Schroder Real Estate Investment Trust Ltd · LSE:SREI
Schroder Real Estate Investment Trust — H1 FY2025 Earnings Presentation
46 slides from Schroder Real Estate Investment Trust's earnings presentation, Nov 26, 2024
Slide 1: Schroder Real Estate Investment Trust Limited
26 November 2024 SCHRODER REAL ESTATE INVESTMENT TRUST LIMITED Unaudited results for the six months ended 30 September 2024 Marketing material. Nick Montgomery Bradley Biggins Fund Manager Co-Manager
Slide 2: Well positioned with high income and low debt cost
Well positioned with high income and low debt cost Portfolio focused on higher growth sectors with a reversionary yield of 8.4% (MSCI Benchmark: 6.1%) 02 6.9%1 dividend yield 102% covered by earnings over the half year2 Robust balance sheet provides dividend protection: 3.5% current average interest
Slide 3: Increasing exposure to higher growth sectors drives NAV and dividend growth
Increasing exposure to higher growth sectors drives NAV and dividend growth Recovery in UK real estate values and fully covered dividend contributed to a Net Asset Value (‘NAV’) total return of 4.0% 62% portfolio exposure to higher growth multi-let industrial and retail Stacey Bushes, Milton Keynes
Slide 4: NAV per share increase of 1.0% and a NAV total return of 4.0%
NAV per share increase of 1.0% and a NAV total return of 4.0% NAV movement over six-month period to 30 September 2024 £m PPS Portfolio value growth of 0.9% MSCI Benchmark: 0.3% NAV as at 31 March 2024 287.4 58.8 Unrealised net increase in the valuations of the direct real estate 6.3 1.2 portfolio an
Slide 5: Dividends 102% covered following 2% increase over period
Dividends 102% covered following 2% increase over period Further 3% increase in quarterly dividend announced, to be paid in December Six months ended 30 September Asset management activity drives increase in rent, more 2023 2024 Change £m than offsetting the impact of the sale of two office assets R
Slide 6: Long term debt at an attractive interest rate
Long term debt at an attractive interest rate Fixed or capped interest rates for 89% of drawn debt Debt Debt available drawn £204.6m £179.6m Undrawn RCF £25.0m Non-utilisation cost of 0.62% Overall loan to value, net of cash RBSI RCF, £75.0m £19.5m £30.5m Drawn RCF – no interest rate hedge Floating
Slide 7: Opportunity to capture rental reversion to continue growing dividend
Opportunity to capture rental reversion to continue growing dividend Targeting a sustainable and progressive dividend policy Quarterly dividend payments (pence per share) Term loan Postponed due to Sustainable and progressive dividend policy refinancing market uncertainty 1.000 0.853 0.853 0.879 0.9
Slide 8: Long term outperformance of the portfolio vs. MSCI Benchmark
Long term outperformance of the portfolio vs. MSCI Benchmark1 Higher income and asset management generating relative outperformance Six-month portfolio total return One-year portfolio total return Three-year portfolio total return 1.1% relative outperformance p.a. 3.0% relative outperformance p.a. 4
Slide 9: Market Context
MARKET CONTEXT
Slide 10: UK borrowing plans in budget sends UK gilt yields up
UK borrowing plans in budget sends UK gilt yields up BoE delivers further rate cut in November – market more cautious about speed of further cuts Interest rate implied probabilities (%) from options on 25 All Property initial yield vs 10-year gilt yields November – next decision 19 December Yield %
Slide 11: UK real estate performance
UK real estate performance Capital values have stabilised – rental growth continues Capital Values by Sector Rental Values and Yields June 2022 = 100 Rental Values, June 2022 = 100 All Property Initial Yield % 100 110 5.8 109 5.6 95 108 5.4 107 90 5.2 106 85 105 5.0 104 4.8 80 103 4.6 102 75 4.4 101
Slide 12: UK real estate investment market
UK real estate investment market Investment volumes have stabilised with notable increase in market activity Quarterly UK all property investment: Cumulative monthly UK all property investment: Volume (£bn) Volume (£bn) 80 80 70 70 60 60 50 50 40 40 30 30 20 20 10 10 0 0 Jan Feb Mar Apr May Jun Jul
Slide 13: Prospective UK real estate performance
Prospective UK real estate performance Positive returns returning in 2024 with attractive and above recent average returns from 2025 onwards UK All Property Total return and components % Forecast 25 5Y-avg total return: 8.3% p.a 20 15 10.1 9.6 10 8.6 8.3 4.9 5 0 -5 -10 -15 -20 -25 -30 Income return
Slide 14: Strategy
STRATEGY
Slide 15: Sustainability at the centre of SREIT's investment proposition
Sustainability at the centre of SREIT’s investment proposition Investment strategy Proof of concept – Stanley Green Trading Estate, Manchester We have enhanced SREIT’s strategy: Investment policy includes sustainability objectives and two sustainability KPIs Clear governance and proprietary ESG Scor
Slide 16: St Ann's House – Sustainability improvements to drive a higher rent
St Ann’s House – Sustainability improvements to drive a higher rent Mixed-use office and retail building in Manchester city centre: Valuation £12.0m, NIY 7.6%, RY 11.6% Before improvement works After improvement works2 Expected financials Summarised scorecard as at 1 April 2024 1 Topic Score Rent tr
Slide 17: Pipeline initiatives – change of use to create value
Pipeline initiatives – change of use to create value Langley Park Industrial Estate, Chippenham Haywood House, Cardiff (£25.2m/NIY 8.2%/RY 8.2%) (£4.15m/NIY 4.5%/RY 13.0%) Strategy Strategy Obtain planning on the Obtain planning to 6-hectare, or 14.1-acre, convert the asset to a site (outline green
Slide 18: Portfolio Overview
PORTFOLIO OVERVIEW
Slide 19: Portfolio analysis
Portfolio analysis Granular portfolio with high income return Diversified portfolio Structure as a % of portfolio value¹ 95% multi-let industrial Metrics as at 30 Sept 2024 SREIT/(MSCI) 50.3 Industrial estates 32.4 Portfolio value (£m) 465.5 Office - 10.3 100% let to University Number of properties
Slide 20: Void analysis
Void analysis 11.2% within ten-year range of 5–13% Void ERV as a % of Void ERV as at Let or under offer Asset portfolio ERV as at Comment 30 Sept 2024 post 30 Sept 2024 30 Sept 2024 Cheadle, Stanley Green Trading Est (Industrial) £749,184 1.9% 1.1% Vacant new units (£0.6m), former gym on existing es
Slide 21: Operational excellence in asset management
Operational excellence in asset management Attractive and growing reversionary rental yield of 8.5% (Benchmark1 6.1%) £m +31% 3.8 39.4 40.0 2.0 2.2 0.6 30.1 0.7 30.0 £0.21m now let with a further 20.0 £0.12m under offer 10.0 0.0 Annual rent Fixed uplifts Further fixed uplifts Stanley Green ERV in ex
Slide 22: H2 asset management programme to drive future earnings growth
H2 asset management programme to drive future earnings growth Post period end activity includes: Potential future activity: Stirling Court, Swindon Target disposal(s) of c.£40m Completed new letting of Unit C – Sell lower yields c.5.5% – £8.25 per sq ft or £281,342 per annum – Pay down uncapped RCF
Slide 23: Summary
SUMMARY
Slide 24: Well positioned with high income and low debt cost
Well positioned with high income and low debt cost UK real estate market values stabilising, supported by limited development, positive rental value growth, lower inflation and the beginning of an interest rate cutting cycle Underlying portfolio continues to deliver strong relative outperformance vs
Slide 25: Appendix
APPENDIX
Slide 26: SREIT resources
SREIT resources SREIT Board Real Estate Sustainability & Impact Key Resources Charlie Jacques Robert Varley Oliver Kummerfeld James Lowe Alexandra Innes Head of Sustainability Head of Sustainability and Head of European Client Director Alastair Hughes Priscilla Davies Sanjay Patel Senior Independent
Slide 27: UK economic prospects
UK economic prospects Growth outlook for 2024 has been significantly upgraded Forecast GDP growth for 2024 UK: GDP Growth (real, %, yoy) and Forecast GDP Annual Growth, % 2.0 4.5 Forecast 1.8 4.0 1.6 3.5 1.4 3.0 1.2 2.5 1.0 2.0 0.8 1.5 0.6 1.0 0.4 0.5 0.2 0.0 0.0 -0.5 Q1 2023 Q1 2024 Q1 2025 Q1 2026
Slide 28: UK inflation
UK inflation Inflation had decreased back to target, but the UK budget is inflationary UK CPIH and CPI (change y-o-y %) Contributions to the annual CPI inflation rate (%) 12.0 12.0 10.0 10.0 8.0 8.0 6.0 4.0 6.0 2.0 4.0 0.0 -2.0 2.0 Jun 22 Jun 23 Jun 24 Feb 22 Feb 23 Feb 24 Aug 22 Aug 23 Aug 24 Oct 2
Slide 29: Market context: Rental growth
Market context: Rental growth Rental growth recovering vs. past market corrections, with structural tailwinds and lower supply All UK Property All UK Industrial Rental Growth Index vs. prior downturn Rental Growth Index vs. prior downturn 118 118 116 116 114 114 112 112 110 110 108 108 106 106 104 1
Slide 30: Continued sector divergence expected
Continued sector divergence expected Industrial and ‘other’ segments anticipated to outperform with evidence of retail finding a floor Five-year expected total returns and components: 2024–2028 p.a. 12% 10% 8% 6% 4% 2% 0% -2% Rest of South East Offices Rest of UK Offices West End & Mid-Town Offices
Slide 31: Discrete yearly performance
Discrete yearly performance Refinancing charge is no longer in the three-year NAV performance 12 months to 12 months to 12 months to 12 months to 12 months to Discrete yearly performance (%) Sept–2024 Sept–2023 Sept–2022 Sept–2021 Sept–2020 Share Price1 36.0 -4.7 -0.3 61.8 -39.5 SREIT NAV Total Retu
Slide 32: Like-for-like capital growth net of capex
Like-for-like capital growth net of capex Qtr to Qtr to Qtr to Qtr to 6 months to 12 months to 3 years to 5 years to Dec 23 Mar 24 Jun 24 Sept 24 Sept 2024 Sept 2024 Sept 2024 (p.a) Sept 2024 (p.a) Portfolio Industrial -1.5% 0.6% 0.9% 0.7% 1.6% 0.7% 1.8% 5.1% Offices -1.6% -1.5% -0.8% -0.6% -1.4% -4
Slide 33: Diversified portfolio of assets with good fundamentals
Diversified portfolio of assets with good fundamentals Offering significant asset management potential # Property Sector Value (£m)¹ % Portfolio1 1 Milton Keynes, Stacey Bushes Ind Est Industrial 51.8 11.1 2 Leeds, Millshaw Park Industrial Estate Industrial 45.8 9.8 3 Cheadle, Stanley Green Trading
Slide 34: Attractive and granular tenant base increases resilience
Attractive and granular tenant base increases resilience Focused on operational excellence to attract occupiers on better terms # Tenant Annual rent (£m) % of portfolio 1 The University of Law Limited 2.04 6.78 2 Buckinghamshire New University 1.30 4.32 3 Siemens Mobility Ltd 1.23 4.09 4 Express Bi
Slide 35: Enhancing total return for SREIT shareholders
Enhancing total return for SREIT shareholders Adapt existing buildings with attractive fundamentals, targeting the following sustainable attributes, to achieve the Green Premium: Access to high- quality green Improved natural Progressing towards energy Enhanced health and space and community resourc
Slide 36: Implementation of new strategy
Implementation of new strategy Report to shareholders: Provide an update on progress with the September 2024 interim results 2022 H1 2023 H1 2023 21 Nov 2023 15 Dec 2023 June 2024 June 2024 April 2025 Enhanced Nov 2024 Market analysis: Development of Schroders Circular published investment policy Se
Slide 37: Baseline asset scores and portfolio carbon emissions
Baseline asset scores and portfolio carbon emissions Sustainability KPI 1 ESG Scorecard (asset level) Sustainability KPI 2 NZC commitments (portfolio level) Valuation as at ESG scorecard Target reduction in whole building greenhouse gas intensity by 2030 to be aligned to a 1.5°C Target ESG global wa
Slide 38: Applying Schroders proprietary 'ESG Scorecard'
Applying Schroders proprietary ‘ESG Scorecard’ Holistic approach to assessing asset-level sustainability performance and improvements A B AxB Criteria to assess Sub-topic Sub-topic Sub-topic Area Topic Sub-topic score weighting score weighted score 0-5 1. Fabric, Services and Utilities 5 topics 2. E
Slide 39: Debt details as at 30 Sept 2024
Debt details as at 30 Sept 2024 Consolidated net LTV is 37.3% versus target long-term strategic range of 25–35% – The Company has two debt facilities – a £129.6 million long term fixed loan and a £75.0 million revolving credit facility of which £50.0 million is drawn Net LTV Forward Maximum Maximum
Slide 40: Results for the six months ended 30 September 2024
Results for the six months ended 30 September 2024 Key Income Statement and Balance Sheet metrics: Six months ended 30 September 2024 30 September 2023 % change IFRS profit £11.7m £3.5m 234% EPRA1 earnings £8.5m £8.4m 1% EPRA1 earnings per share 1.7 pps 1.7 pps 0% Dividends per share paid 1.71 pps 1
Slide 41: Statement of Comprehensive Income
Statement of Comprehensive Income 30 September 2024 30 September 2023 Six months ended £m £m Rental income – direct portfolio 13.2 12.7 Share of total net income in joint ventures 1.8 1.4 Other income 0.3 1.0 Property operating expenses (1.1) (1.0) Net rental and related income, including joint vent
Slide 42: EPRA earnings
EPRA earnings IFRS earnings excluding capital items such as unrealised property gains/(losses) and gains/(losses) on asset disposals, together with any realised or unrealised gains or losses on interest rate derivatives 30 September 2024 30 September 2023 Six months ended: £m £m IFRS profit after ta
Slide 43: Sustainability KPIs in the investment policy
Sustainability KPIs in the investment policy Sustainability KPI 1 Sustainability KPI 2 ESG Scorecard (asset level) Net zero carbon commitments (portfolio level) – The Company’s assets will be managed with a view to ensuring – Further, the Company's assets will also continue to be managed that at any
Slide 44: Risk considerations
Risk considerations Prospective Investors should be aware of the associated risks and special factors of the Real Estate asset class which are not related to investments in traditional listed instruments. Attention is drawn to the following specific risks: Credit risk A decline in the financial heal
Slide 45: Important Information
Important Information Marketing material. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. The views and opinions contained herein are those of the author's, or the individual to whom they are attributed, and ma
Slide 46: Thank you
THANK YOU Schroder Real Estate Investment Management Limited 1 London Wall Place London EC2Y 5AU
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