TIDMSREI
RNS Number : 1925T
Schroder Real Estate Inv Trst Ld
23 November 2021
For release 23 November 2021
Schroder Real Estate Investment Trust Limited
("SREIT"/ the "Company" / "Group")
INTERIM RESULTS FOR THE SIX MONTHSED 30 SEPTEMBER 2021
INCREASED PORTFOLIO ALIGNMENT TO HIGH GROWTH SECTORS AND ACTIVE
ASSET MANAGEMENT UNDERPINNING NAV, EARNINGS AND DIVID GROWTH
Schroder Real Estate Investment Trust, the actively managed UK
focussed REIT, today announces its interim results for the six
months ended 30 September 2021.
Key financial highlights
-- 9.0% increase in Net Asset Value ('NAV') to GBP323.4 million
or 65.8 pps (31 March 2021: GBP296.8 million or 60.4 pps)
-- Net asset value ('NAV') total return of 11.3%
-- EPRA earnings of GBP8.3 million (30 September 2020: GBP5.1
million), reflecting improving rent collection and a reduction in
bad debt provisions, as well as the impact of recent acquisitions
and active management
-- IFRS profit of GBP33.2 million (30 September 2020: GBP-8.8 million)
-- Underlying portfolio total return of 8.9% vs. the MSCI Benchmark Index at 7.7%
-- Loan to Value ('LTV'), net of all cash, of 30.7%, within the
long-term strategic range of 25% to 35%
-- Dividends paid during the period totalled GBP6.5 million, or
1.33 pps, an increase of 8% over the period, with a further 7.5%
increase announced for the quarter to 30 September 2021, to be paid
in December
-- Dividend cover of 127% based on EPRA earnings
-- Reduction in the Investment Manager's fees to generate an
annualised saving of approximately GBP650,000 per annum, effective
from 1 July 2021
Key operational highlights
-- Robust rent collection rate of 92% during the period, rising
to 98% for the quarter to December 2021
-- Including post period activity, 50 new lettings, renewals and
reviews completed, generating an additional GBP800,000 per annum of
rental income
-- Portfolio vacancy of 4.9%, close to historic low
-- Post period acquisition of four asset industrial portfolio in
the north west of England for GBP19.85 million, reflecting a net
initial yield of 6.9% and increasing the industrial portfolio
weighting to 44%
-- Including the post period end industrial portfolio
acquisition, 86% of the portfolio weighted to the industrial,
office and retail warehouse sectors (31 March 2021: 85%)
ESG achievements
-- GRESB score improved from 71 to 75, with three-star rating
retained in the 2021 GRESB sustainability survey
-- EPRA Best Practice Sustainability Reporting Gold Award for the fourth consecutive year
-- Post period end planning permission secured for first
north-west Net Zero Carbon warehouse development
Lorraine Baldry, Chairman of the Board, commented:
" The outlook for the UK real estate market is positive, with
economic growth expected to continue, coupled with a supportive
interest rate environment. Whilst we expect ongoing divergence in
returns across the real estate market, with the industrial sector
continuing to outperform over the short to medium term, the
polarisation experienced over recent years is expected to narrow as
more employees are encouraged to return to offices and sentiment
continues to improve towards more resilient parts of the retail
sector. Our diversified portfolio, and exposure to Winning Cities
and Regions, means we are well positioned to benefit from these
trends."
Nick Montgomery, Fund Manager, added:
"Good progress has been achieved over the period in delivering
the strategy against the backdrop of improving market conditions,
with the outcome being healthy growth in the NAV, sustained
outperformance of the underlying portfolio and further increases in
the level of dividend."
"Whilst the focus is on growing net income and dividends, we are
also investing in existing assets to maximise returns and ensure
the portfolio remains resilient in response to structural changes
and evolving occupier trends. A key part of this is evolving our
approach to delivering operational excellence for occupiers as well
as demonstrating continued improvements in sustainability
performance."
A webcast presentation for analysts and investors will be hosted
today at 09.00 am. In order to join, please visit:
https://us02web.zoom.us/j/82830292832?pwd=RjJHVnZNQjJsdVVIRlVtd1hFMFZWZz09
Meeting ID: 828 3029 2832
Passcode: 382838
For further information:
Schroder Real Estate Investment Management
Limited:
Nick Montgomery / Matthew Riley 020 7658 6000
FTI Consulting:
Dido Laurimore / Richard Gotla / Ollie
Parsons 020 3727 1000
--------------
________________________________________________________________________________________________________________________________________________________
Interim Report and Condensed Consolidated Financial
Statements
For the period 1 April 2021 to 30 September 2021
About Us
Schroder Real Estate Investment Trust Limited aims to provide
shareholders with an attractive level of income together with the
potential for income and capital growth through investing in UK
commercial property.
Company Summary
Schroder Real Estate Investment Trust Limited (the 'Company' and
together with its subsidiaries the 'Group') is a real estate
investment company with a premium listing on the Official List of
the Financial Conduct Authority and whose shares are traded on the
Main Market of the London Stock Exchange (ticker: SREI).
The Company is a Real Estate Investment Trust ('REIT') and
benefits from the various tax advantages offered by the UK REIT
regime. The Company continues to be declared as an authorised
closed-ended investment scheme by the Guernsey Financial Services
Commission under section 8 of the Protection of Investors
(Bailiwick of Guernsey) Law, 2020, as amended and the Authorised
Closed-ended Investment Schemes Rules 2021.
Objective
The Company aims to provide shareholders with an attractive
level of income and the potential for income and capital growth as
a result of its investments in, and active management of, a
diversified portfolio of UK commercial real estate.
The portfolio is principally invested in the three main UK
commercial real estate sectors of industrial, office and retail,
and may also invest in other sectors including mixed-use,
residential, hotels, healthcare and leisure. The Company believes
that a diversified portfolio by location, sector, size and tenant
will outperform specialist strategies over the long term. Over the
duration of the property market cycle, the portfolio aims to
generate an above average income return with a diverse spread of
lease expiries.
The Board has established a gearing guideline for the Investment
Manager, which seeks to target debt, net of cash, at a level
reflecting a loan to value of between 25% to 35%. This relatively
low level of gearing is used to enhance income and total returns
for shareholders with the level dependent on the property cycle and
the outlook for future returns.
The dividend policy adopted by the Board is to pay a sustainable
level of quarterly dividends to shareholders. The Board keeps the
dividend policy under active review with a view to ensuring the
Company can deliver a sustainable level of cover whilst having due
regard to current and anticipated future market conditions. It is
intended that the successful execution of the Company's strategy
will enable a progressive dividend policy.
Investment strategy
The Company's strategy is to own and actively manage a
diversified portfolio of properties located in the UK's Winning
Cities and Regions. These locations are benefitting from higher
economic growth resulting from structural changes such as
urbanisation, rapid changes and growth of technology, changing
demographics and social as well as positive impact themes. These
locations have diversified local economies, sustainable
occupational demand and favourable supply and demand
characteristics. These properties offer good long-term fundamentals
in terms of location, specification and sustainability performance,
and are let at affordable rents, with the potential for income and
capital growth due to good stock selection and asset management. We
aim to grow income and enhance shareholder returns through good
stock selection, active management and operational excellence.
Highlights
-- NAV asset value ("NAV") total return of 11.3% (2) for the six
months to 30 September 2021 (30 September 2020: -2.2%)
-- Sustained outperformance of the real estate portfolio with a
total return of 8.9% over the period versus the MSCI Benchmark
Index of 7.7%
-- Active asset management strategy, with 50 new lettings,
renewals and reviews since 1 April 2021 which generated GBP2.4
million per annum of rental income and increased contracted rental
income by GBP800,000 per annum
-- 87% of the portfolio located in Winning Cities and Regions [i]
-- 86% of the portfolio weighted to the industrial, office and
retail warehouse sectors following post period end activity
-- Loan to Value[ii] ('LTV'), net of cash, of 30.7%, increasing
to 33.9% following post period end activity
Performance Summary
Property performance
30 September 30 September 31 March
2021 2020 2021
----------------------------------- ------------- ------------- ----------
Value of property assets and GBP464.0m GBP397.8m GBP438.8m
joint venture assets
Annualised rental income GBP28.0m GBP24.9m GBP28.3m
Estimated open market rental GBP31.8m GBP29.4m GBP31.2m
value
Underlying portfolio total return 8.9% -0.3% 4.6%
MSCI benchmark total return 7.7% -1.3% 1.8%
Underlying portfolio income
return 3.2% 3.2% 6.5%
MSCI Benchmark income return 2.1% 2.1% 4.4%
----------------------------------- ------------- ------------- ----------
Financial summary
Six months Six months Year to
to 30 September to 30 September 31 March
2021 2020 2021
-------------------------------- ------------------ ----------------- -----------
Net asset value ("NAV") GBP323.4m GBP296.8m GBP296.8m
NAV per ordinary share 65.8p 58.0p 60.4p
EPRA Net Tangible Assets [iii] GBP323.4m GBP296.8m GBP296.8m
Profit/(loss) for the period GBP33.2m (GBP8.8m) GBP4.5m
EPRA earnings [iv] GBP8.3m GBP5.1m GBP11.6m
-------------------------------- ------------------ ----------------- -----------
Capital values
30 September 30 September 31 March
2021 2020 2021
Share price 49.2p 32.3p 39.9p
Share price discount to NAV
(4) (25.2%) (44.3%) (33.9%)
NAV total return (4) 11.3% (2.2%) 3.9%
FTSE All-Share Index 4,058.96 3,282.25 3,831.05
----------------------------- ------------- ------------- ---------
Earnings and dividends
Six months Six months Year to
to 30 September to 30 September 31 March
2021 2020 2021
IFRS earnings (pps) 6.8 (1.7) 0.9
EPRA earnings (4) (pps) 1.7 1.0 2.3
Dividends paid (pps) 1.33 0.39 1.59
Annualised dividend yield on
30 September/31 March share price
(3) 5.4% 2.4% 4.0%
------------------------------------- ----- ----------------- -----------
Bank borrowings
30 September 30 September 31 March
2021 2020 2021
---------------------------------- ------------- ------------- ----------
On-balance sheet borrowings [v] GBP154.1m GBP182.1m GBP154.1m
Loan to Value ratio ("LTV"), net
of all cash [vi] 30.7% 25.9% 32.3%
---------------------------------- ------------- ------------- ----------
Ongoing charges
Six months Six months Year to
to to 30 Sept 31 March
30 Sept 2020 2021
2021
Ongoing charges (including fund
and property expenses) (6) 2.3% 2.5% 2.5%
Ongoing charges (including fund
only expenses) (6) 1.3% 1.3% 1.4%
--------------------------------- ----------- ------------ ------------
Chairman's Statement
Good progress delivering strategic objectives with improving
shareholder returns and a positive outlook.
Overview
The UK economy has experienced a strong recovery over the
interim period to 30 September 2021, with UK Gross Domestic Product
('GDP') growth of 7% expected for calendar 2021. The easing of
pandemic restrictions has led to a surge in household consumption
driven by pent-up demand and excess savings, as well as improved
business sentiment. These factors, together with extraordinary
levels of government and central bank support, have raised asset
values and led to a sharp increase in activity levels across real
estate occupier and investment markets.
This economic recovery, combined with a high level of activity
at a portfolio level, has underpinned a 9% increase in the net
asset value ('NAV') over the period to GBP323.4 million, or 65.8
pence per share ('pps'). Improving rent collection rates enabled
the Company to increase dividends paid to 1.3 pps, resulting in a
NAV total return of 11.3%. This compared favourably to a NAV total
return over the financial year to 31 March 2021 of 3.9%.
The underlying portfolio continues to deliver strong performance
compared with its peer group, with a total return of 8.9% compared
with the MSCI Benchmark Index (the 'Benchmark') of 7.7% for the
period. This was driven by a high portfolio industrial weighting,
which has increased to 44% following a post period end industrial
portfolio acquisition, a recovery in retail warehouse values and a
higher income return of 3.2% versus the Benchmark at 2.1%. The
portfolio is now ranked on the 9(th) percentile of the Index since
launch in 2004.
The portfolio's sustainability performance also continues to
improve, reflected in an improved 2021 GRESB survey score.
Demonstrating further improvement in the 2022 GRESB survey,
alongside other sustainability-related activity, is a key strategic
objective for both the Board and Manager.
Strategy
The strategy continues to focus on delivering sustainable income
growth and improving the quality of the underlying portfolio though
active management and capital investment, with a particular focus
on delivering operational excellence and sustainability
improvements.
Good progress has been made, with EPRA earnings of GBP8.3
million over the six-month period comparing with GBP11.6 million
over the previous financial year. This was mainly due to improved
rent collection rates that are now approaching pre-pandemic levels,
and a reduction in bad debts as tenants repay historic arrears.
This earnings growth enabled dividends to be increased over the
period to GBP6.5 million, reflecting dividend cover of 127% based
on EPRA earnings.
Reflecting our asset management capabilities and the portfolio's
reversionary potential, 41 leasing transactions completed during
the period. This led to a stable void rate of 5.1%, which is close
to the historic low and reflects the quality and positive sector
weightings of the underlying portfolio.
The positive activity continued post period end, with a high
volume of ongoing leasing activity and planning consent granted for
an 80,000 sq ft warehouse scheme in Stanley Green, Greater
Manchester, which will be the first operational net zero warehouse
in the region.
Finally, post period end the Company acquired a higher-yielding
industrial portfolio for GBP19.9 million. This acquisition and
other activity has supported a further 7.5% increase in the level
of the next quarterly dividend
Sustainability
The Board and Investment Manager believe that focusing on
environmental, social and governance ('ESG') considerations
throughout the real estate lifecycle will deliver enhanced
long-term returns for shareholders as well as a positive impact to
the environment and the communities where the Company is investing.
Alongside an improved GRESB score, the period saw increased capital
investment to improve buildings' sustainability performance as well
as ongoing asset level net zero analysis.
As set out in the year end results, the Board and Manager have
agreed updated objectives relating to the portfolio's environmental
and social characteristics, as well as in demonstrating good
governance. These will be based upon the principles contained
within the EU Sustainable Finance Disclosure Regulations, or
'SFDR', which requires complying companies to report on the extent
to which climate and other sustainability risks are considered part
of their investment consideration. The FCA is consulting on a
similar regime for the UK and we would expect to align with this as
part of developing our overall approach to demonstrating leadership
in ESG. The Manager's report comments on progress against these
objectives and a detailed assessment against the performance
measures will be included in the Annual Report and Consolidated
Accounts to 31 March 2022.
Share buybacks
In September 2020 the Company announced a share buyback
programme due to the prevailing share price offering attractive
value for shareholders. During the period the Company acquired
338,340 shares at an average price of 40.3 pence per share,
bringing the total number of shares acquired since September 2020
to 27.4 million or GBP9.7 million. The share buyback programme has
enhanced NAV and dividends per share, and contributed to an
improvement in the share price rating. We will review the potential
for further buybacks in the future, depending on movements in the
share price and alternative uses for the Company's investment
capacity.
Dividend
As noted above, due to improving rent collection rates and
portfolio activity, the quarterly dividend increased over the
period from 0.625 pps to 0.675 pps, resulting in total dividends
paid of GBP6.5 million. This reflected dividend cover of 127% based
on both EPRA earnings and on a cash basis. The Company has today
announced a further 7.5% increase in the dividend to 0.726 pps, to
be paid to shareholders in December 2021.
Debt
The Company has two loan facilities, a GBP129.6 million term
loan with Canada Life and a GBP52.5 million revolving credit
facility ('RCF') with Royal Bank of Scotland International
('RBSI'), of which GBP24.5 million was drawn at 30 September 2021.
These facilities provide a low all-in average cost of debt of 2.4%
and a blend of maturities in 2023, 2032 and 2039, reducing
refinancing risk. In addition to the properties secured against the
Canada Life and RBSI loan facilities, as at 30 September 2021 the
Company had unencumbered property with a value of GBP39.4 million,
and cash of GBP11.5[vii] million.
As noted above, since the period end the Company has acquired an
industrial portfolio for GBP19.9 million, which will be funded by
drawing a further GBP21.2 million on the RCF, increasing the total
amount drawn to GBP45.7 million. Following this acquisition, and
based on period end cash of GBP11.5(7) million, the Company's Loan
to Value ratio, net of cash, is 33.9%. This is within the long term
strategic range of 25% to 35% and the Company continues to have
significant headroom on all debt covenants.
Board succession
Having joined the Board in January 2014, in line with best
practice I intend to retire as Chairman of the Company at the end
of July 2022. Following a comprehensive succession planning process
led by my fellow independent non-executive directors, Stephen Bligh
and Graham Basham, I am pleased to confirm that Alastair Hughes,
the current Senior Independent Director of the Company, will be
appointed as Chairman with effect from 31 July 2022.
In anticipation of the appointment of Alastair Hughes as
Chairman, a third party organisation has been appointed to conduct
a search to identify a replacement Senior Independent Director of
the Company.
The Investment Manager
On 2 June 2021, the Company announced a change to the Manager's
fees which resulted in a saving of GBP162,000 over the financial
period, and an annualised saving of approximately GBP650,000. The
revised fee reflects 0.9% of net asset value per annum, with
tiering providing scope for a further ad valorem fee reduction with
growth of the Company. The fee includes investment management,
asset management and accounting services and there is no
performance fee.
The Board is pleased with the performance of the management team
over the period and is confident that they have the necessary
skills and resources to deliver on the future strategy.
On 1 October 2021, the Company separately announced the
Manager's appointment as company secretary at a fixed fee of
GBP50,000 per annum, replacing Northern Trust.
Outlook
The outlook for the UK real estate market is positive, with
economic growth expected to continue, coupled with a supportive
interest rate environment. Whilst we expect ongoing divergence in
returns across the real estate market, with the industrial sector
continuing to outperform over the short to medium term, the
polarisation experienced over recent years is expected to narrow as
more employees are encouraged to return to offices and sentiment
continues to improve towards more resilient parts of the retail
sector. Our diversified portfolio, and exposure to Winning Cities
and Regions, means we are well positioned to benefit from these
trends.
Whilst the outlook is positive, the UK recovery will need to
absorb the gradual winding down of government support, and rising
Covid-19 case rates over the winter could move the government to
redeploy social distancing measures. Supply shortages and rising
inflation have also created near-term headwinds that could weigh on
activity in the coming months. Whilst this could be disruptive to
the recovery, low interest rates and an abundance of capital
seeking higher-yielding assets should support demand for good
quality real estate.
Lorraine Baldry
Chairman
Schroder Real Estate Investment Trust Limited
22 November 2021
Investment Manager's Report
Growth in net income, ESG focus and sustained outperformance of
the underlying portfolio
The Company's Net Asset Value ('NAV') as at 30 September 2021
was GBP323.4 million, or 65.8 pence per share ('pps'), which
compared with GBP296.8 million, or 60.4 pps, as at 31 March 2021.
This reflected an increase over the interim period of 5.4 pps, or
9%, with the underlying movement in the NAV per share set out in
the table below:
GBPm pps
----------------------------------------------------------- ------ ------
NAV as at 31 March 2021 296.8 60.4
----------------------------------------------------------- ------ ------
Unrealised change in the valuations of the direct real
estate portfolio and Joint Ventures 25.2 5.1
----------------------------------------------------------- ------ ------
Capital expenditure (direct portfolio and share of
Joint Ventures) (0.7) (0.1)
----------------------------------------------------------- ------ ------
Net revenue 8.3 1.7
----------------------------------------------------------- ------ ------
Dividends paid (6.5) (1.3)
----------------------------------------------------------- ------ ------
Others 0.4 Nil
----------------------------------------------------------- ------ ------
NAV as at 30 September 2021 (excluding the share buyback) 323.5 65.8
----------------------------------------------------------- ------ ------
Share buyback (0.1) -
----------------------------------------------------------- ------ ------
NAV as at 30 September 2021 323.4 65.8
----------------------------------------------------------- ------ ------
The underlying portfolio, including joint ventures but excluding
capital expenditure, increased in value by 5.7% over the six month
period to September 2021. Adjusting for capital expenditure, the
net capital value increase was 5.5%. The total return from the
underlying portfolio, including rental income, was 8.9% which
compared with the MSCI Benchmark (the 'Benchmark'), on a
like-for-like basis, of 7.7%. This compares with a total return for
the underlying portfolio for the full year to 31 March 2021 of
4.6%, which compared with the Benchmark of 1.7%.
Net revenue for the period totalled GBP8.3 million, or 1.7 pps,
an increase of GBP3.2 million on the corresponding six month period
to 30 September 2020 of GBP5.1 million. This increase has been
driven by improved rental collection rates, the industrial
acquisitions made in December 2020 and active asset management.
During the period, dividends totalling GBP6.5 million were paid and
338,340 shares were repurchased at an average discount of 33%
compared with the NAV at the start of the period. These factors,
together with a general recovery in the UK real estate market,
contributed to a NAV total return of 11.3% over the period.
Strategy
The strategic objectives are to:
- Deliver a progressive dividend policy together with attractive
and sustainable NAV total returns;
- Maintain the long-term track record of outperformance of the underlying portfolio;
- Increase exposure to larger assets with strong fundamentals in higher growth locations;
- Actively manage the Company and its assets to maximise shareholder returns;
- Ensure ESG considerations are fully integrated and relevant to the strategy;
- Evolve the Company's active asset management approach to
include a hospitality mindset and operational excellence; and
- Maintain a strong balance sheet with a loan to value within
the long term target range of 25% to 35%.
The following progress has been made delivering against these
objectives:
- 28% increase in underlying earnings over the six month period,
supporting an 8% increase in the quarterly dividend paid between
the December and June periods. Higher rent collection rates,
portfolio activity and post period end acquisitions have supported
a further 7.5% increase in the dividend relating to the quarter to
30 September 2021, to be paid in December 2021;
- Continued outperformance of the underlying portfolio, with a
total return of 8.9% compared with the Benchmark of 7.7%. This
outperformance was supported by a higher income return of 3.2% over
the period compared with the Benchmark of 2.1%. The underlying
portfolio has now outperformed over one, three, five, ten years and
since the Company's IPO in 2004;
- Outperformance driven by active asset management with 50 new
lettings, rent reviews and renewals completed since the start of
the period totalling GBP2.4 million in annualised rental income,
generating GBP800,000 per annum of additional rent above the
previous level;
- Continued investment to deliver operational excellence in
larger assets offering higher returns, with progress on key
initiatives such as the 'Elevate' flexible office concept at City
Tower in Manchester, planning consent secured for an operational
net zero warehouse development at Stanley Green Trading Estate and
leasing activity at St, John's Retail Park in Bedford;
- Positive movement in portfolio sector weightings which,
following post period end activity, reflect 44% exposure to largely
multi-let estates (Benchmark 31%), retail warehousing of 11%
(Benchmark 9.0%) and good quality offices principally located in
Winning Cities such as in London, Manchester and Edinburgh of 31%
(Benchmark 26.1%);
- Enhanced ESG performance across the portfolio including an
improvement in the 2021 GRESB score, further reductions in energy
consumption, buildings improvements and occupier satisfaction
initiatives; and
- Consolidated net Loan to Value of 30.7% at the period end,
increasing to 33.9% following post period end activity. Average
interest rate of 2.4% with a weighted loan term of 12.5 years at
the period end.
Real estate market overview
The UK real estate market has experienced a strong recovery over
the period due to the easing of pandemic restrictions and the
resultant improvement in consumer and business sentiment. This led
to average capital values for UK commercial real estate increasing
by 5.3% over the period which compared with a 3.5% decline over the
year to 31 March 2021. Although Government measures protecting
tenants for non-payment of rent remain in place, income collection
rates are returning to pre-pandemic levels across industrial and
office assets with improving levels across more resilient parts of
the retail and leisure market. The positive market momentum should
continue with average total returns for calendar 2021 expected to
be approximately 15%.
Following post period end activity the Company's exposure to the
industrial sector is 44%, an increase from 30% 12 months ago and
comparing favourably with the Benchmark of 31%. As expected, the
industrial sector delivered the strongest returns over the period,
with average values increasing by 13.3%, the highest six month
increase recorded for the sector. Strong investor demand has driven
average industrial income yields down to 3.8%, which compares with
the average income yield for UK real estate of 4.4%. Whilst we
expect the tailwinds driving occupational demand to continue, the
rate of capital growth is expected to slow as on-line sales growth
slows and new development activity increases. This has led the
Company to focus on higher yielding, multi-let industrial assets,
where new supply is more restricted and where value can be added
through active management. This approach resulted in the Company's
industrial portfolio producing a total return of 15.7% over the
period (Benchmark 15.4%), supported by a higher income return of
2.8% (Benchmark 1.9%) and rental value growth of 4.2% (Benchmark
3.5%).
Following post period end activity the Company's exposure to the
retail sector, including where retail is ancillary to the main use,
reduced to 18.9% compared with the Benchmark of 22.3%. A key change
over the period has been improved sentiment towards the retail
warehouse sector, with average capital values increasing by 7.5%.
This compared with capital values for the retail sector as a whole
rising by 2.6%, dragged down by shopping centres and secondary high
street assets. This is due to the retail warehouse sector
complementing multi-channel retail strategies such as
click-and-collect and home delivery, combined with increased demand
from food and homeware occupiers. The Company is benefiting from
this recovery due to 77% of single use retail exposure being
invested in retail warehousing. To illustrate, positive leasing
activity at St. John's Retail Park in Bedford, the Company's
largest retail asset, resulted in a capital value increase of 10.9%
(Benchmark 5.5%) over the period which compared with -8.6%
(Benchmark -2.5%) over the 12 month period to 31 March 2021.
Following post period end activity, the Company's exposure to
the office sector is 31% compared with the Benchmark of 26.1%.
Uncertainty as office tenants reassess their requirements weighed
on the sector with average capital values rising by 0.8% over the
period. Whilst this led to take-up over the first half of 2021
being 49% below the pre-pandemic average, vacancy rates have
stabilised in Central London and prime office rents in Leeds,
Manchester and the West End are increasing. This reflects a
polarisation with healthy demand for well specified offices in city
centres and close to leading universities, which enable companies
to attract highly qualified staff. In contrast, more secondary
offices, particularly in out of town locations, are vulnerable to
weakening demand, functional obsolescence and rising refurbishment
costs.
Alongside a focus on office accommodation offering strong
sustainability credentials, occupiers increasingly require higher
service levels and greater levels of flexibility. We are therefore
evolving our active management approach to a hospitality mindset
and are offering tenants greater levels of flexibility and service
levels. This approach to operational excellence is best illustrated
at City Tower in Manchester, where our 'Elevate' flexible working
concept is capturing post-pandemic demand and delivering materially
higher net rents.
Real estate portfolio
As at 30 September 2021 the portfolio comprised 39 properties
valued at GBP464.0 million, excluding lease incentives, increasing
to 43 assets and GBP483.9 million following the post period end
industrial portfolio acquisition. This includes the Company's share
of joint venture properties at City Tower in Manchester and the
University of Law in Bloomsbury, London.
Following the post period end acquisitions, the portfolio
generates rental income of GBP30.2 million per annum, reflecting a
net initial income yield of 5.8%, which compares with the MSCI
Benchmark (the 'Benchmark') of 4.3%. The portfolio also benefits
from fixed contractual annual rental uplifts of GBP1.5 million over
the next 24 months. The independent valuers' estimate that the
current rental value of the portfolio is GBP33.5 million per annum,
reflecting a reversionary income yield of 6.9%, which compares
favourably with the Benchmark at 4.9%. The Company's void rate is
approximately 5%, calculated as a percentage of estimated rental
value, with a weighted average lease length, calculated to the
earlier of lease expiry or break, of 5.2 years.
The data tables below summarise the portfolio information as at
30 September 2021, including the post period end acquisitions. The
weightings and property values presented within the tables below
combine period end valuations as determined by the Property Valuers
as at 30 September 2021, with transactional information for the
post period end industrial portfolio acquisition as detailed in the
'Industrial portfolio acquisition' section on page 15 of the 2021
Interim Report and Condensed Consolidated Financial Statements.
Weighting (% of portfolio post period end acquisitions)
--------------------------------- ----------------------------------------------------------
Sector weightings by value SREIT Benchmark
--------------------------------- --------------------- -----------------------------------
South East 11.3 19.5
--------------------------------- --------------------- -----------------------------------
Industrial Rest of UK 32.5 11.5
--------------------------------- --------------------- -----------------------------------
Industrial 43.8 31.0
--------------------------------- --------------------- -----------------------------------
City 0.0 3.6
--------------------------------- --------------------- -----------------------------------
Mid-town and West End 8.1 7.5
--------------------------------- --------------------- -----------------------------------
Rest of South East 5.4 7.9
--------------------------------- --------------------- -----------------------------------
Office Rest of UK 17.4 7.2
--------------------------------- --------------------- -----------------------------------
Offices 30.9 26.1
--------------------------------- --------------------- -----------------------------------
Retail warehouse 11.1 9.0
--------------------------------- --------------------- -----------------------------------
South East 0.8 6.9
--------------------------------- --------------------- -----------------------------------
Rest of UK 7.0 3.8
--------------------------------- --------------------- -----------------------------------
Shopping centres 0.0 2.6
--------------------------------- --------------------- -----------------------------------
Retail 7.8 13.3
- Retail ancillary to main use 4.5 -
- Retail single use 3.3 -
--------------------------------- --------------------- -----------------------------------
Other 6.4 20.6
--------------------------------- --------------------- -----------------------------------
Weighting (% of portfolio post period end acquisitions)
------------------------------------- ----------------------------------------------------------
Regional weightings by value SREIT Benchmark
------------------------------------- ------------------------------- -------------------------
Central London [viii] 8.1 19.4
------------------------------------- ------------------------------- -------------------------
South East excluding Central London 19.3 31.9
------------------------------------- ------------------------------- -------------------------
Rest of South 10.2 13.8
------------------------------------- ------------------------------- -------------------------
Midlands and Wales 23.2 11.9
------------------------------------- ------------------------------- -------------------------
North 36.7 13.0
------------------------------------- ------------------------------- -------------------------
Scotland 2.4 4.1
------------------------------------- ------------------------------- -------------------------
Northern Ireland 0.0 0.2
------------------------------------- ------------------------------- -------------------------
The top ten properties, including post period end acquisitions
and the share of the joint venture properties at City Tower in
Manchester and Store Street in Bloomsbury, are set out below and
comprise 65% of the portfolio value:
Top ten properties Value (GBPm) (% of portfolio
post period
end acquisitions)
---------------------------------------------- ------------- -------------------
Milton Keynes, Stacey Bushes Industrial
1 Estate 50.5 10.4
--- ----------------------------------------- ------------- -------------------
2 Leeds, Millshaw Industrial Estate 47.7 9.9
--- ----------------------------------------- ------------- -------------------
3 Manchester, City Tower (25% share) 40.3 8.3
--- ----------------------------------------- ------------- -------------------
London, The University of Law (50%
4 share) 39.4 8.1
--- ----------------------------------------- ------------- -------------------
5 Bedford, St John's Retail Park 29.5 6.1
--- ----------------------------------------- ------------- -------------------
6 Leeds, Headingley Central 23.9 4.9
--- ----------------------------------------- ------------- -------------------
Chippenham, Langley Park Industrial
7 Estate 22.8 4.7
--- ----------------------------------------- ------------- -------------------
8 Norwich, Union Park Industrial Estate 22.5 4.6
--- ----------------------------------------- ------------- -------------------
9 Cheadle, Stanley Green Trading Estate 20.3 4.2
--- ----------------------------------------- ------------- -------------------
10 Uxbridge, 106 Oxford Road 15.4 3.2
--- ----------------------------------------- ------------- -------------------
Total as at 30 September 2021 (including
post period end industrial portfolio
acquisition) 312.3 64.4
--- ----------------------------------------- ------------- -------------------
The Company's income is diverse with 308 tenants of which the
Company's largest and top ten tenants represent 6.5% and 25.6% of
the portfolio as a percentage of annual rent:
Top ten tenants Rent p.a. (GBPm) (% of portfolio
post period
end acquisitions)
----------------------------------------------- ----------------- -------------------
1 University of Law Limited 2.00 6.5
--- ------------------------------------------ ----------------- -------------------
2 Buckinghamshire New University 1.15 3.7
--- ------------------------------------------ ----------------- -------------------
3 Siemens Mobility Limited 0.97 3.1
--- ------------------------------------------ ----------------- -------------------
4 The Secretary of State 0.88 2.8
--- ------------------------------------------ ----------------- -------------------
5 Matalan Retail Limited 0.57 1.9
--- ------------------------------------------ ----------------- -------------------
6 Express Bi Folding Doors Limited 0.54 1.8
--- ------------------------------------------ ----------------- -------------------
7 TJX UK Limited T/A Homesense 0.51 1.6
--- ------------------------------------------ ----------------- -------------------
8 Jupiter Hotels Limited T/A Mercure 0.46 1.5
--- ------------------------------------------ ----------------- -------------------
9 Premier Inn Hotels Limited 0.42 1.4
--- ------------------------------------------ ----------------- -------------------
10 Lidl 0.42 1.3
--- ------------------------------------------ ----------------- -------------------
Total as at 30 September 2021 (including
the post period end industrial portfolio
acquisition) 7.92 25.6
--- ------------------------------------------ ----------------- -------------------
The diverse and granular underlying rental income, and a high
level of occupier engagement, has supported improving rent
collection rates with 98% of the contracted rents collected for the
quarter to 31 December 2021. The breakdown between sectors is 99%
of office rent collected, 97% of industrial rent collected and 95%
of retail, leisure and other rent collected. The Company remains in
active dialogue with its tenants for historic arrears which
currently total GBP2.3 million, of which GBP850,000 is categorised
as bad debt.
Portfolio performance
As noted above, the underlying portfolio continues to outperform
the MSCI Benchmark. The table below shows performance to 30
September 2021:
SREIT total return MSCI Benchmark total return Relative
------------ -------------------------------- ----------------------------------- ---------------------------------
Period to Six One Three Since Six One Three Since IPO Six One Three Since
30 months year years IPO months year years (% p.a.) months year years IPO
September (%) (%) (% [ix] (%) (%) (% (%) (%) (% (% p.a.)
2021 p.a.) (% p.a.) p.a.)
p.a.)
------------ ------- ------ ------ ------- ------- ------ ------ ---------- ------- ----- ------ ---------
Office +2.6 +4.6 +4.8 +7.7 +3.1 +3.0 +2.7 +7.1 -0.5 +1.6 +2.1 +0.6
------------ ------- ------ ------ ------- ------- ------ ------ ---------- ------- ----- ------ ---------
Industrial +15.7 +29.4 +15.3 +10.5 +15.4 +28.9 +13.5 +9.6 +0.3 +0.3 +1.5 +0.8
------------ ------- ------ ------ ------- ------- ------ ------ ---------- ------- ----- ------ ---------
Retail +6.8 +7.9 -3.3 +4.1 +5.8 +4.4 -4.4 +3.4 +1.0 +3.3 +1.1 +0.7
------------ ------- ------ ------ ------- ------- ------ ------ ---------- ------- ----- ------ ---------
Other +17.6 +13.6 -0.9 +2.9 +4.4 +5.6 +3.3 +7.3 +12.7 +7.6 -4.0 -4.2
------------ ------- ------ ------ ------- ------- ------ ------ ---------- ------- ----- ------ ---------
All sectors +8.9 +14.3 +6.0 +7.5 +7.7 +11.1 +3.6 +6.3 +1.1 +2.9 +2.4 +1.1
------------ ------- ------ ------ ------- ------- ------ ------ ---------- ------- ----- ------ ---------
Transactions and asset management
Below are examples of acquisitions and ongoing active management
initiatives that should support continued outperformance of the
underlying portfolio.
Industrial portfolio acquisition
Post period end acquisition of a portfolio of four industrial
assets in the north west of England. The purchase price of GBP19.85
million reflects a net initial yield of 6.9% and a capital value of
GBP53 per sq ft.
Valley Road Industrial Estate, Birkenhead
Unconditional contracts have been exchanged to acquire Valley
Road Industrial Estate in Birkenhead, for GBP11.4 million,
reflecting a net initial yield of 6.8%, a reversionary yield of
7.8% and a low average capital value of GBP60 per sq ft. The 10
acre estate comprises 190,000 sq ft of warehouse space and
ancillary offices across 15 units, of which approximately 40% by
Estimated Rental Value ('ERV') have been recently refurbished.
The estate is located close to Junction 1 of the M53 and
features a manned secure access, low site cover and good
circulation. With an EPC rating of C, it offers the opportunity to
improve sustainability credentials through initiatives including
upgrades to LED lighting, installation of PIR sensors and
improvements to insulation.
The estate is let to seven tenants generating a combined rent of
GBP830,000 per annum, reflecting a low average rent of GBP4.36 per
sq ft. This compares with an ERV of GBP950,000 per annum, or
GBP4.99 per sq ft. Tenants include KPFF Limited, a frozen food
distribution production company, at GBP300,000 per annum or 36% of
total income; Balfour Beatty, an international infrastructure
company, at GBP247,200 per annum or 29% of total income; and Park
Retail, a gift and voucher distribution company, at GBP85,910 per
annum or 10% of total income. The weighted average unexpired lease
term is 4.3 years to earliest termination and approximately 10% of
the estate is vacant, where the refurbishment has just been
completed and where there is a 12 months rental guarantee. The
majority of this space has good tenant interest.
Coral Products, Haydock Industrial Estate, Haydock
Acquisition of a 98,551 sq ft manufacturing and recycling
facility on Haydock Industrial Estate, which is leased to Coral
Product (Mouldings) Limited ("Coral"). The purchase price of GBP4.9
million reflects a net initial yield of 6.6% and a low capital
value of GBP49 per sq ft. Coral, who were recently acquired by a
subsidiary of the Canada-based IPL Plastics Group, occupy the
entire site on a lease expiring in January 2031, with a tenant
break in 2026, at a rent of GBP340,000 per annum or GBP3.45 per sq
ft. This compares with an ERV of GBP394,000 per annum or GBP4.00
per sq ft. The asset is well located with direct access to the A580
(East Lancashire Road) and in turn the M6 motorway.
The unit benefits from a new roof across the majority of the
building. The tenant is understood to be committed to the site due
to recent investment and the recycling licence, but there may be
potential to acquire adjoining sites and pursue a longer term
redevelopment strategy.
Newfield Fabrications, Sandbach, Cheshire
Acquisition of two assets let to Newfield Fabrications
("Newfield"), a steel fabricating business established in 1965, for
a combined GBP3.6 million, which reflects a net initial yield of
7.4% and a low capital value of GBP42 per sq ft. Both assets are in
an established industrial area in Sandbach, Cheshire, approximately
three miles from junction 17 of the M6.
The first asset comprises a 77,880 sq ft manufacturing and
distribution facility on a 4.1 acre site, let on a 13.9 year term
at a rent of GBP247,000 per annum, or GBP3.17 per sq ft. The lease
benefits from five yearly rent reviews linked to the retail price
index ("RPI"), subject to a minimum increase of 2% per annum and a
cap of 4% per annum. The facility has an EPC rating of C and
features photo-voltaic panels.
The second asset comprises an 8,000 sq ft industrial unit with
main road frontage, also let for 13.9 years at a rent of GBP36,000
per annum, or GBP4.50 per sq ft. The lease also benefits from five
yearly rent reviews linked to the RPI, subject to a minimum
increase of 2% per annum and a cap of 4% per annum. The property
has an EPC rating of C.
Cheadle, Stanley Green Trading Estate (Industrial)
Asset strategy
Stanley Green Trading Estate in Cheadle, Greater Manchester was
acquired in December 2020 for GBP17.3 million. The strategy for
2021 was to crystallise higher rents on the trading estate and
secure planning consent for an 80,000 sq ft, Net Zero Carbon
("NZC") scheme, on the adjoining 3.4 acre site.
Asset overview and performance
Stanley Green Trading Estate comprises 150,000 sq ft of trade
counter, self-storage and warehouse accommodation with an adjoining
development 3.4 acre site. As at 30 September 2021, the asset was
valued at GBP20.3 million reflecting a net initial income yield of
4.3% and a reversionary yield of 5.0% (5.5% and 6.3% respectively
excluding the value attributable to the non-income producing
development site). Over the period the asset delivered a total
return of 15.5%.
Key activity
- Stockport Metropolitan Borough Council's planning committee
unanimously resolved to grant planning permission for 80,000 sq ft
of operational Net Zero Carbon ("NZC") accommodation on the
development site on 30 September 2021. The Company will now
progress the development of 11 warehouse and trade units at a cost
of approximately GBP8 million which is scheduled to complete in Q4
2022. The target rental value income to be generated is GBP950,000
per annum or GBP11.86 per sq ft, with pre-lets targeted during the
construction phase.
- At the existing trading estate, a five year lease renewal
completed with Factory Kitchens for a 2,859 sq ft unit at a rent of
GBP40,026 per annum, or GBP14.00 per sq ft. This compares with the
previous rent of GBP8.75 per sq ft and represents an uplift of
GBP15,010 per annum, or 60.0%. This compares with the average rent
across the trading estate of GBP6.32 per sq ft.
- Negotiations are progressing with a number of occupiers to
regear their leases across the trading estate which should support
continued income growth.
Chippenham, Langley Park Industrial Estate (Industrial)
Asset strategy
Langley Park Trading Estate in Chippenham was acquired in
December 2020 for GBP19.3 million. The strategy for 2021 was to
drive net income growth through a key lease renewal with Littlefuse
(19.6% income on acquisition) and a rent review with Siemens (53.4%
income on acquisition) to increase the rental income, WAULT and
quality of accommodation across the estate.
Asset overview and performance
Langley Park Industrial Estate is a multi-let industrial estate
comprising 400,000 sq ft of warehouse and ancillary office
accommodation on a large site of 28 acres located close to
Chippenham town centre. As at 30 September 2021, the asset was
valued at GBP22.8 million reflecting a net initial income yield of
6.9% and a reversionary yield of 7.6%. Over the period the asset
delivered a total return of 18.9%.
Key activity
- Negotiations ongoing with Littlefuse to extend their lease
term from December 2022 for ten years.
- Negotiations continuing with Siemens on the outstanding June
2021 rent review with the objective of agreeing a new longer
lease.
- Given the positive discussions with occupiers who have
expressed an interest in additional accommodation, a masterplan has
been prepared that could see up to 130,000 sq ft of additional
warehouse accommodation built at the site. A pre planning
application has been submitted in relation to this proposal.
Bedford, St. John's Retail Park (Retail Warehouse)
Asset strategy
The strategy for 2021 was to let the vacant units, improve
retailer mix and retain tenants by negotiating new longer term
leases.
Asset overview and performance
St. John's Retail Park comprises a 130,000 sq ft retail
warehouse scheme underpinned by income from covenants including
Lidl, Home Bargains, TK Maxx and Costa with an average lease term,
to the earlier of lease expiry of break, of seven years. The asset
benefits from an affluent catchment and has good parking. As at 30
September 2021, the asset was valued at GBP29.5 million reflecting
a net initial income yield of 6.2% and a reversionary yield of
6.0%. Over the period the asset delivered a total return of
14.3%.
Key activity
- Lidl and Home Bargains have reported strong trading figures
since opening in late 2020. Both retailers have traded throughout
the pandemic and driven high volumes of footfall, supporting the
attraction of new occupiers and the retention of existing
occupiers.
- Following the completion of these lettings and the resultant
boost in footfall, a vacant 9,919 sq ft unit has been let to
Bensons for Beds at GBP130,000 per annum, or GBP13.00 per sq ft.
This is in line with the ERV as at 30 March 2021, with the tenant
receiving 15 months' incentive.
- Further activity over the interim period included a five year
lease renewal completed with Carpetright for a 9,970 sq ft unit at
a rent of GBP150,000 per annum, or GBP15.00 per sq ft, with regear
discussions ongoing with Tapi, Hobbycraft and Halfords.
- The remaining vacant unit at St. John's Retail Park is under
offer at a rental level above the ERV as at 30 September 2021.
Manchester, City Tower (Mixed-Use Office, statistics below
reflect SREIT 25% Share)
Asset strategy
The office strategy for 2021 was to lease vacant office space
through conventional lettings as well as through the 'Elevate'
flexible working concept. The strategy for the retail, leisure and
hotel space was to improve tenant mix and explore mutually
beneficial regears. There is also a rolling refurbishment strategy
ongoing to ensure the building captures occupier demand and
delivers improved sustainability performance.
Asset overview and performance
City Tower comprises 610,000 sq ft of office, retail, leisure
and hotel accommodation located on a three acre island site in a
core location. As at 30 September 2021, the asset was valued at
GBP40.3 million reflecting a net initial income yield of 5.8% and a
reversionary yield of 6.9%. Over the period the asset delivered a
total return of 3.2%.
Key activity
- The first phase of the Elevate flexible working concept has
completed, including delivery of a 28(th) floor tenant lounge which
includes an event space and three shared meeting rooms. 89% of the
completed Elevate office suites are now let or under offer on terms
ahead of the asset business plan.
- A new five year lease has exchanged with Oodle Financial
Services Limited, an existing tenant, for an additional 9,181 sq ft
unit at a gross office rent (including service charge and fit-out
rent) of GBP103,286 per annum, or GBP45.00 per sq ft. As part of
this lease agreement the Company will undertake refurbishment works
to deliver the suite in line with the Elevate fit out. The net
office rent (excluding service charge and fit-out rent) equates to
GBP63,647 per annum, or GBP27.73 per sq ft. This compares with the
previous passing rent of GBP22.50 per sq ft, reflecting a net
uplift of 23.2%.
- A new five year lease has also completed with MAPP, an
existing tenant, following surrender of their existing unit, for
2,647 sq ft at a gross office rent (including service charge and
fit-out rent) of GBP29,117 per annum, or GBP44.00 per sq ft. This
unit was refurbished as part of the first phase of the Elevate
concept. The net office rent (excluding service charge and fit-out
rent) equates to GBP16,656 per annum, or GBP25.17 per sq ft. This
letting was 17.1% ahead of the 30 June 2021 ERV. Further lettings
at City Tower are expected to complete shortly.
- The 12(th) , 13(th) and 20(th) floor space leased to the
previous management workspace operator has been surrendered and a
phased refurbishment will be carried out and launched as additional
Elevate flexible space.
- Good progress is being made letting the ground floor leisure
and retail space. Namii has taken a lease for ten years on the
2,973 sq ft sq ft unit. The rent payable is the higher of base rent
or 2.5% of gross turnover capped at GBP25,000 per annum. The base
rent is set at the higher of GBP10,000 per annum or 75% of the
turnover rent in year one, reviewed annually. The tenant will
receive 12 months' rent free plus 16 months' half rent.
Additionally, a new ten year lease has completed for a ground floor
retail/leisure unit with Min Kee, an Asian grab-and-go operator,
for a 1,002 sq ft unit at a rent of GBP14,375 per annum, or
GBP57.39 per sq ft. This compares with the previous passing rent of
GBP39.82 per sq ft and represents an uplift of GBP4,400 per annum
or 44.1%. The letting was 36.9% ahead of the ERV as at 30 March
2021. The tenant will receive three months' rent free.
Responsible investing with impact
Sustainability and responsible investment are integral to the
Company's investment process. We believe that understanding,
managing and measuring the impact of Environmental, Social and
Governance ('ESG') considerations, will deliver enhanced long-term
returns for shareholders and positively impact the environment and
the communities where the Company is investing.
In November 2020, the Company issued a Sustainability Guide
which sets out how sustainability considerations, risks and
opportunities are integrated within the investment process. This
was followed in December 2020 by Schroders as manager publishing
its own 'Pathway to Net Zero Carbon' by 2050. The Company will
publish its own Net Zero Carbon pathway by the end of the current
financial year.
Continued progress has been made during the period with the
Company improving its GRESB score from 71 to 75 (out of 100), and
retaining its three star rating in the GRESB sustainability survey.
The Company also achieved a GRESB Public Disclosure A Rating for
the second consecutive year and the EPRA Best Practice
Sustainability Reporting Gold Award for the fourth consecutive
year.
At the end of March 2021, the Board and Manager agreed updated
sustainability objectives for the Company including details of how
performance will be monitored. The below table comments on progress
against these objectives and a full assessment against the
performance measures will be given in the financial year report and
accounts to 31 March 2022.
Objective Management Strategy Interim Progress
--------------- --------------------------------------------- --------------------------------------------
Governance The Manager's process includes
and Oversight oversight on sustainability by We continue to incorporate sustainability
its Investment Committee and Group considerations into the investment
Investment Risk Committee. process including acquisition
The Board reviews the objectives proposals, annual asset business
and progress of the sustainability plans and annual Fund strategy
programme at least annually. statements. The Investment Committee
This includes maintaining good continues to review each of these
health & safety and managing compliance steps and sustainability risks
with regulations. are to be included as part of
Q3 2021 reporting to the Group
Investment Risk Committee.
The external Property Managers
continue to ensure asset level
operational, environmental, health
and safety compliance is maintained
and reports are made to the Manager.
--------------- --------------------------------------------- --------------------------------------------
Net Zero Determine portfolio alignment Impact and Sustainability Action
Carbon with NZC and Paris Agreement to Plans (ISAPs) completed for all
('NZC') limit climate change to 1.5C. managed assets where the Company
Asset analysis to determine energy/carbon retains operational control. The
targets and offsetting. ISAPs feed into the asset and
Determine new energy and carbon Company Net Zero Carbon (NZC)
targets to 2022, 2025 and 2030 pathway. Development of this pathway
through Impact and Sustainability is underway to be published in
Action Plans (ISAPs) for buildings the current financial year alongside
to assess understanding of improvement new energy and carbon targets
and opportunities and Net Zero for the Company.
analysis to enable target setting.
Improve collaboration with occupiers
to support whole building performance.
Assess 'whole life carbon' on
major projects. Use Schroders
Refurbishment and Development
brief on projects to set and manage
ambitions. Use NABERS UK Design
for Performance to support improved
operational in-use outcomes.
Procure 100% landlord-controlled
electricity on certified green
tariffs by 2022 (December 2020
at 97%).
Assess potential for onsite renewable
energy generation.
Purchase independently verified
offsets that align with best practice
industry guidance. Reduce the
use of offsets to zero over appropriate
time frame.
--------------- --------------------------------------------- --------------------------------------------
Third Party GRESB - Continue to target opportunities The Company achieved a Three Star
Verification to improve the GRESB score year rating in the 2021 GRESB sustainability
on year. assessment with a score of 75
Data Assurance - Continue to obtain (out of 100). The Company also
third party assurance of sustainability achieved a GRESB Public Disclosure
data in line with the independent 'A' Rating for the second consecutive
assurance process. year.
Asset Certification - Obtain third The Company achieved the EPRA
party certification to validate Best Practice Sustainability Reporting
Net Zero Carbon or related energy/carbon Gold Award for the fourth consecutive
efficiency claims or health and year.
wellbeing.
EPRA Reporting - Maintain EPRA
Gold Sustainability Best Practice
Reporting Award.
SDG alignment - Integrate into
annual reporting for 2022 by mapping
social and environmental contributions
to the Schroder Real Estate Investment
Management Limited ('SREIM') Pillars
of Impact and UN SDGs and set
targets for improvement.
--------------- --------------------------------------------- --------------------------------------------
Climate Determine a climate risk profile, Transition Risk: We are assessing
Risk and adaptation strategy and reporting all managed assets against Paris
TCFD in line with TCFD through asset Aligned 1.5degC carbon and energy
and portfolio scenario analysis. intensity performance benchmarks,
to the year 2050 using the Carbon
Risk Real Estate Monitor ('CRREM')
tool.
Physical Risk: We licence a proprietary
physical risk database through
a third-party provider. The tool
assesses vulnerability to physical
risk hazards, including those
related to climate change.
--------------- --------------------------------------------- --------------------------------------------
Operational Set standards for operational We continue to develop the approach
excellence excellence for managed assets to operational excellence for
incorporating the hospitality all managed assets.
mindset in our strategy at each In January 2021, we commissioned
asset. an occupier satisfaction survey
Improve BREEAM In-Use ('BIU') across the portfolio's tenant
certification across the portfolio base to better understand occupier
to support improvement across requirements. As part of this
nine aspects: Management, Health project, we have worked alongside
and Wellbeing, Energy, Transport, the external Property Managers
Water Resources, Resilience, Land to develop an action plan to improve
Use and Ecology and Pollution. the relationship with occupiers.
Improve the EPC profile of the We have continued to explore opportunities
portfolio through asset management to improve asset level sustainability
including refurbishment. Potential performance and, through applying
to adopt NABERS Energy for Offices the ISAP process, has identified
which rates base building actual improvements which it is working
energy efficiency. with the Property Managers to
Assess the approach to monitor implement. This includes rolling
indoor environment quality (IEQ) out of Automatic Meter Reading
and set new standard. ("AMR") devices across landlord
Promote and facilitate our occupiers' utility supplies, enhancement
use of bicycles, buses and electric to biodiversity (for example,
vehicles as transport methods native landscaping and bird boxes)
to our assets. and improvements to sustainable
Minimise water demand in line transport facilities (for example,
with best practice industry benchmarks. electric vehicle charging points,
Provide dedicated space for waste/recycling cycle storage and shower and changing
segregation and storage. facilities).
Integrate biophilic design into
assets.
--------------- --------------------------------------------- --------------------------------------------
Finance
The Company has two loan facilities, a GBP129.6 million term
loan with Canada Life and a GBP52.5 million revolving credit
facility ('RCF') with Royal Bank of Scotland International
('RBSI'), of which GBP24.5 million was drawn at 30 September 2021.
In addition to the properties secured against the Canada Life and
RBSI loan facilities, the Company has unsecured properties with a
value of GBP39.4 million and cash of GBP11.5 ([x]) million. This
resulted in a Loan to Value ratio, net of cash, of 30.7%.
Since the period end the Company has acquired three industrial
assets for GBP19.9 million, which will be funded by drawing a
further GBP21.2 million on the RCF, increasing the total amount
drawn to GBP45.7 million. Following these acquisitions, and based
on current cash of GBP11.5(10) million, the Company's Loan to Value
ratio, net of cash, is 33.9%, which is within the long term
strategic range of 25% to 35%. The Company continues to have
significant headroom on all debt covenants.
GBP129.6 million term loan with Canada Life
The loan is fully compliant with all covenants as summarised
below:
Lender Loan Maturity Total Asset Loan to Value ('LTV') ratio[xi] LTV Interest ICR Projected Projected
(GBPm) Interest Value (%) ratio cover ratio Interest ICR ratio
rate (%) (GBPm) covenant ratio covenant cover covenant
(%) ('ICR') (%) ratio (%)
(%) (%)[xiii]
[xii]
----------------------- ------- ---------------- ---------- ------- -------------------------------- --------- --------- --------- ---------- ----------
Canada Life Term Loan 129.6 50%: 15/10/2032 2.5 [xiv] 290.8 44.6 65 563 185 441 185
50%: (44.6 net of cash in facility)
15/10/2039
----------------------- ------- ---------------- ---------- ------- -------------------------------- --------- --------- --------- ---------- ----------
The Company has significant headroom with LTV and ICR covenants
summarised below:
-- Net LTV on the secured assets against this loan is 44.6%. On
this basis the properties charged to Canada Life could fall in
value by 31% prior to the 65% LTV covenant being breached;
-- The interest cover ratio is 563% based on actual net rents
for the quarter to September 2021. A 67% fall in net income could
be sustained prior to the loan covenant of 185% being breached;
and
-- After utilising available cash and uncharged properties, the
valuation and actual net rents could fall by 45% and 76%
respectively prior to either the LTV or interest cover ratio
covenants being breached.
GBP52.5 million revolving credit facility ("RCF") with RBSI
At 30 September 2021, GBP24.5 million of the GBP52.5 million RCF
was drawn. The loan is fully compliant with its covenants as
summarised below:
Lender Loan/ Maturity Total Asset Loan to LTV Interest ICR Projected Projected
amount Interest Value Value ratio cover ratio Interest ICR ratio
drawn rate (%) (GBPm) ('LTV') covenant ratio covenant cover covenant
(GBPm) ratio (%) ('ICR') (%) ratio (%) (%)
[xv] (%) [xvii]
(%) [xvi]
-------- --------- ------------ ---------- ------- -------- --------- --------- --------- ---------- ----------
52.5
[xviii]
RBS RCF / 24.5 03/07/2023 1.7 [xix] 133.8 18.3 65 [xx] 1153 250 1,079 250
-------- --------- ------------ ---------- ------- -------- --------- --------- --------- ---------- ----------
The RBSI loan has an interest rate cap for GBP32.5 million and
comes into effect if GBP 3 month SONIA reaches 1.5%. The Company
has significant headroom within its LTV and ICR covenants which are
summarised below assuming loan security is granted over the three
industrial assets:
-- Net LTV on the secured assets against this loan is 18.3%. On
this basis the properties charged to RBSI could fall in value by
88% prior to the 65% LTV covenant being breached, although while
the Company is holding the balance drawn in cash, no breach of the
LTV covenant would occur; and
-- The interest cover ratio is 1,153% based on actual net rents.
A 78% fall in net income could be sustained prior to the loan
covenant of 250% being breached.
-- As noted above, post period end the Company will draw down a
further GBP21.2 million on the RCF, increasing the total amount
drawn to GBP45.7 million. Charging these assets to the RBS RCF
facility will have the following impact on the loan and its
covenants:
Lender Loan/ Maturity Total Asset Loan to LTV Interest ICR Projected Projected
amount Interest Value Value ratio cover ratio Interest ICR ratio
drawn rate (%) (GBPm) ('LTV') covenant ratio covenant cover covenant
(GBPm) ratio (%) ('ICR') (%) ratio (%) (%)
[xxi] (%) [xxiii]
(%) [xxii]
-------- -------- ------------ ----------- ------- -------- --------- --------- --------- ---------- ----------
52.5
[xxiv] 65
RBS RCF / 45.7 03/07/2023 1.7 [xxv] 153.7 29.7 [xxvi] 1015 250 962 250
-------- -------- ------------- ---------- ------- -------- --------- --------- --------- ---------- ----------
Given the increase in the RCF and the maturity in July 2023,
consideration is being given to refinancing options which may
include an increase in the RCF capacity.
Outlook
Good progress has been achieved over the period in delivering
the strategy against the backdrop of improving market conditions,
with the outcome being healthy NAV growth, sustained outperformance
of the underlying portfolio and further increases in the level of
dividend.
Whilst the focus is on growing net income and dividends, we are
also investing in existing assets to maximise returns and ensure
the portfolio remains resilient in response to structural changes
and evolving occupier trends. A key part of this is evolving our
approach to delivering operational excellence for occupiers as well
as demonstrating continued improvements in sustainability
performance.
Whilst we are alert to the risks of an increase in Covid-19 case
rates over the winter, and the possibility of more persistent
inflation leading to higher interest rates, the momentum in the
broader economy and high yield offered by the real estate sector
means we are positive about the outlook for the Company.
Nick Montgomery
Fund Manager
22 November 2021
Responsibility Statement of the Directors in respect of the
Interim Report
We confirm that to the best of our knowledge:
-- the condensed set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting; and
-- the interim management report (comprising the Chairman's and
the Investment Manager's report) includes a fair review of the
information required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency
Rules, being an indication of important events that have occurred
during the first six months of the financial year and their impact
on the condensed set of financial statements; and a description of
the principal risks and uncertainties for the remaining six months
of the year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency
Rules, being related party transactions that have taken place in
the first six months of the current financial year and that have
materially affected the financial position or performance of the
entity during that period; and any changes in the related party
transactions described in the last annual report that could do
so.
We are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's
website, and for the preparation and dissemination of financial
statements. Legislation in Guernsey governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
By order of the Board
Lorraine Baldry
Chairman
22 November 2021
Independent Review Report to Schroder Real Estate Investment
Trust Limited
Conclusion
We have been engaged by Schroder Real Estate Investment Trust
Limited (the "Company") and its subsidiaries (together the "Group")
to review the Condensed Consolidated Financial Statements in the
Interim Report and Consolidated Financial Statements for the six
months ended 30 September 2021 which comprises the Unaudited
Condensed Consolidated Statement of Comprehensive Income, Unaudited
Condensed Consolidated Statement of Financial Position, Condensed
Consolidated Statement of Changes in Equity, Condensed Consolidated
Statement of Cash Flows, and the related Notes 1 to 16. We have
read the other information contained in the Interim Report and
Consolidated Financial Statements and considered whether it
contains any apparent misstatements or material inconsistencies
with the information in the Condensed Consolidated Financial
Statements.
Based on our review, nothing has come to our attention that
causes us to believe that the Condensed Consolidated Financial
Statements for the six months ended 30 September 2021 are not
prepared, in all material respects, in accordance International
Accounting Standard 34 "Interim Financial Reporting" and the
Disclosure Guidance and Transparency Rule of the United Kingdom's
Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International
Standard on Review Engagements 2410 (UK and Ireland) "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board ("ISRE
2410"). A review of interim financial information consists of
making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
(UK) and consequently does not enable us to obtain assurance that
we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
As disclosed in Note 1, the Annual Report and Consolidated
Financial Statements of the Group are prepared in accordance with
International Financial Reporting Standards. The Condensed
Consolidated Financial Statements have been prepared in accordance
with International Accounting Standard 34 "Interim Financial
Reporting".
Responsibilities of the Directors
The Directors are responsible for preparing the Interim Report
and Condensed Consolidated Financial Statements in accordance with
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Auditor's Responsibilities for the review of the financial
information
In reviewing the Interim Report and Condensed Consolidated
Financial Statements, we are responsible for expressing to the
Company a conclusion on the Condensed Consolidated Financial
Statements. Our conclusion, is based on procedures that are less
extensive than audit procedures, as described in the Basis for
Conclusion paragraph of this report.
Use of our report
This report is made solely to the Company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board ("ISRE 2410"). To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the Company, for our work, for this report, or
for the conclusions we have formed.
Ernst & Young LLP
Guernsey, Channel Islands
22 November 2021
The maintenance and integrity of the Company's website is the
responsibility of the Directors; the work carried out by the
auditors does not involve consideration of these matters and,
accordingly, the auditors accept no responsibility for any changes
that may have occurred to the financial statements since they were
initially presented on the website.
Legislation in Guernsey governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
Condensed Consolidated Statement of Comprehensive Income
Six months Six months Year
to to to
30/09/2021 30/09/2020 31/03/2021
Notes GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
Rental income 11,832 10,288 21,458
Other income 270 139 205
Property operating expenses (806) (1,724) (3,038)
Net rental and related income,
excluding joint ventures 11,296 8,703 18,625
Share of total net income in
joint ventures 1,583 1,276 2,452
--------------------------------------- ------ ------------ ------------ -----------
Net rental and related income,
including joint ventures 12,879 9,979 21,077
--------------------------------------- ------ ------------ ------------ -----------
Gain/(loss) on disposal of investment
property - - 121
Net unrealised valuation gain/(loss)
on investment property 6 24,689 (13,500) (8,286)
Expenses
Investment management fee 2 (1,397) (1,449) (2,906)
Valuers' and other professional
fees (759) (768) (1,698)
Administrator's fee 2 (60) (60) (120)
Auditor's remuneration (102) (83) (150)
Directors' fees (75) (75) (150)
Other expenses (161) (158) (278)
Total expenses (2,554) (2,593) (5,302)
--------------------------------------- ------ ------------ ------------ -----------
Net operating profit/(loss)
before net 33,431 (7,390) 5,158
finance costs
Interest receivable - 74 -
Finance costs (2,041) (2,342) (4,203)
--------------------------------------- ------ ------------ ------------ -----------
Net finance costs (2,041) (2,268) (4,203)
Share of total net income in
joint ventures 7 1,583 1,276 2,452
Share of net valuation profit/(loss)
in joint ventures 7 224 (394) 1,135
--------------------------------------- ------ ------------ ------------ -----------
Profit/(loss) before taxation 33,197 (8,776) 4,542
Taxation 4 - - -
--------------------------------------- ------ ------------ ------------ -----------
Profit/(loss) and total comprehensive
income for the period attributable
to the equity holders of the
parent 33,197 (8,776) 4,542
--------------------------------------- ------ ------------ ------------ -----------
Basic and diluted earnings per
share 6.8p (1.7p) 0.9p
All items in the above statement are derived from continuing
operations. The accompanying notes 1 to 16 form an integral part of
the condensed interim financial statements.
Condensed Consolidated Statement of Financial Position
Notes 30/09/2021 30/09/2020 31/03/2021
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
Investment property 6 377,301 313,083 351,776
Investment in joint ventures 7 79,964 77,591 79,120
Non-current assets 457,265 390,674 430,896
Trade and other receivables 8 19,117 18,535 17,028
Cash and cash equivalents 9 10,626 78,675 12,175
Current assets 29,743 97,210 29,203
Total assets 487,008 487,884 460,099
Issued capital and reserves 359,472 325,482 332,811
Treasury shares (36,103) (28,708) (35,967)
Equity 323,369 296,774 296,844
Interest-bearing loans and
borrowings 10 153,510 181,351 153,370
Lease liability 6 1,987 2,412 1.988
Non-current liabilities 155,497 183,763 155,358
Trade and other payables 11 8,142 7,347 7,897
Current liabilities 8,142 7,347 7,897
Total liabilities 163,639 191,110 163,255
Total equity and liabilities 487,008 487,884 460,099
------------------------------ ------ ------------ ------------ -----------
Net Asset Value per ordinary
share 12 65.8p 58.0p 60.4p
The financial statements on pages 25-38 of the 2021 Interim
Report and Condensed Consolidated Financial Statements were
approved at a meeting of the Board of Directors held on 22 November
2021 and signed on its behalf by:
Lorraine Baldry
Chairman
The accompanying notes 1 to 16 form an integral part of the
condensed interim financial statements.
Condensed Consolidated Statement of Changes in Equity
For the period from 1 April 2020 to 30 September 2020
(unaudited)
Notes Share Treasury Revenue Total
premium share reserve reserve
GBP000 GBP000 GBP000 GBP000
Balance as at 31 March
2020 219,090 (26,452) 117,168 309,806
-------------------------------------- ------ --------- --------------- ----------- ----------
Loss for the period - - (8,776) (8,776)
Share buyback - (2,256) - (2,256)
Dividend paid 5 - - (2,000) (2,000)
-------------------------------------- ------ --------- --------------- ----------- ----------
Balance as at 30 September
2020 219,090 (28,708) 106,392 296,774
-------------------------------------- ------ --------- --------------- ----------- ----------
For the year ended 31 March 2021 (audited) and for the period from 1
April 2021 to 30 September 2021 (unaudited)
Notes Share Treasury Revenue Total
premium share reserve
reserve
GBP000 GBP000 GBP000 GBP000
Balance as at 31 March 2020 219,090 (26,452) 117,168 309,806
-------------------------------------- ------ --------- --------------- ----------- ----------
Profit for the year - - 4,542 4,542
Dividends paid 5 - - (7,989) (7,989)
Share buyback - (9,515) - (9,515)
-------------------------------------- ------ --------- --------------- ----------- ----------
Balance as at 31 March 2021 219,090 (35,967) 113,721 296,844
-------------------------------------- ------ --------- --------------- ----------- ----------
Share buyback 12 - (136) - (136)
Profit for the period - - 33,197 33,197
Dividends paid 5 - - (6,536) (6,536)
-------------------------------------- ------ --------- --------------- ----------- ----------
Balance as at 30 September
2021 219,090 (36,103) 140,382 323,369
-------------------------------------- ------ --------- --------------- ----------- ----------
The accompanying notes 1 to 16 form an integral part of the
condensed interim financial statements.
Condensed Consolidated Statement of Cash Flows
Six months Six months Year
to to to
30/09/2021 30/09/2020 31/03/2021
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
Operating activities
Profit/(Loss) for the period/year 33,197 (8,776) 4,542
Adjustments for:
Profit on disposal of investment
property - - (121)
Net valuation (gain)/loss on investment
property (24,689) 13,500 8,286
Share of profit of joint ventures (1,807) (882) (3,587)
Net finance cost 2,041 2,268 4,202
Operating cash generated before
changes in working
capital 8,742 6,110 13,322
(Increase)/decrease in trade and
other receivables (2,072) (3,421) (1,923)
Increase/(decrease) in trade and
other payables 244 702 1,254
Cash generated from operations 6,914 3,391 12,653
Finance costs paid (1,918) (2,034) (3,990)
Interest received - 74 -
Net cash from operating activities 4,996 1,431 8,663
----------------------------------------------- ------------ ------------ -----------
Investing activities
Proceeds from the sale of investment
property - - 6,409
Additions to investment property (836) (5,205) (8,896)
Acquisition of investment property - - (36,500)
Investment in joint ventures (620) - -
Net income distributed from joint
ventures 1,583 1,154 2,452
----------------------------------------------- ------------ ------------ -----------
Net cash (used in)/from investing
activities 127 (4,051) (36,535)
----------------------------------------------- ------------ ------------ -----------
Financing activities
Share buyback (136) (2,256) (9,515)
Additions to external debt - - 24,500
Drawdown of external debt - 52,500 -
Dividends paid (6,536) (2,000) (7,989)
----------------------------------------------- ------------ ------------ -----------
Net cash from/(used in) financing
activities (6,672) 48,244 6,996
----------------------------------------------- ------------ ------------ -----------
Net (decrease)/increase in cash
and cash equivalents for the period/year (1,549) 45,624 (20,876)
Opening cash and cash equivalents 12,175 33,051 33,051
----------------------------------------------- ------------ ------------ -----------
Closing cash and cash equivalents 10,626 78,675 12,175
----------------------------------------------- ------------ ------------ -----------
The accompanying notes 1 to 16 form an integral part of the
condensed interim financial statements.
Notes to the Interim Report
1. Significant accounting policies
Schroder Real Estate Investment Trust Limited ("the Company") is
a closed-ended investment company incorporated in Guernsey. The
condensed interim financial statements of the Company for the
period ended 30 September 2021 comprise the Company, its
subsidiaries and its interests in joint ventures (together referred
to as the "Group").
Statement of compliance
The condensed interim financial statements have been prepared in
accordance with the Disclosure Guidance and Transparency Rules of
the United Kingdom Financial Conduct Authority and IAS 34 Interim
Financial Reporting. They do not include all the information
required for the full annual financial statements, and should be
read in conjunction with the consolidated financial statements of
the Group as at and for the year ended 31 March 2021. The condensed
interim financial statements have been prepared on the basis of the
accounting policies set out in the Group's annual financial
statements for the year ended 31 March 2021. The financial
statements for the year ended 31 March 2021 have been prepared in
accordance with International Financial Reporting Standards
("IFRS") as issued by the International Accounting Standards Board.
The Group's annual financial statements refer to new Standards and
Interpretations.
Going concern
The Directors have examined significant areas of possible
financial risk, including the non-collection of rent and service
charges as a result of the Covid-19 pandemic and the potential
impact on property valuations; have reviewed cash flow forecasts;
and have analysed forward-looking compliance with third party debt
covenants, in particular the Loan to Value covenant and interest
cover ratios.
Overall, after utilising available cash, excluding the cash
undrawn against the RBS facility, and uncharged properties and
units in Joint Ventures, and based on the reporting period to 30
September 2021, property valuations would have to fall by 45%
before the relevant Canada Life Loan to Value covenants were
breached, and actual net rental income would need to fall by 76%
before the interest cover covenants were breached.
Furthermore, the properties charged to RBSI could fall in value
by 72% prior to the 65% LTV covenant being reached and, based on
actual net rents for the quarter to September 2021, a 78% fall in
net income could be sustained prior to the RBSI loan covenant of
250% being breached.
The Board and Investment Manager continue to closely monitor the
potential impact that the Covid-19 pandemic may have on the
Company's rental collection and the requirement to distribute
dividends in accordance with the REIT regulations. All future
dividends will be kept under constant review to ensure the
Company's liquid resources will be sufficient to cover any working
capital requirements.
The Directors have not identified any matters which would cast
significant doubt on the Group's ability to continue as a going
concern for the period to 22 November 2022 . In addition to the
matters described above, in arriving at their conclusion the
Directors have also considered:
-- The current cash balance at 22 November 2021 of GBP12.98 m illion;
-- The nature and timing of the Company's income and expenses; and
-- That the Investment Manager and Administrator have
successfully invoked their business continuity plans to help ensure
the safety and well-being of their staff thereby retaining the
ability to maintain the Company's business operations.
The Directors have satisfied themselves that the Group has
adequate resources to continue in operational existence for at
least the next twelve months from the date of approval of the
financial statements. After due consideration, the Board believes
it is appropriate to adopt the going concern basis in preparing the
condensed interim financial statements.
Use of estimates and judgments
The preparation of financial statements requires management to
make judgements, estimates and assumptions that affect the
application of policies and the reported amounts of assets and
liabilities, income and expenses. Actual results may differ from
these estimates. The estimates and underlying assumptions are
reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimates are revised and in
any future periods affected. There have been no changes in the
judgements and estimates used by management as disclosed in the
last annual report and financial statements for the year ended 31
March 2021.
Segmental reporting
The Directors are of the opinion that the Group is engaged in a
single segment of business, being property investment, and in one
geographical area, the United Kingdom. There is no one tenant that
represents more than 10% of the Group's revenue. The chief
operating decision-maker is considered to be the Board of Directors
who are provided with consolidated IFRS information on a quarterly
basis.
2. Material agreements
Schroder Real Estate Investment Management Limited is the
Investment Manager to the Company.
Between the period of 1 April 2021 to 30 June 2021 the
Investment Manager was entitled to a fee of 1.1% payable monthly
and calculated with regard to the NAV of the Group.
With effect from 1 July 2021 a new fee agreement was agreed and
implemented between the Board and the Investment Manager which
includes a blended (not cliff edge), tiered fee structure as
follows:
NAV Management fee percentage per annum
of NAV
<GBP500 million 0.9%
------------------------------------
GBP500 million - GBP1 billion 0.8%
------------------------------------
GBP1 billion+ 0.7%
------------------------------------
The fee covers all of the appointed services of the Investment
Manager and there are standard provisions for the reimbursement of
expenses. Additional fees can be agreed for out of scope services
on an ad hoc basis.
The total charge to profit during the period was GBP1,397,000
(year to 31 March 2021: GBP2,906,000; six months to 30 September
2020: GBP1,449,000). At the period end no amount was outstanding
(31 March 2021: GBP20,000; 30 September 2020: GBP646,000).
Northern Trust International Fund Administration Services
(Guernsey) Limited was the Administrator to the Company during the
period. The Administrator was entitled to an annual fee equal to
GBP120,000 of which no sum (31 March 2021: GBP30,000; 30 September
2020: GBP30,000) was outstanding at the period end.
With effect from 1 October 2021, Langham Hall (Guernsey) Limited
and Langham Hall UK Depositary LLP replaced Northern Trust and will
provide Administration, Designated Manager and Depositary services
to the Group respectively going forward.
3. Basic and Diluted Earnings per share
The basic and diluted earnings per share for the Group is based
on the profit for the period of GBP33,197,000 (31 March 2021:
profit of GBP4,542,000; 30 September 2020: loss of GBP8,776,000)
and the weighted average number of ordinary shares in issue during
the period of 491,086,039 (31 March 2021: 508,699,880 and 30
September 2020: 518,056,505).
4. Taxation
01/04/2021 01/04/2020 01/04/2020
to to to
30/09/2021 30/09/2020 31/03/2021
GBP000 GBP000 GBP000
Tax expense in the period/year - - -
----------------------------------------- ------------ ------------ ------------
Reconciliation:
Profit/(loss) before tax 33,197 (8,776) 4,542
------------------------------------------ ------------ ------------ ------------
Effect of:
Tax using the UK corporation tax rate
of 19% 6,307 (1,667) 863
Revaluation (profit)/loss not taxable (4,691) 2,565 1,574
Share of revaluation (profit)/loss
of joint ventures not taxable (43) 75 (216)
(Profit)/loss on disposal of investment
property not taxable - - (23)
UK REIT exemption on non-capital income (1,573) (973) (2,198)
Current tax expense in the year - - -
------------------------------------------ ------------ ------------ ------------
SREIT has elected to be treated as a UK real estate investment
trust ("REIT"). The UK REIT rules exempt the profits of SREIT and
its subsidiaries' (the "Group") UK property rental business from
corporation tax. Gains on UK properties are also exempt from tax,
provided they are not held for trading or sold in the three years
after completion of development. The Group is otherwise subject to
corporation tax.
As a REIT, SREIT is required to pay Property Income
Distributions equal to at least 90% of the Group's exempted net
income. To retain UK REIT status there are a number of conditions
to be met in respect of the principal company of the Group, the
Group's qualifying activity and its balance of business. The Group
continues to meet these conditions.
5. Dividends paid
01/04/2021
Number of to
In respect of ordinary Rate 30/09/2021
shares (pence) GBP000
Q/e 31 March 2021 (dividend paid
25 June 2021) 491.08 million 0.656 3,221
Q/e 30 June 2021 (dividend paid
13 August 2021) 491.08 million 0.675 3,315
---------------------------------- --------------- -------- -----------
1.331 6,536
---------------------------------- --------------- -------- -----------
01/04/2020
Number of to
In respect of ordinary Rate 30/09/2020
shares (pence) GBP000
Q/e 30 June 2020 (dividend paid
18 August 2020) 518.51 million 0.39 2,000
--------------------------------- --------------- -------- -----------
01/04/2020
Number of to
In respect of ordinary Rate 31/03/2021
================================= =============== ======== =================
shares (pence) GBP000
Q/e 30 June 2020 (dividend paid
18 August 2020) 518.51 million 0.386 2,000
Q/e 30 Sept 2020 (dividend paid
11 December 2020) 503.30 million 0.575 2,895
Q/e 31 December 2020 (dividend
paid 12 March 2021) 495.00 million 0.625 3,094
--------------------------------- --------------- -------- -----------------
1.5858 7,989
--------------------------------- --------------- -------- -----------------
A dividend for the quarter ended 30 September 2021 of 0.726
pence per share (totalling GBP3.56 million) was approved on 22
November 2021 and will be paid on 17 December 2021.
6. Investment property
For the period 1 April 2020 to 30 September 2020 (unaudited)
Leasehold Freehold Total
GBP000 GBP000 GBP000
Fair value as at 1 April 2020 36,818 284,564 321,382
Additions 5 5,200 5,205
Fair value leasehold adjustment (4) - (4)
Net valuation gain on investment property (3,210) (10,290) (13,500)
------------------------------------------- ---------- --------- ---------
Fair value as at 30 September 2020 33,609 279,474 313,083
------------------------------------------- ---------- --------- ---------
6. Investment property (continued)
For the year 1 April 2020 to 31 March 2021 (audited)
Leasehold Freehold Total
GBP000 GBP000 GBP000
Fair value as at 1 April 2020 36,818 284,564 321,382
Additions 8,856 40 8,896
Acquisitions - 36,500 36,500
Gross proceeds on disposals (4,116) (2,293) (6,409)
Realised gain on disposals 65 56 121
Fair value leasehold adjustment (428) - (428)
Net valuation loss on investment property (4,819) (3,467) (8,286)
------------------------------------------- ---------- --------- --------
Fair value as at 31 March 2021 36,376 315,400 351,776
------------------------------------------- ---------- --------- --------
For the period 1 April 2021 to 30 September 2021 (unaudited)
Leasehold Freehold Total
GBP000 GBP000 GBP000
Fair value as at 1 April 2021 36,376 315,400 351,776
Additions - 836 836
Fair value leasehold adjustment - - -
Net valuation gain on investment property 1,082 23,607 24,689
------------------------------------------- ---------- --------- --------
Fair value as at 30 September 2021 37,458 339,873 377,301
------------------------------------------- ---------- --------- --------
The fair value of investment property, as determined by the
valuer, totals GBP384,375,000 (31 March 2021: GBP359,300,000; 30
September 2020: GBP320,050,000). None of this sum was in relation
to an unconditional exchange of contracts (March 2021: GBPnil;
September 2020: GBPnil).
As at 30 September 2021, GBP9,062,304 (31 March 2021:
GBP9,512,762; 30 September 2020: GBP9,739,000) in connection with
lease incentives is included within trade and other receivables.
Furthermore, included in non-current liabilities is a sum of
GBP1,987,395 (31 March 2021: GBP1,988,000; September 2020:
GBP2,412,000) relating to the fair value of the leasehold element
of The Galaxy, Luton.
The fair value of investment property has been determined by
Knight Frank LLP, a firm of independent chartered surveyors, who
are registered independent appraisers. The valuation has been
undertaken in accordance with the current editions of RICS
Valuation - Global Standards, which incorporate the International
Valuation Standards, and the RICS UK National Supplement issued by
the Royal Institution of Chartered Surveyors (the "Red Book").
The properties have been valued on the basis of "Fair Value" in
accordance with the RICS Valuation - Professional Standards
VPS4(7.1) Fair Value and VPGA1 Valuations for Inclusion in
Financial Statements which adopt the definition of Fair Value used
by the International Accounting Standards Board.
The valuation has been undertaken using appropriate valuation
methodology and the Valuer's professional judgement. The Valuer's
opinion of Fair Value was primarily derived using recent comparable
market transactions on arm's length terms, where available, and
appropriate valuation techniques (The Investment Method).
The properties have been valued individually and not as part of
a portfolio.
6. Investment property (continued)
All investment properties are categorised as Level 3 fair values
as they use significant unobservable inputs. There have not been
any transfers between Levels during the year. Investment properties
have been classed according to their real estate sector.
Information on these significant unobservable inputs per class of
investment property is disclosed below:
Quantitative information about fair value measurement using
unobservable inputs (Level 3) as at 30 September 2021
(unaudited)
Industrial Retail (incl Office Other Total
retail warehouse)
Fair value
(GBP'000) 192,400 90,450 84,075 17,450 384,375
------------- ------------------- ------------------ --------------- ----------------
Area ('000
sq ft) 1,963 506 414 177 3,060
------------- ------------------- ------------------ --------------- ----------------
Net passing Range GBP0 - GBP0 - GBP32.85 GBP0 - GBP29.10 GBP0 -GBP13.00 GBP0 - GBP32.85
rent psf Weighted GBP13.23 GBP12.26 GBP15.92 GBP7.39 GBP7.84
per annum average GBP5.03
----------- ------------- ------------------- ------------------ --------------- ----------------
Gross ERV Range GBP3.00 GBP7.40 GBP10.00-GBP24.00 GBP2.10 GBP2.10
psf per Weighted - GBP14.00 - GBP32.85 GBP17.66 -GBP13.00 - GBP32.85
annum average GBP4.81 GBP13.35 GBP7.98 GBP8.87
----------- ------------- ------------------- ------------------ --------------- ----------------
Net initial Range 3.94% - 2.27% -8.24% 3.63%-11.19% 4.76%-10.23% 2.27% -
yield (1) 7.19% 4.81% 6.42% 7.34% 11.19% 5.84%
Weighted 7.04%
average
------------------------- ------------- ------------------- ------------------ --------------- ----------------
Equivalent Range 4.84% - 5.71%-10.08% 5.79%-9.47% 4.76% -9.27% 4.76%-10.08%
yield 7.21% 5.72% 7.07% 7.79% 6.37%
Weighted 7.31%
average
------------------------- ------------- ------------------- ------------------ --------------- ----------------
Notes: (1) Yields based on rents receivable after deduction of
head rents, but gross of non-recoverables.
Quantitative information about fair value measurement using
unobservable inputs (Level 3) as at 31 March 2021 (audited)
Industrial Retail (incl Office Other Total
retail
warehouse)
Fair value
(GBP000) 170,400 87,050 85,350 16,500 359,300
------------- -------------- ------------------ -------------- --------------
Area ('000
sq. ft) 1,963 506 414 177 3,060
------------- -------------- ------------------ -------------- --------------
Net passing Range GBP4.20 GBP0 - GBP0 - GBP0 GBP0 -
rent per Weighted average - GBP8.36 GBP32.85 GBP29.10 -GBP13.00 GBP32.85
sq. ft per GBP5.16 GBP11.46 GBP16.46 GBP6.95 GBP7.55
annum
-------------------- ------------- -------------- ------------------ -------------- --------------
Gross ERV Range GBP3.50 GBP7.40 GBP12.00-GBP24.00 GBP2.10 GBP3.50
per sq. Weighted average - GBP13.00 - GBP32.85 GBP17.59 -GBP13.00 - GBP32.85
ft per annum GBP5.70 GBP13.40 GBP7.98 GBP8.40
-------------------- ------------- -------------- ------------------ -------------- --------------
Net initial Range 4.40% - 2.72% -9.45% 5.77%-11.00% 4.75%-9.27% 2.72% -
yield (1) 7.02% 5.57% 6.24% 7.47% 11.00% 6.25%
Weighted average 7.00%
-------------------- ------------- -------------- ------------------ -------------- --------------
Equivalent Range 5.10% - 5.80%-10.04% 5.72%-9.25% 4.75% -8.96% 4.75%-10.04%
yield 7.41% 6.16% 7.38% 7.74% 6.65%
Weighted average 7.25%
-------------------- ------------- -------------- ------------------ -------------- --------------
Notes: (1) Yields based on rents receivable after deduction of
head rents, but gross of non-recoverables.
6. Investment property (continued)
Sensitivity of measurement to variations in the significant
unobservable inputs
The significant unobservable inputs used in the fair value
measurement categorised within Level 3 of the fair value hierarchy
of the Group's property portfolio, together with the impact of
significant movements in these inputs on the fair value
measurement, are shown below:
Unobservable input Impact on fair value Impact on fair value
measurement of significant measurement of significant
increase in input decrease in input
Passing rent Increase Decrease
Gross ERV Increase Decrease
Net initial yield Decrease Increase
Equivalent yield Decrease Increase
------------------- ---------------------------- ----------------------------
There are interrelationships between the yields and rental
values as they are partially determined by market rate conditions.
The sensitivity of the valuation to changes in the most significant
inputs per class of investment property are shown below:
Estimated movement in fair Industrial Retail Office Other Total
value of investment properties GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
at 30 September 2021 (unaudited)
Increase in ERV by 5% 9,209 2,611 3,878 738 16,436
Decrease in ERV by 5% (9,055) (3,420) (3,788) (455) (16,718)
Increase in net initial yield
by 0.25% (9,507) (3,390) (2,771) (598) (15,773)
Decrease in net initial yield
by 0.25% 10,549 3,664 2,967 643 17,183
----------------------------------- ----------- --------- --------- --------- ---------
Estimated movement in fair Industrial Retail Office Other Total
value of investment properties GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
at 31 March 2021 (audited)
Increase in ERV by 5% 8,119 2,536 3,822 706 15,183
Decrease in ERV by 5% (7,955) (3,497) (3,809) (501) (15,762)
Increase in net initial yield
by 0.25% (7,320) (3,355) (2,763) (569) (13,821)
Decrease in net initial yield
by 0.25% 8,008 3,635 2,954 611 14,973
--------------------------------- ----------- --------- --------- --------- ---------
7. Investment in joint ventures
For the period 1 April 2020 to 30 September 2020 (unaudited)
GBP000
Opening balance as at 1 April 2020 77,985
Share of net rental income 1,276
Distributions received/receivable (1,276)
Share of valuation loss (394)
Amounts recognised as joint ventures at 30 September
2020 77,591
------------------------------------------------------- --------
For the year 1 April 2020 to 31 March 2021 (audited)
GBP000
Opening balance as at 1 April 2020 77,985
Share of valuation gain 1,135
------------------------------------------------------- -------
Amounts recognised as joint ventures at 31 March 2021 79,120
------------------------------------------------------- -------
For the period 1 April 2021 to 30 September 2021 (unaudited)
GBP000
Opening balance as at 1 April 2021 79,120
Share of net rental income 1,583
Distributions received/receivable (1,583)
Purchase of units in City Tower Unit Trust to fund
capital expenditure 620
Share of valuation profit 224
Amounts recognised as joint ventures at 30 September
2021 79,964
------------------------------------------------------- --------
8. Trade and other receivables
Six months Six months Year to
to to 31/03/2021
30/09/2021 30/09/2020
GBP000 GBP000 GBP000
-------------------------------- ------------ ------------ ------------
Rent receivable 4,072 4,343 4,094
Sundry debtors and prepayments 5,982 4,823 3,422
Lease Incentives 9,063 9,369 9,512
19,117 18,535 17,028
-------------------------------- ------------ ------------ ------------
GBP5.03 million (gross) was owed by tenants as at period end and
a net bad debt provision of GBP0.8m was made with regard to
expected credit losses (31 March 2021 GBP1.1m; 30 September 2020:
GBP1.04m) .
When determining an appropriate bad debt provision the following
key factors were considered: the tenants' rent deposits held; the
tenants' covenants; financial strength and rent and service
charge-paying histories; and the current trading situation of the
tenants.
Sundry debtors and prepayments includes GBP9,063,000 (31 March
2021: GBP9,512,000; 30 September 2020: GBP9,369,000) in respect of
lease incentives, which are spread over the term of the lease.
9.Cash and cash equivalents
As at 30 September 2021 the group had GBP10.6 million in cash
(31 March 2021: GBP12.2 million; 30 September 2020: GBP78.7
million) and none of this sum was held with Canada Life (31 March
2021: Nil; 30 September 2020: GBP18.3 million).
10. Interest-bearing loans and borrowings
The Group has in place a GBP129.6 million loan facility with
Canada Life and the loan is split in to two equal tranches of
GBP64.8m as follows:
- Facility A matures in October 2032 and attracts an interest rate of 2.36%; and
- Facility B matures in October 2039 and attracts an interest rate of 2.62%.
The Canada Life facility has a first charge security over all
the property assets in the ring-fenced Security Pool which at 30
September 2021 contained properties valued at GBP290.8 million.
Various restraints apply during the term of the loan although the
facility has been designed to provide significant operational
flexibility.
The Company also has in place a revolving credit facility
('RCF') with Royal Bank of Scotland International, which expires in
July 2023, and the current RCF limit stands at GBP52.5 million. As
at 30 September 2021, there was a balance of GBP24.5m drawn (March
2021: GBP24.5m; September 2020: GBP52.5m).
The RBS facility has a first charge security over all the assets
held in SREIT No.2 Limited which at 30 September 2021 contained
properties valued at GBP133.8 million.
The interest rate as at the period end was based on the Loan to
Value ratio as set out below:
- LIBOR + 1.60% if the Loan to Value is less than or equal to 60%--; and
- LIBOR + 1.85% if the Loan to Value is greater than 60%.
During both the current and prior periods, the Loan to Value has
remained at less than 60%. Since this loan has variable interest,
an interest rate cap for GBP32.5m of the loan was entered into and
this comes in to effect if GBP 3 month LIBOR reaches 1.5%. As at
the reporting date, GBP 3 month LIBOR has not reached 1.5%.
Post the period end the RBS facility has transitioned from LIBOR
to SONIA for interest payments due post October 2021.
As at 30 September 2021, the Group has total loan balances drawn
of GBP154.09 million and GBP0.6 million of unamortised arrangement
fees (31 March 2021: GBP154.99 million and GBP0.7 million of
unamortised arrangement fees; September 2020: GBP182.09 million and
GBP0.7 of unamortised arrangement fees).
The fair value of the fixed-interest Canada Life debt is based
on the present value of future cash flows discounted at a market
rate of interest. As at 30 September 2021, the fair value of the
Group's GBP129.59 million loan with Canada Life was GBP129.4
million (31 March 2021: GBP131.1 million, 30 September 2020:
GBP150.6 million).
11. Trade and other payables
Six months Six months Year to
to to 31/03/2021
30/09/2021 30/09/2020
GBP000 GBP000 GBP000
----------------------------- ------------ ------------ ------------
Deferred income 3,812 3,351 3,701
Rental deposits 1,480 1,245 1,448
Interest payable 807 915 780
Other payables and accruals 2,043 1,836 1,968
8,142 7,347 7,897
----------------------------- ------------ ------------ ------------
12. NAV per ordinary share and share buyback
Between the 1 April 2021 to 12 April 2021 the Company purchased
a further sum of 338,340 shares for a sum of GBP0.14m at an average
price of 40 pence per share.
As a consequence of the buyback, the number of ordinary shares
in issue fell from 491,418,641 to 491,080,301 during the reporting
period.
The NAV per ordinary share is based on the net assets of
GBP323,368,806 (31 March 2021: GBP296,844,000; 30 September 2020:
GBP296,774,000) and 491,080,301 ordinary shares in issue at the
Statement of Financial Position reporting date (31 March 2021:
491,418,641 and 30 September 2020: 511,364,955).
13. Financial risk factors
The Directors are of the opinion that there have been no
significant changes to the financial risk profile of the Group
since the end of the last annual financial reporting period ended
31 March 2021 . The main risks arising from the Group's financial
instruments and properties are market price risk, credit risk,
liquidity risk and interest rate risk. The Group is only directly
exposed to sterling and hence is not exposed to currency risk. The
Board regularly reviews and agrees policies for managing each of
these risks.
14. Related party transactions
Material agreements are disclosed in note 2. The Directors'
remuneration for the six month period for services to the Group was
GBP75,000 (31 March 2021: GBP150,000, 30 September 2020: GBP75,000)
of which GBPnil was outstanding at period end (31 March 2021:
GBPnil; 30 September 2020: GBPnil). Transactions with joint
ventures are disclosed in note 7.
15. Capital commitments
At 30 September 2021 the Group had capital commitments for
capital expenditure of GBP4.1 million (31 March 2021: GBP3.2
million; 30 September 2020: GBP3.1 million).
16. Post balance sheet events
On 17 November 2021 the Group exchanged with regard to four
industrial acquisitions in Haydock, Sandbach and Birkenhead.
The asset in Haydock completed on 19 November 2021 for a net
purchase price of GBP4.86m.
Two assets in Sandbach also completed on 19 November 2021 for a
net purchase price of GBP 3.59m.
The asset in Birkenhead will complete in December 2021 for a net
price of GBP11.40m.
On 18 November 2021 the Group drew down a further GBP9.0m on its
RBS revolving credit facility which has since increased the total
balance drawn from GBP24.5m to GBP 33.5m as at the signing date . A
further GBP12.2m is intended to be drawn down ahead of the
Birkenhead completion.
EPRA Performance Measures (unaudited)
As recommended by the European Public Real Estate Association
('EPRA'), key performance measures are disclosed in the section
below.
a. EPRA earnings and EPRA earnings per share
Represents total IFRS comprehensive income excluding realised
and unrealised gains/losses on investment property and the share of
net valuation profit/loss in joint ventures, divided by the
weighted average number of shares.
Six months Six months
to to Year to
30 September 30 September 31 March
2021 2020 2021
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
--------------------------------------------------- ------------- ------------- -----------
Total IFRS comprehensive income 33,197 (8,776) 4,542
--------------------------------------------------- ------------- ------------- -----------
Adjustments to calculate EPRA earnings:
--------------------------------------------------- ------------- ------------- -----------
(Gain)/loss on the disposal of investment
property - - (121)
--------------------------------------------------- ------------- ------------- -----------
Net unrealised valuation (gain)/loss on investment
property (24,689) 13,500 8,286
--------------------------------------------------- ------------- ------------- -----------
Share of net valuation profit/(loss) in joint
ventures (224) 394 (1,135)
--------------------------------------------------- ------------- ------------- -----------
EPRA earnings 8,284 5,118 11,572
--------------------------------------------------- ------------- ------------- -----------
Weighted average number of ordinary shares 491,086,039 518,056,505 508,699,880
--------------------------------------------------- ------------- ------------- -----------
EPRA earnings per share (pence per share) 1.7 1.0 2.3
--------------------------------------------------- ------------- ------------- -----------
b. EPRA Net Reinstatement Value
Six months
to
30 September
2021
GBP000
(unaudited)
-------------------------------------------------------- -------------
IFRS equity attributable to shareholders 323,369
-------------------------------------------------------- -------------
Adjustment in respect of real estate transfer taxes and
costs 31,137
-------------------------------------------------------- -------------
EPRA Net Reinstatement Value 354,506
-------------------------------------------------------- -------------
Shares in issue at the end of the period 491,080,301
-------------------------------------------------------- -------------
EPRA NRV per share (pence per share) 72.2
-------------------------------------------------------- -------------
c. EPRA Net Tangible Assets
Six months
to
30 September
2021
GBP000
(unaudited)
----------------------------------------- -------------
IFRS equity attributable to shareholders 323,369
----------------------------------------- -------------
EPRA Net Tangible Assets 323,369
----------------------------------------- -------------
Shares in issue at the end of the period 491,080,301
----------------------------------------- -------------
EPRA NRV per share (pence per share) 65.8
----------------------------------------- -------------
EPRA Performance Measures (unaudited)
d. EPRA Net Disposal Value
Six months
to
30 September
2021
GBP000
(unaudited)
---------------------------------------------------------- -------------
IFRS equity attributable to shareholders 323,369
---------------------------------------------------------- -------------
Adjustment for the fair value of fixed interest rate debt 223
---------------------------------------------------------- -------------
EPRA Net Disposal Value 323,592
---------------------------------------------------------- -------------
Shares in issue at the end of the period 491,080,301
---------------------------------------------------------- -------------
EPRA NRV per share (pence per share) 65.9
---------------------------------------------------------- -------------
Glossary
Alternative performance please see page 41 for full details of the key
measure ("APM") APMs used by the Company.
Annualised dividend being the dividend paid during the period annualised
yield and expressed as a percentage of the period end
share price.
Articles means the Company's articles of incorporation,
as amended from time to time.
Companies Law means the Companies (Guernsey) Law, 2008.
Company is Schroder Real Estate Investment Trust Limited.
Directors means the directors of the Company as at the date
of this document.
Disclosure Guidance means the disclosure guidance and transparency
and Transparency rules contained within the FCA's Handbook of Rules
Rules and Guidance.
Earnings per share is the profit after taxation divided by the weighted
("EPS") average number of shares in issue during the period.
Estimated rental is the Group's external valuers' reasonable opinion
value ("ERV") as to the open market rent which, on the date
of valuation, could reasonably be expected to
be obtained on a new letting or rent review at
a property.
EPRA is the European Public Real Estate Association.
EPRA Earnings per is the EPRA earnings divided by the weighted average
share number of shares in issue during the period.
FCA is the UK Financial Conduct Authority.
Gearing is the Group's net debt as a percentage of adjusted
net assets.
Group is the Company and its subsidiaries.
Initial yield is the annualised net rents generated by the portfolio
expressed as a percentage of the portfolio valuation.
Interest cover is the number of times Group net interest payable
is covered by Group net rental income.
Listing Rules means the listing rules made by the FCA under
Part VII of the UK Financial Services and Markets
Act 2000, as amended.
Market Abuse Regulation means regulation (EU) No.596/2014 of the European
Parliament and of the Council of 16 April 2014
on market abuse.
MSCI (formerly Investment Property Databank or 'IPD')
is a Company that produces an independent benchmark
of property returns.
Net Asset Value ("NAV") is shareholders' funds divided by the number of
shares in issue at the period end.
NAV total return is calculated taking into account both capital
returns and income returns in the form of dividends
paid to shareholders.
Net rental income is the rental income receivable in the period
after payment of ground rents and net property
outgoings.
REIT is a Real Estate Investment Trust.
Reversionary yield is the anticipated yield which the initial yield
will rise to once the rent reaches the estimated
rental value.
Alternative Performance Measures (unaudited)
The Company uses the following Alternative Performance Measures
("APMs") in its Interim Report and Consolidated Financial
Statements. The Board believes that each of the APMs provides
additional useful information to the shareholders in order to
assess the Company's performance.
Dividend Cover - the ratio of EPRA Earnings (note 3) to
dividends paid (note 5) in the period. Earnings excludes capital
items such as revaluation movements on investments and gains or
losses on the disposal of investment properties.
Dividend Yield - the dividends paid, expressed as a percentage,
relative to the share price. To note that for six monthly interim
periods this is annualised.
EPRA Earnings - earnings excluding all capital components not
relevant to the underlying net income performance of the Company,
such as the unrealised fair value gains or losses on investment
properties and any gains or losses from the sales of properties.
See note 3 for a reconciliation of this figure.
EPRA Net Tangible Assets - the IFRS equity attributable to
shareholders adjusted to reflect a Company's tangible assets and
assumes that no selling of assets takes place.
EPRA Net Disposal Value - the IFRS equity attributable to
shareholders adjusted to reflect the NAV under an orderly sale of
business, where any deferred tax, financial instruments and certain
other adjustments are calculated to the full extent of their
liability.
EPRA Net Reinstatement Value - IFRS equity attributable to
shareholders adjusted to represent the value required to rebuild
the entity and assumes that no selling of assets takes place.
Gross LTV - the value of the external loans unadjusted for
unamortised arrangement costs (note 10) expressed as a percentage
of the market value of property investments as at the Balance Sheet
date. The market value of property investments includes joint
venture investments and are as per external valuations and have not
been adjusted for IFRS lease incentive balances or the fair value
of the head lease at Luton.
LTV Net of Cash - the value of the external loans unadjusted for
unamortised arrangement costs (note 10) less cash held (note 9)
expressed as a percentage of the market value of the property
investments as at the Balance Sheet date. The market value of
property investments includes joint venture investments and are as
per external valuations and have not been adjusted for IFRS lease
incentive balances or the fair value of the head lease at
Luton.
Ongoing Charges (including fund only expenses) - all fund costs
expected to be regularly incurred and that are payable by the
Company expressed as a percentage of the average quarterly NAVs of
the Company for the financial period. Any capital costs, including
capital expenditure or acquisition/disposal fees, are excluded.
Ongoing Charges (including fund and property expenses) - all
operating costs expected to be regularly incurred and that are
payable by the Company expressed as a percentage of the average
quarterly NAVs of the Company for the financial period. Any capital
costs, including capital expenditure and acquisition/disposal fees,
are excluded.
Share Discount/Premium - the share price of the Company is
derived from buyers and sellers trading their shares on the stock
market. This price is not identical to the NAV per share of the
underlying assets less liabilities of the Company. If the share
price is lower than the NAV per share, the shares are trading at a
discount. Shares trading above the NAV per share are said to be at
a premium. The discount/premium is calculated as the variance
between the share price as at the Balance Sheet date and the NAV
per share (page 25 of the 2021 Interim Report and Condensed
Consolidated Financial Statements ) expressed as a percentage.
NAV total return - the return to shareholders calculated on a
per share basis by adding dividends paid (note 5) in the period on
a time-weighted basis to the increase or decrease in the NAV per
share (page 25 of the 2021 Interim Report and Condensed
Consolidated Financial Statements ).
Corporate information
Registered Address Independent Auditor
North Suite 2 Ernst & Young LLP
Town Mills Royal Chambers
Rue Du Pre St. Julian's Avenue
St. Peter Port St. Peter Port
Guernsey GY1 1LT Guernsey GY1 4AF
Directors (All Non-Executive) Property Valuers
Lorraine Baldry (Chairman) Knight Frank LLP
Graham Basham 55 Baker Street
Stephen Bligh London
Alastair Hughes W1U 8AN
Investment Manager and Accounting Sponsor and Broker
Agent J.P. Morgan Cazenove
Schroder Real Estate Investment Management 25 Bank Street
Limited Canary Wharf
1 London Wall Place London E14 5JP
London
EC2Y 5AU Tax Advisor
Deloitte LLP
Administrator 2 New Street Square
Langham Hall (Guernsey) Limited London
North Suite 2 EC4A 3BZ
Town Mills
Rue Du Pre Receiving Agent and UK
St. Peter Port Transfer/Paying Agent
Guernsey GY1 1LT Computershare Investor
Services
Company Secretary (Guernsey) Limited
Schroder Investment Management Limited 1st Floor
1 London Wall Place Tudor House
London Le Bordage
EC2Y 5AU St. Peter Port
Guernsey GY1 1DB
Solicitors to the
Company as to Guernsey Depositary
as to English Law: Law: Langham Hall UK Depositary
Stephenson Harwood Mourant LLP
LLP Royal Chambers 8th Floor
1 Finsbury Circus St. Julian's Avenue 1 Fleet Place
London St. Peter Port London
EC2M 7SH Guernsey GY1 4HP EC4M 7RA
ISA
The Company's shares are eligible
for Individual Savings Accounts ('ISAs').
FATCA GIIN
5BM7YG.99999.SL.831
Endnotes:
([i]) Winning Cities defined as higher growth locations -
Source: Oxford Economics/Schroders.
([ii]) This is an APM, please see page 42 for details.
[iii] This is an Alternative Performance Measure ("APM").
Details of the calculation are included in the APM section on page
42 of the 2021 Interim Report and Condensed Consolidated Financial
Statements.
[iv] This is an APM. EPRA calculations are included in the EPRA
Performance measures section on page 39 of the 2021 Interim Report
and Condensed Consolidated Financial Statements .
[v] On-balance sheet borrowings reflect the loan facilities with
Canada Life and RBS without the deduction of unamortised finance
costs of GBP0.6m.
[vi] This is an APM. Details of the calculation are included on
page 42 of the 2021 Interim Report and Condensed Consolidated
Financial Statements.
[vii] Cash held at balance sheet date including GBP800,000 of
cash held within the joint ventures.
[viii] Note Central London is defined by MSCI as City, Mid-Town,
West End and Inner London.
[ix] The Company listed in July 2004.
[x] Cash held at balance sheet date including GBP0.8m of cash held within the joint ventures
[xi] Loan balance divided by property value as at 30 September
2021.
[xii] For the quarter preceding the Interest Payment Date
('IPD'), (rental income received - void rates, void service charge
and void insurance)/interest paid.
[xiii] The projected ICR covenant for the contracted four
quarters following the IPD deducting assumed non-recoverable costs
(void rates, void service charge and void insurance)/interest paid)
based on the average of the past four quarters.
[xiv] Fixed total interest rate for the loan term.
[xv] Loan balance divided by property value as at 30 September
2021.
[xvi] For the quarter preceding the Interest Payment Date
('IPD'), (rental income received - void rates, void service charge
and void insurance)/interest paid.
[xvii] The projected ICR covenant of the contracted four
quarters following the IPD deducting assumed non-recoverable costs
(void rates, void service charge and void insurance)/interest paid)
based on the average of the past four quarters.
[xviii] Facility drawn at 30 September 2021 from a total
available facility of GBP52.5 million.
[xix] Total interest rate as at 30 September 2021 comprising 3
months LIBOR of 0.082% and the margin of 1.6% at an LTV below 60%
and a margin of 1.90% above 60% LTV.
[xx] This covenant drops to 60% after year three of the
five-year term.
[xxi] Loan balance divided by property value as at 30 September
2021.
[xxii] For the quarter preceding the Interest Payment Date
('IPD'), (rental income received - void rates, void service charge
and void insurance)/interest paid.
[xxiii] The projected ICR covenant of the contracted four
quarters following the IPD deducting assumed non-recoverable costs
(void rates, void service charge and void insurance)/interest paid)
based on the average of the past four quarters.
[xxiv] Facility drawn at 30 September 2021 from a total
available facility of GBP52.5 million.
[xxv] Total interest rate as at 30 September 2021 comprising 3
months LIBOR of 0.082% and the margin of 1.6% at an LTV below 60%
and a margin of 1.90% above 60% LTV.
[xxvi] This covenant drops to 60% after year three of the
five-year term.
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