Net Asset Value, New Acquisitions and Dividend ...

For release July 2018

Schroder Real Estate Investment Trust Limited

NET ASSET VALUE, NEW ACQUISITIONS AND DIVIDEND INCREASE

Schroder Real Estate Investment Trust (the ‘Company’), the actively managed UK-focused REIT, announces its net asset value (‘NAV’) and dividend for the quarter to 30 June 2018:

• Unaudited NAV as at 30 June 2018 of £358.8 million or 69.2 pence per share ('pps');
• Quarterly NAV total return, including the dividend of 0.62 pps, of 2.3%; and
• An interim dividend of 0.62 pps for the period 1 April 2018 to 30 June 2018 which will be paid on 31 August 2018 to shareholders on the register as at 10 August 2018.  The ex-dividend date will be 9 August 2018.

Since the period end, the Company has made progress with its strategy to grow net income. In addition to the two debt refinancings announced on 4 July 2018, the Company also today announces:

• Exchanged unconditional contracts to acquire two office buildings in Edinburgh and Nottingham at a combined price of £21.05 million, reflecting a net initial yield of 6.7%;
• The Company will increase its annual dividend by 5% for the quarter from October to the end of December 2018;
• For the next immediate quarter to the end of September 2018, to reflect the acquisitions completing in mid-August, the Company will increase its dividend by 2.5%, with the 5% increase taking the full affect thereafter;
• This equates to a dividend of 0.634 pps for the period 1 July 2018 to 30 September 2018; and a dividend of 0.65 pps for the period 1 October to 31 December 2018. Details of future dividend payment and ex-dividend dates will be announced in due course.

Net Asset Value

	£m	pps	Comments
NAV as at 31 March 2018	353.6	68.2
Unrealised change in valuation of direct property portfolio	7.3	1.4	Like-for-like quarterly increase in the underlying portfolio value of 1.5% before capital expenditure.  Performance over the quarter was driven by industrial assets which increased in value by 5.2%.  This was partly off-set by retail assets that fell in value by 1.2%.
Capital expenditure	(0.8)	(0.2)	Includes £235,000 at Millshaw Industrial Estate in Leeds and £220,000 at the Arndale Centre.
Unrealised loss on joint ventures	(0.6)	(0.1)	Due to capital expenditure at City Tower.
Net revenue	3.1	0.6	Reflects dividend cover of 98%.
Dividends paid	(3.2)	(0.6)	Reflects an annualised dividend of £12.8 million or 2.48 pps.
Others	(0.6)	(0.1)	Adjustment for lease incentives.
NAV as at 30 June 2018	358.8	69.2

Further information is provided below on the Company’s property portfolio, acquisitions and debt.

Property portfolio

As at 30 June 2018, the underlying portfolio comprised 44 properties valued at £484.5 million.  At the same date the portfolio produced a rent of £27.0 million per annum reflecting a net initial yield of 5.2%.  The portfolio rental value is £33.6 million per annum, resulting in a reversionary yield of 6.9%. 

As at 30 June 2018 the void rate was 5.9% and the average unexpired lease term, assuming all tenants vacate at the earliest opportunity, was 6.7 years.  The tables below summarise the portfolio information as at 30 June 2018:

Sector weightings	Weighting %
	SREIT	MSCI Index*
Offices	36.3	29.3
Retail	29.5	35.0
Industrial	27.9	25.2
Other	6.3	10.4

* Latest available MSCI Index data as at 31 March 2018

Regional weightings	Weighting %
	SREIT	MSCI Index*
Central London	7.5	13.6
South East excluding Central London	29.8	38.9
Rest of South	7.1	16.2
Midlands and Wales	27.0	13.8
North and Scotland	28.6	17.5

* Latest available MSCI Index data as at 31 March 2018

Acquisitions

The Company has exchanged unconditional contracts to acquire two office investments in Edinburgh and Nottingham for £21.05 million. The acquisitions are consistent with the Company’s strategy of purchasing properties with good fundamentals in higher growth locations.

The combined acquisition price reflects a net initial yield of 6.7% and a reversionary yield, based on the independent valuers’ view of the rental value, of 7.6%.  The acquisitions will be funded using existing cash and the RBS revolving credit facility (‘RCF’).  The acquisitions are due to complete on 10 August and are summarised below:

Edinburgh, The Tun

• 43,500 sq ft office heritable interest (Scottish equivalent of a freehold) located in the Holyrood district of Edinburgh;
• Let to nine tenants including the BBC Scotland, the European Parliament, the General Medical Council and Cloudreach Europe at an average office rent of £18.00 per sq ft; and
• Average unexpired lease term of 5.6 years to lease expiry and 3.5 years assuming all tenants break at the earliest opportunity.

Nottingham, The Arc

• 45,200 sq ft freehold office located on a business park in Nottingham that is adjacent to a tram stop that provides a regular, six minute service to the city centre;
• Let to four tenants namely HSBC bank plc, Geldards LLP, CIS General Insurance Limited and Ryley Wealth Management with an average office rent of £17.90 per sq ft; and
• Average unexpired lease term of 5.4 years to lease expiry and 2.3 years assuming all tenants break at the earliest opportunity, with negotiations ongoing that if completed will increase the average lease term.

Debt

The Company announced on 3 July that it had completed two refinancings:

• Extended the £25.9 million portion of the Canada Life debt that was due to mature in 2023 to 2028, with a reduction in the total interest rate from 4.8% to 3.1%.  This resulted in an interest saving of approximately £435,000 per annum; and
• Extended the RCF with Royal Bank of Scotland (‘RBS’) that was due to mature in July 2019 to July 2023.  In addition the RCF facility was increased from £20.5 million drawn to a maximum of £32.5 million.

The debt refinancings capitalise on current low interest rates and reposition the balance sheet for a lower cost and longer term. This active management of the balance sheet results in:

• Competitive financing terms that lengthen both near-term debt maturity dates by five years, and extend the average weighted debt term from 7.7 years to approximately nine years;
• The overall cost of debt reduces from 4.4% to 4.0% assuming the RCF is fully drawn;
• Over 80 per cent. of the Company’s debt is fixed with the remainder capped; and
• Enlarged RCF provides additional liquidity for acquisitions and capital expenditure, with the ability to efficiently de-gear following asset sales or equity issuance.

The costs associated with the refinancing activity to date total £2.7 million and will be reflected in the NAV as at 30 September 2018.

On completion of the acquisitions, and incorporating the impact of the refinancings, the Company’s net loan-to-value will be approximately 29%, comfortably within the Company’s target range of 25% to 35%.

-ENDS-

For further information:

Schroder Real Estate Investment Management Limited: Duncan Owen / Nick Montgomery / Frank Sanderson	020 7658 6000
Northern Trust: James Machon / Fraser Hiddelston	01481 745529
FTI Consulting: Dido Laurimore / Ellie Sweeney/ Richard Gotla	020 3727 1000