REG - Schroder Euro Real - Final Results
06/12/2024 07:00
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RNS Number : 0515P Schroder Eur Real Est Inv Trust PLC 06 December 2024
6 December 2024
SCHRODER EUROPEAN REAL ESTATE INVESTMENT TRUST PLC
("SEREIT"/ the "Company" / "Group")
FULL YEAR RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2024
Positive NAV total return with portfolio indexation underpinning earnings
growth and fully covered dividend, supported by low LTV
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 2024.
- Underlying EPRA earnings increased 3% to €8.2 million (2023: €8.0
million), primarily due to rental growth offsetting the impact of higher
interest costs
- Total dividends declared for the year totalled 5.92 euro cps, 103% covered by
EPRA earnings, offering an attractive dividend yield of c.7.1% based on the
closing share price of 69.2pps as at 29 November 2024
- Net Asset Value ("NAV") of €164.1 million, or 122.7 cps, (30 September 2023:
€171.4 million or 128.2 cps), primarily driven by outward yield movement in
the first half
- IFRS profit of €0.6 million contributing to a positive NAV total return of
0.4% (30 September 2023: -5.0% total return / €9.4 million IFRS loss)
- Strengthened balance sheet with completion of all near-term refinancings on
attractive terms, with no further debt expiries until June 2026 and a low
average interest cost of 3.2%
- Low Loan to Value ("LTV") of 25% (net of cash) and c.€25 million of
available cash, providing significant flexibility
- As previously announced, the French tax authorities are proceeding with a tax
audit. The potential exposure is up to €12.6 million (excluding penalties).
Based on professional advice, the Board continue to believe that an outflow is
not probable, and therefore no provision is recognised. The Group will
continue to monitor the situation and provide further updates as required.
Operational expertise and exposure to winning sectors supporting rental growth
and recovery in capital values
- Direct property portfolio independent valuation declined 3.6% to €208.1
million (or €7.6 million net of capex), entirely weighted towards the first
half of the year, due to outward yield movement as investor sentiment was
negatively impacted by higher interest rates
- Concluded 16 new leases and re-gears, totalling c.8,000 sqm, which generated
€1.4 million of contracted rent, at a weighted lease term of eight years
- Portfolio benefits from high occupancy level of 96% with an average portfolio
lease term of 4.7 years
- 100% of rent due collected
- Progressed the Company's sustainability strategy, including the completion of
third-party sustainability and Net Zero Carbon ("NZC") audits for 12 assets.
Sir Julian Berney Bt., Chairman, commented:
"Despite the broader challenges facing smaller REITs, the Company is well
positioned, with a differentiated and compelling investment thesis focused on
assets with robust property fundamentals in higher growth European cities.
"We have a high conviction, shared by our shareholders and supported by the
stabilisation in values that we have seen in more recent quarters, that the
current strategy and pipeline of value-enhancing asset management initiatives
will continue to drive earnings, support a covered and ultimately growing
dividend, and deliver risk-adjusted returns for shareholders."
Jeff O'Dwyer, Fund Manager for Schroder Real Estate Investment Management
Limited, added:
"The portfolio has demonstrated notable resilience, which is testament to the
quality of our assets and local teams, as well as the focus on high performing
sub-markets. Although further short term macroeconomic volatility is expected,
the medium term outlook is supportive of real estate investment. Our focus
moving forward is to maintain our balance sheet strength whilst capturing the
portfolio reversion to boost earnings and asset liquidity, with the aim of
reducing the current share price discount."
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) .
The Company's annual report and financial statements, including the Notice of
Annual General Meeting, will shortly be uploaded to the Financial Conduct
Authority's National Storage Mechanism and will be available for inspection
at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) . A separate
announcement will be released once this has taken place.
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://www.schroders.events/SEREFY24 (https://www.schroders.events/SEREFY24)
Enquiries:
Jeff O'Dwyer 020 7658 6000
Schroder Real Estate Investment Management Limited
Natalia de Sousa 020 7658 6000
Schroder Investment Management Limited
Dido Laurimore/Richard Gotla/Ollie Parsons 020 3727 1000
FTI Consulting Schroderrealestate@fticonsulting.com
(mailto:Schroderrealestate@fticonsulting.com)
Chairman's Statement
Overview
We are pleased to announce our audited results for the financial year ended 30
September 2024.
Reflecting on the past year, I am proud to report that the Schroder European
Real Estate Investment Trust has shown significant resilience in a fluctuating
economic environment. Despite ongoing macroeconomic challenges, including weak
economic growth, varying debt availability and cost, and geopolitical
uncertainties, our strategic focus on assets with strong property fundamentals
in expanding European markets - supported by substantial cash reserves and
modest leverage - means the Company is well placed as we move into 2025 and
what should be a more supportive backdrop for REITs.
2024 has been characterised by stabilising inflation and the easing of
monetary policy by the European Central Bank. These developments will
revitalise investor confidence and enhance market liquidity. Our proactive
asset management approach, prioritising local expertise and operational
excellence, has delivered robust results and ensured stable income returns for
our stakeholders. Encouragingly, we have seen a slow down in the rate of
capital value decline across the portfolio, with the anticipation that we will
start to see yield compression in the coming quarters.
Growing Underlying EPRA Earnings: Underlying EPRA earnings increased to €8.2
million (FY 2023: €8.0 million), driven by high occupancy, a diversified
tenant base, excellent rent collection and the indexation features of our
portfolio delivering income growth. Collectively, these factors have helped
mitigate the impact of rising interest costs.
Fully Covered Dividends: In the current quarter, the Board has decided to
maintain the quarterly dividend of 1.48 euro cents per share.
The total dividends declared and paid for the year amounted to €7.9 million,
equating to 5.92 euro cents per share, which offers an attractive dividend
yield of approximately 7% per annum based on the share price of 69.2 pence
sterling as of 29 November 2024. This dividend is 103% covered by EPRA
earnings.
Emphasis on Asset Management: Our focus on lease management has resulted in 16
new leases and re-gears being concluded across the portfolio, totalling
approximately 8,000 sqm and generating €1.4 million in annual rent, with a
weighted lease term of eight years. This commitment to operational excellence
maximises shareholder returns, ensuring our assets remain competitive. Our
local investment and asset management teams, equipped with specialised sector
and country knowledge, will continue to drive performance.
Strong Balance Sheet: We have successfully completed all near-term
refinancings on favourable terms, ensuring the Company is in a robust
financial position. Our significant available cash balance stands at €25
million, with modest gearing of 25% net of cash and no debt maturities until
June 2026. This resilient balance sheet grants us considerable operational
flexibility. Further balance sheet upside is foreseeable with the planned
disposal of Seville reducing portfolio gearing by 3%.
Portfolio Value: The uncertain macroeconomic climate has resulted in a
decrease in the valuation of our underlying portfolio (net of capex) by €7.6
million, or -3.6%, to €208.1 million, primarily driven by continued outward
yield movement. Positively, the decline was almost entirely weighted towards
the first half of the year and recent observations indicate a stabilisation in
valuations.
Alongside EPRA earnings, this has resulted in an IFRS profit of €0.6 million
and a NAV total return of 0.4%. We are noticing an increase in investment
volumes and evidence for valuers across Europe, particularly for smaller lot
sizes in desirable cities, which reassures us about underlying carrying
values. Further European interest rate cuts should bolster confidence and the
potential for yield contraction, positively impacting values and liquidity.
Energy and Carbon: We completed third-party sustainability and Net Zero Carbon
('NZC') audits for 12 assets during the period with further
third-party specialist net zero carbon analysis ongoing at the fund level. By
leveraging the Investment Manager's platform and proprietary ESG Scorecard,
these audits support our ongoing commitment to enhance our understanding of
the quality of our existing portfolio through informed investment decisions.
During the period, the Company also issued a TCFD Product report and
maintained its Global Real Estate Sustainability Benchmark ('GRESB') 4-star
status.
Tax disclosure: The French tax authorities are proceeding with their tax audit
and have requested additional disclosures regarding previous tax filings
related to the structure. The range of potential outcomes indicates a possible
outflow of between €nil and €12.6 million, excluding potential penalties.
Based on professional advice, the Board has decided not to make a provision,
as they do not believe that an outflow is probable. The Group will continue
monitoring the situation and will provide further updates as necessary.
Outlook: European occupational markets remain resilient, with most of our
sub-markets benefitting from supply constraints and modest vacancy levels. We
are witnessing a bifurcation in office demand; there is a growing investor and
occupier appetite for centrally located offices that meet building
sustainability certifications1, while poorer quality offices are struggling to
maintain occupancy, income levels and investor demand. More broadly, office
occupancy rates across Europe continue to tick up, passing 60% for the first
time since the pandemic in October, which is boosting take up, which increased
6% year-on-year in the first half of 2024.
E-commerce and evolving supply chain management practices are driving robust
demand for logistics, particularly in urban locations, where stronger rental
growth is anticipated. Retail demand continues to favour open air retail
parks, urban 'big box' units and convenience grocery offerings. Despite a
resurgence in physical retail, shopping centres are facing ongoing challenges,
as consumers increasingly prefer dominant shopping centres that offer a
diverse mix of fashion and leisure options.
Looking ahead, we expect to continue reaping benefits from a high-quality
portfolio with strong occupancy rates located in key European cities. As
inflation eases and interest rates fall, we expect sentiment to continue to
improve and larger economies and cities are poised for enhanced growth.
The Board and Investment Manager are acutely aware that the Company continues
to trade at a significant discount, alongside the broader challenges facing
smaller REITs in attracting new investors in the current market environment.
Nevertheless, we firmly believe - alongside our shareholders - that the
Company's strategic emphasis on the right cities and sectors, coupled with
targeted asset management initiatives from our local specialist teams, will
lead to positive returns in the future. With this supportive backdrop, the
Investment Manager is focused on capitalising on portfolio reversion to
enhance earnings. The successful regearing of leases over the next 18 months,
particularly with KPN, Hornbach, and Nestlé, is expected to strengthen the
income profile and facilitate potentially transformative asset management
initiatives. We believe these actions will support a re-rating and place us in
a more advantageous position.
Lastly, I would like to extend a warm welcome to Mark Beddy, who joined us on
1 January 2024 as a new Non-Executive Director and Chair of the Audit,
Valuation and Risk Committee, succeeding Jonathan Thompson. On behalf of my
fellow Directors and the Manager, I extend our thanks to Jonathan for his
dedication and service over the past nine years. The Board continues to review
succession planning particularly in relation to the Chair role.
Sir Julian Berney Bt.
Chairman
5 December 2024
Investment Manager's Report
Financial results
The net asset value ('NAV') as at 30 September 2024 stood at €164.1 million
(£136.5 million), or 122.7 euro cents per share (102.0 pence per share),
compared with €171.4 million, or 128.2 cps, as at 30 September 2023(1).
During the period, dividends totalling €7.9 million were paid, which
resulted in a NAV total return of 0.4%.
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.
€m cps(2)
NAV as at 1 October 2023 171.4 128.2
Unrealised change in the valuations of the real estate portfolio(3) (6.1) (4.5)
Capital expenditure(3) (1.5) (1.1)
Transaction costs(3) 0.0 0.0
Paris, Boulogne-Billancourt post-tax development profit 0.6 0.4
Movement on the Seville JV investment - -
EPRA earnings(4) 8.2 6.2
Non-cash/capital items (0.6) (0.6)
Dividends paid(5) (7.9) (5.9)
NAV as at 30 September 2024 164.1 122.7
1 Exchange rate as at 30 September 2024 GBP:EUR 1.20.
2 Based on 133,734,686 shares.
3 The unrealised loss in the valuation of the real estate of the portfolio
(€6.1m), net of capital expenditure (€1.5m), reconciles to the 'net
gain/(loss) from fair value adjustment on investment property' of (€7.6m) on
page 66 of the financial statements.
4 EPRA earnings as reconciled on page 96 of the financial statements.
5 Dividends of 5.92 cps were paid during the financial period. A dividend for
the quarter ended 30 September 2024 of 1.48 Euro cents per share was approved
and will be paid in November 2024. Total dividends declared relating to the 12
months' ended 30 September 2024 were 5.92 Euro cents per share.
The direct portfolio, after accounting for capital expenditure, declined in
value by €7.6 million due to a re-rating of market yields for the underlying
real estate. The correction appears to have largely concluded in the first
half of the year, while the second half suggests a stabilisation in
valuations.
An additional profit from the Paris BB sale was released into the NAV this
financial period. The majority of the profit has now been crystallised and
there remains approximately €0.6m of potential post-tax profit still to be
recognised in the NAV. Further information is disclosed in note 14 on pages 83
and 84.
Non-cash items of -€0.6 million mainly result from derivative movements.
EPRA earnings for the period totalled €8.2 million.
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 Increasing exposure to higher growth Winning Cities and Regions
3 Applying a research-led approach to determine attractive sectors
and locations in which to invest in commercial real estate
4 Managing the Company prudently and efficiently by controlling
costs and maintaining a strong balance sheet
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 asset management approach that is focused on operational
excellence
6 Managing assets as individual businesses, ensuring the services
and contract terms meet changing tenant demands and that assets are operated
efficiently to minimise the use of scarce resources
Real estate portfolio
As at 30 September 2024, the portfolio comprised 15 institutional grade
properties valued at €208.1 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 €16.91 million per annum,
reflecting a net initial yield of 6.9%. The independent valuers' portfolio
estimated rental value ('ERV') is €16.3 million per annum.
Key asset management highlights included:
· 16 new leases / re-gears generating €1.4m of annual income at a weighted
unexpired lease term of 8 years;
· 15-year lease extension of anchor tenant, Lidl, at the Frankfurt investment;
· Capital expenditure improvements including LED lighting at the Stuttgart
office and roof insulation enhancements to the Rumilly industrial
investment;
· Completed sustainability audits by leveraging the Investment Manager's
investment process and third-party consultants to undertake net zero carbon
analysis. These efforts have been made with the aim of investing in, and
improving the quality of our existing portfolio.
The diversified nature and strength of underlying tenants, along with the
assets being generally leased off affordable and sustainable rents, are
expected to sustain relatively resilient portfolio income in a weaker economic
climate and a more challenging period for consumers and businesses.
Approximately 33% of the portfolio by value is offices, all of which are in
supply-constrained locations and leased off affordable rents. Our industrial
exposure of 30% is a mixture of distribution warehouses and light industrial
accommodation in growth cities within France and The Netherlands. Our retail
exposure of 17% comprises DIY and grocery investments in densely populated
urban areas and sectors that are performing strongly. 9% of the portfolio is
allocated to the alternatives sector, comprising a mixed-use data centre and a
car showroom, with the remaining 11% in cash.
At the period end the portfolio void rate was 4%, calculated as a percentage
of estimated rental value. The portfolio weighted average lease length,
calculated to the earlier of lease expiry or break, is 3.7 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%) and hence we expect
nearly all the leases to directly benefit from inflation.
1 Represents the annualised contracted rents as at 30 September 2024 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 properties(1
) 15
Portfolio value(1,2
) €233.2m
Number of tenants(1
) 51
Occupancy(1
) 96%
Top ten properties
Property Sector Value
(€m/% portfolio)(1,2)
1 France, Paris (Saint-Cloud) Office €37.4m / 16%
2 Germany, Berlin Retail/DIY €27.7m / 12%
3 Germany, Hamburg Office €21.6m / 9%
4 France, Rennes Industrial €18.9m / 8%
5 Germany, Stuttgart Office €18.0m / 8%
6 The Netherlands, Apeldoorn Mixed €13.6m / 6%
7 Germany, Frankfurt Retail/Grocery €11.8m / 5%
8 The Netherlands, Venray Industrial €11.3m / 5%
9 The Netherlands, Alkmaar Industrial €11.1m / 5%
10 France, Rumilly Industrial €9.9m / 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 €208.1m and available
cash of €25.1m (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 69% of the
portfolio(1).
Top ten tenants
Rank Tenant Industry Property Contracted rent WAULT break (yrs) WAULT expiry (yrs)
€m % of total
1 KPN Telecom Apeldoorn 3.0 18% 2.3 2.3
2 Hornbach DIY Berlin 1.8 11% 1.3 1.3
3 C-log Logistics Rennes 1.3 7% 6.4 6.4
4 Outscale IT Paris 1.1 6% 4.7 7.7
5 Cereal Partners Consumer staples Rumilly 0.8 5% 0.6 1.6
6 DKL Logistics Venray 0.8 5% 4.0 4.0
7 LandBW Government Stuttgart 0.8 5% 1.8 1.8
8 Schuurman Beheer Manufacturing Alkmaar 0.7 4% 13.5 18.5
9 Inventum Manufacturing Houten 0.7 4% 5.3 5.3
10 Filassistance Insurance Paris 0.7 4% 3.2 8.3
Total top ten tenants 11.7 69% 3.7 4.6
Remaining tenants 5.2 31% 3.9 4.9
Total 16.9 100% 3.7 4.7
1 Excludes the Seville property for which the NAV exposure is nil.
The largest tenant is KPN, representing 18% of the portfolio's contracted
rent. KPN are a leading telecommunications and IT provider and market leader
in the Netherlands which occupies our mixed-use Apeldoorn asset (data centre
and office).
The second largest tenant is Hornbach, a leading German-based operator of
do-it-yourself ('DIY') stores and home centres. It is representing 11% the
portfolio rents and is the sole occupier of our Berlin DIY asset, comprising a
four-hectare site that has the potential to benefit from alternative uses.
Hornbach's lease expires December 2025 with 3x5 year options.
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, Cereal Partners (Nestlé), DKL, Land Baden-Württemberg,
Schuurman Beheer, Inventum and Filassistance.
Rent collection update(1)
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 2024 Office Industrial Retail Mixed Total portfolio
2024 2023 2024 2023 2024 2023 2024 2023 2024 2023
Paid 99.8% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 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(2) 0.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
1 Rent collection table excludes the Seville property for which the NAV exposure
is nil. 2023 and 2024 refer to 12 months ending 30 September.
2 Outstanding amount relates to indexation for two tenants at Hamburg in Q3 2024
which is expected to be paid.
Portfolio performance
During the period, total property returns ('TPRs') for the underlying property
portfolio were 3.1%. With the portfolio benefitting from indexation, strong
occupancy and high rent collection, property income returns were strong at
+6.9%, thereby more than offsetting negative capital returns of -3.6%.
Strong performance was seen in the industrial portfolio, with Venray
delivering a TPR of +8%, Venray II +11%, Nantes +10%, Rennes +7% and Houten
+5%. Values for these assets held up well and income returns were healthy.
The Frankfurt grocery asset delivered a robust total return of 9%, largely
attributable to the successful completion of a new 15-year lease extension
with anchor tenant, Lidl.
The portfolio's mixed-use data centre in Apeldoorn contributed to performance
delivering a total return of +7% due to high income return compensating
capital value decline as a result of outward yield movement.
The main detractors from portfolio performance were the office assets in
Stuttgart (-4% TPR), the car showroom in Cannes (-1% TPR) and Hamburg (0% TPR)
which witnessed relatively strong valuation declines.
In summary, the real estate portfolio has delivered ungeared property returns
of 3.1%, 2.6% and 3.9% over one, three and five years respectively.
Balance sheet
Over the period, the Investment Manager successfully completed all remaining
refinancings, excluding Seville, at attractive terms, placing the Company in a
strong financial position with high cash levels of c.€25 million and no
further debt expiries until June 2026.
Re-gears have extended the average loan maturity by 13 months. The average
blended interest rate across the loan portfolio has increased approximately 30
basis points as a result of higher finance costs for the new loans.
In detail:
· The early refinancing of the Paris office investment concluded at a margin of
1.9% for four years, an increase from the existing margin of 1.3%. The loan
principal was reduced from €17 million to €14 million. The rationale for
the early refinancing is the expectation for a tighter and more expensive
lending environment, particularly for secondary offices.
· The refinancing of a €8.6 million loan secured against the Rennes industrial
asset completed with the existing lender for five years at a margin of 1.6%, a
slight increase on the existing 1.4% margin.
The Company's third-party debt totals €82.5 million across six loan
facilities as at 30 September 2024. The current blended all-in interest rate
is 3.2% and the average remaining loan term is 2.8 years. The loan to value
('LTV') net of cash is 25% 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 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 31/12/2027 €18.00m 3.80% No covenant No covenant
Deutsche Pfandbriefbank Berlin / Frankfurt 30/06/2026 €16.50m 1.31% 33% 44%]
BRED Banque Populaire Paris (Saint-Cloud) 15/12/2027 €14.00m 3M Eur+1.9% 17% >50%
ABN Amro The Netherlands industrials(1) 27/09/2028 €13.76m 5.30% 39% 25%
Landesbank SAAR Rennes 26/03/2029 €8.60m 4.3% 17% 41%
Münchener Hypothekenbank Seville (50%)(2) 31/12/2024 €11.68m 2.01% In breach(3) In cash trap
Total €82.54m
1 The ABN Amro loan is secured against five of the Netherlands industrial
assets: Alkmaar, Houten, Utrecht, Venray 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 Operated under a standstill agreement 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 loan is
secured solely against the Seville investment, with no recourse back to the
Company or any other entity within the Group.
· The Seville loan is being operated under a standstill agreement expiring 31
December 2024 to facilitate a sale.
· A disposal of the Seville property /entity would reduce portfolio gearing by
approximately 3%.
· The German and Dutch loans are fixed rate for the duration of the loan term.
· The Paris loan is based on a margin above three-month Euribor. The Company
continues to benefit from an existing interest rate hedge, capped at 1.25%,
expiring 15 December 2024.
· A further interest rate hedge (capped at 3.25%) has been acquired covering the
remaining loan period to 15 December 2027. This allows the Company to benefit
from a potential decline in interest rates.
· The combined fair value of the derivative contracts is €0.7 million as at 30
September 2024.
Outlook
We have reached a pivotal moment in various real estate sectors, with growing
confidence in occupier demand, liquidity and property values. This optimism is
supported by favourable developments concerning inflation, recent interest
rate cuts and the expected further easing of monetary policy over the next 18
to 24 months. Such factors are anticipated to positively impact commercial
real estate and boost business confidence.
Occupation markets have demonstrated resilience, particularly within the
sub-markets where we operate. Our strategic focus on growth cities and
locations that benefit from infrastructure improvements, supply constraints
and alternative use investments leased at competitive rents, positions the
Company favourably.
In addition to these immediate factors, our strategy continues to reflect the
influence of long-term structural trends, including urbanisation,
technological advancements, demographic shifts, and decarbonisation.
The successful conclusion of pending lease expiries, particularly for KPN and
Hornbach, will be crucial in strengthening our income profile and ensuring
dividend stability.
Jeff O'Dwyer
Fund Manager
5 December 2024
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 2024.
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.
Currently the French tax authorities are proceeding with a tax audit and have
requested additional disclosures and information regarding previous tax
filings related to the structure.
The range of potential outcomes indicate a possible outflow of between €nil
and €12.6 million, excluding potential penalties, together with a potential
impact on the level of future post-tax profits from the Group's investment
properties in France. Based on professional advice, the Board has decided not
to make a provision, as they do not believe that an outflow is probable. The
Group will continue monitoring the situation and will provide further updates
as necessary.
The successful debt refinancings of both the Saint-Cloud and Rennes loans in
the financial year, with no further refinancings until June 2026 (excluding
Seville for which a standstill agreement has been agreed to 31 December 2024
to facilitate an orderly sale, and for which the Group's equity has been
previously written down to nil), have been deemed to have reduced the
refinancing risk of the Company significantly, and the sustainability of the
portfolio has become a greater focus.
From an emerging risks and uncertainties perspective, the Board recognises and
continues to be mindful of the changing global environment and the potential
risks posed by volatile markets; inflation and corresponding interest rate
changes; geopolitical uncertainty; structural changes; 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.
The Company's property portfolio remains resilient, as evidenced by rent
collection levels over the financial year. Loan covenants, interest rates,
cost of debt and expiry profiles continue to be actively managed as part of
cash flow forecasting and liquidity management. The Company has substantial
cash available providing a robust position to manage the Company through
current headwinds facing European economies.
During the year, the Board has reviewed the principal risks to ensure that
identified risk and mitigating actions remain appropriate.
A summary of the principal risks and uncertainties faced by the Company, and
the 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:
· Diversification of its property portfolio through its investment restrictions
An inappropriate investment strategy, or failure to implement the strategy, and guidelines which are monitored and reported on by the Investment Manager.
could lead to underperformance in the property portfolio compared to the · Receiving from the Investment Manager timely and accurate management
property market generally by incorrect sector or geographic weightings or a information including performance data, attribution analysis, property level
loss of income through tenant failure, both of which could lead to a fall in business plans and financial projections.
the value of the underlying portfolio. · Monitoring the implementation and results of the investment process with the
Investment Manager with a separate meeting devoted to strategy each year.
· Determining a borrowing policy, and ensuring the Investment Manager operates
within its borrowing restrictions and guidelines.
· Reviewing marketing and distribution activity, and considering the use of a
discount control mechanism as necessary.
· Undertaking an annual review of the ongoing suitability of the Investment
Manager.
Regulatory and tax 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 tax, planning, building regulations, health and safety, Company law,
accounting, reporting and UK 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 advisors when transacting and managing the Company's assets. All
contracts entered into by the Company are reviewed by the Company's legal and
other advisors.
The Board is satisfied that the Investment Manager has adequate procedures in
place to ensure continued compliance with the regulatory requirements of the
Financial Conduct Authority, the UK 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.
With regard to tax, 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. 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.
The French tax authorities have recently commenced a tax audit requesting
information on tax filings made in relation to the Group's SIIC structure. The
potential exposure is up to €12.6 million, excluding interest and penalties.
Having taken professional advice, the Board remains of the view that a
provision for this tax is not required as they do not consider that the tax
will ultimately be found due. However, the position will remain uncertain
until a conclusion is reached.
This is set out in further detail in note 10 of this Annual Report on page 79.
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 a 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.
Valuation An external valuer provides an 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 programs.
Gearing and leverage Gearing, including loan 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 which had been due to expire in the 2024 financial year were
successfully refinanced in good time. All remaining refinancings, excluding
Seville, are now completed at attractive terms, placing the Company in a
strong financial position. 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 and tax compliance
The Company has to comply with a wide range of legislation and regulations,
covering tax, planning, building regulations, health and safety, Company law,
accounting, reporting and UK Listing Rules.
The Board has appointed the Investment Manager as its Alternative Investment
Fund Manager ("AIFM") in accordance with the Alternative Investment Fund
Managers Directive ("AIFMD").
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 advisors when transacting and managing the Company's assets. All
contracts entered into by the Company are reviewed by the Company's legal and
other advisors.
The Board is satisfied that the Investment Manager has adequate procedures in
place to ensure continued compliance with the regulatory requirements of the
Financial Conduct Authority, the UK 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.
With regard to tax, 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. 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.
The French tax authorities have recently commenced a tax audit requesting
information on tax filings made in relation to the Group's SIIC structure. The
potential exposure is up to €12.6 million, excluding interest and penalties.
Having taken professional advice, the Board remains of the view that a
provision for this tax is not required as they do not consider that the tax
will ultimately be found due. However, the position will remain uncertain
until a conclusion is reached.
This is set out in further detail in note 10 of this Annual Report on page 79.
Economic and property market
The performance of the Company could be affected by economic, currency and
property market risk. In the wider economy this could include inflation,
stagflation or deflation (including in respect of costs such as construction
costs and operating expenses), economic recessions, movements in foreign
exchange and interest rates or other external shocks. The performance of the
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 Board considers economic conditions and the uncertainty around political
events when considering investment decisions. The Board mitigates property
market risk through the review of the Company's strategy on a regular basis
and discussions are held to ensure the strategy is still appropriate or if it
needs updating. Diversification of the majority of the portfolio across the
office and industrial/logistics sectors in growth cities, and a focus on
functional and affordable space, provides defensive characteristics.
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.
Valuation
Property valuations are inherently subjective and uncertain, due to the
individual nature of each property and its liquidity, particularly under
stressed market conditions.
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 programs.
An external valuer provides an independent valuation of all assets at least
quarterly. The Audit, Valuation and Risk Committee includes two experienced
chartered surveyors. Members of the Audit, Valuation and Risk Committee meet
with the external valuers to discuss the basis of their valuations, and their
quality control processes, on a quarterly basis.
Gearing and leverage
The Company utilises credit facilities. These arrangements increase the funds
available for investment through borrowing. While this has the potential to
enhance investment returns in rising markets, in falling markets the impact
and availability of financing could be detrimental to performance, and may
also result in potential non-compliance with loan covenants or refinancing
risk.
Gearing, including loan covenant compliance, is monitored at quarterly Board
meetings, and ad hoc as required, and strict restrictions on borrowings are
imposed both internally and by lenders. The overall cost of debt is regularly
reviewed with any new debt or refinancing presented to the Schroders Real
Estate Investment Committee and Board for approval.
All loans which had been due to expire in the 2024 financial year were
successfully refinanced in good time. All remaining refinancings, excluding
Seville, are now completed at attractive terms, placing the Company in a
strong financial position. 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.
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 89 to 93.
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 31 to 33, 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 macroeconomic 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 31 to 33 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 70.
By order of the Board
Sir Julian Berney Bt.
Chairman
5 December 2024
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 2024
Consolidated and Company Statements of Comprehensive Income
For the year ended 30 September 2024
Note Group Group Company year to 30/09/24 Company year to 30/09/23
year to
year to
€'000 €'000
30/09/24 30/09/23
€'000 €'000
Rental and service charge income 3 20,647 19,666 - -
Property operating expenses 4 (5,602) (5,398) - -
Net rental and related income 15,045 14,268 - -
Net loss from fair value adjustment on 13 (7,740) (19,726) - -
investment property
Development revenue 14 1,500 405 - -
Development expense 14 (695) 1,133 - -
Realised gain/(loss) on foreign exchange 4 (12) 4 (12)
Net change in fair value of financial instruments at fair value through profit (494) (260) - -
or loss
Management fee income 5 - - 1,410 1,503
Provision on loan receivable from joint venture 6 - - - -
Provision of investment made in subsidiaries 15 - - (50) -
Dividends received 8,16 - - 2,322 509
Expenses
Investment management fee 5 (1,899) (1,981) (1,899) (1,981)
Valuer's and other professional fees (719) (788) (217) (347)
Administrator's and accounting fees (586) (566) (120) (120)
Auditor's remuneration and assurance fees 7 (347) (335) (306) (324)
Directors' fees 9 (239) (232) (239) (232)
Other expenses 9 (540) (442) (418) (313)
Total expenses (4,330) (4,344) (3,199) (3,317)
Operating profit/(loss) 3,290 (8,536) 487 (1,317)
Finance income 654 228 2,407 2,086
Finance costs (2,596) (1,714) - -
Net finance (costs)/income (1,942) (1,486) 2,407 2,086
Share of loss from joint venture 16 - - - -
Profit/(Loss) before taxation 1,348 (10,022) 2,894 769
Taxation 10 (773) 640 - -
Profit/(Loss) for the year 575 (9,382) 2,894 769
Other comprehensive income/(loss):
Other comprehensive income/(loss) items that may be reclassified to profit or - - - -
loss
Total other comprehensive profit/(loss) - - - -
Total comprehensive income/(loss) for the year 575 (9,382) 2,894 769
Basic and diluted earnings per share attributable to owners of the parent 11 0.4c (7.0)c - -
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 2024
Note Group Group Company 30/09/23
30/09/24 30/09/23 Company 30/09/24 €'000
€'000 €'000 €'000
Assets
Non-current assets
Investment property 13 206,522 213,098 - -
Investment in subsidiaries 15 - - 69,921 69,921
Investment in joint venture 16 - - - -
Receivables from subsidiaries 1 - - 55,507 65,174
Loans to joint ventures 6,16 - - - -
Non-current assets 206,522 213,098 125,428 135,095
Current assets
Trade and other receivables 17 10,026 8,897 909 1,285
Interest rate derivative contracts 236 674 - -
Cash and cash equivalents 27,362 32,445 18,165 13,548
Current assets 37,624 42,016 19,074 14,833
Total assets 244,146 255,114 144,502 149,928
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) 103,126 (6,142) 83,002 (28,818)
Other reserves - 116,610 - 116,843
Total equity 164,097 171,439 143,973 148,996
Liabilities
Non-current liabilities
Interest-bearing loans and borrowings 19 70,471 65,023 - -
Deferred tax liability 10 4,163 4,225 - -
Non-current liabilities 74,634 69,248 - -
Current liabilities
Interest-bearing loans and borrowings 19 - 8,600 - -
Trade and other payables 20 4,955 4,856 529 932
Current tax liabilities 10 460 971 - -
Current liabilities 5,415 14,427 529 932
Total liabilities 80,049 83,675 529 932
Total equity and liabilities 244,146 255,114 144,502 149,928
Net asset value per ordinary share 21 122.7 128.2 107.7 111.4
The financial statements on pages 66 to 69 were approved at a meeting of the
Board of Directors held on 5 December 2024 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 2024
Group Note Share capital Share premium (Accumulated losses)/Retained earnings Other reserves Total equity
€'000 €'000 €'000 €'000 €'000
Balance as at 1 October 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
Transfers - - 116,610 (116,610) -
Profit for the year - - 575 - 575
Other comprehensive income/(loss) for the year - - - - -
Dividends paid 12 - - (7,917) - (7,917)
Balance as at 30 September 2024 17,966 43,005 103,126 - 164,097
Company Note Share capital Share premium (Accumulated losses)/Retained Other Total equity
€'000 €'000 earnings(1) reserves(1) €'000
€'000 €'000
Balance as at 1 October 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
Transfers - - 116,843 (116,843) -
Profit for the year - - 2,894 - 2,894
Other comprehensive income/(loss) for the year - - - - -
Dividends paid 12 - - (7,917) - (7,917)
Balance as at 30 September 2024 17,966 43,005 83,002 - 143,973
1 These reserves form the distributable reserves of the Company and include a
historic share premium reduction and may be used to fund distribution of
profits to investors via dividend payments.
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 2024
Note Group Group Company 30/09/24 Company 30/09/23
30/09/24 30/09/23 €'000 €'000
€'000 €'000
Operating activities
Profit/(Loss) before tax for the year 1,348 (10,022) 2,894 769
Adjustments for:
Net loss/(gain) from fair value adjustment on investment property 13 7,740 19,726 - -
Realised foreign exchange (gain)/loss (4) 12 (4) 12
Provision of loan made to Seville joint venture 6 - - - -
Provision of investment made in subsidiaries 15 - - 50 -
Finance income (654) (228) (2,407) (2,087)
Finance costs 2,596 1,714 - -
Net change in fair value of financial instruments through 494 260 - -
profit or loss
Dividend income classified as investing cash flows - - (2,322) (509)
Operating cash generated from/(used in) before changes in working capital 11,520 11,462 (1,789) (1,815)
(Increase)/decrease in trade and other receivables (627) 7,564 276 370
(Decrease)/increase in trade and other payables (167) (1,071) (497) (450)
Cash generated from/(used in) operations 10,726 17,955 (2,010) (1,895)
Finance costs paid (2,145) (1,573) - -
Finance income received 654 228 4,598 397
Tax (paid)/received (1,345) (714) - -
Net cash generated from/(used in) operating activities 7,890 15,896 2,588 (1,498)
Investing activities
Acquisition of investment property 13 - (11,167) - -
Additions to investment property 13 (1,682) (3,984) - -
Loans to subsidiary companies - - (2,200) (1,459)
Loan repayment from subsidiary company - - 9,820 19,000
Investment in subsidiary 16 - - - (5,400)
Dividends received - - 2,322 300
Net cash generated (used in)/from investing activities (1,682) (15,151) 9,942 12,441
Financing activities
Proceeds from borrowings 19,20 - 31,760 - -
Repayment of borrowings 19,20 (3,000) (26,950) - -
Interest rate derivative contracts purchased (56) - - -
Refinancing costs paid (322) - - -
Dividends paid 12 (7,917) (7,422) (7,917) (7,422)
Net cash used in financing activities (11,295) (2,612) (7,917) (7,422)
Net (decrease)/increase in cash and cash equivalents (5,087) (1,867) 4,613 3,521
for the year
Opening cash and cash equivalents 32,445 34,324 13,548 10,039
Effects of exchange rate change on cash 4 (12) 4 (12)
Closing cash and cash equivalents 27,362 32,445 18,165 13,548
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 2024 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 UK Listing Rules 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: 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 19.
Excluding Seville, for which the Group has already written its investment
fully down to nil, there are no further loans maturing within the going
concern period.
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 2025. 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 other key areas of estimates and judgements:
· Accounting for development revenue and variable consideration regarding Paris,
Boulogne-Billancourt: When determining 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. The Group is also subject to periodic
challenges by local tax authorities on a range of tax matters during the
normal course of business. Where changes to tax laws or challenges by local
tax authorities give rise to a provision or 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 financial assets and must therefore be assessed for
impairment and application of forward-looking expected credit loss model. For
impairments identified including those applied using the expected credit loss
model, 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 and released to the statement of comprehensive
income on a straight-line basis.
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 IFRS 9.
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 recognised 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
Investments
The carrying amounts of the Group's and Company's investments, 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 euros 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 denominated in foreign currencies at the
balance sheet date are translated into the presentational currency using the
exchange rate prevailing at that date. Foreign exchange differences arising on
translation to the presentation currency are taken to the consolidated
statement of comprehensive income.
2. New standards and interpretations
New standards and interpretations adopted by the Group
In the current year, the Group has applied a number of new standards and
amendments to IFRS Accounting Standards issued by the International Accounting
Standards Board ('IASB') that are mandatorily effective for an accounting
period that begins on or after 1 October 2023. Their adoption has not had any
material impact on the disclosures or on the amounts reported in these
financial statements.
These new standards and amendments are listed below:
· Amendments to IAS 7 and IFRS 7 - Disclosures titled supplier finance
arrangements
· Amendments to IAS 1 - Classification of liabilities as current or non-current
· Amendments to IFRS 16 - Lease liability in a sale and leaseback
At the date of authorisation of these financial statements, the Group has not
applied the following new and revised IFRS Accounting Standards that have been
issued but are not yet effective:
· Amendments to IAS 21 - Lack of exchangeability
· IFRS 18 - Presentation and Disclosures in the Financial Statements
· IFRS 19 - Subsidiaries without Public Accountability disclosures
The Directors do not expect that the adoption of the standards listed above
will have a material impact on the financial statements of the Group in future
periods.
3. Rental and service charge income
Group Group Company Company
30/09/2024 €'000 30/09/2023 €'000 30/09/2024 €'000 30/09/2023 €'000
Rental income 16,385 15,555 - -
Service charge income 4,262 4,111 - -
20,647 19,666 - -
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 €3,972,000 (2023: €3,086,000).
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
30/09/2024 30/09/2023 30/09/2024 30/09/2023 €'000
€'000 €'000 €'000
Repairs and maintenance 2,750 2,932 - -
Service charge, insurance and utilities on vacant units 670 456 - -
Real estate taxes 1,474 1,410 - -
Property management fees 375 376 - -
Other 333 224 - -
5,602 5,398 - -
All the above amounts relate to either service charge or property operating
expenses which are recoverable from tenants, except for €1,340,000 (2023:
€1,382,000) which relates to non-recoverable landlord expenses.
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 €1,899,000 (2023: €1,981,000). At the year end
€140,000 (2023: €626,000) was outstanding.
SREIM charges accounting services to the Company with a minimum contracted
annual charge of €81,000 (£70,000). The total charge to the Company was
€102,000 (2023: €104,000). At the year end €8,000 (2023: €35,000) was
outstanding. SREIM also charged accounting services to the subsidiaries
registered in Luxembourg at a contracted annual charge of €135,000 up until
10 March 2024. The total charge to the Luxembourg subsidiaries was €60,000
(2023: €Nil). At the year end €Nil (2023: €Nil) was outstanding. These
fees are included in administrator's and accounting fees in the consolidated
statement of comprehensive income. From 11 March 2024, CBRE's Investment
Accounting & Reporting Solutions (IA&R) group charged accounting
services to the Luxembourg subsidiaries.
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 (2023: €58,000). These are included in
administrator's and accounting fees in the consolidated statement of
comprehensive income. At the year end €5,000 (2023: €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 €1,410,000 (2023: €1,503,000) 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 2024 2023 2024 2023
SCI SEREIT Rumilly 48 53 12 24
SAS Clarity Developpement 375 386 189 187
SEREIT Berlin DIY Sàrl 134 153 34 74
SEREIT Hamburg Sàrl 109 120 55 57
SEREIT Stuttgart Sàrl 89 104 22 48
SEREIT Frankfurt Sàrl 56 58 14 27
SCI SEREIT Directoire 182 194 46 141
SEREIT Apeldoorn Sàrl 70 79 17 38
SEREIT UV Sàrl 121 125 31 62
SEREIT Alkmaar Sàrl 54 42 13 28
SCI SEREIT Pleudihen 91 100 46 72
SCI SEREIT Nantes 29 31 15 15
SCI LC Invest 34 38 17 18
SEREIT Holdings S.a.r.l 18 20 5 10
Total 1,410 1,503 516 801
6. Provision of loan made to Seville joint venture
As at 30 September 2024, 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 €2,391,000 (2023: €1,941,000). The loan
carries a fixed interest rate of 4.37% per annum payable quarterly and matures
on a date as agreed with the lender.
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 (2023: €Nil) bringing the
cumulative impairment to €11,537,000 and the Group's investment with regard
to Seville now stands at €Nil (2023: €Nil).
No further interest income was recognised in the consolidated financial
statements in the year to 30 September 2024 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 €24,000,000 then, all
else being equal, the Group could reverse €Nil of the previously recognised
impairment. 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 21,600,000 24,000,000 26,400,000
Potential future impairment reversal - - 800,000
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 €347,000 (2023: €330,000)
which includes the Group audit and the individual statutory audits. The
Company's total audit fees for the year were €244,000 (2023: €239,000)
which only covers the Group audit.
The interim review fee was €52,100 (2023: €51,000) 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 (2023: €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. (2023: €Nil) (see note
15).
During the year, the Company received dividends from its subsidiary
undertakings. €722,000 (2023: €300,000) was received from OPPCI SEREIT
France, €Nil (2023: €209,000) was received from SEREIT Holdings France and
€1,600,000 (2023: €Nil) was received from SAS Clarity Development.
9. Other expenses
Group Group Company Company
30/09/2024 30/09/2023 30/09/2024 30/09/2023
€'000 €'000 €'000 €'000
Directors' and officers' insurance premium 14 14 14 14
Bank charges 71 114 9 27
Regulatory costs 73 89 51 66
Marketing 83 57 83 60
Other expenses 299 168 261 147
540 442 418 314
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 €215,000 (2023:
€203,000), as set out in the Directors' Remuneration Report on pages 50 to
52. The total charge for Directors' fees was €239,000 (2023: €232,000),
which included employer's National Insurance contributions. Other expenses
include items such as domiciliation fees and registrar fees.
10. Taxation
30/09/2024 €'000 30/09/2023 €'000
Current tax charge 1,017 739
Current tax adjustment in respect of prior periods (182) (480)
Deferred tax (credit)/charge (62) (899)
Tax expense/(credit) in year 773 (640)
Reconciliation of effective tax rate
Profit/(Loss) before taxation 1,348 (10,022)
Effect of:
Tax charge at weighted average corporation tax rate of 23.40% (2023: 22.65%) 468 (2,210)
Tax exempt income or non-deductible losses 185 840
Tax adjustment on net revaluation loss 543 625
Tax adjustment of share of joint venture loss - 691
Minimum Luxembourg tax charges 84 88
Tax effect of property depreciation (468) (418)
Tax adjustment in respect of prior periods (182) (480)
Other permanent differences 143 224
Total tax expense/(credit) in the year 773 (640)
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
€4,225,000, which after a debit of €62,000 leads to a closing liability of
€4,163,000. A potential deferred tax asset of €1,741,000 (2023:
€1,306,000) 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. 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.
The French tax authorities have recently commenced a tax audit requesting
information on tax filings made in relation to the Group's SIIC structure. The
potential exposure is up to €12.6 million excluding possible penalties
(2023: €9.5 million). Having taken professional advice, the Board remains of
the view that a provision for this tax is not required as they do not consider
that the tax will ultimately be found due. However, the position will remain
uncertain until a conclusion is reached.
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.
30/09/2024 30/09/2023
Total comprehensive income/(loss) for the year €575,000 €(9,382,000)
Weighted average number of ordinary shares in issue 133,734,686 133,734,686
Basic IFRS earnings per share (cents per share) 0.4 (7.0)
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 2023
and 2024.
Headline earnings per share
The headline earnings and diluted headline earnings for the Group is 6.1 euro
cents per share (2023: 6.0 euro cents per share) as detailed on page 97.
12. Dividends paid
Interim dividends of €7,917,000 (2023: €7,422,000) were paid to the
shareholders of the Company during the year as follows:
In respect of Ordinary Rate 30/09/2024 €'000
shares (cents)
Interim dividend paid on 17 November 2023 133,734,686 1.48 1,980
Interim dividend paid on 25 January 2024 133,734,686 1.48 1,979
Interim dividend paid on 10 May 2024 133,734,686 1.48 1,979
Interim dividend paid on 12 August 2024 133,734,686 1.48 1,979
Total interim dividends paid 133,734,686 7,917
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
13. Investment property
Group €'000
Fair value as at 1 October 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
Acquisitions -
Acquisition costs -
Additions 1,164
Net loss from fair value adjustment on investment property (7,740)
Fair value as at 30 September 2024 206,522
In 2023 and 2024, the Group held one leasehold property.
The value of the respective sectors held were as follows:
Sector 2024 2023
€'000 €'000
Industrial 77,921 78,537
Retail (including retail warehousing) 39,328 39,650
Offices 89,273 94,911
Total 206,522 213,098
The fair value of investment properties, as determined by the valuer, totals
€208,050,000 (2023: €214,125,000) 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 €206,522,000 (2023: €213,098,000)
includes a tenant incentive adjustment of €1,528,000 (2023: €1,027,000).
The net valuation loss on investment property of €7,740,000 (2023: loss of
€19,726,000) consists of net property revaluation losses of €7,239,000
(2023: losses of €19,509,000) and a movement of the above-mentioned tenant
incentive adjustment of €501,000 (2023: €217,000).
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.
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) for future
BMS, HVAC and tenant wellbeing measures in order to continue to keep the asset
relevant for occupiers; Stuttgart (c.€500k) and Venray (c.€500k) primarily
ESG related capital expenditure; and Paris Saint-Cloud (c.€2.2 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 2024 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 €73,000 (2023: €67,000).
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:
2024 Industrial Retail Office Total
(incl. retail warehouse)
Fair value (€'000) 77,950 39,500 90,600 208,050
Area ('000 sqm) 95.030 21.326 54.580 170.936
Net passing rent € per sqm per annum Range 33.23-118.05 56.85-108.12 120.65-163.59 33.23-163.59
Weighted average(1) 64.98 92.80 138.14 102.12
Gross ERV € per sqm Range 44.00-115.36 101.58-163.33 79.93-233.70 44.00-233.70
per annum
Weighted average(1) 64.78 120.03 185.21 127.71
Net initial yield(2) (%) Range 5.43-9.61 1.99-5.94 4.39-19.94 1.99-19.94
Weighted average(1) 6.62 6.15 7.02 6.44
Equivalent yield (%) Range 5.50-6.98 5.13-5.55 4.20-14.89 4.20-14.89
Weighted average(1) 6.17 5.42 7.59 6.65
1 Weighted by market value.
2 Yields based on rents receivable after deduction of head rents and
non-recoverables.
2023 Industrial Retail Office Total
(incl. retail warehouse)
Fair value (€'000) 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 average(1) 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 average(1) 63.20 118.50 181.29 126.33
Net initial yield(2) (%) Range 5.42-9.54 5.76-5.79 4.02-17.09 4.02-17.09
Weighted average(1) 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 average(1) 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.
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 Impact on fair value measurement
of significant increase in input
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 Industrial Retail Office Total
at 30 September 2024 €'000 €'000 €'000 €'000
Increase in ERV by 10% 1,500 3,350 6,350 11,200
Decrease in ERV by 10% (1,500) (3,350) (6,300) (11,150)
Increase in net initial yield by 0.5% (2,300) (3,400) (6,750) (12,450)
Decrease in net initial yield by 0.5% 2,600 4,150 8,200 14,950
Estimated movement in fair value of investment properties Industrial Retail Office Total
at 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 (2023: €30.4 million).
During the year, the Group incurred costs of €0.7 million (2023: cost
savings €1.1 million), which cumulatively to date, represents 99.6% of the
total project expenditure and a sum of €1.5 million (2023: €0.4 million)
of development revenue has been recognised following consideration of the
factors identified above. Total development revenue from this contract
recognised since inception is €29.6 million, which represents 97% of total
development revenue. The cash received in the year was €2.1 million. The
remaining development revenue is expected to be recognised in the year ending
30 September 2025. 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 €1.3 million (2023: €1.9 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 €0.8 million. This is also the expected amount
of revenue to be received, therefore no +10% analysis is performed.
2024 -10% 0% +10%
Variable development revenue expected from the purchaser (€m) 0.7 0.8 0.8
2023 -10% 0% +10%
Variable development revenue expected from the purchaser (€m) 1.9 2.2 2.2
15. Investment in subsidiaries
Company Company Company
2024 2023
€'000 €'000
Balance as at 1 October 69,921 61,386
Additions 50 8,535
Provision of investment made in subsidiaries (50) -
Balance as at 30 September 69,921 69,921
During the year to 30 September 2024, SEREIT plc invested €50,000 into
SEREIT (Jersey) Limited. This investment was impaired in full.
During the year to 30 September 2023, SEREIT plc invested €5,400,000 into
SEREIT Holdings Sàrl as part of the acquisition of the Alkmaar property and
the creation of the SPV SEREIT Alkmaar Sàrl.
During the year to 30 September 2023, the Group made the decision that a
dividend of €3,135,000 previously paid to SEREIT plc from SEREIT Holdings
Sàrl 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 2024. 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% 404, Route d'Esch, Luxembourg, 1471(1)
SEREIT Holdings Sàrl Luxembourg 100% 404, Route d'Esch, Luxembourg, 1471(1)
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% 404, Route d'Esch, Luxembourg, 1471(1)
SEREIT Hamburg Sàrl Luxembourg 100% 404, Route d'Esch, Luxembourg, 1471(1)
SEREIT Stuttgart Sàrl Luxembourg 100% 404, Route d'Esch, Luxembourg, 1471(1)
SEREIT Frankfurt Sàrl Luxembourg 100% 404, Route d'Esch, Luxembourg, 1471(1)
SCI SEREIT Directoire France 100% 8-10 Rue Lamennais, 75008 Paris
SEREIT Apeldoorn Sàrl Luxembourg 100% 404, Route d'Esch, Luxembourg, 1471(1)
SEREIT UV Sàrl Luxembourg 100% 404, Route d'Esch, Luxembourg, 1471(1)
SEREIT Alkmaar Sàrl Luxembourg 100% 404, Route d'Esch, Luxembourg, 1471(1)
SEREIT Holdings France SAS France 100% 8-10 Rue Lamennais, 75008 Paris
SCI SEREIT Pleudihen France 100% 8-10 Rue Lamennais, 75008 Paris
SAS Clarity Developpment 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
1 Up until 10 March 2024, the registered office was 15, Boulevard F.W.
Raiffeisen, 2411. From 11 March 2024 to 31 October 2024 the registered office
was 4, Rue Fort Wallis, Luxembourg, 2714.
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 2024 2023
€'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: 2024 2023
€'000 €'000
Total assets 26,548 28,078
Total liabilities (51,259) (50,055)
Net liabilities (24,711) (21,977)
Net asset value attributable to the Group - -
Revenues for the year 2,756 2,329
Total comprehensive loss (2,734) (2,832)
Total comprehensive loss attributable to the Group - -
As at 30 September 2024, the joint venture in Seville, of which SEREIT holds a
50% share, had total net liabilities of €24,711,000 (2023: €21,977,000).
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 has agreed a waiver until the maturity date of the additional
interest margin expiring on 31 December 2024.
In 2024 and 2023, 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 Company
2024 2023 2024 2023
€'000 €'000 €'000 €'000
Rent and service charges receivable 5,091 4,467 - -
Amounts due from subsidiary undertakings - - 836 1,221
VAT receivable 322 297 11 4
Rental and security deposits 1,401 1,067 - -
Proceeds receivable from development(1) 1,338 1,898 - -
Other debtors and prepayments 1,874 1,168 62 60
10,026 8,897 909 1,285
1 Refer to note 14 for proceeds due from the development of Boulogne-Billancourt
in Paris.
Other debtors and prepayments includes tenant incentives of €1,528,000
(2023: €1,027,000). Rent and service charge receivables includes a provision
of €51,000 (2023: €Nil).
18. Share capital and share premium
Group Group Company Company
30/09/2024 30/09/2023 30/09/2024 30/09/2023
€'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 2024, the share capital of the Company was represented by
133,734,686 ordinary shares (2023: 133,734,686 ordinary shares) with a par
value of 10.00 pence.
Issued share capital
As at 30 September 2024, the Company had 133,734,686 ordinary shares in issue
(2023: 133,734,686) (no shares were held in treasury). The total number of
voting rights of the Company at 30 September 2024 was 133,734,686 (2023:
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
2024 2023 2024 2023
€'000 €'000 €'000 €'000
As at 1 October 73,623 68,744 - -
Drawdown of new loans - 31,760 - -
Repayment of loans (3,000) (26,950) - -
Capitalisation of finance costs (322) (84) - -
Amortisation of finance costs 170 153 - -
As at 30 September 70,471 73,623 - -
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
three-month 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 27 September 2028.
It carries an interest rate of 5.3% which is payable quarterly. The debt has
an 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
€36,200,000. A pledge of all shares in the borrowing Group company is 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 was initially due to mature on 15
December 2024. The loan carries an interest rate which is the aggregate of the
applicable Euribor three-month 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 an 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.
On 15 December 2023, the Group completed an early refinancing of the loan,
extending the term by three years from 15 December 2024 to 15 December 2027,
with an option of a further year. The principal of the loan was also reduced
by €3.0 million from €17.0 million to €14.0 million. Following the
refinancing, the loan now carries an interest rate which is the aggregate of
the applicable Euribor 3 months rate and a margin of 1.90% per annum, payable
quarterly.
The lender has a charge over property owned by the Group with a value of
€37,400,000. A pledge of all shares in the borrowing Group company is in
place.
Bank loan - Deutsche Pfandbriefbank AG
The Group had two loan facilities totalling €30.50 million with Deutsche
Pfandbriefbank AG which were entered into during the year ended 30 September
2016.
One of the loan facilities totalling €14.0 million was repaid in March 2023
and carried a fixed interest rate of 0.85% per annum payable quarterly.
The remaining loan totalling €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
€39,500,000. A pledge of all shares in the borrowing Group companies is in
place.
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
€39,600,000.
Bank loan - Landesbank Saar
The Group entered into a loan facility of €8.6 million with Landesbank Saar
on 27 March 2019.
The loan was initially due to mature on 28 March 2024 and carried an interest
rate of 1.40% plus Euribor three-month per annum, payable quarterly. An
additional 25bps was applied to the margin if the LTV was between 56% and 60%,
or 50bps if the LTV was above 60%. The facility was subject to a €56,000
arrangement fee which was amortised over the period of the loan. The debt had
an LTV covenant of 64% and the interest cover was required to 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.
On 26 March 2024, the Group refinanced the loan, the loan now matures on 26
March 2029 and attracts interest at a fixed rate of 4.3%. As a result of the
refinancing, the covenants were amended. An additional 25bps is now applied to
the interest rate if the LTV is between 50% and 53%, or 50bps if the LTV is
between 53% and 55%. The debt now has an LTV covenant of 55% and the interest
cover should be above 200%.
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 carried an interest rate of 1.30% plus Euribor three-month per annum
payable quarterly. An additional 25bps was applied to the margin if the LTV
was between 52% and 56%, or 50bps if the LTV was equal to or above 56%. The
facility was subject to a €46,000 arrangement fee which was amortised over
the period of the loan. The debt had a maximum LTV covenant of 60% and a
minimum ICR covenant of 200%. A pledge of all shares in the borrowing Group
company was in place. The loan was fully repaid in April 2023.
20. Trade and other payables
Group Group Company Company
30/09/2024 30/09/2023 30/09/2024 30/09/2023
€'000 €'000 €'000 €'000
Rent received in advance 1,001 880 - -
Rental deposits 1,411 1,393 - -
Interest payable 486 206 - -
Retention payable - 85 - -
Amounts due to subsidiary undertakings - - 58 -
Accruals 1,699 2,194 424 893
Trade payables 358 98 47 39
4,955 4,856 529 932
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 €140,000 (2023: €626,000) and property expenses of €626,000 (2023:
€505,000).
21. Net asset value per ordinary share
The NAV per ordinary share of 122.7 euro cents per share (2023: 128.2 euro
cents per share) is based on the net assets attributable to ordinary
shareholders of the Group of €164,097,000 (2023: €171,439,000), and
133,734,686 ordinary shares in issue at 30 September 2024 (2023: 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
30/09/2024 30/09/2023 30/09/2024 30/09/2023
€'000 €'000 €'000 €'000
Euros 163,912 171,346 143,788 148,903
Sterling 28 13 28 13
Rand 157 80 157 80
164,097 171,439 143,973 148,996
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 downside 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 2024, the total carrying value of the Group's loans was €70.9
million (2023: €73.9 million). Although held at carrying value in the
financial statements, the Group has its fixed-rate debt fair valued, and as at
30 September 2024, the fair value of the Group's fixed rate debt was €56.51
million (2023: €47.3 million). The carrying value for the fixed-rate debt
was €56.86 million (2023: €48.3 million). The Group does not fair value
variable rate debt. The carrying value of the variable rate debt, which is
€14.0 million (2023: €25.6 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 (2023: €0.1
million) based on the net of cash and variable debt balances as at 30
September 2024. 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.
The Group calculates the expected credit loss for rent and service charge
receivables based on the lifetime expected credit losses under the IFRS 9
simplified approach.
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 comprises
of 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 30/09/2024 Company balance at 30/09/2024
30/09/2024
€'000 €'000
HSBC Bank plc AA- 5,907 5,707
ING Bank N.V. AA- 2,876 -
BNP Paribas A+ 883 -
BRED Banque Populaire A 278 -
Santander A- 529 496
Societe Generale SA A- 4,594 1,935
Commerzbank AG A 1,466 -
FirstRand Bank Limited BB- 157 157
Royal Bank of Scotland International A 9,870 9,870
ABN AMRO Bank A 802 -
27,362 18,165
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
The maximum exposure to credit risk for rent and service charge receivables at
the reporting date by type of sector was:
30/09/2024 Carrying amount 30/09/2023 Carrying amount
€'000 €'000
Office 4,157 3,357
Retail (including retail warehousing) 239 561
Industrial 695 550
5,091 4,468
Rent and service charges receivables which are past their due date, but which
were not impaired at the reporting date, were:
30/09/2024 Carrying amount 30/09/2023 Carrying amount
€'000 €'000
0-30 days 276 65
31-60 days 61 59
61-90 days 2 8
91 days plus 346 712
685 844
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 2024 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 70,860 80,368 1,358 20,536 58,474 -
Trade and other payables 4,955 3,954 3,954 - - -
Total financial liabilities 75,815 84,322 5,312 20,536 58,474 -
As at 30 September 2023 Carrying amount Expected cash flows 6 months 6 months 2-5 years More than 5 years
or less
to 2 years
€'000 €'000
€'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 -
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 (2023:
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:
30/09/2024 €'000 30/09/2023 €'000
Debt
Loan facilities and accrued interest 70,806 73,828
Equity
Called-up share capital and share premium 60,971 60,971
Retained earnings and other reserves 103,126 110,468
Total equity 164,097 171,439
Total debt and equity 234,903 245,267
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 2024, the future minimum lease receipts under non-cancellable leases
are as follows:
The Group as a lessor 30/09/2024 €'000 30/09/2023 €'000
Less than one year 16,023 16,511
Between one and two years 12,675 15,617
Between two and three years 8,610 12,768
Between three and four years 6,445 7,858
Between four and five years 5,061 5,695
More than five years 14,463 13,189
63,277 71,638
The total above comprises the total contracted rent as at 30 September 2024.
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 2024, the Group had capital commitments of €131,000 (2023:
€400,000) with regard to its directly held portfolio. This relates to
various small projects across the portfolio.
In addition, the Group is expected to incur a further €0.1 million (2023:
€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
(2023: €22,000).
28. Post balance sheet events
There were no significant events occurring after the balance sheet date.
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