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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Schroder Real Estate Investment Trust Limited | LSE:SREI | London | Ordinary Share | GB00B01HM147 | ORD SHS NPV |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.20 | 0.46% | 43.50 | 43.20 | 43.50 | 43.60 | 42.90 | 43.00 | 281,254 | 13:56:58 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Real Estate Agents & Mgrs | 25.23M | -54.72M | -0.1114 | -3.90 | 213.13M |
Hot Features
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TIDMSREI
For release on 13 November 2018
Schroder Real Estate Investment Trust Limited
("SREIT"/ the "Company" / "Group")
HALF YEAR RESULTS FOR THE SIX MONTHSED 30 SEPTEMBER 2018
REFINANCINGS, ACQUISITIONS AND ASSET MANAGEMENT DRIVE DIVID UPLIFT
Schroder Real Estate Investment Trust, the actively managed UK focussed REIT,
today announces its unaudited half year results for the six months ended 30
September 2018.
Highlights
* Completed two debt refinancings that reduced interest from 4.4% to 4.0% and
the average loan term to approximately nine years
* Acquired offices in Edinburgh and Nottingham at a net initial yield of
6.7%, supporting the Company's strategy to invest in assets with strong
fundamentals
* 5% dividend increase with effect from 1 October 2018
Financial highlights for the six months ended 30 September 2018
* Net Asset Value ('NAV') of GBP357.7 million or 69.0 pps, reflecting an
increase over the period of 1.2%
* NAV total return, including dividends paid, of 3.0% (30 September 2017:
4.5%)
* Profit for the six months of GBP10.6 million (30 September 2017: GBP14.5
million), including one-off refinancing costs of GBP3.1 million incurred
during the period
* Adjusted EPRA earnings of GBP7.1 million (30 September 2017: GBP7.5 million)
* Dividend cover of 107% (30 September 2017: 117%)
* Loan to value ('LTV'), net of all cash, of 29.2% (31 March 2018: 25.3%)
Property portfolio highlights
* Sustained outperformance of real estate portfolio with a total return of
4.5% versus the MSCI/IPD Benchmark Index of 3.8%
* 95% of the portfolio now located in Winning Cities
* Significant asset management initiatives include the new ten-year lease
without breaks with BUPA at a rent of GBP1.09 million per annum, reflecting
an uplift of 14%
* Letting activity over the period has improved the portfolio void rate to
6.0% (31 March 2018: 7.2%)
* Reversionary income yield of 7%, compared with the MSCI Benchmark of 5.6%,
supporting income growth over the next 12 to 24 months.
Commenting, Lorraine Baldry, Chairman of the Board, said:
"The UK real estate market has continued to deliver attractive levels of income
and total returns despite growing political and economic risk. Looking forward,
these risks combined with the late stage in the market cycle means we are more
cautious about the outlook and may look to realise some of the capital gains
across the portfolio. The Company is well positioned in this environment due to
its high quality, diversified portfolio, a high income return, stable balance
sheet and potential to enhance income and value from ongoing asset management
initiatives."
Duncan Owen, Global Head of Schroder Real Estate, added:
"In the face of challenges to the UK real estate market presented by current
political and economic uncertainty, we will continue to be active managers
adopting a disciplined approach. Our broad pipeline of asset management
initiatives provide opportunities to add value throughout the cycle. This
activity is a mainstay of the Company's strategic objectives, the delivery of
which is intended to sustainably increase net income. We will also sell assets
where good performance can be realised and reinvest in opportunities which will
generate higher net income."
-Ends-
For further information:
Schroder Real Estate Investment Management 020 7658 6000
Duncan Owen / Nick Montgomery / Frank
Sanderson
Northern Trust 01481 745212
James Machon / Sean Walsh
FTI Consulting 020 3727 1000
Dido Laurimore / Methuselah Tanyanyiwa
A presentation for analysts and investors will be held at 08.45am today at the
offices of Schroders plc, 1 London Wall Place, London, EC2Y 5AU. If you would
like to attend, please contact Methuselah Tanyanyiwa at FTI on +44 (0)20 3727
1000 or schroderrealestate@fticonsulting.com
Alternatively, the dial-in details are as follows: +44 (0)330 336 9105
Participant passcode: 7212112
Schroder Real Estate Investment Trust Limited
Interim Report and Consolidated Financial Statements
For the period 1 April 2018 to 30 September 2018
Contents
Company Summary 2
Performance Summary 3
Chairman's Statement 5
Investment Manager's Report 7
Responsibility Statement of the Directors in respect of the 15
Interim Report
Independent Auditor's Review Report 16
Condensed Consolidated Statement of Comprehensive Income 17
Condensed Consolidated Statement of Financial Position 18
Condensed Consolidated Statement of Changes in Equity 19
Condensed Consolidated Statement of Cash Flows 20
Notes to the Interim Report 21
Corporate Information 30
Schroder Real Estate Investment Trust Limited aims to provide shareholders with
an attractive level of income together with the potential for income and
capital growth through investing in UK commercial real estate.
Company Summary
Schroder Real Estate Investment Trust Limited (the 'Company' and together with
its subsidiaries the 'Group') is a real estate investment company with a
premium listing on the Official List of the UK Listing Authority and whose
shares are traded on the Main Market of the London Stock Exchange (ticker:
SREI).
On 1 May 2015 the Company converted to a real estate investment trust ('REIT')
in order to benefit from the various tax advantages offered by the UK REIT
regime as well as the potential for improved liquidity as a result of being
able to access a wider shareholder base. The Company continues to be declared
as an authorised closed-ended investment scheme by the Guernsey Financial
Services Commission under section 8 of the Protection of Investors (Bailiwick
of Guernsey) Law, 1987, as amended and the Authorised Closed-ended Collective
Investment Schemes Rules 2008.
Objective
The Company aims to provide shareholders with an attractive level of income and
the potential for income and capital growth as a result of its investments in,
and active management of, a diversified portfolio of UK commercial real estate.
Successful execution of the investment strategy will enable a progressive
dividend policy to be adopted over time.
The portfolio is principally invested in the three main UK commercial real
estate sectors of office, industrial and retail, and may also invest in other
sectors including, but not limited to, residential, leisure, healthcare and
student accommodation. Over the real estate market cycle the portfolio aims to
generate an above average income return with a diverse spread of lease
expiries.
A conservative level of gearing is used to enhance income and total returns for
shareholders with the level dependent on the property cycle and the outlook for
future returns.
Investment strategy
The current investment strategy is to grow income and enhance shareholder
returns through a disciplined approach to acquisitions, pro-active asset
management and selling smaller, lower yielding properties on completion of
asset business plans. The issuance of new shares will also be considered if it
is consistent with the strategy.
Our objective is to own a portfolio of larger properties in Winning Cities and
Regions with high growth diversified local economies, sustainable occupational
demand and favourable supply and demand characteristics. These properties
should offer good long-term fundamentals in terms of location and specification
and be let at affordable rents with the potential for income and capital growth
from good stock selection and asset management.
Performance Summary
Financial summary
30 September 30 September 31 March 2018
2018 2017
NAV1 GBP357.7m GBP340.6m GBP353.6m
NAV per Ordinary Share1 (pence) 69.0 65.7 68.2
EPRA NAV GBP357.7m GBP340.6m GBP353.6m
1 Net Asset Value is calculated using International Financial Reporting
Standards.
Capital values
Six months to Six months to Year to 31
30 September 30 September March 2018
2018 2017
NAV total return 3.0% 4.5% 10.5%
Profit for the period GBP10.6m GBP14.5m GBP33.8m
EPRA earnings GBP3.9m GBP7.5m GBP12.5m
Adjusted EPRA earnings1 GBP7.1m GBP7.5m GBP14.1m
1 Adjusted for one off refinancing costs.
Share price and index
30 September 30 September 31 March 2018
2018 2017
Share price (pence) 59.9 61.5 58.8
Share price discount to NAV (13.2%) (6.4%) (13.8%)
FTSE All Share Index 4,127.91 4,049.89 3,894.17
FTSE EPRA/NAREIT UK Real Estate 1,731.76 1,734.15 1,770.93
Index
Earnings and dividends
Six months to Six months to Year to 31
30 September 30 September March 2018
2018 2017
Earnings per share (pence) 2.0 2.8 6.5
EPRA earnings per share (pence) 0.8 1.4 2.4
Adjusted EPRA earnings per share 1.4 1.4 2.7
(pence) 1
Dividends paid per share (pence) 1.24 1.24 2.48
Annualised dividend yield on 30 4.1% 4.0% 4.2%
September / 31 March share price2
1 Adjusted for one off refinancing costs.
2 Based on the dividends paid during the period.
Bank borrowings
30 September 30 September 31 March 2018
2018 2017
On-balance sheet borrowings 1 GBP160.1m GBP150.1m GBP150.1m
Loan to value ratio, net of all cash 29.2% 27.2% 25.3%
2
1 On-balance sheet borrowings reflects the loan facility with Canada Life and
RBS, without deduction of finance costs.
2 Cash excludes rent deposits and floats held with managing agents.
Ongoing charges
Six months to Six months to Year
30 September 30 September to 31 March
2018 2017 2018
Ongoing charges (including fund only 0.5% 0.6% 1.2%
expenses1)
Ongoing charges (including fund and 1.0% 1.1% 2.2%
property expenses2)
1 Fund only expenses excludes all property operating expenses, valuers' and
professional fees in relation to properties.
2 Ongoing charges calculated in accordance with AIC recommended methodology, as
a percentage of average NAV during the year. The ongoing charges exclude all
exceptional costs incurred during the period.
Chairman's Statement
Overview
The six month period to September 2018 saw a high level of activity for the
Company including two debt refinancings, two acquisitions and the completion of
a number of asset management initiatives. These actions enabled the Company to
announce a stepped 5% dividend increase. The Company's net asset value ('NAV')
over the period increased by 0.8 pence per share ('pps') or 1.2% which,
combined with dividends paid, resulted in a NAV total return of 3.0%. This
includes one-off costs of GBP3.1 million or 0.6 pence per share ('pps')
associated with the refinancing activity that extended the Company's loan
terms. The new facility capitalised on current low interest rates and provided
additional capacity to facilitate the accretive acquisitions. Dividend cover
over the period was 107%.
Asset management activity improved the portfolio's defensive qualities and
contributed to an underlying income return over the period of 2.8% compared
with the Benchmark of 2.3%. The Company's underlying total return, including
acquisition costs, of 4.5% compares with the MSCI Benchmark at 3.8%. The
portfolio has now consistently outperformed the Benchmark by an average of 1.4%
per annum since inception in 2004.
Strategy
The Company has a disciplined strategy focused on growing net income, reducing
risk and increasing exposure to Winning Cities, those that are expected to
generate higher and more sustainable levels of economic growth.
Although average values continued to increase across the UK real estate market,
the rate of growth is slowing with increasing polarisation between sectors. The
greatest pressure is in the retail sector due to structural trends with
consumer spend on-line and retailer failure. In contrast, the same structural
trends are creating unprecedented levels of investor and occupier demand for
industrial assets.
The refinancing and acquisitions, which completed part way through the period,
generated additional net income to support the dividend increase. In addition,
the Manager has made good progress delivering on key asset management
initiatives across the portfolio. These included a 10 year lease extension to
BUPA in Brighton alongside a more flexible leasing policy at multi-let
industrial estates to capture additional rental growth. This has been
particularly successful at the industrial estates in Milton Keynes and Leeds.
A reduction in the Company's retail weighting to 27% of value and a focus on
assets offering convenience at affordable rents has also limited exposure to
risk in the retail sector.
The strategy implemented over the past few years has resulted in 95% of the
portfolio by value being located in cities or towns expected to benefit from
above average GDP growth (Source: Oxford Economics). At a sector level, the
Company should benefit from having higher weightings in the regional office and
industrial markets and no exposure to shopping centres and offices in the City
of London. Further planned disposals of low yielding assets may also help
manage the late cycle risks and prepare the Company for investment into assets
offering higher prospective returns.
Debt
The refinancing activity included extending a portion of the Canada Life debt
and increasing the revolving credit facility ('RCF') with Royal Bank of
Scotland ('RBS').
The extension with Canada Life followed a detailed review of how to capture
current low interest rates through restructuring the fixed rate facility. This
was achieved by extending 20% of the loan for five years to 2028. This is the
same maturity as the remaining 80% of the loan. This loan tranche previously
had an interest rate of 4.77% that was reduced to 3.1% resulting in an interest
saving of approximately GBP435,000 p.a.
The RBS RCF, previously due to mature in July 2019, was extended to 2023 with
additional capacity added of GBP12 million. This facility extension, together
with existing cash, was used to acquire two office assets in Edinburgh and
Nottingham for GBP21 million which reflected a net initial yield of 6.7%.
The Company's two loan facilities now total GBP160 million with an average
duration of 8.6 years and an average interest cost of 4.0%, hedged against
movement in interest rates. The loan to value ratio, net of cash, is 29%, which
is within the long-term target range of 25% to 35%. The refinancing activity
resulted in one-off costs totalling GBP3.1 million in the period.
Outlook
The UK real estate market has continued to deliver attractive levels of income
and total returns despite growing political and economic risk. Looking forward,
these risks combined with the late stage in the market cycle means we are more
cautious about the outlook and may look to realise some of the capital gains
across the portfolio.
The Company is well positioned in this environment due to its high-quality,
diversified portfolio, a high income return, stable balance sheet and potential
to enhance income and value from ongoing asset management initiatives.
Lorraine Baldry
Chairman
Schroder Real Estate Investment Trust Limited
12 November 2018
Investment Manager's Report
The Company's Net Asset Value ('NAV') as at 30 September 2018 was GBP357.7
million or 69.0 pence per share ('pps') compared with GBP353.6 million or 68.2
pps as at 31 March 2018. This reflected an increase of 0.8 pps or 1.2%, with
the underlying movement in NAV set out in the table below:
Pence per share
('pps')
NAV as at 31 March 2018 68.2
Unrealised change in valuation of direct investment 2.1
property portfolio
Capital expenditure (0.5)
Unrealised loss on joint ventures (0.1)
Net revenue 1.4
Dividends paid (1.3)
Others¹ (0.8)
NAV as at 30 September 2018 69.0
¹ Includes one off refinancing costs of 0.6 pps.
The NAV increase was driven by a 1.6% increase in the value of the underlying
portfolio which, adjusted for capital expenditure, contributed 1.5pps to the
NAV. Excluding exceptional refinancing costs, net earnings for the interim
period year totalled 1.4pps which reflects a dividend cover of 107%. The NAV
total return for the interim period to September 2018 was 3.0%.
Market overview
UK commercial real estate capital values continued to increase over the interim
period to September 2018 with the IPD/MSCI Benchmark producing an average 3.8%
total return for commercial real estate. This included an income return of
2.3%. This performance continues to mask the divergence of the sectors with
capital values in the main commercial markets performing very differently.
The retail market continues to be the most challenging. During 2018 a number of
retailers and restaurants have fallen into administration, or entered into a
company voluntary arrangement ('CVA'), and other profitable chains are closing
stores. More than 4,000 units have been affected and 1 in 8 high street units
are vacant.[1] The internet's share of total retail sales has jumped from 5% in
2008 to 17% and is expected to grow significantly.[2] Retail rents in most
locations are likely to fall over the next couple of years. The impact is most
acute on secondary retail assets, while prime and convenience retail assets are
likely to be more resilient. The Company's portfolio is not immune from the
difficulties being experienced by many occupiers in the retail sector and
strategies to mitigate and reduce this risk are being implemented.
By contrast, rents for warehousing in the year to August rose by 6% in London
and the South East and by 3% in the rest of the country.[3] In part, this
reflects that manufacturing is still an important driver of warehouse demand in
the Midlands and the North, despite the boost from online retail. It may also
reflect the greater loss of industrial estates to housing in the South. We
expect smaller warehousing/multi-let industrial estates, including our estates
in Leeds and Milton Keynes to outperform, as rents remain relatively low and
there is limited new supply with growing demand.
The regional office sector is well placed to weather a potential slowdown in
the economy. In many UK cities, demand and supply dynamics are being positively
impacted by only modest growth in development and ongoing conversions of
secondary offices into residential. As a result, we expect office rents in
regional cities to remain resilient. We delivered a number of favourable
leasing events across the portfolio, including a 14% rental uplift on the
regear with BUPA at Brighton and a 32% uplift on a rent review at Cheltenham.
In contrast, in the City of London the total amount of office space is expected
to increase by around 7% over the three years to end-2020.[4] While many
schemes are pre-let, a lot of second-hand space will become vacant once
occupiers move and we expect City office rents to decrease. This will have a
knock on effect on the West End and Inner London, although rental levels should
be more defensive given low supply and robust demand from a diverse occupier
base.
A challenge for the Company is to focus on fundamentals and ensure that the
portfolio remains well placed with a diverse exposure. There are increasing
concerns about the economic and market cycles. The late nature of the real
estate cycle requires the manager to be vigilant.
Strategy
The strategy over the period focused on:
* Winning Cities experiencing higher levels of GDP, employment and population
growth;
* Increasing net income through transactions and active management;
* Increasing exposure to assets and sectors with strong fundamentals;
* Managing portfolio risk in order to enhance the portfolio's defensive
qualities;
* Reducing the cost of debt and extending the length of the facility; and
* Realising gains from sales which enables us to grow earnings.
Progress executing the strategy and activity over the interim period delivered
the following:
* 95% of the portfolio being located in higher growth cities and towns;[5]
* Offices in Edinburgh and Nottingham acquired in August 2018;
* Investment into Rest of UK offices and UK warehousing which we expect to
outperform;
* Asset management initiatives completed and ongoing across office,
industrial and retail assets, including Bedford, Brighton, Manchester,
Nottingham and Swindon;
* A portfolio level income return of 5.2% compared with 4.8% for the MSCI/IPD
Benchmark, and a reversionary income yield of 7.0% compared with 5.6% for
the MSCI/IPD Benchmark;
* Reducing portfolio void rate of 6.0% and maintaining the average unexpired
lease term of 6.2 years, assuming all tenant breaks are exercised at the
earliest opportunity; and
* Debt refinancings completed to reduce the Company's interest costs and
extend the overall duration of its facilities.
The delivery of these initiatives enabled the Board to announce a dividend
increase of 2.5% for the quarter to 30 September 2018, and 5% thereafter.
Dividend cover, on the increased dividend for the period, equated to 107%.[6]
Our focus will continue to be on driving income and total returns from the
existing portfolio, managing risks and continuing to seek new investments to
accelerate income growth. The near term actions to continue to increase the net
income of the Company include:
1. Proactive asset management with disciplined approach to capital expenditure
and expenses;
2. Recycle capital to improve returns on capital employed;
3. Review the potential to grow the Company in a way which will drive earnings
once value enhancing opportunities are identified; and
4. Increase the level of communication about the strategy to a wider potential
shareholder universe.
Real estate portfolio
As at 30 September 2018 the real estate portfolio comprised 46 properties
valued at GBP509.4 million. This includes the share of joint venture properties
at City Tower in Manchester and Store Street in Bloomsbury, London.
The portfolio produces a rental income of GBP28.4 million per annum, reflecting a
net initial income yield of 5.2%. The portfolio also benefits from fixed
contractual annual rental uplifts of GBP3.6 million by September 2020, and other
income from items such as lease surrenders. The independent valuers' estimate
that the current rental value of the portfolio is GBP35.5 million per annum,
reflecting a reversionary income yield of 7.0%, which compares favourably with
the MSCI/IPD Benchmark at 5.6%.
The data below summarises the portfolio information as at 30 September 2018:
Weighting (% of portfolio)
Regional weightings by value SREIT MSCI/IPD Benchmark
City 0.0 3.3
Mid-town and West End 7.1 6.5
Rest South East 12.9 12.3
Rest of UK 19.0 6.8
Offices sub-total 39.0 28.9
South Eastern 10.4 17.5
Rest of UK 17.1 9.7
Industrial sub-total 27.5 27.2
South East 1.3 6.2
Rest of UK 11.0 5.8
Shopping centres 0.0 4.8
Retail warehouse 15.0 16.5
Retail sub-total 27.3 33.3
Others 6.2 10.6
Other sub-total 6.2 10.6
Weighting (% of portfolio)
Regional weightings by value SREIT MSCI/IPD Benchmark
Central London[7] 7.1 12.7
South East ex Central London 28.9 39.8
Rest of South 6.9 16.5
Midlands and Wales 27.6 13.7
North and Scotland 29.5 17.3
The top ten properties set out below comprise 57% of the portfolio value:
Top ten properties Value (GBPm) (% of portfolio)
1 Manchester, City Tower (25% share) 41.6 8.2
2 London, Store Street, Bloomsbury (50% 36.4 7.1
share)
3 Milton Keynes, Stacey Bushes Industrial 34.9 6.9
Estate
4 Brighton, Victory House 34.0 6.7
5 Bedford, St. John's Retail Park[8] 33.7 6.6
6 Leeds, Millshaw Industrial Estate 31.2 6.1
7 Leeds, Arndale Centre 29.3 5.8
8 Uxbridge, 106 Oxford Road 18.4 3.6
9 Norwich, Union Park Industrial Estate 17.4 3.4
10 London, Allied Way Acton 15.4 3.0
Total as at 30 September 2018 292.3 57.4
The table below sets out the top ten tenants that generally comprise large
businesses and represent 31% of the portfolio:
Top ten tenants Contracted rent (% of portfolio)
p.a. (GBP000)
1 University of Law Ltd 1,574 5.1
2 BUPA Insurance Services Ltd 1,093 3.6
3 Wickes Building Supplies Ltd 1,092 3.6
4 Aviva Life & Pensions UK Ltd 1,039 3.4
5 Buckinghamshire New University 1,018 3.3
6 Mott MacDonald Ltd 790 2.6
7 Recticel Ltd 731 2.4
8 Sportsdirect.com Retail Ltd 722 2.4
9 The Secretary of State 715 2.3
10 Booker Limited 700 2.3
Total as at 30 September 2018 9,474 31.0
Portfolio performance
A high level of asset management has led to continued outperformance of the
underlying property portfolio compared with the MSCI/IPD Benchmark. The table
below shows the performance to 30 September 2018 with the portfolio ranked on
the 10th percentile of the Benchmark since inception:
SREIT total return p.a. MSCI/IPD Benchmark total Relative p.a. (%)
(%) return p.a. (%)
Period Six Three Since Six Three Since Six Three Since
months years inception months years inception9 months years inception9
[9]
Retail -1.0 4.3 5.7 0.3 3.7 4.5 -1.3 0.6 1.1
Office 3.8 8.7 8.3 3.4 6.1 7.0 0.4 2.5 1.3
Industrial 11.9 19.0 9.5 8.5 14.4 8.6 3.1 4.0 0.9
Other 3.5 11.5 3.6 4.2 9.4 7.5 -0.7 1.9 -3.6
All 4.5 9.9 7.8 3.8 7.4 6.3 0.7 2.3 1.4
sectors
Asset management
Milton Keynes, Stacey Bushes Industrial Estate (Industrial)
Asset overview and performance
339,330 sq ft multi-let industrial estate comprising 61 units in a good
location west of Milton Keynes. As at 30 September 2018 the asset was valued
at GBP34.9 million reflecting a net initial income yield of 5.1% and a
reversionary income yield of 5.5%.
Asset strategy
The strategy is to refurbish units as leases expire in order to capture higher
rents in a high growth market.
Key activity
* Acquisition of the adjoining ownership at 19 Hollin Lane completed on 5
October 2018, after the period end, at GBP776,000 and once let at ERV of GBP
67,500 pa will reflect a yield of 8.1% after costs.
* Only one vacant unit, now undergoing refurbishment with a total rental
value of GBP14,500 per annum.
* 9 lettings and lease renewals totalling GBP319,404 per annum.
* Acquired unit from owner occupier at GBP330,000 on a sale and leaseback at a
rent of GBP35,000 per annum, reflecting a yield of 8.6%.
* Planning in place for new development of 14,500 sq ft in six units.
Estimated cost GBP2.4 million with a rental value of GBP150,000 per annum.
Brighton, Victory House (Office)
Asset overview and performance
85,000 sq ft office in a high quality location adjoining the station and let to
Mott Macdonald Ltd and BUPA Insurance Services Ltd ('BUPA'). As at 30 September
2018, the asset was valued at GBP34.0 million reflecting a net initial income
yield of 2.2%, increasing to 5.2% on expiry of BUPA's rent free period, and a
reversionary income yield of 5.5%. The asset was acquired at a price of GBP16.5
million in 2005.
Asset strategy
Having completed the BUPA lease extension, the strategy is to regear the lease
to Mott MacDonald to improve the income level and length of the lease.
Key activity
* In June 2018, BUPA agreed a new ten year lease without breaks at a rent of
GBP1.09 million per annum, reflecting an uplift of 14%. BUPA occupy 45,545 sq
ft or 54% of Victory House and previously paid GBP960,000 per annum on a
lease with a tenant only break option in 2020. The new lease has a
favourable rent review in 2023 to the higher of GBP1.2 million per annum
(i.e. 2% per annum compound) or open market value, subject to a cap of GBP1.3
million per annum (i.e. 4% per annum compound). As part of the transaction
BUPA receives a rent free period of 15 months.
* Discussions with the other tenant, Mott MacDonald, are ongoing.
Acquisitions Update: Edinburgh, The Tun and Nottingham, The Arc (Office)
Asset overview and performance
The Tun is a 42,050 sq ft office heritable interest (Scottish equivalent of a
freehold) located in the Holyrood district of Edinburgh. As at 30 September
2018, the asset was valued at GBP10.8 million.
The Arc is a 44,602 sq ft freehold office located on a business park in
Nottingham that is adjacent to a tram stop that provides a regular, six-minute
service to the city centre. As at 30 September 2018, the asset was valued at GBP
10.3 million.
Asset strategy
Following the acquisition in August 2018, the strategy has been to capture near
term rental growth and to extend the average weighted lease length.
Key activity
* Edinburgh, The Tun: Terms agreed with Vattenfall Wind to renew their
occupation beyond their expiry in 2019 for a further 10 years with five
year break at a new headline rent for the building of GBP26 per sq ft vs an
acquisition ERV of GBP24 per sq ft. This along with other initiatives should
increase the weighted lease term from 5.4 to 6.1 years.
* Nottingham, The Arc: Completed regear with Geldards LLP, a solicitor
occupying over 50% of the property, resulting in a rental increase from
2020 of 9.5%. The extension of the previous expiry from 2020 to 2023
resulted in increasing the property's overall average weighted lease term
from five to 6.5 years.
Responsible Investment
Our approach to responsible investment has been continually upgraded over the
last few years and we are increasingly seeking to assess and improve the
positive impact of our investments. This involves incorporation of
environmental, social and governance issues as well as importantly the impact
of our investments on the built environment and climate change risks and
opportunities. The Company's work in this area was recognised with an EPRA Gold
Level award for compliance in their Sustainability Best Practice reporting
recommendations in the accounts for the year ending 31 March
2018. Additionally, the Company demonstrated continued strong performance
within GRESB (formerly the Global Real Estate Sustainability Benchmark) this
year, securing Green Star status and an overall score of 63 (up 7%, from 59
last year). As manager, we are aware of the importance of the impact its
activities have in local environments and the performance of this area is being
continually measured. It was a founding member of the UK Green Building Council
in 2007 and in 2017 became a member of the Better Buildings Partnership and a
Fund Manager Member of GRESB.
Finance
The Company refinanced both Canada Life and RBS loans in July 2018. These
transactions capitalised on current low interest rates and repositioned the
balance sheet for a lower cost and longer term. This active management of the
balance sheet resulted in:
* Competitive financing terms that lengthened both near-term debt maturity
dates by five years, and extend the average weighted debt term from 7.7
years to approximately nine years;
* The overall cost of debt reduced from 4.4% to 4.0% assuming the RCF is
fully drawn;
* Over 80% of the Company's debt is fixed with the remainder capped; and
* Enlarged RCF provided additional liquidity for acquisitions and capital
expenditure, with the ability to efficiently de-gear following asset sales
or equity issuance.
In addition to the secured properties, the joint venture properties City Tower
in Manchester and Store Street in London are uncharged with a combined value
of GBP77.8 million.
Overall, the Company has a net loan to value of 29%, and has significant
headroom to its loan covenants. Details of the two loans and compliance with
principal covenants set out below:
Lender Loan Maturity Interest Loan to Value Interest Cover Forward looking
(GBPm) rate (%) ('LTV')[10] Ratio ('ICR')[11] ICR[12]
Ratio Covenant Ratio Covenant Ratio Covenant
(%) (%) (%) (%) (%) (%)
Canada Life 129.6 15/04/2028 4.43[13] 35.1 65 326 185 334 185
RBS 30.5 20/05/2023 2.40[15] 46.5 65 n/a n/a 488 250
[14]
Outlook
There are a number of challenges facing the UK real estate market presented by
current political and economic uncertainty. Furthermore, the continued
structural change driving the polarisation of performance remains a key theme.
In this environment, we have sought to develop a strategy based on investing in
strong fundamentals and focused on active management. We have also refinanced
at current low interest rates and made investments that have grown earnings.
We will continue to be active asset managers. Our broad pipeline of asset
management initiatives provide opportunities to add value throughout the cycle.
This activity is a mainstay of the Company's strategic objectives, the delivery
of which is intended to sustainably increase net income. We will also sell
assets where good performance can be realised and reinvest in opportunities
which will generate higher net income.
Duncan Owen
Schroder Real Estate Investment Management Limited
12 November 2018
Responsibility Statement of the Directors in respect of the Interim Report
We confirm that to the best of our knowledge:
* the condensed set of financial statements has been prepared in accordance
with IAS 34 Interim Financial Reporting; and
* the interim management report (comprising the Chairman's and the Investment
Manager's report) includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an
indication of important events that have occurred during the first six months
of the financial year and their impact on the condensed set of financial
statements; and a description of the principal risks and uncertainties for the
remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related
party transactions that have taken place in the first six months of the current
financial year and that have materially affected the financial position or
performance of the entity during that period; and any changes in the related
party transactions described in the last annual report that could do so.
We are responsible for the maintenance and integrity of the corporate and
financial information included on the Company's website, and for the
preparation and dissemination of financial statements. Legislation in Guernsey
governing the preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
By order of the Board
Lorraine Baldry
Chairman
12 November 2018
Independent Review Report to Schroder Real Estate Investment Trust Limited
Conclusion
We have been engaged by Schroder Real Estate Investment Trust Limited (the
"Company") to review the condensed set of financial statements in the Interim
Report for the six months ended 30 September 2018 of the Company, its
subsidiaries and its interests in joint ventures (together the "Group") which
comprises the Condensed Consolidated Statement of Comprehensive Income,
Condensed Consolidated Statement of Financial Position, Condensed Consolidated
Statement of Changes in Equity, Condensed Consolidated Statement of Cash Flows
and the related explanatory notes.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the Interim Report
for the six months ended 30 September 2018 is not prepared, in all material
respects, in accordance with IAS 34 Interim Financial Reporting and the
Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial
Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 Review of Interim Financial Information
Performed by the Independent Auditor of the Entity issued by the Auditing
Practices Board for use in the UK. A review of interim financial information
consists of making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review procedures. We
read the other information contained in the Interim Report and consider whether
it contains any apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.
Directors' responsibilities
The Interim Report is the responsibility of, and has been approved by, the
directors. The directors are responsible for preparing the Interim Report in
accordance with the DTR of the UK FCA.
As disclosed in note 1, the annual financial statements of the Group are
prepared in accordance with International Financial Reporting Standards. The
directors are responsible for preparing the condensed set of financial
statements included in the Interim Report in accordance with IAS 34.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the Interim Report based on our review.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the Company in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the DTR of the
UK FCA. Our review has been undertaken so that we might state to the Company
those matters we are required to state in this report and for no other purpose.
To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company for our review work, for this
report, or for the conclusions we have reached.
Lee Clark
For and on behalf of KPMG Channel Islands Limited
Chartered Accountants, Guernsey
12 November 2018
Condensed Consolidated Statement of Comprehensive Income
Six months Six months Year
to to to
30/09/2018 30/09/2017 31/03/2018
Notes GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
Rental income 12,528 12,390 24,041
Other income 39 985 1,545
Property operating expenses (1,040) (1,017) (1,754)
Net rental and related income, 11,527 12,358 23,852
excluding joint ventures
Share of net rental income in joint 1,512 1,409 2,754
ventures
Net rental and related income, 13,039 13,767 26,606
including joint ventures
Profit on disposal of investment 6 2 - 594
property
Net valuation gain on investment 6 7,286 6,573 20,195
property
Expenses
Investment management fee 2 (1,551) (1,772) (3,531)
Valuers' and other professional fees (726) (678) (1,549)
Administrators fee 2 (60) (60) (120)
Auditor's remuneration (66) (64) (128)
Directors' fees (75) (90) (180)
Abortive transaction costs 3 - - (1,507)
Other expenses 3 (140) (169) (223)
Total expenses (2,618) (2,833) (7,238)
Net operating profit before net 16,197 16,098 37,403
finance costs
Refinancing costs 10 (3,128) - -
Finance costs payable (3,369) (3,410) (6,819)
Net finance costs (6,497) (3,410) (6,819)
Share of net rental income in joint 7 1,512 1,409 2,754
ventures
Share of net valuation (loss)/gain in 7 (617) 367 498
joint ventures
Profit and total comprehensive income 10,595 14,464 33,836
for the period attributable to the
equity holders of the parent
Basic and diluted earnings per share 4 2.0p 2.8p 6.5p
All items in the above statement are derived from continuing operations. The
accompanying notes 1 to 16 form an integral part of the Interim Report.
Condensed Consolidated Statement of Financial Position
30/09/2018 30/09/2017 31/03/2018
Notes GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
Investment property 6 417,783 372,323 388,976
Investment in joint ventures 7 78,381 77,617 77,748
Non-current assets 496,164 449,940 466,724
Trade and other 8 18,067 17,112 14,415
receivables
Cash and cash equivalents 9 8,881 24,887 29,218
Investment property held for sale 6 2,000 5,777 -
Current assets 28,948 47,776 43,633
Total assets 525,112 497,716 510,357
Issued capital and reserves 384,187 367,076 380,022
Treasury shares (26,452) (26,452) (26,452)
Equity 357,735 340,624 353,570
Interest-bearing loans and 10 157,973 148,386 148,505
borrowings
Non-current liabilities 157,973 148,386 148,505
Trade and other payables 11 8,966 8,483 8,282
Taxation payable 438 223 -
Current liabilities 9,404 8,706 8,282
Total liabilities 167,377 157,092 156,787
Total equity and liabilities 525,112 497,716 510,357
Net Asset Value per ordinary share 12 69.0p 65.7p 68.2p
The financial statements on pages 17-30 were approved at a meeting of the Board
of Directors held on 12 November 2018 and signed on its behalf by:
Lorraine Baldry
Chairman
The accompanying notes 1 to 16 form an integral part of the Interim Report.
Condensed Consolidated Statement of Changes in Equity
For the period from 1 April 2017 to 30 September 2017 (unaudited)
Notes Share Treasury Revenue Total
premium share reserve
reserve
GBP000 GBP000 GBP000 GBP000
Balance as at 31 March 2017 219,090 (26,452) 139,952 332,590
Profit and total comprehensive - - 14,464 14,464
income for the period
Dividends paid 5 - - (6,430) (6,430)
Balance as at 30 September 219,090 (26,452) 147,986 340,624
2017
For the year ended 31 March 2018 (audited) and for the period from 1 April 2018
to 30 September 2018 (unaudited)
Notes Share Treasury Revenue Total
premium share reserve
reserve
GBP000 GBP000 GBP000 GBP000
Balance as at 31 March 2017 219,090 (26,452) 139,952 332,590
Profit and total comprehensive - - 33,836 33,836
income for the year
Dividends paid 5 - - (12,856) (12,856)
Balance as at 31 March 2018 219,090 (26,452) 160,932 353,570
Profit and total comprehensive - - 10,595 10,595
income for the period
Dividends paid 5 - - (6,430) (6,430)
Balance as at 30 September 2018 219,090 (26,452) 165,097 357,735
The accompanying notes 1 to 16 form an integral part of the Interim Report.
Condensed Consolidated Statement of Cash Flows
Six months Six months Year
to to to
30/09/2018 30/09/2017 31/03/2018
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
Operating activities
Profit for the period/year 10,595 14,464 33,836
Adjustments for:
Profit on disposal of investment property (2) - (594)
Net valuation gain on investment property (7,286) (6,573) (20,195)
Share of profit of joint ventures (895) (1,776) (3,252)
Net finance cost 3,369 3,410 6,819
Operating cash generated before changes in 5,781 9,525 16,614
working
capital
(Increase)/decrease in trade and other (3,664) (3,209) 12,087
receivables
Increase/(decrease) in trade and other 648 (195) (613)
payables
Cash generated from operations 2,765 6,121 28,088
Finance costs paid (3,298) (3,290) (6,585)
Tax - - -
Net cash from operating activities (533) 2,831 21,503
Investing Activities
Proceeds from sale of investment property - 12,600 6,544
Additions to investment property (1,142) (5,300) (8,504)
Acquisition of investment property (22,377) - -
Investment in joint ventures (1,250) (350) (350)
Net income distributed from joint ventures 1,512 1,409 2,754
Net cash (used in)/from investing (23,257) 8,359 444
activities
Financing Activities
Additions to debt 9,883 - -
Dividends paid (6,430) (6,430) (12,856)
Net cash from/(used in) financing 3,453 (6,430) (12,856)
activities
Net (decrease)/increase in cash and cash (20,337) 4,760 9,091
equivalents for the period/year
Opening cash and cash equivalents 29,218 20,127 20,127
Closing cash and cash equivalents 8,881 24,887 29,218
The accompanying notes 1 to 16 form an integral part of the Interim Report.
Notes to the Interim Report
1. Significant accounting policies
Schroder Real Estate Investment Trust Limited ("the Company") is a closed-ended
investment company incorporated in Guernsey. The condensed interim financial
statements of the Company for the period ended 30 September 2018 comprise the
Company, its subsidiaries and its interests in joint ventures (together
referred to as the "Group").
Statement of compliance
The condensed interim financial statements have been prepared in accordance
with the Disclosure Guidance and Transparency Rules of the United Kingdom
Financial Conduct Authority and IAS 34 Interim Financial Reporting. They do not
include all the information required for the full annual financial statements,
and should be read in conjunction with the consolidated financial statements of
the Group as at and for the year ended 31 March 2018. The condensed interim
financial statements have been prepared on the basis of the accounting policies
set out in the Group's annual financial statements for the year ended 31 March
2018. The financial statements for the year ended 31 March 2018 have been
prepared in accordance with International Financial Reporting Standards
("IFRS") as issued by the International Accounting Standards Board. The Group's
annual financial statements refer to new Standards and Interpretations none of
which had a material impact on the condensed interim financial statements. IFRS
15 became effective during the period. The Directors have assessed the impact
of this new standard and have concluded that its application has no material
impact on the Company.
Going concern
The Directors have examined significant areas of possible financial risk
including cash and cash requirements and the debt covenants, in particular the
loan to value covenants and interest cover ratios on the loans with Canada Life
and Royal Bank of Scotland. In July 2018, the Group completed a refinancing
activity which included extending a portion of the Canada Life debt and
increasing the revolving credit facility ('RCF') with Royal Bank of Scotland
('RBS'). 100% of the Canada Life loan now matures on 15 April 2028 and The
Royal Bank of Scotland loan matures in July 2023. The Directors have not
identified any material uncertainties which would cast significant doubt on the
Group's ability to continue as a going concern for a period of not less than
twelve months from the date of the approval of the condensed interim financial
statements. The Directors have satisfied themselves that the Group has adequate
resources to continue in operational existence for the foreseeable future.
After due consideration, the Board believes it is appropriate to adopt the
going concern basis in preparing the condensed interim financial statements.
Use of estimates and judgments
The preparation of financial statements requires management to make judgements,
estimates and assumptions that affect the application of policies and the
reported amounts of assets and liabilities, income and expenses. Actual results
may differ from these estimates. The estimates and underlying assumptions are
reviewed on an ongoing basis. Revisions to accounting estimates are recognised
in the period in which the estimates are revised and in any future periods
affected. There have been no changes in the judgements and estimates used by
management as disclosed in the last annual report and financial statements for
the year ended 31 March 2018.
Segmental reporting
The Directors are of the opinion that the Group is engaged in a single segment
of business, being property investment and in one geographical area, the United
Kingdom. There is no one tenant that represents more than 10% of group
revenues. The chief operating decision maker is considered to be the Board of
Directors who are provided with consolidated IFRS information on a quarterly
basis.
2. Material agreements
Schroder Real Estate Investment Management Limited is the Investment Manager to
the Company.
The Investment Manager is entitled to a fee together with reasonable expenses
incurred in the performance of its duties. The fee is payable monthly in
arrears and shall be an amount equal to one twelfth of the aggregate of 1.1% of
the NAV of the Company. The Investment Management Agreement can be terminated
by either party on not less than twelve months written notice or on immediate
notice in the event of certain breaches of its terms or the insolvency of
either party. The total charge to profit during the period was GBP1,551,000
(year to 31 March 2018: GBP3,531,000) (6 months to 30 September 2017: GBP
1,772,000), which included a GBP283,000 VAT refund. At the period end GBP581,000
(31 March 2018: GBP556,000) (30 September 2017: GBP230,000) was outstanding.
The Board appointed Northern Trust International Fund Administration Services
(Guernsey) Limited as the Administrator to the Company with effect from 25 July
2007. The Administrator is entitled to an annual fee equal to GBP120,000 of which
GBP30,000 (31 March 2018: GBP30,000) (30 September 2017: GBP30,000) was outstanding
at the period end.3. Expenses
Six months to Six months to Year to
30/09/2018 30/09/2017 31/03/2018
GBP000 GBP000 GBP000
Regulatory costs 21
10 11
Professional fees 132 88 109
Other expenses 93
(2) 70
140 169 223
4. Basic and Diluted Earnings per share
The basic and diluted earnings per share for the Group is based on the profit
for the period of GBP10,595,000 (31 March 2018: GBP33,836,000), (30 September 2017:
GBP14,464,000) and the weighted average number of ordinary shares in issue during
the period of 518,513,409 (31 March 2018: 518,513,409 and 30 September 2017:
518,513,409).
4. Basic and Diluted Earnings per share (continued)
EPRA earnings reconciliation
Six months to Six months Year to
30/09/2018 to 31/03/2018
30/09/2017
GBP000 GBP000 GBP000
Profit after tax 10,595 14,464 33,836
Adjustments to calculate EPRA Earnings
exclude:
Profit on disposal of investment (2) - (594)
property
Net valuation gain on investment (7,286) (6,573) (20,195)
property
Share of valuation loss/(gain) in joint 617 (367) (498)
ventures
EPRA earnings 3,924 7,524 12,549
Company adjustments[16] 3,128 - 1,507
Adjusted EPRA earnings 7,052 7,524 14,056
Weighted average number of ordinary 518,513,409 518,513,409 518,513,409
shares
EPRA earnings per share (pence) 0.8 1.4 2.4
Adjusted EPRA earnings per share (pence) 1.4 1.4 2.7
European Public Real Estate Association ('EPRA') earnings per share reflect the
underlying performance of the Group calculated in accordance with the EPRA
guidelines.
5. Dividends paid
Number of 01/04/2018 to
In respect of ordinary Rate 30/09/2018
shares (pence) GBP000
Quarter 31 March 2018 dividend paid 31 518.51 0.62 3,215
May 2018 million
Quarter 30 June 2018 dividend paid 31 518.51 0.62 3,215
August 2018 million
1.24 6,430
Number of 01/04/2017 to
In respect of ordinary Rate 30/09/2017
shares (pence) GBP000
Quarter 31 March 2017 dividend paid 31 518.51 0.62 3,215
May 2017 million
Quarter 30 June 2017 dividend paid 31 518.51 0.62 3,215
August 2017 million
1.24 6,430
Number of 01/04/2017 to
In respect of ordinary Rate 31/03/2018
shares (pence) GBP000
Quarter 31 March 2017 dividend paid 31 May 518.51 0.62 3,214
2017 million
Quarter 30 June 2017 dividend paid 31 518.51 0.62 3,214
August 2017 million
Quarter 30 September 2017 dividend paid 06 518.51 0.62 3,214
December 2017 million
Quarter 31 December 2017 dividend paid 07 518.51 0.62 3,214
March 2018 million
2.48 12,856
A dividend for the quarter ended 30 September 2018 of 0.64p (GBP3.3 million) was
declared on 12 November 2018 and will be paid on 30 November 2018.
6. Investment property (continued)
For the period 1 April 2017 to 30 September 2017 (unaudited)
Leasehold Freehold Total
GBP000 GBP000 GBP000
Fair value as at 1 April 2017 37,403 328,824 366,227
Additions 32 5,268 5,300
Net valuation (loss)/gain on investment property (1,286) 7,859 6,573
Fair value as at 30 September 2017 36,149 341,951 378,100
For the year 1 April 2017 to 31 March 2018 (audited)
Leasehold Freehold Total
GBP000 GBP000 GBP000
Fair value as at 1 April 2017 37,403 328,824 366,227
Additions 721 7,783 8,504
Gross proceeds on disposals (35) (6,509) (6,544)
Realised gain on disposals 35 559 594
Net valuation (loss)/gain on investment property (944) 21,139 20,195
Fair value as at 31 March 2018 37,180 351,796 388,976
For the period 1 April 2018 to 30 September 2018 (unaudited)
Leasehold Freehold Total
GBP000 GBP000 GBP000
Fair value as at 1 April 2018 37,180 351,796 388,976
Acquisitions of investment property - 22,377 22,377
Additions 52 1,090 1,142
Realised gain on disposals - 2 2
Net valuation (loss)/gain on investment property (81) 7,367 7,286
Fair value as at 30 September 2018 37,151 382,632 419,783
The balance above includes:
Leasehold Freehold Total GBP
GBP000 GBP000 000
Investment property 37,151 380,632 417,783
Investment property held for sale - 2,000 2,000
Fair Value as at 30 September 2018 37,151 382,632 419,783
One of the investment properties has been determined to meet the criteria of a
held for sale asset at the period end at a value of GBP2,000,000 (31 March 2018:
GBPnil, 30 September 2017: GBP5,777,000).
Fair value of investment property as determined by the valuer totals GBP
431,475,000 (31 March 2018: GBP399,725,000) (30 September 2017: GBP388,550,000). As
at 30 September 2018, GBP11,692,000 (31 March 2018: GBP10,749,000) (30 September
2017: GBP10,450,000) in connection with lease incentives is included within trade
and other receivables.
6. Investment property (continued)
The fair value of investment property has been determined by Knight Frank LLP,
a firm of independent chartered surveyors, who are registered independent
appraisers. The valuation has been undertaken in accordance with the RICS
Valuation - Global Standards 2017, incorporating the International Valuation
Standards, and RICS Professional Standards UK January 2014 (revised April
2015), issued by the Royal Institution of Chartered Surveyors (the "Red Book").
The properties have been valued on the basis of "Fair Value" in accordance with
the RICS Valuation - Professional Standards VPS4(7.1) Fair Value and VPGA1
Valuations for Inclusion in Financial Statements which adopt the definition of
Fair Value used by the International Accounting Standards Board.
The valuation has been undertaken using appropriate valuation methodologies 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 is disclosed below:
Quantitative information about fair value measurement using unobservable inputs
(Level 3) as at 30 September 2018 (unaudited)
Industrial Retail Office Other Total
(incl
retail
warehouse)
Fair value 140,550 133,575 136,500 20,850 431,475
(GBP000)
Area ('000 1,732 599 634 177 3,142
sq ft)
Net passing Range GBP0 - GBP GBP0 - GBP38.50 GBP0 - GBP25.81 GBP0 - GBP GBP0 - GBP38.50
rent Weighted 10.83 GBP13.36 GBP13.17 13.00 GBP7.90
psf per average GBP4.20 GBP6.87
annum
Gross ERV Range GBP3.75 - GBP GBP7.40 - GBP GBP9.50 - GBP GBP8.18 -GBP GBP3.75 - GBP
psf Weighted 12.00 38.50 27.50 13.00 38.50
per annum average GBP5.42 GBP15.11 GBP16.40 GBP9.07 GBP9.69
Net initial Range 0% - 6.34% 0% - 7.42% 0%-18.39% 4.86% 0% - 18.39%
yield (1) Weighted 4.84% 5.61% 5.72% -5.85% 5.39%
average 5.47%
Equivalent Range 4.66% - 5.01%-9.39% 5.38%-10.66% 4.75% 4.66%-10.66%
yield Weighted 7.58% 6.13% 6.85% -7.90% 6.35%
average 6.02% 6.61%
Notes: (1) Yields based on rents receivable after deduction of head rents, but
gross of non-recoverables.
6. Investment property (continued)
Quantitative information about fair value measurement using unobservable inputs
(Level 3) as at 31 March 2018 (audited)
Industrial Retail (incl Office Leisure Total
retail
warehouse)
Fair value 128,450 138,825 111,700 20,750 399,725
(GBP000)
Area ('000 1,716 599 547 177 3,039
sq ft)
Net passing Range GBP0 - GBP10.83 GBP0 - GBP38.50 GBP0 - GBP25.81 GBP0 - GBP6.15 GBP0 - GBP38.50
rent per sq Weighted GBP4.13 GBP13.89 GBP13.56 GBP4.52 GBP7.77
ft per average
annum
Gross ERV Range GBP3.75 - GBP11.50 GBP7.40 - GBP GBP9.50 - GBP GBP8.23 - GBP GBP3.75-GBP38.50
per sq ft Weighted GBP5.36 38.50 27.50 13.00 GBP9.11 GBP9.38
per annum average GBP15.23 GBP15.70
Net initial Range 0% - 6.81% 0% - 8.25% 0% - 17.41% 0% - 5.80% 0% - 17.41%
yield (1) Weighted 5.17% 5.61% 6.22% 3.62% 5.53%
average
Equivalent Range 4.84% - 8.91% 4.75%-8.68% 5.60%-10.41% 4.75% - 4.75%-10.41%
yield Weighted 6.40% 6.00% 7.01% 7.83% 6.44%
average 6.61%
Notes: (1) Yields based on rents receivable after deduction of head rents, but
gross of non-recoverables.
Sensitivity of measurement to variations in the significant unobservable inputs
The significant unobservable inputs used in the fair value measurement
categorised within Level 3 of the fair value hierarchy of the Group's property
portfolio, together with the impact of significant movements in these inputs on
the fair value measurement, are shown below:
Unobservable input Impact on fair value Impact on fair value
measurement of measurement of
significant increase in significant decrease in
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.
6. Investment property (continued)
The sensitivity of the valuation to changes in the most significant inputs per
class of investment property are shown below:
Estimated movement in fair Industrial Retail Office Other Total
value of investment GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
properties at 30 September
2018 (unaudited)
Increase in ERV by 5% 6,755 5,906 5,973 578 19,032
Decrease in ERV by 5% (6,531) (5,163) (5,621) (561) (17,876)
Increase in net initial yield (6,897) (5,697) (5,713) (911) (19,124)
by 0.25%
Decrease in net initial yield 7,647 6,229 6,235 998 20,984
by 0.25%
Estimated movement in fair Industrial Retail Office Other Total
value of investment properties GBP000 GBP000 GBP000 GBP000 GBP000
at 31 March 2018 (audited)
Increase in ERV by 5% 6,559 6,057 4,837 731 18,184
Decrease in ERV by 5% (5,460) (5,405) (4,792) (737) (16,394)
Increase in net initial yield (5,929) (5,920) (4,318) (1,341) (17,277)
by 0.25%
Decrease in net initial yield 6,532 6,473 4,680 1,540 18,911
by 0.25%
7. Investment in joint ventures
For the period 1 April 2017 to 30 September 2017 (unaudited)
GBP000
Opening balance as at 1 April 2017 76,900
Purchase of units in City Tower Unit Trust to fund capital 350
expenditure
Share of profit for the period 1,776
Distributions received (1,409)
Amounts recognised as joint ventures at 30 September 2017 77,617
For the year 1 April 2017 to 31 March 2018 (audited)
GBP000
Opening balance as at 1 April 2017 76,900
Purchase of units in City Tower Unit Trust to fund capital 350
expenditure
Share of profit for the period 3,252
Distribution received (2,754)
Amounts recognised as joint ventures at 31 March 2018 77,748
For the period 1 April 2018 to 30 September 2018 (unaudited)
GBP000
Opening balance as at 1 April 2018 77,748
Purchase of units in City Tower Unit Trust to fund capital 1,250
expenditure
Share of profit for the period 895
Distributions received (1,512)
Amounts recognised as joint ventures at 30 September 2018 78,381
8. Trade and other receivables
Six months to Six months Year to
30/09/2018 to 31/03/2018
30/09/2017
GBP000 GBP000 GBP000
Rent receivable 1,873 1,830 974
Sundry debtors and prepayments 16,194 15,282 13,441
18,067 17,112 14,415
Other debtors and receivables includes GBP11,692,000 (31 March 2018: GBP10,749,000,
30 September 2017: GBP10,450,000) in respect of lease incentives.
9. Cash and cash equivalents
As at 30 September 2018 the group had GBP8.9 million in cash (31 March 2018: GBP
29.2 million, 30 September 2017: GBP24.9 million) of which GBPnil is held within
the Canada Life security pool. (31 March 2018: GBPnil, 30 September 2017: GBP2.5
million)
10. Interest-bearing loans and borrowings
The Group entered into a GBP129.6 million loan facility with Canada Life on 16
April 2013 that had 20% of the loan maturing on 15 April 2023 and with the
balance of 80% maturing on 15 April 2028, with a fixed interest rate of 4.77%.
On the 2 July 2018, the 20% of the Canada Life loan maturing on 15 April 2023
was refinanced extending the maturity date, increasing the length of the loan
to that of the 80%, maturing on the 15 April 2028 making it coterminous with
the 80% balance. The interest rate for this element of the loan was amended to
3.00% from 4.77%.
On 2 July 2018, the Company refinanced its existing GBP20.5 million revolving
credit facility with Royal Bank of Scotland. The RCF with RBS was increased
from GBP20.5 million to GBP32.5 million. The existing RCF had been due to expire in
July 2019, and the new five year loan has a maturity in July 2023. The interest
rate is based on the loan to value ratio as below:
* LIBOR + 1.60% if loan to value is less than or equal to 60%
* LIBOR + 1.85% if loan to value is greater than 60%
During the period the loan to value has remained less than 60%. Since this loan
has variable interest, an interest rate cap for 100% of the loan was entered
into, which comes into effect if GBP 3 month LIBOR reaches 1.5%.
As at 30 September 2018 the group has a loan balance of GBP160.1 million and GBP2.1
million of unamortised arrangement fees (31 March 2018: GBP150.1 million and GBP1.6
million of unamortised arrangement fees, September 2017: GBP150.1 million and GBP
1.7 million of unamortised arrangement fees).
Fair values are based on the present value of future cash flows discounted at a
market rate of interest. Issue costs are amortised over the period of the
borrowings. As at 30 September 2018 the fair value of the Group's GBP129.6
million loan with Canada Life was GBP145.3 million (31 March 2018: GBP143.0
million, 30 September 2017: GBP143.6 million).
Refinancing of both the external loans led to a one-off refinancing expense of
GBP3.1 million during the period.
11. Trade and other payables
Six months to Six months to Year to
30/09/2018 30/09/2017 31/03/2018
GBP000 GBP000 GBP000
Rent received in advance 4,938 4,804 4,782
Rental deposits 1,105 1,037 963
Interest payable 1,391 1,391 1,391
Other payables and accruals 1,532 1,251 1,146
8,966 8,483 8,282
12. NAV per ordinary share
The NAV per ordinary share is based on the net assets of GBP357,735,000 (31 March
2018: GBP353,570,000, 30 September 2017: GBP340,624,000) and 518,513,409 ordinary
shares in issue at the Statement of Financial Position reporting date (31 March
2018: 518,513,409 and 30 September 2017: 518,513,409).
13. Financial risk factors
The Directors are of the opinion that there have been no significant changes to
the financial risk profile of the Group since the end of the last annual
financial reporting period ended 31 March 2018 of which it is aware.
The main risks arising from the Group's financial instruments and properties
are market price risk, credit risk, liquidity risk and interest rate risk. The
Group is only directly exposed to sterling and hence is not exposed to currency
risks. The Board regularly reviews and agrees policies for managing each of
these risks.
14. Related party transactions
Material agreements are disclosed in note 2. The Directors' remuneration for
the period for services to the Group was GBP75,000 (31 March 2018: GBP180,000, 30
September 2017: GBP90,000). Transactions with joint ventures are disclosed in
note 7.
15. Capital Commitments
At 30 September 2018 the Group had capital commitments of GBP2 million (31 March
2018: GBP1.2 million, 30 September 2017: GBP3.2 million).
16. Post balance sheet events
Post year end, the Company acquired 19 Hollin Lane, Milton Keynes for GBP0.8m on
the 5 October 2018.
Corporate information
Registered Address Independent Auditor
PO Box 255 KPMG Channel Islands Limited
Trafalgar Court Glategny Court
Les Banques Glategny Esplanade
St. Peter Port St. Peter Port
Guernsey GY1 3QL Guernsey GY1 1WR
Directors Property Valuers
Lorraine Baldry (Chairman) Knight Frank LLP
Stephen Bligh 55 Baker Street
Graham Basham London
Alastair Hughes W1U 8AN
(All Non-Executive Directors)
Joint Sponsor and Brokers
Investment Manager and Accounting Agent J.P. Morgan Securities plc
Schroder Real Estate Investment Management 25 Bank Street
Limited Canary Wharf
1 London Wall Place London E14 5JP
London
EC2Y 5AU Numis Securities Limited
10 Paternoster Square
Secretary and Administrator London EC4M 7LT
Northern Trust International Fund
Administration Services (Guernsey) Limited Tax Advisers
PO Box 255 Deloitte LLP
Trafalgar Court 2 New Street Square
Les Banques London EC4A 3BZ
St Peter Port
Guernsey GY1 3QL Receiving Agent and UK
Transfer/Paying Agent
Depositary Computershare Investor Services
Northern Trust (Guernsey) Limited (Guernsey) Limited
PO Box 255 Queensway House
Trafalgar Court Hilgrove Street
Les Banques St Helier
St Peter Port Jersey
Guernsey GY1 3QL JE1 1ES
Solicitors to the
Company as to Guernsey Law:
as to English Law: Mourant Ozannes
Stephenson Harwood LLP Royal Chambers
1 Finsbury Circus St Julian's Avenue
London EC2M 7SH St. Peter Port
Guernsey GY1 4HP
ISA
The Company's shares are eligible for
Individual Savings Accounts (ISAs).
FATCA GIIN
5BM7YG.99999.SL.831
[1] Source: PMA, Schroders.
[2] Source: ONS, PMA.
[3] Source: CBRE.
[4] Source: PMA
[5] Source: Oxford Economics growth forecasts 2018 - 2023, Schroders, October
2018.
[6] Note excluding the one off costs of the refinancings.
[7] Note: Central London is defined by MSCI as City, Mid-Town, West End and
Inner London.
[8] Includes the adjoining Howard House.
[9] The Company listed on the London Stock Exchange in July 2004.
[10] Loan balance divided by property value as at 30 September 2018.
[11] For the quarter preceding the Interest Payment Date ('IPD'), ((rental
income received - void rates, void service charge and void insurance)/interest
paid).
[12] For the quarter following the IPD, ((rental income received - void rates,
void service charge and void insurance)/interest paid).
[13] Fixed total interest rate for the loan term. This is a blended interest
between two portions of the loan.
[14] GBP2 million of the RCF remains undrawn.
[15] Total interest rate as at 30 September 2018 comprising 3 months LIBOR of
0.80% and the margin of 1.6% at an LTV below 60% and a margin of 1.85% above
60% LTV.
[16] The Company adjustments relate to one off costs.
END
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November 13, 2018 02:00 ET (07:00 GMT)
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