Sirius Real Estate Regulatory News (SRE)

SIRIUS REAL ESTATE LIMITED

(Incorporated in Guernsey)

Company Number: 46442

JSE Share Code: SRE

LSE (GBP) Share Code: SRE

LEI: 213800NURUF5W8QSK566

ISIN Code: GG00B1W3VF54

20 November 2023

Sirius Real Estate Limited

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

Condensed interim consolidated financial results for the six months ended 30 September 2023

Strong operational results drive FFO and dividend growth

Sirius Real Estate, the leading owner and operator of branded business and industrial parks providing conventional space and flexible workspace in Germany and the U.K., provides an update on trading for the six months to 30 September 2023.

Rental growth delivers further FFO and dividend increases

? 7.3% increase in total revenue to ?140.1 million (30 September 2022: ?130.6 million)

? 7.7% increase in Group like-for-like rent roll (30 September 2022: 6.9%)

? 7.0% in like-for-like annualised rent roll in Germany to ?122.5 million (30 September 2022: ?114.5 million) and 9.0% in the UK to £50.7 million (?58.6 million) (30 September 2022: £46.5 million (?53.8 million)) demonstrating the quality of the assets and continued occupier demand

? Sirius remains on track to deliver its tenth consecutive year of greater than 5% like-for-like rent roll increases at Group level

? 9.3% growth in funds from operations¹ to ?53.0 million (30 September 2022: ?48.5 million)

? 2.0% increase in adjusted profit before tax to ?49.9 million (30 September 2022: ?48.9 million) excluding property valuations demonstrating continued strong operational performance

? 13.5% increase in adjusted earnings per share, which excludes valuation movements as well as exceptional items, to 4.21c per share (30 September 2022: 3.71c) reflecting the positive year on year operational development, with basic EPRA earnings per share up 16.7% to 4.12c per share (30 September 2022: 3.53c)

? 11.1%² increase in dividend per share to 3.00c (30 September 2022: 2.70c)

? 0.4% increase in EPRA NTA per share to 108.51c (31 March 2023: 108.11c per share)

? The book value of owned investment property increased in Germany by ?13.0 million (30 September 2022: ?29.7 million), whilst book value decreased in the UK by ?6.1 million (30 September 2022: ?23.2 million decrease) representing a 1.8% like-for-like valuation growth and 2.1% like-for-like decrease respectively

? Increase in owned investment property to ?2,112.8 million (31 March 2023: ?2,107.3 million) including assets held for sale of ?7.3 million

? Group EPRA net yield to 6.7% (30 September 2022: 6.4%)

? Like-for-like Group occupancy remained stable at 84.5% (30 September 2022: 84.4%) highlighting the Group's ability to manage its tenant base and vacancy, especially in Germany where the tenant retention rate rose to 78% compared to 65% in the prior year

? 7.2% increase in Germany in like-for-like average rental rate to ?7.02 per sqm (30 September 2022: ?6.55 per sqm) and 9.0% increase in the UK to £13.78 per sq ft (?14.303 per sqm) from £12.64 per sq ft at 30 September 2022, highlighting the high reversion potential within the UK portfolio in particular

Strong Balance Sheet

? Weighted average cost of debt remained stable at 1.4% in the period (31 March 2023: 1.4%) with a weighted average debt expiry of 3.3 years, increasing to 2.1% with a weighted average debt expiry of 4.2 years following Berlin Hyp AG and Deutsche Pfandbriefbank AG financing

? Net LTV of 40.8% (31 March 2023: 41.6%), including unrestricted cash balance of ?91.2 million (31 March 2023: ?138.6 million)

? Fitch reaffirmed its BBB investment grade rating with "Stable Outlook" on 20 October 2023

Successful Post Balance Sheet Asset Recycling, including two disposals at 5% average premium to book value

? Recycling of approximately in total ?100 million, in four post balance sheet transactions, comprising ?47.4 million of disposals in Germany and ?52.9 million of acquisitions in the UK demonstrating that the Company's assets remain desirable and opportunities remain in the market

Outlook

? Sirius remains well positioned to navigate the current macro-economic climate due to its intensive asset management initiatives together with over 4 years weighted average debt expiries cushioning the impact of higher interest rates affecting many in our sector

? As such, the Company continues to expect to trade in line with management expectations for the full year.

Commenting on the period, Andrew Coombs, Chief Executive Officer of Sirius Real Estate, said:"The business has delivered another six months of strong operational performance. Dividend and FFO growth is being supported by continued robust trading, with occupier demand for our high quality affordable products underpinning rental growth and keeping us on track to deliver our tenth consecutive year of greater than 5% like-for-like rent roll increases.

"Our balance sheet is strong, as evidenced by Fitch's recent reaffirmation of our BBB investment grade rating and stable outlook, providing flexibility to leverage future opportunities as they arise. We recycled c. ?100 million of assets through four post balance sheet transactions, making ?47.4 million of disposals in Germany and ?52.9 million of acquisitions in the UK, highlighting our ability to crystallise returns from our mature assets. Furthermore, there are many further levers we can pull to unlock value and grow rental income through our successful asset management platform.

"We continue to be mindful of the uncertain market backdrop, however, our asset management and marketing initiatives continue to give us confidence in the Group's growth prospects. Looking ahead, our outlook is positive and we remain confident in our ability to continue to deliver attractive risk-adjusted returns to shareholders."

Webcast Presentation

Webcast Conference 

There will be an in person presentation for analysts at 09.00am (10.00am CET/ 11.00am SAST) today, hosted by Andrew Coombs, Chief Executive Officer of Sirius Real Estate, and Chris Bowman, Chief Financial Officer. This will be held at Peel Hunt's offices: 100 Liverpool Street, London EC2M 2AT

For those unable to join in person, there will be an audio webcast presentation, with registration available via the link below: https://stream.brrmedia.co.uk/broadcast/652f90524a974c05613633fb

For further information:

Sirius Real Estate

Andrew Coombs, CEO / Chris Bowman, CFO

+49 (0) 30 285 010 110

FTI Consulting (Financial PR)

Richard Sunderland / James McEwan / Talia Shirion

+44 (0) 20 3727 1000

SiriusRealEstate@fticonsulting.com 

NOTES TO EDITORS

About Sirius Real Estate

Sirius is a property company listed on the main and premium market of the London Stock Exchange and the main board of the JSE Limited. It is a leading owner and operator of branded business and industrial parks providing conventional space and flexible workspace in Germany and the UK. As of 30 September 2023, the Group's portfolio comprised 139 assets let to 9,248 tenants with a total book value of over ?2 billion, generating a total annualised rent roll of ?184.2 million. Sirius also holds a 35% stake in Titanium, its ?350+ million German-focused joint venture with clients of AXA IM Alts.

The Company's strategy centres on acquiring business parks at attractive yields and integrating them into its network of sites - both under the Sirius and BizSpace names and alongside a range of branded products. The business then seeks to reconfigure and upgrade existing and vacant space to appeal to the local market via intensive asset management and investment and may then choose to refinance or dispose of assets selectively once they meet maturity, to release capital for new investment. This active approach allows the Company to generate attractive returns for shareholders through growing rental income, improving cost recoveries and capital values, and enhancing returns through securing efficient financing terms. 

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

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Business update

Strong operational performance highlights resilience of Sirius platform

Total annualised rent roll

?184.2m3

9.0%

2023 ?184.2m

2022 ?169.0m

Total revenue

?140.1m

7.3%

2023 ?140.1m

2022 ?130.6m

Funds from operations1

?53.0m

9.3%

2023 ?53.0m

2022 ?48.5m

Profit before tax

?39.8m

(47.4%)

2023 ?39.8m

2022 ?75.7m

Interim dividend

3.00c per share

11.1%2

2023 3.00c

2022 2.70c

Basic earnings per share

2.71c per share

(54.8)%

2023 2.71c

2022 6.00c

1 See note 25 of the Interim Report 2023.

2 Interim dividend representing 66% of FFO (30 September 2022: 65% of FFO).

3 The Company has chosen to disclose certain Group rental income figures utilising a constant foreign currency exchange rate of GBP:EUR 1.1566, being the closing exchange rate as at 30 September 2023.

In summary:

? Sirius remains resilient and well positioned to navigate the current macro-economic climate due to its intensive asset management initiatives and the fixed price contracts it has secured for a significant portion of its utility demands in both Germany and the UK, which should shelter its diverse tenant base from some of the higher operating costs that most industrial companies are facing. Further, having over 4 years weighted average debt expiries is helping cushion the impact of higher interest rates affecting many in our sector.

? he Company looks ahead with confidence and continues to trade in line with management expectations for the full year.

Key Group highlights:

* The Company has chosen to disclose certain Group rental income figures throughout utilising a constant foreign currency exchange rate of GBP:EUR 1.1566, being the closing exchange rate as at 30 September 2023, throughout this document.

Overview

Against a backdrop of negative headlines referencing challenging economic conditions in both Germany and the UK, the Group is pleased to report continued strong trading in line with expectations, with all our key like for like operating metrics showing positive momentum leading to like-for-like Group annualised rent roll growth compared to the prior year of 7.7%*.

In Germany, occupancy remains stable and we continue to achieve rental rate growth ahead of inflation as we utilise our proprietary asset management platform to maximise the value we generate from our space. The sale of Kassel at above book value, which we announced on 3 October 2023, demonstrates the resilience of our German portfolio, which has again achieved a modest uplift valuation at the period end driven by continued strong rental growth.

In the UK we continue to focus on driving value from BizSpace. Rent roll growth is ahead of our German operations reflecting the ongoing demand for our affordable, well-located space amid a higher inflationary backdrop. Occupancy in the UK was higher than the six months prior and it is particularly pleasing to report that UK rent roll has exceeded £50 million for the first time, buoyed by a record new business sales month in September. Nonetheless the UK portfolio experienced a modest decrease in valuation in line with an expansion in yields in the sector.

Group rent roll increased by 9.0%* year-on-year and 2.8% in the period. Like-for-like rent roll in Germany increased by 2.4% in the period (30 September 2022: 2.4%) whilst year-on-year like-for-like rent roll growth was 7.0%. The UK enjoyed a boost to rent roll as its price led strategy took hold with like-for-like rent roll increasing by 4.6% in the period (30 September 2022: 4.1%) whilst year-on-year like-for-like rent roll growth was 9.0%. Continued strong demand for Company products in attractive locations indicate that Sirius is poised for its tenth consecutive year of greater than 5% like-for-like rent roll increases.

Rent roll growth is supported in Germany by a 2.6% increase in like-for-like rate per sqm to ?7.06 (31 March 2023: ?6.88), whilst the like-for-like year-on-year rate grew by 7.2% to ?7.02 (30 September 2022: ?6.55). In the UK, a strong increase year-on-year in like-for-like rate per sq ft of 9.0% to £13.78 (30 September 2022: £12.64) was also the driver of the 9.0% like-for-like rent roll increase to £50.7 million (30 September 2023: £46.5 million). These developments over the past year have helped the Group report a 9.3% growth in FFO to ?53.0 million (30 September 2022: ?48.5 million).

The strong trading underpins the board's confidence to declare an 11.1% increase in the interim dividend to 3.00c per share compared to the 2.70c for H1 last year. NAV per share grew around 0.2% in the six month period which was helped by a 0.3% uplift in the valuation of owned investment property to ?2,112.8 million from ?2,107.3 million as at 31 March 2023, including those assets held for sale.

The Group's balance sheet remains strong as a result of a number of previously communicated early financings that have been agreed. These comprise the ?170 million Berlin Hyp AG loan facility, for a period of seven years to 31 October 2030, and the ?58.3 million Deutsche Pfandbriefbank AG facility, for a period of seven years to 31 December 2030. From the commencement of the new Deutsche Pfandbriefbank AG facility at the end of December 2023, the Group will have a weighted average cost of debt of 2.1% and a weighted average debt expiry of 4.2 years. In addition, the Company further paid down its expiring Schuldschein debt of ?20 million in the period from existing cash flows. The early financing of the Berlin Hyp AG and Deutsche Pfandbriefbank AG loans demonstrate the Group's continued support from its banking partners and ability to refinance or take out new facilities throughout the property cycle.

The Group's track record of growing FFO organically through its selective asset recycling is continuing well, as outlined in detail under "Asset recycling, acquisitions and disposals" further on in this report. In summary, the Group undertook several transactions post the balance sheet date in both Germany and the UK amounting to in total nearly ?100 million, recycling ?47.4 million of disposals into ?52.9 million of acquisitions in October and November a testament to the Group's continued success in recycling assets in all market environments.

The Group is further pleased to welcome Chris Bowman as CFO as he joins the Sirius Board of Directors in August 2023 following a handover from interim CFO Alistair Marks. Alistair Marks, who stepped down from the Sirius board in July 2023, will be leaving the Group at the end of March 2024 having been with Sirius since inception in 2007, becoming CFO in 2012, following internalisation and more recently as CIO. He goes with the Board's thanks for his valuable contribution to the Group.

Financial performance

Excluding the effects from gains and losses from the revaluation of investment properties profit before tax increased by 2.0% to ?49.9 million (30 September 2022: ?48.9 million) demonstrating continued strong operational performance. Total revenue, which comprises rental income, fee income from Titanium, other income from investment properties and service charge income, increased by 7.0% to ?140.1 million (30 September 2022: ?130.6 million). The Company reported a profit before tax for the six month period of ?39.8 million (30 September 2022: ?75.7 million) which includes ?9.6 million of deficit* from investment property revaluations of its owned assets (30 September 2022: ?27.8 million gain).

As a result, FFO for the six months grew to ?53.0 million (4.54c per share) compared to ?48.5 million (4.15c per share) for the same period in the prior year, an increase of 9.3% on a per share basis. Reported profit after tax of ?31.7 million and basic earnings per share of 2.71c compares to ?70.0 million and basic earnings per share of 6.00c in the prior year, reflecting lower valuations coupled with a small lag on the asset recycling between when assets were sold and the equity reinvested. Adjusted earnings per share, which excludes valuation movements as well as exceptional items, increased by 13.5% to 4.21c per share from 3.71c in the prior year, reflecting the positive year on year operational activity.

* Net of capex and adjustments in relation to lease incentives and broker fees.

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.

Net asset value per share ("NAV") grew to 102.65c (31 March 2023: 102.46c) in the period whilst adjusted net asset value per share ("adjusted NAV") increased by 0.6% to 109.91c (31 March 2023: 109.21c). EPRA net tangible assets ("EPRA NTA") per share increased by 0.4% to 108.51c (31 March 2023: 108.11c). The valuation metrics are described in more detail below and the movement in net asset value per share 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 rental growth

Rental growth

Germany

In Germany, like-for-like year-on-year annualised rent roll increased by 7.0% to ?122.5 million (30 September 2022: ?114.5 million). The Company was also able to manage the inflationary environment effectively, increasing its average like-for-like rental rate per sqm by 7.2% to ?7.02 per sqm from ?6.55 per sqm in the prior year. Like-for-like occupancy remained stable at 83.8% (30 September 2022: 83.8%) highlighting the Company's ability to manage its tenant base and vacancy, as evidenced by its tenant retention rate of 78% compared to 65% in the prior year.

UK

In the UK, like-for-like year-on-year annualised rent roll increased by 9.0% to £50.7 million (?58.7* million) (30 September 2022: £46.5 million (?52.6* million)). This was driven by a 9.0% increase in like-for-like average rental rate to £13.78 per sq ft (?14.30* per sqm) from £12.64 per sq ft as at 30 September 2022, highlighting the high reversion potential within the UK portfolio which is realisable due to continued strong occupier demand. Like-for-like occupancy increased to 87.7% (30 September 2022: 87.0%) for the year due to proactive management of its customer base in order to take advantage of the continued rental growth in the industrial market and high demand for flexible workspace, as well as its efforts to attract tenants at higher rates.

* The Company has chosen to disclose certain Group rental income figures throughout utilising a constant foreign currency exchange rate of GBP:EUR 1.1566, being the closing exchange rate as at 30 September 2023, throughout this document.

Cash collection

As rental rates continue to increase in both Germany and in the UK, the value of the Company's in-house team of cash collection professionals who maintain close working relationships with tenants is key to the Company's success in collecting its debts. As inflationary pressures remain, the Company has been successful in maintaining consistent cash collection rates across the Group of 97.5% (30 September 2022: 97.6%).

Germany

In the six months to 30 September 2023, the Company increased its tenant billings by 12.7% to ?97.5 million (excluding VAT) (30 September 2022: ?86.5 million), of which ?94.7 million or 97.1% was collected, remaining consistent with the 97.2% collected in the prior comparative period. The Company expects to collect the majority of the ?2.8 million outstanding debts through its regular collection activities over the coming months. The Company had only immaterial write offs in the period.

UK

BizSpace also continued to maintain high cash collection rates through the team's active management of its tenant base. Of the £25.4 million (excluding VAT) (?29.4 million) which was billed in the period, £25.1 million (?29.1 million) or 98.9% was collected. The remaining £0.3 million (?0.3 million) is expected to be collected in the normal course of regular collection activities over the coming months. The Company had immaterial write offs in the period.

Portfolio valuation

Group

Taking into account investment property relating to leased assets the total investment property book value as at 30 September 2023 was ?2,129.5 million (31 March 2023: ?2,123.0 million) such valuations having been independently reviewed by Cushman and Wakefield. In accordance with IFRS 16, the Group recognises leased investment properties of ?24.0 million; accordingly, a revaluation loss of ?0.7 million representing the fair value adjustment in the period was recorded in the income statement.

Germany

The ?13.0 million increase in value of the owned investment properties in the German portfolio was made up of ?11.2 million of capex investment and ?8.9 million of valuation uplift, offset by a ?7.3 million transfer in assets held for sale and ?0.2 million adjustment with respect to lease incentives on the back of the 2.4% increase in like-for-like rental income. The portfolio is now valued on a gross yield of 7.4% and a net yield of 6.6% which has increased from 7.3% and 6.5% respectively as at 31 March 2023. Despite ongoing pressures on the commercial property market in Germany, yields remain less volatile for higher yielding asset classes, with sellers preferring to take assets off the market rather than reduce prices significantly. Nevertheless, Sirius is particularly well positioned to absorb any further yield expansion in the asset class due to the value-add potential remaining within its portfolio and the fact that, over the last few years, its assets are valued at yields which are much higher than where similar assets have been trading at over the last few years. Sirius' business model of upgrading and repositioning underperforming properties through its capex investment programme to transform them into much more desirable institutional type assets is one which works very effectively when the market is strong as well as when it is more challenging.

As at the period end, just over 60% of the total portfolio comprised assets benefiting from both income and value-add potential which will be realised through Sirius' intensive asset management and selective capex investment over the next few years. These assets now have an average occupancy of 78.8% and are valued on a gross yield of 7.7%, compared to the Company's mature assets which are on average around 94.8% occupied and valued on a gross yield of 6.8%. Unlocking the potential in the value-add portfolio will come from filling up sites and stabilising their rental income. This will be achieved through our strategy of making the properties much more appealing to a wider market which includes the lower cost of capital investors who buy these types of assets on much tighter yields. Hence, we would expect to see the gap between the yields of the value-add assets and mature assets tighten as the value-add assets approach maturity. This is why the capex programme, which has so successfully and consistently improved occupancy, rental income, service charge cost leakage and overall quality of the rent roll and sites in general, has proven to be extremely value accretive.

UK

The ?6.1 million negative movement in owned investment property of the UK portfolio was made up of a ?18.5 million revaluation decrease, taking into account ?5.3 million of capital expenditure, offset by a favourable foreign currency translation adjustment of ?7.1 million.

The 30 September 2023 book value of the UK portfolio, which was independently valued by Cushman & Wakefield LLP, was £355.9 million (?411.6 million) (31 March 2023: £367.2 million) (?417.7 million), representing an average gross yield of 14.3% (31 March 2023: 13.2%) which translates to a net yield of 9.7% (31 March 2023: 9.3%). The 30 September 2023 valuation represents a 3.2% valuation decrease when compared to the £367.2 million valuation figure as at 31 March 2023, driven by an average 40bps of yield expansion fully offsetting a 4.5% organic increase in annualised rent roll across the same period.

The average capital value per sqm of the portfolio of £85 per sq ft (?915 per sqm) remains well below replacement cost and illustrates the potential for further growth from transformative investment through leveraging the Group's capex investment programme.

German capex investment programme

The Group's capex investment programme in relation to its German assets has historically been focused on the transformation of poor-quality vacant space that is typically acquired at very low cost due to it being considered as structural vacancy by former owners. The transformation and take up of this space have not only resulted in significant income and valuation improvements for the Company but have also yielded significant improvements in service charge cost recovery and therefore further enhanced the improvements to net operating income. The programme started in 2015 and to date 433,632 sqm of space has been completed for an investment of ?69 million. As at 30 September 2023, this space was generating ?27.4 million in annualised rent roll (at 73% occupancy) plus the substantial improvement in the recovery of service charge costs. This transformed space has also been the major contributor towards the large valuation increases seen in the portfolio over the last 8.5 years.

In addition to the space that has been completed and let or is currently being marketed, a total of approximately 32,300 sqm of space is either in the process of being transformed or is awaiting approval to commence transformation. The Group is on track to invest ?8.8m into its capex investment programme this year and expects to generate return on investment via rental income alone in excess of 25%.

In addition to the capex investment programme on acquired "structural" vacant space, Sirius continually identifies and looks for opportunities to upgrade the space that is vacated each year as a result of move-outs. Within the existing vacancy as at 30 September 2023, the Company has identified approximately 59,039 sqm of vacated space that has potential to be significantly upgraded before it is re-let. This space will require an investment of approximately ?6.2 million and, at current rates, is expected to generate greater than 35% return on investment in annualised rent roll when re-let. Upgrading this vacated space allows the Company to enhance the reversionary potential of the portfolio further whilst significantly improving the quality, desirability and hence value of not only the space that is invested into but also the whole site.

The German portfolio's headline 84% occupancy rate means that in total 296,446 sqm of space is vacant as at 30 September 2023. When excluding the vacancy that is subject to investment (5% of total space), and the structural vacancy, which is not economically viable to develop (2% of total space), the Company's occupancy rate based on space that is readily lettable is approximately 90%.

Whilst the capex investment programmes are a key part of Sirius' strategy, they represent one of several ways in which the Company can organically grow income and capital values. A wide range of asset management capabilities including the capturing of contractual rent increases (especially whilst inflation is high), uplifts on renewals and the re-letting of space at higher rates are expected to continue to contribute to the Company's annualised rent roll growth going forward.

Asset recycling, acquisitions and disposals

Recycling equity from mature assets into new value-add acquisitions has always been a significant part of the Sirius business model. It benefits the Company in many ways including: a) proving enhanced valuations that can also be crystallised; b) replenishing the growth opportunity within the vacancy and the capex investment programme; and c) being accretive to FFO per share (and therefore dividend per share), with a consequent contribution to NAV per share growth. This is an element of the Company's strategy which Sirius is able to execute effectively throughout the property cycle and this has been evidenced by the Company's continued asset recycling initiatives. Even though the market for both selling and buying remains a challenging one due to the current economic climate, and with the Company remaining mindful of its net LTV, it has been able since the balance sheet date to recycle some non-core and mature assets in Germany and reinvest these funds into some excellent accretive opportunities in the UK, as detailed below.

Disposals

Whilst the Company did not complete any disposals in the period in both Germany and in the UK, it did conduct two post balance sheet transactions in Germany. The sale of its Kassel asset for ?7.3 million, which completed on 1 October 2023 represented a 5% premium to book value at the time of notarisation. This allowed Sirius to dispose of an asset located in a non-core location, which was 92% let and comprised a total lettable area of 8,342 sqm of industrial, office, logistics and other space within a 16,217 sqm plot size. Additionally, the Company notarised the disposal of its Maintal I asset on 1 November 2023, for a sales price of ?40.1 million equating to 6% above book value, with an expected timing of completion in March 2024. The mixed-use site consists of 38,000 sqm of storage, industrial and office space, yielding ?2.1 million on NOI at 83% occupancy.

Acquisitions

The Company did not complete on any acquisitions during the period, whilst it waited for opportunistic acquisitions to arise given market conditions. Utilising recycled funds from disposals in Germany and free cash on hand, the Company completed the purchase of two post balance sheet transactions amounting to £45.8 million (?52.9 million). The first was £10.1 million (?11.7 million) acquisition, which completed on 2 October 2023 and comprised two mixed use industrial assets located in Liverpool and the other in Barnsley with a combined area of 71,957 sq ft (6,685 sqm) of predominantly workshop space. The purchase price represented a NIY of 9.6% (total acquisition costs). The second transaction, which was completed on 6 November 2023, was the £35.7 million (?41.2 million) purchase of three multi-let studio sites located in Islington and Camden in North London, representing a 7.3% net initial yield after costs. The assets, with a combined area of 103,962 sq ft (9,658 sqm) are just under 70% let, providing opportunity for the Company to implement its asset management initiatives.

A summary of the acquisitions and disposals transacted post the balance sheet date is set out in the tables below:

Table 3a: Acquisitions

* Completed on 2 October 2023

** Completed on 6 November 2023

Table 3b: Assets held for sale

* Calculated on net purchase price.

** Completed 1 October 2023

*** Notarised 1 November 2023, expected completion March 2024

Net LTV and debt refinancing

Net LTV, which reduces the loan balance by free cash (excluding restricted cash balances) in its calculation, has been reduced to 40.8% (31 March 2023: 41.6%) whilst interest cover at EBITDA level was 8.2x as at 30 September 2023 (31 March 2023: 8.6x).

The Company's balance sheet remains strong through previously communicated financings of the ?170 million Berlin Hyp AG loan facility, for a period of seven years to 31 October 2030 and the ?58.3 million Deutsche Pfandbriefbank AG facility, for a period of seven years to 31 December 2030. From the commencement of the new Deutsche Pfandbriefbank AG facility at the end of December 2023, the Group will have a weighted average cost of debt of 2.1% and a weighted average debt expiry of 4.2 years. The Company further paid down its expiring Schuldschein debt of ?20 million in the period from existing cash flows. This ability to refinance debt at favourable rates in the current market circumstances is an important asset for the Company. The Company has no debts maturing within the next twelve months, with less than ?30 million in loans coming due between January and March 2025.

All covenants were complied with in full during the period. A summary of the movement in the Group's debt is set out below:

Table 4: Movement in debt*

* Excludes loan issue costs.

Strength of well-diversified income and tenant base

A combination of the diversity of the Group's tenant base and wide range of space offerings, which are underpinned by an established operating platform, continues to be extremely beneficial to Sirius and will be another key element to help the Company continue to grow over the next few years. Diversity in both space type and tenancy is key to this. Sirius' portfolio includes industrial, manufacturing, urban logistics/production, storage and out of town office space that caters to multiple usages and a vast range of sizes and tenant types. The diversity of the Company's tenant base ranges from large, stable and long-term anchor tenants through to the flexible SME and private customers who are the engine room of any economy.

Germany

Against the backdrop of continued market disruption, resulting in a high inflationary environment, the importance of a well-diversified tenant base and wide range of products is evident. The Group's large anchor tenants are typically multinational corporations occupying production, storage and related office space whereas the SMEs and individual tenants occupy space on both a conventional and a flexible basis including space marketed under the Company's popular Smartspace brand which provides tenants with a fixed cost and high degree of flexibility. The Company's largest single tenant contributes 2.2% of total annualised rent roll whilst 8.1% of its annualised rent roll comes from government tenants. SMEs in Germany, the Mittelstand, are typically defined as companies with revenues of up to ?50.0 million and up to 500 employees. SME tenants remain a key target group which the Company's internal operating platform has demonstrated an ability to attract in significant volumes as evidenced through the high number of enquiries that are generated each month, mainly through the Company's own marketing channels. The wide range of tenants that the Sirius marketing and sales team is able to attract is a key competitive advantage and results in a significantly de-risked business model when compared to other owners of multi-tenanted light industrial and business park assets. The table below illustrates the diverse nature of tenant mix within the German portfolio at the end of the reporting period:

Table 5a: Tenant breakdown - Germany

1 Mainly large national/international private and public tenants.

2 Mainly small and medium-sized private and public tenants.

3 Mainly small and medium-sized private and retail tenants.

* See glossary section of the Interim Report 2023.

Even with the continuing conflict in Ukraine, Europe's energy supply has successfully diversified away from Russia dependence. Germany continues to be well positioned through its early identification of the issue and shoring up of its gas reserves. As at 30 September 2023, Germany had managed to ensure its gas storage capacity had been filled, enabling the German economy to continue operating without expected interruptions this coming winter. Additionally, the Company's robust and well-diversified tenant base does not have a significant reliance on gas supplies to continue operating and, as such, the potential negative impact on Sirius' rent roll is low. In Germany, the Company sources its utilities and facilities management services in bulk for its properties and has managed to secure a long-term, four-year contract after its current utility contract expires in December 2023. This new utility contract allows the Company to hedge up to 70% of the order volume at a fixed price at any time, benefiting the expected trend in reduced utility expenses in the coming years. As a result, its tenants should be sheltered from some of the higher operating costs that many industrial companies are facing right now. This is yet another benefit and advantage offered by Sirius that it has from its intense active management strategy.

UK

BizSpace's top 100 tenants are larger corporate customers representing 23% of its annualised income, whilst the remaining 77% of tenants are made up of SME and micro-SME. Whilst the top 100 tenants occupy 1% less space than in the comparative period, the rent roll contribution has increased by 2% with rates increasing by 6%. The biggest contributor to rent roll continues to be the next 900 tenants, where rent roll increased by 16% as a result of a 6% increase in rates and occupying 9% more space than in the comparative period. The price led strategy has made very positive contribution to rent roll in this segment.

Table 5b: Tenant breakdown - UK

* See glossary section of the Interim Report 2023.

Smartspace Germany

Sirius' Smartspace products are designed with flexibility in mind, allowing tenants to benefit from a fixed cost which continues to be desirable even in challenging market conditions, across a range of affordable serviced offices, self-storage units and workboxes on a flexible basis that can be tailored to their needs. The majority of Smartspace has been developed from space that is either sub-optimal or considered to be structurally void by most light industrial real estate operators. Following conversion, the area is transformed into space that can be let at significantly higher rents than the rest of the business park and, as a result, is highly accretive to both income and value. In the post-pandemic environment, as businesses manage remote working, online selling, issues with supply chains and supply shortages, the Smartspace product line becomes even more attractive because of its flexibility, pricing and location being on the fringes of major cities.

The fact that the Company is able to convert sub-optimal and unutilised space into this premium, popular space and achieve rental rates well in excess of the rest of the portfolio, means that even though Smartspace is only a small part of Sirius' business, it is a major part of the value enhancement process and the asset transformation, while providing a valuable service for tenants located elsewhere on the parks as well as those just using this space.

The annualised rental income now being generated from Smartspace, excluding the element that covers service charge costs, has decreased by 4.8% to ?8.0 million from ?8.4 million at the beginning of the period due to adjustments in service charge allocation whilst it increased by 1.3% year-on-year. The occupancy of Smartspace has remained stable in the period at 66% (31 March 2023: 65%) whilst the rates have decreased by 4.2% in the last six months from ?9.92 per sqm to ?9.50 per sqm.

Environmental, social and governance ("ESG")

We are pleased to report that we continue to make progress in embedding our ESG programme into our corporate strategy and our business and financial planning cycles. Throughout this process, we always ensure our approach remains commercially practical and financially viable.

In Germany, and as announced in our 2022/23 Annual Report, we have achieved our target reductions in net zero emissions for our Scope 1 and 2 emissions. Our main focus is now on better understanding the pathway to net zero emissions, including Scope 3, by 2045 in line with the German national target. To support this work, our previous assessments are being updated to reflect revised CRREM methodology which was launched after our year end and are being subjected to a detailed operational and financial assessment. We intend to be in a position to outline a more detailed pathway, including shorter-term decarbonisation plans and targets, in our next Annual Report.

In the UK, we remain committed to achieving carbon neutrality for Scope 1 and 2 emissions in the current financial year and we are commencing an assessment to understand the potential pathway to net zero emissions including Scope 3 for the UK by 2045 or 2050 in line with CRREM and SBTi with aims to share initial results during FY2024/25. Equally, our EPC programme continues as a priority, and we are confident we can achieve the target rating of EPC 'C' by 2027 for our assets as a first stage and the final target of EPC "B" by 2030.

Our ESG departments in both Germany and the UK, which were formed this year, have been tasked with assessing the operational and financial implications, including developing asset-by-asset plans and capex requirements to achieve our net zero and EPC ambitions. We believe these financial and operational indicators require more detailed analysis and testing by us and will continue to make progress in these areas and update as appropriate, including through our TCFD reporting.

Our social and governance programmes remain well established and accepted within both Sirius in Germany and BizSpace in the UK. Our people are at the heart of everything we do, and we continue to develop and expand our training and development offering through the Sirius Training Centre and ensure we cultivate a supportive and motivating working environment. A focus on wellbeing remains core to our people strategy, as well as maintaining our strong diversity, equity, and inclusion programme. We have also made significant progress in the development of engagement programmes targeted at benefiting the local communities in which we operate and will be able to update further at year end.

Lastly, in order to support and test the progress of our ESG roadmap, we have commenced our new ESG materiality assessment covering both Germany and the UK. This process will enable us to continue to align our ESG programme to our corporate strategy and ensure we have taken into account the views of our stakeholders. We intend to report on the findings of this process in our next Annual Report.

Outlook

Sirius is pleased with the trading performance of the first six months of the financial year, which saw continued like-for-like rent roll growth and strong cash collection rates in both Germany and the UK. The Company remains committed to a progressive dividend to its shareholders as it continues to navigate through a challenging macro-economic climate in the UK and Europe and remains well positioned to continue to grow due to its intensive asset management initiatives, diversified offerings and effective and dynamic business model.

Andrew Coombs

Chief Executive Officer

Chris Bowman

Chief Financial Officer

17 November 2023

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 interim set of consolidated interim financial statements have been prepared in accordance with note 2(a), 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 interim 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 2023 that have materially affected, and any changes in the related party transactions described in the 2023 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:

? Daniel Kitchen, Chairman*

? Caroline Britton, Senior Independent Director*

? Andrew Coombs, Chief Executive Officer

? Chris Bowman, Chief Financial Officer

? James Peggie*

? Mark Cherry*

? Kelly Cleveland*

? Joanne Kenrick*

* Non-Executive Directors.

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

Andrew Coombs

Chief Executive Officer

Chris Bowman

Chief Financial Officer

17 November 2023

Independent review report

to Sirius Real Estate Limited

Conclusion

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 2023 which comprises condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated statement of financial position, the condensed consolidated statement of changes in equity, the condensed consolidated statement of cash flows, and the related notes 1 to 28. 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.

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 2023 is not prepared, in all material respects, in accordance with I 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 South African Accounting Practices Committee and the Financial Pronouncements as issued by the Financial Reporting Standards Council of South Africa.

Basis for Conclusion

We conducted our review in accordance with International Standard on Review Engagements 2410 (UK) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" (ISRE) issued by the Financial Reporting Council. 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.

As disclosed in note 2(d), the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as issued by the IASB. 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", the South African Institute of Chartered Accountants ("SAICA") Financial Reporting Guides, as issued by the South African Accounting Practices Committee, the Financial Pronouncements as issued by the Financial Reporting Standards Council of South Africa and the JSE Limited Listing requirements for condensed interim reports.

Conclusions Relating to Going Concern

Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis for Conclusion section of this report, nothing has come to our attention to suggest that management have inappropriately adopted the going concern basis of accounting or that management have identified material uncertainties relating to going concern that are not appropriately disclosed.

This conclusion is based on the review procedures performed in accordance with this ISRE, however future events or conditions may cause the entity to cease to continue as a going concern.

Responsibilities of 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;

- IAS 34 "Interim Financial Reporting" and in compliance with the framework concepts and the measurement and recognition requirements of the IFRS; and

- the JSE Limited Listing requirements for condensed interim reports.

In preparing the half-yearly financial report, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.

Auditor's Responsibilities for the review of the financial information

In reviewing the half-yearly report, we are responsible for expressing to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report. Our conclusion, including our Conclusions Relating to Going Concern, are based on procedures that are less extensive than audit procedures, as described in the Basis for Conclusion paragraph of this report.

Use of our report

This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council. 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.

Ernst & Young LLP

London

17 November 2023

Condensed interim consolidated income statement

for the six months ended 30 September 2023

(1) Refer to note 2(a).

(2) To conform to the current period presentation, the movement in expected credit loss provision has been shown as a separate line and this is a reallocation from administrative expenses for the period ended 30 September 2022.

All operations of the Group have been classified as continuing.

Condensed interim consolidated statement of comprehensive income

for the six months ended 30 September 2023

(1) Refer to note 2(a).

Condensed interim consolidated statement of financial position

as at 30 September 2023

(1) Refer to note 2(a).

The financial statements were approved by the Board of Directors on 17 November 2023 and were signed on its behalf by:

Daniel Kitchen

Chairman

Company number: 46442

Condensed interim consolidated statement of changes in equity

for the six months ended 30 September 2023

(1) Refer to note 2(a).

Condensed interim consolidated statement of cash flows

for the six months ended 30 September 2023

(1) Refer to note 2(a)

Notes forming part of the financial statements

for the six months ended 30 September 2023

1. General information

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

The consolidated financial information of the Company comprises that of the Company and its subsidiaries (together referred to as the "Group" or "Sirius") for the six month period ended 30 September 2023.

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 and the United Kingdom ("UK").

2. Significant accounting policies

(a) Basis of preparation

The unaudited condensed interim 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 condensed interim set of consolidated financial statements is presented in euros and all values are rounded to the nearest hundred thousand shown in millions (?m), except where otherwise indicated. For the comparative period for the six months to 30 September 2022 the values were rounded to the nearest thousand (?000) but are now shown in millions (?m) to the nearest hundred thousand. The unaudited Interim Reports in prior years were presented in euros and all values were rounded to the nearest thousand (?000).

The Group prepares its condensed interim set of financial statements 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 JSE Limited Listings Requirements, IAS 34 "Interim Financial Reporting" and in compliance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") as well as The Companies (Guernsey) Law, 2008.

The financial information in this unaudited condensed interim set of consolidated financial statements does not comprise statutory accounts. This unaudited condensed interim set of consolidated financial statements has been reviewed, not audited, by the Group's auditor, Ernst & Young LLP, which issued an unmodified review opinion. The financial information presented for the year ended 31 March 2023 is derived from the statutory accounts for that year. Statutory accounts for the year ended 31 March 2023 were approved by the Board on 2 June 2023. The report of the auditor on those accounts was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying its report, and (iii) did not contain a statement under Sections 263 (2) or (3) of The Companies (Guernsey) Law, 2008.

As at 30 September 2023 the Group's unaudited condensed interim set of consolidated financial statements reflects consistent accounting policies and methods of computation as used in the previous financial year.

(b) Changes in accounting policies

There were several new, and amendments to, standards and interpretations which were applicable for the first time for the Group from 1 April 2023. None of them have had a significant impact on the condensed interim financial statements of the Group.

(c) Non-IFRS measures

The Directors have chosen to disclose EPRA earnings, EPRA net asset value metrics and EPRA loan to value, 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 condensed interim financial statements includes a reconciliation of basic and diluted earnings to EPRA earnings. Note 11 to the condensed interim financial statements includes a reconciliation of net assets to EPRA net asset value metrics. Note 21 to the condensed interim financial statements includes a calculation of EPRA loan to value ratio.

The Directors are required, as part of the JSE Limited Listings Requirements, to disclose headline earnings; accordingly, headline earnings are calculated using basic earnings adjusted for revaluation gains/losses (net of related tax), gains/losses on disposal of properties (net of related tax), non-controlling interest ("NCI") relating to revaluation (net of related tax) and revaluation gain/loss on investment property relating to associates (net of related tax). Note 10 to the condensed 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 condensed interim financial statements includes a reconciliation of adjusting items included within adjusted earnings, with certain adjusting items stated within administrative expenses in note 5 and certain finance costs in note 8.

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 25 to the condensed 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 JSE Limited Listings Requirements, IAS 34 "Interim Financial Reporting" and in compliance with the framework concepts and the measurement and recognition requirements of IFRS as well as The Companies (Guernsey) Law, 2008. 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 2023. 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 2023 except for the changes in accounting policies as shown in note 2 (b). The financial statements for the year ended 31 March 2023 have been prepared in accordance with IFRS issued by the IASB.

(e) Going concern

The Group has prepared its going concern assessment for the period to 31 March 2025 (the "going concern period"), a period greater than twelve months and chosen to include the maturity of certain loans falling due in the fourth quarter of the year ended 31 March 2025. The Directors also evaluated potential events and conditions beyond the going concern period that may cast significant doubt on the Group's ability to continue as a going concern, with no significant transactions or events of material uncertainty identified.

The Group's going concern assessment is based on a forecast of the Group's future cash flows. This considers Management's base case scenario and a severe but plausible downside scenario where sensitivities are applied to model the outcome on the occurrence of downside assumptions explained below. It considers the Group's principal risks and uncertainties and is dependent on a number of factors including financial performance, continued access to lending facilities (see note 21) and the ability to continue to operate the Group's secured and unsecured debt structure within its financial covenants. Within the going concern period, three of the Group's debt facilities mature, with a ?5.0m tranche of the HSBC Schuldschein loan falling due in January 2025 and a ?10.0m tranche falling due in March 2025 and the ?12.8m Saarbrücken Sparkasse facility falling due in February 2025. No further debt of the Group matures until June 2026.

The severe but plausible scenario models a potential downturn in the Group's performance, including the potential impact of downside macro-factors such as geopolitical instability, future energy shortages, further cost increases due to inflation, pressures from increasing interest rates and outward yield movements on the Group's financial position and future prospects. The cash flow projections incorporate assumptions on future trading performance and potential valuation movements in order to estimate the level of headroom on the Group's debt facilities and covenants for loan to value, debt service cover, EPRA net asset value, unencumbered assets ratios, fixed charge ratios and occupancy ratios set out within the relevant finance agreements.

The impact of the macro-factors above has placed further pressure on the costs of the business, however this did not result in any deterioration in the Group's income streams in the year ended 31 March 2023 or the period ended 30 September 2023 and asset values remained relatively stable throughout. However, the Directors continue to be mindful of the challenging macro-factors present in the market and maintain their view held on 31 March 2023 on the severity of the falls in valuations assessed in the severe but plausible downside scenario in the going concern period.

The base case and severe but plausible downside scenarios include the following assumptions applied to both the German and UK portfolios:

Base case:

» 5.5% growth in rent roll at 30 September 2023, principally from contractual increases in rents and organic growth through lease renewals;

» increasing cost levels in line with forecast inflation of 6% to December 2024 and 2% to March 2025;

» continuation of forecast capex investment;

» utilisation of the contractually committed Berlin Hyp AG and Deutsche Pfandbriefbank AG facilities on the maturity of existing facilities in October and December 2023;

» payment of contractual loan interest and loan amortisation amounts, refinancing of ?5.0m and ?10.0m Schuldschein facilities falling due in January and March 2025 respectively as well as the ?12.8m Saarbrücken Sparkasse facility and utilisation of the new Berlin Hyp AG and Deutsche Pfandbriefbank AG facilities on the maturity of existing facilities in October and December 2023; and

» only acquisitions and disposals which are contractually committed are made, which includes the ?40.1m disposal of Maintal which was notarised on 1 November 2023 and the ?41.2m acquisition of Islington and Camden which was completed on 6 November 2023.

Severe but plausible downside scenario:

» reduction in occupancy and rental income of 10% per annum from the base case assumptions;

» reduction in service charge recovery of 10% per annum from the base case assumptions;

» reduction in property valuations of 10% per annum;

» continuation of forecast capex investment;

» continuation of forecast dividend payments in line with historic dividend payouts;

» utilisation of the contractually committed Berlin Hyp AG and Deutsche Pfandbriefbank AG facilities on the maturity of existing facilities in October and December 2023;

» payment of contractual loan interest and loan amortisation amounts, repayment of ?5.0m and ?10.0m Schuldschein facilities falling due in January and March 2025 respectively as well as refinancing the ?12.8m Saarbrücken Sparkasse facility; and

» only acquisitions and disposals which are contractually committed are made, which includes the ?40.1m disposal of Maintal which was notarised on 1 November 2023 and the ?41.2m acquisition of Islington and Camden which was completed on 6 November 2023.

The Directors are of the view that there is a remote probability of a more severe scenario arising than the above severe but plausible downside scenario based upon the Group's track record of performance in challenging scenarios, most recently through the high inflationary environment in both Germany and the UK, the Covid-19 pandemic and post-pandemic period. In addition, the Group has already secured the refinancing of the ?58.3m Deutsche Pfandbriefbank AG and ?170.0m Berlin Hyp AG facilities in advance of their maturity dates in the going concern period.

In the severe but plausible downside scenario, the Group is expected to maintain sufficient liquidity, and comply with its loan covenants, with no covenant breaches forecasted.

The Directors are of the view that there is a high probability of securing the refinancing or an alternative source of secured or unsecured funding to replace the aggregate ?15.0m Schuldschein facilities and the ?12.8m Saarbrücken Sparkasse facility. This judgement has been informed by the Group's financial forecasts and the Group's track-record in previously refinancing maturing debt.

In the severe but plausible downside scenario, the Group assumes full repayment of the maturing loan obligations as they fall due, amounting to ?27.8m in the going concern period. The Group's forecasts indicate sufficient free cash would be available to repay these funds in full and maintain sufficient liquidity to not require the additional mitigating actions as outlined below available to it, should the severe but plausible downside scenario come to pass.

The Group also performed a reverse stress test over the impact of a fall in its property valuations and income reductions during the going concern period. This showed that the Group could withstand a fall in valuations of 21%, before there was a loan to value covenant breach and a reduction of 26% of income before any income related covenants would breach, levels which the Group has not seen before. This is therefore considered to be a remote possibility during the going concern period. In each of the scenarios considered for going concern, the Group forecasts having sufficient free cash available and if required, could utilise available mitigating actions which would be available to the Group in the going concern review period, which include restricting dividends, reducing capital expenditure or the disposal of assets. The restriction of dividends or reducing capital expenditure are within the control of the Directors and there is sufficient time to implement these restrictions, if required. The Directors have not identified any material uncertainties which may cast significant doubt on the Group's ability to continue as a going concern for the duration of the going concern period.

After due consideration of the going concern assessment for the period to 31 March 2025, the Board believes it is appropriate to adopt the going concern basis in preparing its 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 changed substantially from those set out on pages 72 to 81 of the Group's Annual Report and Accounts 2023 and have been assessed in line with the requirements of the 2018 UK Corporate Governance Code. The risks are set out 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

Information on each operating segment based on geographical location in which the Group operates is provided to the chief operating decision maker, namely the Group's Senior Management Team, on an aggregated basis and represented as operating profit and expenses.

The investment properties that the Group owns are aggregated into segments with similar economic characteristics such as the nature of the property, the products and services it provides, the customer type for the product served, and the method in which the services are provided. The Group's Senior Management Team considers that this is best achieved through the operating segments of German assets and UK assets. The Group's investment properties are considered to be their own segment. The properties at each location (Germany and the UK) have similar economic characteristics. These have been aggregated into two operating segments based on location in accordance with the requirements of IFRS 8. The Group's Senior Management Team considers the two locations to be separate segments. Further disaggregation of the investment properties is disclosed in note 12 owing to the range in values of key inputs and assumptions underpinning the property valuation. Consequently, the Group is considered to have two reportable operating segments, as follows:

? Germany; and

? the UK.

Consolidated information by segment is provided on a net operating income basis, which includes revenues made up of gross rents from third parties and direct expenses, gains/losses on property valuations and property disposals. All of the Group's share of profit of associates and administrative expenses including amortisation and depreciation and movement in expected credit loss provision are separately disclosed as part of operating profit. Group administrative costs, finance income and expenses and change in fair value of derivative financial instruments are disclosed.

Income taxes and depreciation are not reported to the Senior Management Team on a segmented basis. There are no sales between segments. There is no single tenant that makes up more than 10% of each segment's revenue or Group revenue.

(1) To conform to the current period presentation, the movement in expected credit loss provision has been shown as a separate line and this is a reallocation from other administrative expenses for the period ended 30 September 2022.

(1) Consists of plant and equipment, intangible assets and right of use assets.

4. Revenue

Other income relates to income associated with conferencing and catering of ?2.3m (30 September 2022: ?2.1m) and fee income from managed properties of ?3.1m (30 September 2022: ?2.5m).

Total revenue from contracts with customers includes service charge income and other income totalling ?51.5m from investment properties (30 September 2022: ?41.6m) and ?8.4m from managed properties (30 September 2022: ?9.3m).

A reconciliation of the revenue from contracts with customers with the amounts disclosed in the segment information (see note 3) is as follows:

5. Operating profit

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

Direct costs

Movement in expected credit loss provision

(1) To conform to the current period presentation, the movement in expected credit loss provision has been shown as a separate line in the condensed interim consolidated income statement and this is a reallocation from other administrative expenses for the period ended 30 September 2022.

The expected credit loss provision has decreased during the period mainly due to the decrease of gross trade receivables.

Administrative expenses

(1) To conform to the current period presentation, the movement in expected credit loss provision has been shown as a separate line in the condensed interim consolidated income statement and this is a reallocation from other administrative expenses for the period ended 30 September 2022.

Other administration costs include net foreign exchange losses in amount of ?0.02m as a result of declining British pound sterling ("GBP") rates throughout the period (30 September 2022: ?0.3m loss as a result of declining British pound sterling ("GBP") rates throughout the period).

Employee costs as stated above relate to costs which are not recovered through service charge.

Exceptional items relate to the following:

(1) The other fees for projects amounting to ?2.9m for the period ended 30 September 2022 were related to capital management measures undertaken by the Group. These measures are non-recurring in nature, outside the normal course of business and have been identified as exceptional items.

(2) The legal case costs amounting to ?0.3m relates to one legal case (see note 20). The legal cases in the period ended 30 September 2022 amounting to ?0.3m relates to multiple legal cases including the legal case mentioned in note 20. These legal cases are non-recurring in nature, outside the normal course of business and have been identified as exceptional items.

(3) The lease agreement termination fee amounting to ?0.9m for the period ended 30 September 2022 was compensation for early termination of a rental contract at the end of July 2022 within the UK segment of the Group. These termination fees are non-recurring in nature, outside the normal course of business and have been identified as exceptional items.

(4) In the period ended 30 September 2022, the Group identified an error in the accrual of tax liabilities arising in the BizSpace Group as at 31 March 2022, resulting in an overstatement of the tax liability of ?5.0m, of which ?3.0m arose on acquisition. These were assessed as not being material to the 31 March 2022 financial statements and the reduction in the liability was recorded in the financial statements for the six months ended 30 September 2022. The amounts have been recorded within administrative expenses under exceptional items and the taxation (see note 9) lines of the income statement.

6. Employee costs and numbers

Included in the costs related to wages and salaries for the period are expenses of ?1.5m (30 September 2022: ?1.9m) relating to the granting or award of shares (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 (Cyprus) Limited, BizSpace Limited, BizSpace II Limited, M25 Business Centres Limited and Sirius Corporate Services B.V. The average number of people employed by the Group during the period was 407 (30 September 2022: 413) expressed in full-time equivalents. In addition, as at 30 September 2023, the Board of Directors consists of six Non-Executive Directors (30 September 2022: six) and two Executive Directors (30 September 2022: two).

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. 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. Awards are equity settled. The employees' tax obligation will be determined upon the vesting date of the share issue.

The following assumptions were used in calculating the fair value per share for the TNR and TSR elements of the awards that were granted:

(1) 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.

(2) 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 Group in respect of the awards.

(3) Another 93,039 share awards have been granted throughout the performance period as part of dividend equivalents.

The June 2019 grant vested on 18 July 2022. Vesting was at partial level for all participants resulting in the exercise of 1,620,093 shares with a weighted average share price of ?1.02 at the date of exercise. 1,391,585 shares have been surrendered in relation to the partial settlement of certain participants' tax liabilities arising in respect of the vesting. An amount of ?1.6m was paid for the participants' tax liabilities.

The remaining 1,531,361 shares vested on 23 November 2022. Final vesting resulted in the exercise of 811,621 shares with a weighted average share price of ?1.02 at the date of exercise. 719,740 shares have been surrendered in relation to the settlement of certain participants' tax liabilities arising in respect of the vesting.

The June 2020 grant vested on 22 May 2023. Vesting resulted in the exercise of 1,859,000 shares with a weighted average share price of ?1.02 at the date of exercise. 1,241,000 shares have been surrendered in relation to the partial settlement of certain participants' tax liabilities arising in respect of the vesting. An amount of ?1.3m was paid for the participants' tax liabilities.

2021 LTIP

The LTIP for the benefit of the Executive Directors and the Senior Management Team was approved in 2021. 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 restricted period of two years when shares acquired on exercise cannot be sold. Awards are subject to TNR (two-thirds of award) and relative TSR (one-third of award) performance conditions. Awards are equity settled. The employees' tax obligation will be determined upon the vesting date of the share issue.

The following assumptions were used in calculating the fair value per share for the TNR and TSR elements of the awards that were granted:

(1) Expected volatility of the Company's share price was determined by calculating the historical volatility of the Company's share price over the period immediately prior to the date of grant, commensurate with the term to the end of the performance period.

(2) In accordance with IFRS 2, TNR is classed as a non-market performance condition. As such, the fair value has been calculated using a Black-Scholes model and does not take the expected outcome of the performance condition into account. The Company currently estimates the expected vesting outcome for the TNR award to be 100%.

(3) In accordance with IFRS 2, relative TSR is classed as a market-based performance condition. As such, projected performance and the likelihood of achieving the condition have been taken into account when calculating the fair value using a Monte-Carlo model. The model also uses assumptions for the expected volatility of comparator companies, the pairwise correlation between comparator companies and TSR performance between the start of the performance period and the date of grant.

(4) 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 Group in respect of the awards.

2021 SIP

A SIP for the benefit of senior employees was approved in 2021. Awards granted under the SIP are made in the form of a conditional right to receive a specified number of shares for nil cost which vest after the three year performance period with vested awards being subject to a further restricted period of one year when shares cannot be sold. Awards are subject to TNR (two-thirds of award) and relative TSR (one-third of award) performance conditions. Awards are equity settled. The employees' tax obligation will be determined upon the vesting date of the share issue.

The following assumptions were used in calculating the fair value per share for the TNR and TSR elements of the awards that were granted:

(1) Expected volatility of the Company's share price was determined by calculating the historical volatility of the Company's share price over the period immediately prior to the date of grant, commensurate with the term to the end of the performance period.

(2) In accordance with IFRS 2, TNR is classed as a non-market performance condition. As such, the fair value has been calculated using a Black-Scholes model and does not take the expected outcome of the performance condition into account. The Company currently estimates the expected vesting outcome for the TNR award to be 100%.

(3) In accordance with IFRS 2, relative TSR is classed as a market-based performance condition. As such, projected performance and the likelihood of achieving the condition have been taken into account when calculating the fair value using a Monte-Carlo model. The model also uses assumptions for the expected volatility of comparator companies, the pairwise correlation between comparator companies and TSR performance between the start of the performance period and the date of grant.

(4) 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 Group in respect of the awards.

Deferred Bonus Plan

The Deferred Bonus Plan ("DBP") is subject to rules approved by the Board and to the Directors' Remuneration Policy (approved by shareholders triennially) for Executive Directors of Sirius Real Estate Limited only.

The Executive Directors consisting of the Chief Executive Officer, the Chief Financial Officer and the Chief Investment Officer of the Company are currently required to participate in the DBP.

The participants are subject to annual performance bonus conditions and objectives to be agreed by the Remuneration Committee. At the end of the applicable financial year, and on receipt of an annual performance bonus, as determined by the Remuneration Committee, 50% or 65% depending on the participants are awarded as cash with the remainder transferred into shares in the Company. Of the remaining 50% or 35% for certain participants to be transferred in shares, half is deferred for one year and the remaining half is deferred for two years.

For the period ended 30 September 2023, an amount of ?0.1m was paid for the participants' DBP tax liabilities.

Number of share awards

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 condensed interim consolidated income statement is as follows: