position taking into account portfolio
occupancy, rent collection levels, market sentiment, refinancing
and dividend cover. Despite the Company being in a robust position
with regard to a number of these metrics, the unprecedented
macroeconomic backdrop means that we lack the clarity around
near-term recurring earnings to continue with our current dividend
strategy.
Whilst the option to continue paying an uncovered dividend, as
many of the peer group do, was strongly considered, the Investment
Manager and Board believe that the more prudent, responsible and
decisive course of action, and the one that best protects the
interest of shareholders, is to rebase the target quarterly
dividend level to 1.48 euro cents per share commencing with our
third interim dividend payable in October 2023. The drivers of this
decision are threefold. The Company faces a number of upcoming
refinancings in 2023 and 2024 and, whilst we have had very
encouraging conversations with a wide pool of lenders, the backdrop
is more challenging. Secondly, there is no appetite to be forced
into the investment market simply to improve the rent roll. We have
always been highly selective in deploying shareholder capital and
would rather wait patiently for the right opportunities to come
along, albeit we recognise that this does not deliver near-term
income. And finally, the Investment Manager is reviewing a
programme of sustainability-led capital expenditure initiatives as
a means of improving
income, quality and asset liquidity as an alternative to new
acquisitions, which it has the expertise to deliver but will
require a more medium-term horizon. The rebased dividend will
differentiate the Company from a number of our peers, providing
significant flexibility, and enabling us to pay a covered dividend,
that can be grown over time.
As at 31 March 2023, the Company's direct property portfolio was
valued at EUR220.2 million. In addition, the Company has a 50%
interest in a joint venture in Seville which continues to be
recognised at nil interest. The direct portfolio consists of 15
investments in the most liquid investment markets in France,
Germany and the Netherlands, concentrated in Winning Cities such as
Paris, Stuttgart, Hamburg, Frankfurt and Berlin. The exposure to
higher-growth sectors such as industrial has increased over the
period to c.30%. The office exposure comprises c.34% and is
concentrated to assets in leading urban centres, in highly
accessible sub-markets and leased off affordable rents whilst the
retail exposure (c.17%) is solely focused on DIY/grocery, the more
essential-spend consumer sub-sectors. In addition the Company has
EUR23 million of available cash, providing a robust position to
manage the Company through current headwinds.
The Board has been clear in its intention to be prudent in its
approach to deploying the remaining investment capacity of c.EUR40
million, including further gearing.
The Investment Manager continues to screen investment
opportunities consistent with the investment strategy. In this
regard, the recent acquisition of the c.EUR11.2 million industrial
investment in Alkmaar, the Netherlands, is a welcome addition. The
investment improves the diversification and quality of the
portfolio from a construction, sustainability and income
perspective, particularly given it is a twenty year sale and
leaseback to a strong covenant.
The expectations are for volatility in markets to continue. It
is clear that the banking industry is tightening its approach to
lending, particularly on those office and retail assets that rate
poorly from a sustainability perspective. These issues, together
with broader macroeconomic and political concerns, are likely to
see further pressures on values. The Company has a number of
refinancings to manage over the course of 2023 and 2024 and the
ability to refinance, and at competitive rates, will be paramount
to how cash is utilised. Gearing levels are considered modest c.32%
(23% net of cash) and the intention, for now, is to continue to run
the Company with headroom to the maximum loan to value ('LTV') of
35%.
European leases typically provide for rents to be indexed to
inflation. The majority (80%) of the Company's income is subject to
annual indexation with the remaining 20% linked to a hurdle
(typically 10%), hence we expect nearly all the leases to directly
benefit from inflation. Across the direct portfolio, all tenants
have complied with payments in accordance with their respective
indexation clauses.
We continue to finalise the remaining items around the Paris BB
refurbishment. As at 31 March 2023, a further EUR1.5 million
remains to be paid to the contractor and the Company is owed EUR5.3
million from the purchaser and is subject to meeting certain
criteria. There remains potentially up to EUR1.3 million of pre-tax
profit still to be released in the NAV.
Sustainability considerations continue to gain momentum and are
becoming increasingly more prevalent in occupier and investor
decisions. The Investment Manager continues to review each asset
and ways to improve sustainability credentials, making the
investments more relevant to occupiers, lenders and investors and
supporting delivery of enhanced returns.
Strategy
The strategy remains focused on delivering shareholders with an
attractive level of income together with the potential for income
and capital growth through investing in commercial real estate in
Continental Europe. The Investment Manager takes an active
approach, seeking ways to improve the quality, liquidity,
sustainability and appeal of investments to both occupiers and
investors through active management and capital investment. It is
well positioned to drive income and value growth, relying heavily
on its local sector specialist teams who are recognised for their
operational excellence and hospitality mindset. They manage each
asset as a business by itself, with a tailored business plan,
engaging with local tenants to optimise long-term sustainable
income and value across the lifetime of the investment. Being
diversified has been helpful, particularly given the headwinds
facing secondary offices and select retail.
The recent Dutch industrial acquisition has increased our
industrial exposure to c.30%, a sector the Investment Manager
expects stronger growth in, whilst our retail exposure centres on
DIY and grocery, which fall into the 'essential spend' category and
are showing strong resilience. Our offices reflect c. 34% and are
in leading cities and, although not prime, have characteristics
suited to many occupiers, particularly given their urban locations,
accessibility and affordability. Pricing risk and value with
today's uncertainty is challenging. It is the intention to remain
prudent in our investment approach with a clear bias to protecting
asset values and liquidity, whilst also being mindful of
maintaining a robust balance sheet.
Financial results
The NAV total return was -4.7% over the interim period based on
an IFRS loss of EUR8.7 million. Returns were driven primarily by a
fall in valuations. All sectors are seeing re-pricing, driven
largely by higher discount rates, partially as a result of the
change in availability and cost of financing. The independent
valuers have reduced capitalisation rates between 20bp and 75bp
(weighted average c.50bp) with value declines mitigated by rental
indexation and for some assets, notably Hamburg and Stuttgart
offices, by ERV growth. Underlying EPRA earnings were EUR3.8
million for the period, (H1 22: EUR2.5 million). Earnings will
further increase with the recent acquisition in Alkmaar and
investment of capital into enhancing opportunities. The Company's
NAV as at 31 March 2023 decreased EUR11.1 million, or 6%, to
EUR177.1 million, or 132.4 euro cents per share, over the
period.
Balance sheet and debt
With current market volatility and uncertainty the retention of
a healthy balance sheet is vital. At the period end, third-party
debt totalled EUR84.7 million, representing an LTV net of cash of
23% against the overall gross asset value of the Company. This
compares to a net LTV cap of 35%. The Company has seven loans
secured by individual assets or groups of assets, with no
cross-collateralisation between loans. The average weighted total
interest rate of the loans is 2.5% per annum. The weighted average
duration of the loans is 2.3 years, with the earliest loan maturity
in 2023. All loans except Seville are in compliance with their
default covenants. The Seville loan remains in a cash trap and is
being managed under an LTV covenant waiver to facilitate a sale.
Cost of debt has increased markedly over the period with the
five-year swap increasing to c.300bp. Traditional lenders are
tightening their approach, being more selective on not only who
they lend to, LTV limits, but also around asset quality. In some
instances, we are seeing alternative lending platforms step in to
fill the void as banks scale back their appetite for risk. More
detail of the individual loans is provided in the Investment
Manager's Report. The Company has c.EUR40 million of cash and debt
capacity, which provides significant flexibility.
Dividends
The Board has elected, for this quarter, to continue with the
1.85 euro cps quarterly dividend. Total dividends declared relating
to the six months of the current financial year are now 3.7 euro
cps. The dividend cover for the interim period was c.80%. Whilst
the option to continue paying an uncovered dividend, as many of the
peer group, was strongly considered, the Investment Manager and
Board believe that the more prudent, responsible and decisive
course of action, and the one that best protects the interest of
shareholders, is to rebase the target quarterly dividend level to
1.48 euro cps commencing with our third interim dividend payable in
October 2023.
Sustainability
The Board and the Investment Manager believe that focusing on
sustainability throughout the real estate life cycle will deliver
enhanced long-term returns for shareholders as well as a positive
impact on the environment and the communities where the Company is
investing. Our research and the evidence across the portfolio
demonstrates that there is a material rental and value premium for
buildings with green certifications. There is increasing pressure
on minimum building standards not only from an EPC perspective but
data coverage (for water, gas, electricity and waste) and
ultimately carbon footprint. Demand from occupiers for space is
increasingly biased towards better quality buildings, driven not
only by legal obligations, tenant environmental aspirations but as
a means to match corporate ethos and attract talent.
Reflecting the evolving landscape, sustainability-led
initiatives will be increasingly central to the strategy. The
Manager is carrying out a comprehensive review of the
sustainability characteristics of the portfolio encompassing
building fabric, energy systems, services and utilities, climate
risk and resilience, water consumption, waste management,
biodiversity and green infrastructure, transport and mobility,
health and wellbeing, community and social integration. This
analysis will inform a baseline score across a range of
quantitative and qualitative factors against which we will measure
future improvements at an asset level to enable us to provide
transparent reporting to stakeholders.
Outlook
Confidence surrounding the European economy is improving with
recessionary fears diminishing. Expectations are for economic
growth to be modest for some time, as governments continue to
tighten economic policies to reduce inflation and preserve
financial stability. As a result, the pricing of real estate will
continue to be challenging and exacerbated by rising debt costs,
sustainability concerns and corporates post-Covid optimum
occupational intentions. Banks are becoming much more discerning on
who they lend to and the type of real estate they wish to lend on.
Their clear preference to focus on better quality assets that meet
sustainability benchmarks will continue. As a result, we anticipate
further valuation falls as investors face refinancing dilemmas,
sustainability risks and equity investors re-price their cost of
capital. We will continue to manage the portfolio in light of these
risks, ensuring a strong balance sheet and an ability to refinance
on the best available terms as and when required, and invest in the
portfolio to enhance its sustainability credentials, thereby
optimising earnings growth and asset liquidity, in order to drive
longer-term returns. With the strength of our balance sheet,
underlying assets and the growth regions that we are exposed to, we
believe that we are well placed to manage such risks.
Sir Julian Berney Bt.
Chairman
27 June 2023
Investment Manager's Report
Results
The net asset value ('NAV') as at 31 March 2023 stood at
EUR177.1 million (GBP155.9 million), or 132.4 euro cents (116.6
pence) per share, resulting in a NAV total return of -4.7% over the
six months to 31 March 2023.
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 in euro cents per
share.
% change
NAV movement EURm cps(1) per cps(2)
--------------------------------- ----- ------ -----------
Brought forward as at 1 October
2022 188.2 140.8 -
--------------------------------- ----- ------ -----------
Unrealised gain in the valuation
of the real estate portfolio (9.7) (7.3) (5.2)
--------------------------------- ----- ------ -----------
Capital expenditure (2.2) (1.6) (1.2)
--------------------------------- ----- ------ -----------
Transaction costs (1.2) (0.9) (0.6)
--------------------------------- ----- ------ -----------
Paris BB post-tax development
profit (0.0) (0.0) (0.0)
--------------------------------- ----- ------ -----------
Movement on the Seville JV
investment (0.0) (0.0) (0.0)
--------------------------------- ----- ------ -----------
EPRA earnings(3) 3.8 2.8 2.0
--------------------------------- ----- ------ -----------
Non-cash/capital items 0.7 0.5 0.3
--------------------------------- ----- ------ -----------
Dividends paid (2.5) (1.9) (1.3)
--------------------------------- ----- ------ -----------
Carried forward as at 31 March
2023 177.1 132.4 (6.0)
--------------------------------- ----- ------ -----------
1 Based on 133,734,686 shares.
2 Percentage change based on the starting NAV as at 1 October 2022.
3 EPRA earnings as reconciled on page 30 of the financial statements.
Strategy
The Company aims to provide shareholders with an attractive
level of income with the potential for long-term, sustainable
income and growth. The strategy to deliver this includes:
-- Driving income and value growth through a hospitality
approach in tenant management (understanding tenant business,
strengths and pressures) and operational excellence in all sectors
(optimising operations in the assets, minimising use of scarce
resources and waste);
-- Executing asset management initiatives to enhance the income
profile, individual asset values and sustainability
credentials;
-- Applying our integrated sustainability and ESG approach at
all stages of the investment process and asset lifecycle;
-- Applying a research-led approach to determine attractive
sectors and locations in which to invest in commercial real
estate;
-- Maintaining a strong balance sheet with a loan to value, net of cash, below 35%;
-- Managing portfolio risk in order to enhance the portfolio's defensive qualities.
The following progress has been made delivering on the
strategy:
-- The acquisition of an award winning industrial investment in
Alkmaar, the Netherlands, with excellent sustainability
credentials, including on-site renewable energy and an EPC rating
of A+. The long-term sale and leaseback not only strengthens the
portfolio's physical and sustainability qualities but also income
profile given the 20 year term, covenant strength and 5.6% net
initial yield;
-- Increased exposure to higher growth sectors, in particular
increasing the industrial allocation from 25% to 30%. Other key
allocations include 35% to offices in key cities such as Stuttgart
and Hamburg; c.20% to a Berlin DIY asset and a convenience retail
centre in Frankfurt;
-- Continuation of 100% rent collection, highlighting underlying tenant strength;
-- Successful implementation of rental indexation clauses with
no discounts. European rent reviews provide for an inflation hedge,
given annual indexation and are considered a key differential to UK
leases that are typically adjusted every five years to market;
-- Maintained a high occupancy level of 96%, with an average
portfolio lease term to break of 4.8 years;
-- Concluded eight new leases and re-gears generating EUR0.4
million of contracted rent, at a weighted lease term of three
years;
-- Improved the portfolio's sustainability credentials and
understanding, which included a BREEAM certification for the
Stuttgart office, advancement of on-site renewable energy at the
Houten industrial investment, c.80% of landlord-procured
electricity on renewable energy and improved tenant data collection
and education;
-- Issued SREIM's updated Sustainable Occupier Guide to all
tenants across France, the Netherlands and Spain, advising
occupiers on low cost initiatives to achieve reduced environmental
footprints, operating costs and enhanced user wellbeing;
-- Re-financed German office debt secured against Hamburg and
Stuttgart at a modest 85bp margin with no covenants for 5 years.
Given competitive terms, loan principal was extended from EUR14m to
EUR18m to provide additional balance sheet flexibility;
-- A prudent LTV of 32% gross of cash and 23% net of cash,
comfortably below the target of 35% net of cash;
-- We continue to monitor the Ukraine crisis and its impact on
not only the portfolio but wider market volatility. We have no
exposure to eastern Europe or Russia and we are not aware that any
of our tenants have any ownership or influence from Russia. We
continue to manage the portfolio in the best interest of our
shareholders, ensuring that all international sanctions are adhered
to. The Group's key suppliers do not have operations in Ukraine or
Russia and there is not expected to be any adverse impact from the
war on our ability to manage the operations of the Group.
Market overview
Economic outlook
The outlook for the eurozone economy is improving. The sharp
drop in wholesale gas prices has helped to slow inflation and
reduce the squeeze on household incomes and consumption. In
addition, global supply chain pressure has largely eased. As a
result, Schroders now forecasts that the eurozone will narrowly
avoid a recession and grow by 0.5%-1.0% p.a. through 2023 and 2024.
However, while headline inflation should moderate from 6.9% in
March 2023 to around 3% by December 2023, core inflation has been
increasing.
Interest rates and real estate yields
The European Central Bank (ECB) remains determined to fight
inflation and has continued to hike its policy interest rates. But
though inflation has started to decline, Schroders expects at least
one more rate hike of 25 bps. Hikes beyond that remain however a
possibility but depend on the trend in inflation and labour
markets. Either way we believe that the interest rate peak is
near.
The investment market is showing signs of stabilisation after a
sharp fall in liquidity and prices in the second half of 2022.
Although prime yields continued to rise in the first quarter of
2023, the rate of increase on a European aggregate level slowed to
0.1%, from 0.6%-1.0% in the second half of 2022.
Much of future pricing will depend on conditions in debt
markets. German five-year swap rates continue to be volatile and
have settled at c.3.0% in the first quarter. Bank margins on prime
offices and logistics levelled off at 1.50%-1.75% and remain
preferred lending credit. Banks continue to be more discerning on
LTVs, asset and counterparty quality which has not been helped by
the recent fallout from Credit Suisse's collapse. Despite investors
having become slightly more optimistic about future rental and
income growth, the outlook is muted by cost and availability of
debt. Overall, it seems, that while significant corrections have
now occurred, markets will see some further adjustment before
levelling off.
Offices
Demand for European offices has been somewhat muted in Q1 and
prime rental growth has been more limited. Business bankruptcies
have seen a small increase towards the end of last year and high
borrowing costs and the prospect of very low growth ahead are
impacting business decision-making. Overall conditions remain
robust though the market remains very polarised: vacancy rates have
seen some moderate increases in recent months, but remain very low
for high quality stock with strong ESG-credentials in highly
accessible locations as occupiers continue to seek these kind of
offices to retain and attract staff in tight labour markets and
meet their own ESG obligations. This continues to support prime
rents and while rental growth is likely to remain somewhat subdued
and more selective in the low-growth environment ahead, renewed
growth is expected towards the end of the year and into 2024,
particularly as supply of new space is forecast to peak this year.
For secondary space the situation is however becoming increasingly
dire, though space in accessible locations and leased off
affordable rents is showing some resilience.
Retail
The outlook for retail real estate remains challenging. Although
total retail sales should recover from 2024 onwards in step with
real household incomes, the growth of online retail means that
in-store sales are set to decline by 1%-2% p.a. in volume terms
through 2023-2027. Consequently, it is expected that retailer
demand will remain weak and that vacancy will only start to decline
when failing schemes are re-developed into apartments and other
uses. Prime shop and shopping centre rents are likely to fall by a
further 3-5% this year, before stabilising in 2024. The exceptions
are likely to be smaller food stores and a handful of luxury
streets in Barcelona, Milan and Paris, which stand to gain from the
revival in tourism. Big box retail parks should also be relatively
defensive, as low rents and service charges attract
discounters.
Logistics/industrial
Industrial rents in the eurozone are forecast to rise by 3-4%
p.a. through 2023-2025, driven by growing demand for warehouses.
Demand should be supported by both a cyclical recovery in consumer
spending and manufacturing and by the structural growth in online
retail as well as by firms holding more stock in order to improve
the resilience of their supply chains. On the supply side, the jump
in both building costs and interest rates should restrict
speculative development and prevent an over-supply. Multi-let
estates in urban areas and warehouses on major transport routes
will likely see stronger rental growth than units in less
accessible locations. At the same time, there is a strong demand
for modern space that is not only fit for higher levels of
automation, but also has strong ESG-credentials.
Real estate portfolio
The Company owns a portfolio of 15 institutional grade
properties valued at EUR220.2 million1. The portfolio is 96% let
and located across Winning Cities and Regions in France, Germany
and the Netherlands. In addition, the Company has a 50% interest in
a joint venture in Seville, Spain which continues to be recognised
at nil interest and which is therefore excluded in all relevant
statistics in the Chairman's Statement and the Investment Manager's
Report.
The table below shows the top ten properties:
Rank Property Country Sector EURm(1) % of total(1)
----- ------------------- ----------- -------------- ------- -------------
1 Paris (Saint-Cloud) France Office 39.1 16%
----- ------------------- ----------- -------------- ------- -------------
2 Berlin Germany Retail/DIY 30.1 12%
----- ------------------- ----------- -------------- ------- -------------
3 Hamburg Germany Office 23.5 10%
----- ------------------- ----------- -------------- ------- -------------
4 Stuttgart Germany Office 20.6 8%
----- ------------------- ----------- -------------- ------- -------------
5 Rennes France Industrial 19.7 8%
----- ------------------- ----------- -------------- ------- -------------
6 Apeldoorn Netherlands Mixed 16.0 7%
----- ------------------- ----------- -------------- ------- -------------
7 Alkmaar Netherlands Industrial 11.5 5%
----- ------------------- ----------- -------------- ------- -------------
8 Venray Netherlands Industrial 11.2 5%
----- ------------------- ----------- -------------- ------- -------------
9 Frankfurt Germany Retail/Grocery 11.0 5%
----- ------------------- ----------- -------------- ------- -------------
10 Rumilly France Industrial 10.0 4%
----- ------------------- ----------- -------------- ------- -------------
Total top ten properties 192.7 80%
-------------------------- ----------- -------------- ------- -------------
Remaining five
11-15 properties 27.5 11%
----- ------------------- ----------- -------------- ------- -------------
Real estate portfolio
value 220.2 91%
-------------------------- ----------- -------------- ------- -------------
Available cash(2) 23.0 9%
----- ------------------- ----------- -------------- ------- -------------
Total portfolio value 243.2 100%
-------------------------- ----------- -------------- ------- -------------
1 Excludes the Seville property for which the NAV exposure is nil.
2 Internally calculated.
The lease expiry chart features the portfolio's top ten tenants
individually.
The top ten tenants have paid 100% of their rent over the
six-month period. The portfolio generates EUR16.5 million p.a. in
contracted income. The average unexpired lease term is 4.8 years to
first break and 5.2 years to expiry.
The lease expiry profile to earliest break is shown above. 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 the income profile and NAV total return.
Transactions
The Company has approximately EUR40 million of investment
capacity (including debt) to redeploy into new investments or
value-enhancing initiatives. The strategy is to maintain a strong
balance sheet, refinance on the best available terms and enhance
the sustainability of the income. We continue to selectively review
investment opportunities to further enhance the portfolio's
diversification and exposure to growth sectors, cities and regions.
Given the risks facing markets, including ESG and structural
headwinds, particularly to offices and retail, we are continuing to
be prudent and patient in our investment approach.
During the period, the Company completed an industrial
acquisition in Alkmaar, the Netherlands. The architectural award
winning, freehold industrial warehouse was acquired for
approximately EUR11.2 million, equating to EUR1,250 per sqm and a
net initial yield of 5.6%. The weighted unexpired lease term was
approximately 20 years to term and 15 years to break. The
investment was a rare opportunity to acquire a highly sustainable
asset with a strong and visible income profile that enhances the
Company's sector weighting, average unexpired lease term and credit
strength. We continue to manage the Seville investment, seeking to
stabilise occupancy with a view to a disposal.
Portfolio performance
During the period, total property returns for the underlying
property portfolio were negative at -2.3%, despite healthy property
income returns of +3.2%. This was due to negative property capital
returns of -5.3% net of capex as real estate values decreased over
the six months, primarily driven by a c.50 basis points outward
yield movement, which more than offset the positive impact of
rental growth increasing the portfolio net initial yield to
6.2%.
Property returns over the last 12 months are -0.4% and 7.4% p.a.
over the last three years.
Finance
The Company completed the early refinancing of its largest debt
expiry in 2023, a loan secured against its Hamburg and Stuttgart
office investments. The Company has elected to extend the previous
EUR14 million facility by a further EUR4 million, obtaining
competitive financing for the new EUR18 million loan with VR Bank
Westerwald at a total interest cost of 3.8% being the five-year
euro swap rate at the time of signing (2.95%) plus a 0.85%
margin.
With this new facility, the Company's third party debt totals
EUR84.7 million across seven loan facilities as at 31 March 2023.
This represents a loan to value ('LTV') net of cash of 23% against
the Company's gross asset value (gross of cash LTV is 32%). There
is a net of cash LTV cap of 35% that restricts concluding new
external loans if the Company's net LTV is above 35%. An increase
in leverage above 35% as a result of valuation decline is excluded
from this cap. The current blended all-in interest rate is 2.5% and
the average remaining loan term is 2.3 years.
A loan facility of EUR3.7 million secured against the Rumilly
asset has since expired in April 2023 and was repaid post reporting
end with the additional debt raised from the new Hamburg/Stuttgart
loan.
The Company is in discussions with lenders regarding its other
two debt expiries which occur within the next twelve months and is
confident in its ability to refinance these loans at similar LTVs,
albeit current swap rates would result in the overall cost of debt
increasing.
The individual loans are detailed in the table below. Each loan
is held at the property-owning level instead of the group level and
is secured by the individual properties noted in the table. There
is no cross-collateralisation between loans. Each loan has specific
LTV and income default covenants. We detail the headroom against
those covenants in the latter two columns of the table below.
Headroom Headroom
LTV default net income
Maturity Outstanding Interest covenant default covenant
Lender Property date principal rate (% decline) (% decline)
------------------- -------------------- ----------- ----------- ------------- --------------- -----------------
BRED Banque
Populaire Paris (Saint-Cloud) 15/12/2024 EUR17.00m 3M Eur +1.34% 28% 20%
------------------- -------------------- ----------- ----------- ------------- --------------- -----------------
VR Bank Westerwald Stuttgart/Hamburg 30/12/2027 EUR18.00m 3.80% no covenant no covenant
------------------- -------------------- ----------- ----------- ------------- --------------- -----------------
Deutsche
Pfandbriefbank
AG Berlin/Frankfurt 30/06/2026 EUR16.50m 1.31% 35% 44%
------------------- -------------------- ----------- ----------- ------------- --------------- -----------------
Münchener
Hypothekenbank
eG Seville (50%)(1) 22/05/2024 EUR11.68m 1.76% In breach(2) In cash trap
------------------- -------------------- ----------- ----------- ------------- --------------- -----------------
Netherlands
HSBC Bank Plc industrials(3) 27/09/2023 EUR9.25m 3M Eur +2.15% 36% 52%
------------------- -------------------- ----------- ----------- ------------- --------------- -----------------
Landesbank SAAR Rennes 28/03/2024 EUR8.60m 3M Eur +1.40% 32% 55%
------------------- -------------------- ----------- ----------- ------------- --------------- -----------------
Landesbank SAAR Rumilly 30/04/2023 EUR3.70m(4) 3M Eur +1.30% not relevant(5) not relevant(5)
------------------- -------------------- ----------- ----------- ------------- --------------- -----------------
Total EUR84.73m
------------------------------------------------------ ----------- ------------- --------------- -----------------
1 Includes the Company's 50% share of external debt in the
Seville joint venture of EUR11.7 million and excludes unamortised
finance costs.
2 Temporary waiver for breach of LTV covenant in Seville agreed with the lender.
3 The HSBC loan is secured against four Netherlands industrial
assets: Venray, Houten, Utrecht and Venray II.
4 Rumilly loan with Landesbank SAAR was repaid in full post period end.
5 Sufficient headroom to current covenant. Covenant no longer
relevant as loan was repaid in Q2 2023.
At Seville, a reduction in rental income has resulted in a
requirement under the loan to retain all excess income generated by
the Seville property in the property-owning special purpose
vehicle. The Seville loan is being managed under an LTV covenant
waiver to facilitate a sale. The loan is secured solely against the
Seville investment, with no recourse back to the Company or any
other entity within the Group.
The German and Spanish loans are fixed rate for the duration of
the loan term. The French and Dutch loans are based on a margin
above three-month Euribor.
The Company has acquired interest rate caps to limit future
potential interest costs if Euribor were to increase. The combined
fair value of the derivative contracts is EUR1.0 million as at 31
March 2023. The strike rates on the interest rate caps are between
0.25% p.a. and 1.25% p.a.
Details of individual interest derivative contracts were as
follows:
-- Saint-Cloud loan with BRED Banque Populaire: two caps
totalling the full EUR17.0m of the loan which expire on 15 December
2024 with a strike rate of 1.25%;
-- Dutch industrials loan with HSBC: a cap totalling the full
EUR9.25m of the loan which expires on 28 September 2023 with a
strike rate of 1%;
-- Rennes loan with Landesbank SAAR: a cap totalling the full
EUR8.60m of the loan which expires on 27 March 2024 with a strike
rate of 1%; and
-- Rumilly loan with Landesbank SAAR: a cap totalling the full
EUR3.70m of the loan which expired on 28 April 2023 with a strike
rate of 0.25%. The associated Rumilly loan was fully repaid in
April 2023.
Outlook
We continue to operate in an environment where the pricing of
risk, value and liquidity is challenging. All sectors are seeing
re-pricing, driven largely by higher discount rates, primarily as a
result of the change in the availability and cost of debt. In
addition, office occupiers are still adjusting to hybrid working
following the pandemic, although we are seeing good demand for
better quality offices which are well specified in terms of energy
efficiency, break-out areas and connectivity and are in city
centres with good amenities and public transport. We anticipate
that values will continue to decline in the short term until
investors are confident that inflation has peaked and interest
rates have settled at a new, higher equilibrium. Assets in fringe
markets and for secondary assets are likely to take the biggest
hit. However, the repricing which has already occurred is creating
some attractive investment opportunities and we anticipate a
broader buying opportunity as the year progresses.
The immediate focus is on maintaining a strong and healthy
balance sheet, de-risking upcoming re-financings and actively
managing the investments with an increasing operational mindset
that makes the assets more relevant in this changing
environment.
Jeff O'Dwyer
Fund Manager
Schroder Real Estate Investment Management Limited
27 June 2023
Principal risks and uncertainties
The principal risks and uncertainties with the Company's
business relate to the following risk categories: investment policy
and strategy; implementation of investment strategy, economic and
property market; custody; gearing and leverage; accounting, legal
and regulatory (including tax); valuation; service provider; and
health and safety. A detailed explanation of the risks and
uncertainties in each of these categories can be found on pages 30
to 32 of the Company's published Annual Report and Consolidated
Financial Statements for the year ended 30 September 2022.
The Board continues to be mindful of the Ukraine war and the
economic ramifications (particularly inflation and corresponding
interest rate increases), the structural changes concerning the
Covid-19 pandemic, sustainability and occupier preferences which
could affect the use and prospects of some real estate sectors. The
Company does not have any exposure to Russia, and is not aware of
any such exposure through its tenants or suppliers. There has been
no identifiable impact on the Company's operations to date. The
Board keeps these matters under review, particularly in connection
with its decisions to re-deploy investable cash.
The Company's portfolio remains resilient, as evidenced by rent
collection levels over the half year. Covenant, interest rates,
cost of debt and expiry profiles continue to be actively managed as
part of cash flow forecasting and liquidity management. Good
progress is also being made to reinvest the remaining proceeds of
the Paris BB forward sale, with a view to further diversifying the
Company's portfolio by both number of assets and tenants, as well
as increasing its allocation to the high growth industrial
sector.
Other than as outlined above, the principal risks and
uncertainties have not materially changed during the six months
ended 31 March 2023.
Going concern
The Board believes it is appropriate to adopt the going concern
basis in preparing the financial statements. A comprehensive going
concern statement setting out the reasons the Board considers this
to be the case is set out in note 1 on page 22.
Related party transactions
There have been no transactions with related parties that have
materially affected the financial position or the performance of
the Company during the six months ended 31 March 2023. Related
party transactions are disclosed in note 13 of the condensed
consolidated interim financial statements.
Statement of Directors' responsibilities
The Directors confirm that to the best of their knowledge:
-- The half year report and condensed consolidated interim
financial statements have been prepared in accordance with the UK
adopted International Accounting Standard IAS 34 Interim Financial
Reporting; and
-- The Interim Management Report includes a fair review of the
information required by 4.2.7R and 4.2.8R of the Financial Conduct
Authority's Disclosure Guidance and Transparency Rules.
Sir Julian Berney Bt.
Chairman
27 June 2023
Condensed Consolidated Interim Statement of Comprehensive
Income
For the period ended 31 March 2023
Six months Six months
to to Year to
31 March 31 March 30 September
2023 2022 2022
EUR000 EUR000 EUR000
Notes (unaudited) (unaudited) (audited)
-------------------------------------------- ----- ------------ ------------ -------------
Rental and service charge income 2 9,490 9,174 18,153
-------------------------------------------- ----- ------------ ------------ -------------
Property operating expenses (2,613) (3,396) (5,516)
-------------------------------------------- ----- ------------ ------------ -------------
Net rental and related income 6,877 5,778 12,637
-------------------------------------------- ----- ------------ ------------ -------------
Net (loss)/gain from fair value adjustment
on investment property 3 (12,958) 7,853 6,351
-------------------------------------------- ----- ------------ ------------ -------------
Development revenue 4 63 9,744 17,942
-------------------------------------------- ----- ------------ ------------ -------------
Development expense 4 (63) (7,905) (15,436)
-------------------------------------------- ----- ------------ ------------ -------------
Realised gain/(loss) on foreign exchange (16) (3) 77
-------------------------------------------- ----- ------------ ------------ -------------
Net change in fair value of financial
instruments at fair value through profit
or loss 9 107 235 921
-------------------------------------------- ----- ------------ ------------ -------------
Provision of loan made to Seville joint
venture 5 - (221) (444)
-------------------------------------------- ----- ------------ ------------ -------------
Expenses
-------------------------------------------- ----- ------------ ------------ -------------
Investment management fee 13 (1,028) (1,137) (2,198)
-------------------------------------------- ----- ------------ ------------ -------------
Valuers' and other professional fees (378) (515) (981)
-------------------------------------------- ----- ------------ ------------ -------------
Administrator's and accounting fees (211) (210) (453)
-------------------------------------------- ----- ------------ ------------ -------------
Auditors' remuneration (201) (189) (333)
-------------------------------------------- ----- ------------ ------------ -------------
Directors' fees 13 (123) (108) (217)
-------------------------------------------- ----- ------------ ------------ -------------
Other expenses (226) (251) (613)
-------------------------------------------- ----- ------------ ------------ -------------
Total expenses (2,167) (2,410) (4,795)
-------------------------------------------- ----- ------------ ------------ -------------
Operating profit (8,157) 13,071 17,253
-------------------------------------------- ----- ------------ ------------ -------------
Finance income 37 224 451
-------------------------------------------- ----- ------------ ------------ -------------
Finance costs (809) (562) (1,128)
-------------------------------------------- ----- ------------ ------------ -------------
Net finance costs (772) (338) (677)
-------------------------------------------- ----- ------------ ------------ -------------
Share of loss of joint venture 6 - - -
-------------------------------------------- ----- ------------ ------------ -------------
(Loss)/profit before taxation (8,929) 12,733 16,576
-------------------------------------------- ----- ------------ ------------ -------------
Taxation 7 266 (1,842) (2,585)
-------------------------------------------- ----- ------------ ------------ -------------
Profit/(loss) for the period/year (8,663) 10,891 13,991
-------------------------------------------- ----- ------------ ------------ -------------
Other comprehensive income/(expense):
-------------------------------------------- ----- ------------ ------------ -------------
Other comprehensive (loss)/income items
that may be reclassified to profit or
loss:
-------------------------------------------- ----- ------------ ------------ -------------
Currency translation differences - 2 (73)
-------------------------------------------- ----- ------------ ------------ -------------
Total other comprehensive (expense)/income - 2 (73)
-------------------------------------------- ----- ------------ ------------ -------------
Total comprehensive (expense)/income
for the period/year (8,663) 10,893 13,918
-------------------------------------------- ----- ------------ ------------ -------------
Basic and diluted (loss)/earnings per
share attributable to owners of the parent 8 (6.5c) 8.1c 10.4c
-------------------------------------------- ----- ------------ ------------ -------------
All items in the above statement are derived from continuing
operations. The accompanying notes 1 to 16 form an integral part of
the condensed consolidated interim financial statements.
Condensed Consolidated Interim Statement of Financial
Position
As at 31 March 2023
Six months Six months
to to Year to
31 March 31 March 30 September
2023 2022 2022
EUR000 EUR000 EUR000
Notes (unaudited) (unaudited) (audited)
-------------------------------------- ----- ------------ ------------ -------------
Assets
-------------------------------------- ----- ------------ ------------ -------------
Non-current assets
-------------------------------------- ----- ------------ ------------ -------------
Investment property 3 219,011 209,591 217,456
-------------------------------------- ----- ------------ ------------ -------------
Investment in joint venture 6 - - -
-------------------------------------- ----- ------------ ------------ -------------
Non-current assets 219,011 209,591 217,456
-------------------------------------- ----- ------------ ------------ -------------
Current assets
-------------------------------------- ----- ------------ ------------ -------------
Trade and other receivables 7,822 18,037 16,680
-------------------------------------- ----- ------------ ------------ -------------
Interest rate derivative contracts 9 1,041 248 934
-------------------------------------- ----- ------------ ------------ -------------
Cash and cash equivalents 32,985 52,458 34,324
-------------------------------------- ----- ------------ ------------ -------------
Current assets 41,848 70,743 51,938
-------------------------------------- ----- ------------ ------------ -------------
Total assets 260,859 280,334 269,394
-------------------------------------- ----- ------------ ------------ -------------
Equity
-------------------------------------- ----- ------------ ------------ -------------
Share capital 10 17,966 17,966 17,966
-------------------------------------- ----- ------------ ------------ -------------
Share premium 10 43,005 43,005 43,005
-------------------------------------- ----- ------------ ------------ -------------
Retained earnings (475) 21,468 10,662
-------------------------------------- ----- ------------ ------------ -------------
Other reserves 116,610 116,685 116,610
-------------------------------------- ----- ------------ ------------ -------------
Total equity 177,106 199,124 188,243
-------------------------------------- ----- ------------ ------------ -------------
Liabilities
-------------------------------------- ----- ------------ ------------ -------------
Non-current liabilities
-------------------------------------- ----- ------------ ------------ -------------
Interest-bearing loans and borrowings 9 51,283 68,657 41,794
-------------------------------------- ----- ------------ ------------ -------------
Deferred tax liability 7 4,691 4,915 5,124
-------------------------------------- ----- ------------ ------------ -------------
Non-current liabilities 55,974 73,572 46,918
-------------------------------------- ----- ------------ ------------ -------------
Current liabilities
-------------------------------------- ----- ------------ ------------ -------------
Interest-bearing loans and borrowings 21,550 - 26,950
-------------------------------------- ----- ------------ ------------ -------------
Trade and other payables 5,462 6,809 5,857
-------------------------------------- ----- ------------ ------------ -------------
Current tax liabilities 7 767 829 1,426
-------------------------------------- ----- ------------ ------------ -------------
Current liabilities 27,779 7,638 34,233
-------------------------------------- ----- ------------ ------------ -------------
Total liabilities 83,753 81,210 81,151
-------------------------------------- ----- ------------ ------------ -------------
Total equity and liabilities 11 260,859 280,334 269,394
-------------------------------------- ----- ------------ ------------ -------------
Net asset value per ordinary share 132.4c 148.8c 140.8c
-------------------------------------- ----- ------------ ------------ -------------
The condensed consolidated interim financial statements on pages
18-29 were approved at a meeting of the Board of Directors held on
27 June 2023 and signed on its behalf by:
Sir Julian Berney Bt.
Chairman
The accompanying notes 1 to 16 form an integral part of the
condensed consolidated interim financial statements.
Company number: 09382477
Registered office: 1 London Wall Place, London EC2Y 5AU
Condensed Consolidated Interim Statement of Changes in
Equity
For the period ended 31 March 2023
Share Share Retained Other Total
capital premium earnings reserves equity
Notes EUR000 EUR000 EUR000 EUR000 EUR000
------------------------------------- ----- -------- -------- --------- --------- -------
Balance as at 1 October
2022 17,966 43,005 10,662 116,610 188,243
------------------------------------- ----- -------- -------- --------- --------- -------
(Loss)/profit for the period - - (8,663) - (8,663)
------------------------------------- ----- -------- -------- --------- --------- -------
Other comprehensive (expense)/income - - - - -
for the period
------------------------------------- ----- -------- -------- --------- --------- -------
Dividends paid 12 - - (2,474) - (2,474)
------------------------------------- ----- -------- -------- --------- --------- -------
Balance as at 31 March 2023
(unaudited) 17,966 43,005 (475) 116,610 177,106
------------------------------------- ----- -------- -------- --------- --------- -------
Share Share Retained Other Total
capital premium earnings reserves equity
Notes EUR000 EUR000 EUR000 EUR000 EUR000
--------------------------- ----- -------- -------- --------- --------- --------
Balance as at 1 October
2021 17,966 43,005 21,878 116,683 199,532
--------------------------- ----- -------- -------- --------- --------- --------
Profit for the year - - 13,991 - 13,991
--------------------------- ----- -------- -------- --------- --------- --------
Other comprehensive income
for the year - - - (73) (73)
--------------------------- ----- -------- -------- --------- --------- --------
Dividends paid 12 - - (25,207) - (25,207)
--------------------------- ----- -------- -------- --------- --------- --------
Balance as at 30 September
2022 (audited) 17,966 43,005 10,662 116,610 188,243
--------------------------- ----- -------- -------- --------- --------- --------
Share Share Retained Other Total
capital premium earnings reserves equity
Notes EUR000 EUR000 EUR000 EUR000 EUR000
--------------------------- ----- -------- -------- --------- --------- --------
Balance as at 1 October
2021 17,966 43,005 21,878 116,683 199,532
--------------------------- ----- -------- -------- --------- --------- --------
Profit for the period - - 10,891 - 10,891
--------------------------- ----- -------- -------- --------- --------- --------
Other comprehensive income
for the period - - - 2 2
--------------------------- ----- -------- -------- --------- --------- --------
Dividends paid 12 - - (11,301) - (11,301)
--------------------------- ----- -------- -------- --------- --------- --------
Balance as at 31 March
2022 (unaudited) 17,966 43,005 21,468 116,685 199,124
--------------------------- ----- -------- -------- --------- --------- --------
The accompanying notes 1 to 16 form an integral part of the
condensed consolidated interim financial statements.
Condensed Consolidated Interim Statement of Cash Flows
For the period ended 31 March 2023
Six months Six months
to to Year to
31 March 31 March 30 September
2023 2022 2022
EUR000 EUR000 EUR000
Notes (unaudited) (unaudited) (audited)
--------------------------------------------- ----- ------------- ------------- --------------
Operating activities
--------------------------------------------- ----- ------------- ------------- --------------
(Loss)/Profit before tax for the period/year (8,929) 12,733 16,576
--------------------------------------------- ----- ------------- ------------- --------------
Adjustments for:
--------------------------------------------- ----- ------------- ------------- --------------
Net gain from fair value adjustment
on investment property 3 12,958 (7,853) (6,351)
--------------------------------------------- ----- ------------- ------------- --------------
Share of loss of joint venture 6 - - -
--------------------------------------------- ----- ------------- ------------- --------------
Realised foreign exchange loss 16 3 (77)
--------------------------------------------- ----- ------------- ------------- --------------
Finance income (37) (224) (451)
--------------------------------------------- ----- ------------- ------------- --------------
Finance costs 809 562 1,128
--------------------------------------------- ----- ------------- ------------- --------------
Net change in fair value of financial
instruments at fair value through profit
or loss 9 (107) (235) (921)
--------------------------------------------- ----- ------------- ------------- --------------
Provision of loan made to Seville joint
venture 5 - 221 444
--------------------------------------------- ------------- ------------- --------------
Operating cash generated before changes
in working capital 4,710 5,207 10,348
--------------------------------------------- ----- ------------- ------------- --------------
Increase/(decrease) in trade and other
receivables 8,774 (236) 958
--------------------------------------------- ----- ------------- ------------- --------------
(Decrease)/Increase in trade and other
payables (574) 1,353 324
--------------------------------------------- ----- ------------- ------------- --------------
Cash generated from/(used in) operations 12,910 6,324 11,630
--------------------------------------------- ----- ------------- ------------- --------------
Finance costs paid (734) (492) (897)
--------------------------------------------- ----- ------------- ------------- --------------
Finance income received 36 3 8
--------------------------------------------- ----- ------------- ------------- --------------
Tax paid 7 (826) (532) (469)
--------------------------------------------- ----- ------------- ------------- --------------
Net cash generated from/(used in) operating
activities 11,386 5,303 10,272
--------------------------------------------- ----- ------------- ------------- --------------
Investing activities
--------------------------------------------- ----- ------------- ------------- --------------
Proceeds from sale of investment property - 16,900 16,900
--------------------------------------------- ----- ------------- ------------- --------------
Acquisitions of investment property 3 (12,310) (1,741) (10,824)
--------------------------------------------- ----- ------------- ------------- --------------
Additions to investment property 3 (1,926) (579) (698)
--------------------------------------------- ----- ------------- ------------- --------------
Investment in joint venture 6 - - -
--------------------------------------------- ----- ------------- ------------- --------------
Net cash generated(used in)/from investing
activities (14,236) 14,580 5,378
--------------------------------------------- ----- ------------- ------------- --------------
Financing activities
--------------------------------------------- ----- ------------- ------------- --------------
Proceeds from borrowings 18,000 - -
--------------------------------------------- ----- ------------- ------------- --------------
Repayment of loan facility (14,000) (1,840) (1,840)
--------------------------------------------- ----- ------------- ------------- --------------
Dividends paid 12 (2,474) (11,301) (25,207)
--------------------------------------------- ----- ------------- ------------- --------------
Net cash provided by/(used in) financing
activities 1,526 (13,141) (27,047)
--------------------------------------------- ----- ------------- ------------- --------------
Net (decrease)/increase in cash and
cash equivalents for the period/year (1,324) 6,742 (11,397)
--------------------------------------------- ----- ------------- ------------- --------------
Opening cash and cash equivalents 34,324 45,717 45,717
--------------------------------------------- ----- ------------- ------------- --------------
Effects of exchange rate change on
cash (15) (1) 4
--------------------------------------------- ----- ------------- ------------- --------------
Closing cash and cash equivalents 32,985 52,458 34,324
--------------------------------------------- ----- ------------- ------------- --------------
The accompanying notes 1 to 16 form an integral part of the
condensed consolidated interim financial statements.
Notes to the Financial Statements
1. Significant accounting policies
The Company is a closed-ended investment company incorporated in
England and Wales. The condensed consolidated interim financial
statements of the Company for the period ended 31 March 2023
comprise those of the Company and its subsidiaries (together
referred to as the 'Group'). The shares of the Company are listed
on the London Stock Exchange (Primary listing) and the Johannesburg
Stock Exchange (Secondary listing). The registered office of the
Company is 1 London Wall Place, London, EC2Y 5AU.
These condensed consolidated interim financial statements do not
comprise statutory accounts within the meaning of section 434 of
the Companies Act 2006. Statutory accounts for the year ended 30
September 2022 were approved by the Board of Directors on 5
December 2022 and were delivered to the Registrar of Companies. The
report of the auditors on those accounts was unqualified, did not
contain an emphasis of matter paragraph and did not contain any
statement under section 498 of the Companies Act 2006.
These condensed consolidated interim financial statements have
been reviewed and not audited.
Statement of compliance
The condensed consolidated interim financial statements have
been prepared in accordance with UK adopted International
Accounting Standard 34, 'Interim Financial Reporting' and the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority. They do not include all of
the information required for the full annual financial statements
and should be read in conjunction with the consolidated financial
statements of the Group as at and for the year ended 30 September
2022. The condensed consolidated interim financial statements have
been prepared on the basis of the accounting policies set out in
the Group's consolidated financial statements for the year ended 30
September 2022. The consolidated financial statements for the year
ended 30 September 2022 have been prepared in accordance with
International Accounting Standards in conformity with the Companies
Act 2006.The Group's annual financial statements refer to new
Standards and Interpretations, none of which had a material impact
on the financial statements.
Basis of preparation
The condensed consolidated interim financial statements are
presented in euros rounded to the nearest thousand. They are
prepared on a going concern basis, applying the historical cost
convention, except for the measurement of investment property and
derivative financial instruments that have been measured at fair
value. The accounting policies have been consistently applied to
the results, assets, liabilities and cash flow of the entities
included in the condensed consolidated interim financial statements
and are consistent with those of the year-end financial report.
Going concern
The Directors have examined significant areas of possible
financial risk including: the non-collection of rent and service
charges; potential falls in property valuations; the existing and
future expected cash requirements of the Group; the ability to
refinance certain third-party loans; the refurbishment of Paris, BB
and the receipt of further future funds from the purchaser and
forward-looking compliance with third-party debt covenants, in
particular the loan to value covenant and interest cover
ratios.
Furthermore, the potential ramifications of Covid-19, the war in
Ukraine and macroeconomic variables such as rising interest rates
and inflation have also been considered regarding the Group's
investments in France, Germany, Spain and the Netherlands.
Cash flow forecasts based on plausible downside scenarios have
led the Board to conclude that the Group will have sufficient cash
reserves to continue in operation for the foreseeable future.
The Group has seven loans secured by individual assets, with no
cross-collateralisation. All loans are in compliance with their
default covenants, though there is a cash trap in operation for the
Seville loan. More detail of the individual loans, and headroom on
the loan to value and net income default covenants, is provided in
the Investment Manager's Report on page 13. Excluding the Seville
loan, for which the Group's equity in the associated joint venture
has been written down to a nil value, three loans totalling
EUR21.55 million fall due between the 31 March 2023 period end and
twelve months post the signing of the half year report. The Group
has since repaid the Rumilly loan for EUR3.70m in April 2023; good
progress is being made with the refinancing of the EUR9.25m Dutch
industrials loan which matures in September 2023; and there are no
immediate concerns with regard to the Group's future ability to
refinance the EUR8.60m Rennes loan which matures in March 2024.
Furthermore, the Group has sufficient cash or liquid assets to
repay these loans in a downside scenario of refinancing not being
achieved.
After due consideration, 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 12 months from the date of the approval of the condensed
consolidated interim financial statements. The Directors have
satisfied themselves that the Group has adequate resources to
continue in operational existence for the foreseeable future.
Use of estimates and judgements
The preparation of financial statements 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. The use of estimates and
judgements is consistent with the Group's consolidated financial
statements for the year ended 30 September 2022. 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 3 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 an external professional valuer to determine the
relevant amounts.
The following are key areas of judgement:
-- Accounting for development revenue and variable consideration
regarding Paris, BB: When estimating an appropriate level of
development revenue to be recognised in the reporting period, the
Group considered the contractual penalties of not meeting certain
criteria within the agreement; the total development costs
incurred; the stage of completion of the refurbishment; the
milestones achieved and still to be achieved; the timing of further
future cash receipts from the purchaser; and the overall general
development risk to form a considered judgement of revenue to be
appropriately recognised in the financial statements. Further
details of the estimated variable consideration are disclosed in
note 4.
-- Tax provisioning and disclosure: Management uses external tax
advisers to monitor changes in tax laws in countries where the
Group has operations. New tax laws that have been substantively
enacted are recognised in the Group's financial statements. Where
changes to tax laws give rise to a contingent liability, the Group
discloses these appropriately within the notes to the financial
statements (further details are disclosed in note 7).
-- IFRS 9 expected credit losses: IFRS 9 requires an impairment
review to be made for certain financial assets held on the Group
balance sheet using a forward-looking expected credit loss model.
All receivables and joint venture loans are considered to be such
financial assets and must therefore be assessed at each reporting
period for potential impairment. Where any impairment is required
to be made, appropriate recognition is required in the consolidated
statement of comprehensive income, together with appropriate
disclosure and sensitivity analysis in the notes to the financial
statements (further details are disclosed in note 3). The Seville
joint venture loan has been calculated on the lifetime expected
credit loss method. The following factors were considered when
determining the probability of default used for the impairment
provision calculation for the Seville joint venture loan: the
property valuation and future potential movements; the outstanding
debt principal, together with the ongoing LTV breach and cash trap
position of the loan; cash flow forecasts; tenants' trading
positions and the existing ability to let vacant space, and the
market liquidity for such an asset. An evaluation of these factors
has allowed management to make a judgement on the probability of
default which is considered to be the key input for the impairment
calculation.
Segmental reporting
The Directors are of the opinion that the Group is engaged in a
single segment of business, being property investment, and in one
geographical area, Continental Europe. The chief operating
decision-maker is considered to be the Board of Directors who are
provided with consolidated IFRS information on a quarterly
basis.
Financial risk factors
The main risks arising from the Group's financial instruments
and investment properties are: market price risk, currency risk,
credit risk, liquidity risk and interest rate risk. The Board
regularly reviews and agrees policies for managing each of these
risks.
Credit risk
The Directors have assessed the loan to the Seville joint
venture for any expected credit loss under IFRS 9 and,
consequently, a full impairment has been previously recognised and
continues to be maintained.
Cash balances are maintained with major international financial
institutions with strong credit ratings and the creditworthiness of
the Group's tenants is monitored on an ongoing basis.
Market risk
The market values for properties are generally affected by
overall conditions in local economies, such as changes in gross
domestic product, employment trends, inflation and changes in
interest rates. The Directors monitor the market value of
investment properties by having independent valuations carried out
quarterly by a firm of independent chartered surveyors. The
sensitivity of the market value of the investment properties to
changes in the equivalent yield is also disclosed in note 3 of the
financial statements.
At the date of signing this report, the conflict in Ukraine
continues to have an ongoing societal and economic impact. The
Group does not have any direct exposure to Russia nor Ukraine, but
continues to monitor the situation closely.
The Group's rental collection, excluding its JV in Seville and
the investment of which has previously been written down to nil,
has continued to remain very robust with a one hundred per cent
rent collection in the period.
Environmental, Social and Governance factors
The Group has incorporated Environmental, Social and Governance
('ESG') objectives into its core investment strategy and at every
stage of the investment process. It has clearly defined its social
and environmental targets into distinct categories, for which each
has clear and measurable impact objectives. The Group continues to
monitor individual assets and their conformity with sustainability
requirements. The Group continues to review potential initiatives
where sustainability credentials can be enhanced, ratings improved,
value can be created and the liquidity of investments be
improved.
2. Rental and service charge income
Year to
Six months Six months
to 31 March to 31 March 30 September
2023 2022 2022
EUR000 EUR000 EUR000
(unaudited) (unaudited) (audited)
---------------------- ------------- ------------- --------------
Rental income 7,454 6,968 14,528
---------------------- ------------- ------------- --------------
Service charge income 2,036 2,206 3,625
---------------------- ------------- ------------- --------------
Total 9,490 9,174 18,153
---------------------- ------------- ------------- --------------
3. Investment property
Freehold
EUR000
--------------------------------------------- --------
Fair value at 30 September 2021 (audited) 199,727
--------------------------------------------- --------
Acquisitions and acquisition costs 10,865
--------------------------------------------- --------
Additions 513
--------------------------------------------- --------
Net valuation gain on investment property 6,351
--------------------------------------------- --------
Fair value as at 30 September 2022 (audited) 217,456
--------------------------------------------- --------
Acquisitions and acquisition costs 12,310
--------------------------------------------- --------
Additions 2,203
--------------------------------------------- --------
Net valuation loss on investment property (12,958)
--------------------------------------------- --------
Fair value as at 31 March 2023 (unaudited) 219,011
--------------------------------------------- --------
The fair value of investment properties, as determined by the
valuer, totals EUR220,160,000 (30 September 2022: EUR218,700,000)
with the valuation amount relating to a 100% ownership share for
all the assets in the portfolio.
None of this amount is attributable to trade or other
receivables in connection with lease incentives. The fair value of
investment properties per the condensed consolidated interim
financial statements of EUR219,011,000 includes a tenant incentive
adjustment of EUR1,149,000 (30 September 2022: EUR1,244,000).
On 16 March 2023, the Group acquired, via a sale and leaseback,
a freehold industrial warehouse in Alkmaar, the Netherlands, for a
purchase price of
EUR11.2 million.
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 valuations have been
undertaken in accordance with the current edition of the RICS
Valuation - Global Standards, which incorporate the International
Valuation Standards. References to the 'Red Book' refer to either
or both of these documents, as applicable.
The properties have been valued on the basis of 'fair value' in
accordance with the RICS Valuation - Professional Standards VPS4
(1.5) Fair Value and VPGA1 Valuations for inclusion in financial
statements which adopt the definition of fair value used by the
International Accounting Standards Board.
The valuation has been undertaken using appropriate valuation
methodology and the valuer's professional judgement. The valuer's
opinion of fair value
was primarily derived using recent comparable market
transactions on arm's length terms, where available, and
appropriate valuation techniques
(the 'Investment Method').
The properties have been valued individually and not as part of
a portfolio.
All investment properties are categorised as Level 3 fair values
as they use significant unobservable inputs. There have not been
any transfers between levels during the period. Investment
properties have been classed according to their real estate sector.
Information on these significant unobservable inputs per class of
investment property are disclosed below.
Quantitative information about fair value measurement using
unobservable inputs (Level 3) as at 31 March 2023 (unaudited)
Retail
(including
Industrial retail warehouse) Office Total
------------------------- ------------ ----------- ------------------ ------------ -------------
Fair value (EUR000)(1) 79.86 66.25 99.15 245.26
--------------------------------------- ----------- ------------------ ------------ -------------
Area ('000 sqm) 95.030 44.435 54.58 194.045
--------------------------------------- ----------- ------------------ ------------ -------------
Net passing rent EUR per Range 33.16 - 30.84 - 113.63 - 30.84 -
sqm per annum 124.0 152.12 152.63 152.63
------------------------- ------------ ----------- ------------------ ------------ -------------
Weighted
average(2) 61.90 86.18 140.41 100.20
-------------------------------------- ----------- ------------------ ------------ -------------
Gross ERV EUR per sqm Range 42.00 - 101.58 - 79.93 - 42.0 - 236.83
per annum 104.42 162.27 236.83
------------------------- ------------ ----------- ------------------ ------------ -------------
Weighted
average(2) 61.22 128.80 178.45 126.87
-------------------------------------- ----------- ------------------ ------------ -------------
Net initial yield(3) Range 5.42 - 9.54 2.54 - 5.69 3.77 - 15.78 2.54 - 15.78
------------------------- ------------ ----------- ------------------ ------------ -------------
Weighted
average(2) 6.08 4.40 6.46 5.78
-------------------------------------- ----------- ------------------ ------------ -------------
Equivalent yield Range 5.10 - 7.25 5.10 - 7.68 3.72 - 12.82 3.72 - 12.82
------------------------- ------------ ----------- ------------------ ------------ -------------
Weighted
average(2) 5.71 6.14 6.89 6.30
-------------------------------------- ----------- ------------------ ------------ -------------
Notes:
1 This table includes the joint venture investment property
valued at EUR25.1 million which is disclosed within the summarised
information within note 6 as part of total assets.
2 Weighted by market value.
3 Yields based on rents receivable after deduction of head rents and non-recoverables.
Quantitative information about fair value measurement using
unobservable inputs (Level 3) as at 30 September 2022 (audited)
Retail
(including
Industrial retail warehouse) Office Total
------------------------- ------------ ----------- ------------------ ------------ ------------
Fair value (EUR000)(1) 71,950 69,150 104,000 235,100
--------------------------------------- ----------- ------------------ ------------ ------------
Area ('000 sqm) 86.421 44.433 54.58 185.434
--------------------------------------- ----------- ------------------ ------------ ------------
Net passing rent EUR per Range 28.81 - 38.33 - 103.57 - 28.81 -
sqm per annum 118.10 151.18 145.83 151.18
------------------------- ------------ ----------- ------------------ ------------ ------------
Weighted
average(2) 55.83 85.66 136.17 98.34
-------------------------------------- ----------- ------------------ ------------ ------------
Gross ERV EUR per sqm Range 40.00 - 101.58 - 79.93 - 40.00 -
per annum 104.42 162.27 224.34 224.34
------------------------- ------------ ----------- ------------------ ------------ ------------
Weighted
average(2) 56.46 129.96 169.81 125.29
-------------------------------------- ----------- ------------------ ------------ ------------
Net initial yield(3) Range 4.82 - 8.66 2.87 - 5.38 3.34 - 14.42 2.87 - 14.42
------------------------- ------------ ----------- ------------------ ------------ ------------
Weighted
average(2) 5.57 4.24 5.93 5.35
-------------------------------------- ----------- ------------------ ------------ ------------
Equivalent yield Range 4.5 - 6.68 4.95 - 7.29 3.27 - 12.40 3.27 - 12.40
------------------------- ------------ ----------- ------------------ ------------ ------------
Weighted
average(2) 5.19 5.87 6.26 5.84
-------------------------------------- ----------- ------------------ ------------ ------------
Notes:
1 This table includes the joint venture investment property
valued at EUR26.4 million which is disclosed within the summarised
information within note 6 as part of total assets.
2 Weighted by market value.
3 Yields based on rents receivable after deduction of head rents and non-recoverables.
Sensitivity of measurement to variations in the significant
unobservable inputs
Given fair value measurement is an inherent judgement due to
unobservable inputs, management have reviewed the ranges used in
assessing the impact of changes in unobservable inputs on the fair
value of the Group's property portfolio. We consider +/-10% for
ERV, and +/-50bps for NIY to capture the uncertainty in these key
valuation assumptions. The results of this analysis are detailed in
the sensitivity table below.
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
of significant increase in of significant decrease in
Unobservable input input input
------------------ -------------------------------- --------------------------------
Passing rent Increase Decrease
------------------ -------------------------------- --------------------------------
Gross ERV Increase Decrease
------------------ -------------------------------- --------------------------------
Net initial yield Decrease Increase
------------------ -------------------------------- --------------------------------
Equivalent yield Decrease Increase
------------------ -------------------------------- --------------------------------
There are interrelationships between the yields and rental
values as they are partially determined by market rate conditions.
The sensitivity of the valuation to changes in the most significant
inputs per class of investment property is shown below:
Estimated movement in fair value of investment
properties at 31 March 2023 (unaudited) Industrial Retail Office Total
(1) EUR000 EUR000 EUR000 EUR000
----------------------------------------------- ---------- ------- ------- --------
Increase in ERV by 10% 4,900 5,100 7,800 17,800
----------------------------------------------- ---------- ------- ------- --------
Decrease in ERV by 10% (4,900) (5,100) (7,900) (17,900)
----------------------------------------------- ---------- ------- ------- --------
Increase in net initial yield by 0.5% (6,500) (5,500) (8,400) (20,400)
----------------------------------------------- ---------- ------- ------- --------
Decrease in net initial yield by 0.5% 7,800 6,500 10,600 24,900
----------------------------------------------- ---------- ------- ------- --------
Estimated movement in fair value of investment
properties at 30 September 2022 (audited) Industrial Retail Office Total
(1) EUR000 EUR000 EUR000 EUR000
----------------------------------------------- ---------- ------- -------- --------
Increase in ERV by 10% 4,900 5,700 9,200 19,800
----------------------------------------------- ---------- ------- -------- --------
Decrease in ERV by 10% (4,900) (6,100) (9,400) (20,400)
----------------------------------------------- ---------- ------- -------- --------
Increase in net initial yield by 0.5% (6,600) (6,000) (10,000) (22,600)
----------------------------------------------- ---------- ------- -------- --------
Decrease in net initial yield by 0.5% 8,000 7,300 13,200 28,500
----------------------------------------------- ---------- ------- -------- --------
Notes:
1 This table includes the joint venture investment property
valued at EUR25.1 million (2022: EUR26.4 million) which is
disclosed within the summarised information within note 6 as part
of total assets.
4. Recognition of development revenue and profit
During the financial year ended 30 September 2021, the Group
transferred the legal title of its office asset in Paris, BB to a
purchaser.
The forward-funded sale agreement that the Group entered into
was comprised of two key performance obligations: i) to sell the
asset as referenced above; and ii) to undertake a comprehensive
refurbishment of the asset on behalf of the purchaser.
On 16 December 2020 the Group transferred, as part of the sale,
the legal title to the purchaser for a deemed sale price of EUR69.8
million. In return, the Group received on the completion date an
initial EUR52.9 million cash receipt from the purchaser and a
further EUR16.9 million was payable upon completion of certain
milestones and was received in December 2021.
The forward-funded sale contract also included a development
element whereby the Group has undertaken a comprehensive
refurbishment of the asset on behalf of the purchaser over an
approximate 18-month period with practical completion occurring in
the second quarter of 2022. The amount of revenue the Group will
receive for the development of the asset is variable as it is based
on the Group achieving certain milestones.
When forming a judgement as to an appropriate level of
development revenue to be recognised in the reporting period, the
Group considered the contractual penalties of not meeting certain
criteria within the agreement; the total development costs
incurred; the stage of completion of the refurbishment; the
milestones achieved and still to be achieved; the timing of further
future cash receipts from the purchaser; and the overall general
development risk.
The Group has estimated that it will receive a total development
revenue of EUR30.5 million (2022: EUR30.2 million).
During the period EUR0.1 million of development cost has been
incurred (30 September 2022: EUR15.4 million) which, to date,
represents 91% of the total project expenditure and a sum of EUR0.1
million (30 September 2022: EUR17.9 million) of development revenue
has been recognised following consideration of the factors
identified above; this was also due from the purchaser at period
end. Total development revenue from this contract recognised since
inception is EUR94.0 million.
The remaining development revenue is expected to be recognised
by 30 September 2023.
The total amount of the contract asset recognised by the Group
that is due from the purchaser thereby totalled EUR1.0 million (30
September 2022: EUR10.3 million) at the period end and is included
in trade and other receivables.
5. Provision of internal loan made to Seville joint venture
As at 31 March 2023 the Group owned 50% of the Metromar JV,
which owns a shopping centre in Seville, and had advanced EUR10.0
million as a loan and was owed interest of EUR1.5 million (30
September 2022: EUR1.5 million); (31 March 2022: EUR1.3 million).
The loan carries a fixed interest rate of 4.37% per annum payable
quarterly and matures in April 2024.
When considering an appropriate level of impairment, deemed to
be a significant judgement, the Company primarily considered: the
property valuation and future potential movements; the outstanding
debt principal, together with the ongoing LTV breach and cash trap
position of the loan; cash flow forecasts; tenants' trading
positions and the existing ability to let vacant space, and the
market liquidity for such an asset. An evaluation of these factors
has allowed management to make a judgement on the probability of
default which is considered to be the key input for the impairment
calculation.
A default rate of 100% has been applied to the above loan and
unpaid interest at year end. The impairment provision booked during
the period was change to EURNil as the loan and interest is now
considered a stage 3 impairment (30 September 2022: EUR0.4 million)
bringing the cumulative impairment to EUR11.5 million (30 September
2022: EUR11.5 million, 31 March 2022: EUR11.3 million) and the
Group's investment with regard to Seville stands at EURnil.
6. Investment in joint ventures
The Group has a 50% interest in a joint venture called Urban
SEREIT Holdings Spain S.L. The principal place of business of the
joint venture is Calle Velázquez 3, 4th Madrid 28001 Spain.
31 March
2023
EUR000
--------------------------------------- --------
Balance as at 1 October 2022 (audited) -
--------------------------------------- --------
Share of loss for the period -
--------------------------------------- --------
Balance as at 31 March 2023 (unaudited) -
--------------------------------------- --------
31 March
2022
EUR000
--------------------------------------- --------
Balance as at 1 October 2021 (audited) -
--------------------------------------- --------
Share of loss for the period -
--------------------------------------- --------
Balance as at 31 March 2022 (unaudited) -
--------------------------------------- --------
31 March
2022
EUR000
----------------------------------------- --------
Balance as at 1 October 2021 (audited) -
----------------------------------------- --------
Investment in joint venture -
----------------------------------------- --------
Share of loss for the year -
----------------------------------------- --------
Balance as at 30 September 2022 (audited) -
----------------------------------------- --------
31 March 31 March 30 September
2023 2022 2022
EUR000 EUR000 EUR000
Summarised joint venture financial information: (unaudited) (unaudited) (audited)
------------------------------------------------ ------------- ------------- ------------
Total assets 28,046 30,508 29,290
------------------------------------------------ ------------- ------------- ------------
Total liabilities (48,998) (48,047) (48,435)
------------------------------------------------ ------------- ------------- ------------
Net liabilities (20,952) (17,539) (19,145)
------------------------------------------------ ------------- ------------- ------------
Net asset value attributable to the Group - - -
------------------------------------------------ ------------- ------------- ------------
Year to
Six months Six months
to 31 March to 31 March 30 September
2023 2022 2022
EUR000 EUR000 EUR000
(unaudited) (unaudited) (audited)
----------------------------------------- ------------- ------------- -------------
Revenues 1,069 1,734 4,003
----------------------------------------- ------------- ------------- -------------
Total comprehensive loss (1,807) (2,929) (4,536)
----------------------------------------- ------------- ------------- -------------
Total comprehensive loss attributable to - - -
the Group
----------------------------------------- ------------- ------------- -------------
As at 31 March 2023, the joint venture in Seville, of which
SEREIT holds a 50% share, had total net liabilities of
EUR20,952,000. The Group has therefore
recognised a nil interest as its investment in the joint venture
and would only recognise its share of net liabilities where certain
legal or constructive obligations are in force. No such obligations
exist with regard to the Seville joint venture.
7. Taxation
Year to
Six months Six months
to 31 March to 31 March 30 September
2023 2022 2022
EUR000 EUR000 EUR000
(unaudited) (unaudited) (audited)
------------------------------------ ------------- ------------- --------------
Current tax charge 167 771 1,305
------------------------------------ ------------- ------------- --------------
Deferred tax charge (433) 1,071 1,280
------------------------------------ ------------- ------------- --------------
Tax (credit)/expense in period/year (266) 1,842 2,585
------------------------------------ ------------- ------------- --------------
Current Deferred
tax liability tax liability
EUR000 EUR000
---------------------------------------- -------------- --------------
As at 1 October 2022 (audited) 1,426 5,124
---------------------------------------- -------------- --------------
Tax charge/(credit) for the period 167 (433)
---------------------------------------- -------------- --------------
Tax paid during the period (826) -
---------------------------------------- -------------- --------------
Balance as at 31 March 2023 (unaudited) 767 4,691
---------------------------------------- -------------- --------------
Current Deferred
tax liability tax liability
EUR000 EUR000
---------------------------------------- -------------- --------------
As at 1 October 2021 (audited) 590 3,844
---------------------------------------- -------------- --------------
Tax charge for the period 771 1,071
---------------------------------------- -------------- --------------
Tax paid during the period (532) -
---------------------------------------- -------------- --------------
Balance as at 31 March 2022 (unaudited) 829 4.915
---------------------------------------- -------------- --------------
Current Deferred
tax liability tax liability
EUR000 EUR000
------------------------------------------ -------------- --------------
As at 1 October 2021 (audited) 590 3,844
------------------------------------------ -------------- --------------
Tax charge for the period 1,305 1,280
------------------------------------------ -------------- --------------
Tax paid during the period (469) -
------------------------------------------ -------------- --------------
Balance as at 30 September 2022 (audited) 1,426 5,124
------------------------------------------ -------------- --------------
The Company has been approved by HM Revenue and Customs as an
investment trust in accordance with section 1158 of the Corporation
Tax Act 2010, by way of a one-off application, and it is intended
that the Company will continue to conduct its affairs in a manner
which will enable it to retain this status. The Company and certain
subsidiary entities have also elected to be treated as a société
d'investissement immobilier cotée ('SIIC') for French tax purposes.
Provided that the Group meets certain requirements, the Group's
French subsidiaries should be exempt from French corporate income
tax on net rental income and gains arising from interests in
property. Management intends that the Group will continue to comply
with the SIIC regulations for the foreseeable future.
The Group operates in a number of jurisdictions and is subject
to periodic challenges by local tax authorities on a range of tax
matters during the normal course of business. The tax impact can be
uncertain until a conclusion is reached with the relevant tax
authority or through a legal process. The Group addresses this
uncertainty by closely monitoring tax developments, seeking
independent advice and maintaining transparency with the
authorities it deals with as and when any enquiries are made. As a
result of its monitoring, the Group has identified a potential tax
exposure attributable to the ongoing applicability of tax
treatments adopted in respect of the Group's tax structures. The
range of potential outcomes is a possible outflow of minimum GBPnil
and maximum GBP9.4 million (excluding possible interest and
penalties). The Directors have not provided for this amount because
they do not believe an outflow is probable.
8. Basic and diluted earnings per share
The basic and diluted earnings per share for the Group are based
on the net profit/(loss) for the period, excluding currency
translation differences, of EUR(8,662,000) (six months to 31 March
2022: EUR10,891,000; for the year ended 30 September 2022:
EUR13,918,000) and the weighted average number of ordinary shares
in issue during the period of 133,734,686 (six months to 31 March
2022: 133,734,686; for the year ended 30 September 2022:
133,734,686).
9. Interest-bearing loans and borrowings
Six months
to 31 March
2023
EUR000
-------------------------------- ------------
As at 1 October 2022 (audited) 68,744
-------------------------------- ------------
Repayment of loans (14,000)
-------------------------------- ------------
Proceeds from new loan facility 18,000
-------------------------------- ------------
Amortisation of finance costs 89
-------------------------------- ------------
As at 31 March 2023 (unaudited) 72,833
-------------------------------- ------------
Year to
30 September
2022
EUR000
---------------------------------- -------------
As at 1 October 2021 (audited) 68,589
---------------------------------- -------------
Capitalisation of finance costs (15)
---------------------------------- -------------
Amortisation of finance costs 170
---------------------------------- -------------
As at 30 September 2022 (audited) 68,744
---------------------------------- -------------
Six months
to 31 March
2022
EUR000
-------------------------------- ------------
As at 1 October 2021 (audited) 68,589
-------------------------------- ------------
Capitalisation of finance costs (15)
-------------------------------- ------------
Amortisation of finance costs 83
-------------------------------- ------------
As at 31 March 2022 (unaudited) 68,657
-------------------------------- ------------
The Company entered into a revolving credit facility in relation
to the Paris BB refurbishment. The maximum amount that can be drawn
down is EUR13.6 million, with nil drawn at 31 March 2023.
On 31 March 2023, ahead of the maturity date of 30 June 2023,
the Group fully repaid its EUR14.0 million loan with Deutsche
Pfandbriefbank AG which was secured on the Hamburg and Stuttgart
assets. In the period, the Group entered into a new EUR18.0 million
loan with Westerwald Bank eG. The new loan was fully drawn down on
31 March 2023.
Three loans totalling EUR21.6 million fall due in the twelve
months following the balance sheet date. The Group has plans to
refinance or repay and has commenced preliminary discussions with
lenders on this matter. However, the Group would also have
sufficient cash or liquid assets to repay all these loans in the
downside scenario of refinancing not being achieved.
As at 31 March 2023 the Group held interest rate caps as
follows:
-- Saint-Cloud loan with BRED Banque Populaire: two caps
totalling the full EUR17.0m of the loan with a combined fair value
of EUR0.6 million as at 31 March 2023 and which expire on 15
December 2024 with a strike rate of 1.25%;
-- Dutch industrials loan with HSBC: a cap totalling the full
EUR9.25m of the loan with a fair value of EUR0.2 million as at 31
March 2023 and which expires on 28 September 2023 with a strike
rate of 1%;
-- Rennes loan with Landesbank SAAR: a cap totalling the full
EUR8.60m of the loan with a fair value of EUR0.2 million as at 31
March 2023 and which expires on 27 March 2024 with a strike rate of
1%; and
-- Rumilly loan with Landesbank SAAR: a cap totalling the full
EUR3.70m of the loan with a fair value of EUR0.07 million as at 31
March 2023 and which expired on 28 April 2023 with a strike rate of
0.25%. The associated Rumilly loan was fully repaid in April
2023.
10. Issued capital and reserves
As at 31 March 2023, the Company has 133,734,686 (30 September
2022: 133,734,686) ordinary shares in issue with a par value of
10.00p (no shares are held in Treasury). The total number of voting
rights in the Company is 133,734,686.
11. NAV per ordinary share
The NAV per ordinary share is based on the net assets at 31
March 2023 of EUR177,106,00 (30 September 2022: EUR188,243,000; 31
March 2022: EUR199,124,000) and 133,734,686 ordinary shares in
issue at 31 March 2023 (30 September 2022: 133,734,686; 31 March
2022: 133,734,686).
12. Dividends paid
Number
of ordinary Rate
Six months ended 31 March 2023 (unaudited)(1) shares (cents) EUR000
---------------------------------------------- ------------ -------- ------
Interim dividend paid on 13 January 2023 133,734,686 1.85 2,474
---------------------------------------------- ------------ -------- ------
Total interim dividends paid 133,734,686 1.85 2,474
---------------------------------------------- ------------ -------- ------
1 A dividend for the quarter ended 31 March 2023 of 1.85 Euro
cents per share was approved and will be paid on 11 August 2023.
Total dividends declared relating to the six months' ended 31 March
2023 were 3.70 Euro cents per share.
Number
of ordinary Rate
Six months ended 31 March 2022 (unaudited) shares (cents) EUR000
------------------------------------------- ------------ -------- ------
Interim dividend paid on 8 November 2021 133,734,686 1.85 2,474
------------------------------------------- ------------ -------- ------
Interim dividend paid on 14 January 2022 133,734,686 1.85 2,474
------------------------------------------- ------------ -------- ------
Special dividend paid on 14 January 2022 133,734,686 4.75 6,353
------------------------------------------- ------------ -------- ------
Total interim dividends paid 11,301
------------------------------------------- ------------ -------- ------
Number
of ordinary Rate
Year ended 30 September 2022 (audited) shares (cents) EUR000
------------------------------------------------- ------------ -------- ------
Interim dividend paid on 8 November 2021 133,734,686 1.85 2,474
------------------------------------------------- ------------ -------- ------
Interim dividend paid on 14 January 2022 133,734,686 1.85 2,474
------------------------------------------------- ------------ -------- ------
First special dividend paid on 14 January 2022 133,734,686 4.75 6,352
------------------------------------------------- ------------ -------- ------
Interim dividend paid on 20 April 2022 133,734,686 1.85 2,474
------------------------------------------------- ------------ -------- ------
Interim dividend paid on 5 August 2022 133,734,686 1.85 2,474
------------------------------------------------- ------------ -------- ------
Second special dividend paid on 5 August 2022 133,734,686 4.75 6,352
------------------------------------------------- ------------ -------- ------
Interim dividend paid on 30 September 2022 133,734,686 1.85 2,474
------------------------------------------------- ------------ -------- ------
Final special dividend paid on 30 September 2022 133,734,686 0.1 133
------------------------------------------------- ------------ -------- ------
Total interim dividends paid 25,207
------------------------------------------------- ------------ -------- ------
13. Related party transactions
Schroder Real Estate Investment Management Limited is the
Group's Investment Manager.
The Investment Manager is entitled to a fee, together with
reasonable expenses, incurred in the performance of its duties. The
fee is payable monthly in arrears and shall be an amount equal to
one-twelfth of the aggregate of 1.1% of the EPRA NAV of the
Company. The Investment Management Agreement can be terminated by
either party on not less than 12 months' written notice, such
notice not to expire earlier than the third anniversary of
admission, or on immediate notice in the event of certain breaches
of its terms or the insolvency of either party. The total charge to
profit and loss during the period was EUR1,028,000 (year ended 30
September 2022: EUR2,198,000; six months ended 31 March 2022:
EUR1,136,995). At 31 March 2023, EUR656,000 was outstanding (year
ended 30 September 2022: EUR717,000; six months ended 31 March
2022: EUR378,740).
The Directors are the only officers of the Company and there are
no other key personnel. The Directors' remuneration for services to
the Group for the six months ended 31 March 2023 was EUR123,000
(year ended 30 September 2022: EUR198,375; six months ended 31
March 2022: EUR108,000), equivalent to GBP87,500. Three of the four
Directors hold shares in the Company and have not purchased or sold
any shares in the financial period. Details of their holdings can
be found on page 46 of the September 2022 Annual Report and
Consolidated Financial Statements.
14. Capital commitments
At 31 March 2023, the Group had capital commitments of EURnil
(30 September 2022: EUR1,500,000; 31 March 2022: EUR389,400).
The Group is expected to incur a further EUR1.1m of development
expenditure with regards to the comprehensive refurbishment of the
Paris, BB asset.
15. Contingent liabilities
There are no contingent liabilities other than those disclosed
in note 7.
16. Post balance sheet events
On 28 April 2023, the Group fully repaid its EUR3.7 million loan
with Landesbank SAAR which was secured against the Rumilly, France
property.
EPRA and Headline Performance Measures (unaudited)
As recommended by the European Public Real Estate Association
('EPRA'), performance measures are disclosed in the section
below.
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, including the loan made to the
joint venture, divided by the weighted average number of
shares.
Year to 30
September
2022
Six months Six months
to 31 March to 31 March
2023 EUR000 2022 EUR000 EUR000
(unaudited) (unaudited) (unaudited)
-------------------------------------------------- ------------- ------------- -------------
Total IFRS comprehensive income (8,663) 10,893 13,918
-------------------------------------------------- ------------- ------------- -------------
Adjustments to calculate EPRA earnings:
-------------------------------------------------- ------------- ------------- -------------
Net (gain)/loss from fair value adjustment
on investment property 12,958 (7,853) (6,351)
-------------------------------------------------- ------------- ------------- -------------
Currency translation differences (unrealised) - (2) 73
-------------------------------------------------- ------------- ------------- -------------
Net development (revenue)/expenditure - (1,839) (2,506)
-------------------------------------------------- ------------- ------------- -------------
Share of joint venture loss on investment
property - - (561)
-------------------------------------------------- ------------- ------------- -------------
Deferred tax (433) 1,071 1,280
-------------------------------------------------- ------------- ------------- -------------
Tax on development profit - 460 702
-------------------------------------------------- ------------- ------------- -------------
Net change in fair value of financial instruments (107) (235) (921)
-------------------------------------------------- ------------- ------------- -------------
Provision of internal loan made to Seville
joint venture (excluding interest) - - 444
-------------------------------------------------- ------------- ------------- -------------
EPRA earnings 3,755 2,495 6,078
-------------------------------------------------- ------------- ------------- -------------
Weighted average number of ordinary shares 133,734,686 133,734,686 133,734,686
-------------------------------------------------- ------------- ------------- -------------
IFRS earnings and diluted earnings (cents
per share) (6.5) 8.1 10.4
-------------------------------------------------- ------------- ------------- -------------
EPRA earnings per share (cents per share) 2.8 1.9 4.5
-------------------------------------------------- ------------- ------------- -------------
b. EPRA Net Reinstatement Value
Year to 30
September
2022
Six months
to 31 March
2022 EUR000 EUR000
Six months
to 31 March
2023 EUR000
(unaudited) (unaudited) (unaudited)
--------------------------------------------------- ------------ ------------- -------------
IFRS equity attributable to shareholders 177,106 199,124 188,243
--------------------------------------------------- ------------ ------------- -------------
Deferred tax and tax on development and
trading properties 4,691 4,915 5,124
--------------------------------------------------- ------------ ------------- -------------
Adjustment in respect of joint venture deferred - - -
tax
--------------------------------------------------- ------------ ------------- -------------
Adjustment for fair value of financial instruments (1,041) (248) (934)
--------------------------------------------------- ------------ ------------- -------------
Adjustment in respect of real estate transfer
taxes 19,428 16,100 17,444
--------------------------------------------------- ------------ ------------- -------------
EPRA NAV 200,184 219,891 209,877
--------------------------------------------------- ------------ ------------- -------------
Shares in issue at end of year 133,734,686 133,734,686 133,734,686
--------------------------------------------------- ------------ ------------- -------------
IFRS Group NAV per share (cents per share) 132.4 148.8 140.8
--------------------------------------------------- ------------ ------------- -------------
EPRA NAV per share (cents per share) 149.7 164.4 156.9
--------------------------------------------------- ------------ ------------- -------------
c. EPRA Net Tangible Assets
Year to 30
September
2022
Six months
to 31 March
2022 EUR000 EUR000
Six months
to 31 March
2023 EUR000
(unaudited) (unaudited) (unaudited)
--------------------------------------------------- ------------ ------------- -------------
IFRS equity attributable to shareholders 177,106 199,124 188,243
--------------------------------------------------- ------------ ------------- -------------
Deferred tax 4,691 4,915 5,124
--------------------------------------------------- ------------ ------------- -------------
Adjustment in respect of joint venture deferred - - -
tax
--------------------------------------------------- ------------ ------------- -------------
Adjustment for fair value of financial instruments (1,041) (248) (934)
--------------------------------------------------- ------------ ------------- -------------
EPRA NAV 180,756 203,791 192,433
--------------------------------------------------- ------------ ------------- -------------
Shares in issue at end of year 133,734,686 133,734,686 133,734,686
--------------------------------------------------- ------------ ------------- -------------
IFRS Group NAV per share (cents per share) 132.4 148.8 140.8
--------------------------------------------------- ------------ ------------- -------------
EPRA NAV per share (cents per share) 135.2 152.4 143.9
--------------------------------------------------- ------------ ------------- -------------
d. EPRA Net Disposal Value
Year to 30
September
2022
Six months
to 31 March
2022 EUR000 EUR000
Six months
to 31 March
2023 EUR000
(unaudited) (unaudited) (unaudited)
------------------------------------------------ ------------ ------------- -------------
IFRS equity attributable to shareholders 177,106 199,124 188,243
------------------------------------------------ ------------ ------------- -------------
Adjustment for the fair value of fixed interest
rate debt 1,048 374 987
------------------------------------------------ ------------ ------------- -------------
EPRA NAV 178,154 199,498 189,230
------------------------------------------------ ------------ ------------- -------------
Shares in issue at end of year 133,734,686 133,734,686 133,734,686
------------------------------------------------ ------------ ------------- -------------
IFRS Group NAV per share (cents per share) 132.4 148.8 140.8
------------------------------------------------ ------------ ------------- -------------
EPRA NAV per share (cents per share) 133.2 149.2 141.5
------------------------------------------------ ------------ ------------- -------------
e. EPRA comparatives
EPRA NRV EPRA NTA EPRA NDV
EUR000 EUR000 EUR000
------------------------------------------------- -------- -------- --------
IFRS NAV in the period 177,106 177,106 177,106
------------------------------------------------- -------- -------- --------
Exclude: deferred tax 4,691 4,691 -
------------------------------------------------- -------- -------- --------
Exclude: the fair value of financial instruments (1,041) (1,041) -
------------------------------------------------- -------- -------- --------
Include: the fair value of fixed rate interest
rate debt - - 1,048
------------------------------------------------- -------- -------- --------
Include: real estate transfer tax 19,428 - -
------------------------------------------------- -------- -------- --------
EPRA NAV totals 200,184 180,756 178,154
------------------------------------------------- -------- -------- --------
f. Headline earnings reconciliation
Headline earnings per share reflect the underlying performance
of the Company calculated in accordance with the Johannesburg Stock
Exchange
Listing requirements.
Year to 30
September
2022
Six months
to 31 March
2022 EUR000 EUR000
Six months
to 31 March
2023 EUR000
(unaudited) (unaudited) (unaudited)
-------------------------------------------------- ------------ ------------- ------------
Total IFRS comprehensive income (8,663) 10,893 13,918
-------------------------------------------------- ------------ ------------- ------------
Adjustments to calculate headline earnings
exclude:
-------------------------------------------------- ------------ ------------- ------------
Net valuation (profit)/loss on investment
property 12,958 (7,853) (6,351)
-------------------------------------------------- ------------ ------------- ------------
Net development (revenue)/expenditure - (1,839) (2,506)
-------------------------------------------------- ------------ ------------- ------------
Share of joint venture loss on investment
property - - (561)
-------------------------------------------------- ------------ ------------- ------------
Deferred tax (433) 1,071 1,280
-------------------------------------------------- ------------ ------------- ------------
Tax on development profit - 460 701
-------------------------------------------------- ------------ ------------- ------------
Net change in fair value of financial instruments (107) (235) (921)
-------------------------------------------------- ------------ ------------- ------------
Provision of internal loan made to Seville
joint venture (excluding interest) - - 444
-------------------------------------------------- ------------ ------------- ------------
Headline earnings 3,755 2,497 6,004
-------------------------------------------------- ------------ ------------- ------------
Weighted average number of ordinary shares 133,734,686 133,734,686 133,734,686
-------------------------------------------------- ------------ ------------- ------------
Headline and diluted headline earnings per
share (cents per share) 2.8 1.9 4.5
-------------------------------------------------- ------------ ------------- ------------
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END
IR FLFLTRLIDFIV
(END) Dow Jones Newswires
June 28, 2023 02:00 ET (06:00 GMT)
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