Schroder Eur.r Regulatory News (SERE)

9 December 2020

SCHRODER EUROPEAN REAL ESTATE INVESTMENT TRUST PLC

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

FULL YEAR RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2020

ASSET MANAGEMENT AND TRANSACTIONS DELIVER SUBSTANTIAL UPLIFT IN PROFITS & NAV, PROVIDES STRONG ENDORSEMENT FOR WINNING REGIONS STRATEGY AND REINVESTMENT FIREPOWER

Schroder European Real Estate Investment Trust plc, the company investing in European growth cities and regions, today announces its full year results for the year ended 30 September 2020.

Diversified portfolio and execution of asset management initiatives in Paris and Hamburg underpinned exceptional financial performance and further dividend increase, despite Covid-19 backdrop

‒ Rent collection remained strong at approximately 87% during the period

‒ Exchanged conditional contracts for a forward funding sale of the Boulogne-Billancourt office asset in Paris for approximately €104 million, which is expected to deliver a pre-tax profit of c. €28 million. Transaction followed a new 10-year pre-let contract agreed with existing tenant Alten in June, which reflected a 39% rental uplift on the previous rent paid

‒ Completed two new lease agreements for two floors at the Hamburg office investment, with a further floor exchanged post period end

‒ Reflecting the profitable conditional forward funding sale of Boulogne-Billancourt and continued stable level of rent collection, quarterly dividend up by 13% to 1.57 euro cents per share, an increase on the last interim dividend of 1.39 euro cents per share declared in September. Dividend will continue to be reviewed, particularly as Paris BB net proceeds are reinvested

Key Financial highlights

‒ Portfolio valued at €268.6 million1, reflecting a 10.7% uplift during the period (30 September 2019 €242.7 million); the like-for-like valuation movements during the period by sector were Offices +24.9%, DIY/Grocery +1.4%, Industrial +0.5%, Other -4.8% and Shopping centre -9.4%

‒ Net Asset Value ('NAV') of €201.8 million or 150.9 cps, an increase of 10.8% during the period (30 September 2019: €182.1 million or 136.2 cps)

‒ NAV total return of 16.2% (30 September 2019: 4.1%)

‒ Profit increased to €28.4 million (30 September 2019: €7.4 million) driven primarily by the portfolio valuation uplift

‒ Underlying EPRA earnings of €8.6 million (30 September 2019: €10.5 million), with the 2019 earnings having included receipt of a one-off surrender premium of €1.5 million

‒ Loan to value ('LTV') decreased to 24% net of cash (30 September 2019: 26% net of cash) at a weighted average total interest rate of 1.4%

‒ Total dividends declared of 5.7 cps (30 September 2019: 7.4 cps)

‒ Dividend cover of 112% (30 September 2019: 107%)

Operational highlights

‒ Underlying property portfolio total return of 15.7%

‒ Increased portfolio occupancy to 96% (30 September 2019: 94%), with a 5.5 years average lease term to expiry (30 September 2019: 6.4 years)

‒ Successful execution of asset management initiatives across the portfolio:

o Excluding Alten, concluded 10 leases and re-gears, at a rent similar to previous rent of those leases, at a weighted lease term of 5 years

o Reflecting its increasing focus on ESG considerations, the Company increased its GRESB green star rating to three, in recognition of the portfolio's sustainability performance, whilst improving the sustainability rating at the Company's Hamburg office asset with the certification of BREEAM in use

o The Group continues to give support to its tenants, service providers and consumers in understanding the impact Covid-19 is having on their respective positions.

1 Includes the Group's share of the Seville property proportionally valued at €21.3 million.

Dividend update

The Board will continue to review the dividend in 2021, in particular having regard to the reinvestment of the Paris Boulogne-Billancourt sale proceeds, market conditions and the longer term sustainable rental income collected from the portfolio.

As announced previously, whilst the refurbishment of Paris Boulogne-Billancourt is being undertaken, it is expected dividend cover from net income will reduce. The Board expects to allocate some of the net sale proceeds from the forward-funding disposal of this asset, towards covering the shortfall in income from Paris Boulogne-Billancourt whilst it is being refurbished and pending reinvestment of the remainder of sale proceeds.

Sir Julian Berney Bt., Chairman, commented:

"Our operationally strong portfolio, focused on the Winning Cities of Continental Europe, provided a solid foundation coming into the pandemic, which has been borne out through our robust rent collection figures. Through active asset management, in particular, the conditional forward sale of Paris Boulogne-Billancourt, we have further strengthened the Company's balance sheet and prospects over the period. We are looking forward to next year with cautious optimism, with a focus on investing the sales proceeds into new acquisition opportunities in high-growth sectors and cities in order to continue growing net income and the dividend and favourably positioning the portfolio to drive the next phase of the Company's growth."

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

"Despite the challenges presented by Covid-19, significant progress has been made during the reporting period in delivering on the stated strategy. Key to this was the successful execution of our Paris Boulogne-Billancourt initiative, a transformational transaction that is highly accretive for shareholders and underpinned this extremely strong set of results. Whilst we continue to deal with small pockets of underperformance in the portfolio, the REIT is extremely well placed as we move into 2021 to deliver further income and capital growth on behalf of shareholders."

The Annual Report and Accounts are 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/9867H_1-2020-12-8.pdf

The Company has submitted its Annual Report and Accounts 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 fourth interim dividend.

For further information:

A presentation for analysts and investors will be held at 0930 GMT / 1130 SA today. Registration for which can be accessed via:

https://www.schroders.com/en/uk/adviser/events/webconference/event-attend-page/?commid=448824

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

Chairman's Statement

Overview

The Covid-19 pandemic, and its impact on society and the economies across Europe, has made the market backdrop in 2020 the most challenging since SEREIT launched in 2015. Despite this, the Company has delivered strong financial results, generating a profit of €28.4 million (2019: €7.4 million) and an NAV uplift of c.11% to €201.8 million. This is a testament to the strategy of holding a diversified portfolio of assets across Winning Cities, and implementing active asset management via on-the-ground Schroder real estate teams. It is disappointing to see that the share price has not reflected this performance.

The most significant portfolio activity highlight during the year was signing the conditional sale of the Company's largest investment, the Paris Boulogne-Billancourt office, for €104 million. The building is expected to complete in 2022 and to generate a pre-tax profit on cost of circa 35%. The sale, which is the most notable demonstration of our strategy in action in the Company's history, strengthens the balance sheet, reduces leverage and provides operational flexibility for future reinvestment.

Looking forward, we continue to focus on positioning the Company to withstand the short-term uncertainty and generate long-term growth. Whilst the recent results from trials of a vaccine should be met with optimism, we expect the consequences of Covid-19 to continue to present a challenging market backdrop for the foreseeable future and lead to long-term and permanent structural changes affecting how we live, work and play. This is particularly the case for sectors such as leisure and shopping centres, where SEREIT has only limited exposure through its Seville shopping centre (8% by value and 3.7% by NAV). We believe that the diversification of the majority of the portfolio across the office and industrial/logistics sectors in growth cities, and our focus on functional and affordable space, provides defensive characteristics to help mitigate these impacts to a certain extent. By reinvesting into assets that we believe will prosper in the longer term, and by maintaining a robust balance sheet, the Company will be well positioned going forward.

Strategy

The Company's strategy is built around three core pillars being: a focus on assets with strong fundamentals in Winning Cities and Regions across Continental Europe; diversification across sectors and tenants; and execution of value-enhancing investment and asset management via on-the-ground European teams.

The Paris Boulogne-Billancourt office project is an illustration of how execution of this strategy can generate attractive returns. The Schroder team based in France identified the Boulogne-Billancourt sub-market of Paris as an up-and-coming growth location in 2016, when the asset was acquired. The team actively sought to negotiate a new 10 year lease with the existing tenant, achieving a rent 39% higher than the prior rent, in return for a comprehensive refurbishment of the building. The decision was taken to convert this asset management into realised profit and de-risk the investment, by capitalising on the strong current investment demand for core property and complete a forward funding sale. This success was founded on the strategic pillars of investing in Winning Cities and Regions and local Schroder teams implementing value-enhancing asset management.

The third pillar of diversification across sectors and tenants has provided resilience this year in the face of the impacts from Covid-19. SEREIT has approximately 100 tenants across different industries and the majority of assets are in the office and industrial/logistics sectors. This diversification has resulted in rent collection remaining above 85% since the outbreak in March. The strategy to have a diverse portfolio not only improves the risk characteristics of the Company, but also provides opportunities to tactically allocate between different cities and sectors to potentially capitalise on changing investment fundamentals going forward.

Financial results

The Company delivered an uplift in net asset value ('NAV') of 10.8% over the year, to €201.8 million. IFRS profit increased to €28.4 million, from €7.4 million in 2019, representing an almost 300% increase. EPRA earnings were €8.6 million, compared to €10.5 million in 2019.

The main positive contributor to the results was the uplift in value of the Paris Boulogne-Billancourt office asset by €23.6 million over the period to €65.2 million, reflecting the new pre-let and forward funding conditional sale agreed for the asset.

Balance sheet and debt

Total third-party debt was €80.7 million as at 30 September, representing a loan to value ('LTV') net of cash of approximately 24% 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 1.4% per annum. The weighted average duration of the loans is 3.9 years, with the earliest loan maturity in 2023. 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 is provided in the Investment Manager's Report.

The Paris Boulogne-Billancourt forward funding disposal is expected to generate approximately €60-€70 million for reinvestment, after the funding of the refurbishment of the building. The receipt of sale proceeds will be phased between December 2020 and mid 2022. These funds provide the Company with significant operational flexibility.

Dividend

Following the profitable sale of the Paris Boulogne-Billancourt office and the continued stable level of rent collection, the Board has decided to increase the quarterly dividend to 1.57 euro cents per share. This compares to the last interim dividend of 1.39 euro cents per share declared in September.

The dividend is 110% covered from income received over the quarter.

As announced previously, whilst the refurbishment of Paris Boulogne-Billancourt is being undertaken, it is expected that dividend cover from net income will reduce. The Board expects to allocate some of the net sale proceeds from the forward funding disposal of this asset, towards covering the shortfall in income from Paris Boulogne-Billancourt whilst it is being refurbished and pending reinvestment of the remainder of sale proceeds.

The Board will continue to review the dividend in 2021, in particular having regard to the reinvestment of the Paris Boulogne-Billancourt sale proceeds, market conditions and the longer term sustainable rental income collected from the portfolio.

Total dividends declared relating to the year are 5.74 euro cents per share, with a dividend cover for the year of 112%.

Responsible and impact investment and governance

Responsible and impact investment sits alongside our traditional economic and financial considerations and is reflected in the Company's values. We have achieved an additional green star rating in the annual Global Real Estate Sustainability ('GRESB') survey. Now the Company holds three green stars. We continue to review sustainability initiatives to improve on this rating.

We also welcome to the Board Elizabeth Edwards who brings extensive experience across European real estate to further enhance the Board's skill set.

Outlook

Faced with a global pandemic such as Covid-19 and ongoing political risk such as Brexit, it is impossible to accurately forecast with any degree of confidence how European economies and real estate markets will perform next year. In the face of uncertainty, we believe there will continue to be caution amongst occupiers, investors and banks, which will put downward pressure on rents and values in the short-term, particularly in certain sectors such as retail.

The diverse portfolio across Winning Cities provided a solid foundation coming into the pandemic. Through active asset management, in particular the sale of Paris Boulogne-Billancourt, we have further strengthened the Company during the year. We are looking forward to next year with cautious positivity, focusing on investing sales proceeds into new acquisition opportunities in high-growth sectors and positioning the portfolio for the next phase of the Company's growth.

Sir Julian Berney Bt.

Chairman

8 December 2020

Investment Manager's Review

Significant progress has been made during the reporting period in delivering on the stated strategy. A key success has been the exchange of conditional contracts for a forward funding sale of the Paris Boulogne-Billancourt office, that is transformational in that it is expected to deliver around €28 million in pre-tax profit (subject to programme and cost), de-risk funding for the refurbishment, provide new funds for reinvestment in shareholder enhancing initiatives and an opportunity to reposition the portfolio.

The Company has benefited from the diversification of its property portfolio, which comprises 13 investments, located in growth cities and regions of Continental Europe. The portfolio has approximately 100 tenants and benefits from being well balanced with approximately 80% in the office and industrial/data centre sectors, in cities including Paris, Berlin, Frankfurt, Hamburg and Stuttgart. This diversification has been the key to favourable rent collection and valuation resilience during the uncertainty and weakening economic conditions caused by the extraordinary effects of the Covid-19 pandemic.

Results

The NAV as at 30 September 2020 stood at €201.8 million (£183.1 million), or 150.9 euro cents (136.9 pence) per share, achieving a NAV total return of 16.2% over the 12 months to 30 September 2020.

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

1 Management reviews the performance of the Group principally on a proportionally consolidated basis. As a result, figures quoted in this table include the Group's share of the Seville joint venture on a line-by-line basis.

2 Based on 133,734,686 shares.

3 Percentage change based on the starting NAV as at 1 October 2019.

4 EPRA earnings as reconciled on page 77 of the 2020 Report and Accounts.

Covid-19 impact

The Covid-19 pandemic is the first time in living history that the world has faced a Global Health Crisis and so we do not know what will be the outcome. Cities are suffering the most as they face a renewed spike in virus numbers, resulting in stronger lock-down measures to curtail the virus spread, particularly as we lead into the winter months. This is translating into horrendous economic data, employment uncertainty and an overall lack of confidence across the majority of sectors. It is also leading to requests for lease amendments, rent payment terms, rent deferrals and in some instances rent reductions. This has required an immediate focus on rent collection, reducing risk and implementing new property management procedures to ensure that tenants and the public can return safely to our buildings.

At a macro level, Covid-19 is accelerating a number of the long-term structural changes that have already been identified in the Company's strategy and which will affect demand for real estate.

Increased demand for new technologies, and buildings which can accommodate these to enable more agile working, will generate higher value. This means that knowledge-based economies should continue capturing more demand. These clusters should also benefit from public and private investment in health tech and life sciences. Businesses in these sectors competing for talent will demand high quality buildings that are adaptable and promote good health and wellbeing. Other impacts such as the slowing pace of globalisation, particularly in relation to a more localised manufacturing sector, with supply chain diversification, could create greater demand for industrial space in locations capturing this new investment. In contrast, these trends and greater focus on climate change will lead to reduced demand for airfreight and reduced air travel more generally.

Finally, Covid-19 is changing social attitudes and consumer behaviour, with greater recognition of key workers and increased awareness of inequality. This will lead to changing patterns of consumption which will, for example, adversely impact retail models built on fast fashion, and boost demand for products that can appeal to both millennials and boomers. This could hasten even more the demise of physical retail that does not offer either hyper-convenience or a more fulfilling and broader experience.

Looking post-pandemic, our strategy will remain focused on Winning Cities. Larger cities offer a competitive advantage in terms of higher levels of GDP, employment and population growth. In addition, they are differentiated local economies with higher-value industries; well-developed infrastructure; strong tourism and places where people want to live and work.

Strategy

The strategy over the period ending 30 September 2020 remained focused on the following key objectives:

· Executing asset management initiatives to enhance portfolio quality, the rental profile and individual asset values;

· Delivering sustainable net income growth to support the dividend;

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

· Defending and positioning the portfolio to best deal with the Covid-19 pandemic and support the dividend;

· Working with our tenants to help manage their safety and wellbeing and, in a small number of instances, seeking to collaborate with them to help them manage cash flow.

Progress was made in executing the strategy and activity, which has delivered:

· At Paris Boulogne-Billancourt ('Paris BB'):

o Agreed new 10 year lease at a rent 39% above prior rent, in return for a comprehensive building refurbishment;

o Agreed a forward funding sale for €104 million (subject to programme and cost), representing a 35% pre-tax profit on cost;

o Received planning approval to extensively refurbish the building to BREEAM status (excellent) and add a further 600sqm of lettable area;

· The Paris BB sale provides funds for reinvestment into new growth opportunities and portfolio diversification;

· Securing two new lease agreement in Hamburg resulting in five of the seven floors being leased at a 12% premium to ERV and 19% above business plan;

· Concluded 11 new leases and re-gear events (including Hamburg) across the portfolio, generating €985,000 of new income (including Paris BB), 24% above previous rent at a weighted unexpired lease term of 9.3 years. Excluding Paris BB the income from the 10 leases and re-gears has been static with a weighted unexpired lease term of five years;

· For the recent pandemic period (six month period 1 April 2020 to 30 September 2020), the portfolio rent collection was 87%, increasing to 89% in October and November 2020;

· Maintained a high occupancy level of 96%, with an average portfolio unexpired lease term of 5.5 years and 4.4 years to break;

· Reduced net loan to value ('LTV') to 24% net of cash.

The forward funding disposal of Paris BB is transformational for the Company. Firstly, it locks in an attractive price and generates significant profit; secondly, it was our preferred strategy from a funding perspective, as it maintains prudent gearing, well within the 35% LTV cap; thirdly, it strengthens the Company's balance sheet, providing significant operational and financial flexibility; and finally, it provides an opportunity to re-deploy the proceeds into new earnings enhancing initiatives, including new investments to grow returns and further diversify the portfolio.

Reacting to the Covid-19 pandemic continues to be a key focus, placing even greater emphasis on asset management. The Company's medium-term strategic objectives are:

· Evolve strategy to respond to longer-term structural changes arising from Covid-19;

· Deliver asset management initiatives to grow and improve net income profile;

· Manage the Paris BB refurbishment to fulfil tenant and purchaser contractual requirements;

· Re-deploy proceeds from the sale of Paris BB into investments that will enhance long-run shareholder returns and are consistent with our strategy of investing in European growth cities;

· Further incorporate environmental, social and governance features into our investment strategy;

· Maintain prudent leverage, within the target 35% net LTV.

Market overview

Economic outlook

The third quarter of 2020 saw a strong recovery in the eurozone economy, as consumers who had been stuck at home during lockdown made up for lost time. The rebound reversed half of the fall in GDP in the first half of the year. However, future growth is likely to be slower and Schroders does not expect eurozone GDP to return to its pre-virus level until early 2022. The main downside risk is that current measures and restrictions fail and that governments have to reimpose strict local or even national lockdowns during the winter. A lot of the boost from pent-up consumer demand has now gone and further growth will depend more on government spending, investment and exports. While the proposed new €750 billion EU Recovery Fund will support increased government investment, business investment is likely to be sluggish. Our economic forecast also assumes that a vaccine for Covid-19 will become widely available during 2021, a scenario that looks more likely as a result of recent announcements. In general, we expect that cities which have strength in IT, financial & business services and pharma and have managed the pandemic relatively well (e.g. Berlin, Copenhagen, Luxembourg, Zurich) will get back to pre-virus levels of activity before cities which are more reliant on tourism and transport (e.g. Barcelona, Rome, Toulouse).

Offices

Most European cities have seen a sharp fall in office take-up this year, as the uncertain outlook for the economy has deterred occupiers from moving. While we expect that prime office rents will now fall, the low level of vacancy prior to Covid-19 and limited amount of new space under construction should limit the decline in most cities to around zero to 5%. The exceptions are likely to be Barcelona, Madrid, Milan and Paris La Défense, where there is more new speculative construction building and which have seen strictest lockdowns. Prime rents in those markets could fall by 10%-15%. In some cases, landlords will be keen to keep nominal rents up, but will provide generous incentives. Although it is possible that demand will remain weak after the pandemic, if the majority of staff choose to stay working from home, we think it is unlikely given the enduring advantages of being in the office. The office is still the best place to meet clients, communicate with colleagues, train staff and network. We expect that office demand will increase next year and that rents will stabilise in 2022/23, as vacant space is re-occupied, or converted to apartments.

Retail

Although retail sales in the eurozone have bounced back since lockdown, the recovery has been uneven. Some segments such as DIY, electronic and sports goods have enjoyed a surge in sales, while at the other extreme, fashion sales are still running at 20% below their pre-virus level. At the same time, Covid-19 has accelerated the shift to online shopping in Continental Europe by around five years. In part this is due to continuing caution about visiting stores, but it also reflects insolvencies, store closures and heavy investment by profitable retailers in websites. For example, Inditex/Zara plans to fully integrate its stores with its online platform, so that consumers can buy any item immediately and either pick it up in store, or have it delivered. The weakness of fashion sales has hit shopping centres hard and prime centre rents are likely to fall by 20%-25% between end-2019 and end-2022. The fall in prime big box rents should be smaller at around 10%, given they are less vulnerable to online retailing, rents are more affordable and social distancing is easier than in town centres. The most defensive retail types will be food supermarkets.

Logistics/industrial

Whereas Covid-19 has depressed take-up of office and retail space, demand for warehouses in Continental Europe has held firm. In part this reflects the growth of online retail, which has boosted demand for both big fulfilment centres and for smaller units in metro areas which can be used to process parcels and hold stock for same day sales. In addition, there is anecdotal evidence that the disruption caused by Covid-19 is encouraging retailers and manufacturers to increase stocks of key products and to consider re-shoring some production to Europe, in order to create two, or more independent supply chains. However, while demand for warehouses is stable, there is also significant new supply. Although most developments are pre-let, a lot of deals involve occupiers vacating older warehouses and that has led to a slight increase in vacancy. Also, the sector depends on the recovery in world trade and manufacturing that will take time to recover. Consequently, we expect that logistics rental growth will pause this year, before resuming at 1-2% in 2021.

Real estate portfolio1

The Group owns a portfolio of 13 institutional grade properties valued at €268.6 million as at 30 September 2020. The portfolio is 96% let and located across Winning Cities and Regions in France, Germany, Spain and the Netherlands. All investments are 100% owned except for the Metromar shopping centre, Seville, where the Group holds a 50% interest.

The portfolio generates €17.2 million p.a. in contracted income. The average unexpired lease term is 4.4 years to first break and 5.5 years to expiry.

The top ten properties comprise 93% of the portfolio value:

The table below sets out the top ten tenants which are from a diverse range of different industry segments and represent 69% of the portfolio:

1 Includes the Group's 50% share in the Seville property proportionally valued at €21.3 million as at 30 September 2020.

2 B-B refers to Boulogne-Billancourt.

3 The lease to tenant Alten has been regeared for another ten years and will commence in two years time after a substantial refurbishment.

4 S-C refers to Saint-Cloud.

Portfolio performance

Over the last 12 months, the underlying property portfolio generated a total property return of 15.7%. The portfolio income return amounted to 6.2% and the portfolio capital return to 9.1% (net of capex).

The strongest contributors to portfolio performance were Paris Boulogne-Billancourt (+65% total property return), Paris Saint-Cloud (+8%), Berlin (+8%), Apeldoorn (+7%), Rennes (+8%), Stuttgart (+9%) and Rumilly (+12%).

Paris Boulogne-Billancourt saw strong capital growth due to a lease regear agreed with the asset's sole tenant and against the context of a committed refurbishment and sale agreement.

Paris Saint-Cloud is a higher-yielding property which also delivered good valuation performance driven by favourable leasing activity.

Berlin, a DIY store, and the Rennes and Rumilly properties, both industrial properties, and Stuttgart, an office property, performed well led by rental value growth and positive yield re-rating.

The Apeldoorn property is over-rented and as such a high income-yielding property. Despite values declining over the period due to the remaining lease term shortening, total returns for Apeldoorn were still reasonably high.

The main detractors from portfolio performance were Seville (-8% total property return), Frankfurt (3%) and Utrecht (1%). The negative return for Seville reflected rent discounts offered, increased vacancy and weakening valuation yields reflecting the impact and uncertainty that Covid-19 is having on the retail sector. Frankfurt and Utrecht's total returns were less positive on a relative basis due to values declining slightly during the period.

Finance

As at 30 September 2020, the Group's total external debt was €80.7 million, across seven loan facilities. This represents a loan to value ('LTV') net of cash of 24% against the Group's gross asset value (gross of cash LTV is 28%). There is a net of cash LTV cap of 35% that restricts concluding new external loans if the Group's net LTV is above 35%. An increase in leverage above 35% as a result of valuation decline is excluded from this cap.

During the period, the loan on the Saint-Cloud office building in Paris was increased by €4 million to €17 million and a new 3.5 year loan of €3.7 million was also taken against the Rumilly logistics asset in France. The additional loans were drawn mainly to fund capital expenditure across the portfolio.

The current blended all-in interest rate is 1.4% and the average remaining loan term is 3.9 years.

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 Group's 50% share of external debt in the Seville joint venture of €11.7 million and excludes unamortised finance costs of €0.2 million.

For the Seville shopping centre, 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. This position will continue until the rental income increases sufficiently to meet the level required under the loan. There is 9% valuation decline headroom before breaching the default LTV covenant.

The Berlin/Frankfurt and Hamburg/Stuttgart loans also have cash trap covenants (in addition to the above default covenants) relating to income, which they are in full compliance with. The headroom for net income decline in respect of these is 44% for Berlin/Frankfurt and 20% for Hamburg/Stuttgart, which will increase as the vacant space at the Hamburg property is relet.

The German and Spanish loans are fixed rate for the duration of the loan term. The French and Netherlands loans are based on a margin above three-month Euribor. The Group has acquired interest rate caps to limit future potential interest costs if Euribor were to increase. The strike rates on the interest rate caps are between 0.25% p.a. and 1.25% p.a.

Schroder Real Estate Investment Management Limited

9 December 2020

Principal risks and uncertainties

The Board is responsible for the Company's system of risk management and internal control and for reviewing its effectiveness. The Board has adopted a detailed matrix of principal risks affecting the Company's business as an investment trust and has established associated policies and processes designed to manage and, where possible, mitigate those risks, which are monitored by the Audit, Valuation and Risk Committee on an ongoing basis. This system assists the Board in determining the nature and extent of the risks it is willing to take in achieving the Company's strategic objectives. Both the principal risks and the monitoring system are also subject to robust review at least annually. The last review took place in November 2020.

Although the Board believes that it has a robust framework of internal control in place this can provide only reasonable, and not absolute, assurance against material financial misstatement or loss and is designed to manage, not eliminate, risk.

The Covid-19 pandemic has heightened economic and property market risk. The Investment Manager is in close contact with tenants focusing on rent collection and reducing risks so that tenants and customers can return safely to our buildings. From an emerging risk perspective, the Board is mindful of the structural change the pandemic has the potential to expedite, which could affect the use and prospects of some real estate sectors, and is keeping this under review. The Board has also considered the potential risks arising from the UK's departure from the European Union. Due to the Group's activities predominantly being based in Europe, the Board does not consider the UK's departure will have any adverse impact, but continues to monitor events.

The principal risks and uncertainties faced by the Company have largely remained unchanged throughout the year, although the Board has chosen to create separate category relating to health and safety risk so that it may be kept better under review. Actions taken by the Board and its Committees to manage and mitigate the Company's principal risks and uncertainties, are set out in the table below.

Risk assessment and internal controls

Risk assessment includes consideration of the scope and quality of the systems of internal control operating within key service providers, and ensures regular communication of the results of monitoring by such providers to the Audit, Valuation and Risk Committee, including the incidence of significant control failings or weaknesses that have been identified at any time and the extent to which they have resulted in unforeseen outcomes or contingencies that may have a material impact on the Company's performance or condition.

No significant control failings or weaknesses were identified from the Audit, Valuation and Risk Committee's ongoing risk assessment which has been in place throughout the financial year and up to the date of this report. The Board is satisfied that it has undertaken a detailed review of the risks facing the Company

A full analysis of the financial risks facing the Company and its subsidiaries is set out in note 25 on pages 72 to 75 of the 2020 Report and Accounts.

Viability statement

The Board is required to give a statement on the Company's viability which considers the Company's current position and principal risks and uncertainties together with an assessment of future prospects.

The Board conducted this review over a five-year time horizon commencing from the date of this report which is selected to match the period over which the Board monitors and reviews its financial performance and forecasting. The Investment Manager prepares five-year total return forecasts for the Continental European commercial real estate market. The Investment Manager uses these forecasts as part of analysing acquisition opportunities as well as for its annual asset level business planning process. The Board receives an overview of the asset level business plans which the Investment Manager uses to assess the performance of the underlying portfolio and therefore make investment decisions such as disposals and investing capital expenditure. The Company's principal borrowings are for a weighted duration of 3.9 years and the average unexpired lease term, assuming all tenants vacate at the earliest opportunity, is 4.4 years.

The Board's assessment of viability considers the principal risks and uncertainties faced by the Company, as detailed in the Strategic Review on pages 29 to 31 of the 2020 Report and Accounts, which could negatively impact its ability to deliver the investment objective, strategy, liquidity and solvency. This includes consideration of scenario stress testing and a cash flow model prepared by the Investment Manager that analyses the sustainability of the Company's cash flows (taking into account Covid-19), dividend cover, compliance with bank covenants, general liquidity requirements and potential legal and regulatory change for a five-year period. These metrics are subject to a sensitivity analysis which involves flexing a number of the main assumptions including macro-economic scenarios, delivery of specific asset management initiatives, rental growth and void/reletting assumptions. The Board also reviews assumptions regarding capital recycling and the Company's ability to refinance or extend financing facilities. Steps which are taken to mitigate these risks as set out in the Strategic Review on pages 29 to 31 of the 2020 Report and Accounts are also taken into account.

Based on the assessment, and having considered in detail base and downside scenarios modelling the potential future impact of Covid-19, the Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the five-year period of their assessment.

Going concern

The 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 57 of the 2020 Report and Accounts.

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group and Company financial statements in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group and Company for that period. In preparing the financial statements, the Directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgements and accounting estimates that are reasonable and prudent;

· state whether applicable IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the financial statements; and

· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business.

The Directors are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation.

The Investment Manager is responsible for the maintenance and integrity of the Company's webpages. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Directors' confirmations

The Directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and Company's position and performance, business model and strategy

Each of the Directors, whose names and functions are listed on pages 32 and 33 of the 2020 Report and Accounts, confirm that to the best of their knowledge:

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

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

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

is approved:

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

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

Consolidated and Company Statements of Comprehensive Income

For the year ended 30 September 2020

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

Consolidated and Company Statements of Financial Position

As at 30 September 2020

Consolidated and Company Statements of Changes in Equity

For the year ended 30 September 2020

1 These reserves form the distributable reserves of the Company (excluding any accumulated, unrealised profits) and may be used to fund distribution of profits to investors via dividend payments. See note 1 for further detail.

Consolidated and Company Statements of Cash Flows

For the year ended 30 September 2020

Notes to the Financial Statements

1. Significant accounting policies

Schroder European Real Estate Investment Trust plc (the 'Company') is a closed-ended investment company incorporated in the United Kingdom. The consolidated financial statements of the Company for the year ended 30 September 2020 comprise those of the Company and its subsidiaries (together referred to as the 'Group'). The Group holds a portfolio of investment properties in Continental Europe. The shares of the Company are listed on the London Stock Exchange (primary listing) and JSE Limited (secondary listing). The registered office of the Company is 1 London Wall Place, London, England EC2Y 5AU.

Statement of compliance

The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union ('EU') and interpretations issued by the International Financial Reporting Interpretations Committee ('IFRIC'), and therefore comply with Article 4 of the EU IAS regulation, and in accordance with the Companies Act 2006.

The financial statements give a true and fair view and are in compliance with applicable legal and regulatory requirements and the Listing Rules of the UK Listing Authority.

Basis of preparation

The financial statements are presented in euros, rounded to the nearest thousand. They are prepared on a going concern basis, applying the historical cost convention, except for the measurement of investment property and derivative financial instruments that have been measured at fair value.

The accounting policies have been consistently applied to the results, assets, liabilities and cash flows of the entities included in the consolidated financial statements.

Going concern

The outbreak of Covid-19, declared by the World Health Organisation as a 'Global Pandemic' on 11 March 2020, has and continues to impact many aspects of daily life and the global economy, with some real estate markets having experienced lower levels of transactional activity and liquidity. Travel restrictions have been implemented by many countries and 'lockdowns' applied to varying degrees. Whilst restrictions have now been lifted in some cases, local lockdowns may continue to be deployed as necessary and the emergence of significant further outbreaks is possible. During the year, the valuers had included a material valuation uncertainty clause within their valuation reports. As at the year-end date, this material valuation uncertainty clause has been removed from all assets except for the Metromar shopping centre held in the Seville joint venture.

The Directors have examined significant areas or possible risk including: the ability to successfully implement business continuity plans of both the Company and its key suppliers during the pandemic; the non-collection of rent and service charges, potential falls in valuations, the refurbishment of Boulogne-Billancourt, the review of cash flow forecasts and have analysed forward-looking compliance with third party debt covenants, in particular the loan to value covenant and interest cover ratios.

Despite the ongoing pandemic, for the six-month period 1 April 2020 to 30 September 2020, the portfolio rent collection was 85%, increasing to 88% in October 2020. Further details are provided under 'Covid-19 impact' in the Investment Manager's Review on page 14 of the 2020 Report and Accounts. Rent collection is being closely monitored by the Investment Manager.

Cash flow forecasts based on severe but 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 Company has seven loans secured by individual assets or groups of assets with no cross-collateralisation. All loans are in compliance with their default covenants, though there is a cash trap in operation for the external loan in the Seville joint venture. 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 20 of the 2020 Report and Accounts.

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 consolidated and company financial statements.

Use of estimates and judgements

The preparation of financial statements in conformity with IFRS, as adopted by the EU, requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. These estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

The most significant estimates made in preparing these financial statements relate to the carrying value of investment properties, as disclosed in note 14, including those within joint ventures, 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.

Another key estimate is the impairment of intercompany loans and loan to joint venture under the IFRS 9 expected credit loss model.

The Group assesses the impairment on a forward-looking basis. In determining the expected credit loss, the Group considers: the 'probability of default' which is the likelihood that the borrower would not be able to repay in a very short payment period and this forms the basis of the credit risk rating; the 'loss given default' which is the loss that occurs if the borrower is unable to repay in that very short payment period; and the 'exposure at default' which is the outstanding balance at the reporting date. Judgement is then used to assess the credit risk rating of the joint venture loan which are stated below.

The following are key areas of judgement:

· Accounting for transactions: These include judgements on whether the criteria for held for sale have been met for transactions not yet completed; and accounting for transaction costs and contingent consideration. Management uses the most appropriate accounting treatment for each transaction and seeks independent advice where necessary. See note 17 for further details on assets held for sale.

· Tax provisioning and disclosure: Management uses external tax advisers to monitor changes 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.

· IFRS 9 expected credit loss: IFRS 9 became effective for accounting periods of entities beginning on or after 1 January 2018 and requires an impairment review to be made for certain financial assets held on a Group's balance sheet using a forward-looking expected credit loss model. All inter-company 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 and Company Statements of Comprehensive Income together with appropriate disclosure and sensitivity analysis in the notes to the financial statements (see note 7).

The following factors were considered when determining the impairment provision made to the Seville joint venture loan: the third party property valuation; the net asset value of the joint venture; the cash balance held by the JV to settle unpaid interest; the local lockdown measures in Spain during the pandemic; the rent collections and concessions granted to tenants; the debt covenants and headroom thereof; key leasing activity and cash flow forecasts. An evaluation of these factors allows management to make a judgement on the default credit rating which is considered to be the key input for the impairment calculation.

Basis of consolidation

Subsidiaries

The consolidated financial statements comprise the financial statements of the Company and all of its subsidiaries drawn up to 30 September each year. Subsidiaries are those entities, including special purpose entities, controlled by the Company. Control exists when the Company is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Where properties are acquired by the Group through corporate acquisitions, but the acquisition does not meet the definition of a business combination, the acquisition is treated as an asset acquisition.

Transactions eliminated on consolidation

Intra-group balances, and any gains and losses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Gains arising from transactions with joint ventures are eliminated to the extent of the Group's interest in the entity. Losses are eliminated in the same way as gains but only to the extent that there is no evidence of impairment. Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statement of comprehensive income, statement of changes in equity and balance sheet respectively.

Joint arrangements

Under IFRS 11, Joint Arrangements, the Group's investments in joint arrangements are classified as joint ventures. Interests in joint ventures are accounted for using the equity method, after initially being recognised at cost, in the consolidated statement of financial position.

Under the equity method of accounting, the investments are initially recognised at cost and adjusted thereafter to recognise the Group's share of the post-acquisition profits or losses of the investee in profit or loss.

When the Group's share of losses in an equity-accounted investment equals or exceeds its interest in the entity, including any other unsecured long-term receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the other entity. Unrealised gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group's interest in these entities. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

Investment property

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

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

After initial recognition, investment properties are measured at fair value with unrealised gains and losses recognised in profit or loss. Realised gains and losses on the disposal of properties are recognised in profit and loss in relation to the carrying value at the beginning of the accounting period. Fair value is based on the market valuations of the properties as provided by a firm of independent chartered surveyors at the reporting date. Market valuations are carried out on a quarterly basis.

As disclosed in note 27, the Group leases out all owned properties on operating leases which are classified and accounted for as an investment property where the Group holds it to earn rentals, capital appreciation, or both. Any such property leased under an operating lease is classified as an investment property and carried at fair value.

Please refer to note 14 for disclosure of key inputs, assumptions and sensitivities with respect to the fair valuation of investment properties.

Prepayments

Prepayments are carried at cost less any accumulated impairment losses.

Leases

Leases in which a significant portion of the risks and rewards of ownership are retained by another party, the lessor, are classified as operating leases. Rental income, including prepayments, received under operating leases (net of any incentives granted by the lessor) are recognised in the statement of comprehensive income on a straight-line basis over the period of the lease. Properties leased out under operating leases are included as investment properties in the consolidated statement of financial position (note 14).

Financial assets and liabilities

Non-derivative financial assets and liabilities

Non-derivative financial assets and liabilities comprise trade and other receivables, loans to joint venture, cash and cash equivalents, loans and borrowings, and trade and other payables. These are initially recognised at fair value and subsequently measured at amortised cost and discounted as appropriate. On initial recognition the Group calculates the expected credit loss for non-derivative assets and liabilities based on lifetime expected credit losses under the IFRS 9 simplified approach.

Cash and cash equivalents

Cash at bank, and short-term deposits that are held to maturity, are carried at cost. Cash and cash equivalents are defined as cash in hand, demand deposits and short-term, highly liquid investments readily convertible to known amounts of cash and subject to insignificant risk of changes in value. For the purposes of the statement of cash flows, cash and cash equivalents consist of cash in hand and short-term deposits at banks with a term of no more than three months.

Loans and borrowings

Borrowings are recognised initially at fair value of the consideration received less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the profit and loss over the period of the borrowings on an effective interest basis.

Borrowing costs such as arrangement fees are capitalised and amortised over the loan term.

Derivative financial assets and liabilities

Derivative financial assets and liabilities comprise interest rate caps for hedging purposes (economic hedge). These are initially recognised at cost and subsequently revalued at fair value, with the revaluation gains or losses immediately recorded in the statement of comprehensive income.

Share capital

Ordinary shares, including treasury shares, are classified as equity when there is no obligation to transfer cash or other assets. During the year ended 30 September 2020, the Company changed its accounting policy from retranslating its share capital using the closing exchange rate at the end of each reporting period to fixing the share capital at the spot rate at the date of issue, in accordance with IAS 21. The Company will no longer retranslate its share capital. This is a change in accounting policy for the Company.

Share premium

Share premium represents the excess of proceeds received over the nominal value of new shares issued. During the year ended 30 September 2020, the Company changed its accounting policy from retranslating its share premium using the closing exchange rate at the end of each reporting period to fixing the share capital at the spot rate at the date of issue, in accordance with IAS 21. The Company will no longer retranslate its share premium. This is a change in accounting policy for the Company.

Other reserves

Other reserves mainly consists of a share premium reduction reserve arising from the conversion of share premium into a distributable reserve.

Dividends

Final dividends to the Company's shareholders are recognised as a liability in the Group's financial statements in the period in which the dividends are approved by the Company's shareholders. Interim dividends are recognised when paid.

Impairment

Non-financial assets

The carrying amounts of the Group's non-financial assets, other than investment property but including joint ventures, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to that asset.

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognised in the profit and loss.

Revenue

Rental income

Rental income from operating leases is recognised on a straight-line basis over the lease term. When the Group provides incentives to its tenants, the cost of incentives is recognised over the lease term, on a straight-line basis, as a reduction of rental income.

Where a rent incentives fits the definition of a lease modification under IFRS 16, the cost of incentives is recognised over the remaining lease term starting from the effective date of the lease modification, on a straight-line basis, as a reduction of rental income.

Surrender premium income

Surrender premium income is recognised as revenue upon receipt.

Service charges

These include income in relation to service charges, directly recoverable expenditure and management fees. Revenue from providing services is recognised in the accounting period in which the services are rendered. Revenue from services is recognised based on the actual service provided to the end of the reporting period as a proportion of the total services to be provided and recognised over time.

Finance income and costs

Finance income comprises interest income on funds invested that are recognised in the statement of comprehensive income. Finance income is recognised on an accruals basis.

Finance costs comprise interest expenses on borrowings that are recognised in the statement of comprehensive income. Attributable transaction costs incurred in establishing the Group's credit facilities are deducted from the fair value of borrowings on initial recognition and are amortised over the lifetime of the facilities through profit and loss. Finance expenses are accounted for on an effective interest basis.

Expenses

All expenses are accounted for on an accruals basis. They are recognised in the statement of comprehensive income in the year in which they are incurred on an accruals basis.

Taxation

The Company and its subsidiaries are subject to income tax on any income arising on investment properties after deduction of debt financing costs and other allowable expenses.

Income tax on the profit or loss for the year comprises current and deferred tax. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the reporting date, and any adjustment to tax payable in respect of previous periods.

Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax is determined using tax rates (and laws) that have been enacted, or substantially enacted, by the date of the statement of financial position and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Segmental reporting

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

Foreign currency translation

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the 'functional currency').

The functional currency of all the entities in the Group is the euro, as this is the currency in which the majority of investment takes place and in which the majority of income and expenses are incurred. The financial statements are also presented in euros.

Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions are recognised in profit or loss in the statement of comprehensive income.

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

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

2. New standards and interpretations

New standards and interpretations adopted by the Group

New standards, amendments or interpretations, effective for the first time for financial years beginning on or after 1 January 2019, have not had a material impact on the Group or Company.

The Group has applied the following standards and amendments for the first time for its annual reporting period commencing 1 October 2019:

IFRS 16 - Leases

The new standard requires recognition on the balance sheet for the head rent payable by a lessee over the lease term. For lessees, it will result in almost all leases being recognised on the balance sheet, as the distinction between operating and finance leases will be removed. The accounting for lessors will not significantly change.

The Group adopted IFRS 16 Leases on 1 October 2019. The Group has historically reported its service charge income separately from its rental income, as such there has been no material impact to the Group's net income or on the Group's balance sheet.

New standards and interpretations not yet adopted by the Group

IFRS 3 - Business combinations

Amendments to IFRS 3 Business Combinations (subject to EU endorsement) and effective for financial years commencing on or after 1 January 2020 provides a revised framework for evaluating a business and introduces an optional 'concentration test'. The amendment will impact the assessment and judgements used in determining whether future property transactions represent an asset acquisition or business combination. As a result of the amendment it is expected that future transactions are more likely to be treated as an asset acquisition.

3. Rental and service charge income

4. Other income

There was no other income received during the year. Other income of €1.5 million received in the prior year relates to a lease surrender premium agreement pursuant to the Group's Hamburg office asset in Germany.

5. Property operating expenses

All the above amounts relate to service charge expenses which are all recoverable except for €1,719,000 (2019: €831,000).

6. Material agreements

Schroder Real Estate Investment Management Limited ('SREIM') is the Investment Manager to the Company. The Investment Manager is entitled to a fee together with reasonable expenses incurred in the performance of its duties. The fee is payable monthly in arrears and shall be an amount equal to one 12th of the aggregate of 1.1% of the EPRA NAV of the Group. The Investment Management Agreement can be terminated by either party on not less than 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 year was €1,945,000 (2019: €1,904,000). At the year end €332,000 (2019: €140,000) was outstanding.

SREIM provides accounting services to the Group with a minimum contracted annual charge of €77,000 (£70,000). The total charge to the Group was €103,000 (2019: €99,000). At the year end €25,000 (2019: €8,000) was outstanding.

SREIM provides administrative and company secretarial services to the Group with a contracted annual charge of €55,000 (£50,000). The total charge to the Group was €57,000 (2019: €57,000). At the year end €14,000 (2019: €5,000) was outstanding.

Details of Directors' fees are disclosed in note 10.

Details of loans to Urban SEREIT Holdings Spain S.L., a related party, are disclosed in note 16.

The Company received management fees of €1,458,000 (2019: €1,429,000) from subsidiary companies during the year. The amounts recharged to subsidiaries and outstanding are provided in the following table.

7. Provision of loan made to Seville joint venture

As at 30 September 2020, the Group had made an internal loan to the Seville joint venture of €10.0 million. This loan carries a fixed interest rate of 4.37% per annum payable quarterly and matures in April 2024.

During the financial year a cumulative impairment of €2,492,000 was made with regard to the loan made to the Seville joint venture. This comprised an unrealised impairment of €2,107,000 under the expected credit loss methodology required by IFRS 9 and a further €385,000 to reflect the current financial position of the joint venture. In addition, a cumulative provision of €130,000 was made against unpaid loan interest. The use of significant estimates and judgements in note 1 sets out the requirements of IFRS 9 in this regard and the key factors considered by management. A credit risk rating of "CCC" was considered most appropriate and this resulted in a c.21% impairment.

Management considered that a risk rating of one above on the credit risk scale would have resulted in a c.11% impairment provision and a credit risk rating of one below would have resulted in a c.31% impairment position. These percentages fall each year as the loan nears its maturity date. Management continues to monitor the position closely.

8. Auditors' remuneration

The Group's total audit fees for the year are €316,000 (2019: €306,000) which includes the Group audit and the individual statutory audits. The Company's total audit fees for the year were €277,000 (2019: €268,000) which only covers the Group audit.

The Auditors did not perform any non-audit services for the Group during the year (2019: €nil). The interim review fee was €51,000 (2019: €50,000) which is an assurance related non-audit service and is included in the total Auditors' remuneration for the year.

9. Dividends received

During the year the Group received dividends of €67,000 (2019: €93,000) from its joint venture operation Urban SEREIT Holdings Spain S.L. (see note 16).

During the year the Company received dividends from its subsidiary undertakings. €580,000 (2019: €2,680,000) was received from SEREIT (Jersey) Limited, €1,650,000 (2019: €10,471,000) was received from SEREIT Holdings Sàrl, €1,478,000 (2019: nil) from OPPCI SEREIT France and €2,000 from SCI SEREIT Directoire.

10. Other expenses

Directors are the only officers of the Company and there are no other key personnel. The Group has one employee, for further details see note 31. The Directors' annual remuneration for services to the Group was €125,637 (2019: €124,742), as set out in the Directors' Remuneration Report on pages 42 to 44 of the 2020 Report and Accounts. The total charge for Directors' fees was €139,000. (2019: €142,000), which included employer's National Insurance contributions.

11. Taxation

The effective tax rate is a weighted average of the applicable tax rates in the countries the Group has operations. A potential deferred tax asset of €770,000 (2019: €290,000) arose on tax losses which has not been provided for.

The prior year's tax charge includes €1,997,000 of French taxes paid during the year in respect of a Group restructuring. The Group continues to proactively monitor the appropriateness of its structure and adapt where necessary.

In April 2019 the European Commission issued a ruling that a UK group financing exemption within the UK Controlled Foreign Company rules was partially incompatible with European Union State Aid rules, to the extent that profits derive from activities performed within the UK. The Group benefits from this exemption in respect of SEREIT (Jersey) Limited which provides financing to other group companies. HM Revenue & Customs has opened an enquiry into these financing arrangements and correspondence is ongoing. However, the Group remains of the view that no tax provision is required in respect of this matter as it considers it more likely than not that no additional tax will be due.

12. Earnings per share

Basic earnings per share

The basic earnings per share for the Group is calculated by dividing the net profit after tax attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares in issue during the year.

Diluted earnings per share

The Group has no dilutive potential ordinary shares and hence the diluted earnings per share is the same as the basic earnings per share in both 2019 and 2020.

Headline earnings per share

The headline earnings and diluted headline earnings for the Group is 6.4 euro cents per share (2019: 7.9 euro cents per share) as detailed on page 79 of the 2020 Report and Accounts.

13. Dividends paid

Interim dividends of €8,659,000 (2019: €7,422,000) were paid to the shareholders of SEREIT Plc during the year as follows:

14. Investment property

1 See note 17 for further details of the non-current asset held for sale.

In 2019 and 2020, the Group held one leasehold property. The value of the respective sectors held were as follows:

The fair value of investment properties as determined by the valuer, and excluding the Boulogne-Billancourt asset held for sale, totals €182,100,000 (2019: €219,200,000). The fair value of investment properties disclosed above excludes tenant incentive of €1,007,000 (2019: €304,000).

The net valuation gain on investment property of €25,505,000 (2019: €3,530,000) consists of net property revaluation gains of €24,802,000 (2019: €3,528,000) and a movement of the above mentioned tenant incentive adjustment of €703,000 (2019: €2,000).

The outbreak of Covid-19, declared by the World Health Organisation as a 'Global Pandemic' on 11 March 2020, has and continues to impact many aspects of daily life and the global economy, with some real estate markets having experienced lower levels of transactional activity and liquidity. Travel restrictions have been implemented by many countries and 'lockdowns' applied to varying degrees. Whilst restrictions have now been lifted in some cases, local lockdowns may continue to be deployed as necessary and the emergence of significant further outbreaks is possible. During the year the valuers had included a material valuation uncertainty clause within their valuation reports. The material valuation uncertainty clause highlighted significant estimation uncertainty regarding the valuation of investment property due to the Covid-19 pandemic. As at 30 September 2020, the material valuation uncertainty clause has been removed from the valuation report for all directly held assets in the Group's investment property balance but still applies to the Seville shopping centre held in the joint venture investment.

The fair value of investment property has been determined by Knight Frank LLP, a firm of independent chartered surveyors, who are registered independent appraisers. The valuation has been undertaken in accordance with the RICS Valuation - Global Standards 2017, incorporating the International Valuations Standards, and RICS Professional Standards UK January 2014 (revised April 2015).

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

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

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

The Group's total valuation fees for the year are €41,000 (2019: €49,000). The fee payable to Knight Frank LLP is less than 5% of its total revenue in any year.

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

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

1 This table includes the joint venture investment property valued at €42.6 million which is disclosed within the summarised information within note 16 as part of total assets.

2 Weighted by market value.

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

1 This table includes the joint venture investment property valued at €47.0 million which is disclosed within the summarised information within note 16 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

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 are shown below:

15. Investment in subsidiaries

During the year, SEREIT (Jersey) Limited repurchased €19,421,000 of its own shares from SEREIT Plc by way of a contribution in kind of intercompany loan receivables. These loans carry interest rates of between 2.34% and 9.80%.

The subsidiary companies listed below are those which were part of the Group as at 30 September 2020. Unless otherwise stated, they have share capital consisting solely of ordinary shares that are held directly by the Group and the proportion of ownership of interests held equals the voting rights held by the Group.

16. Investment in joint venture

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

In 2019 and 2020, within total liabilities of the joint venture, is a €23.4 million loan facility with Münchener Hypothekenbank eG. The facility matures on 22 May 2024 and carries a fixed interest rate of 1.76% per annum payable quarterly. The facility was subject to a 0.3% arrangement fee which is being amortised over the period of the loan. The debt has a LTV covenant of 60% and a minimum net rental income covenant. The lender has a charge over the property owned by the Group with a value of €42.6 million. A pledge of all shares in the borrowing Group company is in place.

A reduction in rental income has resulted in a requirement under the minimum net rental income covenant in the loan agreement for the lender to retain all excess rental income generated by the Seville property in the property-owning SPV. This position will continue until the rental income increases sufficiently to meet the level required under the loan.

In 2019 and 2020, within total liabilities of the joint venture, there is also a loan amount of €10.0 million owed to the Group. The Group has partially impaired the loan receivable from the joint venture and further details are provided in note 7. The loan is expected to mature at the same time as the above-mentioned bank loan and carries a fixed interest rate of 4.37% per annum payable quarterly.

Due to the spread of the Novel Coronavirus (Covid-19), the Group's valuer has included the following 'Material valuation uncertainty' clause with respect to the Seville shopping centre in its valuation report as at 30 September 2020:

The outbreak of the Novel Coronavirus (Covid-19), declared by the World Health Organization as a 'Global Pandemic' on 11 March 2020, has impacted global financial markets. Travel restrictions have been implemented by many countries. In Europe, market activity is being impacted in all sectors.

As at the valuation date, we consider that we can attach less weight to previous market evidence for comparison purposes, to inform opinions of value. Indeed, the current response to Covid-19 means that we are faced with an unprecedented set of circumstances on which to base a judgement. Consequently, less certainty, and a higher degree of caution, should be attached to our valuation than would normally be the case. Given the unknown future impact that Covid-19 might have on the real estate market, we recommend that you keep the valuation of this portfolio under frequent review.

For the avoidance of doubt, the inclusion of the 'material valuation uncertainty' declaration above does not mean that the valuation cannot be relied upon. Rather, the phrase is used in order to be clear and transparent with all parties, in a professional manner that in the current extraordinary circumstances less certainty can be attached to the valuation than would otherwise be the case. The material uncertainty clause is to serve as a precaution and does not invalidate the valuation.

Sensitivity analysis with respect to the estimated movement in fair value of investment properties, including the Group's share of the joint venture investment property, at 30 September 2020, can be found in note 14.

17. Non-current assets held for sale

The Group have agreed a conditional pre-sale agreement in respect of the Boulogne-Billancourt asset in Paris for €104 million, on the basis of refurbishing the building to Grade A quality at an estimated cost of €30 million. Management are confident of the conditions stipulated in the pre-sale agreement being met and as a result the sale is assessed to be highly probable. The sale has been approved by the Board and planning permission has been obtained to carry out the refurbishment work and is planned to complete in H1 2022. The refurbishment and sale follows the agreement of a new 10-year pre-let contract with existing tenant Alten in June this year.

The final sale proceeds will be subject to development and delivery conditions stated in the sale agreement which was not signed at year end.

When considering whether the Boulogne-Billancourt asset should be deemed as held for sale at year end the following key items were considered: the asset had been made available for sale and a conditional exchange of contracts had taken place by year end; the sale of the asset was deemed highly probable as by the year end; the Board and Investment Manager were fully committed to a plan to sell the asset; an active programme to locate a buyer had been initiated and completed; and an RNS had been agreed to be released to communicate the intention to the market and investors.

As investment property is carried at fair value, the measurement provisions of IFRS 5 do not apply. Instead, measurement of the asset is in line with the fair value model in IAS 40 Investment Property. The Boulogne-Billancourt asset was valued at €65,200,000 by Knight Frank LLP, the Group's valuer, as at 30 September 2020, and this has formed the basis of the fair value of the property. As the asset only is being sold, this has been separately disclosed in the Consolidated and Company Statements of Financial Position and there are no liabilities in relation to this non-current asset held for sale.

18. Trade and other receivables

1 Refer to note 15 for movement in amounts due from subsidiary undertakings.

Other debtors and prepayments includes tenant incentives of €1,007,000 (2019: €304,000). There were no provisions against the above amounts in 2020 (2019: Nil).

19. Interest rate derivative contracts

The Group has an interest rate cap in place which was purchased for €227,000 from BRED Banque Populaire on 15 December 2017 in connection to a €13.0 million loan facility drawn from the same bank with a maturity date of 15 December 2024. The Group obtained a further €4.0 million from the existing loan facility on 24 October 2019 and purchased a second interest rate cap for €13,000. Both interest rate caps are 1.25% with a floating rate option being Euribor 3 months. As at 30 September 2020, the fair value of the interest rate caps was €13,000 (2019: €10,000), giving a valuation decrease as shown within the statement of comprehensive income of €10,000.

The Group has an interest rate cap in place which was purchased for €87,000 from HSBC Bank Plc on 31 October 2018 in connection to a €9.25 million loan facility drawn from the same bank with a maturity date of 27 September 2023. The cap interest rate is 1.0% with a floating rate option being Euribor 3 months. In line with IFRS 9, this derivative is reported in the consolidated financial statements at its fair value. As at 30 September 2020, the fair value of the interest rate cap was €2,000 (2019: €3,000), giving a valuation decrease as shown in the statement of comprehensive income of €1,000.

The Group has an interest rate cap in place which was purchased for €46,000 from Landesbank Saar on 27 March 2019 in connection to a €8.6 million loan facility drawn from the same bank with a maturity date of 27 March 2024. The interest rate cap is 1.0% with a floating rate option being Euribor 3 months. In line with IFRS 9, this derivative is reported in the consolidated financial statements at its fair value. As at 30 September 2020, the fair value of the interest rate cap was €4,000 (2019: €4,000), giving a valuation decrease as shown in the statement of comprehensive income of €nil.

On 25 November 2019, the Group entered into an interest rate cap which was purchased for €12,000 from Landesbank Saar in connection to a €3.7 million loan facility drawn from the same bank with a maturity date of 30 April 2023. The interest rate cap is 0.25% with a floating rate option being Euribor 3 months. As at 30 September 2020, the fair value of the interest rate cap was €2,000, giving a valuation decrease as shown in the statement of comprehensive income of €10,000.

Transaction costs incurred in obtaining the instruments are amortised over the period of the above-mentioned loans.

20. Cash and cash equivalents

21. Share capital and share premium

As at 30 September 2020, the share capital of the Company was 133,734,686 ordinary shares (2019: 133,734,686 ordinary shares) with a par value of 10.00 pence.

As a result of changes in the Company's accounting policy as stated in the significant accounting policies note 1, prior year share capital, share premium and other reserves have been restated as shown in the Consolidated and Company Statements of Changes in Equity. There has been no impact on the opening retained earnings, net assets value and, Consolidated and Company Statements of Comprehensive Income as of 30 September 2020. An adjustment of €2,886,000 was made in the share capital account and €12,962,000 in the share premium account at the year-end to fully reverse previous retranslations.

The Company's shares to date have all been issued in Sterling and presenting the share capital and share premium at its historic exchange rate through one line, rather than splitting the unrealised foreign exchange retranslation into a separate component in equity will provide a clearer presentation of the share capital and share premium in the accounts.

Issued share capital

As at 30 September 2020, the Company had 133,734,686 ordinary shares (2019: 133,734,686) in issue (no shares were held in treasury). The total number of voting rights of the Company at 30 September 2020 was 133,734,686 (2019: 133,734,686).

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

22. Interest-bearing loans and borrowings

This note provides information about the contractual terms of the Group's interest-bearing loans and borrowings. For more information about the Group's exposure to interest rate risk see note 25.

Borrowings are removed from the statement of financial position when the obligation specified in the contract is discharged, cancelled or expired. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period.

Bank loan - HSBC Bank Plc

The Group has a loan facility of €9.25 million with HSBC Bank Plc which was entered into during the year ended 30 September 2018.

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

The lender has a charge over properties owned by the Group with a value of €19,050,000. A pledge of all shares in the borrowing Group company is in place.

Bank loan - BRED Banque Populaire

The Group entered in to a loan facility totalling €13.0 million with BRED Banque Populaire which was entered into during the year ended 30 September 2018.

The total amount was fully drawn and matures on 15 December 2024. The loan carries an interest rate which is the aggregate of the applicable Euribor 3 months rate and a margin of 1.30% per annum payable quarterly. The facility was subject to an arrangement fee of €70,000 which is being amortised over the period of the loan. The debt has a LTV covenant of 60% and the ICR should be above 400%. The Group has purchased an interest rate cap to have risk coverage on the variation of the interest rate.

During the year, the Group received a further €4.0 million of debt into SCI Directoire under its existing loan facility with BRED Banque Populaire. The additional loan amount carries an interest rate of 1.45% and was subject to a €30,000 arrangement fee which will be amortised over the period of the loan. The total loan facility stands at €17.0 million and matures on the original date of 15 December 2024.

The lender has a charge over property owned by the Group with a value of €40,000,000. A pledge of all shares in the borrowing Group company is in place.

Bank loan - Deutsche Pfandbriefbank AG

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

Of the total amount drawn, €14.0 million matures on 30 June 2023 and carries a fixed interest rate of 0.85% per annum payable quarterly; the remaining €16.5 million matures on 30 June 2026 and carries a fixed interest rate of 1.31% per annum. An additional fixed fee of 0.30% per annum was payable until certain conditions relating to the Frankfurt property were fulfilled on 30 December 2016. The facility was subject to a 0.35% arrangement fee which is being amortised over the period of the loan. The debt has a LTV covenant of 65% and the debt yield must be at least 8%.

The lender has a charge over property owned by the Group with a value of €74,500,000. A pledge of all shares in the borrowing Group companies is in place.

Bank loan - Landesbank Saar

The Group entered into a loan facility of €8.6 million with Landesbank Saar on 27 March 2019.

The loan matures on 28 March 2024 and carries an interest rate of 1.40% plus Euribor 3 months per annum, payable quarterly. An additional 25bps is applied to the margin if the LTV is between 56% and 60%, or 50bps if the LTV is above 60%. The facility was subject to a €56,000 arrangement fee which is being amortised over the period of the loan. The debt has a LTV covenant of 64% and the interest cover should be above 220%. A pledge of all shares in the borrowing Group company is in place.

Bank loan - Landesbank Saar

On 25 November 2019, SCI Rumilly entered into a new loan facility with Landesbank Saar for €3.7 million.

The loan matures on 30 April 2023 and carries an interest rate of 1.30% plus Euribor 3 months per annum payable quarterly. An additional 25bps is applied to the margin if the LTV is between 52% and 56%, or 50bps if the LTV is equal to or above 56%. The facility was subject to a €46,000 arrangement fee which is amortised over the period of the loan. The debt has a maximum LTV covenant of 60% and a minimum ICR covenant of 200%. A pledge of all shares in the borrowing Group company is in place.

23. Trade and other payables

All trade and other payables are interest free and payable within one year. Included within the Group's accruals are amounts relating to management fees of €332,000 (2019: €140,000) and property expenses of €997,000 (2019: €952,000).

24. Net asset value per ordinary share

The NAV per ordinary share of 150.9 euro cents per share (2019: 136.2 euro cents per share) is based on the net assets attributable to ordinary shareholders of the Group of €201,826,000 (2019: €182,087,000), and 133,734,686 ordinary shares in issue at 30 September 2020 (2019: 133,734,686 ordinary shares).

25. Financial instruments, properties and associated risks

Financial risk factors

The Group holds cash and liquid resources as well as having debtors and creditors that arise directly from its operations. The Group uses interest rate caps when required to limit exposure to interest rate risks, but does not have any other derivative instruments. The financial risk profile of the Group has been heightened due to the outbreak of the Covid-19 virus.

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

Market price risk

Rental income and the market value for properties are generally affected by overall conditions in the economy, such as changes in gross domestic product, employment trends, inflation and changes in interest rates. Changes in gross domestic product may also impact employment levels, which in turn may impact the demand for premises. Furthermore, movements in interest rates may also affect the cost of financing for real estate companies.

Both rental income and property values may also be affected by other factors specific to the real estate market, such as competition from other property owners; the perceptions of prospective tenants of the attractiveness, convenience and safety of properties; the inability to collect rents because of bankruptcy or the insolvency of tenants; the periodic need to renovate, repair and re-lease space and the costs thereof; the costs of maintenance and insurance, and increased operating costs.

The Board monitors the market value of investment properties by having independent valuations carried out quarterly by a firm of independent chartered surveyors.

The pandemic and the measures taken to tackle Covid-19 continue to affect economies and real estate markets globally as the uncertainty and low volume of market transactions have increased the inherent price risk. Nevertheless, as at the year end, some property markets have started to function again, with transaction volumes and other relevant evidence returning to levels where an adequate quantum of market evidence exists upon which to base opinions of market value.

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

Currency risk

The Group's policy is for Group entities to settle liabilities denominated in their functional currency with the cash generated from their own operations in that currency. Where Group entities have liabilities in a currency other than their functional currency (and have insufficient reserves of that currency to settle them), cash already in that currency will, where possible, be transferred from elsewhere within the Group. The functional currency of all entities in the Group is the euro. Currency risk sensitivity has not been shown due to the small values of non-euro transactions. The table below details the Group's exposure to foreign currencies at the year end:

Credit risk

Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Group. In the event of default by an occupational tenant, the Group will suffer a rental income shortfall and incur additional costs, including legal expenses, in maintaining, insuring and re-letting the property.

The Directors have considered the impact of Covid-19 on the recoverability of its assets. With regard to trade and other receivables, these were considered not to have been impaired due to Covid-19 at the balance sheet date since rent collection during the pandemic was above 85% and sufficient provisions were made against aged tenant receivables where these were doubtful. Management will continue to monitor the ability of the tenants to pay in future.

With regard to the loan to the Seville joint venture, the Directors have assessed this for an expected credit loss under IFRS 9 and, consequently, have recognised an impairment against the receivable, see note 7 for further details.

The Investment Manager reviews reports prepared by Dun & Bradstreet or other sources, to assess the credit quality of the Group's tenants and aims to ensure there is no excessive concentration of risk and that the impact of any default by a tenant is minimised.

In respect of credit risk arising from other financial assets, which comprise cash and cash equivalents and a loan to a joint venture, exposure to credit risk arises from default of the counterparty with a maximum exposure equal to the carrying amounts of these instruments. In order to mitigate such risks, cash is maintained with major international financial institutions with high quality credit ratings. Credit risk relating to the joint venture loan is actively managed and the Group has assessed this for impairment under IFRS 9 expected credit loss. Further details can be found in note 7.

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

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

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

Liquidity risk

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

The Group's investments comprise of Continental European commercial property. Property and property-related assets are inherently difficult to value due to the individual nature of each property. As a result, valuations are subject to substantial uncertainty. There is no assurance that the estimates resulting from the valuation process will reflect the actual sale's price even where such sales occur shortly after the valuation date.

Investments in property are relatively illiquid. However, the Group has tried to mitigate this risk by investing in properties that it considers to be good quality.

In certain circumstances, the terms of the Group's debt facilities entitle the lender to require early repayment and in such circumstances the Group's ability to maintain dividend levels and the net asset value could be adversely affected. The Investment Manager prepares cash flows on a rolling basis to ensure the Group can meet future liabilities as and when they fall due.

The following table indicates the undiscounted maturity analysis of the financial liabilities.

Interest rate risk

Exposure to market risk for changes in interest rates relates primarily to the Group's long-term debt obligations and to interest earned on cash balances. As interest on the Group's long-term debt obligations is payable on a fixed-rate basis, or is capped, the Group has limited exposure to interest rate risk, but is exposed to changes in fair value of long-term debt obligations driven by interest rate movements. As at 30 September 2020, the fair value of the Group's loans was €69.1 million, which was equal to the carrying amount (2019: fair value and carrying amount €61.4 million).

A 1% increase or decrease in short-term interest rates would decrease or increase the annual income and equity by €0.2 million (2019: €0.1 million) based on the net of cash and variable debt balances as at 30 September 2020.

Fair values

The fair values of financial assets and liabilities approximate their carrying values in the financial statements.

The fair value hierarchy levels are as follows:

· Level 1 - quoted prices (unadjusted) in active markets for identical assets and liabilities;

· Level 2 - inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

· Level 3 - inputs for the asset or liability that are not based on observable market data (unobservable inputs).

There have been no transfers between Levels 1, 2 and 3 during the year (2019: none).

The following summarises the main methods and assumptions used in estimating the fair values of financial instruments and investment property (which is a non-financial asset).

Investment property - Level 3

Fair value is based on valuations provided by an independent firm of chartered surveyors and registered appraisers. These values were determined after having taken into consideration recent market transactions for similar properties in similar locations to the investment properties held by the Group. The fair value hierarchy of investment property is Level 3. See note 14 for further details.

Interest-bearing loans and borrowings - Level 2

Fair values are based on the present value of future cash flows discounted at a market rate of interest. Issue costs are amortised over the period of the borrowings. As at 30 September 2020, the fair value of the Group's loans was equal to its book value.

Trade and other receivables/payables - Level 3

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

Derivatives - Level 2

Fair values of derivatives are based on current market conditions compared to the terms of the derivative agreements. Refer to note 19 for further detail.

Capital management

The Board's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence, and to sustain future development of the business. The objective is to ensure that it will continue as a going concern and to maximise return to its equity shareholders through an appropriate level of gearing.

The Group's debt and capital structure comprises the following: