26 November 2019
CORRECTION:
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30
SEPTEMBER 2019
The following amendments have been made to the 'Interim Results'
announcement released on 26 November
2019 at 07:00am (UK Time).
- The original RNS stated a NAV total return of 0.5% for the
interim period to September 2019.
This is corrected to a NAV total return of 1.3% for the interim
period to September 2019.
- The NAV total return of 0.5% relates to the quarter to
September 2019.
All other details remain unchanged.
Schroder Real
Estate Investment Trust Limited
(“SREIT”/ the
“Company” / “Group”)
INTERIM RESULTS
FOR THE SIX MONTHS ENDED 30 SEPTEMBER
2019
PROFITABLE DISPOSALS PROVIDE CAPACITY
FOR NEW ACQUISITIONS
REFINANCING UNDERPINS DIVIDEND
INCREASE
Schroder Real Estate Investment Trust, the actively managed UK
focussed REIT, today announces its unaudited half year results for
the six months ended 30 September
2019.
Highlights
- £45 million of disposals during and post the period end,
reflecting a 15% net premium to the valuation at the start of the
period, taking the total disposals since 1
January 2019 to £95 million at an average net initial yield
of 3.0%
- Post period end refinancing capitalises on low long-term
interest rates reducing the cost of the long term debt from 4.4% to
2.5% and extending the term from 8.5 years to an average 16.5
years. The interest saving of £2.5 million per annum will be paid
to shareholders by way of an approximate 19% dividend increase from
1 October 2019
- Following the cost of the refinancing and on completion of
contracted disposals, the Company has funding capacity of
approximately £90 million providing the potential for delivery of
further sustainable net income growth
- Sustained outperformance of real estate portfolio with a total
return of 2.5% over the period versus the MSCI/IPD Benchmark Index
of 1.0%
Financial overview
- Net Asset Value (‘NAV’) of £354.3 million or 68.3 pps,
reflecting a decrease over the period of -0.6% (31 March 2019: £356.4 million)
- NAV total return, including dividends paid, of 1.3%
(30 September 2018: 3.0%)
- Profit for the six months of £4.6 million (30 September 2018: £10.6 million), reflecting
lower valuation gains on investment properties
- Adjusted EPRA earnings of £6.7 million (30 September 2018: £7.1 million)
- Dividend cover of 99% (30 September
2018: 107%)
- Loan to value (‘LTV’), net of all cash, of 23.1% (31 March 2019: 22.1%), which adjusted for post
period end refinancing and disposals decreases to approximately
22%
Property portfolio overview
- 96% of the portfolio now located in Winning Cities, with
increased exposure to higher performing regional offices and
industrial sector
- Active management of the portfolio provides visibility of new
long leases on completion of refurbishments at St John’s Retail
Park in Bedford, Headingley
Central in Leeds and City Tower in
Manchester
- 26 new lettings, rent reviews and renewals completed during the
period for an additional £1.1 million of rent above the previous
level. This activity and disposals during and post the period end
have maintained a stable void rate of 7.3% (31 March 2019: 7.2%)
- Reversionary income yield of 7.2%, compared with the MSCI
Benchmark of 5.3%, supporting income growth against a backdrop of
slowing capital growth
Commenting, Lorraine Baldry, Chairman of the Board,
said:
“This has been another busy period for the Company with a focus
on activity that has improved shareholder total returns and
strengthened the balance sheet. This should support future returns
during a period of greater market uncertainty. Whilst the disposals
of lower yielding assets will result in a temporary decline in net
income prior to reinvestment, the Board is comfortable with this
approach as the Company has approximately £90 million of funding to
take advantage of more attractively priced investment opportunities
supporting the delivery of a fully covered, sustainable and growing
dividend policy.”
Duncan
Owen, Global Head of Schroder Real Estate, added:
“The activity during the interim period leaves the Company in a
strong position with a low borrowing ratio and operational
flexibility. There is additional investment capacity of
approximately £90 million ahead of an expected market correction.
Selectively deploying this capital over the course of 2020 into
Winning Cities at higher yields should mean the Company is well
placed to deliver continued, sustainable growth in net
income.”
-Ends-
For further information:
Schroder Real Estate Investment Management
Duncan Owen / Nick Montgomery / Frank Sanderson |
020 7658 6000 |
Northern Trust
Lisa Garnham |
01481 745001 |
FTI Consulting
Dido Laurimore / Richard Gotla / Methuselah Tanyanyiwa |
020 3727 1000 |
A presentation for analysts and investors will be held at
08.45am today at the offices of
Schroders plc, 1 London Wall Place, London, EC2Y 5AU. If you would like to attend,
please contact Richard Gotla at FTI
on +44 (0)20 3727 1000 or schroderrealestate.com
Alternatively, the dial-in details are as follows: +44
(0)330 336 9105
Participant passcode: 5812389
|
Schroder Real Estate
Investment Trust Limited |
Interim
Report and Consolidated Financial Statements
For the period 1 April 2019 to 30 September 2019 |
Contents |
|
Company Summary |
3 |
Highlights
Performance Summary |
4
5 |
Chairman’s Statement |
7 |
Investment Manager’s Report |
9 |
Responsibility Statement of the
Directors in respect of the Interim Report |
18 |
Independent Review Report |
19 |
Condensed Consolidated Statement of
Comprehensive Income |
20 |
Condensed Consolidated Statement
of Financial Position |
21 |
Condensed Consolidated Statement of
Changes in Equity |
22 |
Condensed Consolidated Statement of
Cash Flows |
23 |
Notes to the Interim Report |
24 |
Glossary
Corporate Information |
33
34 |
Schroder Real Estate Investment Trust
Limited aims to provide shareholders with an attractive level of
income together with the potential for income and capital growth
through investing in UK commercial real estate.
Company summary
Schroder Real Estate Investment Trust Limited (the ‘Company’ and
together with its subsidiaries the ‘Group’) is a real estate
investment company with a premium listing on the Official List of
the UK Listing Authority and whose shares are traded on the Main
Market of the London Stock Exchange (ticker: SREI).
The Company is a real estate investment trust (‘REIT’) and
benefits from the various tax advantages offered by the UK REIT
regime. The Company continues to be declared as an authorised
closed-ended investment scheme by the Guernsey Financial
Services Commission under section 8 of the Protection of Investors
(Bailiwick of Guernsey) Law, 1987,
as amended and the Authorised Closed-ended Collective Investment
Schemes Rules 2008.
Objective
The Company aims to provide shareholders with an attractive
level of income and the potential for income and capital growth as
a result of its investments in, and active management of, a
diversified portfolio of UK commercial real estate.
The Company’s dividend policy is to pay a sustainable level of
quarterly dividends to shareholders. It is intended that successful
execution of the Company’s strategy will enable a progressive
dividend policy to be adopted.
The portfolio is principally invested in the three main UK
commercial real estate sectors of office, industrial and mixed-use,
and may also invest in other sectors including, but not limited to,
residential, leisure, healthcare and student accommodation. Over
the property market cycle the portfolio aims to generate an above
average income return with a diverse spread of lease expiries.
A prudent level of gearing is used to enhance income and total
returns for shareholders with the level dependent on the property
cycle and the outlook for future returns.
Investment strategy
The current investment strategy is to grow income and enhance
shareholder returns through a disciplined approach to acquisitions,
proactive asset management and selling smaller, lower-yielding
properties on completion of asset business plans. The issuance of
new shares will also be considered if it is consistent with the
strategy.
Our objective is to own a portfolio of larger properties in
Winning Cities and Regions with high growth diversified local
economies, sustainable occupational demand and favourable supply
and demand characteristics. These properties should offer good
long-term fundamentals in terms of location and specification and
be let at affordable rents with the potential for income and
capital growth from good stock selection and asset management.
Highlights
Highlights for the period to
30 September 2019
- Sustained outperformance of real estate portfolio with a total
return of 2.5% over the period versus the MSCI/IPD Benchmark Index
of 1.0%
- NAV total return, including dividends paid, of 1.3%
(30 September 2018: 3.0%)
- £45 million of disposals during and post the period end,
reflecting a 15% net premium to the valuation at the start of the
period, taking the total disposals since the beginning of 2019 to
£95 million at an average net initial yield of 3.0%
- Post period end refinancing capitalises on low long-term
interest rates reducing the cost of the long term debt from 4.4% to
2.5% and extending the term from 8.5 years to an average 16.5
years. The interest saving of £2.5 million per annum will be paid
to shareholders by way of an approximate 19% dividend increase from
1 October 2019
- Following the refinancing, the Company has funding capacity of
approximately £90 million on completion of contracted disposals
providing the potential for delivery of further sustainable net
income growth
- Loan to value (‘LTV’), net of all cash, of 23.1% (31 March 2019: 22.1%), which adjusted for post
period end refinancing and disposals decreases to approximately
22%
Strategic
- 96% of the portfolio by value located in higher growth regions
(March 2019: 93%)[1]
- NAV total return, including dividends paid, of 1.3%
(30 September 2018: 3.0%)
- Underlying property portfolio total return of 2.5% (MSCI/IPD
Benchmark Index of 1.0%)
- Underlying property portfolio reversionary income yield of 7.2%
(MSCI/IPD Benchmark Index of 5.3%)[2]
Performance
- Portfolio Total Return2
- 6 months 2.5% (MSCI/IPD Benchmark Index of 1.0%)
- 3 years 9.4% (MSCI/IPD Benchmark Index of 6.9%)
- Since IPO 7.7% (MSCI/IPD Benchmark Index of 6.6%)
Financial
- Value of property assets and joint ventures of £462.7 million
(31 March 2019: £496.7
million)[3]
- Net Asset Value (‘NAV’) of £354.3 million (31 March 2019: £356.4 million)
- Underlying earnings of £6.7 million (30
September 2018: £7.1 million)[4]
- Loan to value, net of cash 23.1% (31
March 2019: 22.1%)
Performance Summary
Financial summary
|
30
September 2019 |
30
September 2018 |
31 March
2019 |
NAV |
£354.3m |
£357.7m |
£356.4m |
NAV per ordinary share
(pence) |
68.3 |
69.0 |
68.7 |
EPRA NAV [5] |
£354.3m |
£357.7m |
£356.4m |
Capital values
|
30
September
2019 |
30 September 2018 |
31 March 2019 |
NAV total
return5 |
1.3% |
3.0% |
4.5% |
Profit for the
period |
£4.6m |
£10.6m |
£15.9m |
EPRA earnings
5 |
£6.7m |
£3.9m |
£12.0m |
Adjusted EPRA
earnings |
£6.7m |
£7.1m[6] |
£15.2m6 |
Share price and index
|
30
September
2019 |
30
September 2018 |
31 March
2019 |
Share price
(pence) |
55.4 |
59.9 |
55.4 |
Share price discount
to NAV |
(18.9%) |
(13.2%) |
(19.4%) |
FTSE All-Share
Index |
4,061.74 |
4,127.91 |
3,978.28 |
FTSE EPRA/NAREIT UK
Real Estate Index |
1,749.83 |
1,731.76 |
1,710.33 |
Earnings and dividends
|
Six months to 30 September 2019 |
Six
months to 30 September 2018 |
Year to 31 March
2019 |
IFRS
earnings per share (pence) |
0.9 |
2.0 |
3.1 |
EPRA
earnings per share (pence) 5 |
1.3 |
0.8 |
2.3 |
Adjusted
EPRA earnings per share (pence) |
1.3 |
1.46 |
2.9
6 |
Dividends
paid per share (pence) [7] |
1.30 |
1.24 |
2.53 |
Annualised dividend yield on 30 September/
31 March share price 5 |
4.7% |
4.1% |
4.6% |
|
|
|
|
|
Performance Summary (continued)
Bank borrowings
|
30 September
2019 |
30 September 2018 |
31 March 2019 |
On-balance sheet
borrowings [8] |
£129.6m |
£160.1m |
£158.6m |
Loan to value ratio,
net of cash [9] |
23.1%[10] |
29.2% |
22.1% |
Ongoing charges
|
Six months
to
30 September 2019 |
Six months to 30
September 2018 |
Year to 31 March
2019 |
Ongoing charges
(including fund only expenses) [11] |
1.4% |
1.0% |
1.1% |
Ongoing charges
(including fund and property expenses) [12] |
2.3% |
2.0% |
2.2% |
Chairman’s Statement
Overview
The strategy during the interim period was focused on delivering
sustainable income growth and maximising total returns through
active asset management, the refinancing of the Canada Life debt
facility and the further crystallising of profits from low-yielding
disposals. This focus mitigated the impact of ongoing market
uncertainty, with a total return from the underlying portfolio of
2.5% compared with the MSCI Benchmark of 1.0%.
A 0.4% decline in the value of the underlying portfolio led to a
0.6% decline in the Net Asset Value (‘NAV’) as at 30 September 2019 to £354.3 million, or
68.3 pence per share (‘pps’).
Dividends of £6.7 million, or 1.3 pps, were paid during the period
which resulted in a NAV total return of +1.3%.
Following the period end, the Company completed a significant
refinancing to reduce the Company’s cost of debt compared with
prevailing market rates and capitalise on historically low
long-term interest rates. The interest saving of £2.5 million per
annum is to be paid directly to shareholders via an approximate 19%
dividend increase with effect from 1 October
2019, further building on the 5% dividend increase delivered
in the financial year to March
2019.
Following the refinancing, and post-period end disposals, the
Company has approximately £90 million of funding capacity which
provides valuable operational flexibility including the ability to
take advantage of lower asset pricing in the market with
acquisitions.
Strategy
The Company has a clear investment strategy focused on
delivering a sustainable income return from a diversified portfolio
located in Winning Cities which are expected to generate higher
levels of economic growth. This strategy, combined with active
asset management, has generated 1.1% per annum of relative
outperformance of the underlying portfolio compared with its MSCI
peer group Benchmark since IPO in 2004.
The extended economic and real estate market cycle, combined
with the current political uncertainty, is leading to weaker
overall returns from UK real estate, with average capital values
falling by 1.1% over the period. As expected, structural changes
are having the greatest impact on real estate returns, with
unprecedented polarisation between the sectors. To illustrate,
retailer failure and weaker consumer spending led to average retail
values falling 5.3% over the period. This was in contrast to the
industrial sector, where robust occupier demand led to rental
growth and capital values increasing by 1.1%. The Company’s low
weighting to retail, and higher weighting to office and industrial
compared to the Benchmark, continues to positively contribute to
relative performance.
Lower returns are now expected across all real estate sectors as
investors downgrade growth expectations. Whilst the extent of any
pricing correction may depend on the outcome of next month’s UK
general election, average values are forecast to fall in the
remainder of 2019 and 2020. Against this backdrop the Company has
capitalised on late cycle demand to sell £95 million of assets
since the beginning of 2019 at an average net initial yield of
3.0%, with £45 million of disposals during the period and since the
period end. As a result, the Company has significant capacity of
approximately £90 million in cash and undrawn debt facilities to
take advantage of any market correction with opportunistic
reinvestment.
In addition to making disposals, the Manager has continued to
invest in the existing portfolio in order to maximise returns and
improve its defensive qualities. Our capital expenditure programme
is being predominantly targeted at multi-let office and industrial
refurbishments to increase rental values and support pre-let
activity where tenants are committing to long leases offering fixed
or inflation linked rental increases. The Gym Group fifteen year
letting at the mixed-use Headingley Central in Leeds is an example of this, achieving a 16%
premium above the previous apportioned office rent and the occupier
will further enhance the tenant mix. The Manager’s report includes
further detail on a growing pipeline of income-generating capital
expenditure initiatives.
Environmental, Social and Governance (‘ESG’) considerations are
an increasingly important focus. In September 2019 the Company secured its second
consecutive 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 Manager is also
Chairman’s Statement (continued)
focused on ensuring that its activities deliver a positive
social impact, illustrated in the Manager’s report by the
collaborative working approach with the Council at City Tower in
Manchester.
Debt
During the period, proceeds from recent disposals were used to
repay the revolving credit facility with the Royal Bank of
Scotland. This facility matures in
July 2023 and has a margin of 1.6%,
as well as the ability to be repaid and redrawn as often as
required. The Company uses interest rate caps to mitigate against
potential rising interest rates.
As noted above, on 15 October 2019
the Company refinanced its £129.6 million term loan with Canada
Life and extended its maturity with 50% of the loan maturing in 13
years and 50% of the loan maturing in 20 years. The transaction
reduces the interest cost on the loan from 4.4% to approximately
2.5%, resulting in interest savings of approximately £2.5 million
per annum. The interest savings will be used to increase the
dividend by approximately 19%, starting at the period 1 October 2019. The refinancing incurred a
negotiated break cost, and related fees, of approximately £26.1
million.
Based on the period end valuation, and adjusting for refinancing
and post period end disposals, the Company remains conservatively
geared with a net Loan to Value ratio of approximately 22%. Our
long-term target leverage range of 25% to 35% remains
unchanged.
Auditor
Following a formal and competitive tender process, Ernst &
Young LLP agreed to take up the position on 6 November 2019. The Board would like to thank
KPMG for its professional service to the Company throughout its
tenure in office. Shareholder approval to reappoint Ernst &
Young LLP as the Company’s auditor will be sought at the Company’s
next Annual General Meeting to be held in the autumn of 2020.
Outlook
This has been another busy period for the Company with a focus
on activity that has improved shareholder total returns and
strengthened the balance sheet. This should support future returns
during a period of greater market uncertainty. Whilst the disposals
of lower yielding assets will result in a temporary decline in net
income prior to reinvestment, the Board is comfortable with this
approach as the Company has approximately £90 million of funding to
take advantage of more attractively priced investment opportunities
supporting the delivery of a fully covered, sustainable and growing
dividend policy.
Lorraine
Baldry
Chairman
Schroder Real Estate Investment Trust Limited
25 November 2019
Investment Manager’s Report
The Company’s Net Asset Value (‘NAV’) as at 30 September 2019 was £354.3 million, or
68.3 pence per share (‘pps’),
compared with £356.4 million, or 68.7 pps, as at 31 March 2019. This reflected a decrease of 0.4
pps, or 0.6%, with the underlying movement in NAV per share set out
in the table below:
Pence per share (‘pps’) |
NAV as at 31 March
2019 |
68.7 |
Unrealised change in
valuation of direct real estate portfolio and Joint Ventures |
(0.3) |
Capital
expenditure |
(0.5) |
Realised gains on
disposal |
0.3 |
Net revenue [13] |
1.3 |
Dividends paid |
(1.3) |
Others |
0.1 |
NAV as at 30
September 2019 |
68.3 |
The underlying portfolio, including capital expenditure,
decreased in value by -0.4% over the period. Profitable disposals
contributed positively to returns and reduced the overall portfolio
capital value decline to 0.4%. This compared favourably with the
MSCI Benchmark on a like-for-like basis at -1.1%.
Our disposal programme resulted in a reduction in income over
the period but this was mitigated by new lettings and rental growth
of 0.2% compared with the MSCI Benchmark of -0.1%. Net revenue
therefore totalled £6.7 million or 1.3 pps. The NAV total return
including dividends paid of 1.3 pps was 1.3%.
On 15 October 2019, the Company
refinanced its £129.6 million long-term debt with Canada Life. The
transaction reduced the cost of this debt from 4.4% to 2.5%,
representing a £2.5 million per annum interest saving, and extended
the term from 8.5 years to an average 16.5 years (50% of the loan
maturing in 13 years and 50% of the loan maturing in 20 years). The
interest saving will be paid to shareholders as an increased
dividend of £16 million per annum with effect from 1 October 2019. This is a 19% increase on the
previous dividend and follows the 5% increase announced during the
financial year to March 2019. The
negotiated break cost and associated fees paid totalled £26.1
million which, together with a write off of £1.4m of previously
unamortised loan costs, result in a pro forma NAV of £326.8 million
or 63.0 pps.
Strategy
The strategy over the period remained focused on the following
key objectives:
- Delivering sustainable net income growth;
- Focusing activity on higher growth Winning Cities and
Regions;
- Owning assets with strong fundamentals in terms of location and
specification;
- The profitable realisation of assets to crystallise gains
following completion of asset management initiatives; and
- A disciplined approach to leverage, actively managing cost and
using the operational flexibility of the revolving credit
facility.
Investment Manager’s Report (continued)
Continued progress has been made executing this strategy which has
delivered the following:
- Post-period end the refinancing of the principal loan facility
capitalises on low long-term interest rates and generates an
immediate interest saving of £2.5 million per annum. The interest
saving will be paid to shareholders as a 19% dividend increase with
effect from 1 October 2019;
- £45 million of disposals during the period and since the period
end, reflecting a 15% net premium over the valuations at the start
of the period;
- Flexible debt and equity with funding capacity of approximately
£90 million on completion of contracted disposals which enables the
dividend to be sustained and capitalise on weaker market conditions
and deliver sustainable further income growth;
- Outperformance of the underlying real estate portfolio with a
total return of 2.5% compared with the MSCI Benchmark of 1.0%. The
underlying portfolio has outperformed over six months, one, three,
five, ten years and since the Company’s IPO;
- 96% of the portfolio located in higher growth cities and towns
[14] with an overweight to high quality regional offices and
multi-let industrial estates with no City
of London offices or shopping centre assets;
- A portfolio income return of 5.5% and reversionary income yield
of 7.2%.[15] This compared with 4.8% and 5.3% for the MSCI/IPD
Benchmark respectively. The higher reversion should lead to
stronger relative returns against the backdrop of slowing capital
growth; and
- Active management of the portfolio provides visibility of new
long leases on completion of refurbishments at St. John’s Retail
Park in Bedford, Headingley
Central in Leeds and City Tower in
Manchester.
Market overview
UK real estate capital values peaked in October 2018 and have subsequently fallen by 3.0%
to the end of the period. This masks significant polarisation
between the sectors with, for example, shopping centre values
falling 21.5% from their peak in November
2017 to the end of September
2019. This is in contrast with average industrial values
that increased 17.3% over the same period. Further capital value
declines are expected but the structural changes leading to this
polarisation are expected to intensify meaning that we expect a
dislocation in the cycles driving underlying real estate
sectors.[16]
This slowdown in returns follows an unusually long period of
sustained growth. The outlook for UK real estate markets in 2020
may be negatively impacted by political risks as well as
macroeconomic factors. A risk of the UK leaving the EU without a
deal could lead to a recessionary environment as companies delay
investment decisions. An orderly Brexit transition should lead to
continued growth with real assets benefiting from a low interest
rate environment. This more uncertain outlook has driven a
disciplined approach to selling low-yielding assets on completion
of asset management initiatives.
In general, office markets appear to be relatively well placed
to withstand a period of economic weakness. Take-up was steady
through 2019 with tech, media and serviced office providers
offsetting reduced demand from financial services. In strong
regional centres vacancy rates are close to their low point before
the financial crisis and new building is limited. Cities such as
Manchester, Leeds and Bristol are capturing higher levels of growth
and diversified economies with constrained supply are performing
well.
The City of London office
market is arguably most exposed to a hard Brexit which could cut
demand from financial services occupiers. Serviced office providers
such as WeWork have also been an important source of demand in
certain London sub-markets and it
is unclear how resilient they would be in a downturn. The Company
has minimal exposure to the serviced office sector and no exposure
to the City of London.
Investment Manager’s Report (continued)
Industrial rental growth has eased to 3% this year from 5% in
2018, in part reflecting weaker demand from manufacturers who
account for a quarter of space. Increased speculative development
of large distribution units and retailer insolvencies have also
added to supply. Rents on well-located, multi-let industrial
estates are expected to rise further but at a slower rate,
particularly in London following a
40% increase since 2014. This led the Company to sell low-yielding
industrial assets such as the Booker Unit in Acton where the price
reflected a net initial yield of 3.5%.
The retail sector is weakening and while 2019 has seen fewer
administrations than in 2018, several retailers have announced
store closures and retailers are increasingly asking for reductions
in rent. Average retail rents could fall over 20% as online sales
are forecast to increase from 19% to 30% over five years. Lower
rents are encouraging some retailers and leisure operators to
expand and whilst this will benefit assets with good fundamentals,
many retail assets will become functionally obsolete. The Company’s
retail exposure is resilient as it includes no shopping centres and
a high proportion of mixed-use assets whose retail benefits from
convenient locations. This has facilitated value enhancing capital
expenditure initiatives such as the Lidl letting at St. John’s
Retail Park and The Gym letting at Headingley Central.
Real estate portfolio
As at 30 September 2019 the
portfolio comprised 44 properties valued at £462.7 million. This
includes the assets that were unconditionally exchanged for
disposal during the period, but not completed at period end, and
the Company’s share of joint venture properties at City Tower in
Manchester and Store Street in
London.
The portfolio generates a rental income of approximately £26.7
million per annum, reflecting a net initial income yield of 5.4%
which compares with the MSCI Benchmark (the ‘Benchmark’) at 4.8%.
The portfolio also benefits from fixed contractual annual rental
uplifts of £1.9 million over the next 24 months. The independent
valuers’ estimate that the current rental value of the portfolio is
£33.0 million per annum, reflecting a reversionary income yield of
7.1%, which compares favourably with the Benchmark at 5.3%. 26 new
lettings, rent reviews and renewals completed during the period for
an additional £1.1 million of rent. This activity combined with
disposals during and post the period end have maintained a stable
void rate of 7.3%.[17] The data tables below summarise the
portfolio information as at 30 September
2019.
|
Weighting (% of portfolio) |
Sector weightings
by value |
SREIT |
Benchmark |
City |
0.0 |
3.2 |
Mid-town and West
End |
7.9 |
5.6 |
Rest of South
East |
6.7 |
9.3 |
Office Rest of UK |
21.5 |
7.1 |
Offices |
36.1 |
25.1 |
South Eastern |
12.9 |
16.9 |
Industrial Rest of
UK |
20.2 |
9.3 |
Industrial |
33.1 |
26.2 |
South East |
1.0 |
7.1 |
Rest of UK |
11.3
[18] |
5.3 |
Shopping centres |
0.0 |
4.8 |
Retail warehouse |
11.8 |
12.3 |
Investment Manager’s Report (continued) |
|
|
Retail |
24.1 |
29.4 |
Other |
6.7 |
19.3 |
Regional weightings by value |
SREIT |
Benchmark |
Central London
[19] |
7.9 |
13.4 |
South East excluding
Central London |
22.4 |
39.0 |
Rest of South |
6.7 |
15.3 |
Midlands |
28.2 |
11.2 |
North |
29.7 |
14.4 |
Wales |
1.3 |
1.7 |
Scotland |
3.8 |
5.0 |
The top ten properties comprised 59.5% of the portfolio value as
at 30 September 2019:
Top ten
properties |
Value
(£m) |
(% of
portfolio) |
1 |
Manchester, City Tower
(25% share) |
43.1 |
9.3 |
2 |
London, Store Street,
Bloomsbury (50% share) |
36.8 |
7.9 |
3 |
Milton Keynes, Stacey
Bushes Industrial Estate |
36.6 |
8.2 |
4 |
Leeds, Millshaw
Industrial Estate |
34.5 |
7.5 |
5 |
Leeds, Headingley
Central |
28.7 |
6.2 |
6 |
Bedford, St. John’s
Retail Park |
28.0 |
6.1 |
7 |
Acton, Allied Way
Industrial Estate [20] |
18.9 |
4.1 |
8 |
Uxbridge, 106 Oxford
Road |
18.0 |
3.9 |
9 |
Norwich, Union Park
Industrial Estate |
17.6 |
3.8 |
10 |
Luton, The Galaxy |
12.0 |
2.6 |
|
Total as at 30
September 2019 |
274.2 |
59.5 |
Investment Manager’s Report (continued)
The top ten tenants represented 28% of the portfolio as a
percentage of annual rent as at 30 September
2019:
Top ten
tenants |
Rent
p.a. (£000) |
(% of
portfolio) |
1 |
University of Law
Limited |
1,578 |
5.9 |
2 |
Buckinghamshire New
University |
1,152 |
4.3 |
3 |
Recticel Limited
[21] |
731 |
2.8 |
4 |
Sportsdirect.com
Retail |
722 |
2.8 |
5 |
The Secretary of
State |
715 |
2.7 |
6 |
Booker Limited
[22] |
700 |
2.6 |
7 |
TJX UK Limited T/A
Homesense |
505 |
1.9 |
8 |
Jupiter Hotels Limited
T/A Mercure |
461 |
1.7 |
9 |
Cine UK Limited |
451 |
1.7 |
10 |
Premier Inn Hotels
Limited |
421 |
1.6 |
|
Total as at 30
September 2019 |
7,436 |
28.0 |
Portfolio performance
A high level of asset management has led to continued
outperformance of the underlying property portfolio compared with
the MSCI Benchmark. The table below shows the performance to
30 September 2019 with the portfolio
ranked on the 17th percentile of the Benchmark since inception in
2004:
|
SREIT total return p.a. (%) |
MSCI/IPD Benchmark total return p.a. (%) |
Relative p.a. (%) |
Period |
Six
Months |
Three
years |
Since
IPO[23] |
Six Months |
Three
years |
Since IPO |
Six
Months |
Three
years |
Since
IPO |
Office |
2.4 |
8.9 |
8.3 |
2.1 |
7.0 |
7.8 |
0.2 |
1.8 |
0.4 |
Industrial |
6.3 |
19.6 |
9.7 |
3.3 |
14.8 |
8.9 |
2.9 |
4.2 |
0.7 |
Retail |
-1.9 |
1.8 |
4.9 |
-2.7 |
1.1 |
4.1 |
0.8 |
0.7 |
0.8 |
Other |
3.2 |
3.3 |
3.6 |
3.0 |
8.7 |
8.2 |
0.2 |
-5.0 |
-4.2 |
All sectors |
2.5 |
9.4 |
7.7 |
1.0 |
6.9 |
6.5 |
1.4 |
2.4 |
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
Investment Manager’s Report (continued)
Asset management
City Tower, Manchester (Office/Mixed-use - 25% share)
Description: 610,000 sq ft of office, retail, leisure and
hotel accommodation on a three acre island site in Manchester city centre.
Valuation: £43.1 million at 30
September 2019 reflecting a net initial income yield of 5.1%
and a reversionary yield of 6.8%. During the period the property
delivered a 2.2% total return.
Asset strategy: To continue to improve the office
accommodation to take advantage of good levels of occupational
demand and reposition the retail and leisure offer.
Key activity:
- Ongoing office refurbishment resulting in 30,000 sq ft of new
lettings and regears with Jon Matthews Architects, TopDesk,
Essential Consulting, Vision Direct, London School of Commerce and
Plexus Law. Healthy new tenant interest in remaining vacant space
totalling 73,500 sq ft with a rental value of £415,000 per
annum.
- Ancillary retail and leisure tenant mix, and income security,
improved through the surrender with Nobles Amusements and new
lettings to Lidl (10 years), Freshly Chopped salads (10 years) and
Gong Cha Bubble Tea (21 years).
- Jupiter Hotels Limited (hotel) and National Car Parks (parking)
provide a diverse, long income profile with inflation linked rent
reviews and expiries in 2060 and 2043 respectively.
- Ongoing focus to enhance the sustainability credentials of the
asset, including collaboration with the local Council on public
realm improvements, enhanced building efficiency through removal of
historic plant, upgrading lighting to LED during office
refurbishments and creation of improved tenant co-working
facilities.
Millshaw Industrial Estate,
Leeds (Industrial)
Description: 460,000 sq ft multi-let industrial estate
comprising 27 units. Strategically located two miles south of
Leeds city centre, the property is
adjacent to White Rose Office Park and benefits from close
proximity to the M62 and M621 motorways.
Valuation: £34.5 million at 30
September 2019 reflecting a net initial income yield of 4.8%
and a reversionary yield of 6.3%. During the period the property
delivered an 8.7% total return.
Asset strategy: To refurbish units to drive further
rental income growth and progress planning for higher value
alternative uses given the prominent site frontage to the
Leeds ring road.
Key activity:
- New lease completed to JD Sport Gyms at a rent of £201,800 per
annum following change of planning use and landlord works.
- Refurbished four units and completed four new lettings at
record rents of up to £7.25 per sq ft which compares to the
estate’s average rent and rental value of £4.36 per sq ft and £5.00
per sq ft respectively.
- Rent reviews completed with Group HES and DHL, resulting in
rental uplifts of 14.2% and 26.7% respectively, reflecting a
combined increase in rent of £38,878 per annum.
- The estate is fully let with the opportunity to grow rents
further due to limited supply of industrial space in Leeds, particularly for units
above 20,000 sq ft.
- Ongoing refurbishment programme results in building energy
efficiency improvements in particular through installation of LED
lighting and efficient heating systems. The addition of JD Gyms to
the scheme also provides a health and well-being amenity for
existing tenants.
Investment Manager’s Report (continued)
Leeds, Headingley Central
(Retail/Mixed-use)
Description: Mixed-use 90,000 sq ft town centre scheme
anchored by core convenience retail and leisure operators including
Premier Inn Hotels, Sainsbury’s and Boots with a new pre-let to The
Gym Group.
Valuation: £28.7 million at 30
September 2019 reflecting a net initial income yield of 3.7%
and a reversionary yield of 6.0%. During the period the property
delivered a 1.2% total return.
Asset strategy: To improve tenant mix and to convert the
upper floor offices to alternative uses which are complementary to
the ground floor retail and leisure to create a vibrant and
sustainable scheme.
Key activity:
- The first phase of the asset strategy involved converting an
eight storey office into a Premier Inn hotel that completed in 2017
increasing the previous income of £45,000 per annum to £421,400 per
annum with CPI-linked reviews.
- In August the remaining offices, totalling 33,500 sq ft, were
vacated by the tenant which had a rent of £327,360 per annum. An
agreement for lease for 21,000 sq ft has been exchanged with The
Gym Limited, one of the UK’s largest gym operators. The lease is
for a fifteen year term without break option at a rent of £240,000
per annum. The lease has fixed uplifts of 10% at years five and ten
and the tenant will receive nine months rent free.
- Planning consent for gym use has been received and the
agreement is subject to carrying out refurbishment works at a cost
of approximately £1.8 million. This has been offset by a
dilapidations payment received during the period from the outgoing
office tenant of £750,000 (i.e. a net refurbishment cost of £1.05
million).
- The letting further improves tenant mix and footfall which will
benefit the retail and leisure tenants that include Sainsbury’s,
Boots, Costa Coffee and Pizza Express. The remaining 12,500 sq ft
of vacated office space is being marketed for office and
alternative uses.
- Units 30-31 have been let to Heavenly Desserts on a ten year
lease, without breaks, at £32,500 per annum. The tenant received a
22.5 months tenant incentive. The remaining three vacant retail
units are being marketed with a rental value of £220,000 per
annum.
- These lettings support the recent rebranding of the asset from
the Arndale Centre to Headingley Central to enhance asset
perception and continued efforts to create a mixed-use, sustainable
scheme.
- Ongoing sustainability initiatives include the installation of
EV car charging, LED lighting and new bicycle bays. The Company is
committed to community engagement working closely with local action
groups and charities including the Headingley Development Trust
(‘HDT’) and Sunshine & Smiles. The Company is proud to sponsor
Headingley Wonder Day and an anti-graffiti initiative led by
HDT.
Disposals overview
Since the beginning of 2019 the Company has completed, or
contracted to complete, on disposals totalling £95 million at an
average net initial yield of 3.0 %. These disposals have
crystallised profits from asset management and supported
performance. The table below sets out the disposals that have
contracted during the period, and since the period end, at a
combined premium of 15% net of capex over the period:
Investment Manager’s Report (continued)
Completion
Date |
Address |
Sector |
March 19 valuation
(£m) |
Net
sale price
(£m) |
01-Oct-19 |
Edinburgh, Haston
House |
Office |
5.5 |
6.5 |
08-Oct-19 |
Alfreton, Recticel
Unit |
Industrial |
10.2 |
10.4 |
15-Nov-19 |
Acton, Allied Way
Industrial Estate |
Industrial |
17.2 |
18.9 |
22-Nov-19 |
Hinckley, Coventry
Road 24 |
Land |
2.0 |
2.2 |
12-Dec-19 |
Peterborough, Finmere
Park [24] |
Industrial |
3.8 |
7.0 |
|
Total |
|
38.7 |
45.0 |
Finance
As noted above, on 15 October 2019
the Company refinanced its principal £129.6 million loan with
Canada Life to take advantage of low long-term interest rates.
The Company also has a £52.5 million revolving credit facility
with Royal Bank of Scotland
(‘RBS’) that matures in July 2023.
The RCF is an efficient and flexible funding source with a margin
of 1.6% and the ability to be repaid and redrawn as often as
required. The Company uses interest rate caps to mitigate the
potential of rising interest rates.
The table below provides the details for both loans adopting the
portfolio valuation as at 30 September
2019, utilising the refinancing terms:
Lender |
Loan
(£m)[25] |
Maturity |
Interest rate
(%) |
LTV
ratio[26] (%) |
LTV ratio covenant
(%) |
Interest cover ratio
(%)[27] |
ICR ratio covenant
(%) |
Forward looking ICR
ratio (%) [28] |
Forward looking ICR
ratio covenant (%) |
Canada Life |
129.6 |
50%:
15/04/2032
50%: 15/10/2039 |
2.5
[29] |
43.3 |
65 |
269 |
185 |
473 |
185 |
RBS |
0.0 |
03/07/2023 |
2.4
[30] |
0.0 |
65
[31] |
1155 |
185 |
1675 |
250 |
Following the Canada Life refinancing, and taking into account
the post period end disposals, the Company’s consolidated net loan
to value is approximately 22%.
Responsible investing with impact
The Board and the 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
Investment Manager’s Report (continued)
performance to occupiers and deliver tangible positive impacts
to local communities, the environment and wider society.
Schroder Real Estate’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 has again been recognised with the achievement of a Green Star
in the annual Global Real Estate Sustainability Benchmark survey
and an EPRA Best Practise Sustainability Reporting Gold Award for
the year end accounts.
Schroder Real Estate 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. Schroders 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, Schroder Real Estate signed the
Better Buildings Partnership Climate Commitment in September. 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 Schroder Real Estate’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 next year’s Annual
Report.
Outlook
The outlook for the UK real estate market remains uncertain
given slowing economic growth and current political situation.
Recent activity has improved the Company’s defensive
characteristics as well as increased shareholder total returns
through profitable disposals and the higher dividend.
Importantly, the activity during the interim period leaves the
Company in a strong position with a low borrowing ratio and
operational flexibility. There is additional investment capacity of
approximately £90 million ahead of an expected market correction.
Selectively deploying this capital over the course of 2020 into
Winning Cities at higher yields should mean the Company is well
placed to deliver continued, sustainable growth in net income.
Duncan Owen
Schroder Real Estate Investment Management Limited
25 November 2019
Responsibility Statement of the
Directors in respect of the Interim Report
We confirm that to the best of our knowledge:
• the condensed set of financial statements has been prepared in
accordance with IAS 34 Interim Financial Reporting; and
• the interim management report (comprising the Chairman’s and
the Investment Manager’s report) includes a fair review of the
information required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency
Rules, being an indication of important events that have
occurred during the first six months of the financial year and
their impact on the condensed set of financial statements; and a
description of the principal risks and uncertainties for the
remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency
Rules, being related party transactions that have taken place
in the first six months of the current financial year and that have
materially affected the financial position or performance of the
entity during that period; and any changes in the related party
transactions described in the last annual report that could do
so.
We are responsible for the maintenance and integrity of the
corporate and financial information included on the Company’s
website, and for the preparation and dissemination of financial
statements. Legislation in Guernsey governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
By order of the Board
Lorraine
Baldry
Chairman
25 November 2019
Independent Review Report to Schroder
Real Estate Investment Trust Limited
Introduction
We have been engaged by Schroder Real Estate Investment Trust
Limited (the “Company”), to review the Unaudited Condensed
Consolidated Financial Statements (“Interim Financial Statements”)
in the Interim Report and Consolidated Financial Statements for the
six months ended 30 September 2019
which comprise the Unaudited Condensed Consolidated Statement of
Comprehensive Income, Unaudited Condensed Consolidated Statement of
Financial Position, Unaudited Condensed Consolidated Statement of
Changes in Equity, Unaudited Condensed Consolidated Statements of
Cash Flows, and related notes 1 to 15. We have read the other
information contained in the Interim Report and Consolidated
Financial Statements and considered whether it contains any
apparent misstatements or material inconsistencies with the
information in the Interim Financial Statements.
This report is made solely to the Company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) (“ISRE
2410”) "Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Auditing Practices
Board. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company, for our
work, for this report, or for the conclusions we have formed.
Directors’ responsibilities
The Interim Report and Consolidated Financial Statements are the
responsibility of, and have been approved by, the directors. The
directors are responsible for preparing the Interim Report and
Consolidated Financial Statements in accordance with the Disclosure
Guidance and Transparency Rules (“DTR”) of the United Kingdom's Financial Conduct Authority
(“FCA”). As disclosed in note 1, the annual financial statements of
the Group are prepared in accordance with International Financial
Reporting Standards (‘IFRS’) as issued by the International
Accounting Standards Board. The Interim Financial
Statements have been prepared in accordance with International
Accounting Standard 34,
“Interim Financial Reporting,”
Our responsibility
Our responsibility is to express to the Company a conclusion on the
Interim Financial Statements in the Interim Report and Consolidated
Financial Statements based on our review.
Scope of Review
We conducted our review in accordance with ISRE 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of
interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review nothing has come to our attention that causes
us to believe that the Interim Financial Statements in the Interim
Report and Consolidated Financial Statements for the six months
ended 30 September 2019 are not
prepared, in all material respects, in accordance with
International Accounting Standard 34 and the DTR of the
United Kingdom's FCA.
Ernst & Young LLP
Guernsey, Channel Islands
25 November 2019
Condensed Consolidated Statement of Comprehensive Income
|
|
Six
months to |
Six
months
to |
Year
to |
|
|
30/09/2019 |
30/09/2018 |
31/03/2019 |
|
Notes |
£000 |
£000 |
£000 |
|
|
(unaudited) |
(unaudited) |
(audited) |
Rental income |
|
11,755 |
12,528 |
25,278 |
Other income |
|
1,089 |
39 |
1,339 |
Property operating
expenses |
|
(1,237) |
(1,040) |
(2,375) |
Net rental and
related income, excluding joint ventures |
|
11,607 |
11,527 |
24,242 |
|
|
|
|
|
Share of net rental
income in joint ventures |
|
1,290 |
1,512 |
3,311 |
Net rental and
related income, including joint ventures |
|
12,897 |
13,039 |
27,553 |
|
|
|
|
|
Profit on disposal
of investment property |
5 |
1,536 |
2 |
2,156 |
|
|
|
|
|
Net valuation
(loss)/gain on investment property |
5 |
(3,507) |
7,286 |
1,556 |
|
|
|
|
|
Expenses |
|
|
|
|
Investment management
fee |
2 |
(1,802) |
(1,551) |
(3,363) |
Valuers’ and other
professional fees |
|
(849) |
(726) |
(1,633) |
Administrator’s
fee |
2 |
(60) |
(60) |
(120) |
Auditor’s
remuneration |
|
(66) |
(66) |
(128) |
Directors’ fees |
|
(75) |
(75) |
(150) |
Other expenses |
|
(42) |
(140) |
(202) |
Total
expenses |
|
(2,894) |
(2,618) |
(5,596) |
|
|
|
|
|
Net operating
profit before net finance costs |
|
6,742 |
16,197 |
22,358 |
|
|
|
|
|
Refinancing costs |
9 |
- |
(3,128) |
(3,128) |
Finance costs
payable |
|
(3,323) |
(3,369) |
(6,807) |
Net finance
costs |
|
(3,323) |
(6,497) |
(9,935) |
Share of net rental
income in joint ventures |
6 |
1,290 |
1,512 |
3,311 |
Share of net valuation
(loss)/gain in joint ventures |
6 |
(94) |
(617) |
167 |
Profit and total
comprehensive income for the period attributable to the equity
holders of the parent |
|
4,615 |
10,595 |
15,901 |
Basic and diluted
earnings per share |
3 |
0.9p |
2.0p |
3.1p |
All items in the above statement are derived from continuing
operations. The accompanying notes 1 to 15 form an integral part of
the condensed interim financial statements.
Condensed Consolidated Statement of Financial Position
|
|
|
|
Restated |
|
Notes |
30/09/2019
£000 |
30/09/2018
£000 |
31/03/2019
£000 |
|
|
(unaudited) |
(unaudited) |
(audited) |
Investment
property |
5 |
331,695 |
417,783 |
352,186 |
Investment in joint
ventures |
6 |
80,071 |
78,381 |
80,165 |
Non-current
assets |
|
411,766 |
496,164 |
432,351 |
|
|
|
|
|
Trade and other
receivables |
7 |
49,360 |
18,067 |
49,689 |
Cash and cash
equivalents |
8 |
23,348 |
8,881 |
21,042 |
Investment property
held for sale[32] |
5 |
8,373 |
2,000 |
18,911 |
Current
assets |
|
81,081 |
28,948 |
89,642 |
Total
assets |
|
492,847 |
525,112 |
521,993 |
|
|
|
|
|
Issued capital and
reserves |
|
380,703 |
384,187 |
382,828 |
Treasury shares |
|
(26,452) |
(26,452) |
(26,452) |
Equity |
|
354,251 |
357,735 |
356,376 |
|
|
|
|
|
Interest-bearing loans
and borrowings |
9 |
127,406 |
157,973 |
156,230 |
Lease liability |
5 |
2,655 |
- |
- |
Non-current
liabilities |
|
130,061 |
157,973 |
156,230 |
|
|
|
|
|
Trade and other
payables |
10 |
8,535 |
9,404 |
9,387 |
Current
liabilities |
|
8,535 |
9,404 |
9,387 |
|
|
|
|
|
Total
liabilities |
|
138,596 |
167,377 |
165,617 |
|
|
|
|
|
Total equity and
liabilities |
|
492,847 |
525,112 |
521,993 |
|
|
|
|
|
Net Asset Value per
ordinary share |
11 |
68.3p |
69.0p |
68.7p |
|
|
|
|
|
|
|
The financial statements on pages 19-32 were approved at a
meeting of the Board of Directors held on 25
November 2019 and signed on its behalf by:
Lorraine Baldry
Chairman
The accompanying notes 1 to 15 form an integral part of the
condensed interim financial statements
Condensed Consolidated Statement of Changes in Equity
For the period from 1 April 2018 to 30
September 2018 (unaudited)
|
Notes |
Stated Capital |
Treasury share reserve |
Revenue
reserve |
Total |
|
|
|
£000 |
£000 |
£000 |
£000 |
|
Balance as at 31
March 2018 |
|
219,090 |
(26,452) |
160,932 |
353,570 |
|
Profit and total
comprehensive income for the period |
|
- |
- |
10,595 |
10,595 |
|
Dividends paid |
4 |
- |
- |
(6,430) |
(6,430) |
|
Balance as at 30
September 2018 |
|
219,090 |
(26,452) |
165,097 |
357,735 |
|
For the year ended 31 March 2019 (audited) and for the period
from 1 April 2019 to 30 September 2019 (unaudited) |
|
Notes |
Stated Capital |
Treasury
share reserve |
Revenue
reserve |
Total |
|
|
|
£000 |
£000 |
£000 |
£000 |
|
Balance
as at 31 March 2018 |
|
219,090 |
(26,452) |
160,932 |
353,570 |
|
Profit and
total comprehensive income for the year |
|
- |
- |
15,901 |
15,901 |
|
Dividends
paid |
4 |
- |
- |
(13,095) |
(13,095) |
|
Balance
as at 31 March 2019 |
|
219,090 |
(26,452) |
163,738 |
356,376 |
|
|
|
|
|
|
|
|
Profit and
total comprehensive income for the period |
|
- |
- |
4,615 |
4,615 |
|
Dividends
paid |
4 |
- |
- |
(6,740) |
(6,740) |
|
Balance
as at 30 September 2019 |
|
219,090 |
(26,452) |
161,613 |
354,251 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes 1 to 15 form an integral part of the
condensed interim financial statements.
Condensed Consolidated Statement of Cash Flows
|
|
Six
months
to |
Six
months
to |
Year
to |
|
|
30/09/2019 |
30/09/2018 |
31/03/2019 |
|
|
£000 |
£000 |
£000 |
|
|
(unaudited) |
(unaudited) |
(audited) |
Operating
activities |
|
|
|
|
Profit for the period/year |
|
4,615 |
10,595 |
15,901 |
Adjustments for: |
|
|
|
|
Profit on disposal of
investment property |
|
(1,536) |
(2) |
(2,156) |
Net valuation
(loss)/gain on investment property |
|
3,507 |
(7,286) |
(1,556) |
Share of profit of
joint ventures |
|
(1,195) |
(895) |
(3,478) |
Net finance cost |
|
3,323 |
3,369 |
9,935 |
Operating cash generated before changes in
working
capital |
8,714 |
5,781 |
18,646 |
|
|
|
|
|
|
|
|
(Increase)/decrease in
trade and other receivables |
328 |
(3,664) |
(179) |
Increase/(decrease) in
trade and other payables |
(852) |
648 |
1,105 |
Cash generated from
operations |
|
8,190 |
2,765 |
19,572 |
|
|
|
|
Finance costs
paid |
(3,189) |
(3,298) |
(6,541) |
Net cash from
operating activities |
|
5,001 |
(533) |
13,031 |
|
|
|
|
|
Investing
Activities |
|
|
|
|
Proceeds from sale of
investment property |
|
34,378 |
- |
12,447 |
Additions to
investment property |
|
(2,623) |
(1,142) |
(2,761) |
Acquisition of
investment property |
|
- |
(22,377) |
(23,191) |
Investment in joint
ventures |
|
- |
(1,250) |
(2,250) |
Net income distributed
from joint ventures |
|
1,290 |
1,512 |
3,311 |
Net cash (used
in)/from investing activities |
|
33,045 |
(23,257) |
12,444 |
|
|
|
|
|
Financing
Activities |
|
|
|
|
Repayment of external
debt |
|
(29,000) |
- |
- |
Additions to debt |
|
- |
9,883 |
8,500 |
Refinancing fees
paid |
|
- |
- |
(4,168) |
Dividends paid |
|
(6,740) |
(6,430) |
(13,095) |
Net cash from/(used
in) financing activities |
|
(35,740) |
3,453 |
(8,763) |
Net
(decrease)/increase in cash and cash equivalents for
the period/year |
2,306 |
(20,337) |
(8,176) |
Opening cash and
cash equivalents |
|
21,042 |
29,218 |
29,218 |
Closing cash and
cash equivalents |
|
23,348 |
8,881 |
21,042 |
|
|
|
|
|
The accompanying notes 1 to 15 form an integral part of the
condensed interim financial statements.
Notes to the Interim Report
1. Significant accounting policies
Schroder Real Estate Investment Trust Limited (“the Company”) is
a closed-ended investment company incorporated in Guernsey. The condensed interim financial
statements of the Company for the period ended 30 September 2019 comprise the Company, its
subsidiaries and its interests in joint ventures (together referred
to as the “Group”).
Statement of
compliance
The condensed 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. They do not include all 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 31
March 2019. The condensed interim financial statements have
been prepared on the basis of the accounting policies set out in
the Group’s annual financial statements for the year ended
31 March 2019. The financial
statements for the year ended 31 March
2019 have been prepared in accordance with International
Financial Reporting Standards (“IFRS”) as issued by the
International Accounting Standards Board. The Group’s annual
financial statements refer to new Standards and
Interpretations. Management’s assessment of IFRS 16 has
resulted in an adjustment in the recognition of the fair value of a
head lease relating to The Galaxy, Luton which can be seen in note 5.
Going concern
The Directors have examined significant areas of possible
financial risk including cash and cash requirements and the debt
covenants, in particular the loan to value covenants and interest
cover ratios on the loans with Canada Life and Royal Bank of
Scotland (“RBS”). As at the period
end, the undrawn capacity of the RBS facility was £52.5 million.
The RCF is an efficient and flexible source of funding due to the
margin of 1.6% and the ability to be repaid and redrawn as often as
required. Following the September period end, in October 2019 the Group completed a refinancing
activity relating to the facility held with Canada Life. This
£129.6 million fixed rate loan will now attract a total interest
rate of 2.5% per annum, compared to a previous 4.4%, resulting in
an immediate interest saving of £2.5 million per annum.
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 interim
financial statements. The Directors have satisfied themselves that
the Group has adequate resources to continue in operational
existence for the foreseeable future.
After due consideration, the Board believes it is appropriate to
adopt the going concern basis in preparing the condensed interim
financial statements.
Use of estimates and
judgments
The preparation of financial statements requires management to
make judgements, estimates and assumptions that affect the
application of policies and the reported amounts of assets and
liabilities, income and expenses. 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. There have been no changes in
the judgements and estimates used by management as disclosed in the
last annual report and financial statements for the year ended
31 March 2019.
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, the United
Kingdom. There is no one tenant that represents more than
10% of group revenues. The chief operating decision maker is
considered to be the Board of Directors who are provided with
consolidated IFRS information on a quarterly basis.
Notes to the Interim Report
(Continued)
2. Material agreements
Schroder Real Estate Investment Management Limited is the
Investment Manager to the Company.
The Investment Manager is entitled to a fee, together with
reasonable expenses incurred in the performance of its duties. The
fee is payable monthly in arrears and shall be an amount equal to
one twelfth of the aggregate of 1.1% of the NAV of the Company. The
Investment Management Agreement can be terminated by either party
on not less than twelve months written notice or on immediate
notice in the event of certain breaches of its terms or the
insolvency of either party. The total charge to profit during the
period was £1,802,000 (year to 31 March
2019: £3,363,000) (6 months to 30
September 2018: £1,551,000). At the period end £497,000
(31 March 2019: £287,000;
30 September 2018: £581,000) was
outstanding.
The Board appointed Northern Trust International Fund
Administration Services (Guernsey)
Limited as the Administrator to the Company with effect from
25 July 2007. The Administrator is
entitled to an annual fee equal to £120,000 of which £30,000
(31 March 2019: £30,000; 30 September 2018: £30,000) was outstanding at
the period end.
3. Basic and Diluted Earnings per
share
The basic and diluted earnings per share for the Group is based
on the profit for the period of £4,615,000 (31 March 2019: £15,901,000; 30 September 2018: £10,595,000) and the weighted
average number of ordinary shares in issue during the period of
518,513,409 (31 March 2019:
518,513,409 and 30 September 2018:
518,513,409)
EPRA earnings reconciliation
As recommended by the European Public Real Estate Association
(‘EPRA’), EPRA performance measures are disclosed in the section
below.
|
|
Six
months to
30/09/2019 |
Six
months to
30/09/2018 |
Year
to
31/03/2019 |
|
|
£000 |
£000 |
£000 |
Profit after tax |
|
4,615 |
10,595 |
15,901 |
Adjustments to
calculate EPRA Earnings exclude: |
|
|
|
|
Profit on disposal of
investment property |
|
(1,536) |
(2) |
(2,156) |
Net valuation
(gain)/loss on investment property |
|
3,507 |
(7,286) |
(1,556) |
Share of valuation
loss/(gain) in joint ventures |
|
94 |
617 |
(167) |
EPRA
earnings |
|
6,680 |
3,924 |
12,022 |
Company adjustments
[33] |
|
- |
3,128 |
3,128 |
Adjusted EPRA
earnings |
|
6,680 |
7,052 |
15,150 |
Weighted average
number of ordinary shares |
|
518,513,409 |
518,513,409 |
518,513,409 |
EPRA earnings per
share (pence) |
|
1.3 |
0.8 |
2.3 |
Adjusted EPRA
earnings per share (pence) |
|
1.3 |
1.4 |
2.9 |
|
|
|
|
|
|
EPRA earnings per share reflects the underlying performance of
the Group calculated in accordance with the EPRA guidelines. EPRA
earnings represents the net income generated from the operational
activities of the Group. It excluded all capital components not
relevant to the underlying net income performance of the portfolio,
such as the realised and unrealised fair value gains or losses on
investment properties.
Notes to the Interim Report
(continued)
4. Dividends paid
|
Number of |
|
01/04/2019 to |
In respect
of |
ordinary |
Rate |
30/09/2019 |
|
shares |
(pence) |
£000 |
Quarter ended 31 March
2019 (paid 7 June 2019) |
518.51 million |
0.65 |
3,370 |
Quarter ended 30 June
2019 (paid 16 August 2019) |
518.51 million |
0.65 |
3,370 |
|
|
1.30 |
6,740 |
|
Number of |
|
01/04/2018 to |
In respect
of |
ordinary |
Rate |
30/09/2018 |
|
shares |
(pence) |
£000 |
Quarter ended 31 March
2018 (paid 31 May 2018) |
518.51 million |
0.62 |
3,215 |
Quarter ended 30 June
2018 (paid 31 August 2018) |
518.51 million |
0.62 |
3,215 |
|
|
1.24 |
6,430 |
|
Number
of |
|
01/04/2018 to |
In respect
of |
ordinary |
Rate |
31/03/2019 |
|
shares |
(pence) |
£000 |
Quarter ended 31 March
2018 (paid 31 May 2018) |
518.51
million |
0.62 |
3,215 |
Quarter ended 30 June
2018 (paid 31 August 2018) |
518.51
million |
0.62 |
3,215 |
Quarter ended 30 Sept
2018 (paid 5 December 2018) |
518.51
million |
0.64 |
3,295 |
Quarter ended 31 Dec
2018 (paid 15 March 2019) |
518.51
million |
0.65 |
3,370 |
|
|
2.53 |
13,095 |
|
|
|
|
|
A dividend for the quarter ended 30
September 2019 of 0.65p (£3.4 million) was approved on
25 November 2019 and will be paid on
18 December 2019.
5. Investment property and Investment
property held for sale
For the period 1 April 2018 to 30
September 2018 (unaudited)
|
Leasehold |
Freehold |
Total |
£000 |
£000 |
£000 |
Fair value as at 1
April 2018 |
37,180 |
351,796 |
388,976 |
Acquisitions of
investment property |
- |
22,377 |
22,377 |
Additions |
52 |
1,090 |
1,142 |
Realised gain on
disposals |
- |
2 |
2 |
Net valuation
(loss)/gain on investment property |
(81) |
7,367 |
7,286 |
Fair value as at 30
September 2018 |
37,151 |
382,632 |
419,783 |
The balance above includes:
|
Leasehold
£000 |
Freehold
£000 |
Total £000 |
Investment property |
37,151 |
380,632 |
417,783 |
Investment property held for
sale |
- |
2,000 |
2,000 |
Fair value as at 30 September
2018 |
37,151 |
382,632 |
419,783 |
Notes to the Interim Report (continued)
5. Investment property and Investment property
held for sale (continued)
For the year 1
April 2018 to 31 March 2019
(audited)
|
Leasehold |
Freehold |
Total |
£000 |
£000 |
£000 |
Fair value as at 1
April 2018 |
37,180 |
351,796 |
388,976 |
Reclassification
between freehold and leasehold |
5,600 |
(5,600) |
- |
Additions |
88 |
25,864 |
25,952 |
Gross proceeds on
disposals |
- |
(47,543) |
(47,543) |
Realised gain on
disposals |
- |
2,156 |
2,156 |
Net valuation
(loss)/gain on investment property |
(3,046) |
4,602 |
1,556 |
Fair value as at 31
March 2019 |
39,822 |
331,275 |
371,097 |
The balance above includes:
|
Leasehold
£000 |
Freehold
£000 |
Total £000 |
Investment property |
39,822 |
312,364 |
352,186 |
Investment property held for
sale |
- |
18,911 |
18,911 |
Fair value as at 31 March
2019 |
39,822 |
331,275 |
371,097 |
For the period 1 April 2019 to 30
September 2019 (unaudited)
|
Leasehold |
Freehold |
Total |
£000 |
£000 |
£000 |
Fair value as at 1
April 2019 |
39,822 |
331,275 |
371,097 |
Additions |
31 |
2,592 |
2,623 |
Gross proceeds on
disposals |
- |
(34,336) |
(34,336) |
Realised gain on
disposals |
- |
1,536 |
1,536 |
Fair value leasehold
adjustment * |
2,655 |
- |
2,655 |
Net valuation
(loss)/gain on investment property |
(1,405) |
(2,102) |
(3,507) |
Fair value as at 30
September 2019 |
41,103 |
298,965 |
340,068 |
* Further to the new IFRS 16 requirements, there has been an
adjustment to include the fair value of the leasehold element of
The Galaxy, Luton. The
corresponding lease liability is included on the balance sheet
under non-current liabilities.
The balance above includes:
|
Leasehold
£000 |
Freehold
£000 |
Total £000 |
Investment property |
41,103 |
290,592 |
331,695 |
Investment property held for
sale |
- |
8,373 |
8,373 |
Fair Value as at 30 September
2019 |
41,103 |
298,965 |
340,068 |
Two of the investment properties have been determined to meet
the criteria of a held for sale asset at the period end with a
total value of £8,373,000 (31 March
2019: £18,911,000; 30 September
2018: £2,000,000). The 31 March
2019 held for sale balance has been restated. The held
for sale assets were previously included in investment property and
therefore the statement of financial position has been restated
accordingly.
The fair value of investment property, as determined by the
valuer, totals £376,425,000 (31 March
2019: £417,550,000; 30 September
2018: £431,475,000). Of this amount, £18,875,000 is in
relation to the unconditional exchange of contracts for Allied
Industrial Estate, Acton and £10,400,000 is in relation to the
unconditional exchange
Notes to the Interim Report
(continued)
5. Investment property and Investment property
held for sale (continued)
of contracts for The Reticel Unit, Alfreton (March 2019: £36,100,000 in relation to the
unconditional exchange of contracts for Victory House, Brighton). As at 30
September 2019, £9,737,000 (31 March
2019: £10,352,000; 30 September
2018: £11,692,000) in connection with lease incentives is
included within trade and other receivables and a further
adjustment of £2,655,000 is included in non-current liabilities
(31 March 2019: £nil; September 2018: £nil) relating to the fair value
of the leasehold.
The fair value of investment property has been determined by
Knight Frank LLP, a firm of independent chartered surveyors, who
are registered independent appraisers. The valuation has been
undertaken in accordance with the RICS Valuation – Global Standards
2017, which incorporates the International Valuation Standards, and
the RICS National Supplement effective from January 2019, issued by the Royal Institution of
Chartered Surveyors (the “Red Book”).
The properties have been valued on the basis of “Fair Value” in
accordance with the RICS Valuation - Professional Standards
VPS4(7.1) 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 year. Investment properties
have been classed according to their real estate sector.
Information on these significant unobservable inputs per class of
investment property is disclosed below:
Quantitative information about fair
value measurement using unobservable inputs (Level 3) as at
30 September 2019 (unaudited)
|
|
Industrial |
Retail (incl retail
warehouse) |
Office |
Other |
Total |
Fair value (£’000) |
|
153,125 |
106,500 |
96,700 |
20,100 |
376,425 |
Area (‘000 sq ft) |
|
1,737 |
556 |
463 |
177 |
2,933 |
Net passing rent psf per annum |
Range
Weighted average |
£0 - £11.45 £4.75 |
£0 - £38.50
£11.30 |
£6.15 - £29.10
£14.71 |
£6.65 -£13.00
£7.82 |
£0 - £38.50 £7.75 |
Gross ERV psf per annum |
Range
Weighted average |
£3.75 - £13.00
£5.60 |
£7.40 - £37.75
£14.49 |
£9.75 - £27.00
£16.66 |
£8.18 -£13.00
£8.46 |
£3.75 - £37.75
£9.21 |
Net initial yield
(1) |
Range
Weighted average |
0% -
6.59% 5.05% |
0%
-9.02% 5.53% |
2.10% -
8.74% 6.60% |
4.73%
-7.54%
6.46% |
0% -
9.02% 5.66% |
Equivalent yield |
Range
Weighted average |
4.05% -
7.03% 5.82% |
5.08%-9.95% 6.49% |
5.65%-9.08% 7.17% |
4.73%
-8.04%
6.71% |
4.05%-9.95% 6.41% |
Notes: (1) Yields based on rents receivable
after deduction of head rents, but gross of non-recoverables.
Notes to the Interim Report
(continued)
5. Investment property and Investment property
held for sale (continued)
Quantitative information about fair
value measurement using unobservable inputs (Level 3) as at
31 March 2019 (audited)
|
|
Industrial |
Retail (incl retail
warehouse) |
Office |
Leisure |
Total |
Fair value (£000) |
|
146,350 |
111,450 |
139,500 |
20,250 |
417,550 |
Area (‘000 sq ft) |
|
1,737 |
553 |
634 |
177 |
3,101 |
Net passing rent per sq ft per
annum |
Range
Weighted average |
£0 - £10.84 £4.58 |
£0 - £38.50
£12.63 |
£0 - £25.72 £11.50 |
£0 - £13.00
£7.92 |
£0 - £38.50 £7.62 |
Gross ERV per sq ft per annum |
Range
Weighted average |
£3.75 - £12.77
£5.58 |
£7.40 - £38.50
£14.73 |
£9.50 - £27.50
£16.46 |
£8.18 -£13.00
£9.07 |
£3.75 - £38.50
£9.64 |
Net initial yield (1) |
Range
Weighted average |
0% - 6.75% 5.09% |
0% -9.54% 5.87% |
0% - 8.98% 4.89% |
4.73% -7.68%
6.49% |
0% - 8.98% 5.30% |
Equivalent yield |
Range
Weighted average |
4.44% - 8.05%
5.95% |
5.35%-10.09%
6.38% |
5.15%-10.53% 6.75% |
4.73% -7.83%
6.59% |
4.44%-10.53%
6.36% |
Notes: (1) Yields based on rents receivable after
deduction of head rents, but gross of non-recoverables.
Sensitivity of measurement to
variations in the significant unobservable inputs
The significant unobservable inputs used in the fair value
measurement categorised within Level 3 of the fair value hierarchy
of the Group’s property portfolio, together with the impact of
significant movements in these inputs on the fair value
measurement, are shown below:
Unobservable input |
Impact on fair value measurement
of significant increase in input |
Impact on fair value measurement
of significant decrease in input |
Passing rent |
Increase |
Decrease |
Gross ERV |
Increase |
Decrease |
Net initial yield |
Decrease |
Increase |
Equivalent yield |
Decrease |
Increase |
There are interrelationships between the yields and rental
values as they are partially determined by market rate
conditions.
Notes to the Interim Report
(continued)
5. Investment property and Investment property
held for sale (continued)
The sensitivity of the valuation to changes in the most
significant inputs per class of investment property are shown
below:
Estimated movement in fair value of investment properties at 30
September 2019 (unaudited) |
Industrial
£’000 |
Retail
£’000 |
Office
£’000 |
Other
£’000 |
Total
£’000 |
Increase in ERV by
5% |
7,383 |
4,626 |
4,133 |
665 |
16,807 |
Decrease in ERV by
5% |
(7,147) |
(4,504) |
(4,087) |
(406) |
(16,144) |
Increase in net
initial yield by 0.25% |
(7,229) |
(4,607) |
(3,529) |
(749) |
(15,930) |
Decrease in net
initial yield by 0.25% |
7,983 |
5,044 |
3,807 |
809 |
17,403 |
Estimated movement in fair value of investment properties at 31
March 2019 (audited) |
Industrial
£000 |
Retail
£000 |
Office
£000 |
Other
£000 |
Total
£000 |
Increase in ERV by
5% |
7,147 |
5,236 |
6,003 |
549 |
18,935 |
Decrease in ERV by
5% |
(6,860) |
(4,490) |
(5,846) |
(526) |
(17,722) |
Increase in net
initial yield by 0.25% |
(6,846) |
(4,550) |
(6,781) |
(750) |
(18,799) |
Decrease in net
initial yield by 0.25% |
7,552 |
4,955 |
7,512 |
811 |
20,659 |
6. Investment in joint ventures
For the period 1 April 2018 to 30
September 2018 (unaudited)
|
|
£000 |
Opening balance as at
1 April 2018 |
|
77,748 |
Purchase of units in
City Tower Unit Trust to fund capital expenditure |
|
1,250 |
Share of profit for
the period |
|
895 |
Distributions
received |
|
(1,512) |
Amounts recognised
as joint ventures at 30 September 2018 |
|
78,381 |
For the year 1
April 2018 to 31 March 2019
(audited)
|
£000 |
Opening balance as at
1 April 2018 |
77,748 |
Purchase of units in
City Tower Unit Trust to fund capital expenditure |
2,250 |
Share of profit for
the period |
3,478 |
Distribution
received |
(3,311) |
Amounts recognised
as joint ventures at 31 March 2019 |
80,165 |
For the period 1 April 2019 to 30
September 2019 (unaudited)
|
|
£000 |
Opening balance as at
1 April 2019 |
|
80,165 |
Share of profit for
the period |
|
1,196 |
Distributions
received |
|
(1,290) |
Amounts recognised
as joint ventures at 30 September 2019 |
|
80,071 |
Notes to the Interim Report
(continued)
7. Trade and other receivables
|
|
Six
months to
30/09/2019 |
Six
months to
30/09/2018 |
Year
to
31/03/2019 |
|
|
£000 |
£000 |
£000 |
Rent receivable |
|
2,609 |
1,873 |
866 |
Sundry debtors and
prepayments |
|
12,966 |
16,194 |
12,604 |
Receivable relating to
disposals |
|
33,785 |
- |
36,219 |
|
|
49,360 |
18,067 |
49,689 |
Sundry debtors and other receivables includes £9,737,000
(31 March 2019: £10,352,000,
30 September 2018: £11,692,000) in
respect of lease incentives.
8. Cash and cash
equivalents
As at 30 September 2019 the group
had £23.3 million in cash (31 March
2019: £21.0 million, 30 September
2018: £8.9 million) of which £3.6 million is held within the
Canada Life security pool. (31 March
2019: £0.3 million, 30 September
2018: £nil).
9. Interest-bearing loans
and borrowings
The Group entered into a £129.6 million loan facility with
Canada Life on 16 April 2013 that had
20% of the loan maturing on 15 April
2023 and with the balance of 80% maturing on 15 April 2028, with a fixed interest rate of
4.77%. On the 2 July 2018, the 20% of
the Canada Life loan maturing on 15 April
2023 was refinanced extending the maturity date, increasing
the length of the loan to that of the 80%, maturing on the
15 April 2028 making it coterminous
with the 80% balance. The interest rate for this element of the
loan was amended to 3.00% from 4.77%.
On 2 July 2018, the Company
refinanced its existing £20.5 million revolving credit facility
with Royal Bank of Scotland. The
RCF with RBS was increased from £20.5 million to £32.5
million. In January 2019 the
RCF limit was further increased from £32.5 million to £52.5
million. As at 30 September
2019 this facility was completely undrawn following a
repayment of the balance of £29 million on 4
July 2019.
The existing RCF had been due to expire in July 2019, but was extended and now expires in
July 2023. The interest rate is based
on the loan to value ratio as below:
- LIBOR + 1.60% if loan to value is less than or equal to
60%
- LIBOR + 1.85% if loan to value is greater than 60%
During the period the loan to value has remained less than 60%.
Since this loan has variable interest, an interest rate cap for
100% of the loan was entered into, which comes into effect if
GBP 3 month LIBOR reaches 1.5%.
As at the reporting date GBP 3 month
LIBOR has not reached 1.5%.
As at 30 September 2019 the group
has a loan balance of £129.6 million and £2.2 million of
unamortised arrangement fees (31 March
2019: £158.6 million and £2.4 million of unamortised
arrangement fees, September 2018:
£160.1 million and £2.1 million of unamortised arrangement
fees).
Fair values are based on the present value of future cash flows
discounted at a market rate of interest. Issue costs are amortised
over the period of the borrowings. As at 30
September 2019 the fair value of the Group’s £129.6 million
loan with Canada Life was £150.6 million (31
March 2019: £143.3 million, 30
September 2018: £145.3 million).
Notes to the Interim Report
(continued)
10. Trade and other payables
|
|
Six
months to
30/09/2019 |
Six
months to
30/09/2018 |
Year
to
31/03/2019 |
|
|
£000 |
£000 |
£000 |
Rent received in
advance |
|
3,998 |
4,938 |
4,532 |
Rental deposits |
|
1,276 |
1,105 |
1,193 |
Interest payable |
|
1,254 |
1,391 |
1,391 |
Other payables and
accruals |
|
2,007 |
1,970 |
2,271 |
|
|
8,535 |
9,404 |
9,387 |
11. NAV per ordinary share
The NAV per ordinary share is based on the net assets of
£354,251,000 (31 March 2019:
£356,376,000, 30 September 2018:
357,735,000) and 518,513,409 ordinary shares in issue at the
Statement of Financial Position reporting date (31 March 2019: 518,513,409 and 30 September 2018: 518,513,409).
12. Financial risk factors
The Directors are of the opinion that there have been no
significant changes to the financial risk profile of the Group
since the end of the last annual financial reporting period ended
31 March 2019 of which it is
aware.
The main risks arising from the Group’s financial instruments
and properties are market price risk, credit risk, liquidity risk
and interest rate risk. The Group is only directly exposed to
sterling and hence is not exposed to currency risks. The Board
regularly reviews and agrees policies for managing each of these
risks.
13. Related party
transactions
Material agreements are disclosed in note 2. The Directors’
remuneration for the period for services to the Group was £75,000
(31 March 2019: £150,000,
30 September 2018: £75,000).
Transactions with joint ventures are disclosed in note 6.
14. Capital Commitments
At 30 September 2019 the Group had
capital commitments for capital expenditure of £9.9 million
(31 March 2019: £9.4 million,
30 September 2018: £2.0 million).
15. Post balance sheet
events
Since the end of the period the Group has completed on the sale
of four properties and has exchanged to sell one other.
On 1 October Haston House, Edinburgh was sold for £6.5 million; on 8
October the Recticel Unit, Alfreton was sold for £10.4 million; on
15 November the Allied Industrial Estate, Acton was sold for £18.9
million; and on 22 November Coventry Road, Hinckley was sold for
£2.2 million.
On 18 November Finmere Park, Peterborough exchanged for £6.9 million with
completion set for 12 December
2019.
On 14 October an amount of £5.0 million was drawn down on the
revolving credit facility with RBS. The remaining balance of £47.5
million remains undrawn.
On 15 October the loan of £129.6m with Canada Life was
refinanced. A break cost inclusive of fees of £26.1m was paid and a
sum of £1.4m of previously unamortised loan costs was written
off.
Glossary
Alternative performance measure
(“APM”) |
Alternative performance measure |
Annualised dividend
yield |
being the dividend paid during the
period annualised and expressed as a percentage of the period end
share price. |
Articles |
means the Company's articles of
incorporation, as amended from time to time. |
Companies Law |
means The Companies (Guernsey) Law,
2008. |
Company |
is Schroder Real Estate Investment
Trust Limited. |
Directors |
means the directors of the Company
as at the date of this document. |
Disclosure Guidance and
Transparency Rules |
means the disclosure guidance and
transparency rules contained within the FCA's Handbook of Rules and
Guidance. |
Earnings per share
(“EPS”) |
is the profit after taxation divided
by the weighted average number of shares in issue during the
period. Diluted and Adjusted EPS are derived as set out under
NAV. |
Estimated rental value
(“ERV”) |
is the Group’s external valuers’
reasonable opinion as to the open market rent which, on the date of
valuation, could reasonably be expected to be obtained on a new
letting or rent review of a property. |
EPRA |
is European Public Real Estate
Association. |
EPRA Earnings |
is the earnings excluding all
capital components not relevant to the underlying net income
performance of the portfolio, such as the realised and unrealised
fair value gains or losses on investment properties. |
EPRA Earnings per share |
is the EPRA earnings divided by the
weighted average number of shares in issue during the period. |
EPRA NAV |
is the NAV calculated under IFRS
adjusted to reflect the fair value of financial instruments, debt
and deferred taxation. |
FCA |
is the UK Financial Conduct
Authority. |
Gearing |
is the Group’s net debt as a
percentage of adjusted net assets. |
Group |
is the Company and its
subsidiaries. |
Initial yield |
is the annualised net rents
generated by the portfolio expressed as a percentage of the
portfolio valuation. |
Interest cover |
is the number of times Group net
interest payable is covered by Group net rental income. |
Listing Rules |
means the listing rules made by the
FCA under Part VII of the UK Financial Services and Markets Act
2000, as amended. |
Market Abuse Regulation |
means regulation (EU) No.596/2014 of
the European Parliament and of the Council of 16 April 2014 on
market abuse. |
MSCI |
(formerly Investment Property
Databank or ‘IPD’) is a Company that produces an independent
benchmark of property returns. |
Net Asset Value or NAV |
is shareholders’ funds divided by
the number of shares in issue at the period end. |
NAV total return |
is calculated taking into account
both capital returns and income returns in the form of dividends
paid to shareholders. |
Net rental income |
is the rental income receivable in
the period after payment of ground rents and net property
outgoings. |
REIT |
is Real Estate Investment
Trust. |
Reversionary
yield |
is the anticipated
yield, which the initial yield will rise to once the rent reaches
the estimated rental value. |
Corporate information
Registered Address
PO Box 255
Trafalgar Court
Les Banques
St. Peter Port
Guernsey GY1 3QL
Directors
Lorraine Baldry (Chairman)
Stephen Bligh
Graham Basham
Alastair Hughes
(All Non-Executive Directors)
Investment Manager and Accounting Agent
Schroder Real Estate Investment Management Limited
1 London Wall Place
London
EC2Y 5AU
Secretary and Administrator
Northern Trust International Fund Administration Services
(Guernsey) Limited
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3QL
Depositary
Northern Trust (Guernsey) Limited
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3QL |
Independent Auditor
Ernst & Young LLP
PO Box 9, Royal Chambers
St Julian’s Avenue
St. Peter Port
Guernsey GY1 4AF
Property Valuers
Knight Frank LLP
55 Baker Street
London
W1U 8AN
Sponsor and Broker
J.P. Morgan Securities plc
25 Bank Street
Canary Wharf
London
E14 5JP
Tax Advisers
Deloitte LLP
2 New Street Square
London
EC4A 3BZ
Receiving Agent and UK
Transfer/Paying Agent
Computershare Investor Services
(Guernsey) Limited
Queensway House
Hilgrove Street
St Helier
Jersey
JE1 1ES |
Solicitors to the Company
as to English Law:
Stephenson Harwood LLP
1 Finsbury Circus
London
EC2M 7SH |
as to Guernsey Law:
Mourant Ozannes
Royal Chambers
St Julian’s Avenue
St. Peter Port
Guernsey GY1 4HP
|
|
ISA
The Company’s shares are eligible for Individual Savings Accounts
(ISAs).
FATCA GIIN
5BM7YG.99999.SL.831 |
|
|
|
|
[1] Winning Cities defined as higher growth regions. Source:
Oxford Economics/Schroders
[2] Source: MSCI property level returns gross of fees on a
like-for-like basis including direct and indirect property
investments. Past performance is not a guide to future performance
and may not be repeated.
[3] This includes the assets that were unconditionally exchanged
for disposal during the period, but not completed at period end,
and the Company’s share of joint venture properties at City Tower
in Manchester and Store Street in
London.
[4] Adjusted EPRA Earnings.
[5] This is an Alternative Performance Measure (‘APM’) as
defined in the glossary
[6] Adjusted for one-off refinancing costs.
[7] Based on the dividends paid during the period.
[8] On-balance sheet borrowings reflect the loan facilities with
Canada Life and RBS excluding the deduction of finance costs.
[9] Cash excludes rent deposits, service charges and floats held
with managing agents.
[10] Adjusting for the refinancing and post period end
disposals, the Loan to Value ratio, net of cash, is approximately
22%.
[11] Ongoing charges calculated in accordance with AIC
recommended methodology, as a percentage of average NAV during the
year. Fund only expenses exclude all property operating expenses,
valuers’ and professional fees in relation to properties.
[12] Ongoing charges exclude all exceptional costs, when
incurred, and interest during the period.
[13] Net Revenue is defined as profit less capital items.
[14] Source: Oxford Economics/Schroders.
15 Like-for-like with MSCI i.e. ignoring standard
acquisition costs.
[16] All figures source CBRE UK Monthly Index
[17] Calculated as percentage of Estimated Rental Value.
[18] 49% of the 11.3% comprises retail as part of mixed-use
assets such as City Tower in Manchester and Headingley Central in
Leeds.
[19] Note Central London is defined by MSCI as City, Mid-Town,
West End and Inner London.
[20] This asset sale unconditionally exchanged on 16 May 2019 with completion on 15 November 2019 for £18.875 million.
[21] Single tenant of a distribution building in Alfreton which
was sold on 8 October 2019.
[22] Single tenant of a cash and carry warehouse in Acton which
was sold on 15 November 2019.
[23] The Company listed in July
2004.
[24] These assets unconditionally exchanged post period end.
[25] Balance as at 30 September
2019; Post period end £5 million drawn from the RBS
facility.
26 Loan to Value (‘LTV’) is the loan balance divided
by the property value as at 30 September
2019.
[27] For the quarter preceding the Interest Payment Date
(‘IPD’), ((rental income received – void rates, void service charge
and void insurance)/interest paid).
[28] For the four quarters following the IPD, ((rental income to
be received – void rates, void service charge and void
insurance)/interest paid).
[29] Fixed total interest rate for the loan term.
[30] Total interest rate as at 30 Sept
2019 comprising 3 months LIBOR and the margin of 1.6% at an
LTV below 60% and a margin of 1.90% above 60% LTV.
[31] This covenant drops to 60% after year three of the
five-year term.
[32] Please see note 5 for details of the reclassification in
the 31 March 2019 figures.
[33] The Company adjustments relate to one-off costs.