Half-year Report

RNS Number : 0375R

Schroder Eur Real Est Inv Trust PLC

12 June 2018

 

12 June 2018

SCHRODER EUROPEAN REAL ESTATE INVESTMENT TRUST PLC

HALF YEAR REPORT AND ACCOUNTS

HALF YEAR RESULTS FOR THE PERIOD ENDED 31 MARCH 2018

PROFIT INCREASES BY 157% AS PORTFOLIO IS FULLY INVESTED IN WINNING EUROPEAN CITIES

Schroder European Real Estate Investment Trust plc ("SEREIT" or the "Company"), the company investing in European growth cities, today announces its half year results for the period ended 31 March 2018 as required by the UK Listing Authority's Disclosure Guidance and Transparency Rule 4.2. 

Financial Highlights for six months ending 31 March 2018:

‒   Profit for the six months increased 157% to €10.8 million (31 March 2017: €4.2 million), driven by uplift in portfolio values and growth in net income

‒   Net asset value ('NAV') total return of 6.1% (31 March 2017: 2.5%)

‒   4.9% increase in NAV to €187.1 million, or 139.9 cps (deducting the interim dividend declared in December 2017 and paid in April 2018, the NAV would have been €184.6 million (138.1 cps) as at 31 March 2018)

‒   EPRA earnings of €6.5 million (31 March 2017: €2.6 million), reflecting the growth in rental income from acquisitions and receipt of €2.4 million of the surrender premium for the Hamburg asset

‒   Dividend for quarter ended 31 March 2018 of 1.85 cps fully covered from income

‒   Annualised dividend rate of 5.5% based on the euro equivalent of the issue price as at admission, achieving the target dividend stated at IPO. Total interim dividends declared to date relating to the year ending 30 September 2018 of 3.7 cps, representing a 68% increase over the same period in respect of the year ended  30 September 2017

‒   Loan to value ('LTV') of 28% (30 September 2017: 22%). The debt has a weighted average total interest rate of 1.3%, is either fixed cost or capped and has a long duration of 6.4 years on average

Operational highlights

‒   Company fully invested

‒   Acquisition of a data centre and office premises in the Netherlands, secured on a long lease to a strong tenant, for a price of €19.8 million, reflecting  a net initial yield of 10%

‒   Continued focus on winning cities and regions with 100% of the portfolio by value located in the faster GDP growth locations in Europe (source: Oxford Economics)

‒   Lease surrender agreement at Hamburg office in return for a premium of €3.9 million. Provides the opportunity to re-let space in the strong Hamburg market  

‒   Contracted sale of two Casino supermarkets in France at a 10% premium to December 2017 independent  valuation

‒   Portfolio valued at €237.3 million, reflecting an uplift of approximately 9.5% on the combined purchase price

‒   Successful execution of asset management initiatives across the portfolio, including six new lettings and re-gears across approximately 5,000 sqm

‒   Portfolio occupancy of 97% and an unexpired lease term of 6.7 years to expiry.

Market Outlook

‒   Eurozone growth continues to drive a strong occupational market

‒   Low vacancy rates supporting favourable rental growth across the majority of markets the Company is invested in.

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

"This has been an active period for the Company, during which we have delivered growth in NAV, net income and shareholder dividends. We have executed on the strategy outlined at IPO, constructing a high quality real estate portfolio, across the growth cities of western continental Europe. Leveraging its local expertise, Schroders is working on a number of asset management initiatives across the portfolio to grow income and value and coupled with the positive economic backdrop in our target markets, we believe the Company is well positioned for the next stage of growth."

Jeff O'Dwyer, of Schroder Real Estate Investment Management Limited, added:

"Our portfolio of assets across winning cities such as Berlin, Hamburg, Stuttgart, Frankfurt and Paris continues to benefit from improving occupational demand and strong investment markets. Combined with the active asset management initiatives that we have been driving, this has generated positive performance.

"Our immediate priority is to invest the capital that we are receiving from the profitable sale of the two Casino supermarket investments and we are in negotiations on a number of new opportunities in both new and existing sectors. As previously stated, our aspirations are to grow the portfolio through a disciplined and consistent approach centred on enhancing income and shareholder returns."

For further information:

Schroder Real Estate Investment Management Duncan Owen / Jeff O'Dwyer	020 7658 6000
Ria Vavakis Schroder Investment Management Limited	020 7658 2371
FTI Consulting Dido Laurimore / Ellie Sweeney / Richard Gotla	020 3727 1000

A presentation for analysts and investors will be held at 08.45 a.m. BST today at the offices of Schroders plc, 31 Gresham Street, London EC2V 7QA.  If you would like to attend, please contact James Lowe at Schroders on [phone] or [e-mail]

The Half Year Report is also being published in hard copy format and an electronic copy of that document will shortly be available to download from the Company's website www.schroders.co.uk/its. Please click on the following link to view the document:  

http://www.rns-pdf.londonstockexchange.com/rns/0375R_1-2018-6-11.pdf

The Company has submitted a pdf of the hard copy format of its Half Year Report to the National Storage Mechanism and it will shortly be available for inspection at www.morningstar.co.uk/uk/NSM.

A further announcement will be made in due course to confirm the full timetable of the second interim dividend.

 

Chairman's Statement

 

Overview

During the period the Company has achieved two significant milestones: full investment, following acquisition of an office and data centre in the Netherlands; and growing the dividend to the target level set at IPO. The dividend yield is 5.5% p.a. against the euro equivalent of the issue price as at admission and, based on the Euro:GBP exchange rate as at 31 March 2018, the dividend represents 6.5% p.a. against £1 invested at IPO.

The acquisition in the Netherlands has taken the real estate portfolio to 10 assets, located in growth cities and regions of continental Europe. These markets are benefiting from the continued favourable Eurozone economic outlook and mega-themes such as urbanisation and improving infrastructure. 

In February the Company announced the sale of its interest in the two Casino supermarkets, representing a 10% premium to the 31 December 2017 valuation. Leveraging its extensive European local presence, the Investment Manager is pursuing new investment opportunities for the redeployment of the proceeds that will be received in July. There are also a number of other value and income-enhancing asset management initiatives underway across the portfolio which will maximise performance.  Further detail on these matters is set out in the Investment Manager's Review.      

Results

The Company's net asset value ("NAV") at 31 March 2018, excluding non-controlling interests, was €187.1 million or 139.9 euro cents per share (£164.4 million or 123.0 pence per share). Including dividends, the NAV total return over the period was 6.1%.

Including the recognition of the interim dividend declared in December 2017, which went ex-dividend in March 2018 and was paid on 13 April 2018 from income, the Company's NAV would have reduced to €184.6m or 138.1 euro cents per share (£162.2 million or 121.3 pence per share).

The profit for the six month period to 31 March 2018 was €10.8 million and the EPRA earnings were €6.5 million.

Strategy

The investment strategy is based on targeting high quality assets in winning cities and regions in Continental Europe. The current portfolio demonstrates this, with all of the assets located in cities with GDP growth forecasts in the top two quartiles of all European regions (Source: Oxford Economics).

Our target markets in Europe are benefiting from a broad-based economic recovery, with positive growth forecasts, declining unemployment and inflation under control. Rental growth is returning to most parts of the market as occupier demand for good quality, well-located assets remains healthy and development activity is reasonably subdued. This will be positive for the Company's portfolio and supports our growth ambitions for the Company.

The Investment Manager's in-house research and local teams, which totals 145 people across eight key target markets in Europe, provide a market-leading platform to identify assets fitting the investment strategy. The focus is on locations that are benefiting from supply/demand imbalances, infrastructure improvements and competing land uses. These assets are actively managed by the local teams, with the objective of improving rental income and delivering long-term capital growth.

Execution of this investment strategy has underpinned the delivery of shareholder returns. The Company is keen to build on this by growing in a disciplined way that continues to improve earnings and value and brings additional benefits such as improved share liquidity.

Debt

During the period the Company completed a new €13m debt facility secured against the Saint-Cloud office building in Paris. This loan takes the Company's total third party debt as at 31 March 2018 to €73.4 million, representing a Loan to Value ("LTV") of approximately 28% against the overall gross asset value of the Company. 

The Company is focused on maintaining a robust balance sheet and overall leverage is capped at 35% at the time of drawing debt. The debt strategy tailors gearing against those assets most suitable for debt financing. The Company has five debt facilities in place with an average weighted total interest rate of 1.30%. All interest rates are either fixed or capped. Given the positive yield spread it is likely the Company will draw further debt facilities against future acquisitions and target overall gearing at around the capped level.

Dividend

The Company has declared a second interim dividend in respect of the year ending 30 September 2018 of 1.85 euro cents per share payable on 20 July 2018 to shareholders on the register on 6 July 2018. The first and second interim dividends in respect of the year ending 30 September 2018 amount to 3.7 euro cents per share, representing a 68% increase compared to dividends declared over the same period in respect of the year ended 30 September 2017.

The dividend is approximately 100% covered from recurring income from the portfolio. This excludes the positive impact of the receipt of €2.4 million in respect of the first payment for the Hamburg lease surrender. Including the Hamburg surrender premium receipt, the dividend cover is 172%.

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 31 March 2018, this equates to an annualised rate of 6.5% on the GBP issue price at IPO of 100 pence per share.

The Company will continue to pursue a progressive dividend policy, which is sustainable from recurring income.

Outlook

Having delivered on the strategy outlined at IPO, the Company is well-positioned for the next phase of its growth. The high quality real estate portfolio across the growth cities of continental Europe provides a strong platform for the Company. It generates an attractive level of stable income which covers the dividend and provides opportunities to grow income and values over the long term.  

Occupier demand and rental growth in the target markets of Western Europe is increasing, underpinned by the continued economic growth. This presents an opportunity for the Company and we look forward to working with the Investment Manager to progress the strategy. 

Sir Julian Berney Bt.

Chairman

11 June 2018

Investment Manager's Report

Results

The Company's net asset value ("NAV") as at 31 March 2018 stood at €187.1 million (£164.4m), or 139.9 euro cents (123.0 pence) per share, achieving a NAV total return for the first six months of the financial year of 6.1%.

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 made during the period	(1.3)	(1.0)	(0.8)
Capital expenditure	(0.1)	(0.1)	(0.1)
Unrealised gain in valuation of the real estate  portfolio	6.2	4.7	3.5
EPRA earnings	6.5	4.9	3.7
Non-cash items	(0.5)	(0.4)	(0.3)
Dividend paid4	(2.0)	(1.5)	(1.1)
Carried forward as at 31 March 2018	187.1	139.9	4.9

¹Management reviews the performance of the Company principally on a proportionally consolidated basis. As a result, figures quoted in this table include the Company's share of 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

⁴This represents the fourth interim dividend for the year ended 30 September 2017 which was paid in January 2018. The first interim dividend for the year ending 30 September 2018 was paid to investors from prior income on 13 April 2018 and is not included as a NAV movement during the period

Market overview

The Eurozone has enjoyed its strongest period of growth during the last 10 years with Schroders forecasting that Eurozone GDP will grow by 2-2.5% through 2018-2019. Investment is increasing, while unemployment continues to fall with consumer spending increases. The acceleration in world trade means that external demand in the form of exports should continue to grow. While stronger growth will feed through to higher inflation,  Schroders expects it to remain at around 1.5% p.a. over the next couple of years, with the result that the ECB is unlikely to raise interest rates before 2019. The main downside risk is a trade war which would hurt the export-orientated Eurozone.

Offices

The economic momentum continues to drive strong demand in most European office markets and vacancy, particularly for modern space in central locations, continues to erode. At the same time, the supply pipeline for the next two years remains muted and new supply is often pre-let. This in turn continues to filter through to broad-based rental growth not just in CBD locations, but also in other established and well-connected office locations.

Retail

While consumer spending is rising, much of the growth is generated online with varying effects on the various physical retail formats and sectors. The food sector remains resilient to online sales and the trend away from big hypermarkets to smaller supermarkets, convenience stores and organic food stores continues. Retail warehouses that sell bulky goods or DIY products seem also relatively immune. On the other hand, fashion sees the biggest pressure from online sales. Several smaller chains have fallen into insolvency and major retailers such as H&M and Inditex are closing stores and investing heavily in their websites and logistics. Yet for these brands prime high street unit shops, or a presence in dominant shopping centres, is key for branding and marketing. 

Logistics/warehousing

In many respects the industrial sector resembles the office market. Logistics take-up in continental Europe hit a new record in 2017, reflecting the cyclical recovery in demand from manufacturers and third party logistics firms (3PLs) and the rapid structural growth in online retail. Although development is increasing, the vast majority of schemes are being built on a pre-let "build to suit" basis and vacancy in most locations remains low. Prime logistics rents increased by 3% on average last year (source: CBRE).

Investment market

Retail was the one sector where liquidity declined last year. The value of retail investment deals in Continental Europe was 16% lower in 2017 than 2016 (source: RCA). Conversely, office and industrial deals increased while, in the search for yield, investment alternatives such as hotels increased, too. Looking forward, the investment market is likely to remain highly competitive in 2018. While the gap between prime real estate and government bond yields has narrowed since 2015 to around 3.0%, it still looks attractive given the favourable outlook for rental and income growth in most sectors. 

Investment progress

Over the six months since 1 October 2017, the Company completed the following three significant transactions:

-       Purchase completed: The Company acquired a long-term fully leased, three storey office building and data centre in Apeldoorn, The Netherlands for an all-in cost of €21.1 million and generating a net income yield of approximately 10%.

-       Lease surrender completed: The Company agreed terms for City BKK to surrender its lease at the Hamburg office asset in Germany in return for a cash payment to the Company of €3.9 million (of which €2.4 million was received during this period). This €3.9 million cash payment represents 4.7 years of annual rental income from City BKK. Negotiating a surrender with City BKK was a key initiative within the acquisition strategy. The agreement gives the Company the opportunity to reposition the property and re-lease the space into a strengthening office sub-market which will also diversify the property's income profile.

-       Sale committed: The Casino Group has exercised a buy-back option for the Company's 70% interest in two Casino supermarkets in Biarritz and Rennes. The combined sale value for the 70% share is €44.8 million, representing a 10% premium to the 31 December 2017 valuation. The sale will complete on 31 July 2018. The Company will continue to receive rental income from the properties until the sale completes. 

The Company has invested €232 million since IPO and as of today is fully deployed. The sale of the Casino supermarkets in Rennes and Biarritz will provide the Company with investment capacity of approximately €45m-€50m (including further gearing). The Investment Manager is reviewing, and in exclusivity, on a number of new investment opportunities that could be suitable for redeployment of this capital when it is received later in the year.

Real estate portfolio

The portfolio comprises 10 institutional grade properties, c.97% let, across winning cities and regions in France, Germany, Spain and the Netherlands. All investments are owned 100% except for the Rennes and Biarritz supermarkets (70% interest) and the Metromar shopping centre, Seville (50% interest).

 The redeployment of the Casino sale proceeds will be focused on acquiring assets that complement the existing portfolio and maintain good asset diversity, a stable income base and the opportunity for long-term capital growth through active asset management. The Investment Manager has an identified pipeline of acquisitions spanning a number of sectors, including light industrial and logistic investments, and is confident of deploying the capital in the near term.

The table below gives an overview of the portfolio: 

Property	Country	Sector	Contracted rents		Value
			€m	% total	€0-€20m	€20m-€40m	€40m-€60m	>€60m
Paris (B-B)	France	Office	2.4	14.8%			X
Paris (SC)	France	Office	3.5	21.7%		X
Berlin	Germany	Retail	1.6	10.0%		X
Seville	Spain	Retail	2.0	12.2%		X
Casino Supermarket, Biarritz*	France	Retail	1.3	7.8%		X
Apeldoorn	Netherlands	Mixed	2.4	14.9%		X
Casino Supermarket, Rennes*	France	Retail	0.9	5.9%		X
Hamburg	Germany	Office	0.5	3.4%	X
Stuttgart	Germany	Office	0.8	5.0%	X
Frankfurt	Germany	Retail	0.7	4.3%	X
Portfolio at 31/03/2018*			16.1	100.0	237.3
Biarritz & Rennes*	France	Retail	2.2	13.8%
Portfolio excluding Casino supermarkets			13.9	86.2%	192.5

* The value assigned to the Casino supermarkets in this table reflects the option price exercised by the Casino Group. The Casino buy-back prices are at a 10% premium to the 31 December 2017 valuation.

The portfolio's country and sector allocations, pre and post the Casino supermarket sales, are specified below:

Country allocation (% contracted rent)	Portfolio at 31/03/2018	Portfolio excluding Casino supermarkets		Sector allocation (% contracted rent)	Portfolio at 31/03/2018	Portfolio excluding Casino supermarkets
France	50.2%	42.1%		Office	44.8%	51.9%
Germany	22.7%	26.4%		Retail	40.3%	30.8%
Spain	12.2%	14.2%		Mixed	14.9%	17.3%
Netherlands	14.9%	17.3%		Other	0.0%	0.0%
Total	100.0%	100.0%		Total	100.0%	100.0%

Lease expiry profile

The 10 asset portfolio is 97% let generating €16.1 million p.a. in contracted income. The rent on all leases is indexed to inflation and individual asset business plans are being implemented to improve future earnings and capital growth potential.

The average unexpired lease term is 4.6 years to first break and 6.7 years to expiry. Excluding the Casino supermarkets, the contracted rents are €13.9m with average unexpired lease terms to first break and expiry of 4.7 years and 6.1 years.

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.

Top 10 tenants

The top 10 tenants comprise a wide range of occupiers from different industry segments as shown below:

	Tenant	Property	Tenant risk 1	Contracted rent (€m p.a.)	Contracted rent (% ) 2	Unexpired lease term (years) 3
1	KPN	Apeldoorn	Low	2.4	15%	8.8
2	Alten	Paris (B-B)	Low	2.3	14%	3.0
3	Casino	Rennes & Biarritz	Low	1.9	12%	4.2
4	Hornbach	Berlin	Low	1.6	10%	7.8
5	Filassistance	Paris (SC)	Low	0.9	5%	1.3
6	LandBW	Stuttgart	Low	0.7	4%	7.9
7	Thesee	Paris (SC)	Medium	0.6	4%	1.4
8	Ethypharm	Paris (SC)	Low	0.5	3%	3.2
9	Moody's	Paris (SC)	Low	0.4	2%	1.3
10	Outscale	Paris (SC)	Low	0.4	2%	2.1
Total top 10 tenants				11.7	71%	5.0
Remaining tenants				4.4	29%	3.3
Total				16.1	100%	4.6

¹ Regular tenant risk assessments are undertaken for the largest tenants. Among other considerations, the Investment Manager's risk assessments are based on Dun & Bradstreet ratings and failure scores

² Percentage based on total contracted rent as at financial period end

³ Unexpired lease term until earliest termination in years as at 31 March 2018 weighted by contracted rent

Valuation

The current portfolio value of €237.3 million reflects an increase of 9.5% (€20.5 million) compared to the combined purchase price of the 10 asset portfolio. Transaction costs have already been fully recovered through valuation uplifts since acquisition.

The portfolio valuation has increased by 2.8% for the six months to 31 March 2018. Valuation uplift is positive for most assets. The Hamburg office asset was the notable exception as the property had a value decline of -4.2%, reflecting €0.7 million. The main reason for this is the surrender agreed with City BKK for its lease at the Hamburg asset in return for a cash payment to the Company of €3.9 million to be received in two instalments: €2.4 million in 2018 and another €1.5 million to be received in 2019.

A fall in the Seville valuation has been offset by a corresponding reduction in the initial purchase price as a result of certain purchase conditions being met. The Seville valuation remains above initial purchase price by 1.9%. Including the purchase price reduction, Seville valuation performance was positive for the six months since 1 October 2017.

With regard to the assets which saw their values increase, the valuation uplift was particularly strong for the properties in Paris Saint-Cloud (+3.8%/€1.3 million), Stuttgart (+2.3%/€0.4 million) and Paris B-B (+1.4%/€0.6 million), all benefiting from strong rental and investment markets.

The external valuation of the Casino supermarkets remained flat over the six month period. However, the sale price of the buy-back option exercised by the Casino Group is at a 10% premium (€4.1 million) to the current external valuation. Therefore these properties are held at a value reflecting the sale price.

The newly acquired property in Apeldoorn witnessed a valuation uplift against its purchase price (+2.0%/€0.4 million).

Asset management

We manage each asset around an identified business plan, constructed by our local real estate professionals and approved by the Investment Manager's investment committee. Our asset management expertise assists in de-risking assets, enhancing income profiles and positioning investments to benefit from occupier demand and ultimately growth, all positively contributing to the delivery of the Company's return performance.  

Fauststraat 1, Apeldoorn, the Netherlands

·        Acquired in February 2018 for a purchase price of €19.8 million

·        Valuation at 31 March 2018: €20.2 million

·        Lettable area: c.23,700 sq.m

·        Investment rationale:

ü Attractive nine year income stream from a strong tenant;

ü Established and strategic location c.1 hour from Amsterdam;

ü Longer term alternative use potential;

ü Mixed-use asset comprising data centre/office use; and

ü The technology (ICT) influence provides additional portfolio

diversification into a growth sector 

Due to the core, long-term lease profile asset management initiatives are limited in the short term. In the longer term we continue to explore alternative use potential.

Boulevard Jean Jaurès, Boulogne-Billancourt (Paris) 92100, France 

·        Acquired in March 2016 for a purchase price of €37.5 million

·        Valuation at 31 March 2018: €42.1 million

·        Lettable area: c.6,900 sq.m

·        Investment rationale:

ü Mixed-use area with a high incidence of competing uses;

ü Affordable and sustainable rents;

ü Supply-constrained location; and

ü Modest capital value per sq.m

Asset management over the period centred on the investigation of alternative use potential and liaising with the tenant to advance longer term occupational intentions.

Großbeerenstraße, 12107 Berlin, Germany

·        Acquired in March 2016 for a purchase price of €24.3 million

·        Valuation at 31 March 2018: €26.0 million

·        Lettable area: c.16,800 sq.m

·        Investment rationale:

ü Above average population growth;

ü Supply-constrained location;

ü Mixed-use area with a high incidence of competing uses; and

ü Large site area of 4 hectares

Due to the core, long-term lease profile, asset management initiatives are limited in the short-term. We continue to explore ways to utilise the site to a greater density and income potential.

Neckarstraße, 70190, Stuttgart, Germany

·        Acquired in April 2016 for a purchase price of €14.4million

·        Valuation at 31 March 2018: €15.6 million

·        Lettable area: c.5,800 sq.m

·        Investment rationale:

ü Supply-constrained location;

ü Mixed-use area with a high incidence of competing uses;

ü Affordable/sustainable rents; and

ü Improving infrastructure driven by the neighbouring "Stuttgarter 21" redevelopment

Asset management over the period has centred on improving neighbouring fire certification conformance.

Hammerbrookstraße, 20097, Hamburg, Germany

·        Acquired in April 2016 for a purchase price of €14.4 million

·        Valuation at 31 March 2018: €16.0 million

·        Lettable area: c.7,000 sq.m

·        Investment rationale:

ü Modest capital value per sq.m;

ü Mixed-use area with a high incidence of competing uses;

ü The City-Sud sub-market is one stop from the city centre and is evolving as a destination where people want to live, work and socialise;

ü Affordable/sustainable rents that represent approximately a third of the prime city centre; and

ü Location has medium to longer term growth potential

Asset management over the period included the negotiation of the €3.9 million lease surrender premium with City BKK. With vacancy rates in the sub-market falling substantially, we felt now was the right time to take on leasing risk and utilise our asset management expertise to de-risk.

Lorscher Straße, 60489, Frankfurt - Rodelheim, Germany

·        Acquired in May 2016 for a purchase price of €11.1 million

·        Valuation at 31 March 2018: €11.5 million

·        Lettable area: c.4,500 sq.m

·        Investment rationale:

ü Supermarket anchored convenience retail centre servicing a growing urban catchment;

ü Larger than standard supermarket size allowing for a broader grocery offer relative to local competition;

ü Mixed-use area with a dense residential population; and

ü Above average provision of parking

Asset management over the period has included the prolongation of the beverage store lease on a short-term basis and review of the building's fire safety regulations. 

Le Directoire, Saint-Cloud (Paris), France

·        Acquired in February 2017 for a purchase price of €30.0 million

·        Valuation at 31 March 2018: €35.2 million

·        Lettable area: c.15,800 sq.m

·        Investment rationale:

ü Supply-constrained location;

ü Leased on affordable/sustainable rents;

ü Attractive capital value per sq.m substantially less than replacement cost;

ü Benefits from future infrastructure improvements; and

ü Mixed-use area with strong competition from multiple uses 

Asset management over the period included:

-       Re-gearing of c.25% of the office area with the merging of Fila Assistance and Garantie Assistance. Revised lease is on a 4/6/9 year term at an annual rent 13% above ERV;

-       A new six year lease agreement with Ethypharm, a pharmaceutical company, for 2,450 sq.m;

-       Progression of a long-term lease with a local governmental body, for c.270 sq.m of vacant storage accommodation; and

-       Commencement of the renovation of lift lobbies, with completion in H2 2018, demonstrating to tenants our commitment to the premises

Metromar Shopping Centre, Seville, Spain

*Values refer to 50% interest

·        Acquired in May 2017 for a purchase price of €26.2 million

which has been subsequently adjusted to €25.5 million

·        Valuation at 30 September 2017: €26.0 million

·        Lettable area: c.23,000 sq.m

·        Investment rationale:

ü Dominant retail offer for the local urban catchment;

ü Anchored by grocery and leisure, both relatively immune to e-commerce;

ü Attractive capital value per sq.m substantially less than replacement cost; and

ü Local region is undergoing strong population growth driven by infrastructure improvements

Asset management over the period included:

-       Signing of a new lease with leisure specialist Urban Planet for c.1,200 sq.m to an historically non-income-producing space. This addition will complement the centre's existing leisure offering and is expected to significantly drive customer footfall and dwell time;

-       Removed underperforming restaurant and added a new burger specialist, strengthening the restaurant offer for consumers;

-       Progressed design initiatives to improve brand, signage, wayfaring, lighting and general vibrancy; and

-       Progressed discussions concerning the leasing of the former Massimo Dutti space

The Casino supermarket properties have been excluded from this asset management overview due to their pending sale to the Casino Group. The sale's price represents a 10% premium to last quarter's independent valuation.

Finance

As at 31 March 2018, the Company's total debt was €73.4 million across five loan facilities. This represents a loan to value of 28% against the Company's gross asset value.

The loans drawn are secured against the four German properties in Berlin, Frankfurt, Stuttgart and Hamburg, the Spanish asset in Seville and three French assets in Paris Saint-Cloud, Biarritz and Rennes.

The current blended all-in interest rate is 1.3%, significantly below the portfolio yield of 5.8% p.a. 

The average unexpired loan term is 6.4 years.

As part of the sale of the Casino supermarkets the Company's share of the debt associated with that investment will be transferred to the buyer. 

Lender	Property	Maturity date	Outstanding principal 1	Interest rate
Deutsche Pfandbriefbank	Berlin/Frankfurt	30/06/2026	16,500,000	1.31%
	Stuttgart/Hamburg	30/06/2023	14,000,000	0.85%
Credit Agricole1	Casino supermarkets	30/07/2023	18,200,000	3M Euribor + 1.35%
BRED Banque Populaire	Paris (SC)	15/12/2024	13,000,000	3M Euribor + 1.30%
Münchener Hypothekenbank1	Seville	22/05/2024	11,678,750	1.76%
Total			73,378,750

¹All statistics in the Investment Manager's report reflect a 50% ownership share of Seville and a 70% ownership share of the Casino supermarket investments. 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 loans are based on a margin above 3 month Euribor and the Company has acquired an interest rate cap to limit future potential interest costs if Euribor were to increase. The strike rate on the caps are 1.25% p.a. The market value of the interest caps are positive at €0.4 million as at the end of March 2018.

Outlook

Having reached full investment, the current focus is centred on maximising performance from the portfolio. The disposal and reinvestment of the Casino supermarket sale proceeds, and value-enhancing asset management initiatives such as the surrender and re-letting of space in the Company's Hamburg asset, are good examples of how we are actively pursuing this strategy.

We have identified new investments which are in various stages of exclusivity for the redeployment of the profitable Casino sale. We will continue to take a disciplined approach to growth to enhance shareholder returns and the aspirations are to grow the portfolio in an accretive way in order to deliver investors with further diversification, cost economies of scale and ultimately enhanced liquidity.

Schroder Real Estate Investment Management Limited

11 June 2018

Regulatory Information

Principal risks and uncertainties

The principal risks and uncertainties with the Company's business fall into the following risk categories: strategic; investment management; custody; gearing and leverage; accounting, legal and regulatory; and service provider. A detailed explanation of the risks and uncertainties in each of these categories can be found on pages 31 and 32 of the Company's published Annual Report and Accounts for the year ended 30 September 2017. The Company is aware of potential changes to tax legislation, one retrospective, which, if implemented, may impact the Company. The Company is monitoring these matters closely. Otherwise, these risks and uncertainties have not materially changed during the six months ended 31 March 2018 and are not expected to change during the remaining six months of the financial year.

Going concern

Having assessed the principal risks and uncertainties, and the other matters discussed in connection with the viability statement as set out on page 32 of the published Annual Report and Accounts for the year ended 30 September 2017, the Directors consider it appropriate to adopt the going concern basis in preparing the accounts.

Related party transactions

There have been no transactions with related parties that have materially affected the financial position or the performance of the Company during the six months ended 31 March 2018.

Statement of Directors' responsibilities

The Directors confirm that to the best of their knowledge:

• the condensed consolidated set of half year interim financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union; and

• the Interim Management Report includes a fair review of the information required by 4.2.7R and 4.2.8R of the Financial Conduct Authority's Disclosure Guidance and Transparency Rules.

Sir Julian Berney Bt.

Chairman

11 June 2018

Condensed Consolidated Interim Statement of Comprehensive Income

		Six months to	Six months to	Year to
		31/03/2018	31/03/2017	30/09/2017
	Note	€000 (unaudited)	€000 (unaudited)	€000 (audited)
Rental and service charge income		10,347	7,416	17,296
Other income	2	2,400	-	-
Property operating expenses		(3,899)	(2,011)	(5,527)
Net rental and related income		8,848	5,405	11,769
Net valuation gain on investment property	4	6,359	1,588	4,284
Realised gain/(loss) on foreign exchange		1	(6)	(4)
Net fair value (loss)/gain of financial instruments at fair value through profit or loss		(39)	158	72
Expenses
Investment management fee		(849)	(962)	(1,849)
Valuers' and other professional fees		(309)	(418)	(666)
Administrators and accounting fee		(147)	(146)	(306)
Auditors' remuneration		(134)	(148)	(280)
Directors' fees		(62)	(64)	(120)
Other expenses		(119)	(155)	(291)
Total expenses		(1,620)	(1,893)	(3,512)
Operating profit before net finance costs		13,549	5,252	12,609
Finance income		378	5	174
Finance costs		(502)	(471)	(918)
Net finance costs		(124)	(466)	(744)
Share of profit/(loss) of joint venture	5	292	-	(185)
Profit before taxation		13,717	4,786	11,680
Taxation		(815)	(158)	(505)
Profit after taxation		12,902	4,628	11,175
Attributable to:
Owners of the parent		10,798	4,211	10,288
Non-controlling interests		2,104	417	887
		12,902	4,628	11,175
Basic and diluted earnings per share attributable to owners of the parent	3	8.1c	3.2c	7.7c
Profit after taxation		12,902	4,628	11,175
Other comprehensive profit/(loss) items that may be
subsequently reclassified to profit or loss:
Currency translation differences		-	35	(3)
Total other comprehensive profit/(loss)		-	35	(3)
Total comprehensive profit for the period		12,902	4,663	11,172
Total comprehensive profit attributable to:
Owners of the parent		10,798	4,246	10,285
Non-controlling interests		2,104	417	887
		12,902	4,663	11,172

All items in the above statement are derived from continuing operations. The accompanying notes 1 to 14 form an integral part of the condensed consolidated financial statements.

Condensed Consolidated Interim Statement of Financial Position

		31/03/2018	30/09/2017	31/03/2017
Assets	Notes	€000	€000	€000
Non-current assets		(unaudited)	(audited)	(unaudited)
Investment property	4	166,173	202,563	199,881
Investment in joint ventures	5	6,582	6,290	-
Loans to joint ventures		10,035	10,035	-
Non-current assets		182,790	218,888	199,881
Trade and other receivables		850	2,063	3,542
Interest rate derivative contracts	7	232	273	359
Cash and cash equivalents		21,268	28,521	42,977
Current assets		22,350	30,857	46,878
Assets of disposal group held for sale	6	70,389	-	-
Total assets		275,529	249,745	246,759
Equity
Share capital Share premium Retained earnings Other reserves	8	15,215 30,310 9,442 132,151	15,167 30,215 650 132,294	15,751 31,379 (1,817) 130,597
Issued capital and reserves attributable to owners		187,118	178,326	175,910
Non-controlling interest		9,795	7,691	7,221
Total equity		196,913	186,017	183,131
Liabilities Non-current liabilities
Interest-bearing loans and borrowings	9	43,079	58,772	58,707
Deferred tax		883	473	141
Non-current liabilities		43,962	59,245	58,848
Current liabilities
Trade and other payables Current income tax liabilities		3,980 114	4,483 -	4,729 51
Current liabilities		4,094	4,483	4,780
Liabilities of disposal group held for sale		30,560	-	-
Total liabilities		78,616	63,728	63,628
Total equity and liabilities		275,529	249,745	246,759
Net Asset Value per ordinary share	10	139.9c	133.3c	131.5c

The accompanying notes 1 to 14 form an integral part of the condensed consolidated financial statements.

Condensed Consolidated Interim Statement of Changes in Equity

	Note		Share capital		Share premium	Retained earnings			Other reserves		Owners of the parent		Non-controlling interests			Total equity
			€000		€000	€000			€000		€000		€000			€000
Balance as at 1 October 2017			15,167		30,215	650			132,294		178,326		7,691			186,017
Total comprehensive income			-		-	10,798			-		10,798		2,104			12,902
Dividends paid	11		-		-	(2,006)			-		(2,006)		-			(2,006)
Unrealised foreign exchange			48		95	-			(143)		-		-			-
Balance as at 31 March 2018 (unaudited)			15,215		30,310	9,442			132,151		187,118		9,795			196,913
	Note	Share capital		Share premium			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	11	-		-			(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 (audited)		15,167		30,215			650			132,294		178,326		7,691			186,017
	Note		Share capital		Share premium			Retained earnings		Other reserves		Owners of the parent			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
Total comprehensive income			-		-			4,211		35		4,246			417			4,663
Dividends paid	11		-		-			(2,542)		-		(2,542)			-			(2,542)
New equity issuance			1,390		15,288			-		(232)		16,446			-			16,446
Unrealised foreign exchange			367		1,209			-		(1,576)		-			-			-
Balance as at 31 March 2017 (unaudited)			15,751		31,379			(1,817)		130,597		175,910			7,221			183,131

The accompanying notes 1 to 14 form an integral part of the condensed consolidated financial statements.

Condensed Consolidated Interim Statement of Cash Flows

			Six months to	Six months to	Year to
			31/03/2018	31/03/2017	30/09/2017
		Note	€000 (unaudited)	€000 (unaudited)	€000 (audited)
Operating activities
Profit before tax for the period/year			13,717	4,786	11,680
Adjustments for:
Net valuation gain on investment property		4	(6,359)	(1,588)	(4,284)
Share of (profit)/loss of joint venture			(292)	-	185
Realised foreign exchange (gains)/losses			(1)	6	4
Finance income Finance expense Net fair value (loss)/gain of financial instruments at fair value through profit or loss			(378) 502 39	(5) 471 (158)	(174) 918 (72)
Operating cash generated before changes in working capital			7,228	3,512	8,257
Decrease/(increase) in trade and other receivables			(113)	(1,614)	434
Increase in trade and other payables			816	2,288	1,647
Cash generated from/(used in) operations			7,931	4186	10,338
Finance costs paid			(664)	(424)	(751)
Interest received			381	5	9
Tax paid			(224)	(12)	(145)
Net cash generated from operating activities			7,424	3,755	9,451
Investing Activities
Acquisition of investment property			(21,070)	(33,182)	(33,159)
Additions			(123)	(3)	(12)
Investment in joint ventures			-	-	(16,510)
Net cash used in investing activities			(21,193)	(33,185)	(49,681)
Financing Activities
New bank loan advance			13,000	-	-
Interest rate cap purchased			(227)	-	-
Share issue net proceeds			-	16,446	16,434
Dividends paid		11	(2,006)	(2,542)	(6,152)
Net cash generated from financing activities			10,767	13,904	10,282
Net decrease in cash and cash equivalents for the year			(3,002)	(15,526)	(29,948)
Opening cash and cash equivalents			28,521	58,476	58,476
Foreign exchange losses			1	27	(7)
Transfer to disposal group held for sale		6	(4,252)	-	-
Closing cash and cash equivalents			21,268	42,977	28,521

The accompanying notes 1 to 14 form an integral part of the condensed consolidated financial statements

Notes to the financial statements

1. Significant accounting policies

The Company is a closed-ended investment company incorporated in England and Wales. The condensed interim financial statements of the Company for the period ended 31 March 2018 comprise those of the Company and its subsidiaries (together referred to as the "Group"). 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 31 Gresham Street, London, EC2V 7QA.

These condensed interim financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 30 September 2017 were approved by the Board of Directors on 5 December 2017 and were delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.

These condensed interim financial statements have been reviewed and not audited.

Statement of compliance    

The condensed interim financial statements have been prepared in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom Financial Conduct Authority and IAS 34 Interim Financial Reporting as adopted by the EU. They do not include all of the information required for the full annual financial statements and should be read in conjunction with the consolidated financial statements of the Group as at and for the year ended 30 September 2017. The condensed interim financial statements have been prepared on the basis of the accounting policies set out in the Group's annual financial statements for the year ended 30 September 2017. The financial statements for the year ended 30 September 2017 have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. The Group's annual financial statements refer to new Standards and Interpretations none of which had a material impact on the financial statements.

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 flow of the entities included in the consolidated financial statements and are consistent with those of the year end financial report.

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 interim financial statements requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. 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 are the same as that applied in the consolidated financial statements for the year ended 30 September 2017.

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.

Financial risk factors

The Directors are of the opinion that there have been no significant changes to the financial risk profile of the Group since the end of the last annual financial reporting period for the year ended 30 September 2017 of which they are aware.

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.

2. Other income

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

3. Basic and diluted earnings per share

The basic and diluted earnings per share for the Group is based on the net profit for the period, excluding non-controlling interests and currency translation differences, of €10,798,000 (31 March 2017: €4,211,000, 30 September 2017: €10,288,000) and the weighted average number of ordinary shares in issue during the period of 133,734,686 (31 March 17: 131,811,609, 30 September 2017: 132,775,782).

EPRA ¹ earnings reconciliation

		Six months to 31/03/2018	Six months to 31/03/2017	Year to 30/09/2017
		€000	€000	€000
Total comprehensive profit		12,902	4,663	11,172
Adjustments to calculate EPRA earnings exclude:
Net valuation gain on investment property		(6,359)	(1,588)	(4,284)
Exchange differences on monetary items (unrealised)		-	(35)	3
Share of joint venture (gain)/loss on investment property		(156)	-	429
Minority interest's net revenue		(378)	(370)	(744)
Deferred tax		410	111	443
Finance costs/(income): interest rate cap		39	(158)	(72)
EPRA profit		6,458	2,623	6,947
Weighted average number of ordinary shares	133,734,686		131,811,609	132,775,782
IFRS earnings per share (cents per share)	8.1		3.2	7.7
EPRA earnings per share (cents per share)	4.8		2.0	5.2

¹ European Public Real Estate Association ('EPRA') earnings per share reflects the underlying performance of the company calculated in accordance with the EPRA guidelines.

Headline ² earnings reconciliation

		Six months to 31/03/2018	Six months to 31/03/2017	Year to 30/09/2017
		€000	€000	€000
Total comprehensive profit		12,902	4,663	11,172
Adjustments to calculate headline earnings exclude:
Net valuation gain on investment property		(6,359)	(1,588)	(4,284)
Share of joint venture (gain)/ loss on investment property		(156)	-	429
Minority Interests net revenue		(378)	(370)	(744)
Deferred tax		410	-	443
Finance costs: interest rate cap		39	(158)	(72)
Headline earnings		6,458	2,547	6,944
Weighted average number of ordinary shares	133,734,686		131,811,609	132,775,782
Headline and diluted headline earnings per share (cents per share)	4.8		1.9	5.2

² Headline earnings per share reflects the underlying performance of the company calculated in accordance with the Johannesburg Stock Exchange listing requirements.

4. Investment property

			Freehold
			€000
Fair value as at 30 September 2016			165,365
Property acquisitions			32,925
Additions			3
Net valuation gain on investment property			1,588
Fair value as at 31 March 2017			199,881
Property acquisitions			-
Additions			(14)
Net valuation gain on investment property			2,696
Fair value as at 30 September 2017			202,563
Property acquisitions			21,127
Additions			124
Net valuation gain on investment property			6,359
			230,173
Transfer to disposal group held for sale			(64,000)
Fair value as at 31 March 2018			166,173

The fair value of investment properties, as determined by the valuer, and excluding the Rennes/Anglet Casino supermarket assets held for sale and valued at the option price, totals €166,500,000 (30 September 2017: €202,700,000) with the valuation amount relating to a hundred per cent ownership share for all the assets in the portfolio.

None of this amount is attributable to trade or other receivables in connection with lease incentives. The fair value of investment properties disclosed above includes a tenant incentive adjustment of €327,000 (30 September 2017: €137,000).

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 appropriate valuation methodology and the Valuer's professional judgement. The Valuer's opinion of Fair Value was primarily derived using recent comparable market transactions on arm's length terms, where available, and appropriate valuation techniques (The Investment Method).

The properties have been valued individually and not as part of a portfolio.

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

Quantitative information about fair value measurement using unobservable inputs (Level 3) as at 31 March 2018 (unaudited)

		Industrial	Retail (including retail warehouse)	Office	Other	Total
Fair value (€m)		-	€147.65m	€129.05m	-	€276.70m 3
Area ('000 sq m)		-	73.330	60.423	-	133.753
Net passing rent € psm per annum	Range Weighted average 2	-	94.73 - 140.01 118.50	65.73 - 344.78 198.01	-	94.73 - 344.78 155.58
Gross ERV psm per annum	Range Weighted average 2	-	97.39 - 193.45 141.34	79.76 - 419.91 239.86	-	97.39 - 419.91 187.29
Net initial yield 1	Range Weighted average 2	-	4.62 - 5.57 5.27	2.61 - 10.78 6.20	-	2.61 - 10.78 5.70
Equivalent yield	Range Weighted average 2	-	4.60 - 6.06 5.52	4.48 - 9.97 6.15	-	4.48 - 9.97 5.81
Notes: 1 Yields based on rents receivable after deduction of head rents and non-recoverables 2 Weighted by Market Value
3 This table includes the Joint Venture investment property and the Held for Sale investment property.

Quantitative information about fair value measurement using unobservable inputs (Level 3) as at 30 September 2017 (audited).

		Retail (incl. 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 sqm 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 sqm 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 yield (1)	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:

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

(2) Weighted by market value

(3) This table includes the Joint Venture investment property valued at €52.9 million which is disclosed within the summarised information within note   12 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 is shown below:

Estimated movement in fair value of investment properties at 31 March 2018	Retail  €'000	Office  €'000	Total  €'000
Increase in ERV by 5%	5,250	5,200	10,450
Decrease in ERV by 5%	-5,300	-5,500	-10,800
Increase in net initial yield by 0.25%	-6,650	-6,050	-12,700
Decrease in net initial yield by 0.25%	7,300	6,300	13,600

Estimated movement in fair value of investment properties at 30 September 2017	Retail €'000	Office €'000	Total €'000
Increase in ERV by 5%	5,200	4,600	9,800
Decrease in ERV by 5%	-5,200	-4,950	-10,150
Increase in net initial yield by 0.25%	-6,700	-5,750	-12,450
Decrease in net initial yield by 0.25%	7,350	5,900	13,250

5. Investment in joint ventures

The Group has a 50% interest in a joint venture called Urban SEREIT Holdings Spain S.L. The principal place of business of the joint venture is Calle Velazquez 3, 4th Madrid 28001 Spain.
			31/3/2018
			€000
Balance as at 1 October 2017			6,290
Share of profit/(loss) for the period			442
Dividends			(150)
Balance as at 31 March 2018			6,582

					30/9/2017
					€000
Balance as at 1 October 2016					-
Purchase of interest in joint venture					6,475
Share of profit/(loss) for the period					(185)
Balance as at 30 September 2017					6,290
During the period ended 31 March 2017 there were no interests in joint ventures.
Summarised joint venture financial information:				31/3/2018	30/9/2017
	€000				€000
Total assets			59,586		59,719
Total liabilities			(46,422)		(47,139)
Net assets			13,164		12,580
Net asset value attributable to the Group			6,582		6,290
			Six months to 31/3/2018		Six months to 31/3/2017
			€000		€000
Revenues			2,838		-
Total comprehensive profit			884		-
Total comprehensive profit attributable to the Group			442		-

6. Non-current assets classified as held for sale

The assets and liabilities related to the Group company SCI Rennes Anglet, comprising the Casino supermarkets, were presented as held for sale at 31 March 2018 following the decision by Casino Group to exercise a buy-back option on the Group's 70% share of these assets. Under the option, the repurchase will complete on 31 July 2018. Casino Group will also take over the Group's share of the existing debt facility on the assets.

The two investment properties held for sale are at their respective option price and do not form part of the Knight Frank valuation.

All other assets and liabilities of the disposal group are presented at their carrying amount or fair value as required by IFRS 5.

Net assets of disposal group classified as held for sale

			31/03/2018  €000
Investment property			64,000
Derivatives			228
Trade and other receivables			1,909
Cash and cash equivalents			4,252
Total assets			70,389
Interest-bearing loans and borrowings			28,561
Trade and other payables			1,999
Total liabilities			30,560
Net assets held for sale			39,829

7. Derivative financial instruments

The group has an interest rate cap in place purchased for €260,000 from Credit Agricole Corporate and Investment Bank on 10 August 2016 in connection to a €26.0 million loan facility drawn from the same bank with a maturity date of July 2023. The cap interest rate is 1.25% with a floating rate option being Euribor 3 months. In line with IFRS 9 this derivative is reported in the financial statements at its fair value. As at 31 March 2018 the fair value of the interest rate cap was €228,000. Transaction costs incurred in obtaining the instrument are being amortised over the extended period of the above mentioned loan. During the period this asset has been reclassified as part of a disposal group held for sale (note 6).

During the period the group entered into another interest rate cap purchased for €227,000 from BRED Banque Populaire on 20 December 2017 in connection to a €13.0 million loan facility drawn from the same bank with a maturity of 15 December 2024. The cap interest rate is 1.25% with a floating rate option being Euribor 3 months. In line with IFRS 9, this derivative is reported in the financial statements at its fair value. As at 31 March 2018 the fair value of the interest rate cap was €232,000.

8. Issued capital and reserves

Share capital

As at the date of this report, the Company has 133,734,686 ordinary shares in issue with a par value of 10.00 pence (no shares are held in Treasury). The total number of voting rights of the Company is 133,734,686.

The Sterling value of issued share capital was £13,373,000 (30 September 2017: £13,373,000, 31 March 2017: £13,373,000) and the Euro value at the period end was €15,215,000 (30 September 2017: €15,167,000, 31 March 2017: €15,751,000).

9. Interest-bearing loans and borrowings

			Six months to  31/03/2018  €000
Brought forward			58,772
Drawdown of borrowings			13,000
Capitalisation of finance costs			(204)
Amortisation of finance costs			72
			71,640
Transfer to disposal group held for sale			(28,561)
Carried forward			43,079

			Year ended  30/09/2017  €000
Brought forward			58,724
Capitalisation of finance costs			(80)
Amortisation of finance costs			128
Carried forward			58,772

			Six months to  31/03/2017  €000
Brought forward			58,724
Capitalisation of finance costs			(81)
Amortisation of finance costs			64
Carried forward			58,707

Bank loan - BRED Banque Populaire

The Group entered into a €13.0 million loan facility with BRED Banque Populaire on 18 December 2017.

The facility matures on 15 December 2024 and carries an interest rate of 1.30% plus Euribor 3 months per annum payable quarterly. The facility was subject to a €70,000 arrangement fee which is being amortised over the period of the loan. The debt has an LTV covenant of 60% and the interest cover ratio should be above 400%. The loan is collateralised by property assets owned by the Group with a carrying value of €35,200,000.

Bank loan - Deutsche Pfandbriefbank AG

On 3 August 2016 the Group entered into two loan facilities totalling €30.50 million with Deutsche Pfandbriefbank AG.

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%. 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 €69,000,000. A pledge of all shares in the borrowing Group companies is in place.

Bank loan - Credit Agricole Corporate and Investment Bank

The Group entered into a €26.0 million loan facility with Credit Agricole Corporate and Investment Bank on 29 July 2016.

The facility matures on 29 July 2023 and carries an interest rate of 1.35% plus Euribor 3 months per annum payable quarterly. The facility was subject to a 0.85% arrangement fee which is being amortised over the period of the loan.

The debt has an LTV covenant of 65% and the interest cover ratio should be above 200%. The loan is collateralised by property assets owned by the Group with a carrying value of €64,000,000.

During the period this loan has been reclassified as part of a disposal group held for sale (note 6).

Business partner loan - Casino Group

On 28 June 2016 the Group entered into a €10.75 million loan facility with Casino Group, a 30% minority investor in the share capital of SCI Rennes Anglet, a 70% owned subsidiary of the Group. The loan matures on 28 June 2031 and carries an interest rate of 2.08% payable annually. The interest can be capitalised if not paid. On 1 August 2016 €7.69 million was repaid leaving a loan balance outstanding as at 31 March 2018 of €3.06 million. 

During the period this loan has been reclassified as part of a disposal group held for sale (note 6).

10. NAV per ordinary share

The NAV per ordinary share is based on the net assets excluding non-controlling interests of €187,118,000 (30 September 2017: €178,326,000, 31 March 2017: €175,910,000) and 133,734,686 ordinary shares in issue at the Statement of Financial Position reporting date (30 September 2017: 133,734,686, 31 March 2017: 133,734,686).

11. Dividends paid

In respect of the six months ended 31 March 2018	Number of	Rate	31/03/2018
	ordinary shares	(cents)	€000
Interim dividend paid 19 January 2018	133,734,686	1.50	2,006

  A dividend for the quarter ended 31 December 2017 of €2,474,000 was paid on 13^th April 2018.

In respect of the six months ended 31 March 2017	Number of		Rate	31/03/2017
	ordinary shares		(cents)	€000
Interim dividend paid 27 January 2017		133,734,686	0.9	1,205
Interim dividend paid 17 March 2017		133,734,686	1.0	1,337
Total			1.9	2,542

Notes to the financial statements (continued)

In respect of the year ended 30 September 2017	Number of		Rate	30/09/2017
	ordinary shares		(cents)	€000
Interim dividend paid on 27 January 2017		133,734,686	0.90	1,205
Interim dividend paid on 17 March 2017		133,734,686	1.00	1,337
Interim dividend paid on 7 July 2017		133,734,686	1.20	1,604
Interim dividend paid on 1 September 2017		133,734,686	1.50	2,006
Total interim dividends paid			4.60	6,152

12. Related party transactions

Schroder Real Estate Investment Management Limited is the Group's Investment Manager.     

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 Company. 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 period was €849,000 (six months ended 31 March 2017: €962,000, year ended 30 September 2017: €1,849,000). At the period end €881,000 was outstanding (six months ended 31 March 2017: €480,000, year ended 30 September 2017: €125,000). 

Directors are the only officers of the Company and there are no other key personnel. The Directors' remuneration for services to the group for the six months ended 31 March 2018 was €62,000 (six months ended 31 March 2017: €64,000, year ended 30 September 2017: €120,000) equivalent to £54,055. Each of the three directors owns 10,000 shares in the Company.

13. Capital commitments

At 31 March 2018 the Group had capital commitments of €400,000 (30 September 2017: £Nil, 31 March 2017: £Nil).

14. Post balance sheet events

There were no post balance sheet events.

 

 

END

 

 

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