28 June 2023

SCHRODER EUROPEAN REAL ESTATE INVESTMENT TRUST PLC

("SEREIT"/ the "Company" / "Group")

HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 31 MARCH 2023

Continental Europe occupier trends and portfolio indexation underpins valuation resilience; dividend to be rebased to reflect rising interest rate backdrop and capital deployment strategy

Schroder European Real Estate Investment Trust plc, the company investing in European growth cities and regions, announces its half year results for the six months ended 31 March 2023.

50 basis points of outward yield movement, partially offset by asset management initiatives, supports portfolio valuation resilience:

·    Net Asset Value ("NAV") total return of -4.7% based on an IFRS loss of €8.7 million (31 March 2022: 5.5% total return / €10.9 million IFRS profit), predominantly driven by market wide outward yield shift as a result of interest rate increases

·      Underlying EPRA earnings increased over 50% to €3.8 million (31 March 2022: €2.5 million)

·     Strong balance sheet with cash reserves of €23 million and loan to value (LTV) of 32% gross of cash and 23% net of cash. Average cost of drawn debt (interest-only) of 2.5%

·    In Q4 2022, the Company's management team completed the early refinancing of its largest debt facility at a modest 85bp margin with no covenants for five years. Loan principal was extended from €14m to €18m to provide additional balance sheet flexibility.

Decision to rebase dividend to provide full cover reflects refinancing cost uncertainty and patient capital deployment strategy:

·    Announcement of a second interim dividend of 1.85 euro cents per share ("cps"), bringing the total dividends declared relating to the six months of the current financial year to 3.7 euro cps, c.80% covered by recurring earnings

·   Reflecting the potential impact of higher interest costs on the Company's earnings and more patient capital deployment strategy, the quarterly target minimum dividend will be rebased to 1.48 euro cps per quarter (80% of the previous level), commencing with the third interim dividend payable in October 2023. This will allow management to be more patient deploying cash reserves into attractive investment opportunities that are likely to arise, as well as enabling the immediate payment of a fully covered dividend.

Attractive indexation characteristics and strong occupational demand to drive earnings growth:

·    Direct property portfolio independently valued at €220.2 million, reflecting a -4.6%, or €9.7 million, like-for-like decrease over the period

·      Increased portfolio exposure to high growth industrial sector with c.€11 million acquisition of an award winning property in Alkmaar, the Netherlands, with excellent sustainability credentials, including on site renewable energy and EPC rating of A+

·     Concluded eight new leases and re-gears totalling c. 2,000 sqm generating €0.4 million of contracted rent, at a weighted lease term of three years

·      Further improvement to the portfolio's sustainability credentials including:

·      BREEAM certification for the Stuttgart office

·      Advancement of on-site renewable energy at Houten industrial investment

·      c. 80% of landlord-procured electricity on renewable energy and improved tenant data collection and education

·      100% of rent due collected

·      100% of the portfolio leases indexed to inflation, including 80% annually

Sir Julian Berney Bt., Chairman, commented:

"Notwithstanding the economic headwinds, the Board is pleased by the portfolio's sector and winning city allocations, strong rent collection and indexation characteristics, which together with management's asset management expertise has enhanced valuation resilience versus the UK-focused listed peer group. The Board, however, is clear in its intention to be prudent in deploying the remaining investment capacity, retaining capital in the short term and rebasing the dividend to a quarterly minimum dividend of 80% of the current level. Whilst the current wider market uncertainty persists, this is a proactive move that we are convinced will protect shareholder value over the long term, providing significant flexibility and enabling us to pay a covered dividend that can be grown over time."

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

"Whilst we continue to operate in an environment where the pricing of risk, value and liquidity is challenging, the Company is well positioned, with a strong balance sheet and an ability to refinance on the best available terms as and when required. Recognising evolving occupier trends, our near-term capital deployment will be focused on select sustainability-led capex initiatives in the current portfolio, which we believe will best optimise earnings growth and asset liquidity, thereby driving longer term returns."

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

http://www.rns-pdf.londonstockexchange.com/rns/1132E_1-2023-6-27.pdf

The Company has submitted a pdf of the hard copy format of the Half Year Report to the National Storage Mechanism and it will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

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

Enquiries:

A presentation for analysts and investors will be held at 9.00 a.m. BST/10.00 a.m. SAST today. Registration for which can be accessed via:

https://registration.duuzra.com/form/SEREInterim

If you would like to attend, please contact James Lowe at Schroders on james.lowe@schroders.com or +44 (0)20 7658 2083.

Half Year Report and Condensed Consolidated Interim Financial Statements for the six month period ended 31 March 2023

Chairman's Statement

Overview

I am pleased to report the unaudited interim results for the six month period ended 31 March 2023. Against a challenging backdrop, the Company has delivered a relatively good set of financial results, underpinned by strong occupancy, the portfolio's indexation characteristics and the quality of assets in Winning Cities and Regions of Continental Europe. The NAV total return was -4.7% over the period and reflected a €11.8 million decline in the portfolio value, net of capex and tenant incentives, or -5.1% on a like-for-like basis. Commercial real estate values have been falling across the UK and Europe as a result of general economic and political uncertainty, investors' pricing of risk and availability and cost of financing.

Rent collection has been strong and, excluding Seville, stands at 100% for the six months to 31 March 2023, demonstrating the strength of underlying covenants. Overall, the Board is pleased with the resilience of the portfolio and the Investment Manager's efforts in delivering on its asset management programme. Having a diversified portfolio with local management teams who truly understand their local markets and with a strong track record in managing sustainability improvements will be increasingly important in managing risk and protecting shareholder value.

Whilst we have witnessed yields across the portfolio deteriorate by 50 basis points ('bp'), this has been offset by positive indexation assisting with rental growth. Whilst this valuation decline compares very favourably with the UK-listed peer group, there remains considerable uncertainty over the pace at which investor sentiment will rebound in a meaningful way, given the persistently high interest rate environment. Whilst the Company's strong cash position and operational resilience enabled the quarterly dividend of 1.85 euro cents per share to be maintained in the financial period, we have consistently stated that we would review the dividend position taking into account portfolio occupancy, rent collection levels, market sentiment, refinancing and dividend cover. Despite the Company being in a robust position with regard to a number of these metrics, the unprecedented macroeconomic backdrop means that we lack the clarity around near-term recurring earnings to continue with our current dividend strategy.

Whilst the option to continue paying an uncovered dividend, as many of the peer group do, was strongly considered, the Investment Manager and Board believe that the more prudent, responsible and decisive course of action, and the one that best protects the interest of shareholders, is to rebase the target quarterly dividend level to 1.48 euro cents per share commencing with our third interim dividend payable in October 2023. The drivers of this decision are threefold. The Company faces a number of upcoming refinancings in 2023 and 2024 and, whilst we have had very encouraging conversations with a wide pool of lenders, the backdrop is more challenging. Secondly, there is no appetite to be forced into the investment market simply to improve the rent roll. We have always been highly selective in deploying shareholder capital and would rather wait patiently for the right opportunities to come along, albeit we recognise that this does not deliver near-term income. And finally, the Investment Manager is reviewing a programme of sustainability-led capital expenditure initiatives as a means of improving income, quality and asset liquidity as an alternative to new acquisitions, which it has the expertise to deliver but will require a more medium-term horizon. The rebased dividend will differentiate the Company from a number of our peers, providing significant flexibility, and enabling us to pay a covered dividend, that can be grown over time.

As at 31 March 2023, the Company's direct property portfolio was valued at €220.2 million. In addition, the Company has a 50% interest in a joint venture in Seville which continues to be recognised at nil interest. The direct portfolio consists of 15 investments in the most liquid investment markets in France, Germany and the Netherlands, concentrated in Winning Cities such as Paris, Stuttgart, Hamburg, Frankfurt and Berlin. The exposure to higher-growth sectors such as industrial has increased over the period to c.30%. The office exposure comprises c.34% and is concentrated to assets in leading urban centres, in highly accessible sub-markets and leased off affordable rents whilst the retail exposure (c.17%) is solely focused on DIY/grocery, the more essential-spend consumer sub-sectors. In addition the Company has €23 million of available cash, providing a robust position to manage the Company through current headwinds.

The Board has been clear in its intention to be prudent in its approach to deploying the remaining investment capacity of c.€40 million, including further gearing.

The Investment Manager continues to screen investment opportunities consistent with the investment strategy. In this regard, the recent acquisition of the c.€11.2 million industrial investment in Alkmaar, the Netherlands, is a welcome addition. The investment improves the diversification and quality of the portfolio from a construction, sustainability and income perspective, particularly given it is a twenty year sale and leaseback to a strong covenant.

The expectations are for volatility in markets to continue. It is clear that the banking industry is tightening its approach to lending, particularly on those office and retail assets that rate poorly from a sustainability perspective. These issues, together with broader macroeconomic and political concerns, are likely to see further pressures on values. The Company has a number of refinancings to manage over the course of 2023 and 2024 and the ability to refinance, and at competitive rates, will be paramount to how cash is utilised. Gearing levels are considered modest c.32% (23% net of cash) and the intention, for now, is to continue to run the Company with headroom to the maximum loan to value ('LTV') of 35%.

European leases typically provide for rents to be indexed to inflation. The majority (80%) of the Company's income is subject to annual indexation with the remaining 20% linked to a hurdle (typically 10%), hence we expect nearly all the leases to directly benefit from inflation. Across the direct portfolio, all tenants have complied with payments in accordance with their respective indexation clauses.

We continue to finalise the remaining items around the Paris BB refurbishment. As at 31 March 2023, a further €1.5 million remains to be paid to the contractor and the Company is owed €5.3 million from the purchaser and is subject to meeting certain criteria. There remains potentially up to €1.3 million of pre-tax profit still to be released in the NAV.

Sustainability considerations continue to gain momentum and are becoming increasingly more prevalent in occupier and investor decisions. The Investment Manager continues to review each asset and ways to improve sustainability credentials, making the investments more relevant to occupiers, lenders and investors and supporting delivery of enhanced returns.

Strategy

The strategy remains focused on delivering shareholders with an attractive level of income together with the potential for income and capital growth through investing in commercial real estate in Continental Europe. The Investment Manager takes an active approach, seeking ways to improve the quality, liquidity, sustainability and appeal of investments to both occupiers and investors through active management and capital investment. It is well positioned to drive income and value growth, relying heavily on its local sector specialist teams who are recognised for their operational excellence and hospitality mindset. They manage each asset as a business by itself, with a tailored business plan, engaging with local tenants to optimise long-term sustainable income and value across the lifetime of the investment. Being diversified has been helpful, particularly given the headwinds facing secondary offices and select retail.

The recent Dutch industrial acquisition has increased our industrial exposure to c.30%, a sector the Investment Manager expects stronger growth in, whilst our retail exposure centres on DIY and grocery, which fall into the 'essential spend' category and are showing strong resilience. Our offices reflect c. 34% and are in leading cities and, although not prime, have characteristics suited to many occupiers, particularly given their urban locations, accessibility and affordability. Pricing risk and value with today's uncertainty is challenging. It is the intention to remain prudent in our investment approach with a clear bias to protecting asset values and liquidity, whilst also being mindful of maintaining a robust balance sheet.

Financial results

The NAV total return was -4.7% over the interim period based on an IFRS loss of €8.7 million. Returns were driven primarily by a fall in valuations. All sectors are seeing re-pricing, driven largely by higher discount rates, partially as a result of the change in availability and cost of financing. The independent valuers have reduced capitalisation rates between 20bp and 75bp (weighted average c.50bp) with value declines mitigated by rental indexation and for some assets, notably Hamburg and Stuttgart offices, by ERV growth. Underlying EPRA earnings were €3.8 million for the period, (H1 22: €2.5 million). Earnings will further increase with the recent acquisition in Alkmaar and investment of capital into enhancing opportunities. The Company's NAV as at 31 March 2023 decreased €11.1 million, or 6%, to €177.1 million, or 132.4 euro cents per share, over the period.

Balance sheet and debt

With current market volatility and uncertainty the retention of a healthy balance sheet is vital. At the period end, third-party debt totalled €84.7 million, representing an LTV net of cash of 23% against the overall gross asset value of the Company. This compares to a net LTV cap of 35%. The Company has seven loans secured by individual assets or groups of assets, with no cross-collateralisation between loans. The average weighted total interest rate of the loans is 2.5% per annum. The weighted average duration of the loans is 2.3 years, with the earliest loan maturity in 2023. All loans except Seville are in compliance with their default covenants. The Seville loan remains in a cash trap and is being managed under an LTV covenant waiver to facilitate a sale. Cost of debt has increased markedly over the period with the five-year swap increasing to c.300bp. Traditional lenders are tightening their approach, being more selective on not only who they lend to, LTV limits, but also around asset quality. In some instances, we are seeing alternative lending platforms step in to fill the void as banks scale back their appetite for risk. More detail of the individual loans is provided in the Investment Manager's Report. The Company has c.€40 million of cash and debt capacity, which provides significant flexibility.

Dividends

The Board has elected, for this quarter, to continue with the 1.85 euro cps quarterly dividend. Total dividends declared relating to the six months of the current financial year are now 3.7 euro cps. The dividend cover for the interim period was c.80%. Whilst the option to continue paying an uncovered dividend, as many of the peer group, was strongly considered, the Investment Manager and Board believe that the more prudent, responsible and decisive course of action, and the one that best protects the interest of shareholders, is to rebase the target quarterly dividend level to 1.48 euro cps commencing with our third interim dividend payable in October 2023.

Sustainability

The Board and the Investment Manager believe that focusing on sustainability throughout the real estate life cycle will deliver enhanced long-term returns for shareholders as well as a positive impact on the environment and the communities where the Company is investing. Our research and the evidence across the portfolio demonstrates that there is a material rental and value premium for buildings with green certifications. There is increasing pressure on minimum building standards not only from an EPC perspective but data coverage (for water, gas, electricity and waste) and ultimately carbon footprint. Demand from occupiers for space is increasingly biased towards better quality buildings, driven not only by legal obligations, tenant environmental aspirations but as a means to match corporate ethos and attract talent.

Reflecting the evolving landscape, sustainability-led initiatives will be increasingly central to the strategy. The Manager is carrying out a comprehensive review of the sustainability characteristics of the portfolio encompassing building fabric, energy systems, services and utilities, climate risk and resilience, water consumption, waste management, biodiversity and green infrastructure, transport and mobility, health and wellbeing, community and social integration. This analysis will inform a baseline score across a range of quantitative and qualitative factors against which we will measure future improvements at an asset level to enable us to provide transparent reporting to stakeholders.

Outlook

Confidence surrounding the European economy is improving with recessionary fears diminishing. Expectations are for economic growth to be modest for some time, as governments continue to tighten economic policies to reduce inflation and preserve financial stability. As a result, the pricing of real estate will continue to be challenging and exacerbated by rising debt costs, sustainability concerns and corporates post-Covid optimum occupational intentions. Banks are becoming much more discerning on who they lend to and the type of real estate they wish to lend on. Their clear preference to focus on better quality assets that meet sustainability benchmarks will continue. As a result, we anticipate further valuation falls as investors face refinancing dilemmas, sustainability risks and equity investors re-price their cost of capital. We will continue to manage the portfolio in light of these risks, ensuring a strong balance sheet and an ability to refinance on the best available terms as and when required, and invest in the portfolio to enhance its sustainability credentials, thereby optimising earnings growth and asset liquidity, in order to drive longer-term returns. With the strength of our balance sheet, underlying assets and the growth regions that we are exposed to, we believe that we are well placed to manage such risks. 

Sir Julian Berney Bt.

Chairman

27 June 2023

Investment Manager's Report

Results

The net asset value ('NAV') as at 31 March 2023 stood at €177.1 million (£155.9 million), or 132.4 euro cents (116.6 pence) per share, resulting in a NAV total return of -4.7% over the six months to 31 March 2023.

The table below provides an analysis of the movement in NAV during the reporting period as well as a corresponding reconciliation in the movement in the NAV in euro cents per share.

1   Based on 133,734,686 shares.

2   Percentage change based on the starting NAV as at 1 October 2022.

3   EPRA earnings as reconciled on page 30 of the financial statements.

Strategy

The Company aims to provide shareholders with an attractive level of income with the potential for long-term, sustainable income and growth. The strategy to deliver this includes:

·    Driving income and value growth through a hospitality approach in tenant management (understanding tenant business, strengths and pressures) and operational excellence in all sectors (optimising operations in the assets, minimising use of scarce resources and waste);

·    Executing asset management initiatives to enhance the income profile, individual asset values and sustainability credentials;

·    Applying our integrated sustainability and ESG approach at all stages of the investment process and asset lifecycle;

·    Applying a research-led approach to determine attractive sectors and locations in which to invest in commercial real estate;

·    Maintaining a strong balance sheet with a loan to value, net of cash, below 35%;

·    Managing portfolio risk in order to enhance the portfolio's defensive qualities.

The following progress has been made delivering on the strategy:

·    The acquisition of an award winning industrial investment in Alkmaar, the Netherlands, with excellent sustainability credentials, including on-site renewable energy and an EPC rating of A+. The long-term sale and leaseback not only strengthens the portfolio's physical and sustainability qualities but also income profile given the 20 year term, covenant strength and 5.6% net initial yield;

·    Increased exposure to higher growth sectors, in particular increasing the industrial allocation from 25% to 30%. Other key allocations include 35% to offices in key cities such as Stuttgart and Hamburg; c.20% to a Berlin DIY asset and a convenience retail centre in Frankfurt;    

·    Continuation of 100% rent collection, highlighting underlying tenant strength;

·    Successful implementation of rental indexation clauses with no discounts. European rent reviews provide for an inflation hedge, given annual indexation and are considered a key differential to UK leases that are typically adjusted every five years to market;

·    Maintained a high occupancy level of 96%, with an average portfolio lease term to break of 4.8 years;

·    Concluded eight new leases and re-gears generating €0.4 million of contracted rent, at a weighted lease term of three years;

·    Improved the portfolio's sustainability credentials and understanding, which included a BREEAM certification for the Stuttgart office, advancement of on-site renewable energy at the Houten industrial investment, c.80% of landlord-procured electricity on renewable energy and improved tenant data collection and education;

·    Issued SREIM's updated Sustainable Occupier Guide to all tenants across France, the Netherlands and Spain, advising occupiers on low cost initiatives to achieve reduced environmental footprints, operating costs and enhanced user wellbeing;

·    Re-financed German office debt secured against Hamburg and Stuttgart at a modest 85bp margin with no covenants for 5 years. Given competitive terms, loan principal was extended from €14m to €18m to provide additional balance sheet flexibility;

·    A prudent LTV of 32% gross of cash and 23% net of cash, comfortably below the target of 35% net of cash;

·    We continue to monitor the Ukraine crisis and its impact on not only the portfolio but wider market volatility. We have no exposure to eastern Europe or Russia and we are not aware that any of our tenants have any ownership or influence from Russia. We continue to manage the portfolio in the best interest of our shareholders, ensuring that all international sanctions are adhered to. The Group's key suppliers do not have operations in Ukraine or Russia and there is not expected to be any adverse impact from the war on our ability to manage the operations of the Group.

Market overview

Economic outlook

The outlook for the eurozone economy is improving. The sharp drop in wholesale gas prices has helped to slow inflation and reduce the squeeze on household incomes and consumption. In addition, global supply chain pressure has largely eased. As a result, Schroders now forecasts that the eurozone will narrowly avoid a recession and grow by 0.5%-1.0% p.a. through 2023 and 2024. However, while headline inflation should moderate from 6.9% in March 2023 to around 3% by December 2023, core inflation has been increasing.

Interest rates and real estate yields

The European Central Bank (ECB) remains determined to fight inflation and has continued to hike its policy interest rates. But though inflation has started to decline, Schroders expects at least one more rate hike of 25 bps. Hikes beyond that remain however a possibility but depend on the trend in inflation and labour markets. Either way we believe that the interest rate peak is near.

The investment market is showing signs of stabilisation after a sharp fall in liquidity and prices in the second half of 2022. Although prime yields continued to rise in the first quarter of 2023, the rate of increase on a European aggregate level slowed to 0.1%, from 0.6%-1.0% in the second half of 2022.

Much of future pricing will depend on conditions in debt markets. German five-year swap rates continue to be volatile and have settled at c.3.0% in the first quarter. Bank margins on prime offices and logistics levelled off at 1.50%-1.75% and remain preferred lending credit. Banks continue to be more discerning on LTVs, asset and counterparty quality which has not been helped by the recent fallout from Credit Suisse's collapse. Despite investors having become slightly more optimistic about future rental and income growth, the outlook is muted by cost and availability of debt. Overall, it seems, that while significant corrections have now occurred, markets will see some further adjustment before levelling off. 

Offices

Demand for European offices has been somewhat muted in Q1 and prime rental growth has been more limited. Business bankruptcies have seen a small increase towards the end of last year and high borrowing costs and the prospect of very low growth ahead are impacting business decision-making. Overall conditions remain robust though the market remains very polarised: vacancy rates have seen some moderate increases in recent months, but remain very low for high quality stock with strong ESG-credentials in highly accessible locations as occupiers continue to seek these kind of offices to retain and attract staff in tight labour markets and meet their own ESG obligations. This continues to support prime rents and while rental growth is likely to remain somewhat subdued and more selective in the low-growth environment ahead, renewed growth is expected towards the end of the year and into 2024, particularly as supply of new space is forecast to peak this year. For secondary space the situation is however becoming increasingly dire, though space in accessible locations and leased off affordable rents is showing some resilience.

Retail

The outlook for retail real estate remains challenging. Although total retail sales should recover from 2024 onwards in step with real household incomes, the growth of online retail means that in-store sales are set to decline by 1%-2% p.a. in volume terms through 2023-2027. Consequently, it is expected that retailer demand will remain weak and that vacancy will only start to decline when failing schemes are re-developed into apartments and other uses. Prime shop and shopping centre rents are likely to fall by a further 3-5% this year, before stabilising in 2024. The exceptions are likely to be smaller food stores and a handful of luxury streets in Barcelona, Milan and Paris, which stand to gain from the revival in tourism. Big box retail parks should also be relatively defensive, as low rents and service charges attract discounters.

Logistics/industrial

Industrial rents in the eurozone are forecast to rise by 3-4% p.a. through 2023-2025, driven by growing demand for warehouses. Demand should be supported by both a cyclical recovery in consumer spending and manufacturing and by the structural growth in online retail as well as by firms holding more stock in order to improve the resilience of their supply chains. On the supply side, the jump in both building costs and interest rates should restrict speculative development and prevent an over-supply. Multi-let estates in urban areas and warehouses on major transport routes will likely see stronger rental growth than units in less accessible locations. At the same time, there is a strong demand for modern space that is not only fit for higher levels of automation, but also has strong ESG-credentials.

Real estate portfolio

The Company owns a portfolio of 15 institutional grade properties valued at €220.2 million1. The portfolio is 96% let and located across Winning Cities and Regions in France, Germany and the Netherlands. In addition, the Company has a 50% interest in a joint venture in Seville, Spain which continues to be recognised at nil interest and which is therefore excluded in all relevant statistics in the Chairman's Statement and the Investment Manager's Report.

The table below shows the top ten properties:

1   Excludes the Seville property for which the NAV exposure is nil.

2   Internally calculated.

The lease expiry chart features the portfolio's top ten tenants individually.

The top ten tenants have paid 100% of their rent over the six-month period. The portfolio generates €16.5 million p.a. in contracted income. The average unexpired lease term is 4.8 years to first break and 5.2 years to expiry.

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

Transactions

The Company has approximately €40 million of investment capacity (including debt) to redeploy into new investments or value-enhancing initiatives. The strategy is to maintain a strong balance sheet, refinance on the best available terms and enhance the sustainability of the income. We continue to selectively review investment opportunities to further enhance the portfolio's diversification and exposure to growth sectors, cities and regions. Given the risks facing markets, including ESG and structural headwinds, particularly to offices and retail, we are continuing to be prudent and patient in our investment approach.

During the period, the Company completed an industrial acquisition in Alkmaar, the Netherlands. The architectural award winning, freehold industrial warehouse was acquired for approximately €11.2 million, equating to €1,250 per sqm and a net initial yield of 5.6%. The weighted unexpired lease term was approximately 20 years to term and 15 years to break. The investment was a rare opportunity to acquire a highly sustainable asset with a strong and visible income profile that enhances the Company's sector weighting, average unexpired lease term and credit strength. We continue to manage the Seville investment, seeking to stabilise occupancy with a view to a disposal.

Portfolio performance

During the period, total property returns for the underlying property portfolio were negative at -2.3%, despite healthy property income returns of +3.2%. This was due to negative property capital returns of -5.3% net of capex as real estate values decreased over the six months, primarily driven by a c.50 basis points outward yield movement, which more than offset the positive impact of rental growth increasing the portfolio net initial yield to 6.2%.

Property returns over the last 12 months are -0.4% and 7.4% p.a. over the last three years.

Finance

The Company completed the early refinancing of its largest debt expiry in 2023, a loan secured against its Hamburg and Stuttgart office investments. The Company has elected to extend the previous €14 million facility by a further €4 million, obtaining competitive financing for the new €18 million loan with VR Bank Westerwald at a total interest cost of 3.8% being the five-year euro swap rate at the time of signing (2.95%) plus a 0.85% margin.

With this new facility, the Company's third party debt totals €84.7 million across seven loan facilities as at 31 March 2023. This represents a loan to value ('LTV') net of cash of 23% against the Company's gross asset value (gross of cash LTV is 32%). There is a net of cash LTV cap of 35% that restricts concluding new external loans if the Company's net LTV is above 35%. An increase in leverage above 35% as a result of valuation decline is excluded from this cap. The current blended all-in interest rate is 2.5% and the average remaining loan term is 2.3 years.

A loan facility of €3.7 million secured against the Rumilly asset has since expired in April 2023 and was repaid post reporting end with the additional debt raised from the new Hamburg/Stuttgart loan.

The Company is in discussions with lenders regarding its other two debt expiries which occur within the next twelve months and is confident in its ability to refinance these loans at similar LTVs, albeit current swap rates would result in the overall cost of debt increasing.

The individual loans are detailed in the table below. Each loan is held at the property-owning level instead of the group level and is secured by the individual properties noted in the table. There is no cross-collateralisation between loans. Each loan has specific LTV and income default covenants. We detail the headroom against those covenants in the latter two columns of the table below.

1   Includes the Company's 50% share of external debt in the Seville joint venture of €11.7 million and excludes unamortised finance costs.

2   Temporary waiver for breach of LTV covenant in Seville agreed with the lender.

3   The HSBC loan is secured against four Netherlands industrial assets: Venray, Houten, Utrecht and Venray II.

4   Rumilly loan with Landesbank SAAR was repaid in full post period end.

5   Sufficient headroom to current covenant. Covenant no longer relevant as loan was repaid in Q2 2023.

At Seville, a reduction in rental income has resulted in a requirement under the loan to retain all excess income generated by the Seville property in the property-owning special purpose vehicle. The Seville loan is being managed under an LTV covenant waiver to facilitate a sale. The loan is secured solely against the Seville investment, with no recourse back to the Company or any other entity within the Group.

The German and Spanish loans are fixed rate for the duration of the loan term. The French and Dutch loans are based on a margin above three-month Euribor.

The Company has acquired interest rate caps to limit future potential interest costs if Euribor were to increase. The combined fair value of the derivative contracts is €1.0 million as at 31 March 2023. The strike rates on the interest rate caps are between 0.25% p.a. and 1.25% p.a.

Details of individual interest derivative contracts were as follows:

·    Saint-Cloud loan with BRED Banque Populaire: two caps totalling the full €17.0m of the loan which expire on 15 December 2024 with a strike rate of 1.25%;

·    Dutch industrials loan with HSBC: a cap totalling the full €9.25m of the loan which expires on 28 September 2023 with a strike rate of 1%;

·    Rennes loan with Landesbank SAAR: a cap totalling the full €8.60m of the loan which expires on 27 March 2024 with a strike rate of 1%; and

·    Rumilly loan with Landesbank SAAR: a cap totalling the full €3.70m of the loan which expired on 28 April 2023 with a strike rate of 0.25%. The associated Rumilly loan was fully repaid in April 2023.

Outlook

We continue to operate in an environment where the pricing of risk, value and liquidity is challenging. All sectors are seeing re-pricing, driven largely by higher discount rates, primarily as a result of the change in the availability and cost of debt. In addition, office occupiers are still adjusting to hybrid working following the pandemic, although we are seeing good demand for better quality offices which are well specified in terms of energy efficiency, break-out areas and connectivity and are in city centres with good amenities and public transport. We anticipate that values will continue to decline in the short term until investors are confident that inflation has peaked and interest rates have settled at a new, higher equilibrium. Assets in fringe markets and for secondary assets are likely to take the biggest hit. However, the repricing which has already occurred is creating some attractive investment opportunities and we anticipate a broader buying opportunity as the year progresses.

The immediate focus is on maintaining a strong and healthy balance sheet, de-risking upcoming re-financings and actively managing the investments with an increasing operational mindset that makes the assets more relevant in this changing environment.

Jeff O'Dwyer

Fund Manager

Schroder Real Estate Investment Management Limited

27 June 2023

Principal risks and uncertainties

The principal risks and uncertainties with the Company's business relate to the following risk categories: investment policy and strategy; implementation of investment strategy, economic and property market; custody; gearing and leverage; accounting, legal and regulatory (including tax); valuation; service provider; and health and safety. A detailed explanation of the risks and uncertainties in each of these categories can be found on pages 30 to 32 of the Company's published Annual Report and Consolidated Financial Statements for the year ended 30 September 2022.

The Board continues to be mindful of the Ukraine war and the economic ramifications (particularly inflation and corresponding interest rate increases), the structural changes concerning the Covid-19 pandemic, sustainability and occupier preferences which could affect the use and prospects of some real estate sectors. The Company does not have any exposure to Russia, and is not aware of any such exposure through its tenants or suppliers. There has been no identifiable impact on the Company's operations to date. The Board keeps these matters under review, particularly in connection with its decisions to re-deploy investable cash.

The Company's portfolio remains resilient, as evidenced by rent collection levels over the half year. Covenant, interest rates, cost of debt and expiry profiles continue to be actively managed as part of cash flow forecasting and liquidity management. Good progress is also being made to reinvest the remaining proceeds of the Paris BB forward sale, with a view to further diversifying the Company's portfolio by both number of assets and tenants, as well as increasing its allocation to the high growth industrial sector.

Other than as outlined above, the principal risks and uncertainties have not materially changed during the six months ended 31 March 2023.

Going concern

The Board believes it is appropriate to adopt the going concern basis in preparing the financial statements. A comprehensive going concern statement setting out the reasons the Board considers this to be the case is set out in note 1 on page 22.

Related party transactions

There have been no transactions with related parties that have materially affected the financial position or the performance of the Company during the six months ended 31 March 2023. Related party transactions are disclosed in note 13 of the condensed consolidated interim financial statements.

Statement of Directors' responsibilities

The Directors confirm that to the best of their knowledge:

·    The half year report and condensed consolidated interim financial statements have been prepared in accordance with the UK adopted International Accounting Standard IAS 34 Interim Financial Reporting; and

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

Sir Julian Berney Bt.

Chairman

27 June 2023

Condensed Consolidated Interim Statement of Comprehensive Income

For the period ended 31 March 2023

All items in the above statement are derived from continuing operations. The accompanying notes 1 to 16 form an integral part of the condensed consolidated interim financial statements.

Condensed Consolidated Interim Statement of Financial Position

As at 31 March 2023

The condensed consolidated interim financial statements on pages 18-29 were approved at a meeting of the Board of Directors held on 27 June 2023 and signed on its behalf by:

Sir Julian Berney Bt.

Chairman

The accompanying notes 1 to 16 form an integral part of the condensed consolidated interim financial statements.

Company number: 09382477

Registered office: 1 London Wall Place, London EC2Y 5AU

Condensed Consolidated Interim Statement of Changes in Equity

For the period ended 31 March 2023

The accompanying notes 1 to 16 form an integral part of the condensed consolidated interim financial statements.

Condensed Consolidated Interim Statement of Cash Flows

For the period ended 31 March 2023

The accompanying notes 1 to 16 form an integral part of the condensed consolidated interim financial statements.

Notes to the Financial Statements

1. Significant accounting policies

The Company is a closed-ended investment company incorporated in England and Wales. The condensed consolidated interim financial statements of the Company for the period ended 31 March 2023 comprise those of the Company and its subsidiaries (together referred to as the 'Group'). The shares of the Company are listed on the London Stock Exchange (Primary listing) and the Johannesburg Stock Exchange (Secondary listing). The registered office of the Company is 1 London Wall Place, London, EC2Y 5AU.

These condensed consolidated interim financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 30 September 2022 were approved by the Board of Directors on 5 December 2022 and were delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.

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

Statement of compliance

The condensed consolidated interim financial statements have been prepared in accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority. They do not include all of the information required for the full annual financial statements and should be read in conjunction with the consolidated financial statements of the Group as at and for the year ended 30 September 2022. The condensed consolidated interim financial statements have been prepared on the basis of the accounting policies set out in the Group's consolidated financial statements for the year ended 30 September 2022. The consolidated financial statements for the year ended 30 September 2022 have been prepared in accordance with International Accounting Standards in conformity with the Companies Act 2006.The Group's annual financial statements refer to new Standards and Interpretations, none of which had a material impact on the financial statements.

Basis of preparation

The condensed consolidated interim financial statements are presented in euros rounded to the nearest thousand. They are prepared on a going concern basis, applying the historical cost convention, except for the measurement of investment property and derivative financial instruments that have been measured at fair value. The accounting policies have been consistently applied to the results, assets, liabilities and cash flow of the entities included in the condensed consolidated interim financial statements and are consistent with those of the year-end financial report.

Going concern

The Directors have examined significant areas of possible financial risk including: the non-collection of rent and service charges; potential falls in property valuations; the existing and future expected cash requirements of the Group; the ability to refinance certain third-party loans; the refurbishment of Paris, BB and the receipt of further future funds from the purchaser and forward-looking compliance with third-party debt covenants, in particular the loan to value covenant and interest cover ratios.

Furthermore, the potential ramifications of Covid-19, the war in Ukraine and macroeconomic variables such as rising interest rates and inflation have also been considered regarding the Group's investments in France, Germany, Spain and the Netherlands.

Cash flow forecasts based on plausible downside scenarios have led the Board to conclude that the Group will have sufficient cash reserves to continue in operation for the foreseeable future.

The Group has seven loans secured by individual assets, with no cross-collateralisation. All loans are in compliance with their default covenants, though there is a cash trap in operation for the Seville loan. More detail of the individual loans, and headroom on the loan to value and net income default covenants, is provided in the Investment Manager's Report on page 13. Excluding the Seville loan, for which the Group's equity in the associated joint venture has been written down to a nil value, three loans totalling €21.55 million fall due between the 31 March 2023 period end and twelve months post the signing of the half year report. The Group has since repaid the Rumilly loan for €3.70m in April 2023; good progress is being made with the refinancing of the €9.25m Dutch industrials loan which matures in September 2023; and there are no immediate concerns with regard to the Group's future ability to refinance the €8.60m Rennes loan which matures in March 2024. Furthermore, the Group has sufficient cash or liquid assets to repay these loans in a downside scenario of refinancing not being achieved.

After due consideration, the Directors have not identified any material uncertainties which would cast significant doubt on the Group's ability to continue as a going concern for a period of not less than 12 months from the date of the approval of the condensed consolidated interim financial statements. The Directors have satisfied themselves that the Group has adequate resources to continue in operational existence for the foreseeable future.

Use of estimates and judgements

The preparation of financial statements 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. The use of estimates and judgements is consistent with the Group's consolidated financial statements for the year ended 30 September 2022. These estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

The most significant estimates made in preparing these financial statements relate to the carrying value of investment properties, as disclosed in note 3 which are stated at fair value. The fair value of investment property is inherently subjective because the valuer makes assumptions which may not prove to be accurate. The Group uses an external professional valuer to determine the relevant amounts.

The following are key areas of judgement:

·    Accounting for development revenue and variable consideration regarding Paris, BB: When estimating an appropriate level of development revenue to be recognised in the reporting period, the Group considered the contractual penalties of not meeting certain criteria within the agreement; the total development costs incurred; the stage of completion of the refurbishment; the milestones achieved and still to be achieved; the timing of further future cash receipts from the purchaser; and the overall general development risk to form a considered judgement of revenue to be appropriately recognised in the financial statements. Further details of the estimated variable consideration are disclosed in note 4.

·    Tax provisioning and disclosure: Management uses external tax advisers to monitor changes in tax laws in countries where the Group has operations. New tax laws that have been substantively enacted are recognised in the Group's financial statements. Where changes to tax laws give rise to a contingent liability, the Group discloses these appropriately within the notes to the financial statements (further details are disclosed in note 7).

·    IFRS 9 expected credit losses: IFRS 9 requires an impairment review to be made for certain financial assets held on the Group balance sheet using a forward-looking expected credit loss model. All receivables and joint venture loans are considered to be such financial assets and must therefore be assessed at each reporting period for potential impairment. Where any impairment is required to be made, appropriate recognition is required in the consolidated statement of comprehensive income, together with appropriate disclosure and sensitivity analysis in the notes to the financial statements (further details are disclosed in note 3). The Seville joint venture loan has been calculated on the lifetime expected credit loss method. The following factors were considered when determining the probability of default used for the impairment provision calculation for the Seville joint venture loan: the property valuation and future potential movements; the outstanding debt principal, together with the ongoing LTV breach and cash trap position of the loan; cash flow forecasts; tenants' trading positions and the existing ability to let vacant space, and the market liquidity for such an asset. An evaluation of these factors has allowed management to make a judgement on the probability of default which is considered to be the key input for the impairment calculation.

Segmental reporting

The Directors are of the opinion that the Group is engaged in a single segment of business, being property investment, and in one geographical area, Continental Europe. The chief operating decision-maker is considered to be the Board of Directors who are provided with consolidated IFRS information on a quarterly basis.

Financial risk factors

The main risks arising from the Group's financial instruments and investment properties are: market price risk, currency risk, credit risk, liquidity risk and interest rate risk. The Board regularly reviews and agrees policies for managing each of these risks.

Credit risk

The Directors have assessed the loan to the Seville joint venture for any expected credit loss under IFRS 9 and, consequently, a full impairment has been previously recognised and continues to be maintained.

Cash balances are maintained with major international financial institutions with strong credit ratings and the creditworthiness of the Group's tenants is monitored on an ongoing basis.

Market risk

The market values for properties are generally affected by overall conditions in local economies, such as changes in gross domestic product, employment trends, inflation and changes in interest rates. The Directors monitor the market value of investment properties by having independent valuations carried out quarterly by a firm of independent chartered surveyors. The sensitivity of the market value of the investment properties to changes in the equivalent yield is also disclosed in note 3 of the financial statements.

At the date of signing this report, the conflict in Ukraine continues to have an ongoing societal and economic impact. The Group does not have any direct exposure to Russia nor Ukraine, but continues to monitor the situation closely.

The Group's rental collection, excluding its JV in Seville and the investment of which has previously been written down to nil, has continued to remain very robust with a one hundred per cent rent collection in the period.

Environmental, Social and Governance factors

The Group has incorporated Environmental, Social and Governance ('ESG') objectives into its core investment strategy and at every stage of the investment process. It has clearly defined its social and environmental targets into distinct categories, for which each has clear and measurable impact objectives. The Group continues to monitor individual assets and their conformity with sustainability requirements. The Group continues to review potential initiatives where sustainability credentials can be enhanced, ratings improved, value can be created and the liquidity of investments be improved.

2. Rental and service charge income

3. Investment property

The fair value of investment properties, as determined by the valuer, totals €220,160,000 (30 September 2022: €218,700,000) with the valuation amount relating to a 100% ownership share for all the assets in the portfolio.

None of this amount is attributable to trade or other receivables in connection with lease incentives. The fair value of investment properties per the condensed consolidated interim financial statements of €219,011,000 includes a tenant incentive adjustment of €1,149,000 (30 September 2022: €1,244,000).

On 16 March 2023, the Group acquired, via a sale and leaseback, a freehold industrial warehouse in Alkmaar, the Netherlands, for a purchase price of
€11.2 million.

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 valuations have been undertaken in accordance with the current edition of the RICS Valuation - Global Standards, which incorporate the International Valuation Standards. References to the 'Red Book' refer to either or both of these documents, as applicable.

The properties have been valued on the basis of 'fair value' in accordance with the RICS Valuation - Professional Standards VPS4 (1.5) Fair Value and VPGA1 Valuations for inclusion in financial statements which adopt the definition of fair value used by the International Accounting Standards Board.

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

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

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

Quantitative information about fair value measurement using unobservable inputs (Level 3) as at 31 March 2023 (unaudited)

Notes:

1   This table includes the joint venture investment property valued at €25.1 million which is disclosed within the summarised information within note 6 as part of total assets.

2   Weighted by market value.

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

Quantitative information about fair value measurement using unobservable inputs (Level 3) as at 30 September 2022 (audited)

Notes:

1   This table includes the joint venture investment property valued at €26.4 million which is disclosed within the summarised information within note 6 as part of total assets.

2   Weighted by market value.

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

Sensitivity of measurement to variations in the significant unobservable inputs

Given fair value measurement is an inherent judgement due to unobservable inputs, management have reviewed the ranges used in assessing the impact of changes in unobservable inputs on the fair value of the Group's property portfolio. We consider +/-10% for ERV, and +/-50bps for NIY to capture the uncertainty in these key valuation assumptions. The results of this analysis are detailed in the sensitivity table below.

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:

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

Notes:

1   This table includes the joint venture investment property valued at €25.1 million (2022: €26.4 million) which is disclosed within the summarised information within note 6 as part of total assets.

4. Recognition of development revenue and profit

During the financial year ended 30 September 2021, the Group transferred the legal title of its office asset in Paris, BB to a purchaser.

The forward-funded sale agreement that the Group entered into was comprised of two key performance obligations: i) to sell the asset as referenced above; and ii) to undertake a comprehensive refurbishment of the asset on behalf of the purchaser.

On 16 December 2020 the Group transferred, as part of the sale, the legal title to the purchaser for a deemed sale price of €69.8 million. In return, the Group received on the completion date an initial €52.9 million cash receipt from the purchaser and a further €16.9 million was payable upon completion of certain milestones and was received in December 2021.

The forward-funded sale contract also included a development element whereby the Group has undertaken a comprehensive refurbishment of the asset on behalf of the purchaser over an approximate 18-month period with practical completion occurring in the second quarter of 2022. The amount of revenue the Group will receive for the development of the asset is variable as it is based on the Group achieving certain milestones.

When forming a judgement as to an appropriate level of development revenue to be recognised in the reporting period, the Group considered the contractual penalties of not meeting certain criteria within the agreement; the total development costs incurred; the stage of completion of the refurbishment; the milestones achieved and still to be achieved; the timing of further future cash receipts from the purchaser; and the overall general development risk.

The Group has estimated that it will receive a total development revenue of €30.5 million (2022: €30.2 million).

During the period €0.1 million of development cost has been incurred (30 September 2022: €15.4 million) which, to date, represents 91% of the total project expenditure and a sum of €0.1 million (30 September 2022: €17.9 million) of development revenue has been recognised following consideration of the factors identified above; this was also due from the purchaser at period end. Total development revenue from this contract recognised since inception is €94.0 million.

The remaining development revenue is expected to be recognised by 30 September 2023.

The total amount of the contract asset recognised by the Group that is due from the purchaser thereby totalled €1.0 million (30 September 2022: €10.3 million) at the period end and is included in trade and other receivables.

5. Provision of internal loan made to Seville joint venture

As at 31 March 2023 the Group owned 50% of the Metromar JV, which owns a shopping centre in Seville, and had advanced €10.0 million as a loan and was owed interest of €1.5 million (30 September 2022: €1.5 million); (31 March 2022: €1.3 million). The loan carries a fixed interest rate of 4.37% per annum payable quarterly and matures in April 2024.

When considering an appropriate level of impairment, deemed to be a significant judgement, the Company primarily considered: the property valuation and future potential movements; the outstanding debt principal, together with the ongoing LTV breach and cash trap position of the loan; cash flow forecasts; tenants' trading positions and the existing ability to let vacant space, and the market liquidity for such an asset. An evaluation of these factors has allowed management to make a judgement on the probability of default which is considered to be the key input for the impairment calculation.

A default rate of 100% has been applied to the above loan and unpaid interest at year end. The impairment provision booked during the period was change to €Nil as the loan and interest is now considered a stage 3 impairment (30 September 2022: €0.4 million) bringing the cumulative impairment to €11.5 million (30 September 2022: €11.5 million, 31 March 2022: €11.3 million) and the Group's investment with regard to Seville stands at €nil.

6. Investment in joint ventures

The Group has a 50% interest in a joint venture called Urban SEREIT Holdings Spain S.L. The principal place of business of the joint venture is Calle Velázquez 3, 4th Madrid 28001 Spain.

As at 31 March 2023, the joint venture in Seville, of which SEREIT holds a 50% share, had total net liabilities of €20,952,000. The Group has therefore

recognised a nil interest as its investment in the joint venture and would only recognise its share of net liabilities where certain legal or constructive obligations are in force. No such obligations exist with regard to the Seville joint venture.

7. Taxation

The Company has been approved by HM Revenue and Customs as an investment trust in accordance with section 1158 of the Corporation Tax Act 2010, by way of a one-off application, and it is intended that the Company will continue to conduct its affairs in a manner which will enable it to retain this status. The Company and certain subsidiary entities have also elected to be treated as a société d'investissement immobilier cotée ('SIIC') for French tax purposes. Provided that the Group meets certain requirements, the Group's French subsidiaries should be exempt from French corporate income tax on net rental income and gains arising from interests in property. Management intends that the Group will continue to comply with the SIIC regulations for the foreseeable future.

The Group operates in a number of jurisdictions and is subject to periodic challenges by local tax authorities on a range of tax matters during the normal course of business. The tax impact can be uncertain until a conclusion is reached with the relevant tax authority or through a legal process. The Group addresses this uncertainty by closely monitoring tax developments, seeking independent advice and maintaining transparency with the authorities it deals with as and when any enquiries are made. As a result of its monitoring, the Group has identified a potential tax exposure attributable to the ongoing applicability of tax treatments adopted in respect of the Group's tax structures. The range of potential outcomes is a possible outflow of minimum £nil and maximum £9.4 million (excluding possible interest and penalties). The Directors have not provided for this amount because they do not believe an outflow is probable.

8. Basic and diluted earnings per share

The basic and diluted earnings per share for the Group are based on the net profit/(loss) for the period, excluding currency translation differences, of €(8,662,000) (six months to 31 March 2022: €10,891,000; for the year ended 30 September 2022: €13,918,000) and the weighted average number of ordinary shares in issue during the period of 133,734,686 (six months to 31 March 2022: 133,734,686; for the year ended 30 September 2022: 133,734,686).

9. Interest-bearing loans and borrowings

The Company entered into a revolving credit facility in relation to the Paris BB refurbishment. The maximum amount that can be drawn down is €13.6 million, with nil drawn at 31 March 2023.

On 31 March 2023, ahead of the maturity date of 30 June 2023, the Group fully repaid its €14.0 million loan with Deutsche Pfandbriefbank AG which was secured on the Hamburg and Stuttgart assets. In the period, the Group entered into a new €18.0 million loan with Westerwald Bank eG. The new loan was fully drawn down on 31 March 2023.

Three loans totalling €21.6 million fall due in the twelve months following the balance sheet date. The Group has plans to refinance or repay and has commenced preliminary discussions with lenders on this matter. However, the Group would also have sufficient cash or liquid assets to repay all these loans in the downside scenario of refinancing not being achieved.

As at 31 March 2023 the Group held interest rate caps as follows:

·    Saint-Cloud loan with BRED Banque Populaire: two caps totalling the full €17.0m of the loan with a combined fair value of €0.6 million as at 31 March 2023 and which expire on 15 December 2024 with a strike rate of 1.25%;

·    Dutch industrials loan with HSBC: a cap totalling the full €9.25m of the loan with a fair value of €0.2 million as at 31 March 2023 and which expires on 28 September 2023 with a strike rate of 1%;

·    Rennes loan with Landesbank SAAR: a cap totalling the full €8.60m of the loan with a fair value of €0.2 million as at 31 March 2023 and which expires on 27 March 2024 with a strike rate of 1%; and

·    Rumilly loan with Landesbank SAAR: a cap totalling the full €3.70m of the loan with a fair value of €0.07 million as at 31 March 2023 and which expired on 28 April 2023 with a strike rate of 0.25%. The associated Rumilly loan was fully repaid in April 2023.

10. Issued capital and reserves

As at 31 March 2023, the Company has 133,734,686 (30 September 2022: 133,734,686) ordinary shares in issue with a par value of 10.00p (no shares are held in Treasury). The total number of voting rights in the Company is 133,734,686.

11. NAV per ordinary share

The NAV per ordinary share is based on the net assets at 31 March 2023 of €177,106,00 (30 September 2022: €188,243,000; 31 March 2022: €199,124,000) and 133,734,686 ordinary shares in issue at 31 March 2023 (30 September 2022: 133,734,686; 31 March 2022: 133,734,686).

12. Dividends paid

1   A dividend for the quarter ended 31 March 2023 of 1.85 Euro cents per share was approved and will be paid on 11 August 2023. Total dividends declared relating to the six months' ended 31 March 2023 were 3.70 Euro cents per share.

13. Related party transactions

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

The Investment Manager is entitled to a fee, together with reasonable expenses, incurred in the performance of its duties. The fee is payable monthly in arrears and shall be an amount equal to one-twelfth of the aggregate of 1.1% of the EPRA NAV of the Company. The Investment Management Agreement can be terminated by either party on not less than 12 months' written notice, such notice not to expire earlier than the third anniversary of admission, or on immediate notice in the event of certain breaches of its terms or the insolvency of either party. The total charge to profit and loss during the period was €1,028,000 (year ended 30 September 2022: €2,198,000; six months ended 31 March 2022: €1,136,995). At 31 March 2023, €656,000 was outstanding (year ended 30 September 2022: €717,000; six months ended 31 March 2022: €378,740).

The Directors are the only officers of the Company and there are no other key personnel. The Directors' remuneration for services to the Group for the six months ended 31 March 2023 was €123,000 (year ended 30 September 2022: €198,375; six months ended 31 March 2022: €108,000), equivalent to £87,500. Three of the four Directors hold shares in the Company and have not purchased or sold any shares in the financial period. Details of their holdings can be found on page 46 of the September 2022 Annual Report and Consolidated Financial Statements.

14. Capital commitments

At 31 March 2023, the Group had capital commitments of €nil (30 September 2022: €1,500,000; 31 March 2022: €389,400).

The Group is expected to incur a further €1.1m of development expenditure with regards to the comprehensive refurbishment of the Paris, BB asset.

15. Contingent liabilities

There are no contingent liabilities other than those disclosed in note 7.

16. Post balance sheet events

On 28 April 2023, the Group fully repaid its €3.7 million loan with Landesbank SAAR which was secured against the Rumilly, France property.

EPRA and Headline Performance Measures (unaudited)

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

a. EPRA earnings and earnings per share

Represents total IFRS comprehensive income excluding realised and unrealised gains/losses on investment property, share of capital profit on joint venture investments and changes in fair value of financial instruments, including the loan made to the joint venture, divided by the weighted average number of shares.

b. EPRA Net Reinstatement Value

c. EPRA Net Tangible Assets

d. EPRA Net Disposal Value

e. EPRA comparatives

f. Headline earnings reconciliation

Headline earnings per share reflect the underlying performance of the Company calculated in accordance with the Johannesburg Stock Exchange

Listing requirements.