19 June 2024
SCHRODER EUROPEAN REAL ESTATE
INVESTMENT TRUST PLC
("SEREIT"/ the "Company" /
"Group")
HALF YEAR RESULTS FOR THE SIX
MONTHS ENDED 31 MARCH 2024
Portfolio indexation, active asset
management and strengthened balance sheet underpins earnings growth
and 109% covered dividend
Schroder European Real Estate Investment Trust
plc, the company investing in European growth cities and regions,
announces its half year results for the six months ended 31 March
2024.
Portfolio indexation underpins earnings growth and 109%
covered dividend, supported by low-cost, fixed-rate(1)
debt profile
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·
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Underlying EPRA earnings increased 3% to €4.3
million on the prior six month's EPRA earnings of €4.2 million (31
March 2023: €3.8 million), primarily due to rental growth
offsetting the impact of higher interest costs
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·
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Two quarterly dividends of 1.48 euro cents per
share ('cps') declared, bringing the total dividends relating to
the period to 2.96 euro cps, 109% covered by EPRA
earnings
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·
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Net Asset Value ("NAV") of €165.3 million, or
123.6 cps, (30 September 2023: €171.4 million or 128.2 cps),
largely driven by continued outward yield movement of the
underlying portfolio
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·
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NAV total return of -1.3% based, in part, on an
IFRS loss of €2.2 million (31 March 2023: -4.7% total return/€8.7
million IFRS loss)
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·
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Strengthened balance sheet with completion of
all near-term refinancings on attractive terms, with no further
debt expiries until June 2026 and a low average interest cost of
3.2%
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·
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Low Loan to Value of 24% (net of cash), and €26
million of available cash, provides significant
flexibility
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Active asset management initiatives and diversification
support portfolio occupancy and valuation
resilience
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·
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Direct property portfolio independent valuation
declined 3.1% to €208.1 million (or €6.6 million net of
capex)
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Concluded 11 new leases and re-gears totalling
c. 6,340 sqm and generating €1.2 million of contracted rent, at a
weighted lease term of eight years
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·
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Portfolio benefits from 96% occupancy,
diversified across c.50 tenants
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100% of rent due collected
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Progressed the Company's sustainability
strategy including:
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Advanced portfolio sustainability audits by
leveraging the Schroders Capital platform and third-party
consultants to undertake a net zero carbon and Schroders real
estate ESG Scorecard analysis, with the aim of investing in, and
improving, the quality of the existing portfolio
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·
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Targeting higher sustainability and social
credentials
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The Company continues to review select
sustainability-led capex initiatives in the portfolio, which should
further optimise earnings growth and asset liquidity
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(1) Debt is
either fixed-rate or hedged by an interest rate cap.
Sir Julian
Berney Bt., Chairman, commented:
"Despite macroeconomic headwinds, the
resilience of the portfolio together, with local sector specialist
teams, has delivered rental growth, largely offsetting the impact
of higher interest rates. Management has successfully completed the
recent refinancings which, combined with significant cash reserves,
has further strengthened the balance sheet. The Company provides a
compelling and differentiated investment proposition compared to
our UK-listed peers. We have the flexibility to grow earnings
through exposure to strongly performing assets in higher growth
European cities, as well as executing on value-enhancing asset
management opportunities."
Jeff O'Dwyer,
Fund Manager for Schroder Real Estate Investment Management
Limited, added:
"Progressing our sustainability programme is
expected to form a key part of the strategy this year and into
next. By advancing the ongoing sustainability and net
zero audits, the asset management team has identified a variety of
initiatives that can help improve operational efficiencies, whilst
reducing occupancy costs and greenhouse gas emissions. Investing in
these sustainability-led initiatives will enable us to capture
rental growth, improve asset liquidity and deliver risk-adjusted
returns for shareholders."
A presentation for analysts and investors will
be held at 9am BST / 10am SAST today. Registration for which can be
accessed via: https://www.schroders.events/SERE24
If you would like to attend, please contact
James Lowe at Schroders
on james.lowe@schroders.com or
+44 (0)20 7658 2083.
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.
The Company has submitted a pdf of the hard
copy format of the Half Year Report to the National Storage
Mechanism and it will shortly be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
Enquiries:
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Jeff O'Dwyer
Schroder Real Estate Investment Management
Limited
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020 7658 6000
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Lottie Thompson
Schroder Investment Management
Limited
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020 7658 6000
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Dido Laurimore / Richard Gotla / Oliver
Parsons
FTI Consulting
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020 3727 1000
Schroderrealestate@fticonsulting.com
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Half Year
Report and Condensed Consolidated Interim Financial Statements for
the six month period ended 31 March 2024
Chairman's Statement
Overview
We are pleased to announce our unaudited interim
results for the six-month period ended 31 March 2024. Despite
ongoing economic and geopolitical uncertainty, the Company has
achieved another robust set of financial results:
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·
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Strong and
growing underlying EPRA earnings: Underlying
EPRA earnings increased to €4.3 million (H2 2023 €4.2 million).
This was driven by strong occupancy, high rent collection, and the
portfolio's indexation characteristics, which underpinned rental
growth. These collectively have helped offset the impact of higher
interest costs.
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Fully covered
dividends: Quarterly dividends of 1.48 euro
cents per share were paid, reflecting an attractive dividend yield
of approximately 8% per annum based on the share price of 63.0
pence sterling as at 31 May 2024. The dividend is 109% covered by
EPRA earnings, providing further comfort around dividend
stability.
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Emphasis on asset management: While the impact of the macroeconomic volatility on listed
vehicles is outside of our control, we have successfully concluded
11 new leases and re-gears across the portfolio1, totalling ca 6,340 sqm and
generating €1.2 million in annual rent, at a weighted lease term of
eight years. When combined with the focus on operational
excellence, this has helped to maximise shareholder returns,
ensuring that our assets remain relevant to their marketplace. Our
local investment and asset management teams, with specialist sector
and country knowledge, will continue to be key in driving
performance.
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Strong balance sheet: Successfully completed all near-term refinancings on
attractive terms, placing the Company in a strong financial
position. The Company has significant cash reserves of
approximately €26 million, modest gearing of 24% net of cash, and
no further debt expiries until June 20262. A resilient balance sheet
provides us with significant flexibility and the option to review
select sustainability-led capex initiatives in the portfolio, which
should optimise earnings growth and asset liquidity.
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Portfolio
values: The like-for-like portfolio value (net
of capex) declined €6.6 million, or -3.1%, to €208.1 million,
largely driven by continued outward yield movement. Combined with
EPRA earnings, this resulted in an IFRS loss of €2.2 million and a
NAV total return of -1.3%. Investment volumes, and evidence for
valuers, are increasing across Europe, particularly for smaller lot
sizes in winning cities, which provides reassurance about
underlying carrying values.
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Valuation
yields: Valuation yields across the portfolio
declined between 0 and 70 basis points (bps) over the period,
primarily driven by the availability and cost of debt, as well as
the appeal of other asset classes such as fixed income. We believe
we have found a floor for select retail and industrial assets, and
the recovery in the portfolio's office values will be driven by
affordability, accessibility, and sustainability
attributes.
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·
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Focus on
sustainability: Advanced our sustainability
audits by leveraging the Schroders Capital platform and third-party
consultants to undertake net zero carbon and Schroders real estate
ESG Scorecard analysis, with the aim of investing in, and
improving, the quality of our existing portfolio.
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1
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Including lettings in
Seville.
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2
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Excluding Seville for which a
standstill agreement has been agreed.
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Despite these strong fundamentals, our shares,
like those of many other UK-listed real estate funds, continue to
trade at a deep discount to NAV. We believe there is an opportunity
to further differentiate our strategy by placing greater emphasis
on sustainability objectives and reporting on the progress made in
achieving them. This will complement the existing key attributes
underpinning the strategy, including winning cities,
diversification, strong occupancy, indexation upside, strength of
balance sheet, and high dividend yield with excess
cover.
Overall, the Board is pleased with
the resilience of the portfolio and the efforts of our Investment
Manager in delivering on our asset management programme.
Strategy
Our differentiated strategy remains focused on
delivering shareholders an attractive level of income, as well as
the potential for income and capital growth, through investments in
commercial real estate in Continental Europe. We have made the
strategic decision to be prudent and retain capital and continue to
strengthen our balance sheet, ensuring that we have the necessary
resources to invest in sustainability initiatives, which should
help drive earnings growth and improve asset quality and
liquidity.
We have a high conviction in the transformation
of less sustainable buildings into modern,
fit-for-purpose assets with green certifications. This
approach should not only deliver enhanced returns but also support
the wider real estate industry in achieving its net zero carbon
targets. It should benefit our tenants, local communities, and
overall portfolio performance.
We are in the advanced stages of finalising our
sustainability and net zero audits, which will play a crucial role
in our goal of applying for the Sustainability
Improver' label under the Sustainability Disclosure Regulations
('SDR') set by the FCA. Additionally, we aim to become an Article 8
vehicle under the Sustainability Finance Disclosure Regulation
('SFDR'). We plan to apply for FCA approval later this year and
seek the required approvals.
The portfolio remains diversified, managed by
local sector specialist teams known for their operational
excellence and hospitality mindset. Approximately 33% of the
portfolio by value consists of offices, all of which are situated
in supply-constrained locations and leased at affordable rents.
Office occupancy in Continental Europe has seen a much stronger
recovery following the pandemic relative to the UK and USA, driven
by factors including, amongst others, accessibility by public
transport and overall commute times. This has helped to keep
occupancy levels high, particularly for quality space.
Our industrial exposure, comprising distribution
warehouses and light industrial, accounts for 30% of the portfolio
and is concentrated in growth cities in France and the Netherlands.
Of the retail exposure, 17% is in DIY and grocery investments in
densely populated urban areas, which are performing strongly.
Alternatives make up 9% of the portfolio, including a mixed-use
data centre and a car showroom, with the remaining 11% in cash.
Throughout the period, our portfolio maintained a strong occupancy
level of 96%, with all assets fully leased except for the
Saint-Cloud office investment, which averaged approximately 85%
occupancy over the period.
We continue to provide a unique offering
compared to the wider UK-listed real estate peer group, delivering
sustainable income and capital growth for our shareholders, while
actively managing risk and ensuring the relevance of our assets in
their respective markets.
Financial
results
The NAV total return for the interim period was
-1.3%, primarily driven by market-wide outward yield movements as a
result of the higher interest rate environment. We witnessed
outward yield movement across all our assets except Frankfurt, due
to higher discount rates, influenced by changes in the availability
and cost of financing. Independent valuers have reduced
capitalisation rates by an average of approximately 25 basis points
(bps), with value declines partially offset by rental indexation
and, at certain assets such as Rumilly, Rennes, Nantes and Venray
industrial investments, and the Hamburg office, by ERV growth.
Underlying EPRA earnings for the period increased to €4.3 million,
compared to €4.2 million in the second half of 2023. The Company's
NAV as of 31 March 2024 decreased by €6.1 million, or 3.6%, to
€165.3 million, or 123.6 euro cents per share, over the
period.
Balance sheet
and debt
Given the disparate and volatile credit markets,
we continue to manage our balance sheet conservatively. At the end
of the period, third-party debt totalled €82.5 million,
representing a loan-to-value ('LTV') ratio net of cash of 24%
against the overall gross asset value of the Company, which is
significantly below the net LTV cap of 35%. The Company has six
loans secured against individual assets or groups of assets, with
no cross-collateralisation between loans. The average weighted
total interest rate of the loans is 3.2% per annum, and the
weighted average duration is 3.2 years.
During the period, we completed two French
refinancings on highly competitive terms. In December 2023, we
refinanced the Paris office investment early, reducing the loan
principal from €17 million to €14 million, and securing a margin of
1.9% for four years. Furthermore, in March 2024, we refinanced an
€8.6 million loan secured against our Rennes property with the
existing lender for five years at a margin of 1.6%. The Seville
loan remains in a cash trap and is being managed under a standstill
agreement to facilitate a sale. A disposal of the Seville property
would reduce portfolio gearing by approximately 3%, and we are
actively pursuing this strategy. Further details on individual
loans can be found in the Investment Manager's Report. The Company
currently holds approximately €26 million in available cash and has
further debt capacity, providing
significant flexibility.
Dividends
During the current period, the Board has decided
to continue with the quarterly dividend of 1.48 euro cents per
share. The total dividends declared for the six months of the
current financial year amount to 2.96 euro cents per share, which
is fully covered at 109%. When annualised, the dividend provides a
highly attractive dividend yield of c.8.0% based on the share price
of 63.0 pence per share as of the close on 31 May 2024.
The Board will continue to monitor the dividend
in consideration of factors such as tenant occupation, rent
collection, interest expense, cash position, and dividend cover.
The current level of dividend cover provides confidence in the
sustainability of the dividend, despite increasing interest expense
costs.
Board
succession
As part of our comprehensive succession planning
process, we appointed Mark Beddy as an independent Non-Executive
Director, effective from 1 January 2024. Mark brings extensive
finance and accounting experience, having served as a senior audit
partner in Deloitte LLP, with a focus on real estate investment,
development, and construction. He is a Chartered Accountant and
holds various trustee and committee roles in organisations such as
the British Council, London Symphony Orchestra, a private real
estate portfolio, and a real estate income fund. Mark currently
serves as the chair of the Audit, Valuation, and Risk committee,
and is a member of the Nomination and Remuneration Committee and
Management Engagement Committee. He replaced Jonathan Thompson, who
retired at the recent AGM in March 2024.
The Board intends to review the composition of
the Board in September 2024 with the view of reducing its size from
four to three members.
Outlook
Despite geopolitical risks, economic sentiment
is slowly improving and inflation is moderating across Continental
Europe. As such, with the ECB reducing rates by 25 basis points in
early June 2024, we anticipate the potential for a further rate cut
towards the end of 2024. This should provide more certainty to
capital markets, attracting investors back to real estate and
investment trusts, given their attractive income and value
characteristics. Our management team has successfully managed the
near-term refinancing challenges and given the strength of our
balance sheet, cash position, and dividend, the Company provides a
compelling investment proposition compared to our UK-listed
peers.
Moving forward, we will continue to focus on the
elements within our control including operational understanding,
tenant relationships and sustainability enhancements, which will
collectively improve our income and thereby earnings, enhance
liquidity, and drive asset value. We anticipate that the investor
pool will grow as we potentially seek to pivot towards becoming an
Article 8 vehicle, and we expect the attractive discount currently
available to narrow. Regardless, investors can have confidence in a
viable company with diversified real estate exposure across key
growth European cities, managed by local market
specialists.
Sir Julian
Berney Bt.
Chairman
18 June 2024
Investment
Manager's Report
Financial
results
The net asset value ('NAV') as at 31 March 2024
stood at €165.3 million (£141.3 million), or 123.6 euro cents per
share (105.7 pence per share), compared with €171.4 million, or
128.2 cps, as at 30 September 2023.
During the period, dividends totalling €4.0
million were paid, which resulted in a NAV total return of
-1.3%.
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 euro cents per share.
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€m1
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cps2
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NAV
as at 1 October 2023
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171.4
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128.2
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Unrealised loss in the valuation of
the real estate portfolio3
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(6.1)
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(4.6)
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Capital
expenditure3
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(0.5)
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(0.3)
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Transaction
costs3
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0.0
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0.0
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Paris, Boulogne-Billancourt post-tax
development profit
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0.0
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0.0
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Movement on the Seville JV
investment
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0.0
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0.0
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EPRA earnings4
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4.3
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3.2
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Non-cash/capital items
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0.2
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0.1
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Dividends paid5
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(4.0)
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(3.0)
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NAV
as at 31 March 2024
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165.3
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123.6
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1
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Management reviews the performance
of the Company principally on a proportionally consolidated
basis. As a result, figures quoted in this table include the
Company's share of the Seville joint venture on a line-by-line
basis.
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2
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Based on 133,734,686
shares.
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3
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The unrealised loss in the valuation
of the real estate of the portfolio (€6.1m), net of capital
expenditure (€0.5m), reconciles to the 'net gain/(loss) from fair
value adjustment on investment property' of (€6.6m) on page 26 of
the financial statements.
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4
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EPRA earnings as reconciled on page
36 of the financial statements.
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5
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Dividends of 2.96 cps were paid
during the financial period. A dividend for the quarter ended 31
March 2024 of 1.48 Euro cents per share was approved and will be
paid in August 2024. Total dividends declared relating to the six
months' ended 31 March 2024 were 2.96 Euro cents per share. For
more information, please refer to page 33.
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The direct portfolio,
net of capital expenditure, decreased in value by €6.6 million,
mainly as a result of a yield re-rating of the underlying real
estate.
Having previously
crystallised the majority of the profit from the Paris BB sale, no
further additional profit was released into the NAV this financial
period. There remains approximately €1.0m of potential post-tax
profit still to be recognised in the NAV. Further information is
disclosed in note 4 on pages 28 to 29.
Non-cash items of €0.2
million mainly result from reduced deferred taxes due to lower real
estate portfolio values.
EPRA earnings for the
period totalled €4.3 million and this is an increase of 3% on the
prior six months' EPRA earnings of €4.2 million. The positive
contribution from higher rental income and lower vehicle costs
during the most recent six month period is largely offset by a
higher cost of debt as a result of the refinancings.
Our
Strategy
Investment
objective
Schroder European Real Estate Investment Trust
plc (the 'Company'/'SEREIT') aims to provide shareholders with a
regular and attractive level of income, together with the potential
for income and capital growth through investing in commercial real
estate in Continental Europe.
Investment
strategy
The strategy to deliver this, and progress made
during the year and since year end, is set out below:
1.
Maximising shareholder value through active asset
management
2. Improving
the defensive qualities of the portfolio in light of changing
social, economic and geopolitical risks
3. Applying
a research-led approach to determine attractive sectors and
locations in which to invest in
commercial real estate
4.
Increasing exposure to higher growth Winning Cities and
Regions
5. Actively
managing the Company and its assets, drawing on the expertise of
our sector specialists to maximise shareholder returns and evolve
the Company's asset management approach that is focused on
operational excellence
6.
Advancement of sustainability and net zero carbon audits across the
majority of the portfolio with a view to improving certifications,
rental growth potential and liquidity
7. Applying
our sustainable investment approach throughout the investment
process and asset lifecycle1
8. Prudent
and efficient cost control and maintaining a strong balance
sheet
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1
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Schroders integrates ESG
considerations into research and investment decisions across
Investment teams and asset classes with the aim of maximising
risk-adjusted returns for our clients. We confirm the adoption of
ESG integration by our Investment teams using an internal
accreditation framework. The Direct Real Estate team responsible
for the Investment Management of the Company holds Schroders ESG
Integrated accreditation. Please refer to
Schroders-Group-Sustainable-Investment-Policy.pdf for more
information.
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Portfolio
performance
During the six month period, total property
returns for the underlying property portfolio were +0.3%. With the
portfolio benefiting from indexation, high occupancy and high rent
collection, property income returns were strong at +3.4%, thereby
more than offsetting negative capital returns of -3.0%.
The strongest performance was seen in the
industrial portfolio, with Venray delivering a total property
return ('TR') of +4.9%, Nantes +4.1% and Rennes +3.6% over the six
months. Values for these assets held up well and income returns
were healthy.
The portfolio's data centre in Apeldoorn, and
the office asset in Paris, also positively contributed to
performance. Apeldoorn delivered +3.7% and Paris +2.0%, as their
income returns were high and sufficient to compensate negative
capital results.
The main detractors from portfolio performance
were the car showroom in Cannes (-7.0% TR), the office assets in
Stuttgart (-5.2% TR) and Hamburg (-1.2% TR), and the industrial
assets in Houten (-1.5% TR), Alkmaar (-0.7%) and Rumilly (-0.4%) as
these assets witnessed the largest
valuation declines.
The real estate portfolio delivered a total
property return of 0.6% over a rolling 12 month period, 3.1% p.a.
over three years and 6.2% p.a. over five years.
Real estate
portfolio
As at 31 March 2024, the portfolio comprised 15
properties valued at €208.1 million. In addition, the Company has a
50% interest in a joint venture in Seville, Spain which continues
to be recognised at nil interest and which is therefore excluded in
all relevant statistics in the Chairman's Statement and the
Investment Manager's Report.
The portfolio generated rental income of
€16.71 million per annum, reflecting a net initial yield
of 6.8%. The independent valuer's estimated rental value ('ERV') of
the portfolio is €16.1 million per annum.
The real estate portfolio is diverse with income
from a range of occupiers across different sectors and industries.
The diversified nature and strength of underlying tenants, coupled
with the fact the assets are typically leased off affordable and
sustainable rents, should support relatively resilient portfolio
income in a weaker economic environment and a more challenging
period for consumers and businesses. Approximately 33% of the
portfolio by value is offices, all of which are in
supply-constrained locations and leased off affordable rents. Our
industrial exposure of 30% is a mixture of distribution warehouses
and light industrial accommodation in growth cities within France
and The Netherlands. Our retail exposure of 17% comprises DIY and
grocery investments in densely populated urban areas and sectors
that are performing strongly. 9% of the portfolio is allocated to
the alternatives sector, comprising a mixed-use data centre and a
car showroom, with the remaining 11% in cash.
At the period end the portfolio void rate was
4%, calculated as a percentage of estimated rental value. The
portfolio weighted average lease length, calculated to the earlier
of lease expiry or break, is 3.7 years.
European leases typically provide for rents to
be indexed to inflation. The majority (80%) of the Company's income
is subject to annual indexation with the remaining 20% linked to a
hurdle (typically 10%) and hence we expect nearly all the leases to
directly benefit from inflation.
1 Represents the annualised contracted rents as at 31 March 2024
of the direct portfolio.
AT A
GLANCE
Portfolio
overview
The Company owns a diversified portfolio of
commercial real estate in Continental Europe
with favourable property fundamentals, targeting assets
located within Winning Cities and Regions in high-growth sectors.
These properties are expected to generate higher and
more sustainable levels of economic growth, underpinned by
themes such as urbanisation, demographics,
technology and infrastructure improvements.
Top ten properties
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|
Property
|
Sector
|
Value
(€m/% portfolio)1,2
|
|
1
|
France, Paris
(Saint-Cloud)
|
Office
|
€37.7m/16%
|
|
2
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Germany, Berlin
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Retail/DIY
|
€27.7m/12%
|
|
3
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Germany, Hamburg
|
Office
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€21.8m/9%
|
|
4
|
France, Rennes
|
Industrial
|
€18.9m/8%
|
|
5
|
Germany, Stuttgart
|
Office
|
€18.1m/8%
|
|
6
|
The Netherlands,
Apeldoorn
|
Mixed
|
€14.5m/6%
|
|
7
|
The Netherlands, Venray
|
Industrial
|
€11.3m/5%
|
|
8
|
Germany, Frankfurt
|
Retail/Grocery
|
€11.1m/5%
|
|
9
|
The Netherlands, Alkmaar
|
Industrial
|
€11.1m/5%
|
|
10
|
France, Rumilly
|
Industrial
|
€9.9m/4%
|
Remaining five properties shown on the map
are:
11
The Netherlands, Houten - Industrial
12
France, Cannes - Car showroom
13
France, Nantes - Industrial
14
The Netherlands, Utrecht - Industrial
15
The Netherlands, Venray II - Industrial
|
1
|
Excludes the Seville property for
which the NAV exposure is nil.
|
|
2
|
Reflects the value of directly held
property assets of €208.1m and available cash of €26.4m.
|
The table below sets out the portfolio's top ten
tenants by contracted rent, which are from a diverse range of
industry segments and represent 70% of the portfolio by
income1.
Top Ten
Tenants
|
Rank
|
Tenant
|
Industry
|
Property
|
Contracted
rent
|
WAULT
break (yrs)
|
WAULT
expiry (yrs)
|
|
€m
|
% of total
|
|
1
|
KPN
|
Telecom
|
Apeldoorn
|
3.0
|
18%
|
2.8
|
2.8
|
|
2
|
Hornbach
|
DIY
|
Berlin
|
1.8
|
11%
|
1.8
|
1.8
|
|
3
|
C-log
|
Logistics
|
Rennes
|
1.3
|
8%
|
6.9
|
6.9
|
|
4
|
Outscale
|
IT
|
Paris
|
1.0
|
6%
|
5.2
|
8.2
|
|
5
|
DKL
|
Logistics
|
Venray
|
0.8
|
5%
|
4.5
|
4.5
|
|
6
|
Cereal
Partners
|
Consumer
staples
|
Rumilly
|
0.8
|
5%
|
1.1
|
2.1
|
|
7
|
LandBW
|
Government
|
Stuttgart
|
0.8
|
5%
|
2.3
|
2.3
|
|
8
|
Schuurman
Beheer
|
Manufacturing
|
Alkmaar
|
0.7
|
4%
|
14.0
|
19.0
|
|
9
|
Inventum
|
Manufacturing
|
Houten
|
0.7
|
4%
|
5.8
|
5.8
|
|
10
|
Ethypharm
|
Pharmaceuticals
|
Paris
|
0.7
|
4%
|
0.8
|
2.8
|
|
Total top ten
tenants
|
11.6
|
70%
|
4.0
|
4.8
|
|
Remaining
tenants
|
5.1
|
30%
|
3.0
|
4.7
|
|
Total
|
16.7
|
100%
|
3.7
|
4.8
|
|
1
|
Excludes the Seville property for
which the NAV exposure is nil.
|
The largest tenant is KPN, representing 18% of
the portfolio's contracted rent. KPN is a leading
telecommunications and IT provider and market leader in the
Netherlands. It occupies our mixed-use Apeldoorn asset (data centre
and office).
The second largest tenant is Hornbach, the sole
occupier of our Berlin DIY asset, with a four-hectare site that
benefits from alternative use potential. Hornbach (presenting 11%
of contracted rents) is a leading Germany-based operator of
Do-it-yourself ('DIY') stores and home centres with strong
financials.
The remaining large tenants, with businesses
across a diversified range of industries, each account for between
4%-8% of portfolio rents. These include C-log, Outscale, DKL,
Cereal Partners, Land Badenwürttemberg, Schuurman Beheer,
Inventum and Ethypharm.
Rent collection
update1
The diversification, and granularity of the
underlying rental income and ongoing occupier engagement, has again
supported strong rent collection rates with c.100% of the
contracted rents collected for the six-month period and previous
financial year.
|
As at 31 March
2024
|
Office
|
|
Industrial
|
|
DIY and
Grocery
|
|
Mixed
|
|
Total
|
|
H1 2024
|
FY 2023
|
|
H1 2024
|
FY 2023
|
|
H1 2024
|
FY 2023
|
|
H1 2024
|
FY 2023
|
|
H1 2024
|
FY 2023
|
|
Paid
|
99.3%
|
100.0%
|
|
100.0%
|
100.0%
|
|
100.0%
|
100.0%
|
|
100.0%
|
100.0%
|
|
99.8%
|
100.0%
|
|
Deferred
|
0.0%
|
0.0%
|
|
0.0%
|
0.0%
|
|
0.0%
|
0.0%
|
|
0.0%
|
0.0%
|
|
0.0%
|
0.0%
|
|
Outstanding2
|
0.7%
|
0.0%
|
|
0.0%
|
0.0%
|
|
0.0%
|
0.0%
|
|
0.0%
|
0.0%
|
|
0.2%
|
0.0%
|
|
Total
|
100.0%
|
100.0%
|
|
100.0%
|
100.0%
|
|
100.0%
|
100.0%
|
|
100.0%
|
100.0%
|
|
100.0%
|
100.0%
|
|
1
|
Rent collection table excludes the
Seville property for which the NAV exposure is nil. FY 2023 refers
to the SEREIT 2023 full year period between Q4 2022and Q3 2023.
2024 H1 refers to the SEREIT 2024 half year period between Q4 2023
and Q1 2024.
|
|
2
|
Partial unpaid rent relates to
Stuttgart and Paris which is being claimed and payment is expected
in due course.
|
Across the direct portfolio, almost all of the
contracted rents are subject to indexation clauses and all tenants
have complied with payments in accordance with their respective
indexation clauses.
Frankfurt,
Germany
LEASING
INITIATIVES
Asset overview
and performance
The Frankfurt asset was acquired in April 2016
and comprises a 4,525 sqm grocery-anchored convenience retail
investment in Rödelheim, an accessible, densely populated urban
location situated 6 km north-west of the Frankfurt city centre. The
sub-market benefits from a higher population density of 3,760
inhabitants per sq km compared to Frankfurt's average of
3,100.
Asset
strategy
The strategy has been to drive income
and value through ERV growth and re-gearing leases with strong
covenants in order to improve the income profile, value and
liquidity. This is expected to be reflected in June 2024 valuation.
The grocery sector is currently witnessing strong investor demand
and, as such, we are considering a disposal with a view to
allocating proceeds to enhance shareholder returns.
Rationale
|
·
|
We recently signed a new 15-year
lease extension with anchor tenant LIDL that accounts for c.50% of
total income
|
|
·
|
Post period end, further lease
extensions have been agreed with WEWO and NKD along with a new
lease for the storage space; in total these three initiatives
account for a further c.25% of total income
There is further longer-term
potential in using the site for residential use, subject to
planning.
|
|
·
|
Residential capital values for new
construction in the region are approximately €7,500 per sqm, more
than three times retail values
|
|
·
|
Strength of location and income
profile will be appealing to private investors, family offices and
smaller institutions
|
Debt
management
REFINANCING
INITIATIVES
Portfolio
overview and strategy
We have successfully completed all near-term
refinancings on attractive terms, placing the Company in a strong
financial position. The Company has significant cash reserves of
approximately €26 million, modest gearing of 24% net of cash and a
resilient balance sheet providing significant
flexibility.
Rationale
|
·
|
The tightening of debt markets, particularly for
non-prime office investments, prompted the early refinancing of the
Saint-Cloud office in December 2023. This involved a part
repayment, reducing the loan principal from €17m to €14m, and at a
competitive margin of 1.9% for a further four years
|
|
·
|
In March 2024, we refinanced the €8.6m loan
secured against our Rennes property with the existing lender for
five years at a margin of 1.6%
|
|
·
|
The Seville loan has been extended post quarter
end under a standstill agreement for a further six months expiring
November 2024 to facilitate a sale. Under the standstill agreement,
the cash trap remains in place. A disposal of this asset would
reduce gearing by c.3%
|
|
·
|
There are no further refinancings until June
2026
|
Balance
sheet
Over the interim period, the Investment Manager
successfully completed all remaining refinancings, excluding
Seville, at attractive terms, placing the Company in a strong
financial position with high cash levels of c.€26 million and no
further debt expiries until June 2026.
Re-gears have extended the average loan maturity
by 13 months. The average blended interest rate across the loan
portfolio has increased approximately 30 basis points as a result
of higher finance costs for the new loans.
In detail:
|
·
|
The early refinancing of the Paris office
investment concluded at a margin of 1.9% for four years, an
increase from the existing margin of 1.3%. The loan principal was
reduced from €17 million to €14 million. The rationale for the
early refinancing is the expectation for a tighter and more
expensive lending environment, particularly for secondary
offices.
|
|
·
|
The refinancing of a €8.6 million loan secured
against the Rennes industrial asset completed with the existing
lender for five years at a margin of 1.6%, a slight increase on the
existing 1.4% margin.
|
The Company's third-party debt totals €82.5
million across six loan facilities as at 31 March 2024. The current
blended all-in interest rate is 3.2% and the average remaining loan
term is 3.2 years. The loan to value ('LTV') net of cash is
24% against the Company's gross asset value (gross of cash LTV is
33%).
There is a net of cash LTV cap of 35% that
restricts concluding new external loans if the Company's net LTV is
above 35%. An increase in leverage above 35% as a result of
valuation decline is excluded from this cap.
The 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.
|
Lender
|
Property
|
Maturity date
|
Outstanding
principal
|
Interest
rate
|
Headroom LTV default
covenant
(% decline)
|
Headroom net income default
covenant
(% decline)
|
|
VR Bank Westerwald
|
Stuttgart/Hamburg
|
30/12/2027
|
€18.00m
|
3.80%
|
No
covenant
|
No
covenant
|
|
Deutsche Pfandbriefbank
|
Berlin /
Frankfurt
|
30/06/2026
|
€16.50m
|
1.31%
|
33%
|
44%
|
|
BRED Banque Populaire
|
Paris
(Saint-Cloud)
|
15/12/2027
|
€14.00m
|
3M
Eur+1.9%
|
17%
|
>50%
|
|
ABN Amro
|
The
Netherlands industrials1
|
27/09/2028
|
€13.76m
|
5.30%
|
30%
|
28%
|
|
Landesbank SAAR
|
Rennes
|
26/03/2029
|
€8.60m
|
4.3%
|
17%
|
40%
|
|
Münchener Hypothekenbank
|
Seville
(50%)2
|
22/05/2024
|
€11.68m
|
1.76%
|
In
breach3
|
In cash
trap
|
|
Total
|
|
|
€82.54m
|
|
|
|
|
1
|
The ABN Amro loan is secured against
five of the Netherlands industrial assets: Alkmaar, Venray, Houten,
Utrecht and Venray II.
|
|
2
|
Includes the Company's 50% share of
external debt in the Seville joint venture of €11.7 million and
excludes unamortised finance costs.
|
|
3
|
Temporary waiver for breach of LTV
covenant in Seville agreed with the lender.
|
|
·
|
At Seville, the loan continues to be in breach
of its loan covenants. All excess income generated by Seville is
pledged to the lender. The loan is secured solely against the
Seville investment, with no recourse back to the Company or any
other entity within the Group.
|
|
·
|
The Seville loan has been extended post quarter
end under a standstill agreement for a further six months expiring
November 2024 to facilitate a sale. Under the standstill agreement,
the cash trap remains in place.
|
|
·
|
A disposal of the Seville property/entity would
reduce portfolio gearing by approximately 3%.
|
|
·
|
The German, Dutch, Spanish and the French Rennes
loans are fixed-rate for the duration of the
loan term.
|
|
·
|
The Paris loan is based on a margin
above three-month Euribor. The Company continues to benefit from an
existing interest rate hedge, capped at 1.25%, expiring 15 December
2024. A further interest rate hedge (capped at 3.25%) has been
acquired covering the remaining loan period to 15
December 2027.
This allows the Company to benefit from a potential decline in
interest rates. The combined fair value of the derivative contracts
is €0.3 million as at 31 March 2024.
|
Outlook
The Eurozone is starting to see signs
of cautious optimism. With inflation easing, the European Central
Bank in early June has reduced rates by 25 basis points. The market
is expecting a further decline towards the end of 2024 which will
further help sentiment. Despite this, economic growth is forecast
to remain moderate over the short term. Geopolitical risks in
Ukraine and the Middle East continue to be the primary risk
impacting broader capital markets.
The real estate occupational markets
present a mixed picture. Select retail and industrial investments
are seeing positive take-up and rental growth, while offices are
increasingly characterised by a growing polarisation between highly
accessible offices with favourable sustainability credentials
witnessing better demand and rental growth over older,
secondary-located office stock.
The investment market remains subdued with
transactional activity biased to sub €30 million lot sizes,
consistent with the Company's strategy. Pricing appears to have
stabilised across select retail and industrial with secondary
offices expected to see further valuation pressures, particularly
as valuers price sustainability risks.
Sustainability is set to have a growing impact
on decision-making across all sectors. Market participants are
actively striving to align themselves with environmental, social,
and governance ('ESG') agendas. Additionally, there is a heightened
focus on obtaining improved data regarding the costs and benefits
associated with sustainability choices.
This demonstrates a strong commitment to integrating sustainable practices and
making informed decisions that consider the long-term environmental
and social impacts. It is our intention, during Q4 2024, to seek
FCA approval to evolve the Company's strategy to include
sustainability improvement objectives and key performance
indicators. We believe that improving sustainability credentials
resonates with occupiers and investors and assists in long-term
total return for shareholders.
Jeff
O'Dwyer
Fund Manager
18 June 2024
Responsibility
Statement of the Directors in respect of the Interim
Report
Principal risks
and uncertainties
The principal risks and uncertainties with the
Company's business relate to the following risk categories:
investment and strategy; economic and property market;
sustainability; valuation; gearing and leverage; and regulatory
compliance. A detailed explanation of the risks and uncertainties
in each of these categories can be found on pages 33 to 34 of the
Company's published Annual Report and Consolidated Financial
Statements for the year ended 30 September 2023.
The successful debt refinancings of both the
Saint-Cloud and Rennes loans in the interim period, with no further
refinancings until June 2026 (excluding Seville for which a
standstill agreement has been agreed to November 2024 to facilitate
an orderly sale, and for which the Group's equity has been
previously written down to nil), have been deemed to have reduced
the refinancing risk of the Company significantly, and the
sustainability of the portfolio has become a greater focus. The
Board continues to be mindful of the changing global environment
and the risks posed by volatile markets; inflation and
corresponding interest rate increases; geopolitical uncertainty;
structural changes; sustainability and occupier preferences which
could affect the use and prospects of some real estate sectors. The
Board keeps these matters under review, particularly in connection
with its decision to redeploy investible cash.
The Company's portfolio remains resilient, as evidenced by rent collection levels over
the half year. Covenant, interest rates, cost of debt and expiry
profiles continue to be actively managed as
part of cash flow forecasting and liquidity management. The Company
has substantial cash available providing a robust position to
manage the Company through current headwinds facing European
economies.
Other than as outlined above, the principal
risks and uncertainties have not materially changed during the six
months ended 31 March 2024.
Going
concern
The Board believes it is appropriate to adopt
the going concern basis in preparing the financial statements. A
comprehensive going concern statement setting out the reasons the
Board considers this to be the case is set out in note 1
on pages 24 to 25.
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
2024. Related party transactions are disclosed in note 13 of the
condensed consolidated interim
financial statements.
Statement of
Directors' responsibilities
The Directors confirm that to the best of their
knowledge:
|
·
|
The half year report and condensed consolidated
interim financial statements have been prepared in accordance with
the UK adopted International Accounting Standard IAS 34 Interim
Financial Reporting; and
|
|
·
|
The Interim Management Report includes a fair
review of the information required by 4.2.7R and 4.2.8R of the
Financial Conduct Authority's Disclosure Guidance and Transparency
Rules.
|
Sir Julian
Berney Bt.
Chairman
18 June 2024
Condensed
Consolidated Interim Statement of Comprehensive
Income
For the period
ended 31 March 2024
|
|
Notes
|
Six months
to
31 March
2024
€000
(unaudited)
|
Six months
to
31 March
2023
€000
(unaudited)
|
Year to
30 September
2023
€000
(audited)
|
|
Rental and
service charge income
|
2
|
10,295
|
9,490
|
19,666
|
|
Property
operating expenses
|
|
(2,767)
|
(2,613)
|
(5,398)
|
|
Net rental and related
income
|
|
7,528
|
6,877
|
14,268
|
|
Net
(loss)/gain from fair value adjustment on investment
property
|
3
|
(6,617)
|
(12,958)
|
(19,726)
|
|
Development
revenue
|
4
|
519
|
63
|
405
|
|
Development
expense
|
4
|
(519)
|
(63)
|
1,133
|
|
Realised
gain/(loss) on foreign exchange
|
|
(2)
|
(16)
|
(12)
|
|
Net change
in fair value of financial instruments at fair value through profit
or loss
|
9
|
(388)
|
107
|
(260)
|
|
Provision
of loan made to Seville joint venture
|
5
|
-
|
-
|
-
|
|
Expenses
|
|
|
|
|
|
Investment
management fee
|
13
|
(972)
|
(1,028)
|
(1,981)
|
|
Valuers'
and other professional fees
|
|
(285)
|
(378)
|
(788)
|
|
Administrator's and accounting fees
|
|
(328)
|
(211)
|
(566)
|
|
Auditors'
remuneration
|
|
(173)
|
(201)
|
(335)
|
|
Directors'
fees
|
13
|
(120)
|
(123)
|
(232)
|
|
Other
expenses
|
|
(104)
|
(226)
|
(442)
|
|
Total
expenses
|
|
(1,982)
|
(2,167)
|
(4,344)
|
|
Operating
profit
|
|
(1,461)
|
(8,157)
|
(8,536)
|
|
Finance
income
|
|
290
|
37
|
228
|
|
Finance
costs
|
|
(1,271)
|
(809)
|
(1,714)
|
|
Net finance
costs
|
|
(981)
|
(772)
|
(1,486)
|
|
Share of
loss of joint venture
|
6
|
-
|
-
|
-
|
|
(Loss) before
taxation
|
|
(2,442)
|
(8,929)
|
(10,022)
|
|
Taxation
|
7
|
259
|
266
|
640
|
|
(Loss) for the
period/year
|
|
(2,183)
|
(8,663)
|
(9,382)
|
|
Other comprehensive
income/(expense):
|
|
|
|
|
|
Other
comprehensive (loss)/income items that may be reclassified to
profit or loss:
|
|
|
|
|
|
Currency
translation differences
|
|
-
|
-
|
-
|
|
Total other comprehensive
(expense)/income
|
|
-
|
-
|
-
|
|
Total comprehensive (expense)
for the period/year
|
|
(2,183)
|
(8,663)
|
(9,382)
|
|
Basic and diluted
(loss)/earnings per share attributable to owners of the
parent
|
8
|
(1.6)c
|
(6.5)c
|
(7.0)c
|
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
2024
|
|
Notes
|
Six months
to
31 March
2024
€000
(unaudited)
|
Six months
to
31 March
2023
€000
(unaudited)
|
Year to
30 September
2023
€000
(audited)
|
|
Assets
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
|
Investment property
|
3
|
207,066
|
219,011
|
213,098
|
|
Investment in joint
venture
|
6
|
-
|
-
|
-
|
|
Non-current assets
|
|
207,066
|
219,011
|
213,098
|
|
Current assets
|
|
|
|
|
|
Trade and other
receivables
|
|
9,307
|
7,822
|
8,897
|
|
Interest rate derivative
contracts
|
9
|
342
|
1,041
|
674
|
|
Cash and cash equivalents
|
|
28,103
|
32,985
|
32,445
|
|
Current assets
|
|
37,752
|
41,848
|
42,016
|
|
Total assets
|
|
244,818
|
260,859
|
255,114
|
|
Equity
|
|
|
|
|
|
Share capital
|
10
|
17,966
|
17,966
|
17,966
|
|
Share premium
|
10
|
43,005
|
43,005
|
43,005
|
|
Retained earnings
|
|
104,327
|
(475)
|
(6,142)
|
|
Other reserves
|
|
-
|
116,610
|
116,610
|
|
Total equity
|
|
165,298
|
177,106
|
171,439
|
|
Liabilities
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
|
Interest-bearing loans and
borrowings
|
9
|
70,409
|
51,283
|
65,023
|
|
Deferred tax liability
|
7
|
3,724
|
4,691
|
4,225
|
|
Non-current liabilities
|
|
74,133
|
55,974
|
69,248
|
|
Current liabilities
|
|
|
|
|
|
Interest-bearing loans and
borrowings
|
|
-
|
21,550
|
8,600
|
|
Trade and other payables
|
|
5,387
|
5,462
|
4,856
|
|
Current tax liabilities
|
7
|
-
|
767
|
971
|
|
Current liabilities
|
|
5,387
|
27,779
|
14,427
|
|
Total liabilities
|
|
79,520
|
83,753
|
83,675
|
|
Total equity and liabilities
|
11
|
244,818
|
260,859
|
255,114
|
|
Net
asset value per ordinary share
|
|
123.6c
|
132.4c
|
128.2
|
The condensed consolidated interim financial
statements on pages 20-33 were approved at a meeting of the Board
of Directors held on 18 June 2024 and signed on its behalf
by:
Sir Julian Berney Bt.
Chairman
The accompanying notes 1 to 16 form an integral
part of the condensed consolidated interim financial
statements.
Company number: 09382477
Registered office: 1 London Wall Place, London
EC2Y 5AU
Condensed
Consolidated Interim Statement of Changes in
Equity
For the period
ended 31 March 2024
|
|
Notes
|
Share
capital
€000
|
Share
premium
€000
|
Retained
earnings 1
€000
|
Other
reserves1
€000
|
Total
equity
€000
|
|
Balance as at 1 October
2023
|
|
17,966
|
43,005
|
(6,142)
|
116,610
|
171,439
|
|
Transfers
|
|
-
|
-
|
116,610
|
(116,610)
|
-
|
|
Loss for the period
|
|
-
|
-
|
(2,183)
|
-
|
(2,183)
|
|
Dividends paid
|
12
|
-
|
-
|
(3,958)
|
-
|
(3,958)
|
|
Balance as at 31 March 2024 (unaudited)
|
|
17,966
|
43,005
|
104,327
|
-
|
165,298
|
|
|
Notes
|
Share
capital
€000
|
Share
premium
€000
|
Retained
earnings 1
€000
|
Other
reserves1
€000
|
Total
equity
€000
|
|
Balance as
at 1 October 2022
|
|
17,966
|
43,005
|
10,662
|
116,610
|
188,243
|
|
Loss for
the year
|
|
-
|
-
|
(9,382)
|
-
|
(9,382)
|
|
Dividends
paid
|
12
|
-
|
-
|
(7,422)
|
-
|
(7,422)
|
|
Balance as at 30 September
2023 (audited)
|
|
17,966
|
43,005
|
(6,142)
|
116,610
|
171,439
|
|
|
Notes
|
Share
capital
€000
|
Share
premium
€000
|
Retained
earnings 1
€000
|
Other
reserves1
€000
|
Total
equity
€000
|
|
Balance as at 1 October
2022
|
|
17,966
|
43,005
|
10,662
|
116,610
|
188,243
|
|
Loss for the period
|
|
-
|
-
|
(8,663)
|
-
|
(8,663)
|
|
Dividends paid
|
12
|
-
|
-
|
(2,474)
|
-
|
(2,474)
|
|
Balance as at 31 March 2023 (unaudited)
|
|
17,966
|
43,005
|
(475)
|
116,610
|
177,106
|
|
1
|
These reserves form the
distributable reserves of the Company and include a historic share
premium reduction and may be used to fund distribution of profits
to investors via dividend payments.
|
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 2024
|
|
Notes
|
Six months to
31 March 2024
€000
(unaudited)
|
Six months to
31 March 2023
€000
(unaudited)
|
Year to
30 September 2023
€000
(audited)
|
|
Operating
activities
|
|
|
|
|
|
(Loss)
before tax for the period/year
|
|
(2,442)
|
(8,929)
|
(10,022)
|
|
Adjustments
for:
|
|
|
|
|
|
Net loss
from fair value adjustment on investment property
|
3
|
6,617
|
12,958
|
19,726
|
|
Share of
loss of joint venture
|
6
|
-
|
-
|
-
|
|
Realised
foreign exchange loss
|
|
2
|
16
|
12
|
|
Finance
income
|
|
(290)
|
(37)
|
(228)
|
|
Finance
costs
|
|
1,271
|
809
|
1,714
|
|
Net change
in fair value of financial instruments at fair value through profit
or loss
|
9
|
388
|
(107)
|
260
|
|
Provision
of loan made to Seville joint venture
|
5
|
-
|
-
|
-
|
|
Operating cash generated
before changes in working capital
|
|
5,546
|
4,710
|
11,462
|
|
(Decrease)/Increase in trade and other receivables
|
|
(84)
|
8,774
|
7,564
|
|
Increase/(decrease) in trade and other payables
|
|
313
|
(574)
|
(1,071)
|
|
Cash generated from
operations
|
|
5,775
|
12,910
|
17,955
|
|
Finance
costs paid
|
|
(964)
|
(734)
|
(1,573)
|
|
Finance
income received
|
|
290
|
36
|
228
|
|
Tax
paid
|
7
|
(1,580)
|
(826)
|
(714)
|
|
Net cash generated from
operating activities
|
|
3,521
|
11,386
|
15,896
|
|
Investing
activities
|
|
|
|
|
|
Proceeds
from sale of investment property
|
|
-
|
-
|
-
|
|
Acquisitions of investment property
|
3
|
-
|
(12,310)
|
(11,167)
|
|
Additions
to investment property
|
3
|
(524)
|
(1,926)
|
(3,984)
|
|
Investment
in joint venture
|
6
|
-
|
-
|
-
|
|
Net cash generated (used in)
investing activities
|
|
(524)
|
(14,236)
|
(15,151)
|
|
Financing
activities
|
|
|
|
|
|
Proceeds
from borrowings
|
|
-
|
18,000
|
31,760
|
|
Repayment
of loan facilities
|
|
(3,000)
|
(14,000)
|
(26,950)
|
|
Interest
rate derivative contracts purchased
|
|
(57)
|
-
|
-
|
|
Refinancing
costs paid
|
|
(322)
|
-
|
-
|
|
Dividends
paid
|
12
|
(3,958)
|
(2,474)
|
(7,422)
|
|
Net cash (used in)/provided
by financing activities
|
|
(7,337)
|
1,526
|
(2,612)
|
|
Net decrease in cash and cash
equivalents for the period/year
|
|
(4,340)
|
(1,324)
|
(1,867)
|
|
Opening cash and cash
equivalents
|
|
32,445
|
34,324
|
34,324
|
|
Effects of
exchange rate change on cash
|
|
(2)
|
(15)
|
(12)
|
|
Closing cash and cash
equivalents
|
|
28,103
|
32,985
|
32,445
|
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 2024 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 2023 were approved by the Board of
Directors on 5 December 2023 and were delivered to the Registrar of
Companies. The report of the auditors on those accounts was
unqualified, did not contain an emphasis of matter paragraph and
did not contain any statement under section 498 of the Companies
Act 2006.
These condensed consolidated interim financial
statements have been reviewed and not audited.
Statement of
compliance
The condensed consolidated interim financial
statements have been prepared in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial Reporting'
and the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority. They do not
include all of the information required for the full annual
financial statements and should be read in conjunction with the
consolidated financial statements of the Group as at and for the
year ended 30 September 2023. 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 2023. The consolidated
financial statements for the year ended 30 September 2023 have been
prepared with UK-adopted International Accounting Standards in
accordance with the Companies Act 2006. The Group's annual
financial statements refer to new Standards and Interpretations,
none of which had a material impact on the financial
statements.
Basis of
preparation
The condensed consolidated interim financial
statements are presented in euros rounded to the nearest thousand.
They are prepared on a going concern basis, applying the historical
cost convention, except for the measurement of investment property
and derivative financial instruments that have been measured at
fair value. The accounting policies have been consistently applied
to the results, assets, liabilities and cash flow of the entities
included in the condensed consolidated interim financial statements
and are consistent with those of the year-end financial
report.
Going
concern
The Directors have examined and considered
significant areas of possible financial risk including: the
non-collection of rent and service charges; potential falls in
property valuations; the existing and future expected cash
requirements of the Group; the refurbishment of Paris, BB and the
receipt of further future funds from the purchaser; the successful
refinancings in the reporting period, together with future debt
expiries; and forward-looking compliance with third-party debt
covenants, in particular the loan to value covenant and interest
cover ratios.
The Board and Investment Manager also continue
to closely monitor ongoing changing macroeconomic and geopolitical
environments and their potential impact on the Group.
Cash flow forecasts based on plausible downside
scenarios have led the Board to conclude that the Group will have
sufficient cash reserves to continue in operation for the
foreseeable future.
The Group has six loans secured by individual
assets, with no cross-collateralisation. All loans are in
compliance with their default covenants, though there is a cash
trap in operation for the Seville loan. More detail of the
individual loans, and headroom on the loan to value and net income
default covenants, is provided in the Investment Manager's Report
on page 15. Following the successful refinancing of two external
loans in the six-month period, there are no external loans expiring
within 12 months from the signing date of the interim financial
statements, bar Seville for which a standstill agreement has been
reached as set out on page 15.
After due consideration, the Directors have not
identified any material uncertainties which would cast significant
doubt on the Group's ability to continue as a going concern for a
period of not less than 12 months from the date of the approval of
the condensed consolidated interim financial statements. The
Directors have satisfied themselves that the Group has adequate
resources to continue in operational existence for the foreseeable
future.
Use of
estimates and judgements
The preparation of financial statements requires
management to make judgements, estimates and assumptions that
affect the application of policies and the reported amounts of
assets and liabilities, income and expenses. The use of estimates
and judgements is consistent with the Group's consolidated
financial statements for the year ended 30 September 2023. These
estimates and associated assumptions are based on historical
experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the
basis of making judgements about the carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates. The estimates and
underlying assumptions are reviewed on an ongoing basis. Revisions
to accounting estimates are recognised in the period in which the
estimates are revised and in any future periods
affected.
The most significant estimates made in preparing
these financial statements relate to the carrying value of
investment properties, as disclosed in note 3 which are stated at
fair value. The fair value of investment property is inherently
subjective because the valuer makes assumptions which may not prove
to be accurate. The Group uses an external professional valuer to
determine the relevant amounts.
The following are key areas of
judgement:
|
·
|
Accounting for development revenue and variable
consideration regarding Paris, BB: When estimating an appropriate
level of development revenue to be recognised in the reporting
period, the Group considered the contractual penalties of not
meeting certain criteria within the agreement; the total
development costs incurred; the stage of completion of the
refurbishment; the milestones achieved and still to be achieved;
the timing and likelihood of further future billed and unbilled
cash receipts from the purchaser and therefore the appropriate
recognition in the balance sheet; and the overall general
development risk to form a considered judgement of revenue to be
appropriately recognised in the financial statements. Further
details of the estimated variable consideration are disclosed in
note 4.
|
|
·
|
Tax provisioning and disclosure: Management uses
external tax advisers to monitor changes in tax laws in countries
where the Group has operations. New tax laws that have been
substantively enacted are recognised in the Group's financial
statements. Where changes to tax laws give rise to a contingent
liability, the Group discloses these appropriately within the notes
to the financial statements (further details are disclosed in note
7).
|
|
·
|
IFRS 9 expected credit losses: All receivables
and joint venture loans are considered to be such financial assets
and must therefore be assessed for an impairment using the
forward-looking expected credit loss model. Where any impairment is
required to be made, appropriate recognition is required in the
consolidated statement of comprehensive income, together with
appropriate disclosure and sensitivity analysis in the notes to the
financial statements (further details are disclosed in note 6). The
Seville joint venture loan has been Level 3 calculated on the
lifetime expected credit loss method. The following factors were
considered when determining the probability of default used for the
impairment provision calculation for the Seville joint venture
loan: the property valuation and future potential movements; that
there is an LTV breach and a cash trap in place; cash flow
forecasts; the longer-term effects of the prior lockdown measures
in Spain on tenants and their trading; and rent collection rates.
An evaluation of these factors has allowed management to determine
that the loan is a Level 3 impairment and is deemed not
recoverable.
|
Segmental
reporting
The Directors are of the opinion that the Group
is engaged in a single segment of business, being property
investment, and in one geographical area, Continental Europe. The
chief operating decision-maker is considered to be the Board of
Directors who are provided with consolidated IFRS information on a
quarterly basis.
Financial risk
factors
The main risks arising from the Group's
financial instruments and investment properties are: market price
risk, currency risk, credit risk, liquidity risk and interest rate
risk. The Board regularly reviews and agrees policies for managing
each of these risks.
Credit
risk
The Directors have assessed the loan to the
Seville joint venture for any expected credit loss under IFRS 9
and, consequently, a full impairment has been previously recognised
and continues to be maintained.
Cash balances are maintained with major
international financial institutions with strong credit ratings and
the creditworthiness of the Group's tenants is monitored on an
ongoing basis.
Market
risk
The market values for properties are generally
affected by overall conditions in local economies, such as changes
in gross domestic product, employment trends, inflation and changes
in interest rates. The Directors monitor the market value of
investment properties by having independent valuations carried out
quarterly by a firm of independent chartered surveyors. The
sensitivity of the market value of the investment properties to
changes in the equivalent yield is also disclosed in note 3 of the
financial statements.
At the date of signing this report, global
conflicts continue to have an ongoing societal and economic impact.
The Group does not have any direct exposure in these areas,
but continues to monitor the situation closely.
The Group's rental collection, excluding its
joint venture in Seville and the investment of which has previously
been written down to nil, has continued to remain very robust with
a c.100% rent collection in the period.
Environmental,
Social and Governance factors
The Group has incorporated Environmental, Social
and Governance ('ESG') objectives into its core investment strategy
and at every stage of the investment process. The Group continues
to monitor individual assets and their conformity with
sustainability requirements at every stage. The Group continues to
review potential initiatives where sustainability credentials can
be enhanced, ratings improved, value can be created and the
liquidity of investments be improved.
2. Rental and
service charge income
|
|
Six months
to
31 March
2024
€000
(unaudited)
|
Six months
to
31 March
2023
€000
(unaudited)
|
Year to
30 September
2023
€000
(audited)
|
|
Rental income
|
8,236
|
7,454
|
15,555
|
|
Service charge income
|
2,059
|
2,036
|
4,111
|
|
Total
|
10,295
|
9,490
|
19,666
|
3. Investment
property
|
|
Freehold
€000
|
|
Fair value at 30 September 2022 (audited)
|
217,456
|
|
Acquisitions and acquisition
costs
|
12,368
|
|
Additions
|
3,000
|
|
Net valuation gain on investment
property
|
(19,726)
|
|
Fair value as at 30 September 2023 (audited)
|
213,098
|
|
Acquisitions and acquisition
costs
|
-
|
|
Additions
|
585
|
|
Net valuation loss on investment
property
|
(6,617)
|
|
Fair value as at 31 March 2024 (unaudited)
|
207,066
|
The fair value of investment properties, as
determined by the valuer, totals €208,050,000 (30 September 2023:
€214,125,000) with the valuation amount relating to a 100%
ownership share for all the assets in the portfolio.
The fair value of investment properties per the
condensed consolidated interim financial statements of €207,066,000
includes a tenant incentive adjustment of €984,000 (30 September
2023: €1,027,000).
The fair value of investment property has been
determined by Knight Frank LLP, a firm of independent chartered
surveyors, who are registered independent appraisers. The
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 2024 (unaudited)
|
|
|
Industrial
|
Retail
(including retail
warehouse)
|
Office
|
Total
|
|
Fair value (€000)
|
|
77,200
|
38,750
|
77,200
|
208,050
|
|
Area ('000 sqm)
|
|
95.071
|
21.325
|
54.579
|
170.975
|
|
Net passing rent € per sqm per
annum
|
Range
|
33.23 -
125.05
|
108.12 -
154.66
|
118.63 -
162.23
|
33.23 -
162.23
|
|
Weighted
average1
|
63.84
|
121.39
|
132.21
|
104.38
|
|
Gross ERV € per sqm per
annum
|
Range
|
44.00 -
110.30
|
101.58 -
162.27
|
79.93 -
234.59
|
44.0 -
234.59
|
|
|
Weighted
average1
|
63.61
|
118.89
|
183.82
|
127.12
|
|
Net initial
yield2
|
Range
|
5.63 -
10.27
|
5.76 -
5.80
|
4.30 -
17.09
|
4.30 -
17.09
|
|
|
Weighted
average1
|
6.55
|
5.77
|
6.40
|
6.34
|
|
Equivalent yield
|
Range
|
5.50 -
7.06
|
5.36 -
5.55
|
4.15 -
14.01
|
4.15 -
14.01
|
|
|
Weighted
average1
|
6.16
|
5.50
|
7.48
|
6.62
|
|
Notes:
|
|
1
|
Weighted by market value.
|
|
2
|
Yields based on rents receivable
after deduction of head rents and non-recoverables.
|
Quantitative
information about fair value measurement using unobservable inputs
(Level 3) as at 30 September 2023 (audited)
|
|
|
Industrial
|
Retail
(including retail
warehouse)
|
Office
|
Total
|
|
Fair value (€000)
|
|
78,575
|
39,650
|
95,900
|
214,125
|
|
Area ('000 sqm)
|
|
86.071
|
21.325
|
54.579
|
170.975
|
|
Net passing rent € per sqm per
annum
|
Range
|
33.16 -
125.09
|
108.12 -
154.66
|
118.63 -
158.07
|
33.16 -
158.07
|
|
Weighted
average1
|
63.79
|
121.09
|
138.22
|
107.73
|
|
Gross ERV € per sqm per
annum
|
Range
|
42.00 -
110.30
|
101.58 -
162.27
|
79.93 -
234.01
|
42.00 -
234.01
|
|
|
Weighted
average1
|
63.20
|
118.50
|
181.29
|
126.33
|
|
Net initial
yield2
|
Range
|
5.42
-9.54
|
5.76 -
5.79
|
4.02 -
17.09
|
4.02 -
17.09
|
|
|
Weighted
average1
|
6.35
|
5.77
|
6.60
|
6.35
|
|
Equivalent yield
|
Range
|
5.57 -
9.76
|
5.36 -
5.40
|
3.87 -
13.38
|
3.87 -
13.38
|
|
|
Weighted
average1
|
5.94
|
5.39
|
7.17
|
6.39
|
|
Notes:
|
|
1
|
Weighted by market value.
|
|
2
|
Yields based on rents receivable
after deduction of head rents and non-recoverables.
|
Sensitivity of
measurement to variations in the significant unobservable
inputs
Given fair value measurement is an inherent
judgement due to unobservable inputs, management have reviewed the
ranges used in assessing the impact of changes in unobservable
inputs on the fair value of the Group's property portfolio. We
consider +/-10% for ERV, and +/-50bps for NIY to capture the
uncertainty in these key valuation assumptions. The results of this
analysis are detailed in the sensitivity table below.
The significant unobservable inputs used in the
fair value measurement (categorised within Level 3 of the fair
value hierarchy of the Group's property portfolio), together with
the impact of significant movements in these inputs on the fair
value measurement, are shown below:
|
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. The sensitivity of the valuation to changes in the most
significant inputs per class of investment property is shown
below:
|
Estimated movement in fair
value of investment
properties at 31 March 2024 (unaudited)
|
Industrial
€000
|
Retail
€000
|
Office
€000
|
Total
€000
|
|
Increase in ERV by 10%
|
5,100
|
2,700
|
7,200
|
15,000
|
|
Decrease in ERV by 10%
|
(5,100)
|
(2,700)
|
(7,200)
|
(15,000)
|
|
Increase in net initial yield by
0.5%
|
(5,900)
|
(3,300)
|
(7,400)
|
(16,600)
|
|
Decrease in net initial yield by
0.5%
|
7,000
|
4,000
|
8,900
|
19,900
|
|
Estimated movement in fair
value of investment
properties at 30 September 2023 (audited)
|
Industrial
€000
|
Retail
€000
|
Office
€000
|
Total
€000
|
|
Increase in
ERV by 10%
|
4,900
|
2,600
|
7,100
|
14,600
|
|
Decrease in
ERV by 10%
|
(4,900)
|
(2,600)
|
(7,100)
|
(14,600)
|
|
Increase in
net initial yield by 0.5%
|
(6,200)
|
(3,400)
|
(9,000)
|
(18,600)
|
|
Decrease in
net initial yield by 0.5%
|
7,400
|
4,100
|
9,800
|
21,300
|
4. Recognition
of development revenue and profit
During the year ended 30 September 2021, the
Group disposed of its office asset in Boulogne-Billancourt, Paris.
This involved an initial transfer of the legal title to a purchaser
on 16 December 2020 for €69.8m, followed by a development phase for
which the Fund was able to receive a further €30.4m. The total cash
proceeds to be received across the sale and development thereby
totalled €100.2m.
As at 31 March 2024 a cash sum of €98.1m (30
September 2023: €96.0m) had been received by the Fund from the
purchaser. Of the remaining €2.1m, a sum of €1.06m was invoiced to
the purchaser in March 2024 and as at June 2024 is overdue, unpaid
and discussions are ongoing with the purchaser regarding this sum.
The Fund has not recognised this invoiced amount as revenue in the
period due to the requirements of IFRS 15 which state that revenue
should not be recognised if it is highly probable that a
significant revenue reversal will occur. The remaining €1.06m,
regarding a final-stage warranty, is anticipated to be invoiced to
the purchaser in H2 2024.
Furthermore, during the interim period a sum of
€0.5m (30 September 2023: €1.1m cost savings) was invested by the
Fund as development expenditure, and as at the interim period end a
final €0.1m (30 September 2023: €1.1m) of development expenditure
remains to be invested.
When forming a judgement as to an appropriate
level of development revenue to be recognised in the reporting
period, the Group primarily considered the total development costs
incurred; the stage of completion of the refurbishment; the
milestones achieved and still to be achieved; the timing of future
cash receipts from the purchaser; the overall general development
risk; and the commercial discussions ongoing with the
buyer.
5. Provision of
internal loan made to Seville joint venture
As at 31 March 2024 the Group owned 50% of the
Metromar joint venture, which owns a shopping centre in Seville,
and had advanced €10.0 million as a loan and was owed interest of
€1.7 million (30 September 2023: €1.5 million); (31 March 2023:
€1.3 million). The loan carries a fixed interest rate of 4.37% per
annum payable quarterly and matures in May 2024.
When considering an appropriate level of
impairment, deemed to be a significant judgement, the Company
primarily considered: the property valuation and future potential
movements; the outstanding debt principal, together with the
ongoing LTV breach and cash trap position of the loan; cash flow
forecasts; tenants' trading positions and the existing ability to
let vacant space, and the market liquidity for such an asset. An
evaluation of these factors has allowed management to make a
judgement on the probability of default which is considered to be
the key input for the impairment calculation.
A default rate of 100% has been applied to the
above loan and unpaid interest at year end. The impairment
provision booked during the period was €nil as the loan and
interest is now considered a stage 3 impairment (30 September 2023:
€nil) bringing the cumulative impairment to €11.7 million (30
September 2023: €11.5 million, 31 March 2023: €11.3 million) and
the Group's investment with regard to Seville stands at
€nil.
No further interest income was recognised in the
consolidated financial statements in the six months to 31 March
2024: (30 September 2023: nil) as the loan and interest is now
considered a stage 3 impairment and therefore a Loss Given Default
rate of 100% has been applied. Hence, cumulative interest
receivable recognised in the consolidated financial statements
previously and subsequently impaired amounts to
€1,544,000.
Furthermore, Management have separately assessed
that if a sale were to be achieved at the current fair value of the
property of €24.6 million then, all else being equal, the Group
could reverse c.€600,000 of the previously recognised impairment,
noting that such an outcome is deemed to be highly unlikely as at
the financial year end. The sensitivity of potential impairment
reversals, based on potential exit prices, is shown in the table
below:
|
|
-10%
|
0%
|
+10%
|
|
Valuation of Metromar, Seville
property
|
22,140,000
|
24,600,000
|
27,060,000
|
|
Potential future impairment
reversal
|
-
|
600,000
|
1,850,000
|
Underlyingly, and as set out in the above, the
Investment Manager does not believe at the current time that
ultimately a sale price will be achieved above the carrying value
of the third-party debt and thus there has been no reversal of
prior impairments in the current financial period.
6. Investment
in joint ventures
The Group has a 50% interest in a joint venture
called Urban SEREIT Holdings Spain S.L. The principal place of
business of the joint venture is Calle Velázquez 3, 4th Madrid
28001 Spain.
|
|
31 March
2024
€000
|
|
Balance as at 1 October 2023
|
-
|
|
Share of loss for the
period
|
-
|
|
Balance as at 31 March 2024 (unaudited)
|
-
|
|
|
31 March
2023
€000
|
|
Balance as at 1 October
2022
|
-
|
|
Share of
loss for the period
|
-
|
|
Balance as at 31 March 2023
(unaudited)
|
-
|
|
|
31 Sept
2023
€000
|
|
Balance as at 1 October 2022
|
-
|
|
Investment in joint
venture
|
-
|
|
Share of loss for the
year
|
-
|
|
Balance as at 30 September 2023 (audited)
|
-
|
|
Summarised joint venture
financial information:
|
31 March
2024
(unaudited)
€000
|
31 March
2023
(unaudited)
€000
|
30 September
2023
(audited)
€000
|
|
Total
assets
|
27,542
|
28,046
|
28,078
|
|
Total
liabilities
|
(51,606)
|
(48,998)
|
(50,055)
|
|
Net
liabilities
|
(24,064)
|
(20,952)
|
(21,977)
|
|
Net asset value attributable
to the Group
|
-
|
-
|
-
|
|
|
Six months
to
31 March
2024
€000
(unaudited)
|
Six months
to
31 March
2023
€000
(unaudited)
|
Year to
30 September
2023
€000
(audited)
|
|
Revenues
|
1,395
|
1,069
|
2,329
|
|
Total
comprehensive loss
|
(2,087)
|
(1,807)
|
(2,832)
|
|
Total comprehensive loss
attributable to the Group
|
-
|
-
|
-
|
As at 31 March 2024, the joint venture in
Seville, of which SEREIT holds a 50% share, had total net
liabilities of €24,064,000. The Group has therefore recognised a
nil interest as its investment in the joint venture and would only
recognise its share of net liabilities where certain legal or
constructive obligations are in force. No such obligations exist
with regard to the Seville joint venture.
7.
Taxation
|
|
Six months
to
31 March
2024
€000
(unaudited)
|
Six months
to
31 March
2023
€000
(unaudited)
|
Year to
30 September
2023
€000
(audited)
|
|
Current tax charge
|
242
|
167
|
739
|
|
Current tax adjustment in respect of
prior periods
|
-
|
-
|
(480)
|
|
Deferred tax charge
|
(501)
|
(433)
|
(899)
|
|
Tax
(credit) in period/year
|
(259)
|
(266)
|
(640)
|
|
|
Current
tax liability/
(asset)
€000
|
Deferred
tax liability
€000
|
|
As at 1 October
2023
|
971
|
4,225
|
|
Tax
charge/(credit) for the period
|
242
|
(501)
|
|
Tax paid
during the period
|
(1,580)
|
-
|
|
Balance as at 31 March 2024
(unaudited)
|
(367)
|
3,724
|
|
|
Current
tax liability
€000
|
Deferred
tax liability
€000
|
|
As
at 1 October 2022
|
1,426
|
5,124
|
|
Tax charge for the period
|
167
|
(433)
|
|
Tax paid during the
period
|
(826)
|
-
|
|
Balance as at 31 March 2023 (unaudited)
|
767
|
4,691
|
|
|
Current
tax liability
€000
|
Deferred tax
liability
€000
|
|
As
at 1 October 2022
|
1,426
|
5,124
|
|
Tax charge for the period
|
739
|
(899)
|
|
Tax paid during the
period
|
(1,194)
|
-
|
|
Balance as at 30 September 2023 (audited)
|
971
|
4,225
|
The Company has been approved by HM Revenue and
Customs as an investment trust in accordance with section 1158 of
the Corporation Tax Act 2010, by way of a one-off application, and
it is intended that the Company will continue to conduct its
affairs in a manner which will enable it to retain this status. The
Company and certain subsidiary entities have also elected to be
treated as a société d'investissement immobilier cotée ('SIIC') for
French tax purposes. Provided that the Group meets certain
requirements, the Group's French subsidiaries should be exempt from
French corporate income tax on net rental income and gains arising
from interests in property. Management intends that the Group will
continue to comply with the SIIC regulations for the foreseeable
future.
The Group operates in a number of jurisdictions
and is subject to periodic challenges by local tax authorities on a
range of tax matters during the normal course of business. The tax
impact can be uncertain until a conclusion is reached with the
relevant tax authority or through a legal process. The Group
addresses this uncertainty by closely monitoring tax developments,
seeking independent advice and maintaining transparency with the
authorities it deals with as and when any enquiries are made. As a
result of its monitoring, the Group has identified a potential tax
exposure attributable to the ongoing applicability of tax
treatments adopted in respect of the Group's tax structures. The
range of potential outcomes is a possible outflow of minimum £nil
and maximum £9.8 million (excluding possible interest and
penalties). The Directors have not provided for this amount because
they do not believe an outflow is probable.
8. Basic and
diluted earnings per share
The basic and diluted earnings per share for the
Group are based on the net profit/(loss) for the period of
€(2,183,000) (six months to 31 March 2023: €(8,663,000); for the
year ended 30 September 2023: €(9,382,000) and the weighted average
number of ordinary shares in issue during the period of 133,734,686
(six months to 31 March 2023: 133,734,686; for the year ended 30
September 2023: 133,734,686).
9.
Interest-bearing loans and borrowings
|
|
Six months to 31 March
2024
€000
|
|
As
at 1 October 2023
|
73,623
|
|
Repayment of loans
|
(3,000)
|
|
Capitalisation of finance
costs
|
(322)
|
|
Amortisation of finance
costs
|
108
|
|
As
at 31 March 2024 (unaudited)
|
70,409
|
|
|
Year to 30 September
2023
€000
|
|
As
at 1 October 2022
|
68,744
|
|
Drawdown of new loans
|
31,760
|
|
Repayment of matured debt
facilities
|
(26,950)
|
|
Capitalisation of finance
costs
|
(84)
|
|
Amortisation of finance
costs
|
153
|
|
As
at 30 September 2023 (audited)
|
73,623
|
|
|
Six months to 31 March
2023
€000
|
|
As
at 1 October 2022
|
68,744
|
|
Repayment of loans
|
(14,000)
|
|
Proceeds from new loan
facility
|
18,000
|
|
Amortisation of finance
costs
|
89
|
|
As
at 31 March 2023 (unaudited)
|
72,833
|
On 15 December 2023, the Group completed an
early refinancing of its Saint-Cloud, Paris office loan, extending
the term by three years from 15 December 2024 to 15 December 2027,
with an option of a further year. The principal of the loan has
reduced by €3 million from €17 million to €14 million.
On 26 March 2024, the Group refinanced its loan
with Landesbank which was secured on the Rennes asset in France.
The loan was refinanced for the same amount of €8,600,000, but now
attracts interest at a fixed-rate of 4.3% and now matures on 26
March 2029.
As at 31 March 2024 the Group held interest rate
caps as follows:
|
·
|
Saint-Cloud loan with BRED Banque Populaire: a
cap totalling the full €14.0m of the loan, and which expires on 15
December 2024 with a strike rate of 1.25%; and
|
|
·
|
A further interest rate cap with BRED Banque
Populaire was purchased in the period, expiring on 15 December
2027, with a strike rate of 3.25%.
|
10. Issued
capital and reserves
As at 31 March 2024, the Company has 133,734,686
(30 September 2023: 133,734,686) ordinary shares in issue with a
par value of 10.00p (no shares are held in Treasury). The total
number of voting rights in the Company is 133,734,686.
11. NAV per
ordinary share
The NAV per ordinary share is based on the net
assets at 31 March 2024 of €165,298,000 (30 September 2023:
€171,439,000; 31 March 2023: €177,106,000) and 133,734,686 ordinary
shares in issue at 31 March 2024 (30 September 2023: 133,734,686;
31 March 2023: 133,734,686).
12. Dividends
paid
|
Six
months ended 31 March 2024
(unaudited)1
|
Number of
ordinary shares
|
Rate
(cents)
|
€000
|
|
Interim dividend paid on 17 November
2023
|
133,734,686
|
1.48
|
1,979
|
|
Interim dividend paid on 25 January
2024
|
133,734,686
|
1.48
|
1,979
|
|
Total interim dividends paid
|
133,734,686
|
2.96
|
3,958
|
|
1
|
A dividend for the quarter ended 31
December 2023 of 1.48 Euro cents per share was approved and was
paid on 6 May 2024. Total dividends declared relating to the six
months' ended 31 March 2024 were 2.96 Euro cents per
share.
|
|
Six
months ended 31 March 2023 (unaudited)
|
Number of
ordinary shares
|
Rate
(cents)
|
€000
|
|
Interim dividend paid on 13 January
2023
|
133,734,686
|
1.85
|
2,474
|
|
Total interim dividends paid
|
133,734,686
|
1.85
|
2,474
|
|
Year ended 30 September 2023 (audited)
|
Number of
ordinary shares
|
Rate
(cents)
|
€000
|
|
Interim dividend paid on 13 January
2023
|
133,734,686
|
1.85
|
2,474
|
|
Interim dividend paid on 5 May
2023
|
133,734,686
|
1.85
|
2,474
|
|
First special dividend paid on 11
August 2023
|
133,734,686
|
1.85
|
2,474
|
|
Total interim dividends paid
|
|
|
7,422
|
13. Related
party transactions
Schroder Real Estate Investment Management
Limited is the Group's Investment Manager.
The Investment Manager is entitled to a fee,
together with reasonable expenses, incurred in the performance of
its duties. The fee is payable monthly in arrears and shall be an
amount equal to one-twelfth of the aggregate of 1.1% of the EPRA
NAV of the Company. The Investment Management Agreement can be
terminated by either party on not less than 12 months' written
notice, such notice not to expire earlier than the third
anniversary of admission, or on immediate notice in the event of
certain breaches of its terms or the insolvency of either party.
The total charge to profit and loss during the period was
€972,000 (year ended 30 September 2023:
€1,981,000; six months ended 31 March 2023: €1,028,000). At 31
March 2024, €599,000 was outstanding (year ended 30
September 2023: €626,000; six months ended 31 March 2023:
€656,000).
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 2024 was €120,000 (year ended 30 September 2023: €203,000;
six months ended 31 March 2023: €123,000), equivalent to £107,000.
Three of the four Directors hold shares in the Company and have not
purchased or sold any shares in the financial period. Details of
their holdings can be found on page 46 of the September 2023 Annual
Report and Consolidated Financial Statements.
14. Capital
commitments
At 31 March 2024, the Group had capital
commitments of €nil (30 September 2023: €400,000; 31 March 2023:
€nil).
The Group is expected to incur a further
€130,000 (30 September 2023: €1,100,000) of development expenditure
with regards to the comprehensive refurbishment of the Paris, BB
asset.
15. Contingent
liabilities
There are no contingent liabilities other than
those disclosed in note 7.
16. Post
balance sheet events
There are no post balance sheet events to be
disclosed.
EPRA and
Headline Performance Measures (Unaudited)
As recommended by the European Public Real
Estate Association ('EPRA'), performance measures are disclosed in
the section below.
a. EPRA
earnings and earnings per share
Represents the total IFRS comprehensive income
excluding realised and unrealised gains/losses on investment
property and changes in the fair value of financial instruments,
divided by the weighted average number of shares.
|
|
Six months
to
31 March 2024
€000
(unaudited)
|
Six months
to
31 March
2023
€000
(unaudited)
|
Year to
30 September
2023
€000
(unaudited)
|
|
Total IFRS
comprehensive expense
|
(2,183)
|
(8,663)
|
(9,382)
|
|
Adjustments to calculate EPRA
earnings:
|
|
|
|
|
Net loss
from fair value adjustment on investment property
|
6,617
|
12,958
|
19,726
|
|
Net
development (revenue)/expenditure
|
-
|
-
|
(1,538)
|
|
Share of
joint venture loss on investment property
|
-
|
-
|
(209)
|
|
Deferred
tax
|
(501)
|
(433)
|
(899)
|
|
Tax on
development profit
|
-
|
-
|
-
|
|
Net change
in fair value of financial instruments
|
388
|
(107)
|
260
|
|
EPRA
earnings
|
4,321
|
3,755
|
7,958
|
|
Weighted
average number of ordinary shares
|
133,734,686
|
133,734,686
|
133,734,686
|
|
IFRS
earnings and diluted earnings (cents per share)
|
(1.6)
|
(6.5)
|
(7.0)
|
|
EPRA earnings per share
(cents per share)
|
3.2
|
2.8
|
6.0
|
b. EPRA Net Reinstatement
Value
|
|
Six months
to
31 March
2024
€000
(unaudited)
|
Six months
to
31 March
2023
€000
(unaudited)
|
Year to
30 September
2023
€000
(unaudited)
|
|
IFRS equity
attributable to shareholders
|
165,298
|
177,106
|
171,439
|
|
Deferred
tax and tax on development and trading properties
|
3,724
|
4,691
|
4,225
|
|
Adjustment
for fair value of financial instruments
|
(342)
|
(1,041)
|
(674)
|
|
Adjustment
in respect of real estate transfer taxes
|
18,658
|
19,428
|
18,477
|
|
EPRA Net Reinstatement
Value
|
187,338
|
200,184
|
193,467
|
|
Shares in
issue at end of year/period
|
133,734,686
|
133,734,686
|
133,734,686
|
|
IFRS Group NAV per share
(cents per share)
|
123.6
|
132.4
|
128.2
|
|
EPRA NRV per share (cents per
share)
|
140.1
|
149.7
|
144.7
|
c. EPRA Net Tangible
Assets
|
|
Six months
to
31 March
2024
€000
(unaudited)
|
Six months
to
31 March
2023
€000
(unaudited)
|
Year to
30 September
2023
€000
(unaudited)
|
|
IFRS equity
attributable to shareholders
|
165,298
|
177,106
|
171,439
|
|
Deferred
tax
|
3,724
|
4,691
|
4,225
|
|
Adjustment
for fair value of financial instruments
|
(342)
|
(1,041)
|
(674)
|
|
EPRA Net Tangible
Assets
|
168,680
|
180,756
|
174,990
|
|
Shares in
issue at end of year/period
|
133,734,686
|
133,734,686
|
133,734,686
|
|
IFRS Group NAV per share
(cents per share)
|
123.6
|
132.4
|
128.2
|
|
EPRA NTA per share (cents per
share)
|
126.1
|
135.2
|
130.8
|
d. EPRA Net Disposal
Value
|
|
Six months
to
31 March
2024
€000
(unaudited)
|
Six months
to
31 March
2023
€000
(unaudited)
|
Year to
30 September
2023
€000
(unaudited)
|
|
IFRS equity
attributable to shareholders
|
165,298
|
177,106
|
171,439
|
|
Adjustment
for the fair value of fixed-interest rate debt
|
637
|
1,048
|
925
|
|
EPRA Net Disposal
Value
|
165,935
|
178,154
|
172,364
|
|
Shares in
issue at end of year/period
|
133,734,686
|
133,734,686
|
133,734,686
|
|
IFRS Group NAV per share
(cents per share)
|
123.6
|
132.4
|
128.2
|
|
EPRA NDV per share (cents per
share)
|
124.1
|
133.2
|
128.9
|
e. EPRA summary
|
|
EPRA NRV
€000
|
EPRA NTA
€000
|
EPRA NDV
€000
|
|
IFRS NAV in the
period
|
165,298
|
165,298
|
165,298
|
|
Exclude:
deferred tax
|
3,724
|
3,724
|
-
|
|
Exclude:
the fair value of financial instruments
|
(342)
|
(342)
|
-
|
|
Include:
the fair value of fixed-rate interest rate debt
|
-
|
-
|
637
|
|
Include:
real estate transfer tax
|
18,658
|
-
|
-
|
|
EPRA NAV
totals
|
187,338
|
168,680
|
165,935
|
f. Headline earnings
reconciliation
Headline earnings per
share reflect the underlying performance of the Company calculated
in accordance with the Johannesburg Stock Exchange Listing
requirements.
|
|
Six months
to
31 March
2024
€000
(unaudited)
|
Six months
to
31 March
2023
€000
(unaudited)
|
Year to
30 September
2023
€000
(unaudited)
|
|
Total IFRS
comprehensive income
|
(2,183)
|
(8,663)
|
(9,382)
|
|
Adjustments to calculate
headline earnings exclude:
|
|
|
|
|
Net
valuation (profit)/loss on investment property
|
6,617
|
12,958
|
19,726
|
|
Net
development (revenue)/expenditure
|
-
|
-
|
(1,538)
|
|
Share of
joint venture loss on investment property
|
-
|
-
|
(209)
|
|
Deferred
tax
|
(501)
|
(433)
|
(899)
|
|
Tax on
development profit
|
-
|
-
|
-
|
|
Net change
in fair value of financial instruments
|
388
|
(107)
|
260
|
|
Headline
earnings
|
4,321
|
3,755
|
7,958
|
|
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
|
2.8
|
6.0
|