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 
----------------------------------------------------  ------------  -------------  ------------- 
 

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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June 24, 2020 02:00 ET (06:00 GMT)

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