Sirius Real Estate Regulatory News (SRE)

23 November 2020

Sirius Real Estate Limited

("Sirius Real Estate", "Sirius" or the "Company")

Condensed consolidated financial results* for the six months ended 30 September 2020

Resilient trading, strong cash collection driving FFO growth and underpinning dividend increase

Sirius Real Estate, the leading operator of branded business parks providing conventional space and flexible workspace in Germany, today announces its half year results for the six months ended 30 September 2020.

HIGHLIGHTS

• 7.4% growth in funds from operations to €29.1 million (H1 2019: €27.1 million)

• 97.3% cash (rent and service charge) collection rate with €1.9 million outstanding for the period and similar collection rates already seen in the second half

• Profit before tax of €62.2 million (H1 2019: €79.7 million) which when adjusted for valuation gains of €33.5 million (H1 2019: €58.2 million) shows a 33.4% increase in underlying profitability

• 2.8%1 increase in 1.5x covered dividend per share to 1.82c (H1 2019: 1.77c)

• 4.3% increase in investment property valuation and book value of €1,229.7 million (31 March 2020: €1,179.4 million)

• 5.0% growth in NAV per share to 81.18c (31 March 2020: 77.35c)

• Total enquiries up 17.4% on H1 2019 with strong momentum carried into the second half. Sales conversion rate remained robust at 13.4%

• Acquisition of industrial and office park in Norderstedt for €9.1 million agreed in September and due to complete in December 2020

• Net LTV2 of 31.6% (31 March 2020: 32.8%) following the draw down of the last tranche of the €50.0 million unsecured Schuldschein debt which has a blended interest rate of 1.60%, an average maturity of 3.2 years and no amortisation

• Total cash balances of €128.4 million including €112.4 million of which is unrestricted providing significant firepower for strong pipeline of acquisitions

• Awarded AA MSCI ESG Rating in October 2020

1 Interim dividend representing 65% of FFO (H1 2019: 67% of FFO).

2 Includes unrestricted cash balances.

Andrew Coombs, Chief Executive Officer of Sirius Real Estate, said: "In what has been an unprecedented year with the COVID-19 pandemic causing widespread disruption to businesses the world over, Sirius' strong first half results are all the more impressive. A combination of the quality and appeal of our assets to tenants, the ongoing operational excellence of our team and its fast response to the crisis, as well as business confidence in the robust and efficient way in which the German government has dealt with the pandemic, have allowed us to deliver year-on-year growth across our key operating metrics and maintain high cash collection rates. However, while the recent news of the potential vaccine has provided some much needed light at the end of the tunnel, we are not out of the woods yet and much uncertainty about the speed of any recovery remains. Nevertheless, I take great confidence from the fact that the wide range of competitively priced flexible and traditional office, storage, as well as industrial and manufacturing spaces we offer will continue to appeal to our growing customer base and drive income growth.

"Looking ahead we have a strong cash position and other liquid resources available to deploy into our healthy pipeline of opportunities as the investment markets begin to open up. Additionally, they allow us to continue to execute our disciplined capital expenditure and asset management programmes, which have delivered highly attractive returns over the years, in order to unlock the potential of our value add assets which comprise just over half of our €1.2 billion portfolio. Through organic and acquisitive growth we believe there is an opportunity to grow our funds from operations over the next few years, which should support a growing dividend."

For further information:

Sirius Real Estate

Andrew Coombs, CEO

Alistair Marks, CFO

+49 (0) 30 285010110

FTI Consulting (financial PR)

Richard Sunderland/ Claire Turvey/ Talia Jessener(+44) 020 3727 1000SiriusRealEstate@fticonsulting.com

NOTES TO EDITORS

About Sirius Real Estate

Sirius is a property company listed on the main market and premium segment of the London Stock Exchange and the Main Board of the Johannesburg Stock Exchange. It is a leading operator of branded business parks providing conventional space and flexible workspace in Germany. The Company's core strategy is the acquisition of business parks at attractive yields, the integration of these business parks into its network of sites under the Company's own name as well as offering a range of branded products within those sites, and the reconfiguration and upgrade of existing and vacant space to appeal to the local market, through intensive asset management and investment. The Company's strategy aims to deliver attractive returns for shareholders by increasing rental income and improving cost recoveries and capital values, as well as by enhancing those returns through financing its assets on favourable terms. Once sites are mature and net income and values have been optimised, the Company may take the opportunity to refinance the sites to release capital for investment in new sites or consider the disposal of sites in order to recycle equity into assets which present greater opportunity for the asset management skills of the Company's team.

Sirius also has a venture with clients represented by AXA Investment Managers - Real Assets. Titanium was formed through the acquisition by AXA Investment Managers - Real Assets, on behalf of its clients, from Sirius, of a 65% stake in five business parks across Germany. Sirius retained the remaining 35%. The venture seeks to grow primarily through the acquisition of larger stabilised business park assets and portfolios of assets with strong tenant profiles and occupancy. As well as its equity interest, Sirius acts as operator of the assets in the venture, on a fee basis. Sirius will continue to grow its wholly owned portfolio through acquisitions of more opportunistic assets, where it can capitalise on its asset management expertise to maximise utilisation of the space, grow occupancy and improve quality of the tenants. The strategies have been clearly defined so that the venture does not conflict with Sirius's existing business.

For more information, please visit: www.sirius-real-estate.com

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LEI: 213800NURUF5W8QSK566

JSE Sponsor: PSG Capital

Business update

Resilient trading and recovering markets

In summary:

• Resilient trading performance despite the impact of Covid-19 and expected move-outs

• Profit before tax of €62.2 million compared to €79.7 million in the same period last year

• 7.4% increase in funds from operations ("FFO") to €29.1 million from €27.1 million in the same period last year

• 97.3% cash collection (rent and service charge excluding VAT) performance

• Dividend of 1.82c declared, 1.6 times covered by FFO

• Resumption of transactional activity in September with the notarisation of a business park located in Norderstedt for €9.1 million and strong pipeline

• Significant cash resources available with €112.4 million of unrestricted cash on balance sheet and net LTV of 31.6%

Overview

Sirius has had an encouraging six month trading period, recording increases in funds from operations and a 4.3% like-for-like increase in the valuation of its investment property. Despite the unique challenges of Covid-19, Sirius was able to achieve a 97.3% cash collection rate in the period whilst maintaining occupancy and annualised rent roll. This highlights the resilience of the Sirius business model, the appeal of our assets to tenants and the tenacity of our employees. The Company strengthened its balance sheet in the period with the drawdown of the final tranche of its unsecured Schuldschein facility and, at period end, had a net LTV of 31.6%.

This robust performance has led Sirius to declare a 2.8% increase in dividend for the six months ended 30 September 2020 to 1.82c representing 65% of the FFO compared to the dividend paid for the same period in the prior year, which was based on 67% of FFO.

Whilst uncertainty continues, the depth and scale of the economic and fiscal response of the German government to the Covid-19 outbreak to date has been decisive and far reaching. With a massive Covid-19 recovery stimulus announced in June 2020, Germany, thus far, has gone further and committed more resource than its European neighbours in addressing the challenges of the pandemic. State support has been wide ranging and includes grants, loans and subsidies aimed directly at maintaining employment ("Kurzarbeit") as well as a variety of other measures aimed at supporting businesses of all sizes and across all industries. With the formal announcement of the extension of the existing Kurzarbeit scheme to 31 December 2021, the message from the German government is that it is fully committed to supporting business for as long as necessary. 

Financial performance

The Company reported a profit before tax for the six month period ended 30 September 2020 of €62.2 million (30 September 2019: €79.7 million) including €33.5 million of net gains (30 September 2019: €58.2 million) from owned property revaluations (net of capex and adjustments in relation to lease incentives and broker fees). Total revenue, which comprises rent, fee income from Titanium, other income from investment properties and service charge income, increased by 9.8% to €79.3 million (30 September 2019: €72.2 million). Total annualised rent roll decreased to €89.2 million from €90.3 million at 31 March 2020 which is predominantly due to losing €0.7 million per annum from the sale of the Weilimdorf asset at the start of the period.

FFO for the six months grew to €29.1 million (2.80c per share) compared to €27.1 million (2.65c per share) for the same period in the prior year, an increase of 5.7% on a per share basis. Earnings of €56.6 million and 5.45c per share decreased by 20.6%, reflecting the exceptionally strong valuation gains of €69.9 million recorded in the prior period. Adjusted EPS, which excludes valuation movements as well as exceptional items, increased 8.8% to 2.73c per share from 2.51c per share highlighting the positive operational performance in the period. The following table sets out the key earnings per share metrics:

Table 1: Earnings per share

The Directors have chosen to disclose EPRA earnings, which are widely used alternative metrics to their IFRS equivalents (further details on EPRA best practice recommendations can be found at www.epra.com). Refer to note 2(c) for further information.

With the investment market slowing down and the Company adopting a cautious approach to transactions over the last six months there was no contribution from acquisitions in the period under review. However, with the Norderstedt asset scheduled for completion in December, €112.4 million of unrestricted cash resources available and assuming markets continuing their recent trend back towards normality, the contribution of acquisitions in the second half of the financial year is expected to be more meaningful.

Net asset value per share ("NAV") increased by 5.0% to 81.18c (31 March 2020: 77.35c) in the period whilst adjusted net asset value per share ("adjusted NAV") increased by 5.2% to 85.81c (31 March 2020: 81.54c). Following the introduction of new EPRA net asset metrics effective for reporting periods beginning 1 January 2020, the Company has chosen to disclose EPRA net tangible assets ("EPRA NTA") which adds back deferred tax and financial derivatives including that relating to investments in associates, excludes goodwill and intangible assets and is calculated after taking into consideration the effect of share incentive plans on the number of shares in issue. Further details relating to EPRA net asset metrics can be found in note 11 of the Interim Report. In the period under review EPRA NTA increased by 4.9% to 84.42c (31 March 2020: 80.44c). The main driver of the increases to net asset value was the valuation uplift as much of the recurring profit before tax was offset by the dividend payment in the period. The valuation metrics are described in more detail below and the movement in net asset value in the period can be seen in the following table:

Table 2: Net assets per share

* See note 11 of the Interim Report.

Lettings and rent roll development 

Total annualised rent roll of €89.2 million reduced by €1.1 million since the year end, which was primarily attributable to the sale of the Weilimdorf asset on 1 April 2020 which generated €0.7 million of annualised rent roll. Encouragingly, despite the impact of Covid-19 and two large expected move-outs amounting to more than 18,500 sqm which generated annualised rent roll of €1.5 million, like-for-like annualised rent roll saw only a modest decrease of 0.4% to €89.2 million from €89.6 million. Total move-ins of 68,606 sqm generated €5.5 million in annualised rent roll at an average rate of €6.66 per sqm, higher than the €6.37 psqm average across the total move-outs, where €6.7 million of annualised rent roll was generated across 87,033 sqm. Total occupancy remained high at 83.9% but slightly below the 85.3% at 31 March 2020, while the like-for-like average rate increased by 1.1% to €6.03 psqm from €5.96 psqm. The movement in annualised rent roll is described in more detail below:

Sirius reported an increase in enquiry levels of 17.4% compared to the same period in the last year with a total of 8,284 enquiries generated, which, given the restrictions encountered over the period, represents a significant achievement. Analysis of enquiry data confirmed a marked increase in the number of enquiries for commercial and self-storage space which combined makes up 36% of the Company's total lettable area. The monthly development of enquiries compared to the prior year is detailed in the table below:

Table 3: Enquiries

What was most encouraging was that over this first half year, in spite of all the challenges of completing deals during lockdown, the Company was still able to achieve an average conversion ratio (enquiries to new lettings) of 13.4%, only slightly down from 14.7% for the same period in the prior year. The Company's lettings conversion ratio did fall to just under 10% in April following the immediate impact of the Covid-19 outbreak; however, this picked up considerably once the main restrictions were lifted in Germany in June.

Whilst the six months to September 2020 saw a greater number of deals agreed the volume of square metres decreased by 11.0% or 9,184 sqm compared to the same period in the prior year and the average deal size reduced from 80 sqm to 67 sqm. The new lettings in the period comprised a mixture of large long-term and smaller flexible lettings across office, storage and production spaces. Details of letting numbers and square metre volumes compared to the same period in the previous year are set out in the table below:

Table 4: Lettings

Tenant retention in the period was encouraging with 68% of square metres up for renewal in the period being successfully extended (H1 2019: 70%) representing a strong performance given the economic environment during the period.

Overall, the consistency in renewals, high volumes of enquiries and robust sales conversion levels provide a clear demonstration of the ability of the Company's internal operating platform to perform in challenging market conditions. Furthermore, with a variety of spaces and a wide range of products the Company is well placed to continue meeting the changing demands of tenants as businesses and landlords adapt to the challenges presented.

Cash collection

Cash collection has taken on additional importance this year as the Covid-19 crisis has developed. Sirius benefits from an experienced and professional in-house cash collection team which, together with onsite staff, was quick to react to the pandemic and, as a result, has been able to work closely with tenants in managing debt in the period. Unlike many other companies which invoice tenants for future periods, Sirius invoices on the first working day of each month resulting in a monthly billing and collection cycle. The Group's cash collection performance in the six month period to 30 September 2020 relating to rent and service charge prepayments (excluding VAT) is detailed in the following table:

Table 5: H1 Cash collection

Out of total billing of €70.5 million, uncollected debt for the six month period amounted to €1.9 million (excluding VAT) representing a cash collection rate of 97.3% with outstanding rent of €1.4 million and service charge prepayments of €0.5 million. From a tenant base of over 5,000 tenants as at 30 September 2020 the Group had issued eleven deferred payment plans to tenants adversely impacted by Covid-19 which accounts for €0.3 million of the outstanding amount. The deferred payment plans spread the payment of rent and service charge prepayments over an average of eight months. As at period end all plans were being fully complied with. Provisions relating to these outstanding rents and service charge payments in the statement of comprehensive income amounted to €0.9 million. The Company expects to collect the majority of the outstanding debt for the period over the next twelve months through its regular debt collection activities.

One of the factors supporting the Company's cash collection success is its diversified tenant base and range of products. As at 30 September 2020 the Company had a total of 5,115 tenants with its top 50 tenants representing 42% of annualised rent roll, its SME tenants representing 52% and its retail customers 6%. The Company's top tenant represents 2.7% of annualised rent roll with government tenants representing 7.6%. The Company has a wide range of spaces including office (31.9%), storage (32.6%) and production (21.8%). In addition, 6.3% of the Company's space relates to high-yielding and flexible Smartspace products, more detail on which follows later in this report. The large number of tenants, broad mix of spaces and range of products illustrate a balanced and well-constructed tenant portfolio that includes a range of industries and risk profiles.

Portfolio valuation

Demand from investors for industrial and office business parks in Germany returned strongly following a brief hiatus after the immediate outbreak of Covid-19. Both domestic and foreign sources of capital continue to compete for assets attracted by the high-yielding nature and growth potential of the asset class. Whilst yield movement has been a key feature of valuation development, the upgrading and repositioning of assets through our capital investment programmes and the resulting organic rental growth continue to be a major focus and driver of value for the Company.

The owned investment property portfolio was independently valued by Cushman & Wakefield LLP at €1,229.7 million (31 March 2020: €1,189.5 million*), which converts to a book value of €1,225.5 million (31 March 2020: €1,176.1 million) after allowing for the provision for lease incentives. Leased investment properties amounted to €17.7 million (31 March 2020: €17.8 million).

* Including assets held for sale of €10.1 million.

Table 6: Reconciliation of market value to book value

The valuation uplift for the period relating to owned investment properties was €50.3 million (excluding assets held for sale) resulting in a net valuation gain of €34.4 million after taking into account €15.9 million of capital expenditure and adjustments for broker fees. The gain on revaluation on investment properties recorded in the consolidated statement of comprehensive income, which also adjusts for lease incentives and deficit on revaluation relating to leased assets, was €31.9 million. The valuation of the portfolio by Cushman & Wakefield for the six months ended 31 March 2020 was disclosed on the basis of "material uncertainty" due to Covid-19; however, this was lifted in August 2020 resulting in the valuation for 30 September 2020 being conducted on a normalised basis. The valuation increase compared to 31 March 2020 was attributable to 34 bps of gross yield compression reflecting the way in which markets in Germany have recovered as well as the continued attractiveness of the asset class amongst income and capital growth focused investors. The increase in like-for-like valuation compared to September 2019, the last period which was not subject to the "material uncertainty" clause, was €72.1 million and attributable to an increase in annualised rent roll of €3.6 million together with 15 bps of gross yield compression. The gross yield of the portfolio at 30 September 2020 was 7.3% (31 March 2020: 7.6%).

As at 30 September 2020, the portfolio of owned properties, which excludes managed properties and those within the Titanium Venture, comprised 56 assets, with total lettable space of 1.5 million sqm. The movement in book value for the period for these properties can be reconciled as follows:

Table 7: Movement in book value in the period

* Including assets held for sale of €10.1 million.

As can be seen from the table above, the €50.3 million or 4.3% increase in valuation of owned investment property more than offsets the impact of the sale of the Weilimdorf asset and capex investment in the period and as a result the owned investment property book value was €1,225.5 million (31 March 2020: €1,186.2 million).

The Company's leased investment properties are subject to an internal valuation based on discounted cash flows. Leased property primarily relates to an operating and management agreement on a property located in Munich that it sold in a sale-and-leaseback transaction in 2017. As at 30 September 2020 the remaining lease term was 2.5 years. During the period a lease extension of a second operating and management agreement on an asset located in Essen resulted in €1.5 million of additions being recorded. The deficit on revaluation relating to leased investment properties of €1.6 million recorded in the period represents the valuation relating to the lease extension and amortisation of the capitalised lease with the corresponding expense recorded within the gain on revaluation of investment properties in the statement of comprehensive income. 

The total owned portfolio now comprises value-add assets which make up 57% of the total value and mature assets that account for 43%. The mature assets, with occupancy of 95.2%, have typically been owned for a number of years and have been subject to intensive asset management and investment. Whilst the potential for income and value creation reduces when assets reach maturity, some opportunity does remain and these assets also help support the highly competitive loan facilities that Sirius has been able to secure in recent years.

Table 8: Book value valuation metrics

The value-add assets, with 78.1% occupancy and valued at a gross yield of 7.6%, provide much of the opportunity for future value and income creation. With total vacant space amounting to 213,449 sqm and 84,765 sqm of this space being subject to the Company's capex investment programmes, Sirius intends to continue investing in organic growth as it has successfully done in recent years. 

Capex investment programmes

During the period the Group continued to upgrade and transform its assets through its capex investment programmes. The Company's ability to understand and react to demand in micro markets and to generate high levels of enquiries provides a strategic advantage and confidence to develop space. In the six month period under review work continued across both of the Group's capex investment programmes which together made a strong contribution to overall Company performance.

The original capex investment programme, covering over 200,000 sqm of space, is substantially complete and, with an annual return on cost in excess of 50%, continues to generate incremental value as improvements in occupancy and rate are achieved. For further details of the original capex investment programme, please refer to the business analysis section of this report.

Whilst the original capex investment programme was based on all assets acquired prior to April 2016 the new acquisition capex investment programme applies to all assets acquired since April 2016. The programme now includes 26 sites and a total of 171,161 sqm of sub-optimal vacant space. The budgeted investment of €42.1 million on this space is expected to generate annualised rent roll of €12.3 million at 82% occupancy. Importantly, due to the extent of transformation and upgrading work within this programme, the impact on valuation has been and is expected to continue to be significant. Steady progress has been made on the new acquisition capex investment programme with a total of 127,895 sqm of space fully converted at 30 September 2020. An investment of €25.0 million in this space is generating annualised rent roll of €8.0 million on occupancy of 71% whilst the remaining vacant space of 37,090 sqm is being marketed for letting and expected to require an additional €1.4 million investment. When budgeted occupancy and rental rate is achieved a further €1.4 million of annualised rental income as well as further increases in valuation are expected from this space.

In addition to the completed space, a total of 43,266 sqm of space is either in progress or awaiting approval to commence. A further €11.9 million is expected to be invested in this space, on top of the €1.8 million already spent, and, based on achieving budgeted occupancy, incremental annualised rent roll in the region of €2.8 million is expected to be generated, also with further valuation increases.

Further details on the new acquisition capex investment programme are set out in the table below:

Table 9: New acquisition capex investment programme

Whilst the volume of square metres added to the new acquisition capex investment programme in the six month period to 30 September 2020 was limited due to lack of acquisition activity, the return of transactional activity with a focus on assets with sub-optimal vacancy is expected to provide opportunity to grow the capex investment programme going forward.

The Company continues to look for value-add opportunities within the existing portfolio by upgrading spaces returned each year as a result of move-outs. Approximately 38,000 sqm of sub-optimal quality space has been identified for investment within the current vacancy, which was either vacated within the period or the previous financial year. The upgrading of this space is expected to require an investment of €9.9 million and generate €2.9 million in annualised rent roll, representing an uplift of approximately 20% on the rate at which the space was previously let.

The capex investment programmes combined with vacated space suitable for investment as described above account for approximately one-third of the total vacant space of 237,308 sqm. With structural vacancy of 2% the remaining lettable vacancy is 119,141 sqm. Further details on vacancy and related investment and estimated rental values are detailed in the table below:

Table 10: Vacancy summary

Sirius continues to focus on acquiring assets with vacancy as well as investing in and upgrading space vacated through tenant churn, thereby allowing the Company to refuel its capex investment programmes.

Asset recycling, acquisitions and disposals

As expected, the transactional market in Germany significantly contracted in the second and third quarters of the calendar year with those transactions completing representing deals that had been agreed prior to the Covid-19 outbreak. However, as time has progressed, transaction volumes have increased with many commentators predicting a busy period ahead as markets recover and investor confidence returns. The Company chose to take a conservative approach in the six month period under review focusing on trading throughout the Covid-19 period whilst strengthening its balance sheet in order to position itself to take advantage of opportunities as they arise going forward.

The reduction in transactional activity also provided the Company with the opportunity to focus its efforts on developing its relationships with the agent and broker community. The Company held a total of 16 socially distanced events throughout the country enabling constructive exchange with the investment and lettings agents that resulted in an increase in the number of opportunities provided by these channels.

In September 2020 the Company notarised the acquisition of the Norderstedt asset in close proximity to Hamburg International Airport and Hamburg Hafen, the pre-eminent German port. This mixed-use asset is fully let to twelve tenants, generates €783,000 of annualised rent roll and provides operational synergies with the Company's three other assets in and around Hamburg. Whilst the asset provides attractive day-one income as a result of an initial gross yield of 8.6%, further opportunity exists through reversion relating to vacating tenants and the possibility to increase lease lengths.

The Company's pipeline of opportunities is strong, both for its own balance sheet and the Titanium Venture with AXA Investment Managers - Real Assets, and it is currently in exclusivity on a number of properties.

The key details of the asset notarised in the period as well as the assets in exclusivity can be seen within the table below: 

Table 11: Notarised acquisitions

In addition, the Company completed the disposal of the Weilimdorf asset in April 2020. The asset, an office building let to a single tenant operating within the car manufacturing industry, was sold for total proceeds of €10.1 million, representing an EPRA net initial yield including estimated purchasers' costs of 6.3% and 11% premium to book value at date of notarisation.

Smartspace

The Smartspace range of products continues to provide Sirius with the ability to create income and significant value from challenging space within the portfolio that other operators often regard as structural vacancy. The Smartspace products are designed with tenant flexibility in mind at a fixed cost which has proven to be particularly desirable in a period of significant economic and real estate sector change where flexibility and cost certainty has become a key tenant priority.

Total Smartspace in the Sirius-owned portfolio now stands at 85,845 sqm across five products and generates €5.8 million of annualised rent roll equating to 6.5% of the Company's total annualised rent roll. An additional 4,087 sqm of Smartspace was created in the period predominantly on workboxes and storage space, which have both seen a marked increase in demand since the Covid-19 outbreak.

At the beginning of the period under review the Company launched its fourth five-star serviced office product, First Choice Business Centre ("FCBC"), located in Hallbergmoos, in close proximity to Munich Airport. Due to the Covid-19 outbreak airport traffic is significantly down, resulting in the opening and performance of the FCBC Hallbergmoos being slower than expected. The Company remains confident that demand in this area will return and that this business centre will be successful. Excluding Hallbergmoos, FCBC occupancy increased to 68.0% as at 30 September 2020 (30 September 2019: 61.6%).

The table below shows how Smartspace products contribute to the portfolio as a whole:

Table 12: Smartspace

Financing and loan to value

The Company continues to search for ways to improve its future financing through unsecured debt whilst optimising its existing debt. In the six month period to 30 September 2020 the Company drew down the final tranches of its unsecured Schuldschein loan amounting to €20.0 million that was agreed in the prior period. The total Schuldschein loan amounts to €50.0 million and has a blended interest rate of 1.6% with a remaining maturity of 3.2 years and no amortisation.

Shortly after period end the Company repaid its Bayerische Landesbank facility, which had an outstanding balance of €22.8 million at 30 September 2020 and matured on 19 October 2020. During the term of the loan the net operating income of the assets increased by 43.1% and the valuation of the financed assets increased by 73.5% to €81.6 million. Discussions with Bayerische Landesbank to create a new facility against these assets are well advanced and the Company expects to finalise and draw down before the financial year end.

As at 30 September 2020 the Company had a net LTV, which includes unrestricted cash balances of €112.4 million, of 31.6% (31 March 2020: 32.8%) which is well within its stated policy cap of 40%.The movements in total debt, excluding loan issue costs, during the period are summarised in the table below:

Following the final Schuldschein drawdown, the weighted average interest rate at 30 September 2020 was 1.5% (31 March 2020: 1.5%). The Group is subject to various hard and soft covenants with which it complied in the period under review. Interest cover at EBITDA level amounted to 8.0x while the Company has a total of twelve assets held on an unencumbered basis with a book value of €124.0 million.

Dividend

The Board has declared a dividend for the six months ended 30 September 2020 of 1.82c per share, representing a pay-out ratio of 65% of FFO, and an increase of 2.8% on the 1.77c dividend relating to the same period last year that was based on 67% of FFO.

The ex-dividend date will be 15 December 2020 for shareholders on the South African register and 17 December 2020 for shareholders on the UK register. The record date will be 18 December 2020 for shareholders on the South African and UK registers and the dividend will be paid on 21 January 2021 for shareholders on both registers. A detailed dividend announcement will be made in due course, including details of a scrip dividend alternative.

Principal risks and uncertainties

The key risks that affect the Group's medium-term performance and the factors that mitigate these risks have not materially changed from those set out in the Group's Annual Report and Accounts 2020. For further information on principal risks and uncertainties, please see note 2(f) of the Interim Report.

Related parties

There were no new related parties recorded in the period. See note 25 of the Interim Report for details of existing related parties and transactions with related parties in the period.

Board

During the period the Company welcomed Caroline Britton and Kelly Cleveland as independent Non-executive Directors and members of the Board Committees.

Caroline is a Chartered Accountant and was an audit partner at Deloitte LLP from April 2000 to May 2018, having qualified with its predecessor firm, Touche Ross & Co. In addition to providing audit and advisory services in the financial services sector, Caroline ran the FTSE 250 Deloitte NextGen CFO programme. Caroline is a non-executive director of Moneysupermarket.com Group PLC and Revolut Limited, at both of which she chairs the audit committees. Caroline is a member of the Nomination, Remuneration and Sustainability and Ethics Committees and became the Chair of the Company's Audit Committee on 31 July 2020.

Kelly is a Chartered Accountant, having qualified in New Zealand in 2001 at PricewaterhouseCoopers, and has worked in real estate in the UK since 2004. She is currently head of investment at British Land Co PLC, the FTSE 100 REIT, where she has worked for more than nine years, including three years in group strategy. Kelly previously held roles in corporate finance and finance respectively at the Grosvenor Group and Burberry Group plc. Kelly is a member of the Audit, Nomination, Remuneration and Sustainability and Ethics Committees.

Jill May and Justin Atkinson stepped down from the Board at the close of the Company's Annual General Meeting on 31 July 2020 and we thank them for their contributions to the Board during their time with us.

Outlook

The first half of the financial year was focused on ensuring the health and wellbeing of our employees and tenants whilst maintaining business continuity and trading performance. Our results for the six months ending 30 September 2020 demonstrate the ability of Company to navigate through these uncertain times and in particular the operational excellence and adaptability of the Company's operating platform. Underpinning the Company's relative success during the period is an exceptionally well-diversified tenant base and wide range of products and spaces that is continually tailored to meet tenants' changing needs.

Against the background of the second lockdown in Germany in November 2020 successful trials of a potential vaccine provide hope that there may be an end in sight to Covid-19 uncertainty and the related economic difficulties. Germany appears to have been impacted less than many other countries, in particular compared with other G7 countries. Furthermore, the breadth and extent of state support has, thus far, limited the economic impact of Covid-19 and, as a result, confidence has returned within the German commercial real estate market. Occupier demand for both conventional and flexible space has remained strong while investor appetite for the German light industrial market and the stable high-yielding income returns it offers has resulted in a return of transactional activity and downward pressure on yields.

With a strong and well-capitalised balance sheet the Company has significant acquisition capacity on its own balance sheet or through the Titanium Venture. Sirius also has the operational and financial means to continue transforming its assets by investment in vacant or sub-optimal space, as well as lower quality space returned through tenant move-outs. As such, the Company is well positioned for a busy and progressive second half of the financial year and is trading in line with the Board's expectations.

Andrew Coombs

Chief Executive Officer

Alistair Marks

Chief Financial Officer

20 November 2020

Statement of Directors' responsibilities

Each of the Directors, whose names and functions appear below, confirm to the best of their knowledge that the unaudited condensed consolidated interim financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting", as issued by the IASB, and the interim management report herein includes a fair review of the information required by the Disclosure Guidance and Transparency Rules ("DTR"), namely:

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

• DTR 4.2.8 (R): any related party transactions that have taken place in the six month period ended 30 September 2020 that have materially affected, and any changes in the related party transactions described in the 2020 Annual Report that could materially affect, the financial position or performance of Sirius Real Estate Limited during the period.

The Directors of Sirius Real Estate Limited as at the date of this announcement are set out below:

• Danny Kitchen, Chairman*

• James Peggie, Senior Independent Director*

• Andrew Coombs, Chief Executive Officer

• Alistair Marks, Chief Financial Officer

• Caroline Britton*^

• Mark Cherry*

• Kelly Cleveland*^

* Non-executive Directors.

^ Appointed 1 June 2020.

A list of the current Directors is maintained on the Sirius Real Estate Limited website: www.sirius-real-estate.com.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in Guernsey governing the preparation and dissemination of financial information differs from legislation in other jurisdictions.

By order of the Board

Alistair Marks

Chief Financial Officer

20 November 2020

Independent Review Report to Sirius Real Estate Limited

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2020 which comprises the unaudited consolidated statement of comprehensive income, the unaudited consolidated statement of financial position, the unaudited consolidated statement of changes in equity, the unaudited consolidated statement of cash flow and the related notes 1 to 27. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with:

- the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority; 

- the South African Institute of Chartered Accountants (SAICA) Financial Reporting Guides, as issued by the Accounting Practices Committee;

- the Financial Pronouncements as issued by the Financial Reporting Standards Council of South Africa.

As disclosed in note 2(d), the annual financial statements are prepared in accordance with IFRS. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting".

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of Review

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

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2020 is not prepared, in all material respects, in accordance with:

- International Accounting Standard 34, "Interim Financial Reporting";

- the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority;

- the South African Institute of Chartered Accountants (SAICA) Financial Reporting Guides, as issued by the Accounting Practices Committee; and

- the Financial Pronouncements as issued by the Financial Reporting Standards Council of South Africa.  

Ernst & Young LLP

London

20 November 2020

Consolidated statement of comprehensive income

for the six months ended 30 September 2020

All operations of the Group have been classified as continuing.

Consolidated statement of financial position

as at 30 September 2020

The financial statements in this interim report were approved by the Board of Directors on 20 November 2020 and were signed on its behalf by:

Danny Kitchen

Chairman

Company number: 46442

Consolidated statement of changes in equity

for the six months ended 30 September 2020

Consolidated statement of cash flow

for the six months ended 30 September 2020

* Including amortisation of intangible assets of €351,000.

** Including capitalised loan issue cost of €401,000.

Notes forming part of the financial statements

for the six months ended 30 September 2020

1. General information

Sirius Real Estate Limited (the "Company") is a company incorporated in Guernsey and resident in the United Kingdom for tax purposes. Sirius holds a dual primary listing on the Main Market of the London Stock Exchange ("LSE") (primary listing) and the Main Board of the Johannesburg Stock Exchange ("JSE").

The consolidated financial information of the Company comprises that of the Company and its subsidiaries (together referred to as the "Group") for the six month period to 30 September 2020.

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

2. Significant accounting policies

(a) Basis of preparation

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

The financial information in these unaudited interim condensed set of consolidated financial statements does not comprise statutory accounts. These unaudited interim condensed set of consolidated financial statements has been reviewed, not audited, by the Group's auditors, Ernst & Young LLP, which issued an unmodified review opinion. The financial information presented for the year ended 31 March 2020 is derived from the statutory accounts for that year. Statutory accounts for the year ended 31 March 2020 were approved by the Board on 29 May 2020. The report of the auditors on those accounts was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under Sections 263 (2) or (3) of the Companies (Guernsey) Law, 2008.

As at 30 September 2020 the Group's consolidated interim financial statements reflect changes in the application of accounting policies as described in note 2(b).

(b) Changes in accounting policies

The new standards and interpretations to be applied as at 1 April 2020 do not have an impact on the interim financial statements of the Group.

(c) Non-IFRS measures

The Directors have chosen to disclose EPRA earnings, which are widely used alternative metrics to their IFRS equivalents (further details on EPRA best practice recommendations can be found at www.epra.com). Note 10 to the interim financial statements includes a reconciliation of basic and diluted earnings to EPRA earnings.

EPRA introduced three new features of the net asset valuation metrics, which replace EPRA NAV for accounting periods commencing in January 2020: EPRA net reinstatement value, EPRA net tangible assets and EPRA net disposal value. The Directors have disclosed the three new EPRA measures in note 11 and disclose EPRA net tangible assets as the primary EPRA measure. For further explanation, please see note 11.

The Directors are required, as part of the JSE Listing Requirements, to disclose headline earnings; accordingly, the headline earnings calculation is prepared using the Headline Earnings Circular issued by the South African Institute of Chartered Accountants, resulting in adjustments for the revaluation surplus net of tax and gain/loss on sale of properties/investment in subsidiaries net of related tax. Note 10 to the interim financial statements includes a reconciliation between IFRS and headline earnings.

The Directors have chosen to disclose adjusted earnings in order to provide an alternative indication of the Group's underlying business performance; accordingly, it excludes the effect of adjusting items net of related tax. Note 10 to the interim financial statements includes a reconciliation of adjusting items included within adjusted earnings, with those adjusting items stated within administrative expenses in note 5.

The Directors have chosen to disclose adjusted profit before tax and funds from operations in order to provide an alternative indication of the Group's underlying business performance and to facilitate the calculation of its dividend pool; a reconciliation between profit before tax and funds from operations is included within note 24 to the interim financial statements. Within adjusted profit before tax are adjusting items as described above gross of related tax.

Further details on non-IFRS measures can be found in the business analysis section of this document.

(d) Statement of compliance

The unaudited condensed interim financial statements have been prepared in accordance with the Disclosure and Transparency Rules of the United Kingdom Financial Conduct Authority, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee, Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council, the listing requirements of JSE, and IAS 34 "Interim Financial Reporting". They do not include all of the information required for the full annual financial statements and should be read in conjunction with the consolidated financial statements of the Group as at and for the year ended 31 March 2020. The unaudited condensed interim financial statements have been prepared on the basis of the accounting policies set out in the Group's annual financial statements for the year ended 31 March 2020 except for the changes in accounting policies as shown in note 2(b). The financial statements for the year ended 31 March 2020 have been prepared in accordance with International Financial Reporting Standards ("IFRS") issued by the IASB.

(e) Going concern

Given the impact of Covid-19 on the economic conditions in which the Group is operating, the Directors have placed a particular focus on the appropriateness of adopting the going concern basis in preparing the financial statements for the half year ended 30 September 2020. The Group has prepared its going concern assessment for the twelve-month period to the end of November 2021 (the 'going concern period'). It is based on the same financial model that supported the Group's going concern and viability statement detailed within its Annual Report and Accounts 2020, updated on the basis of the assumptions set out below. It considers the Group's Principal Risks and Uncertainties set out in note 2 (f) and is dependent on a number of factors including financial performance, continued access to lending facilities (see note 20) and the ability to continue to operate the Group's secured debt structure within its financial covenants. The Group's secured debt typically contains soft covenants that result in operational restrictions and hard covenants that, if breached, represent default events unless cured with partial repayments. The cashflow projections also made assumptions on future trading performance, capital expenditure, refinancing requirements, and potential valuation movements in order to estimate the level of headroom on facilities and covenants for loan to value and interest cover ratios.

In considering going concern, the Directors reviewed detailed stress tests and sensitivity analysis provided by Management which modelled the effects of extreme and more realistic scenarios, taking into account the potential impact of Covid-19 on the Group's financial position and prospects. The Directors' assessment of going concern is based on cashflow and covenant projections over the going concern period.

The limited impact of Covid-19 on the business within the six month period to 30 September 2020 does not indicate a material deterioration in the Group's income streams or material falls in asset values is likely. The Directors however continue to consider it prudent to test the going concern assessment on what the Directors consider to be a 'severe but plausible' downside scenario that results from a major Covid-19 impact. The assumptions included in the 'severe but plausible' downside scenario relating to the going concern period included:

• reduction in occupancy to 75% to March 2021 and further reduction to 65% occupancy from April 2021;

• reduction in service charge recovery to 78% to March 2021 and further reduction to 68% recovery from April 2021;

• no acquisitions over and above those legally committed to;

• continuation of forecasted capex investment; 

• cessation of forecasted dividend payments; and

• repayment and subsequent refinancing of the one and only loan facility maturing within the going concern period which was re-paid in October 2020 amounting to €22.8 million

In this scenario, the Group's lowest cash position was €103.1 million and, as a result, was able to operate within its facilities and covenants throughout the review period without applying additional mitigations such as the reduction of capex and continued to have sufficient cash reserves for the going concern period. Within the 'severe but plausible' downside scenario the Company is not dependent on the cessation of dividends or subsequent refinancing of the loan facility that was re-paid in October 2020. Future acquisitions over and above those legally committed to are not included in this scenario and would be funded through a combination of cash and debt as deemed appropriate.

In addition, the Group assessed its loan covenant position resulting from a 20% reduction in income and 20% fall in property valuations. The Group's loan to value covenants are tested based on the most recent lender commissioned valuations. Based on this scenario the Group has sufficient cash available to remedy the resulting covenant breaches.

Based on unrestricted cash at 30 September 2020 amounting to €112.4 million and the results of the 'severe but plausible' scenario analysed above, the Group considers itself to have sufficient cash resources to remedy any breaches of its loan covenants in this 'severe but plausible' downside scenario. In addition, the Group has available a fully committed but as yet undrawn capex facility amounting to €13.1 million, flexibility in determining whether to make dividend payments and the possibility to restrict capital expenditures to that of a non-discretionary nature in the unlikely event mitigating actions are required. In addition, following the repayment of one loan facility in October 2020, the group has 15 unencumbered assets with a book value of €195.5 million as of 30 September 2020.

Thus, 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 the going concern period of twelve month to the end of November 2021. After due consideration, the Board believes it is appropriate to adopt the going concern basis in preparing the financial statements.

(f) Principal risks and uncertainties

The key risks that could affect the Group's medium-term performance and the factors which mitigate these risks have not materially changed from those set out on pages 38 to 48 of the Group's Annual Report and Accounts 2020 and have been assessed in line with the requirements of the 2016 UK Corporate Governance Code. The risks are reproduced below. The Board is satisfied that the Company continues to operate within its risk profile for the remaining six months of the financial year. 

Principal risks summary

3. Operating segments

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, Germany. All rental and other income is derived from operations in Germany. The majority of the Group's investment properties are multi-tenanted and mixed use and accordingly cannot be evaluated according to separate segments. There is no one tenant that represents more than 10% of Group revenues. The chief operating decision maker is considered to be the Senior Management Team, which is provided with consolidated IFRS information on a monthly basis.

4. Revenue

Other income relates primarily to income associated with conferencing and catering of €972,000 (30 September 2019: €918,000) and fee income from managed properties of €1,044,000 (30 September 2019: €268,000).

5. Operating profit

The following items have been charged in arriving at operating profit:

Direct costs

Administrative expenses

Exceptional items relate to costs directly attributable to Covid-19 which are mainly costs for signage and hygiene products (30 September 2019: legal claim accrual adjustment). Employee costs as stated above relate to costs which are not recovered through service charge.

6. Employee costs and numbers

Included in the costs related to wages and salaries for the period ended 30 September 2020 are expenses of €1,448,000 (30 September 2019: €746,000) relating to the granting or award of shares under LTIPs and SIPs (see note 7). The costs for all periods include those relating to Executive Directors.

All employees are employed directly by one of the following Group subsidiary companies: Sirius Facilities GmbH, Sirius Facilities (UK) Limited, Curris Facilities & Utilities Management GmbH, SFG NOVA GmbH, Sirius Finance (Guernsey) Limited and Sirius Corporate Services B.V. The average number of people employed by the Group during the period was 251 (30 September 2019: 241) expressed in full-time equivalents. In addition, the Board of Directors consists of five Non-executive Directors (30 September 2019: five) and two Executive Directors (30 September 2019: two) as at 30 September 2020.

7. Employee schemes

Equity-settled share-based payments

2018 LTIP

The LTIP for the benefit of the Executive Directors and the Senior Management Team was approved in 2018 with three separate grant dates. Awards granted under the LTIP are made in the form of nil-cost options which vest after the three year performance period with vested awards being subject to a further holding period of two years. Awards are split between ordinary and outperformance awards. Ordinary awards carry both adjusted net asset value per share ("TNR") (two-thirds of award) and relative total shareholder return ("TSR") (one-third of award) performance conditions and outperformance awards carry a sole TNR performance condition.

June 2020 grant

3,600,000 ordinary share awards were granted under the scheme on 15 June 2020 with a total charge for the award of €2,265,552. Charges for the awards are based on fair values calculated at the grant date and expensed on a straight-line basis over the period that individuals are providing service to the Company in respect of the awards. For the 15 June 2020 LTIP grant an expense of €240,000 is recognised in the half year consolidated statement of comprehensive income to 30 September 2020.

The following assumptions were used in calculating the fair value per share for the TNR and TSR elements of the award that were granted on 15 June 2020:

The weighted average fair value of a share granted under the ordinary award in the year is €0.68.

Assumptions considered in this model include: expected volatility of the Company's share price, as determined by calculating the historical volatility of the Company's share price over the period immediately prior to the date of grant and commensurate with the expected life of the awards; dividend yield based on the actual dividend yield as a percentage of the share price at the date of grant; performance projection period; risk-free rate; and correlation between comparators.

June 2019 grant

3,760,000 ordinary share awards and 690,000 outperformance share awards were granted under the scheme on 16 June 2019 with a total charge for the awards of €2,145,511 over three years. Charges for the awards are based on fair values calculated at the grant date and expensed on a straight-line basis over the period that individuals are providing service to the Company in respect of the awards. For the 16 June 2019 LTIP grant an expense of €383,000 was recognised in the half year consolidated statement of comprehensive income to 30 September 2020.

The fair value per share for the TNR and TSR elements of the award was determined using Black-Scholes and Monte-Carlo models respectively with the following assumptions used in the calculation:

The weighted average fair value of a share granted under the ordinary award in the period is €0.54.

Assumptions considered in this model include: expected volatility of the Company's share price, as determined by calculating the historical volatility of the Company's share price over the period immediately prior to the date of grant and commensurate with the expected life of the awards; dividend yield based on the actual dividend yield as a percentage of the share price at the date of grant; performance projection period; risk-free rate; and correlation between comparators.

January 2019 grant

In addition, as disclosed in the 2019 Annual Report, 4,000,000 ordinary share awards and 700,000 outperformance share awards were previously granted under the scheme on 15 January 2019. The portion of the accounting charge recognised in the consolidated statement of comprehensive income to 30 September 2020 is based on the following adjustments to the fair value of the awards linked to the TNR performance condition:

1) the fair value was discounted at the rate of the dividend yield over the projection period in order to ensure consistent treatment for the awards linked to TSR and TNR performance condition; and

2) the level of expected vesting of the TNR outperformance award has been adjusted in accordance with the Company's best estimate.

The fair value per share for the TNR and TSR elements of the award was determined using Black-Scholes and Monte-Carlo models respectively with the following assumptions used in the calculation: 

The weighted average fair value of a share granted under the ordinary award in the period is €0.49.

As a result, the adjusted total charge for the awards granted on 15 January 2019 is €2,111,000. For the half year period ending on 30 September 2020 the proportion of charge recognised in the statement of comprehensive income for the January 2019 LTIP award was €447,000.

2019 SIP

A share incentive plan ("SIP") for the benefit of senior employees of the Company was approved in August 2019. The fair value was based on the Company's estimate of the shares that will eventually vest. Under the SIP, the awards were granted in the form of whole shares at no cost to the participants. Shares will vest after a three year performance period followed by a holding period of twelve months. The performance conditions used to determine the vesting of the award were based on the adjusted net asset value including dividends paid. As a result, under the scheme in August 2019 2,774,750 shares were granted (with an additional 70,000 allocated in the current period), subject to performance criteria, and an expense including related costs of €352,000 was recognised in the half year consolidated statement of comprehensive income to 30 September 2020.

2020 SIP

During the period another share incentive plan ("SIP") for the benefit of senior employees of the Company was approved in July 2020. The fair value was based on the Company's estimate of the shares that will eventually vest. Under the SIP, the awards were granted in the form of whole shares at no cost to the participants. Shares will vest at the end of the financial year followed by a holding period of twelve months. The performance conditions used to determine the vesting of the award were based on the adjusted net asset value including dividends paid. As a result, under the scheme in July 2020 a maximum of 120,000 shares were granted, subject to performance criteria, and an expense including related costs of €26,000 was recognised in the half year consolidated statement of comprehensive income to 30 September 2020.

Movements in the number of awards outstanding are as follows:

Employee benefit schemes

A reconciliation of share-based payments and employee benefit schemes and their impact on the consolidated statement of changes in equity is as follows:

8. Finance income, finance expense and change in fair value of derivative financial instruments

Included within refinancing costs in the six month period ended 30 September 2019 were exit fees and early prepayment penalties of €9,107,000 that directly related to the repayment of loan facilities secured by assets included within the Titanium Venture with AXA Investment Managers - Real Assets that completed on 31 July 2019.

The change in fair value of derivative financial instruments of €132,000 (30 September 2019: €1,067,000) reflects the change in the mark to market valuation of these financial instruments.

9. Taxation

Consolidated statement of comprehensive income

Deferred income tax liability

The Group is mainly subject to taxation in Germany with the income from the Germany-located rental business with a tax rate of 15.825%. It has tax losses of €337,177,000 (31 March 2020: €351,265,000) that are available for offset against future profits of its subsidiaries in which the losses arose under the restrictions of the minimum taxation rule. Deferred tax assets have not been recognised in respect of the revaluation losses on investment properties, the valuation of the Company LTIP and interest rate swaps as they may not be used to offset taxable profits elsewhere in the Group as realisation is not assured.

10. Earnings per share

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

* See reconciliation between adjusting items as stated within earnings per share and those stated within notes 5 and 8.

EPRA earnings

For more information on EPRA earnings refer to Annex 1.

For the calculation of basic, headline, adjusted, EPRA and diluted earnings per share the number of shares has been reduced by 3,684,608 own shares held (30 September 2019: 1,500,000), which are held by an Employee Benefit Trust on behalf of the Group.

The weighted average number of shares for the purpose of diluted, diluted EPRA, diluted headline and adjusted diluted earnings per share is calculated as follows:

The Company has chosen to report EPRA earnings per share ("EPRA EPS"). EPRA EPS is a definition of earnings as set out by the European Public Real Estate Association. EPRA earnings represents earnings after adjusting for property revaluation, changes in fair value of derivative financial instruments, profits and losses on disposals and deferred tax in respect of EPRA adjustments.

11. Net asset value per share

EPRA introduced three new features of the net asset valuation metrics, which replaced EPRA NAV for accounting periods commencing in January 2020. Companies are expected to provide a bridge between the previous EPRA NAV metrics and the new ones for both the current and comparative accounting period in order to assist the users of their financial statements. 

\* The Company intends to hold and does not intend in the long term to sell any of the investment properties and has excluded such deferred taxes for the whole portfolio as at 30 September 2020.

** While the previous definition of EPRA NAV included this adjustment, in prior periods it has not been considered sufficiently material to adjust. As the value of this difference is expected to become more material in future periods, the adjustment will now be included in the calculation of the EPRA measures where appropriate.

For more information on adjusted net asset value and EPRA NRV, NTA and NDV, refer to Annex 1.

The number of ordinary shares for the purpose of EPRA NRV, NTA, NDV and NAV per share is calculated as follows:

The number of shares has been reduced by 3,684,608 own shares held (31 March 2020: 2,120,720 shares), which are held by an Employee Benefit Trust on behalf of the Group.

12. Investment properties

The movement in the book value of investment properties is as follows:

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

* Excluding assets held for sale.

The fair value (market value) of the Group's owned investment properties at 30 September 2020 has been arrived at on the basis of a valuation carried out at that date by Cushman & Wakefield LLP (31 March 2020: Cushman & Wakefield LLP), an independent valuer accredited in terms of the RICS. The fee arrangement with Cushman & Wakefield LLP for the valuation of the Group's properties is fixed, subject to an adjustment for acquisitions and disposals.

The value of each of the properties has been assessed in accordance with the RICS valuation standards on the basis of market value.

The weighted average lease expiry remaining across the whole portfolio at 30 September 2020 was 3.0 years (31 March 2020: 2.9 years).

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

The fair value (market value) of the Group's leased investment properties at 30 September 2020 has been arrived at on the basis of a valuation carried out by the Group.

The reconciliation of surplus on revaluation above capex as per the statement of comprehensive income is as follows:

Included in the gain on revaluation of investment properties reported in the statement of comprehensive income (excluding the revaluation effects in respect of leased investment properties) are gross gains of €42.2 million and gross losses of €10.3 million (31 March 2020: gross gains of €78.2 million and gross losses of €22.4 million). Included in the statement of comprehensive income for the six month period ended 30 September 2019 were gross gains of €62.0 million and gross losses of €3.8 million.

Other than the capital commitments disclosed in note 26 the Group is under no contractual obligation to purchase, construct or develop any investment property. The Group is responsible for routine maintenance to the investment properties.

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 asset type. Information on these significant unobservable inputs per class of investment property is disclosed below (excluding leased investment properties):

As at 30 September 2020

As at 31 March 2020

The valuation for owned investment properties is (including assets classified as held for sale) performed on a lease-by-lease basis due to the mixed-use nature of the sites. This gives rise to large ranges in the inputs.

As a result of the level of judgement and estimates used in arriving at the market valuations, the amounts which may ultimately be realised in respect of any given property may differ from the valuations shown in the statement of financial position. For example, an increase in market rental values of 5% would lead to an increase in the fair value of the investment properties of €60,590,000 and a decrease in market rental values of 5% would lead to a decrease in the fair value of the investment properties of €61,810,000. Similarly, an increase in the discount rates of 0.25% would lead to a decrease in the fair value of the investment properties of €25,130,000 and a decrease in the discount rates of 0.25% would lead to an increase in the fair value of the investment properties of €25,000,000.

Investment properties held for sale

* The sale on the asset held for sale completed on 1 April 2020.

13. Intangible assets