Half Yearly Report

RNS Number : 6277T

Sirius Real Estate Limited

17 December 2012

 



Sirius Real Estate Limited

("Sirius", "the Group" or "the Company")

Half Year Results for the six months ended 30 September 2012

"This has been an important trading period for the Company where we have seen the benefits of the improved cost recovery and reduction programmes, higher rental rates from existing and new tenants as well as the financial benefits of the recent management internalisation. As a result, we are reporting recurring profits significantly ahead of the same period last year," said Robert Sinclair, Chairman of Sirius.

Strong trading performance

·   Gross annualised rent roll level increased by 2% to €43.2m (30 September 2011: €42.5m*)

·   Significant increase in recurring profit before tax to €3.9m** (2011: €0.9m)

·   Average rent per sqm increased to €4.36 (30 September 2011: €4.27*)

·   Adjusted EPS was 0.96c (2011: 0.27c)

*  Adjusted for disposals and removal of technical space

**  Excluding property revaluation, change in fair value derivative instruments and costs incurred for advice relating to the asset management agreement, but including surrender premium of €1.1m (2011: no surrender premium)

Benefits of cost recovery and reduction programmes

·   Since January 2010 the programme has reduced annualised costs by €8m through:

o  Improved service charge cost recovery of circa €3m

o  Lowering of overhead costs by €5m

Steady demand

·   New lettings of 59,175 sqm at an average rate of €5.32 per sqm (2011: €5.18)

·   Enquiries for all types of space averaged approximately 1,000 per month coupled with an increased conversion rate in excess of 9%

·   Occupancy was 76% (as at 30 September 2012) held back by four large tenant move outs during the period

·   Secured first two external management contracts

Re-financing & Disposals

·   Positive discussions are taking place with Berlin Hannoversche Hypothekenbank AG ("BerlinHyp") to refinance the €200m facility with them which expires throughout 2013

·   On target to complete the selective disposal programme of mature and non-core assets

·   Extension agreement signed with ABN AMRO ("ABN") to June 2013 to allow time to finalise new facilities and disposals

·   A total of €20.7m of asset sales have been completed or notarised at 2.2% above book value of which €15.2m will be used  to reduce the ABN facility; further sales of non-core assets are under negotiation

Outlook

·   Continue to optimise the portfolio and cost base

·   Reduce and refinance existing debt facilities

·   Secure further external management contracts to make more efficient use of the group's highly effective operating platform

·   Respond to the high demand for smartspace and storage solutions through further expansion of these products

"The Company is now able to demonstrate the strength of its underlying trading position having significantly reduced the cost base, enhanced the quality of its rent roll and improved the recovery of service charge costs. The core business is stable and profitable providing an opportunity to deliver attractive returns to shareholders.

Our key focus accordingly is to ensure that the business is properly financed for the long term.  Our negotiations with BerlinHyp are progressing and we continue to dispose of non-core sites.  In the short term, we have an extension on the ABN loan to allow us time to dispose of or refinance these assets.

Market demand, despite continued economic weakness remains stable, and there is increased interest in our smartspace and storage solutions which we continue to expand alongside other product offerings."

Enquiries:

Sirius                         

Andrew Coombs                                                                     [phone]

Alistair Marks

Peel Hunt

Capel Irwin                                                                              020 7418 8900

Alex Vaughan

Cardew Group                                             

Tim Robertson                                                                        020 7930 0777 

Georgina Hall

www.sirius-real-estate.com 

Chairman's Statement

I am pleased to announce the Group's half-year results for the six months ended 30 September 2012. The Company has made good progress in a difficult economic environment, delivering a substantial increase in operating profit helped by a lower revaluation deficit, further reductions in costs and improved rates from new lettings and renewals.

There continues to be encouraging demand from the German SME market for flexible office, logistics and light industrial space and the Company is capturing an increasing share of this market through its effective in-house marketing teams. As most potential tenants use online search engines to find suitable space, the Company's expertise and history in developing Sirius' online website, portals and search engine optimisation is proving to be an important  competitive advantage.

The core business is performing well and the programme to dispose of non-core sites and refinance the optimised portfolio is progressing well. The Company has sold or notarised €20.7m (€10m to 30 September 2012 and €10.7m since the period end) of property, at 2.2% above book value of which €15.2m will be used to repay the outstanding ABN loans, and has received offers for a number of the other non-core assets that are up for sale. Most of these assets have been classified as assets held for sale.

We have agreed an extension with ABN on the €80.6m facility which expired on 15 October 2012 and over the next six months we hope to sell or refinance the assets within this facility leaving a well balanced portfolio of high income-producing assets but which also still have potential for further improvement. 

The asset management platform we now have in place is proving to be highly effective in maximising profits and value from the portfolio.  We are looking to further utilise the expertise we have built up by taking on more external management contracts which will help sustain the in-house expertise and be a useful source of revenue going forward. The Company has signed two new management contracts and agreed terms on one other. Together, these will deliver €756k revenue to 31 March 2013 and 31 March 2014.

Earnings

For the half year under review, gross income was €23.9m (2011: €22.1m).

The property portfolio at the end of the period consisted of 37 properties and had an annualised gross rent roll of €43.2m (30 September 2011: €42.5m) over a total lettable area of 1.1million sqm.

Recurring profit before tax for the period was €3.9m (2011: €0.9m), which included a surrender premium of €1.1m but excluded property revaluation, change in fair value derivative instruments and €0.2m of further costs incurred for the internalisation of the asset and property management business.

The main drivers of the improved profit number were the lower cost base and the improved rate being achieved on new lettings and renewals.  Further progress has been made on reducing the irrecoverable service charge costs through a combination of optimising tenant leases and further improving allocation which provides tenants with much better transparency and reduces disputes.  Consequently we expect the service charge recovery to be higher than in previous years.

Capital expenditure during the six months to 30 September 2012 was down to €1.6m, which was mainly related to creating new space for letting and dealing with the associated regulatory requirements.  We expect capex investment in the second half to be slightly higher but below the levels of prior years.  This is indicative of the portfolio maturing and having had significant investment over the last few years.  We also believe that there remains more benefit to be seen from the historic investment.

The adjusted EPS, which excludes property revaluation, related deferred tax and non-controlling interest and change in fair value on derivative financial instruments was 0.96c as at 30 September 2012 (2011: 0.27c). 

Operations

The process of internalising the management team was completed last financial year and the benefits of operating the business from a single unified platform are clear: a lower cost base and a management team better aligned to all stakeholders.

During the period we achieved new lettings of 59,175 sqm at an average rate of €5.32 per sqm.  This is higher than the portfolio average rate per sqm of €4.36 and is important to improving asset value and profitability of the business.  Throughout the period there was around 57,000 sqm of tenant move outs reflecting the previously announced move outs of four sizeable tenants.  However, the rental rate of the vacating tenants was under €4.15 per sqm which is significantly below the rate of new lettings.  Occupancy, as at 30 September 2012, was 76%** (31 March 2012: 77%*) and the higher rates achieved on new lettings and renewals have mostly offset the impact of these move outs. 

* adjusted for disposals and technical leases

** occupancy has reduced despite new lettings matching move outs because of the timing of when the new lettings move in.

Enquiry levels are now consistently exceeding 1,000 per month.  Approximately 84% of enquiries from prospective tenants looking for space are generated online through our website and internet portals.

In line with the Company's strategy, progress has been made with the selective disposal programme of non-core and mature assets. Sirius completed the disposal of the Munich Hofmannstrasse site for €6.8 million and notarised a further €3.2 million of disposals which included a number of pieces of surplus land on existing sites at period end. The disposals have been achieved with the support of PCO Real Estate Asset Management Ltd in line with the Advisory Services Agreement.

We expect that optimising the portfolio combined with refinancing will improve profitability and cash flow as we are retaining the assets that generate the highest returns.  In addition, the asset management team which has accumulated extensive experience of managing German property for the SME market, has the capacity to take on new sites. The systems, methods and expertise we have in sourcing new lettings and managing service charge makes us an attractive supplier of asset and property management services for mixed-use multi-tenant properties.  We have secured two external management contracts and agreed to terms on one other, and we are resourced to source further opportunities.  This will prove a useful source of income for the group.

We expect that the annual overhead cost base will have reduced by €4.6m by March 2013 from March 2010.  We are also anticipating improved recovery on service charge costs of €2.6m in the same period. This has a significant impact on the Company's profitability and will provide a strong base from which the business can grow. Over the last three years, overheads have been reduced as a result of a dedicated cost reduction campaign and service charge recovery has been improved through the optimisation of costs, leases and allocation methods.  The key areas where the service charge improvements have come from are:

·     Implementation of improved leases with most tenants;

·     Increased prepayments from tenants;

·     Optimisation of facility management costs;

·     Bulk purchasing of utilities;

·     Installation of utility meters across all sites;

·     Development of sophisticated cost allocation and monitoring matrixes; and

·     Improved transparency of costs to tenants.

We believe that we manage the service charge area for multi-tenant, mixed-used properties very effectively which not only improves the profitability of the Company but will allow us to generate a third party management revenue stream.

Finance

Our key focus remains to ensure that the business is properly financed for the long term.

The loan facility with Berlin Hannoversche Hypothekenbank AG matures in stages between March 2013 and December 2013.  Without refinancing the loan, the group will not be able to meet the capital repayments as they fall due. The directors have commenced negotiations with Berlin Hannoversche Hypothekenbank AG concerning refinancing of the loan facility. At this stage there has been no indication from Berlin Hannoversche Hypothekenbank AG that the refinancing of the existing loan facility will not be successful.

We agreed on 6 December 2012 an extension to the ABN facility to 30 June 2013. This extension is subject to the facility balance being reduced to certain hurdles on 15 January 2013 and 15 April 2013.

Net Asset Value

DTZ Zadelhoff Tie Leung GmbH have valued the portfolio at €474.0m (31 March 2012: €485.7m).  The €11.7m reduction in value is mainly attributable to asset disposals (€7.1m) or write-downs on properties that are non-core and identified for disposal that have been valued on the basis of a near term sale (€3.8m).

The remaining assets that are not valued for sale carry a value of €452.2m (reduction of €0.8m from March 2012) on net rents of €33.4m giving a net yield of 7.4% (September 2011: 7.1%).

The adjusted NAV per share, which excludes deferred tax and fair value adjustment on financial derivative instruments, was 60.3c as at 30 September 2012 (31 March 2012: 62.1c).

Dividend

The Company is not proposing paying an interim dividend but will continue to review the dividend policy.

Board Changes

On 2 August 2012, Non-executive Directors, Walter Hens, Shelagh Mason and Charles Parkinson resigned from the Board. 

Since the period end, there have been further changes to the Board. Amanda Spring and Justin Schaefer stood down from the Board on 6 November 2012.   Subsequently, James Peggie was appointed as Non-executive Director on 28 November 2012. We look forward to working alongside James during this next phase for the business.

I would like to thank the outgoing Directors for their hard work for the Company and their combined contributions to the business' progress.

Outlook

The Board recognises that great strides have been made in improving the Company's profitability and the effectiveness of its property and asset management.  The key focus going forward is to optimise the portfolio and its financing by finalising discussions with BerlinHyp and other lenders and disposing of the non-core assets.  The result of doing so if successful, would be a portfolio with long term financing generating higher returns for shareholders.  We believe that we are making progress towards achieving these goals and look forward to reporting further progress in the future.

Independent review report

to Sirius Real Estate Limited

Introduction

We have been engaged by the Sirius Real Estate Limited ("the Company") to review the unaudited set of consolidated financial statements in the Interim Report for the six months ended 30 September 2012 which comprises unaudited consolidated statement of comprehensive income, unaudited consolidated statement of financial position, unaudited consolidated statement of changes in equity, unaudited consolidated cash flow statement and the related explanatory notes. We have read the other information contained in Interim Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the unaudited set of consolidated financial statements.

This report is made solely to the Company in accordance with the terms of our engagement. 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 AIM Rules.

As disclosed in note 2(a), the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the EU. The condensed set of unaudited consolidated financial statements included in this Interim Report has been prepared in accordance with the recognition and measurement requirements of IFRS as adopted by the EU.

Our responsibility

Our responsibility is to express to the Company a conclusion on the unaudited set of consolidated 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 unaudited set of consolidated financial statements in the Interim Report for the six months ended 30 September 2012 is not prepared, in all material respects, in accordance with the recognition and measurement requirements of IFRS as adopted by the EU and the AIM Rules.

Emphasis of matter - going concern

In forming our conclusion on the interim consolidated financial statements, which is not modified, we have considered the adequacy of the disclosures made in note 2 to the unaudited set of consolidated financial statements concerning the group's ability to continue as a going concern and the possible outcome of the negotiations with BerlinHyp to refinance the Group's facilities that expire between March and December 2013. The outcome of such negotiations, and the availability of sufficient future finance to the Group is uncertain. These conditions, along with other matters explained in note 2 to the unaudited set of consolidated financial statements, indicate the existence of a material uncertainty which may cast significant doubt on the Group's ability to continue as a going concern. The unaudited set of consolidated financial statements do not include the adjustments that would result if the group were unable to continue as a going concern.

KPMG Channel Islands Limited

Chartered Accountants

Guernsey

14 December 2012

Unaudited consolidated statement of comprehensive income for the six months ended 30 September 2012	Notes	(Unaudited) six months ended 30 September 2012 €000	(Unaudited) six months ended 30 September 2011 €000	(Audited) twelve months ended 31 March 2012 €000
Rental income	4	23,886	22,078	45,745
Direct costs	5	(8,883)	(9,858)	(20,153)
Net rental income		15,003	12,220	25,592
Deficit on revaluation of investment properties	12	(7,867)	(19,387)	(27,349)
(Loss)/gain on disposal of properties		(719)	-	645
Administrative expenses	5	(1,641)	(1,729)	(5,650)
Other operating expenses	5	(1,190)	(1,099)	(2,247)
Operating profit/(loss)		3,586	(9,995)	(9,009)
Finance income	8	15	82	135
Finance expense	8	(8,480)	(8,917)	(17,665)
Change in fair value of derivative financial instruments		(660)	(4,201)	(4,575)
Loss before tax		(5,539)	(23,031)	(31,114)
Taxation	9	(1,550)	(177)	(611)
Loss for the period		(7,089)	(23,208)	(31,725)
Loss attributable to:
Owners of the Company		(7,082)	(22,929)	(31,248)
Non‑controlling interest		(7)	(279)	(477)
Loss for the period		(7,089)	(23,208)	(31,725)
Earnings per share
Basic and diluted, for comprehensive income for the period attributable to ordinary equity holders of the Parent Company	10	(2.23)c	(7.59)c	(10.25)c

The notes form an integral part of these financial statements.

Unaudited consolidated statement of financial position as at 30 September 2012	Notes	(Unaudited) 30 September 2012 €000	(Unaudited) 30 September 2011 €000	(Audited) 31 March 2012 €000
Non‑current assets
Investment properties	12	446,355	491,960	476,780
Plant and equipment		3,067	3,349	3,438
Goodwill	14	3,738	-	3,738
Total non‑current assets		453,160	495,309	483,956
Current assets
Trade and other receivables		7,780	6,775	9,704
Prepayments		702	483	339
Derivative financial instruments	18	1	25	4
Cash and cash equivalents	15	7,115	12,613	9,145
Investment property held for sale	13	26,501	-	9,340
Total current assets		42,099	19,896	28,532
Total assets		495,259	515,205	512,488
Current liabilities
Trade and other payables	16	(17,326)	(14,580)	(20,634)
Interest‑bearing loans and borrowings	17	(246,244)	(7,842)	(189,333)
Current tax liabilities		(712)	(67)	(65)
Derivative financial instruments	18	(14,515)	(13,505)	(13,858)
Total current liabilities		(278,797)	(35,994)	(223,890)
Non‑current liabilities
Interest‑bearing loans and borrowings	17	(39,489)	(290,576)	(105,214)
Deferred tax liabilities	9	(2,793)	(1,863)	(2,115)
Total non‑current liabilities		(42,282)	(292,439)	(107,329)
Total liabilities		(321,079)	(328,433)	(331,219)
Net assets		174,180	186,772	181,269
Equity
Issued share capital	19	-	-	-
Other distributable reserve		303,625	300,111	303,625
Retained earnings		(129,480)	(114,079)	(122,398)
Total equity attributable to the equity holders of the Parent Company		174,145	186,032	181,227
Non‑controlling interests		35	740	42
Total equity		174,180	186,772	181,269

The notes form an integral part of these financial statements.

The financial statements were approved by the Board of Directors on 13 December 2012 and were signed on its behalf by:

Robert Sinclair

Director

Unaudited consolidated statement of changes  in equity for the six months ended 30 September 2012	Issued share capital €000		Other distributable reserve €000	Retained earnings €000	Total equity attributable to the equity holders of the Parent Company €000	Non‑controlling interests €000	Total equity €000
As at 31 March 2011		-	300,111	(91,150)	208,961	1,019	209,980
Loss for the period		-	-	(22,929)	(22,929)	(279)	(23,208)
As at 30 September 2011		-	300,111	(114,079)	186,032	740	186,772
Treasury shares issued Acquisition of non-controlling interest Share-based payment transactions Loss for the period		- - - -	3,187 263 64 -	- - - (8,319)	3,187 263 64 (8,319)	- (500) - (198)	3,187 (237) 64 (8,517)
As at 31 March 2012		-	303,625	(122,398)	181,227	42	181,269
Loss for the period		-	-	(7,082)	(7,082)	(7)	(7,089)
As at 30 September 2012		-	303,625	(129,480)	174,145	35	174,180

The notes on form an integral part of these financial statements.

Unaudited consolidated statement of cash flows for the six months ended 30 September 2012	(Unaudited) six months ended 30 September 2012 €000		(Unaudited) six months ended 30 September 2011 €000	(Audited) twelve months ended 31 March 2012 €000
Operating activities
Loss before tax	(5,539)		(23,031)	(31,114)
Loss/(gain) on sale of properties	719		-	(645)
Adjustments for: Share-based payments	-		-	64
Deficit on revaluation of investment properties	7,867		19,387	27,349
Change in fair value of derivative financial instruments	660		4,201	4,575
Depreciation	501		418	853
Finance income	(15)		(82)	(135)
Finance expense	8,480		8,917	17,665
Cash flows from operations before changes in working capital		12,673	9,810	18,612
Changes in working capital
Decrease/(increase) in trade and other receivables	1,561		248	(1,971)
(Decrease)/increase in trade and other payables	(3,387)		(2,461)	2,556
Taxation paid	(224)		(877)	(833)
Cash flows from operating activities	10,623		6,720	18,364
Investing activities
Cost of internalisation of the asset management agreement	-		-	(1,337)
Cash acquired in companies internalised	-		-	409
Development expenditure	(1,609)		(4,829)	(7,390)
Purchase of plant and equipment	(125)		(276)	(364)
Proceeds on disposal of properties	6,367		-	1,074
Interest received	15		82	135
Cash flows used in investing activities	4,648		(5,023)	(7,473)
Financing activities
Repayment of loans	(9,353)		(4,334)	(8,743)
Finance charges paid	(7,948)		(8,333)	(16,586)
Cash flows from financing activities	(17,301)		(12,667)	(25,329)
Decrease in cash and cash equivalents	(2,030)		(10,970)	(14,438)
Cash and cash equivalents at the beginning of the period	9,145		23,583	23,583
Cash and cash equivalents at the end of the period	7,115		12,613	9,145

The notes form an integral part of these financial statements.

Notes forming part of the financial statements

for the six months ended 30 September 2012

1. General information

Sirius Real Estate Limited (the "Company") is a company incorporated and domiciled in Guernsey whose shares are publicly traded on AIM.

The consolidated financial statements of Sirius Real Estate Limited comprise the Company and its subsidiaries (together referred to as the "Group").

The principal activity of the Group is investment in and development of commercial property to provide flexible workspace in Germany.

The consolidated financial statements of the Group as at and for the year ended 31 March 2012 are available upon request from the Company's registered office at PO Box 119, Martello Court, Admiral Park, St. Peter Port, Guernsey GY1 3HB, Channel Islands or at www.sirius‑real‑estate.com.

2. Significant accounting policies

(a) Basis of preparation

The consolidated financial statements have been prepared on a historical cost basis, except for: investment properties and derivative financial instruments which have been measured at fair value. The consolidated financial statements are presented in euros and all values are rounded to the nearest thousand (€000) except where otherwise indicated.

The consolidated financial statements of the Group for the year ended 31 March 2012 have been prepared in accordance with IFRSs as adopted by the EU and The Companies (Guernsey) Law, 2008. The interim set of consolidated financial statements included in this Interim Report has been prepared in accordance with the recognition and measurement requirements of IFRSs as adopted by the EU. The interim set of financial statements has been prepared applying the accounting policies and presentation that were applied in the preparation of the Company's published consolidated financial statements for the year ended 31 March 2012. They do not include all of the information required for 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 2012.

Going concern

The Group's business activities, financial position including borrowing facilities and factors likely to affect its future development are described in the Chairman's statement.

The Group reported a loss before tax for the period of €5.5m and net current liabilities of €236.7m. The Group's property portfolios are mainly funded by external debt facilities. The loan facility with the ABN of €85.3m matured in October 2012 and the loan facility with Berlin Hannoversche Hypothekenbank AG of €200.9m matures in stages between March 2013 and December 2013.  The Directors consider that the outlook presents some challenges in terms of refinancing the Group's existing loan facilities and realising cash by disposing of non-core and mature assets and will therefore be regularly reviewing the strategy in place to achieve this. Whilst the Directors have instituted measures to preserve cash and secure additional finance, these circumstances create uncertainties over future cash flows.

The Directors note the following in their deliberations on whether the going concern basis is appropriate for the financial statements:

Loan facility with Berlin Hannoversche Hypothekenbank AG

The loan facility with Berlin Hannoversche Hypothekenbank AG matures in stages between March 2013 and December 2013.  Without refinancing the loan, the group will not be able to meet the capital repayments as they fall due. The directors have commenced negotiations with Berlin Hannoversche Hypothekenbank AG concerning refinancing of the loan facility. At this stage there has been no indication from Berlin Hannoversche Hypothekenbank AG that the refinancing of the existing loan facility will not be successful. The cash balance at 30 September 2012 was €7.1m. Based on its current strategy, following internalisation and the improvements in profit generated by the management team over the last two years, the Directors anticipate that the Group will be able to generate sufficient operating profit over the next 18 months to service its debts including amortisation assuming the refinancing and disposal of properties occurs in the expected timeframe.

The Directors have concluded that the circumstances detailed above represent a material uncertainty that casts significant doubt upon the Group's ability to continue as a going concern and that, therefore, the Group may be unable to realise its assets and discharge its liabilities in the normal course of business.  Nevertheless, after making enquiries and considering the uncertainties described above, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.  For these reasons, they continue to adopt the going concern basis of accounting in preparing the annual financial statements.  

 (b) Basis of consolidation

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 30 September 2012. The financial statements of the subsidiaries are prepared for the same reporting period as the Parent Company, using consistent accounting policies.

All intra‑group balances and transactions and any unrealised income and expenses and profits and losses arising from intra‑group transactions are eliminated in preparing the consolidated financial statements.

Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases.

Non‑controlling interests represent the portion of profit or loss and net assets not held by the Group and are presented separately in the consolidated statement of comprehensive income and within equity in the consolidated statement of financial position, separately from the Parent Company shareholders' equity.

(c) Significant accounting policies

The accounting policies applied by the Group in these consolidated financial statements are the same as those applied by the Group in its consolidated financial statements as at and for the year ended 31 March 2012.

3. Operating segments

Segment information is presented in respect of the Group's operating segments. The operating segments are based on the Group's management and internal reporting structure. Segment results and assets include items directly attributable to a segment as well as those that can be allocated to a segment on a reasonable basis.

Management considers that there is only one geographical segment which is Germany and one business segment which is investment in commercial property.

4. Revenue

	(Unaudited) six months ended 30 September 2012 €000	(Unaudited) six months ended 30 September 2011 €000	(Audited) twelve months ended 31 March 2012 €000
Rental income from investment properties	23,886	22,078	45,745

5. Operating profit/(loss)

The following items have been charged or credited in arriving at operating profit/(loss):

Direct costs

	(Unaudited) six months ended 30 September 2012 €000	(Unaudited) six months ended 30 September 2011 €000	(Audited) twelve months ended 31 March 2012 €000
Service charge income	(14,379)	(15,088)	(30,611)
Property costs	23,202	22,503	46,854
Irrecoverable property costs	8,823	7,415	16,243
Property management fee	60	877	1,595
Asset management fee	-	1,518	2,249
Development fee	-	48	66
Direct costs	8,883	9,858	20,153

Administrative expenses

	(Unaudited) six months ended 30 September 2012 €000	(Unaudited) six months ended 30 September 2011 €000	(Audited) twelve months ended 31 March 2012 €000
Audit fee	166	112	247
Legal and professional fees	979	936	1,827
Other administration costs	282	320	835
Non‑recurring costs	214	361	2,741
Administrative expenses	1,641	1,729	5,650

Other operating expenses

	(Unaudited) six months ended 30 September 2012 €000	(Unaudited) six months ended 30 September 2011 €000	(Audited) twelve months ended 31 March 2012 €000
Directors' fees	126	106	267
Bank fees	58	54	98
Depreciation	501	418	853
Marketing and other expenses	505	521	1,029
Other operating expenses	1,190	1,099	2,247

The Group has 161 full‑time employees. The employees working for the Group are all employed by Sirius Facilities GmbH and Sirius Facilities (UK) Limited, both group subsidiary companies.

The Board of Directors consisted of nine members at the beginning of the reporting period.  Non-executive Directors Walter Hens, Shelagh Mason and Charles Parkinson resigned from the Board on 2 August 2012.  As a result, the number of Sirius Non-executive Board members was reduced from nine to six. At the Company's Annual General Meeting on 6 November 2012 resolutions relating to the re-election as Directors of Amanda Spring and Justin Schaefer were not passed. As a result, Amanda Spring and Justin Schaefer stood down from the Board, subsequently, James Peggie was appointed as Non-executive Director on 28 November 2012.

6. Employee costs and numbers

	(Unaudited)	(Audited)
	Six months	Twelve months
	ended	ended
	30 September	31 March
	2012	2012
	€000	€000
Wages and salaries	3,241	958
Social security costs	525	173
Other employment costs	65	87
	3,831	1,218

Since the internalisation of the Asset Management Agreement on 30 January 2012, all employees are employed directly by the Group. The average number of persons employed by the Group in the reporting period was 161.

7. Equity-settled share-based payments

In the prior year the Group established a Sirius long-term incentive scheme for the benefit of certain key management personnel. As a result, 300,000 shares were granted but not allotted to the personnel involved in the scheme as of 31 March 2012. An expense of €63,750 was recognised in the consolidated statement of comprehensive income to 31 March 2012.

During the reporting period, these 300,000 shares were allotted to the management personnel in the scheme.

 8. Finance income and expense

	(Unaudited) six months ended 30 September 2012 €000	(Unaudited) six months ended 30 September 2011 €000	(Audited) twelve months ended 31 March 2012 €000
Bank interest income	15	82	135
Finance income	15	82	135
Bank interest expense	(7,948)	(8,380)	(16,590)
Amortisation of capitalised finance costs	(532)	(537)	(1,075)
Finance expense	(8,480)	(8,917)	(17,665)
Net finance expense	(8,465)	(8,835)	(17,530)

9. Taxation

Consolidated statement of comprehensive income

	(Unaudited) six months ended 30 September 2012 €000	(Unaudited) six months ended 30 September 2011 €000	(Audited) twelve months ended 31 March 2012 €000
Current income tax
Current income tax charge	(745)	(178)	(85)
Adjustments in respect of prior period	(127)	(60)*	(334)
	(872)	(238)	(419)
Deferred tax
Relating to origination and reversal of temporary differences	(678)	61	(192)
Income tax charge reported in the statement of comprehensive income	(1,550)	(177)	(611)

Deferred income tax liability

	(Unaudited) six months ended 30 September 2012 €000	(Unaudited) six months ended 30 September 2011 €000	(Audited) twelve months ended 31 March 2012 €000
Opening balance	2,115	1,924	1,924
Charge/(credit) to income statement **	678	(61)	191
Balance as at period end	2,793	1,863	2,115

* This relates to refunds of prior year tax which was not included in the March 2011 accrual.

** Movement refers to the revaluation of investment properties to fair value, the recognition of derivatives and adjustments for lease incentives (e.g. rent free periods).

Management does not recognise deferred tax assets in respect of revaluation losses as they may not be used to offset taxable profits elsewhere in the Group.

10. Earnings per share

The calculation of the basic, diluted and adjusted earnings per share is based on the following data:

	(Unaudited) six months ended 30 September 2012 €000	(Unaudited) six months ended 30 September 2011 €000	(Audited) twelve months ended 31 March 2012 €000
Earnings
Loss for the period attributable to the equity holders of the parent	(7,082)	(22,929)	(31,248)
Basic and diluted earnings	(7,082)	(22,929)	(31,248)
Add back revaluation deficits (net of related tax)	8,545	19,196	27,349
Add back change in fair value of derivative financial instruments	660	4,201	4,575
Add back non‑recurring costs	214	361	2,741
Loss/(gain) on sale on properties	719	-	(645)
Adjusted earnings	3,056	829	2,772
Number of shares
Weighted average number of ordinary shares for the purpose of basic and diluted earnings per share	317,523,176	302,223,176	304,773,176
Weighted average number of ordinary shares for the purpose of adjusted earnings per share	317,523,176	302,223,176	304,773,176
Basic and diluted earnings per share	(2.23)c	(7.59)c	(10.25)c
Adjusted earnings per share	0.96c	0.27c	0.91c

The number of shares has been adjusted for the 10,276,824 shares held by the Company as Treasury Shares.

The Directors have chosen to disclose adjusted earnings per share in order to provide a better indication of the Group's underlying business performance; accordingly it excludes the effect of non‑recurring costs, deferred tax and the revaluation deficits on the investment properties and derivative instruments.

As there are no share options in issue, the diluted earnings per share are identical to the basic earnings per share.

11. Net assets per share

	(Unaudited) 30 September 2012 €000	(Unaudited) 30 September 2011 €000	(Audited) 31 March 2012 €000
Net assets
Net assets for the purpose of assets per share (assets attributable to the equity holders of the parent)	174,145	186,032	181,227
Deferred tax arising on revaluation of properties	2,793	1,863	2,115
Derivative financial instruments	14,514	13,480	13,854
Adjusted net assets attributable to equity holders of the parent	191,452	201,375	197,196
Number of shares
Number of ordinary shares for the purpose of net assets per share	317,523,176	302,223,176	317,523,176
Net assets per share	54.84c	61.55c	57.08c
Adjusted net assets per share	60.30c	66.63c	62.10c

The number of shares has been adjusted for the 10,276,824 shares held by the Company as Treasury Shares.

12. Investment properties

A reconciliation of the valuation carried out by the external valuer to the carrying values shown in the statement of financial position is as follows:

	(Unaudited) 30 September 2012 €000	(Unaudited) 30 September 2011 €000	(Audited) 31 March 2012 €000
Investment properties at market value	474,000	491,960	485,740
Adjustment in respect of lease incentives	(2,092)	-	(1,900)
Reclassified as investment properties held for sale	(25,553)	-	(7,060)
Balance as at period end	446,355	491,960	476,780

The fair value of the Group's investment properties at 30 September 2012 has been arrived at on the basis of a valuation carried out at that date by DTZ Zadelhoff Tie Leung GmbH, an independent valuer.

The value of each of the properties has been assessed in accordance with the RICS Valuation Standards on the basis of market value. Market value was primarily derived using a ten‑year discounted cash flow model supported by comparable evidence. The discounted cash flow calculation is a valuation of rental income considering non‑recoverable costs and applying a discount rate for the current income risk over a ten‑year period. After ten years a determining residual value (exit scenario) is calculated. A cap rate is applied to the more uncertain future income, discounted to a present value.

The weighted average lease duration was three years.

As a result of the level of judgement used in arriving at the market valuations, the amounts which may ultimately be realised in respect of any given property may differ from the valuations shown in the statement of financial position.

The movement on the valuation of the investment properties of market value per the valuer's report is as follows:

	(Unaudited) 30 September 2012 €000	(Unaudited) 30 September 2011 €000	(Audited) 31 March 2012 €000
Total investment properties at market value per valuer's report as at 1 April	485,740	505,500	505,500
Additions and subsequent expenditure	1,664	5,847	7,969
Adjustment in respect of lease incentives Disposals Reclassified as held for sale Deficit on revaluation Write-downs to selling price recorded in Deficit on revaluation	191 (7,060) - (7,867) 1,333	- - - (19,387) -	1,900 -  (2,280) (27,349) -
Total investment properties at market value per valuers' report as at end of period	474,000	491,960	485,740

The Munich-Hofmannstr site was revalued at March 2012 by DTZ Zadelhoff Tie Leung GmbH at the anticipated disposal value and classified as asset held for sale. During the reporting period the asset was sold for gross proceeds of €6,845,000 so the resulting loss on the disposal of €718,987 reflects a slight reduction in price and disposal costs which were not factored into the valuation.

13. Investment properties held for sale

	(Unaudited) 30 September 2012 €000	(Unaudited) 30 September 2011 €000	(Audited) 31 March 2012 €000
Bonn Königswinter building	830	-	830
Bonn Königswinter buildings & land Munich Hofmannstr. site Berlin Breitenbachstr. site Bremen Brinkmann land Berlin Gartenfeldstr. land Merseburg McDonalds building Bremen Doetlingerstr. site Leinfelden - Echterdingen site Bonn Königswinter rest of site Troisdorf site Bonn-Siemensstr. land	1,450 - 2,344 187 1,975 1,029 8,653 5,188 2,366 1,673 620	- - - - - - - - - - -	1,450 7,060 - - - - - - - -                                -
Bonn-Siemensstr. land	186	-	-
Balance as at period end	26,501	-	9,340

At 31 March 2012 an agreement was reached to dispose of a building at the Bonn Koenigswinter site for €900,000, with a book value of €830,000. The disposal has been notarised and subject to being included on the land register, it will be completed in the next period.

At 31 March 2012 an agreement was made to dispose of two buildings at the Bonn Koenigswinter site for €1,450,000. Legal conditions are being finalised and the disposal will complete in the next period.

At 12 July 2012, the Company reached an agreement to dispose of the property at the Berlin Breitenbachstr. Site for  €2,343,875. The agreement closed and the property transferred on 2 October 2012.

At 14 August 2012, the Company reached an agreement to dispose of a section of land at the Bremen Brinkmann site for  €187,000. The disposal has been notarised and subject to being included on the land register, it will be completed in the next period.

At 9 July 2012, the Company reached an agreement to dispose of three sections of land totalling 6,100 sqm at the Bonn Siemensstr. site for  €620,000. The disposal has been notarised and completed in the next period.

At 30 October 2012, the Company reached an agreement to dispose of a further 2,743 sqm of land at the Bonn Siemensstr. site for  €186,725. The disposal has been notarised and subject to being included on the land register, it will be completed in the next period.

On 13 December 2012, the Company sold the remainder of the Königswinter site and the Troisdorf site for a total of €4,100,000.  The Königswinter site is 70% occupied with current annual rent of €210,132 and net lettable area of 6,975 sqm.  The Troisdorf site in 76% occupied with current annual rent of €267,709 and net lettable area of 3,595 sqm. The transaction has been notarised and will close in the next period.

In December 2012, the Company sold one building and 27,321 sqm of land at the Berlin Gartenfeld site for €1,980,773. The transaction will be notarised and completed in the next period.

In  December 2012, the Company sold a 667 sqm stand-alone building on the Merseburg site for €1,050,000.  The transaction will be notarised and completed in the next period.  The tenant in the building is McDonalds.

The Company is in advanced negotiations to sell the Bremen Doetlingerstr site for €8,750,000.  The non-core site consists of four buildings used for office and retail with net lettable area of 10,618 sqm. The site is 75% occupied with the main tenant EWE Immobilien GmbH.  The transaction will be notarised and completed in the next period.

The Company is in advanced negotiations to sell the Leinfelden-Echterdingen site for €5,250,000.  This core site consists of one building for industrial, office and storage use with net lettable area of 10,239 sqm. The site is 88% occupied with the main tenant Leutron GmbH.  The transaction will be notarised and completed in the next period.

14. Goodwill

	(Unaudited) 30 September 2012 €000	(Unaudited) 30 September 2011 €000	(Audited) 31 March 2012 €000
Opening balance	3,738	-	-
Additions	-	-	3,738
Impairment	-	-	-
Closing balance	3,738	-	3,738

On 30 January 2012 a transaction was completed to internalise the Asset Management Agreement and as a result of the consideration given exceeding the net assets acquired, goodwill of €3,738,000 was recognised. Current business plans indicate that the balance is unimpaired.

15. Cash and cash equivalents

	(Unaudited) 30 September 2012 €000	(Unaudited) 30 September 2011 €000	(Audited) 31 March 2012 €000
Cash at banks and in hand	7,115	12,613	9,145
Balance as at period end	7,115	12,613	9,145

The fair value of cash is €7,115,094 (31 March 2012: €9,144,770).

As at 30 September 2012 €5,441,022 (31 March 2012: €5,572,909) of cash is held in blocked accounts. Of this €2,238,250 (31 March 2012: €2,332,317) relates to deposits received from tenants. An amount of €15,500 (31 March 2012: €15,625) is cash held on escrow as requested by a supplier and €115,096 (31 March 2012: €153,596) is held in a restricted account for office rent deposit. An amount of €3,072,176 (31 March 2012: €3,071,371) relates to amounts reserved for future bank loan interest and amortisation payments.

16. Trade and other payables

	(Unaudited) 30 September 2012 €000	(Unaudited) 30 September 2011 €000	(Audited) 31 March 2012 €000
Trade payables	4,541	3,785	6,080
Accrued expenses	6,266	5,267	6,840
Accrued interest	1,052	1,154	1,111
Other payables	5,467	3,976	6,603
Related party payables	-	398	-
Balance as at period end	17,326	14,580	20,634

17. Interest‑bearing loans and borrowings

	Effective interest rate %	Maturity	(Unaudited) 30 September 2012 €000	(Unaudited) 30 September 2011 €000	(Audited) 31 March 2012 €000
Current
ABN Amro Loan	5.85	15 October 2012	85,323	2,186	91,217
Berlin‑Hannoversche Hypothekenbank AG - fixed rate facility	5.46	31 March 2013	48,990	1,325	49,661
Berlin‑Hannoversche Hypothekenbank AG - hedged floating rate facility	Hedged floating	31 March 2013 - 30 June 2013	111,001	4,135	47,937
Berlin‑Hannoversche Hypothekenbank AG - capped floating rate facility	Capped floating	31 December 2013	1,383	1,323	1,360
Capitalised finance charges on all loans			(453)	(1,127)	(842)
			246,244	7,842	189,333
Non‑current
ABN Amro Loan	5.85	15 October 2012	-	90,116	-
Berlin‑Hannoversche Hypothekenbank AG - fixed rate facility	5.46	31 March 2013	-	48,990	-
Berlin‑Hannoversche Hypothekenbank AG - hedged floating rate facility	Hedged floating	31 March 2013 - 30 June 2013	-	111,001	65,172
Berlin‑Hannoversche Hypothekenbank AG - capped floating rate facility	Capped floating	31 December 2013	39,542	40,925	40,245
Capitalised finance charges on all loans			(53)	(456)	(203)
			39,489	290,576	105,214
Total			285,733	298,418	294,547

The Group has pledged 33 (31 March 2012: 34) investment properties to secure related interest‑bearing debt facilities granted to the Group. The 33 (31 March 2012: 34) properties had a combined valuation of €438,733,976 as at 30 September 2012 (31 March 2012: €450,660,000).

ABN Amro Bank N.V.

This facility had €100,951,940 drawn down, of which €15,629,082 has been amortised to date, resulting in a liability of €85,322,858 as at 30 September 2012. The interest is fixed at a weighted average interest rate of 5.85% per annum. The final repayment date was 15 October 2012. This loan is secured over 15 (as of 28 November 2012: 14) property assets and is subject to various covenants with which the Group has complied.

The Company agreed on 6 December 2012 an extension to the ABN Amro ("ABN") facility to 30 June 2013. This extension is subject to the facility balance being reduced to certain hurdles on 15 January 2013 and 15 April 2013.

Berlin‑Hannoversche Hypothekenbank AG

Facilities of €226,500,000 have been granted by Berlin‑Hannoversche Hypothekenbank AG. To date €25,584,138 has been amortised, resulting in a liability of €200,915,862 at September 2012.

The facility is split into three portfolios: Portfolio I is split with either an interest rate of 1.18 margin over three months EURIBOR fixed by a SWAP at 4.42%, or a fixed rate of 5.46%. Portfolio II has an interest rate of 1.08 margin over three months EURIBOR fixed by a SWAP at 4.95% plus 108 bps margin.  This SWAP agreement extends till June 2018 whereas the facility has a break at June 2013.  The value of this SWAP in the accounts is a liability of €13.6m.Portfolio III is at a floating rate with a margin and liquidity fee of 2.08% over three months EURIBOR but is capped at 5.98%. The entire facility is secured over 18 property assets and is subject to various covenants with which the Group has complied.

The loan facility with Berlin‑Hannoversche Hypothekenbank AG matures in stages between March 2013 and December 2013. The Company is in discussions with Berlin‑Hannoversche Hypothekenbank AG concerning refinancing of the loan facility and settlement of the SWAP agreements. 

18. Financial instruments

Fair values

Set out below is a comparison by category of carrying amounts and fair values of all the Group's financial instruments that are carried in the financial statements:

	(Unaudited) 30 September 2012		(Unaudited) 30 September 2011		(Audited) 31 March 2012
	Carrying amount €000	Fair value €000	Carrying amount €000	Fair value €000	Carrying amount €000	Fair value €000
Financial assets
Cash	7,115	7,115	12,613	12,613	9,145	9,145
Derivative financial instruments	1	1	25	25	4	4
Trade receivables	2,310	2,310	3,661	3,661	4,771	4,771
Financial liabilities
Trade payables	4,541	4,541	3,785	3,785	6,080	6,080
Derivative financial instruments	14,515	14,515	13,505	13,505	13,858	13,858
Interest‑bearing loans and borrowings:
Floating rate borrowings - hedged[*]	111,001	111,001	115,136	115,136	113,108	113,108
Floating rate borrowings - capped[**]	40,925	40,925	42,248	42,248	41,605	41,605
Fixed rate borrowings	134,313	135,252	142,616	145,575	140,878	144,295

* The Group holds interest rate swap contracts designed to manage the interest rate and liquidity risk of expected cash flows of borrowing for the Group's variable rate facility with Berlin‑Hannoversche Hypothekenbank AG. The swap contracts mature between March 2013 and June 2018.

** The Group holds interest rate caps designed to manage the interest rate and liquidity risk of expected cash flows of borrowing for the Group's variable rate facility with Berlin‑Hannoversche Hypothekenbank AG. The cap contracts mature at December 2013, the same time as the loans.

19. Issued share capital

	Number	Share capital
Authorised
Ordinary shares of no par value	Unlimited	-
As at 30 September 2012	Unlimited	-
Issued and fully paid
Ordinary shares of no par value	327,800,000	-
Shares bought back and held in treasury	(10,276,824)	-
As at 30 September 2012	317,523,176	-

Holders of the ordinary shares are entitled to receive dividends and other distributions and to attend and vote at any general meeting.

The Company holds 10,276,824 of its own shares, which continue to be held as treasury. No share buybacks were made in the period.

20. Dividends

In order to sustain investment in the Group's portfolio whilst also ensuring cash resources are preserved, the Board has proposed to not pay a dividend in the period ended 30 September 2012.

21. Capital commitments

As at 30 September 2012 the Group had contracted capital expenditure on existing properties of €982,539. These were committed but not yet provided for.

Shareholders Information and Corporate Details

Directors

Robert Sinclair (Non-executive Chairman)

Wessel Hamman (Non-executive Director)

Ian Clarke (Non-executive Director)

Rolf Elgeti (Non-executive Director)

James Peggie (Non-executive Director)

Registered office

PO Box 119

Martello Court

Admiral Park

St. Peter Port

Guernsey GY1 3HB

Channel Islands

www.sirius-real-estate.com

Registered number

Incorporated in Guernsey under The Companies (Guernsey) Laws, 2008, as amended, under number 46442

Company secretary and administrator

Intertrust Fund Services (Guernsey) Limited

PO Box 119

Martello Court

Admiral Park

St. Peter Port

Guernsey GY1 3HB

Channel Islands

Nominated adviser and broker

Peel Hunt LLP

Moor House

120 London Wall

London EC2Y 5ET

Property valuers

DTZ Zadelhoff
Tie Leung GmbH

Eschersheimer

Landstrasse 6

60322 Frankfurt am Main

Germany

Auditors

KPMG Channel Islands Limited

20 New Street

St. Peter Port

Guernsey GY1 4AN

Channel Islands

Guernsey solicitors

Carey Olsen

PO Box 98

7 New Street

St. Peter Port

Guernsey GY1 4BZ

Channel Islands

UK solicitors

Norton Rose LLP

3 More London Riverside

London SE1 2AQ

 

END

 

 

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