Schroder Eur.r Regulatory News (SERE)

6 December 2017

SCHRODER EUROPEAN REAL ESTATE INVESTMENT TRUST PLC

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

FULL YEAR RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2017

ASSET MANAGEMENT AND VALUATION UPLIFT DELIVERS NAV AND EARNINGS GROWTH, SUPPORTED BY STRONG EUROZONE PERFORMANCE

 REMAIN ON TARGET TO DELIVER 5.5% DIVIDEND YIELD

Schroder European Real Estate Investment Trust plc (the "Company") the company investing in European growth cities and regions, today announces its audited full year results for the year ended 30 September 2017.

The Company's Annual Report and Accounts for the year ended 30 September 2017 are being published in hard copy format and an electronic copy 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/4876Y_-2017-12-5.pdf 

The Company has submitted its Annual Report and Accounts to the National Storage Mechanism and it will shortly be available for inspection at www.morningstar.co.uk/uk/NSM.

Financial highlights

‒ Net Asset Value ('NAV') of €178.3 million or 133.3 cps, reflecting an increase over the period of 13%, including a gross equity raise of €16.7 million (30 September 2016: €157.8 million/130.2 cps)

‒ NAV total return of 6.0% (30 September 2016: -4.6%)

‒ Dividend for quarter ended 30 September 2017 of 1.5 cps representing an annualised rate of 4.4% based on €1.37, being the euro equivalent of the issue price as at admission. Based on the Euro:GBP exchange rate as at 30 September 2017, this dividend represents an annualised rate of 5.3% against an initial £1 invested at IPO

‒ Portfolio valued at €211.7 million, reflecting an uplift of approximately 7.1% on purchase price

‒ Increase in underlying EPRA earnings to €6.9 million (30 September 2016: €1.0 million)

‒ €16.7 million of equity raised through placing

‒ Loan to value ('LTV'), net of all cash, of 25% (30 September 2016: 22%). Debt is either fixed cost or capped and of long duration at 6.8 years on average

Operational highlights

‒ Two acquisitions completed taking the total portfolio to nine assets, located in eight locations across Germany, France and Spain:

o An office building in Paris, France, for €30 million, reflecting a net property income yield of 9.5%; and

o A 50% share of Metromar shopping centre in Seville, Spain, in a JV with Schroder-managed Immobilien Europa Direkt, for €26.2 million, reflecting a net property income yield of 6.3%

‒ Portfolio is almost 100% occupied following leasing activity with 6.8 years average lease term (4.4 years to break) and a net property income yield of approximately 6%

‒ Contracted rental income of €14.3 million p.a.

‒ Maintained focus on Western European growth cities, with 100% of the portfolio located in the fastest growing cities and towns of Continental Europe (source: Oxford Economics)

‒ Successful execution of, and ongoing, asset management initiatives across the portfolio, including seven new lettings and re-gears across over 5,000 sqm, with advanced leasing discussions ongoing regarding an additional 6,000 sqm

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

"The Company is now close to being fully invested, having executed the strategy outlined at IPO to construct a high quality portfolio of commercial real estate, which provides an attractive level of income, in the growth markets of Western Continental Europe. Economic growth in these target markets is advancing and this is having a positive impact on occupier demand and rental levels. Whilst there remains uncertainty around events such as Brexit, our strategic focus on winning cities and regions means the Company is well placed in changing market circumstances and may potentially benefit if the outcome to negotiations leads to more businesses locating and expanding in Continental Europe."

Jeff O'Dwyer, Lead Manager for Schroder European Real Estate Investment Management

Limited, added:

"Our near term priority is to deploy the remaining investment capacity, which totals c. €30million including leverage, which will be invested in a manner consistent with the existing portfolio, in conurbations and regions that will grow faster than their domestic economies.

"We have identified a range of potential investment opportunities that would be accretive to the Company's earnings, which we believe provides a strong platform to grow the Company to benefit shareholders. Once fully invested we will assess our next steps, which may include a further equity raise, as we continue to see interesting investment opportunities in the market with returns accretive to earnings and performance."

For further information:

A presentation for analysts and investors will be held at 08.30 GMT today at the offices of Schroders plc, 31 Gresham Street, London EC2V 7QA. If you would like to attend, please contact Stephanie Carbonneil at Schroders on +44 (0)20 7658 7352 or Stephanie.Carbonneil@Schroders.com

A webcast presentation will take place at 10.00 GMT / 12.00 SAST, registration for which can be accessed via: http://www.schroders.com/en/uk/adviser/webconferences2/schroder-european-real-estate-investment-trust-results-dec-17/

Chairman's statement

The Company continues to deliver net asset value and income growth for shareholders. The current dividend is now at an annualised rate of 4.4% based on €1.37, being the euro equivalent of the issue price at admission. Based on the Euro:GBP exchange rate as at 30 September 2017, this equates to an annualised rate of 5.3% against an initial £1 invested at admission. This represents continued progress since launch in December 2015. The Company is in exclusive negotiations to acquire assets that, once completed, should enable the Company to distribute the target 5.5% p.a. dividend against the euro issue price, fully covered by rental income.

Two acquisitions during the year in Paris and Seville have grown the property portfolio owned by the Company to nine assets located across winning cities and regions in France, Germany and Spain. The current independent valuation of the portfolio is 7.1% above the combined purchase price. Across the portfolio there are a number of value enhancing asset management initiatives either underway or identified including reducing voids, lease restructuring and property refurbishments.

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

Strategy

The strategic priority for the Company is to continue to grow in a disciplined way which improves net operating income and brings benefits such as improved liquidity and diversification. The Company has an investment strategy focused on winning cities and regions in continental Europe which are growing more quickly than their domestic economies. It is pleasing to note that 100% of the existing portfolio owned by the Company is located in the fastest growing cities and towns in Continental Europe (Source: Oxford Economics, defined as top 2 quartiles).

The Investment Manager, Schroder Real Estate Investment Management Limited, is locally based in the target markets of France, Germany, Switzerland and Scandinavia. This allows the Company to identify specific locations and assets which offer good fundamentals as well as to actively manage the portfolio. This strategy is also informed by Schroders' in-house research capability to identify sub-markets where there are supply/demand imbalances and future growth potential from structural changes such as urbanisation and infrastructure improvements. Over the longer-term this should mean the portfolio is capable of adapting to future occupier trends and technological advancements whilst also being relatively resilient.

Dividend

The Company has declared a fourth interim dividend in respect of the year ended 30 September 2017 of 1.5 euro cents per share based on the number of shares in issue as at the publishing date of this report. This represents an annualised rate of 4.4% based on €1.37, being the euro equivalent of the issue price at admission. The Company is targeting an annualised euro dividend of 5.5% based on the euro equivalent issue price as at admission and remains on target to deliver this once fully invested. Based on the Euro:GBP exchange rate as at 30 September 2017, this would represent an annualised rate of 6.6% against an initial £1 invested at admission. This will be fully covered by contractual income receivable from the portfolio.

Total dividends payable in respect of the financial year amount to 5.2 euro cents per share.

Balance sheet and debt

The Company has a simple balance sheet, with overall leverage capped at 35% LTV at the time debt is drawn. The current debt is 25% LTV, which provides some headroom to draw further debt. Debt is used with the objective of improving shareholder returns and is drawn against those assets most suitable for debt financing. This ensures the most accretive finance rates can be secured, evidenced by the current average weighted interest rate on the debt facilities of 1.3%. When compared to the average net initial property yield on the portfolio of approximately 6%, the debt is accretive to income returns. It is also important to note that this debt is either fixed cost or capped and is of long duration - averaging almost seven years. This helps support long-term returns for shareholders.

Given the positive yield spread, it is likely the Company will draw further debt facilities and target overall gearing at around 35% LTV.

Outlook

The Company is close to being fully invested having executed the strategy outlined at IPO to establish a quality portfolio of commercial real estate in the growth markets of Western Continental Europe. We have a remaining investment capacity of approximately €30 million which is already allocated to an identified pipeline of opportunities in our target markets.

Economic growth in our target markets is advancing and this is having a positive impact on occupier demand and rental levels. A number of flagged risks to European economies, such as general elections and European break-up, have had outcomes that are likely to result in a period of stability. Whilst there remains uncertainty around events such as Brexit, the strategic focus on winning cities and regions means the Company is well placed in changing market circumstances and may potentially benefit if the outcome to negotiations leads to more businesses locating and expanding in continental Europe.

The portfolio provides an attractive level of income together with the potential for growth. The balance sheet is stable with low gearing that is accretive to returns. The market backdrop is positive and supports potential returns from identified value-add asset management opportunities and new investments. The Investment Manager has identified a range of potential investment opportunities, both in existing and new markets, that would be accretive to the Company's earnings. We believe this provides a platform to grow the Company to benefit shareholders.

Sir Julian Berney Bt.

Chairman

5 December 2017

Investment Manager's report

Results

The Company's portfolio is valued at €211.7 million as at 30 September 2017 reflecting an uplift of €14 million/7.1% on purchase price. Overall values have increased 3.6% over the financial year.

The Company's Net Asset Value ("NAV") as at 30 September 2017 stood at €178.3 million, or 133.3 euro cents (117.6 pence) per share, and achieved a NAV total return for the financial year of 6.0%.

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:

Management reviews the performance of the Company principally on a proportionally consolidated basis. As a result, figures quoted in this table include the Company's share of joint ventures on a line-by-line basis and exclude non-controlling interests in the Company's subsidiaries.

 NAV as at 30 September 2016 based on the number of shares pre-October equity raise of 121,234,686. All other numbers are based on the number of shares subsequent to the equity raise of 133,734,686 shares.

Market overview

Economic momentum in the Eurozone has increased and growth forecasts continue to be upgraded. While growth forecasts for the Eurozone for 2017 and 2018 had been at 1.4% and 1.5% respectively at the start of this calendar year, the September consensus forecasts have been upgraded to 2.1% and 1.8%. Following key elections in Europe political uncertainty has eased. Growth continues to beat expectations while structural reforms, debt restructuring and labour market reforms are taking effect. Unemployment has started to decrease and economic sentiment remains at record highs. Core inflation remains stable around 1% and, while the European Central Bank ("ECB") is likely to reduce its bond buying program, the Investment Manager expects the ECB to leave its refi rate at zero until 2019.

Offices

This economic activity is generating demand in the office markets. In many European cities, jobs in the IT, media and professional services sectors are growing year-on-year and net take-up of office space is positive. Vacancy, particularly for modern flexible space, has decreased and the supply pipeline for the next 2-3 years remains muted. We expect to see a broad based increase in office rents across continental Europe over the next 3-4 years, dominated by growth cities.

Retail

Strong consumer spending continues to support the wider retail sector, though this growth is mainly being driven by on-line spending. This is impacting the demand for physical retail space. Demand, and rental levels, for high street units/flagship stores in core city centre locations remains resilient and dominant shopping centres with a retail, leisure and food offer also continue to perform well. Secondary high streets and small to mid-sized shopping centres remain under pressure with changing consumer patterns reducing physical shopping time and spend. Supermarkets, convenience stores and out-of-town retail warehouses are expected to be more resilient to online encroachment, as consumers still prefer the physical aspect of goods such as food, furniture, DIY and homewares. Additionally, these stores typically have car parking and are convenient for click and collect sales. Vacancy rates here are also lower as these formats have less of a mid-market fashion offer, the part of the market most severely impacted, whilst the recovery in European housing markets has led consumers to spend more on home improvements.

Logistics/industrial

The rapid growth of e-commerce is driving retailers and other logistics operators to restructure their networks and introduce modern technology to their units. Vacancy levels have been falling across Europe and rents are beginning to grow. Demand remains strong for well-located, modern units to be used for parcel delivery and fulfilment centres, especially urban logistics assets. These are benefiting from the growth in "last mile" deliveries and returned items, as consumers become increasingly demanding and place ever more emphasis on speed of delivery, located in built up areas where new supply is constrained and which offer longer-term mixed-use potential. This is a target investment sector for the Company and it has an identified pipeline of assets under consideration.

Investment market

The favourable outlook for rental growth and the significant gap between real estate and 10 year government bond yields means that there is a large amount of capital allocated towards real estate in Continental Europe. Investment activity remains at high levels and the market is competitive. Asian capital has become more active. European investors are active throughout the region. The most sought after market remains Germany, but activity is also high in France, the Nordics, Spain and the Netherlands. Values for prime assets are close to the high, assuming that investors will now start to factor in an increase in bond yields over the medium term. However, even if bond yields rise, we expect that real estate yields will probably be relatively stable, given the prospects for rental growth, particularly in winning cities.

Property portfolio

As at 30 September 2017, the Company owned nine properties, independently valued at €211.7 million, reflecting a net initial yield of approximately 6% against the independent valuation.

The retail properties in Biarritz and Rennes are owned in a 70/30 joint venture with Mercialys, the French retail property specialist, and the Seville shopping centre is held in a 50/50 joint venture with another Schroder-managed real estate vehicle. The portfolio statistics reflect the 70% ownership share of Biarritz and Rennes and 50% of Seville.

The table below gives an overview of the portfolio:

The portfolio's country and sector allocations are specified below:

Lease expiry profile

The portfolio generates €14.3 million p.a. in contracted income. The average unexpired lease term is 4.4 years to first break and 6.8 years to expiry.

The lease expiry profile to earliest break is detailed in the 2017 Annual Report. The near-term lease expiries provide asset management opportunities to renegotiate leases, extend weighted average unexpired lease terms, improve income security and generate rental growth. In turn, this activity benefits NAV total return.

Top ten tenants

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

1Regular tenant risk assessments are undertaken for tenants above €100,000 of contracted rent. Among other considerations, the Investment Manager's risk assessments are based on Dun &Bradstreet ratings and Dun &Bradstreet failure scores.

2As part of ongoing asset management, discussions with City BKK regarding a potential lease surrender continue.

3Percentage based on total contracted rent as at financial period end.

4Unexpired lease term until earliest termination in years as at 30 September 2017 weighted by contracted rent

Valuation

The current valuation of €211.7 million for the existing portfolio reflects an increase of 7.1% compared to the combined purchase price of the nine asset portfolio. Transaction costs have already been recovered through valuation uplifts since acquisition.

The portfolio valuation, excluding transaction costs, has risen by 3.6% over the financial year due to positive valuation performance from all assets. The largest valuation uplift came from the newly acquired Paris, Saint-Cloud asset, against its purchase price and the Hamburg asset against the 30 September 2016 valuation.

Transactions and asset management

The long-term investment strategy is founded on urbanisation. Elements such as population change, infrastructure improvements, growth of mixed-use areas, supply constrained locations and particularly those that provide affordable/ sustainable rents are central to this theme. All our investments are well positioned to benefit from these themes, with current Eurozone economic data trending favourably in support of this strategy.

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

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

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

· Valuation at 30 September 2017: €41.4 million

· Lettable area: c.6,900 sq.m

· Investment rationale:

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

ü Affordable/sustainable rents

ü Supply constrained location

ü Modest capital value per sq.m

Business plan achievements:

- Negotiating with adjoining owner to optimise future redevelopment of the site;

- Adding €15,000 in annual income; and

- Engaging with tenant Alten about a possible lease extension.

Asset management initiatives remaining:

- Managing neighbouring property easements which have value in the Company's favour;

- Working with tenant to agree their longer-term occupational intention; and

- Investigating longer-term office refurbishment or potential for conversion to higher value uses.

Großbeerenstraße, 12107 Berlin, Germany

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

· Valuation at 30 September 2017: €25.7 million

· Lettable area: c.16,800 sq.m

· Investment rationale:

ü Above average population growth

ü Supply constrained location

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

ü Large site area of 4 hectares

Business plan achievements:

- Tenant relationship management with a view to understanding Hornbach's needs and future e-commerce aspirations (drive in/click and collect). Approached neighbouring owner to acquire site for expansion.

Asset management initiatives remaining:

- Diversifying the retail offer with the addition of complementary uses such as food and beverage;

- Rezoning part of the land for residential use; and

- Potential sale of part of the land for residential development

Neckarstraße, 70190, Stuttgart, Germany

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

· Valuation at 30 September 2017: €15.2 million

· Lettable area: c.5,800 sq.m

· Investment rationale:

ü Supply constrained location

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

ü Affordable/sustainable rents

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

Business plan achievements:

- Implementation of fire certification requirement in association with neighbouring asset.

Asset management initiatives remaining:

- Marking rents to market which the Investment Manager anticipates providing c. 5% to 10% growth; and

- Positioning the investment to benefit from the completion of the neighbouring "Stuttgarter 21" urban development.

Hammerbrookstraße, 20097, Hamburg, Germany

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

· Valuation at 30 September 2017: €16.7 million

· Lettable area: c.7,000 sq.m

· Investment rationale:

ü Modest capital value per sq.m

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

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

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

ü Location has medium to longer-term growth potential

Business plan achievements:

- Leasing of 208 sq.m to a sushi restaurant on a 10 year term and adding a further €17,000 of annual income; and

- Negotiating with City BKK regarding a potential lease surrender payment and subsequent direct leasing with sub-tenants.

Asset management initiatives remaining:

- Positioning the investment to capitalise on the above average rental growth anticipated;

- Managing minor storage and parking vacancy and general lease expiries; and

- Finalising City BKK agreement.

Lorscher Straße, 60489, Frankfurt - Rodelheim, Germany

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

· Valuation at 30 September 2017: €11.5 million

· Lettable area: c.4,500 sq.m

· Investment rationale:

ü Supermarket anchored convenience retail centre servicing a growing urban catchment

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

ü Mixed use area with a dense residential population

ü Above average provision of parking

Business plan achievements:

- Critically reviewing tenancy mix culminating in discussions with a leading national drug store retailer to enter the scheme; and

- Negotiating with a tenant of the lower ground floor to maintain occupancy and income security.

Asset management initiatives remaining:

- Improving the retail mix to enhance footfall;

- Longer-term potential to add further lettable area and services to the car park area; and

- Broadening the retail offer and strengthening the convenience nature of the centre.

Avenue de Bayonne, 64600, Anglet (Biarritz), France

(Values refer to 70% interest)

· Acquired in June 2016 for a purchase price of €22.6 million

· Valuation at 30 September 2017: €21.8 million

· Lettable area: c.15,000 sq.m

· Investment rationale:

ü Grocery anchored, multi-tenanted retail offer that forms part of a dominant retail agglomeration

ü Densely populated catchment supported by strong tourism

ü JV partner has an operational connection being part of the grocery operator's parent company

ü Mixed-use area with strong competition from competing uses

Business plan achievements:

- Redesign of vacant 38 sq.m unit to provide an additional entry (directly to the car park) to improve potential footfall and marketability; and

- Management of joint venture to implement marketing and communication actions.

Asset management initiatives remaining:

- Reconfigure retail units to allow for broader retail offer / tenant mix.

Route de Saint Malo, 35760, Saint-Grégoire (Rennes), France

(Values refer to 70% interest)

· Acquired in June 2016 for a purchase price of €17.2 million

· Valuation at 30 September 2017: €19.0 million

· Lettable area: c.13,900 sq.m

· Investment rationale:

ü Grocery store anchoring a recently expanded shopping centre that collectively provides a regional shopping centre dominance

ü JV partner has an operational connection being part of the grocery operator's parent company

ü Dominant retail offer in a growing region

Business plan achievements:

- Management of joint venture to implement marketing and communication actions with a view to leveraging off recent centre expansion; and

- Monitoring Mercialys expansion and mitigating any negative impact to grocery offer.

Asset management initiatives remaining:

- Reconfigure retail units to allow for broader retail offer / tenant mix.

Le Directoire, Saint-Cloud (Paris), France

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

· Valuation at 30 September 2017: €33.9 million

· Lettable area: c.15,800 sq.m

· Investment rationale:

ü Supply constrained location

ü Let off affordable/sustainable rents

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

ü Benefits from future infrastructure improvements

ü Mixed-use area with strong competition from competing uses

Business plan achievements:

- A lease extension and 555 sq.m expansion with Outscale, the cloud operating system company, taking its total occupancy at the asset to 1,695 sq.m secured;

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

- Ongoing discussions for a new 12 year lease with a governmental body, for c.400 sq.m of vacant storage accommodation.

Asset management initiatives remaining:

- Implementation of a value-enhancing refurbishment programme, comprising the full renovation of lift lobbies, with completion due in the second half of 2018; and

- Re-gearing future lease expiries to maximise income, limit vacancy and drive unexpired lease profile.

- Acquisition of future floors within the complex provided yield is accretive to return targets

Metromar Shopping Centre, Seville, Spain

(Values refer to 50% interest)

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

· Valuation at 30 September 2017: €26.5 million

· Lettable area: c.23,000 sq.m

· Investment rationale:

ü Dominant retail offer for the local urban catchment

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

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

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

Business plan achievements:

- Advancing discussions with a leisure specialist that will compliment the existing cinema and food offer, whilst creating an additional point of difference relative to competition;

- Removed underperforming restaurant and leased to a burger specialist, strengthening restaurant offer for consumers;

- Obtained proposal to improve brand, signage, wayfaring, lighting and general vibrancy; and

- Discussions to lease the ex Massimo Dutti space to a shoe specialist for which the centre is underweight.

Asset management initiatives remaining:

- Remarketing of the centre to build upon its local dominance;

- Leasing remaining restaurant vacancy and improve offer; and

- Concluding leasing of Massimo Dutti space.

Finance

The use of leverage is assessed on an asset-by-asset basis, secured only against those properties that are most suitable for debt financing and where financing costs/terms are attractive.

As at 30 September 2017, the Company's total debt was €60.4 million across four loan facilities. This represents a loan to value of 25% against the Company's gross asset value.

The loans drawn are secured against the four German properties in Berlin, Frankfurt, Stuttgart and Hamburg, the two French retail assets in Biarritz and Rennes and the Spanish asset in Seville.

The current blended all-in interest rate is 1.3%, significantly below the portfolio yield of approximately 6% p.a.

The average unexpired loan term is 6.8 years.

1All statistics in the Investment Manager's report' reflect a 50% ownership share of Seville and a 70% ownership share of the Biarritz and Rennes investments. As a result, debt allocations for those investments in the table above are similarly proportioned. With regard to debt specifically, further information can be found in notes 12 and of the 2017 Annual Report and the above table includes neither related party transactions nor unamortised fees.

The German and Spanish loans are fixed rate for the duration of the loan term.

The French loan is based on a margin above 3 month Euribor and the Company has acquired an interest rate cap to limit future potential interest costs if Euribor were to increase. The strike rate on the cap is 1.25% p.a. The market value of the interest cap is positive at €0.2 million as at the end of September 2017.

Outlook

Since the Company's IPO in December 2015, we have constructed a portfolio of quality investments across the winning cities and regions of Western Europe, such as Berlin, Paris and Seville. The portfolio is well positioned to deliver sustainable income and growth. The Company is currently paying a dividend of 4.4% and continues to target a 5.5% dividend on the euro IPO issue price once fully invested. We have created a balanced and diversified portfolio, having invested in nine properties across eight 'winning cities'. There are identified acquisitions to deploy the remaining capital.

The remaining investment capacity, which totals approximately €30 million, will be invested in a manner consistent with the existing strategy. We will continue to combine our approach with our bottom-up real estate expertise to deliver sustainable income returns. Once fully invested we will take a disciplined approach to growth. The key winning cities and regions in continental Europe offer opportunities with increasing demand and only limited supply. Our strategy will seek to increase our allocation to logistics warehouses, with a focus on urban logistics, and the growing demand from e-commerce.

Schroder Real Estate Investment Management Limited

5 December 2017

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 and Valuation 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 2017.

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.

A summary of the principal risks and uncertainties faced by the Company which have remained unchanged throughout the year ended 30 September 2017, and actions taken by the Board and, where appropriate, its Committees, to manage and mitigate these risks and uncertainties, is set out 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 and Valuation 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 and Valuation Committee's ongoing risk assessment which has been in place throughout the financial year and up to the date of this Report.

A full analysis of the financial risks facing the Company is set out in note 20 on pages 73 to 78 of the 2017 Annual Report.

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 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. At the annual strategy day and Investment Manager visit 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 6.8 years and the average unexpired lease term, assuming all tenants vacate at the earliest opportunity, is 6.8 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 23 and 24 of the 2017 Annual Report, which could negatively impact its ability to deliver the investment objective, strategy, liquidity and solvency. This includes consideration of a cash flow model prepared by the Investment Manager that analyses the sustainability of the Company's cash flows, dividend cover, compliance with bank covenants, and general liquidity requirements for a five year period.

Based on the assessment, 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 Directors have examined significant areas of possible financial risk and have reviewed cash flow forecasts and compliance with the debt covenants, in particular the loan to value covenant and interest cover ratio. They have not identified any material uncertainties which would cast significant doubt on the Group's ability to continue as a going concern for a period of not less than twelve months from the date of the approval of the financial statements. The Directors have satisfied themselves that the Group has adequate resources to continue in operational existence for the foreseeable future.

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

Statement of Directors' responsibilities

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

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 (IFRS) 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 these financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgments and accounting estimates that are reasonable and prudent;

• state whether applicable Accounting Standards, IFRS 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 a going concern basis unless it is inappropriate to presume that the Company will continue in business.

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 Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS regulation. They 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 Investment Manager is responsible for the maintenance and integrity of the Company's webpage. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Each of the Directors, whose names and functions are listed on page 26 of the 2017 Annual Report, confirm that to the best of their knowledge:

• the 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 net return of the Group and the undertakings included in the consolidation taken as a whole;

• the Strategic Report contained in the Report and Accounts includes a fair review of the development and performance of the business and the position of the Group and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that it faces; and

• 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.

Consolidated and Company Statement of Comprehensive Income

For the year ended 30 September 2017

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

Consolidated and Company Statement of Financial Position

As at 30 September 2017

Consolidated and Company Statement of Changes in Equity

For the year ended 30 September 2017

\* These reserves form the distributable reserves of the Company and may be used for to fund distribution of profits to investors via dividends payments.

Consolidated and Company Statement of Cash Flows

For the year ended 30 September 2017

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 England & Wales. The consolidated financial statements of the Company for the year ended 30 September 2017 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 the Johannesburg Stock Exchange (secondary listing). The registered office of the Company is 31 Gresham Street, London, EC2V 7QA.

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 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 Directors have examined significant areas of possible financial risk including cash and cash requirements and the debt covenants. The Directors have not identified any material uncertainties which would cast significant doubt on the Group's ability to continue as a going concern for a period of not less than twelve months from the date of the approval of the financial statements. The Directors have satisfied themselves that the Group has adequate resources to continue in operational existence for the foreseeable future.

Use of estimates and judgements

The preparation of financial statements in conformity with IFRS 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, including those within joint ventures, which are stated at fair value. The Group uses external professional valuers to determine the relevant amounts. Judgements made by management in the application of IFRS that have a significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are disclosed in note 20 of the 2017 Annual Report.

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 has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account. 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 has been treated as an asset acquisition.

Non-controlling interests

Non-controlling interests are recognised on the basis of their share in the recognised amounts of a subsidiary's identifiable net assets. On the balance sheet non-controlling interests are presented separately from the equity of the owners of the Parent. Profit or loss and total comprehensive income for the period attributable to non-controlling interests are presented separately in the income statement and the statement of comprehensive income.

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 profit or loss, statement of comprehensive income, statement of changes in equity and balance sheet respectively.

Joint arrangements

Under IFRS 11 Joint Arrangements, the Company'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 balance sheet.

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, and the Group's share of movements in other comprehensive income of the investee in other comprehensive income.

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

Acquisitions and disposals are recognised on 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 and loss. Realised gains and losses on the disposal of properties are recognised in profit and loss in relation to carrying value. 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 22, the Group leases out all owned properties on operating leases. A property held under an operating lease is 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.

Prepayments

Prepayments are carried at cost less any accumulated impairment losses.

Borrowing costs

Borrowing costs are charged in full to the Statement of Comprehensive Income as incurred.

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. Payments, including prepayments, made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease. Properties leased out under operating leases are included in investment properties.

Properties leased out under operating leases are included in investment property in the Consolidated Statement of Financial Position (Note 10 of the 2017 Annual Report).

Financial assets and liabilities

Non-derivative financial instruments

Assets

Non-derivative financial instruments comprise trade and other receivables and cash and cash equivalents. These are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition they are measured at amortised cost using the effective interest rate method less any impairment losses.

Trade and other receivables

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost less provision for impairment.

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.

Liabilities

Non-derivative financial instruments comprise loans and borrowings and trade and other payables.

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.

Trade and other payables

Financial liabilities included in trade and other payables are recognised initially at fair value and subsequently at amortised cost. The fair value of a non-interest bearing liability is its discounted repayment amount. If the due date of the liability is less than one year, discounting is omitted.

Derivative financial assets and liabilities comprise of an interest rate cap for hedging purposes (economic hedge). The Group does not apply hedge accounting in accordance with IAS 39. Recognition of the derivative financial instruments takes place when the economic hedging contracts are entered into. They are measured initially and subsequently at fair value; transaction costs are included directly in finance costs. Gains or losses on derivatives are recognised in the profit or loss in net change in fair value of financial instruments at fair value through profit or loss.

Share capital

Ordinary shares, including treasury shares, are classified as equity when there is no obligation to transfer cash or other assets.

Share premium

Share premium represents the excess of proceeds received over the nominal value of new shares issued.

Other reserves

Other reserves mainly consists of a share premium reduction reserve arising from the conversion of share premium into a distributable reserve and unrealised currency exchange gains and losses arising on the revaluation of Sterling denominated share capital and share premium at the balance sheet date.

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

Financial assets

A financial asset, other than those at fair value through profit and loss, is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate.

Significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognised in the profit and loss.

An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost, the reversal is recognised in the profit and loss.

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.

For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the "cash-generating unit").

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.

Service charges

Revenue from service charges is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances, rebates and amounts collected on behalf of third parties.

The Group recognises revenue when the amount of revenue can be reliably measured; it is probable that future economic benefits will flow to the entity; and specific criteria have been met for each of the Group's activities as described below. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

Service charges are recognised in the accounting period in which the services are rendered.

Finance income and expenses

Finance income comprises interest income on funds invested that are recognised in the profit and loss. Interest income is recognised on an accruals basis.

Finance expenses comprise interest expense on borrowings that are recognised in profit and loss. 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 profit or loss 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.

The Group has applied the following standards and amendments for the first time for their annual reporting period commencing 1 October 2016:

§ Accounting for acquisitions of interests in joint operations - Amendments to IFRS 11

§ Annual improvements to IFRSs 2012-2014 cycle

§ Disclosure initiative - Amendments to IAS 1

No new standards, amendments or interpretations, effective for the first time for the financial year beginning on or after 1 January 2017, have had a material impact on the Group or Company.

New standards and interpretations not yet adopted

A number of new standards and amendments to standards and interpretations are effective for annual periods beginning on or after 1 January 2017, and have not been applied in preparing these consolidated financial statements. None of these are expected to have a significant effect on the consolidated financial statements of the Group, except the following set out below:

IAS 12, 'Income taxes' was amended to clarify the accounting for deferred tax where an asset is measured at fair value and that fair value is below the asset's tax base. This amendment is effective for annual periods beginning on or after 1 January 2017. The Group does not expect the amendment to have a material impact on its financial statements since fair value exceeds the cost for almost all of its investment properties. The Group is monitoring fair value movements below cost to assess the impact of the amendment in future periods.

IFRS 9, 'Financial instruments', addresses the classification, measurement and recognition of financial assets and financial liabilities. The standard is effective for accounting periods beginning on or after 1 January 2018. Early adoption is permitted. The Group is still assessing the impact of IFRS 9 and expects it to have an immaterial impact on the accounting for available-for-sale financial assets and derivatives.

IFRS 15, 'Revenue from contracts with customers' deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. The standard is effective for annual periods beginning on or after 1 January 2018 and earlier application is permitted. The Group is still assessing the impact of IFRS 15 and expects it to have an immaterial impact on its current accounting practices.

IFRS 16, 'Leases' was issued in January 2016. For lessees, it will result in almost all leases being recognised on the statement of financial position, as the distinction between operating and finance leases will be removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term and low-value leases. The accounting for lessors will not significantly change. The standard is effective for annual periods beginning on or after 1 January 2019 and earlier application is permitted. The Group is still assessing the impact of IFRS 16 expects it to have an immaterial impact on its current accounting practices.

There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group.

3. 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 twelfth of the aggregate of 1.1% of the EPRA NAV of the Company. The Investment Management Agreement can be terminated by either party on not less than twelve months written notice, such notice not to expire earlier than the third anniversary of Admission, or on immediate notice in the event of certain breaches of its terms or the insolvency of either party. The total charge to profit and loss during the year was €1,849,000 (2016: €1,402,000). At the year end €125,000 (2016: €438,000) was outstanding.

SREIM provides accounting services to the Group with a contracted annual charge of £70,000. The total charge to the Group was €79,000 (2016: €67,000). At the year end €7,000 (2016: €20,000) was outstanding.

SREIM provides administrative and company secretarial services to the Group with a contracted annual charge of £50,000. The total charge to the Group was €56,000 (2016: €48,000). At the year end €5,000 (2016: €14,000) was outstanding.

Details of Directors' fees are disclosed in Note 6 of the 2017 Annual Report.

Details of loans from Mercialys, a related party, are disclosed in Note 17 of the 2017 Annual Report.

Details of loans to Urban SEREIT Holdings Spain S.L., a related party, are disclosed in Note 12 of the 2017 Annual Report.

The Company received management fees of €1,761,000 (2016: €Nil) from subsidiary companies during the year.

4. Property operating expenses

5. Auditors' remuneration

The Group's total audit fees for the year are €280,000 (2016: €161,000).

Non-audit fees charged to the Group by the auditors during the year were €4,000 (2016: €129,000)

6. Other expenses

Directors' fees

Directors are the only officers of the Company and there are no other key personnel. The Directors' annual remuneration for services to the Group was £95,366 (2016: £97,458), as set out in the Remuneration Report on pages 37 to 39 of the 2017 Annual Report. The total charge for directors fees was €120,000 (2016: €129,000), which included employer's national insurance contributions.

7. Taxation

A potential deferred tax asset of €17,000 arose on tax losses which has not been provided for.

A deferred tax charge of €443,000 (2016: €30,000) was provided in relation to investment property revaluation gains, and the deferred tax liability at the year end was €473,000 (2016: €30,000).

8. Earnings per share

Basic earnings per share

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

The prior year net loss attributable to shareholders and basic loss per share amounts have been restated to €2,516,000 and 2.1 cents per share respectively. This is due to a misstatement clerical error within the 2016 annual report and accounts.

Diluted earnings per share

The Group has no dilutive potential ordinary shares, hence the diluted earnings/(loss) per share is the same as the basic earnings/(loss) per share in 2016 and 2017.

Headline earnings per share

The headline earnings and diluted headline earnings for the Group is 5.2 euro cents per share (2016: 0.7 euro cents per share) as detailed on page 82 of the 2017 Annual Report.

9. Dividends paid

Interim dividends of €6,152,000 (2016: €970,000) were paid to shareholders during the year as follows.

10. Investment property

Fair value of investment properties as determined by the valuer totals €202,700,000 (2016: €165,500,000). The fair value of investment properties disclosed above includes a tenant incentive adjustment of €137,000 (2016: €135,000).

The net valuation gain on investment property of €4,284,000 consists of net property revaluation gains of €4,286,000 and a movement of the above mentioned tenant incentive adjustment of €2,000.

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

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

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

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

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

Some of the investment properties are leased to tenants under long-term operating leases with rentals payable monthly.

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

Notes:

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

(2) Weighted by market value

(3) This table includes the Joint Venture investment property valued at €52.9 million which is disclosed within the summarised information within note 12 of the 2017 Annual Report as part of total assets

Notes:

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

(2) Weighted by market value

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: