Schroder Real Estate Investment Trust (LSE:SREI) — Results for the Quarter Ended 31 December 2023

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 they 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 can review all questions submitted today and we'll publish those responses where it's appropriate to do so on the INVESTMENT company platform.

0:32 Before we begin, I would like to submit the following poll which will disappear on your screens now, and I would now like to hand you over to head of UK real estate, Nick Montgomery. Nick, good afternoon, sir. Good afternoon. Thanks very much, Jake, and welcome everybody to our quarterly investor update for SREIDA REAL ESTATE INVESTMENT TRUST. As Jake has said, I'm Nick Montgomery. I'm one of the fund managers for the trust. I will be joined shortly by my colleague Bradley Begins. It will be our usual tag team effort. And because this is a quarterly update rather than obviously announcing our interims or finals, this will be slightly shorter than normal. But I think it's important that we give you an update firstly on what we're seeing in the market, but obviously how we're responding to that as part of our strategy and the results that we're delivering for you as shareholders.

1:25 So I guess just to start with where we are in the market, and broadly speaking, for those of you that have been dialing in over the course of the last twelve months or so, things are moving in line with our expectations. I guess, first of all, looking at the market from a more macro perspective, on the left hand side of this slide, you can see the expected fall in inflation from the very high rates, obviously, experienced obviously due to supply chain issues during the pandemic, but obviously also the energy crisis or the rapid rise in energy prices. The gray line that you can see here, particularly focused to the right of the dotted line, is our forecast for UK CPI inflation.

2:11 Positively, and I guess as expected, we are expecting inflation to fall, so that CPI dips just below that 2% Bank of England target over the course of the next few months. Having said that, although that's clearly positive, we are expecting inflation to tick back up for different reasons. Obviously, employment levels remain very healthy. There are still inflationary pressures in the system. And as a result of that, on the right hand side, we're showing the market implied interest rate levels over the course of this year, which is derived from option pricing. And essentially, what you can see here in the red boxes are the most likely rate according to those option prices. And you can see that essentially what's happened over the course of the last few months is those red boxes have moved to the right as markets have kind of looked forward and think that the prospects for the bank to reduce rates earlier on are less likely than previously.

3:21 Now, what that means is, from a real estate perspective, there's a little bit more caution perhaps about how quickly rates will fall. And although as we've said in previous calls, there isn't significant amounts of debt in the real estate market compared certainly with the pre GFC period, there are a lot of borrowers nonetheless, who are facing refinancings. And where they are facing refinancings, obviously these rates will mean that it is more expensive. And therefore that is leading to a little bit more caution in the market. Now, in terms of what that means for real estate, on the left hand side here, we're showing you that really important relationship between property yields, the net initial yield, which is essentially the rent you're receiving today divided into property values.

4:09 And we're showing that again, see the ten year bond yield, which today is in the region of around 4.2%. So the gray bars that you can see there are showing the difference between the two. So essentially the spread that the average real estate yields are offering over and above that, if you like, risk free rate. Now, long, long run, we'd expect that relationship to be somewhere between sort of one hundred and two hundred basis points or one or 2%. And the gap at the moment at least is slightly narrower than that. And so our expectations looking forward are that with rates falling slightly perhaps slower than expected towards the back end of this year and into next, But also the possibility, the further small step down in property values, we will see that move towards being in that region of 150 basis points, probably towards the middle end of this year.

5:04 And at that point, on that very simple basis, we would say that the sector is moving to being fairly priced. Now, on the right hand side of the chart, you can see we have experienced a very significant correction within The UK real estate market. The data on the right is for average all properties. So this is not our company. Our portfolio has performed better on a consistent basis. But it does really illustrate the significance of the correction that we've experienced, and how for people that are now looking at The UK real estate market, why we think increasingly people will see this as an interesting entry point to come into listed funds such as ourselves, or indeed into some of the bigger unlisted real estate funds. And what the data is showing you here very simply is from June 22, sort of recent cycle peak, the dotted line there, average values are down somewhere between 2527%.

6:01 You can see there the dark blue line, which is the industrial sector, that suffered a more swift reduction in values, largely because it was a lowest yielding sector. And when we saw that significant re rating in yields, particularly after the mini budget, clearly the lower yielding sectors experienced greater impacts of those rising yields. But importantly, we are beginning to see, and for reasons I'll come on to in a moment in terms of rental growth, industrial values are beginning to bottom out. And indeed, that is probably the most liquid part of the market, and where in fact we have 50% of our portfolio allocated. The blue line there at the top, that's a retail sector. Clearly a very diverse range of retail within that sample. Retail warehousing, convenience retail, where we have almost all of our retail exposure actually is doing relatively well.

6:52 Shopping centers less so will be even in the shopping center market. We are beginning to see signs of life with that sector really having been in the doldrums for ten years. The orange line, or the sort of reddy orange line being the office sector, that you can see there is continuing to decline. The rate of decline we think will slow over coming months for a host of different reasons. Not least, we're seeing obviously much improved return to work rates in London in particular, but also in the bigger regional cities, we're seeing a good level of return to work. And also within that sample, we have very prime offices at one end where in some markets, it's Central London, obviously the city, the West End, but also regional cities like Manchester, prime rents, the very best new space in nominal terms have never been as high interestingly.

7:49 But we will be much more concerned about more secondary out of town offices where we see further valuation declines. But I'm pleased to say that's not a part of the market where we have any significant exposure. Now, there's a saying that history doesn't repeat, but it echoes. And I think it's interesting to compare the current market cycle with previous cycles. And just put the capital value side in context, the 27% or so average decline in values that I've just outlined compares with 44% reduction in values during the global financial crisis. So we're not at that level, but from a historical perspective, and again, this gets back to this being, we think, interesting entry point into the sector. We have experienced significant correction.

8:34 Now, what's different, because it is always different, is actually the way that rents are behaving this time around. And what we're showing on the left hand side of this chart, and some of you I think may have seen this before, is how rental values have recovered since the most recent correction compared with those past two cycle corrections being, as you can see on the left hand side in the key, the late80s.com bust, '89 into '90. Obviously the GFC, the period from 2007 to 2009, and the most recent correction from the middle of twenty twenty two. And what we've shown is indexed, you can see there to 100, we're showing how rents have behaved over the subsequent months following those previous month cycle highs into the downturn.

9:23 And what's really interesting on the left hand side, as you can see, compared with those past cycles, average rents are actually performing quite differently. Now, this is partly about inflation. Clearly, these are nominal rates and the level of inflation we've experienced over recent years clearly exceeds what was experienced particularly during the GFC, but also the late 80s. But that does really illustrate, I guess, one of real estate's benefits, which is at least on the income side, the sector is a good hedge.

9:55 Rental generally grow more strongly in higher inflationary environments. But it's not just about the inflation. There are obviously structural factors that are driving this. The first structural factor is that we simply have less new development happening. So tenants want the very best quality space. They are having to pay rents, as I say, in some cases higher than they ever have been. Prime Manchester office rents, for example, pounds 45 a foot compared with previous cycle highs in the low to mid thirties. But there are also the biggest structural trends that are impacting rents, and that's best illustrated on the right hand side, where we're showing exactly the same data periods, not for all property, but focusing specifically on industrial. And when we say industrial, we mean everything from the multi let industrial estates that we own through to the big boxes that you'll see popping up on major transport routes.

10:55 And you can see there that sort of divergence is even more dramatic. So the dotted line in the bottom there in blue, that's how industrial rents behaved during the period after the global financial crisis. But you can see actually over this most recent period, we've seen very strong levels of industrial rents. This is partly about inflation, obviously. But it is also very much about structural changes, and obviously the shift that we've seen from physical retail to online retail, third party logistics operators restructuring their pipelines. But really importantly for us, the fact that no one is really building multi industrial estates. There is a chronic shortage in many urban areas, not enough has been built. So if you do own these assets, notwithstanding the lower growth environment that we're currently experiencing, we are still seeing very positive levels of rental growth coming through. And Bradley later on will illustrate some of those points as we go through the presentation.

11:56 So what's the outlook? So I think it's really important to state that, again, as we thought, we are coming to the end of what has been quite significant downward correction in real estate values. And we think we are moving back into a market where we will see more capital coming into the sector. Now that's partly because certainly post Brexit, we have seen lower levels of capital flows from international investors into particularly London, but also flows generally into The UK real estate market. But we think going forward, we will see that begin to change. As I said, we have relatively low levels of development across most markets. Whilst companies in some cases are facing refinancing risks, we don't have the distress that we saw in the global financial crisis where borrowers were breaching loans to value covenants. That isn't something that we're seeing in the market anything like the same way that we saw during that period. So we think the backdrop, and particularly when we take a view again, I think this is right that we will, although the pace of rate reductions are perhaps going to be slower than the market was expecting, they are nonetheless, we believe, going to be coming down. And so alongside that rental growth that we're going to see in the sector come through increasingly, we also think that values will be supported by that reduction in interest rates.

13:24 Forecasts, you'll have seen the ten year perhaps falling somewhere between 33.5% by the end of next year compared with low 4s today. As I say, if we do see average real estate values fall a little bit more, and we see average yields perhaps moving from five quarters to 5.5, at that point, we have that significant cushion that I mentioned, perhaps 200 basis points between the risk free rate and the return from the net initial yield from the sector. So for those reasons, what we're showing on this slide is how our forecasts are changing. Now, the one thing I can say with certainty about these forecasts is that they will be wrong. But I think for the reasons I outlined, a combination of income return at or just above the long term average, but also those more attractive sort of supporting features of the market, supply and demand imbalance, lower interest rates, means that we believe we are moving towards a period in the cycle where real estate will start to deliver returns 7%, 89% per annum, which is probably slightly above where it has been on a long term basis. And again,

14:48 with more interest. So moving forward again, for those that don't know us quite well, just to recap. So we're showing here the six assets with the most recent reported values to December. For those who don't know us, the reason we show this is actually these assets here, the six assets represent about 50% of our portfolio value. So it's very easy really to sort of get a view about what's under the bonnet, so to speak. From the left hand side, our industrial exposure, which is 50% of portfolio value, is almost exclusively now in larger multi let industrial estates. In almost all cases, well located on the edge of densely populated urban areas, really granular income, a whole mix of tenants, manufacturers, distribution, other alternative uses. And that gives a lovely sort of granularity to the underlying portfolio, but it also allows us plenty of asset management activity to refurbish units, create new rental evidence, apply that rental evidence to other units. And that's been a really key driver of performance alongside various infill developments that we're doing across our industrial portfolio, where we're creating really high quality space.

16:04 And Bradley will give the most recent example where we're delivering really high quality, in particular assets that have a very high sustainability performance, and how that's driving returns. Office portfolio, we're showing you our two biggest office exposures here. The building we own up near Crossrail, or Elizabeth Lympow in Bloomsbury, which is actually Letters University, or City Tower Manchester, which is a building that sits right in the middle of the city centre, which has a whole mix of different uses. Obviously, office dominating, but also hotels on the left hand side of that image you can see, and actually as it happens at university as well, within that building. Retail. So our retail exposure is, as I say, really concentrated in value retail sectors actually that were much more pandemic resilient, perhaps than people expected.

16:57 Our largest retail asset you can see in the top right hand corner is a really good quality retail park in Bedford. Lots of chimney pots, obviously good train line into London, where we have tenants like Liddell, like Home Bargains, great footfall drivers that have allowed us to drive income on those estates, including recent development that Bradley will talk to. And finally, alongside retail warehousing, sort of convenience retail in densely populated areas. And the asset you can see there is a fantastic asset, which sits just North Of Leeds, anchored by Sainsbury's, Premier Inn, the gym in the upper floors. And interestingly, this is the only asset where we've had any material retail failure over the course of last twelve months, where we had a Wilco.

17:43 Interestingly, that unit was immediately occupied by Old Poundland, who you may know, taken out a number of the Wilco units on a license basis. But actually, our preference clearly is for a long term lease commitments. We've recently agreed terms to that McDonald's 30% ahead of the rent that Wilco's was paying previously. So where you do have these very densely populated areas where you have a high frequency of basket shops, high frequency of footfall, occupational demand actually is pretty resilient. So that's an overview of the portfolio. I guess just to recap on the key reasons why we think SREITED is an attractive proposition today. Well, Bradley will give a bit more color on this, but really good quality, diversified portfolio with a very significant reversionary potential.

18:30 So the difference between the rents we're receiving today and the potential rents that we can receive from crystallizing rent reviews and other activity.

18:40 We have a very attractive dividend yield, and I'll give you a comparison to the peer group shortly. But really importantly, that 8.1% dividend yield give or take, because obviously this share price is moving around a touch, was actually 98% covered over the nine month period to the end of December. And we expect a similar level, obviously, for the full financial year with potential upside risk as we continue to deliver the asset management in the portfolio. We have a very robust balance sheet, really probably the most attractive within the peer group, but again, more on that later. And again, notwithstanding all of those points, the shares are still trading at a discount in sort of mid to high 20s. And again, when you step back from it and look at the potential outlook for The UK market, our view is we are potentially approaching a tipping point where we will begin to see share price ratings start to reflect more of that potential upside risk as we see values bottom out. Interestingly, obviously not directly comparable with our portfolio, but some of you may have seen that one of the bigger internally managed REITs, SCHRODER, which is obviously a specialist in the industrial sector, actually conducted an oversubscribed equity issuance last week, raising almost £1,000,000,000 at around 10% discount to NAV. And I think that's not directly relevant, but I think it's an interesting signal that the public markets are looking forward at the

20:10 potential upside coming forward. And we think we'll begin to see that played out also within the direct markets as we move into the second half of this year. Final point to note is alongside all the things that we've done in terms of refinancings, asset management, we have taken the advantage,

20:30 and this is really capitalizing on what we believe is a differentiating factor for SCHRODER's more broadly. But for this trust is be more upfront about how sustainability characteristics and how they drive the way that we actively manage the portfolio, will in our view allow us to more quickly capture the green premiums of the higher rents that occupiers are prepared to pay for the most sustainable, highest quality space. And again, more on that later. So very briefly, again, just sort of a snapshot of where we think we sit within our peer group. And we've anonymized these to protect the innocent, but the names of the peers are shown in the notes.

21:17 But we're just sort of drawing out why we think for different reasons SREI really is the most attractive currently in its peer group. Guess just starting from the top in terms of our dividend yield. Our dividend yield is the second highest in the peer group, but very importantly, it's 98% covered. And as you'll hear shortly, significant upside we think to come from the portfolio in terms of income as we deliver the asset management. Notwithstanding that, you can see our discount, I've mentioned it when we produced these slides a few days ago, was trending at 29%, notwithstanding the high dividend yield. And again, also really importantly, and going back to my comments about debt, the issue really for a lot of owners is refinancing risk in terms of income and interest cover rather than loan to value. But you can see there, average duration of our debt, ten years, with an average cost of 3.5.

22:10 So when you weight those two factors, we would argue strongly that we have the most attractive debt structure in the peer group. So with that brief overview, I will hand over to Bradley to give you a bit more color on the quarterly result. Bradley. Right, good to be talking to you all today. Got some really interesting activity to go through. And in terms of key highlights, well, very busy period for us over the last few months. We got shareholder approval to evolve the investment strategy of the fund. We've completed a number of developments and major refurbishments, which have increased our annual rent. So you'll know our annual rent is higher than the previous quarter. And also the reversionary potential, which is again higher than the previous quarter.

22:58 There's been huge letting activity. So 32 new lettings, rent reviews and renewals. And that covers over £5,000,000 of income and importantly is ahead of the opening ERV. So it shows that that reversionary number is achievable. In fact, we've outperformed it in the last few months. And the final point to note is that we did dispose of one asset. We sold an office in Leeds for £3,800,000, and that was a 16% premium to the independent valuation. And bear in mind, our shares are obviously trading at a discount to that NAV, which embeds that independent valuation, and we were outperforming on our on this sale at 16 percent. Moving on to the NAV. So as Nick says, you know, high interest rates, uncertainty around when cuts are coming and a volatile gilt market have continued to impact on real estate values. So you saw the market. So our benchmark declined by 2.3% in value, and in turn, our portfolio declined by 1.6%.

24:01 So outperformance, but still negative.

24:04 And that is the main driver in our, NAV decline of 3% during the quarter. If we include our dividend, which is very attractive, then the NAV total return is minus 1.6% for the quarter.

24:19 Final point to note on here is that looking at our EPRA earnings, our dividend paid, you know, for many years we've been fully covered. This quarter was slightly uncovered and we did incur some costs in relation to that strategy change, which has an impact to the divvy cover there. But as Nick says, we think we'll be at least 98% hopefully covered for the for the full year.

24:42 Now moving on to the strategy. So what we've done is we've embedded some sustainability objectives and KPIs in our investment objectives and in our investment policy. In addition, we've got some really clear governance in place so you can be confident that we're doing what we're saying we're doing, And we will provide transparent reporting in our annual reports. Underlying our strategy and delivery of that is a proprietary ESG scorecard, which we've developed to help us analyse the sustainability performance of our assets and importantly, how we're improving though that over time. Now the reasons for doing this, the absolute key reason is we believe this would enhance our long term total returns for shareholders.

25:25 But in addition, we think this will differentiate us from peers. There are a number of peers that are fairly similar, and we wanna stand out from those. We think it will attract new investors, so marginal investors who are specific sustainability objectives. So if we can attract those marginal investors, we think that would improve the liquidity and share price rating of the company shares.

25:46 Now I said that the key reason for implementing this strategic change is to enhance total returns for for our shareholders and, you know, how how is that going to happen?

25:56 Well, what we're seeing in the market is that for buildings that exhibit some or all of the characteristics shown in blue at the top of this slide, so these sustainable characteristics, well, rent a higher rents and are valued at higher values compared to buildings in a similar location and of a similar age that don't have these characteristics. And that difference has been referred to in the market as the green premium. Now the question is why would an occupier be happy to pay more rent for a building some or all of these characteristics. Well, they wanna attract and retain the best staff. They wanna bring them into the office and compel them to come into the office. They wanna control their utility bills and they also have their own corporate targets to meet now. Because, you know, as these new laws and regulations come in and The UK's net zero carbon pathway, you know, is is is trying to be met by 2050 is impacting the behavior of occupiers, but also investors.

26:55 So why would investor wanna pay more money for a building that exhibits some or all of these characteristics?

27:01 Well, they rent at higher rents. They rent more quickly. They suffer less void. There's less CapEx required in the medium and longer term. There's also less risk of obsolescence as more string stringent regulation comes into place. And in terms of the quantum, well, there's really clear empirical evidence that for London offices, there's a 20% valuation premium for assets that exhibit some or all of these characteristics. In regional offices, we've undertaken an analysis of our own portfolio and also worked with the PMA independently to see what the regional office premium is. What that shows is that it's around 8%. And we believe that 8% will trend more closely to the 20% in London over time.

27:48 And then finally, multi industrial estates, it's difficult to put empirical evidence on this because of the nature of these assets. So they're very varied, often have 60 plus units of varying quality and age. Well, we estimate it's five to 10%, and that's a conservative estimate in our view. We and at Stanley Green, we see a 21% premium on the rents for the sustainable units versus the older less sustainable units. Now moving on to the portfolio. On the left hand side chart, we've set out some important metrics for the overall portfolio, and we'd just like to draw out a couple of points that we've highlighted in green. So we've got 39 assets at the moment. We've got more than 300 tenants, and that really reflects the diverse and granular nature of the portfolio, which we think makes it more resilient.

28:42 And then we've highlighted the, the rows that speak to the higher yielding nature of the portfolio. So our net initial yield is 6%, and that compares to the benchmark of 5.2. So already, we're yielding more than the benchmark. But we've also got an astonishing reversion yield of 8.4%. Now that 8.4% represents an additional £10,000,000 of revenue on our current annual rent. And to put that into context, our annual dividend at the moment is 16,400,000. So, clearly, if we're able to capture some of that 10,000,000 reversion, it shows there should be really good opportunity to move the dividend on.

29:24 And looking at the right hand side chart, we set out the structure of the portfolio in terms of the sector weightings, and the the clear overweight sectors are industrial, which is almost entirely multi industrial states where we see really favorable supply demand dynamics, and retail warehousing. Other point to note is that whilst 25% of our portfolio is offices, 10% of that, so 10 out of 25, is actually that universities and uses university campuses.

29:57 Moving on to our tenant base. Here we show our 15 largest tenants by passing rent as at December 31. Some points to note here are that there's only two tenants that represent more than 4% of the current book, which again shows that the portfolio is very resilient and and the risk is well spread. And those two tenants, one is Siemens Mobility, which is part of the global gorilla of Siemens, and the other is the University of Law, which is the largest private provider of legal education in The UK, and it's a growing business. So we're really comfortable with those two tenants. And if you look down the list, we see household names. We're really comfortable with this list. And, this represents 34% of our rent, so we're really positive about this.

30:46 Before we take you through, Stanley Green because it has been a really significant initiative that we've undertaken in the last few years, and it's a really successful one and some really good proof and concepts of that green premium in action. So just to recap, we acquired this asset in December 2020. We paid £17,250,000. And since then, we spent £9,000,000 in CapEx to build the the new estate, which is shown in the the two photos. So when we acquired the asset, there was an existing estate with about £1,000,000 of passing income, and it was also a 3.4 acre development site. And in the photos, you can see what we've turned that into. When we were planning this development, we took a conscious decision to spend around 20 percent more on the CapEx to generate really sustainable accommodation.

31:36 So we've got PVs on the roof, EV charging, really good insulation, air source heat pumps. There there's planting, and we and we try to use recycled materials where possible. And all of that, whilst it costs more, it has resulted in really strong demand for units. And as I said, what we found is for equivalent size units, we're getting 21% higher rents. We've achieved an EPC a plus on these units, which are the first a plus EPCs in the portfolio and also a BREI am excellent. And in terms of what is worthwhile spending that extra CapEx to get a higher end, well, we think the returns are really good evidence that it was. So since acquisition, the annualized total return for the asset is more than 20% per annum, whereas the MSCI or the industrial sort of equivalent benchmark is only 7.1%.

32:26 So really strong outperformance for this asset and a really good proof in concept for the slight pivot in strategy. Moving on to the next slide. Here, we've got a an example of a recent sort of, deal we've done. So this is the University of Law campus located on Store Street in Bloomsbury, to in the West End Of London. So a really interesting location. Got Tottenham Court Road, new Crossrail station recently opened, which has really transformed the the London landscape. It's it's a really fantastic piece of infrastructure. This is the Knowledge quarter. So you've got universities here, such as UCL. There's a British Museum and lots of life science occupiers as well, so often known as the Knowledge quarter.

33:13 And this is our largest office exposure, and it's a single asset in two freehold buildings. We let let this to the University of Law. Now we had an expiry coming up in December 26, so we took the opportunity to regear the lease, push the expiry out by three years, and also push the rents on. And by December 28, the rents will be 39% higher than they are today. So it's a really accretive deal, added 5,600,000 to the total valuation, and has boosted our performance in the quarter. Now in terms of asset management initiatives we have underway or or close to completion, and I mentioned these the last quarter we we presented here. So we've got three examples, and between them, add up to almost £1,000,000 in rent.

34:03 There's a two Starbucks that we discussed before. Well, Starbucks have completed building those. And as soon as they, delivers the warranties, we'll pay them 1,700,000 for that. The yield on cost at Bedford is 8%, and the yield on cost at Pletchley is more than 12%. These are fifteen year leases to Starbucks, so a really strong covenant, and they're inflation linked. So a really good outcome. At the time in Edinburgh, we've undertaken a 2,000,000 refurbishment. There were three vacant units, but all of them well, two two of them are let, and one of them is in advanced legal negotiations, and we hope to be able to announce completion soon. And importantly, that last deal is ahead of ERV. So it's 19% ahead of ERV for for parts of the space they're taking on. And then finally, we show Stirling Court in Swindon.

34:51 This is three industrial units on an established estate. We've got 450 of rents coming from two units we've recently refurbished. We bought them up to EPCB. We listed them at £7.50 per square foot, which is already, 25% higher than the previous passing rent. But, actually, we've got one under offer £8, which is, you know, a third higher than the previous passing rent. So it shows what you can do with the right refurb. Now in terms of the reversion, our annual rent at December 31 is £29,200,000. And as I mentioned, that reversionary income is almost 10,000,000 higher, so it's 38,500,000. And And what we set out here are steps in terms of that show how we're going to get there. So even since the year end, we've increased our rent by £700,000 through contractual fixed uplifts in existing leases.

35:44 And by the end of twenty twenty five, there'll be an additional 2,500,000 of contractual fixed uplifts effective. So in total, that's 3,200,000 of additional rents just if we do nothing. At Stanley Green, we've got some void space remaining, and that is around £600,000 of additional rent. We've got really good interest there. And then the final two steps, well, there are some units that we're letting at the moment for rents that are below the market level. So when we get around to rent reviews and lease expiries, we'll be able to achieve higher rents and capture that 1,900,000. And then finally, there's vacant space, and we're making good progress bringing that down. So it's currently 12%, and we believe we can get that down to around 9% by the financial year end.

36:36 Now the final slide for me, just touch on the balance sheet, which we think is a real competitive advantage, and it's really underpinned by the term loan from cancer life. So that's a 129,600,000 that we have drawn. The average fixed interest cost on that 129,000,000 is two and a half percent, so extremely low in the current environment. And the average maturity of that loan is more than twelve years, and that really underpins the strength of the balance sheet. In terms of the remainder of our drawn debt, well, there's 46,000,000 drawn on an RCF. 30,500,000 of that is subject to a cap of 4.25%, and the remainder is floating. And our strategy at the moment is to sell some of our smaller assets to pay down that 15,500,000 of floating RCF, which we accrete to our earnings given where interest rates are at the moment.

37:29 Overall, the net loans of value is 36.6%. And as we sell down those smaller assets, we expect the 36.6 percent to to decline to less than 35 over time. So I'll pause there, and it'd be great to take any questions, and I'll hand back to Nick. That's great. Thanks, Bradley. So I guess just to briefly summarize on this slide before I hand back to Jake and then questions. I think the first point, again, as we hopefully have been guiding, we think The UK real estate market is now stabilizing and actually in a positive way, supported by good fundamentals in terms of a low level of supply, positive eventual value growth, particularly when you compare it to coming out of previous market downturns.

38:18 And we hope, believe we will see more investor support coming into the sector when we see rates trend down back in line with where we were expecting earlier in the year. Our underlying portfolio, we think is really well positioned. We think we've got the sector allocations right, 50% allocation to the multilendustrial sector. And that's really evidenced by the outperformance when you compare our underlying portfolio with peers, significant outperformance over all time periods. Importantly, from a dividend perspective, we think there is a real potential to drive earnings growth, as Bradley said, that £10,000,000 delta between the current rent we're receiving and the valuers view of market rents.

39:04 We're not going to get all of that, but we will get a significant amount of it. And that £10,000,000 sits in contrast with a dividend today of £16,000,000 And finally, again, and about the income, we really do believe that by placing sustainability right at the center of our investments and asset management strategies, means we will be able to drive more sustainable long term income growth. And also importantly, differentiate ourselves from our peers because we do believe we're doing things a bit differently. So Jake, I will hand back to you before we go to questions. Perfect, 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 right hand corner of your screen. 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.

40:03 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 may just hand back to you just to read out those questions and give your responses where it's appropriate to do so. And then I'll pick up from you at the end. Thank you. Fantastic. So thank you very much. And thank you also for all the questions. So I'll just recap on a couple of these, because we may have covered them. But I guess the first point and first question is what percentage of standard green trading estate is now contractually let? And what percentage is in negotiations or advanced negotiations? So the first point you notice, the new development is now 60% contractually let.

40:52 And we have space under active negotiations, which we believe will take us up to about 80% let. And we have an objective, ideally, that when we come to present our final year end results to you, which will probably be at some point in June or July, that we will be fully let. Now, as I say, that will be an outstanding result. And it may be we have a bit left when we come to do the results, because we're obviously balancing getting income in, but equally, we're balancing that with maximizing the rents. For those of you that read the release that we made recently with the NAV, the deal that we did with Siemens, for example, at Standard Green Trading Estate, that was 30% ahead of our original underwriting. So we really are doing very well on the rents that we're agreeing.

41:39 The next question talks to the loan to value. So the net loan to value remains above 35%. Are any disposals over and above a couple of thousand leads on track to reduce that? And then a linked question, which is, is any uplift in the dividend dependent upon that net LTV being below the 35% level? Now, first point to note is that 35% is the upper limit of our own internal guidance that we agree with the board. We have significant cover against our actual banking covenants. Think it's just important to note. There are disposals planned. We have assets in the market. And if we get prices that are acceptable, then we will sell those, and we will look to repay that floating portion of the RCF, and therefore bring us back in line with that long term internal range.

42:30 The second leg of that question, getting back into that range isn't a trigger on its own for whether we have a further increase in the dividend. Obviously, it's one of a number of considerations. And of course, the relatively high cost of that floating portion of revolving credit facility actually means that if we are selling assets, it's likely that the yield on the assets that we're selling will be below the yield on the debt. So it will be accretive to earnings. But we're hoping to do all of the above. We're hoping to undertake those small sales, repay the RCF, but really importantly, continue to drive that net income growth, which will obviously have a positive effect on value. And that really is a key driver in terms of the decision making on a quarterly basis with the board to determine what level of dividend we can pay. But as I say, we are positive about the activity in the portfolio and how that will lead to a further increase in earnings and hopefully in due course, a progressive dividend policy.

43:31 And that really sort of links into the second question. There's another question about what's progressive dividend policy mean. And essentially, when we get to a point when we've crystallized that extra income, when we have confidence that that level can be maintained, we will be recommending to the board that we continue to increase the dividend. Just to recap, we are 9% above the pre pandemic level. We're the only company in our direct peer group that paying a dividend that's above that pre pandemic level. Quick question just on timing of dividends as to why the most recent dividend was slightly later in the month. That was simply due to the board cycle in terms of meeting. We also had a pretty busy time with the board in the run up to the end of last year in terms of approving the circular. It just meant that actually when we came to this board meeting, it just ended up being slightly later. So we don't expect to change the timetable significantly.

44:22 Obviously, we will continue paying those dividends on a quarterly basis. I'll hand over to Bradley in a moment. There's a question here about I'll address it because I made the point about why do we think international investors will likely return. I mean, first point to note is The UK and obviously particularly London has always been one of the most liquid real estate markets globally. We obviously did see, as I said, international flows fall. Now that's partly following Brexit and obviously currency volatility, but actually also practically as we went into the pandemic, having had a huge amount in particular of Asian capital flowing into The UK, and particularly London, obviously people can travel.

45:11 And therefore, we did see international volumes slow. I think with sterling more stable, but I think importantly, and if you compare how property values have fallen versus other European markets, The UK has corrected ahead of the other big European countries like Germany, for example. So that's why we think we will see investors coming back to London before perhaps they look at some of the other larger continental European markets. So for those reasons, I think we feel optimistic. I also think it's worth noting that we have seen relatively limited activity from US private equity investors so far at least. And I think that's partly because the office sector in The US is in a very different position to The UK. And I think there's a risk that people have conflated the two.

46:10 The work from home rates in The US are much lower. There's a much bigger supply issue in some of the bigger market, particularly the coastal markets. But actually, we're beginning to see US private equity show a bit more interest in The UK market. Blackstone as an example, one of the biggest, if not the biggest, they've begun to make some positive statements about how they are looking more closely at the continent European and particularly The UK as a market. So I hope that gives a flavor for why we think that actually going forward, we will see more international interest. Just so I can hand over to Bradley. Bradley, there's a question there you might want to take just in relation to voids. Yeah, sure. Thanks, Nick. So the question reads that the voids increased 12% at the end of the quarter.

47:02 And can we advise on major voyage and expectations of lettings? Well, you know, we we think that by the financial year end, we'll be back down at 9%. And the reason for that is the increase in voyage is a result of those developments I mentioned finishing. So Stanley Green, Holly Lane at Stacy Bush's, also the major refurbs at Sterling Court and the ton that we spoke through. So now those developments and refurbishments are finished, we can let the space, and we've made really good progress, as Nick outlined about standing green in in response to another question. So we do see a reduction in that void coming. Great. Thanks, Bradley. That's great. So just moving back, I guess, more to sort of corporate matters.

47:52 There's a question just in relation to the discounts and the comments about the size of the trust and the extent to which we are too small for some of the wealth managers. I think this is an interesting debate. Of course, a lot of the wealth managers have been consolidating, not least obviously INVESTMENT TRUST Rathbone. And there's no doubt that some of those large wealth managers do want bigger companies. I think equally, there are still a lot of smaller wealth managers, some of whom are coming out of those consolidation activities to set up on their own. In fact, I saw one just yesterday up in York. So there are, I'm pleased to say, a number of smaller wealth managers who are still interested in buying our shares. In fact, we had one who we met, Bradley and I, a few months ago, who now owns approaching 2%. So I think, whilst there is consolidation happening in the sector, where that is happening, the combined entities in most cases simply aren't able to produce the same sort of dividend yield that we are.

49:04 And so I think that yield, we believe strongly will remain attractive to a diverse spread of wealth managers. Now, of course, one of the reasons for doing investment in a company is because we do also want to increase the proportion of investors that are coming through platforms. And I'm really pleased to say that even during the relatively short period of time we've been using this platform, we have seen a notable uptick in investors coming through the likes of AJ Bell, Hagrid, Lansdowne, Interactu, etcetera. What we want ultimately, clearly, is a diverse range of shareholders that support liquidity, and in time, hopefully, obviously support the discounts. And I think one of the another area of interest that we're finding off the back of our strategic evolution, particularly with sustainability focuses, there are a number of smaller wealth managers who are specifically looking for strategies where there is a real focus on sustainability, particular where there's good governance and where those sustainability improvements can be clearly communicated to investors. So I think whilst there is consolidation happening amongst those wealth managers, we think we continue to offer something which should remain attractive.

50:14 I'm just continuing to look through. Bradley, there's a question just to provide a bit more color on the Starbucks deals, which I think are interesting, just to give a bit more color on. Do you wanna just address that question? Yeah. Sure. So do we target a minimum IRR when we're doing looking at CapEx and looking at acquisitions? Yeah. We we do think about yield on cost and and profit on cost. So that that are the the main metrics we look at because, with IRR, you obviously need to assume an exit at some point, and sometimes we don't know the timing for that.

51:01 So in terms of profit and cost, you know, the luxury, retail park where we put a Starbucks drive through in the car park, well, the yield across there was more than 12%, which is really attractive if you think about, you know, an average sort of real estate acquisition might be around six and a half percent net initial yield. So pretty much getting double double the yield there. And the Bedford Starbucks was at a yield and cost of around, 8%. The reason it was lower than Bletchley is simply because the land was worth more. So we are even though we're not spending money to get the land, we're obviously kind of using up the land. So we do take account of that in our yield and cost, and that's why the Bedford one was slightly lower 8% but still attractive at 8%.

51:54 In terms of, you know, how we're able to get that yield on cost, drive thrus are really popular. You probably noticed yourself. There's all sorts of drive thrus in in retail parks at the moment. And if you think about St. John's Retail Park in Bedford, the average rent for the retail park before we did Starbucks was £20 a square foot, which is right where you want to be in a retail park. You don't wanna be over rented, whereas Starbucks are paying £86 per square foot. So it just shows how accretive that can be. But as I mentioned in the presentation, not only are we getting an income, but it's also locked in for fifteen years. There's inflation linked up lifts, and Starbucks, we think, are a really attractive covenant. So it adds value because, you know, we wanna maintain a really attractive dividend yield for our shareholders.

52:42 So it means we can't go out and buy that long term inflation linked income, but we can create it for active asset management. And Starbucks are a really good example of that. Excellent. Thanks, Bradley. That that that's clear. I guess the the last question is in connection with M and A more broadly and pertaining to obviously the sector, but also ourselves. A number of you will be aware, obviously, that there have been a number of M and A transactions in the sector, both within our direct peer group, but also M and A, or at least discussions of M and A more broadly.

53:33 In terms of how it relates to us, I think what I'd say first and foremost is we have a very clear strategy that we think is the right one, that is income focused, and that we believe should deliver a really attractive long term income return. And the announcement we made in relation to how sustainability plays a part of that is obviously, we think the right thing to be doing. We do have the capacity within the team at SCHRODER to manage a much bigger company. We have a large team. We have a very large portfolio of assets more broadly that gives us fantastic operational leverage, operational excellence, sustainability resources, we would say is genuinely market leading.

54:21 So we are open minded to M and A activity, but only if it is in shareholders' interests and in a way that means that we're not distracted from the principal job in hand. So as I say, we're open minded. There's been a lot of discussion about M and A more broadly across the peer group. There have been some fairly interesting share price reactions as a result. So it's something we discuss with the board on a regular basis. But as I say, our priority at the moment is to continue driving net income and deliver that attractive dividend that we all hold the shares for. So with that, Jake, I will pass back to you. Perfect. Nick, Bradley, thank you very much indeed for addressing all of those questions that came in from investors this afternoon. Of course, if there are any further questions that do come through, 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 platform. But Nick, perhaps before really just 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 would be great.

55:34 Thank you. Well, firstly, most importantly, I'll say thank you everybody for joining the call. For those who have bought shares, for being shareholders and for engaging. We do genuinely get some really great questions coming through this platform that are thought provoking. Again, for those of you that have joined us over the course of the last twelve months, hopefully you'll see that firstly, what we have been saying in terms of the market direction of travel towards a recovery, we've been broadly speaking right about the direction of travel. And also hopefully, again, those people that have seen us for last twelve months or so, the activity that we've been talking about, we are executing. So again, hopefully over the course of the next few months, you'll see further updates from us in terms of activity.

56:23 Again, has spoken about essentially about 1,000,000 of income that we're in the process of realizing. We will continue via RNS to provide shareholders with updates on that activity. And obviously, we have our year end results to March, which we'll be announcing in June, where we'll be providing a further more detailed update on activity, but also providing a lot more color on the work we've been doing to provide that baseline from which we will then monitor and track our performance, both from a sustainability perspective, but also importantly, how that is helping us drive additional income. So thanks for your time, everybody. Jake, I'll pass back to you. That's great. Nick, Bradley, 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 really better understand your views and expectations.

57:14 This will only 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.