27385 17 June 2020 7:25 pm proof 1Annual Report 2020Annual Report 2020 27385 17 June 2020 7:25 pm proof 1Who we are:Stenprop is a UK REIT listed on the Specialist Fund Segment of the London Stock Exchange (‘LSE’) and the Johannesburg Stock Exchange (‘JSE’). Our intention is to become a 100% focused UK multi-let industrial (‘MLI’) business.Welcome to the Stenprop Annual Report 2020Our Purpose:TO REVOLUTIONISE THE MLI SECTOR Our Vision:TO BE THE LEADING UK MLI BUSINESS 27385 17 June 2020 7:25 pm proof 144.2%49.2%40.8%201920182020 Business Overview 02 At a Glance Strategic Report06 Our Portfolio08 Chief Executive's Report11 COVID-19 & Stenprop14 Marketplace16 Business Model 18 Stakeholder Engagement20 Strategy22 Key Performance Indicators24 Property Report 30 Creating Value in our Portfolio34 MLI Operating Platform Update38 Financial Review44 Risk Management 54 Section 172 Statement56 Responsible Business Governance 62 Chairman’s Statement64 Our Board of Directors 66 Corporate Governance Overview70 Audit and Risk Committee Report73 Nominations Committee Report75 Remuneration Committee Report84 Social and Ethics Committee Report85 Directors’ Report Financial Statements 88 Independent Auditor’s Report 94 JSE Accredited Independent Auditor’s Report 97 Consolidated Statement of Comprehensive Income98 Consolidated statement of Financial Position99 Consolidated Statement of Changes in Equity 100 Consolidated Statement of Cash Flows101 Notes to the Consolidated Financial Statements Other Information 146 Property Summary147 Portfolio Analysis148 Consolidated Portfolio152 Assets Held for Sale153 Jointly Controlled Entities153 Tenant Analysis154 EPRA Key Performance Measures155 Analysis of Shareholders156 Shareholder Diary157 Alternative Performance Measures158 Glossary159 Corporate InformationOur Mission:TO DELIVER SUSTAINABLE AND GROWING INCOME TO OUR SHAREHOLDERSOur Values:On track to becoming the leading UK multi-let industrial businessHighlightsContentsCUSTOMER FOCUSEDRESULTS ORIENTEDINNOVATIVEDECISIVEFinancial Highlights8.35p13.89p5.44p201920182020Diluted IFRS EPS6.75p8.00p6.75p201920182020Full-year dividend per share£1.36£1.36£1.37201920182020Diluted IFRS NAV per share8.84p9.09p6.88p201920182020Diluted adjusted EPRA EPS£1.41£1.41£1.39201920182020Diluted EPRA NAV per shareAverage Loan to Value Ratio (‘LTV’)4.8%4.8%4.9%201920182020Dividend yield on NAVRead more on EPRA Key Performance Measures on page 154 Stenprop’s Annual Report 2020 consists of two parts: fAnnual report fAnnual financial statementsView more online at stenprop.comRead more about the Alternative Performance Measures (APMs) on page 15701ANNUAL REPORT 2020 STENPROPBUSINESS OVERVIEW 27385 17 June 2020 7:25 pm proof 148.5%UK26.6%Oce20.1%MLI 1.8%Other38.8%Germany12.7%Switzerland72.8%UK12.6%Oce58.0%MLI 2.2%Other24.5%Germany2.7%Switzerland100%UK MLI1234567At a GlancePortfolio highlightsExperienced management team Diversified income Strong sector fundamentals Earnings growth potential Utilising technology to drive efficiencies Culture that promotes learning and innovationTransformative business model Our investment propositionChange in our portfolio based on property value.20182020£532.6mPORTFOLIO VALUE£309.0mUK MLI58.0% of total portfolio£217.3mTOTAL DEBT40.8%AVERAGE LTV2022 targetBUSINESS OVERVIEW02STENPROP ANNUAL REPORT 2020 27385 17 June 2020 7:25 pm proof 1Serviced MLI modelPermanent capitalTechnologyBrandingPermanent capitalFlexible leasingTechnologyThe platform opportunity A focus on delivering efficiencies and enhanced sustainable earnings Shareholders The Industrials operating platform will reduce the costs of operating MLI properties, delivering greater earnings and leading to higher levels of sustainable earnings growth. It also has the potential to scale our business more easily and to be leveraged across a wider spectrum of assets.Customers Our class-leading customer service is designed to make leasing MLI space easier, leaving our customers with more time to focus on running their business.Employees The Industrials operating platform provides an innovative and exciting arena where our team can share ideas and revolutionise the MLI sector. The benefit of a more efficient business is to release employees from administrative work, to free up time to focus on value-add activities.Read more in our Business model on page 16Read more about the value generated on page 30 What this means for our stakeholders BrandingThe industrials.co.uk website provides a powerful and recognisable brand to our customersPotential to leverage the brand to grow the Group’s reach and further penetrate the market in the future Flexible leasingMoving away from a traditional leasing model to a short-form flexible lease structureLeases can be agreed and documented, signed online and can price in greater flexibility regarding terms and repairing liabilitiesServiced MLI modelProviding our customers with additional services and a high-quality service will generate additional revenue per sq ft from the same space TechnologyWe use innovative technology to improve efficiency, reduce irrecoverable expenditure and maximise returns from our MLI assets Permanent capitalPermanent capital and scale enable us to build a management platform for long term sustainable earnings growth, rather than being focused on short term goals and IRR driven targets What is MLI?MLI comprises multi-purpose, industrial space, with units of typically 500 to 10,000 sq ft arranged in terraces and let to multiple tenants on a serviced estate. Units tend to be generic in nature, typically a large open space accessed through a roller shutter door and include around 10% office content, a small kitchen and toilet area. A typical estate will comprise 5 to 50 units and the majority have capital values ranging between £2 to £20 million. Most leases are three to five years in duration, and rents typically range between £3–£8 per square foot depending upon unit size, quality and location.BUSINESS OVERVIEW03ANNUAL REPORT 2020 STENPROP 27385 17 June 2020 7:25 pm proof 1Strategic Report06Our Portfolio08Chief Executive's Report11COVID-19 & Stenprop14Marketplace16Business Model 18Stakeholder Engagement20Strategy22Key Performance Indicators24Property Reports 30Creating Value in our Portfolio34MLI Operating Platform Update38Financial Review44Risk Management 54Section 172 Statement56Responsible BusinessStrategic Report 27385 17 June 2020 7:25 pm proof 106Our Portfolio08Chief Executive's Report11COVID-19 & Stenprop14Marketplace16Business Model 18Stakeholder Engagement20Strategy22Key Performance Indicators24Property Reports 30Creating Value in our Portfolio34MLI Operating Platform Update38Financial Review44Risk Management 54Section 172 Statement56Responsible Business 27385 17 June 2020 7:25 pm proof 1Industrial3.6%Nursing Homes3.4%ce11.0%Retail82.0%61.2%Industrial6.6%Nursing Homes14.5%Retail17.7%Our PortfolioLettable area by market sectorAnnual gross rental income by market sectorRead more in our Marketplace on page 14 Swiss portfolio2.7% Asset value: £14.3mGross lettable area: 5,974 sq mAnnual gross rental income: £1.0m58.0%UK MLI portfolio Asset value: £309.0mGross lettable area: 420,483 sq mAnnual gross rental income: £22.7mGerman portfolio24.5%Asset value: £130.5mGross lettable area: 71,452 sq mAnnual gross rental income: £8.2m14.8%UK Non-MLI portfolio Asset value: £78.8mGross lettable area: 32,399 sq mAnnual gross rental income: £6.0mUK portfolio72.8% STRATEGIC REPORT06STENPROP ANNUAL REPORT 2020 27385 17 June 2020 7:25 pm proof 114.8%South East8.4%East of England11.0%Scotland4.4%East Midlands2.3%South West0.4%North East17.1%Yorkshire and the Humber3.7%South Wales25.2%North West3.4%North Wales9.3%West MidlandsOur MLI PortfolioUK geographic sector breakdown1,264UNITS4,526,041SQ FT£22.7mANNUAL GROSS RENTAL INCOME£309.0mGROSS PORTFOLIO VALUE70ASSETS58.0%OF TOTAL ASSETS28.1%Manufacturing4.9%Arts, entertainment and recreation21.4%Wholesale and retail trade; repair of motor vehicles and motorcycles14.0%Administrative and support service activities6.5%Construction19.6%Other5.5%Professional, scientific and technical activitiesTenant industry sectors of MLI Portfolio, by area07ANNUAL REPORT 2020 STENPROPSTRATEGIC REPORT STRATEGIC REPORT
Chief Executive’s
Report
Paul Arenson
Chief Executive
Officer
We have successfully delivered on our two-year roadmap
set out in 2018.
This last year has been a very positive
one for Stenprop and we are pleased
with the progress we have made during
the year in delivering on our designated
milestones.
We have brought our leverage (LTV
ratio) down to 40.8% from a peak of
more than 55% two and a half years ago.
After taking into account free cash of
approximately £70 million, our effective
leverage was down to 28% at 31 March
2020.
Our UK multi-let industrial (MLI) portfolio
ended the year at 58% of our total
portfolio. We were on track to achieve
our targeted level of 60% MLI with
some small acquisitions which we were
negotiating prior to year end, but chose
not to pursue them once the seriousness
of COVID-19 became clear.
Excellent progress has been made in
evolving our platform strategy, both
on the ground and by embracing
technology to enhance efficiencies and
enable us to manage significantly more
scale with marginal incremental cost.
We are also making good progress with
putting in place the infrastructure to
create additional revenue streams by
being able to offer other services and
products to our customer base which
they currently procure independently
from third parties.
At the same time, notwithstanding the
levels of cash held, the costs involved
in transitioning assets from non-MLI to
MLI assets and the investment in our
platform, we have delivered diluted
adjusted EPRA earnings of 6.88p per
share. Read more on the financial
performance of the Group in the
Financial Review.
Until early to mid-March, and following
our deliberate decision to accelerate
disposals, we considered our primary
challenge to be the potential reduction
in earnings from holding excess cash,
with free cash standing at approximately
£70 million at the year end. Cash was
expected to earn 0.5% compared with
generating more than 7% in earnings if
deployed into MLI with 40% leverage. A
further concern related to the potential
impact of Brexit.
With the sudden advent of COVID-19,
the challenge of cash drag on earnings
has become much less of a focus, with
large cash holdings now regarded as
extremely beneficial as companies
move to bolster their balance sheets
and ensure survival. We are pleased
to report that our strategy of bringing
down leverage, negotiating significant
covenant headroom and accelerating
our sales, notwithstanding the potential
dampening effect on earnings, has
greatly strengthened our financial
position going into the COVID-19 crisis.
Although Brexit has also faded from the
current dialogue as a result of COVID-19,
it will present challenges to the UK
economy in due course.
Our primary focus now is to maintain
a strong balance sheet to have the
ability to meet obligations through the
COVID-19 period, at a time when some
of our tenants may be struggling and
unable, or unwilling, to pay their rent.
We intend to continue to build our MLI
portfolio subject to prevailing market
opportunities.
View more online at
stenprop.com/
news/stenprop-news/
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STRATEGIC REPORT
“BUILDING A FOCUSED
SCALABLE MLI
PLATFORM BUSINESS.”
Paul Arenson
Chief Executive Officer
Whilst
COVID-19 is
causing immense
disruption to the
economy and to our
customers, we believe that the
response is also paving the way for
greater future demand for MLI units.
The internet sales and distribution
channel for all businesses will have taken
another big step forward as the whole
population has been forced into isolation
and have had no choice but to embrace
the new technologies and supply and
distribution channels. Home working
and the explosion of communication
technologies will also foster greater
ability to work in a decentralised way,
which feeds demand for MLI space.
We believe companies will reassess
their globalised ‘just-in-time’ supply
chains. It is becoming clear to many
businesses that it is not viable to rely
on geographically distant supply chains
from single undiversified sources. We
sense a desire for companies to have
greater control over supplies and easier
access, even if it means more cost. As a
result, we expect to see more demand
for MLI units as the trend for ever
increasing globalisation falters and more
is made, sourced or stored locally.
Impact of COVID-19 on
our business
Sales, purchases and debt strategy
During the year we sold three small
UK retail properties for an aggregate
consideration of £4.60 million. We also
sold our largest property in central
Hamburg known as Bleichenhof for
€160.15 million (£136.2 million).
Motivated by our belief that we could
take advantage of high sales prices in
the cycle, we took a strategic decision
midway through the year to accelerate
our sales strategy and accept the
potential reduction in earnings as a result
of holding surplus cash. We did not
want to risk utilising our revolving debt
facility to increase leverage for purchases
and find ourselves caught with higher
leverage and needing to dispose of
assets to bring leverage down.
This proved to be a good decision, as we
now find ourselves in a much stronger
financial position to deal with COVID-19.
We plan to continue with the sale of the
three Berlin daily needs centres and the
five retail warehouses in Germany. The
three Berlin centres have been marketed
and were at an advanced stage of the
sales process, with potential buyers
having completed their inspections and
preliminary due diligence, when COVID-19
struck. We anticipate that good sales
prices will still be achieved, but will
take longer to complete. The five retail
warehouses are at an early stage of the
sales process and we anticipate interest
in these assets to increase once the
German government eases their COVID-19
lockdown measures.
On the debt side, much of our
debt has deliberately been kept
short, as many assets were due to
be sold. We were also investigating
refinancing a large part of our MLI
portfolio on a seven-to- ten-year
term with insurers rather than banks,
at an estimated annual saving of
approximately 80bps in overall interest
costs. Again, this will need to be delayed
as a result of COVID-19, as finance
providers are focusing on the issues
facing existing borrowers and new
refinancings are not straightforward.
We intend to start making acquisitions
with the cash we have available as
soon as we feel the crisis is beginning
to pass and we are able to properly
understand its impact. We hope that
the crisis will create some interesting
buying opportunities. Until then we
prefer to maintain a conservative stance
and remain financially strong albeit with
lower earnings as a result of holding
surplus cash.
Performance of the UK MLI sector
The imbalance in supply and demand
continued to deliver inflation-beating
rental growth throughout the year. The
fundamentals in the sector, until the
advent of COVID-19, remained extremely
positive and we were experiencing
underlying rental growth of 4-5% for
the year.
We held the view before COVID-19
that this imbalance would continue
for a number of years, as it was not
economically feasible to build MLI
units at current rental levels and
yields. Our MLI portfolio is valued at
approximately £68.26 per sq ft which in
our view approximates to 50% to 60% of
replacement cost of these assets. On the
demand side we were seeing more and
more new types of businesses, enabled
by the internet, wanting space in MLI
units. These are occupiers which have
not previously occupied MLI space and
are now realising the value of affordable,
flexible space close to towns and cities.
ANNUAL REPORT 2020 STENPROP
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27385 17 June 2020 7:25 pm proof 1
STRATEGIC REPORT
Chief Executive’s
Report continued
Strategy for the MLI business
Our overall strategy remains to become
a 100% focused UK MLI business. We
are well advanced with that transition
and will continue to sell our non-MLI
assets as soon as markets return to some
form of normal functioning. The initial
assets to be sold are our three daily
needs Berlin centres and our five small
standalone retail warehouses. We remain
confident that these will sell well when
normal market conditions resume, based
on offers received before COVID-19.
We also will use part of our free cash
of approximately £70 million to make
further MLI purchases as soon as it is
economically sensible to do so.
In addition to the transition, our strategy
is to invest in and build a market leading
technology enabled MLI management
platform. We believe the UK MLI sector
is ready for this in much the same
way as platforms have transformed
the risks, efficiencies and valuations
in other sectors like self-storage,
student accommodation and hotels.
Our intention is to continue with the
investment into this during this year
and future years.
Conclusion
We are confident that we have a strong
balance sheet and cash reserves to
weather the COVID-19 storm.
We also have sufficient capital in the form
of saleable non-MLI assets to implement
our business plan and are not reliant on
needing to raise new capital for this.
Our focus during the COVID-19 crisis will
be on assisting our customers and on
building our management platform. Once
the crisis has passed, we will endeavour
to be quick out of the blocks with selling
our non-MLI assets and completing our
transition into a 100% MLI business.
The fundamentals of the MLI asset class
remain very positive in the medium
to long term. We believe Stenprop is
well positioned to benefit from these
fundamentals and to take a strong leap
forward when the COVID-19 crisis passes,
as it inevitably will.
We take this opportunity to thank all of
our stakeholders and our Board for their
support. In particular we wish to thank
our staff who have adjusted magnificently
to working from home and to managing
the relationships with our customers
through these challenging times.
Paul Arenson
Chief Executive Officer
11 June 2020
Outlook for the year
COVID-19 has had a significant impact
on our priorities for the coming year.
Before COVID-19 our focus was largely
on delivering earnings and dividends
to shareholders whilst transitioning
the business. The immediate focus has
now changed to that of ensuring that
Stenprop maintains its robust financial
health in order to be able to withstand
the challenges arising from COVID-19.
A strong balance sheet and vigilant
risk management are vital to ensure we
successfully navigate through this period.
As outlined earlier in this report, our
past risk management has ensured
that we go into this crisis with a
strong balance sheet and a cushion
of approximately £60 million of free
cash (after paying the final dividend of
approximately £9.6 million). As such,
we are confident that our survival is not
under threat.
We are also focused on how our
earnings will be impacted during the
period and at this stage it is too early
to provide further meaningful detail.
We have provided regular update
announcements on our rent collection
statistics and readers can read more
about the financial impact of COVID-19
on the business on page 11.
The diversity of our customer base,
both as to type of business and region,
has contributed to a high degree of
resilience on the part of our portfolio
during COVID-19 as different businesses
are impacted in different ways.
Fortunately, most have been able to
continue in business, albeit at reduced
levels in many instances, as the MLI units
allow for social distance working and
most businesses in MLI have some
form of e-commerce component
either being part of the
distribution chain or as
part of an online sales
channel.
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STRATEGIC REPORT
COVID-19
& Stenprop
Stenprop entered the COVID-19 pandemic on the back of record levels of occupational
market interest in the MLI portfolio and the successful completion of the sale of the largest
building in the portfolio, Bleichenhof in Hamburg, for €160 million. As a result, the business is
in a strong position from a financial perspective, with c. £60 million of free cash (after paying
the final dividend of c. £9.6m), and low leverage. To date, the impact on the business can be
summarised in the following three ways:
Financial
Valuations across the portfolio have
remained largely flat for the year ended
31 March 2020. However, since the
lockdown was put in place we have
seen a fall in rent collections across the
portfolio. The statistics for the portfolio
as at 31 May 2020 were as follows:
Quarterly Rents
34.3%
UK non-MLI
100% collected
65.7%
UK MLI
83.0% collected
17.0% outstanding
Monthly Rents
41.9%
UK MLI
67.6% collected
32.4% outstanding
6.9%
Switzerland
100% outstanding
51.2%
Germany
81.0% collected
19.0% outstanding
Operational
The requirement in the UK to work from
home where possible has resulted in
all Stenprop staff working from home
since 16 March 2020. This transition
from a largely office-based culture
prior to lockdown has gone well, as
during 2019 we migrated all our systems
into the cloud and transferred all staff
onto laptops with a remote working
policy. As a result, we have experienced
minimal disruption to our operations
since working from home, and our
systems and processes have required
no intervention in order to adapt to the
change in working practices. Stenprop
did not furlough any employees and did
not make any employees redundant as a
result of COVID-19, and we do not expect
that this will be necessary.
On the ground we have continued to
conduct viewings and complete leases
through our network of Customer
Engagement Managers (CEMs). For
the period from 23 March 2020 when
lockdown commenced to 31 May 2020,
we completed 23 new leases across our
UK MLI portfolio, with a total rent roll
value of £673,272 per annum, including
one on a rent free basis to a food bank
charity in Cardiff supplying meals to the
NHS. Having our own network of CEMs
played a critical role in this, as in many
instances our letting agency partners
were unable (due to being furloughed)
to conduct viewings and deal with
enquiries. The ability to generate
leads through our own website and
through our call centre have also been
a critical component of continuing our
engagement with potential and existing
customers.
Strategic
The decisions to reduce leverage and
speed up the disposals of our non-MLI
assets in Germany during 2019 have been
very beneficial in light of the COVID-19
pandemic. Stenprop is currently well
positioned with c.£60 million of free cash
(after paying the final dividend of c. £9.6
million), available for deployment into
suitable MLI investments in the UK and a
low LTV of 40.8%. The UK MLI portfolio
continues to perform well during the
crisis. We expect our MLI customers
to be able to return to work relatively
quickly as the lockdown conditions relax
in the UK. We believe that the long-
term outlook for MLI in the UK will be
enhanced by this pandemic (see below),
but in the meantime a mixed portfolio
of assets is providing the company with
additional income and capital diversity
whilst the current volatility in markets
and political responses unfold.
Our strategy for dealing with the
COVID-19 pandemic is as follows:
f Short term (March-May 2020)
In the first few weeks of lockdown in
late March and early April we moved
swiftly to reassure our UK MLI customers
that we would support their businesses
and requested that they get in touch if
they were going to be unable to meet
their rental obligations. We then moved
on from this position to offer those
customers who were unable to pay their
rents the option of deferring half of their
monthly or quarterly rent for six months,
so long as they paid the other half
immediately. Over the course of the first
six weeks of the lockdown we spoke to
the majority of our customers who were
unable to meet their rental obligations
with a view to gathering information on
their specific business circumstances.
ANNUAL REPORT 2020 STENPROP
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STRATEGIC REPORT
COVID-19
& Stenprop continued
To date we have only offered very limited
rent concessions, and in those instances
to customers whose businesses have
been completely halted by the virus lock
down (such as those in leisure).
We have continued discussions on the
sale of our German retail shopping
centres where demand remains strong.
f Medium term (June 2020 to
December 2020)
As the lockdown measures have relaxed
we have seen the majority of our
customers able to resume business. In
Europe most of our properties were
open and trading (including the leisure
operators albeit on a reduced basis) by
the middle of May, and in the UK we have
seen significant activity amongst our MLI
customers as they resume trading. It is
inevitable that different types of business
will be impacted in different ways, and so
each rent arrears position will need to be
assessed on its own merit. We expect to
recover most arrears through deferred
payment plans or by reaching
other compromises such as
lease extensions, future
fixed uplifts or other
revised lease
terms.
Where rent concessions are appropriate,
we intend to reach settlements swiftly
and without delay, so that the focus of
the business can return to managing
the day-to-day activities of the portfolio
and to address inevitable economic
challenges that we will face in the post-
COVID-19 economy. We also intend to
maintain higher levels of capital reserves
on the balance sheet whilst uncertainty
remains, but we intend to resume MLI
acquisitions where opportunities arise
which offer the right risk-adjusted
returns.
f Long term (January 2021 and
beyond)
We believe that the MLI sector in the
UK will be impacted by any significant
UK recession. However, the supply
constraints in the market and relatively
low rental levels should mean that
rents remain resilient. The high levels of
diversification in customer type, size and
location across the MLI business should
also provide a degree of protection.
We believe that MLI property provides
businesses with the opportunity to trade
in a socially distanced, compliant way,
and that demand for urban industrial
and logistics property will grow. We
intend to continue with our transition
into being a 100% focused UK MLI
business, with further sales in Germany
and Switzerland.
The Long-term Outlook for
MLI in the UK
Prior to COVID-19, the drivers behind
MLI growth in the UK were two-fold: a
limited supply of MLI properties and a
growing occupier base. We do not see
these fundamentals changing in a post-
COVID-19 world, and if anything, believe
that the demand for MLI will increase.
Supply
Supply of MLI remains very tight as a
result of limited land in and around town
centres which are zoned for industrial
use. In addition, whilst the cost of
building an MLI estate remains materially
higher than that of constructing a single
large industrial unit (which will also
attract more favourable funding options),
we expect any new supply of industrial to
predominantly comprise larger single-let
‘urban logistics’ properties which do not
target the SME sector in general. Finally,
we continue to see significant erosion of
MLI supply as more secondary properties
are redeveloped into residential use due
to their densely populated locations and
relatively low land values.
“MLI IS THE BACK OFFICE
OF ONLINE BUSINESSES,
OFFERING AFFORDABLE,
FLEXIBLE BUSINESS SPACE
CLOSE TO MARKET. WE EXPECT
TO SEE THE GROWTH IN DEMAND
WE’VE WITNESSED OVER THE LAST DECADE
CONTINUING AS THESE E-COMMERCE
BUSINESSES ACCELERATE.”
Julian Carey
Executive Property Director
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STRATEGIC REPORT
Demand
Whilst a UK recession as a result of
COVID-19 will inevitably impact UK SME
businesses, we believe that in the long
term the impact of the pandemic will
be to accelerate the existing trend of
more SME businesses moving into MLI
accommodation. MLI properties offer
occupiers the ability to do a wide range
of different activities from a single
premises, close to market and at a low
cost. For example, the owner of a retail
business can move to a MLI unit where
they can house their office, storage,
online distribution and showroom in a
single place, with ample parking outside
and all for a rent which is typically
10-50% of what they would be paying
in a retail or office property in a similar
location.
The virus has forced most businesses
to accelerate their online offering
and has motivated many to explore
a greater degree of remote working.
MLI properties work well for these
kinds of enterprise, which require an
accessible location married with flexible
space which can easily accommodate
a shifting balance between storage,
distribution, office and retail uses.
With other trends such as greater
onshoring of activities, companies
holding more inventory and the
Government’s push towards greater
regionalisation in the UK, we believe
that MLI is well placed to capitalise on
the accelerated long-term shift in the
behaviour of businesses and consumers
caused by COVID-19. Supply constraint
will remain a structural feature of the
market for the foreseeable future, and
hence we expect to continue to see
sustainable growth in MLI rents in
the future.
Case study
COVID-19 impact - Call centre
enquiries to the end of May
Call centre leasing calls
Article 50
Extension
signed
(12/04)
Theresa May
resigned
(24/05)
Boris Johnson
confirmed
leader
(23/07)
Conservative
win General
Election
(13/12)
Coronavirus
pandemic
declared
(11/03)
General
Election
confirmed
(31/10)
Signs of a
recovery?
(11/05)
60
40
20
0
1/1/19
1/4/19
1/7/19
1/10/19
1/1/20
1/4/20
actual call numbers
trend
We constantly measure and observe
the number of customer interactions
we have across the internet, phone,
email and social media. Looking back
across 2019 we have been able to track
the rise and fall of leasing enquiries
against the political backdrop, and
more recently against the lock down.
We have noted that since the lock
down occurred in the UK at the end
of March that there has been a steady
increase in leasing enquiries, and that
a higher degree of these calls result in
viewings. The above graph illustrates
this and shows promising signs of an
increase in business activity in the UK
during May, with overall enquiry levels
now back on a par with early 2020.
We await to see how much of this
translates into actual leasing, but the
levels of interest are encouraging to
see.
ANNUAL REPORT 2020 STENPROP
13
27385 17 June 2020 7:25 pm proof 1
STRATEGIC REPORT
Marketplace
Marketplace and
macroeconomic environment:
The year ended 31 March 2020 can be
split into three distinct parts. Initially
we had ongoing Brexit uncertainty with
moving deadlines and red lines, which
became blurred. This translated into low
transaction volumes as investors and
vendors awaited clarity.
This changed with the result of the
election in December when it seemed
we were trending towards a period of
increasing stability. Politically, there was
a clear direction of travel in the Brexit
process and GDP growth was steady at
1.4%. Businesses and investors seemed to
be in a position to be able to make longer-
term, and better informed decisions,
and this translated into increased levels
of opportunity in January and February
2020.
This fragile improvement in circumstances
was shattered by the COVID-19 pandemic
which all but shut down economies
globally, and required businesses to alter
future strategies and investments. The
medium and long term impact of this
remains to be seen, but what will be key
is how quickly economic output can be
increased safely, within the parameters of
an acceptable risk.
MLI sector and a
competitive landscape:
Investing in MLI remains competitive.
Capital from a wide range of sources
continues to chase exposure to industrial
property as again it was the best
performing sector in the 12 months
to December 2019. There has been a
change in these total returns, with capital
growth as a result of yield compression
forming a much smaller element of total
returns. If this trend continues it may
mean that short-term investors with an
IRR-driven model, struggle to make a
case in this sector and operators with a
longer-term strategy have more success
in acquiring stock.
As specialist investors in the MLI space
we have a deep understanding of the
important metrics for each opportunity.
This allows us to make decisions swiftly
and underwrite opportunities accurately
with the experience of management and
data generated by our existing portfolio.
Stenprop is well capitalised and, as
such, is an attractive proposition in a
competitive bidding situation.
United Kingdom
Market trends
f Brexit related uncertainty
continued throughout 2019 and
into 2020. Notwithstanding this,
gross domestic product in the
UK grew 1.4% in 2019, marginally
ahead of forecasts
f CPI remained below the Bank
of England 2% Target and this
translated into real earnings
growth
f Unemployment was stable at
historic low levels of 3.9% for
the period January-March 2020
according to figures released by
The Office of National statistics
in May 2020
Read more on our performance on
pages 20 to 22
14
STENPROP ANNUAL REPORT 2020
27385 17 June 2020 7:25 pm proof 1
STRATEGIC REPORT
Case study
How is Stenprop innovative within
its marketplace?
Stenprop has completed 23 MLI
transactions (single estates and
portfolios) since the original Industrials
MLI portfolio was acquired in 2017.
These have been acquired from a
wide range of vendors including UK
Institutions, listed property companies,
private equity Investors and individual
investors.
Seven of these acquisitions were from
high-net-worth individuals or family-run
property companies and a further two
were from non-traditional real estate
investors. Acquiring from these types
of investors does provide challenges.
In many instances they have been in
the same ownership for a long period
of time and have not been run on a
traditional basis. In addition, tenant
occupation may be documented
informally, or in some cases not at
all. There is often no formal service
charge regime in place and gaining
clarity of the true income position can
be problematic. What we have found
is that often these estates have been
maintained to a very high standard.
Tenants are highly committed and
have been long-term occupiers. These
acquisitions often take time to complete
as information comes in gradually
and bringing the management in line
with our wider portfolio can be time
consuming. However, there is significant
upside opportunity. There is generally
an opportunity to drive rental growth
from a low base and reduce the net-
to-gross leakage by a formal service
charge regime or introduction of a fixed
maintenance charge. We have also seen
initial strong capital growth as tenant
occupation is formally documented. In
one instance, where 75% of the income
was undocumented, we worked with
the vendor to agree new leases based
on the Smart Lease with 29 tenants,
and between exchange and completion
26 of these leases completed, vastly
improving the income position of
the estate. Our network of CEMs
(Customer Engagement Managers) is
also invaluable on estates such as these.
Tenants are often used to a strong
landlord presence and we are now in a
position to continue to provide this.
As we grow the portfolio, we will
inevitably continue to acquire assets
from a range of vendors, but also
continuing to identify opportunities
as illustrated above through our
strong network of regional agents will
help drive both capital and income
performance across the portfolio.
ANNUAL REPORT 2020 STENPROP
15
27385 17 June 2020 7:25 pm proof 1
27385 17 June 2020 7:25 pm proof 1AcquireSellReinvestInputsOur businessFFlexi-lease ModelFinancial capital Ability of our Company to fund its activities at an optimal cost and invest appropriatelyIntellectual capital Our Company’s ethos and strategy combined with the experience of the senior team is critical to its ability to enhance value and grow the businessManufactured capital Capital expenditure invested in our assets to generate cash flow from property and rental income which will result in capital appreciation management. Growing occupancy and net rent to increase revenue at each estateSocial and relationship capital We recognise that our operations can have significant impacts and we hold the organisation to behave as an exemplary corporate citizen and proactively manage relationships with stakeholders and shareholders during the year Human capitalStrategic planning of Stenprop’s future and simultaneous head hunting of key talent to deliver and meet those objectives. To diversify and strengthen the experience, knowledge and skill of our employees and partners to deliver a sustained track record and commitment to our business growthNatural capital We incorporate our sustainability agenda into our wider business goals. We have taken a proactive approach to take steps to use both renewable and non-renewable environmental resources responsibly Our business is supported throughout by strong portfolio management. We have an experienced team, a strict governance approach, a focus on sustainable investment, a clear debt management programme and an active approach to using technology to enhance and streamline the process.BusinessModelVery specific set of requirements to acquire f Modern purpose-built MLI assets fWell located within or close to dense urban conurbations fAsset-specific business plan to grow rents over time fRecycle non-MLI assets in line with strategy fRetain our MLI properties for the long termAActive Asset ManagementIncreasing the presence and position of the Industrials platform through strategic digital marketing and operating practices Customer focusedSTRATEGIC REPORT16STENPROP ANNUAL REPORT 2020 STRATEGIC REPORT
Our business
Output
Value generated
Our Values
Customer
focused
Results
oriented
Innovative
Decisive
Sustainable and growing
income for Stenprop
Significant diversification by
tenant, geography and scale
Deleverage
Creation of long-term
customers through strong
service provision, brand loyalty
and customer feedback
f Reduce gearing in line
with strategic goal
Enhanced income
through implementation
of flexi-lease product
S
Serviced
Industrial
T
Technology
Developing technology as the
backbone of our operating
model and driving cost
efficiencies across the portfolio
Generation of additional
revenue streams through
the delivery of services
beyond the sale of space
Read more about the value generated
on page 30 to 33
27385 17 June 2020 7:25 pm proof 1
Financial capital
Permanent capital and scale enable us
to build a management platform for
long-term sustainable earnings growth,
rather than being focused on short-term
goals and IRR-driven targets
Intellectual capital
Leveraging Industrials.co.uk platform
to generate new prospects, principally
from our digital, mobile and desktop
platforms means there is potential to
grow reach and market penetration
through the brand’s growth. Creating
a strong brand that is a powerful and
recognisable to tenants and investors
alike
Manufactured capital
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. As we
transition to 100% MLI there will be a
focus on cost control in order to grow
revenue which is determined by earnings
growth
Social and
relationship capital
Understanding the needs and concerns
of our key stakeholders ensures that
we can examine our approach to better
support these groups
Human capital
We have an experienced, diverse
and talented team from a range
of disciplines. We are focused on
building and investing in our people to
maximise performance and return
Natural capital
Using our asset management platform
and the service industry model we
aim to promote not just our own
sustainability agenda but also that
of our customers to make a wider
impact on the community occupying
our estates
ANNUAL REPORT 2020 STENPROP
17
27385 17 June 2020 7:25 pm proof 1StakeholderEngagementWorking in partnership with our stakeholders At Stenprop we have identified and invested in our communication with our stakeholders. We have more than 1,700 shareholders, over 900 customers, a team of colleagues and numerous business partners, service providers and lenders with whom we have common interests or share risks and benefits. We are active in the growing number of communities where our properties are located. Our interaction with our key stakeholders is fundamental to the successful implementation of our strategy. Partnerships have always been a key part of our business ethos, and we maintain strong relationships built on our core values of transparency, trust and integrity ensuring value and sustainable growth. Stakeholder How we engage Value generated Shareholders fThe annual general meeting fAnnual report and half-year results fWebinar of half-year and year-end results fInvestor meetings and presentations fStenprop website fRegular news and topical blogs fSocial Media fConsistent dividend fDelivering on our KPIs fClearly defined and understood model and business proposition fRegular market updates fEngage directly with shareholders and their concerns Business partners fWeekly/monthly/quarterly meetings fOn-site meetings fUsing technology platforms fPerformance reporting fEnables clear direction and goal setting fDefined action plan linked to tangible tasks identified in the field fLeveraging technology to innovate standard communication lines fMeasuring success against past objectives and future goal settingCustomers fCustomer surveys fOn-site meetings via our Customer Engagement Manager network fBranded marketing collateral fSocial media fIndustrials.co.uk fTelephone, email and live chat fObtaining feedback to help improve service level offered to customers fDedicated resource to engage with customers to understand how our space works for them in line with their aspirations and business needs fEnhanced brand awareness through branded collateral – welcome packs, leasing guides and blog posts fEnables mass marketing and communication as well as promoting our customer services and offeringsEmployees fStenprop seeks to promote employee well-being and a culture focused on results and decisiveness, learning and innovation fOngoing dialogue via team meetings, encouraging open and constructive discussions with all employees fAppointment of a designated director with responsibility for engagement with employees fInnovation to ensure we are at the forefront of an evolving market place fA strong culture to ensure our employees are engaged and passionate about their work fAttract best-in-class people fNimble business capable of reacting to the fast- changing market environment through decisive thinking and adoption of new technologiesLenders fMaintain regular dialogue with all incumbent lenders fClear, transparent reporting on a regular basis fEnsure strong network of contacts maintained with relevant banks and lenders across the market place fAwareness of the changing lending landscape and of new and alternative products that are relevant to our evolving business fMaintain a competitive cost of capital fManage risk across our lending book through transparency and communication fAbility to evolve our lending model to deliver a stable and robust capital structureSTRATEGIC REPORT18STENPROP ANNUAL REPORT 2020 27385 17 June 2020 7:25 pm proof 1Case studyCustomer Engagement Manager – UK Roll Out In March 2019, we created a position for our first Customer Engagement Manager (CEM). The CEM role is focused on: fImplementing standardised marketing and branding across assets; fReceiving new leads and enquiries; fConverting new leads to customers; fManaging and enhancing customer relationships during the lease term.Implementation of the role has been a resounding success. It has enabled us to interact and transact directly with our customers to help them occupy our space more quickly. The closer relationship empowers us to be more alive to our customers’ business requirements and be more proactive to changing needs. Furthermore, delivering transactions directly can unlock additional cost savings per transaction in comparison to a standard out-sourced agency instruction.We have rolled out three further CEM positions across the UK during the year, to include the Midlands from November 2019 and both Scotland and Yorkshire/North East which went live in January 2020. We envisage another placement this year to cover the South East and South West.19ANNUAL REPORT 2020 STENPROPSTRATEGIC REPORTScotlandNorth EastNorth WestThe Midlands 27385 17 June 2020 7:25 pm proof 1StrategyStrategyAlthough our primary focus at present is to manage our business through the COVID-19 period, our overriding medium to longer-term objective remains to deliver sustainable and growing income to our shareholders. Our intention is to become a 100% focused UK MLI business over the next two years.Strategy Priorities for FY21 fMaintain a strong balance sheet through the crisis. Free cash is approximately £60 million (after payment of final dividend of c. £9.6 million) fMaintain direct and regular communication with all customers across the country through on-the-ground customer engagement managers and asset managers fUtilise cloud-based customer relationship management tools to log calls and build up comprehensive customer data, to enable us to roll out bespoke and appropriate solutions fImplement agreed changes to leases and have them executed digitally using our online leasing strategy fMarket more flexible lease offers and accommodate tenants needing short term space fMonitor cashflows and liquidity needs with a view to balancing holding surplus cash, against judicious deployment into MLI acquisitions fMaintain ongoing communication with all staff working from home with particular focus on their wellbeing, safety and ability to work effectively and collaboratively within their teams and with other counterpartiesStrategic goals set for FY20 f Dispose of £140 million of non-MLI properties fAcquire £95 million of MLI estates taking total MLI component to more than 60% of our overall portfolioPerformance over the past year fAll targeted disposals achieved. The total sale prices achieved were ahead of total valuations fA total of £38.8 million was spent on acquisitions resulting in the portfolio being 58% MLI, slightly less than hoped for as a result of Brexit and COVID-19Priorities for FY21 fGoal to become 100% focused UK MLI business over the next two years fAccelerate the sale of the German assets of the Group fResume the MLI acquisition programme with a targeted £25 million of additional MLI acquisitions per quarter as soon as possible following the end of the COVID-19 lockdownthrough the COVID-19 crisislevels, debt and cashflowsManaging our business proactively managing liquidity Capital Management-Recycling of assets – selling and buyingplatformMulti-let industrial STRATEGIC REPORT20STENPROP ANNUAL REPORT 2020 27385 17 June 2020 7:25 pm proof 1Strategic goals set for FY20 fInvest further into evolving our operating platformPerformance over the past year fCustomer engagement strategy rolled out with four regionally-based CEMs employed fNew CRM platform launched to aggregate all online, physical and telephone enquiries fSmart Lease rolled out on all smaller lettings resulting in significantly shorter vacancy periods and lower costs fExtensive evolution of our digital marketing platform and direct leasing capabilitiesPriorities for FY21 fTo become the leading operator of UK purpose-built MLI assets by continuing to invest in a technology-enabled MLI operating platform fDerive greater efficiencies and create additional revenue streams by offering existing customers a range of additional products and services fManage the Company’s assets more efficiently and scale up the portfolio with marginal incremental costStrategic goals set for FY20 fUtilise proceeds from sales to reduce overall leverage to no more than 40%Performance over the past year f Part of proceeds used to reduce leverage to targeted level of 40% fAs a result of Brexit and COVID-19, we held greater cash balances for longer fFree cash is approximately £60 million (after payment of the final dividend of c. £9.6 million), part of which will be held to manage the Company through the COVID-19 crisisPriorities for FY21 fMaintain adequate cash reserves and manage cashflows through the COVID-19 period fMaintain gearing at no more than 40% LTV levels excluding unrestricted cash fKeep in close contact with lenders and monitor covenants continuously fBe ready to start deploying surplus cash for MLI acquisitions as soon as commercially sensibleDespite the immediate uncertainties created by COVID-19, we remain confident that the UK multi-let industrial (MLI) sector will continue to deliver superior rental growth over many years to come. The fundamentals remain positive with the imbalance between supply and demand likely to continue for a number of years. Supply continues to be restricted and demand continues to be fuelled by the move to online business.through the COVID-19 crisislevels, debt and cashflowsManaging our business proactively managing liquidity Capital Management-Recycling of assets – selling and buyingplatformMulti-let industrial 21ANNUAL REPORT 2020 STENPROPSTRATEGIC REPORT 27385 17 June 2020 7:25 pm proof 18.84p9.09p6.88p2019201820206.75p8.00p6.75p20192018202042.7%20.1%58.0%201920182020E. Group Loan-to-value (LTV) %44.2%49.2%40.8%201920182020£1.41£1.41£1.39201920182020Stenprop monitors its performance in achieving its strategic goals as laid out in the strategy section. These are detailed below and include financial and non-financial indicators.KPIsDiluted adjusted EPRA Earnings per share (pence)Distribution per share (pence)Diluted EPRA NAV per shareMLI Portfolio %Group Loan-to-value (LTV) %Calculated in accordance with European Public Real Estate Association (‘EPRA’) guidelines, after company specific-adjustments, diluted adjusted EPRA earnings per share measures the level of underlying operating earnings which support dividend payments. It excludes components not relevant to core earnings performance of the portfolio such as fair value property adjustments and gains/losses on disposals. (See note 14 to the financial statements).Read more about adjusted EPRA earnings per share in the Financial ReviewProgressDiluted adjusted EPRA earnings per share declined in line with expectations primarily due to: (i) Stenprop’s previously stated strategy to withdraw from its historic fund management business. In the current year net management fee income was £0.6 million (2019: £5.8 million representing earnings per share of 2.05p); (ii) the decision to reduce leverage which lowers earnings. Stenprop has stated its intention over the next few years to sell all, or substantially all, of its non-MLI assets, to build a focused UK MLI business; and (iii) holding large cash balances during the year resulting in ‘cash drag’ insofar as cash returns are less than 0.5% compared with property returns of approximately 7%. The impact of this strategy on earnings in the transition period depends on a number of factors, including the timing and terms of commercial transactions and the implementation of the deleveraging strategy.Link to strategy fRecycling of assets fDeleverage fMulti-let industrial platformLink to risk3567891011Distribution per share is the total distribution per share that Stenprop makes to shareholders in respect of the financial year. Distributions are paid twice yearly.Progress The 2020 full year dividend is fully covered by earnings.Link to strategy fRecycling of assets fDeleverageLink to risk367EPRA NAV per share includes properties and other investment interests at fair value and excludes items not expected to be realised in a long-term investment property business model (most notably derivative financial instruments and deferred tax).ProgressStenprop’s diluted EPRA NAV per share decreased slightly to £1.39 as at 31 March 2020 (2019: £1.41). This broadly reflects sales costs and the crystallisation of deferred tax liabilities on the disposal of non-MLI propertyLink to strategy fRecycling of assets fMulti-let industrial platformLink to risk8910The percentage of Stenprop’s total property portfolio reported in sterling as represented by MLI properties.Progress Stenprop is delivering on its strategy to build its MLI business and has made steady progress through the acquisition of 10 MLI estates during the year ending 31 March 2020. At year end, the MLI portfolio was valued at £309.0 million.Link to strategy fRecycling of assets fDeleverageLink to risk3510The LTV ratio is the total Group borrowings as a percentage of the total property portfolio value.ProgressIn accordance with its strategy to deleverage its portfolio, Stenprop reduced its group LTV to 40.8% at 31 March 2020.Link to strategy fRecycling of assets fDeleverageLink to risk54STRATEGIC REPORT22STENPROP ANNUAL REPORT 2020STENPROP ANNUAL REPORT 202022STRATEGIC REPORT 27385 17 June 2020 7:25 pm proof 1“STENPROP IS DELIVERING ON ITS STRATEGY TO BUILD ITS MLI BUSINESS.”23ANNUAL REPORT 2020 STENPROPSTRATEGIC REPORT STRATEGIC REPORT
Property Report
United Kingdom
Julian Carey
Executive
Property Director
Market environment:
Brexit-related uncertainty continued
until the UK General Election in
December 2019, which produced a
significant Conservative majority and
with that, a clear direction of travel in
the Brexit process. This culminated in
the UK leaving the European Union on
31 January 2020 and entering into the
‘Transition Period’.
The gross domestic product in the UK
grew 1.4% in 2019 slightly ahead of
the forecast rate of 1.2%. The Bank of
England base rate was steady at 0.75%
until March 2020 when it was cut to
the all-time low of 0.1%. The fate of
Sterling tracked the Brexit process for
the most part, re-bounding against major
currencies as more clarity emerged
following the election. Since the
beginning of March 2020 it had fallen
sharply against both the US Dollar and
the Euro, albeit with some recovery by
the end of the month. Inflation (CPI)
fluctuated between 1.4% and 2% in the
financial year to March 2020, which is
below the Bank of England’s 2% target,
and contributed to real earnings growth.
In the most recent available figures for
the three months to January 2020, in
real terms annual growth in both total
pay and regular pay is estimated to be
1.5%. This is down from a recent peak
of 2.0% in the three months to June
2019. Unemployment was stable at the
lowest level since 1975 at 3.8% and 3.9%
until March 2020. Other available data
suggests that this will rise significantly
in the next official release of information
as the impact of COVID-19 begins to
impact businesses and employment.
The Government furlough scheme has
mitigated this to some extent, but the
ONS shows that the claimant count in
April rose by 856,000 to 2.1 million, the
biggest monthly rise on record.
Total returns by sector:
There continues to be significant
capital ready to be deployed in
the property market across
most sectors. Asset
“INDUSTRIAL WAS
AGAIN THE BEST
PERFORMING SECTOR
PROVIDING TOTAL RETURNS
OF 7.6% COMPARED TO A
MARKET AVERAGE OF 2.2%”
Julian Carey
Executive Property Director
24
24
STENPROP ANNUAL REPORT 2020
STENPROP ANNUAL REPORT 2020
27385 17 June 2020 7:25 pm proof 1
managers raised more than €200 billion
(£175 billion) in 2019 to invest in real
estate – up 24% on the amount raised
in 2018 with €73 billion. Only 60% was
invested by the end of the year and due
to the hiatus in investment activity since
the beginning of the year much of this
will still remain undeployed.
When liquidity returns to the investment
market this weight of capital may help
to support pricing in some sectors that
may otherwise have been affected by
the ongoing COVID-19 and associated
economic crisis.
The UK commercial property market
performance has slowed compared to
the year ended March 2019. According to
CBRE, total returns for all property fell to
2.2% compared to 6.3% for the previous
year. Retail again limited this growth with
a -6.2% return, whilst all other sectors
remained positive.
Industrial was again the best performing
sector providing total returns of 7.6%
compared to a market average of 2.2%
(down from 18.1% at the end of the year
in 2019). Total industrial returns were
dampened with limited capital value
growth of 2.5%, compared to 12.4% a
year prior, whilst returns from rental value
growth were more consistent at 3.1% vs
4.2%.
Due to the current macroeconomic
volatility, making assumptions for the
forthcoming year is difficult at this time.
We anticipate that the industrial sector is
well placed to re-open with more scope
for social distancing in the work place
due to lower employee volumes and lack
of ability to work from home. If investors
can get comfortable with the changes in
the occupational market, then their ability
to underwrite deals with confidence
will lead to some increase in transaction
volume. What remains to be seen is what
the impact on capital values will be and if
there will be any distress in the industrial
sector to drive this. At present due to a
lack of transactions there is no evidence
to support a material change in pricing,
although some deals are being structured
to provide purchaser protection by way
of rent cover for rent arrears.
Remaining non-MLI assets:
During the year we sold our last
remaining retail property in the UK,
65 Victoria Street, Grimsby. The property
was let to New Look which had entered
into a CVA in 2019. We engaged with
New Look and agreed to re-gear the
lease, implementing a new five-year term
STRATEGIC REPORT
“WE CONTINUE TO
ACQUIRE ATTRACTIVE
MLI ESTATES AT A
SIGNIFICANT DISCOUNT TO
REPLACEMENT COST”
from September 2019 to reposition the
income profile in advance of the sale of
the asset in December 2019.
A number of lease expiries are falling
due in the near term on the single-let
industrial units. We are in the advanced
stages of negotiations with John
Menzies PLC to renew their lease on an
industrial/distribution facility in Sheffield,
and remain in ongoing negotiations
with Booker Limited regarding their
occupation of two properties in
Worcester and Merthyr Tydfill. Two
remaining lease expiries are falling due in
the medium term in Reading and Ashby-
de-la-Zouch and we continue to monitor
options available with both tenants.
At Trafalgar Court, Guernsey there is a
rent review with our largest tenant later
this year, and we are already actively
engaged in seeking a settlement.
The remainder of the non-MLI assets
held in the UK will be sold over the next
two years to facilitate further investment
into MLI. Non-MLI assets comprise 20%
of our UK portfolio by value. These UK
assets are made up of the following:
f £57.5 million – an office block in
Guernsey known as Trafalgar Court
f £21.3 million – five single-let industrial
units
MLI portfolio acquisitions
since April 2019:
Stenprop has concluded the acquisition
of ten estates during the financial year
for a total figure of £36.2 million and a
number of additional units on already
owned estates for £2.6 million.
These acquisitions equated to 504,000
sq ft of MLI space across 195 units with
a passing rent at acquisition inclusive
of guarantees of £2.76 million per
annum, equating to an average rent of
£5.50 per sq ft. The acquisition price
reflected a capital value per sq ft of
£76, reflecting an approximate discount
of 40% to estimated replacement cost.
The individual estates were purchased
from a range of vendors: listed entities,
property companies and high net-
worth individuals. They represent a
diverse geographical spread: located
in Warrington, Brighouse, Glasgow,
Huntingdon, Bridgwater, Edinburgh,
Middlesbrough, Deeside and Sheffield.
The estates offer a strong tenant mix
with excellent rental growth and asset
management opportunities and fit
well with our investment strategy of
purchasing modern, purpose-built
MLI. Stenprop curtailed
investment activity at the start
of March due to the difficulty in
underwriting assets during COVID-19
and in order to preserve cash. Stenprop
continues to actively monitor the market
and the wider economic and social
implications and is well positioned to
re-enter the market and continue to
acquire multi-let industrial in line with
our investment criteria and complete the
transition to becoming a 100% UK multi-
let industrial business.
Investment pipeline:
The industrial investment market was
quiet during the course of the last
financial year, and as a result Stenprop
reviewed c. £1.4 billion of potential MLI
acquisitions, down from c£2.6 billion in
the previous year. We appraised each
of these opportunities with reference to
our strict investment criteria, and bid on
approximately £250 million of potential
opportunities. There continues to be
a lack of portfolios and lot sizes are
smaller than we have seen in previous
years. In the first quarter of 2020 (prior
to COVID-19) we saw improved deal
flow and liquidity in the market. Many
of these opportunities were withdrawn
from the market as running a sale
process became increasingly difficult,
and they are likely to become available
again when normality returns to the
investment market. Across the whole
UK investment market in FY2020 Q4
the headline figure showed a reduction
in investment volume of only 7%
against the five-year average, but this
was distorted by the UK’s largest-ever
property deal, namely the iQ Student
portfolio acquired by Blackstone for
£4.66 billion. With this stripped out
volumes for the quarter were at their
lowest level since 2012 and the number
of deals was 25% down on the quarterly
average, (LSH Research). For this quarter
compared with the equivalent in 2019 all
industrial deal volumes were down 46%
with the sub-sector most equivalent to
a UK MLI strategy (Non SE Industrial,
excluding distribution warehousing)
down 73%.
Our pipeline is driven by an excellent
network of agents/brokers located
both in London and regional centres.
This provides us with the market
coverage required to ensure we are
aware of all potential opportunities
and can source opportunities from a
wide range of different sellers. With
our focused investment strategy,
strong balance sheet and proven track
Julian Carey
Executive Property Director
record of performance
and execution, we receive a
substantial number of off-market
and opportunistic approaches.
Our ability to analyse and conclude
transactions efficiently and effectively is
an important attribute and allows us to
achieve value in a competitive market.
This network will ensure we are well
placed to re-enter the market when we
believe it is prudent to do so.
Seller types on MLI purchases
since July 2017
8%
Government
Department
8%
Other
8%
Institutional
Investor
20%
Private
Equity
20%
Prop Co
36%
Private
Vendor
Investment Criteria
f purpose-built industrial
accommodation
f multi-tenanted income profile
f located within or in close
proximity to areas of high
population
f locations with strong
infrastructure
f areas of strong economic activity
f acquisition cost below
replacement cost
View more online at
stenprop.com/our-space/
investment-criteria/
ANNUAL REPORT 2020 STENPROP
25
27385 17 June 2020 7:25 pm proof 1
27385 17 June 2020 7:25 pm proof 1“ON AVERAGE RENTS INCREASED BY 19% AT LEASE EXPIRY OR UPON RE-LETTING”Julian CareyExecutive Property DirectorProperty ReportcontinuedLeasing and Rents 19% average uplift in rent across the 197 leasing transactions completed during the year (previous year: 17% uplift on 126 transactions)Lettings were on average 10.1% ahead of April 2020 ERVs over the year116 new lettings (£2.2 million p.a. of contractual rent) at an average premium to ERV of 12.5% (previous year: 78 lettings at an average 12.6% premium to March 2018 ERVs)81 renewals (£1.8 million p.a. of contractual rent) at an average premium to ERV of 7.3% (previous year: 48 renewals at an average 9.0% premium to March 2018 ERVs)The average new lease was 4 years in duration with a 2.5 month rent free period (previous year: 3.3 years average lease term and a 1.6 month rent free period)Vacancy across the portfolio fell from 10.2% to 8.9% on a like-for-like basis between 1 April 2019 and 31 March 2020As at 31 March 2020 we had 63 units under offer for rent of £1.2 million. Of the under offer space, 60,000 sq ft was on units which were unoccupied (i.e. new lettings rather than renewals), representing 15% of our total vacancy at the time.Tenant retention287 lease events during the year (either lease expiry or break options)76% of tenants remained in occupation at lease eventsOf those units returned to us, we had already re-let 50% by 31 March 2020Income ProfilePassing and contractual rents grew by 5.6% on a like-for-like basis between 1 April 2019 and 31 March 2020, compared with 4.8% for the previous period.The total estimated rental value of the portfolio is £26.2 million, reflecting a 20.4% premium to the current passing rent.We had another strong year of performance from the MLI portfolio, with strong demand and limited market supply resulting in significant uplifts at lease expiry and lettings ahead of ERV. Vacancy across the portfolio reduced over the year as a result of a number of initiatives implemented through our Industrials platform, including Smart Leases, our Customer Engagement Manager programme and more direct to customer marketing.Current Passing RentRent freeperiods &fixed upliftsContractualRentPortfolioReversionOccupied ERVVacant SpaceERV£21,712m£26,152m£26m£27m£25m£24m£23m£22m£21m£20mH1 FY19H2 FY19H1 FY20H2 FY20100%80%60%40%20%0%RetainedRe-let in periodVacatedQ1 FY20Q2 FY20Q3 FY20Q4 FY20Number of renewalsNumber of new lettingsContractual Rent ahead of previous passing rent New LettingsContractual Rent ahead of previous passing rent Renewals6050403020100STRATEGIC REPORT26STENPROP ANNUAL REPORT 2020 STRATEGIC REPORT
Case study
The Industrials platform -
delivering value at Coningsby
Business Park, Peterborough
Our available industrial space is listed
on www.industrials.co.uk in addition to
a number of market-leading commercial
search portals.
Our web listings have been designed
to offer an immersive online experience
for potential customers to explore our
available units to include high-quality
professional photography, floor plans,
drone footage as well as 360-degree
imagery of the inside and outside of our
industrial space.
Coningbsy Business Park, Peterborough,
comprises 186,000 sq ft of newly-
refurbished industrial space which
completed in January 2020.
A direct lead was received from a US-
based retailer which was looking for
their first independent UK warehouse
and distribution hub. The company,
which specialises in online sales of
homeware goods and which has sold in
excess of 20 million products across
11 countries, started its search online
from its US headquarters.
The lead was directed to
www.industrials.co.uk via an online
commercial property search portal and
landed on a bespoke property page for
Coningsby Business Park.
The customer’s specific search criteria
was registered by our dedicated 24/7
online chat support team.
The lead was followed up by our in-
house asset management team, who
contacted the customer and identified
the most suitable space based on
their search criteria, which comprised
over 18,000 sq ft of modern industrial
accommodation.
A virtual viewing was held to
share information about the space,
configuration and amenities remotely,
followed by an onsite viewing, led
directly by Industrials. Once terms had
been agreed, the transaction completed
in mid-December 2019, just seven weeks
after receiving the initial lead online.
This transaction is one of a growing
number of deals we are sourcing
directly online. This letting was secured
through our investment in improving
our online presence via search engine
optimisation (SEO) and by our selected
use of best-in-class commercial
property search portals. This user’s
experience was supported by high-
quality content and multi-channel
interaction at key intervals during its
search.
27385 17 June 2020 7:25 pm proof 1
Strong online
presence
CAPTURING LEADS WITH
INDUSTRIALS.CO.UK
Powerful
technology
VIRTUAL VIEWINGS, ONLINE
CHAT AND PAPERLESS
TRANSACTIONS
More speed,
less costs
QUICKER TRANSACTIONS
WITH FEWER
INTERMEDIARIES
ANNUAL REPORT 2020 STENPROP
27
STRATEGIC REPORT
Property Report
continued
£130.5m
THE VALUE OF STENPROP’S
HOLDINGS IN GERMANY
£14.3m
THE VALUE OF
STENPROP’S HOLDINGS IN
SWITZERLAND
Germany
Market environment
Germany has seen slowing economic
growth since 2018, with just 0.6% of
GDP growth in 2019. This can largely
be explained by slowing international
trade and Brexit-related uncertainty,
which is weighing on export demand and
industrial output. In contrast, consumer
demand remains strong with record
employment and robust wage growth.
Demand for Germany’s key exports,
vehicles and investment goods, continue
to struggle. Despite tight labour markets,
Euro area inflation has been persistently
weak, prompting the European Central
Bank (ECB) to lower the deposit
rate further into negative territory
and reinstate its net asset purchase
programme.
Real estate in Germany has once again
proved attractive to both foreign and
domestic capital. 2019 saw a record €91
billion transacted across the commercial
and residential space. Foreign capital
is drawn by the relative stability of the
German market compared to other
“DURING THE YEAR WE
SUCCESSFULLY SOLD
BLEICHENHOF, HAMBURG
FOR €160.15 MILLION.”
Julian Carey
Executive Property Director
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STENPROP ANNUAL REPORT 2020
27385 17 June 2020 7:25 pm proof 1
European countries and domestic capital
due to the relatively attractive yields
versus cash and bonds. The office and
residential sectors remain dominant,
accounting for 64% of transactions,
but alternative asset classes such as
healthcare and nursing homes are
becoming increasingly attractive due to
their ability to deliver higher yields. 60%
of the transaction volume was focused in
the seven largest cities.
Whilst many parts of the retail sector
experienced headwinds from expanding
online retailers, convenience retail
remains robust. At the time of writing,
most of western Europe, and indeed the
globe, has been locked down as a result
of COVID-19. It is difficult to determine
the impact at this stage, but the longer
the lockdown continues the greater the
longer-term impact will be. Germany’s
proactive approach to tackling the
impact of the virus appears at this stage,
to be working well.
Investment and asset
management
The German assets performed well
over the course of the year and high
occupancy levels were maintained across
the portfolio. As well as the targeted
disposal of our largest asset in Hamburg,
Bleichenhof, we took the decision to
accelerate the sale of the majority of
our remaining German assets in 2020 to
enable us to focus on building our MLI
business in the UK.
Read more on Creating Value
in our Portfolio on page 30
STRATEGIC REPORT
Investment and asset
management
Further to our decision to exit the
Swiss market, all the assets in the Swiss
portfolio, except for the property at
Lugano, were disposed of in 2018. The
repositioning of the Lugano property
from a retail centre to a gym and
wellness centre was completed with the
grand opening of the facility taking place
in March 2019. The property is classified
as ‘held for sale’ as, in line with our stated
strategy, we will seek to dispose of this
property at an opportune time as soon
as practicable after pandemic issues
have subsided. The centre reopened for
trade on 11 May 2020 after being closed
due to COVID-19.
Having appointed CBRE in January
2020 to sell the three Berlin shopping
centres, we continue to market these
assets targeting completion of the sale
this year. Similarly, JLL was appointed to
market the Bikemax portfolio, comprising
five retail warehouse units across central
and southern Germany, and we intend to
progress this sale in the second half of
2020.
On the asset management side, we
continued to focus on enhancing
the income across the portfolio. At
Bleichenhof, all but one of the restaurant
units were let and occupied at the time
of sale, with the remaining unit due to
open this summer. We also successfully
completed the regear of the principal
lease to BOC (Bike & Outdoor Company)
across the five assets that comprise the
Bikemax portfolio. The BOC income
comprises 70% of the total income
generated from these assets. The lease
term was extended to provide a term
certain to BOC of 12 years in return for a
small rent-free period and a downward
adjustment of the rent to market levels.
Finally, we continue to work through a
lease regear with the anchor tenant at
Hermann shopping centre in Berlin. We
believe that this anchor tenant continues
to trade very well from the unit and is
keen to expand and upgrade its presence
at the centre. The lease regears in the
Bikemax portfolio and at Hermann will
enhance the investor appeal of both
assets as we seek to dispose of them,
allowing us to maximise liquidity and sale
proceeds.
Switzerland
Market environment
JLL has reported that, although large
sections of the Swiss economy had got
off to a good start in 2020, the COVID-19
pandemic is stifling any optimism. The
hospitality industry is highly concerned
about the COVID-19 pandemic. Business
here was solid at the beginning of the
year and remained virtually unchanged
throughout January. At the beginning
of this year firms were still expecting a
small overall increase in overnight stays
during the first quarter of 2020. These
expectations have become obsolete
owing to the outbreak of the COVID-19
pandemic.
This year, the growth contribution made
by the retail, transport and hospitality
sectors in particular will be negative.
Consumer-related services, on the other
hand, are clearly in positive territory
thanks to the healthcare sector.
It is currently highly uncertain how
the pandemic is likely to continue
going forward. KOF Swiss Economic
Institute has therefore developed
various scenarios. KOF’s baseline
scenario assumes that the pandemic
will significantly disrupt economic life
over the next 12 months. However, the
countermeasures taken should mitigate
the economic impact in summer 2020.
Over the course of this year the imposed
production restrictions will reduce
output across sectors. The containment
of the virus will enable some of the
output lost to be compensated for at the
end of this year and next year.
ANNUAL REPORT 2020 STENPROP
29
27385 17 June 2020 7:25 pm proof 1
STRATEGIC REPORT
Creating Value
in our Portfolio
We set ourselves some ambitious goals again for the year ending 31 March 2020 on our
journey towards becoming the leading UK MLI business. Those goals included buying
£100 million of new MLI estates, selling £140 million of non-MLI assets and bringing
down leverage across our portfolio to 40% LTV. The successful implementation of these
goals would see MLI become the dominant part of our property portfolio and allow us
to manage risk across our loan obligations.
1. Sale of Bleichenhof
One of the pillars of achieving our transition to an
MLI business would be the sale of our largest asset,
representing 21% of our portfolio as at 30 September 2019,
a core mixed-use asset in the centre of Hamburg. The
recent ground floor transformation into a vibrant outdoor
food court integrated the scheme into the wider Stadhofe
development and create a destination.
In the summer of 2019, we appointed BNP Paribas Real
Estate alongside Hamburg specialists, Grossman and
Berger, to sell this prominent asset. The asset was received
well by the market, attracting a number of high-profile
potential buyers. Following an extensive and well-run
sales process we exchanged contracts in December
2019 with the owner of the neighbouring building, which
was keen to consolidate its ownership in this location.
The sale subsequently completed in February 2020
following receipt of the necessary consents from the
city of Hamburg at a price that was 0.3% ahead of our
September 2019 independent valuation when adjusted for
further development costs to completion. The sale of this
unique asset, which has been owned by Stenprop since
inception of the Company, was an important milestone
in our transition. It also provided the funds to deleverage
our portfolio to 40.8%, together with providing significant
capital for reinvestment into more UK MLI estates at the
appropriate time.
2. Managing our leverage through the transition
One of our key goals for the financial year ended
31 March 2020 was to reduce leverage at the group
level to 40% LTV. We feel this is a comfortable level of
leverage at which to operate, given where we are in the
market cycle. The current low interest rate environment
together with the attractive income yields from MLI
provides a significant buffer through which to service the
debt. We will continue to review leverage in the business
in line with the market environment and our cash position.
We have the ability to draw down on our Investec
revolving credit facility to make acquisitions. This enables
us to acquire assets quickly as a cash buyer and prior to
completing a sale process. It also enables us to transact
efficiently during this transition process and compete
effectively in the market for new MLI acquisitions.
Our focus continues to be on developing long-term
relationships with a few key lending partners. We aim to
achieve this on a ring-fenced basis. Over the next
12 months we will be looking to extend our debt maturity
profile and consider alternative lenders capable of
providing longer-term secured financing in line with our
broader business plan.
30
STENPROP ANNUAL REPORT 2020
27385 17 June 2020 7:25 pm proof 1
STRATEGIC REPORT
“WE HAVE A CONSISTENT TRACK
RECORD OF SUCCESSFULLY
DISPOSING OF OUR NON-MLI
ASSETS AT OR AHEAD
OF VALUATION.”
Julian Carey
Executive Property Director
3. Disciplined use of capital (efficient recycling)
Sale of UK Retail Assets
Over the course of the year, we completed the sales of
the remaining UK retail assets located in Walsall, Hemel
Hempstead and Grimsby. Sales were completed by a
combination of off-market negotiation, open marketing
campaigns and auction. The total aggregated sale price
was £4.60 million and the previous combined valuation
prior to sale was £4.64 million.
UK MLI Acquisitions
The first three quarters of the year saw us investing
capital reserves from the sale of Euston House in 2019 and
additional cash released from the financing of previous
acquisitions. Seven acquisitions were completed before the
end of Q4 for an aggregated price of £26.2 million. Due
to Brexit uncertainty deal volumes fell together with the
average size of opportunities, with no portfolios of scale
available in the market that met our investment criteria.
We continued to acquire individual estates which were
accretive to the wider portfolio both in terms of asset
quality and earnings. We completed two acquisitions in
Q4 for £9.7 million, one of which had been under offer
for more than six months and even in the changing
environment represented good value. The other was a
completion of a contract from an auction on 11 February
2020. We withdrew from all other assets we had under
offer and terminated any ongoing negotiations in order to
preserve capital during the COVID-19 crisis.
ANNUAL REPORT 2020 STENPROP
31
27385 17 June 2020 7:25 pm proof 1
STRATEGIC REPORT
Creating Value
in our Portfolio continued
Case study
Adding value and reducing our cost per transaction
Online leasing and DocuSign
Transacting online has opened up a
number of benefits to the business by:
f Increasing efficiency – time taken
to populate and share leasing
documents has reduced from hours
to minutes.
f Increasing accuracy – digital
signatures reduce the risk of leases
being signed incorrectly.
f Cost saving – in-house drafting
reduces external costs and charges.
f Speed of transaction – from
agreeing terms to releasing keys, we
capitalise on reduced timeframes
to let our space and receive rental
income more quickly. Smart Leases
are typically 2-3 times faster to put
in place than a traditional lease.
f Paperless transacting – our Smart
Leases can be concluded completely
paper free, thus reducing waste and
improving our carbon footprint.
Leasing is the lifeblood of our business
but each new lease carries its own
cost per transaction. This typically
includes both an agency and legal fee
to negotiate, agree and secure the
contract.
We estimate our average cost of
transaction to be £2,250. Given the
growing volume of leases we complete
each year, a primary objective has been
to identify new processes that enable
us to let our space more quickly at a
reduced cost per lease.
In July 2019 we launched our online
leasing process. This comprises two key
aspects:
Online lease generation
We can create and populate our Smart
Leases all online.
We have successfully completed
56 Smart Leases since launce in July
2019, representing 50% of all new
lettings on smaller units (sub 5,000 sq ft
in England and Wales).
eSignatures
We have utilised DocuSign to enable
lease documents to be shared
electronically and be signed digitally.
32
STENPROP ANNUAL REPORT 2020
27385 17 June 2020 7:25 pm proof 1
Creating Value
in our Portfolio continued
56
80%
SMART LEASES
TRANSACTED IN
THE FIRST NINE
MONTHS
OF CUSTOMERS ON
SMALLER LETTINGS
CHOOSE A SMART
LEASE
STRATEGIC REPORT
2-3 x
FASTER TO
DOCUMENT THAN
TRADITIONAL
LEASES
ANNUAL REPORT 2020 STENPROP
33
27385 17 June 2020 7:25 pm proof 1
27385 17 June 2020 7:25 pm proof 1MLI OperatingPlatform UpdateMarketingIndustrials is our chosen customer-facing brand. It has become the face of Stenprop in the MLI market. The industrials.co.uk website, along with social media, traditional media and our marketing systems, form the bedrock of our lead generation and customer marketing strategy.Industrials.co.uk statistics fViews of unit or property pages up 91.8% Q1 2020 vs Q1 2019, now c. 50,000 per annum, reflecting c. 500 views per available unit per annum. Quality of visits is up 13% over the same period (as measured by bounce rate), and the average user spends 1 minute 45 seconds on each page, illustrating good engagement reflecting the high quality of information available. f25% of users who visit the site return at a later date. fOrganic search traffic is up 170% year-on-year for Q1, reflecting the material gains in search engine optimisation and search ranking of industrials.co.uk over the year (on average 35.5% more visible). We have also doubled the amount of paid search results due to extensive use of social media channels to reach new target audiences. fOf our direct leasing enquiries, we now generate around 70% from the website and onsite advertising, with the remainder coming from portals such as Zoopla and Rightmove. The website is a hugely scalable marketing channel, with potential to deliver increasing numbers of direct leads at marginally lower costs. fIn Q1 2020 we generated on average 392 direct enquiries each month, reflecting a 90% increase in the average number of monthly enquiries generated for the previous 9 months. fOur lead conversion rate (measured as the number of enquiries for each visitor on our website) was up from 1.25% in March 2019 to 3.5% in March 2020, reflecting the improved quality and targeting of our digital marketing strategy.CRM – mailing lists, waiting lists, conversation tracking fAll leads are now captured, tracked and managed in our CRM system, ensuring live information on enquiry levels on a unit, asset, customer type or geographic basis and ensuring all leads are properly allocated and followed up by the appropriate in-house customer engagement manager. fThe CRM system holds full information on all leases in our portfolio and associated customer information, allowing our team access to all operational data when onsite. fThe system tracks all correspondence with customers to ensure a cohesive and consistent level of customer service across the portfolio. fThe system allows us to keep up-to-date, accurate and GDPR compliant information on customers, including maintaining waiting lists for currently unavailable units so that targeted leasing activity will commence when they become vacant. fThe system works alongside our existing opportunity management system to provide cradle-to-grave information on our sales pipeline, including leakage, viewing, employee/agent activity and timelines, enabling us to optimise the leasing process.50,000 (UP 91.8%) VIEWS OF UNIT OR PROPERTY PAGES25% OF USERS WHO VISIT THE SITE RETURN AT A LATER DATE170% INCREASE IN ORGANIC SEARCH TRAFFIC YEAR-ON-YEAR IN Q1 20203.5% CONVERSION RATE IN MARCH 2020, UP FROM 1.25% IN MARCH 2019View more online at www.industrials.co.ukSTRATEGIC REPORT34STENPROP ANNUAL REPORT 2020 27385 17 June 2020 7:25 pm proof 1LeasingWe renew or replace 25% of our leases each year. Improving the efficiency and cutting costs in the leasing process is critical to driving efficiencies in MLI. What is the Smart Lease and how does it work?The Smart Lease is our three-page, plain-English leasing solution which cuts out time, cost and complexity from the leasing process. The Smart Lease allows for limited options compared to a fully customisable traditional lease. As a result, the document can be completed more quickly without the need for lawyers, reducing cost and complexity for both landlord and tenant. This is ideal for shorter lettings of one-three years in duration, where transaction expenses can be a significant percentage of the overall lease cost, and where time is of the essence. Our Smart Lease is documented entirely digitally, meaning that we can get customers into units within 24 hours from initial enquiry where necessary.Smart Lease statisticsThe Smart Lease was launched in July 2019 across 80% of our portfolio, namely units in England and Wales of less than 5,000 sq ft (we can’t yet offer the Smart Lease in Scotland, but are planning to launch it in 2020). In the nine months to 31 March 2020, we completed 56 smart lettings and smart renewals from a total number of 97 transactions. When renewals are removed from the data, new lettings saw customers choose smart leases 80% of the time, illustrating the strong preference that new customers have for the format when existing leasing documentation is not already in place.Why Smart Lease is so important?The average Smart Lease transaction took 13 days to complete from agreeing terms with the customer. This is approximately two-three times faster than the average time of four-six weeks to document and sign a traditional lease. Smart Leases effectively cuts void periods on vacant units by up to one month each time they are re-let. In addition, in most instances the customer and Stenprop incurred no legal fees.Inclusive leasingThe Smart Lease also provides for inclusive leasing, including the provision of all repairs and maintenance as part of the lease payment. This enables Industrials to offer customers a fixed price lease contract covering all liabilities. We see strong demand from customers for this kind of product, which is rarely offered in the MLI market, and believe it can become an additional profit centre within the serviced industrial offer. The cost of providing such maintenance is built into the lease costing.56SMART LETTINGS COMPLETED IN THE 9 MONTHS TO 31 MARCH 202013 DaysTO COMPLETE THE AVERAGE SMART LEASE TRANSACTION 2-3 xFASTER TO COMPLETE THAN A TRADITIONAL LEASE35ANNUAL REPORT 2020 STENPROPSTRATEGIC REPORT 27385 17 June 2020 7:25 pm proof 1Working with Microsoft to deliver a holistic operating platformStenprop has chosen to base its operating system around the Microsoft Dynamics and 365 products. Some of the benefits of this are:ShowcaseTechnologyAdopting technology to enhance efficiency and profitability is part of the DNA at Stenprop. In 2020 we will continue to invest significantly into our underlying IT infrastructure, unifying our new and existing systems to create a class leading MLI operating platform which will scale and support the business as it grows. fCustomer Relationship Management – We launched our new CRM system based upon Microsoft Dynamics Customer Engagement at the end of March 2020. This system provides our leasing, marketing and asset management teams with live information on leasing enquiries, customer requests, property and customer information. It helps our staff deal with the high volumes of requests and enquiries we receive, ensuring consistent and high levels of customer service and accountability. It has proved invaluable for capturing detailed information from customer discussions around COVID-19 and will assist us in evaluating and determining bespoke solutions which are appropriate for each customer. fFinance and Operations – Working alongside our implementation partner, KPMG, our new financial operating system will replace several existing systems which collect rent, report and consolidate accounts across our business. The system will be built on Microsoft Dynamics Finance & Operations and we are targeting a launch in the first half of 2021. Combining our rent collection and financial reporting systems in a single system will deliver significant efficiency and information advantages over having them in disparate systems (as is traditional in real estate), delivering enhanced financial insight into day-to-day operations. The new system also delivers the tooling and infrastructure that Stenprop requires in order to realise revenue growth through its serviced industrial business model. fIntegrated platform – By combining our marketing, sales, finance and operations systems on the Microsoft product stack we can build deep integrations between the systems with relative ease. This rationalisation of products and the corresponding data ensures that the systems will work together, bring financial information to the front office where our operational teams can act upon the information with our customers. The scope of the Microsoft platform will ensure that the system can scale efficiently as Stenprop grows the MLI operating business, further improving efficiencies and capturing economies of scale. Scale Many global businesses are already working on Microsoft operating systems. Microsoft invested $18.6bn in R&D on its product range in the year to 31st March 2020, ensuring that its products remain cutting-edge and offer the benefits of the latest technological developments such as artificial intelligence and process automation. All our implementations are configurations of existing products, meaning that Stenprop is not engaging in any bespoke software development and is sticking to our ‘buy not build’ methodology. Evergreen Microsoft offers all its operating systems on an evergreen licenced basis, meaning that software is constantly upgraded to the latest version. This means that significant system upgrades and implementations become a one-off activity, with smaller and more frequent upgrades thereafter, rather than having to replace expensive systems every five-ten years when they become out of date. Streamlining Microsoft offers leading solutions for most major business processes, including marketing, sales, operations, finance, business intelligence, file storage and business processing. These solutions are deeply integrated out-of-the-box and maintained and developed by Microsoft, meaning that systems work better together, at lower cost and without the need for complex development and ongoing maintenance. Once fully implemented we will be able to maintain the customer journey within a single system and without repetition of data. STRATEGIC REPORT36STENPROP ANNUAL REPORT 2020 27385 17 June 2020 7:25 pm proof 1Working with Microsoft to deliver a holistic operating platformStenprop has chosen to base its operating system around the Microsoft Dynamics and 365 products. Some of the benefits of this are: Visibility Having our data in the Microsoft Azure database and held within the Microsoft cloud ensures that we can store, catalogue, access and analyse critical business information regardless of where it is created or housed. This makes reporting faster and more advanced and is a critical component in the marriage between financial and operational data which we believe will help us significantly enhance the efficiency of managing MLI property. Familiarity We already use Microsoft products on a day-to-day basis, and most of our staff have grown up with their operating systems. The common controls and methodology which run through their product range materially speeds up adoption and training, and the seamless integration with existing systems such as Microsoft Teams and Outlook make the systems accessible and understandable. Over the last few years, Stenprop made significant improvements to our IT infrastructure. Prior to COVID-19 we were already fully cloud-based and active users of video conferencing systems through Teams and digital transaction platforms, such as DocuSign. These systems have delivered significant daily time-savings to the business and have enabled us to continue functioning efficiently since the UK went into lockdown; without the need for any emergency upgrades or amendments to existing business processes. 80% OF OUR UK ASSETS ARE NOW COVERED BY CUSTOMER ENGAGEMENT MANAGERS4,000 CUSTOMER CALLS ANSWERED PER YEARServiced IndustrialThe purpose behind our serviced industrial concept is to maximise profits from the space we own by providing a wider range of product and services alongside an enhanced customer experience. fIn the year to 31 March 2020 we employed a further three Customer Engagement Managers (CEMs) in our regional markets. Our CEMs now cover 80% of our UK assets, providing on the ground resource to facilitate lettings, negotiations and direct customer service. Our CEMs handle all our direct leasing enquiries and work alongside our agency partners, where applicable, to deliver leading levels of customer service and enhanced deal terms. fAlongside our marketing particulars (which include drone footage, 360 degree look around imagery, plans and transparent pricing structures), our CEMs also conducted many accompanied (and more recently virtual) viewings with prospective customers. Recently this has been a vital resource as many of our agency partners have been furloughed during the COVID-19 pandemic and hence have been unavailable. fIndustrials operates a single freephone telephone number for all enquiries (whether prospective or existing customers) which has processed over 4,000 calls during the year. We also offer a live online chat service on industrials.co.uk which has proven popular with prospective customers (and some investors!) over the year, and now accounts for around 15-20% of all enquiries each month. fAs a landlord we are in a unique position to offer a range of non-core business products and services which are linked to their occupation, such as utilities, cleaning or refuse collection. We are currently exploring the best way to offer these services at scale, and it is a significant area of focus for the March 2021 financial year.37ANNUAL REPORT 2020 STENPROPSTRATEGIC REPORT STRATEGIC REPORT
Financial Review
James
Beaumont
Chief Financial
Officer
Overview
The onset of COVID-19 occurred in the
last two weeks of the financial year and
has therefore had virtually no impact
at all on our annual financial results for
the year ended 31 March 2020. Clearly,
there will be a significant impact on
our next year results which I have
addressed further on in my report. From
a financial and operating perspective,
I am confident that Stenprop is well
positioned to deal with the challenges of
COVID-19. I take particular comfort from
the strength of the Stenprop balance
sheet and the levels of significant
unrestricted cash balances.
Stenprop’s board of directors (the
‘Board’) have declared a dividend of
3.375 pence per share for the six months
ended 31 March 2020, bringing the full
year distribution to 6.75 pence per share
(2019: 6.75 pence). The dividend is fully
covered by diluted adjusted European
Public Real Estate Association (‘EPRA’)
earnings per share of 6.88 pence
(2019: 8.84 pence) and, as in the past,
can be taken as a cash payment or scrip
share alternative.
Diluted IFRS earnings per share (‘EPS’)
was 5.44 pence (2019: 8.35 pence),
while the diluted adjusted EPRA EPS
amounted to 6.88 pence, compared with
the prior year of 8.84 pence. The decline
in earnings was a direct consequence of
the previously communicated strategic
decision to withdraw from all historic
third-party fund management activity
and reflects the impact of one-off
performance and disposal fees received
in the year ended 31 March 2019.
Stenprop acquired 10 MLI estates and a
number of additional units on existing
estates during the year for a total
purchase price of £38.8 million. Stenprop
sold four non-MLI assets all at or above
valuation except for one small retail
property which sold for £0.4 million
below its valuation of £2.1 million. At
31 March 2020, Stenprop’s total property
portfolio, including share of joint
ventures, was valued at £532.6 million of
which £309.0 million, or 58.0%
(2019: 42.7%) was represented by the
MLI portfolio.
As at 31 March 2020 Stenprop had
reduced its total borrowings to 40.8%
of gross assets (its ‘LTV’ ratio), from
44.2% one year earlier. When free cash of
approximately £70 million is taken into
account this measure reduces to 27.7%.
The LTV ratio of the MLI portfolio was
39.9% at 31 March 2020.
EPRA earnings per share (pence) Year to 31 March 2020 (refer note 14)
15.67
3.97
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FX rates in period
Average foreign exchange rates in the year: £1.00:€1.1442; £1.00:CHF1.12544 (2019: £1.00:€1.1338; £1.00:CHF1.3002)
Year-end foreign exchange rates: £1.00:€1.1249; £1.00:CHF1.1915 (2019: £1.00:€1.1617; £1.00:CHF1.2970)
38
STENPROP ANNUAL REPORT 2020
27385 17 June 2020 7:25 pm proof 1
STRATEGIC REPORT
“STENPROP’S STRONG
BALANCE SHEET MEANS
IT IS WELL POSITIONED
TO DEAL WITH THE
CHALLENGES OF
COVID-19.”
Diluted EPRA net asset value (‘NAV’) per
share decreased by 1.4% to £1.39
(2019: £1.41), and diluted IFRS NAV per
share increased 0.7% to £1.37
(2019: £1.36). The decrease in Diluted
EPRA NAV broadly reflects sales costs
and the crystallisation of deferred tax
liabilities on the disposals of non MLI
property. On a like-for-like basis, the
valuation of the total portfolio increased
2.8% over the prior year. On a like-for-
like basis over the same period, the
valuation of the MLI portfolio increased
by 3.6%.
Presentation of financial
information
The consolidated financial statements
are prepared in accordance with IFRS.
The Group’s subsidiaries are consolidated
at 100% and its interests in joint ventures
are shown as a single line item on the
consolidated income statement and
balance sheet using the equity method
of accounting. In addition to information
contained in the Group financial
statements, Alternative Performance
Measures (‘APMs’), being financial
measures which are not specified under
IFRS, are also used by management
to assess the Group’s performance.
Definitions for APMs are included in
the glossary, with further descriptions
and the most directly comparable IFRS
measure identified on page 157.
In accordance with reporting standards
widely adopted across the real estate
industry in Europe, the Board feels it is
appropriate and useful to also disclose
a number of EPRA measures, prepared
in accordance with the EPRA Best
Practice Recommendations. The Board
continues to see adjusted EPRA EPS as
a key measure to aid transparency when
assessing performance and dividend
policy. As disclosed in note 14, this
measure utilises EPRA’s Best Practices
Recommendations, and applies further
company-specific adjustments to
earnings to exclude items considered not
to be in the ordinary course of business
or other exceptional items to provide
additional information on the Group’s
underlying operational performance.
Earnings
Basic IFRS earnings
attributable to ordinary
shareholders for the year ended
31 March 2020 declined 34.5%
to £15.6 million (2019: £23.8 million),
equating to a diluted IFRS EPS of
5.44 pence (2019: 8.35 pence). The
decrease is mainly driven by a reduction
in non-recurring net management fee
income of £5.3 million.
Net rental income from continuing
operations was £33.0 million (2019:
£33.9 million). The UK MLI component of
net rents contributed £17.9 million to the
total at year end, a 47.9% increase over
the prior year contribution of £12.1 million.
Net management fee income totalled
£0.6 million for the year (2019:
£5.8 million). Stenprop has withdrawn
from its historic fund management
activities and its future management fee
income will be insignificant.
Operating expenses for the year
were £10.1 million (2019: £11.3 million)
including approximately £1.0 million of
costs associated with the Enterprise
Resource Planning (‘ERP’) management
platform project. The project is being
delivered over a number of phases and
will see the implementation of a unified
customer engagement and finance and
operations platform. The solution is due
to go live in early 2021 as part of the
roll-out of Stenprop’s serviced industrial
concept. Once complete, the platform
will allow Stenprop to scale the business
with low marginal incremental cost,
realise cost efficiencies by streamlining
and automating business processes
and enable active management of,
and engagement with, our customers.
Please refer to the ‘MLI operating
platform update’ section of the Annual
Report for more information on the
operating platform. Prior year operating
expenses included one-off costs of
£0.9m associated with Stenprop’s REIT
conversion and LSE listing, as well as
£1.2 million associated with the aborted
acquisition of a material MLI portfolio.
Adjusted EPRA earnings attributable to
shareholders were £19.7 million (2019:
£25.2 million), equating to a diluted
adjusted EPRA EPS of 6.88 pence (2019:
27385 17 June 2020 7:25 pm proof 1
James Beaumont
Chief Financial Officer
5.44p
DILUTED IFRS EARNINGS
PER SHARE
6.88p
DILUTED ADJUSTED EPRA
EARNINGS PER SHARE
6.75p
FULL YEAR DIVIDEND
PER SHARE
£309.0m
MLI PORTFOLIO AT
31 MARCH 2020
ANNUAL REPORT 2020 STENPROP
39
STRATEGIC REPORT
Financial Review
continued
160
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Diluted EPRA NAV per share (pence) movement since 31 March 2019
0.86
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8.84 pence). As mentioned previously,
the decrease is due to a reduction in
management fee income to £0.6 million
(2019: £5.8 million). A reconciliation of
IFRS profit to EPRA earnings for the
year is shown in Note 14 to the financial
statements.
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) for the year ended
31 March 2020 was 35.3% (2019: 31.8%).
Dividends
On 11 June 2020, the Board declared a
final dividend of 3.375 pence per share
(2019: 3.375 pence) which, together
with the interim dividend of 3.375 pence
per share (2019: 3.375 pence per share)
declared on 21 November 2019, results
in a total dividend for the year ended
31 March 2020 of 6.75 pence per share
(2019: 6.75 pence per share). The total
dividend for the year is fully covered by
earnings of 6.88 pence per share. Part
of the distribution will be a Property
Income Distribution (known as a PID)
which, subject to certain exemptions, will
attract UK withholding tax.
The dividend of 6.75 pence per share
represents a dividend yield of 6.3% on
the share price at 5 June 2020 of £1.07,
and a yield of 4.9% on the diluted EPRA
NAV per share at 31 March 2020 of £1.39.
Subject to the receipt of regulatory
approvals, the directors intend to offer
shareholders the option to receive all
or part of their dividend entitlement by
way of a scrip issue of new Stenprop
ordinary shares, or in cash. A further
announcement informing shareholders of
the salient dates and tax treatment of the
dividend will be released in due course.
In respect of this dividend, given the
Company’s share price, which is at a
discount relative to NAV, the directors
intend to match any scrip scheme
take-up through share repurchases to
mitigate the dilutive effect that would
otherwise occur from the issuance of
new ordinary shares.
Future distributions
As Stenprop responds to the disruption
caused by COVID-19, the Board will
monitor the future dividend position.
The Board is focused on liquidity and
maintaining a strong balance sheet but
also understands the importance of
dividends to its shareholders. The Board
is also mindful of its REIT obligations.
As one of the conditions of being a UK
REIT, Stenprop must distribute 90%
of its aggregate UK property rental
business profits, as calculated for tax
purposes and arising in the accounting
year, by way of a dividend within 12
months of the accounting year end.
40
STENPROP ANNUAL REPORT 2020
27385 17 June 2020 7:25 pm proof 1
There is no requirement to distribute
non-UK property rental business profits,
management fee income or capital
gains. Notwithstanding this, Stenprop
has followed a policy to distribute at
least 90% of its UK and non-UK EPRA
earnings. In light of the uncertainty
caused by the COVID-19 pandemic,
Stenprop will continue to carefully
evaluate its rent collection rate, recurring
earnings and wider responsibilities and
keep its dividend policy under review.
Net asset value
The IFRS basic and diluted net asset
value per share at 31 March 2020 was
£1.38 and £1.37 respectively (2019: basic
£1.38; diluted £1.36) (see note 15).
As is the case regarding the disclosure
of EPRA earnings, the directors feel that
it is appropriate and useful, in addition
to IFRS NAV, to disclose EPRA NAV.
The diluted EPRA NAV per share at
31 March 2020 was £1.39 (2019: £1.41).
Including the Company’s share of
joint ventures, its investment properties
were valued at £532.6 million
(31 March 2019: £612.9 million), of which
£109.1 million were classified as assets
held for sale (31 March 2019: £16.2
million). Assets held for sale consist of
the three Berlin daily-needs retail centres
(anchored by strong food retailers),
five German retail warehouses (let to
a bike and ski business) and the sole
remaining asset in Switzerland (let to
a wellness centre/health club). The
reduction in the portfolio size follows
the sale of Bleichenhof at a sales price
of €160.15 million (2019 valuation:
€147.4 million). On a like-for-like basis,
excluding the impact of additions and
disposals in the period, the valuation
of the portfolio since 31 March 2019
increased by 2.8% of which 1.1% was from
currency movements.
Valuations
The Group’s independent external
valuer, JLL, have reported their valuation
of our portfolio as at 31 March 2020
including reference to a ‘material
valuation uncertainty’ created by the
economic consequences of COVID-19.
Consequently, less certainty – and a
higher degree of caution – should be
attached to the valuation than would
normally be the case. The inclusion of
this ‘material valuation uncertainty’
STRATEGIC REPORT
Combined property portfolio
at 31 March 2020
Combined Portfolio
(including share of joint ventures)
Investment properties
UK multi-let industrial
UK non-multi-let industrial
Sub-total
Assets held for sale:
Germany
Switzerland
Total – wholly owned
Share of joint ventures
Total
Market
value
31 March
2020
(£’000)
Portfolio
by
market
value
(%)
Properties
(number)
Area
(sq m)
Annualised
gross
rental
income
(£’000)
Net initial
yield
(Weighted
average)
(%)
308,951
78,810
387,761
94,799
14,277
496,837
35,737
532,574
58.0
14.8
72.8
17.8
2.7
93.3
6.7
100
70
6
76
8
1
85
4
89
420,483
32,399
452,882
52,122
5,974
510,978
19,330
530,308
22,701
6,044
28,745
5,736
1,038
35,519
2,429
37,948
6.47
7.17
6.62
5.10
5.81
5.19
5.94
6.28
Voids
by
area
(%)
8.90
0.05
8.27
0.82
–
7.41
–
7.14
declaration does not mean that the
valuation cannot be relied upon and is a
disclosure, not a disclaimer.
United Kingdom MLI portfolio
The UK MLI portfolio, comprising
70 industrial estates and approximately
4.5 million square feet of lettable
space, was independently valued at
£309.0 million at 31 March 2020. On
a like-for-like basis, after excluding
MLI acquisitions during the year, the
valuation of the portfolio increased by
£9.3 million, or 3.6%, on the valuation
at 31 March 2019. The increase includes
the effects of strong lettings and an
uplift of £4.1 million at Coningsby Park,
Peterborough, where the refurbishment
of the estate is now complete.
United Kingdom non-MLI portfolio
The UK non-MLI portfolio was
independently valued at £78.8 million. On
a like-for-like basis, after excluding the
sale of three regional retail properties,
the valuation of the UK portfolio
decreased marginally by £0.7 million, or
0.9%, on the valuation at 31 March 2019.
The office building known as Trafalgar
Court in Guernsey is now our largest
single asset and was valued at year end
at £57.5 million (2019: £57.8 million).
During the year, we sold three small retail
properties in the UK at Walsall, Hemel
Hempstead and Grimsby for a combined
sale price of £4.60 million, in line with
the most recent combined valuation of
£4.65 million. Stenprop does not have
any further retail exposure in the UK.
Germany
The German portfolio (excluding joint
ventures) was independently valued
at €106.6 million. On a like-for-like
basis, excluding the sale of Bleichenhof,
the valuation of the German portfolio
increased by €1.5 million, up 1.4% on
the prior year end valuation. The three
central Berlin retail centres experienced
a combined uplift of €1.9 million and
are now valued at €80.6 million. This
increase was partially offset by a decline
in the value of the five Bikemax retail
warehouse properties. The Bikemax
properties are valued at €26.0 million,
a decrease of €0.5 million against the
prior year.
We are continuing with our disposal
plans for the remaining German assets
detailed above. These properties have
been marketed, and, subsequent to the
onset of COVID-19, a number of potential
buyers remain interested and are
undertaking further due diligence.
Switzerland
The remaining Swiss property situated
in Lugano was valued at CHF17.0
million compared with the prior year
end valuation of CHF21.0 million. The
property is let to a rehabilitation medical
facility and health club business and
was closed for much of March, April
and May by order of local government
following the COVID-19 outbreak. The
centre opened in mid-May 2020 and we
continue to monitor the position closely.
This asset was classified as held for sale
in the financial statements.
Joint ventures
The Care Homes portfolio in Germany,
comprising four care homes, was
independently valued at €40.2 million, an
increase of 2.0% compared with the
31 March 2019 valuation of €39.4 million.
Debt
In accordance with its strategy to
deleverage its portfolio, Stenprop
reduced its group LTV to 40.8% from
44.2% at 31 March 2019. It would have
been entirely possible to reduce the LTV
further from available cash resources
but it was considered prudent to retain
funds to further boost liquidity in these
turbulent and unprecedented times.
Further reductions to Group LTV may
be considered by the board of directors
as the COVID-19 situation unfolds and
after taking prevailing market conditions
into account.
The value of the property portfolio as
at 31 March 2020, including the Group’s
share of joint venture properties and
assets held for sale, was £532.6 million.
Senior bank debt at the same date was
£217.3 million, resulting in an average
loan-to-value ratio of 40.8% (31 March
2019: 44.2%). Cash reserves at 31 March
2020 totalled £85.6 million, including
available cash of £70.0 million. When
available cash is added to this measure
to lower net debt, our overall LTV
was 27.7%.
The rolling credit facility provided
by Investec Bank Plc to bridge the
potential funding gap between property
ANNUAL REPORT 2020 STENPROP
41
27385 17 June 2020 7:25 pm proof 1
STRATEGIC REPORT
Financial Review
continued
Foreign exchange
At 31 March 2020, approximately 22.6%
of Stenprop’s net asset value and
26.4% of its net rental income were
denominated in euros. Consequently, the
GBP:EUR exchange rate has an impact
on reported GBP earnings and net asset
values. At the start of April 2019, the
GBP:EUR rate was £1.00:€1.1617 and the
euro strengthened over the year by 3.16%
to £1.00:€1.1249 as at 31 March 2020.
The impact of changes in the GBP:EUR
exchange rate will decrease as we
execute our German sales strategy.
Stenprop matches the currency of
borrowings to the underlying asset.
Where the timing and amount of a
liability has been determined, and where
it will be met from the proceeds of a
sale which is also known in terms of
timing and amount, the currency risk is
managed through hedging instruments.
Stenprop’s diversification across the
UK, Germany and, to a lesser extent,
Switzerland (until the remaining Swiss
asset 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.
COVID-19
The COVID-19 pandemic has shifted
our immediate focus to managing cash
resources and maintaining liquidity in
the business. At the same time, we are
in even closer communication with our
customers to provide support as they
respond to the challenges that their own
businesses face. We are also in close
contact with our banks all of whom
are supportive.
The reduction in rent collection will
have an impact on future earnings.
However, the breadth of sectors in
which our customers operate and their
geographical spread reduces this risk
and so far (and we appreciate it is still
early in the crisis) we are encouraged
by the relatively strong rent collection
figures since the advent of the crisis.
Annual portfolio
valuation movement at
31 March 2020
in functional currencies
2.8%
1.1% currency
1.7% values
TOTAL
2.8%
UNITED KINGDOM
1.6%
GERMANY
18.9%
SWITZERLAND
acquisitions and sales was refinanced in
September 2019. The new £30 million
facility is for an 18-month period and
matures in April 2021. The facility was
not utilised during the year and was
undrawn as at 31 March 2020. There
are no non-utilisation fees payable on
the facility.
The weighted average debt maturity
stood at 2.7 years at 31 March 2020
compared with 3.0 years at 31 March
2019. Excluding Lugano in Switzerland,
which is held for sale, annual
amortisation payments are £0.7 million
(31 March 2019: £0.7 million). The all-in
contracted weighted average cost of
debt was 2.62% at year-end, compared
with 2.46% at 31 March 2019. This partly
reflects a higher weighting to UK debt as
we acquire more UK MLI and disposed of
more German non-MLI property.
The Group operates an interest rate
policy and mitigates interest rate risk
using derivative instruments such as
interest rate swaps or interest rate
caps in respect of at least 75% of its
interest rate exposure. The Group
utilises derivative instruments solely
for the purposes of efficient portfolio
management. Where properties are held
for sale or likely to be disposed of in
accordance with our transition strategy
to MLI, the Group elects as a strategy not
to hedge or extend debt maturity.
Loan covenants
Significant headroom exists for both
interest cover and LTV loan covenants.
Loan facilities subject to LTV covenants
allow for an average 33% reduction in
values. Loan facilities subject to debt
service cover ratio covenants allow for an
average reduction in net rents of 60%.
The Company continues to enjoy an open
and supportive relationship with its banks.
“STENPROP REMAINS
COMMITTED TO
FURTHER EVOLVING ITS
TECHNOLOGY-ENABLED
MANAGEMENT PLATFORM”
James Beaumont
Chief Financial Officer
42
STENPROP ANNUAL REPORT 2020
27385 17 June 2020 7:25 pm proof 1
STRATEGIC REPORT
As at 31 May 2020,
Stenprop had received
82% of the total portfolio
rent invoiced and due for the
aggregate of the quarter commencing
25 March 2020 and the months of April
and May 2020, broken down as follows:
f 64% of all rent invoiced was for the
quarter commencing 25 March and
ending 23 June 2020, of which 89%
was paid by 31 May 2020
f 17% of all rent invoiced was for the
month of April 2020, of which 71%
was paid by 31 May 2020
f 19% of all rent invoiced was for the
month of May 2020, of which 69%
was paid by 31 May 2020
f For the MLI portfolio an aggregate of
79% of total rent invoiced had been
paid by 31 May 2020.
The crisis has shown the negative
impact of long supply chains and there
is now increased support for SMEs to
manufacture and supply locally. The
current situation is also highlighting
the importance of doing business
digitally. E-commerce distribution is
becoming much more prevalent as more
consumers adopt technology to meet
their needs. Accordingly, a potential
increase in demand for MLI space exists
as companies seek to operate in flexible
and affordable space close to their
customers. Please refer to the ‘COVID-19
& Stenprop’ section of the Annual
Report which expands on the impact of
COVID-19 across the sector.
The well-being of our staff is of utmost
importance to us and we are pleased
to report that the Stenprop team are
well and working effectively from their
homes. There has been no need to
furlough staff.
The Board of Directors are mindful of the
negative impact to the business and the
wider economy. The Company’s balance
sheet is strong and Stenprop has a
capital structure and operating platform
which is well positioned to deal with a
prolonged period of uncertainty.
Conclusion
We continue to deliver
on our strategy to become
a 100% focused UK MLI business
and have made strong progress during
the year by reducing leverage to 40.8%
(2019: 44.2%) and increasing the MLI
component of our portfolio to 58.0%
(2019: 42.7%) through acquisitions and
the sale of non-MLI assets.
This coming year is clearly going to be a
challenging one as a result of COVID-19,
the lockdown response and the high
probability of a significant downturn
in the economy. Management has
subjected Stenprop’s financial model to
stress test scenarios associated with a
prolonged period of market disruption
and concluded that Stenprop is well
placed from a balance sheet perspective
to cope with this for a significant period
of time. The issue for Stenprop is the
likely adverse impact on earnings in
the coming year. This is likely to arise
from two sources. First, in light of the
COVID-19 disruption, Stenprop took the
prudent decision to retain its significant
surplus cash balances for longer thereby
earning bank deposit rates rather than
the 7% plus returns on equity from
acquired MLI property. Secondly, it can
reasonably be anticipated that rent
collection rates will require provisions,
deferments or write-offs in some
instances and in a downturn or lockdown
voids will increase and rental growth
will slow. It is too early to quantify any
such impact. However, we believe it will
be temporary and the asset class will
emerge with even more demand and
supply imbalance.
27385 17 June 2020 7:25 pm proof 1
In the meantime,
Stenprop remains
committed to further
evolving its technology-
enabled management platform
to generate margin efficiencies and
the capability to offer a wider range of
services and products to our customers.
The importance of this endeavour is
ever more apparent as digital working
practices become more and more
necessary. Stenprop has not elected to
cut back on the expenditure required
for this.
Stenprop is a strong business and has
the financial resilience to weather the
current disruption. Our liquidity could
be further enhanced by the sales of our
German properties, which continue to
progress. Following the sale of these
assets, we anticipate that MLI will
increase to approximately 70% of our
portfolio and that cash available for
acquisitions would increase to over
£100 million.
James Beaumont
Chief Financial Officer
11 June 2020
ANNUAL REPORT 2020 STENPROP
43
STRATEGIC REPORT
Risk Management
Identity
Risk identification is supervised by the
executive directors and senior managers but
involves every individual staff member in
the Group.
Assess
All risks identified are assessed on a continuous
basis. They are awarded an inherent risk rating
which may lead to the implementation of
controls/ actions to mitigate them. Risks are
then assessed and awarded a residual risk
rating after considering the adequacy and
effectiveness of such controls, the financial and
non-financial impact, as well as the probability
of occurrence of a risk.
Manage
Identified risks can be avoided, transferred,
accepted or mitigated. The executive team will
assess risks against potential benefits when
considering how to manage risks. Decisions and
actions are recorded and identified, weaknesses
are highlighted and rectified with the aim of
bringing the risk back within an acceptable
limit.
Monitor
Risks and the effectiveness of the
corresponding actions to manage these
risks are monitored on an ongoing basis by
management and reviewed on a quarterly basis
by the Audit and Risk Committee.
Report
Significant risks, key controls, details of
risk management decisions and all relevant
management actions implemented as part of
the risk assessment process are reported to the
Audit and Risk Committee on a quarterly basis.
Key risks which may have a material impact
on the ability of the Company to achieve its
strategic objectives are routinely reviewed and
considered by the Board
Managing our risks
Stenprop’s board of directors (‘the Board’) has ultimate
responsibility for maintaining sound risk management and
internal controls systems. It also reviews and determines the
Group’s risk appetite, bearing in mind the opportunities that
often accompany risks and can drive performance. This is the
foundation of the Stenprop five-step risk management plan.
The audit and risk committee is responsible for providing
oversight and advice to the Board in relation to current and
potential future risk exposures of the Group. It routinely
considers risk at each quarterly meeting, reviews the risk profile
of the Group and the significant, as well as any emerging, risks
identified alongside mitigating factors and action plans. The
intention is not to eliminate risk entirely, but to manage our
risk exposures across the business, whilst making the most of
business opportunities that have the potential to create value.
Emerging risks are identified through a variety of means
including advice from the Company’s professional advisers
and the directors’ industry knowledge and market changes
and events. In addition, the executive directors promote a
risk awareness culture in which all employees at all levels of
the organization are encouraged to participate in the risk
identification process. The small size of the team allows the
executive directors to remain in close contact with all aspects
of the business and ensure that the early identification of
risks and the management of those risks is at the centre of all
decisions.
More information regarding the work of the Board, the Audit
and Risk Committee and the executive and senior teams on
risk management during the year ended 31 March 2020 can be
found in the Audit and Risk Committee report on pages 70 to
72 of this report.
At the Board meeting in June 2020, the Board completed its
annual assessment of risks. This followed the audit and risk
committee’s formal assessment of risks and their review of
the effectiveness of internal controls. Whilst we consider there
have been no material changes to the nature of the Group’s
principal risks, not surprisingly, several risks are elevated as a
result of the challenging macroeconomic environment linked
to the current COVID-19 pandemic, and to a lesser extent other
external factors such as Brexit.
The Board has been actively monitoring these elevated risks.
Since the start of the lock down period in the UK, the Board
has held biweekly meetings during which it receives updates
on certain key indicators of future performance such as rent
collection levels and voids. These regular meetings have
allowed the Board and the executive team to react and adapt
quickly to the rapidly evolving situation, assess and mitigate its
impact on our long-term strategy, agree short-term policies and
implement appropriate measures when required.
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Risk Management
STRATEGIC REPORT
The mitigating actions taken since the start of the lock down
period include:
f Actively engaging with our tenants on an individual basis,
particularly those who experienced cash flow difficulties as
a result of the lockdown measure across Europe, to assess
the financial and operating impact of the current crisis on
their business and what measures they are able to take
(including accessing Government financial support) to
ensure that they can manage through the lockdown period
and continue to operate successfully when it ends.
f Offers of rent deferral to those customers unable to pay
their rent.
f Continuing to invest in technology to support our MLI
operating platform (see additional information on pages 34
to 37 of this report).
f Consider the merits of MLI acquisition opportunities on
a case by case basis and assess them versus the need to
maintain sufficient capital in the business to cope with a
prolonged period of uncertainty.
Risk heat map
h
g
H
i
6
8
11
10
1
2
5
7
3
9
4
i
d
e
v
e
c
r
e
P
d
o
o
h
i
l
e
k
i
l
w
o
L
Low
Potential Impact
High
The key risks affecting the Group were identified and are
presented on pages 48 to 53, including an assessment of their
potential impact and controls and mitigating factors.
The Board also reviewed the Group’s risk appetite, taking
into account the expectations of the Company’s various
stakeholders and the current market conditions. The overall risk
appetite in the year under review was broadly unchanged from
the previous financial year. However, the Company is expected
to take a more prudent approach to risk whilst the duration
and impact of the current crisis remain uncertain. The potential
risks and benefits of proposed actions are being reviewed and
assessed with an increased emphasis on their potential impact
on all stakeholders – employees, customers, business partners
and shareholders – as well the Group and the wider society
in the context of the current pandemic and its adverse effect
on the global economy. The long-term strategic objectives
of the Group, its purpose and vision remain unchanged and
the Group’s financial model will continue to be used to assess
the impact of key decisions on its prospects with appropriate
sensitivity analysis and stress testing. This will guide and form
the basis of any changes in the Group’s risk appetite when
evaluating the merits of specific proposals.
More information on the assessment of prospects and viability
undertaken by the Directors in accordance with provision 31 of
the 2018 UK Code is set out on pages 46 and 47.
Risk increasing
Risk stable
Risk decreasing
1. Macroeconomic and
political uncertainty,
including the impact of
the Covid-19 pandemic
2. Complete the transition
into 100% focused MLI
business
3. MLI platform
4. Bank covenants
5. Debt funding
6. Costs of development of
the F&O and CRM systems
7. Asset management
8. IT systems
9. Reliance on service
providers
10. People
11. Environmental standards
ANNUAL REPORT 2020 STENPROP
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STRATEGIC REPORT
Risk Management
continued
Viability statement
Assessment of prospects
In accordance with provision 31 of the
UK Corporate Governance Code and
King IV, the Directors have assessed the
prospects of the Group over a longer
period than that required in adopting
the going concern basis of accounting,
choosing five years to 31 March 2025 for
the purposes of conducting this review.
The Board considers this period to be
appropriate as the Group’s financial
review and business plan forecasts cover
a five-year looking forward period.
The Group’s five-year plan is supported
by a detailed financial model which
considers the effects of the Group’s
business model and strategy on earnings
and dividends, taking appropriate
account of the Group’s principal risks.
It is based on prudent assumptions
regarding, among others, the timing and
They also considered the potential
microeconomic impact of a disorderly
Brexit outcome.
The Group has significant cash resources
at the start of the look forward period
which is a key factor in assessing
viability. At 31 March 2020, it had
approximately £70 million of free cash.
The stress test was designed to
incorporate highly severe assumptions
to test the Group’s ability to meet its
obligations as they fall due under the
most extreme circumstances. These
assumptions were applied for the
18-month period to 30 September 2021.
The assumption is that after this period,
the market will return to some level of
normality and that operations will return
to the levels anticipated pre COVID-19
(i.e. prudent and plausible rent collection
levels, lease periods, vacancies and
renewals, rental growth rates, exchange
rates and interest rates).
quantum of disposals and acquisitions
and the speed of the transition into a
100% UK MLI business, gearing levels,
rent collection levels, lease periods,
vacancies and renewals, rental growth
rates, exchange rates and interest
rates. It includes budgeted profits and
cash flows and also considers capital
commitments, dividend cover, financial
covenants and REIT compliance metrics.
See pages 16 and 17, and pages 20 and 21
for further details on the business model
and strategy of the Group.
The model is kept under regular review
by management and the Board and is
updated on, at least, a quarterly basis
against actual performance.
Assessment of viability
Management subjected the model to
a stress test scenario to explore the
resilience of the Group to the potential
impact of the significant risks identified
on pages 47 to 53, or a combination of
those risks. The Directors paid particular
attention to the downturn in economic
outlook caused by the current COVID-19
pandemic and its potential impact on
property fundamentals, including how
it is changing investor and occupier
demand, the potential negative impact
on valuations, rent collection levels and
cash flows and the availability of finance.
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It is further worth noting that the
loans are not cross-collateralised
and accordingly if certain banks
do act aggressively, the Group
would continue to operate with the
remaining portfolio of assets.
f Sensitivities to debt and loan
covenants (driven by rental income,
subjective yields and market values)
were assessed in detail. In these
difficult market conditions, lenders
have been guided by the Government
to take a pragmatic view to evaluate
and consider prepayment possibilities
and equity cures, and waivers of
covenants, as set by the Prudential
Regulation Authority (published on
the Bank of England Website on
26 March 2020) and breaches with a
direct link to the COVID-19 pandemic
should not automatically, other things
being equal, trigger a default. No
breach cures have therefore been
assumed in the forecast model. This
is supported by the assessment
that at the time of publishing this
report all loan covenants were
met, and headroom exists for both
interest cover and Loan to Value loan
covenants. The weighted average
reduction in the Group’s property
valuations before default is 33%. Loan
facilities subject to debt service cover
ratio covenants allow for an average
reduction in net rents of 64% before
default.
Notwithstanding this assumption,
the model illustrates that the Group
would have cash resources available,
even after considering the highly
severe scenario, to be utilised to cure
covenant breaches if they crystallise
and the lenders take a hard stance
against government advice.
f Sales and acquisitions. It remains
the Company’s mid-term strategy
to exit its non-MLI portfolio and
reinvest in MLI estates; however,
the primary focus at present is to
manage the business through the
COVID-19 crisis and the consequent
economic slowdown, by managing
cash resources very carefully and
maintaining liquidity in the business.
In a stressed environment, the model
assumed that no sales will occur
before December 2021 and that no
acquisitions take place during the
18 months to September 2021. It
is assumed that activity return to
plausible, pre- COVID-19 levels after
this initial extreme period.
f The Company’s REIT obligations were
also carefully considered. The largest
cash outflow for the business relates
to the bi-annual dividend. In terms
of the UK REIT regime, Stenprop
is required to make a distribution
of 90% of the Group’s aggregate
UK property rental business profits
as calculated for tax purposes,
within 12 months of the accounting
period end. After considering the
required dividend at the assumed
level of rental income, with a 100%
cash assumption, quarterly cash
flow remains positive over the
entire period.
Viability statement
Having considered the forecast cash
flows, covenant compliance and the
results of the stress test, the Directors
have a reasonable expectation that
the Group will be able to continue in
operation and meet its liabilities as they
fall due over the five-year period of their
assessment.
ANNUAL REPORT 2020 STENPROP
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Key highly severe assumptions applied
for the 18-month period to September
2021 are detailed below:
f Rental income: Stenprop’s primary
inflows relate to rental income.
Stenprop’s tenants are engaged in
a wide range of businesses, serving
the needs of their customers in their
local communities or across the
country. It is too early to say with
any accuracy what the impact will
be for these occupiers, although
clearly some sectors are more
directly impacted than others. State
aid is available and Stenprop has
implemented various strategies to
assist tenants and avoid vacancies,
such as temporary payment plans
and making new short-term leases
available. Nevertheless, a blanket 75%
drop in gross rental income has been
included in the model for the period
to September 2021 to assess the
Company’s liquidity and solvency at
that level.
f Direct landlord costs have been
assumed at four times the current
level for the period to September
2021, driven by the market downturn
and an increase in vacancies
associated with a continued period or
periods of lock down.
f The impact that COVID-19 will have
on debt refinancing is uncertain. The
loans coming up for refinance in the
look forward period are all geared
at a low level, on a strong asset
base. Based on comparative recent
refinance activity in the portfolio and
in the market, management believe
that this debt can be refinanced
without difficulty, even if the lending
environment were to toughen
significantly. Indications are that
a harder lending environment is
unlikely given that since the COVID-19
crisis, monetary and macro-financial
measures have been introduced to
reduce the bank rate and incentivise
lending to the real economy through
the new Term Funding Scheme.
On this basis, continued finance at
similar levels, and no deleverage
payments have been assumed. This
is further supported by offers already
received for the extension of loans
maturing before the end of the 2020
calendar year.
STRATEGIC REPORT
Risk Management
continued
Principal risk
Potential impact
How we monitor and
manage the risk
Movement in the period:
Trend
Linkage
to KPIs
Strategy
Economic
outlook and
political risk,
including the
impact of
the COVID-19
pandemic and
Brexit
Macroeconomic conditions
can impact both the delivery
of our strategy and our
financial performance.
The economic disruption
resulting from the Covid-19
pandemic has already
affected some of our
tenants and impacted our
rent collection levels. It
could lead to a reduction
in rental income, higher
vacancy rates, decrease in
property values, pressure
on cash flows and potential
difficulties in meeting bank
covenants. Significant
political events, including
decisions related to Brexit,
could further impact the
health of the UK and German
economies.
Whilst the Board believes
that the German property
market remains strong and
that the UK MLI market has
the characteristics required
to remain robust in the
long term, the COVID-19
pandemic will have a
strong impact on the global
economy. Our focus remains
on controlling what we can
within our business and
positioning the Company for
its long-term success.
The Board considers
economic conditions
and political uncertainty
when setting strategy, as
well as when overseeing
the implementation of
the strategy and setting
the Group’s risk appetite.
The executive and senior
management teams are
highly experienced and have
a strong track record of
understanding the property
market. It ensures effective
forecasting and scenario
planning as well as the
maintenance of appropriate
liquidity levels.
Specific key actions taken/
mitigating factors in the
context of the current
pandemic include:
f Bi-weekly board
meetings
f Active engagement with
tenants on an individual
basis
f Continued investment
in our MLI operational
platform
f Consideration of
transactions on a case by
case basis
f Significant cash
resources available to the
Group
See pages 11 and 13 of
this report for additional
information on our approach
to Covid-19.
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Principal risk
Potential impact
The inability to identify
and acquire suitable MLI
properties (which deliver
returns sufficient to meet the
Group’s investment return
criteria) will impact on the
Group’s ability to become
the leading UK MLI business
and the ability to deliver
sustainable dividends. The
downturn in economic
outlook may impact our
ability to sell non-MLI assets
at attractive prices. It may
also lead to the short-term
need to maintain capital
rather than deploying the
proceeds of sales into MLI
acquisitions and delay the
completion of our transition.
Failure to achieve its vision
of becoming the leading
UK MLI business leading
to poorer than expected
performance and earnings
Inability to
increase the MLI
component of
our portfolio
and complete
the transition
Inability to
develop and
maintain the
MLI platform
Movement in the period:
Trend
Linkage
to KPIs
Whilst the sale of the
Bleichenhof property in
February 2020 significantly
increased the purchasing
power of the Group,
acquisition decisions will
have to be considered on
a case by case basis and
balanced against the need
to preserve capital in the
context of the current
pandemic. See the Property
Report on pages 24 to 29
of this report for additional
information on the UK MLI
market and our expectations
for our German assets.
We have made significant
progress on developing
our MLI operating platform
during the year under
review. See pages 34 to 37
of this report for additional
information and our plans
for the current financial year.
How we monitor and
manage the risk
The Company benefits
from an experienced asset
management team that
continuously monitors and
researches the multi-let
industrial space to identify
acquisitions opportunities.
The strategic decision to
accelerate the sale of all
German assets allowed
the sale of the Bleichenhof
property when transaction
volumes and valuations
remained strong in Germany
and will continue to give
the executive team the
power to sell when it is
the most advantageous
for the Company to do so,
whilst increasing Stenprop’s
purchasing power in the UK.
We have chosen to
work with Microsoft and
partnered with KPMG as our
implementation partner for
the Microsoft solutions. The
benefits of this approach
are described in more detail
on pages 36 and 37 of this
report. We closely monitor
progress and have hired
a tech platform manager
and a data analyst in-house
to support our strategy.
We also have a team of
experienced and dedicated
asset managers with deep
expertise in managing MLI
properties.
Trend Key:
KPI Key:
Increase
Diluted adjusted EPRA Earnings per share (pence)
Decrease
Distribution per share (pence)
No change
Diluted EPRA NAV per share
MLI portfolio percentage
Group Loan-to-Value (LTV) percentage
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STRATEGIC REPORT
Risk Management
continued
Principal risk
Potential impact
Financial risks
Bank covenants
This may result in the
acceleration of the Group’s
obligations to repay
borrowings and the disposal
of assets at discounted
values
How we monitor and
manage the risk
Movement in the period:
Trend
Linkage
to KPIs
Loan facilities usually
incorporate covenant
headroom and cure
provisions. Management
closely monitors compliance
with bank covenants and
continuously assesses the
likelihood of future breaches
based on valuation and
rental income.
Despite the disruptions
in the economy caused
by Covid-19, we do not
expect this risk to have
increased. This is due to
strong relationships we
maintain with our facility
providers and at the time
of publishing this report, all
loan covenants were met
and headroom exists for
both interest cover and LTV
loan covenants. Read more
in our viability statement
on page 47 for additional
information on sensitivities
to bank covenants.
Notwithstanding this
assumption, the Group
would have cash resources
available, even after
considering the highly
severe scenario, to be
utilised to cure covenant
breaches if they crystallise
and the lenders take a hard
stance against government
advice. It is further worth
noting that the loans are
not cross-collateralised and
accordingly if certain banks
do act aggressively, the
Group would continue to
operate with the remaining
portfolio of assets.
Availability and
cost of finance
The inability to raise
adequate funding would
impact the ability of the
Group to transition into
a fully focused UK MLI
business and would increase
the costs of borrowing.
The Group maintains strong
relationships with top-
rated financial institutions
through a solid track record
at achieving strategy. It
operates a conservative
gearing policy and reduced
its gearing to 40.8% as at
31 March 2020. The impact
of COVID-19 on debt
refinancing and how this is
monitored is further detailed
in the viability statement on
page 47.
We believe that the Group
will be able to refinance
existing debts at acceptable
levels. This is supported
by offers already received
for the extension of loans
maturing before the end of
the calender year. However,
the impact of COVID-19 on
our ability to access new
funding at competitive rates
should not be discounted
and is closely monitored.
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STRATEGIC REPORT
Principal risk
Potential impact
Operational risks
Costs of
development
of the F&O and
CE platforms
Inadequate planning,
technical issues and
inadequate budgeting would
result in increased costs
and delays and may impact
rental growth and earnings.
Poor asset
management
This may result in the
inability to meet rental
growth targets and
negatively impact earnings.
How we monitor and
manage the risk
Movement in the period:
Trend
Linkage
to KPIs
This risk remains constant
throughout the year and is
not expected to increase
now that Stenprop has
identified Microsoft as the
provider of the CE and
F&O solutions and is in the
advanced stages of design
and, with regards to CE,
implementation. See pages
36 and 37 for additional
information.
See pages 35 to 37 of
this report for additional
information on our MLI
operating platform. See also
examples of added value
created through excellent
asset management on pages
15, 27 and 32.
Adequate planning
and budgeting are key
to managing this risk
effectively. Our in-house
tech platform manager leads
the planning, development
and implementation of all
tech solutions under the
active supervision of the
Executive Property Director.
The executive team keeps
the implementation plans
under constant review to
identify early potential
issues, suitable alternatives
and solutions and review its
budget expectations to the
extent required.
The Group relies on an
experienced team of asset
managers who actively
engage with tenants and
monitor payments. All
prospective tenants go
through a robust credit
check and deposits
are usually required. In
addition, the MLI Platform
focuses on a high-quality
customer service culture.
With the development of
the F&O and CE systems
and the increased use of
technology, the interaction
with the tenants is increased,
potential difficulties spotted
early, solutions discussed
and remedial actions taken
early, reducing arrears and
irrecoverable expenditure.
Trend Key:
KPI Key:
Increase
Diluted adjusted EPRA Earnings per share (pence)
Decrease
Distribution per share (pence)
No change
Diluted EPRA NAV per share
MLI portfolio percentage
Group Loan-to-Value (LTV) percentage
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STRATEGIC REPORT
Risk Management
continued
How we monitor and
manage the risk
Movement in the period:
Trend
Linkage
to KPIs
Principal risk
Potential impact
Operational risks – continued
Disruptions to
or breakdown
of IT systems
including
security breach
This could lead to
disruptions in effective
asset management,
impeded access to systems
for tenants and business
partners, loss of business
data and reputational
damage.
Reliance on
key service
providers
The Group relies on key
service providers and
is dependent on the
performance of external
property managers for
successful and effective
operations and financial
reporting.
The Group engages external
Information Technology
experts to ensure the
systems operate effectively
and that the Company
responds adequately to
the evolving IT security
environment. IT systems
are audited and tested
periodically and a
comprehensive business
continuity and disaster
recovery plan is in place. All
staff receive regular training.
The Group has established
and maintains a
comprehensive system of
procedures and controls. The
Company’s asset managers
as well as a team of qualified
in-house finance managers
work in close collaboration
with property managers
and accountants to ensure
an appropriate level of
oversight.
Employment
and retention of
key personnel
The departure of a key
individual and the inability
to recruit a suitable
replacement could
negatively impact the
ability of the Group to
source adequate UK MLI
acquisitions, develop its
MLI Platform and realise
its vision of becoming the
leading UK MLI business. It
could impact performance
and earnings.
The Company maintains
policies and procedure
to support and develop
all employees. See pages
57 and 58 for additional
information on our corporate
culture as well as the
remuneration committee
report on pages 75 to 83 for
additional information on
the Company’s remuneration
policy and incentive
schemes.
This risk is increasing due to
the increased reliance of the
Group on technology as part
of the Group’s long-term
strategy and as part of its
strategy for dealing with the
Covid-19 pandemic.
This risk remained constant
during the reporting period,
but is expected to decrease
during the current financial
year. This is mainly due
to the property manager
engaged in relation to the
MLI assets of the Group
indicating that they will use
the Microsoft solutions of
the Group when launched
rather than their own
property management
solutions, therefore reducing
the risk of reliance.
This risk remained constant
during the reporting period.
The Company is proud of
its caring working culture
which focuses on the well-
being of its employees as
well as results. It continues
to promote team working,
trust and accountability,
learning and innovation and
offers a supporting and
challenging environment
in which all employees are
able to develop and make a
meaningful contribution to
the success of the Company.
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Principal risk
Potential impact
Emerging risks
How we monitor and
manage the risk
Movement in the period:
Trend
Linkage
to KPIs
Environmental
and energy
efficiency
standards
The inability to efficiently
assess, monitor and report
on the impact of the Group’s
activities on the environment
with a view to limit that
impact over time is expected
to impact investors’
and other stakeholders’
confidence in the Company
and ultimately impact on its
ability to deliver on its long-
term strategic goals.
The Group is currently
reviewing its approach to
these emerging risks with
the assistance of specialist
external advisers. It intends
to formulate a strategy and
roadmap to implementation
during the course of the
current financial year.
Additional attention is
currently being devoted
in this area to ensure the
appropriate approach and
indicators are applied.
Trend Key:
KPI Key:
Increase
Diluted adjusted EPRA Earnings per share (pence)
Decrease
Distribution per share (pence)
No change
Diluted EPRA NAV per share
MLI portfolio percentage
Group Loan-to-Value (LTV) percentage
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Section 172 Statement
Additional information on the operation of the Board and its key activities during the
year are also set out on pages 66 to 69.
Section 172 matter
Likely consequences of any
decisions in the long term
The interests of the
Company’s employees
How these matters were considered in
discussions and decision making
The long-term strategy of the Group remains
to deliver sustainable and growing income
to shareholders. Every strategic decision
is made after considering how it may
impact this long-term objective. Additional
information can be found in our Business
Model section (pages 16 and 17) and Strategy
section (pages 20 and 21).
Acceleration of sales
The strategic decision to accelerate the sale
of the German assets to capitalise on strong
valuations and an active German investment
market was made after a detailed assessment
of the potential short and long term impact
on earnings from holding excess cash if
these funds were not soon utilised to acquire
further MLI estates.
Dividend declaration
The Board declares a dividend twice a
year. When doing so, it considers its REIT
compliance obligations and recognises the
importance of dividend payments for its
shareholders. It also considers the need to
leave the company with sufficient resources
to support its long terms business – see
pages 46 and 47 for additional information
on the long term assessment of the viability
of the Company.
See pages 56 and 58 for additional
information of the Company’s engagement
with its employees, and how it seeks to
promote their interests, from the various
measure taken to promote their wellbeing,
to the periodic and constructive feedback
on their performance. The Board is aware
that the needs of its workforce may change
as Stenprop transitions further into a 100%
focused MLI business. It encourages feedback
from employees and continues to review and
assess its working practices accordingly.
Section 172 of the UK Companies Act
2006 (‘Section 172’) is not directly
applicable to Guernsey-registered
companies such as Stenprop. However,
the Company has elected to voluntarily
comply with the 2018 UK Corporate
Governance Code (the ‘2018 Code’)
which requires that a description be
included in this report of how the
interests of its key stakeholders and the
matters set out in Section 172 (set out in
the table overleaf) have been considered
in board discussions and decision-
making. The Board welcomes this new
reporting requirement introduced by the
2018 Code as an opportunity to provide
further insights to all its stakeholders as
to how it operates.
Section 172 imposes a statutory
obligation on each director to act in
the way that they consider, in good
faith, would be most likely to promote
the success of the Company for the
benefit of its stakeholders as a whole
having regard to certain factors. The
Board understands that this duty applies
across the full spectrum of the directors’
role, from setting the Group’s strategy
to monitoring its corporate culture
and approving significant business
transactions, policies and procedures.
The Board also understands that the
long-term success of the Company is
intrinsically linked to the interests of its
stakeholders. A summary of how we
engage with our stakeholders is provided
on page 18 of this report with examples
and additional information disseminated
throughout this report. The directors
intend to continue to encourage an open
dialogue with members, customers,
employees and business partners alike
to understand the issues they face and
consider their interests when setting
the short and long-term strategy of
Stenprop.
In the table below, we explain how the
directors considered the matters set
out in Section 172 when discharging
their duties to the Company and its
stakeholders by reference to some of
the key activities and strategic decisions
made during the year. Where relevant
it includes explanations as to how
the directors assessed and mitigated
the impact of these decisions on
stakeholders.
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Section 172 Statement
STRATEGIC REPORT
Section 172 matter
The need to foster the
Company’s business
relationships with suppliers
and customers
The impact of the
Company’s operations on
the community and the
environment
Maintaining high standards
of business conduct
How these matters were considered in
discussions and decision making
Delivering our vision to be the UK’s leading
MLI business requires strong working
relationships with suppliers and customers.
The Board closely monitors the performance
of key suppliers and promotes excellent
customer service. See page 19 for an example
of how we are set to achieve this.
COVID-19
Our response to the challenges presented
by the COVID-19 pandemic has been driven
by the way it is impacting our customers. As
described throughout this report and more
particularly on pages 11 to 13 and 45, we have
actively engaged with our customers on an
individual basis to assess the financial and
operating impact of the current crisis on
their business. The feedback and knowledge
gained by the Group has driven the decisions
of the Board on any offers of rent deferrals
and concession, and has been the basis for
setting the Group’s short, medium and long
term strategic responses to the crisis.
The Board recognises that the Group’s
activities have an impact on the community
and the environment. The Board made the
decision to engage with a sustainability
partner during the current financial year
to help the Company develop a formal
sustainability strategy and roadmap to
delivery. For additional information on
sustainability as well as on the Company’s
engagement with charities, see pages 56 to
59 of this report.
The Board continuously promotes the core
values of the business – customer-focused,
results-oriented, innovative and decisive – via
the monitoring of the Group’s culture as set
out on pages 57 and 58 and page 68 of this
report. Specific examples include the review
of its Modern Slavery Statement and Policy
and of its whistleblowing policy.
The need to act fairly as
between members of the
Company
See pages 18 and 69 for additional
information on the way the Board engages
with its shareholders.
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STRATEGIC REPORT
Responsible
Business
Female/Male at executive and
senior management level
12.5%
Female
87.5%
Male
Female/Male over all employees’
population
50%
Female
50%
Male
Responsible Business
Our purpose is to revolutionise the MLI
sector and our vision is to be the leading
UK MLI business. We are committed
to achieving this in a responsible,
sustainable and ethical manner,
generating long-term value not just for
Stenprop but for all its stakeholders –
employees, customers, business partners,
shareholders and lenders – as well as the
wider society.
We believe that a culture defined by
values and behaviours aligned to these
goals is essential to our success. During
the year under review we have again
looked at how we can improve our impact
on the environment, how our corporate
culture promotes our workforce and
strategic goals, and how we can support
the communities around us.
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STENPROP ANNUAL REPORT 2020
Sustainability – the changing
environment
With over seven billion people residing
on our planet, how we co-habit and use
resources in a long-term sustainable
fashion has been brought into sharp
focus over the last 18 months. At
Stenprop we recognise we have our part
to play. Over the last 12 months we have
been actively looking to incorporate
sustainability into our business activities,
as further described below.
We continue to evolve our thinking in this
space and work towards putting in place
a more robust sustainability framework.
Over the course of the coming financial
year we will be developing a new formal
sustainability strategy and roadmap
for delivery to ensure sustainability is
embedded into our day-to-day business
activities and aligned to our business
goals.
Progress on 2020 targets:
f The most visible action we took
is the installation of solar panels
across three of our estates. We also
acquired two new estates with solar
panels already in place. We continue
to look at the viability of installing
solar panels on other estates,
particularly where we are already
sourcing energy for our customers.
This alongside a focus on buying
green energy will allow us to deliver
a potential cleaner solution to our
customers.
f We continue to assess and upgrade
our units to enhance their EPC
ratings. In particular replacing
lighting on our MLI estates when they
need replacing with LED lighting.
During the year ended 31 March 2020,
we focused our efforts on improving
the quality of existing data and the
implementation of new F&O and CE
systems designed to increase our
capabilities in terms of collecting,
monitoring, and using data. We believe
that these systems will better enable us
to assess and monitor energy data from
our MLI estates.
We intend to review our energy targets
and KPIs during the current financial
year as we develop our new strategy and
roadmap for sustainability.
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Sustainability touches all aspects of our
business from the way we operate our
buildings through to the decisions and
actions of our employees. In 2019 we
appointed four customer engagement
managers as a direct liaison with our
customers, creating a regional presence
and enhancing the customer experience.
This served to reduce our carbon
footprint by placing our employees
closer to our estates, thus reducing
travel.
We will be looking to incorporate
sustainability in our drive to develop
operational efficiencies across our
business. We have recently adopted
DocuSign for our Smart Lease roll out
allowing us to reduce paper usage. We
are also actively working with a number
of our business partners to roll this out
across other contracts where possible.
The recent countrywide lockdown has
enabled us to promote this more quickly
across some business areas.
As further explained below, employee
well-being is high up on our agenda, with
many keen fitness enthusiasts within
Stenprop. A large group choose to
avoid public transport where possible,
either running or cycling to work. In
order to encourage this, we started the
calendar year with a new challenge to
all employees in 2020 to target cycling
10,000 miles across the course of the
year. This may be difficult to achieve
considering that most of our employees
continue to work from home, but we aim
at getting as close as possible to our
initial target!
STRATEGIC REPORT
People and culture
Our culture is evolving in line with our
strategy. We have identified four key themes
of workplace culture which support our business
model and values.
Well-being
Decisive
Trusted
Respected
Distinctive
Leading
Connected
Team-working
Flexible
Progressive
Respected
Focused
Rewarding
Collaborative
Proactive
Adaptive
Agile
Dependable
Enthusiastic
Results
Learning and Innovation
Well-being
We maintain a caring environment, with the well-being
of our employees being a key focus. We wish to support,
develop and protect our employees, encourage team
working and communication. Stenprop subscribes to an
employee assistance programme so employees can seek
free confidential advice at times when they may require
additional support. We promote well-being through a
number of additional benefits including private medical
insurance and travel insurance for all employees and a
cycle to work scheme.
With the challenges of the current COVID-19 pandemic,
it is increasingly important to ensure that all our
employees remain connected, supported and are
able to work in a safe and comfortable environment.
We have the technology to work flexibly and we are
incredibly proud of the way each individual at Stenprop
has adapted to these difficult and unprecedented
circumstances. This financial year, we intend to continue
to look after the well-being and mental health of
our staff and assist them balance their personal and
professional lives.
Results
We focus on delivering results and excellent customer
service through collaborative working, detailed planning
and priority setting. We evaluate training needs in
line with business objectives and encouraged our
employees to attend training to improve performance
and engagement.
The setting of individual objectives, periodic employee
reviews and remuneration are all important elements
of culture. Individual objectives are designed to reflect
and reinforce both the Group’s corporate KPIs and the
role of each individual in achieving these KPIs taking
into account the Group’s values and desired behaviours.
Performance reviews provide employees with
constructive and honest feedback and the remuneration
policy is intended to recognise and reward both
individual efforts and corporate success.
We installed real-time dashboards in the office which
display key performance indicators and we continue to
communicate regularly on progress against targets.
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STRATEGIC REPORT
Responsible
Business continued
Decisive
Our success is largely driven
by our ability to make timely,
practical and cost-efficient
decisions based on available
data and previous experience.
With that in mind, we have
invested in technology solutions
with the quality and accuracy
of data as key elements of our
strategy (see page 34 to 37 for
additional information).
Learning and Innovation
As part of the renovation of
our London office in 2018,
we created different types
of workspace to promote
collaborative working and
innovation.
We have a dynamic and diverse
team of people at Stenprop that
create a vibrant and inclusive
culture.
We believe the ability to draw
on this diversity and breadth
of skills provides a healthy and
creative environment for growth.
We encourage learning and the
exploration of new ideas but we
also recognise when a particular
process is not working.
Stenprop is committed to
promoting equal opportunities in
employment. All employees and
any job applicants receive equal
treatment regardless of age,
disability, gender reassignment,
marital or civil partner status,
pregnancy or maternity, race,
colour, nationality, ethnic or
national origin, religion or belief,
sex or sexual orientation.
auction and made successful bids raising
approximately £3,500. More recently
Stenprop donated £8,000 for the
acquisition of four UV lamps which keep
water systems disinfected at the source
and stop the spread of Legionella across
children hospices operated by Demelza
in Sittingbourne and Eltham. We have
also made small donations through book
sales and collection pots.
As we sadly end our partnership with
Demelza, we welcome our new partner
for the current financial year. Once again,
we asked all our employees to nominate
charities close to their heart, and we
are excited to announce that Brain
Tumour Research was nominated by
several members of staff and chosen by
Stenprop. Despite the challenging start
to the year, we set the ambitious target
of raising at least £20,000 to support
continuous and sustainable scientific
research into brain tumours.
Community
Our charitable initiatives policy continues
to focus on our employees’ personal
causes and experiences. We support
all employees who wish to engage in
fundraising activities with our Matched
Giving Scheme and we offer paid time
off to those who wish to spend their time
and apply their knowledge to charitable
causes.
During the year ended 31 March 2019, we
raised a fantastic £12,200 for our chosen
Stenprop Charity of the Year, Bokamoso
Education Trust. We are pleased to report
that last year was another great success.
We set ourselves the target to raise
a minimum of £10,000 for the 2020
Stenprop Charity of the Year, Demelza
Hospice Care for Children, which would
support an incredible 900 hours of care
by a Demelza Care Assistant for those
children who need it.
Throughout the year, we have been
working closely with our Corporate
Partnerships Manager at Demelza
who continuously provided us with
information about upcoming events
taking place with the charity as well
as unique and simple ways to raise
money. In June 2019, seven Stenprop
employees completed the Source-2-Sea
challenge raising an impressive £19,000
for Demelza (including £6,000 donated
by Stenprop through our Matched Giving
Scheme). Stenprop also took a table
at the Demelza Anniversary Ball where
employees participated in the charity
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STRATEGIC REPORT
STRATEGIC REPORT
Source-2-Sea challenge in aid of Demelza
June 2019 saw seven employees from Stenprop
take on the lung-busting Source-2-Sea challenge,
involving 31 hours of non-stop running. Setting
off from the source of the River Thames near
Cirencester, the seven experienced the typically
inconsistent English weather – wind, rain, sunshine
and mist - but it was the requirement to outrun
some slightly agitated cattle that kept them on their
toes. Injuries were only minor and, thankfully, no
one ended up in the river as they navigated their
way along the Thames path day and night. We are
incredibly proud of the seven as they managed
to raise £19,000 for Demelza Hospice Care for
Children.
in order to get closer to a cure. They get
no Government funding and rely totally
on the generosity of supporters and
partners to help them progress.
challenges to enhance team rapport
and company loyalty during social
distancing, whilst helping raise funds for
this vital cause.
Professor Silvia Marino, the lead
scientist at their Queen Mary University
of London Centre said: “A break in
funding for research into brain tumours
now would have a devastating impact
for years and years.”
The charity is looking for help to
minimise this risk and partnerships
with local businesses and organisations
offer advantages to both sides. Here at
Stenprop we intend to take on virtual
Despite COVID-19 having a major
impact on life as we know it, we are
determined at Stenprop to get creative
and start thinking of ways we can work
with Brain Tumour Research to start our
fundraising for the financial year ending
31 March 2021.
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Brain Tumour Research
As we enter into another financial year
here at Stenprop we also welcome our
new and exciting charity partner, Brain
Tumour Research.
Brain tumours are indiscriminate;
they can affect anyone at any age.
What’s more, they kill more children
and adults under the age of 40 than
any other cancer... yet historically just
1% of the national spend on cancer
research has been allocated to this
devastating disease.
Brain Tumour Research is determined
to change this.
The charity is building a network of
experts in sustainable research at
dedicated Centres of Excellence whilst
influencing the UK Governments and
larger cancer charities to invest more
nationally.
The impact of COVID-19 is now
seriously threatening the income
streams they rely on to support their
vital research and campaigning. Brain
Tumour Research has spent the last
decade developing ‘discovery science’
27385 17 June 2020 7:25 pm proof 1Governance62Chairman’s Statement64Our Board of Directors 66Corporate Governance Overview70Audit and Risk Committee Report73Nominations Committee Report75Remuneration Committee Report84Social and Ethics Committee Report85Directors’ Report 27385 17 June 2020 7:25 pm proof 1 GOVERNANCE
Chairman’s
Statement
Richard Grant
Independent
Non-executive
Chairman
When I sat down to write my Chairman’s
statement at this time last year, I was
reasonably confident that Stenprop
would be able to achieve the major
milestones identified for 2019-2020 in
our transition plan. I was conscious of
the scale of the challenge necessary to
achieve the business transition, requiring
as it did a wholesale change in both
the geography and sectors in which
Stenprop is invested, but I could see that
we were making good progress and the
prospects for being able to deliver on
our further transition milestones looked
most promising.
The key elements of our transition were
the progressive sale of our entire existing
property portfolio, the acquisition of a
market-leading portfolio of purpose-built
MLI estates in the UK, a reduction in our
balance sheet leverage to approximately
40% and the transition to a UK listing
and largely UK shareholder base.
A key part of this process is the sale
of our non-MLI properties in the UK,
Germany and Switzerland. During last
year, we felt confident that we would
be able to successfully sell our largest
single property asset in Germany, the
Bleichenhof building, a mixed-use
property in the centre of Hamburg. We
were also successfully acquiring more
MLI estates in the UK both through
portfolio transactions and through the
acquisition of individual estates where
these could be purchased in line with our
acquisition criteria.
Shortly before Christmas 2019 we
announced the sale of the Bleichenhof
building. We then announced completion
of the transaction in March 2020. We
were approaching our interim target
for the MLI proportion of our property
assets to be 60%. We were also
confident of achieving our target to
reduce balance sheet leverage to 40% by
the end of the financial year.
At the beginning of 2020, I and many
others in the property industry, were
feeling a sense of optimism regarding
the current business outlook, boosted
by a decisive election outcome and a
greater degree of clarity over Brexit
progress. Achievement of the milestone
targets in our transition strategy for the
financial year to 31 March 2020 looked
well within our sights.
However, none of us could have
envisaged the extent of the change to
every aspect of our life since the onset
of the COVID-19 pandemic. In this utterly
changed world, the immediate priority
for all businesses has been to focus on
the pandemic and its impact on staff,
customers and suppliers. Obviously, this
is the immediate focus for the Stenprop
team and I have been pleased to see
the speed and initiative with which they
have adapted to these unprecedented
circumstances.
As the potential impact of the
COVID-19 pandemic became clearer,
we undertook a rapid reassessment of
immediate strategic priorities and quickly
recognised the need to conserve cash,
to maximise balance sheet strength and
to manage the challenges of collecting
rents from tenants all suffering from
the effects of the pandemic in different
ways. We also needed to look carefully
at our existing borrowings and ensure
that through the excellent relationships
which we have with our lenders we keep
them informed on a regular basis and
ensure that we continue to have their full
support.
Overall, I am confident that we have
sufficient financial strength and flexibility
to survive the impact of COVID-19 and,
once the most immediate restrictions
on activity are lifted, to be in a strong
position to continue delivering on our
remaining transition milestones through
to the completion of our transition
strategy.
One of the major priorities for the
business this last year has been the
development and implementation of
a technologically advanced operating
platform based around Microsoft’s
Dynamics software. This has been a
major project both for the in-house
Stenprop team, and for the external
suppliers and consultants who are
assisting us. It is a very considerable
achievement that the first major phase
has been developed and successfully
implemented with only a marginal
delay from the original schedule. The
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27385 17 June 2020 7:25 pm proof 1implementation of this platform was always regarded as a key part of the transition to a wholly MLI focused-business but the huge and unexpected challenges presented by the COVID-19 pandemic have quickly confirmed many of the benefits to be derived from having such a platform.As noted elsewhere in the Annual Report, the inception of the COVID-19 lockdown occurred in the final few weeks of March and as such had a minimal impact on earnings for the financial year. Whilst the Board is only too aware of the potential challenges that lie ahead, our strong balance sheet and significant free cash balances have allowed us to declare a final dividend of 3.375p per share. This takes the full year dividend to 6.75p per share, a distribution level which is fully covered by earnings. We continue to monitor the current events and will keep our future dividend policy under review.As reported in more detail on pages 73 and 74 we have undertaken an external Board evaluation exercise this year for the first time. Board evaluations have been undertaken previously, but only on an internal basis. The report prepared by our external advisers identified the need to increase the independent element in the composition of the Group Board. The Board were aware of this issue in advance of the external evaluation and are committed to rectifying the situation over the next 18 months or so. I am pleased to be able to report that, apart from this, the overall conclusion of the evaluation exercise was that the board functions well and is providing appropriate strategic leadership and guidance to assist in the successful management of the business.It was announced on 10 June 2020 that Warren Lawlor would be stepping down from the Stenprop Board with effect from the 2020 annual general meeting. Warren has been an outstanding contributor to the Board since he was appointed in April 2017. He has provided a vital sounding board to the management team on a variety of issues. He has also assisted in liaising with our South African investors. It is the Board’s intention to appoint a new independent non-executive director in the near future to replace Warren and a structured process to identify and attract an individual with the appropriate expertise and background will start in the near future. This will be an important step in the process to increase the extent of independent contributions to the Group Board’s deliberations.I should like to take this opportunity to say a huge thank you to my fellow Board Directors, to all the Stenprop staff and all those with whom we work in our supply chain and consultants for all their hard work during the year and, of course, in particular for the extra efforts which had to be made in recent months to manage our way through the unprecedented difficulties which we are facing as a result of the current pandemic crisis.Although COVID-19 presents many significant challenges in the short and medium term I am confident that Stenprop can overcome these challenges, and more importantly, I remain confident that the fundamental attractions of the multi-let industrial sector in the UK are largely unchanged, and in a number of ways, may actually benefit from the undoubted changes which the business world will see as the impact and lessons from COVID-19 are absorbed.Richard GrantIndependent Non-executive Chairman11 June 202063ANNUAL REPORT 2020 STENPROPGOVERNANCE GOVERNANCE
Our Board of Directors
Paul Arenson
Chief Executive Officer
James Beaumont
Chief Financial Officer
Julian Carey
Executive Property Director
Richard Grant
Independent
Non-executive Chairman
Paul has been Chief Executive
Officer of Stenprop since
October 2014.
Skills and expertise
Paul founded Stenham
Property Limited, a property
fund management business,
for the Stenham Group in
1995 and was its managing
director from inception
until October 2014. In
October 2014, the Stenham
Property business and a
substantial part of the assets
under management were
transferred to a listed entity
now known as Stenprop. Paul
was appointed as its CEO.
Stenprop was subsequently
listed on the LSE in June
2018. Prior to joining the
Stenham Group in 1995, Paul
practiced as a UK corporate
solicitor.
James was appointed Chief
Financial Officer in June 2019.
He was previously Stenprop
Head of Finance since June
2015, with responsibility for all
aspects of finance, financial
control, tax, accounting and
reporting for the Stenprop
group and funds managed by
Stenprop.
Skills and expertise
James previously spent five
years as finance director
of alternative asset funds
at Shore Capital Group
Limited where his focus
was on German real estate
and alternative investment
funds. Prior to that, he had
eight years of experience
in European real estate
and financial services
through senior finance
roles at Cambridge Place
Investment Management and
Genworth Plc, a Fortune 500
company. James qualified
as a Chartered Accountant
in 2002, after serving
articles with UHY Hacker
Young, a firm based in the
City of London. He holds a
Bsc(Hons) degree from the
University of Leeds.
Julian joined Stenprop in
July 2017 and was appointed
Executive Property Director in
May 2018.
Richard was appointed
Chairman of the Board and
chair of the nomination
committee in May 2018.
Skills and expertise
Julian established C2 Capital
Limited, a real estate fund
management business, in
2009 in joint venture with
the Ellis Campbell Group,
a UK Family Office. He
subsequently acquired the
Ellis Campbell stake in the
business in 2015 at the same
time as C2 Capital launched
Industrials.co.uk, a joint
venture with Morgan Stanley
Real Estate Investment.
Between 2015 and 2017 the
Industrials.co.uk portfolio
grew to comprise 25 multi-
let industrial estates and was
sold to Stenprop in June
2017 along with C2 Capital.
Julian previously worked in
the leveraged opportunity
funds team at LaSalle
Investment Management
from 2007-2009, prior to
which he worked at Jones
Lang LaSalle in the auction
and private investment team.
He has extensive experience
in asset management, fund
structuring, third party finance
and investment. Julian is a
qualified chartered surveyor.
Skills and expertise
Richard was the chief
financial officer of Cadogan
Group Limited from 1994
until his retirement in 2017.
Cadogan is a property
investment business
operating in Chelsea and
Knightsbridge in West
London with a holding
extending to 93 acres, built
on the foundations of a
traditional landed estate
which has been in the
ownership of the Cadogan
family since 1753.
Additional roles held
Richard is currently the non-
executive chairman of Helical
plc, a UK property investment
and development company
listed on the London
Stock Exchange. He is also
the chairman of Helical’s
nominations committee. In
addition, he is non-executive
chairman of Wittington
Property Investments Limited,
a private property investment
business.
Tenure of non-executive directors
50%
<3 years
25%
3-5 years
25%
5-6 years
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GOVERNANCE
Paul Miller
Independent
Non-executive Director
Philip Holland
Independent
Non-executive Director
Patsy Watson
Non-executive Director
Warren Lawlor
Non-executive Director
Paul was appointed to the
Board in September 2016.
He is the senior independent
director and chairs the
remuneration committee.
Philip was appointed to the
Board in May 2018. He chairs
the audit and risk committee
and the social and ethics
committee.
Skills and expertise
Paul is a solicitor with over
25 years’ experience in
cross border mergers and
acquisitions, joint ventures,
international offerings, listed
and unlisted funds and
governance and securities
laws issues, with a particularly
focus on the real estate
sector. Paul graduated from
the University of Cape Town
with Bachelor degrees in
Commerce and Law. He
built his career at Berwin
Leighton Paisner LLP (now
Bryan Cave Leighton Paisner
LLP), where he was a senior
partner and led the capital
markets team for a number
of years. He is now a director
of Everglen Capital Partners
LLP and remains a part-time
consultant to Bryan Cave
Leighton Paisner LLP.
Additional roles held
Paul is also an alternate
director of Transaction
Capital Limited, a company
listed on the Johannesburg
Stock Exchange.
Skills and expertise
Philip is a chartered
accountant with more than
21 years’ experience in
board-level finance roles in
the property sector. Between
2011 and 2017, Philip was
Finance Director and Deputy
Managing Director of Primary
Health Properties plc, a Real
Estate Investment Trust
listed on the Main Market
of the LSE and prior to that
with Natixis Capital Partners
Limited, Atlas Estates Limited,
Teesland plc and Estates &
General plc. Philip is currently
the Chief Investment Officer
at Prime plc, the UK’s leading
healthcare real estate
company, having joined the
group in April 2017.
Additional roles held
Philip is also a non-executive
director and chairman of the
Audit Committee of TP Group
plc, an AIM listed specialist
services and advanced
engineering company that
operates in the defence,
industrial and government
sectors.
Patsy became a non-
executive director on 5 June
2019. Prior to that she was
Chief Financial Officer of
Stenprop between October
2014 and June 2019, having
joined Stenham Property
Limited in May 2007 as
Finance Director.
Skills and expertise
Patsy holds Bachelor
degrees in Commerce and
Accountancy from the
University of Witwatersrand
in South Africa where she
also completed a two-year
postgraduate course in
taxation. She qualified as
a Chartered Accountant
in Johannesburg, after
serving articles with
PricewaterhouseCoopers.
Patsy joined the project
finance division of a South
African merchant bank for
three years, prior to becoming
a founding partner in Neil
Thomas & Associates, a
boutique firm of corporate
finance specialists in
Johannesburg. There she had
thirteen years of experience in
corporate finance and project
structuring. Following a move
to the UK, Patsy spent three
years as Finance Director of
a division of Regus before
leaving to join Stenham
Property Limited.
Warren was appointed to the
Board in April 2017.
Skills and expertise
Warren is a co-founder of
Ferryman Capital Partners,
an investment company
established in 2017. He
graduated from the University
of Witwatersrand in 1998
with Bachelor degrees in
Arts and Law and is an
admitted attorney and CFA
charter holder. In 2000, he
joined the newly started
corporate finance division
of Corpcapital Limited and
participated in the 2003 buy-
out of the business to form
Java Capital, where he was
an executive director until
his departure at the end of
2016. During his 17 years of
corporate finance experience
he advised a number of
listed and unlisted property
companies.
Key
Remuneration
Committee
Audit and Risk
Committee
Social and Ethics
Committee
Nomination
Committee
Chair of
Committee
Executive
Non-executive
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Corporate Governance Overview
Stenprop is a UK REIT registered under the Companies (Guernsey) Law, 2008 (as amended) (‘Guernsey Law’). While it is not
required to do so, the Board decided that the Company would comply with the 2018 UK Corporate Governance Code (‘2018
Code’) wherever possible. Any areas of non-compliance are disclosed and fully explained in this report. They include the balance
of independent and non-independent directors on the Board (see ‘composition of the Board’ overleaf), the Chairman of the Board
being a member of the Audit and Risk committee (see ‘Committee composition and governance’ on page 72 and the composition
of the Remuneration Committee (see ‘Operation of the Remuneration Committee’ on page 76. The Company remains committed to
achieving full compliance with the 2018 Code in due course.
The Company also adheres to the governance outcomes contained in the King IV Report on Corporate Governance for South Africa
(the ‘King IV Report’) of ethical culture, good performance, effective control and legitimacy in South Africa. The Board confirms
that, at the date of this report, the Company has applied the recommendations of King IV in all material respects. A report setting
out how King IV principles and recommended practices were applied during the year ended 31 March 2020 is available on the
Company’s website.
Our governance and leadership structure
BOARD OF DIRECTORS
Chairman: Richard Grant
Composition: Chairman, 3 Executive Directors, 4 Non-executive Directors
Responsible for the Group’s purpose, values and strategy and the promotion of its long-term sustainable success. It develops and
reviews the Group’s strategy and ensures that adequate internal controls and risk management processes are in place. It is also
responsible for ensuring effective communication with all stakeholders.
Certain matters are reserved for the Board’s approval, with other matters delegated to the committees of the Board or the
Executive Directors as appropriate.
Audit and Risk
Committee
Nomination
Committee
Chair: Philip Holland
Chair: Richard Grant
Remuneration
Committee
Chair: Paul Miller
Composition: 3 Non-
executive Directors
Composition: 4 Non-
executive Directors
Composition: 4 Non-
executive Directors
Oversees the external audit
process, financial reporting,
internal controls and risk
management framework
and assesses the need for
an internal audit function
See full report of the
committee on pages
70 to 72
Reviews the Board
composition and
recommends changes,
reviews the independence
of directors, responsible for
succession planning and
annual board evaluation
See full report of the
committee on pages
73 to 74
Determines the
remuneration policy, sets
the Executive Directors
and senior management
remuneration and approves
annual and long term
performan73 to 74ce
objectives and awards
See full report of the
committee on pages
75 to 83
Social and Ethics
Committee
Chair: Philip Holland
Composition: 2 Non-
executive Directors and
senior management
Responsible for sustainable,
social and economic
development, responsible
corporate citizenship and
labour and employment
relationships
See full report of the
committee on page 84
Responsibility for the day-to-day management of the business. The Chief Executive is responsible and accountable for the
implementation of the approved strategy with specific areas of the business managed by the other Executive Directors.
Chief Executive and Executive Directors
An executive committee comprising of all executive directors and members of senior management. It focuses on the operational
aspects of the effective management of the MLI portfolio of the Group, including financial reporting.
Operations Committee
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Board structure
3
executive
directors
1
independent
Chairman
2
independent
non-executive
directors
2
non-executive
directors
Board gender split
12.5%
Female
(1 director)
87.5%
Male
(7 directors)
Board member age
25%
60 to 69
12.5%
under 40
25%
40 to 49
37.5%
50 to 59
is aligned to its purpose, values and
strategy.
The directors believe that there is a
clear balance of power and authority at
Board level, such that no one individual
or block of individuals can dominate the
Board’s processes and decisions. The
Non-executive Directors constructively
challenge the Executives and scrutinise
the performance of management
in meeting their agreed goals and
objectives. This is key to the successful
delivery of the Company’s purpose
to become the leading MLI business
in the UK. During board meetings, a
collaborative atmosphere allowing
coherent discussions is maintained,
with all Directors given the opportunity
to contribute to the debate. Informal
meetings and events are also arranged
throughout the year to help build
constructive relationships between the
Directors and the senior management
team.
There is a clear division of responsibilities
between the Chairman, responsible
for the leadership and effectiveness
of the Board, and the Chief Executive,
responsible for the day-to day
management of the business.
The Board has established four
committees, the audit and risk
committee, the nomination committee,
the remuneration committee and the
social and ethics committee to which
certain powers have been delegated
as detailed in the governance and
leadership structure overview on page
66. The reports of these four committees,
their key areas of responsibilities and
their activities in the year ended 31 March
2020 are set out on pages 70 to 84 of
this report.
During the reporting period, an
operations committee was also
established composed of all the
executive directors and of members of
senior management. Its key role and
objectives are to improve efficiencies in
the management of the MLI portfolio and
financial reporting.
Composition of the Board
On 5 June 2019, Patsy Watson stood
down from her position as Chief Financial
Officer and was appointed by the Board
to the position of Non-executive Director.
On the same date, the Board appointed
James Beaumont as Interim Chief
Financial Officer. James was confirmed in
the role of Chief Financial Officer on
20 November 2019.
As at 31 March 2020, the Board
comprised three independent Non-
executive Directors including the
Chairman, two non-independent Non-
executive directors and three Executive
Directors. The Board is aware that it does
not comply with the requirements of
the 2018 Code in terms of the balance
of independent and non-independent
directors and is committed to implement
changes to achieve full compliance in
due course. Warren Lawlor, who is not
independent, has confirmed his intention
to resign with effect from the 2020
Annual General Meeting, and the Board
intends to recruit a new independent
non-executive director during the course
of the financial year.
The Board continues to have a strong
mix of experienced individuals with
a diverse range of skills and a wealth
of business experience in property,
including the MLI sector, finance and
governance. They provide strong and
effective leadership.
More information on the composition
of the Board can be found in the
Nomination Committee report on pages
73 to 74 of this Annual Report.
On the recommendation of the
Nomination Committee, all the directors
with the exception of Warren Lawlor will
offer themselves for re-election at the
2020 annual general meeting.
Role of the Board and division
of responsibilities
The Board ensures compliance with the
Guernsey Law. It also ensures compliance
with the articles of incorporation of the
Company, which have been prepared in
accordance with the Guernsey Law.
The Board has adopted a charter that sets
out the practices and processes it follows
to discharge its responsibilities. Certain
key decisions and matters are reserved
for the Board’s approval, including setting
the Group’s strategy and overseeing its
delivery, but also any changes to the
Group’s capital or corporate structure,
significant transactions, budgets and the
regular review of the financial position of
the Group. The Board is also responsible
for ensuring that the Group’s culture
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Corporate Governance Overview continued
Board meetings
Quarterly board meetings are scheduled during the financial year with additional meetings convened as necessary for exceptional
business. The quarterly meetings follow a formal agenda which includes a business review and update on key operational matters,
discussions on strategic matters, updates and reviews of the activities of the committees of the Board, any major transactions and
legal and governance matters. A corporate board report with peer group comparisons, share price and volume analysis and share
register analysis is also discussed at each quarterly meeting. Supporting documents and background information are circulated to
all the directors in advance of the meetings to allow sufficient time for the directors to familiarise themselves with the business to
be considered.
Directors
Non-executives
Richard Grant (Chairman)
Paul Miller
Philip Holland
Patsy Watson
Warren Lawlor
Executives
Paul Arenson
James Beaumont
Julian Carey
Scheduled meetings
Ad hoc meetings
Total
4/4
4/4
4/4
4/4
4/4
4/4
3/3
4/4
3/3
3/3
2/3
3/3
3/3
3/3
3/3
3/3
7/7
7/7
6/7
7/7
7/7
7/7
6/6
7/7
Key activities of the Board during the reporting period
Topic
Strategy - General
Strategy - Recycling of assets
Strategy - Multi-let industrial platform
Strategy - Capital management
Financial
Governance
Activity
Review of strategic objectives
Strategic review and discussion on the timings of sales and acquisitions during
the transition period leading to the strategic decision to accelerate the sale of the
German assets
Consideration and approval of the sale of the Bleichenhof property, including
circular and notice of general meeting
Engagement with KPMG as Stenprop’s implementation partner for the new CRM
and F&O systems, review and approval of the scope of the project, followed by
regular quarterly review of progress against initial plans
Strategy discussions on Stenprop’s operational business model
Extension of the Investec rolling credit facility to bridge the potential funding gap
between property acquisitions and sales
Strategic review of debt maturity profile and of refinancing alternatives with
insurers rather than banks
Approval of a final dividend of 3.375p per share for the six months ended 31 March
2020
Approval of the interim dividend of 3.375p per share for the six months ended
30 September 2019
Review of 2020/21 annual budget
Approval of 2019 Annual Report and notice of 2019 AGM, consideration of results
and shareholders’ engagement on the composition of the Board
Appointment of James Beaumont as Chief Financial Officer
Review of changes introduced by the 2018 Corporate Governance Code and update
to committees’ terms of reference
Risk management
Approval of anti-slavery and human trafficking statement
Consideration and management of key risks
Culture
The Board is confident that the four key themes of workplace culture identified by the Company and explained on pages 57
and 58 of this report – wellbeing, results, decisiveness and learning - promote the Company’s purpose, values and strategy. The
remuneration committee plays a key role in implementing a results driven culture focused on excellent customer service whilst
promoting team working and communication via the setting of the Company’s KPIs and of the remuneration policy. It oversees
its implementation for all employees and monitors performance against objectives. Additional information is set out in the
remuneration committee report on pages 75 and 83. The social and ethics committee encourages the continuous review and
update of employment practices and policies, to ensure that they evolve and adapt together with the business. It promotes the
wellbeing of all employees, as well as diversity, innovation and equal opportunities. The Board as a whole remains responsible
for assessing and monitoring workplace culture and it receives regular updates from all its committees on their discussions and
activities. The Board works in an open and transparent manner with constructive discussions, challenges and promotes this open
and approachable culture throughout the business.
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Conflicts of interest
All the Directors are required to avoid
situations in which they may have
potential conflicts of interest. Any
potential, actual or perceived conflicts
must be notified to the Chairman and
the Company Secretary as well as all new
outside interests that may affect them in
their role as directors of the Company.
Directors’ interests and conflicts are
recorded and reviewed by the Board at
each meeting.
Board evaluation
This year Stenprop appointed Board
Alpha Limited (‘BoardAlpha’) to
undertake an externally facilitated Board
evaluation.
Board Alpha made a number of detailed
recommendations to improve the
board’s processes and also to improve
independence and diversity in the board
composition. The recommendations are
being evaluated and it is anticipated that
the majority will be implemented during
the course of the coming year. We will
report on progress in the 2021 Annual
Report. Further information on the
process of the board evaluation is set out
in the nomination committee report on
pages 73 and 74.
Risk management and
internal controls
The Board determines the extent and
nature of the risks it is prepared to
take in order to achieve the Company’s
strategic objectives. It carries out a robust
assessment of the principal and any
emerging risks facing the Group, including
those that would threaten its business
model, future performance, solvency
or liquidity. For additional information
regarding the five-step risk management
process followed by the Company, the
principal risks facing the Group and how
they are being managed and mitigated,
see pages 44 to 53.
The Directors also acknowledge that
they are responsible for establishing
and maintaining the Group’s system
of internal controls and reviewing its
effectiveness. The Directors promote a
strong control environment.
Property accounting for the non-MLI
portfolio as well as the consolidation
of the Group’s financial information
remain outsourced. However, during
the reporting period, the financial
management and accounting for the
MLI portfolio was brought in-house and
the Company hired a Head of Financial
Operations who, together with the CFO,
assumes overall responsibility for the
accuracy of financial reporting. The Group
employs a team of qualified finance
managers who work in close collaboration
with asset managers and property
managers to ensure the appropriate level
of oversight and analysis is provided to
the financial reporting process.
The Operation Committee, composed
of all the Executive Directors and certain
members of senior management including
the Head of Financial Operations and the
Head of Asset Management, plays a key
role in ensuring adequate and effective
control procedures. The importance of
accurate financial reporting is emphasised
at all levels of the organisation and flows
through to external property managers and
other service providers who are monitored
and reviewed with regards to the accuracy
of their output on a monthly basis.
The key procedures established to provide
internal control and support the Directors’
review of the financial position and
prospects of the Group are set out below.
f Monthly management accounts
are prepared and presented to the
Operations Committee for review and
discussion.
f Quarterly management accounts
including variances to prior periods,
budget and adequate narrative are
presented and explained in detail to
the Board.
f Financial reporting standards are
considered for all transactions
and where necessary, the Group’s
auditors are consulted. Memos are
produced for the benefit of the audit
committee and the Board for material
transactions and accounting policy
decisions.
The Board has reviewed the need for an
internal audit function and remains of the
view that it is not suitable for the Group
considering its size and structure. During
the reporting period the Board has
engaged with KPMG to perform some
additional audit assurance work. Further
information on the scope of the work
undertaken can be found in the audit and
risk committee report on page 72 of this
report. The Board will continue to review
periodically whether an internal audit
function is desirable.
It should be noted that internal controls
over financial reporting are designed to
provide reasonable assurance regarding
the reliability of financial reporting. They
can only provide reasonable but not
absolute assurance against the risk of
material misstatement or loss.
Company secretary
The Board has direct access to the
advice and services of the Company
Secretary, Sarah Bellilchi, who is also
General Counsel to the Company and
a member of the senior management
team. The Company Secretary provides
guidance to the Board and individual
directors on corporate governance
matters. She is responsible for ensuring
that the Board and committees’
procedures are followed and that the
Company meets its statutory obligations.
The Board confirms that it has
considered and satisfied itself on
the competence, qualifications and
experience of the Company Secretary.
Shareholder engagement
The Chief Executive Officer, Chief
Financial Officer and Executive Property
Director regularly attend analyst
meetings and are available to meet or
talk to investors if requested. Individual
meetings and conversations with
shareholders also took place throughout
the year. The feedback received and
the outcome of these meetings and
conversations were communicated to the
Board.
All significant events and transactions as
well as the Group’s financial performance
are announced on a timely basis.
Shareholders are encouraged to attend
the Company’s annual general meeting
which all the directors normally attend
and which provides an opportunity
for shareholders to ask questions and
discuss matters with the Board.
Employee engagement
The Board recognise the importance of
engaging with all the employees of the
Group, provide a clear explanation of
the Company’s strategy and objectives
as well as a channel for feedback and
raising concerns.
This year the Company held again
strategic sessions with executive
directors and all members of senior
management with the goal of setting
and clearly articulating the Group’s
strategic objectives for the short and
long term. The conclusions reached were
then presented to all staff, encouraging
questions and discussions to ensure
buy-in from all employees to the Group’s
vision and values.
Patsy Watson was appointed as the
designated non-executive director with
responsibility for engagement with
employees. Her role is to ensure that all
employees have a forum in which to air
their views and that these views are fed
back to the Board.
All employees were encouraged to
approach her with any queries, areas of
concern, or just to discuss any matter
of importance to them. We will report
in due course on the outcome of any
such discussions.
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Audit and Risk Committee Report
Key areas of focus for the year under review
f The sale of the Group’s largest non-MLI property, (known as ‘Bleichenhof’)
approved at a general meeting on 19 February 2020, and the completion of a
reporting accountants’ assurance report on the proforma financial information
contained in the circular issued to shareholders in accordance with the JSE
Listings Requirements.
f Reviewed and recommended for approval the interim and annual financial
statements and 2019 annual report. Considered the appropriateness of accounting
treatment and areas of significant judgement.
f Further to the confirmation that the FRC’s ethical standards in respect of the
provision of non-audit services are extended to Guernsey incorporated companies
under changes to the Crown Dependency Audit Rules and guidance (applicable
for periods commencing on or after 15 March 2020), the committee reviewed and
considered the audit services versus the non-audit services provided by Deloitte
to the Group, including the work performed by the Deloitte tax advisory team.
Following internal discussions and debate, and supported by the Company’s
full board of directors, it was decided to retain the Deloitte tax team due to its
strategic importance in light of the significant changes to the tax structure of
the Group during the last 18 to 24 months, including the conversion to a UK REIT
in May 2018. The committee has therefore begun the tender process for the
appointment of a new audit firm for the financial year ending 31 March 2021.
f Further information and a recommendation to shareholders for the appointment
of new auditors at the 2020 annual general meeting will follow in due course.
f Assessed on an ongoing basis the risk matrix and its approach to considering the
levels of risk tolerance, monitoring and mitigation
f Monitored on an ongoing basis the Risk Management Plan and the communication
of issues to the Board.
f Considered and confirmed that it was satisfied as to the expertise and experience
of the Chief Financial Officer.
f During the reporting period, significant efforts were put towards the design and
phased implementation of a new unified ERP system which will align finance,
operations and customer relationship management systems of the Group. The
committee considered the suitability of these systems and the controls and
governance around them. The committee also considered the Group’s accounting
treatment of the costs of this project.
Financial reporting and significant areas of judgement
The Audit and Risk Committee continues to monitor the integrity of the Company’s
results. It considers accounting policies and procedures adopted by the Group,
reviews the content and messaging of the preliminary results, annual report and half
year results, and the key judgements made by management in preparing the financial
results.
The committee was satisfied that the processes and assumptions used by
management in areas of judgement were reasonable and applied appropriately. The
committee was further satisfied that areas of judgement had been reviewed and
discussed with the external auditor.
The committee has satisfied itself that the controls over the accuracy and consistency
of the information presented in the annual report are robust. It is also satisfied that
appropriate financial reporting procedures exist, are working effectively and include
consideration of all Group entities. The committee therefore confirmed to the Board
that it believes that the 2020 Annual Report was fair, balanced and understandable
and that it provided the necessary information to stakeholders to assess the Group’s
position, performance, business model and strategy.
27385 17 June 2020 7:25 pm proof 1
Philip Holland
Independent
Non-executive
Director
Dear Shareholders
I am pleased to present the report of the
Audit and Risk Committee for the year
ended 31 March 2020.
ROLE AND RESPONSIBILITIES
The principal responsibilities of the
committee are:
Oversight of external audit –
f Consider the appointment of
the external auditor, making
recommendations to the Board
on their appointment or dismissal
and approving their terms of
engagement and remuneration;
f Review the work of the external
auditor;
f Monitor the external auditor’s
independence and objectivity,
review their performance and
effectiveness and set the policy for
non-audit services provided by the
external auditor.
Integrity of reporting – review and
challenge key judgements made by
management, review and monitor the
integrity of the full and half year financial
statements, reports to shareholders and
any other announcements regarding
the Company’s results or other financial
information to be made public, including
statements on going concern and risk
and controls; and advise the Board
of its opinion whether, when read as a
whole, such reports are fair, balanced
and understandable and provide the
information necessary for stakeholders
to assess the Company’s position,
performance, business model and
strategy.
Internal controls and risks - review
the risk management framework and
ensure that risks are carefully identified
and assessed, and that systems of risk
management and internal control are in
place.
Internal Audit – consider annually
whether there is a need for an
internal audit function and make
recommendations accordingly to the
Board.
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GOVERNANCE
Significant issues
Description
Going concern
The appropriateness of adoption
of the going concern basis of
preparing the financial statements
The committee has considered the financing requirements of the Group and the committed
facilities available to it. It appraised management’s assessment of going concern, the
assumptions made including the highly severe scenario assumptions given the current
market conditions and negative economic outlook, and the report of the external auditor
in recommending that adoption of the going concern basis is valid. Further details can be
found in note 2 of the financial statements and the viability statement on pages 46 and 47.
Viability statement
Review of the assessment of the
Group’s long term viability and
confirmation that the period of
time used was appropriate
The committee reviewed and confirmed the appropriateness of the analysis prepared to
support the Board’s longer term viability statement (please see pages 46 and 47).
Investment property valuation
The Group’s investment properties
are stated at estimated fair value,
determined by directors, based on
an independent external appraisal
Reviewed the independent valuation of the Group’s investment properties and confirmed
that judgements relating to assumptions and estimations underlying the valuations were
appropriate, including the approach taken by the external independent valuers, JLL who
have reported their valuation of our portfolio as at 31 March 2020 including reference to a
‘material valuation uncertainty’ created by the economic consequences of COVID-19 (see
note 2 of the financial statements).
Assets held for sale
In executing the transition to become a 100% UK MLI business, a number of assets have
been identified as held for sale in accordance with the criteria defined in IFRS 5: Assets
held for sale and discontinued operations (see note 4 of the financial statements). The
classification has been considered in the financial statements.
External audit
The committee is responsible for monitoring the level of non-audit services provided by Deloitte and asks the auditors to confirm
their continued independence. Deloitte has confirmed to the Board that it remains independent and has maintained the necessary
internal safeguards to ensure the objectivity of the audit partner and staff.
During the year, Deloitte continued to provide certain non-audit recurring work, mainly tax advisory work. The following fees were
recognised by the Group during the financial year:
Audit fees
Non audit fees
Interim review fees
Tax compliance and advisory services
Total
The committee has reviewed the
effectiveness of the auditor during the
year. It considered the quality and scope
of the audit plan and reporting. It also
sought the views of the CFO, the Head
of Financial Operations and directors
on the audit process. Their feedback
confirmed that Deloitte continued to
perform well and produced a appropriate
level of challenge to management.
The committee concluded that it
was satisfied with the audit process
and Deloitte LLP’s effectiveness and
independence as an auditor.
As mentioned above, despite the
Committee being of the opinion that
the auditors remain independent, due
to FRC’s ethical standards in respect of
the provision of non-audit services now
being applicable to the Company, the
Committee recommended to the Board
that a competitive tender process be
conducted for a new audit firm to be
appointed for the financial year ending
31 March 2021. I would like to thank the
Deloitte audit partner and staff for their
hard work and diligence on the Stenprop
audit engagement.
The audit tender process is nearing
its final stages and a resolution
recommending the appointment of the
new audit firm will be included in the
notice of Annual General meeting to be
held in September 2020.
Risk management and internal
controls
The risk management policy and process
of the Group is detailed on pages 45
and 46 of this report. At every quarterly
meeting, the committee reviews the
Group’s principal risks, including any new,
Year ended
31 March
2020
Year ended
31 March
2019
226
30
236
492
244
30
357
631
emerging or project-specific risks and the
actions taken by management to manage
and mitigate them. Their potential effect
on the Group’s short and long-term
results and goals are considered and
discussed. Additional information on
internal controls is provided on page 69.
During the year under review the
committee paid particular attention
to the risks associated with the design
and implementation of the new ERP
system as well as other risks linked to
the strategic decision to become an
operating business and the leading UK
MLI specialist. It also carefully considered
the strategic decision to accelerate
the sale of non-MLI assets in light of
the long-term business interests of the
Company and its shareholders.
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Audit and Risk Committee Report continued
As committee chairman, I also hold
separate regular meetings with
representatives of the external auditors
and I meet privately with the Chief
Financial Officer to obtain a good
understanding of key issues affecting the
Group.
Committee effectiveness
This year an externally facilitated Board
evaluation was conducted. It included a
review of the effectiveness of the audit
and risk committee, which concluded
that the committee continues to operate
effectively.
Philip Holland
Chairman, Audit and Risk Committee
Following the year end, the committee
reviewed the Group’s risk appetite and
the Group’s risk matrix and considered in
particular the effect and potential impact
of the current COVID-19 pandemic on
the Group and its stakeholders. Whilst
we consider there have been no material
changes to the nature of the Group’s
principal risks, not surprisingly, several
risks are elevated as a result of the
challenging macroeconomic environment
linked to the pandemic. Additional
information on the nature of these risks
and the actions taken to monitor and
manage them is set out on pages 47 to
53 of this report.
The overall risk appetite of the Group
was broadly unchanged during the year
ended 31 March 2020 compared to the
previous financial year. However, the
Company is expected to take a more
prudent approach to risk whilst the
duration and impact of the current crisis
remain uncertain. We intend to assess
proposals and recommendations on a
case by case basis balancing the need to
maintain adequate capital to cope with a
prolonged period of uncertainty against
the long-term strategic objectives of the
Group.
Taking into account the principal and
emerging risks provided on pages
47 to 53 and the ongoing work of
the committee in monitoring the risk
management and internal control
systems, the Audit and Risk Committee
is satisfied that the directors have carried
out a robust assessment of the principal
risks facing the Group, including those
that would threaten its business model,
future performance, solvency or liquidity.
The Audit and Risk Committee has
also reviewed the effectiveness of the
risk management and control systems,
including the design and implementation
of internal financial controls, and it has
not identified any failing or weakness
deemed significant or material for the
business of the Group.
Extended assurance
The Company does not have a formal
internal audit function but does
periodically make use of external service
providers to perform extended assurance
work. The need for the appointment of
an internal auditor is reviewed by the
committee and the Board at least once
a year. The committee remains of the
view that the appointment of an internal
auditor is not justified considering the
size of the Company.
During the financial year, KPMG were
engaged to undertake extended
assurance work on the risk and control
matrices that are to be delivered as part
of the system implementation of the
Microsoft Dynamics unified operating
platform. The objective of the review was
to assess the risk and controls for key
processes and report on the suitability
of controls and to identify potential
enhancements. KPMG worked closely
with management and a report was
agreed confirming that an appropriate
level of control existed.
Committee composition
and governance
There have been no changes to the
membership of the Committee during
the reporting period. The Committee is
comprised of three members, all of whom
are independent non-executive directors.
We recognise that Richard Grant is the
Chairman of the Company and should
not be a member of the committee under
the 2018 Code and the King IV Report.
However, Richard was independent on
appointment. He remains an independent
director and provides significant input
into committee meetings. Whilst we
are committed to work towards full
compliance with the provisions of
the 2018 Code, we still considered it
beneficial to have Richard as a member
of the Committee. Richard Grant and I
both meet the requirement of having
appropriate recent and relevant financial
experience and are joined by Paul Miller
who has been a valued member of the
separate committees since 14 September
2016.
Member biographies are set out on pages
64 and 65.
Members’ attendance at committee
meetings is set out below:
Member
Philip Holland
Richard Grant
Paul Miller
Meetings
attended
4/4
4/4
4/4
All meetings are attended by the CFO
and the Company secretary. In addition,
representatives of the external auditors
are invited to attend part of specific
committee meetings. These attendees do
not attend as members and as such have
no voting rights.
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Nomination Committee Report
GOVERNANCE
Committee composition and governance
The members of the committee are Philip Holland, Paul Miller, Patsy Watson and
myself. Patsy Watson was appointed as a member of the committee with effect from
5 June 2019. The committee is composed of a majority of independent directors, as
required by the 2018 Code and King IV.
The committee’s terms of reference were reviewed and updated following the
publication of the 2018 Code. They can be found on the Company’s website at
stenprop.com/our-business/governance. The committee met three times during the
year:
Richard Grant
Chairman of
the Nomination
Committee
Members
Richard Grant (Chair)
Philip Holland
Paul Miller
Patsy Watson
Dear Shareholders
I am pleased to present the nomination
committee report for the year ended
31 March 2020.
ROLE AND RESPONSIBILITIES
The principal responsibilities of the
committee are:
Board composition – keeping the
structure, size and composition
(including the skills, knowledge,
experience and diversity) of the Board
and its committees under review and
recommending changes to the Board
Succession planning – considering
succession planning for the Board and
the senior management team
Independence and time commitment –
reviewing the independence and time
commitment requirements of the Non-
executive directors
Board evaluation – lead the annual
evaluation of the Board, its committee
and individual directors and make
recommendations to the Board
accordingly
Appointment of new Chief
Financial Officer
In our 2019 annual report we reported
on the process undertaken to find a
suitable candidate for the role of Chief
Financial Officer in preparation for Patsy
Watson’s retirement. We explained
that an external search consultant with
no connection to the Group had been
engaged to assist with the process and
that a number of external candidates
had been identified and interviewed. We
also explained that we had considered
and interviewed James Beaumont, then
Head of Finance, reporting to Patsy
Watson, as a candidate for the role.
Following a detailed assessment of all
the candidates, and taking into account
James’ experience and knowledge, we
had decided to recommend to the Board
the appointment of James Beaumont as
Interim Chief Financial Officer.
The committee conducted a detailed
review of James’ performance in his new
role and we were pleased to report in
November 2019 that his appointment as
Chief Financial Officer was confirmed.
Board evaluation
This year, we appointed Board Alpha
Limited, an advisory firm which
specialises in external board evaluations,
to undertake an independent and
externally facilitated evaluation of
the effectiveness of the Board and
its committees. Board Alpha has no
connection with Stenprop.
Meetings attended during the
relevant member’s tenure
3/3
3/3
3/3
2/2
The evaluation process was as follows:
Step 1
December 2019
Board Alpha met with the Chairman
and the CEO to discuss and agree the
scope and focus of the evaluation.
Step 2
December 2019 to
February 2020
Board Alpha conducted a detailed
review of all Board and committees
papers as well as of all the minutes
of meetings of the Board and its
committees since March 2019.
Board Alpha held individual interviews
with each director, the company
secretary, and the sponsor.
Step 3
March 2020
Board Alpha attended Board and
committee meetings.
Step 4
May 2020
Draft report discussed with the
Chairman prior to finalisation and
presentation to the whole Board.
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GOVERNANCE
Nomination Committee Report continued
In addition to the formal Board
evaluation, a skills matrix was prepared
and reviewed by the Board and will be
used by the committee when considering
future appointments to further assess
the skills required of any new director
joining.
Outcomes
I am pleased to report that the overall
conclusion of the evaluation exercise was
that the Board appears to be strong and
to be effective at guiding the Company.
It also recognises that the Board has
been instrumental in developing the
strategic goal for Stenprop of becoming
the leading multi-let industrial business
in the UK.
Board Alpha made a number of detailed
recommendations to improve the
Board’s processes and also to improve
independence and diversity in the Board
composition. The recommendations are
being evaluated and it is anticipated that
the majority of the recommendations will
be implemented during the course of the
coming year. We will provide additional
information on these recommendations
and report on progress in the
2021 Annual Report.
Independence and re-election
Warren Lawlor who does not satisfy the
criteria for independence has confirmed
that he does not intend to stand for
re-election at the 2020 annual general
meeting and that he will resign with
effect from that date.
The committee has assessed the time
commitment required of all other Non-
executive Directors and whether their
re-appointment would be in the best
interests of the Company, taking into
account their individual contributions
to the Board and its committees, their
qualification and experience. The
committee is of the opinion that each
Non-executive Director continues to
demonstrate commitment to his or
her role and discharges their duties
effectively.
The committee has also assessed the
continued independence of all Non-
executive Directors. We take feedback
received from shareholders seriously and
we paid particular attention to concerns
raised in September 2019 in relation
to the determination of independence
of Paul Miller due to his continued
involvement with Bryan Cave Leighton
Paisner LLP, corporate legal advisers to
the Company. However, the committee
and the Board remain of the opinion
that Paul Miller’s independence is not
impaired. The committee and the Board
were able to reach that conclusion
mainly based on the following factors:
f Paul Miller ceased to be an equity
partner more than three years prior
to his appointment to the Board and
remains engaged with Bryan Cave
Leighton Paisner LLP as a part time
consultant with primary responsibility
for matters relating to international
business development, for which he
receives a fixed fee;
f he is not involved in any work
carried out by Bryan Cave Leighton
Paisner LLP for the Company and
his remuneration from them is not
contingent on any such work; and
f the scope of day to day work carried
out by Bryan Cave Leighton Paisner
LLP for the Company remains
relatively limited and the total fees
paid to them by the Company in the
reporting period are not deemed
significant.
The committee and the Board
also reviewed and confirmed my
independence and the independence of
Philip Holland. Although Patsy Watson is
not considered independent due to her
previous role as Chief Financial Officer
of the Company, she continues to make
a valuable contribution to the leadership
of the Company for the benefit of all
stakeholders.
The committee recommends that
resolutions to re-elect each of the Non-
executive Directors (except Warren
Lawlor) be proposed at the 2020 annual
general meeting alongside resolutions to
re-elect the Executive Directors.
Accordingly, in accordance with the
recommendations of the committee
and in accordance with the 2018 UK
Corporate Governance Code, each of the
directors in role at the date of this report
with the exception of Warren Lawlor
will offer themselves for re-election
at the 2020 Annual General Meeting.
Biographies for each director can be
found on pages 64 and 65 of this report.
Succession planning
and diversity
Succession planning for Non-executive
and Executive Directors as well as
members of senior management remains
an area of focus for the committee. It
is the intention of the Board to appoint
a new non-executive director to take
office during the course of the current
financial year and the committee will
have a key role to play overseeing a
structured process and identifying the
right candidate, based on experience,
knowledge and commitment, but also
having regards to diversity, including
age, gender, core expertise and social
diversity.
At present, there is one female
director on the Board, Patsy Watson.
We did not achieve our target of
having female directors constituting
at least 20% of the total number of
directors by 31 March 2020. However,
we recognise the benefits of diversity,
including gender diversity, and we
remain committed to achieving this
target. We will continue to pay full
regards to diversity when searching for
candidates for all Board appointments,
as well as when considering succession
planning for the senior management
team. At present, only one member
of the senior management team is
female (representing 20% of the senior
management team). 65% of the total
number of employees below senior
management level are females.
Committee effectiveness
The externally facilitated Board
evaluation conducted by BoardAlpha
included a review of the effectiveness
of the nomination committee, which
concluded that the committee continues
to operate effectively.
Focus for the coming year
The committee will be focusing on
two areas in particular in the coming
year. Firstly, the committee is aware of
the need to improve the independent
element in the composition of the
Board and to this end will be seeking
to recruit a further independent non-
executive director in the near future. In
due course the intention will be to work
towards achieving full compliance with
the 2018 Code in terms of the balance
of independent and non-independent
directors on the Board. Secondly the
committee will be considering the
various detailed recommendations
from the Board Alpha external board
evaluation report and will be seeking
to implement the majority of the
recommendations.
Richard Grant
Chairman of the Nomination Committee
11 June 2020
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Remuneration Committee Report
Remuneration Committee Report
Letter from Chair
GOVERNANCE
Paul Miller
Chairman of the
remuneration
committee
Dear Shareholder
On behalf of the Board, I am pleased to
present our Remuneration Committee
Report for the year ended 31 March 2020
which includes our remuneration policy and
our remuneration implementation report.
Our remuneration policy (set out on
pages 77 to 80) and our remuneration
implementation report (set out on pages
81 to 83) are subject to separate non-
binding advisory votes at the annual
general meeting. These non-binding votes
allow shareholders to express their views
on the remuneration structures adopted
by the Company. In the event that 25% or
more of the votes are cast against either
or both the remuneration policy or the
remuneration implementation report,
the Board will engage with dissenting
shareholders and address all reasonable
concerns or objections.
The Remuneration Committee remains
mindful of evolving best practice with
respect to executive remuneration. It
considers remuneration in the context
of the overall strategy of the business
in order to promote the Company’s
strategic objectives, values and its
long-term sustainable success. The
Remuneration Committee is focused
on securing an alignment between
the interests of executive directors,
employees and shareholders and
ensuring that the remuneration
policies and practices drive and reward
appropriate behaviour.
The Remuneration Committee continues
to support the changes introduced by
the 2018 UK Corporate Governance
Code (the 2018 Code). The changes
included the setting of remuneration for
senior management by the committee
itself in cooperation with the executive
directors, rather than recommending and
monitoring the implementation of the
policy. They also include the Committee
taking responsibility for the review of all
staff remuneration and related policies
and for the alignment of incentives and
rewards with culture.
Similar to last year, this report is divided
into the following three sections:
f this letter, setting out some
background to our policies and the
work of the Remuneration Committee
during the reporting period;
f Stenprop’s remuneration policy; and
f the remuneration implementation
report, which includes how
the remuneration policy was
implemented in the year ended
31 March 2020 and how it will operate
in the year ending 31 March 2021.
The year under review
The business has continued to make
good strategic and operational progress
over the year under review against
an uncertain economic and political
backdrop. Very significant progress
with respect to the strategic milestones
established two years ago (targeting
to become 60% MLI, a 40% LTV,
conversion to UK REIT status, listing on
the LSE, moving out of third party fund
management and building a leading tech
enabled MLI management platform)
has been made. This could not have
happened without a strong culture of
teamwork and the willingness of all staff
to embrace significant change.
The Remuneration Committee was aware
that many of these objectives would, if
successfully achieved, have the effect
of dampening earnings in the short
term. Examples of this are the strategy
to reduce leverage and the decision
to withdraw from third party fund
management. As such, the Remuneration
Committee decided to set a range of
KPIs, only some of which were earnings
related, to ensure that management were
focused on all strategic objectives as a
composite whole and also continued to
maintain a cohesive team culture.
In the period under review no credit
towards bonuses under the Stenprop’s
annual bonus plan was earned in respect
of KPIs relating to sustainable EPRA
EPS or for the percentage of MLI assets
comprised in the Group’s total portfolio
as at 31 March 2020. The Group LTV at
31 March 2020 had been reduced to
40.8%, versus a target of 40% or less.
It would have been entirely possible
for a deleverage payment to be made
to bring the Group LTV down to 40%
given the available cash at year end.
However, given the disruption caused
by the onset of the COVID-19 pandemic,
it was decided to instead retain cash
to strengthen the Group’s liquidity. In
the circumstances, the Remuneration
Committee applied its discretion and
concluded that the KPI relating to the
Group LTV would be deemed achieved.
27385 17 June 2020 7:25 pm proof 1
In light of the above, each of Paul
Arenson and Julian Carey received
47.57% of the maximum available award
under the annual bonus scheme (2019:
79.51%). This included recognition for
achievement of personal objectives. The
Remuneration Committee and the Board
believe that this outcome demonstrates
that the Company’s remuneration policy
is working well and is aligned to the
culture and performance of the Group.
Review of Stenprop’s
remuneration policy
In light of COVID-19 the Remuneration
Committee and the Board consider it
appropriate to make some changes to
the remuneration policy to take account
of the uncertain business environment
that is likely to prevail for a large part
of this financial year. The main change
has been to introduce a larger weighting
to personal goals in the KPIs compared
to corporate goals so that when
determining annual bonuses for the year
ending 31 March 2021 for both executive
directors and members of senior
management, a 50% weighting will be
allocated to corporate KPIs and a 50%
weighting will be allocated to personal
objectives. Further details are set out
on page 80 of the remuneration policy
section. The Remuneration Committee
has also made it clear that it will retain
an overriding discretion at the end of
the financial year to modify the amounts
payable under the scheme to ensure that
all awards are appropriate having regard
to the overall financial performance of
the Company and/or to the budget. In
addition, the Remuneration Committee
will review each individual’s role,
responsibility and performance and may
alter the terms of their participation in
the annual bonus scheme and/or long-
term incentive scheme on an individual
basis, in each case within the scope of
the relevant scheme.
The Company also intends to make
certain changes to take into account
the net revenue generated on the MLI
portfolio when determining annual
bonuses for Stenprop’s asset managers
with the aim to further incentivise asset
managers to achieve greater efficiencies
in the management of the MLI portfolio.
Apart from the above, the remuneration
policy remains unchanged this year.
The Remuneration Committee believes
that its policy remains fair, appropriate
and market-related, and that it
complies with the five additional tests
of simplicity, clarity, risk, predictability
and proportionality introduced by the
2018 Code. The strategic goals of the
ANNUAL REPORT 2020 STENPROP
75
Details of attendance at committee
meetings held during the reporting
period are set out below:
Committee member
Paul Miller
Philip Holland
Richard Grant
Warren Lawlor
Meetings
attended
4/4
4/4
4/4
4/4
On behalf of the Remuneration
Committee and the Board, I thank
you for your continued support. We
appreciate and consider very seriously
all shareholder feedback. We are always
looking to improve our policies and
practices and would welcome any
comments on the report, or any concerns
about our remuneration policy or the
way we have implemented it.
Paul Miller
Chairman of the remuneration committee
11 June 2020
GOVERNANCE
Remuneration Report continued
Letter from Chair
Group, both long term and for the
current financial year, are clearly set
out to all employees and shareholders,
with the Remuneration Committee
and the Board agreeing clear metrics
against which performance is measured.
The remuneration policy provides
that a significant proportion of the
remuneration of the senior team is linked
to corporate and individual performance.
The policy is designed to promote the
long-term success of the Company, via
a fixed element, made up of a market-
related salary with reasonable benefits,
and a variable element, broken into short
and long-term incentives, with KPIs
and vesting conditions reflecting the
Company’s strategic goals.
When reviewing the remuneration
policy, the Remuneration Committee
took into account views expressed by
shareholders.
We also took into account the pay
and benefits of all the employees of
the Group, noting the general increase
in salary proposed for all employees
and levels of incentive payments
and performance, before setting the
remuneration of the executive directors
and members of senior management.
The Remuneration Committee did not
consult with the Company’s employees
when drawing up the executive directors’
remuneration policy.
James Beaumont’s appointment
to the role of Chief Financial
Officer
The Remuneration Committee reviewed
the Chief Financial Officer’s employment
contract following his appointment
on 5 June 2019 to his current role.
Following the recommendation of
the Remuneration Committee, James
Beaumont agreed to amend his terms of
employment to increase his termination
notice period to six months, in line with
the termination provisions of the Chief
Executive Officer and Executive Property
Director. Over the course of the year,
James’s salary has also increased by
13.8% in recognition of his promotion.
Operation of the Remuneration
Committee
During the year, the Remuneration
Committee reviewed its terms
of reference to ensure that they
adequately reflected its role and
areas of responsibility. A number of
minor changes were made and the
Remuneration Committee was pleased
to note that in practice most of the latest
requirements of the 2018 Code were
already followed by it and the Group as
a whole.
In line with the 2018 Code, the
Remuneration Committee’s remit now
also includes formally approving the
pay arrangements for members of
senior management. The Remuneration
Committee continues to have oversight
of the Group’s remuneration policy for
the wider employee group to ensure
alignment of incentives and rewards with
culture.
The terms of reference of the
Remuneration Committee are available
on the Company’s website. They are
reviewed annually by the committee and
the Board.
During the reporting period, the
Remuneration Committee comprised
three independent non-executive
directors, including the chairman of
the Board, and one non-independent
non-executive director. I chaired the
committee and the other members were
Philip Holland, Richard Grant and Warren
Lawlor. We note that Warren Lawlor, who
is not an independent director, intends
to resign with effect from the Company’s
2020 annual general meeting. Although
Warren’s presence on the Committee
does not comply with the independence
requirement of the 2018 Code, his
contribution to the deliberations of
the committee during the transition to
a focused UK MLI business has been
particularly valued.
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GOVERNANCE
Remuneration Report
Policy
STENPROP’ REMUNERATION POLICY
Stenprop’s remuneration policy as set out in the 2019 annual report was subject to a non-binding advisory vote at the 2019 annual
general meeting and was approved by 86.14% of shareholders who voted. It will be subject again to a non-binding advisory vote at
the 2020 annual general meeting.
Executive directors’ remuneration policy
The table below sets out the elements of the executive directors’ remuneration and how they operate.
Fixed remuneration
Purpose and operation
Maximum opportunity
Performance targets
Basic salary
To attract, motivate and retain high calibre executives.
Salaries are normally reviewed annually to ensure
that they remain competitive and market related. The
committee is required to obtain reliable, up-to-date
information about remuneration in other comparable
companies to confirm this is the case. There is no
automatic entitlement to an increase each year.
Salary increases will typically
be inflation or market-linked
increases.
Individual performance is a
factor when considering and
reviewing salaries.
Above inflation or market increases
will typically only be considered
where the base salary is below
market or where the scope,
role and/or responsibility of the
individual have increased in a way
that justifies such an increase.
Benefits
To provide market appropriate benefits as part of the total remuneration package
Executive directors currently receive private medical
insurance, life assurance and permanent health
insurance. Other benefits such as car allowance may
be provided where appropriate.
Whilst there is no maximum level
of benefits for executive directors,
it is at the same level as the wider
employee population.
N/A
Pension or pension allowance
To provide appropriate retirement benefits (or cash
allowance equivalent)
Pension benefits are provided via the Stenprop
pension scheme, although employees including
the executive directors, are entitled to receive a
contribution towards their personal pension plan
or a cash allowance instead of contributions to the
Stenprop scheme.
Paul Arenson and Julian Carey: up
to 10% of base salary.
N/A
James Beaumont: up to 7% of base
salary.
For all new appointments, the
maximum pension contribution
will be at the level of the wider
employee population (currently up
to 7%).
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GOVERNANCE
Remuneration Report continued
Policy
Variable remuneration
Purpose and operation
Maximum opportunity
Performance targets
Annual bonus
To encourage executive behaviour that improves Company performance, limits loss and promotes an ethical culture and
responsible corporate citizenship.
Awards based on performance are granted following
the financial year end when actual performance over
that year is measured.
The maximum level of annual
bonus which may be granted is
equivalent to 150% of basic salary.
A portion of the annual bonus is paid in cash with
the balance (if any) satisfied by the award of nil-cost
options under the terms of the Stenprop Deferred
Share Bonus Plan (the Stenprop DSBP).
The Stenprop DSBP operates as follows:
f Vesting: 1/3 on the grant date, 1/3 on first
anniversary of year end; 1/3 on second
anniversary of year end, subject to participant
still being employed.
f Standard good leaver/bad leaver provisions (the
Board has absolute discretion to determine that a
participant is a good leaver (causing all unvested
options to vest in full) except in case of gross
misconducts.
f Reduction for malus provisions.
f Dividend equivalent payments in shares may be
made.
Performance targets are
determined each year by the
Board following the committee’s
recommendation normally at
the beginning of the financial
year. They typically consist
of a mixture of corporate
performance targets and
individual performance. Metrics
and weightings may vary from
year to year according to
strategy and the market. See
details on page 83 for the KPIs
agreed by the Board for FY2021
and their weighting.
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GOVERNANCE
Variable remuneration
Purpose and operation
Maximum opportunity
Performance targets
Nil-cost options:
Nil-cost options with a value
equivalent to 200% of base salary
(at the time of the grant, i.e. taking
into account any salary increase
decided in June the same year)
to be granted automatically
(but vesting subject to vesting
conditions (performance targets).
Market value options:
Market value options with a value
equivalent of up to 100% of basic
salary (at the end of the financial
year to which the KPIs relate, i.e.
without taking into account salary
increases for the new financial
year), based on KPIs similar to the
KPIs set for the annual bonus.
Vesting conditions for nil-cost
options are typically determined by
the Board following the committee’s
recommendation when awards are
made. The committee and the Board
retain full discretion to adjust or set
different performance measures
or targets where appropriate (e.g.
to reflect a change in strategy or
market conditions and/or to remain
fair and consistent). See page 83 for
the vesting conditions agreed by
the Board for the period to 31 March
2023.
KPIs for market value options
are determined each year by the
Board following the committee’s
recommendation normally at the
beginning of the financial year to
which they relate. They are typically
identical to the performance targets
agreed with respect to the annual
bonus and relate to the same period.
Long term incentive plan
To align executive directors’ interests with the
Company’s long term strategic goal and the
interests of the shareholders.
Executive directors are eligible to receive annual
awards under the terms of Stenprop’s Long Term
Incentive Plan (Stenprop LTIP). Awards under the
LTIP may be:
f nil-cost options, granted in respect of the
three-year period starting at the beginning of
the current financial year; or
f market value options with an exercise price
equal to the weighted average share price for
the 10-day period prior to grant, which are
granted in respect of the previous financial
year.
Executive directors are entitled to receive nil-cost
options OR market-value options (but not both).
Nil-cost options:
f Vest on third anniversary of grant date or
as otherwise decided by the committee
and the Board (to allow sufficient time after
the end of the financial year to determined
whether the vesting conditions have been
met). The number of nil-cost options vesting
depends on the predetermined vesting
conditions being met. All options not vesting
on the vesting date automatically lapse.
Vesting is subject to participant still being in
employment or office but subject to Board
discretion for good leavers.
f Two-year lock-in period following vesting.
f Clawback provisions before vesting and
during the lock-in period.
f Dividend equivalent payments in shares may
be made.
Market value options:
f 1/3 vest on the first anniversary of year end;
1/3 vest on second anniversary of year end;
and 1/3 vest on third anniversary of year end.
No vesting conditions other than participant
still being employed. Standard good/
bad leavers provisions (subject to Board’s
discretion to determine that a participant is
a good leaver (causing all unvested options
to vest in full) except in case of gross
misconduct – as per Stenprop DSBP).
f Reduction for malus provisions.
f Dividend equivalent payments in shares may
be made.
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Remuneration Report continued
Policy
Non-executive directors’ remuneration policy
The remuneration policy for the Chairman and non-executive directors should attract and retain individuals with the appropriate
level of expertise and experience, taking into account the time commitment and responsibilities of each role.
Purpose and operation
Maximum opportunity
Performance targets
Fees
The Chairman’s fee is set by the remuneration committee.
Remuneration of the non-executive directors is a matter
for the executive directors and the Chairman. Fees are
reviewed annually. Fees are paid quarterly in cash. The
Chairman and non-executive directors do not participate
in any incentive, share schemes, benefits in kind or
pension arrangements.
No maximum or minimum fee increase
is operated although any increase will
be guided by the average increase
awarded to executive directors and
other employees and/or general
movements in the market.
N/A
Other arrangements
The Company may reimburse expenses reasonably
incurred in fulfilment of the Company’s business. The
Company also provides the Chairman and non-executive
directors with Directors’ and Officers’ Liability Insurance.
The maximum reimbursement is
expenses reasonably incurred.
N/A
Remuneration policy for other employees
Salary reviews across the Group are carried out on the same basis as salary reviews for executive directors. All employees are
entitled to substantially the same benefits as executive directors and are entitled to a pension contribution of up to 7% of their
basic salary.
The remuneration package of members of senior management also includes a fixed and variable component. The annual bonus
plan provides for a maximum level of award to be set by the remuneration committee from time to time (not to exceed 150%
of basic salary) and the performance targets for the annual bonus are the same as those set for the executive directors, except
that personal goals typically have a heavier weighting than would be the case for the executive directors. Members of senior
management are also entitled to participate in the Stenprop LTIP, although they typically receive awards of market value options
under the Stenprop LTIP with a value equivalent of up to 100% of basic salary rather than nil-cost options. KPIs are generally the
same as the performance targets set for the annual bonus plan.
All other employees are also entitled to an annual cash bonus based on individual performance. To further align the policy to the
Group’s strategic goals and to its corporate culture, the Company intends to take into account the net revenue generated on the
MLI portfolio when determining annual bonuses for individual asset managers.
Principles followed by the committee when making recommendations for KPIs, vesting conditions and eligibility
for each scheme for the year ending 31 March 2021.
In setting vesting conditions and eligibility for awards of nil cost options under the Stenprop LTIP the committee applied the
following principles:
f The Remuneration Committee concluded that awards of nil cost options under the Stenprop LTIP should continue to be made
only to Paul Arenson and Julian Carey. All other executives and senior management should be incentivised through awards of
market value options under the Stenprop LTIP.
f In setting vesting conditions for nil cost options awarded under the Stenprop LTIP, achieving the top end of the performance
range for any given condition should typically require outperformance against the Company’s budgets and business plan.
Performance in line with budget and business plan should typically result in a 50% weighting.
f Vesting conditions for nil-cost options under the Stenprop LTIP should comprise corporate goals only.
In setting KPIs for the annual bonus element of the remuneration package of executive directors and members of senior
management, the Remuneration Committee applies the following principles:
f all KPIs should be aligned with Stenprop’s objectives and strategies;
f in setting financial and/or total return goals or targets, preference should be given to measuring financial performance and
returns relative to an appropriate peer group, except where this is considered inappropriate for any reason;
f recognising the need to drive and reward individual performance, KPIs for the annual bonus element should comprise a
combination of corporate and personal goals;
f as explained above, the Remuneration Committee has determined to apply a weighting of 50% for corporate goals and 50% for
personal goals for the year ending 31 March 2021. The committee has also made all participants aware of the discretion it has
retained to adjust awards to ensure they are appropriate in all the circumstances. The reduced weighting to corporate goals
recognises the uncertainty caused by COVID-19. Ordinarily corporate goals would represent a more objective measure more
demonstrably aligned to shareholders’ interests. COVID-19 has however precipitated a need for a more flexible and adaptive
corporate strategy as the impact and circumstances of the pandemic unfold. For example, at times it may be appropriate to
conserve cash and not buy additional MLI whilst at other times it may be appropriate to accelerate purchases. Accordingly,
the Remuneration Committee felt it important to be able to drive these changes through rewarding personal targets as events
unfolded and for bonuses to be geared to a greater extent to regularly reviewed individual objectives.
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Remuneration Report
Implementation
REMUNERATION IMPLEMENTATION REPORT
Application of the remuneration policy for the year ended 31 March 2020
Table of executive directors’ remuneration for year ended 31 March 2020:
Executive directors
Paul Arenson
James Beaumont*
Patsy Watson*
Julian Carey
Basic
salary
£’000
Pension
£’000
Other
benefits
£’000
Cash
bonus
£’000
Vested
share
options
£’000
Total
remuneration
31 March
2020
£’000
275
146
44
264
729
14
11
4
18
47
13
2
–
8
23
161
31
155
155
502
148
19
142
132
441
610
209
346
577
1,742
*
Remuneration covers the period of directorship.
The comparative for the year ended 31 March 2019 and further detail regarding the vested share options as well as the table of non-
exective directors’ remuneration are included in Note 8 of the financial statements.
Salary increases
For the year ended 31 March 2020, the Board approved increases of 2.5% to the base salary of Paul Arenson and Julian Carey, in
line with inflation. This was the same increase as awarded to other employees across the Group, other than where the role, scope
or responsibility of an employee changed. James Beaumont’s base salary increase was higher than inflation rate, to reflect his
appointment and increased responsibilities in the role of Chief Financial Officer.
Annual bonuses and awards under the Stenprop STIP
Paul Arenson and Julian Carey were each entitled to an annual bonus of up to 150% of their basic salary, determined by considering
performance against the four KPIs set out in the table below. James Beaumont’s entitlement to an annual bonus was capped at up
to 50% of his basic salary.
KPI
Sustainable EPRA EPS for FY2020
Targeted KPI
Range between 7.00p
and 7.20p
Percentage of UK MLI assets comprised in the
Group’s total portfolio as at 31 March 2020
Range between 58%
and 65%
Group loan-to-value ratio as at 31 March 2020
40% or less
Actual as
at 31 March 2020
% of bonus
element achieved
6.69p
58.0%
40.8%
nil
nil
100%*
Average 90%
Personal goals
Personal goals specific
to each individual
Individual performance
against personal goals
*
Due to the onset of the Covid-19 pandemic, the decision was made in March 2020 to retain unrestricted cash rather than make a deleverage payment which would have
brought the Group LTV to 40%. Given the exceptional circumstances and the amount of unrestricted cash available at year end, the CIommittee applied its discretion and
determined that this KPI was achieved in full.
On 10 June 2020, the Board approved bonuses for the executive directors and members of senior management in line with the
recommendations of the committee. Each of Paul Arenson and Julian Carey received a bonus equal to 71.35% of their basic salary,
or 47.57% of the maximum annual bonus they could have received under the scheme. James Beaumont received a bonus equal to
30.86% of his basic salary, or 61.71% of the maximum annual bonus he could have received under the scheme.
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Remuneration Report continued
Implementation
Awards under Stenprop LTIP
During the financial year, conditional awards of nil-cost options with a value equivalent to 200% of their basic salary were made to
each of Paul Arenson and Julian Carey for the three-year period ending 31 March 2022. Vesting of these nil-cost options is subject
to achievement of the following vesting conditions over the three-year period, each having a 25% weighting:
f Growing sustainable EPRA earning per share in a range around the budget plan forecast;
f Increasing the size of the MLI portfolio so that it constitutes between 95% to 100% of the Group’s total portfolio of properties;
f Growing the net income from the MLI business in a range around the budget plan forecast; and
f Achieving a total shareholder return that results in the total shareholder return of the Company being between the 50th and
85th percentile of the total shareholder return of the European EPRA index.
In respect of the size of the MLI portfolio and the growth in total shareholder return, the proportion of the award vesting will
increase proportionally from 0% at the lower end of the range to 100% at the top of the range. In the case of sustainable EPRA
earnings, 33% of the relevant proportion of the award will vest at the lower end of the range (which equals to the then budgeted
sustainable EPRA earnings per share) increasing proportionally to 100% at the top of the range. In the case of the targeted net
income, 33% of the relevant proportion of the award will vest at the lower end of the range (which is equal to the then budgeted
net income from the MLI business) and this will increase proportionally to 100% at the top of the range.
James Beaumont received market value options under the Stenprop LTIP equivalent to 61.71% of his FY2020 salary in respect of
the year ended 31 March 2020. 1/3 of these market value options will vest on 31 March 2021, with 1/3 vesting on 31 March 2022 and
1/3 vesting on 31 March 2023.
Vesting of nil-cost options under the LTIP
31 March 2020 marked the end of the first three-year performance period since the adoption of Stenprop LTIP. On 10 June 2020,
the Board, on the recommendation of the remuneration committee, determined that 20.5% of the first awards of nil-cost options
under the Stenprop LTIP in respect of the three-year period ended 31 March 2020 had vested.
The table below shows the number of nil-cost options that vested for each of Paul Arenson, Julian Carey and Patsy Watson as a result:
Original awards
Paul Arenson
Julian Carey
Patsy Watson
% vested
20.5%
20.5%
17.1%^
No. of nil-cost
options fully vested
119,093
114,470
95,353
^ In relation to Patsy Watson, the committee and the Board determined that she would be entitled to 83.3% of the award vesting
over the period, to reflect her contribution to the strategy and success of the Group until 5 June 2019, when she retired from her
role as Chief Financial Officer.
Nil-cost options which did not vest as per the above lapsed and will not be capable of exercise.
The table below shows how the Company performed over the three-year performance period against each of the objectives initially
set as vesting conditions:
Growth in diluted EPRA EPS and dividend per share
Growth of the MLI portfolio
Total shareholder return
% achieved
0%
36.6%
25.0%
Application of the remuneration policy for the year to 31 March 2021
We have set out below how the committee intends to implement the remuneration policy for the year ended 31 March 2021,
including the KPIs which the committee intends to use to measure the performance of the executive directors and senior
management team over the period, as well as the vesting conditions which have been set for options awarded under the long term
incentive plan in June 2020 for the period to 31 March 2023.
We note that the committee intends to apply discretion when determining the final outcomes under the annual bonus scheme and
LTIP awards. The committee will make any necessary adjustments to ensure that the level of payout is fair and appropriate and to
avoid any windfall gains, in particular any that could arise as a result of the COVID-19 pandemic.
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Salary increases
The Board approved increases of 2.5% to the base salary of the executive directors, in line with inflation.
KPIs for annual bonuses and awards under the Stenprop STIP for the year ending 31 March 2021
The following KPIs have been set and will be used to measure the performance of the executive directors and members of senior
management over the current financial year for the purposes of calculating annual bonuses and awards under the Stenprop STIP:
KPI
Growing sustainable EPRA earnings per share in a range around the budget plan forecast
Completing £40 million to £60 million of MLI acquisitions
Notarising the sale of the German assets of the Group.
Personal goals specific to each individual
Weighting
20%
20%
10%
50%
The above KPIs will also be used to determine any awards of market value options under Stenprop LTIP for the period ending
31 March 2021.
Conditional awards under Stenprop LTIP
On 10 June 2020, conditional awards of nil-cost options equivalent to 200% of their basic salary were made to each of Paul
Arenson and Julian Carey for the three-year period ending 31 March 2023. Vesting will be subject to the conditions set out in the
table below
Vesting condition
Growing sustainable EPRA earnings per share in a range around the budget plan forecast
Growing the net operating income from the MLI business in a range around the budget plan forecast
Achieving a total shareholder return that results in the total shareholder return of the Company being between
48th and 75th percentile of the total shareholder return of the European EPRA index.
Weighting
1/3
1/3
1/3
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Social and Ethics Committee Report
Committee composition and governance
The members of the committee are Richard Grant, Sarah Bellilchi and myself. The
committee is composed of a majority of independent directors, as required by the
King IV Report.
The committee’s terms of reference can be found on the Company’s website at
stenprop.com/our-business/governance. The committee met three times during the
year:
Members
Philip Holland (Chair)
Richard Grant
Sarah Bellilchi
Sustainability
Information on the Group’s efforts
towards incorporating sustainability
within its day-to-day business activities
is set out on page 56. I am pleased to
note the positive progress made with
the installation of solar panels on our
MLI estates, which was an area of focus
for the committee during the reporting
period, as well as the implementation of
our new LED replacement lighting policy.
Over the course of the current financial
year, we intend to formulate a new formal
sustainability strategy and roadmap for
delivery. We have retained the services of
a sustainability partner to help us achieve
this. Our 2020 targets will be reviewed
and incorporated within this wider and
more comprehensive strategy.
People and communities
We continue to promote diversity.
The committee reviewed and updated
Stenprop’s Equal Opportunities Policy,
confirming Stenprop’s commitment
to promoting equal opportunities in
employment. All employees and any
job applicants receive equal treatment
regardless of age, disability, gender
reassignment, marital or civil partner
status, pregnancy or maternity, race,
colour, nationality, ethnic or national
origin, religion or belief, sex or sexual
orientation. We believe that our
dynamic and diverse team of individuals
contribute to the success of the business.
Meetings attended
3/3
3/3
3/3
As Stenprop progressed further through
its transition to a fully MLI business, its
workforce grew and adapted to new
challenges. The committee supports
them through the continuous review, and
update to the extent required, of existing
working practices and policies. During
the year under review we oversaw in
particular a risk assessment undertaken
in relation to the work carried out by our
new customer engagement managers.
The committee is also proud of the
support that all Stenprop’s employees
have given to Demelza Hospice Care
for Children throughout the year ended
31 March 2020. It was truly a team
effort, from the seven who took up the
Source-2-Sea challenge, to all those who
supported them and helped fundraising.
We are excited to partner with Brain
Tumour Research for the year ending 31
March 2021 and see if the Stenprop team
can beat its target.
Focus for the current year
With the difficulties and many challenges
caused by the current COVID-19
pandemic, the committee aims to focus
on ensuring that Stenprop provides
a safe working environment to all its
employees and continues to look after
their wellbeing and mental health.
The development of a formal
sustainability strategy and roadmap
for delivery to ensure sustainability is
embedded into Stenprop’s day to day
business activities and aligned to its
long-term strategic goals will also be a
key objective for the current year.
Philip Holland
Chairman of the Social and
Ethics Committee
11 June 2020
Philip Holland
Chairman of the
Social and Ethics
Committee
Dear Shareholders
I am pleased to present the Social and
Ethics Committee report for the year
ended 31 March 2020. This committee
was established in accordance with the
requirements of the King IV Report.
Although it is not a requirement of the
2018 Code to have this committee, the
Board empowered the committee to
review and make recommendations to
the Board on how the Company does
business specifically having regards
to ethical standards, sustainability
and social responsibility, all important
principles under the 2018 Code.
ROLE AND RESPONSIBILITIES
The principal responsibilities of the
committee include monitoring the
Group’s activity with regards to
matters relating to:
Social and economic development and
good corporate citizenship – including
the promotion of equality and the
contribution to the development of
local communities.
Sustainable development – the
environment, health and public safety
including the impact of the Group’s
activities
Employment relationships – including
the Group’s contribution towards the
development of its employees, working
conditions, the safeguarding of human
rights and the right to be free from
slavery and servitude
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Directors’ Report
The directors present their report and the
audited consolidated financial statements
for the year ended 31 March 2020.
Principal activities
The principal activity of the Group is
that of a property investment company.
The Company is a UK REIT and is
incorporated in Guernsey. The address of
the registered office is Kingsway House,
Havilland Street, St Peter Port, Guernsey,
GY1 2QE. The postal address of the
Company is 180 Great Portland Street,
London, W1W 5QZ.
Results and dividends
The results of the Group for the year are
set out in the consolidated statement of
comprehensive income. A final dividend
was declared on 11 June 2020 of 3.375
pence per share, which, together with
the interim dividend declared on
21 November 2019 of 3.375 pence per
share, results in a total dividend for the
year ended 31 March 2020 of 6.75 pence
per share (2019: 6.75 pence per share).
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.
Capital structure
Details of the authorised and issued
share capital are shown in Note 12 of
the financial statements. The Company
has one class of share; all shares rank
equally and each share carries the right
to one vote at general meetings of the
Company.
Going concern
The financial statements of the Group
have been prepared on a going
concern basis. 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 30 September
2021 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. Further
details are set out in note 2 to the
financial statements.
GOVERNANCE
Directors
The directors of the Company who
served during the year and to the date of
this report were as follows:
Executive Directors
f Paul Arenson
f Julian Carey
f Patsy Watson (retired 5 June 2019)
f James Beaumont (appointed 5 June
2019)
Non-executive Directors
f Richard Grant (Chairman)
f Paul Miller
f Warren Lawlor
f Philip Holland
f Patsy Watson (appointed 5 June 2019)
Independent auditor
Following the conclusion of the ongoing
audit tender process, a resolution to
appoint the new independent auditor will
be provided at the next annual general
meeting
Statement of directors’
responsibilities
The directors are responsible for
preparing the financial statements in
accordance with applicable law and
regulations. The Companies (Guernsey)
Law, 2008 (as amended) requires the
directors to prepare financial statements
for each financial year. Under that law
the directors are required to prepare the
group financial statements in accordance
with International Financial Reporting
Standards (‘IFRS’). The financial
statements are required to give a true
and fair view of the state of affairs of
the Group and of the profit or loss of the
Group for that period. In preparing these
financial statements, the directors are
required to:
f properly select and apply accounting
policies;
f present information, including
accounting policies, in a manner
that provides relevant, reliable,
comparable and understandable
information;
f provide additional disclosures
when compliance with the specific
requirements in IFRS is insufficient
to enable users to understand the
impact of particular transactions,
other events and conditions on
the entity’s financial position and
financial performance; and
f make an assessment of the
Company’s ability to continue as a
going concern.
The directors are responsible for keeping
proper accounting records which
disclose with reasonable accuracy at any
time the financial position of the Group
and to enable them to ensure that the
financial statements comply with the
Companies (Guernsey) Law, 2008. They
are also responsible for safeguarding the
assets of the Group and hence for taking
reasonable steps for the prevention
and detection of fraud and other
irregularities.
The directors are responsible for the
maintenance and integrity of the
corporate and financial information
included on the Company’s website.
Legislation in Guernsey governing
the preparation and dissemination of
financial statements may differ from
legislation in other jurisdictions.
Responsibility statement
To the best of the directors’ knowledge,
the financial statements, prepared
in accordance with IFRS; give a true
and fair view of the assets, liabilities,
financial position and profit or loss of the
Company and the undertakings included
in the consolidation taken as a whole.
The directors consider that the annual
report and accounts, taken as a whole, is
fair, balanced and understandable, and
provides the information necessary for
shareholders to access the Company’s
position, performance, business model
and strategy.
Statement as to disclosure of
information to auditors
So far as the directors are aware, there
is no relevant audit information of which
the Group’s auditors are unaware, and
each director has taken all the steps that
they ought to have taken as a director
in order to make themselves aware of
any relevant audit information and to
establish that the Group’s auditors are
aware of that information.
Approval of annual financial
statements
The consolidated annual financial
statements of Stenprop Limited were
approved by the Board of Directors on
11 June 2020 and are signed on their
behalf by:
Paul Arenson
Chief Executive Officer
James Beaumont
Chief Financial Officer
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27385 17 June 2020 7:25 pm proof 1FinancialStatements88Independent Auditor’s Report94JSE Accredited Independent Auditor’s Report97Consolidated Statement of Comprehensive Income98Consolidated Statement of Financial Position99Consolidated Statement of Changes in Equity 100Consolidated Statement of Cash Flows101Notes to the Consolidated Financial Statements 27385 17 June 2020 7:25 pm proof 1 FINANCIAL STATEMENTS
Independent Auditor’s Report
To the members of Stenprop Limited
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
1. Opinion
In our opinion the financial statements of Stenprop Limited (the ‘parent company’) and its subsidiaries (the ‘group’):
f give a true and fair view of the state of the group’s affairs as at 31 March 2020 and of the group’s profit for the year then ended;
f have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as issued by the
International Accounting Standards Board (IASB);
f have been properly prepared in accordance with the requirements of the Companies (Guernsey) Law, 2008.
We have audited the financial statements which comprise:
f the Consolidated Statement of Comprehensive Income;
f the Consolidated Statement of Financial Position;
f the Consolidated Statement of Changes in Equity;
f the Consolidated Statement of Cash Flows;
f the related notes 1 to 31.
The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the
International Accounting Standards Board (IASB).
2. Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial statements
section of our report.
We are independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed entities, and we
have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
3. Summary of our audit approach
Key audit matters
The key audit matter that we identified in the current year was:
f Valuation of the property portfolio
Materiality
Scoping
The materiality that we used for the group financial statements was £7.8m which was determined on
the basis of 2% of the net assets of the group.
We performed a full scope audit to respond to the risks of material misstatement for the group and
performed an audit the joint venture entities. Together these elements account for 100% of the
group’s net assets and 100% of profit before tax.
Significant changes in
our approach
There have been no significant changes in our audit approach, other than to consider the impact of
the Covid-19 pandemic which is discussed in more detail in the key audit matter and our approach to
controls.
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4. Conclusions relating to going concern, principal risks and viability statement
4.1 Going concern
We have reviewed the directors’ statement in note 2 to the financial statements about
whether they considered it appropriate to adopt the going concern basis of accounting
in preparing them and their identification of any material uncertainties to the Group’s
and Parent Company’s ability to continue to do so over a period of at least twelve
months from the date of approval of the financial statements.
Going concern is the basis of
preparation of the financial statements
that assumes an entity will remain in
operation for a period of at least 12
months from the date of approval of
the financial statements.
We confirm that we have nothing
material to report, add or draw attention
to in respect of these matters.
Viability means the ability of the
Group to continue over the time
horizon considered appropriate by the
directors.
We confirm that we have nothing
material to report, add or draw attention
to in respect of these matters.
We considered as part of our risk assessment the nature of the Group, its business
model and related risks including where relevant the impact of the Covid-19 pandemic
and Brexit, the requirements of the applicable financial reporting framework and the
system of internal control. We evaluated the directors’ assessment of the Group’s ability
to continue as a going concern, including challenging the underlying data and key
assumptions used to make the assessment, and evaluated the directors’ plans for future
actions in relation to their going concern assessment.
4.2 Principal risks and viability statement
Based solely on reading the directors’ statements and considering whether they were
consistent with the knowledge we obtained in the course of the audit, including the
knowledge obtained in the evaluation of the directors’ assessment of the Group’s and
the Parent Company’s ability to continue as a going concern, we are required to state
whether we have anything material to add or draw attention to in relation to:
f the disclosures on pages 44 to 53 that describe the principal risks, procedures to
identify emerging risks, and an explanation of how these are being managed or
mitigated;
f the directors’ confirmation on page 69 that they have carried out a robust
assessment of the principal and emerging risks facing the Group, including those
that would threaten its business model, future performance, solvency or liquidity; or
f the directors’ explanation on page 46 as to how they have assessed the prospects
of the Group, over what period they have done so and why they consider that
period to be appropriate, and their statement as to whether they have a reasonable
expectation that the Group will be able to continue in operation and meet its
liabilities as they fall due over the period of their assessment, including any related
disclosures drawing attention to any necessary qualifications or assumptions.
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Independent Auditor’s Report continued
To the members of Stenprop Limited
5. Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of
resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
5.1 Valuation of the property portfolio
Key audit
matter
description
The group’s investment property portfolio, as disclosed in note 16, is valued at £387.8 million as at
31 March 2020 (2019: £562.8 million). In addition, the group’s share of investment property held by joint
ventures is valued at £35.9 million (2019: £33.9 million) and property assets classified as held for sale are valued
at £109.1 million (2019: £16.2 million).
The portfolio is independently valued by professionally qualified valuers in each geographic location using an
income capitalisation model.
Management is required to make a number of significant assumptions and judgements in determining the fair
value and therefore we have identified this as a potential fraud risk.
The key inputs into the fair value model which are subject to significant management estimates include market
rents, market yields , vacancy rates, the credit-worthiness of tenants, as well as discount and capitalisation rates
used in the discounted cash flows. Unreasonable assumptions could give rise to a material misstatement.
As detailed in note 16, in applying the Royal Institution of Chartered Surveyors (RICS) Valuation Global
Standards 2020 (‘Red Book’), the valuer has declared a ‘material valuation uncertainty’ in their valuation report.
This is on the basis that market activity is being impacted in many sectors such that as at the valuation date
they consider that they can attach less weight to previous market evidence for comparison purposes to inform
opinions of value, and that a higher degree of caution should be attached to their valuation.
In addition to this, and consistent with the market conditions observed in the prior year, we note there
continued to be a higher level of judgement associated with certain asset valuations, notably those with a
significant leisure or retail elements. Covid-19 further increased judgement in relation to assumptions around:
f occupier demand and solvency;
f asset liquidity; and
f the relative impact on the different sectors including leisure and retail units within the portfolio.
The valuation of investment properties is disclosed as one of the key sources of estimation uncertainty in notes
4 and 16 of the financial statements and is further described in the Significant audit risks section of the Audit
Committee Report.
How the scope
of our audit
responded to
the key audit
matter
To respond to the key audit matter, we have performed the following audit procedures:
f Obtained and documented an understanding of relevant controls in relation to the valuation process;
f Selected a sample of properties which we considered to be of most audit interest and with the assistance of
our Real Estate Valuations specialists to audit the valuations in detail;
f Alongside our valuation specialists, discussed and challenged key inputs and assumptions with the valuers
and management with reference to independent market data including Brexit and Covid-19 considerations;
f Assessed whether the valuers are independent of the Group and considered the reliability and competency
of the valuers;
f Assessed the accuracy of the tenancy schedules and reconciled the rental values used in the valuations to
the tenancy schedules including tracing a sample back to underlying lease agreements;
f Assessed whether the disclosures in the financial statements are appropriate and in accordance with IFRS 13
Fair Value Measurement; and
f Assessed whether all property valuations have been correctly included in the financial statements.
Key
observations
We concluded that the assumptions applied by management, in arriving at the fair value of the group’s property
portfolio were appropriate, and that the resulting valuations were within a reasonable range.
While we note the increased estimation uncertainty in relation to the property valuation as a result of Covid-19,
and as disclosed in note 16, we considered the assumptions applied in arriving at the fair value of the Group’s
property portfolio to be appropriate.
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FINANCIAL STATEMENTS
6. Our application of materiality
6.1 Materiality
We define materiality as the magnitude of misstatement in the
financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be
changed or influenced. We use materiality both in planning the
scope of our audit work and in evaluating the results of our
work.
Based on our professional judgement, we determined
materiality for the financial statements as a whole as follows:
Materiality
Basis for
determining
materiality
Rationale for
the benchmark
applied
Group financial statements
£7.8m (2019: £8.0m) and a lower
materiality of £0.95m (2019: £1.2m) for
balances affecting EPRA earnings.
2% (2019: 2%) of the group’s net asset
value.
The lower materiality used for balances
impacting EPRA earnings was determined
based on approximately 5% (2019: 5%) of
EPRA earnings.
We determined that net asset value
would be the most appropriate basis
for determining overall materiality given
that key users of the group’s financial
statements are primarily focussed on the
valuation of the Group’s assets; principally
the investment property portfolio
(whether held directly or through joint
ventures) net of any external finance.
In addition to net assets, we consider
EPRA earnings per share to be a critical
financial performance measure for the
group on the basis that it is a key metric
for analysts and investors. EPRA earnings
per share is based on the Group’s EPRA
earnings which is reconciled to IFRS profit
after taxation in note 14. We applied this
lower threshold for testing all balances
impacting EPRA earnings.
£8m
materiality
Audit
Committee
reporting
threshold
£0.16m
£1m
EPRA
balances
materiality
EPRA
balances
reporting
threshold
£0.02m
£391m
NAV
NAV Group materiality
£19m
EPRA earnings
EPRA earning EPRA balances materiality
ANNUAL REPORT 2020 STENPROP
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FINANCIAL STATEMENTS
Independent Auditor’s Report continued
To the members of Stenprop Limited
6.2 Performance materiality
We set performance materiality at a level lower than materiality
to reduce the probability that, in aggregate, uncorrected
and undetected misstatements exceed the materiality for
the financial statements as a whole. Performance materiality
was set at 70% of materiality for the 2020 audit (2019: 70%).
In determining performance materiality, we considered the
following factors:
f our risk assessment, including our assessment of the
Group’s overall control environment; and
f our past experience of the audit, which has indicated a
low number of corrected and uncorrected misstatements
identified in prior periods.
6.3 Error reporting threshold
We agreed with the Audit Committee that we would report to
the Committee all audit differences in excess of £0.16m (2019:
£0.16m), as well as differences below that threshold that, in
our view, warranted reporting on qualitative grounds. We also
report to the Audit Committee on disclosure matters that
we identified when assessing the overall presentation of the
financial statements.
7. An overview of the scope of our audit
Our audit was scoped by obtaining an understanding of the
group and its environment, including internal control, and
assessing the risks of material misstatement at the group level.
We performed a full scope audit to respond to the risks of
material misstatement in the consolidated financial statements
and the joint venture entities. Together these elements
account for 100% (2019: 100%) of the group’s net assets and
100% (2019: 100%) of group’s profit before tax. Audit work
was executed at levels of Group or EPRA earnings materiality
applicable to each account balance and our response to the
risks of material misstatement was performed directly by the
audit engagement team.
We have obtained an understanding of the group’s system of
internal controls and undertaken a combination of procedures,
all of which are designed to target the group’s identified risks
of material misstatement in the most effective manner possible.
8. Other information
The directors are responsible for the other information. The
other information comprises the information included in the
annual report, other than the financial statements and our
auditor’s report thereon.
Our opinion on the financial statements does not cover the
other information and we do not express any form of assurance
conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing
so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge
obtained in the audit or otherwise appears to be materially
misstated.
If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there
is a material misstatement in the financial statements or a
material misstatement of the other information. If, based on the
work we have performed, we conclude that there is a material
misstatement of this other information, we are required to
report that fact.
In this context, matters that we are specifically required to
report to you as uncorrected material misstatements of the
other information include where we conclude that:
f Fair, balanced and understandable – the statement given
by the directors that they consider the annual report and
financial statements taken as a whole is fair, balanced and
understandable and provides the information necessary
for shareholders to assess the group’s position and
performance, business model and strategy, is materially
inconsistent with our knowledge obtained in the audit; or
Audit committee reporting – the section describing the work
of the audit committee does not appropriately address matters
communicated by us to the audit committee.
We have nothing to report in respect of these matters.
9. Responsibilities of directors
As explained more fully in the directors’ responsibilities
statement, the directors are responsible for the preparation of
the financial statements and for being satisfied that they give a
true and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether
due to fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the group’s ability to continue as
a going concern, disclosing as applicable, matters related to
going concern and using the going concern basis of accounting
unless the directors either intend to liquidate the group or to
cease operations, or have no realistic alternative but to do so.
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FINANCIAL STATEMENTS
10. Auditor’s responsibilities for the audit of the
financial statements
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to
issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with ISAs (UK)
will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of
users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of
the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms
part of our auditor’s report.
REPORT ON OTHER LEGAL AND
REGULATORY REQUIREMENTS
11. Matters on which we are required to report by
exception
11.1 Adequacy of explanations received and accounting
records
Under the Companies (Guernsey) Law, 2008 we are required to
report to you if, in our opinion:
f we have not received all the information and explanations
we require for our audit; or
f proper accounting records have not been kept by the
parent company; or
f the financial statements are not in agreement with the
accounting records.
We have nothing to report in respect of this matter.
12. Use of our report
This report is made solely to the company’s members, as
a body, in accordance with Section 262 of the Companies
(Guernsey) Law, 2008. Our audit work has been undertaken so
that we might state to the company’s members those matters
we are required to state to them in an auditor’s 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 and the company’s members as a body, for our audit
work, for this report, or for the opinions we have formed.
John Clacy, FCA
For and on behalf of Deloitte LLP
Recognised Auditor
Guernsey
11 June 2020
ANNUAL REPORT 2020 STENPROP
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FINANCIAL STATEMENTS
JSE Accredited Independent Auditor’s Report
To the Shareholders of Stenprop Limited
REPORT ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS
Opinion
We have audited the consolidated financial statements of Stenprop Limited (the Group), which comprise the consolidated
statement of financial position as at 31 March 2020, and the consolidated statement of comprehensive income, consolidated
statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the
consolidated financial statements, including a summary of significant accounting policies.
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of
Stenprop Limited and its subsidiaries as at 31 March 2020, and its consolidated financial performance and consolidated cash flows
for the year then ended in accordance with International Financial Reporting Standards.
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards
are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report.
We are independent of the Group in accordance with the sections 290 and 291 of the Independent Regulatory Board for Auditors’
Code of Professional Conduct for Registered Auditors (Revised January 2018), parts 1 and 3 of the Independent Regulatory Board
for Auditors’ Code of Professional Conduct for Registered Auditors (Revised November 2018) (together the IRBA Codes) and
other independence requirements applicable to performing audits of financial statements in South Africa. We have fulfilled our
other ethical responsibilities, as applicable, in accordance with the IRBA Codes and in accordance with other ethical requirements
applicable to performing audits in South Africa. The IRBA Codes are consistent with the corresponding sections of the International
Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants and the International Ethics Standards Board
for Accountants’ International Code of Ethics for Professional Accountants (including International Independence Standards)
respectively. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated
financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
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FINANCIAL STATEMENTS
Key Audit Matter
How the matter was addressed in the audit
Valuation of the property portfolio
The Group’s investment property portfolio, as disclosed in
note 16, is valued at £387.8 million as at 31 March 2020 (2019:
£562.8 million). In addition, the Group’s share of investment
property held by joint ventures is valued at £35.9 million (2019:
£33.9 million) and property assets classified as held for sale are
valued at £109.1 million (2019: £16.2 million).
The portfolio is independently valued by professionally
qualified valuers in each geographic location using an income
capitalisation model.
Management is required to make a number of significant
assumptions and judgements in determining the fair value and
therefore we have identified this as a potential fraud risk.
The key inputs into the fair value model which are subject to
significant management estimates include market rents, market
yields, vacancy rates, the credit-worthiness of tenants, as well
as discount and capitalisation rates used in the discounted cash
flows. Unreasonable assumptions could give rise to a material
misstatement.
As detailed in note 16, in applying the Royal Institute of
Chartered Surveyors (RICS) Valuation Global Standards 2020
(‘Red Book’), the valuer has declared a ‘material valuation
uncertainty’ in their valuation report. This is on the basis that
market activity is being impacted in many sectors such that as
at the valuation date they consider that they can attach less
weight to previous market evidence for comparison purposes
to inform opinions of value, and that a higher degree of caution
should be attached to their valuation.
In addition to this, and consistent with the market conditions
observed in the prior year, we note there continued to be
a higher level of judgement associated with certain asset
valuations, notably those with significant leisure or retail
elements. Covid-19 further increased judgement in relation to
assumptions around:
f occupier demand and solvency;
f asset liquidity; and
f the relative impact on the different sectors including leisure
and retail units within the portfolio.
The valuation of investment properties is disclosed as one
of the key sources of estimation uncertainty in notes 4 and
16 of the financial statements and is further described in the
Significant audit risks section of the Audit Committee Report.
Other Information
The directors are responsible for the other information. The
other information comprises the information included in the
annual report. other than the consolidated financial statements
and our auditor’s report thereon.
Our opinion on the consolidated financial statements does not
cover the other information and we do not and will not express
an audit opinion or any form of assurance conclusion thereon.
To respond to the key audit matter, we have performed the
following audit procedures:
f Obtained and documented an understanding of relevant
controls in relation to the valuation process;
f Selected a sample of properties which we considered to be
of most audit interest and with the assistance of our Real
Estate Valuations specialists to audit the valuations in detail;
f Alongside our valuation specialists, discussed and
challenged key inputs and assumptions with the valuers and
management with reference to independent market data
including Brexit and Covid-19 considerations;
f Assessed whether the valuers are independent of the
Group and considered the reliability and competency of the
valuers;
f Assessed the accuracy of the tenancy schedules and
reconciled the rental values used in the valuations to the
tenancy schedules including tracing a sample back to
underlying lease agreements;
f Assessed whether the disclosures in the financial statements
are appropriate and in accordance with IFRS 13 Fair Value
Measurement; and
f Assessed whether all property valuations have been
correctly included in the financial statements.
Key observations
We concluded that the assumptions applied by management,
in arriving at the fair value of the Group’s property portfolio
were appropriate, and that the resulting valuations were within
a reasonable range.
While we note the increased estimation uncertainty in relation
to the property valuation as a result of Covid-19, and as
disclosed in note 16, we considered the assumptions applied in
arriving at the fair value of the Group’s property portfolio to be
appropriate.
In connection with our audit of the consolidated financial
statements, our responsibility is to read the other information
and, in doing so, consider whether the other information
is materially inconsistent with the consolidated financial
statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated. If, based on the
work we have performed on the other information obtained
prior to the date of this auditor’s report, we conclude that there
is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this
regard.
ANNUAL REPORT 2020 STENPROP
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FINANCIAL STATEMENTS
JSE Accredited Independent Auditor’s Report continued
To the Shareholders of Stenprop Limited
f Evaluate the overall presentation, structure and content
of the consolidated financial statements, including the
disclosures, and whether the consolidated financial
statements represent the underlying transactions and events
in a manner that achieves fair presentation.
f Obtain sufficient appropriate audit evidence regarding the
financial information of the entities or business activities
within the Group to express an opinion on the consolidated
financial statements. We are responsible for the direction,
supervision and performance of the Group audit. We remain
solely responsible for our audit opinion.
We communicate with the Audit and Risk Committee regarding,
among other matters, the planned scope and timing of the
audit and significant audit findings, including any significant
deficiencies in internal control that we identify during our audit.
We also provide the Audit and Risk Committee with a statement
that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all
relationships and other matters that may reasonably be thought
to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with the Audit and Risk
Committee, we determine those matters that were of most
significance in the audit of the consolidated financial statements
of the current period and are therefore the key audit matters.
We describe these matters in our auditor’s report unless law
or regulation precludes public disclosure about the matter or
when, in extremely rare circumstances, we determine that a
matter should not be communicated in our report because
the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such
communication.
Report on Other Legal and Regulatory Requirements
In terms of the IRBA Rule published in Government Gazette
Number 39475 dated 4 December 2015, we report that Deloitte
has been the auditor of Stenprop Limited for 6 years.
Deloitte & Touche
Registered Auditor
5 Magwa Crescent
Waterfall City
South Africa
2090
Per: Leon Taljaard
Partner
11 June 2020
Responsibilities of the Directors for the Consolidated
Financial Statements
The directors are responsible for the preparation and fair
presentation of the consolidated financial statements in
accordance with International Financial Reporting Standards
and for such internal control as the directors determine is
necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether
due to fraud or error.
In preparing the consolidated financial statements, the directors
are responsible for assessing the Group’s ability to continue as
a going concern, disclosing, as applicable, matters related to
going concern and using the going concern basis of accounting
unless the directors either intend to liquidate the Group or to
cease operations, or have no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the
Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about
whether the consolidated financial statements as a whole
are free from material misstatement, whether due to fraud or
error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not
a guarantee that an audit conducted in accordance with ISAs
will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions
of users taken on the basis of these consolidated financial
statements.
As part of an audit in accordance with ISAs, we exercise
professional judgement and maintain professional scepticism
throughout the audit. We also:
f Identify and assess the risks of material misstatement of
the consolidated financial statements, whether due to fraud
or error, design and perform audit procedures responsive
to those risks, and obtain audit evidence that is sufficient
and appropriate to provide a basis for our opinion. The
risk of not detecting a material misstatement resulting
from fraud is higher than for one resulting from error, as
fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
f Obtain an understanding of internal control relevant to
the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the group’s
and the company’s internal control.
f Evaluate the appropriateness of accounting policies used
and the reasonableness of accounting estimates and related
disclosures made by the directors.
f Conclude on the appropriateness of the directors’ use of the
going concern basis of accounting and based on the audit
evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant
doubt on the group’s ability to continue as a going concern.
If we conclude that a material uncertainty exists, we are
required to draw attention in our auditor’s report to the
related disclosures in the consolidated financial statements
or, if such disclosures are inadequate, to modify our opinion.
Our conclusions are based on the audit evidence obtained
up to the date of our auditor’s report. However, future
events or conditions may cause the Group to cease to
continue as a going concern.
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Consolidated Statement of Comprehensive Income
For the year ended 31 March 2020
FINANCIAL STATEMENTS
Continued operations
Revenue
Property expenses
Net rental income
Management fee income
Adjustment to deferred consideration
Net management fee income
Operating costs
Net operating income
Fair value gain/(loss) on investment properties
(Loss)/gain on disposal of property
Income from joint ventures
Income from associates
Profit on disposal of subsidiaries
Net foreign exchange gain/(loss)
Profit from operations1
Net loss from fair value of derivative financial instruments
Interest income
Finance costs
Other losses
Profit for the year before taxation
Current tax
Movement in deferred tax
Tax credit/(expense)
Profit for the year from continuing operations
Discontinued operations
Loss for the year from discontinued operations
Profit for the year
Profit attributable to:
Equity holders
Non-controlling interest derived from continuing operations
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation reserve
Total comprehensive income for the year
Total comprehensive income attributable to:
Equity holders
Non-controlling interest
Earnings per share
From continuing operations
IFRS EPS
Diluted IFRS EPS
From continuing and discontinued operations
IFRS EPS
Diluted IFRS EPS
31 March
2020
£’000
31 March
2019
£’000
Note
44,098
(11,049)
33,049
558
–
558
(10,053)
23,554
4,938
(2,779)
2,115
–
–
3
27,831
(2,410)
432
(9,719)
–
16,134
(5,874)
7,096
1,222
17,356
44,502
(10,597)
33,905
9,541
(3,695)
5,846
(11,258)
28,493
(3,404)
17
1,607
101
11,126
(102)
37,838
(1,092)
355
(8,251)
(60)
28,790
(1,963)
(480)
(2,443)
26,347
(2,197)
15,159
(2,323)
24,024
15,565
(406)
23,828
196
4,104
19,263
(1,272)
22,752
19,669
(406)
22,556
196
Pence
Pence
6.28
6.20
5.50
5.44
9.26
9.16
8.43
8.35
6
5
7
18
26
9
10
27
10
19
14
14
14
14
1.
Profit from operations now includes the gain/(loss) on disposal of property as well as net foreign exchange gain/(loss). These two line items were previously disclosed below
profit from operations.
ANNUAL REPORT 2020 STENPROP
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FINANCIAL STATEMENTS
Consolidated Statement of Financial Position
As at 31 March 2020
ASSETS
Non-current assets
Investment properties
Investment in joint ventures
Investment in joint venture bond1
Other debtors
Right-of-use asset
Current assets
Cash and cash equivalents
Trade and other receivables
Right-of-use asset
Assets classified as held for sale
Total assets
LIABILITIES
Current liabilities
Bank loans
Taxes payable
Derivative financial instruments
Accounts payable and accruals
Provisions
Lease liability
Liabilities directly associated with assets classified as held for sale
Non-current liabilities
Bank loans
Derivative financial instruments
Lease liability
Deferred tax
Total liabilities
Net assets
EQUITY
Capital and reserves
Share capital and share premium
Equity reserve
Retained earnings
Foreign currency translation reserve
Total equity attributable to equity shareholders
Non-controlling interest
Total equity
IFRS net asset value per share
Diluted IFRS net asset value per share
31 March
2020
£’000
31 March
2019
£’000
Note
16
18
18
20
21
20
19
23
25
22
19
23
25
27
12
12
15
15
387,761
562,815
781
15,336
13,523
465
465
14,077
13,365
–
417,866
590,722
84,453
8,249
26
111,857
204,585
622,451
–
7,241
–
16,689
3,179
302
47,310
74,721
154,171
2,001
222
–
156,394
231,115
391,336
57,425
6,699
–
21,423
85,547
676,269
29,805
1,625
176
16,862
–
–
9,326
57,794
215,285
554
–
10,416
226,255
284,049
392,220
322,993
(14,360)
57,490
25,118
391,241
95
322,993
(15,708)
60,952
21,014
389,251
2,969
391,336
392,220
£
1.38
1.37
£
1.38
1.36
The consolidated financial statements were approved by the board of directors on 11 June 2020 and signed on its behalf by
James Beaumont
Chief Financial Officer
1. Amounts attributable to loans to joint ventures previously classified within investment in joint ventures has been moved to a separate line, investment in joint venture bond.
Following the change in presentation, at 31 March 2020 £15.34 million has been separately classified as investment in joint venture bond. At 31 March 2019, investment in joint
ventures has decreased by £14.08 million, and investment in joint ventures has increased by the same amount.
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Consolidated Statement of Changes in Equity
For the year ended 31 March 2020
FINANCIAL STATEMENTS
Share
capital
and share
premium
£’000
Note
Equity
reserve
£’000
Retained
earnings
£’000
Foreign
currency
translation
reserve
£’000
322,993
(15,708)
60,952
21,014
15,565
–
Attributable
to equity
shareholders
£’000
Non-
controlling
interest
£’000
Total
equity
£’000
389,251
15,565
2,969
392,220
(322)
15,243
Balance at 1 April 2019
Profit for the year
Total other comprehensive
income for the period
Credit to equity for equity-
settled share-based payments
Repurchase of own shares
Other changes in non-
controlling interest
Ordinary dividends
–
–
–
–
–
–
13
11
–
–
1,079
(4,828)
–
4,104
4,104
1,079
(4,828)
–
–
–
4,104
1,079
(4,828)
–
–
–
–
5,097
(19,027)
–
(513)
(513)
(13,930)
(2,039)
(15,969)
Balance at 31 March 2020
322,993
(14,360)
57,490
25,118
391,241
95
391,336
Balance at 1 April 2018
Profit for the year
Total other comprehensive
income for the period
Exercised share bonus plan
Credit to equity for equity-
settled share-based payments
Repurchase of own shares
Ordinary dividends
Balance at 31 March 2019
13
11
315,551
(8,453)
–
–
65
–
–
–
–
(65)
730
(7,920)
7,377
–
(20,823)
322,993
(15,708)
60,952
21,014
(1,272)
–
–
–
–
(1,272)
–
730
(7,920)
(13,446)
389,251
–
–
–
–
–
(1,272)
–
730
(7,920)
(13,446)
2,969
392,220
57,947
23,828
22,286
–
387,331
23,828
2,939
390,270
30
23,858
–
–
–
–
–
–
–
–
ANNUAL REPORT 2020 STENPROP
99
27385 17 June 2020 7:25 pm proof 1
FINANCIAL STATEMENTS
Consolidated Statement of Cash Flows
For the year ended 31 March 2020
Operating activities
Profit from operations from continuing operations
Loss from discontinued operations
Income from associates
Depreciation and amortisation
(Increase)/decrease in fair value of investment property
Loss/(gain) on disposal of property
Income from joint ventures
Dividends received from associates
Dividends received from joint ventures
Profit on disposal of subsidiaries
Exchange rate gain/(loss)
Decrease/(increase) in trade and other receivables
Increase in trade and other payables
Cash generated by operations
Interest paid
Interest received
Net tax paid
Net cash from operating activities
Contributed by: Continuing operations
Discontinued operations
Investing activities
Purchase of investment property
Capital expenditure
Proceeds on disposal of investment property
Proceeds on disposal of investment in associate
Proceeds on disposal of joint venture
Repayment of third party loans
Disposal of subsidiary
Net cash disposed of in subsidiary
Net cash from investing activities
Financing activities
New bank loans raised
New third party loans raised
Dividends paid
Withholding tax on dividends paid
Repayment of borrowings
Repayment of third party loans
Principal elements of lease payments
Repurchase of shares
Financing fees paid
Net cash used in financing activities
Net increase in cash and cash equivalents
Effect of foreign exchange losses
Cash and cash equivalents at beginning of the period
Cash and cash equivalents at end of the period
Contributed by: Continuing operations
Discontinued operations and assets held for sale
100
STENPROP ANNUAL REPORT 2020
27385 17 June 2020 7:25 pm proof 1
31 March
2020
£’000
31 March
2019
£’000
27,831
(2,967)
24,864
–
239
(1,741)
2,779
(2,115)
–
56
–
(3)
631
3,782
28,492
(9,224)
1,296
(2,738)
17,826
20,707
(2,881)
(40,829)
(13,303)
144,628
–
–
244
–
–
90,740
37,838
(3,034)
34,804
(101)
–
5,259
(17)
(1,607)
18
1,367
(8,890)
102
(1,226)
3,818
33,527
(7,850)
1,149
(2,383)
24,443
25,382
(939)
(110,188)
(9,996)
82,590
391
22,726
–
74,094
(2,132)
57,485
24,668
–
37,051
48,086
(13,930)
(13,446)
342
(82,318)
–
(375)
(4,828)
(1,062)
295
(61,208)
(48,086)
–
(7,920)
(1,054)
(77,503)
(46,282)
31,063
(4,695)
59,220
85,588
84,453
1,135
35,646
(1,713)
25,287
59,220
57,425
1,795
Note
19
16
16
18
26
26
24
24
21
21
Notes to the Consolidated Financial Statements
FINANCIAL STATEMENTS
1 General Information
Stenprop Limited (the ‘Company’ and together with its subsidiaries the ‘Group’) is registered in Guernsey (Registration number
64865). The registered address of the Company is Kingsway House, Havilland Street, St Peter Port, GY1 2QE, Guernsey. With effect
from 1 May 2018, the Company converted to a UK real estate investment trust (‘REIT’).
2 Basis of preparation
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRS’s)
as issued by the IASB, and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial
Pronouncements as issued by Financial Reporting Standards Council and the Companies Act, 71 of 2008 (‘Companies Act’) applicable
to companies reporting under IFRS and the JSE Listings Requirements, the Disclosure and Transparency Rules of the UK’s FCA
and applicable Guernsey law. The consolidated financial statements have been prepared on the historical cost basis, except for the
revaluation of investment properties and financial instruments that are measured at fair values at the end of each reporting period, as
explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange
for goods and services. The principal accounting policies, which are consistent with those applied in the previous annual financial
statements, except for the adoption of new and revised standards (described below), are set out below.
The consolidated financial statements are presented in GBP (Pounds Sterling).
Going concern
At the date of signing these consolidated financial statements, the Group has positive operating cash flows and positive net
assets. Management have carefully assessed the impact of the market uncertainties arising from both Brexit and the outbreak of
the COVID-19 pandemic, on the entity’s net assets, liquidity and ability to continue as a going concern for the foreseeable future.
Given the current market conditions and negative economic outlook, management subjected the Group’s cash flow forecast to
a stress test scenario for the 18 months to 30 September 2021 by applying highly severe scenario assumptions, including a 75%
deterioration in rental income cash receipts, and direct landlord costs of four times the current level, driven by an increase in
vacancies. These assumptions were applied over the entire 18 month period of assessment and do not include cash flows for the
sale or purchase of properties. The test concluded that even in these scenarios the Group would have positive liquid assets and be
able to meet its obligations as they fell due.
Debt refinancing and sensitivities to loan covenants were assessed in detail, as well as the Company’s REIT obligations. Despite
the disruption in the economy caused by COVID-19, we do not expect the risk of default to have increased. Lenders have been
guided by the Government to take a pragmatic view and consider prepayment possibilities, equity cures and waivers of covenants
so that breaches with a direct link to the pandemic should not automatically trigger defaults. In addition, we maintain strong
relationships with our facility providers and currently have significant headroom for both interest cover and LTV loan covenants.
Notwithstanding this assumption, the Group would have cash resources available, even after considering the highly severe scenario,
to be utilised to cure covenant breaches if they crystallise and the lenders take a hard stance against government advice. It is
further worth noting that the loans are not cross-collateralised and accordingly if certain banks do act aggressively, the Group
would continue to operate with the remaining portfolio of assets if any foreclosure events were to arise.
In light of this review and the significant liquid assets, management are satisfied that the Group has access to adequate resources
to continue in operational existence for a period of at least twelve months from the date of these financial statements. The
directors believe that it is therefore appropriate to prepare the accounts on a going concern basis.
Note 28 to the consolidated financial statements includes the Group’s objectives, policies and procedures for managing its market,
credit, interest and liquidity risks.
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:
f IFRS 16
Leases
At the date of approval of these consolidated financial statements, the Group has not applied the following new standards that
have been issued but are not yet effective:
f IFRS 10 and IAS 28 (amendments)
f Amendments to IFRS 3
f Amendments to IAS 1 and IAS 18
f Conceptual Framework
Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
Definition of a business
Definition of material
Amendments to References to the Conceptual Framework in IFRS Standards
Impact assessment of adopting new accounting standards
The directors have completed or 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 future periods.
IFRS 16: Leases. In the current year, the Group has applied IFRS 16 Leases (as issued by the IASB in January 2016) which is effective
for annual periods that begin on or after 1 January 2019. IFRS 16 introduces new or amended requirements with respect to lease
accounting. It introduces significant changes to lessee accounting by removing the distinction between operating and finance
leases and requiring the recognition of a right-of-use asset and a lease liability at commencement for all leases, except for short-
term leases and leases of low value assets when such recognition exemptions are adopted. In contrast to lessee accounting, the
requirements for lessor accounting have remained largely unchanged. Details of these new requirements are described in Note 3.
The impact of the adoption of IFRS 16 on the Group’s consolidated financial statements is described below.
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FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
2 Basis of preparation continued
The date of initial application of IFRS 16 for the Group is 1 April 2019.
The Group has applied IFRS 16 using the cumulative catch-up approach which:
f requires the Group to recognise the cumulative effect of initially applying IFRS 16 as an adjustment to the opening balance of
retained earnings at the date of initial application.
f does not permit restatement of comparatives, which continue to be presented under IAS 17 and IFRIC 4.
Impact on Lessee Accounting
IFRS 16 changes how the Group accounts for leases previously classified as operating leases under IAS 17, which were off balance
sheet.
Applying IFRS 16, for all leases, the Group:
f recognises right-of-use assets and lease liabilities in the consolidated statement of financial position, initially measured at the
present value of the future lease payments, with the right-of-use asset adjusted by the amount of any prepaid or accrued lease
payments in accordance with IFRS 16:C8(b)(ii);
f recognises depreciation of right-of-use assets and interest on lease liabilities in the consolidated statement of profit or loss;
f separates the total amount of cash paid into a principal portion (presented within financing activities) and interest (presented
within financing activities) in the consolidated statement of cash flows.
Under IFRS 16, right-of-use assets are tested for impairment in accordance with IAS 36.
Stenpop’s weighted average incremental borrowing rate applied to lease liabilities recognised in the statement of financial position
on 1 April 2019 is 3.46%.
The effect of adopting IFRS 16 in the current financial year is summarised below:
IFRS 16 leases entered into since 1 April 2019
Leases paid
Depreciation (operating costs)
Interest on leases (finance costs)
At 31 March 2020
Right of
use asset
£’000
730
–
(239)
–
491
Lease
liability
£’000
(877)
375
–
(22)
(524)
In applying IFRS 16 for the first time, the Group have used the following practical expedients permitted by the standard:
f Applying a single discount rate to a portfolio of leases with reasonably similar characteristics.
f Excluding initial direct costs for the measurement of the right-of-use asset at the date of initial application.
f Using hindsight in determining the lease term where the contract contains options to extend or terminate the lease.
The Group has elected not to reassess whether contracts entered into before the transition date were leases, or contained leases, at
the date of initial application and instead has relied on their initial assessment made when applying IAS 17 and IFRIC 4 ‘Determining
whether an Arrangement Contains a Lease’.
Impact on Lessor Accounting
IFRS 16 does not change substantially how a lessor accounts for leases. Under IFRS 16, a lessor continues to classify leases as either
finance leases or operating leases and account for those two types of leases differently.
New standards in issue but not yet effective
IFRS 10 and IAS 28 (amendments) Sale or Contribution of Assets between an Investor and its Associate or Joint Venture. The
amendments to IFRS 10 and IAS 28 deal with situations where there is a sale or contribution of assets between an investor and its
associate or joint venture. Specifically, the amendments state that gains or losses resulting from the loss of control of a subsidiary
that does not contain a business in a transaction with an associate or a joint venture that is accounted for using the equity method,
are recognised in the parent’s profit or loss only to the extent of the unrelated investors’ interests in that associate or joint venture.
Similarly, gains and losses resulting from the remeasurement of investments retained in any former subsidiary (that has become an
associate or a joint venture that is accounted for using the equity method) to fair value are recognised in the former parent’s profit
or loss only to the extent of the unrelated investors’ interests in the new associate or joint venture.
Amendments to IFRS 3 Definition of a business. The amendments clarify that while businesses usually have outputs, outputs are
not required for an integrated set of activities and assets to qualify as a business. To be considered a business an acquired set
of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to
the ability to create outputs. Additional guidance is provided that helps to determine whether a substantive process has been
acquired. The amendments introduce an optional concentration test that permits a simplified assessment of whether an acquired
set of activities and assets is not a business. Under the optional concentration test, the acquired set of activities and assets is
not a business if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or
group of similar assets. The amendments are applied prospectively to all business combinations and asset acquisitions for which
the acquisition date is on or after the first annual reporting period beginning on or after 1 January 2020, with early application
permitted.
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FINANCIAL STATEMENTS
2 Basis of preparation continued
Amendments to IAS 1 and IAS 8 Definition of material. The amendments are intended to make the definition of material in IAS
1 easier to understand and are not intended to alter the underlying concept of materiality in IFRS Standards. The concept of
‘obscuring’ material information with immaterial information has been included as part of the new definition. The threshold for
materiality influencing users has been changed from ‘could influence’ to ‘could reasonably be expected to influence’. The definition
of material in IAS 8 has been replaced by a reference to the definition of material in IAS 1. In addition, the IASB amended other
Standards and the Conceptual Framework that contain a definition of material or refer to the term ‘material’ to ensure consistency.
The amendments are applied prospectively for annual periods beginning on or after 1 January 2020, with earlier application
permitted.
Amendments to References to the Conceptual Framework in IFRS Standards. Together with the revised Conceptual Framework,
which became effective upon publication on 29 March 2018, the IASB has also issued Amendments to References to the
Conceptual Framework in IFRS Standards. The document contains amendments to IFRS 2, IFRS 3, IFRS 6, IFRS 14, IAS 1, IAS 8, IAS
34, IAS 37, IAS 38, IFRIC 12, IFRIC 19, IFRIC 20, IFRIC 22, and SIC-32. Not all amendments, however, update those pronouncements
with regard to references to and quotes from the framework so that they refer to the revised Conceptual Framework. Some
pronouncements are only updated to indicate which version of the Framework they are referencing to (the IASC Framework
adopted by the IASB in 2001, the IASB Framework of 2010, or the new revised Framework of 2018) or to indicate that definitions in
the Standard have not been updated with the new definitions developed in the revised Conceptual Framework. The amendments,
where they actually are updates, are effective for annual periods beginning on or after 1 January 2020, with early application
permitted.
3 Significant accounting policies
Basis of consolidation
Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses
control of the subsidiary. Specifically, the results of the subsidiaries acquired or disposed of during the period are included in the
consolidated statement of comprehensive income from the date the Company gains control until the date when the Company
ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-
controlling interests. Total comprehensive income of the subsidiaries is attributed to the owners of the Company and to the non-
controlling interests, even if this results in the non-controlling interests having a deficit balance.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used in line with
the Group’s accounting policies.
All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between the members of the
Group are eliminated on consolidation.
When the Group loses control of a subsidiary, the gain or loss on disposal recognised in profit or loss is calculated as the difference
between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest, and (ii) the
previous carrying amount of the assets (including goodwill), less liabilities of the subsidiary and any non-controlling interests.
All amounts previously recognised in other comprehensive income in relation to that subsidiary are accounted for as if the Group
had directly disposed of the related assets or liabilities of the subsidiary (i.e. reclassified to profit or loss or transferred to another
category of equity as specified/permitted by applicable IFRS). The fair value of any investment retained in the former subsidiary at
the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IFRS 9 Financial
Instruments or, when applicable, the costs on initial recognition of an investment in an associate or jointly controlled entity.
Joint ventures
The Group’s investment properties are typically held in property-specific separate legal entities, which may be legally structured as
joint ventures. In assessing whether a particular legal entity is accounted for as a subsidiary or joint venture, the Group considers
all of the contractual terms of the arrangement, including the extent to which the responsibilities and parameters of the venture are
determined in advance of the joint venture agreement being agreed between the two parties. The Group will then consider whether
it has the power to govern the financial and operating policies of the legal entity, so as to obtain benefits from its activities, and
the existence of any legal disputes or challenges to this control in order to conclude on the classification of the legal entity as a
joint venture or subsidiary undertaking. In applying this policy and as detailed in note 18, the Group’s investment in Elysion S.A. is
classified as a joint venture as a result of the share of beneficial ownership and management of the portfolio being conducted by
the joint venture partner.
The consolidated financial statements account for interests in joint ventures using the equity method of accounting per IFRS 11.
Loans to joint ventures are separately presented from equity interests in the Group’s consolidated statement of financial position.
The Group eliminates upstream and downstream transactions with its joint ventures, including interest and any other costs, to
the extent of the Group’s interest in the relevant joint venture. The classification and measurement of loans to joint ventures is
determined in accordance with the Group’s accounting policies for financial assets.
Business combinations and asset acquisitions
Business combinations are accounted for using the acquisition method and any excess of the purchase consideration over the
fair value of the net assets acquired is initially recognised as goodwill and reviewed for impairment. Any discount received and/or
acquisition costs are recognised in the consolidated statement of comprehensive income.
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FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
3 Significant accounting policies continued
The Group acquires subsidiaries that own real estate. At the time of acquisition, the Group considers whether the acquisition
represents the acquisition of a business. The Group accounts for an acquisition as a business combination where an integrated set
of activities is acquired in addition to the property. More specifically, the following criteria are considered:
f The number of items of land and buildings owned by the subsidiary;
f The extent to which significant processes are acquired and in particular the extent of ancillary services provided by the
subsidiary; and
f Whether the subsidiary has allocated its own staff to manage the property and/or to deploy any processes, including provision
of all relevant administration and information to the entity’s owners.
When the acquisition of subsidiaries does not represent a business, it is accounted for as an acquisition of a group of assets and
liabilities.
There were no business combinations acquired during the 12 months to 31 March 2020.
Revenue recognition
The Group earns returns from investments in direct property assets and management fees. Revenue is recognised when it is
probable that the economic benefits associated with the transaction will flow to the Group and the amount of revenue can be
measured reliably.
Rental income and lease incentives are recognised in accordance with IFRS 16 Leases. Rental income from investment property is
recognised as revenue on a straight-line basis over the lease term. Lease incentives and costs associated with entering into tenant
leases are amortised over the lease term, or if the probability that a break option will be exercised is considered high, over the
period to the first break option. Rent reviews are recognised when such reviews have been agreed with tenants.
Service charge income, property fee income and joint venture and associate management fees are recognised in accordance with
IFRS 15 Revenue from contracts with customers, which prescribes the use of a five-step model for the recognition of revenue.
These income streams are recognised as revenue in the period in which they are earned.
Rental income from operating leases is recognised on an accruals basis. A rent adjustment based on open market estimated rental
value is recognised from the rent review date in relation to unsettled rent reviews. Where a significant rent-free period is included
in a lease, the rental income forgone is allocated evenly over the period from the date of lease commencement to the expiry date
of the lease.
Rental income from fixed and minimum guaranteed rent reviews is recognised on a straight-line basis over the entire lease term.
Where such rental income is recognised ahead of the related cash flow, an adjustment is made to ensure the carrying value of the
investment property, including the accrued rent, does not exceed the external valuation. Initial significant direct costs incurred in
negotiating and arranging a new lease are amortised on a straight-line basis over the period from the date of lease commencement
to the expiry date of the lease.
Where a lease incentive payment, or surrender premium is paid to enhance the value of a property, it is amortised on a straight-
line basis over the period from the date of lease commencement to the expiry date of the lease. Upon receipt of a surrender
premium for the early determination of a lease, the profit, net of dilapidations and non-recoverable outgoings relating to the lease
concerned, is immediately reflected in income.
Contingent rents, such as turnover rents, rent reviews and indexation, are recorded as income in the periods in which they are
earned.
Management fees are recognised in the statement of comprehensive income over time as performance obligations are satisfied.
Service charge income is recognised in the accounting period in which the services are rendered and the related property expenses
are recognised in the period in which they are incurred.
Foreign currencies
The individual financial statements of each Group company are presented in the currency of the primary economic environment
in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial
position are expressed in GBP Sterling, which is the functional currency of the Company and the presentational currency for the
Group.
In preparing the financial statements of the individual companies, transactions in currencies other than the entity’s functional
currency (foreign currencies) are recognised at the rates of exchange prevailing on the dates of the transactions. At each statement
of financial position date, monetary assets and liabilities that are denominated in foreign currencies are translated at the rates
prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the
rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost
in a foreign currency are not retranslated. Exchange differences are recognised in profit or loss for the period in which they arise.
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations
are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average
exchange rates for the period. Exchange differences arising are recognised in other comprehensive income and accumulated in
equity (attributed to non-controlling interests as appropriate).
104
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FINANCIAL STATEMENTS
3 Significant accounting policies continued
Borrowing costs
Interest costs are recognised in the consolidated statement of comprehensive income using the effective interest rate method.
Borrowing costs directly attributable to arranging finance are amortised over the facility term in the consolidated statement of
comprehensive income.
Current tax
Tax currently payable is based on taxable profit for the year. The Group’s liability for current tax is calculated using tax rates that
have been enacted or substantively enacted by the balance sheet date.
Deferred tax
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable profit.
Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable
profits will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and
liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business
combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and associates,
and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable
that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary
differences associated with such investments and interests are only recognised to the extent that it is probable that there will be
sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the
foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no
longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets
and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset
realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The
measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the
Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax
liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax
assets and liabilities on a net basis.
Non-controlling interest
Non-controlling interests in the net assets (excluding goodwill) of consolidated subsidiaries are identified separately from
the Group’s equity therein. Non-controlling interests consist of the amount of those interests at the date of the original
business combination and the non-controlling interests’ share of the changes in equity since the date of the combination. Total
comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests having a deficit
balance.
Investment properties
Properties held to earn rental income and/or capital appreciation are classified as investment properties. Investment properties
comprise both freehold and long leasehold land and buildings.
Investment properties are recognised as assets when:
f it is probable that the future economic benefits that are associated with the investment property will flow to the Group;
f there are no material conditions precedent which could prevent completion; and
f the cost of the investment property can be measured reliably.
Investment properties are measured initially at cost, including related transaction costs. After initial recognition, investment
properties are carried at fair value, determined by the directors and/or based on independent external appraisals.
The Group uses the valuations prepared by its independent valuers as the fair value of its investment properties. These valuations
are undertaken in accordance with the appropriate sections of the current Practice Statements contained in the Royal Institution
of Chartered Surveyors Valuation – Professional Standards (‘Red Book’). This is an internationally accepted basis of valuation.
The valuations are based upon assumptions including contractual and estimated rental values, future rental income, anticipated
maintenance costs, future development costs and appropriate discount rates. The valuers also make reference to market evidence
of transaction prices for similar properties. The valuation techniques used are consistent with IFRS 13 fair value measurement.
The difference between the fair value of a property at the reporting date and its carrying amount prior to remeasurement is
included in the consolidated statement of comprehensive income as a valuation surplus or deficit in the fair value gain/(loss) on
investment properties account.
Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at banks with an original maturity of three months or less.
ANNUAL REPORT 2020 STENPROP
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FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
3 Significant accounting policies continued
Expenditure
Expenses are accounted for on an accrual basis. Property expenses include the costs of professional fees on lettings and other
non-recoverable costs. Operating costs include all professional fees incurred in operating the business in the best interests of the
shareholders.
Financial instruments
A financial instrument is a contract that gives rise to a financial asset to one entity and a financial liability or equity instrument to
another. The classification of financial assets and financial liabilities depends on the nature and purpose of the instrument and is
determined at the time of initial recognition.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to
the acquisition or issue of financial assets and financial liabilities (other than financial assets at fair value through profit or loss
(‘FVTPL’)) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial
recognition.
Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at FVTPL are recognised
immediately in the statement of comprehensive income.
In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to
which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in
its entirety, which are described as follows:
Level 1 – Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the
measurement date.
Level 2 – Inputs other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or
indirectly.
Level 3 – Inputs are unobservable inputs for the asset or liability.
Financial assets
The Group classifies its financial assets as either at fair value through profit and loss or amortised cost. The Group classifies its
financial assets based on both the Group’s business model for managing those financial assets and the contractual cash flow
characteristics of the financial assets.
The Group’s financial assets classified at amortised cost are non-derivative financial assets with fixed or determinable payments
that are not quoted in an active market. They include current assets with maturities or terms less than 12 months after the reporting
date, as well as financial assets with maturities greater than 12 months after the reporting date, which are classified as non-current
assets. These assets meet the condition of being held within a business model whose objective is to hold the financial assets in
order to collect contractual cash flows and the terms of which give rise, on specified dates, to cash flows that are solely payments
of principal and interest.
Financial assets, including those relating to the purchase of Stenprop shares (note 20), are measured at amortised cost using
the effective interest method, less any loss allowance for expected credit losses (ECL) which are recognised in the statement of
comprehensive income. The amount of expected credit loss is updated at each reporting date to reflect changes in credit risk since
initial recognition of the respective financial instrument.
The effective interest rate is the rate that exactly discounts estimated future cash receipts excluding expected credit losses,
through the expected life of the financial instrument, or, where appropriate, as shorter period, to the gross carrying amount of the
financial instrument on initial recognition.
In the case of short-term trade receivables and other debtors the Group recognises lifetime ECL in accordance with the simplified
approach under IFRS 9 Financial Instruments. The expected credit losses on these financial assets are estimated based on the
Group’s historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an
assessment of both the current and forecast direction of conditions at the reporting date.
The carrying amount of the financial asset is reduced by the ECL directly for all financial assets. When a trade receivable is
considered uncollectable, it is written off against the ECL provision account. Changes in the ECL are recognised in the statement of
comprehensive income in the period.
The Group classifies its financial assets at fair value through profit or loss where it has determined that the business model
for managing the financial assets and the related contractual cash flow characteristics are not consistent with the policy for
classification at amortised cost or fair value through other comprehensive income (OCI). The Group has determined that the bond
investment in the Elysion S.A. joint venture meet this criteria as disclosed in note 4.
There are no financial assets measured at fair value through OCI, which would be classified as such where they are held within a
business model whose objective which is achieved by both collecting contractual cash flows and selling the financial assets; and
cash flows relate solely to payments of principal and interest.
The Group derecognises a financial asset when the contractual rights to the cash flows from the asset have expired or have been
transferred and the Group has transferred substantially all risk and rewards of ownership of the asset to another entity.
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FINANCIAL STATEMENTS
3 Significant accounting policies continued
Financial liabilities and equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the
contractual agreement.
An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all its liabilities.
Ordinary shares are classed as equity. Equity instruments issued by the Group are recorded at the proceeds received, net of direct
issue costs.
The Group’s financial liabilities comprise interest-bearing borrowings, loans and payables and trade payables. Financial liabilities
are recognised when the Group becomes party to the contractual provisions of the instrument. Financial liabilities are measured at
amortised cost using the effective interest method. Trade and other payables are valued at their nominal value as the time value of
money is immaterial for these current liabilities.
The Group derecognises financial liabilities when the Group’s obligations are discharged, cancelled or they expire.
Interest rate swaps have been initially recognised at fair value, and subsequently remeasured at fair value through profit and loss
in accordance with IFRS 9, Financial Instruments. They have been entered into in order to hedge against the exposure to variable
interest rate loans as described in note 28. They have been valued by an independent valuer in line with internationally accepted
practice.
A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a negative fair value is recognised
as a financial liability. A derivative is presented as a non-current asset or non-current liability if the remaining maturity of the
instrument is more than 12 months and it is not expected to be realised or settled within 12 months. It is Group policy not to hedge
account. Other derivatives are presented as current assets or current liabilities.
Non-current assets and disposal groups held for sale
A non-current asset or a disposal group (comprising assets and liabilities) is classified as held for sale if their carrying amount is
expected to be recovered or settled principally through sale rather than through continuing use. The asset or disposal group must
be available for immediate sale, have the appropriate level of management commitment and the sale must be highly probable
within one year of the reporting date. Investment properties included in the held for sale category continue to be measured in
accordance with the accounting policy for investment properties.
Segmental reporting
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and in
respect of which it may incur expenses. An operating segment’s operating results are reviewed regularly by the Chief Operating
Decision Makers (the executive directors) to inform decisions about resources to be allocated to the segment and to assess its
performance. Segmental financial information is available as disclosed in Note 5.
Dividends
Dividends to the Group’s ordinary shareholders are recognised when they are declared. This is when they are approved by the
Board.
Earnings per share
Earnings per share is calculated on the weighted average number of shares in issue in respect of the current period and is based on
the profit attributable to the ordinary shareholders.
Net asset value per share
Net asset value per share is calculated on the number of shares in issue (excluding treasury shares) at the end of the current period
and is based on the total equity attributable to equity shareholders.
Share-based payments
Deferred Share Bonus Plan and Long term incentive plans
Share options are granted to key management. The cost of equity-settled transactions is measured with reference to the fair value
at the date at which they were granted. The Company accounts for the fair value of these options on a straight-line basis over the
vesting period in the statement of comprehensive income, with a corresponding increase to the share-based payment reserve in
equity. The cost to the Company is based on the Company’s best estimate of the number of equity instruments that will ultimately
vest. Readers are referred to note 13: Share-based payments, where share-based payments are further disclosed.
Share Purchase Plan
As part of the Group’s previous remuneration policy, the Company awarded shares to qualifying participants, funded through the
advance of loans to the participants. Loans advanced under the share purchase plan are interest-bearing at a rate equal to the
average interest rate incurred by the Group from time to time. Interest is payable six monthly in arrears. Loans are repayable within
30 days of cessation of employment or loss of office (unless the participant ceases employment in circumstances beyond his or her
control, in which case the loan is repayable within 12 months), and must in all circumstances be repaid in ten years. All dividends
received by such employees (or his or her nominee) by virtue of their shareholding must first be utilised to discharge any interest
outstanding in terms of the loan advanced in terms of the Share Purchase Plan.
The loans have full recourse to the participants and as such fall outside of the scope of IFRS 2 and are accounted for as financial
instruments under IFRS 9. The participants must charge their shares by way of security for the loan and are required to waive all
rights to compensation for any loss in relation to the plan. No further awards will be made under the Share Purchase Plan.
ANNUAL REPORT 2020 STENPROP
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FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
3 Significant accounting policies continued
Repurchase of share capital (own shares)
Where share capital recognised as equity is repurchased, the amount of the consideration paid, including directly attributable
costs, is recognised as a deduction from equity. Such shares may either be held as own shares (treasury shares) or cancelled.
Where own shares are subsequently re-sold from treasury, the amount received is recognised as an increase in equity.
4 Critical accounting judgements and key sources of estimation uncertainty
The preparation of the consolidated financial statements in accordance with IFRS requires the use of certain critical accounting
estimates. It also requires management to exercise judgement in the process of applying the Group’s accounting policies. Although
the estimates are based on management’s best knowledge of the amount, events or actions, actual results may ultimately differ
from those estimates. The key assumptions concerning the future, and other key sources of estimation uncertainty at the end of
the reporting year, that have a risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next
financial year, are discussed below.
Key sources of estimation uncertainty
Valuation of the property portfolio
The Group’s investment properties are stated at estimated fair value, determined by directors, based on an independent external
appraisal. The valuation of the Group’s property portfolio is inherently subjective due to a number of factors including the
individual nature of each property, its location, expectation of future rentals and the discount yield applied to those cash flows.
This has been particularly relevant in light of the market uncertainty due to both Brexit and the COVID-19 crisis, both of which
have been carefully considered. As a result, the valuations placed on the property portfolio are subject to a degree of uncertainty
and are made on the basis of assumptions that may not prove to be accurate, particularly in years of volatility or low transaction
flow in the market. Due to the current economic uncertainty in the market due to COVID-19, the valuers have issued their valuation
reports with a material valuation uncertainty clause attached to their valuations. They have advised there is less certainty attached
to their valuations in comparison to the prior year, but that does not mean the valuations cannot be relied upon. The estimated
market value may differ from the price at which the Group’s assets could be sold at a particular time, since actual selling prices
are negotiated between willing buyers and sellers. As a result, if the assumptions prove to be false, actual results of operations
and realisation of net assets could differ from the estimates set forth in these financial statements, and the difference could be
significant. Further details as well as the key sensitivity variables, can be found in note 16.
The Group currently has a number of continental European investment properties as assets held for sale. Due to the same reasons
mentioned above that the COVID-19 crisis has caused, the assets held for sale valuations are also subject to a degree of valuation
uncertainty and as such a key source of estimation uncertainty. Further information on assets held for sale can be found in note 19.
Critical judgements
Assets held for sale and discontinued operations
The directors have disclosed nine (2019: one) properties which meet the criteria defined in IFRS 5: Assets held for sale and
discontinued operations. Stenprop is committed to the disposal of these assets in line with its strategy to exit the Swiss market,
dispose of its German assets and acquire multi-let industrial properties in the United Kingdom. The directors have classified the
Swiss property as a discontinued operation as this is the only property that remains in the Swiss market. Stenprop is committed to
exit the Swiss market and as such have classified the Swiss segment as a discontinued operation. The remaining eight properties
classified as held for sale are located in Germany, but they are not classified as a discontinued operation as Stenprop still has a
material interest in the German market due to its holdings in the care homes joint venture, which is currently not held for sale. In
respect of the Swiss property at Lugano, the directors consider the exceptions permitted by IFRS 5:9 to apply in respect to the
one-year requirement within which a sale should complete. This is due to the fact that during the one-year period, circumstances
arose that were previously considered unlikely. The circumstances were that the sole tenant of the property queried the validity of
some of the conditions of the lease, particularly the requirement to pay the running costs of the building i.e. utilities. As a result, the
property which was previously classified as held for sale was not sold; however:
i. during the initial one-year period the entity took action necessary to respond to the change in circumstances insofar as a new
lease, remedying the deficiencies of the existing lease, was entered into with the tenant with effect from 1 January 2020;
ii. the property was still being marketed at a price that is reasonable, given the change in circumstances;
iii. all other criteria in paragraphs 7 and 8 of IFRS 5 are met; and
iv. the sale will now complete within one year.
If the judgement that the Swiss property had not continued to be held for sale, this would have resulted in a restatement of the
comparative period and presentation of the Swiss operating segment in continuing operations. This would not have had any impact
on net assets or total comprehensive income as the fair value of the investment property has been determined by the directors,
based on an independent external appraisal.
Classification of investment in joint venture bond
Classification and measurement of financial assets under IFRS 9 are driven by the entity’s business model for managing financial
assets and the contractual cash flow characteristics of those financial assets. The directors have determined that the contractual
cash flow characteristics for bond investments into Elysion S.A. (a joint venture) are not solely payments of principal and interest.
The Group instead receives the return for each underlying loan net of additional fees and expenses in Elysion S.A. (‘JV’) and so it
is not considered to be a basic lending arrangement under the standard. Further details on the structure are included in note 18.
As such, these bond investments are required to be measured at fair value through profit or loss. In making this judgement, the
Directors have considered the power the Group has to influence the investment decisions of the JV housing the underlying loans,
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FINANCIAL STATEMENTS
4 Critical accounting judgements and key sources of estimation uncertainty continued
which are managed at the discretion of the JV partner, and were the Group to hold the majority interest it has been determined
that the contractual cash flow characteristics for a basic lending arrangement would have been met and therefore accounted for at
amortised cost.
5 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 distributed across Germany, the United Kingdom and Switzerland, with a further sub-
division within the UK between multi-let industrial and non multi-let industrial. 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
For the year ended 31 March 2020
Net rental income
Fair value movement on investment properties
Net (loss)/gain from fair value of financial liabilities
Loss on disposal of property
Income from joint ventures
Net finance costs
Operating costs
Net foreign exchange loss
Loss from discontinued operations
(see note 19)
Tax (expense)/credit
Total profit/(loss) per reportable segment
As at 31 March 2020
Investment properties
Investment in joint ventures
Cash and cash equivalents
Other
Assets classified as held for sale
Total assets
Borrowings – bank loans
Other
Liabilities directly associated with assets
classified as held for sale
Total liabilities
Continuing
operations
UK Non
Multi-let
Industrial
£’000
UK
Multi-let
Industrial
£’000
17,932
3,828
(1,573)
–
–
(3,759)
(397)
–
–
6,343
(395)
152
(114)
–
(1,464)
29
–
–
(16)
16,015
(198)
4,353
308,951
–
13,585
5,855
–
78,810
–
3,078
792
–
328,391
82,680
121,841
12,946
–
134,787
32,330
2,801
–
35,131
Discontinued
operations
Germany
£’000
Switzerland
£’000
Total
£’000
8,708
1,505
34
(3,688)
2,114
(4,103)
(790)
(60)
–
1,327
5,047
–
16,116
11,815
14,305
96,605
138,841
–
9,600
41,039
50,639
–
–
–
–
–
–
–
–
(2,197)
–
(2,197)
–
–
–
–
15,252
15,252
–
–
6,271
6,271
32,983
4,938
(1,387)
(3,802)
2,114
(9,326)
(1,158)
(60)
(2,197)
1,113
23,218
387,761
16,116
28,478
20,952
111,857
565,164
154,171
25,347
47,310
226,828
ANNUAL REPORT 2020 STENPROP
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FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
5 Operating segments continued
For the year ended 31 March 2019
Net rental income
Fair value movement on investment properties
Net (loss)/gain from fair value of financial liabilities
Income from associates
Income from joint ventures
Profit on disposal of subsidiaries
Net finance costs
Operating costs
Net foreign exchange gain
Other (losses)/gains
Loss from discontinued operations
(see note 19)
Tax expense
Total profit/(loss) per reportable segment
As at 31 March 2019
Investment properties
Investment in joint ventures
Cash and cash equivalents
Other
Assets classified as held for sale
Total assets
Borrowings – bank loans
Other
Liabilities directly associated with assets
classified as held for sale
Total liabilities
Continuing
operations
UK Non
Multi-let
Industrial
£’000
UK
Multi-let
Industrial
£’000
Discontinued
operations
Germany
£’000
Switzerland
£’000
Total
£’000
12,101
(517)
(1,113)
–
–
–
(3,363)
(605)
–
(56)
–
(149)
6,298
10,591
(2,045)
64
–
231
11,126
(2,830)
(314)
–
–
–
11,038
(841)
(43)
101
1,044
–
(1,719)
(722)
46
63
–
(223)
16,600
(2,345)
6,622
261,530
83,855
217,429
–
8,701
4,401
–
–
36,612
517
–
14,485
10,524
14,762
–
274,632
120,984
257,200
97,601
9,417
38,910
3,711
108,579
14,813
–
–
–
107,018
42,621
123,392
–
–
–
–
–
–
–
–
–
–
(2,323)
–
(2,323)
–
–
–
–
21,423
21,423
–
–
9,326
9,326
33,730
(3,403)
(1,092)
101
1,275
11,126
(7,912)
(1,641)
46
7
(2,323)
(2,717)
27,197
562,814
14,485
55,837
19,680
21,423
674,239
245,090
27,941
9,326
282,357
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5 Operating segments continued
ii) Reconciliation of reportable segment profit or loss
Rental income
Net rental income for reported segments
Profit or loss
Fair value movement of investment properties
Net loss from fair value of financial liabilities
Loss on disposal of property
Income from associates
Income from joint ventures
Profit on disposal of subsidiaries
Finance costs
Operating costs
Net foreign exchange (loss)/gain
Other gains
Loss for the year from discontinued operations (see note 19)
Tax credit/(expense)
Total profit per reportable segments
Other profit or loss – unallocated amounts
Net management fee income
Other income
Income from joint ventures
Interest received
Finance costs
Tax, legal and professional fees
Audit fees
Administration fees
Non-executive directors’ costs
Staff remuneration costs
Other operating costs
Net foreign exchange gain/(loss)
Tax credit
Consolidated profit after taxation
FINANCIAL STATEMENTS
31 March
2020
£’000
31 March
2019
£’000
32,983
33,730
4,938
(1,387)
(3,802)
–
2,114
–
(9,326)
(1,158)
(60)
–
(2,197)
1,113
23,218
558
66
1
–
41
(952)
(266)
(200)
(233)
(4,576)
(2,670)
63
109
(3,403)
(1,092)
–
101
1,275
11,126
(7,912)
(1,641)
46
7
(2,323)
(2,717)
27,197
5,846
75
331
17
–
(2,740)
(261)
(226)
(203)
(4,275)
(1,862)
(148)
273
15,159
24,024
Unallocated profit or loss amounts relate to management fee income and central costs incurred by the Group.
ANNUAL REPORT 2020 STENPROP
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FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
5 Operating segments continued
iii) Reconciliation of reportable segment financial position
ASSETS
Investment properties
Investment in joint venture
Cash and cash equivalents
Other
Assets classified as held for sale
Total assets per reportable segments
Other assets – unallocated amounts
Investment in joint ventures
Cash and cash equivalents
Other
Total assets per consolidated statement of financial position
LIABILITIES
Borrowings – bank loans
Other
Liabilities directly associated with assets classified as held for sale
Total liabilities per reportable segments
Other liabilities – unallocated amounts
Other
Total liabilities per consolidated statement of financial position
6 Net rental income
Rental income
Tenant recharges
Other income
Discontinued operations adjustment (note 19)
Revenue
Direct property costs
Discontinued operations adjustment (note 19)
Property expenses
Total net rental income
31 March
2020
£’000
31 March
2019
£’000
387,761
16,116
28,478
20,952
111,857
562,814
14,485
55,837
19,680
21,423
565,164
674,239
1
55,976
1,310
622,451
57
1,588
385
676,269
154,171
25,347
47,310
245,090
27,941
9,326
226,828
282,357
4,287
231,115
1,692
284,049
31 March
2020
£’000
38,220
5,836
806
(764)
44,098
31 March
2019
£’000
38,428
7,064
1,078
(2,068)
44,502
(11,378)
329
(11,383)
786
(11,049)
(10,597)
33,049
33,905
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7 Operating costs
Tax, legal and professional fees
Audit fees
Interim review fees
Administration fees
Investment advisory fees
Non-executive directors costs
Staff remuneration costs
Share-based payments
ERP project expenses
Depreciation
Corporate costs
IT costs
Other operating costs
Discontinued Operations Adjustment (note 19)
FINANCIAL STATEMENTS
31 March
2020
£’000
1,778
31 March
2019
£’000
3,986
238
30
495
273
233
3,509
1,079
974
239
700
389
330
263
30
531
319
203
3,545
730
–
–
892
556
428
(214)
10,053
(225)
11,258
In the prior year the increase in tax, legal and professional fees was driven by the costs associated with London listing and
conversion to REIT status of £0.9 million and costs of £1.2 million associated with the aborted acquisition of a material multi-let
industrials portfolio.
Share-based payments of £1,079,000 (2019: £730,000) relate to the equity-settled incentive schemes operated by the Group. As
at 31 March 2020 the Group’s equity reserve held £2.7 million (2019: £1.8 million) in relation to the schemes after the exercise of
options at fair value of £220,000 (2019: £65,000) during the period.
8 Employees’ and directors’ emoluments
The Group had 28 employees at 31 March 2020 (2019: 23). The aggregate remuneration paid to employees during the period,
including that to executive directors, was:
Wages and salaries (including key management)
Social security costs
Pension costs
Share-based payments
31 March
2020
£’000
2,949
31 March
2019
£’000
3,158
419
141
1,079
4,588
218
169
730
4,275
As at 31 March 2020, the Group had eight directors (2019: seven). The directors of the Company during the financial year and at the
date of this report were as follows:
Non-executive directors
Paul Miller
Warren Lawlor
Richard Grant (chairman)
Patsy Watson
Philip Holland
Executive directors
Paul Arenson (CEO)
James Beaumont (CFO)
Patsy Watson (retired as CFO and became a non-executive director)
Julian Carey
Change in
appointment
Change in
appointment
5/6/2019
Appointed
14/9/2016
5/4/2017
1/5/2018
5/6/2019
1/5/2018
Appointed
2/10/2014
5/6/2019
2/10/2014
1/5/2018
ANNUAL REPORT 2020 STENPROP
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FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
8 Employees’ and directors’ emoluments continued
Emoluments paid to executive and non-executive directors are summarised below:
Executive directors
Paul Arenson
James Beaumont*
Patsy Watson*
Julian Carey
Executive directors
Paul Arenson
Neil Marais*
Patsy Watson
Julian Carey*
Basic
salary
£’000
Pension
£’000
Other
benefits^
£’000
Cash
bonus
£’000
275
146
44
264
729
14
11
4
18
47
13
2
–
8
23
161
31
155
155
502
Basic
salary
£’000
Pension
£’000
Other
benefits^
£’000
Cash
bonus
£’000
Vested
share
options
£’000
Total
remuneration
31 March
2020
£’000
148
19
142
132
441
611
209
345
577
1,742
Vested
share
options
£’000
Total
remuneration
31 March
2019
£’000
268
11
258
236
773
27
1
26
24
78
2
–
–
1
3
156
3
150
103
412
83
6
80
55
224
536
21
514
419
1,490
^ Other benefits relates to pension cash alternatives and the provision of private medical insurance.
*
Remuneration covers the period of directorship.
Non-executive directors
Stephen Ball – paid to Sphere Management Limited
Patsy Watson*
Richard Grant
Philip Holland
Paul Miller
Warren Lawlor – paid to Ferryman Capital Partners (Pty) Limited
31 March
2020
£’000
31 March
2019
£’000
–
29
58
43
40
40
210
4
–
53
39
40
39
175
The above non-executive fees include all management, consulting, technical or other fees paid for such services rendered, including
payments to management companies.
The Group’s share-based payments comprise the Deferred Share Bonus Plan (‘STIP’) and the Long-Term Incentive Plan (‘LTIP’) for
executive directors and senior management respectively, and various share option schemes.
The Company measures the fair value of the equity-based share options at grant date and accounts for the cost over the vesting
period in the statement of comprehensive income, with a corresponding increase to the share-based payment reserve. The cost is
based on the quantity of shares that are likely to vest, taking into account expected performance against the relevant performance
targets where applicable, and service periods. Share-based awards and the respective vesting dates are further detailed in note 13.
*
Remuneration covers the period of directorship.
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FINANCIAL STATEMENTS
8 Employees’ and directors’ emoluments continued
On 10 June 2020, the board of directors, on the recommendation of the remuneration committee, approved the following:
Executive directors
Paul Arenson
Julian Carey
James Beaumont*^
*
Remuneration covers the period of directorship.
^ Market value LTIP
Bonuses in respect of the year ended 31 March 2020
Deferred
share bonus
plan
£’000
Number
of share
options
(estimated)
LTIP for
executive
directors
£’000
Number
of share
options
(estimated)
Cash bonus
£’000
165
158
36
359
31
30
9
70
29,700
28,500
8,100
66,300
563
541
90
1,194
536,200
515,200
85,700
1,137,100
On 5 June 2019, the board of directors, on the recommendation of the remuneration committee, approved the following:
Executive directors
Paul Arenson
Patsy Watson
Julian Carey*
Bonuses in respect of the year ended 31 March 2019
Deferred
share bonus
plan
£’000
159
Number
of share
options
(estimated)
140,500
LTIP for
executive
directors
£’000
549
Number
of share
options
(estimated)
486,000
Cash bonus
£’000
161
155
142
458
153
140
452
135,100
123,800
399,400
–
528
1,077
–
467,100
953,100
Directors’ interests – beneficial direct and indirect holdings in the Company
As at 31 March 2020:
Paul Arenson (CEO)
Patsy Watson
Julian Carey
Warren Lawlor
James Beaumont
Paul Miller
Richard Grant (chairman)
Philip Holland
Direct
number
of shares
% of shares
in issue
–
–
–
–
Indirect
number of
shares
14,102,005
4,674,929
3,363,103
1.13%
15,751
% of shares
in issue
Number
of share
options held
% of diluted
shares in
issue
4.72%
1.56%
0.01%
2,307,327
1,691,482
1,524,951
–
50,320
21,898
–
–
1,208,669
0.40% 2,000,000
0.02%
0.01%
–
–
–
–
–
100,000
0.03%
238,049
–
–
–
24,999
0.01%
–
–
0.77%
0.57%
0.51%
0.67%
0.08%
–
–
–
On 31 March 2020 James Beaumont exercised 7,569 nil cost options under the Deferred Share Bonus Plan. The Company utilised
treasury shares to settle the exercise. The share transfer occurred on 14 April 2020 and is therefore not included in the above.
There were no further changes in the above directors’ interests from 31 March 2020 to the date of the signing of these financial
statements.
Paul Arenson (CEO)
Patsy Watson
Julian Carey
Warren Lawlor
Paul Miller
Richard Grant (chairman)
Philip Holland
Direct
number
of shares
–
% of shares
in issue
–
Indirect
number of
shares
13,387,114
% of shares
in issue
4.48%
Number
of share
options held
1,601,293
% of shares
in issue
0.54%
–
–
4,548,618
3,271,923
1.10%
–
1.52%
–
1,491,330
1,016,973
–
21,898
–
24,999
–
1,208,669
0.40%
2,000,000
0.01%
–
–
–
100,000
0.03%
0.01%
–
–
–
–
–
0.50%
0.34%
0.67%
–
–
–
ANNUAL REPORT 2020 STENPROP
115
27385 17 June 2020 7:25 pm proof 1
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
9 Finance costs
Bank interest
Amortisation of facility costs
Discontinued Operations Adjustment (note 19)
Net finance costs
31 March
2020
£’000
(9,000)
(789)
70
(9,719)
31 March
2019
£’000
(7,898)
(609)
256
(8,251)
Included in the 31 March 2020 bank interest amount of £9 million is £2.6 million (2019: nil) of bank interest costs in relation to the
early repayment of the Bleichenhof bank loan upon sale of the property.
10 Taxation
Real Estate Investment Trust regime (REIT regime)
The Company converted to UK REIT status on 1 May 2018. As a member of the REIT regime, profits from its UK property rental
business are tax exempt. The REIT regime only applies to certain property-related profits and has several criteria which have to be
met. The main criteria are:
f the assets of the property rental business must be at least 75% of the Group’s assets;
f the profit from the tax-exempt property rental business must exceed 75% of the Group’s total profit; and
f at least 90% of the Group’s profit from the UK property rental business must be paid as dividends.
The Company continues to meet these conditions and management intends that Stenprop should continue as a REIT for the
foreseeable future.
(i) Tax recognised in statement of comprehensive income
Current tax – UK
On net income for the year
Current tax – Foreign
On net income for the year
Discontinued Operations Adjustment (see note 19)
Total current tax
Deferred tax (see note 27)
Total tax (credit)/expense
31 March
2020
£’000
31 March
2019
£’000
(93)
458
5,769
198
5,874
(7,096)
(1,222)
3,194
429
3,652
(1,638)
2,443
No tax was recognised on other comprehensive income during the period (2019: Nil). Tax rates applicable in the jurisdictions which
the Company operates in are:
f Germany: 15.825%
f United Kingdom: 19%
f Switzerland: 20%.
(ii) Reconciliation of tax charge for the year
Profit before taxation on continuing operations
Expected tax charge on ordinary activities at the standard rate of taxation of 19% (2019: 19%)
Revaluation (gain)/loss not taxable
Gains on disposal of subsidiary not taxable
Income not taxable
UK REIT tax exemption
Expenditure not allowed for income tax purposes
Tax losses
Income from joint ventures
Effect of tax rates in other jurisdictions
Foreign withholding tax provision (release)/charge
Other
Total income tax (credit)/expense
116
STENPROP ANNUAL REPORT 2020
27385 17 June 2020 7:25 pm proof 1
31 March
2020
£’000
16,134
3,065
(410)
–
(58)
(1,977)
217
–
402
(643)
(1,880)
62
(1,222)
31 March
2019
£’000
28,790
5,470
854
(2,114)
(946)
(2,621)
165
723
305
(452)
1,742
(683)
2,443
11 Dividends
Amounts recognised as distributions to equity holders in the period:
Final dividend for the year ended 31 March 2019 paid on 16 August 2019
Interim dividend for the year ended 31 March 2020 paid on 14 February 2020
Total dividends distributed
Scrip dividends issued during the period:
Final scrip dividend for the year ended 31 March 2019 issued on 16 August 2019
Interim scrip dividend for the year ended 31 March 2020 issued on 14 February 2020
Total scrip dividends issued
Dividends paid as reported in the consolidated statement of cash flows
Amounts recognised as distributions to equity holders in the period:
Final dividend for the year ended 31 March 2018 paid on 17 August 2018
Interim dividend for the year ended 31 March 2019 paid on 8 February 2019
Total dividends distributed
Scrip dividends issued during the period:
Final scrip dividend for the year ended 31 March 2018 issued on 17 August 2018
Interim scrip dividend for the year ended 31 March 2019 issued on 8 February 2019
Total scrip dividends issued
Dividends paid as reported in the consolidated statement of cash flows
FINANCIAL STATEMENTS
For the year ended
31 March 2020
Pence per
share
3.375
3.375
6.750
3.375
3.375
6.750
£’000
9,478
9,549
19,027
2,819
2,278
5,097
13,930
For the year ended
31 March 2019
Pence per
share
4.000
3.375
7.375
4.000
3.375
7.375
£’000
11,281
9,542
20,823
2,987
4,390
7,377
13,446
In the prior year, scrip dividends were settled by issuing new shares to shareholders who elected to receive the scrip dividend. For
scrip dividends received by shareholders in the current financial year, these shares were issued out of treasury shares. Please see
note 12 for further details.
The directors declared a final dividend on 11 June 2020, for the year ended 31 March 2020, of 3.375 pence per share, which is
detailed in note 31.
12 Share capital
Authorised
1,000,000,000 ordinary shares with a par value of €0.000001258 each:
Issued share capital
Opening balance
Issue of new shares
Closing number of shares in issue
Authorised share capital
Share capital
Share premium
Less: Acquisition/transaction costs
Total share capital and share premium
31 March
2020
(no. shares)
298,775,175
31 March
2019
(no. shares)
291,718,476
–
7,056,699
298,775,175
298,775,175
£’000
1
£’000
1
325,223
325,223
(2,231)
(2,231)
322,993
322,993
There were no changes made to the number of authorised shares of the Company during the period under review. Stenprop
Limited has one class of share. All shares rank equally and are fully paid.
The Company has 298,775,175 (2019: 298,775,175) ordinary shares in issue at the reporting date, including treasury shares. During
the period 3 April 2019 to 2 July 2019 the Company utilised treasury shares to settle the exercise of nil cost options to participants
of the Deferred Bonus Plan. 198,010 options were exercised at an average issue price of £1.08 per share. As at 31 March 2020, the
Company held 15,830,040 treasury shares (2019: 16,028,050). On 31 March 2020 a further 23,289 nil cost options were exercised
under the Deferred Share Bonus Plan. The share transfer from treasury shares occurred on 14 April 2020 at a deemed value of GBP
0.94 per nil cost option.
ANNUAL REPORT 2020 STENPROP
117
27385 17 June 2020 7:25 pm proof 1
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
12 Share capital continued
On 6 June 2019, the Company announced a final dividend of 3.375 pence per share in respect of the six months to 31 March 2019.
On 15 August 2019, the Company announced a take up of the scrip dividend and 2,491,772 shares were subsequently issued on
16 August 2019 from treasury shares.
On 22 November 2018, the Company announced an interim dividend of 3.375 pence per share in respect of the six months to
30 September 2019. On 13 February 2020, the Company announced a take up of the scrip dividend and 1,662,173 shares were
subsequently issued on 14 February 2020.
In the period the shareholders were offered the option to receive either a scrip dividend by way of an issue of Stenprop treasury
shares, or a cash dividend. Given the Company’s share price, which is at a discount relative to NAV, the directors matched the scrip
alternative through share purchases to mitigate the dilutive effect that would otherwise have occurred through the issuance of new
ordinary shares. During the period 17 July 2019 to 8 August 2019 the Company repurchased 2,491,772 shares at an average price
of £1.071 per share. During the period 4 February 2020 to 6 March 2020 the Company repurchased 1,662,173 shares at an average
price of £1.273 per share.
The equity reserve account within equity holds all the Company’s treasury shares from which all scrip dividends and equity settled
share based payments are credited to and issued from on exercise (see note 13).
13 Share-based payments
The Group operates share incentive plans which are used to attract and retain high-calibre employees to help grow the business.
All awards are considered by the remuneration committee and are subject to board approval.
The Group recognised a total share-based expense of £1,079,000 in the year (2019: £730,000) in relation to the share option
schemes. As at 31 March 2020, the equity reserve held £2,657,000 in relation to share-based payment transactions (2019:
£1,798,000).
The incentive plans are discussed in more detail below.
Deferred Share Bonus Plan
The board may grant an award to an eligible employee following a recommendation from the remuneration committee over such
number of shares that have an aggregate value equal to the deferred bonus. Such share options vest in three equal tranches; the
first tranche vests on the date of grant with subsequent tranches vesting at the first and second anniversaries of the relevant year
end. Share options may be exercised until the tenth anniversary of the grant date, after which time they will lapse.
The fair value of this nil-cost option is determined using the Black–Scholes model. The key inputs used in determining the award
granted on 6 June 2019 are shown below:
Share price at date of grant
Expected option life in years
Risk-free rate
Standard deviation (annualised)
Value per option
£1.12
2
0.82%
22%
£1.12
Movement in options granted in terms of this plan are detailed below:
At
1 April
Date of grant
10 June 2015
2019 Granted
–
393,564
8 June 2016
284,688
7 June 2017
29,748
7 June 2018
381,644
–
–
–
6 June 2019
– 556,536
Dividend
equivalents
34,256
Exercised/
Other
–
Outstanding
at 31 March
2020
427,820
Exercisable
at 31 March
2020
427,820
Exercise dates
Fair value
at grant
date in
To
From
GBP
£1.08 10 June 2015 10 June 2025
12,844
684
21,988
20,230
(23,883)
(16,712)
(91,796)
(75,923)
273,649
273,649
£1.05 8 June 2016 8 June 2026
13,720
311,836
500,843
13,720
311,836
321,113
£1.08 7 June 2017 7 June 2027
£1.13 7 June 2018 7 June 2028
£1.12 6 June 2019 6 June 2029
Weighted average exercise price of deferred share bonus plan share options
Exercisable
Non-exercisable
Weighted average remaining contracted life of deferred share bonus plan share options
Exercisable
Non-exercisable
At
31 March
2020
£1.10
£1.12
At
31 March
2020
7.1 Years
9.1 Years
At
31 March
2019
£1.09
£1.13
At
31 March
2019
7.3 Years
9.2 Years
118
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FINANCIAL STATEMENTS
13 Share-based payments continued
LTIP for senior management
Such share options vest in three equal tranches; the first tranche vests on the first anniversary of year end, with subsequent
tranches vesting at the second and third anniversaries of the relevant year ends. Share options may be exercised until the tenth
anniversary of the grant date, after which time they will lapse. The fair value of this award is determined using the Black–Scholes
model. The key inputs used in determining the award granted on 6 June 2019 are shown below:
Share price at date of grant
Exercise price at grant date
Expected option life in years
Risk-free rate
Expected volatility
Value per option
At
1 April
2019 Granted
84,089
341,435
–
–
Dividend
equivalents
Exercised/
Other
Outstanding
at 31 March
2020
Exercisable
at 31 March
2020
Fair value
at grant
date in
GBP
10,439
–
94,528
94,528
£0.47
51,054
69,835
462,324
308,216
£0.27
– 486,758
29,020
–
515,778
171,926
£0.26
Date of grant
24 January
2018
7 June
2018
6 June
2019
Weighted average exercise price of LTIP for senior management share options
Exercisable
Non-exercisable
Weighted average remaining contracted life of LTIP for senior management share options
Exercisable
Non-exercisable
£1.12
£1.12
10
0.51%
26%
£0.26
Exercise dates
From
31 March
2018
31 March
2019
31 March
2020
At
31 March
2020
£1.13
£1.12
At
31 March
2020
8.4 Years
8.9 Years
To
24 January
2028
7 June
2028
7 June
2029
At
31 March
2019
£1.13
£1.13
At
31 March
2019
9.1 Years
9.2 Years
ANNUAL REPORT 2020 STENPROP
119
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FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
13 Share-based payments continued
LTIP for executive directors
Such share options vest on the third anniversary of grant date subject to pre-determined vesting conditions being met. All options
not vesting on the vesting date will automatically lapse. All vested options and shares received upon the exercise of vested
options are subject to a further two-year lock-in period during which they cannot be sold. The fair value of these nil-cost options is
determined by external valuers using an intrinsic model. The key inputs used in determining the award granted on 6 June 2019 are
shown below:
Share price
Exercise price at grant date
Expected option life in years
Discount applied for two-year lock-in period
Value per option
£1.12
£0.00
3+2
10%
£0.52
Date of grant
24 January
2018
7 June
2018
6 June
2019
At
1 April
2019 Granted
Dividend
equivalents
Exercised/
Other
Outstanding
at 31 March
2020
Exercisable
at 31 March
2020
1,450,492
1,469,380
–
–
244,352
(1,227,124)
467,720
72,665
(468,182)^
1,073,863
– 964,172
57,482
–
1,021,654
–
–
–
Fair value
at grant
date in
GBP
£0.68
Exercise dates
From
8 June
2020* 8 June 2027
To
7 June
£0.52
2021* 7 June 2028
£0.52
6 June
2022* 6 June 2029
*
^
Lock-in period of two years applies after vesting.
Patsy Watson agreed to forfeit any rights she may have under the terms of the LTIP to the conditional awards made to her on 6 June 2018 in respect of the three-year period
ending 31 March 2021 when she retired on 5 June 2019.
Weighted average exercise price of LTIP for executive directors share options
Exercisable
Non-exercisable
Weighted average remaining contracted life of LTIP for executive directors share options
Exercisable
Non-exercisable
At
31 March
2020
–
–
At
31 March
2020
–
At
31 March
2019
–
–
At
31 March
2019
–
8.0 Years
8.7 Years
120
STENPROP ANNUAL REPORT 2020
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FINANCIAL STATEMENTS
13 Share-based payments continued
Other share options
On 30 March 2017, the Company agreed to grant to Ferryman Capital Partners Limited, a company in which Warren Lawlor, a
non-executive director, has a one-third beneficial interest, an option to subscribe for 2,000,000 Stenprop shares. The exercise
price was £1.31 (€1.53), with a seven-month vesting period. The full cost of this option was therefore recognised in the year ended
31 March 2018. The option lapses should the individual cease to be a director, or at the discretion of the Board, after five years. The
option only has a dilutive effect when the average market price of ordinary shares exceeds the exercise price of the options.
The share price at year end was £0.94, which was below the exercise price. The fair value of this award is determined using the
Black–Scholes model. The key inputs used in determining the award granted on 30 March 2017 are shown below:
Share price
Exercise price at grant date
Expected option life in years
Risk-free rate
Expected volatility
Expected dividend yield
Value per option
£1.08
£1.31
5
1.50%
31.31%
5%
£0.13
Date of grant
2019 Granted
Exercised
At
1 April
Outstanding
at 31 March
2020
Exercisable
at 31 March
2020
Fair value
at grant
date in
GBP
30 March 2017
2,000,000
–
–
2,000,000
2,000,000
£0.13
Exercise dates
From
30 March
2022
To
7 June
2029
Share Purchase Plan
Loans advanced under the share purchase plan are interest-bearing at a rate equal to the average interest rate incurred by the
Group from time to time. Interest is payable six-monthly in arrears. Loans are repayable within 30 days of cessation of employment
or loss of office (unless the participant ceases employment in circumstances beyond his or her control, in which case the loan is
repayable within 12 months), and must in all circumstances be repaid in 10 years. All dividends received by such employees (or
his or her nominee) by virtue of their shareholding must first be utilised to discharge any interest outstanding in terms of the loan
advanced in terms of the Share Purchase Plan. The loans have full recourse to the participants who must charge their shares by
way of security for the loans.
The table below summarises the position at year end in terms of loans advanced and the number of shares to which they relate.
Loans relating to the Share Purchase Plan issued to executive directors are disclosed in more detail in note 8.
Brought forward at start of year
Share Purchase Plan shares issued in year
Share Purchase Plan shares redeemed
Carried forward at end of year
Stock price at advancement
Share Purchase Plan loans advanced (including accrued interest)
31 March
2020
£’000
(number of shares)
10,211,145
(number of shares)
–
(number of shares)
(173,983)
31 March
2019
£’000
10,211,145
–
–
(number of shares)
10,037,162
10,211,145
(€)
(£’000)
N/A
12,265
N/A
12,304
Other share purchase loan
On 30 March 2017, a €1.22 million loan was advanced from Stenprop (Germany) Limited to Ferryman Capital Partners Limited, a
company in which Warren Lawlor, a non-executive director, has a one-third beneficial interest, to purchase 1,000,000 Stenprop
shares in the market. The loan advanced is interest-bearing at a rate equal to the average interest rate incurred by the Group from
time to time. Interest is payable six-monthly in arrears. The loan has full recourse to the borrower and the shares are charged as
security for the loans.
Brought forward at start of year
Shares issued in year
Shares redeemed
Carried forward at end of year
Loan advanced (including accrued interest)
31 March
2020
£’000
(number of shares)
1,000,000
(number of shares)
(number of shares)
–
–
31 March
2019
£’000
1,000,000
–
–
(number of shares)
1,000,000
1,000,000
(£’000)
1,028
1,056
ANNUAL REPORT 2020 STENPROP
121
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FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
14 Earnings per ordinary share
Reconciliation of profit for the period to adjusted EPRA1 earnings
Earnings per IFRS statement of comprehensive income attributable to shareholders
Adjustment to exclude loss from discontinued operations
Earnings per IFRS statement of comprehensive income from continuing operations
attributable to shareholders
Earnings per IFRS statement of comprehensive income attributable to shareholders
Adjustments to calculate EPRA earnings, exclude:
Changes in fair value of investment properties
Changes in fair value of financial instruments
Deferred tax in respect of EPRA adjustments
Impairment of intangibles
Loss on disposal of properties
Profit on disposal of subsidiaries
Adjustments above in respect of joint ventures and associates:
Changes in fair value
Deferred tax in respect of EPRA adjustments
EPRA earnings attributable to shareholders
Further adjustments to arrive at adjusted EPRA earnings:
Costs associated with ERP implementation
Straight-line unwind of purchased swaps
Cost associated with Group listing and REIT conversion
Costs associated with significant aborted portfolio acquisition
Adjusted EPRA earnings attributable to shareholders2
Weighted average number of shares in issue (excluding treasury shares)
Share-based payment award
Diluted weighted average number of shares in issue
Earnings per share from continuing operations
IFRS EPS
Diluted IFRS EPS
Earnings per share
IFRS EPS
Diluted IFRS EPS
EPRA EPS
Diluted EPRA EPS
Adjusted EPRA EPS
Diluted adjusted EPRA EPS
31 March
2020
£’000
31 March
2019
£’000
15,565
2,197
17,762
15,565
(1,741)
2,410
(6,843)
305
9,817
–
(674)
194
23,828
2,323
26,151
23,828
5,259
1,092
(1,137)
–
2,514
(8,890)
386
(9)
19,033
23,043
669
–
–
–
–
40
905
1,248
19,702
25,236
282,777,020 282,555,942
2,852,255
286,299,228 285,408,197
3,522,208
pence
6.28
6.20
pence
5.50
5.44
6.73
6.65
6.97
6.88
pence
9.26
9.16
pence
8.43
8.35
8.16
8.07
8.93
8.84
1.
The European Public Real Estate Association (EPRA) issued the Best Practices Recommendations policy in October 2019, which provides guidelines for performance
measures relevant to real estate companies. Their recommended reporting standards are widely applied across this market, aiming to bring consistency and transparency
to the sector. The EPRA earnings measure is intended to show the level of recurring earnings from core operational activities with the purpose of highlighting the Group’s
underlying operating results from its property rental business and an indication of the extent to which current dividend payments are supported by earnings. The measure
excludes unrealised changes in the value of investment properties, gains or losses on the disposal of properties and other items to provide additional information on the
Group’s underlying operational performance. The measure is considered to accurately capture the long-term strategy of the Group, and is an indication of the sustainability
of dividend payments.
2. As described in the EPRA Best Practice Recommendations policy issued in October 2019, should companies wish to make other adjustments to arrive at an underlying
performance measure, they should do that below ‘EPRA earnings’ and use a different name for that measure. Stenprop highlight that ‘adjusted EPRA earnings’ is a company-
specific earnings measure and it therefore includes company-specific adjustments to ‘EPRA earnings’ which have been described within this note and which are principally
those items considered by management to be non-recurring items that are not directly associated with the operations or performance of the underlying investment property
portfolio. Diluted adjusted EPRA earnings is a measure that excludes items considered not to be in the ordinary course of business or other exceptional items that do not
necessarily provide an accurate picture of the Group’s underlying operational performance.
As at 31 March 2020, the Company held 15,830,040 treasury shares (2019: 16,028,050).
Costs associated with ERP implementation
Stenprop is implementing a new enterprise resource planning (ERP) and customer engagement (CE) software program to help
streamline and grow the business. Significant non-recurring costs will be incurred during the implementation phase before the
systems go live.
The ERP implementation expense is related to a one-off project and is anticipated to complete over approximately 12 months and
accordingly has been adjusted for as a ‘company-specific adjustment’.
122
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FINANCIAL STATEMENTS
14 Earnings per ordinary share continued
Prior year straight-line unwind of purchased swaps
In the prior year an 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.
Prior year costs associated with Group listing and REIT conversion
In the prior year a further adjustment was made to the EPRA earnings attributable to shareholders relating to the costs associated
with converting to REIT status and the planned listing on the Special Funds Segment of the London Stock Exchange. Both costs
are specific to non-recurring activities and are not relevant to the underlying net income performance of the Group.
Prior year costs associated with significant aborted portfolio acquisition
In the prior year, Stenprop explored and advanced a material transaction pertaining to the acquisition of a large portfolio of
multi-let industrial estates. At the end of the process, and following extensive due diligence, it was decided not to progress the
transaction to completion. While EPRA earnings are not adjusted for one-off costs for a failed acquisition, the amount was material
and accordingly has been adjusted for as a ‘company-specific adjustment’.
Reconciliation of profit for the period to headline earnings
Earnings per IFRS statement of comprehensive income attributable to shareholders
Adjustments to calculate headline earnings, exclude:
Changes in fair value of investment properties
Deferred tax in respect of headline earnings adjustments
Impairment of intangibles
Loss on disposal of properties
Profit on disposal of subsidiaries
Adjustments above in respect of joint ventures and associates:
Changes in fair value of investment properties
Deferred tax
Headline earnings attributable to shareholders
Earnings per share
Headline EPS
Diluted headline EPS
15 Net asset value per ordinary share
Net assets attributable to equity shareholders
Adjustments to arrive at EPRA net asset value:
Derivative financial instruments
Deferred tax
Adjustments above in respect of joint ventures
EPRA net assets attributable to shareholders
Number of shares in issue (excluding treasury shares)
Share-based payment award
Diluted number of shares in issue
Net asset value per share (basic and diluted)
IFRS net asset value per share
Diluted IFRS net asset value per share
EPRA net asset value per share
Diluted EPRA net asset value per share
31 March
2020
£’000
15,565
31 March
2019
£’000
23,828
(1,741)
(6,848)
305
9,817
–
(729)
199
5,259
(1,145)
–
2,514
(8,890)
(55)
58
16,568
21,569
pence
5.86
5.79
pence
7.63
7.56
31 March
2020
£’000
391,241
31 March
2019
£’000
389,251
2,001
3,782
1,921
730
10,416
1,649
398,945
402,046
282,945,135
282,747,125
3,522,208
2,852,255
286,467,343 285,599,380
£
1.38
1.37
1.41
1.39
£
1.38
1.36
1.42
1.41
As at 31 March 2020, the Company held 15,830,040 treasury shares (2019: 16,028,050). On 31 March 2020 a further 23,289 nil cost
options were exercised under the Deferred Share Bonus Plan. The share transfer from treasury shares occurred on 14 April 2020 at
a deemed value of GBP 0.94 per nil cost option.
ANNUAL REPORT 2020 STENPROP
123
27385 17 June 2020 7:25 pm proof 1
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
16 Investment property
The fair value of the consolidated investment properties at 31 March 2020 was £387.8 million (2019: £562.8 million). This excludes
an amount of £14.3 million (2019: £16.2 million) for the last remaining Swiss property (2019: one Swiss property) and £94.8 million
(2019: nil) for the remaining eight German properties which has been classified as Held for Sale. The carrying amount of the
investment properties are stated at estimated fair value, determined by directors, based on an independent external appraisal. The
registered independent appraisers have 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 31 March 2020, was assessed by the valuers in accordance with the
Royal Institution of Chartered Surveyors (‘RICS’) standards and IFRS 13. Valuers are qualified for purposes of providing valuations in
accordance with the ‘Appraisal and Valuation Manual’ published by RICS.
The valuation of the Group’s property portfolio is inherently subjective due to a number of factors including the individual nature
of each property, its location, expectation of future rentals and the discount yield applied to those cash flows. As a result, the
valuations placed on the property portfolio are subject to a degree of uncertainty and are made on the basis of assumptions that
may not prove to be accurate, particularly in years of volatility or low transaction flow in the market. Due to the current economic
uncertainty in the market due to the outbreak of the Novel COVID-19 the valuers have issued their valuation reports with a material
valuation uncertainty clause attached to their valuations. They have advised there is less certainty attached to their valuations in
comparison to the prior year, but that does not mean the valuations cannot be relied upon. The estimated market value may differ
from the price at which the Group’s assets could be sold at a particular time, since actual selling prices are negotiated between
willing buyers and sellers. As a result, if the assumptions prove to be different, actual results of operations and realisation of net
assets could differ from the estimates set forth in these financial statements, and the difference could be significant.
The valuations performed by the independent valuers are reviewed internally by senior management. This includes discussions of
the assumptions used by the external valuers, as well as a review of the resulting valuations.
Discussions of the valuations process and results are held between the senior management and the external valuers on a biannual
basis. The audit and risk committee reviews the valuation results and, provided the committee is satisfied with the results,
recommends them to the board for approval.
The valuation techniques used are consistent with IFRS 13 and use significant ‘unobservable’ inputs. Investment properties are all at
level 3 in the fair value hierarchy and valuations represent the highest and best use of the properties. There have been no changes
in valuation techniques since the prior year and no transfers between the fair value hierarchy levels in the current or prior year.
There are interrelationships between all these unobservable inputs as they are determined by market conditions. An increase in
more than one unobservable input would magnify the impact on the valuation. The impact on the valuation would be mitigated by
the interrelationship of two unobservable inputs moving in opposite directions e.g. an increase in rent may be offset by an increase
in yield, resulting in no net impact on the valuation. Expected vacancy rates may impact the yield with higher vacancy rates
resulting in higher yield. All revenue is derived from the underlying tenancies given on the investment properties.
With the exception of two (2019: five) recently acquired MLI properties, all investment properties are mortgaged, details of which
can be seen in note 23. 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 31 March 2020 are detailed in the table
below:
Combined Portfolio
(including share of joint ventures)
Investment properties
UK multi-let industrial
UK non multi-let industrial
Sub-total
Assets Held for Sale:
Germany
Switzerland
Total – wholly owned
Market
value
31 March
2020
(£’000)
Portfolio
by
market
value
(%)
308,951
78,810
387,761
94,799
14,277
496,837
58.0
14.8
72.8
17.8
2.7
93.3
Properties
(number)
Area
(sq m)
Annualised
gross
rental
income
(£’000)
Net initial
yield
(Weighted
average)
(%)
Market
rent
range per
month
(£/sq m)
Voids
by
area
(%)
70
6
76
420,483
32,399
452,882
8
1
52,122
5,974
85
510,978
22,701
6,044
28,745
5,736
1,038
35,519
6.47
7.17
6.62
5.10
5.81
5.19
8.90
0.05
8.27
2.6-8.6
3.0-34.2
–
0.82
4.9-12.7
–
7.41
14.5
–
Share of joint ventures
35,737
6.7
4
19,330
2,429
5.94
–
7.6-13.5
Total
532,574
100
89
530,308
37,948
6.28
7.14
–
124
STENPROP ANNUAL REPORT 2020
27385 17 June 2020 7:25 pm proof 1
16 Investment property continued
Opening balance
Acquisitions
Capitalised expenditure
Transfers to assets held for sale
Disposals
Net fair value gain/(loss) on investment property
Foreign exchange movement in foreign operations
Closing balance
Opening balance
Acquisitions
Capitalised expenditure
Transfers to assets held for sale
Disposals
Disposals through sale of subsidiary
Net fair value (loss)/gain on investment property
Foreign exchange movement in foreign operations
Closing balance
FINANCIAL STATEMENTS
31 March 2020
Investment
property
£’000
Assets held
for sale
£’000
Total -
wholly
owned
£’000
562,815
41,160
6,456
16,160
578,975
–
6,847
41,160
13,303
–
(230,467)
230,467
(3,650)
(142,661)
(146,311)
4,937
6,510
(6,678)
4,941
(1,741)
11,451
387,761
109,076
496,837
31 March 2019
Investment
property
£’000
Assets held
for sale
£’000
535,509
121,764
110,188
8,080
(80,500)
(409)
–
(5,325)
(4,728)
562,815
–
1,916
80,500
(81,637)
(110,419)
67
3,969
16,160
Total -
wholly
owned
657,273
110,188
9,996
–
(82,046)
(110,419)
(5,258)
(759)
578,975
Included within the transferred to assets held for sale amount of £239.7 million is the 31 March 2019 fair value of Bleichenhof of
£126.9 million. Bleichenhof was subsequently sold for £136.2 million on 28 February 2020.
Future revenue streams comprise contracted rent and Estimated Rental Value (‘ERV’) after the contract period. In calculating ERV,
the potential impact of future lease incentives to be granted to secure new contracts is taken into consideration. An increase/
decrease in ERV will increase/decrease valuations. The table below sets out the indicative fair value impact when applying the
sensitivity of the unobservable inputs (Level 3) valuations to a 10% change in ERV.
Investment property
UK multi-let industrial
UK non multi-let industrial
Germany
Switzerland
Joint ventures
Fair value at
31 March
2020
£’000
Impact on valuations
+10% ERV
£’000
-10% ERV
£’000
308,951
78,810
94,799
14,277
35,737
19,977
8,248
4,259
470
1,617
(31,119)
(4,820)
(4,240)
(461)
(1,672)
Group property portfolio valuation
532,574
34,571
(42,312)
Fair value at
31 March
2019
£’000
255,355
84,630
224,544
16,160
35,025
615,714
Impact on valuations
+10% ERV
£’000
18,479
-10% ERV
£’000
(17,663)
6,466
16,375
439
1,449
(6,584)
(16,641)
(439)
(1,546)
43,208
(42,873)
Net Initial Yield (‘NIY’) is the contracted rent on investment properties at the balance sheet date, expressed as a percentage of the
investment property valuation, plus purchaser’s costs. An increase/decrease in NIY will decrease/increase valuations. The table
below sets out the indicative fair value impact when applying the sensitivity of the unobservable inputs (Level 3) valuations to a 50
basis point change in yield.
Investment property
UK multi-let industrial
UK non multi-let industrial
Germany
Switzerland
Joint ventures
Fair value at
31 March
2020
£’000
308,951
78,810
94,799
14,277
35,737
Impact on valuations
+50 bps
£’000
(21,677)
(5,129)
(9,636)
(906)
(2,836)
-50 bps
£’000
25,216
5,897
12,455
1,041
3,351
Group property portfolio valuation
532,574
(40,184)
47,960
Fair value at
31 March
2019
£’000
255,355
84,630
224,544
16,160
35,025
615,714
Impact on valuations
+50 bps
£’000
(19,053)
(5,243)
(24,731)
(1,056)
(2,738)
(52,821)
-50 bps
£’000
22,395
5,985
33,159
1,210
3,174
65,923
ANNUAL REPORT 2020 STENPROP
125
27385 17 June 2020 7:25 pm proof 1
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
17 Group companies
Details of the Group’s subsidiaries as at 31 March 2020 are as follows:
Name
BVI incorporated entities with registered address:
Craigmuir Chambers, P.O. Box 71, Road Town, Tortola, VG1110,
British Virgin Islands
Davemount Properties Limited
Leatherback Property Holdings Limited
Ruby Red Holdings Limited
SP Corporate Services Limited
SP Nominees Limited
SP Secretaries Limited
Stenprop Management Holdings Limited
Stenprop Hermann Limited
Stenprop Victoria Limited
Stenprop Industrials 1 Limited
Stenprop Industrials 3 Limited
Stenprop Industrials 4 Limited
Stenprop Industrials 5 Limited
Stenprop (UK) Limited
Principal
place of
business
England
Guernsey
Guernsey
Guernsey
Guernsey
Guernsey
Guernsey
Guernsey
Guernsey
Guernsey
Guernsey
Guernsey
Guernsey
England
% equity owned by
Principal activity
Company
Subsidiary
Property Investment
Holding Company
Management
Management
Management
Management
Holding Company
100.00
Property Investment
Property Investment
Holding Company
Property Investment
Property Investment
Dormant
Holding Company
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
94.90
94.90
89.00
100.00
Curacao incorporated entities with registered address:
Wilhelminalaan 13, Curaçao
Anarosa Holdings N.V.
C.S. Property Holding N.V.
Lakewood International N.V.
T.B. Property Holdings N.V.
Germany incorporated entity with registered address:
Dornbusch 4, 20095 Hamburg, Germany
England
England
England
England
Holding Company
Holding Company
Holding Company
Holding Company
KG Bleichenhof Grundtuscksverwaaltung GmbH & Co. KG
Germany
Property Investment
94.90
Guernsey incorporated entities with registered address:
Kingsway House; Havilland Street; St Peter Port;
Guernsey GY1 2QE
Bernina Property Holdings Limited
GGP1 Limited
Kantone Holdings Limited
LPE Limited
Stenprop Advisers Limited
Stenprop Arsenal Limited
Stenprop Industrials Holdings Limited
Stenprop Industrials 6 Limited
Stenprop Industrials 7 Limited
Stenprop Industrials 8 Limited
Stenprop Trafalgar Limited
Stenprop (Germany) Limited
Stenprop (Guernsey) Limited
Stenprop (Swiss) Limited
England
England
Holding Company
Property Investment
Guernsey
Property Investment
Guernsey
Property Investment
Guernsey
Guernsey
England
England
England
England
Management
Dormant
10.00
Holding Company
100.00
Property Investment
Dormant
Dormant
Guernsey
Holding Company
England
Holding Company
100.00
Guernsey
Dormant
Guernsey
Holding Company
100.00
Luxembourg incorporated entities with registered address:
231, Val des Bons Malades, L-2121 Luxembourg
Jimmy Investments S.a.r.l.
Spike Investments S.A.
Luxembourg Holding Company
Luxembourg Holding Company
100.00
100.00
100.00
100.00
90.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
126
STENPROP ANNUAL REPORT 2020
27385 17 June 2020 7:25 pm proof 1
FINANCIAL STATEMENTS
17 Group companies continued
Name
Netherlands incorporated entities with registered address:
Fascinatio Boulevard 764, 2909 VA Capelle aan den IJssel,
Netherlands
Principal
place of
business
% equity owned by
Principal activity
Company
Subsidiary
Century 2 BV
Century BV
Isabel Properties BV
Mindel Properties BV
Netherlands Property Investment
Netherlands Property Investment
Netherlands Property Investment
Netherlands Holding Company
Isle of Man incorporated entities with registered address:
First Names House, Victoria Road, Douglas, Isle of Man IM2
4DF
Stenham Beryl Limited
Stenham Crystal Limited
Stenham Jasper Limited
Gemstone Properties Limited
Guernsey
Guernsey
Guernsey
Guernsey
Property Investment
Property Investment
Property Investment
Holding Company
England incorporated entities with registered address:
180 Great Portland Street, London, W1W 5QZ
C2 Capital Limited
Stenprop Management Limited
Stenprop Limited
England
England
England
Management
Management
Dormant
United States incorporated entities with registered address:
1209 Orange Street, Wilmington, Delaware 19801, USA
Industrials UK GP LLC
Industrials UK LP
England
England
Holding Company
Property Investment
Details of the Group’s investments in joint ventures are disclosed in note 18.
18 Investment in joint ventures
Details of the Group’s joint ventures at the end of the reporting period are as follows:
94.90
94.90
94.90
94.50
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
Name
Luxembourg incorporated entities with registered address:
231, Val des Bons Malades, L-2121 Luxembourg
Elysion S.A.
Elysion Braunschweig S.a.r.l
Elysion Dessau S.a.r.l
Elysion Kappeln S.a.r.l
Elysion Winzlar S.a.r.l
Place of
incorporation
Principal activity
% equity owned
by subsidiary
Luxembourg
Luxembourg
Luxembourg
Luxembourg
Luxembourg
Holding company
Property company
Property company
Property company
Property company
50.00
50.00
50.00
50.00
50.00
Republic of Ireland incorporated entity with registered address:
18f Main Street, Dundrum, Dublin 14
Ardale Industrials Limited
Republic of Ireland Management company
50.00
On 25 February 2020, Stenpark Management Limited was voluntarily struck off the Register of Companies in Guernsey.
ANNUAL REPORT 2020 STENPROP
127
27385 17 June 2020 7:25 pm proof 1
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
18 Investment in joint ventures continued
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.
31 March 2020
Investment property
Fixed assets
Cash and cash equivalents
Current assets
Assets
Bank loans
Bond
Deferred tax
Financial liability
Current liabilities
Liabilities
Net assets of joint ventures
Group’s investment in joint venture bond
Group’s share of joint ventures’ net assets
Revenue
Finance costs
Net fair value gains
Tax expense
Profit from and total comprehensive income from continuing operations
Group income from joint ventures represented by:
Share of joint venture profits
Interest income on joint venture bond
Net gain on joint venture bond
Income from joint ventures
Elysion
S.A.
£’000
35,737
227
543
42
36,549
(18,364)
(14,557)
(1,330)
(591)
(148)
(34,990)
1,559
15,336
780
2,472
(2,193)
674
(231)
722
361
1,393
360
2,114
Other
£’000
–
–
10
2
12
–
–
–
–
(9)
(9)
3
–
1
15
(12)
–
(2)
1
1
–
–
1
Total
£’000
35,737
227
543
44
36,561
(18,364)
(14,557)
(1,330)
(591)
(157)
(34,999)
1,562
15,336
781
2,487
(2,205)
674
(233)
723
362
1,393
360
2,115
128
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18 Investment in joint ventures continued
31 March 2019
Investment property
Fixed assets
Cash and cash equivalents
Current assets
Assets
Bank loans
Bond
Deferred tax
Financial liability
Current liabilities
Liabilities
Net assets of joint ventures
Group’s investment in joint venture bond
Group’s share of joint ventures’ net assets
Revenue
Finance costs
Net fair value losses
Tax expense
Profit from and total comprehensive income from continuing operations
Group income from joint ventures represented by:
Share of joint venture (losses)/profits
Interest income on joint venture bond
Net loss on joint venture bond
Income from joint ventures
FINANCIAL STATEMENTS
Other
£’000
–
–
180
37
217
–
–
–
–
(103)
(103)
114
–
56
1,667
(445)
–
(95)
1,127
563
–
–
563
Total
£’000
33,915
236
695
92
34,938
(18,442)
(13,666)
(1,124)
(524)
(248)
(34,004)
934
14,076
466
4,156
(2,746)
(376)
(205)
829
414
1,355
(162)
1,607
Elysion
S.A.
£’000
33,915
236
515
55
34,721
(18,442)
(13,666)
(1,124)
(524)
(145)
(33,901)
820
14,076
410
2,489
(2,301)
(376)
(110)
(298)
(149)
1,355
(162)
1,044
ANNUAL REPORT 2020 STENPROP
129
27385 17 June 2020 7:25 pm proof 1
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
18 Investment in joint ventures continued
Elysion S.A.
Stenprop owns 100% of the shares and shareholder loans in Bernina Property Holdings Limited (‘Bernina’). The results and financial
position of which is included within these consolidated financial statements. Bernina in turn owns 50% of the issued share capital
and 100% of the bonds of Elysion S.A., a company incorporated in Luxembourg which is the beneficial owner of the Care Home
portfolio. The remaining 50% of Elysion S.A. is owned by a joint venture partner who manages the portfolio.
The acquired bonds have attracted, and continue to attract, a 10% compounded interest rate since inception in 2007 and have
limited recourse to compartment assets within Elysion S.A., with the proceeds made available to subsidiaries in the joint venture for
real estate investment in Care Homes. All costs and expenses incurred by the Elysion S.A. compartment are deducted or withheld
from any payment of principal or interest. The fair value has been determined based on the net assets of the compartment which
would be available to settle the outstanding bond and which is intrinsically linked to the fair value of the investment property.
Further details on the estimates and assumptions used in determining the fair value of investment property can be found in note 16.
Reconciliation of the above summarised financial information to the carrying amount of the interest recognised in the consolidated
financial statements:
31 March 2020
Opening balance
Income from joint ventures
Investment receipts
Foreign exchange movement in foreign operations
Closing balance
31 March 2019
Opening balance
Income from joint venture profit
Investment receipts
Foreign exchange movement in foreign operations
Disposal of joint venture
Closing balance
Investment in joint ventures
Elysion S.A.
Bond
£’000
Elysion
S.A.
£’000
Other
£’000
Total
£’000
14,077
1,765
(975)
469
15,336
14,041
1,193
(852)
(305)
–
14,077
409
349
–
22
780
577
(149)
–
(19)
–
409
56
1
(56)
–
1
41
563
(317)
–
(231)
56
465
350
(56)
22
781
618
414
(317)
(19)
(231)
465
19 Assets held for sale and discontinued operations
Management considers the remaining Swiss property and eight properties located in Germany meet the conditions relating to
Assets Held for Sale, as per IFRS 5: Non-current Assets Held for Sale and Discontinued Operations. The properties are expected to
be disposed of during the next 12 months. The Swiss property at Lugano, which is valued at year end at CHF17.0 million
(£14.3 million) (2019: CHF21.0 million (£16.2 million)), is classified as held for sale. Although the sale may not complete within 12
months, Stenprop is committed to the disposal of the asset in line with its strategy to exit the Swiss market. Accordingly, Stenprop
has disclosed the asset as held for sale. The fair values of all the assets held for sale have been determined by a third-party valuer,
JLL.
The fair value of these properties, and their comparative values are disclosed in the table below along with associated assets and
liabilities:
Investment properties
Cash and cash equivalents
Trade and other receivables
Total assets classified as held for sale
Bank loans
Derivative financial instruments
Deferred tax
Tax (credit)/payable
Accounts payable and accruals
Liabilities directly associated with assets classified as held for sale
130
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27385 17 June 2020 7:25 pm proof 1
31 March
2020
£’000
109,076
1,135
1,646
111,857
43,177
134
3,782
(611)
828
47,310
31 March
2019
£’000
16,160
1,795
3,468
21,423
6,106
–
–
1,688
1,532
9,326
FINANCIAL STATEMENTS
19 Assets held for sale and discontinued operations continued
The Swiss property is the only asset recognised as a discontinued operation as the Swiss segment is a disposal group. In the prior
year, the entire Swiss segment (one property) was recognised as a discontinued operation in accordance with IFRS 5.32. The
results of the discontinued operation were as follows:
Rental income
Property expenses
Net rental income
Operating costs
Net operating income
Fair value movement of investment properties
Loss on disposal of subsidiaries
Loss from operations
Profit on disposal of property
Interest receivable
Finance costs
Net foreign exchange gains
Loss for the year before taxation
Current tax
Deferred tax
Loss for the year from discontinued operations
31 March
2020
£’000
764
(329)
435
(214)
221
(3,188)
–
(2,967)
648
–
(70)
(6)
(2,395)
198
–
(2,197)
31 March
2019
£’000
2,068
(786)
1,282
(225)
1,057
(1,855)
(2,236)
(3,034)
531
7
(256)
–
(2,752)
(1,689)
2,118
(2,323)
Disposals
On 13 December 2019, the Group disposed of its Grimsby property in Davemount Properties Limited for £1.0 million.
On 28 February 2020, the group disposed of its largest single asset, known as Bleichenhof, in Hamburg. The property was sold for
€160.15 million.
In line with the Group’s strategy to become 100% UK MLI focused, the Group sold the above assets, which were classified as held
for sale during the year, following a period of marketing and completion of legals with the successful purchaser. In addition, the
disposal of Bleichenhof required shareholder approval. Further details on this transaction can be found in the circular to Stenprop
shareholders issued on 27 January 2020 and can be found here: https://stenprop.com/media/2594/circular-notice-of-general-
meeting-and-proxy-form.pdf
Prior year disposals
On 19 July 2018, the Group disposed of seven properties in Switzerland, two of which were disposed of as subsidiaries and are
further discussed in note 26, with the remaining five disposed of as assets. Of the five assets sold, three were located in Baar, Vevey
and Montreux and were owned by Kantone Holdings Limited while Chiasso and Sissach were owned by Bruce Properties Sarl
and Clint Properties Sarl respectively. The gross purchase consideration of CHF103.65 million (£81.6 million) compared with the
valuation of these seven properties at 31 March 2018 of CHF103.23 million (£77.2 million).
As part of the agreements entered into for the sale of the seven Swiss properties, all of which were sold to the same buyer,
Stenprop provided a guarantee for obligations and liabilities of each of the selling entities. The maximum amount of the guarantee
is CHF6.0 million, which lasts until all obligations under the sale agreements have been fulfilled, with a backstop date of 31 July
2028. As at the date of signing these accounts, there had not been any claim under the guarantee.
On 31 December 2018, the Group disposed of 14 properties in Germany, comprising the Aldi portfolio of properties. The properties
were all sold to the occupier for €35.8 million (£31.9 million).
ANNUAL REPORT 2020 STENPROP
131
27385 17 June 2020 7:25 pm proof 1
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
20 Trade and other receivables
Non-current receivables
Other debtors
31 March
2020
£’000
13,523
13,523
31 March
2019
£’000
13,365
13,365
Non-current other debtors includes £12.27 million (2019: £12.27 million) of loans advanced under the Share Purchase Plan (see note
13: Share-based payments) and a £1.0 million (2019: £1.1 million) loan used to purchase 1,000,000 Stenprop shares in the market by
Ferryman Capital Partners Limited, a company in which Warren Lawlor, a non-executive director, has a one-third beneficial interest.
Part of the loans are denominated in EUR and are therefore subject to foreign exchange movements.
The loans have been assessed for an expected credit loss under IFRS 9. The analysis shows that due to the full recourse nature of
the loans, secured against the shares issued and underlying assets of the borrowers, loss given default is currently estimated at £nil.
There has been no perceived significant increase in credit risk and we have not recognised an 12 month expected credit loss on
these loans. Refer to note 28 (i) to understand how the Group manages credit risk.
Current receivables
Accounts receivable
Loss allowance
Lease incentives
Other receivables
Prepayments
Transfer to assets held for sale
31 March
2020
£’000
4,225
(976)
2,545
2,610
1,491
(1,646)
8,249
31 March
2019
£’000
4,644
(860)
1,510
4,249
624
(3,468)
6,699
Other receivables includes tenant deposits and VAT receivable.
Not yet due
1-30 days overdue
31-60 days overdue
61-90 days overdue
91-120 days overdue
More than 120 days overdue
31 March 2020
31 March 2019
Trade
Receivables
£’000
Loss
Allowance
£’000
Net
Receivables
£’000
554
2,182
279
258
224
728
4,225
–
(169)
(1)
(198)
(148)
(460)
(976)
554
2,013
278
60
76
268
3,249
Trade
Receivables
£’000
492
Loss
Allowance
£’000
–
Net
Receivables
£’000
492
2,112
447
354
236
1,003
4,644
–
(219)
–
(7)
(634)
(860)
2,112
228
354
229
369
3,784
To measure the loss allowance provision, trade receivables have been grouped based on shared credit risk characteristics and
the days overdue. The level of provision required is determined after taking account of rent deposits and personal or corporate
guarantees held. Management have performed an assessment of the effectiveness of this approach by comparing actual losses
to provisions estimated in prior periods as well as assessing the impact of current macro-economic events. Based on the minimal
differences identified within this assessment, management has concluded that there is no material difference between the
expected credit loss model prescribed by IFRS 9 and the current provisioning method being applied. Consequently, no allowance
has been made for losses on receivables not yet falling due. Management will continue to review this assertion at each reporting
period.
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27385 17 June 2020 7:25 pm proof 1
21 Cash and cash equivalents
Cash at bank
Transfer to assets held for sale
FINANCIAL STATEMENTS
31 March
2020
£’000
85,588
(1,135)
84,453
31 March
2019
£’000
59,220
(1,795)
57,425
Restricted cash
At year end funds totalling £8.2 million (2019: £8.7 million) were restricted. This comprises primarily of tenant deposits of
£2.4 million (2019: £1.6 million), Bleichenhof redevelopment costs of £3.5 million (2019: £4.9 million) and £1.5 million
(2019: £1.6 million) related to service charge monies held by managing agents. £0.8 million (2019: £0.6 million) being rents held in
bank accounts which are secured by the lenders for the purposes of debt repayments.
Cash held back for other purposes
At year end management have allocated £6.3 million (2019: nil) of the total cash balance for other purposes. These include
£5.9 million (2019: nil) in tax payable following the disposal of Bleichenhof with the remaining £0.4 million (2019: nil) being cash
held back for committed operational expenditure.
After deducting restricted cash of £8.2 million and cash held back for other purposes of £6.3 million, the group has available cash
of £71.1 million, or approximately £70 million.
As the Group is in compliance with all the terms and conditions of its loans as at the date of signing these financial statements,
there are no further restrictions, and any surplus will flow to the Group.
22 Accounts payable and accruals
Accruals
Rental income received in advance
Other payables
Tenant deposits
Liabilities directly associated with assets classified as held for sale adjustment
31 March
2020
£’000
3,107
6,324
5,717
2,369
(828)
16,689
31 March
2019
£’000
3,980
5,128
7,683
1,603
(1,532)
16,862
Other payables represents amounts owed to service providers for the maintenance and operational running costs of our properties
as well as costs to close Stenprop’s fund management business.
23 Borrowings
Opening balance
New loans
Repayment of borrowings
Amortisation of loans
Capitalised borrowing costs
Amortisation of transaction fees
Foreign exchange movement in foreign operations
Adjustment for liabilities directly associated with assets transferred to assets held for sale
Total borrowings
31 March
2020
£’000
245,090
24,668
(2,000)
(134)
(919)
623
4,098
(117,255)
154,171
31 March
2019
£’000
259,497
37,051
–
(3,593)
(873)
436
(1,264)
(46,164)
245,090
Of the movement in borrowings in the year ending 31 March 2020, £24.67 million (2019: £37.05 million) relates to cash received
from new bank loans raised and £82.32 million (2019: £61.21 million) relates to repayments of bank loans. The £82.18 million
(2019: £61.21 million) of bank loan repayments are included in the adjustment for liabilities directly associated with assets
transferred to assets held for sale balance. The sale of Bleichenhof contributed £75.5 million to the total loan repayments.
£2.88 million was repaid upon the sale of Hemel Hempstead, £1.80 million was repaid on the sale of Walsall and £2.0 million was
repaid when refinancing the Trafalgar loan. Non-cash movements relate to amortisation of capitalised transaction fees and foreign
exchange movements.
ANNUAL REPORT 2020 STENPROP
133
27385 17 June 2020 7:25 pm proof 1
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
23 Borrowings continued
Amount due for settlement within 12 months
Amount due for settlement between one to three years
Amount due for settlement between three to five years
Total borrowings
Non-current liabilities
Bank loans
Total non-current loans and borrowings
Current liabilities
Bank loans
Total current loans and borrowings
Total loans and borrowings
31 March
2020
£’000
–
93,468
60,703
154,171
31 March
2019
£’000
29,805
106,943
108,342
245,090
154,171
154,171
215,285
215,285
–
–
29,805
29,805
154,171
245,090
The facilities are secured by legal charges over the properties to which they correspond. There is no cross-collateralisation of the
facilities. Loans are subject to loan-to-value ratios (see note 28 (v)) and interest coverage ratios. No loan was in breach during
period or period end. The terms and conditions of outstanding loans are as follows:
Entity
Note Amortising
rate Currency
Loan
interest
Nominal value
Carrying value*
Maturity
date
31 March
2020
£’000
31 March
2019
£’000
31 March
2020
£’000
31 March
2019
£’000
United Kingdom
Davemount Properties
Limited
LPE Limited
GGP1 Limited
Industrials UK
Stenprop Industrials 4
Limited
Stenprop Industrials 6
Limited
Switzerland
Kantone Holdings
Limited
Germany
Century BV
Century 2 BV
Isabel Properties BV
Bleichenhof GmbH &
Co. KG
Stenprop Hermann Ltd
Stenprop Victoria Ltd
No
No
No
No
No
No
LIBOR
+ 2.25%
LIBOR
+ 2.00%
LIBOR
+ 2.25%
LIBOR
+ 2.25%
LIBOR
+ 2.00%
LIBOR
+ 2.00%
GBP
26/5/2021
–
4,000
–
3,983
GBP
31/3/2022
28,000
30,000
27,857
29,805
GBP
26/5/2021
4,500
5,175
4,472
5,123
GBP
2/6/2022
61,484
61,484
61,259
61,215
GBP
14/11/2024
34,879
10,211
34,255
10,043
GBP
1/2/2024
26,840
26,840
26,448
26,343
1
Yes
LIBOR
+ 1.15%
CHF
3-month
rolling facility
6,513
6,106
6,513
6,106
No
No
No
Euribor
+ 1.55%
Euribor
+ 1.55%
Euribor
+ 2.32%
EUR
31/12/2022
7,369
7,135
7,319
7,070
EUR
31/12/2022
3,832
3,711
3,804
3,673
EUR
30/12/2021
8,001
7,747
8,001
7,747
No
1.58%
EUR
28/2/2022
–
73,114
–
73,114
No
No
Euribor
+ 1.13%
Euribor
+ 1.28%
EUR
30/6/2020
8,383
8,117
8,383
8,109
EUR
31/8/2020
9,157
8,866
9,157
8,866
198,958
252,506
197,468
251,197
*
1.
The difference between the nominal and the carrying value represents unamortised facility costs.
In August 2018 the sole remaining property in Switzerland, Lugano, was refinanced for CHF8 million (£6.1 million) on a three-month rolling credit facility at a margin of LIBOR
+1.15%. Excluding the £6.1 million loan, which relates to discontinued operations, the total carrying value of loans at 31 March 2020 is £154.2 million as detailed on the previous
page in total borrowings.
134
STENPROP ANNUAL REPORT 2020
27385 17 June 2020 7:25 pm proof 1
24 Other loans
Loans received
Loan repayments including foreign exchange movement
Interest
FINANCIAL STATEMENTS
31 March
2020
£’000
–
–
–
–
31 March
2019
£’000
48,086
(48,506)
420
–
During the period to 31 March 2020, a £30 million (2019: £50 million) revolving credit facility (‘RCF’) was renewed on similar terms
with Investec Bank plc at an all-in interest rate of 7% + 1 month LIBOR. It is intended that drawdowns under the Investec RCF will be
short term in nature to fund new acquisitions and will be repaid as soon as possible from a combination of disposal proceeds and
longer term debt finance. As at year end, the facility was undrawn.
25 Derivative financial instruments
In accordance with the terms of the borrowing arrangements and Group policy, the Group has entered into interest rate swap
agreements which are entered into by the borrowing entities to convert the borrowings from floating to fixed interest rates and
are used to manage the interest rate profile of financial liabilities and eliminate future exposure to interest rate fluctuations. It is the
Group’s policy that no economic trading in derivatives is undertaken by the Group. In the current year, the Group recognised a total
net loss in fair value of financial instruments from continuing and discontinuing operations of £2,410,000 (2019: loss £1,092,000)
and £nil (2019: £nil) respectively.
The following table sets out the interest rate swap agreements at 31 March 2020 and 31 March 2019.
Entity
UK
LPE Limited
Industrials UK LP
Industrials 4
Industrials 6
Germany
Century BV
Century 2 BV
Effective
date
Maturity
date
Swap
rate %
26/3/2015
31/3/2020
2/6/2017
2/6/2022
14/11/2019
14/11/2024
1/2/2019
1/2/2024
31/12/2017
30/12/2022
31/12/2017
30/12/2022
1.35
0.95
0.89
1.27
2.5
2.5
Isabel Properties BV
30/1/2015
30/12/2021
0.48
Adjustment for liabilities directly associated
with assets classified as held for sale adjustment
(see note 19)
Total swaps
Liabilities maturing within 12 months
Liabilities maturing after 12 months
Derivative financial instruments – on balance sheet
Notional
value
31 March
2020
£’000
Fair
value
31 March
2020
£’000
Notional
value
31 March
2019
£’000
Fair
value
31 March
2019
£’000
–
–
30,000
60,375
24,000
22,814
7,234
3,967
8,001
(768)
(492)
(741)
60,375
–
22,814
1
–
(135)
7,005
3,841
7,747
(176)
(82)
–
(310)
–
–
(162)
–
134
–
–
126,391
(2,001)
131,782
(730)
–
–
–
–
(2,001)
(2,001)
–
–
–
Swaps included in investments in associates and joint ventures
1/4/2014
Elysion Braunschweig S.a.r.l
29/12/2023
Elysion Dessau S.a.r.l
Elysion Kappeln S.a.r.l
Elysion Winzlar S.a.r.l
1/4/2014
29/12/2023
1/4/2014
29/12/2023
1/4/2014
29/12/2023
2.43
2.43
2.8
2.8
4,883
4,831
5,379
3,442
(150)
(143)
(181)
(116)
4,860
4,809
5,350
3,423
Derivative financial instruments – associates and joint ventures
18,535
(590)
18,442
(176)
(554)
(730)
(127)
(126)
(167)
(104)
(524)
ANNUAL REPORT 2020 STENPROP
135
27385 17 June 2020 7:25 pm proof 1
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
26 Disposal of subsidiaries
Carrying value of net assets at disposal date
Investment property
Trade and other receivables
Cash and cash equivalents
Borrowings
Trade and other payables
Net assets disposed
Net disposal proceeds
Foreign exchange movement in foreign operations
Profit on disposal of subsidiaries (including discontinued operations)
Net assets disposed
Discontinued Operations – Loss on disposal of subsidiary (note 19)
Continuing Operations – Profit on disposal of subsidiary
Profit on disposal of subsidiaries (including discontinued operations)
31 March
2020
£’000
31 March
2019
£’000
–
–
–
–
–
–
–
–
–
–
–
–
–
110,419
627
2,132
(45,334)
(2,871)
64,973
74,094
(231)
8,890
64,973
(2,236)
11,126
8,890
Prior year disposals
On 17 July 2018, the Group disposed of its 100% shareholding in Polo Property GmbH for a consideration of CHF12.7 million. Polo
Property GmbH owned the properties known as Altendorf and Arlesheim in Switzerland.
On 12 March 2019, the Group disposed of its 100% shareholding in Euston PropCo Limited for a consideration of £66.6 million.
Euston PropCo Limited owned the property Euston House, London.
27 Deferred tax
The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current
and prior reporting period.
Opening balance
Deferred tax recognised on disposal of investment properties
Deferred tax recognised on revaluation of financial liabilities
Deferred tax on tax losses
Deferred tax – other withholding tax
Other deferred tax movements
Exchange movements
Adjustment for liabilities directly associated with assets classified as held for sale adjustment
Closing balance
31 March
2020
£’000
(10,416)
9,533
(5)
(4,123)
1,691
(359)
(103)
3,782
–
31 March
2019
£’000
(9,379)
2,905
8
492
(1,768)
–
1,223
(3,897)
(10,416)
Deferred tax assets and liabilities are offset where the Group has a legally enforceable right to do so. The following is the analysis
of the deferred tax balances (after offset) for financial reporting purposes:
Deferred tax liabilities
Deferred tax assets
Adjustment for liabilities directly associated with assets classified as held for sale adjustment
Closing balance
Deferred tax opening balance
Exchange movements
Other movements
Deferred tax liability closing balance
Movement in deferred tax
136
STENPROP ANNUAL REPORT 2020
27385 17 June 2020 7:25 pm proof 1
31 March
2020
£’000
(4,473)
691
3,782
–
(10,416)
(103)
(359)
3,782
(7,096)
31 March
2019
£’000
(15,574)
5,158
–
(10,416)
13,276
(1,223)
–
(10,416)
1,637
FINANCIAL STATEMENTS
28 Financial Risk Management (i)
The Group is exposed to a variety of financial risks including market risk, credit risk and liquidity risk. The overall risk management
strategy seeks to minimise the potential adverse effects on the Group’s financial performance. Certain risk exposures are hedged
via the use of financial derivatives.
This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and
processes for measuring and managing these risks, and the Group’s management of capital. Further quantitative disclosures
are included throughout these audited financial statements where relevant. The Group’s board has overall responsibility for the
establishment and oversight of the Group’s risk management framework.
The Audit and Risk Committee participates in management’s process of formulating and implementing the risk management plan
and it reports on the plan adopted by management to the board.
The objective of risk management is to identify, assess, manage and monitor the risks to which the business is exposed, including,
but not limited to, information technology risk. The board is responsible for ensuring the adoption of appropriate risk management
policies by management. The Group’s risk management policies are established to identify and analyse the risks faced by the
Group, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies are
reviewed regularly to reflect changes in market conditions and the Group’s activities. The board will also ensure that there are
processes in place between itself and management enabling complete, timely, relevant, accurate and accessible risk disclosure to
shareholders.
To enable the Audit and Risk Committee to meet its responsibilities, terms of reference were adopted by the board. These include
appropriate standards, the implementation of systems of internal control and an effective risk-based internal audit which comprises
policies, procedures, systems and information to assist in:
f safeguarding assets and reducing the risk of loss, error, fraud and other irregularities;
f ensuring the accuracy and completeness of accounting records and reporting;
f preparing timely, reliable financial statements and information in compliance with relevant legislation and generally accepted
accounting policies and practices; and
f increasing the probability of anticipating unpredictable risk.
The committee oversees how management monitors compliance with the Group’s risk management policies and procedures and
reviews the adequacy of the risk management framework in relation to risks faced by the Group.
Credit risk
The Group’s principal financial assets are cash and cash equivalents as well as trade and other receivables. The credit risk arising
from deposits with banks is managed through a policy of utilising only independently rated banks with acceptable credit ratings.
The credit quality of cash and cash equivalents can be assessed by reference to external credit ratings of the counterparty where
the account or deposit is placed. The credit rating summary below represents the five European financial institutions that hold
more than £1 million (or GBP equivalent) of the Group’s cash at 31 March 2020. Together these banks hold 96% of the Group’s total
cash at bank.
f ABN AMRO Bank NV
f Barclays Private Clients International Limited
f Berlin Hyp AG
f The Bank of N. T. Butterfield & Son Limited
f Credit Suisse AG
f Deutsche Bank AG
f Hamburg Commercial Bank AG
f Lloyds Bank plc
f Royal Bank of Scotland Group plc
f Santander UK plc
31 March
2020
S&P Global
Ratings
31 March
2020
Fitch
Ratings
N/A
BBB
N/A
BBB+
N/A
N/A
BBB
BBB+
BBB
N/A
N/A
A-
N/A
WD
N/A
N/A
N/A
A+
A
N/A
31 March
2019
Fitch
Ratings
A+
A+
AA-
N/A
A
A-
A+
A+
A+
A+
The directors are satisfied as to the creditworthiness of the banks where the remaining cash is held.
The majority of tenant leases are long-term contracts with rents payable quarterly in advance. Rent deposits and personal or
corporate guarantees are held in respect of some leases. Taking these factors into account, the risk to the Group of individual
tenant default and the credit risk of trade receivables are considered low. The concentration of credit risk is limited due to the large
and diverse occupier base. Accordingly, the directors believe that there is no further expected credit loss required in excess of that
provided. Trade receivables are presented after deducting a loss allowance provision, as set out in note 20.
At the time of acquisition of a property, and from time to time thereafter, the Company reviews the quality of the contracted
tenants to ensure that the tenants meet acceptable covenants. Trade receivables are presented in the statement of financial
ANNUAL REPORT 2020 STENPROP
137
27385 17 June 2020 7:25 pm proof 1
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
28 Financial Risk Management (i) continued
position net of allowances for doubtful receivables. An allowance for impairment is made where there is an indefinable loss event,
which based on previous experience, may give risk to a non-recovery of a receivable.
Non-current other debtors are long term loans secured against shares issued by the Group to the related parties referenced in
note 20. In order to manage credit risk, the contractual terms include full recourse to assets of the borrower which are monitored
alongside the aggregate value of the shares. Furthermore, in respect of the Share Purchase Plan, the terms allow recovery of
amounts due through a deduction from salary or other amounts paid to the beneficiary.
The carrying amount of financial assets represents the maximum credit exposure at the reporting date.
At 31 March 2020, trade and other receivables and cash and cash equivalents amounts to £92.3 million (2019: £64.1 million) as
shown in the statement of financial position. Further details on what makes up this balance can be found in note 20.
28 Financial Risk Management (ii)
Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash resources, the availability of funding through appropriate and
adequate credit lines and managing the ability of tenants to settle within lease obligations. Through the forecasting and budgeting
of cash requirements the Group ensures that adequate committed resources are available.
By its nature, the market for investment property is not immediately liquid; therefore, the Group’s ability to vary its portfolio in a
timely fashion and to receive a fair price in response to changes in economic and other conditions may be limited. Furthermore,
where the Group acquires investment properties for which there is not a readily available market, the Group’s ability to deal in any
such investment or obtain reliable information about the value of such investment or risks to which such property investment is
exposed may be limited. The Group’s short-term liquidity risk is secured by the existence of cash balances, through the fact that
rental income exceeds the Group’s cost structures and through ensuring that facilities are managed within debt covenants.
The following table details the contractual maturity date of the Group’s financial liabilities. The table has been compiled based
on the undiscounted contractual maturities of the financial liabilities, including interest that will accrue to those liabilities, except
where the Group is entitled and intends to repay the liability before its maturity. The discount column represents the possible
future cash flows included in the maturity analysis, such as future interest or potential payments that have not been included in the
carrying amount of the financial liability. The table also includes a reconciliation to the carrying value in the statement of financial
position.
Interest-bearing loans
Loan interest
Financial liabilities
Deferred tax
Other payables (incl. tax)
Accruals
Deferred income
Lease obligations
Less than
one
month
£’000
–
400
–
–
–
–
–
1
One to
three
months
£’000
8,417
1,610
–
–
1,974
–
6,324
49
Three to
twelve
months
£’000
15,516
4,032
–
3,782
10,627
5,620
–
252
One to
five
years
£’000
112,712
7,773
2,135
–
2,116
–
–
222
Over five
years
£’000
60,703
–
–
–
–
–
–
–
–
Discount
£’000
–
(13,149)
–
–
–
–
–
–
Total
£’000
197,348
666
2,135
3,782
14,717
5,620
6,324
524
1,328
(47,310)
Liabilities directly associated with
assets classified as held for sale
As at 31 March 2020
(27)
374
(8,701)
9,673
(20,054)
(19,856)
19,775
105,102
60,703
(11,821)
183,806
Interest-bearing loans
Loan interest
Financial liabilities
Deferred tax
Other payables (incl. tax)
Accruals
Deferred income
Liabilities directly associated with
assets classified as held for sale
Less than
one
month
£’000
–
685
–
–
–
–
–
–
As at 31 March 2019
685
138
STENPROP ANNUAL REPORT 2020
One to
three
months
£’000
160
1,806
–
–
2,136
38
5,128
(219)
9,049
Three to
twelve
months
£’000
35,751
4,704
176
–
10,462
3,033
–
(9,106)
One to
five
years
£’000
106,942
12,025
554
10,415
–
–
–
–
Over five
years
£’000
108,344
–
–
–
–
–
–
–
Discount
£’000
–
(18,311)
–
–
–
–
–
–
Total
£’000
251,197
909
730
10,415
12,598
3,071
5,128
(9,325)
45,020
129,936
108,344
(18,311)
274,723
27385 17 June 2020 7:25 pm proof 1
FINANCIAL STATEMENTS
28 Financial Risk Management (iii)
Fair value of financial instruments
The following table summarises the Group’s financial assets and liabilities into categories required by IFRS 7 Financial Instruments
disclosures.
Financial assets
Cash and cash equivalents
Trade and other receivables
Other debtors
31 March 2020
Financial liabilities
Bank loans
Derivative financial instruments
Accounts payable and accruals
Bonds
31 March 2020
Financial assets
Cash and cash equivalents
Trade and other receivables
Other debtors
31 March 2019
Financial liabilities
Bank loans
Derivative financial instruments
Accounts payable and accruals
Bonds
31 March 2019
Held at
fair value
through
profit or loss
£’000
Held at
amortised
cost
£’000
106,225
106,225
Total
carrying
amount
31 March
2020
£’000
84,453
8,249
13,523
154,171
2,001
27,109
15,336
198,617
Total
carrying
amount
31 March
2019
£’000
57,425
5,053
15,011
77,489
84,453
8,249
13,523
154,171
–
27,109
–
181,280
57,425
5,053
15,011
77,489
245,090
245,090
–
18,487
–
730
18,487
14,077
263,577
278,384
–
–
–
–
–
2,001
–
15,336
17,337
–
–
–
–
–
730
–
14,077
14,807
Held at
fair value
through
profit or loss
£’000
Held at
amortised
cost
£’000
ANNUAL REPORT 2020 STENPROP
139
27385 17 June 2020 7:25 pm proof 1
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
28 Financial Risk Management (iv)
Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market
prices. Market risk comprises three types of risk: foreign currency risk, interest rate risk and price risk (see fair value hierarchy
section). The objective of market risk management is to manage and control market risk exposures within acceptable parameters,
while optimising returns to shareholders.
Investment in property is subject to varying degrees of risk. The main factors which affect the value of the investment in property
include:
f changes in the general economic climate;
f local conditions in respective markets, such as oversupply, or a reduction in demand, for commercial space in a specific area;
f competition from other available properties; and
f government regulations, including planning, environmental and tax laws.
While a large number of these factors are outside the control of the management, market and property-specific factors relevant
to maintain a sustainable income stream within the Group’s yield parameters are considered as part of the initial due diligence.
Properties and tenant leases are actively managed.
Foreign currency risk
The Group’s presentation currency is Sterling. Foreign currency risk is the risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in foreign currency or exchange rates. At the reporting date, the following table
summarises the Group’s exposure to foreign currency risk in respect of assets and liabilities held in EUR (Germany) and CHF
(Switzerland).
Assets
CHF
EUR
Liabilities
CHF
EUR
31 March
2020
£’000
31 March
2019
£’000
15,252
138,840
21,423
256,226
6,271
50,638
9,326
122,251
Foreign currency sensitivity analysis
The sensitivity analysis measures the impact on the Group’s exposure in Sterling (based on a change in the reporting date spot
rate) and the impact on the Group’s Sterling profitability, given a simultaneous change in the foreign currencies to which the Group
is exposed at the reporting date.
A 10% strengthening in the Sterling exchange rate against the following currencies at year end would have decreased equity and
profits by the amounts shown below. The 10% threshold was selected as a reasonable, worst-case scenario and is considered a
prudent threshold. This analysis assumes that all other variables remain constant. For a 10% weakening of Sterling, there would be
an equal but opposite impact on the profit and equity and the balance would be positive.
CHF impact
EUR impact
The exchange rates against GBP during the year were:
CHF
EUR
Equity
£’000
Profit or loss
£’000
(898)
(8,820)
(9,718)
131
(598)
(467)
Average
rate for
year to
31 March
2020
0.7972
0.8740
As at
31 March
2020
0.8393
0.8890
Interest rate risk
The Group’s interest rate risk is associated with cash and cash equivalents, on the one hand, and interest-bearing borrowings, on
the other. If the interest is variable, it presents the Group with a cash flow interest rate risk. Interest rate risk is the risk that the fair
value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. As stated in note
25, borrowings from credit institutions are protected against movements in interest rates. The Group uses interest rate swaps
to manage its interest rate exposure and to establish more certainty over cash flows. As a result, the Group have not disclosed
additional sensitivity analysis to changes in interest rates.
140
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27385 17 June 2020 7:25 pm proof 1
FINANCIAL STATEMENTS
28 Financial Risk Management (v)
Fair value hierarchy
The table below analyses the Group’s financial instruments carried at fair value, by valuation method. The fair value measurement
for the Group’s financial assets and financial liabilities are categorised into different levels in the fair value hierarchy. The different
levels have been defined as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities that the Group can access at the measurement
date.
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).
31 March 2020
Assets
Derivative financial instruments
Total assets
Liabilities
Derivative financial instruments
Bonds
Total liabilities
31 March 2019
Assets
Derivative financial instruments
Total assets
Liabilities
Derivative financial instruments
Bonds
Total liabilities
Total
financial
instruments
recognised
at fair value
£’000
Designated at fair value
Level 1
£’000
Level 2
£’000
Level 3
£’000
–
–
2,001
14,557
16,558
–
–
730
13,666
14,396
–
–
–
–
–
–
–
–
–
–
–
–
2,001
–
2,001
–
–
730
–
730
–
–
–
14,557
14,557
–
–
–
13,666
13,666
Details of changes in valuation techniques
There have been no significant changes in valuation techniques during the period under review. Derivative financial instruments
are measured using the midpoint of the yield curve prevailing on the reporting date. The valuations do not include accrued interest
from the previous settlement date to the reporting date. The fair value represents the net present value of the difference between
the contracted rate and the valuation rate when applied to the projected balances for the period from the reporting date to the
contracted expiry dates.
Significant transfers between Level 1, Level 2 and Level 3
There have been no significant transfers during the period under review.
Unobservable inputs
Unobservable inputs for Level 3 investment properties are disclosed in note 16.
The unobservable inputs used to determine the value of the bonds in the Eysion S.A. joint venture are based on the unadjusted net
assets of the joint venture structure and are subject to the assumptions applied to the valuation methodology of the underlying
investment property.
Capital risk management
The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 23, cash and cash equivalents
and equity attributable to ordinary shareholders of the Company, comprising issued capital, reserves and retained earnings as
disclosed in the statement of changes in equity. Stenprop’s average loan-to-value ratio (‘LTV’) ratio at 31 March 2020 was 40.8%
(2019: 44.2%), including joint ventures and associates and the Group is not subject to any external capital requirements. The Group
strategy is to maintain a debt-to-equity ratio and LTV to ensure that property performance is translated into an enhanced return
for shareholders while at the same time ensuring that it will be able to continue as a going concern through changing market
conditions. The directors are of the opinion that a 40% LTV in respect of secured external borrowings is an appropriate target for
the Group, given the current market conditions.
At the date of signing these consolidated financial statements, the Group has positive operating cash flows and positive net
ANNUAL REPORT 2020 STENPROP
141
27385 17 June 2020 7:25 pm proof 1
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
28 Financial Risk Management (v) continued
assets. Management have carefully assessed the impact of the market uncertainties arising from both Brexit and the outbreak of
the COVID-19 pandemic, on the entity’s net assets, liquidity and ability to continue as a going concern for the foreseeable future.
Given the current market conditions and negative economic outlook, management subjected the Group’s cash flow forecast to a
stress test scenario for the 18 months to 30 September 2021 by applying highly severe scenario assumptions, including a
75% deterioration in rental income cash receipts, and direct landlord costs of four times the current level, driven by an increase in
vacancies. These assumptions were applied over the entire 18 month period of assessment and do not include cash flows for the
sale or purchase of properties. The test concluded that even in these scenarios the Group would have positive liquid assets and be
able to meet its obligations as they fell due.
The Company’s REIT obligations and debt refinancing were assessed in detail as were sensitivities to loan covenants. Despite
the disruption in the economy caused by COVID-19, we do not expect the risk of default to have increased. Lenders have been
guided by the Government to take a pragmatic view and consider prepayment possibilities, equity cures and waivers of covenants
so that breaches with a direct link to the pandemic should not automatically trigger defaults. In addition, we maintain strong
relationships with our facility providers and currently have significant headroom for both interest cover and LTV loan covenants.
Notwithstanding this assumption, the Group would have cash resources available, even after considering the highly severe scenario,
to be utilised to cure covenant breaches if they crystallise and the lenders take a hard stance against government advice. It is
further worth noting that the loans are not cross-collateralised and accordingly if certain banks do act aggressively, the Group
would continue to operate with the remaining portfolio of assets if any foreclosure events were to arise.
In light of this review and the significant liquid assets, management are satisfied that the Group has access to adequate resources
to continue in operational existence for a period of at least twelve months from the date of these financial statements. The
directors believe that it is therefore appropriate to prepare the accounts on a going concern basis.
29 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.
Directors’ remuneration and interests in the ordinary shares of the Company are set out in Note 8, ‘Employees’ and directors’
emoluments’.
Loans provided to a director to purchase Stenprop shares under the Share Purchase Plan can be found in note 20.
Transactions and balances with joint venture parties can be found in note 18.
There are no other related party transactions that occurred during the year.
Ultimate controlling party
The directors do not consider there to be an ultimate controlling party.
30 Minimum lease payments
The Group earns rental income by leasing its investment properties to tenants under non-cancellable operating leases.
At the balance sheet date the Group had contracted with tenants for the following future minimum lease payments on its
investment properties:
31 March
2020
£’000
31 March
2019
£’000
30,607
25,095
40,944
39,119
135,765
1,038
1,038
3,115
12,986
18,177
33,167
26,796
45,658
38,039
143,660
1,157
1,157
3,470
15,623
21,407
Continuing operations
Within one year
Between one and two years
Between two and five years
After five years
Discontinuing operations
Within one year
Between one and two years
Between two and five years
After five years
142
STENPROP ANNUAL REPORT 2020
27385 17 June 2020 7:25 pm proof 1
30 Minimum lease payments continued
At the balance sheet date the Group had the following future minimum lease payments as a lessee:
Continuing operations
Within one year
Between one and two years
Between two and five years
After five years
FINANCIAL STATEMENTS
31 March
2020
£’000
31 March
2019
£’000
326
232
14
-
572
356
285
213
-
854
At 31 March 2020, Stenprop had no (2019: nil) lessee leases in its discontinued operations.
31 Events after the reporting period
(i) Declaration of dividend
On 11 June 2020, the board declared a final dividend of 3.375 pence per share. The final dividend will be payable in cash or as a
scrip dividend. An announcement containing details of the dividend and the timetable will be made in due course.
(ii) Share incentive awards
On 10 June 2020, the board, on the recommendation of the remuneration committee, approved share-based awards in relation
to the Long Term Incentive Plan and the Deferred Share Bonus Plan. Details of awards made to executive directors can be seen in
note 8.
(iii) COVID-19 developments
The UK, German and Swiss governments have recently announced measures to lift the COVID-19 lock-down. Each country is at
a different stage of economic recovery and as such the Group continues to monitor government policy changes on a daily basis.
Stenprop has identified no adjusting events at the date of signing these consolidated financial statements.
ANNUAL REPORT 2020 STENPROP
143
27385 17 June 2020 7:25 pm proof 1
27385 17 June 2020 7:25 pm proof 1Other Information146Property Summary147Portfolio Analysis148Consolidated Portfolio152Assets Held for Sale153Jointly Controlled Entities153Tenant Analysis154EPRA Key Performance Measures155Analysis of Shareholders156Shareholder Diary157Alternative Perfomance measures158Glossary159Corporate Information 27385 17 June 2020 7:25 pm proof 1 OTHER INFORMATION
Property Summary
Unaudited
Asset
value
as % of
portfolio
Gross
lettable
area
(m2)
Occupancy
(by area)
(%)
Annual
gross
rental
income
(£m)
WAULT
(by
revenue)
(Years)
WAULT
(by area)
(Years)
W.A. rental
(per sq.m)
(£/m2)
Asset
value
(£m)
71.4
309.0
7.4
387.8
UK
Office
MLI
Industrial
Total
13.4%
58.0%
1.4%
72.8%
18,086
420,483
14,313
452,882
99.9%
91.1%
100.0%
91.7%
Germany
Retail
94.8
17.8%
52,122
99.2%
Nursing
Homes
Total
Switzerland Retail
Total
Total
Office
Retail
MLI
Industrial
Nursing
Homes
Total
35.7
130.5
14.3
14.3
71.4
109.1
309.0
7.4
35.7
532.6
6.7%
24.5%
2.7%
2.7%
13.4%
20.5%
58.0%
1.4%
19,330
71,452
100.0%
99.4%
5,974
5,974
100.0%
100.0%
18,086
58,096
420,483
99.9%
99.3%
91.1%
14,313
100.0%
6.7%
19,330
100.0%
530,308
100.0%
92.9%
5.5
22.7
0.5
28.7
5.7
2.5
8.2
1.0
1.0
5.5
6.7
22.7
0.5
2.5
37.9
6.0
2.6
0.5
3.2
8.5
9.3
8.7
17.5
17.5
6.0
9.9
2.6
0.5
9.3
4.8
5.0
2.3
0.5
2.3
8.7
125.6
8.9
17.5
17.5
5.0
9.6
2.3
0.5
9.3
3.4
302.3
54.0
40.3
63.5
110.1
125.6
114.3
173.8
173.8
302.3
116.6
54.0
40.3
125.6
71.6
Rental escalation profile
Stenprop operates in countries with low inflation rates. The annual inflation rate during the 2019 calendar year was 1.4% for the UK,
1.5% for Germany and 0.57% for Switzerland. Rental escalation clauses vary across the portfolio, irrespective of sector or lettable
area. In the UK, a majority of leases are subject to periodic upwards-only rent reviews, at different stages of the tenancy. Leases
in the German and Swiss portfolios are generally adjusted for CPI with a hurdle rate before an increase can be applied. Rental
escalation clauses within leases, as in previous years, currently have a minor impact on rents. Rental growth is rather driven by
lease events such as new lettings and regears when passing rent realigns with estimated rental value.
Vacancy profile, by sector, by rentable area
92.9%
Occupied
area
7.1%
Vacancy
7.0%
MLI
0.0%
Office
0.1%
Retail
146
STENPROP ANNUAL REPORT 2020
27385 17 June 2020 7:25 pm proof 1
OTHER INFORMATION
Portfolio Analysis
Unaudited
Portfolio
by market
value
(%)
Market
value
31 March
2020
(£m) Properties
Annualised
gross
rental
income
(£m)
Area
(m2)
Net initial
yield
31 March
2020
WAULT
(by rental)
(Years)
Voids
(by area)
(%)
Rental per
m2
(£/m2)
58.0%
14.8%
72.8%
17.8%
2.7%
20.5%
309.0
78.8
387.8
94.8
14.3
109.1
70
420,483
6
76
32,399
452,882
8
1
9
52,122
5,974
58,096
22.7
6.0
28.7
5.7
1.0
6.7
6.47%
7.17%
6.62%
5.10%
5.81%
5.19%
2.6
5.5
3.2
8.5
17.5
9.9
8.9%
0.1%
8.3%
0.8%
0.0%
0.7%
54
187
63
110
174
117
6.7%
35.7
4
19,330
2.5
5.94%
9.3
0.0%
126
100.0%
532.6
89
530,308
37.9
6.28%
4.8
7.1%
72
Property/
Portfolio
UK MLI
UK non-MLI
Subtotal
Held for sale:
Germany
Switzerland
Subtotal
Share of Joint
Ventures
Total
Tenant profile
Stenprop’s tenants are classified into three groups as follows:
Tenant profile by annual rent
Tenant profile by let area
54%
C
31%
A
61%
C
25%
A
15%
B
14%
B
Type A: Large tenants with a national presence or multi-national tenants, government and major franchisees.
Type B: Nationally recognised tenants, listed tenants, franchisees, and medium to large professional firms.
Type C: 849 other tenants.
ANNUAL REPORT 2020 STENPROP
147
27385 17 June 2020 7:25 pm proof 1
OTHER INFORMATION
Consolidated Portfolio
Unaudited
Sector
Company
Property/Portfolio
Ownership
interest
%
Market value
31 March
2020
(£m)
Number of
Properties
Annualised
Net initial yield
gross rental
31 March
income
(£m)
2020
(%)
WAULT
(by rental)
(years)
Voids
(by area)
(%)
Rental
per m2
(£/m2)
UK
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Rawdon Network Centre
Shire Court
Sherwood Network Centre
Caldene Business Centre
Imex Business Centre
Boaler Street Industrial Estate
Croft Business Park
Eurolink 31
Dana trading estate
Wharton Street industrial estate
Wainright Street industrial estate
Argyle Business centre
Cuckoo trade park
Sovereign business park
Poulton Close Business Centre
Rivermead Estate
Wholesale District Nottingham
Davey Close Trade Park
Redbrook Business Park
Lion Business Park
Greenway Business Park
Compass Industrial Park
Lea Green Business Park
Anniesland
Capital Business Park
Souterhead industrial estate
Venture Park
Coningsby Park
Globe Park
Stenprop Industrials 4 Ltd
Ellis Hill
Stenprop Industrials 4 Ltd
Greenwood Industrial Estate
Stenprop Industrials 4 Ltd
Kirkstall Industrial Estate
Stenprop Industrials 4 Ltd
Estuary Court
Stenprop Industrials 4 Ltd
Trinity Court
Stenprop Industrials 4 Ltd
Carnfield Place
Stenprop Industrials 4 Ltd
Lombard Centre
Stenprop Industrials 4 Ltd
Dunball Industrial Estate
Stenprop Industrials 4 Ltd
Gainsborough Trading Estate
Stenprop Industrials 4 Ltd
Deeside Industrial Park
Stenprop Industrials 4 Ltd
Hillfoot Industrial Estate
Stenprop Industrials 4 Ltd
Armthorpe Business Centre
Stenprop Industrials 4 Ltd
Trident Business Centre
Stenprop Industrials 4 Ltd
Forth Industrial Estate
Stenprop Industrials 4 Ltd
St Peter's Industrial Park
Stenprop Industrials 4 Ltd
Merryhills Enterprise Park
Stenprop Industrials 4 Ltd
Western Campus Business Park
Stenprop Industrials 4 Ltd
Brookfoot Business Park
Stenprop Industrials 4 Ltd
Clarendon Court
Stenprop Industrials 6 Ltd
Star Road Industrial Estate
Stenprop Industrials 6 Ltd
Albion Gateway
Stenprop Industrials 6 Ltd
Chasewater Heaths Business Pk
Stenprop Industrials 6 Ltd
Queensway Industrial Estate
Stenprop Industrials 6 Ltd
Tyburn Trading Estate
148
STENPROP ANNUAL REPORT 2020
27385 17 June 2020 7:25 pm proof 1
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
2.2
3.2
3.4
5.0
5.4
3.1
3.0
3.8
17.9
1.6
1.5
0.9
0.9
3.1
3.5
3.3
3.0
5.5
6.8
6.3
4.4
17.0
10.1
12.3
8.1
4.3
4.0
13.7
2.7
5.7
3.0
8.5
3.3
4.0
4.0
3.2
6.9
6.2
2.2
5.2
1.3
3.3
4.2
2.6
2.5
4.6
6.0
3.7
6.3
2.6
2.4
3.5
3.6
Area
(m2)
3,008
5,844
4,960
7,524
4,346
4,480
3,099
4,573
20,966
2,104
1,746
746
565
4,528
4,389
2,527
3,326
5,028
15,353
4,984
4,762
22,601
14,181
16,913
9,540
3,736
6,530
23,428
3,528
7,072
4,144
10,301
3,343
3,418
5,528
3,031
6,958
15,026
2,933
6,034
1,250
5,508
3,709
4,148
3,495
4,140
9,792
3,395
6,146
2,598
3,739
5,999
4,766
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
0.2
0.2
0.3
0.5
0.4
0.2
0.2
0.3
1.1
0.1
0.1
0.1
0.1
0.2
0.2
0.2
0.2
0.4
0.6
0.4
0.3
1.3
0.7
0.9
0.5
0.4
0.3
0.7
0.2
0.5
0.2
0.6
0.2
0.3
0.3
0.3
0.4
0.5
0.1
0.3
0.1
0.2
0.3
0.2
0.2
0.3
0.5
0.3
0.4
0.2
0.2
0.3
0.3
6.79%
7.23%
7.83%
8.46%
6.87%
6.78%
6.85%
6.52%
6.50%
7.23%
6.49%
7.62%
6.24%
6.28%
3.03%
4.79%
6.92%
5.75%
6.35%
5.95%
5.46%
6.78%
6.72%
6.56%
5.96%
6.71%
6.42%
4.24%
6.88%
7.50%
5.94%
6.38%
7.45%
5.98%
5.88%
7.99%
5.69%
8.66%
5.87%
5.79%
4.76%
6.02%
6.63%
5.31%
7.04%
5.00%
8.27%
6.18%
6.26%
6.10%
6.36%
7.22%
7.02%
1.7
1.8
1.0
2.9
1.6
2.3
1.4
3.2
1.9
3.0
2.0
1.6
3.2
2.7
1.1
1.6
1.9
2.2
2.1
2.6
2.1
3.5
5.4
2.7
2.8
2.1
3.7
4.4
2.4
2.9
0.9
4.0
1.5
2.7
1.2
0.9
2.0
2.3
2.3
1.6
1.5
2.3
4.5
2.1
3.1
2.0
3.2
1.1
4.3
6.3
2.0
2.1
2.2
9.7%
0.0%
2.2%
5.5%
0.0%
7.6%
17.3%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
18.0%
35.1%
17.5%
10.2%
4.4%
14.6%
0.0%
5.5%
6.3%
0.0%
14.7%
20.8%
13.8%
0.0%
36.0%
5.3%
0.0%
9.1%
0.0%
3.9%
0.0%
17.0%
7.4%
16.2%
4.1%
18.9%
11.8%
26.5%
10.1%
0.0%
0.0%
4.9%
25.3%
4.4%
6.1%
0.0%
0.0%
12.6%
0.0%
0.0%
100
53
41
58
61
92
52
66
58
59
57
60
103
99
46
41
79
65
74
36
86
55
57
54
60
55
42
33
56
65
48
61
75
87
46
93
64
36
47
60
54
42
80
56
56
75
56
84
70
67
54
45
59
Sector
Company
Property/Portfolio
Ownership
interest
%
Market value
31 March
2020
(£m)
Number of
Properties
UK
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Industrials UK LP
Rawdon Network Centre
Shire Court
Sherwood Network Centre
Caldene Business Centre
Imex Business Centre
Boaler Street Industrial Estate
Croft Business Park
Eurolink 31
Dana trading estate
Wharton Street industrial estate
Wainright Street industrial estate
Argyle Business centre
Cuckoo trade park
Sovereign business park
Poulton Close Business Centre
Rivermead Estate
Wholesale District Nottingham
Davey Close Trade Park
Redbrook Business Park
Lion Business Park
Greenway Business Park
Compass Industrial Park
Lea Green Business Park
Anniesland
Capital Business Park
Souterhead industrial estate
Venture Park
Coningsby Park
Globe Park
Stenprop Industrials 4 Ltd
Ellis Hill
Stenprop Industrials 4 Ltd
Greenwood Industrial Estate
Stenprop Industrials 4 Ltd
Kirkstall Industrial Estate
Stenprop Industrials 4 Ltd
Estuary Court
Stenprop Industrials 4 Ltd
Trinity Court
Stenprop Industrials 4 Ltd
Carnfield Place
Stenprop Industrials 4 Ltd
Lombard Centre
Stenprop Industrials 4 Ltd
Dunball Industrial Estate
Stenprop Industrials 4 Ltd
Gainsborough Trading Estate
Stenprop Industrials 4 Ltd
Deeside Industrial Park
Stenprop Industrials 4 Ltd
Hillfoot Industrial Estate
Stenprop Industrials 4 Ltd
Armthorpe Business Centre
Stenprop Industrials 4 Ltd
Trident Business Centre
Stenprop Industrials 4 Ltd
Forth Industrial Estate
Stenprop Industrials 4 Ltd
St Peter's Industrial Park
Stenprop Industrials 4 Ltd
Merryhills Enterprise Park
Stenprop Industrials 4 Ltd
Western Campus Business Park
Stenprop Industrials 4 Ltd
Brookfoot Business Park
Stenprop Industrials 4 Ltd
Clarendon Court
Stenprop Industrials 6 Ltd
Star Road Industrial Estate
Stenprop Industrials 6 Ltd
Albion Gateway
Stenprop Industrials 6 Ltd
Chasewater Heaths Business Pk
Stenprop Industrials 6 Ltd
Queensway Industrial Estate
Stenprop Industrials 6 Ltd
Tyburn Trading Estate
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
2.2
3.2
3.4
5.0
5.4
3.1
3.0
3.8
17.9
1.6
1.5
0.9
0.9
3.1
3.5
3.3
3.0
5.5
6.8
6.3
4.4
17.0
10.1
12.3
8.1
4.3
4.0
13.7
2.7
5.7
3.0
8.5
3.3
4.0
4.0
3.2
6.9
6.2
2.2
5.2
1.3
3.3
4.2
2.6
2.5
4.6
6.0
3.7
6.3
2.6
2.4
3.5
3.6
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
OTHER INFORMATION
Annualised
gross rental
income
(£m)
Net initial yield
31 March
2020
(%)
WAULT
(by rental)
(years)
Voids
(by area)
(%)
Rental
per m2
(£/m2)
0.2
0.2
0.3
0.5
0.4
0.2
0.2
0.3
1.1
0.1
0.1
0.1
0.1
0.2
0.2
0.2
0.2
0.4
0.6
0.4
0.3
1.3
0.7
0.9
0.5
0.4
0.3
0.7
0.2
0.5
0.2
0.6
0.2
0.3
0.3
0.3
0.4
0.5
0.1
0.3
0.1
0.2
0.3
0.2
0.2
0.3
0.5
0.3
0.4
0.2
0.2
0.3
0.3
6.79%
7.23%
7.83%
8.46%
6.87%
6.78%
6.85%
6.52%
6.50%
7.23%
6.49%
7.62%
6.24%
6.28%
3.03%
4.79%
6.92%
5.75%
6.35%
5.95%
5.46%
6.78%
6.72%
6.56%
5.96%
6.71%
6.42%
4.24%
6.88%
7.50%
5.94%
6.38%
7.45%
5.98%
5.88%
7.99%
5.69%
8.66%
5.87%
5.79%
4.76%
6.02%
6.63%
5.31%
7.04%
5.00%
8.27%
6.18%
6.26%
6.10%
6.36%
7.22%
7.02%
1.7
1.8
1.0
2.9
1.6
2.3
1.4
3.2
1.9
3.0
2.0
1.6
3.2
2.7
1.1
1.6
1.9
2.2
2.1
2.6
2.1
3.5
5.4
2.7
2.8
2.1
3.7
4.4
2.4
2.9
0.9
4.0
1.5
2.7
1.2
0.9
2.0
2.3
2.3
1.6
1.5
2.3
4.5
2.1
3.1
2.0
3.2
1.1
4.3
6.3
2.0
2.1
2.2
9.7%
0.0%
2.2%
5.5%
0.0%
7.6%
17.3%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
18.0%
35.1%
17.5%
10.2%
4.4%
14.6%
0.0%
5.5%
6.3%
0.0%
14.7%
20.8%
13.8%
0.0%
36.0%
5.3%
0.0%
9.1%
0.0%
3.9%
0.0%
17.0%
7.4%
16.2%
4.1%
18.9%
11.8%
26.5%
10.1%
0.0%
0.0%
4.9%
25.3%
4.4%
6.1%
0.0%
0.0%
12.6%
0.0%
0.0%
53
41
58
61
92
52
66
58
59
57
60
103
99
46
41
79
65
74
36
86
55
57
54
60
55
100
42
33
56
65
48
61
75
87
46
93
64
36
47
60
54
42
80
56
56
75
56
84
70
67
54
45
59
ANNUAL REPORT 2020 STENPROP
149
27385 17 June 2020 7:25 pm proof 1
Area
(m2)
3,008
5,844
4,960
7,524
4,346
4,480
3,099
4,573
20,966
2,104
1,746
746
565
4,528
4,389
2,527
3,326
5,028
15,353
4,984
4,762
22,601
14,181
16,913
9,540
3,736
6,530
23,428
3,528
7,072
4,144
10,301
3,343
3,418
5,528
3,031
6,958
15,026
2,933
6,034
1,250
5,508
3,709
4,148
3,495
4,140
9,792
3,395
6,146
2,598
3,739
5,999
4,766
OTHER INFORMATION
Consolidated Portfolio continued
Unaudited
Company
Stenprop Industrials 6 Ltd
Property/Portfolio
Windmill Road Industrial Estate
Stenprop Industrials 6 Ltd
Greenfield Business Pk (A-M)
Stenprop Industrials 6 Ltd
Tir Llwyd Industrial Estate
Stenprop Industrials 6 Ltd
Phoenix Close Ind Est
Stenprop Industrials 6 Ltd
Holbrook Enterprise Park
Stenprop Industrials 6 Ltd
Cleveland Trading Estate
Stenprop Industrials 6 Ltd
Venture Point
Stenprop Industrials 6 Ltd
Chapel Brook Trade Park
Stenprop Industrials 6 Ltd
Brasenose Road
Stenprop Industrials 6 Ltd
Stenprop Industrials 6 Ltd
Hanson Park
Jubilee Park
Stenprop Industrials 6 Ltd
Townley Park
Stenprop Industrials 6 Ltd
Larch Lea Industrial Estate
Stenprop Industrials 6 Ltd
Link at Huyton Business Pk
Stenprop Industrials 6 Ltd
Mountheath Trading Est
Stenprop Industrials 6 Ltd
Old Mill Industrial Estate
Stenprop Industrials 6 Ltd
Watery Lane
Sector
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
Total UK MLI
UK non-MLI
Industrial
GGP1 Limited (Guernsey)
Ashby de la Zouch
Office
Office
Industrial
Industrial
Office
GGP1 Limited (Guernsey)
Merthyr Tydfil
GGP1 Limited (Guernsey)
GGP1 Limited (Guernsey)
GGP1 Limited (Guernsey)
LPE Ltd (Guernsey)
Reading
Sheffield
Worcester
Trafalgar
Total UK non-MLI
Ownership
interest
%
100.00%
Market value
31 March
2020
(£m)
1.9
Number of
Properties
Annualised
Net initial yield
gross rental
31 March
income
(£m)
WAULT
(by rental)
(years)
Voids
(by area)
Rental
per m2
(£/m2)
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
4.6
3.7
2.9
3.9
1.3
3.0
6.0
3.1
0.9
0.8
2.1
2.2
4.3
3.9
4.8
0.8
309.0
70
420,483
22.7
5.8
1.4
8.2
3.0
3.0
57.4
78.8
Area
(m2)
2,724
11,929
6,321
3,909
5,208
2,765
4,195
7,875
7,909
938
1,421
3,029
4,309
8,080
3,431
9,444
1,208
4,718
3,739
2,803
6,860
3,714
10,565
32,399
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
6
2020
(%)
7.65%
4.53%
6.43%
5.95%
7.53%
7.07%
8.03%
6.11%
8.42%
7.06%
8.47%
7.36%
7.69%
7.37%
6.06%
7.26%
7.39%
6.47%
6.75%
9.07%
8.26%
7.70%
6.00%
7.05%
7.17%
0.2
0.4
0.3
0.2
0.3
0.1
0.3
0.4
0.3
0.1
0.1
0.2
0.2
0.3
0.3
0.4
0.1
0.4
0.1
0.7
0.3
0.2
4.3
6.0
2.1
3.8
2.5
2.6
2.5
1.8
1.3
2.0
2.8
1.4
0.6
2.0
1.5
2.9
1.1
1.2
1.1
2.6
2.2
1.3
2.0
0.3
0.2
7.1
5.5
(%)
0.0%
12.9%
16.5%
32.8%
0.0%
16.6%
3.8%
0.0%
3.1%
0.0%
0.0%
0.0%
0.0%
0.0%
7.3%
20.8%
0.0%
8.9%
0.0%
0.0%
0.0%
0.0%
0.0%
0.2%
0.1%
61
31
44
46
60
39
63
51
34
70
52
54
43
41
79
39
48
54
88
36
256
36
52
410
187
150
STENPROP ANNUAL REPORT 2020
27385 17 June 2020 7:25 pm proof 1
OTHER INFORMATION
Annualised
gross rental
income
(£m)
0.2
Net initial yield
31 March
2020
(%)
7.65%
WAULT
(by rental)
(years)
2.1
Voids
(by area)
(%)
0.0%
Rental
per m2
(£/m2)
61
Sector
Company
Property/Portfolio
Stenprop Industrials 6 Ltd
Windmill Road Industrial Estate
Stenprop Industrials 6 Ltd
Greenfield Business Pk (A-M)
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
MLI
Stenprop Industrials 6 Ltd
Tir Llwyd Industrial Estate
Stenprop Industrials 6 Ltd
Phoenix Close Ind Est
Stenprop Industrials 6 Ltd
Holbrook Enterprise Park
Stenprop Industrials 6 Ltd
Cleveland Trading Estate
Stenprop Industrials 6 Ltd
Venture Point
Stenprop Industrials 6 Ltd
Chapel Brook Trade Park
Stenprop Industrials 6 Ltd
Brasenose Road
Stenprop Industrials 6 Ltd
Stenprop Industrials 6 Ltd
Hanson Park
Jubilee Park
Stenprop Industrials 6 Ltd
Townley Park
Stenprop Industrials 6 Ltd
Larch Lea Industrial Estate
Stenprop Industrials 6 Ltd
Link at Huyton Business Pk
Stenprop Industrials 6 Ltd
Mountheath Trading Est
Stenprop Industrials 6 Ltd
Old Mill Industrial Estate
Stenprop Industrials 6 Ltd
Watery Lane
Total UK MLI
UK non-MLI
Office
Office
Industrial
Industrial
Office
Total UK non-MLI
Industrial
GGP1 Limited (Guernsey)
Ashby de la Zouch
GGP1 Limited (Guernsey)
Merthyr Tydfil
GGP1 Limited (Guernsey)
GGP1 Limited (Guernsey)
GGP1 Limited (Guernsey)
LPE Ltd (Guernsey)
Reading
Sheffield
Worcester
Trafalgar
Ownership
interest
Market value
31 March
2020
(£m)
%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
1.9
4.6
3.7
2.9
3.9
1.3
3.0
6.0
3.1
0.9
0.8
2.1
2.2
4.3
3.9
4.8
0.8
5.8
1.4
8.2
3.0
3.0
57.4
78.8
Number of
Properties
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
Area
(m2)
2,724
11,929
6,321
3,909
5,208
2,765
4,195
7,875
7,909
938
1,421
3,029
4,309
8,080
3,431
9,444
1,208
0.4
0.3
0.2
0.3
0.1
0.3
0.4
0.3
0.1
0.1
0.2
0.2
0.3
0.3
0.4
0.1
309.0
70
420,483
22.7
1
1
1
1
1
1
6
4,718
3,739
2,803
6,860
3,714
10,565
32,399
0.4
0.1
0.7
0.3
0.2
4.3
6.0
4.53%
6.43%
5.95%
7.53%
7.07%
8.03%
6.11%
8.42%
7.06%
8.47%
7.36%
7.69%
7.37%
6.06%
7.26%
7.39%
6.47%
6.75%
9.07%
8.26%
7.70%
6.00%
7.05%
7.17%
3.8
2.5
2.6
2.5
1.8
1.3
2.0
2.8
1.4
0.6
2.0
1.5
2.9
1.1
1.2
1.1
2.6
2.2
1.3
2.0
0.3
0.2
7.1
5.5
12.9%
16.5%
32.8%
0.0%
16.6%
3.8%
0.0%
3.1%
0.0%
0.0%
0.0%
0.0%
0.0%
7.3%
20.8%
0.0%
8.9%
0.0%
0.0%
0.0%
0.0%
0.0%
0.2%
0.1%
31
44
46
60
39
63
51
34
70
52
54
43
41
79
39
48
54
88
36
256
36
52
410
187
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OTHER INFORMATION
Assets Held for Sale
Unaudited
Sector
Company Property
Market
value
31 March
2020
(£m) Properties
Annualised
gross
rental
income
(£m)
Net initial
yield 31
March
2020
(%)
Area
(m2)
Ownership
interest
%
WAULT
(by
rental)
(years)
Voids
(by
area)
(%)
Rental
per m2
(£/m2)
Germany
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Ludwigsburg
100.00%
5.9
1 4,890
0.4
6.94%
9.3 0.0%
84
Frankfurt
100.00%
6.4
1 3,840
0.5
5.48%
12.1 0.0%
123
Marburg
100.00%
1.7
1 1,533
0.1
6.90%
7.7 0.0%
93
Sindelfingen
100.00%
7.7
1 4,700
0.5
6.18%
10.8 0.0%
115
Kassel
100.00%
1.4
1 1,768
0.1
5.93%
12.1 0.0%
58
Anarosa
Holdings
N.V
(Curacao)
Anarosa
Holdings
N.V
(Curacao)
Anarosa
Holdings
N.V
(Curacao)
Anarosa
Holdings
N.V
(Curacao)
Anarosa
Holdings
N.V
(Curacao)
Isabel
Properties
B.V
Stenprop
Hermann
Ltd
Stenprop
Victoria
Ltd
Neukoelln
Carree
Hermann
Quartier
Victoria
Centre
100.00%
20.9
1 13,364
1.3
5.18%
6.1 0.0%
95
100.00%
22.9
1 8,317
1.3
4.89%
4.7
2.5%
153
100.00%
27.9
1 13,710
1.5
4.27%
11.4
1.6%
111
Total Germany
94.8
8 52,122
5.7
5.10%
8.5 0.8%
110
Switzerland
Retail
Kantone
Holdings
Ltd
Total Switzerland
Total assets held for sale
Lugano
100.00%
14.3
1 5,974
1.0
5.81%
17.5 0.0%
174
14.3
109.1
1 5,974
9 58,096
1.0
6.7
5.81%
17.5 0.0%
174
5.19%
9.9
0.7%
117
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OTHER INFORMATION
Jointly Controlled Entities
Unaudited
Sector
Company Property
Market
value
31 March
2020
(£m) Properties
Annualised
gross
rental
income
(£m)
Area
(m2)
Net initial
yield 31
March
2020
(%)
Ownership
interest
%
WAULT
(by
rental)
(years)
Voids
(by
area)
(%)
Rental
per m2
(£/m2)
Germany
Nursing
Homes
Nursing
Homes
Nursing
Homes
Nursing
Homes
Elysion
S.a.r.l.
Elysion
S.a.r.l.
Elysion
S.a.r.l.
Elysion
S.a.r.l.
Braunschweig
100.00%
10.0
1
4,131
Dessau
100.00%
8.2
1
6,195
Kappeln
100.00%
12.4
1
5,225
Winzlar
100.00%
5.1
1
3,779
Total Germany
35.7
4 19,330
0.7
0.6
0.7
0.5
2.5
6.03%
8.0 0.0%
162
5.55%
6.3 0.0%
92
5.20%
13.8 0.0%
138
8.17%
8.0 0.0%
124
5.94%
9.3 0.0%
126
Tenant Analysis
Unaudited
Number of tenants
Country
UK
Germany
Switzerland
Total
Top 15 tenants
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Tenant
Northern Trust (Gsy) Ltd
Unipart Group Limited
BIKE & OUTDOOR COMPANY GmbH & Co.KG
Close Brothers Properties Guernsey Ltd
The Planet Wellness SA
Kappeln
Thames Water Utilities Ltd
Kaufland
Braunschweig
Dessau
Holmes Place Health Clubs
Winzlar
Siemens PLC
EDEKA MIHA-Immobilien-Service GmbH
Booker Ltd
Grand Total
Number of
tenants
Annual
rental
income (%)
908
56
1
965
75.8%
21.5%
2.7%
100.0%
Sum of
annualised rent
31 March 2020
(£)
Percentage
of total rent
(%)
WAULT
(years)
3,185,319
1,246,374
1,185,959
1,117,540
1,038,274
721,087
718,458
701,791
669,743
568,584
554,375
469,188
413,550
401,757
326,625
13,318,624
8.39%
3.28%
3.13%
2.94%
2.74%
1.90%
1.89%
1.85%
1.76%
1.50%
1.46%
1.24%
1.09%
1.06%
0.86%
35.09%
8.5
1.9
12.1
3.3
17.5
13.8
2.0
11.4
8.0
6.3
13.8
8.3
2.2
6.6
0.7
8.2
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OTHER INFORMATION
EPRA Key Performance Measures
Unaudited
The European Public Real Estate Association (‘EPRA’) issued the Best Practices Recommendations policy in October 2019, which
provides guidelines for performance measures relevant to real estate companies. Their recommended reporting standards are
widely applied across this market, aiming to bring consistency and transparency to published results in 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 provide an indication of the extent to
which current dividend payments are supported by earnings. The measure excludes unrealised changes in the value of investment
properties, gains or losses on the disposal of properties and other items to provide additional information on the Group’s
underlying operational performance. The measure is considered to accurately capture the long-term strategy of the Group, and is
an indication of the sustainability of dividend payments.
A summary of the Group’s Key performance indicators as recommended by EPRA is provided in the tables below for the years
ended 31 March 2020 and 31 March 2019:
Indicator
EPRA Earnings
Description
Dilutive adjusted earnings from operational activities
EPRA Earnings per share
Dilutive adjusted earnings per share from operational activities
EPRA Net Asset Value (NAV)
NAV adjusted to include properties and other investment
interests at fair value and to exclude certain items not expected
to be realised in a long-term investment property business model
EPRA Net Asset Value (NAV)
per share
Diluted EPRA NAV per share
EPRA Triple Net Asset Value
(NNNAV) per share
EPRA NAV adjusted to include the fair value of (i) financial
instruments, (ii) debt and (iii) deferred taxes
EPRA Net Initial Yield (NIY)
EPRA ‘topped up’ NIY
EPRA Occupancy Rate
Annualised rental income based on the cash rents passing at
the balance sheet date, less non-recoverable property operating
expenses, expressed as a percentage of the market value of
property
EPRA NIY adjusted for the expiration of rent-free periods (or
other unexpired lease incentives such as discounted rent periods
and stepped rents)
Estimated Market Rental Value (ERV) of occupied space divided
by ERV of the portfolio as a whole
EPRA Cost Ratio (including
direct vacancy costs)
Administrative and operating costs expressed as a percentage of
gross rental income
^ Excluding assets being re-positioned, Conningsby Estate, Peterborough.
31 March
2020
£19.7 million
31 March
2019
£25.2 million
6.88 pence
8.84 pence
£398.9 million £402.0 million
£1.39
£1.39
£1.41
£1.40
5.95%
5.67%
6.33%
5.79%
94.40%
96.00% ^
35.30%
31.80%
Accounting policies adopted in relation to the Group’s property portfolio are included in note 3 to the financial statements.
Valuation information is included in note 16 of the financial statements.
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Analysis of Shareholders
Unaudited
Shareholder Spread
1 - 1,000 shares
1,001 - 10,000 shares
10,001 - 100,000 shares
100,001 - 1,000,000 shares
1,000,001 shares and over
Total
Distribution of Shareholders
Retail
Mutual Funds
Investment Trusts
Directors
Treasury
Corporate
Pensions
Trading
Hedge
Insurance
REIT
Charities
Banks
Total
Public/Non-Public Shareholders
Non-Public Shareholders
Directors and Associates of the Company holdings
Treasury Stock
Public Shareholders
Total
OTHER INFORMATION
Number of
Shares
93,659
2,625,628
16,955,306
55,230,818
223,869,764
Percentage
0.03%
0.88%
5.67%
18.49%
74.93%
Number of
Shareholdings
Percentage
403
612
475
202
39
1,731
23.28%
35.36%
27.44%
11.67%
2.25%
100.00%
298,775,175
100.00%
Number of
Shareholdings
Percentage
Number of
Shares
1,597
92.24%
134,735,920
44
2
15
1
14
27
14
6
6
1
3
1
2.54%
0.12%
0.87%
0.06%
0.81%
1.56%
0.81%
0.35%
0.35%
0.06%
0.17%
0.06%
58,515,547
23,482,672
23,138,167
15,830,040
14,829,670
12,769,798
6,897,566
6,757,635
1,479,047
170,642
120,806
47,665
Percentage
45.09%
19.59%
7.86%
7.74%
5.30%
4.96%
4.27%
2.31%
2.26%
0.50%
0.06%
0.04%
0.02%
1,731
100.00%
298,775,175
100.00%
Number of
Shareholdings
Percentage
Number of
Shares
39,391,714
23,561,674
15,830,040
0.93%
0.87%
0.06%
99.07%
259,383,501
100.00%
298,775,175
Percentage
13.18%
7.89%
5.30%
86.82%
100.00%
16
15
1
1,715
1,731
Major shareholders
As at the financial year end there were 1,731 (2019: 1,833) shareholders in the Company. As at 31 March 2020, Thames River Capital
held a direct and indirect interest of 7.34% in the issued share capital of the Company and Zarclear Holdings Limited held a direct
and indirect interest of 6.77% in the issued share capital of the Company. The Company does not know of any other shareholder
which has a beneficial interest of greater than 5% of the Company’s issued share capital as at 31 March 2020.
ANNUAL REPORT 2020 STENPROP
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OTHER INFORMATION
Shareholder Diary
Financial year end
Annual report posted
Annual general meeting
Announcement of results
30 September 2020
31 March 2021
Dividends
2020 Interim
2021 Annual
Interim results
Annual results
Declared
November 2020
June 2021
31 March 2020
June 2020
September 2020
November 2020
June 2021
Paid
February 2021
August 2021
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Alternative Performance Measures
OTHER INFORMATION
At Stenprop management considers a number of Alternative Performance Measures (APMs) important to improve the transparency
and relevance of our published results, as well as the comparability of our results with other listed European real estate companies.
APMs are financial measures which are not specified under IFRS and are included to supplement the information contained in
the Group financial statements. These APMs include a number of European Public Real Estate Association (‘EPRA’) measures.
EPRA issued the Best Practices Recommendations policy in October 2019, which provides guidelines for alternative 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 table below identifies the APMs used in this Annual Report, the nearest IFRS measure where applicable, and a reference to
where in this Annual Report an explanation and / or reconciliation can be found.
APM
Cost of Debt
Nearest IFRS measure
N/A
Reference in document
Glossary
Diluted Adjusted EPRA earnings and
Diluted Adjusted EPRA earnings per
share (‘EPS’)
Debt maturity
Distribution per share
EPRA Net Asset Value (‘NAV’)
and EPRA NAV per share
EPRA Triple Net Asset Value
(NNNAV) per share
EPRA Net Initial Yield (NIY)
EPRA cost ratio
EPRA Occupancy Rate Estimated
Market Rental Value (ERV)
EPRA Cost Ratio (including
direct vacancy costs)
Free cash
IFRS Earnings and IFRS earnings per
share
Note 14, Glossary and page 22 of this
document
N/A
N/A
Net Assets
N/A
N/A
N/A
N/A
N/A
Glossary
Page 22 of this document
Note 15 of the financial statements and
page 22 of this document
Glossary and page 154 of this document
Glossary and page 154 of this document
Glossary and page 154 of this document
Glossary and page 154 of this document
Glossary and page 154 of this document
Cash and cash equivalents less restricted
cash and cash held for other purposes.
Glossary and Note 21 of the financial
statements
Headline earnings
IFRS Earnings
Interest cover
Loan-to-value
N/A
N/A
Glossary and Note 14 of the financial
statements
Glossary
Note 28 of the financial statements and
page 22 of this document
ANNUAL REPORT 2020 STENPROP
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OTHER INFORMATION
Glossary
Cost of debt
This represents the all-in interest rate after including the
reference rate, the margin and interest rate derivative, if
applicable. The Group weighted average cost of debt is the
all-in interest rate of the Group weighted by loan size.
Debt maturity
Measured in years, the debt maturity is calculated by comparing
the reference date (e.g. year-end) to the maturity date of the
debt referred to.
Diluted Adjusted EPRA Earnings
Utilises EPRA earnings and applies further company-specific
adjustments to earnings to exclude items considered not to be
in the ordinary course of business or other exceptional items
that do not necessarily provide an accurate picture of the
Group’s underlying operational performance.
Diluted Adjusted EPRA Earnings per share
Diluted adjusted earnings per share (based on the period
weighted average number of shares in issue, less treasury
shares).
EPRA
The European Public Real Estate Association.
EPRA Earnings
Earnings from operational activities. A key measure of the
company’s underlying operating results and an indication of the
extent to which current dividend payments are supported by
earnings.
EPRA Net Asset Value (NAV)
NAV adjusted to include properties and other investment interests
at fair value and to exclude certain items not expected to be
realised in a long-term investment property business model.
EPRA NAV per share
EPRA NAV divided by the number of shares in issue at the
period (less treasury shares).
EPRA Triple Net Asset Value (NNNAV) per share
EPRA NAV adjusted to include the fair value of (i) financial
instruments, (ii) debt and (iii) deferred taxes.
EPRA Net Initial Yield (NIY)
Annualised rental income based on the cash rents passing at
the balance sheet date, less non-recoverable property operating
expenses, expressed as a percentage of the market value of
property.
EPRA ‘topped up’ NIY
EPRA NIY adjusted for the expiration of rent-free periods
(or other unexpired lease incentives such as discounted rent
periods and stepped rents).
EPRA Occupancy Rate
Estimated Market Rental Value (ERV) of occupied space divided
by ERV of the portfolio as a whole.
EPRA Cost Ratio (including direct vacancy costs)
Administrative and operating costs expressed as a percentage
of gross rental income.
Estimated Rental Value (‘ERV’)
The external valuers’ opinion of the open market rent which,
on the date of valuation, could reasonably be expected to be
obtained on a new letting or rent review of a property.
Free cash
Available cash after deducting restricted cash and cash
held back for other purposes (significant tax liabilities and
committed operational expenditure) from cash and cash
equivalents.
158
STENPROP ANNUAL REPORT 2020
Group
Stenprop, the Company, its subsidiaries and its share of joint
ventures.
Headline earnings
A method of reporting corporate earnings, as required by the
JSE listings requirements. The measure is based entirely on
operational, trading, and capital investment activities achieved
during the period. Excluded from the headline earnings figure
are profits or losses associated with the sale or termination of
discontinued operations, fixed assets or related businesses, or
from any permanent devaluation or write-off of their values.
IFRS
International Financial Reporting Standards issued by the
International Accounting Standards Board.
Interest cover
Represents the number of times net interest payable is
covered by underlying rental income (or net rental income, as
appropriate).
LIBOR
London Interbank Offered Rate, the interest rate charged by
one bank to another for lending money.
Like-for-like basis
This represents the change in a measure (such as property
valuation) for reference data which applies throughout the
current and previous periods under review.
Loan-to-Value (LTV)
Ratio of gross debt to the aggregate value of properties.
Property Income Distribution (PID)
As a REIT, the Group is obliged to distribute 90% of its UK
property tax-exempt profits. PIDs are profits distributed to
shareholders which are subject to tax in the hands of the
shareholders as property income. PIDs are normally paid net
of withholding tax currently at 20% which the REIT pays to the
tax authorities on behalf of the shareholder. Certain types of
shareholder (e.g. pension funds) are tax exempt and receive
PIDs without deduction of withholding tax. REITs also pay out
normal dividends which are taxed in the same way as dividends
received from non REIT companies and are not subject to
withholding tax.
Real Estate Investment Trust (REIT)
REITs are property companies that allow people and
organisations to invest in commercial property and receive
benefits as if they directly owned the properties themselves.
The effect is that taxation is moved from the corporate level to
the investor level as investors are liable for tax as if they owned
the property directly. Stenprop became a REIT in May 2018.
Treasury shares
Shares repurchased by the Company, reducing the amount of
outstanding stock on the open market.
Total shareholder return
Growth in capital from purchasing a share in the Company
assuming that the dividends are reinvested each time they
are paid.
Voids
Unlet space as a percentage of area, including voids where
refurbishment work is being carried out unless specifically
mentioned.
WAULT
Weighted average unexpired lease term, indicating the average
remaining life of the leases within our portfolio.
27385 17 June 2020 7:25 pm proof 1
Corporate Information
Stenprop Limited
Registered in Guernsey
Registration number 64865
LSE share code: STP
JSE share code: STP
ISIN: GG00BFWMR296
United Kingdom
Postal address of the Company
180 Great Portland Street
London
W1W 5QZ
United Kingdom
Company secretary
Sarah Bellilchi
Broker and financial adviser
Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
London
EC4M 7LT
United Kingdom
Guernsey
Registered office of the Company
Stenprop Limited
(Registration number 64845)
Kingsway House
Havilland Street
St Peter Port
GY1 2QE
Guernsey
Guernsey registrars
Computershare Investor Services
(Guernsey) Limited
1st Floor
Tudor House
Le Bordage
St Peter Port
GY1 1DB
Guernsey
Correspondence address
2nd Floor
Queensway House
Hilgrove Street
St. Helier
JE1 1ES
Jersey
Channel Islands
Independent Auditor
Deloitte LLP
Regency Court
Glategny Esplanade
St Peter Port
GY1 3HW
Guernsey
Channel Islands
South Africa
JSE sponsor
Java Capital Trustees and Sponsors
Proprietary Limited
(Registration number 2006/005780/07)
6A Sandown Valley Crescent Sandown
Sandton, 2196
South Africa
(PO Box 522606, Saxonwold, 2132)
South African corporate advisor
Java Capital Proprietary Limited
(Registration number 2012/089864/07)
6A Sandown Valley Crescent
Sandown
Sandton, 2196
South Africa
(PO Box 522606, Saxonwold, 2132)
SA transfer secretaries
Computershare Investor Services
Proprietary Limited
(Registration number 2004/003647/07)
Rosebank Towers
15 Biermann Avenue
Rosebank
Johannesburg, 2196
South Africa
(PO Box 61051 Marshalltown, 2107)
JSE Accredited Auditor
Deloitte SA
Deloitte Place
The Woodlands
20 Woodland Drive
Woodmead, 2157
Johannesburg
South Africa
27385 17 June 2020 7:25 pm proof 1
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2
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STENPROP.COM
Stenprop Limited
3rd floor
180 Great Portland St
London
W1W 5QZ
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