REG - Sirius Real Estate - Final Results <Origin Href="QuoteRef">SRET.L</Origin> - Part 3
26/06/2017 07:05
- Part 3: For the preceding part double click ID:nRSZ0774Jb
(charge)/credit (576) 156
Adjustment in respect of prior periods 264 -
Total current income tax (312) 156
Deferred tax
Relating to origination and reversal of temporary differences (9,245) (2,727)
Relating to LTIP charge for the year 57 183
Total deferred tax (9,188) (2,544)
Income tax charge reported in the statement of comprehensive income (9,500) (2,388)
The current income tax charge of E312,000 (31 March 2016: tax credit of
E156,000) reflects a release of tax accruals for prior years as well as the
tax charge for the period. The effective income tax rate for the period
differs from the standard rate of corporation tax in Germany of 15.825% (2016:
15.825%). The differences are explained below:
Year ended31 March 2017E000 Year ended31 March 2016E000
Profit before tax 76,436 57,076
Profit before tax multiplied by the rate of corporation tax in Germany of 15.825% (2016: 15.825%) 12,096 9,032
Effects of:
Deductible interest on internal financing (4,451) (5,467)
Non-deductible expenses 567 1,355
Tax losses utilised (1,200) (3,143)
Property valuation movements due to differences in accounting treatments 2,657 721
Adjustments in respect of prior periods (264) -
Other 95 (110)
Total income tax charge in the statement of comprehensive income 9,500 2,388
Deferred income tax liability
Year ended31 March 2017E000 Year ended31 March 2016E000
Opening balance 11,747 9,020
Taxes on the revaluation of investment properties and derivative financial instruments* 9,245 2,727
Balance as at year end 20,993 11,747
* Movement refers to the revaluation of investment properties to fair
value, the recognition of derivatives and adjustments for lease incentives
(e.g. rent free periods).
Deferred income tax asset
Year ended31 March 2017E000 Year ended31 March 2016E000
Opening balance (183) -
Relating to LTIP charge for the year (57) (183)
Closing balance (240) (183)
The Group has tax losses of E262,525,000 (2016: E235,682,000) that are
available for offset against future profits of its subsidiaries in which the
losses arose under the restrictions of the minimum taxation. Deferred tax
assets have not been recognised in respect of the revaluation losses on
investment properties and interest rate swaps as they may not be used to
offset taxable profits elsewhere in the Group as realisation is not assured.
Deferred tax assets have been recognised in respect of the valuation of the
Company LTIP.
11. Earnings per share
The calculation of the basic, diluted, headline and adjusted earnings per
share are based on the following data:
Year ended31 March 2017E 000 Re-presentedyear ended31 March 2016E 000
Earnings
Basic earnings 66,911 54,671
Diluted earnings 66,911 54,921
EPRA earnings 26,188 13,722
Headline earnings 26,318 13,832
Diluted headline earnings 26,318 13,832
Adjusted
Basic earnings after tax 66,911 54,671
Deduct revaluation surplus, net of related tax (40,514) (41,089)
Deduct gain on sale of properties, net of related tax (79) -
Headline earnings after tax 26,318 13,582
Deduct/add change in fair value of derivative financial instruments, net of related tax (156) 124
Add adjusting items, net of related tax* 8,801 9,329
Adjusted earnings after tax 34,963 23,035
Number of shares
Weighted average number of ordinary shares for the purpose of basic and EPRA basic earnings per share 822,957,685 728,152,740
Weighted average number of ordinary shares for the purpose of diluted and EPRA diluted earnings per share 846,807,685 770,534,539
Weighted average number of ordinary shares for the purpose of adjusted earnings per share 822,957,685 728,152,740
Basic earnings per share 8.13c 7.51c
Diluted earnings per share 7.90c 7.13c
Basic EPRA earnings per share 3.18c 1.88c
Diluted EPRA earnings per share 3.09c 1.78c
Headline earnings per share 3.20c 1.87c
Diluted headline earnings per share 3.11c 1.80c
Adjusted earnings per share 4.25c 3.16c
Adjusted diluted earnings per share 4.13c 2.99c
EPRA earnings
Basic and diluted earnings attributable to owners of the Company 66,911 54,671
Basic and diluted earnings attributable to non-controlling interest 25 17
Basic and diluted earnings attributable to owners of the Company and non-controlling interests 66,936 54,688
Surplus on revaluation of investment properties (49,782) (44,168)
Gain on disposal of properties (79) -
Change in fair value of derivative financial instruments (133) 476
Deferred tax in respect of EPRA adjustments 9,246 2,726
EPRA earnings 26,188 13,722
* Adjusting items as stated within earnings per share can be reconciled
with those stated within administrative expenses in note 6 as follows:
Year ended31 March 2017E000 Year ended31 March 2016E000
Non-recurring items as per note 6 2,409 465
Finance restructuring costs 1,762 7,595
Selling costs relating to assets held for sale 551 -
LTIP 4,136 1,452
Change in deferred tax assets (57) (183)
Adjusting items as per note 11 8,801 9,329
The number of shares has been reduced by 1,062,058 shares (2016: 1,375,666
shares) that are held by the Company as Treasury Shares at 31 March 2017, for
the calculation of basic, headline, adjusted and diluted earnings per share.
The weighted average number of shares for the purpose of diluted and EPRA
diluted earnings per share is calculated as follows:
2017E000 2016E000
Weighted average number of ordinary shares for the purpose of basic, EPRA basic and adjusted earnings per share 822,957,685 728,152,740
Effect of conversion of convertible shareholder loan - 22,261,799
Effect of grant of LTIP shares 23,850,000 20,120,000
Weighted average number of ordinary shares for the purpose of diluted and EPRA diluted earnings per share 846,807,685 770,534,539
The Directors have chosen to disclose adjusted earnings per share in order to
provide an alternative indication of the Group's underlying business
performance; accordingly, it excludes the effect of adjusting items,
gains/losses on sale of properties, deferred tax, and the revaluation
deficits/surpluses on the investment properties and derivative financial
instruments.
12. Net assets per share
31 March 2017E 000 Re-presented31 March 2016E 000
Net assets
Net assets for the purpose of assets per share (assets attributable to the equity holders of the Company) 495,187 387,052
Deferred tax arising on revaluation surplus and LTIP valuation 20,753 11,564
Derivative financial instruments 341 2,571
Adjusted net assets attributable to equity holders of the Company 516,281 401,187
Number of shares
Number of ordinary shares for the purpose of net assets per share 877,786,535 751,984,887
Number of ordinary shares for the purpose of diluted EPRA net assets per share 901,636,535 772,104,887
Net assets per share 56.41c 51.47c
Adjusted net assets per share 58.82c 53.35c
EPRA net assets per share 57.84c 52.72c
Net assets at the end of year (basic) 495,187 387,052
Revaluation of investment properties (if IAS 40 cost option is used) 4,968 5,639
Derivative financial instruments at fair value 341 2,590
Deferred tax in respect of EPRA adjustments 20,993 11,747
EPRA net assets 521,489 407,028
The number of shares has been reduced by 1,062,058 shares (2016: 1,375,666
shares) that are held by the Company as Treasury Shares at 31 March 2017, for
the calculation of net assets and adjusted net assets per share.
13. Investment properties
Most of the Group's properties are pledged as security for loans obtained by
the Group. See note 19 for details.
The movement in the book value of investment properties is as follows:
2017E000 2016E000
Total investment properties at book value as at 1 April 687,453 545,626
Additions 76,265 82,716
Capital expenditure 16,493 14,943
Disposals (6,698) -
Reclassified as investment properties held for sale not included in valuation (96,000) -
Surplus on revaluation above capex 50,040 47,501
Adjustment in respect of lease incentives (600) (423)
Movement in Directors' discretionary impairment of non-core assets 342 (2,910)
Total investment properties at book value as at 31 March 727,295 687,453
The reconciliation of the valuation carried out by the external valuer to the
carrying values shown in the statement of financial position is as follows:
2017E000 2016E000
Investment properties at market value per valuer's report* 735,290 695,190
Adjustment in respect of lease incentives (3,027) (2,427)
Directors' discretionary impairment of non-core assets (4,968) (5,310)
Balance as at year end 727,295 687,453
* Excluding assets held for sale.
The fair value (market value) of the Group's investment properties at 31 March
2017 has been arrived at on the basis of a valuation carried out at that date
by Cushman & Wakefield LLP (2016: Cushman & Wakefield LLP), an independent
valuer.
The value of each of the properties has been assessed in accordance with the
RICS valuation standards on the basis of market value. Market value was
primarily derived using a ten year discounted cash flow model supported by
comparable evidence. The discounted cash flow calculation is a valuation of
rental income considering non-recoverable costs and applying a discount rate
for the current income risk over a ten year period. After ten years, a
determining residual value (exit scenario) is calculated. A capitalisation
rate is applied to the more uncertain future income, discounted to a present
value.
As at 31 March 2017 a Director's discretionary impairment of E4,968,000 has
been recognised in relation to one non-core asset that management consider to
be impaired based on challenging market conditions specific to the location
where the asset is situated. All previously recognised impairments have been
utilised in the period.
The weighted average lease expiry remaining across the whole portfolio at 31
March 2017 was 2.5 years (2016: 2.6 years).
As a result of the level of judgement used in arriving at the market
valuations, the amounts that may ultimately be realised in respect of any
given property may differ from the valuations shown in the statement of
financial position.
The reconciliation of surplus on revaluation above capex as per the statement
of comprehensive income is as follows:
2017E000 2016E000
Surplus on revaluation above capex 50,040 47,501
Adjustment in respect of lease incentives (600) (423)
Movement in Directors' discretionary impairment of non-core assets 342 (2,910)
Surplus on revaluation of investment properties reported in the statement of comprehensive income 49,782 44,168
Included in the surplus on revaluation of investment properties reported in
the statement of comprehensive income are gross gains of E57,900,000 and gross
losses of E8,116,000.
Other than the capital commitments disclosed in note 27, the Group is under no
contractual obligation to purchase, construct or develop any investment
property. The Group is responsible for routine maintenance to the investment
properties.
All investment properties are categorised as Level 3 fair values as they use
significant unobservable inputs. There have not been any transfers between
levels during the year. Investment properties have been classed according to
their real estate sector. Information on these significant unobservable inputs
per class of investment property is disclosed below:
As at 31 March 2017
Sector Market value (E) Technique Significant assumption Range
Business park 711,320,000 Discounted cash flow Current rental income E288k-E5,655k
Market rental income E424k-E6,035k
Gross initial yield 3.8%-15.6%
Discount factor 4.75%-12.0%
Void period (months) 12-24
Estimated capital value per sqm E67-E1,261
Other 23,970,000 Discounted cash flow Current rental income E398k-1,905k
Market rental income E466k-E2,119k
Gross initial yield 3.8%-10.1%
Discount factor 6.3%-9.5%
Void period (months) 12-24
Estimated capital value per sqm E597-E941
As at 31 March 2016
Sector Market value (E) Technique Significant assumption Range
Business park 674,860,000 Discounted cash flow Current rental income E324k-E5,309k
Market rental income E424k-E6,034k
Gross initial yield 4.6%-15.7%
Discount factor 5.5%-12.0%
Void period (months) 12-24
Estimated capital value per sqm E67-E1,318
Other 20,330,000 Discounted cash flow Current rental income E422k-E740k
Market rental income E466k-E884k
Gross initial yield 7.4%-8.7%
Discount factor 6.5%-7.8%
Void period (months) 12-24
Estimated capital value per sqm E537-E806
The valuation is performed on a lease-by-lease basis due to the mixed-use
nature of the sites. This gives rise to large ranges in the inputs.
As a result of the level of judgement used in arriving at the market
valuations, the amounts which may ultimately be realised in respect of any
given property may differ from the valuations shown in the statement of
financial position. For example, an increase in market rental values of 5%
would lead to an increase in the fair value of the investment properties of
E37,980,000 and a decrease in market rental values of 5% would lead to a
decrease in the fair value of the investment properties of E37,770,000.
Similarly, an increase in the discount rates of 0.25% would lead to a decrease
in the fair value of the investment properties of E14,730,000 and a decrease
in the discount rates of 0.25% would lead to an increase in the fair value of
the investment properties of E15,040,000.
The highest and best use of properties do not differ from their current use.
14. Investment properties held for sale
31 March 2017E000 31 March 2016E000
Munich Rupert Mayer Strasse 85,000 -
Düsseldorf 11,000 -
Balance as at period end 96,000 -
Investment properties held for sale at 31 March 2017 is E96.0 million (31
March 2016: Enil), representing assets that were notarised for sale in the
period. A gain of E8.9 million, representing the difference between the
notarised sale prices and market valuation as at 30 September 2016 as
performed by Cushman & Wakefield LLP, is accounted for within surplus on
revaluation of investment properties in the consolidated statement of
comprehensive income and expected selling costs amounting to E551,000 are
included within administrative expenses. The total net gain on sale after tax
is expected to be E 6.4 million.
See note 30 for details of the completion of these two notarised disposals.
15. Plant and equipment
Plant andequipmentE000 Fixturesand fittingsE000 TotalE000
Cost
As at 31 March 2016 4,879 2,542 7,421
Additions in year 1,173 350 1,523
Disposals in year (39) (66) (105)
As at 31 March 2017 6,013 2,826 8,839
Depreciation
As at 31 March 2016 (3,934) (1,544) (5,478)
Charge for year (607) (261) (868)
Disposals in year 21 50 71
As at 31 March 2017 (4,520) (1,755) (6,275)
Net book value as at 31 March 2017 1,493 1,071 2,564
Cost
As at 31 March 2015 4,501 2,021 6,522
Additions in year 378 522 900
Disposals in year - (1) (1)
As at 31 March 2016 4,879 2,542 7,421
Depreciation
As at 31 March 2015 (3,505) (1,339) (4,844)
Charge for year (429) (205) (634)
Disposals in year - - -
As at 31 March 2016 (3,934) (1,544) (5,478)
Net book value as at 31 March 2016 945 998 1,943
16. Goodwill
2017E000 2016E000
Opening balance 3,738 3,738
Closing balance 3,738 3,738
On 30 January 2012 a transaction was completed to internalise the Asset
Management Agreement and, as a result of the consideration given exceeding the
net assets acquired, goodwill of E3,738,000 was recognised. Current business
plans indicate that the balance is unimpaired.
Goodwill is tested at least annually for impairment and whenever there are
indications that goodwill might be impaired. The recoverable amount of a
cash-generating unit is based on its value in use. Value in use is the present
value of the projected cash flows of the cash-generating unit. The key
assumptions regarding the value-in-use calculations were budgeted growth in
revenue and the discount rate applied. Budgeted profit margins were estimated
based on actual performance over the past two financial years and expected
market changes. The discount rate used is a pre-tax rate and reflects the
risks specific to the real estate industry. The Group prepares cash flow
forecasts based on the most recent financial budget approved by management,
which covers a one year period. Cash flows beyond this period are extrapolated
to a period of five years using a revenue growth rate of 2.0%, which is
consistent with the long-term average growth rate for the real estate sector.
A discount rate of 6.75% and terminal value of 4.75% was applied in the
impairment review. A discount rate of 10.0% would be required for the carrying
value of goodwill to be greater than the fair value. A negative revenue growth
rate of 1.16% would be required for the carrying value of goodwill to be
greater than the fair value.
17. Trade and other receivables
2017E000 2016E000
Trade receivables 2,837 3,069
Other receivables 4,470 6,368
Prepayments 6,983 2,499
Balance as at year end 14,290 11,936
Other receivables include lease incentives of E3,269,000 (2016: E2,757,000).
Prepayments include costs totalling E6,547,000 (2016: 2,147,000) relating to
the acquisition of two new sites that completed post period end (see note
30).
18. Cash and cash equivalents
2017E000 2016E000
Cash at bank and in hand 48,695 19,874
Balance as at year end 48,695 19,874
Cash at bank earns interest at floating rates based on daily bank deposit
rates. The fair value of cash as at 31 March 2017 is E48,695,000 (2016:
E19,874,000).
As at 31 March 2017 E12,753,000 (2016: E10,858,000) of cash is held in blocked
accounts. Of this, E6,933,000 (2016: E5,408,000) relates to deposits received
from tenants. An amount of E16,000 (2016: E16,000) is cash held in escrow as
requested by a supplier and E131,000 (2016: E131,000) is held in restricted
accounts for office rent deposits. An amount of E2,850,000 (2016: E3,003,000)
relates to amounts reserved for future bank loan interest and amortisation
payments, pursuant to certain of the Group's banking facilities, and an amount
of E2,823,000 (2016: E2,300,000) relates to amounts reserved for future
capital expenditure.
19. Trade and other payables
2017E000 2016E000
Trade payables 5,865 6,960
Accrued expenses 12,206 9,305
Accrued interest 509 530
Other payables 15,383 12,746
Balance as at year end 33,963 29,541
20. Interest-bearing loans and borrowings
Effectiveinterestrate% Maturity 2017E000 2016E000
Current
Deutsche Genossenschafts-Hypothekenbank AG
- fixed rate facility 1.59 31 March 2021 320 320
Bayerische Landesbank
- hedged floating rate facility Hedged1 19 October 2020 508 508
SEB AG
- fixed rate facility 1.84 1 September 2022 1,180 1,180
Berlin Hyp AG/Deutsche Pfandbriefbank AG
- floating rate facility Floating2 27 April 2023 1,063 1,437
- fixed rate facility 1.66 27 April 2023 2,413 1,437
Berlin Hyp AG
- fixed rate facility 1.48 29 October 2023 1,773 756
K-Bonds I
- fixed rate facility 6.00 31 July 2020 1,000 1,000
Capitalised finance charges on all loans (1,189) (996)
7,068 5,642
Non-current
Deutsche Genossenschafts-Hypothekenbank AG
- fixed rate facility 1.59 31 March 2021 14,360 14,680
Bayerische Landesbank
- hedged floating rate facility Hedged1 19 October 2020 24,113 24,621
SEB AG
- fixed rate facility 1.84 1 September 2022 56,050 57,230
Berlin Hyp AG/Deutsche Pfandbriefbank AG
- floating rate facility Floating 27 April 2023 40,375 53,763
- fixed rate facility 1.66 27 April 2023 89,927 53,763
Berlin Hyp AG
- fixed rate facility 1.48 29 October 2023 67,496 34,344
K-Bonds I
- fixed rate facility 4.00 31 July 2023 45,000 45,000
- fixed rate facility 6.00 31 July 2020 3,000 4,000
Convertible fixed rate facility 5.00 21 March 2018 - 5,000
Capitalised finance charges on all loans (5,597) (4,053)
334,724 288,348
Total 341,792 293,990
1 This facility is hedged with a swap charged at a rate of 1.66%.
2 Tranche 2 of this facility is charged with a floating rate of 1.57% over
three month EURIBOR (not less than 0%) for the full term of the loan.
The borrowings are repayable as follows:
2017E000 2016E000
On demand or within one year 8,256 6,639
In the second year 8,323 12,358
In the third to tenth years inclusive 331,998 280,042
Total 348,577 299,039
The Group has pledged 38 (2016: 33) investment properties to secure related
interest-bearing debt facilities granted to the Group. The 38 (2016: 33)
properties had a combined valuation of E774,120,000 as at 31 March 2017 (2016:
E635,413,000).
Deutsche Genossenschafts-Hypothekenbank AG
On 24 March 2016, the Group agreed to a facility agreement with Deutsche
Genossenschafts-Hypothekenbank AG for E16.0 million. As at 31 March 2017
tranche 1 had been drawn down in full totalling E15 million. The loan
terminates on 31 March 2021. Amortisation is 2% p.a. with the remainder of the
loan due in the fifth year. The facility is charged at a fixed interest rate
of 1.59%. The facility is secured over one property asset and is subject to
various covenants with which the Group has complied.
Bayerische Landesbank
On 20 October 2015, the Group agreed to a facility agreement with Bayerische
Landesbank for E25.4 million. The loan terminates on 19 October 2020.
Amortisation is 2% p.a. with the remainder due in the fourth year. The full
facility has been hedged at a rate of 1.66% until 19 October 2020 by way of an
interest rate swap. The facility is secured over four property assets and is
subject to various covenants with which the Group has complied.
SEB AG
On 2 September 2015, the Group agreed to a facility agreement with SEB AG for
E59.0 million to refinance the two existing Macquarie loan facilities. The
loan terminates on 1 September 2022. Amortisation is 2% p.a. with the
remainder due in the seventh year. The loan facility is charged at a fixed
interest rate of 1.84%. This facility is secured over twelve of the 14
property assets previously financed through the Macquarie loan facilities,
thereby two non-core assets were unencumbered in the refinancing process. The
facility is subject to various covenants with which the Group has complied.
Berlin Hyp AG/Deutsche Pfandbriefbank AG
On 31 March 2014, the Group agreed to a facility agreement with Berlin Hyp AG
and Deutsche Pfandbriefbank AG for E115.0 million. The loan terminates on 31
March 2019. Amortisation is 2% p.a. for the first two years, 2.5% for the
third year and 3.0% thereafter, with the remainder due in the fifth year. Half
of the facility (E55.2 million) is charged interest at 3% plus three months'
EURIBOR and is capped at 4.5%, and the other half (E55.2 million) has been
hedged at a rate of 4.265% until 31 March 2019. This facility is secured over
nine property assets and is subject to various covenants with which the Group
has complied. On 28 April 2016, the Group agreed to refinance this facility
which had an outstanding balance of E110.4 million at 31 March 2016. The new
facility is split in two tranches totalling E137.0 million and terminates on
27 April 2023. Tranche 1, totalling E94.5 million, is charged at a fixed
interest rate of 1.66% for the full term of the loan. Tranche 2, totalling
E42.5 million, is charged with a floating rate of 1.57% over three month
EURIBOR (not less than 0%) for the full term of the loan. Amortisation is set
at 2.5% across the full facility with the remainder due in one instalment on
the final maturity date. The facility is secured over eleven property assets
and is subject to various covenants with which the Group has complied.
Berlin Hyp AG
On 15 December 2014, the Group agreed to a facility agreement with Berlin Hyp
AG for E36.0 million. The loan terminates on 31 December 2019. Amortisation is
2% p.a. for the first two years, 2.4% for the third year and 2.8% thereafter,
with the remainder due in the fifth year. The facility is charged at a fixed
interest rate of 2.85%. This facility is secured over three property assets
and is subject to various covenants with which the Group has complied. On 28
April 2016, the Group agreed to add an additional tranche to this facility
which had an outstanding balance of E35.1 million at 31 March 2016. The
additional tranche of E4.5 million brings the total loan to E39.6 million. The
maturity of the additional loan tranche is coterminous with the existing loan
at 31 December 2019. Amortisation is 2.5% per annum, with the remainder due at
maturity. The additional loan tranche is charged with a fixed interest rate of
1.32% for the full term of the loan. The original facility agreement was
amended to include one previously unencumbered property asset located in
Würselen. The terms of the original loan are unchanged and the loan continues
to be subject to various covenants with which the Group has complied.
On 20 October 2016, the Group concluded an agreement with Berlin Hyp AG to
refinance and extend this facility that had an outstanding balance of E39.2
million at 30 September 2016. The new facility totals E70.0 million and
terminates on 29 October 2023. Amortisation is 2.5% per annum with the
remainder due at maturity. The facility is charged with an all-in fixed
interest rate of 1.48% for the full term of the loan. The facility is secured
over six property assets which include the recent acquisitions in Dresden and
Wiesbaden which were added to the security pool in order to increase the
facility. The loan is subject to various covenants with which the Group has
complied.
K-Bonds
On 1 August 2013, the Group agreed to a facility agreement with K-Bonds for
E52.0 million. The loan consists of a senior tranche of E45.0 million and a
junior tranche of E7.0 million. The senior tranche has a fixed interest rate
of 4% p.a. and is due in one sum on 31 July 2023. The junior tranche has a
fixed interest rate of 6% and terminates on 31 July 2020. The junior tranche
is amortised at E1.0 million p.a. over a seven year period. This facility is
secured over four properties and is subject to various covenants with which
the Group has complied.
Convertible shareholder loan
On 22 March 2013, the Company issued E5.0 million convertible loan notes due
in 2018 (the "Loan Notes"). The entire issue of E5.0 million was taken up by
the Karoo Investment Fund S.C.A. SICAV-SIF and the Karoo Investment Fund II
S.C.A. SICAV-SIF. The Loan Notes were issued at par and carried a coupon rate
of 5% p.a.. The majority of the proceeds from the issue of the Loan Notes were
used to reduce debt levels.
On 23 June 2016, the Company announced that the Karoo Investment Fund S.C.A.
SICAV-SIF served notice to convert this E5.0 million convertible loan notes
due in 2018 in full into, in aggregate, 22,814,731 new ordinary shares at the
conversion price of E0.22 per ordinary share.
A summary of the Group's debt covenants is set out below:
Outstanding at31 March 2017 E000 Propertyvalues at31 March 2017E000 Loan to valueratio at31 March 2017* Loan to valuecovenant at31 March 2017 Interest coverratio at31 March 2017** Debt servicecover ratio at31 March 2017** Cover ratiocovenant at31 March 2017
Deutsche Genossenschafts-Hypothekenbank AG 14,680 26,074 56.3% 68.0% n/a 1.77 1.25
Bayerische Landesbank 24,621 54,151 45.5% 65.0% n/a 3.49 2.50
SEB AG 57,230 127,383 44.9% 60.0% 6.93 n/a 5.20
Berlin Hyp AG/ 133,778 333,586 40.1% 65.0% n/a 2.94 1.50
Deutsche Pfandbriefbank AG
Berlin Hyp AG 69,269 134,647 51.4% 62.5% n/a 2.82 1.40
K-Bonds I 49,000 98,280 49.9% n/a 3.98 n/a 2.50
Unencumbered properties - 49,174 n/a
Total 348,578 823,295 42.3%
* Based on Cushman & Wakefield LLP valuations.
** Based on contractual calculations which are often less representative of
actual trading performance.
21. Financial risk management objectives and policies
The Group's principal financial liabilities comprise bank loans, derivative
financial instruments and trade payables. The main purpose of these financial
instruments is to raise finance for the Group's operations. The Group has
various financial assets, such as trade receivables and cash, which arise
directly from its operations.
The main risks arising from the Group's financial instruments are credit risk,
liquidity risk, market risk and interest rate risk.
Credit risk
Credit risk arises when a failure by counterparties to discharge their
obligations could reduce the amount of future cash inflows from financial
assets on hand at the reporting date. The credit risk on liquid funds is
limited because the counterparties are banks with high credit ratings assigned
by international credit rating agencies. The risk management policies employed
by the Group to manage these risks are discussed below. In the event of a
default by an occupational tenant, the Group will suffer a rental shortfall
and incur additional costs, including expenses incurred to try and recover the
defaulted amounts and legal expenses in maintaining, insuring and marketing
the property until it is re-let. During the year, the Group monitored the
tenants in order to anticipate and minimise the impact of defaults by
occupational tenants, as well as to ensure that the Group has a diversified
tenant base.
The carrying amount of financial assets represents the maximum credit
exposure. The maximum exposure to credit risk at the reporting date was:
2017E000 2016E000
Trade receivables 2,837 3,069
Other receivables 4,470 6,368
Derivative financial instruments - 19
Cash and cash equivalents 48,695 19,874
56,002 29,330
The ageing of trade receivables at the statement of financial position date
was:
Gross2017E000 Impairment2017E000 Gross2016E000 Impairment2016E000
Past due 0-30 days 2,784 (1,121) 3,613 (1,422)
Past due 31-120 days 1,267 (789) 485 (334)
More than 120 days 2,928 (2,232) 3,303 (2,576)
6,979 (4,142) 7,401 (4,332)
The movement in the allowance for impairment in respect of trade receivables
during the year was as follows:
2017E000 2016E000
Balance at 1 April (4,332) (3,743)
Impairment loss (released)/recognised 190 (589)
Balance at 31 March (4,142) (4,332)
The allowance account for trade receivables is used to record impairment
losses unless the Group believes that no recovery of the amount owing is
possible; at that point the amounts considered irrecoverable are written off
against the trade receivables directly.
Most trade receivables are generally due one month in advance. The exception
is service charge balancing billing, which is due ten days after it has been
invoiced. Included in the Group's trade receivables are debtors with carrying
amounts of E2,837,000 (2016: E3,069,000) that are past due at the reporting
date for which the Group has not provided as there has not been a significant
change in credit quality and the amounts are still considered recoverable.
Liquidity risk
Liquidity risk is the risk that arises when the maturity of assets and
liabilities does not match. An unmatched position potentially enhances
profitability but can also increase the risk of losses. The Group has
procedures with the objective of minimising such losses, such as maintaining
sufficient cash and other highly liquid current assets and having available an
adequate amount of committed credit facilities. The Group prepares cash flow
forecasts and continually monitors its ongoing commitments compared to
available cash. Cash and cash equivalents are placed with financial
institutions on a short-term basis which allows immediate access. This
reflects the Group's desire to maintain a high level of liquidity in order to
meet any unexpected liabilities that may arise due to the current financial
position. Similarly, accounts receivable are due either in advance (e.g. rents
and recharges) or within ten days (e.g. service charge reconciliations),
further bolstering the Group's liquidity level.
The table below summarises the maturity profile of the Group's financial
liabilities as at 31 March 2017, based on contractual undiscounted payments:
Year ended 31 March 2017 Bank andshareholderloansE000 Derivative financialinstrumentsE000 Tradeand otherpayablesE000 TotalE000
Undiscounted amounts payable in:
Six months or less (8,085) (82) (33,963) (42,130)
Six months to one year (7,048) (82) - (7,130)
One to two years (15,021) (161) - (15,182)
Two to five years (76,764) (320) - (77,084)
Five to ten years (279,706) - - (279,706)
(386,624) (645) (33,963) (421,232)
Interest 38,046 645 - 38,691
(348,578) - (33,963) (382,541)
Year ended 31 March 2016 Bank andshareholderloansE000 Derivative financialinstrumentsE000 Tradeand otherpayablesE000 TotalE000
Undiscounted amounts payable in:
Six months or less (8,357) (435) (29,541) (38,333)
Six months to one year (7,318) (428) - (7,746)
One to two years (21,153) (840) - (21,993)
Two to five years (198,257) (1,015) - (199,272)
Five to ten years (103,064) - - (103,064)
(338,149) (2,718) (29,541) (370,408)
Interest 39,110 2,718 - 41,828
(299,039) - (29,541) (328,580)
Currency risk
There is no significant foreign currency risk as most of the assets and
liabilities of the Group are maintained in euros. Small amounts of UK sterling
and South African rand are held to ensure payments made in UK sterling and
South African rand can be achieved at an effective rate.
Interest rate risk
The Group's exposure to interest rate risk relates primarily to the Group's
long-term floating rate debt obligations. The Group's policy is to mitigate
interest rate risk by ensuring that a minimum of 80% of its total borrowing is
at fixed or capped interest rates by taking out fixed rate loans or derivative
financial instruments to hedge interest rate exposure, or interest rate caps.
A change in interest will only have an impact on the floating loans capped due
to the fact that the other loans have a general fixed interest rate or they
are effectively fixed by a swap. An increase in 100 bps in interest rate would
result in a decreased post tax profit in the consolidated statement of
comprehensive income of E133,000 (excluding the movement on derivative
financial instruments) and a decrease in 100 bps in interest rate would result
in an increased post tax profit in the consolidated statement of comprehensive
income of E133,000 (excluding the movement on derivative financial
instruments).
Market risk
The Group's activities are within the real estate market, exposing it to very
specific industry risks.
The yields available from investments in real estate depend primarily on the
amount of revenue earned and capital appreciation generated by the relevant
properties, as well as expenses incurred. If properties do not generate
sufficient revenues to meet operating expenses, including debt service and
capital expenditure, the Group's revenue will be adversely affected.
Revenues from properties may be adversely affected by the general economic
climate; local conditions, such as oversupply of properties or a reduction in
demand for properties, in the market in which the Group operates; the
attractiveness of the properties to the tenants; the quality of the
management; competition from other available properties; and increased
operating costs.
In addition, the Group's revenue would be adversely affected if a significant
number of tenants were unable to pay rent or its properties could not be
rented on favourable terms. Certain significant expenditures associated with
each equity investment in real estate (such as external financing costs, real
estate taxes and maintenance costs) are generally not reduced when
circumstances cause a reduction in revenue from properties. By diversifying in
product, risk categories and tenants, the Group expects to lower the risk
profile of the portfolio.
Capital management
The Group seeks to enhance shareholder value both by investing in the business
so as to improve the return on investment and by managing the capital
structure.
The Group manages its capital structure and makes adjustments to it in light
of changes in economic conditions. To maintain or adjust the capital
structure, the Group may adjust the dividend payment to shareholders, issue
shares or undertake transactions such as those that occurred with the
internalisation of the Asset Management Agreement.
The Company holds 1,062,058 of its own shares which continue to be held as
Treasury Shares. During the year to 31 March 2017 313,608 shares were issued
from treasury and no shares were bought back.
The Group monitors capital using a gross debt to property assets ratio, which
was 42.3% as at 31 March 2017 (2016: 42.8%).
The Group is not subject to externally imposed capital requirements other than
those related to the covenants of the bank loan facilities.
22. Financial instruments
Fair values
Set out below is a comparison by category of carrying amounts and fair values
of all of the Group's financial instruments that are carried in the financial
statements:
2017 2016
CarryingamountE000 FairvalueE000 CarryingamountE000 FairvalueE000
Financial assets
Cash 48,695 48,695 19,874 19,874
Trade receivables 2,837 2,837 3,069 3,069
Derivative financial instruments - - 19 19
Financial liabilities
Trade payables 5,865 5,865 6,960 6,960
Derivative financial instruments 341 341 2,590 2,590
Interest-bearing loans and borrowings:
Floating rate borrowings 41,438 41,438 - -
Floating rate borrowings - hedged* 24,621 24,621 80,329 80,329
Floating rate borrowings - capped* - - 55,200 55,200
Fixed rate borrowings 282,519 288,288 163,510 166,570
* The Group holds interest rate
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