Schroder Real Estate Investment Trust (LSE:SREI) — Investor Presentation

0:01 Good afternoon, ladies and gentlemen, and welcome to the SCHRODER REAL ESTATE INVESTMENT TRUST LIMITED INVESTOR PRESENTATION. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. 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. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and public responses where it's appropriate to do so, and these will be

0:31 available via your INVESTMENT company dashboard. Before we begin, if I may, I would like to submit the following poll. And I would now like to hand you over to head of UK real estate, Nick Montgomery. Good afternoon, sir. Good afternoon. And thank you, Jake, for the introduction, and welcome, everybody. It's fantastic to be presenting on this platform again. I'm just trying to move the slides on. So Bradley and I are here today to present the, full year results to, March 2023. And for those of you that, joined us when we presented our interim results, you'd have heard us say, I think, hopefully, quite clearly that we were experiencing a correction in The UK real estate market driven principally by, obviously, the fallout from the mini budget, but also what was happening earlier last year in terms of rising interest rates.

1:29 Now what that means is we're reporting an NAV today, which is I think it's probably broadly on the expectations, perhaps slightly better than some analysts were expecting because of good performance of the underlying portfolio. But nonetheless, we are reporting a 19% decline in the net asset value, to set that in context, that compares with a 25% uplift for the period of the year prior. I think what's much more positive as a result of the activity across the portfolio is that we've had continued good progress with earnings. And our dividend over the financial year increased by 14% like for like with the prior year.

2:16 And some of you that may have seen you now some this morning would have seen that we have, in fact, announced a further quarterly dividend increase alongside the results. So so that's the backdrop. I guess just to give a bit more color to the results, we've set out some highlights here. I think despite that decline in NAV, we have seen continued relative outperformance of the underlying portfolio. So our portfolio value portfolio RAV delivered a total return of minus eight over the financial year, which compared to the benchmark just under minus 14. More positively, because we never like reporting negative numbers, but more positively on a rolling three year basis, which obviously reflects the most recent period, the underlying portfolio return was 6%, which compares to the benchmark of 1.9. So so 400 basis points of outperformance, which which is very healthy.

3:10 It's also worth noting that that puts on the fifth percentile of our index, the MSCI index over the three over over three year period. And in fact, looking at income as part of that total return, we're actually third out of the 160 funds within the benchmark over those three years. So so that that focus on income, focus on active management, focus on exposure to the more high growth parts of the market has has led to that continued improvement in earnings. Again, just just to make the point, we have today, announced a further dividend increase, which reflects an annualized level of about 3.3p per share, which on today's share price, which still today reflects a discount of around 27% to NAV, that reflects a share price yield today of 7.5%, which we think reflects good value.

4:00 As well as the top line performance, if you like, so the growth in income, the active management, which has helped us support that dividend, we have continued to benefit from having what we think is genuinely the best balance sheet in the peer group. We have very long term low cost debt. So at the year end, our average debt duration was about eleven years with actually three quarters of our debts fully fixed at two and a half percent for thirteen years. And it really is is that visibility on future interest, which as much as the top line income growth has allowed us to continue increasing the dividend. Also looking forward, we talk about reversions in property. So just just to just to, I guess, recap, the reversionary rent is a rent that the valuers think your portfolio would let for where it's all available today.

4:50 And actually, as well as having a high initial income return, our reversionary yield is now 8%. So some way above the benchmark of 5.7 and lots of activity that Bradley will talk to a little bit later where we've got real visibility on that income coming through. From the market's perspective, we did begin to see some signs of a recovery maybe a month or so ago. It is worth noting that obviously the stickier inflation that we're seeing, particularly core inflation, and therefore the rise that we've seen ahead of expectations in terms of interest rates has meant that the market is feeling a little bit more cautious and and a little bit more fragile. But, nonetheless, having had a correction of about 25%, we do think The UK market taking a sort of short medium term view will offer good returns.

5:38 But there is a lack of urgency in the investment market as as buyers, step back, waiting for more visibility on where rates are going before, before pushing values on. And the last point to note, and I hope it will come through clearly throughout the case studies, is we are evolving our approach to ensure that we are best in class in how we integrate sustainability considerations as part of our active management strategies. And and and that's, you know, that is driven by a financial motivation because we we have real conviction that if we can deliver the best space in terms of sustainability performance, we will get better tenants, longer leases, more attractive rents. Now moving on, just a bit more color on the numbers. We're showing a breakdown of the net asset value over the year here, and you can see at the very top, the NAV declined of 19% with a total return once you allow for the 16,000,000 of dividends that were paid minus 15 percent.

6:34 So scrubbing up well against some of the peer group. Some of you may have seen this week, one of the industrial specialists announced an NAV decline of almost 30%. So so again, negative, but but actually because of the good performance of property level, better than most of our peers. I guess the other point to note are over the year, we have continued to invest capital in the portfolio. You can see there the the the capital expenditure line of about 10,000,000. Three quarters of that relates to our net zero warehouse development we're doing in Manchester. More on that later. Limited number of transactions over the year. One high yielding, really interesting mixed use assets in Manchester City Centre where we're getting all of the business plan. Plus, again, more information later on some really good sales actually slightly bucking the trend in terms of selling assets at premiums over the year with more small asset sales planned.

7:29 Within the income statement, think there is a few important points to note. The the eagle eyed amongst you may note that the point to point rental income number in the accounts fell very slightly. That's principally because of various lease restructurings that we've done where we've extended leases to some of our stronger tenants in return for granting a limited rent free period. In reality, when you stand back and look at the rental and related income growth over the year, that actually went up by 6%, and that's partly supported by rental growth of 9%. So I'll come on to how we return to break down, in a moment. In terms of EPRA earnings, having had that rental growth, but also having had a rising finance cost where we draw on our revolving credit facilities to acquire the assets in Manchester.

8:16 Our upper earnings grew. But most importantly, if you look at the bottom of the line here, having paid out 16,000,000 of dividends, we are fully covered. And looking forward with a further 2% increase, it's because of the activity within the portfolio that we remain confident about delivering that income growth. And that's, again, one of the key differentiators really alongside the strength of our balance sheet within the peer group is that we are the only company now to be paying a dividend, which is ahead of the pre pandemic level. And in our case, we are now over 8% above that pre pandemic level. Now that doesn't mean to say that we are going to be increasing our dividend quarter on quarter. We look at it every quarter with the board based on our expectations of that income from asset management activity from transactions.

9:05 But that is our aim to deliver a sustainable and progressive dividend policy over time. As I say, the shares today, you know, once you take account of the 28% discount, but but equally a 7.5% dividend yield, we think the shares look very good value. Now the next slide is a little bit of information here. So we've we've we've given a breakdown of our total return over one year and three years at property level compared to our benchmark. And it's just worth focusing on the left hand bars there. So the the far left hand bar is a breakdown of our total return. So just to explain briefly, we've got a total return for the twelve months to March of minus 7.9%, which is represented by that pink diamond.

9:54 And you've got a total return for the benchmark of minus 13 and a half percent. Now that total return is obviously made up of various component parts. The impact of rising of falling values and the contribution that rental value growth makes to that, plus obviously the income we receive from property. And very positively, although you can see in the middle, our yields rose more than the benchmark. So as the market cooled, as values fell, yields therefore rose. Although our yield increased more than the benchmark, actually our capital value impact was reduced by the fact that we had a higher initial income return. So I guess we spoke about this when we last presented.

10:40 As part of this correction, because the correction was driven by rising yields, low yielding assets were more adversely affected because of the multiplier effect. So we benefited by having a high yielding portfolio. And you can see there in the blue bar, our income return of 6% compares with the benchmark of 4.1%. But probably what's most positive from this information is you may typically expect a high yielding portfolio to have less rental growth because you're getting paid effectively upfront. Whereas in fact, partly because of the activity across the portfolio because of the way the sectors are positioned, you can see in the orange bar there that actually rental growth was 9.2% across our portfolio over the year. We compared with the benchmark of just over 3%, so almost three times the rate of rental growth that that that we saw in the market.

11:31 And actually, just to make it sort of even simpler, it's driven by our industrial assets and particularly Standard Green Trading, as I've gone on to. But if you look at the industrial transactions that we did compared with rents at the start of the year, the average increase was around 25%. So although I'll come on to in a moment and explain markets have obviously been challenging, it's been all about yields. Rents actually over the same period have, in many cases, continued to rise. And I'll come on to that. I'll come on to that now. So the correction we've seen has all been about yields so far. So on the left hand side of this chart, you can see the dark blue bar, which represents ten year bonds. And ten year bonds today are yielding around four and a quarter percent.

12:17 And what we're showing in the orange bar is the impact that's having on the average cost of borrowing on a prime office asset. So this isn't us. This is an illustration of of what you pay in the market. And so the cost of borrowing on real estate, because of the rising interest rate environment, have risen sharply. So in the mid twos going back to 2021 up to now over 6%. So that is inevitably gonna have an impact on pricing even though, and I think this is a I think an important point to note, the market compared with, for example, the global financial crisis period has significantly lower levels of debt. What you may have seen in the press at the moment is there are lots of press articles that trying to almost conflate the situation in The US real estate market, particularly the office market with what is happening in The UK, and we are in a very different position.

13:08 The best data we have access to at the moment tells us that the average loan to value across the real estate market where there is borrowing is around 33%. So debt represents 33% of the asset value. That compares with approaching 60% prior to the global financial crisis. Now that's also having had valuation declines on average of the market to 25%. So we are not expecting lending or or or higher, loan to values to lead to significant forced sales, which will then lead to a further step down in values. The market does feel much better than it did going back, to the GFC period. Now on the right hand side, we're looking at the relationship between those bond yields and property yields.

13:55 With the orange line, you can see they're representing the average initial yield of the property. So you can see where the dotted line is. That's telling us average yields today are just over just under 5%. Our yield is actually just under 6%, which is why we've got that additional income cushion. And we're showing a ten year bond yield there of about four and a quarter percent. Now a month ago,

14:16 the pricing of real estate was moving towards fair value. Historically, looking over the last twenty five years or so, the relationship between bonds and real estate yields means that when you had a cushion of about 2%, so when you had a difference of 2% between bond yields and property yields, you're approaching fair value. You can see here that our expectations are we're probably moving towards the middle of next year where rates will be, where real estate yields rather will get a premium of about one and a half percent, which actually is less than the last twenty five years. But the last ten years particularly has been a period, arguably, an abnormal period where quantitative easing has driven gilt yields much lower than they would otherwise have been. And if you go back to a more normal period, so for example, the late nineties to the early two thousands, that relationship was closer to one and a half percent.

15:07 So what's this telling us? I think it's telling us essentially that the market remains relatively cautious. That that but the looking into 2024, we can see values bottoming out, and we can potentially see a recovery. Now the other point to note, if we move to the next slide, is that recovery will be polarized, and we think we are well positioned for that. So the left hand chart you can see is an index of capital values to what was the top of the market in June 2022. So you can see there that the low yielding sectors and particularly industrial were hardest hit, as I say, because of the multiplier effect, with average industrial values down about 29% compared with the average for UK real estate of about 25.

15:58 But you can see on that chart there that actually we are beginning to see a recovery in industrial values and certainly across our portfolio we're we're seeing the same. And part of the reason for that, if you look to the right hand side, is because we are still seeing rental growth. So this is it's an unusual situation, arguably unprecedented to have this type of capital value movements, but at the same time to still have positive rental value growth at least in nominal terms.

16:27 So between sectors, what what do we think about the performance of sectors and and how are we positioned for it? So, again, you'll hear shortly about our industrial portfolio, but in headlines, half of our assets are really good quality, multi industrial estates. Within the wider industrial sector, we are still seeing tailwinds coming from the shift to online. Obviously, we saw that rise sharply during the pandemic. It is slowing in terms of the growth in online retail, but we do expect that to continue rising to approaching 28% over the course of the next two or three years. We are also seeing, although the likes of Amazon are taking far less space, arguably they've got too much space now, we are also seeing third party logistics operators, manufacturers taking space to build their supply chain resilience.

17:17 Interestingly, we are also seeing some gray space or what we would call gray space, is where tenants are releasing space into the market, but that's principally focused on distribution warehousing. And therefore, our expectation is across the industrial sector, the best performing of the market, best part of the market will be multi letter states where the void rates are low, which you can see on the top left hand side there. But really importantly, the bottom left hand chart, you can see the quantum of new development of multi letter states is a fraction of what we're seeing in distribution warehouses. So our view is that as the supply pipeline comes through distribution warehouses and particularly as tenants start to release space, the prospects of rental growth will be weaker compared with the multilayer estates which just aren't being built. And and that's what you can see on the right hand side here with the dark blue line there representing more of what we own versus some of the more specialist logistics funds where they tend to own assets that will perform more in line with the orange.

18:15 Now within the retail sector, we have been and continue to be cautious about town centers, although we will be reading obviously about headline growth in retail sales. Actually, in volume terms and particularly in real terms, sales are declining. And that's partly, well, obviously the impact on consumer of rising interest rates, but retailers are also being impacted by rising energy costs, paying living wage and sort of rising wages just more generally. Where we do see real opportunity in the retail sector and and we're benefiting from this is in retail warehousing and particularly where you've got more pandemic resilience, grocery retailing, value retailing sort of B and M's, those types of operators that you will see now on on The States out of town, but also where you get restaurant uses, Starbucks, Costas that you can put on car parks, and and that's that's something that we've been doing, which frankly I'll talk to you later on.

19:14 So you can see on the right hand side, as a result of that, we are seeing retail park vacancy fall, and we're therefore, we're expecting retail park rents to grow steadily from 2024 onwards. So, again, that that's where we have our exposure. Now within the office sector, this is probably where there is still least consensus amongst property investors, and it is very polarized. Just to set the scene, the average void rates in The UK for offices at the moment is about 11%. That compares about 8% pre pandemic, but it's still below the void rate post GFC of about 13%. The other point to make big picture, and this is partly a legacy of the GFC, but there's been far less speculative development of offices anywhere. A lot of the cranes that you see across regional cities in The UK aren't in fact offices.

20:04 They're residential buildings, residential, private rental sector. And therefore, what we are seeing across most markets is actually a reduction in overall office stock, a reduction in what we call net additions. So what does that mean? It means actually where you've got either Central London, particularly the West End or what we would call the big six regional cities, there is actually reasonable levels of demand as people come back to work And there is a shortage of really good quality space that is delivered to a high sustainability standard, in particular offices where they're incorporating wellness amenities that are attracting the best talents. And so, in some cases now, rents are approaching all time highs. So the best builders in the city, for example, are attracting the best rents.

20:52 And across our portfolio, levels of demand in cities like Manchester, Edinburgh, Leeds remain remain remain healthy. Where we're we are more cautious and we don't really own this is out of the out of town market, and particularly in smaller regional cities where there's a high dependency on the public sector because so far at least public sector employees have been far less willing or or required, to come back into the office, and that's affecting demand for offices in those towns. But it's also affecting retail, restaurants, cafes, etcetera, who would otherwise be relying on those office occupiers being there. So I guess that's our view on the markets. We are very positive about our own portfolio and the activity within it.

21:40 We are a little bit more cautious about the broader outlook, but we are happy that we have our allocation to the right parts of the market. And through the active management, we will see those values recover. So with that, I'll hand over to Bradley. Thanks, Nick. It's great to be presenting to you again on this platform. And whilst it has been a challenging year for real estate values, we've got some really interesting activity to talk about with you in the portfolio.

22:08 We'll start with our strategy, which hasn't changed for the financial year. We've been working to increase our allocation to industrial, particularly the high growth multi let industrial estates by investing significant CapEx into our existing estates. We've been undertaking defensive asset management at our offices and retail units across the portfolio. We've got a really strong balance sheet, sector leading balance sheet, low cost long term debt, 90% fixed or hedged. And in order to keep our balance sheet healthy, we are selling down some of our smaller assets where we see valuation risk or or where we've completed business plans. And those proceeds will initially be used to pay down the RCF before we then require the the cash flow or CapEx.

23:01 Finally, we are looking to position ourselves as a leader in ESG. We see really interesting, value add opportunities on ESG across our portfolio and in the market, and we're working on our strategic change there. But importantly, our financial objectives will remain the same. Onto some portfolio level analysis. On the table on the left hand side, we show some important stats in the portfolio. We've highlighted some rows, and the first rows we've highlighted speak to the granular and diversified nature of our portfolio. We've got 41 assets and more than 300 tenants. We think this makes our portfolio, resilient.

23:46 And Nick spoke to the higher yielding nature and characteristics of our portfolio. You can see here in the table our net initial yield, which is our income as a percentage of our valuations, is 5.8% compared to the benchmark at only 4.8%. And then not not only do we currently have a higher yield, but our reversion is extremely high, 8%. It's probably as high as it's ever been for the portfolio. It's eye wateringly high. And 8% is, as you can see, far higher than the 5.7% for the benchmark. To put that number or those numbers into context and hopefully give you a sense of what they represent. If we achieve that revert reversion, that's an additional £8,000,000 of rent on top of our current passing rent of 29,000,000.

24:33 So that is half of the full year dividend of 16,000,000. So it just gives you a sense as to the kind of opportunity we're pursuing there. On the right hand side, we show the set of breakdowns of the portfolio in comparison to the benchmark. You'll see that we're overweight industrial, and we're overweight retail warehouses. Almost all of our industrial assets are multi industrial states, and Nick has articulated why we are overweight here and the structural trends supporting valuations and rents there. Our offices, we've split them into three sort of buckets for you to give you a better understanding of our office portfolio.

25:14 More than a third of our offices or 10% of the portfolio are in London. We have an asset in Store Street in Bloomsbury, which is the the West End Of London, where despite all the negative headlines on offices through the year, the West End has done very well. Our second London asset is actually within Greater London, so a bit further out in Uxbridge. That's led to a university, Buckinghamshire University. It's a growing university, and it trains nurses on the site. So our two offices in London are led to universities. Our other office exposure is within the center of the big six cities like Leeds, Manchester, Edinburgh, or where they're not within that big six set of cities, they're in good locations where we've seen some really positive let in activity for the year such as Cheltenham and Ferry.

26:08 Our retail exposure is mainly retail warehouses, which are at sustainable rents, so rebased post pandemic. And our retail exposure is in densely populated locations, and it's got good exposure to those convenience stores that Nick mentioned, the groceries, etcetera. Our other allocation, we've got two hotels, a car park, and a small leisure scheme. On this slide, we show our 15 largest tenants to give you transparency on the portfolio. These represent a third of our passing rent. And encouragingly, only two of the tenants represent more than two and a half percent of the rent roll. So, again, speaks to this diversified and granular nature of the portfolio, which we think brings the risk down.

26:57 And those two tenants that are more than 2% of the portfolio rent, you know, the University of Law is an education provider. It's been growing. They're actually taking more space with us in Manchester to accommodate growth. And Siemens Mobility is a part of Siemens, a global conglomerate. And the the rest of the names there, you'll you'll note household names. So we're happy with the the top 15 tenants. Onto void analysis. Void did tick up in the quarter to 11.1%, but the main driver of that is the fact that the new development of Stanley Green completed. So we have the new ERV being recognized within our ERV that the independent valuers determine.

27:44 If you adjust for that, so take out those new units from the metric, then rent the void actually decreased to 7.9% through the quarter. Looking at the 11.1% though, and what you can see in the table in the right hand column, in the bottom right hand corner, 2.5% is either left already or under offer. So that 11.1% is already trending down to 8.5%.

28:15 We've mentioned Stanley Green a couple of times, and we've spoke about the value add initiatives that we have in our portfolio and, you know, the sort of track record we have in delivering them. This is a really good example. So this year, we completed this development. There are 11 new units. They are cutting edge in terms of sustainability, so EPCA plus, and we're targeting BRIAM excellent. We bought this asset back in December 2020. We saw an opportunity to develop some empty land there. There was three acres of empty land. Our relationship with the tenants such as SREWFIX meant that we could understand the kind of really strong trading on the on on the estate. So we went ahead, made the purchase, spent over 8,000,000 in CapEx on the new site, and the valuation has more than doubled in that time.

29:03 And in the bottom table, you can see the total returns for this asset compared to the all industrial benchmark one year and since an acquisition, both very strong. You know, over one year, it's made plus 14% compared to the benchmark, which is down 21%. So it's a huge outperformance from this initiative. And now I'm gonna move on to talk about some further initiatives where we hope to generate more value for shareholders. So keeping on the standing green theme, on the right hand side, we show the phase two and phase three initiatives that we have for the site. So we've completed phase one. We're looking to spend another £3,000,000 to refurb the existing estate, bring up that sustainability performance to the new units as close as possible.

29:53 We think we can spend £3,000,000 to generate around 4,000,000 plus in value and bring in almost £300,000

30:01 of additional rent. On the left hand side, there's a photo of Stacey Bush's, which is in Milton Keynes. This is our largest asset in the portfolio. It's another multi light industrial estate. It's performing really well for us. It's fully let. And we have an opportunity at Holland Lane where we have a 5,000 square foot unit currently. We can drop that and then develop a new 18,000 square foot unit. Again, it will be leading in terms of sustainability performance. We think we can attract a strong tenant there and push the rents on by nearly 250,000. So we think we've got another $2.82900000 to spend in order to generate 3,500,000 in additional value, and that's shown in the table on the left hand side.

30:53 Another couple of opportunities we'd like to talk about today. On the left hand side, you can see a photo of St John's Retail Park in Bedford. This is our largest retail exposure. It's the dominant retail scheme in the area. It's anchored by Lidl who we bought into the site a couple of years ago. And here, we've been working with Starbucks at St John's, but also Wattening Street, which is in Bletchley. So Starbucks are gonna build a drive through on each site, and we're gonna spend 8 point 1,800,000 to do that. And if the cost goes beyond 1,800,000, then Starbucks have to pay. So we're protected from the cost side. And then once it's complete, we'll bring in another £250,000 of rent.

31:39 And actually, terms of value, we estimate we've got around 1,800,000 to spend, and we think the value of these sites will increase by more than 2,000,000. In addition, the leases with Starbucks are long leases. They're fifteen years, no breaks, and they're linked to inflation. So this is an example of us creating long inflation linked income that's expensive to buy, so we're creating value. On the right hand side, now I just spoke about the phase one initiative at Stanley Green where we made some fantastic returns and have developed a really fantastic asset in the area. The next asset we've set our sights on is Lanny Park in Chippenham. This is a huge site. It's 28 acres. It's right next to Chippenham Town Center in the train station.

32:25 And one of the major tenants there is Siemens. And actually, in the last couple of years, we completed a a rent review with them to increase their rent by more than 30%. But we actually want we want to keep them on the site. We're in active negotiations with them to develop new accommodation for them. Again, leading accommodation strong from a sustainability perspective, and then we'll have a long lease with a really strong tenant. We estimate that will cost us almost 70,000,000 to build, but on a conservative estimate, it could be worth 75,000,000 when done, and we'll be bringing in another 4,500,000 of rent. So, again, another example of us working to create this long income with strong tenants. We've mentioned that we've been making some sales of smaller assets, and Nick mentioned that, you know, we've been able to secure some really attractive pricing despite the market headwinds.

33:21 So in the top left hand side, you can see Southlink and Portsmouth. We sold that in June 2022, which was the very top of the market, which explains the net initial yield we got of 3.2%. We sold it at 6,500,000. That was a 33% premium to the book value at the beginning of the financial year. Beach House in Fleet was a small office exposure. We completed the business plan. We just saw risk to the valuation, so we decided to sell. We achieved a 17% premium to the open and book value. And, it's the proceeds from these sales that will be reinvested into future CapEx projects. In the pipeline, we've got Morgan Sindle House in Rugby, which has been sold. It will complete in June. We sold that for £4,000,000, and that money will initially be used to pay down our RCF.

34:13 And then the RCF in the future could be used to fund those CapEx initiatives that we have to create value and more rental income. On the bottom right hand corner, we've mentioned 67 And 68 High Street in Chelmsford. So we own 67 High Street. In March, we acquired 68. And the rationale for acquiring that, which is the, you know, the next door unit and is currently occupied by Clinton's, which you can see in the photo, is we were talking to Card Bank about a longer term lease. So what we did at the same time as buying 68 High Street was agree a new ten year straight lease with the Card Bank, a really strong covenant to bring them into both units. So therefore, we're creating value and also creating an asset that will be more liquid in the market and will achieve a higher price, you know, together than they would individually.

35:11 Now both both Nick and I have mentioned the reversion in the portfolio. You know, that 8% reversion yield is very high. It can seem a bit abstract, so we just kind of set out some steps as to how we see ourselves kind of achieving that over time. So the first thing we have in the next twenty four months are contractual uplifts in existing leases. So there's 2,000,000 of that's come through, and the majority of it relates to New Bucks University, who I referred to earlier. They're currently on a rent free, and their rent will increase to 1,300,000 in due course. Similarly, we have a company called Littlefuse who manufacture microchips and things like that. So they're on a rent free, and their rent will come in in due course at £500,000 almost.

36:02 So, you know, 1,800,000 of that 2,000,000 is with these two really strong tenants. So we're confident that's gonna come through. I spoke about the phase one development at Stanley Green, which is completed. The rent on that new development will be 1,300,000, and that was void at the year end. But since the year end, we either have let or have in legal negotiations 40% of the 1,300,000, and we have a target to have all of it let, so all 1,300,000 by the end of the year. We spoke about Starbucks where we've got over 200 k of revenues come through. That's currently under construction, so that will come through soon. And then the other two bars refer to where we currently have rents at our assets that are below the current market value where it's a longer term lease. So when that lease expires or when the rent reviews come around, we'll gradually edge up the rents. And then finally, we've got vacant space that we're working hard to let.

37:03 We set out some information here on our balance sheet. Very, very strong, really, really positive story. So at the year end, the average interest cost on our drawn debt was 2.9%, and the maturity of that debt was more than ten years. Now that has changed since the year end because we had a cap at 1.5%, which was expiring in July, and we we replaced that with an interest rate collar. So there's cap of 4.25% and a floor of 3.25% last week. That means that the average interest cost based on today's Sony rate will be 3.4%. Now 3.4% is still extremely attractive in the current environment. And we'd also stress, and you can see this in the bars on the left hand side, the majority of our debt is a long term loan with Canada Life.

37:50 That's a two and a half percent fixed, and it's got a maturity of more than thirteen years on average. Finally, you'd have heard Nick and I speak a lot about sustainability through the presentation. It's, really fundamental to our approach to adding value to assets. We're as I said, we're looking to evolve our strategy to take advantage of that further, but our return objectives will remain the same. And our view is that by undertaking this strategic evolution, our income and our returns will be more sustainable in the future. With that, I'll hand back to Nick before we address any questions you might have. Fantastic. Thanks, Bradley. So just to provide a summary, I guess, and and it's the key message really is that we do have a higher income return, and we have a sector leading debt profile, which which we believe will underpin our earnings going forward. So we will be able to continue delivering a sustainable and progressive dividend policy.

38:48 I think that's really highlighted by the four numbers on the right. So first of all, we've got the long term outperformance at property level. Brad and I are working with a team of 40 year old specialist investors and asset managers, and they're helping us really drive forward the asset management plans across the portfolio. We have even with the recent, hedging we put in place, a very low cost of debt of 3.4% versus current rates and a very long duration. We have a very significant reversion at £8,000,000 just to just to bring it to life that that is driven by about 8% yield. And finally, based on today's share price, what we think is a really attractive dividend yield of 7.5%. So I'll I'll I'll pause there and hand back. Nick, Bradley, that's great. 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 top right hand corner of your screen.

39:46 But just while the team take a few moments to review those questions that were 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 there in the q and a tab, we have received a number of questions throughout your presentation this afternoon. And thank you to all of those on the call for taking the time to submit their questions. But, Nick, Bradley, if I could just hand back to you to respond to those questions where it's appropriate to do so, and then I'll pick up from you at the end. Thank you. Yeah. Thank you. So we've got a couple of questions here I can see at the moment. The first is, are we seeing opportunities to acquire for more aggressively geared assets owners who are feeling the pressure? And with the long term fixed rates we have, if you were able to make further acquisitions, what blended interest rate would you be happy to run with? So, yeah, good question. So are seeing opportunities.

40:47 We are seeing early signs of owners needing to sell not so much about loan to value breaches, but where the refinancings are too expensive, where where today's rates mean that there isn't enough cash flow of where they will therefore look to sell. There where there are also some sales out of open ended property funds where partly as a result of the mini budget and some of the DB pension scheme derisking, we're seeing accelerated redemptions across some funds run by by other managers. So there are opportunities. Our challenge at the moment is that we don't have the firepower, the dry powder, if you like, to to go off and make acquisitions. And so although we have balance sheet capacity, we currently are allocating that capital to asset management projects where we where we are really in control of adding the value.

41:50 And and we are also, you know, although our balance sheet is extremely strong, we do have an internal guidance of our loan to value of 25% to 35%. Although we've got tons of cover on our covenants with banks, we have strategically given ourselves that range. We are towards yet the limit of that range or just just over it. So I think the sales that we've talked about, the rugby asset, for example, the expectation would be that we would use those proceeds to repay the revolving credit facility and then redraw that probably to fund the active management activity. So so I think, yes, lots of lots of opportunities we think that will emerge in the market. But at the moment, our focus is on really driving those business plans where we are very confident about the income, the value that we can generate. On the the second question, again, when it comes it's a slightly easier question to answer as it relates to our own portfolio. So, you know, Bhatti has explained that some of the activity that we're doing at the moment, you know, we are able to generate cash on cash returns when you look at the additional income we're generating of well over 10%.

42:55 So the cost of our revolving credit facility at the moment, you know, the marginal cost of the unhedged piece is obviously around six. And so we can justify that. It is accretive both in terms of income, but also we already own the asset. There isn't a frictional cost of buying, and therefore we're confident about adding the value. So, you know, as it relates to going off and buying in the market, I we would not today use a revolving credit facility to go make a significant acquisition partly because, you know, average property yields are still about five. But but also, as I say, because we have that internal, very disciplined approach to maintaining a sensible loan to value. And at the moment, you know, we are exercising a degree of caution and focusing on the existing portfolio.

43:41 So hopefully, that answers the question. Now the the there is another the next couple of questions are related, which relate to some of the M and A activity that's being seen in the market. And there's one in particular that asks a question about Ediston, which, obviously, for those who don't know, is a is a specialist investment trust that owns retail parks where the board, because of different reasons, I think, has made a decision to do a strategic review, and that could well result in some form of M and A. We did look at the portfolio. We would look at everything in that type of situation. And, you know, we've got a big team. We see a lot of deals, and so we that did cross our desk.

44:34 The retail parks are okay. I would say, wouldn't mind that they're not as good as for example Bedford that we own. The market intelligence at the moment is that it it may be given the level of the current share price discount that and and also because there are other people like us who like the retail warehouse sector that those assets could well just be bought for cash and shareholder will receive now rather than, you know, any sort of a paper deal where that paper may may still be the discount. So that's so that's our view on that one. Don't expect an announcement anytime soon. On on on the broader question, I think, you know, we are frustrated by the prevailing share price discount.

45:23 We think it, you know, we think it undervalues the shares. We hope that these results will resonate well, notwithstanding the the NAV decline. You know, we have just resolved we've been tipped as a buy by INVESTMENT TRUST LIMITED at the back of the results today. So we are hoping that, you know, all the stuff we're doing in terms of shareholder engagement, and this platform is excellent. It's great to have contact with people like yourselves, obviously, the work through the intermediary market, but most importantly, continuing to deliver what we say we're going to do. You know, if if you step back, those that heard us speak at the entrance, notwithstanding the wider market volatility, it's we've done everything we said we're gonna do. Delivered standing green, delivered lease restructurings, delivered higher income, delivered a further increase in the level of dividend.

46:12 Combining that with, we hope, evolving our strategy so there's greater emphasis on sustainability without giving up term, importantly adding to the return, we believe. We hope will mean that our discount narrows and we hope in time that will create M and A opportunities that we could then access with a with a better share price rating. So I think that hopefully answers both of those questions relating to more sort of corporate landscape. I think, Jake, those are the those are, I think, the questions that we have. And we have used up fifty minutes, so hopefully that's hopefully giving people a clear enough response.

46:59 Nate, Bradley, absolutely. And thank you very much indeed for being so generous of your time there in addressing all of those questions that came in. And, of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended just for you to review to then add any additional responses, of course, where it's appropriate to do so, and we'll publish all those responses out on the INVESTMENT company platform. But, Nick, perhaps before just really looking to redirect 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. Yeah. Of course. Well, look. We we've added a slide which which gives what we think are the five most important points as to why we think SREIX is well positioned and an interesting investment for for you today. We have a good quality diversified portfolio that's importantly high yielding, but also we believe allocated to the high growth parts of the market.

47:54 We've announced today a fully covered dividend, which on today's increased level reflects a yield of 7.5%. Bradley's articulated, hopefully, really clearly why we think we are differentiated by the strength of our balance sheet, both in terms of duration of debt, but also, really importantly, a very low cost with no refinancing risk. We have, notwithstanding all of those points, still a discount of 28%, give or take, a bit less today hopefully, which, we think offers compelling value and offers protection if we do see a bit more volatility in the market. And importantly, we have a really clear evolving focus on sustainability, which is going to be fully integrated in our strategy, which fundamentally is the right thing to do, but will allow us to make more money and deliver more sustainable returns for shareholders.

48:42 So certainly speaking on my and Bradley's behalf, I think we would love to say thank you very much for those that have bought shares through this platform. Thank you for your support. I'm very happy to take any further questions offline if people have any. No. That's great. And Bradley as well, thank you once again for updating investors this afternoon. 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 the management team can better understand your views and expectations? This may take a few moments to complete, but I'm sure it'll 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.