Schroder Real Estate Investment Trust (LSE:SREI) — Full Year Results for year ended 31st March 2022

0:01 Good afternoon, ladies and gentlemen, and welcome to the SCHRODER REAL ESTATE INVESTMENT TRUST LIMITED full year results investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time via the q and a tab that's just situated on the right hand corner of your screen. Please just simply type in your questions and press send.

0:22 The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all of the questions submitted today and publish responses where it is appropriate to do so. These will be available via your investor meet company dashboard, and we will notify you by email when these are ready for your review. Before we begin, I would like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And I'd now like to hand over to Nick Montgomery, head of UK investment. Good afternoon, sir. Good afternoon. Many thanks for that introduction, and and welcome to everybody for what, for us, is the first investment company presentation, that that we have given. So so I'm Nick Montgomery. I look after The UK real estate business, and I am the fund manager for SREIDA REAL ESTATE INVESTMENT TRUST. And jointly responsible for the fund with me is Bradley Biggins, who, is with me here today.

1:15 So just turning to the first slide. As I say, this is the first time that we have, carried out a presentation on this platform. And and I guess, therefore, just by way of a high level overview. So so SCHRODER REAL ESTATE INVESTMENT TRUST is what it says on the tin. It is a REIT. It's main market London listed. Our strategy is to own a diversified portfolio of high growth assets across The UK, which is there to deliver an attractive income return with the potential for long term both income and capital growth. So so just, again, a bit of background. So Bradley and I obviously work at SCHRODER REAL ESTATE. We're part of a broader private assets team within SCHRODERs. The UK business within SCHRODERs is is large.

2:00 So we run about £14,000,000,000 of direct UK real estate assets within the team. We have access to a 100 professionals, over 30 of which are front office investors and asset managers who are themselves specialists in different parts of The UK real estate market. And as we hopefully go through the presentation, you'll get a sense of of the activity that is going on across the portfolio. Before we dive into that and in particular highlight some of the detail from our year end results to 03/31/2022, we thought we'd just give a a little bit of color just in terms of a high level numbers for the portfolio. So I guess the first point to note is we have just announced the net asset value of 372,000,000 as at March 31. That reflects a NAV per share of 75.8p per share, which versus our share price at the close of the June 8 reflects a discount to NAV of about 26%, which is broadly in line with with the peer group average.

3:05 And, actually, based on the dividend, and I'll come back to to earnings and dividends in a moment, that reflects a dividend yield of about 5.7%, which we we think is is obviously very attractive when when you hear about the quality of the portfolio and the opportunities within it. From a portfolio perspective, as I said at the introduction, we're there to own a diverse portfolio but very much focused on the high growth parts of The UK real estate market. And we think at this stage in the cycle, the ability to tack and change between sectors is a real benefit, and more on that later. But in terms of the key numbers, we own 42 assets with a portfolio value of just under 525,000,000. If you looked at our company at any point, really, since its inception in 2004, we've always tended to have a higher average income return than our peers. So the average income return for the portfolios, which is taking the rent as a a a divided into our portfolio value, is about 5.4%, which compares to the benchmark today. And and when I say the benchmark, I will refer to that term throughout the presentation. We're talking about an MSCI property level benchmark of our of our peers.

4:09 That compares to the peers at about 3.9%. So we have a very significant premium in terms of additional yield from our portfolio. In the same way, when we talk about reversionary yields, which looks at the potential rent from the portfolio, that is also much higher at 6.4% versus a benchmark of 4.6%. I guess the the other point to note in very high level terms is whilst we're a we're a very active manager, we we manage our assets very aggressively, particularly now with the focus on ESG, we we have a very secure and stable balance sheet. And so our our net loans are valued, based on that favorable March, valuation I mentioned, is today about 28.6%.

4:55 And importantly, and more detail later, we have the longest duration, lowest comp debt, lowest cost debt across our peer group. Just finally on this slide, you can see on the right hand side here, we've got the high level portfolio weightings. Again, we have the ability to tack and change between sectors. We have, over the course of the last three or four years, increased our industrial weighting. So our exposure to multilect industrial estate is now almost half of the portfolio value, and we've typically had a broad spread across, The UK in terms of geography. But as I said, very focused on those higher growth winning cities. So we are therefore heavily invested in places like Manchester, Leeds, Edinburgh, and in fact, one of our largest assets is in a particular submarket of London called Bloomsbury, which we think is is really interesting.

5:41 And, again, more on that later. So just moving on through the slides, I we thought we'd just give, before we go into more detail, just a high level overview of some of our assets just to give an illustration of the quality of the properties that we own. And moving from the left to right, our industrial portfolios almost exclusively comprise good quality, multi let, regional industrial estates. You can see here our largest assets on the top left hand corner is an estate that we own in Milton Keynes, where we've had very strong levels of performance. Likewise, in the bottom left hand side there is a is is one of the best in fact, one of the largest contiguous own industrial estates in a single ownership in Leeds located right on the Ring Road. In many cases, our industrial estates are located in areas where we are in a lowest value land use despite having had the very strong levels of of performance within the industrial market. And that's very deliberate because although, obviously, no one's really building multilect industrial estates anymore, and therefore, we we don't or or is an attractive demand and supply imbalance. It also means that long term, there are alternative uses that we can bring into the site. So for example, at Leeds, quite recently, we we introduced a new gym use at a high rent compared with what existing use rents were at the time.

6:59 Moving to the middle, as I mentioned, the phrase winning cities. So we we are invested within the office sector, but very targeted at the high growth regional cities and London submarkets. Image you can see in the top middle there is a is a large asset that we own a 25% share of in Manchester, right in Manchester City Centre, where we have a a multi set office building, but also some educational use as well as a hotel with some retail and leisure on Ground Floor that has very very high levels of footfall. The asset you see at the bottom there is our assets in Bloomsbury. So as I mentioned earlier on, it's one of our preferred submarkets, obviously benefiting from the cross rail effect, but also increasingly attracting an alternative wide range of occupiers, educational, life science, tech, media, etcetera, and we and we think we're well placed as a result of that.

7:46 And on the right hand side, the retail sector. So so our retail exposure is now almost exclusively either retail warehousing. So the asset you can see in the top right hand side there is an asset we own in Bedford, where we recently did a deal to put Liddell in, and that really has driven footfall. And in fact, very recently led us to exchange a new lease agreement with Starbucks. But we also own what we call convenience retail. So the image of the bottom right hand corner there is an asset we own up in Headingley just outside of Leeds, where, for example, we've got a Sainsbury's supermarket that what was a vacant office building above, which we turned into a premier in on a new long lease. So good quality portfolio. In fact, the majority of our asset value is comprising in just in those six assets, but the broader diversification comes from a portfolio of of 42 assets in in totality.

8:36 So move moving just into the next stage or next section of the presentation and and drawing a little bit of information out in relation to our results. So our year end is thirty one March, so we have therefore just released our results to the market. The net asset value total return for the twelve months to March was 31%. So one of, if not the strongest twelve months period that we have actually ever had. Over the quarter to March, just to illustrate the fact the momentum had continued within the real estate market, we announced the net asset value total return just under 9%, of which the net asset value went up by about 7.7%. So it's a very strong levels of performance. In contrast, as I mentioned at the start, I guess, as a general comment for the last few years, diversified REITs such as ours have not been in favor, and investors in many cases have preferred to invest in specialist strategies so focused on, as one analyst put it, beds, sheds, and meds.

9:37 But, actually, we think that, certainly, we probably got more interest now following these results than we've ever had, I think, as as investors are looking at relative value for diversified companies versus, some of our specialist peers. I guess why we own this, why we think people should own this, first and foremost, is income. And so what we also reported over the most recent financial year is a 78% interest increase in the dividends paid. And that was partly obviously due to dividends being, for one quarter postponed in relation, obviously, to COVID and and and some prudency there. But it's very encouraging that we have and and more later seen a steady increase in our dividend, and we are, in fact, the only company in our peer group where following a further dividend increase, we are ahead of that prepandemic level, which you which you think is is very positive. And and and importantly, that dividend is fully covered. So a 113% covered on EPRA earnings over the financial year and and sufficiently covered for us to continue paying, as I say, an increasing level of dividend where we believe that is sustainable.

10:47 The balance sheet I've touched on, very strong balance sheet, very low cost of debt, and we'll provide a bit more color on that later. And the last point to note, I guess, is is we have had, as I say, a recovery in the share price. So the shareholder total return of about 53% over the twelve month period, albeit clearly with broader market volatility, the sell off in markets, we have seen the shares trade off a little bit, and which is why as at today, the share price yield represents about 5.7% with a discount of, you know, in the region of 25%, which which, I guess, just underlines our point that we think the shares do look very good value. From a portfolio performance perspective, as I said at the start, we do compare the performance of our portfolio against the MSCI benchmark.

11:33 We have a property level, a very strong long term track record of outperformance against that MSCI benchmark on the eleventh percentile since inception in 2004. But importantly, as well as delivering a higher total return, we have consistently delivered an above average income return, which is really is key to the strategy. And that is all to do with identifying high growth assets, but then of equal importance, having a very clear asset management strategy for those assets and delivering that growth in net income. We've also been active from transactional perspective, so we we we are very disciplined when when we when we believe we've extracted maximum value from assets, we will sell them. And one of the sales we did over the course of the last twelve months or so is an office in Nottingham where we sold that at a 39% premium to book value, having delivered the business plan. And and at least part of those proceeds were reinvested in in some industrial transactions, most notably over the financial year in a portfolio, which we'll touch on briefly later, a high yielding industrial portfolio.

12:37 And then actually more recently post period, year end, and this this partly reflects our views about the market. We made an acquisition in Manchester of a mixed use office and retail assets at a very attractive yield of of 8%. The next column along talks a little bit more about income. I've covered some of these points in the introduction. We do have a a a really attractive income profile from the portfolio, very strong tenant base, which we will talk to in a bit more detail later. That that granularity and strength of the tenant base is reflected in the fact that our rent collection stats now are are back up to pre pandemic levels of of 96 plus percent of rent collected for the most recent quarter. And that all that activity transactions allowed us to recommend to the board, and the board agreed to increase the dividend by another 3%, as I say, ahead of that prepandemic level, which we paid to shareholders in June.

13:34 I guess the last couple of points we will build on later, but but just a bit about the broader strategy. So we are very active managers, and I think, obviously, a key part of actively managing buildings at the moment is focusing on both operational excellence, so the service that we're delivering to occupiers, but also critically how ESG forms part of that. So we're not a fund that is focusing on social value, but what we are focused on is delivering best in class ESG performance through the active management. And we think there's a really interesting opportunity for us to evolve our strategy in a way that differentiates on ESG, allows us, therefore, to deliver more sustainable long term returns, as well as, I think, from a particularly from a retail investor perspective, differentiate ourselves from a what is otherwise a fairly crowded peer group goal of of of balanced competitors.

14:26 And the last point to note on the strategy in the bottom right hand corner there is we have a very good and strong board of independent, knowledge directors. Our chair, Lorraine Baldry, who's been with us for nine years, is stepping down in accordance with best practice, and we have a chair elect who is a current, senior independent director, Alastair Hughes, who we're delighted to say stepping up, from July as chair. Alastair's other roles currently include as non exec director of British Lands and actually also Tritax Big Box. So he brings it in very relevant, but interestingly contrasting experience with with those companies. And we also announced last week to step up to replace Alastair as Sid, a new director called Priscilla Davies, who who amongst other things is currently the chair of UBIS Asset Management in The UK.

15:14 So very strong board. Absolutely keeps Bradley and I on our toes, but definitely adds a lot of value, to the process, particularly around around strategy. So so I'll move on. I'll draw out a couple of points. So, again, some of this might be a little bit too much detail, but but but as this is the first time we presented, we thought we'd provide a bit of background on how we report. So we we have the portfolio independently valued every quarter, and and our our our principal valuer is Knight Frank. Obviously, we have the year end results to March, the interims to September. We do also, put out an audited net asset values in the intervening quarters. Obviously, for this most recent financial year, we did see a strong growth in NAV of just under 26%.

15:59 And with dividends paid, that gave us a NAV total return of 31%. We obviously, as I mentioned, undertook some acquisitions, and and incurred some sale costs. The other line here, which I will point to, is during the most recent financial year, we did a very small number of share buybacks, but we were one of very few in the peer group to undertake more significant buybacks in the prior financial year. And and that was we just thought the shares represented very interesting value, and we bought in at a very big discount over the period over the over that twelve month period. We bought back about £10,000,000 of shares, and that and that that really did serve to concentrate the dividend and and share buyback is something that we review regularly with the board in normal course of business. Moving on in terms of earnings, on the next slide.

16:48 So you can see here, the headlines really over the year, to March 22, we saw a 35% year on year increase in EP earnings.

16:59 The the key reason for that, you can see in the gray bar, where we saw the 12% uplift in rental and related income. It's probably just worth noting that the 27,000,000 number there of of IFRS or accounting income for the financial year actually compares with cash rent. So that's that's a rent that we are effectively billing as of March 31 of over 31,000,000. And that's because, obviously, the rents increased over the course of the year through active management and and through the the acquisitions post post year end. On the expense side, you can see there that we saw expanded over expenses increased slightly, the the 2% increase there. We we do manage expenses very carefully. Part of the reason for that increase, in fact, was the fact that we've done quite a lot of leasing activity.

17:46 And so we therefore saw letting illegal fees coming through, but, obviously, we also saw the income benefit coming through. We also, in fact, agreed a reduction in our fee with the board during the course of the financial year just to bring it bang in line with peers. Really, just just just and we did that entirely voluntarily, but really just to make sure that we had pulled all the levers possible, to demonstrate to shareholders that we would we were delivering on the strategy to drive net income. And so shareholders benefited from that over the year as well. And that really spits out the the margin. You can see their improvement over the year, the dividends paid, and the dividend cover a 113%, noting very importantly that that, obviously, we we have agreed we have, announced a further dividend increase, which we paid in in in June.

18:35 Turning the page in terms of property performance. So this is something that compares our underlying portfolio performance against the MSCI peer group average and and all of our diversified specialist peers, your man, are are are part of this peer group. I guess the key point to note without wanting to overburden you with numbers is in the bottom right hand corner of the slide where you can see the relative outperformance of the underlying assets overall time periods of one year, three years, and since IPO in 2004. And you can see they're really sustained long term outperformance that comes from acquiring those high growth assets and and really actively managing them hard to drive net income, and and capital values.

19:21 So I'll I'll move on to the next slide, and I think this is obviously a compliance slide that that we do need to include. But I think there's one particular point that we want to highlight here. So this this shows the discrete annual performance, both in terms of share price, NAV total return, but also the the return to the underlying portfolio that I've that I've just touched on. What we are highlighting in the dotted red box there is the return for the twelve months of March 2020, and and you'll see that there's quite a big negative there. Now the the reason for that and the reason we're highlighting it is because in October 2019, we undertook a major refinancing of a long term loan that we have with Canada Life. That that loan was previously at an interest rate of 4.4% for some sort of historical reasons.

20:11 And and what we did was make a decision to refinance that loan, extend the loan, and take it down to market rents of 2.5%. Now that incurred a break cost. It wasn't an easy decision at the time. We we we paid the bank 27,000,000, to break to break that loan, but the decision was taken really on the basis to, we believe, from a shareholder total return perspective, looking forward and with the emphasis on income, that was the right thing that we should be doing. Now with the benefit of hindsight, with the outlook for interest rates and inflation, I think that that to us feels, you know, absolutely the right decision to have made at the time. But that's the reason we're highlighting it. We know a lot of investors will look at this peer group and screen on three years net asset value total return.

20:56 And, obviously, if somebody is looking at us over three years, we'll still have the impact of that 27,000,000 coming through numbers. Obviously, you know, following this April sorry, this October, I should say, that would have fallen out, but but but that is the reason why we are we're now highlighting it. Now moving to the next slide in terms of where performance has come from. I mentioned at the start that our industrial weightings were were up at about 50%. I think our view is, and I'll come onto the market, that the industrial values in parts of the market are getting at least, if not to the top, but certainly close to the top. And so we just wanted to draw out the fact that we have done some very, very good transactions over the course of the last few years, most notably a multi let industrial estate in Chippenham, but also a multi let estate in Standengring in Manchester, where there's an interesting opportunity to develop some new units.

21:46 The Chippenham asset unbelievably did the total return for the twelve months to March of 48%. And on one hand, we're surprised by that. But on the other hand, actually, as part of that 48%, we were still betting from an an income return of about 8%. And so I guess the point to make there is although we have seen strong performance for our industrial assets, because we've typically bought multilateral states in the regions, we still are enjoying an above average income return. And it is that income return that has allowed us to deliver the dividend progression you can see on the next slide. Again, I've touched on these numbers. I think the key points to note here are you can see, the dividend that was postponed immediately after the onset of the pandemic. I think that was a right decision. It was a prudent decision. But you can equally see how when we have visibility on the outlook, but in particular, rent collection and earnings, we were able to steadily increase the dividend to where we are today. You can see there with the the dividend paid in June of naught 0.795p for the quarter, which takes us back up above the pre pandemic level.

22:51 And the next slide, I guess, just draws out some of these points, even more clearly by comparing ourselves to the peer group. So so we're we're showing here how we measure against three key metrics. So so from from the top, we're showing ourselves against what people would generally consider and analysts would generally compare us with as our established peer group. So you can see there, with the exception of AW REIT, dividend yield compares very favorably against a peer group. We would argue that particularly given the nature of our portfolio and the and the income potential looking forward, that that is a very attractive yield. I guess I've made a point several times very deliberately, but the next line just confirms that we are the only company in the peer group, that has now delivered a dividend uplift that takes us above that pre pandemic average.

23:40 And I guess also, particularly importantly now, I guess also when we're looking at the potential for inflation and and interest rates to rise further, we do have the lowest cost of debt in the peer group. So we have a 2.5% total fixed cost of debt that's locked in for a long duration, which compares, as you can see, with with with the peer group increasing up to almost 4%. And I would also say across that peer group, in some cases, you have companies that have relatively near term refinancing events. And what we're seeing from a market perspective is, obviously, banks are looking to pass this on now the in whether it's fixed rates, interest rate swaps, and margins, increasing. So last few slides for me. Just in terms of the market overview, we haven't got too much just to to to to walk you through on the market, but I think this sort of talks to the point I was making about the the contrasting fortunes of diversified versus specialist

24:38 investment companies. And and and this is a chart we've used many times. So just briefly explaining what we're showing here. So the dark blue bars show the monthly capital value movements on the MSCI index for average real estate. So moving from the left, you can see there the immediate impact following the referendum with capital values falling, but then actually how the market very quickly adjusted. And we saw for for for many, many months, years, a steady a steady increase in in in in capital values that reflected in the in the cumulative blue line you can see running running across the page there. You can then see how average values have picked up quite strongly You moving to the right hand side. But I think the key point to note here is up until certainly very recently, averages have been really misleading.

25:31 And what the orange dumbbells are showing you, either side of those dark blue bars, it's a spread between the best performing sector in The UK market and the worst performing sector in The UK market. And no surprises that due to the the structural changes we've seen with the the incredible tailwinds within the logistics and industrial market, but equally, a challenging outlook for retail, in the run up to and during the pandemic, that has led to that polarization with industrial values in the Southeast, in fact, doubling since the start of '18, with retail values, particularly shopping center values over that period, sometimes halving. So we've seen a very contrasting outlook, and we we've been saying for a little while now that we would expect to

26:17 see some level of convergence. And so we are beginning to see that convergence. The rates of industrial growth are slowing, and we indeed have benefited. For example, our biggest retail asset is our retail park in Bedford. We've begun to see good performance coming through there off the back of proper occupational demand, the likes of Lidl and Starbys that I mentioned earlier on. So looking forward, our view, and again, just just turning the pages, is that we are going to see greater convergence between the sectors. And moving to the left of this slide here, increased benefits of being able to tack and change between the sectors. And, really, that's what the SCHRODER REAL ESTATE INVESTMENT TRUST offers. Our strategy does allow us to invest across all sectors of The UK, And most importantly, we have the boots on the ground. We have people based up in London and Manchester who are specialists across all UK real estate markets that allows us to position.

27:13 Yeah, we may choose to at the moment, and we have some live discussions ongoing. We may choose to sell some industrial to take profits, but we have the capability to say, actually, we're gonna move those proceeds going to a high yielding sector. You know, for example, the the mixed use office retail asset we bought in Manchester that Bradley will elaborate on shortly in the deck. Operational excellence. So we talk a lot about how we need to be, I say, delivering best value, best service for tenants. And and, again, we we believe we're very well placed to do that. And in fact, one of our assets in Manchester now, we are offering our own service office concept called Elevate, where we're offering much flexible much more flexible terms, capturing post pandemic demand where tenants are requiring a degree more flexibility, but also therefore charging a premium rent.

28:03 We are, as I mentioned just a moment ago, adopting a very disciplined but also active approach to transactions. So we are looking, as I say, to potentially sell some of our very, very low yielding industrial assets, but we will only sell those if we get a very strong price, and we have conviction that we can redeploy those proceeds and deliver an enhanced level of income. Balance sheet, I'll leave I'll leave Bradley to touch on later. And finally, on ESG, I will leave this to Bradley, but I think this is a key area where we believe we can differentiate both as a broader business across SCHRODER's where where we're making a huge investment in in in in ensuring that we can deliver best in class ESG to our clients and stakeholders the portfolios that we're managing.

28:49 And and that's really reflected in the in the fact that all of our funds now participate in in the GRESB global real estate sustainability benchmark service and lots of other activity that that, frankly, we can talk about for hours, and I won't. You'd be pleased to hear. But we are looking to evolve the strategy, as I say, to to to deliver best in class. I guess the the final slide for me just just is is to hammer home the point about the benefits of a multisector approach at this stage in the cycle. You know, the chart on the left shows you that that you can see there the massive spread between the performance of the main sectors. Obviously, with industrial leading the way, you can see at the top there. But equally, how we see that converging now. And the chart on the right is our outlook of the forecast for how we see the market from 2023 onwards. Now, of course, what happens, with inflation, what happens with interest rates and guilt rates probably will have the biggest single impact on the performance of real estate and, frankly, all all asset classes, but we are expecting convergence.

29:54 I I think it's also worth noting, and particularly in the context of our discounts, we are not expecting a crash in real estate values. Where we are today, it's a very different environment to where we were in the run up to the GFC. You know, prior to the GFC, we had we had a negative yield gap. So the real estate yield was below the reference ten year gilts. Whereas today, even with gilt yields approaching two and a half percent for ten years, we still have average real estate yields of four, and our portfolio, which you'll hear more in a moment from Bradley, yielding five and a half percent. So so we have a cushion. And I think it's also worth noting, again, compared with the time pre GFC, there isn't anything like the same level of leverage sloshing around in the real estate markets.

30:41 And equally, although some regional cities now, you can see a number of cranes on the horizon. Actually, in many cases, that that is residential that's being built. And and and and within the office sector, we don't have a supply issue of of good quality space, particularly space that can deliver the ESG standards that tenants now require. I guess the only note I'll make there is, and, again, anybody that spends any time on motorways at the moment will see that there is a supply response now in response to

31:09 to the logistics demand. Now although the occupational demand is there at the moment, we do have concerns about that part of of the market. If we do see that supply continue, not least because, obviously, a large part of our occupied base is ultimately retail facing and and and, obviously, could well, therefore, see a reduction in demand if if we see if consumer impacted by by the broader macro issues that that that that we and other western economies are dealing with. So we may have some questions on the market later, but I think we feel very comfortable the way that we're positioned, particularly with with almost all of our industrial exposure, being focused on the multilayer market across The UK where you have a much more diverse spread of occupiers across, if you like, across UK plc. So I will pause for breath a. I'm pleased to hear, and I will pass over to Bradley to give you a bit more color on the portfolio.

32:00 Thanks, mate. So on this slide, and it made the point that we're overweight in the high growth sectors and in high growth locations. And you can see that in the chart on the left hand side, we've highlighted we're overweight in industrial at the moment, and we're overweight in retail warehouse where there's been very strong growth over the past year, and that's really driven our strong performance during the year. We're also overweight offices, but as Nick said, our offices are in strong locations such as Central London, Edinburgh, and Manchester. On the right hand side, you can see we've broken The UK down into GDP growth quartiles, and you'll see the majority of our portfolio are in the highest growing or the fastest growing quartiles being one and two.

32:47 So not that's 90% of the portfolio in these higher growth locations. So then moving on. What we've highlighted here for you to provide more color on our portfolio, we've got the 15 largest assets in the portfolio by value. These represent 79% of the portfolio. We've got good quality assets with good fundamentals in high growth locations. We set out three examples on the next few slides. Firstly, you can see Stacey Bushes, which is a multilayer industrial estate in Milton Keynes on slide 20. This is our largest asset by value and has excellent fundamentals. Over the year, we've seen a new rental tone achieved of £14 per square foot. So for context, just a couple of years ago, the rents there were 5 to £7 per square foot.

33:38 So in order for us to achieve this higher rental tone, we, constructed 16,000 square feet of new terrace at at on the site. So this is a brand new, terrace that we then let at higher rates, at or close to the £14. We've also been operating a rolling refurb program across the site. So when we get a unit back, we refurb it and then let it at a higher rent. What's encouraging as well is that when we have been letting the older units, the rents have been much much higher than the 5 to £7 and and close to the £14. We still got an active business plan at the site, so there's still more we can do to drive value. So, for example, we are in planning to develop a further 18,000 square feet of new units, and we're also looking at acquiring an adjoining ownership, I e, one of one of our neighbors.

34:32 So this asset, as you can see in the blue circle on the top left hand side, delivered a total return of 40.9% during the financial year. Moving on, we can see, one of our office assets. So this is on Store Street in Bloomsbury. This is near to Tottenham Court Road and the new Crossrail station. This area is experiencing really strong demand from life sciences and education in particular. This asset is occupied by the University of Law. The rent is very low at £43 per square foot, and that means there's potential for us to more than double this with the right development. We're currently bidding on an adjoining ownership, I e, the building next door. And this if we were to acquire that, it would open up really interesting development opportunities for the combined site.

35:21 And if we don't you know, if we if we think the value goes too high, then that's good for us because it raises the value of our asset. And then on to the next slide, we can see, St John's Retail Park, which is in Bedford. We think this is the best retail park in the area, and it's performed very strongly over the past year. Anchor tenants such as Liddell Drive Footfall, and we're also collaborating with Starbucks, in developing a brand new drive through on the site. We we're doing this as part of a double scheme, so one of our other retail parks is also going to have Starbucks developed on it. That's assuming we get planning permission. Saint John's delivered a total return of 32.1% during the year.

36:08 Then moving on. On the, left hand side table there, you can see our 15 largest assets, 15 largest tenants by annualized rent as at the year end. As you look down the list, you you'll see they're well known quality household names, and we think it's the result of the quality of our portfolio and our approach to operational excellence. So this is where we work with our tenants closely to provide them with what they want. This, in our opinion, leads to resilient income. And as Nick mentioned, it's really pleasing to see our rent collection is back up at 96%, which is in line with the pre pandemic level. And we've highlighted, Siemens there in the table.

36:54 We've agreed terms with them to increase their rent from the naught 0.97 you see there to £1,220,000 per annum. This will mean they become our second largest tenant. Siemens occupy a large amount of space at Langley Park, which is another multi industrial estate in Chippenham just near Bath, right by the station. They've got 800 people on the site. Their lease currently expires in 2026, so in four years' time, but we're already in early discussions with them to increase their occupation at the site. This is fantastic because what we're also looking to do at this site is expand it. So we're looking to build brand new units on the site. And, if we can do that in collaboration with Siemens, that would be really fantastic for the, for the asset. Moving on to the next slide.

37:40 So this is illustrative, and there are lots of moving parts on this slide. But what we're setting out here for you is where we see the potential for future rental growth. So on the left hand bar, the blue bar there, 30,100,000, that's our annualized rental income as at March 31. The next bar, the blue bar, at 33,800,000 is our annualized market estimate, rent that we could achieve where we go to mark market those units now. And that number is provided to us by an independent valuer, Knight Frank. And in order to bridge the gap, we've got fixed rental uplifts in contracts coming through in the next two months of 1,100,000. We've got a development pipeline, the naught 200,000.

38:29 That refers to the Starbucks sites. And we've got vacant space that equates to 2,400,000 of rent, and we're working hard to let that space to increase our rent. And then going beyond the 33,800,000, we've acquired St Anne's, which is a mixed use asset we're gonna talk about briefly, in Manchester. That's gonna bring in 1,200,000 of rental income. We've got a CapEx pipeline where we're spending 20,000,000. That will bring in 1,400,000. And most of that 1,400,000 relates to another of our multilayer industrial estates in Stanley Green, where we're building brand new net zero carbon operational units. That'll bring in a million of rent, and that's assumed within that 1.4, and we think it's a conservative assumption.

39:15 And then finally, we've got some capital to deploy, 20,000,000, and that should bring in around 1,100,000 of rent. So you can see we have plenty of activity in order to increase our rent over time. Then moving on. So on this slide, we set out just some points around our most, an acquisition we made in December 2021. So this acquisition is an excellent example of the benefits of having a very large real estate team in terms of sourcing acquisition opportunities. We acquired this portfolio of four industrial assets, the largest of which is a multi industrial estate in Birkenhead, just South of Liverpool. We acquired this in December for 19,900,000, which reflected a very attractive net initial yield of 6.9%.

40:02 So this goes to a point about our portfolio being higher income. So this cost us £53 per square foot to buy, and we estimate it can cost 90 to £100 per square foot to build an equivalent asset. This deal was off market, so it wasn't a competitive auction, which is usually the case in real estate. So this valuation has increased by some 9% in the quarter. And since we've owned the asset, we've made really good progress in letting out the void we inherited. We're in talks with Balfour Beatty, who are the largest tenant of the Birkenhead site, who uses location to service nuclear contracts in the Northwest, and we're in talks to them about increasing their occupation at the site. Moving on to the next slide.

40:48 This is our most recent acquisition. So this is Saint Anne's House in Manchester. This was another high yield in acquisition. We completed this in May, so just last month. So therefore, after the financial year end, we paid 14,700,000 for this mixed use office and retail asset. It generates 1,200,000 per annum of headline rent, and this rent level reflects a net initial yield of 7.8 percent and a reversion yield of 9.1%. This was acquired at a low average capital value of £283 per square foot. This asset is prominently located in the city center near to the prime retail core, so it really is a prime location. And our view is that compared to other major cities, Manchester has the lowest office vacancy rate, and we expect relatively higher growth in office rents over the next five years.

41:39 So not only does this asset have excellent fundamentals, there's also an opportunity to improve the sustainability credentials of the asset, and we've include included more than £4,000,000 of CapEx in our business plan to achieve this. And despite this high CapEx budget, our business plan shows a very attractive IRR for this acquisition. Moving on to the next slide. So this is the next point around the strength of our balance sheet. So we've got two debt facilities. We've got a term loan from Canada Life and a revolving credit facility from RBS. On the left hand side, you can see the key points on the term loan from Canada Life. It's a 129,600,000. It's at an attractive average fixed interest rate of 2.5%, and it's locked in for a long duration of fourteen years.

42:28 Clearly, in a rising interest rate environment, this is a very attractive facility. On the right hand side, you can see the key points on our revolving credit facility from RBS. We completed a refinancing on this last week. We increased the RCF to 75,000,000. It was previously 52,500,000, so that gives us an extra 22,500,000 of firepower. And we extended the term to five years from one year, reducing refinancing risk, again, in this, potentially rising interest rate environment. Moving on to the next slide. As Nick said, we've made significant progress in developing our sustainability strategy over the year, delivering on the commitments we made in our annual report last year.

43:18 Our strategy is shaped by the issues that matter most to our stakeholders and targets areas where a meaningful contribution can be made. We define three pillars of impact, people, planet, and place, and these are aligned with the United Nations sustainable development goals. Our our targets apply to our business, our funds, and the assets we manage, and we communicate on our intent and then measure and report on the outcomes. And there are some examples shown on the slide there. So moving on, I'll hand over to Nick for some closing comments. Thanks very much, Bradley. It's great. I can see we've got a number of questions come through. So so I think, just just to wrap up before the questions, three really important points to note are that we have a really good quality portfolio that we are happy has a diverse exposure to the to the higher growth parts of The UK.

44:15 That's allowed us to deliver really good performance both over the most recent financial reporting period, but actually also over the long term, particularly when looking at the performance of the underlying portfolio. As I say, we think we are well positioned. We think we are moving into a market where we will see more convergence between sectors. There clearly are headwinds, but we think with the performance of our portfolio coming from the active management, coming from the ability to tack and change between sectors means that notwithstanding the those headwinds, and particularly given the current discount to NAV, and the dividend yield that offers, therefore, that we're well placed. And a final point to note is we are very clear about our strategy, to evolve what we do within the portfolio with that emphasis on e s ESG. First of all, to differentiate, but also because we have real conviction that delivering assets that have the best in class ESG performance will allow us to deliver more sustainable long term, income growth coming from from occupational demand.

45:15 So I will pause there. I can see that we have some questions. Vic, Bradley, that's great. And thank you very much indeed for your presentation this afternoon. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab that's situated on the right hand corner of your screen. But just while Nick and Bradley take a few moments to review those questions submitted already, I would like to remind you that a recording of this presentation along with a copy of the slides and the published q and a can be accessed via your investor dashboard. Bradley, Nick, as you can see, we have received a number of questions throughout today's presentation, and thank you to all the investors for submitting their questions. If I could please just hand back to you to run through that q and a tab and where appropriate to do so. If you could please just read out the questions and give your response, and then I'll pick up from you at the end, that'd be great. Thank you. Brilliant. Thank you very much. So first question is, will we seek to capitalize and crystallize on industrial profits?

46:09 I I think, selectively, yes. I mentioned that we have almost half of our value is within multilect industrial estates. We are very happy with those assets. They are delivering still an attractive income return and still with reversionary potential. And as as you heard Bradley say, particularly in Milton Keynes, we've got opportunity to, you know, potentially create new space with with live planning applications and also look at joining ownerships. But but, yes, we will look at capitalizing and crystallizing profits. We have a couple of assets that are in the market. And if we get the right price and if we think that's paying us for that potential upside down the line, then we will seek to realize those and and and and recycle those into high yielding activity.

47:01 The next question is is who do you see as your peer group that you compare yourselves to? So I guess I guess most closely, we consider ourselves in a peer group of those that we included in the presentation, which are the diversified REITs. So companies like AW and other companies that are both externally managed and and if at one that is that is also in internally managed. We think we scrub up very well against those peers, particularly given steps that we've taken recently in terms of increased allocations to the industrial sector, but also really importantly, the refinancing we've done that means that we've got the lowest and longest duration debt in in the peer group. So most closely, compare ourselves to those peers.

47:50 I guess it is worth saying that I'm pretty sure that most of the industrial specialists, and there are some, obviously, within our wider peer group, would would be absolutely delighted to to own our multilayer industrials. And so when we have been buying in the market, I know occasionally when we have been bidding on market, you know, the likes of warehouse retail and others, you know, are are are there as well. So I think, you know, whilst people will view us through the lens of part of that diverse peer group, I think a key strength that we have is that we have the specialist expertise within the team, the depth within the team to stand toe to toe also with with with those specialist companies. And I I think that's a key point really to take away as we see more convergence between those those main sectors.

48:42 So the next question, how do you what strategy do you adopt when selling assets, and how are you finding value to redeploy capital? So how do we do it? Well, every asset we treat is a business. And so, every asset, ultimately, we're responsible for, but we have specialist asset managers on the ground who are delivering, in many cases, all those business plans. And those are people within the SCHRODER's business rather than people we're paying externally. So with that business plan, that's reviewed annually. And the annual business plan will set out key initiatives, that we hope to deliver, and a and a key output of that is what do we think the future returns look like and when, therefore, we can compare those future returns, first of all, against our views for the market, but also, obviously, versus what we think we could potentially realize by selling, essentially selling at a premium, and then and then going going back into the market.

49:36 In terms of finding value when we redeploy, we have access to really great research here. So we have we have our own proprietary forecasts that are prepared within the real estate business, and and that's taking data from, obviously, the wider SCHRODER's research capabilities sort of at a macro level, but then marrying that with the what we can see on the ground. So we have great access to market information. I guess the other point to note is the fact that we've got, you know, a lot of front office people who are specialists, and particularly over the course of the last eighteen months or so having opened our Manchester office, we got proper boots on the ground, which means that we see very, very strong deal flow. As I mentioned at the start of the presentation, you know, we're running over £13,000,000 of direct UK real estate across the business.

50:26 And what that means is we are buying and selling all the time. And so it does allow us to have that visibility, the market relationships, the occupier relationships to make sure that, you know, we are able to efficiently redeploy proceeds into deals that that would you know, that we have conviction about. And I think, you know, hopefully, what's come through the presentation is that, you know, we have done some very good deals across across, you know, across multiple sectors. So just moving on, there's a question, relating to our developments at, Stanley Green. I'll I'll give a brief note on that. So that's an asset that we bought at the back end of twenty twenty. And, actually, it's it's a really good illustration of how we'll look to evolve our ESG strategy because this was a multilateral industrial estate, which had a piece of land, where that land had a historic planning consent for about 50,000 square feet of new warehouse space.

51:19 It's a fantastic location for anybody in those. It's it's based on a link road from the sort of stockbroker belt of South Manchester through to the airport. And and and there's a real chronic shortage of of of industrial and particularly trade warehouse space in that part of Manchester. So our strategy for the asset was to drive the rents on within the existing estates, and we're looking to incorporate energy efficiency improvements by way of refurbishment, possibly looking at at PVs or photovoltaics on the roof. But, also, the real opportunity at Standard Green was to deliver an improved planning consent. And so we've got planning consent for about 80,000 square feet of warehouse space, so a significant uplift just by designing the scheme a bit better. But, also importantly, a commitment to deliver that scheme to an operational net zero standards.

52:09 And so we we are now on-site. We we are building that speculatively, albeit we do expect to lease up part of that space during the developments. And and once fully leased up, we think we can deliver additional rent about £1,000,000 on a on a on a on a capital cost to us, so about 8,500,000. So when we look at our CapEx pipeline, as Bradley mentioned, you know, of that 20,000,000, about 8,500,000 actually is just standing green. And we're going we're going to end up with a really good quality industrial estate. And I guess most importantly, a return on the capital we're investing that is materially above what we'd otherwise have achieved by just going out and buying another ready industrial estate in in in in the market. If I just keep going through so there's a question about the the the slide 24, which gave the illustrative view of how we deliver the portfolio reversion.

53:07 And and the question here is how much rental income is at risk on breaks or expiry. So so we we don't we typically don't provide that level of granular information, and and and we just show the top line rental numbers. The main reason of that is our portfolio is really granular. So we have we have 315 tenants, which gives us a really good spread of lease expiry events over over time. Our average unexpired lease term you you you'd have seen in the pack is today, excuse me, about five years. So so a simple read across is to say, well, actually, you know, about 20% of our income every year effectively comes up for renewal.

53:55 And over the long run, that is about right, particularly given we've been buying multiletter states where, obviously, lease terms are anywhere between three and five years. I guess what I would say is and if you go and track back looking at the assumptions we've made about income historically, we never see all of those events come through. Tenants roll over. More often than not, we're having negotiation with tenants well ahead of time, which allows us to avoid those lease events. You know, a really good example is is a chip in a mass where where we had a lease that was coming up at the end of this year with a with a business called Littelfuse or a major silicon chip manufacturer supporting the rail industry. It's under they occupy just extorted chip to Siemens at Chippenham. You know, that that could have been an expiry. They pay us about £350,000 a year. What we have done, in fact, is work very closely with them. We've agreed to, carry out some or they've agreed, funded by us, to carry out some improvements to the unit, and they've given us a new ten year lease at a material rental uplift with inflation and reviews. So, again, as as people hope to begin to get to know us a bit better, you'll see that we genuinely are very active managers, and therefore, we have the ability to mitigate those rates or expiry risks, you know, over over the long term.

55:10 So I think that's glad to see. If I may just jump back in there. Thank you very much indeed for addressing all of those questions that came in from investors this afternoon. And, of course, if there are any further questions submitted today, we'll make these available to you immediately after the presentation has ended for your review. And ladies and gentlemen, we'll publish all those responses where it's appropriate to do so on the INVESTMENT company platform, and you'll be notified by email when they're ready for your review. Nick, perhaps we're redirecting those on the call to provide you with their feedback, which I know is particularly important to yourself and the company. If I could please just ask you for a few closing comments to wrap up with, that'd be great. Thank you. Well, I guess, first and most importantly, thank you very much to everybody for joining us. It is first time, as I said at the introduction, that we have we've held an investor meet company presentation, and it's we we intend to continue with these meetings and also provide platform with regular updates of our of our activity.

56:06 The reason we've done this, frankly, is because we think we are genuinely very well placed. About 10% of our register currently is retail. We know that there are others across the peer group who have higher retail ratings, and in fact, half as a result delivered better ratings. So so we are keen to make sure that we've got a really diverse shareholder base, that we are giving shareholders access to really quality information. And and, going back to what I said a moment ago, there's three key points. We've delivered very strong performance, and we think we've got a really good pipeline of activity coming through. We think we're very well positioned in the way that we have exposure to multi industrial in The UK, but also to retail warehousing and and and high growth parts of the office market. And finally, both within the real estate team, the broader team of SCHRODERs, we think we're very well placed to evolve the strategy, in particular, to deliver a very high standard of ESG performance and operational excellence.

56:59 So so with that, I'll hand back to you. That's great. Nick, Bradley, thank you very much indeed for updating investors today. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of SCHRODER REAL ESTATE INVESTMENT TRUST LIMITED, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all.