NAV and Dividend Announcement

Schroder Real Estate Inv Trst Ld

31 July 2024

 

For release 31 July 2024

Schroder Real Estate Investment Trust Limited

('SREIT' or the 'Company')

NAV AND DIVIDEND ANNOUNCEMENT FOR THE QUARTER TO 30 JUNE 2024

Income focus driving NAV growth and fully covered dividend, with leasing pipeline to capture portfolio reversion

Schroder Real Estate Investment Trust Limited ('SREIT' or the 'Company'), the actively managed REIT focused on improving the sustainability performance of buildings to generate higher income, announces its net asset value ('NAV') and dividend for the quarter to 30 June 2024, and provides an update on activity.

Highlights:

·    NAV increase of 0.5% to £289.0 million or 59.1 pence per share ('pps') (31 March 2024: £287.4 million or 58.8 pps), driven by a 0.3% increase in the value of the underlying portfolio, net of capital expenditure.

·    Quarterly dividend paid of £4.2 million, or 0.853 pps, 103% covered by recurring earnings, resulting in a quarterly NAV total return of 2.0%. 

·    Announcement of an interim dividend of 0.853 pps for the period 1 April 2024 to 30 June 2024, to be paid on 30 August 2024.

·    Net loan to value 36.9% (31 March 2024: 37.1%), with sector-leading debt terms including an average interest cost on debt drawn of 3.5%, an average loan duration of 9.5 years and no debt maturities until June 2027.

·    Strong leasing momentum since 31 March 2024, with 27 new lettings, renewals and rent reviews completed across 278,000 sq ft, generating £2.3 million of contracted annual rental income.

·    Significant near-term leasing pipeline, notably at the recently completed industrial refurbishments in Manchester, Milton Keynes and Swindon, which should further drive income and earnings growth.

·    Progressing strategy to include sustainability at the centre of the Company's investment proposition, with a sustainability improvement and decarbonisation strategy focused on adapting existing buildings into those that are both modern and fit for purpose.

Alastair Hughes, Chair of the Board, commented: "Following a significant correction, there are increasing signs that the UK real estate market is positioned for a recovery in late 2024 and into 2025.  Whilst economic growth remains muted, greater political stability, falling interest rate expectations, and resilient occupational markets are stimulating more interest in the sector." 

Nick Montgomery, Fund Manager, added: "The 0.5% quarterly net asset value increase follows the 0.2% increase in the prior quarter and demonstrates the resilience of our underlying portfolio, which is both high yielding and weighted towards higher growth sectors.  There is an encouraging pipeline of new leasing activity as we continue to capture the high portfolio reversion and significant work is ongoing implementing our Brown to Green strategy, with a full update to be provided with the interim results later this year."

NAV

A breakdown of the quarterly movement in the NAV is set out below:

	£m	PPS	Comments
NAV as at 31 March 2024	287.4	58.8	Calculation based on 489,110,576 shares.
Unrealised increase in the valuations of the direct real estate portfolio and Joint Ventures	2.4	0.5	Capital value increase, net of capital expenditure (see below), of 0.3%.  This compares with an increase in the MSCI Monthly Index, a proxy for the Company's MSCI Benchmark to be released shortly, of 0.2%.
Capital expenditure (direct portfolio and share of Joint Ventures)	(0.7)	(0.1)	Relating to various projects across the portfolio.
EPRA earnings	4.3	0.9	Resulting in dividend cover of 103%.
Dividend paid	(4.2)	(0.9)	Dividend for the quarter ended 31 March 2024 paid on 28 June 2024 of 0.853 pps.
Unrealised fair value movement on the interest rate collar	0.1	0.0	Relating to the RBSI revolving credit facility.
Others	(0.3)	(0.1)	All other items including lease incentives and rounding.
NAV as at 30 June 2024	289.0	59.1	Calculation based on 489,110,576 shares

Dividend payment

The Company announces an interim dividend of 0.853 pps for the period 1 April 2024 to 30 June 2024. The dividend payment will be made on 30 August 2024 to shareholders on the register at the record date of 9 August 2024. The ex-dividend date will be 8 August 2024.

The dividend of 0.853 pps will be wholly designated as an interim property income distribution ('PID').

Property portfolio

As at 30 June 2024, the underlying portfolio comprised 39 properties valued at £461.6 million. It generated an annual rent of £30.1 million, reflecting a net initial yield of 6.1% (latest MSCI Benchmark:  5.2%). The portfolio's estimated rental value ('ERV') is £39.2 million, reflecting a reversionary yield of 8.5% (latest MSCI Benchmark:  6.1%).

The void rate was 11% calculated as a percentage of ERV, and the weighted average unexpired lease term, assuming all tenants vacate at the earliest opportunity, is 5.3 years.

The tables below summarise portfolio information as at 30 June 2024:

Sector weighting

	Sector as a % of total value
	SREIT	MSCI Benchmark*
Industrial	50.3	32.8
Office	24.6	22.5
Retail warehouse	11.6	9.3
Retail	7.7	9.8
Retail ancillary to main use	4.9	-
Retail single use	2.8	-
Other	5.9	19.7
Shopping centres	-	1.9
Unattributable	-	4.1

*MSCI Benchmark data as at 31 March 2024 with data as at 30 June 2024 to be released shortly

Region weighting

	Region as a % of total value
	SREIT	MSCI Benchmark*
Central London	8.3	16.7
South East excluding Central London	17.1	34.4
Rest of South	10.7	6.6
Midlands and Wales	21.6	23.4
North	40.0	14.4
Scotland	2.3	4.4
Northern Ireland	-	0.2

*MSCI Benchmark data as at 31 March 2024 with data as at 30 June 2024 to be released shortly

Portfolio activity

There continues to be a high volume of leasing activity across the portfolio, with 27 new lettings, renewals and rent reviews completed across 278,000 sq ft since 31 March 2024 (including the period since 30 June 2024), generating £2.3 million of contracted annual rental income.  Further details are set out below:

Industrial portfolio

Following recently completed projects at Stanley Green Trading Estate in Greater Manchester, Stacey Bushes Industrial Estate in Milton Keynes, and Stirling Court in Swindon, the Company has implemented a leasing strategy with the potential to generate rent from these newly developed or refurbished units of £1.5 million per annum.  Interest levels are encouraging, supported by the related sustainability improvements, and completion of these lettings is a key strategic priority for the asset management team.

Good progress is also being made delivering value-enhancing new lease agreements with existing tenants across the industrial portfolio.  For example, at Horton Park Industrial Estate in Telford, the lease to the largest tenant, Trioworld UK Limited, who occupy 76,000 sq ft across five units representing 49% of the floor area, has been extended from 1.5 to nine years at a new headline rent of £496,155 per annum.  This reflected an increase of 50% above the previous rent of £331,171 and 8% above the previous rental value, with Trioworld receiving an incentive of eight months' rent free.  The activity increased the value to £13.75 million, an uplift of 9% over the quarter, with the transaction also providing evidence for future rent reviews and renewals.

Office portfolio

Good progress is being made reducing void risk across the office portfolio through pre-lets and refurbishments.   As previously reported, a major phased refurbishment is being completed at The Tun in Edinburgh, a multi-let office located close to the Scottish parliament.  The Company has now received planning consent for the latest phase of works linked to a pre-let with SLR Consulting Limited at a rent of £425,000 per annum.  The works are due to complete by late 2024 and are targeting an EPC A rating, providing beneficial headline rental evidence for forthcoming rents reviews and lease renewals.  The Company is also progressing several office disposals on completion of asset management initiatives.

Retail portfolio

The Company's retail portfolio largely comprises value-focussed retail warehousing and convenience assets in catchment dominant urban areas.  At St. John's Retail Park in Bedford, the Company's largest retail asset, a letting to Starbucks has been completed at a rent of £155,000 per annum, alongside a linked letting to Starbucks at the Company's retail warehouse asset in Milton Keynes at £105,000 per annum.  The evidence at Bedford has been used to complete a post-quarter end lease extension with Costa Coffee, whose lease has been extended from four to nine years at a new rent of £126,000 per annum, an increase of 73%.  Costa received a rent-free period of three months.

At Headingley Central in Leeds, the Company's second largest retail asset, there is good interest in the former Wilko unit, which is under offer to a global food service retailer and a national restaurant group above the prevailing rent and ERV. Finally, and as previously reported, the Company is progressing a planning application at Churchill Way West in Salisbury for a new letting to an international discount retailer materially above the prevailing rent.       

Balance sheet and debt

The average interest rate for total debt drawn at the quarter end was 3.5%, with an average maturity of 9.5 years, and 91% either fixed or hedged against movements in interest rates.  The Company has significant headroom on all covenants and a summary of the key terms as at 30 June 2024 is in the table below:

Lender	Drawn loan (£m)	Maturity	Total interest rate (%)
Canada Life	129.6	50%: 15/10/32 50%: 15/10/39	2.49%	Fixed rate loan.
RBSI	47.0	06/06/27	6.2%	£75 million revolving credit facility ('RCF'), of which £47 million is drawn.  Loan margin 1.65% over SONIA.  £30.5 million benefits from an interest rate collar at 4.25% to maturity, whilst allowing the Company to benefit from future falls in interest rates down to a floor of 3.25%.  The balance of the loan is floating. The RCF is a 'Green Loan', with criteria linked to reduced energy consumption, future improvements in the GRESB rating and certification linked to building improvements.
Total	176.6	Weighted 9.5 years	3.48%

As at 30 June 2024, the Company had cash, including cash held in joint ventures, of £6.1 million and a net loan to value ratio of 36.9%, slightly above the long-term strategic target range of 25% to 35%. The Company is taking steps to reduce the net loan to value ratio back in line with the target range.

-ENDS-

For further information:

Schroder Real Estate Investment Management Limited: Nick Montgomery / Bradley Biggins / Matthew Riley	020 7658 6000
FTI Consulting: Dido Laurimore / Richard Gotla / Ollie Parsons	020 3727 1000

 

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