TIDMSERE
RNS Number : 7948V
Schroder Eur Real Est Inv Trust PLC
06 December 2023
6 December 2023
SCHRODER EUROPEAN REAL ESTATE INVESTMENT TRUST PLC
("SEREIT"/ the "Company" / "Group")
FULL YEAR RESULTS FOR THE YEARED 30 SEPTEMBER 2023
DIVERSIFIED EUROPEAN PORTFOLIO'S INDEXATION CHARACTERISTICS
DRIVES 31% GROWTH IN EARNINGS AND FULLY COVERED DIVID
Schroder European Real Estate Investment Trust plc, the company
investing in European growth cities and regions, announces its full
year results for the year ended 30 September 2023.
Portfolio indexation and low-cost fixed rate debt supporting
earnings growth; low LTV and significant investment firepower
-- NAV of EUR171.4 million or 128.2 cps (30 September 2022:
EUR188.2 million or 140.8 cps), reflecting the impact that
challenging economic and geo-political risks have had on asset
valuations;
-- Net Asset Value ("NAV") total return of -5.0% based on an
IFRS loss of EUR9.4 million (30 September 2022: 7.3% total return /
EUR13.9 million IFRS profit)
-- Underlying EPRA earnings increased 31% to EUR8.0 million, or
6.0 cps (30 September 2022: EUR6.1 million, or 4.5 cps), driven by
rental growth and income from recently acquired Alkmaar asset
underpinned by low cost, fixed rate debt position
-- Completed two refinancings on highly competitive terms and
repayment of a third debt facility, extending average loan maturity
by 20 months to 2.6 years; low average interest cost of 2.9%, with
100% fixed or hedged against interest rate movements
-- Robust balance sheet, with low Loan to Value of 24% (net of
cash) and c.EUR30 million of cash providing significant investable
capacity
Quarterly dividend fully covered by EPRA earnings
-- Dividends declared for the year totalling 6.66 cps (FY22:
7.40 cps), with dividends declared in the six months to 30
September 2023 106% covered by EPRA earnings
Yield expansion partially offset by contracted rental growth;
alignment with structurally supported sectors driving higher
occupancy and rent collection
-- Direct property portfolio independent valuation declined
-8.5% to EUR214.1 million, (or EUR18.5 million net of capex),
reflecting between a 50 to 200 bps of outward yield shift, driven
by economic and geo-political uncertainty, investor re-pricing of
risk and the availability and cost of debt
-- Increased portfolio exposure to high growth industrial sector
with c. EUR11 million acquisition of an award winning property in
Alkmaar, the Netherlands, with excellent sustainability credentials
and an exceptional income profile given the 20 year term, covenant
strength and 5.6% net initial yield
-- Maintained high portfolio occupancy level of 97%, with an
average portfolio lease term to break of 3.9 years
-- 100% of rent due collected
-- Contracted rent on a like for like basis (excluding Alkmaar
acquisition) increased 5.3% to EUR16.1 million (30 September 2022:
EUR15.3 million)
-- Concluded 15 new leases and re-gears generating EUR1.5
million of contracted rent, at a weighted lease term of 3.6
years
-- Further improvement to the portfolio's sustainability
credentials, with GRESB score improving from 83 to 85, maintaining
4 star rating
Sir Julian Berney Bt., Chairman, commented:
"A resilient balance sheet, significant cash reserves and a
covered dividend, coupled with offering unique exposure to a
diversified Continental European portfolio, underpins our
conviction that the Company continues to be a compelling investment
proposition. The attractive portfolio income characteristics,
exposure to high growth sectors and pipeline of asset management
activity should contribute to further earnings growth and enable us
to progress the dividend over time."
Jeff O'Dwyer, Fund Manager for Schroder Real Estate Investment
Management Limited, added:
"Our operational asset management expertise and diversified
investment strategy centred on liquid growth cities has helped to
drive earnings and offset macroeconomic volatility-led value
erosion. We have remained prudent, retaining cash and maintaining a
low LTV. Coupled with the decision to rebase the dividend and move
to full cover, the company is in a strong position. We continue to
have conviction that investments with green certification will
outperform and that poorer quality assets will become increasingly
obsolete and illiquid."
The Annual Report and Accounts are also being published in hard
copy format and an electronic copy of that document will shortly be
available to download from the Company's webpage
www.schroders.co.uk/sereit . Please click on the following link to
view the document:
http://www.rns-pdf.londonstockexchange.com/rns/7948V_1-2023-12-5.pdf
A further announcement will be made shortly to confirm the full
timetable of the fourth interim dividend.
A presentation for analysts and investors will be held at 9 a.m.
GMT/11 a.m. SAST today. Registration for which can be accessed
via:
https://registration.duuzra.com/form/SEREAnnual23
If you would like to attend, please contact James Lowe at
Schroders on james.lowe@schroders.com or +44 (0)20 7658 2083.
Enquiries:
Jeff O'Dwyer
Schroder Real Estate Investment Management 020 7658 6000
Shilla Pindoria
Schroder Investment Management Limited 020 7658 6000
-------------------------------------
Dido Laurimore / Richard Gotla / Oliver 020 3727 1000
Parsons Schroderrealestate@fticonsulting.com
FTI Consulting
-------------------------------------
Chairman's Statement
Overview
We are today announcing our audited results for the financial
year to 30 September 2023, a challenging period given the backdrop
of economic and geopolitical uncertainty, investors' re-pricing of
risk as well as the availability and cost of debt.
These factors have resulted in a correction in real estate
values, with yields deteriorating between 50 and 200 basis points
('bps'), albeit offset by indexation-led income growth.
The increase in government bond yields and appeal of other
investments has seen a shift in investor demand away from real
estate, substantially impacting investment volumes and resulting in
the above-mentioned yield deterioration.
As a result, our diversified portfolio of 15 investments
witnessed a like-for-like valuation decline of 8.5% (net of capex)
to EUR214.1 million, a resilient performance when benchmarked
against the wider UK listed real estate peer group. This downward
pressure has been mitigated by three factors:
1. the portfolio's indexation characteristics underpinning income growth;
2. our focus on Winning Cities such as Berlin, Hamburg,
Stuttgart, Frankfurt and Paris, where both occupier and investor
liquidity remains strong; and
3. our exposure to higher growth sectors such as industrial.
In addition, the Company has substantial available cash of
c.EUR29 million, providing the flexibility to manage current
headwinds. The valuation movement resulted in a net asset value
('NAV') at the end of the financial year of EUR171.4 million or
128.2 euro cents per share (111.0 pence per share). Underlying EPRA
earnings were EUR8.0 million for the period, reflecting an increase
of 31% against the previous year (FY22: EUR6.1 million). There
remains approximately EUR1.1 million of pre-tax profit from the
Paris, Boulogne-Billancourt ('Paris BB') disposal to be released in
the NAV.
Our conservative approach has enabled us to maintain a robust
balance sheet with a modest loan to value ('LTV') of 24% net of
cash. This provides us with the flexibility to commit capital to
improve the existing portfolio, resolve the 2024 debt expiries and
take advantage of attractive buying opportunities. The Investment
Manager has successfully re-financed two loans (German offices and
Dutch logistics) at margins equal to or below existing margins and
is in positive discussions with lenders on re-gearing 2024
expiries.
The Company continues to explore several sustainability-led
capital expenditure initiatives and has instructed two specialist
ESG consultants to undertake sustainability audits and net zero
pathway modelling across the majority of the portfolio. The
aspirations are not only to improve the quality of the portfolio,
but also to assist in tenant retention and value enhancement
thereby ensuring the assets remain relevant to the occupiers,
lenders and investors who increasingly favour sustainable
investments. The Investment Manager's local operational expertise
and sustainability understanding is increasingly key to tenant
retention, maximising occupancy, debt management and driving
returns. The result of these audits is expected in the early part
of 2024, following which the Company will provide an update on next
steps.
We collected 100% of rent due during the period, and portfolio
occupancy remains strong at 97%, with c.50 tenants across multiple
sectors ensuring income is diversified and resilient. In the
current environment, the portfolio income offers an attractive
inflation hedge with all leases subject to indexation and c.80%
annually indexed, an important benefit of European real estate
exposure in contrast with the UK.
Overall, we continue to see ERV maintaining pace with inflation
as a result of the allocation to growth sectors and sub-markets
that are benefitting from supply constraints and competing demands
for uses.
Following the decision in June to rebase the dividend,
reflecting the potential impact of higher interest costs on the
Company's earnings and more patient capital deployment strategy,
the quarterly dividend has been maintained at 1.48 euro cents per
share, resulting in the total dividend declared for the year of
6.66 euro cents per share. Dividend cover for the year stood at
89%, increasing to 106% for the last six months. Annualising the
quarterly dividend against the current share price of 67.4pps at 29
November 2023 provides an attractive dividend yield of 7.6%. The
Board continue to see this as highly appealing in the current
environment particularly given the strength of the portfolio,
growth city exposure, cash position and favourable balance
sheet.
Strategy
Our strategy remains focused on delivering shareholders with an
attractive level of income together with the potential for income
and capital growth through investing in commercial real estate in
Continental Europe. In the Interim Report, I highlighted our
decision to maintain a prudent approach, focused on maintaining
balance sheet strength and improving the quality and liquidity of
the existing portfolio through active management and capital
investment. There is a growing consensus that there is a meaningful
rental and value premium for buildings with green certifications,
which we are seeing across our own portfolio, and we believe there
is an opportunity to differentiate our strategy further by placing
even greater emphasis on how sustainability-led asset improvements
will deliver enhanced returns for shareholders. This reflects our
strong conviction that transforming less sustainable buildings into
modern, fit for purpose assets, will help to deliver enhanced
returns and support the wider real estate industry in reaching its
net zero carbon targets. This sustainable approach will also be
beneficial to our tenants, local communities and portfolio
performance.
The portfolio remains diversified, managed by local sector
specialist teams who are recognised for their operational
excellence and hospitality mindset. Approximately 33% of the
portfolio by value is offices, all of which are in
supply-constrained locations and leased off affordable rents. Our
retail exposure of 16% comprises DIY and grocery investments in
densely populated urban areas and sectors that are performing
strongly. During the period, the industrial allocation increased to
29% following the acquisition of an EUR11 million industrial
investment in Alkmaar, the Netherlands. The investment improves the
diversification and quality of the portfolio from a construction,
sustainability and income perspective, particularly given it is a
20-year sale and leaseback on a strong covenant. 10% of the
portfolio is allocated to the alternatives sector, comprising a
mixed-use data centre and a car showroom, with the remaining 12% in
cash. The portfolio maintained strong occupancy over the period
with all assets fully leased except for the Saint-Cloud office
investment that averaged approximately 85% occupancy over the
year.
Balance sheet and debt
Risks around debt management have escalated over the year,
driven by the shift in bank lending as lenders become more
discerning on the quality of assets, sector and the counterparty.
At year end, third party debt totalled EUR85.5 million (including
the share of the joint venture), representing a LTV net of cash of
24% against the overall gross asset value of the Company. This low
gearing is an attractive point of difference relative to other
listed vehicles. The Company has six loans secured against
individual assets or groups of assets, with no
cross-collateralisation between loans. The average weighted total
interest rate of the loans is 2.9% per annum and 100% is fixed or
hedged against movements in interest rates. The weighted average
duration of the loans is 2.6 years, with the earliest loan maturity
in March 2024.
Over the period, two refinancings were completed on highly
competitive terms which is testament to the Investment Manager's
banking relationships, management expertise and portfolio strategy.
In Germany, the refinancing of the Company's offices in Hamburg and
Stuttgart was concluded at a margin of 85bps and subject to no
covenants. In the Netherlands, we switched lenders, resulting in a
slight reduction in the margin from 215bps to 200bps. In both
instances, we increased the loan principal by c.EUR4 million each.
This allowed for the subsequent repayment of the Rumilly, France
logistics loan and further capacity to manage 2024 expiries.
Further detail on the individual loans is provided in the
Investment Manager's Report.
Dividends
The Board has elected to continue with the 1.48 euro cps
quarterly dividend, bringing the total dividend announced in
relation to the financial year to 6.66 euro cents per share.
Dividend cover for the period was 89%, increasing to 106% for the
last six months. This follows the decision in June to re-base the
dividend to a quarterly minimum dividend of 80% of the then current
level. This decision was not taken lightly, but as we stated at the
time, our priority is to protect shareholder value over the long
term. It provides significant flexibility, enabling us to pay a
covered dividend that can be grown over time.
Sustainability
The Board and the Investment Manager believe that focusing on
sustainability throughout the real estate lifecycle will deliver
enhanced long-term returns for shareholders as well as a positive
impact to the environment and the communities where the Company is
investing. Our research and the evidence across the portfolio
demonstrates that there is a material rental and value premium for
buildings with green certifications. There is increasing pressure
on minimum building standards not only from an EPC perspective but
data coverage (for water, gas, electricity and waste) and
ultimately carbon footprint. Demand from occupiers for space is
increasingly biased towards better quality buildings, driven not
only by legal obligations and tenant environmental aspirations but
as a means to match corporate ethos and attract talent.
Sustainability-led initiatives, which may include on-site
renewable energy, improved insulation and lighting will be
increasingly important to the strategy and the Investment Manager
is carrying out a comprehensive review of the sustainability
characteristics of the portfolio encompassing building fabric,
energy systems, services and utilities, climate risk and
resilience, water consumption, waste management, biodiversity and
green infrastructure, transport and mobility, health and wellbeing,
community and social integration. This analysis will inform a
baseline score across a range of quantitative and qualitative
factors against which we will measure future improvements at an
asset level to enable us to provide transparent reporting to
stakeholders.
Board Succession
We recently announced the appointment of Mark Beddy to the Board
from 1 January 2024. Mark is a former senior audit partner of a
leading global accounting firm with proven European real estate
experience. The plan is for Mark to succeed Jonathan Thompson at
the conclusion of the AGM in March 2024, replacing him as the
Chairman of the Audit, Valuation and Risk committee. His expertise
is well suited to this role, and we welcome his addition. I would
like to take this opportunity to thank Jonathan for his work and
direction since the IPO in 2015. We continue to look at other
candidates to improve and diversify the Board's strategic and
governance expertise.
Outlook
European economies continue to face headwinds and growth is
expected to be subdued for the short term, particularly given the
expectation for the ECB to maintain its restrictive monetary policy
stance and adverse credit conditions. Although we are seeing
inflationary pressures dampen, and despite strong labour markets,
the higher interest rate environment is impacting investor
sentiment, disposable incomes and household demand. In terms of
real estate values, we are starting to see transaction evidence
that supports valuations and provides confidence in the Company's
NAV.
We retain our conviction in the strategy and diversified real
estate approach, targeting liquid growth cities with a bias towards
France and Germany. The portfolio's strong occupancy, income
indexation and recent re-financing success support the current
dividend, which is now well covered, and should underpin earnings
growth for this financial year and beyond. We will continue to
manage the portfolio conservatively, maintaining a prudent balance
sheet whilst progressing selective capital investment in the
existing portfolio or adding attractively priced investment
opportunities.
Finally, as sustainability considerations become even more
important for investors, lenders and occupiers, we are making good
progress evolving our strategy, which we believe should
differentiate the Company further and help to drive more
sustainable, long-term returns. We anticipate providing details on
this strategy during the first half of 2024.
Sir Julian Berney Bt.
Chairman
5 December 2023
Investment Manager's Report
Financial Results
The net asset value ('NAV') as at 30 September 2023 stood at
EUR171.4 million (GBP148.7 million), or 128.2 euro cents (111 pence
per share), compared with EUR188.2 million, or 140.8cps, as at 30
September 2022.
During the period, dividends totalling EUR7.4 million were paid,
which resulted in a NAV total return of -5.0%.
The table below provides an analysis of the movement in NAV
during the reporting period as well as a corresponding
reconciliation in the movement in the NAV euro cents per share.
EURm1 cps2
--------------------------------------------------------------- ------ ------
NAV as at 1 October 2022 188.2 140.8
--------------------------------------------------------------- ------ ------
Unrealised loss in the valuation of the real estate portfolio3 (15.7) (11.7)
--------------------------------------------------------------- ------ ------
Capital expenditure3 (2.8) (2.1)
--------------------------------------------------------------- ------ ------
Transaction costs3 (1.2) (0.9)
--------------------------------------------------------------- ------ ------
Paris, Boulogne-Billancourt post-tax development profit 1.5 1.1
--------------------------------------------------------------- ------ ------
Movement on the Seville JV investment 0.0 0.0
--------------------------------------------------------------- ------ ------
EPRA earnings4 8.0 6.0
--------------------------------------------------------------- ------ ------
Non-cash/capital items 0.8 0.6
--------------------------------------------------------------- ------ ------
Dividends paid5 (7.4) (5.6)
--------------------------------------------------------------- ------ ------
NAV as at 30 September 2023 171.4 128.2
--------------------------------------------------------------- ------ ------
1 Management reviews the performance of the Company principally
on a proportionally consolidated basis. As a result, figures quoted
in this table include the Company's share of the Seville joint
venture on a line-by-line basis.
2 Based on 133,734,686 shares.
3 The unrealised loss in the valuation of the real estate of the
portfolio (EUR15.7m), net of capital expenditure (EUR2.8m), net of
transaction costs (EUR1.2m) reconciles to the 'net (gain)/loss from
fair value adjustment on investment property' (EUR19.7m) on page 79
of the financial statements.
4 EPRA earnings as reconciled on page 94 of the financial statements.
5 Dividends of 5.55cps were paid during the financial year.
Announced dividends relating to the current financial year,
however, were 6.66cps with dividend payments for June 2023 and
September 2023 quarters are yet to be paid in November 2023 and
January 2024 (i.e. 2.96cps are yet to be paid). For more
information, please refer to page 42.
The direct portfolio, net of capital expenditure, decreased in
value by EUR18.5 million mainly as a result of a yield re-rating of
the underlying real estate.
Acquisition costs totalling EUR1.2 million were incurred
relating to the acquisition of a Dutch industrial asset in
Alkmaar.
Having crystallised much of the profit from the Paris BB sale
last year, an additional EUR1.5 million of profit was released into
the NAV this financial year due to final development costs
remaining significantly below budget. There remains approximately
EUR1.1 million of pre-tax profit from the Paris BB disposal to be
released in the NAV.
Non-cash items of EUR0.9 million mainly result from reduced
deferred taxes due to lower real estate portfolio values.
EPRA earnings for the period totalled EUR8.0 million, or 6.0cps,
an increase of EUR1.9 million or 31%, on the prior financial year
of EUR6.1 million. This increase was driven by rental growth in the
existing portfolio, a positive contribution from the Alkmaar asset
acquired in early 2023 and was underpinned by low cost fixed-rate
debt.
Our strategy
Investment objective
Schroder European Real Estate Investment Trust plc (the
'Company'/'SEREIT') aims to provide shareholders with a regular and
attractive level of income together with the potential for income
and capital growth through investing in commercial real estate in
Continental Europe.
Investment strategy
The strategy to deliver this, and progress made during the year
and since year end, is set out below:
1 Maximising shareholder value through active asset management.
2 Improving the defensive qualities of the portfolio in light of
changing social, economic and geopolitical risks.
3 Applying a research-led approach to determine attractive
sectors and locations in which to invest in commercial real
estate.
4 Increasing exposure to higher growth Winning Cities and Regions.
5 Actively managing the Company and its assets, drawing on the
expertise of our sector specialists to maximise shareholder returns
and evolve the Company's active asset management approach that is
focused on operational excellence.
6 Advancement of sustainability and net zero carbon audits
across the majority of the portfolio with a view to improving asset
green certification, rental growth potential and liquidity.
7 Applying our integrated sustainability and Environmental,
Social and Governance ('ESG') approach at all stages of the
investment process and asset lifecycle.
8 Managing the Company prudently and efficiently by controlling
costs and maintaining a strong balance sheet.
Portfolio performance
During the 12 months' period, total property returns for the
underlying property portfolio were negative at -2.1%, despite
healthy property income returns of +6.3%. This was due to negative
property capital returns of -8.0% net of capex as real estate
values decreased over the period, primarily driven by a 100 basis
points outward yield movement, which more than offset the positive
impact of rental growth. The portfolio net initial yield increased
to 6.6%.
The strongest contributors to portfolio performance over the
last 12 months were Venray II (17.5% total return 'TR' due to
strong capital appreciation); Apeldoorn (9.8% TR as a result of
very strong income); and Alkmaar (5.9% TR due to income return
coupled with a positive capital return).
The main detractors from portfolio performance were office
assets Hamburg (-6.0% TR) and Stuttgart (-7.1% TR) and the
industrial assets Rennes (-7.1% TR) and Houten (-9.2%) as these
assets witnessed the largest value declines.
The real estate portfolio delivered ungeared property returns of
3.7% p.a. over three years and 6.8% p.a. over five years.
Real estate portfolio
As at 30 September 2023, the portfolio comprised 15
institutional grade properties valued at EUR214.1 million. In
addition, the Company has a 50% interest in a joint venture in
Seville, Spain which continues to be recognised at nil interest and
which is therefore excluded in all relevant statistics in the
Chairman's Statement and the Investment Manager's Report.
The portfolio generated rental income of EUR16.81 million per
annum, reflecting a net initial yield of 6.6%. The independent
valuers' estimated rental value ('ERV') of the portfolio is EUR16.0
million per annum.
The real estate portfolio is diverse with income from a range of
occupiers across different sectors and industries. The diversified
nature and the strength of underlying tenants, coupled with the
fact the assets are typically leased off affordable and sustainable
rents, should support relatively resilient portfolio income in a
weaker economic environment and a more challenging period for
consumers and businesses.
The Dutch industrial acquisition has increased the portfolio's
industrial exposure to 29%. Other key allocations include 33% to
offices in leading cities such as Paris, Stuttgart and Hamburg and
16% to a Berlin DIY asset and a convenience retail centre in
Frankfurt. Remaining allocations of 10% are to the alternatives
sector comprising a mixed-use data centre and car showroom and 12%
in cash. At the period end the portfolio void rate was 3%,
calculated as a percentage of estimated rental value. The portfolio
weighted average lease length, calculated to the earlier of lease
expiry or break, is 3.9 years.
European leases typically provide for rents to be indexed to
inflation. The majority (80%) of the Company's income is subject to
annual indexation with the remaining 20% linked to a hurdle
(typically 10%), hence we expect nearly all the leases to directly
benefit from inflation.
1 Represents the annualised contracted rents as at 30 September 2023 of the direct portfolio.
Portfolio Overview
The Company owns a diversified portfolio of commercial real
estate in Continental Europe with favourable property fundamentals.
The Company has targeted assets located in Winning Cities and
Regions and in high-growth sectors. Winning Cities and Regions are
those that are expected to generate higher and more sustainable
levels of economic growth, underpinned by themes such as
urbanisation, demographics, technology and infrastructure
improvements.
Number of properties1
15
Portfolio value1,2
EUR243.0m
Number of tenants1
47
Occupancy1
97%
Top ten properties
Value
Property Sector (EURm/% portfolio)(1,2)
--------------------------- -------------- ------------------------
1 France, Paris (Saint-Cloud) Office EUR38.1m/16%
--------------------------- -------------- ------------------------
2 Germany, Berlin Retail/DIY EUR28.6m/12%
--------------------------- -------------- ------------------------
3 Germany, Hamburg Office EUR22.9m/9%
--------------------------- -------------- ------------------------
4 Germany, Stuttgart Office EUR19.5m/8%
--------------------------- -------------- ------------------------
5 France, Rennes Industrial EUR18.8m/8%
--------------------------- -------------- ------------------------
6 The Netherlands, Apeldoorn Mixed EUR15.4m/6%
--------------------------- -------------- ------------------------
7 The Netherlands, Alkmaar Industrial EUR11.5m/5%
--------------------------- -------------- ------------------------
8 The Netherlands, Venray Industrial EUR11.1m/5%
--------------------------- -------------- ------------------------
9 Germany, Frankfurt Retail/grocery EUR11.1m/5%
--------------------------- -------------- ------------------------
10 France, Rumilly Industrial EUR9.8m/4%
--------------------------- -------------- ------------------------
Remaining five properties shown on the map are:
11 The Netherlands, Houten - Industrial
12 France, Cannes - Car showroom
13 France, Nantes - Industrial
14 The Netherlands, Utrecht - Industrial
15 The Netherlands, Venray II - Industrial
1 Excludes the Seville property for which the NAV exposure is nil.
2 Reflects the value of directly held property assets of
EUR214.1m and available cash of EUR28.9m (internally
calculated).
The table below sets out the portfolio's top ten tenants by
contracted rent, which are from a diverse range of industry
segments and represent 70% of the portfolio1.
Top Ten Tenants
Contracted rent
---- --------------- ---------------- --------- ----------------- ----------- ------------
WAULT break WAULT expiry
Rank Tenant Industry Property EURm % of total (yrs) (yrs)
---- --------------- ---------------- --------- ----- ---------- ----------- ------------
1 KPN Telecom Apeldoorn 3.0 17% 3.3 3.3
---- --------------- ---------------- --------- ----- ---------- ----------- ------------
2 Hornbach DIY Berlin 1.8 11% 2.3 2.3
---- --------------- ---------------- --------- ----- ---------- ----------- ------------
3 C-log Logistics Rennes 1.2 7% 7.4 7.4
---- --------------- ---------------- --------- ----- ---------- ----------- ------------
4 Outscale IT Paris 1.0 6% 5.7 8.8
---- --------------- ---------------- --------- ----- ---------- ----------- ------------
5 Filassistance Insurance Paris 0.9 6% 0.3 3.3
---- --------------- ---------------- --------- ----- ---------- ----------- ------------
6 DKL Logistics Venray 0.8 5% 5.0 5.0
---- --------------- ---------------- --------- ----- ---------- ----------- ------------
7 Cereal Partners Consumer staples Rumilly 0.8 5% 1.6 2.6
---- --------------- ---------------- --------- ----- ---------- ----------- ------------
8 LandBW Government Stuttgart 0.8 5% 2.8 2.8
---- --------------- ---------------- --------- ----- ---------- ----------- ------------
Schuurman
9 Beheer Manufacturing Alkmaar 0.7 4% 14.5 19.5
---- --------------- ---------------- --------- ----- ---------- ----------- ------------
10 Inventum Manufacturing Houten 0.7 4% 6.3 6.3
---- --------------- ---------------- --------- ----- ---------- ----------- ------------
Total top ten tenants 11.7 70% 4.3 5.2
-------------------------------------------------- ----- ---------- ----------- ------------
Remaining tenants 5.1 30% 2.8 3.7
-------------------------------------------------- ----- ---------- ----------- ------------
Total 16.8 100% 3.9 4.7
-------------------------------------------------- ----- ---------- ----------- ------------
1 Excludes the Seville property for which the NAV exposure is nil.
The largest tenant is KPN, representing 17% of the portfolio's
contracted rent. KPN are a leading telecommunications and IT
provider and market leader in the Netherlands. They occupy our
mixed-use Apeldoorn asset (data centre and office).
The second largest tenant is Hornbach, the sole occupier of our
Berlin DIY asset with a four hectare site that benefits from
alternative use potential. Hornbach (presenting 11% of contracted
rents) are a leading Germany-based operator of Do-it-yourself
('DIY') stores and home centres with strong financials.
The remaining large tenants, with businesses across a
diversified range of industries, each account for between 4%-7% of
portfolio rents. These include C-log, Outscale, Filassistance, DKL,
Cereal Partners, Land Badenwürttemberg, Schuurman Beheer and
Inventum.
Rent collection update1
The diversification and granularity of the underlying rental
income and ongoing occupier engagement, has again supported full
rent collection rates with 100% of the contracted rents collected
for the financial year.
Office Industrial Retail Mixed Total portfolio
------------------------- ------------- -------------- -------------- -------------- -----------------
As at 30 September
2023 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022
------------------------- ----- ------ ------ ------ ------ ------ ------ ------ ------- --------
Paid 99.3% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 99.8% 100.0%
------------------------- ----- ------ ------ ------ ------ ------ ------ ------ ------- --------
Deferred 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
------------------------- ----- ------ ------ ------ ------ ------ ------ ------ ------- --------
Renegotiated/Outstanding 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
------------------------- ----- ------ ------ ------ ------ ------ ------ ------ ------- --------
Total 99.3% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 99.8% 100.0%
------------------------- ----- ------ ------ ------ ------ ------ ------ ------ ------- --------
1 Rent collection table excludes the Seville property for which
the NAV exposure is nil. 2022 refers to the SEREIT 2022 full year
period between Q4 2021 and Q3 2022. 2023 refers to the SEREIT 2023
full year period between Q4 2022 to Q3 2023.
2 Payment delayed for one tenant at Paris Saint Cloud for the Q3
2023 period due to a processing error which is being corrected.
Indexation
Across the direct portfolio, almost all of the contracted rents
are subject to indexation clauses and all tenants have complied
with payments in accordance with their respective indexation
clauses. Indexation rules across the portfolio can be summarised as
follows:
France
100% of leases subject to annual review and fully index-linked
subject to Indice des Ioyers des activités tertiaries ('ILAT')
The Netherlands
100% of leases are subject to annual review and are index --
linked to the Netherlands CPI with:
-- 87% of leases being fully index-linked; and
-- 13% of leases being fully indexed up to 2.5% annual inflation
and partially (25%-50%) thereafter.
Germany
96% of leases are linked to the German CPI, with:
-- 31% being fully index-linked; and
-- a further 65% being subject to a '10% hurdle' after which
cumulative inflation is added to leases.
Balance sheet
During the financial year, the Company successfully completed
several initiatives related to its debt portfolio at competitive
terms. As a result, it has extended the average loan maturity by 20
months and has established two new funding relationships further
complementing existing strong relationships with financing
partners. In detail:
-- The Company refinanced its largest debt expiry, a loan
secured against its Hamburg and Stuttgart office investments. The
loan facility was also extended by a further EUR4 million and
competitive financing for the new EUR18 million loan was obtained
from VR Bank Westerwald.
-- Refinancing of the Netherlands debt expiry in September 2023
was achieved with ABN Amro on competitive terms and the facility
was extended by a further EUR4.5 million to EUR13.76 million by
adding two unlevered industrial assets in Alkmaar and Venray as
security. The new facility has a five-year term and the interest
rate was fixed at a margin of 2.0% with all-in rate of 5.3%.
-- A loan facility of EUR3.7 million secured against the Rumilly
asset expired in April 2023 and was repaid with the additional debt
raised from the new Hamburg/Stuttgart loan.
The Company's third party debt totals EUR85.5 million across six
loan facilities as at 30 September 2023. This represents a loan to
value ('LTV') net of cash of 24% against the Company's gross asset
value (gross of cash LTV is 33%). There is a net of cash LTV cap of
35% that restricts concluding new external loans if the Company's
net LTV is above 35%. An increase in leverage above 35% as a result
of valuation decline is excluded from this cap. The current blended
all-in interest rate is 2.9% and the average remaining loan term is
2.6 years.
The Company is in positive discussions with lenders regarding
its debt expiries secured against the Paris Saint-Cloud and the
Rennes assets and is confident in its ability to refinance these
loans. In relation to the Paris loan expiry, management have agreed
heads of terms with a lender to extend the financing. A formal
announcement will be made once signed.
The individual loans are detailed in the table below. Each loan
is held at the property-owning level instead of the group level and
is secured by the individual properties noted in the table. There
is no cross-collateralisation between loans. Each loan has specific
LTV and income default covenants. We detail the headroom against
those covenants in the latter two columns of the table below.
Headroom
Headroom net income
LTV default default
Maturity Outstanding Interest covenant covenant
Lender Property date principal rate (% decline) (% decline)
--------------------------- -------------------- ----------- ----------- ------------- ------------ ------------
VR Bank Westerwald Stuttgart/Hamburg 30/12/2027 EUR18.00m 3.80% No covenant No covenant
--------------------------- -------------------- ----------- ----------- ------------- ------------ ------------
BRED Banque Populaire Paris (Saint-Cloud) 15/12/2024 EUR17.00m 3M Eur +1.34% 26% 32%
--------------------------- -------------------- ----------- ----------- ------------- ------------ ------------
Deutsche Pfandbriefbank
AG Berlin/Frankfurt 30/06/2026 EUR16.50m 1.31% 35% 44%
--------------------------- -------------------- ----------- ----------- ------------- ------------ ------------
The Netherlands
ABN Amro industrials1 27/09/2028 EUR13.76m 5.30% 31% 32%
--------------------------- -------------------- ----------- ----------- ------------- ------------ ------------
Münchener
Hypothekenbank In cash
eG Seville (50%)2 22/05/2024 EUR11.68m 1.76% In breach3 trap
--------------------------- -------------------- ----------- ----------- ------------- ------------ ------------
Landesbank SAAR Rennes 28/03/2024 EUR8.60m 3M Eur +1.40% 24% 58%
--------------------------- -------------------- ----------- ----------- ------------- ------------ ------------
Total EUR85.54m
-------------------------------------------------------------- ----------- ------------- ------------ ------------
1 The ABN Amro loan is secured against five of the Netherlands
industrial assets: Alkmaar, Venray, Houten, Utrecht and Venray
II.
2 Includes the Company's 50% share of external debt in the
Seville joint venture of EUR11.7 million and excludes unamortised
finance costs.
3 Temporary waiver for breach of LTV covenant in Seville agreed with the lender.
-- At Seville, the loan continues to be in breach of its loan
covenants. All excess income generated by Seville is pledged to the
lender. The Seville loan is being managed under an LTV covenant
waiver to facilitate a sale. The loan is secured solely against the
Seville investment, with no recourse back to the Company or any
other entity within the Group.
-- The German, Dutch and Spanish loans are fixed rate for the
duration of the loan term. The French loans are based on a margin
above three-month Euribor.
-- The Company has acquired interest rate caps to limit future
potential interest costs if Euribor were to increase. The combined
fair value of the derivative contracts is EUR0.7 million as at 30
September 2023. The strike rates on the interest rate caps are
between 1.0% p.a. and 1.25% p.a.
Details of individual interest derivative contracts were as
follows:
-- Paris, Saint-Cloud loan with BRED Banque Populaire: two caps
totalling the full EUR17.0 million of the loan which expire on 15
December 2024 with a strike rate of 1.25%; and
-- Rennes loan with Landesbank SAAR: a cap totalling the full
EUR8.6 million of the loan which expires on 27 March 2024 with a
strike rate of 1%.
Outlook
The financial year was characterised by rapid growth in energy
prices, persistent inflation, rising interest rates, market
volatility and European recession concerns. This led to a shift
away from equity investments and a sharp correction in real estate
values. Despite this, our operational asset management expertise
and diversified investment strategy centred on liquid growth cities
has helped to shelter large value erosion. The decision to remain
conservative, retaining cash and a strong balance sheet, together
with a move to a covered dividend approach, has placed the Company
in a strong position.
As we move through 2023/24 a number of headwinds facing
investment markets look to be easing, led largely by inflation and
interest rates peaking. We continue to have conviction that
investments with green certification will outperform and that
poorer quality assets will become increasingly obsolete and
illiquid. As such, we have commissioned sustainability audits
across the majority of the portfolio to identify ways for each
investment to remain attractive to occupiers, investors and
lenders. The output from these audits over early 2024 will help in
our capital deployment, earnings and overall growth potential. We
remain committed to the strategy and our ability to position the
vehicle to maximise shareholder returns.
Jeff O'Dwyer
Fund Manager
5 December 2023
Principal risks and uncertainties
The Board is responsible for the Company's system of risk
management and internal control, and for reviewing its
effectiveness. The Board has adopted a detailed matrix of principal
risks affecting the Company's business as an investment trust and
has established associated policies and processes designed to
manage and, where possible, mitigate those risks, which are
monitored by the Audit, Valuation and Risk Committee on an ongoing
basis. This system assists the Board in determining the nature and
extent of the risks it is willing to take in achieving the
Company's strategic objectives. Both the principal risks and the
monitoring system are also subject to robust review at least
annually. The last review took place in November 2023.
Although the Board believes that it has a robust framework of
internal control in place, this can provide only reasonable, and
not absolute, assurance against material financial misstatement or
loss and is designed to manage, not eliminate, risk.
From an emerging risks and uncertainties perspective, the Board
recognises and continues to be mindful of the changing global
environment and the risks posed by volatile markets; inflation and
corresponding interest rate increases; geopolitical uncertainty;
structural changes; sustainability; and occupier preferences which
could affect the use and prospects of some real estate sectors. The
Board receives regular updates on those macro risks from the
Investment Manager. Overall, the diversification of the Company's
portfolio and its evolving strategy to place greater emphasis on
sustainability-led asset improvements is expected to help minimise
the impact of these factors. The Board keeps these matters under
review, particularly in connection with its decisions to redeploy
investable cash.
During the year, the Board has redefined certain of its
principal risks, especially the emerging risk relating to the
sustainability and ESG credentials of the portfolio as its
sustainability becomes a greater focus for the Company. The Board
no longer considers Covid-19 to be a principal risk as the property
markets have adapted to the threats posed. The previously
identified principal risk of 'Accounting, legal and regulatory
(including tax)' has now been consolidated into a single principal
risk, 'Regulatory compliance'.
A summary of the principal risks and uncertainties faced by the
Company, and actions taken by the Board to manage and mitigate
these risks and uncertainties, are set out below.
Principal risks Mitigation of risk
---------------------------------- -----------------------------------------------------------
Investment and strategy The Board seeks to mitigate these risks by:
An inappropriate investment o Diversification of its property portfolio through
strategy, or failure to its investment restrictions and guidelines which
implement the strategy, are monitored and reported on by the Investment
could lead to underperformance Manager.
in the property portfolio o Receiving from the Investment Manager timely
compared to the property and accurate management information including performance
market generally by incorrect data, attribution analysis, property level business
sector or geographic weightings plans and financial projections.
or a loss of income through o Monitoring the implementation and results of
tenant failure, both of the investment process with the Investment Manager
which could lead to a fall with a separate meeting devoted to strategy each
in the value of the underlying year.
portfolio. o Determining a borrowing policy, and ensuring
the Investment Manager operates within its borrowing
restrictions and guidelines.
o Reviewing marketing and distribution activity,
and considering the use of a discount control mechanism
as necessary.
o Undertaking an annual review of the ongoing suitability
of the Investment Manager.
---------------------------------- -----------------------------------------------------------
Economic and property market The Board considers economic conditions and the
The performance of the uncertainty around political events when considering
Company could be affected investment decisions. The Board mitigates property
by economic, currency and market risk through the review of the Company's
property market risk. In strategy on a regular basis and discussions are
the wider economy this held to ensure the strategy is still appropriate
could include inflation, or if it needs updating. Diversification of the
stagflation or deflation majority of the portfolio across the office and
(including in respect of industrial/logistics sectors in growth cities,
costs such as construction and focus on functional and affordable space, provides
costs and operating expenses), defensive characteristics.
economic recessions, movements
in foreign exchange and The portfolio also benefits from a high percentage
interest rates or other (approximately 100%) of inflation-linked leases
external shocks. The performance which contributes to rental growth and mitigates
of the underlying property value declines.
portfolio could also be
affected by structural The assets of the Company are almost all denominated
or cyclical factors impacting in non-sterling currencies, predominantly the euro.
particular sectors (for No currency hedging is planned, but the Board continues
example, retail) or regions to consider the hedging of dividend payments having
of the property market regard to availability and cost.
and counterparty solvency.
---------------------------------- -----------------------------------------------------------
Sustainability The Manager's Investment Committee has a continued
Sustainability considerations, focus on sustainability to help ensure sustainability
including transition risks and impact ('S&I') risks and opportunities are
and physical risks (as appropriately integrated in investment decision-making
defined by the Task Force through the whole asset life cycle. As part of
on Climate-related Financial the sustainability review, the Investment Manager
Disclosures ('TCFD'), explained has commissioned sustainability audits to benchmark
further on pages 99 to the assets against a scorecard. This seeks to assess
101 of these accounts), physical and transition climate risks alongside
are not fully considered a range of other S&I factors, including for example
or properly understood natural resource management, indoor environmental
in the acquisition and quality and access to community facilities, to
asset-planning processes develop a holistic understanding of the sustainability
leading to future issues credentials of prospective investments. Each asset
(negative effect on price, scorecard is to be updated annually to demonstrate
valuation or saleability score progress and evaluate any changes to the
of assets, future costs sustainability risk profile. Impact and Sustainability
to remediate, meeting the Action Plans are completed for all directly managed
requirements of initiatives assets in order to plan and manage sustainability
such as Net Zero Carbon/Climate interventions identified through the scorecard.
Risk/BREEAM/EPC profile/GRESB).
The Board regularly reviews the objectives and
progress of the Sustainability programme.
The Investment Manager is in the final stage of
successfully transitioning to Deepki, a new sustainability
data management platform, designed to better understand
and drive sustainability performance through enhanced
data analytics. Deepki will be the main system
used for collating sustainability data for the
Company's portfolio which is then reported to the
Manager, Board and investors.
Furthermore, the Board is provided with independent,
third-party assurance over the reported sustainability
performance data disclosed in annual reports and
other external submissions (e.g. GRESB), which
is delivered by an external verification specialist.
---------------------------------- -----------------------------------------------------------
Valuation External valuers provide independent valuation
Property valuations are of all assets at least quarterly. The Audit, Valuation
inherently subjective and and Risk Committee includes two experienced chartered
uncertain, due to the individual surveyors. Members of the Audit, Valuation and
nature of each property Risk Committee meet with the external valuers to
and its liquidity, particularly discuss the basis of their valuations and their
under stressed market conditions. quality control processes on a quarterly basis.
Valuations also include
annual reinstatement costs
for insurance purposes.
Inflation and availability
of goods and services,
could heighten the risk
around correct reinstatement
values and completion programmes.
---------------------------------- -----------------------------------------------------------
Gearing and leverage Gearing, including covenant compliance, is monitored
The Company utilises credit at quarterly Board meetings, and ad hoc as required,
facilities. These arrangements and strict restrictions on borrowings are imposed
increase the funds available both internally and by lenders. The overall cost
for investment through of debt is regularly reviewed with any new debt
borrowing. While this has or refinancing presented to the Schroders Real
the potential to enhance Estate Investment Committee and Board for approval.
investment returns in rising
markets, in falling markets All loans due to expire in the 2023 financial year
the impact and availability were either successfully refinanced in good time
of financing could be detrimental or were repaid. All future loan refinancings are
to performance, and may monitored closely and proactive discussions with
also result in potential third-party lenders commence well in advance of
non-compliance with loan existing loan maturity dates to reduce refinancing
covenants or refinancing risk. Furthermore, the Group's strong cash position
risk. continues to provide viable future alternatives
should the Group deem that loan repayments, in
part or in full, would be beneficial.
In relation to the Seville asset, the Company is
working closely with the lender to manage the asset
under an LTV covenant breach waiver to facilitate
a sale. The loan is secured only by the asset and
there is no recourse to the Company, or any other
entity in the Group.
---------------------------------- -----------------------------------------------------------
Regulatory compliance The Board has appointed the Investment Manager
The Company has to comply as its Alternative Investment Fund Manager ('AIFM')
with a wide range of legislation in accordance with the Alternative Investment Fund
and regulations, covering Managers Directive ('AIFMD').
planning, health and safety,
Company law, accounting, The Investment Manager monitors legal requirements
reporting, tax and Listing to ensure that adequate procedures and reminders
Rules. are in place to meet the Company's legal requirements
and obligations. The Investment Manager undertakes
full legal due diligence with advisers when transacting
and managing the Company's assets. All contracts
entered into by the Company are reviewed by the
Company's legal and other advisers.
The Board is satisfied that the Investment Manager
hasadequate procedures in place to ensure continued
compliance with the regulatory requirements of
the Financial Conduct Authority, the Listing Rules
of the London Stock Exchange and any other required
authority.
The Investment Manager has retained external tax
advisers, who are overseen by the Schroders tax
team, to ensure compliance with relevant local
tax regulations.
---------------------------------- -----------------------------------------------------------
Risk assessment and internal controls
Risk assessment includes consideration of the scope and quality
of the systems of internal control operating within key service
providers, and ensures regular communication of the results of
monitoring by such providers to the Audit, Valuation and Risk
Committee, including the incidence of significant control failings
or weaknesses that have been identified at any time and the extent
to which they have resulted in unforeseen outcomes or contingencies
that may have a material impact on the Company's performance or
condition.
No significant control failings or weaknesses were identified
from the Audit, Valuation and Risk Committee's ongoing risk
assessment which has been in place throughout the financial year
and up to the date of this report. The Board is satisfied that it
has undertaken a detailed review of the risks facing the
Company.
A full analysis of the financial risks facing the Company and
its subsidiaries is set out in note 22 on pages 88 to 90.
Viability statement
The Board is required to give a statement on the Company's
viability which considers the Company's current position and
principal risks and uncertainties together with an assessment of
future prospects.
The Board conducted this review over a five-year time horizon
commencing from the date of this report which is selected to match
the period over which the Board monitors and reviews its financial
performance and forecasting. The Investment Manager prepares
five-year total return forecasts for the Continental European
commercial real estate market. The Investment Manager uses these
forecasts as part of analysing acquisition opportunities as well as
for its annual asset level business planning process. The Board
receives an overview of the asset level business plans which the
Investment Manager uses to assess the performance of the underlying
portfolio and therefore make investment decisions such as disposals
and investing capital expenditure. The Company's principal
borrowings are for a weighted duration of 2.6 years and the average
unexpired lease term, assuming all tenants vacate at the earliest
opportunity, is 3.9 years.
The Board's assessment of viability considers the principal
risks and uncertainties faced by the Company, as detailed in the
Strategic Review on pages 33 and 34, which could negatively impact
its ability to deliver the investment objective, strategy,
liquidity and solvency. This includes consideration of scenario
stress testing and a cash flow model prepared by the Investment
Manager that analyses the sustainability of the Company's cash
flows, dividend cover, compliance with bank covenants, general
liquidity requirements and potential legal and regulatory change
for a five-year period.
These metrics are subject to a sensitivity analysis which
involves flexing a number of the main assumptions including
macro-economic scenarios, delivery of specific asset management
initiatives, rental growth and void/reletting assumptions. The
Board also reviews assumptions regarding capital recycling and the
Company's ability to refinance or extend financing facilities.
Steps which are taken to mitigate these risks as set out in the
Strategic Review on pages 33 and 34 are also taken into
account.
Based on the assessment, and having considered in detail base
and downside scenarios modelling, the Directors have concluded that
there is a reasonable expectation that the Company will be able to
continue in operation and meet its liabilities as they fall due
over the five-year period of their assessment.
Going concern
The Board believes it is appropriate to adopt the going concern
basis in preparing the financial statements. A comprehensive going
concern statement setting out the reasons the Board considers this
to be the case is set out in note 1 on page 68.
By order of the Board
Sir Julian Berney Bt.
Chairman
5 December 2023
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulation.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have prepared the Group and the Company financial statements in
accordance with UK-adopted international accounting standards and
applicable law. Under company law, Directors must not approve the
financial statements unless they are satisfied that they give a
true and fair view of the state of affairs of the Group and Company
and of the profit or loss of the Group and Company for that period.
In preparing the financial statements, the Directors are required
to:
-- select suitable accounting policies and then apply them consistently;
-- state whether applicable UK-adopted international accounting
standards have been followed for the Group financial statements and
the Company financial statements, subject to any material
departures disclosed and explained in the financial statements;
-- make judgements and accounting estimates that are reasonable and prudent; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and Company
will continue in business.
The Directors are also responsible for safeguarding the assets
of the Group and Company and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
The Directors are also responsible for keeping adequate
accounting records that are sufficient to show and explain the
Group's and Company's transactions, and disclose with reasonable
accuracy at any time the financial position of the Group and
Company, and enable them to ensure that the financial statements
comply with the Companies Act 2006.
The Investment Manager is responsible for the maintenance and
integrity of the Company's web pages. Legislation in the United
Kingdom governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Directors' confirmations
The Directors consider that the Annual Report and Accounts,
taken as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the Group and
Company's position and performance, business model and
strategy.
Each of the Directors, whose names and functions are listed in
the Directors' Report confirm that, to the best of their
knowledge:
-- the Group and Company financial statements, which have been
prepared in accordance with UK-adopted international accounting
standards, give a true and fair view of the assets, liabilities,
financial position and profit of the Company; and
-- the Strategic Report includes a fair review of the
development and performance of the business and the position of the
Group and the Company, together with a description of the principal
risks and uncertainties that it faces.
On behalf of the Board
Sir Julian Berney Bt.
Chairman
5 December 2023
Consolidated and Company Statements of Comprehensive Income
For the year ended 30 September 2023
Group year Group year Company Company
to to year to year to
30/09/23 30/09/22 30/09/23 30/09/22
Note EUR'000 EUR'000 EUR'000 EUR'000
------------------------------------------- ---- ---------- ---------- --------- ---------
Rental and service charge income 3 19,666 18,153 - -
------------------------------------------- ---- ---------- ---------- --------- ---------
Property operating expenses 4 (5,398) (5,516) - -
------------------------------------------- ---- ---------- ---------- --------- ---------
Net rental and related income 14,268 12,637 - -
------------------------------------------- ---- ---------- ---------- --------- ---------
Net gain/(loss) from fair value adjustment
on
investment property 13 (19,726) 6,351 - -
------------------------------------------- ---- ---------- ---------- --------- ---------
Development revenue 14 405 17,942 - -
------------------------------------------- ---- ---------- ---------- --------- ---------
Development expense 14 1,133 (15,436) - -
------------------------------------------- ---- ---------- ---------- --------- ---------
Realised gain/(loss) on foreign exchange (12) 77 (12) 77
------------------------------------------- ---- ---------- ---------- --------- ---------
Net change in fair value of financial
instruments at fair value through profit
or loss (260) 921 - -
------------------------------------------- ---- ---------- ---------- --------- ---------
Management fee income 5 - - 1,503 1,623
------------------------------------------- ---- ---------- ---------- --------- ---------
Provision on loan receivable from joint
venture 6 - (444) - -
------------------------------------------- ---- ---------- ---------- --------- ---------
Dividends received 8,16 - - 509 1,100
------------------------------------------- ---- ---------- ---------- --------- ---------
Expenses
------------------------------------------- ---- ---------- ---------- --------- ---------
Investment management fee 5 (1,981) (2,198) (1,981) (2,198)
------------------------------------------- ---- ---------- ---------- --------- ---------
Valuer's and other professional fees (788) (981) (347) (495)
------------------------------------------- ---- ---------- ---------- --------- ---------
Administrator's and accounting fees (566) (453) (120) (128)
------------------------------------------- ---- ---------- ---------- --------- ---------
Auditor's remuneration and assurance
fees 7 (335) (333) (324) (313)
------------------------------------------- ---- ---------- ---------- --------- ---------
Directors' fees 9 (232) (217) (232) (217)
------------------------------------------- ---- ---------- ---------- --------- ---------
Other expenses 9 (442) (613) (313) (312)
------------------------------------------- ---- ---------- ---------- --------- ---------
Total expenses (4,344) (4,795) (3,317) (3,663)
------------------------------------------- ---- ---------- ---------- --------- ---------
Operating (loss)/profit (8,536) 17,253 (1,317) (863)
------------------------------------------- ---- ---------- ---------- --------- ---------
Finance income 228 451 2,086 1,851
------------------------------------------- ---- ---------- ---------- --------- ---------
Finance costs (1,714) (1,128) - (6)
------------------------------------------- ---- ---------- ---------- --------- ---------
Net finance (costs)/income (1,486) (677) 2,086 1,845
------------------------------------------- ---- ---------- ---------- --------- ---------
Share of loss from joint venture 16 - - - -
------------------------------------------- ---- ---------- ---------- --------- ---------
(Loss)/Profit before taxation (10,022) 16,576 769 982
------------------------------------------- ---- ---------- ---------- --------- ---------
Taxation 10 640 (2,585) - (242)
------------------------------------------- ---- ---------- ---------- --------- ---------
(Loss)/Profit for the year (9,382) 13,991 769 740
------------------------------------------- ---- ---------- ---------- --------- ---------
Other comprehensive (loss)/income:
------------------------------------------- ---- ---------- ---------- --------- ---------
Other comprehensive (loss)/income items
that may be reclassified to profit or
loss:
------------------------------------------- ---- ---------- ---------- --------- ---------
Currency translation differences - (73) - (73)
------------------------------------------- ---- ---------- ---------- --------- ---------
Total other comprehensive (loss)/profit - (73) - (73)
------------------------------------------- ---- ---------- ---------- --------- ---------
Total comprehensive (loss)/income for
the year (9,382) 13,918 769 667
------------------------------------------- ---- ---------- ---------- --------- ---------
Basic and diluted earnings per share
attributable to owners of the parent 11 (7.0)c 10.4c - -
------------------------------------------- ---- ---------- ---------- --------- ---------
All items in the above statement are derived from continuing
operations. The accompanying notes 1 to 28 form an integral part of
the financial statements.
Consolidated and Company Statements of Financial Position
As at 30 September 2023
Restated
(as per
note 1)
Group Group Company Company
30/09/23 30/09/22 30/09/23 30/09/22
Note EUR'000 EUR'000 EUR'000 EUR'000
--------------------------------------- ---- --------- --------- ---------- ---------
Assets
--------------------------------------- ---- --------- --------- ---------- ---------
Non-current assets
--------------------------------------- ---- --------- --------- ---------- ---------
Investment property 13 213,098 217,456 - -
--------------------------------------- ---- --------- --------- ---------- ---------
Investment in subsidiaries 15 - - 69,921 61,386
--------------------------------------- ---- --------- --------- ---------- ---------
Investment in joint venture 16 - - - -
--------------------------------------- ---- --------- --------- ---------- ---------
Receivables from subsidiaries 1 - - 65,174 69,501
--------------------------------------- ---- --------- --------- ---------- ---------
Loans to joint ventures 6,16 - - - -
--------------------------------------- ---- --------- --------- ---------- ---------
Non-current assets 213,098 217,456 135,095 130,887
--------------------------------------- ---- --------- --------- ---------- ---------
Current assets
--------------------------------------- ---- --------- --------- ---------- ---------
Trade and other receivables 17 8,897 16,680 1,285 16,200
--------------------------------------- ---- --------- --------- ---------- ---------
Interest rate derivative contracts 674 934 - -
--------------------------------------- ---- --------- --------- ---------- ---------
Cash and cash equivalents 32,445 34,324 13,548 10,039
--------------------------------------- ---- --------- --------- ---------- ---------
Current assets 42,016 51,938 14,833 26,239
--------------------------------------- ---- --------- --------- ---------- ---------
Total assets 255,114 269,394 149,928 157,126
--------------------------------------- ---- --------- --------- ---------- ---------
Equity
--------------------------------------- ---- --------- --------- ---------- ---------
Share capital 18 17,966 17,966 17,966 17,966
--------------------------------------- ---- --------- --------- ---------- ---------
Share premium 18 43,005 43,005 43,005 43,005
--------------------------------------- ---- --------- --------- ---------- ---------
Retained earnings/(accumulated losses) (6,142) 10,662 (28,818) (22,165)
--------------------------------------- ---- --------- --------- ---------- ---------
Other reserves 116,610 116,610 116,843 116,843
--------------------------------------- ---- --------- --------- ---------- ---------
Total equity 171,439 188,243 148,996 155,649
--------------------------------------- ---- --------- --------- ---------- ---------
Liabilities
--------------------------------------- ---- --------- --------- ---------- ---------
Non-current liabilities
--------------------------------------- ---- --------- --------- ---------- ---------
Interest-bearing loans and borrowings 19 65,023 41,794 - -
--------------------------------------- ---- --------- --------- ---------- ---------
Deferred tax liability 10 4,225 5,124 - -
--------------------------------------- ---- --------- --------- ---------- ---------
Non-current liabilities 69,248 46,918 - -
--------------------------------------- ---- --------- --------- ---------- ---------
Current liabilities
--------------------------------------- ---- --------- --------- ---------- ---------
Interest-bearing loans and borrowings 19 8,600 26,950 - -
--------------------------------------- ---- --------- --------- ---------- ---------
Trade and other payables 20 4,856 5,857 932 1,477
--------------------------------------- ---- --------- --------- ---------- ---------
Current tax liabilities 10 971 1,426 - -
--------------------------------------- ---- --------- --------- ---------- ---------
Current liabilities 14,427 34,233 932 1,477
--------------------------------------- ---- --------- --------- ---------- ---------
Total liabilities 83,675 81,151 932 1,477
--------------------------------------- ---- --------- --------- ---------- ---------
Total equity and liabilities 255,114 269,394 148,928 157,126
--------------------------------------- ---- --------- --------- ---------- ---------
Net asset value per ordinary share 21 128.2 140.8c 111.4 116.4c
--------------------------------------- ---- --------- --------- ---------- ---------
The financial statements on pages 64 to 67 were approved at a
meeting of the Board of Directors held on 5 December 2023 and
signed on its behalf by:
Sir Julian Berney Bt.
Chairman
The accompanying notes 1 to 28 form an integral part of the
financial statements.
Registered in England and Wales as a public company limited by
shares.
Company registration number: 09382477
Consolidated and Company Statements of Changes in Equity
For the year ended 30 September 2023
(Accumulated
Share Share losses)/Retained Other Total
capital premium earnings reserves equity
Group Note EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
-------------------------------------- ---- -------- -------- ----------------- --------- --------
Balance as at 1 October 2021 17,966 43,005 21,878 116,683 199,532
-------------------------------------- ---- -------- -------- ----------------- --------- --------
Profit for the year - - 13,991 - 13,991
-------------------------------------- ---- -------- -------- ----------------- --------- --------
Other comprehensive loss for the year - - - (73) (73)
-------------------------------------- ---- -------- -------- ----------------- --------- --------
Dividends paid 12 - - (25,207) - (25,207)
-------------------------------------- ---- -------- -------- ----------------- --------- --------
Balance as at 30 September 2022 17,966 43,005 10,662 116,610 188,243
-------------------------------------- ---- -------- -------- ----------------- --------- --------
Loss for the year - - (9,382) - (9,382)
-------------------------------------- ---- -------- -------- ----------------- --------- --------
Other comprehensive income/(loss) for
the year - - - - -
-------------------------------------- ---- -------- -------- ----------------- --------- --------
Dividends paid 12 - - (7,422) - (7,422)
-------------------------------------- ---- -------- -------- ----------------- --------- --------
Balance as at 30 September 2023 17,966 43,005 (6,142) 116,610 171,439
-------------------------------------- ---- -------- -------- ----------------- --------- --------
(Accumulated
losses)/Retained Other
Share Share earnings reserves Total
capital premium 1 1 equity
Company Note EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
-------------------------------------- ---- -------- -------- ----------------- --------- ---------
Balance as at 1 October 2021 17,966 43,005 2,302 116,916 180,189
-------------------------------------- ---- -------- -------- ----------------- --------- ---------
Profit for the year - - 740 - 740
-------------------------------------- ---- -------- -------- ----------------- --------- ---------
Other comprehensive loss for the year - - - (73) (73)
-------------------------------------- ---- -------- -------- ----------------- --------- ---------
Dividends paid 12 - - (25,207) - (25,207)
-------------------------------------- ---- -------- -------- ----------------- --------- ---------
Balance as at 30 September 2022 17,966 43,005 (22,165) 116,843 155,649
-------------------------------------- ---- -------- -------- ----------------- --------- ---------
Profit for the year - - 769 - 769
-------------------------------------- ---- -------- -------- ----------------- --------- ---------
Other comprehensive income/(loss) for
the year - - - - -
-------------------------------------- ---- -------- -------- ----------------- --------- ---------
Dividends paid 12 - - (7,422) - (7,422)
-------------------------------------- ---- -------- -------- ----------------- --------- ---------
Balance as at 30 September 2023 17,966 43,005 (28,818) 116,843 148,996
-------------------------------------- ---- -------- -------- ----------------- --------- ---------
1 These reserves form the distributable reserves of the Company
(excluding any accumulated, unrealised profits) and may be used to
fund distribution of profits to investors via dividend payments.
Total distributable reserves amounts to EUR88.0 million (2022:
EUR94.8 million). See note 1 for further detail.
The accompanying notes 1 to 28 form an integral part of the
financial statements.
Consolidated and Company Statements of Cash Flows
For the year ended 30 September 2023
Group Group Company Company
30/09/23 30/09/22 30/09/23 30/09/22
Note EUR'000 EUR'000 EUR'000 EUR'000
-------------------------------------------- ----- --------- --------- --------- ---------
Operating activities
-------------------------------------------- ----- --------- --------- --------- ---------
(Loss)/Profit before tax for the year (10,022) 16,576 769 982
-------------------------------------------- ----- --------- --------- --------- ---------
Adjustments for:
-------------------------------------------- ----- --------- --------- --------- ---------
Net loss/(gain) from fair value adjustment
on
investment property 13 19,726 (6,351) - -
-------------------------------------------- ----- --------- --------- --------- ---------
Realised foreign exchange gain/(loss) 12 (77) 12 (77)
-------------------------------------------- ----- --------- --------- --------- ---------
Provision of loan made to Seville joint
venture 6 - 444 - -
-------------------------------------------- ----- --------- --------- --------- ---------
Finance income (228) (451) (2,087) (1,852)
-------------------------------------------- ----- --------- --------- --------- ---------
Finance costs 1,714 1,128 6
-------------------------------------------- ----- --------- --------- --------- ---------
Net change in fair value of financial
instruments through
profit or loss 260 (921) - -
-------------------------------------------- ----- --------- --------- --------- ---------
Dividend income classified as investing
cash flows - - (509) -
-------------------------------------------- ----- --------- --------- --------- ---------
Operating cash generated from/(used in)
before changes in working capital 11,462 10,348 (1,815) (941)
-------------------------------------------- ----- --------- --------- --------- ---------
Decrease/(increase) in trade and other
receivables 7,564 958 370 616
-------------------------------------------- ----- --------- --------- --------- ---------
Increase/(decrease) in trade and other
payables (1,071) 324 (450) 157
-------------------------------------------- ----- --------- --------- --------- ---------
Cash generated from/(used in) operations 17,955 11,630 (1,895) (168)
-------------------------------------------- ----- --------- --------- --------- ---------
Finance costs paid (1,573) (897) - -
-------------------------------------------- ----- --------- --------- --------- ---------
Finance income received 228 8 397 1,042
-------------------------------------------- ----- --------- --------- --------- ---------
Tax (paid)/received (714) (469) - (242)
-------------------------------------------- ----- --------- --------- --------- ---------
Net cash generated from/(used in) operating
activities 15,896 10,272 (1,498) 632
-------------------------------------------- ----- --------- --------- --------- ---------
Investing activities
-------------------------------------------- ----- --------- --------- --------- ---------
Proceeds from sale of investment property 14 - 16,900 - -
-------------------------------------------- ----- --------- --------- --------- ---------
Acquisition of investment property 13 (11,167) (10,824) - -
-------------------------------------------- ----- --------- --------- --------- ---------
Additions to investment property 13 (3,984) (698) - -
-------------------------------------------- ----- --------- --------- --------- ---------
Loans to subsidiary companies - - (1,459) (9,585)
-------------------------------------------- ----- --------- --------- --------- ---------
Loan repayment from subsidiary company - - 19,000 10,310
-------------------------------------------- ----- --------- --------- --------- ---------
Investment in subsidiary 16 - - (5,400) -
-------------------------------------------- ----- --------- --------- --------- ---------
Dividends received - - 300 -
-------------------------------------------- ----- --------- --------- --------- ---------
Net cash generated from/(used in) investing
activities (15,151) 5,378 12,441 725
-------------------------------------------- ----- --------- --------- --------- ---------
Financing activities
-------------------------------------------- ----- --------- --------- --------- ---------
Repayment of loan facility drawdown - (1,840) - -
-------------------------------------------- ----- --------- --------- --------- ---------
Proceeds from borrowings 19,20 31,760 - - -
-------------------------------------------- ----- --------- --------- --------- ---------
Repayment of borrowings 19,20 (26,950)
-------------------------------------------- ----- --------- --------- --------- ---------
Interest paid - - - (6)
-------------------------------------------- ----- --------- --------- --------- ---------
Dividends paid 12 (7,422) (25,207) (7,422) (25,207)
-------------------------------------------- ----- --------- --------- --------- ---------
Net cash used in financing activities (2,612) (27,047) (7,422) (25,213)
-------------------------------------------- ----- --------- --------- --------- ---------
Net (decrease)/increase in cash and cash
equivalents
for the year (1,867) (11,397) 3,521 (23,856)
-------------------------------------------- ----- --------- --------- --------- ---------
Opening cash and cash equivalents 34,324 45,717 10,039 33,891
-------------------------------------------- ----- --------- --------- --------- ---------
Effects of exchange rate change on cash (12) 4 (12) 4
-------------------------------------------- ----- --------- --------- --------- ---------
Closing cash and cash equivalents 32,445 34,324 13,548 10,039
-------------------------------------------- ----- --------- --------- --------- ---------
The accompanying notes 1 to 28 form an integral part of the
financial statements.
Notes to the Financial Statements
1. Significant accounting policies
Schroder European Real Estate Investment Trust plc (the
'Company') is a closed-ended investment company incorporated in the
United Kingdom. The consolidated financial statements of the
Company for the year ended 30 September 2023 comprise those of the
Company and its subsidiaries (together referred to as the 'Group').
The Group holds a portfolio of investment properties in continental
Europe. The shares of the Company are listed on the London Stock
Exchange (primary listing) and Johannesburg Stock Exchange Limited
(secondary listing). The registered office of the Company is 1
London Wall Place, London, England EC2Y 5AU.
Statement of compliance
The consolidated financial statements of the Group and Company
financial statements have been prepared under the UK-adopted
'International Accounting Standards in accordance with the
Companies Act 2006'.
The financial statements give a true and fair view and are in
compliance with applicable legal and regulatory requirements and
the Listing Rules of the UK and JSE Listing Authority.
Basis of preparation
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have prepared the Group and the Company financial statements in
accordance with UK-adopted International Accounting Standards and
with the requirements of the Companies Act 2006.
The financial statements are presented in euros, rounded to the
nearest thousand. They are prepared on a going concern basis,
applying the historical cost convention, except for the measurement
of investment property and derivative financial instruments that
have been measured at fair value.
The accounting policies have been consistently applied to the
results, assets, liabilities and cash flows of the entities
included in the consolidated financial statements.
Going concern
The Directors have examined significant areas of possible
financial risk including: the ability to refinance certain
third-party loans in 2024 with due consideration to current loan
market conditions, cash held and the liquidity of the Group's
assets; forward-looking compliance with third-party debt covenants,
in particular the loan to value ('LTV') covenant and interest cover
ratios; the likelihood of any payment of contingent tax
liabilities; potential falls in property valuations; the
non-collection of rent and service charges; and the existing, and
future, anticipated cash requirements of the Group.
Furthermore, ongoing geopolitical developments, and
macroeconomic variables such as projected interest rates and
inflation, have also been considered regarding the Group's property
investments in France, Germany, Spain, and the Netherlands.
Cash flow forecasts, based on deemed plausible downside
scenarios, have led the Board to conclude that the Group will have
sufficient cash reserves to continue in operation for twelve months
from the date of the signing of the Annual Report.
The Group has six loans secured by individual assets, with no
cross-collateralisation. Other than Seville, whereby there is a
cash trap in operation and a LTV breach, all loans are in
compliance with their debt covenants. More details of the
individual loans, and headroom on the LTV and net income default
covenants, is provided on page 18.
Excluding Seville, for which the Group has already written its
investment fully down to nil, there are two loans that fall due for
repayment in 2024 totalling EUR25.6 million. Although the Group has
already commenced constructive and positive discussions with third
party-lenders for both loans, the Group has considered in its
plausible downside scenario whereby refinancing is not achieved,
and therefore both loans need to be paid out of cash reserves with
there being sufficient cash to do so if required.
After due consideration, the Directors have not identified any
material uncertainties which would cast significant doubt on the
Group's ability to continue as a going concern for a period of not
less than 12 months from the date of the approval of the
consolidated annual report and financial statements, which would be
31 December 2024. The Directors have satisfied themselves that the
Group has adequate resources to continue in operational existence
for the foreseeable future.
Use of estimates and judgements
The preparation of financial statements under the UK adopted
international accounting standards, in conformity with the
Companies Act 2006, requires management to make judgements,
estimates and assumptions that affect the application of policies
and the reported amounts of assets and liabilities, income and
expenses. These estimates and associated assumptions are based on
historical experience and various other factors that are believed
to be reasonable under the circumstances, the results of which form
the basis of making judgements about the carrying values of assets
and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates. The estimates and
underlying assumptions are reviewed on an ongoing basis. Revisions
to accounting estimates are recognised in the period in which the
estimates are revised and in any future periods affected.
The most significant estimates made in preparing these financial
statements relate to the carrying value of investment properties,
as disclosed in note 13, including those investment properties
within joint ventures, which are stated at fair value. The fair
value of investment property is inherently subjective because, in
the absence of readily-observable market data, the valuer has to
make professional judgements on valuation inputs. The Group uses an
external professional valuer to determine the relevant amounts.
The following are deemed to be the other key areas of
judgement:
-- Accounting for development revenue and variable consideration
regarding Paris, Boulogne-Billancourt: When estimating an
appropriate level of development revenue to be recognised in the
reporting period, the Group considered the contractual penalties of
not meeting certain criteria within the agreement; the total
development costs incurred; the stage of completion of the
refurbishment; the milestones achieved and still to be achieved;
the timing of further future cash receipts from the purchaser; and
the overall general development risk to form a considered judgement
of revenue to be appropriately recognised in the financial
statements. Further details of the judgement are disclosed in note
14.
-- Tax provisioning and disclosure: Management uses external tax
advisers to monitor changes in tax laws in countries where the
Group has operations. New tax laws that have been substantively
enacted are recognised in the Group's and Company's financial
statements. Where changes to tax laws give rise to a potential
contingent liability, the Group discloses the estimated amounts
appropriately within the notes to the financial statements (further
details are disclosed in note 10).
-- IFRS 9 expected credit losses: All receivables, inter-company
and joint venture loans are considered to be such financial assets
and must therefore be assessed for an impairment using the forward
looking expected credit loss model. Where any impairment is
required to be made, appropriate recognition is required in the
consolidated statement of comprehensive income, together with
appropriate disclosure and sensitivity analysis in the notes to the
financial statements (further details are disclosed in note 6). The
Seville joint venture loan has been Level 3 calculated on the
lifetime expected credit loss method. The following factors were
considered when determining the probability of default used for the
impairment provision calculation for the Seville joint venture
loan: the property valuation and future potential movements; that
there is an LTV breach and a cash trap in place; cash flow
forecasts; the longer-term effects of the prior lockdown measures
in Spain on tenants and their trading; and rent collection rates.
An evaluation of these factors has allowed management to determine
that the loan is a Level 3 impairment and is deemed not
recoverable. These judgements were also considered within the
impairment in the investments held in subsidiaries for the parent
company.
Basis of consolidation
Subsidiaries
The consolidated financial statements comprise the financial
statements of the Company and all of its subsidiaries drawn up to
30 September each year. Subsidiaries are those entities, including
special purpose entities, controlled by the Company. Control exists
when the Company is exposed to, or has rights to, variable returns
from its involvement with the entity and has the ability to affect
those returns through its power to direct the activities of the
entity. The financial statements of subsidiaries are included in
the consolidated financial statements from the date that control
commences until the date that control ceases. Where properties are
acquired by the Group through corporate acquisitions, but the
acquisition does not meet the definition of a business combination,
the acquisition is treated as an asset acquisition.
Transactions eliminated on consolidation
Intra-group balances, and any gains and losses arising from
intra-group transactions, are eliminated in preparing the
consolidated financial statements. Gains arising from transactions
with joint ventures are eliminated to the extent of the Group's
interest in the entity. Losses are eliminated in the same way as
gains but only to the extent that there is no evidence of
impairment. Non-controlling interests in the results and equity of
subsidiaries are shown separately in the consolidated statement of
comprehensive income, statement of changes in equity and balance
sheet respectively.
Joint arrangements
Under IFRS 11, Joint Arrangements, the Group's investments in
joint arrangements are classified as joint ventures. Interests in
joint ventures are accounted for using the equity method, after
initially being recognised at cost, in the consolidated statement
of financial position.
Under the equity method of accounting, the investments are
initially recognised at cost and adjusted thereafter to recognise
the Group's share of the post-acquisition profits or losses of the
investee in profit or loss.
When the Group's share of losses in an equity-accounted
investment equals or exceeds its interest in the entity, including
any other unsecured long-term receivables, the Group does not
recognise further losses, unless it has incurred obligations or
made payments on behalf of the other entity. Unrealised gains on
transactions between the Group and its joint ventures are
eliminated to the extent of the Group's interest in these entities.
Unrealised losses are also eliminated unless the transaction
provides evidence of an impairment of the asset transferred.
Investment property
Investment property comprises land and buildings held to earn
rental income together with the potential for capital growth.
Acquisitions and disposals are recognised on an unconditional
exchange of contracts. Acquisitions are initially recognised at
cost, being the fair value of the consideration including any
transaction costs associated with the investment property.
After initial recognition, investment properties are measured at
fair value with unrealised gains and losses recognised in profit or
loss. Realised gains and losses on the disposal of properties are
recognised in profit and loss in relation to the carrying value at
the beginning of the accounting period. Fair value is based on the
market valuations of the properties as provided by a firm of
independent chartered surveyors at the reporting date. Market
valuations are carried out on a quarterly basis.
As disclosed in note 23, the Group leases out all owned
properties on operating leases which are classified and accounted
for as an investment property where the Group holds it to earn
rentals, capital appreciation, or both. Any such property leased
under an operating lease is classified as an investment property
and carried at fair value.
Please refer to note 13 for disclosure of key inputs,
assumptions and sensitivities with respect to the fair valuation of
investment properties.
Prepayments
Prepayments are carried at cost less any accumulated impairment
losses.
Leases
Leases in which a significant portion of the risks and rewards
of ownership are retained by another party, the lessor, are
classified as operating leases. Rental income, including
prepayments, received under operating leases (net of any incentives
granted by the lessor) are recognised in the statement of
comprehensive income on a straight-line basis over the period of
the lease. Properties leased out under operating leases are
included as investment properties in the consolidated statement of
financial position (note 13).
Financial assets and liabilities
Non-derivative financial assets and liabilities
Non-derivative financial assets are measured at amortised cost
less impairment whereas financial liabilities are measured at
amortised cost. The Group calculates impairment provisions for
non-derivative financial assets based on lifetime expected credit
losses under the IFRS 9 simplified approach.
Cash and cash equivalents
Cash at bank, and short-term deposits that are held to maturity,
are carried at amortised cost. Cash and cash equivalents are
defined as cash in hand, demand deposits and short-term, highly
liquid investments readily convertible to known amounts of cash and
subject to insignificant risk of changes in value. For the purposes
of the statement of cash flows, cash and cash equivalents consist
of cash in hand and short-term deposits at banks with a term of no
more than three months.
Loans and borrowings
Borrowings are recognised initially at the fair value of the
consideration received less attributable transaction costs.
Subsequent to initial recognition, interest-bearing borrowings are
stated at amortised cost with any difference between cost and
redemption value being recognised in the profit and loss over the
period of the borrowings on an effective interest basis.
Borrowing costs such as arrangement fees are capitalised and
amortised over the loan term.
Derivative financial assets and liabilities
Derivative financial assets and liabilities comprise interest
rate caps for hedging purposes (economic hedge). These are
initially recognised at cost and subsequently revalued at fair
value, with the revaluation gains or losses immediately recorded in
the statement of comprehensive income.
Share capital
Ordinary shares, including treasury shares, are classified as
equity when there is no obligation to transfer cash or other
assets. The Company's accounting policy is to fix the share capital
at the spot rate at the date of issue. The Company does not
retranslate its share capital at the end of each reporting
period.
Share premium
Share premium represents the excess of proceeds received over
the nominal value of new shares issued. The Company's accounting
policy is to fix the share premium at the spot rate at the date of
issue. The Company does not retranslate its share premium at the
end of each reporting period.
Other reserves
Other reserves mainly consist of a share premium reduction
reserve arising from the conversion of share premium into a
distributable reserve.
Dividends
Final dividends to the Company's shareholders are recognised as
a liability in the Group's financial statements in the period in
which the dividends are approved by the Company's shareholders.
Interim dividends are recognised when paid.
Impairment
Other financial assets
The carrying amounts of the Group's and Company's other
financial assets, other than investment property but including
joint ventures and investments held in subsidiaries, are reviewed
at each reporting date to determine whether there is any indication
of impairment. If any such indication exists, then the asset's
recoverable amount is estimated.
The recoverable amount of an asset or cash-generating unit is
the greater of its value in use and its fair value less costs to
sell. In assessing value in use, the estimated future cash flows
are discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money
and the risks specific to that asset.
An impairment loss is recognised if the carrying amount of an
asset or its cash-generating unit exceeds its estimated recoverable
amount. Impairment losses are recognised in the profit and
loss.
Revenue
Rental income
Rental income from operating leases is recognised on a
straight-line basis over the lease term. When the Group provides
incentives to its tenants, the cost of incentives is recognised
over the lease term, on a straight-line basis, as a reduction of
rental income.
Where a rent incentive fits the definition of a lease
modification under IFRS 16, the cost of incentives is recognised
over the remaining lease term starting from the effective date of
the lease modification, on a straight-line basis, as a reduction of
rental income.
Service charges
These include income in relation to service charges, directly
recoverable expenditure and management fees. Revenue from services
is recognised over time, as services are rendered as there is a
transfer of control of these services over time when services are
rendered by third party service providers.
Finance income and costs
Finance income comprises interest income on funds invested that
are recognised in the statement of comprehensive income. Finance
income is recognised on an accruals basis.
Finance costs comprise interest expenses on borrowings that are
recognised in the statement of comprehensive income. Attributable
transaction costs incurred in establishing the Group's credit
facilities are deducted from the fair value of borrowings on
initial recognition and are amortised over the lifetime of the
facilities through profit and loss. Finance expenses are accounted
for on an effective interest basis.
Expenses
All expenses are accounted for on an accruals basis. They are
recognised in the statement of comprehensive income in the year in
which they are incurred on an accruals basis.
Taxation
The Company and its subsidiaries are subject to income tax on
any income arising on investment properties after deduction of debt
financing costs and other allowable expenses.
Income tax on the profit or loss for the year comprises current
and deferred tax. Current tax is the expected tax payable on the
taxable income for the year, using tax rates enacted or
substantially enacted at the reporting date, and any adjustment to
tax payable in respect of previous periods.
Deferred tax is provided in full, using the liability method, on
temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the consolidated
financial statements. Deferred tax is determined using tax rates
(and laws) that have been enacted, or substantially enacted, by the
date of the statement of financial position and are expected to
apply when the related deferred income tax asset is realised or the
deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that it
is probable that future taxable profit will be available against
which the temporary differences can be utilised.
Segmental reporting
The Directors are of the opinion that the Group is engaged in a
single segment of business, being property investment and in one
geographical area, continental Europe. The chief operating
decision-maker is considered to be the Board of Directors who are
provided with consolidated IFRS information on a quarterly
basis.
Foreign currency translation
Items included in the financial statements of each of the
Group's entities are measured using the currency of the primary
economic environment in which the entity operates (the 'functional
currency').
The functional currency of all the entities in the Group is the
euro, as this is the currency in which the majority of investment
takes place and in which the majority of income and expenses are
incurred. The financial statements are also presented in euros.
Foreign currency transactions are translated into the functional
currency using the exchange rate prevailing at the date of the
transaction. Foreign exchange gains and losses resulting from the
settlement of such transactions are recognised in profit or loss in
the statement of comprehensive income.
Monetary assets and liabilities are translated into the
functional currency. Foreign exchange differences arising on
translation to the presentation currency are taken to the
consolidated statement of comprehensive income.
Prior period restatement
Historically inter-company loans between the Company and its
subsidiaries had been classified as current assets in the Company's
own Balance Sheet. This included instances where intra-group loan
maturity dates were greater than twelve months post the financial
year end. Movements in intra-group loan balances are driven by
transactional activity, loan refinancings and cash repatriation and
repayments have been at the discretion of the Investment Manager
and as market conditions allow.
As per IAS 1, a number of intra-group loans for the Company
should have been recorded as non-current assets. Intra-group loans
which mature within twelve months of the Balance Sheet date, or
where there is a clear and reasonable expectation of repayment
within the next twelve months, should be classified as current
assets with all other loans being classified as non-current.
For the prior year ended 30 September 2022, a sum of
EUR69,501,000 of inter-company loans and accrued interest
receivable, owed by the Company's subsidiaries, has been
reclassified from trade and other receivables within current assets
to receivables from subsidiaries within non-current assets in the
restated Balance Sheet at Company level.
The above prior period restatement is at Company level only and
has had no impact on the net asset value, nor wider financial
position and performance, of the SEREIT Group itself.
2. New standards and interpretations
New standards and interpretations adopted by the Group
There are no new standards or amendments which have been applied
for the first time for its annual reporting period commencing 1
October 2022.
3. Rental and service charge income
Group Group Company Company
30/09/2023 30/09/2022 30/09/2023 30/09/2022
EUR'000 EUR'000 EUR'000 EUR'000
---------------------- ----------- ----------- ----------- -----------
Rental income 15,555 14,528 - -
---------------------- ----------- ----------- ----------- -----------
Service charge income 4,111 3,625 - -
---------------------- ----------- ----------- ----------- -----------
19,666 18,153 - -
---------------------- ----------- ----------- ----------- -----------
Service charge income is charged in addition to rent payments to
cover the landlord's costs. Factors such as the size of the asset,
number of occupants, occupancy rates and purpose of the asset can
affect the amount and timing of revenue and cash flows.
The Group has concluded that it transfers control of these
services over time, as services are rendered by the third party
service providers, because this is when tenants receive and, at the
same time, consume the benefits from these services.
The service charge receivable amounts to EUR3,086,000 (2022:
EUR1,455,000). Payment of service charge income from tenants is
impacted by the timing of service charge reconciliations by
property managers.
4. Property operating expenses
Group Group Company Company
30/09/2023 30/09/2022 30/09/2023 30/09/2022
EUR'000 EUR'000 EUR'000 EUR'000
------------------------------------------- ----------- ----------- ----------- -----------
Repairs and maintenance 2,932 2,229 - -
------------------------------------------- ----------- ----------- ----------- -----------
Service charge, insurance and utilities on
vacant units 456 1,427 - -
------------------------------------------- ----------- ----------- ----------- -----------
Real estate taxes 1,410 1,326 - -
------------------------------------------- ----------- ----------- ----------- -----------
Property management fees 376 285 - -
------------------------------------------- ----------- ----------- ----------- -----------
Other 224 249 - -
------------------------------------------- ----------- ----------- ----------- -----------
5,398 5,516 - -
------------------------------------------- ----------- ----------- ----------- -----------
All the above amounts relate to either service charge or
property operating expenses which are recoverable except for
EUR1,382,000 (2022: EUR1,174,000).
5. Material agreements
Schroder Real Estate Investment Management Limited ('SREIM') is
the Investment Manager to the Company. The Investment Manager is
entitled to a fee together with reasonable expenses incurred in the
performance of its duties. The fee is payable monthly in arrears
and shall be an amount equal to one 12th of the aggregate of 1.1%
of the EPRA NAV of the Group. The Investment Management Agreement
can be terminated by either party on not less than 12 months'
written notice, such notice not to expire earlier than the third
anniversary of admission, or on immediate notice in the event of
certain breaches of its terms or the insolvency of either party.
The total charge to profit and loss during the year was
EUR1,981,000 (2022: EUR2,198,0000). At the year end EUR626,000
(2022: EUR717,000) was outstanding.
SREIM provides accounting services to the Group with a minimum
contracted annual charge of EUR81,000 (GBP70,000). The total charge
to the Group was EUR104,000 (2022: EUR112,000). These are included
in administrator's and accounting fees in the consolidated
statement of comprehensive income. At the year end EUR35,000 (2022:
EUR35,000) was outstanding.
SREIM provides administrative and company secretarial services
to the Group with a contracted annual charge of EUR58,000
(GBP50,000). The total charge to the Group was EUR58,000 (2022:
EUR58,000). These are included in administrator's and accounting
fees in the consolidated statement of comprehensive income. At the
year end EUR19,000 (2022: EUR19,000) was outstanding.
Details of Directors' fees are disclosed in note 9.
Details of loans to Urban SEREIT Holdings Spain S.L., a related
party, are disclosed in note 16.
The Company received management fees of EUR1,503,000 (2022:
EUR1,623,000) from subsidiary companies during the year. The
amounts recharged to subsidiaries and outstanding are provided in
the following table.
Fees recharged
in the year to Fees outstanding
30 September as at 30 September
EUR'000 EUR'000
---------------------------- ----------------- ---------------------
Subsidiary 2023 2022 2023 2022
---------------------------- -------- ------- ---------- ---------
SCI SEREIT Rumilly 53 58 24 29
---------------------------- -------- ------- ---------- ---------
SAS Clarity Developpement 386 428 187 212
---------------------------- -------- ------- ---------- ---------
SEREIT Berlin DIY Sàrl 153 172 74 86
---------------------------- -------- ------- ---------- ---------
SEREIT Hamburg Sàrl 120 138 57 70
---------------------------- -------- ------- ---------- ---------
SEREIT Stuttgart Sàrl 104 119 48 60
---------------------------- -------- ------- ---------- ---------
SEREIT Frankfurt Sàrl 58 63 27 32
---------------------------- -------- ------- ---------- ---------
SCI SEREIT Directoire 194 228 141 113
---------------------------- -------- ------- ---------- ---------
SEREIT Apeldoorn Sàrl 79 95 38 47
---------------------------- -------- ------- ---------- ---------
SEREIT UV Sàrl 125 132 62 66
---------------------------- -------- ------- ---------- ---------
SEREIT Alkmaar Sàrl 42 - 28 -
---------------------------- -------- ------- ---------- ---------
SCI SEREIT Pleudihen 100 114 72 58
---------------------------- -------- ------- ---------- ---------
SCI SEREIT Nantes 31 33 15 18
---------------------------- -------- ------- ---------- ---------
SCI LC Invest 38 23 18 23
---------------------------- -------- ------- ---------- ---------
SEREIT Holdings S.a.r.l 20 20 10 11
---------------------------- -------- ------- ---------- ---------
Total 1,503 1,623 801 825
---------------------------- -------- ------- ---------- ---------
6. Provision of loan made to Seville joint venture
As at 30 September 2023 the Group owned 50% of the Metromar
Joint Venture, which owns a shopping centre in Seville, and had
advanced EUR10,000,000 as a loan and was owed interest of
EUR1,941,000 (2022: EUR1,544,000). The loan carries a fixed
interest rate of 4.37% per annum payable quarterly and matures in
April 2024.
When considering an appropriate level of impairment, the Group
primarily considered: the current market liquidity, and achievable
market price, for such an asset; the property valuation and future
potential movements; debt covenant breaches; cash flow forecasts;
the tenants' trading levels; vacancy rates; and the rent collection
rates of the asset.
The impairment provision booked during the year was EURNil as
the loan and interest is now considered a stage 3 impairment (2022:
EUR444,000) bringing the cumulative impairment to EUR11,537,000 and
the Group's investment with regard to Seville now stands at EURNil
(2022: EURNil).
No further interest income was recognised in the consolidated
financial statements in the year to 30 September 2023 as the loan
and interest is now considered a stage 3 impairment and therefore a
Loss Given Default rate of 100% has been applied. Hence, cumulative
interest receivable recognised in the consolidated financial
statements previously and subsequently impaired amounts to
EUR1,544,000.
Furthermore, Management has separately assessed that if a sale
were to be achieved at the current fair value of the property of
EUR25 million then, all else being equal, the Group could reverse
c.EUR800,000 of the previously recognised impairment, noting that
such an outcome is deemed to be highly unlikely as at the financial
year end. The sensitivity of potential impairment reversals, based
on potential exit prices, is shown in the table below:
-10% 0% +10%
---------------------------------------- ---------- ---------- ----------
Valuation of Metromar, Seville property 22,500,000 25,000,000 27,500,000
---------------------------------------- ---------- ---------- ----------
Potential future impairment reversal - 800,000 2,050,000
---------------------------------------- ---------- ---------- ----------
Underlyingly, and as set out in the above, the Investment
Manager does not believe at the current time that ultimately a sale
price will be achieved above the carrying value of the third-party
debt and thus there has been no reversal of prior impairments in
the current financial year.
7. Auditor's remuneration and assurance fees
The Group's total audit fees for the year are EUR330,000 (2022:
EUR330,000) which includes the Group audit and the individual
statutory audits. The Company's total audit fees for the year were
EUR239,000 (2022: EUR289,000) which only covers the Group
audit.
The interim review fee was EUR51,000 (2022: EUR51,500) which is
an assurance related non-audit service and is included in the total
auditor's remuneration for the year. The auditor did not perform
any other non-audit services for the Group during the year (2022:
EURNil).
8. Dividends received
During the year the Group did not receive any dividends from its
joint venture operation Urban SEREIT Holdings Spain S.L. (2022:
EURNil) (see note 15).
During the year the Company received dividends from its
subsidiary undertakings. EUR300,000 (2022: EUR1,100,000) from OPPCI
SEREIT France and EUR209,000 (2022: EURNil) was received from
SEREIT Holdings France.
9. Other expenses
Group Group Company Company
30/09/2023 30/09/2022 30/09/2023 30/09/2022
EUR'000 EUR'000 EUR'000 EUR'000
------------------------------------------- ----------- ----------- ----------- -----------
Directors' and officers' insurance premium 14 20 14 20
------------------------------------------- ----------- ----------- ----------- -----------
Bank charges 114 156 27 28
------------------------------------------- ----------- ----------- ----------- -----------
Regulatory costs 89 72 66 53
------------------------------------------- ----------- ----------- ----------- -----------
Marketing 57 59 60 59
------------------------------------------- ----------- ----------- ----------- -----------
Other expenses 167 306 147 152
------------------------------------------- ----------- ----------- ----------- -----------
442 613 314 312
------------------------------------------- ----------- ----------- ----------- -----------
Directors are the only officers of the Company and there are no
other key personnel. The Group has one employee; for further
details see note 27. The Directors' annual remuneration for
services to the Group was EUR203,000 (2022: EUR198,375), as set out
in the Directors' Remuneration Report on pages 49 to 51. The total
charge for Directors' fees was EUR232,000 (2022: EUR217,000), which
included employer's National Insurance contributions. Other
expenses include items such as domiciliation fees and registrar
fees.
10. Taxation
30/09/2023 30/09/2022
EUR'000 EUR'000
-------------------------------------------------------------- ---------- ----------
Current tax charge 739 1,305
-------------------------------------------------------------- ---------- ----------
Current tax adjustment in respect of prior periods (480) -
-------------------------------------------------------------- ---------- ----------
Deferred tax (credit)/charge (899) 1,280
-------------------------------------------------------------- ---------- ----------
Tax (credit)/expense in year (640) 2,585
-------------------------------------------------------------- ---------- ----------
Reconciliation of effective tax rate
-------------------------------------------------------------- ---------- ----------
(Loss)/Profit before taxation (10,022) 16,576
-------------------------------------------------------------- ---------- ----------
Effect of:
-------------------------------------------------------------- ---------- ----------
Tax charge at weighted average corporation tax rate of 22.65%
(2022: 23.40%) (2,210) 3,877
-------------------------------------------------------------- ---------- ----------
Tax exempt income or non-deductible losses 840 (1,482)
-------------------------------------------------------------- ---------- ----------
Tax adjustment on net revaluation loss 625 375
-------------------------------------------------------------- ---------- ----------
Current year loss for which no deferred tax is recognised - 15
-------------------------------------------------------------- ---------- ----------
Tax adjustment of share of joint venture loss 691 744
-------------------------------------------------------------- ---------- ----------
Minimum Luxembourg tax charges 88 65
-------------------------------------------------------------- ---------- ----------
Tax effect of property depreciation (418) (999)
-------------------------------------------------------------- ---------- ----------
Timing differences - (73)
-------------------------------------------------------------- ---------- ----------
Tax adjustment in respect of prior periods 480 -
-------------------------------------------------------------- ---------- ----------
Other permanent differences 224 63
-------------------------------------------------------------- ---------- ----------
Total tax (credit)/expense in the year (640) 2,585
-------------------------------------------------------------- ---------- ----------
The effective tax rate is a weighted average of the applicable
tax rates in the countries the Group has operations. The opening
deferred tax liability was EUR5,124,000, which after a credit of
EUR899,000 leads to a closing liability of EUR4,225,000. A
potential deferred tax asset of EUR1,306,000 (2022: EUR845,000)
arose on tax losses which has not been provided for.
SEREIT plc has elected to be treated as a société
d'investissement immobilier cotée ('SIIC') for French tax purposes.
Provided that SEREIT plc meets certain requirements, the SIIC
should be exempt from French CIT on net rental income and gains
arising from interests in property. Management intends that the
Group will continue to comply with the SIIC regulations for the
foreseeable future.
The Group operates in a number of jurisdictions and is subject
to periodic challenges by local tax authorities on a range of tax
matters during the normal course of business. The tax impact can be
uncertain until a conclusion is reached with the relevant tax
authority or through a legal process. The Group addresses this
uncertainty by closely monitoring tax developments, seeking
independent advice and maintaining transparency with the
authorities it deals with as and when any enquiries are made. As a
result of its monitoring, the Group has identified a potential tax
exposure attributable to the ongoing applicability of tax
treatments adopted in respect of the Group's tax structures. The
range of potential outcomes is a possible outflow of minimum GBPNil
and maximum GBP9.5 million, excluding possible interest and
penalties (2022: minimum GBPNil and maximum GBP9.3 million). The
Directors have not provided for this amount because they do not
believe an outflow is probable.
11. Earnings per share
Basic earnings per share
The basic earnings per share for the Group is calculated by
dividing the net profit after tax attributable to ordinary
shareholders of the Company by the weighted average number of
ordinary shares in issue during the year.
30/09/2023 30/09/2022
---------------------------------------------------- -------------- -------------
Total comprehensive (loss)/income for the year EUR(9,382,000) EUR13,918,000
---------------------------------------------------- -------------- -------------
Weighted average number of ordinary shares in issue 133,734,686 133,734,686
---------------------------------------------------- -------------- -------------
Basic IFRS earnings per share (cents per share) (7.0) 10.4
---------------------------------------------------- -------------- -------------
Diluted earnings per share
The Group has no dilutive potential ordinary shares and hence
the diluted earnings per share is the same as the basic earnings
per share in both 2022 and 2023.
Headline earnings per share
The headline earnings and diluted headline earnings for the
Group is 6.2 euro cents per share (2022: 4.5 euro cents per share)
as detailed on page 95.
12. Dividends paid
Interim and special dividends of EUR7,422,000 (2022:
EUR25,207,000) were paid to the shareholders of SEREIT plc during
the year as follows:
Ordinary Rate 30/09/2023
In respect of shares (cents) EUR'000
----------------------------------------- ----------- -------- ----------
Interim dividend paid on 13 January 2023 133,734,686 1.85 2,474
----------------------------------------- ----------- -------- ----------
Interim dividend paid on 5 May 2023 133,734,686 1.85 2,474
----------------------------------------- ----------- -------- ----------
Interim dividend paid on 11 August 2023 133,734,686 1.85 2,474
----------------------------------------- ----------- -------- ----------
Total interim dividends paid 133,734,686 7,422
----------------------------------------- ----------- -------- ----------
Ordinary Rate 30/09/2022
In respect of shares (cents) EUR'000
------------------------------------------------- ----------- -------- ----------
Interim dividend paid on 8 November 2021 133,734,686 1.85 2,474
------------------------------------------------- ----------- -------- ----------
Interim dividend paid on 14 January 2022 133,734,686 1.85 2,474
------------------------------------------------- ----------- -------- ----------
First special dividend paid on 14 January 2022 133,734,686 4.75 6,352
------------------------------------------------- ----------- -------- ----------
Interim dividend paid on 20 April 2022 133,734,686 1.85 2,474
------------------------------------------------- ----------- -------- ----------
Interim dividend paid on 5 August 2022 133,734,686 1.85 2,474
------------------------------------------------- ----------- -------- ----------
Second special dividend paid on 5 August 2022 133,734,686 4.75 6,352
------------------------------------------------- ----------- -------- ----------
Interim dividend paid on 30 September 2022 133,734,686 1.85 2,474
------------------------------------------------- ----------- -------- ----------
Final special dividend paid on 30 September 2022 133,734,686 0.1 133
------------------------------------------------- ----------- -------- ----------
Total interim dividends paid 133,734,686 25,207
------------------------------------------------- ----------- -------- ----------
13. Investment property
Group EUR'000
----------------------------------------------------------- --------
Fair value as at 1 October 2021 199,727
----------------------------------------------------------- --------
Acquisitions 9,997
----------------------------------------------------------- --------
Acquisition costs 868
----------------------------------------------------------- --------
Additions 513
----------------------------------------------------------- --------
Net gain from fair value adjustment on investment property 6,351
----------------------------------------------------------- --------
Fair value as at 30 September 2022 217,456
----------------------------------------------------------- --------
Acquisitions 11,150
----------------------------------------------------------- --------
Acquisition costs 1,218
----------------------------------------------------------- --------
Additions 3,000
----------------------------------------------------------- --------
Net loss from fair value adjustment on investment property (19,726)
----------------------------------------------------------- --------
Fair value as at 30 September 2023 213,098
----------------------------------------------------------- --------
In 2022 and 2023, the Group held one leasehold property.
The value of the respective sectors held were as follows:
2023 2022
Sector EUR'000 EUR'000
-------------------------------------- -------- --------
Industrial 78,537 63,603
-------------------------------------- -------- --------
Retail (including retail warehousing) 39,650 51,049
-------------------------------------- -------- --------
Offices 94,911 102,804
-------------------------------------- -------- --------
Total 213,098 217,456
-------------------------------------- -------- --------
The fair value of investment properties, as determined by the
valuer, totals EUR214,125,000 (2022: EUR218,700,000) with the
valuation amount relating to a 100% ownership share for all the
assets in the portfolio.
None of this amount is attributable to trade or other
receivables in connection with lease incentives. The fair value of
investment properties per the consolidated financial statements of
EUR213,098,000 includes a tenant incentive adjustment of
EUR1,027,000 (30 September 2022: EUR1,244,000).
The net valuation (loss)/gain on investment property of
EUR(19,726,000) (2022: EUR6,351,000) consists of net property
revaluation (losses)/gains of EUR19,509,000 (2022: EUR6,472,000)
and a movement of the above mentioned tenant incentive adjustment
of EUR(217,000) (2022: EUR104,000).
The fair value of investment property has been determined by
Knight Frank LLP, a firm of independent chartered surveyors, who
are registered independent appraisers. The valuation has been
undertaken in accordance with the RICS Valuation - Global Standards
November 2021, incorporating the International Valuations
Standards, and RICS Professional Standards UK, November 2018
(effective January 2019).
The properties have been valued on the basis of 'fair value' in
accordance with the RICS Valuation - Professional Standards
VPS4(1.5) Fair Value and VPGA1 Valuations for Inclusion in
Financial Statements which adopt the definition of fair value used
by the International Accounting Standards Board.
The valuation has been undertaken using an appropriate valuation
methodology and the valuer's professional judgement. The valuer's
opinion of fair value was primarily derived using recent comparable
market transactions on arm's length terms, where available, and
appropriate valuation techniques (The Investment Method).
The properties have been valued individually and not as part of
a portfolio.
During the year, the Group acquired Alkmaar, a logistics asset
in the Netherlands for a purchase price of EUR11,150,000 in March
2023.
The Group has incorporated Environmental, Social and Governance
('ESG') objectives into its core investment strategy and at every
stage of the investment process. It has clearly defined its social
and environmental targets into distinct categories, for which each
has clear and measurable impact objectives. The valuers take into
account environmental considerations in their assessment of ERV,
discount rate and capital expenditure assumptions for each asset.
Some examples include: Hamburg office (c.EUR800k provisioned) for
future BMS, HVAC and tenant wellbeing measures in order to continue
to keep the asset relevant for occupiers; Stuttgart (c.EUR600k)
primarily ESG related capital expenditure; and Paris Saint-Cloud
(c.EUR2.5 million) relating to fire security enhancements and
co-ownership works which will improve ESG ratings in line with
Tertiary Decree requirements.
A provision or contingent liability would only be recognised in
the consolidated financial statements if the ESG factors led to a
constructive or legal obligation for the Group. None of the above
amounts have been provided for in the 30 September 2023 annual
accounts as there is no legal or constructive obligation to perform
these works at the reporting date.
The Group's total valuation fees for the year are EUR67,000
(2022: EUR50,000). The fee payable to Knight Frank LLP is less than
5% of its total revenue in any year.
All investment properties are categorised within Level 3 of the
fair value hierarchy, as they use significant unobservable inputs.
There have not been any transfers between levels during the year.
Investment properties have been classed according to their real
estate sector. Information on these significant unobservable inputs
per class of investment property is disclosed below:
Quantitative information about fair value measurement using
unobservable inputs (Level 3) as at
30 September:
Retail
(incl. retail
2023 Industrial warehouse) Office Total
-------------------------------- ------------------- ------------ -------------- --------------- ------------
Fair value (EUR'000)1 78,575 39,650 95,900 214,125
----------------------------------------------------- ------------ -------------- --------------- ------------
Area ('000 sqm) 95.071 21.325 54.579 170.975
----------------------------------------------------- ------------ -------------- --------------- ------------
Range 33.16-125.09 108.12-154.66 118.63-158.07 33.16-158.07
Net passing rent EUR per sqm
per annum Weighted average2 63.79 121.09 138.22 107.73
-------------------------------- ------------------- ------------ -------------- --------------- ------------
Range 42.00-110.30 101.58-162.27 79.93-234.01 42.00-234.01
Gross ERV EUR per sqm per annum Weighted average2 63.20 118.50 181.29 126.33
-------------------------------- ------------------- ------------ -------------- --------------- ------------
Range 5.42-9.54 5.76-5.79 4.02-17.09 4.02-17.09
Net initial yield3 (%) Weighted average2 6.35 5.77 6.60 6.35
-------------------------------- ------------------- ------------ -------------- --------------- ------------
Range 5.57-9.76 5.36-5.40 3.87-13.38 3.87-13.38
Equivalent yield (%) Weighted average2 5.94 5.39 7.17 6.39
-------------------------------- ------------------- ------------ -------------- --------------- ------------
1 Weighted by market value.
2 Yields based on rents receivable after deduction of head rents and non-recoverables.
Retail
(incl. retail
2022 Industrial warehouse) Office Total
-------------------------------- ------------------- ------------ -------------- ------------- ------------
Fair value (EUR'000)1 71,950 69,150 104,000 245,100
----------------------------------------------------- ------------ -------------- ------------- ------------
Area ('000 sqm) 86.421 44.433 54.58 185.434
----------------------------------------------------- ------------ -------------- ------------- ------------
Range 28.81-118.10 38.33-151.18 103.57-145.83 28.81-151.18
Net passing rent EUR per sqm
per annum Weighted average2 55.83 85.66 136.17 98.34
-------------------------------- ------------------- ------------ -------------- ------------- ------------
Range 40.00-104.42 101.58-162.27 79.93-224.34 40.00-224.34
Gross ERV EUR per sqm per annum Weighted average2 56.46 129.96 169.81 125.29
-------------------------------- ------------------- ------------ -------------- ------------- ------------
Range 4.82-8.66 2.87-5.38 3.34-14.42 2.87-14.42
Net initial yield3 (%) Weighted average2 5.57 4.24 5.93 5.35
-------------------------------- ------------------- ------------ -------------- ------------- ------------
Range 4.50-6.68 4.95-7.29 3.27-12.40 3.27-12.40
Equivalent yield (%) Weighted average2 5.19 5.87 6.26 5.84
-------------------------------- ------------------- ------------ -------------- ------------- ------------
1 This table includes the joint venture investment property
valued at EUR26.4 million which is disclosed within the summarised
information within note 16 as part of total assets.
2 Weighted by market value.
3 Yields based on rents receivable after deduction of head rents and non-recoverables.
Sensitivity of measurement to variations in the significant
unobservable inputs
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:
Impact on fair value measurement Impact on fair value measurement
of significant increase in of significant decrease in
Unobservable input input input
------------------ -------------------------------- --------------------------------
Passing rent Increase Decrease
------------------ -------------------------------- --------------------------------
Gross ERV Increase Decrease
------------------ -------------------------------- --------------------------------
Net initial yield Decrease Increase
------------------ -------------------------------- --------------------------------
Equivalent yield Decrease Increase
------------------ -------------------------------- --------------------------------
There are interrelationships between the yields and rental
values as they are partially determined by market rate conditions.
The sensitivity of the valuation to changes in the most significant
inputs per class of investment property are shown below:
Estimated movement in fair value of investment
properties at Industrial Retail Office Total
30 September 2023 EUR'000 EUR'000 EUR'000 EUR'000
----------------------------------------------- ---------- -------- -------- --------
Increase in ERV by 10% 4.900 2,600 7,100 14,600
----------------------------------------------- ---------- -------- -------- --------
Decrease in ERV by 10% (4,900) (2,600) (7,100) (14,600)
----------------------------------------------- ---------- -------- -------- --------
Increase in net initial yield by 0.5% (6,200) (3,400) (9,000) (18,600)
----------------------------------------------- ---------- -------- -------- --------
Decrease in net initial yield by 0.5% 7,400 4,100 9,800 21,300
----------------------------------------------- ---------- -------- -------- --------
14. Recognition of development revenue and profit
During the financial year ended 30 September 2021, the Group
transferred the legal title of its office asset in Paris,
Boulogne-Billancourt to a purchaser.
The forward funded sale agreement which the Group entered into
is comprised of two key performance obligations: i) to sell the
asset as referenced above; and ii) to undertake a comprehensive
refurbishment of the asset on behalf of the purchaser.
The transaction price for the sale of the asset is determined
with regard to the deemed fair value of the asset at the date of
the transfer of the legal title to the purchaser. On 16 December
2020 the Group transferred, as part of the sale, the legal title to
the purchaser for a deemed sale price of EUR69.8 million. In
return, the Group received on the completion date an initial
EUR52.9 million cash receipt from the purchaser and EUR16.9 million
was paid in the year to 30 September 2022 upon the completion of
certain milestones.
The forward funded sale contract also included a development
element whereby the Group would undertake a comprehensive
refurbishment of the asset on behalf of the purchaser over an
approximate 18 month period with practical completion occurring in
the second quarter of 2022. The amount of revenue the Group will
receive for the development of the asset is variable as it is based
on the Group achieving certain milestones.
When forming a judgement as to an appropriate level of
development revenue to be recognised in the reporting period, the
Group considered the contractual penalties of not meeting certain
criteria within the agreement; the total development costs
incurred; the stage of completion of the refurbishment; the
milestones achieved and still to be achieved; the timing of further
future cash receipts from the purchaser; and the overall general
development risk.
The Group has estimated that it will receive total development
revenue of EUR30.4 million (2022: EUR30.2 million).
During the year the Group made cost savings of EUR1.1 million
(2022: EUR15.4 million expenditure) which cumulatively to date,
represents 96% of the total project expenditure and a sum of EUR0.4
million (2022: EUR17.9 million) of development revenue has been
recognised following consideration of the factors identified above.
Total development revenue from this contract recognised since
inception is EUR28.1 million, which represents 93% of total
development revenue. The cash received in the year was EUR8.8m. The
remaining development revenue is expected to be recognised in the
year-ending 30 September 2024. The lag between development revenue
and development cost represents the inherent development risk that
is still evident in the project.
The total amount of the contract asset recognised by the Group
that is due from the purchaser thereby totalled EUR1.9 million
(September 2022: EUR10.3 million) at the end of the financial year
and is included in trade and other receivables.
The below sensitivity table presents the change in the total
development revenue expected from the purchaser if the variable
consideration increases or decreases by 10%. Note that the maximum
amount of variable revenue remaining that could be recognised is
EUR2.2 million. This is also the expected amount of revenue to be
received therefore no +10% analysis is performed.
-10% 0% +10%
--------------------------------------------------------- ---- --- ----
Variable development revenue expected from the purchaser
(EURm) 1.9 2.2 2.2
--------------------------------------------------------- ---- --- ----
15. Investment in subsidiaries
Company Company
2023 2022
Company EUR'000 EUR'000
--------------------------------------------- -------- --------
Balance as at 1 October 61,386 61,386
--------------------------------------------- -------- --------
Additions 8,535 -
--------------------------------------------- -------- --------
Provision of investment made in subsidiaries - -
--------------------------------------------- -------- --------
Balance as at 30 September 69,921 61,386
--------------------------------------------- -------- --------
During the year to 30 September 2023, SEREIT plc invested
EUR5,400,000 into SEREIT Holdings Sarl as part of the acquisition
of the Alkmaar property and the creation of the SPV SEREIT Alkmaar
Sarl.
The Group made a decision that a dividend of EUR3,135,000
previously paid to SEREIT plc from SEREIT Holdings Sarl was to be
reclassified as a partial repayment of an interest free loan.
The subsidiary companies listed below are those which were part
of the Group as at 30 September 2023. Unless otherwise stated, they
have share capital consisting solely of ordinary shares that are
held directly by the Group and the proportion of ownership of
interests held equals the voting rights held by the Group.
Country of
Undertaking incorporation Group ownership Registered office address
-------------------------- -------------- --------------- --------------------------------
22 Grenville Street, Jersey, JE4
SEREIT (Jersey) Limited Jersey 100% 8PX
-------------------------- -------------- --------------- --------------------------------
15, Boulevard F.W. Raiffeisen,
SEREIT Finance Sàrl Luxembourg 100% 2411
-------------------------- -------------- --------------- --------------------------------
15, Boulevard F.W. Raiffeisen,
SEREIT Holdings Sàrl Luxembourg 100% 2411
-------------------------- -------------- --------------- --------------------------------
153 Rue Saint Honoré, 75001
OPPCI SEREIT France France 100% Paris
-------------------------- -------------- --------------- --------------------------------
SCI SEREIT Rumilly France 100% 8-10 Rue Lamennais, 75008 Paris
-------------------------- -------------- --------------- --------------------------------
SEREIT Berlin DIY 15, Boulevard F.W. Raiffeisen,
Sàrl Luxembourg 100% 2411
-------------------------- -------------- --------------- --------------------------------
15, Boulevard F.W. Raiffeisen,
SEREIT Hamburg Sàrl Luxembourg 100% 2411
-------------------------- -------------- --------------- --------------------------------
15, Boulevard F.W. Raiffeisen,
SEREIT Stuttgart Sàrl Luxembourg 100% 2411
-------------------------- -------------- --------------- --------------------------------
15, Boulevard F.W. Raiffeisen,
SEREIT Frankfurt Sàrl Luxembourg 100% 2411
-------------------------- -------------- --------------- --------------------------------
SCI SEREIT Directoire France 100% 8-10 Rue Lamennais, 75008 Paris
-------------------------- -------------- --------------- --------------------------------
15, Boulevard F.W. Raiffeisen,
SEREIT Apeldoorn Sàrl Luxembourg 100% 2411
-------------------------- -------------- --------------- --------------------------------
15, Boulevard F.W. Raiffeisen,
SEREIT UV Sàrl Luxembourg 100% 2411
-------------------------- -------------- --------------- --------------------------------
15, Boulevard F.W. Raiffeisen,
SEREIT Alkmaar Sàrl Luxembourg 100% 2411
-------------------------- -------------- --------------- --------------------------------
SEREIT Holdings France
SAS (SIIC) France 100% 8-10 Rue Lamennais, 75008 Paris
-------------------------- -------------- --------------- --------------------------------
SCI SEREIT Pleudihen France 100% 8-10 Rue Lamennais, 75008 Paris
-------------------------- -------------- --------------- --------------------------------
SAS Clarity Developpement France 100% 8-10 Rue Lamennais, 75008 Paris
-------------------------- -------------- --------------- --------------------------------
SEREIT France Invest
SAS France 100% 8-10 Rue Lamennais, 75008 Paris
-------------------------- -------------- --------------- --------------------------------
SCI SEREIT Nantes France 100% 8-10 Rue Lamennais, 75008 Paris
-------------------------- -------------- --------------- --------------------------------
SCI LC Invest France 100% 8-10 Rue Lamennais, 75008 Paris
-------------------------- -------------- --------------- --------------------------------
16. Investment in joint venture
The Group has a 50% interest in a joint venture called Urban
SEREIT Holdings Spain S.L. The principal place of business of the
joint venture is Calle Velazquez 3, 4th Madrid 28001 Spain.
2023 2022
Group EUR'000 EUR'000
--------------------------- -------- --------
Balance as at 1 October - -
--------------------------- -------- --------
Investment in joint venture - -
--------------------------- -------- --------
Share of loss for the year - -
--------------------------- -------- --------
Balance as at 30 September - -
--------------------------- -------- --------
2023 2022
Summarised joint venture financial information: EUR'000 EUR'000
--------------------------------------------------- -------- --------
Total assets 28,078 29,290
--------------------------------------------------- -------- --------
Total liabilities (50,055) (48,435)
--------------------------------------------------- -------- --------
Net liabilities (21,977) (19,146)
--------------------------------------------------- -------- --------
Net asset value attributable to the Group - -
--------------------------------------------------- -------- --------
Revenues for the year 2,329 4,003
--------------------------------------------------- -------- --------
Total comprehensive (loss) (2,832) (4,536)
--------------------------------------------------- -------- --------
Total comprehensive loss attributable to the Group - -
--------------------------------------------------- -------- --------
As at 30 September 2023, the joint venture in Seville, of which
SEREIT holds a 50% share, had total net liabilities of
EUR21,977,000 (2022: EUR19,146,000). The Group has therefore
recognised a nil interest as its investment in the joint venture
and would only recognise its share of net liabilities where certain
legal or constructive obligations are in force. No such obligations
exist with regard to the Seville joint venture.
A reduction in rental income has resulted in a requirement under
the minimum net rental income covenant in the loan agreement for
the lender to retain all excess rental income generated by the
Seville property in the property-owning special purpose vehicle
('SPV'). This position will continue until the rental income
increases sufficiently to meet the level required under the loan. A
significant fall in valuation over the last few years has resulted
in a 'Hard LTV' covenant breach which leads to an automatic
increase in the interest margin. The bank have agreed a waiver
until the maturity date of the additional interest margin.
In 2023 and 2022, within total liabilities of the joint venture,
there is also a loan amount of EUR10,000,000 owed to the Group. The
Group has fully impaired the loan and interest receivable from the
joint venture and further details are provided in note 6. The loan
is expected to mature at the same time as the above-mentioned bank
loan and carries a fixed interest rate of 4.37% per annum payable
quarterly.
17. Trade and other receivables
Restated
(as per
note 1)
Group Group Company Company
2023 2022 2023 2022
EUR'000 EUR'000 EUR'000 EUR'000
----------------------------------------- -------- -------- -------- --------
Rent and service charges receivable 4,467 2,763 - -
----------------------------------------- -------- -------- -------- --------
Amounts due from subsidiary undertakings - - 1,221 16,096
----------------------------------------- -------- -------- -------- --------
VAT receivable 297 891 4 21
----------------------------------------- -------- -------- -------- --------
Rental and security deposits 1,067 1,569 - -
----------------------------------------- -------- -------- -------- --------
Proceeds receivable from development1 1,898 10,346 - -
----------------------------------------- -------- -------- -------- --------
Withholding tax receivable - - - -
----------------------------------------- -------- -------- -------- --------
Other debtors and prepayments 1,168 1,111 60 83
----------------------------------------- -------- -------- -------- --------
8,897 16,680 1,285 16,200
----------------------------------------- -------- -------- -------- --------
1 Refer to note 14 for proceeds due from the development of Boulogne-Billancourt in Paris.
Other debtors and prepayments includes tenant incentives of
EUR1,027,000 (2022: EUR1,244,000). There were no provisions against
the above amounts in 2023 (2022: Nil).
18. Share capital and share premium
Group Group Company Company
30/09/2023 30/09/2022 30/09/2023 30/09/2022
EUR'000 EUR'000 EUR'000 EUR'000
----------------------- ----------- ----------- ----------- -----------
Ordinary share capital 17,966 17,966 17,966 17,966
----------------------- ----------- ----------- ----------- -----------
Share premium 43,005 43,005 43,005 43,005
----------------------- ----------- ----------- ----------- -----------
As at 30 September 2023, the share capital of the Company was
represented by 133,734,686 ordinary shares (2022: 133,734,686
ordinary shares) with a par value of 10.00 pence.
Issued share capital
As at 30 September 2023, the Company had 133,734,686 ordinary
shares (2022: 133,734,686 in issue (no shares were held in
treasury). The total number of voting rights of the Company at 30
September 2023 was 133,734,686 (2022: 133,734,686).
Incremental costs directly attributable to the issue of new
shares or options are shown in equity as a deduction, net of tax,
from the proceeds.
19. Interest-bearing loans and borrowings
This note provides information about the contractual terms of
the Group's interest-bearing loans and borrowings. For more
information about the Group's exposure to interest rate risk see
note 22.
Group Group Company Company
2023 2022 2023 2022
EUR'000 EUR'000 EUR'000 EUR'000
------------------------------------- -------- -------- -------- --------
As at 1 October 68,744 68,589 - -
------------------------------------- -------- -------- -------- --------
Drawdown of new loans 31,760 - - -
------------------------------------- -------- -------- -------- --------
Repayment of matured debt facilities (26,950) - - -
------------------------------------- -------- -------- -------- --------
Capitalisation of finance costs (84) (15) - -
------------------------------------- -------- -------- -------- --------
Amortisation of finance costs 153 170 - -
------------------------------------- -------- -------- -------- --------
As at 30 September 73,623 68,744 - -
------------------------------------- -------- -------- -------- --------
Borrowings are removed from the statement of financial position
when the obligation specified in the contract is discharged,
cancelled or expired. Borrowings are classified as current
liabilities unless the Group has an unconditional right to defer
settlement of the liability for at least 12 months after the
reporting period.
Bank loan - HSBC Bank plc
The Group had a loan facility of EUR9.25 million with HSBC Bank
plc which was entered into during the year ended 30 September
2018.
The total amount had been fully drawn and matured on 27
September 2023. It carried an interest rate which is the aggregate
of the applicable Euribor 3 months rate and a margin of 2.15% per
annum payable quarterly. The facility was subject to a 1%
arrangement fee which is being amortised over the period of the
loan. The debt had a LTV covenant of 62.5% and the interest cover
should be above 275%.
The lender had a charge over properties owned by the Group with
a value of EUR25,050,000. A pledge of all shares in the borrowing
Group company is in place.
This loan was fully repaid in September 2023.
Bank loan - ABN AMRO
The Group entered into a facility of EUR13.76 million with ABN
AMRO during the year ended 30 September 2023. The loan was fully
drawn down on 28 September 2023 and matures on 1 September
2028.
It carries an interest rate of 5.3% which is payable quarterly.
The debt has a LTV covenant of 62.5%, with a cash trap of 55% which
reduces by 1% each year from 1 September 2024 and the debt to yield
ratio should be above 12.5%.
The lender has a charge over property owned by the Group with a
value of EUR36,475,000. A pledge of all shares in the borrowing
Group company will be put in place.
Bank loan - BRED Banque Populaire
The Group entered into a loan facility totalling EUR13.0 million
with BRED Banque Populaire during the year ended 30 September
2018.
The total amount was fully drawn and matures on 15 December
2024. The loan carries an interest rate which is the aggregate of
the applicable Euribor 3 months rate and a margin of 1.30% per
annum payable quarterly. The facility was subject to an arrangement
fee of EUR70,000 which is being amortised over the period of the
loan. The debt has a LTV covenant of 60% and the Interest cover
ratio ('ICR') should be above 400%. The Group has purchased an
interest rate cap to have risk coverage on the variation of the
interest rate.
During the year ended 30 September 2020, the Group received a
further EUR4.0 million of debt into SCI Directoire under its
existing loan facility with BRED Banque Populaire. The additional
loan amount carries an interest rate of 1.45% and was subject to a
EUR30,000 arrangement fee which will be amortised over the period
of the loan. The total loan facility stands at EUR17.0 million and
matures on the original date of 15 December 2024.
The lender has a charge over property owned by the Group with a
value of EUR40,100,000. A pledge of all shares in the borrowing
Group company is in place.
Bank loan - Deutsche Pfandbriefbank AG
The Group has two loan facilities totalling EUR30.50 million
with Deutsche Pfandbriefbank AG which were entered into during the
year ended 30 September 2016.
Of the total amount previously drawn, EUR14.0 million was due to
mature on 30 June 2023 and carried a fixed interest rate of 0.85%
per annum payable quarterly; the remaining EUR16.5 million matures
on 30 June 2026 and carries a fixed interest rate of 1.31% per
annum. An additional fixed fee of 0.30% per annum was payable until
certain conditions relating to the Frankfurt property were
fulfilled on 30 December 2016. The facility was subject to a 0.35%
arrangement fee which is being amortised over the period of the
loan. The debt has a LTV covenant of 65% and the debt yield must be
at least 8%.
The lender has a charge over property owned by the Group with a
value of EUR90,050,000. A pledge of all shares in the borrowing
Group companies is in place.
The EUR14.0 million loan was fully repaid in March 2023.
Bank loan - Westerwald Bank eG
The Group entered into a facility of EUR18.0 million with
Westerwald bank on 31 March 2023. The loan has been fully drawn and
matures on 31 December 2027. It carries an interest rate of 3.8%
which is payable quarterly.
The lender has a charge over property owned by the Group with a
value of EUR42,400,000.
Bank loan - Landesbank Saar
The Group entered into a loan facility of EUR8.6 million with
Landesbank Saar on 27 March 2019.
The loan matures on 28 March 2024 and carries an interest rate
of 1.40% plus Euribor 3 months per annum, payable quarterly. An
additional 25bps is applied to the margin if the LTV is between 56%
and 60%, or 50bps if the LTV is above 60%. The facility was subject
to a EUR56,000 arrangement fee which is being amortised over the
period of the loan. The debt has a LTV covenant of 64% and the
interest cover should be above 220%. A pledge of all shares in the
borrowing Group company is in place.
This loan was classified as a current liability for the year
ended 30 September 2023.
Bank loan - Landesbank Saar
On 25 November 2019, SCI Rumilly entered into a new loan
facility with Landesbank Saar for EUR3.7 million.
The loan matures on 30 April 2023 and carries an interest rate
of 1.30% plus Euribor 3 months per annum payable quarterly. An
additional 25bps is applied to the margin if the LTV is between 52%
and 56%, or 50bps if the LTV is equal to or above 56%. The facility
was subject to a EUR46,000 arrangement fee which is amortised over
the period of the loan. The debt has a maximum LTV covenant of 60%
and a minimum ICR covenant of 200%. A pledge of all shares in the
borrowing Group company is in place
The Group fully repaid the loan ahead of its maturity in April
2023.
20. Trade and other payables
Group Group Company Company
30/09/2023 30/09/2022 30/09/2023 30/09/2022
EUR'000 EUR'000 EUR'000 EUR'000
------------------------- ----------- ----------- ----------- -----------
Rent received in advance 880 1,333 - -
------------------------- ----------- ----------- ----------- -----------
Rental deposits 1,393 1,568 - -
------------------------- ----------- ----------- ----------- -----------
Interest payable 206 133 - -
------------------------- ----------- ----------- ----------- -----------
Retention payable 85 2 - -
------------------------- ----------- ----------- ----------- -----------
Accruals 2,194 2,428 893 1,477
------------------------- ----------- ----------- ----------- -----------
Trade payables 98 393 39 -
------------------------- ----------- ----------- ----------- -----------
4,856 5,857 932 1,477
------------------------- ----------- ----------- ----------- -----------
All trade and other payables are interest free and payable
within one year. Included within the Group's accruals are amounts
relating to management fees of EUR626,000 (2022: EUR717,000) and
property expenses of EUR505,000 (2022: EUR625,000).
21. Net asset value per ordinary share
The NAV per ordinary share of 128.2 euro cents per share (2022:
140.8 euro cents per share) is based on the net assets attributable
to ordinary shareholders of the Group of EUR171,439,000 (2022:
EUR188,243,000), and 133,734,686 ordinary shares in issue at 30
September 2023 (2022: 133,734,686 ordinary shares).
22. Financial instruments, properties and associated risks
Financial risk factors
The Group holds cash and liquid resources as well as having
debtors and creditors that arise directly from its operations. The
Group uses interest rate caps when required to limit exposure to
interest rate risks, but does not have any other derivative
instruments. The financial risk profile of the Group has been
heightened, in part due to ongoing geopolitical developments,
together with macroeconomic uncertainty.
The main risks arising from the Group's financial instruments
and properties are market price risk, currency risk, credit risk,
liquidity risk and interest rate risk. The Board regularly reviews
and agrees policies for managing each of these risks and these are
summarised below:
Market price risk
Rental income and the market value for properties are generally
affected by overall conditions in the economy, such as changes in
gross domestic product, employment trends, inflation and changes in
interest rates. Changes in gross domestic product may also impact
employment levels, which in turn may impact the demand for
premises. Furthermore, movements in interest rates may also affect
the cost of financing for real estate companies.
The Group's investments comprise of continental European
commercial property. Property and property-related assets are
inherently difficult to value due to the individual nature of each
property. As a result, valuations are subject to substantial
uncertainty. There is no assurance that the estimates resulting
from the valuation process will reflect the actual sale's price
even where such sales occur shortly after the valuation date.
Both rental income and property values may also be affected by
other factors specific to the real estate market, such as
competition from other property owners; the perceptions of
prospective tenants of the attractiveness, convenience and safety
of properties; the inability to collect rents because of bankruptcy
or the insolvency of tenants; the periodic need to renovate, repair
and re-lease space and the costs thereof; the costs of maintenance
and insurance, and increased operating costs.
The Board monitors the market value of investment properties by
having independent valuations carried out quarterly by a firm of
independent chartered surveyors. See note 13.
At the date of signing this report, the conflict in Ukraine
continues to have significant societal and economic impact. The
Group does not have a material direct exposure to Russia or
Ukraine, but continues to monitor the situation closely.
Currency risk
The Group's policy is for Group entities to settle liabilities
denominated in their functional currency with the cash generated
from their own operations in that currency. Where Group entities
have liabilities in a currency other than their functional currency
(and have insufficient reserves of that currency to settle them),
cash already in that currency will, where possible, be transferred
from elsewhere within the Group. The functional currency of all
entities in the Group is the euro. Currency risk sensitivity has
not been shown due to the small values of non-euro transactions.
The table below details the Group's exposure to foreign currencies
at the year end:
Group Group Company Company
30/09/2023 30/09/2022 30/09/2023 30/09/2022
Net assets EUR'000 EUR'000 EUR'000 EUR'000
----------- ----------- ----------- ----------- -----------
Euros 171,346 188,436 148,903 155,842
----------- ----------- ----------- ----------- -----------
Sterling 13 (223) 13 (223)
----------- ----------- ----------- ----------- -----------
Rand 80 30 80 30
----------- ----------- ----------- ----------- -----------
171,439 188,243 148,996 155,649
----------- ----------- ----------- ----------- -----------
Interest rate risk
Exposure to market risk for changes in interest rates relates
primarily to the Group's long-term debt obligations and to interest
earned on cash balances. As interest on the Group's long-term debt
obligations is payable on a fixed-rate basis, or is capped, the
Group has limited exposure to interest rate risk, but is exposed to
changes in fair value of long-term debt obligations such as
derivatives which are driven by interest rate movements. As at 30
September 2023, the total carrying value of the Group's loans was
EUR73.9 million (2022: EUR69.1 million). The Group only has its
fixed rate debt fair valued, and as at 30 September 2023, the fair
value of the Group's fixed rate debt was EUR47.3 million (2022:
EUR29.5 million). The carrying value for the fixed rate debt was
EUR48.3 million (2022: EUR30.5 million). The Group does not fair
value variable rate debt. The carrying value of the variable rate
debt, which is EUR25.6 million (2022: EUR38.6 million) is deemed to
approximate the fair value. A 1% increase or decrease in short-term
interest rates would decrease or increase the annual income and
equity by EUR0.1 million (2022: EUR0.1 million) based on the net of
cash and variable debt balances as at 30 September 2023. 1% has
been chosen as the sensitivity rate to demonstrate the linear
relationship to interest rate changes.
Credit risk
Credit risk is the risk that an issuer or counterparty will be
unable or unwilling to meet a commitment that it has entered into
with the Group. In the event of default by an occupational tenant,
the Group will suffer a rental income shortfall and incur
additional costs, including legal expenses, in maintaining,
insuring and re-letting the property.
With regard to trade and other receivables, sufficient
provisions were made against aged tenant receivables where these
were doubtful. Management will continue to monitor the ability of
the tenants to pay in future.
With regard to the loan to the Seville joint venture, the
Directors have assessed this for an expected credit loss under IFRS
9 and, consequently, have recognised an impairment against the
receivable; see note 6 for further details.
The Investment Manager reviews reports prepared by Dun &
Bradstreet or other sources, to assess the credit quality of the
Group's tenants and aims to ensure there is no excessive
concentration of risk and that the impact of any default by a
tenant is minimised.
In respect of credit risk arising from other financial assets,
which comprise cash and cash equivalents and a loan to a joint
venture, exposure to credit risk arises from default of the
counterparty with a maximum exposure equal to the carrying amounts
of these instruments. In order to mitigate such risks, cash is
maintained with major international financial institutions with
high-quality credit ratings.
The table below shows the balance of cash and cash equivalents
held with various financial institutions at the end of the
reporting year.
Company
Ratings Group balance balance
as at at 30/09/2023 at 30/09/2023
Bank 30/09/2023 EUR'000 EUR'000
------------------------------------- ------------ -------------- --------------
HSBC Bank plc A- 7,222 1,450
------------------------------------- ------------ -------------- --------------
ING Bank N.V. A- 5,123 -
------------------------------------- ------------ -------------- --------------
BNP Paribas A- 1,274 -
------------------------------------- ------------ -------------- --------------
BRED Banque Populaire A 1,664 -
------------------------------------- ------------ -------------- --------------
Santander A- 7,096 7,089
------------------------------------- ------------ -------------- --------------
Societe Generale SA A- 3,773 871
------------------------------------- ------------ -------------- --------------
Commerzbank AG BBB 2,155 -
------------------------------------- ------------ -------------- --------------
FirstRand Bank Limited BBB- 80 80
------------------------------------- ------------ -------------- --------------
Royal Bank of Scotland International BBB+ 4,058 4,058
------------------------------------- ------------ -------------- --------------
32,445 13,548
-------------------------------------------------- -------------- --------------
Company
Ratings Group balance balance
as at at 30/09/2022 at 30/09/2022
Bank 30/09/2022 EUR'000 EUR'000
----------------------- ------------ -------------- --------------
HSBC Bank plc A+ 2,743 862
----------------------- ------------ -------------- --------------
ING Bank N.V. A+ 9,994 -
----------------------- ------------ -------------- --------------
BNP Paribas A+ 1,768 -
----------------------- ------------ -------------- --------------
BRED Banque Populaire A 6,671 -
----------------------- ------------ -------------- --------------
Santander A 6,905 6,900
----------------------- ------------ -------------- --------------
Societe Generale SA A 4,569 2,247
----------------------- ------------ -------------- --------------
Commerzbank AG BBB+ 1,644 -
----------------------- ------------ -------------- --------------
FirstRand Bank Limited BB- 30 30
----------------------- ------------ -------------- --------------
34,324 10,039
------------------------------------ -------------- --------------
The maximum exposure to credit risk for rent and service charge
receivables at the reporting date by type of sector was:
30/09/2023 30/09/2022
Carrying Carrying
amount amount
EUR'000 EUR'000
-------------------------------------- ---------- ----------
Office 3,357 1,701
-------------------------------------- ---------- ----------
Retail (including retail warehousing) 561 381
-------------------------------------- ---------- ----------
Industrial 550 513
-------------------------------------- ---------- ----------
4,468 2,595
-------------------------------------- ---------- ----------
Rent receivables which are past their due date, but which were
not impaired at the reporting date, were:
30/09/2023 30/09/2022
Carrying Carrying
amount amount
EUR'000 EUR'000
------------- ---------- ----------
0-30 days 65 2,707
------------- ---------- ----------
31-60 days 59 -
------------- ---------- ----------
61-90 days 8 -
------------- ---------- ----------
91 days plus 712 -
------------- ---------- ----------
844 2,707
------------- ---------- ----------
Liquidity risk
Liquidity risk is the risk that the Group will encounter
difficulties in meeting its financial obligations.
Investments in property are relatively illiquid. However, the
Group has tried to mitigate this risk by investing in properties
that it considers to be good quality.
In certain circumstances, the terms of the Group's debt
facilities entitle the lender to require early repayment and in
such circumstances the Group's ability to maintain dividend levels
and the net asset value could be adversely affected. The Investment
Manager prepares cash flows on a rolling basis to ensure the Group
can meet future liabilities as and when they fall due.
The following table indicates the undiscounted maturity analysis
of the financial liabilities.
Carrying Expected 6 months 6 months More than
amount cash flows or less to 2 years 2-5 years 5 years
As at 30 September 2023 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
---------------------------- -------- ----------- -------- ----------- --------- ---------
Financial liabilities
---------------------------- -------- ----------- -------- ----------- --------- ---------
Interest-bearing loans and
borrowings and interest 73,860 81,289 9,587 19,604 52,098 -
---------------------------- -------- ----------- -------- ----------- --------- ---------
Trade and other payables 4,856 4,856 4,856 - - -
---------------------------- -------- ----------- -------- ----------- --------- ---------
Total financial liabilities 78,716 86,145 14,443 19,604 52,098 -
---------------------------- -------- ----------- -------- ----------- --------- ---------
Carrying Expected 6 months 6 months More than
amount cash flows or less to 2 years 2-5 years 5 years
As at 30 September 2022 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
---------------------------- -------- ----------- -------- ----------- --------- ---------
Financial liabilities
---------------------------- -------- ----------- -------- ----------- --------- ---------
Interest-bearing loans and
borrowings and interest 69,050 70,845 461 36,459 33,925 -
---------------------------- -------- ----------- -------- ----------- --------- ---------
Trade and other payables 5,724 5,724 5,724 - - -
---------------------------- -------- ----------- -------- ----------- --------- ---------
Total financial liabilities 74,774 76,569 6,185 36,459 33,925 -
---------------------------- -------- ----------- -------- ----------- --------- ---------
Fair values
The fair values of financial assets and liabilities approximate
their carrying values in the financial statements.
The fair value hierarchy levels are as follows:
-- Level 1 - quoted prices (unadjusted) in active markets for identical assets and liabilities;
-- Level 2 - inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from prices);
and
-- Level 3 - inputs for the asset or liability that are not
based on observable market data (unobservable inputs).
There have been no transfers between Levels 1, 2 and 3 during
the year (2022: none).
The following summarises the main methods and assumptions used
in estimating the fair values of financial instruments and
investment property (which is a non-financial asset).
Investment property - Level 3
Fair value is based on valuations provided by an independent
firm of chartered surveyors and registered appraisers. These values
were determined after having taken into consideration recent market
transactions for similar properties in similar locations to the
investment properties held by the Group. The fair value hierarchy
of investment property is Level 3. See note 13 for further
details.
Interest-bearing loans and borrowings - Level 2
Fair values are based on the present value of future cash flows
discounted at a market rate of interest. Issue costs are amortised
over the period of the borrowings.
Trade and other receivables/payables
All receivables and payables are deemed to be due within one
year and as such the carrying value approximates the fair
value.
Derivatives - Level 2
Fair values of derivatives are based on current market
conditions such as the current EURIBOR rate compared to the terms
of the derivative agreements.
Capital management
The Board's policy is to maintain a strong capital base so as to
maintain investor, creditor and market confidence, and to sustain
future development of the business. The objective is to ensure that
it will continue as a going concern and to maximise return to its
equity shareholders through an appropriate level of gearing.
The Group's debt and capital structure comprises the
following:
30/09/2023 30/09/2022
EUR'000 EUR'000
------------------------------------------ ---------- ----------
Debt
------------------------------------------ ---------- ----------
Loan facilities and accrued interest 73,828 68,877
------------------------------------------ ---------- ----------
Equity
------------------------------------------ ---------- ----------
Called-up share capital and share premium 60,971 60,971
------------------------------------------ ---------- ----------
Retained earnings and other reserves 110,468 127,272
------------------------------------------ ---------- ----------
Total equity 171,439 188,243
------------------------------------------ ---------- ----------
Total debt and equity 245,267 257,120
------------------------------------------ ---------- ----------
There were no changes in the Group's approach to capital
management during the year.
The Company's capital structure is comprised of equity only.
23. Operating leases
The Group leases out its investment property under operating
leases. At 30 September 2023, the future minimum lease receipts
under non-cancellable leases are as follows:
30/09/2023 30/09/2022
The Group as a lessor EUR'000 EUR'000
--------------------------- ---------- ----------
Less than one year 16,511 14,426
--------------------------- ---------- ----------
Between one and five years 41,938 41,945
--------------------------- ---------- ----------
More than five years 13,189 7,435
--------------------------- ---------- ----------
71,638 63,806
--------------------------- ---------- ----------
The total above comprises the total contracted rent receivable
as at 30 September 2023.
24. Related party transactions
Material agreements are disclosed in note 5 and Directors'
emoluments are disclosed in note 9. Loans to related parties are
disclosed in the consolidated and company statements of financial
position and other amounts due from related parties are disclosed
in note 17.
Details of dividends received from the joint venture are
disclosed in note 16.
Interest receivable from the joint venture was impaired during
the year; refer to note 6 for further details.
25. Contingent liability
There are no contingent liabilities other than those disclosed
in note 10.
26. Capital commitments
At 30 September 2023 the Group had capital commitments of
EUR400,000 (2022: EUR1,500,000) with regards to its directly held
portfolio. This relates to various small projects across the
portfolio.
In addition, the Group is expected to incur a further EUR1.0
million of development expenditure with regards to the
comprehensive refurbishment of the Paris, Boulogne -- Billancourt
asset.
27. Employees
The Group has one employee who is appointed by the French branch
of the Company. The total charge for the employee during the year
was EUR22,000 (2022: EUR22,000).
28. Post balance sheet events
There were no significant events occurring after the balance
sheet date.
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END
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