For release 8
November 2017
Schroder Real
Estate Investment Trust Limited
(“SREIT”/ the
“Company” / “Group”)
HALF YEAR RESULTS
FOR THE PERIOD ENDED 30 SEPTEMBER
2017
FOCUS ON WINNING
CITIES AND SUCCESSFUL ASSET MANAGEMENT INITIATIVES DRIVE 10%
INCREASE IN EARNINGS GROWTH
Schroder Real Estate Investment Trust, the actively managed UK
focussed REIT, today announces its unaudited half year results for
the six months ended 30 September
2017.
Financial highlights for the six
months ending 30 September 2017
- Increase in dividend cover to 117% (30 September 2016: 106%)
- Net Asset Value (‘NAV’) of £340.6 million or 65.7
pps, reflecting an increase over the period of 2.5%
- NAV total return, including dividends paid of
£6.4 million or 1.24 pps, of 4.5% (30
September 2016: 0.2%)
- 10.3% increase in underlying EPRA earnings to
£7.5 million (30 September 2016: £6.8
million)
- Profit for the six months of £14.5 million
(30 September 2016: £0.6 million)
- Loan to value (‘LTV’), net of all cash, of 27%
(31 March 2017: 29%)
Operational highlights
- Strong focus on Winning Cities and Regions with
92% of the portfolio by value located in higher growth locations
(source: Oxford economics)
- 42 separate leasing transactions completed with a
reduction in void rate to 5.5% (30 September
2016: 9%)
- Continued outperformance of underlying property
portfolio with a total return of 5.2% versus the MSCI Benchmark
Index of 4.9%
- Property portfolio performance driven by higher
annualised income return of 6.2% compared with the Benchmark of
4.8%. Future performance underpinned by a reversionary yield
of 7.2% compared with the Benchmark of 5.9%
- Considering disciplined growth that is accretive
to income
Commenting, Lorraine
Baldry, Chairman of the Board, said:
“Real estate continues to offer an attractive yield premium
compared with other asset classes. This yield premium combined with
relatively low debt and development means that demand for good
quality, well-located assets should remain strong even as the
climate for increasing interest rates evolves. Steps taken across
the portfolio to reduce risk, and increased exposure to higher
income producing assets should deliver outperformance and the
potential for dividend increases. We are positive about the outlook
and continue to look at opportunities for growth.”
Duncan
Owen, Global Head of Schroder Real Estate Investment
Management Limited, said:
“We have continued to deliver attractive returns during a period
of ongoing political and economic uncertainty. Whilst we
expect demand from both international and domestic investors to
continue, we expect greater volatility across financial markets.
The ability to deliver on opportunities identified within the
portfolio is dependent on the availability of capital and being
invested across sectors and locations with robust tenant demand.
Therefore, as previously stated, a disciplined approach to growth
will be considered where equity issuance is accretive to net
operating income and investment into growth sectors.
Our focus continues to be on building a portfolio of
good-quality assets that will deliver sustainable income and that
are supported by attractive investment fundamentals in locations or
sectors. Furthermore, a concerted focus on asset management during
the period, leveraging our capabilities, ensures that we have a
pipeline of ongoing activity that should positively impact income
and total returns.”
-Ends-
For further information:
Schroder Real Estate
Investment Management
Duncan Owen / Nick Montgomery |
020 7658 6000 |
Northern Trust
James Machon / Fraser Hiddleston |
01481 745212 |
FTI Consulting
Dido Laurimore / Ellie Sweeney / Richard Gotla |
020 3727 1000 |
A presentation for analysts and investors will be held at
10.30am today at the offices of
Schroders plc, 31 Gresham Street, London EC2V 7QA. If you would like to
attend, please contact Jenni Nkomo
at FTI on +44 (0)20 3727 1015 or
jenni.nkomo@fticonsulting.com
Alternatively, the dial-in details are as
follows:
+44 (0)330 336 9411
Participants,
Local - London, United
Kingdom:
5369322 |
|
|
|
Schroder Real Estate Investment Trust
Limited
Interim Report and Consolidated
Financial Statements
For the period 1 April 2017 to 30
September 2017
Contents
|
|
Company Summary |
2 |
Performance Summary |
3 |
Chairman’s Statement |
5 |
Investment Manager’s Report |
7 |
Responsibility Statement of the
Directors in respect of the Interim Report |
12 |
Independent Auditor's Review
Report |
13 |
Condensed Consolidated Statement of
Comprehensive Income |
14 |
Condensed Consolidated Statement
of Financial Position |
15 |
Condensed Consolidated Statement of
Changes in Equity |
16 |
Condensed Consolidated Statement of
Cash Flows |
17 |
Notes to the Interim Report |
18 |
Corporate Information |
27 |
|
|
Schroder Real
Estate Investment Trust Limited aims to provide shareholders with
an attractive level of income together with the potential for
income and capital growth through investing in UK commercial real
estate.
Company Summary
Schroder Real Estate Investment Trust Limited (the ‘Company’ and
together with its subsidiaries the ‘Group’) is a real estate
investment company with a premium listing on the Official List of
the UK Listing Authority and whose shares are traded on the Main
Market of the London Stock Exchange (ticker: SREI).
On 1 May 2015 the Company
converted to a real estate investment trust (‘REIT’) in order to
benefit from the various tax advantages offered by the UK REIT
regime as well as the potential for improved liquidity as a result
of being able to access a wider shareholder base. The Company
continues to be declared as an authorised closed-ended investment
scheme by the Guernsey Financial Services Commission under
section 8 of the Protection of Investors (Bailiwick of Guernsey)
Law, 1987, as amended and the Authorised Closed-ended Collective
Investment Schemes Rules 2008.
Objective
The Company aims to provide shareholders with an attractive
level of income and the potential for income and capital growth as
a result of its investments in, and active management of, a
diversified portfolio of UK commercial real estate. The
current annualised level of dividend is 2.48
pence per share (‘pps’) and it is intended that successful
execution of the investment strategy will enable a progressive
dividend policy to be adopted over time.
The portfolio is principally invested in the three main UK
commercial real estate sectors of office, industrial and retail,
and may also invest in other sectors including, but not limited to,
residential, leisure, healthcare and student accommodation.
Over the real estate market cycle the portfolio aims to generate an
above average income return with a diverse spread of lease
expiries.
Relatively low level gearing is used to enhance income and total
returns for shareholders with the level dependent on the property
cycle and the outlook for future returns.
Investment strategy
The current investment strategy is to grow income and enhance
shareholder returns through a disciplined approach to acquisitions,
pro-active asset management and selling smaller, lower yielding
properties on completion of asset business plans. The issuance of
new shares will also be considered if it is consistent with the
strategy.
Our objective is to own a portfolio of larger properties in
Winning Cities and Regions with high growth diversified local
economies, sustainable occupational demand and favourable supply
and demand characteristics. These properties should offer
good long-term fundamentals in terms of location and specification
and be let at affordable rents with the potential for income and
capital growth from good stock selection and asset management.
Performance Summary
Financial summary
|
30
September 2017 |
30
September 2016 |
31 March
2017 |
NAV1 |
£340.6m |
£316.8m |
£332.6m |
NAV per Ordinary
Share1 (pence) |
65.7 |
61.1 |
64.1 |
EPRA NAV |
£340.6m |
£316.8m |
£332.6m |
1 Net Asset Value is calculated using International
Financial Reporting Standards.
Capital values
|
Six months to 30
September 2017 |
Six months to 30
September 2016 |
Year to 31 March
2017 |
NAV total return |
4.5% |
0.2% |
7.2% |
|
Profit for the
period |
£14.5m |
£0.6m |
£22.8m |
EPRA earnings |
£7.5m |
£6.8m |
£13.8m |
Share price and index
|
30
September
2017 |
30
September 2016 |
31 March
2017 |
Share price
(pence) |
61.5 |
57.3 |
61.8 |
Share price discount
to NAV |
(6.4%) |
(6.3%) |
(3.7%) |
FTSE All Share
Index |
4,049.89 |
3,755.34 |
3,990.90 |
FTSE EPRA/NAREIT UK
Real Estate Index |
1,734.15 |
1,719.32 |
1,724.59 |
Earnings and dividends
|
Six months to 30 September 2017 |
Six
months to 30 September 2016 |
Year to 31 March
2017 |
Earnings per share
(pence) |
2.8 |
0.1 |
4.4 |
EPRA earnings per
share (pence) |
1.4 |
1.3 |
2.7 |
Dividends paid per
share (pence) |
1.24 |
1.24 |
2.48 |
Annualised dividend
yield on 30 September / 31 March share price |
4.0% |
4.3% |
4.0% |
Performance Summary (continued)
Bank borrowings
|
30 September 2017 |
30 September 2016 |
31 March 2017 |
On-balance sheet
borrowings 1 |
£150.1m |
£150.1m |
£150.1m |
Loan to value ratio,
net of all cash 2 |
27.2% |
30.0% |
28.9% |
1 On-balance sheet borrowings reflects the loan
facility with Canada Life and RBS, without deduction of finance
costs
2 Cash excludes rent deposits and floats held with
managing agents
Ongoing charges
|
Six months to
30 September 2017 |
Six months to 30
September 2016 |
Year to 31 March
2017 |
Ongoing charges
(including fund only expenses1) |
0.6% |
0.7% |
1.3% |
Ongoing charges
(including fund and property expenses2) |
1.1% |
1.3% |
2.5% |
1 Fund only expenses excludes all property
operating expenses, valuers’ and professional fees in relation to
properties.
2 Ongoing charges calculated in accordance with AIC
recommended methodology, as a percentage of average NAV during the
year. The ongoing charges exclude all exceptional costs
incurred during the period.
Chairman’s Statement
Overview
The interim period saw continued net asset value and income
growth. Furthermore, dividend cover increased over the period
to 117% which compares to 107% in the financial year to March
2017. This was driven by a high level of asset management
activity which has contributed to sustained outperformance compared
with the MSCI (formerly IPD) peer group Benchmark.
Investor and occupier demand for the UK commercial real estate
market has remained relatively stable since the EU Referendum
result in June 2016. There are, however, cyclical risks and
other factors which will lead to a widening divergence in
performance between different types of real estate. This is
best illustrated by the structural changes arising from rapid
growth of on-line retail which is driving strong rental growth in
the industrial and distribution sectors, whilst reducing the
overall demand for retail property.
Whilst structural changes are expected to have the biggest
impact on the long term demand for real estate, shorter term
political and economic uncertainty may weaken sentiment.
Steps taken to reduce risk and increase exposure to growth sectors
such as dominant regional office markets and industrial assets,
mean that the company is well positioned to mitigate the risks of a
more uncertain environment.
Strategy
The Company has a clear and disciplined investment strategy,
focused on growing net income, reducing risk and increasing
exposure in Winning Cities and Regions that are expected to
generate higher levels of economic growth. The strategy has
also focused on owning a diversified portfolio of assets which
offer good fundamentals in terms of location and
specification. This creates opportunities to add value
through asset management and, over the longer term, should mean
that the portfolio is capable of adapting to future technological
and occupier changes.
In pursuit of this strategy, capital has been invested in
initiatives such as the conversion of an office to a hotel in
Leeds and refurbishing City Tower
in Manchester. The pipeline of future asset management
initiatives has also increased through activity such as securing
higher value planning consents at the Milton Keynes and Leeds industrial estates. Conversely, a
disciplined approach to selling assets on completion of business
plans has continued. Most recently and since the period end,
an office in Sheffield was sold at
a 9.5% premium to the previous year end valuation.
Across the portfolio there are contracted income and value
enhancing initiatives requiring capital expenditure of £3.2
million, with negotiations ongoing for a further £3.3
million. Whilst the company can comfortably fund this
activity from cash resources, disposals may be required to fund the
future pipeline. Consideration is being given to how the future
pipeline of activity can be accelerated and solutions could include
a combination of equity issuance or modest borrowings.
Debt
As at 30 September 2017, the
Company had a loan to value, net of cash, of 27%. The
Company’s two loan facilities total £150.1 million, with an average
duration of nine years and an average interest cost of 4.4%.
The loans are also fully hedged against any movement in interest
rates.
Chairman’s Statement (continued)
Outlook
Real estate continues to offer an attractive yield premium
compared with other asset classes. This yield premium combined with
relatively low debt and development means that demand for good
quality, well-located assets should remain strong even as the
climate for increasing interest rates evolves. Steps taken across
the portfolio to reduce risk, and increased exposure to higher
income producing assets should deliver outperformance and the
potential for dividend increases. We are positive about the outlook
and continue to look at opportunities for growth.
Lorraine
Baldry
Chairman
Schroder Real Estate Investment Trust Limited
7 November
2017
Investment Manager’s Report
The Company’s Net Asset Value (‘NAV’) as at 30 September 2017 was £340.6 million or
65.7 pence per share (‘pps’) compared
with £332.6 million or 64.1 pps as at 31 March 2017. This
reflected an increase of 1.6 pps or 2.5%, with the underlying
movement in NAV set out in the table below:
|
Pence per share
(‘pps’) |
NAV as at 31 March 2017 |
64.1 |
Unrealised change in valuation of
direct investment property portfolio |
2.3 |
Capital expenditure |
(1.0) |
Unrealised gain on joint
ventures |
0.1 |
Net revenue |
1.4 |
Dividends paid |
(1.2) |
NAV as at 30 September 2017 |
65.7 |
Performance was driven by a 2% increase in the value of the
underlying portfolio which, adjusting for capital expenditure,
contributed 1.3 pps to the NAV. Net revenue over the period
was 1.4 pps which, based on dividends paid of 1.2 pps, reflected a
dividend cover of 117%. This resulted in a NAV total return
for the period of 4.5%.
Market overview
The MSCI (formerly IPD) Benchmark produced a total return for
average commercial real estate of 4.9% over the period to
30 September 2017, which includes an
income return of 2.4%. There is continued polarisation of returns
between the main real estate sectors.
Average industrial assets delivered a total return of 8.9% over
the period, driven by rental growth of 2.6% and positive market
sentiment. The sector is benefiting from strong demand driven
by the rapid growth of e-commerce. Parcel delivery companies
and traditional retailers are re-engineering supply chains to
service on-line orders in increasingly shorter timeframes.
Industrial rental increases are also supported by low supply and
rising construction costs, particularly for smaller multi-let
estates. There are limited levels of new development. For example,
the total amount of industrial space in London has fallen by 14% over the last decade
with the North West and West
Midlands regions also experiencing 10% and 8% declines
respectively (Source: ONS).
The office sector produced a total return of 3.5% with muted
rental value growth of 0.9%, principally caused by a cyclical
slowdown in Central London. However, whilst vacancy has
increased in the City of London
and Docklands, other London
markets attracting professional services, technology and media
occupiers such as Kings Cross and Bloomsbury remain positive.
Central London take up is in part
being distorted by the strong growth in serviced office provision,
with a risk of oversupply in certain sub-markets potentially
leaving some operators vulnerable. Demand for offices in
major regional cities such as Manchester, Leeds and Bristol has remained stable with limited
development.
The retail sector produced a total return of 3.5% due to weak
sentiment and modest rental growth of 0.2%. The sector continues to
face headwinds from a slowdown in consumer spending exacerbated by
higher inflation, the shift towards on-line and the squeeze on
retailer’s margins due to sterling weakness and the increase in the
living wage.
Investment Manager’s Report (continued)
Strategy
The strategy over the period has focused on the following key
objectives:
· Increasing net income through
transactions and asset management;
· Increasing exposure to assets
and sectors with strong fundamentals;
· Increasing exposure to Winning
Cities and Regions, being locations experiencing higher levels of
GDP; employment and population growth; and
· Managing portfolio risk in order
to enhance the portfolios defensive qualities.
Good progress has been made executing the strategy and activity
over the period has delivered the following progress against these
objectives:
· Dividend cover has increased to
117% compared with 107% over the financial year to March 2017;
· A portfolio level income return
of 3.1% over the period compared with 2.4% for the MSCI Benchmark,
with a higher reversionary yield of 7.2% compared with 5.9% for the
Benchmark;
· Portfolio void rate reduced
further to 5.5% adjusting for activity post the period end;
· Average unexpired lease term
increased to 6.7 years, assuming all tenant breaks are exercised at
the earliest opportunity; and
· 92% of the portfolio being
located in high growth cities and towns (source: Oxford
Economics)
Alongside the focus on driving income and total returns from the
existing portfolio, new opportunities and acquisitions are being
actively explored to accelerate net income growth. These are
mainly focused in those sectors where low supply and growing demand
from occupiers provides rental growth and asset management
potential.
Property portfolio
As at 30 September 2017 the
property portfolio comprised 45 properties valued at £466
million. This includes the share of joint venture properties
at City Tower in Manchester and
Store Street in Bloomsbury, London. Since the period end an
office in Sheffield was sold for
£6.5 million at a £366,000 or 5.9% premium, compared with the
period end valuation and 9.5% premium to the previous year end
valuation. In addition, an acquisition of a small industrial unit
in Milton Keynes for £333,000
(included under Asset Management below) took place.
Adjusting for these transactions, the portfolio produced a rent
roll of £27.6 million per annum, reflecting a net initial income
yield of 5.7%. The portfolio also benefits from fixed contractual
rental uplifts of £3.1 million per annum by September 2019.
The independent valuers estimate that the current rental value of
the portfolio is £33.3 million per annum, reflecting a reversionary
income yield of 7.2%, which compares favourably with the MSCI
benchmark at 5.9%. The data below summarises the portfolio
information as at 30 September 2017,
adjusted for the post period end transactions:
|
Weighting
(%) |
Sector weightings by value |
SREIT |
MSCI Benchmark |
Retail |
30.5 |
35.9 |
Offices |
37.7 |
30.8 |
Industrial |
25.6 |
23.3 |
Other |
6.2 |
10.0 |
Investment Manager’s Report (continued)
Property portfolio (continued)
|
Weighting
(%) |
Regional weightings by value |
SREIT |
MSCI Benchmark |
Central London |
7.8 |
14.5 |
South East excluding Central
London |
29.1 |
38.4 |
Rest of the South |
6.9 |
15.8 |
Midlands and Wales |
27.5 |
14.1 |
North and Scotland |
28.7 |
17.2 |
The top ten properties set out below comprise 59.2% of the
portfolio value:
Top ten properties |
Value (£m) |
(%) |
1 |
Manchester, City Tower (25%
share) |
41.7 |
9.1 |
2 |
Bedford, St. John’s Retail Park |
35.8 |
7.8 |
3 |
London, Store Street, Bloomsbury
(50% share) |
35.7 |
7.8 |
4 |
Brighton, Victory House |
31.3 |
6.8 |
5 |
Leeds, Millshaw Industrial
Estate |
27.5 |
6.0 |
6 |
Leeds, Headingley, The Arndale
Centre |
27.0 |
5.9 |
7 |
Milton Keynes, Stacey Bushes
Industrial Estate |
25.7 |
5.6 |
8 |
Uxbridge, 106 Oxford Road |
18.3 |
4.0 |
9 |
Norwich, Union Industrial Park |
14.7 |
3.1 |
10 |
Salisbury, Churchill Way West |
14.5 |
3.1 |
|
Total as at 30 September 2017 |
272.2 |
59.2 |
The table below sets out the top ten tenants that generally
comprise large businesses and represent 32.1% of the portfolio:
Top ten tenants |
Rent p.a. (£000) |
% of portfolio |
1 |
University of Law |
1,574 |
5.4 |
2 |
Wickes Building Supplies Ltd |
1,092 |
3.8 |
3 |
Aviva Life and Pensions UK Ltd |
1,039 |
3.6 |
4 |
Buckinghamshire New University |
1,018 |
3.5 |
5 |
Bupa Insurance Services Ltd |
961 |
3.3 |
6 |
Mott Macdonald Ltd |
790 |
2.8 |
7 |
Recticel Limited |
731 |
2.5 |
8 |
The Secretary of State |
717 |
2.5 |
9 |
Booker Ltd |
700 |
2.4 |
10 |
Matalan Retail Ltd |
676 |
2.3 |
|
Total as at 30 September 2017 |
9,298 |
32.1 |
Investment Manager’s Report (continued)
Portfolio performance
A high level of asset management has led to continued
outperformance of the underlying property portfolio compared with
the MSCI Benchmark. The table below shows the performance to
30 September 2017 with the portfolio
ranked on the 14th percentile of the Benchmark since
inception:
|
SREIT
total return p.a. (%) |
MSCI
Benchmark total return p.a. (%) |
Relative
p.a. (%) |
Period |
Six month |
Three years |
Since inception* |
Six month |
Three years |
Since inception* |
Six months |
Three years |
Since inception* |
Retail |
3.3 |
7.0 |
5.8 |
3.5 |
5.6 |
4.7 |
-0.2 |
1.3 |
1.0 |
Office |
5.1 |
11.1 |
8.3 |
3.5 |
9.6 |
6.8 |
1.5 |
1.3 |
1.4 |
Industrial |
9.1 |
17.4 |
8.5 |
8.9 |
13.9 |
7.7 |
0.2 |
3.1 |
0.7 |
Other |
-6.8 |
12.3 |
3.2 |
5.3 |
9.6 |
7.4 |
-11.5 |
2.4 |
-3.9 |
Total |
5.2 |
11.3 |
7.5 |
4.9 |
9.0 |
6.2 |
0.3 |
2.1 |
1.3 |
* Inception was July 2004
Asset management
Milton
Keynes, Stacey Bushes Industrial Estate
Stacey Bushes is a 317,000 sq ft multi-let industrial estate
comprising 42 units in a good location west of Milton Keynes.
The asset is valued at £25.7 million reflecting a net initial yield
on contracted rents of 6% and a reversionary income yield of
7.4%. The estate has benefitted from increased demand in the
multi-let industrial sector. The strategy is to refurbish
units as leases expire in order to achieve higher rents.
During the period the following progress has been made:
· Six units refurbished or
upgraded at a total cost of £150,000, net of dilapidations
payments;
· Completed seven new lease
agreements that increased the annual rent by 11.4 % to £1.5 million
p.a.; and
· Rental value increased by 8% to
£1.8 million p. a.
This activity has delivered strong performance with a total
return for the period of 14.5% compared with the Benchmark average
for South East industrial of 10.1%.
Leeds, Millshaw Industrial Estate
Millshaw is a 463,400 sq ft multi-let industrial estate
comprising 27 units strategically located south of Leeds city centre close to the M62 and M621
motorways. The asset is valued at £27.5 million reflecting a net
initial income yield of 5.6% and a reversionary income yield of
7.9%. The strategy is to refurbish units to drive rents and
deliver higher value uses for the units fronting the Leeds ring road. Once again this estate
has benefitted from its location and growing demand from a range of
tenants in the multi-let industrial sector. During the period the
following progress has been made:
· Three units refurbished or
upgraded at a total cost of £120,000, net of dilapidations
payments;
· Completed three new lease
agreements that increased the contracted rent by 2.3% to £1.6
million p.a.;
· Rental value increased by 7% to
£2.2 million p.a. and
· Secured planning consent for
change of use from warehouse to gym use as part of a pre-let to JD
Sports Gyms.
This activity has delivered strong performance with a total
return for the period of 7.6% compared with the Benchmark average
for rest of UK industrial of 7.0%.
Investment Manager’s Report (continued)
Finance
The Company has an overall net loan to value of 27% with details
of the two loans and compliance with principal covenants set out
below:
Lender |
Loan (£m) |
Maturity |
Interest rate (%) |
Loan to Value (‘LTV’) ratio* (%) |
LTV ratio covenant (%)* |
Interest cover ratio (%)** |
ICR ratio covenant (%)** |
Forward looking ICR ratio (%)*** |
Forward looking ICR ratio covenant
(%)*** |
Canada Life |
103.7 |
15/04/2028 |
4.77$ |
37.4 |
65 |
340 |
185 |
314 |
185 |
25.9 |
15/04/2023 |
RBS |
20.5 |
17/07/2019 |
2.00 |
49.3 |
65 |
N/A |
N/A |
417 |
250 |
*
Loan balance divided by property value as at 30 September 2017.
**
For the quarter preceding the Interest Payment Date (‘IPD’),
((rental income received – void rates, void service charge and void
insurance) / interest paid).
*** For
the quarter following the IPD, ((rental income received – void
rates, void service charge and void insurance) / interest
paid).
$
Fixed total interest rate for the loan term
- Total interest
rate as at 30 September 2017
comprising 3 months LIBOR of 0.40% and the margin of 1.6% at an LTV
below 60% and a margin of 1.85% above 60% LTV.
In addition to the secured property, the joint venture
properties City Tower in Manchester and Store Street in London are uncharged with a combined value of
£77.4 million. The cost of debt is fixed or capped so short term
increases in interest rates will not affect the cost of the debt
facilities.
Outlook
We have continued to deliver attractive returns during a period
of ongoing political and economic uncertainty. Whilst we
expect demand from both international and domestic investors to
continue, we expect greater volatility across financial markets.
The ability to deliver on opportunities identified within the
portfolio is dependent on the availability of capital and being
invested across sectors and locations with robust tenant demand.
Therefore, as previously stated, a disciplined approach to growth
will be considered where equity issuance is accretive to net
operating income and investment into growth sectors.
Our focus continues to be on building a portfolio of
good-quality assets that will deliver sustainable income and that
are supported by attractive investment fundamentals in locations or
sectors. Furthermore, a concerted focus on asset management during
the period, leveraging our capabilities, ensures that we have a
pipeline of ongoing activity that should positively impact income
and total returns.
Duncan
Owen
Schroder Real Estate Investment Management Limited
7 November 2017
Responsibility Statement of the
Directors in respect of the Interim Report
We confirm that to the best of our knowledge:
• the condensed set of financial statements has been prepared in
accordance with IAS 34 Interim Financial Reporting; and
• the interim management report (comprising the Chairman’s and
the Investment Manager’s report) includes a fair review of the
information required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency
Rules, being an indication of important events that have
occurred during the first six months of the financial year and
their impact on the condensed set of financial statements; and a
description of the principal risks and uncertainties for the
remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency
Rules, being related party transactions that have taken place
in the first six months of the current financial year and that have
materially affected the financial position or performance of the
entity during that period; and any changes in the related party
transactions described in the last annual report that could do
so.
We are responsible for the maintenance and integrity of the
corporate and financial information included on the Company’s
website, and for the preparation and dissemination of financial
statements. Legislation in Guernsey governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
By order of the Board
Lorraine
Baldry
Chairman
7 November 2017
Independent Review Report to Schroder
Real Estate Investment Trust Limited
Conclusion
We have been engaged by Schroder Real Estate Investment Trust
Limited (the “Company”) to review the condensed set of financial
statements in the Interim Report for the six months ended
30 September 2017 of the Company, its
subsidiaries and its interests in joint ventures (together
the “Group”) which comprises the Condensed Consolidated Statement
of Comprehensive Income, Condensed Consolidated Statement of
Financial Position, Condensed Consolidated Statement of Changes in
Equity, Condensed Consolidated Statement of Cash Flows and the
related explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the Interim Report for the six months ended 30 September 2017 is not prepared, in all
material respects, in accordance with IAS 34 Interim Financial
Reporting and the Disclosure Guidance and Transparency Rules (“the
DTR”) of the UK’s Financial Conduct Authority (“the UK
FCA”).
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial
Information Performed by the Independent Auditor of the Entity
issued by the Auditing Practices Board for use in the UK. A
review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
Interim Report and consider whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit
opinion.
Directors’ responsibilities
The Interim Report is the responsibility of, and has been
approved by, the directors. The directors are responsible for
preparing the Interim Report in accordance with the DTR of the UK
FCA.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with International Financial
Reporting Standards. The directors are responsible for preparing
the condensed set of financial statements included in the Interim
Report in accordance with IAS 34.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the Interim Report
based on our review.
The purpose of our review work and to
whom we owe our responsibilities
This report is made solely to the Company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the Company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the Company
for our review work, for this report, or for the conclusions we
have reached.
Lee C Clark
For and on behalf of KPMG Channel Islands Limited
Chartered Accountants, Guernsey
7 November 2017
Condensed Consolidated Statement of Comprehensive Income
|
|
Six
months to |
Six
months
to |
Year
to |
|
|
30/09/2017 |
30/09/2016 |
31/03/2017 |
|
Notes |
£000 |
£000 |
£000 |
|
|
(unaudited) |
(unaudited) |
(audited) |
Rental income |
|
12,390 |
12,148 |
24,079 |
Other income |
|
985 |
473 |
1,283 |
Property operating
expenses |
|
(1,017) |
(1,286) |
(2,561) |
Net rental and
related income, excluding joint ventures |
|
12,358 |
11,335 |
22,801 |
|
|
|
|
|
Share of net rental
income in joint ventures |
|
1,409 |
1,673 |
3,273 |
Net rental and
related income, including joint ventures |
|
13,767 |
13,008 |
26,074 |
|
|
|
|
|
(Loss)/profit on
disposal of investment property |
6 |
- |
(143) |
3,709 |
|
|
|
|
|
Net valuation
gain/(loss) on investment property |
6 |
6,573 |
(4,466) |
6,987 |
|
|
|
|
|
Expenses |
|
|
|
|
Investment management
fee |
2 |
(1,772) |
(1,740) |
(3,391) |
Valuers’ and other
professional fees |
|
(678) |
(663) |
(1,256) |
Administrators
fee |
2 |
(60) |
(60) |
(120) |
Auditor’s
remuneration |
|
(64) |
(69) |
(127) |
Directors’ fees |
|
(90) |
(105) |
(180) |
Other expenses |
3 |
(169) |
(135) |
(356) |
Total
expenses |
|
(2,833) |
(2,772) |
(5,430) |
|
|
|
|
|
Net operating
profit before net finance costs |
|
16,098 |
3,954 |
28,067 |
|
|
|
|
|
Finance costs
payable |
|
(3,410) |
(3,434) |
(6,893) |
Net finance
costs |
|
(3,410) |
(3,434) |
(6,893) |
Share of net rental
income in joint ventures |
7 |
1,409 |
1,673 |
3,273 |
Share of net valuation
gain/(loss) in joint ventures |
7 |
367 |
(1,557) |
(1,603) |
Profit and total
comprehensive income for the period attributable to the equity
holders of the parent |
|
14,464 |
636 |
22,844 |
Basic and diluted
earnings per share |
4 |
2.8p |
0.1p |
4.4p |
All items in the above statement are derived from continuing
operations. The accompanying notes 1 to 16 form an integral part of
the Interim Report.
Condensed Consolidated Statement of Financial Position
|
|
30/09/2017 |
30/09/2016 |
31/03/2017 |
|
Notes |
£000 |
£000 |
£000 |
|
|
(unaudited) |
(unaudited) |
(audited) |
Investment
property |
6 |
372,323 |
362,347 |
366,227 |
Investment in joint
ventures |
7 |
77,617 |
76,946 |
76,900 |
Non-current
assets |
|
449,940 |
439,293 |
443,127 |
|
|
|
|
|
Trade and other
receivables |
8 |
17,112 |
17,564 |
26,502 |
Cash and cash
equivalents |
9 |
24,887 |
14,540 |
20,127 |
Investment property
held for sale |
6 |
5,777 |
1,228 |
- |
Current
assets |
|
47,776 |
33,332 |
46,629 |
Total
assets |
|
497,716 |
472,625 |
489,756 |
|
|
|
|
|
Issued capital and
reserves |
|
367,076 |
343,264 |
359,042 |
Treasury shares |
|
(26,452) |
(26,452) |
(26,452) |
Equity |
|
340,624 |
316,812 |
332,590 |
|
|
|
|
|
Interest-bearing loans
and borrowings |
10 |
148,386 |
148,113 |
148,266 |
Non-current
liabilities |
|
148,386 |
148,113 |
148,266 |
|
|
|
|
|
Trade and other
payables |
11 |
8,483 |
7,682 |
8,900 |
Taxation payable |
|
223 |
18 |
- |
Current
liabilities |
|
8,706 |
7,700 |
8,900 |
|
|
|
|
|
Total
liabilities |
|
157,092 |
155,813 |
157,166 |
|
|
|
|
|
Total equity and
liabilities |
|
497,716 |
472,625 |
489,756 |
|
|
|
|
|
Net Asset Value per
ordinary share |
12 |
65.7p |
61.1p |
64.1p |
The financial statements on pages 15-27 were approved at a
meeting of the Board of Directors held on 7
November 2017 and signed on its behalf by:
Lorraine Baldry
Chairman
The accompanying notes 1 to 16 form an integral part of the
Interim Report.
Condensed Consolidated Statement of Changes in Equity
For the period from 1 April 2016 to 30
September 2016 (unaudited)
|
Notes |
Share premium |
Treasury share reserve |
Revenue
reserve |
Total |
|
|
|
£000 |
£000 |
£000 |
£000 |
|
Balance as at 31
March 2016 |
|
219,090 |
(26,452) |
129,968 |
322,606 |
|
Profit and total
comprehensive income for the period |
|
- |
- |
636 |
636 |
|
Dividends paid |
5 |
- |
- |
(6,430) |
(6,430) |
|
Balance as at 30
September 2016 |
|
219,090 |
(26,452) |
124,174 |
316,812 |
|
For the year ended 31 March 2017 (audited) and for the period
from 1 April 2017 to 30 September 2017 (unaudited) |
|
Notes |
Share premium |
Treasury
share reserve |
Revenue
reserve |
Total |
|
|
|
£000 |
£000 |
£000 |
£000 |
|
Balance
as at 31 March 2016 |
|
219,090 |
(26,452) |
129,968 |
322,606 |
|
Profit and
total comprehensive income for the year |
|
- |
- |
22,844 |
22,844 |
|
Dividends
paid |
5 |
- |
- |
(12,860) |
(12,860) |
|
Balance
as at 31 March 2017 |
|
219,090 |
(26,452) |
139,952 |
332,590 |
|
|
|
|
|
|
|
|
Profit and
total comprehensive income for the period |
|
- |
- |
14,464 |
14,464 |
|
Dividends
paid |
5 |
- |
- |
(6,430) |
(6,430) |
|
Balance
as at 30 September 2017 |
|
219,090 |
(26,452) |
147,986 |
340,624 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes 1 to 16 form an integral part of the
Interim Report.
Condensed Consolidated Statement of Cash Flows
|
|
Six
months
to |
Six
months
to |
Year
to |
|
|
30/09/2017 |
30/09/2016 |
31/03/2017 |
|
|
£000 |
£000 |
£000 |
|
|
(unaudited) |
(unaudited) |
(audited) |
Operating
activities |
|
|
|
|
Profit for the period/year |
|
14,464 |
636 |
22,844 |
Adjustments for: |
|
|
|
|
Loss/(profit) on
disposal of investment property |
|
- |
143 |
(3,709) |
Net valuation
(gain)/loss on investment property |
|
(6,573) |
4,466 |
(6,987) |
Share of profit of
joint ventures |
|
(1,776) |
(116) |
(1,670) |
Net finance cost |
|
3,410 |
3,434 |
6,893 |
Operating cash generated before changes in
working
capital |
9,525 |
8,563 |
17,371 |
|
|
|
|
|
|
|
|
Increase in trade and
other receivables |
(3,209) |
(2,202) |
(172) |
Decrease in trade and
other payables |
(195) |
(1,432) |
(113) |
Cash generated from
operations |
|
6,121 |
4,929 |
17,086 |
|
|
|
|
Finance costs
paid |
(3,290) |
(3,434) |
(6,622) |
Tax |
- |
- |
(33) |
Net cash from
operating activities |
|
2,831 |
1,495 |
10,431 |
Investing
Activities |
|
|
|
|
|
|
|
|
|
Proceeds from sale of
investment property |
|
12,600 |
10,680 |
15,485 |
Additions to
investment property |
|
(5,300) |
(5,097) |
(8,421) |
Investment in joint
ventures |
|
(350) |
(544) |
(544) |
Net income distributed
from joint ventures |
|
1,409 |
1,673 |
3,273 |
Net cash from
investing activities |
|
8,359 |
6,712 |
9,793 |
Financing
Activities |
|
|
|
|
|
|
|
|
|
Dividends paid |
|
(6,430) |
(6,430) |
(12,860) |
Net cash used in
financing activities |
|
(6,430) |
(6,430) |
(12,860) |
Net
increase/(decrease) in cash and cash equivalents for
the period/year |
4,760 |
(34,261) |
7,364 |
Opening cash and
cash equivalents |
|
20,127 |
12,763 |
12,763 |
Closing cash and
cash equivalents |
|
24,887 |
14,540 |
20,127 |
|
|
|
|
|
The accompanying notes 1 to 16 form an integral part of the
Interim Report.
Notes to the Interim Report
1. Significant accounting policies
Schroder Real Estate Investment Trust Limited (“the Company”) is
a closed-ended investment company incorporated in Guernsey. The
condensed interim financial statements of the Company for the
period ended 30 September 2017
comprise the Company, its subsidiaries and its interests in joint
ventures (together referred to as the “Group”).
Statement of
compliance
The condensed interim financial statements have been prepared in
accordance with the Disclosure and Transparency Rules of the United
Kingdom Financial Conduct Authority and IAS 34 Interim Financial
Reporting. They do not include all the information required for the
full annual financial statements, and should be read in conjunction
with the consolidated financial statements of the Group as at and
for the year ended 31 March 2017. The
condensed interim financial statements have been prepared on the
basis of the accounting policies set out in the Group’s annual
financial statements for the year ended 31
March 2017. The financial statements for the year ended
31 March 2017 have been prepared in
accordance with International Financial Reporting Standards
(“IFRS”) as issued by the International Accounting Standards Board.
The Group’s annual financial statements refer to new Standards and
Interpretations none of which had a material impact on the
condensed interim financial statements.
Going concern
The Directors have examined significant areas of possible
financial risk including cash and cash requirements and the debt
covenants, in particular the loan to value covenants and interest
cover ratios on the loans with Canada Life and Royal Bank of
Scotland. 80% of the Canada Life
loan matures on 15 April 2028 and 20%
matures on 15 April 2023. The Royal
Bank of Scotland loan matures on
17 July 2019. The Directors have not
identified any material uncertainties which would cast significant
doubt on the Group’s ability to continue as a going concern for a
period of not less than twelve months from the date of the approval
of the condensed interim financial statements. The Directors have
satisfied themselves that the Group has adequate resources to
continue in operational existence for the foreseeable future.
After due consideration, the Board believes it is appropriate to
adopt the going concern basis in preparing the condensed interim
financial statements.
Use of estimates and
judgments
The preparation of financial statements requires management to
make judgements, estimates and assumptions that affect the
application of policies and the reported amounts of assets and
liabilities, income and expenses. Actual results may differ from
these estimates. The estimates and underlying assumptions are
reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimates are revised and in
any future periods affected. There have been no changes in
the judgements and estimates used by management as disclosed in the
last annual report and financial statements for the year ended
31 March 2017.
Segmental
reporting
The Directors are of the opinion that the Group is engaged in a
single segment of business, being property investment and in one
geographical area, the United
Kingdom. There is no one tenant that represents more than
10% of group revenues. The chief operating decision maker is
considered to be the Board of Directors who are provided with
consolidated IFRS information on a quarterly basis.
Notes to the Interim Report
(Continued)
2. Material agreements
Schroder Real Estate Investment Management Limited is the
Investment Manager to the Company.
The Investment Manager is entitled to a fee together with
reasonable expenses incurred in the performance of its duties. The
fee is payable monthly in arrears and shall be an amount equal to
one twelfth of the aggregate of 1.1% of the NAV of the Company. The
Investment Management Agreement can be terminated by either party
on not less than twelve months written notice or on immediate
notice in the event of certain breaches of its terms or the
insolvency of either party. The total charge to profit during
the period was £1,772,000 (year to 31 March
2017: £3,391,000) (6 months to 30
September 2016: £1,740,000). At the period end
£230,000 (31 March 2017: £216,000)
(30 September 2016: £293,000) was
outstanding.
The Board appointed Northern Trust International Fund
Administration Services (Guernsey) Limited as the Administrator to
the Company with effect from 25 July
2007. The Administrator is entitled to an annual fee equal
to £120,000 of which £30,000 (31 March
2017: £30,000) (30 September
2016: £30,000) was outstanding at the period end.
3. Other expenses
|
|
Six
months to
30/09/2017 |
Six
months to
30/09/2016 |
Year
to
31/03/2017 |
|
|
£000 |
£000 |
£000 |
Directors' and
officers' insurance premium |
|
- |
- |
11 |
Regulatory costs |
|
11 |
11 |
22 |
Professional fees |
|
88 |
80 |
166 |
Other expenses |
|
70 |
44 |
- |
|
|
169 |
135 |
356 |
4. Basic and Diluted Earnings per
share
The basic and diluted earnings per share for the Group is based
on the profit for the period of £14,464,000 (31 March 2017: £22,844,000), (30 September 2016: £636,000) and the weighted
average number of ordinary shares in issue during the period of
518,513,409 (31 March 2017:
518,513,409 and 30 September 2016:
518,513,409).
EPRA earnings reconciliation
|
|
Six
months to
30/09/2017 |
Six months to
30/09/2016 |
Year
to
31/03/2017 |
|
|
£000 |
£000 |
£000 |
Profit after tax |
|
14,464 |
636 |
22,844 |
Adjustments to
calculate EPRA Earnings exclude: |
|
|
|
|
Loss/(profit) on
disposal of investment property |
|
- |
143 |
(3,709) |
Net valuation
(gain)/loss on investment property |
|
(6,573) |
4,466 |
(6,987) |
Share of valuation
(gain)/loss in joint ventures |
|
(367) |
1,557 |
1,603 |
EPRA
earnings |
|
7,524 |
6,802 |
13,751 |
Weighted average number of ordinary shares |
|
518,513,409 |
518,513,409 |
518,513,409 |
EPRA earnings per
share (pence per share) |
|
1.4 |
1.3 |
2.7 |
|
|
|
|
|
|
|
Notes to the Interim Report
(continued)
4. Basic and Diluted Earnings per
share (continued)
European Public Real Estate Association (‘EPRA’) earnings per
share reflect the underlying performance of the Group calculated in
accordance with the EPRA guidelines.
5. Dividends paid
|
Number
of |
|
01/04/2017 to |
In respect
of |
ordinary |
Rate |
30/09/2017 |
|
shares |
(pence) |
£000 |
Quarter 31 March 2017
dividend paid 31 May 2017 |
518.51
million |
0.62 |
3,215 |
Quarter 30 June 2017
dividend paid 31 August 2017 |
518.51
million |
0.62 |
3,215 |
|
|
1.24 |
6,430 |
|
Number
of |
|
01/04/2016 to |
In respect
of |
ordinary |
Rate |
30/09/2016 |
|
shares |
(pence) |
£000 |
Quarter 31 March 2016
dividend paid 31 May 2016 |
518.51
million |
0.62 |
3,215 |
Quarter 30 June 2016
dividend paid 31 August 2016 |
518.51 million |
0.62 |
3,215 |
|
|
1.24 |
6,430 |
|
Number of |
|
01/04/2016 to |
In respect
of |
ordinary |
Rate |
31/03/2017 |
|
shares |
(pence) |
£000 |
Quarter 31 March 2016
dividend paid 31 May 2016 |
518.51 million |
0.62 |
3,215 |
Quarter 30 June 2016
dividend paid 31 August 2016 |
518.51 million |
0.62 |
3,215 |
Quarter 30 September
2016 dividend paid 02 December 2016 |
518.51 million |
0.62 |
3,215 |
Quarter 31 December
2016 dividend paid 28 February 2017 |
518.51 million |
0.62 |
3,215 |
|
|
2.48 |
12,860 |
A dividend for the quarter ended 30
September 2017 of 0.62p (£3.2 million) was declared on
7 November 2017 and will be paid on
6 December 2017.
6. Investment property
For the period 1 April 2016 to 30
September 2016 (unaudited)
|
Leasehold |
Freehold |
Total |
£000 |
£000 |
£000 |
Fair value as at 1
April 2016 |
42,065 |
329,159 |
371,224 |
Additions |
1,881 |
3,216 |
5,097 |
Gross proceeds on
disposals |
- |
(8,137) |
(8,137) |
Realised loss on
disposals |
- |
(143) |
(143) |
Net valuation loss on
investment property |
(224) |
(4,242) |
(4,466) |
Fair value as at 30
September 2016 |
43,722 |
319,853 |
363,575 |
Notes to the Interim Report
(continued)
6. Investment property (continued)
For the year 1
April 2016 to 31 March 2017
(audited)
|
Leasehold |
Freehold |
Total |
£000 |
£000 |
£000 |
Fair value as at 1
April 2016 |
42,065 |
329,159 |
371,224 |
Additions |
3,031 |
5,390 |
8,421 |
Gross proceeds on
disposals |
(11,358) |
(12,756) |
(24,114) |
Realised gain/(loss)
on disposals |
3,942 |
(233) |
3,709 |
Net valuation
(loss)/gain on investment property |
(277) |
7,264 |
6,987 |
Fair value as at 31
March 2017 |
37,403 |
328,824 |
366,227 |
For the period 1 April 2017 to 30
September 2017 (unaudited)
|
Leasehold |
Freehold |
Total |
£000 |
£000 |
£000 |
Fair value as at 1
April 2017 |
37,403 |
328,824 |
366,227 |
Additions |
32 |
5,268 |
5,300 |
Net valuation
(loss)/gain on investment property |
(1,286) |
7,859 |
6,573 |
Fair value as at 30
September 2017 |
36,149 |
341,951 |
378,100 |
The balance above includes:
|
Leasehold
£000 |
Freehold
£000 |
Total
£000 |
Investment property |
36,149 |
336,174 |
372,323 |
Investment property held for
sale |
- |
5,777 |
5,777 |
Fair Value as at 30 September
2017 |
36,149 |
341,951 |
378,100 |
One of the investment properties has been determined to meet the
criteria of a held for sale asset at the period end at a value of
£5,777,000 (31 March 2017: £nil,
30 September 2016: £1,228,000). This
property subsequently unconditionally exchanged on 20 October
2017.
Fair value of investment property as determined by the valuer
totals £388,550,000 (31 March 2017:
£390,745,000) (30 September 2016:
£375,340,000). As at 30 September
2017 there were no amounts relating to the unconditional
exchange of contracts for sale (31 March
2017: £14,200,000 relating to Bristol and Watford) (30 September
2016: £1,600,000 relating to Bournemouth) and £10,450,000 (31 March 2017: £10,318,000) (30 September 2016: £10,165,000) in connection
with lease incentives is included within trade and other
receivables.
The fair value of investment property has been determined by
Knight Frank LLP, a firm of independent chartered surveyors, who
are registered independent appraisers. The valuation has been
undertaken in accordance with the RICS Valuation – Global Standards
2017, incorporating the International Valuation Standards, and RICS
Professional Standards UK January
2014 (revised April 2015),
issued by the Royal Institution of Chartered Surveyors (the “Red
Book”).
The properties have been valued on the basis of “Fair Value” in
accordance with the RICS Valuation - Professional Standards
VPS4(7.1) Fair Value and VPGA1 Valuations for Inclusion in
Financial Statements which adopt the definition of Fair Value used
by the International Accounting Standards Board.
The valuation has been undertaken using appropriate valuation
methodologies and the valuer’s professional judgement. The valuer’s
opinion of Fair Value was primarily derived using recent comparable
market transactions on arm’s length terms, where available, and
appropriate valuation techniques (The Investment Method).
Notes to the Interim Report
(continued)
6. Investment property (continued)
The properties have been valued individually and not as part of
a portfolio.
All investment properties are categorised as Level 3 fair values
as they use significant unobservable inputs. There have not been
any transfers between Levels during the period. Investment
properties have been classed according to their real estate sector.
Information on these significant unobservable inputs per class of
investment property is disclosed below:
Quantitative information about fair
value measurement using unobservable inputs (Level 3) as at
30 September 2017 (unaudited)
|
|
Industrial |
Retail (incl retail
warehouse) |
Office |
Other |
Total |
Fair value (£000) |
|
117,300 |
142,330 |
116,320 |
12,600 |
388,550 |
Area (‘000 sq ft) |
|
1,711 |
599 |
586 |
145 |
3,041 |
Net passing rent
psf per annum |
Range
Weighted average |
£0 - £8.82 £4.18 |
£0 - £38.50 £14.03 |
£0 - £25.72 £12.39 |
£7.56
N/A |
£0 - £38.50
£7.86 |
Gross ERV psf
per annum |
Range
Weighted average |
£3.50 - £11.25
£5.21 |
£7.40 - £38.50
£16.06 |
£9.50 - £27.50
£15.25 |
£8.33
N/A |
£3.50 - £38.50
£9.43 |
Net initial
yield (1) |
Range
Weighted average |
0% - 7.35% 5.71% |
0% - 8.83% 5.53% |
0.00%-16.24% 5.84% |
8.15%
N/A |
0% - 16.24% 5.76% |
Equivalent
yield |
Range
Weighted average |
5.01% - 8.30%
6.80% |
4.75%-9.70% 6.10% |
5.62%-10.58% 7.01% |
7.95% N/A |
4.75%-10.58%
6.64% |
Notes: (1) Yields based on rents receivable
after deduction of head rents, but gross of non-recoverables.
Notes to the Interim Report
(continued)
6. Investment property (continued)
Quantitative information about fair
value measurement using unobservable inputs (Level 3) as at
31 March 2017 (audited)
|
|
Industrial |
Retail (inc. retail
warehouse) |
Office |
Leisure |
Total |
Fair value (£000) |
|
110,700 |
140,100 |
125,800 |
14,150 |
390,750 |
Area (‘000 sq ft) |
|
1,711 |
603 |
619 |
145 |
3,078 |
Net passing rent per sq ft per
annum |
Range
Weighted average |
£0 - £8.82
£4.12 |
£8.40 - £38.50
£13.98 |
£0 - £25.72 £10.76 |
£9.88
N/A |
£0 - £38.50 £7.66 |
Gross ERV per sq ft per annum |
Range
Weighted average |
£3.50 - £10.83
£5.06 |
£7.40 - £38.50
£16.22 |
£9.50 - £27.50
£15.28 |
£9.60
N/A |
£3.50-£38.50 £9.52 |
Net initial yield (1) |
Range
Weighted average |
0% - 7.70%
5.88% |
3.38% - 8.99%
5.32% |
0.00%-15.35% 4.27% |
9.49%
N/A |
0% - 15.35% 5.25% |
Equivalent yield |
Range
Weighted average |
5.25% - 8.65%
7.02% |
4.37%-9.75% 6.14% |
5.04%-10.27% 6.81% |
8.61%
N/A |
4.37%-10.27% 6.69% |
Notes: (1) Yields based on rents receivable after
deduction of head rents, but gross of non-recoverables.
Sensitivity of measurement to
variations in the significant unobservable inputs
The significant unobservable inputs used in the fair value
measurement categorised within Level 3 of the fair value hierarchy
of the Group’s property portfolio, together with the impact of
significant movements in these inputs on the fair value
measurement, are shown below:
Unobservable input |
Impact on fair value measurement
of significant increase in input |
Impact on fair value measurement
of significant decrease in input |
Passing rent |
Increase |
Decrease |
Gross ERV |
Increase |
Decrease |
Net initial yield |
Decrease |
Increase |
Equivalent yield |
Decrease |
Increase |
There are interrelationships between the yields and rental
values as they are partially determined by market rate
conditions.
Notes to the Interim Report
(continued)
6. Investment property (continued)
The sensitivity of the valuation to changes in the most
significant inputs per class of investment property are shown
below:
Estimated movement
in fair value of investment properties at 30 September 2017
(unaudited) |
Industrial
£’000 |
Retail
£’000 |
Office
£’000 |
Other
£’000 |
Total
£’000 |
Increase in ERV by 5% |
5,440 |
6,644 |
5,117 |
369 |
17,570 |
Decrease in ERV by 5% |
(5,182) |
(5,693) |
(4,872) |
(280) |
(16,027) |
Increase in net initial yield by
0.25% |
(4,919) |
(6,157) |
(4,775) |
(375) |
(16,156) |
Decrease in net initial yield by
0.25% |
5,369 |
6,741 |
5,202 |
399 |
17,622 |
Estimated movement
in fair value of investment properties at 31 March 2017
(audited) |
Industrial
£000 |
Retail
£000 |
Office
£000 |
Other
£000 |
Total
£000 |
Increase in ERV by
5% |
5,002 |
6,405 |
5,765 |
271 |
17,442 |
Decrease in ERV by 5% |
(4,832) |
(5,882) |
(5,009) |
(198) |
(15,921) |
Increase in net initial yield by
0.25% |
(4,454) |
(5,952) |
(6,032) |
(363) |
(16,553) |
Decrease in net initial yield by
0.25% |
4,844 |
6,505 |
6,672 |
383 |
18,086 |
7. Investment in joint ventures
For the period 1 April 2016 to 30
September 2016 (unaudited)
|
|
£000 |
Opening balance as at 1 April
2016 |
|
77,959 |
Purchase of units in City Tower Unit
Trust to fund capital expenditure |
|
544 |
Share of profit for the period |
|
116 |
Distributions received |
|
(1,673) |
Amounts recognised as joint
ventures at 30 September 2016 |
|
76,946 |
For the year 1
April 2016 to 31 March 2017
(audited)
|
£000 |
Opening balance as at 1 April
2016 |
77,959 |
Purchase of units in City Tower Unit
Trust to fund capital expenditure |
544 |
Share of profit for the period |
1,670 |
Distribution received |
(3,273) |
Closing balance as at 31 March
2017 |
76,900 |
For the period 1 April 2017 to 30
September 2017 (unaudited)
|
|
£000 |
Opening balance as at 1 April
2017 |
|
76,900 |
Purchase of units in City Tower Unit
Trust to fund capital expenditure |
|
350 |
Share of profit for the period |
|
1,776 |
Distributions received |
|
(1,409) |
Amounts recognised as joint
ventures at 30 September 2017 |
|
77,617 |
Notes to the Interim Report
(continued)
8. Trade and other
receivables
|
|
Six
months to
30/09/2017 |
Six
months to
30/09/2016 |
Year
to
31/03/2017 |
|
|
£000 |
£000 |
£000 |
Rent receivable |
|
1,830 |
1,962 |
933 |
Sundry debtors and
prepayments |
|
15,282
|
15,602 |
25,569 |
|
|
17,112 |
17,564 |
26,502 |
Other debtors and receivables includes £10,450,000 (31 March 2017: £10,318,000, 30 September 2016: £10,165,000) in respect of
lease incentives. At the period end no amounts relate to
properties that had unconditionally exchanged but not completed
prior to period end (31 March 2017:
£12,629,000 Watford and
Bristol, 30
September 2016: £1,700,000 Bournemouth).
9. Cash and cash
equivalents
As at 30 September 2017 the group
had £24.9 million in cash (31 March 2017:£20.1 million,
30 September 2016: £14.5 million) of
which £2.5 million is held within the Canada Life security pool.
(31 March 2017: £1 million,
30 September 2016: £0.5 million)
10. Interest-bearing loans and
borrowings
The Group entered into a £129.6 million loan facility with
Canada Life on 16 April 2013 that has
20% of the loan maturing on 15 April
2023 and with the balance of 80% maturing on 15 April 2028, with a fixed interest rate of
4.77%.
On 17 July 2015 the Company
entered into a four year, £20.5 million revolving credit facility
with the Royal Bank of Scotland,
for the purpose of acquiring, Millshaw Park Industrial Estate. The
interest rate is based on the loan to value ratio as below:
- LIBOR + 1.60% if loan to
value is less than or equal to 60%
- LIBOR + 1.85% if loan to
value is greater than 60%
During the period the loan to value has remained less than 60%.
Since this loan has variable interest, an interest rate cap for
100% of the loan was entered into, which comes into effect if
GBP 3 month LIBOR reaches 1.5%.
As at 30 September 2017 the group
has a loan balance of £150.1 million and £1.7 million of
unamortised arrangement fees (31 March
2017: £150.1 million and £1.8 million of unamortised
arrangement fees, September 2016:
£150.1 million and £2.0 million of unamortised arrangement
fees).
Fair values are based on the present value of future cash flows
discounted at a market rate of interest. Issue costs are amortised
over the period of the borrowings. As at 30
September 2017 the fair value of the Group’s £129.6 million
loan with Canada Life was £143.6 million (31
March 2017: £143.9 million, 30
September 2016: £144.8 million).
Notes to the Interim Report
(continued)
11. Trade and other payables
|
|
Six
months to
30/09/2017 |
Six
months to
30/09/2016 |
Year
to
31/03/2017 |
|
|
£000 |
£000 |
£000 |
Rent received in
advance |
|
4,804 |
4,878 |
4,854 |
Rental deposits |
|
1,037 |
481 |
982 |
Interest payable |
|
1,391 |
1,391 |
1,391 |
Other payables and
accruals |
|
1,251 |
932 |
1,673 |
|
|
8,483 |
7,682 |
8,900 |
12. NAV per ordinary share
The NAV per ordinary share is based on the net assets of
£340,624,000 (31 March 2017:
£322,590,000, 30 September 2016:
£316,820,000) and 518,513,409 ordinary shares in issue at the
Statement of Financial Position reporting date (31 March 2017: 518,513,409 and 30 September 2016: 518,513,409).
13. Financial risk factors
The Directors are of the opinion that there have been no
significant changes to the financial risk profile of the Group
since the end of the last annual financial reporting period ended
31 March 2017 of which it is
aware.
The main risks arising from the Group’s financial instruments
and properties are market price risk, credit risk, liquidity risk
and interest rate risk. The Group is only directly exposed to
sterling and hence is not exposed to currency risks. The Board
regularly reviews and agrees policies for managing each of these
risks.
14. Related party
transactions
Material agreements are disclosed in note 2. The Directors’
remuneration for the period for services to the Group was £90,000
(31 March 2017: £180,000,
30 September 2016: £105,000).
Transactions with joint ventures are disclosed in note 7.
15. Capital Commitments
At 30 September 2017 the Group had
capital commitments of £3.2 million (31
March 2017: £4.9 million, 30
September 2016: £9.3 million).
16. Post balance sheet
events
Since the end of the period the Group has completed on the sale
of one property, Riverside Exchange, Sheffield for a price of £6.5 million, which
completed on the 20 October 2017
(included in the September 2017
financial statements as an investment property held for sale).
Corporate information
Registered Address
PO Box 255
Trafalgar Court
Les Banques
St. Peter Port
Guernsey GY1 3QL
Directors
Lorraine Baldry (Chairman)
Keith Goulborn (Senior Independent Director)
Stephen Bligh
Graham Basham
Alastair Hughes
(All Non-Executive Directors)
Investment Manager and Accounting Agent
Schroder Real Estate Investment Management Limited
31, Gresham Street
London
EC2V 7QA
Secretary, Administrator and Depository
Northern Trust International Fund Administration Services
(Guernsey) Limited
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3QL
|
Independent Auditor
KPMG Channel Islands Limited
Glategny Court
Glategny Esplanade
St. Peter Port
Guernsey GY1 1WR
Property Valuers
Knight Frank LLP
55 Baker Street
London
W1U 8AN
Joint Sponsor and Brokers
J.P. Morgan Securities plc
25 Bank Street
Canary Wharf
London E14 5JP
Numis Securities Limited
10 Paternoster Square
London EC4M 7LT
Tax Advisers
Deloitte LLP
2 New Street Square
London EC4A 3BZ
Receiving Agent and UK
Transfer/Paying Agent
Computershare Investor Services
(Guernsey) Limited
Queensway House
Hilgrove Street
St Helier
Jersey
JE1 1ES |
Solicitors to the Company
as to English Law:
Stephenson Harwood LLP
1 Finsbury Circus
London EC2M 7SH |
as to Guernsey Law:
Mourant Ozannes
1 Le Marchant Street
St. Peter Port
Guernsey GY1 4HP
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ISA
The Company’s shares are eligible for Individual Savings Accounts
(ISAs).
FATCA GIIN
5BM7YG.99999.SL.831 |
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