Schroder Real Estate Investment Trust (LSE:SREI) — Quarter Results Ended 30th June 2022

0:01 Well, good morning, 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 and could be submitted anytime via the q and a tab. It's situated on the right hand corner of your screen. Please just simply type in your questions at any time and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, all questions will be reviewed with responses published on the INVESTMENT company platform where it is appropriate to do so. Before we begin,

0:33 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 you over to head of UK real estate, Nick Montgomery. Good morning, sir. Good morning. Sorry for jumping the gun. I'm too enthusiastic, but really good to have an opportunity to present again. This is the the second time that we will have presented using the INVESTMENT company format. We had some really good feedback. And, actually, we actually constructed helpful feedback on on how to do things differently last time around. So so it's great to be here again. We're here, first and foremost, to give a view on our most recent quarterly results. So as you just heard, I'm Nick Montgomery. I'm one of the managers here. I'm joined by my colleague, Bradley Biggins. And together, we're responsible for running SREIDA REAL ESTATE INVESTMENT TRUST. So as I say, the most up to date information we have now is to June.

1:27 But it but I think probably more interestingly, clearly, we are in volatile markets. Real estate markets tend to lag with the wider capital markets, and and we're and we're seeing that come through. So so all those results although the results are very positive, they are very much in the rearview mirror. But, hopefully, what will come across as we go through the presentation is a very encouraging level of continuing activity, which we think, you know, will will continue to deliver sustainable net income growth and and mean that the shares really do look very interesting value today where we're trading today off a discount of around 30% to the June net asset value. Just just in terms of a little bit of detail on the results. So when when we last presented a month or two ago, we were reporting our year end results to March, and we reported there a a NAV total return of 31% with actually a, NAV total return for the quarter to March, probably the year to March of about 9%.

2:29 Now very encouragingly, over the quarter to June, we have reported a NAV total return of 5.4%. So down a little bit, but nonetheless, still reflecting very, very healthy levels of of capital value growth. I guess, of more importance, taking a long term view given this company is here to deliver an attractive income return, We paid the 3% higher level of dividend over the course to June. And then with the NAV that we announced a few week weeks ago, we announced a further 1% increase in the quarterly dividend that we pay. Now that that is consistent with what we have said, which is when we are able to recommend to the board that we can pay a high dividend on the basis that it is sustainable, we will do so. And so we hope to continue doing that and deliver the progressive dividend policy go going forward.

3:24 And it's also important to note that and a little bit more later, but the the earnings are robust, and our dividend cover over the most recent quarter was a 102%. So so more than fully covered. From a balance sheet perspective, and again, more on this later, we remain in a very good position. Our net loan to value consolidated is 29%, and we have an average cost of debt of 2.7% and and more on that later. Obviously, it's a property performance that drove that quarterly return, encouraging levels of growth, so a 3% uplift in the valuation of the portfolio over the quarter. We don't actually have our full benchmark data out yet. It'll probably be with us later this week. But when we compare ourselves to to the best proxy of the monthly index, we we continue to be tracking ahead of that both in capital value movements, but also, again, more importantly, by delivering a higher income return.

4:26 Lots of activity, as I say, in terms of leasing. 22 leasing transactions actually that have completed since the year end at the end of March, which generated £3,200,000 of new rent, an uplift of 1,500,000 on the previous rent payable. And when we're when we're looking at an overall rent roll of about 30,000,000, those numbers are material. What we've also been doing and we have done consistently is look to sell assets and realize profits where we've delivered on the asset management. One notable transaction over the quarter was we sold a single warehouse unit down in Portsmouth. We we we done all the work we could do there. We sold that now quite unbelievably, actually, at a 33% premium to the March valuation, which reflected a very low yield of 3.2%.

5:17 The market clearly has changed since then, not least because we were in the slower summer period, but also generally in terms of sentiment towards industrial. And so we we were very pleased to crystallize that that that very, very strong return from the asset. And, again, we have obviously acquired our asset in Manchester. We did touch on this briefly last time. A mixed use asset in the city center offering a very attractive yield of seven of nearly 8%. So so more than double the yield that we sold Portsmouth at. Income remains key. So I've mentioned that that we've paid a further 1% increase in the dividend, or we will be paying, I should say, very shortly to naught point 803%, and the dividend is now 4% above the pre pandemic level. We remain the only one in our peer group to be paying a dividend that is above the the the pre pandemic level.

6:08 We touched last time on on how we were looking to change the emphasis of the strategy, not not the financial target, but certainly the way that we deliver the financial target by having a greater emphasis on on ESG and that and that being a core part of how we deliver improvements to assets. And we're doing some more work on that, which Bradley will update on later in the later in the presentation. I guess the last point in total strategy, because we've included an update here, for example, with with the new chair, Alastair Hughes, who who has replaced Lorraine Baldry, our outgoing chair, who's been a a great chair. But Alastair, equally, we think is is very well placed. He's actually also a normal tech director on both British Land and Tritax Big Box. So, actually, that does give him an interesting perspective on market.

6:56 So we're looking very much to looking to working closely with Alastair who who has been a a senior independent up till now. The last point to note just on the overview is, you know, recognizing where our shares are now trading and the value that we see in our shares. We have announced recommencement of our share buyback, program. We did actually we thought we were one of the first in our peer group, over the last cycle to to do a share buyback program. In the previous financial year, we bought about 10,000,000 of shares at at an average discount of between 3040%. And so we think based on where the current share price is and given how robust our balance sheet is, that we should be using our capital to buy our shares back alongside, obviously, other uses for it and notably investing in refurbishments, redevelopments, and and also, you know, opportunistically looking at whether they be whether they be value in the market.

7:51 So just moving forward in terms of the NAV, I won't spend too long on this slide, but it's a similar format to one that we showed last time. You can see there the positive NAV movement of 4.4% over the quarter to June or 79.1p per share, which compares to today's share price of about 55 p. And you can see there how that valuation uplift is made up. Obviously, coming from the the portfolio, we incurred some acquisition costs associated with Manchester, which were dilutive, but we realized that very significant gain, 30% uplift on the on the March valuation from the disposal. And and then finally, you can see there the of 4,000,000, which gave us that cover of a 102%. So so a very we think of a, you know, a very a very positive quarter for us. And I guess just just to draw out the point about the dividend in a little bit more detail, as I say, for those that perhaps weren't with us on the last call, we have a progressive policy.

8:46 We look every quarter with the board at what we consider to be a sustainable level. And if we believe we can move it in and on, then we will do. We know there is no high watermark that we're working to. And so you can see here the progression to the 0.803p per share per quarter, which compares to that pre pandemic level of naught 0.77 p per quarter per share. And it's worth noting per share because, obviously, over that period, we also benefited from the previous share buyback that we did that concentrated the shares in in in in fewer hands. So good progression, exactly what we were hoping. I think, interestingly, what we're seeing in terms of the market, obviously, more persistent high levels of inflation and and the response in terms of monetary policy means that we are very well positioned in a rising interest rate environment.

9:42 So first of all, because we have a very strong dividend yield, and what we're showing here on this slide is a representation of our peer group, which most people would consider our peer group of what what what are the diversified largely diversified investment companies. So these these are peers who own assets across the different parts of The UK real estate market rather than being specialists in any one particular sector. And you can see here, we we we screen very favorably on each metric. So first of all, from the top, what is our dividend yield? Our dividend yield today based on the share price is between 5.85.9% on the share price. And importantly, that is fully covered. You can see there at a 102%. The only company in our peer group to currently offer a higher level of dividend yield is AEW.

10:31 They're at 6.7%, but notably, they they have dividend cover of 75%. So we have a low yield, but we are obviously fully covered. As I noted earlier on, we are the only company in the peer group to be paying a dividend, above the pre pandemic level. You can see that a range a 104%, which is where we are based on the most recent announcement down to as low as 80% in some cases. I think really importantly, looking from a resilience perspective at our ability to pay future dividends is to look at our cost of debt, but also really importantly to look at our the duration of our debts. And, Bradley will touch on this later on. But our our total debt cost, over the most recent quarter is around 2.7%.

11:19 But very importantly, the vast majority of our debt is fixed for thirteen and a half years at a fixed rate of two and a half percent. So from perspective of looking at our future earnings and making the decision about the dividends, we can do so knowing that the vast majority of our debt and our interest cost is is is is known. And there are other companies in our peer group who have nearer term refinancings, which could potentially have a bearing on the level of sustainable dividend that they can pay going forward. So so just moving back before, I should say, looking at the property performance. This is showing actually, this is this is showing performance to March. This is this is not the most the latest data, as I say. We will get that from from MSCI over the next few days.

12:07 But for those people perhaps that weren't with us last time around, I'll just direct you to the bottom right hand corner of the chart here that shows that if you look at our underlying portfolio, all parts of the market have outperformed over the vast majority over over all time periods, 2.9 outperformance over one year, two and a half over three years, and over 1% since IPO back in 2004. So so so so so good performance all around. Now the next slide is slightly something your house is at risk slide, but but, actually, there's a there's a point to make here as well. One of the reasons that we have such a secure and resilient debt facility is because of a refinancing that we did just under three years ago. So we had a a loan facility that was costing us about four and a half percent, and and we we saw an opportunity to refinance that loan both to reduce interest rates two and a half percent, but but also to extend the loan. So as I say, we currently have about thirteen and a half years on our long term loan facility.

13:17 Now there was a cost to that, and it was at the time, it was a difficult decision because the cost was quite significant at about 27,000,000 to to break that facility, and that was a hit to NAV. So what we're showing here is the impact of that on our NAV total return. So one of the key measures that shareholders look at is, obviously, a three year rolling NAV total return, and we still have the impact of that break cost within our three year NAV. So so although we're we're now benefiting, obviously, from having a much lower interest cost and, obviously, a much longer term duration debt, some shareholders, analysts do screen the sector looking at three year rolling. So when they're looking at us, there is still that impact in the three years, which will drop out when we get to the end of this year. But I flagged that only because, as I say, we know it's a metric that that that that some shareholders that are to to to to look at.

14:15 Now strategy. Again, I I I apologies to those that heard us last time around, but the these are, if you like, the five key pillars of our strategy. We are moving, as you're here shortly, into a new phase in the cycle. We were expecting already to see convergence so that the industrial sector, which has had a, you know, phenomenal five or six years of performance, that run was going to end, and hence, we'd be looking to take some profits, for example, Portsmouth. But, actually, also, we were expecting to see more convergence and and retail warehousing, for example, was a sector that and, you know, was was was ended up being a lot more pandemic resilience, and and we're we are, you know, overweight retail warehousing. So so we think we're well positioned. And I think the the the key point we think is as we move into this new phase in the cycle, we think more investors will be prepared to look at diversified strategies.

15:08 Because if all you can do at the moment is invest in the industrial sector, you have very few levers really to drive income growth. And whereas with our strategy, we have the ability to sell industrial at 3% and rotate into offices at 8%. And so, the point we're making here is the diversified strategy, we think is now a benefit. And within, the team at Bradley and I oversee, we have multisector specialists across the business. So we have specialists based up in Manchester who are experts in industrial, but, equally, we have experts down in London who are experts, if, for example, in retail warehousing or or Central London offices. So we think that that is a real value now as we see more opportunities in other parts of the market to to tack and change, to deliver both higher income return, but also more attractive total returns.

16:03 Active management is key. You know, we talk a lot about operational excellence. I mean, a recent example now, of course, is is working closely with our property managers to try and limit the impact of inflation or or or energy costs, for example, through service charge budget. So, you know, it's an it is an increasingly operational asset class, and and the closer we are to our tenants, the more likely we are to drive that income return. Disciplined approach. I think we will, as I've mentioned, like with Portsmouth, continue to sell assets on completion of business plans. We have a number of smaller interests,

16:39 small, you know, $2.03, £4,000,000 assets, which we will continue to look to recycle and invest into either the development projects, refurbishment projects, or newer, bigger assets where we expect to get more bang for our buck, so to speak. Balance sheet, I've touched on. I guess the the the last point to note there is we have 45,000,000 of of of remaining capacity, which is obviously being used partly for our share buyback program alongside the other uses that we can apply. And ESG leadership, you know, we are very serious about that. We are working hard on the work to try and get to a point where we are able to differentiate our strategy more based on ESG without obviously losing the focus on the financial objectives.

17:25 And and and we are aiming to give shareholders more of an update on that late late later in the year. So I guess just just before I hand over to Bradley, just just to briefly touch on on the market. I mean, clearly, you've all seen what's happening out there in terms of inflation and interest rates. The real estate market tends to lag. We have an independent valuations carried out every quarter. Large parts of the market, you'll know, have valuations done every month. There are early signs now of some of those monthly valuations ticking down. Some of the open ended funds, for example, saw their valuations drop, you know, somewhere between 12% in July. And and and we are seeing pricing in the transaction market, particularly for very low yielding logistics or London industrial, for example.

18:17 The difference between where values are and price is being achieved is now some you know, anywhere between 510% different. Now what does that mean for us? I think that there is a consensus that if we do see ten year guilt rates moving above two and a half and towards three, and that is the general consensus, then we will see that have an impact on real estate yields. And so we are expecting that on average between the start of this year to the end of next year, average real estate values could fall between 1015%. Now that's not saying we expect our portfolio to fall 15% because we think we're well positioned.

19:02 We have a higher income return, and we're less vulnerable, we think, to what we're seeing just in terms of rising interest rates impacting very, very low yielding assets. But but but, you know, you won't be surprised to hear that we are moving more towards a risk off environment where when we are investing capital expenditure, we're doing so off the back of ideally pre lets, and there's some examples that you'll hear about later on, and where we've also been working very hard to lock down new leases with strong tenants. So Bradley will talk later on about an asset in shipping and where we've we've had some fantastic results creating longer income, and the punch line being Siemens are now our second biggest tenant. So there's been a lot of very, very, very encouraging activity. I think looking forward, actually, we see continued healthy levels of demand both for yield because, again, you know, our yield today on share price is very attractive if you were to factor in a, you know, a 10 decline in capital values and and then on NAV, even more so.

20:06 But, actually, looking forward, we think there are other reasons to be more positive about the real estate market. We don't have a significant oversupply issue In many regional cities where you are looking across the skyline and seeing cranes, a lot of those cranes are res are are residential. In markets such as multilay industrial, there's a there's an acute undersupply. No one is building it. I think if, you know, if if you're a developer of industrial, you'll build a big box. You won't build a multi industrial estate. So so so for that reason, we we continue to believe we're well placed. And, actually, even if you do apply a 15% valuation to our portfolio and assume as a recovery from thereon, you know, at a 30% discount to NAV, our shares arguably still look attractive.

20:55 And that's why, you know, again, we're sort of putting our money where our mouth is. That's why we are proceeding with our with our share buyback program. So happy to take questions on the market later. But in first instance, I'll I'll hand over to Bradley. Thanks, Nick. It's a pleasure to be here talking to you all about SREI today. On this slide, the table on the left hand side, we show a selection of important data points for portfolio. The first two rows we've highlighted show that we own 42 properties that are occupied by three twelve tenants. This illustrates the diverse and granular nature of our portfolio, which, in our view, makes it more resilient, a characteristic that will be particularly important as we will navigate a more challenging period. The second set of rows we've highlighted show the net initial yield and the reversion yield of our portfolio.

21:42 You can see our net initial yield is 5.2%. This is higher than the benchmark at 3.9%. And our reversionary yield is 6.4%, which is also higher than the benchmark of 4.6%. This illustrates that our portfolio is high yielding and also has the potential for rental growth. This means we're well positioned for an environment where interest rates, and therefore, the cost of debt is rising and where capital growth may slow. Final comment on that table with regard to the WALT, which is our weighted average unexpired lease term, importantly, to earliest break. So our benchmark includes the largest sample of the MSCI index. That means it includes everything, including the long income funds.

22:28 That's why our water break of five point four years is much lower than the benchmark of eleven years. However, we're comfortable with our walks. It reflects our active asset management approach. And as we look at some of our peers, for example, AEW, they have a walk of two and a half years. Now looking at the data on the right hand side, one of the strengths of our portfolio is our ability to invest across the sectors, as Nick said. This enables us to find higher yielding acquisitions that we expect to perform strongly for a total return perspective regardless of the sector that the asset is in. Our sector allocations on the right there, we've highlighted our overweight positions in industrial and also in retail warehouse.

23:13 These are areas that performed strongly and that we expect to outperform in the short to medium term. Moving on to the next slide. We have good quality assets with good fundamentals located in higher growth areas. To provide more color on the portfolio, we show six of our largest assets by value on this slide. These six assets represent around half of the value of our portfolio. The first two photos on the left hand side show our two largest multilayer industrial estates. Incidentally, as we saw on the previous slide, half of the portfolio is in the industrial sector, and our industrial assets are almost all multilayer industrial estates like those two you can see in the pictures there on the left hand side. This is very important because we're seeing materially less development of new multilet industrial estates compared to the large big box distribution warehouses that you see along the motorway.

24:13 And because of this supply demand imbalance partly caused by a lack of this new development, our view is that multilayer industrial estates will continue to benefit from strong tenant demand, attractive rental growth, and will also remain resilient in a recessionary environment because the rent for these assets tends to represent a very small percentage of tenant revenues. In the center of the slide, you can see our two largest office exposures. Our offices are in higher growth locations such as London, Manchester, and Edinburgh, we're comfortable with those. On the right hand side, you can see our largest retail warehouse at the top and a mixed use scheme in Leeds. This scheme is comprised of retail, a hotel, and a gym that trades very strongly.

25:02 Across our portfolio, we've got exposure to good quality retail warehouses, which is a sector we expect to outperform over the next three or four years relative to other sectors, as you mentioned on the previous slide. So as we move into the next four slides, we're gonna provide a bit more detail on four assets. And in case you're curious, in the appendix, we've got a list of our 15 largest assets by value.

25:29 So this is Langley Park Industrial Estate in Chippenham. It's located right next to the train station. Activity in the past quarter includes, we completed a rent review with Siemens to increase their rent by 26% per annum to 1,220,000 per annum. This will mean they become our second largest tenant. Siemens occupy a large amount of space at Lanny Park, and they have around 800 people on-site. The lease expires in 2026, and we are in early discussions to increase their occupation at the site. This is fantastic because we're also working with surveyors and the planning authorities on adding more units to the site. These will be built to an operationally net zero carbon standard, and there's also interest from the other tenants currently in place at the site.

26:17 In addition, during the quarter, we completed a ten year lease renewal of Littelfuse. They're a global electronic manufacturing company. The rent will be 31% higher than the previous level. The lease has no breaks and is linked to inflation. And the final point we'd make here is that we have engaged with the planning authorities for a 130,000 square feet of new space on the site, and this is what we hope to collaborate with Siemens on as well as other tenants at the site. Moving on. This is Stanley Green Trading Estate located in Cheadle. This is just South Of Manchester. And right next to the A 555, which you can see in the main photo. And it's also very close to a number of motorways such as the M 6 and the M 60. So it's really superb location for transport links.

27:07 At the moment, you can look at Stanley Green's two parts, the existing state and the new development. And you can see both in the main photo on the slide. The empty piece of land to the top of the yellow outline is is the development site. When we acquired this estate, there was an historic planning consent for 48,000 square feet of new space. Our strategy was to obtain an improved planning consent for a larger development to maximize value, and we have achieved that. We're currently constructing 80,000 square feet of operation net zero carbon space. And we was actually on-site last week, and fantastic progress has been made. The site is really starting to take shape. We're now working to obtain pre lets, and we have conservatively assumed in our modeling that we'd get total rent of 1,000,000 per annum from the new site.

28:00 But since developing the business plan, the world has moved on, and we expect to get 10% to 20% higher than that.

28:08 In addition, at the existing site, we're in heads of terms on a number of rent reviews and lease renewals, and we expect to achieve material increases to the rents that are currently passing. Moving on. On the slide here, you can see our office in Store Street in Bloomsbury, which really is an excellent location. The area is experiencing very high demand from life sciences in particular. University of Law occupied the building, and the rent is currently very low at £43 per square foot. With the right development, there's potential to more than double this rent. We bid on adjoining ownerships, which we think could unlock marriage value and open up exciting development options for the site.

28:55 If we do manage to acquire these adjoining ownerships, we'd have a very large freehold site in Camden, which is very rare, and we're very excited about the potential there. On this slide, you can now see St John's Retail Park in Bedford. In our view, this is the best retail park in the area, and it's performed very strongly in the years of March. You can see the total return in the blue circle there. The park is fully let at sustainable rents and anchor tenants such as Liddell Drive footfall. During the quarter, we completed a fifteen year pre let with Starbucks for a new drive through that they will construct on the site. The rents for this lease will also be linked to inflation.

29:41 At the same time, we've agreed a similar deal also with Starbucks at a number of our retail parks in Bletchley, which is in Milton Keynes.

29:52 Here, we list our 15 largest tenants by annual rent as at the June 30. And as you can see, these are well known quality household names, and we think this is a result of the quality of the portfolio and our approach to operational excellence. This leads to a resilient income, and it's pleasing to report our rent collection, which is in the bottom right hand corner, was 98% for the June quarter. As requested on our previous call on this platform, INVESTMENT COMPANY, we have here shown our lease expiry profile. Importantly, what we're showing here is the period of time to earliest break. Earliest break is often much sooner than the actual lease expiry.

30:40 Our overall average unexpired lease terms of break is five point four years.

30:44 So it makes sense that the majority of our rents expire over the next five years, and that's what you can see on the chart here. The peaks you can see in the year ended March 24 and the year ended March 27 are related to two of our larger tenants. So in in the year to March 24, we have a break at Utsbridge, which is currently occupied by New Buckinghamshire University. And we'll find out in November this year if the tenant chooses to exercise their break option so we can update you on that later in the year. And as I mentioned when we was talking about Store Street, the University of Law who occupy Store Street, their lease expires in 2026, and that's around 1,850,000 per animal friend. And that's why the blue bar in that year is higher.

31:35 And then final point on this slide, and as I previously mentioned, the benchmark includes long income funds. And that's why you can see the large red bar on the right hand side there as we show the the benchmark expiry profile.

31:53 On this slide, which is illustrative and has a lot of moving parts, what we're trying to show you is where we think we can deliver rent growth. So the first bar on the left hand side is our current annual rent as at the June 30. So that's 30,800,000 per annum. This reflects a net initial yield of 5.2%. And then the middle blue bar is our estimated rental value. So this is the rent that our independent valuer believes we could achieve were we to get market rents today across the whole portfolio. How can we bridge the gap there? Well, firstly, we've got a number of fixed uplifts coming through in the next twenty four months. So these are contractual uplifts in rents that tenants pay. Secondly, there are a number of leases where our current rent has fallen below the market level, which is perfectly normal because leases often last for five, ten, or longer years or so.

32:47 I mentioned the Starbucks developments. That will bring in around 200 k of rent per annum once completed. So that will increase our passing rent. And then finally, there's vacant space in the portfolio, and this represents an annual rental value of £2,900,000. If we were able to let all of that space, we will achieve at the middle blue bar of 35,300,000. But then beyond that, there are a number of other management activities we're undertaking to increase our rents. So I mentioned the standing green development, and we spoke about that previously, bringing in a million of rents once completed. So that's not currently included in our ERV or our reversary yield. Secondly, we've got a CapEx pipeline, which we think could bring in another £500,000 per annum of rent over time.

33:39 And then finally, we've got once we spent the CapEx, once we spent the development costs of Sandy Green, we have around 15,000,000 to deploy. And we've shown a conservative yield of around 4% that could bring in around 600 k of additional rents per annum. And then that could get us to a total rent of around £37,000,000. But what we've shown is in the bar, we split it to show, okay. Look. If we don't manage to let let the vacant space, we'd land at around £34,500,000. So just to emphasize, this is illustrative and just gives you an idea of the work we're doing to try to drive income. Onto the next slide. So what you can see here is in Manchester. This was another higher yielding acquisition we made.

34:26 We completed this in May. We paid £14,700,000 for this mixed use office and retail asset. It generates £1,220,000 per annum of headline rent. This reflects a net initial yield of 7.8% and a reversionary yield of 9.1%. We paid a low average capital value of £283 per square foot. The asset is prominently located in the city center near to the prime retail core. And our view, compared to other major cities, Manchester currently has the lowest office vacancy rate, and we expect relatively higher growth in office rents over the next five years. Not only does this asset have excellent fundamentals, there's also a really interesting opportunity to improve the sustainability credentials.

35:15 And in our business plan, we've included £4,000,000 of CapEx, which we don't have to spend, and it will be spent over time. And our view is spending this on sustainability improvements would increase the value of the asset, increase the rents we can achieve, reduce void periods. So it'd be very accretive. On this slide here, we talk about our balance sheet. We've got two debt facilities, a term loan from Canada Life and an RCF 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 cost of 2.5%.

36:03 And as Nick said, this is locked in for a very long duration of around fourteen years on average. Clearly, in a rising interest rate environment, this is very attractive and provides a competitive advantage versus our peers. On the right hand side, you can see the key points on our RCF from RBS. We completed a refinancing on this during the quarter. We increased the facility to £75,000,000. It was previously £52,500,000. So that's an increase of 22,500,000. And importantly, we extended the term from five years to five years rather than one year, which it was previously. And we achieved a very low margin of 1.65%. Previously, we had 1.6%. We think that's an excellent outcome given where interest rates have been moving this year.

36:55 In the progress of a a green green low KPI KPIs with RBS. And then at the bottom, we note that we already have 30,000,000 of interest rate caps in place with regards to the RCF. These are until July next year and have a strike rate of 1.5%.

37:16 We we should start to benefit from payouts on these caps over the next year because the SONI rate is currently in excess of 1.5%. The forward rate the forward curve at the moment shows that this will remain the case for the duration of the cap. We're currently considering a phased hedging strategy for further hedging of the RCF.

37:39 But what we're seeing at the moment is interest rates caps are the most expensive they've been for a decade. So we're gonna take a conservative wait and see approach or hedge on a phase basis, as I mentioned. The final point to note on this slide is that our net loan to value is 29%, and this is comfortably within our strategic target range of 25% to 35%. As Nick said, we've made significant progress in developing our sustainability strategy over the year. We delivered on the commitments we made in the 2021 annual report. And then in terms of strategy, given the need to improve UK building stock, we view refurbishment and redevelopment as a critical opportunity to deliver future proof assets.

38:31 And during the year, we also announced and halfway to net zero carbon. Now in addition to making these commitments, it's increasingly clear that there's evidence of a green premium or a brown discount. Research date shows the valuation premium can be as high as 20%, and the rental premium can be as high as 10%. And whilst most research has focused on London offices or offices in other key locations globally, our view is this opportunity extends to other sectors and other regions in The UK. Therefore, we see an opportunity to manufacture the green premium, and we have the ability, the resource, and the track record in house to do that. This is in the backdrop of the built environment having a profound impact on our climate.

39:20 It accounts for almost a third of c o two emissions, and that's according to the IPCC. So therefore, to achieve net zero, we have to address the built environment. Now the nuance of real estate is that the majority of today's existing stock that you see out the window will still be in use in 2050. This is a date by which many nations have committed to achieve net zero, if not sooner. So this means simply acquiring or building green assets will not address the challenge we face. So in our mind, this presents a compelling opportunity to evolve our strategy where we would acquire assets that are not reaching their full potential from a sustainability perspective. Then we would implement our active asset management approach to enhance sustainability credentials with a view to manufacturing the green premium we discussed in the previous slide, which would justify any CapEx that we spend to upgrade the the buildings.

40:15 This place our asset management expertise with the sector specialists we have within real estate and our deep ESG resources, both within real estate and across traders. So an Anne's house is, in our view, an excellent example of this, where our work will be focused on improving sustainability to enable us to achieve the higher rents and a higher valuation. Thank you for your time. I'll hand over to Nick now for any closing comments, and it'd be great to address your questions, which I'd see have been coming in over the presentation. Fantastic. Thanks, Bradley. Well, just very briefly, think there are three really important points to make, which we're showing on the right hand side here. We've we have continued to deliver very strong performance over the course of the June. That is very much now in the rearview mirror, and the market outlook has changed.

41:10 But notwithstanding that, I think our portfolio is very well positioned given what we're seeing in the market and the and the longer term structural trends. I think when you look at the potential out for property values given what we're seeing from a macro perspective, The share price discount represents, you know, we think still good value, and that's reflected in our share buyback. And finally, as Bradley's outlined, a combination of the board, the management, but importantly, the asset management expertise that we have on the ground and the specialist ESG expertise within the provider business. We think we're really well placed to evolve the strategy, a, to make us more differentiated, but, b, also to to ensure that, you know, we are evolving the portfolio given given the, you know, the the imperative around sustainability.

41:59 So I'll pause there. We have got lots of questions, which is great. So should we proceed into questions? Nick. Yeah. That's great. And thank you very much indeed for your presentation this morning. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab that situates in the top right hand corner of your screen. But as well, Bradley and Nick, take a few moments to review those questions that were submitted already, I would like to remind you that recording of this presentation along with a copy of the slides and the published q and a can be accessed via your investor dashboard. Nick Bradley, as you can see, we have received a number of questions throughout today's presentation. So thank you to all the investors for their engagement this morning. If I could please just hand back to you guys to read out those questions and where appropriate to do so, if you could please just give a response, and then I'll pick up from you at the end. Thank you.

42:49 Yep. Sure. We'll we'll we'll I'll take the lead on these, and I'll and I'll bring Bradley in as as we go through. So the first question is is I see that offices are around 20.7 of of value. Lots of office focused REITs trade at discounts. How is this different? Well, you you that's right. I think, you know, we have seen specialists, both in the office sector, but actually more broadly, even even industrial specialists begin to move and trade at at discounts. Our office waiting, as you've heard, is focused in particular on two key assets, one one in Manchester and one really interesting situation in London. So that that is one of the reasons clearly why what why why the opposite waiting is one of the reasons we're trading at a discount. In a sense, that's why we think the share price is interesting because it is only 20% of our portfolio, and, you know, half the portfolio now is comprising really good quality multilayered industrial estates where where we still see, you know, potential on the income side.

43:51 So so so, you know, I guess I I would say in response to that question that we we we we think we're we're we're really well placed. The next question, I think, Bradley, may have picked up already, but just in case, Bradley, you want to clarify anything. The question is, please, could you comment on the RBSI interest rate cap that expires in July? I think you did mention it, but do want to just clarify for the for the record? Yeah. Sure. So, yeah, we have an interest rate cap in place at the moment. It covers a notional value of £30,500,000, and the strike rate is 1.5%. As I mentioned, we do expect this cap to start paying out for us over the next year, probably until the cap expires based on the current forward curve. In terms of future hedging, just a couple of points to note. Firstly, the majority of our debt is the Canada Life term loan, which is at a fixed rate of 2.5% on average.

44:48 And then we have drawn down, at the moment, 46,300,000 of RCF. And, clearly, once the cap expires, that that amount will be unhedged. But what we're doing is reviewing situation because cap prices are very expensive at the moment. So what we might do, we'll take advice from from from internal debt specialists we have and also from our external advisers. And we're just gonna wait and see potentially some of the interest rate volatility may sort of decline over time as people get a better better view of what central banks are going to do with interest rates. And, also, I think there's been a bit of a scramble across, you know, many companies to cap their their debt as interest rates have rising probably more aggressively than what people thought at the end of the year. So we are reviewing the situation.

45:45 We are taking advice. We're thinking about phase hedging strategy, and we'll update you later in the year on where we are. Perfect. Thanks, buddy. That that's clear. So the the next question is when do you expect planning to be approved in Bletchley and in Bedford? How are we finding planning generally in terms of time frames? So so Bletchley and St. John's, Rita Park, and this actually links into a subsequent question, which is around construction. So the way that we've dealt with Bletchley and St. John's is because those prelets are with Starbucks, as Bradley mentioned, Starbucks have have their own team that do with planning. So we have put that obligation on Starbucks. They're making the application at their cost.

46:31 We are hoping that those planning decisions will be determined this year, but there are delays in the planning system generally. I'll come on to that at a moment. But I I we are hoping we will get determination this year. Just linking it to the subsequent question about construction costs, We are clearly seeing cost inflation, and, obviously, a key part of that is wage inflation, particularly on specialist trades. And we we we we make sure we do what we can to derisk that. One of the ways we're derisking at Bletchley and St. John's is actually put the obligation to build on Starbucks. They have their own people. It's a modular construction. They can source out much better than we can. So the deal with the group of Starbucks is effectively we pay up to a fixed amount.

47:22 If there is an element of overspend that is capped, then we charge a return on that, which effectively comes through as an additional rent for that fifteen year lease term. In terms of and, again, this is a subsequent question about about counterparties counterparty risk at the moment. So first of all, when we are undertaking development, and standing green is the best live example, we have the expertise within our team to deliver those projects. So what we're not doing is paying a developer to deliver it for us, and where, therefore, we are paying the profit away to that developer. At Stally Green, we get all the profit. It's really important as we do Bedford and Bletchley. What's important, therefore, is understanding the counterparty risk.

48:08 And so when we tender construction contracts, and we always do, obviously, we are going for tenders with parties that we believe are financially secure. So in the case of Standard Green, for example, the developer the other sorry. Developer contractor there, I should say, Arcadic Construction, who are a very substantial, leads based, contractor. They actually also have a development arm, but they're only contractor here. They have very sound balance sheet, and and and we did a lot of work on on them as as as part of the the due diligence you'd expect us to do. Final point on planning delays, I think it does vary by local authority. A lot of a lot of planners are under a lot of strain with with cuts. We we we do what we can using our local relationships, to to try and, hurry those along in terms of getting the right advisers that know know the actual, people within the local authorities.

49:04 But it is an issue. We we just need to make sure we build it into our our our timelines when we are when we're doing any sorts of any sort of development. If I just keep going through briefly, so so how's the new chairman settling in? Very well. It's only a week, but but Alastair was was previously the senior independent non exec director. So he's he's been on the board now for for almost four years. So we've had a really sort of very good period of of of, obviously, handover. And so Alastair becoming chair also coincides with with bringing a new senior independent director onto the board, a lady called Priscilla Davies. She had her first quarterly board meeting last week, made great contribution. She's actually, amongst other things, chair of UBS asset management in The UK. So it's a great experience. And, actually, both Alastair and Priscilla have a real interest in ESG. Alastair sits on the sustainability committee at British Land, and Priscilla is involved in various businesses connected with renewables. So we think genuinely, we think that's a real addition to the board.

50:12 Going forward, there's a question here about the monetary value of the share buyback. So so we don't give that information. Companies typically don't. All we do is announce our intention to recommence the share buyback, and then we obviously announce to the market when when we have bought back shares. You know, although we have got 45,000,000 of capacity now, both equity and debt or cash and and undrawn loan facilities, you know, we have other calls on our capital, not least developing out the the warehouse scheme at Standard Green. But, also, you know, we are always on the lookout for deals that support our strategy, whether that's to joining ownerships or or completely new deals. So so so I I I don't want to give any guidance. I don't think we can give guidance other than to say that, you know, as as and when we believe they look like great value and we've got capacity, then we'll do it.

51:04 I guess just by way of comparison, but I'm not drawing this comparison to say to guide you. But, obviously, as I said earlier on, we did buy about £10,000,000 worth of shares when we last undertook this strategy in the previous previous financial year. So I hope you that's I'm not seem to be dodging the question, but but I think that's all I can really say. So the next question, I I I'm just conscious of time as well, so we'll try and wrap it up in the next five minutes. I like the portfolios. It's diversified. It also performs more or less in line with some of the other trusts. I see many similarities in this trust when I compare it to others such as balanced commercial, which is a a vehicle that some people may know was run by by BMO, now Columbia Threat Needle, following that that acquisition.

51:53 And the question is, would you highlight some differences between SREI and BCPT? So I can obviously say that we're we think we're better, but but but I think it is probably worth looking at the numbers. I would say that I there are a number of differences, actually. BCPT is a lot bigger. So the gross assets are about 1.2, 1,300,000,000. They have more concentration risk, so they own a very large asset in Central London called Saint Christopher's Place, which is very low yielding. They tend to have a more lower yielding portfolio, through the cycle. And, actually, that you can see that on the slide Brett is just showing, slide five. So they are second from the right.

52:39 So you can see they're very similar dividend coverage to us, but you can see a very different, yield on share price. That's partly because their discount, I think, is probably a little bit tighter than ours today, but I I I don't have that data in front of me. But it's much more about the fact that their portfolio just generally is lower yielding. Their leverage isn't that much different to ours, I think, than the low twenties, but it's mainly about the fact that they simply have a low yield. And and we would say, joking apart, that we are actively managing our portfolio more and that we are also buying assets that require more active management. Best example, as Bradley's outlined, being something like like like Chival. So so, again, I I hope that answers the question. Question here about impact on our properties or from drought or flooding.

53:27 Yeah. I mean, look. That's a very, very pertinent question. So we run climate related stress tests on our portfolio using an external data source. And I'm pleased to say that in both cases of drought or flooding, we are relatively well positioned. In fact, that that's data produced by a group called various Maplecroft who who who and actually our insurers use very similar data. So so for us, it's less about risk associated with, you know, immediate climate effects, flooding, or drought. It's more about actually the resilience of our buildings, improving the the energy efficiency of our buildings, which which which Bradley has obviously talked about.

54:16 Clearly, when we are buying assets, new assets, assessing drought and flood risk is, you know, is is very important. I remember even ten years ago, you know, assets where you have reports saying that they're at risk of flooding once in every three years, you know, and now once in every 100 and less. So so it is it is a real issue and one that we do pick up as part of our of our of our normal due diligence. And then the last question which Bradley may just want to talk to briefly is is a is a timeline for the for the illustrative bridge that gets us to the to to the reversion. So, again, Bradley, I'll I'll just pass back to you. Yeah. So this is illustrative, and we may not get to that 37,000,000.

55:04 And one way we're showing that is just to show what it looks like if we don't improve the void space. So, therefore, we get to 34.5. But I guess a few points we can make are the fixed uplifts are due to occur within the next twenty four months. So that net so the naught 800,000 that you can see there. The Starbucks development rents will hopefully start coming through at the beginning of twenty twenty four. Standard green development will hopefully come through towards the end of next year. And there's there's really no timeline on the CapEx or the acquisitions. They're very much dependent on specific situations and decisions we make at the time. Great.

55:50 Thank you very much for all those questions. The the the the the great questions. And if there's any follow-up after this, we'll very happily respond. Nick, Bradley, that's great. And thank you very much for being so generous of your time then addressing all of those questions that came in from investors today. And of course, as you just said, if there are any further questions, we'll make these available to you immediately after the presentation has ended for you to review. Ladies and gentlemen, we'll publish all those responses where it's appropriate to do so on the investor meet company platform. Nick, perhaps for 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 would be great. Of of course. Well, first of all, most importantly, thank you very much for your time. It's the second time we've done this. It's great engagement, and we will continue doing it.

56:36 I guess, hopefully, what you'll take away is although we are facing a much more uncertain outlook, we remain well positioned. We've got good performance. We've got the ability to asset manage the portfolio to, we believe, continue delivering the growth in net income. And we think we've got a really interesting way that we can differentiate our strategy to make us more appealing to a wider group of of shareholders. So, again, given time, we have used our hour. I will leave it there. Nick, that's great. And Bradley as well, thank you very much indeed for taking the time to update 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, but I'm sure will be greatly valued by the company. On behalf of the management team, SCHRODER REAL ESTATE INVESTMENT TRUST LIMITED, we would like to thank you for attending today's presentation.

57:29 Now concludes today's session. So good afternoon to you all.