TIDMSERE
RNS Number : 4876Y
Schroder Eur Real Est Inv Trust PLC
06 December 2017
6 December 2017
SCHRODER EUROPEAN REAL ESTATE INVESTMENT TRUST PLC
("SEREIT"/ the "Company" / "Group")
FULL YEAR RESULTS FOR THE YEARED 30 SEPTEMBER 2017
ASSET MANAGEMENT AND VALUATION UPLIFT DELIVERS NAV AND EARNINGS
GROWTH, SUPPORTED BY STRONG EUROZONE PERFORMANCE
REMAIN ON TARGET TO DELIVER 5.5% DIVID YIELD
Schroder European Real Estate Investment Trust plc (the
"Company") the company investing in European growth cities and
regions, today announces its audited full year results for the year
ended 30 September 2017.
The Company's Annual Report and Accounts for the year ended 30
September 2017 are being published in hard copy format and an
electronic copy will shortly be available to download from the
Company's webpage www.schroders.co.uk/sereit. Please click on the
following link to view the document:
http://www.rns-pdf.londonstockexchange.com/rns/4876Y_-2017-12-5.pdf
The Company has submitted its Annual Report and Accounts to the
National Storage Mechanism and it will shortly be available for
inspection at www.morningstar.co.uk/uk/NSM.
Financial highlights
-- Net Asset Value ('NAV') of EUR178.3 million or 133.3 cps,
reflecting an increase over the period of 13%, including a gross
equity raise of EUR16.7 million (30 September 2016: EUR157.8
million/130.2 cps)
-- NAV total return of 6.0% (30 September 2016: -4.6%)
-- Dividend for quarter ended 30 September 2017 of 1.5 cps
representing an annualised rate of 4.4% based on EUR1.37, being the
euro equivalent of the issue price as at admission. Based on the
Euro:GBP exchange rate as at 30 September 2017, this dividend
represents an annualised rate of 5.3% against an initial GBP1
invested at IPO
-- Portfolio valued at EUR211.7 million, reflecting an uplift of
approximately 7.1% on purchase price
-- Increase in underlying EPRA earnings to EUR6.9 million (30 September 2016: EUR1.0 million)
-- EUR16.7 million of equity raised through placing
-- Loan to value ('LTV'), net of all cash, of 25% (30 September
2016: 22%). Debt is either fixed cost or capped and of long
duration at 6.8 years on average
Operational highlights
-- Two acquisitions completed taking the total portfolio to nine
assets, located in eight locations across Germany, France and
Spain:
o An office building in Paris, France, for EUR30 million,
reflecting a net property income yield of 9.5%; and
o A 50% share of Metromar shopping centre in Seville, Spain, in
a JV with Schroder-managed Immobilien Europa Direkt, for EUR26.2
million, reflecting a net property income yield of 6.3%
-- Portfolio is almost 100% occupied following leasing activity
with 6.8 years average lease term (4.4 years to break) and a net
property income yield of approximately 6%
-- Contracted rental income of EUR14.3 million p.a.
-- Maintained focus on Western European growth cities, with 100%
of the portfolio located in the fastest growing cities and towns of
Continental Europe (source: Oxford Economics)
-- Successful execution of, and ongoing, asset management
initiatives across the portfolio, including seven new lettings and
re-gears across over 5,000 sqm, with advanced leasing discussions
ongoing regarding an additional 6,000 sqm
Commenting, Sir Julian Berney Bt., Chairman of the Board,
said:
"The Company is now close to being fully invested, having
executed the strategy outlined at IPO to construct a high quality
portfolio of commercial real estate, which provides an attractive
level of income, in the growth markets of Western Continental
Europe. Economic growth in these target markets is advancing and
this is having a positive impact on occupier demand and rental
levels. Whilst there remains uncertainty around events such as
Brexit, our strategic focus on winning cities and regions means the
Company is well placed in changing market circumstances and may
potentially benefit if the outcome to negotiations leads to more
businesses locating and expanding in Continental Europe."
Jeff O'Dwyer, Lead Manager for Schroder European Real Estate
Investment Management
Limited, added:
"Our near term priority is to deploy the remaining investment
capacity, which totals c. EUR30million including leverage, which
will be invested in a manner consistent with the existing
portfolio, in conurbations and regions that will grow faster than
their domestic economies.
"We have identified a range of potential investment
opportunities that would be accretive to the Company's earnings,
which we believe provides a strong platform to grow the Company to
benefit shareholders. Once fully invested we will assess our next
steps, which may include a further equity raise, as we continue to
see interesting investment opportunities in the market with returns
accretive to earnings and performance."
For further information:
Schroder Real Estate Investment
Management
Duncan Owen / Jeff O'Dwyer 020 7658 6000
================================= ==============
Ria Vavakis
Schroder Investment Management
Limited 020 7658 2371
================================= ==============
FTI Consulting
Dido Laurimore / Ellie Sweeney
/ Richard Gotla 020 3727 1000
================================= ==============
A presentation for analysts and investors will be held at 08.30
GMT today at the offices of Schroders plc, 31 Gresham Street,
London EC2V 7QA. If you would like to attend, please contact
Stephanie Carbonneil at Schroders on +44 (0)20 7658 7352 or
Stephanie.Carbonneil@Schroders.com
A webcast presentation will take place at 10.00 GMT / 12.00
SAST, registration for which can be accessed via:
http://www.schroders.com/en/uk/adviser/webconferences2/schroder-european-real-estate-investment-trust-results-dec-17/
Chairman's statement
The Company continues to deliver net asset value and income
growth for shareholders. The current dividend is now at an
annualised rate of 4.4% based on EUR1.37, being the euro equivalent
of the issue price at admission. Based on the Euro:GBP exchange
rate as at 30 September 2017, this equates to an annualised rate of
5.3% against an initial GBP1 invested at admission. This represents
continued progress since launch in December 2015. The Company is in
exclusive negotiations to acquire assets that, once completed,
should enable the Company to distribute the target 5.5% p.a.
dividend against the euro issue price, fully covered by rental
income.
Two acquisitions during the year in Paris and Seville have grown
the property portfolio owned by the Company to nine assets located
across winning cities and regions in France, Germany and Spain. The
current independent valuation of the portfolio is 7.1% above the
combined purchase price. Across the portfolio there are a number of
value enhancing asset management initiatives either underway or
identified including reducing voids, lease restructuring and
property refurbishments.
Our target markets in Western Europe are benefiting from a
broad-based economic recovery with unemployment declining. Growth
forecasts are encouraging and inflation is under control. Rental
growth is returning to most parts of the market as occupier demand
for good quality, well-located assets remains healthy and
development activity is reasonably subdued. We expect this economic
recovery to continue into the medium-term. This will be positive
for the Company's portfolio and supports our growth ambitions for
the Company.
Strategy
The strategic priority for the Company is to continue to grow in
a disciplined way which improves net operating income and brings
benefits such as improved liquidity and diversification. The
Company has an investment strategy focused on winning cities and
regions in continental Europe which are growing more quickly than
their domestic economies. It is pleasing to note that 100% of the
existing portfolio owned by the Company is located in the fastest
growing cities and towns in Continental Europe (Source: Oxford
Economics, defined as top 2 quartiles).
The Investment Manager, Schroder Real Estate Investment
Management Limited, is locally based in the target markets of
France, Germany, Switzerland and Scandinavia. This allows the
Company to identify specific locations and assets which offer good
fundamentals as well as to actively manage the portfolio. This
strategy is also informed by Schroders' in-house research
capability to identify sub-markets where there are supply/demand
imbalances and future growth potential from structural changes such
as urbanisation and infrastructure improvements. Over the
longer-term this should mean the portfolio is capable of adapting
to future occupier trends and technological advancements whilst
also being relatively resilient.
Dividend
The Company has declared a fourth interim dividend in respect of
the year ended 30 September 2017 of 1.5 euro cents per share based
on the number of shares in issue as at the publishing date of this
report. This represents an annualised rate of 4.4% based on
EUR1.37, being the euro equivalent of the issue price at admission.
The Company is targeting an annualised euro dividend of 5.5% based
on the euro equivalent issue price as at admission and remains on
target to deliver this once fully invested. Based on the Euro:GBP
exchange rate as at 30 September 2017, this would represent an
annualised rate of 6.6% against an initial GBP1 invested at
admission. This will be fully covered by contractual income
receivable from the portfolio.
Total dividends payable in respect of the financial year amount
to 5.2 euro cents per share.
Balance sheet and debt
The Company has a simple balance sheet, with overall leverage
capped at 35% LTV at the time debt is drawn. The current debt is
25% LTV, which provides some headroom to draw further debt. Debt is
used with the objective of improving shareholder returns and is
drawn against those assets most suitable for debt financing. This
ensures the most accretive finance rates can be secured, evidenced
by the current average weighted interest rate on the debt
facilities of 1.3%. When compared to the average net initial
property yield on the portfolio of approximately 6%, the debt is
accretive to income returns. It is also important to note that this
debt is either fixed cost or capped and is of long duration -
averaging almost seven years. This helps support long-term returns
for shareholders.
Given the positive yield spread, it is likely the Company will
draw further debt facilities and target overall gearing at around
35% LTV.
Outlook
The Company is close to being fully invested having executed the
strategy outlined at IPO to establish a quality portfolio of
commercial real estate in the growth markets of Western Continental
Europe. We have a remaining investment capacity of approximately
EUR30 million which is already allocated to an identified pipeline
of opportunities in our target markets.
Economic growth in our target markets is advancing and this is
having a positive impact on occupier demand and rental levels. A
number of flagged risks to European economies, such as general
elections and European break-up, have had outcomes that are likely
to result in a period of stability. Whilst there remains
uncertainty around events such as Brexit, the strategic focus on
winning cities and regions means the Company is well placed in
changing market circumstances and may potentially benefit if the
outcome to negotiations leads to more businesses locating and
expanding in continental Europe.
The portfolio provides an attractive level of income together
with the potential for growth. The balance sheet is stable with low
gearing that is accretive to returns. The market backdrop is
positive and supports potential returns from identified value-add
asset management opportunities and new investments. The Investment
Manager has identified a range of potential investment
opportunities, both in existing and new markets, that would be
accretive to the Company's earnings. We believe this provides a
platform to grow the Company to benefit shareholders.
Sir Julian Berney Bt.
Chairman
5 December 2017
Investment Manager's report
Results
The Company's portfolio is valued at EUR211.7 million as at 30
September 2017 reflecting an uplift of EUR14 million/7.1% on
purchase price. Overall values have increased 3.6% over the
financial year.
The Company's Net Asset Value ("NAV") as at 30 September 2017
stood at EUR178.3 million, or 133.3 euro cents (117.6 pence) per
share, and achieved a NAV total return for the financial year of
6.0%.
The table below provides an analysis of the movement in NAV
during the reporting period as well as a corresponding
reconciliation in the movement in the NAV cents per share:
% change per cps
NAV movement EUR million cps
========================================================= ============== ====== ===================
Brought forward as at 1 October 2016(1) 157.8 130.2 -
========================================================= ============== ====== ===================
Net equity raise impact 16.4 - -
========================================================= ============== ====== ===================
NAV post equity raise 174.2 130.2 -
========================================================= ============== ====== ===================
Transaction costs of investments made during the period (3.6) (2.7) (2.1)
========================================================= ============== ====== ===================
Unrealised gain in valuation of the property portfolio 7.4 5.5 4.2
========================================================= ============== ====== ===================
EPRA earnings 6.9 5.2 4.0
========================================================= ============== ====== ===================
Non-cash items (0.4) (0.3) (0.2)
========================================================= ============== ====== ===================
Dividends paid (6.2) (4.6) (3.5)
========================================================= ============== ====== ===================
Carried forward as at 30 September 2017 178.3 133.3 2.4
========================================================= ============== ====== ===================
Management reviews the performance of the Company principally on
a proportionally consolidated basis. As a result, figures quoted in
this table include the Company's share of joint ventures on a
line-by-line basis and exclude non-controlling interests in the
Company's subsidiaries.
NAV as at 30 September 2016 based on the number of shares
pre-October equity raise of 121,234,686. All other numbers are
based on the number of shares subsequent to the equity raise of
133,734,686 shares.
Market overview
Economic momentum in the Eurozone has increased and growth
forecasts continue to be upgraded. While growth forecasts for the
Eurozone for 2017 and 2018 had been at 1.4% and 1.5% respectively
at the start of this calendar year, the September consensus
forecasts have been upgraded to 2.1% and 1.8%. Following key
elections in Europe political uncertainty has eased. Growth
continues to beat expectations while structural reforms, debt
restructuring and labour market reforms are taking effect.
Unemployment has started to decrease and economic sentiment remains
at record highs. Core inflation remains stable around 1% and, while
the European Central Bank ("ECB") is likely to reduce its bond
buying program, the Investment Manager expects the ECB to leave its
refi rate at zero until 2019.
Offices
This economic activity is generating demand in the office
markets. In many European cities, jobs in the IT, media and
professional services sectors are growing year-on-year and net
take-up of office space is positive. Vacancy, particularly for
modern flexible space, has decreased and the supply pipeline for
the next 2-3 years remains muted. We expect to see a broad based
increase in office rents across continental Europe over the next
3-4 years, dominated by growth cities.
Retail
Strong consumer spending continues to support the wider retail
sector, though this growth is mainly being driven by on-line
spending. This is impacting the demand for physical retail space.
Demand, and rental levels, for high street units/flagship stores in
core city centre locations remains resilient and dominant shopping
centres with a retail, leisure and food offer also continue to
perform well. Secondary high streets and small to mid-sized
shopping centres remain under pressure with changing consumer
patterns reducing physical shopping time and spend. Supermarkets,
convenience stores and out-of-town retail warehouses are expected
to be more resilient to online encroachment, as consumers still
prefer the physical aspect of goods such as food, furniture, DIY
and homewares. Additionally, these stores typically have car
parking and are convenient for click and collect sales. Vacancy
rates here are also lower as these formats have less of a
mid-market fashion offer, the part of the market most severely
impacted, whilst the recovery in European housing markets has led
consumers to spend more on home improvements.
Logistics/industrial
The rapid growth of e-commerce is driving retailers and other
logistics operators to restructure their networks and introduce
modern technology to their units. Vacancy levels have been falling
across Europe and rents are beginning to grow. Demand remains
strong for well-located, modern units to be used for parcel
delivery and fulfilment centres, especially urban logistics assets.
These are benefiting from the growth in "last mile" deliveries and
returned items, as consumers become increasingly demanding and
place ever more emphasis on speed of delivery, located in built up
areas where new supply is constrained and which offer longer-term
mixed-use potential. This is a target investment sector for the
Company and it has an identified pipeline of assets under
consideration.
Investment market
The favourable outlook for rental growth and the significant gap
between real estate and 10 year government bond yields means that
there is a large amount of capital allocated towards real estate in
Continental Europe. Investment activity remains at high levels and
the market is competitive. Asian capital has become more active.
European investors are active throughout the region. The most
sought after market remains Germany, but activity is also high in
France, the Nordics, Spain and the Netherlands. Values for prime
assets are close to the high, assuming that investors will now
start to factor in an increase in bond yields over the medium term.
However, even if bond yields rise, we expect that real estate
yields will probably be relatively stable, given the prospects for
rental growth, particularly in winning cities.
Property portfolio
As at 30 September 2017, the Company owned nine properties,
independently valued at EUR211.7 million, reflecting a net initial
yield of approximately 6% against the independent valuation.
The retail properties in Biarritz and Rennes are owned in a
70/30 joint venture with Mercialys, the French retail property
specialist, and the Seville shopping centre is held in a 50/50
joint venture with another Schroder-managed real estate vehicle.
The portfolio statistics reflect the 70% ownership share of
Biarritz and Rennes and 50% of Seville.
The table below gives an overview of the portfolio:
Contracted
rents Value
============ ========= ======== ================= ==========================================================
Property Country Sector EURm % total EUR0-EUR20m EUR20m-EUR40m EUR40m-EUR60m >EUR60m
============ ========= ======== ====== ========= ============= =============== =============== =========
Paris (SC) France Office 3.5 24.3 X
============ ========= ======== ====== ========= ============= =============== =============== =========
Paris (B-B) France Office 2.3 16.5 X
============ ========= ======== ====== ========= ============= =============== =============== =========
Seville Spain Retail 2.0 13.9 X
============ ========= ======== ====== ========= ============= =============== =============== =========
Berlin Germany Retail 1.6 11.2 X
============ ========= ======== ====== ========= ============= =============== =============== =========
Biarritz France Retail 1.3 8.8 X
============ ========= ======== ====== ========= ============= =============== =============== =========
Hamburg Germany Office 1.2 8.1 X
============ ========= ======== ====== ========= ============= =============== =============== =========
Rennes France Retail 0.9 6.6 X
============ ========= ======== ====== ========= ============= =============== =============== =========
Stuttgart Germany Office 0.8 5.6 X
============ ========= ======== ====== ========= ============= =============== =============== =========
Frankfurt Germany Retail 0.7 5.0 X
============ ========= ======== ====== ========= ============= =============== =============== =========
Portfolio at financial
year end 14.3 100.0 EUR211.7m
================================= ====== ========= ==========================================================
The portfolio's country and sector allocations are specified
below:
Country allocation Portfolio at financial year end (%) Sector allocation Portfolio at financial
(% contracted rent) (% contracted rent) year end (%)
====================== ===================================== ===================== ========================
France 56 Office 54
====================== ===================================== ===================== ========================
Germany 30 Retail 46
====================== ===================================== ===================== ========================
Spain 14 Other 0
====================== ===================================== ===================== ========================
Total 100 Total 100
====================== ===================================== ===================== ========================
Lease expiry profile
The portfolio generates EUR14.3 million p.a. in contracted
income. The average unexpired lease term is 4.4 years to first
break and 6.8 years to expiry.
The lease expiry profile to earliest break is detailed in the
2017 Annual Report. The near-term lease expiries provide asset
management opportunities to renegotiate leases, extend weighted
average unexpired lease terms, improve income security and generate
rental growth. In turn, this activity benefits NAV total
return.
Top ten tenants
The top ten tenants comprise a wide range of occupiers from
different industry segments as shown below:
Unexp.
lease
Contracted Contracted term
# Tenant Property Tenant rent (EURm rent (years)(4)
risk(1) p.a.) (% )(3)
==== =============== ============ ========== ============= ============= =============
1 Alten Paris (B-B) Low 2.3 16% 3.5
==== =============== ============ ========== ============= ============= =============
Rennes
2 Casino & Biarritz Low 1.9 13% 4.7
==== =============== ============ ========== ============= ============= =============
3 Hornbach Berlin Low 1.6 11% 8.3
==== =============== ============ ========== ============= ============= =============
4 City BKK Hamburg High(2) 0.8 6% 7.4
==== =============== ============ ========== ============= ============= =============
5 LandBW Stuttgart Low 0.7 5% 8.4
==== =============== ============ ========== ============= ============= =============
6 Thesee Paris (SC) Medium 0.6 4% 1.9
==== =============== ============ ========== ============= ============= =============
7 Ethypharm Paris (SC) Low 0.6 4% 4.3
==== =============== ============ ========== ============= ============= =============
8 Fileassistance Paris (SC) Low 0.5 3% 1.7
==== =============== ============ ========== ============= ============= =============
Garantie
9 assistance Paris (SC) Low 0.4 3% 1.7
==== =============== ============ ========== ============= ============= =============
10 Moody's Paris (SC) Low 0.4 3% 1.8
==== =============== ============ ========== ============= ============= =============
Total top ten tenants 9.8 68% 4.9
=============================================== ============= ============= =============
Remaining tenants 4.5 32% 3.4
=============================================== ============= ============= =============
Total 14.3 100% 4.4
=============================================== ============= ============= =============
(1) Regular tenant risk assessments are undertaken for tenants
above EUR100,000 of contracted rent. Among other considerations,
the Investment Manager's risk assessments are based on Dun
&Bradstreet ratings and Dun &Bradstreet failure scores.
(2) As part of ongoing asset management, discussions with City
BKK regarding a potential lease surrender continue.
(3) Percentage based on total contracted rent as at financial
period end.
(4) Unexpired lease term until earliest termination in years as
at 30 September 2017 weighted by contracted rent
Valuation
The current valuation of EUR211.7 million for the existing
portfolio reflects an increase of 7.1% compared to the combined
purchase price of the nine asset portfolio. Transaction costs have
already been recovered through valuation uplifts since
acquisition.
The portfolio valuation, excluding transaction costs, has risen
by 3.6% over the financial year due to positive valuation
performance from all assets. The largest valuation uplift came from
the newly acquired Paris, Saint-Cloud asset, against its purchase
price and the Hamburg asset against the 30 September 2016
valuation.
Transactions and asset management
The long-term investment strategy is founded on urbanisation.
Elements such as population change, infrastructure improvements,
growth of mixed-use areas, supply constrained locations and
particularly those that provide affordable/ sustainable rents are
central to this theme. All our investments are well positioned to
benefit from these themes, with current Eurozone economic data
trending favourably in support of this strategy.
We manage each asset around an identified business plan,
constructed by our local real estate professionals and approved by
the Investment Manager's investment committee. Our asset management
expertise assists in de-risking assets, enhancing income profiles
and positioning investments to benefit from occupier demand and
ultimately growth, all positively contributing to the delivery of
the Company's return performance.
Boulevard Jean Jaurès, Boulogne-Billancourt (Paris) 92100,
France
-- Acquired in March 2016 for a purchase price of EUR37.5 million
-- Valuation at 30 September 2017: EUR41.4 million
-- Lettable area: c.6,900 sq.m
-- Investment rationale:
ü Mixed-use area with a high incidence of competing uses
ü Affordable/sustainable rents
ü Supply constrained location
ü Modest capital value per sq.m
Business plan achievements:
- Negotiating with adjoining owner to optimise future redevelopment of the site;
- Adding EUR15,000 in annual income; and
- Engaging with tenant Alten about a possible lease extension.
Asset management initiatives remaining:
- Managing neighbouring property easements which have value in the Company's favour;
- Working with tenant to agree their longer-term occupational intention; and
- Investigating longer-term office refurbishment or potential
for conversion to higher value uses.
Großbeerenstraße, 12107 Berlin, Germany
-- Acquired in March 2016 for a purchase price of EUR24.3 million
-- Valuation at 30 September 2017: EUR25.7 million
-- Lettable area: c.16,800 sq.m
-- Investment rationale:
ü Above average population growth
ü Supply constrained location
ü Mixed-use area with a high incidence of competing uses
ü Large site area of 4 hectares
Business plan achievements:
- Tenant relationship management with a view to understanding
Hornbach's needs and future e-commerce aspirations (drive in/click
and collect). Approached neighbouring owner to acquire site for
expansion.
Asset management initiatives remaining:
- Diversifying the retail offer with the addition of
complementary uses such as food and beverage;
- Rezoning part of the land for residential use; and
- Potential sale of part of the land for residential development
Neckarstraße, 70190, Stuttgart, Germany
-- Acquired in April 2016 for a purchase price of EUR14.4 million
-- Valuation at 30 September 2017: EUR15.2 million
-- Lettable area: c.5,800 sq.m
-- Investment rationale:
ü Supply constrained location
ü Mixed-use area with a high incidence of competing uses
ü Affordable/sustainable rents
ü Improving infrastructure driven by the neighbouring
"Stuttgarter 21" redevelopment
Business plan achievements:
- Implementation of fire certification requirement in association with neighbouring asset.
Asset management initiatives remaining:
- Marking rents to market which the Investment Manager
anticipates providing c. 5% to 10% growth; and
- Positioning the investment to benefit from the completion of
the neighbouring "Stuttgarter 21" urban development.
Hammerbrookstraße, 20097, Hamburg, Germany
-- Acquired in April 2016 for a purchase price of EUR14.4 million
-- Valuation at 30 September 2017: EUR16.7 million
-- Lettable area: c.7,000 sq.m
-- Investment rationale:
ü Modest capital value per sq.m
ü Mixed-use area with a high incidence of competing uses
ü The city-sud sub-market is one stop from the city centre and
is evolving as a destination where people want to live, work and
socialise
ü Affordable/sustainable rents that represent approximately a
third of prime city centre
ü Location has medium to longer-term growth potential
Business plan achievements:
- Leasing of 208 sq.m to a sushi restaurant on a 10 year term
and adding a further EUR17,000 of annual income; and
- Negotiating with City BKK regarding a potential lease
surrender payment and subsequent direct leasing with
sub-tenants.
Asset management initiatives remaining:
- Positioning the investment to capitalise on the above average rental growth anticipated;
- Managing minor storage and parking vacancy and general lease expiries; and
- Finalising City BKK agreement.
Lorscher Straße, 60489, Frankfurt - Rodelheim, Germany
-- Acquired in May 2016 for a purchase price of EUR11.1 million
-- Valuation at 30 September 2017: EUR11.5 million
-- Lettable area: c.4,500 sq.m
-- Investment rationale:
ü Supermarket anchored convenience retail centre servicing a
growing urban catchment
ü Larger than standard supermarket size allowing for a broader
grocery offer relative to local competition
ü Mixed use area with a dense residential population
ü Above average provision of parking
Business plan achievements:
- Critically reviewing tenancy mix culminating in discussions
with a leading national drug store retailer to enter the scheme;
and
- Negotiating with a tenant of the lower ground floor to
maintain occupancy and income security.
Asset management initiatives remaining:
- Improving the retail mix to enhance footfall;
- Longer-term potential to add further lettable area and services to the car park area; and
- Broadening the retail offer and strengthening the convenience nature of the centre.
Avenue de Bayonne, 64600, Anglet (Biarritz), France
(Values refer to 70% interest)
-- Acquired in June 2016 for a purchase price of EUR22.6 million
-- Valuation at 30 September 2017: EUR21.8 million
-- Lettable area: c.15,000 sq.m
-- Investment rationale:
ü Grocery anchored, multi-tenanted retail offer that forms part
of a dominant retail agglomeration
ü Densely populated catchment supported by strong tourism
ü JV partner has an operational connection being part of the
grocery operator's parent company
ü Mixed-use area with strong competition from competing uses
Business plan achievements:
- Redesign of vacant 38 sq.m unit to provide an additional entry
(directly to the car park) to improve potential footfall and
marketability; and
- Management of joint venture to implement marketing and communication actions.
Asset management initiatives remaining:
- Reconfigure retail units to allow for broader retail offer / tenant mix.
Route de Saint Malo, 35760, Saint-Grégoire (Rennes), France
(Values refer to 70% interest)
-- Acquired in June 2016 for a purchase price of EUR17.2 million
-- Valuation at 30 September 2017: EUR19.0 million
-- Lettable area: c.13,900 sq.m
-- Investment rationale:
ü Grocery store anchoring a recently expanded shopping centre
that collectively provides a regional shopping centre dominance
ü JV partner has an operational connection being part of the
grocery operator's parent company
ü Dominant retail offer in a growing region
Business plan achievements:
- Management of joint venture to implement marketing and
communication actions with a view to leveraging off recent centre
expansion; and
- Monitoring Mercialys expansion and mitigating any negative impact to grocery offer.
Asset management initiatives remaining:
- Reconfigure retail units to allow for broader retail offer / tenant mix.
Le Directoire, Saint-Cloud (Paris), France
-- Acquired in February 2017 for a purchase price of EUR30.0 million
-- Valuation at 30 September 2017: EUR33.9 million
-- Lettable area: c.15,800 sq.m
-- Investment rationale:
ü Supply constrained location
ü Let off affordable/sustainable rents
ü Attractive capital value per sq.m substantially less than
replacement cost
ü Benefits from future infrastructure improvements
ü Mixed-use area with strong competition from competing uses
Business plan achievements:
- A lease extension and 555 sq.m expansion with Outscale, the
cloud operating system company, taking its total occupancy at the
asset to 1,695 sq.m secured;
- A new six year lease agreement with Ethypharm, a
pharmaceutical company, for 2,450 sq.m; and
- Ongoing discussions for a new 12 year lease with a
governmental body, for c.400 sq.m of vacant storage
accommodation.
Asset management initiatives remaining:
- Implementation of a value-enhancing refurbishment programme,
comprising the full renovation of lift lobbies, with completion due
in the second half of 2018; and
- Re-gearing future lease expiries to maximise income, limit
vacancy and drive unexpired lease profile.
- Acquisition of future floors within the complex provided yield
is accretive to return targets
Metromar Shopping Centre, Seville, Spain
(Values refer to 50% interest)
-- Acquired in May 2017 for a purchase price of EUR26.2 million
-- Valuation at 30 September 2017: EUR26.5 million
-- Lettable area: c.23,000 sq.m
-- Investment rationale:
ü Dominant retail offer for the local urban catchment
ü Anchored by grocery and leisure, both relatively immune to
e-commerce
ü Attractive capital value per sq.m substantially less than
replacement cost
ü Local region is undergoing strong population growth driven by
infrastructure improvements
Business plan achievements:
- Advancing discussions with a leisure specialist that will
compliment the existing cinema and food offer, whilst creating an
additional point of difference relative to competition;
- Removed underperforming restaurant and leased to a burger
specialist, strengthening restaurant offer for consumers;
- Obtained proposal to improve brand, signage, wayfaring, lighting and general vibrancy; and
- Discussions to lease the ex Massimo Dutti space to a shoe
specialist for which the centre is underweight.
Asset management initiatives remaining:
- Remarketing of the centre to build upon its local dominance;
- Leasing remaining restaurant vacancy and improve offer; and
- Concluding leasing of Massimo Dutti space.
Finance
The use of leverage is assessed on an asset-by-asset basis,
secured only against those properties that are most suitable for
debt financing and where financing costs/terms are attractive.
As at 30 September 2017, the Company's total debt was EUR60.4
million across four loan facilities. This represents a loan to
value of 25% against the Company's gross asset value.
The loans drawn are secured against the four German properties
in Berlin, Frankfurt, Stuttgart and Hamburg, the two French retail
assets in Biarritz and Rennes and the Spanish asset in Seville.
The current blended all-in interest rate is 1.3%, significantly
below the portfolio yield of approximately 6% p.a.
The average unexpired loan term is 6.8 years.
Maturity Outstanding
Lender Property date principal(EUR)(1) Interest
rate
========================= =================== ============ =================== ===========
Deutsche Pfandbriefbank Berlin/Frankfurt 30/06/2026 16,500,000 1.31%
========================= =================== ============ =================== ===========
Stuttgart/Hamburg 30/06/2023 14,000,000 0.85%
=================== ====================================== =================== ===========
Credit Agricole(1) Biarritz/Rennes 30/07/2023 18,200,000 3M Euribor
+ 1.35%
========================= =================== ============ =================== ===========
Münchener
Hypothekenbank Seville 22/05/2024 11,678,750 1.76%
========================= =================== ============ =================== ===========
Total 60,378,750
============================================================ =================== ===========
(1) All statistics in the Investment Manager's report' reflect a
50% ownership share of Seville and a 70% ownership share of the
Biarritz and Rennes investments. As a result, debt allocations for
those investments in the table above are similarly proportioned.
With regard to debt specifically, further information can be found
in notes 12 and of the 2017 Annual Report and the above table
includes neither related party transactions nor unamortised
fees.
The German and Spanish loans are fixed rate for the duration of
the loan term.
The French loan is based on a margin above 3 month Euribor and
the Company has acquired an interest rate cap to limit future
potential interest costs if Euribor were to increase. The strike
rate on the cap is 1.25% p.a. The market value of the interest cap
is positive at EUR0.2 million as at the end of September 2017.
Outlook
Since the Company's IPO in December 2015, we have constructed a
portfolio of quality investments across the winning cities and
regions of Western Europe, such as Berlin, Paris and Seville. The
portfolio is well positioned to deliver sustainable income and
growth. The Company is currently paying a dividend of 4.4% and
continues to target a 5.5% dividend on the euro IPO issue price
once fully invested. We have created a balanced and diversified
portfolio, having invested in nine properties across eight 'winning
cities'. There are identified acquisitions to deploy the remaining
capital.
The remaining investment capacity, which totals approximately
EUR30 million, will be invested in a manner consistent with the
existing strategy. We will continue to combine our approach with
our bottom-up real estate expertise to deliver sustainable income
returns. Once fully invested we will take a disciplined approach to
growth. The key winning cities and regions in continental Europe
offer opportunities with increasing demand and only limited supply.
Our strategy will seek to increase our allocation to logistics
warehouses, with a focus on urban logistics, and the growing demand
from e-commerce.
Schroder Real Estate Investment Management Limited
5 December 2017
Principal risks and uncertainties
The Board is responsible for the Company's system of risk
management and internal control and for reviewing its
effectiveness. The Board has adopted a detailed matrix of principal
risks affecting the Company's business as an investment trust and
has established associated policies and processes designed to
manage and, where possible, mitigate those risks, which are
monitored by the Audit and Valuation Committee on an ongoing basis.
This system assists the Board in determining the nature and extent
of the risks it is willing to take in achieving the Company's
strategic objectives. Both the principal risks and the monitoring
system are also subject to robust review at least annually. The
last review took place in November 2017.
Although the Board believes that it has a robust framework of
internal control in place this can provide only reasonable, and not
absolute, assurance against material financial misstatement or loss
and is designed to manage, not eliminate, risk.
A summary of the principal risks and uncertainties faced by the
Company which have remained unchanged throughout the year ended 30
September 2017, and actions taken by the Board and, where
appropriate, its Committees, to manage and mitigate these risks and
uncertainties, is set out below.
Risk Mitigation and management
================================== ======================================
Strategic
The Company's investment Appropriateness of the
objectives may become out Company's investment remit
of line with the requirements periodically reviewed and
of investors, resulting success of the Company
in a wide discount of the in meeting its stated objectives
share price to underlying monitored.
NAV per share.
Share price relative to
NAV per share monitored.
Marketing and distribution
activity is actively reviewed.
================================== ======================================
Investment management
The Investment Manager's Review of: the Investment
investment strategy, if Manager's compliance with
inappropriate, may result the agreed investment restrictions,
in the Company underperforming investment performance
the market and/or peer and risk against investment
group companies, leading objectives and strategy;
to the Company and its relative performance; the
objectives becoming unattractive portfolio's risk profile;
to investors. and appropriate strategies
employed to mitigate any
negative impact of substantial
changes in markets, including
any potential disruption
to capital markets.
Annual review of the ongoing
suitability of the
Investment Manager.
================================== ======================================
Custody
Safe custody of the Company's Depositary verifies ownership
assets may be compromised and legal entitlement,
through control failures. and reports on safe custody
of the Company's assets,
including cash.
Quarterly report from the
Depositary on its
activities.
================================== ======================================
Gearing and leverage
The Company utilises credit Gearing is monitored and
facilities. These arrangements strict restrictions on
increase the funds available borrowings imposed.
for investment through
borrowing. While this has
the potential to enhance
investment returns in rising
markets, in falling markets
the impact could be detrimental
to performance.
================================== ======================================
Accounting, legal and regulatory
In order to continue to Confirmation of compliance
qualify as an investment with relevant laws and
trust, the Company must regulations by key service
comply with the requirements providers.
of section 1158 of the
Corporation Tax Act 2010.
Shareholder documents and
Breaches of the UK Listing announcements, including
Rules, the Companies Act, the Company's published
or other regulations with Annual Report, are subject
which the Company is required to stringent review processes.
to comply, could lead to
a number of detrimental Procedures established
outcomes. to safeguard against unauthorised
disclosure of inside information.
================================== ======================================
Service provider
The Company has no employees Service providers appointed
and has delegated certain subject to due diligence
functions to a number of processes and with clearly
service providers. Failure documented contractual
of controls and poor performance arrangements detailing
of any service provider service expectations.
could lead to disruption,
reputational damage or Regular reporting by key
loss. service providers and monitoring
of the quality of services
provided.
Review of annual audited
internal controls reports
from key service providers,
including confirmation
of business continuity
arrangements.
================================== ======================================
Risk assessment and internal controls
Risk assessment includes consideration of the scope and quality
of the systems of internal control operating within key service
providers, and ensures regular communication of the results of
monitoring by such providers to the Audit and Valuation Committee,
including the incidence of significant control failings or
weaknesses that have been identified at any time and the extent to
which they have resulted in unforeseen outcomes or contingencies
that may have a material impact on the Company's performance or
condition. No significant control failings or weaknesses were
identified from the Audit and Valuation Committee's ongoing risk
assessment which has been in place throughout the financial year
and up to the date of this Report.
A full analysis of the financial risks facing the Company is set
out in note 20 on pages 73 to 78 of the 2017 Annual Report.
Viability statement
The Board is required to give a statement on the Company's
viability which considers the Company's current position and
principal risks and uncertainties together with an assessment of
future prospects.
The Board conducted this review over a five year time horizon
which is selected to match the period over which the Board monitors
and reviews its financial performance and forecasting. The
Investment Manager prepares five year total return forecasts for
the Continental European commercial real estate market. The
Investment Manager uses these forecasts as part of analysing
acquisition opportunities as well as for its annual asset level
business planning process. At the annual strategy day and
Investment Manager visit the Board receives an overview of the
asset level business plans which the Investment Manager uses to
assess the performance of the underlying portfolio and therefore
make investment decisions such as disposals and investing capital
expenditure. The Company's principal borrowings are for a weighted
duration of 6.8 years and the average unexpired lease term,
assuming all tenants vacate at the earliest opportunity, is 6.8
years.
The Board's assessment of viability considers the principal
risks and uncertainties faced by the Company, as detailed in the
Strategic review on pages 23 and 24 of the 2017 Annual Report,
which could negatively impact its ability to deliver the investment
objective, strategy, liquidity and solvency. This includes
consideration of a cash flow model prepared by the Investment
Manager that analyses the sustainability of the Company's cash
flows, dividend cover, compliance with bank covenants, and general
liquidity requirements for a five year period.
Based on the assessment, the Directors have concluded that there
is a reasonable expectation that the Company will be able to
continue in operation and meet its liabilities as they fall due
over the five year period of their assessment.
Going concern
The Directors have examined significant areas of possible
financial risk and have reviewed cash flow forecasts and compliance
with the debt covenants, in particular the loan to value covenant
and interest cover ratio. They have not identified any material
uncertainties which would cast significant doubt on the Group's
ability to continue as a going concern for a period of not less
than twelve months from the date of the approval of the financial
statements. The Directors have satisfied themselves that the Group
has adequate resources to continue in operational existence for the
foreseeable future.
After due consideration, the Board believes it is appropriate to
adopt the going concern basis in preparing the financial
statements.
Statement of Directors' responsibilities
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have prepared the Group and Company financial statements in
accordance with International Financial Reporting Standards (IFRS)
as adopted by the European Union. Under company law the Directors
must not approve the financial statements unless they are satisfied
that they give a true and fair view of the state of affairs of the
Group and Company and of the profit or loss of the Group and
Company for that period. In preparing these financial statements,
the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgments and accounting estimates that are reasonable and prudent;
-- state whether applicable Accounting Standards, IFRS as
adopted by the European Union, have been followed, subject to any
material departures disclosed and explained in the financial
statements; and
-- prepare the financial statements on a going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group and
Company's transactions and disclose with reasonable accuracy at any
time the financial position of the Group and Company and enable
them to ensure that the financial statements and the Remuneration
Report comply with the Companies Act 2006 and, as regards the Group
financial statements, Article 4 of the IAS regulation. They are
also responsible for safeguarding the assets of the Group and
Company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
The Investment Manager is responsible for the maintenance and
integrity of the Company's webpage. Legislation in the United
Kingdom governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Each of the Directors, whose names and functions are listed on
page 26 of the 2017 Annual Report, confirm that to the best of
their knowledge:
-- the financial statements, which have been prepared in
accordance with IFRSs as adopted by the European Union, give a true
and fair view of the assets, liabilities, financial position and
net return of the Group and the undertakings included in the
consolidation taken as a whole;
-- the Strategic Report contained in the Report and Accounts
includes a fair review of the development and performance of the
business and the position of the Group and the undertakings
included in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that it faces;
and
-- the Annual Report and Accounts, taken as a whole, is fair,
balanced and understandable and provides the information necessary
for shareholders to assess the Group and Company's position and
performance, business model and strategy.
Consolidated and Company Statement of Comprehensive Income
For the year ended 30 September 2017
Group Group Company Company
30/09/17 30/09/16 30/09/17 30/09/16
EUR000 EUR000 EUR000 EUR000
Rental and service
charge income 17,296 4,891 - -
Property operating
expenses (5,527) (969) - -
Net rental and related
income 11,769 3,922 - -
----------------------------- --------- ---------- ---------- ----------
Net gain/(loss) from
fair value adjustment
on investment property 4,284 (4,537) - -
Realised loss on foreign
exchange (4) (101) (4) (101)
Net change in fair
value of financial
instruments at fair
value through profit
or loss 72 (60) - -
Management fees receivable - - 1,761 -
Expenses
Investment management
fee (1,849) (1,402) (1,849) (1,402)
Valuers' and other
professional fees (666) (425) (298) (127)
Administrator's and
accounting fees (306) (185) (135) (114)
Auditors' remuneration (280) (161) (265) (139)
Directors' fees (120) (129) (120) (129)
Other expenses (291) (122) (93) (88)
Total expenses (3,512) (2,424) (2,760) (1,999)
----------------------------- --------- ---------- ---------- ----------
Operating profit/(loss)
before net finance
costs 12,609 (3,200) (1,003) (2,100)
Finance income 174 5 12 5
Finance costs (918) (157) - -
Net finance (costs)/income (744) (152) 12 5
Share of loss of joint (185) - - -
venture
Profit/(loss) before
taxation 11,680 (3,352) (991) (2,095)
Taxation (505) (47) - -
Profit/(loss) after
taxation 11,175 (3,399) (991) (2,095)
----------------------------- --------- ---------- ---------- ----------
Attributable to:
Owners of the parent 10,288 (2,516) (991) (2,095)
Non-controlling interests 887 (883) - -
----------------------------- --------- ---------- ---------- ----------
11,175 (3,399) (991) (2,095)
---------------------------- --------- ---------- ---------- ----------
Basic and diluted
earnings/(loss) per
share attributable
to owners of the parent 7.7c (2.1c) - -
----------------------------- --------- ---------- ---------- ----------
Consolidated and Company Statement of Comprehensive
Income
For the year ended 30 September 2017
Group Group Company Company
30/09/17 30/09/16 30/09/17 30/09/16
EUR000 EUR000 EUR000 EUR000
---------------------------- --------- ---------- ---------- ----------
Profit/(loss) for
the year 11,175 (3,399) (991) (2,095)
Other comprehensive
loss items that may
be reclassified to
profit or loss:
Currency translation
differences (3) (226) (3) (226)
----------------------------- --------- ---------- ---------- ----------
Total other comprehensive
loss (3) (226) (3) (226)
Total comprehensive
profit/(loss) for
the year 11,172 (3,625) (994) (2,321)
Attributable to:
Owners of the parent 10,285 (2,742) (994) (2,321)
Non-controlling interests 887 (883) - -
----------------------------- --------- ---------- ---------- ----------
11,172 (3,625) (994) (2,321)
---------------------------- --------- ---------- ---------- ----------
All items in the above statement are derived from continuing
operations.
Consolidated and Company Statement of Financial Position
As at 30 September 2017
Group Group Company Company
30/09/2017 30/09/2016 30/09/2017 30/09/2016
EUR000 EUR000 EUR'000 EUR'000
--------- -------- ----------- ----------- -----------
Assets
Non-current assets
Investment property 202,563 165,365 - -
Investment in subsidiaries - - 118,583 118,583
Investment in joint 6,290 - - -
ventures
Loans to joint ventures 10,035 - - -
Non-current assets 218,888 165,365 118,583 118,583
------------------------------------------- -------- ----------- ----------- -----------
Current assets
Trade and other receivables 2,063 2,377 34,688 34,179
Interest rate derivative
contracts 273 200 - -
Cash and cash equivalents 28,521 58,476 14,583 6,068
------------------------------------------- -------- ----------- ----------- -----------
Current assets 30,857 61,053 49,271 40,247
------------------------------------------- -------- ----------- ----------- -----------
Total assets 249,745 226,418 167,854 158,830
=========================================== ======== =========== =========== ===========
Equity
Share capital 15,167 13,994 15,167 13,994
Share premium 30,215 14,882 30,216 14,882
Retained earnings/(accumulated
losses) 650 (3,486) (10,437) (3,291)
Other reserves 132,294 132,370 132,522 132,595
------------------------------------------- -------- ----------- ----------- -----------
178,326 157,760 167,468 158,180
Non-controlling interests 7,691 6,804 - -
------------------------------------------- -------- ----------- ----------- -----------
Total equity 186,017 164,564 167,468 158,180
------------------------------------------- -------- ----------- ----------- -----------
Liabilities
Non-current liabilities
Interest-bearing loans
and borrowings 58,772 58,724 - -
Deferred tax liability 473 30 - -
------------------------------------------- -------- ----------- ----------- -----------
Non-current liabilities 59,245 58,754 - -
------------------------------------------- -------- ----------- ----------- -----------
Current liabilities
Trade and other payables 4,483 3,084 386 650
Current tax liabilities - 16 - -
Current liabilities 4,483 3,100 386 650
------------------------------------------- -------- ----------- ----------- -----------
Total liabilities 63,728 61,854 386 650
------------------------------------------- -------- ----------- ----------- -----------
Total equity and liabilities 249,745 226,418 167,854 158,830
=========================================== ======== =========== =========== ===========
Net Assets Value per
Ordinary Share 133.3c 130.1c 125.2c 130.5c
------------------------------------------- -------- ----------- ----------- -----------
Consolidated and Company Statement of Changes in Equity
For the year ended 30 September 2017
Retained
Group earnings/ Non-controlling
Share Share (accumulated Other interests Total
capital premium losses) reserves Sub-total equity
EUR000 EUR000 EUR000 EUR000 EUR000 EUR'000 EUR'000
------------------ ---------- ---------- -------------- ----------- ------------ ----------------- ---------
Balance as at - - - - - - -
1 October 2015
Loss for the year - - (2,516) - (2,516) (883) (3,399)
Other
comprehensive
loss for the year - - - (226) (226) - (226)
Dividends paid - - (970) - (970) - (970)
New equity
issuance 16,576 149,873 - (4,977) 161,472 - 161,472
Share premium
reduction - (122,157) - 122,157 - - -
Unrealised foreign
exchange (2,582) (12,834) - 15,416 - - -
Investments from
non-controlling
interests - - - - - 7,687 7,687
Balance as at
30 September 2016 13,994 14,882 (3,486) 132,370 157,760 6,804 164,564
Profit for the
year - - 10,288 - 10,288 887 11,175
Other
comprehensive
loss for the year - - - (3) (3) - (3)
Dividends paid - - (6,152) - (6,152) - (6,152)
New equity
issuance 1,390 15,288 - (245) 16,433 - 16,433
Unrealised foreign
exchange (217) 45 - 172 - - -
Balance as at
30 September 2017 15,167 30,215 650 132,294 178,326 7,691 186,017
------------------- ---------- ---------- -------------- ----------- ------------ ----------------- ---------
Company Non-controlling
Share Share Accumulated Other interests
capital premium losses* reserves* Sub-total Total
EUR000 EUR000 EUR000 EUR000 EUR000 EUR'000 EUR'000
------------------ ---------- ---------- -------------- ------------ ------------ ----------------- --------
Balance as at - - - - - - -
1 October 2015
Total
comprehensive
loss for the year - - (2,321) - (2,321) - (2,321)
Dividends paid - - (970) - (970) - (970)
New equity
issuance 16,576 149,873 - (4,978) 161,471 - 161,471
Share premium
reduction - (122,157) - 122,157 - - -
Unrealised foreign
exchange (2,582) (12,834) - 15,416 - - -
Balance as at
30 September 2016 13,994 14,882 (3,291) 132,595 158,180 - 158,180
Total
comprehensive
loss for the year - - (994) - (994) - (994)
Dividends paid - - (6,152) - (6,152) - (6,152)
New equity
issuance 1,390 15,289 - (245) 16,434 - 16,434
Unrealised foreign
exchange (217) 45 - 172 - - -
Balance as at
30 September 2017 15,167 30,216 (10,437) 132,522 167,468 - 167,468
------------------- ---------- ---------- -------------- ------------ ------------ ----------------- --------
*These reserves form the distributable reserves of the Company
and may be used for to fund distribution of profits to investors
via dividends payments.
Consolidated and Company Statement of Cash Flows
For the year ended 30 September 2017
Group Group Company Company
30/09/2017 30/09/2016 30/09/2017 30/09/2016
EUR'000 EUR'000 EUR'000 EUR'000
Operating activities
Profit/(loss) before
tax for the year 11,680 (3,352) (991) (2,095)
Adjustments for:
Net valuation gain/(loss)
on fair value adjustment
in investment property (4,284) 4,537 - -
Share of loss of 185 - - -
joint venture
Realised foreign
exchange losses 4 101 4 101
Finance income (174) (5) (12) (5)
Finance expense 918 157 - -
Movement in fair
value of interest
rate derivative contracts (72) 60 - -
Operating cash generated
from/(used in) before
changes in working
capital 8,257 - (999) -
Decrease/(increase)
in trade and other
receivables 434 (2,376) (509) (422)
Increase/(decrease)
in trade and other
payables 1,647 2,728 (264) 644
--------------------------------------- ----------- ----------- ----------- -----------
Cash generated from/(used
in) operations 10,338 1,850 (1,772) (1,777)
Finance costs paid (751) (903) - -
Finance income received 9 - 12 -
Tax paid (145) - - -
---------------------------------- --- ----------- ----------- ----------- -----------
Net cash generated
from/(used in) operating
activities 9,451 692 (1,760) (1,772)
--------------------------------------- ----------- ----------- ----------- -----------
Investing activities
Acquisition of investment
property (33,171) (169,647) - -
Investment in subsidiaries - - - (118,583)
Investment in joint (16,510) - - -
ventures
Loans to subsidiary
companies - - - (33,757)
Net cash used in
investing activities (49,681) (169,647) - (152,340)
--------------------------------------- ----------- ----------- ----------- -----------
Financing activities
Proceeds from borrowings - 56,500 - -
Proceeds from borrowings - 10,753 - -
- non-controlling
interest
Repayment of borrowings
- non-controlling
interest
- (7,689) - -
New equity - non - 7,687 - -
controlling interest
Share issue net proceeds 16,434 161,477 16,434 161,477
Dividends paid (6,152) (970) (6,152) (970)
--------------------------------------- ----------- ----------- ----------- -----------
Net cash generated
from financing activities 10,282 227,758 10,282 160,507
--------------------------------------- ----------- ----------- ----------- -----------
Net (decrease)/increase
in cash and cash
equivalents for the
year (29,948) 58,803 8,522 6,395
--------------------------------------- ----------- ----------- ----------- -----------
Opening cash and
cash equivalents 58,476 - 6,068 -
--------------------------------------- ----------- ----------- ----------- -----------
Effects of exchange
rate changes on cash
and cash equivalents (7) (327) (7) (327)
--------------------------------------- ----------- ----------- ----------- -----------
Closing cash and
cash equivalents 28,521 58,476 14,583 6,068
--------------------------------------- ----------- ----------- ----------- -----------
Notes to the Financial Statements
1. Significant accounting policies
Schroder European Real Estate Investment Trust plc ("the
Company") is a closed-ended investment company incorporated in
England & Wales. The consolidated financial statements of the
Company for the year ended 30 September 2017 comprise those of the
Company and its subsidiaries (together referred to as the "Group").
The Group holds a portfolio of investment properties in continental
Europe. The shares of the Company are listed on the London Stock
Exchange (primary listing) and the Johannesburg Stock Exchange
(secondary listing). The registered office of the Company is 31
Gresham Street, London, EC2V 7QA.
Statement of compliance
The consolidated financial statements of the Group have been
prepared in accordance with International Financial Reporting
Standards ("IFRS") as adopted by the European Union and
interpretations issued by the International Financial Reporting
Interpretations Committee ("IFRIC"), and therefore comply with
article 4 of the EU IAS regulation, and in accordance with the
Companies Act 2006.
The financial statements give a true and fair view and are in
compliance with applicable legal and regulatory requirements and
the Listing Rules of the UK Listing Authority.
Basis of preparation
The financial statements are presented in euros, rounded to the
nearest thousand. They are prepared on a going concern basis,
applying the historical cost convention except for the measurement
of investment property and derivative financial instruments that
have been measured at fair value.
The accounting policies have been consistently applied to the
results, assets, liabilities and cash flows of the entities
included in the consolidated financial statements.
Going concern
The Directors have examined significant areas of possible
financial risk including cash and cash requirements and the debt
covenants. The Directors have not identified any material
uncertainties which would cast significant doubt on the Group's
ability to continue as a going concern for a period of not less
than twelve months from the date of the approval of the financial
statements. The Directors have satisfied themselves that the Group
has adequate resources to continue in operational existence for the
foreseeable future.
Use of estimates and judgements
The preparation of financial statements in conformity with IFRS
requires management to make judgements, estimates and assumptions
that affect the application of policies and the reported amounts of
assets and liabilities, income and expenses. These estimates and
associated assumptions are based on historical experience and
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making
judgements about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may
differ from these estimates. The estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the period in which the
estimates are revised and in any future periods affected.
The most significant estimates made in preparing these financial
statements relate to the carrying value of investment properties,
including those within joint ventures, which are stated at fair
value. The Group uses external professional valuers to determine
the relevant amounts. Judgements made by management in the
application of IFRS that have a significant effect on the financial
statements and estimates with a significant risk of material
adjustment in the next year are disclosed in note 20 of the 2017
Annual Report.
Basis of consolidation
Subsidiaries
The consolidated financial statements comprise the financial
statements of the Company and all of its subsidiaries drawn up to
30 September each year. Subsidiaries are those entities, including
special purpose entities, controlled by the Company. Control exists
when the Company has the power, directly or indirectly, to govern
the financial and operating policies of an entity so as to obtain
benefits from its activities. In assessing control, potential
voting rights that presently are exercisable are taken into
account. The financial statements of subsidiaries are included in
the consolidated financial statements from the date that control
commences until the date that control ceases. Where properties are
acquired by the Group through corporate acquisitions but the
acquisition does not meet the definition of a business combination,
the acquisition has been treated as an asset acquisition.
Non-controlling interests
Non-controlling interests are recognised on the basis of their
share in the recognised amounts of a subsidiary's identifiable net
assets. On the balance sheet non-controlling interests are
presented separately from the equity of the owners of the Parent.
Profit or loss and total comprehensive income for the period
attributable to non-controlling interests are presented separately
in the income statement and the statement of comprehensive
income.
Transactions eliminated on consolidation
Intra-group balances, and any gains and losses arising from
intra-group transactions, are eliminated in preparing the
consolidated financial statements. Gains arising from transactions
with joint ventures are eliminated to the extent of the Group's
interest in the entity. Losses are eliminated in the same way as
gains but only to the extent that there is no evidence of
impairment. Non-controlling interests in the results and equity of
subsidiaries are shown separately in the consolidated statement of
profit or loss, statement of comprehensive income, statement of
changes in equity and balance sheet respectively.
Joint arrangements
Under IFRS 11 Joint Arrangements, the Company's investments in
joint arrangements are classified as joint ventures. Interests in
joint ventures are accounted for using the equity method, after
initially being recognised at cost in the consolidated balance
sheet.
Under the equity method of accounting, the investments are
initially recognised at cost and adjusted thereafter to recognise
the Group's share of the post-acquisition profits or losses of the
investee in profit or loss, and the Group's share of movements in
other comprehensive income of the investee in other comprehensive
income.
When the Group's share of losses in an equity-accounted
investment equals or exceeds its interest in the entity, including
any other unsecured long-term receivables, the Group does not
recognise further losses, unless it has incurred obligations or
made payments on behalf of the other entity. Unrealised gains on
transactions between the Group and its joint ventures are
eliminated to the extent of the Group's interest in these entities.
Unrealised losses are also eliminated unless the transaction
provides evidence of an impairment of the asset transferred.
Investment property
Investment property is land and buildings held to earn rental
income together with the potential for capital growth.
Acquisitions and disposals are recognised on unconditional
exchange of contracts. Acquisitions are initially recognised at
cost, being the fair value of the consideration given, including
transaction costs associated with the investment property.
After initial recognition, investment properties are measured at
fair value, with unrealised gains and losses recognised in profit
and loss. Realised gains and losses on the disposal of properties
are recognised in profit and loss in relation to carrying value.
Fair value is based on the market valuations of the properties as
provided by a firm of independent chartered surveyors, at the
reporting date. Market valuations are carried out on a quarterly
basis.
As disclosed in note 22, the Group leases out all owned
properties on operating leases. A property held under an operating
lease is classified and accounted for as an investment property
where the Group holds it to earn rentals, capital appreciation, or
both. Any such property leased under an operating lease is
classified as an investment property and carried at fair value.
Prepayments
Prepayments are carried at cost less any accumulated impairment
losses.
Borrowing costs
Borrowing costs are charged in full to the Statement of
Comprehensive Income as incurred.
Leases
Leases in which a significant portion of the risks and rewards
of ownership are retained by another party, the lessor, are
classified as operating leases. Payments, including prepayments,
made under operating leases (net of any incentives received from
the lessor) are charged to the income statement on a straight-line
basis over the period of the lease. Properties leased out under
operating leases are included in investment properties.
Properties leased out under operating leases are included in
investment property in the Consolidated Statement of Financial
Position (Note 10 of the 2017 Annual Report).
Financial assets and liabilities
Non-derivative financial instruments
Assets
Non-derivative financial instruments comprise trade and other
receivables and cash and cash equivalents. These are recognised
initially at fair value plus any directly attributable transaction
costs. Subsequent to initial recognition they are measured at
amortised cost using the effective interest rate method less any
impairment losses.
Trade and other receivables
Trade and other receivables are recognised initially at fair
value and subsequently measured at amortised cost less provision
for impairment.
Cash and cash equivalents
Cash at bank and short-term deposits that are held to maturity
are carried at cost. Cash and cash equivalents are defined as cash
in hand, demand deposits and short-term, highly liquid investments
readily convertible to known amounts of cash and subject to
insignificant risk of changes in value. For the purposes of the
Statement of Cash Flows, cash and cash equivalents consist of cash
in hand and short-term deposits at banks with a term of no more
than three months.
Liabilities
Non-derivative financial instruments comprise loans and
borrowings and trade and other payables.
Loans and borrowings
Borrowings are recognised initially at fair value of the
consideration received less attributable transaction costs.
Subsequent to initial recognition, interest bearing borrowings are
stated at amortised cost with any difference between cost and
redemption value being recognised in the profit and loss over the
period of the borrowings on an effective interest basis.
Trade and other payables
Financial liabilities included in trade and other payables are
recognised initially at fair value and subsequently at amortised
cost. The fair value of a non-interest bearing liability is its
discounted repayment amount. If the due date of the liability is
less than one year, discounting is omitted.
Derivative financial assets and liabilities comprise of an
interest rate cap for hedging purposes (economic hedge). The Group
does not apply hedge accounting in accordance with IAS 39.
Recognition of the derivative financial instruments takes place
when the economic hedging contracts are entered into. They are
measured initially and subsequently at fair value; transaction
costs are included directly in finance costs. Gains or losses on
derivatives are recognised in the profit or loss in net change in
fair value of financial instruments at fair value through profit or
loss.
Share capital
Ordinary shares, including treasury shares, are classified as
equity when there is no obligation to transfer cash or other
assets.
Share premium
Share premium represents the excess of proceeds received over
the nominal value of new shares issued.
Other reserves
Other reserves mainly consists of a share premium reduction
reserve arising from the conversion of share premium into a
distributable reserve and unrealised currency exchange gains and
losses arising on the revaluation of Sterling denominated share
capital and share premium at the balance sheet date.
Dividends
Final dividends to the Company's shareholders are recognised as
a liability in the Group's financial statements in the period in
which the dividends are approved by the Company's shareholders.
Interim dividends are recognised when paid.
Impairment
Financial assets
A financial asset, other than those at fair value through profit
and loss, is assessed at each reporting date to determine whether
there is any objective evidence that it is impaired. A financial
asset is considered to be impaired if objective evidence indicates
that one or more events have had a negative effect on the estimated
future cash flows of that asset.
An impairment loss in respect of a financial asset measured at
amortised cost is calculated as the difference between its carrying
amount and the present value of the estimated future cash flows
discounted at the original effective interest rate.
Significant financial assets are tested for impairment on an
individual basis. The remaining financial assets are assessed
collectively in groups that share similar credit risk
characteristics. All impairment losses are recognised in the profit
and loss.
An impairment loss is reversed if the reversal can be related
objectively to an event occurring after the impairment loss was
recognised. For financial assets measured at amortised cost, the
reversal is recognised in the profit and loss.
Non-financial assets
The carrying amounts of the Group's non-financial assets, other
than investment property but including joint ventures, are reviewed
at each reporting date to determine whether there is any indication
of impairment. If any such indication exists, then the asset's
recoverable amount is estimated.
The recoverable amount of an asset or cash-generating unit is
the greater of its value in use and its fair value less costs to
sell. In assessing value in use, the estimated future cash flows
are discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money
and the risks specific to that asset.
For the purpose of impairment testing, assets are grouped
together into the smallest group of assets that generates cash
inflows from continuing use that are largely independent of the
cash inflows of other assets or groups of assets (the
"cash-generating unit").
An impairment loss is recognised if the carrying amount of an
asset or its cash-generating unit exceeds its estimated recoverable
amount. Impairment losses are recognised in the profit and
loss.
Revenue
Rental income
Rental income from operating leases is recognised on a
straight-line basis over the lease term. When the Group provides
incentives to its tenants, the cost of incentives is recognised
over the lease term, on a straight-line basis, as a reduction of
rental income.
Service charges
Revenue from service charges is measured at the fair value of
the consideration received or receivable. Amounts disclosed as
revenue are net of returns, trade allowances, rebates and amounts
collected on behalf of third parties.
The Group recognises revenue when the amount of revenue can be
reliably measured; it is probable that future economic benefits
will flow to the entity; and specific criteria have been met for
each of the Group's activities as described below. The Group bases
its estimates on historical results, taking into consideration the
type of customer, the type of transaction and the specifics of each
arrangement.
Service charges are recognised in the accounting period in which
the services are rendered.
Finance income and expenses
Finance income comprises interest income on funds invested that
are recognised in the profit and loss. Interest income is
recognised on an accruals basis.
Finance expenses comprise interest expense on borrowings that
are recognised in profit and loss. Attributable transaction costs
incurred in establishing the Group's credit facilities are deducted
from the fair value of borrowings on initial recognition and are
amortised over the lifetime of the facilities through profit and
loss. Finance expenses are accounted for on an effective interest
basis.
Expenses
All expenses are accounted for on an accruals basis. They are
recognised in profit or loss in the year in which they are incurred
on an accruals basis.
Taxation
The Company and its subsidiaries are subject to income tax on
any income arising on investment properties after deduction of debt
financing costs and other allowable expenses.
Income tax on the profit or loss for the year comprises current
and deferred tax. Current tax is the expected tax payable on the
taxable income for the year, using tax rates enacted or
substantially enacted at the reporting date, and any adjustment to
tax payable in respect of previous periods.
Deferred tax is provided in full, using the liability method, on
temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the consolidated
financial statements. Deferred tax is determined using tax rates
(and laws) that have been enacted, or substantially enacted, by the
date of the statement of financial position and are expected to
apply when the related deferred income tax asset is realised or the
deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that it
is probable that future taxable profit will be available against
which the temporary differences can be utilised.
Segmental reporting
The Directors are of the opinion that the Group is engaged in a
single segment of business, being property investment and in one
geographical area, Continental Europe. The chief operating decision
maker is considered to be the Board of Directors who are provided
with consolidated IFRS information on a quarterly basis.
Foreign currency translation
Items included in the financial statements of each of the
Group's entities are measured using the currency of the primary
economic environment in which the entity operates (the "functional
currency").
The functional currency of all the entities in the Group is the
euro, as this is the currency in which the majority of investment
takes place and in which the majority of income and expenses are
incurred. The financial statements are also presented in euros.
Foreign currency transactions are translated into the functional
currency using the exchange rate prevailing at the date of the
transaction.
Foreign exchange gains and losses resulting from the settlement
of such transactions are recognised in profit or loss in the
Statement of Comprehensive Income.
Assets and liabilities held at the end of the reporting period
are translated into the presentation currency at the exchange rate
prevailing at that date. Foreign exchange differences arising on
translation to the presentation currency are recognised in other
comprehensive income in the Statement of Comprehensive Income.
Equity held at the end of the reporting period is translated
into the presentation currency at the exchange rate prevailing at
that date. Foreign exchange differences arising on translation to
the presentation currency are recognised within Equity.
2. New standards and interpretations
The Group has applied the following standards and amendments for
the first time for their annual reporting period commencing 1
October 2016:
-- Accounting for acquisitions of interests in joint operations
- Amendments to IFRS 11
-- Annual improvements to IFRSs 2012-2014 cycle
-- Disclosure initiative - Amendments to IAS 1
No new standards, amendments or interpretations, effective for
the first time for the financial year beginning on or after 1
January 2017, have had a material impact on the Group or
Company.
New standards and interpretations not yet adopted
A number of new standards and amendments to standards and
interpretations are effective for annual periods beginning on or
after 1 January 2017, and have not been applied in preparing these
consolidated financial statements. None of these are expected to
have a significant effect on the consolidated financial statements
of the Group, except the following set out below:
IAS 12, 'Income taxes' was amended to clarify the accounting for
deferred tax where an asset is measured at fair value and that fair
value is below the asset's tax base. This amendment is effective
for annual periods beginning on or after 1 January 2017. The Group
does not expect the amendment to have a material impact on its
financial statements since fair value exceeds the cost for almost
all of its investment properties. The Group is monitoring fair
value movements below cost to assess the impact of the amendment in
future periods.
IFRS 9, 'Financial instruments', addresses the classification,
measurement and recognition of financial assets and financial
liabilities. The standard is effective for accounting periods
beginning on or after 1 January 2018. Early adoption is permitted.
The Group is still assessing the impact of IFRS 9 and expects it to
have an immaterial impact on the accounting for available-for-sale
financial assets and derivatives.
IFRS 15, 'Revenue from contracts with customers' deals with
revenue recognition and establishes principles for reporting useful
information to users of financial statements about the nature,
amount, timing and uncertainty of revenue and cash flows arising
from an entity's contracts with customers. The standard is
effective for annual periods beginning on or after 1 January 2018
and earlier application is permitted. The Group is still assessing
the impact of IFRS 15 and expects it to have an immaterial impact
on its current accounting practices.
IFRS 16, 'Leases' was issued in January 2016. For lessees, it
will result in almost all leases being recognised on the statement
of financial position, as the distinction between operating and
finance leases will be removed. Under the new standard, an asset
(the right to use the leased item) and a financial liability to pay
rentals are recognised. The only exceptions are short-term and
low-value leases. The accounting for lessors will not significantly
change. The standard is effective for annual periods beginning on
or after 1 January 2019 and earlier application is permitted. The
Group is still assessing the impact of IFRS 16 expects it to have
an immaterial impact on its current accounting practices.
There are no other IFRSs or IFRIC interpretations that are not
yet effective that would be expected to have a material impact on
the Group.
3. Material agreements
Schroder Real Estate Investment Management Limited ('SREIM') is
the Investment Manager to the Company. The Investment Manager is
entitled to a fee together with reasonable expenses incurred in the
performance of its duties. The fee is payable monthly in arrears
and shall be an amount equal to one twelfth of the aggregate of
1.1% of the EPRA NAV of the Company. The Investment Management
Agreement can be terminated by either party on not less than twelve
months written notice, such notice not to expire earlier than the
third anniversary of Admission, or on immediate notice in the event
of certain breaches of its terms or the insolvency of either party.
The total charge to profit and loss during the year was
EUR1,849,000 (2016: EUR1,402,000). At the year end EUR125,000
(2016: EUR438,000) was outstanding.
SREIM provides accounting services to the Group with a
contracted annual charge of GBP70,000. The total charge to the
Group was EUR79,000 (2016: EUR67,000). At the year end EUR7,000
(2016: EUR20,000) was outstanding.
SREIM provides administrative and company secretarial services
to the Group with a contracted annual charge of GBP50,000. The
total charge to the Group was EUR56,000 (2016: EUR48,000). At the
year end EUR5,000 (2016: EUR14,000) was outstanding.
Details of Directors' fees are disclosed in Note 6 of the 2017
Annual Report.
Details of loans from Mercialys, a related party, are disclosed
in Note 17 of the 2017 Annual Report.
Details of loans to Urban SEREIT Holdings Spain S.L., a related
party, are disclosed in Note 12 of the 2017 Annual Report.
The Company received management fees of EUR1,761,000 (2016:
EURNil) from subsidiary companies during the year.
4. Property operating expenses
Group Group Company Company
30/09/2017 30/09/2016 30/09/2017 30/09/2016
EUR000 EUR000 EUR000 EUR000
-------------------------- ----------- ----------- ----------- -----------
Repairs and maintenance 1,360 67 - -
Service charge,
insurance and utilities
on vacant units 2,718 615 - -
Real estate taxes 1,075 230 - -
Property management
fees 269 53 - -
Other 105 4 - -
--------------------------- ----------- ----------- ----------- -----------
5,527 969 - -
-------------------------- ----------- ----------- ----------- -----------
5. Auditors' remuneration
The Group's total audit fees for the year are EUR280,000 (2016:
EUR161,000).
Non-audit fees charged to the Group by the auditors during the
year were EUR4,000 (2016: EUR129,000)
6. Other expenses
Group Group Company Company
30/09/2017 30/09/2016 30/09/2017 30/09/2016
EUR000 EUR000 EUR000 EUR000
---------------------- ----------- ----------- ----------- -----------
Directors' and
officers' insurance
premium 10 9 9 9
Bank charges 45 - 7 -
Regulatory costs 32 25 7 12
Marketing 28 8 28 8
Professional fees - 11 - 11
Other expenses 176 69 42 48
291 122 93 88
---------------------- ----------- ----------- ----------- -----------
Directors' fees
Directors are the only officers of the Company and there are no
other key personnel. The Directors' annual remuneration for
services to the Group was GBP95,366 (2016: GBP97,458), as set out
in the Remuneration Report on pages 37 to 39 of the 2017 Annual
Report. The total charge for directors fees was EUR120,000 (2016:
EUR129,000), which included employer's national insurance
contributions.
7. Taxation
30/09/2017 30/09/2016
EUR000 EUR000
Current tax charge 62 17
Deferred tax charge 443 30
-------------------------------------- ----------- -----------
Tax expense in year 505 47
-------------------------------------- ----------- -----------
Reconciliation of effective
tax rate
Profit/(loss) before taxation 11,680 (3,352)
---------------------------------- ----------- -----------
Effect of:
Tax charge/(credit) at weighted
average corporation tax rate
of 18.88% (2016 - 25.44%) 2,205 (853)
Tax exempt income (1,831) -
Tax effect on net revaluation
loss - 1,169
Current year loss for which 205 -
no deferred tax is recognised
Tax effect of share of joint 46 -
venture loss
Minimum Luxembourg tax charges 62 17
Deferred tax charge on profits - 30
Other permanent differences (182) (316)
Total tax expense in the
year 505 47
---------------------------------- ----------- -----------
A potential deferred tax asset of EUR17,000 arose on tax losses
which has not been provided for.
A deferred tax charge of EUR443,000 (2016: EUR30,000) was
provided in relation to investment property revaluation gains, and
the deferred tax liability at the year end was EUR473,000 (2016:
EUR30,000).
8. Earnings per share
Basic earnings per share
The basic earnings/(loss) per share for the Group is calculated
by dividing the net profit/(loss) after tax attributable to
ordinary shareholders of the Company by the weighted average number
of ordinary shares in issue during the year.
30/09/2017 30/09/2016
Net profit/(loss) attributable
to shareholders EUR10,288,000 (EUR2,516,000)
Weighted average number of
ordinary shares in issue 132,775,782 118,319,687
Basic earnings/(loss) per
share (cents per share) 7.7 (2.1)
The prior year net loss attributable to shareholders and basic
loss per share amounts have been restated to EUR2,516,000 and 2.1
cents per share respectively. This is due to a misstatement
clerical error within the 2016 annual report and accounts.
Diluted earnings per share
The Group has no dilutive potential ordinary shares, hence the
diluted earnings/(loss) per share is the same as the basic
earnings/(loss) per share in 2016 and 2017.
Headline earnings per share
The headline earnings and diluted headline earnings for the
Group is 5.2 euro cents per share (2016: 0.7 euro cents per share)
as detailed on page 82 of the 2017 Annual Report.
9. Dividends paid
Interim dividends of EUR6,152,000 (2016: EUR970,000) were paid
to shareholders during the year as follows.
Ordinary Rate 30/09/2017
In respect of Shares (cents) EUR000
--------------------------- ------------- -------- -----------
Interim dividend paid on
27(th) January 2017 133,734,686 0.9 1,204
Interim dividend paid on
17(th) March 2017 133,734,686 1.0 1,337
Interim dividend paid on
7th July 2017 133,734,686 1.2 1,605
Interim dividend paid on
1(st) September 2017 133,734,686 1.5 2,006
--------------------------- ------------- -------- -----------
Total interim dividends
paid 6,152
--------------------------- ------------- -------- -----------
10. Investment property
Group
Leasehold Freehold Total
----------------------------------
EUR000 EUR000 EUR000
---------------------------------- ---------- --------- --------
Fair value as at 1 October
2016 - 165,365 165,365
---------------------------------- ---------- --------- --------
Property acquisitions - 29,928 29,928
Acquisition costs - 2,986 2,986
Net valuation gain on investment
property - 4,284 4,284
Fair value as at 30 September
2017 - 202,563 202,563
---------------------------------- ---------- --------- --------
Fair value of investment properties as determined by the valuer
totals EUR202,700,000 (2016: EUR165,500,000). The fair value of
investment properties disclosed above includes a tenant incentive
adjustment of EUR137,000 (2016: EUR135,000).
The net valuation gain on investment property of EUR4,284,000
consists of net property revaluation gains of EUR4,286,000 and a
movement of the above mentioned tenant incentive adjustment of
EUR2,000.
The fair value of investment property has been determined by
Knight Frank LLP, a firm of independent chartered surveyors, who
are registered independent appraisers. The valuation has been
undertaken in accordance with the RICS Valuation - Professional
Standards January 2014 Global and UK Edition, issued by the Royal
Institution of Chartered Surveyors (the "Red Book") including the
International Valuation Standards.
The properties have been valued on the basis of "Fair Value" in
accordance with the RICS Valuation - Professional Standards
VPS4(1.5) Fair Value and VPGA1 Valuations for Inclusion in
Financial Statements which adopt the definition of Fair Value used
by the International Accounting Standards Board.
The valuation has been undertaken using appropriate valuation
methodology and the Valuer's professional judgement. The Valuer's
opinion of Fair Value was primarily derived using recent comparable
market transactions on arm's length terms, where available, and
appropriate valuation techniques (The Investment Method).
The properties have been valued individually and not as part of
a portfolio.
All investment properties are categorised as Level 3 fair values
as they use significant unobservable inputs. There have not been
any transfers between Levels during the year. Investment properties
have been classed according to their real estate sector.
Information on these significant unobservable inputs per class of
investment property is disclosed below:
Some of the investment properties are leased to tenants under
long-term operating leases with rentals payable monthly.
Quantitative information about fair value measurement using
unobservable inputs (Level 3) as at 30 September.
Retail (incl. Office Total
retail
2017 warehouse)
-------------- ------------------- -------------- ------------ --------
Fair value
(EUR000) 148,300 107,300 255,600
----------------------------------- -------------- ------------ --------
Area
('000 sq.m) 73.330 35.504 108.834
----------------------------------- -------------- ------------ --------
Net passing Range 94.73 - 131.03 - 94.73 -
rent EUR 145.32 344.63 344.63
per sqm
per annum
Weighted average 118.92 240.86 170.11
(2)
---------------------------------- -------------- ------------ --------
Gross ERV Range 97.39 - 126.12 - 97.39 -
per sqm 185.61 413.10 413.10
per annum
Weighted average 139.03 265.45 192.10
(2)
---------------------------------- -------------- ------------ --------
Net initial Range 4.62 - 5.62 4.59 - 8.96 4.59 -
yield (1) 8.96
Weighted average 5.29 6.43 5.77
(2)
---------------------------------- -------------- ------------ --------
Equivalent Range 4.60 - 5.93 4.47 - 7.25 4.47 -
yield 7.25
Weighted average 5.49 5.46 5.48
(2)
---------------------------------- -------------- ------------ --------
Notes:
(1) Yields based on rents receivable after deduction of head
rents and non-recoverables
(2) Weighted by market value
(3) This table includes the Joint Venture investment property
valued at EUR52.9 million which is disclosed within the summarised
information within note 12 of the 2017 Annual Report as part of
total assets
2016 Retail (incl. Office Total
retail warehouse)
-------------- ------------------- ------------------- ---------- --------
Fair value
(EUR000) 94,000 71,500 165,500
----------------------------------- ------------------- ---------- --------
Area
('000 sq.m) 50.273 19.686 69.959
----------------------------------- ------------------- ---------- --------
Net passing Range 94.73 - 27.78 - 27.78 -
rent EUR 145.32 340.64 340.64
per sq.m
per annum
Weighted average 108.67 234.96 163.25
(2)
---------------------------------- ------------------- ---------- --------
Gross ERV Range 96.45 - 126.12 96.45 -
per sq.m 157.80 - 409.91 409.91
per annum
Weighted average 112.77 291.70 190.07
(2)
---------------------------------- ------------------- ---------- --------
Net initial Range 4.62 - 5.81 1.00 - 1.00 -
yield (1) 6.06 6.06
Weighted average 5.28 4.55 4.96
(2)
---------------------------------- ------------------- ---------- --------
Equivalent Range 4.60 - 6.02 4.60 - 4.60 -
yield 5.26 6.02
Weighted average 5.31 4.74 5.06
(2)
---------------------------------- ------------------- ---------- --------
Notes:
(1) Yields based on rents receivable after deduction of head
rents and non-recoverables
(2) Weighted by market value
Sensitivity of measurement to variations in the significant
unobservable inputs
The significant unobservable inputs used in the fair value
measurement categorised within Level 3 of the fair value hierarchy
of the Group's property portfolio, together with the impact of
significant movements in these inputs on the fair value
measurement, are shown below:
Impact on fair Impact on fair
Unobservable input value measurement value measurement
of significant of significant
increase in input decrease in input
--------------------- -------------------- --------------------
Passing rent Increase Decrease
--------------------- -------------------- --------------------
Gross ERV Increase Decrease
--------------------- -------------------- --------------------
Net initial yield Decrease Increase
--------------------- -------------------- --------------------
Equivalent yield Decrease Increase
--------------------- -------------------- --------------------
There are interrelationships between the yields and rental
values as they are partially determined by market rate conditions.
The sensitivity of the valuation to changes in the most significant
inputs per class of investment property are shown below:
Estimated movement in fair Retail Office Total
value of investment properties EUR'000 EUR'000 EUR'000
at 30 September 2017
---------------------------------- ---------- ---------- ----------
Increase in ERV by 5% 5,200 4,600 9,800
---------------------------------- ---------- ---------- ----------
Decrease in ERV by 5% -5,200 -4,950 -10,150
---------------------------------- ---------- ---------- ----------
Increase in net initial yield
by 0.25% -6,700 -5,750 -12,450
---------------------------------- ---------- ---------- ----------
Decrease in net initial yield
by 0.25% 7,350 5,900 13,250
---------------------------------- ---------- ---------- ----------
11. Investment in subsidiaries
Company 2017 2016
EUR000 EUR000
Balance as at 1 October 118,583 -
-------------------------------------------------------- ------------ -----------
Additions - 118,583
Balance as at 30 September 118,583 118,583
-------------------------------------------------------- ------------ -----------
The subsidiary companies listed below are those
which were part of the Group at 30 September 2017.
Unless otherwise stated, they have share capital
consisting solely of ordinary shares that are
held directly by the Group, and the proportion
of ownership of interests held equals the voting
rights held by the Group.
Country Group
Undertaking of incorporation ownership Registered office
address
----------------- ------------------ ----------- -----------------------
SEREIT (Jersey) Jersey 100% 22 Grenville Street,
Limited St Helier, Jersey,
Channel Islands,
JE4 8PX
----------------- ------------------ ----------- -----------------------
SEREIT Finance Luxembourg 100% 5, rue Hohenhof L-1736
Sàrl Senningerberg
----------------- ------------------ ----------- -----------------------
SEREIT Holdings Luxembourg 100% 5, rue Hohenhof L-1736
Sàrl Senningerberg
----------------- ------------------ ----------- -----------------------
OPPCI SEREIT France 100% 13 Avenue de l'Opera,
France 75001 Paris
----------------- ------------------ ----------- -----------------------
SCI Rennes France 70% 8-10 rue Lamennais,
Anglet 75008 Paris
----------------- ------------------ ----------- -----------------------
SCI 221 Jean France 100% 8-10 rue Lamennais,
Jaures 75008 Paris
----------------- ------------------ ----------- -----------------------
SEREIT Berlin Luxembourg 100% 5, rue Hohenhof L-1736
DIY Sàrl Senningerberg
----------------- ------------------ ----------- -----------------------
SEREIT Hamburg Luxembourg 100% 5, rue Hohenhof L-1736
Sàrl Senningerberg
----------------- ------------------ ----------- -----------------------
SEREIT Stuttgart Luxembourg 100% 5, rue Hohenhof L-1736
Sàrl Senningerberg
----------------- ------------------ ----------- -----------------------
SEREIT Frankfurt Luxembourg 100% 5, rue Hohenhof L-1736
Sàrl Senningerberg
----------------- ------------------ ----------- -----------------------
SCI SEREIT France 100% 8-10 rue Lamennais,
Directoire 75008 Paris
----------------- ------------------ ----------- -----------------------
The non-controlling interest within these financial
statements relates to the 30% minority holding
of SCI Rennes Anglet. The table below shows details
of this non-wholly-owned subsidiary of the Group.
Summarised non-wholly-owned subsidiary
financial information: 2017 2016
EUR000 EUR000
--------------------------------------------------------------------- -----------
Total assets 62,243 58,975
Total liabilities (36,609) (36,296)
Net assets 25,634 22,679
Allocated to non-controlling interests 7,691 6,804
Revenues for the year 5,867 1,079
Total comprehensive profit/(loss) for
the year 2,955 (2,944)
Allocated to non-controlling interests 887 (883)
Cash flows from operating activities 3,168 858
Cash flows from financing activities (536) (655)
Net increase in cash and cash equivalents 2,632 203
-------------------------------------------------------- ------------ -----------
12. Investment in joint ventures
The Group has a 50% interest in a joint venture
called Urban SEREIT Holdings Spain S.L. The principal
place of business of the joint venture is Calle
Velazquez 3, 4th Madrid 28001 Spain.
Group 2017 2016
EUR000 EUR000
Balance as at 1 October - -
------------------------------------------ -------- -------
Purchase of interest in joint venture 6,475 -
Share of loss for the year (185) -
Balance as at 30 September 6,290 -
------------------------------------------ -------- -------
Summarised joint venture financial information: 2017 2016
EUR000 EUR000
----------------------------------------------------------- -------
Total assets 59,719 -
Total liabilities (47,139) -
Net assets 12,580 -
Net asset value attributable to the Group 6,290 -
Revenues for the year 2,200 -
Total comprehensive loss (370) -
Total comprehensive loss attributable (185) -
to the Group
------------------------------------------------- --------- -------
Within total liabilities is a EUR23.4 million
loan facility with Münchener Hypothekenbank
eG. The facility matures on 22 May 2024 and carries
a fixed interest rate of 1.76% payable quarterly.
The facility was subject to a 0.3% arrangement
fee which is being amortised over the period of
the loan. The debt has a LTV covenant of 60% and
a minimum net rental income covenant. The lender
has a charge over the property owned by the Group
with a value of EUR52.9 million. A pledge of all
shares in the borrowing Group company is in place.
Within total liabilities there is also a loan
amount of EUR10.0 million owed to the Group. The
loan is expected to mature at the same time as
the above-mentioned bank loan and carries a fixed
interest rate of 4.37% payable quarterly.
13. Trade and other receivables
Group Group Company Company
30/09/2017 30/09/2016 30/09/2017 30/09/2016
EUR000 EUR000 EUR000 EUR000
----------------------------- ------------ ------------ ------------ ------------
Rent receivable 1,546 596 - -
Monies held by property
managers 228 923 - -
Amounts due from subsidiary
undertakings - - 33,947 33,947
Other debtors and
prepayments 289 858 741 232
------------------------------
2,063 2,377 34,688 34,179
----------------------------- ------------ ------------ ------------ ------------
14. Interest rate derivative contracts
The Group has an interest rate cap in place purchased for
EUR260,000 from Credit Agricole Corporate and Investment Bank on 10
August 2016 in connection to a EUR26.0m loan facility drawn from
the same bank with a maturity date of July 2023. The cap interest
rate is 1.25% with a floating rate option being Euribor 3 months.
In line with IAS 39 this derivative is reported in the financial
statements at its fair value. As at 30 September 2017 the fair
value of the interest rate cap was EUR273,000 (2016: EUR200,000).
Transaction costs incurred in obtaining the instrument are being
amortised over the extended period of the above mentioned loan. The
notional value of the instrument is EUR26.0 million.
In addition, the Group has granted a call option to Mercialys
group on the assets and shares of SCI Rennes Anglet, a subsidiary
of the Group. The option is only exercisable on 31 July 2018 with
six months' written advance notice and under certain conditions as
follows:
-- Confirmed exclusive merger/acquisition negotiations between
Mercialys and a third party regarding the French hypermarket
segment of their business;
-- Distress situation characterised by a decrease in the
turnover per square metre during 2017 in Rennes and Anglet compared
to 2016; and
-- Strike price based on a net-to-seller valuation of the asset of EUR64.0 million.
As the probability of this option being exercised is very low
its fair value is EURNil.
15. Cash and cash equivalents
Group Group Company Company
30/09/2017 30/09/2016 30/09/2017 30/09/2016
EUR000 EUR000 EUR000 EUR000
--------------------- ------------ ------------ ------------ ------------
Cash at bank and in
hand 28,521 58,476 14,583 6,068
---------------------- ------------ ------------ ------------ ------------
16. Share capital
Group Group
30/09/2017 30/09/2016
EUR000 EUR000
------------------------ ------------ ------------
Ordinary share capital 15,167 13,994
--------------------------- ------------ ------------
Share capital
As at 30 September 2017, the share capital of the Company was
represented by 133,734,686 Ordinary Shares (2016: 121,234,686
Ordinary Shares) with a par value of 10.00 pence.
Issued share capital
On 28 October 2016 the Company issued 12,500,000 new ordinary
shares under the placing and offer for subscription programme at a
price of GBP1.20 per share.
Issue costs in relation to the placing was EUR245,000.
As at 30 September 2017, the Company had 133,734,686 ordinary
shares in issue (no shares were held in treasury). The total number
of voting rights of the Company at 30 September 2017 was
133,734,686 (2016: 121,234,686).
Incremental costs directly attributable to the issue of new
shares or options are shown in equity as a deduction, net of tax,
from the proceeds.
17. Interest-bearing loans and borrowings
This note provides information about the contractual terms of
the Group's interest-bearing loans and borrowings. For more
information about the Group's exposure to interest rate risk see
note 20 of the 2017 Annual Report.
Group Group Company Company
30/09/2017 30/09/2016 30/09/2017 30/09/2016
EUR000 EUR000 EUR'000 EUR'000
------------------------- ------------ ------------ ------------ ------------
At 1 October 58,724 - - -
Receipt of borrowings - 67,253 - -
Repayment of borrowings - (7,689) - -
Capitalisation
of finance costs (80) (861) - -
Amortisation of
finance costs 128 21 - -
-------------------------- ------------ ------------ ------------ ------------
At 30 September 58,772 58,724 - -
-------------------------- ------------ ------------ ------------ ------------
Borrowings are removed from the balance sheet when the
obligation specified in the contract is discharged, cancelled or
expired. Borrowings are classified as current liabilities unless
the Group has an unconditional right to defer settlement of the
liability for at least 12 months after the reporting period.
Bank Loan - Deutsche Pfandbriefbank AG
The Group has two loan facilities totalling a EUR30.50 million
with Deutsche Pfandbriefbank AG.
Of the total amount drawn, EUR14.0 million matures on 30 June
2023 and carries a fixed interest rate of 0.85% payable quarterly;
the remaining EUR16.5 million matures on 30 June 2026 and carries a
fixed interest rate of 1.31%. An additional fixed fee of 0.30% per
annum was payable until certain conditions relating to the
Frankfurt property were fulfilled on 30 December 2016. The facility
was subject to a 0.35% arrangement fee which is being amortised
over the period of the loan. The debt has an LTV covenant of 65%
and the debt yield must be at least 8.0%
The lender has a charge over property owned by the Group with a
value of EUR69,100,000. A pledge of all shares in the borrowing
Group companies is in place.
Bank Loan - Credit Agricole Corporate and Investment Bank
The Group has a EUR26.0 million loan facility with Credit
Agricole Corporate and Investment Bank.
The facility matures on 29 July 2023 and carries an interest
rate of 1.35% plus Euribor 3 months per annum payable quarterly.
The facility was subject to a 0.85% arrangement fee which is being
amortised over the period of the loan.
The debt has an LTV covenant of 65% and the ICR should be above
200%
The loan is collateralised by property assets owned by the Group
with a carrying value of EUR58,200,000.
Business Partner Loan - Mercialys
The Group has a EUR10.75 million loan facility with Mercialys, a
30% minority investor in the share capital of SCI Rennes Anglet, a
70% owned subsidiary of the Group. The loan matures on 28 June 2031
and interest is payable at the maximum deductible rate as published
by the French tax authorities. As at 30 September 2017 the last
applicable rate was 1.67% (2016: 2.08%). The interest can be
capitalised if not paid. The loan balance outstanding as at 30
September 2017 was EUR3.06 million.
Mercialys meets the definition of a related party under IAS
24.
18. Trade and other payables
Group Group Company Company
30/09/2017 30/09/2016 30/09/2017 30/09/2016
EUR000 EUR000 EUR'000 EUR'000
-------------------------- ------------ ------------ ------------ ------------
Rent received in advance 356 50 - -
Rental deposits 1,443 684 - -
Interest payable 101 95 - -
Retention payable 96 50 - -
Accruals 1,673 1,713 386 650
VAT payable 694 - - -
Trade payables 120 492 - -
--------------------------- ------------ ------------ ------------ ------------
4,483 3,084 386 650
-------------------------- ------------ ------------ ------------ ------------
All trade and other payables are interest free and payable
within one year.
Included within the Group's accruals are amounts relating to
management fees of EUR125,000 (2016: EUR438,000), real estate taxes
of Nil (2016: EUR224,000) and property expenses of EUR1,037,000
(2016: EUR347,000).
19. Net Asset Value per Ordinary Share
The NAV per Ordinary Share of 133.3 cents per share is based on
the net assets attributable to ordinary shareholders of the Company
of EUR178,326,000, and 133,734,686 Ordinary Shares in issue at 30
September 2017.
The NAV per Ordinary Share as at 30 September 2016 has been
presented as 130.1 cents per share. The NAV attributable to
ordinary shareholders of EUR157,760,000 has been used in this
revised calculation to replace the total NAV of EUR164,564,000.
121,234,686 Ordinary Shares were in issue as at 30 September
2016.
20. Financial instruments, properties and associated risks
Financial risk factors
The Group holds cash and liquid resources as well as having
debtors and creditors that arise directly from its operations. The
Group uses interest rate contracts when required to limit exposure
to interest rate risks, but does not have any other derivative
instruments.
The main risks arising from the Group's financial instruments
and properties are market price risk, currency risk, credit risk,
liquidity risk and interest rate risk. The Board regularly reviews
and agrees policies for managing each of these risks and these are
summarised below:
Market price risk
Rental income and the market value for properties are generally
affected by overall conditions in the economy, such as changes in
gross domestic product, employment trends, inflation and changes in
interest rates. Changes in gross domestic product may also impact
employment levels, which in turn may impact the demand for
premises. Furthermore, movements in interest rates may also affect
the cost of financing for real estate companies.
Both rental income and property values may also be affected by
other factors specific to the real estate market, such as
competition from other property owners, the perceptions of
prospective tenants of the attractiveness, convenience and safety
of properties, the inability to collect rents because of bankruptcy
or the insolvency of tenants, the periodic need to renovate, repair
and release space and the costs thereof, the costs of maintenance
and insurance, and increased operating costs.
The Directors monitor the market value of investment properties
by having independent valuations carried out quarterly by a firm of
independent chartered surveyors.
Included in market price risk is interest rate risk which is
discussed further below.
Currency risk
The Group's policy is for Group entities to settle liabilities
denominated in their functional currency with the cash generated
from their own operations in that currency. Where Group entities
have liabilities in a currency other than their functional currency
(and have insufficient reserves of that currency to settle them),
cash already in that currency will, where possible, be transferred
from elsewhere within the Group. The functional currency of all
entities in the Group is the euro. Currency risk sensitivity has
not been shown due to the small values of non euro transactions.
The table below details the Group's exposure to foreign currencies
at the year-end:
Group Group Company Company
30/09/2017 30/09/2016 30/09/2017 30/09/2016
Net Assets EUR000 EUR000 EUR'000 EUR'000
------------ ------------ ------------ ------------ ------------
Euros 185,905 163,934 167,356 158,065
Sterling 24 713 24 713
Rand 88 52 88 52
------------- ------------ ------------ ------------ ------------
186,017 164,699 167,468 158,830
------------ ------------ ------------ ------------ ------------
Credit risk
Credit risk is the risk that an issuer or counterparty will be
unable or unwilling to meet a commitment that it has entered into
with the Group. In the event of default by an occupational tenant,
the Group will suffer a rental income shortfall and incur
additional costs, including legal expenses, in maintaining,
insuring and re-letting the property.
The Investment Manager reviews reports prepared by Dun &
Bradstreet, or other sources to assess the credit quality of the
Group's tenants and aims to ensure there is no excessive
concentration of risk and that the impact of any default by a
tenant is minimised.
In respect of credit risk arising from other financial assets,
which comprise cash and cash equivalents and a loan to joint
venture, exposure to credit risk arises from default of the
counterparty with a maximum exposure equal to the carrying amounts
of these instruments. In order to mitigate such risks, cash is
maintained with major international financial institutions with
high quality credit ratings. Credit risk relating to the loan to
joint venture is actively managed and the Group believes it does
not carry any risk of impairment.
20. Financial instruments, properties and associated risks
(continued)
The table below shows the balance of cash and cash equivalents
held with various financial institutions at the end of the
reporting year.
Group Company
Ratings balance balance
as at at 30/09/2017 at 30/09/2017
Bank 30/09/2017 EUR'000 EUR'000
------------------------ ------------- --------------- ---------------
HSBC Bank plc AA- 745 696
ING Bank N.V. A+ 8,254 -
BNP Paribas A+ 1,155 -
Commerzbank AG BBB+ 325 -
FirstRand Bank Limited BB+ 87 87
Santander A 15,133 13,800
Societe Generale A 2,822 -
28,521 14,583
-------------------------------------- --------------- ---------------
Group Company
Ratings balance balance
as at at 30/09/2016 at 30/09/2016
Bank 30/09/2016 EUR'000 EUR'000
------------------------ ------------- --------------- ---------------
HSBC Bank plc AA- 55,133 6,016
ING Bank N.V. A 2,722 -
BNP Paribas A 438 -
Commerzbank AG BBB+ 131 -
FirstRand Bank Limited BBB- 52 52
------------------------- ------------ --------------- ---------------
58,476 6,068
-------------------------------------- --------------- ---------------
The maximum exposure to credit risk for rent receivables at the
reporting date by type of sector was:
30/09/2017 30/09/2016
Carrying Carrying
amount amount
EUR000 EUR000
-------- ----------- -----------
Office 586 363
Retail 960 234
-------- ----------- -----------
1,546 597
-------- ----------- -----------
Rent receivables which are past their due date, but which were
not impaired at the reporting date were:
30/09/2017 30/09/2016
Carrying Carrying
amount amount
EUR000 EUR000
-------------- ----------- -----------
0-30 days 1,487 566
31-60 days - 4
61-90 days 12 2
91 days plus 47 25
-------------- ----------- -----------
1,546 597
-------------- ----------- -----------
Liquidity risk
Liquidity risk is the risk that the Group will encounter
difficulties in meeting obligations associated with its financial
obligations.
The Group's investments comprise of Continental European
commercial property. Property and property-related assets are
inherently difficult to value due to the individual nature of each
property. As a result, valuations are subject to substantial
uncertainty. There is no assurance that the estimates resulting
from the valuation process will reflect the actual sales price even
where such sales occur shortly after the valuation date.
Investments in property are relatively illiquid; however the Group
has tried to mitigate this risk by investing in properties that it
considers to be good quality.
In certain circumstances, the terms of the Group's debt
facilities entitle the lender to require early repayment and in
such circumstances the Group's ability to maintain dividend levels
and the net asset value could be adversely affected. The Investment
Manager prepares cash flows on a rolling basis to ensure the Group
can meet future liabilities as and when they fall due.
The following table indicates the undiscounted maturity analysis
of the financial liabilities.
As at 30 September Carrying Expected 6 mths 6 mths 2-5 More
2017 amount Cash or - 2 years than
flows less years 5 years
EUR000 EUR000 EUR000
EUR000 EUR000 EUR000
----------------------- --------- --------- -------- -------- -------- ---------
Financial liabilities
Interest-bearing
loans and borrowings
and interest 59,564 64,891 368 1,107 2,214 61,202
Trade and other
payables 3,689 3,689 3,689 - - -
Total financial
liabilities 63,253 68,580 4,057 1,107 2,214 61,202
----------------------- --------- --------- -------- -------- -------- ---------
Carrying Expected 6 mths 6 mths 2-5 More
As at 30 September amount Cash or - 2 years than
2016 flows less years 5 years
EUR000 EUR000 EUR000
EUR000 EUR000 EUR000
----------------------- --------- --------- -------- -------- -------- ---------
Financial liabilities
Interest-bearing
loans and borrowings
and interest 58,819 58,819 95 - - 58,724
Trade and other
payables 2,989 2,989 2,989 - - -
Total financial
liabilities 61,808 61,808 3,084 - - 58,724
----------------------- --------- --------- -------- -------- -------- ---------
Interest rate risk
Exposure to market risk for changes in interest rates relates
primarily to the Group's long-term debt obligations and to interest
earned on cash balances. As interest on the Group's long-term debt
obligations is payable on a fixed-rate basis, or is capped, the
Group has limited exposure to interest rate risk, but is exposed to
changes in fair value of long-term debt obligations driven by
interest rate movements. As at 30 September 2017 the fair value of
the Group's EUR59.7 million loan was equal to its carrying amount
(2016: EUR59.7 million).
A 1% increase or decrease in short-term interest rates would
increase or decrease the annual income and equity by EUR0.3m (2016:
EUR0.6m) based on the cash balance as at 30 September 2017.
Fair values
The fair values of financial assets and liabilities approximate
their carrying values in the financial statements.
The fair value hierarchy levels are as follows:
-- Level 1 - quoted prices (unadjusted) in active markets for
identical assets and liabilities;
-- Level 2 - inputs other than quoted prices included within
level 1 that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from prices);
and
-- Level 3 - inputs for the assets or liability that are not
based on observable market data (unobservable inputs).
There have been no transfers between Levels 1, 2 and 3 during
the year (2016: none).
The following summarises the main methods and assumptions used
in estimating the fair values of financial instruments and
investment property.
Investment property- level 3
Fair value is based on valuations provided by an independent
firm of chartered surveyors and registered appraisers. These values
were determined after having taken into consideration recent market
transactions for similar properties in similar locations to the
investment properties held by the Group. The fair value hierarchy
of investment property is level 3. See Note 10 of the 2017 Annual
Report for further details.
Interest bearing loans and borrowings - level 2
Fair values are based on the present value of future cash flows
discounted at a market rate of interest. Issue costs are amortised
over the period of the borrowings. As at 30 September 2017 the fair
value of the Group's loans was equal to its book value.
Trade and other receivables/payables- level 2
All receivables and payables are deemed to be due within one
year and as such the notional amount is considered to reflect the
fair value.
Derivatives - level 3
Fair values of derivatives are based on current market
conditions compared to the terms of the derivative agreements.
Capital management
The Board's policy is to maintain a strong capital base so as to
maintain investor, creditor and market confidence and to sustain
future development of the business. The objective is to ensure that
it will continue as a going concern and to maximise return to its
equity shareholders through appropriate level of gearing.
The Group's debt and capital structure comprises the
following:
30/09/2017 30/09/2016
EUR000 EUR000
---------------------------- ----------- -----------
Debt
Fixed rate loan facilities 58,873 58,819
Equity
Called-up share capital 45,382 28,876
Reserves 132,945 128,884
----------------------------- ----------- -----------
Total debt and equity 237,200 216,579
----------------------------- ----------- -----------
There were no changes in the Group's approach to capital
management during the year.
21. Foreign exchange
During the year the Group incurred the following foreign
currency gains and losses:
Realised currency losses of EUR4,000 arose on sundry corporate
expense transactions.
An unrealised currency loss of EUR3,000 arose when monetary
assets and liabilities held by the Group were retranslated into
euros at the year end for reporting purposes.
Both of these realised and unrealised amounts appear within the
Statement of Comprehensive Income.
At each period end the Group retranslates its sterling
denominated share capital, share premium and other reserves into
euros using the period end exchange rate. At 30 September 2017 the
unrealised currency loss arising on this retranslation was
EUR27.7m. This amount appears within the Statement of Changes in
Equity.
During the prior year the Group incurred the following foreign
currency losses:
A realised currency loss of EUR314,000 arose when GBP51.0
million of share issue proceeds received on 9 December 2015 was
converted into euros on 14 December 2015. A realised currency gain
of EUR210,000 arose on a cash transaction. Other currency gains of
EUR4,000 arose on sundry corporate expense transactions.
A net unrealised currency loss of EUR226,000 arose when GBP0.8m
and R0.8m of cash and other monetary items held by the Group at the
period were retranslated into euros at the period end for reporting
purposes.
Both of these realised and unrealised amounts appear within the
Statement of Comprehensive Income.
On 9 December 2015 the company issued GBP54.7 million of
sterling denominated share capital to its South African investors.
This share capital was valued at EUR75.3 million on the date of
issue. The proceeds of this share issue were settled by investor
funds of R1.18bn valued at EUR73.7 million on the date of issue.
The reason for the difference is that the amount paid by investors
was required to be determined one week in advance of the issue date
by a forward exchange rate provided to South African investors and
could not be hedged by the Company at IPO. The currency loss
arising from this was EUR1.6 million. This amount appears within
the Statement of Changes in Equity as part of total issue costs of
EUR5.0 million. Following IPO the Company is able to hedge currency
when issuing new equity and therefore this is not expected to
reoccur.
At each period end the Group retranslates its sterling
denominated share capital, share premium and other reserves into
euros using the period end exchange rate. At 30 September 2016 the
unrealised currency loss arising on this retranslation was
EUR25.7m. This amount appears within the Statement of Changes in
Equity.
22. Operating leases
The Group leases out its investment property under operating
leases. At 30 September 2017 the future minimum lease receipts
under non-cancellable leases are as follows:
30/09/2017 30/09/2016
EUR000 EUR000
---------------------------- ----------- -----------
Less than one year 12,811 9,410
Between one and five years 27,944 34,648
More than five years 11,698 15,216
---------------------------- ----------- -----------
52,453 59,274
---------------------------- ----------- -----------
The total above comprises the total contracted rent receivable
as at 30 September 2017.
23. Related party transactions
Material agreements are disclosed in note 3 of the 2017 Annual
Report and loans from related parties are disclosed in note 17 of
the 2017 Annual Report. Directors' emoluments are disclosed in note
6 of the 2017 Annual Report.
24. Capital commitments
At 30 September 2017 the Group had no capital commitments.
25. Post balance sheet events
There were no post balance sheet events.
EPRA and Headline Performance Measures (unaudited)
As recommended by EPRA (European Public Real Estate
Association), EPRA performance measures are disclosed in the
section below.
EPRA performance measures: summary table
30/09/2017 30/09/2016
---------------------------- ----------- -----------
Total Total
EUR000 EUR000
---------------------------- ----------- -----------
EPRA earnings 6,947 1,013
EPRA earnings per share 5.2 0.9
----------------------------- ----------- -----------
EPRA NAV 178,608 157,560
EPRA NAV per share 133.6 130.0
----------------------------- ----------- -----------
EPRA NNNAV 178,608 157,560
EPRA NNNAV per share 133.6 130.0
----------------------------- ----------- -----------
EPRA Net Initial Yield 6.0% 5.1%
EPRA topped-up Net Initial
Yield 6.0% 5.1%
----------------------------- ----------- -----------
EPRA Vacancy Rate 1.5% 0%
----------------------------- ----------- -----------
a. EPRA earnings and EPS
Total comprehensive profit/(loss) excluding realised and
unrealised gains/losses on investment property, share of profit on
joint venture investments and changes in fair value of financial
instruments, divided by the weighted average number of shares.
30/09/2017 30/09/2016
EUR000 EUR000
--------------------------------- ------------ ------------
Total comprehensive
profit/(loss) 11,172 (3,625)
Adjustments to calculate
EPRA Earnings:
Net valuation (profit)/loss
on investment property (4,284) 4,537
Exchange differences
on monetary items (unrealised) 3 226
Share of joint venture 429 -
loss on investment property
Minority interest's
net revenue (744) (185)
Deferred tax 443 -
Finance (income)/costs:
interest rate cap (72) 60
EPRA earnings 6,947 1,013
---------------------------------- ------------ ------------
Weighted average number
of ordinary shares 132,775,782 118,319,687
---------------------------------- ------------ ------------
IFRS earnings/(loss)
per share (cents per
share) 7.7 (2.1)
---------------------------------- ------------ ------------
EPRA earnings per share
(cents per share) 5.2 0.9
---------------------------------- ------------ ------------
b. EPRA NAV per share
The Net Asset Value adjusted to exclude assets or liabilities
not expected to crystallise in a long-term investment property
model, divided by the number of shares in issue.
30/09/2017 30/09/2016
EUR000 EUR000
------------------------------ ------------ ------------
IFRS Group NAV per financial
statements 186,017 164,564
Adjustment for Minority
Interests (7,609) (6,804)
Deferred tax 473 -
Adjustment for fair value
of financial instruments (273) (200)
------------------------------- ------------ ------------
EPRA NAV 178,608 157,560
------------------------------- ------------ ------------
Shares in issue at end
of year 133,734,686 121,234,686
------------------------------- ------------ ------------
IFRS Group NAV per share 139.1 135.7
------------------------------- ------------ ------------
EPRA NAV per share 133.6 130.0
------------------------------- ------------ ------------
c. EPRA NNNAV per share
The EPRA NAV adjusted to include the fair value of debt, divided
by the number of shares in issue.
30/09/2017 30/09/2016
EUR000 EUR000
-------------------------- ----------- -----------
EPRA NAV 178,608 157,560
Adjustments to calculate
EPRA NNNAV:
Fair value of debt - -
EPRA NNNAV 178,608 157,560
--------------------------- ----------- -----------
EPRA NNNAV per share 133.6 130.0
--------------------------- ----------- -----------
d. EPRA Net Initial Yield
Annualised rental income based on the cash rents passing at the
balance sheet date, less non-recoverable property operating
expenses, divided by the grossed up market value of the complete
property portfolio.
The EPRA "topped up" NIY is the EPRA NIY adjusted for unexpired
lease incentives.
30/09/2017 30/09/2016
EUR000 EUR000
------------------------------ ----------- --------------
Investment property - share
of subsidiaries 185,240 148,160
Investment property - share
of joint ventures and funds 26,450 -
------------------------------ ----------- --------------
Complete property portfolio 211,690 148,160
Allowance for estimated
purchasers' costs 14,818 9,954
------------------------------- ----------- --------------
Gross up completed property
portfolio valuation 226,508 159,423
Annualised cash passing
rental income 14,200 8,088
Property outgoings (700) -
------------------------------ ----------- --------------
Annualised net rents 13,500 8,088
Notional rent expiration 100 -
of rent free periods
------------------------------ ----------- --------------
Topped-up net annualised
rent 13,600 8,088
------------------------------- ----------- --------------
EPRA NIY 6.0% 5.1%
------------------------------- ----------- --------------
EPRA "topped-up" NIY 6.0% 5.1%
------------------------------- ----------- --------------
e. Headline Earnings Reconciliation
30/09/2017 30/9/2016
EUR000 EUR000
----------------------------------------------------- ------------ ------------
Total comprehensive profit/(loss) 11,172 (3,625)
Adjustments to calculate Headline Earnings exclude:
Net valuation (profit)/loss on investment property (4,284) 4,537
Share of joint venture loss on investment property 429 -
Minority interests net revenue (744) (185)
Deferred tax 443 -
Finance (income)/costs: interest rate cap (72) 60
Headline earnings 6,944 787
----------------------------------------------------- ------------ ------------
Weighted average number of ordinary shares 132,775,782 118,319,687
Headline earnings per share (cents per share) 5.2 0.7
Headline earnings per share reflect the underlying performance
of the company calculated in accordance with the Johannesburg Stock
Exchange Listing requirements.
EPRA Sustainability Reporting Performance Measures
The Company reports environmental data in accordance with EPRA
Best Practice Recommendations on Sustainability Reporting (EPRA
sBPR 2014, 2nd Edition) for 12 months 1 April 2016 to 31 March
2017. Environmental data for the prior year (1 April 2015 to 31
March 2016) is not reported as the Company began purchasing assets
in March 2016. Accordingly, the prior reporting year is not
relevant and the 'absolute consumption' EPRA sBPR indicators
reported below are not reported for this period. Furthermore, the
following 'like-for-like consumption' EPRA sBPR indicators are also
not applicable and therefore not reported: Elec-LfL; Fuels-LfL.
The reporting boundary has been scoped to where the Company has
operational control: managed properties where the Company is
responsible for payment of utility invoices. The reported
environmental data relates to the three managed assets, in
Frankfurt, Hamburg and Stuttgart Germany, that were in the
portfolio as at 31 March 2017. The Company did not use any district
heating or cooling across the portfolio during the reporting
period; the following EPRA sBPR indicators are therefore not
applicable and not presented below: DH&C-Abs and
DH&C-LfL.
Total Energy Consumption (Elec-Abs; Fuels-Abs; Energy-Int)
The table below sets out total landlord obtained energy
consumption from the Company's managed portfolio by sector.
Building
Energy
Electricity Fuels (kWh) Intensity
(kWh) (kWh/m(2)
)
Sector 2016/17 2016/17 2016/17
------------------- -------------- -------------- -----------
Office 124,169 555,214 50
Coverage 2/2 2/2 2/2
Retail, Shopping
Centre 66,084 281,386 77
Coverage 1/1 1/1 1/1
------------------- -------------- -------------- -----------
Total 190,253 836,600
------------------- -------------- -------------- -----------
Total electricity
and fuel 1,026,853
% renewable
energy 0%
Coverage 3/3
------------------- -------------- -------------- -----------
-- Consumption data relates to the managed portfolio only and
energy consumed in common areas, exterior areas and/or as part of a
shared service (i.e. operation of central plant). Electricity
consumed in tenant areas is not reported.
-- Estimation: 17% of electricity data and 38% of fuel data has been estimated.
-- Normalisation: A kWh/m(2) is reported for assets within the
absolute portfolio. The numerator is landlord-managed energy
consumption and the denominator is net lettable floor area (m(2)
).
-- Coverage: Relates to number of managed assets for which data is reported.
Greenhouse Gas Emissions (GHG-Dir-Abs; GHG-Indir-Abs;
GHG-Int)
The table below sets out the Company's greenhouse gas emissions
by sector.
Absolute Emissions Intensity (kg CO(2)
(tCO(2)e) e/m(2))
Sector 2016/17 2016/17
-------------------- ------------------- --------------------
Office
Scope 1 133
Scope 2 66 14.6
Coverage 2/2 2/2
Retail, Shopping Centre
Scope 1 67
Scope 2 35 22.5
Coverage 1/1 1/1
-------------------- ------------------- --------------------
Total Scope 1 200
--------------------
Total Scope 2 101
-------------------- ------------------- --------------------
Total Scopes 1 and
2 301
-------------------- ------------------- --------------------
Coverage 3/3
-------------------- ------------------- --------------------
-- Methodology:
o The Company's greenhouse gas (GHG) inventory has been
developed as follows:
-- Fuels / Electricity: Federal Ministry for the Environmental
Protection, Buildings and Security 'Okobaudat' (2016). Sustainable
Construction Informational Portal.
o GHG emissions from electricity (Scope 2) are reported
according to the 'location-based' approach.
o GHG emissions are presented as kilograms of carbon dioxide
equivalent (kgCO(2) e)
-- GHG emissions data relates to the managed portfolio only and
energy consumed in common areas, external areas and/or as part of a
shared service (i.e. operation of central plant). GHG emissions
associated with electricity consumed in tenant areas is not
reported.
-- Estimation: 17% of electricity data and 38% of fuel data has been estimated.
-- Normalisation: A kgCO(2) e/m(2) is reported for assets within
the absolute portfolio. The numerator is landlord-managed GHG
emissions from energy consumption and the denominator is net
lettable floor area (m(2) ).
-- Coverage: Relates to number of managed assets for which data is reported.
Water (Water-Abs; Water-Int)
The table below sets out water consumption for assets managed by
the Company.
Total Water Intensity (m(3)/m(2))
Consumption
(m(3))
Sector 2016/17 2016/17
------------------ ------------- ----------------------
Office 3,273 0.24
Coverage 2/2 2/2
Retail, Shopping
Centre 203 0.04
Coverage 1/1 1/1
------------------ ------------- ----------------------
Total 3,476
------------------ ------------- ----------------------
Coverage 3/3
------------------ ------------- ----------------------
-- Consumption data relates to the managed portfolio only and
water consumed across the whole building (including common parts
and tenant areas).
-- Estimation: 33% of water data has been estimated.
-- Normalisation: A m(3) /m(2) is reported for assets within the
like for like portfolio. The numerator is landlord-managed water
consumption and the denominator is net lettable floor area (m(2)
).
-- Coverage: Relates to number of managed assets for which data is reported.
Waste (Waste-Abs)
The table below sets out waste managed by the Company by
disposal route and sector.
Absolute weight
(tonnes) %
Sector 2016/17 2016/17
-------------------------------------- -------- --------
Office
Direct to MRF 14 31
Incineration (with energy recovery) 31 69
Landfill - -
Coverage 2/2
Retail, Shopping Centre
Direct to MRF - -
Incineration (with energy recovery) 9 100
Landfill - -
Coverage 1/1
-------------------------------------- -------- --------
Totals
-------------------------------------- -------- --------
Direct to MRF 14
Incineration (with energy recovery) 40
Landfill 0
-------------------------------------- -------- --------
Coverage 3/3
-------------------------------------- -------- --------
-- MRF is a Materials Recovery Facility.
-- Coverage relates to number of managed assets for which data is reported.
Sustainability Certification (Cert-Tot)
Energy Performance Certificate Portfolio by floor
Rating area (%)
-------------------------------- -------------------
A -
B 5%
C 35%
D 28%
E -
F -
G -
Exempt -
-------------------------------- -------------------
Coverage 68%
-------------------------------- -------------------
-- Sustainability Certification records for the Company are
provided as at 31(st) March 2017 against portfolio floor area.
-- Data provided includes managed and non-managed assets (i.e. the whole portfolio).
-- German EPCs do not have a letter rating system used in
certification. A conversion has been applied to numerical scoring
to give an indicative score.
Status of announcement
2016 Financial Information
The figures and financial information for 2016 are extracted
from the published Annual Report and Accounts for the year ended 30
September 2016 and do not constitute the statutory accounts for
that year. The 2016 Annual Report and Accounts have been delivered
to the Registrar of Companies.
2017 Financial Information
The figures and financial information for 2017 are extracted
from the Annual Report and Accounts for the year ended 30 September
2017 and do not constitute the statutory accounts for the year. The
2017 Annual Report and Accounts include the Report of the
Independent Auditors which is unqualified and does not contain a
statement under either section 498(2) or section 498(3) of the
Companies Act 2006. The 2017 Annual Report and Accounts will be
delivered to the Registrar of Companies in due course.
Neither the contents of the Company's webpages nor the contents
of any website accessible from hyperlinks on the Company's webpages
(or any other website) is incorporated into, or forms part of, this
announcement.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR UVSWRBRAURAA
(END) Dow Jones Newswires
December 06, 2017 02:00 ET (07:00 GMT)
Schroder European Real E... (LSE:SERE)
Historical Stock Chart
From Jun 2024 to Jul 2024
Schroder European Real E... (LSE:SERE)
Historical Stock Chart
From Jul 2023 to Jul 2024