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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 | |
|---|---|---|---|---|---|---|---|---|---|---|
| 2.60 | 4.23% | 64.00 | 61.80 | 63.80 | 63.00 | 61.00 | 61.00 | 38,329 | 16:35:14 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Real Estate Investment Trust | 19.67M | -9.38M | -0.0702 | -8.80 | 82.65M |
From Apr 2021 to Apr 2024
TIDMSERE
RNS Number : 3715E
Schroder Eur Real Est Inv Trust PLC
07 July 2021
7 July 2021
SCHRODER EUROPEAN REAL ESTATE INVESTMENT TRUST PLC
("SEREIT"/ the "Company" / "Group")
HALF YEAR RESULTS FOR THE SIX MONTHSED 31 MARCH 2021
FOCUS ON ASSET QUALITY UNDERPINS RESILIENT PERFORMANCE AND DIVID INCREASE
-SIGNIFICANT FIREPOWER AVAILABLE FOR POST-PANDEMIC ACQUISITIONS-
Schroder European Real Estate Investment Trust plc, the company investing in European growth cities and regions, today announces its half year results for the six months ended 31 March 2021.
-- Continued resilience of portfolio income through the Covid-19 pandemic, with rent collection remaining strong at approximately 92% for the six month period. Includes 94% of rent collected for the quarter ended 31 March 2021
-- Following the successful execution of the Paris, Boulogne-Billancourt sale, there is EUR60 million of investment firepower for earnings enhancing initiatives
-- Portfolio value, including cash, of EUR259.9 million (HY 2020: EUR247.3 million). Directly held properties delivered like-for-like valuation growth of EUR5.6 million, or 2.3%, reflecting the Company's exposure to the high growth industrial, data centre, DIY and grocery sectors
-- Dividends declared of EUR4.6 million / 3.42 cps for the six months to 31 March 2021, with a reinstatement of the pre-Covid dividend of 1.85 cps due to an improving outlook, strong rent collection, cash position and valuation resilience
-- Intention to declare two further distributions with a target of approximately 4.75 cents per share each by way of special dividend over the next 12 months, allowing shareholders to benefit from the exceptional profit associated with the successful execution of the Paris, Boulogne-Billancourt business plan
Key Financial highlights
-- Net Asset Value ('NAV') of EUR197.1 million or 147.4 cps (30 September 2020: EUR201.8 million), a decrease of EUR4.7 million over the six month period, primarily driven by the write down of the Group's Seville exposure to nil which in part was offset by an increase in the valuation of the industrial and DIY portions of the portfolio
-- Loss of EUR0.7 million (six months ended 31 March 2020: profit of EUR4.9 million), resulted in a NAV total return of -0.4%. Pre-tax the Company made a profit of EUR0.8 million (six months ended 31 March 2020: EUR5.7 million) which was primarily driven by an increase in the valuation of the industrial and DIY portion of the portfolio, partly offset by the write-down of the Seville exposure to nil.
-- Underlying EPRA earnings of EUR2.8 million (six months ended 31 March 2020: EUR4.3 million), reflecting a temporary reduction in income until the re-deployment of the Paris sale proceeds
-- Low loan to value ('LTV') of 11% net of EUR57.0 million of available cash (29% gross of cash), with a low weighted average total interest rate of 1.4%
Operational highlights
-- SEREIT secured three green stars in its 2020 GRESB rating in recognition of the continued progress of sustainability measures taken across the portfolio
-- Concluded five new leases and re-gears in Hamburg, Paris Saint-Cloud and Seville, totalling 1,100 sqm, at a weighted lease term of 4.1 years, generating a 3.9% increase in annualised income relative to the previous rent
-- Paris Boulogne-Billancourt refurbishment remains on track to be delivered in Q2 2022 -- Expanded Mercadona supermarket in Metromar, Seville -- Maintained high portfolio occupancy of 95%, with a 5.8 years average lease term to expiry
-- Underlying property portfolio total return of 2.4% over six months (six months ended 31 March 2020: 4.0%)
-- Post period end an acquisition exchanged for a logistics property in Nantes, western France, for EUR6.15 million, reflecting a net initial yield of 5.5%. After this new acquisition completes the portfolio will total 13 investments across four Western European countries with approximately 90 tenants.
Sir Julian Berney, Chairman of the Board, commented:
"Despite operating against a backdrop of local and national lockdowns, the portfolio valuation has remained resilient over the period, underpinned by uplifts across the industrial portfolio, a number of asset management successes and improving and strong rent collection. As a result, we are pleased to be able to reinstate the dividend to the pre-pandemic level, whilst paying two special dividends to reflect the highly successful execution of the Paris sale and reward shareholders who continue to support the Company."
"The Board remains frustrated that the share price has not reflected the robust performance of the business during the pandemic or that the current discount properly reflects its future prospects. Given the healthy cash position, the Board will continue to review the discount and use its discretion to execute measures that it believes should support income and total returns, including new acquisitions."
Jeff O'Dwyer, Fund Manager for Schroder Real Estate Investment Management Limited, added:
"Whilst uncertainty relating to the pandemic will continue, we are starting to see some positive signs of growth over 2021 as lockdowns ease and consumer and investor confidence returns. The proceeds from the sale of Boulogne-Billancourt substantially strengthen the Company's balance sheet and provide significant operational and financial flexibility. We are focused on identifying attractive income-generating opportunities in future proof assets that meet our strict investment criteria. These will provide further diversification benefits to the portfolio and assist in maintaining an attractive dividend covered from sustainable rental income, as we seek to maximise shareholder returns."
The Half Year Report is also being published in hard copy format and an electronic copy of that document will shortly be available to download from the Company's webpage www.schroders.co.uk/sereit . Please click on the following link to view the document:
http://www.rns-pdf.londonstockexchange.com/rns/3715E_1-2021-7-6.pdf
The Company has submitted a pdf of the hard copy format of the Half Year Report to the National Storage Mechanism and it will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism .
A further announcement will be made shortly to confirm the full timetable of the second interim dividend.
For further information:
Hot Features
Premium
Jeff O'Dwyer
Schroder Real Estate Investment Management 020 7658 6000
Ria Vavakis
Schroder Investment Management Limited 020 7658 2371
--------------------------------------
Dido Laurimore / Richard Gotla / Oliver 020 3727 1000
Parsons Schroderrealestate@fticonsulting.com
FTI Consulting
--------------------------------------
A presentation for analysts and investors will be held at 9.00 a.m. BST/10.00 a.m. SAST today. Registration for which can be accessed via:
- https://us02web.zoom.us/webinar/register/WN_Cyd0TYbNRy2jbrKYOoIJZg
If you would like to attend, please contact James Lowe at Schroders on james.lowe@schroders.com or +44 (0)20 7658 2083.
This announcement contains inside information.
Half Year Report and Condensed Consolidated Interim Financial Statements for the six months ended 31 March 2021
Chairman's Statement
Overview
The past twelve months have been like no other and the Covid-19 pandemic continues to have a dramatic and unprecedented global impact on society and economies. Encouragingly, the rollout of the vaccine looks to be gathering pace across Europe, which provides a beacon of light, and expectations are for a return to economic growth and confidence by late 2021, which will be a welcome boost for the real estate sector.
As at 31 March 2021, the Company's diversified property portfolio was valued at EUR202.9 million, reflecting that Paris Boulogne-Billancourt, which was the Company's largest asset, is now sold. The portfolio consists of 12 investments across four Western European countries. The majority of the portfolio is located in France and Germany, concentrated in the growth cities of Berlin, Frankfurt, Hamburg, Stuttgart and Paris.
Despite operating against a backdrop of local and national lockdowns, the portfolio valuation has remained resilient over the period, underpinned by uplifts across the industrial portfolio, a number of asset management successes and improving and strong rent collection, with 94% of rent due for the quarter ended 31 March 2021 received. Our 50% share in the Seville shopping centre is the sole shopping centre exposure and the one asset that has been materially affected by the pandemic. As at 31 March 2021 this asset is carried in our accounts at a nil value meaning there is no further exposure for the business.
The Board is particularly pleased that 50% from the agreed sale price of Paris Boulogne-Billancourt has been received and, despite local Paris restrictions, construction remains on budget and programme.
The remaining 50% will be received in instalments over the refurbishment period, expected to conclude in Q2 2022. As a result of the sale, the Company will have significant firepower of EUR60 million to invest in earnings enhancing initiatives. The Investment Manager is working hard to identify attractive income generating opportunities that meet our strict investment criteria, which will provide further diversification benefits to the portfolio.
Other key asset management activities during the period have been the implementation of several ESG initiatives, and the leasing of vacant space, totalling c. 1,100 sqm, in Hamburg, Saint-Cloud and Seville.
Strategy
The immediate focus remains on managing the portfolio in light of the Covid-19 pandemic. The safety and wellbeing of our tenants, suppliers and other stakeholders, together with the protection of shareholders' long-term interests, remains of paramount importance. The Investment Manager has worked with tenants and other stakeholders to implement a Covid-19 management plan to deal with tenant difficulties and requests in a proportionate and measured way. This has led to a strong level of positive tenant engagement and a high level of rent collection over the period.
The longer term strategy remains: a focus on assets with strong fundamentals in Winning Cities and Regions across Continental Europe; diversification across sectors, geography and tenants; investments that will remain relevant on a post pandemic basis; and leveraging off local management expertise to execute value-enhancing investment and asset management initiatives.
Our exposure to leading cities such as Berlin, Stuttgart, Frankfurt, Hamburg and Paris is expected to support outperformance, as these diversified and knowledge-based economies are forecast to witness stronger growth post the pandemic. These cities should benefit from an acceleration in the growth of technology, life sciences, tourism and professional services. We would also expect that these cities will see a disproportionate allocation of fiscal spending to further stimulate economic growth. Furthermore, despite the threat posed by the working from home (WFH) phenomenon, we retain a conviction that high quality offices that provide a platform for collaboration will remain essential for successful businesses.
Financial results
NAV total return was -0.4% over the interim period based on IFRS loss for the six months of EUR0.7 million. Pre-tax, there was a profit of EUR0.8 million. Returns were driven primarily by an increase in the valuation of the industrial and DIY portions of the portfolio, offset by the write down of the Seville exposure to nil. Underlying EPRA earnings were EUR2.8 million, reflecting a temporary reduction of around EUR1.2 million while the Company looks to redeploy the Paris Boulogne-Billancourt sale proceeds.
The Company's NAV at 31 March 2021 decreased by EUR4.7 million to EUR197.1 million, or 147.4 euro cents per share ('cps'), over the period.
Balance sheet and debt
The Boulogne-Billancourt disposal has significantly strengthened the Company's balance sheet, providing significant operational and financial flexibility.
Total third-party debt was EUR80.7 million as at 31 March 2021, giving a loan to value ('LTV') net of cash of approximately 11% against the overall gross asset value of the Company (29% gross of cash). This compares to a net LTV cap of 35%. The Company has seven loans secured by individual assets or groups of assets, with no cross-collateralisation between loans. The average weighted total interest rate of the loans is 1.4% per annum. The weighted average duration of the loans is 3.4 years, with the earliest loan maturity in 2023. The bank which is financing the Seville property has indicated that it expects to instruct a new valuation to formally test the LTV covenant in the coming months which, based on the Company's 31 March 2021 value, is likely to show that the 60% LTV covenant has been breached. The loan is secured solely against the Seville investment, with no recourse back to the Company or any other entity within the Group. The Investment Manager continues to work proactively with the lending partner. The cash trap continues to be in operation for the Seville loan. More detail of the individual loans is provided in the Investment Manager's Report.
Dividend
The Company has continued to make distributions during the pandemic. The Board is confident in the future of the business, particularly giving the improving outlook, valuation resilience and return to healthy rent collection and has decided to reinstate the quarterly dividend to its pre-Covid level of 1.85 cent per share.
It is the board's intention to declare two further distributions with a target of approximately 4.75 cents per share each, to be declared at the same time as the 2021 annual results announcement (expected December 2021) and the 2022 interim year results announcement (expected June 2022). This allows shareholders to benefit from the exceptional profit associated with the successful execution of the Paris Boulogne-Billancourt business plan, and rewards our supportive shareholders who saw a reduction in distributions as we faced up to the unprecedented challenges posed by the pandemic.
The second interim dividend in respect of the year ending 30 September 2021 of 1.85 euro cents per share is payable on 16 August 2021 to shareholders on the register at 30 July 2021.
The dividends for the six month period are 61% covered from the net income of the portfolio. As announced previously, whilst the refurbishment of Boulogne-Billancourt is being undertaken, the income cover will reduce. The Board is allocating some of the net sale proceeds from the forward funded sale of the asset towards covering the shortfall in income during the refurbishment and pending reinvestment of the remaining sale proceeds. The latest declared dividend represents an annualised rate of 5.1% based on the 31 March 2021 NAV per share of EUR1.47.
Share price
The Board is disappointed that the share price has not reflected the robust performance of the business during the pandemic or that an approximate 22% discount to NAV at 5 July 2021 properly reflects its future prospects. Given the healthy cash position, the Board will continue to review the discount and its discretion to execute a share buyback programme as well as new acquisitions consistent with its Continental European winning city and region strategy.
Responsible and impact investment
Responsible and impact investment sits alongside our traditional economic and financial considerations. The Investment Manager continues with plans to further enhance environmental, social and governance ('ESG') credentials going forward. The pandemic has increased the focus on climate change and the requirement to act on net zero commitments and to evidence positive social impact. In this regard, the Investment Manager continues to look at ways to improve each asset's impact, safety and relevance on a post-Covid basis and is currently undertaking impact and sustainability action plans ('ISAPs') to assess an understanding of net zero carbon analysis to enable target setting. These measures will also help to improve the Company's three green star Global Real Estate Sustainability Benchmark ('GRESB') rating.
Outlook
Whilst the recovery from the pandemic will continue to be unpredictable and disparate across industries and geographies, both the Board and the Investment Manager expect the Company to continue to be resilient due to its strong balance sheet, diversification characteristics, exposure to higher growth cities and ability to invest sale proceeds to improve income cover and diversification.
The Company continues to be a unique and compelling proposition for investors and is well placed to capitalise on the trends emerging from the pandemic, including responding to changes in occupier demand, delivering operational excellence and ensuring that sustainability priorities are instilled within the Company's investment process.
We are looking forward to the remainder of the year, focusing on tenant engagement, identifying and implementing asset management opportunities to improve the quality and longevity of the income and sourcing new acquisitions in high-growth sectors and cities, whilst our medium-term ambition to significantly scale the business remains undimmed.
Sir Julian Berney Bt.
Chairman
6 July 2021
Investment Manager's Report
Results
The NAV as at 31 March 2021 stood at EUR197.1 million (GBP167.7 million), or 147.4 euro cents (125.4 pence) per share, resulting in a NAV total return of -0.4% over the six months to 31 March 2021.
The table below provides an analysis of the movement in NAV during the reporting period as well as a corresponding reconciliation in the movement in the NAV cents per share.
% change
NAV movement EURm1 cps2 per cps3
--------------------------------------------- ----- ----- ---------
Brought forward as at 1 October 2020 201.8 150.9 -
--------------------------------------------- ----- ----- ---------
Unrealised gain in the valuation of the real
estate portfolio 10.3 7.7 5.1
Capital expenditure (4.7) (3.5) (2.3)
Movement on the Seville JV investment (8.2) (6.1) (4.0)
EPRA earnings4 2.8 2.1 1.4
Non-cash/capital items (0.9) (0.7) (0.5)
Dividends paid (4.0) (3.0) (2.0)
--------------------------------------------- ----- ----- ---------
Carried forward as at 31 March 2021 197.1 147.4 (2.3)
--------------------------------------------- ----- ----- ---------
1 Management reviews the performance of the Company principally on a proportionally consolidated basis. As a result, figures quoted in this table include the Company's share of the Seville joint venture on a line-by-line basis.
2 Based on 133,734,686 shares.
3 Percentage change based on the starting NAV as at 1 October 2020.
4 EPRA earnings as reconciled on page 33 of the condensed consolidated interim financial statements.
Strategy
The strategy over the period ended 31 March 2021 remained focused on the following key objectives:
- Mitigating the impact of the Covid-19 pandemic on the portfolio, tenants and wider stakeholders;
- Executing asset management initiatives to enhance both the income profile and individual asset values;
- Ensuring compliance with contractual obligations particularly in respect of the repositioning of Paris Boulogne-Billancourt;
- Improving the Company's net income profile to support a sustainable dividend; - Increasing exposure to higher growth sectors in Winning Cities and Regions; and - Managing portfolio risk in order to enhance the portfolio's defensive qualities.
Progress was made in executing the strategy and activity, which has delivered:
- High levels of positive tenant engagement and implementation, resulting in robust rent collection of 92% over the period;
- Management of the Paris Boulogne-Billancourt office refurbishment to ensure compliance with planning, construction, tenant and purchaser contractual requirements. The refurbishment remains on budget and to the programme with completion due Q2 2022;
- The conclusion of five new leases and re-gears, generating a 3.9% increase in annualised income relative to the previous rent at a weighted lease term of 4.1 years;
- Despite concerns around the future of the office, we have achieved full occupation at the Company's Hamburg office investment. Over the period and recent post-period end we leased the remaining two vacant floors at rents 11% above target. This success highlights the continued demand for well-located office investments in mixed-use locations that are accessible and affordable;
- Completion of the Mercadona supermarket expansion in the Seville shopping centre. Active management of this asset continues as we see continued occupancy risk, particularly in the fashion and leisure sectors. As a result of the market deterioration for shopping centres, the Group's 50% investment was written down to nil in the interim period and now comprises a no sum of the Company's NAV;
- Maintained a high occupancy level of 95%, with an average portfolio lease term to break of 4.7 years;
- Improved portfolio environmental characteristics via enhancement of the Berlin BREEAM rating, use of 100% renewable energy in Germany and improved tenant data collection across the portfolio;
- Issued SREIM's Sustainable Occupier Guide to all tenants across France, Netherlands and Spain to proactively advise occupiers on low cost initiatives to achieve reduced environmental footprints, operating costs and enhanced user wellbeing; and
- A modest LTV of 29% gross of cash and 11% net of cash, significantly below the target of 35%.
Covid-19 impact
During the period, Europe continued to battle with the Covid-19 pandemic. New, more transmissible, variants of the virus and a slower than anticipated rollout of vaccines left most governments with no choice but to re-enact tight restrictions and lockdowns to curb a strong increase in infections. These measures have delayed the economic recovery with Q1'21 Eurozone GDP falling by -0.6%. As at mid-May, conditions have however started to notably improve. The rollout of vaccines has significantly accelerated and most European countries have started to ease restrictions. This feeds hope that we are now on track for a sustained recovery boosted by the return of consumer spending in addition to the already stronger export trade.
The pandemic has accelerated many of those structural changes that we were already seeing. The temporary closure of much of non-essential retail has accelerated the move towards consumers shopping online and while some are returning to physical stores, some turnover has been permanently shifted online. This has also further fuelled demand for logistics space. At the same time, office occupiers are rethinking their workplace utilisation and policies for flexible working with future work patterns likely to be a much more hybrid mix of office and home working.
As a landlord, we have seen an increasing importance in understanding and working with our tenants and have taken on our responsibility to support them with the challenges they face. In some instances, tenants have not accepted our assistance and elected to close; for example in the fashion industry. The Company's diversification has proven indispensable in navigating the pandemic. Active tenant engagement coupled with exposure to resilient sectors such as logistics, DIY, grocery, data centre and accessible office locations has resulted in healthy rent collection and valuation resilience.
We continue to focus on the safety and wellbeing of our tenants, suppliers and other stakeholders, whilst also protecting shareholders' long-term interests.
Market overview
Economic outlook
The initially slow rollout of Covid-19 vaccines in the EU and the new surge in infections during March and April means that many countries are likely to remain in lockdown or under tight measures to control the spread of the virus. Accordingly, Schroders now expects the recovery in eurozone consumer spending once non-essential shops, bars and restaurants re-open to begin in the second half of 2021. Germany is likely to be the first of the big four countries to get back to its pre-virus level of GDP, thanks to the recent strength of its exports trade with Asia and the US. Italy and Spain, which are more reliant on tourism, may not fully recover until 2023. The rebound in energy and commodity prices means that inflation is likely to accelerate to 2% by the end of 2021, before easing to 1.2% next year. We expect the ECB to leave the refinancing rate at zero and continue with quantitative easing through to the end of 2022.
Offices
European office markets saw leasing volumes picking up in Q4'20 as a result of pent-up demand after very slow activity in the summer months. The news of a Brexit deal, and the start of vaccination campaigns, sparked some optimism at the start of this year. However, renewed measures to control infections have dented hopes for a speedy return to the office for most companies. Office leasing activity in Q1'21 remained subdued with leasing volumes down 10-15% on both, Q4'20 and Q1'20. With uncertainty remaining high, many tenants are preferring to stay put and look to renew their leases or seek short-term extensions while they analyse the impact of the crisis on their businesses and future space requirements, especially with regards to establishing hybrid workplace strategies. While demand remains muted, office schemes started before the pandemic continued to complete and together with more space offered for sub-letting led to an increase in vacancy in most major markets; albeit still from often low levels. These low levels of vacancy, particularly for quality space in key city centre locations, continue to support prime rents. We expect prime rents to remain robust, but effective rents to soften further while rents for secondary space should stabilise in 2022/23. It is also very noticeable that occupiers are looking carefully at the quality of offices for the rent paid.
Retail
The repeated opening and closing of non-essential shops has badly disrupted non-food retailing in continental Europe. While omni-channel retailers have been able to partially make up for lost store sales by selling online, many legacy brands have not and the sector has seen a series of bankruptcies in recent months. Fashion has been hit particularly hard and the average vacancy rate in shopping centres has jumped to 11% from 8% in 2019. We forecast prime shop and shopping centre rents in the eurozone to fall by 20% over the next three years. Pressure on rents and vacancy is further exacerbated by the planned shop closure and consolidation of traditional fashion anchors such as H&M and Zara in the coming months. By contrast, we expect food store rents to grow by 1.5% p.a. in line with food sales. The sector has proven highly resilient to online diversion in continental Europe and there is ongoing demand for new stores.
Logistics/industrial
Demand for warehouses in continental Europe has remained strong through the pandemic. The main driver has been the increase in online retail sales and while growth will slow once non-essential stores re-open it will not stop. Projections suggest that the internet's share of retail sales in Western Europe excluding the UK will increase from 11% in 2019 and 17% in 2020 to 24% in 2025. In addition, innovations in handling equipment including robots are creating demand for new, green and modern warehouses that can accommodate such technology. Although the flipside is the release of second-hand space as occupiers vacate older units. In general, logistics' vacancy rates remain low at around 5%. Supply has been increasing in recent months, but we expect industrial rental growth in most of continental Europe to average 2% p.a. over the next three years, with multi-let industrial estates seeing faster growth than big distribution sheds, because of more constraints on new development.
Real estate portfolio
Following the sale of Paris Boulogne-Billancourt, the Company owns a portfolio of 12 institutional grade properties valued at EUR202.9 million 1 . The portfolio is 95% let and located across those Winning Cities and Regions in France, Germany, Spain and Netherlands. All investments are 100% owned except for the Metromar shopping centre, Seville, where the Company holds a 50% interest.
The table below shows the top ten properties:
Rank Property Country Sector EURm1 % of total1
----- ------------------------ ----------- ----------------- ----- -----------
1 Paris (Saint-Cloud) France Office 39.8 15
2 Berlin Germany Retail / DIY 28.7 11
3 Hamburg Germany Office 20.0 8
4 Rennes France Industrial 18.9 7
5 Apeldoorn Netherlands Mixed 18.6 7
6 Stuttgart Germany Office 18.5 7
Retail / Shopping
7 Seville (50%) Spain Center 15.1 6
8 Venray Netherlands Industrial 11.4 4
9 Frankfurt Germany Retail / Grocery 11.2 4
10 Rumilly France Industrial 9.9 4
----- ------------------------ ----------- ----------------- ----- -----------
Top ten properties 192.1 73
-------------------------------------------- ----------------- ----- -----------
11-12 Remaining two properties Netherlands Industrial 10.8 5
----- ------------------------ ----------- ----------------- ----- -----------
Total portfolio value 202.9 78
-------------------------------------------- ----------------- ----- -----------
Investible cash 57.0 22
----- ------------------------ ----------- ----------------- ----- -----------
Adjusted GAV 259.9 100
-------------------------------------------- ----------------- ----- -----------
1 Reflects the Company's 50% share of the Seville property valued at EUR15.1 million as at 31 March 2021.
The table below sets out the top ten tenants, which are from a diverse range of industry segments and represent 66% of the portfolio:
Contracted rent
----------------- ----------- ------------
WAULT break WAULT expiry
Rank Tenant Industry Property EURm % of total (yrs) (yrs)
---- ------------------- ---------------- ------------------- ----- ---------- ----------- ------------
1 KPN Telecom Apeldoorn 2.5 16.7 5.8 5.8
2 Hornbach DIY Berlin 1.6 10.6 4.8 4.8
3 C-Log Logistics Rennes 1.1 7.2 9.9 9.9
4 Filassistance Insurance Paris (Saint-Cloud) 0.9 5.7 0.8 5.8
5 Cereal Partners Consumer staples Rumilly 0.7 4.7 4.1 5.1
6 DKL Logistics Venray 0.7 4.5 7.5 7.5
7 Land BW Government Stuttgart 0.7 4.3 5.3 5.3
8 Outscale IT Paris (Saint-Cloud) 0.6 4.3 5.0 8.0
9 Inventum Industrial Manufacturing Houten 0.6 4.0 5.2 5.2
10 Ethypharm Pharmaceutical Paris (Saint-Cloud) 0.6 3.7 0.2 5.8
---- ------------------- ---------------- ------------------- ----- ---------- ----------- ------------
Total top ten tenants 10.0 65.7 5.2 6.2
------------------------- ---------------- ------------------- ----- ---------- ----------- ------------
Remaining tenants 5.1 34.3 3.6 5.1
------------------------- ---------------- ------------------- ----- ---------- ----------- ------------
Total 15.1 100.0 4.7 5.8
------------------------- ---------------- ------------------- ----- ---------- ----------- ------------
The rent collection associated with the top ten tenants over the six month period stood at 98.5%.
The portfolio generated EUR15.1 million p.a. in contracted income. The average unexpired lease term is 4.7 years to first break and 5.8 years to expiry.
The lease expiry profile to earliest break is shown on the graph on page 14 of the condensed consolidated interim financial statements. 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.
Transactions
A key target for the Company over the remainder of 2021/2022 is to redeploy the Paris Boulogne-Billancourt proceeds in line with the stated objective of targeting income producing commercial real estate in Winning Cities and Regions of Continental Europe. We have been seeking to further diversify the Company's portfolio by both number of assets and tenants, as well as increase its allocation to the high growth industrial sector. For example, the acquisition (post period end) of the Nantes logistics asset for EUR6.15 million, reflecting a net initial yield of 5.5%.
Portfolio performance
Over the last 12 months the underlying property portfolio generated a total property return of 13.9%. The portfolio income return amounted to 5.4% and the portfolio capital return to 8.1% net of capex.
During the first six months of the current financial year to 31 March, the underlying property portfolio generated total property returns of 2.4% which, in aggregation, were driven almost entirely by income. Property capital returns remained flat, despite a significant value decline in the Seville property, as valuation growth has been witnessed in the majority of other assets led by industrial and DIY.
The strongest contributors to portfolio performance during the six months period were:
- The Hamburg office property delivering a +10% total return: favourable leasing activity resulted in a valuation increase of EUR1.6 million;
- The Berlin DIY property delivering a +7% total return: valuation increase of EUR1.1 million mainly due to an improved yield re-rating;
- The industrial portfolio delivering an average 10% total return: improved yield re-rating across the industrial portfolio, delivering a valuation increase of EUR3.3 million over six months;
- The value of the Company's 50% interest in the Seville shopping centre declined by EUR6.2 million. The value of the Company's investment in the Seville shopping centre was written down to nil in the interim period. This reflects the recent increase in vacancy, declining ERVs and increase in the risk to trading at shopping centres from the pandemic in general, which increased the pressure on the yield of the asset. This is the only asset in the portfolio where the valuers continue to adopt a material valuation uncertainty clause; and
- Most of the strong positive performance impact from the Paris Boulogne-Billancourt lease re-gear and forward funded sale was taken into account in the previous year's financial returns and property returns for this asset were mostly flat during the current period.
Finance
As at 31 March 2021, the Company's total external debt was EUR80.7 million, across seven loan facilities. This represents a loan to value ('LTV') net of cash of 11% against the Company's gross asset value (gross of cash LTV is 29%). Cash levels are high, as the Company has received 50% from the agreed sale price of Paris Boulogne-Billancourt. There is a net of cash LTV cap of 35% that restricts concluding new external loans if the Company's net LTV is above 35%. An increase in leverage above 35% as a result of valuation decline is excluded from this cap. The current blended all-in interest rate is 1.4% and the average remaining loan term is 3.4 years.
The individual loans are detailed in the table below. Each loan is held at the property-owning level instead of the group level and is secured by the individual properties noted in the table. There is no cross-collateralisation between loans. Each loan has specific LTV and income default covenants. We detail the headroom against those covenants in the latter two columns of the table below.
Headroom
Headroom net income
LTV default default
Maturity Outstanding Interest covenant covenant
Lender Property date principal rate (% decline) (% decline)
------------------------ ------------------ ----------- ----------- ------------- --------------- ------------
Paris (Saint
BRED Banque Populaire Cloud) 15/12/2024 EUR17.00m 3M Eur +1.34% -29% -47%
Deutsche Pfandbriefbank
AG Berlin/Frankfurt 30/06/2026 EUR16.50m 1.31% -33% -40%
Deutsche Pfandbriefbank
AG Stuttgart/Hamburg 30/06/2023 EUR14.00m 0.85% -37% -29%
Münchener
Hypothekenbank
eG Seville (50%)1 22/05/2024 EUR11.68m 1.76% breach expected cash trap
Utrecht, Venray,
HSBC Bank Plc Houten 27/09/2023 EUR9.25m 3M Eur +2.15% -33% -54%
Landesbank SAAR Rennes 28/03/2024 EUR8.60m 3M Eur +1.40% -24% -75%
Landesbank SAAR Rumilly 30/04/2023 EUR3.70m 3M Eur +1.30% -28% -86%
------------------------ ------------------ ----------- ----------- ------------- --------------- ------------
Total EUR80.73m
--------------------------------------------------------- ----------- ------------- --------------- ------------
1 Includes the Company's 50% share of external debt in the Seville joint venture of EUR11.7 million and excludes unamortised finance costs.
For the Seville shopping centre, a reduction in rental income has resulted in a requirement under the loan to retain all excess income generated by the Seville property in the property-owning special purpose vehicle. This position will continue until the rental income increases sufficiently to meet the level required under the loan. The bank which is financing the Seville property expects to instruct a new valuation to formally test the Loan-to-Value ("LTV") covenant which, based on the Company's revised asset value, is likely to show that the 60% LTV covenant has been breached. The loan is secured solely against the Seville investment, with no recourse back to the Company or any other entity within the Group. The Investment Manager continues to work proactively with its lending partner regarding next steps.
The German and Spanish loans are fixed rate for the duration of the loan term. The French and Netherlands loans are based on a margin above three-month Euribor. The Company has acquired interest rate caps to limit future potential interest costs if Euribor were to increase. The strike rates on the interest rate caps are between 0.25% p.a. and 1.25% p.a.
The Company entered into a revolving credit facility in relation to the Paris Boulogne-Billancourt refurbishment. The maximum amount that can be drawn down is EUR13.6 million. So far the revolving credit facility remains unused.
Outlook
Whilst uncertainty relating to the pandemic will continue, we are starting to see some positive signs of a return to growth over 2021 as lockdowns increasingly ease and confidence returns.
We expect performance between the sectors to remain polarised over the short term, with industrial the best performing and retail the weakest of the three main sectors. The pandemic has fast tracked certain structural changes. The Company's exposure to industrial, data centres, DIY, grocery and well-located offices in European Winning Cities and Regions positions it well to prosper post the pandemic.
Looking forward, the real estate sector is becoming increasingly operational, with technology arguably increasing a building's physical life whilst limiting its economic life. This could increase obsolescence and therefore favour buildings in mixed-use, densely populated urban areas that can be adapted to new technologies and changing occupier trends. Occupiers will also require more personalised service levels and increased engagement with landlords so that both can deliver their sustainability objectives.
Having agreed the transformational lease and the forward funded sale of the office in Boulogne-Billancourt, Paris in late 2020, the focus is now to ensure that we fulfil the contractual obligations with both the tenant and purchaser through to completion. In addition we are looking to maximise occupancy across the portfolio, shoring up existing leases and reducing vacancy in assets such as Saint-Cloud and Seville.
The proceeds from the sale of Boulogne-Billancourt strengthen the Company's balance sheet, providing significant operational and financial flexibility. We continue to review and are in various stages of the acquisition process regarding new investments that will diversify and strengthen our exposure to Winning Cities and Regions. Despite the pandemic there is little (if any) banking distress pushing landlords to sell. We are electing to be patient and expect the availability of product to improve as we move through 2021.
Implementation of the above should assist in maintaining an attractive dividend covered from sustainable rental income and maximising shareholder returns.
Jeff O'Dwyer
Fund Manager
Schroder Real Estate Investment Management Limited
6 July 2021
Principal risks and uncertainties
The principal risks and uncertainties with the Company's business relate to the following risk categories: investment policy and strategy; implementation of investment strategy, economic and property market; custody; gearing and leverage; accounting, legal and regulatory; valuation; service provider; and health and safety. A detailed explanation of the risks and uncertainties in each of these categories can be found on pages 29 to 31 of the Company's published Annual Report and Consolidated Financial Statements for the year ended 30 September 2020.
The ongoing Covid-19 pandemic continues to heighten some of these risks, in particular, economic and property market risk, valuation risk, and gearing and leverage risk.
Insofar as the pandemic has impacted the economic and property market, the Investment Manager has been in close contact with property managers and tenants since the start of the pandemic with an ongoing focus on rent collection, reducing risk and implementing new property management procedures to ensure tenants and consumers can return safely to properties. Rental collection rates across the portfolio have been high over the course of the pandemic: rent collection for the quarter ended 31 December 2020 stood at 89%, rising to 94% for the quarter ended 31 March 2021.
From the perspective of the refurbishment and forward funded sale of Boulogne-Billancourt, the pandemic has increased the risk associated with the fulfilment of the construction contract on time and to budget. This is being carefully monitored and, to date, the development remains on track to be handed over to the purchaser in Q2 2022. While the forward funded sale of Boulogne-Billancourt also carries with it the risk that the Company will not be able to reinvest the proceeds at a target yield required to achieve full dividend cover, the investment manager is actively pursuing opportunities as they arise, and has so far exchanged contracts on an asset in Nantes at a net initial yield of 5.5%.
In respect of the impact on valuations, while the portfolio value overall has remained resilient, there has been a decline in the value of the Seville Shopping Centre and a material uncertainty clause continues to apply to the valuation of that asset as at the date of this Report. As set out in more detail in the Investment Manager's Report on page 15 of the condensed consolidated interim financial statements, it is expected that the bank financing the Seville asset will instruct a new valuation to test the LTV covenant, and such valuation is likely to show that the 60% LTV covenant has been breached. There is already a cash trap in place in regard to the income covenant. The loan is secured solely against the Seville investment, with no recourse back to the Company or any other entity. There is currently headroom on all other default covenants. Gearing covenants are being monitored closely and an open dialogue with lenders is being maintained, in particular, in relation to the Seville asset.
Other than as outlined above, the principal risks and uncertainties have not materially changed during the six months ended 31 March 2021.
Going concern
The Board believes it is appropriate to adopt the going concern basis in preparing the financial statements. A comprehensive going concern statement setting out the reasons the Board considers this to be the case is set out in note 1 on page 24 of the condensed consolidated interim financial statements.
Related party transactions
There have been no transactions with related parties that have materially affected the financial position or the performance of the Company during the six months ended 31 March 2021. Related party transactions are disclosed in note 13 of the condensed consolidated interim financial statements.
Statement of Directors' responsibilities
The Directors confirm that to the best of their knowledge:
- The half year report and condensed consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union; and
- The Interim Management Report includes a fair review of the information required by 4.2.7R and 4.2.8R of the Financial Conduct Authority's Disclosure Guidance and Transparency Rules.
Sir Julian Berney Bt.
Chairman
6 July 2021
Condensed Consolidated Interim Statement of Comprehensive Income
For the period ended 31 March 2021
Six months Six months
to to
31 March 31 March Year to
30 September
2021 2020 2020
EUR000 EUR000 EUR000
Notes (unaudited) (unaudited) (audited)
-------------------------------------------------- ----- ------------ ------------ -------------
Rental and service charge income 2 8,198 9,859 19,235
Property operating expenses (1,923) (2,794) (5,690)
-------------------------------------------------- ----- ------------ ------------ -------------
Net rental and related income 6,275 7,065 13,545
Net gain from fair value adjustment on
investment property 3 5,462 2,907 25,505
Development revenue 4 2,741 - -
Development expense 4 (2,767) - -
Realised loss on foreign exchange (1) (6) -
Net change in fair value of financial
instruments at fair value through profit
or loss 1 6 (21)
Provision for loan made to Seville joint
venture 5 (8,248) (1,097) (2,622)
Dividends received 6 - - 67
Expenses
Investment management fee 13 (1,099) (969) (1,945)
Valuers' and other professional fees (269) (481) (1,004)
Administrator's and accounting fees (210) (178) (362)
Auditors' remuneration (218) (205) (367)
Directors' fees 13 (90) (73) (139)
Other expenses (394) (197) (551)
-------------------------------------------------- ----- ------------ ------------ -------------
Total expenses (2,280) (2,103) (4,368)
-------------------------------------------------- ----- ------------ ------------ -------------
Operating profit 1,183 6,772 32,106
Finance income 223 227 730
Finance costs (584) (570) (1,131)
-------------------------------------------------- ----- ------------ ------------ -------------
Net finance costs (361) (343) (401)
-------------------------------------------------- ----- ------------ ------------ -------------
Share of loss of joint venture 6 - (684) (2,378)
Profit before taxation 822 5,745 29,327
Taxation 7 (1,563) (785) (925)
-------------------------------------------------- ----- ------------ ------------ -------------
(Loss)/profit for the period/year (741) 4,960 28,402
Other comprehensive income:
Other comprehensive loss items that may
be reclassified to profit or loss:
Currency translation differences 18 (21) (4)
-------------------------------------------------- ----- ------------ ------------ -------------
Total other comprehensive income/(expense) 18 (21) (4)
-------------------------------------------------- ----- ------------ ------------ -------------
Total comprehensive (expense)/income for
the period/year (723) 4,939 28,398
-------------------------------------------------- ----- ------------ ------------ -------------
Basic and diluted earnings per share attributable
to owners of the parent 8 (0.6c) 3.7c 21.2c
-------------------------------------------------- ----- ------------ ------------ -------------
All items in the above statement are derived from continuing operations. The accompanying notes 1 to 15 form an integral part of the condensed consolidated interim financial statements.
Condensed Consolidated Interim Statement of Financial Position
For the period ended 31 March 2021
Six months Six months
to to
31 March Year to 31 March
30 September
2021 2020 2020
EUR000 EUR000 EUR000
Notes (unaudited) (audited) (unaudited)
-------------------------------------- ----- ------------ ------------- ------------
Assets
Non-current assets
Investment property 3 186,848 181,093 224,143
Investment in joint venture 6 - - 1,694
Loan to joint venture 5 - 7,543 8,980
-------------------------------------- ----- ------------ ------------- ------------
Non-current assets 186,848 188,636 234,817
-------------------------------------- ----- ------------ ------------- ------------
Non-current assets held for sale 4 - 65,200 -
-------------------------------------- ----- ------------ ------------- ------------
Current assets
Trade and other receivables 4 29,874 6,967 8,172
Interest rate derivative contracts 22 20 48
Cash and cash equivalents 57,724 18,035 18,535
-------------------------------------- ----- ------------ ------------- ------------
Current assets 87,620 25,022 26,755
-------------------------------------- ----- ------------ ------------- ------------
Total assets 274,468 278,858 261,572
-------------------------------------- ----- ------------ ------------- ------------
Equity
Share capital 17,966 17,966 15,050
Share premium 43,005 43,005 29,984
Retained earnings 19,473 24,173 4,442
Other reserves 116,700 116,682 132,602
-------------------------------------- ----- ------------ ------------- ------------
Total equity 197,144 201,826 182,078
-------------------------------------- ----- ------------ ------------- ------------
Liabilities
Non-current liabilities
-------------------------------------- ----- ------------ ------------- ------------
Interest-bearing loans and borrowings 9 68,436 68,372 68,293
Deferred tax liability 7 2,836 1,924 1,900
-------------------------------------- ----- ------------ ------------- ------------
Non-current liabilities 71,272 70,296 70,193
-------------------------------------- ----- ------------ ------------- ------------
Current liabilities
Trade and other payables 5,966 6,736 8,994
Current tax liabilities 7 86 - 307
-------------------------------------- ----- ------------ ------------- ------------
Current liabilities 6,052 6,736 9,301
-------------------------------------- ----- ------------ ------------- ------------
Total liabilities 77,324 77,032 79,494
-------------------------------------- ----- ------------ ------------- ------------
Total equity and liabilities 274,468 278,858 261,572
-------------------------------------- ----- ------------ ------------- ------------
Net asset value per ordinary share 11 147.4c 150.9c 136.2c
-------------------------------------- ----- ------------ ------------- ------------
The accompanying notes 1 to 15 form an integral part of the condensed consolidated interim financial statements.
Condensed Consolidated Interim Statement of Changes in Equity
For the period ended 31 March 2021
Share Share Retained Other Total
capital premium earnings reserves equity
Notes EUR000 EUR000 EUR000 EUR000 EUR000
--------------------------- ----- -------- -------- --------- --------- -------
Balance as at 1 October
2020 17,966 43,005 24,173 116,682 201,826
--------------------------- ----- -------- -------- --------- --------- -------
Loss for the period - - (741) - (741)
Other comprehensive income
for the period - - - 18 18
Dividends paid 12 - - (3,959) - (3,959)
--------------------------- ----- -------- -------- --------- --------- -------
Balance as at 31 March
2021 (unaudited) 17,966 43,005 19,473 116,700 197,144
--------------------------- ----- -------- -------- --------- --------- -------
Share Share Retained Other Total
capital premium earnings reserves equity
Notes EUR000 EUR000 EUR000 EUR000 EUR000
----------------------------- ----- -------- -------- --------- --------- -------
Balance as at 1 October
2019 15,080 30,043 4,430 132,534 182,087
----------------------------- ----- -------- -------- --------- --------- -------
Profit for the year - - 28,402 - 28,402
Other comprehensive loss
for the year - - - (4) (4)
Dividends paid 12 - - (8,659) - (8,659)
Adjustment to reflect change
in accounting policy 2,886 12,962 - (15,848) -
----------------------------- ----- -------- -------- --------- --------- -------
Balance as at 30 September
2020 (audited) 17,966 43,005 24,173 116,682 201,826
----------------------------- ----- -------- -------- --------- --------- -------
Share Share Retained Other Total
capital premium earnings reserves equity
Notes EUR000 EUR000 EUR000 EUR000 EUR000
---------------------------- ----- -------- -------- --------- --------- -------
Balance as at 1 October
2019 15,080 30,043 4,430 132,534 182,087
Profit for the period - - 4,960 - 4,960
Other comprehensive loss
for the period - - - (21) (21)
Dividends paid 12 - - (4,948) - (4,948)
Unrealised foreign exchange (30) (59) - 89 -
---------------------------- ----- -------- -------- --------- --------- -------
Balance as at 31 March
2020 (unaudited) 15,050 29,984 4,442 132,602 182,078
---------------------------- ----- -------- -------- --------- --------- -------
The accompanying notes 1 to 15 form an integral part of the condensed consolidated interim financial statements.
Condensed Consolidated Interim Statement of Cash Flows
For the period ended 31 March 2021
Six months Six months
to to
31 March 31 March Year to
30 September
2021 2020 2020
EUR000 EUR000 EUR000
Notes (unaudited) (unaudited) (audited)
--------------------------------------------- ----- ------------- ------------- --------------
Operating activities
Profit before tax for the period/year 822 5,745 29,327
Adjustments for:
Net gain from fair value adjustment on
investment property 3 (5,462) (2,907) (25,505)
Share of loss of joint venture 6 - 684 2,378
Realised foreign exchange loss 1 6 -
Finance income (223) (227) (730)
Finance costs 584 570 1,131
Net change in fair value of financial
instruments at fair value through profit
or loss (1) (6) 21
Provision of loan made to Seville joint
venture 5 8,248 1,097 2,622
Dividends received from joint venture 6 - - (67)
Operating cash generated before changes
in working capital 3,969 4,962 9,177
Increase in trade and other receivables (6,492) (1,648) (290)
Decrease in trade and other payables (829) (494) (2,093)
--------------------------------------------- ----- ------------- ------------- --------------
Cash generated from operations (3,352) 2,820 6,794
Finance costs paid (519) (813) (1,153)
Finance income received 1 226 283
Tax paid 7 (556) (552) (984)
--------------------------------------------- ----- ------------- ------------- --------------
Net cash generated from operating activities (4,426) 1,681 4,940
--------------------------------------------- ----- ------------- ------------- --------------
Investing activities
Proceeds from sale of investment property 4 52,929 - -
Additions to investment property (4,873) (1,900) (1,970)
Net cash used in investing activities 48,056 (1,900) (1,970)
--------------------------------------------- ----- ------------- ------------- --------------
Financing activities
Proceeds from borrowings 9 - 7,700 7,700
Interest rate cap purchased - (25) (25)
Dividends paid 12 (3,959) (4,948) (8,659)
--------------------------------------------- ----- ------------- ------------- --------------
Net cash generated from financing activities (3,959) 2,727 (984)
--------------------------------------------- ----- ------------- ------------- --------------
Net increase in cash and cash equivalents
for the period/year 39,671 2,508 1,986
--------------------------------------------- ----- ------------- ------------- --------------
Opening cash and cash equivalents 18,035 16,053 16,053
--------------------------------------------- ----- ------------- ------------- --------------
Effects of exchange rate change on cash 18 (26) (4)
Closing cash and cash equivalents 57,724 18,535 18,035
--------------------------------------------- ----- ------------- ------------- --------------
The accompanying notes 1 to 15 form an integral part of the condensed consolidated interim financial statements.
Notes to the Financial Statements
1. Significant accounting policies
The Company is a closed-ended investment company incorporated in England and Wales. The condensed consolidated interim financial statements of the Company for the period ended 31 March 2021 comprise those of the Company and its subsidiaries (together referred to as the 'Group'). The shares of the Company are listed on the London Stock Exchange (Primary listing) and the Johannesburg Stock Exchange (Secondary listing). The registered office of the Company is 1 London Wall Place, London, EC2Y 5AU.
These condensed consolidated interim financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 30 September 2020 were approved by the Board of Directors on 8 December 2020 and were delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.
These condensed consolidated interim financial statements have been reviewed and not audited.
Statement of compliance
The condensed consolidated interim financial statements have been prepared in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom Financial Conduct Authority and IAS 34 Interim Financial Reporting as adopted by the European Union ('EU'). They do not include all of the information required for the full annual financial statements and should be read in conjunction with the consolidated financial statements of the Group as at and for the year ended 30 September 2020. The condensed consolidated interim financial statements have been prepared on the basis of the accounting policies set out in the Group's consolidated financial statements for the year ended 30 September 2020. The consolidated financial statements for the year ended 30 September 2020 have been prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the EU. The Group's annual financial statements refer to new Standards and Interpretations, none of which had a material impact on the financial statements.
The Company and consolidated year end financial statements as at 30 September 2021 will be prepared under 'international accounting standards in conformity with the Companies Act 2006' as opposed to EU-IFRS. This will have no impact on recognition, measurement or disclosure.
Basis of preparation
The condensed consolidated interim financial statements are presented in euros rounded to the nearest thousand. They are prepared on a going concern basis, applying the historical cost convention, except for the measurement of investment property and derivative financial instruments that have been measured at fair value. The accounting policies have been consistently applied to the results, assets, liabilities and cash flow of the entities included in the condensed consolidated interim financial statements and are consistent with those of the year end financial report.
Revenue from forward funded sale contracts
Performance obligations of such contracts with a counterparty are identified at source.
The transaction price for the sale of the asset is determined with regard to the deemed fair value of the asset at the date of the transfer of the legal title to the purchaser.
Where a development obligation includes variable revenue, consideration is given to the sum of any contractual penalties; the percentage of the total development cost incurred and the stage of completion; the milestones successfully achieved and the likelihood of meeting further future milestones; the timing of future contractual receipts; and the wider overall risks attributable to the development at the end of the reporting period. A percentage of the total development revenue is then calculated with regard to these factors and recognised in the financial statements.
For specific further details with regards to the Boulogne-Billancourt, Paris forward funded sale agreement, see note 4.
Going concern
The outbreak of Covid-19, declared by the World Health Organization as a 'Global Pandemic' on 11 March 2020, has and continues to impact many aspects of daily life and the global economy, with some real estate markets having experienced lower levels of transactional activity and liquidity. Travel restrictions have been implemented by many countries and 'lockdowns' applied to varying degrees. Whilst restrictions have now been lifted in some cases, local lockdowns may continue to be deployed as necessary and the emergence of significant further outbreaks is possible.
The Directors have examined significant areas of possible risk including: the ability to successfully implement business continuity plans of both the Company and its key suppliers during the pandemic; the non-collection of rent and service charges, potential falls in valuations, the refurbishment of the Boulogne-Billancourt asset, the review of cash flow forecasts and have analysed forward-looking compliance with third party debt covenants, in particular the loan to value covenant and interest cover ratios.
Despite the ongoing pandemic, for the quarter to 31 December 2020, the portfolio rent collection was 89%, increasing to 94% in March 21. Further details are provided under 'Covid-19 impact' in the Investment Manager's Review on page 15 of the condensed consolidated interim financial statements. Rent collection is being closely monitored by the Investment Manager.
Cash flow forecasts based on severe but plausible downside scenarios have led the Board to conclude that the Group will have sufficient cash reserves to continue in operation for the foreseeable future.
The Company has seven loans secured by individual assets or groups of assets with no cross-collateralisation. All loans are in compliance with their default covenants, though there is a cash trap in operation for the external loan in the Seville joint venture and the bank, which is financing the Seville property, has indicated that it expects to instruct a new valuation to formally test the LTV covenant in Q3 2021 which, based on the Company's 31 March 2021 value, is likely to show that the 60% LTV covenant has been breached. The Seville loan is non-recourse and the breach will have no further impact to the financial position of the Group. More detail of the individual loans, and headroom on the loan to value and net income default covenants, is provided in the Investment Manager's Report on page 12 of the condensed consolidated interim financial statements.
After due consideration, the Directors have not identified any material uncertainties which would cast significant doubt on the Group's ability to continue as a going concern for a period of not less than 12 months from the date of the approval of the consolidated and Company financial statements.
Use of estimates and judgements
The preparation of financial statements in conformity with IFRS, as adopted by the EU, requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. These estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.
The most significant estimates made in preparing these financial statements relate to the carrying value of investment properties, as disclosed in note 3, including those within joint ventures, which are stated at fair value. The fair value of investment property is inherently subjective because the valuer makes assumptions which may not prove to be accurate. The Group uses an external professional valuer to determine the relevant amounts.
Another key estimate is the impairment of receivables, inter-company loans and loan to joint venture under the IFRS 9 expected credit loss model. The Group assesses the impairment on a forward-looking basis. In determining the expected credit loss, the Group considers: the 'probability of default' which is the likelihood that the borrower would not be able to repay in a very short payment period and this forms the basis of the credit risk rating; the 'loss given default' which is the loss that occurs if the borrower is unable to repay in that very short payment period; and the 'exposure at default' which is the outstanding balance at the reporting date. Judgement is then used to assess the credit risk rating of the joint venture loan which are stated below.
The following are key areas of judgement:
- Accounting for the disposal price of Boulogne-Billancourt, Paris: Management have deemed that the fair value of the asset, which was sold in December 2020, was equal to the third party valuation of the asset which was undertaken in December 2020. The disposal price is deemed to be a fixed amount that the purchaser will pay for the asset and the remaining consideration under the sale agreement is judged to be development revenue (see below).
- Accounting for development revenue and variable consideration: When estimating an appropriate level of development revenue to be recognised in the reporting period, the Group considered the contractual penalties of not meeting certain criteria within the agreement; the total development costs incurred; the stage of completion of the refurbishment; the milestones achieved and still to be achieved; the timing of further future cash receipts from the purchaser; and the overall general development risk to form a considered judgement of revenue to be appropriately recognised in the financial statements. See note 4 for further details of the estimated variable consideration.
- Tax provisioning and disclosure: Management uses external tax advisers to monitor changes in tax laws in countries where the Group has operations. New tax laws that have been substantively enacted are recognised in the Group's financial statements. Where changes to tax laws give rise to a contingent liability the Group discloses these appropriately within the notes to the financial statements.
- IFRS 9 expected credit loss: IFRS 9 became effective for accounting periods of entities beginning on or after 1 January 2018 and requires an impairment review to be made for certain financial assets held on a Group's balance sheet using a forward-looking expected credit loss model. All receivables, inter-company and joint venture loans are considered to be such financial assets and must therefore be assessed at each reporting period for potential impairment. Where any impairment is required to be made, appropriate recognition is required in the Condensed Consolidated Interim Statement of Comprehensive Income together with appropriate disclosure and sensitivity analysis in the notes to the financial statements (see note 5). The Seville joint venture loan has been determined as a stage two loan and the lifetime expected credit loss has been calculated. The following factors were considered when determining the probability of default used for the impairment provision calculation for the Seville joint venture loan: the property valuation and future potential movements; debt covenants, their headroom and that there is a cash trap in place; cash flow forecasts; the effects of the local lockdown measures in Spain on tenants and their trading; and rent collection rates. An evaluation of these factors has allowed management to make a judgement on the probability of default which is considered to be the key input for the impairment calculation.
Segmental reporting
The Directors are of the opinion that the Group is engaged in a single segment of business, being property investment, and in one geographical area, Continental Europe. The chief operating decision-maker is considered to be the Board of Directors who are provided with consolidated IFRS information on a quarterly basis.
Financial risk factors
The main risks arising from the Group's financial instruments and investment properties are: market price risk, currency risk, credit risk, liquidity risk and interest rate risk. The Board regularly reviews and agrees policies for managing each of these risks.
Credit risk and market risk are the two that have been most affected by Covid-19.
Credit risk
The Directors have considered the impact of Covid-19 on the recoverability of its assets. With regard to trade and other receivables, 94% of the March quarter rents were collected and sufficient impairment provisions were made against aged tenant receivables where these were doubtful. Management will continue to monitor the ability of the tenants to pay in future.
With regard to the loan to the Seville joint venture, the Directors have assessed this for an expected credit loss under IFRS 9 and, consequently, have recognised an impairment against the receivable, see note 5 for further details.
Market risk
The pandemic and the measures taken to tackle Covid-19 continue to affect economies and real estate markets globally. Nevertheless, as at the interim period, some property markets have started to function again, with transaction volumes and other relevant evidence returning to levels where an adequate quantum of market evidence exists upon which to base opinions of market value. While it is possible to identify the real estate sectors most exposed to the outbreak of the Covid-19 pandemic, there is no clear way to identify how significant the downside risks will be and what the ultimate impact on real estate valuations will be and therefore the external valuer has included a 'materiality valuation uncertainty' clause for the Seville shopping centre as stated in note 6. The sensitivity of the market value of the investment properties to changes in the equivalent yield is also disclosed in note 3.
2. Rental and service charge income
Six months Six months
to to Year to
31 March 31 March 30 September
2021 2020 2020
EUR000 EUR000 EUR000
(unaudited) (unaudited) (audited)
---------------------- ------------ ------------ -------------
Rental income 6,502 7,563 15,264
Service charge income 1,696 2,296 3,971
---------------------- ------------ ------------ -------------
Total 8,198 9,859 19,235
---------------------- ------------ ------------ -------------
3. Investment property
EUR000
--------------------------------------------- ---------
Fair value at 30 September 2019 (audited) 218,896
Additions 1,892
Net valuation gain on investment property 25,505
Transfer to non-current assets held for sale (65,200)
--------------------------------------------- ---------
Fair value as at 30 September 2020 (audited) 181,093
Additions 732
Net valuation gain on investment property 5,023 (1)
Fair value as at 31 March 2021 (unaudited) 186,848
--------------------------------------------- ---------
1 Excludes EUR439,000 of unrealised gain on asset held of sale
The fair value of investment properties, as determined by the valuer, totals EUR187,835,000 (30 September 2020: EUR182,100,000) with the valuation amount relating to a 100% ownership share for all the assets in the portfolio.
None of this amount is attributable to trade or other receivables in connection with lease incentives. The fair value of investment properties per the condensed consolidated interim financial statements of EUR186,848,000 includes a tenant incentive adjustment of EUR987,000 (30 September 2020: EUR1,007,000).
As at 31 March 2021, the material valuation uncertainty clause has been removed from the valuation report for all directly held assets in the Group's investment property balance but still applies to the Seville shopping centre held in the joint venture investment. Please see note 6 for further details.
The fair value of investment property has been determined by Knight Frank LLP, a firm of independent chartered surveyors, who are registered independent appraisers. The valuations have been undertaken in accordance with the current edition of the RICS Valuation - Global Standards, which incorporate the International Valuation Standards. References to the 'Red Book' refer to either or both of these documents, as applicable.
The properties have been valued on the basis of 'fair value' in accordance with the RICS Valuation - Professional Standards VPS4 (1.5) Fair Value and VPGA1 Valuations for inclusion in financial statements which adopt the definition of fair value used by the International Accounting Standards Board.
The valuation has been undertaken using an appropriate valuation methodology and the valuer's professional judgement. The valuer's opinion of fair value was primarily derived using recent comparable market transactions on arm's length terms, where available, and appropriate valuation techniques (the 'Investment Method').
The properties have been valued individually and not as part of a portfolio.
All investment properties are categorised as Level 3 fair values as they use significant unobservable inputs. There have not been any transfers between levels during the period. Investment properties have been classed according to their real estate sector. Information on these significant unobservable inputs per class of investment property are disclosed opposite.
Quantitative information about fair value measurement using unobservable inputs (Level 3) as at 31 March 2021 (unaudited)
Retail
(including
retail
Industrial warehouse) Office Total
---------------------------------- ---------- ----------- ------------- ------------- ------------
218,035
Fair value (EUR000)1 51,025 70,100 96,910 3
---------------------------------------------- ----------- ------------- ------------- ------------
Area ('000 sq. m) 68.821 44.350 53.573 166.744
---------------------------------------------- ----------- ------------- ------------- ------------
Net passing rent EUR per sq.
m per annum Range 40.39-93.56 73.81-141.26 101.64-199.66 40.39-199.66
Weighted
average2 48.46 93.15 148.81 107.43
--------------------------------------------- ----------- ------------- ------------- ------------
Gross ERV EUR per sq. m per annum Range 39.00-89.40 101.58-155.40 79.93-224.36 39.00-224.36
Weighted
average2 48.88 132.37 164.26 127.00
--------------------------------------------- ----------- ------------- ------------- ------------
Net initial yield3 Range 5.16-7.18 4.75-5.11 3.08-12.60 3.08-12.60
Weighted
average2 5.78 4.93 6.81 5.97
--------------------------------------------- ----------- ------------- ------------- ------------
Equivalent yield Range 5.05-7.08 5.06-7.30 3.80-11.14 3.80-11.40
Weighted
average2 5.68 6.12 6.59 6.23
--------------------------------------------- ----------- ------------- ------------- ------------
Notes:
1 This table includes the joint venture investment property valued at EUR30.2 million which is disclosed within the summarised information within note 6 as part of total assets.
2 Weighted by market value.
3 Yields based on rents receivable after deduction of head rents and non-recoverables.
Quantitative information about fair value measurement using unobservable inputs (Level 3) as at 30 September 2020 (audited)
Retail
(including
retail
Industrial warehouse) Office Total
---------------------------------- ---------- ----------- ------------- ------------ ------------
Fair value (EUR000)1 47,700 81,500 160,700 289,900
---------------------------------------------- ----------- ------------- ------------ ------------
Area ('000 sq. m) 68,821 44,365 61,110 174,296
---------------------------------------------- ----------- ------------- ------------ ------------
Net passing rent EUR per sq.
m per annum Range 40.39-92.46 65.28-141.26 6.41-150.04 6.41-150.04
Weighted
average2 48.61 85.79 77.39 75.01
--------------------------------------------- ----------- ------------- ------------ ------------
Gross ERV EUR per sq. m per annum Range 38.00-89.40 101.58-180.25 79.93-462.87 38.00-462.87
Weighted
average2 48.98 150.17 285.23 208.39
--------------------------------------------- ----------- ------------- ------------ ------------
Net initial yield3 Range 5.54-7.23 3.30--5.24 0.07-12.54 0.07-12.54
Weighted
average2 6.26 4.21 3.67 4.24
--------------------------------------------- ----------- ------------- ------------ ------------
Equivalent yield Range 5.38-6.58 5.15-7.45 4.06-9.86 4.06-9.86
Weighted
average2 6.08 6.49 6.04 6.18
--------------------------------------------- ----------- ------------- ------------ ------------
Notes:
1 This table includes the joint venture investment property valued at EUR42.6 million which is disclosed within the summarised information within note 6 as part of total assets.
2 Weighted by market value.
3 Yields based on rents receivable after deduction of head rents and non-recoverables.
Sensitivity of measurement to variations in the significant unobservable inputs
Management have reviewed the ranges used in assessing the impact of changes in unobservable inputs on the fair value of the Group's property portfolio. Whilst the property valuation reflects the external valuers assessment of the impact of Covid-19 at the valuation date, we consider +/-10% for ERV, and +/-50bps for NIY to capture the increased uncertainty in these key valuation assumptions. The results of this analysis are detailed in the sensitivity table below.
The significant unobservable inputs used in the fair value measurement (categorised within Level 3 of the fair value hierarchy of the Group's property portfolio), together with the impact of significant movements in these inputs on the fair value measurement, are shown below:
Impact on fair value measurement Impact on fair value measurement
of significant increase in of significant decrease in
Unobservable input input input
------------------ -------------------------------- --------------------------------
Passing rent Increase Decrease
Gross ERV Increase Decrease
Net initial yield Decrease Increase
Equivalent yield Decrease Increase
------------------ -------------------------------- --------------------------------
There are interrelationships between the yields and rental values as they are partially determined by market rate conditions. The sensitivity of the valuation to changes in the most significant inputs per class of investment property is shown below:
Estimated movement in fair value of investment Industrial Retail Office Total properties at 31 March 2021 (unaudited) EUR000 EUR000 EUR000 EUR000 ----------------------------------------------- ---------- ------- ------- -------- Increase in ERV by 10% 3,640 4,970 7,810 16,420 Decrease in ERV by 10% (3,645) (5,700) (8,010) (17,355) Increase in net initial yield by 0.5% (5,750) (6,260) (7,430) (19,440) Decrease in net initial yield by 0.5% 3,270 6,290 8,430 17,990 ----------------------------------------------- ---------- ------- ------- -------- Estimated movement in fair value of investment Industrial Retail Office Total properties at 30 September 2020 (audited) EUR000 EUR000 EUR000 EUR000 ----------------------------------------------- ---------- ------- -------- -------- Increase in ERV by 10% 3,050 6,450 14,050 23,550 Decrease in ERV by 10% (3,050) (7,000) (14,500) (24,550) Increase in net initial yield by 0.5% (5,050) (9,200) (22,700) (36,950) Decrease in net initial yield by 0.5% 2,200 4,000 15,000 21,200 ----------------------------------------------- ---------- ------- -------- --------
4. Realised gain/loss on sale of investment property
During the period the Group transferred the legal title of its office asset in Boulogne-Billancourt, Paris to a purchaser. As at 30 September 2020 this asset had been recognised as being held for sale at its fair value of EUR65.2m.
The forward funded sale agreement which the Group entered into is comprised of two key performance obligations: i) to sell the asset as referenced above; and ii) to undertake a comprehensive refurbishment of the asset on behalf of the purchaser.
On 16 December 2020 the Group transferred, as part of the sale, the legal title to the purchaser for a deemed sale price of EUR69.8 million. In return, the Group received on the completion date an initial EUR52.9 million cash receipt from the purchaser and EUR16.9 million will be paid upon completion of certain milestones.
The forward funded sale contract also includes a development element whereby the Group will undertake a comprehensive refurbishment of the asset on behalf of the purchaser over an approximate eighteen month period with completion expected in the second quarter of 2022.
When forming a judgement as to an appropriate level of development revenue to be recognised in the reporting period, the Group considered the contractual penalties of not meeting certain criteria within the agreement; the total development costs incurred; the stage of completion of the refurbishment; the milestones achieved and still to be achieved; the timing of further future cash receipts from the purchaser; and the overall general development risk.
During the period EUR2.77 million of development cost, which is eleven per cent of the total project expenditure, had been incurred and a sum of EUR2.74 million of development revenue has been recognised following consideration of the factors identified above; this was also due from the purchaser at period end.
The total amount of the contract asset recognised by the Group that is due from the purchaser thereby totalled EUR19.6 million (September 2020: EURnil) at the end of the interim period and is included in Trade and other receivables.
The Group has estimated that it will receive a total development revenue of EUR23.8 million, of which EUR2.74 million was recognised during the period, and it is anticipated that a further EUR8.2 million will be recognised by the end of the financial year together with associated further development expenditure. The remaining development revenue is expected to be predominantly recognised by 30 September 2022.
The table below sets out the total development revenue expected should the variable development revenue change by +/- 10%:
-10% 0% +10%
------------------------------------------------------ ---- ---- ----
Fixed development revenue expected from the purchaser
(EURm) 16.9 16.9 16.9
Variable development revenue expected from the
purchaser (EURm) 6.2 6.9 7.6
Total development revenue expected from the purchaser
(EURm) 23.1 23.8 24.5
------------------------------------------------------ ---- ---- ----
5. Provision for loan made to Seville joint venture
As at 31 March 2021 the Group owned 50% of the Metromar JV, which owns a shopping centre in Seville, and had advanced EUR10 million as a loan and was owed interest of EUR0.9 million. The loan carries a fixed interest rate of 4.37% per annum payable quarterly and matures in April 2024.
When considering an appropriate level of impairment, deemed to be a significant judgement, the Company primarily considered: the property valuation and future potential movements; debt covenants and their headroom; cash flow forecasts; the effects of the local lockdown measures in Spain on tenants and their trading; and rent collection rates.
A default rate of 100% has been applied to the above loan and unpaid interest at the interim period end. The cumulative impairment thereby recognised to date is EUR10.9 million and the Group's investment with regard to Seville now stands at EURnil.
6. Investment in joint ventures
The Group has a 50% interest in a joint venture called Urban SEREIT Holdings Spain S.L. The principal place of business of the joint venture is Calle Velázquez 3, 4th Madrid 28001 Spain.
31 March
2021 EUR000
--------------------------------------- ------------
Balance as at 1 October 2020 (audited) -
Share of loss for the period -
--------------------------------------- ------------
Balance as at 31 March 2021 (unaudited) -
--------------------------------------- ------------
31 March
2020 EUR000
---------------------------------------- ------------
Balance as at 1 October 2019 (audited) 2,378
Share of loss for the period (684)
---------------------------------------- ------------
Balance as at 31 March 2020 (unaudited) 1,694
---------------------------------------- ------------
30 September
2020
EUR000
------------------------------------------ ------------
Balance as at 1 October 2019 (audited) 2,378
Share of loss for the year (2,311)
Dividends (67)
------------------------------------------ ------------
Balance as at 30 September 2020 (audited) -
------------------------------------------ ------------
31 March 31 March
30 September
2021 2020 2020
EUR000 EUR000 EUR000
Summarised joint venture financial information: (unaudited) (unaudited) (audited)
------------------------------------------------ ------------- ------------- ------------
Total assets 33,226 49,262 45,717
Total liabilities (46,434) (45,874) (46,488)
Net assets (13,208) 3,388 (771)
Net asset value attributable to the Group - 1,694 -
------------------------------------------------ ------------- ------------- ------------
Six months Six months
to to
31 March 31 March Year to
30 September
2021 2020 2020
EUR000 EUR000 EUR000
(unaudited) (unaudited) (audited)
--------------------------------------------- ------------- ------------- --------------
Revenues 2,286 2,488 5,257
Total comprehensive loss (12,438) (1,369) (4,622)
Total comprehensive loss attributable to the
Group - (684) (2,311)
--------------------------------------------- ------------- ------------- --------------
As at 31 March 2021, the joint venture in Seville, of which SEREIT holds a 50% share, had total net liabilities of EUR13,208,000. The Group has therefore recognised a nil interest as its investment in the joint venture and would only recognise its share of net liabilities where certain legal or constructive obligations are in force. No such obligations exist with regard to the Seville joint venture.
Due to the spread of the novel coronavirus (Covid-19), the Group's valuer has included the following 'Material valuation uncertainty' clause with respect to the Seville shopping centre in its valuation report as at 31 March 2021:
The outbreak of Covid-19, declared by the World Health Organisation as a "Global Pandemic" on the 11th March 2020, has and continues to impact many aspects of daily life and the global economy - with some real estate markets having experienced lower levels of transactional activity and liquidity. Travel, movement and operational restrictions have been implemented by many countries. In some cases, "lockdowns" have been applied to varying degrees and to reflect further "waves" of Covid-19; although these may imply a new stage of the crisis, they are not unprecedented in the same way as the initial impact.
The pandemic and the measures taken to tackle Covid-19 continue to affect economies and real estate markets globally. Nevertheless, as at the valuation date property markets are mostly functioning again, with transaction volumes and other relevant evidence at levels where an adequate quantum of market evidence exists upon which to base opinions of value.
In respect of the Metromar Shopping Centre in Seville, Spain, as at the valuation date we continue to be faced with an unprecedented set of circumstances caused by Covid-19 and an absence of relevant / sufficient market evidence on which to base our judgements. Our valuation of this asset is therefore reported as being subject to 'material valuation uncertainty' as set out in VPS 3 and VPGA 10 of the RICS Valuation - Global Standards. Consequently, in respect of this valuation less certainty - and a higher degree of caution - should be attached to our valuation than would normally be the case.
For the avoidance of doubt this explanatory note, including the 'material valuation uncertainty' declaration, does not mean that the valuation cannot be relied upon. Rather, this explanatory note has been included to ensure transparency and to provide further insight as to the market context under which the valuation opinion was prepared. In recognition of the potential for market conditions to move rapidly in response to changes in the control or future spread of COVID-19 we highlight the importance of the valuation date.
Sensitivity analysis with respect to the estimated movement in fair value of investment properties, including the Group's share of the joint venture investment property, at 31 March 2021, can be found in note 3.
7. Taxation
Six months Six months
to to Year to
31 March 31 March 30 September
2021 2020 2020
EUR000 EUR000 EUR000
(unaudited) (unaudited) (audited)
--------------------------- ------------- ------------ -------------
Current tax charge 651 406 522
Deferred tax charge 912 379 403
--------------------------- ------------- ------------ -------------
Tax expense in period/year 1,563 785 925
--------------------------- ------------- ------------ -------------
Current Deferred
tax liability tax liability
EUR000 EUR000
---------------------------------------- -------------- --------------
As at 1 October 2020 (audited) (9) 1,924
Tax charge for the period 651 912
Tax paid during the period (556) -
---------------------------------------- -------------- --------------
Balance as at 31 March 2021 (unaudited) 86 2,836
---------------------------------------- -------------- --------------
Current Deferred
tax liability tax liability
EUR000 EUR000
---------------------------------------- -------------- --------------
As at 1 October 2019 (audited) 453 1,521
Tax charge for the period 406 379
Tax paid during the period (552) -
---------------------------------------- -------------- --------------
Balance as at 31 March 2020 (unaudited) 307 1,900
---------------------------------------- -------------- --------------
Current Deferred
tax liability tax liability
EUR000 EUR000
------------------------------------------ -------------- --------------
As at 1 October 2019 (audited) 453 1,521
Tax charge for the period 522 403 Tax paid during the period (984) - ------------------------------------------ -------------- -------------- Balance as at 30 September 2020 (audited) (9) 1,924 ------------------------------------------ -------------- --------------
In April 2019 the European Commission issued a ruling that a UK group financing exemption within the UK Controlled Foreign Company rules was partially incompatible with European Union State Aid rules, to the extent that profits derive from activities performed within the UK. The Group has benefited from this exemption in respect of SEREIT (Jersey) Limited which provides financing to other group companies. HM Revenue & Customs have confirmed that profits generated by SEREIT (Jersey) Limited were not derived from such activities performed within the UK and the Company is therefore not liable to pay tax on the profits.
8. Basic and diluted earnings per share
The basic and diluted earnings per share for the Group are based on the net (loss)/profit for the period, excluding currency translation differences, of (EUR723,000) (six months to 31 March 2020: EUR4,960,000, for the year ended 30 September 2020: EUR28,402,000) and the weighted average number of ordinary shares in issue during the period of 133,734,686 (six months to 31 March 2020: 133,734,686, for the year ended 30 September 2020: 133,734,686).
9. Interest-bearing loans and borrowings
Six months
to
31 March
2021
EUR000
-------------------------------- ----------
As at 1 October 2020 (audited) 68,372
Drawdown of borrowings -
Capitalisation of finance costs -
Amortisation of finance costs 64
-------------------------------- ----------
As at 31 March 2021 (unaudited) 68,436
-------------------------------- ----------
Year to
30 September
2020
EUR000
---------------------------------- -------------
As at 1 October 2019 (audited) 60,692
Receipt of borrowings 7,700
Capitalisation of finance costs (183)
Amortisation of finance costs 163
---------------------------------- -------------
As at 30 September 2020 (audited) 68,372
---------------------------------- -------------
Six months
to
31 March
2020
EUR000
-------------------------------- ----------
As at 1 October 2019 (audited) 60,692
Drawdown of borrowings 7,700
Capitalisation of finance costs (170)
Amortisation of finance costs 71
-------------------------------- ----------
As at 31 March 2020 (unaudited) 68,293
-------------------------------- ----------
10. Issued capital and reserves
As at 31 March 2021, the Company has 133,734,686 ordinary shares in issue with a par value of 10.00 pence (no shares are held in Treasury). The total number of voting rights in the Company is 133,734,686.
11. NAV per ordinary share
The NAV per ordinary share is based on the net assets at 31 March 2021 of EUR197,144,000 (30 September 2020: EUR201,826,000, 31 March 2020: EUR182,078,000) and 133,734,686 ordinary shares in issue at 31 March 2021 (30 September 2020: 133,734,686, 31 March 2020: 133,734,686).
12. Dividends paid
Number
of ordinary Rate
Six months ended 31 March 2021 (unaudited) shares (cents) EUR000
------------------------------------------- ------------ -------- ------
Interim dividend paid on 23 October 2020 133,734,686 1.39 1,859
Interim dividend paid on 25 January 2021 133,734,686 1.57 2,100
------------------------------------------- ------------ -------- ------
Total interim dividends paid 3,959
------------------------------------------- ------------ -------- ------
Number
of ordinary Rate
Six months ended 31 March 2020 (unaudited) shares (cents) EUR000
------------------------------------------- ------------ -------- ------
Interim dividend paid on 21 October 2019 133,734,686 1.85 2,474
Interim dividend paid on 27 January 2020 133,734,686 1.85 2,474
------------------------------------------- ------------ -------- ------
Total interim dividends paid 4,948
------------------------------------------- ------------ -------- ------
Number
of ordinary Rate
Year ended 30 September 2020 (audited) shares (cents) EUR000
----------------------------------------- ------------ ---------- ------
Interim dividend paid on 21 October 2019 133,734,686 1.85 2,474
Interim dividend paid on 27 January 2020 133,734,686 1.85 2,474
Interim dividend paid on 14 April 2020 133,734,686 1.85 2,474
Interim dividend paid on 31 July 2020 133,734,686 0.925 1,237
----------------------------------------- ------------ ---------- ------
Total interim dividends paid 8,659
----------------------------------------- ------------ ---------- ------
13. Related party transactions
Schroder Real Estate Investment Management Limited is the Group's Investment Manager.
The Investment Manager is entitled to a fee, together with reasonable expenses, incurred in the performance of its duties. The fee is payable monthly in arrears and shall be an amount equal to one-twelfth of the aggregate of 1.1% of the EPRA NAV of the Company. The Investment Management Agreement can be terminated by either party on not less than 12 months' written notice, such notice not to expire earlier than the third anniversary of admission, or on immediate notice in the event of certain breaches of its terms or the insolvency of either party. The total charge to profit and loss during the period was EUR1,099,000 (year ended 30 September 2020: EUR1,945,000, six months ended 31 March 2020: EUR969,000). At 31 March 2021, EUR738,000 was outstanding (year ended 30 September 2020: EUR332,000, six months ended 31 March 2020: EUR143,000).
The Directors are the only officers of the Company and there are no other key personnel. The Directors' remuneration for services to the Group for the six months ended 31 March 2021 was EUR89,969 (six months ended 31 March 2020: EUR64,251, year ended 30 September 2020: EUR125,637), equivalent to GBP77,000. Three of the four Directors hold shares in the Company and have not purchased or sold any shares in the financial period. Details of their holdings can be found on page 44 of the September 2020 Annual Report and Consolidated Financial Statements.
14. Capital commitments
At 31 March 2021, the Group had capital commitments of EUR126,000 (30 September 2020: EUR360,000, 31 March 2020: EUR2,791,000) with regards to its directly held portfolio.
The Group is expected to incur a further EUR17,485,000 of capital construction works with regards to the comprehensive refurbishment of the Boulogne-Billancourt, Paris asset. These costs will be fully funded by both existing cash holdings and further future cash receipts from the purchaser during the development programme.
15. Post balance sheet events
On 2 June 2021 the Group exchanged contracts to purchase a freehold logistics property in Nantes, western France, for EUR6.15 million. SEREIT France Invest SAS was established subsequently to hold this asset and completion is expected in August 2021.
There were no other significant events occurring after the balance sheet date.
EPRA and Headline Performance Measures
As recommended by the European Public Real Estate Association ('EPRA'), performance measures are disclosed in the section below.
a. EPRA earnings and earnings per share
Represents total IFRS comprehensive income excluding realised and unrealised gains/losses on investment property, share of capital profit on joint venture investments and changes in fair value of financial instruments, including the loan made to the joint venture, divided by the weighted average number of shares.
Six months Six months
to to Year to
31 March 31 March 30 September
2021 2020 2020
EUR000 EUR000 EUR000
(unaudited) (unaudited) (audited)
---------------------------------------------------- ------------ ------------ -------------
Total IFRS comprehensive income (723) 4,939 28,398
Adjustments to calculate EPRA earnings:
Net (gain)/loss from fair value adjustment on
investment property (5,462) (2,907) (25,505)
Exchange differences on monetary items (unrealised) (18) 21 4
Net development expenditure 26 - - Share of joint venture loss on investment property - 731 2,776 Deferred tax 912 379 403 Current tax - restructuring - 93 - Net change in fair value of financial instruments (1) (6) 21 Adjustment in respect of provision of internal loan made to Seville joint venture (excluding interest) 8,065 1,056 2,492 ---------------------------------------------------- ------------ ------------ ------------- EPRA earnings 2,799 4,306 8,589 ---------------------------------------------------- ------------ ------------ ------------- Weighted average number of ordinary shares 133,734,686 133,734,686 133,734,686 EPRA earnings per share (cents per share) 2.1 3.2 6.4 ---------------------------------------------------- ------------ ------------ ------------- IFRS earnings per share (cents per share) (0.6) 3.7 21.2
b. EPRA Net Reinstatement Value
Six months
to
31 March
2021
EUR000
(unaudited)
---------------------------------------------------- -------------
IFRS equity attributable to shareholders 197,144
Deferred tax 2,835
Adjustment in respect of joint venture deferred tax 207
Adjustment for fair value of financial instruments (22)
Adjustment in respect of real estate transfer taxes 15,130
---------------------------------------------------- -------------
EPRA Net Reinstatement Value 215,294
---------------------------------------------------- -------------
Shares in issue at end of period 133,734,686
EPRA NRV per share (cents per share) 161.0
---------------------------------------------------- -------------
c. EPRA Net Tangible Assets
Six months
to
31 March
2021
EUR000
(unaudited)
---------------------------------------------------- -------------
IFRS equity attributable to shareholders 197,144
Deferred tax 2,835
Adjustment in respect of joint venture deferred tax 207
Adjustment for fair value of financial instruments (22)
---------------------------------------------------- -------------
EPRA Net Tangible Assets 200,164
---------------------------------------------------- -------------
Shares in issue at end of period 133,734,686
EPRA NRV per share (cents per share) 149.7
---------------------------------------------------- -------------
d. EPRA Net Disposal Value
Six months
to
31 March
2021
EUR000
(unaudited)
---------------------------------------------------------- -------------
IFRS equity attributable to shareholders 197,144
Adjustment for the fair value of fixed interest rate debt 315
---------------------------------------------------------- -------------
EPRA Net Disposal Value 197,459
---------------------------------------------------------- -------------
Shares in issue at end of period 133,734,686
EPRA NRV per share (cents per share) 1.48
---------------------------------------------------------- -------------
e. EPRA comparatives
EPRA NAV EPRA NNNAV EPRA NRV EPRA NTA EPRA NDV
(EURm) (EURm) (EURm) (EURm) (EURm)
- prior - prior - new - new - new
------------------------------------- -------- ---------- -------- -------- --------
IFRS NAV in the period 197,144 197,144 197,144 197,144 197,144
Exclude: deferred tax 3,042 - 3,042 3,042 -
Exclude: the fair value of financial
instruments (22) - (22) (22) -
Include: the fair value of fixed
interest rate debt - 315 - - 315
Include: Real estate transfer
tax N/a N/a 15,130 - -
------------------------------------- -------- ---------- -------- -------- --------
EPRA NAV totals 200,164 197,459 215,294 200,164 197,459
------------------------------------- -------- ---------- -------- -------- --------
f. Headline earnings reconciliation
Headline earnings per share reflect the underlying performance of the Company calculated in accordance with the Johannesburg Stock Exchange
Listing requirements.
Six months Six months
to to
31 March 31 March Year to
30 September
2021 2020 2020
EUR000 EUR000 EUR000
(unaudited) (unaudited) (audited)
---------------------------------------------------- ------------ ------------ -------------
Total IFRS comprehensive income (723) 4,939 28,398
Adjustments to calculate headline earnings exclude:
Net valuation (profit)/loss on investment property (5,462) (2,907) (25,505)
Net development expenditure 26 - -
Share of joint venture loss on investment property - 731 2,776
Deferred tax 912 379 403
Current tax - restructuring - 93 -
Net change in fair value of financial instruments (1) (6) 21
Adjustment in respect of provision of internal
loan made to Seville joint venture (excluding
interest) 8,065 1,056 2,492
---------------------------------------------------- ------------ ------------ -------------
Headline earnings 2,817 4,285 8,585
---------------------------------------------------- ------------ ------------ -------------
Weighted average number of ordinary shares 133,734,686 133,734,686 133,734,686
Headline and diluted headline earnings per share
(cents per share) 2.1 3.2 6.4
---------------------------------------------------- ------------ ------------ -------------
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