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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Schroder European Real Estate Investment Trust Plc | LSE:SERE | London | Ordinary Share | GB00BY7R8K77 | ORD GBP0.10 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 1.20 | 1.89% | 64.60 | 63.20 | 66.60 | 65.00 | 65.00 | 65.00 | 101,949 | 16:35:19 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Real Estate Investment Trust | 19.67M | -9.38M | -0.0702 | -9.26 | 86.93M |
From May 2019 to May 2024
TIDMSERE
RNS Number : 4876Y
Schroder Eur Real Est Inv Trust PLC
06 December 2017
6 December 2017
SCHRODER EUROPEAN REAL ESTATE INVESTMENT TRUST PLC
("SEREIT"/ the "Company" / "Group")
FULL YEAR RESULTS FOR THE YEARED 30 SEPTEMBER 2017
ASSET MANAGEMENT AND VALUATION UPLIFT DELIVERS NAV AND EARNINGS GROWTH, SUPPORTED BY STRONG EUROZONE PERFORMANCE
REMAIN ON TARGET TO DELIVER 5.5% DIVID YIELD
Schroder European Real Estate Investment Trust plc (the "Company") the company investing in European growth cities and regions, today announces its audited full year results for the year ended 30 September 2017.
The Company's Annual Report and Accounts for the year ended 30 September 2017 are being published in hard copy format and an electronic copy will shortly be available to download from the Company's webpage www.schroders.co.uk/sereit. Please click on the following link to view the document:
http://www.rns-pdf.londonstockexchange.com/rns/4876Y_-2017-12-5.pdf
The Company has submitted its Annual Report and Accounts to the National Storage Mechanism and it will shortly be available for inspection at www.morningstar.co.uk/uk/NSM.
Financial highlights
-- Net Asset Value ('NAV') of EUR178.3 million or 133.3 cps, reflecting an increase over the period of 13%, including a gross equity raise of EUR16.7 million (30 September 2016: EUR157.8 million/130.2 cps)
-- NAV total return of 6.0% (30 September 2016: -4.6%)
-- Dividend for quarter ended 30 September 2017 of 1.5 cps representing an annualised rate of 4.4% based on EUR1.37, being the euro equivalent of the issue price as at admission. Based on the Euro:GBP exchange rate as at 30 September 2017, this dividend represents an annualised rate of 5.3% against an initial GBP1 invested at IPO
-- Portfolio valued at EUR211.7 million, reflecting an uplift of approximately 7.1% on purchase price
-- Increase in underlying EPRA earnings to EUR6.9 million (30 September 2016: EUR1.0 million) -- EUR16.7 million of equity raised through placing
-- Loan to value ('LTV'), net of all cash, of 25% (30 September 2016: 22%). Debt is either fixed cost or capped and of long duration at 6.8 years on average
Operational highlights
-- Two acquisitions completed taking the total portfolio to nine assets, located in eight locations across Germany, France and Spain:
o An office building in Paris, France, for EUR30 million, reflecting a net property income yield of 9.5%; and
o A 50% share of Metromar shopping centre in Seville, Spain, in a JV with Schroder-managed Immobilien Europa Direkt, for EUR26.2 million, reflecting a net property income yield of 6.3%
-- Portfolio is almost 100% occupied following leasing activity with 6.8 years average lease term (4.4 years to break) and a net property income yield of approximately 6%
-- Contracted rental income of EUR14.3 million p.a.
-- Maintained focus on Western European growth cities, with 100% of the portfolio located in the fastest growing cities and towns of Continental Europe (source: Oxford Economics)
-- Successful execution of, and ongoing, asset management initiatives across the portfolio, including seven new lettings and re-gears across over 5,000 sqm, with advanced leasing discussions ongoing regarding an additional 6,000 sqm
Commenting, Sir Julian Berney Bt., Chairman of the Board, said:
"The Company is now close to being fully invested, having executed the strategy outlined at IPO to construct a high quality portfolio of commercial real estate, which provides an attractive level of income, in the growth markets of Western Continental Europe. Economic growth in these target markets is advancing and this is having a positive impact on occupier demand and rental levels. Whilst there remains uncertainty around events such as Brexit, our strategic focus on winning cities and regions means the Company is well placed in changing market circumstances and may potentially benefit if the outcome to negotiations leads to more businesses locating and expanding in Continental Europe."
Jeff O'Dwyer, Lead Manager for Schroder European Real Estate Investment Management
Limited, added:
"Our near term priority is to deploy the remaining investment capacity, which totals c. EUR30million including leverage, which will be invested in a manner consistent with the existing portfolio, in conurbations and regions that will grow faster than their domestic economies.
"We have identified a range of potential investment opportunities that would be accretive to the Company's earnings, which we believe provides a strong platform to grow the Company to benefit shareholders. Once fully invested we will assess our next steps, which may include a further equity raise, as we continue to see interesting investment opportunities in the market with returns accretive to earnings and performance."
For further information:
Schroder Real Estate Investment Management Duncan Owen / Jeff O'Dwyer 020 7658 6000 ================================= ============== Ria Vavakis Schroder Investment Management Limited 020 7658 2371 ================================= ============== FTI Consulting Dido Laurimore / Ellie Sweeney / Richard Gotla 020 3727 1000 ================================= ==============
A presentation for analysts and investors will be held at 08.30 GMT today at the offices of Schroders plc, 31 Gresham Street, London EC2V 7QA. If you would like to attend, please contact Stephanie Carbonneil at Schroders on +44 (0)20 7658 7352 or Stephanie.Carbonneil@Schroders.com
A webcast presentation will take place at 10.00 GMT / 12.00 SAST, registration for which can be accessed via: http://www.schroders.com/en/uk/adviser/webconferences2/schroder-european-real-estate-investment-trust-results-dec-17/
Chairman's statement
The Company continues to deliver net asset value and income growth for shareholders. The current dividend is now at an annualised rate of 4.4% based on EUR1.37, being the euro equivalent of the issue price at admission. Based on the Euro:GBP exchange rate as at 30 September 2017, this equates to an annualised rate of 5.3% against an initial GBP1 invested at admission. This represents continued progress since launch in December 2015. The Company is in exclusive negotiations to acquire assets that, once completed, should enable the Company to distribute the target 5.5% p.a. dividend against the euro issue price, fully covered by rental income.
Two acquisitions during the year in Paris and Seville have grown the property portfolio owned by the Company to nine assets located across winning cities and regions in France, Germany and Spain. The current independent valuation of the portfolio is 7.1% above the combined purchase price. Across the portfolio there are a number of value enhancing asset management initiatives either underway or identified including reducing voids, lease restructuring and property refurbishments.
Our target markets in Western Europe are benefiting from a broad-based economic recovery with unemployment declining. Growth forecasts are encouraging and inflation is under control. Rental growth is returning to most parts of the market as occupier demand for good quality, well-located assets remains healthy and development activity is reasonably subdued. We expect this economic recovery to continue into the medium-term. This will be positive for the Company's portfolio and supports our growth ambitions for the Company.
Strategy
The strategic priority for the Company is to continue to grow in a disciplined way which improves net operating income and brings benefits such as improved liquidity and diversification. The Company has an investment strategy focused on winning cities and regions in continental Europe which are growing more quickly than their domestic economies. It is pleasing to note that 100% of the existing portfolio owned by the Company is located in the fastest growing cities and towns in Continental Europe (Source: Oxford Economics, defined as top 2 quartiles).
The Investment Manager, Schroder Real Estate Investment Management Limited, is locally based in the target markets of France, Germany, Switzerland and Scandinavia. This allows the Company to identify specific locations and assets which offer good fundamentals as well as to actively manage the portfolio. This strategy is also informed by Schroders' in-house research capability to identify sub-markets where there are supply/demand imbalances and future growth potential from structural changes such as urbanisation and infrastructure improvements. Over the longer-term this should mean the portfolio is capable of adapting to future occupier trends and technological advancements whilst also being relatively resilient.
Dividend
The Company has declared a fourth interim dividend in respect of the year ended 30 September 2017 of 1.5 euro cents per share based on the number of shares in issue as at the publishing date of this report. This represents an annualised rate of 4.4% based on EUR1.37, being the euro equivalent of the issue price at admission. The Company is targeting an annualised euro dividend of 5.5% based on the euro equivalent issue price as at admission and remains on target to deliver this once fully invested. Based on the Euro:GBP exchange rate as at 30 September 2017, this would represent an annualised rate of 6.6% against an initial GBP1 invested at admission. This will be fully covered by contractual income receivable from the portfolio.
Total dividends payable in respect of the financial year amount to 5.2 euro cents per share.
Balance sheet and debt
The Company has a simple balance sheet, with overall leverage capped at 35% LTV at the time debt is drawn. The current debt is 25% LTV, which provides some headroom to draw further debt. Debt is used with the objective of improving shareholder returns and is drawn against those assets most suitable for debt financing. This ensures the most accretive finance rates can be secured, evidenced by the current average weighted interest rate on the debt facilities of 1.3%. When compared to the average net initial property yield on the portfolio of approximately 6%, the debt is accretive to income returns. It is also important to note that this debt is either fixed cost or capped and is of long duration - averaging almost seven years. This helps support long-term returns for shareholders.
Given the positive yield spread, it is likely the Company will draw further debt facilities and target overall gearing at around 35% LTV.
Outlook
The Company is close to being fully invested having executed the strategy outlined at IPO to establish a quality portfolio of commercial real estate in the growth markets of Western Continental Europe. We have a remaining investment capacity of approximately EUR30 million which is already allocated to an identified pipeline of opportunities in our target markets.
Economic growth in our target markets is advancing and this is having a positive impact on occupier demand and rental levels. A number of flagged risks to European economies, such as general elections and European break-up, have had outcomes that are likely to result in a period of stability. Whilst there remains uncertainty around events such as Brexit, the strategic focus on winning cities and regions means the Company is well placed in changing market circumstances and may potentially benefit if the outcome to negotiations leads to more businesses locating and expanding in continental Europe.
The portfolio provides an attractive level of income together with the potential for growth. The balance sheet is stable with low gearing that is accretive to returns. The market backdrop is positive and supports potential returns from identified value-add asset management opportunities and new investments. The Investment Manager has identified a range of potential investment opportunities, both in existing and new markets, that would be accretive to the Company's earnings. We believe this provides a platform to grow the Company to benefit shareholders.
Sir Julian Berney Bt.
Chairman
5 December 2017
Investment Manager's report
Results
The Company's portfolio is valued at EUR211.7 million as at 30 September 2017 reflecting an uplift of EUR14 million/7.1% on purchase price. Overall values have increased 3.6% over the financial year.
The Company's Net Asset Value ("NAV") as at 30 September 2017 stood at EUR178.3 million, or 133.3 euro cents (117.6 pence) per share, and achieved a NAV total return for the financial year of 6.0%.
The table below provides an analysis of the movement in NAV during the reporting period as well as a corresponding reconciliation in the movement in the NAV cents per share:
Hot Features
Premium
% change per cps
NAV movement EUR million cps
========================================================= ============== ====== ===================
Brought forward as at 1 October 2016(1) 157.8 130.2 -
========================================================= ============== ====== ===================
Net equity raise impact 16.4 - -
========================================================= ============== ====== ===================
NAV post equity raise 174.2 130.2 -
========================================================= ============== ====== ===================
Transaction costs of investments made during the period (3.6) (2.7) (2.1)
========================================================= ============== ====== ===================
Unrealised gain in valuation of the property portfolio 7.4 5.5 4.2
========================================================= ============== ====== ===================
EPRA earnings 6.9 5.2 4.0
========================================================= ============== ====== ===================
Non-cash items (0.4) (0.3) (0.2)
========================================================= ============== ====== ===================
Dividends paid (6.2) (4.6) (3.5)
========================================================= ============== ====== ===================
Carried forward as at 30 September 2017 178.3 133.3 2.4
========================================================= ============== ====== ===================
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 joint ventures on a line-by-line basis and exclude non-controlling interests in the Company's subsidiaries.
NAV as at 30 September 2016 based on the number of shares pre-October equity raise of 121,234,686. All other numbers are based on the number of shares subsequent to the equity raise of 133,734,686 shares.
Market overview
Economic momentum in the Eurozone has increased and growth forecasts continue to be upgraded. While growth forecasts for the Eurozone for 2017 and 2018 had been at 1.4% and 1.5% respectively at the start of this calendar year, the September consensus forecasts have been upgraded to 2.1% and 1.8%. Following key elections in Europe political uncertainty has eased. Growth continues to beat expectations while structural reforms, debt restructuring and labour market reforms are taking effect. Unemployment has started to decrease and economic sentiment remains at record highs. Core inflation remains stable around 1% and, while the European Central Bank ("ECB") is likely to reduce its bond buying program, the Investment Manager expects the ECB to leave its refi rate at zero until 2019.
Offices
This economic activity is generating demand in the office markets. In many European cities, jobs in the IT, media and professional services sectors are growing year-on-year and net take-up of office space is positive. Vacancy, particularly for modern flexible space, has decreased and the supply pipeline for the next 2-3 years remains muted. We expect to see a broad based increase in office rents across continental Europe over the next 3-4 years, dominated by growth cities.
Retail
Strong consumer spending continues to support the wider retail sector, though this growth is mainly being driven by on-line spending. This is impacting the demand for physical retail space. Demand, and rental levels, for high street units/flagship stores in core city centre locations remains resilient and dominant shopping centres with a retail, leisure and food offer also continue to perform well. Secondary high streets and small to mid-sized shopping centres remain under pressure with changing consumer patterns reducing physical shopping time and spend. Supermarkets, convenience stores and out-of-town retail warehouses are expected to be more resilient to online encroachment, as consumers still prefer the physical aspect of goods such as food, furniture, DIY and homewares. Additionally, these stores typically have car parking and are convenient for click and collect sales. Vacancy rates here are also lower as these formats have less of a mid-market fashion offer, the part of the market most severely impacted, whilst the recovery in European housing markets has led consumers to spend more on home improvements.
Logistics/industrial
The rapid growth of e-commerce is driving retailers and other logistics operators to restructure their networks and introduce modern technology to their units. Vacancy levels have been falling across Europe and rents are beginning to grow. Demand remains strong for well-located, modern units to be used for parcel delivery and fulfilment centres, especially urban logistics assets. These are benefiting from the growth in "last mile" deliveries and returned items, as consumers become increasingly demanding and place ever more emphasis on speed of delivery, located in built up areas where new supply is constrained and which offer longer-term mixed-use potential. This is a target investment sector for the Company and it has an identified pipeline of assets under consideration.
Investment market
The favourable outlook for rental growth and the significant gap between real estate and 10 year government bond yields means that there is a large amount of capital allocated towards real estate in Continental Europe. Investment activity remains at high levels and the market is competitive. Asian capital has become more active. European investors are active throughout the region. The most sought after market remains Germany, but activity is also high in France, the Nordics, Spain and the Netherlands. Values for prime assets are close to the high, assuming that investors will now start to factor in an increase in bond yields over the medium term. However, even if bond yields rise, we expect that real estate yields will probably be relatively stable, given the prospects for rental growth, particularly in winning cities.
Property portfolio
As at 30 September 2017, the Company owned nine properties, independently valued at EUR211.7 million, reflecting a net initial yield of approximately 6% against the independent valuation.
The retail properties in Biarritz and Rennes are owned in a 70/30 joint venture with Mercialys, the French retail property specialist, and the Seville shopping centre is held in a 50/50 joint venture with another Schroder-managed real estate vehicle. The portfolio statistics reflect the 70% ownership share of Biarritz and Rennes and 50% of Seville.
The table below gives an overview of the portfolio:
Contracted
rents Value
============ ========= ======== ================= ==========================================================
Property Country Sector EURm % total EUR0-EUR20m EUR20m-EUR40m EUR40m-EUR60m >EUR60m
============ ========= ======== ====== ========= ============= =============== =============== =========
Paris (SC) France Office 3.5 24.3 X
============ ========= ======== ====== ========= ============= =============== =============== =========
Paris (B-B) France Office 2.3 16.5 X
============ ========= ======== ====== ========= ============= =============== =============== =========
Seville Spain Retail 2.0 13.9 X
============ ========= ======== ====== ========= ============= =============== =============== =========
Berlin Germany Retail 1.6 11.2 X
============ ========= ======== ====== ========= ============= =============== =============== =========
Biarritz France Retail 1.3 8.8 X
============ ========= ======== ====== ========= ============= =============== =============== =========
Hamburg Germany Office 1.2 8.1 X
============ ========= ======== ====== ========= ============= =============== =============== =========
Rennes France Retail 0.9 6.6 X
============ ========= ======== ====== ========= ============= =============== =============== =========
Stuttgart Germany Office 0.8 5.6 X
============ ========= ======== ====== ========= ============= =============== =============== =========
Frankfurt Germany Retail 0.7 5.0 X
============ ========= ======== ====== ========= ============= =============== =============== =========
Portfolio at financial
year end 14.3 100.0 EUR211.7m
================================= ====== ========= ==========================================================
The portfolio's country and sector allocations are specified below:
Country allocation Portfolio at financial year end (%) Sector allocation Portfolio at financial (% contracted rent) (% contracted rent) year end (%) ====================== ===================================== ===================== ======================== France 56 Office 54 ====================== ===================================== ===================== ======================== Germany 30 Retail 46 ====================== ===================================== ===================== ======================== Spain 14 Other 0 ====================== ===================================== ===================== ======================== Total 100 Total 100 ====================== ===================================== ===================== ========================
Lease expiry profile
The portfolio generates EUR14.3 million p.a. in contracted income. The average unexpired lease term is 4.4 years to first break and 6.8 years to expiry.
The lease expiry profile to earliest break is detailed in the 2017 Annual Report. The near-term lease expiries provide asset management opportunities to renegotiate leases, extend weighted average unexpired lease terms, improve income security and generate rental growth. In turn, this activity benefits NAV total return.
Top ten tenants
The top ten tenants comprise a wide range of occupiers from different industry segments as shown below:
Unexp.
lease
Contracted Contracted term
# Tenant Property Tenant rent (EURm rent (years)(4)
risk(1) p.a.) (% )(3)
==== =============== ============ ========== ============= ============= =============
1 Alten Paris (B-B) Low 2.3 16% 3.5
==== =============== ============ ========== ============= ============= =============
Rennes
2 Casino & Biarritz Low 1.9 13% 4.7
==== =============== ============ ========== ============= ============= =============
3 Hornbach Berlin Low 1.6 11% 8.3
==== =============== ============ ========== ============= ============= =============
4 City BKK Hamburg High(2) 0.8 6% 7.4
==== =============== ============ ========== ============= ============= =============
5 LandBW Stuttgart Low 0.7 5% 8.4
==== =============== ============ ========== ============= ============= =============
6 Thesee Paris (SC) Medium 0.6 4% 1.9
==== =============== ============ ========== ============= ============= =============
7 Ethypharm Paris (SC) Low 0.6 4% 4.3
==== =============== ============ ========== ============= ============= =============
8 Fileassistance Paris (SC) Low 0.5 3% 1.7
==== =============== ============ ========== ============= ============= =============
Garantie
9 assistance Paris (SC) Low 0.4 3% 1.7
==== =============== ============ ========== ============= ============= =============
10 Moody's Paris (SC) Low 0.4 3% 1.8
==== =============== ============ ========== ============= ============= =============
Total top ten tenants 9.8 68% 4.9
=============================================== ============= ============= =============
Remaining tenants 4.5 32% 3.4
=============================================== ============= ============= =============
Total 14.3 100% 4.4
=============================================== ============= ============= =============
(1) Regular tenant risk assessments are undertaken for tenants above EUR100,000 of contracted rent. Among other considerations, the Investment Manager's risk assessments are based on Dun &Bradstreet ratings and Dun &Bradstreet failure scores.
(2) As part of ongoing asset management, discussions with City BKK regarding a potential lease surrender continue.
(3) Percentage based on total contracted rent as at financial period end.
(4) Unexpired lease term until earliest termination in years as at 30 September 2017 weighted by contracted rent
Valuation
The current valuation of EUR211.7 million for the existing portfolio reflects an increase of 7.1% compared to the combined purchase price of the nine asset portfolio. Transaction costs have already been recovered through valuation uplifts since acquisition.
The portfolio valuation, excluding transaction costs, has risen by 3.6% over the financial year due to positive valuation performance from all assets. The largest valuation uplift came from the newly acquired Paris, Saint-Cloud asset, against its purchase price and the Hamburg asset against the 30 September 2016 valuation.
Transactions and asset management
The long-term investment strategy is founded on urbanisation. Elements such as population change, infrastructure improvements, growth of mixed-use areas, supply constrained locations and particularly those that provide affordable/ sustainable rents are central to this theme. All our investments are well positioned to benefit from these themes, with current Eurozone economic data trending favourably in support of this strategy.
We manage each asset around an identified business plan, constructed by our local real estate professionals and approved by the Investment Manager's investment committee. Our asset management expertise assists in de-risking assets, enhancing income profiles and positioning investments to benefit from occupier demand and ultimately growth, all positively contributing to the delivery of the Company's return performance.
Boulevard Jean Jaurès, Boulogne-Billancourt (Paris) 92100, France
-- Acquired in March 2016 for a purchase price of EUR37.5 million -- Valuation at 30 September 2017: EUR41.4 million -- Lettable area: c.6,900 sq.m -- Investment rationale:
ü Mixed-use area with a high incidence of competing uses
ü Affordable/sustainable rents
ü Supply constrained location
ü Modest capital value per sq.m
Business plan achievements:
- Negotiating with adjoining owner to optimise future redevelopment of the site; - Adding EUR15,000 in annual income; and - Engaging with tenant Alten about a possible lease extension.
Asset management initiatives remaining:
- Managing neighbouring property easements which have value in the Company's favour; - Working with tenant to agree their longer-term occupational intention; and
- Investigating longer-term office refurbishment or potential for conversion to higher value uses.
Großbeerenstraße, 12107 Berlin, Germany
-- Acquired in March 2016 for a purchase price of EUR24.3 million -- Valuation at 30 September 2017: EUR25.7 million -- Lettable area: c.16,800 sq.m -- Investment rationale:
ü Above average population growth
ü Supply constrained location
ü Mixed-use area with a high incidence of competing uses
ü Large site area of 4 hectares
Business plan achievements:
- Tenant relationship management with a view to understanding Hornbach's needs and future e-commerce aspirations (drive in/click and collect). Approached neighbouring owner to acquire site for expansion.
Asset management initiatives remaining:
- Diversifying the retail offer with the addition of complementary uses such as food and beverage;
- Rezoning part of the land for residential use; and - Potential sale of part of the land for residential development
Neckarstraße, 70190, Stuttgart, Germany
-- Acquired in April 2016 for a purchase price of EUR14.4 million -- Valuation at 30 September 2017: EUR15.2 million -- Lettable area: c.5,800 sq.m -- Investment rationale:
ü Supply constrained location
ü Mixed-use area with a high incidence of competing uses
ü Affordable/sustainable rents
ü Improving infrastructure driven by the neighbouring "Stuttgarter 21" redevelopment
Business plan achievements:
- Implementation of fire certification requirement in association with neighbouring asset.
Asset management initiatives remaining:
- Marking rents to market which the Investment Manager anticipates providing c. 5% to 10% growth; and
- Positioning the investment to benefit from the completion of the neighbouring "Stuttgarter 21" urban development.
Hammerbrookstraße, 20097, Hamburg, Germany
-- Acquired in April 2016 for a purchase price of EUR14.4 million -- Valuation at 30 September 2017: EUR16.7 million -- Lettable area: c.7,000 sq.m -- Investment rationale:
ü Modest capital value per sq.m
ü Mixed-use area with a high incidence of competing uses
ü The city-sud sub-market is one stop from the city centre and is evolving as a destination where people want to live, work and socialise
ü Affordable/sustainable rents that represent approximately a third of prime city centre
ü Location has medium to longer-term growth potential
Business plan achievements:
- Leasing of 208 sq.m to a sushi restaurant on a 10 year term and adding a further EUR17,000 of annual income; and
- Negotiating with City BKK regarding a potential lease surrender payment and subsequent direct leasing with sub-tenants.
Asset management initiatives remaining:
- Positioning the investment to capitalise on the above average rental growth anticipated; - Managing minor storage and parking vacancy and general lease expiries; and - Finalising City BKK agreement.
Lorscher Straße, 60489, Frankfurt - Rodelheim, Germany
-- Acquired in May 2016 for a purchase price of EUR11.1 million -- Valuation at 30 September 2017: EUR11.5 million -- Lettable area: c.4,500 sq.m -- Investment rationale:
ü Supermarket anchored convenience retail centre servicing a growing urban catchment
ü Larger than standard supermarket size allowing for a broader grocery offer relative to local competition
ü Mixed use area with a dense residential population
ü Above average provision of parking
Business plan achievements:
- Critically reviewing tenancy mix culminating in discussions with a leading national drug store retailer to enter the scheme; and
- Negotiating with a tenant of the lower ground floor to maintain occupancy and income security.
Asset management initiatives remaining:
- Improving the retail mix to enhance footfall; - Longer-term potential to add further lettable area and services to the car park area; and - Broadening the retail offer and strengthening the convenience nature of the centre.
Avenue de Bayonne, 64600, Anglet (Biarritz), France
(Values refer to 70% interest)
-- Acquired in June 2016 for a purchase price of EUR22.6 million -- Valuation at 30 September 2017: EUR21.8 million -- Lettable area: c.15,000 sq.m -- Investment rationale:
ü Grocery anchored, multi-tenanted retail offer that forms part of a dominant retail agglomeration
ü Densely populated catchment supported by strong tourism
ü JV partner has an operational connection being part of the grocery operator's parent company
ü Mixed-use area with strong competition from competing uses
Business plan achievements:
- Redesign of vacant 38 sq.m unit to provide an additional entry (directly to the car park) to improve potential footfall and marketability; and
- Management of joint venture to implement marketing and communication actions.
Asset management initiatives remaining:
- Reconfigure retail units to allow for broader retail offer / tenant mix.
Route de Saint Malo, 35760, Saint-Grégoire (Rennes), France
(Values refer to 70% interest)
-- Acquired in June 2016 for a purchase price of EUR17.2 million -- Valuation at 30 September 2017: EUR19.0 million -- Lettable area: c.13,900 sq.m -- Investment rationale:
ü Grocery store anchoring a recently expanded shopping centre that collectively provides a regional shopping centre dominance
ü JV partner has an operational connection being part of the grocery operator's parent company
ü Dominant retail offer in a growing region
Business plan achievements:
- Management of joint venture to implement marketing and communication actions with a view to leveraging off recent centre expansion; and
- Monitoring Mercialys expansion and mitigating any negative impact to grocery offer.
Asset management initiatives remaining:
- Reconfigure retail units to allow for broader retail offer / tenant mix.
Le Directoire, Saint-Cloud (Paris), France
-- Acquired in February 2017 for a purchase price of EUR30.0 million -- Valuation at 30 September 2017: EUR33.9 million -- Lettable area: c.15,800 sq.m -- Investment rationale:
ü Supply constrained location
ü Let off affordable/sustainable rents
ü Attractive capital value per sq.m substantially less than replacement cost
ü Benefits from future infrastructure improvements
ü Mixed-use area with strong competition from competing uses
Business plan achievements:
- A lease extension and 555 sq.m expansion with Outscale, the cloud operating system company, taking its total occupancy at the asset to 1,695 sq.m secured;
- A new six year lease agreement with Ethypharm, a pharmaceutical company, for 2,450 sq.m; and
- Ongoing discussions for a new 12 year lease with a governmental body, for c.400 sq.m of vacant storage accommodation.
Asset management initiatives remaining:
- Implementation of a value-enhancing refurbishment programme, comprising the full renovation of lift lobbies, with completion due in the second half of 2018; and
- Re-gearing future lease expiries to maximise income, limit vacancy and drive unexpired lease profile.
- Acquisition of future floors within the complex provided yield is accretive to return targets
Metromar Shopping Centre, Seville, Spain
(Values refer to 50% interest)
-- Acquired in May 2017 for a purchase price of EUR26.2 million -- Valuation at 30 September 2017: EUR26.5 million -- Lettable area: c.23,000 sq.m -- Investment rationale:
ü Dominant retail offer for the local urban catchment
ü Anchored by grocery and leisure, both relatively immune to e-commerce
ü Attractive capital value per sq.m substantially less than replacement cost
ü Local region is undergoing strong population growth driven by infrastructure improvements
Business plan achievements:
- Advancing discussions with a leisure specialist that will compliment the existing cinema and food offer, whilst creating an additional point of difference relative to competition;
- Removed underperforming restaurant and leased to a burger specialist, strengthening restaurant offer for consumers;
- Obtained proposal to improve brand, signage, wayfaring, lighting and general vibrancy; and
- Discussions to lease the ex Massimo Dutti space to a shoe specialist for which the centre is underweight.
Asset management initiatives remaining:
- Remarketing of the centre to build upon its local dominance; - Leasing remaining restaurant vacancy and improve offer; and - Concluding leasing of Massimo Dutti space.
Finance
The use of leverage is assessed on an asset-by-asset basis, secured only against those properties that are most suitable for debt financing and where financing costs/terms are attractive.
As at 30 September 2017, the Company's total debt was EUR60.4 million across four loan facilities. This represents a loan to value of 25% against the Company's gross asset value.
The loans drawn are secured against the four German properties in Berlin, Frankfurt, Stuttgart and Hamburg, the two French retail assets in Biarritz and Rennes and the Spanish asset in Seville.
The current blended all-in interest rate is 1.3%, significantly below the portfolio yield of approximately 6% p.a.
The average unexpired loan term is 6.8 years.
Maturity Outstanding
Lender Property date principal(EUR)(1) Interest
rate
========================= =================== ============ =================== ===========
Deutsche Pfandbriefbank Berlin/Frankfurt 30/06/2026 16,500,000 1.31%
========================= =================== ============ =================== ===========
Stuttgart/Hamburg 30/06/2023 14,000,000 0.85%
=================== ====================================== =================== ===========
Credit Agricole(1) Biarritz/Rennes 30/07/2023 18,200,000 3M Euribor
+ 1.35%
========================= =================== ============ =================== ===========
Münchener
Hypothekenbank Seville 22/05/2024 11,678,750 1.76%
========================= =================== ============ =================== ===========
Total 60,378,750
============================================================ =================== ===========
(1) All statistics in the Investment Manager's report' reflect a 50% ownership share of Seville and a 70% ownership share of the Biarritz and Rennes investments. As a result, debt allocations for those investments in the table above are similarly proportioned. With regard to debt specifically, further information can be found in notes 12 and of the 2017 Annual Report and the above table includes neither related party transactions nor unamortised fees.
The German and Spanish loans are fixed rate for the duration of the loan term.
The French loan is based on a margin above 3 month Euribor and the Company has acquired an interest rate cap to limit future potential interest costs if Euribor were to increase. The strike rate on the cap is 1.25% p.a. The market value of the interest cap is positive at EUR0.2 million as at the end of September 2017.
Outlook
Since the Company's IPO in December 2015, we have constructed a portfolio of quality investments across the winning cities and regions of Western Europe, such as Berlin, Paris and Seville. The portfolio is well positioned to deliver sustainable income and growth. The Company is currently paying a dividend of 4.4% and continues to target a 5.5% dividend on the euro IPO issue price once fully invested. We have created a balanced and diversified portfolio, having invested in nine properties across eight 'winning cities'. There are identified acquisitions to deploy the remaining capital.
The remaining investment capacity, which totals approximately EUR30 million, will be invested in a manner consistent with the existing strategy. We will continue to combine our approach with our bottom-up real estate expertise to deliver sustainable income returns. Once fully invested we will take a disciplined approach to growth. The key winning cities and regions in continental Europe offer opportunities with increasing demand and only limited supply. Our strategy will seek to increase our allocation to logistics warehouses, with a focus on urban logistics, and the growing demand from e-commerce.
Schroder Real Estate Investment Management Limited
5 December 2017
Principal risks and uncertainties
The Board is responsible for the Company's system of risk management and internal control and for reviewing its effectiveness. The Board has adopted a detailed matrix of principal risks affecting the Company's business as an investment trust and has established associated policies and processes designed to manage and, where possible, mitigate those risks, which are monitored by the Audit and Valuation Committee on an ongoing basis. This system assists the Board in determining the nature and extent of the risks it is willing to take in achieving the Company's strategic objectives. Both the principal risks and the monitoring system are also subject to robust review at least annually. The last review took place in November 2017.
Although the Board believes that it has a robust framework of internal control in place this can provide only reasonable, and not absolute, assurance against material financial misstatement or loss and is designed to manage, not eliminate, risk.
A summary of the principal risks and uncertainties faced by the Company which have remained unchanged throughout the year ended 30 September 2017, and actions taken by the Board and, where appropriate, its Committees, to manage and mitigate these risks and uncertainties, is set out below.
Risk Mitigation and management
================================== ======================================
Strategic
The Company's investment Appropriateness of the
objectives may become out Company's investment remit
of line with the requirements periodically reviewed and
of investors, resulting success of the Company
in a wide discount of the in meeting its stated objectives
share price to underlying monitored.
NAV per share.
Share price relative to
NAV per share monitored.
Marketing and distribution
activity is actively reviewed.
================================== ======================================
Investment management
The Investment Manager's Review of: the Investment
investment strategy, if Manager's compliance with
inappropriate, may result the agreed investment restrictions,
in the Company underperforming investment performance
the market and/or peer and risk against investment
group companies, leading objectives and strategy;
to the Company and its relative performance; the
objectives becoming unattractive portfolio's risk profile;
to investors. and appropriate strategies
employed to mitigate any
negative impact of substantial
changes in markets, including
any potential disruption
to capital markets.
Annual review of the ongoing
suitability of the
Investment Manager.
================================== ======================================
Custody
Safe custody of the Company's Depositary verifies ownership
assets may be compromised and legal entitlement,
through control failures. and reports on safe custody
of the Company's assets,
including cash.
Quarterly report from the
Depositary on its
activities.
================================== ======================================
Gearing and leverage
The Company utilises credit Gearing is monitored and
facilities. These arrangements strict restrictions on
increase the funds available borrowings imposed.
for investment through
borrowing. While this has
the potential to enhance
investment returns in rising
markets, in falling markets
the impact could be detrimental
to performance.
================================== ======================================
Accounting, legal and regulatory
In order to continue to Confirmation of compliance
qualify as an investment with relevant laws and
trust, the Company must regulations by key service
comply with the requirements providers.
of section 1158 of the
Corporation Tax Act 2010.
Shareholder documents and
Breaches of the UK Listing announcements, including
Rules, the Companies Act, the Company's published
or other regulations with Annual Report, are subject
which the Company is required to stringent review processes.
to comply, could lead to
a number of detrimental Procedures established
outcomes. to safeguard against unauthorised
disclosure of inside information.
================================== ======================================
Service provider
The Company has no employees Service providers appointed
and has delegated certain subject to due diligence
functions to a number of processes and with clearly
service providers. Failure documented contractual
of controls and poor performance arrangements detailing
of any service provider service expectations.
could lead to disruption,
reputational damage or Regular reporting by key
loss. service providers and monitoring
of the quality of services
provided.
Review of annual audited
internal controls reports
from key service providers,
including confirmation
of business continuity
arrangements.
================================== ======================================
Risk assessment and internal controls
Risk assessment includes consideration of the scope and quality of the systems of internal control operating within key service providers, and ensures regular communication of the results of monitoring by such providers to the Audit and Valuation Committee, including the incidence of significant control failings or weaknesses that have been identified at any time and the extent to which they have resulted in unforeseen outcomes or contingencies that may have a material impact on the Company's performance or condition. No significant control failings or weaknesses were identified from the Audit and Valuation Committee's ongoing risk assessment which has been in place throughout the financial year and up to the date of this Report.
A full analysis of the financial risks facing the Company is set out in note 20 on pages 73 to 78 of the 2017 Annual Report.
Viability statement
The Board is required to give a statement on the Company's viability which considers the Company's current position and principal risks and uncertainties together with an assessment of future prospects.
The Board conducted this review over a five year time horizon which is selected to match the period over which the Board monitors and reviews its financial performance and forecasting. The Investment Manager prepares five year total return forecasts for the Continental European commercial real estate market. The Investment Manager uses these forecasts as part of analysing acquisition opportunities as well as for its annual asset level business planning process. At the annual strategy day and Investment Manager visit the Board receives an overview of the asset level business plans which the Investment Manager uses to assess the performance of the underlying portfolio and therefore make investment decisions such as disposals and investing capital expenditure. The Company's principal borrowings are for a weighted duration of 6.8 years and the average unexpired lease term, assuming all tenants vacate at the earliest opportunity, is 6.8 years.
The Board's assessment of viability considers the principal risks and uncertainties faced by the Company, as detailed in the Strategic review on pages 23 and 24 of the 2017 Annual Report, which could negatively impact its ability to deliver the investment objective, strategy, liquidity and solvency. This includes consideration of a cash flow model prepared by the Investment Manager that analyses the sustainability of the Company's cash flows, dividend cover, compliance with bank covenants, and general liquidity requirements for a five year period.
Based on the assessment, the Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the five year period of their assessment.
Going concern
The Directors have examined significant areas of possible financial risk and have reviewed cash flow forecasts and compliance with the debt covenants, in particular the loan to value covenant and interest cover ratio. They have not identified any material uncertainties which would cast significant doubt on the Group's ability to continue as a going concern for a period of not less than twelve months from the date of the approval of the financial statements. The Directors have satisfied themselves that the Group has adequate resources to continue in operational existence for the foreseeable future.
After due consideration, the Board believes it is appropriate to adopt the going concern basis in preparing the financial statements.
Statement of Directors' responsibilities
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group and Company financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group and Company for that period. In preparing these financial statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently; -- make judgments and accounting estimates that are reasonable and prudent;
-- state whether applicable Accounting Standards, IFRS as adopted by the European Union, have been followed, subject to any material departures disclosed and explained in the financial statements; and
-- prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements and the Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS regulation. They are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Investment Manager is responsible for the maintenance and integrity of the Company's webpage. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Each of the Directors, whose names and functions are listed on page 26 of the 2017 Annual Report, confirm that to the best of their knowledge:
-- the financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and net return of the Group and the undertakings included in the consolidation taken as a whole;
-- the Strategic Report contained in the Report and Accounts includes a fair review of the development and performance of the business and the position of the Group and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that it faces; and
-- the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and Company's position and performance, business model and strategy.
Consolidated and Company Statement of Comprehensive Income
For the year ended 30 September 2017
Group Group Company Company
30/09/17 30/09/16 30/09/17 30/09/16
EUR000 EUR000 EUR000 EUR000
Rental and service
charge income 17,296 4,891 - -
Property operating
expenses (5,527) (969) - -
Net rental and related
income 11,769 3,922 - -
----------------------------- --------- ---------- ---------- ----------
Net gain/(loss) from
fair value adjustment
on investment property 4,284 (4,537) - -
Realised loss on foreign
exchange (4) (101) (4) (101)
Net change in fair
value of financial
instruments at fair
value through profit
or loss 72 (60) - -
Management fees receivable - - 1,761 -
Expenses
Investment management
fee (1,849) (1,402) (1,849) (1,402)
Valuers' and other
professional fees (666) (425) (298) (127)
Administrator's and
accounting fees (306) (185) (135) (114)
Auditors' remuneration (280) (161) (265) (139)
Directors' fees (120) (129) (120) (129)
Other expenses (291) (122) (93) (88)
Total expenses (3,512) (2,424) (2,760) (1,999)
----------------------------- --------- ---------- ---------- ----------
Operating profit/(loss)
before net finance
costs 12,609 (3,200) (1,003) (2,100)
Finance income 174 5 12 5
Finance costs (918) (157) - -
Net finance (costs)/income (744) (152) 12 5
Share of loss of joint (185) - - -
venture
Profit/(loss) before
taxation 11,680 (3,352) (991) (2,095)
Taxation (505) (47) - -
Profit/(loss) after
taxation 11,175 (3,399) (991) (2,095)
----------------------------- --------- ---------- ---------- ----------
Attributable to:
Owners of the parent 10,288 (2,516) (991) (2,095)
Non-controlling interests 887 (883) - -
----------------------------- --------- ---------- ---------- ----------
11,175 (3,399) (991) (2,095)
---------------------------- --------- ---------- ---------- ----------
Basic and diluted
earnings/(loss) per
share attributable
to owners of the parent 7.7c (2.1c) - -
----------------------------- --------- ---------- ---------- ----------
Consolidated and Company Statement of Comprehensive
Income
For the year ended 30 September 2017
Group Group Company Company
30/09/17 30/09/16 30/09/17 30/09/16
EUR000 EUR000 EUR000 EUR000
---------------------------- --------- ---------- ---------- ----------
Profit/(loss) for
the year 11,175 (3,399) (991) (2,095)
Other comprehensive
loss items that may
be reclassified to
profit or loss:
Currency translation
differences (3) (226) (3) (226)
----------------------------- --------- ---------- ---------- ----------
Total other comprehensive
loss (3) (226) (3) (226)
Total comprehensive
profit/(loss) for
the year 11,172 (3,625) (994) (2,321)
Attributable to:
Owners of the parent 10,285 (2,742) (994) (2,321)
Non-controlling interests 887 (883) - -
----------------------------- --------- ---------- ---------- ----------
11,172 (3,625) (994) (2,321)
---------------------------- --------- ---------- ---------- ----------
All items in the above statement are derived from continuing operations.
Consolidated and Company Statement of Financial Position
As at 30 September 2017
Group Group Company Company
30/09/2017 30/09/2016 30/09/2017 30/09/2016
EUR000 EUR000 EUR'000 EUR'000
--------- -------- ----------- ----------- -----------
Assets
Non-current assets
Investment property 202,563 165,365 - -
Investment in subsidiaries - - 118,583 118,583
Investment in joint 6,290 - - -
ventures
Loans to joint ventures 10,035 - - -
Non-current assets 218,888 165,365 118,583 118,583
------------------------------------------- -------- ----------- ----------- -----------
Current assets
Trade and other receivables 2,063 2,377 34,688 34,179
Interest rate derivative
contracts 273 200 - -
Cash and cash equivalents 28,521 58,476 14,583 6,068
------------------------------------------- -------- ----------- ----------- -----------
Current assets 30,857 61,053 49,271 40,247
------------------------------------------- -------- ----------- ----------- -----------
Total assets 249,745 226,418 167,854 158,830
=========================================== ======== =========== =========== ===========
Equity
Share capital 15,167 13,994 15,167 13,994
Share premium 30,215 14,882 30,216 14,882
Retained earnings/(accumulated
losses) 650 (3,486) (10,437) (3,291)
Other reserves 132,294 132,370 132,522 132,595
------------------------------------------- -------- ----------- ----------- -----------
178,326 157,760 167,468 158,180
Non-controlling interests 7,691 6,804 - -
------------------------------------------- -------- ----------- ----------- -----------
Total equity 186,017 164,564 167,468 158,180
------------------------------------------- -------- ----------- ----------- -----------
Liabilities
Non-current liabilities
Interest-bearing loans
and borrowings 58,772 58,724 - -
Deferred tax liability 473 30 - -
------------------------------------------- -------- ----------- ----------- -----------
Non-current liabilities 59,245 58,754 - -
------------------------------------------- -------- ----------- ----------- -----------
Current liabilities
Trade and other payables 4,483 3,084 386 650
Current tax liabilities - 16 - -
Current liabilities 4,483 3,100 386 650
------------------------------------------- -------- ----------- ----------- -----------
Total liabilities 63,728 61,854 386 650
------------------------------------------- -------- ----------- ----------- -----------
Total equity and liabilities 249,745 226,418 167,854 158,830
=========================================== ======== =========== =========== ===========
Net Assets Value per
Ordinary Share 133.3c 130.1c 125.2c 130.5c
------------------------------------------- -------- ----------- ----------- -----------
Consolidated and Company Statement of Changes in Equity
For the year ended 30 September 2017
Retained
Group earnings/ Non-controlling
Share Share (accumulated Other interests Total
capital premium losses) reserves Sub-total equity
EUR000 EUR000 EUR000 EUR000 EUR000 EUR'000 EUR'000
------------------ ---------- ---------- -------------- ----------- ------------ ----------------- ---------
Balance as at - - - - - - -
1 October 2015
Loss for the year - - (2,516) - (2,516) (883) (3,399)
Other
comprehensive
loss for the year - - - (226) (226) - (226)
Dividends paid - - (970) - (970) - (970)
New equity
issuance 16,576 149,873 - (4,977) 161,472 - 161,472
Share premium
reduction - (122,157) - 122,157 - - -
Unrealised foreign
exchange (2,582) (12,834) - 15,416 - - -
Investments from
non-controlling
interests - - - - - 7,687 7,687
Balance as at
30 September 2016 13,994 14,882 (3,486) 132,370 157,760 6,804 164,564
Profit for the
year - - 10,288 - 10,288 887 11,175
Other
comprehensive
loss for the year - - - (3) (3) - (3)
Dividends paid - - (6,152) - (6,152) - (6,152)
New equity
issuance 1,390 15,288 - (245) 16,433 - 16,433
Unrealised foreign
exchange (217) 45 - 172 - - -
Balance as at
30 September 2017 15,167 30,215 650 132,294 178,326 7,691 186,017
------------------- ---------- ---------- -------------- ----------- ------------ ----------------- ---------
Company Non-controlling
Share Share Accumulated Other interests
capital premium losses* reserves* Sub-total Total
EUR000 EUR000 EUR000 EUR000 EUR000 EUR'000 EUR'000
------------------ ---------- ---------- -------------- ------------ ------------ ----------------- --------
Balance as at - - - - - - -
1 October 2015
Total
comprehensive loss for the year - - (2,321) - (2,321) - (2,321) Dividends paid - - (970) - (970) - (970) New equity issuance 16,576 149,873 - (4,978) 161,471 - 161,471 Share premium reduction - (122,157) - 122,157 - - - Unrealised foreign exchange (2,582) (12,834) - 15,416 - - - Balance as at 30 September 2016 13,994 14,882 (3,291) 132,595 158,180 - 158,180 Total comprehensive loss for the year - - (994) - (994) - (994) Dividends paid - - (6,152) - (6,152) - (6,152) New equity issuance 1,390 15,289 - (245) 16,434 - 16,434 Unrealised foreign exchange (217) 45 - 172 - - - Balance as at 30 September 2017 15,167 30,216 (10,437) 132,522 167,468 - 167,468 ------------------- ---------- ---------- -------------- ------------ ------------ ----------------- --------
*These reserves form the distributable reserves of the Company and may be used for to fund distribution of profits to investors via dividends payments.
Consolidated and Company Statement of Cash Flows
For the year ended 30 September 2017
Group Group Company Company
30/09/2017 30/09/2016 30/09/2017 30/09/2016
EUR'000 EUR'000 EUR'000 EUR'000
Operating activities
Profit/(loss) before
tax for the year 11,680 (3,352) (991) (2,095)
Adjustments for:
Net valuation gain/(loss)
on fair value adjustment
in investment property (4,284) 4,537 - -
Share of loss of 185 - - -
joint venture
Realised foreign
exchange losses 4 101 4 101
Finance income (174) (5) (12) (5)
Finance expense 918 157 - -
Movement in fair
value of interest
rate derivative contracts (72) 60 - -
Operating cash generated
from/(used in) before
changes in working
capital 8,257 - (999) -
Decrease/(increase)
in trade and other
receivables 434 (2,376) (509) (422)
Increase/(decrease)
in trade and other
payables 1,647 2,728 (264) 644
--------------------------------------- ----------- ----------- ----------- -----------
Cash generated from/(used
in) operations 10,338 1,850 (1,772) (1,777)
Finance costs paid (751) (903) - -
Finance income received 9 - 12 -
Tax paid (145) - - -
---------------------------------- --- ----------- ----------- ----------- -----------
Net cash generated
from/(used in) operating
activities 9,451 692 (1,760) (1,772)
--------------------------------------- ----------- ----------- ----------- -----------
Investing activities
Acquisition of investment
property (33,171) (169,647) - -
Investment in subsidiaries - - - (118,583)
Investment in joint (16,510) - - -
ventures
Loans to subsidiary
companies - - - (33,757)
Net cash used in
investing activities (49,681) (169,647) - (152,340)
--------------------------------------- ----------- ----------- ----------- -----------
Financing activities
Proceeds from borrowings - 56,500 - -
Proceeds from borrowings - 10,753 - -
- non-controlling
interest
Repayment of borrowings
- non-controlling
interest
- (7,689) - -
New equity - non - 7,687 - -
controlling interest
Share issue net proceeds 16,434 161,477 16,434 161,477
Dividends paid (6,152) (970) (6,152) (970)
--------------------------------------- ----------- ----------- ----------- -----------
Net cash generated
from financing activities 10,282 227,758 10,282 160,507
--------------------------------------- ----------- ----------- ----------- -----------
Net (decrease)/increase
in cash and cash
equivalents for the
year (29,948) 58,803 8,522 6,395
--------------------------------------- ----------- ----------- ----------- -----------
Opening cash and
cash equivalents 58,476 - 6,068 -
--------------------------------------- ----------- ----------- ----------- -----------
Effects of exchange
rate changes on cash
and cash equivalents (7) (327) (7) (327)
--------------------------------------- ----------- ----------- ----------- -----------
Closing cash and
cash equivalents 28,521 58,476 14,583 6,068
--------------------------------------- ----------- ----------- ----------- -----------
Notes to the Financial Statements
1. Significant accounting policies
Schroder European Real Estate Investment Trust plc ("the Company") is a closed-ended investment company incorporated in England & Wales. The consolidated financial statements of the Company for the year ended 30 September 2017 comprise those of the Company and its subsidiaries (together referred to as the "Group"). The Group holds a portfolio of investment properties in continental Europe. 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 31 Gresham Street, London, EC2V 7QA.
Statement of compliance
The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union and interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC"), and therefore comply with article 4 of the EU IAS regulation, and in accordance with the Companies Act 2006.
The financial statements give a true and fair view and are in compliance with applicable legal and regulatory requirements and the Listing Rules of the UK Listing Authority.
Basis of preparation
The 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 flows of the entities included in the consolidated financial statements.
Going concern
The Directors have examined significant areas of possible financial risk including cash and cash requirements and the debt covenants. The Directors have not identified any material uncertainties which would cast significant doubt on the Group's ability to continue as a going concern for a period of not less than twelve months from the date of the approval of the financial statements. The Directors have satisfied themselves that the Group has adequate resources to continue in operational existence for the foreseeable future.
Use of estimates and judgements
The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. These estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.
The most significant estimates made in preparing these financial statements relate to the carrying value of investment properties, including those within joint ventures, which are stated at fair value. The Group uses external professional valuers to determine the relevant amounts. Judgements made by management in the application of IFRS that have a significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are disclosed in note 20 of the 2017 Annual Report.
Basis of consolidation
Subsidiaries
The consolidated financial statements comprise the financial statements of the Company and all of its subsidiaries drawn up to 30 September each year. Subsidiaries are those entities, including special purpose entities, controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Where properties are acquired by the Group through corporate acquisitions but the acquisition does not meet the definition of a business combination, the acquisition has been treated as an asset acquisition.
Non-controlling interests
Non-controlling interests are recognised on the basis of their share in the recognised amounts of a subsidiary's identifiable net assets. On the balance sheet non-controlling interests are presented separately from the equity of the owners of the Parent. Profit or loss and total comprehensive income for the period attributable to non-controlling interests are presented separately in the income statement and the statement of comprehensive income.
Transactions eliminated on consolidation
Intra-group balances, and any gains and losses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Gains arising from transactions with joint ventures are eliminated to the extent of the Group's interest in the entity. Losses are eliminated in the same way as gains but only to the extent that there is no evidence of impairment. Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statement of profit or loss, statement of comprehensive income, statement of changes in equity and balance sheet respectively.
Joint arrangements
Under IFRS 11 Joint Arrangements, the Company's investments in joint arrangements are classified as joint ventures. Interests in joint ventures are accounted for using the equity method, after initially being recognised at cost in the consolidated balance sheet.
Under the equity method of accounting, the investments are initially recognised at cost and adjusted thereafter to recognise the Group's share of the post-acquisition profits or losses of the investee in profit or loss, and the Group's share of movements in other comprehensive income of the investee in other comprehensive income.
When the Group's share of losses in an equity-accounted investment equals or exceeds its interest in the entity, including any other unsecured long-term receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the other entity. Unrealised gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group's interest in these entities. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
Investment property
Investment property is land and buildings held to earn rental income together with the potential for capital growth.
Acquisitions and disposals are recognised on unconditional exchange of contracts. Acquisitions are initially recognised at cost, being the fair value of the consideration given, including transaction costs associated with the investment property.
After initial recognition, investment properties are measured at fair value, with unrealised gains and losses recognised in profit and loss. Realised gains and losses on the disposal of properties are recognised in profit and loss in relation to carrying value. Fair value is based on the market valuations of the properties as provided by a firm of independent chartered surveyors, at the reporting date. Market valuations are carried out on a quarterly basis.
As disclosed in note 22, the Group leases out all owned properties on operating leases. A property held under an operating lease is classified and accounted for as an investment property where the Group holds it to earn rentals, capital appreciation, or both. Any such property leased under an operating lease is classified as an investment property and carried at fair value.
Prepayments
Prepayments are carried at cost less any accumulated impairment losses.
Borrowing costs
Borrowing costs are charged in full to the Statement of Comprehensive Income as incurred.
Leases
Leases in which a significant portion of the risks and rewards of ownership are retained by another party, the lessor, are classified as operating leases. Payments, including prepayments, made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease. Properties leased out under operating leases are included in investment properties.
Properties leased out under operating leases are included in investment property in the Consolidated Statement of Financial Position (Note 10 of the 2017 Annual Report).
Financial assets and liabilities
Non-derivative financial instruments
Assets
Non-derivative financial instruments comprise trade and other receivables and cash and cash equivalents. These are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition they are measured at amortised cost using the effective interest rate method less any impairment losses.
Trade and other receivables
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost less provision for impairment.
Cash and cash equivalents
Cash at bank and short-term deposits that are held to maturity are carried at cost. Cash and cash equivalents are defined as cash in hand, demand deposits and short-term, highly liquid investments readily convertible to known amounts of cash and subject to insignificant risk of changes in value. For the purposes of the Statement of Cash Flows, cash and cash equivalents consist of cash in hand and short-term deposits at banks with a term of no more than three months.
Liabilities
Non-derivative financial instruments comprise loans and borrowings and trade and other payables.
Loans and borrowings
Borrowings are recognised initially at fair value of the consideration received less attributable transaction costs. Subsequent to initial recognition, interest bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the profit and loss over the period of the borrowings on an effective interest basis.
Trade and other payables
Financial liabilities included in trade and other payables are recognised initially at fair value and subsequently at amortised cost. The fair value of a non-interest bearing liability is its discounted repayment amount. If the due date of the liability is less than one year, discounting is omitted.
Derivative financial assets and liabilities comprise of an interest rate cap for hedging purposes (economic hedge). The Group does not apply hedge accounting in accordance with IAS 39. Recognition of the derivative financial instruments takes place when the economic hedging contracts are entered into. They are measured initially and subsequently at fair value; transaction costs are included directly in finance costs. Gains or losses on derivatives are recognised in the profit or loss in net change in fair value of financial instruments at fair value through profit or loss.
Share capital
Ordinary shares, including treasury shares, are classified as equity when there is no obligation to transfer cash or other assets.
Share premium
Share premium represents the excess of proceeds received over the nominal value of new shares issued.
Other reserves
Other reserves mainly consists of a share premium reduction reserve arising from the conversion of share premium into a distributable reserve and unrealised currency exchange gains and losses arising on the revaluation of Sterling denominated share capital and share premium at the balance sheet date.
Dividends
Final dividends to the Company's shareholders are recognised as a liability in the Group's financial statements in the period in which the dividends are approved by the Company's shareholders. Interim dividends are recognised when paid.
Impairment
Financial assets
A financial asset, other than those at fair value through profit and loss, is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate.
Significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognised in the profit and loss.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost, the reversal is recognised in the profit and loss.
Non-financial assets
The carrying amounts of the Group's non-financial assets, other than investment property but including joint ventures, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to that asset.
For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the "cash-generating unit").
An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognised in the profit and loss.
Revenue
Rental income
Rental income from operating leases is recognised on a straight-line basis over the lease term. When the Group provides incentives to its tenants, the cost of incentives is recognised over the lease term, on a straight-line basis, as a reduction of rental income.
Service charges
Revenue from service charges is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances, rebates and amounts collected on behalf of third parties.
The Group recognises revenue when the amount of revenue can be reliably measured; it is probable that future economic benefits will flow to the entity; and specific criteria have been met for each of the Group's activities as described below. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.
Service charges are recognised in the accounting period in which the services are rendered.
Finance income and expenses
Finance income comprises interest income on funds invested that are recognised in the profit and loss. Interest income is recognised on an accruals basis.
Finance expenses comprise interest expense on borrowings that are recognised in profit and loss. Attributable transaction costs incurred in establishing the Group's credit facilities are deducted from the fair value of borrowings on initial recognition and are amortised over the lifetime of the facilities through profit and loss. Finance expenses are accounted for on an effective interest basis.
Expenses
All expenses are accounted for on an accruals basis. They are recognised in profit or loss in the year in which they are incurred on an accruals basis.
Taxation
The Company and its subsidiaries are subject to income tax on any income arising on investment properties after deduction of debt financing costs and other allowable expenses.
Income tax on the profit or loss for the year comprises current and deferred tax. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the reporting date, and any adjustment to tax payable in respect of previous periods.
Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax is determined using tax rates (and laws) that have been enacted, or substantially enacted, by the date of the statement of financial position and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.
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.
Foreign currency translation
Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the "functional currency").
The functional currency of all the entities in the Group is the euro, as this is the currency in which the majority of investment takes place and in which the majority of income and expenses are incurred. The financial statements are also presented in euros.
Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the date of the transaction.
Foreign exchange gains and losses resulting from the settlement of such transactions are recognised in profit or loss in the Statement of Comprehensive Income.
Assets and liabilities held at the end of the reporting period are translated into the presentation currency at the exchange rate prevailing at that date. Foreign exchange differences arising on translation to the presentation currency are recognised in other comprehensive income in the Statement of Comprehensive Income.
Equity held at the end of the reporting period is translated into the presentation currency at the exchange rate prevailing at that date. Foreign exchange differences arising on translation to the presentation currency are recognised within Equity.
2. New standards and interpretations
The Group has applied the following standards and amendments for the first time for their annual reporting period commencing 1 October 2016:
-- Accounting for acquisitions of interests in joint operations - Amendments to IFRS 11
-- Annual improvements to IFRSs 2012-2014 cycle
-- Disclosure initiative - Amendments to IAS 1
No new standards, amendments or interpretations, effective for the first time for the financial year beginning on or after 1 January 2017, have had a material impact on the Group or Company.
New standards and interpretations not yet adopted
A number of new standards and amendments to standards and interpretations are effective for annual periods beginning on or after 1 January 2017, and have not been applied in preparing these consolidated financial statements. None of these are expected to have a significant effect on the consolidated financial statements of the Group, except the following set out below:
IAS 12, 'Income taxes' was amended to clarify the accounting for deferred tax where an asset is measured at fair value and that fair value is below the asset's tax base. This amendment is effective for annual periods beginning on or after 1 January 2017. The Group does not expect the amendment to have a material impact on its financial statements since fair value exceeds the cost for almost all of its investment properties. The Group is monitoring fair value movements below cost to assess the impact of the amendment in future periods.
IFRS 9, 'Financial instruments', addresses the classification, measurement and recognition of financial assets and financial liabilities. The standard is effective for accounting periods beginning on or after 1 January 2018. Early adoption is permitted. The Group is still assessing the impact of IFRS 9 and expects it to have an immaterial impact on the accounting for available-for-sale financial assets and derivatives.
IFRS 15, 'Revenue from contracts with customers' deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. The standard is effective for annual periods beginning on or after 1 January 2018 and earlier application is permitted. The Group is still assessing the impact of IFRS 15 and expects it to have an immaterial impact on its current accounting practices.
IFRS 16, 'Leases' was issued in January 2016. For lessees, it will result in almost all leases being recognised on the statement of financial position, as the distinction between operating and finance leases will be removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term and low-value leases. The accounting for lessors will not significantly change. The standard is effective for annual periods beginning on or after 1 January 2019 and earlier application is permitted. The Group is still assessing the impact of IFRS 16 expects it to have an immaterial impact on its current accounting practices.
There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group.
3. Material agreements
Schroder Real Estate Investment Management Limited ('SREIM') is the Investment Manager to the Company. The Investment Manager is entitled to a fee together with reasonable expenses incurred in the performance of its duties. The fee is payable monthly in arrears and shall be an amount equal to one twelfth of the aggregate of 1.1% of the EPRA NAV of the Company. The Investment Management Agreement can be terminated by either party on not less than twelve 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 year was EUR1,849,000 (2016: EUR1,402,000). At the year end EUR125,000 (2016: EUR438,000) was outstanding.
SREIM provides accounting services to the Group with a contracted annual charge of GBP70,000. The total charge to the Group was EUR79,000 (2016: EUR67,000). At the year end EUR7,000 (2016: EUR20,000) was outstanding.
SREIM provides administrative and company secretarial services to the Group with a contracted annual charge of GBP50,000. The total charge to the Group was EUR56,000 (2016: EUR48,000). At the year end EUR5,000 (2016: EUR14,000) was outstanding.
Details of Directors' fees are disclosed in Note 6 of the 2017 Annual Report.
Details of loans from Mercialys, a related party, are disclosed in Note 17 of the 2017 Annual Report.
Details of loans to Urban SEREIT Holdings Spain S.L., a related party, are disclosed in Note 12 of the 2017 Annual Report.
The Company received management fees of EUR1,761,000 (2016: EURNil) from subsidiary companies during the year.
4. Property operating expenses
Group Group Company Company
30/09/2017 30/09/2016 30/09/2017 30/09/2016
EUR000 EUR000 EUR000 EUR000
-------------------------- ----------- ----------- ----------- -----------
Repairs and maintenance 1,360 67 - -
Service charge,
insurance and utilities
on vacant units 2,718 615 - -
Real estate taxes 1,075 230 - -
Property management
fees 269 53 - -
Other 105 4 - -
--------------------------- ----------- ----------- ----------- -----------
5,527 969 - -
-------------------------- ----------- ----------- ----------- -----------
5. Auditors' remuneration
The Group's total audit fees for the year are EUR280,000 (2016: EUR161,000).
Non-audit fees charged to the Group by the auditors during the year were EUR4,000 (2016: EUR129,000)
6. Other expenses
Group Group Company Company
30/09/2017 30/09/2016 30/09/2017 30/09/2016
EUR000 EUR000 EUR000 EUR000
---------------------- ----------- ----------- ----------- -----------
Directors' and
officers' insurance
premium 10 9 9 9
Bank charges 45 - 7 -
Regulatory costs 32 25 7 12
Marketing 28 8 28 8
Professional fees - 11 - 11
Other expenses 176 69 42 48
291 122 93 88
---------------------- ----------- ----------- ----------- -----------
Directors' fees
Directors are the only officers of the Company and there are no other key personnel. The Directors' annual remuneration for services to the Group was GBP95,366 (2016: GBP97,458), as set out in the Remuneration Report on pages 37 to 39 of the 2017 Annual Report. The total charge for directors fees was EUR120,000 (2016: EUR129,000), which included employer's national insurance contributions.
7. Taxation
30/09/2017 30/09/2016
EUR000 EUR000
Current tax charge 62 17
Deferred tax charge 443 30
-------------------------------------- ----------- -----------
Tax expense in year 505 47
-------------------------------------- ----------- -----------
Reconciliation of effective
tax rate
Profit/(loss) before taxation 11,680 (3,352)
---------------------------------- ----------- -----------
Effect of:
Tax charge/(credit) at weighted
average corporation tax rate
of 18.88% (2016 - 25.44%) 2,205 (853)
Tax exempt income (1,831) -
Tax effect on net revaluation
loss - 1,169
Current year loss for which 205 -
no deferred tax is recognised
Tax effect of share of joint 46 -
venture loss
Minimum Luxembourg tax charges 62 17
Deferred tax charge on profits - 30
Other permanent differences (182) (316)
Total tax expense in the
year 505 47
---------------------------------- ----------- -----------
A potential deferred tax asset of EUR17,000 arose on tax losses which has not been provided for.
A deferred tax charge of EUR443,000 (2016: EUR30,000) was provided in relation to investment property revaluation gains, and the deferred tax liability at the year end was EUR473,000 (2016: EUR30,000).
8. Earnings per share
Basic earnings per share
The basic earnings/(loss) per share for the Group is calculated by dividing the net profit/(loss) after tax attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares in issue during the year.
30/09/2017 30/09/2016
Net profit/(loss) attributable
to shareholders EUR10,288,000 (EUR2,516,000)
Weighted average number of
ordinary shares in issue 132,775,782 118,319,687
Basic earnings/(loss) per
share (cents per share) 7.7 (2.1)
The prior year net loss attributable to shareholders and basic loss per share amounts have been restated to EUR2,516,000 and 2.1 cents per share respectively. This is due to a misstatement clerical error within the 2016 annual report and accounts.
Diluted earnings per share
The Group has no dilutive potential ordinary shares, hence the diluted earnings/(loss) per share is the same as the basic earnings/(loss) per share in 2016 and 2017.
Headline earnings per share
The headline earnings and diluted headline earnings for the Group is 5.2 euro cents per share (2016: 0.7 euro cents per share) as detailed on page 82 of the 2017 Annual Report.
9. Dividends paid
Interim dividends of EUR6,152,000 (2016: EUR970,000) were paid to shareholders during the year as follows.
Ordinary Rate 30/09/2017
In respect of Shares (cents) EUR000
--------------------------- ------------- -------- -----------
Interim dividend paid on
27(th) January 2017 133,734,686 0.9 1,204
Interim dividend paid on
17(th) March 2017 133,734,686 1.0 1,337
Interim dividend paid on
7th July 2017 133,734,686 1.2 1,605
Interim dividend paid on
1(st) September 2017 133,734,686 1.5 2,006
--------------------------- ------------- -------- -----------
Total interim dividends
paid 6,152
--------------------------- ------------- -------- -----------
10. Investment property
Group
Leasehold Freehold Total
----------------------------------
EUR000 EUR000 EUR000
---------------------------------- ---------- --------- --------
Fair value as at 1 October
2016 - 165,365 165,365
---------------------------------- ---------- --------- --------
Property acquisitions - 29,928 29,928
Acquisition costs - 2,986 2,986
Net valuation gain on investment
property - 4,284 4,284
Fair value as at 30 September
2017 - 202,563 202,563
---------------------------------- ---------- --------- --------
Fair value of investment properties as determined by the valuer totals EUR202,700,000 (2016: EUR165,500,000). The fair value of investment properties disclosed above includes a tenant incentive adjustment of EUR137,000 (2016: EUR135,000).
The net valuation gain on investment property of EUR4,284,000 consists of net property revaluation gains of EUR4,286,000 and a movement of the above mentioned tenant incentive adjustment of EUR2,000.
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 valuation has been undertaken in accordance with the RICS Valuation - Professional Standards January 2014 Global and UK Edition, issued by the Royal Institution of Chartered Surveyors (the "Red Book") including the International Valuation Standards.
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 year. Investment properties have been classed according to their real estate sector. Information on these significant unobservable inputs per class of investment property is disclosed below:
Some of the investment properties are leased to tenants under long-term operating leases with rentals payable monthly.
Quantitative information about fair value measurement using unobservable inputs (Level 3) as at 30 September.
Retail (incl. Office Total
retail
2017 warehouse)
-------------- ------------------- -------------- ------------ --------
Fair value
(EUR000) 148,300 107,300 255,600
----------------------------------- -------------- ------------ --------
Area
('000 sq.m) 73.330 35.504 108.834
----------------------------------- -------------- ------------ --------
Net passing Range 94.73 - 131.03 - 94.73 -
rent EUR 145.32 344.63 344.63
per sqm
per annum
Weighted average 118.92 240.86 170.11
(2)
---------------------------------- -------------- ------------ --------
Gross ERV Range 97.39 - 126.12 - 97.39 -
per sqm 185.61 413.10 413.10
per annum
Weighted average 139.03 265.45 192.10
(2)
---------------------------------- -------------- ------------ --------
Net initial Range 4.62 - 5.62 4.59 - 8.96 4.59 -
yield (1) 8.96
Weighted average 5.29 6.43 5.77
(2)
---------------------------------- -------------- ------------ --------
Equivalent Range 4.60 - 5.93 4.47 - 7.25 4.47 -
yield 7.25
Weighted average 5.49 5.46 5.48
(2)
---------------------------------- -------------- ------------ --------
Notes:
(1) Yields based on rents receivable after deduction of head rents and non-recoverables
(2) Weighted by market value
(3) This table includes the Joint Venture investment property valued at EUR52.9 million which is disclosed within the summarised information within note 12 of the 2017 Annual Report as part of total assets
2016 Retail (incl. Office Total
retail warehouse)
-------------- ------------------- ------------------- ---------- --------
Fair value
(EUR000) 94,000 71,500 165,500
----------------------------------- ------------------- ---------- --------
Area
('000 sq.m) 50.273 19.686 69.959
----------------------------------- ------------------- ---------- --------
Net passing Range 94.73 - 27.78 - 27.78 -
rent EUR 145.32 340.64 340.64
per sq.m
per annum
Weighted average 108.67 234.96 163.25
(2)
---------------------------------- ------------------- ---------- --------
Gross ERV Range 96.45 - 126.12 96.45 -
per sq.m 157.80 - 409.91 409.91
per annum
Weighted average 112.77 291.70 190.07
(2)
---------------------------------- ------------------- ---------- --------
Net initial Range 4.62 - 5.81 1.00 - 1.00 -
yield (1) 6.06 6.06
Weighted average 5.28 4.55 4.96
(2)
---------------------------------- ------------------- ---------- --------
Equivalent Range 4.60 - 6.02 4.60 - 4.60 -
yield 5.26 6.02
Weighted average 5.31 4.74 5.06
(2)
---------------------------------- ------------------- ---------- --------
Notes:
(1) Yields based on rents receivable after deduction of head rents and non-recoverables
(2) Weighted by market value
Sensitivity of measurement to variations in the significant unobservable inputs
The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy of the Group's property portfolio, together with the impact of significant movements in these inputs on the fair value measurement, are shown below:
Impact on fair Impact on fair
Unobservable input value measurement value measurement
of significant of significant
increase in input 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 are shown below:
Estimated movement in fair Retail Office Total value of investment properties EUR'000 EUR'000 EUR'000 at 30 September 2017 ---------------------------------- ---------- ---------- ---------- Increase in ERV by 5% 5,200 4,600 9,800 ---------------------------------- ---------- ---------- ---------- Decrease in ERV by 5% -5,200 -4,950 -10,150 ---------------------------------- ---------- ---------- ---------- Increase in net initial yield by 0.25% -6,700 -5,750 -12,450 ---------------------------------- ---------- ---------- ---------- Decrease in net initial yield by 0.25% 7,350 5,900 13,250 ---------------------------------- ---------- ---------- ----------
11. Investment in subsidiaries
Company 2017 2016
EUR000 EUR000
Balance as at 1 October 118,583 -
-------------------------------------------------------- ------------ -----------
Additions - 118,583
Balance as at 30 September 118,583 118,583
-------------------------------------------------------- ------------ -----------
The subsidiary companies listed below are those
which were part of the Group at 30 September 2017.
Unless otherwise stated, they have share capital
consisting solely of ordinary shares that are
held directly by the Group, and the proportion
of ownership of interests held equals the voting
rights held by the Group.
Country Group
Undertaking of incorporation ownership Registered office
address
----------------- ------------------ ----------- -----------------------
SEREIT (Jersey) Jersey 100% 22 Grenville Street,
Limited St Helier, Jersey,
Channel Islands,
JE4 8PX
----------------- ------------------ ----------- -----------------------
SEREIT Finance Luxembourg 100% 5, rue Hohenhof L-1736
Sàrl Senningerberg
----------------- ------------------ ----------- -----------------------
SEREIT Holdings Luxembourg 100% 5, rue Hohenhof L-1736
Sàrl Senningerberg
----------------- ------------------ ----------- -----------------------
OPPCI SEREIT France 100% 13 Avenue de l'Opera,
France 75001 Paris
----------------- ------------------ ----------- -----------------------
SCI Rennes France 70% 8-10 rue Lamennais,
Anglet 75008 Paris
----------------- ------------------ ----------- -----------------------
SCI 221 Jean France 100% 8-10 rue Lamennais,
Jaures 75008 Paris
----------------- ------------------ ----------- -----------------------
SEREIT Berlin Luxembourg 100% 5, rue Hohenhof L-1736
DIY Sàrl Senningerberg
----------------- ------------------ ----------- -----------------------
SEREIT Hamburg Luxembourg 100% 5, rue Hohenhof L-1736
Sàrl Senningerberg
----------------- ------------------ ----------- -----------------------
SEREIT Stuttgart Luxembourg 100% 5, rue Hohenhof L-1736
Sàrl Senningerberg
----------------- ------------------ ----------- -----------------------
SEREIT Frankfurt Luxembourg 100% 5, rue Hohenhof L-1736
Sàrl Senningerberg
----------------- ------------------ ----------- -----------------------
SCI SEREIT France 100% 8-10 rue Lamennais,
Directoire 75008 Paris
----------------- ------------------ ----------- -----------------------
The non-controlling interest within these financial
statements relates to the 30% minority holding
of SCI Rennes Anglet. The table below shows details
of this non-wholly-owned subsidiary of the Group.
Summarised non-wholly-owned subsidiary
financial information: 2017 2016
EUR000 EUR000
--------------------------------------------------------------------- -----------
Total assets 62,243 58,975
Total liabilities (36,609) (36,296)
Net assets 25,634 22,679
Allocated to non-controlling interests 7,691 6,804
Revenues for the year 5,867 1,079
Total comprehensive profit/(loss) for
the year 2,955 (2,944)
Allocated to non-controlling interests 887 (883)
Cash flows from operating activities 3,168 858
Cash flows from financing activities (536) (655)
Net increase in cash and cash equivalents 2,632 203
-------------------------------------------------------- ------------ -----------
12. 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
Velazquez 3, 4th Madrid 28001 Spain.
Group 2017 2016
EUR000 EUR000
Balance as at 1 October - -
------------------------------------------ -------- -------
Purchase of interest in joint venture 6,475 -
Share of loss for the year (185) -
Balance as at 30 September 6,290 -
------------------------------------------ -------- -------
Summarised joint venture financial information: 2017 2016
EUR000 EUR000
----------------------------------------------------------- -------
Total assets 59,719 -
Total liabilities (47,139) -
Net assets 12,580 -
Net asset value attributable to the Group 6,290 -
Revenues for the year 2,200 -
Total comprehensive loss (370) -
Total comprehensive loss attributable (185) -
to the Group
------------------------------------------------- --------- -------
Within total liabilities is a EUR23.4 million
loan facility with Münchener Hypothekenbank
eG. The facility matures on 22 May 2024 and carries
a fixed interest rate of 1.76% payable quarterly.
The facility was subject to a 0.3% arrangement
fee which is being amortised over the period of
the loan. The debt has a LTV covenant of 60% and
a minimum net rental income covenant. The lender
has a charge over the property owned by the Group
with a value of EUR52.9 million. A pledge of all
shares in the borrowing Group company is in place.
Within total liabilities there is also a loan
amount of EUR10.0 million owed to the Group. The
loan is expected to mature at the same time as
the above-mentioned bank loan and carries a fixed
interest rate of 4.37% payable quarterly.
13. Trade and other receivables
Group Group Company Company
30/09/2017 30/09/2016 30/09/2017 30/09/2016
EUR000 EUR000 EUR000 EUR000
----------------------------- ------------ ------------ ------------ ------------
Rent receivable 1,546 596 - -
Monies held by property
managers 228 923 - -
Amounts due from subsidiary
undertakings - - 33,947 33,947
Other debtors and
prepayments 289 858 741 232
------------------------------
2,063 2,377 34,688 34,179
----------------------------- ------------ ------------ ------------ ------------
14. Interest rate derivative contracts
The Group has an interest rate cap in place purchased for EUR260,000 from Credit Agricole Corporate and Investment Bank on 10 August 2016 in connection to a EUR26.0m loan facility drawn from the same bank with a maturity date of July 2023. The cap interest rate is 1.25% with a floating rate option being Euribor 3 months. In line with IAS 39 this derivative is reported in the financial statements at its fair value. As at 30 September 2017 the fair value of the interest rate cap was EUR273,000 (2016: EUR200,000). Transaction costs incurred in obtaining the instrument are being amortised over the extended period of the above mentioned loan. The notional value of the instrument is EUR26.0 million.
In addition, the Group has granted a call option to Mercialys group on the assets and shares of SCI Rennes Anglet, a subsidiary of the Group. The option is only exercisable on 31 July 2018 with six months' written advance notice and under certain conditions as follows:
-- Confirmed exclusive merger/acquisition negotiations between Mercialys and a third party regarding the French hypermarket segment of their business;
-- Distress situation characterised by a decrease in the turnover per square metre during 2017 in Rennes and Anglet compared to 2016; and
-- Strike price based on a net-to-seller valuation of the asset of EUR64.0 million.
As the probability of this option being exercised is very low its fair value is EURNil.
15. Cash and cash equivalents
Group Group Company Company
30/09/2017 30/09/2016 30/09/2017 30/09/2016
EUR000 EUR000 EUR000 EUR000
--------------------- ------------ ------------ ------------ ------------
Cash at bank and in
hand 28,521 58,476 14,583 6,068
---------------------- ------------ ------------ ------------ ------------
16. Share capital
Group Group
30/09/2017 30/09/2016
EUR000 EUR000
------------------------ ------------ ------------
Ordinary share capital 15,167 13,994
--------------------------- ------------ ------------
Share capital
As at 30 September 2017, the share capital of the Company was represented by 133,734,686 Ordinary Shares (2016: 121,234,686 Ordinary Shares) with a par value of 10.00 pence.
Issued share capital
On 28 October 2016 the Company issued 12,500,000 new ordinary shares under the placing and offer for subscription programme at a price of GBP1.20 per share.
Issue costs in relation to the placing was EUR245,000.
As at 30 September 2017, the Company had 133,734,686 ordinary shares in issue (no shares were held in treasury). The total number of voting rights of the Company at 30 September 2017 was 133,734,686 (2016: 121,234,686).
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.
17. Interest-bearing loans and borrowings
This note provides information about the contractual terms of the Group's interest-bearing loans and borrowings. For more information about the Group's exposure to interest rate risk see note 20 of the 2017 Annual Report.
Group Group Company Company
30/09/2017 30/09/2016 30/09/2017 30/09/2016
EUR000 EUR000 EUR'000 EUR'000
------------------------- ------------ ------------ ------------ ------------
At 1 October 58,724 - - -
Receipt of borrowings - 67,253 - -
Repayment of borrowings - (7,689) - -
Capitalisation
of finance costs (80) (861) - -
Amortisation of
finance costs 128 21 - -
-------------------------- ------------ ------------ ------------ ------------
At 30 September 58,772 58,724 - -
-------------------------- ------------ ------------ ------------ ------------
Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled or expired. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period.
Bank Loan - Deutsche Pfandbriefbank AG
The Group has two loan facilities totalling a EUR30.50 million with Deutsche Pfandbriefbank AG.
Of the total amount drawn, EUR14.0 million matures on 30 June 2023 and carries a fixed interest rate of 0.85% payable quarterly; the remaining EUR16.5 million matures on 30 June 2026 and carries a fixed interest rate of 1.31%. An additional fixed fee of 0.30% per annum was payable until certain conditions relating to the Frankfurt property were fulfilled on 30 December 2016. The facility was subject to a 0.35% arrangement fee which is being amortised over the period of the loan. The debt has an LTV covenant of 65% and the debt yield must be at least 8.0%
The lender has a charge over property owned by the Group with a value of EUR69,100,000. A pledge of all shares in the borrowing Group companies is in place.
Bank Loan - Credit Agricole Corporate and Investment Bank
The Group has a EUR26.0 million loan facility with Credit Agricole Corporate and Investment Bank.
The facility matures on 29 July 2023 and carries an interest rate of 1.35% plus Euribor 3 months per annum payable quarterly. The facility was subject to a 0.85% arrangement fee which is being amortised over the period of the loan.
The debt has an LTV covenant of 65% and the ICR should be above 200%
The loan is collateralised by property assets owned by the Group with a carrying value of EUR58,200,000.
Business Partner Loan - Mercialys
The Group has a EUR10.75 million loan facility with Mercialys, a 30% minority investor in the share capital of SCI Rennes Anglet, a 70% owned subsidiary of the Group. The loan matures on 28 June 2031 and interest is payable at the maximum deductible rate as published by the French tax authorities. As at 30 September 2017 the last applicable rate was 1.67% (2016: 2.08%). The interest can be capitalised if not paid. The loan balance outstanding as at 30 September 2017 was EUR3.06 million.
Mercialys meets the definition of a related party under IAS 24.
18. Trade and other payables
Group Group Company Company
30/09/2017 30/09/2016 30/09/2017 30/09/2016
EUR000 EUR000 EUR'000 EUR'000
-------------------------- ------------ ------------ ------------ ------------
Rent received in advance 356 50 - -
Rental deposits 1,443 684 - -
Interest payable 101 95 - -
Retention payable 96 50 - -
Accruals 1,673 1,713 386 650
VAT payable 694 - - -
Trade payables 120 492 - -
--------------------------- ------------ ------------ ------------ ------------
4,483 3,084 386 650
-------------------------- ------------ ------------ ------------ ------------
All trade and other payables are interest free and payable within one year.
Included within the Group's accruals are amounts relating to management fees of EUR125,000 (2016: EUR438,000), real estate taxes of Nil (2016: EUR224,000) and property expenses of EUR1,037,000 (2016: EUR347,000).
19. Net Asset Value per Ordinary Share
The NAV per Ordinary Share of 133.3 cents per share is based on the net assets attributable to ordinary shareholders of the Company of EUR178,326,000, and 133,734,686 Ordinary Shares in issue at 30 September 2017.
The NAV per Ordinary Share as at 30 September 2016 has been presented as 130.1 cents per share. The NAV attributable to ordinary shareholders of EUR157,760,000 has been used in this revised calculation to replace the total NAV of EUR164,564,000. 121,234,686 Ordinary Shares were in issue as at 30 September 2016.
20. Financial instruments, properties and associated risks
Financial risk factors
The Group holds cash and liquid resources as well as having debtors and creditors that arise directly from its operations. The Group uses interest rate contracts when required to limit exposure to interest rate risks, but does not have any other derivative instruments.
The main risks arising from the Group's financial instruments and 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 and these are summarised below:
Market price risk
Rental income and the market value for properties are generally affected by overall conditions in the economy, such as changes in gross domestic product, employment trends, inflation and changes in interest rates. Changes in gross domestic product may also impact employment levels, which in turn may impact the demand for premises. Furthermore, movements in interest rates may also affect the cost of financing for real estate companies.
Both rental income and property values may also be affected by other factors specific to the real estate market, such as competition from other property owners, the perceptions of prospective tenants of the attractiveness, convenience and safety of properties, the inability to collect rents because of bankruptcy or the insolvency of tenants, the periodic need to renovate, repair and release space and the costs thereof, the costs of maintenance and insurance, and increased operating costs.
The Directors monitor the market value of investment properties by having independent valuations carried out quarterly by a firm of independent chartered surveyors.
Included in market price risk is interest rate risk which is discussed further below.
Currency risk
The Group's policy is for Group entities to settle liabilities denominated in their functional currency with the cash generated from their own operations in that currency. Where Group entities have liabilities in a currency other than their functional currency (and have insufficient reserves of that currency to settle them), cash already in that currency will, where possible, be transferred from elsewhere within the Group. The functional currency of all entities in the Group is the euro. Currency risk sensitivity has not been shown due to the small values of non euro transactions. The table below details the Group's exposure to foreign currencies at the year-end:
Group Group Company Company
30/09/2017 30/09/2016 30/09/2017 30/09/2016
Net Assets EUR000 EUR000 EUR'000 EUR'000
------------ ------------ ------------ ------------ ------------
Euros 185,905 163,934 167,356 158,065
Sterling 24 713 24 713
Rand 88 52 88 52
------------- ------------ ------------ ------------ ------------
186,017 164,699 167,468 158,830
------------ ------------ ------------ ------------ ------------
Credit risk
Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Group. In the event of default by an occupational tenant, the Group will suffer a rental income shortfall and incur additional costs, including legal expenses, in maintaining, insuring and re-letting the property.
The Investment Manager reviews reports prepared by Dun & Bradstreet, or other sources to assess the credit quality of the Group's tenants and aims to ensure there is no excessive concentration of risk and that the impact of any default by a tenant is minimised.
In respect of credit risk arising from other financial assets, which comprise cash and cash equivalents and a loan to joint venture, exposure to credit risk arises from default of the counterparty with a maximum exposure equal to the carrying amounts of these instruments. In order to mitigate such risks, cash is maintained with major international financial institutions with high quality credit ratings. Credit risk relating to the loan to joint venture is actively managed and the Group believes it does not carry any risk of impairment.
20. Financial instruments, properties and associated risks (continued)
The table below shows the balance of cash and cash equivalents held with various financial institutions at the end of the reporting year.
Group Company
Ratings balance balance
as at at 30/09/2017 at 30/09/2017
Bank 30/09/2017 EUR'000 EUR'000
------------------------ ------------- --------------- ---------------
HSBC Bank plc AA- 745 696
ING Bank N.V. A+ 8,254 -
BNP Paribas A+ 1,155 -
Commerzbank AG BBB+ 325 -
FirstRand Bank Limited BB+ 87 87
Santander A 15,133 13,800
Societe Generale A 2,822 -
28,521 14,583
-------------------------------------- --------------- ---------------
Group Company
Ratings balance balance
as at at 30/09/2016 at 30/09/2016
Bank 30/09/2016 EUR'000 EUR'000
------------------------ ------------- --------------- ---------------
HSBC Bank plc AA- 55,133 6,016
ING Bank N.V. A 2,722 -
BNP Paribas A 438 -
Commerzbank AG BBB+ 131 -
FirstRand Bank Limited BBB- 52 52
------------------------- ------------ --------------- ---------------
58,476 6,068
-------------------------------------- --------------- ---------------
The maximum exposure to credit risk for rent receivables at the reporting date by type of sector was:
30/09/2017 30/09/2016
Carrying Carrying
amount amount
EUR000 EUR000
-------- ----------- -----------
Office 586 363
Retail 960 234
-------- ----------- -----------
1,546 597
-------- ----------- -----------
Rent receivables which are past their due date, but which were not impaired at the reporting date were:
30/09/2017 30/09/2016
Carrying Carrying
amount amount
EUR000 EUR000
-------------- ----------- -----------
0-30 days 1,487 566
31-60 days - 4
61-90 days 12 2
91 days plus 47 25
-------------- ----------- -----------
1,546 597
-------------- ----------- -----------
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulties in meeting obligations associated with its financial obligations.
The Group's investments comprise of Continental European commercial property. Property and property-related assets are inherently difficult to value due to the individual nature of each property. As a result, valuations are subject to substantial uncertainty. There is no assurance that the estimates resulting from the valuation process will reflect the actual sales price even where such sales occur shortly after the valuation date. Investments in property are relatively illiquid; however the Group has tried to mitigate this risk by investing in properties that it considers to be good quality.
In certain circumstances, the terms of the Group's debt facilities entitle the lender to require early repayment and in such circumstances the Group's ability to maintain dividend levels and the net asset value could be adversely affected. The Investment Manager prepares cash flows on a rolling basis to ensure the Group can meet future liabilities as and when they fall due.
The following table indicates the undiscounted maturity analysis of the financial liabilities.
As at 30 September Carrying Expected 6 mths 6 mths 2-5 More
2017 amount Cash or - 2 years than
flows less years 5 years
EUR000 EUR000 EUR000
EUR000 EUR000 EUR000
----------------------- --------- --------- -------- -------- -------- ---------
Financial liabilities
Interest-bearing
loans and borrowings
and interest 59,564 64,891 368 1,107 2,214 61,202
Trade and other
payables 3,689 3,689 3,689 - - -
Total financial
liabilities 63,253 68,580 4,057 1,107 2,214 61,202
----------------------- --------- --------- -------- -------- -------- ---------
Carrying Expected 6 mths 6 mths 2-5 More
As at 30 September amount Cash or - 2 years than
2016 flows less years 5 years
EUR000 EUR000 EUR000
EUR000 EUR000 EUR000
----------------------- --------- --------- -------- -------- -------- ---------
Financial liabilities
Interest-bearing
loans and borrowings
and interest 58,819 58,819 95 - - 58,724
Trade and other
payables 2,989 2,989 2,989 - - -
Total financial
liabilities 61,808 61,808 3,084 - - 58,724
----------------------- --------- --------- -------- -------- -------- ---------
Interest rate risk
Exposure to market risk for changes in interest rates relates primarily to the Group's long-term debt obligations and to interest earned on cash balances. As interest on the Group's long-term debt obligations is payable on a fixed-rate basis, or is capped, the Group has limited exposure to interest rate risk, but is exposed to changes in fair value of long-term debt obligations driven by interest rate movements. As at 30 September 2017 the fair value of the Group's EUR59.7 million loan was equal to its carrying amount (2016: EUR59.7 million).
A 1% increase or decrease in short-term interest rates would increase or decrease the annual income and equity by EUR0.3m (2016: EUR0.6m) based on the cash balance as at 30 September 2017.
Fair values
The fair values of financial assets and liabilities approximate their carrying values in the financial statements.
The fair value hierarchy levels are as follows:
-- Level 1 - quoted prices (unadjusted) in active markets for identical assets and liabilities;
-- Level 2 - inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
-- Level 3 - inputs for the assets or liability that are not based on observable market data (unobservable inputs).
There have been no transfers between Levels 1, 2 and 3 during the year (2016: none).
The following summarises the main methods and assumptions used in estimating the fair values of financial instruments and investment property.
Investment property- level 3
Fair value is based on valuations provided by an independent firm of chartered surveyors and registered appraisers. These values were determined after having taken into consideration recent market transactions for similar properties in similar locations to the investment properties held by the Group. The fair value hierarchy of investment property is level 3. See Note 10 of the 2017 Annual Report for further details.
Interest bearing loans and borrowings - level 2
Fair values are based on the present value of future cash flows discounted at a market rate of interest. Issue costs are amortised over the period of the borrowings. As at 30 September 2017 the fair value of the Group's loans was equal to its book value.
Trade and other receivables/payables- level 2
All receivables and payables are deemed to be due within one year and as such the notional amount is considered to reflect the fair value.
Derivatives - level 3
Fair values of derivatives are based on current market conditions compared to the terms of the derivative agreements.
Capital management
The Board's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The objective is to ensure that it will continue as a going concern and to maximise return to its equity shareholders through appropriate level of gearing.
The Group's debt and capital structure comprises the following:
30/09/2017 30/09/2016
EUR000 EUR000
---------------------------- ----------- -----------
Debt
Fixed rate loan facilities 58,873 58,819
Equity
Called-up share capital 45,382 28,876
Reserves 132,945 128,884
----------------------------- ----------- -----------
Total debt and equity 237,200 216,579
----------------------------- ----------- -----------
There were no changes in the Group's approach to capital management during the year.
21. Foreign exchange
During the year the Group incurred the following foreign currency gains and losses:
Realised currency losses of EUR4,000 arose on sundry corporate expense transactions.
An unrealised currency loss of EUR3,000 arose when monetary assets and liabilities held by the Group were retranslated into euros at the year end for reporting purposes.
Both of these realised and unrealised amounts appear within the Statement of Comprehensive Income.
At each period end the Group retranslates its sterling denominated share capital, share premium and other reserves into euros using the period end exchange rate. At 30 September 2017 the unrealised currency loss arising on this retranslation was EUR27.7m. This amount appears within the Statement of Changes in Equity.
During the prior year the Group incurred the following foreign currency losses:
A realised currency loss of EUR314,000 arose when GBP51.0 million of share issue proceeds received on 9 December 2015 was converted into euros on 14 December 2015. A realised currency gain of EUR210,000 arose on a cash transaction. Other currency gains of EUR4,000 arose on sundry corporate expense transactions.
A net unrealised currency loss of EUR226,000 arose when GBP0.8m and R0.8m of cash and other monetary items held by the Group at the period were retranslated into euros at the period end for reporting purposes.
Both of these realised and unrealised amounts appear within the Statement of Comprehensive Income.
On 9 December 2015 the company issued GBP54.7 million of sterling denominated share capital to its South African investors. This share capital was valued at EUR75.3 million on the date of issue. The proceeds of this share issue were settled by investor funds of R1.18bn valued at EUR73.7 million on the date of issue. The reason for the difference is that the amount paid by investors was required to be determined one week in advance of the issue date by a forward exchange rate provided to South African investors and could not be hedged by the Company at IPO. The currency loss arising from this was EUR1.6 million. This amount appears within the Statement of Changes in Equity as part of total issue costs of EUR5.0 million. Following IPO the Company is able to hedge currency when issuing new equity and therefore this is not expected to reoccur.
At each period end the Group retranslates its sterling denominated share capital, share premium and other reserves into euros using the period end exchange rate. At 30 September 2016 the unrealised currency loss arising on this retranslation was EUR25.7m. This amount appears within the Statement of Changes in Equity.
22. Operating leases
The Group leases out its investment property under operating leases. At 30 September 2017 the future minimum lease receipts under non-cancellable leases are as follows:
30/09/2017 30/09/2016
EUR000 EUR000
---------------------------- ----------- -----------
Less than one year 12,811 9,410
Between one and five years 27,944 34,648
More than five years 11,698 15,216
---------------------------- ----------- -----------
52,453 59,274
---------------------------- ----------- -----------
The total above comprises the total contracted rent receivable as at 30 September 2017.
23. Related party transactions
Material agreements are disclosed in note 3 of the 2017 Annual Report and loans from related parties are disclosed in note 17 of the 2017 Annual Report. Directors' emoluments are disclosed in note 6 of the 2017 Annual Report.
24. Capital commitments
At 30 September 2017 the Group had no capital commitments.
25. Post balance sheet events
There were no post balance sheet events.
EPRA and Headline Performance Measures (unaudited)
As recommended by EPRA (European Public Real Estate Association), EPRA performance measures are disclosed in the section below.
EPRA performance measures: summary table
30/09/2017 30/09/2016
---------------------------- ----------- -----------
Total Total
EUR000 EUR000
---------------------------- ----------- -----------
EPRA earnings 6,947 1,013
EPRA earnings per share 5.2 0.9
----------------------------- ----------- -----------
EPRA NAV 178,608 157,560
EPRA NAV per share 133.6 130.0
----------------------------- ----------- -----------
EPRA NNNAV 178,608 157,560
EPRA NNNAV per share 133.6 130.0
----------------------------- ----------- -----------
EPRA Net Initial Yield 6.0% 5.1%
EPRA topped-up Net Initial
Yield 6.0% 5.1%
----------------------------- ----------- -----------
EPRA Vacancy Rate 1.5% 0%
----------------------------- ----------- -----------
a. EPRA earnings and EPS
Total comprehensive profit/(loss) excluding realised and unrealised gains/losses on investment property, share of profit on joint venture investments and changes in fair value of financial instruments, divided by the weighted average number of shares.
30/09/2017 30/09/2016
EUR000 EUR000
--------------------------------- ------------ ------------
Total comprehensive
profit/(loss) 11,172 (3,625)
Adjustments to calculate
EPRA Earnings:
Net valuation (profit)/loss
on investment property (4,284) 4,537
Exchange differences
on monetary items (unrealised) 3 226
Share of joint venture 429 -
loss on investment property
Minority interest's
net revenue (744) (185)
Deferred tax 443 -
Finance (income)/costs:
interest rate cap (72) 60
EPRA earnings 6,947 1,013
---------------------------------- ------------ ------------
Weighted average number
of ordinary shares 132,775,782 118,319,687
---------------------------------- ------------ ------------
IFRS earnings/(loss)
per share (cents per
share) 7.7 (2.1)
---------------------------------- ------------ ------------
EPRA earnings per share
(cents per share) 5.2 0.9
---------------------------------- ------------ ------------
b. EPRA NAV per share
The Net Asset Value adjusted to exclude assets or liabilities not expected to crystallise in a long-term investment property model, divided by the number of shares in issue.
30/09/2017 30/09/2016
EUR000 EUR000
------------------------------ ------------ ------------
IFRS Group NAV per financial
statements 186,017 164,564
Adjustment for Minority
Interests (7,609) (6,804)
Deferred tax 473 -
Adjustment for fair value
of financial instruments (273) (200)
------------------------------- ------------ ------------
EPRA NAV 178,608 157,560
------------------------------- ------------ ------------
Shares in issue at end
of year 133,734,686 121,234,686
------------------------------- ------------ ------------
IFRS Group NAV per share 139.1 135.7
------------------------------- ------------ ------------
EPRA NAV per share 133.6 130.0
------------------------------- ------------ ------------
c. EPRA NNNAV per share
The EPRA NAV adjusted to include the fair value of debt, divided by the number of shares in issue.
30/09/2017 30/09/2016
EUR000 EUR000
-------------------------- ----------- -----------
EPRA NAV 178,608 157,560
Adjustments to calculate
EPRA NNNAV:
Fair value of debt - -
EPRA NNNAV 178,608 157,560
--------------------------- ----------- -----------
EPRA NNNAV per share 133.6 130.0
--------------------------- ----------- -----------
d. EPRA Net Initial Yield
Annualised rental income based on the cash rents passing at the balance sheet date, less non-recoverable property operating expenses, divided by the grossed up market value of the complete property portfolio.
The EPRA "topped up" NIY is the EPRA NIY adjusted for unexpired lease incentives.
30/09/2017 30/09/2016
EUR000 EUR000
------------------------------ ----------- --------------
Investment property - share
of subsidiaries 185,240 148,160
Investment property - share
of joint ventures and funds 26,450 -
------------------------------ ----------- --------------
Complete property portfolio 211,690 148,160
Allowance for estimated
purchasers' costs 14,818 9,954
------------------------------- ----------- --------------
Gross up completed property
portfolio valuation 226,508 159,423
Annualised cash passing
rental income 14,200 8,088
Property outgoings (700) -
------------------------------ ----------- --------------
Annualised net rents 13,500 8,088
Notional rent expiration 100 -
of rent free periods
------------------------------ ----------- --------------
Topped-up net annualised
rent 13,600 8,088
------------------------------- ----------- --------------
EPRA NIY 6.0% 5.1%
------------------------------- ----------- --------------
EPRA "topped-up" NIY 6.0% 5.1%
------------------------------- ----------- --------------
e. Headline Earnings Reconciliation
30/09/2017 30/9/2016
EUR000 EUR000
----------------------------------------------------- ------------ ------------
Total comprehensive profit/(loss) 11,172 (3,625)
Adjustments to calculate Headline Earnings exclude:
Net valuation (profit)/loss on investment property (4,284) 4,537
Share of joint venture loss on investment property 429 -
Minority interests net revenue (744) (185)
Deferred tax 443 -
Finance (income)/costs: interest rate cap (72) 60
Headline earnings 6,944 787
----------------------------------------------------- ------------ ------------
Weighted average number of ordinary shares 132,775,782 118,319,687
Headline earnings per share (cents per share) 5.2 0.7
Headline earnings per share reflect the underlying performance of the company calculated in accordance with the Johannesburg Stock Exchange Listing requirements.
EPRA Sustainability Reporting Performance Measures
The Company reports environmental data in accordance with EPRA Best Practice Recommendations on Sustainability Reporting (EPRA sBPR 2014, 2nd Edition) for 12 months 1 April 2016 to 31 March 2017. Environmental data for the prior year (1 April 2015 to 31 March 2016) is not reported as the Company began purchasing assets in March 2016. Accordingly, the prior reporting year is not relevant and the 'absolute consumption' EPRA sBPR indicators reported below are not reported for this period. Furthermore, the following 'like-for-like consumption' EPRA sBPR indicators are also not applicable and therefore not reported: Elec-LfL; Fuels-LfL.
The reporting boundary has been scoped to where the Company has operational control: managed properties where the Company is responsible for payment of utility invoices. The reported environmental data relates to the three managed assets, in Frankfurt, Hamburg and Stuttgart Germany, that were in the portfolio as at 31 March 2017. The Company did not use any district heating or cooling across the portfolio during the reporting period; the following EPRA sBPR indicators are therefore not applicable and not presented below: DH&C-Abs and DH&C-LfL.
Total Energy Consumption (Elec-Abs; Fuels-Abs; Energy-Int)
The table below sets out total landlord obtained energy consumption from the Company's managed portfolio by sector.
Building
Energy
Electricity Fuels (kWh) Intensity
(kWh) (kWh/m(2)
)
Sector 2016/17 2016/17 2016/17
------------------- -------------- -------------- -----------
Office 124,169 555,214 50
Coverage 2/2 2/2 2/2
Retail, Shopping
Centre 66,084 281,386 77
Coverage 1/1 1/1 1/1
------------------- -------------- -------------- -----------
Total 190,253 836,600
------------------- -------------- -------------- -----------
Total electricity
and fuel 1,026,853
% renewable
energy 0%
Coverage 3/3
------------------- -------------- -------------- -----------
-- Consumption data relates to the managed portfolio only and energy consumed in common areas, exterior areas and/or as part of a shared service (i.e. operation of central plant). Electricity consumed in tenant areas is not reported.
-- Estimation: 17% of electricity data and 38% of fuel data has been estimated.
-- Normalisation: A kWh/m(2) is reported for assets within the absolute portfolio. The numerator is landlord-managed energy consumption and the denominator is net lettable floor area (m(2) ).
-- Coverage: Relates to number of managed assets for which data is reported.
Greenhouse Gas Emissions (GHG-Dir-Abs; GHG-Indir-Abs; GHG-Int)
The table below sets out the Company's greenhouse gas emissions by sector.
Absolute Emissions Intensity (kg CO(2)
(tCO(2)e) e/m(2))
Sector 2016/17 2016/17
-------------------- ------------------- --------------------
Office
Scope 1 133
Scope 2 66 14.6
Coverage 2/2 2/2
Retail, Shopping Centre
Scope 1 67
Scope 2 35 22.5
Coverage 1/1 1/1
-------------------- ------------------- --------------------
Total Scope 1 200
--------------------
Total Scope 2 101
-------------------- ------------------- --------------------
Total Scopes 1 and
2 301
-------------------- ------------------- --------------------
Coverage 3/3
-------------------- ------------------- --------------------
-- Methodology:
o The Company's greenhouse gas (GHG) inventory has been developed as follows:
-- Fuels / Electricity: Federal Ministry for the Environmental Protection, Buildings and Security 'Okobaudat' (2016). Sustainable Construction Informational Portal.
o GHG emissions from electricity (Scope 2) are reported according to the 'location-based' approach.
o GHG emissions are presented as kilograms of carbon dioxide equivalent (kgCO(2) e)
-- GHG emissions data relates to the managed portfolio only and energy consumed in common areas, external areas and/or as part of a shared service (i.e. operation of central plant). GHG emissions associated with electricity consumed in tenant areas is not reported.
-- Estimation: 17% of electricity data and 38% of fuel data has been estimated.
-- Normalisation: A kgCO(2) e/m(2) is reported for assets within the absolute portfolio. The numerator is landlord-managed GHG emissions from energy consumption and the denominator is net lettable floor area (m(2) ).
-- Coverage: Relates to number of managed assets for which data is reported.
Water (Water-Abs; Water-Int)
The table below sets out water consumption for assets managed by the Company.
Total Water Intensity (m(3)/m(2))
Consumption
(m(3))
Sector 2016/17 2016/17
------------------ ------------- ----------------------
Office 3,273 0.24
Coverage 2/2 2/2
Retail, Shopping
Centre 203 0.04
Coverage 1/1 1/1
------------------ ------------- ----------------------
Total 3,476
------------------ ------------- ----------------------
Coverage 3/3
------------------ ------------- ----------------------
-- Consumption data relates to the managed portfolio only and water consumed across the whole building (including common parts and tenant areas).
-- Estimation: 33% of water data has been estimated.
-- Normalisation: A m(3) /m(2) is reported for assets within the like for like portfolio. The numerator is landlord-managed water consumption and the denominator is net lettable floor area (m(2) ).
-- Coverage: Relates to number of managed assets for which data is reported.
Waste (Waste-Abs)
The table below sets out waste managed by the Company by disposal route and sector.
Absolute weight
(tonnes) %
Sector 2016/17 2016/17
-------------------------------------- -------- --------
Office
Direct to MRF 14 31
Incineration (with energy recovery) 31 69
Landfill - -
Coverage 2/2
Retail, Shopping Centre
Direct to MRF - -
Incineration (with energy recovery) 9 100
Landfill - -
Coverage 1/1
-------------------------------------- -------- --------
Totals
-------------------------------------- -------- --------
Direct to MRF 14
Incineration (with energy recovery) 40
Landfill 0
-------------------------------------- -------- --------
Coverage 3/3
-------------------------------------- -------- --------
-- MRF is a Materials Recovery Facility.
-- Coverage relates to number of managed assets for which data is reported.
Sustainability Certification (Cert-Tot)
Energy Performance Certificate Portfolio by floor Rating area (%) -------------------------------- ------------------- A - B 5% C 35% D 28% E - F - G - Exempt - -------------------------------- ------------------- Coverage 68% -------------------------------- -------------------
-- Sustainability Certification records for the Company are provided as at 31(st) March 2017 against portfolio floor area.
-- Data provided includes managed and non-managed assets (i.e. the whole portfolio).
-- German EPCs do not have a letter rating system used in certification. A conversion has been applied to numerical scoring to give an indicative score.
Status of announcement
2016 Financial Information
The figures and financial information for 2016 are extracted from the published Annual Report and Accounts for the year ended 30 September 2016 and do not constitute the statutory accounts for that year. The 2016 Annual Report and Accounts have been delivered to the Registrar of Companies.
2017 Financial Information
The figures and financial information for 2017 are extracted from the Annual Report and Accounts for the year ended 30 September 2017 and do not constitute the statutory accounts for the year. The 2017 Annual Report and Accounts include the Report of the Independent Auditors which is unqualified and does not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The 2017 Annual Report and Accounts will be delivered to the Registrar of Companies in due course.
Neither the contents of the Company's webpages nor the contents of any website accessible from hyperlinks on the Company's webpages (or any other website) is incorporated into, or forms part of, this announcement.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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