TIDMSERE
RNS Number : 8424Q
Schroder Eur Real Est Inv Trust PLC
24 June 2020
24 June 2020
SCHRODER EUROPEAN REAL ESTATE INVESTMENT TRUST PLC
("SEREIT"/ the "Company" / "Group")
HALF YEAR RESULTS FOR THE SIX MONTHSED 31 MARCH 2020
DIVERSIFIED PORTFOLIO AND ASSET MANAGEMENT ACTIVITY PROVIDES
RESILIENCE AND OPPORTUNITY TO IMPROVE PORTFOLIO AND GROW INCOME AND
NAV
Schroder European Real Estate Investment Trust plc, the company
investing in European growth cities and regions, today announces
its half year results for the six months ended 31 March 2020.
Well positioned with diversified portfolio and pipeline of
value-enhancing asset management initiatives
-- Actively managing the impact of Covid-19 on the portfolio,
with rent collection in each of April, May and June above 80% of
contracted rent
-- Diversified portfolio of 13 investments with approximately 100 tenants
-- 75% of the portfolio invested in business space assets
(office/industrial/mixed-use data centre) in cities including
Paris, Berlin, Stuttgart and Hamburg
-- Good progress with key asset management initiatives at Paris
Boulogne-Billancourt and Hamburg office assets
-- Loan to value ('LTV') of 30% / 27% net of cash (30 September
2019: 28% / 25% net of cash) at a weighted average total interest
rate of 1.4%
-- Each loan has separate LTV and income covenants, with a range of headroom against covenants:
o LTV default covenant average headroom approximately 27% across
the portfolio. This ranges between 17% (Seville) and 37% (Hamburg
and Stuttgart)
o Income default covenant average headroom approximately 34%
across the portfolio. This ranges between 15% (Hamburg and
Stuttgart) and 73% (Rennes). For the Company's sole shopping centre
in Seville, there is no default income covenant for the loan,
however there is currently a cash trap of net income from the
property due to reduced rental income
-- Next quarterly dividend reduced to 0.925 euro cents per
share, equating to 50% of the target dividend level, in light of
market uncertainty
Key Financial highlights
-- Portfolio valued at 31 March 2020 at EUR247.3 million(1) ,
reflecting a 1.9% uplift during the period and an uplift of 11.1%
on purchase price
-- Net Asset Value ('NAV') of EUR182.1 million or 136.2 cps,
reflecting no change compared to 30 September 2019
-- NAV total return of 2.7% (31 March 2019: 1.7%)
-- Profit for the six months of EUR4.9 million (31 March 2019:
EUR3.2 million) driven primarily by the portfolio valuation
uplift
-- Underlying EPRA earnings of EUR4.3 million (31 March 2019:
EUR5.4 million), with the 2019 earnings having included receipt of
a one-off surrender premium of EUR1.5 million
-- Total dividends declared relating to the six months of 2.775 cps (31 March 2019: 3.7 cps)
-- Dividend cover for the six months of 116% (31 March 2019: 108%)
Operational highlights
-- Maintained high portfolio occupancy of 95% (30 September
2019: 94%), with a 6.0 years average lease term to expiry (30
September 2019: 6.4 years)
-- Successful execution of asset management initiatives across the portfolio:
o converted heads of terms to a signed conditional lease with
Alten for a ten year commitment at the Company's largest asset at
Boulogne-Billancourt, Paris
o advanced planning, detailed design, construction tender and
financing of the Alten refurbishment
o excluding Alten, concluded a further five new leases and
re-gears, generating a 16% increase in annualised income relative
to previous rent of those leases, at a weighted lease term of 4.4
years
-- Reflecting its increasing focus on ESG considerations, the
Company secured its first GRESB Benchmark Green Star in recognition
of the portfolio's sustainability performance, whilst improving the
sustainability rating at the Company's Hamburg office asset with
the certification of BREEAM in use
-- Underlying property portfolio total return of 4.0% over the six-month period
-- The Group continues to give support to its tenants, service
providers and consumers in understanding the impact Covid-19 is
having on their respective positions. It is expected that the
Seville shopping centre will face the most challenges as a result
of Covid-19.
(1) Includes the Group's share of the Seville property
proportionally valued at EUR22.8 million.
Dividend Update
In light of the ongoing market uncertainty, the Board has
reduced the next quarterly dividend to 0.925 euro cents per share,
equating to 50% of the target dividend level.
In implementing the dividend strategy, the Board considered the
rent collection and cash position of the Company, alongside market
conditions, current asset management activity and the longer term
sustainable rental income from the portfolio. By retaining
additional cash at this time, the Company will be better positioned
to withstand the impact of Covid-19 on the portfolio. The dividend
will be kept under close review as clarity improves around the
extent of the impacts of Covid-19, including on future rental
receipts, property values and asset management initiatives.
Sir Julian Berney, Chairman of the Board, commented:
" During the first half of the year the Company has made good
progress with key asset management initiatives, but we enter the
second half of the year against an uncertain economic backdrop. We
believe the diversification of the portfolio across different
countries, sectors and tenants positions it well to withstand a
period of market volatility. By reducing the dividend and retaining
earnings, we have sought to strengthen the ability of the Company
to mitigate the impact of Covid-19 and improve our flexibility to
be able to capitalise on asset management opportunities going
forward ."
Jeff O'Dwyer, Fund Manager for Schroder Real Estate Investment
Management Limited, added:
"The impacts of Covid-19 have yet to fully play out and the
depth and recovery of global GDP cannot be predicted with any
confidence. Over the period, the SEREIT portfolio has stood up
well, underpinned by our tenant and sector diversity that has led
to favourable rent collection rates and valuation resilience.
Whilst early indicators are that the easing of the lockdown in our
key markets is having a positive impact on our tenants' operations,
we remain alert to the near-term challenges facing all our
stakeholders. Longer term, we continue to believe that the
portfolio's weighting towards Continental European 'Winning Cities'
like Paris, Berlin, Frankfurt and Hamburg will be beneficial to its
future performance and liquidity."
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/8424Q_1-2020-6-23.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 www.morningstar.co.uk/uk/NSM
.
A further announcement will be made shortly to confirm the full
timetable of the second interim dividend.
For further information:
Schroder Real Estate Investment Management
Duncan Owen / Jeff O'Dwyer 020 7658 6000
Ria Vavakis
Schroder Investment Management Limited 020 7658 2371
--------------------------------------
FTI Consulting 020 3727 1000
Dido Laurimore / Richard Gotla / Methuselah Schroderrealestate@fticonsulting.com
Tanyanyiwa
--------------------------------------
A presentation for analysts and investors will be held at 09.00
BST / 10.00 SAST today. Registration for which can be accessed
via:
-
https://www.brighttalk.com/webcast/1184/415554?utm_source=Schroder+Investments+Limited&utm_medium=brighttalk&utm_campaign=415554
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 months ended 31 March 2020
Chairman's Statement
Overview
We expect 2020 to be a year of two halves. For the majority of
the six month period to 31 March 2020, real estate markets and the
economic backdrop were positive. We made progress with important
asset management activity, such as advancing the planning for the
Paris Boulogne-Billancourt refurbishment and reletting vacant space
in Hamburg and Paris Saint-Cloud. During the interim period this
has resulted in the valuation of the portfolio increasing and
growth in contracted rental income.
However, the Covid-19 pandemic is likely to overshadow the
remainder of the year. There is uncertainty over what the exact
impact of this will be on economic activity. Real estate markets
across Europe have suffered a significant decline in leasing and
investment transactions. The key issue for real estate looking
forward is the extent to which the lockdown and the subsequent
mitigation period affects the real economy and consequently the
security of the Company's underlying income streams and value of
its assets. Since the outbreak, 84% of the portfolio's rent has
been collected for the period April, May and June.
SEREIT is positioned to mitigate a near-term period of market
volatility, with a diverse portfolio comprising of 13 assets across
multiple countries, Winning Cities and sectors and around 100
tenants with exposure to a broad range of industries. Whilst a
small number of assets, such as the Seville shopping centre, are
likely to face stronger downward pressure on rents and value, we
believe the majority of the portfolio is well positioned to
generate long-term shareholder returns. The most immediate example
of this is the Paris Boulogne-Billancourt office redevelopment,
which has the potential to deliver NAV upside. The main focus for
the remainder of the year will be to continue to position the
Company to withstand the short-term uncertainty and generate
long-term growth.
Strategy
The Company's strategy is built around three core pillars being:
a focus on assets with strong fundamentals in Winning Cities and
regions across Continental Europe; diversification across sectors
and tenants; and execution of value-enhancing investment and asset
management via on-the-ground European teams.
Winning Cities and regions such as Paris, Berlin and Frankfurt
are characterised by themes such as broad-based economies and
technological and infrastructure improvements. Whilst they will not
be immune from the global economic slowdown, this should enable
them to recover faster and thrive over the long term. The strategy
to have a diverse portfolio not only improves the risk
characteristics of the Company, but also provides opportunities to
tactically allocate between different cities and sectors to
potentially capitalise on changing investment fundamentals going
forward.
Execution of the strategy is implemented by the real estate
teams that the Investment Manager has located on the ground across
eight key European markets, including Paris, Munich and Frankfurt.
This local presence is key to being able to understand local
dynamics and build relationships with tenants, which is
increasingly important at times such as this. One of the main
strategic focuses for the remainder of the year will be proactively
working with our tenants to help manage their safety and wellbeing,
alongside stabilising cash flows and protecting shareholders'
long-term interests.
Financial results
The Company delivered stable financial results during the six
month period. The NAV includes a provision of EUR1.1m relating to a
percentage of the Group's internal loan for its 50% share of the
Seville investment. IFRS 9 requires such a provision to be made,
despite the value of the property as at 31 March 2020 being above
the level of the cumulative external and internal loans made to the
joint venture.
IFRS profit increased to EUR4.9 million compared to EUR3.2
million for the six months to March 2019, driven mainly by a EUR2.4
million increase in the portfolio valuation, net of capex. EPRA
earnings were EUR4.3 million, compared to EUR5.4 million for the
2019 interim period which included a one-off EUR1.5 million
surrender premium in 2019.
Balance sheet and debt
Total third party debt was EUR80.7 million as at 31 March 2020,
representing a loan to value ('LTV') net of cash of approximately
27% against the overall gross asset value of the Company. 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 1.4% per annum. The
weighted average duration of the loans is 4.4 years, with the
earliest loan maturity in 2023. 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 is
provided in the Investment Manager's Report.
The Company is currently considering funding options for its
Paris Boulogne-Billancourt office investment, where an agreement
for a new lease with Alten has been concluded in return for a
comprehensive refurbishment of the asset. This has the potential to
deliver NAV upside for the Company. The main funding options
include a forward funding/forward sale and taking additional
debt.
Dividend
In April 2020 the Company paid a first interim dividend in
respect of the year ended 30 September 2020 of 1.85 euro cents per
share. In light of the ongoing market uncertainty, the Board has
reduced the next quarterly dividend to 0.925 euro cents per share,
equating to 50% of the target dividend level.
In implementing the dividend strategy, the Board considered the
rent collection and cash position of the Company, alongside market
conditions, current asset management activity and the longer term
sustainable rental income from the portfolio. By retaining
additional cash at this time, the Company will be better positioned
to withstand the impact of Covid-19 on the portfolio. The dividend
will be kept under close review as clarity improves around the
extent of the impacts of Covid-19, including on future rental
receipts, property values and asset management initiatives.
The second interim dividend in respect of the year ending 30
September 2020 of 0.925 euro cents per share is payable on 31 July
2020 to shareholders on the register at 17 July 2020.
Responsible and impact investment
Environmental, Social and Governance ('ESG') considerations are
an increasingly important focus. During 2019, the Company secured
its first GRESB Benchmark Green Star in recognition of the
portfolio's sustainability performance. The annual GRESB Benchmark
assesses governance as well as implementation of relevant
initiatives and, encouragingly, the Company improved its rating on
both measures. The Investment Manager is also focused on ensuring
that its activities deliver a positive social impact, illustrated
in the Investment Manager's Report by the collaborative working
approach with the local community in Seville and recent Covid-19
assistance.
Outlook
We are in a period of unprecedented uncertainty, and our
expectation is that we will continue to face economic headwinds for
the foreseeable future. Our priorities are to seek to mitigate the
impact of this on the portfolio as much as possible, whilst also
advancing opportunities to grow long-term income and value. Having
a diverse portfolio of properties and tenants, focused on Winning
Cities and regions, and managed by local teams, positions us well
to pursue this strategy.
Sir Julian Berney Bt.
Chairman
23 June 2020
1 Includes the Group's 50% share of external debt in the Seville
joint venture of EUR11.7 million and excludes unamortised finance
costs of EUR0.9 million.
Investment Manager's Report
Results
The NAV as at 31 March 2020 stood at EUR182.1 million (GBP161.8
million), or 136.2 euro cents (121.0 pence) per share, achieving a
NAV total return of 2.7% over the six months to 31 March 2020.
The table below provides an analysis of the movement in NAV
during the reporting period as well as a corresponding
reconciliation in the movement in the NAV cents per share.
% change
per cps
NAV movement EURm 1 Cps 2 3
---------------------------------------------------------- ------ ------ --------
Brought forward as at 1 October 2019 182.1 136.2 -
---------------------------------------------------------- ------ ------ --------
Capital expenditure (2.2) (1.6) (1.2)
---------------------------------------------------------- ------ ------ --------
Unrealised gain in valuation of the real estate portfolio 4.6 3.4 2.5
---------------------------------------------------------- ------ ------ --------
Provision of internal loan made to Seville Joint
Venture (1.1) (0.8) (0.5)
---------------------------------------------------------- ------ ------ --------
EPRA earnings 4 4.3 3.2 2.3
---------------------------------------------------------- ------ ------ --------
Non-cash/capital items (0.6) (0.5) (0.4)
---------------------------------------------------------- ------ ------ --------
Dividends paid (5.0) (3.7) (2.7)
---------------------------------------------------------- ------ ------ --------
Carried forward as at 31 March 2020 182.1 1 36.2 0.0
---------------------------------------------------------- ------ ------ --------
1 Management reviews the performance of the Group principally on
a proportionally consolidated basis. As a result, figures quoted in
this table include the Group's share of the Seville joint venture
on a line-by-line basis.
2 Based on 133,734,686 shares.
3 Percentage change based on the starting NAV as at 1 October 2019.
4 EPRA earnings as reconciled on page 29 of the of the condensed
consolidated interim financial statements.
Strategy
The strategy over the period remained focused on the following
key objectives:
-- Executing asset management initiatives to enhance both the
long-term rental profile and individual asset values;
-- Improving the Company's net income profile to support a sustainable dividend; and
-- Managing portfolio risk in order to enhance the portfolio's defensive qualities.
Progress has been made in executing the strategy and activity
over the period, which has delivered:
-- Converting a heads of terms to a signed conditional lease
with Alten for a ten year commitment in the Company's largest asset
at Boulogne-Billancourt, Paris;
-- Advanced planning, detail design, construction tender and
financing of the Alten refurbishment;
-- Concluded five new leases and re-gears (excluding Alten),
generating a 16% increase in annualised income relative to previous
rent at a weighted lease term of 4.4 years;
-- Improved sustainability rating at the Company's Hamburg
office asset with the certification of BREEAM in use;
-- Portfolio real estate total return of 4.0% over six months
with the majority from income; and
-- A prudent loan to value ('LTV') of 27%, net of cash.
Covid-19 impact
The portfolio's diversification benefits have positioned the
Company favourably in dealing with Covid-19. Comprising 13 assets,
approximately 100 tenants across a range of industries and a strong
bias towards office, industrial and a data centre uses has created
a platform for positive rent collection and valuation resilience.
The more immediate Covid-19 impact has been as follows:
-- During April to June, 84% of the portfolio rent was collected.
-- Metromar Shopping Centre, Seville (50% interest): this asset
represents 9% of the portfolio value and 11% of income. The centre
was forced to close (save for the supermarket) from 14 March 2020
and re-opened on a conditional basis on 25 May 2020. The strategy
is focused on working with centre management and tenants to
implement a re-opening plan that creates a safe environment for
tenants and consumers. It is inevitable that consumers will be
reticent to congregate in public spaces, particularly
leisure-related businesses. As such, we anticipate vacancy rates
increasing and rent recoverability remaining under pressure until
the centre re-stabilises.
-- Boulogne-Billancourt, Paris: this asset represents 17% of the
portfolio value and 14% of income. It is the Company's largest
investment, leased to engineering and technology consulting
specialist Alten. As previously announced, the Company has been
working on a value-enhancing asset management initiative to
refurbish the building on the basis of a new ten year lease to
Alten, who remain committed. Covid-19 has delayed the planning
application and therefore the delivery of the initiative by
approximately three months.
-- Tenant rent relief: outside of the Seville investment,
approximately ten tenants (representing 7% of income) have
requested cash flow assistance. We continue to work with these
tenants to agree payments plans/rent deferral and/or amendments to
lease terms.
-- Direct impact measures for the wider community, customers and
management (including setting up a blood transfusion centre in
Metromar, donating the shopping centre's PPE supplies to the local
hospital and formulating a strategic management plan for the
re-opening of the centre on 25 May 2020 to facilitate social
distancing best practice).
Market overview
Economic outlook
The lockdowns imposed by most European governments in mid-March
to slow the spread of the coronavirus have pushed the Eurozone into
recession. Several European countries have started to ease
restrictions at the end of April and in early May, but much will
depend on how quickly businesses and consumers resume activity.
Coming out of the lockdowns is not easy and many restrictions to
control and limit the renewed spreading of the virus (which have so
far proved efficient) will remain in place. While high-frequency
indicators show that activity is returning, it seems somewhat
slower than anticipated. Consumers remain cautious and the ongoing
uncertainty weighs on business investment. Latest data for China
and the US is also suggesting a sharper decline in economic output
than previously anticipated. As such, the Investment Manager's
house view is turning from a V-shaped recovery scenario to a
U-shaped forecast with activity to increase again in the second
half of the year, but at a slower pace than originally anticipated.
The full impact of the crisis will depend on whether the huge
package of tax breaks, loan guarantees and compensation for
short-time working announced by the EU and by national governments
succeed in keeping businesses afloat. If they fail and there is a
wave of insolvencies, then unemployment will be permanently higher
and the recession will be deeper and longer.
Offices
Office take-up in Europe Q1'20 was c.30% lower compared to
Q1'19, but the full impact of the crisis is likely to only be
reflected in the Q2 and Q3 numbers. However, initial data suggests
the office sector is relatively well positioned versus other
traditional real estate. In many cities, vacancy was very low at
the end of 2019, so office markets are well placed to cope with a
demand shock. Furthermore, a lot of office occupiers have been able
to maintain operations by asking staff to work from home. The weak
spot is serviced/flexible offices, which saw significant drops in
usage or had to close. As such, some providers will come under
pressure, particularly those that are paying high rents, which will
accelerate a consolidation of the market. On the supply side, Q1'20
vacancy rates were mostly flat. Should the number of bankruptcies
go up or occupiers scale back their requirements, vacancy is likely
to increase in the coming months, further exacerbated as schemes
currently under construction will still complete this year and
next. Yet, the current crisis is also reducing supply volumes after
2021, as developers will hold back on starting new schemes and
banks will be reluctant to provide financing. Overall, rental
growth will be much lower or flat.
Retail
Although the lockdown measures have affected all commercial real
estate, the biggest impact has been on the retail sector (and
leisure and hotels). With the exception of Sweden, all restaurants,
bars and leisure venues were closed and the only stores which
remained open were banks, post offices, food stores and pharmacies.
The lockdowns have given a boost to internet sales and while part
of the shift will reverse as stores re-open, not all of it will and
the structural change to online shopping has most likely
accelerated. Some non-food retailers have deferred paying rent and,
despite government support and the flexibility of landlords, a
number of non-food retailers will fail, particularly those
mid-market brands which were already struggling financially before
Covid-19. Supermarkets, convenience stores and big box units are
likely to be more defensive than shopping centres and department
stores.
Logistics/industrial
In the industrial/logistics sector, the boost from higher online
sales is positive, but must be put in context. The vast majority of
warehouses are occupied by manufacturers and non-food retailers and
logistics operators and their businesses have been seriously
disrupted by the virus. All big car manufacturers have suspended
most of their production and container traffic at European ports
has dropped by 20-30% compared with the first quarter of 2019. In
addition, on the supply side, a significant amount of speculative
space was under construction before the lockdowns and it is
unlikely to let quickly, once completed. Consequently, warehouse
rents in Continental Europe could come under pressure in 2020,
before stabilising in 2021. The demand for industrial manufacturing
use is likely to increase as manufacturers look at diversifying
their supply chains from Asia and include a proportion of local
manufacturing (on-shoring).
Real estate portfolio
The Group owns a portfolio of 13 institutional grade properties
valued at EUR247.3 million 1 as at 31 March 2020. The properties
are 95% let and located across those Winning Cities and regions in
France, Germany, Spain and the Netherlands. All investments are
100% owned except for the Metromar shopping centre, Seville, where
the Group holds a 50% interest.
The top ten properties comprise 92% of the portfolio value:
Rank Property Country Sector EURm % of total
----- -------------------------- ------------------ ---------- ----- ----------
1 Paris (B-B) 2 France Office 41.6 17
----- -------------------------- ------------------ ---------- ----- ----------
2 Paris (S-C) 3 France Office 40.0 16
----- -------------------------- ------------------ ---------- ----- ----------
3 Berlin Germany Retail 27.6 11
----- -------------------------- ------------------ ---------- ----- ----------
4 Seville 1 Spain Retail 22.8 9
----- -------------------------- ------------------ ---------- ----- ----------
5 Apeldoorn Netherlands Mixed 20.0 8
----- -------------------------- ------------------ ---------- ----- ----------
6 Rennes France Industrial 18.3 7
----- -------------------------- ------------------ ---------- ----- ----------
7 Stuttgart Germany Office 17.8 7
----- -------------------------- ------------------ ---------- ----- ----------
8 Hamburg Germany Office 17.6 7
----- -------------------------- ------------------ ---------- ----- ----------
9 Frankfurt Germany Retail 11.5 5
----- -------------------------- ------------------ ---------- ----- ----------
10 Venray Netherlands Industrial 10.3 4
----- -------------------------- ------------------ ---------- ----- ----------
Top ten properties 227.5 92
----------------------------------------------------- ---------- ----- ----------
11-13 Remaining three properties Netherlands/France Industrial 19.8 8
----- -------------------------- ------------------ ---------- ----- ----------
Total 247.3 100
----- -------------------------- ------------------ ---------- ----- ----------
1 Includes the Group's 50% share in the Seville property
proportionally valued at EUR22.8 million as at 31 March 2020.
2 B-B refers to Boulogne-Billancourt.
3 S-C refers to Saint-Cloud.
The table below sets out the top ten tenants, which are from a
diverse range of industry segments and represent 68% of the
portfolio:
Contracted rent
---- ------------------- -------------------- ----------- ----------------- ----------- ------------
WAULT break WAULT expiry
Rank Tenant Industry Property EURm % of total (yrs) (yrs)
---- ------------------- -------------------- ----------- ----- ---------- ----------- ------------
1 KPN Telecom Apeldoorn 2.5 15 6.8 6.8
---- ------------------- -------------------- ----------- ----- ---------- ----------- ------------
2 Alten Engineering services Paris (B-B) 2.4 14 1.0 1.0
---- ------------------- -------------------- ----------- ----- ---------- ----------- ------------
3 Hornbach DIY Berlin 1.6 9 5.8 5.8
---- ------------------- -------------------- ----------- ----- ---------- ----------- ------------
4 C-Log Logistics Rennes 1.1 6 10.9 10.9
---- ------------------- -------------------- ----------- ----- ---------- ----------- ------------
5 Filassistance Insurance Paris (S-C) 0.9 5 1.8 6.8
---- ------------------- -------------------- ----------- ----- ---------- ----------- ------------
Cereal Partners
6 France Consumer staples Rumilly 0.7 4 5.1 6.1
---- ------------------- -------------------- ----------- ----- ---------- ----------- ------------
7 DKL Logistics Venray 0.7 4 8.5 8.5
---- ------------------- -------------------- ----------- ----- ---------- ----------- ------------
8 Land BW Government Stuttgart 0.7 4 6.3 6.3
---- ------------------- -------------------- ----------- ----- ---------- ----------- ------------
9 Outscale IT Paris (S-C) 0.6 4 6.0 9.0
---- ------------------- -------------------- ----------- ----- ---------- ----------- ------------
10 Inventum Industrial Manufacturing Houten 0.6 3 6.2 6.2
---- ------------------- -------------------- ----------- ----- ---------- ----------- ------------
Total top ten tenants 11.8 68 5.3 5.9
------------------------- -------------------- ----------- ----- ---------- ----------- ------------
Remaining tenants 5.4 32 3.5 6.2
------------------------- -------------------- ----------- ----- ---------- ----------- ------------
Total 17.2 100 4.8 6.0
------------------------- -------------------- ----------- ----- ---------- ----------- ------------
The portfolio generates EUR17.2 million p.a. in contracted
income. The average unexpired lease term is 4.8 years to first
break and 6.0 years to expiry.
The lease expiry profile to earliest break is shown below. The
near-term lease expiries provide asset management opportunities to:
renegotiate leases; extend weighted average unexpired lease terms;
improve income security and generate rental growth. In turn, this
activity benefits NAV total return.
Portfolio performance
The current portfolio value of EUR247.3 million(1) reflects an
increase of 11% (EUR24.7 million) compared to the combined purchase
price. Transaction costs have been fully recovered through
valuation uplifts since acquisition.
Over the last 12 months, the underlying property portfolio
generated a total property return of 8.3%. Hereof, the portfolio
income return amounted to 6.6% and the portfolio capital return to
1.7% (net of capex).
Over the six months of the current financial year to 31 March
2020, the underlying property portfolio generated a total property
return of 4.0%.
The strongest contributors to portfolio performance during the
last six months were Paris Saint-Cloud (7.1%), Rennes (7.2%),
Apeldoorn (6.0%) and Rumilly (7.5%). Paris Saint-Cloud is a
high-yielding property which also delivered good valuation
performance driven by favourable leasing activity. Rennes and
Rumilly, both industrial properties, performed well led by rental
value growth and positive yield re-rating. The Apeldoorn property
is over-rented and as such a high-yielding property. Despite the
over-rent and declining remaining lease term, property values held
up well, assisted by improving land value and investment
markets.
The Seville property was the main detractor from performance,
delivering a -0.7% total return.
(1) Includes the Group's 50% share in the Seville property
proportionally valued at EUR22.8 million as at 31 March 2020.
Finance
As at 31 March 2020, the Group's total external debt was EUR80.7
million, across seven loan facilities. This represents a loan to
value ('LTV') of 30% against the Group's gross asset value. Net of
cash, the Group's LTV is 27%. There is a net of cash LTV cap of 35%
that restricts concluding new external loans if the Group's net LTV
is above 35%. An increase in leverage above 35% as a result of
valuation decline is excluded from this cap.
During the period, the loan on the Saint-Cloud office building
in Paris was increased by EUR4 million to EUR17 million and a new
3.5 year loan of EUR3.7 million was also taken against the Rumilly
logistics asset in France. The additional loans were drawn mainly
to fund capital expenditure across the portfolio.
The current blended all-in interest rate is 1.4%, significantly
below the portfolio yield of 5.8% p.a., providing a favourable
yield gap. The average unexpired loan term is 4.4 years.
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
LTV Headroom net
Outstanding default income default
Maturity principal Interest covenant covenant
Lender Property date 1 rate (% decline) (% decline)
--------------------- ------------------ ----------- ----------- ------------- ------------ --------------------
BRED Banque Populaire Paris (S-C) 15/12/2024 EUR17.00m 3M Eur +1.33% -25% -28%
--------------------- ------------------ ----------- ----------- ------------- ------------ --------------------
Deutsche
Pfandbriefbank Berlin/Frankfurt 30/06/2026 EUR16.50m 1.31% -33% -40%
--------------------- ------------------ ----------- ----------- ------------- ------------ --------------------
Deutsche
Pfandbriefbank Stuttgart/Hamburg 30/06/2023 EUR14.00m 0.85% -37% -15%
--------------------- ------------------ ----------- ----------- ------------- ------------ --------------------
Münchener No default covenant,
Hypothekenbank but currently
1 Seville (50%) 22/05/2024 EUR11.68m 1.76% -17% in cash trap
--------------------- ------------------ ----------- ----------- ------------- ------------ --------------------
Utrecht, Venray,
HSBC Houten 27/09/2023 EUR9.25m 3M Eur +2.15% -36% -64%
--------------------- ------------------ ----------- ----------- ------------- ------------ --------------------
Saar LB Rennes 28/03/2024 EUR8.60m 3M Eur +1.40% -24% -73%
--------------------- ------------------ ----------- ----------- ------------- ------------ --------------------
Saar LB Rumilly 30/04/2023 EUR3.70m 3M Eur +1.30% -28% -72%
--------------------- ------------------ ----------- ----------- ------------- ------------ --------------------
Total EUR80.73m
------------------------------------------------------ ----------- ------------- ------------ --------------------
1 All statistics in the Investment Manager's Report reflect a
50% ownership share of Seville. As a result, debt allocations for
those investments in the table above are similarly
proportioned.
For the Seville shopping centre, 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. This position will continue until the
rental income increases sufficiently to meet the level required
under the loan. There is 17% valuation decline headroom before
breaching the default LTV covenant.
The Berlin/Frankfurt and Hamburg/Stuttgart loans also have cash
trap covenants (in addition to the above default covenants)
relating to income. The headroom for net income decline in respect
of these is 29% for Berlin/Frankfurt and 1.5% for
Hamburg/Stuttgart, which will increase as the vacant space at the
Hamburg property is relet.
The German and Spanish loans are fixed rate for the duration of
the loan term. The French and Netherlands loans are based on a
margin above three-month Euribor. The Group has acquired interest
rate caps to limit future potential interest costs if Euribor were
to increase. The strike rates on the interest rate caps are between
0.25% p.a. and 1.25% p.a.
The Company is currently considering funding options for the
refurbishment of the Paris Boulogne-Billancourt property. One
option may include drawing additional debt to fund the
refurbishment, which would increase the Company's overall LTV level
and potentially requires shareholder approval to temporarily
increase the Company's LTV cap.
Responsible investing with impact
The Board and the Investment Manager believe corporate social
responsibility is key to long-term future business success. A
successful sustainable investment programme should deliver enhanced
returns to investors, improved business performance to occupiers
and deliver tangible positive impacts to local communities, the
environment and wider society.
The Investment Manager's sustainability programme is continually
evolving, reflecting progression with industry sustainability
targets, available technologies and the regulatory environment. Our
programme looks to continually improve the sustainability
credentials of the Company's portfolio. In 2019, the Company's work
was recognised with the achievement of a Green Star in the annual
Global Real Estate Sustainability Benchmark survey. The Investment
Manager is evolving its investment philosophy to incorporate impact
investing at the heart of its investment management activities.
Impact investing involves proactively taking action to improve
social and environmental outcomes. The Investment Manager has
identified four pillars of impact and mapped these to the UN
Sustainable Development Goals.
We are working to understand the opportunities and deliver
positive impact through our activities within the built environment
to communities and the environment. In relation to the environment,
positive action is needed as the built environment is generally
accepted to be responsible for 40% of global carbon emissions. In
recognition of the role and responsibilities of the real estate
industry and property owners, The Investment Manager signed the
Better Buildings Partnership Climate Commitment in September 2019.
This initiative supports the drive to net zero carbon in buildings
and the first stage of this is to set out our pathway to net zero
in 2020. This commitment is a natural extension of the 's
sustainability programme which includes targets to reduce energy
consumption and greenhouse gas emissions. Please refer to the
Company's Annual Sustainability Report for more information on the
sustainability strategy. We will report on the Company's progress
with this impact programme in the Annual Report.
Outlook
The outlook for real estate markets remains uncertain. The
impacts of Covid-19 have yet to fully play out and the depth and
recovery of global GDP cannot be predicted with any confidence.
Over the period, the SEREIT portfolio has stood up well,
underpinned by our tenant and sector diversity that has led to
favourable rent collection rates and valuation resilience. We
continue to believe that the portfolio's weighting towards
Continental European 'Winning Cities' like Paris, Berlin, Frankfurt
and Hamburg will be beneficial to its future performance and
liquidity.
The activity during the interim period focused on asset
management. In particular, the advancement of a value-enhancing
initiative to refurbish the Company's largest investment in
Boulogne-Billancourt, Paris wherein the sitting tenant, Alten, have
signed a long-term conditional lease commitment. This is a good
example of using local expertise to create value through things we
can control. This will continue to be a key element of SEREIT's
ability to deliver long-term capital and income growth to
shareholders.
Schroder Real Estate Investment Management Limited
23 June 2020
Directors' Report
Principal risks and uncertainties
The principal risks and uncertainties with the Company's
business fall into the following risk categories: investment policy
and strategic; economic and property market; investment management;
custody; gearing and leverage; accounting, legal and regulatory;
valuation; and service provider. A detailed explanation of the
risks and uncertainties in each of these categories can be found on
pages 27 and 28 of the Company's published Annual Report and
Consolidated Financial Statements for the year ended 30 September
2019.
The emergence of coronavirus (Covid-19) in Continental Europe
has heightened some of these risks, in particular, economic and
property market risk, valuation risk, gearing and leverage risk,
and service provider risk.
Insofar as Covid-19 has impacted the economic and property
market, the Investment Manager is in close contact with property
managers and tenants with an immediate focus on rent collection,
reducing risk and implementing new property management procedures
to ensure tenants and consumers can return safely to
properties.
The Covid-19 pandemic has also increased the risk profile of the
refurbishment of Boulogne-Billancourt, in particular, the Company's
ability to commit to a construction contract, to fulfil the
conditions of the lease agreed with the sitting tenant, and to
obtain funding (either through forward funding or debt). We have
made good progress over the period in mitigating these key
risks.
In respect of the impact on valuations, as is the case in the
property sector as a whole, the Company's valuers have advised they
"can attach less weight to previous market evidence for comparison
purposes, to inform opinions of value" and have applied a material
uncertainty clause to the Company's valuations, which remains in
place as at the date of this Report. Having regard to its diverse
portfolio of assets and asset management initiatives, the board
considers that the valuation of its properties should be able to
withstand downward pressure arising from Covid-19 in the long term.
However, in line with the valuers' recommendation, valuations will
continue to be kept under regular review.
In terms of gearing and leverage, the risk of increased vacancy
as a result of Covid-19 and also the potential downward pressure on
values could heighten the risk of breaching net rental income
covenants and Loan to Value covenants in individual loan
agreements. There is currently headroom on all default covenants,
but the Seville Shopping Centre asset is currently in cash trap
under the terms of the loan for that property. Gearing covenants
are being monitored closely and an open dialogue with lenders is
being maintained.
Covid-19 also affected the Company's service providers,
including the Investment Manager, who have implemented business
continuity plans and are working almost entirely remotely. The
board continues to monitor the Company's major service providers
and has not seen, and does not anticipate, a fall in the level of
service it receives.
The principal risks and uncertainties have not materially
changed during the six months ended 31 March 2020, except for the
risks associated with Covid-19 as outlined above which are expected
to continue for the foreseeable future.
Going concern
Following the emergence and spread of Covid-19, and government
regulations presented in March 2020, businesses have restricted
employee travel for work and some tenants have had to temporarily
close operations. There are no comparable recent events which may
provide guidance as to the effect of the spread of Covid-19 and a
potential pandemic, and, as a result, the ultimate impact of the
Covid-19 outbreak or a similar health epidemic is highly uncertain
and subject to change. As a result of this, the independent
property valuer, Knight Frank LLP, has issued a material
uncertainty clause for the March 2020 valuation of the assets.
The Directors have examined significant areas of possible
financial risk including: the non-collection of rent and service
charges; potential falls in valuations; the refurbishment of
Boulogne-Billancourt, the review of cash flow forecasts and have
analysed forward-looking compliance with third party debt
covenants, in particular the loan to value covenant and interest
cover ratios.
As at 31 March 2020, 97% of the March quarter rents were
collected. At the time of reporting, 84% of rents had been
collected post period end for the quarter April, May and June 2020.
Further details are provided under 'Covid-19 impact' in the
Investment Manager's Report on page 10 of the condensed
consolidated interim financial statements. Rent collection is being
closely monitored by the Investment Manager.
Cash flow forecasts based on plausible downside scenarios
including the anticipated impact of Covid-19 and the risks
associated with the Boulogne-Billancourt refurbishment has led the
Board to conclude that the Group will have sufficient cash reserves
to continue in operation for the foreseeable future.
The Company has seven loans secured by individual assets or
groups of 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 14 of the condensed consolidated interim financial
statements.
Having assessed the principal risks and uncertainties, and the
other matters discussed in connection with the viability statement
as set out on page 29 of the published Annual Report and
Consolidated Financial Statements for the year ended 30 September
2019, the Directors consider it appropriate to adopt the going
concern basis in preparing the accounts.
Related party transactions
There have been no transactions with related parties that have
materially affected the financial position or the performance of
the Company during the six months ended 31 March 2020. Related
party transactions are disclosed in note 14 of the condensed
consolidated interim financial statements.
Statement of Directors' responsibilities
The Directors confirm that to the best of their knowledge:
-- The half year report and condensed consolidated interim
financial statements have been prepared in accordance with IAS 34
Interim Financial Reporting as adopted by the European Union;
and
-- The Interim Management Report includes a fair review of the
information required by 4.2.7R and 4.2.8R of the Financial Conduct
Authority's Disclosure Guidance and Transparency Rules.
Sir Julian Berney Bt.
Chairman
23 June 2020
Condensed Consolidated Interim Statement of Comprehensive
Income
For the period ended 31 March 2020
Six months Six months
to to Year to
31 March 31 March 30 September
2020 2019 2019
EUR000 EUR000 EUR000
Notes (unaudited) (unaudited) (audited)
-------------------------------------------------- ----- ------------ ------------ -------------
Rental and service charge income 2 9,859 8,945 18,667
-------------------------------------------------- ----- ------------ ------------ -------------
Other income 3 - 1,500 1,500
-------------------------------------------------- ----- ------------ ------------ -------------
Property operating expenses (2,794) (2,423) (4,807)
-------------------------------------------------- ----- ------------ ------------ -------------
Net rental and related income 7,065 8,022 15,360
-------------------------------------------------- ----- ------------ ------------ -------------
Net gain/(loss) from fair value adjustment
on investment property 4 2,907 (1,566) 3,530
-------------------------------------------------- ----- ------------ ------------ -------------
Realised (loss)/gain on foreign exchange (6) 4 6
-------------------------------------------------- ----- ------------ ------------ -------------
Net change in fair value of financial
instruments at fair value through profit
or loss 5 6 (200) (304)
-------------------------------------------------- ----- ------------ ------------ -------------
Provision of internal loan made to Seville
joint venture 6 (1,097) - -
-------------------------------------------------- ----- ------------ ------------ -------------
Dividends received from joint venture 7 - - 93
-------------------------------------------------- ----- ------------ ------------ -------------
Expenses
-------------------------------------------------- ----- ------------ ------------ -------------
Investment management fee 14 (969) (947) (1,904)
-------------------------------------------------- ----- ------------ ------------ -------------
Valuers' and other professional fees (481) (494) (953)
-------------------------------------------------- ----- ------------ ------------ -------------
Administrator's and accounting fees (178) (165) (342)
-------------------------------------------------- ----- ------------ ------------ -------------
Auditors' remuneration (205) (191) (356)
-------------------------------------------------- ----- ------------ ------------ -------------
Directors' fees 14 (73) (72) (142)
-------------------------------------------------- ----- ------------ ------------ -------------
Other expenses (197) (129) (183)
-------------------------------------------------- ----- ------------ ------------ -------------
Total expenses (2,103) (1,998) (3,880)
-------------------------------------------------- ----- ------------ ------------ -------------
Operating profit 6,772 4,262 14,805
-------------------------------------------------- ----- ------------ ------------ -------------
Finance income 227 226 452
-------------------------------------------------- ----- ------------ ------------ -------------
Finance costs (570) (402) (906)
-------------------------------------------------- ----- ------------ ------------ -------------
Net finance costs (343) (176) (454)
-------------------------------------------------- ----- ------------ ------------ -------------
Share of loss of joint venture 7 (684) (71) (3,369)
-------------------------------------------------- ----- ------------ ------------ -------------
Profit before taxation 5,745 4,015 10,982
-------------------------------------------------- ----- ------------ ------------ -------------
Taxation 8 (785) (818) (3,527)
-------------------------------------------------- ----- ------------ ------------ -------------
Profit after taxation 4,960 3,197 7,455
-------------------------------------------------- ----- ------------ ------------ -------------
Basic and diluted earnings per share attributable
to owners of the parent 9 3.7c 2.4c 5.6c
-------------------------------------------------- ----- ------------ ------------ -------------
Profit for the period/year 4,960 3,197 7,455
-------------------------------------------------- ----- ------------ ------------ -------------
Other comprehensive income:
-------------------------------------------------- ----- ------------ ------------ -------------
Other comprehensive loss items that may
be reclassified to profit or loss:
-------------------------------------------------- ----- ------------ ------------ -------------
Currency translation differences (21) (6) (15)
-------------------------------------------------- ----- ------------ ------------ -------------
Total other comprehensive loss (21) (6) (15)
-------------------------------------------------- ----- ------------ ------------ -------------
Total comprehensive income for the period/year 4,939 3,191 7,440
-------------------------------------------------- ----- ------------ ------------ -------------
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 2020
Six months Six months
to Year to to
31 March 30 September 31 March
2020 2019 2019
EUR000 EUR000 EUR000
Notes (unaudited) (audited) (unaudited)
-------------------------------------- ----- ------------ ------------- ------------
Assets
-------------------------------------- ----- ------------ ------------- ------------
Non-current assets
-------------------------------------- ----- ------------ ------------- ------------
Investment property 4 224,143 218,896 213,174
-------------------------------------- ----- ------------ ------------- ------------
Investment in joint venture 7 1,694 2,378 6,626
-------------------------------------- ----- ------------ ------------- ------------
Loan to joint venture 6 8,980 10,035 10,035
-------------------------------------- ----- ------------ ------------- ------------
Non-current assets 234,817 231,309 229,835
-------------------------------------- ----- ------------ ------------- ------------
Current assets
-------------------------------------- ----- ------------ ------------- ------------
Trade and other receivables 8,172 6,341 5,773
-------------------------------------- ----- ------------ ------------- ------------
Interest rate derivative contracts 5 48 17 121
-------------------------------------- ----- ------------ ------------- ------------
Cash and cash equivalents 18,535 16,053 15,166
-------------------------------------- ----- ------------ ------------- ------------
Current assets 26,755 22,411 21,060
-------------------------------------- ----- ------------ ------------- ------------
Total assets 261,572 253,720 250,895
-------------------------------------- ----- ------------ ------------- ------------
Equity
-------------------------------------- ----- ------------ ------------- ------------
Share capital 15,050 15,080 15,540
-------------------------------------- ----- ------------ ------------- ------------
Share premium 29,984 30,043 30,959
-------------------------------------- ----- ------------ ------------- ------------
Retained earnings 4,442 4,430 5,120
-------------------------------------- ----- ------------ ------------- ------------
Other reserves 132,602 132,534 131,167
-------------------------------------- ----- ------------ ------------- ------------
Total equity 182,078 182,087 182,786
-------------------------------------- ----- ------------ ------------- ------------
Liabilities
-------------------------------------- ----- ------------ ------------- ------------
Non-current liabilities
-------------------------------------- ----- ------------ ------------- ------------
Interest-bearing loans and borrowings 10 68,293 60,692 60,506
-------------------------------------- ----- ------------ ------------- ------------
Deferred tax liability 8 1,900 1,521 1,061
-------------------------------------- ----- ------------ ------------- ------------
Non-current liabilities 70,193 62,213 61,567
-------------------------------------- ----- ------------ ------------- ------------
Current liabilities
-------------------------------------- ----- ------------ ------------- ------------
Trade and other payables 8,994 8,967 5,619
-------------------------------------- ----- ------------ ------------- ------------
Current tax liabilities 8 307 453 923
-------------------------------------- ----- ------------ ------------- ------------
Current liabilities 9,301 9,420 6,542
-------------------------------------- ----- ------------ ------------- ------------
Total liabilities 79,494 71,633 68,109
-------------------------------------- ----- ------------ ------------- ------------
Total equity and liabilities 261,572 253,720 250,895
-------------------------------------- ----- ------------ ------------- ------------
Net asset value per ordinary share 12 136.2c 136.2c 136.7c
-------------------------------------- ----- ------------ ------------- ------------
The accompanying notes 1 to 16 form an integral part of the
condensed consolidated interim financial statements.
Condensed Consolidated Interim Statement of Changes in
Equity
For the period ended 31 March 2020
Retained
Share capital Share premium earnings Other reserves Total equity
Notes EUR000 EUR000 EUR000 EUR000 EUR000
---------------------------- ----- ------------- ------------- --------- -------------- ------------
Balance as at 1 October
2019 15,080 30,043 4,430 132,534 182,087
---------------------------- ----- ------------- ------------- --------- -------------- ------------
Profit for the period - - 4,960 - 4,960
---------------------------- ----- ------------- ------------- --------- -------------- ------------
Other comprehensive loss
for the period - - - (21) (21)
---------------------------- ----- ------------- ------------- --------- -------------- ------------
Dividends paid 13 - - (4,948) - (4,948)
---------------------------- ----- ------------- ------------- --------- -------------- ------------
Unrealised foreign exchange (30) (59) - 89 -
---------------------------- ----- ------------- ------------- --------- -------------- ------------
Balance as at 31 March
2020 (unaudited) 15,050 29,984 4,442 132,602 182,078
---------------------------- ----- ------------- ------------- --------- -------------- ------------
Retained
Share capital Share premium earnings Other reserves Total equity
Notes EUR000 EUR000 EUR000 EUR000 EUR000
---------------------------- ----- ------------- ------------- --------- -------------- ------------
Balance as at 1 October
2018 15,015 29,912 4,397 132,745 182,069
---------------------------- ----- ------------- ------------- --------- -------------- ------------
Profit for the year - - 7,455 - 7,455
---------------------------- ----- ------------- ------------- --------- -------------- ------------
Other comprehensive loss
for the year - - - (15) (15)
---------------------------- ----- ------------- ------------- --------- -------------- ------------
Dividends paid 13 - - (7,422) - (7,422)
---------------------------- ----- ------------- ------------- --------- -------------- ------------
Unrealised foreign exchange 65 131 - (196) -
---------------------------- ----- ------------- ------------- --------- -------------- ------------
Balance as at 30 September
2019 (audited) 15,080 30,043 4,430 132,534 182,087
---------------------------- ----- ------------- ------------- --------- -------------- ------------
Retained
Share capital Share premium earnings Other reserves Total equity
Notes EUR000 EUR000 EUR000 EUR000 EUR000
---------------------------- ----- ------------- ------------- --------- -------------- ------------
Balance as at 1 October
2018 15,015 29,912 4,397 132,745 182,069
---------------------------- ----- ------------- ------------- --------- -------------- ------------
Profit for the period - - 3,197 - 3,197
---------------------------- ----- ------------- ------------- --------- -------------- ------------
Other comprehensive loss
for the period - - - (6) (6)
---------------------------- ----- ------------- ------------- --------- -------------- ------------
Dividends paid 13 - - (2,474) - (2,474)
---------------------------- ----- ------------- ------------- --------- -------------- ------------
Unrealised foreign exchange 525 1,047 - (1,572) -
---------------------------- ----- ------------- ------------- --------- -------------- ------------
Balance as at 31 March
2019 (unaudited) 15,540 30,959 5,120 131,167 182,786
---------------------------- ----- ------------- ------------- --------- -------------- ------------
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 2020
Six months Six months Year to
to 31 March to 31 March 30 September
2020 2019 2019
EUR000 EUR000 EUR000
Notes (unaudited) (unaudited) (audited)
--------------------------------------------- ----- ------------ ------------ -------------
Operating activities
--------------------------------------------- ----- ------------ ------------ -------------
Profit before tax for the period/year 5,745 4,015 10,982
--------------------------------------------- ----- ------------ ------------ -------------
Adjustments for:
--------------------------------------------- ----- ------------ ------------ -------------
Net (gain)/loss from fair value adjustment
on investment property 4 (2,907) 1,566 (3,530)
--------------------------------------------- ----- ------------ ------------ -------------
Share of loss of joint venture 7 684 71 3,369
--------------------------------------------- ----- ------------ ------------ -------------
Realised foreign exchange loss/(gain) 6 (4) (6)
--------------------------------------------- ----- ------------ ------------ -------------
Finance income (227) (226) (452)
--------------------------------------------- ----- ------------ ------------ -------------
Finance costs 570 402 906
--------------------------------------------- ----- ------------ ------------ -------------
Net change in fair value of financial
instruments at fair value through profit
or loss 5 (6) 200 304
--------------------------------------------- ----- ------------ ------------ -------------
Intercompany loan provision to Seville
joint venture 6 1,097 - -
--------------------------------------------- ----- ------------ ------------ -------------
Dividends received from joint venture 7 - - (93)
--------------------------------------------- ----- ------------ ------------ -------------
Operating cash generated before changes
in working capital 4,962 6,024 11,480
--------------------------------------------- ----- ------------ ------------ -------------
(Increase)/decrease in trade and other
receivables (1,648) 6,761 6,308
--------------------------------------------- ----- ------------ ------------ -------------
(Decrease)/increase in trade and other
payables (494) 259 3,909
--------------------------------------------- ----- ------------ ------------ -------------
Cash generated from operations 2,820 13,044 21,697
--------------------------------------------- ----- ------------ ------------ -------------
Finance costs paid (813) (569) (1,027)
--------------------------------------------- ----- ------------ ------------ -------------
Finance income received 226 226 452
--------------------------------------------- ----- ------------ ------------ -------------
Tax paid 8 (552) (373) (3,092)
--------------------------------------------- ----- ------------ ------------ -------------
Net cash generated from operating activities 1,681 12,328 18,030
--------------------------------------------- ----- ------------ ------------ -------------
Investing activities
--------------------------------------------- ----- ------------ ------------ -------------
Acquisition of investment property - (18,013) (18,281)
--------------------------------------------- ----- ------------ ------------ -------------
Additions to investment property (1,900) (878) (1,513)
--------------------------------------------- ----- ------------ ------------ -------------
Investment in joint venture - - 950
--------------------------------------------- ----- ------------ ------------ -------------
Dividends received from joint venture 7 - - 93
--------------------------------------------- ----- ------------ ------------ -------------
Net cash used in investing activities (1,900) (18,891) (18,751)
--------------------------------------------- ----- ------------ ------------ -------------
Financing activities
--------------------------------------------- ----- ------------ ------------ -------------
Proceeds from borrowings 10 7,700 8,600 8,600
--------------------------------------------- ----- ------------ ------------ -------------
Interest rate cap purchased 5 (25) (133) (133)
--------------------------------------------- ----- ------------ ------------ -------------
Dividends paid 13 (4,948) (2,474) (7,422)
--------------------------------------------- ----- ------------ ------------ -------------
Net cash generated from financing activities 2,727 5,993 1,045
--------------------------------------------- ----- ------------ ------------ -------------
Net increase/(decrease) in cash and cash
equivalents for the period/year 2,508 (570) 324
--------------------------------------------- ----- ------------ ------------ -------------
Opening cash and cash equivalents 16,053 15,738 15,738
--------------------------------------------- ----- ------------ ------------ -------------
Effects of exchange rate change on cash (26) (2) (9)
--------------------------------------------- ----- ------------ ------------ -------------
Closing cash and cash equivalents 18,535 15,166 16,053
--------------------------------------------- ----- ------------ ------------ -------------
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 2020
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 2019 were approved by the Board of Directors on 6
December 2019 and were delivered to the Registrar of Companies. The
report of the auditors on those accounts was unqualified, did not
contain an emphasis of matter paragraph and did not contain any
statement under section 498 of the Companies Act 2006.
These condensed consolidated interim financial statements have
been reviewed and not audited.
Statement of compliance
The condensed consolidated interim financial statements have
been prepared in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom Financial Conduct
Authority and IAS 34 Interim Financial Reporting as adopted by the
European Union ('EU'). They do not include all of the information
required for the full annual financial statements and should be
read in conjunction with the consolidated financial statements of
the Group as at and for the year ended 30 September 2019. 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 2019. The consolidated financial statements for the year
ended 30 September 2019 have been prepared in accordance with
International Financial Reporting Standards ('IFRS') as adopted by
the EU. The Group's annual financial statements refer to new
Standards and Interpretations, none of which had a material impact
on the financial statements.
Basis of preparation
The condensed consolidated interim financial statements are
presented in euros rounded to the nearest thousand. They are
prepared on a going concern basis, applying the historical cost
convention, except for the measurement of investment property and
derivative financial instruments that have been measured at fair
value. The accounting policies have been consistently applied to
the results, assets, liabilities and cash flow of the entities
included in the condensed consolidated interim financial statements
and are consistent with those of the year end financial report.
Going concern
Following the emergence and spread of Covid-19, and government
regulations presented in March 2020, businesses have restricted
employee travel for work and some tenants have had to temporarily
close operations. There are no comparable recent events which may
provide guidance as to the effect of the spread of Covid-19 and a
potential pandemic, and, as a result, the ultimate impact of the
Covid-19 outbreak or a similar health epidemic is highly uncertain
and subject to change. As a result of this, the independent
property valuer, Knight Frank LLP, has issued a material
uncertainty clause for the March 2020 valuation of the assets.
The Directors have examined significant areas of possible
financial risk including: the non-collection of rent and service
charges, potential falls in valuations, the refurbishment of
Boulogne-Billancourt, the review of cash flow forecasts and have
analysed forward-looking compliance with third party debt
covenants, in particular the loan to value covenant and interest
cover ratios.
As at 31 March 2020, 97% of the March quarter rents were
collected. At the time of reporting, 84% of rents had been
collected post period end for the quarter April, May and June 2020.
Further details are provided under 'Covid-19 impact' in the
Investment Manager's Report on page 10 of the condensed
consolidated interim financial statements. Rent collection is being
closely monitored by the Investment Manager.
Cash flow forecasts based on plausible downside scenarios
including the anticipated impact of Covid-19 and the risks
associated with the Boulogne-Billancourt refurbishment has led the
Board to conclude that the Group will have sufficient cash reserves
to continue in operation for the foreseeable future.
The Company has seven loans secured by individual assets or
groups of 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 14 of the condensed consolidated interim financial
statements.
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 twelve
months from the date of the approval of the condensed consolidated
interim
financial statements. The Directors have satisfied themselves
that the Group has adequate resources to continue in operational
existence for the
foreseeable future.
Use of estimates and judgements
The preparation of financial statements in conformity with IFRS,
as adopted by the EU, requires management to make judgements,
estimates and assumptions that affect the application of policies
and the reported amounts of assets and liabilities, income and
expenses. These estimates and associated assumptions are based on
historical experience and various other factors that are believed
to be reasonable under the circumstances, the results of which form
the basis of making judgements about the carrying values of assets
and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates. The estimates and
underlying assumptions are reviewed on an ongoing basis. Revisions
to accounting estimates are recognised in the period in which the
estimates are revised and in any future periods affected.
The most significant estimates made in preparing the condensed
consolidated interim financial statements relate to the carrying
value of investment properties (as disclosed in note 4, including
those within joint ventures) which are stated at fair value. Fair
value is inherently subjective because the valuer makes assumptions
which may not prove to be accurate. The Group uses external
professional valuers to determine the relevant amounts.
The external valuer has included a material valuation
uncertainty clause in their report as of 31 March 2020. The clause
highlights significant estimation uncertainty regarding the
valuation of investment property due to the Covid-19 pandemic. The
valuations as at the current balance sheet date should therefore be
treated with additional caution. Sensitivity analysis is included
within note 4.
Another significant estimate is the IFRS 9 expected credit loss.
IFRS 9 became effective for accounting periods of entities
beginning on or after 1 January 2018 and requires an impairment
review to be made for certain financial assets held on a Group's
balance sheet using a forward-looking expected credit loss model.
All inter-company 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 Statement of
Comprehensive Income together with appropriate disclosure in the
notes to the accounts (see note 6).
The following factors and inputs were considered in determining
the impairment provision made to the joint venture loan: property
valuation; NAV of the joint venture; cash held to pay unpaid
interest; lockdown measures and easing thereof; rent collections
and concessions; compliance with debt covenants and headroom
thereof; key leasing activity post the interim period date;
collaboration of the third party lender to release cash trapped to
aid asset management initiatives; stress tests and cash flow
forecasts.
Another key area of judgement is tax provisioning and
disclosure. Management use external tax advisers to monitor changes
to 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.
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 financial risk profile of the Group has been heightened
since the end of the last annual financial reporting period for the
year ended 30 September 2019, due to the outbreak of the Covid-19
virus.
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 and market risk are the two that have been most
affected by Covid-19.
Credit risk
The Directors have considered the impact of Covid-19 on the
recoverability of its assets. With regard to trade and other
receivables, these were considered not to have been impaired due to
Covid-19 at the balance sheet date since the March quarter rents
were collected in full and sufficient provisions were made against
aged tenant receivables where these were doubtful. Management will
continue to monitor the ability of the tenants to pay in
future.
With regard to the loan to the Seville joint venture, the
Directors have assessed this for an expected credit loss under IFRS
9 and, consequently, have recognised an impairment against the
receivable, see note 6 for further details.
Market risk
While it is possible to identify the real estate sectors most
exposed over the short term to the outbreak of the Covid-19
pandemic, there is no clear way to identify how significant the
downside risks will be and what the ultimate impact on real estate
valuations will be and therefore the external valuer has included a
'materiality valuation uncertainty' clause as stated in note 4. The
sensitivity of the market value of the investment properties to
changes in the equivalent yield is also disclosed in note 4 of the
financial statements.
New standards and interpretations adopted by the Group
IFRS 16 - Leases
The Group adopted IFRS 16 Leases on 1 October 2019. As a result,
the Group reports its service charge income separately from its
rental income (see note 2). There has been no material impact to
the Group's net income or on the Group's balance sheet.
2. Rental and service charge income
Six months Six months
to 31 March to 31 March
Year to
30 September
2020 2019 2019
EUR000 EUR000 EUR000
(unaudited) (unaudited) (audited)
---------------------- ------------ ------------ -------------
Rental income 7,563 6,976 14,691
---------------------- ------------ ------------ -------------
Service charge income 2,296 1,969 3,976
---------------------- ------------ ------------ -------------
Total 9,859 8,945 18,667
---------------------- ------------ ------------ -------------
3. Other income
Other income for the 31 March 2020 interim period is nil. Other
income of EUR1,500,000 received in the 31 March 2019 interim
period, and included in the consolidated financial statements for
the year ended 30 September 2019, relates to a lease surrender
premium agreement pursuant to the Company's Hamburg office asset in
Germany.
4. Investment property
Freehold
EUR000
--------------------------------------------- --------
Fair value at 30 September 2018 (audited) 195,644
--------------------------------------------- --------
Property acquisitions 18,211
--------------------------------------------- --------
Additions 885
--------------------------------------------- --------
Net valuation loss on investment property (1,566)
--------------------------------------------- --------
Fair value as at 31 March 2019 (unaudited) 213,174
--------------------------------------------- --------
Additions 626
--------------------------------------------- --------
Net valuation gain on investment property 5,096
--------------------------------------------- --------
Fair value as at 30 September 2019 (audited) 218,896
--------------------------------------------- --------
Additions 2,340
--------------------------------------------- --------
Net valuation gain on investment property 2,907
--------------------------------------------- --------
Fair value as at 31 March 2020 (unaudited) 224,143
--------------------------------------------- --------
The fair value of investment properties, as determined by the
valuer, totals EUR224,500,000 (30 September 2019: EUR219,200,000)
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 EUR224,500,000 includes a tenant incentive
adjustment of EUR357,000 (30 September 2019: EUR304,000).
Due to the spread of the Novel Coronavirus (Covid-19), the
Group's valuer has included the following 'Material valuation
uncertainty' clause in its valuation report as at 31 March
2020:
" The outbreak of the Novel Coronavirus (Covid-19), declared by
the World Health Organization as a 'Global Pandemic' on 11 March
2020, has impacted global financial markets. Travel restrictions
have been implemented by many countries. In Europe, market activity
is being impacted in all sectors.
As at the valuation date, we consider that we can attach less
weight to previous market evidence for comparison purposes, to
inform opinions of value. Indeed, the current response to Covid-19
means that we are faced with an unprecedented set of circumstances
on which to base a judgement.
Consequently, less certainty and a higher degree of caution -
should be attached to our valuation than would normally be the
case. Given the unknown future impact that Covid-19 might have on
the real estate market, we recommend that you keep the valuation of
this portfolio under frequent review."
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 2020 (unaudited)
Retail
(including
retail
Industrial warehouse) Office Total
----------------------------- ----------------- ------------ ------------- ------------ ------------
270,100
Fair value (EUR000) 48,450 84,650 137,000 3
------------------------------------------------ ------------ ------------- ------------ ------------
Area ('000 sq. m) 68.821 44.365 60.434 173.620
------------------------------------------------ ------------ ------------- ------------ ------------
Net passing rent EUR per sq.
m per annum Range 40.39-101.11 94.73-141.07 76.07-358.22 40.39-358.22
----------------------------- ----------------- ------------ ------------- ------------ ------------
Weighted average
2 49.01 106.10 196.79 141.86
----------------------------------------------- ------------ ------------- ------------ ------------
Gross ERV EUR per sq. m per
annum Range 38.00-89.40 101.58-182.60 79.93-419.91 38.00-419.91
----------------------------- ----------------- ------------ ------------- ------------ ------------
Weighted average
2 49.12 152.85 241.26 179.09
----------------------------------------------- ------------ ------------- ------------ ------------
Net initial yield 1 Range 5.43-7.61 4.79-5.24 2.52-11.82 2.52-11.82
----------------------------- ----------------- ------------ ------------- ------------ ------------
Weighted average
2 6.19 4.96 5.94 5.68
----------------------------------------------- ------------ ------------- ------------ ------------
Equivalent yield Range 5.25-6.81 5.05-6.45 4.05-10.60 4.05-10.60
----------------------------- ----------------- ------------ ------------- ------------ ------------
Weighted average
2 6.04 5.94 6.05 6.01
----------------------------------------------- ------------ ------------- ------------ ------------
Notes:
1 Yields based on rents receivable after deduction of head rents and non-recoverables.
2 Weighted by market value.
3 This table includes the joint venture investment property
valued at EUR45.6 million which is disclosed within the summarised
information within note 7 as part of total assets.
Quantitative information about fair value measurement using
unobservable inputs (Level 3) as at 30 September 2019 (audited)
Retail
(including
retail
Industrial warehouse) Office Total
----------------------------- ----------------- ----------- ------------- ------------ ------------
266,200
Fair value (EUR000) 47,450 85,350 133,400 3
------------------------------------------------ ----------- ------------- ------------ ------------
Area ('000 sq. m) 68.806 44.365 60.433 173.604
------------------------------------------------ ----------- ------------- ------------ ------------
Net passing rent EUR per sq.
m per annum Range 39.78-99.84 94.73-141.07 61.78-355.86 39.78-355.86
----------------------------- ----------------- ----------- ------------- ------------ ------------
Weighted average
2 48.70 105.55 193.91 139.70
----------------------------------------------- ----------- ------------- ------------ ------------
Gross ERV EUR per sq. m per
annum Range 38.00-89.40 101.58-184.47 79.76-419.91 38.00-419.91
----------------------------- ----------------- ----------- ------------- ------------ ------------
Weighted average
2 48.46 154.78 241.33 179.20
----------------------------------------------- ----------- ------------- ------------ ------------
Net initial yield 1 Range 5.64-7.45 4.70-5.38 2.13-11.52 2.13-11.52
----------------------------- ----------------- ----------- ------------- ------------ ------------
Weighted average
2 6.28 4.96 5.92 5.68
----------------------------------------------- ----------- ------------- ------------ ------------
Equivalent yield Range 5.50-7.00 5.10-6.48 4.10-10.44 4.10-10.44
----------------------------- ----------------- ----------- ------------- ------------ ------------
Weighted average
2 6.11 6.02 6.04 6.05
----------------------------------------------- ----------- ------------- ------------ ------------
Notes:
1 Yields based on rents receivable after deduction of head rents and non-recoverables.
2 Weighted by market value.
3 This table includes the joint venture investment property
valued at EUR47.0 million which is disclosed within the summarised
information within note 7 as part of total assets.
Sensitivity of measurement to variations in the significant
unobservable inputs
In light of the 'material valuation uncertainty', 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. Whilst the property valuation reflects the external
valuers assessment of the impact of Covid-19 at the valuation date,
we consider +/-10% for ERV, and +/-50bps for NIY to capture the
increased 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 of significant decrease
Unobservable input in input in input
------------------ -------------------------------- --------------------------------
Passing rent Increase Decrease
------------------ -------------------------------- --------------------------------
Gross ERV Increase Decrease
------------------ -------------------------------- --------------------------------
Net initial yield Decrease Increase
------------------ -------------------------------- --------------------------------
Equivalent yield Decrease Increase
------------------ -------------------------------- --------------------------------
There are interrelationships between the yields and rental
values as they are partially determined by market rate conditions.
The sensitivity of the valuation to changes in the most significant
inputs per class of investment property is shown below:
Estimated movement in fair value of investment Industrial Retail Office Total
properties at 31 March 2020 (unaudited) EUR000 EUR000 EUR000 EUR000
----------------------------------------------- ---------- ------- -------- --------
Increase in ERV by 10% 3,000 6,400 12,250 21,650
----------------------------------------------- ---------- ------- -------- --------
Decrease in ERV by 10% (3,050) (6,200) (12,400) (21,650)
----------------------------------------------- ---------- ------- -------- --------
Increase in net initial yield by 0.5% (3,650) (7,300) (11,300) (22,250)
----------------------------------------------- ---------- ------- -------- --------
Decrease in net initial yield by 0.5% 4,600 8,050 13,050 25,700
----------------------------------------------- ---------- ------- -------- --------
Estimated movement in fair value of investment Industrial Retail Office Total
properties at 30 September 2019 (audited) EUR000 EUR000 EUR000 EUR000
----------------------------------------------- ---------- ------- ------- --------
Increase in ERV by 5% 800 3,500 5,700 10,000
----------------------------------------------- ---------- ------- ------- --------
Decrease in ERV by 5% (900) (3,500) (5,550) (9,950)
----------------------------------------------- ---------- ------- ------- --------
Increase in net initial yield by 0.25% (1,150) (4,000) (6,000) (11,150)
----------------------------------------------- ---------- ------- ------- --------
Decrease in net initial yield by 0.25% 1,100 4,350 6,700 12,150
----------------------------------------------- ---------- ------- ------- --------
5. Derivative financial instruments
The Group has an interest rate cap in place which was purchased
for EUR227,000 from BRED Banque Populaire on 15 December 2017 in
connection to a EUR13.0 million loan facility drawn from the same
bank with a maturity date of 15 December 2024. The Group obtained a
further EUR4.0 million from the existing loan facility on 24
October 2019 and purchased a second interest rate cap for
EUR13,000. Both interest rate caps are 1.25% with a floating rate
option being Euribor 3 months. As at 31 March 2020, the fair value
of the interest rate caps was EUR22,000 (2019: EUR10,000), giving a
valuation decrease as shown within the statement of comprehensive
income of EUR3,000.
An interest rate cap was purchased for EUR87,000 from HSBC Bank
Plc on 31 October 2018 in connection to a EUR9.25 million loan
facility drawn from the same bank with a maturity date of 27
September 2023. The cap interest rate is 1.0% with a floating rate
option being Euribor 3 months. As at 31 March 2020, the fair value
of the interest rate cap was EUR3,000 (2019: EUR3,000), giving a
movement in the statement of comprehensive income of EURnil.
On 27 March 2019, the Group entered into an interest rate cap
purchased for EUR46,000 from Landesbank Saar in connection to an
EUR8.6 million loan facility drawn from the same bank with a
maturity date of 27 March 2024. The interest rate cap is 1.0% with
a floating rate option being Euribor 3 months. As at 31 March 2020,
the fair value of the interest rate cap was EUR22,000 (2019:
EUR4,000), giving a valuation increase as shown in the statement of
comprehensive income of EUR19,000.
During the period, the Group entered into an interest rate cap
which was purchased for EUR12,000 from Landesbank Saar in
connection to a EUR3.7 million loan facility drawn from the same
bank with a maturity date of 30 April 2023. The interest rate cap
is 0.25% with a floating rate option being Euribor 3 months. As at
31 March 2020, the fair value of the interest rate cap was
EUR3,000, giving a valuation decrease as shown in the statement of
comprehensive income of EUR10,000.
In line with IFRS 9, all derivatives are reported in the
consolidated financial statements at their fair value. Transaction
costs incurred in obtaining the instruments are amortised over the
period of the above-mentioned loans.
6. Provision of internal loan made to Seville joint venture
As at 31 March 2020, the Group had made an internal loan to the
Seville joint venture of EUR10.0m. This loan carries a fixed
interest rate of 4.37% per annum payable quarterly and matures in
April 2024.
During the financial period an impairment of EUR1,055,000 was
made against this loan balance and a further EUR42,000 was made
against unpaid loan interest thereby totalling EUR1,097,000. The
use of significant estimates and judgements in note 1 sets out the
requirements of IFRS 9 in this regard and the key factors
considered by management. A credit risk rating of "B" was
considered most appropriate and this resulted in a c.11%
impairment. Management considered that a risk rating of one above
on the credit risk scale would have resulted in a c.3% impairment
provision and a credit risk rating of one below would have resulted
in a c.21% impairment position. These percentages fall each year as
the loan nears its maturity date. Management continues to monitor
the position closely.
7. 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
2020
EUR000
---------------------------------------- --------
Balance as at 1 October 2019 (audited) 2,378
---------------------------------------- --------
Share of loss for the period (684)
---------------------------------------- --------
Balance as at 31 March 2020 (unaudited) 1,694
---------------------------------------- --------
31 March
2019
EUR000
---------------------------------------- --------
Balance as at 1 October 2018 (audited) 6,697
---------------------------------------- --------
Share of loss for the period (71)
---------------------------------------- --------
Balance as at 31 March 2019 (unaudited) 6,626
---------------------------------------- --------
30 September
2019
EUR000
------------------------------------------ ------------
Balance as at 1 October 2018 (audited) 6,697
------------------------------------------ ------------
Share premium repayment (950)
------------------------------------------ ------------
Share of loss for the year (3,276)
------------------------------------------ ------------
Dividends (93)
------------------------------------------ ------------
Balance as at 30 September 2019 (audited) 2,378
------------------------------------------ ------------
31 March 31 March
30 September
2020 2019 2019
EUR000 EUR000 EUR000
Summarised joint venture financial information: (unaudited) (unaudited) (audited)
------------------------------------------------ ------------ ------------ ------------
Total assets 49,262 58,861 50,078
------------------------------------------------ ------------ ------------ ------------
Total liabilities (45,874) (45,609) (45,322)
------------------------------------------------ ------------ ------------ ------------
Net assets 3,388 13,252 4,756
------------------------------------------------ ------------ ------------ ------------
Net asset value attributable to the Group 1,694 6,626 2,378
------------------------------------------------ ------------ ------------ ------------
Six months Six months
to 31 March to 31 March Year to
30 September
2020 2019 2019
EUR000 EUR000 EUR000
(unaudited) (unaudited) (audited)
--------------------------------------------- ------------ ------------ -------------
Revenues 2,488 2,826 5,359
--------------------------------------------- ------------ ------------ -------------
Total comprehensive loss (1,369) (142) (6,552)
--------------------------------------------- ------------ ------------ -------------
Total comprehensive loss attributable to the
Group (684) (71) (3,276)
--------------------------------------------- ------------ ------------ -------------
8. Taxation
Six months Six months
to 31 March to 31 March
Year to
30 September
2020 2019 2019
EUR000 EUR000 EUR000
(unaudited) (unaudited) (audited)
--------------------------- ------------ ------------ -------------
Current tax charge 406 669 2,918
--------------------------- ------------ ------------ -------------
Deferred tax charge 379 149 609
--------------------------- ------------ ------------ -------------
Tax expense in period/year 785 818 3,527
--------------------------- ------------ ------------ -------------
Current Deferred
tax liability tax liability
EUR000 EUR000
---------------------------------------- -------------- --------------
As at 1 October 2019 (audited) 453 1,521
---------------------------------------- -------------- --------------
Tax charge for the period 406 379
---------------------------------------- -------------- --------------
Tax paid during the period (552) -
---------------------------------------- -------------- --------------
Balance as at 31 March 2020 (unaudited) 307 1,900
---------------------------------------- -------------- --------------
Current Deferred
tax liability tax liability
EUR000 EUR000
---------------------------------------- -------------- --------------
As at 1 October 2018 (audited) 627 912
---------------------------------------- -------------- --------------
Tax charge for the period 669 149
---------------------------------------- -------------- --------------
Tax paid during the period (373) -
---------------------------------------- -------------- --------------
Balance as at 31 March 2019 (unaudited) 923 1,061
---------------------------------------- -------------- --------------
Current Deferred
tax liability tax liability
EUR000 EUR000
------------------------------------------ -------------- --------------
As at 1 October 2018 (audited) 627 912
------------------------------------------ -------------- --------------
Tax charge for the period 2,918 609
------------------------------------------ -------------- --------------
Tax paid during the period (3,092) -
------------------------------------------ -------------- --------------
Balance as at 30 September 2019 (audited) 453 1,521
------------------------------------------ -------------- --------------
In April 2019 the European Commission ('EC') issued a ruling
that a UK group financing exemption within the UK Controlled
Foreign Company rules was partially incompatible with European
Union State Aid rules, to the extent that profits derive from
activities performed within the UK. The Group benefits from this
exemption in respect of SEREIT (Jersey) Limited which provides
financing to other Group companies. The Group has undertaken a
review with its advisers and does not consider that a provision is
currently required as a consequence of the ruling.
9. Basic and diluted earnings per share
The basic and diluted earnings per share for the Group are based
on the net profit for the period, excluding currency translation
differences, of EUR4,960,000 (six months to 31 March 2019:
EUR3,197,000, for the year ended 30 September 2019: EUR7,455,000)
and the weighted average number of ordinary shares in issue during
the period of 133,734,686 (six months to 31 March 2019:
133,734,686, for the year ended 30 September 2019:
133,734,686).
10. Interest-bearing loans and borrowings
Six months
to 31 March
2020
EUR000
-------------------------------- ------------
As at 1 October 2019 (audited) 60,692
-------------------------------- ------------
Drawdown of borrowings 7,700
-------------------------------- ------------
Capitalisation of finance costs (170)
-------------------------------- ------------
Amortisation of finance costs 71
-------------------------------- ------------
As at 31 March 2020 (unaudited) 68,293
-------------------------------- ------------
Year to
30 September
2019
EUR000
---------------------------------- -------------
As at 1 October 2018 (audited) 52,150
---------------------------------- -------------
Receipt of borrowings 8,600
---------------------------------- -------------
Capitalisation of finance costs (181)
---------------------------------- -------------
Amortisation of finance costs 123
---------------------------------- -------------
As at 30 September 2019 (audited) 60,692
---------------------------------- -------------
Six months
to 31 March
2019
EUR000
-------------------------------- ------------
As at 1 October 2018 (audited) 52,150
-------------------------------- ------------
Drawdown of borrowings 8,600
-------------------------------- ------------
Capitalisation of finance costs (299)
-------------------------------- ------------
Amortisation of finance costs 55
-------------------------------- ------------
As at 31 March 2019 (unaudited) 60,506
-------------------------------- ------------
Bank loan - BRED Banque Populaire
The Group received a further EUR4.0 million of debt into SCI
Directoire under its existing loan facility with BRED Banque
Populaire. The additional loan amount carries an interest rate of
1.45% and was subject to a EUR30,000 arrangement fee which will be
amortised over the period of the loan. The total loan facility
stands at EUR17.0 million and matures on the original date of 15
December 2024.
Bank loan - Landesbank Saar
On 25 November 2019, SCI Rumilly entered into a new loan
facility with Landesbank Saar for EUR3.7 million.
The loan matures on 30 April 2023 and carries an interest rate
of 1.30% plus Euribor 3 months per annum payable quarterly. An
additional 25bps is applied to the margin if the LTV is between 52%
and 56%, or 50bps if the LTV is equal to or above 56%. The facility
was subject to a EUR46,000 arrangement fee which is amortised over
the period of the loan. The debt has a maximum LTV covenant of 60%
and a minimum ICR covenant of 200%.
A pledge of all shares in the borrowing Group company is in
place.
11. Issued capital and reserves
As at 31 March 2020, the Company has 133,734,686 ordinary shares
in issue with a par value of 10.00 pence (no shares are held in
Treasury). The total number of voting rights in the Company is
133,734,686.
12. NAV per ordinary share
The NAV per ordinary share is based on the net assets at 31
March 2020 of EUR182,078,000 (30 September 2019: EUR182,087,000; 31
March 2019: EUR182,786,000) and 133,734,686 ordinary shares in
issue at 31 March 2020 (30 September 2019: 133,734,686; 31 March
2019: 133,734,686).
13. Dividends paid
Number
of ordinary
Six months ended 31 March 2020 (unaudited) shares Rate (cents) EUR000
------------------------------------------- ------------ ------------ ------
Interim dividend paid on 21 October 2019 133,734,686 1.85 2,474
------------------------------------------- ------------ ------------ ------
Interim dividend paid on 27 January 2020 133,734,686 1.85 2,474
------------------------------------------- ------------ ------------ ------
Total interim dividends paid 4,948
------------------------------------------- ------------ ------------ ------
Number
of ordinary
Six months ended 31 March 2019 (unaudited) shares Rate (cents) EUR000
------------------------------------------- ------------ ------------ ------
Interim dividend paid on 25 January 2019 133,734,686 1.85 2,474
------------------------------------------- ------------ ------------ ------
Number
of ordinary
Year ended 30 September 2019 (audited) shares Rate (cents) EUR000
----------------------------------------- ------------ ------------ ------
Interim dividend paid on 25 January 2019 133,734,686 1.85 2,474
----------------------------------------- ------------ ------------ ------
Interim dividend paid on 12 April 2019 133,734,686 1.85 2,474
----------------------------------------- ------------ ------------ ------
Interim dividend paid on 22 July 2019 133,734,686 1.85 2,474
----------------------------------------- ------------ ------------ ------
Total interim dividends paid 7,422
----------------------------------------- ------------ ------------ ------
14. 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 EUR969,000 (year ended 30
September 2019: EUR1,904,000, six months ended 31 March 2019:
EUR947,000). At 31 March 2020, EUR143,000 was outstanding (year
ended 30 September 2019: EUR140,000, six months ended 31 March
2019: EUR140,000).
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 2020 was EUR64,251 (six
months ended 31 March 2019: EUR63,208, year ended 30 September
2019: EUR125,742), equivalent to GBP55,000. Each of the three
Directors held 10,000 shares in the company as at 31 March 2020.
Following the period end, Sir Julian Berney Bt. purchased 9,840
additional shares and Jonathan Thompson purchased 15,469 additional
shares.
15. Capital commitments
At 31 March 2020, the Group had capital commitments of
EUR2,791,000 (30 September 2019: EUR2,031,000, 31 March 2019:
EUR821,000).
16. Post balance sheet events
There were no significant events occurring after the balance
sheet date.
EPRA and Headline Performance Measures
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.
Six months Six months Year to
to 31 March to 31 March 30 September
2020 2019 2019
EUR000 EUR000 EUR000
(unaudited) (unaudited) (audited)
--------------------------------------------------- ------------ ------------ -------------
Total IFRS comprehensive income 4,939 3,191 7,440
--------------------------------------------------- ------------ ------------ -------------
Adjustments to calculate EPRA earnings:
--------------------------------------------------- ------------ ------------ -------------
Net (gain)/loss from fair value adjustment on
investment property (2,907) 1,566 (3,530)
--------------------------------------------------- ------------ ------------ -------------
Currency translation differences (unrealised) 21 6 15
--------------------------------------------------- ------------ ------------ -------------
Share of joint venture loss on investment property 731 264 3,713
--------------------------------------------------- ------------ ------------ -------------
Deferred tax 379 149 609
--------------------------------------------------- ------------ ------------ -------------
Current tax - restructuring 93 - 1,997
--------------------------------------------------- ------------ ------------ -------------
Net change in fair value of financial instruments (6) 200 304
--------------------------------------------------- ------------ ------------ -------------
Provision of internal loan made to Seville join
venture (excluding interest) 1,056 - -
--------------------------------------------------- ------------ ------------ -------------
EPRA earnings 4,306 5,376 10,548
--------------------------------------------------- ------------ ------------ -------------
Weighted average number of ordinary shares 133,734,686 133,734,686 133,734,686
--------------------------------------------------- ------------ ------------ -------------
IFRS earnings and diluted earnings per share
(cents per share) 3.7 2.4 5.6
--------------------------------------------------- ------------ ------------ -------------
EPRA earnings per share (cents per share) 3.2 4.0 7.9
--------------------------------------------------- ------------ ------------ -------------
b. EPRA NAV per share
Represents the NAV adjusted to exclude assets or liabilities not
expected to crystallise in a long-term investment property model,
divided by the number of shares in issue.
Six months Six months Year to
to 31 March to 31 March 30 September
2020 2019 2019
EUR000 EUR000 EUR000
(unaudited) (unaudited) (audited)
--------------------------------------------------- ------------ ------------ -------------
IFRS Group NAV per financial statements 182,078 182,786 182,087
--------------------------------------------------- ------------ ------------ -------------
Deferred tax 1,900 1,062 1,521
--------------------------------------------------- ------------ ------------ -------------
Adjustment for fair value of financial instruments (48) (121) (17)
--------------------------------------------------- ------------ ------------ -------------
Adjustment in respect of Provision of internal
loan made to Seville joint venture (excluding
interest) 1,097 - -
--------------------------------------------------- ------------ ------------ -------------
Adjustment in respect of joint venture deferred
tax 134 - 134
--------------------------------------------------- ------------ ------------ -------------
EPRA NAV 185,161 183,727 183,725
--------------------------------------------------- ------------ ------------ -------------
Shares in issue at end of year 133,734,686 133,734,686 133,734,686
--------------------------------------------------- ------------ ------------ -------------
IFRS Group NAV per share (cents per share) 136.2 136.7 136.2
--------------------------------------------------- ------------ ------------ -------------
EPRA NAV per share (cents per share) 138.5 137.4 137.4
--------------------------------------------------- ------------ ------------ -------------
c. Headline earnings reconciliation
Headline earnings per share reflect the underlying performance
of the Company calculated in accordance with the Johannesburg Stock
Exchange Listing requirements.
Six months
to 31 March
Six months Year to
2020 to 31 March 30 September
EUR000 2019 2019
EUR000 EUR000
(unaudited) (unaudited) (audited)
---------------------------------------------------- ------------ ------------- -------------
Total IFRS comprehensive income 4,939 3,191 7,440
---------------------------------------------------- ------------ ------------- -------------
Adjustments to calculate Headline earnings exclude:
---------------------------------------------------- ------------ ------------- -------------
Net valuation (profit)/loss on investment property (2,907) 1,566 (3,530)
---------------------------------------------------- ------------ ------------- -------------
Share of joint venture loss on investment property 731 264 3,713
---------------------------------------------------- ------------ ------------- -------------
Deferred tax 379 149 609
---------------------------------------------------- ------------ ------------- -------------
Current tax - restructuring 93 - 1,997
---------------------------------------------------- ------------ ------------- -------------
Net change in fair value of financial instruments (6) 200 304
---------------------------------------------------- ------------ ------------- -------------
Provision of internal loan made to Seville joint
venture (excluding interest) 1,056 - -
---------------------------------------------------- ------------ ------------- -------------
Headline earnings 4,285 5,370 10,533
---------------------------------------------------- ------------ ------------- -------------
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) 3.2 4.0 7.9
---------------------------------------------------- ------------ ------------- -------------
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IR FLFSERIIVFII
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June 24, 2020 02:00 ET (06:00 GMT)
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