Schroder Euro Real - Half-year Report
28/06/2023 07:00
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RNS Number : 1132E Schroder Eur Real Est Inv Trust PLC 28 June 2023
28 June 2023
SCHRODER EUROPEAN REAL ESTATE INVESTMENT TRUST PLC
("SEREIT"/ the "Company" / "Group")
HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 31 MARCH 2023
Continental Europe occupier trends and portfolio indexation underpins
valuation resilience; dividend to be rebased to reflect rising interest rate
backdrop and capital deployment strategy
Schroder European Real Estate Investment Trust plc, the company investing in
European growth cities and regions, announces its half year results for the
six months ended 31 March 2023.
50 basis points of outward yield movement, partially offset by asset
management initiatives, supports portfolio valuation resilience:
· Net Asset Value ("NAV") total return of -4.7% based on an IFRS loss
of €8.7 million (31 March 2022: 5.5% total return / €10.9 million IFRS
profit), predominantly driven by market wide outward yield shift as a result
of interest rate increases
· Underlying EPRA earnings increased over 50% to €3.8 million (31
March 2022: €2.5 million)
· Strong balance sheet with cash reserves of €23 million and loan
to value (LTV) of 32% gross of cash and 23% net of cash. Average cost of drawn
debt (interest-only) of 2.5%
· In Q4 2022, the Company's management team completed the early
refinancing of its largest debt facility at a modest 85bp margin with no
covenants for five years. Loan principal was extended from €14m to €18m to
provide additional balance sheet flexibility.
Decision to rebase dividend to provide full cover reflects refinancing cost
uncertainty and patient capital deployment strategy:
· Announcement of a second interim dividend of 1.85 euro cents per
share ("cps"), bringing the total dividends declared relating to the six
months of the current financial year to 3.7 euro cps, c.80% covered by
recurring earnings
· Reflecting the potential impact of higher interest costs on the
Company's earnings and more patient capital deployment strategy, the quarterly
target minimum dividend will be rebased to 1.48 euro cps per quarter (80% of
the previous level), commencing with the third interim dividend payable in
October 2023. This will allow management to be more patient deploying cash
reserves into attractive investment opportunities that are likely to arise, as
well as enabling the immediate payment of a fully covered dividend.
Attractive indexation characteristics and strong occupational demand to drive
earnings growth:
· Direct property portfolio independently valued at €220.2 million,
reflecting a -4.6%, or €9.7 million, like-for-like decrease over the period
· Increased portfolio exposure to high growth industrial sector with
c.€11 million acquisition of an award winning property in Alkmaar, the
Netherlands, with excellent sustainability credentials, including on site
renewable energy and EPC rating of A+
· Concluded eight new leases and re-gears totalling c. 2,000 sqm
generating €0.4 million of contracted rent, at a weighted lease term of
three years
· Further improvement to the portfolio's sustainability credentials
including:
· BREEAM certification for the Stuttgart office
· Advancement of on-site renewable energy at Houten industrial
investment
· c. 80% of landlord-procured electricity on renewable energy and
improved tenant data collection and education
· 100% of rent due collected
· 100% of the portfolio leases indexed to inflation, including 80%
annually
Sir Julian Berney Bt., Chairman, commented:
"Notwithstanding the economic headwinds, the Board is pleased by the
portfolio's sector and winning city allocations, strong rent collection and
indexation characteristics, which together with management's asset management
expertise has enhanced valuation resilience versus the UK-focused listed peer
group. The Board, however, is clear in its intention to be prudent in
deploying the remaining investment capacity, retaining capital in the short
term and rebasing the dividend to a quarterly minimum dividend of 80% of the
current level. Whilst the current wider market uncertainty persists, this is a
proactive move that we are convinced will protect shareholder value over the
long term, providing significant flexibility and enabling us to pay a covered
dividend that can be grown over time."
Jeff O'Dwyer, Fund Manager for Schroder Real Estate Investment Management
Limited, added:
"Whilst we continue to operate in an environment where the pricing of risk,
value and liquidity is challenging, the Company is well positioned, with a
strong balance sheet and an ability to refinance on the best available terms
as and when required. Recognising evolving occupier trends, our near-term
capital deployment will be focused on select sustainability-led capex
initiatives in the current portfolio, which we believe will best optimise
earnings growth and asset liquidity, thereby driving longer term returns."
The Half Year Report is also being published in hard copy format and an
electronic copy of that document will shortly be available to download from
the Company's webpage www.schroders.co.uk/sereit
(http://www.schroders.co.uk/sereit) . Please click on the following link to
view the document:
http://www.rns-pdf.londonstockexchange.com/rns/1132E_1-2023-6-27.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/1132E_1-2023-6-27.pdf)
The Company has submitted a pdf of the hard copy format of the Half Year
Report to the National Storage Mechanism and it will shortly be available for
inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) .
A further announcement will be made shortly to confirm the full timetable of
the second interim dividend.
Enquiries:
Jeff O'Dwyer 020 7658 6000
Schroder Real Estate Investment Management
Shilla Pindoria 020 7658 6000
Schroder Investment Management Limited
Dido Laurimore / Richard Gotla / Oliver Parsons 020 3727 1000
FTI Consulting Schroderrealestate@fticonsulting.com
(mailto:Schroderrealestate@fticonsulting.com)
A presentation for analysts and investors will be held at 9.00 a.m. BST/10.00
a.m. SAST today. Registration for which can be accessed via:
https://registration.duuzra.com/form/SEREInterim
(https://protect-eu.mimecast.com/s/GYTbC3Qq2um763Q1upHZD4?domain=registration.duuzra.com)
If you would like to attend, please contact James Lowe at Schroders on
james.lowe@schroders.com (mailto:james.lowe@schroders.com) or +44 (0)20 7658
2083.
Half Year Report and Condensed Consolidated Interim Financial Statements for
the six month period ended 31 March 2023
Chairman's Statement
Overview
I am pleased to report the unaudited interim results for the six month period
ended 31 March 2023. Against a challenging backdrop, the Company has delivered
a relatively good set of financial results, underpinned by strong occupancy,
the portfolio's indexation characteristics and the quality of assets in
Winning Cities and Regions of Continental Europe. The NAV total return was
-4.7% over the period and reflected a €11.8 million decline in the portfolio
value, net of capex and tenant incentives, or -5.1% on a like-for-like basis.
Commercial real estate values have been falling across the UK and Europe as a
result of general economic and political uncertainty, investors' pricing of
risk and availability and cost of financing.
Rent collection has been strong and, excluding Seville, stands at 100% for the
six months to 31 March 2023, demonstrating the strength of underlying
covenants. Overall, the Board is pleased with the resilience of the portfolio
and the Investment Manager's efforts in delivering on its asset management
programme. Having a diversified portfolio with local management teams who
truly understand their local markets and with a strong track record in
managing sustainability improvements will be increasingly important in
managing risk and protecting shareholder value.
Whilst we have witnessed yields across the portfolio deteriorate by 50 basis
points ('bp'), this has been offset by positive indexation assisting with
rental growth. Whilst this valuation decline compares very favourably with the
UK-listed peer group, there remains considerable uncertainty over the pace at
which investor sentiment will rebound in a meaningful way, given the
persistently high interest rate environment. Whilst the Company's strong cash
position and operational resilience enabled the quarterly dividend of 1.85
euro cents per share to be maintained in the financial period, we have
consistently stated that we would review the dividend position taking into
account portfolio occupancy, rent collection levels, market sentiment,
refinancing and dividend cover. Despite the Company being in a robust position
with regard to a number of these metrics, the unprecedented macroeconomic
backdrop means that we lack the clarity around near-term recurring earnings to
continue with our current dividend strategy.
Whilst the option to continue paying an uncovered dividend, as many of the
peer group do, was strongly considered, the Investment Manager and Board
believe that the more prudent, responsible and decisive course of action, and
the one that best protects the interest of shareholders, is to rebase the
target quarterly dividend level to 1.48 euro cents per share commencing with
our third interim dividend payable in October 2023. The drivers of this
decision are threefold. The Company faces a number of upcoming refinancings in
2023 and 2024 and, whilst we have had very encouraging conversations with a
wide pool of lenders, the backdrop is more challenging. Secondly, there is no
appetite to be forced into the investment market simply to improve the rent
roll. We have always been highly selective in deploying shareholder capital
and would rather wait patiently for the right opportunities to come along,
albeit we recognise that this does not deliver near-term income. And finally,
the Investment Manager is reviewing a programme of sustainability-led capital
expenditure initiatives as a means of improving income, quality and asset
liquidity as an alternative to new acquisitions, which it has the expertise to
deliver but will require a more medium-term horizon. The rebased dividend will
differentiate the Company from a number of our peers, providing significant
flexibility, and enabling us to pay a covered dividend, that can be grown over
time.
As at 31 March 2023, the Company's direct property portfolio was valued at
€220.2 million. In addition, the Company has a 50% interest in a joint
venture in Seville which continues to be recognised at nil interest. The
direct portfolio consists of 15 investments in the most liquid investment
markets in France, Germany and the Netherlands, concentrated in Winning Cities
such as Paris, Stuttgart, Hamburg, Frankfurt and Berlin. The exposure to
higher-growth sectors such as industrial has increased over the period to
c.30%. The office exposure comprises c.34% and is concentrated to assets in
leading urban centres, in highly accessible sub-markets and leased off
affordable rents whilst the retail exposure (c.17%) is solely focused on
DIY/grocery, the more essential-spend consumer sub-sectors. In addition the
Company has €23 million of available cash, providing a robust position to
manage the Company through current headwinds.
The Board has been clear in its intention to be prudent in its approach to
deploying the remaining investment capacity of c.€40 million, including
further gearing.
The Investment Manager continues to screen investment opportunities consistent
with the investment strategy. In this regard, the recent acquisition of the
c.€11.2 million industrial investment in Alkmaar, the Netherlands, is a
welcome addition. The investment improves the diversification and quality of
the portfolio from a construction, sustainability and income perspective,
particularly given it is a twenty year sale and leaseback to a strong
covenant.
The expectations are for volatility in markets to continue. It is clear that
the banking industry is tightening its approach to lending, particularly on
those office and retail assets that rate poorly from a sustainability
perspective. These issues, together with broader macroeconomic and political
concerns, are likely to see further pressures on values. The Company has a
number of refinancings to manage over the course of 2023 and 2024 and the
ability to refinance, and at competitive rates, will be paramount to how cash
is utilised. Gearing levels are considered modest c.32% (23% net of cash) and
the intention, for now, is to continue to run the Company with headroom to the
maximum loan to value ('LTV') of 35%.
European leases typically provide for rents to be indexed to inflation. The
majority (80%) of the Company's income is subject to annual indexation with
the remaining 20% linked to a hurdle (typically 10%), hence we expect nearly
all the leases to directly benefit from inflation. Across the direct
portfolio, all tenants have complied with payments in accordance with their
respective indexation clauses.
We continue to finalise the remaining items around the Paris BB refurbishment.
As at 31 March 2023, a further €1.5 million remains to be paid to the
contractor and the Company is owed €5.3 million from the purchaser and is
subject to meeting certain criteria. There remains potentially up to €1.3
million of pre-tax profit still to be released in the NAV.
Sustainability considerations continue to gain momentum and are becoming
increasingly more prevalent in occupier and investor decisions. The Investment
Manager continues to review each asset and ways to improve sustainability
credentials, making the investments more relevant to occupiers, lenders and
investors and supporting delivery of enhanced returns.
Strategy
The strategy remains focused on delivering shareholders with an attractive
level of income together with the potential for income and capital growth
through investing in commercial real estate in Continental Europe. The
Investment Manager takes an active approach, seeking ways to improve the
quality, liquidity, sustainability and appeal of investments to both occupiers
and investors through active management and capital investment. It is well
positioned to drive income and value growth, relying heavily on its local
sector specialist teams who are recognised for their operational excellence
and hospitality mindset. They manage each asset as a business by itself, with
a tailored business plan, engaging with local tenants to optimise long-term
sustainable income and value across the lifetime of the investment. Being
diversified has been helpful, particularly given the headwinds facing
secondary offices and select retail.
The recent Dutch industrial acquisition has increased our industrial exposure
to c.30%, a sector the Investment Manager expects stronger growth in, whilst
our retail exposure centres on DIY and grocery, which fall into the 'essential
spend' category and are showing strong resilience. Our offices reflect c. 34%
and are in leading cities and, although not prime, have characteristics suited
to many occupiers, particularly given their urban locations, accessibility and
affordability. Pricing risk and value with today's uncertainty is challenging.
It is the intention to remain prudent in our investment approach with a clear
bias to protecting asset values and liquidity, whilst also being mindful of
maintaining a robust balance sheet.
Financial results
The NAV total return was -4.7% over the interim period based on an IFRS loss
of €8.7 million. Returns were driven primarily by a fall in valuations. All
sectors are seeing re-pricing, driven largely by higher discount rates,
partially as a result of the change in availability and cost of financing. The
independent valuers have reduced capitalisation rates between 20bp and 75bp
(weighted average c.50bp) with value declines mitigated by rental indexation
and for some assets, notably Hamburg and Stuttgart offices, by ERV growth.
Underlying EPRA earnings were €3.8 million for the period, (H1 22: €2.5
million). Earnings will further increase with the recent acquisition in
Alkmaar and investment of capital into enhancing opportunities. The Company's
NAV as at 31 March 2023 decreased €11.1 million, or 6%, to €177.1 million,
or 132.4 euro cents per share, over the period.
Balance sheet and debt
With current market volatility and uncertainty the retention of a healthy
balance sheet is vital. At the period end, third-party debt totalled €84.7
million, representing an LTV net of cash of 23% against the overall gross
asset value of the Company. This compares to a net LTV cap of 35%. The Company
has seven loans secured by individual assets or groups of assets, with no
cross-collateralisation between loans. The average weighted total interest
rate of the loans is 2.5% per annum. The weighted average duration of the
loans is 2.3 years, with the earliest loan maturity in 2023. All loans except
Seville are in compliance with their default covenants. The Seville loan
remains in a cash trap and is being managed under an LTV covenant waiver to
facilitate a sale. Cost of debt has increased markedly over the period with
the five-year swap increasing to c.300bp. Traditional lenders are tightening
their approach, being more selective on not only who they lend to, LTV limits,
but also around asset quality. In some instances, we are seeing alternative
lending platforms step in to fill the void as banks scale back their appetite
for risk. More detail of the individual loans is provided in the Investment
Manager's Report. The Company has c.€40 million of cash and debt capacity,
which provides significant flexibility.
Dividends
The Board has elected, for this quarter, to continue with the 1.85 euro cps
quarterly dividend. Total dividends declared relating to the six months of the
current financial year are now 3.7 euro cps. The dividend cover for the
interim period was c.80%. Whilst the option to continue paying an uncovered
dividend, as many of the peer group, was strongly considered, the Investment
Manager and Board believe that the more prudent, responsible and decisive
course of action, and the one that best protects the interest of shareholders,
is to rebase the target quarterly dividend level to 1.48 euro cps commencing
with our third interim dividend payable in October 2023.
Sustainability
The Board and the Investment Manager believe that focusing on sustainability
throughout the real estate life cycle will deliver enhanced long-term returns
for shareholders as well as a positive impact on the environment and the
communities where the Company is investing. Our research and the evidence
across the portfolio demonstrates that there is a material rental and value
premium for buildings with green certifications. There is increasing pressure
on minimum building standards not only from an EPC perspective but data
coverage (for water, gas, electricity and waste) and ultimately carbon
footprint. Demand from occupiers for space is increasingly biased towards
better quality buildings, driven not only by legal obligations, tenant
environmental aspirations but as a means to match corporate ethos and attract
talent.
Reflecting the evolving landscape, sustainability-led initiatives will be
increasingly central to the strategy. The Manager is carrying out a
comprehensive review of the sustainability characteristics of the portfolio
encompassing building fabric, energy systems, services and utilities, climate
risk and resilience, water consumption, waste management, biodiversity and
green infrastructure, transport and mobility, health and wellbeing, community
and social integration. This analysis will inform a baseline score across a
range of quantitative and qualitative factors against which we will measure
future improvements at an asset level to enable us to provide transparent
reporting to stakeholders.
Outlook
Confidence surrounding the European economy is improving with recessionary
fears diminishing. Expectations are for economic growth to be modest for some
time, as governments continue to tighten economic policies to reduce inflation
and preserve financial stability. As a result, the pricing of real estate will
continue to be challenging and exacerbated by rising debt costs,
sustainability concerns and corporates post-Covid optimum occupational
intentions. Banks are becoming much more discerning on who they lend to and
the type of real estate they wish to lend on. Their clear preference to focus
on better quality assets that meet sustainability benchmarks will continue. As
a result, we anticipate further valuation falls as investors face refinancing
dilemmas, sustainability risks and equity investors re-price their cost of
capital. We will continue to manage the portfolio in light of these risks,
ensuring a strong balance sheet and an ability to refinance on the best
available terms as and when required, and invest in the portfolio to enhance
its sustainability credentials, thereby optimising earnings growth and asset
liquidity, in order to drive longer-term returns. With the strength of our
balance sheet, underlying assets and the growth regions that we are exposed
to, we believe that we are well placed to manage such risks.
Sir Julian Berney Bt.
Chairman
27 June 2023
Investment Manager's Report
Results
The net asset value ('NAV') as at 31 March 2023 stood at €177.1 million
(£155.9 million), or 132.4 euro cents (116.6 pence) per share, resulting in a
NAV total return of -4.7% over the six months to 31 March 2023.
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 in euro cents per share.
NAV movement €m cps(1) % change
per cps(2)
Brought forward as at 1 October 2022 188.2 140.8 -
Unrealised gain in the valuation of the real estate portfolio (9.7) (7.3) (5.2)
Capital expenditure (2.2) (1.6) (1.2)
Transaction costs (1.2) (0.9) (0.6)
Paris BB post-tax development profit (0.0) (0.0) (0.0)
Movement on the Seville JV investment (0.0) (0.0) (0.0)
EPRA earnings(3) 3.8 2.8 2.0
Non-cash/capital items 0.7 0.5 0.3
Dividends paid (2.5) (1.9) (1.3)
Carried forward as at 31 March 2023 177.1 132.4 (6.0)
1 Based on 133,734,686 shares.
2 Percentage change based on the starting NAV as at 1 October 2022.
3 EPRA earnings as reconciled on page 30 of the financial statements.
Strategy
The Company aims to provide shareholders with an attractive level of income
with the potential for long-term, sustainable income and growth. The strategy
to deliver this includes:
· Driving income and value growth through a hospitality approach in
tenant management (understanding tenant business, strengths and pressures) and
operational excellence in all sectors (optimising operations in the assets,
minimising use of scarce resources and waste);
· Executing asset management initiatives to enhance the income profile,
individual asset values and sustainability credentials;
· Applying our integrated sustainability and ESG approach at all stages
of the investment process and asset lifecycle;
· Applying a research-led approach to determine attractive sectors and
locations in which to invest in commercial real estate;
· Maintaining a strong balance sheet with a loan to value, net of cash,
below 35%;
· Managing portfolio risk in order to enhance the portfolio's defensive
qualities.
The following progress has been made delivering on the strategy:
· The acquisition of an award winning industrial investment in Alkmaar,
the Netherlands, with excellent sustainability credentials, including on-site
renewable energy and an EPC rating of A+. The long-term sale and leaseback not
only strengthens the portfolio's physical and sustainability qualities but
also income profile given the 20 year term, covenant strength and 5.6% net
initial yield;
· Increased exposure to higher growth sectors, in particular increasing
the industrial allocation from 25% to 30%. Other key allocations include 35%
to offices in key cities such as Stuttgart and Hamburg; c.20% to a Berlin DIY
asset and a convenience retail centre in Frankfurt;
· Continuation of 100% rent collection, highlighting underlying tenant
strength;
· Successful implementation of rental indexation clauses with no
discounts. European rent reviews provide for an inflation hedge, given annual
indexation and are considered a key differential to UK leases that are
typically adjusted every five years to market;
· Maintained a high occupancy level of 96%, with an average portfolio
lease term to break of 4.8 years;
· Concluded eight new leases and re-gears generating €0.4 million of
contracted rent, at a weighted lease term of three years;
· Improved the portfolio's sustainability credentials and
understanding, which included a BREEAM certification for the Stuttgart office,
advancement of on-site renewable energy at the Houten industrial investment,
c.80% of landlord-procured electricity on renewable energy and improved tenant
data collection and education;
· Issued SREIM's updated Sustainable Occupier Guide to all tenants
across France, the Netherlands and Spain, advising occupiers on low cost
initiatives to achieve reduced environmental footprints, operating costs and
enhanced user wellbeing;
· Re-financed German office debt secured against Hamburg and Stuttgart
at a modest 85bp margin with no covenants for 5 years. Given competitive
terms, loan principal was extended from €14m to €18m to provide additional
balance sheet flexibility;
· A prudent LTV of 32% gross of cash and 23% net of cash, comfortably
below the target of 35% net of cash;
· We continue to monitor the Ukraine crisis and its impact on not only
the portfolio but wider market volatility. We have no exposure to eastern
Europe or Russia and we are not aware that any of our tenants have any
ownership or influence from Russia. We continue to manage the portfolio in the
best interest of our shareholders, ensuring that all international sanctions
are adhered to. The Group's key suppliers do not have operations in Ukraine or
Russia and there is not expected to be any adverse impact from the war on our
ability to manage the operations of the Group.
Market overview
Economic outlook
The outlook for the eurozone economy is improving. The sharp drop in wholesale
gas prices has helped to slow inflation and reduce the squeeze on household
incomes and consumption. In addition, global supply chain pressure has largely
eased. As a result, Schroders now forecasts that the eurozone will narrowly
avoid a recession and grow by 0.5%-1.0% p.a. through 2023 and 2024. However,
while headline inflation should moderate from 6.9% in March 2023 to around 3%
by December 2023, core inflation has been increasing.
Interest rates and real estate yields
The European Central Bank (ECB) remains determined to fight inflation and has
continued to hike its policy interest rates. But though inflation has started
to decline, Schroders expects at least one more rate hike of 25 bps. Hikes
beyond that remain however a possibility but depend on the trend in inflation
and labour markets. Either way we believe that the interest rate peak is near.
The investment market is showing signs of stabilisation after a sharp fall in
liquidity and prices in the second half of 2022. Although prime yields
continued to rise in the first quarter of 2023, the rate of increase on a
European aggregate level slowed to 0.1%, from 0.6%-1.0% in the second half of
2022.
Much of future pricing will depend on conditions in debt markets. German
five-year swap rates continue to be volatile and have settled at c.3.0% in the
first quarter. Bank margins on prime offices and logistics levelled off at
1.50%-1.75% and remain preferred lending credit. Banks continue to be more
discerning on LTVs, asset and counterparty quality which has not been helped
by the recent fallout from Credit Suisse's collapse. Despite investors having
become slightly more optimistic about future rental and income growth, the
outlook is muted by cost and availability of debt. Overall, it seems, that
while significant corrections have now occurred, markets will see some further
adjustment before levelling off.
Offices
Demand for European offices has been somewhat muted in Q1 and prime rental
growth has been more limited. Business bankruptcies have seen a small increase
towards the end of last year and high borrowing costs and the prospect of very
low growth ahead are impacting business decision-making. Overall conditions
remain robust though the market remains very polarised: vacancy rates have
seen some moderate increases in recent months, but remain very low for high
quality stock with strong ESG-credentials in highly accessible locations as
occupiers continue to seek these kind of offices to retain and attract staff
in tight labour markets and meet their own ESG obligations. This continues to
support prime rents and while rental growth is likely to remain somewhat
subdued and more selective in the low-growth environment ahead, renewed growth
is expected towards the end of the year and into 2024, particularly as supply
of new space is forecast to peak this year. For secondary space the situation
is however becoming increasingly dire, though space in accessible locations
and leased off affordable rents is showing some resilience.
Retail
The outlook for retail real estate remains challenging. Although total retail
sales should recover from 2024 onwards in step with real household incomes,
the growth of online retail means that in-store sales are set to decline by
1%-2% p.a. in volume terms through 2023-2027. Consequently, it is expected
that retailer demand will remain weak and that vacancy will only start to
decline when failing schemes are re-developed into apartments and other uses.
Prime shop and shopping centre rents are likely to fall by a further 3-5% this
year, before stabilising in 2024. The exceptions are likely to be smaller food
stores and a handful of luxury streets in Barcelona, Milan and Paris, which
stand to gain from the revival in tourism. Big box retail parks should also be
relatively defensive, as low rents and service charges attract discounters.
Logistics/industrial
Industrial rents in the eurozone are forecast to rise by 3-4% p.a. through
2023-2025, driven by growing demand for warehouses. Demand should be supported
by both a cyclical recovery in consumer spending and manufacturing and by the
structural growth in online retail as well as by firms holding more stock in
order to improve the resilience of their supply chains. On the supply side,
the jump in both building costs and interest rates should restrict speculative
development and prevent an over-supply. Multi-let estates in urban areas and
warehouses on major transport routes will likely see stronger rental growth
than units in less accessible locations. At the same time, there is a strong
demand for modern space that is not only fit for higher levels of automation,
but also has strong ESG-credentials.
Real estate portfolio
The Company owns a portfolio of 15 institutional grade properties valued at
€220.2 million1. The portfolio is 96% let and located across Winning Cities
and Regions in France, Germany and the Netherlands. 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 table below shows the top ten properties:
Rank Property Country Sector €m(1) % of total(1)
1 Paris (Saint-Cloud) France Office 39.1 16%
2 Berlin Germany Retail/DIY 30.1 12%
3 Hamburg Germany Office 23.5 10%
4 Stuttgart Germany Office 20.6 8%
5 Rennes France Industrial 19.7 8%
6 Apeldoorn Netherlands Mixed 16.0 7%
7 Alkmaar Netherlands Industrial 11.5 5%
8 Venray Netherlands Industrial 11.2 5%
9 Frankfurt Germany Retail/Grocery 11.0 5%
10 Rumilly France Industrial 10.0 4%
Total top ten properties 192.7 80%
11-15 Remaining five properties 27.5 11%
Real estate portfolio value 220.2 91%
Available cash(2) 23.0 9%
Total portfolio value 243.2 100%
1 Excludes the Seville property for which the NAV exposure is nil.
2 Internally calculated.
The lease expiry chart features the portfolio's top ten tenants individually.
The top ten tenants have paid 100% of their rent over the six-month period.
The portfolio generates €16.5 million p.a. in contracted income. The average
unexpired lease term is 4.8 years to first break and 5.2 years to expiry.
The lease expiry profile to earliest break is shown above. The near-term lease
expiries provide asset management opportunities to: renegotiate leases; extend
weighted average unexpired lease terms; improve income security; and generate
rental growth. In turn, this activity benefits the income profile and NAV
total return.
Transactions
The Company has approximately €40 million of investment capacity (including
debt) to redeploy into new investments or value-enhancing initiatives. The
strategy is to maintain a strong balance sheet, refinance on the best
available terms and enhance the sustainability of the income. We continue to
selectively review investment opportunities to further enhance the portfolio's
diversification and exposure to growth sectors, cities and regions. Given the
risks facing markets, including ESG and structural headwinds, particularly to
offices and retail, we are continuing to be prudent and patient in our
investment approach.
During the period, the Company completed an industrial acquisition in Alkmaar,
the Netherlands. The architectural award winning, freehold industrial
warehouse was acquired for approximately €11.2 million, equating to €1,250
per sqm and a net initial yield of 5.6%. The weighted unexpired lease term was
approximately 20 years to term and 15 years to break. The investment was a
rare opportunity to acquire a highly sustainable asset with a strong and
visible income profile that enhances the Company's sector weighting, average
unexpired lease term and credit strength. We continue to manage the Seville
investment, seeking to stabilise occupancy with a view to a disposal.
Portfolio performance
During the period, total property returns for the underlying property
portfolio were negative at -2.3%, despite healthy property income returns of
+3.2%. This was due to negative property capital returns of -5.3% net of capex
as real estate values decreased over the six months, primarily driven by a
c.50 basis points outward yield movement, which more than offset the positive
impact of rental growth increasing the portfolio net initial yield to 6.2%.
Property returns over the last 12 months are -0.4% and 7.4% p.a. over the last
three years.
Finance
The Company completed the early refinancing of its largest debt expiry in
2023, a loan secured against its Hamburg and Stuttgart office investments. The
Company has elected to extend the previous €14 million facility by a further
€4 million, obtaining competitive financing for the new €18 million loan
with VR Bank Westerwald at a total interest cost of 3.8% being the five-year
euro swap rate at the time of signing (2.95%) plus a 0.85% margin.
With this new facility, the Company's third party debt totals €84.7 million
across seven loan facilities as at 31 March 2023. This represents a loan to
value ('LTV') net of cash of 23% against the Company's gross asset value
(gross of cash LTV is 32%). There is a net of cash LTV cap of 35% that
restricts concluding new external loans if the Company's net LTV is above 35%.
An increase in leverage above 35% as a result of valuation decline is excluded
from this cap. The current blended all-in interest rate is 2.5% and the
average remaining loan term is 2.3 years.
A loan facility of €3.7 million secured against the Rumilly asset has since
expired in April 2023 and was repaid post reporting end with the additional
debt raised from the new Hamburg/Stuttgart loan.
The Company is in discussions with lenders regarding its other two debt
expiries which occur within the next twelve months and is confident in its
ability to refinance these loans at similar LTVs, albeit current swap rates
would result in the overall cost of debt increasing.
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)
BRED Banque Populaire Paris (Saint-Cloud) 15/12/2024 €17.00m 3M Eur +1.34% 28% 20%
VR Bank Westerwald Stuttgart/Hamburg 30/12/2027 €18.00m 3.80% no covenant no covenant
Deutsche Pfandbriefbank AG Berlin/Frankfurt 30/06/2026 €16.50m 1.31% 35% 44%
Münchener Hypothekenbank eG Seville (50%)(1) 22/05/2024 €11.68m 1.76% In breach(2) In cash trap
HSBC Bank Plc Netherlands industrials(3) 27/09/2023 €9.25m 3M Eur +2.15% 36% 52%
Landesbank SAAR Rennes 28/03/2024 €8.60m 3M Eur +1.40% 32% 55%
Landesbank SAAR Rumilly 30/04/2023 €3.70m(4) 3M Eur +1.30% not relevant(5) not relevant(5)
Total €84.73m
1 Includes the Company's 50% share of external debt in the Seville joint
venture of €11.7 million and excludes unamortised finance costs.
2 Temporary waiver for breach of LTV covenant in Seville agreed with the
lender.
3 The HSBC loan is secured against four Netherlands industrial assets:
Venray, Houten, Utrecht and Venray II.
4 Rumilly loan with Landesbank SAAR was repaid in full post period end.
5 Sufficient headroom to current covenant. Covenant no longer relevant as
loan was repaid in Q2 2023.
At Seville, a reduction in rental income has resulted in a requirement under
the loan to retain all excess income generated by the Seville property in the
property-owning special purpose vehicle. The Seville loan is being managed
under an LTV covenant waiver to facilitate a sale. The loan is secured solely
against the Seville investment, with no recourse back to the Company or any
other entity within the Group.
The German and Spanish loans are fixed rate for the duration of the loan term.
The French and Dutch loans are based on a margin above three-month Euribor.
The Company has acquired interest rate caps to limit future potential interest
costs if Euribor were to increase. The combined fair value of the derivative
contracts is €1.0 million as at 31 March 2023. The strike rates on the
interest rate caps are between 0.25% p.a. and 1.25% p.a.
Details of individual interest derivative contracts were as follows:
· Saint-Cloud loan with BRED Banque Populaire: two caps totalling the
full €17.0m of the loan which expire on 15 December 2024 with a strike rate
of 1.25%;
· Dutch industrials loan with HSBC: a cap totalling the full €9.25m
of the loan which expires on 28 September 2023 with a strike rate of 1%;
· Rennes loan with Landesbank SAAR: a cap totalling the full €8.60m
of the loan which expires on 27 March 2024 with a strike rate of 1%; and
· Rumilly loan with Landesbank SAAR: a cap totalling the full €3.70m
of the loan which expired on 28 April 2023 with a strike rate of 0.25%. The
associated Rumilly loan was fully repaid in April 2023.
Outlook
We continue to operate in an environment where the pricing of risk, value and
liquidity is challenging. All sectors are seeing re-pricing, driven largely by
higher discount rates, primarily as a result of the change in the availability
and cost of debt. In addition, office occupiers are still adjusting to hybrid
working following the pandemic, although we are seeing good demand for better
quality offices which are well specified in terms of energy efficiency,
break-out areas and connectivity and are in city centres with good amenities
and public transport. We anticipate that values will continue to decline in
the short term until investors are confident that inflation has peaked and
interest rates have settled at a new, higher equilibrium. Assets in fringe
markets and for secondary assets are likely to take the biggest hit. However,
the repricing which has already occurred is creating some attractive
investment opportunities and we anticipate a broader buying opportunity as the
year progresses.
The immediate focus is on maintaining a strong and healthy balance sheet,
de-risking upcoming re-financings and actively managing the investments with
an increasing operational mindset that makes the assets more relevant in this
changing environment.
Jeff O'Dwyer
Fund Manager
Schroder Real Estate Investment Management Limited
27 June 2023
Principal risks and uncertainties
The principal risks and uncertainties with the Company's business relate to
the following risk categories: investment policy and strategy; implementation
of investment strategy, economic and property market; custody; gearing and
leverage; accounting, legal and regulatory (including tax); valuation; service
provider; and health and safety. A detailed explanation of the risks and
uncertainties in each of these categories can be found on pages 30 to 32 of
the Company's published Annual Report and Consolidated Financial Statements
for the year ended 30 September 2022.
The Board continues to be mindful of the Ukraine war and the economic
ramifications (particularly inflation and corresponding interest rate
increases), the structural changes concerning the Covid-19 pandemic,
sustainability and occupier preferences which could affect the use and
prospects of some real estate sectors. The Company does not have any exposure
to Russia, and is not aware of any such exposure through its tenants or
suppliers. There has been no identifiable impact on the Company's operations
to date. The Board keeps these matters under review, particularly in
connection with its decisions to re-deploy investable cash.
The Company's portfolio remains resilient, as evidenced by rent collection
levels over the half year. Covenant, interest rates, cost of debt and expiry
profiles continue to be actively managed as part of cash flow forecasting and
liquidity management. Good progress is also being made to reinvest the
remaining proceeds of the Paris BB forward sale, with a view to further
diversifying the Company's portfolio by both number of assets and tenants, as
well as increasing its allocation to the high growth industrial sector.
Other than as outlined above, the principal risks and uncertainties have not
materially changed during the six months ended 31 March 2023.
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 22.
Related party transactions
There have been no transactions with related parties that have materially
affected the financial position or the performance of the Company during the
six months ended 31 March 2023. Related party transactions are disclosed in
note 13 of the condensed consolidated interim financial statements.
Statement of Directors' responsibilities
The Directors confirm that to the best of their knowledge:
· The half year report and condensed consolidated interim financial
statements have been prepared in accordance with the UK adopted International
Accounting Standard IAS 34 Interim Financial Reporting; and
· The Interim Management Report includes a fair review of the
information required by 4.2.7R and 4.2.8R of the Financial Conduct Authority's
Disclosure Guidance and Transparency Rules.
Sir Julian Berney Bt.
Chairman
27 June 2023
Condensed Consolidated Interim Statement of Comprehensive Income
For the period ended 31 March 2023
Notes Six months to Six months to Year to
31 March 2023 31 March 2022 30 September 2022
€000 €000 €000
(unaudited) (unaudited) (audited)
Rental and service charge income 2 9,490 9,174 18,153
Property operating expenses (2,613) (3,396) (5,516)
Net rental and related income 6,877 5,778 12,637
Net (loss)/gain from fair value adjustment on investment property 3 (12,958) 7,853 6,351
Development revenue 4 63 9,744 17,942
Development expense 4 (63) (7,905) (15,436)
Realised gain/(loss) on foreign exchange (16) (3) 77
Net change in fair value of financial instruments at fair value through 9 107 235 921
profit or loss
Provision of loan made to Seville joint venture 5 - (221) (444)
Expenses
Investment management fee 13 (1,028) (1,137) (2,198)
Valuers' and other professional fees (378) (515) (981)
Administrator's and accounting fees (211) (210) (453)
Auditors' remuneration (201) (189) (333)
Directors' fees 13 (123) (108) (217)
Other expenses (226) (251) (613)
Total expenses (2,167) (2,410) (4,795)
Operating profit (8,157) 13,071 17,253
Finance income 37 224 451
Finance costs (809) (562) (1,128)
Net finance costs (772) (338) (677)
Share of loss of joint venture 6 - - -
(Loss)/profit before taxation (8,929) 12,733 16,576
Taxation 7 266 (1,842) (2,585)
Profit/(loss) for the period/year (8,663) 10,891 13,991
Other comprehensive income/(expense):
Other comprehensive (loss)/income items that may be reclassified to profit or
loss:
Currency translation differences - 2 (73)
Total other comprehensive (expense)/income - 2 (73)
Total comprehensive (expense)/income for the period/year (8,663) 10,893 13,918
Basic and diluted (loss)/earnings per share attributable to owners of the 8 (6.5c) 8.1c 10.4c
parent
All items in the above statement are derived from continuing operations. The
accompanying notes 1 to 16 form an integral part of the condensed consolidated
interim financial statements.
Condensed Consolidated Interim Statement of Financial Position
As at 31 March 2023
Notes Six months to Six months to Year to
31 March 2023 31 March 2022 30 September 2022
€000 €000 €000
(unaudited) (unaudited) (audited)
Assets
Non-current assets
Investment property 3 219,011 209,591 217,456
Investment in joint venture 6 - - -
Non-current assets 219,011 209,591 217,456
Current assets
Trade and other receivables 7,822 18,037 16,680
Interest rate derivative contracts 9 1,041 248 934
Cash and cash equivalents 32,985 52,458 34,324
Current assets 41,848 70,743 51,938
Total assets 260,859 280,334 269,394
Equity
Share capital 10 17,966 17,966 17,966
Share premium 10 43,005 43,005 43,005
Retained earnings (475) 21,468 10,662
Other reserves 116,610 116,685 116,610
Total equity 177,106 199,124 188,243
Liabilities
Non-current liabilities
Interest-bearing loans and borrowings 9 51,283 68,657 41,794
Deferred tax liability 7 4,691 4,915 5,124
Non-current liabilities 55,974 73,572 46,918
Current liabilities
Interest-bearing loans and borrowings 21,550 - 26,950
Trade and other payables 5,462 6,809 5,857
Current tax liabilities 7 767 829 1,426
Current liabilities 27,779 7,638 34,233
Total liabilities 83,753 81,210 81,151
Total equity and liabilities 11 260,859 280,334 269,394
Net asset value per ordinary share 132.4c 148.8c 140.8c
The condensed consolidated interim financial statements on pages 18-29 were
approved at a meeting of the Board of Directors held on 27 June 2023 and
signed on its behalf by:
Sir Julian Berney Bt.
Chairman
The accompanying notes 1 to 16 form an integral part of the condensed
consolidated interim financial statements.
Company number: 09382477
Registered office: 1 London Wall Place, London EC2Y 5AU
Condensed Consolidated Interim Statement of Changes in Equity
For the period ended 31 March 2023
Notes Share Share Retained Other Total
capital
premium
earnings
reserves
equity
€000
€000
€000
€000
€000
Balance as at 1 October 2022 17,966 43,005 10,662 116,610 188,243
(Loss)/profit for the period - - (8,663) - (8,663)
Other comprehensive (expense)/income for the period - - - - -
Dividends paid 12 - - (2,474) - (2,474)
Balance as at 31 March 2023 (unaudited) 17,966 43,005 (475) 116,610 177,106
Notes Share Share Retained Other Total
capital
premium
earnings
reserves
equity
€000
€000
€000
€000
€000
Balance as at 1 October 2021 17,966 43,005 21,878 116,683 199,532
Profit for the year - - 13,991 - 13,991
Other comprehensive income for the year - - - (73) (73)
Dividends paid 12 - - (25,207) - (25,207)
Balance as at 30 September 2022 (audited) 17,966 43,005 10,662 116,610 188,243
Notes Share Share Retained Other Total
capital
premium
earnings
reserves
equity
€000
€000
€000
€000
€000
Balance as at 1 October 2021 17,966 43,005 21,878 116,683 199,532
Profit for the period - - 10,891 - 10,891
Other comprehensive income for the period - - - 2 2
Dividends paid 12 - - (11,301) - (11,301)
Balance as at 31 March 2022 (unaudited) 17,966 43,005 21,468 116,685 199,124
The accompanying notes 1 to 16 form an integral part of the condensed
consolidated interim financial statements.
Condensed Consolidated Interim Statement of Cash Flows
For the period ended 31 March 2023
Notes Six months to Six months to Year to
31 March 2023
31 March 2022
30 September 2022
€000
€000
€000
(unaudited)
(unaudited)
(audited)
Operating activities
(Loss)/Profit before tax for the period/year (8,929) 12,733 16,576
Adjustments for:
Net gain from fair value adjustment on investment property 3 12,958 (7,853) (6,351)
Share of loss of joint venture 6 - - -
Realised foreign exchange loss 16 3 (77)
Finance income (37) (224) (451)
Finance costs 809 562 1,128
Net change in fair value of financial instruments at fair value through 9 (107) (235) (921)
profit or loss
Provision of loan made to Seville joint venture 5 - 221 444
Operating cash generated before changes in working capital 4,710 5,207 10,348
Increase/(decrease) in trade and other receivables 8,774 (236) 958
(Decrease)/Increase in trade and other payables (574) 1,353 324
Cash generated from/(used in) operations 12,910 6,324 11,630
Finance costs paid (734) (492) (897)
Finance income received 36 3 8
Tax paid 7 (826) (532) (469)
Net cash generated from/(used in) operating activities 11,386 5,303 10,272
Investing activities
Proceeds from sale of investment property - 16,900 16,900
Acquisitions of investment property 3 (12,310) (1,741) (10,824)
Additions to investment property 3 (1,926) (579) (698)
Investment in joint venture 6 - - -
Net cash generated(used in)/from investing activities (14,236) 14,580 5,378
Financing activities
Proceeds from borrowings 18,000 - -
Repayment of loan facility (14,000) (1,840) (1,840)
Dividends paid 12 (2,474) (11,301) (25,207)
Net cash provided by/(used in) financing activities 1,526 (13,141) (27,047)
Net (decrease)/increase in cash and cash equivalents for the period/year (1,324) 6,742 (11,397)
Opening cash and cash equivalents 34,324 45,717 45,717
Effects of exchange rate change on cash (15) (1) 4
Closing cash and cash equivalents 32,985 52,458 34,324
The accompanying notes 1 to 16 form an integral part of the condensed
consolidated interim financial statements.
Notes to the Financial Statements
1. Significant accounting policies
The Company is a closed-ended investment company incorporated in England and
Wales. The condensed consolidated interim financial statements of the Company
for the period ended 31 March 2023 comprise those of the Company and its
subsidiaries (together referred to as the 'Group'). The shares of the Company
are listed on the London Stock Exchange (Primary listing) and the Johannesburg
Stock Exchange (Secondary listing). The registered office of the Company is 1
London Wall Place, London, EC2Y 5AU.
These condensed consolidated interim financial statements do not comprise
statutory accounts within the meaning of section 434 of the Companies Act
2006. Statutory accounts for the year ended 30 September 2022 were approved by
the Board of Directors on 5 December 2022 and were delivered to the Registrar
of Companies. The report of the auditors on those accounts was unqualified,
did not contain an emphasis of matter paragraph and did not contain any
statement under section 498 of the Companies Act 2006.
These condensed consolidated interim financial statements have been reviewed
and not audited.
Statement of compliance
The condensed consolidated interim financial statements have been prepared in
accordance with UK adopted International Accounting Standard 34, 'Interim
Financial Reporting' and the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority. They do not
include all of the information required for the full annual financial
statements and should be read in conjunction with the consolidated financial
statements of the Group as at and for the year ended 30 September 2022. The
condensed consolidated interim financial statements have been prepared on the
basis of the accounting policies set out in the Group's consolidated financial
statements for the year ended 30 September 2022. The consolidated financial
statements for the year ended 30 September 2022 have been prepared in
accordance with International Accounting Standards in conformity with the
Companies Act 2006.The Group's annual financial statements refer to new
Standards and Interpretations, none of which had a material impact on the
financial statements.
Basis of preparation
The condensed consolidated interim 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 flow of the entities included in
the condensed consolidated interim financial statements and are consistent
with those of the year-end financial report.
Going concern
The Directors have examined significant areas of possible financial risk
including: the non-collection of rent and service charges; potential falls in
property valuations; the existing and future expected cash requirements of the
Group; the ability to refinance certain third-party loans; the refurbishment
of Paris, BB and the receipt of further future funds from the purchaser and
forward-looking compliance with third-party debt covenants, in particular the
loan to value covenant and interest cover ratios.
Furthermore, the potential ramifications of Covid-19, the war in Ukraine and
macroeconomic variables such as rising interest rates and inflation have also
been considered regarding the Group's investments in France, Germany, Spain
and the Netherlands.
Cash flow forecasts based on plausible downside scenarios have led the Board
to conclude that the Group will have sufficient cash reserves to continue in
operation for the foreseeable future.
The Group has seven loans secured by individual assets, with no
cross-collateralisation. All loans are in compliance with their default
covenants, though there is a cash trap in operation for the Seville loan. More
detail of the individual loans, and headroom on the loan to value and net
income default covenants, is provided in the Investment Manager's Report on
page 13. Excluding the Seville loan, for which the Group's equity in the
associated joint venture has been written down to a nil value, three loans
totalling €21.55 million fall due between the 31 March 2023 period end and
twelve months post the signing of the half year report. The Group has since
repaid the Rumilly loan for €3.70m in April 2023; good progress is being
made with the refinancing of the €9.25m Dutch industrials loan which matures
in September 2023; and there are no immediate concerns with regard to the
Group's future ability to refinance the €8.60m Rennes loan which matures in
March 2024. Furthermore, the Group has sufficient cash or liquid assets to
repay these loans in a downside scenario of refinancing not being achieved.
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 condensed consolidated interim financial
statements. The Directors have satisfied themselves that the Group has
adequate resources to continue in operational existence for the foreseeable
future.
Use of estimates and judgements
The preparation of financial statements 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. The
use of estimates and judgements is consistent with the Group's consolidated
financial statements for the year ended 30 September 2022. 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 3
which are stated at fair value. The fair value of investment property is
inherently subjective because the valuer makes assumptions which may not prove
to be accurate. The Group uses an external professional valuer to determine
the relevant amounts.
The following are key areas of judgement:
· Accounting for development revenue and variable consideration
regarding Paris, BB: When estimating an appropriate level of development
revenue to be recognised in the reporting period, the Group considered the
contractual penalties of not meeting certain criteria within the agreement;
the total development costs incurred; the stage of completion of the
refurbishment; the milestones achieved and still to be achieved; the timing of
further future cash receipts from the purchaser; and the overall general
development risk to form a considered judgement of revenue to be appropriately
recognised in the financial statements. Further details of the estimated
variable consideration are disclosed in note 4.
· 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 financial statements. Where changes to tax laws give rise to a
contingent liability, the Group discloses these appropriately within the notes
to the financial statements (further details are disclosed in note 7).
· IFRS 9 expected credit losses: IFRS 9 requires an impairment review
to be made for certain financial assets held on the Group balance sheet using
a forward-looking expected credit loss model. All receivables and joint
venture loans are considered to be such financial assets and must therefore be
assessed at each reporting period for potential impairment. Where any
impairment is required to be made, appropriate recognition is required in the
consolidated statement of comprehensive income, together with appropriate
disclosure and sensitivity analysis in the notes to the financial statements
(further details are disclosed in note 3). The Seville joint venture loan has
been 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; the outstanding debt
principal, together with the ongoing LTV breach and cash trap position of the
loan; cash flow forecasts; tenants' trading positions and the existing ability
to let vacant space, and the market liquidity for such an asset. An evaluation
of these factors has allowed management to make a judgement on the probability
of default which is considered to be the key input for the impairment
calculation.
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.
Financial risk factors
The main risks arising from the Group's financial instruments and investment
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.
Credit risk
The Directors have assessed the loan to the Seville joint venture for any
expected credit loss under IFRS 9 and, consequently, a full impairment has
been previously recognised and continues to be maintained.
Cash balances are maintained with major international financial institutions
with strong credit ratings and the creditworthiness of the Group's tenants is
monitored on an ongoing basis.
Market risk
The market values for properties are generally affected by overall conditions
in local economies, such as changes in gross domestic product, employment
trends, inflation and changes in interest rates. The Directors monitor the
market value of investment properties by having independent valuations carried
out quarterly by a firm of independent chartered surveyors. The sensitivity of
the market value of the investment properties to changes in the equivalent
yield is also disclosed in note 3 of the financial statements.
At the date of signing this report, the conflict in Ukraine continues to have
an ongoing societal and economic impact. The Group does not have any direct
exposure to Russia nor Ukraine, but continues to monitor the situation
closely.
The Group's rental collection, excluding its JV in Seville and the investment
of which has previously been written down to nil, has continued to remain very
robust with a one hundred per cent rent collection in the period.
Environmental, Social and Governance factors
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 Group continues to monitor individual assets and their
conformity with sustainability requirements. The Group continues to review
potential initiatives where sustainability credentials can be enhanced,
ratings improved, value can be created and the liquidity of investments be
improved.
2. Rental and service charge income
Six months to 31 March 2023 Six months to 31 March 2022 Year to
€000
€000
30 September 2022
(unaudited)
(unaudited)
€000
(audited)
Rental income 7,454 6,968 14,528
Service charge income 2,036 2,206 3,625
Total 9,490 9,174 18,153
3. Investment property
Freehold
€000
Fair value at 30 September 2021 (audited) 199,727
Acquisitions and acquisition costs 10,865
Additions 513
Net valuation gain on investment property 6,351
Fair value as at 30 September 2022 (audited) 217,456
Acquisitions and acquisition costs 12,310
Additions 2,203
Net valuation loss on investment property (12,958)
Fair value as at 31 March 2023 (unaudited) 219,011
The fair value of investment properties, as determined by the valuer, totals
€220,160,000 (30 September 2022: €218,700,000) with the valuation amount
relating to a 100% ownership share for all the assets in the portfolio.
None of this amount is attributable to trade or other receivables in
connection with lease incentives. The fair value of investment properties per
the condensed consolidated interim financial statements of €219,011,000
includes a tenant incentive adjustment of €1,149,000 (30 September 2022:
€1,244,000).
On 16 March 2023, the Group acquired, via a sale and leaseback, a freehold
industrial warehouse in Alkmaar, the Netherlands, for a purchase price of
€11.2 million.
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 valuations have been undertaken in accordance with the current
edition of the RICS Valuation - Global Standards, which incorporate the
International Valuation Standards. References to the 'Red Book' refer to
either or both of these documents, as applicable.
The properties have been valued on the basis of 'fair value' in accordance
with the RICS Valuation - Professional Standards VPS4 (1.5) Fair Value and
VPGA1 Valuations for inclusion in financial statements which adopt the
definition of fair value used by the International Accounting Standards Board.
The valuation has been undertaken using appropriate valuation methodology and
the valuer's professional judgement. The valuer's opinion of fair value
was primarily derived using recent comparable market transactions on arm's
length terms, where available, and appropriate valuation techniques
(the 'Investment Method').
The properties have been valued individually and not as part of a portfolio.
All investment properties are categorised as Level 3 fair values as they use
significant unobservable inputs. There have not been any transfers between
levels during the period. Investment properties have been classed according to
their real estate sector. Information on these significant unobservable inputs
per class of investment property are disclosed below.
Quantitative information about fair value measurement using unobservable
inputs (Level 3) as at 31 March 2023 (unaudited)
Industrial Retail Office Total
(including retail warehouse)
Fair value (€000)(1) 79.86 66.25 99.15 245.26
Area ('000 sqm) 95.030 44.435 54.58 194.045
Net passing rent € per sqm per annum Range 33.16 - 124.0 30.84 - 152.12 113.63 - 152.63 30.84 - 152.63
Weighted average(2) 61.90 86.18 140.41 100.20
Gross ERV € per sqm per annum Range 42.00 - 104.42 101.58 - 162.27 79.93 - 236.83 42.0 - 236.83
Weighted average(2) 61.22 128.80 178.45 126.87
Net initial yield(3) Range 5.42 - 9.54 2.54 - 5.69 3.77 - 15.78 2.54 - 15.78
Weighted average(2) 6.08 4.40 6.46 5.78
Equivalent yield Range 5.10 - 7.25 5.10 - 7.68 3.72 - 12.82 3.72 - 12.82
Weighted average(2) 5.71 6.14 6.89 6.30
Notes:
1 This table includes the joint venture investment property valued at
€25.1 million which is disclosed within the summarised information within
note 6 as part of total assets.
2 Weighted by market value.
3 Yields based on rents receivable after deduction of head rents and
non-recoverables.
Quantitative information about fair value measurement using unobservable
inputs (Level 3) as at 30 September 2022 (audited)
Industrial Retail Office Total
(including retail warehouse)
Fair value (€000)(1) 71,950 69,150 104,000 235,100
Area ('000 sqm) 86.421 44.433 54.58 185.434
Net passing rent € per sqm per annum Range 28.81 - 118.10 38.33 - 151.18 103.57 - 145.83 28.81 - 151.18
Weighted average(2) 55.83 85.66 136.17 98.34
Gross ERV € per sqm per annum Range 40.00 - 104.42 101.58 - 162.27 79.93 - 224.34 40.00 - 224.34
Weighted average(2) 56.46 129.96 169.81 125.29
Net initial yield(3) Range 4.82 - 8.66 2.87 - 5.38 3.34 - 14.42 2.87 - 14.42
Weighted average(2) 5.57 4.24 5.93 5.35
Equivalent yield Range 4.5 - 6.68 4.95 - 7.29 3.27 - 12.40 3.27 - 12.40
Weighted average(2) 5.19 5.87 6.26 5.84
Notes:
1 This table includes the joint venture investment property valued at
€26.4 million which is disclosed within the summarised information within
note 6 as part of total assets.
2 Weighted by market value.
3 Yields based on rents receivable after deduction of head rents and
non-recoverables.
Sensitivity of measurement to variations in the significant unobservable
inputs
Given fair value measurement is an inherent judgement due to unobservable
inputs, management have reviewed the ranges used in assessing the impact of
changes in unobservable inputs on the fair value of the Group's property
portfolio. We consider +/-10% for ERV, and +/-50bps for NIY to capture the
uncertainty in these key valuation assumptions. The results of this analysis
are detailed in the sensitivity table below.
The significant unobservable inputs used in the fair value measurement
(categorised within Level 3 of the fair value hierarchy of the Group's
property portfolio), together with the impact of significant movements in
these inputs on the fair value measurement, are shown below:
Unobservable input Impact on fair value measurement of significant increase in input Impact on fair value measurement of significant decrease in input
Passing rent Increase Decrease
Gross ERV Increase Decrease
Net initial yield Decrease Increase
Equivalent yield Decrease Increase
There are interrelationships between the yields and rental values as they are
partially determined by market rate conditions. The sensitivity of the
valuation to changes in the most significant inputs per class of investment
property is shown below:
Estimated movement in fair value of investment properties at 31 March 2023 Industrial Retail Office Total
(unaudited) (1)
€000
€000
€000
€000
Increase in ERV by 10% 4,900 5,100 7,800 17,800
Decrease in ERV by 10% (4,900) (5,100) (7,900) (17,900)
Increase in net initial yield by 0.5% (6,500) (5,500) (8,400) (20,400)
Decrease in net initial yield by 0.5% 7,800 6,500 10,600 24,900
Estimated movement in fair value of investment properties at 30 September 2022 Industrial Retail Office Total
(audited) (1)
€000
€000
€000
€000
Increase in ERV by 10% 4,900 5,700 9,200 19,800
Decrease in ERV by 10% (4,900) (6,100) (9,400) (20,400)
Increase in net initial yield by 0.5% (6,600) (6,000) (10,000) (22,600)
Decrease in net initial yield by 0.5% 8,000 7,300 13,200 28,500
Notes:
1 This table includes the joint venture investment property valued at
€25.1 million (2022: €26.4 million) which is disclosed within the
summarised information within note 6 as part of total assets.
4. 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, BB to a purchaser.
The forward-funded sale agreement that the Group entered into was 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.
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 a further €16.9 million was payable upon
completion of certain milestones and was received in December 2021.
The forward-funded sale contract also included a development element whereby
the Group has undertaken 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 a total development revenue of
€30.5 million (2022: €30.2 million).
During the period €0.1 million of development cost has been incurred (30
September 2022: €15.4 million) which, to date, represents 91% of the total
project expenditure and a sum of €0.1 million (30 September 2022: €17.9
million) of development revenue has been recognised following consideration of
the factors identified above; this was also due from the purchaser at period
end. Total development revenue from this contract recognised since inception
is €94.0 million.
The remaining development revenue is expected to be recognised by 30 September
2023.
The total amount of the contract asset recognised by the Group that is due
from the purchaser thereby totalled €1.0 million (30 September 2022: €10.3
million) at the period end and is included in trade and other receivables.
5. Provision of internal loan made to Seville joint venture
As at 31 March 2023 the Group owned 50% of the Metromar JV, which owns a
shopping centre in Seville, and had advanced €10.0 million as a loan and was
owed interest of €1.5 million (30 September 2022: €1.5 million); (31 March
2022: €1.3 million). The loan carries a fixed interest rate of 4.37% per
annum payable quarterly and matures in April 2024.
When considering an appropriate level of impairment, deemed to be a
significant judgement, the Company primarily considered: the property
valuation and future potential movements; the outstanding debt principal,
together with the ongoing LTV breach and cash trap position of the loan; cash
flow forecasts; tenants' trading positions and the existing ability to let
vacant space, and the market liquidity for such an asset. An evaluation of
these factors has allowed management to make a judgement on the probability of
default which is considered to be the key input for the impairment
calculation.
A default rate of 100% has been applied to the above loan and unpaid interest
at year end. The impairment provision booked during the period was change to
€Nil as the loan and interest is now considered a stage 3 impairment (30
September 2022: €0.4 million) bringing the cumulative impairment to €11.5
million (30 September 2022: €11.5 million, 31 March 2022: €11.3 million)
and the Group's investment with regard to Seville stands at €nil.
6. Investment in joint ventures
The Group has a 50% interest in a joint venture called Urban SEREIT Holdings
Spain S.L. The principal place of business of the joint venture is Calle
Velázquez 3, 4th Madrid 28001 Spain.
31 March 2023
€000
Balance as at 1 October 2022 (audited) -
Share of loss for the period -
Balance as at 31 March 2023 (unaudited) -
31 March 2022
€000
Balance as at 1 October 2021 (audited) -
Share of loss for the period -
Balance as at 31 March 2022 (unaudited) -
31 March 2022
€000
Balance as at 1 October 2021 (audited) -
Investment in joint venture -
Share of loss for the year -
Balance as at 30 September 2022 (audited) -
Summarised joint venture financial information: 31 March 2023 31 March 2022 30 September 2022
€000
€000
€000
(unaudited)
(unaudited)
(audited)
Total assets 28,046 30,508 29,290
Total liabilities (48,998) (48,047) (48,435)
Net liabilities (20,952) (17,539) (19,145)
Net asset value attributable to the Group - - -
Six months to 31 March 2023 Six months to 31 March 2022 Year to
€000
€000
(unaudited)
(unaudited) 30 September 2022
€000
(audited)
Revenues 1,069 1,734 4,003
Total comprehensive loss (1,807) (2,929) (4,536)
Total comprehensive loss attributable to the Group - - -
As at 31 March 2023, the joint venture in Seville, of which SEREIT holds a 50%
share, had total net liabilities of €20,952,000. 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.
7. Taxation
Six months to 31 March 2023 Six months to 31 March 2022 Year to
€000
30 September 2022
€000
(unaudited)
€000
(unaudited)
(audited)
Current tax charge 167 771 1,305
Deferred tax charge (433) 1,071 1,280
Tax (credit)/expense in period/year (266) 1,842 2,585
Current tax liability Deferred tax liability
€000
€000
As at 1 October 2022 (audited) 1,426 5,124
Tax charge/(credit) for the period 167 (433)
Tax paid during the period (826) -
Balance as at 31 March 2023 (unaudited) 767 4,691
Current tax liability Deferred tax liability
€000
€000
As at 1 October 2021 (audited) 590 3,844
Tax charge for the period 771 1,071
Tax paid during the period (532) -
Balance as at 31 March 2022 (unaudited) 829 4.915
Current tax liability Deferred tax liability
€000
€000
As at 1 October 2021 (audited) 590 3,844
Tax charge for the period 1,305 1,280
Tax paid during the period (469) -
Balance as at 30 September 2022 (audited) 1,426 5,124
The Company has been approved by HM Revenue and Customs as an investment trust
in accordance with section 1158 of the Corporation Tax Act 2010, by way of a
one-off application, and it is intended that the Company will continue to
conduct its affairs in a manner which will enable it to retain this status.
The Company and certain subsidiary entities have also elected to be treated as
a société d'investissement immobilier cotée ('SIIC') for French tax
purposes. Provided that the Group meets certain requirements, the Group's
French subsidiaries should be exempt from French corporate income tax on net
rental income and gains arising from interests in property. Management intends
that the Group will continue to comply with the SIIC regulations for the
foreseeable future.
The Group operates in a number of jurisdictions and is subject to periodic
challenges by local tax authorities on a range of tax matters during the
normal course of business. The tax impact can be uncertain until a conclusion
is reached with the relevant tax authority or through a legal process. The
Group addresses this uncertainty by closely monitoring tax developments,
seeking independent advice and maintaining transparency with the authorities
it deals with as and when any enquiries are made. As a result of its
monitoring, the Group has identified a potential tax exposure attributable to
the ongoing applicability of tax treatments adopted in respect of the Group's
tax structures. The range of potential outcomes is a possible outflow of
minimum £nil and maximum £9.4 million (excluding possible interest and
penalties). The Directors have not provided for this amount because they do
not believe an outflow is probable.
8. Basic and diluted earnings per share
The basic and diluted earnings per share for the Group are based on the net
profit/(loss) for the period, excluding currency translation differences, of
€(8,662,000) (six months to 31 March 2022: €10,891,000; for the year
ended 30 September 2022: €13,918,000) and the weighted average number of
ordinary shares in issue during the period of 133,734,686 (six months to 31
March 2022: 133,734,686; for the year ended 30 September 2022: 133,734,686).
9. Interest-bearing loans and borrowings
Six months to 31 March 2023
€000
As at 1 October 2022 (audited) 68,744
Repayment of loans (14,000)
Proceeds from new loan facility 18,000
Amortisation of finance costs 89
As at 31 March 2023 (unaudited) 72,833
Year to
30 September 2022
€000
As at 1 October 2021 (audited) 68,589
Capitalisation of finance costs (15)
Amortisation of finance costs 170
As at 30 September 2022 (audited) 68,744
Six months to 31 March 2022
€000
As at 1 October 2021 (audited) 68,589
Capitalisation of finance costs (15)
Amortisation of finance costs 83
As at 31 March 2022 (unaudited) 68,657
The Company entered into a revolving credit facility in relation to the Paris
BB refurbishment. The maximum amount that can be drawn down is €13.6
million, with nil drawn at 31 March 2023.
On 31 March 2023, ahead of the maturity date of 30 June 2023, the Group fully
repaid its €14.0 million loan with Deutsche Pfandbriefbank AG which was
secured on the Hamburg and Stuttgart assets. In the period, the Group entered
into a new €18.0 million loan with Westerwald Bank eG. The new loan was
fully drawn down on 31 March 2023.
Three loans totalling €21.6 million fall due in the twelve months following
the balance sheet date. The Group has plans to refinance or repay and has
commenced preliminary discussions with lenders on this matter. However, the
Group would also have sufficient cash or liquid assets to repay all these
loans in the downside scenario of refinancing not being achieved.
As at 31 March 2023 the Group held interest rate caps as follows:
· Saint-Cloud loan with BRED Banque Populaire: two caps totalling the
full €17.0m of the loan with a combined fair value of €0.6 million as at
31 March 2023 and which expire on 15 December 2024 with a strike rate of
1.25%;
· Dutch industrials loan with HSBC: a cap totalling the full €9.25m
of the loan with a fair value of €0.2 million as at 31 March 2023 and which
expires on 28 September 2023 with a strike rate of 1%;
· Rennes loan with Landesbank SAAR: a cap totalling the full €8.60m
of the loan with a fair value of €0.2 million as at 31 March 2023 and which
expires on 27 March 2024 with a strike rate of 1%; and
· Rumilly loan with Landesbank SAAR: a cap totalling the full €3.70m
of the loan with a fair value of €0.07 million as at 31 March 2023 and which
expired on 28 April 2023 with a strike rate of 0.25%. The associated Rumilly
loan was fully repaid in April 2023.
10. Issued capital and reserves
As at 31 March 2023, the Company has 133,734,686 (30 September 2022:
133,734,686) ordinary shares in issue with a par value of 10.00p (no shares
are held in Treasury). The total number of voting rights in the Company is
133,734,686.
11. NAV per ordinary share
The NAV per ordinary share is based on the net assets at 31 March 2023 of
€177,106,00 (30 September 2022: €188,243,000; 31 March 2022:
€199,124,000) and 133,734,686 ordinary shares in issue at 31 March 2023 (30
September 2022: 133,734,686; 31 March 2022: 133,734,686).
12. Dividends paid
Six months ended 31 March 2023 (unaudited)(1) Number of ordinary shares Rate €000
(cents)
Interim dividend paid on 13 January 2023 133,734,686 1.85 2,474
Total interim dividends paid 133,734,686 1.85 2,474
1 A dividend for the quarter ended 31 March 2023 of 1.85 Euro cents per
share was approved and will be paid on 11 August 2023. Total dividends
declared relating to the six months' ended 31 March 2023 were 3.70 Euro cents
per share.
Six months ended 31 March 2022 (unaudited) Number of ordinary shares Rate €000
(cents)
Interim dividend paid on 8 November 2021 133,734,686 1.85 2,474
Interim dividend paid on 14 January 2022 133,734,686 1.85 2,474
Special dividend paid on 14 January 2022 133,734,686 4.75 6,353
Total interim dividends paid 11,301
Year ended 30 September 2022 (audited) Number of ordinary shares Rate €000
(cents)
Interim dividend paid on 8 November 2021 133,734,686 1.85 2,474
Interim dividend paid on 14 January 2022 133,734,686 1.85 2,474
First special dividend paid on 14 January 2022 133,734,686 4.75 6,352
Interim dividend paid on 20 April 2022 133,734,686 1.85 2,474
Interim dividend paid on 5 August 2022 133,734,686 1.85 2,474
Second special dividend paid on 5 August 2022 133,734,686 4.75 6,352
Interim dividend paid on 30 September 2022 133,734,686 1.85 2,474
Final special dividend paid on 30 September 2022 133,734,686 0.1 133
Total interim dividends paid 25,207
13. Related party transactions
Schroder Real Estate Investment Management Limited is the Group's Investment
Manager.
The Investment Manager is entitled to a fee, together with reasonable
expenses, incurred in the performance of its duties. The fee is payable
monthly in arrears and shall be an amount equal to one-twelfth of the
aggregate of 1.1% of the EPRA NAV of the Company. The Investment Management
Agreement can be terminated by either party on not less than 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 period was €1,028,000 (year ended 30 September 2022:
€2,198,000; six months ended 31 March 2022: €1,136,995). At 31 March 2023,
€656,000 was outstanding (year ended 30 September 2022: €717,000; six
months ended 31 March 2022: €378,740).
The Directors are the only officers of the Company and there are no other key
personnel. The Directors' remuneration for services to the Group for the six
months ended 31 March 2023 was €123,000 (year ended 30 September 2022:
€198,375; six months ended 31 March 2022: €108,000), equivalent to
£87,500. Three of the four Directors hold shares in the Company and have not
purchased or sold any shares in the financial period. Details of their
holdings can be found on page 46 of the September 2022 Annual Report and
Consolidated Financial Statements.
14. Capital commitments
At 31 March 2023, the Group had capital commitments of €nil (30 September
2022: €1,500,000; 31 March 2022: €389,400).
The Group is expected to incur a further €1.1m of development expenditure
with regards to the comprehensive refurbishment of the Paris, BB asset.
15. Contingent liabilities
There are no contingent liabilities other than those disclosed in note 7.
16. Post balance sheet events
On 28 April 2023, the Group fully repaid its €3.7 million loan with
Landesbank SAAR which was secured against the Rumilly, France property.
EPRA and Headline Performance Measures (unaudited)
As recommended by the European Public Real Estate Association ('EPRA'),
performance measures are disclosed in the section below.
a. EPRA earnings and earnings per share
Represents total IFRS comprehensive income excluding realised and unrealised
gains/losses on investment property, share of capital profit on joint venture
investments and changes in fair value of financial instruments, including the
loan made to the joint venture, divided by the weighted average number of
shares.
Six months to 31 March 2023 €000 Six months to 31 March 2022 €000 Year to 30 September 2022
(unaudited)
(unaudited)
€000
(unaudited)
Total IFRS comprehensive income (8,663) 10,893 13,918
Adjustments to calculate EPRA earnings:
Net (gain)/loss from fair value adjustment on investment property 12,958 (7,853) (6,351)
Currency translation differences (unrealised) - (2) 73
Net development (revenue)/expenditure - (1,839) (2,506)
Share of joint venture loss on investment property - - (561)
Deferred tax (433) 1,071 1,280
Tax on development profit - 460 702
Net change in fair value of financial instruments (107) (235) (921)
Provision of internal loan made to Seville joint venture (excluding interest) - - 444
EPRA earnings 3,755 2,495 6,078
Weighted average number of ordinary shares 133,734,686 133,734,686 133,734,686
IFRS earnings and diluted earnings (cents per share) (6.5) 8.1 10.4
EPRA earnings per share (cents per share) 2.8 1.9 4.5
b. EPRA Net Reinstatement Value
Six months to 31 March 2023 €000 (unaudited) Six months to 31 March 2022 €000 Year to 30 September 2022
(unaudited)
€000
(unaudited)
IFRS equity attributable to shareholders 177,106 199,124 188,243
Deferred tax and tax on development and trading properties 4,691 4,915 5,124
Adjustment in respect of joint venture deferred tax - - -
Adjustment for fair value of financial instruments (1,041) (248) (934)
Adjustment in respect of real estate transfer taxes 19,428 16,100 17,444
EPRA NAV 200,184 219,891 209,877
Shares in issue at end of year 133,734,686 133,734,686 133,734,686
IFRS Group NAV per share (cents per share) 132.4 148.8 140.8
EPRA NAV per share (cents per share) 149.7 164.4 156.9
c. EPRA Net Tangible Assets
Six months to 31 March 2023 €000 (unaudited) Six months to 31 March 2022 €000 Year to 30 September 2022
(unaudited)
€000
(unaudited)
IFRS equity attributable to shareholders 177,106 199,124 188,243
Deferred tax 4,691 4,915 5,124
Adjustment in respect of joint venture deferred tax - - -
Adjustment for fair value of financial instruments (1,041) (248) (934)
EPRA NAV 180,756 203,791 192,433
Shares in issue at end of year 133,734,686 133,734,686 133,734,686
IFRS Group NAV per share (cents per share) 132.4 148.8 140.8
EPRA NAV per share (cents per share) 135.2 152.4 143.9
d. EPRA Net Disposal Value
Six months to 31 March 2023 €000 (unaudited) Six months to 31 March 2022 €000 Year to 30 September 2022
(unaudited)
€000
(unaudited)
IFRS equity attributable to shareholders 177,106 199,124 188,243
Adjustment for the fair value of fixed interest rate debt 1,048 374 987
EPRA NAV 178,154 199,498 189,230
Shares in issue at end of year 133,734,686 133,734,686 133,734,686
IFRS Group NAV per share (cents per share) 132.4 148.8 140.8
EPRA NAV per share (cents per share) 133.2 149.2 141.5
e. EPRA comparatives
EPRA NRV EPRA NTA EPRA NDV
€000
€000
€000
IFRS NAV in the period 177,106 177,106 177,106
Exclude: deferred tax 4,691 4,691 -
Exclude: the fair value of financial instruments (1,041) (1,041) -
Include: the fair value of fixed rate interest rate debt - - 1,048
Include: real estate transfer tax 19,428 - -
EPRA NAV totals 200,184 180,756 178,154
f. Headline earnings reconciliation
Headline earnings per share reflect the underlying performance of the Company
calculated in accordance with the Johannesburg Stock Exchange
Listing requirements.
Six months to 31 March 2023 €000 (unaudited) Six months to 31 March 2022 €000 Year to 30 September 2022
(unaudited)
€000
(unaudited)
Total IFRS comprehensive income (8,663) 10,893 13,918
Adjustments to calculate headline earnings exclude:
Net valuation (profit)/loss on investment property 12,958 (7,853) (6,351)
Net development (revenue)/expenditure - (1,839) (2,506)
Share of joint venture loss on investment property - - (561)
Deferred tax (433) 1,071 1,280
Tax on development profit - 460 701
Net change in fair value of financial instruments (107) (235) (921)
Provision of internal loan made to Seville joint venture (excluding interest) - - 444
Headline earnings 3,755 2,497 6,004
Weighted average number of ordinary shares 133,734,686 133,734,686 133,734,686
Headline and diluted headline earnings per share (cents per share) 2.8 1.9 4.5
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