Annual Financial Report

RNS Number : 1375J

Schroder Eur Real Est Inv Trust PLC

03 December 2018

 

3 December 2018

FULL YEAR RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2018

NEW INVESTMENT AND ASSET MANAGEMENT UNDERPINS GROWTH IN PROFITS AND DELIVERY OF TARGET 5.5% DIVIDEND YIELD

Schroder European Real Estate Investment Trust plc, the company investing in European growth cities and regions, today announces its audited full year results for the year ended 30 September 2018.

Key Highlights

‒   Continued benefits of growth in the premier European markets

‒   Acquired five properties in high growth sectors and cities, deploying €52 million at an average net income yield of 8.0%, and disposed of two retail properties totalling €44.8 million at an average net income yield of 5.0%

‒   Achieved IPO dividend target of 5.5% yield on Euro IPO issue price

‒   Active asset management has driven 57% growth in EPRA earnings

‒   Strong diversification from UK market

Financial highlights

‒   Profit increased by 28% to €13.2 million (30 September 2017: €10.3 million)

‒   NAV total return of 7.5% (30 September 2017: 6.0%)

‒   Net Asset Value ('NAV') of €182.1 million or 136.2 cps, reflecting an increase over the period of 2.2%

‒   Total dividends declared relating to the year of 7.4 cps, reflecting a 42% increase on the Full Year 2017 dividend

‒   Dividend for the quarter ended 30 September 2018 of 1.85 cps

‒   Underlying EPRA earnings of €10.8 million (30 September 2017: €6.9 million)

‒   Loan to value ('LTV') of 26% (30 September 2017: 25%) at a weighted average total interest rate of 1.4%. Debt is either fixed cost or capped and has a long duration of 6.0 years on average

Operational highlights

‒   100% of the portfolio's 12 institutional grade properties located in the fastest growing cities and regions of Continental Europe, which are expected to benefit from positive economic growth

‒   Portfolio valued at €222.0 million, reflecting an uplift of approximately 8.1% on purchase price;

‒   Disposal of two French retail properties for €44.8 million, reflecting a €4.9 million premium to the purchase price;

‒   Diversified the portfolio into the high growth logistics / industrial sector with the acquisition of three warehouses in the Netherlands for €21.3 million and a warehouse in France for €9.3 million, increasing the portfolio's industrial weighting to 13%

‒   Acquisition of a long leased Data Centre in the Netherlands for an all in cost of €21 million, generating a net initial yield of approximately 10%;

‒   Execution of asset management initiatives across the portfolio, benefiting from the Investment Manager having local on the ground real estate teams:

o  Conclusion of 17 new leases and re-gears, across approximately 8,600 sqm, resulting in an increase in income of c. 3% relative to previous rent and a weighted average lease term of c. 8 years

o  Negotiation of a lease surrender in Hamburg, including a surrender premium to the Company of €3.9 million. In advanced discussions on securing new leases over c. 40% of the surrendered space;

‒   Maintained high portfolio occupancy levels of 97% (31 March 2018: 97%), with average portfolio unexpired lease term of 6.6 years (5.0 years to break).

Commenting, Sir Julian Berney, Chairman of the Board, said:

"This has been another strong year that has seen SEREIT delivering growth in both NAV and income, chiefly underpinned by the profitable disposal of lower yielding assets alongside new investment into higher growth industrial assets, as well as the active asset management of the existing portfolio and its tenants. This activity has enabled the Company to grow the dividend and achieve its 5.5% IPO target dividend.

"Going forward, the Company's strategic focus on Winning Cities and regions across Europe means the portfolio we have constructed benefits from strong fundamentals, with a diverse occupier base and a number of clear opportunities to realise further rental growth. The quality of the real estate portfolio combined with the robust balance sheet and strong income profile also provide defensive characteristics in periods of uncertainty."

Jeff O'Dwyer, Fund Manager for Schroder Real Estate Investment Management

Limited, added:

"Underpinned by the strongly performing Eurozone and wider market stability, the case for continental European real estate remains compelling, particularly for cities that are attractive places to live, work and visit, have diverse economies and are benefiting from infrastructure investment. The Company's assets are all located in these higher growth cities which positions them well to continue capitalising on the underlying growth in those markets.

"Our near term priority is focused on investing the remaining €15 million and, leveraging our 180 strong team, we have already identified a range of potential investment opportunities in our target sectors that would be accretive to the Company's earnings. We remain committed to our ambition to grow the portfolio in a disciplined way in order to deliver enhanced shareholder returns."

The Company's Annual Report and Accounts for the year ended 30 September 2018 are being published in hard copy format and an electronic copy 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/1375J_1-2018-11-30.pdf

The Company has submitted its Annual Report and Accounts to the National Storage Mechanism and it will shortly be available for inspection at www.morningstar.co.uk/uk/NSM.

-Ends-

For further information:

Schroder Real Estate Investment Management Duncan Owen / Jeff O'Dwyer	020 7658 6000
Ria Vavakis Schroder Investment Management Limited	01481 745212
FTI Consulting Dido Laurimore / Richard Gotla / Methuselah Tanyanyiwa	020 3727 1000

A presentation for analysts and investors will be held at 09.00 GMT today at the new offices of Schroders plc, 1 London Wall Place, London, EC2Y 5AU.  If you would like to attend, please contact James Lowe at Schroders on [e-mail] or [phone].

A webcast presentation will take place at 1100 GMT / 1300 SA, registration for which can be accessed via:

https://www.schroders.com/en/uk/adviser/webconferences2/schroder-european-real-estate-investment-trust-results-dec-18/

Chairman's statement

Overview

I am pleased to report on another strong year that has seen SEREIT delivering growth in both net asset value and income. Growth has been underpinned by two key initiatives: the profitable disposal of lower-yielding retail assets alongside new investment into higher growth industrial assets; and active asset management of the existing portfolio and its tenants.

The growth in net income has enabled the Company to achieve its IPO dividend target of a 5.5% yield against the euro IPO issue price. Going forward we will continue to pursue a progressive dividend which is sustainable from recurring income. The portfolio is well positioned for this with a diverse occupier base comprising over 130 tenants and a number of clear opportunities to realise further rental growth.

We are also proud to have delivered NAV growth alongside income growth. The main contributor to this is the uplift in value and income from the real estate portfolio. This has been driven by our focus on high growth locations and active asset management by the Investment Manager's local teams. We believe this platform provides a solid foundation for the Company's growth aspirations going forward.

Strategy

The Group's investment strategy specialises in targeting real estate located in Winning Cities and regions across Continental Europe that are benefitting from mega themes such as urbanisation and infrastructure improvements. This strategy has been successfully implemented, with 100% of the Group's portfolio located in areas expected to benefit from above-average GDP growth.

The real estate portfolio is actively managed by the Investment Manager's local teams, which are made up of 180 real estate professionals based across eight key markets in Europe. These teams are informed by Schroders' research capability, which delves into these markets to identify locations and sectors that are benefiting from supply/demand imbalances and structural changes. This combination of in-house research and on the ground presence enables the Company to identify specific acquisitions and formulate and execute asset management initiatives to capitalise on the growth potential in these markets.

An example of the successful implementation of the Group's strategy during the year was the reinvestment of the Casino supermarket sale proceeds into logistics assets in France and the Netherlands, providing further portfolio diversification and increased exposure to the higher growth industrial sector. Another example was negotiating a lease surrender at the Group's Hamburg office, generating an immediate income return and enabling the Group to potentially capitalise on the rental growth prospects in a strong Hamburg sub-market.

Continuing to deliver on the investment strategy will support maximising income and long-term capital value growth for the Company. This will underpin our ambition to grow the Company in a disciplined way that will improve shareholder returns and provide additional benefits such as cost economies and share liquidity.

Dividend

The Company has declared a fourth interim dividend in respect of the year ended 30 September 2018 of 1.85 euro cents per share based on the number of shares in issue as at the publishing date of this report. The total dividends in respect of the year amount to 7.4 euro cents per share, equating to a 42% increase compared to dividends declared for the year ending 30 September 2017.

The latest declared dividend represents an annualised rate of 5.5% based on the euro equivalent of the issue price at admission, achieving the target dividend stated at IPO. Based on the Euro:GBP exchange rate as at 30 September 2018, this equates to an annualised rate of 6.8% on the GBP issue price at IPO of 100 pence per share.

The dividend is fully covered from net income from the portfolio. The Company will continue to pursue a progressive dividend policy which is sustainable from recurring income.

Balance sheet and debt

The Group is focused on maintaining a robust balance sheet and overall leverage is capped at 35% at the time of drawing debt. The Group completed two new loans during the year and as at year end had five debt facilities in place totalling €64.4 million, representing a Loan to Value ('LTV') of approximately 26% against the overall gross asset value of the Group.

The Group's average weighted interest rate is 1.4%, materially below the income yield on the real estate portfolio of 6.3%. All interest rates are either fixed or capped to mitigate the risk of rising interest rates. It is likely the Group will draw further debt facilities against future acquisitions and continue to benefit from the positive yield spread.

Outlook

The Group's strategic focus on Winning Cities and regions across Europe means the portfolio we have constructed is centred on higher growth locations and sectors where we expect more sustainable occupier demand. This will benefit the Group through different cycles. The quality and increased diversification of the real estate portfolio, combined with the robust balance sheet and strong income profile, provide defensive characteristics in periods of uncertainty. At the same time, the asset management opportunities within the portfolio provide the chance to capitalise on the continued rental growth in our target markets. Overall this positions the Company well to deliver long-term shareholder returns.

Sir Julian Berney Bt.
Chairman
30 November 2018

Investment Manager's review

Results

The Group's Net Asset Value ('NAV') as at 30 September 2018 stood at €182.1 million (£162.2m), or 136.2 euro cents (121.3 pence) per share, achieving a NAV total return of 7.5% over the financial year.

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 cents per share:

NAV movement	€million1	Cps2	% change per cps3
Brought forward as at 1 October 2017	178.3	133.3	-
Transaction costs of investments	(3.7)	(2.8)	(2.1)
Capital expenditure	(0.6)	(0.4)	(0.3)
Unrealised gain in valuation of the real estate portfolio	3.7	2.8	2.1
Realised gain on property disposals	4.0	3.0	2.2
EPRA earnings	10.8	8.1	6.1
Non-cash/capital items	(1.0)	(0.7)	(0.5)
Dividends paid	(9.4)	(7.1)	(5.3)
Carried forward as at 30 September 2018	182.1	136.2	2.2

¹Management reviews the performance of the Group principally on a proportionally consolidated basis. As a result, figures quoted in this table include the Group 's share of joint ventures on a line-by-line basis and exclude non-controlling interests in the Company's subsidiaries.

²Based on 133,734,686 shares.

³Percentage change based on the starting NAV as at 1 October 2017.

Market overview

Growth in the Eurozone remains above trend, supported by structural reforms which are continuing to filter through to active leasing and investment markets. Going forward, Eurozone economic growth will slow, albeit slightly, to 1.75-2.0% p.a. through the rest of this year and 2019 given slower growth in major economies across the world. Consumer spending remains supported by further increases in employment and rising real wages and most Eurozone governments can afford to loosen their fiscal policy. However, there are signs that the decline in unemployment is starting to put upward pressure on wages, particularly in Germany, and while the European Central Bank ("ECB") has announced a halt to quantitative easing at the end of the year, Schroders expects the ECB to raise interest rates gradually from the second half of next year. While all asset classes are exposed to rising rates, the large gap between real estate yields and bond yields, however, makes it unlikely that they will rise in parallel. Nevertheless, income growth will be the key driver of returns and assets with poor prospects for income growth will be hit harder by the rise in yields. Structural trends such as rapid urbanisation, technological innovation and demographics are also likely to drive the continued divergence of real estate returns with some cities, submarkets and assets capturing strong growth and some disproportionately suffering from obsolescence and lower growth.

Offices

Office demand remains strong across continental Europe. While the main driver is the growth in employment, demand is also being propelled by two other trends. Firstly, the expansion of serviced office providers - although that is to some extent cannibalising lettings to smaller occupiers. Secondly, many larger companies are upgrading their offices in an effort to attract and retain skilled staff and improve their wellbeing and productivity. The high level of demand continues to erode vacancy rates which are sitting at record lows, particularly for modern, Grade A space. As a result, rental growth has spilled out of CBD locations and we see further growth in both prime and average grade office rents in most established sub-markets. While construction activity has slowly started to pick up, the risk of oversupply due to a building boom remains low and much of the new supply has already been pre-let.

Logistics/industrial

The logistics market in continental Europe is also enjoying strong demand thanks to the upturn in manufacturing, the growth of online retail and a structural increase in contracting out to third-party providers. However, on the supply side, developers have been quick to respond with build-to-suit projects, with the result that prime logistics rents in most locations have been mostly flat this year. The exceptions are to be found in regions where development land is scarcer or planning is harder to obtain. Looking ahead, we expect more cities to see an increase in the prime logistics rents, with growth typically running around 2% p.a.,
with occupier demand strongest for modern stock that allows the implementation of new technology
and automation.

Retail

Retail real estate markets remain polarised as consumers buy more online and prioritise experiences over goods. The trend is clearest in northern Europe where online sales now account for over 10% of total sales and the number of people visiting stores in France and Germany is falling. In most countries shopping centres are seeing a higher vacancy than retail parks because internet penetration in clothing is higher than in bulky goods and shopping centre rents are higher relative to sales than retail park rents and retail parks tend to be more accessible by car. In general, food-anchored schemes are also relatively defensive, although the success of individual formats varies from country to country, reflecting varying consumer preferences.

Strategy

The strategy over the period has focused on the following key objectives:

-       Achieving the target dividend yield of 5.5%;

-       Achieving full investment targeting Winning Cities and regions that experience higher levels of GDP, employment and population growth than national averages;

-       Re-deploy the retail asset sale proceeds (see below "Transactions") into investments that improve income and portfolio diversification, particularly from increased allocation to the higher growth logistics warehouse sector;

-       Execute asset management initiatives to improve long-term income profile and asset value; and

-       Manage portfolio risk in order to enhance the portfolio's defensive qualities

Progress has been made in executing the strategy and activity over the period which has delivered the following:

-       Growth of the annual dividend to the target level of 5.5%, representing a 42% increase in the annual dividend compared to the 2017 financial year;

-       100% of the portfolio being located in higher growth cities;

-       A portfolio level total return of 10.8% with the majority (c.70%) from income;

-       Acquisition of four warehouses (detailed in "Transactions" below) in the Netherlands and France,
increasing the weighting to the logistics warehouse sector from 0% to 13% and improving the
portfolio diversification;

-       Negotiated a lease surrender in Hamburg, receiving €2.4 million in the financial year with a further €1.5 million expected to be received in 2019,and in advanced discussions on securing new leases over c.40% of the surrendered space;

-       Concluded seventeen new leases and re-gears, resulting in an increase of income by c.3% relative to previous rent and at a weighted lease term of c.8 years;

-       Maintained the high occupancy level of 97%, with an average portfolio unexpired lease term of 6.6 years and 5.0 years to break; and

-       A low leverage of 26%

Our focus continues to be on driving income and total returns for the existing portfolio, managing risks and continuing to seek new investments to accelerate income growth. The specific next steps therefore include:

1.          The reinvestment of the remaining c.€15 million available, including debt, in a timely manner but with a disciplined approach

2.          Conclusion of key asset management initiatives;

a.     Leasing of the remaining 60% vacant space in Hamburg;

b.     Conclusion of the light refurbishment program at Metromar due for completion at the end of
Q1 2019; and

c.     Securing tenancy pre-commitment for the office investment in Boulogne Billancourt, Paris and progression of the redevelopment licenses, construction contract and programme;

3.          Continue to actively engage with existing shareholders and potential new investors; and

4.          A disciplined approach to growing the Company in a way that will improve shareholder returns.

Transactions

The Group has focused on acquiring properties that increase its allocation to the high growth industrial and logistics sector and further diversify the portfolio.

In total over the twelve months since 1 October 2017, the Group disposed of two retail properties totalling €44.8 million at an average net income yield of around 5% and acquired five properties deploying €52 million at an average net income yield of around 8%.

In July the Group completed the sale of the two low yielding Casino supermarkets in Rennes and Biarritz for a combined price of €44.8 million, representing a profit of €4.9 million compared on the combined purchase price. This provided capital to reinvest into the higher growth industrial and logistics assets.

In February 2018, the Group acquired a fully leased, three storey office building and data centre in Apeldoorn, the Netherlands for an all-in cost of €21 million. The asset generates a net income yield of approximately 10% and has a weighted average unexpired lease term of almost nine years.

In August and September 2018, the Group completed the purchase of four industrial assets in the Netherlands and France at all-in costs of €31 million. These assets are in established industrial locations and offer a stable income profile with growth upside from broader improving city and regional fundamentals.

-       In Rumilly, South-East France, the Group has acquired a freehold logistics property at a net initial yield of 7.0%. The 16,700 sq.m warehouse is fully let to a strong covenant: a subsidiary of the global food and drink manufacturer Nestlé with an unexpired lease term of over seven years

-       In Venray, the Netherlands, the Group has acquired a freehold 15,290 sq.m warehouse, fully let to logistics specialist De Klok Logistics on a new 10 year lease. The Venray/Venlo region sits next to the German border and the Ruhr region. It is regarded as one of the premier logistics locations in Europe, providing both domestic and European distribution capabilities via its excellent road, rail and ports connectivity

-       In Houten, in the Utrecht province of the Netherlands, the Group has acquired a modern freehold 9,149 sq.m warehouse which is 100% let to Inventum, a specialist in water heating and boilers, with an unexpired lease term of eight years. The property is located in the established de Meerpaal Business Park, home to more than 100 occupiers from a cross section of industries. Utrecht is one of the fastest growing regions in the Netherlands with both GDP and population expected to exceed national averages (source: Oxford Economics, March 2018), whilst also benefiting from its central location, favourable road, rail and port accessibility, education facilities and position as a major employment hub

-       The Group has also acquired a modern, 2,500 sq.m mixed use building in Utrecht, fully let on a multi-tenanted basis with an unexpired lease term of approximately eight years. The property is located in the established De Wetering business park, fronting the A-2 motorway

Following these acquisitions the Group has remaining investment capacity from the Casino supermarket sale of approximately €15 million including additional gearing. There are a number of potential new investments in various stages of negotiation and we expect to complete the reinvestment programme in the following months.

Real estate portfolio

Following a concerted period of investment, the Group now owns a portfolio of twelve institutional grade properties valued at €222 million at the end of September 2018. The properties are 97% let, across Winning Cities and regions in France, Germany, Spain and the Netherlands. All investments are 100% owned except for the Metromar shopping centre, Seville, where the Fund holds a 50% interest.

The top 10 properties comprise 95% of the portfolio value:

Rank	Property	Country	Sector	Value
				€m	% of total
1	Paris (B-B)	France	Office	42.0	19
2	Paris (Saint-Cloud)	France	Office	35.5	16
3	Berlin	Germany	Retail	26.2	12
4	Seville (50%)	Spain	Retail	26.0	12
5	Apeldoorn	Netherlands	Mixed	20.0	9
6	Hamburg	Germany	Office	16.3	7
7	Stuttgart	Germany	Office	15.9	7
8	Frankfurt	Germany	Retail	11.5	5
9	Venray	Netherlands	Industrial	9.5	4
10	Rumilly	France	Industrial	8.6	4
	Top 10 properties			211.5	95
11-12	Remaining two properties	Netherlands	Industrial	10.5	5
	Total			222.0	100

The table below sets out the top ten tenants which are from a wide range of occupiers from different industry segments and represent 68% of the portfolio:

Rank	Tenant	Property	Contracted rent		Wault break (yrs)	Wault Exp (yrs)
			€m	% of total
1	KPN B.V.	Apeldoorn	2.4	15	8.3	8.3
2	Alten	Paris (B-B)	2.4	15	2.5	2.5
3	Hornbach	Berlin	1.6	10	7.3	7.3
4	Filassistance	Paris (SC)	0.8	5	3.3	8.3
5	Cereal Partners France	Rumilly	0.7	4	6.6	7.6
6	LandBW	Stuttgart	0.7	4	7.4	7.8
7	DKL B.V.	Venray	0.7	4	10.0	10.0
8	Thesee	Paris (SC)	0.6	4	0.9	3.9
9	Inventum Industrial	Houten	0.6	4	7.7	7.7
10	Ethypharm	Paris (SC)	0.5	3	2.7	8.3
Total top ten tenants			11.0	68	5.7	6.6
	Remaining tenants		5.1	32	3.3	6.4
Total			16.1	100	5.0	6.6

The portfolio generates €16.1 million p.a. in contracted income. The average unexpired lease term is 5.0 years to first break and 6.6 years to expiry.

The lease expiry profile to earliest break is shown below. The near-term lease expiries provide asset management opportunities to: renegotiate leases; extend weighted average unexpired lease terms; improve income security and generate rental growth. In turn, this activity benefits NAV total return.

Portfolio performance

The current portfolio value of €222.0 million reflects an increase of 8.1% (€16.6 million) compared to the combined purchase price of the twelve asset portfolio. Transaction costs have been fully recovered through valuation uplifts since acquisition.

During the period the Group disposed of two Casino supermarkets in Rennes and Biarritz at a significant premium to the September 2017 valuations. External valuations increased for most of the other properties with the main exception being Hamburg where the reduction in valuation was more than compensated for by the payment of a lease surrender premium by the tenant.

Overall, the underlying property portfolio generated a total property return of 10.8% over the last twelve months (9.0% when including the impact from transaction costs for the newly-acquired properties in Rumilly and in the Netherlands). The underlying portfolio income return was 6.7% (rising to 7.5% including the surrender premium for Hamburg).

Sustainable investment

Our approach to responsible investment has been continually upgraded over the last few years and we are increasingly seeking to assess and improve the positive impact of our investments. This involves incorporation of environmental, social and governance issues as well as, importantly, the impact of our investments on the built environment and climate change risks and opportunities. The Investment Manager is aware of the importance of the impact its activities have on local environments and the performance of this area is being continually measured. It was a founding member of the UK Green Building Council in 2007 and in 2017 became a member of the Better Buildings Partnership and a Fund Manager Member of GRESB. More detail on this matter can be found in our Sustainability section on pages 32 to 34 of the 2018 Report and Accounts.

Finance

As at 30 September 2018, the Group's total external debt was €64.4 million across five loan facilities. This represents a conservative loan to value of 26% against the Group's gross asset value.

During the year the Group completed two new debt facilities. A €13 million loan was secured against the Saint-Cloud office building in Paris and the newly-acquired industrial assets in the Netherlands were part financed with a €9.25 million loan.

As part of the sale of the Casino supermarkets, the Group's share of the debt associated with that investment was transferred to the buyer.

The current blended all-in interest rate is 1.4%, significantly below the portfolio yield of 6.3% p.a, providing a favourable yield gap. The average unexpired loan term is 6.0 years.

Lender	Property	Maturity date	Outstanding principal1	Interest rate
Deutsche Pfandbriefbank	Berlin/Frankfurt	30/06/2026	16,500,000	1.31%
	Stuttgart/Hamburg	30/06/2023	14,000,000	0.85%
BRED Banque Populaire	Paris (SC)	15/12/2024	13,000,000	3M Euribor + 1.30%
Münchener Hypothekenbank1	Seville (50%)	22/05/2024	11,678,750	1.76%
HSBC	Netherlands industrial	27/09/2023	9,250,000	3M Euribor + 2.15%
Total			64,428,750

¹All statistics in the Investment Manager's report reflect a 50% ownership share of Seville. As a result, debt allocations for those investments in the table above are similarly proportioned.

The German and Spanish loans are fixed rate for the duration of the loan term.

The French and Netherlands loans are based on a margin above 3 month Euribor. The Group has acquired interest rate caps to limit future potential interest costs if Euribor were to increase. The strike rate on the French cap is 1.25% p.a. and 1% p.a. for the Netherlands loan.

Outlook

The case for continental European real estate remains compelling, particularly for cities that are attractive places to live, work and visit, have diverse economies, strong universities/ education facilities and proactive local governments with a long term vision for infrastructure. These are all attributes that define a 'Winning City' and lead to superior employment, economic and population growth. The Group's assets are all located in these higher growth cities such as Berlin, Hamburg, Stuttgart, Frankfurt and Paris which positions them well to benefit from the underlying growth in those markets.

The immediate priority is centred on deploying the remaining €15 million investment capacity, including gearing, and continuing to maximise performance from the portfolio. Successful conclusion of the leasing of Hamburg, repositioning of Metromar and the management of lease expiries will all improve the portfolio's income profile, enhance value and improve defensive characteristics. In turn, this will underpin our ambitions for the disciplined growth of the Company.

Schroder Real Estate Investment Management Limited
30 November 2018

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 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 and Valuation 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 2018.

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.

The principal risks and uncertainties faced by the Company have largely remained unchanged throughout the year, although the Board has chosen to create separate categories of risk in relation to valuation risk and economic and property market risk so that they may be better kept under review.  Accounting, legal and regulatory risk is considered an increased threat, particularly in light of the growing number of changes to tax legislation, some retrospective, which could affect the Company and its subsidiaries.  To address this risk, the Board receives regular reporting on proposed changes to law and regulation which could have such an impact, so that it can take any mitigating steps at the earliest opportunity.

Actions taken by the Board and, where appropriate, its Committees, to manage and mitigate the Company's principal risks and uncertainties, are set out in the table below. 

Risk	Mitigation and management
Investment policy and strategy An inappropriate investment strategy, or failure to implement the strategy, could lead to underperformance and the share price being at a larger discount, or smaller premium, to NAV. This underperformance could be caused by incorrect sector and geographic weightings or a loss of income through tenant failure, both of which could lead to a fall in the value of the underlying portfolio. This fall in values would be amplified by the Company's external borrowings.	The Board seeks to mitigate these risks by: -      Diversification of its property portfolio through its investment restrictions and guidelines which are monitored and reported on by the Investment Manager -      Determining borrowing policy, and ensuring the Investment Manager operates within borrowing restrictions and guidelines -      Receiving from the Investment Manager timely and accurate management information including performance data, attribution analysis, property level business plans and financial projections -      Monitoring the implementation and results of the investment process with the Investment Manager with a separate meeting devoted to strategy each year -      Reviewing marketing and distribution activity and considering the use of a discount control mechanism as necessary
Investment management The Investment Manager's investment strategy, if inappropriate, may result in the Company underperforming the market and/or peer group companies, leading to the Company and its objectives becoming unattractive to investors.	Review of: the Investment Manager's compliance with the agreed investment restrictions, investment performance and risk against investment objectives and strategy; relative performance; the portfolio's risk profile; and appropriate strategies employed to mitigate any negative impact of substantial changes in markets, including any potential disruption to capital markets. Annual review of the ongoing suitability of the Investment Manager.
Economic and property market risk The performance of the Company could be affected by economic, currency and property market risk. In the wider economy this could include inflation or deflation, economic recessions, movements in foreign exchange and interest rates or other external shocks. The performance of the underlying property portfolio could also be affected by structural or cyclical factors impacting particular sectors or regions of the property market.	The Board considers economic conditions and the uncertainty around political events when making investment decisions. The Board mitigates property market risk through the review of the Group's strategy on a regular basis and discussions are held to ensure the strategy is still appropriate or if it needs updating. The assets of the Company are denominated in non-sterling currencies, predominantly the euro. No currency hedging is planned for capital, but the Board periodically considers the hedging of dividend payments having regard to availability and cost.
Custody Safe custody of the Company's assets may be compromised through control failures.	Depositary verifies ownership and legal entitlement, and reports on safe custody of the Company's assets, including cash. Quarterly report from the Depositary on its activities.
Gearing and leverage The Company utilises credit facilities. These arrangements increase the funds available for investment through borrowing. While this has the potential to enhance investment returns in rising markets, in falling markets the impact could be detrimental to performance.	Gearing is monitored and strict restrictions on borrowings imposed.
Accounting, legal and regulatory The risk that the NAV and financial statements could be inaccurate. The Investment Manager has robust processes in place to ensure that accurate accounting records are maintained and that evidence to support the financial statements is available to the Board and the auditors. The Investment Manager operates established property accounting systems and has procedures in place to ensure that the quarterly NAV and gross asset value are calculated accurately. The Board has appointed the Investment Manager as Alternative Investment Fund Manager in accordance with the Alternative Investment Fund Managers Directive. Changes to law and regulation, including retrospective changes, could impact the Company's performance and position.	The quarterly and annual NAV has numerous levels of reviews including by the Board. Additional support is produced by the fund accountants to ensure financial data is complete and accurate. An external audit is completed to provide an opinion on the financial statements which have been reviewed by the Board of Directors. The Investment Manager and Company Secretary monitor legal requirements to ensure that adequate procedures and reminders 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. Confirmation of compliance with relevant laws and regulations by key service providers. Shareholder documents and announcements, including the Company's published Annual Report, are subject to stringent review processes. Procedures established to safeguard against unauthorised disclosure of inside information. Board receives regular reporting on proposed changes to law and regulation which could affect the Group's structure.
Valuation Property valuations are inherently subjective and uncertain.	External valuers provide independent valuation of all assets at least quarterly. Members of the Audit and Valuation Committee meet with the external valuers to discuss the basis of their valuations and their quality control processes on a quarterly basis.
Service provider The Company has no employees and has delegated certain functions to a number of service providers. Failure of controls, including as a result of cyber-hacking, and poor performance of any service provider could lead to disruption, reputational damage or loss.	Service providers appointed subject to due diligence processes and with clearly documented contractual arrangements detailing service expectations. Regular reporting by key service providers and monitoring of the quality of services provided. Review of annual audited internal controls reports from key service providers, including confirmation of business continuity arrangements.

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 and Valuation 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 and Valuation Committee's ongoing risk assessment which has been in place throughout the financial year and up to the date of this Report.

A full analysis of the financial risks facing the Company is set out in note 23 on pages 83 to 87 of the 2018 Report and Accounts.

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 6.0 years and the average unexpired lease term, assuming all tenants vacate at the earliest opportunity, is 5.0 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 28 to 30 of the 2018 Annual Report and Accounts, which could negatively impact its ability to deliver the investment objective, strategy, liquidity and solvency. This includes consideration of 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/re-letting 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 28 to 30 of the 2018 Annual Report and Accounts are also taken into account.

Based on the assessment, 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 Directors have examined significant areas of possible financial risk and have reviewed cash flow forecasts and compliance with the debt covenants, in particular the loan to value covenant and interest cover ratio. They have not identified any material uncertainties which would cast significant doubt on the Group's ability to continue as a going concern for a period of not less than twelve months from the date of the approval of the financial statements. The Directors have satisfied themselves that the Group has adequate resources to continue in operational existence for the foreseeable future.

After due consideration, the Board believes it is appropriate to adopt the going concern basis in preparing the financial statements.

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 Company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the 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 IFRSs as adopted by the European Union have been followed, 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 responsible for keeping adequate accounting records that are sufficient to show and explain the Group 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 and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation.

The Investment Manager is responsible for the maintenance and integrity of the Company's webpages. 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 on pages 35 and 36 of the 2018 Annual Report and Accounts confirm that, to the best of their knowledge:

-       the Group and Company financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group and profit of the Company; and

-       the Directors' Report includes a fair review of the development and performance of the business and the position of the Group and Company, together with a description of the principal risks and uncertainties that it faces.

In the case of each Director in office at the date the Directors' Report is approved:

-       so far as the Director is aware, there is no relevant audit information of which the Group and Company's auditors are unaware; and

-       they have taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Group and Company's auditors are aware of that information.

Consolidated and Company Statement of Comprehensive Income

For the year ended 30 September 2018

				Group	Group	Company	Company
				30/09/18	30/09/17	30/09/18	30/09/17
			Note	€'000	€'000	€'000	€'000
Rental and service charge income			3	19,900	17,296	-	-
Other income			4	2,400	-	-	-
Property operating expenses			5	(6,458)	(5,527)	-	-
Net rental and related income				15,842	11,769	-	-
Loss on disposal			14	(29)	-	-	-
Net gain from fair value adjustment on investment property			13	4,939	4,284	-	-
Realised gain/(loss) on foreign exchange			24	1	(4)	1	(4)
Net change in fair value of financial instruments at fair value through profit or loss			17	(155)	72	-	-
Management fees receivable			6	-	-	1,306	1,761
Dividends received			15,8	150	-	9,100	-
Expenses
Investment management fee			6	(1,958)	(1,849)	(1,958)	(1,849)
Valuers' and other professional fees				(687)	(666)	(288)	(298)
Administrator's and accounting fees				(330)	(306)	(163)	(135)
Auditors' remuneration			7	(269)	(280)	(232)	(265)
Directors' fees			9	(115)	(120)	(115)	(120)
Other expenses			9	(206)	(291)	(120)	(93)
Total expenses				(3,565)	(3,512)	(2,876)	(2,760)
Operating profit/(loss)				17,183	12,609	7,531	(1,003)
Finance income				456	174	15	12
Finance costs				(962)	(918)	-	-
Net finance (costs)/income				(506)	(744)	15	12
Share of profit/(loss) from joint venture			15	407	(185)	-	-
Profit/(loss) before taxation				17,084	11,680	7,546	(991)
Taxation			10	(1,517)	(505)	-	-
Profit/(loss) for the year				15,567	11,175	7,546	(991)
Attributable to:
Owners of the parent				13,175	10,288	7,546	(991)
Non-controlling interests				2,392	887	-	-
				15,567	11,175	7,546	(991)
Basic and diluted earnings per share attributable to owners of the parent			11	9.9c	7.7c	-	-
Profit/(loss) for the year				15,567	11,175	7,546	(991)
Other comprehensive income:
Other comprehensive loss items that may be reclassified to profit or loss:
Currency translation differences			24	(4)	(3)	(4)	(3)
Total other comprehensive loss				(4)	(3)	(4)	(3)
Total comprehensive income/(loss) for the year				15,563	11,172	7,542	(994)
Attributable to:
Owners of the parent				13,171	10,285	7,542	(994)
Non-controlling interests				2,392	887	-	-
				15,563	11,172	7,542	(994)

All items in the above statement are derived from continuing operations.

Consolidated and Company Statement of Financial Position

As at 30 September 2018

			Group		Group	Company	Company
			30/09/2018		30/09/2017	30/09/2018	30/09/2017
	Note			€'000	€'000	€'000	€'000
Assets
Non-current assets
Investment property	13			195,644	202,563	-	-
Investment in subsidiaries	14			-	-	125,998	118,583
Investment in joint venture	15			6,697	6,290	-	-
Loans to joint ventures	15			10,035	10,035	-	-
Non-current assets				212,376	218,888	125,998	118,583
Current assets
Trade and other receivables Interest rate derivative contracts	16 17			12,537 188	2,063 273	35,506 -	34,688 -
Cash and cash equivalents	18			15,738	28,521	4,792	14,583
Current assets				28,463	30,857	40,298	49,271
Total assets				240,839	249,745	166,296	167,854
Equity
Share capital	19			15,015	15,167	15,015	15,167
Share premium				29,912	30,215	29,912	30,216
Retained earnings/(accumulated losses)				4,397	650	(12,323)	(10,437)
Other reserves				132,745	132,294	132,978	132,522
Equity attributable to owners of the parent				182,069	178,326	165,582	167,468
Non-controlling interests	14			-	7,691	-	-
Total equity				182,069	186,017	165,582	167,468
Liabilities
Non-current liabilities
Interest-bearing loans and borrowings	20			52,150	58,772	-	-
Deferred tax liability	10			912	473	-	-
Non-current liabilities				53,062	59,245	-	-
Current liabilities
Trade and other payables	21			5,081	4,483	714	386
Current tax liabilities	10			627	-	-	-
Current liabilities				5,708	4,483	714	386
Total liabilities				58,770	63,728	714	386
Total equity and liabilities				240,839	249,745	166,296	167,854
Net Asset Value per Ordinary Share	22			136.2c	133.3c	123.8c	125.2c

Consolidated and Company Statement of Changes in Equity

For the year ended 30 September 2018

Group	Note	Share capital	Share premium	(Accumulated losses)/ Retained earnings	Other reserves	Sub-total	Non-controlling interests	Total equity
		€'000	€'000	€'000	€'000	€'000	€'000	€'000
Balance as at 1 October 2016		13,994	14,882	(3,486)	132,370	157,760	6,804	164,564
Profit for the year		-	-	10,288	-	10,288	887	11,175
Other comprehensive loss for the year		-	-	-	(3)	(3)	-	(3)
Dividends paid	12	-	-	(6,152)	-	(6,152)	-	(6,152)
New equity issuance		1,390	15,288	-	(245)	16,433	-	16,433
Unrealised foreign exchange		(217)	45	-	172	-	-	-
Balance as at 30 September 2017		15,167	30,215	650	132,294	178,326	7,691	186,017
Profit for the year		-	-	13,175	-	13,175	2,392	15,567
Other comprehensive loss for the year		-	-	-	(4)	(4)	-	(4)
Dividends paid	12	-	-	(9,428)	-	(9,428)	-	(9,428)
Share premium distribution		-	-	-	-	-	(1,510)	(1,510)
Divestment of non-controlling interests	14	-	-	-	-	-	(8,573)	(8,573)
Unrealised foreign exchange		(152)	(303)	-	455	-	-	-
Balance as at 30 September 2018		15,015	29,912	4,397	132,745	182,069	-	182,069

Company	Note	Share capital	Share premium	Accumulated losses1	Other reserves1	Sub-total	Non-controlling interests	Total
		€'000	€'000	€'000	€'000	€'000	€'000	€'000
Balance as at 1 October 2016		13,994	14,882	(3,291)	132,595	158,180	-	158,180
Loss for the year		-	-	(991)	-	(991)		(991)
Other comprehensive loss for the year		-	-	(3)	-	(3)	-	(3)
Dividends paid	12	-	-	(6,152)	-	(6,152)	-	(6,152)
New equity issuance		1,390	15,289	-	(245)	16,434	-	16,434
Unrealised foreign exchange		(217)	45	-	172	-	-	-
Balance as at 30 September 2017		15,167	30,216	(10,437)	132,522	167,468	-	167,468
Profit for the year		-	-	7,546	-	7,546	-	7,546
Other comprehensive profit for the year		-	-	(4)	-	(4)	-	(4)
Dividends paid	12	-	-	(9,428)	-	(9,428)	-	(9,428)
Unrealised foreign exchange		(152)	(304)	-	456	-	-	-
Balance as at 30 September 2018		15,015	29,912	(12,323)	132,978	165,582	-	165,582

¹These reserves form the distributable reserves of the Company and may be used to fund distribution of profits to investors via dividends payments. See Note 1 for further detail.

Consolidated and Company Statement of Cash Flows

For the year ended 30 September 2018

			Group	Group	Company	Company
			30/09/2018	30/09/2017	30/09/2018	30/09/2017
		Note	€'000	€'000	€'000	€'000
Operating activities
Profit/(loss) before tax for the year			17,084	11,680	7,546	(991)
Adjustments for:
Loss on disposal			29	-	-	-
Net gain from fair value adjustment on investment property		13	(4,939)	(4,284)	-	-
Share of (profit)/loss of joint venture		15	(407)	185	-	-
Realised foreign exchange (gains)/losses		24	(1)	4	(1)	4
Finance income Finance costs Net change in fair value of financial instruments through profit or loss		17	(456) 962 155	(174) 918 (72)	(15) - -	(12) - -
Dividends received from joint venture			(150)	-	-	-
Operating cash generated from before changes in working capital			12,277	-	7,530	-
(Increase)/decrease in trade and other receivables			(3,122)	434	(818)	(509)
Increase/(decrease) in trade and other payables			2,300	1,647	328	(264)
Cash generated from/(used in) operations			11,455	10,338	7,040	(1,772)
Finance costs paid			(1,255)	(751)	-	-
Finance income received			456	9	15	-
Tax paid			(384)	(145)	-	-
Net cash generated from/(used in) operating activities			10,272	9,451	7,055	(1,760)
Investing activities
Acquisition of investment property			(51,992)	(33,171)	-	-
Investment in subsidiaries		14	-	-	(7,415)	-
Proceeds from disposal		14	19,740	-	-	-
Receipt of loan repayment		14	7,215	-	-	-
Investment in joint ventures			-	(16,510)	-	-
Dividends received from joint venture		15	150	-	-	-
Net cash used in investing activities			(24,887)	(49,681)	(7,415)	-
Financing activities
Proceeds from borrowings		20	13,000	-	-	-
Interest rate cap purchased		17	(227)	-	-	-
Share issue net proceeds			-	16,434	-	16,434
Dividends paid		12	(9,428)	(6,152)	(9,428)	(6,152)
Share premium distribution		14	(1,510)	-	-	-
Net cash generated from/(used in) financing activities			1,835	10,282	(9,428)	10,282
Net (decrease)/increase in cash and cash equivalents for the year			(12,780)	(29,948)	(9,788)	8,522
Opening cash and cash equivalents			28,521	58,476	14,583	6,068
Effects of exchange rate change on cash			(3)	(7)	(3)	(7)
Closing cash and cash equivalents		18	15,738	28,521	4,792	14,583

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 England and Wales. The consolidated financial statements of the Company for the year ended 30 September 2018 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 the Johannesburg Stock Exchange (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 have been prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union ('EU') and interpretations issued by the International Financial Reporting Interpretations Committee ('IFRIC'), and therefore comply with article 4 of the EU IAS regulation, and 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 Listing Authority.

Basis of preparation

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 cash and cash requirements and the debt covenants. The Directors have not identified any material uncertainties which would cast significant doubt on the Group's ability to continue as a going concern for a period of not less than twelve months from the date of the approval of the financial statements. The Directors have satisfied themselves that the Group has adequate resources to continue in operational existence for the foreseeable future.

Use of estimates and judgements

The preparation of financial statements in conformity with IFRS, as adopted by the EU, 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 within joint ventures, which are stated at fair value as it is inherently subjective because the valuer makes assumptions which may not prove to be accurate. The Group uses external professional valuers to determine the relevant amounts.

A key area of judgement is accounting for transactions. These include judgements on whether the criteria for held for sale have been met for transactions not yet completed; and accounting for transaction costs and contingent consideration. Management use the most appropriate accounting treatment for each transaction and seek independent advice where necessary.

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 has been treated as an asset acquisition.

Non-controlling interests

Non-controlling interests are recognised on the basis of their share in the recognised amounts of a subsidiary's identifiable net assets. On the balance sheet non-controlling interests are presented separately from the equity of the owners of the Parent. Profit or loss and total comprehensive income for the period attributable to non-controlling interests are presented separately in the income statement and the statement of
comprehensive income.

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 profit or loss, 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 balance sheet.

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, and the Group's share of movements in other comprehensive income of the investee in other comprehensive income.

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 is land and buildings held to earn rental income together with the potential for
capital growth.

Acquisitions and disposals are recognised on unconditional exchange of contracts. Acquisitions are initially recognised at cost, being the fair value of the consideration given, including transaction costs associated with the investment property.

After initial recognition, investment properties are measured at fair value with unrealised gains and losses recognised in the Statement of Comprehensive Income. Realised gains and losses on the disposal of properties are recognised in profit and loss in relation to carrying value. 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 25, the Group leases out all owned properties on operating leases. A property held under an operating lease is 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.

Prepayments

Prepayments are carried at cost less any accumulated impairment losses.

Borrowing costs

Borrowing costs are charged in full to the Statement of Comprehensive Income as incurred. None of the borrowing costs are capitalised.

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. Payments, including prepayments, made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease. Properties leased out under operating leases are included in investment properties.

Properties leased out under operating leases are included in investment property in the Consolidated Statement of Financial Position (Note 13).

Financial assets and liabilities

Non-derivative financial instruments

Assets

Non-derivative financial instruments comprise trade and other receivables and cash and cash equivalents. These are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortised cost using the effective interest rate method less any
impairment losses.

Trade and other receivables

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost less provision for impairment.

Cash and cash equivalents         

Cash at bank, and short-term deposits that are held to maturity, are carried at 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.

Liabilities

Non-derivative financial instruments comprise loans and borrowings and trade and other payables.

Loans and borrowings

Borrowings are recognised initially at 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.

Trade and other payables

Financial liabilities included in trade and other payables are recognised initially at fair value and subsequently at amortised cost. The fair value of a non-interest bearing liability is its discounted repayment amount. If the due date of the liability is less than one year, discounting is omitted.

Derivative financial assets and liabilities

Derivative financial assets and liabilities comprise of an interest rate cap for hedging purposes (economic hedge). The Group does not apply hedge accounting in accordance with IAS 39. Recognition of the derivative financial instruments takes place when the economic hedging contracts are entered in to. They are measured initially and subsequently at fair value. Transaction costs are included directly in finance costs. Gains or losses on derivatives are recognised in the profit or loss in net change in fair value of financial instruments at fair value through profit or loss.

Share capital

Ordinary shares, including treasury shares, are classified as equity when there is no obligation to transfer cash or other assets.

Share premium

Share premium represents the excess of proceeds received over the nominal value of new shares issued.

Other reserves

Other reserves mainly consists of a share premium reduction reserve arising from the conversion of share premium into a distributable reserve and unrealised currency exchange gains and losses arising on the revaluation of Sterling denominated share capital and share premium at the balance sheet date.

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

Financial assets

A financial asset, other than those at fair value through profit and loss, is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate.

Significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognised in the profit and loss.

An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost, the reversal is recognised in the profit and loss.

Non-financial assets

The carrying amounts of the Group's non-financial assets, other than investment property but including joint ventures, 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.

For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the 'cash-generating unit').

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.

Surrender premium income

Surrender premium income is recognised on a receipts basis.

Service charges

Revenue from service charges is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances, rebates and amounts collected on behalf of third parties.

The Group recognises revenue when the amount of revenue can be reliably measured; it is probable that future economic benefits will flow to the entity; and specific criteria have been met for each of the Group's activities as described below. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

Service charges are recognised in the accounting period in which the services are rendered.

Finance income and costs

Finance income comprises interest income on funds invested that are recognised in the profit and loss. Finance income is recognised on an accruals basis.

Finance expenses comprise interest expenses on borrowings that are recognised in profit and loss. 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 profit or loss 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.

Assets and liabilities held at the end of the reporting period are translated into the presentation currency at the exchange rate prevailing at that date. Foreign exchange differences arising on translation to the presentation currency are recognised in other comprehensive income in the Statement of
Comprehensive Income.

Equity held at the end of the reporting period is translated into the presentation currency at the exchange rate prevailing at that date. Foreign exchange differences arising on translation to the presentation currency are recognised within Equity.

2. New standards and interpretations

The Group has applied the following standards and amendments for the first time for its annual reporting period commencing 1 October 2018:

Income taxes - Amendments to IAS 12

No new standards, amendments or interpretations, effective for the first time for the financial year beginning on or after 1 January 2018, have had a material impact on the Group or Company.

New standards and interpretations not yet adopted

A number of new standards and amendments to standards and interpretations are effective for annual periods beginning on or after 1 January 2018, and have not been applied in preparing these consolidated financial statements. None of these are expected to have a significant effect on the consolidated financial statements of the Group.

Certain standards which could be expected to have an impact on the consolidated financial statements are discussed in further detail below.

IFRS 9, 'Financial instruments', addresses the classification, measurement and recognition of financial assets and financial liabilities. The standard is effective for accounting periods beginning on or after 1 January 2018. Early adoption is permitted. The alignment of the classification and measurement model under IFRS 9 will result in changes in the classification of all financial assets excluding derivatives. It introduces new impairment requirements in relation to financial assets, moving from an 'incurred loss' model to an 'expected loss' model, meaning that expected future credit losses must be recognised on all financial assets held at amortised cost. A new hedge accounting model is also introduced along with new disclosures. These changes resulting from the introduction of IFRS 9 will not have a material impact on the Group's financial statements.

IFRS 15, 'Revenue from contracts with customers', deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. The standard is effective for annual periods beginning on or after 1 January 2018 and earlier application is permitted. The new standard does not apply to rental income which is within the scope of IAS 17, but does apply to service charge income, management and performance fees and trading property disposals. The changes resulting from the introduction of IFRS 15 will have a qualitative impact on service charge income. There will no other material impact on the Group's financial statements.

IFRS 16, 'Leases', was issued in January 2016. For lessees, it will result in almost all leases being recognised on the statement of financial position, as the distinction between operating and finance leases will be removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term and low-value leases. The accounting for lessors will not significantly change. The standard is effective for annual periods beginning on or after 1 January 2019 and earlier application is permitted. As the Group only holds freehold assets it is expected that IFRS 16 will not have a material impact on the Company's financial statements.

There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group.

3. Rental and service charge income

		Group	Group	Company	Company
		30/09/2018	30/09/2017	30/09/2018	30/09/2017
		€'000	€'000	€'000	€'000
Rental income		13,708	12,044	-	-
Service charge income		6,192	5,252	-	-
		19,900	17,296	-	-

4. Other income

Other income relates to a surrender premium agreement at the Group's Hamburg office asset in Germany, part of the principal of which was received during the year.

5. Property operating expenses

		Group	Group	Company	Company
		30/09/2018	30/09/2017	30/09/2018	30/09/2017
		€'000	€'000	€'000	€'000
Repairs and maintenance		1,756	1,360	-	-
Service charge, insurance and utilities on vacant units		2,716	2,718	-	-
Real estate taxes		1,587	1,075	-	-
Property management fees		206	269	-	-
Other		193	105	-	-
		6,458	5,527	-	-

All the above amounts relate to service charge expenses which are all recoverable except for €266,000
(2017: €275,000).

6. 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 twelfth 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 twelve 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 €1,958,000 (2017: €1,849,000). At the year end €318,000 (2017: €125,000) was outstanding.

SREIM provides accounting services to the Group with a minimum contracted annual charge of €79,000 (£70,000). The total charge to the Group was €106,000 (2017: €79,000). At the year end €17,000 (2017: €7,000) was outstanding.

SREIM provides administrative and company secretarial services to the Group with a contracted annual charge of €57,000 (£50,000). The total charge to the Group was €57,000 (2017: €56,000). At the year end €9,000 (2017: €5,000) was outstanding.

Details of Directors' fees are disclosed in Note 9.

Details of loans from Mercialys, a related party, are disclosed in Note 20.

Details of loans to Urban SEREIT Holdings Spain S.L., a related party, are disclosed in Note 15.

The Company received management fees of €1,306,000 (2017: €1,761,000) from subsidiary companies during the year. The amounts recharged to subsidiaries and outstanding are provided in the table below.

Subsidiary	Fees recharged during the year €'000		Fees outstanding as at 30 September 2018 €'000
	2018	2017	2018	2017
SCI SEREIT Rumilly	16	-	16	-
SCI 221 Jean Jaures	326	696	388	203
SEREIT Berlin DIY Sàrl	202	417	240	125
SEREIT Hamburg Sàrl	127	183	151	80
SEREIT Stuttgart Sàrl	121	171	144	74
SEREIT Frankfurt Sàrl	89	131	106	56
SCI SEREIT Directoire	272	163	322	163
SEREIT Apeldoorn Sàrl	115	-	115	-
SEREIT UV Sàrl	38	-	38	-
Total	1,306	1,761	1,520	701

7. Auditors' remuneration

The Group's total audit fees for the year are €269,000 (2017: €280,000) which includes the Group's audit and the individual SPV audits fees. The Company's total audit fees for the year were €232,000 (2017: €265,000) which only covers the Group audit fee.

Non-audit fees charged to the Group by the auditors during the year were €6,000 (2017: €4,000). The interim review fee paid during the year was €37,000 (2017: €34,000).

8. Dividends received

During the year the Group received dividends of €150,000 from its Joint Venture operation Urban SEREIT Holdings Spain S.L. (see Note 15).

During the year the Company received dividends from its subsidiary undertakings. €7,600,000 was received from SEREIT (Jersey) Limited and €1,500,000 was received from SEREIT Holdings Sàrl.

9. Other expenses

		Group	Group	Company	Company
		30/09/2018	30/09/2017	30/09/2018	30/09/2017
		€'000	€'000	€'000	€'000
Directors' and officers' insurance premium		9	10	9	9
Bank charges		37	45	8	7
Regulatory costs		32	32	42	7
Marketing		48	28	48	28
Other expenses		80	176	13	42
		206	291	120	93

Directors' fees

Directors are the only officers of the Company and there are no other key personnel. The Directors' annual remuneration for services to the Group was €105,325 (2017: €109,280), as set out in the Remuneration Report on pages 49 and 50 of the 2018 Annual Report and Accounts. The total charge for directors' fees was €115,000 (2017: €120,000), which included employer's national insurance contributions.

10. Taxation

			30/09/2018	30/09/2017
			€'000	€'000
Current tax charge			1,078	62
Deferred tax charge			439	443
Tax expense in year			1,517	505
Reconciliation of effective tax rate
Profit before taxation			17,084	11,680
Effect of:
Tax charge at weighted average corporation tax rate of 23.49% (2017 - 18.88%)			4,013	2,205
Tax exempt income			(3,912)	(1,831)
Tax adjustment on net revaluation gain			119	-
Current year loss for which no deferred tax is recognised			403	205
Tax adjustment of share of joint venture (profit)/loss			(139)	46
Minimum Luxembourg tax charges			152	62
Withholding tax			618	-
Tax adjustment of property depreciation and tax losses			100	-
Timing difference			(45)	-
Other permanent differences			208	(182)
Total tax expense in the year			1,517	505

A potential deferred tax asset of €403,000 (2017: €17,000) arose on tax losses which has not been provided for.

The tax charge of €1,517,000 (2017: €505,000) includes deferred tax charge of €263,000 (2017: €443,000) which was provided in relation to investment property revaluation gains, and the deferred tax liability at the year end was €736,000 (2017: €473,000).

Under the current France-Luxembourg double tax treaty, dividends paid by OPPCI SEREIT France to SEREIT Holdings are subject to withholding tax at a rate of 5%. However, this treaty is in the process of being renegotiated. Proposed changes to the treaty mean, among other things, that the withholding tax rate on dividends paid by OPPCI SEREIT France to SEREIT Holdings could increase from 5% to 30%. The amended tax treaty will enter into force as at 1 January 2019 if both the governments of France and Luxembourg ratify the amendment before the end of 2018.

The European Commission ('EC') is currently undertaking an investigation into whether the 75% and 100% group financing exemptions under the UK controlled foreign companies rules breach EU state aid rules. SEREIT (Jersey) Limited is reliant on this exemption to exempt it from UK corporation tax on interest receipts received on its loans provided intra-group. It is expected that the EC is to release its decision in late 2018/early 2019.

The Company has actively monitored both items and is taking actions to mitigate the impact to the Group where relevant.

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.

		30/09/2018	30/09/2017
Net profit attributable to shareholders		€13,175,000	€10,288,000
Weighted average number of ordinary shares in issue		133,734,686	132,775,782
Basic earnings per share (cents per share)		9.9	7.7

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 2017 and 2018.

Headline earnings per share

The headline earnings and diluted headline earnings for the Group is 8.1 euro cents per share (2017: 5.2 euro cents per share) as detailed on page 89 of the 2018 Annual Report and Accounts.

12. Dividends paid

Interim dividends of €9,428,000 (2017: €6,152,000) were paid to shareholders during the year as follows:

	Ordinary		Rate		30/09/2018
In respect of	Shares		(cents)		€'000
Interim dividend paid on 19 January 2018	133,734,686		1.50		2,006
Interim dividend paid on 13 April 2018 Interim dividend paid on 20 July 2018 Interim dividend paid on 14 September 2018	133,734,686 133,734,686 133,734,686		1.85 1.85 1.85		2,474 2,474 2,474
Total interim dividends paid					9,428
	Ordinary		Rate		30/09/2017
In respect of	Shares		(cents)		€000
Interim dividend paid on 27 January 2017	133,734,686		0.9		1,204
Interim dividend paid on 17 March 2017 Interim dividend paid on 7 July 2017 Interim dividend paid on 1 September 2017	133,734,686 133,734,686 133,734,686		1.0 1.2 1.5		1,337 1,605 2,006
Total interim dividends paid					6,152

13. Investment property

Group
			Freehold
			€'000
Fair value at 1 October 2016			165,365
Property acquisitions			29,928
Acquisition costs			2,986
Net valuation gain on investment property			4,284
Fair value as at 30 September 2017			202,563
Property acquisitions			48,169
Acquisition costs			3,973
Net valuation gain on investment property			4,939
Disposals			(64,000)
Fair value as at 30 September 2018			195,644

There were no leasehold properties held during the year (2017: Nil) and the respective sectors held were as follows:

Sector	2018	2017
Industrial	28,600	-
Retail (including retail warehousing)	37,650	95,400
Offices	129,394	107,163
Total	195,644	202,563

The fair value of investment properties as determined by the valuer totals €195,950,000 (2017: €202,700,000). The fair value of investment properties disclosed above includes a tenant incentive adjustment of €306,000
(2017: €137,000).

The net valuation gain on investment property of €4,939,000 (2017: €4,284,000) consists of net property revaluation gains of €5,108,000 (2017: €4,285,000) and a movement of the above mentioned tenant incentive adjustment of €169,000 (2017: €1,000).

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 2017, incorporating the International Valuations Standards, and RICS Professional Standards UK January 2014 (revised April 2015).

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.

All investment properties are categorised as Level 3 fair values as they use significant unobservable inputs. There have not been any transfers between Levels during the year. Investment properties have been classed according to their real estate sector. Information on these significant unobservable inputs per class of investment property is disclosed below:

Quantitative information about fair value measurement using unobservable inputs (Level 3) as at
30 September.

2018		Industrial	Retail (incl. retail warehouse)	Office	Total
Fair value (€'000)		28,600	89,650	129,700	247,950
Area ('000 sq.m)		43.666	44.336	60.423	148.425
Net passing rent € per sq.m per annum	Range Weighted average 2	39.84-97.94 51.48	94.73-140.01 115.88	63.24-349.98 210.84	39.84-349.98 158.12
Gross ERV per sq.m per annum	Range Weighted average 2	38.00-89.43 51.61	101.58-189.45 159.74	76.76-419.91 239.88	38.00-419.91 189.19
Net initial yield1	Range Weighted average 2	6.04-7.33 6.75	4.90-5.52 5.10	2.46-11.00 6.69	2.46-11.00 6.12
Equivalent yield	Range Weighted average 2	6.01-7.00 6.62	5.10-5.95 5.78	4.43-10.10 6.15	4.43-10.10 6.07

Notes:

¹Yields based on rents receivable after deduction of head rents and non-recoverables.

²Weighted by market value.

³This table includes the joint venture investment property valued at €52.0 million which is disclosed within the summarised information within note 15 as part of total assets.

2017		Industrial	Retail (including retail warehouse)	Office	Total
Fair value (€'000)		-	148,300	107,300	255,600
Area ('000 sq.m)		-	73.330	35.504	108.834
Net passing rent € per sq.m per annum	Range Weighted average 2	-	94.73-145.32 118.92	131.03-344.63 240.86	94.73-344.63 170.11
Gross ERV per sq.m per annum	Range Weighted average 2	-	97.39-185.61 139.03	126.12-413.10 265.45	97.39-413.10 192.10
Net initial yield1	Range Weighted average 2	-	4.62-5.62 5.29	4.59-8.96 6.43	4.59-8.96 5.77
Equivalent yield	Range Weighted average 2	-	4.60-5.93 5.49	4.47-7.25 5.46	4.47-7.25 5.48

Notes:

¹Yields based on rents receivable after deduction of head rents and non-recoverables.

²Weighted by market value.

³This table includes the joint venture investment property valued at €52.9 million which is disclosed within the summarised information within note 15 as part of total assets.

Sensitivity of measurement to variations in the significant unobservable inputs

The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy of the Group's property portfolio, together with the impact of significant movements in these inputs on the fair value measurement, are shown below:

Unobservable input	Impact on fair value measurement of significant increase in input	Impact on fair value measurement of significant decrease in input
Passing rent	Increase	Decrease
Gross ERV	Increase	Decrease
Net initial yield	Decrease	Increase
Equivalent yield	Decrease	Increase

There are interrelationships between the yields and rental values as they are partially determined by market rate conditions. The sensitivity of the valuation to changes in the most significant inputs per class of investment property are shown below:

Estimated movement in fair value of investment properties at 30 September 2018	Industrial €'000	Retail €'000	Office €'000	Total €'000
Increase in ERV by 5%	800	3,500	5,700	10,000
Decrease in ERV by 5%	-900	-3,500	-5,550	-9,950
Increase in net initial yield by 0.25%	-1,150	-4,000	-6,000	-11,150
Decrease in net initial yield by 0.25%	1,100	4,350	6,700	12,150

14. Investment in subsidiaries

Company		2018		2017
	€'000			€'000
Balance as at 1 October			118,583	118,583
Additions			7,415	-
Balance as at 30 September			125,998	118,583

During the year SEREIT Plc made a further investment of €7,415,000 in SEREIT Holdings Sàrl.

The subsidiary companies listed below are those which were part of the Group as at 30 September 2018. 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.

Undertaking	Country of incorporation	Group ownership	Registered office address
SEREIT (Jersey) Limited	Jersey	100%	22 Grenville Street, Jersey,  JE4 8PX
SEREIT Finance Sàrl	Luxembourg	100%	5, rue Hohenhof L-1736 Senningerberg
SEREIT Holdings Sàrl	Luxembourg	100%	5, rue Hohenhof L-1736 Senningerberg
OPPCI SEREIT France	France	100%	153 rue Saint honore, 75001 Paris
SCI SEREIT Rumilly	France	100%	8-10 rue Lamennais, 75008 Paris
SCI 221 Jean Jaures	France	100%	8-10 rue Lamennais, 75008 Paris
SEREIT Berlin DIY Sàrl	Luxembourg	100%	5, rue Hohenhof L-1736 Senningerberg
SEREIT Hamburg Sàrl	Luxembourg	100%	5, rue Hohenhof L-1736 Senningerberg
SEREIT Stuttgart Sàrl	Luxembourg	100%	5, rue Hohenhof L-1736 Senningerberg
SEREIT Frankfurt Sàrl	Luxembourg	100%	5, rue Hohenhof L-1736 Senningerberg
SCI SEREIT Directoire	France	100%	8-10 rue Lamennais, 75008 Paris
SEREIT Apeldoorn Sàrl	Luxembourg	100%	5, rue Hohenhof L-1736 Senningerberg
SEREIT UV Sàrl	Luxembourg	100%	5, rue Hohenhof L-1736 Senningerberg

On 31 July 2018 the Group disposed of its 70% holding of SCI Rennes Anglet. The net proceeds from sale were €19,974,000, including €29,000 of sale costs, resulting in a loss on disposal of €29,000. Cash held in SCI Rennes Anglet on disposal was €234,000 which was deducted from the above mentioned net sale proceeds to give proceeds on disposal of €19,740,000 as reported in the consolidated statement of cash flows. An inter-company loan of €7,215,000 was repaid on disposal to the Group.

Following this disposal the Group derecognised its previously disclosed non-controlling interest. The value of this as at 30 September 2017 was €7,691,000. Profits attributable to the non-controlling interest during the period up to disposal was €2,392,000 and a share premium distribution of €1,510,000 was received. The value of the non-controlling interest derecognised at the date of disposal was €8,573,000.

Summarised non-wholly-owned subsidiary financial information:		2018		2017
	€'000			€'000
Total assets			-	62,243
Total liabilities			-	(36,609)
Net assets			-	25,634
Allocated to non-controlling interests Revenues for the year			- 5,733	7,691 5,867
Total comprehensive profit/(loss) for the year			7,974	2,955
Allocated to non-controlling interests			2,392	887
Cash flows from operating activities			2,925	3,168
Cash flows from financing activities			(5,526)	(536)
Net (decrease)/increase in cash and cash equivalents			(2,601)	2,632

15. 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, 4^th Madrid 28001 Spain.

Group			2018	2017
	€'000			€'000
Balance as at 1 October		6,290		-
Purchase of interest in joint venture		-		6,475
Share of profit/(loss) for the year		557		(185)
Dividends		(150)		-
Balance as at 30 September		6,697		6,290

The carrying value equals the fair value.

Summarised joint venture financial information:			2018	2017
	€'000			€'000
Total assets		58,444		59,719
Total liabilities		(45,050)		(47,139)
Net assets		13,394		12,580
Net asset value attributable to the Group		6,697		6,290
Revenues for the year		5,464		2,200
Total comprehensive profit/(loss)		1,114		(370)
Total comprehensive profit/(loss) attributable to the Group		557		(185)

In 2017 and 2018 within total liabilities of the joint venture is a €23.4 million loan facility with Münchener Hypothekenbank eG. The facility matures on 22 May 2024 and carries a fixed interest rate of 1.76% payable quarterly. The facility was subject to a 0.3% arrangement fee which is being amortised over the period of the loan. The debt has a LTV covenant of 60% and a minimum net rental income covenant. The lender has a charge over the property owned by the Group with a value of €52.0 million. A pledge of all shares in the borrowing Group company is in place.

In 2017 and 2018 within total liabilities of the joint venture there is also a loan amount of €10.0 million owed to the Group. 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% payable quarterly.

Both of the above-mentioned loans were in place during the prior year ended 30 September 2017 under the same terms.

16. Trade and other receivables

		Group 30/09/2018 €'000	Group 30/09/2017 €'000	Company 30/09/2018 €'000	Company 30/09/2017 €'000
Rent and service charges receivable		1,042	1,546	-	-
Monies held by property managers		209	228	-	-
Amounts due from subsidiary undertakings		-	-	35,467	33,947
Other debtors and prepayments		11,286	289	39	741
		12,537	2,063	35,506	34,688

Included within the Group's other debtors and prepayments is a receivable of €9,250,000 (2017 - €Nil) comprising cash pursuant to a new bank loan with HSBC Bank Plc which was received on 1 October 2018. See Note 20 for details of the loan.

Other debtors and prepayments includes tenant incentives of €306,000 (2017: €137,000). There were no provisions against the above amounts in 2018 (2017: Nil).

17. Interest rate derivative contracts

The Group has an interest rate cap in place which was purchased for €227,000 from BRED Banque Populaire on 15 December 2017 in connection to a €13.0m loan facility drawn from the same bank with a maturity date of December 2024. The cap interest rate is 1.25% with a floating rate option being Euribor 3 months. In line with IAS 39, this derivative is reported in the financial statements at its fair value. As at 30 September 2018 the fair value of the interest rate cap was €188,000, giving a valuation decrease as shown within the Statement of Comprehensive Income of €39,000. Transaction costs incurred in obtaining the instrument are being amortised over the extended period of the above-mentioned loan. The notional value of the instrument is €13.0 million.

As at 30 September 2017 the Group had an interest rate cap in place which was purchased for €260,000 from Credit Agricole Corporate and Investment Bank on 10 August 2016 in connection to a €26.0m loan facility drawn from the same bank with a maturity date of July 2023. The cap interest rate was 1.25% with a floating rate option being Euribor 3 months. In line with IAS 39 this derivative was reported in the financial statements at its fair value. As at 30 September 2017 the fair value of the interest rate cap was €273,000. Transaction costs incurred in obtaining the instrument were being amortised over the extended period of the above mentioned loan. The notional value of the instrument is €26.0 million. This interest rate cap was purchased by the Group's subsidiary SCI Rennes Anglet. This subsidiary was disposed of during the year ended 30 September 2018 when the valuation of the interest rate cap was €157,000 giving a valuation decrease of €116,000 as shown in the Statement of Comprehensive Income.

18. Cash and cash equivalents

		Group 30/09/2018 €'000	Group 30/09/2017 €'000	Company 30/09/2018 €'000	Company 30/09/2017 €'000
Cash at bank and in hand		15,738	28,521	4,792	14,583

19. Share capital

				Group 30/09/2018 €'000	Group 30/09/2017 €'000	Company 30/09/2018 €'000	Company 30/09/2017 €'000
Ordinary share capital				15,015	15,167	15,015	15,167

Share capital

As at 30 September 2018, the share capital of the Company was represented by 133,734,686 Ordinary Shares (2017: 133,734,686 Ordinary Shares) with a par value of 10.00 pence.

Issued share capital

As at 30 September 2018, the Company had 133,734,686 ordinary shares in issue (no shares were held in treasury). The total number of voting rights of the Company at 30 September 2018 was 133,734,686 (2017: 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.

20. 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 23.

		Group 30/09/2018 €'000	Group 30/09/2017 €'000	Company 30/09/2018 €'000	Company 30/09/2017 €'000
At 1 October		58,772	58,724	-	-
Receipt of borrowings		22,250	-	-	-
Disposal - loans		(29,064)	-	-	-
Disposal - finance costs		472	-	-	-
Capitalisation of finance costs		(416)	(80)	-	-
Amortisation of finance costs		136	128	-	-
At 30 September		52,150	58,772	-	-

Borrowings are removed from the balance sheet 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 twelve months after the reporting period.

Bank loan - HSBC Bank PLC

During the year the Group entered into a loan facility of €9.25 million with HSBC Bank PLC.

The total amount has been fully drawn and matures on 27 September 2023. It carries an interest rate which is the aggregate of the applicable EURIBOR 3 months rate and a margin of 2.15% payable quarterly. The facility was subject to a 1% arrangement fee which is being amortised over the period of the loan. The debt has an LTV covenant of 62.5% and the HIC and PIC should be above 275% each.

The lender has a charge over properties owned by the Group with a value of €20,000,000. A pledge of all shares in the borrowing Group company is in place.

Bank loan - BRED Banque Populaire

During the year the Group entered in to a new loan facility totalling €13.00 million with BRED Banque Populaire.

The total amount has been 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% payable quarterly. The facility was subject to an arrangement fee of €70,000 which is being amortised over the period of the loan. The debt has an LTV covenant of 60% and the ICR should be above 400%. The Group has purchased an interest rate cap to have risk coverage on the variation of the interest rate.

The lender has a charge over property owned by the Group with a value of €35,500,000. A pledge of all shares in the borrowing Group company is in place.

Bank loan - Credit Agricole Corporate and Investment Bank

The Group had a €26.0 million loan facility with Credit Agricole Corporate and Investment Bank held by a subsidiary undertaking, SCI Rennes Anglet. During the year the Group disposed of this subsidiary and therefore the loan no longer forms part of Group borrowings.

Business partner loan - Mercialys

The Group had a €10.75 million loan facility with Mercialys, a 30% minority investor in the share capital of SCI Rennes Anglet, a 70% owned subsidiary of the Group. The loan balance outstanding as at 30 September 2017 was €3.06 million. During the year the Group disposed of this subsidiary and therefore the loan no longer forms part of Group borrowings.

Mercialys meets the definition of a related party under IAS 24.

Bank loan - Deutsche Pfandbriefbank AG

The Group has two loan facilities totalling €30.50 million with Deutsche Pfandbriefbank AG which were entered into during the period ended 30 September 2016.

Of the total amount drawn, €14.0 million matures on 30 June 2023 and carries a fixed interest rate of 0.85% payable quarterly; the remaining €16.5 million matures on 30 June 2026 and carries a fixed interest rate of 1.31%. 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 an LTV covenant of 65% and the debt yield must be at least 8.0%

The lender has a charge over property owned by the Group with a value of €69,850,000. A pledge of all shares in the borrowing Group companies is in place.

21. Trade and other payables

		Group 30/09/2018 €'000	Group 30/09/2017 €'000	Company 30/09/2018 €'000	Company 30/09/2017 €'000
Rent received in advance		514	356	-	-
Rental deposits		1,546	1,443	-	-
Interest payable		9	101	-	-
Retention payable		79	96	-	-
Accruals		2,052	1,673	714	386
VAT payable		297	694	-	-
Trade payables		584	120	-	-
		5,081	4,483	714	386

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 €318,000 (2017: €125,000) and property expenses of €770,000 (2017: €1,037,000).

22. Net asset value per ordinary share

The NAV per Ordinary Share of 136.2 cents per share (2017: 133.3 cents per share) is based on the net assets attributable to ordinary shareholders of the Group of €182,069,000 (2017: €178,326,000), and 133,734,686 Ordinary Shares in issue at 30 September 2018 (2017: 133,734,686 Ordinary Shares).

23. 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 contracts when required to limit exposure to interest rate risks, but does not have any other derivative instruments.

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.

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 Directors monitor the market value of investment properties by having independent valuations carried out quarterly by a firm of independent chartered surveyors.

Included in market price risk is currency risk, credit risk and interest rate risk which are discussed
further below.

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:

Net Assets		Group 30/09/2018 €'000	Group 30/09/2017 €'000	Company 30/09/2018 €'000	Company 30/09/2017 €'000
Euros		182,206	185,905	165,719	167,356
Sterling		(201)	24	(201)	24
Rand		64	88	64	88
		182,069	186,017	165,582	167,468

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.

The Investment Manager reviews reports prepared by Dun and 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. Credit risk relating to the loan to joint venture is actively managed and the Group believes it does not carry any risk of impairment.

The table below shows the balance of cash and cash equivalents held with various financial institutions at the end of the reporting year.

Bank		Ratings as at 30/09/2018	Group balance at 30/09/2018 €'000	Company balance at 30/09/2018 €'000
HSBC Bank plc		AA-	575	525
ING Bank N.V.		A+	7,875	-
BNP Paribas		A+	584	-
Commerzbank AG		BBB+	566	-
FirstRand Bank Limited		BB+	67	67
Santander		A	6,069	4,200
BRED Banque Populaire		A+	2	-
			15,738	4,792

Bank		Ratings as at 30/09/2017	Group balance at 30/09/2017 €'000	Company balance at 30/09/2017 €'000
HSBC Bank plc		AA-	745	696
ING Bank N.V.		A+	8,254	-
BNP Paribas		A+	1,155	-
Commerzbank AG		BBB+	325	-
FirstRand Bank Limited		BB+	87	87
Santander		A	15,133	13,800
Societe Generale		A	2,822	-
			28,521	14,583

The maximum exposure to credit risk for rent and service charge receivables at the reporting date by type of sector was:

	30/09/2018 Carrying amount €'000	30/09/2017 Carrying amount €'000
Office	827	586
Retail	63	960
Industrial	152	-
	1,042	1,546

Rent receivables which are past their due date, but which were not impaired at the reporting date, were:

	30/09/2018 Carrying amount €'000	30/09/2017 Carrying amount €'000
0-30 days	1,042	1,487
31-60 days	-	-
61-90 days	-	12
91 days plus	-	47
	1,042	1,546

Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulties in meeting obligations associated with its financial obligations.

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. 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.

As at 30 September 2018	Carrying amount €'000	Expected Cash flows €'000	6 mths or less €'000	6 mths - 2 years €'000	2-5 years €'000	More than 5 years €'000
Financial liabilities
Interest-bearing loans and borrowings and interest	52,750	57,034	351	1,057	2,109	53,517
Trade and other payables	4,775	4,775	4,775	-	-	-
Total financial liabilities	57,525	61,809	5,126	1,057	2,109	53,517

As at 30 September 2017	Carrying amount €'000	Expected Cash flows €'000	6 mths or less €'000	6 mths - 2 years €'000	2-5 years €'000	More than 5 years €'000
Financial liabilities
Interest-bearing loans and borrowings and interest	59,564	64,891	368	1,107	2,214	61,202
Trade and other payables	3,689	3,689	3,689	-	-	-
Total financial liabilities	63,253	68,580	4,057	1,107	2,214	61,202

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 driven by interest rate movements. As at 30 September 2018, the fair value of the Group's €52.8 million loans were equal to their carrying amount (2017: €59.7 million).

A 1% increase or decrease in short-term interest rates would increase or decrease the annual income and equity by €0.1m (2017: €0.3m) based on the net of cash and variable debt balances as at 30 September 2018.

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 assets 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 (2017: 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. As at 30 September 2018 the fair value of the Group's loans was equal to its book value.

Trade and other receivables/payables- level 2

All receivables and payables are deemed to be due within one year and as such the notional amount is considered to reflect the fair value.

Derivatives - level 3

Fair values of derivatives are based on current market conditions compared to the terms of the derivative agreements. Refer to Note 17 for further detail.                         

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:

		30/09/2018 €'000	30/09/2017 €'000
Debt
Loan facilities		52,159	58,873
Equity
Called-up share capital and share premium		44,927	45,382
Reserves		137,142	132,944
Total equity		182,069	178,326
Total debt and equity		234,228	237,199

There were no changes in the Group's approach to capital management during the year.

24. Foreign exchange

During the year the Group incurred the following foreign currency gains and losses:

Realised currency gains of €1,000 (2017: €4,000 loss) arose on sundry corporate expense transactions.

An unrealised currency loss of €4,000 (2017: €3,000 loss) arose when monetary assets and liabilities held by the Group were retranslated into euros at the year end for reporting purposes.  

Both of these realised and unrealised amounts appear within the Statement of Comprehensive Income.

At each year end the Group retranslates its sterling denominated share capital, share premium and other reserves into euros using the period end exchange rate. At 30 September 2018, the cumulative unrealised currency loss arising on this retranslation was €29.2m (2017: €27.7m). This amount appears within the Statement of Changes in Equity as part of Other Reserves.

25. Operating leases

The Group leases out its investment property under operating leases. At 30 September 2018 the future minimum lease receipts under non-cancellable leases are as follows:

	30/09/2018 €'000	30/09/2017 €'000
Less than one year	13,365	12,811
Between one and five years	37,497	27,944
More than five years	21,177	11,698
	72,039	52,453

The total above comprises the total contracted rent receivable as at 30 September 2018.

26. Related party transactions

Material agreements are disclosed in note 6 and loans from related parties are disclosed in note 20. Directors' emoluments are disclosed in note 9.

Details of dividends received from the joint venture are disclosed in Note 15 (2017: nil).

Interest received and paid on loans to related parties are disclosed in the table below.

	30/09/2018 €'000		30/09/2017 €'000
Interest paid by SCI Rennes Anglet	(37)		(55)
Interest received from Urban SEREIT Holdings Spain S.L.	445		166

27. Capital commitments

At 30 September 2018 the Group had capital commitments of €293,590 (2017: None).

28. Post balance sheet events

There were no significant post balance sheet events.

EPRA and headline performance measures (unaudited)

As recommended by the European Public Real Estate Association ("EPRA"), performance measures are disclosed in the section below.

EPRA performance measures: summary table

		30/09/2018	30/09/2017
		Total €'000	Total €'000
EPRA earnings		10,830	6,947
EPRA earnings per share		8.1	5.2
EPRA NAV		182,793	178,608
EPRA NAV per share		136.7	133.6
EPRA NNNAV		182,793	178,608
EPRA NNNAV per share		136.7	133.6
EPRA Net initial yield		6.4%	6.0%
EPRA topped-up net initial yield		6.4%	6.0%
EPRA vacancy rate		1.5%	1.5%

a. EPRA Earnings and Earnings per Share

Total IFRS comprehensive income/(loss) excluding realised and unrealised gains/losses on investment property, share of capital profit on joint venture investments and changes in fair value of financial instruments, divided by the weighted average number of shares.

		30/09/2018	30/09/2017
		€'000	€'000
Total IFRS comprehensive income/(loss)		15,563	11,172
Adjustments to calculate EPRA Earnings:
Net gain from fair value adjustment on investment property		(4,939)	(4,284)
Exchange differences on monetary items (unrealised)		4	3
Loss on disposal of investment properties, development properties held for investment and other interests		29	-
Withholding tax on profits on disposal		279	-
Share of joint venture loss on investment property		(8)	429
Non-controlling interest's net revenue		(692)	(744)
Deferred tax		439	443
Net change in fair value of financial instruments		155	(72)
EPRA Earnings		10,830	6,947
Weighted average number of ordinary shares		133,734,686	132,775,782
IFRS Earnings/(loss) per share (cents per share)		9.9	7.7
EPRA Earnings per share (cents per share)		8.1	5.2

b. EPRA NAV per share

The Net Asset Value adjusted to exclude assets or liabilities not expected to crystallise in a long-term investment property model, divided by the number of shares in issue.

		30/09/2018	30/09/2017
		€'000	€'000
IFRS Group NAV per financial statements		182,069	186,017
Adjustment for Minority Interests		-	(7,609)
Deferred tax		912	473
Adjustment for fair value of financial instruments		(188)	(273)
EPRA NAV		182,793	178,608
Shares in issue at end of year		133,734,686	133,734,686
IFRS Group NAV per share		136.2	139.1
EPRA NAV per share		136.7	133.6

c. EPRA NNNAV per share

The EPRA NAV adjusted to include the fair value of debt, divided by the number of shares in issue.

		30/09/2018	30/09/2017
		€'000	€'000
EPRA NAV		182,793	178,608
Adjustments to calculate EPRA NNNAV:
Fair value of debt		-	-
EPRA NNNAV		182,793	178,608
EPRA NNNAV per share		136.7	133.6

d. EPRA net initial yield

Annualised rental income based on the cash rents passing at the balance sheet date, less non-recoverable property operating expenses, divided by the grossed up market value of the complete property portfolio.

The EPRA 'topped up' NIY is the EPRA NIY adjusted for unexpired lease incentives.

		30/09/2018	30/09/2017
		€'000	€'000
Investment property - share of subsidiaries		195,950	185,240
Investment property - share of joint ventures and funds		26,000	26,450
Complete property portfolio		221,950	211,690
Allowance for estimated purchasers' costs		15,537	14,818
Gross up completed property portfolio valuation		237,487	226,508
Annualised cash passing rental income		15,900	14,200
Property outgoings		(800)	(700)
Annualised net rents		15,100	13,500
Notional rent expiration of rent free periods		200	100
Topped-up net annualised rent		15,300	13,600
EPRA NIY		6.4%	6.0%
EPRA 'topped-up' NIY		6.4%	6.0%

e. Headline Earnings reconciliation

		30/09/2018	30/9/2017
		€'000	€'000
Total comprehensive profit/(loss)		15,563	11,172
Adjustments to calculate Headline Earnings exclude:
Net valuation (profit)/loss on investment property		(4,939)	(4,284)
Profits or losses on disposal of investment properties, development properties held for investment and other interests		29	-
Withholding tax on profits on disposal		279	-
Share of joint venture loss on investment property		(8)	429
Minority interests net revenue		(692)	(744)
Deferred tax		439	443
Net change in fair value of financial instruments		155	(72)
Headline Earnings		10,826	6,944
Weighted average number of ordinary shares	133,734,686		132,775,782
Headline Earnings per share (cents per share)	8.1		5.2

Headline earnings per share reflect the underlying performance of the company calculated in accordance with the Johannesburg Stock Exchange Listing requirements.

The Company reports sustainability information in accordance with EPRA Best Practice Recommendations on Sustainability Reporting (sBPR) 2017, 3^rd Edition for the 12 months 1st April 2017 - 31 March 2018 presented with comparison against 2016/17.

The reporting boundary has been scoped to where the Company has operational control: managed properties where the Company is responsible for payment of utility invoices and/or arrangement of waste disposal contracts. 'Operational control' has been selected as the reporting boundary (as opposed to 'financial control' or 'equity share') as this reflects the portion of the portfolio where the Company can influence operational procedures and, ultimately, sustainability performance. The operational control approach is the most commonly applied within the industry.

In 2017/18, out of the total 10 assets held by the Company at 31 March 2018, only four were within the operational control reporting boundary of the Company (i.e. 'managed'): Frankfurt, Hamburg and Stuttgart Germany and Seville Spain. In 2016/17, there were three such managed assets within the portfolio. The increase in the number of managed assets between reporting years reflects the acquisition of a managed shopping centre in Seville, Spain part-way through 2017.

Energy and water consumption data is reported according to automatic meter reads, manual meter reads or invoice estimates. Historic consumption data has been restated where more complete and/or accurate records have become available. Where required, missing consumption data has been estimated by pro rating data from other periods. The proportion of data that is estimated is presented in the footnotes to the
data tables.

SEREIT does not have any direct employees; it is served by the employees of the Investment Manager. Accordingly, the EPRA Overarching Recommendation for companies to report on the environmental impact of their own offices is not relevant/material and not presented in this report. SEREIT does not have any green building certificates (e.g. BREEAM) within its portfolio. Therefore, EPRAs BPR indicator Cert-Tot reporting below covers Energy Performance Certificates only (green building certification is not relevant and therefore not reported). This report has been prepared by energy and sustainability consultants, EVORA Global.

Total energy consumption (Elec-Abs; DH&C-Abs; Fuels-Abs)

The table below sets out total landlord obtained energy consumption from the Company's managed portfolio by sector.

	Total electricity consumption (kWh)		Total fuel consumption (kWh)		Total district heating consumption (kWh)
Sector	2016/17	2017/18	2016/17	2017/18	2016/17	2017/18
Office	124,166	128,888	-	-	578,328	543,907
Coverage	2/2	2/2	-	-	2/2	2/2
Retail, Shopping Centre	64,296	1,211,401	282,679	280,330	-	-
Coverage	1/1	2/2	1/1	2/2	-	-
Sub-total	188,462	1,340,289	282,679	280,330	578,328	543,907
Coverage	3/3	4/4	1/1	2/2	2/2	2/2
Total (Electricity, fuel and district heating)	1,049,470	2,164,526
Coverage	3/3	4/4
Renewable electricity %	0%	32%
Coverage	3/3	4/4

Consumption data relates to the managed portfolio only:

-       Offices: Common parts and shared service electricity and whole building district heating or gas; and

-       Retail, Shopping Centre: Common parts and shared service electricity and whole building district heating or gas

Estimation: 1.4% of the electricity data and 0% of the district heating/fuels data has been estimated.

Renewable electricity (%) is calculated according to the attributes of energy supply contracts as at
31 March 2018.

All energy was procured from a third-party supplier. No 'self-generated' renewable energy was consumed during the reporting period and therefore is not presented here.

Coverage relates to the number of managed assets for which data is reported.

Like-for-like energy consumption (Elec-LfL; DH&C-LfL; Fuels-LfL; Energy-Int)

The table below sets out the like-for-like landlord obtained energy consumption from the Company's managed portfolio by sector.

	Total electricity (kWh)			Total fuels (kWh)				Total district heating (kWh)			Energy Intensity (kWh/m2)
Sector	2016/17	2017/18	Change		2016/17	2017/18	Change	2016/17	2017/18	Change		2016/17	2017/18
Office	124,166	126,985	2.3%		-	-	-	578,328	543,907	-6.0%		51	49
Coverage	2/2	2/2			-	-		2/2	2/2			2/2	2/2
Retail, shopping centre	64,296	69,204	7.6%		282,679	280,330	-0.8%	-	-	-		57	61
Coverage	1/1	1/1			1/1	1/1		-	-			1/1	1/1
Sub-total	188,462	196,189	4.1%		282,679	280,330	-0.8%	578,328	543,907	-6.0%
Coverage	3/3	3/3			1/1	1/1		2/2	2/2
Total (Electricity, fuel and district heating)	1,049,470	1,020,426	-2.8%
Coverage	3/3	3/3

Like-for-like excludes assets that were purchased, sold or under refurbishment during the two
years reported.

Consumption data relates to the managed portfolio only:

-       Offices: Common parts and shared service electricity and whole building district heating or gas; and

-       Retail, shopping centre: Common parts and shared service electricity, and whole building district heating or gas

Estimation: 1.4% of the electricity data and 0% of the district heating/fuels data has been estimated.

Intensity: An intensity measure is reported for assets within the like-for-like portfolio. Numerators
/denominators are aligned as follows:

-       Office: Common areas and shared service energy consumption divided by net lettable area (NLA m²)

-       Retail, shopping centre: Common parts energy consumption divided by common parts area (m²). As common parts area is not typically measured and therefore known, we have taken the known net lettable area and applied an internal benchmark: common part area is equal to 25% of net lettable area

Coverage relates to the number of managed assets for which data is reported.

Greenhouse gas emissions (GHG-Dir-Abs; GHG-Indir-Abs; GHG-Int)

The table below sets out the Company's managed portfolio greenhouse gas emissions by sector.

	Absolute emissions (tCO²e)		Like-for-like intensity (kg CO2e/m2)
Sector	2016/17	2017/18	2016/17	2017/18
Office
Scope 1	-	-	12.4	12.0
Scope 2	172	164
Coverage	2/2	2/2	2/2	2/2
Retail, shopping centre
Scope 1	57	56	26	28
Scope 2	30	366
Coverage	1/1	2/2	1/1	1/1
Total scope 1	57	56
Total scope 2	202	530
Total scope 1 and 2	259	586
Coverage	3/3	4/4

Methodology:

The following greenhouse gas emissions' conversion factors have been applied:

Country	Electricity	Gas	District heating
Germany	CO2 Emissions from Fuel Combustion 2017, International Energy Agency	Federal Ministry of the Environment report 'CO2 emission factors for fossil fuels'	Federal Ministry of the Environment report 'A Study of Specific Greenhouse Gas Emissions Factors for District Heating'
Spain		UK Government conversion factors for company reporting, Department for Environment, Food and Rural Affairs	EPA Climate Leaders Greenhouse Gas Inventory Protocol Core Module Guidance - Indirect Emissions from Purchases/Sales of Electricity and Steam (2008)

GHG emissions from electricity (Scope 2) are reported according to the 'location-based' approach.

GHG emissions are presented as kilograms of carbon dioxide equivalent (kgCO²e), where available greenhouse gas emissions conversion factors allow.

Emissions' data relates to the managed portfolio only:

-       Offices: Common parts and shared service electricity, and whole building district heating or gas

-       Retail, shopping centre: Common parts and shared service electricity, and whole building district heating or gas

-       GHG emissions associated with electricity consumed directly by tenants is not reported

Estimation: 1.4% of the electricity data and 0% of the district heating/fuels data has been estimated.

Intensity: An intensity measure is reported for assets within the like-for-like portfolio. Numerators /denominators are aligned as follows:

-       Office - Common areas and shared service GHG emissions divided by net lettable area (NLA m²)

-       Retail, shopping centres - Common parts GHG emissions divided by common parts area (m²). As common parts area is not typically measured and therefore known, we have taken the known net lettable area and applied an internal benchmark: common part area is equal to 25% of net lettable area

Coverage relates to number of managed assets for which data is reported.

Water (Water-Abs; Water-LfL; Water-Int)

The table below sets out water consumption from the Company's managed portfolio by sector.

	Absolute mains water consumption (m³)		Like-for-like mains water consumption (m³)			Like-for-like intensity (m³/m²)
Sector	2016/17	2017/18	2016/17	2017/18	Change	2016/17	2017/18
Office	3,115	2,606	3,115	2,606	-16.4%	0.23	0.19
Coverage	2/2	2/2	2/2	2/2		2/2	2/2
Retail, shopping centre	270	7,378	270	352	30.6%	0.06	0.08
Coverage	1/1	2/2	1/1	1/1		1/1	1/1
Total	3,385	9,984	3,385	2,958	-12.6%
Coverage	3/3	4/4	3/3	3/3

Consumption data relates to the managed portfolio only:

-       Office: Whole building consumption

-       Retail, shopping centre: Whole building consumption

Consumption relates to mains/municipal water supplies. No non-mains water (e.g. borehole, rainwater) is consumed across the portfolio.

Like-for-like excludes assets that were purchased, sold or under refurbishment during the two
years reported.

Estimation: 1.3% of water data have been estimated.

Intensity: An intensity measure is reported for assets within the like-for-like portfolio. Numerators/denominators are aligned as follows:

-       Office and retail, shopping centres: whole building consumption (m³) divided by NLA (NLA m²)

Coverage relates to number of managed assets for which data is reported.

Waste (Waste-Abs; Waste-LfL)

The table below sets out waste from the Company's managed portfolio by disposal route and sector.

		Absolute tonnes				Like-for-like tonnes
		2016/17		2017/18		2016/17		2017/18		% change
		Tonnes	%	Tonnes	%	Tonnes	%	Tonnes	%
Office	Recycled	18	27%	10	16%	18	27%	10	16%	-48%
	Composting	-	-	2	3%	0	0%	2	3%	-
	Incineration with energy recovery	49	73%	49	81%	49	73%	49	81%	0%
	Landfill	-	-	-	-	-	-	-	-
	Total	67		61		67		61		-10%
	Coverage	2/2		2/2			2/2		2/2
Retail, shopping centre	Recycled	-	-	-	-	-	-	-	-	-
	Composting	-	-	-	-	-	-	-	-	-
	Incineration with energy recovery	9	100%	8	100%	9	100%	8	100%	-9%
	Landfill	-	-	-	-	-	-	-	-	-
	Total	9		8			9		8	-9%
	Coverage	1/1		1/1		1/1		1/1
Total	Recycled	18	24%	10	14%	18	24%	10	14%	-48%
	Composting	-	-	2	3%	-	-	2	3%	-
	Incineration with energy recovery	58	76%	57	83%	58	76%	57	83%	-1%
	Landfill	-	-	-	-	-	-	-	-	-
	Total	76		69		76		69		-10%
	Coverage		3/3		3/3		3/3		3/3

Consumption data relates to the managed portfolio only:

-       Offices: Whole building

-       Retail, shopping centres: Whole building or common parts

Like-for-like excludes assets that were purchased, sold or under refurbishment during the two
years reported.

Reported data relates to non-hazardous waste only, robust tonnage data on the small quantities of hazardous waste produced is not available.

German waste data protocol applies a standard waste tonnage based on the waste collection frequency. In some cases, this leads to a repetition of waste tonnage across both years.

Coverage relates to the number of managed assets for which data is reported.

Sustainability Certification: Energy Performance Certificates (Cert-Tot)

The table below sets out the proportion of the Company's total portfolio with an Energy Performance Certificate by floor area.

Energy performance certificate rating	Portfolio by floor area (%)
A	-
B	24%
C	22%
D	22%
E	12%
F	-
G	-
H	-
I	6%
Exempt
Coverage	86%

Energy Performance Certificate records for the Fund are provided for the portfolio as at 31 July 2018.

Data provided includes the whole portfolio i.e. managed and non-managed assets.

German EPCs do not have a letter rating system used in certification. A conversion has been applied to numerical scoring to give an indicative score.

Energy Performance Certificate records for the Company are provided against portfolio floor area, including 50% of the net lettable area of Seville, Metromar (in line with ownership share).

Sustainability Performance Measures (Social)

EPRA's Sustainability Best Practices Recommendations Guidelines 2017 ('EPRA's Guidelines') include new Social and Governance reporting measures to be disclosed for the entity i.e. the Company. The Company is an externally managed real estate investment trust and has no direct employees. A number of these Social Performance measures relate to entity employees and therefore these measures are not relevant for reporting at the entity level. The Investment Manager to the Company, Schroder Real Estate Investment Management Limited, is part of Schroders PLC which has responsibility for the employees that support the Company. The Company aims to comply with EPRA's Guidelines and therefore has included Social and Governance Performance Measure disclosures in this report. These are, however, presented as appropriate for the activities and responsibilities of Schroder European Real Estate Investment Trust Limited (the 'Company'), Schroders PLC or the Investment Manager, Schroder Real Estate Investment Management Limited.

The Schroders plc Annual Report and Accounts for the 12 months to 31 December 2017supports the performance measures in relation to the Investment Manager as set out below. Schroders PLC's principles in relation to people, including diversity, gender pay gap, values, employee satisfaction survey, wellbeing and retention can be found at:

https://www.schroders.com/en/sysglobalassets/global-assets/global/annual-report/documents/schroders-ar17.pdf; and

-       http://www.schroders.com/en/people/diversity-and-inclusion/gender-equality-at-schroders/ 

Employee Gender Diversity (Diversity-Emp)

As at 31 March 2018 the Company Board comprised three members: 0 (0% female) and 3 (100% male).

For Schroders PLC's Employee Gender Diversity policy please refer to its 2017 Annual Report and Accounts at page 28 - https://www.schroders.com/en/sysglobalassets/global-assets/global/annual-report/documents/schroders-ar17.pdf; and

Gender pay ratio (Diversity-Pay)

The remuneration of the Company Board is set out on pages 49 and 50 of the 2018 Annual Report and Accounts.

For Schroders PLC please refer to its Gender Pay Diversity Report March 2018 at http://www.schroders.com/en/people/diversity-and-inclusion/gender-equality-at-schroders/ 

The following are reported for Schroders in relation to the Investment Management of the Company:

Training and development (Emp-Training)

Schroders requires employees to complete mandatory internal training. Schroders encourages all staff with professional qualifications to maintain the training requirements of their respective professional body.

Employee performance appraisals (Emp-Dev)

The Schroders' performance management process requires annual performance objective setting and annual performance reviews for all staff. The Investment Manager confirms that performance appraisals were completed for all investment staff relevant to the Company for the calendar year 2017.

Employee turnover and retention (Emp-Turnover)

For Schroders PLC turnover and retention please refer to its Annual Report and Accounts at page 29 -     https://www.schroders.com/en/sysglobalassets/global-assets/global/annual-report/documents/schroders-ar17.pdf; and

Employee health and safety (H&S-Emp)

Schroders PLC does not include employee health and safety performance measures in its Annual Report
and Accounts.

The following are reported in relation to the assets held in the Company's portfolio over the reporting period to 31 March 2018:

Asset health and safety assessments (H&S-Asset)

Health and safety impacts were assessed or reviewed for compliance or improvement for 100% of managed assets held in the Company portfolio during the reporting period.

Asset health and safety compliance (H&S-Comp)

No issues of non-compliance with regulations and/or voluntary codes were identified during the reporting period.

Community engagement, impact assessments and development programmes (Comty-Eng)

Local community engagement, impact assessments and/or development programmes were completed for 10% (1 of 10) assets during the reporting period.

Sustainability Performance Measures (Governance)

Composition of the highest governance body (Gov-Board)

The Board of the Company comprised three non-executive independent directors (0 executive board members) for the 12 months to 31 March 2018.

The average tenure of the three directors to 31 March 2018 is 2 years and 5 months

The number of directors with competencies relating to environmental and social topics is 3/3 and their experience can be seen in the Board of Directors experience at pages 35 and 36 of the 2018 Annual Report and Accounts.

Nominating and selecting the highest governance body (Gov-Select)

The role of the Nomination and Remuneration Committee, chaired by Sir Julian Berney Bt, is to consider and make recommendations to the Board on its composition so as to maintain an appropriate balance of skills, experience and diversity, including gender, and to ensure progressive refreshing of the Board. On individual appointments, the Nomination and Remuneration Committee leads the process and makes recommendations to the Board.

Before the appointment of a new director, the Nomination and Remuneration Committee prepares a description of the role and capabilities required for a particular appointment. While the Nomination and Remuneration Committee is dedicated to selecting the best person for the role, it aims to promote diversification and the Board recognises the importance of diversity. The Board agrees that its members should possess a range of experience, knowledge, professional skills and personal qualities as well as the independence necessary to provide effective oversight of the affairs of the Company.

Process for managing conflicts of interest (Gov-Col)

The Company's policy on Directors' conflicts of interest sets out the policy and procedures of the Board for the management of conflicts of interest.

The Board has approved a policy on Directors' conflicts of interest. Under this policy, Directors are required to disclose all actual and potential conflicts of interest to the Board as they arise for consideration and approval. The Board may impose restrictions or refuse to authorise such conflicts if deemed appropriate.

Status of announcement

2017 Financial Information

The figures and financial information for 2017 are extracted from the published Annual Report and Accounts for the year ended 30 September 2017 and do not constitute the statutory accounts for that year. The 2017 Annual Report and Accounts have been delivered to the Registrar of Companies.

2018 Financial Information

The figures and financial information for 2018 are extracted from the Annual Report and Accounts for the year ended 30 September 2018 and do not constitute the statutory accounts for the year. The 2018 Annual Report and Accounts include the Report of the Independent Auditors which is unqualified and does not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The 2018 Annual Report and Accounts will be delivered to the Registrar of Companies in due course.

Neither the contents of the Company's webpages nor the contents of any website accessible from hyperlinks on the Company's webpages (or any other website) is incorporated into, or forms part of, this announcement.

 

END

 

 

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