STENPROP LIMITED

(Registered in Guernsey with registration number 64865)

LSE share code: STP    JSE share code: STP

ISIN:  GG00BFWMR296

4 December 2020

STENPROP REPORTS STRONG HALF YEAR RESULTS DRIVEN BY CONTINUED TENANT DEMAND FOR MULTI-LET INDUSTRIAL

Stenprop Limited ("Stenprop" or the "Company"), the UK multi-let industrial property company, announces results for the six months to 30 September 2020 which show continued progress towards the Company's goal of being a specialist UK multi-let industrial ("MLI") REIT by March 2022, as well as a strong performance during the period under review.

Commenting on the results Paul Arenson, CEO of Stenprop, said: "This is a strong set of results for the Company which we have delivered against the uncertain backdrop of the COVID-19 pandemic. Leasing activity was robust with occupancy levels and rents increasing quarter on quarter for the period. Our ability to market space through our web-based portals and to enter into leases online was a key factor in delivering these results.  Even at the peak of the lockdown we were able to quickly capture demand through our proprietary industrials.co.uk platform and Smart Leases and utilise the real time data it affords. This level of data analysis flagged the post lockdown spike in occupier demand and was an important early indicator in giving us the confidence to recommence our UK MLI investment programme.

As a result, our portfolio transition strategy remains on track with a number of acquisitions seeing us surpass five million sq ft of UK MLI for the first time during the period and on target to a 75% weighting by the financial year end.  In addition, we completed the disposal of a German retail park at a healthy premium to book value and expect further German retail asset disposals in the coming months.  This progress and the Company's performance have given us the confidence to both maintain our fully covered dividend for the first half of the year and confirm guidance, for the first time, of a similar level of dividend for the next six month period."

Operational Highlights: high rent collection with robust occupier demand driving rental and occupancy growth

·      Rent collection for the period remained strong at 90% across the portfolio as at 30 September 2020.

·      18% average uplift in MLI passing rents driven by continued strong leasing momentum with 119 new lettings/lease renewals at an average lease term of 3.8 years, generating £2.3 million of rental income per annum.

·      MLI occupancy up 2.2% to 93.3% (March 2020: 91.1%) with total occupancy at 94.4%.

·     Notable increases in traffic through our industrials.co.uk website resulted in a 30 % increase in direct leasing calls and total average weekly leasing calls up approximately 100% compared to 2019.

·      Five MLI estates acquired in the six-month period for an aggregate purchase price of £40.0 million, generating an additional £2.5 million of rental income per annum. A further three estates completed post period end for £20.2 million, generating an additional £1.4 million of rental income per annum.

·     MLI portfolio surpassed five million sq ft for the first time, growing the portfolio value to £360.5 million, up from £291.6 million at the same time last year and representing 62.8% (2019: 44.6%) of the total property portfolio by value with a target of 75% by the end of the financial year.

·      Recycling of assets on track with the sale of the Neucӧlln Carrée retail park in Berlin at a sale price €27.0 million, 15.4% ahead of the year end valuation. Further German sales expected in the second half of the financial year.

Financial Highlights: continued balance sheet strength

·      4.4% increase in diluted IFRS net asset value per share to £1.43 (31 March 2020: £1.37).

·    4.3% growth in EPRA Net Tangible Assets ('NTA') per share to £1.44 (31 March 2020: £1.38) driven by an asset management led uplift in property values, with like-for-like total portfolio valuation growth of 4.4%.

·      Diluted IFRS EPS was 8.38 pence (2019: 4.59 pence).  Adjusted EPS was 3.40 pence (2019: 3.41 pence).

·      Strong balance sheet with cash and cash equivalents of £51.1 million, including free cash of approximately £40 million.

·     Group LTV was 36.6% (March 2020: 40.8%), falling to 29.6% when applying free cash (March 2020: 27.7%). Significant headroom exists for  both interest cover and LTV loan covenants.

Maintenance of fully covered dividend

·      Fully covered dividend maintained at 3.375 pence per share for the six months ended 30 September 2020. A scrip alternative will be offered, which the directors intend to match through the buyback of shares.

1. See note 5 for reconciliation to IFRS earnings per share (and for all future references in this report to IFRS/EPRA earnings). Adjusted earnings per share was previously named 'Diluted adjusted EPRA earnings per share'.

2. Adjusted for sales and acquisitions in period.

3. See note 6 for reconciliation to IFRS NAV per share (and for all future references in this report to IFRS/EPRA NTA). EPRA NTA assumes that entities buy and sell assets, thereby crystallising certain levels of unavoidable deferred tax liabilities where assets are held for sale.

4. Loan-to-value (LTV) ratio means total borrowings to gross property valuation.

For further information:

Stenprop Limited:                                                                                                                                                        44(0)20 3918 6600

Paul Arenson (paul.arenson@stenprop.com)

Julian Carey (julian.carey@stenprop.com)

James Beaumont (james.beaumont@stenprop.com)

Numis Securities Limited (Financial Adviser):                                                                                                          44(0)20 7260 1000

Hugh Jonathan

Vicki Paine  

FTI Consulting (PR Adviser):                                                                                                                                      44(0)20 3727 1000

Richard Sunderland

Richard Gotla

Neel Bose

Stenprop@fticonsulting.com

Java Capital                                                                                                                                                                   27 (0)11 722 3050

(JSE sponsor)

About Stenprop:

Stenprop is a UK REIT listed on the LSE and the JSE. The objective of the Company is to deliver sustainable growing income to its investors. Stenprop's investment policy is to invest in a diversified portfolio of UK multi-let industrial (MLI) properties with the strategic goal of becoming the leading MLI business in the UK. For further information, go to www.stenprop.com.

Operating and financial review

Resilient performance in the face of Coronavirus for the six months ended 30 September 2020.

Overview

Stenprop continued to perform well over the six months to 30 September 2020, regardless of the considerable changes we have seen in how we live and work as a result of the COVID-19 pandemic. These changes rapidly accelerated the adoption of e-commerce sales and distribution channels, with communications technology allowing businesses to operate remotely. Throughout these uncertain times, the MLI asset class remains, or has arguably become, more attractive to businesses and has resulted in increased tenant demand, reduced vacancy and rental growth over the period.

This strong demand, the diversity of our occupier base and the proactive approach we have taken in supporting our customers has allowed us to achieve a rent collection rate of 90% for the period.

Furthermore, we have not needed government funding or had to furlough staff. Since the start of our financial year, we have recruited seven additional staff members as part of the build out of our operational platform, including in our customer engagement team, to provide the necessary support to our customers. Our team has been working remotely in an efficient manner since the start of the pandemic and we have been able to continue to market space digitally and transact online through our industrials.co.uk platform and via Smart Leases, accelerating the adoption of this important area of growth for our business.

The business remains in strong financial shape, with substantial cash balances and sustained progress on the transition into a 100% MLI company. We have maintained a covered dividend of 3.375 pence per share and have seen strong valuation increases across the portfolio. Cash balances have been held at appropriate levels to provide liquidity in case of further uncertainty whilst also allowing us to focus on growing our MLI portfolio, with £40.0 million of acquisitions during the period and a further £20.2 million acquired post period end. The MLI portfolio now comprises over 5 million sq ft and represents 62.8% of the total portfolio at 30 September 2020, rising to 64.1% by the post period end.

The board considers it appropriate to give guidance on the likely level of the final dividend. Based on the current financial and operating performance, Stenprop plans to pay a further final dividend of 3.375 pence per share. This would result in a total dividend for the year ending 31 March 2021 of 6.75 pence per share (31 March 2020: 6.75 pence). The board is satisfied that, once collections return to normal, this level of dividend should be covered by sustainable, property-related earnings. Subject to no significant further deterioration to the conditions affecting the wider economy, the strong cash position of the business affords Stenprop the ability to pay this dividend and, even if uncovered, the directors are confident that this position would only be temporary.

At the end of the period under review, we completed the sale of one of our Berlin daily needs retail centres (Neucölln Carrée) for €27.0 million, reflecting a €3.6 million premium to the year-end valuation. The sales of our other German retail properties are all progressing well and we anticipate reporting further completions by the end of the current financial year.

Continued strong performance from our MLI portfolio

We have seen a continued strong performance from the MLI portfolio, both occupationally and from a rental perspective. After the UK came out of the first lockdown, we experienced a significant and sustained increase in tenant demand, which drove occupancy up to 93.3% at the end of the period, from 91.1% at 31 March 2020. We continue to capture rental reversions with like-for-like passing rent increasing 5.2% over the previous 12 months and year-on-year growth in ERVs of 4.2%.

Our rent collection statistics have clearly demonstrated the resilience of the MLI asset class while at the same time also highlighting the benefits of the diversity our customer base affords. Quarterly rents, which comprise approximately 60% of our MLI income, have seen collection rates of over 90% in the six-month period. Collection rates for monthly rents have been trending between 85-90%. It has been encouraging to note that the rate of collections has been improving as we have progressed through the pandemic with rents coming in earlier with each passing invoice period.

We have experienced strong leasing activity over the period, much of which has originated from businesses seeking to meet requirements for growing, or new e-commerce operations. We have seen significant benefits from our customer engagement managers, who have proved invaluable during the pandemic crisis in keeping in touch with our customers and facilitating transactions. Our industrials.co.uk website has seen notable increases in traffic and there has been a 30 % increase in both quarters in direct leasing calls as a result. So far in 2020, our average weekly leasing calls are up approximately 100% when compared to 2019.

Over the six months to 30 September 2020, we completed the following leasing activities:

•     83 new lettings and 36 lease renewals generating £2.27 million of contractual rental income over 329,245 sq ft.

•     18% average uplift on the previous passing rent on new lettings and 17% on lease renewals. The average rental incentives for the six-month period on all new lettings and renewals was 2.7 months on an average lease term of 3.8 years.

•     As at 30 September 2020, the average passing rent of the portfolio was £5.34 per sq ft, compared to an estimated rental value of £5.87 per sq ft. This reflects a 9.9% premium to the average passing rent, illustrating the reversion available to capture within the portfolio.

•     We have also supported several customers requiring more space during the pandemic, most notably in the second quarter at Coningsby Business Park in Peterborough, where we let an additional 28,300 sq ft to two existing customers.

•     We completed a 10-year lease renewal at one of our urban logistics properties in Sheffield for £260,000 per annum, representing an uplift of 4% on the previous passing rent and resulting in a 10% increase in valuation to £3.4 million.

During the six-month period, we acquired five estates for an aggregate purchase price of £40.0 million. The five estates comprise 479,746 sq ft with an average occupancy rate of 94% and 54 tenants and provide Stenprop with an additional £2.5 million of annual rental income, averaging £5.55 per sq ft. After the period end, we acquired three further estates for an aggregate purchase price of £20.2 million, details of which can be found in the subsequent events section below. The pipeline for future MLI acquisitions is much stronger than it was during 2019 and the first half of 2020, with a significant increase in available opportunities. The increased pipeline of opportunities has been coupled with significant additional appetite for industrial property as investors seek a safe haven for their capital outside of other traditional investment asset classes, such as retail and office.

Industrials operating platform

During the period, we launched a new CRM system that collates, processes and manages our sales and marketing information across the Industrials platform. This delivered significant improvements in customer service and process efficiencies. It has enabled us to deploy more sophisticated and informative business intelligence tools, which are delivering significant insight to management, helping with decision making and business planning. For example, the sales enquiry data we are now collecting on a daily basis enabled the management team to identify early signs of the strong recovery that MLI experienced after the first Coronavirus lockdown. This gave us the confidence to reactivate our investment programme sooner than would otherwise have been the case, thereby securing £40 million of transactions in the three months to September 2020 at attractive pricing levels.

We have seen further significant uptake of our digital Smart Lease, which has enabled Stenprop not only to continue leasing space throughout the pandemic, but also to capture spikes in tenant demand due to the significantly shorter transaction times versus traditional leasing methods. Much of the reduction in vacancy we have seen in the portfolio over the period relates to our ability to let large numbers of smaller units more quickly, something which historically would have been significantly constrained by time and relative cost.

Looking forward, we have several enhancements planned for the platform during the course of 2021, including the deployment of a new ERP ('enterprise resource planning') system, further marketing innovations and a new forecasting and budgeting tool. These technological changes will be complemented by further investment in our Industrials team, where we are seeking to put in place additional expertise across a range of areas including customer relationship management, product development and operations, with a view to delivering on our core platform goals of enhancing efficiency and growing revenue. Our investment in the platform is designed to allow the business to scale up significantly in future at small incremental cost.

The non-industrial portfolio

Non-MLI properties comprise an office building in Guernsey known as Trafalgar Court, a portfolio of four care homes in Germany (held as a joint venture), two daily needs shopping centres in Central Berlin, five retail warehouses (let to a bike and ski business) also in Germany, and a leisure complex in Switzerland. All of these assets are scheduled for sale by March 2022, with the German retail assets all currently under offer and earmarked for disposal by the end of this financial year.

Rent collections in the period under review were unaffected in Guernsey where we collected 100% of rents invoiced. Over the summer we settled a 1 July 2020 rent review at £36.50 per sq ft, reflecting a 0.7% uplift and delivering additional rental income of £21,700 per annum. We also completed a lease renewal on a small office suite at an annual rent of £9,423 per annum, reflecting a 4.7% uplift on previous passing rent.

In Germany, where rents are invoiced monthly, we achieved collection rates of just under 90% in April and May, which subsequently rose to an average of 98% for the second quarter, ending September at 99%. Rent collections at our Care Homes portfolio were 100% over the period. At the start of November, Germany entered a month-long 'lockdown light', shutting restaurants, bars, gyms and entertainment venues, whilst leaving open schools, shops and workplaces. As with the UK, we await developments to see whether restrictions are lifted at the start of December.

Our property in Switzerland is let to a gym and wellness centre, which, after two months of closure due to COVID-19, reopened for business on 11 May 2020. We agreed a temporary deferral of 50% of rents to support the tenant, after which collections retuned to 100% from the month of September onwards.

At the end of the period we completed the sale of Neucölln Carrée retail park in Berlin at a sale price of €27.0 million, 15.4% ahead of the year-end valuation and generated net sales proceeds after costs, tax and debt repayments of just over €15 million. The sales of the two remaining Berlin daily needs centres and five retail warehouses (let to a bike and ski business) are progressing well.

Transition plan update

Stenprop continues to deliver on its plan to transition the portfolio to 100% MLI by March 2022, with the aim of becoming the UK's leading MLI business. As at 30 September 2020, MLI represented 62.8% of the property portfolio, an increase from 52% a year earlier. As at the date of signing these accounts, the MLI percentage had risen to 64.1% as a result of post period end transactions. We are targeting 76% MLI by 31 March 2021, following the sale of our German retail portfolio and further acquisitions of £30.0 million of UK MLI.

We have made strong progress against our plan in the period, with the acquisition of five MLI estates for an aggregate purchase price of £40.0 million and the first disposal of our German retail assets. Following a quiet first quarter during which we preserved capital in the face of a national lockdown, and made only one acquisition, we then transacted four acquisitions in the second quarter of 2020, having identified an opportunity to move quickly at a time of continued market uncertainty on the back of strong demand-side data emanating from the Industrials platform. We are confident that these acquisitions will look increasingly attractive as a long term solution to COVID-19 emerges and investors see market conditions starting to return to normal.

Reducing leverage to below 40% was a key component of the first phase of our transition and, having achieved this in March 2020, the board of directors believe that operating at this level remains an appropriate strategy.

Environmental, social, and governance update

We have seen an increasing awareness in the market place regarding responsible investment and management within business practises. It is now widely accepted that Environmental, Social & Governance ("ESG") factors are integrated into an organisation's strategy focusing on the most material issues, with a range of ESG metrics collected and reported on. Complementing these are ESG policies which are accessible to all. In 2020, we created an ESG policy to describe the application of responsible investment and management into our day to day processes including origination, due diligence, approval, asset and operational management and reporting.

Stenprop is committed to establishing a broad set of environmental, social and governance initiatives. We have been developing our ESG strategy over the course of 2020 in partnership with a specialist sustainability consultancy firm, Carbon Intelligence. This has involved undertaking a detailed materiality assessment, engagement with stakeholders from across the organisation and developing a number of targets. An ESG steering group will be accountable for the delivery of the strategy and will ensure the fundamentals of the ESG policy are an integral part of the Group's ethos. With the ESG policy finalised and strategy nearing completion, we aim to align with a number of reporting frameworks in 2021 onwards, starting with the European Public Real Estate Association ('EPRA') best practice sustainability award and carbon emissions data, while continuing to communicate and evolve our ESG vision.

Financial review

Earnings

For the six months to 30 September 2020, basic earnings attributable to ordinary shareholders rose significantly to £24.0 million (2019: £13.2 million), equating to 8.38 pence on a diluted IFRS EPS basis (2019: 4.59 pence). The increase was driven by strong valuation uplifts in the period.

Net rental income from the MLI portfolio rose 17.1% to £9.6 million, representing 64% of total net rental income (2019: £8.2 million; 52%), with total net rental income at £15.0 million for the period, slightly down on the £15.8 million reported for the same period last year.

The period to 30 September 2020 has seen rental income collection rates of approximately 90% across the portfolio.

Net rental income is presented after provision for expected credit losses. Provisions of £1.5 million were made for expected losses related to the six month period under review, compared with £0.5 million for the same period last year, the increase being due to the impact of the Covid-19 pandemic. The total aggregate provision for expected credit losses stood at £2.5 million as at 30 September 2020 (31 March 2020: £1.0 million). Net management fee income totalled £0.7 million compared with £0.4 million a year earlier.

Operating expenses were £4.8 million (2019: £4.6 million). This included approximately £0.5 million of costs in relation to the ERP operating platform project. The implementation of this platform is a key part of our strategy and will deliver a unified system which can scale efficiently as Stenprop grows its MLI operating business, improving efficiencies and capturing economies of scale.

In accordance with reporting standards widely adopted across the real estate industry in Europe, the directors feel it is appropriate and useful, in addition to providing the IFRS disclosed earnings, to also disclose EPRA earnings and adjusted earnings (in previous reports referred to as 'diluted adjusted EPRA earnings'). Adjusted earnings attributable to shareholders were £9.7 million (2019: £9.8 million). The adjusted EPS was 3.40 pence (2019: 3.41 pence).

Stenprop has considered the adoption of further EPRA metrics and in line with best practice believes it useful to disclose the EPRA cost ratio (including direct vacancy costs). The EPRA cost ratio includes all administrative and operating expenses in the IFRS statements (including share of joint ventures) and for the period ended     30 September 2020 was 38.8% (2019: 38.9%). However, the directors do not believe that this cost ratio is representative of where the business will be in the future, as the envisaged cost savings from our operating platform are not yet being maximised. This arises from the fact that we continue to invest in the platform and are still transitioning towards having a 100% MLI portfolio, at which point we will begin to see the benefits flow through. We are investing now to grow a platform capable of dealing with bigger volumes and servicing a much larger portfolio with small incremental costs.

Dividends

On 2 December 2020, the directors declared an interim dividend of 3.375 pence per share (2019: 3.375 pence per share). The dividend is fully covered by adjusted earnings of 3.40 pence per share. Part of the distribution will be a Property Income Distribution (known as a PID) which, subject to certain exemptions, will attract UK withholding tax. The directors intend to offer shareholders the option to receive all or part of their dividend entitlement by way of a scrip issue of Stenprop ordinary shares or in cash. A further announcement informing shareholders of the salient dates and tax treatment will be released in due course.

In respect of this dividend, given the Company's share price which stands at a discount relative to net asset value, the directors intend to match any scrip scheme take up through the buyback of shares to mitigate the dilutive effect that would otherwise occur from the issuance of ordinary shares.

Net asset value

Driven by a £20.9 million increase in the portfolio valuation, IFRS basic and diluted net asset value ('NAV') per share grew 4.4% and 4.3% to £1.44 and £1.43 respectively as at 30 September 2020 (31 March 2020: £1.38 and £1.37 respectively).

Following the October 2019 update to EPRA's Best Practices Recommendations Guidelines, Stenprop has adopted EPRA Net Tangible Assets ('NTA') as our reporting measure, replacing our previously reported EPRA net asset value. This measure assumes that entities buy and sell assets, thereby crystallising certain levels of unavoidable deferred tax liabilities.

The EPRA NTA metric is aligned with IFRS NAV in that it includes deferred tax liabilities with regards to properties classified as held for sale. The EPRA NTA per share at 30 September 2020 was £1.44. This represents a 4.3% increase on the EPRA NTA per share of £1.38 at 31 March 2020. A reconciliation of this change is shown in note 6 to the accounts.

Portfolio valuation

Including the Group's share of joint ventures, its investment properties were valued at £574.1 million at 30 September 2020 (31 March 2020: £532.6 million), of which £101.1 million were classified as assets held for sale (31 March 2020: £109.1 million). As at the period end, assets held for sale consisted of two Berlin daily needs retail centres (anchored by strong food retailers), five German retail warehouses (let to a bike and ski business) and the sole remaining Swiss property (let to a wellness centre/health club). On a like-for-like basis, excluding the impact of additions and disposals in the period, the valuation of the portfolio since year end increased by 4.4%, of which 0.6% resulted from currency movements.

United Kingdom: MLI and urban logistics portfolio

The UK MLI portfolio was independently valued at £360.5 million and represents 62.8% of the total portfolio. On a like-for-like basis, after excluding the five MLI estates acquired in the six-month           period to 30 September 2020, the valuation of the UK portfolio increased by £11.4 million, or 3.7%, over the valuation at 31 March 2020 (2019: 2.5%).The increase reflects the strong income performance over the period, which is in no small part due to the active asset management employed by the Stenprop team over a challenging period.

Stenprop acquired five MLI estates for a purchase price of £40.0 million excluding costs. These properties were independently valued at £40.2 million at 30 September 2020.

The MLI portfolio now comprises 75 estates and more than five million sq ft of lettable space.

The five urban logistics properties were valued at £21.1 million at the period end (March 2020: £21.4 million). It is the intention to retain these industrial properties as they fit well with our MLI strategy.

United Kingdom: other

The remaining UK investment comprises an office building known as Trafalgar Court in Guernsey, which was valued at £56.2 million against the year-end valuation of £57.5 million. The 2.3% decrease broadly reflects the diminishing unexpired lease term at the property, which still remains at 7.3 years. It is let to a strong tenant (which has sub-let a significant portion of its space) but is situated in an investment market underpinned by demand for secure long income assets.

Germany

The German portfolio (excluding the Care Homes portfolio) was classified as held for sale in the financial statements. All seven properties are either under offer or in legals and have therefore been valued at sale price. Given the advanced state of the sales, associated selling costs have been provided. The two remaining Berlin daily need retail centres are valued at €68.3 million, an increase of €11.1 million, or 19%, on the valuation at 31 March 2020.

The five retail warehouse properties let to a bike and ski business were valued at €27.0 million, an increase of €1.0 million from the valuation at 31 March 2020.

The sale of the Neucölln Carrée retail park in Berlin completed on 30 September 2020 having been notarised on 15 July 2020. The disposal price of €27.0 million reflected a €3.6 million premium (15.4%) to the 31 March 2020 book value.

Switzerland

The final Swiss property, Lugano, which is held for sale, was independently valued at CHF17.0 million (March 2020: CHF17.0 million).

Joint ventures

The Care Homes portfolio in Germany, comprising four care homes, was independently valued at €39.0 million, a decrease of 3.0% on the 31 March 2020 valuation of €40.2 million.

Debt

The acquisition of the five MLI estates was completed from free cash reserves and no new debt was drawn in the period. The disposal of the Neucölln Carrée retail park in Berlin resulted in a reduction of associated debt of

£8.2 million (€9.0 million).

We are in the process of refinancing the recent MLI acquisitions (including the acquisitions completed post period end, further detailed in the subsequent events note below). The debt will be added to an existing facility maturing in February 2024 and, given the current low interest rate environment, we anticipate completing this at an attractive level of pricing. The drawdown is expected to generate approximately £22 million of proceeds that will be used to acquire further MLI estates as we progress into 2021.

The Group considers it appropriate to maintain its level of borrowings at no more than 40% of its gross asset value. Reductions to this level of borrowing may be considered by the directors after taking into account prevailing market conditions and after consideration of an appropriate level of gearing for the asset class.

The value of the property portfolio as at 30 September 2020, including the Group's share of joint venture properties and assets held for sale, was £574.1 million. Senior bank debt at the same date was £210.0 million, resulting in an average loan-to-value ratio of 36.6% (31 March 2020: 40.8%). Cash reserves, including cash held in liquidity funds, totalled £51.1 million at 30 September 2020 and included free cash of £40.0 million.

When free cash is included in this measure, our overall LTV was 29.6%.

The rolling credit facility provided by Investec Bank Plc to bridge the potential funding gap between property acquisitions and sales matures in April 2021. The facility was not utilised in the six-month period and was undrawn as at 30 September 2020.

The weighted average debt maturity stood at 2.3 years at 30 September 2020 compared with 2.7 years at 31 March 2020. Excluding the Swiss property at Lugano, which is designated as held for sale, annual amortisation payments are £0.7 million (31 March 2020: £0.7 million) and the all-in contracted weighted average cost of debt was 2.51% at the period end, compared with 2.62% at 31 March 2020.

As previously reported, and in addition to the refinancing of the recent MLI acquisitions, we have also been investigating refinancing a large part of our existing MLI portfolio on a seven-year term with institutional lenders. We approached a number of potential lenders and received positive responses with attractive terms offered by those keen to increase their exposure in the sector. Whilst the market continues to move as a result of the pandemic uncertainty, we expect to secure an all-in interest rate of under 2% (currently 3.19%) on the £66.5 million tranche of debt. Completion of this process is expected by the end of the calendar year and will extend our overall debt maturity to approximately 3.8 years, whilst also reducing our overall cost of debt. Our debt maturity profile will further improve following the sale of the German properties. As at 30 September 2020, these seven properties had a loan maturity of approximately 1.2 years, having been kept deliberately short in recognition of our intention to dispose of these assets.

Stenprop maintains significant headroom cover on both its interest cover and LTV loan covenants. Loan facilities subject to LTV covenants allow for an average 34% reduction in values. Loan facilities subject to debt service cover ratio covenants allow for an average reduction in net rents of 64%. Stenprop continues to enjoy an open and supportive relationship with its lenders.

The Group mitigates interest rate risk through the use of derivative instruments such as interest rate swaps or interest rate caps in respect of at least 75% of its interest rate exposure.

Foreign exchange

At 30 September 2020, approximately 23.9% of Stenprop's net asset value and 16.8% of its net rental income are denominated in euros. As we progress the German property sales, targeted for 31 March 2021, the impact of the GBP:EUR exchange rate will decrease. At the start of April 2020, the GBP:EUR rate was £1.00:€1.1249. The euro subsequently strengthened and the exchange rate at 30 September 2020 was £1.00:€1.0978.

Stenprop matches the currency of borrowings to the underlying asset. Where the timing and amount of a liability has been determined, and where it will be met from the proceeds of a sale, which is also known in terms of timing and amount, the currency risk is managed through hedging instruments.

Board appointments and changes to board committees

On 4 November 2020, Stenprop announced that it had further strengthened its board of directors (the 'Board') with the appointments of Richard Smith, chief executive officer of The Unite Group plc, and Louisa Bell, the former UK country manager of Avis Budget Group International, as independent non-executive directors. They bring with them a range of complementary expertise and experience in operational management and business transformation as well as leadership in the real estate and transport industries.

On 2 December 2020, various changes to the composition of the Board committees were made. Louisa Bell was appointed to the audit and risk committee, the remuneration committee and the social and ethics committee. Richard Smith was appointed to the audit and risk committee and the remuneration committee. Richard Grant stood down from the audit and risk committee and the social and ethics committee. Patsy Watson was appointed to the social and ethics committee. Finally, Julian Carey, Managing Director, and James Wakelin, Head of debt and special projects, were appointed as executive members to the social and ethics committee whilst Sarah Bellilchi stood down from the committee. Following these changes, the composition of the committees is as follows:

Audit and risk committee: Phil Holland (chair), Paul Miller, Louisa Bell and Richard Smith

Remuneration committee: Paul Miller (chair), Richard Grant, Phil Holland, Louisa Bell and Richard Smith

Nomination committee: Richard Grant (chair), Paul Miller, Phil Holland and Patsy Watson

Social and ethics committee: Phil Holland (chair), Patsy Watson, Louisa Bell, Julian Carey and James Wakelin

With the appointments of Richard and Louisa and the changes to the Board committees membership described above, Stenprop is now fully compliant with the provisions of the UK Corporate Governance Code and the King IV Report on Corporate Governance for South Africa in terms of the composition of the Board and its committees and the balance of independent and non-independent directors on the Board.

Subsequent events

MLI assets to the value of £20.2 million have been acquired since the reporting date. On 10 November 2020 and 13 November 2020 respectively, Stenprop acquired two separate industrial estates known as Mandale in Durham for £11.2 million and Phoenix Industrial Estate in West Bromwich for £2.8 million. On 3 December 2020, an industrial estate known as The Levels, Capital Business Park in Cardiff was acquired for £6.2m.

Conclusion

In the period under review, Stenprop has delivered solid results and maintained a covered dividend of 3.375 pence per share. Our balance sheet remains strong and we have proven to be well positioned to deal with recent challenges. We have focused on assisting our customers and are evolving our management platform, which, even in its embryonic stages, has proved exceptionally useful in navigating the recent disruption. As stated above, based on current expectations Stenprop is guiding to pay a further final dividend of 3.375p per share, maintaining the full year dividend at 6.75p per share.

Outlook

The MLI sector has displayed its strength over the last six months and we have seen a material increase in demand from a new and ever diversifying occupier base. The pandemic has accelerated the adoption of e-commerce and the importance of regional distribution channels, which are served well by businesses operating within MLI property. Our own MLI portfolio has experienced increased tenant demand, reduced vacancy, as well as growth in rental values. We have been further encouraged by the high levels of rent collections, which have been trending towards 90%.

We are pleased that the sales of our remaining German properties are progressing well. These sales will generate significant net proceeds for further MLI acquisitions whilst also providing substantial cash reserves should we experience prolonged market uncertainty. During the period, we have acquired £40 million of MLI estates and a further £20.2 million in the post period end.

We remain on track to achieve our goal of transitioning the portfolio to 75% MLI by the end of the financial year, although we are monitoring current external events closely and recognise that significant uncertainty will continue. We are also executing on the opportunity to refinance some of our short-term debt on the MLI portfolio onto a longer-term facility at significantly lower rates. Debt maturity will further extend following the sale of our German held for sale assets.

The current low interest rate environment is likely to remain for some considerable time, which will favour high yielding assets with sustainable and growing rental flows. Notwithstanding the recent positive news regarding a vaccine, we are very aware of the continued threat from the pandemic and the additional uncertainty regarding Brexit. We approach the second half of the year with cautious optimism and take comfort from the fact that we have a strong balance sheet, a clearly defined growth strategy in a resilient asset class and a strong team who are working hard to deliver our goals.

Statement of directors' responsibilities

Statement of principal risks and uncertainties

Stenprop is a listed property investment company with a diversified portfolio of commercial property currently located in the United Kingdom and Germany and with one property in Switzerland. Its principal risks are therefore related to the commercial property market in general and its investment properties. Other risks faced by the Group include strategy, financial, operational, and emerging risks. The audit and risk committee assists the board with its responsibilities for managing risk. The principal risks currently facing the business are described in more detail under the heading 'risk management' within the Company's annual report for the year ended 31 March 2020. The Group's principal risks and uncertainties have not changed materially since the date of the annual report.

Statement of going concern

At the date of signing these condensed consolidated financial statements, the Group has positive operating cash flow forecasts and positive net assets. Management have carefully assessed the impact of the market uncertainties arising from both Brexit and the COVID-19 pandemic, on the entity's net assets, liquidity and ability to continue as a going concern for the foreseeable future. Given the current market conditions and negative economic outlook, management applied prudent assumptions to the Group's cash flow forecast, debt refinancing and loan covenant sensitivities for the 18 months to 31 March 2022. The test concluded that the Group would have positive liquid assets and be able to meet its obligations as they fall due.

In light of this review and the significant liquid assets held by the Group, management are satisfied that the Group has access to adequate resources to continue in operational existence for a period of at least 12 months from the date of these condensed consolidated financial statements.

The directors believe that it is therefore appropriate to prepare the accounts on a going concern basis.

Statement of directors' responsibilities in respect of the interim report

The directors confirm that to the best of their knowledge:

i.    the condensed set of consolidated financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';

ii.   the operating and financial review together with the statement of principal risks and uncertainties above include a fair review of the information required by the Disclosure Guidance and Transparency Rules ('DTR') 4.2.7R, being an indication of important events that have occurred during the first six months of the financial year, a description of principal risks and uncertainties for the remaining six months of the year, and their impact on the condensed set of consolidated interim financial statements; and

iii.  the operating and financial review together with the condensed set of consolidated interim financial statements include a fair review of the information required by DTR 4.2.8R, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Group during that period, and any changes in the related party transactions described in the last annual report that could do so.

The financial statements are published on the Company's website, Stenprop.com. A list of the current directors of Stenprop can be found on the Company's website. Legislation in Guernsey governing the preparation and dissemination of the interim financial statements may differ from legislation in other jurisdictions.

Approved by the board on 3 December 2020 and signed on its behalf:

Paul Arenson

Chief Executive Officer

James Beaumont

Chief Financial Officer

Independent review report to Stenprop Limited

Introduction

We have been engaged by the Group 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 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 explanatory notes.

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.

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 listing requirements of the Johannesburg Stock Exchange and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority. As disclosed in note 1, the annual financial statements of the group are prepared in accordance with International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board ("IASB"), the financial reporting guides issued by the Accounting Practices Committee of the South African Institute of Chartered Accountants (the "SAICA Reporting Guides") and the financial reporting pronouncements issued by the Financial Reporting Standards Council of South Africa (the "FRSC Pronouncements"). 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'', as issued by the IASB, the Johannesburg Stock Exchange Listings Requirements and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

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 Financial Reporting Council 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, as issued by the IASB, the Johannesburg Stock Exchange Listings Requirements and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Use of our report

Our report has been prepared in accordance with the terms of our engagement to assist the Company in meeting its responsibilities in respect of the Johannesburg Stock Exchange Listings Requirements and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.

BDO LLP

Chartered Accountants
55 Baker Street
London W1U 7EU
United Kingdom

3 December 2020

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

Condensed consolidated statement of comprehensive income

for the six months ended 30 September 2020

Condensed consolidated statement of financial position

as at 30 September 2020

Condensed consolidated statement of changes in equity

for the six months ended 30 September 2020 (unaudited)

Condensed consolidated statement of cash flows

for the six months ended 30 September 2020

Funds totalling £6.5 million were restricted at 30 September 2020 (2019: £4.9 million).

Notes to the condensed consolidated interim financial statements

1 Basis of preparation

The annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards ('IFRS') as issued by the International Accounting Standards Board ('IASB'). These unaudited condensed consolidated interim financial statements for the six months ended 30 September 2020 have been prepared in accordance with IAS 34 'Interim Financial Reporting', the JSE Listings Requirements, the Disclosure and Transparency Rules of the UK's FCA, applicable Guernsey law, the financial reporting guides issued by the Accounting Practices Committee of the South African Institute of Chartered Accountants (the 'SAICA Reporting Guides') and the financial reporting pronouncements issued by the Financial Reporting Standards Council of South Africa (the 'FRSC Pronouncements').

These condensed consolidated interim financial statements have been reviewed, not audited. The auditor's review opinion is included in this report.

These condensed consolidated financial statements have been prepared by, and are the responsibility of, the directors of Stenprop.

The accounting policies and methods of computation are consistent with those applied in the preparation of the annual financial statements for the year ended 31 March 2020, which were audited and reported on by the Group's external auditor. The consolidated annual financial statements for the year ended 31 March 2020 are available on the Company's website: stenprop.com.

The condensed consolidated financial statements are presented in GBP (Pounds Sterling).

Going concern

At the date of signing these condensed consolidated financial statements, the Group has positive operating cash flow forecasts and positive net assets. Management have carefully assessed the impact of the market uncertainties arising from both Brexit and the outbreak of the COVID-19 pandemic, on the Group's net assets, liquidity and ability to continue as a going concern for the foreseeable future. Given the current market conditions and negative economic outlook, management applied prudent assumptions to the Group's cash flow forecast for the 18 months to 31 March 2022, including a 25% deterioration in rental income cash receipts until March 2021 for the UK and German portfolio and 50% for the Swiss portfolio, after which it is assumed that rental receipts will return to normal levels. The test concluded that even in this scenario the Group would have positive liquid assets and be able to meet its obligations as they fall due.

Debt refinancing and sensitivities to loan covenants were assessed in detail, as well as the Company's REIT obligations. Despite the disruption to the economy caused by COVID-19, management do not expect the risk of default to have increased. Lenders have been guided by the government to take a pragmatic view and to consider prepayment possibilities, equity cures and waivers of covenants so that borrowers who do breach their covenants as a direct link to the pandemic should not automatically trigger a default event. While our projections indicate we will remain within our limits and not breach covenants, there is additional assurance that banks are heavily encouraged to adopt this pragmatic approach. In addition, the Group maintains strong relationships with our facility providers and currently have significant headroom for both interest cover and LTV loan covenants. Notwithstanding this assumption, the Group would have cash resources available, even after considering the respective downside scenarios above, to be utilised to cure covenant breaches if they crystallise and should the lenders take a hard stance, against government advice. It is further worth noting that the loans are not cross-collateralised and accordingly if certain banks do act aggressively, the Group would continue to operate with the remaining portfolio of assets if any foreclosure events were to arise.

In light of this review and the significant liquid assets, management are satisfied that the Group has access to adequate resources to continue in operational existence for a period of at least 12 months from the date of these condensed consolidated financial statements.

The directors believe that it is therefore appropriate to prepare the accounts on a going concern basis.

Adoption of new and revised standards

In the current period, no new or revised standards and interpretations have been adopted.

No other standards or interpretations not yet effective are expected to have a material impact on these condensed consolidated financial statements of the Group.

Critical accounting judgements and key sources of estimation uncertainty

The preparation of condensed consolidated financial statements, in accordance with IFRS, requires the use of certain critical accounting estimates. It also requires management to exercise judgement in the process of applying the Group's accounting policies. Although the estimates are based on management's best knowledge of the amount, events or actions, actual results may ultimately differ from those estimates. The key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next reporting period, are discussed below.

Key sources of estimation uncertainty

Valuation of the property portfolio

The Group's investment properties are stated at estimated fair value, determined by directors, based on an independent external appraisal, with the exception of the seven German properties classified as held for sale, which are based on the sale prices. The valuation of the Group's property portfolio is inherently subjective due to a number of factors including the individual nature of each property, its location, expectation of future rentals and the discount yield applied to those cash flows. This has been particularly relevant in light of the market uncertainty due to both Brexit and the COVID-19 crisis, both of which have been carefully considered. As a result, the valuations placed on the property portfolio are subject to a degree of uncertainty and are made on the basis of assumptions that may not prove to be accurate, particularly in years of volatility or low transaction flow in the market. The estimated market value may differ from the price at which the Group's assets could be sold at a particular time, since actual selling prices are negotiated between willing buyers and sellers. As a result, if the assumptions prove to be false, actual results of operations and realisation of net assets could differ from the estimates set forth in these condensed consolidated financial statements, and the difference could be significant. Further details can be found in note 8.

The Group currently has a number of continental European investment properties as assets held for sale. Due to the same reasons mentioned above that the COVID-19 crisis has caused, the valuations of assets held for sale are also subject to a degree of valuation uncertainty and as such a key source of estimation uncertainty. Further information on assets held for sale can be found in note 10.

2 Operating segments

The Group is focused on real estate investment in well-developed, large economies with established real estate markets. The investment portfolio is geographically diversified across the United Kingdom, Germany and Switzerland, with a further sub-division within the UK between multi-let industrial ('MLI') and non-MLI. Each segment derives its revenue from the rental of investment properties in the respective geographical regions.

Relevant financial information is set out below:

i) Information about reportable segments

ii) Reconciliation of reportable segment profit or loss

Unallocated profit or loss amounts relate to management fee income and central costs incurred by the Group.

iii) Reconciliation of reportable segment financial position

3 Net rental Income

4 Operating costs

Share-based payments of £416,000 (2019: £630,000) relate to the equity-settled incentive schemes operated by the Group. As at 30 September 2020, the Group's equity reserve held £2.8 million (31 March 2020: £2.7 million) in relation to the schemes after the exercise of options at fair value of £48,000 (2019: £224,000) during the period.

5 Earnings per ordinary share

As at 30 September 2020, the Company held 14,397,479 treasury shares (2019: 15,830,040 and 31 March 2020: 15,830,040).

1.    The European Public Real Estate Association (EPRA) issued the Best Practices Recommendations policy in October 2019, which provides guidelines for performance measures relevant to real estate companies. Their recommended reporting standards are widely applied across this market, aiming to bring consistency and transparency to the sector. The EPRA earnings measure is intended to show the level of recurring earnings from core operational activities with the purpose of highlighting the Group's underlying operating results from its property rental business and an indication of the extent to which current dividend payments are supported by earnings. The measure excludes unrealised changes in the value of investment properties, gains or losses on the disposal of properties and other items to provide additional information on the Group's underlying operational performance. The measure is considered to accurately capture the long-term strategy of the Group, and is an indication of the sustainability of dividend payments.

2.   As described in the EPRA Best Practice Recommendations policy issued in October 2019, should companies wish to make other adjustments to arrive at an underlying performance measure, they should do that below 'EPRA earnings' and use a different name for that measure. 'Adjusted EPS' is a measure that excludes items considered not to be in the ordinary course of business or other exceptional items that do not necessarily provide an accurate picture of the Group's underlying operational performance.

Costs associated with the ERP implementation

Stenprop is implementing a new enterprise resource planning (ERP) and customer engagement (CE) software program to help streamline and grow the business. Significant non-recurring costs will be incurred during the implementation phase before the systems go live.

The ERP implementation expense is related to a one-off project and is anticipated to complete over approximately 12 months and accordingly has been adjusted for as a 'company-specific adjustment'.

Headline earnings per share

The JSE listings requirements require the calculation of headline earnings and disclosure of a detailed reconciliation of headline earnings to the earnings numbers used in the calculation of basic earnings per share in accordance with the requirements of IAS 33 - Earnings per Share. Disclosure of headline earnings is not a requirement of IFRS.

6 Net asset value metrics per share - reconciliations and bridge

In October 2019, EPRA published new best practice recommendations for financial disclosures by public real estate companies. Three new measures of net asset value were introduced namely: EPRA net tangible assets (NTA), EPRA net reinvestment value (NRV) and EPRA net disposal value (NDV). These recommendations are effective for accounting periods starting on 1 January 2020 and have been adopted by the Group in reporting these interim results.

Stenprop consider EPRA NTA to be the most relevant measure of the three EPRA NAVs to report on and will act as the a key net asset value measure going forward. The EPRA NTA metric is aligned with IFRS NAV in that it includes deferred tax liabilities with regards to properties classified as held for sale. A reconciliation of the three new EPRA NAV metrics from IFRS NAV is shown in the table below. The previously reported EPRA NAV has also been included for comparative purposes.

As at 30 September 2020 (unaudited)

As at 31 March 2020 (audited)

1.    The Group's deferred tax in relation to the fair value of investment properties and financial instruments relates solely to those properties in the German portfolio included in assets held for sale which comprise 14.8% of the portfolio with a fair value of £84.6 million (March 2020: £94.8 million (17.8%)). No deferred tax was excluded from EPRA NTA in relation to this deferred tax as the deferred tax will be crystallised on sale of these properties in the short term.

2.    EPRA NTA and EPRA NDV reflect IFRS values which are net of purchaser's costs. Any purchaser's costs deducted from the market value, are added back when calculating EPRA NRV.

3.    As at 30 September 2020, the Company held 14,397,479 treasury shares (31 March 2020: 15,830,040). Refer to note 7.

7 Share capital

Authorised

1,000,000,000 ordinary shares with a par value of €0.000001258 each

There were no changes made to the number of authorised shares of the Company during the period under review. Stenprop Limited has one class of share. All shares rank equally and are fully paid.

The Company has 298,775,175 (31 March 2020: 298,775,175) ordinary shares in issue at 30 September 2020.

On 12 June 2020, the Company announced a final dividend of 3.375 pence per share in respect of the six months to 31 March 2020. On 13 August 2020, the Company announced a take-up of the scrip dividend representing 1.10% of the issued share capital and 3,301,265 shares were subsequently issued from treasury shares on 14 August 2020.

As at 30 September 2020, the Company held 14,397,479 treasury shares (31 March 2020: 15,830,040). In the period the shareholders were offered the option to receive either a scrip dividend by way of an issue of Stenprop treasury shares, or a cash dividend. Given the Company's share price, which is at a discount relative to NAV, the directors matched the scrip alternative through share purchases to mitigate the dilutive effect that would otherwise have occurred through the issuance of new ordinary shares.

On 1 October 2020, a further 1,385,328 shares were bought back on the market for £1.17 per share. This brought the total number of shares bought back in the period to 3,301,265; equal to the total number of shares issued as a scrip dividend in the period. At

1 October 2020, the total number of treasury shares held is 15,782,807.

8 Investment property

The consolidated fair value of investment properties at 30 September 2020 was £437.8 million (31 March 2020: £387.8 million). This excludes an amount of £14.3 million (31 March 2020: £14.3 million) for the last remaining Swiss property (31 March 2020: one Swiss property) and £86.8 million (31 March 2020: £94.8 million) for the remaining seven German properties (31 March 2020: eight German properties) which have been classified as held for sale. With the exemption of the seven German properties, the carrying amount of investment property is the fair value of the property as determined by registered independent appraisers having an appropriate recognised professional qualification and recent experience in the location and category of the properties being valued ('valuers'). The seven properties located in Germany, classified as held for sale are all in advanced stages of sale, and the fair values have accordingly been determined by the directors based on the sale prices.

The fair value of each of the properties for the period ended 30 September 2020, with the exception of the seven properties located in Germany, which have been classified as held for sale (discussed in detail in note 10), was assessed by the valuers in accordance with the Royal Institution of Chartered Surveyors ('RICS') standards and IFRS 13. Valuers are qualified for purposes of providing valuations in accordance with the 'Appraisal and Valuation Manual' published by RICS.

The valuation of the Group's property portfolio is inherently subjective due to a number of factors including the individual nature of each property, its location, expectation of future rentals and the discount yield applied to those cash flows. As a result, the valuations placed on the property portfolio are subject to a degree of uncertainty and are made on the basis of assumptions that may not prove to be accurate, particularly in years of volatility or low transaction flow in the market. The estimated market value may differ from the price at which the Group's assets could be sold at a particular time, since actual selling prices are negotiated between willing buyers and sellers. As a result, if the assumptions prove to be different, actual results of operations and realisation of net assets could differ from the estimates set forth in these financial statements, and the difference could be significant.

The valuations performed by the independent external valuers are reviewed internally by senior management. This includes discussions of the assumptions used by the external valuers, as well as a review of the resulting valuations.

Discussions regarding the valuation process and results are held between senior management and the external valuers on a biannual basis. The audit and risk committee reviews the valuation results and, provided the committee is satisfied with the results, recommends them to the board for approval.

The valuation techniques used are consistent with IFRS 13 and use significant 'unobservable' inputs. Investment properties are all at level 3 in the fair value hierarchy and valuations represent the highest and best use of the properties. There have been no changes in valuation techniques since the prior year and no transfers between the fair value hierarchy levels in the current or prior year.

There are interrelationships between all these unobservable inputs as they are determined by market conditions. An increase in more than one unobservable input would magnify the impact on the valuation. The impact on the valuation would be mitigated by the interrelationship of two unobservable inputs moving in opposite directions e.g. an increase in rent may be offset by an increase in yield, resulting in no net impact on the valuation. Expected vacancy rates may impact the yield with higher vacancy rates resulting in higher yield. All revenue is derived from the underlying tenancies given on the investment properties.

With the exception of six (31 March 2020: two) recently acquired MLI properties, all investment properties are mortgaged, details of which can be seen in note 11. As at the date of signing this report, there are no restrictions on the realisability of any of the underlying investment properties, nor on the remittance of income and disposal proceeds.

The key unobservable inputs used in the valuation of the Group's investment properties at 30 September 2020 are detailed in the table below:

9 Investment in joint ventures

Details of the Group's joint ventures at the end of the reporting period are as follows:

Elysion S.A.

Stenprop owns 100% of the shares and shareholder loans in Bernina Property Holdings Limited ('Bernina'), the results and financial position of which is included within these condensed consolidated financial statements. Bernina in turn owns 50% of the issued share capital and 100% of the bonds of Elysion S.A., a company incorporated in Luxembourg, which is the beneficial owner of the Care Home portfolio. The remaining 50% of Elysion S.A. is owned by a joint venture partner who manages the portfolio.

The acquired bonds have attracted, and continue to attract, a 10% compounded interest rate since inception in 2007 and have limited recourse to compartment assets within Elysion S.A., with the proceeds made available to subsidiaries in the joint venture for real estate investment in Care Homes. All costs and expenses incurred by the Elysion S.A. compartment are deducted or withheld from any payment of principal or interest. The fair value has been determined based on the net assets of the compartment which would be available to settle the outstanding bond and which is intrinsically linked to the fair value of the investment property. Further details on the estimates and assumptions used in determining the fair value of investment property can be found in note 8.

Summarised consolidated financial information in respect of the Group's joint ventures is set out below. Where applicable, these represent the consolidated results of the respective holding companies.

10 Assets held for sale and discontinued operations

Management considers the one remaining Swiss property (31 March 2020: one) and seven properties located in Germany

(31 March 2020: eight) to meet the conditions relating to assets held for sale, as per IFRS 5: Non-current Assets Held for Sale and Discontinued Operations. The properties are expected to be disposed of during the next 12 months. The Swiss property at Lugano, which is valued at 30 September 2020 at CHF17.0 million (£14.3 million) (31 March 2020: CHF17.0 million (£14.3 million)), is classified as held for sale. Although the sale may not complete within 12 months, Stenprop is committed to the disposal of the asset in line with its strategy to exit the Swiss market. Accordingly, Stenprop has disclosed the asset as held for sale. The fair value of Lugano has been determined by a third-party valuer, JLL.

The seven properties located in Germany, classified as held for sale are all in advanced stages of sale, and the fair values have accordingly been determined by the directors based on the sale prices. Given the advanced state of the sales, associated selling costs have been provided.

All non‑current assets, and the Swiss disposal group, classified as held for sale are disclosed at their fair value.

The fair value of these properties, and their comparatives are shown in the table below along with associated assets and liabilities:

The Swiss property is the only asset recognised as a discontinued operation as the Swiss segment is a disposal group. In the prior period, the entire Swiss segment (one property) was recognised as a discontinued operation in accordance with IFRS 5.32. The results of the discontinued operation were as follows:

Disposals

On 30 September 2020, the Group disposed of its property, Neucölln Carrée retail park, in Berlin, Germany held in Isabel Properties B.V. for €27.0 million.

Prior year disposals

On 21 June 2019, the Group disposed of its Hemel Hempstead property in Davemount Properties Limited for £1.9 million. On 19 August 2019, the Group disposed of its Walsall property in Davemount Properties Limited for £1.7 million.

On 19 July 2018, the Group disposed of seven properties in Switzerland. As part of the agreements entered into for the sale of these Swiss properties, all of which were sold to the same buyer, Stenprop provided a guarantee for obligations and liabilities of each of the selling entities. The maximum amount of the guarantee is CHF6.0 million, which lasts until all obligations under the sale agreements have been fulfilled, with a backstop date of 31 July 2028. As at the date of signing these accounts, there had not been any claim under the guarantee.

11 Borrowings