REG - Sirius Real Estate - Half-year Report <Origin Href="QuoteRef">SRET.L</Origin>

Sirius Real EstateAnnouncement

27/11/2017 07:05

RNS Number : 5180X
Sirius Real Estate Limited
27 November 2017
27 November 2017
Sirius Real Estate Limited
("Sirius", the "Group" or the "Company")
Interim Results for the six months ended 30 September 2017
Investing for the next phase of growth, 103 million of mature assets sold and 167 million being invested into higher growth opportunities
Asset acquisitions and recycling progressing well
 103.0 million of disposals with average occupancy of 90% completed in the period
 25.0 million equity raise completed in August 2017
 166.7 million of acquisitions with average occupancy of 58% completed, notarised or in exclusivity
  Seven assets for 83.7 million completed
  Four assets for 43.8 million notarised
  Two assets for 39.2 million in exclusivity
Continuing to deliver rental growth
 Despite the impact of disposals, total income increased by 8.3% to 35.3 million (2016: 32.6 million)
 Like-for-like annualised rental income increased by 2.0% to 65.2 million (31 March 2017: 64.0 million)
 Total annualised rental income was 69.7 million (31 March 2017: 71.0 million) due to disposals reducing rental income by 6.9 million
 New lettings of 72,509 sqm signed at an average rental rate of 6.39 per sqm, 21.3% above the portfolio average rate of 5.27 per sqm at the start of the period
 Like-for-like average rental rates increased to 5.17 from 5.11 per sqm in the period
Temporary increase in dividend pay-out ratio to 75% to compensate for loss of income from disposals
 Profit before tax in the period grew 44.5% yoy to 54.7 million (2016: 37.5 million)
 Funds from Operations grew by 8.2% to 18.5 million (2016: 17.1 million)
 Temporary increase in pay-out ratio to 75% in order to maintain positive dividend growth and offset the impact on earnings whilst the proceeds of mature high-income producing assets are reinvested
 Interim dividend of 1.56c per share representing a 12.2% increase in the same period in the prior year (2016: 1.39c)
Significant valuation uplift driven by organic growth and yield compression
 Book value of portfolio including assets held for sale increased to 857.4 million (31 March 2017: 823.3 million)
 Valuation uplift of 53.5 million* recorded in the period, with core portfolio uplift driven one-third by organic rental growth
 Gross yield of portfolio of 8.1% remains high compared to recent transactional evidence
 Adjusted net asset value** per share increased by 7.8% to 63.40c (31 March 2017: 58.82c)
* Compared to the 31 March 2017 book valuation for assets held at the start of the period or total acquisition costs for assets acquired in the period.
** Excludes the provisions for deferred tax and derivative financial instruments.
Andrew Coombs, Chief Executive Officer of Sirius Real Estate, said:
"The occupational demand for our space offerings continues to be strong and it is very pleasing to see that our management platform is capitalising on this. We are also encouraged that, despite seeing stronger competition for assets in 2017, our recycling programme is progressing well and we expect to complete the programme by the financial year end.
Transforming vacant areas into desirable rental spaces is one of our primary drivers for creating long-term value in new assets. As our original capex investment programme draws to an end, we are very optimistic about the significant opportunities that we have identified for the sub-optimal space and vacancy that we are acquiring within our new acquisitions.
As indicated, at the year end the Board has decided to temporarily increase the dividend pay-out ratio to 75% of FFO from 65% in order to maintain positive dividend growth whilst the disposal proceeds of mature high-income producing assets are reinvested."
Enquiries:
Sirius Real Estate +49 (0)30 285010110
Andrew Coombs, CEO
Alistair Marks, CFO
Novella +44 (0)20 3151 7008
Tim Robertson
Toby Andrews
Background to Sirius Real Estate:
Sirius is a property company listed on the Main Market and premium segment of the London Stock Exchange and the Main Board of the Johannesburg Stock Exchange.It is a leading operator of branded business parks, providing conventional space and flexible workspace in Germany. The Company's core strategy is the acquisition of industrial and office business parks at attractive yields, the integration of these business parks into its network of sites under the Company's own name as well as offering a range of branded products within those sites, and the reconfiguration and upgrade of existing and vacant space to appeal to the local market through intensive asset management and investment. The Company's strategy aims to deliver attractive returns for shareholders by increasing rental income and improving cost recoveries and capital values, as well as by enhancing those returns through financing its assets on favourable terms. Once sites are mature and net income and values have been optimised, the Company may take the opportunity to refinance the sites to release capital for investment in new sites or consider the disposal of sites in order to recycle equity into assets which present greater opportunity for the asset management skills of the Company's team.
For more information, please visit: www.sirius-real-estate.com.
Images of the Sirius property portfolio are available from: https://www.flickr.com/photos/sirius_re/.
Sirius Real Estate Limited
Interim Report 2017
Business update
Introduction
The six month period to 30 September 2017 has been another good trading period for the Company, which has seen further organic rental growth, significant valuation increases, excellent progress on asset recycling and further acquisition activity on the back of another successful equity raise. The organic improvements seen in the period have mainly come from the Group's asset management activities, including capex investment programmes, but have also been aided by the strong German industrial, logistics and office market conditions that currently exist.
Sirius has taken advantage of these market conditions through the disposal of three mature assets and the notarisation for sale of a non-income producing piece of land in the period. The proceeds from the completed disposals, along with the equity raises which completed in March 2017 and August 2017, have been applied to date to complete the acquisition of seven assets and the notarisation for purchase of four further assets since the start of the financial year. The recycling programme has focused on selling mature assets with limited income and valuation increase potential and replacing them with assets with significantly greater opportunity. The details of the disposals and acquisitions are presented in the Asset Recycling section of this update.
Over the last few years, the Company has been able to achieve organic rental growth each year despite the low inflationary environment in Germany. This has continued into the period under review, where an increase in like-for-like annualised rental income of 2.0% to 65.2 million* was achieved despite a large move-out in a non-core site in Bremen. The continued growth of the portfolio's rental income highlights the benefits of the Company's asset management and investment methods.
During the period, the total portfolio, excluding assets that were sold, increased in book value** by 53.5 million to 857.4 million as at 30 September 2017 (31 March 2017: 823.3 million**).The valuation uplift is attributable to both increases in income and occupancy as well as reflecting approximately 40 bps of yield compression on the core portfolio. Considering the potential to improve income through our intensive asset management initiatives in both existing and new acquisition assets, the Company is confident of continuing to drive value going forward.
* Excludes assets acquired or sold in the period.
** Compared to the 31 March 2017 valuation for assets held at the start of the period or total acquisition costs for assets acquired in the period including assets held for sale.
Trading performance
The positive trading for the period under review has been driven by organic growth from the portfolio owned throughout the period, offsetting in part the loss of income from assets sold in the period totalling 103.0 million and a small contribution from the acquisitions that completed in the period. As indicated in the Annual Report for the year ended 31 March 2017, the net effect of the asset recycling programme was expected to be an initial reduction in earnings whilst disposal and fundraising proceeds were being invested.
For the half year under review total rental income was 35.3 million (2016: 32.6 million) with profit before tax increasing to 54.7 million (2016: 37.5 million), including 41.6 million (2016: 25.4 million) of gains from property revaluations. Funds from Operations*** ("FFO") for the six months were 18.5 million (2.07c per share) compared to 17.1 million (2.13c per share) for the same period in the prior year. Basic EPRA earnings**** of 14.1 million (1.57c per share) were recorded, compared to 12.4 million (1.54c per share) in the six months to September 2016. We expect FFO per share and earnings per share in the second half of the financial year to be at similar levels whilst the proceeds of asset disposals and the equity raises continue to be deployed. The Company has, however, decided to temporarily increase its normal dividend pay-out ratio during this period of reinvestment, the details of which are set out in the Dividend section of this update.
*** See note 22 of the Interim Report.
**** See note 10 of the Interim Report.
Organic growth was seen mostly through rental improvements, where like-for-like annualised rental income increased by 1.2 million to 65.2 million in the six month period, representing an increase of 2.0% from the position at March 2017, whilst the average like-for-like rental rate per sqm increased from 5.11 to 5.17. Total annualised rental income, including acquisitions, at 30 September 2017 was 69.7 million compared to 71.0 million at the beginning of the period, despite the loss of 6.9 million of annualised rental income relating to the assets that were sold in the period. Total annualised rental income including those assets notarised in the period which are expected to complete after the period end amounts to 72.7 million.
Lettings and rental growth
As mentioned above, significant organic rental growth has been achieved in the period, despite some large expected move-outs, with like-for-like rental income increasing by 2.0% in six months. Move-outs, excluding disposals, in the first half of this financial year of 73,083 sqm were offset by new lettings of 72,509 sqm. Average rental rates for the like-for-like portfolio were driven up from 5.11 to 5.17 per sqm. The rate increase was partly driven by new leases being signed at an average rate of 6.39 per sqm compared to move-outs of 6.03 per sqm, along with some contracted rental uplifts and increases upon renewal. The high number of new lettings achieved by the Company in the period reflects not only strong occupier demand from our core German SME customers but also emphasises the capability of the operating platform which, during the period, delivered an average of 1,208 leads per month and a conversion rate into new deals of 14.4%. Unlike other property companies, Sirius does not depend on external brokers for attracting new tenants, with the vast majority coming from leads generated in house, allowing us to be more flexible in the space we offer tenants. Furthermore, by investing into the vacant areas and offering a range of innovative Smartspace products in the suboptimal space, Sirius can optimise a lot of the space that our competitors would be unable to fill.
Despite the impact of some large move-outs in the period as referenced above, like-for-like occupancy increased in the period. However, at a total portfolio level the decrease in occupancy from 81% to 79% is reflective of the vacancy within the assets the Company has acquired as well as the impact of disposing mature, high-occupancy assets.
Portfolio valuations
The strong demand for assets in Germany has seen properties trading across all asset classes at significantly lower yields in 2017 than in the prior year. Additionally, foreign investors are increasingly seeking to build up portfolios in Germany, as evidenced by a number of large transactions being reported over the last year. This has, to some degree, fed into the valuation of the Group's portfolio as at the period end; however, the continued organic rental growth has also had a very positive impact.
The portfolio, including acquisitions completed in the period, was independently valued at 860.3 million by Cushman & Wakefield LLP (31 March 2017: 829.7 million), which converts to a book value of 857.4 million including assets held for sale and after allowing for the provision for tenant incentives. The uplift for the period including capex totalling 11.9 million was 53.5 million. The three assets sold in the period were done so at significant premiums to the most recent valuation however, these were written up to the expected disposal value in the last period. As such, the impact from disposals recognised in the consolidated statement of comprehensive income in the period represents additional costs that were associated with these sales.
The portfolio as at 30 September 2017 comprised 48 assets and the book value can be reconciled to the Cushman & Wakefield LLP valuation as follows:
Table 1:Valuation reconciliation to book value*:
30 Sep 2017
m
31 Mar 2017
m
Investment properties at market value
860.3
829.7
Uplift in respect of assets held for sale
0.3
1.6
Adjustment in respect of lease incentives
(3.2)
(3.0)
Directors' impairment of non-core asset valuations
-
(5.0)
Balance as at period end*
857.4
823.3
* Includes assets held for sale.
The valuation increases on the existing core portfolio are derived approximately one-third from organic rental growth and the rest from yield compression of 40 bps in the period. A significant proportion of the organic growth derives from the Company's capex investment programme, which involves the transformation and lease-up of space that carries little or no book value. The assets that were acquired in the period were valued at 82.1 million compared to the 83.7 million total acquisition costs. The movement of the portfolio's value in the period is detailed as follows:
Table 2:Movement in book value in the period:
m
Book value at 31 March 2017* 
823.3
Acquisitions
83.7
Disposals
(103.1)
Uplift
53.5
Book value at 30 September 2017*
857.4
* Includes assets held for sale.
In order to analyse the key metrics of the portfolio, we have split the portfolio into core assets that still have value-add potential, core mature assets which have realised most of the value-add potential and non-core assets as follows:
Table 3:Book value valuation metrics:
Book value
m
Annualised
rental
income
m
Annualised
NOI
m
Gross yield
%
Net yield
%
Capital value
per sqm
Occupancy
%
Rate per
sqm
Vacant space
sqm
000
Core value-add
499.8
39.8
34.0
8.0
6.8
626
76.5
5.62
181.3
Core mature
338.7
27.2
25.9
8.0
7.6
725
93.9
5.36
27.7
Non-core
18.9
2.7
1.1
14.4
5.7
104
49.3
2.73
85.6
Other
-
-
(1.6)
-
-
-
-
-
-
Total
857.4
69.7
59.4
8.1
6.9
593
78.8
5.30
294.6
There still remains a significant gap between the gross and net yields of these assets which we expect to close when they approach maturity. Additionally, most of the capex investment programme is focused on the 94,628 sqm of vacant space within the value-add assets and we should see further rental income growth as this programme continues. In spite of the yield compression experienced in the period, the average gross yields of 8.0% (core value-add) and 8.0% (core mature) (31 March 2017: 8.8% and 8.5%) remain high compared to the transactional evidence in the market place for the asset class. As such, we expect there may be more yield compression to come.
Net asset value
The valuation uplift seen this period has contributed towards an increase of 7.0% in EPRA net asset value ("NAV") per share to 61.87c from 57.84c as at 31 March 2017. Adjusted NAV per share increased by 7.8% to 63.40c from 58.82c as at 31 March 2017. The movement of adjusted NAV per share and reconciliation to EPRA NAV per share in the period can be seen in note 11.
Total shareholder return based on adjusted NAV, including the 1.53c per share final dividend paid in August, was 10.4% for the six month period (30 September 2016 6.7%).
Asset recycling, acquisitions and disposals
The asset acquisitions and recycling programme is expected to be accretive to shareholder value over time, despite the initial reduction to earnings in the current year whilst the sales proceeds of three mature high-income producing assets are being reinvested. The Company's strategy is currently focused on replacing these assets which had limited further valuation and income improvement potential with assets with substantial value-add potential. The objective of the programme is to create future shareholder value and the results are generally achieved by acquiring assets at the right price with significant vacancy suited for development and value-add.
The asset acquisition and recycling plan for the current financial year can be summarised as follows:
 the completion in the first half of the financial year of the sale of three assets, with proceeds totalling 103.0 million; and
 the recycling of the equity from these assets and proceeds from the two equity raises that completed in March and August 2017 as well as two new banking facilities into approximately 167 million of acquisitions.
Table 4:Asset recycling and acquisitions activity in the period:
Disposals
Proceeds
Total sqm
sqm
Occupancy
%
Vacant
sqm
sqm
Annualised
rental
income
Non-recoverable service charge costs
Maintenance
costs
Annualised
NOI
EPRA net
initial yield
%
Munich RMS
85,000,000
58,585
88%
7,027
5,420,000
(98,000)
(40,000)
5,282,000
5.9%
Dsseldorf
11,000,000
16,607
96%
657
884,000
(23,000)
(10,000)
851,000
7.2%
Kiel
7,000,000
10,063
90%
1,006
594,000
(22,500)
(10,000)
561,500
7.4%
Total
103,000,000 
85,255 
90%
8,690 
6,898,000 
(143,500)
(60,000)
6,694,500 
6.2%
Acquisitions
Total investment
(incl. acquisition
costs)
Total
acquisition
sqm
sqm
Acquisition
occupancy
%
Acquisition
vacant sqm
sqm
Annualised
acquisition
rental
income
Acquisition
non-recoverable
service
charge
costs
Acquisition
maintenance
costs
Annualised
acquisition
NOI
EPRA net
initial yield
%
Completed
Cologne
22,904,000
20,342
100%
105
2,038,000
(171,000)
(18,000)
1,849,000
8.1%
Mahlsdorf II
6,394,000
12,826
62%
4,845
531,000
(136,000)
(8,000)
387,000
6.1%
Frankfurt
4,498,000
4,064
28%
2,926
153,000
(107,000)
(2,000)
44,000
1.0%
Frankfurt II
6,079,000
5,035
87%
673
499,000
(49,000)
(5,000)
445,000
7.3%
Grasbrunn
18,075,000
14,791
4%
14,279
97,000
(319,000)
(17,000)
(239,000)
(1.3)%
Neu-Isenburg
9,635,000
7,996
41%
4,692
472,000
(117,000)
(7,000)
348,000
3.6%
Neuss
16,093,000
18,258
38%
11,344
670,000
(296,000)
(14,000)
360,000
2.2%
Subtotal
83,678,000 
83,312 
53%
38,864 
4,460,000 
(1,195,000)
(71,000)
3,194,000 
3.8%
Notarised
Krefeld III
9,161,000
10,398
72%
2,875
729,000
(106,000)
(9,000)
614,000
6.7%
Frickenhausen
11,149,000
28,594
50%
14,423
801,000
(323,000)
(26,000)
452,000
4.1%
Schenefeld
15,059,000
42,220
71%
12,164
1,460,000
(261,000)
(19,000)
1,180,000
7.8%
Hamburg
8,412,000
11,223
0%
11,223
-
(215,000)
(7,000)
(222,000)
(2.6)%
Subtotal
43,781,000 
92,435 
56%
40,685 
2,990,000 
(905,000)
(61,000)
2,024,000 
4.6%
Exclusivity
Another
30,992,000
47,350
64%
17,198
3,001,000
(506,000)
(43,000)
2,452,000
7.9%
Another
8,250,000
8,672
80%
1,704
626,000
(76,000)
(10,000)
540,000
6.5%
Subtotal
39,242,000 
56,022 
66%
18,902 
3,627,000 
(582,000)
(53,000)
2,992,000 
7.6%
Total
166,701,000 
231,769 
58%
98,451 
11,077,000 
(2,682,000)
(185,000)
8,210,000 
4.9%
As can be seen from the table above, the net operating income lost from disposals is expected to be replaced when the acquisitions, including those in exclusivity are completed. The yields of the acquisitions are lower (4.9%) due to the high level of vacancy (42%) within these assets compared to those being sold. This means that it may take a little longer to realise the full benefits of the recycling but the Company believes that because the potential of the acquisition assets is far greater than those realised, it will be accretive for shareholder value over time. The acquisition portfolio was sourced from multiple vendors and comprises an attractive mix of stable, high-quality income like the Cologne and Frankfurt II assets along with a number of assets with significant value-add opportunity which will also benefit from operational synergies given their location in markets where Sirius is already invested. The potential of this acquisition portfolio comes predominantly from the 42% vacancy rate. With capital investment and extensive asset management, we believe significant gains in income and valuation can be achieved.
Within the period, seven acquisitions completed with total costs of 83.7 million. The properties located in Grasbrunn, Neu-Isenburg and Neuss are financed by SEB AG, with whom a new 30.0 million seven year loan facility that includes a 7.0 million capex facility was agreed shortly after the period end. The Frankfurt II asset was successfully incorporated into the existing SEB AG facility as substitute for the disposed Kiel asset and the Cologne asset is planned to be used as part of the replacement for the disposed Munich site within the Berlin Hyp and Deutsche Pfandbriefbank ("PBB") facility. In addition to the completed acquisitions, four assets were notarised in the period totalling 43.8 million, with two further assets totalling 39.2 million being entered into exclusivity arrangements after the period end.
In summary, the Group has made good progress in acquiring its target acquisition portfolio of around 167 million of new properties from the combination of the 103 million of asset disposal proceeds and the two equity raises totalling around 39 million which completed in March and August 2017. Two new banking facilities as well as an agreement with Berlin Hyp and PBB to reissue the facility that was secured against the disposed Munich asset will be required to complete this but the transactions are progressing and we are confident that these will be completed before the end of the financial year.
Capex investment programmes
A significant part of the valuation increases and organic rental growth comes from unlocking income and value through the transformation of vacant and suboptimal space through the Group's capex investment programme. An innovative range of products has been developed, which means Sirius is able to develop and realise the full potential of space which other owners would consider structural vacancy. As such, our capex investment programme continues to fuel the returns that we are achieving from our assets.
The original capex investment programme relates to around 200,000 sqm of suboptimal space and has been running for almost four years. Up until the period end, a total of 173,519 sqm has been completely refurbished and is either let or being marketed for letting. A total of 17.1 million has been invested into this space and, at occupancy of 83%, is generating 9.8 million of annualised rental income, representing a return on investment of 57%. This return does not include the additional benefit of improved cost recovery from this space being occupied or the valuation increase that has been generated by the investment, which we expect to be substantial considering the space had a low book value prior to investment. There remains further potential to increase rents and values from this programme, with 30,157 sqm of space still to be converted. It is anticipated that by the end of this financial year the original capex investment programme will be substantially complete with a further 6.6* million of investment expected to deliver an additional 2.1 million of annualised rental income. Details on the progress of the original capex investment programme can be seen in the table 7 in the Business Analysis section of this document. .
In addition to the original capex investment programme, Sirius has been working on the vacant space that has come with the acquisitions that the Group has made since the March 2016 financial year. The acquisitions that have completed so far this financial year, like those acquired in the previous financial year, include large amounts of suboptimal space suitable for investment. Accordingly, a new acquisition capex investment programme was initiated last year, identifying 79,251 sqm of suboptimal space suitable for investment. The total forecast spend of 19.5 million on this space is expected to generate annualised rental income of 6.7 million based on occupancy rates of around 83%. To date, 1.4 million has been invested and 1.1 million of additional annualised rental income realised, which leaves a further 18.1 million to be invested into this programme targeting a further 5.5 million increase in annualised rental income. Further details relating to the new acquisition capex investment programme are set out in table 8 in the Business Analysis section of this document.
The expected income returns from the new acquisition capex investment programme are slightly lower than from the original capex investment programme due to the condition of the vacancy of the acquisitions being of a lower standard and more investment being required. However, the valuation attributed to the vacant space of the new acquisitions is lower and, as such, we would expect the valuation increases from the new acquisitions capex investment programme to be higher than those we have seen from the original capex investment programme.
The capex investment programmes are key elements of Sirius' business model and the potential is continually being restored whenever assets with vacancy are purchased. Between the original and the new acquisition capex investment programmes detailed above, the valuation potential remaining from a further investment of 24.7 million and expected increase in annualised rental income of 7.6 million could be in the region of 70 million.
Smartspace
Smartspace products continue to provide a successful conversion option for suboptimal space and remain popular with tenants seeking flexible and fixed-cost workspaces. The investment returns on Smartspace remain high since it is usually space which would be considered a structural vacancy that is converted. As such, it continues to play an important role in the capex investment programme and in the period 2,096 sqm of Smartspace Office, 510 sqm of Smartspace Workbox and 870 sqm of Smartspace Storage were created from suboptimal space.
Whilst total Smartspace square metres fell in the period as a result of the disposal activity annualised rental income at 30 September 2017 increased to 4.5 million on occupancy of 71% compared to the same period in the prior year. Average rates per sqm rose from 6.65 to 6.70. The Smartspace range is still only a small part of the total portfolio but is another key differentiator of Sirius. The total returns that are achieved from assets are significantly enhanced by generating this level of income from space with little or no inherent value prior to conversion because this space would be typically left vacant or rented at very low rates by most other operators. Further details on our Smartspace products and how they contribute to the portfolio as a whole can be seen in table 9 in the Business Analysis of this document.
Acquisitions progress
The capex investment programme is one of the main contributors to high returns that are being achieved from the acquisitions that the Company has made over the last three years. Of the 23 assets that have been acquired since the current acquisitions programme commenced in 2015, 13 of these have been owned for more than one year. The returns achieved to date on these have exceeded expectations and are detailed in Table 10 in the Business Analysis section of this document. 
The total acquisition costs for the 13 assets owned for more than twelve months was 204.2 million, of which 105.3 million was funded by bank debt and 98.9 million of equity was required. In addition to the initial equity approximately 6.1 million of capex has been invested into these assets to date giving a total equity investment of 105 million. This investment so far has resulted in 44.9 million of valuation gains and a 2.0 million increase in annualised rental income whereby these assets are now contributing around 17.3 million of profit before tax per year, which represents a 17.5% running annual income return on the equity investment to date. As such, it is expected that these assets will produce more than 100 million of profit before tax (including valuation increases) on the 105 million of equity invested in the first three years of ownership.
Loan to value
The Company continues to be focused on a risk-adjusted approach towards its investments and has been committed to achieving a gross loan-to-value ratio ("LTV") of 40% or below by 31 March 2018. Total debt at 30 September 2017 was reduced to 298.2 million (31 March 2017: 348.6 million), resulting in the Group's gross LTV coming down to 34.8% (31 March 2017: 42.3%) whilst net LTV* reduced to 33.3% (31 March 2017: 38.0%). The extent of this reduction is likely to be only temporary as it is predominantly due to the disposal of assets in the period resulting in the repayment of debt as well as acquisitions that completed in the period being initially purchased on an ungeared basis. It is expected that in the second half of this financial year new debt will be drawn against these acquisitions as well as those that will be completed in the second half, resulting in the Company's LTV levels returning to closer to the 40% gross LTV mark, but still within the Company's target, by 31 March 2018.
* Net LTV is the ratio of principal value of gross debt less cash, excluding that which is restricted, to the aggregate value of investment property.
Dividend
Whilst it remains the Company's normal policy to pay dividends based on 65% of the Group's FFO, the Board communicated in the Annual Report for the year ended 31 March 2017 the possibility of temporarily increasing the dividend pay-out ratio in order to maintain positive dividend growth whilst the proceeds from the very substantial disposals of high-income producing mature assets made by the Company at the start of the financial year are reinvested. As shown in the asset recycling tables earlier in the report, the income lost from disposals is expected to be mostly recovered when the equity is recycled into the acquisitions that have been identified as replacements. The earnings drag comes from the fact that the disposals occurred at the start of the financial year whereas the acquisitions are completing more towards the middle and back end of the financial year. Thus, provided the investments that have been notarised or are under exclusivity progress to plan, we expect the pay-out ratio to return to normal for the second half of the year.
In accordance with this, the Board has declared an interim dividend of 1.56c per share for the six month period ended 30 September 2017, representing 75% of FFO, and an increase of 12.2% on the 1.39c dividend relating to the same period last year.
The ex-dividend date will be 13 December 2017 for shareholders on the South African register and 14 December 2017 for shareholders on the UK register. The record date will be 14 December 2017 for shareholders on the South African and UK registers and the dividend will be paid on 19 January 2018 for shareholders on both registers. A detailed dividend announcement will be made in due course, including details of a scrip dividend alternative.
Board
Neil Sachdev has informed the Board that he intends to step down at the end of December, to take on other opportunities within his current work plans.The Board would like to thank Neil for his service with the Company, first as a Non-executive Director and then as Chairman, most notably for leading the Company onto the Main Market of the London Stock Exchange and the Main Board of the Johannesburg Stock Exchange.The Board has commenced a search to identify a replacement for Neil as Chairman.
The Company is, however, pleased to announce that Jill May has joined the Board today as an independent Non-executive Director. Jill has twenty four years' experience in investment banking, thirteen years' experience in M&A with SG Warburg and eleven years' experienceas a Managing Directorat UBS, where she was responsible for Cross Business Strategy. She is a non-executive director of JPMorgan Claverhouse Investment Trust plc and Ruffer Investment Company. She is a panel member of the Competition and Markets Authority and a non-executive director of the Institute of Chartered Accountants (ICAEW).
At the AGM held on 22 September 2017, Robert Sinclair formally retired from the Board after more than ten years of service including five years as Chairman. The Board would like to thank Robert for his excellent contributions and stewardship over the years. On 22 September 2017, Justin Atkinson was appointed to replace Robert as Chairman of the Audit Committee.
Outlook
Sirius' focus continues to be on delivering attractive risk adjusted returns on its portfolio by growing recurring income and capital values through intensive asset management activity.When this is combined with recycling equity from mature assets into investments with greater opportunity as well as with acquiring sites with the appropriate mix of stability and opportunity using new equity and long-term fixed low interest rate bank facilities, then returns to shareholders are expected to continue to grow. Sirius has made strong progress on all fronts in the period under review.
The market from both an occupier demand perspective as well as a transactional perspective is strong in Germany and, despite the increased competition and significant yield compression being seen on commercial assets, the Company has been able to source some excellent acquisitions so far this financial year.These assets have come with typically greater vacancy than those that have been sold but we believe this presents an excellent opportunity for the Company to extend its highly successful capex investment programme.
The German economy in the first three-quarters of this year grew at its fastest annualised pace (3.2%) since 2011, thanks to strong domestic demand and a cyclical upswing across the markets it services such as the US and the rest of the Eurozone. German industrial production was up by 1.7% in the second quarter and 1.1% in the third, as a consequence of which businesses are expanding production capacity. We expect this to continue to benefit Sirius' customer base. The low Eurozone interest rate environment helps both the economy and Sirius, which continues to enjoy excellent terms on its new banking facilities.
Following on from the Main Market listings at the start of 2017, the Company was pleased to announce its entry into the FTSE All-Share and small-cap indices in September 2017 and that on 16 November 2017, the Company's secondary listing on the Main Board of the JSE was transferred to a primary listing on the Main Board of the JSE, meaning that Sirius will have primary listings on both the JSE and LSE.This will allow Sirius to be included in the SAPY index in the future and it is hoped that these and further indices inclusions, on both the London and Johannesburg exchanges, will benefit the Company and its shareholders going forward.
The Sirius Board is confident that the strong results will continue into the second half of the year.
Independent review report
to Sirius Real Estate Limited
Conclusion
We have been engaged by Sirius Real Estate Limited (the "Company") to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2017 of the Company and its subsidiaries (together the "Group"), which comprises the unaudited consolidated statement of comprehensive income, unaudited consolidated statement of financial position, unaudited consolidated statement of changes in equity, unaudited consolidated statement of cash flow and the related explanatory notes.
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2017 is not prepared, in all material respects, in accordance with IAS 34 'Interim Financial Reporting' as adopted by the EU and the Disclosure Guidance and Transparency Rules (the "DTR") of the UK's Financial Conduct Authority (the "UK FCA").
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.
As disclosed in note 2, the annual financial statements of the group are prepared in accordance with International Financial Reporting Standards as adopted by the EU. The Directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report or for the conclusions we have reached.
Mike Woodward
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square, London E14 5GL
24 November 2017
Unaudited consolidated statement of comprehensive income
for the six months ended 30 September 2017
Notes
(Unaudited)
six months ended
30 September 2017
000
Represented*
(unaudited)
six months ended
30 September 2016
000
Year ended
31 March 2017
000
Rental income
4
35,301
32,636
68,793
Direct costs
5
(5,265)
(5,308)
(8,267)
Net operating income
30,036
27,328
60,526
Surplus on revaluation of investment properties
12
41,580
25,370
49,782
(Loss)/gain on disposal of properties
5
(807)
-
79
Administrative expenses
5
(10,591)
(9,865)
(23,883)
Operating profit
60,218
42,833
86,504
Finance income
8
5
18
23
Finance expense
8
(5,481)
(5,217)
(10,224)
Change in fair value of derivative financial instruments
7
(126)
133
Net finance costs 
(5,469)
(5,325)
(10,068)
Profit before tax
54,749
37,509
76,436
Taxation
9
(3,840)
(4,632)
(9,500)
Profit for the period
50,909
32,877
66,936
Profit attributable to:
Owners of the Company
50,885
32,862
66,911
Non-controlling interests
24
15
25
Total comprehensive income for the period
50,909
32,877
66,936
Earnings per share
Basic earnings per share
10
5.69c
4.09c
8.13c
Diluted earnings per share
10
5.54c
3.97c
7.90c
Basic EPRA earnings per share
10
1.57c
1.54c
3.18c
* See note 2(a).
Unaudited consolidated statement of financial position
as at 30 September 2017
Notes
(Unaudited)
30 September 2017
000
(Unaudited)
30 September 2016
000
31 March 2017
000
Non-current assets
Investment properties
12
856,417
764,990
727,295
Plant and equipment
2,814
1,928
2,564
Goodwill
14
3,738
3,738
3,738
Deferred tax assets
9
573
267
240
Total non-current assets
863,542
770,923
733,837
Current assets
Trade and other receivables
15
18,177
8,576
14,290
Cash and cash equivalents
16
33,664
24,747
48,695
Investment properties held for sale
13
950
5,870
96,000
Total current assets
52,791
39,193
158,985
Total assets
916,333
810,116
892,822
Current liabilities
Trade and other payables
17
(33,047)
(27,763)
(33,963)
Interest-bearing loans and borrowings
18
(6,026)
(6,204)
(7,068)
Current tax liabilities
(2,725)
(144)
(465)
Derivative financial instruments
(7)
(12)
(7)
Total current liabilities
(41,805)
(34,123)
(41,503)
Non-current liabilities
Interest-bearing loans and borrowings
18
(286,659)
(308,017)
(334,724)
Derivative financial instruments
(327)
(587)
(334)
Deferred tax liabilities
9
(22,882)
(16,485)
(20,993)
Total non-current liabilities
(309,868)
(325,089)
(356,051)
Total liabilities
(351,673)
(359,212)
(397,554)
Net assets
564,660
450,904
495,268
Equity 
Issued share capital
20
-
-
-
Other distributable reserve
21
488,801
460,013
470,318
Retained earnings
75,754
(9,180)
24,869
Total equity attributable to the equity holders of the Company
564,555
450,833
495,187
Non-controlling interests
105
71
81
Total equity
564,660
450,904
495,268
Unaudited consolidated statement of changes in equity
for the six months ended 30 September 2017
Issued
share
capital
000
Other
distributable
reserve
000
Retained
earnings
000
Total equity
attributable to
the equity
holders of the
Company
000
Non-controlling
interests
000
Total
equity
000
As at 31 March 2016
-
429,094
(42,042)
387,052
56
387,108
Shares issued, net of costs
-
29,117
-
29,117
-
29,117
Share-based payment transactions
-
2,305
-
2,305
-
2,305
Conversion of shareholder loan
-
5,000
-
5,000
-
5,000
Dividends paid
-
(5,503)
-
(5,503)
-
(5,503)
Total comprehensive income for the period
-
-
32,862
32,862
15
32,877
As at 30 September 2016
-
460,013
(9,180)
450,833
71
450,904
Shares issued, net of costs
-
14,503
-
14,503
-
14,503
Share-based payment transactions
-
1,984
-
1,984
-
1,984
Dividends paid
-
(6,182)
-
(6,182)
-
(6,182)
Total comprehensive income for the year
-
-
34,049
34,049
10
34,059
As at 31 March 2017
-
470,318
24,869
495,187
81
495,268
Shares issued, net of costs
-
24,386
-
24,386
-
24,386
Share-based payment transactions
-
2,475
-
2,475
-
2,475
Dividends paid
-
(8,378)
-
(8,378)
-
(8,378)
Total comprehensive income for the period
-
-
50,885
50,885
24
50,909
As at 30 September 2017
-
488,801
75,754
564,555
105
564,660
Unaudited consolidated statement of cash flow
for the six months ended 30 September 2017
Notes
(Unaudited)
six months ended
30 September 2017
000
(Unaudited)
six months ended
30 September 2016
000
Year ended
31 March 2017
000
Operating activities
Profit after tax
50,885
32,862
66,911
Taxation
3,840
4,632
9,500
Non-controlling interests
24
15
25
Loss/(gain) on sale of properties
807
-
(79)
Share-based payments
2,475
2,305
4,290
Surplus on revaluation of investment properties
12
(41,580)
(25,370)
(49,782)
Change in fair value of derivative financial instruments
(7)
126
(133)
Depreciation
5
561
416
868
Finance income
8
(5)
(18)
(23)
Finance expense
4,950
5,132
9,795
Exit fees/prepayment penalties
530
15
428
Cash flows from operations before changes in working capital
22,480
20,115
41,800
Changes in working capital
Decrease in trade and other receivables
3,547
3,738
4,984
(Decrease)/increase in trade and other payables
(3,970)
(2,206)
3,168
Taxation (paid)/received
(22)
118
(17)
Cash flows from operating activities
22,035
21,765
49,935
Investing activities
Purchase of investment properties
(83,656)
(50,801)
(76,265)
Prepayments relating to new acquisitions
(395)
(378)
(6,547)
Capital expenditure
(8,870)
(7,955)
(16,540)
Purchase of plant and equipment
(809)
(410)
(1,523)
Net proceeds on disposal of properties
95,246
-
7,201
Interest received
5
18
23
Cash flows from/(used in) investing activities
1,521
(59,526)
(93,651)
Financing activities
Issue of shares
24,378
29,117
43,620
Dividends paid
(8,378)
(5,503)
(11,685)
Proceeds from loans
-
141,500
211,500
Repayment of loans
(50,379)
(116,426)
(159,077)
Exit fees/prepayment penalties
(530)
(15)
(428)
Finance charges paid
(3,677)
(6,039)
(11,393)
Cash flows (used in)/from financing activities
(38,586)
42,634
72,537
(Decrease)/increase in cash and cash equivalents
(15,031)
4,873
28,821
Cash and cash equivalents at the beginning of the period
48,695
19,874
19,874
Cash and cash equivalents at the end of the period
16
33,664
24,747
48,695
Notes forming part of the financial statements
for the six months ended 30 September 2017
1. General information
Sirius Real Estate Limited (the "Company") is a company incorporated in Guernsey and resident in the United Kingdom, whose shares are publicly traded on the main markets of the London Stock Exchange ("LSE") and the Johannesburg Stock Exchange ("JSE").
The consolidated financial information of the Company comprises that of the Company and its subsidiaries (together referred to as the "Group") for the six month period to 30 September 2017.
The principal activity of the Group is the investment in, and development of, commercial property to provide conventional and flexible workspace in Germany.
2. Significant accounting policies
(a) Basis of preparation
The unaudited interim condensed set of consolidated financial statements have been prepared on a historical cost basis, except for investment properties, investment properties held for sale and derivative financial instruments, which have been measured at fair value. The unaudited interim condensed set of consolidated financial statements are presented in euros and all values are rounded to the nearest thousand (000), except where otherwise indicated.
The comparative figures for the financial year ended 30 September 2016 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditors and delivered to the registrar of companies. The report of the auditor was (i) unqualified (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 263 (2) or (3) of the Companies (Guernsey) Law, 2008.
As at 31 March 2017, the Company elected to present consolidated financial statements in a manner which makes them more comparable with similar businesses that operate in the real estate sector who typically include only costs that are considered directly attributable the underlying property assets within net operating income. As a result, the consolidated statement of comprehensive income for the six months ended 30 September 2016 has been re-presented with the main impact being the reallocation of costs that are not considered to be directly attributable to the underlying property assets from direct costs to administrative expenses. The impact on total comprehensive income for the comparative period is nil as shown in the table below:
Previously reported
six months ended
30 September 2016
000
Re-presented
six months ended
30 September 2016
000
Movement
000
Rental income
32,636
32,636
-
Direct costs
(8,900)
(5,308)
3,592
Net rental income/net operating income
23,736
27,328
3,592
Surplus on revaluation of investment properties
25,370
25,370
-
Administrative expenses
(5,041)
(9,865)
(4,824)
Other operating expenses
(1,301)
-
1,301
Operating profit
42,764
42,833
70
Finance income
18
18
-
Finance expense
(5,147)
(5,217)
(70)
Change in fair value of derivative financial instruments
(126)
(126)
-
Net finance costs
(5,255)
(5,325)
(70)-
Profit before tax
37,509
37,509
-
Taxation
(4,632)
(4,632)
-
Profit for the year 
32,877
32,877
-
Profit attributable to:
Owners of the Company
32,862
32,862
-
Non-controlling interest
15
15
-
Total comprehensive income for the year
32,877
32,877
-
(b) Non-IFRS measures
The Directors have chosen to disclose EPRA earnings, which are widely used alternate metrics to their IFRS equivalents (further details on EPRA best practice recommendations can be found at www.epra.com). Note 10 of the Interim Report includes a reconciliation of basic and diluted earnings to EPRA earnings.
The Directors are required, as part of the JSE Listing Requirements, to disclose headline earnings; accordingly, headline earnings are calculated using basic earnings adjusted for revaluation surplus net of related tax and gain/loss on sale of properties net of related tax. Note 10 of the Interim Report includes a reconciliation between IFRS and headline earnings.
The Directors have chosen to disclose adjusted earnings in order to provide an alternative indication of the Group's underlying business performance; accordingly, it excludes the effect of adjusting items net of related tax. Note 10 of the Interim Report includes a reconciliation of adjusting items included within adjusted earnings, with those adjusting items stated within administrative expenses in note 5.
The Directors have chosen to disclose adjusted profit before tax and Funds from Operations in order to provide an alternative indication of the Group's underlying business performance and to facilitate the calculation of its dividend pool, a reconciliation between profit before tax and funds from operation is included within note 22. Within adjusted profit before tax are adjusting items as described above gross of related tax.
Further details on non-IFRS measures can be found in the Business Analysis section of this document.
(c) Statement of compliance
The condensed interim financial statements have been prepared in accordance with the Disclosure and Transparency Rules of the United Kingdom Financial Conduct Authority, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee, Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council, the listing requirements of JSE Limited and IAS 34 'Interim Financial Reporting'. 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 31 March 2017. The condensed interim financial statements have been prepared on the basis of the accounting policies set out in the Group's annual financial statements for the year ended 31 March 2017. The financial statements for the year ended 31 March 2017 have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted for use in the EU. The Group's annual financial statements refer to new standards and interpretations, none of which had a material impact on the financial statements.
(d) Going concern
Having reviewed the Group's current trading and cash flow forecasts, together with sensitivities and mitigating factors and the available facilities, the Board has a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Board continued to adopt the going concern basis in preparing these financial statements.
(e) Basis of consolidation
The unaudited interim condensed set of consolidated financial statements comprises the financial statements of the Group as at 30 September 2017. The financial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies.
All intra-group balances and transactions and any unrealised income and expenses arising from intra-group transactions are eliminated in preparing the consolidated financial statements.
Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases.
Non-controlling interests represent the portion of profit or loss and net assets not held by the Group and are presented separately in the consolidated statement of comprehensive income and within equity in the consolidated statement of financial position, separately from the Company's shareholders' equity.
(f) Significant accounting policies
The accounting policies applied by the Group in this unaudited interim condensed set of consolidated financial statements are the same as those applied by the Group in its audited consolidated financial statements as at and for the year ended 31 March 2017.
(g) Principal risks and uncertainties
The key risks that could affect the Group's medium-term performance and the factors which mitigate these risks have not materially changed from those set out in the Group's Annual Report and Accounts 2017 and have been assessed in line with the requirements of the 2014 UK Corporate Governance Code. The risks are reproduced below. The Board is satisfied that the Company continues to operate within its risk profile.
Principal risks summary 
Risk category 
Principle risk(s)
1. Financing
- Availability and pricing of debt
- Compliance with facility covenants
2. Valuation
- Property inherently difficult to value
- Susceptibility of property market to change in value
3. Market
- Reliance on Germany
- Reliance on SME market 
4. Acquisitive growth
- Failure to acquire suitable properties with desired returns
5. Organic growth
- Failure to deliver capex investment programme
- Failure to achieve targeted returns from investment
6. Customer
- Decline in demand for space
- Significant tenant move-outs or insolvencies
- Exposure to tenants' inability to meet rental and other lease commitments
7. Regulatory and tax
- Non-compliance with tax or regulatory obligations
8. People
- Inability to recruit and retain people with the appropriate skillset to deliver the Group strategy
9. Systems and data 
- System failures and loss of data
- Security breaches
- Data protection
3. Operating segments
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, Germany. All rental income is derived from operations in Germany. There is no one tenant that represents more than 10% of Group revenues. The chief operating decision maker is considered to be the Board of Directors, which is provided with consolidated IFRS, as adopted by the European Union ("EU"), information on a quarterly basis.
4. Revenue
(Unaudited)
six months ended
30 September 2017
000
(Unaudited)
six months ended
30 September 2016
000
Year ended
31 March 2017
000
Rental and other income from investment properties
35,301
32,636
68,793
5. Operating profit
The following items have been (credited)/charged in arriving at operating profit:
Direct costs
(Unaudited)
six months ended
30 September 2017
000
(Unaudited)
six months ended
30 September 2016
000
Year ended
31 March 2017
000
Service charge income
(20,466)
(18,184)
(40,976)
Property costs
24,715
22,854
47,563
Non-recoverable maintenance
1,016
638
1,680
Irrecoverable property costs 
5,265
5,308
8,267
Loss on disposal of properties
Within loss on disposal of properties of 807,000 (31 March 2017 79,000 gain) are various costs relating to the disposal of assets in the period including the derecognition of lease incentives.
Administrative expenses
(Unaudited)
six months ended
30 September 2017
000
(Unaudited)
six months ended
30 September 2016
000
Year ended
31 March 2017
000
Audit fee
174
213
293
Legal and professional fees
1,129
779
2,128
Other administration costs
90
171
2,368
LTIP
2,148
2,152
4,136
Staff costs
5,383
4,515
9,305
Director fees
166
94
241
Depreciation
561
416
868
Marketing
880
721
1,584
Selling costs relating to assets held for sale
-
-
551
Non-recurring items
60
804
2,409
Administrative expenses
10,591
9,865
23,883
Non-recurring items relate to costs associated with the admission of the Company to the main markets of the London and Johannesburg stock exchanges that completed on 6 March 2017.
6. Employee costs and numbers
(Unaudited)
six months ended
30 September 2017
000
(Unaudited)
six months ended
30 September 2016
000
Year ended
31 March 2017
000
Wages and salaries
8,027
6,936
13,970
Social security costs
1,381
1,225
2,544
Pension
91
78
174
Other employment costs
44
48
215
9,543
8,287
16,903
The costs for the period ended 30 September 2017 include those relating to Executive Directors and an accrual of 2,148,000 relating to the granting or award of shares under LTIPs (see note 7).
All employees are employed directly by one of the following Group subsidiary companies: Sirius Facilities GmbH, Sirius Facilities (UK) Limited, Curris Facilities & Utilities Management GmbH, SFG NOVA GmbH, Sirius Finance (Guernsey) Limited and Sirius Corporate Services B.V. The average number of people employed by the Group during the period was 224 (30 September 2016: 201; 31 March 2017: 204) expressed in full-time equivalents. In addition, the Board of Directors consists of four Non-executive Directors and two Executive Directors as at 30 September 2017.
7. Employee schemes
Equity-settled share-based payments
A new LTIP for the benefit of the Executive Directors and the Senior Management Team was approved in October 2015. The fair value determined at the grant date is expensed on a straight-line basis over the vesting and holding period, based on the Company's estimate of the shares that will eventually vest and adjusted for the effect of non-market-based vesting conditions. Under the LTIP, the awards are granted in the form of whole shares at no cost to the participants. Shares vest after the three year performance period followed by a holding period of twelve months. The performance conditions used to determine the vesting of the award are based on net asset value and total shareholder return allowing vesting of 0% to a maximum of 125%. As a result, a maximum of 25,150,000 shares were granted, subject to performance criteria, under the scheme in December 2015.
No shares were forfeited in the six months to 30 September 2017. An expense of 2,148,000 (30 September 2016: 2,152,000) was recognised in the statement of comprehensive income to 30 September 2017.
Movements in the number of shares outstanding and their weighted average exercise prices are as follows:
(Unaudited) six months ended
30 September 2017
Year ended 31 March 2017
Number of
shares
Weighted
average
exercise
price
000
Number of
shares
Weighted
average
exercise
price
000
Balance outstanding as at the beginning of the period (nil exercisable)
23,850,000
-
25,150,000
-
Forfeited during the period
-
-
(1,300,000)
-
Balance outstanding as at the end of the period (nil exercisable)
23,850,000
-
23,850,000
-
The fair value per share was determined using the Monte-Carlo model, with the following assumptions used in the calculation as at the grant date:
Weighted average share price - 
0.52
Weighted average exercise price - 
-
Expected volatility - %
20
Expected life - years
2.48
Risk free rate based on European treasury bonds' rate of return - %
(0.11)
Expected dividend yield - %
3.41
Assumptions considered in the model include: expected volatility of the Company's share price, as determined by calculating the historical volatility of the Company's share price over the historic period immediately prior to the date of grant and commensurate with the expected life of the awards; dividend yield based on the actual dividend yield as a percentage of share price at the date of grant; expected life of the awards; risk free rates; and correlation between comparators.
Employee benefit scheme
During the period, 487,166 shares were issued to the Company's management through its MSP scheme.
A reconciliation of share-based payments and employee benefit schemes and their impact on the consolidated statement of changes in equity is as follows:
(Unaudited)
six months ended
30 September 2017
000
(Unaudited)
six months ended
30 September 2016
000
Year ended
31 March 2017
000
Charge relating to MSP
327
153
153
Charge relating to new LTIP
2,148
2,152
4,136
Share-based payment transactions as per consolidated statement of changes in equity
2,475
2,305
4,289
The MSP was terminated in respect of any new awards with effect from 1 April 2017.
8. Finance income and expense
(Unaudited)
six months ended
30 September 2017
000
(Unaudited)
six months ended
30 September 2016
000
Year ended
31 March 2017
000
Bank interest income
5
18
23
Finance income
5
18
23
Bank loan interest expense
(3,432)
(3,642)
(7,151)
Bank charges
(65)
(70)
(139)
Amortisation of capitalised finance costs
(594)
(583)
(1,172)
Refinancing costs
(1,390)
(922)
(1,762)
Finance expense
(5,481)
(5,217)
(10,224)
Net finance expense
(5,476)
(5,199)
(10,201)
9. Taxation
Consolidated statement of comprehensive income
(Unaudited)
six months ended
30 September 2017
000
(Unaudited)
six months ended
30 September 2016
000
Year ended
31 March 2017
000
Current income tax
Current income tax charge
(226)
(59)
(576)
Current income tax charge relating to disposals
(2,061)
-
-
Adjustment in respect of prior periods
4
81
264
Total current income tax
(2,283)
22
(312)
Deferred tax
Relating to origination and reversal of temporary differences
(1,890)
(4,738)
(9,245)
Relating to LTIP charge for the period
333
84
57
Total deferred tax
(1,557)
(4,654)
(9,188)
Income tax charge reported in the statement of comprehensive income
(3,840)
(4,632)
(9,500)
Deferred income tax liability
(Unaudited)
30 September 2017
000
(Unaudited)
30 September 2016
000
31 March 2017
000
Opening balance
(20,993)
(11,747)
(11,747)
Release due to disposals
4,845
-
-
Taxes on the revaluation of investment properties and derivative financial instruments*
(6,734)
(4,738)
(9,245)
Balance as at period end
(22,882)
(16,485)
(20,993)
* 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
(Unaudited)
30 September 2017
000
(Unaudited)
30 September 2016
000
31 March 2017
000
Opening balance
240
183
183
Relating to LTIP charge for the year
333
84
57
Balance as at period end
573
267
240
Reductions in the UK corporation tax rate from 20% to 19% (effective from 1 April 2017) and 18% (effective from 1 April 2020) were substantively enacted on 26 October 2015. A further reduction to the UK corporation tax rate was announced in the 2016 Budget to further reduce the tax rate to 17% (to be effective from 1 April 2020). This will reduce the Company's future current tax charge accordingly. The deferred tax asset at the balance sheet date has been calculated based on the rate of 19%, which represents the expected relevant rate to apply to the period when the asset is realised.
The Group has tax losses of 246,521,000 (31 March 2017:  262,525,000) 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.
10. Earnings per share
The calculation of the basic, diluted, headline and adjusted earnings per share is based on the following data:
(Unaudited)
six months ended
30 September 2017
000
(Unaudited)
six months ended
30 September 2016
000
Year ended
31 March 2017
000
Earnings
Basic earnings
50,885
32,862
66,911
Diluted earnings
50,885
32,862
66,911
EPRA earnings*
14,080
12,371
26,188
Headline earnings*
14,085
12,270
26,318
Diluted headline earnings
14,085
12,270
26,318
Adjusted
Basic earnings after tax
50,885
32,862
66,911
Deduct revaluation surplus, net of related tax
(39,668)
(20,592)
(40,514)
Add loss/(deduct gain) on sale of properties, net of related tax
2,868
-
(79)
Headline earnings after tax
14,085
12,270
26,318
(Deduct)/add change in fair value of derivative financial instrument, net of related tax
(29)
86
(156)
Add adjusting items*, net of related tax
3,265
3,794
8,801
Adjusted earnings* after tax
17,321
16,150
34,963
Number of shares
Weighted average number of ordinary shares for the purpose of basic and headline earnings per share
894,104,933
803,512,009
822,957,685
Weighted average number of ordinary shares for the purpose of diluted earnings and diluted headline earnings per share
917,954,933
827,362,009
846,807,685
Weighted average number of ordinary shares for the purpose of adjusted earnings per share
894,104,933
803,512,009
822,957,685
Basic earnings per share
5.69c
4.09c
8.13c
Diluted earnings per share
5.54c
3.97c
7.90c
Basic EPRA earnings per share
1.57c
1.54c
3.18c
Diluted EPRA earnings per share
1.53c
1.50c
3.09c
Headline earnings per share
1.58c
1.53c
3.20c
Diluted headline earnings per share
1.53c
1.48c
3.11c
Adjusted earnings per share
1.94c
2.01c
4.25c
Adjusted diluted earnings per share
1.89c
1.95c
4.13c
*See Table 5 in Business Analysis section for further details. 
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 net of related tax, gains/losses on sale of properties net of related tax, the revaluation deficits/surpluses on the investment properties net of related tax and derivative financial instruments net of related tax. In addition, the Directors have chosen to disclose EPRA earnings in order to assist in comparisons with similar businesses. The reconciliation between basic and diluted earnings and EPRA earnings is as follows:
EPRA earnings
Basic and diluted earnings attributable to owners of the Company
50,885
32,862
66,911
Basic and diluted earnings attributable to non-controlling interests
24
15
25
Basic and diluted earnings attributable to owners of the Company and non-controlling interests
50,909
32,877
66,936
Surplus on revaluation of investment properties
(41,580)
(25,370)
(49,782)
Loss/(gain) on disposal of properties (including tax)
2,868
-
(79)
Change in fair value of derivative financial instruments
(7)
126
(133)
Deferred tax in respect of EPRA adjustments
1,890
4,738
9,246
EPRA earnings
14,080
12,371
26,188
Non-recurring items as stated within earnings per share can be reconciled with those stated within administrative expenses in note 5 as follows:
(Unaudited)
six months ended
30 September 2017
000
(Unaudited)
six months ended
30 September 2016
000
Year ended
31 March 2017
000
Non-recurring items as per note 5
60
804
2,409
Finance restructuring costs
1,390
922
1,762
Selling costs relating to assets held for sale
-
-
551
LTIP
2,148
2,152
4,136
Change in deferred tax assets
(333)
(84)
(57)
Adjusting items as per note 10
3,265
3,794
8,801
The number of shares has been reduced by 574,892 shares (30 September 2016: 1,062,058 shares; 31 March 2017: 1,062,058 shares), which are held by the Company as Treasury Shares at 30 September 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:
(Unaudited)
30 September 2017
Number of shares
(Unaudited)
30 September 2016
Number of shares
31 March 2017
Number of shares
Weighted average number of ordinary shares for the purpose of basic, EPRA basic and adjusted earnings per share
894,104,933
803,512,009
822,957,685
Effect of grant of LTIP shares
23,850,000
23,850,000
23,850,000
Weighted average number of ordinary shares for the purpose of diluted and EPRA diluted earnings per share
917,954,933
827,362,009
846,807,685
The Company has chosen to report EPRA earnings per share ("EPRA EPS"). EPRA EPS is a definition of earnings as set out by the European Public Real Estate Association. EPRA earnings represents earnings after adjusting for property revaluation, changes in fair value of derivative financial instruments, profits and losses on disposals and deferred tax in respect of EPRA adjustments.
11. Net assets per share
(Unaudited)
30 September 2017
000
(Unaudited)
30 September 2016
000
31 March 2017
000
Net assets
Net assets for the purpose of assets per share (assets attributable to the equity holders of the Company)
564,555
450,833
495,187
Deferred tax arising on revaluation of properties and LTIP valuation
22,310
16,218
20,753
Derivative financial instruments
334
599
341
Adjusted net assets attributable to equity holders of the Company
587,199
467,650
516,281
Number of shares
Number of ordinary shares for the purpose of net assets per share
926,153,673
840,769,233
877,786,535
Number of ordinary shares for the purpose of diluted EPRA net assets per share
950,003,673
864,619,233
901,636,535
Net assets per share
60.96c
53.62c
56.41c
Adjusted net assets per share
63.40c
55.62c
58.82c
EPRA net assets per share
61.87c
54.80c
57.84c
Net assets at the end of the year (basic)
564,555
450,833
495,187
Directors' discretionary impairment of non-core assets
-
5,910
4,968
Derivative financial instruments at fair value
334
599
341
Deferred tax in respect of EPRA adjustments
22,882
16,485
20,993
EPRA net assets
587,771
473,827
521,489
The Company has chosen to report EPRA net assets per share ("EPRA NAV per share"). EPRA NAV per share is a definition of net asset value as set out by the European Public Real Estate Association. EPRA NAV represents net assets after adjusting for derivative financial instruments and deferred tax relating to valuation movement and derivatives. EPRA NAV per share takes into account the effect of the granting of shares relating to long-term incentive plans.
The number of shares has been reduced by 574,892 shares (31 March 2017: 1,062,058 shares), which are held by the Company as Treasury Shares at 30 September 2017, for the calculation of net assets and adjusted net assets per share.
12. Investment properties
Most of the Group's properties are pledged as security for loans obtained by the Group. See note 18 for details.
The movement in the book value of investment properties is as follows:
(Unaudited)
30 September 2017
000
(Unaudited)
30 September 2016
000
31 March 2017
000
Total investment properties at book value as at the beginning of the period*
727,295
687,453
687,453
Additions
83,656
50,801
76,265
Capital expenditure
11,926
7,236
16,493
Disposals
(7,090)
-
(6,698)
Reclassified as investment properties held for sale not included in valuation
(950)
(5,870)
(96,000)
Surplus on revaluation above capex
36,797
26,363
50,040
Adjustment in respect of lease incentives
(185)
(393)
(600)
Movement in Directors' discretionary impairment of non-core assets
4,968
(600)
342
Total investment properties at book value as at the end of the period
856,417
764,990
727,295
* Excluding items held for sale.
A reconciliation of the valuation carried out by the external valuer to the carrying values shown in the statement of financial position is as follows:
(Unaudited)
30 September 2017
000
(Unaudited)
30 September 2016
000
31 March 2017
000
Investment properties at market value per valuer's report*
859,600
773,720
735,290
Adjustment in respect of lease incentives
(3,183)
(2,820)
(3,027)
Directors' discretionary impairment of non-core assets
-
(5,910)
(4,968)
Balance as at period end
856,417
764,990
727,295
* Excluding assets held for sale.
The fair value (market value) of the Group's investment properties at 30 September 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 30 September 2017, no Directors' discretionary impairments were made against any assets (31 March 2017: 4,968,000).
The weighted average lease expiry remaining across the whole portfolio at 30 September 2017 was 2.6 years (31 March 2017: 2.5 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:
(Unaudited)
30 September 2017
000
(Unaudited)
30 September 2016
000
31 March 2017
000
Surplus on revaluation above capex
36,797
26,363
50,040
Adjustment in respect of lease incentives
(185)
(393)
(600)
Movement in Directors' discretionary impairment of non-core assets
4,968
(600)
342
Surplus on revaluation of investment properties reported in the statement of comprehensive income
41,580
25,370
49,782
Included in the surplus on revaluation of investment properties reported in the statement of comprehensive income are gross gains of 52,527,000 and gross losses of 10,947,000.
Other than the capital commitments disclosed in note 23 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 30 September 2017
Sector
Market value ()
Technique
Significant assumption
Range
Business park
841,320,000
Discounted cash flow
Current rental income
68k-5,257k
Market rental income
423k-5,625k
Gross initial yield
0.4%-16.7%
Discount factor
5.00%-8.9%
Void period (months)
12-24
Estimated capital value per sqm
255-1,404
Other
18,930,000
Discounted cash flow
Current rental income
511k-2,375k
Market rental income
899k-3,344k
Gross initial yield
9.6%-10.1%
Discount factor
8.5%-12.0%
Void period (months)
12-24
Estimated capital value per sqm
65-125
As at 31 March 2017
Sector
Market value ()
Technique
Significant assumption
Range
Business park
711,320,000
Discounted cash flow
Current rental income
288k-5,655k
Market rental income
424k-6,035k
Gross initial yield
3.8%-15.6%
Discount factor
4.75%-12.0%
Void period (months)
12-24
Estimated capital value per sqm
67-1,261
Other
23,970,000
Discounted cash flow
Current rental income
398k-1,905k
Market rental income
466k-2,119k
Gross initial yield
3.8%-10.1%
Discount factor
6.3%-9.5%
Void period (months)
12-24
Estimated capital value per sqm
597-941
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 43,920,000 and a decrease in market rental values of 5% would lead to a decrease in the fair value of the investment properties of 44,490,000. Similarly, an increase in the discount rates of 0.25% would lead to a decrease in the fair value of the investment properties of 17,480,000 and a decrease in the discount rates of 0.25% would lead to an increase in the fair value of the investment properties of 17,660,000.
The highest and best use of properties do not differ from their current use.
13. Investment properties held for sale
(Unaudited)
30 September 2017
000
(Unaudited)
30 September 2016
000
31 March 2017
000
Merseburg
-
5,870
-
Berlin Tempelhof land
950
-
-
Munich Rupert Mayer Strasse
-
-
85,000
Dsseldorf
-
-
11,000
Balance as at period end
950
5,870
96,000
Investment properties held for sale at 30 September 2017 is 950,000 (31 March 2017: 96.0 million), representing non-income producing land that was notarised for sale in the period. A gain of 300,000 was recognised in the surplus on revaluation of investment properties within the consolidated statement of comprehensive income in the period.
14. Goodwill
(Unaudited)
30 September 2017
000
(Unaudited)
30 September 2016
000
31 March 2017
000
Opening balance
3,738
3,738
3,738
Closing balance
3,738
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 3,738,000 was recognised. Current business plans indicate that the balance is unimpaired.
15. Trade and other receivables
(Unaudited)
30 September 2017
000
(Unaudited)
30 September 2016
000
31 March 2017
000
Trade receivables
2,088
1,808
2,837
Other receivables
14,026
5,265
4,470
Prepayments
2,063
1,503
6,983
Balance as at period end
18,177
8,576
14,290
Other receivables include lease incentives of 3,610,000 (31 March 2017: 3,269,000).
Prepayments include costs totalling 395,000 (31 March 2017: 6,547,000) relating to the acquisition of a new site that was notarised as at 30 September 2017.
16. Cash and cash equivalents
(Unaudited)
30 September 2017
000
(Unaudited)
30 September 2016
000
31 March 2017
000
Cash at bank and in hand
33,664
24,747
48,695
Balance as at period end
33,664
24,747
48,695
Cash at bank earns interest at floating rates based on daily bank deposit rates. The fair value of cash as at 30 September 2017 is 33,664,000 (31 March 2017: 48,695,000).
As at 30 September 2017, 20,710,000 (31 March 2017: 12,753,000) of cash is held in blocked accounts. Of this, 7,000,000 (31 March 2017: nil) represents proceeds from the disposal of investment property retained by the bank to which the asset acted as security until such time as a replacement asset is substituted into the relevant loan facility. 7,089,000 (31 March 2017: 6,933,000) relates to deposits received from tenants. An amount of 16,000 (31 March 2017: 16,000) is cash held in escrow as required by a supplier and 131,000 (31 March 2017: 131,000) is held in restricted accounts for office rent deposits. An amount of 2,859,000 (31 March 2017: 2,850,000) 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 3,615,000 (31 March 2017: 2,823,000) relates to amounts reserved for future capital expenditure.
17. Trade and other payables
(Unaudited)
30 September 2017
000
(Unaudited)
30 September 2016
000
31 March 2017
000
Trade payables
6,581
4,483
5,865
Accrued expenses
11,503
9,568
12,206
Accrued interest
2,137
1,564
509
Other payables
12,826
12,148
15,383
Balance as at period end
33,047
27,763
33,963
18. Interest-bearing loans and borrowings
Effective
interest rate
%
Maturity
(Unaudited)
30 September 2017
000
(Unaudited)
30 September 2016
000
31 March 2017
000
Current
Deutsche Genossenschafts-Hypothekenbank AG
- fixed rate facility
1.59
31 March 2021
320
320
320
Bayerische Landesbank
- hedged floating rate facility
Hedged1
19 October 2020
508
508
508
SEB AG
- fixed rate facility
1.84
1 September 2022
1,180
1,180
1,180
Berlin Hyp AG/Deutsche Pfandbriefbank AG
- floating rate facility
Floating2
27 April 2023
-
1,063
1,063
- fixed rate facility
1.66
27 April 2023
2,310
2,394
2,413
Berlin Hyp AG
- fixed rate facility
2.85
31 December 2019
-
828
-
- fixed rate facility
1.32
31 December 2019
-
112
-
- fixed rate facility
1.48
29 October 2023
1,773
-
1,773
K-Bonds I
- fixed rate facility
6.00
31 July 2020
1,000
1,000
1,000
Capitalised finance charges on all loans
(1,065)
(1,201)
(1,189)
6,026
6,204
7,068
Non-current
Deutsche Genossenschafts-Hypothekenbank AG
- fixed rate facility
1.59
31 March 2021
14,200
14,520
14,360
Bayerische Landesbank
- hedged floating rate facility
Hedged1
19 October 2020
23,860
24,367
24,113
SEB AG
- fixed rate facility
1.84
1 September 2022
55,755
56,640
56,050
Berlin Hyp AG/Deutsche Pfandbriefbank AG
- floating rate facility
Floating2
27 April 2023
-
40,906
40,375
- fixed rate facility
1.66
27 April 2023
83,679
91,138
89,927
Berlin Hyp AG
- fixed rate facility
2.85
31 December 2019
-
33,912
-
- fixed rate facility
1.32
31 December 2019
-
4,341
-
- fixed rate facility
1.48
29 October 2023
66,613
-
67,496
K-Bonds I
- fixed rate facility
4.00
31 July 2023
45,000
45,000
45,000
- fixed rate facility
6.00
31 July 2020
2,000
3,000
3,000
Capitalised finance charges on all loans
(4,448)
(5,807)
(5,597)
286,659
308,017
334,724
Total
292,685
314,221
341,792
1 This facility is hedged with a swap charged at a rate of 1.66%.
2 Tranche 2 of this facility was fully repaid in September 2017.
The Group has pledged 35 (31 March 2017: 38) investment properties to secure several separate interest-bearing debt facilities granted to the Group. The 35 (31 March 2017: 38) properties had a combined valuation of 705,566,000 as at 30 September 2017 (31 March 2017: 774,120,000).
Deutsche Genossenschafts-Hypothekenbank AG
On 24 March 2016, the Group agreed to a facility agreement with Deutsche Genossenschafts-Hypothekenbank AG for 16.0 million. As at 31 March 2017, tranche 1 had been drawn down in full totalling 15.0 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 25.4 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 59.0 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 115.0 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 (55.2 million) is charged interest at 3.0% plus three months' EURIBOR and is capped at 4.5%, and the other half (55.2 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 110.4 million at 31 March 2016. The new facility is split in two tranches totalling 137.0 million and terminates on 27 April 2023. Tranche 1, totalling 94.5 million, is charged at a fixed interest rate of 1.66% for the full term of the loan. Tranche 2, totalling 42.5 million, is charged with a floating rate of 1.57% over three months' 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.
On 30 June 2017, the Group made a repayment of 5.75 million relating to tranche 1 of the facility as a result of the disposal of an asset that acted as security over the loan. On 28 September 2017, the Group repaid tranche 2 of the facility in full, which had an outstanding balance of 41.2 million at the time of repayment as a result of the disposal of an asset that acted as security over the loan. The Group continues to have substitution rights relating to the facility.
Berlin Hyp AG
On 15 December 2014, the Group agreed to a facility agreement with Berlin Hyp AG for 36.0 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 35.1 million at 31 March 2016. The additional tranche of 4.5 million brings the total loan to 39.6 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 Wrselen. 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 39.2 million at 30 September 2016. The new facility totals 70.0 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 52.0 million. The loan consists of a senior tranche of 45.0 million and a junior tranche of 7.0 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 1.0 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.
19. 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:
(Unaudited)
30 September 2017
(Unaudited)
30 September 2016
31 March 2017
Carrying
amount
000
Fair
value
000
Carrying
amount
000
Fair
value
000
Carrying
amount
000
Fair
value
000
Financial assets
Cash
33,664
33,664
24,747
24,747
48,695
48,695
Trade receivables
2,088
2,088
1,808
1,808
2,837
2,837
Derivative financial instruments
-
-
-
-
-
-
Financial liabilities
Trade payables
6,581
6,581
4,483
4,483
5,865
5,865
Derivative financial instruments
334
334
599
599
341
341
Interest-bearing loans and borrowings:
Floating rate borrowings
-
-
41,969
41,969
41,438
41,438
Floating rate borrowings - hedged*
24,367
24,367
24,875
24,875
24,621
24,621
Fixed rate borrowings
273,831
278,563
254,385
256,458
282,519
288,288
* The Group holds interest rate swap contracts designed to manage the interest rate and liquidity risks of expected cash flows of its borrowings with the variable rate facility with Bayerische Landesbank. Please refer to note 18 for details of swap and cap contracts.
20. Issued share capital
Authorised
Number
of shares
Share
capital
Ordinary shares of no par value
Unlimited
-
As at 30 September 2017
Unlimited
-
Issued and fully paid
Number
of shares
Share
capital
As at 31 March 2016
751,984,887
-
Issued ordinary shares
125,488,040
-
Issued Treasury Shares
313,608
-
As at 31 March 2017
877,786,535
-
Issued ordinary shares
47,879,972
-
Issued Treasury Shares
487,166
-
As at 30 September 2017
926,153,673
-
Holders of the ordinary shares are entitled to receive dividends and other distributions and to attend and vote at any general meeting. Shares held in treasury are not entitled to receive dividends or to vote at general meetings.
Pursuant to a scrip dividend offering on 13 January 2017, the Company issued 11,027,524 ordinary shares at an issue price of 0.5055, resulting in the Company's overall issued share capital being 852,858,815 ordinary shares, of which 1,062,058 were held in treasury. The total number of ordinary shares with voting rights in the Company at this date was 851,796,757.
Pursuant to an equity raise of 15.0 million on 7 March 2017, the Company issued 25,989,778 ordinary shares at an issue price of 0.5771, resulting in the Company's overall issued share capital being 878,848,593 ordinary shares, of which 1,062,058 were held in treasury. The total number of ordinary shares with voting rights in the Company at this date was 877,786,535. Costs associated with the equity raise amounted to 446,000.
On 7July 2017, the Company issued 487,166 ordinary shares out of treasury to the Company's two Executive Directors and some of the Group's Senior Management Team, pursuant to the Company's MSP incentive scheme. This resulted in the Company's overall issued share capital being 878,848,593 ordinary shares, of which 574,892 were held in treasury. The total number of ordinary shares with voting rights in the Company at this date was 878,273,701.
Pursuant to an equity raise of 25.0 million on 4 August 2017, the Company issued 39,888,185 ordinary shares at an issue price of 0.56, resulting in the Company's overall issued share capital being 918,736,778 ordinary shares, of which 574,892 were held in treasury. The total number of ordinary shares with voting rights in the Company at this date was 918,161,886. Costs associated with the equity raise amounted to 612,000.
Pursuant to a scrip dividend offering on 18 August 2017, the Company issued 7,991,787 ordinary shares at an issue price of 0.5621, resulting in the Company's overall issued share capital being 926,728,565 ordinary shares, of which 574,892 were held in treasury. The total number of ordinary shares with voting rights in the Company at this date was 926,153,673.
The Company holds 574,892 of its own shares, which are held in treasury (31 March 2017: 1,062,058). During the period 487,166 shares were issued from treasury.
No shares were bought back in the year.
21. Other reserves
Other distributable reserve
The other distributable reserve was created for the payment of dividends and for the buyback of shares and is 488,801,000 in total at 30 September 2017 (31 March 2017: 470,318,000).
22. Dividends
In November 2016, the Company announced a dividend of 1.39c per share, with a record date of 16 December for UK shareholders and 15 December 2016 for South African shareholders, and payable on 20 January 2017. On the record date, 841,831,291 shares were in issue, of which 1,062,058 were held in treasury and 840,769,233 were entitled to participate in the dividend. Holders of 401,207,527 shares elected to receive the dividend in ordinary shares under the Scrip Dividend Alternative, representing a dividend of 5,577,000, while holders of 439,561,706 shares opted for a cash dividend with a value of 6,182,000. The total dividend was 11,759,000.
On 4 July 2017, the Company announced a dividend of 1.53c per share, with a record date of 14 July 2017 for UK and South African shareholders and payable on 18 August 2017. On the record date, 878,848,593 shares were in issue, of which 574,892 were held in treasury and 878,273,701 were entitled to participate in the dividend. Holders of 329,660,344 shares elected to receive the dividend in ordinary shares under the Scrip Dividend Alternative, representing a dividend of 5,044,000, while holders of 548,613,357 shares opted for a cash dividend with a value of 8,378,000. The total dividend was 13,422,000.
The Group's profit attributable to the equity holders of the Company for the six months to 30 September 2017 was 50.9 million (30 September 2016: 32.9 million). The Board indicated the possibility, in the Annual Report for the year ended 31 March 2017, of temporarily increasing the dividend pay-out ratio from its policy of paying 65% of FFO* in order to maintain dividend growth trajectory whilst the proceeds from high income producing mature assets are reinvested. The Board has declared a final dividend of 1.56c per share for the period ended 30 September 2017, representing a temporary increase in the pay-out ratio of 75% of FFO. The dividend will be paid on 19 January 2018, with the ex-dividend dates being 13 December 2017 for shareholders on the South African register and 14 December 2017 for shareholders on the UK register. It is intended that dividends will continue to be paid on a semi-annual basis and offered to shareholders in cash or scrip form.
The dividend paid per the statement of changes in equity is the value of the cash dividend.
* Adjusted profit before tax adjusted for depreciation, amortisation of financing fees, current tax receivable/incurred and tax relating to disposals.
The dividend per share was calculated as follows:
(Unaudited)
30 September 2017
m
(Unaudited)
30 September 2016
m
31 March 2017
m
Reported profit before tax
54.7
37.5
76.4
Adjustments for:
Surplus on revaluation
(41.6)
(25.4)
(49.8)
Loss/(gain) on disposals
0.8
-
(0.1)
Other adjusting items*
3.6
3.9
8.9
Change in fair value of financial derivatives
-
0.1
(0.1)
Adjusted profit before tax
17.5
16.1
35.3
Adjustments for:
Depreciation
0.6
0.4
0.9
Amortisation of financing fees
0.6
0.6
1.2
Current taxes (incurred) (see note 9)
(2.3)
-
(0.3)
Add back current tax relating to disposals
2.1
-
-
Funds from Operations, year ended 31 March
n/a
n/a
37.1
Funds from Operations, six months ended 30 September
18.5
17.1
17.1
Funds from Operations, six months ended 31 March
n/a
n/a
20.0
Dividend pool, six months ended 30 September**
14.4
11.7
11.7
Dividend pool, six months ended 31 March
n/a
n/a
13.4
DPS, six months ended 30 September
1.56c
1.39c
1.39c
DPS, six months ended 31 March
n/a
n/a
1.53c
* Includes expenses relating to the main market move, restructuring costs, the management LTIP gross of related tax
** Calculated as 75% of FFO of 2.07c per share (30 September 2016: 2.13c per share using 65% of FFO; 31 March 2017: 2.38c per share using 65% of FFO), based on average number of shares outstanding of 894,104,933 (30 September 2016: 803,512,009; 31 March 2017: 846,641,989).
23. Capital and other commitments
As at 30 September 2017, the Group had contracted capital expenditure on existing properties of 6,378,000 (31 March 2017: 5,951,000) and commitments of 2,461,000 (31 March 2017: 2,732,000) derived from office rental contracts.
These commitments have not yet been provided for in the financial statements.
24. Post balance sheet events
On 3 November 2017, the Group notarised the acquisition of a property located in Frickenhausen. Total acquisition costs are expected to be 11.2 million. The property is a mixed-use business park and has a net lettable area of 28,594 sqm. The property is 49.6% occupied and let to 19 tenants, producing an annual income of 800,839 and having a remaining weighted average lease term of 2.9 years.
On 30 October 2017, the Group agreed to a facility agreement with SEB AG for 30.0 million. The loan terminates on 30 October 2024 and is secured over three property assets. The loan facility comprises a 23.0 million acquisition facility and a 7.0 million capex facility. The acquisition and capex facilities will initially have a margin of 1.88% which steps down to 1.78% at the point at which occupancy of the portfolio exceeds 50% and to 1.68% at the point occupancy of the portfolio exceeds 70%. 20.0 million of the acquisition facility has been drawn down and hedged by way of a swap at an all-in fixed interest rate of 2.58%. There is a requirement to hedge the remaining 3.0 million of the acquisition facility upon draw down. The capex facility is charged at a floating rate of margin over 6 month EURIBOR. Amortisation is calculated as 2% of the acquisition facility with the first repayment relating to the quarter ending 31 March 2019 with the remainder due in the seventh year.
Business Analysis
Table 5: Non-IFRS measures
(Unaudited)
30 September 2017
000
(Unaudited)
30 September 2016
000
31 March 2017
000
Reported profit for the period
50,909
32,877
66,936
Surplus on revaluation of investment properties
(41,580)
(25,370)
(49,782)
Loss/(gain) on disposal of properties (including tax)
2,868
-
(79)
Change in fair value of derivative financial instruments
(7)
126
(133)
Deferred tax in respect of EPRA adjustments
1,890
4,738
9,245
EPRA earnings
14,080
12,371
26,188
Deduct non-controlling interest
(24)
(15)
(25)
Add change in deferred tax relating to derivative financial instruments
22
40
23
Add change in fair value of derivative financial instruments
7
(126)
133
Headline earnings after tax
14,085
12,270
26,319
Add/deduct change in fair value of derivative financial instruments net of related tax
(29)
86
(156)
Add adjusting items*, net of related tax
3,265
3,794
8,801
Adjusted earnings after tax
17,321
16,150
34,964
* See Note 10 of the Interim Report.
(Unaudited)
30 September 2017
000
(Unaudited)
30 September 2016
000
31 March 2017
000
EPRA earnings
14,080
12,371
26,188
Weighted average number of ordinary shares
894,104,933
803,512,009
822,957,685
EPRA earnings per share
1.57
1.54
3.18
Headline earnings after tax
14,085
12,270
26,319
Weighted average number of ordinary shares
894,104,933
803,512,009
822,957,685
Headline earnings per share 
1.58
1.53
3.20
Adjusted earnings after tax
17,321
16,150
34,964
Weighted average number of ordinary shares
894,104,933
803,512,009
822,957,685
Adjusted earnings per share
1.94
2.01
4.25
Table 6:EPRA Net Assets per share at 30 September 17
 cents per share
Adjusted NAV per share at 31 March 17
58.82
Equity raise and Share awards
0.07
Recurring profit before tax
1.90
Surplus on revaluation
4.49
Scrip and Cash Dividend Paid
(1.41)
Non Recurring Items
(0.46)
Adjusted NAV per share at 30 September 17
63.40
EPRA Adjustments
(1.53)
EPRA Net Assets per share at 30 September 17
61.87
Table 7: Original capex investment programme
Original capex investment programme progress
sqm
Investment
budgeted
Actual spend
Annualised
rental income
increase
budgeted
Annualised
rental income
increase
achieved to
September 2017
Occupancy
budgeted
%
Occupancy achieved
%
Rate per sqm
budgeted
Rate per sqm
achieved
Completed
173,519
19,582,000
16,258,000
9,957,000
9,660,000
85%
83%
5.63
5.59
In progress
23,097
5,938,000
844,000
1,652,000
133,000
88%
-
6.77
-
To be commenced
7,060
815,000
1,000
304,000
-
67%
-
5.36
-
Total 
203,676
26,335,000
17,103,000
11,913,000
9,793,000
85%
-
5.73
-
* 0.7 million of further spending on completed projects is expected.
Table 8: New acquisition capex investment
New
acquisition capex
investment programme
progress
sqm
Investment
budgeted
Actual
spend
Annualised
rental income
increase
budgeted
Annualised
rental income
increase
achieved to
September 2017
Occupancy
budgeted
%
Occupancy
achieved
%
Rate per sqm
budgeted
Rate per sqm
achieved
Completed
12,153
1,892,000
1,009,000
1,654,000
1,149,000
91%
68%
12.46
11.65
In progress
13,376
5,239,000
365,000
1,010,000
-
84%
-
7.49
-
To be commenced
53,721
12,388,000
1,000
3,994,000
-
81%
-
7.65
-
Total
79,250
19,519,000
1,375,000
6,658,000
1,149,000
83%
-
8.44
-
Table 9: Smartspace
Smartspace product type
Total
sqm
Occupied
sqm
Occupancy
%
Annualised
rental income
(excl. service
charge)
% of total
annualised
rental income
Rate per sqm
(excl. service charge)
Smartspace Office
30,268
24,378
81%
2,305,000
51%
7.88
Smartspace Workbox
6,268
4,699
75%
344,000
8%
6.09
Smartspace Storage
29,855
21,411
72%
1,510,000
34%
5.88
Subtotal
66,391
50,488
76%
4,159,000
93%
6.86
Smartspace Flexilager
11,998
5,268
44%
323,000
7%
5.11
Smartspace total
78,389
55,755
71%
4,482,000
100%
6.70
Table 10: Acquisitions progress
Site
Date
acquired
Total
acquisition
cost
Market value
(rounded)
Market value
increase
%
Annualised
acquisition
rental income
Annualised
rental income
at September 2017
Annualised
rental income
increase
%
Mahlsdorf
Dec-14
19,574,000
25,500,000
30%
1,786,000
2,052,000
15%
Potsdam
Dec-14
29,353,000
37,200,000
27%
2,347,000
2,797,000
19%
Bonn II
Feb-15
3,316,000
6,850,000
107%
531,000
390,000
(27)%
Aachen I
Jan-15
18,693,000
24,400,000
31%
1,751,000
2,220,000
27%
Ludwigsburg
Sep-15
7,443,000
11,800,000
59%
969,000
1,305,000
35%
Weilimdorf
Sep-15
5,699,000
5,730,000
1%
511,000
511,000
0%
Heidenheim
Sep-15
18,320,000
22,700,000
24%
1,846,000
1,956,000
6%
Clln Parc
Oct-15
18,586,000
19,700,000
6%
1,469,000
1,480,000
1%
Aachen II
Nov-15
7,340,000
7,370,000
0%
532,000
561,000
5%
Mainz
Mar-16
25,074,000
28,400,000
13%
2,219,000
2,490,000
12%
Markgrningen
May-16
8,720,000
15,300,000
75%
1,322,000
1,378,000
4%
Krefeld
May-16
13,475,000
13,800,000
2%
1,219,000
1,219,000
0%
Dresden
Sep-16
28,600,000
30,000,000
5%
2,781,000
2,890,000
4%
Total
204,193,000
248,750,000
22%
19,283,000
21,249,000
10%
Site
Date
acquired
Acquisition
occupancy
%
September 2017
occupancy
%
Occupancy
increase
%
Capex since
acquisition to
September 2017
Mahlsdorf
Dec-14
85%
91%
6%
1,301,000
Potsdam
Dec-14
85%
99%
14%
496,000
Bonn II
Feb-15
76%
59%
(18)%
202,000
Aachen I
Jan-15
75%
91%
16%
1,317,000
Ludwigsburg
Sep-15
68%
79%
11%
876,000
Weilimdorf
Sep-15
100%
100%
0%
55,000
Heidenheim
Sep-15
83%
86%
3%
409,000
Clln Parc
Oct-15
90%
95%
6%
188,000
Aachen II
Nov-15
97%
100%
3%
8,000
Mainz
Mar-16
83%
92%
9%
517,000
Markgrningen
May-16
67%
74%
7%
281,000
Krefeld
May-16
94%
89%
(4)%
44,000
Dresden
Sep-16
66%
68%
2%
429,000
Total
78%
83%
5%
6,123,000
Glossary of terms
Adjusted NAV is the assets attributable to the equity holders of the Company adjusted for deferred tax and derivative financial instruments 
Annualised rental income is the contracted rental income of a property at a specific reporting date expressed in annual terms
Capital value is the market value of a property divided by the total sqm of a property
Funds from operations is reported profit before tax adjusted for property revaluation, gain/loss on disposals, change in the fair value of derivative financial instruments, adjusting items, depreciation, amortisation of financing fees and current tax receivable/incurred 
Gross loan to value ratio is the ratio of principle value of total debt to the aggregated value of investment property 
Gross yield is the annualised rental income generated by a property expressed as a percentage of its value
Like-for-like refers to the manner in which metrics are subject to adjustment in order to make them directly comparable. Like for like adjustments are typically made in relation to annualised rental income, rate and occupancy and eliminate the effect of asset acquisitions and disposals that occur in the reporting period 
Net loan to value ratio is the ratio of principle value of total debt less cash, excluding that which is restricted, to the aggregate value of investment property 
Net operating income is the income generated by a property less directly attributable costs 
Net yield is the net operating income generated by a property expressed as a percentage of its value
Occupancy is the percentage of total lettable space occupied as at reporting date 
Rate is rental income per sqm expressed on a monthly basis as at a specific reporting date
Total debt is the aggregate amount of the Company's interest bearing loans and borrowings 
Total shareholder return based on adjusted NAVis the return obtained by a shareholder calculated by combining both movements in adjusted NAV per share plus dividends paid 
Total return is the return for a set period of time combining valuation movement and income generated 
Corporate directory
Registered office
Trafalgar Court
2nd Floor
East Wing
Admiral Park
St Peter Port
Guernsey GY1 3EL
Channel Islands
Registered number
Incorporated in Guernsey under the Companies (Guernsey) Law, 2008, as amended, under number 46442
Company Secretary
A L Bennett
Sirius Real Estate Limited
Trafalgar Court
2nd Floor
East Wing
Admiral Park
St Peter Port
Guernsey GY1 3EL
UK solicitors
Norton Rose Fulbright LLP
3 More London Riverside
London SE1 2AQ
Financial PR
Novella Communications
1a Garrick House
Carrington Street
London W1J 7AF
Johannesburg Stock Exchange sponsor
PSG Capital Proprietary Limited
1st Floor, Ou Kollege
35 Kerk Street
Stellenbosch
7600
South Africa
Joint broker
Peel Hunt LLP
Moor House
120 London Wall
London EC2Y 5ET
Berenberg
60 Threadneedle Street
London EC2R 8HP
Property valuer
Cushman & Wakefield LLP
Rathenauplatz 1
60313 Frankfurt am Main
Germany
Independent auditors
KPMG LLP
15 Canada Square
London
E14 5GL
Guernsey solicitor
Carey Olsen
Carey House
Les Banques
St Peter Port
Guernsey GY1 4BZ

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