TIDMSREI
RNS Number : 7565F
Schroder Real Estate Inv Trst Ld
16 November 2015
For release 16 November 2015
Schroder Real Estate Investment Trust Limited
("SREIT"/ the "Company"/ "Group")
HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2015
SREIT DELIVERING ON GROWTH STRATEGY POST CONVERSION TO UK
REIT
Schroder Real Estate Investment Trust today announces its
results for the six months ended 30 September 2015.
Financial highlights
-- Underlying EPRA earnings per share of 1.2p, an increase of 9%
(six months to 30 September 2014: 1.1p)
-- Net Asset Value ('NAV') increased 5.6% to 60.9p (31 March 2015: 57.7p)
-- NAV total return of 7.8% (six months to 30 September 2014: 16.2%)
-- Underlying portfolio delivered a total return of 7.5%,
outperforming the Investment Property Databank ('IPD') Benchmark
Index of 6.8%
-- Profit before tax of GBP23 million (six months to 30
September 2014: GBP36 million; six months to 31 March 2015: GBP18.8
million)
-- Dividend of 1.24 pence per share declared and paid for the
six months to 30 September 2015 reflecting cover of 104%, adjusting
for one-off costs in relation to conversion to UK REIT status
Operational highlights
-- Completed conversion to UK REIT status as of 1 May 2015,
reducing the overall burden of UK taxation and increasing net
income and overall profitability, with the potential to attract a
wider investor base
-- Two acquisitions totalling GBP54.5 million at an average net
initial yield of 6.8%, funded by a combination of previously raised
equity and a GBP20.5 million revolving credit facility
-- Asset management activity reduced the portfolio void rate to
8.1% compared with 9.2% as at 31 March 2015, with further
reductions expected upon the completion of contracted lettings
-- Execution of the growth strategy has contributed to the
objectives of maximising income, enhancing NAV and improving
diversification and investment performance
Commenting, Lorraine Baldry, Chairman of the Board, said:
"Total returns from UK commercial property are more likely to be
driven by income and rental growth. Consequently, we expect markets
with sustainable tenant demand and a significant supply and demand
imbalance to offer more attractive returns."
Duncan Owen, of Schroder Real Estate Investment Management
Limited, added:
"The UK commercial real estate market has continued to benefit
from strong investor demand driving values upwards. We believe
future returns are now more likely to be driven by the active
management of assets with strong fundamentals in winning cities and
towns.
Execution of the strategy has led to an increase in the level of
net income as well as outperformance of the underlying
portfolio."
-Ends-
For further information:
Schroder Real Estate Investment Management
Duncan Owen / Nick Montgomery 020 7658 6000
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Northern Trust
David Sauvarin 01481 745529
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FTI Consulting
Dido Laurimore / Ellie Sweeney / Polly
Warrack 020 3727 1000
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Schroder Real Estate Investment Trust Limited
Interim Report and Consolidated Financial Statements
as at 30 September 2015
Contents
Company Summary 2
Performance Summary 3
Chairman's Statement 5
Investment Manager's Report 7
Responsibility Statement 14
Condensed Consolidated Statement of Comprehensive
Income 15
Condensed Consolidated Statement of Financial Position 16
Condensed Consolidated Statement of Changes in Equity 17
Condensed Consolidated Statement of Cash Flows 18
Notes to the Interim Report 19
Independent Auditor's Review Report 27
Corporate Information 28
Schroder Real Estate Investment Trust Limited aims to provide
shareholders with an attractive level of income together with the
potential for income and capital growth through investing
predominantly in UK commercial property.
Company Summary
Schroder Real Estate Investment Trust (the 'Company' / 'Group')
is a real estate investment company with a premium listing on the
Official List of the UK Listing Authority and whose shares are
traded on the Main Market of the London Stock Exchange (ticker:
SREI).
On 1 May 2015 the Company converted to a Real Estate Investment
Trust ('REIT') in order to benefit from the various tax advantages
offered by the UK REIT regime as well as the potential for improved
liquidity as a result of being able to access a wider shareholder
base. The Company continues to be an authorised closed ended
investment scheme registered in Guernsey.
Objective
The Company aims to provide shareholders with an attractive
level of income with the potential for income and capital growth
from owning and actively managing a diversified portfolio of UK
commercial real estate. The current annualised level of dividend is
2.48 pence per share ('pps') and it is intended that successful
execution of the investment strategy will enable a progressive
dividend policy to be adopted over time.
The portfolio is principally invested in the three main UK
commercial property sectors of office, industrial and retail, and
will also invest in other sectors including, but not limited to,
residential, leisure, healthcare and student accommodation. Over
the property market cycle the portfolio aims to generate an above
average income return with a diverse spread of lease expiries.
Relatively low level gearing is used to enhance income and total
returns for shareholders with the level dependent on the property
cycle and the outlook for future returns. The current target
gearing level reflects a net loan-to-value ('LTV') ratio of between
25% and 35%.
Investment strategy
The current investment strategy is to grow income and enhance
shareholder returns through selective acquisitions, pro-active
asset management and selling smaller, lower yielding properties on
completion of asset business plans. The issuance of new shares will
also be considered if it is consistent with the strategy.
Our objective is to own a portfolio of larger properties in
cities and towns with diversified local economies, sustainable
occupational demand and favourable supply and demand
characteristics. These properties should offer good long-term
fundamentals in terms of location and specification and be let at
affordable rents with the potential for income and capital growth
from good stock selection and asset management.
Performance Summary
Financial summary
30 September 30 September 31 March
2015 2014 2015
----------------------------------- ------------------- ------------- ----------------
NAV(1) GBP315.8m GBP260.0m GBP299.2m
NAV per Ordinary Share(1) (pence) 60.9 55.1 57.7
EPRA NAV GBP315.8m GBP260.0m GBP299.2m
Six months Six months Year to
to to
30 September 30 September 31 March
2015 2014 2015
--------------------------------------- --------------- ------------- ----------------
NAV total return 7.8% 16.2% 24.4%
Profit for the period GBP23.0m GBP36.0m GBP54.8m
EPRA earnings GBP6.2m GBP5.1m GBP12.1m
Equity raised - GBP40.2m GBP67.2m
----------------------------------- ------------------- ------------- ----------------
(1) Net Asset Value is calculated using International Financial
Reporting Standards.
Share price and index
30 September 30 September 31 March
2015 2014 2015
Share price (pence) 58.0 57.0 62.3
Share price (discount)/premium to
NAV (4.8%) 3.4% 8.0%
FTSE All Share Index 3,335.9 3,533.9 3,663.6
FTSE EPRA/NAREIT UK Real Estate Index 1,983.2 1,629.0 1,942.5
------------------------------------------- ---------- ------------- ---------
Earnings and dividends
Six months Six months Year to
to to
30 September 30 September 31 March
2015 2014 2015
Earnings per share (pence) 4.4 7.7 11.3
EPRA earnings per share (pence) 1.2 1.1 2.5
Dividends paid per share (pence) 1.24 1.24 2.48
Annualised dividend yield on 30
September /31 March share price 4.3% 4.4% 4.0%
--------------------------------------- ------------- ------------- ----------------
Performance Summary (continued)
(MORE TO FOLLOW) Dow Jones Newswires
November 16, 2015 02:00 ET (07:00 GMT)
Bank borrowings
30 September 30 September 31 March
2015 2014 2015
On-balance sheet borrowings (GBP000's)
(2) 150,085 129,585 129,585
Loan to value ratio, net of all cash
(3) 30.0% 26.8% 22.4%
-------------------------------------------- ----------- ------------- ---------
(2) On balance sheet borrowings reflects the loan facility with
Canada Life and RBS, without deduction of finance costs
(3) Cash excludes rent deposits and floats held with managing
agents
Ongoing charges(4)
Six months Six months Year to
to to
30 September 30 September 31 March
2015 2014 2015
Ongoing charges (including fund only
expenses(5) ) 0.59% 0.55% 1.30%
Ongoing charges (including fund and
property expenses) 1.19% 1.40% 2.80%
------------------------------------------ ----------- ------------- ----------------
(4) Ongoing charges calculated in accordance with AIC
recommended methodology issued in May 2012, as a percentage of
average NAV during the year. The ongoing charges exclude all
exceptional costs incurred during the period.
(5) Fund only expenses excludes all property operating expenses,
valuers' and professional fees in relation to properties.
Chairman's Statement
Overview
The Company has benefited from a high level of activity over the
period encompassing transactions, asset management, tactical new
borrowings and the conversion to UK Real Estate Investment Trust
('REIT') status. This activity has enabled the Company to
effectively progress its key strategic objectives of increasing net
income and generating attractive total returns.
Average UK commercial property capital values increased by 4.2%
over the period (source: IPD), supported by annualised Gross
Domestic Product ('GDP') growth of 2.3% and low interest rates.
Economic recovery is being driven by the service sector, notably
TMT (telecommunications, media and technology), professional
services and, to a lesser extent, financial services. This is
leading to strong demand for office space in Central London and
larger regional centres which, combined with lower levels of new
development, is resulting in higher rental growth. Rising real
earnings and cheap credit are also leading to rental growth in
areas of high discretionary spending, such as the leisure sector.
Whilst these factors and a strong housing market have also
supported robust retail sales, increased on-line sales are
contributing to stronger growth in the industrial and warehouse
sector compared with the traditional high street retail.
Successful execution of our stated strategy has enabled the
Company to acquire larger properties in strong local economies.
These offer the potential to invest capital expenditure in order to
capture higher levels of rental growth and enhance the portfolio's
defensive qualities in terms of reduced vacancy, tenant covenant
and lease term.
Results
The Company's Net Asset Value ('NAV') as at 30 September 2015
was GBP315.8 million or 60.9 pence per share ('pps') compared with
GBP299.2 million or 57.7 pps as at 31 March 2015. This reflected an
increase over the period of 5.6%. Shareholders received total
dividends over the period of GBP6.4 million or 1.24 pps, resulting
in a total NAV return of 7.8%.
The portfolio benefited from a higher income return of 3.2%
compared with the IPD Index of 2.5%, resulting in a total return of
7.5% compared with the Index of 6.8%.
REIT conversion
On 28 April 2015 shareholders voted in favour of converting to
UK REIT status, leading to the Company entering the UK REIT regime
on 1 May 2015. The Board recommended conversion to REIT status in
order to reduce the overall burden of UK taxation and increase net
income and overall profitability. The recommendation also
considered the potential benefit of improved liquidity in the
Company's shares as a result of greater access to a wider investor
base. Whilst this is likely to be a longer term benefit, there has
been encouraging early interest from specialist REIT investors. The
Company incurred costs of approximately GBP0.4 million in relation
to the REIT conversion.
Strategy
The strategic focus over the period has been to grow income
through a combination of selective acquisitions and disposals,
completion of key asset management initiatives and efficient
management of the balance sheet.
Two significant acquisitions satisfying the Company's investment
criteria were completed over the period totalling GBP54.5 million
at an average net initial yield of 6.8%. These acquisitions were
funded by a combination of equity raised at the end of the last
financial period and a GBP20.5 million revolving credit
facility.
During the period key asset management initiatives have been
progressed that should contribute positively to returns as well as
to the portfolio's defensive characteristics. Positive letting
activity across the portfolio has also led to a reduction in the
portfolio void rate from 9.2% to 8.1%, which will fall further on
completion of contracted lettings. This activity contributed to
recurring dividend cover of 104% over the period, having adjusted
for one-off expenses relating to the conversion to UK REIT
status.
Chairman's Statement (continued)
Improving occupational demand is creating more opportunities to
generate attractive returns from investing into the existing
portfolio. These initiatives may require up to GBP25 million of
capital expenditure, which could be funded from lower yielding
disposals or new equity issuance. There is also the potential for
equity issuance to fund further opportunistic acquisitions that
contribute positively to income or may form part of on-going asset
management initiatives. This could involve acquiring adjoining
ownerships.
Successful execution of the strategy outlined above should
enable the Board to review its dividend policy in light of what is
sustainable and the prevailing market conditions.
Debt
As at 30 September 2015, the Company had a loan to value, net of
cash, of 30%, within the long term target range of 25% to 35%.
Putting in place the aforementioned revolving credit facility in
August resulted in the Company having total debt of GBP150.1
million with an average duration of 10.5 years and an average
interest cost of 4.4%.
Risks and Uncertainties
There have been no significant changes to the risks and
uncertainties as described on pages 23 to 24 of the Annual Report
and Consolidated Financial Statements for year ended 31 March
2015.
Outlook
Total returns from UK commercial property are more likely to be
driven by income and rental growth. Consequently, we expect markets
with sustainable tenant demand and a significant supply and demand
imbalance to offer more attractive returns.
Whilst the prospects for the UK economy as a whole remain
positive, there are likely to be headwinds arising from cuts in
public spending and the planned referendum on the UK's membership
of the European Union. A forecast rise in consumer price inflation
also means that capital markets are likely to have to adjust to a
gradual rise in interest rates over 2016.
Against this backdrop the strategy will continue to focus on
growing net income and generating attractive total returns by
investing in the portfolio and, where compelling, making
acquisitions, funded via further disciplined growth.
Lorraine Baldry
Chairman
Schroder Real Estate Investment Trust Limited
13 November 2015
Investment Manager's Report
Over the period to 30 September 2015 the Company's Net Asset
Value ('NAV') increased to GBP315.8 million or 60.9 pence per share
('pps'), compared with GBP299.2 million or 57.7 pps as at 31 March
2015. This reflects a 5.6% increase and a total NAV return,
including dividends of 7.8%. The table below provides a detailed
breakdown of the growth in NAV over the period:
Pence
----------------------------------------------------- ------
NAV as at 31 March 2015 57.7
----------------------------------------------------- ------
Unrealised change in valuation of direct investment
property portfolio 2.8
----------------------------------------------------- ------
Unrealised gain in the value of joint ventures 0.9
----------------------------------------------------- ------
Capital expenditure during the period (0.2)
----------------------------------------------------- ------
Property acquisition costs during the period (0.3)
----------------------------------------------------- ------
Realised gain on sold properties 0.1
----------------------------------------------------- ------
Post tax net revenue 1.1
----------------------------------------------------- ------
Dividends paid (1.2)
----------------------------------------------------- ------
NAV as at 30 September 2015 60.9
----------------------------------------------------- ------
Performance was driven by a 4.1% increase in the value of the
held portfolio over the six month period which, adjusting for
capital expenditure, contributed 3.6 pps to the NAV. This includes
strong performance from the joint venture investments at City Tower
in Manchester and the University of Law Campus on Store Street in
London.
(MORE TO FOLLOW) Dow Jones Newswires
November 16, 2015 02:00 ET (07:00 GMT)
Acquisition costs of GBP1.6 million were incurred over the
period, reducing the NAV by 0.3 pps, which represented 3% of the
aggregate price paid for two assets totalling GBP54.5 million. They
have subsequently been revalued to GBP58 million at 30 September
2015.
Dividends of GBP6.4 million or 1.2 pps were paid during the
period which, based on post tax net revenue of GBP6.2 million,
resulted in a dividend cover of 98%. The underlying cover for the
period was 104%, having adjusted for one-off expenses relating to
the conversion to UK REIT status.
Market overview
According to the IPD Index, average UK commercial property
produced a total return of 6.8% over the six months to 30 September
2015, comprising an income return of 2.5% and capital growth of
4.2%. This resulted in the average net initial income yield falling
from 5.4% to 5.2%. The occupational market recovery, particularly
in stronger regional markets, meant that increasing rental values
contributed 2.5% compared with 1.9% over the six months to 31 March
2015. Falling yields as a result of investor demand contributed
2.6% to capital growth which compared with 3.7% over the previous
six month period.
Offices were the best performing sector over the period with a
total return of 8.9%, driven by capital growth of 6.7%, despite
having the lowest net initial income yield of 4.5%. Central London
and the South East outperformed the UK as a whole with total
returns of 10.2% and 10.4% respectively (Source: IPD key city
digest). Stronger regional centres such as Cambridge and Manchester
also saw improving performance with total returns of 11.7% and 8.4%
respectively over the period. We expect this trend to continue with
regards to larger cities and towns with diversified local economies
and sustainable occupational demand offering higher levels of
rental growth.
The retail sector was the poorest performing sector over the six
month period with a total return of 4.1%. The underperformance was
principally due to lower rental growth of 0.8%, with the
traditional high street and supermarkets experiencing rental falls
due to the increase in on-line sales and the impact of discounters
such as Aldi and Lidl.
Central London retail continued to deliver strong returns due to
international investors increasing prices and as a consequence
income yields have reduced to below 3%. The market outside of
Central London remains polarised with larger units in dominant
cities and towns benefiting from increased tenant demand due to
retailers' expanding multi-channel retail formats. The convenience
retail and leisure sectors are also benefiting from changing
consumer behaviour.
Investment Manager's Report (continued)
The industrial sector produced a total return of 8.7% over the
period, supported by a high net initial income yield of 5.6% with
accelerating rental growth. Although London and the South East
generated higher total returns of approximately 10% over the
period, falling regional unemployment resulted in average rental
growth doubling compared with 2014. The industrial sector is also
benefiting from the growth in on-line sales with strong demand for
distribution warehouses.
Strategy
Efficient execution of the growth strategy since January 2014
and a focused asset management approach has contributed positively
to the three central objectives of maximising income, enhancing the
NAV and improving the portfolio's defensive qualities. This has
delivered the following benefits over the period to 30 September
2015:
-- Above average income return of 3.2% compared with the IPD
Index of 2.5% - Higher yielding acquisitions increased the
portfolio's rental income to GBP28.5 million per annum compared
with GBP27.5 million as at 31 March 2015.
-- Increased exposure to investments offering good fundamentals
- The portfolio's reversionary rental income increased to GBP34.17
million compared with GBP29.05 million as at 31 March 2015.
-- Reduction in the portfolio void rate - A combination of
lettings and disposals has reduced the void rate to 8.1% compared
with 9.2% as at 31 March 2015.
-- Economies of scale - Acquiring larger properties has enabled
more value to be added from asset management initiatives and
further reduced expenses by 15% as a percentage of NAV.
The strategy remains focussed on further sustainable net income
growth in order to support a progressive dividend policy over time.
As noted above, improving market conditions, particularly in the
stronger regional centres where exposure has been increased, are
reducing vacancy rates and creating opportunities to invest into
the portfolio, improving rental values and generating attractive
income and total returns. Net income levels have also been enhanced
by disposing lower yielding assets post active management and
redeploying proceeds into higher yielding assets.
There are potentially up to GBP25 million of capital expenditure
initiatives that would make a positive contribution to performance
over the next 12 to 24 months. Efficient management of the balance
sheet means that existing current cash resources are low at
approximately GBP12 million. Therefore, in order to fund this
activity, proceeds from lower yielding disposals are likely to be
reinvested into the portfolio rather than for new acquisitions. A
selective and opportunistic approach has been separately applied to
acquisitions. Recent experience illustrates that these can still
make a positive contribution to returns but potential acquisitions
of adjoining interests could generate better returns, for example,
by improving longer term strategic holdings.
In order to fund these opportunities we and the Board will
continue to review the potential for further equity issuance but
only in a cautious and disciplined manner and where new investment
will enhance income and total returns.
Investment Manager's Report (continued)
Property portfolio
As at 30 September 2015, the underlying portfolio comprised 54
properties independently valued at GBP453.7 million. This included
the share of joint venture properties as well as St. George's Court
in New Malden where an unconditional sale contract has been
exchanged with completion due in April 2016. The portfolio produced
a rental income of GBP28.5 million per annum, reflecting a net
initial yield of 5.9%. The independent valuer has estimated that
the current market rental value of the portfolio is GBP34.2 million
per annum, reflecting a reversionary yield of 7.1%. The portfolio
benefits from additional fixed annual rental uplifts of GBP2.1
million per annum due by September 2017. The data below summarises
the portfolio information as at 30 September 2015 compared with the
IPD Index:
Weighting (%)
---------------------------- ------------------
Sector weightings by value SREIT IPD Index
---------------------------- ------ ----------
Retail 34.3 37.7
---------------------------- ------ ----------
Offices 39.5 33.6
---------------------------- ------ ----------
Industrial 21.7 20.1
---------------------------- ------ ----------
Other 4.5 8.6
---------------------------- ------ ----------
Weighting (%)
------------------------------ ------------------
Regional weightings by value SREIT IPD Index
------------------------------ ------ ----------
Central London 7.9 16.0
------------------------------ ------ ----------
South East excluding Central
London 28.9 36.8
------------------------------ ------ ----------
Rest of the South 9.6 14.2
------------------------------ ------ ----------
Midlands and Wales 26.4 14.0
------------------------------ ------ ----------
North and Scotland 27.2 19.0
------------------------------ ------ ----------
The Company's top ten properties set out below comprise 55.3% of
the portfolio value:
Top ten properties Value (GBPm) % of portfolio
---------------------------------- ------------- ---------------
1 Manchester, City Tower* 41.2 9.1
--- ----------------------------- ------------- ---------------
2 London, University of Law* 35.6 7.9
--- ----------------------------- ------------- ---------------
Bedford, St. John's Retail
3 Park 35.0 7.7
--- ----------------------------- ------------- ---------------
4 Brighton, Victory House 30.7 6.8
--- ----------------------------- ------------- ---------------
Leeds, Millshaw Industrial
5 Estate 23.0 5.1
--- ----------------------------- ------------- ---------------
6 Leeds, The Arndale Centre 20.0 4.4
--- ----------------------------- ------------- ---------------
7 Uxbridge, 106 Oxford Road 18.7 4.1
--- ----------------------------- ------------- ---------------
Milton Keynes, Stacey Bushes
8 Industrial Estate 17.4 3.8
--- ----------------------------- ------------- ---------------
Salisbury, Churchill Way
9 West 15.9 3.5
--- ----------------------------- ------------- ---------------
10 Norwich, Union Park 13.2 2.9
--- ----------------------------- ------------- ---------------
Total as at 30 September
2015 250.7 55.3
--- ----------------------------- ------------- ---------------
*Group share of joint venture properties
Investment Manager's Report (continued)
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The table below sets out the Company's top ten tenants that
generally comprise large businesses and represent 33.3% of the
portfolio:
Top ten tenants Rent p.a. (GBP'000) % of portfolio
---------------------------------------- -------------------- ---------------
1 University of Law Limited* 1,583 5.6
--- ----------------------------------- -------------------- ---------------
Wickes Building Supplies
2 Limited 1,092 3.8
--- ----------------------------------- -------------------- ---------------
Norwich Union Life and Pensions
3 Ltd 1,039 3.6
--- ----------------------------------- -------------------- ---------------
4 The Buckinghamshire New University 1,018 3.6
--- ----------------------------------- -------------------- ---------------
5 BUPA Insurance Services Limited 961 3.4
--- ----------------------------------- -------------------- ---------------
6 Secretary of State 916 3.2
--- ----------------------------------- -------------------- ---------------
7 Mott MacDonald Ltd 790 2.8
--- ----------------------------------- -------------------- ---------------
8 Recticel SA 731 2.6
--- ----------------------------------- -------------------- ---------------
9 Matalan Retail Limited 676 2.4
--- ----------------------------------- -------------------- ---------------
Sports Direct.com Retail
10 Limited 657 2.3
--- ----------------------------------- -------------------- ---------------
Total as at 30 September
2015 9,463 33.3
--- ----------------------------------- -------------------- ---------------
*Group share of joint venture properties
As at 30 September 2015 the average unexpired lease term,
assuming all tenants break at the earliest opportunity, is 6.9
years, compared with the IPD Index at 7.9 years. This increases to
7.1 years on completion of the Premier Inn lease at the Arndale
Centre, assuming completion in December 2016. The table below shows
the portfolio lease expiry profile in five year increments compared
against the IPD Index, updated for transactions since the period
end.
% of rent passing
----------- --------------------------------------------------
SREIT earliest termination SREIT assuming no
/ IPD Index earliest tenant breaks / IPD
termination Index assuming no
tenant breaks
----------- --------------------------- ---------------------
Up to five 49.5/ 45.5 34.6/ 33.0
----------- --------------------------- ---------------------
Five to 10 31.1/ 29.5 36.9/ 36.9
----------- --------------------------- ---------------------
10 to 15 11.0/ 13.8 17.8/ 16.8
----------- --------------------------- ---------------------
15 to 20 5.4/ 5.6 7.6/ 6.0
----------- --------------------------- ---------------------
Over 20 3.0/ 5.6 3.1/ 7.4
----------- --------------------------- ---------------------
Property portfolio performance
The annualised performance of the Company's underlying property
portfolio compared with the IPD Index to 30 September 2015 is shown
below:
SREIT total return IPD Index total return Relative p.a. (%)
p.a. (%) p.a. (%)
------------ ------------------------------- ------------------------------- -------------------------------
Period Six Three Since Six Three Since Six Three Since
months years inception* months years inception* months years inception*
------------ -------- ------- ------------ -------- ------- ------------ -------- ------- ------------
Retail 6.4 10.1 6.0 4.1 8.6 4.7 2.2 1.4 1.3
------------ -------- ------- ------------ -------- ------- ------------ -------- ------- ------------
Office 7.8 16.3 8.2 8.9 16.0 7.2 -1.0 0.3 0.9
------------ -------- ------- ------------ -------- ------- ------------ -------- ------- ------------
Industrial 8.1 14.4 7.1 8.7 16.0 7.1 -0.6 -1.4 0.0
------------ -------- ------- ------------ -------- ------- ------------ -------- ------- ------------
Other 6.1 4.1 1.3 5.5 10.6 6.1 0.6 -5.9 -4.5
------------ -------- ------- ------------ -------- ------- ------------ -------- ------- ------------
Total 7.5 13.6 7.3 6.8 12.5 6.0 0.7 1.0 1.2
------------ -------- ------- ------------ -------- ------- ------------ -------- ------- ------------
* Inception was July 2004
Investment Manager's Report (continued)
Acquisitions
Bedford, St. John's Retail Park
On 15 May 2015 St. John's Retail Park in Bedford was acquired
for GBP31.8 million which reflected a net initial yield of
approximately 6.5%, based on a rent of GBP2.07 million per annum.
The asset comprises a well located and prominent 130,000 sq ft
retail warehouse park with an adjoining office building. The
acquisition rationale was underpinned by a low average retail rent
on acquisition of GBP16 per sq ft combined with good property
fundamentals due to tenant demand, low retail warehouse vacancy in
Bedford and above average population growth. The property was
acquired via the acquisition of shares in a UK company that had
developed the property and therefore had significant latent capital
gains tax liabilities. The Company's UK-REIT status enabled these
capital gains tax liabilities to be extinguished and provided SREIT
with a competitive advantage when bidding.
Early progress has been made with the business plan to increase
the rental level, extend leases and improve tenant mix. The only
vacant retail warehouse unit has been let, producing GBP121,550 per
annum or GBP25 per sq ft, 11% ahead of the estimated rental value.
Since acquisition the lease to Maplin, who on acquisition were
paying GBP81,576 per annum on a lease until March 2018, has been
extended by five years. This activity has increased the contracted
rent to GBP2.22 million per annum, reflecting a yield on the gross
acquisition cost of approximately 7%.
Leeds, Millshaw Industrial Estate
On 17 July 2015 Millshaw Industrial Estate in Leeds was acquired
for GBP22.7 million, reflecting an average capital value of GBP49
per sq ft and a net initial yield of 7.25%. Millshaw Industrial
Estate comprises a freehold, 463,400 sq ft multi-let industrial
estate constructed in the 1990's on a 28.3 acre site with 27 units
ranging in size from 2,683 sq ft to 56,440 sq ft. On acquisition
the property was let to 20 tenants producing a rental income of
GBP1.73 million per annum, reflecting a low average rent of GBP3.77
per sq ft. The estate is strategically located within three miles
of junction 27 of the M62 motorway and has frontage to Leeds' inner
ring road. Millshaw Industrial Estate is also close to alternative
uses properties such as the White Rose Office Park, the White Rose
Shopping Centre, car showrooms and residential.
The Company's business plan for the property is to take
advantage of restricted supply of new industrial and warehouse
development in Leeds and re-position the estate by refurbishing
units as leases expire in order to achieve higher rents. The rental
value of the estate at acquisition was assumed to be GBP2.2 million
per annum or GBP4.80 per sq ft, resulting in a reversionary yield
of 8.4%. Early progress is being made on the business plan with
good interest in the vacant units that represent approximately 4%
of the rental value.
The acquisition was funded via a four year, GBP20.5 million,
revolving credit facility ('RCF') from Royal Bank of Scotland.
Asset management
Leeds, Arndale Centre
The Arndale Centre in Leeds, a multi-let retail and office
centre, was acquired in January 2014 for GBP16.2 million reflecting
a net initial income yield of 9.2%. The business plan for the
property was to generate income growth from asset management and
explore the change of use of Arndale House, a substantially vacant
office building comprising 32,000 sq ft.
During the period an Agreement for Lease has been exchanged with
Premier Inn Hotels Limited ('Premier Inn') for a letting of a new
96 bedroom hotel. The agreement is conditional on securing planning
consent and converting Arndale House to hotel use, at a cost of
approximately GBP6.7 million. Subject to these conditions being
satisfied, Premier Inn will enter into a new 30 year lease, with a
tenant only break option after 20 years, at a rent of GBP412,800
per annum. The lease will benefit from five yearly upwards only
rent reviews linked to the Consumer Price Index ('CPI'), subject to
a cap of 4% per annum compound. The lease will be guaranteed by
Premier Inn's parent company, Whitbread Group PLC. A planning
application has been made and the target date for completion of the
lease is December 2016. The transaction is expected to generate a
yield on cost of approximately 6.5%.
Investment Manager's Report (continued)
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In parallel with the pre-letting to Premier Inn, good progress
has been made with the strategy to increase the existing retail
rents from an average rent of GBP45 per sq ft. Recent retail
lettings at rentals have achieved rents at over GBP65 per sq ft.
The evidence created by these lettings has increased the rental
value from GBP1.65 million per annum upon acquisition to GBP1.9
million per annum as at 30 September 2015 and creates further scope
to increase income and value.
Manchester, City Tower (25% interest)
A 25% interest of City Tower in Manchester was acquired in June
2014 for GBP33 million, reflecting a net initial yield of 7% and a
reversionary yield of 8.7%. City Tower is situated in a prime
location in the centre of Manchester. It provides 615,429 square
feet of office, retail, leisure and hotel accommodation on a three
acre island site including car parking with 456 spaces. The
property provides significant diversification with 115 tenants with
an average unexpired lease term, to the earlier of lease expiry or
break, of 10 years. The acquisition rationale was to invest in a
fundamentally good asset with potential for growth from active
management. The low average office rent of GBP17 per sq ft, was
attractive with an improving occupational market and low levels of
competing supply. This presented the opportunity to refurbish and
re-position the offices to capture rental growth.
There has been a high level of activity since acquisition with a
refurbishment scheme on-going to improve the reception and vacant
office floors at a total cost to the Company of GBP800,000. This,
combined with recent lettings at between GBP20 and GBP25 per sq ft,
has increased the rental value from GBP3 million per annum upon
acquisition to GBP3.15 million per annum as at 30 September 2015.
In addition to office lettings good progress has been made with
re-positioning the retail and leisure offering.
Milton Keynes, Stacey Bushes and Heathfield Industrial
Estates
Stacey Bushes and Heathfield Industrial Estates were acquired in
two separate transactions in 2014 for GBP14.3 million, reflecting a
net initial yield of 7.7% and an average capital value of GBP45 per
sq ft, materially below replacement cost. The combined estate
provides 54 units of varying sizes totalling 317,000 sq ft, and at
acquisition produced a rent of GBP1.17 million per annum.
Over the period, five units have been refurbished, eight
lettings completed and three lease renewals completed. Increased
occupier demand and restricted supply in Milton Keynes has led to
headline rents being achieved at over 20% ahead of the estimated
rental value. The void rate has reduced from 20% on acquisition to
the current void of 7%. This activity has increased the yield on
the gross acquisition cost to approximately 9.3%
Finance
As at 30 September 2015 the Company had a loan to value, net of
cash, of 30%, within the long-term target range of 25% to 35%.
On 15 May 2015 a four year, GBP20.5 million, revolving credit
facility ('RCF') was agreed with Royal Bank of Scotland ('RBS') to
fund the acquisition of Millshaw Industrial Estate. The RCF is an
efficient and flexible source of funding due to the low margin of
1.6% and the ability to be repaid and redrawn as often as required.
GBP10.25 million of the RCF has been hedged with an interest rate
cap of 1.5% at a cost of GBP209,500.
Investment Manager's Report (continued)
Drawing down the RCF results in total debt of GBP150.1 million
at an average total cost of 4.4% with a weighted duration of 10.5
years. Details of the loans and compliance with the principal
covenants as at 30 September 2015 are set out below:
Lender Loan Maturity Interest Security LTV ratio Interest ICR ratio Forward Forward
(GBPm) rate / Loan covenant cover covenant looking looking
(%) to Value (%)* ratio (%)** ICR ratio ICR ratio
('LTV') (%)** (%)*** covenant
ratio (%)***
(%)
-------- -------- ----------- ----------- ---------- ---------- --------- ---------- ----------- -----------
Canada 339.2
Life 25.9 16/04/2023 4.77($) / 38.2 65 320 185 309 185
-------- -------- ----------- ----------- ---------- ---------- --------- ---------- ----------- -----------
103.7 16/04/2028
-------- -------- ----------- ----------- ---------- ---------- --------- ---------- ----------- -----------
2.18 37.7
RBS 20.5 15/05/2019 (ALPHA>) / 54.5 65 393 185 521 250
-------- -------- ----------- ----------- ---------- ---------- --------- ---------- ----------- -----------
* Loan balance divided by property value as at 30 September 2015
** For the quarter preceding the Interest Payment Date ('IPD'),
((rental income received - void rates, void service charge and void
insurance) / interest paid)
*** For the quarter following the IPD, ((rental income received
- void rates, void service charge and void insurance) / interest
paid)
($) Fixed total interest rate for the loan term
(ALPHA>) Total interest rate as at 30 September 2015
comprising 3 month LIBOR of 0.58% and the margin of 1.6%
Outlook
The UK commercial real estate market has continued to benefit
from strong investor demand driving values upwards. Whilst interest
rates are expected to remain low over the near term, we believe
future returns are now more likely to be driven by above average
income returns and rental growth rather than falling yields.
The properties acquired as part of the growth strategy should
continue to support attractive returns due to the level of income
and the potential to enhance returns by actively managing and
investing in the portfolio. Successful execution of the initiatives
outlined should therefore increase the prospects for an increase in
the level of net income as well as protect values in a rising
interest rate environment.
Duncan Owen
Schroder Real Estate Investment Management Limited
13 November 2015
Responsibility Statement of the Directors' in respect of the
interim report
We confirm that to the best of our knowledge:
-- the condensed set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting; and
-- the interim management report (comprising the Chairman's and
the Investment Managers report) includes a fair review of the
information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being
an indication of important events that have occurred during the
first six months of the financial year and their impact on the
condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
By order of the Board
Lorraine Baldry
Chairman
13 November 2015
Condensed Consolidated Statement of Comprehensive Income
Six months Six months Year
to to to
30/09/2015 30/09/2014 31/03/2015
Notes GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
------------------------------------- -------- -------------------- -------------------- -----------
Rental income 11,817 11,294 22,124
Other income 284 578 2,067
Property operating expenses (1,330) (1,460) (2,812)
------------------------------------- -------- -------------------- -------------------- -----------
Net rental and related income,
excluding joint ventures 10,771 10,412 21,379
------------------------------------- -------- -------------------- -------------------- -----------
Share of net rental income in joint
ventures 1,581 813 2,273
Net rental and related income,
including joint ventures 12,352 11,225 23,652
------------------------------------- -------- -------------------- -------------------- -----------
Profit on disposal of investment
property 6 419 15,117 20,696
Net valuation gain on investment
property 6 11,795 13,879 20,144
Expenses
Investment management fee 2 (1,540) (1,094) (2,752)
Valuers' and other professional
fees (537) (668) (1,277)
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Administrators fee 2 (60) (60) (120)
Auditor's remuneration (57) (62) (112)
Directors' fees (108) (93) (185)
Other expenses 3 (489) (63) (388)
Total expenses (2,791) (2,040) (4,834)
------------------------------------- -------- -------------------- -------------------- -----------
Net operating profit before net
finance costs 20,194 37,368 57,385
Interest receivable - - 21
Finance costs payable (3,487) (3,177) (6,344)
Net finance costs (3,487) (3,177) (6,323)
Share of net rental income in joint
ventures 7 1,581 813 2,273
Share of net valuation gain in joint
ventures 7 4,797 1,015 1,792
Profit before tax 23,085 36,019 55,127
Taxation (74) (62) (353)
----------------------------------------- ---- -------------------- -------------------- -----------
Total comprehensive income for the
period/year attributable to the
equity holders of the parent 23,011 35,957 54,774
----------------------------------------- ---- -------------------- -------------------- -----------
Basic and diluted earnings per share 4 4.4p 7.7p 11.3p
----------------------------------------- ---- -------------------- -------------------- -----------
All items in the above statement are derived from continuing
operations. The accompanying notes 1 to 11 form an integral part of
the interim report.
Condensed Consolidated Statement of Financial Position
30/09/2015 30/09/2014 31/03/2015
Notes GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
------------------------------ ------ ------------ ------------ -----------
Investment in joint ventures 7 77,589 35,840 72,792
Investment property 6 363,665 301,368 298,684
Non-current assets 441,254 337,208 371,476
------------------------------ ------ ------------ ------------ -----------
Trade and other receivables 18,867 30,400 16,187
Cash and cash equivalents 8 12,330 33,984 46,591
------------------------------ ------ ------------ ------------ -----------
Current assets 31,197 64,384 62,778
------------------------------ ------ ------------ ------------ -----------
Total assets 472,451 401,592 434,254
============================== ====== ============ ============ ===========
Issued capital and reserves 342,245 259,967 325,666
Treasury shares (26,452) - (26,452)
------------------------------ ------ ------------ ------------ -----------
Equity 315,793 259,967 299,214
------------------------------ ------ ------------ ------------ -----------
Interest-bearing loans and
borrowings 9 147,918 127,490 127,562
Non-current liabilities 147,918 127,490 127,562
------------------------------ ------ ------------ ------------ -----------
Trade and other payables 8,528 14,020 7,266
Taxation payable 212 115 212
------------------------------ ------ ------------ ------------ -----------
Current liabilities 8,740 14,135 7,478
------------------------------ ------ ------------ ------------ -----------
Total liabilities 156,658 141,625 135,040
------------------------------ ------ ------------ ------------ -----------
Total equity and liabilities 472,451 401,592 434,254
============================== ====== ============ ============ ===========
Net Asset Value per ordinary
share 10 60.9p 55.1p 57.7p
------------------------------ ------ ------------ ------------ -----------
The financial statements on pages 15-26 were approved at a
meeting of the Board of Directors held on 13 November 2015 and
signed on its behalf by:
Lorraine Baldry
Chairman
The accompanying notes 1 to 11 form an integral part of the
interim report.
Condensed Consolidated Statement of Changes in Equity
For the period from 1 April 2014 to 30 September 2014
(unaudited)
Treasure
Share share Revenue
Notes premium reserve reserve Total
GBP000 GBP000 GBP000 GBP000
Balance as at 31 March
2014 127,152 - 63,291 190,443
Profit for the period - - 35,957 35,957
New Equity Issuance (net
of issue costs) 38,918 - - 38,918
Dividends paid 5 - - (5,351) (5,351)
---------------------------- ------ ---------- ----------- ---------- --------
Balance as at 30 September
2014 166,070 - 93,897 259,967
---------------------------- ------ ---------- ----------- ---------- --------
For the year ended 31 March 2015 (audited) and for the period from
1 April 2015 to 30 September 2015 (unaudited)
Treasure
Share share Revenue
Notes premium reserve reserve Total
GBP000 GBP000 GBP000 GBP000
---------------------------- ------ ---------- ----------- ---------- ---------
Balance as at 31 March
2014 127,152 - 63,291 190,443
Profit for the year - - 54,774 54,774
New Equity Issuance (net
of issue costs) 91,938 (26,452) - 65,486
Dividends paid 5 - - (11,489) (11,489)
---------------------------- ------ ---------- ----------- ---------- ---------
Balance as at 31 March
2015 219,090 (26,452) 106,576 299,214
---------------------------- ------ ---------- ----------- ---------- ---------
Profit for the period - - 23,011 23,011
Dividends paid 5 - - (6,432) (6,432)
---------------------------- ------ ---------- ----------- ---------- ---------
Balance as at 30 September
2015 219,090 (26,452) 123,155 315,793
---------------------------- ------ ---------- ----------- ---------- ---------
The accompanying notes 1 to 11 form an integral part of the
interim report
Condensed Consolidated Statement of Cash Flows
Six months Six months Year
to to to
30/09/2015 30/09/2014 31/03/2015
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
-------------------------------------- ------------- ------------ ------------ -----------
Operating activities
Profit for the period/year 23,011 35,957 54,774
Adjustments for:
Profit on disposal of investment
property (419) (15,117) (20,696)
Net valuation gain on investment
property (11,795) (13,879) (20,144)
Share of profit of joint ventures (6,378) (1,015) (4,065)
Net finance cost 3,487 3,177 6,323
Taxation 74 62 353
------------------------------------------- -------- -----------
Operating cash generated before
changes in working
capital 7,980 9,185 16,545
Decrease/(increase) in trade and
other receivables 1,320 (18,369) (4,157)
Increase in trade and other payables 1,262 7,038 112
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------------------------------------------------ --- ------------ ------------ -----------
Cash generated from operations 10,562 (2,146) 12,500
Finance costs paid (3,389) (3,091) (6,188)
Interest received - - 21
Tax (74) (17) (211)
----------------------------------------------------- ------------ -----------
Net cash from operating activities 7,099 (5,254) (6,122)
----------------------------------------------------- ------------ ------------ -----------
Investing Activities
Proceeds from sale of investment
property - 37,712 86,548
Acquisition of investment
property (55,630) (12,010) (45,470)
Additions to investment property (1,137) - (848)
Acquisition of joint ventures - (35,000) (71,000)
Net income distributed from
joint ventures 1,581 - 2,273
Net cash from investing activities (55,186) (9,298) (28,497)
----------------------------------------------------- ------------ ------------ -----------
Financing Activities
Share issue net proceeds - 38,918 65,486
New Loan 20,500 - -
Loan arrangement fees (242) - -
Dividends paid (6,432) (5,351) (11,489)
----------------------------------------------------- ------------ ------------ -----------
Net cash from financing activities 13,826 33,567 53,997
----------------------------------------------------- ------------ ------------ -----------
Net (decrease)/increase in cash
and cash equivalents for (34,261) 19,015 31,622
for the period/year
Opening cash and cash equivalents 46,591 14,969 14,969
----------------------------------------------------- ------------ ------------ -----------
Closing cash and cash equivalents 12,330 33,984 46,591
----------------------------------------------------- ------------ ------------ -----------
The accompanying notes 1 to 11 form an integral part of the
interim report
Notes to the Interim Report
1. Significant accounting policies
Schroder Real Estate Investment Trust Limited ("the Company") is
a closed-ended investment company incorporated in Guernsey. The
condensed interim financial statements of the Company for the
period ended 30 September 2015 comprise the Company, its
subsidiaries and its interests in associates and joint ventures
(together referred to as the "Group").
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 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 2015. 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 2015. The financial
statements for the year ended 31 March 2015 have been prepared in
accordance with IFRS as issued by the IASB. The Group's annual
financial statements refer to new Standards and Interpretations
none of which had a material impact on the financial
statements.
Going concern
The Directors have examined significant areas of possible
financial risk including cash and cash requirements and the debt
covenants, in particular the loan to value covenants and interest
cover ratios on the loans with Canada Life and Royal Bank of
Scotland. 80% of the Canada Life loan matures on 15 April 2028 and
20% matures on 15 April 2023. The Royal Bank of Scotland loan
matures on 17 July 2019. The Directors have not identified any
material uncertainties which would cast significant doubt on the
Group's ability to continue as a going concern for a period of not
less than twelve months from the date of the approval of the
financial statements. The Directors have satisfied themselves that
the Group has adequate resources to continue in operational
existence for the foreseeable future.
After due consideration, the Board believes it is appropriate to
adopt the going concern basis in preparing the condensed interim
financial statements.
Use of estimates and judgments
The preparation of financial statements requires management to
make judgements, estimates and assumptions that affect the
application of policies and the reported amounts of assets and
liabilities, income and expenses. Actual results may differ from
these estimates. The estimates and underlying assumptions are
reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimates are revised and in
any future periods affected. There have been no changes in the
judgements and estimates used by management as disclosed in the
last annual report and financial statements for the year ended 31
March 2015.
Segmental reporting
The Directors are of the opinion that the Group is engaged in a
single segment of business, being property investment and in one
geographical area, the United Kingdom. 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 who are
provided with consolidated IFRS information on a quarterly
basis.
2. Material agreements
Schroder Real Estate Investment Management Limited is the
Investment Manager to the Company.
The Investment Manager is entitled to a fee together with
reasonable expenses incurred in the performance of its duties. The
fee is payable monthly in arrears and shall be an amount equal to
one twelfth of the aggregate of 1.1% of the NAV of the Company. The
Investment Management Agreement can be terminated by either party
on not less than twelve months written notice or on immediate
notice in the event of certain breaches of its terms or the
insolvency of either party. The total charge to profit during the
period was GBP1,540,000 (year to 31 March 2015: GBP2,752,000) (6
months to 30 September 2014: GBP1,094,000). At the period end
GBP712,000 (31 March 2015: GBP471,000) (30 September 2014:
GBP667,000) was outstanding.
During the period, Schroder Real Estate Investment Management
Limited was also paid GBP200,000 for additional services in
relation to the Group's conversion to a REIT in May 2015.
The Board appointed Northern Trust International Fund
Administration Services (Guernsey) Limited as the Administrator to
the Company with effect from 25 July 2007. The Administrator is
entitled to an annual fee equal to GBP120,000 of which GBP30,000
(31 March 2015: GBP30,000) (30 September 2014: GBP30,000) was
outstanding at the period end.
3. Other expenses
Six months Six months Year to
to to 31/03/2015
30/09/2015 30/09/2014
GBP000 GBP000 GBP000
------------------------------------ -------------------- ------------ ------------
Directors' and officers' insurance
premium 7 7 21
Regulatory costs 22 10 60
Marketing 19 11 15
Professional fees 34 31 79
Other expenses (*) 407 4 213
489 63 388
------------------------------------ -------------------- ------------ ------------
(*) Six month to 30 September 2015 include REIT conversation
cost of circa GBP400,000
4. Basic and Diluted Earnings per share
The basic and diluted earnings per share for the Group is based
on the net profit for the period of GBP23,011,000 (31 March 2015:
GBP54,744,000), (30 September 2014: GBP35,957,000) and the weighted
average number of ordinary shares in issue during the period/year
of 518,513,409 (31 March 2015: 485,661,354 and 30 September 2014:
465,799,123).
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EPRA earnings reconciliation
Six months Six months Year to
to to 31/03/2015
30/09/2015 30/09/2014
GBP000 GBP000 GBP000
------------------------------------- --------------------- ----------------------- -------------------
Profit after tax 23,011 35,957 54,774
Adjustments to calculate EPRA
Earnings exclude:
Profit on disposal of investment
property (419) (15,117) (20,696)
Net valuation gain on investment
property (11,795) (13,879) (20,144)
Finance cost: interest rate cap 209 - -
Share of valuation gain in joint
ventures (4,797) (1,828) (1,792)
----------------------------------------- --------------------- ----------------------- -------------------
EPRA earnings 6,209 5,133 12,142
----------------------------------------- --------------------- ----------------------- -------------------
Weighted average number of ordinary
shares 518,513,409 465,799,123 485,661,354
EPRA earnings per share (pence
per share) 1.2 1.1 2.5
Notes to the Interim Report (continued)
4. Basic and Diluted Earnings per share (continued)
European Public Real Estate Association ('EPRA') earnings per
share reflect the underlying performance of the company calculated
in accordance with the EPRA guidelines.
5. Dividends paid
01/04/2015
Number of to
In respect of ordinary Rate 30/09/2015
shares (pence) GBP000
------------------------------------ --------------- -------- -----------
Quarter 31 March 2015 dividend
paid 28 May 2015 518.51 million 0.62 3,216
Quarter 30 June 2015 dividend paid
28 August 2015 518.51 million 0.62 3,216
------------------------------------ --------------- -------- -----------
1.24 6,432
------------------------------------ --------------- -------- -----------
01/04/2014
Number of to
In respect of ordinary Rate 30/09/2014
shares (pence) GBP000
------------------------------------ ---------------- -------- -----------
Quarter 31 March 2014 dividend
paid 25 April 2014 391.51 million 0.62 2,427
Quarter 30 June 2014 dividend paid
15 August 2014 471.51 million 0.62 2,924
------------------------------------ ---------------- -------- -----------
1.24 5,351
------------------------------------ ---------------- -------- -----------
01/04/2014
Number of to
In respect of ordinary Rate 31/03/2015
shares (pence) GBP000
------------------------------------- --------------- -------- -------------
Quarter 31 March 2014 dividend paid
25 April 2014 391.51 million 0.62 2,427
Quarter 30 June 2014 dividend paid
15 August 2014 471.51 million 0.62 2,923
Quarter 30 September 2014 dividend
paid 28 November 2014 471.51 million 0.62 2,923
Quarter 31 December 2014 dividend
paid 27 February 2015 518.51 million 0.62 3,216
------------------------------------- --------------- -------- -------------
2.48 11,489
------------------------------------- --------------- -------- -------------
A dividend for the quarter ended 30 September 2015 of 0.62p
(GBP3.2 million) was declared on 4 November 2015 and will be paid
on 30 November 2015.
6. Investment property
For the period 1 April 2014 to 30 September 2014 (unaudited)
Leasehold Freehold Total
-------------------------------------------
GBP000 GBP000 GBP000
------------------------------------------- ---------- --------- ---------
Fair value as at 1 April 2014 39,361 258,713 298,074
Additions 215 11,795 12,010
Disposals - (22,595) (22,595)
Net valuation gain on investment property 2,030 11,849 13,879
Fair value as at 30 September 2014 41,606 259,762 301,368
------------------------------------------- ---------- --------- ---------
Notes to the Interim Report (continued)
6. Investment property (continued)
For the year 1 April 2014 to 31 March 2015 (audited)
Leasehold Freehold Total
-------------------------------------------
GBP000 GBP000 GBP000
------------------------------------------- ---------- --------- ---------
Fair value as at 1 April 2014 39,361 258,713 298,074
Additions 232 46,086 46,318
Gross proceeds on disposals (2,295) (84,253) (86,548)
Realised (loss)/gain on disposals (1,209) 21,905 20,696
Net valuation gain on investment property 3,138 17,006 20,144
Fair value as at 31 March 2015 39,227 259,457 298,684
------------------------------------------- ---------- --------- ---------
For the period 1 April 2015 to 30 September 2015 (unaudited)
Leasehold Freehold Total
-------------------------------------------
GBP000 GBP000 GBP000
------------------------------------------- ---------- --------- --------
Fair value as at 1 April 2015 39,227 259,457 298,684
Additions 28 56,658 56,686
Gross proceeds on disposals - (3,919) (3,919)
Realised gain on disposals - 419 419
Net valuation gain on investment property 636 11,159 11,795
Fair value as at 30 September 2015 39,891 323,774 363,665
------------------------------------------- ---------- --------- --------
Fair value of investment property as determined by the valuer's
totals GBP376,875,000 (31 March 2015: GBP310,205,000) (30 September
2014: GBP325,755,000). Of this amount GBP3,750,000 (31 March 2015:
GBP2,305,000) in relation to the unconditional exchange of
contracts for the sale of New Malden and GBP9,460,000 (31 March
2015: GBP9,216,000) (30 September 2014: GBP8,987,000) in connection
with lease incentives is included within trade and other
receivables.
The fair value of investment property has been determined by
Knight Frank LLP, a firm of independent chartered surveyors, who
are registered independent appraisers. The valuation has been
undertaken in accordance with the RICS Valuation - Professional
Standards January 2014 Global and UK Edition, issued by the Royal
Institution of Chartered Surveyors (the "Red Book") including the
International Valuation Standards.
The properties have been valued on the basis of "Fair Value" in
accordance with the RICS Valuation - Professional Standards
VPS4(1.5) Fair Value and VPGA1 Valuations for Inclusion in
Financial Statements which adopt the definition of Fair Value used
by the International Accounting Standards Board.
The valuation has been undertaken using appropriate valuation
methodology and the valuer's professional judgement. The valuer's
opinion of Fair Value was primarily derived using recent comparable
market transactions on arm's length terms, where available, and
appropriate valuation techniques (The Investment Method).
The properties have been valued individually and not as part of
a portfolio.
All investment properties are categorised as Level 3 fair values
as they use significant unobservable inputs. There have not been
any transfers between Levels during the period. Investment
properties have been classed according to their real estate sector.
Information on these significant unobservable inputs per class of
investment property is disclosed below:
Notes to the Interim Report (continued)
6. Investment property (continued)
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Quantative information about fair value measurement using
unobservable inputs (Level 3) as at 30 September 2015
Industrial Retail (incl Office Other Total
(1) retail warehouse)
------------- ----------- --------------- ------------------- ---------------- -------- -----------------
Fair value
(GBP000) 98,275 150,950 115,800 11,850 376,875
-------------------------- --------------- ------------------- ---------------- -------- -----------------
Area ('000
sq ft) 1,711 636 647 145 3,139
-------------------------- --------------- ------------------- ---------------- -------- -----------------
Net passing Range GBP0 - GBP8.82 GBP0 - GBP38.50 GBP0 - GBP25.72 GBP6.97 GBP0-GBP38.50
rent Weighted GBP3.88 GBP14.40 GBP13.33 N/A GBP8.10
psf per average
annum
------------- ----------- --------------- ------------------- ---------------- -------- -----------------
Gross ERV Range GBP3.25 GBP7.40-GBP49.50 GBP9.00 GBP8.69 GBP3.25-GBP49.50
psf Weighted - GBP9.50 GBP16.48 - GBP27.50 N/A GBP9.32
per annum average GBP4.65 GBP14.73
------------- ----------- --------------- ------------------- ---------------- -------- -----------------
Net initial Range 0% - 7.50% 0% - 8.60% 0.00%-14.57% 8.07% 0% - 14.57%
yield (1) Weighted 6.44% 5.74% 7.04% N/A 6.38%
average
------------- ----------- --------------- ------------------- ---------------- -------- -----------------
Equivalent Range 5.67% - 4.50%-9.80% 5.49%-11.60% 8.49% 4.50%-11.60%
yield Weighted 8.58% 7.29% 6.07% 7.13% N/A 6.79%
average
------------- ----------- --------------- ------------------- ---------------- -------- -----------------
Notes:
(1) Yields based on rents receivable after deduction of head
rents, but gross of non-recoverables
Quantitative information about fair value measurement using
unobservable inputs (Level 3) as at 31 March 2015
Industrial Retail (incl Office Leisure Total
retail warehouse)
------------- ----------- ----------------- ------------------- ---------------- -------- -----------------
Fair value
(GBP000) 70,850 113,105 114,550 11,700 310,205
-------------------------- ----------------- ------------------- ---------------- -------- -----------------
Area ('000
sq ft) 1,248 505 657 145 2,555
-------------------------- ----------------- ------------------- ---------------- -------- -----------------
Net passing Range GBP0 - GBP8.82 GBP0 - GBP38.50 GBP0 - GBP25.72 GBP6.97 GBP0-GBP38.50
rent per Weighted GBP4.03 GBP13.44 GBP12.92 N/A GBP8.34
sq ft per average
annum
------------- ----------- ----------------- ------------------- ---------------- -------- -----------------
Gross ERV Range GBP3.00 - GBP7.40-GBP49.50 GBP9.00 GBP8.72 GBP3.00-GBP49.50
per sq Weighted GBP9.25 GBP4.59 GBP16.31 - GBP26.00 N/A GBP9.62
ft per average GBP14.26
annum
------------- ----------- ----------------- ------------------- ---------------- -------- -----------------
Net initial Range 0% - 8.31% 0% - 9.20% 1.00%-13.99% 8.17% 0% - 13.99%
yield (1) Weighted 6.71% 5.67% 7.00% N/A 6.49%
average
------------- ----------- ----------------- ------------------- ---------------- -------- -----------------
Equivalent Range 5.74% - 8.53% 4.50%-9.84% 5.39%-9.67% 8.49% 4.50%-9.84%
yield Weighted 7.43% 6.45% 7.24% N/A 7.04%
average
------------- ----------- ----------------- ------------------- ---------------- -------- -----------------
Notes: (1) Yields based on rents receivable after deduction of
head rents, but gross of non-recoverables
Notes to the Interim Report (continued)
6. Investment property (continued)
Sensitivity of measurement to variations in the significant
unobservable inputs
The significant unobservable inputs used in the fair value
measurement categorised within Level 3 of the fair value hierarchy
of the Group's property portfolio, together with the impact of
significant movements in these inputs on the fair value
measurement, are shown below:
Unobservable input Impact on fair value Impact on fair value
measurement of significant measurement of significant
increase in input decrease in input
------------------- ---------------------------- ----------------------------
Passing rent Increase Decrease
------------------- ---------------------------- ----------------------------
Gross ERV Increase Decrease
------------------- ---------------------------- ----------------------------
Net initial yield Decrease Increase
------------------- ---------------------------- ----------------------------
Equivalent yield Decrease Increase
------------------- ---------------------------- ----------------------------
There are interrelationships between the yields and rental
values as they are partially determined by market rate
conditions.
The sensitivity of the valuation to changes in the most
significant inputs per class of investment property are shown
below:
Estimated movement in Industrial Retail Office Other Total
fair value of investment GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
properties at 30 September
2015
----------------------------- ----------- --------- --------- --------- ---------
Increase in ERV by 5% 4,260 6,280 3,715 250 14,505
----------------------------- ----------- --------- --------- --------- ---------
Decrease in ERV by 5% (3,995) (5,805) (4,005) (150) (13,955)
----------------------------- ----------- --------- --------- --------- ---------
Increase in net initial
yield by 0.25% (3,825) (7,150) (4,650) (550) (16,075)
----------------------------- ----------- --------- --------- --------- ---------
Decrease in net initial
yield by 0.25% 4,050 7,850 5,100 600 17,525
----------------------------- ----------- --------- --------- --------- ---------
Estimated movement in fair Industrial Retail Office Other Total
value of investment properties GBP000 GBP000 GBP000 GBP000 GBP000
at 31 March 2015
--------------------------------- ----------- -------- -------- -------- ---------
Increase in ERV by 5% 3,050 4,300 4,150 300 11,800
--------------------------------- ----------- -------- -------- -------- ---------
Decrease in ERV by 5% (2,750) (4,300) (3,655) (200) (10,905)
--------------------------------- ----------- -------- -------- -------- ---------
Increase in net initial
yield by 0.25% (2,550) (4,850) (3,900) (350) (11,650)
--------------------------------- ----------- -------- -------- -------- ---------
Decrease in net initial
yield by 0.25% 2,750 5,150 4,300 400 12,600
--------------------------------- ----------- -------- -------- -------- ---------
7. Investment in joint ventures
For the period 1 April 2014 to 30 September 2014 (unaudited)
GBP000
------------------------------------------------------ --------
Opening balance as at 1 April 2014 1,800
Distributions received (1,975)
Addition to investment in joint ventures 35,000
Share of net valuation gain in period 1,015
Amounts recognised as joint ventures at 30 September
2014 35,840
------------------------------------------------------- --------
Notes to the Interim Report (continued)
7. Investment in joint ventures (continued)
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