REG - Schroder Euro Real - Final Results
06/12/2023 07:00
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RNS Number : 7948V Schroder Eur Real Est Inv Trust PLC 06 December 2023
6 December 2023
SCHRODER EUROPEAN REAL ESTATE INVESTMENT TRUST PLC
("SEREIT"/ the "Company" / "Group")
FULL YEAR RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2023
DIVERSIFIED EUROPEAN PORTFOLIO'S INDEXATION CHARACTERISTICS DRIVES 31% GROWTH
IN EARNINGS AND FULLY COVERED DIVIDEND
Schroder European Real Estate Investment Trust plc, the company investing in
European growth cities and regions, announces its full year results for the
year ended 30 September 2023.
Portfolio indexation and low-cost fixed rate debt supporting earnings growth;
low LTV and significant investment firepower
· NAV of €171.4 million or 128.2 cps (30 September 2022: €188.2
million or 140.8 cps), reflecting the impact that challenging economic and
geo-political risks have had on asset valuations;
· Net Asset Value ("NAV") total return of -5.0% based on an IFRS
loss of €9.4 million (30 September 2022: 7.3% total return / €13.9 million
IFRS profit)
· Underlying EPRA earnings increased 31% to €8.0 million, or 6.0
cps (30 September 2022: €6.1 million, or 4.5 cps), driven by rental growth
and income from recently acquired Alkmaar asset underpinned by low cost, fixed
rate debt position
· Completed two refinancings on highly competitive terms and
repayment of a third debt facility, extending average loan maturity by 20
months to 2.6 years; low average interest cost of 2.9%, with 100% fixed or
hedged against interest rate movements
· Robust balance sheet, with low Loan to Value of 24% (net of cash)
and c.€30 million of cash providing significant investable capacity
Quarterly dividend fully covered by EPRA earnings
· Dividends declared for the year totalling 6.66 cps (FY22: 7.40
cps), with dividends declared in the six months to 30 September 2023 106%
covered by EPRA earnings
Yield expansion partially offset by contracted rental growth; alignment with
structurally supported sectors driving higher occupancy and rent collection
· Direct property portfolio independent valuation declined -8.5% to
€214.1 million, (or €18.5 million net of capex), reflecting between a 50
to 200 bps of outward yield shift, driven by economic and geo-political
uncertainty, investor re-pricing of risk and the availability and cost of debt
· Increased portfolio exposure to high growth industrial sector
with c. €11 million acquisition of an award winning property in Alkmaar, the
Netherlands, with excellent sustainability credentials and an exceptional
income profile given the 20 year term, covenant strength and 5.6% net initial
yield
· Maintained high portfolio occupancy level of 97%, with an average
portfolio lease term to break of 3.9 years
· 100% of rent due collected
· Contracted rent on a like for like basis (excluding Alkmaar
acquisition) increased 5.3% to €16.1 million (30 September 2022: €15.3
million)
· Concluded 15 new leases and re-gears generating €1.5 million of
contracted rent, at a weighted lease term of 3.6 years
· Further improvement to the portfolio's sustainability
credentials, with GRESB score improving from 83 to 85, maintaining 4 star
rating
Sir Julian Berney Bt., Chairman, commented:
"A resilient balance sheet, significant cash reserves and a covered dividend,
coupled with offering unique exposure to a diversified Continental European
portfolio, underpins our conviction that the Company continues to be a
compelling investment proposition. The attractive portfolio income
characteristics, exposure to high growth sectors and pipeline of asset
management activity should contribute to further earnings growth and enable us
to progress the dividend over time."
Jeff O'Dwyer, Fund Manager for Schroder Real Estate Investment Management
Limited, added:
"Our operational asset management expertise and diversified investment
strategy centred on liquid growth cities has helped to drive earnings and
offset macroeconomic volatility-led value erosion. We have remained prudent,
retaining cash and maintaining a low LTV. Coupled with the decision to rebase
the dividend and move to full cover, the company is in a strong position. We
continue to have conviction that investments with green certification will
outperform and that poorer quality assets will become increasingly obsolete
and illiquid."
The Annual Report and Accounts are also being published in hard copy format
and an electronic copy of that document will shortly be available to download
from the Company's webpage www.schroders.co.uk/sereit
(http://www.schroders.co.uk/sereit) . Please click on the following link to
view the document:
http://www.rns-pdf.londonstockexchange.com/rns/7948V_1-2023-12-5.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/7948V_1-2023-12-5.pdf)
A further announcement will be made shortly to confirm the full timetable of
the fourth interim dividend.
A presentation for analysts and investors will be held at 9 a.m. GMT/11 a.m.
SAST today. Registration for which can be accessed via:
https://registration.duuzra.com/form/SEREAnnual23
If you would like to attend, please contact James Lowe at Schroders
on james.lowe@schroders.com (mailto:james.lowe@schroders.com) or +44 (0)20
7658 2083.
Enquiries:
Jeff O'Dwyer 020 7658 6000
Schroder Real Estate Investment Management
Shilla Pindoria 020 7658 6000
Schroder Investment Management Limited
Dido Laurimore / Richard Gotla / Oliver Parsons 020 3727 1000
FTI Consulting Schroderrealestate@fticonsulting.com
(mailto:Schroderrealestate@fticonsulting.com)
Chairman's Statement
Overview
We are today announcing our audited results for the financial year to 30
September 2023, a challenging period given the backdrop of economic and
geopolitical uncertainty, investors' re-pricing of risk as well as the
availability and cost of debt.
These factors have resulted in a correction in real estate values, with yields
deteriorating between 50 and 200 basis points ('bps'), albeit offset by
indexation-led income growth.
The increase in government bond yields and appeal of other investments has
seen a shift in investor demand away from real estate, substantially impacting
investment volumes and resulting in the above-mentioned yield deterioration.
As a result, our diversified portfolio of 15 investments witnessed a
like-for-like valuation decline of 8.5% (net of capex) to €214.1 million, a
resilient performance when benchmarked against the wider UK listed real estate
peer group. This downward pressure has been mitigated by three factors:
1. the portfolio's indexation characteristics underpinning income
growth;
2. our focus on Winning Cities such as Berlin, Hamburg, Stuttgart,
Frankfurt and Paris, where both occupier and investor liquidity remains
strong; and
3. our exposure to higher growth sectors such as industrial.
In addition, the Company has substantial available cash of c.€29 million,
providing the flexibility to manage current headwinds. The valuation movement
resulted in a net asset value ('NAV') at the end of the financial year of
€171.4 million or 128.2 euro cents per share (111.0 pence per share).
Underlying EPRA earnings were €8.0 million for the period, reflecting an
increase of 31% against the previous year (FY22: €6.1 million). There
remains approximately €1.1 million of pre-tax profit from the Paris,
Boulogne-Billancourt ('Paris BB') disposal to be released in the NAV.
Our conservative approach has enabled us to maintain a robust balance sheet
with a modest loan to value ('LTV') of 24% net of cash. This provides us with
the flexibility to commit capital to improve the existing portfolio, resolve
the 2024 debt expiries and take advantage of attractive buying opportunities.
The Investment Manager has successfully re-financed two loans (German offices
and Dutch logistics) at margins equal to or below existing margins and is in
positive discussions with lenders on re-gearing 2024 expiries.
The Company continues to explore several sustainability-led capital
expenditure initiatives and has instructed two specialist ESG consultants to
undertake sustainability audits and net zero pathway modelling across the
majority of the portfolio. The aspirations are not only to improve the quality
of the portfolio, but also to assist in tenant retention and value enhancement
thereby ensuring the assets remain relevant to the occupiers, lenders and
investors who increasingly favour sustainable investments. The Investment
Manager's local operational expertise and sustainability understanding is
increasingly key to tenant retention, maximising occupancy, debt management
and driving returns. The result of these audits is expected in the early part
of 2024, following which the Company will provide an update on next steps.
We collected 100% of rent due during the period, and portfolio occupancy
remains strong at 97%, with c.50 tenants across multiple sectors ensuring
income is diversified and resilient. In the current environment, the portfolio
income offers an attractive inflation hedge with all leases subject to
indexation and c.80% annually indexed, an important benefit of European real
estate exposure in contrast with the UK.
Overall, we continue to see ERV maintaining pace with inflation as a result of
the allocation to growth sectors and sub-markets that are benefitting from
supply constraints and competing demands for uses.
Following the decision in June to rebase the dividend, reflecting the
potential impact of higher interest costs on the Company's earnings and more
patient capital deployment strategy, the quarterly dividend has been
maintained at 1.48 euro cents per share, resulting in the total dividend
declared for the year of 6.66 euro cents per share. Dividend cover for the
year stood at 89%, increasing to 106% for the last six months. Annualising the
quarterly dividend against the current share price of 67.4pps at 29 November
2023 provides an attractive dividend yield of 7.6%. The Board continue to see
this as highly appealing in the current environment particularly given the
strength of the portfolio, growth city exposure, cash position and favourable
balance sheet.
Strategy
Our strategy remains focused on delivering shareholders with an attractive
level of income together with the potential for income and capital growth
through investing in commercial real estate in Continental Europe. In the
Interim Report, I highlighted our decision to maintain a prudent approach,
focused on maintaining balance sheet strength and improving the quality and
liquidity of the existing portfolio through active management and capital
investment. There is a growing consensus that there is a meaningful rental and
value premium for buildings with green certifications, which we are seeing
across our own portfolio, and we believe there is an opportunity to
differentiate our strategy further by placing even greater emphasis on how
sustainability-led asset improvements will deliver enhanced returns for
shareholders. This reflects our strong conviction that transforming less
sustainable buildings into modern, fit for purpose assets, will help to
deliver enhanced returns and support the wider real estate industry in
reaching its net zero carbon targets. This sustainable approach will also be
beneficial to our tenants, local communities and portfolio performance.
The portfolio remains diversified, managed by local sector specialist teams
who are recognised for their operational excellence and hospitality mindset.
Approximately 33% of the portfolio by value is offices, all of which are in
supply-constrained locations and leased off affordable rents. Our retail
exposure of 16% comprises DIY and grocery investments in densely populated
urban areas and sectors that are performing strongly. During the period, the
industrial allocation increased to 29% following the acquisition of an €11
million industrial investment in Alkmaar, the Netherlands. The investment
improves the diversification and quality of the portfolio from a construction,
sustainability and income perspective, particularly given it is a 20-year sale
and leaseback on a strong covenant. 10% of the portfolio is allocated to the
alternatives sector, comprising a mixed-use data centre and a car showroom,
with the remaining 12% in cash. The portfolio maintained strong occupancy over
the period with all assets fully leased except for the Saint-Cloud office
investment that averaged approximately 85% occupancy over the year.
Balance sheet and debt
Risks around debt management have escalated over the year, driven by the shift
in bank lending as lenders become more discerning on the quality of assets,
sector and the counterparty. At year end, third party debt totalled €85.5
million (including the share of the joint venture), representing a LTV net of
cash of 24% against the overall gross asset value of the Company. This low
gearing is an attractive point of difference relative to other listed
vehicles. The Company has six loans secured against individual assets or
groups of assets, with no cross-collateralisation between loans. The average
weighted total interest rate of the loans is 2.9% per annum and 100% is fixed
or hedged against movements in interest rates. The weighted average duration
of the loans is 2.6 years, with the earliest loan maturity in March 2024.
Over the period, two refinancings were completed on highly competitive terms
which is testament to the Investment Manager's banking relationships,
management expertise and portfolio strategy. In Germany, the refinancing of
the Company's offices in Hamburg and Stuttgart was concluded at a margin of
85bps and subject to no covenants. In the Netherlands, we switched lenders,
resulting in a slight reduction in the margin from 215bps to 200bps. In both
instances, we increased the loan principal by c.€4 million each. This
allowed for the subsequent repayment of the Rumilly, France logistics loan and
further capacity to manage 2024 expiries. Further detail on the individual
loans is provided in the Investment Manager's Report.
Dividends
The Board has elected to continue with the 1.48 euro cps quarterly dividend,
bringing the total dividend announced in relation to the financial year to
6.66 euro cents per share. Dividend cover for the period was 89%, increasing
to 106% for the last six months. This follows the decision in June to re-base
the dividend to a quarterly minimum dividend of 80% of the then current level.
This decision was not taken lightly, but as we stated at the time, our
priority is to protect shareholder value over the long term. It provides
significant flexibility, enabling us to pay a covered dividend that can be
grown over time.
Sustainability
The Board and the Investment Manager believe that focusing on sustainability
throughout the real estate lifecycle will deliver enhanced long-term returns
for shareholders as well as a positive impact to the environment and the
communities where the Company is investing. Our research and the evidence
across the portfolio demonstrates that there is a material rental and value
premium for buildings with green certifications. There is increasing pressure
on minimum building standards not only from an EPC perspective but data
coverage (for water, gas, electricity and waste) and ultimately carbon
footprint. Demand from occupiers for space is increasingly biased towards
better quality buildings, driven not only by legal obligations and tenant
environmental aspirations but as a means to match corporate ethos and attract
talent.
Sustainability-led initiatives, which may include on-site renewable energy,
improved insulation and lighting will be increasingly important to the
strategy and the Investment Manager is carrying out a comprehensive review of
the sustainability characteristics of the portfolio encompassing building
fabric, energy systems, services and utilities, climate risk and resilience,
water consumption, waste management, biodiversity and green infrastructure,
transport and mobility, health and wellbeing, community and social
integration. This analysis will inform a baseline score across a range of
quantitative and qualitative factors against which we will measure future
improvements at an asset level to enable us to provide transparent reporting
to stakeholders.
Board Succession
We recently announced the appointment of Mark Beddy to the Board from 1
January 2024. Mark is a former senior audit partner of a leading global
accounting firm with proven European real estate experience. The plan is for
Mark to succeed Jonathan Thompson at the conclusion of the AGM in March 2024,
replacing him as the Chairman of the Audit, Valuation and Risk committee. His
expertise is well suited to this role, and we welcome his addition. I would
like to take this opportunity to thank Jonathan for his work and direction
since the IPO in 2015. We continue to look at other candidates to improve and
diversify the Board's strategic and governance expertise.
Outlook
European economies continue to face headwinds and growth is expected to be
subdued for the short term, particularly given the expectation for the ECB to
maintain its restrictive monetary policy stance and adverse credit conditions.
Although we are seeing inflationary pressures dampen, and despite strong
labour markets, the higher interest rate environment is impacting investor
sentiment, disposable incomes and household demand. In terms of real estate
values, we are starting to see transaction evidence that supports valuations
and provides confidence in the Company's NAV.
We retain our conviction in the strategy and diversified real estate approach,
targeting liquid growth cities with a bias towards France and Germany. The
portfolio's strong occupancy, income indexation and recent re-financing
success support the current dividend, which is now well covered, and should
underpin earnings growth for this financial year and beyond. We will continue
to manage the portfolio conservatively, maintaining a prudent balance sheet
whilst progressing selective capital investment in the existing portfolio or
adding attractively priced investment opportunities.
Finally, as sustainability considerations become even more important for
investors, lenders and occupiers, we are making good progress evolving our
strategy, which we believe should differentiate the Company further and help
to drive more sustainable, long-term returns. We anticipate providing details
on this strategy during the first half of 2024.
Sir Julian Berney Bt.
Chairman
5 December 2023
Investment Manager's Report
Financial Results
The net asset value ('NAV') as at 30 September 2023 stood at €171.4 million
(£148.7 million), or 128.2 euro cents (111 pence per share), compared with
€188.2 million, or 140.8cps, as at 30 September 2022.
During the period, dividends totalling €7.4 million were paid, which
resulted in a NAV total return of -5.0%.
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 euro cents per share.
€m1 cps2
NAV as at 1 October 2022 188.2 140.8
Unrealised loss in the valuation of the real estate portfolio3 (15.7) (11.7)
Capital expenditure3 (2.8) (2.1)
Transaction costs3 (1.2) (0.9)
Paris, Boulogne-Billancourt post-tax development profit 1.5 1.1
Movement on the Seville JV investment 0.0 0.0
EPRA earnings4 8.0 6.0
Non-cash/capital items 0.8 0.6
Dividends paid5 (7.4) (5.6)
NAV as at 30 September 2023 171.4 128.2
1 Management reviews the performance of the Company principally on
a proportionally consolidated basis. As a result, figures quoted in this table
include the Company's share of the Seville joint venture on a line-by-line
basis.
2 Based on 133,734,686 shares.
3 The unrealised loss in the valuation of the real estate of the
portfolio (€15.7m), net of capital expenditure (€2.8m), net of transaction
costs (€1.2m) reconciles to the 'net (gain)/loss from fair value adjustment
on investment property' (€19.7m) on page 79 of the financial statements.
4 EPRA earnings as reconciled on page 94 of the financial
statements.
5 Dividends of 5.55cps were paid during the financial year.
Announced dividends relating to the current financial year, however, were
6.66cps with dividend payments for June 2023 and September 2023 quarters are
yet to be paid in November 2023 and January 2024 (i.e. 2.96cps are yet to be
paid). For more information, please refer to page 42.
The direct portfolio, net of capital expenditure, decreased in value by
€18.5 million mainly as a result of a yield re-rating of the underlying real
estate.
Acquisition costs totalling €1.2 million were incurred relating to the
acquisition of a Dutch industrial asset in Alkmaar.
Having crystallised much of the profit from the Paris BB sale last year, an
additional €1.5 million of profit was released into the NAV this financial
year due to final development costs remaining significantly below budget.
There remains approximately €1.1 million of pre-tax profit from the Paris BB
disposal to be released in the NAV.
Non-cash items of €0.9 million mainly result from reduced deferred taxes due
to lower real estate portfolio values.
EPRA earnings for the period totalled €8.0 million, or 6.0cps, an increase
of €1.9 million or 31%, on the prior financial year of €6.1 million. This
increase was driven by rental growth in the existing portfolio, a positive
contribution from the Alkmaar asset acquired in early 2023 and was underpinned
by low cost fixed-rate debt.
Our strategy
Investment objective
Schroder European Real Estate Investment Trust plc (the 'Company'/'SEREIT')
aims to provide shareholders with a regular and attractive level of income
together with the potential for income and capital growth through investing in
commercial real estate in Continental Europe.
Investment strategy
The strategy to deliver this, and progress made during the year and since year
end, is set out below:
1 Maximising shareholder value through active asset management.
2 Improving the defensive qualities of the portfolio in light of changing
social, economic and geopolitical risks.
3 Applying a research-led approach to determine attractive sectors and
locations in which to invest in commercial real estate.
4 Increasing exposure to higher growth Winning Cities and Regions.
5 Actively managing the Company and its assets, drawing on the expertise
of our sector specialists to maximise shareholder returns and evolve the
Company's active asset management approach that is focused on operational
excellence.
6 Advancement of sustainability and net zero carbon audits across the
majority of the portfolio with a view to improving asset green certification,
rental growth potential and liquidity.
7 Applying our integrated sustainability and Environmental, Social and
Governance ('ESG') approach at all stages of the investment process and asset
lifecycle.
8 Managing the Company prudently and efficiently by controlling costs and
maintaining a strong balance sheet.
Portfolio performance
During the 12 months' period, total property returns for the underlying
property portfolio were negative at -2.1%, despite healthy property income
returns of +6.3%. This was due to negative property capital returns of -8.0%
net of capex as real estate values decreased over the period, primarily driven
by a 100 basis points outward yield movement, which more than offset the
positive impact of rental growth. The portfolio net initial yield increased to
6.6%.
The strongest contributors to portfolio performance over the last 12 months
were Venray II (17.5% total return 'TR' due to strong capital appreciation);
Apeldoorn (9.8% TR as a result of very strong income); and Alkmaar (5.9% TR
due to income return coupled with a positive capital return).
The main detractors from portfolio performance were office assets Hamburg
(-6.0% TR) and Stuttgart (-7.1% TR) and the industrial assets Rennes (-7.1%
TR) and Houten (-9.2%) as these assets witnessed the largest value declines.
The real estate portfolio delivered ungeared property returns of 3.7% p.a.
over three years and 6.8% p.a. over five years.
Real estate portfolio
As at 30 September 2023, the portfolio comprised 15 institutional grade
properties valued at €214.1 million. In addition, the Company has a 50%
interest in a joint venture in Seville, Spain which continues to be recognised
at nil interest and which is therefore excluded in all relevant statistics in
the Chairman's Statement and the Investment Manager's Report.
The portfolio generated rental income of €16.81 million per annum,
reflecting a net initial yield of 6.6%. The independent valuers' estimated
rental value ('ERV') of the portfolio is €16.0 million per annum.
The real estate portfolio is diverse with income from a range of occupiers
across different sectors and industries. The diversified nature and the
strength of underlying tenants, coupled with the fact the assets are typically
leased off affordable and sustainable rents, should support relatively
resilient portfolio income in a weaker economic environment and a more
challenging period for consumers and businesses.
The Dutch industrial acquisition has increased the portfolio's industrial
exposure to 29%. Other key allocations include 33% to offices in leading
cities such as Paris, Stuttgart and Hamburg and 16% to a Berlin DIY asset and
a convenience retail centre in Frankfurt. Remaining allocations of 10% are to
the alternatives sector comprising a mixed-use data centre and car showroom
and 12% in cash. At the period end the portfolio void rate was 3%, calculated
as a percentage of estimated rental value. The portfolio weighted average
lease length, calculated to the earlier of lease expiry or break, is 3.9
years.
European leases typically provide for rents to be indexed to inflation. The
majority (80%) of the Company's income is subject to annual indexation with
the remaining 20% linked to a hurdle (typically 10%), hence we expect nearly
all the leases to directly benefit from inflation.
1 Represents the annualised contracted rents as at 30 September
2023 of the direct portfolio.
Portfolio Overview
The Company owns a diversified portfolio of commercial real estate in
Continental Europe with favourable property fundamentals. The Company has
targeted assets located in Winning Cities and Regions and in high-growth
sectors. Winning Cities and Regions are those that are expected to generate
higher and more sustainable levels of economic growth, underpinned by themes
such as urbanisation, demographics, technology and infrastructure
improvements.
Number of properties1
15
Portfolio value1,2
€243.0m
Number of tenants1
47
Occupancy1
97%
Top ten properties
Property Sector Value
(€m/% portfolio)(1,2)
1 France, Paris (Saint-Cloud) Office €38.1m/16%
2 Germany, Berlin Retail/DIY €28.6m/12%
3 Germany, Hamburg Office €22.9m/9%
4 Germany, Stuttgart Office €19.5m/8%
5 France, Rennes Industrial €18.8m/8%
6 The Netherlands, Apeldoorn Mixed €15.4m/6%
7 The Netherlands, Alkmaar Industrial €11.5m/5%
8 The Netherlands, Venray Industrial €11.1m/5%
9 Germany, Frankfurt Retail/grocery €11.1m/5%
10 France, Rumilly Industrial €9.8m/4%
Remaining five properties shown on the map are:
11 The Netherlands, Houten - Industrial
12 France, Cannes - Car showroom
13 France, Nantes - Industrial
14 The Netherlands, Utrecht - Industrial
15 The Netherlands, Venray II - Industrial
1 Excludes the Seville property for which the NAV exposure is nil.
2 Reflects the value of directly held property assets of €214.1m
and available cash of €28.9m (internally calculated).
The table below sets out the portfolio's top ten tenants by contracted rent,
which are from a diverse range of industry segments and represent 70% of the
portfolio1.
Top Ten Tenants
Rank Tenant Industry Property Contracted rent WAULT break (yrs) WAULT expiry (yrs)
€m % of total
1 KPN Telecom Apeldoorn 3.0 17% 3.3 3.3
2 Hornbach DIY Berlin 1.8 11% 2.3 2.3
3 C-log Logistics Rennes 1.2 7% 7.4 7.4
4 Outscale IT Paris 1.0 6% 5.7 8.8
5 Filassistance Insurance Paris 0.9 6% 0.3 3.3
6 DKL Logistics Venray 0.8 5% 5.0 5.0
7 Cereal Partners Consumer staples Rumilly 0.8 5% 1.6 2.6
8 LandBW Government Stuttgart 0.8 5% 2.8 2.8
9 Schuurman Beheer Manufacturing Alkmaar 0.7 4% 14.5 19.5
10 Inventum Manufacturing Houten 0.7 4% 6.3 6.3
Total top ten tenants 11.7 70% 4.3 5.2
Remaining tenants 5.1 30% 2.8 3.7
Total 16.8 100% 3.9 4.7
1 Excludes the Seville property for which the NAV exposure is nil.
The largest tenant is KPN, representing 17% of the portfolio's contracted
rent. KPN are a leading telecommunications and IT provider and market leader
in the Netherlands. They occupy our mixed-use Apeldoorn asset (data centre and
office).
The second largest tenant is Hornbach, the sole occupier of our Berlin DIY
asset with a four hectare site that benefits from alternative use potential.
Hornbach (presenting 11% of contracted rents) are a leading Germany-based
operator of Do-it-yourself ('DIY') stores and home centres with strong
financials.
The remaining large tenants, with businesses across a diversified range of
industries, each account for between 4%-7% of portfolio rents. These include
C-log, Outscale, Filassistance, DKL, Cereal Partners, Land Badenwürttemberg,
Schuurman Beheer and Inventum.
Rent collection update1
The diversification and granularity of the underlying rental income and
ongoing occupier engagement, has again supported full rent collection rates
with 100% of the contracted rents collected for the financial year.
As at 30 September 2023 Office Industrial Retail Mixed Total portfolio
2023 2022 2023 2022 2023 2022 2023 2022 2023 2022
Paid 99.3% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 99.8% 100.0%
Deferred 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Renegotiated/Outstanding 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Total 99.3% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 99.8% 100.0%
1 Rent collection table excludes the Seville property for which
the NAV exposure is nil. 2022 refers to the SEREIT 2022 full year period
between Q4 2021 and Q3 2022. 2023 refers to the SEREIT 2023 full year period
between Q4 2022 to Q3 2023.
2 Payment delayed for one tenant at Paris Saint Cloud for the Q3
2023 period due to a processing error which is being corrected.
Indexation
Across the direct portfolio, almost all of the contracted rents are subject to
indexation clauses and all tenants have complied with payments in accordance
with their respective indexation clauses. Indexation rules across the
portfolio can be summarised as follows:
France
100% of leases subject to annual review and fully index-linked subject to
Indice des Ioyers des activités tertiaries ('ILAT')
The Netherlands
100% of leases are subject to annual review and are index‑linked to the
Netherlands CPI with:
· 87% of leases being fully index-linked; and
· 13% of leases being fully indexed up to 2.5% annual inflation and
partially (25%-50%) thereafter.
Germany
96% of leases are linked to the German CPI, with:
· 31% being fully index-linked; and
· a further 65% being subject to a '10% hurdle' after which
cumulative inflation is added to leases.
Balance sheet
During the financial year, the Company successfully completed several
initiatives related to its debt portfolio at competitive terms. As a result,
it has extended the average loan maturity by 20 months and has established two
new funding relationships further complementing existing strong relationships
with financing partners. In detail:
· The Company refinanced its largest debt expiry, a loan secured
against its Hamburg and Stuttgart office investments. The loan facility was
also extended by a further €4 million and competitive financing for the new
€18 million loan was obtained from VR Bank Westerwald.
· Refinancing of the Netherlands debt expiry in September 2023 was
achieved with ABN Amro on competitive terms and the facility was extended by a
further €4.5 million to €13.76 million by adding two unlevered industrial
assets in Alkmaar and Venray as security. The new facility has a five-year
term and the interest rate was fixed at a margin of 2.0% with all-in rate of
5.3%.
· A loan facility of €3.7 million secured against the Rumilly asset
expired in April 2023 and was repaid with the additional debt raised from the
new Hamburg/Stuttgart loan.
The Company's third party debt totals €85.5 million across six loan
facilities as at 30 September 2023. This represents a loan to value ('LTV')
net of cash of 24% against the Company's gross asset value (gross of cash LTV
is 33%). There is a net of cash LTV cap of 35% that restricts concluding new
external loans if the Company's net LTV is above 35%. An increase in leverage
above 35% as a result of valuation decline is excluded from this cap. The
current blended all-in interest rate is 2.9% and the average remaining loan
term is 2.6 years.
The Company is in positive discussions with lenders regarding its debt
expiries secured against the Paris Saint-Cloud and the Rennes assets and is
confident in its ability to refinance these loans. In relation to the Paris
loan expiry, management have agreed heads of terms with a lender to extend the
financing. A formal announcement will be made once signed.
The individual loans are detailed in the table below. Each loan is held at the
property-owning level instead of the group level and is secured by the
individual properties noted in the table. There is no cross-collateralisation
between loans. Each loan has specific LTV and income default covenants. We
detail the headroom against those covenants in the latter two columns of the
table below.
Lender Property Maturity date Outstanding principal Interest rate Headroom LTV default covenant Headroom net income default covenant
(% decline) (% decline)
VR Bank Westerwald Stuttgart/Hamburg 30/12/2027 €18.00m 3.80% No covenant No covenant
BRED Banque Populaire Paris (Saint-Cloud) 15/12/2024 €17.00m 3M Eur +1.34% 26% 32%
Deutsche Pfandbriefbank AG Berlin/Frankfurt 30/06/2026 €16.50m 1.31% 35% 44%
ABN Amro The Netherlands industrials1 27/09/2028 €13.76m 5.30% 31% 32%
Münchener Hypothekenbank eG Seville (50%)2 22/05/2024 €11.68m 1.76% In breach3 In cash trap
Landesbank SAAR Rennes 28/03/2024 €8.60m 3M Eur +1.40% 24% 58%
Total €85.54m
1 The ABN Amro loan is secured against five of the Netherlands
industrial assets: Alkmaar, Venray, Houten, Utrecht and Venray II.
2 Includes the Company's 50% share of external debt in the Seville
joint venture of €11.7 million and excludes unamortised finance costs.
3 Temporary waiver for breach of LTV covenant in Seville agreed
with the lender.
· At Seville, the loan continues to be in breach of its loan
covenants. All excess income generated by Seville is pledged to the lender.
The Seville loan is being managed under an LTV covenant waiver to facilitate a
sale. The loan is secured solely against the Seville investment, with no
recourse back to the Company or any other entity within the Group.
· The German, Dutch and Spanish loans are fixed rate for the duration
of the loan term. The French loans are based on a margin above three-month
Euribor.
· The Company has acquired interest rate caps to limit future
potential interest costs if Euribor were to increase. The combined fair value
of the derivative contracts is €0.7 million as at 30 September 2023. The
strike rates on the interest rate caps are between 1.0% p.a. and 1.25% p.a.
Details of individual interest derivative contracts were as follows:
· Paris, Saint-Cloud loan with BRED Banque Populaire: two caps
totalling the full €17.0 million of the loan which expire on 15 December
2024 with a strike rate of 1.25%; and
· Rennes loan with Landesbank SAAR: a cap totalling the full €8.6
million of the loan which expires on 27 March 2024 with a strike rate of 1%.
Outlook
The financial year was characterised by rapid growth in energy prices,
persistent inflation, rising interest rates, market volatility and European
recession concerns. This led to a shift away from equity investments and a
sharp correction in real estate values. Despite this, our operational asset
management expertise and diversified investment strategy centred on liquid
growth cities has helped to shelter large value erosion. The decision to
remain conservative, retaining cash and a strong balance sheet, together with
a move to a covered dividend approach, has placed the Company in a strong
position.
As we move through 2023/24 a number of headwinds facing investment markets
look to be easing, led largely by inflation and interest rates peaking. We
continue to have conviction that investments with green certification will
outperform and that poorer quality assets will become increasingly obsolete
and illiquid. As such, we have commissioned sustainability audits across the
majority of the portfolio to identify ways for each investment to remain
attractive to occupiers, investors and lenders. The output from these audits
over early 2024 will help in our capital deployment, earnings and overall
growth potential. We remain committed to the strategy and our ability to
position the vehicle to maximise shareholder returns.
Jeff O'Dwyer
Fund Manager
5 December 2023
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, Valuation and Risk 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 2023.
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.
From an emerging risks and uncertainties perspective, the Board recognises and
continues to be mindful of the changing global environment and the risks posed
by volatile markets; inflation and corresponding interest rate increases;
geopolitical uncertainty; structural changes; sustainability; and occupier
preferences which could affect the use and prospects of some real estate
sectors. The Board receives regular updates on those macro risks from the
Investment Manager. Overall, the diversification of the Company's portfolio
and its evolving strategy to place greater emphasis on sustainability-led
asset improvements is expected to help minimise the impact of these factors.
The Board keeps these matters under review, particularly in connection with
its decisions to redeploy investable cash.
During the year, the Board has redefined certain of its principal risks,
especially the emerging risk relating to the sustainability and ESG
credentials of the portfolio as its sustainability becomes a greater focus for
the Company. The Board no longer considers Covid-19 to be a principal risk as
the property markets have adapted to the threats posed. The previously
identified principal risk of 'Accounting, legal and regulatory (including
tax)' has now been consolidated into a single principal risk, 'Regulatory
compliance'.
A summary of the principal risks and uncertainties faced by the Company, and
actions taken by the Board to manage and mitigate these risks and
uncertainties, are set out below.
Principal risks Mitigation of risk
Investment and strategy The Board seeks to mitigate these risks by:
An inappropriate investment strategy, or failure to implement the strategy, o Diversification of its property portfolio through its investment
could lead to underperformance in the property portfolio compared to the restrictions and guidelines which are monitored and reported on by the
property market generally by incorrect sector or geographic weightings or a Investment Manager.
loss of income through tenant failure, both of which could lead to a fall in
the value of the underlying portfolio. o Receiving from the Investment Manager timely and accurate management
information including performance data, attribution analysis, property level
business plans and financial projections.
o Monitoring the implementation and results of the investment process with
the Investment Manager with a separate meeting devoted to strategy each year.
o Determining a borrowing policy, and ensuring the Investment Manager
operates within its borrowing restrictions and guidelines.
o Reviewing marketing and distribution activity, and considering the use of
a discount control mechanism as necessary.
o Undertaking an annual review of the ongoing suitability of the Investment
Manager.
Economic and property market The Board considers economic conditions and the uncertainty around political
events when considering investment decisions. The Board mitigates property
The performance of the Company could be affected by economic, currency and market risk through the review of the Company's strategy on a regular basis
property market risk. In the wider economy this could include inflation, and discussions are held to ensure the strategy is still appropriate or if it
stagflation or deflation (including in respect of costs such as construction needs updating. Diversification of the majority of the portfolio across the
costs and operating expenses), economic recessions, movements in foreign office and industrial/logistics sectors in growth cities, and focus on
exchange and interest rates or other external shocks. The performance of the functional and affordable space, provides defensive characteristics.
underlying property portfolio could also be affected by structural or cyclical
factors impacting particular sectors (for example, retail) or regions of the
property market and counterparty solvency.
The portfolio also benefits from a high percentage (approximately 100%) of
inflation-linked leases which contributes to rental growth and mitigates value
declines.
The assets of the Company are almost all denominated in non-sterling
currencies, predominantly the euro. No currency hedging is planned, but the
Board continues to consider the hedging of dividend payments having regard to
availability and cost.
Sustainability The Manager's Investment Committee has a continued focus on sustainability to
help ensure sustainability and impact ('S&I') risks and opportunities are
Sustainability considerations, including transition risks and physical risks appropriately integrated in investment decision-making through the whole asset
(as defined by the Task Force on Climate-related Financial Disclosures life cycle. As part of the sustainability review, the Investment Manager has
('TCFD'), explained further on pages 99 to 101 of these accounts), are not commissioned sustainability audits to benchmark the assets against a
fully considered or properly understood in the acquisition and asset-planning scorecard. This seeks to assess physical and transition climate risks
processes leading to future issues (negative effect on price, valuation or alongside a range of other S&I factors, including for example natural
saleability of assets, future costs to remediate, meeting the requirements of resource management, indoor environmental quality and access to community
initiatives such as Net Zero Carbon/Climate Risk/BREEAM/EPC profile/GRESB). facilities, to develop a holistic understanding of the sustainability
credentials of prospective investments. Each asset scorecard is to be updated
annually to demonstrate score progress and evaluate any changes to the
sustainability risk profile. Impact and Sustainability Action Plans are
completed for all directly managed assets in order to plan and manage
sustainability interventions identified through the scorecard.
The Board regularly reviews the objectives and progress of the Sustainability
programme.
The Investment Manager is in the final stage of successfully transitioning to
Deepki, a new sustainability data management platform, designed to better
understand and drive sustainability performance through enhanced data
analytics. Deepki will be the main system used for collating sustainability
data for the Company's portfolio which is then reported to the Manager, Board
and investors.
Furthermore, the Board is provided with independent, third-party assurance
over the reported sustainability performance data disclosed in annual reports
and other external submissions (e.g. GRESB), which is delivered by an external
verification specialist.
Valuation External valuers provide independent valuation of all assets at least
quarterly. The Audit, Valuation and Risk Committee includes two experienced
Property valuations are inherently subjective and uncertain, due to the chartered surveyors. Members of the Audit, Valuation and Risk Committee meet
individual nature of each property and its liquidity, particularly under with the external valuers to discuss the basis of their valuations and their
stressed market conditions. quality control processes on a quarterly basis.
Valuations also include annual reinstatement costs for insurance purposes.
Inflation and availability of goods and services, could heighten the risk
around correct reinstatement values and completion programmes.
Gearing and leverage Gearing, including covenant compliance, is monitored at quarterly Board
meetings, and ad hoc as required, and strict restrictions on borrowings are
The Company utilises credit facilities. These arrangements increase the funds imposed both internally and by lenders. The overall cost of debt is regularly
available for investment through borrowing. While this has the potential to reviewed with any new debt or refinancing presented to the Schroders Real
enhance investment returns in rising markets, in falling markets the impact Estate Investment Committee and Board for approval.
and availability of financing could be detrimental to performance, and may
also result in potential non-compliance with loan covenants or refinancing
risk.
All loans due to expire in the 2023 financial year were either successfully
refinanced in good time or were repaid. All future loan refinancings are
monitored closely and proactive discussions with third-party lenders commence
well in advance of existing loan maturity dates to reduce refinancing risk.
Furthermore, the Group's strong cash position continues to provide viable
future alternatives should the Group deem that loan repayments, in part or in
full, would be beneficial.
In relation to the Seville asset, the Company is working closely with the
lender to manage the asset under an LTV covenant breach waiver to facilitate a
sale. The loan is secured only by the asset and there is no recourse to the
Company, or any other entity in the Group.
Regulatory compliance The Board has appointed the Investment Manager as its Alternative Investment
Fund Manager ('AIFM') in accordance with the Alternative Investment Fund
The Company has to comply with a wide range of legislation and regulations, Managers Directive ('AIFMD').
covering planning, health and safety, Company law, accounting, reporting, tax
and Listing Rules.
The Investment Manager monitors legal requirements to ensure that adequate
procedures and reminders are in place to meet the Company's legal requirements
and obligations. The Investment Manager undertakes full legal due diligence
with advisers when transacting and managing the Company's assets. All
contracts entered into by the Company are reviewed by the Company's legal and
other advisers.
The Board is satisfied that the Investment Manager hasadequate procedures in
place to ensure continued compliance with the regulatory requirements of the
Financial Conduct Authority, the Listing Rules of the London Stock Exchange
and any other required authority.
The Investment Manager has retained external tax advisers, who are overseen by
the Schroders tax team, to ensure compliance with relevant local tax
regulations.
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, Valuation and Risk 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,
Valuation and Risk Committee's ongoing risk assessment which has been in place
throughout the financial year and up to the date of this report. The Board is
satisfied that it has undertaken a detailed review of the risks facing the
Company.
A full analysis of the financial risks facing the Company and its subsidiaries
is set out in note 22 on pages 88 to 90.
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 commencing from
the date of this report 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. 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 2.6 years and
the average unexpired lease term, assuming all tenants vacate at the earliest
opportunity, is 3.9 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 33 and 34, which could negatively impact its ability to deliver the
investment objective, strategy, liquidity and solvency. This includes
consideration of scenario stress testing and 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, general liquidity
requirements and potential legal and regulatory change for a five-year period.
These metrics are subject to a sensitivity analysis which involves flexing a
number of the main assumptions including macro-economic scenarios, delivery of
specific asset management initiatives, rental growth and void/reletting
assumptions. The Board also reviews assumptions regarding capital recycling
and the Company's ability to refinance or extend financing facilities. Steps
which are taken to mitigate these risks as set out in the Strategic Review on
pages 33 and 34 are also taken into account.
Based on the assessment, and having considered in detail base and downside
scenarios modelling, 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 Board believes it is appropriate to adopt the going concern basis in
preparing the financial statements. A comprehensive going concern statement
setting out the reasons the Board considers this to be the case is set out in
note 1 on page 68.
By order of the Board
Sir Julian Berney Bt.
Chairman
5 December 2023
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulation.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have prepared the Group and the
Company financial statements in accordance with UK-adopted international
accounting standards and applicable law. Under company law, 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 the
financial statements, the Directors are required to:
· select suitable accounting policies and then apply them
consistently;
· state whether applicable UK-adopted international accounting
standards have been followed for the Group financial statements and the
Company financial statements, subject to any material departures disclosed and
explained in the financial statements;
· make judgements and accounting estimates that are reasonable and
prudent; and
· prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the Group and Company will continue in
business.
The Directors 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 Directors are also responsible for keeping adequate accounting records
that are sufficient to show and explain the Group's 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 comply with the Companies Act 2006.
The Investment Manager is responsible for the maintenance and integrity of the
Company's web pages. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
Directors' confirmations
The Directors consider that 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.
Each of the Directors, whose names and functions are listed in the Directors'
Report confirm that, to the best of their knowledge:
· the Group and Company financial statements, which have been
prepared in accordance with UK-adopted international accounting standards,
give a true and fair view of the assets, liabilities, financial position and
profit of the Company; and
· the Strategic Report includes a fair review of the development and
performance of the business and the position of the Group and the Company,
together with a description of the principal risks and uncertainties that it
faces.
On behalf of the Board
Sir Julian Berney Bt.
Chairman
5 December 2023
Consolidated and Company Statements of Comprehensive Income
For the year ended 30 September 2023
Note Group year to Group year to Company year to 30/09/23 Company year to 30/09/22
30/09/23 30/09/22 €'000 €'000
€'000 €'000
Rental and service charge income 3 19,666 18,153 - -
Property operating expenses 4 (5,398) (5,516) - -
Net rental and related income 14,268 12,637 - -
Net gain/(loss) from fair value adjustment on 13 (19,726) 6,351 - -
investment property
Development revenue 14 405 17,942 - -
Development expense 14 1,133 (15,436) - -
Realised gain/(loss) on foreign exchange (12) 77 (12) 77
Net change in fair value of financial instruments at fair value through profit (260) 921 - -
or loss
Management fee income 5 - - 1,503 1,623
Provision on loan receivable from joint venture 6 - (444) - -
Dividends received 8,16 - - 509 1,100
Expenses
Investment management fee 5 (1,981) (2,198) (1,981) (2,198)
Valuer's and other professional fees (788) (981) (347) (495)
Administrator's and accounting fees (566) (453) (120) (128)
Auditor's remuneration and assurance fees 7 (335) (333) (324) (313)
Directors' fees 9 (232) (217) (232) (217)
Other expenses 9 (442) (613) (313) (312)
Total expenses (4,344) (4,795) (3,317) (3,663)
Operating (loss)/profit (8,536) 17,253 (1,317) (863)
Finance income 228 451 2,086 1,851
Finance costs (1,714) (1,128) - (6)
Net finance (costs)/income (1,486) (677) 2,086 1,845
Share of loss from joint venture 16 - - - -
(Loss)/Profit before taxation (10,022) 16,576 769 982
Taxation 10 640 (2,585) - (242)
(Loss)/Profit for the year (9,382) 13,991 769 740
Other comprehensive (loss)/income:
Other comprehensive (loss)/income items that may be reclassified to profit or
loss:
Currency translation differences - (73) - (73)
Total other comprehensive (loss)/profit - (73) - (73)
Total comprehensive (loss)/income for the year (9,382) 13,918 769 667
Basic and diluted earnings per share attributable to owners of the parent 11 (7.0)c 10.4c - -
All items in the above statement are derived from continuing operations. The
accompanying notes 1 to 28 form an integral part of the financial statements.
Consolidated and Company Statements of Financial Position
As at 30 September 2023
Note Group Group Restated (as per note 1)
30/09/23 30/09/22 Company 30/09/23 Company 30/09/22
€'000 €'000 €'000 €'000
Assets
Non-current assets
Investment property 13 213,098 217,456 - -
Investment in subsidiaries 15 - - 69,921 61,386
Investment in joint venture 16 - - - -
Receivables from subsidiaries 1 - - 65,174 69,501
Loans to joint ventures 6,16 - - - -
Non-current assets 213,098 217,456 135,095 130,887
Current assets
Trade and other receivables 17 8,897 16,680 1,285 16,200
Interest rate derivative contracts 674 934 - -
Cash and cash equivalents 32,445 34,324 13,548 10,039
Current assets 42,016 51,938 14,833 26,239
Total assets 255,114 269,394 149,928 157,126
Equity
Share capital 18 17,966 17,966 17,966 17,966
Share premium 18 43,005 43,005 43,005 43,005
Retained earnings/(accumulated losses) (6,142) 10,662 (28,818) (22,165)
Other reserves 116,610 116,610 116,843 116,843
Total equity 171,439 188,243 148,996 155,649
Liabilities
Non-current liabilities
Interest-bearing loans and borrowings 19 65,023 41,794 - -
Deferred tax liability 10 4,225 5,124 - -
Non-current liabilities 69,248 46,918 - -
Current liabilities
Interest-bearing loans and borrowings 19 8,600 26,950 - -
Trade and other payables 20 4,856 5,857 932 1,477
Current tax liabilities 10 971 1,426 - -
Current liabilities 14,427 34,233 932 1,477
Total liabilities 83,675 81,151 932 1,477
Total equity and liabilities 255,114 269,394 148,928 157,126
Net asset value per ordinary share 21 128.2 140.8c 111.4 116.4c
The financial statements on pages 64 to 67 were approved at a meeting of the
Board of Directors held on 5 December 2023 and signed on its behalf by:
Sir Julian Berney Bt.
Chairman
The accompanying notes 1 to 28 form an integral part of the financial
statements.
Registered in England and Wales as a public company limited by shares.
Company registration number: 09382477
Consolidated and Company Statements of Changes in Equity
For the year ended 30 September 2023
Group Note Share capital Share premium (Accumulated losses)/Retained earnings Other reserves Total equity
€'000 €'000 €'000 €'000 €'000
Balance as at 1 October 2021 17,966 43,005 21,878 116,683 199,532
Profit for the year - - 13,991 - 13,991
Other comprehensive loss for the year - - - (73) (73)
Dividends paid 12 - - (25,207) - (25,207)
Balance as at 30 September 2022 17,966 43,005 10,662 116,610 188,243
Loss for the year - - (9,382) - (9,382)
Other comprehensive income/(loss) for the year - - - - -
Dividends paid 12 - - (7,422) - (7,422)
Balance as at 30 September 2023 17,966 43,005 (6,142) 116,610 171,439
Company Note Share capital Share premium (Accumulated losses)/Retained earnings1 Other Total equity
€'000 €'000 €'000 reserves1 €'000
€'000
Balance as at 1 October 2021 17,966 43,005 2,302 116,916 180,189
Profit for the year - - 740 - 740
Other comprehensive loss for the year - - - (73) (73)
Dividends paid 12 - - (25,207) - (25,207)
Balance as at 30 September 2022 17,966 43,005 (22,165) 116,843 155,649
Profit for the year - - 769 - 769
Other comprehensive income/(loss) for the year - - - - -
Dividends paid 12 - - (7,422) - (7,422)
Balance as at 30 September 2023 17,966 43,005 (28,818) 116,843 148,996
1 These reserves form the distributable reserves of the Company
(excluding any accumulated, unrealised profits) and may be used to fund
distribution of profits to investors via dividend payments. Total
distributable reserves amounts to €88.0 million (2022: €94.8 million). See
note 1 for further detail.
The accompanying notes 1 to 28 form an integral part of the financial
statements.
Consolidated and Company Statements of Cash Flows
For the year ended 30 September 2023
Note Group Group Company 30/09/23 Company 30/09/22
30/09/23 30/09/22 €'000 €'000
€'000 €'000
Operating activities
(Loss)/Profit before tax for the year (10,022) 16,576 769 982
Adjustments for:
Net loss/(gain) from fair value adjustment on 13 19,726 (6,351) - -
investment property
Realised foreign exchange gain/(loss) 12 (77) 12 (77)
Provision of loan made to Seville joint venture 6 - 444 - -
Finance income (228) (451) (2,087) (1,852)
Finance costs 1,714 1,128 6
Net change in fair value of financial instruments through 260 (921) - -
profit or loss
Dividend income classified as investing cash flows - - (509) -
Operating cash generated from/(used in) before changes in working capital 11,462 10,348 (1,815) (941)
Decrease/(increase) in trade and other receivables 7,564 958 370 616
Increase/(decrease) in trade and other payables (1,071) 324 (450) 157
Cash generated from/(used in) operations 17,955 11,630 (1,895) (168)
Finance costs paid (1,573) (897) - -
Finance income received 228 8 397 1,042
Tax (paid)/received (714) (469) - (242)
Net cash generated from/(used in) operating activities 15,896 10,272 (1,498) 632
Investing activities
Proceeds from sale of investment property 14 - 16,900 - -
Acquisition of investment property 13 (11,167) (10,824) - -
Additions to investment property 13 (3,984) (698) - -
Loans to subsidiary companies - - (1,459) (9,585)
Loan repayment from subsidiary company - - 19,000 10,310
Investment in subsidiary 16 - - (5,400) -
Dividends received - - 300 -
Net cash generated from/(used in) investing activities (15,151) 5,378 12,441 725
Financing activities
Repayment of loan facility drawdown - (1,840) - -
Proceeds from borrowings 19,20 31,760 - - -
Repayment of borrowings 19,20 (26,950)
Interest paid - - - (6)
Dividends paid 12 (7,422) (25,207) (7,422) (25,207)
Net cash used in financing activities (2,612) (27,047) (7,422) (25,213)
Net (decrease)/increase in cash and cash equivalents (1,867) (11,397) 3,521 (23,856)
for the year
Opening cash and cash equivalents 34,324 45,717 10,039 33,891
Effects of exchange rate change on cash (12) 4 (12) 4
Closing cash and cash equivalents 32,445 34,324 13,548 10,039
The accompanying notes 1 to 28 form an integral part of the financial
statements.
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 the United Kingdom. The
consolidated financial statements of the Company for the year ended 30
September 2023 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 Johannesburg Stock Exchange
Limited (secondary listing). The registered office of the Company is 1 London
Wall Place, London, England EC2Y 5AU.
Statement of compliance
The consolidated financial statements of the Group and Company financial
statements have been prepared under the UK-adopted 'International Accounting
Standards 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
and JSE Listing Authority.
Basis of preparation
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have prepared the Group and the
Company financial statements in accordance with UK-adopted International
Accounting Standards and with the requirements of the Companies Act 2006.
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: the ability to refinance certain third-party loans in 2024 with due
consideration to current loan market conditions, cash held and the liquidity
of the Group's assets; forward-looking compliance with third-party debt
covenants, in particular the loan to value ('LTV') covenant and interest cover
ratios; the likelihood of any payment of contingent tax liabilities; potential
falls in property valuations; the non-collection of rent and service charges;
and the existing, and future, anticipated cash requirements of the Group.
Furthermore, ongoing geopolitical developments, and macroeconomic variables
such as projected interest rates and inflation, have also been considered
regarding the Group's property investments in France, Germany, Spain, and the
Netherlands.
Cash flow forecasts, based on deemed plausible downside scenarios, have led
the Board to conclude that the Group will have sufficient cash reserves to
continue in operation for twelve months from the date of the signing of the
Annual Report.
The Group has six loans secured by individual assets, with no
cross-collateralisation. Other than Seville, whereby there is a cash trap in
operation and a LTV breach, all loans are in compliance with their debt
covenants. More details of the individual loans, and headroom on the LTV and
net income default covenants, is provided on page 18.
Excluding Seville, for which the Group has already written its investment
fully down to nil, there are two loans that fall due for repayment in 2024
totalling €25.6 million. Although the Group has already commenced
constructive and positive discussions with third party-lenders for both loans,
the Group has considered in its plausible downside scenario whereby
refinancing is not achieved, and therefore both loans need to be paid out of
cash reserves with there being sufficient cash to do so if required.
After due consideration, the Directors have not identified any material
uncertainties which would cast significant doubt on the Group's ability to
continue as a going concern for a period of not less than 12 months from the
date of the approval of the consolidated annual report and financial
statements, which would be 31 December 2024. 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 under the UK adopted international
accounting standards, in conformity with the Companies Act 2006, requires
management to make judgements, estimates and assumptions that affect the
application of policies and the reported amounts of assets and liabilities,
income and expenses. These estimates and associated assumptions are based on
historical experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis of
making judgements about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates. The estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the period in which
the estimates are revised and in any future periods affected.
The most significant estimates made in preparing these financial statements
relate to the carrying value of investment properties, as disclosed in note
13, including those investment properties within joint ventures, which are
stated at fair value. The fair value of investment property is inherently
subjective because, in the absence of readily-observable market data, the
valuer has to make professional judgements on valuation inputs. The Group uses
an external professional valuer to determine the relevant amounts.
The following are deemed to be the other key areas of judgement:
· Accounting for development revenue and variable consideration
regarding Paris, Boulogne-Billancourt: When estimating an appropriate level of
development revenue to be recognised in the reporting period, the Group
considered the contractual penalties of not meeting certain criteria within
the agreement; the total development costs incurred; the stage of completion
of the refurbishment; the milestones achieved and still to be achieved; the
timing of further future cash receipts from the purchaser; and the overall
general development risk to form a considered judgement of revenue to be
appropriately recognised in the financial statements. Further details of the
judgement are disclosed in note 14.
· Tax provisioning and disclosure: Management uses external tax
advisers to monitor changes in tax laws in countries where the Group has
operations. New tax laws that have been substantively enacted are recognised
in the Group's and Company's financial statements. Where changes to tax laws
give rise to a potential contingent liability, the Group discloses the
estimated amounts appropriately within the notes to the financial statements
(further details are disclosed in note 10).
· IFRS 9 expected credit losses: All receivables, inter-company and
joint venture loans are considered to be such financial assets and must
therefore be assessed for an impairment using the forward looking expected
credit loss model. Where any impairment is required to be made, appropriate
recognition is required in the consolidated statement of comprehensive income,
together with appropriate disclosure and sensitivity analysis in the notes to
the financial statements (further details are disclosed in note 6). The
Seville joint venture loan has been Level 3 calculated on the lifetime
expected credit loss method. The following factors were considered when
determining the probability of default used for the impairment provision
calculation for the Seville joint venture loan: the property valuation and
future potential movements; that there is an LTV breach and a cash trap in
place; cash flow forecasts; the longer-term effects of the prior lockdown
measures in Spain on tenants and their trading; and rent collection rates. An
evaluation of these factors has allowed management to determine that the loan
is a Level 3 impairment and is deemed not recoverable. These judgements were
also considered within the impairment in the investments held in subsidiaries
for the parent company.
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 is exposed to, or
has rights to, variable returns from its involvement with the entity and has
the ability to affect those returns through its power to direct the activities
of the entity. 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 is treated as an asset
acquisition.
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
comprehensive income, statement of changes in equity and balance sheet
respectively.
Joint arrangements
Under IFRS 11, Joint Arrangements, the Group'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 statement of financial position.
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.
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 comprises land and buildings held to earn rental income
together with the potential for capital growth.
Acquisitions and disposals are recognised on an unconditional exchange of
contracts. Acquisitions are initially recognised at cost, being the fair value
of the consideration including any 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 or loss. Realised gains
and losses on the disposal of properties are recognised in profit and loss in
relation to the carrying value at the beginning of the accounting period. 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 23, the Group leases out all owned properties on
operating leases which are 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.
Please refer to note 13 for disclosure of key inputs, assumptions and
sensitivities with respect to the fair valuation of investment properties.
Prepayments
Prepayments are carried at cost less any accumulated impairment losses.
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.
Rental income, including prepayments, received under operating leases (net of
any incentives granted by the lessor) are recognised in the statement of
comprehensive income on a straight-line basis over the period of the lease.
Properties leased out under operating leases are included as investment
properties in the consolidated statement of financial position (note 13).
Financial assets and liabilities
Non-derivative financial assets and liabilities
Non-derivative financial assets are measured at amortised cost less impairment
whereas financial liabilities are measured at amortised cost. The Group
calculates impairment provisions for non-derivative financial assets based on
lifetime expected credit losses under the IFRS 9 simplified approach.
Cash and cash equivalents
Cash at bank, and short-term deposits that are held to maturity, are carried
at amortised 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.
Loans and borrowings
Borrowings are recognised initially at the 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.
Borrowing costs such as arrangement fees are capitalised and amortised over
the loan term.
Derivative financial assets and liabilities
Derivative financial assets and liabilities comprise interest rate caps for
hedging purposes (economic hedge). These are initially recognised at cost and
subsequently revalued at fair value, with the revaluation gains or losses
immediately recorded in the statement of comprehensive income.
Share capital
Ordinary shares, including treasury shares, are classified as equity when
there is no obligation to transfer cash or other assets. The Company's
accounting policy is to fix the share capital at the spot rate at the date of
issue. The Company does not retranslate its share capital at the end of each
reporting period.
Share premium
Share premium represents the excess of proceeds received over the nominal
value of new shares issued. The Company's accounting policy is to fix the
share premium at the spot rate at the date of issue. The Company does not
retranslate its share premium at the end of each reporting period.
Other reserves
Other reserves mainly consist of a share premium reduction reserve arising
from the conversion of share premium into a distributable reserve.
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
Other financial assets
The carrying amounts of the Group's and Company's other financial assets,
other than investment property but including joint ventures and investments
held in subsidiaries, 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.
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.
Where a rent incentive fits the definition of a lease modification under IFRS
16, the cost of incentives is recognised over the remaining lease term
starting from the effective date of the lease modification, on a straight-line
basis, as a reduction of rental income.
Service charges
These include income in relation to service charges, directly recoverable
expenditure and management fees. Revenue from services is recognised over
time, as services are rendered as there is a transfer of control of these
services over time when services are rendered by third party service
providers.
Finance income and costs
Finance income comprises interest income on funds invested that are recognised
in the statement of comprehensive income. Finance income is recognised on an
accruals basis.
Finance costs comprise interest expenses on borrowings that are recognised in
the statement of comprehensive income. 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
the statement of comprehensive income 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.
Monetary assets and liabilities are translated into the functional currency.
Foreign exchange differences arising on translation to the presentation
currency are taken to the consolidated statement of comprehensive income.
Prior period restatement
Historically inter-company loans between the Company and its subsidiaries had
been classified as current assets in the Company's own Balance Sheet. This
included instances where intra-group loan maturity dates were greater than
twelve months post the financial year end. Movements in intra-group loan
balances are driven by transactional activity, loan refinancings and cash
repatriation and repayments have been at the discretion of the Investment
Manager and as market conditions allow.
As per IAS 1, a number of intra-group loans for the Company should have been
recorded as non-current assets. Intra-group loans which mature within twelve
months of the Balance Sheet date, or where there is a clear and reasonable
expectation of repayment within the next twelve months, should be classified
as current assets with all other loans being classified as non-current.
For the prior year ended 30 September 2022, a sum of €69,501,000 of
inter-company loans and accrued interest receivable, owed by the Company's
subsidiaries, has been reclassified from trade and other receivables within
current assets to receivables from subsidiaries within non-current assets in
the restated Balance Sheet at Company level.
The above prior period restatement is at Company level only and has had no
impact on the net asset value, nor wider financial position and performance,
of the SEREIT Group itself.
2. New standards and interpretations
New standards and interpretations adopted by the Group
There are no new standards or amendments which have been applied for the first
time for its annual reporting period commencing 1 October 2022.
3. Rental and service charge income
Group Group Company Company
30/09/2023 €'000 30/09/2022 €'000 30/09/2023 €'000 30/09/2022 €'000
Rental income 15,555 14,528 - -
Service charge income 4,111 3,625 - -
19,666 18,153 - -
Service charge income is charged in addition to rent payments to cover the
landlord's costs. Factors such as the size of the asset, number of occupants,
occupancy rates and purpose of the asset can affect the amount and timing of
revenue and cash flows.
The Group has concluded that it transfers control of these services over time,
as services are rendered by the third party service providers, because this is
when tenants receive and, at the same time, consume the benefits from these
services.
The service charge receivable amounts to €3,086,000 (2022: €1,455,000).
Payment of service charge income from tenants is impacted by the timing of
service charge reconciliations by property managers.
4. Property operating expenses
Group Group Company Company
30/09/2023 30/09/2022 30/09/2023 30/09/2022 €'000
€'000 €'000 €'000
Repairs and maintenance 2,932 2,229 - -
Service charge, insurance and utilities on vacant units 456 1,427 - -
Real estate taxes 1,410 1,326 - -
Property management fees 376 285 - -
Other 224 249 - -
5,398 5,516 - -
All the above amounts relate to either service charge or property operating
expenses which are recoverable except for €1,382,000 (2022: €1,174,000).
5. 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 12th of the
aggregate of 1.1% of the EPRA NAV of the Group. The Investment Management
Agreement can be terminated by either party on not less than 12 months'
written notice, such notice not to expire earlier than the third anniversary
of admission, or on immediate notice in the event of certain breaches of its
terms or the insolvency of either party. The total charge to profit and loss
during the year was €1,981,000 (2022: €2,198,0000). At the year end
€626,000 (2022: €717,000) was outstanding.
SREIM provides accounting services to the Group with a minimum contracted
annual charge of €81,000 (£70,000). The total charge to the Group was
€104,000 (2022: €112,000). These are included in administrator's and
accounting fees in the consolidated statement of comprehensive income. At the
year end €35,000 (2022: €35,000) was outstanding.
SREIM provides administrative and company secretarial services to the Group
with a contracted annual charge of €58,000 (£50,000). The total charge to
the Group was €58,000 (2022: €58,000). These are included in
administrator's and accounting fees in the consolidated statement of
comprehensive income. At the year end €19,000 (2022: €19,000) was
outstanding.
Details of Directors' fees are disclosed in note 9.
Details of loans to Urban SEREIT Holdings Spain S.L., a related party, are
disclosed in note 16.
The Company received management fees of €1,503,000 (2022: €1,623,000) from
subsidiary companies during the year. The amounts recharged to subsidiaries
and outstanding are provided in the following table.
Fees recharged in the year to 30 September Fees outstanding as at 30 September
€'000 €'000
Subsidiary 2023 2022 2023 2022
SCI SEREIT Rumilly 53 58 24 29
SAS Clarity Developpement 386 428 187 212
SEREIT Berlin DIY Sàrl 153 172 74 86
SEREIT Hamburg Sàrl 120 138 57 70
SEREIT Stuttgart Sàrl 104 119 48 60
SEREIT Frankfurt Sàrl 58 63 27 32
SCI SEREIT Directoire 194 228 141 113
SEREIT Apeldoorn Sàrl 79 95 38 47
SEREIT UV Sàrl 125 132 62 66
SEREIT Alkmaar Sàrl 42 - 28 -
SCI SEREIT Pleudihen 100 114 72 58
SCI SEREIT Nantes 31 33 15 18
SCI LC Invest 38 23 18 23
SEREIT Holdings S.a.r.l 20 20 10 11
Total 1,503 1,623 801 825
6. Provision of loan made to Seville joint venture
As at 30 September 2023 the Group owned 50% of the Metromar Joint Venture,
which owns a shopping centre in Seville, and had advanced €10,000,000 as a
loan and was owed interest of €1,941,000 (2022: €1,544,000). The loan
carries a fixed interest rate of 4.37% per annum payable quarterly and matures
in April 2024.
When considering an appropriate level of impairment, the Group primarily
considered: the current market liquidity, and achievable market price, for
such an asset; the property valuation and future potential movements; debt
covenant breaches; cash flow forecasts; the tenants' trading levels; vacancy
rates; and the rent collection rates of the asset.
The impairment provision booked during the year was €Nil as the loan and
interest is now considered a stage 3 impairment (2022: €444,000) bringing
the cumulative impairment to €11,537,000 and the Group's investment with
regard to Seville now stands at €Nil (2022: €Nil).
No further interest income was recognised in the consolidated financial
statements in the year to 30 September 2023 as the loan and interest is now
considered a stage 3 impairment and therefore a Loss Given Default rate of
100% has been applied. Hence, cumulative interest receivable recognised in the
consolidated financial statements previously and subsequently impaired amounts
to €1,544,000.
Furthermore, Management has separately assessed that if a sale were to be
achieved at the current fair value of the property of €25 million then, all
else being equal, the Group could reverse c.€800,000 of the previously
recognised impairment, noting that such an outcome is deemed to be highly
unlikely as at the financial year end. The sensitivity of potential impairment
reversals, based on potential exit prices, is shown in the table below:
-10% 0% +10%
Valuation of Metromar, Seville property 22,500,000 25,000,000 27,500,000
Potential future impairment reversal - 800,000 2,050,000
Underlyingly, and as set out in the above, the Investment Manager does not
believe at the current time that ultimately a sale price will be achieved
above the carrying value of the third-party debt and thus there has been no
reversal of prior impairments in the current financial year.
7. Auditor's remuneration and assurance fees
The Group's total audit fees for the year are €330,000 (2022: €330,000)
which includes the Group audit and the individual statutory audits. The
Company's total audit fees for the year were €239,000 (2022: €289,000)
which only covers the Group audit.
The interim review fee was €51,000 (2022: €51,500) which is an assurance
related non-audit service and is included in the total auditor's remuneration
for the year. The auditor did not perform any other non-audit services for the
Group during the year (2022: €Nil).
8. Dividends received
During the year the Group did not receive any dividends from its joint venture
operation Urban SEREIT Holdings Spain S.L. (2022: €Nil) (see note 15).
During the year the Company received dividends from its subsidiary
undertakings. €300,000 (2022: €1,100,000) from OPPCI SEREIT France and
€209,000 (2022: €Nil) was received from SEREIT Holdings France.
9. Other expenses
Group Group Company Company
30/09/2023 30/09/2022 30/09/2023 30/09/2022
€'000 €'000 €'000 €'000
Directors' and officers' insurance premium 14 20 14 20
Bank charges 114 156 27 28
Regulatory costs 89 72 66 53
Marketing 57 59 60 59
Other expenses 167 306 147 152
442 613 314 312
Directors are the only officers of the Company and there are no other key
personnel. The Group has one employee; for further details see note 27. The
Directors' annual remuneration for services to the Group was €203,000 (2022:
€198,375), as set out in the Directors' Remuneration Report on pages 49 to
51. The total charge for Directors' fees was €232,000 (2022: €217,000),
which included employer's National Insurance contributions. Other expenses
include items such as domiciliation fees and registrar fees.
10. Taxation
30/09/2023 €'000 30/09/2022 €'000
Current tax charge 739 1,305
Current tax adjustment in respect of prior periods (480) -
Deferred tax (credit)/charge (899) 1,280
Tax (credit)/expense in year (640) 2,585
Reconciliation of effective tax rate
(Loss)/Profit before taxation (10,022) 16,576
Effect of:
Tax charge at weighted average corporation tax rate of 22.65% (2022: 23.40%) (2,210) 3,877
Tax exempt income or non-deductible losses 840 (1,482)
Tax adjustment on net revaluation loss 625 375
Current year loss for which no deferred tax is recognised - 15
Tax adjustment of share of joint venture loss 691 744
Minimum Luxembourg tax charges 88 65
Tax effect of property depreciation (418) (999)
Timing differences - (73)
Tax adjustment in respect of prior periods 480 -
Other permanent differences 224 63
Total tax (credit)/expense in the year (640) 2,585
The effective tax rate is a weighted average of the applicable tax rates in
the countries the Group has operations. The opening deferred tax liability was
€5,124,000, which after a credit of €899,000 leads to a closing liability
of €4,225,000. A potential deferred tax asset of €1,306,000 (2022:
€845,000) arose on tax losses which has not been provided for.
SEREIT plc has elected to be treated as a société d'investissement
immobilier cotée ('SIIC') for French tax purposes. Provided that SEREIT plc
meets certain requirements, the SIIC should be exempt from French CIT on net
rental income and gains arising from interests in property. Management intends
that the Group will continue to comply with the SIIC regulations for the
foreseeable future.
The Group operates in a number of jurisdictions and is subject to periodic
challenges by local tax authorities on a range of tax matters during the
normal course of business. The tax impact can be uncertain until a conclusion
is reached with the relevant tax authority or through a legal process. The
Group addresses this uncertainty by closely monitoring tax developments,
seeking independent advice and maintaining transparency with the authorities
it deals with as and when any enquiries are made. As a result of its
monitoring, the Group has identified a potential tax exposure attributable to
the ongoing applicability of tax treatments adopted in respect of the Group's
tax structures. The range of potential outcomes is a possible outflow of
minimum £Nil and maximum £9.5 million, excluding possible interest and
penalties (2022: minimum £Nil and maximum £9.3 million). The Directors have
not provided for this amount because they do not believe an outflow is
probable.
11. Earnings per share
Basic earnings per share
The basic earnings per share for the Group is calculated by dividing the net
profit after tax attributable to ordinary shareholders of the Company by the
weighted average number of ordinary shares in issue during the year.
30/09/2023 30/09/2022
Total comprehensive (loss)/income for the year €(9,382,000) €13,918,000
Weighted average number of ordinary shares in issue 133,734,686 133,734,686
Basic IFRS earnings per share (cents per share) (7.0) 10.4
Diluted earnings per share
The Group has no dilutive potential ordinary shares and hence the diluted
earnings per share is the same as the basic earnings per share in both 2022
and 2023.
Headline earnings per share
The headline earnings and diluted headline earnings for the Group is 6.2 euro
cents per share (2022: 4.5 euro cents per share) as detailed on page 95.
12. Dividends paid
Interim and special dividends of €7,422,000 (2022: €25,207,000) were paid
to the shareholders of SEREIT plc during the year as follows:
In respect of Ordinary Rate 30/09/2023 €'000
shares (cents)
Interim dividend paid on 13 January 2023 133,734,686 1.85 2,474
Interim dividend paid on 5 May 2023 133,734,686 1.85 2,474
Interim dividend paid on 11 August 2023 133,734,686 1.85 2,474
Total interim dividends paid 133,734,686 7,422
In respect of Ordinary Rate 30/09/2022 €'000
shares (cents)
Interim dividend paid on 8 November 2021 133,734,686 1.85 2,474
Interim dividend paid on 14 January 2022 133,734,686 1.85 2,474
First special dividend paid on 14 January 2022 133,734,686 4.75 6,352
Interim dividend paid on 20 April 2022 133,734,686 1.85 2,474
Interim dividend paid on 5 August 2022 133,734,686 1.85 2,474
Second special dividend paid on 5 August 2022 133,734,686 4.75 6,352
Interim dividend paid on 30 September 2022 133,734,686 1.85 2,474
Final special dividend paid on 30 September 2022 133,734,686 0.1 133
Total interim dividends paid 133,734,686 25,207
13. Investment property
Group €'000
Fair value as at 1 October 2021 199,727
Acquisitions 9,997
Acquisition costs 868
Additions 513
Net gain from fair value adjustment on investment property 6,351
Fair value as at 30 September 2022 217,456
Acquisitions 11,150
Acquisition costs 1,218
Additions 3,000
Net loss from fair value adjustment on investment property (19,726)
Fair value as at 30 September 2023 213,098
In 2022 and 2023, the Group held one leasehold property.
The value of the respective sectors held were as follows:
Sector 2023 2022
€'000 €'000
Industrial 78,537 63,603
Retail (including retail warehousing) 39,650 51,049
Offices 94,911 102,804
Total 213,098 217,456
The fair value of investment properties, as determined by the valuer, totals
€214,125,000 (2022: €218,700,000) with the valuation amount relating to a
100% ownership share for all the assets in the portfolio.
None of this amount is attributable to trade or other receivables in
connection with lease incentives. The fair value of investment properties per
the consolidated financial statements of €213,098,000 includes a tenant
incentive adjustment of €1,027,000 (30 September 2022: €1,244,000).
The net valuation (loss)/gain on investment property of €(19,726,000) (2022:
€6,351,000) consists of net property revaluation (losses)/gains of
€19,509,000 (2022: €6,472,000) and a movement of the above mentioned
tenant incentive adjustment of €(217,000) (2022: €104,000).
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 - Global Standards November 2021, incorporating the International
Valuations Standards, and RICS Professional Standards UK, November 2018
(effective January 2019).
The properties have been valued on the basis of 'fair value' in accordance
with the RICS Valuation - Professional Standards VPS4(1.5) Fair Value and
VPGA1 Valuations for Inclusion in Financial Statements which adopt the
definition of fair value used by the International Accounting Standards Board.
The valuation has been undertaken using an appropriate valuation methodology
and the valuer's professional judgement. The valuer's opinion of fair value
was primarily derived using recent comparable market transactions on arm's
length terms, where available, and appropriate valuation techniques (The
Investment Method).
The properties have been valued individually and not as part of a portfolio.
During the year, the Group acquired Alkmaar, a logistics asset in the
Netherlands for a purchase price of €11,150,000 in March 2023.
The Group has incorporated Environmental, Social and Governance ('ESG')
objectives into its core investment strategy and at every stage of the
investment process. It has clearly defined its social and environmental
targets into distinct categories, for which each has clear and measurable
impact objectives. The valuers take into account environmental considerations
in their assessment of ERV, discount rate and capital expenditure assumptions
for each asset. Some examples include: Hamburg office (c.€800k provisioned)
for future BMS, HVAC and tenant wellbeing measures in order to continue to
keep the asset relevant for occupiers; Stuttgart (c.€600k) primarily ESG
related capital expenditure; and Paris Saint-Cloud (c.€2.5 million) relating
to fire security enhancements and co-ownership works which will improve ESG
ratings in line with Tertiary Decree requirements.
A provision or contingent liability would only be recognised in the
consolidated financial statements if the ESG factors led to a constructive or
legal obligation for the Group. None of the above amounts have been provided
for in the 30 September 2023 annual accounts as there is no legal or
constructive obligation to perform these works at the reporting date.
The Group's total valuation fees for the year are €67,000 (2022: €50,000).
The fee payable to Knight Frank LLP is less than 5% of its total revenue in
any year.
All investment properties are categorised within Level 3 of the fair value
hierarchy, 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:
Quantitative information about fair value measurement using unobservable
inputs (Level 3) as at
30 September:
2023 Industrial Retail Office Total
(incl. retail warehouse)
Fair value (€'000)1 78,575 39,650 95,900 214,125
Area ('000 sqm) 95.071 21.325 54.579 170.975
Net passing rent € per sqm per annum Range 33.16-125.09 108.12-154.66 118.63-158.07 33.16-158.07
Weighted average2 63.79 121.09 138.22 107.73
Gross ERV € per sqm per annum Range 42.00-110.30 101.58-162.27 79.93-234.01 42.00-234.01
Weighted average2 63.20 118.50 181.29 126.33
Net initial yield3 (%) Range 5.42-9.54 5.76-5.79 4.02-17.09 4.02-17.09
Weighted average2 6.35 5.77 6.60 6.35
Equivalent yield (%) Range 5.57-9.76 5.36-5.40 3.87-13.38 3.87-13.38
Weighted average2 5.94 5.39 7.17 6.39
1 Weighted by market value.
2 Yields based on rents receivable after deduction of head rents and
non-recoverables.
2022 Industrial Retail Office Total
(incl. retail warehouse)
Fair value (€'000)1 71,950 69,150 104,000 245,100
Area ('000 sqm) 86.421 44.433 54.58 185.434
Net passing rent € per sqm per annum Range 28.81-118.10 38.33-151.18 103.57-145.83 28.81-151.18
Weighted average2 55.83 85.66 136.17 98.34
Gross ERV € per sqm per annum Range 40.00-104.42 101.58-162.27 79.93-224.34 40.00-224.34
Weighted average2 56.46 129.96 169.81 125.29
Net initial yield3 (%) Range 4.82-8.66 2.87-5.38 3.34-14.42 2.87-14.42
Weighted average2 5.57 4.24 5.93 5.35
Equivalent yield (%) Range 4.50-6.68 4.95-7.29 3.27-12.40 3.27-12.40
Weighted average2 5.19 5.87 6.26 5.84
1 This table includes the joint venture investment property valued at
€26.4 million which is disclosed within the summarised information within
note 16 as part of total assets.
2 Weighted by market value.
3 Yields based on rents receivable after deduction of head rents and
non-recoverables.
Sensitivity of measurement to variations in the significant unobservable
inputs
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. 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 Industrial Retail Office Total
30 September 2023 €'000 €'000 €'000 €'000
Increase in ERV by 10% 4.900 2,600 7,100 14,600
Decrease in ERV by 10% (4,900) (2,600) (7,100) (14,600)
Increase in net initial yield by 0.5% (6,200) (3,400) (9,000) (18,600)
Decrease in net initial yield by 0.5% 7,400 4,100 9,800 21,300
14. Recognition of development revenue and profit
During the financial year ended 30 September 2021, the Group transferred the
legal title of its office asset in Paris, Boulogne-Billancourt to a purchaser.
The forward funded sale agreement which the Group entered into is comprised of
two key performance obligations: i) to sell the asset as referenced above; and
ii) to undertake a comprehensive refurbishment of the asset on behalf of the
purchaser.
The transaction price for the sale of the asset is determined with regard to
the deemed fair value of the asset at the date of the transfer of the legal
title to the purchaser. On 16 December 2020 the Group transferred, as part of
the sale, the legal title to the purchaser for a deemed sale price of €69.8
million. In return, the Group received on the completion date an initial
€52.9 million cash receipt from the purchaser and €16.9 million was paid
in the year to 30 September 2022 upon the completion of certain milestones.
The forward funded sale contract also included a development element whereby
the Group would undertake a comprehensive refurbishment of the asset on behalf
of the purchaser over an approximate 18 month period with practical completion
occurring in the second quarter of 2022. The amount of revenue the Group will
receive for the development of the asset is variable as it is based on the
Group achieving certain milestones.
When forming a judgement as to an appropriate level of development revenue to
be recognised in the reporting period, the Group considered the contractual
penalties of not meeting certain criteria within the agreement; the total
development costs incurred; the stage of completion of the refurbishment; the
milestones achieved and still to be achieved; the timing of further future
cash receipts from the purchaser; and the overall general development risk.
The Group has estimated that it will receive total development revenue of
€30.4 million (2022: €30.2 million).
During the year the Group made cost savings of €1.1 million (2022: €15.4
million expenditure) which cumulatively to date, represents 96% of the total
project expenditure and a sum of €0.4 million (2022: €17.9 million) of
development revenue has been recognised following consideration of the factors
identified above. Total development revenue from this contract recognised
since inception is €28.1 million, which represents 93% of total development
revenue. The cash received in the year was €8.8m. The remaining development
revenue is expected to be recognised in the year-ending 30 September 2024. The
lag between development revenue and development cost represents the inherent
development risk that is still evident in the project.
The total amount of the contract asset recognised by the Group that is due
from the purchaser thereby totalled €1.9 million (September 2022: €10.3
million) at the end of the financial year and is included in trade and other
receivables.
The below sensitivity table presents the change in the total development
revenue expected from the purchaser if the variable consideration increases or
decreases by 10%. Note that the maximum amount of variable revenue remaining
that could be recognised is €2.2 million. This is also the expected amount
of revenue to be received therefore no +10% analysis is performed.
-10% 0% +10%
Variable development revenue expected from the purchaser (€m) 1.9 2.2 2.2
15. Investment in subsidiaries
Company Company Company
2023 2022
€'000 €'000
Balance as at 1 October 61,386 61,386
Additions 8,535 -
Provision of investment made in subsidiaries - -
Balance as at 30 September 69,921 61,386
During the year to 30 September 2023, SEREIT plc invested €5,400,000 into
SEREIT Holdings Sarl as part of the acquisition of the Alkmaar property and
the creation of the SPV SEREIT Alkmaar Sarl.
The Group made a decision that a dividend of €3,135,000 previously paid to
SEREIT plc from SEREIT Holdings Sarl was to be reclassified as a partial
repayment of an interest free loan.
The subsidiary companies listed below are those which were part of the Group
as at 30 September 2023. 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.
Undertaking Country of incorporation Group ownership Registered office address
SEREIT (Jersey) Limited Jersey 100% 22 Grenville Street, Jersey, JE4 8PX
SEREIT Finance Sàrl Luxembourg 100% 15, Boulevard F.W. Raiffeisen, 2411
SEREIT Holdings Sàrl Luxembourg 100% 15, Boulevard F.W. Raiffeisen, 2411
OPPCI SEREIT France France 100% 153 Rue Saint Honoré, 75001 Paris
SCI SEREIT Rumilly France 100% 8-10 Rue Lamennais, 75008 Paris
SEREIT Berlin DIY Sàrl Luxembourg 100% 15, Boulevard F.W. Raiffeisen, 2411
SEREIT Hamburg Sàrl Luxembourg 100% 15, Boulevard F.W. Raiffeisen, 2411
SEREIT Stuttgart Sàrl Luxembourg 100% 15, Boulevard F.W. Raiffeisen, 2411
SEREIT Frankfurt Sàrl Luxembourg 100% 15, Boulevard F.W. Raiffeisen, 2411
SCI SEREIT Directoire France 100% 8-10 Rue Lamennais, 75008 Paris
SEREIT Apeldoorn Sàrl Luxembourg 100% 15, Boulevard F.W. Raiffeisen, 2411
SEREIT UV Sàrl Luxembourg 100% 15, Boulevard F.W. Raiffeisen, 2411
SEREIT Alkmaar Sàrl Luxembourg 100% 15, Boulevard F.W. Raiffeisen, 2411
SEREIT Holdings France SAS (SIIC) France 100% 8-10 Rue Lamennais, 75008 Paris
SCI SEREIT Pleudihen France 100% 8-10 Rue Lamennais, 75008 Paris
SAS Clarity Developpement France 100% 8-10 Rue Lamennais, 75008 Paris
SEREIT France Invest SAS France 100% 8-10 Rue Lamennais, 75008 Paris
SCI SEREIT Nantes France 100% 8-10 Rue Lamennais, 75008 Paris
SCI LC Invest France 100% 8-10 Rue Lamennais, 75008 Paris
16. Investment in joint venture
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 2023 2022
€'000 €'000
Balance as at 1 October - -
Investment in joint venture - -
Share of loss for the year - -
Balance as at 30 September - -
Summarised joint venture financial information: 2023 2022
€'000 €'000
Total assets 28,078 29,290
Total liabilities (50,055) (48,435)
Net liabilities (21,977) (19,146)
Net asset value attributable to the Group - -
Revenues for the year 2,329 4,003
Total comprehensive (loss) (2,832) (4,536)
Total comprehensive loss attributable to the Group - -
As at 30 September 2023, the joint venture in Seville, of which SEREIT holds a
50% share, had total net liabilities of €21,977,000 (2022: €19,146,000).
The Group has therefore recognised a nil interest as its investment in the
joint venture and would only recognise its share of net liabilities where
certain legal or constructive obligations are in force. No such obligations
exist with regard to the Seville joint venture.
A reduction in rental income has resulted in a requirement under the minimum
net rental income covenant in the loan agreement for the lender to retain all
excess rental income generated by the Seville property in the property-owning
special purpose vehicle ('SPV'). This position will continue until the rental
income increases sufficiently to meet the level required under the loan. A
significant fall in valuation over the last few years has resulted in a 'Hard
LTV' covenant breach which leads to an automatic increase in the interest
margin. The bank have agreed a waiver until the maturity date of the
additional interest margin.
In 2023 and 2022, within total liabilities of the joint venture, there is also
a loan amount of €10,000,000 owed to the Group. The Group has fully impaired
the loan and interest receivable from the joint venture and further details
are provided in note 6. 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% per annum
payable quarterly.
17. Trade and other receivables
Group Group Company Restated (as per note 1)
2023 2022 2023 Company
€'000 €'000 €'000 2022
€'000
Rent and service charges receivable 4,467 2,763 - -
Amounts due from subsidiary undertakings - - 1,221 16,096
VAT receivable 297 891 4 21
Rental and security deposits 1,067 1,569 - -
Proceeds receivable from development1 1,898 10,346 - -
Withholding tax receivable - - - -
Other debtors and prepayments 1,168 1,111 60 83
8,897 16,680 1,285 16,200
1 Refer to note 14 for proceeds due from the development of
Boulogne-Billancourt in Paris.
Other debtors and prepayments includes tenant incentives of €1,027,000
(2022: €1,244,000). There were no provisions against the above amounts in
2023 (2022: Nil).
18. Share capital and share premium
Group Group Company Company
30/09/2023 30/09/2022 30/09/2023 30/09/2022
€'000 €'000 €'000 €'000
Ordinary share capital 17,966 17,966 17,966 17,966
Share premium 43,005 43,005 43,005 43,005
As at 30 September 2023, the share capital of the Company was represented by
133,734,686 ordinary shares (2022: 133,734,686 ordinary shares) with a par
value of 10.00 pence.
Issued share capital
As at 30 September 2023, the Company had 133,734,686 ordinary shares (2022:
133,734,686 in issue (no shares were held in treasury). The total number of
voting rights of the Company at 30 September 2023 was 133,734,686 (2022:
133,734,686).
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.
19. 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 22.
Group Group Company Company
2023 2022 2023 2022
€'000 €'000 €'000 €'000
As at 1 October 68,744 68,589 - -
Drawdown of new loans 31,760 - - -
Repayment of matured debt facilities (26,950) - - -
Capitalisation of finance costs (84) (15) - -
Amortisation of finance costs 153 170 - -
As at 30 September 73,623 68,744 - -
Borrowings are removed from the statement of financial position 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 - HSBC Bank plc
The Group had a loan facility of €9.25 million with HSBC Bank plc which was
entered into during the year ended 30 September 2018.
The total amount had been fully drawn and matured on 27 September 2023. It
carried an interest rate which is the aggregate of the applicable Euribor 3
months rate and a margin of 2.15% per annum payable quarterly. The facility
was subject to a 1% arrangement fee which is being amortised over the period
of the loan. The debt had a LTV covenant of 62.5% and the interest cover
should be above 275%.
The lender had a charge over properties owned by the Group with a value of
€25,050,000. A pledge of all shares in the borrowing Group company is in
place.
This loan was fully repaid in September 2023.
Bank loan - ABN AMRO
The Group entered into a facility of €13.76 million with ABN AMRO during the
year ended 30 September 2023. The loan was fully drawn down on 28 September
2023 and matures on 1 September 2028.
It carries an interest rate of 5.3% which is payable quarterly. The debt has a
LTV covenant of 62.5%, with a cash trap of 55% which reduces by 1% each year
from 1 September 2024 and the debt to yield ratio should be above 12.5%.
The lender has a charge over property owned by the Group with a value of
€36,475,000. A pledge of all shares in the borrowing Group company will be
put in place.
Bank loan - BRED Banque Populaire
The Group entered into a loan facility totalling €13.0 million with BRED
Banque Populaire during the year ended 30 September 2018.
The total amount was fully drawn and matures on 15 December 2024. The loan
carries an interest rate which is the aggregate of the applicable Euribor 3
months rate and a margin of 1.30% per annum payable quarterly. The facility
was subject to an arrangement fee of €70,000 which is being amortised over
the period of the loan. The debt has a LTV covenant of 60% and the Interest
cover ratio ('ICR') should be above 400%. The Group has purchased an interest
rate cap to have risk coverage on the variation of the interest rate.
During the year ended 30 September 2020, the Group received a further €4.0
million of debt into SCI Directoire under its existing loan facility with BRED
Banque Populaire. The additional loan amount carries an interest rate of 1.45%
and was subject to a €30,000 arrangement fee which will be amortised over
the period of the loan. The total loan facility stands at €17.0 million and
matures on the original date of 15 December 2024.
The lender has a charge over property owned by the Group with a value of
€40,100,000. A pledge of all shares in the borrowing Group company is in
place.
Bank loan - Deutsche Pfandbriefbank AG
The Group has two loan facilities totalling €30.50 million with Deutsche
Pfandbriefbank AG which were entered into during the year ended 30 September
2016.
Of the total amount previously drawn, €14.0 million was due to mature on 30
June 2023 and carried a fixed interest rate of 0.85% per annum payable
quarterly; the remaining €16.5 million matures on 30 June 2026 and carries a
fixed interest rate of 1.31% per annum. 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 a LTV covenant of 65% and the debt yield must be at least 8%.
The lender has a charge over property owned by the Group with a value of
€90,050,000. A pledge of all shares in the borrowing Group companies is in
place.
The €14.0 million loan was fully repaid in March 2023.
Bank loan - Westerwald Bank eG
The Group entered into a facility of €18.0 million with Westerwald bank on
31 March 2023. The loan has been fully drawn and matures on 31 December 2027.
It carries an interest rate of 3.8% which is payable quarterly.
The lender has a charge over property owned by the Group with a value of
€42,400,000.
Bank loan - Landesbank Saar
The Group entered into a loan facility of €8.6 million with Landesbank Saar
on 27 March 2019.
The loan matures on 28 March 2024 and carries an interest rate of 1.40% plus
Euribor 3 months per annum, payable quarterly. An additional 25bps is applied
to the margin if the LTV is between 56% and 60%, or 50bps if the LTV is above
60%. The facility was subject to a €56,000 arrangement fee which is being
amortised over the period of the loan. The debt has a LTV covenant of 64% and
the interest cover should be above 220%. A pledge of all shares in the
borrowing Group company is in place.
This loan was classified as a current liability for the year ended 30
September 2023.
Bank loan - Landesbank Saar
On 25 November 2019, SCI Rumilly entered into a new loan facility with
Landesbank Saar for €3.7 million.
The loan matures on 30 April 2023 and carries an interest rate of 1.30% plus
Euribor 3 months per annum payable quarterly. An additional 25bps is applied
to the margin if the LTV is between 52% and 56%, or 50bps if the LTV is equal
to or above 56%. The facility was subject to a €46,000 arrangement fee which
is amortised over the period of the loan. The debt has a maximum LTV covenant
of 60% and a minimum ICR covenant of 200%. A pledge of all shares in the
borrowing Group company is in place
The Group fully repaid the loan ahead of its maturity in April 2023.
20. Trade and other payables
Group Group Company Company
30/09/2023 30/09/2022 30/09/2023 30/09/2022
€'000 €'000 €'000 €'000
Rent received in advance 880 1,333 - -
Rental deposits 1,393 1,568 - -
Interest payable 206 133 - -
Retention payable 85 2 - -
Accruals 2,194 2,428 893 1,477
Trade payables 98 393 39 -
4,856 5,857 932 1,477
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 €626,000 (2022: €717,000) and property expenses of €505,000 (2022:
€625,000).
21. Net asset value per ordinary share
The NAV per ordinary share of 128.2 euro cents per share (2022: 140.8 euro
cents per share) is based on the net assets attributable to ordinary
shareholders of the Group of €171,439,000 (2022: €188,243,000), and
133,734,686 ordinary shares in issue at 30 September 2023 (2022: 133,734,686
ordinary shares).
22. 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 caps when required to limit exposure to interest rate risks, but does not
have any other derivative instruments. The financial risk profile of the Group
has been heightened, in part due to ongoing geopolitical developments,
together with macroeconomic uncertainty.
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.
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 sale's price even where
such sales occur shortly after the valuation date.
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 re-lease space and the costs thereof; the costs of maintenance and
insurance, and increased operating costs.
The Board monitors the market value of investment properties by having
independent valuations carried out quarterly by a firm of independent
chartered surveyors. See note 13.
At the date of signing this report, the conflict in Ukraine continues to have
significant societal and economic impact. The Group does not have a material
direct exposure to Russia or Ukraine, but continues to monitor the situation
closely.
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:
Net assets Group Group Company Company
30/09/2023 30/09/2022 30/09/2023 30/09/2022
€'000 €'000 €'000 €'000
Euros 171,346 188,436 148,903 155,842
Sterling 13 (223) 13 (223)
Rand 80 30 80 30
171,439 188,243 148,996 155,649
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 such as
derivatives which are driven by interest rate movements. As at 30 September
2023, the total carrying value of the Group's loans was €73.9 million (2022:
€69.1 million). The Group only has its fixed rate debt fair valued, and as
at 30 September 2023, the fair value of the Group's fixed rate debt was
€47.3 million (2022: €29.5 million). The carrying value for the fixed rate
debt was €48.3 million (2022: €30.5 million). The Group does not fair
value variable rate debt. The carrying value of the variable rate debt, which
is €25.6 million (2022: €38.6 million) is deemed to approximate the fair
value. A 1% increase or decrease in short-term interest rates would decrease
or increase the annual income and equity by €0.1 million (2022: €0.1
million) based on the net of cash and variable debt balances as at 30
September 2023. 1% has been chosen as the sensitivity rate to demonstrate the
linear relationship to interest rate changes.
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.
With regard to trade and other receivables, sufficient provisions were made
against aged tenant receivables where these were doubtful. Management will
continue to monitor the ability of the tenants to pay in future.
With regard to the loan to the Seville joint venture, the Directors have
assessed this for an expected credit loss under IFRS 9 and, consequently, have
recognised an impairment against the receivable; see note 6 for further
details.
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 a 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.
The table below shows the balance of cash and cash equivalents held with
various financial institutions at the end of the reporting year.
Bank Ratings as at Group balance at 30/09/2023 Company balance at 30/09/2023
30/09/2023 €'000 €'000
HSBC Bank plc A- 7,222 1,450
ING Bank N.V. A- 5,123 -
BNP Paribas A- 1,274 -
BRED Banque Populaire A 1,664 -
Santander A- 7,096 7,089
Societe Generale SA A- 3,773 871
Commerzbank AG BBB 2,155 -
FirstRand Bank Limited BBB- 80 80
Royal Bank of Scotland International BBB+ 4,058 4,058
32,445 13,548
Bank Ratings as at Group balance at 30/09/2022 Company balance at 30/09/2022
30/09/2022 €'000 €'000
HSBC Bank plc A+ 2,743 862
ING Bank N.V. A+ 9,994 -
BNP Paribas A+ 1,768 -
BRED Banque Populaire A 6,671 -
Santander A 6,905 6,900
Societe Generale SA A 4,569 2,247
Commerzbank AG BBB+ 1,644 -
FirstRand Bank Limited BB- 30 30
34,324 10,039
The maximum exposure to credit risk for rent and service charge receivables at
the reporting date by type of sector was:
30/09/2023 Carrying amount 30/09/2022 Carrying amount
€'000 €'000
Office 3,357 1,701
Retail (including retail warehousing) 561 381
Industrial 550 513
4,468 2,595
Rent receivables which are past their due date, but which were not impaired at
the reporting date, were:
30/09/2023 Carrying amount 30/09/2022 Carrying amount
€'000 €'000
0-30 days 65 2,707
31-60 days 59 -
61-90 days 8 -
91 days plus 712 -
844 2,707
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulties in
meeting its financial obligations.
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 2023 Carrying amount Expected 6 months 6 months 2-5 years More than
€'000 cash flows or less to 2 years €'000 5 years
€'000 €'000 €'000 €'000
Financial liabilities
Interest-bearing loans and borrowings and interest 73,860 81,289 9,587 19,604 52,098 -
Trade and other payables 4,856 4,856 4,856 - - -
Total financial liabilities 78,716 86,145 14,443 19,604 52,098 -
As at 30 September 2022 Carrying amount Expected cash flows 6 months or less 6 months to 2 years 2-5 years More than 5 years
€'000 €'000 €'000 €'000 €'000 €'000
Financial liabilities
Interest-bearing loans and borrowings and interest 69,050 70,845 461 36,459 33,925 -
Trade and other payables 5,724 5,724 5,724 - - -
Total financial liabilities 74,774 76,569 6,185 36,459 33,925 -
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 asset 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 (2022:
none).
The following summarises the main methods and assumptions used in estimating
the fair values of financial instruments and investment property (which is a
non-financial asset).
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 13 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.
Trade and other receivables/payables
All receivables and payables are deemed to be due within one year and as such
the carrying value approximates the fair value.
Derivatives - Level 2
Fair values of derivatives are based on current market conditions such as the
current EURIBOR rate 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 an
appropriate level of gearing.
The Group's debt and capital structure comprises the following:
30/09/2023 €'000 30/09/2022 €'000
Debt
Loan facilities and accrued interest 73,828 68,877
Equity
Called-up share capital and share premium 60,971 60,971
Retained earnings and other reserves 110,468 127,272
Total equity 171,439 188,243
Total debt and equity 245,267 257,120
There were no changes in the Group's approach to capital management during the
year.
The Company's capital structure is comprised of equity only.
23. Operating leases
The Group leases out its investment property under operating leases. At 30
September 2023, the future minimum lease receipts under non-cancellable leases
are as follows:
The Group as a lessor 30/09/2023 €'000 30/09/2022 €'000
Less than one year 16,511 14,426
Between one and five years 41,938 41,945
More than five years 13,189 7,435
71,638 63,806
The total above comprises the total contracted rent receivable as at 30
September 2023.
24. Related party transactions
Material agreements are disclosed in note 5 and Directors' emoluments are
disclosed in note 9. Loans to related parties are disclosed in the
consolidated and company statements of financial position and other amounts
due from related parties are disclosed in note 17.
Details of dividends received from the joint venture are disclosed in note 16.
Interest receivable from the joint venture was impaired during the year; refer
to note 6 for further details.
25. Contingent liability
There are no contingent liabilities other than those disclosed in note 10.
26. Capital commitments
At 30 September 2023 the Group had capital commitments of €400,000 (2022:
€1,500,000) with regards to its directly held portfolio. This relates to
various small projects across the portfolio.
In addition, the Group is expected to incur a further €1.0 million of
development expenditure with regards to the comprehensive refurbishment of the
Paris, Boulogne‑Billancourt asset.
27. Employees
The Group has one employee who is appointed by the French branch of the
Company. The total charge for the employee during the year was €22,000
(2022: €22,000).
28. Post balance sheet events
There were no significant events occurring after the balance sheet date.
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