STENPROP LIMITED
(Incorporated in Bermuda)
Registration number: 47031
BSX share code: STP.BH
JSE share code: STP
ISIN: BMG8465Y1093
Stenprop Limited ('Stenprop' or the 'Company' or together
with its subsidiaries the 'Group') is a property investment
company with a primary listing on the Johannesburg Stock
Exchange ('JSE') and a secondary listing on the Bermuda
Stock Exchange ('BSX').
Stenprop's strategy is to enhance shareholder value by
delivering sustainable growth in earnings and distributions
through identifying and investing in sectors and assets that
have positive growth fundamentals and where there is an
opportunity to add value and grow earnings through active
asset management.
HALF YEARLY REPORT 2017 AND CHANGE IN PRESENTATION CURRENCY
Highlights
GBP130.5m
Strategic MLI acquisitions
GBP1.35
diluted EPRA* NAV per share
4.87 pence
diluted adjusted EPRA earnings per share
4.0 pence
interim dividend per share declared
2.6%
increase in half-year dividend per share against prior year
Key highlights
key strategic decisions taken to:
- invest significantly in multi-let industrial ('MLI') assets, with the objective of establishing Stenprop as a leading player in the
MLI sector;
- fund the Company's MLI investments primarily through selling assets with lower growth prospects;
- actively pursue a listing on the London Stock Exchange and a conversion to a UK REIT; and
- reduce debt from the current LTV* of 55% to no more than 45% by 31 March 2019 and no more than 40% by
31 March 2020.
GBP135 million investment in MLI sector, including the GBP130.5 million strategic acquisition of the industrials.co.uk portfolio and
management platform. GBP4.5 million completed post-period end.
GBP71.0 million proceeds from asset sales (including GBP54.0** million of post-balance sheet sales) to fund the Company's
investment in the MLI sector and to reduce debt.
Successful integration of the C2 Capital management team and industrials.co.uk platform.
Financial highlights
Declaration of an interim dividend on 22 November 2017 of 4.0 pence per share for the six months ended
30 September 2017, in line with forecast and payable on 26 January 2018. The 2016 interim dividend was paid in Euros and
amounted to 4.5 cents per share, which at the then prevailing exchange rate would have equated to 3.9 pence per share.
Based on a projected full-year dividend of 8.0 pence per share, a dividend yield of 7.5% on the share price of GBP1.07^ at
20 November 2017, or 5.9% on the diluted EPRA NAV of GBP1.35 at 30 September 2017.
Diluted adjusted EPRA EPS* of 4.87 pence (2016: 4.35 pence) for the period ended 30 September 2017. Diluted IFRS EPS
was 3.08 pence (2016: 1.59 pence loss). Projected diluted adjusted EPRA EPS for the full year is 9.1 pence.
Diluted EPRA net asset value per share of GBP1.35 (2016: GBP1.34). Diluted IFRS net asset value per share of GBP1.30 (2016: GBP1.28).
Effective 1 April 2017, a change in reporting currency from Euros to Pounds Sterling. This change has been made to reflect
the relatively larger weighting of Stenprop's UK portfolio following Stenprop's entry into the UK multi-let industrial estate
asset class. It also accords with Stenprop's expected listing on the London Stock Exchange, as explained later in this commentary.
FX rates in period
Average foreign exchange rates in the period: GBP1.00:EUR1.138; GBP1.00:CHF1.259 (2016: GBP1.00:EUR1.223; GBP1.00:CHF1.336)
Period-end foreign exchange rates: GBP1.00:EUR1.134; GBP1.00:CHF1.298 (2016: GBP1.00:EUR1.157; GBP1.00:CHF1.257)
* 'EPRA' means European Public Real Estate Association. 'LTV' means loan to value ratio. 'EPS' means earnings per share.
** Includes GBP42.2 million from the conditional exchange on the sale of the investment in Pilgrim Street.
^ JSE closing price on 20 November 2017 was ZAR20.00. ZAR:GBP rate at the same date was 18.637:1.
Commentary
Stenprop is pleased to report its interim financial
statements for the six months ended 30 September 2017.
Business strategy
Investment
Stenprop's objective is to deliver sustainable growing
income to its investors. The Company's investment
strategy for achieving this objective is to identify and
invest in sectors and assets that have positive growth
fundamentals and where there is an opportunity to add
value and grow earnings through active asset management.
Stenprop identified UK multi-let industrial as a sector
likely to deliver superior growth in earnings as a result of
a structural imbalance in supply and demand dynamics
with increasing tenant demand and static supply that
should translate into higher rents over time. Stenprop
also identified that, in order to exploit this opportunity and
deliver consistent returns, it required sufficient scale and
an excellent management team and operating platform.
With the June 2017 acquisition of the industrials.co.uk
multi-let industrial portfolio and management platform,
Stenprop acquired both the necessary scale and
management expertise required to take full advantage of
the opportunities in this sector.
The performance of the industrials.co.uk portfolio, and
the successful integration of the C2 Capital management
team that created it, has confirmed Stenprop's views on
the merits of its multi-let industrial strategy. Stenprop
is actively pursuing further acquisitions of multi-let
industrial assets, with the objective of establishing itself
as a leader in the UK multi-let industrial space. With
increased competition for large portfolios resulting
in increased prices, the Company anticipates that
the majority of its investments are likely to be smaller
individual estates, like the GBP4.15 million post-balance sheet
acquisition of an industrial estate in Aberdeen, where
the long established relationships and networks of the
industrials.co.uk management team give Stenprop a
competitive advantage.
In the current environment, Stenprop does not anticipate
making any acquisitions outside of the UK multi-let
industrial sector.
Stenprop's investment strategy includes a constant
evaluation of the existing portfolio in order to identify
assets with lower growth prospects that can be recycled
into higher growth opportunities. Stenprop's decision
to exit its Swiss assets and dispose of its London office
building in Pilgrim Street, with the intention of deploying
the proceeds into UK multi-let industrial properties, is in
line with this strategy. As Stenprop's multi-let strategy
unfolds, and provided that the Company continues to
source appropriate multi-let industrial opportunities, the
Company will continue to assess its existing portfolio
to determine assets suitable for sale, with a view to
transitioning to a specialised, focused multi-let industrial company.
Active asset management
Stenprop's preference is to invest in assets and sectors
where it can add value and grow earnings through active
asset management.
The multi-let industrial sector is an asset class particularly
well suited to the addition of value through asset
management due to the highly diversified tenant base and
physical attributes of the asset class. With the acquisition
of the industrials.co.uk platform, a significant focus of
the Company going forward is to build its technology
platform to allow for the management of its multi-let
industrial portfolio with ever increasing efficiency and
cost savings. Stenprop is confident that investment in
technology together with the Company's ability to offer
tenants increasingly flexible terms and pricing should
result in further enhancement of earnings from its multi-let
industrial portfolio.
Debt management
Ongoing management of Stenprop's debt and interest
structure is a key component of the Company's strategy.
Stenprop has been steadily reducing its debt from above
54% in October 2014 to its targeted level of not more than
50% LTV. The Company's LTV has temporarily increased to
approximately 55% as a result of the bridge funding used
to finance the acquisition of the industrials.co.uk portfolio
and C2 Capital, but is expected to reduce to below 50% by
year-end following the sales detailed below.
Stenprop is of the view that conditions in credit markets
are changing. Inflation is emerging and there is a strong
likelihood that the economy is entering a cycle of interest
rate increases, as central banks withdraw the support
which they have provided for the last eight years.
In light of these anticipated changes, the Company has
decided that it is prudent to reduce its LTV target from 50%
to 40%, and will look to responsibly reduce its gearing to no
more than 45% by 31 March 2019 and no more than 40% by
March 2020. More detail on this is set out further on in
this commentary.
Notwithstanding the Company's strategic decision to
reduce the levels of its long-term borrowings, Stenprop
is of the view that access to flexible bridging finance is a
critical component in positioning the Company to actively
pursue its multi-let industrial investment strategy, while
managing the timing of the disposal of assets and reducing
the impact of cash drag. The Company is in discussions
around arranging appropriate bridging facilities, and the
use of these facilities may from time to time temporarily
increase Stenprop's gearing levels.
Listing and REIT status
Stenprop has taken the strategic decision to pursue a
listing on the London Stock Exchange and a conversion
to UK REIT status. The Company believes that these
initiatives will make it more accessible to a broader pool
of investors, including, in particular, UK investors. In
the longer-term, accessibility to more investors should
improve Stenprop's liquidity and access to equity capital,
both of which will be beneficial to the company in delivering
on its strategic objectives. Progress in this regard is well
advanced and the Company anticipates that both the
listing and the conversion will take place in the first half of
the Company's next financial year. More detail on these
aspects is discussed later in the commentary.
Management fee income from assets managed for third parties
With the focus of the business now on growing the multi-let
industrial portfolio and actively embracing technology to
improve cost efficiencies and unlock additional sustainable
income streams, Stenprop intends to steadily withdraw
from involvement in its historic fund management arm.
Many of these managed funds come to a natural end
during the current financial year, and at the interim stage
have delivered management fee income of GBP3.2 million.
Further material fees may arise during the next six to
twelve months. Thereafter, management fee income
is expected to decline to insignificant levels. In future,
guidance will be given so as to distinguish between EPRA
earnings attributable to the property rental business
and those attributable to the historic fund management
business.
Future distributions
To date, Stenprop has pursued a distribution policy in terms
of which it distributed at least 85% of its EPRA earnings
on a bi-annual basis. Following successful conversion to
UK REIT status and a listing in London, Stenprop intends
to distribute at least 90% of its property-related EPRA
earnings. Distribution of non-property-related earnings
will be evaluated from time-to-time by the board.
Business review
Portfolio Summary
As at 30 September 2017, including assets held for sale,
the Company's real estate portfolio comprised an interest
in 74 properties valued at GBP785.0 million(1), with 52.2% in
the United Kingdom, 33.7% in Germany and 14.1% in
Switzerland (by value). The portfolio, which has a gross
lettable area of approximately 402,358(1) m2 and gross
annual rent of GBP48.3 million(1), is currently predominantly in
the office and retail sectors, which account for 43% and
28% of rental income respectively. The multi-let industrial
portfolio accounted for 18% of rental income as at
30 September 2017, and this is expected to increase over
time as the company pursues further acquisitions in the
multi-let industrial sector and makes disposals from other
asset classes.
(1) Includes Stenprop's share of the properties held within joint venture investments.
A table detailing the top six properties in the portfolio can
be found below. These six investments account for 66%
of the total portfolio asset value. The value of the three
Central London properties (including Stenprop's share of
25 Argyll Street) accounts for 25% of the total portfolio
asset value, although this will reduce to 15% following
completion of the sale of the Pilgrim Street property. The
value of the multi-let industrial portfolio accounts for 16%
of the total portfolio asset value and the Berlin retail centre
portfolio (comprising three centrally located daily needs
shopping centres) accounts for 8%.
Additions and disposals
On 30 June 2017 Stenprop acquired all of the interests in a
portfolio of 25 separate multi-let industrial estates situated
across the UK, operating as industrials.co.uk, based on
a portfolio price of GBP127 million excluding costs. The
portfolio comprised properties with a gross lettable area
of approximately two million square feet and contractual
rent (including contractual fixed uplifts) of approximately
GBP9.1 million per annum representing an average rent of
GBP5.15 psf. There are over 400 tenants creating a diversified
base of earnings.
Top six properties by value as at 30 September 2017
Stenprop Annualised Weighted
share gross rental average
Market Ownership of market Lettable (Stenprop unexpired
value interest value area share) lease term
Property (GBP million) % (GBP million) Sector (m2) (GBP million) (years)
Multi-Let Industrial 122.4 100 122.4 MLI 185,772 8.5 4.4
('MLI') portfolio, UK
Bleichenhof, Hamburg 118.8 94.9 112.7 Mixed use 20,067 5.1 4.9
Euston House, London 78.1 100 78.1 Office 10,204 4.1 3.9
Pilgrim Street, London* 78.0 100 78.0 Office 9,967 4.4 3.7
Trafalgar Court, Guernsey 60.9 100 60.9 Office 10,564 4.2 9.6
Berlin daily needs retail
centre portfolio 62.9 100 62.9 Retail 35,347 4.0 8.2
Total 521.1 - (515.0) 271,921 30.3 5.6
* Sale contract exchanged on 20 November 2017
Also on 30 June 2017, Stenprop completed the acquisition
of C2 Capital Limited, the management platform
responsible for aggregating and managing the portfolio,
for a purchase consideration of GBP3.5 million settled by the
issue of 3,270,500 Stenprop shares valued at EUR1.22 per
share. By structuring the acquisition in this way, Stenprop
acquired a strategic portfolio of sufficient scale in the multi-
let industrial sector together with a specialist operating
platform and team.
As at 31 March 2017 Stenprop owned a 28.42% share in
Stenham European Shopping Centre Fund which owned a
shopping centre situated near Leipzig. On 22 June 2017 the
asset was sold at a valuation of EUR208.5 million. Stenprop's
share of the net proceeds from the first distribution was
used towards the acquisition of the industrials.co.uk
portfolio.
In July 2017 Stenprop completed the sale of the Swiss
property known as Granges Paccot at its valuation of
CHF20.0 million.
In August 2017 Stenprop sold an office block in Uxbridge,
west London, at a sale price of GBP3.4 million, an uplift of
13.3% compared with the 31 March 2017 valuation of
GBP3.0 million.
On 30 October 2017, Stenprop disposed of the Swiss
property known as Cham at its valuation of CHF14.2 million.
On 17 November 2017 Stenprop added to its industrial
portfolio with the acquisition of an industrial estate located
in Aberdeen, Scotland for GBP4.15 million.
On 20 November 2017, Stenprop exchanged contracts
for the sale of its investment in the London office building
located in Pilgrim Street for a purchase consideration which
values the property at GBP80.9 million, 3.5% above valuation.
Completion is conditional upon the buyer receiving
written confirmation from a lender that debt finance on
commercially acceptable terms will be available to the
buyer at completion.
Financial review
Earnings
The basic earnings attributable to ordinary shareholders
for the six-month period ended 30 September 2017 were
GBP8.7 million (2016: GBP4.5 million loss). This equates to a
diluted IFRS EPS of 3.08 pence (2016: 1.59 pence loss per share).
Net rental income increased by 25.1% over the prior
period to GBP15.96 million of which 17.7% is due to net
rents from the industrials.co.uk portfolio and 3.1% due to
different average exchange rates. Goodwill of GBP3.5 million
attaching to the acquisition of the C2 Capital management
platform was written off during the period. Finance
charges increased by 61.6% to GBP4.82 million due to the
industrials.co.uk portfolio bank debt interest (19.4%) and
the interest and costs associated with the bridging finance
used to acquire the industrials portfolio (44.0%).
Management fee income totals GBP3.2 million for the
period (2016: GBP1.8 million) and relates to fees earned
by the management companies on management and
administration services provided to certain managed
property syndicates and funds. Included in the total are
management fees of GBP1.4 million which relate to a managed
syndicate which holds the WestendGate property in
Frankfurt. This asset is currently being marketed for sale,
and may result in a performance fee being earned by Stenprop.
Headline earnings were GBP15.2 million (2016: GBP13.5 million)
equating to a diluted headline EPS of 5.41 pence
(2016: 4.73 pence).
In accordance with reporting standards widely adopted
across the real estate industry in Europe, the board of
directors feels it is appropriate and useful, in addition to
providing the IFRS disclosed earnings, to also disclose
EPRA(2) earnings. Adjusted EPRA earnings attributable
to shareholders were GBP13.7 million (2016: GBP12.4 million),
equating to a diluted adjusted EPRA EPS of 4.87 pence
(2016: 4.35 pence). This represents a 11.8% increase on
the diluted adjusted EPRA EPS at 30 September 2016.
If current period exchange rates had been in force
in the prior period, the diluted adjusted EPRA EPS at
30 September 2016 would have been 4.68 pence.
The increase against this of 4.1% is primarily as a result of
higher management fee income.
(2) The European Public Real Estate Association ('EPRA') issued Best Practices Policy Recommendations
in November 2016, which provide 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 that do not provide an accurate picture of 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.
The diluted adjusted EPRA EPS attributable to the property
rental business amounts to 3.73 pence per share, with the
remaining amount of 1.14 pence being attributable to the
management fee income.
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). The EPRA cost ratio (including
direct vacancy costs) at 30 September 2017 was 21.3%
(2016: 24.8%). The decrease is due to additional rents
received from the industrials portfolio. When Swiss and
other sales complete and bridging finance is repaid, the
cost ratio is expected to increase.
Dividends
On 22 November 2017, the directors declared a dividend
of 4.0 pence per share payable on 26 January 2018,
relating to the six months to 30 September 2017. This
interim dividend will be a cash dividend and represents
a payout ratio of 82% of diluted adjusted EPRA EPS.
An announcement containing details of the dividend and
the timetable will be made separately.
On 7 June 2017, the directors declared a final dividend
of 4.5 cents per share (2016: 4.7 cents) in respect of the
year ended 31 March 2017. The final dividend was paid on
4 August 2017.
Net asset value
The IFRS basic and diluted net asset values per share at
30 September 2017 were GBP1.31 and GBP1.30 respectively
(2016: basic and diluted GBP1.28).
As is the case with regard to the disclosure of EPRA
earnings, the directors feel that it is appropriate and
useful, in addition to IFRS NAV, to also disclose EPRA NAV(3).
The diluted EPRA NAV per share at 30 September 2017
was GBP1.35 (2016: GBP1.34). This represents a 0.1% decrease on
the diluted EPRA NAV per share of GBP1.36 at 31 March 2017.
If exchange rates had remained constant between
31 March and 30 September 2017, the diluted EPRA NAV
per share at 30 September 2017 would have been GBP1.31.
(3) The objective of the EPRA NAV measure is to highlight the fair value of net assets on an ongoing, long-term basis.
EPRA NAV is used as a reporting measure to better reflect underlying net asset value attributable to shareholders.
Assets and liabilities that are not expected to crystallise in normal circumstances such as the fair value of financial
derivatives and deferred taxes on property valuation surpluses are therefore excluded. The EPRA measure thus takes into
account the fair value of assets and liabilities as at the balance sheet date, other than fair value adjustments to
financial instruments, deferred tax and goodwill. As the Group has adopted fair value accounting for investment property per
IAS 40, adjustments to reflect the EPRA NAV include only those relating to the revaluation of financial instruments and deferred tax.
Change in presentation currency
Effective 1 April 2017, the Company changed its
presentation currency from Euros to Pounds Sterling
('GBP'). This represents a change from the year-end and
has been applied to reflect the relatively larger weighting
of Stenprop's UK portfolio following the acquisition and
sales strategy and Stenprop's entry into the UK multi-let
industrial asset class. It is also better suited to the proposed
Stenprop listing on the London Stock Exchange during the
first half of the next financial year. Accordingly all results
and comparatives have been reported in GBP.
Foreign exchange
At 30 September 2017, approximately 31% of Stenprop's
net asset value and 40% of its earnings were in Euros.
Consequently the GBP:EUR exchange rate has a material
impact on reported GBP earnings and net asset values.
At the start of April 2017, the GBP:EUR rate was
GBP1.00:EUR1.169 and the Euro strengthened over the
six-month reporting period by 3.1% to GBP1.00:EUR1.134.
Market Annualised Net initial
Portfolio value gross yield
by market 30 Sept rental (weighted WAULT
Combined value 2017 Area income average) by rental
portfolio (%) (GBP million) Properties (m2) (GBP million) (%) (years)
United Kingdom 37.1 291.5 36 238,026 19.8 6.50 4.7
Germany 29.7 233.2 23 91,927 12.9 4.98 6.5
Assets held for sale 24.0 188.3 10 50,072 11.2 4.45 5.8
United Kingdom 9.9 78.0 1 9,705 4.4 4.98 3.7
Switzerland 14.1 110.3 9 40,367 6.8 4.07 7.1
Subtotal 90.8 713.0 69 380,025 43.9 5.46 5.5
Share of joint ventures and
associates 9.2 72.0 5 22,333 4.4 5.30 7.5
Total 100.0 785.0 74 402,358 48.3 5.45 5.7
See the Prospects section for further information about
the impact of exchange rate movements on earnings.
Stenprop matches the currency of borrowings to the
underlying asset, and, where the timing and amount of
a liability has been determined, and is to be met from the
proceeds of a sale which is known in terms of timing and
amount, the currency risk is managed through hedging instruments.
Stenprop's diversification across the UK, Germany and
Switzerland (until the Swiss portfolio is sold) continues to
provide a natural spread of currencies and it remains our
policy not to hedge this natural spread, thereby maintaining
a multi-currency exposure.
Portfolio valuation
Including the Company's share of associates and joint
ventures, its investment properties were valued at
GBP785.0 million (31 March 2017: GBP725.5 million), of which
GBP188.3 million were classified as assets held for sale at
30 September 2017 (31 March 2017: GBP133.4 million). Assets
held for sale (some of which have subsequently been sold),
consist of the remaining Swiss portfolio, and the office
building in the City of London known as Pilgrim Street. 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 1.4% of which 0.7% resulted from
currency movements. The German and Swiss properties
have been translated to GBP at a rate of GBP1.00:EUR1.13 and
GBP1.00:CHF1.30 respectively. This compares with exchange
rates of GBP1.00:EUR1.17 and GBP1.00:CHF1.25 at 31 March 2017.
United Kingdom
The UK portfolio (excluding Stenprop's share of 25 Argyll
Street), was independently valued at GBP369.5 million. On
a like-for-like basis, after excluding Uxbridge, which has
been sold, and the acquisition of the Industrials portfolio,
the valuation of the UK portfolio decreased by GBP1.4 million,
or 0.6%, on the valuation at 31 March 2017. This decrease
in value was mainly due to a downward valuation of
GBP1.7 million (2.7%) of the Trafalgar Court property in
Guernsey, driven by a softening of yields on the island.
The valuation does not include the GBP2.9 million (3.7%)
increase over valuation of the selling price of the Pilgrim
Street property, which exchanged on 20 November 2017.
On 30 June 2017, the 25 estates comprising the industrial
portfolio were acquired at a portfolio valuation of
GBP127.0 million. In line with accounting standards and
the RICS red books valuation guide, these accounts are
required to value these assets on an individual basis.
This valuation was undertaken by third party valuers,
JLL, and at 30 September 2017 was GBP122.4 million. JLL
also provided a like-for-like portfolio valuation as at
30 September 2017 which valued the industrial portfolio as
a whole at GBP131.6 million, an increase of 3.6%.
Germany
The German portfolio (excluding associates and joint
ventures) was independently valued at EUR264.5 million. This
represents a like-for-like increase of 3.3% on the year-end
valuation of EUR256.1 million. The increase of EUR8.4 million was
driven mainly by a EUR7.2 million (5.6%) uplift at Stenprop's
Bleichenhof property in central Hamburg, an asset which
continues to benefit from positive market development
seen in core assets in prime cities and from the asset
management work being done to reposition this asset in
conjunction with the adjacent city centre redevelopment.
Elsewhere, it is pleasing to report higher valuations at the
three Central Berlin retail centres which experienced a
combined uplift of EUR1.0 million (1.4%).
Switzerland
The Swiss portfolio was valued at CHF143.1 million
compared with the like-for-like 2017 year end valuation
of CHF144.0 million. As previously reported, following
a decision to sell these lower yielding and more mature
assets, the Swiss portfolio has been classified as held for
sale in the financial statements. All properties are being
marketed for sale and are at various stages in the sale process.
Joint ventures and associates
The Care Homes portfolio in Germany was independently
valued at EUR35.7 million, a marginal increase of 1.0% on the
31 March 2017 valuation of EUR35.4 million.
Stenprop's 50% interest in 25 Argyll Street, a property
located in the heart of London's West End, is valued
at GBP40.5 million, a valuation unchanged from that at
31 March 2017.
Following the disposal of the Nova Eventis shopping centre
by Stenham European Shopping Centre Fund Limited on
22 June 2017, Stenprop no longer holds any direct property
interests through associate investments.
Capital management
The value of the property portfolio as at
30 September 2017, including the Group's share of
joint venture properties and assets held for sale, was
GBP785.0 million. Senior bank debt at the same date was
GBP397.7 million resulting in an average loan-to-value ratio of
50.7% (31 March 2017: 51.6%). Including short-term bridge
funding of EUR39 million, the average loan-to-value ratio is 55.1%.
As previously reported, the temporary increase in the LTV
ratio was driven by the acquisition of the industrial portfolio.
The portfolio was acquired with debt in place, and has an
LTV of 56.4% at the reporting date. Additional borrowing
of GBP6.1 million was taken on the Trafalgar Court loan, where
the LTV at the reporting date is 59.3%. The short-term
bridge loans totalling EUR39 million remain in place. Stenprop
will utilise the proceeds of the sale of the Pilgrim Street
property and the Swiss assets to repay the bridge facilities,
and to reduce the LTV ratios in the industrial portfolio
and on the Trafalgar Court property. It is expected that
the LTV ratio will have reduced from 55.1% to 49.9% by
31 March 2018.
The weighted average debt maturity stood at 2.6 years
at 30 September 2017 compared with 2.4 years at
31 March 2017. However, excluding bridge finance and
the Swiss portfolio and Pilgrim Street loans, all of which
are expected to be repaid in the near term, the weighted
average debt maturity at 30 September 2017 stands at
3.3 years.
Excluding the Swiss portfolio, annual amortisation
payments are GBP4.0 million (31 March 2017: GBP1.2 million).
The increase since year-end relates to the Trafalgar Court
loan facility, and will be removed once the additional
amount of GBP6.1 million has been repaid.
At 30 September the all-in contracted weighted average
cost of debt, excluding bridge finance, was 2.52% (2.53%
at 31 March 2017). Including bridging finance, the all-in
contracted weighted average cost of debt was 2.87%.
The bank facility of EUR14.5 million relating to the five German
Bikemax properties matures on 31 December 2017. Terms
have been agreed with the existing lender for a new five year
facility at a margin of 1.55%. The current LTV of 57% will be
reduced to 49.6% and annual amortisation of EUR400,000
will be removed. An interest rate cap will be purchased in
order to provide flexibility over future disposals whilst also
allowing Stenprop to benefit from the current low interest
rate environment.
The intention is to steadily reduce overall debt further
during the 2019 financial year to approximately 45% LTV,
and in the subsequent year to 40%. Stenprop's view is that
the debt and property cycles have been very favourable
for the past eight years with the significant aid of Central
banks following the credit crisis in 2008.Stenprop believes
it is prudent to now be reducing overall debt levels as the
support of Central banks cannot continue indefinitely and
there are signs that inflation is picking up and that interest
rates may have reached the low point of their cycle.
Industrial portfolio update
In the quarter since acquisition of the multi-let industrial
portfolio on 30 June 2017, the management team have
signed 18 new leases and renewed 12 existing leases.
At the time of purchase, the average passing rent on
the portfolio was GBP5.01 per square foot per annum and
the average estimated rental value on the portfolio was
GBP5.45 per square foot per annum. The 18 new leases have
been signed up at an average rent of GBP6.80 per square foot
which is approximately 8% ahead of the estimated rental
value at June 2017. The 12 renewed leases have been
extended at an average rent per square foot of GBP6.44 which
is 6% ahead of estimated rental value at 30 June 2017.
These lettings confirm the Company's view that tenant
demand is outstripping supply of space resulting in upward
pressure on rents. This rental growth will in due course
translate into higher earnings, NAV and total shareholder
return.
The integration of the C2 Capital management team with
the existing Stenprop team is proceeding smoothly and
synergies are emerging. A significant focus going forward
is to build on the technology platform of managing multiple
smaller units with ever increasing efficiency and cost
savings. Stenprop is confident that investment in cutting-
edge technology together with the Company's ability to
offer tenants increasingly flexible terms and pricing should
result in further enhancement of the earnings that can be
generated from the portfolio.
The Company continues to seek out appropriate additional
acquisition opportunities in the multi-let space. As set out
in the Strategy section of this commentary, these are more
likely to be smaller individual estates which can be added
on incrementally, as there is growing competition for
large portfolios with premiums having to be paid for scale.
As a result of the long-established relationships and
networks of the industrials.co.uk team, the Company is
under offer on a number of smaller estates and Stenprop
anticipates having acquired an additional c. GBP20 million
of multi-let industrial estates by the end of this financial
year to add to the portfolio acquired in June 2017.
The industrials.co.uk team also benefits from a steady
pipeline of further opportunities, having already reviewed
over GBP135 million of potential opportunities since
June 2017.
Update on conversion to UK REIT status
Stenprop reported in June that it intended to actively
investigate a conversion to UK REIT status. This followed
new legistation introduced in the UK restricting interest
deductibility for UK companies, and at the same time
announcing a consultation to bring non-resident landlord
companies such as Stenprop into the scope of UK
corporation tax. It was also considered that, given the
intention to list on the LSE, the proven track record of the
REIT brand to attract international capital would potentially
unlock new sources of investor interest, whilst potentially
improving after-tax returns for some shareholders.
The REIT feasibility study concluded that Stenprop will be
able to meet and maintain the conditions necessary for
conversion to UK REIT status from 1 April 2018. This date
may be delayed by one to two months depending on the
outcome of the sale of the WestendGate property, which
is part of the legacy managed portfolio, and whether a
performance fee is payable to Stenprop as a result of the
sale. Such a performance fee may temporarily increase
the proportion of Stenprop's profits from its non-property
rental business above the prescribed level of 25% and thus
delay the conversion to UK REIT status for a short period.
The conversion to UK REIT status will require certain
provisions to be included in the constitutional documents
of the Company, and will thus require shareholder approval.
Details of an extraordinary general meeting to approve the
proposed amendments will be circulated to shareholders
at the appropriate time.
Update on London listing
In the course of its investigations into listing in London,
Stenprop has engaged with a number of potential
advisors and has considered listings on the Main Market
of the London Stock Exhange (LSE), the Specialist Fund
Segment (SFS) of the LSE and AIM. Whilst a listing on the
Main Market of the LSE is the most desirable outcome,
Stenprop does not currently meet the requirement for
25% of its issued shares to be held by the public in one or
more of the European Economic Area States. In all other
respects Stenprop would have qualified. Therefore a listing
on the SFS is seen as a strong alternative, with the ultimate
aim of moving to the Main Market once this EEA free float
requirement has been achieved.
Whilst the SFS is typically designed for professional or
professionally-advised investors, with REIT status Stenprop
shares would be eligible to be marketed to ordinary retail
investors as well (subject to certain conditions). Therefore,
an SFS listing would be suitable for both current investors
and is expected to attract wealth managers, pension funds,
and other investors seeking real estate income yield in
their portfolios.
Stenprop is in the process of appointing a financial advisor
to assist in gaining admission to the SFS or, if the share
register changes prior to admission, to act as sponsor for
a move to the Main Market of the LSE. A listing date in the
second half of May 2018 is targeted. Stenprop does not
intend to issue any shares on listing. Instead, Stenprop
intends to fund the roll out of its multi-let industrial
acquisition strategy by selling assets in its portfolio and
utilising the proceeds for such acquisitions.
As a consequence of the intended listing, Stenprop will
migrate its jurisdiction of incorporation from Bermuda to
Guernsey. This decision follows advice that Guernsey has
a regulatory and legal framework which is more familiar
and more acceptable to investors in the London markets
than Bermuda. The migration will require the adoption
of a new set of articles of incorporation replacing the
existing by-laws, and will also incorporate the requirements
necessitated by the conversion of Stenprop to UK REIT
status. These will be presented to shareholders to vote on
at an Extraordinary General Meeting, details of which, as
already mentioned, will be circulated to shareholders at the
appropriate time.
Board appointments
On 5 April 2017 Warren Lawlor was appointed as non-executive director.
Subsequent events
On 30 October 2017 the sale of one of the Swiss properties,
located in Cham, was completed at a sale price of
CHF14.2 million. Cham was valued at CHF14.2 million.
On 20 November 2017, a sale and purchase agreement was
signed in respect of the entire share capital of Normanton
Properties Limited, a subsidiary of the Group, which owns
the property known as Pilgrim Street in the City of London.
The sale of the shares values the property at GBP80.9 million,
a sale price above the 30 September 2017 valuation of
GBP78.0 million.
Completion is conditional upon the buyer receiving
written confirmation from a lender that debt finance on
commercially acceptable terms will be available to the
buyer at completion for the purposes of funding the
acquisition of the shares. Failure to fulfil this condition by
no later than 8 December 2017 will result in termination of
the agreement, and a payment of GBP250,000 by the buyer to
the seller. Subject to fulfilment of the condition mentioned
below, completion is expected to be on 20 December 2017,
but no later than 12 January 2018. Failure to complete
by this date due to a default by the buyer will result in the
Group retaining the deposit of GBP4.03 million which was paid
by the buyer on exchange.
On 17 November 2017 a multi-let industrial estate
located in Aberdeen, Scotland, was acquired for
GBP4.4 million including acquisition costs. The estate has
14 tenants and a passing rent of GBP360,900, giving a net
initial yield of 8.2%. The return on equity on this investment
exceeded 9% per annum at inception after taking into
account vacancies of approximately 15% of all lettable space.
Prospects
Stenprop is confident of its ability to earn growing income
from its multi-let industrial portfolio and to further enhance
earnings through its technology platform and active asset
management strategies. In addition, Stenprop believes
that its proposed listing on the London Stock Exchange
and its conversion to a REIT will have a positive impact on
the Company's liquidity and access to capital, to the benefit
of all of its shareholders.
The full impact of these strategies on Stenprop's adjusted
EPRA earnings per share and distributions per share
over the short-term will depend on a number of factors,
including the timing and commercial terms of acquisitions
and disposals and the implementation of Stenprop's
strategic decision to lower its gearing levels. However, the
Company is confident that its increasing investment in the
multi-let industrial sector will, over the long-term, position
it to achieve its objective of delivering sustainable growing
income to its shareholders.
Results for the current year ending 31 March 2018 are
expected to deliver diluted adjusted EPRA earnings
attributable to the property rental business of 7.3 pence
per share, and 1.8 pence per share attributable to the
fund management business, giving a total diluted adjusted
EPRA earnings per share of 9.1 pence. The dividend per
share for the year is expected to be 8 pence, reflecting a
payout ratio of 87.9%, of which 4 pence per share will be
paid on 26 January 2018. The expected full-year dividend is
in line with the guidance provided in the company's financial
statements for the year ended 31 March 2017.
This general forecast has been based on the Group's
forecast and has not been reported on by the external auditors.
Given the nature of its business, Stenprop has adopted
distribution per share as its key performance measure,
as this is considered more relevant than earnings or
headline earnings per share.
Independent review report to Stenprop Limited
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 2017 which comprises the condensed consolidated income statement, the condensed
consolidated statement of financial position, the condensed consolidated statement of changes in equity, the condensed
consolidated cash flow statement and related 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.
This report is made solely to the Company in accordance with International Standard on Review Engagements
(UK and Ireland) 2410 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the
Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required
to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for
preparing the half-yearly financial report in accordance with the Listings Requirements of the Johannesburg Stock Exchange.
As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as issued by the
International Accounting Standards Board. 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 International Accounting Standards Board.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 'Review of
Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use
in the United Kingdom. A review of interim financial information consists of making inquiries, 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, but we will issue a review report addressed to the members of the entity. Our report will not be
prepared for the use of any third party nor for any purpose connected with any specific transactions and should not be relied upon
by any such person or for any such purpose, save that you may disclose the contents of our report to the Listings Committee of the
JSE Securities Exchange South Africa.
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 2017 is not prepared, in all material respects, in
accordance with International Accounting Standard 34 as issued by the International Accounting Standards Board.
Deloitte LLP
Guernsey
22 November 2017
Condensed consolidated
statement of comprehensive income
Reviewed Reviewed
30 September 30 September
2017 2016
Notes GBP'000 GBP'000
Net rental income 3 15,955 12,751
Management fee income 3,204 1,817
Operating costs 4 (2,628) (2,390)
Net operating income 16,531 12,178
Fair value movement of investment properties 8 (293) (6,092)
Gain/(loss) from associates 9 421 (7,890)
Income from joint ventures 10 1,829 462
Profit/(loss) from operations 18,488 (1,342)
Net gain/(loss) from fair value of derivative financial instruments 1,183 (1,011)
Net finance costs (4,823) (2,984)
Net foreign exchange (loss)/gain (417) 64
Gain on disposal of property 336 -
Goodwill impairment 14 (3,500) -
Profit/(loss) for the period before taxation 11,267 (5,273)
Taxation
Current tax (799) (709)
Deferred tax (1,286) (260)
Total taxation (2,085) (969)
Profit/(loss) for the period from continuing operations 9,182 (6,242)
Discontinued operations
(Loss)/profit for the period from discontinued operations 11 (193) 1,765
Profit/(loss) for the period 8,989 (4,477)
Profit attributable to:
Equity holders 8,652 (4,525)
Non-controlling interest derived from continuing operations 337 48
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation reserve 1,827 18,046
Total comprehensive income for the period 10,816 13,569
Total comprehensive profit attributable to:
Equity holders 10,479 13,521
Non-controlling interest 337 48
Earnings/(loss) per share
From continuing operations
IFRS EPS (pence) 5 3.16 (2.21)
Diluted IFRS EPS (pence) 5 3.14 (2.20)
From continuing and discontinued operations
IFRS EPS (pence) 5 3.09 (1.59)
Diluted IFRS EPS (pence) 5 3.08 (1.59)
Condensed consolidated
statement of financial position
Reviewed Audited
30 September 31 March
2017 2017
Notes GBP'000 GBP'000
ASSETS
Investment properties 8 524,755 470,603
Investment in associates 9 1,176 17,863
Investment in joint ventures 10 32,680 31,435
Other debtors 13,901 11,634
Total non-current assets 572,512 531,535
Cash and cash equivalents 26,063 25,202
Trade and other receivables 6,204 4,069
Assets classified as held for sale 11 192,798 135,373
Total current assets 225,065 164,644
Total assets 797,577 696,179
EQUITY AND LIABILITIES
Capital and reserves
Share capital and share premium 7 315,551 310,141
Equity reserve (8,991) (8,976)
Retained earnings 38,549 40,945
Foreign currency translation reserve 24,267 22,440
Total equity attributable to equity shareholders 369,376 364,550
Non-controlling interest 2,359 2,022
Total equity 371,735 366,572
Non-current liabilities
Bank loans 12 242,403 216,047
Derivative financial instruments 1,220 2,853
Deferred tax 7,245 5,794
Total non-current liabilities 250,868 244,694
Current liabilities
Bank loans 12 26,746 13,004
Derivative financial instruments 131 119
Accounts payable and accruals 15,746 15,589
Other loans 13 34,367 -
Liabilities directly associated with assets classified as held for sale 11 97,984 76,201
Total current liabilities 174,974 104,913
Total liabilities 425,842 329,607
Total equity and liabilities 797,577 696,179
IFRS net asset value per share (pence) 6 1.31 1.31
Condensed consolidated
statement of changes in equity
Share Foreign
capital currency Attributable Non-
and share Equity Retained translation to equity controlling Total
premium reserve earnings reserve shareholders interest equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 April 2017 310,141 (8,976) 40,945 22,440 364,550 2,022 366,572
Issue of share capital 5,410 (16) - - 5,394 - 5,394
Credit to equity
for equity-settled
share-based payments - 1 - - 1 - 1
Total comprehensive
income for the period - - 8,652 1,827 10,479 337 10,816
Ordinary dividends - - (11,048) - (11,048) - (11,048)
Balance at
30 September 2017 315,551 (8,991) 38,549 24,267 369,376 2,359 371,735
Balance at 1 April 2016 305,999 353 48,020 5,613 359,985 1,847 361,832
Issue of share capital 4,142 (11) - - 4,131 - 4,131
Credit to equity
for equity-settled
share-based payments - 119 - - 119 - 119
Repurchase of own shares - (1,533) - - (1,533) - (1,533)
Total comprehensive
(loss)/income for the period - - (4,525) 18,046 13,521 48 13,569
Ordinary dividends - - (10,964) - (10,964) - (10,964)
Balance at
30 September 2016 310,141 (1,072) 32,531 23,659 365,259 1,895 367,154
Condensed consolidated statement of cash flows
Reviewed Reviewed
30 September 30 September
2017 2016
Notes GBP'000 GBP'000
Operating activities
Profit/(loss) from operations from continuing operations 18,488 (1,342)
Profit from operations from discontinuing operations 11 419 2,588
18,907 1,246
Share of (profit)/loss in associates 9 (421) 7,890
Decrease in fair value of investment property 8 2,216 6,041
Share of profit in joint ventures 10 (1,829) (462)
Exchange rate (gains)/losses (419) 64
(Increase)/decrease in trade and other receivables (42) 368
(Decrease)/increase in trade and other payables (2,358) 795
Interest paid (3,914) (3,940)
Interest received 538 584
Net tax paid (419) (298)
Net cash from operating activities 12,259 12,288
Contributed by: Continuing operations 10,695 11,096
Discontinued operations 1,564 1,192
Investing activities
Dividends received from joint ventures 563 345
Asset acquisitions 14 (57,858) (596)
Capital expenditure (3,351) -
Proceeds on disposal of investment property 21,574 -
Acquisition of investment in subsidiary 14 (2) -
Proceeds on disposal of investment in associate 9 17,595 -
Net cash used in investing activities (21,479) (251)
Financing activities
New bank loans raised 6,107 -
New third party loans raised 34,080 -
Dividends paid (11,048) (10,964)
Repayment of borrowings (17,790) (2,183)
Repurchase of shares - (1,533)
Financing fees paid (904) (159)
Payments made on swap break - (52)
Net cash from/(used in) financing activities 10,445 (14,891)
Net increase/(decrease) in cash and cash equivalents 1,225 (2,854)
Effect of foreign exchange rate changes 296 1,611
Cash and cash equivalents at beginning of the period 25,827 29,093
Cash and cash equivalents at end of the period 27,348 27,850
Contributed by: Continuing operations 26,063 25,487
Discontinued operations and assets held for sale 1,285 2,363
Notes to the condensed consolidated
financial statements
1. Basis of preparation
These reviewed and unaudited condensed consolidated financial statements (the 'IFRS Statements') for the six months
ended 30 September 2017 have been prepared in accordance with the recognition and measurements principles of the
International Financial Reporting Standards ('IFRS') and its interpretations adopted by the International Accounting
Standards Board ('IASB'), specifically IAS34 'Interim Financial Reporting' and the JSE Listings Requirements, the BSX Listing
Regulations and applicable Bermuda law.
These financial statements have been prepared by, and are the responsibility of, the directors of Stenprop Limited
('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 2017 which were audited and reported on by the Group's external auditor.
There were no new standards adopted during the period which had any material impact on the disclosures or the amounts
reported in these financial statements. The consolidated annual financial statements for the year ended 31 March 2017 are
available on the Company's website at www.stenprop.com.
Going concern
At the date of signing these accounts, the Group has positive operating cash flow forecasts and positive net assets.
Management have reviewed the Group's cash flow forecasts for the 18 months to 31 March 2019 and, in light of this review
and the current financial position, they are satisfied that the Company and the Group have access to adequate resources
to meet the obligations and continue in operational existence for the foreseeable future, and specifically the 12 months
subsequent to the signing of these financial statements. The directors believe that it is therefore appropriate to prepare
the accounts on a going concern basis.
The remaining Swiss portfolio is currently being marketed for sale. The properties are at various stages in the sale process
and are targeted to be sold by financial year-end. As such, the loans at 31 March 2017 were refinanced on a short-term basis
as a rolling credit facility or will mature on 31 March 2018. Should a decision be taken not to sell the properties for any reason,
or if the sale process is delayed, the directors anticipate that, given the quality of the properties and the strong and proven
relationships with Swiss lenders, a refinancing can be secured on favourable terms where necessary.
Bank loans relating to the Bikemax portfolio (EUR14.5 million) and Aldi portfolio (EUR15.0 million) mature at the end of December
2017 and April 2018 respectively. Part of the Carehomes debt facility (EUR11.8 million), held as a joint venture, matures in
March 2018. Stenprop is in discussions with the existing lenders and terms have been agreed with regards to the Bikemax
facility. Stenprop has seen evidence of significant liquidity in the German market, particularly at the levels of gearing shown
by the properties in question. Stenprop has strong refinancing experience and given the strength of the assets and the
level of existing gearing, Stenprop expects to secure favourable all-in interest rates on refinancing and the directors are
confident that all the facilities will be refinanced.
During the period Stenprop secured a EUR31 million bridging facility which attracts interest at 7% and is subject to a Group
loan to value covenant of 65%. A further bridging facility of EUR8 million was secured at the same interest rate of 7%. Both
loans are repayable in June 2018. Stenprop intends to repay these loans from net sale proceeds from the disposal of the
Swiss portfolio.
Change in presentation currency
From 1 April 2017 the Group has changed its presentation currency to Pounds Sterling ('GBP'). This represents a change
from the prior period and has been applied to reflect the relatively larger weighting of Stenprop's UK portfolio following
implementation of the acquisition and sales strategy and Stenprop's entry into the multi-let industrial estate asset class.
Comparative information has been restated in GBP in accordance with the guidance defined in IAS 21, specifically:
- Assets and liabilities for each statement of financial position presented have been translated at the closing rate at the
date of that statement of financial position;
- Income and expenses for each statement of comprehensive income statement presented have been translated at
exchange rates at the dates of the transactions (average rate for the period has been used); and
- All resulting exchange differences have been recognised in other comprehensive income.
Adoption of new and revised standards
In the current period, the following new and revised Standards and Interpretations have been adopted. Their adoption has
not had any material impact on the disclosures or the amounts reported in these financial statements.
IAS 12 (amendments) Recognition of Deferred Tax Assets for Unrealised Losses (1 January 2017)
IAS 7 (amendments) Disclosure Initiative (1 January 2017)
Annual Improvements 2014 - 2016 Cycle (1 January 2017)
At the date of authorisation of these financial statements, the following applicable standards which have not been applied
to these financial statements, were in issue but not yet effective. They are effective for periods commencing on or after the
disclosed date and will be adopted as they become effective.
IFRS 9 Financial instruments (1 January 2018)
IFRS 15 Revenue from Contracts with Customers (1 January 2018)
IFRS 16 Leases (1 January 2019)
IAS 2 (amendments) Classification and Measurement of Share-based Payment Transactions
(1 January 2018)
IFRS 10 & IAS 28 (amendments) Sale or Contribution of Assets between an Investor and its Associate or Joint
Venture (effective date deferred indefinitely)
IAS 40 (amendments) Transfers of investment property (1 January 2018)
Management are in the process of assessing these standards and do not expect that the adoption of the standards listed
above will have a material impact on the financial statements of the Group in the forthcoming period.
Critical accounting judgements and estimates
The preparation of the condensed consolidated interim financial statements requires the use of judgements and estimates
that affect the reported amounts of assets and liabilities at the reporting date and the reported amounts of revenues and
expenses reported during the period. Although these estimates are based on the management's best knowledge of the
amount, event or actions, actual results may differ from those estimates.
Critical judgements made in applying the Group's accounting policies
The following are the critical judgements, apart from those involving estimations (which are dealt with separately below),
that the directors have made in the process of applying the Group's accounting policies and which have the most significant
effect on the amounts recognised in the financial statements.
Business combinations and asset acquisitions
In accounting for the acquisitions of the Industrials portfolio and C2 Capital Limited, both of which completed on
30 June 2017, Stenprop has considered whether each of the transactions represented a business combination as defined
by IFRS 3, or an asset acquisition. When management conclude that processes and inputs are being acquired in addition
to the property then the transaction is accounted for as a business combination. When there are no such items, the
transaction is treated as an asset acquisition.
Business combinations are accounted for using the acquisition method any excess of the purchase consideration over the
fair value of the next assets acquired is initially recognised as goodwill and reviewed for impairment. Any discount received
or acquisition costs are recognised in the income statement. Where an acquisition of properties held within a corporate
structure is not judged to be an acquisition of a business, the transaction is accounted for as if the Group had acquired the
underlying properties directly.
Critical accounting estimates and sources of estimation uncertainty
The Group does not have any key assumptions concerning the future, or other key sources of estimation uncertainty in the
reporting period, which may have a significant risk of causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year.
Notwithstanding this, the Group's investment properties are stated at estimated fair value, as determined by the directors,
based on independent external appraisals. The valuation of the Group's property portfolio is inherently subjective due to a
number of factors including the individual nature of the property, its location and the expectation of future rentals.
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, and these
geographical locations provide the basis of the business segments identified by the Group. 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
Continuing operations
United Discontinued
Germany Kingdom operations Total
GBP'000 GBP'000 GBP'000 GBP'000
Reviewed for the year ended 30 September 2017
Net rental income 5,748 10,207 - 15,955
Fair value movement of investment properties 7,464 (7,757) - (293)
Net gain from fair value of financial liabilities 175 1,008 - 1,183
Income from associates 421 - - 421
Income from joint ventures 912 854 - 1,766
Net finance costs (1,065) (3,623) - (4,688)
Operating costs (286) (144) - (430)
Net foreign exchange loss (30) (204) - (234)
Other gains - 336 - 336
Loss for the year from discontinued operations (see note 11) - - (193) (193)
Taxation (1,327) (481) - (1,808)
Total profit/(loss) per reportable segments 12,012 196 (193) 12,015
Reviewed 30 September 2017
Investment properties 233,230 291,525 - 524,755
Investment in associates 1,176 - - 1,176
Investment in joint ventures 11,121 21,520 - 32,641
Cash 12,225 10,373 - 22,598
Other 15,081 2,632 - 17,713
Assets classified as held for sale - 79,997 112,801 192,798
Total assets 272,833 406,047 112,801 791,681
Borrowings - bank loans 126,268 142,881 - 269,149
Other 9,695 39,355 - 49,050
Liabilities directly associated with assets classified
as held for sale (see note 11) - 40,207 57,777 97,984
Total liabilities 135,963 222,443 57,777 416,183
i) Information about reportable segments
Continued operation
United Discontinued
Germany Kingdom operations Total
GBP'000 GBP'000 GBP'000 GBP'000
Reviewed for the period ended 30 September 2016
Net rental income 5,302 7,449 - 12,751
Fair value movement of investment properties 63 (6,155) - (6,092)
Net gain/(loss) from fair value of financial liabilities 53 (1,064) - (1,011)
Loss from associates (7,890) - - (7,890)
Income/(loss) from joint ventures 484 (199) - 285
Net finance costs (1,179) (1,808) - (2,987)
Operating costs (360) (53) - (413)
Net foreign exchange gain 2 - - 2
Profit for the year from discontinued operations (see note 11) - - 1,765 1,765
Taxation (363) (607) - (970)
Total profit per reportable segment (3,888) (2,437) 1,765 (4,560)
Audited 31 March 2017
Investment properties 219,057 251,546 - 470,603
Investment in associates 17,863 - - 17,863
Investment in joint venture 10,283 21,115 - 31,398
Cash 11,693 12,280 - 23,973
Other 12,999 2,347 - 15,346
Assets classified as held for sale 2,541 - 132,832 135,373
Total assets 274,436 287,288 132,832 694,556
Borrowings - bank loans 122,898 106,153 - 229,051
Other 11,365 11,245 - 22,610
Liabilities directly associated with assets classified as held - - 76,200 76,200
for sale (see note 11)
Total liabilities 134,263 117,398 76,200 327,861
ii) Reconciliation of reportable segment profit or loss
Reviewed Reviewed
30 September 30 September
2017 2016
GBP'000 GBP'000
Rental income
Net rental income for reported segments 15,955 12,751
Profit or loss
Fair value movement of investment properties (293) (6,092)
Net gain/(loss) from fair value of financial liabilities 1,183 (1,011)
Gain/(loss) from associates 421 (7,890)
Income from joint ventures 1,766 285
Net finance costs (4,688) (2,987)
Operating costs (430) (413)
Net foreign exchange (loss)/gain (234) 2
Other gains 336 -
Profit for the year from discontinued operations (see note 11) (193) 1,765
Taxation (1,808) (970)
Total profit/(loss) per reportable segments 12,015 (4,560)
Other profit or loss - unallocated amounts
Management fee income 3,204 1,817
Income from joint ventures 63 177
Net finance income (135) 3
Tax, legal and professional fees (41) (65)
Audit fees (116) (117)
Administration fees (119) (118)
Non-executive directors (69) (67)
Staff remuneration costs (1,381) (1,082)
Other operating costs (472) (528)
Net foreign exchange (loss)/gain (183) 62
Goodwill impairment (see note 14) (3,500) -
Taxation (277) 1
Consolidated profit/(loss) before taxation 8,989 (4,477)
iii) Reconciliation of reportable segment financial position
Reviewed Audited
30 September 31 March
2017 2017
GBP'000 GBP'000
ASSETS
Investment properties 524,755 470,603
Investment in associates 1,176 17,863
Investment in joint venture 32,641 31,398
Cash 22,598 23,973
Other 17,713 15,346
Assets classified as held for sale 192,798 135,373
Total assets per reportable segments 791,681 694,556
Other assets - unallocated amounts
Investment in joint ventures 39 37
Cash 3,465 1,229
Other 2,392 357
Total assets per consolidated statement of financial position 797,577 696,179
LIABILITIES
Borrowings - bank loans 269,149 229,051
Other 49,050 22,610
Liabilities directly associated with assets classified as held for sale (see note 11) 97,984 76,200
Total liabilities per reportable segments 416,183 327,861
Other liabilities - unallocated amounts
Other 9,659 1,717
Total liabilities per consolidated statement of financial position 425,842 329,578
Reviewed Reviewed
30 September 30 September
2017 2016
GBP'000 GBP'000
3. Net rental income
Rental income 16,535 13,656
Other income - tenant recharges 3,585 2,382
Other income 318 92
Rental income 20,438 16,130
Direct property costs (4,483) (3,379)
Total net rental income 15,955 12,751
4. Operating costs
Tax, legal and professional fees 222 290
Audit fees 92 90
Interim review fees 30 30
Administration fees 194 133
Investment advisory fees 144 122
Non-executive directors 69 67
Staff remuneration costs 1,381 1,082
Other operating costs 496 576
2,628 2,390
Reviewed Reviewed
30 September 30 September
2017 2016
GBP'000 GBP'000
5. Earnings per ordinary share
Reconciliation of profit/(loss) for the period to adjusted EPRA(1) earnings
Earnings/(loss) per IFRS income statement attributable to shareholders 8,652 (4,525)
Adjustment to exclude profit/(loss) from discontinued operations 193 (1,765)
Earnings/(loss) per IFRS income statement from continuing operations
attributable to shareholders 8,845 (6,290)
Earnings/(loss) per IFRS income statement attributable to shareholders 8,652 (4,525)
Adjustments to calculate EPRA earnings, exclude:
Changes in fair value of investment properties 2,216 6,042
Changes in fair value of financial instruments (1,183) 357
Deferred tax in respect of EPRA adjustments 1,462 544
Goodwill impairment 3,500 -
Gain on disposal of properties (230) -
Adjustments above in respect of joint ventures and associates
Changes in fair value of investment properties and financial instruments (897) 9,949
Deferred tax in respect of EPRA adjustments 26 (391)
EPRA earnings attributable to shareholders 13,546 11,976
Further adjustments to arrive at adjusted EPRA earnings
Straight-line unwind of purchased swaps 144 447
Adjusted EPRA earnings attributable to shareholders 13,690 12,423
Weighted average number of shares in issue (excluding treasury shares)(2) 280,302,489 284,521,579
Share-based payment award 1,004,369 920,287
Diluted weighted average number of shares in issue 281,306,858 285,441,866
Earnings/(loss) per share from continuing operations
IFRS EPS (pence) 3.16 (2.21)
Diluted IFRS EPS (pence) 3.14 (2.20)
Earnings/(loss) per share from continuing and discontinued operations
IFRS EPS (pence) 3.09 (1.59)
Diluted IFRS EPS (pence) 3.08 (1.59)
EPRA EPS (pence) 4.83 4.21
Diluted EPRA EPS (pence) 4.82 4.20
Adjusted EPRA EPS (pence) 4.88 4.37
Diluted adjusted EPRA EPS (pence) 4.87 4.35
(1) The European Public Real Estate Association (EPRA) issued Best Practices Policy Recommendations in November 2016, which provide
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 that do
not provide an accurate picture of 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 at 30 September 2017, the Company held 9,026,189 treasury shares (September 2016: 1,356,567 and March 2017: 9,026,189).
Straight-line unwind of purchased swaps
A further adjustment was made to the EPRA earnings attributable to shareholders relating to the straight-line unwind
of the value as at 1 April 2014 of the swap contracts in the property companies acquired. When the property companies
were acquired by Stenprop with effect from 1 April 2014, it also acquired the bank loans and swap contracts which were in
place within these property companies. As a result, Stenprop took over loans with higher swap interest rates than would
have been the case had new loans and swaps been put in place at 1 April 2014. To compensate for this, the value of the
swap break costs was calculated at 1 April 2014 and the purchase consideration for the property companies was reduced
accordingly to reflect this liability.
Reconciliation of profit for the period to headline earnings
Reviewed Reviewed
30 September 30 September
2017 2016
GBP'000 GBP'000
Earnings/(loss) per IFRS income statement from operations
attributable to shareholders 8,652 (4,525)
Adjustments to calculate headline earnings, exclude:
Changes in fair value of investment properties 2,216 6,042
Gain on disposal of properties (230) -
Goodwill impairment 3,500 -
Deferred tax in respect of headline earnings adjustments 1,436 910
Adjustments above in respect of joint ventures and associates
Changes in fair value of investment properties (437) 12,004
Deferred tax in respect of headline earnings adjustments 91 (926)
Headline earnings attributable to shareholders 15,228 13,505
Earnings per share
Headline EPS (pence) 5.43 4.75
Diluted headline EPS (pence) 5.41 4.73
Reviewed Reviewed Audited
30 September 30 September 31 March
2017 2016 2017
GBP'000 GBP'000 GBP'000
6. Net asset value per ordinary share
Net assets attributable to equity shareholders 369,376 365,259 364,550
Adjustments to arrive at EPRA net asset value:
Derivative financial instruments 1,897 5,077 2,972
Deferred tax 11,084 11,282 10,138
Adjustments above in respect of non-controlling interests 1,322 1,891 1,544
EPRA net assets attributable to shareholders 383,679 383,509 379,204
Number of shares in issue (excluding treasury shares)(1)
282,692,287 285,325,313 277,655,691
Share-based payment award 1,004,369 920,287 956,185
Diluted number of shares in issue 283,696,656 286,245,600 278,611,876
Net asset value per share (basic and diluted)
IFRS net asset value per share (pence) 1.31 1.28 1.31
Diluted IFRS net asset value per share (pence) 1.30 1.28 1.31
EPRA net asset value per share (pence) 1.36 1.34 1.37
Diluted EPRA net asset value per share (pence) 1.35 1.34 1.36
(1) As at 30 September 2017, the Company held 9,026,189 treasury shares
(September 2016: 1,356,567 and March 2017: 9,026,189).
7. Share capital
Authorised
1,000,000,000 ordinary shares with a par value of EUR0.000001258 each 1 1 1
Reviewed Reviewed Audited
30 September 30 September 31 March
2017 2016 2017
Issued share capital
Opening balance 286,681,880 282,984,626 282,984,626
Issue of new shares 5,036,596 3,697,254 3,697,254
Closing number of shares issued1 291,718,476 286,681,880 286,681,880
Share capital
Share premium (GBP'000) 317,782 312,372 312,372
Less: Acquisition/transaction costs (GBP'000) (2,231) (2,231) (2,231)
Total share premium(GBP'000) 315,551 310,141 310,141
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 291,718,476 (September 2016 and March 2017: 286,681,880) ordinary shares in issue at the reporting
date. On 8 June 2017, 1,752,359 and 13,737 new ordinary shares were issued on the JSE and the BSX at an issue price of
EUR1.22 per share in respect of the Share Purchase Plan and Deferred Share Bonus Plan respectively (the debit to the Equity
Reserve of GBP16,000 reflects the exercise of the Bonus Plan share options). On 7 July 2017, 3,270,500 new ordinary shares
were issued on the JSE and the BSX at an issue price of EUR1.22 per share in order to fund the acquisition of C2 Capital Limited.
8. Investment property
The fair value of the consolidated investment properties at 30 September 2017 was GBP524,755,000 (31 March 2017:
GBP470,603,000). This excludes an amount of GBP188,318,000 (31 March 2017: GBP133,645,000) for properties which have been
classified as held for sale, including the entire Swiss portfolio & Pilgrim Street (UK). 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 property being valued
('valuers').
The fair value of each of the properties for the period ended 30 September 2017 was assessed by the valuers in accordance
with the Royal Institute 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 valuations performed by the valuers are reviewed internally by senior management. This includes discussions of the
assumptions used by the valuers, as well as a review of the resulting valuations.
Discussions of the valuations process and results are held between the senior management and the valuers on a
bi-annual basis. The Audit 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 IFRS13 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.
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 the 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.
All investment properties are mortgaged. Details of all borrowings can be seen in note 12. 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 2017 are detailed
in the table below:
Combined
portfolio Percentage Market Annualised Net initial
(including share of portfolio value gross yield
of jointly by market 30 Sept rental (weighted WAULT Voids
controlled value 2017 Area income average) by rental by area
entities) (%) (GBP million) Properties (m(2)) (GBP million) (%) (years) (%)
United Kingdom 37.1 291.5 36 238,026 19.8 6.50 4.7 6.9
Germany 29.7 233.2 23 91,927 12.9 4.98 6.5 5.6
Assets
held for sale 24.0 188.3 10 50,072 11.2 4.45 5.8 4.5
United Kingdom 9.9 78.0 1 9,705 4.4 4.98 3.7 0.0
Switzerland 14.1 110.3 9 40,367 6.8 4.07 7.1 5.6
Subtotal 90.8 713.0 69 380,025 43.9 5.46 5.5 6.3
Share of joint
ventures and
associates 9.2 72.0 5 22,333 4.4 5.30 7.5 0.0
Total 100.0 785.0 74 402,358 48.3 5.45 5.7 5.9
Reviewed Audited
30 September 31 March
2017 2017
Note GBP'000 GBP'000
Opening balance 470,603 576,757
Properties acquired 14 127,000 -
Capitalised expenditure 3,437 1,643
Disposals through the sale of property (21,345) (5,346)
Foreign exchange movement in foreign operations 1,949 29,621
Net fair value (loss)/gain on investment property - continuing operations (293) 2,431
Net fair value loss on investment property - discontinued operations (1,923) (858)
Transfer to assets classified as held for sale (54,673) (133,645)
Closing balance 524,755 470,603
Acquisitions
UK
Industrials Portfolio 127,000 -
127,000 -
Disposals
Germany
Hermann (Burger King) (2,931) -
Swiss
Kantone (Granges-Paccot) (15,414) -
Interlaken - (5,346)
UK
GGP1 Limited - Uxbridge (3,000) -
(21,345) (5,346)
9. Investments in associates
Details of the Group's associates at the end of the reporting period are as follows:
% equity
Place of Principal owned by
Name incorporation activity subsidiary
Stenham European Shopping Centre Fund Limited ('SESCF') Guernsey Fund 28.42*
* 28.16% of the investment in the underlying property is held through SESCF, and 0.26% of the property investment is held via a wholly-owned
subsidiary, Leatherback Property Holdings Limited, a company incorporated in the British Virgin Islands.
During the period the Group sold its investment in Stenham Berlin Residential Fund Limited in which it had held a 5.24%
holding at 31 March 2017.
Associates are accounted for using the equity method in these consolidated financial statements.
Summarised financial information in respect of each of the Group's associates is set out below:
Stenham Stenham
European Berlin
Shopping Residential
Centre Fund Fund
Limited Limited Total
GBP'000 GBP'000 GBP'000
Reviewed 30 September 2017
Non-current assets - - -
Assets held for sale - - -
Current assets 4,901 - 4,901
Non-current liabilities - - -
Current liabilities (1,001) - (1,001)
Equity attributable to owners of the Company 3,900 - 3,900
Revenue 3,415 21,351 3,415
Profit from continuing operations and total comprehensive income 1,237 1,568 1,237
Audited 31 March 2017
Non-current assets 141 - 141
Assets held for sale 177,637 16,865 194,502
Current assets 6,725 19,317 26,042
Non-current liabilities - - -
Current liabilities (128,328) (498) (128,826)
Equity attributable to owners of the Company 56,175 35,684 91,859
Revenue 15,984 50,230 66,214
(Loss)/profit from continuing operations and total comprehensive income (42,506) 19,598 (22,908)
Reconciliation of the above summarised financial information to the carrying amount of the interest in the associates
recognised in the financial statements:
Stenham Stenham
European Berlin
Shopping Residential
Centre Fund Fund
Limited Limited Total
GBP'000 GBP'000 GBP'000
30 September 2017
Opening balance as at 1 April 2017 15,994 1,869 17,863
Share of associates' profit* 350 71 421
Share in associates disposed during the period (15,603) (1,992) (17,595)
Foreign exchange movement in foreign operations 435 52 487
Closing balance 1,176 - 1,176
31 March 2017
Opening balance as at 1 April 2016 26,095 4,962 31,057
Share of associates' (loss)/profit* (12,053) 2,203 (9,850)
Associate balance sheet adjustment 16 - 16
Share in associates disposed during the year - (5,745) (5,745)
Distribution received from associates 6 - 6
Foreign exchange movement in foreign operations 1,930 449 2,379
Closing balance 15,994 1,869 17,863
* The share of associates' profit includes the fair value movement in the underlying investments for the period. This is covered in
the subsequent paragraphs.
Stenham European Shopping Centre Fund Limited ('SESCF')
SESCF, in which the Group has a 28.42% interest completed the sale of its investment in the Nova Eventis Shopping
Centre on 22 June 2017. The sale price of the property was EUR208.5 million less selling costs (equivalent to the value at
31 March 2017) and any fair value movement in the underlying investment is reflective of the movement in the net asset
value of SESCF and the property company which was sold.
Stenham Berlin Residential Fund Limited ('SBRF')
At 31 March 2017 SBRF's sole investment was its remaining holding of 623,868 shares in ADO Properties Limited. All of
these shares were sold by 31 May 2017 and monies subsequently distributed to the SBRF shareholders by way of a share
buyback in June 2017. SBRF's share price at 31 March 2017 was EUR1.85. This had risen to EUR1.92 at the date of share buyback
in June 2017. Stenprop Germany Limited disposed of its entire shareholding of 1,180,251 shares at EUR1.92 per share realising
EUR2,268,000. This represented a gain of EUR83,000 for the six months to 30 September 2017. The GBP equivalent was GBP71,000.
At 30 September 2017, SBRF did not have any investment with its net assets consisting purely of cash required to pay the
balance of buyback monies and, thereafter, liquidation costs.
10. Investment in joint ventures
Details of the Group's joint ventures at the end of the reporting period are as follows:
% equity
Place of Principal owned by
Name incorporation activity subsidiary
Luxembourg
Elysion S.A. Luxembourg Holding company 50.00
Elysion Braunschweig Sarl Luxembourg Property company 50.00
Elysion Dessau Sarl Luxembourg Property company 50.00
Elysion Kappeln Sarl Luxembourg Property company 50.00
Elysion Winzlar Sarl Luxembourg Property company 50.00
Guernsey
Stenpark Management Limited Guernsey Management company 50.00
BVI
Stenprop Argyll Limited BVI Holding company 50.00
Regent Arcade House Holdings Limited BVI Property company 50.00
Republic of Ireland
Ardale Industrials Limited Republic of Ireland Management company 50.00
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.
Stenpark Stenprop Ardale
Elysion Management Argyll Industrials
S.A. Limited Limited Limited Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Reviewed 30 September 2017
Investment property 31,625 - 81,000 - 112,625
Current assets 336 186 4,334 2 4,858
Assets 31,961 186 85,334 2 117,483
Bank loans (19,751) - (37,344) - (57,095)
Shareholder loan (13,070) - - - (13,070)
Deferred tax (573) - - - (573)
Financial liability (330) - (838) - (1,168)
Current liabilities (185) (107) (4,113) (5) (4,410)
Liabilities (33,909) (107) (42,295) (5) (76,316)
Net (liabilities)/assets of joint ventures (1,948) 79 43,039 (3) 41,167
Net assets of joint ventures excluding
shareholder loans 11,122 79 43,039 (3) 54,240
Group share of net assets 11,122 40 21,520 (2) 32,680
Revenue 1,207 381 2,393 31 4,012
Interest payable (888) - (559) - (1,447)
Tax expense (158) - - - (158)
Profit from continuing operations and
total comprehensive income excluding
interest due to Group 912 109 1,709 11 2,741
Share of joint ventures prof
due to the Group 912 56 855 6 1,829
Stenpark Stenprop
Elysion Management Argyll
S.A. Limited Limited Total
GBP'000 GBP'000 GBP'000 GBP'000
Audited 31 March 2017
Investment property 30,385 - 80,997 111,382
Current assets 450 258 3,826 4,534
Assets 30,835 258 84,823 115,916
Bank loans (19,393) - (37,313) (56,706)
Shareholder loan (12,435) - - (12,435)
Deferred tax (453) - - (453)
Financial liability (502) - (1,236) (1,738)
Current liabilities (202) (186) (4,046) (4,434)
Liabilities (32,985) (186) (42,595) (75,766)
Net (liabilities)/assets of joint ventures (2,150) 72 42,228 40,150
Net assets of joint ventures excluding 10,285 72 42,228 52,585
shareholder loans
Group share of net assets 10,285 36 21,114 31,435
Revenue 2,313 822 4,509 7,644
Interest payable (1,676) - (1,114) (2,790)
Tax expense (327) - - (327)
Profit from continuing operations and
total comprehensive income excluding
interest due to Group 2,270 611 1,708 4,589
Share of joint ventures profit due to
the Group 2,270 306 854 3,430
Elysion S.A
Stenprop owns 100% of the shares and shareholder loans in Bernina Property Holdings Limited (Bernina). Bernina in
turn owns 50% of the issued share capital and 100% of the shareholder loans 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 shareholder loans have attracted, and continue to attract, a 10% compounded interest rate since inception
in 2007. The outstanding shareholder loan, which is wholly-owned by Stenprop, has been valued at the recoverable balance
which is deemed equal to the net assets of the joint venture excluding the shareholder loan.
Reconciliation of the above summarised financial information to the carrying amount of the interest recognised in the
consolidated financial statements:
Stenpark Stenprop Ardale
Elysion Management Argyll Industrials
S.A. Limited Limited Limited Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Reviewed 30 September 2017
Opening balance 10,283 37 21,115 - 31,435
Share in associates acquired during
the period - - - (2) (2)
Share of joint venture profit 912 56 855 6 1,829
Distribution received from joint venture (388) (53) (450) (6) (897)
Foreign exchange movement in foreign
operations 315 - - - 315
Closing balance 11,122 40 21,520 (2) 32,680
Audited 31 March 2017
Opening balance 8,163 32 21,536 - 29,731
Share of joint venture profit 2,270 306 854 - 3,430
Distribution received from joint venture (864) (301) (1,275) - (2,440)
Foreign exchange movement in foreign
operations 714 - - - 714
Closing balance 10,283 37 21,115 - 31,435
11. Assets held for sale and discontinued operations
Asset held for sale
Ten properties (the entire Swiss portfolio and Pilgrim Street) meet the conditions relating to assets held for sale, as per
IFRS 5: Non-current Assets Held for Sale. The properties are expected to be disposed of during the next 12 months. The
values have been determined by the directors based on the sale price per a letter of intent, a draft sales and purchase
agreement, or in the case where this is not yet finalised, the fair value as determined by an independent third party valuer.
The fair value of these properties, and their comparatives are shown in the table below:
Reviewed Audited
30 September 31 March
2017 2017
GBP'000 GBP'000
Investment properties 188,318 133,646
Cash and cash equivalents 1,285 625
Trade and other receivables 3,195 1,101
Total assets classified as held for sale 192,798 135,372
Bank loans 89,191 70,783
Derivative financial instruments 546 -
Deferred tax 3,839 4,344
Accounts payable and accruals 4,408 1,073
Liabilities directly associated with assets classified as held for sale 97,984 76,200
Discontinued operations
Nine properties (the entire Swiss portfolio) have been recognised as discontinued operations in accordance with IFRS 5.
The results of the discontinued operations were as follows:
Reviewed Reviewed
30 September 30 September
2017 2016
GBP'000 GBP'000
Net rental income 2,517 2,739
Operating costs (175) (201)
Net operating income 2,342 2,538
Fair value movement of investment properties (1,923) 50
Profit from operations 419 2,588
Other gains and losses (106) -
Net gain from fair value of derivative financial instruments - 654
Net finance costs (361) (1,005)
Net foreign exchange losses (2) -
(Loss)/profit for the year before taxation (50) 2,237
Taxation (143) (472)
(Loss)/profit for the year from discontinued operations (193) 1,765
Disposals
On 1 July 2017, the Group disposed of the Kantone Holdings Ltd properties known as Grange Paccot 1 & Grange Paccot
2, Switzerland, for CHF20.0 million (equating to CHF19.9 million after disposal costs). At disposal, there was a loss of
CHF0.1 million to the Group equating to the disposal costs, as the property was already held at a fair value equivalent to
the sale price.
Reviewed Audited
30 September 31 March
2017 2017
GBP'000 GBP'000
12. Borrowings
Opening balance 229,051 290,434
Loan repayments (16,389) (4,143)
New loans 75,108 -
Amortisation of loans (1,401) (3,536)
Capitalised borrowing costs (189) (161)
Amortisation of transaction fees 171 392
Foreign exchange movement in foreign operations 1,206 16,848
Adjustment for liabilities directly associated with assets classified as held for sale
adjustment (see note 11) (18,408) (70,783)
Total borrowings 269,149 229,051
Amount due for settlement within 12 months 115,937 83,787
Amount due for settlement between one to three years 79,677 79,265
Amount due for settlement between three to five years 162,726 136,782
Amount due for settlement after five years - -
Liabilities directly associated with assets classified as held for sale adjustment (see note 11) (89,191) (70,783)
269,149 229,051
Non-current liabilities
Bank loans 242,403 216,047
Total non-current loans and borrowings 242,403 216,047
The maturity of non-current borrowings is as follows:
One year to five years 242,403 216,047
More than five years - -
242,403 216,047
Current liabilities
Bank loans 115,937 83,787
Liabilities directly associated with assets classified as held for sale adjustment (see note 11) (89,191) (70,783)
Total current loans and borrowings 26,746 13,004
Total loans and borrowings 269,149 229,051
The facilities are secured by debentures and legal charges over the properties to which they correspond. There is no
cross-collaterisation of the facilities. The terms and conditions of outstanding loans are as follows:
Nominal value Carrying value*
Loan 30 Sep 31 Mar 30 Sep 31 Mar
interest Maturity 2017 2017 2017 2017
Facility Amortising rate Currency date GBP'000 GBP'000 GBP'000 GBP'000
United Kingdom
Laxton Properties Limited No LIBOR 1.4% GBP 2020/05/08 27,540 27,540 27,379 27,348
Normanton Properties Limited No LIBOR 1.4% GBP 2019/03/25 37,050 37,050 36,982 36,958
Davemount Properties Limited No LIBOR 2.25% GBP 2021/05/26 4,000 4,000 3,971 3,967
LPE Limited(1) Yes LIBOR 2.5% GBP 2020/03/31 36,108 30,000 35,619 29,620
GGP1 Limited No LIBOR 2.25% GBP 2021/05/26 7,000 8,360 6,912 8,260
Industrials UK(2) No LIBOR 2.25% GBP 2022/06/02 69,000 - 69,000 -
Switzerland(3)
Algy Properties S.a.r.l. Yes LIBOR 1.5% CHF 2018/03/31 2,437 2,590 2,437 2,590
Bruce Properties S.a.r.l. No LIBOR 1.35% CHF 2018/03/31 3,665 3,804 3,665 3,804
David Properties S.a.r.l. Yes LIBOR 1.4% CHF 2018/03/31 5,838 6,181 5,838 6,181
Kantone Holdings Limited Yes LIBOR 1.05% CHF Footnote 3 22,350 39,205 22,350 39,205
Polo Property GmbH Yes LIBOR 1.15% CHF Footnote 3 17,919 19,002 17,919 19,002
Germany
Century BV Yes Euribor 1.65% EUR 2017/12/31 8,393 8,254 8,388 8,238
Century 2 BV Yes Euribor 1.65% EUR 2017/12/31 3,634 3,573 3,631 3,567
Century 2 BV Yes Euribor 1.65% EUR 2017/12/31 760 748 760 746
Stenham Beryl Limited Yes Euribor 1.85% EUR 2018/04/30 4,644 4,599 4,644 4,599
Stenham Crystal Limited Yes Euribor 1.85% EUR 2018/04/30 3,878 3,841 3,878 3,841
Stenham Jasper Limited Yes Euribor 1.85% EUR 2018/04/30 4,745 4,700 4,745 4,700
Isabel Properties BV No Euribor 2.50% EUR 2021/12/31 7,937 7,699 7,937 7,699
Bleichenhof GmbH & Co. KG No 1.58% EUR 2022/02/28 74,906 72,655 74,906 72,655
Stenprop Hermann Ltd No Euribor 1.13% EUR 2020/06/30 8,316 8,066 8,296 8,042
Stenprop Victoria Ltd No Euribor 1.28% EUR 2020/08/31 9,084 8,811 9,084 8,811
359,204 300,678 358,341 299,833
* The difference between the nominal and the carrying value represents unamortised facility costs.
(1) On 2 June 2017, LPE Limited entered into an amendment agreement with RBSI to extend their facility by a further GBP6.1 million. Per the
amended facility agreement the full loan is repayable in March 2020. The margin on the debt increased by 0.5% to 2.5% for the period until
the extended debt is repaid. This is expected to occur in December 2017. The all-in rate on this facility is 3.85% (including a swap of 1.35%).
Finance costs associated with this transaction amounted to GBP189,000.
(2) On 2 June 2017, an amount of GBP69.1 million was lent to Industrials UK by RBS for a period of five years, until 2 June 2022. GBP60.375 million
of the loan is covered by means of a swap at an all-in interest rate of 3.2% per annum (the balance incurs interest at LIBOR a margin of
2.25% per annum).
(3) All of the bank loans in respect of the Swiss properties were due for expiry on 31 March 2017. Given that all of the properties in the Swiss
portfolio were held for sale at this date, the loans were re-financed on a short-term basis as follows:
- Algy Properties Sarl extended its loan with Credit Suisse in the sum of CHF3,237,500, for a period of one year from 1 April 2017 at a loan
interest rate of LIBOR 1.5 % and no swap (previous facility: LIBOR 1.3% 0.91% swap).
- Bruce Properties Sarl extended its loan with Credit Suisse in the sum of CHF4,755,000, for a period of one year from 1 April 2017 at a loan
interest rate of LIBOR 1.35 % and no swap (previous facility: LIBOR 1.25% 1.90% swap).
- David Properties Sarl extended its loan with Credit Suisse in the sum of CHF7,725,000, for a period of one year from 1 April 2017 at a loan
interest rate of LIBOR 1.4 % and no swap (previous facility: LIBOR 1.3% 1.73% swap).
- Kantone Holdings Limited entered into a rolling credit facility with its existing lender, Union Bank of Switzerland ('UBS'). The credit
facility was for CHF49,000,000 at a loan interest rate of LIBOR 1.05 % and no swap (previous facility: LIBOR 1.05% 0.7% swap). As each
property within the Kantone portfolio is sold, partial repayments of the loan are to be made.
- Polo Properties GmbH entered into a rolling credit facility with its existing lender, Union Bank of Switzerland ('UBS'). The credit facility was
for CHF23,750,000 at a loan interest rate of LIBOR 1.15 % and no swap.
Reviewed Audited
30 September 31 March
2017 2017
GBP'000 GBP'000
13. Other loans
Loans 34,080 -
Amortised borrowing costs (119) -
Foreign exchange movement 330 -
Interest 76 -
34,367 -
On 2 June 2017 and 23 June 2017 the Group secured a bridging loan of EUR31 million from Bellerive SPV5 Limited, which
attracts interest at 7% per annum. The loan is subject to a Group loan to value covenant of 65% and is repayable on
13 June 2018. A further 12 month facility of EUR8 million was secured at an interest rate of 7% per annum from Peregrine
Direct Limited. Drawdown was on 23 June 2017 and the loan is repayable within one year of the advance.
14. Acquisitions of subsidiaries (business combinations and asset acquisitions)
Business combinations
On 30 June 2017, the Group acquired 100% of the share capital of C2 Capital Limited which is the management platform
that provides asset management and portfolio services to Industrials LP, the partnership which owns 25 multi-let industrial
estates across the UK. Stenprop acquired the shares in C2 Capital Limited for GBP3.5 million, which was settled by the issue of
3,270,500 Stenprop shares valued at EUR1.22 per share.
Details of the assets and liabilities acquired and goodwill arising are as follows:
Attributed
fair value
GBP'000
Investment in joint venture (1)
Cash and cash equivalents 89
Trade and other receivables 52
Trade and other payables (138)
Fair value of acquired interest in net assets of subsidiary 2
Goodwill 3,500
Total purchase consideration 3,502
Goodwill of GBP3.5 million arising as a result of the acquisition of C2 Capital Limited has subsequently been impaired in full
during the period as the amount was not considered material to the Group.
Asset acquisitions
On 30 June 2017, the Group acquired 100% of the interests in Industrials UK LP which owns a portfolio of multi-let industrial
properties (the 'MLI Portfolio'). The MLI Portfolio is made up of 25 separate multi-let industrial estates situated in or near
densely populated nodes across the United Kingdom. The acquisition was effected through the acquisition of a Jersey
unit trust (Industrials Investment Unit Trust) and a general partner (Industrials UK GP LLC) who together held 100% of the
limited partnership.
The total purchase consideration for the acquisition was calculated with reference to the net asset value of the three
entities as at 30 June 2017 and which valued the properties at GBP127 million. The acquisition was financed by a loan of
GBP69 million, proceeds from the share of associates disposed during the period and bridging loan facilities.
Industrials Total
Investment Industrials UK Industrials UK attributed
Unit Trust GP LLC LP fair value
GBP'000 GBP'000 GBP'000 GBP'000
Investment property - - 127,000 127,000
Cash and cash equivalents 23 6 2,954 2,983
Trade and other receivables 52 - 1,208 1,260
Trade and other payables (14) (4) (4,234) (4,252)
External debt - - (69,133) (69,133)
Total purchase consideration settled in cash 61 2 57,795 57,858
Costs incurred in the acquisition of the MLI Portfolio amounted to GBP1.43 million. These acquisition costs were capitalised to
the cost of the asset. At 30 September 2017, the investment was stated at fair value, and any movement was recognised as
fair value movement in the statement of comprehensive income.
15. Financial risk management
Fair value of financial instruments
The following table summarises the Group's financial assets and liabilities into categories required by IFRS7 Financial
instruments disclosures. The directors consider that the carrying amounts of financial assets and financial liabilities
recorded at amortised cost in the financial statements approximate their fair values.
Held at Total
fair value carrying
through Held at amount
profit amortised 30 September
and loss cost 2017
GBP'000 GBP'000 GBP'000
Financial assets
Cash and cash equivalents - 26,063 26,063
Accounts receivable - 5,770 5,770
Other debtors - 14,030 14,030
- 45,863 45,863
Financial liabilities
Bank loans - 269,149 269,149
Other loans and interest - 34,367 34,367
Derivative financial instruments 1,351 - 1,351
Accounts payable and accruals - 15,746 15,746
Reviewed 30 September 2017 1,351 319,262 320,613
Held at Total
fair value carrying
through Held at amount
profit amortised 31 March
and loss cost 2017
GBP'000 GBP'000 GBP'000
Financial assets
Cash and cash equivalents - 25,202 25,202
Accounts receivable - 3,731 3,731
Other debtors - 11,713 11,713
- 40,646 40,646
Financial liabilities
Bank loans - 229,051 229,051
Derivative financial instruments 2,972 - 2,972
Accounts payable and accruals - 15,560 15,560
Audited 31 March 2017 2,972 247,583 247,583
Fair value hierarchy
The table below analyses the Group's financial instruments carried at fair value, by valuation method. The different levels
have been defined as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e.
as prices) or indirectly (i.e. derived from prices).
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Total
financial
instruments
recognised Designated at fair value
at fair value Level 1 Level 2 Level 3
GBP'000 GBP'000 GBP'000 GBP'000
Reviewed 30 September 2017
Liabilities
Derivative financial liabilities 1,351 - 1,351 -
Total liabilities 1,351 - 1,351 -
Audited 31 March 2017
Liabilities
Derivative financial liabilities 2,972 - 2,972 -
Total liabilities 2,972 - 2,972 -
Details of changes in valuation techniques
There have been no significant changes in valuation techniques during the period under review.
Significant transfers between level 1, level 2 and level 3
There have been no significant transfers during the period under review.
Unobservable inputs
Investment properties are considered level 3 and associated unobservable inputs are disclosed in note 8.
16. Related party transactions
Parties are considered related if one party has control, joint control or significant influence over the other party in making
financial and operating decisions. Transactions with related parties are made on terms equivalent to those that prevail in an
arm's-length transaction.
Other than those further referred to below, there were no other related party transactions during the period ended
30 September 2017.
During the normal course of business, some directors of the Company are also directors of administered and managed
entities and all transactions between these companies are conducted on an arm's-length basis.
P Arenson, a director of the Company, is also a director of Stenham Limited which at 30 September 2017 had an indirect
beneficial interest of 4.77% in Stenprop Limited through its wholly-owned subsidiary, Stenham Group Limited ('SGL')
(March 2017: 4.85%).
At 30 September 2017, P Arenson held no interest in the share capital of Stenham Limited (March 2017: 1.13%).
M Yachad is a non-executive director of the Company and an executive director of Peregrine Holdings Limited ('PHL'),
which as at 30 September 2017, had a beneficial interest (direct and indirect) of 6.93% in the shares of the Company
(March 2017: 6.51%).
17. Events after the reporting period
(i) Sale of Swiss property
At the balance sheet date, all of the properties within the Swiss portfolio were classified as assets held for sale.
On 30 October 2017 the sale of one of these properties, located in Cham, was completed at a sale price of
CHF14.2 million.
(ii) Signing of sale and purchase agreement of shares in subsidiary relating to UK property
On 20 November 2017, a sale and purchase agreement was signed in respect of the entire share capital of Normanton
Properties Limited, a subsidiary of the Group, which owns the property known as Pilgrim Street in the City of London.
The sale of the shares values the property at GBP80.9 million, a sale price above the 30 September 2017 valuation of
GBP78.0 million. Completion is conditional upon the buyer receiving written confirmation from a lender that debt
finance on commercially acceptable terms will be available to the buyer at completion for the purposes of funding the
acquisition of the shares. Failure to fulfil this condition by no later than 8 December 2017 will result in termination of
the agreement, and a payment of GBP250,000 by the buyer to the seller. Subject to fulfilment of the condition mentioned
below, completion is expected to be on 20 December 2017, but no later than 12 January 2018. Failure to complete by
this date due to a default by the buyer will result in the Group retaining the deposit of GBP4.03 million which was paid by the
buyer on exchange.
(iii) Acquisition of UK multi-let industrial estate
On 17 November 2017, a multi-let industrial estate located in Aberdeen, Scotland, was acquired for GBP4.4 million
including acquisition costs.
(iv) Related party transactions
Post the reporting period, PHL disposed of its entire shareholding (including the shares in Stenprop held by SGL) to
Sandown Capital International Limited, a wholly-owned subsidiary of Sandown Capital Limited ('SCL'). M Yachad is a
non-executive director of SCL.
Corporate information
STENPROP LIMITED SA transfer secretaries BSX sponsor
(Incorporated in Bermuda) Computershare Investor Services Estera Securities (Bermuda) Limited
Registration number: 47031 Proprietary Limited (Registration number 25105)
BSX share code: STP.BH (Registration number 2004/003647/07) Canon's Court
JSE share code: STP Rosebank Towers 22 Victoria Street
ISIN: BMG8465Y1093 15 Biermann Avenue Hamilton, HM12, Bermuda
Rosebank, 2196 (Postal address the same as the
Registered office of the Company South Africa physical address above)
Stenprop Limited
(Registration number 47031) Correspondence address Bermudian registrars
20 Reid Street PO Box 61051 Computershare Investor Services
3rd Floor, Williams House Marshalltown, 2107 (Bermuda) Limited
Hamilton, HM11 South Africa (Company number 41776)
Bermuda Corner House
Legal advisors 20 Parliament Street
Company secretary Berwin Leighton Paisner LLP Hamilton, HM12
Apex Corporate Services Ltd. Adelaide House Bermuda
(Registration number 33832) London Bridge
3rd Floor, Williams House London, EC4R 9HA Correspondence address
20 Reid Street United Kingdom 2nd Floor, Queensway House
Hamilton HM11, Bermuda Hilgrove Street
(PO Box 2460 HM JX, Bermuda) Postal address of the Company St. Helier
Kingsway House Jersey
JSE sponsor Havilland Street JE1 1ES
Java Capital Trustees and Sponsors St Peter Port, GY1 2QE Channel Islands
Proprietary Limited Guernsey
(Registration number 2006/005780/07) Auditors
6A Sandown Valley Crescent South African corporate advisor Deloitte LLP
Sandown Java Capital Proprietary Limited Regency Court
Sandton, 2196 (Registration number 2012/089864/07) Glategny Esplanade
South Africa 6A Sandown Valley Crescent St Peter Port
(PO Box 2087, Parklands, 2121) Sandown GY1 3HW
Sandton, 2196 Guernsey
South Africa Channel Islands
(PO Box 2087, Parklands, 2121)
www.stenprop.com
