Interim Results

RNS Number : 2741P

Schroder Real Estate Inv Trst Ld

16 November 2016

 



For release 16 November 2016

Schroder Real Estate Investment Trust Limited

("SREIT"/ the "Company" / "Group")

HALF YEAR RESULTS FOR THE PERIOD ENDED 30 SEPTEMBER 2016

SREIT DELIVERS SOLID PERFORMANCE FROM STRONGLY POSITIONED PORTFOLIO

Schroder Real Estate Investment Trust, the actively managed UK focussed REIT, today announces its half year results for the six month period ending 30 September 2016.

Financial highlights

·      Net Asset Value ('NAV') of £316.8 million or 61.1 pps compared with £322.6 million or 62.2 pps in March 2016

·      Increased capital expenditure of £5.5 million (six months to 30 September 2015: £1.1 million) that should deliver higher future returns and improve the portfolio's defensive characteristics

·      Sustainable dividend cover of 106%, based on the two dividends of 0.62 pps over the period

·      10% increase in underlying EPRA earnings per share to 1.3p (six months to 30 September 2015: 1.2p)

·      Strong relative outperformance of the underlying portfolio with a total return over the period of +1.8% compared with -1.1% for the MSCI Benchmark Index, placing the portfolio on the 9^th percentile

·      Underlying portfolio has outperformed the Benchmark Index over six months, one year, three years, ten years and since IPO in 2004

·      Loan to value ('LTV'), net of all cash, remains stable at 30.0%, within the long term target range of 25% to 35%

Operational highlights

·      The Company continues to deliver on its stated strategy and the successful repositioning of its portfolio is well underway with 91% now located in 'winning cities and towns' ranked in the first and second quartiles for projected UK GDP growth (Source:  Oxford Economics)

·      Disposal of five smaller, non-core secondary retail assets, during the period and since the period end,  totalling £13.7 million, reflecting an average net initial yield of 3.9% and a 2.2% premium to valuation at start of period

·      Refurbishment of vacant assets in Bristol and Cardiff near complete, leading to a portfolio rental value of £34.1 million per annum, reflecting a reversionary yield of 7.6%, compared to the Benchmark at 6.1%

·      35 letting transactions during period and since the period end, including 23 completing post-Brexit

Commenting, Lorraine Baldry, Chairman of the Board, said:

"The Company is well positioned as a consequence of raising capital earlier in the cycle and deploying proceeds into assets that offered good fundamentals in higher growth locations.  These acquisitions have increased net income as well as improved the portfolio's defensive characteristics.  Equity issuance also reduced leverage, resulting in a robust balance sheet with no near term refinance risk.

"With forecasts now pointing to a period of lower returns from UK commercial real estate, the Company's focus is on increasing earnings further and reducing risk, whilst ensuring it remains in a position to capitalise on any market correction.  For that reason the Board and Manager will continue to consider disciplined and accretive growth where equity can be deployed to enhance income and total returns."

Duncan Owen, Global Head of Schroder Real Estate Investment Management Limited, added:

"The investment themes underpinning the strategy continue to focus on winning cities and towns with a competitive advantage in terms of higher levels of GDP, employment and population growth; well developed infrastructure; and places where people want to live as well as work.

"Raising equity earlier in the cycle to acquire higher yielding assets in these stronger locations has contributed positively to performance, created a pipeline of asset management initiatives and resulted in a robust balance sheet. 

"Whilst well positioned and vigilant to potential challenges, it is important that the Company is capable of capitalising on opportunities and supporting further growth through the efficient deployment of equity into specific situations to accelerate value enhancing active management or new investment."

-Ends-

For further information:

Schroder Real Estate Investment Management Duncan Owen / Nick Montgomery	020 7658 6000
Northern Trust Sam Walden	01481 745529
FTI Consulting Dido Laurimore / Ellie Sweeney / Richard Gotla / Polly Warrack	020 3727 1000 / [e-mail]

A presentation for analysts and investors will be held at 9.00 am today at the offices of Schroders plc, 31 Gresham Street, London EC2V 7QA. If you would like to attend, please contact Jenni Nkomo at FTI on [phone] or [e-mail]   

Alternatively, the dial-in details are as follows:                           [phone]

Participants,  Local - London, United Kingdom:                         3052599

Schroder Real Estate Investment Trust Limited

Interim Report and Consolidated Financial Statements

 as at 30 September 2016

Contents
Company Summary	2
Performance Summary	3
Chairman's Statement	5
Investment Manager's Report	7
Responsibility Statement	12
Independent Auditor's Review Report	13
Condensed Consolidated Statement of Comprehensive Income	14
Condensed Consolidated Statement of  Financial Position	15
Condensed Consolidated Statement of Changes in Equity	16
Condensed Consolidated Statement of Cash Flows	17
Notes to the Interim Report	18
Corporate Information	26

Schroder Real Estate Investment Trust Limited aims to provide shareholders with an attractive level of income together with the potential for income and capital growth through investing in UK commercial real estate.

Company Summary

Schroder Real Estate Investment Trust Limited (the 'Company' and together with its subsidiaries the 'Group') is a real estate investment company with a premium listing on the Official List of the UK Listing Authority and whose shares are traded on the Main Market of the London Stock Exchange (ticker: SREI). 

On 1 May 2015 the Company converted to a real estate investment trust ('REIT') in order to benefit from the various tax advantages offered by the UK REIT regime as well as the potential for improved liquidity as a result of being able to access a wider shareholder base.  The Company continues to be declared as an authorised closed-ended investment scheme by the  Guernsey Financial Services Commission under section 8 of the Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended and the Authorised Closed-ended Collective Investment Schemes Rules 2008.  

Objective

The Company aims to provide shareholders with an attractive level of income and the potential for income and capital growth as a result of its investments in, and active management of, a diversified portfolio of UK commercial real estate.  The current annualised level of dividend is 2.48 pence per share ('pps') and it is intended that successful execution of the investment strategy will enable a progressive dividend policy to be adopted over time. 

The portfolio is principally invested in the three main UK commercial real estate sectors of office, industrial and retail, and may also invest in other sectors including, but not limited to, residential, leisure, healthcare and student accommodation.  Over the real estate market cycle the portfolio aims to generate an above average income return with a diverse spread of lease expiries.

Relatively low level gearing is used to enhance income and total returns for shareholders with the level dependent on the property cycle and the outlook for future returns.  The current target gearing level reflects a net loan-to-value ('LTV') ratio of between 25% and 35%.

Investment strategy

The current investment strategy is to grow income and enhance shareholder returns through selective acquisitions, pro-active asset management and selling smaller, lower yielding properties on completion of asset business plans. The issuance of new shares will also be considered if it is consistent with the strategy.

Our objective is to own a portfolio of larger properties in cities and towns with diversified local economies, sustainable occupational demand and favourable supply and demand characteristics.  These properties should offer good long-term fundamentals in terms of location and specification and be let at affordable rents with the potential for income and capital growth from good stock selection and asset management.

Performance Summary

Financial summary

	30 September 2016		30 September 2015		31 March 2016
NAV1	£316.8m		£315.8m		£322.6m
NAV per Ordinary Share1 (pence)	61.1		60.9		62.2
EPRA NAV	£316.8m		£315.8m		£322.6m
	Six months to		Six months to		Year to
		30 September 2016	30 September 2015		31 March 2016
NAV total return		0.2%	7.8%	12.3%
Profit for the period	£0.6m		£23.0m		£36.3m
EPRA earnings	£6.8m		£6.2m		£13.1m

¹ Net Asset Value is calculated using International Financial Reporting Standards.

Share price and index

	30 September 2016		30 September 2015	31 March 2016
Share price (pence)		57.25	58.0	60.8
Share price discount to NAV		(6.3%)	(4.8%)	(2.3%)
FTSE All Share Index		3,755.34	3,335.9	3,408.90
FTSE EPRA/NAREIT UK Real Estate Index		1,719.32	1,983.2	1,788.52

Earnings and dividends

	Six months to		Six months to	Year to
		30 September 2016	30 September 2015	31 March 2016
Earnings per share (pence)		0.1	4.4	7.0
EPRA earnings per share (pence)		1.3	1.2	2.5
Dividends paid per share (pence)		1.24	1.24	2.48
Annualised dividend yield on 30 September / 31 March share price		4.3%	4.3%	4.1%

Performance Summary (continued)

Bank borrowings

	30 September 2016		30 September 2015	31 March 2016
On-balance sheet borrowings (£000's) 2		150,085	150,085	150,085
Loan to value ratio, net of all cash 3		30.0%	30.0%	30.0%

² On balance sheet borrowings reflects the loan facility with Canada Life and RBS, without deduction of finance costs

³ Cash excludes rent deposits and floats held with managing agents

Ongoing charges⁴

	Six months to		Six months to	Year to
	30 September 2016		30 September 2015	31 March 2016
Ongoing charges (including fund only expenses5)		0.66%	0.59%	1.20%
Ongoing charges (including fund and property expenses)		1.26%	1.19%	2.60%

⁴Ongoing charges calculated in accordance with AIC recommended methodology issued in May 2012, as a percentage of average NAV during the year.  The ongoing charges exclude all exceptional costs incurred during the period.

⁵ Fund only expenses excludes all property operating expenses, valuers' and professional fees in relation to properties.

Chairman's Statement

Overview

A central event that took place during the interim financial period was the United Kingdom's decision to leave the European Union.  This has created market uncertainty which may only be fully clarified once the UK's new relationship with the EU is confirmed.  The initial financial market shock has been mitigated by swift monetary policy measures including an interest rate reduction and quantitative easing.  The weakened sterling is in contradiction with initial economic indicators suggesting that the economy has continued to grow modestly. 

Following the vote to leave the EU a number of daily dealt, open ended, real estate funds had to suspend redemptions.  This led to fund suspensions, some discounted asset sales and the imposition of fair value adjustments due to limited transactional evidence.  However, whilst the investment market remains relatively quiet, activity has increased over recent months, enabling the Company's independent valuer to remove an industry-wide uncertainty clause from the portfolio valuation at the period end.

Strategy

The continued focus over the period has been to grow income in support of the longer term objective to increase the level of dividend.  In pursuit of this objective the Manager has completed key asset management initiatives including refurbishments and re-lettings.  This activity has resulted in £5.5 million of capital expenditure, which includes £0.4 million for the joint venture properties, being invested in the portfolio over the period, with a further £9.3 million of committed expenditure to be invested over the next twelve months.

This activity has the potential to generate additional income in the region of 6% of the current portfolio rent, of which approximately 2% is subject to pre-lets.  The Manager is progressing further asset management initiatives that may require up to an additional £10 million of capital expenditure, which is expected to be funded by selling lower yielding assets. 

During the period the Company announced it was exploring a possible secondary listing of its shares on the Main Board of the Johannesburg Stock Exchange ('JSE'). At present, the Company has its primary listing on the Main Market of the London Stock Exchange.  The secondary listing was considered due to the potential demand from South African based investors which may improve the depth and spread of the shareholder base, and thereby improve liquidity and the capacity to raise capital in order to capitalise on market conditions.  For a combination of factors this has not yet progressed but will remain under consideration.  

Debt

As at 30 September 2016, the Company had a loan to value ratio, net of cash, of 30%, within the long term target range of 25% to 35%.  The Company's two loan facilities total £150.1 million with an average duration of 9.5 years and an average interest cost of 4.4%, hedged against any movement in interest rates.

Board Composition

The Board composition will be reviewed over the coming months.  The aim is to identify successors for two Board members who will be retiring, having served since the Company's inception in 2004.  The Board will make further announcements as appropriate.

Chairman's Statement (continued)

Outlook

The Company is well positioned as a consequence of raising capital earlier in the cycle and deploying proceeds into assets that offered good fundamentals in higher growth locations.  These acquisitions have increased net income as well as improved the portfolio's defensive characteristics.  Equity issuance also reduced leverage, resulting in a robust balance sheet with no near term refinance risk.

Following six years of strong returns from UK commercial real estate, a cyclical slowdown combined with the vote to leave the EU is forecast to lead to a period of lower returns.  However, whilst protracted Brexit negotiations and broader political uncertainty could be a drag on the economy and reduce business investment, the negative impact on the real estate market should be reduced by sustained low interest rates, relatively low levels of new development and lower leverage. 

Whilst the focus now is on increasing earnings and reducing risk, it is important that the Company remains in a position to capitalise on any market correction.  For that reason the Board and Manager will continue to consider disciplined and accretive growth where equity can be deployed to enhance income and total returns.

Lorraine Baldry

Chairman

Schroder Real Estate Investment Trust Limited

15 November 2016

Investment Manager's Report

The Company's Net Asset Value ('NAV') as at 30 September 2016 was £316.8 million or 61.1 pence per share ('pps') compared with £322.6 million or 62.2 pps as at 31 March 2016.  This reflected a decrease of 1.1 pps or -1.8%, with the underlying movement in NAV set out in the table below:

	Pence per share ('pps')
NAV as at 31 March 2016	62.2
Unrealised change in valuation of direct investment property portfolio	0.2
Unrealised loss on joint ventures	(0.3)
Capital expenditure	(1.0)
Acquisition of units in City Tower Unit Trust JV to fund capital expenditure	(0.1)
Post tax net revenue	1.3
Dividends paid	(1.2)
NAV as at 30 September 2016	61.1

The underlying portfolio value, including the joint venture properties in Manchester and Bloomsbury, was broadly unchanged over the period.  After adjusting for £5.5 million of capital expenditure, which includes £0.4 million for the joint venture properties, the like for like portfolio movement contributed -1.2 pps to the NAV.  Post tax net revenue over the period was 1.3 pps which, based on the dividends paid of 1.2 pps, reflected dividend cover of 106%.  This resulted in a NAV total return for the period of 0.2%. 

Market overview 

The MSCI (formerly IPD) Benchmark produced a total return for commercial real estate of -1.1% over the six months to 30 September 2016, which compared with the Company's underlying portfolio return of +1.8%. This relative outperformance of 3.0% placed the portfolio on the 9^th percentile of the peer group Benchmark. 

Whilst a slow down in the rate of capital growth has been anticipated, the impact of the EU referendum decision resulted in a 3.5% decline for average UK real estate over the period.  Rental value growth also slowed, with a 0.6% increase over the quarter to June falling to 0.2% over the quarter to September.

The industrial sector outperformed with a total return of 0.8% compared with offices and retail at -2.7% and -1.6% respectively.  This was due to healthy occupational demand, particularly as a result of online retail, driving rental growth of 1.6%.  The Company's industrial estates in Milton Keynes and Leeds continue to perform strongly and contributed 0.4% to the 3.0% relative outperformance over the period.

In contrast with recent years the office sector underperformed. This was caused by lower levels of rental growth and weakening sentiment following the EU referendum result, resulting in an average capital value decline of -4.0%.  The City of London was the worst performing sub-sector over the period, with values falling -4.8%.  We therefore expect the relative performance of the underlying portfolio to benefit from having no exposure to the City of London, Canary Wharf or European financial institutions as tenants. 

The retail sector was the worst performing due to online competition and high vacancy rates.  This resulted in the weakest rental growth of 0.4% and capital values falling -4.2%.

Strategy

The investment themes underpinning the strategy continue to focus on winning cities and towns with a competitive advantage in terms of:

·      Higher levels of GDP, employment and population growth;

·      Well developed infrastructure; and

·      Places where people want to live as well as work.

Investment Manager's Report (continued)

Over the period the strategy has focused on generating sustainable net income growth from asset management which has delivered the following benefits:

1.     Dividend cover of 106% over the period.

2.     An income return of 3.0% over the period compared with 2.4% for the MSCI Benchmark.

3.     Rental value growth of 0.9% over the period compared with 0.8% for the MSCI Benchmark.

4.     91.4% of the portfolio in locations ranked in the first and second quartiles for projected GDP growth (source:  Oxford Economics).

5.     The sale of five small secondary retail assets at an average yield of 3.9%.

6.     Cash being redeployed into capital expenditure initiatives that should deliver a higher return.

7.     Average unexpired lease term, assuming all tenants break at the earliest opportunity, will increase to 7.2 years on completion of lettings that have exchanged but not yet completed.

Whilst the level of portfolio activity has been encouraging, the ongoing refurbishment of vacant buildings in Bristol and Cardiff resulted in an unchanged void rate of 9% over the period.  These projects have a combined rental value of approximately £1 million per annum and achieving early lettings will be important to deliver continued earnings growth.

Following completion of two retail disposals since the period end, the Company has approximately £20 million of cash, which, after retaining £10 million of cash for operational flexibility, provides funding for ongoing activity.  There is the potential for a further pipeline of capital expenditure totalling approximately £10 million which, excluding the potential for future equity issuance, will need to be funded through further small disposals.

Property portfolio

As at 30 September 2016 the property portfolio comprised 50 properties independently valued at £451.7 million. This includes the share of joint venture properties at City Tower in Manchester and Store Street in Bloomsbury, London, as well as a retail asset where an unconditional sale contract exchanged during the period. Since the period end the aforementioned retail asset and a further retail asset have been sold for £3.0 million reflecting a net initial yield of 2.9%.  Adjusting for these transactions, the portfolio produced a rent of £27 million per annum, reflecting a net initial yield of 5.6% which compares with the MSCI Benchmark average at 5.3%.  The Company's independent valuer estimates that the current rental value of the portfolio is £34.1 million per annum, reflecting a reversionary yield of 7.6% which compares with the Benchmark at 6.1%.  The portfolio also benefits from fixed rental uplifts of £3.6 million per annum by September 2018. 

The data below summarises the portfolio information as at 30 September 2016, adjusted for the post period transactions:

	Weighting (%)
Sector weightings by value	SREIT	MSCI Benchmark
Retail	31.6	37.1
Offices	40.2	32.0
Industrial	22.8	21.0
Other	5.4	9.9

	Weighting (%)
Regional weightings by value	SREIT	MSCI Benchmark
Central London	7.9	15.5
South East excluding Central London	28.2	37.1
Rest of the South	8.3	15.4
Midlands and Wales	27.1	13.9
North and Scotland	28.5	18.1

Investment Manager's Report (continued)

The top ten properties set out below comprise 56.2% of the portfolio value:

Top ten properties		Value (£m)	(%)
1	Manchester, City Tower	41.1	9.2
2	London, Store Street, Bloomsbury	35.3	7.9
3	Bedford, St. John's Retail Park	34.2	7.6
4	Brighton, Victory House	29.8	6.6
5	Leeds, Millshaw Industrial Estate	24.2	5.4
6	Leeds, Headingley, The Arndale Centre	20.8	4.6
7	Milton Keynes, Stacey Bushes Industrial Estate	20.0	4.5
8	Uxbridge, 106 Oxford Road	18.2	4.0
9	Salisbury, Churchill Way West	14.5	3.2
10	Luton, The Galaxy	14.3	3.2
	Total as at 30 September 2016	252.4	56.2

The table below sets out the top ten tenants that generally comprise large businesses and represent 34.1% of the portfolio:

Top ten tenants		Rent p.a. (£000)	% of portfolio
1	University of Law Limited	1,583	5.9
2	Wickes Building Supplies Limited	1,092	4.0
3	Norwich Union Life and Pensions Limited	1,039	3.8
4	The Buckinghamshire New University	1,018	3.8
5	BUPA Insurance Services Limited	961	3.6
6	Mott MacDonald Limited	790	2.9
7	Recticel SA	731	2.7
8	Secretary of State	684	2.5
9	Matalan Retail Limited	676	2.5
10	Sports Direct.com Retail Limited	657	2.4
	Total as at 30 September 2016	9,231	34.1

Portfolio performance

The performance of the underlying property portfolio compared with the MSCI Benchmark to 30 September 2016 is shown below: 

	SREIT total return p.a. (%)			MSCI Benchmark total return p.a. (%)			Relative p.a. (%)
Period	Six months	Three years	Since inception*	Six months	Three years	Since inception*	Six months	Three years	Since inception*
Retail	0	10.2	5.7	-1.6	7.8	4.4	1.6	2.3	1.3
Office	2.5	16.5	8.1	-2.7	14.2	6.8	5.3	2.0	1.3
Industrial	2.3	15.7	7.4	0.8	15.6	7.0	1.4	0.1	0.4
Other	7.0	16.7	3.8	2.7	10.8	6.1	6.1	5.4	-2.2
Total	1.8	14.4	7.2	-1.1	11.6	5.8	3.0	2.6	1.4

* Inception was July 2004

Investment Manager's Report (continued)

Transactions

During the period and since the period end five small retail assets have been sold for £13.7 million reflecting an average net initial yield of 3.9% and an average premium to the valuation at the start of the period of 2.2%.  Details of the five disposals are set out below:

During the period	Date	Price (£m)	Net initial Yield (%)	Value 31/03/2016 (£m)	Premium to valuation (%)
Nottingham, Clumber Street	01/04/2016	2.0	Nil	2.0	-
New Malden, St. George's Court (mixed retail and office)*	04/04/2016	4.0	5.6	4.0	-
Bath, Abbeygate Street	10/05/2016	4.7	4.6	4.7	-
Sub-total		10.7	4.1	10.7	-
Since period end	Date	Price (£m)	Net initial Yield (%)	Value 31/03/2016 (£m)	Premium to valuation (%)
Bromley, 102 High Street	02/11/2016	1.3	Nil	1.1	18.1
Bournemouth, Commercial Road **	27/10/2016	1.7	5.1	1.6	6.3
Sub-total		3.0	2.9	2.7	11.1
Total		13.7	3.9	13.4	2.2

*included in the March 2016 financial statements as contracts unconditionally exchanged in April 2015.

**included in the September 2016 interim report as contracts unconditionally exchanged in September 2016.

Asset management

Bedford, St. John's Retail Park

St. John's Retail Park was acquired in 2015 with a strategy to increase the rental level, secure longer lease lengths and improve tenant mix.  During the period an agreement was exchanged with TK Maxx Homesense to let a 12,100 sq ft unit on a fifteen year lease at £250,000 per annum.  The agreement was conditional on planning permission for a trading mezzanine and external improvements.

The unit was previously let to DSG, trading as PC World, at £225,720 per annum on a lease expiring in September 2020, who paid £400,000 post year end to vacate early.  DSG also occupied a separate 14,800 sq ft unit at the retail park, paying £265,500 per annum until September 2020.  As part of the transaction DSG have consolidated the PC World brand into this unit and have extended their lease to a ten year term at £280,000 per annum with no rent free incentive. There is a tenant only break option at year five subject to a penalty of £250,000.

All agreements were conditional on planning which was received in September and the works to the TK Maxx Homesense unit are ongoing, funded by the £400,000 payment from DSG.  This asset management activity enhances the tenant mix, increases the potential to attract additional high quality retailers to the park and consolidates a higher rental tone which will be used as part of ongoing rent review negotiations.  This and other recent activity at Bedford results in an income yield on the gross acquisition cost of 7%.

Sheffield, No 1 Riverside Exchange

Riverside Exchange is a 39,188 sq ft office building in Sheffield city centre let to lawyers Irwin Mitchell LLP at a rent of £555,000 per annum.  As at 31 March 2016 the property was valued at £3.3 million, with the high net initial yield of 16% reflecting the lease expiring in September 2016.  

Investment Manager's Report (continued)

In June, following extensive negotiations, Irwin Mitchell entered into a new seven year lease at the prevailing rent of £555,000 per annum. In return for this lease extension the tenant received 20 months rent free.  As a result of this activity the valuation increased to £5.8 million as at 30 September 2016, the highest portfolio movement over the period.

Finance

The Company has an overall net loan to value of 30%, within the long term strategic range of 25% to 35%.  Details of the two loans and compliance with principal covenants are set out below: 

Lender	Loan (£m)	Maturity	Interest rate (%)	Loan to Value ('LTV') ratio* (%)	LTV ratio covenant (%)*	Interest cover ratio (%)**	ICR ratio covenant (%)**	Forward looking ICR ratio (%)***	Forward looking ICR ratio covenant (%)***
Canada Life	103.7	15/04/2028	4.77$	38.8	65	282	185	289	185
	25.9	15/04/2023
RBS	20.5	17/07/2019	2.01α	53.0	65	241	185	490	250

*           Loan balance divided by property value as at 30 September 2016.

**           For the quarter preceding the Interest Payment Date ('IPD'), ((rental income received - void rates, void service charge and void insurance) / interest paid).

***         For the quarter following the IPD, ((rental income received - void rates, void service charge and void insurance) / interest paid).

$              Fixed total interest rate for the loan term

α                              Total interest rate as at 30 September 2016 comprising 3 months LIBOR of 0.41% and the margin of 1.6% at an LTV below 60% and a margin of 1.85% above 60% LTV.

The Canada Life facility allows voluntary prepayments and fixed rate break costs are payable on any prepayment.  No break costs are payable on maturity of the smaller loan in 2023.  In addition to the secured property, the joint venture properties City Tower in Manchester and Store Street in London are uncharged with a combined value of £76.9 million.  

Outlook

Raising equity earlier in the cycle to acquire higher yielding assets in stronger regional centres has contributed positively to performance and resulted in a robust balance sheet.  The Company is well positioned and vigilant to potential challenges.

In order to achieve the longer term objective of increasing the dividend, it is important that asset management initiatives such as the Premier Inn redevelopment in Leeds and lettings at Bristol and Cardiff are efficiently concluded.  Further asset sales will be required to fund the next phase of income enhancing asset management initiatives. 

Duncan Owen

Schroder Real Estate Investment Management Limited

15 November 2016

Responsibility Statement of the Directors' in respect of the Interim Report

We confirm that to the best of our knowledge:

• the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting; and

• the interim management report (comprising the Chairman's and the Investment Managers report) includes a fair review of the information required by:

(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

We are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website, and for the preparation and dissemination of financial statements.  Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

By order of the Board

Lorraine Baldry

Chairman

15 November 2016

Independent review report to Schroder Real Estate Investment Trust Limited

Introduction

We have been engaged by Schroder Real Estate Investment Trust Limited (the "Company") to review the condensed set of financial statements in the Interim Report for the six months ended 30 September 2016 which comprises Condensed Consolidated Statement of Comprehensive Income, Condensed Consolidated Statement of Financial Position, Condensed Consolidated Statement of Changes in Equity, Condensed Consolidated Statement of Cash Flows and the related notes. We have read the other information contained in the Interim Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the Disclosure and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA"). Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached.

Directors' responsibilities

The Interim Report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Interim Report in accordance with the DTR of the UK FCA.

As disclosed in note 1, the annual financial statements of the Company are prepared in accordance with International Financial Reporting Standards. The condensed set of financial statements included in this Interim Report has been prepared in accordance with IAS 34 Interim Financial Reporting.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the Interim Report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the Interim Report for the six months ended 30 September 2016 is not prepared, in all material respects, in accordance with IAS 34 and the DTR of the UK FCA.

Deborah J Smith

For and on behalf of

KPMG Channel Islands Limited
Chartered Accountants
15 November 2016

Condensed Consolidated Statement of Comprehensive Income

			Six months to	Six months to	Year to
			30/09/2016	30/09/2015	31/03/2016
	Notes		£000	£000	£000
			(unaudited)	(unaudited)	(audited)
Rental income			12,148	11,817	24,740
Other income			473	284	383
Property operating expenses			(1,286)	(1,330)	(2,952)
Net rental and related income, excluding joint ventures			11,335	10,771	22,171
Share of net rental income in joint ventures Net rental and related income, including joint ventures			1,673 13,008	1,581 12,352	3,257 25,428
(Loss)/profit on disposal of investment property	6		(143)	419	1,295
Net valuation (loss)/gain on investment property	6		(4,466)	11,795	17,375
Expenses
Investment management fee	2		(1,740)	(1,540)	(3,227)
Valuers' and other professional fees			(663)	(537)	(1,247)
Administrators fee	2		(60)	(60)	(120)
Auditor's remuneration			(69)	(57)	(119)
Directors' fees			(105)	(108)	(197)
Other expenses	3		(135)	(489)	(594)
Total expenses			(2,772)	(2,791)	(5,504)
Net operating profit before net finance costs			3,954	20,194	35,337
Finance costs payable			(3,434)	(3,487)	(7,045)
Net finance costs			(3,434)	(3,487)	(7,045)
Share of net rental income in joint ventures	7		1,673	1,581	3,257
Share of net valuation (loss)/gain in joint ventures		7	(1,557)	4,797	4,777
Profit before tax			636	23,085	36,326
Taxation			-	(74)	(74)
Total comprehensive income for the period/year attributable to the equity holders of the parent			636	23,011	36,252
Basic and diluted earnings per share		4	0.1p	4.4p	7.0p

All items in the above statement are derived from continuing operations. The accompanying notes 1 to 14 form an integral part of the Interim Report.

Condensed Consolidated Statement of Financial Position

		30/09/2016	30/09/2015	31/03/2016
	Notes	£000	£000	£000
		(unaudited)	(unaudited)	(audited)
Investment property	6	362,347	363,665	371,224
Investment in joint ventures	7	76,946	77,589	77,959
Non-current assets		439,293	441,254	449,183
Trade and other receivables		17,564	18,867	17,700
Cash and cash equivalents	8	14,540	12,330	12,763
Investment property held for sale	6	1,228	-	-
Current assets		33,332	31,197	30,463
Total assets		472,625	472,451	479,646
Issued capital and reserves		343,264	342,245	349,058
Treasury shares		(26,452)	(26,452)	(26,452)
Equity		316,812	315,793	322,606
Interest-bearing loans and borrowings	9	148,113	147,918	147,994
Non-current liabilities		148,113	147,918	147,994
Trade and other payables		7,682	8,528	9,013
Taxation payable		18	212	33
Current liabilities		7,700	8,740	9,046
Total liabilities		155,813	156,658	157,040
Total equity and liabilities		472,625	472,451	479,646
Net Asset Value per ordinary share	10	61.1p	60.9p	62.2p

The financial statements on pages 14-25 were approved at a meeting of the Board of Directors held on 15 November 2016 and signed on its behalf by:

Lorraine Baldry

Chairman                                                              

The accompanying notes 1 to 14 form an integral part of the Interim Report.

Condensed Consolidated Statement of Changes in Equity

For the period from 1 April 2015 to 30 September 2015 (unaudited)

	Notes		Share premium	Treasure share reserve	Revenue reserve	Total
			£000	£000	£000	£000
Balance as at 31 March 2015			219,090	(26,452)	106,576	299,214
Total comprehensive income for the period			-	-	23,011	23,011
Dividends paid	5		-	-	(6,432)	(6,432)
Balance as at 30 September 2015			219,090	(26,452)	123,155	315,793
For the year ended 31 March 2016 (audited) and for the period from 1 April 2016 to 30 September 2016 (unaudited)
		Notes	Share premium	Treasure share reserve	Revenue reserve	Total
			£000	£000	£000	£000
Balance as at 31 March 2015			219,090	(26,452)	106,576	299,214
Total comprehensive income for the year			-	-	36,252	36,252
Dividends paid		5	-	-	(12,860)	(12,860)
Balance as at 31 March 2016			219,090	(26,452)	129,968	322,606
Total comprehensive income for the period			-	-	636	636
Dividends paid		5	-	-	(6,430)	(6,430)
Balance as at 30 September 2016			219,090	(26,452)	124,174	316,812

The accompanying notes 1 to 14 form an integral part of the Interim Report.

Condensed Consolidated Statement of Cash Flows

				Six months to	Six months to	Year to
				30/09/2016	30/09/2015	31/03/2016
				£000	£000	£000
				(unaudited)	(unaudited)	(audited)
Operating activities
Profit for the period/year				636	23,011	36,252
Adjustments for:
Loss/ (profit) on disposal of investment property				143	(419)	(1,295)
Net valuation loss/(gain) on investment property				4,466	(11,795)	(17,375)
Share of  profit of joint ventures				(116)	(6,378)	(8,034)
Net finance cost				3,434	3,487	7,045
Taxation				-	74	74
Operating cash generated before changes in working capital				8,563	7,980	16,667
(Increase)/decrease in trade and other receivables				(2,202)	1,320	2,487
(Decrease)/increase in trade and other payables				(1,432)	1,262	1,747
Cash generated from operations				4,929	10,562	20,901
Finance costs paid				(3,434)	(3,389)	(6,826)
Tax				-	(74)	(253)
Net cash from operating activities				1,495	7,099	13,822
Investing Activities
Proceeds from sale of investment property				10,680	-	2,200
Acquisition of investment property				-	(55,630)	(55,613)
Additions to investment property				(5,097)	(1,137)	(4,457)
Investment in joint ventures				(544)	-	(390)
Net income distributed from joint ventures				1,673	1,581	3,257
Net cash from investing activities				6,712	(55,186)	(55,003)
Financing Activities
New loan drawdown				-	20,500	20,500
Loan arrangement fees				-	(242)	(287)
Dividends paid				(6,430)	(6,432)	(12,860)
Net cash from financing activities				(6,430)	13,826	7,353
Net increase/(decrease) in cash and cash  equivalents for				1,777	(34,261)	(33,828)
for the period/year
Opening cash and cash equivalents				12,763	46,591	46,591
Closing cash and cash equivalents				14,540	12,330	12,763

The accompanying notes 1 to 14 form an integral part of the Interim Report.

Notes to the Interim Report

1. Significant accounting policies

Schroder Real Estate Investment Trust Limited ("the Company") is a closed-ended investment company incorporated in Guernsey. The condensed interim financial statements of the Company for the period ended 30 September 2016 comprise the Company, its subsidiaries and its interests in joint ventures (together referred to as the "Group").

Statement of compliance  

The condensed interim financial statements have been prepared in accordance with the Disclosure and Transparency Rules of the United Kingdom Financial Conduct Authority and IAS 34 Interim Financial Reporting. They do not include all of the information required for the full annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group as at and for the year ended 31 March 2016. The condensed interim financial statements have been prepared on the basis of the accounting policies set out in the Group's annual financial statements for the year ended 31 March 2016. The financial statements for the year ended 31 March 2016 have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board. The Group's annual financial statements refer to new Standards and Interpretations none of which had a material impact on the financial statements.

Going concern

The Directors have examined significant areas of possible financial risk including cash and cash requirements and the debt covenants, in particular the loan to value covenants and interest cover ratios on the loans with Canada Life and Royal Bank of Scotland. 80% of the Canada Life loan matures on 15 April 2028 and 20% matures on 15 April 2023. The Royal Bank of Scotland loan matures on 17 July 2019. The Directors have not identified any material uncertainties which would cast significant doubt on the Group's ability to continue as a going concern for a period of not less than twelve months from the date of the approval of the financial statements. The Directors have satisfied themselves that the Group has adequate resources to continue in operational existence for the foreseeable future.

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

Use of estimates and judgments      

The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.  There have been no changes in the judgements and estimates used by management as disclosed in the last annual report and financial statements for the year ended 31 March 2016.

Segmental reporting                                         

The Directors are of the opinion that the Group is engaged in a single segment of business, being property investment and in one geographical area, the United Kingdom.          There is no one tenant that represents more than 10% of group revenues. The chief operating decision maker is considered to be the Board of Directors who are provided with consolidated IFRS information on a quarterly basis.     

Notes to the Interim Report (Continued)

2. Material agreements

Schroder Real Estate Investment Management Limited is the Investment Manager to the Company.                

The Investment Manager is entitled to a fee together with reasonable expenses incurred in the performance of its duties. The fee is payable monthly in arrears and shall be an amount equal to one twelfth of the aggregate of 1.1% of the NAV of the Company. The Investment Management Agreement can be terminated by either party on not less than twelve months written notice or on immediate notice in the event of certain breaches of its terms or the insolvency of either party.  The total charge to profit during the period was £1,740,000 (year to 31 March 2016: £3,227,000) (6 months to 30 September 2015: £1,540,000).  At the period end £293,000 (31 March 2016: £619,000) (30 September 2015: £712,000) was outstanding. 

The Board appointed Northern Trust International Fund Administration Services (Guernsey) Limited as the Administrator to the Company with effect from 25 July 2007. The Administrator is entitled to an annual fee equal to £120,000 of which £30,000 (31 March 2016: £30,000) (30 September 2015: £30,000) was outstanding at the period end.

3. Other expenses

		Six months to 30/09/2016	Six months to 30/09/2015	Year to 31/03/2016
		£000	£000	£000
Directors' and officers' insurance premium		-	7	13
Regulatory costs		11	22	22
Professional fees		80	34	99
Other expenses *		44	426	460
		135	489	594

^* Period to 30 September 2016 include REIT conversion cost of circa £30,000 (Year to March 2016: £413,000)

4. Basic and Diluted Earnings per share

The basic and diluted earnings per share for the Group is based on the net profit for the period of £636,000 (31 March 2016: £36,252,000), (30 September 2015: £23,011,000) and the weighted average number of ordinary shares in issue during the period of 518,513,409 (31 March 2016: 518,513,409 and 30 September 2015: 518,513,409).

EPRA earnings reconciliation

			Six months to 30/09/2016	Six months to 30/09/2015		Year to 31/03/2016
			£000	£000		£000
Profit after tax			636	23,011		36,252
Adjustments to calculate EPRA Earnings exclude:
Loss/(profit) on disposal of investment property			143	(419)		(1,295)
Net valuation loss/(gain) on investment property			4,466	(11,795)		(17,375)
Finance cost: interest rate cap			-	209		325
Share of valuation loss/(gain) in joint ventures			1,557	(4,797)		(4,777)
EPRA earnings			6,802	6,209		13,130
Weighted average number of ordinary shares		518,513,409			518,513,409	518,513,409
EPRA earnings per share (pence per share)		1.3			1.2	2.5

Notes to the Interim Report (continued)

4. Basic and Diluted Earnings per share (continued)

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

5. Dividends paid

	Number of		01/04/2016 to
In respect of	ordinary	Rate	30/09/2016
	shares	(pence)	£000
Quarter 31 March 2016 dividend paid 31 May 2016	518.51 million	0.62	3,215
Quarter 30 June 2016 dividend paid 31 August 2016	518.51 million	0.62	3,215
		1.24	6,430

	Number of		01/04/2015 to
In respect of	ordinary	Rate	30/09/2015
	shares	(pence)	£000
Quarter 31 March 2015 dividend paid 28 May 2015	518.51 million	0.62	3,215
Quarter 30 June 2015 dividend paid 28 August 2015	518.51 million	0.62	3,215
		1.24	6,430

	Number of		01/04/2015 to
In respect of	ordinary	Rate	31/03/2016
	shares	(pence)	£000
Quarter 31 March 2015 dividend paid 28 May 2015	518.51 million	0.62	3,215
Quarter 30 June 2015 dividend paid 28 August 2015	518.51 million	0.62	3,215
Quarter 30 September 2015 dividend paid 30 November 2015	518.51 million	0.62	3,215
Quarter 31 December 2015 dividend paid 29 February 2016	518.51 million	0.62	3,215
		2.48	12,860

A dividend for the quarter ended 30 September 2016 of 0.62p (£3.2 million) was declared on 15 November 2016 and will be paid on 2 December 2016.

6. Investment property

For the period 1 April 2015 to 30 September 2015 (unaudited)

	Leasehold	Freehold	Total
	£000	£000	£000
Fair value as at 1 April 2015	39,227	259,457	298,684
Additions	28	56,658	56,686
Gross proceeds on disposals	-	(3,919)	(3,919)
Realised gain on disposals	-	419	419
Net valuation gain on investment property	636	11,159	11,795
Fair value as at 30 September 2015	39,891	323,774	363,665

Notes to the Interim Report (continued)

6. Investment property (continued)

For the year 1 April 2015 to 31 March 2016 (audited)

	Leasehold	Freehold	Total
	£000	£000	£000
Fair value as at 1 April 2015	39,227	259,457	298,684
Additions	256	59,814	60,070
Gross proceeds on disposals	-	(6,200)	(6,200)
Realised gain on disposals	-	1,295	1,295
Net valuation gain on investment property	2,582	14,793	17,375
Fair value as at 31 March 2016	42,065	329,159	371,224

For the period 1 April 2016 to 30 September 2016 (unaudited)

	Leasehold	Freehold	Total
	£000	£000	£000
Fair value as at 1 April 2016	42,065	329,159	371,224
Additions	1,881	3,216	5,097
Gross proceeds on disposals	-	(8,137)	(8,137)
Realised loss on disposals	-	(143)	(143)
Net valuation loss on investment property	(224)	(4,242)	(4,466)
Fair value as at 30 September 2016	43,722	319,853	363,575

The balance above includes:

	Leasehold £000	Freehold £000	Total  £000
Investment property	43,722	318,625	362,347
Investment property held for sale	-	1,228	1,228
Fair Value as at 30 September 2016	43,722	319,853	363,575

One of the investment properties has been determined to meet the criteria of a held for sale asset at the period end. This property subsequently unconditionally exchanged on 5 October 2016. 

Fair value of investment property as determined by the valuer's totals £375,340,000 (31 March 2016: £385,085,000) (30 September 2015: £376,875,000). Of this amount, £1,600,000 is in relation to the unconditional exchange of contracts for the sale of Bournemouth (31 March 2016: £4,000,000 relating to St. George's Court in New Malden) and £10,165,000 (31 March 2016: £9,861,000) (30 September 2015: £9,460,000) in connection with lease incentives is included within trade and other receivables.

The fair value of investment property has been determined by Knight Frank LLP, a firm of independent chartered surveyors, who are registered independent appraisers.  The valuation has been undertaken in accordance with the RICS Valuation - Professional Standards January 2014 Global and UK Edition, issued by the Royal Institution of Chartered Surveyors (the "Red Book") including the International Valuation Standards.

The properties have been valued on the basis of "Fair Value" in accordance with the RICS Valuation - Professional Standards VPS4(1.5) Fair Value and VPGA1 Valuations for Inclusion in Financial Statements which adopt the definition of Fair Value used by the International Accounting Standards Board.

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

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

All investment properties are categorised as Level 3 fair values as they use significant unobservable inputs. There have not been any transfers between Levels during the period. Investment properties have been classed according to

Notes to the Interim Report (continued)

6. Investment property (continued)

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 2016 (unaudited)

		Industrial (1)	Retail (incl retail warehouse)	Office	Other	Total
Fair value (£000)		102,400	141,210	117,430	14,300	375,340
Area ('000 sq ft)		1,711	614	619	145	3,089
Net passing rent psf per annum	Range Weighted average	£0 - £8.82 £4.00	£0 - £38.50 £14.43	£0 - £25.72 £10.99	£7.59 N/A	£0 - £38.50 £7.65
Gross ERV psf per annum	Range Weighted average	£3.50 - £10.00 £4.95	£7.40-£38.50 £16.38	£9.50 - £27.50 £15.14	£9.61 N/A	£3.50-£38.50 £9.48
Net initial yield (1)	Range Weighted average	0% - 7.87% 6.26%	0% - 8.14% 5.88%	0.00%-14.65% 5.43%	7.21% N/A	0% - 14.65% 5.89%
Equivalent  yield	Range Weighted average	5.65% - 9.02% 7.38%	4.52%-9.78% 6.23%	5.64%-10.23% 7.12%	8.50% N/A	4.52%-10.23% 6.90%

Notes:  ⁽¹⁾ Yields based on rents receivable after deduction of head rents, but gross of non-recoverables.

Quantitative information about fair value measurement using unobservable inputs (Level 3) as at 31 March 2016 (audited)

		Industrial	Retail (incl retail warehouse)	Office	Leisure	Total
Fair value (£000)		103,120	150,750	117,355	13,860	385,085
Area ('000 sq ft)		1,711	626	637	145	3,119
Net passing rent per sq ft per annum	Range Weighted average	£0 - £8.82 £3.85	£0 - £38.50 £14.65	£0 - £25.72 £11.95	£7.64       N/A	£0-£38.50 £7.85
Gross ERV per sq ft per annum	Range Weighted average	£3.00 - £10.00 £4.94	£7.40-£49.50 £16.66	£9.00 - £27.50 £14.96	£9.64 N/A	£3.00-£49.50 £9.55
Net initial yield (1)	Range Weighted average	0% - 7.51% 5.99%	0% - 8.04% 5.70%	0.00%-15.89% 6.08%	7.49% N/A	0% - 15.89% 5.96%
Equivalent yield	Range Weighted average	5.65% - 8.57% 7.29%	4.35%-9.79% 6.03%	5.49%-9.68% 6.99%	8.68% N/A	4.35%-9.68% 6.75%

Notes: (1) Yields based on rents receivable after deduction of head rents, but gross of non-recoverables.

Notes to the Interim Report (continued)

6. Investment property (continued)

Sensitivity of measurement to variations in the significant unobservable inputs

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

Unobservable input	Impact on fair value 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 2016 (unaudited)	Industrial £'000	Retail £'000	Office £'000	Other £'000	Total £'000
Increase in ERV by 5%	4,615	6,010	3,850	300	14,775
Decrease in ERV by 5%	(4,100)	(5,390)	(4,235)	(300)	(14,025)
Increase in  net initial yield by 0.25%	(3,930)	(5,762)	(5,168)	(479)	(15,273)
Decrease in  net initial yield by 0.25%	4,257	6,273	5,666	514	16,626

Estimated movement in fair value of investment properties at 31 March 2016 (audited)	Industrial £000	Retail £000	Office £000	Other £000	Total £000
Increase in ERV by 5%	4,330	6,617	4,126	240	15,313
Decrease in ERV by 5%	(4,265)	(5,880)	(3,830)	(190)	(14,165)
Increase in  net initial yield by 0.25%	(4,134)	(6,336)	(4,636)	(448)	(15,554)
Decrease in  net initial yield by 0.25%	4,494	6,918	5,033	479	16,924

7. Investment in joint ventures

For the period 1 April 2015 to 30 September 2015 (unaudited)

		£000
Opening balance as at 1 April 2015		72,792
Share of net valuation gain in period		6,378
Distributions received		(1,581)
Amounts recognised as joint ventures at 30 September 2015		77,589

Notes to the Interim Report (continued)

7. Investment in joint ventures (continued)

For the year 1 April 2015 to 31 March 2016 (audited)

	£000
Opening balance as at 1 April 2015	72,792
Purchase of units in City Tower Unit Trust to fund capital expenditure	390
Share of profit for the period	8,034
Distribution received	(3,257)
Closing balance as at 31 March 2016	77,959

For the period 1 April 2016 to 30 September 2016 (unaudited)

		£000
Opening balance as at 1 April 2016		77,959
Purchase of units in City Tower Unit Trust to fund capital expenditure		544
Share of profit for the period		116
Distributions received		(1,673)
Amounts recognised as joint ventures at 30 September 2016		76,946

8. Cash and cash equivalents

As at 30 September 2016 the group had £14.5 million in cash (31 March 2016:£12.8 million, 30 September 2015:£12.3 million). There is currently no cash held within the Canada Life security pool.

9. Interest-bearing loans and borrowings

The Group entered into a £129.6 million loan facility with Canada Life on 16 April 2013 that has 20% of the loan maturing on 15 April 2023 and with the balance of 80% maturing on 15 April 2028, with a fixed interest rate of 4.77%.

On 17 July 2015 the Company entered into a four year, £20.5 million revolving credit facility with the Royal Bank of Scotland, for the purpose of acquiring, Millshaw Park Industrial Estate. The interest rate is based on the loan to value ratio as below:

-       LIBOR + 1.60% if loan to value is less than or equal to 60%

-       LIBOR + 1.85% if loan to value is greater than 60%

During the period the loan to value has remained less than 60%. Since this loan has variable interest, an interest rate cap for 100% of the loan was entered into, which comes into effect if GBP 3 month LIBOR reaches 1.5%.

As at 30 September 2016 the group has a loan balance of £150.1 million and £2.0 million of unamortised arrangement fees (31 March 2016: £150.1 million and £2.1 million of unamortised arrangement fees, September 2015: £150.1 million and £2.2 million of unamortised arrangement fees).

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 2016 the fair value of the Group's £129.6 million loan with Canada Life was £144.8 million (31 March 2016: £140.2 million).

10. NAV per ordinary share

The NAV per ordinary share is based on the net assets of £316,820,000 (31 March 2016: £322,606,000, 30 September 2015: £315,793,000) and 518,513,409 ordinary shares in issue at the Statement of Financial Position reporting date (31 March 2016: 518,513,409 and 30 September 2015: 518,513,409).

Notes to the Interim Report (continued)

11. 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 ended 31 March 2016 of which it is aware.

The main risks arising from the Group's financial instruments and properties are market price risk (note the impact of the EU referendum decision - page 7), credit risk, liquidity risk and interest rate risk. The Group is only directly exposed to sterling and hence is not exposed to currency risks. The Board regularly reviews and agrees policies for managing each of these risks.

12. Related party transactions

Material agreements are disclosed in note 2. The Directors' remuneration for the period for services to the Group was £105,000 (30 September 2015: £108,000). Transactions with joint ventures are disclosed in note 7.

13. Capital Commitments

At 30 September 2016 the Group had capital commitments of £9.3 million.

14. Post balance sheet events

Since the end of the period the Group has completed on the sale of two properties for a combined price of £3 million.  The disposals are summarised as follows:

-    High Street, Bromley - completed on 2 November for £1.3 million (included in the September 2016 financial statements as an Investment Property Held for Sale).  

-       102/106 Commercial Road, Bournemouth - completed on 27 October for £1.7 million (included in the September 2016 financial statements as contracts unconditionally exchanged).

Corporate information

Registered Address PO Box 255 Trafalgar Court Les Banques St. Peter Port Guernsey GY1 3QL Directors Lorraine Baldry (Chairman) Keith Goulborn (Senior Independent Director) John Frederiksen Stephen Bligh Graham Basham  (All Non-Executive Directors) Investment Manager and Accounting Agent Schroder Real Estate Investment Management Limited 31, Gresham Street London EC2V 7QA		Auditor KPMG Channel Islands Limited Glategny Court Glategny Esplanade St. Peter Port Guernsey GY1 1WR Property Valuers Knight Frank LLP 55 Baker Street London W1U 8AN Joint Sponsor and Brokers J.P. Morgan Securities plc 25 Bank Street Canary Wharf London E14 5JP Numis Securities Limited 10 Paternoster Square London EC4M 7LT
Secretary and Administrator Northern Trust International Fund Administration Services (Guernsey) Limited PO Box 255 Trafalgar Court Les Banques St Peter Port Guernsey GY1 3QL		Tax Advisers Deloitte 2 New Street Square London EC4A 3BZ
Solicitors to the Company as to English Law: Stephenson Harwood LLP 1 Finsbury Circus London EC2M 7SH	as to Guernsey Law: Mourant Ozannes 1 Le Marchant Street St. Peter Port Guernsey GY1 4HP	Receiving Agent and UK Transfer/Paying Agent Computershare Investor Services (Guernsey) Limited Queensway House Hilgrove Street St Helier Jersey JE1 1ES
ISA The Company's shares are eligible for Individual Savings Accounts (ISAs). FATCA GIIN 5BM7YG.99999.SL.831

 

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