REG - Schroder Real Estate - Final Results
06/06/2024 07:00
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RNS Number : 3213R Schroder Real Estate Inv Trst Ld 06 June 2024
Schroder Real Estate Investment Trust Limited
('SREIT' / the 'Company' / 'Group')
RESULTS FOR THE YEAR ENDED 31 MARCH 2024
STRATEGIC EVOLUTION, ACTIVE ASSET MANAGEMENT AND LOW COST, LONG TERM DEBT
PROFILE DRIVING EARNINGS AND DIVIDEND GROWTH
Schroder Real Estate Investment Trust Limited, the actively managed UK REIT
focused on improving the sustainability performance of buildings, today
announces its results for the year ended 31 March 2024. These are also
available on the Company's website, www.srei.co.uk (http://www.srei.co.uk) and
can be viewed at https://schro.link/sreitfy24results
(https://schro.link/sreitfy24results) .
Earnings growth underpins fully covered dividend; increased exposure to high
growth sectors underpins portfolio valuation resilience; sector-leading low
cost, long term debt profile
- Audited net asset value ('NAV') declined by 4.4% to £287.4 million,
or 58.8 pence per share ('pps') (31 March 2023: £300.7 million, or 61.5 pps),
largely driven by an underlying portfolio value decline of 2.8% (MSCI
Benchmark: -5.7%), which remained unchanged over the most recent quarter to 31
March 2024 (MSCI Benchmark: -0.6%)
- 4% increase in dividends paid during the financial year to £16.4
million, or 3.34 pps (31 March 2023: £15.8 million, or 3.22 pps), fully
covered by EPRA earnings
- Positive NAV total return of 1.1% (31 March 2023: -15.1%)
- Long debt maturity profile of 9.7 years and a low average interest
cost of 3.5%, with 91% either fixed or hedged against movements in interest
rates
- Loan to value, net of all cash, of 37.1% (31 March 2023: 36.0%),
with programme of non-core disposals underway to reduce to within 25-35%
target range
- Further 2% increase in the quarterly dividend to 0.853 pps for the
quarter ended 31 March 2024, to be paid in June, reflecting a yield of 7.9%
based on the share price of 43.4 pps at close on 5 June 2024
Operational expertise and sustainability-led active asset management delivers
strong rental growth and continued long-term outperformance against the MSCI
Benchmark
- Attractive underlying portfolio yield profile, with a net initial
yield of 6.1% (MSCI Benchmark: 5.1%) and a reversionary yield of 8.4% (MSCI
Benchmark: 6.1%)
- Like-for-like rental growth of 4.8% (MSCI Benchmark: 3.3%)
- 108 new lettings, rent reviews and renewals across 1.0 million sq ft
completed since 1 April 2023, totalling £10.4 million in annualised rental
income, on average 7% ahead of 31 March 2023 estimated rental values
- 99% of rent due collected
- Portfolio total return for the financial year of 3.2% (MSCI
Benchmark: -1.3%), supported by a high income return of 6.2% (MSCI
Benchmark: 4.7%)
- Continued long-term outperformance of the underlying portfolio with
a total return of 5.5% per annum on a rolling three-year basis (MSCI Benchmark
Index: 0.8% per annum), with all main sectors outperforming over one and three
years
- Increased allocation to higher growth industrial sector, with
multi-let estates and value retail warehousing now comprising 61.5% of the
portfolio by value (31 March 2023: 58.6%)
- Two disposals totalling £7.8 million at a 3.3% premium to book
value
Strategic evolution progressing to place sustainability at the centre of
Company's investment proposition
- Further improvement in the Company's Global Real Estate
Sustainability Benchmark ('GRESB') score to 79 out of 100 (2022: 77),
achieving a maximum score for management aspects, placing first amongst its
GRESB peer group
- In December 2023, strong shareholder support received to change the
investment objective and policy to formally include sustainability at the
centre of the Company's investment proposition, with a sustainability
improvement and decarbonisation strategy focused on adapting existing
buildings into those that are both modern and fit for purpose:
o 75% (79%) of assets by value in the portfolio assessed to date using
proprietary ESG Scorecard which measures sustainability performance against a
broad range of pre-defined real estate sustainability metrics
Alastair Hughes, Chair of the Board, commented:
"Despite the challenging macroenvironment for UK real estate, with higher for
longer interest rates, the occupational markets remain relatively resilient.
During the year, asset management-led rental growth delivered a further
increase in the fully covered dividend, supported by the Company's leading
low-cost, long-term debt profile and increased allocation to higher growth
sectors.
"As occupiers and investors increasingly value the benefits of sustainability,
integrating these considerations into the core of investment decision-making
will clearly differentiate the Company and its strategy from peers, improving
the defensive qualities of the portfolio and driving risk-adjusted returns for
shareholders."
Nick Montgomery, Fund Manager, added:
"The Company's balance sheet strength has provided a robust foundation to
deliver further dividend growth, underpinned by our asset management expertise
and ability to capture reversion. We have identified a pipeline of
sustainability-led initiatives across our portfolio, which benefits from a
diverse mix of occupiers making it more resilient through the cycle, providing
further protection to earnings, meaning the Company is well positioned to
continue providing a progressive dividend."
A webcast presentation for analysts and investors will be hosted today at 8.30
am BST. In order to register, please visit:
https://www.schroders.events/SREI24
For further information:
Schroder Real Estate Investment Management Limited 020 7658 6000
Nick Montgomery / Bradley Biggins
Schroder Investment Management Limited (Company Secretary) 020 7658 6000
Matthew Riley
FTI Consulting 020 3727 1000
Dido Laurimore / Richard Gotla / Oliver Parsons
Schroder Real Estate Investment Trust Limited
Annual Report and Consolidated Financial Statements
for the year ended 31 March 2024
Overview
Positive NAV total return and continued dividend growth driven by portfolio
resilience and sector-leading debt profile
· Audited net asset value ('NAV') decreased to £287.4 million, or 58.8
pence per share ('pps') (31 March 2023: £300.7 million, or 61.5 pps)
· NAV movement driven by an underlying portfolio decline of 2.8% (MSCI
Benchmark: -5.7%), with the underlying portfolio value unchanged over the most
recent quarter to 31 March 2024 (MSCI Benchmark: -0.6%)
· 4% increase in dividends paid during the financial year to £16.4
million, or 3.34 pps (31 March 2023: £15.8 million, or 3.22 pps), fully
covered by EPRA earnings
· Positive NAV total return of 1.1% (31 March 2023: -15.1%)
· Long average debt maturity profile of 9.7 years and a low current
average interest cost of 3.5%, with 91% fixed or hedged against movements in
interest rates
· Loan to value, net of all cash, of 37.1% (31 March 2023: 36.0%)
· Further 2% increase in the quarterly dividend to 0.853 pps for the
quarter ended 31 March 2024, to be paid in June, reflecting a yield of 7.9%
based on the share price of 43.4 pps at the close on 5 June 2024
High income return, beneficial sector allocations, and portfolio activity
leading to long-term outperformance against the MSCI Benchmark and an
improvement in defensive qualities
· Attractive underlying portfolio yield profile, with a net initial
yield of 6.1% (MSCI Benchmark: 5.1%) and a reversionary yield of 8.4% (MSCI
Benchmark: 6.1%)
· Portfolio total return for the financial year of 3.2% (MSCI
Benchmark: -1.3%), supported by a high income return of 6.2% (MSCI Benchmark:
4.7%) and rental growth of 4.6% (MSCI Benchmark: 3.3%)
· Continued long-term outperformance of the underlying portfolio with a
total return of 5.5% per annum on a rolling three-year basis (MSCI Benchmark
Index: 0.8% per annum), with all main sectors outperforming over one and three
years
· Increased allocation to higher growth sectors, with industrial,
predominately multi-let estates, and value retail warehousing now comprising
61.5% by value (31 March 2023: 58.6%)
· 108 leasing transactions across 1.0 million sq ft completed since the
start of the financial year, delivering strong rental growth, an increased
average unexpired lease term, and lower void rate
Strategic evolution to place sustainability at the centre of the investment
proposition
· Strategic evolution, with a sustainability improvement and
decarbonisation strategy, focused on adapting existing buildings into those
that are both modern and fit-for-purpose
· The new strategy should enable the Company to proactively respond to
the UK's Net Zero Carbon objectives, whilst optimising portfolio performance
to seek enhanced total returns for shareholders
· Further improvement in the 2023 GRESB score to 79 out of 100 (2022:
77), achieving a maximum score for management aspects, placing SREIT first
amongst its GRESB peer group
· Range of projects ongoing to deliver improved sustainability
performance in order to capture the 'Green Premium', most notably at Stanley
Green Trading Estate in Manchester that made a significant contribution to
portfolio outperformance
Contents
Overview 1
Performance Summary 3
Strategic Report 5
Chair's Statement 5
Investment Manager's Report 7
Sustainability Report 25
Business Model 36
Our stakeholders 40
Risk and Uncertainties 42
Governance Report 47
Board of Directors 47
Report of the Directors 49
Corporate Governance 52
Audit Committee Report 57
Management Engagement Committee Report 61
Nomination Committee Report 62
Directors' Remuneration Report 64
Statement of Directors' Responsibilities 67
Independent Auditor's Report to the members of Schroder Real Estate Investment
Trust Limited 69
Financial Statements 79
Consolidated Statement of Comprehensive Income 79
Consolidated Statement of Financial Position 80
Consolidated Statement of Changes in Equity 81
Consolidated Statement of Cash Flows 82
Notes to the Financial Statements 83
Other information (unaudited) 104
EPRA Performance Measures (unaudited) 104
Alternative Performance Measures (unaudited) 110
AIFMD Disclosures (unaudited) 111
Sustainability Performance Measures (Environmental)
(unaudited) 113
Sustainability Performance Measures (Social) 128
Streamlined Energy and Carbon Reporting 131
Asset list 135
Report of the Depositary to the Shareholders 136
Glossary 137
Notice of Annual General Meeting 141
Corporate Information 144
Performance Summary
Property performance
31 March 2024 31 March 2023
Value of Property Assets and Joint Venture Assets 1 (#_ftn1) £459.3m £470.4m
Annualised rental income 2 (#_ftn2) £29.8m £29.3m
Estimated open market rental value 3 (#_ftn3) £38.8m £37.8m
Underlying portfolio total return 3.2% (7.9%)
MSCI Benchmark total return 4 (#_ftn4) (1.3%) (13.5%)
Underlying portfolio income return 6.2% 6.0%
MSCI Benchmark income return 4.7% 4.1%
Financial summary
31 March 2024 31 March 2023
Net Asset Value ('NAV') £287.4m £300.7m
NAV per Ordinary Share 58.8p 61.5p
EPRA Net Tangible Assets 5 (#_ftn5) £287.1m £300.7m
EPRA Net Reinstatement Value (5) £318.4m £332.2m
EPRA Net Disposal Value (5) £305.8m £317.4m
IFRS profit/(loss) for the year £3.0m (£54.7m)
EPRA earnings (5) £16.3m £16.0m
Dividend cover 6 (#_ftn6) 100% 101%
Capital values
31 March 2024 31 March 2023
Share price 41.9p 43.6p
Share price discount to NAV (28.7%) (29.1%)
NAV total return 7 (#_ftn7) 1.1% (15.1%)
Earnings and dividends
31 March 2024 31 March 2023
EPRA earnings (5) (pps) 3.3 3.3
Dividends paid (pps) 3.34 3.22
Annualised dividend yield on the 31 March share price 8.0% 7.4%
Bank borrowings
31 March 2024 31 March 2023
On-balance sheet borrowings 8 (#_ftn8) £176.59m £177.90m
Loan to Value ratio ('LTV'), net of all cash 9 (#_ftn9) 37.1% 36.0%
Ongoing charges
31 March 2024 31 March 2023
Ongoing charges (including fund and property expenses) 10 (#_ftn10) 2.53% 2.28%
Ongoing charges (including fund only expenses) 11 (#_ftn11) 1.19% 1.32%
Strategic Report
Chair's Statement
We are today announcing our audited financial results for the year ended 31
March 2024.
It has again been a challenging environment in the UK real estate market with
weak economic growth, elevated interest rates and geopolitical uncertainty.
More encouragingly, the UK economy appears to have avoided a more prolonged
downturn, and occupational markets remain relatively resilient, with sustained
levels of tenant demand and low levels of new development driving positive
rental growth.
The uncertain macroenvironment contributed to a decline in the valuation of
our underlying portfolio of 2.8% during the year. This was, however, better
than our peer group MSCI Benchmark (the 'Benchmark') which showed a decline of
5.7%. The negative valuation movement resulted in a net asset value ('NAV') of
£287.4 million, or 58.8 pence per share ('pps'), a decline of 2.7 pps or 4.4%
over the year.
This resulted in a small increase in the Company's net loan-to-value ('LTV')
from 36.0% to 37.1%, and further disposals are planned to bring the net LTV in
line with our long-term target range of 25% to 35%.
We were pleased that a combination of a diverse tenant base and strong asset
management enabled us to collect 99% of rents due during the year and this,
together with a reduced void rate and 4.6% rental growth, drove an income
return from the underlying portfolio of 6.2% compared to our Benchmark of
4.7%. This resulted in a positive total return of 3.2% compared with the
Benchmark at -1.3%.
Higher income, tight management of costs and a sector-leading debt profile
also enabled the Company to pay dividends of £16.4 million, or 3.34 pps, an
increase of 4% over the prior year. Dividends were fully covered by earnings
over the year and 105% covered by earnings over the most recent quarter.
Combined with the movement in the NAV, this resulted in a positive NAV total
return for the year of 1.1%.
This momentum continues and, because of more positive leasing activity since
the year end, the Company has announced a further 2% increase in the quarterly
dividend to 0.853 pps, to be paid in June 2024. This is 31% above the 2019
quarterly run-rate and reflects an annualised yield of 7.9% based on the share
price of 43.4 pps at the close on 5 June 2024.
Despite the attractive level of dividend, and the potential for a real estate
market recovery in 2025, the Company's shares, in common with other listed
real estate funds, continue to trade at a discount to NAV. Over recent years
the Company has taken proactive steps to address this discount, including a
major refinancing in 2019, increased exposure to higher growth sectors, share
buybacks, and continued best-in-class governance.
This activity has contributed to sustained outperformance compared with our
peer group, with a three-year underlying portfolio total return of 5.5% per
annum (Benchmark 0.8% per annum), a three-year net NAV total return of 4% per
annum, and a three-year share price total return of 8.5% per annum. This has
been accompanied by a high level of shareholder engagement and wider marketing
of the Company.
The Company is focused on demonstrating best-in-class governance, for example
rotating its independent valuer ahead of mandatory new rules from the Royal
Institution of Chartered Surveyors (the 'RICS'), and the Manager advocating
for changes to regulatory cost disclosure that creates a more level playing
field which could attract new shareholders to the Company.
Looking forward, we should continue to benefit from a good quality portfolio
overweight to sectors expected to deliver higher growth, a diverse and strong
tenant mix, strong asset management skills and a market-leading debt profile.
However, for the Company to remain compelling, the strategy needs to evolve in
these changing times.
Last year we therefore decided to place sustainability at the centre of our
investment decision-making. This was done to fully benefit from the Manager's
commitments and capabilities in this area, with the aim of enhancing long-term
returns for shareholders, further differentiating the Company and its strategy
from peers, and to attract a wider shareholder base. We received strong
support to this strategic evolution at the Extraordinary General Meeting in
December, and the Manager makes more detailed comment on progress towards
execution of this strategy below.
Finally, I would like to welcome Sanjay Patel as a new Non-executive Director
and intended Chair of the Audit Committee, replacing Stephen Bligh. On behalf
of my fellow Directors and the Manager, I would like to thank Stephen for his
commitment and service over the past nine years.
Alastair Hughes
Chair
Schroder Real Estate Investment Trust Limited
5 June 2024
Investment Manager's Report
Financial results
Schroder Real Estate Investment Trust Limited's ('SREIT', or 'the Company')
net asset value ('NAV') as at 31 March 2024 was £287.4 million or 58.8 pence
per share ('pps'), compared with £300.7 million, or 61.5 pps, as at 31 March
2023. This reflected a decrease over the financial year of 2.7 pps or 4.4%.
Dividends totalling £16.4 million were paid during the year, which resulted
in a positive NAV total return of 1.1%. A detailed analysis of the NAV
movement is set out in the table below:
£m PPS
NAV as at 31 March 2023(1) 300.7 61.5
Unrealised net decrease in the valuations of the direct real estate portfolio (3.6) (0.7)
and joint ventures(2)
Capital expenditure(3) (9.1) (1.8)
Realised gain on disposal, net of disposal costs 0.2 0.0
EPRA earnings(4) 16.3 3.3
Dividends paid (16.4) (3.3)
Interest rate derivatives (0.3) (0.1)
Others (0.4) (0.1)
NAV as at 31 March 2024(5) 287.4 58.8
1. The calculation of pence per share is based on shares in issue as
at 31 March 2023 of 489,110,576.
2. Prior to all capital expenditure, and movement in IFRS 16 lease
incentives.
3. Comprises capital expenditure of £8.3 million on the directly held
portfolio and £0.8 million invested across the two joint ventures.
4. EPRA earnings as per the reconciliation on page 104.
5. The calculation of pence per share is based on shares in issue as
at 31 March 2024 of 489,110,576.
The underlying portfolio, including joint ventures and net of capital
expenditure, decreased in value by 2.8% on a like-for-like basis over the
financial year ended 31 March 2024.
£9.1 million of capital expenditure was invested in asset management and
redevelopment projects, including joint ventures, that should drive capital
growth and future rental increases over the medium to longer term.
Whilst two disposals completed during the financial year, one was recognised
in the prior period as unconditional contracts had been exchanged. The
disposal of Coverdale House in Leeds completed on 8 December 2023 for £3.8
million and reflected a 7.0% increase on the 31 March 2023 independent
valuation of £3.6 million. After transaction costs of £52,000, the realised
gain on disposal was £200,000.
EPRA earnings for the financial year totalled £16.3 million, or 3.3 pps, an
increase of £300,000 or 1.9%, on the prior financial year of £16.0 million.
Active asset management led to an increase in rent and other income compared
to the prior financial year, partly offset by higher finance costs on the
Company's revolving credit facility.
There was a 3.8% increase in the dividend paid in the financial year to £16.4
million from £15.8 million in the previous year.
UK Market Context
Since the recent UK real estate market cycle high of June 2022, average UK
real estate values have fallen 25%, with the Company's underlying portfolio
value falling by 18% over the same period. This is a significant correction
and compares with a 44% average market decline during the 2007 to 2009 global
financial crisis ('GFC'), and a 27% decline during the recession of the early
1990s.
Falling values and weak sentiment translated into a dearth of investment
activity, with transactions in the final quarter of calendar year 2023 the
lowest since the GFC. Furthermore, although debt levels in the real estate
sector are low compared with the GFC period, lending for new acquisitions is
the lowest since 2007 (Source: Bayes Business School). Low lending volumes
also reflect the high cost of debt, with elevated interest rate swaps
(five-year Sonia swap rate 4.1% as at 5 June) plus margin resulting in a total
cost of approximately 6% for a good quality asset at a 40% loan to value
ratio.
Given lower debt levels compared with past cycles, institutional investors are
arguably more focused on the spread real estate offers over the risk-free
rate, or the ten-year gilt. The MSCI Benchmark average net initial yield is
now 5.2%, which compares with the net initial yield on the Company's
underlying portfolio of 6.1%. This is the highest MSCI Benchmark net initial
yield since 2014 and represents a premium of 1.0% over the prevailing 10-year
gilt rate of 4.2%.
This is below the long-term premium of approximately 1.5% to 2%, indicating a
further increase in real estate yields, or a fall in gilt yields, might be
required for the sector to represent 'fair value'. However, this ignores the
positive impact of rental growth on total returns, and in this respect the
market is better placed now than in recent cyclical recoveries. For example,
average nominal rents are now 6.6% higher than in June 2022, which compares
with 3.4% lower over the equivalent 21-month period post-GFC. More materially,
average industrial rents are now 12.9% higher than in June 2022, which
compares with 0.1% post GFC. This performance illustrates both the structural
factors that are driving demand for real estate in a market with relatively
low levels of new supply, as well as the inflation-hedging quality of rental
income.
Against this backdrop, market expectations that interest rates are peaking
will be key to a recovery in sentiment towards real estate, together with
increased availability of bank debt and reduced selling out of open-ended
property funds.
The most significant and positive feature of the market is the above-average
level of nominal rental growth, particularly for more structurally supported
sectors such as industrial, retail warehousing, prime offices, and operational
assets such as residential, self-storage and hotels. This rental growth,
together with the potential for a future yield rerating, should going forward
deliver total returns above the long run average, and lead to capital flows
back to the sector. Our portfolio allocation and ongoing activity means we
should be better placed to benefit from a recovery in sentiment.
Our strategy
Strategic evolution and changes to the investment objective and policy
The real estate industry accounts for approximately 40% of global energy
related carbon emissions, and owners therefore have a responsibility to take a
lead on tackling contributions to climate change. As most of today's stock
will likely still be required and in use in 2050, it is only by transforming
less sustainable buildings into modern, fit for purpose assets that the sector
will reach Net Zero Carbon, and asset obsolescence resulting from enhanced
regulations can be mitigated.
This strategic imperative, the Company's active approach, and Schroders
specialist resources relating to sustainability and positive impact investing
more generally, created an opportunity to formally place sustainability at the
centre of the Company's investment proposition. This should enable the Company
to proactively respond to the UK's Net Zero Carbon objectives and enhance long
term total returns by focusing on decarbonisation strategies that adapt
existing buildings to achieve the 'Green Premium', which generally has two
components:
- Evolving regulations and obligations mean tenants are demanding
buildings that benefit from sustainable attributes including being more energy
efficient, having enhanced natural resource management, promoting the health
and well-being of occupants, offer access to high-quality green space and
community facilities, as well as being capable of withstanding extreme weather
events. As we are witnessing across the Company's portfolio, commercial
occupiers will pay a higher rent for these more sustainable buildings because
it helps them to meet their own sustainability targets, attract and retain
staff, and cut their energy bills.
- Investors are prepared to pay higher prices for buildings that
demonstrate some or all of these sustainable attributes because they tend to
let more quickly at higher rents, suffer lower vacancy rates, require less
capital expenditure in the long term and are less at risk of obsolesce due to
more stringent future environmental regulation.
Following a shareholder consultation, the Company issued a Circular containing
details of the strategic evolution, the rationale, and benefits of the new
investment objective and policy, with this Circular available in the following
link: https://schro.link/sreitb2gcircular. At the subsequent Extraordinary
General Meeting held on 15 December 2023, the Company received strong support
to the strategic evolution and the following revised investment objective:
'The investment objective of the Company is to provide shareholders with an
attractive level of income and the potential for income and capital growth
from owning and actively managing a diversified portfolio of UK commercial
real estate, while achieving meaningful and measurable improvements in the
sustainability profile of the majority of the portfolio's assets (considered
against a range of objective environmental, social and governance metrics).'
The new investment policy includes specific sustainability key performance
indicators linked to the proportion of the portfolio where relevant activity
is ongoing, asset level improvement targets based on Schroders proprietary
scorecard based approach, as well as progress delivering the Company's
existing 'pathway to net zero' commitments. Further details on these are
included within the Sustainability section of this Strategic Report.
Progress delivering the investment strategy
The strategy to deliver the new investment objective and policy, and progress
made during the year and since year end, is set out below:
- Apply a research-led approach to determine attractive sectors and
locations in which to invest in commercial real estate
o Increased allocation to higher growth sectors, with industrial,
predominately multi-let estates, and retail warehousing now comprising 61.5%
by value (2023: 58.6%) because of capital expenditure in these assets and the
disposal of two small offices.
- Increase exposure to larger, higher value, assets with strong
fundamentals and inherent opportunities for active management and development
o £9.1 million of capital expenditure invested during the year including
£2.7 million relating to the development of 19 Hollin Lane, a single 18,203
sq ft operationally net zero carbon industrial unit at Stacey Bushes
Industrial Estate in Milton Keynes, £1.5 million refurbishing the multi-let
industrial estate Stirling Court in Swindon, and £1.0 million at Stanley
Green Trading Estate in Manchester. Our top 15 assets now represent 80.5% of
total portfolio value (2023: 78.5%).
- Sell smaller, secondary assets with higher sustainability
performance risk
o Completed the sale of two small office assets at a 3.3% premium to the
aggregate value at the start of the year, with further disposals planned.
- Drive income and value growth through a hospitality approach in
tenant management (optimising tenant services and lease terms) and operational
excellence in all sectors (optimising operations in the assets, minimising the
use of scarce resources and waste)
o Asset management delivered rental growth through the year ahead of the
MSCI Benchmark and there are ongoing regear negotiations with major tenants in
return for sustainability related asset improvements.
o Increase in the average unexpired lease term from 5.0 to 5.3 years, with
ongoing activity to make a further positive contribution.
- Apply our integrated sustainability and ESG approach at all stages
of the investment process and asset life cycle, targeting improvement in the
sustainability performance of assets to manufacture the green premium for
shareholders
o Further improvement in the 2023 Global Real Estate Sustainability
Benchmark ('GRESB') score to 79 out of 100 (2022: 77), achieving the maximum
possible result for the management aspects of the assessment and placing SREIT
first amongst a GRESB defined peer group comprising six diversified REITs
(2022: first of seven).
o 15 assets now have an ESG scorecard completed by an external consultant
along with a sustainability audit or net zero carbon audit, these scores
provide a baseline against which the relevant sustainability KPI in the
investment policy can be measured and will inform future works to improve
sustainability performance with the aim to increase the score for each asset.
- Control costs
o Ongoing charges (including fund only expenses) of 1.19% are lower than
1.32% for the prior financial year.
- Maintain a strong balance sheet with a long-term strategic target
loan to value, net of cash, within the range of 25% to 35%
o The Company has a peer group leading debt profile, with a clear strategy
to reduce the net LTV back to within the strategic range from 37.1% at the
year end.
Portfolio performance
The underlying portfolio continues to deliver strong relative outperformance,
with a positive total return for the financial year of 3.2% compared to -1.3%
for the MSCI Benchmark (the 'Benchmark'). This relative outperformance was
partly due to a stronger income return from the portfolio of 6.2% compared to
4.7% for the Benchmark.
Favourable sector weightings compared to the Benchmark contributed positively
to relative performance. In particular, the Company's overweight position to
the industrial sector, which is almost entirely multi-let industrial estates,
was a key driver of outperformance. In contrast, the office sector continued
to face headwinds and underperformed the overall Benchmark, therefore this
allocation detracted from performance.
Active asset management generated most of the outperformance relative to
Benchmark and was positive for all sectors. Capital expenditure in the
previous and current financial year to develop the operationally net zero
carbon development at Stanley Green Trading Estate in Cheadle, Greater
Manchester, which completed in May 2023, contributed strongly as the new space
was let. A regear that completed in December 2023 with the Company's largest
tenant, the University of Law, who operate a campus in Bloomsbury, London, was
also a key contributor.
The table below shows performance to 31 March 2024.
SREIT Total Return MSCI Benchmark* Total Return Relative
Period to 31 March 2024 One year (%) Three years (% p.a.) Five years (% p.a.) One year (%) Three years (% p.a.) Five years (% p.a.) One year (%) Three years (% p.a.) Five years (% p.a.)
Retail 4.2 4.6 0.1 -0.1 2.0 -1.8 4.3 2.5 1.9
Office -3.3 -0.9 0.9 -10.2 -5.7 -3.0 7.7 5.1 4.0
Industrial 7.0 10.7 11.2 4.3 5.0 6.9 2.5 5.5 4.0
Other 3.6 11.8 3.2 -0.2 1.1 1.2 3.8 10.6 2.0
All sectors 3.2 5.5 4.6 -1.3 0.8 0.9 4.5 4.7 3.6
*MSCI Benchmark is formally 'MSCI UK Balanced Portfolios Quarterly Property
Index (unfrozen)'
Real estate portfolio
As at 31 March 2024, the portfolio comprised 39 properties valued at £459.3
million. This includes the share of joint venture properties City Tower in
Manchester (25% interest) and the University of Law in Bloomsbury, London (50%
interest). The portfolio generated rental income of £29.8 12 (#_ftn12)
million per annum, reflecting a net initial yield of 6.1%, which compared with
the Benchmark's 5.2%. The portfolio benefits from fixed contractual annualised
rental income uplifts of £2.9 million per annum over the next 24 months. The
independent valuer's estimated rental value ('ERV') of the portfolio is £38.8
million per annum, reflecting a reversionary income yield of 8.4%, which
compares favourably with the Benchmark at 6.1%.
The portfolio is overweight multi-let industrial estates where we consider
supply and demand dynamics to be favourable given there has been relatively
limited development. This is evidenced by the rent reviews and lease renewals
completed since the beginning of the financial year, where rents were agreed
29% higher than the previous level, and we expect continued rental growth from
our industrial portfolio. In addition, there is an overweight position in
retail warehouses, where we have sustainable levels of rent and limited
exposure to fashion. This is the only part of the retail sector which has seen
a meaningful fall in vacancy since the pandemic and is also a sector in which
we expect continued rental growth.
At the year end the portfolio void rate was 10.9%, calculated to the earlier
of lease expiry or tenant break as a percentage of estimated rental value,
which is within the ten-year range of 5% to 13% and compares with the
Benchmark void rate of 8.1%. The portfolio weighted average lease length,
calculated to the earlier of lease expiry or break, is 5.3 years, an increase
from 5.0 years at the start of the financial year.
Approximately 11% of the portfolio by contracted rent is inflation linked,
typically structured as five yearly reviews to either the Retail Price Index
('RPI') or the Consumer Price Index ('CPI'). In some cases, these
inflation-linked leases can also be reviewed to open market value, if higher,
or include fixed guaranteed increases. A further 14% of rent benefits from
fixed uplifts without an inflation link. The proportion of the portfolio with
inflation-linked leases should increase with ongoing asset management
activity.
The tables below summarise the portfolio information as at 31 March 2024. The
property values and weightings represent the year end valuations as determined
by the independent valuers as at 31 March 2024:
Portfolio metric SREIT 31 March 2024 SREIT 31 March 2023
(MSCI Benchmark 31 March 2024) (MSCI Benchmark 31 March 2023)
Portfolio value (£m) 459.3 470.4
Number of properties 39 41
Number of tenants 314 312
Average lot size (£m) 11.8 11.5
Net initial yield (%) 6.1 (5.2) 5.8 (4.8)
Reversionary yield (%) 8.4 (6.1) 8.0 (5.7)
Annual rent (£m) 29.8 29.3
Estimated rental value (£m) 38.8 37.8
Annual rent with inflation linked uplifts (%) 11 11
Annual rent with fixed uplifts (%) 14 12
WAULT (years to earliest of break or expiry) 5.3 (11.1) 5.0 (11.2)
Void rate (%) 10.9 (8.1) 11.1 (8.0)
Top 15 properties by value Sector Value (£m) 13 (#_ftn13) % of portfolio value
1 Milton Keynes, Stacey Bushes Industrial Estate Industrial 51.0 11.1
2 Leeds, Millshaw Park Industrial Estate Industrial 45.1 9.8
3 Cheadle, Stanley Green Trading Estate Industrial 40.0 8.7
4 London, Store Street, The University of Law Campus (50% share) Office/university 38.4 8.4
5 Bedford, St. John's Retail Park Retail warehouse 29.5 6.4
6 Manchester, City Tower (25% share) Office/hotel/retail 29.4 6.4
7 Chippenham, Langley Park Industrial Estate Industrial 25.2 5.5
8 Norwich, Union Park Industrial Estate Industrial 22.6 4.9
9 Leeds, Headingley Central Hotel/retail 20.9 4.6
10 Birkenhead, Valley Park Industrial Estate Industrial 12.7 2.8
11 Telford, Horton Park Industrial Park Industrial 12.6 2.7
12 Manchester, St Ann's House Office/retail 11.8 2.6
13 Edinburgh, The Tun Office 10.7 2.3
14 Uxbridge, 106 Oxford Road Office/university 10.7 2.3
15 Milton Keynes, Watling Street Retail warehouse 9.1 2.0
Total as at 31 March 2024 369.7 80.5
Sector weighting by value as at 31 March 2024 Like-for-like net of capex capital growth for the 12-month period ended 31
March 2024
SREIT MSCI Benchmark(1) SREIT MSCI Benchmark
South East 11.1% 20.4%
Rest of UK 38.9% 12.4%
Industrial 50.0% 32.8% 1.7% 0.0%
City 0.0% 3.2%
Mid-town and West End 8.4% 6.7%
Rest of South East 4.0% 6.1%
Rest of UK 12.6% 6.5%
Offices 25.0% 22.5% -9.7% -13.8%
Retail warehouse 11.4% 9.3% -5.5% -4.2%
South East 0.0% 6.9%
Rest of UK 7.7% 2.9%
Standard retail 7.7% 9.8% 1.3% -7.3%
Standard retail by ancillary/single use
- Retail ancillary to main use 4.9% -
- Retail single use 2.8% -
Other 5.9% 19.7% -5.6% -4.9%
Shopping centres - 1.9%
Unattributed indirects - 4.1%
(1)Note: column does not sum due to rounding.
Regional weighting by value as at 31 March 2024
SREIT MSCI Benchmark(1)
Central London 8.4% 16.7%
South East excluding Central London 17.1% 34.4%
Rest of South 10.8% 6.6%
Midlands and Wales 21.3% 23.4%
North 40.1% 14.4%
Scotland 2.3% 4.4%
Northern Ireland 0.0% 0.2%
(1)Note: column does not sum due to rounding.
Rental income is diverse and comprised 314 tenants as at 31 March 2024,
including the tenants of properties held by joint ventures. The largest and
top 15 tenants represent 6.78% and 35.40% of the portfolio respectively,
calculated as a percentage of annual rent, and there are only three tenants
that represent more than 3% of annual rent.
Top 15 tenants by annual rent Annual rent (£ million) % of total annual rent
The University of Law Limited 2.02 6.78
Buckinghamshire New University 1.30 4.36
Siemens Mobility Limited 1.23 4.13
Public Sector 0.66 2.21
Express Bi Folding Doors Limited 0.65 2.18
Jupiter Hotels Limited 0.65 2.18
Matalan Retail Limited 0.57 1.91
TJX UK T/A Homesense 0.51 1.71
Premier Inn Hotels Limited 0.47 1.58
IXYS UK Westcode Limited 0.47 1.58
Lidl Great Britain Limited 0.42 1.41
Ingeus UK Limited 0.41 1.38
Wickes Building Supplies Limited 0.40 1.34
Sports Direct 0.40 1.34
Balfour Beatty Group Limited 0.39 1.31
Total as at 31 March 2024 10.55 35.40
Rent collection
The diversification and granularity of the underlying rental income, and a
high level of occupier engagement, has supported rent collection rates with
99% of the contracted rents collected for the year ended 31 March 2024. The
breakdown between sectors is 100% of office rent collected, 100% of other rent
collected, 99% of retail and leisure rent collected and 98% of industrial rent
collected.
Rent receivable totalled £2.3 million, net of VAT, at the year end, of which
£360,000 is provided against as a bad debt. This reflects further progress
collecting historical arrears during the financial year and compares to £3.3
million and £360,000 respectively as at 31 March 2023.
Transactions
Rugby, Morgan Sindall House (Office)
In March 2023, contracts were unconditionally exchanged to sell Morgan Sindall
House, a 34,334 sq ft single let office asset in Rugby, for £4.0 million with
the asset therefore treated as sold at the 31 March 2023 financial year end in
line with the Group's accounting policy. The disposal completed on 22 June
2023 and the price was in line with the 31 March 2023 year-end independent
valuation.
Leeds, Coverdale House (Office)
Coverdale House, a 32,355 sq ft multi-let office asset in Leeds, was sold on 8
December 2023 for £3.8 million reflecting a 7% premium to the 31 March 2023
independent valuation. At the time of sale, the asset generated a net rent of
£157,860 per annum with a weighted average unexpired lease term of two years.
Further small disposals are being progressed on completion of asset management
initiatives.
Active asset management
108 new lettings, rent reviews and renewals, across 1.0 million sq ft, have
completed since 1 April 2023 totalling £10.4 million in annualised rental
income, 7% ahead of 31 March 2023 ERV.
Set out below are examples of ongoing active asset management initiatives that
should support continued outperformance of the underlying portfolio from both
a financial and sustainability perspective.
Manchester, Cheadle, Stanley Green Trading Estate (Industrial)
Asset overview and performance
Stanley Green Trading Estate in Cheadle, Manchester was acquired in December
2020 for £17.3 million. At acquisition the asset comprised 150,000 sq ft of
trade counter, self-storage and warehouse accommodation across 14 units on a
nine-acre site, together with an adjoining 3.4-acre development site. SREIT
subsequently completed a new, 11-unit, warehouse scheme on the development
site at a cost of £9.0 million. The asset now comprises 241,366 sq ft of
trade counter, self-storage and warehouse accommodation across 25 units.
As at 31 March 2024 the valuation was £40.0 million, reflecting a
reversionary yield, assuming the new development is fully let, of 6.4%. The
asset has been a strong performer since acquisition, generating a total return
of 18.6% per annum to 31 March 2024 compared to the MSCI All Industrial over
the same period of 6.7%. Over the 12-month period to 31 March 2024, the asset
delivered a total return of 12.1% which compared with the MSCI All Industrial
over the same period of 4.7%.
Key activity
- The speculative development of 11 warehouse and trade units
completed in May 2023. The new units achieved an 'A+' EPC rating and BREEAM
New Construction Excellent accreditation. The specification includes a
photovoltaic system that we expect to generate more than 250 MWh of energy per
annum, 24 electric vehicle charging points and an 800kVA substation to support
the on-site renewables in powering the fully electric site.
- Seven units, or 56% of the development by estimated rental value,
are now let at an aggregate 23% above the underwritten assumptions. A 4,000 sq
ft unit on the existing estate with EPC 'C' was recently let at £14.00 per sq
ft, whereas the comparable operationally Net Zero Carbon units with EPC 'A+'
and have been let at around £19.50 per sq ft, reflecting a 39% premium. In
addition, the Company's independent valuer has applied a 5.35% yield to the
occupied operationally Net Zero Carbon units compared to 6.5% to 7.0% for the
pre-existing asset. We believe these outcomes are largely driven by the
superior sustainability credentials of the new units which serve as a proof of
concept of the enhanced strategy adopted by the Company.
Strategy looking forward
- The objective is for the new development to be fully let during
2024, which would increase the net income from Stanley Green Trading Estate by
approximately £600,000 per annum compared with 31 March 2024. One unit is
under offer and in legals at £150,000 per annum, with encouraging interest in
the remainder.
- The strategy for the pre-existing 150,000 sq ft of trade counter,
self-storage and warehouse accommodation is to begin phased refurbishments to
enhance the aesthetic and sustainability credentials of the units, with the
aim of enabling us to attract and retain high quality tenants and increase the
rental tone to more closely align with the rents achieved on the new estate.
Swindon, Stirling Court (Industrial)
Asset overview and performance
Stirling Court is comprised of three industrial units on an established
industrial estate in Swindon. One of the units is let at £7.26 per sq ft
until March 2033, with a break in March 2028, and the other two units have
recently been refurbished at a total cost of £1.5 million.
As at 31 March 2024, the asset was valued at £7.9 million, reflecting a
reversionary yield, assuming the two refurbished units are let, of 8.7%. Over
the 12-month period to 31 March 2024, the asset delivered a total return of
0.8% which compared with the MSCI All Industrial over the same period of 4.7%.
Key activity
- The comprehensive, sustainability improvement -led refurbishment
of two units reached practical completion on 8 December 2023. The units now
benefit from LED lighting throughout, rooftop photovoltaic panels and EV
charging points. The EPC rating for both units improved to a 'B' from a 'D'
and a 'C' respectively.
Strategy looking forward
- Let the refurbished units targeting a rent of £8.00 per sq ft or
total rent of £480,000 per annum, reflecting the enhanced specification. This
would reflect a 28% increase on the previous average passing rent for the two
units of £6.26 per sq ft.
Edinburgh, The Tun (Office)
Asset overview and performance
The Tun is a multi-let office building in Edinburgh city centre, located close
to the Royal Mile and Scottish Parliament.
As at 31 March 2024, the asset was valued at £10.7 million, reflecting a net
initial yield of 5.0% and a reversionary yield of 8.9%. Over the 12-month
period to 31 March 2024, the asset delivered a total return of 3.4% which
compared with the MSCI All Offices over the same period of -9.3%.
Key activity
- Completed an extensive refurbishment program of common areas, the
roof and three vacant units at a cost of £2.1 million as at the year end. The
works include end of journey facilities which will improve the sustainability
credentials of the asset and help to attract high quality tenants. This led to
the completion of three smaller lettings over the year.
- Works included a full Cat A refurbishment of the 7,343 sq ft part
third floor including new, more efficient, M&E, new LED lighting, and
improvements to natural light and fresh air. The unit achieved an EPC rating
of 'A' having previously been a 'D'.
- An agreement for lease has exchanged with SLR Consulting Limited
for the refurbished part third floor and 2,876 sq ft part fourth floor, which
was surrendered by the European Parliament in return for a premium paid to the
Company of £240,000. SLR Consulting Limited will pay a base rent of £290,293
per annum on a 10-year term. The tenant will benefit from four months of rent
free and has a break option in year five. The Company will now carry out a Cat
A refurbishment of the part fourth floor and a Cat B fit out on all space at a
total cost of £1.0 million, with lease completion expected in October 2024.
In addition to the base rent, the tenant will pay an additional £135,095 per
annum for the first five years of the term to reflect the Company carrying out
the Cat B fit-out.
- Existing tenant, Vattenfall Wind Power Limited, completed a new
five-year lease extension on 2,783 sq ft of space in return for sustainability
improvements costing £150,000. The lease renewal commenced in May 2024 and
the rent increases by 21% to £88,137 per annum or £31.67 per sq ft, 17%
ahead of the estimated rental value as at 30 September 2023. The tenant will
receive three months of rent free.
- Following the works and activity outlined above, the total
contracted rent at The Tun will be £1.1 million per annum, compared with
£616,190 per annum at the start of the financial year.
Strategy looking forward
- We are discussing regears with further tenants, where we will look
to implement measures to improve the sustainability credentials of the asset
whilst increasing rent to and beyond the new headline rents of £32 to £34
per sq ft.
London, University of Law Campus, Store Street, Bloomsbury (Office /
University, 50% share)
Asset overview and performance (unless specified 100% ownership statistics
shown below)
Freehold office and university campus located less than 500 metres from
Tottenham Court Road in an area benefiting from infrastructure improvements
such as the Elizabeth Live and Camden local authority 'West End Project', and
a diverse range of 'knowledge-based' occupational demand including media,
technology, life science, consumer brands and finance. The asset is let to
the University of Law ('UoL') and currently has a low site density with 85,814
of lettable space on a site of 0.8 acres.
As at 31 March 2024, the Company's 50% interest in the asset was valued at
£38.375 million, reflecting a net initial yield of 4.5%, a reversionary yield
of 5.8%, and capital value equating to £894 per sq ft. Over the 12-month
period to 31 March 2024, the asset delivered a positive total return of 6.5%
which compared with the MSCI All Offices over the same period of -9.3%.
Key activity
- In December, the Company completed a new 85,814 sq ft lease with UoL
that extended the lease from December 2026 to December 2029. As part of the
lease extension the rent review dated December 2024 was pre-agreed at £2.36
million per annum, equating to £55.00 per sq ft, 28% above the prior rent.
The new lease also benefits from a fixed rental increase in December 2026 to
£2.43 million per annum equating to £56.65 per sq ft, and annual fixed
uplifts of 3% per annum from December 2026, leading to rent of £2.58 million
per annum or £60.10 per sq ft from December 2028, 39% above the rent prior to
the new lease.
Strategy looking forward
- The next phase at Store Street is to progress plans for the
longer-term potential re-development post 2029, with the objective to align
with Camden's local plan, promoting sustainable characteristics and
contributing positively to Bloomsbury's character and amenity. Consideration
will also be given to the specific demands of occupiers in the life sciences,
technology, and higher education sectors.
Bedford, St John's Retail Park (Retail Warehouse)
Asset overview and performance
St. John's Retail Park comprises a 120,000 sq ft retail warehouse scheme
underpinned by income from tenants including Lidl, Home Bargains, Bensons for
Beds, TK Maxx, Costa and now Starbucks, with an average lease term, to the
earlier of lease expiry or break, of 7.0 years. The asset benefits from an
affluent catchment and has good parking.
As at 31 March 2024, the asset was valued at £29.5 million reflecting a net
initial yield of 6.7% and a reversionary yield of 6.5%. Over the 12-month
period to 31 March 2024, the asset delivered a total return of 1.7%, in line
with the MSCI All Retail Warehousing over the same period.
Key activity
- A 15-year lease without breaks completed with Starbucks Coffee
Company UK Limited ('Starbucks') for a new 1,800 sq ft drive-thru unit, that
they constructed on the site to extract economies of scale. The rent is
£155,000 per annum which equates to £86.11 per sq ft, and the lease benefits
from inflation-linked increases with a collar of 1% per annum and a cap of 3%
per annum. Starbucks will receive a contribution towards construction costs of
£850,000 and 12-months of rent free, which are assumed in the valuation at
the year end. Starbucks are required to deliver the restaurant to a minimum
BREEAM rating of 'Very Good' and install rooftop photovoltaic panels and
electric vehicle charging points for customer usage. The drive-thru café has
now opened for trade.
- Tenant break options were removed from several leases, Hobbycraft,
Halfords and Bensons for Beds had break options removed in February 2025, May
2025 and October 2026 respectively in return for five months of rent free. In
addition, a new 10-year lease without breaks was completed with Tapi Carpets.
This activity has secured longer term income from the asset.
Strategy looking forward
- With large roof space and a large car park there is an opportunity
to install further photovoltaic panels and electric vehicle charging points at
the site to improve the sustainability credentials of the asset, and
feasibility assessments are underway.
- There are several rent reviews due over the next 18-months,
including with Costa dating from October 2023, who are currently paying
£40.52 per sq ft. The recently achieved Starbucks rent of £86.11 per sq ft,
being 113% higher, provides strong evidence for a material increase to the
rent payable by Costa.
Salisbury, Churchill Way West (Retail Warehouse)
Asset overview and performance
50,000 sq ft, three-unit, retail warehouse terrace in a prominent location on
Salisbury's northern ring road. The property adjoins a strongly performing
Waitrose food and home store. The property is currently let to Smyths Toys
(unit 1), Homesense (unit 2), and Sports Direct (unit 3) on a short-term basis
paying £697,000 per annum, or an average rent of £13.90 per sq ft.
As at 31 March 2024, the asset was valued at £8.4 million, reflecting a net
initial yield of 7.8% and a reversionary yield of 8.3%. Over the 12-month
period to 31 March 2024, the asset delivered a total return of 1.9% which
compared with the MSCI All Retail Warehousing over the same period of 1.7%.
Key activity
- Agreement exchanged with international discount retailer to occupy
unit 1 and part of unit 2, totalling 22,206 sq ft, on a new 25-year lease
(break at year 20) at £440,000 per annum or £19.81 per sq ft. The tenant
will receive nine months' rent free and the lease will be subject to five
yearly, inflation linked reviews with a collar of 1% per annum and a cap of 3%
per annum. Lease completion is subject to planning and the Company delivering
a unit split and refurbishment at a cost of £1.2 million. The tenant is
required to install photovoltaic panels to the roof in order that the overall
project can achieve an EPC 'A'.
- A planning application for the unit split is being prepared and
will be submitted shortly, with a view to works commencing in February 2025,
when Smyths Toys and Homesense vacate.
Strategy looking forward
- Terms have been agreed for a new five lease to Sports Direct at
£290,000 per annum or £14.50 per sq ft in return for the tenant receiving
12 months' rent free. This is in the process of being documented.
- The remaining vacant unit comprising the balance of unit 2,
totalling 7,500 sq ft, will be marketed at a rent of £135,000 per annum or
£18 per sq ft.
- Assuming the activity proceeds as planned, the combined new rent at
Salisbury will be £865,000 per annum or £17.30 per sq ft, a 24% increase on
the current level.
Leeds, Headingley Central (Hotel, Retail, Office)
Asset overview and performance
Mixed-use 129,000 sq ft prominently located town centre scheme anchored by
core convenience retail and leisure operators including Premier Inn Hotels,
Sainsbury's and The Gym Group.
As at 31 March 2024, the asset was valued at £20.9 million, reflecting a net
initial yield of 6.7% and a reversionary yield of 7.8%. Over the 12-month
period to 31 March 2024, the asset delivered a total return of 6.4% which
compared with the MSCI All Retail over the same period of 0.0%.
Key activity
- Following success in the previous year bringing Rudy's Pizza and
Burger King to the scheme, we have continued to drive rental growth by
combining small units to create suitable space for national covenants. A
10-year lease without breaks completed with Greggs plc who expanded into the
adjoining unit to create a 1,094 sq ft restaurant. The rent is £70,000 per
annum, or £63.99 per sq ft which is 14% above their previous rent level.
There is an upwards only rent review on the fifth anniversary and the tenant
benefits from 12-months of free rent.
- A five-year lease without breaks completed with Superdrug Stores
plc on their 7,345 sq ft store. The rent is £75,000 per annum, or £10.21 per
sq ft and the tenant will benefit from three-months of rent free.
Strategy looking forward
- Following the success in previous years of converting office space
at the scheme to a Premier Inn and space for The Gym, there is an opportunity
to relet the final 12,524 sq ft of former office space for alternative,
complementary use to the overall scheme.
- Implement sustainability initiatives including installing
photovoltaic panels, adding further electric vehicle charging points,
enhancement of green space, and water recycling to improve the sustainability
performance of the asset.
Balance sheet
As at 31 March 2024, the average interest rate for drawn debt was 3.5%, with
an average loan term of 9.7 years, and 91% of total drawn debt was either
fixed or hedged against movements in interest rates. As at 31 March 2024, the
Company had cash, including cash held in joint ventures, of £6.2 million and
a net loan to value ('LTV') ratio of 37.1%, which is slightly above the
long-term strategic target range of 25% to 35%. Details of the loans are set
out below, together with cover against covenants.
Canada Life term loan
The debt refinancing with Canada Life in 2019 provides a significant benefit
in a higher interest rate environment. This long-term loan, which represented
£129.6 million of the £176.6 million total borrowings at the year end, has
an average loan maturity of 12.0 years, with a fixed average interest rate of
2.5%. At the year end, the incremental positive fair value benefit of this
fixed rate loan was £18.5 million, which is not reflected in the Company's
NAV.
Lender Loan (£m) Maturity Total interest rate (%) Asset value (£m) Cash LTV ratio (%)(2) LTV ratio covenant (%)(2) ICR (%)(3) ICR covenant (%)(3) Projected ICR (%)(4) Projected ICR covenant (%)(4)
(£m)
Facility A 64.8 15/10/2032 2.4(1) 262.2 1.3 48.9 65 497 185 482 185
Facility B 64.8 15/10/2039 2.6(1)
Canada Life Term Loan 129.6 Average loan maturity of 12.0 years 2.5(1)
- Net LTV on the secured assets against this loan is 48.9%. On
this basis the properties charged to Canada Life could fall in value by 25%
prior to the 65% LTV covenant being breached;
- The interest cover ratio is 497% based on actual net rents for
the quarter to 31 March 2024. A 63% fall in net income could be sustained
prior to the loan covenant of 185% being breached;
- The projected interest cover ratio is 482% based on projected
net rents for the year ending 31 March 2025. A 62% fall in net income could be
sustained prior to the loan covenant of 185% being breached; and
- After utilising available cash and uncharged properties, the
valuation and actual net rents could fall by 37% and 65% respectively prior to
either the LTV or interest cover ratio covenants being breached.
RBSI revolving credit facility ('RCF')
The balance of borrowings at the year-end totalling £47.0 million comprised a
revolving credit facility ('RCF') from RBSI. This facility totals £75 million
and can be drawn and repaid at any time up to maturity in June 2027.
Lender Loan/ amount drawn (£m) Maturity Total interest rate (%) Asset value (£m) LTV ratio (%)(2) LTV ratio covenant (%)(2) Projected ICR (%)(4) Projected ICR covenant (%)(4)
RBSI RCF 75.0/47.0(5) 06/06/2027 4.1(6) 157.6 29.8 65(7) 231 200
- The RCF benefits from an interest rate 'collar' which applies to
£30.5 million of the £47.0 million now drawn. The collar runs to the end of
the RCF term and allows the Company to benefit from future falls in interest
rates down to a 3.25% floor, whilst at the same time protecting the Company
from rate increases above 4.25%.
- Net LTV on the secured assets against this loan is 29.8%. On
this basis the properties charged to RBSI could fall in value by 54% prior to
the 65% LTV covenant being breached;
- The projected interest cover ratio is 231% based on projected
net rents for the year ending 31 March 2025. A 13% fall in net income could be
sustained prior to the loan covenant of 200% being breached;
- After utilising available cash and uncharged properties, the
valuation and actual net rents could fall by 68% and 26% respectively prior to
either the LTV or projected interest cover ratio covenants being breached;
During the financial year the RCF was converted into a 'Sustainability
Linked Loan' , with performance measured against KPIs, with each KPI having
the potential to either reduce the margin by 1.65 basis points, increase it by
1.65 basis points or have no impact. The KPIs are:
- Change in landlord energy consumption (year on year)
o A reduction by 5% or more: reduce the margin
o No change or a reduction below 5%: no change
o An increase: increase the margin
- GRESB rating
o 4 stars or above: reduce the margin
o 3 stars: no change
o 2 stars or below: increase the margin
- Development or refurbishment projects that improve EPC or BREEAM
rating to a minimum of EPC 'B' or BREEAM Very Good
o If all new developments or major renovations of the properties meet the
requirement: reduce the margin
o If no property has been refurbished or developed: no change
o If one or more new developments or major renovations of the properties
carried out during the term of the facility does not meet the requirement:
increase the margin
1. Fixed total interest rate for the loan term.
2. Loan balance less the amounts standing to the credit of the Sales
Proceed Account and Remedy Account divided by the property values as at 31
March 2024.
3. This covenant is calculated by dividing the rental income received
for the quarter preceding the Interest Payment Date ('IPD'), less void rates,
void service charge and void insurance, by the interest paid in the same
quarter.
4. This covenant is calculated by dividing the forecast contracted
rent for the four quarters following the period end, less forecast void rates,
void service charge and void insurance, by forecast interest paid.
5. Facility drawn as at 31 March 2024 from a total available facility
of £75.0 million.
6. Total interest rate as at 31 March 2024 comprising applicable SONIA
rate of 5.19% and the margin of 1.65% at a LTV below 60%. Should the LTV be
above 60%, the margin increases to 1.95%.
7. LTV ratio covenant of 65% for years one to three, from post
commencement on 6 June 2022, then 60% for years four and five.
Outlook
Having experienced a significant correction in values, and whilst uncertainty
persists regarding the inflation outlook and the timing of interest rate cuts,
the real estate sector should benefit from looser monetary policy going into
2025. A nascent recovery is arguably reflected in the portfolio value
remaining unchanged over the quarter to March 2024.
More positively, much of the real estate sector is now delivering an income
return and nominal rental growth above the long run average due to the
inflationary environment, a resilient occupational market and limited
development. Alongside recovering industrial values, well located,
fit-for-purpose offices and retail assets are benefiting from a gradual shift
back to the office and more consumers switching back to in-store shopping. At
the same time, there is increased demand for operational real estate assets
such as hotels, self-storage, and data centres.
The Company is well placed to benefit in this environment due to our exposure
to higher growth sectors, low-cost long-term debt, and significant potential
to drive earnings growth from active management and a higher reversionary
income profile compared with peers.
Finally, alongside these nearer-term factors, our strategy continues to
reflect the impact of longer-term structural trends such as urbanisation,
technological change, demographics and, arguably most critical for the real
estate sector, sustainability. We therefore have conviction that our
strategic evolution to place sustainability at the centre of our investment
proposition should enhance our long-term total returns.
Nick Montgomery
Fund Manager
5 June 2024
Sustainability Report
Strategic evolution and changes to the investment objective and policy
At the EGM on 15 December 2023, shareholders voted to formally include
sustainability at the centre of the Company's investment proposition, with a
sustainability improvement and decarbonisation strategy focused on adapting
existing buildings into those that are both modern and fit for purpose,
thereby taking a proactive position in response to the UK's Net Zero Carbon
objectives whilst optimising portfolio performance to seek enhanced total
returns for Shareholders.
The Investment Manager has developed a proprietary "ESG Scorecard" which will
be used to manage, measure, and monitor the ESG performance and progress of
assets in the portfolio against the Company's sustainability investment
objectives. In addition, the Company has made Net Zero Carbon commitments
which apply to the whole portfolio and complement the asset level monitoring.
The Investment Manager has also invested in new software to increase the
efficiency of collecting sustainability data which will support the ESG
Scorecard and enhance the Investment Manager's ability to analyse and report
on assets and their ESG performance, as well as achieve the Net Zero Carbon
commitments.
Progress against the new objective will be demonstrated annually by utilising
the ESG Scorecard and Net Zero Carbon performance KPIs.
Sustainability KPI 1 Sustainability KPI 2
ESG Scorecard (asset level) Net Zero Carbon commitments (portfolio level)
The Company's assets will be managed with a view to ensuring that at any given Further, the Company's assets will also continue to be managed in line with
time during the Company's ownership, at least 75% of the portfolio assets by the Company's existing 'pathway to net zero' commitments, which in summary
value are being managed with a realistic and achievable plan to reach a score include seeking to attain the following:
of at least 3 (out of a possible total score of 5), as measured on the ESG
scorecard. · operational whole buildings emissions to be aligned to a 1.5°C
global warming pathway by 2030;
· embodied emissions for all new developments and major renovations
For those 75% of the Company's assets (by value), in each case where leases to be net zero by 2030;
permit prompt commencement of works to improve their sustainability profile,
the aim will be to take the asset to an improved score of at least 3 (out of a · operational scope 1 and 2 (landlord) emissions (as defined in the
possible total score of 5) within five years from: (i) 1 April 2024 or, if Greenhouse Gas Protocol) to be net zero by 2030; and
later: (ii) the date it was acquired by the Company.
· operational and embodied whole building (scope 1, 2 and 3
(landlord and tenant)) emissions to be net zero by 2040.
ESG Scorecard
Over 75% (79%) of assets by value in the portfolio have been assessed using
the ESG Scorecard which measures sustainability performance against a broad
range of pre-defined real estate sustainability metrics. These fall within the
following four pillars:
1. Environmental;
2. Social;
3. Certification and Ratings; and
4. Tenant Profile.
Within each of these pillars, there are sub-topics against which each asset
will be assessed. For each of these sub-topics, the Investment Manager assigns
a rating from 1 (low - significant improvements needed) to 5 (high - best in
class or best industry practice). Many of the sub-topics are assessed on a
quantitative basis, with some assessed on a qualitative basis. The
justification provided against each rating will also indicate the timeline for
expected improvements, and the determination of a target score. Each sub-topic
is weighted to enable a weighted average asset level current and target score
- between 1 and 5 - to be calculated.
The 15 assets scored to date all present the potential for their scores to be
improved beyond the minimum 3 out of 5 set in the investment objective.
Improvement plans will be set in the context of each asset's business plans,
common themes and actions were identified as follows:
1. Improving metering of utility supplies: Roll out automated / smart
metering and sub-metering of landlord and tenant supplies across the
portfolio.
2. Phasing out fossil fuels: Replace inefficient and energy intensive
heating systems fuelled by fossil fuels with modern, efficient electric based
systems.
3. Improving building fabric: Improve building fabric through the
provision of better insulation and/or roof and cladding repairs to reduce the
need for space heating whilst addressing overheating and overcooling concerns.
4. Installing on-site renewable: Utilise roof space where solar PV
panels can be installed to generate electricity on site, reduce emissions and
energy bills.
The Investment Manager believes that measuring assets against its own
proprietary scorecard in this manner will support consistent standardised
portfolio-wide monitoring and enable it to define ambitious yet achievable
asset-specific targets, ultimately helping to demonstrate the Company's
ability to deliver the targeted positive change over time.
Table 1: Asset-level ESG Scorecard performance at 1 April 2024 and potential
target score (scores out of 5) for 15 Company assets representing 79% of the
property portfolio by Gross Property Value
Asset ESG scorecard score at 1 April 2024 Target ESG scorecard score
Stacey Bushes Industrial Estate 2.2 4.0
Millshaw Park Industrial Estate 2.6 4.1
Stanley Green Trading Estate 2.5 4.1
The University of Law (50%) 2.8 4.5
St John's Retail Park 2.7 4.2
City Tower (25%) 2.9 4.0
Langley Park Way 2.8 4.2
Union Park Industrial Estate 2.6 4.1
Headingley Central 2.6 4.3
Horton Park Industrial Park 2.3 3.9
St Ann's House 2.3 3.2
The Tun 2.8 4.2
The Galaxy 2.5 4.2
Churchill Way West, Salisbury 2.4 3.6
Royscot House 2.9 4.1
Clifton Park 2.5 3.9
Total portfolio 79% of portfolio assessed by Gross Property Value
Pathway to Net Zero Carbon
According to the World Green Building Council ('WGBC') buildings are
responsible for 39% of global energy related carbon emissions 14 (#_ftn14) .
In April 2022 the Intergovernmental Panel on Climate Change ('IPCC')
identified that global carbon emissions must peak by 2025 at the very latest
to effectively limit global temperature rise to 1.5(o)C, in line with the
Paris Agreement 15 (#_ftn15) .
The Board and Manager recognise that the Company has a responsibility to
embark on a journey to Net Zero Carbon ('NZC')(( 16 (#_ftn16) )) and that an
active approach to understanding and managing climate risks and opportunities
is fundamental to delivering resilient investment returns and supporting the
transition to a low carbon society.
In 2019 the Manager signed the Better Building Partnership's ('BBP') Climate
Commitment 17 (#_ftn17) and has a net zero ambition aligned to the Paris
Agreement aim to limit warming to 1.5°C. The Manager's commitment was further
underlined by the Company who in 2022 announced its 'Pathway to Net Zero
Carbon' committing to:
- Operational whole buildings emissions to be aligned to a 1.5°C
pathway by 2030;
- Embodied emissions for all new developments and major renovations to
be net zero by 2030;
- Operational Scope 1 and 2 (landlord) emissions to be net zero by
2030; and
- Operational and embodied whole building (scope 1, 2 and 3 - landlord
and tenant) emissions to be net zero by 2040.
Other commitments associated with the manager's overall NZC commitments are:
- Procure 100% renewable electricity for landlord-controlled supplies
by 2025; and
- Minimise amount of operational waste sent to landfill.
Performance against objectives from the start of the financial year
In H1 2024, forward-looking NZC pathways were developed, using the industry
adopted Carbon Risk Real Estate Monitor ('CRREM'), to present the operational
energy associated decarbonisation requirements aligned with a 'Paris Proof'
decarbonisation trajectory to pursue efforts to limit global warming to
1.5°C. During the reporting year, the Manager has been reviewing its NZC
methodology to align with most recent developments in the CRREM tool,
including the release of CRREM version 2 in 2023, and best practice accounting
at the whole building level. This has led to the creation of a new baseline
for SREIT's assets utilising calendar year 2023 data (replacing the original
baseline of 2019 data). Decarbonisation pathways have been developed for all
of assets in the fund, which have been aggregated to Fund level to create the
portfolio's targets.
Important note: Previous NZC analysis included only the portfolio's
landlord-controlled assets. This year's reported analysis includes all assets
within the portfolio. This means full repairing and insuring ('FRI') leased
assets, including industrial assets 18 (#_ftn18) , have been accounted for
and which have had an impact on the overall performance and associated energy
and GHG intensity targets of the portfolio.
The 2024 NZC analysis indicates the Company will need to implement continued
improvement initiatives to progress towards its energy and greenhouse gas
('GHG') intensity targets, requiring reductions of 44% and 52% to be achieved
respectively by 2030 (interim target) over the 2023 baseline year. Table 2
below presents details of the Company's operational energy and carbon
intensity.
The Company is working through modelling of energy conservation measures to
identify the most relevant improvement actions required to meet the Company's
2040 net zero commitment. These measures have been determined through
sustainability and NZC audits procured from external consultants. Dedicated
NZC audits are necessary to build robust pathways and a database of energy
conservation measures to inform more accurate decarbonisation pathways in
terms of energy and carbon performance, and cost. The audits scope includes
assessment of fugitive, operational and embodied carbon 19 (#_ftn19) , water
and waste emissions and suggestions of how these can be managed for the
audited assets.
Table 2: The Company's baseline performance and reduction requirements to 2030
for GHG and Energy Use Intensity.
Baseline (2023) reflecting whole building level performance for whole year at 2030 Target* % Change required to reach 2030 target 2040 target % Change required to reach 2040 target
full operation
Energy Intensity 161 90 -44% 63 -61%
(kWh/m(2))
GHG Intensity** 29 14 -52% 3 -90%
(kgCO(2)e/m(2))
* The NZC interim targets are dynamic and depend on the year-on-year assets'
performance and updates of CRREM pathways. The NZC analysis process is
continual with annual reassessment of progress against targets, with audits
providing more informed inputs to support target setting, and the actual
effect of interventions being captured.
**GHG intensity includes both fugitive emissions (i.e. emissions associated
with refrigerant gases used across assets) and carbon emissions occurring from
energy consumption within the asset (covering both landlord and tenant
areas).
Key Achievements over the financial year
Alongside the work developing and implementing the strategic evolution, good
progress has been made delivering on the pre-existing sustainability
ambitions, with key achievements during the financial year summarised below:
Progress towards Net Zero Carbon by 2040 New analysis undertaken to re-baseline portfolio against CRREM 20 (#_ftn20)
v2 and include 100% of Company assets.
5 detailed asset-level Net Zero Carbon audits commissioned.
Improved GRESB score 3-Star rating; 79 score (up from 77 in 2022); 1(st) in peer group 21
(#_ftn21) .
Maintained 'A' rating in GRESB Public Disclosure.
EPRA sBPR Awards for Sustainability Reporting Gold Award for the sixth year running 22 (#_ftn22) .
No. of sustainability audits 23 (#_ftn23) 14
Increasing no. sustainability certifications completed in reporting year +2 BREEAM New Construction 'Excellent' ratings.
(Total no. assets with sustainability certifications) (10 assets total)
Increasing no. assets with on-site renewables 6 assets with solar PV (2022: 3 assets)
Improved EPC rating and coverage performance (% by floor area) - 100% MEES compliance (2022: 100%)
- EPC coverage = 99% (2022: 97%)
- EPCs above C rating = 60% (2022: 58%)
- 12 industrial units developed to EPC 'A+' standard
(At 31 December 2023)
Investment strategy formally amended with focus on sustainability improvement,
and which is effective from 1 April 2024.
Note: All data is reported at 31 March 2024 unless otherwise stated.
The Company's wider approach to sustainability
The Board and Manager believe that focusing on sustainability, and
Environmental, Social and Governance ('ESG') considerations more generally,
throughout the real estate life cycle, will deliver enhanced long-term returns
for shareholders as well as have a positive impact on the environment and the
communities where the Company is investing. A key part of our sustainability
strategy is delivering operational excellence for occupiers as well as
demonstrating continued improvements in sustainability performance.
The Manager's real estate investment strategy, which aims to proactively
take action to improve social and environment outcomes, focuses on the
pillars of 'People, Planet and Place' which are referenced to three core UN
Sustainable Development Goals ('SDGs'): (8) Decent Work and Economic Growth;
(13) Climate Action and (11) Sustainable Cities and Communities.
Active management of sustainability performance is a key component of
responsible asset and building management. Reducing consumption, improving
operational efficiency, and delivering higher quality, more sustainable
spaces, will benefit tenants' occupational costs and may support tenant
retention and attraction, in addition to mitigating environmental impacts and
helping to future-proof the portfolio against future legislation.
Further information on the Manager's Sustainable Investment approach, and
sustainable investment policy can be found here.
This report seeks to present our approach to managing ESG considerations and
performance against our sustainability objectives. Case studies highlighting
ESG in practice are used throughout and detailed ESG performance data are
presented with the EPRA sBPR aligned Sustainability Performance Measures
sections from page 113.
Protecting our planet (environmental)
The Board and Manager considers the relationship between its real estate
investments and the environment to be of strategic importance to the Company.
By addressing risks related to the transition to a low-carbon economy such as
compliance with current and future legislation and meeting market demands, and
by embracing sustainable practices, such as energy-efficient building design,
renewable energy integration, and climate resilience measures, we believe
there is an opportunity to enhance property value, attract tenants, and reduce
operational expenses.
As part of our commitment to achieving Net Zero Carbon (NZC) by 2040, over the
reporting year we have implemented improvements such as replacing and
upgrading Heating, Ventilation, and Air-Conditioning (HVAC) systems, upgrading
lighting systems with low energy fittings and enhanced controls, and completed
thermally efficient industrial units, which generate clean energy through
on-site roof mounted solar photovoltaic (PV) systems. These measures have not
only led to improvements in our Energy Performance Certificates (EPCs),
contributing to the delivery of EPC 'A+' schemes at Stanley Green and 19
Hollin Lane, Stacey Bushes, but also the resilience of our strategy in the
face of climate-related risks.
Risks and opportunities are also present in the interface between the built
environment and nature. Nature provides essential ecosystem services, such as
clean air, water, and climate regulation, which are fundamental to the
well-being of communities and the functionality of built environments.
Activity during the reporting year includes the commissioning of specialist
ecological surveys, such as at Clifton Park, York, allowing the Manager to
build out its understanding of the Company's relationship with nature,
identifying how it may support local nature at an asset level including
through the protection and provision of habitats which support nature such as
wildflower planting for pollinators, and log piles for insects.
Performance against objectives from the start of the financial year
Goal FY24 outcome
Environmental Net Zero Carbon (Scopes 1, 2 and 3) by 2040 New analysis undertaken to re-baseline portfolio against CRREM v2 and now
including 100% of Company assets.
5 detailed asset-level Net Zero Carbon audits commissioned.
Annual reduction in landlord energy consumption and associated scope 1 and 2 - Energy = 1.5% increase*
greenhouse gas (GHG) emissions on a like-for-like basis
- GHG emissions = 8% increase
(Calendar Year 23 vs. Calendar Year 22)
Increase use of on-site renewable energy and source 100% of landlord - 6 assets with solar PV (2022: 3 assets)
electricity through renewable tariffs by 2025
- 80% of the Company's landlord procured electricity was on a
renewable tariff (2022: 74%)
Annual reduction in landlord like-for-like water consumption 19% increase
(Calendar Year 23 vs. Calendar Year 22)
Send zero landlord waste to landfill and prioritise waste recycling - Zero waste directly to landfill.
- 56% of waste was recycled and 44% was incinerated with energy
recovery.
Maintain 100% MEES 24 (#_ftn24) compliance and improve proportion of assets - EPC coverage = 99%* (2022: 97%)
with EPC ratings 'B' or above (floor area)
- EPCs above C rating = 58% (2022: 58%)
- EPCs above B rating = 21% (2022: 18%)
- 12 industrial units developed to EPC 'A+' standard.
* Remaining footprint without EPCs relates to assets where improvement works
have been scheduled and EPCs will be procured on completion of these works.
Please note that the Company remains compliant with MEES regulations.
(At 31 December 2023)
Assess physical climate risk profiles for all assets and develop resilience Physical climate risk profile maintained for all assets using third-party
strategies where material risks identified database. The Manager will begin to develop climate resilience strategies for
higher risk assets during the course of the next reporting year.
Improve biodiversity opportunities across the portfolio 16 assets where biodiversity opportunities have been completed (including
installation of bird boxes, bee hives or bug hotels)
Ecological Survey completed for one asset by qualified ecologist.
Note: All data is reported at 31 March 2024 unless otherwise stated.
Supporting people and places (Social)
The importance of understanding real estate investment's positive and negative
social impacts has increased over the last decade. There is a growing
expectation from investors, building occupiers, governments, regulators, and
the general public that built assets should not only mitigate disruption and
negative externalities but also proactively maximise their positive impacts on
people and places alike. Particularly in the UK, there is a variety of
regulatory drivers, such as Social Value Assessments which are now required by
many local authorities thus making social value a formal consideration in
planning applications.
We now spend up to 90% of our time indoors 25 (#_ftn25) , so the spaces we
create and manage significantly influence our physical and mental well-being.
Additionally, our immediate locale and the interactions within it affect the
jobs we can access, the goods and services we make use of, our health and
well-being, and our social capital and connections 26 (#_ftn26)
We recognise that most buildings are not isolated but stand as part of their
local communities. Improving opportunities for interacting with local
communities helps create successful places that foster community
relationships, contribute to local prosperity, and attract building users 27
(#_ftn27) . Understanding and responding to the needs of building occupiers
and local communities where possible aids us in creating vibrant and inclusive
places which ultimately helps deliver making better, more resilient
investments in the long run.
All site teams are encouraged to engage with local communities where this is
appropriate to the asset. Examples of community initiatives undertaken in the
reporting period include permitting the local model railway society to use
part vacant space and supporting local and national charities such as
'KidsOut' children's Christmas appeal, and 'Let's Can Hunger' foodbank appeal.
At Headingley Central, a monthly makers market is held, providing a platform
for local craftspeople and businesses.
Performance against objectives from the start of the financial year
Goal FY24 outcome
Ensure the health, safety and wellbeing of building occupiers and users 100% of managed assets where Health and safety assessments were completed
(At 31 December 2023)
Social Improve proportion of assets where occupier engagement activities are 100% of Company assets. Initiatives including an occupier sustainability
implemented newsletter.
(At 31 December 2023)
Improve proportion of assets where community engagement activities are 43% of Company assets. Initiatives including support for local charity groups
implemented and a "makers market" for local craftspeople.
(At 31 December 2023)
Improve availability of low carbon transport (active transport facilities; EV Active transport infrastructure in place for 21 assets.
charging etc.) facilities
Support provision of electric vehicle charging for 14 assets.
Note: All data is reported at 31 March 2024 unless otherwise stated.
Responsible business (Governance)
The Manager operates an Environmental Management System ('EMS',) aligned to
ISO 14001, for the asset management of direct real estate investments in the
UK and across Europe. This provides the framework for how sustainability
principles are managed throughout all stages of its investment process and the
Manager has developed a collection of proprietary tools to support the
delivery at both asset and portfolio level including an ESG Scorecard for
consistent assessment of asset sustainability performance, Impact and
Sustainability Action Plans for continually improving standing investments, a
Sustainable Development Brief for projects, and Property Manager
Sustainability Requirements for use in contractual Property Manager
Agreements.
The Manager continues to work towards enhancing its understanding of portfolio
and asset sustainability credentials, having completed ESG Scorecards for 79%
of the portfolio by Gross Property Value. Performance against the ESG
Scorecard is a formal commitment of the Company's investment objective with
effect from 1 April 2024 alongside its commitment to Net Zero Carbon.
Performance against objectives from the start of the financial year
Goal FY24 outcome
Governance Improve Global Real Estate Sustainability Benchmark ('GRESB') rating - 1st in peer group
- 3-star status
- Improved score to 79 (2022: 77)
Maintained 'A' rating in GRESB Public Disclosure
Increase coverage of sustainability audits across portfolio ESG Scorecards completed for 79% of the portfolio by Gross Property Value
15 asset level ESG Scorecards completed (14 third-party audits; 1 internally
completed) (2022: 10 audits)
Improve coverage and quality of sustainability certifications (e.g. BREEAM) 10 assets with sustainability certifications*
across portfolio
(+2 BREEAM New Construction certificates for new industrial units at Stanley
Green and Stacey Bushes (both rated 'Excellent'))
(At 31 December 2023)
Maintain EPRA Gold Award for Sustainability Reporting Gold Award for the sixth year running
Sustainability Linked Loan tied to RCF agreed with RBS Agreed in 2023
Note: All data is reported at 31 March 2024 unless otherwise stated.
Sustainability-linked loan performance
Underlying its commitment to the sustainability performance of the Company,
the Manager and Board have established a Sustainability-linked Loan ('SLL')
tied to its revolving credit facility ('RCF'). A key element to the updated
agreement with RBSI is the selection of three key performance indicators which
will be used to assess the Company's performance and determine the margin rate
applied to the loan. The KPIs are:
- KPI 1 refers to the like-for-like annual energy performance under
landlord control;
- KPI 2 refers to the EPC and green building certificate standards at
which new construction and major renovations are completed; and
- KPI 3 refers to the annual GRESB rating for the Company.
Task Force on Climate-Related Financial Disclosures
The Manager has previously provided a statement of alignment with the
principles of the Task Force on Climate-Related Financial disclosures ('TCFD')
in annual reports. However, in compliance with the requirements set out in
chapter 2 of the Environmental, Social and Governance sourcebook ('ESG
Sourcebook') of the FCA Handbook, this year the Manager will publish a
mandatory product-level disclosure consistent with TCFD by 30(th) June 2024.
This disclosure will be available on the Schroders Plc website. This will be
in addition to the Schroders Real Estate Investment Management ('SREIM')
entity-level TCFD disclosure published by 30(th) June 2024, and the Schroders
plc Climate report 2023 28 (#_ftn28) . These reports provide details on the
approach to the consideration of climate-related risks and opportunities
across Governance, Strategy, Risk management and Targets across Schroders
Group and Schroders Capital real estate.
Industry engagement
Schroders supports, and collaborates with, several industry groups,
organisations and initiatives including the United Nations Global Compact,
United Nations Principles of Responsible Investment ('UN PRI') and Net Zero
Asset Managers Initiative (of which it is a founding member). Further details
of Schroders' industry involvement is available here:
https://www.schroders.com/en/global/individual/about-us/what-we-do/sustainable-investing/our-sustainable-investment-policies-disclosures-voting-reports/industry-involvement/
and compliance with UN PRI available here:
https://www.schroders.com/en-gb/uk/institutional/what-we-do/sustainable-investing/our-sustainable-investment-policies-disclosures-voting-reports/disclosures-and-statements/the-un-principles-for-responsible-investment/.
The Manager is a member of several industry bodies including the European
Public Real Estate Association ('EPRA'), INREV ('European Association for
Investors in Non-Listed Real Estate Vehicles'), Urban Land Institute, British
Council for Offices and the British Property Federation. It has been a member
of the Better Buildings Partnership since 2017. It is a member of the Global
Real Estate Sustainability Benchmark ('GRESB') of which the Company has
participated in the annual real estate survey for the past eight years.
Slavery and Human Trafficking Statement
The Company is not required to produce a statement on slavery and human
trafficking pursuant to the Modern Slavery Act 2015 as it does not satisfy all
the relevant triggers under that Act that required such a statement.
The Manager to the Company, is part of Schroders plc and whose statement on
Slavery and Human Trafficking has been published in accordance with the Modern
Slavery Act 2015. Schroders' Slavery and Human Trafficking Statement can be
found here:
https://www.schroders.com/en/sustainability/corporate-responsibility/slavery-and-human-trafficking-statement/.
Business Model
Company's business
Schroder Real Estate Investment Trust Limited is a real estate investment
company with a premium listing on the Official List of the Financial Conduct
Authority and whose shares are traded on the premium segment of the Main
Market of the London Stock Exchange (ticker: SREI).
The Company is a Real Estate Investment Trust ('REIT') and benefits from the
various tax advantages offered by the UK REIT regime. The Company continues to
be declared as an authorised closed-ended investment scheme by the Guernsey
Financial Services Commission under section 8 of the Protection of Investors
(Bailiwick of Guernsey) Law 2020, as amended and the Authorised Closed-Ended
Investment Schemes Rules and Guidance, 2021.
Investment objective
The investment objective of the Company is to provide shareholders with an
attractive level of income and the potential for income and capital growth
from owning and actively managing a diversified portfolio of UK commercial
real estate, while achieving meaningful and measurable improvements in the
sustainability profile of the majority of the portfolio's assets (considered
against a range of objective environmental, social and governance metric).
Investment policy
The investment policy of the Company is to own a diversified portfolio of UK
commercial real estate assets which are underpinned by good fundamental
characteristics, and whose sustainability profiles can be improved while they
are owned by the Company. The Company may invest across the full range of
commercial real estate sectors.
In order to spread investment risk, the Company will seek to invest in a
portfolio that is diversified by location, sector, asset size, tenant exposure
and lease expiry, and will focus on assets where making sustainability
improvements will enhance total return.
The value of any individual asset at the date of its acquisition may not
exceed 15% of gross assets and the proportion of rental income deriving from a
single tenant may not exceed 10%.
More specifically in relation to sustainability-related activity:
· The Company will focus on sustainability improvement in the
selection and active management of real estate assets. Real estate assets will
be selected and actively managed with a view to achieving a meaningful
improvement in their sustainability profile, as measured against the
Investment Manager's scorecard of environmental, social, and governance
('ESG') metrics.
· Across the portfolio, the Company will focus on opportunities to
improve the sustainability performance of buildings which may include
improving their fabric, phasing out fossil fuel-based heating systems,
improving operational energy efficiency, and installing means of on-site
renewable energy generation such as photovoltaic panels.
· In addition to these energy and carbon efficiency-related
opportunities, wider ESG considerations will also be taken into account when
looking for ways to achieve meaningful improvement in the sustainability
profile of real estate assets, and when demonstrating that such improvement is
being achieved, including exposure to physical climate risks, access to green
space and community facilities, building certifications, and tenant profile.
· The ESG scorecard used by the Company will therefore use
objective metrics to capture the performance of assets (and the improvements
in performance during ownership by the Company) in respect of a broad range of
ESG factors.
Sustainability KPIs
· The Company's assets will be managed with a view to ensuring that
at any given time during the Company's ownership, at least 75% of the
portfolio assets by value are being managed with a realistic and achievable
plan to reach a score of at least 3 (out of a possible total score of 5), as
measured on the ESG scorecard.
· For those 75% of the Company's assets (by value), in each case
where leases permit prompt commencement of works to improve their
sustainability profile, the aim will be to take the asset to an improved score
of at least 3 (out of a possible total score of 5) within five years from: (i)
1 April 2024, or, if later: (ii) the date it was acquired by the Company.
· Further, the Company's assets will also continue to be managed in
line with the Company's existing 'pathway to net zero' commitments, which in
summary include seeking to attain the following:
o operational whole buildings emissions to be aligned to a 1.5°C global
warming pathway by 2030;
o embodied emissions for all new developments and major renovations to be
net zero by 2030;
o operational scope 1 and 2 (landlord) emissions (as defined in the
Greenhouse Gas Protocol) to be net zero by 2030; and
o operational and embodied whole building (scope 1, 2, and 3 (landlord and
tenant)) emissions to be net zero by 2040.
Investment strategy
The Company's strategy is focused on delivering sustainable dividend growth by
improving the quality of its underlying portfolio through a disciplined,
research-led approach to transactions and active asset management, focused on
delivering sustainability improvements and operational excellence. This
activity is complemented by maintaining a robust balance sheet and efficient
management of costs.
The Company aims to own a diversified portfolio of properties delivering an
above average income return and benefitting from structural changes driving
income and capital growth such as urbanisation, innovation in technology and
changing demographics. These properties may benefit from favourable supply and
demand characteristics and by improving their environmental performance, the
Company can capture the rental and valuation premium that buildings with
genuine green credentials can command, sometimes called the 'Green Premium'.
The Board
The Board of Directors is responsible for the overall stewardship of the
Company, including investment and dividend policies, corporate strategy,
gearing, corporate governance and risk management.
The Company has no executive directors or employees.
Operations
The Board has delegated investment management and accounting services to the
Investment Manager with the aim of delivering the Company's investment
objective and strategy. Details of the Investment Manager's investment
approach, along with other factors that have affected performance during the
year, are set out in the Investment Manager's Report.
Diversification and asset allocation
The Board believes that in order to maximise the stability of the Group's
income, the optimal strategy for the Group is to invest in a portfolio of
assets diversified by location, sector, asset size and tenant exposure with
low vacancy rates and creditworthy tenants. The value of any individual asset
at the date of its acquisition may not exceed 15% of gross assets and the
proportion of rental income deriving from a single tenant may not exceed 10%.
The Company's portfolio will be invested and managed in accordance with the
Listing Rules of the Financial Conduct Authority ('Listing Rules' and 'FCA'
respectively), taking into account the Company's investment objectives,
policies and restrictions.
Borrowings
The Company's Articles limit borrowings to 65% of the Group's gross assets,
calculated as at the time of borrowing.
The Board has established a gearing guideline for the Investment Manager,
which seeks to limit Group on-balance-sheet debt, net of cash, of between 25%
and 35% of Group portfolio value while recognising that this gearing may be
exceeded in the short term from time to time. For these purposes, 'Group'
refers to the Company along with its subsidiaries at any given time. The term
'Group portfolio value' signifies the fair market value of the Group's
property portfolio as appraised by the Company's independent valuer. It's
important to note that this valuation excludes the worth of other
on-balance-sheet assets owned by the Group.
The Board actively monitors this guideline and possesses the authority to
instruct the Investment Manager to adjust the management of the Group's
assets. The objective here is to ensure that borrowings are maintained within
a defined acceptable range. However, this directive takes into consideration
the best interests of the shareholders. As a result, immediate action to
correct deviations from this guideline may not be mandatory if such actions
could negatively impact shareholder interests.
Interest rate exposure
It is the Board's policy to minimise interest rate risk, to the extent
commercially appropriate, either by ensuring that borrowings are on a
fixed-rate basis, or through the use of interest rate swaps/derivatives used
solely for hedging purposes.
Investment restrictions
As the Company is a closed-ended investment fund for the purposes of the
Listing Rules, the Group will adhere to the Listing Rules applicable to
closed-ended investment funds. The Company and, where relevant, its
subsidiaries will observe the following restrictions applicable to
closed-ended investment funds in compliance with the current Listing Rules:
- neither the Company, nor any subsidiary, will conduct a trading
activity which is significant in the context of the Group as a whole;
- the Group will not invest in other listed investment companies; and
- where amendments are made to the Listing Rules, the restrictions
applying to the Company will be amended so as to reflect the new Listing Rules
In addition, the Board will ensure compliance with the UK REIT regime
requirements.
Performance
The Board uses principal financial Key Performance Indicators ('KPIs') to
monitor and assess the performance of the Company. These are the net asset
value ('NAV') total return, the performance of the Company's underlying
property portfolio relative to its MSCI Benchmark Index and the share price:
1. NAV total return
For the year to 31 March 2024 the Company delivered a NAV total return of 1.1%
(-15.1% for the year to 31 March 2023).
2. Underlying property portfolio performance relative to peer group
Benchmark
The performance of the Company's property portfolio is measured against a
specific Benchmark defined as the MSCI (formerly Investment Property Databank)
UK Balanced Portfolios Quarterly Property Index (the 'Benchmark'). As at 31
March 2024 the Benchmark comprised 152 member funds.
Underlying property portfolio performance
Total return for 12 months to 31 March 2024 Total return for 12 months to 31 March 2023
SREIT (%) MSCI Benchmark (%) SREIT (%) MSCI Benchmark (%)
3.2% -1.3% -7.9% -13.5%
The analysis above has been prepared by MSCI and takes account of all direct
property-related transaction costs.
3. Share price performance
The Board monitors the level of the share price compared to the NAV. As at 31
March 2024, the share price of 41.9p was at a 28.7% discount to the NAV of
58.8 pps. Where appropriate on investment grounds, the Company may from time
to time repurchase its own shares, but the Board recognises that movements in
the share price premium or discount are driven by numerous factors, including
investment performance, gearing and market sentiment. Accordingly, we focus
our efforts principally on addressing the sources of risk and return as the
most effective way of producing long-term value for shareholders.
Our stakeholders
Section 172 statement
Although the Company is registered in Guernsey, in accordance with the
guidance set out in the AIC code a Section 172 statement is required. Section
172 of the UK Companies Act 2006 requires a director of a company to act in
the way he or she considers, in good faith, would be most likely to promote
the success of the company for the benefit of its members as a whole. In doing
this, section 172 requires a director to have regard, among other matters, to:
the likely consequences of any decision in the long term; the interests of the
company's employees; the need to foster the company's business relationships
with suppliers, customers and others; the impact of the company's operations
on the community and the environment; the desirability of the company
maintaining a reputation for high standards of business conduct; and the need
to act fairly with members of the company. The Directors give careful
consideration to the factors set out above in discharging their duties under
section 172.
The Board is focused on ensuring that the Company delivers on its strategic
objectives, while taking into account the impact on its stakeholders as a
whole. It is our firm belief that prioritising positive stakeholder
relationships is central to delivering long-term, sustainable returns. The
Board is focused on ensuring that it understands its stakeholders' needs.
Shareholders
The Board is committed to maintaining high standards of corporate governance
in order to protect shareholder interests. The Investment Manager undertakes
an active investor relations schedule in London and the regions throughout the
year, which includes one-on-one and group meetings with shareholders as well
as regular presentations to the sell-side analyst community. Shareholder
feedback is encouraged either through the broker or directly to the Investment
Manager or Board.
Occupiers
The Company has a diverse range of tenants occupying space across the
portfolio. This includes a wide range of businesses who operate out of our
office or industrial space and the retailers and shoppers who work at or visit
our retail and leisure properties. Active and constant engagement with these
groups, either directly through site visits or through property managers or
agents, is required to gather intelligence as to what is important to them.
Understanding changing needs, both at an individual company level, as well as
on a sectoral and broader economic level, is a key tenet informing both our
individual asset management investment decisions as well as the longer-term
strategic direction of the Company.
Communities
Our assets are located across the UK in a range of urban environments. The
buildings and their occupiers are part of the fabric of local communities. The
Company works hard to ensure that it is engaging with local communities,
councils and individuals and that our asset strategies are sensitive to the
unique heritage of each location.
Environment
The real estate industry accounts for approximately 40% of global energy
related carbon emissions, which places a responsibility on those companies
that are direct or indirect contributors, to act in a way which would seek to
reduce carbon emissions. The Board is sensitive to the Company's role and is
committed to continually improving and protecting the environment by using
resources such as energy, water and materials in a sustainable manner for the
prevention of greenhouse gas emissions and climate change mitigation.
Environmental, Social and Governance ('ESG') considerations are integrated
into the Company's investment processes and each individual asset benefits
from specific ESG-related objectives. The Board reviews its approach to
managing ESG considerations and believes that this is integral in delivering
better long-term returns for our investors and for safeguarding the future of
the environment that we live and work in.
Service providers
As an externally managed real estate investment trust, the Board is reliant on
a range of service providers who have a direct working or contractual
relationship or share a mutual interest with the Company. This includes, but
is not limited to, Schroders as Investment Manager and Company Secretary,
Property Managers, the Administrator, Depositary, Auditor, Tax advisors,
Solicitors, Property Valuers and Banks. The Board has appointed the Management
Engagement Committee to regularly review these relationships as part of its
commitment to transparency and corporate best practice.
Lenders
Borrowing allows the Company's shareholders to increase exposure to assets
consistent with the strategy and generate enhanced returns at a low cost.
These lenders have a financial interest in the success of the Company.
Decision-making
The Board makes decisions on, among other things, the principal matters set
out under the paragraph above headed 'Role of the Board' on page 52.
Risk and Uncertainties
The Board is responsible for the Company's system of risk management and
internal control and for reviewing its effectiveness. The Board has carried
out a robust assessment of the principal risks and emerging risks facing the
Company including those that would threaten its business model, future
performance, solvency or liquidity. A framework of internal controls has been
designed and established to monitor and manage those risks. This internal
control framework provides a system to enable the Directors to mitigate these
risks as far as possible, which assists in determining the nature and extent
of the significant risks the Board is willing to take in achieving its
strategic objectives. Emerging risks are monitored as part of this assessment.
The Board notes that it has a robust framework of internal controls in place
this can provide only reasonable, and not absolute, assurance against material
financial misstatement or loss and is designed to manage, not eliminate, risk.
During the year, there were no changes to the principal risks identified by
the Board, or the likelihood or impact of such risks occurring.
A summary of the principal risks and uncertainties faced by the Company, and
actions taken by the Board to manage and mitigate these risks and
uncertainties, are set out below:
Key risks Mitigation of risk
Investment and strategy
An inappropriate investment strategy, or failure to implement the strategy, The Board seeks to mitigate these risks by:
could lead to underperformance in the property portfolio compared to the
property market generally by incorrect sector or geographic weightings or a - Diversification of its property portfolio through its investment
loss of income through tenant failure, both of which could lead to a fall in restrictions and guidelines which are monitored and reported on by the
the value of the underlying portfolio. Investment Manager.
- Receiving from the Investment Manager timely and accurate management
information including performance data, attribution analysis, property-level
business plans and financial projections.
- Monitoring the implementation and results of the investment process with the
Investment Manager with a separate meeting devoted to strategy each year.
- Determining a borrowing policy and the Investment Manager operates within
borrowing restrictions and guidelines.
Economic and property market
The performance of the Company could be affected by economic and property The Board considers economic conditions and the uncertainty around political
market risk. In the wider economy this could include inflation, stagflation or (including geopolitical) events when making investment decisions. The Board
deflation, economic recessions, movements in interest rates, political mitigates property market risk through the review of the Group's strategy on a
changes, the war in Ukraine and the Middle East, or other external shocks, regular basis and discussions are held to ensure the strategy is still
such as a wider conflagration or pandemic. The performance of the underlying appropriate or if it needs updating. The Board and Investment Manager review
property portfolio could also be affected by structural or cyclical factors the progress of implementing the strategy on a regular basis and provides the
impacting particular sectors or regions of the property market. market with clear communications.
Sustainability
Sustainability considerations, including transition risks and physical risks The Manager's Investment Committee has a continued focus on sustainability to
(as defined by the Task Force on Climate-related Financial Disclosures help ensure appropriate approvals are made.
('TCFD')), are not fully considered or properly understood in the acquisition
and asset-planning processes leading to future issues (negative effect on Impact and Sustainability Action Plans identify asset improvement requirements
price, valuation or saleability of assets, future costs to remediate, meeting in context of the investment strategy.
the requirements of initiatives such as Net Zero Carbon/Climate Risk/ BREEAM
/EPC profile/GRESB). The Board regularly reviews the objectives and progress of the Sustainability
programme.
The Investment Manager to the Company works alongside third-party Property
Managers, and commercial real estate ESG data intelligence platform providers,
Deepki, to provide, collate and report key sustainability data which is then
reported to the Manager, Board and investors. Furthermore, the Board is
provided with an assurance letter on an annual basis from S&P Global with
regard to the underlying work that it has conducted on behalf of the Company.
Valuation/liquidity
Property valuations are inherently subjective and uncertain. This uncertainty An external reputable valuer provides an independent quarterly valuation of
is heightened by geopolitical and macroeconomic factors such as high inflation all the property assets, including those held in joint ventures, which are
and increasing interest rates. reviewed at the quarterly Board meetings.
The valuation process is reviewed by the Audit Committee every year and
members of the Audit Committee directly meet with the valuers on at least an
annual basis.
The Company's external valuer is provided with copies of all transactions and
lease events by the Company's lawyers and quarterly updates by Asset Managers
to ensure that information used to value the portfolio is complete, accurate
and up-to-date. The Company follows RICS best practice regarding valuer
rotation.
Gearing/leverage
The Company utilises credit facilities to increase the funds available for Gearing, and compliance with covenants, is monitored at each Board meeting
investment. While this has the potential to enhance investment returns in against restrictions set internally and by lenders and is regularly announced
rising markets, in falling markets the impact may be detrimental to to the market.
performance, and may also result in potential non-compliance with loan
covenants.
Service provider
The Company has no employees and has delegated its operations to third party Service providers are subject to regular reviews by both the Investment
service providers. Failure of controls and/or the poor performance of any Manager and the Management Engagement Committee against clearly documented
service provider could lead to disruption, reputational damage, or loss. contractual arrangements detailing service expectations, including
confirmation of business continuity and cyber security arrangements.
Regulatory compliance
The Company must comply with a wide range of legislation and regulations, The Board has appointed the Investment Manager as its Alternative Investment
covering planning, health and safety, environmental regulations, company law, Fund Manager ('AIFM') in accordance with the Alternative Investment Fund
accounting, reporting, tax and listing rules. Managers Directive ('AIFMD').
The Company Secretary monitors legal and other regulatory requirements to
ensure that adequate procedures and reminders are in place to meet the
Company's legal requirements and obligations. The Investment Manager
undertakes full legal due diligence with advisors when transacting and
managing the Company's assets. All contracts entered into by the Company are
reviewed by the Company's legal and other advisors.
The Board is satisfied that the Investment Manager and local Administrator
have adequate procedures in place to ensure continued compliance with the
regulatory requirements of the Financial Conduct Authority and the Guernsey
Financial Services Commission, the Listing Rules of the London Stock Exchange,
and the UK REIT regulations to maintain the Company's REIT status for tax
purposes.
Risk assessment and internal controls
Risk assessment includes consideration of the scope and quality of the systems
of internal control operating within key service providers, and ensures
regular communication of the results of monitoring by such providers to the
Audit Committee, including the incidence of significant control failings or
weaknesses that have been identified at any time and the extent to which they
have resulted in unforeseen outcomes or contingencies that may have a material
impact on the Company's performance or condition.
No significant control failings or weaknesses were identified from the Audit
Committee's ongoing risk assessment which has been in place throughout the
financial year and up to the date of this report. The Board is satisfied that
it has undertaken a detailed review of the risks facing the Company.
A full analysis of the financial risks facing the Company and its subsidiaries
is set out in note 18 on pages 97 to 100.
Viability statement
The Board is required to give a statement on the Company's viability which
considers the Company's current position and principal risks and uncertainties
together with an assessment of future prospects.
The Board conducted this review over a five-year time horizon commencing from
the date of this report which is selected to match the period over which the
Board monitors and reviews its financial performance and forecasting. The
Investment Manager prepares five-year total return forecasts for the
commercial real estate market. The Investment Manager uses these forecasts as
part of analysing acquisition opportunities as well as for its annual asset
level business planning process.
The Board receives an overview of the asset level business plans which the
Investment Manager uses to assess the performance of the underlying portfolio
and therefore make investment decisions such as disposals and investing
capital expenditure.
The Company's principal borrowings with Canada Life are for a weighted
duration of 12.0 years and the average unexpired lease term, assuming all
tenants vacate at the earliest opportunity, is 4.9 years. The Company's
revolving credit facility with RBSI expires in June 2027.
The Board's assessment of viability considers the principal risks and
uncertainties faced by the Company, as detailed in the Strategic Review on
pages 42 to 44, which could negatively impact its ability to deliver the
investment objective, strategy, liquidity and solvency. This includes
consideration of scenario stress testing and a cash flow model prepared by the
Investment Manager that analyses the sustainability of the Company's cash
flows, dividend cover, compliance with bank covenants, general liquidity
requirements and potential legal and regulatory changes for a five-year
period.
These metrics are subject to a sensitivity analysis which involves flexing a
number of the main assumptions including macroeconomic scenarios, delivery of
specific asset management initiatives, rental growth and void/reletting
assumptions. The Board also reviews assumptions regarding capital recycling
and the Company's ability to refinance or extend financing facilities.
Steps which are taken to mitigate these risks as set out in the Strategic
Review on pages 42 to 44 are also taken into account. Based on the assessment,
the directors have concluded that there is a reasonable expectation that the
Company will be able to continue in operation and meet its liabilities as they
fall due over the five-year period of their assessment.
Going concern
The Directors have examined significant areas of possible financial risk
including liquidity (with a view to both cash held and undrawn debt
facilities); the rates of both rent and service charge collections from
tenants; have considered potential falls in property valuations; have reviewed
cash flow forecasts; have analysed forward-looking compliance with third party
debt covenants and in particular the Loan to Value covenant and interest cover
ratios; and have considered the Group's ongoing tax compliance with the REIT
regime.
Overall, after utilising available cash, excluding the cash undrawn against
the RBSI facility and uncharged properties and units in Joint Ventures, and
based on the reporting period to 31 March 2024, property valuations would have
to fall by 25% before the relevant Canada Life Loan to Value covenants were
breached, and actual net rental income would need to fall by 63% before
the interest cover covenants were breached.
Furthermore, the properties charged to RBSI could fall in value by 54%, prior
to the 65% LTV covenant being breached, and based on projected net rents for
the quarter to March 2024, a 13% fall in net income could be sustained prior
to the RBSI projected interest loan cover covenant of 200% being breached.
As at the financial year end, the undrawn capacity of the £75.0m RBSI
facility was £28.0 million. This facility is an efficient and flexible source
of funding due to its ability to be repaid and redrawn as often as required
and matures in June 2027.
Regarding the Canada Life loan of £129.6m, fifty per cent matures in 2032 and
fifty per cent matures in 2039 respectively.
The Board and Investment Manager also continue to closely monitor the ongoing
changing macroeconomic and geopolitical environments on the Group.
The Board and Investment Manager have considered the impact of sustainability
risk as a principal risk as set out on page 43. In line with IFRS, investment
properties are valued at fair value based on open market valuations as
described in Note 10. The assessment of the open market valuation includes
consideration of environmental matters and the condition of each property. The
investment properties continue to be monitored by the Investment Manager and
key considerations include EPC ratings and their impact on the properties'
forecast compliance with the Minimum Energy Efficiency Standard regulations.
Having assessed the impact of climate change on the Group, the directors
concluded that it is not expected to have a significant impact on the Group's
going concern or viability assessment as described on pages 44 to 46.
The Directors have not identified any matters which would cast significant
doubt on the Group's ability to continue as a going concern for the period to
30 June 2025 and have satisfied themselves that the Group has adequate
resources to continue in operational existence for the period to 30 June 2025.
After due consideration, the Board believes it is appropriate to adopt the
going concern basis in preparing the financial statements.
By order of the Board
Alastair Hughes
Chair
5 June 2024
Governance Report
Board of Directors
Alastair Hughes (Chair)
Status: Independent non-executive chair and chair of the Nomination Committee
Date of appointment: 26 April 2017
Alastair has over 30 years of experience in real estate markets and currently
holds directorships with British Land PLC, Tritax Big Box, and Quad Real
Property Group. He was previously the Managing Director of Jones Lang LaSalle
(JLL) in the UK before becoming the CEO for Europe, Middle East and Africa,
and then latterly becoming the CEO for Asia Pacific. Alastair is a Chartered
Surveyor and sat on the Global Executive Board of JLL.
Current remuneration: £58,500 per annum
Material interests in any contract which is significant to the Company's
business: None
Key skills and contributions to the Board: Alastair has extensive experience
in real estate management, strategic leadership, and governance from his
previous senior executive roles. His experience as a chartered surveyor
assists with scrutiny of asset purchases and oversight of the Company's
independent valuer.
Stephen Bligh (Chair of the Audit Committee)
Status: Independent non-executive director
Date of appointment: 28 April 2015
Stephen was previously with KPMG for 34 years, specialising in the audit of
FTSE 350 companies in property and construction. He is a fellow of the
Institute of Chartered Accountants in England & Wales and was previously a
non-executive Board Member of the Department of Business, Innovation &
Skills. After nine years in his role as the Audit Committee chair, Stephen
will retire from the Board of directors, effective on 30 June 2024.
Current remuneration: £42,500 per annum
Material interests in any contract which is significant to the Company's
business: None
Key skills and contributions to the Board: Stephen's experience as a property
and construction audit partner enables him to effectively oversee the
performance of the Investment Manager's fund accounting function, and the
Company's Auditor. The Board considers Stephen to have recent and relevant
financial expertise to chair the Audit Committee.
Priscilla Davies (Senior Independent Director)
Date of appointment: 7 June 2022
Priscilla has over 25 years of financial services experience across a range of
sectors including asset management and alternative investments covering real
estate, private equity, infrastructure, and renewables. She is currently a
non-executive director and chair at UBS Asset Management UK Ltd, non-executive
director and chair of Audit and Risk Committee at Cubico Sustainable
Investments, and non-executive director at Bank of New York Mellon
(International) Limited. Priscilla previously held various senior positions at
Janus Henderson, most latterly as Managing Director of the Private Equity
business and was a non-executive director at Embark Group Limited and its
regulated subsidiaries. She is also a Chartered Accountant and a member of the
Chartered Accountants Australia and New Zealand.
Current remuneration: £42,500 per annum
Material interests in any contract which is significant to the Company's
business: None
Key skills and contributions to the Board: Priscilla brings extensive
experience as a senior executive working for asset management businesses. She
also has relevant and recent financial experience.
Alexandra Innes (Chair of the Management Engagement Committee)
Date of appointment: 16 November 2022
Alexandra's executive career spanned investment banking, global capital
markets, and investment management, most latterly as Managing Director,
Barclays plc, and prior to that as Director of Global Capital Markets at Bank
of America Merrill Lynch.
Alexandra holds non-executive roles across finance, real estate and sport,
including as a non-executive committee member at the Bank of England, and a
non-executive director at Waverton Investment Management Group Ltd and STS
Global Income and Growth Trust plc. Prior board roles include Knight Frank
LLP, Dowlais Group plc, and the All England Lawn Tennis Club (Championships)
Ltd.
Alexandra holds an M.A. Hons Economics from Cambridge University, and is a
Fellow of Chapter Zero. She is a Green and Sustainable Finance Professional,
Chartered Banking Institute (CCBI GSFP), a Chartered member of the CISI
(MCSI), and holds the CFA Institute Certificate in ESG investing.
Current remuneration: £42,500 per annum
Material interests in any contract which is significant to the Company's
business: None
Key skills and contributions to the Board: Alexandra brings experience as an
economist, and in capital markets to the Board, alongside sustainability
expertise.
Sanjay Patel
Date of appointment: 1 January 2024
Sanjay is a Chartered Accountant and is currently Chief Financial Officer and
a Board member of Cadogan Group Limited, a large private real estate
investment company. Prior to this role, Sanjay served as Group Finance
Director on the Board of Strutt & Parker LLP. Sanjay is also a Member of
the Audit and Risk Committee at London & Quadrant Housing Association.
Current remuneration: £37,000 per annum
Material interests in any contract which is significant to the Company's
business: None
Key skills and contributions to the Board: Sanjay brings substantial
experience in finance, accounting, and real estate, which enabled him to
oversee and scrutinise the Manager's fund accounting function and the
performance of the Company's Auditor. Sanjay also has recent and relevant
financial expertise to succeed Stephen as Chair of the Audit Committee.
No Director has any entitlement to pensions and the Company has not awarded
any share options or long-term performance incentives to any of them. No
element of Directors' remuneration is performance related. There were no
payments to Directors for loss of office.
No Director has a service contract with the Company. However, each of the
Directors has a letter of appointment with the Company. The Directors' letters
of appointment, which set out the terms of their appointments, are available
for inspection at the Company's registered office address during normal
business hours and will be available for inspection at the AGM.
Report of the Directors
The Directors of the Company and its subsidiaries, together the 'Group',
present the annual report and audited consolidated financial statements of the
Group for the year ended 31 March 2024 (the 'Annual Report and Consolidated
Financial Statements').
Results and dividends
The results for the year under review are set out in the attached financial
statements.
During the year the Company has declared and or paid the following interim
dividends to its shareholders in accordance with the solvency test (contained
in the Companies Law):
Dividend for quarter ended Date Paid Rate
31 March 2023 30 June 2023 0.836 pence per share
30 June 2023 25 August 2023 0.836 pence per share
30 September 2023 22 December 2023 0.836 pence per share
31 December 2023 28 March 2024 0.836 pence per share
The Directors recommend a dividend for the quarter ended 31 March 2024 of
0.853 pence per share to be paid on 28 June 2024. The dividend of 0.853 pps
will be wholly designated as an interim property income distribution ('PID').
All dividends paid during the year were allocated and paid as full Property
Income Distributions (PIDs).
Share capital
As at 31 March 2024 the Company had 565,664,749 (2023: 565,664,749) ordinary
shares in issue of which 76,554,173 ordinary shares (representing 13.2% of the
Company's total issued share capital) were held in treasury (2023:
76,554,173). The total number of voting rights of the Company was 489,110,576
at the year end (2023: 489,110,576) and this figure may be used by
shareholders as the denominator for the calculations by which they will
determine if they were required to notify their interest in, or a change in
their interest of, the Company, under the Disclosure Guidance and Transparency
Rules as at the year end.
Key services providers
The Board has adopted an outsourced business model and has appointed the
following key service providers:
Investment Manager
Schroder Real Estate Investment Management Limited is the Investment Manager
of the Company. The Board reviews the Investment Manager's performance at its
quarterly Board meetings. In addition, the Board conducted its annual
strategic review with the Investment Manager in February 2024 to consider the
portfolio strategy and the Investment Manager's capabilities in more depth.
Subsequently, the Directors formally discussed the performance and ongoing
suitability of the Investment Manager at an annual meeting of the Management
Engagement Committee.
On the basis of this review, the Board remains satisfied that the Investment
Manager has the appropriate capabilities required to support the Company and
believes that the continuing appointment of the Investment Manager under the
terms of the current investment management agreement, the details of which are
set out below, is in the interest of shareholders.
The Investment Manager received a fee of 0.9% of the Company's NAV up to but
not including £500 million; 0.8% on the Company's NAV between £500 million
up to and including £1 billion; and 0.7% on the Company's NAV over £1
billion. The fee is payable monthly in arrears. Whilst there is no performance
fee, with effect from the financial year ending 31 March 2025, there is a
potential increase/decrease of management fees payable to the Investment
Manager equal to five basis points of Net Asset Value per annum dependent on
both (i) delivering the sustainability KPI targets in the revised investment
policy to the Board's satisfaction, and (ii) the delivery of an income return
ahead of the MSCI Benchmark, because the new strategy is designed to deliver
more sustainable long-term income.
In recognition of the work undertaken by the Investment manager in the design
and implementation of the formalisation of the sustainability objectives
within the amended investment objective, policy, and strategy, the Company or
the Investment manager may terminate the agreement on not less than twelve
months' notice, such notice not to expire prior to the second anniversary of
the passing of the resolution to adopt the new investment objective and policy
of the Company at the Extraordinary General Meeting on 15 December 2023.
The Company has appointed the Investment Manager as its AIFM under the AIFM
Directive. There is no additional fee paid to the Investment Manager for this
service.
Administration
Schroder Investment Management Limited, an affiliate of the AIFM, is Company
Secretary to the Company for which it is paid a fee of £50,000 per annum.
Langham Hall (Guernsey) Limited was appointed as the Company Secretary to the
Group's subsidiaries, and as Designated Manager, for a fee of £64,000 per
annum and Langham Hall UK Depositary LLP is the Company's depositary for a fee
of £52,000 per annum.
Anti-bribery policy
The Company continues to be committed to carrying out its business fairly,
honestly and openly. Appropriate policies are considered to be in place to
ensure compliance with the UK Bribery Act 2010.
Directors
The Directors of the Company, together with their beneficial interests in the
Company's ordinary share capital as at the date of this report, are given
below:
Director Number of ordinary shares Percentage (%)
Alastair Hughes 190,579 Less than 0.1
Stephen Bligh 165,000 Less than 0.1
Priscilla Davies Nil Nil
Alexandra Innes Nil Nil
Sanjay Patel Nil Nil
Substantial shareholdings
The Company has received notifications in accordance with the Financial
Conduct Authority's ('FCA') Disclosure Guidance and Transparency Rule 5.1.2R
of the below interests in 5% or more of the voting rights attaching to the
Company's issued share capital as at 31 March 2024. The Company is reliant on
investors to comply with these regulations, and certain investors may be
exempted from providing these. As such, this should not be relied on as an
exhaustive list of shareholders holding above 5% of the Company's voting
rights.
Notifier Number of ordinary shares Percentage (%)
Rathbones Investment Management Ltd 78,184,021 16.0
Schroders PLC 67,842,383 13.8
Premier Fund Managers Limited 41,680,575 8.0
Embark Investment Services (UK) 34,207,624 7.0
Witan Investment Trust plc 32,250,000 6.2
Independent Auditors
Resolutions to reappoint Ernst & Young LLP, and to give the Directors
authority to determine the Auditors' remuneration for the coming year, will be
put to shareholders at the Annual General Meeting ('AGM') of the Company.
The Audit Committee's evaluation of the Auditors is described in the Audit
Committee Report on page 59.
Disclosure of information to Auditors
The directors who held office at the date of approval of this directors'
Report confirm that, as far as they are each aware, there is no relevant audit
information of which the Company's Auditors are unaware and each Director has
taken all the steps that they ought to have taken as a Director to make
themselves aware of any relevant audit information and to establish that the
Company's Auditors are aware of that information.
Status for taxation
The Director of the Revenue Service in Guernsey has granted the Company
exemption from Guernsey income tax under the Income Tax (Exempt Bodies)
(Guernsey) Ordinance, 1989 and the income of the Company may be distributed or
accumulated without deduction of Guernsey Income Tax. Exemption under the
above-mentioned Ordinance entails the payment by the Company of an annual fee
of £1,600.
The Group continues to pay no corporation or income tax because it has tax
exempt status in the UK as a UK Real Estate Investment Trust ('REIT'). The
Group has been a UK REIT since 2015 and the Group's property income and gains
are exempt from UK corporate taxes provided a number of conditions in relation
to the Group's activities are met including, but not limited to, distributing
at least 90% of the Group's UK tax exempt profit as property income
distributions ('PIDs'). As far as the directors are aware, the Group remains
in full compliance with the REIT requirements.
Shareholders who are in any doubt concerning the taxation implications of a
REIT should consult their own tax advisors.
Key information document
A Key Information Document ('KID') for the Company is published on at least an
annual basis, in accordance with the Packaged Retail and Insurance-Based
Investment Products Regulation ('PRIIPs'), and made available on the Company's
website. The calculation of figures and performance scenarios contained in the
KID are prescribed by PRIIPS and have neither been set nor endorsed by the
Board. In fact, the Board is of the opinion that PRIIPS has been
inconsistently applied by market participants and hence creates confusion
amongst investors.
AIFMD remuneration disclosures for Schroder Real Estate Investment Management
Limited ('SREIM') for the year to 31 December 2023
Quantitative remuneration disclosures to be made in this Annual Report in
accordance with FCA Handbook rule FUND 3.3.5 are published on the following
website:
https://www.schroders.com/en/global/individual/corporate-transparency/disclosures/
Corporate Governance
The Directors are committed to maintaining high standards of corporate
governance. Insofar as the Directors believe it to be appropriate and relevant
to the Company, it is their intention that the Company should comply with best
practice standards for the business carried on by the Company.
The Guernsey Financial Services Commission ('GFSC') states in the Finance
Sector Code of Corporate Governance (the 'Code') that companies which report
against the UK Corporate Governance Code or the Association of Investment
Companies Code of Corporate Governance are deemed to meet the Code, and need
take no further action.
The Board has considered the principles and recommendations of the Association
of Investment Companies Code of Corporate Governance published in February
2019 ('AIC Code'), which applies to accounting periods beginning on or after 1
January 2019. The AIC Code addresses all the principles set out in the UK
Corporate Governance Code, as well as setting out additional principles and
recommendations on issues that are of specific relevance. A copy of the AIC
Code can be found at www.theaic.co.uk.
It is the Board's intention to continue to comply with the AIC Code and we
will continue to report the Company's compliance with the principles and
recommendations of the AIC Code, which has been endorsed by the Financial
Reporting Council ('FRC').
Statement of compliance
The Company has complied with the recommendations of the AIC Code and the
relevant provisions of the UK Corporate Governance Code, except as set out
below.
The UK Corporate Governance Code includes provisions relating to:
- The role of the chief executive;
- Executive directors' remuneration;
- Internal audit function; and
- the Chair's membership of the Audit and Risk Committee.
The Board considers that these provisions are not relevant to the Company,
being an externally managed investment company. In particular, all of the
Company's day-to-day management and administrative functions are outsourced to
third parties. As a result, the Company has no executive directors, employees
or internal operations. The provision in relation to the internal audit
function is referred to in the Audit Committee report.
In line with common practice for investment companies, and considering the
composition of the Audit Committee in terms its combination of skills,
experience, and knowledge, it is considered appropriate for the Chair to be a
member of the Audit Committee.
Role of the Board
The Board has determined that its role is to consider and determine the
following principal matters which it considers are of strategic importance to
the Company:
- The overall objectives of the Company, as described under the
paragraph above headed 'Investment Policy and Strategy' and the strategy for
fulfilling those objectives within an appropriate risk framework, in light of
market conditions prevailing from time to time;
- The capital structure of the Company, including consideration of an
appropriate policy for the use of borrowings both for the Company and in any
joint ventures in which the Company may invest from time to time;
- The appointment of the Investment Manager, Administrator and other
appropriately skilled service providers and to monitor their effectiveness
through regular reports and meetings; and
- The key elements of the Company's performance including NAV growth
and the payment of dividends.
Board decisions
The Board makes decisions on, among other things, the principal matters set
out under the paragraph above headed 'Role of the Board'. Issues associated
with implementing the Company's strategy are generally considered by the Board
to be non-strategic in nature and are delegated either to the Investment
Manager or the Administrator, unless the Board considers there will be
implementation matters significant enough to be of strategic importance to the
Company and should be reserved to the Board. Generally these are defined as:
- Large property decisions affecting 10% or more of the Company's
assets;
- Large property decisions affecting 5% or more of the Company's
rental income; and
- Decisions affecting the Company's financial borrowings.
Board evaluation
Within the financial year ended 31 March 2024, the Board carried out an
internal evaluation of the Board and its Chair, which involved questionnaires
being completed by non-executive directors. It was concluded that the Board
performs well and has the relevant knowledge and experience as a whole.
The Chair is noted for his strong leadership, effective communication, and
good stakeholder management.
Non-executive directors, rotation of directors and directors' tenure
The UK Corporate Governance Code recommends that directors should be appointed
for a specified period. The Board has resolved in this instance that
directors' appointments need not comply with this requirement as all Directors
are non-executive and their respective appointments can be terminated at any
time without penalty. The Board has approved a policy that all directors will
stand for re-election annually and it is the intention that no Director will
serve for more than nine years. As noted previously, Stephen Bligh, who was
appointed in 2015, will retire from the Board of directors, effective on 30
June 2024.
The appointment and replacement of directors is governed by the Company's
Articles, the Companies Law, related legislations and the Listing Rules. The
Articles may only be amended by a special resolution of the shareholders. When
a vacancy arises the Board selects the best candidate taking into account the
skills and experience required, while taking into consideration board
diversity as part of a good corporate governance culture.
Board composition and diversity
The Board currently consists of five non-executive directors. The biography of
each of these Directors is set out on pages 47 to 48 of the report. The Board
considers each of the directors to be independent. As at 31 March 2024, 40% of
the individuals on the Board of Directors were women, at least one individual
on the Board of directors was from a minority ethnic background, and at least
one of the senior positions on the Board of directors was held by a woman. The
Company has therefore met all of the relevant targets in relation to Board
diversity as set out in the Listing Rules.
The Company believes in the benefits of diversity and places importance on
broad diversity of the Board as part of its succession planning. The
Company's diversity and inclusion policy, outlined below, was applied
throughout the recruitment process for the two recent Board appointments.
The below tables set out the gender and ethnic diversity composition of the
Board as at 31 March 2024 and at the date of this report.
Number of Board members Percentage of the Board (%) Number of senior positions on the Board (Chair)
White British or other White (including minority-white groups) 4 80% 2
Mixed/Multiple Ethnic Groups - - -
Asian/Asian British 1 20% 0
Black/African/Caribbean/Black British - - -
Other ethnic group, including Arab - - -
Not specified/prefer not to say - - -
Number of Board members Percentage of the Board (%) Number of senior positions on the Board (Chair)
Men 3 60 1
Women 2 40 1
Not specified/prefer not to say - - -
Given that the Company is a real estate investment trust with no executive
board members, the columns and references regarding executive management have
not been included. The approach to collecting this data was consistent for the
purposes of reporting under Listing Rule LR 9.8.6(9) and (10), and was
consistent across all five individuals in relation to whom data is being
reported, which was that all directors confirmed that the above disclosures
were correct.
The Board has adopted a diversity and inclusion policy, which applies to both
the Board and its committees. Appointments and succession plans will always be
based on merit and objective criteria and, within this context, the Board
seeks to promote diversity (including of gender, social, ethnic, professional
and educational backgrounds, sexual orientation, cognitive and personal
strengths), inclusion and equal opportunity. The Board will encourage any
independent recruitment agencies it engages to find a range of candidates that
meet the objective criteria agreed for each appointment. Candidates for Board
vacancies are selected based on their skills and experience, which are matched
against the balance of skills and experience of the overall Board taking into
account the criteria for the role being offered.
The independence of each director is considered on a continuing basis. The
Board has determined that all the directors are independent of the Investment
Manager. The Board is satisfied that it is of sufficient size with an
appropriate balance of skills and experience, independence and knowledge of
both the Company and the wider investment company sector, to enable it to
discharge its respective duties and responsibilities effectively and that no
individual or group of individuals is, or has been, in a position to dominate
decision making. Accordingly the Board approves the nomination for re-election
of each of the directors at the forthcoming Annual General Meeting.
The Board also considers the diversity and inclusion policies of its key
service providers.
Board committees
The Board has delegated certain of its responsibilities to its Audit,
Nomination, and Management Engagement committees. Each of these committees has
formal terms of reference established by the Board which are available on the
Company's website. The Board believes that its committees have an appropriate
composition and blend of backgrounds, skills and experience to discharge their
duties effectively. Details of the work of these committees are available in
their respective reports.
As all the directors are non-executive, the Board has resolved that it is not
necessary to have a Remuneration Committee.
Board meetings and attendance
The Board meets at least four times each year. Additional meetings are also
arranged as required and regular contact between directors, the Investment
Manager and the Administrator is maintained throughout the year.
Representatives of the Investment Manager and Company Secretary attend each
Board meeting and other advisors also attend when requested to do so by the
Board.
Attendance records for the four quarterly Board meetings and committee
meetings during the year under review are set out in the table below.
Director Board Audit Committee Nomination Committee Management Engagement Committee
Alastair Hughes 4/4 3/3 2/2 1/1
Stephen Bligh 4/4 3/3 2/2 1/1
Priscilla Davies 4/4 3/3 2/2 1/1
Alexandra Innes 4/4 3/3 2/2 1/1
Sanjay Patel(20) 1/1 1/1 0/0 0/0
Number of meetings during the year 4 3 1 1
( )
In addition to its regular quarterly meetings, the Board met on three other
occasions during the year, attended by all or the majority of directors.
Information flows
All directors receive, in a timely manner, relevant management, regulatory and
financial information and are provided, on a regular basis, with key
information on the Company's policies, regulatory requirements and internal
controls. The Board receives and considers reports regularly from the
Investment Manager and other key advisors and ad hoc reports and information
are supplied to the Board as required.
Data protection and security
The Board has reviewed its systems and controls in light of the implementation
of the General Data Protection Regulation (EU Regulation 2016/679) and the
Data Protection (Bailiwick of Guernsey) Law, 2017 (the 'GDPR') in 2018 to
ensure that the Company is compliant with the requirements of the GDPR. As
part of that process the Board took steps to update its contracts and policies
accordingly and is comfortable that it meets its obligations as a controller
of personal data. The Board also requires its Investment Manager to have a
robust information security and data protection environment in place. This is
reviewed with the Investment Manager at the annual Manager's visit day. All
Board communication of a confidential nature is managed via a secure
application. The Company's privacy notice is available on its webpage.
Directors' and officers' liability insurance
During the year, the Company has maintained insurance cover for its directors
under a liability insurance policy.
Relations with shareholders
The Board believes that the maintenance of good relations with both
institutional and retail shareholders is important for the long-term prospects
of the Company. The Board receives feedback on the views of shareholders from
its corporate broker, the Investment Manager and from the Chair. Through this
process the Board seeks to monitor the views of shareholders and to ensure an
effective communication programme.
The Board believes that the Annual General Meeting, due to be held at 10.30
am. On 16 September 2024, provides an appropriate forum for investors to
communicate with the Board and it encourages participation. The Notice of the
next Annual General Meeting can be found on page 141 of this document.
Audit Committee Report
Composition
The Audit Committee is chaired by Stephen Bligh with Alastair Hughes,
Priscilla Davies, Alexandra Innes and Sanjay Patel as members. The Board
considers that Stephen Bligh's professional experience makes him suitably
qualified to chair the Audit Committee, and his continuing professional
commitments provide him with recent relevant financial experience. The Audit
Committee's terms of reference are available on the Company's webpages.
Responsibilities
The Audit Committee ensures that the Company maintains the highest standards
of integrity in financial reporting and internal control. This includes
responsibility for reviewing the half-year and annual financial statements
before their submission to the Board. In addition, the Audit Committee is
specifically charged under its terms of reference to advise the Board, inter
alia, on the terms and scope of the appointment of the Auditors, including
their remuneration, independence, objectivity and reviewing with the Auditors
the results and effectiveness of the audit.
Work of the Audit Committee
The Audit Committee meets no less than twice a year. If required, meetings are
also attended by the Investment Manager and the Auditor. During the year under
review, the Audit Committee met on three occasions to consider:
- The contents of the interim and annual financial statements and to
consider whether, taken as a whole, they were fair, balanced and
understandable and provided the information necessary for shareholders to
assess the Company's performance, business model and strategy;
- The effectiveness of the Company's system of internal control;
- The management representation letters to the Auditors;
- The external Auditor's terms of engagement, audit plan, and year-end
report;
- The independence, effectiveness and objectivity of the external
Auditor;
- The independence of the Company's Valuers;
- The risk assessment of the Company; and
- Compliance with the UK REIT regime.
In the coming financial year the Audit Committee's work will also include a
review of the reporting methodology being developed by the Investment Manager
on progress with the brown-to-green strategy and a consideration of the level
of audit review to verify the numbers to be reported.
As noted in the Corporate Governance report, an evaluation of the committees
was completed by the Directors in March 2024 in which it was concluded that
the Audit Committee continued to function effectively and to discharge the
matters for which it is responsible under its terms of reference.
Significant matters considered by the Audit Committee in relation to the
financial statements
Matter Action
Property valuation
Property valuation is central to the business and is a significant area of The Audit Committee reviewed the outcomes of the valuation process throughout
judgement which is inherently subjective, although the valuations are the year and discussed the detail of each quarterly valuation with the
performed by an independent firm of valuers, CBRE. Investment Manager at the Board meetings.
Errors in valuation could have a material impact on the Company's net asset
value.
The Audit Committee met with CBRE to discuss the process, assumptions,
independence and communication with the Investment Manager. The Committee was
satisfied that the firm had taken a considered approach.
Market volatility
The performance of the Company could be affected by economic and property As disclosed in the Going Concern and Viability Statements on pages 44 to 46,
market risk. In the wider economy this could include inflation, stagflation or the Audit Committee has considered various stress tests and sensitivities to
deflation, economic recessions, movements in interest rates, the war in the normal cash flow forecasts, and is confident that the Company will be able
Ukraine, or other external shocks. The performance of the underlying property to continue in operation and meet its liabilities as they fall due over the
portfolio could also be affected by structural or cyclical factors impacting five year period of its assessment. The Audit Committee considers that the
particular sectors or regions of the property market. Company is a going concern.
Internal control
The UK Corporate Governance Code requires the Board to conduct, at least
annually, a review of the effectiveness of the Company's systems of internal
control and to report to shareholders that it has done so. The Audit
Committee, on behalf of the Board, also regularly reviews a detailed 'Risk
Matrix' identifying significant strategic, investment-related, operational and
service provider-related risks and ensures that risk management and all
aspects of internal control are reviewed at least annually.
The Company's system of internal controls is substantially reliant on the
Investment Manager's and the Administrator's own internal controls and
internal audit processes due to the relationships in place.
Although the Board believes that it has a robust framework of internal
controls in place, this can provide only reasonable and not absolute assurance
against material financial misstatement or loss and is designed to manage, not
eliminate, risk. No significant issues were identified from the internal
controls review.
Property Accounting outsourcing to CBRE
The Investment Manager is responsible for maintaining the Company's accounting
records. Effective 11 March 2024, the Investment Manager entered an
outsourcing agreement with CBRE Global Investment Administration (UK) Limited,
a subsidiary of CBRE, whereby CBRE Global Investment Administration (UK)
Limited will maintain the Company's accounting records and produce both the
Company's management accounts and statutory financial statements, although the
responsibility for these will remain with the Investment Manager, who is also
responsible for monitoring the services provided by CBRE Global Investment
Administration (UK) Limited. Many of the accounting staff who maintained the
Company's accounting records and prepared its financial statements transferred
to CBRE Global Investment Administration (UK) Limited on that date and
continued in similar roles. The Audit Committee is satisfied that the
transition has been well managed.
CBRE Limited, a separate subsidiary of CBRE, is the Company's independent
valuer. The fees which will be paid to CBRE Global Investment Administration
(UK) Limited for the provision of these accounting services will be
considerably higher than the fees paid to CBRE Limited for valuing the Group's
properties. The Audit Committee has considered whether the independent
valuer's independence has been threatened by the appointment of another CBRE
subsidiary to provide accounting services to the Company. The Audit Committee
has discussed these arrangements with the Investment Manager, CBRE, the
Company's Auditors and has taken independent advice. The Audit Committee has
accepted that such arrangements are not uncommon; appropriate information
barriers will be maintained between the two relevant CBRE subsidiaries; and
that CBRE's independence as valuer has not been compromised.
Internal audit
The Audit Committee considered the need for an internal audit function and
concluded that this function is not required, as the Company has no direct
employees, and it outsources all day-to-day management and administrative
functions. The Investment Manager has its own internal auditors. In the
absence of an internal audit function, assurance was achieved by a review by
the Committee of the Investment Manager's group ISAE 3402/AAF 01/06 Internal
Controls Report, which had been reviewed by Ernst and Young LLP ('EY'). This
report covered the activities of the Investment Manager, Schroder Real Estate
Investment Management Limited, and included the Company within its scope. The
Audit Committee has also considered similar Internal Controls Reports received
from the Company's main property agent, MAPP, and the Company's Depositary,
Langham Hall LLP.
External Auditors' remuneration, independence and effectiveness
Annually, the Audit Committee considers the remuneration and independence of
the external auditor. The Audit Committee recommends the remuneration of the
external auditor to the Board and keeps under review the ratio of audit to
non-audit fees to ensure that the independence and objectivity of the external
auditor are safeguarded.
This is the fifth and final year for EY's current audit engagement partner
before he has to rotate off the engagement under the FRC's audit partner
rotation rules. The Audit Committee has considered the succession plan
proposed by EY and is satisfied that the audit partner whom EY has proposed
will be responsible for the 2025 audit has appropriate sector knowledge and
experience.
Effectiveness of the independent audit process
The Audit Committee evaluated the effectiveness of EY prior to making a
recommendation on its reappointment at the forthcoming Annual General Meeting.
As part of the evaluation, the Audit Committee considered feedback from the
Investment Manager on the audit process and year end report from the Auditor,
which details the auditor's compliance with regulatory requirements, on
safeguards that have been established and their own internal quality control
procedures. The Audit Committee had discussions with the audit partner on
audit planning, accounting policies and audit findings, and met the audit
partner both with and without representatives of the Investment Manager
present. The Chair of the Audit Committee also had informal discussions with
the audit partner during the course of the year. The Audit Committee is
satisfied with the effectiveness of the auditors.
During the past year, the Financial Reporting Council's Audit Quality Review
(AQR) team reviewed EY's audit of the Company's Financial Statements for the
year ended 31 March 2023. The AQR report did not identify any Key or Other
Findings and assessed the EY audit as 'Good', being the highest of four
possible grades.
Non-audit services
In order to help safeguard the independence and objectivity of the auditor,
the Audit Committee maintains a policy on the engagement of the external
auditor to provide non-audit services. The Audit Committee's policy for the
use of the external auditor for non-audit services recognises that there are
certain circumstances where, due to EY's expertise and knowledge of the
Company, it will often be in the best position to perform non-audit services.
Under the policy, the use of the external auditor for non-audit services is
subject to pre-clearance by the Audit Committee. Clearance will not be granted
if it is believed it would impair the external auditor's independence or where
provision of such services by the Company's auditor is prohibited. Prior to
undertaking any non-audit service, EY also completes its own independence
confirmation processes which are approved by the audit partner.
During the year, there were no non-audit services fees paid to EY.
Succession
I will be retiring as a Non-Executive Director and Chair of the Audit
Committee at the end of June 2024, as I have now served on the Board for nine
years. Sanjay Patel is expected to replace me as Audit Committee chair; the
Board considers that Sanjay has the necessary current and relevant financial
expertise to become Chair of the Audit Committee. I wish Sanjay well in his
new role.
Stephen Bligh
Chair of the Audit Committee
5 June 2024
Management Engagement Committee Report
The Management Engagement Committee is responsible for: (1) the monitoring and
oversight of the Investment Manager's performance and fees, and confirming the
Investment Manager's ongoing suitability; and (2) reviewing and assessing the
Company's other service providers, including reviewing their fees. All
directors are members of the committee. Alexandra Innes is the chair of the
committee. Its terms of reference are available on the Company's webpages.
Approach
Oversight of the Investment Manager Oversight of other service providers
The Management Engagement Committee: The Management Engagement Committee reviews the performance and
competitiveness of the Company's service providers on at least an annual basis
-Reviews the Investment Manager's performance (including in relation to including the Property Managers, the Depositary, the Administrator, the Tax
sustainability KPIs) and suitability; Advisor, the Corporate Broker, the Valuer, the Solicitors and the Registrar.
- Considers the reporting it has received from the Investment Manager The Management Engagement Committee receives feedback from the Audit Committee
throughout the year, and the reporting from the Investment Manager to on its review of the Auditors.
shareholders;
-Assesses management fees on an absolute and relative basis, receiving input
from the Company's corporate broker, including peer group and industry
figures, as well as the structure of the fees;
-Reviews the appropriateness of the Investment Manager's contract, including
terms such as notice period; and
- Assesses whether the Company receives appropriate administrative,
accounting, company secretarial and marketing support from the Investment
Manager.
Application during the year
Oversight of the Investment Manager Oversight of other service providers
The Management Engagement Committee undertook a detailed review of the The annual review of service providers was satisfactory. The Management
Investment Manager's performance and agreed that it has the appropriate Engagement Committee noted that the Audit Committee had undertaken a detailed
capabilities required to allow the Company to meet its investment objective. evaluation of the Investment Manager, Depositary and Registrar's internal
The Management Engagement Committee also reviewed the terms of the Investment controls.
Management Agreement and agreed they remained fit for purpose. The Management
Engagement Committee reviewed the other services provided by the Investment
Manager and agreed they were satisfactory.
Recommendations made to, and approved by, the Board:
- That the ongoing appointment of the Investment Manager on the terms of the
Investment Management Agreement, including the fee, was in the best interests
of shareholders as a whole; and
- That the Company's service providers' performance remained satisfactory.
Nomination Committee Report
The Nomination Committee is responsible for: (1) the recruitment, selection
and induction of Directors; (2) their assessment during their tenure; and (3)
the Board's succession. All directors are members of the committee. Alastair
Hughes is the chair of the committee. Its terms of reference are available on
the Company's webpages.
Approach
Selection and induction Board evaluation Succession
- The Nomination Committee prepares a job specification for each role, and - The Nomination Committee assesses each director annually. - The Board's succession policy is that directors' tenure will be for no
an independent recruitment firm is appointed. For the Chair and the chairs of
longer than nine years, except in exceptional circumstances, and that each
committees, the Committee considers current Board members too. - Evaluation focuses on whether each director continues to demonstrate director will be subject to annual re-election at the AGM.
commitment to their role and provides a valuable contribution to the Board
- Job specification outlines the knowledge, professional skills, personal during the year, taking into account time commitment, independence, conflicts - The Nomination Committee reviews the Board's current and future needs at
qualities and experience requirements. and training needs. least annually. Should any need be identified the Nomination Committee will
initiate the selection process.
- Potential candidates assessed against the Company's diversity policy. - Following the evaluation, the Nomination Committee provides a recommendation
to shareholders with respect to the annual re-election of directors at the - The Nomination Committee will oversee the handover process for retiring
- The Nomination Committee discusses the long list, invites a number of AGM. directors.
candidates for interview and makes a recommendation to the Board.
- All directors retire at the AGM and their re-election is subject to
- The Nomination Committee reviews the induction and training of shareholder approval.
new directors.
Application during the year
Selection and induction Board evaluation Succession
- Having served as a director on the Board for nine years, Stephen Bligh is - The annual Board evaluation was undertaken in March 2024. - During the year, the Nomination Committee considered the need for orderly
expected to retire in 2024. The Board considered a number of candidates for
succession planning and a suitable plan was agreed.
the role of Audit Committee chair to succeed Stephen Bligh upon his - The Nomination Committee reviewed each Director's time commitment and
retirement, with input from Russell Reynolds, an independent executive search independence by reviewing a complete list of appointments, including pro bono
firm. Other than for advice on Board positions, Russell Reynolds does not have not-for-profit roles, to ensure that each Director remained free from conflict
any other relationship with the Company or individual directors. and had sufficient time available to discharge each of their duties
effectively. All Directors were considered to be independent in character and
- Sanjay Patel was identified by the Nomination Committee as the most suitable judgement.
candidate for the role. This appointment was approved by the Board and he was
appointed on 1 January 2024. Following his appointment, a full induction was - The Nomination Committee considered each Director's contributions, and noted
arranged. that in addition to extensive experience as professionals and Non-executive
Directors, each Director had valuable skills and experience, as detailed in
their biographies on pages 47 to 48.
- Based on its assessment, the Nomination Committee provided individual
recommendations for each Director's re-election.
Recommendations made to, and approved by, the Board:
- That Sanjay Patel be appointed as a non-executive director with effect from
1 January 2024.
- That all directors continue to demonstrate commitment to their roles,
provide a valuable contribution to the deliberations of the Board, and remain
free from conflicts with the Company and its directors, so should all be
recommended for re-election by shareholders at the AGM, apart from Stephen
Bligh who will retire prior to the AGM, having served on the Board for nine
years.
Directors' Remuneration Report
Introduction
The below remuneration policy is in force and is subject to an advisory vote
every three years. At the AGM held on 27 September 2023, the remuneration
policy was approved by shareholders, with 99.69% of votes for, 0.31% of votes
against, and 405,315 withheld. This policy, as amended, will be put to a vote
at the forthcoming AGM.
The below Directors' Annual Report on Remuneration is subject to an annual
advisory vote. An ordinary resolution to approve this report will be put to
shareholders at the forthcoming AGM.
At the AGM held on 27 September 2023, 99.79% of the votes cast (including
votes cast at the Chair's discretion) in respect of approval of the Annual
Report on Remuneration for the year ended 31 March 2023 were in favour, while
0.21% were against. 417,315 votes were withheld.
The Board believes that the principles of Section D of the UK Corporate
Governance Code relating to remuneration do not apply to the Company, except
as outlined above, as the Company has no executive directors.
Directors' Remuneration Policy
The Company's Articles currently limit the aggregate fees payable to the Board
of directors to a total of £250,000 per annum. Subject to this overall limit,
it is the Board's policy to determine the level of directors' fees having
regard to the fees payable to non-executive directors in the industry
generally, the impact of inflation, the role that individual Directors fulfil
in respect of Board and Committee responsibilities, and time committed to the
Company's affairs. Generally, the Board seeks to increase fees in line with
the rate of inflation measured by the UK consumer price index ('CPI'), with
the level of directors' remuneration reviewed annually to ensure
competitiveness within the peer group and attractiveness to potential
candidates for director appointments.
For the financial year ended 31 March 2024, directors receive a base fee of
£35,000 per annum, and the Chair receives £55,000 per annum. The Chair of
the Audit Committee, the Chair of the Management Engagement Committee and the
Senior Independent Director each receive an additional fee of £5,000
respectively.
No Director past or present has any entitlement to pensions and the Company
has not awarded any share options or long-term performance incentives to any
of them. No element of Directors' remuneration is performance related.
The Board did not seek the views of shareholders in setting this remuneration
policy. Any comments on the policy received from shareholders would be
considered on a case-by-case basis.
Directors' fees are reviewed periodically and take into account research from
third parties on the fee levels of directors of peer group companies, as well
as industry norms and factors affecting the time commitment expected of the
directors. New directors are subject to the provisions set out in this
remuneration policy.
No director has a service contract with the Company. However, each of the
directors has a letter of appointment with the Company. The directors' letters
of appointment, which set out the terms of their appointment, are available
for inspection at the Company's registered office address during normal
business hours and will be available for inspection at the AGM.
All directors are appointed for an initial term covering the period from the
date of their appointment until the first AGM thereafter, at which they are
required to stand for re-election in accordance with the Articles. When
recommending whether an individual director should seek re-election, the Board
will take into account the provisions of the UK Corporate Governance Code,
including the merits of refreshing the Board and its Committees.
The Board has approved a policy that all directors will stand for re-election
annually.
Directors' Remuneration Report
This Report sets out how the directors' remuneration policy was implemented
during the year ended 31 March 2024.
Fees paid to Directors
The following amounts were paid by the Company for services as non-executive
directors:
Director 31 March 2024 (£) 31 March 2023 (£)
Alastair Hughes (Chair) 55,000 47,300
Stephen Bligh 29 (#_ftn29) 40,000 37,100
Priscilla Davies 30 (#_ftn30) 40,000 30,100
Alexandra Innes 31 (#_ftn31) 40,000 14,400
Sanjay Patel 32 (#_ftn32) 8,750 -
Lorraine Baldry (retired 26 July 2022) - 16,700
Graham Basham (retired 15 November 2022) - 26,300
Total 183,750 171,900
The Board carried out a review of directors' annual fees following the year
end, taking into account the fees payable to non-executive directors in the
industry and peer group, the rate of inflation, and the commitment required of
directors of the Company to adequately discharge their roles and
responsibilities. The review supported an increase of 5.8% across fees payable
to directors, in line with the CPI rate of inflation between December 2022 and
March 2024, this increase is effective 1 April 2024.
Following this review, directors receive a base fee of £37,000 per annum, and
the Chair receives £58,500 per annum. The Chair of the Audit Committee, the
Chair of the Management Engagement Committee and the Senior Independent
Director each receive an additional fee of £5,500 respectively. The fees
payable to directors from 1 April 2024 are set out below:
Director From 1 April 2024 (£)
Alastair Hughes (Chair) 58,500
Stephen Bligh 33 (#_ftn33) 42,500
Priscilla Davies 34 (#_ftn34) 42,500
Alexandra Innes 35 (#_ftn35) 42,500
Sanjay Patel 36 (#_ftn36) 37,000
Total 223,000
Performance
The performance of the Company is described on page 36 under 'Business Model'
in the Strategic Report.
Alastair Hughes
Chair
5 June 2024
Statement of Directors' Responsibilities
The directors are responsible for preparing the Annual Report and Consolidated
Financial Statements in accordance with applicable law and regulations.
The Companies Law requires the directors to prepare the Annual Report and
Consolidated Financial Statements for each financial year. Under the Companies
Law the directors have elected to prepare the Annual Report and Consolidated
Financial Statements in accordance with International Financial Reporting
Standards and applicable law.
The Annual Report and Consolidated Financial Statements are required by law to
give a true and fair view of the state of affairs of the Group and of the
profit or loss of the Group for the relevant period.
In preparing the Annual Report and Consolidated Financial Statements, the
directors are required to:
- Select suitable accounting policies and then apply them
consistently;
- Make judgements and estimates that are reasonable and prudent;
- State whether applicable accounting standards have been followed,
subject to any material departures disclosed and explained in the financial
statements;
- Assess the Company's ability to continue as a going concern,
disclosing as applicable matters relating to going concern; and
- Use the going concern basis of preparation unless they intend to
either liquidate the Company or cease operations or have no realistic
alternative to do so.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Group and enable them to ensure that the Annual Report and Consolidated
Financial Statements comply with the Companies Law. They also have general
responsibility for taking such steps as are reasonably open to them to
safeguard the assets of the Company and to prevent and detect fraud, error and
non-compliance with law and regulations.
As part of the preparation of the Annual Report and Consolidated Financial
Statements, the directors have received reports and information from the
Company's Administrator and Investment Manager. The directors have considered,
reviewed and commented upon the Annual Report and Consolidated Financial
Statements throughout the drafting process in order to satisfy themselves in
respect of the content.
The directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website and for
the preparation and dissemination of the Annual Report and Consolidated
Financial Statements.
Legislation in Guernsey governing the preparation and dissemination of the
Consolidated Financial Statements may differ from legislation in other
jurisdictions.
Responsibility Statement of the Directors in respect of the Annual Report
We confirm to the best of our knowledge:
► The Consolidated Financial Statements, prepared in accordance with
International Financial Reporting Standards, give a true and fair view of the
assets, liabilities, financial position and profit of the Group and the
undertakings included in the consolidation taken as a whole and comply with
the Companies Law; and
► The Strategic Report on pages 5 to 46 and Governance Report on pages
47 to 68 include a fair review of the development and performance of the
business and the position of the Group and the undertakings included in the
consolidation taken as a whole, together with a description of the principal
risks and uncertainties it faces. The directors consider that the Annual
Report and Consolidated Financial Statements, taken as a whole, are fair,
balanced and understandable and provides the information necessary for
shareholders to assess the Company's position and performance, business model
and strategy.
By order of the Board
Alastair Hughes, Chair
5 June 2024
Independent Auditor's Report to the members of Schroder Real Estate Investment
Trust Limited
Opinion
We have audited the consolidated financial statements (the 'Financial
Statements') of Schroder Real Estate Investment Trust Limited (the "Company")
and its subsidiaries (together the "Group") for the year ended 31 March 2024
which comprise Consolidated Statement of Comprehensive Income, the
Consolidated Statement of Financial Position, the Consolidated Statement of
Changes in Equity, the Consolidated Statement of Cash Flows and the related
notes 1 to 24, including material accounting policy information. The financial
reporting framework that has been applied in their preparation is applicable
law and International Financial Reporting Standards.
In our opinion, the financial statements:
► give a true and fair view of the state of the Company's affairs as
at 31 March 2024 and of its profit for the year then ended;
► have been properly prepared in accordance with International
Financial Reporting Standards; and
► have been properly prepared in accordance with the requirements of
The Companies (Guernsey) Law, 2008.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law. Our responsibilities under those
standards are further described in the Auditor's responsibilities for the
audit of the financial statements section of our report. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a
basis for our opinion.
Independence
We are independent of the company in accordance with the ethical requirements
that are relevant to our audit of the financial statements, including the UK
FRC's Ethical Standard as applied to listed public interest entities, and we
have fulfilled our other ethical responsibilities in accordance with these
requirements.
The non-audit services prohibited by the FRC's Ethical Standard were not
provided to the company and we remain independent of the company in conducting
the audit.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors'
use of the going concern basis of accounting in the preparation of the
financial statements is appropriate. Our evaluation of the directors'
assessment of the company's ability to continue to adopt the going concern
basis of accounting included:
· obtaining an understanding of the Director's going concern
assessment process including engaging with the Investment Manager to
understand the process they followed in supporting the going concern
assessment prepared by the Directors;
· reviewing the factors and assumptions, including the cost of
delivering the Group's sustainability strategy and the impact of external
market factors, as applied to the revenue and expenses forecast which support
the Directors' assessment of going concern. We have challenged the
sensitivities and assumptions used in the forecasts and determined, through
testing, that the methods, inputs and assumptions utilised were appropriate to
be able to make an assessment for the Group;
· challenging the stress testing performed and validating the
static data assumptions used by the Investment Manager by agreement to
supporting documentation;
· in relation to the Group's borrowing arrangements, inspecting the
Directors' assessment of the risk of breaching the debt covenants. We
recalculated the debt covenants based on the stress scenarios assessed by the
Directors and reperformed reverse stress testing in order to identify what
factors would lead to the Group breaching the financial covenants;
· holding discussions with the Audit Committee and the Investment
Manager to determine whether, in their opinion, there is any material
uncertainty regarding the Group's ability to pay liabilities and commitments
as they fall due and challenging this assessment through our audit procedures
in relation to the liquidity assessment;
· confirmed whether any subsequent events identified are adjusting
or non-adjusting post balance sheet events and ensured the requisite
disclosures are included in the Annual Report and Accounts; and
· assessing the disclosures in the Annual Report and Financial
Statements relating to going concern to ensure they were fair, balanced and
understandable and in compliance with IFRS.
Based on the work we have performed, we have not identified any material
uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the company's ability to continue
as a going concern for a period to 30 June 2025 from when the financial
statements are authorised for issue.
In relation to the company's reporting on how they have applied the UK
Corporate Governance Code, we have nothing material to add or draw attention
to in relation to the directors' statement in the financial statements about
whether the directors considered it appropriate to adopt the going concern
basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to
going concern are described in the relevant sections of this report.
However, because not all future events or conditions can be predicted, this
statement is not a guarantee as to the company's ability to continue as a
going concern.
Overview of our audit approach
Key audit matters ► Risk of misstatement in the fair value of directly or indirectly
held investment property portfolio
► Risk of incomplete or inaccurate rental revenue recognition and
related year-end receivables
Materiality ► Overall materiality of £2.9m which represents 1% of equity.
An overview of the scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation
of performance materiality determine our audit scope for the company. This
enables us to form an opinion on the financial statements. We take into
account size, risk profile, the organisation of the company and effectiveness
of controls, changes in the business environment and the potential impact of
climate change when assessing the level of work to be performed. All audit
work was performed directly by the audit engagement team which includes our
real estate valuation specialists.
Changes from the prior year
There have been no significant changes in scope from the prior year audit.
Climate change
Stakeholders are increasingly interested in how climate change will impact the
Group. The Group has determined that the most significant future impacts from
climate change on their operations are explained on page 46 in the principal
risks and uncertainties. They have also explained their climate commitments on
pages 27. All of these disclosures form part of the "Other information,"
rather than the audited financial statements. Our procedures on these
unaudited disclosures therefore consisted solely of considering whether they
are materially inconsistent with the financial statements or our knowledge
obtained in the course of the audit or otherwise appear to be materially
misstated, in line with our responsibilities on "Other information".
In planning and performing our audit we assessed the potential impacts of
climate change on the Group's business and any consequential material impact
on its financial statements.
The Group has explained in note 1 and 10 how they have reflected the impact of
climate change in their financial statements.
Our audit effort in considering the impact of climate change on the financial
statements was focused on the adequacy of the disclosures in the Financial
Statements and the conclusion that there was no further impact of climate
change to be taken into account as the investment properties are valued at
fair value based on open market valuations as described in Note 10.
The open market valuation assessment includes consideration of environmental
matters and the condition of each property with detail on the fair value of
properties provided within the notes to the financial statement. As part of
this evaluation, we performed our own risk assessment to determine the risks
of material misstatement in the financial statements from climate change which
needed to be considered in our audit.
We also challenged the Directors' considerations of climate change risks in
their assessment of going concern and viability and associated disclosures.
Where considerations of climate change were relevant to our assessment of
going concern, these are described above.
Based on our work we have considered the impact of climate change on the
financial statements to be a key audit matter or to impact certain key audit
matters. Details of our procedures and findings are included in our
explanation of key audit matters below.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were
of most significance in our audit of the financial statements of the current
period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) that we identified. These matters
included those which had the greatest effect on: the overall audit strategy,
the allocation of resources in the audit; and directing the efforts of the
engagement team. These matters were addressed in the context of our audit of
the financial statements as a whole, and in our opinion thereon, and we do not
provide a separate opinion on these matters.
Risk Our response to the risk Key observations communicated to the Audit Committee
Risk of misstatement in the fair value of directly or indirectly held We have performed the following procedures: Based on the work performed we have no matters to report to the Audit
investment property portfolio
Committee.
► obtained an understanding of the process and controls surrounding
Refer to the Report of the Audit Committee (page 57); property valuation by performing our walkthrough procedures and evaluating the
implementation and design effectiveness of controls.
Significant accounting policies (page 85); and
► assessed the independence and competence of the Group's independent
Note 10 of the Financial Statements (pages 91 to 94) valuers as required by auditing standards.
The Group's investment property portfolio consists of UK properties held ► read the valuation reports provided by the Group's independent valuers
directly and through joint ventures, with a combined fair value of £459.3m to agree the appropriateness and suitability of the reported values and the
(2023: £466.4m). changes in value from the previous accounting period.
The Group's accounting policy is for the fair value of the investment ► performed enquiries of the Group's independent valuers to obtain an
properties to be determined by independent real estate valuation experts using understanding of their valuation process methods and assumptions used in their
recognised valuation techniques. The fair values are based on recent real analysis, including challenging them as to the extent to which market
estate transactions with similar characteristics and locations to those of the transactions and expected rental values take into account the impact of
Group's assets. The Group's accounting policy is for the valuation of climate change;
investment properties to be reduced by the total of the unamortised lease
incentive balances. ► engaged our EY property valuation specialists to perform a review of a
sample of property valuations (58% of the total value, 16 properties (2023:
There is a risk of incorrect valuation of the property portfolio which could 81% of the total value, 20 properties)) to assess whether the reported value
result in the Consolidated Statement of Financial Position and the falls within a range of reasonable outcomes, which included:
Consolidated Statement of Comprehensive Income to be materially misstated.
► validating the assumptions used by the independent valuers and
assessment of the valuation methodologies adopted;
► challenging the key inputs and assumptions relating to equivalent
yield and rental rates with reference to published market data and comparable
transaction evidence through market activity; and
► assessing the appropriateness of market related inputs and
reasonableness of valuation methods, by comparing against our own market data
and understanding of the property market.
► performed analytical review procedures across the portfolio of
investments, focusing on correlations with market data and any significant
movements;
► on a sample basis, with respect to key objective inputs to the
valuation, comprising rental income and length of lease, agreed the inputs to
lease agreements or rent review schedules;
► verified that the fair values derived by the Group's independent
valuers for the entire portfolio were correctly included in the consolidated
financial statements.
► assessed the adequacy of the additional disclosures of estimates and
valuation assumptions disclosed in the notes were made in accordance with IFRS
13 - Fair Value Measurement.
Risk of incomplete or inaccurate rental revenue recognition and related We have performed the following procedures Based on the work performed, we have no matters to report to the Audit
year-end receivables
Committee.
► obtained an understanding of the process and controls for each revenue
stream by performing our walkthrough procedures and evaluating the
implementation and design effectiveness of controls;
Revenue is earned in the form of rental income from the investment properties
and is recognised on an accrual basis. During the year, the Group recognised ► performed substantive analytical review procedures over rental revenue
£25.6m of rental income (2023: £25.2m) and rent receivable of £3.2m (2023: for each property. We formed an expectation of the rental income for each
£3.9m). property, and compared this expectation to the actual revenue recognised
during the year;
There is a risk of incomplete or inaccurate rental revenue recognition and
related year-end receivables through failure to recognise proper income ► agreed a sample of rental rates to tenancy agreements and recalculated
entitlements or to apply the appropriate accounting treatment. The rental revenue earned by the property for the period;
recoverability of year-end receivable is based on a number of judgments and
estimates ► recalculated a sample of lease incentives based on the terms within
the lease agreement to assess the appropriateness of the amount recorded;
including, on a sample basis, verifying lease modifications through agreement
of the updated terms to amended and restated lease agreements and performing
an independent assessment as to whether they have been appropriately treated
in accordance with IFRS 16 - Leases ('IFRS 16');
► reviewed the report prepared by the Schroder Real Estate Investment
Management Limited (the "Asset Manager") assessing the recoverability of the
overdue rent receivables, and challenged the judgments involved including
expected credit loss on the rent receivable balance as a whole. For a sample
of tenants, we have inspected the cash receipt subsequent to the year-end
date; and
► tested a sample of rental revenue journals to identify unauthorised or
inappropriate journals to address the risk of management override. We enquired
as to the nature of each transaction sampled and reviewed corroborating
evidence to conclude on whether the journals were reasonable and in line with
our expectations. We selected journals by applying criteria and thresholds
based on our professional judgment.
Our application of materiality
We apply the concept of materiality in planning and performing the audit, in
evaluating the effect of identified misstatements on the audit and in forming
our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the
aggregate, could reasonably be expected to influence the economic decisions of
the users of the financial statements. Materiality provides a basis for
determining the nature and extent of our audit procedures.
We determined materiality for the company to be £2.9 million (2023: £3.0
million), which is 1% (2023: 1%) of equity. We believe that equity provides us
with a materiality aligned to the key measurement of the Group's
performance.
During the course of our audit, we reassessed initial materiality and adjusted
our audit procedures accordingly.
Performance materiality
The application of materiality at the individual account or balance level.
It is set at an amount to reduce to an appropriately low level the probability
that the aggregate of uncorrected and undetected misstatements exceeds
materiality.
On the basis of our risk assessments, together with our assessment of the
company's overall control environment, our judgement was that performance
materiality was 75% (2023: 75%) of our planning materiality, namely £2.2m
(2023: £2.3m). We have set performance materiality at this percentage due to
this being a recurring audit with a low incidence of historical errors.
Reporting threshold
An amount below which identified misstatements are considered as being clearly
trivial.
We agreed with the Audit Committee that we would report to them all
uncorrected audit differences in excess of £0.14m (2023: £0.15m), which is
set at 5% of planning materiality, as well as differences below that threshold
that, in our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative
measures of materiality discussed above and in light of other relevant
qualitative considerations in forming our opinion.
Other information
The other information comprises the information included in the annual report
set out on pages 1 to 68 and pages 104 to 144 other than the financial
statements and our auditor's report thereon. The directors are responsible
for the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information
and, except to the extent otherwise explicitly stated in this report, we do
not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the course of the audit or otherwise
appears to be materially misstated. If we identify such material
inconsistencies or apparent material misstatements, we are required to
determine whether this gives rise to a material misstatement in the financial
statements themselves. If, based on the work we have performed, we conclude
that there is a material misstatement of the other information, we are
required to report that fact.
We have nothing to report in this regard.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to
which the Companies (Guernsey) Law, 2008 requires us to report to you if, in
our opinion:
► proper accounting records have not been kept by the company, or
proper returns adequate for our audit have not been received from branches not
visited by us; or
► the financial statements are not in agreement with the company's
accounting records and returns; or
► we have not received all the information and explanations we require
for our audit.
Corporate Governance Statement
We have reviewed the directors' statement in relation to going concern,
longer-term viability and that part of the Corporate Governance Statement
relating to the company's compliance with the provisions of the UK Corporate
Governance Code specified for our review by the Listing Rules.
Based on the work undertaken as part of our audit, we have concluded that each
of the following elements of the Corporate Governance Statement is materially
consistent with the financial statements or our knowledge obtained during the
audit:
► Directors' statement with regards to the appropriateness of adopting
the going concern basis of accounting and any material uncertainties
identified set out on page 46;
► Directors' explanation as to its assessment of the company's
prospects, the period this assessment covers and why the period is appropriate
set out on page 44;
► Director's statement on whether it has a reasonable expectation that
the company will be able to continue in operation and meets its liabilities
set out on page 58;
► Directors' statement on fair, balanced and understandable set out on
page 67;
► Board's confirmation that it has carried out a robust assessment of
the emerging and principal risks set out on page 42;
► The section of the annual report that describes the review of
effectiveness of risk management and internal control systems set out on page
42; and;
► The section describing the work of the audit committee set out on
page 57.
Responsibilities of Directors
As explained more fully in the Statement of Directors' Responsibilities set
out on page 67, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair
view, and for such internal control as the directors determine is necessary to
enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for
assessing the company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the company or
to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
Explanation as to what extent the audit was considered capable of detecting
irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined
above, to detect irregularities, including fraud. The risk of not detecting
a material misstatement due to fraud is higher than the risk of not detecting
one resulting from error, as fraud may involve deliberate concealment by, for
example, forgery or intentional misrepresentations, or through collusion. The
extent to which our procedures are capable of detecting irregularities,
including fraud is detailed below.
However, the primary responsibility for the prevention and detection of fraud
rests with both those charged with governance of the company and management.
► We obtained an understanding of the legal and regulatory frameworks
that are applicable to the company and determined that the most significant
are the Companies (Guernsey) Law, 2008, the UK Corporate Governance Code, The
2019 AIC Code of Corporate Governance, REIT requirements set out in part 12 of
the Corporation Tax Act (CTA) 2010 ('REIT rules') and the Listing Rules of the
UK Listing Authority;
► We understood how the Group is complying with those frameworks by
making enquiries of the Investment Manager, the Administrator and those
charged with governance regarding:
► their knowledge of any non-compliance or potential non-compliance
with laws and regulations that could affect the financial statements;
► the Group's methods of enforcing and monitoring non-compliance with
such policies
► the Investment Manager's process for identifying and responding to
fraud risks, including programs and controls the Group has established to
address risks identified by the Group, or that otherwise prevent, deter and
detect fraud; and
► how the Group monitors those programs and controls.
► We assessed the susceptibility of the Group's financial statements
to material misstatement, including how fraud might occur by:
► obtaining an understanding of entity-level controls and considering
the influence of the control environment;
► obtaining the Group's assessment of fraud risks including an
understanding of the nature, extent and frequency of such assessment
documented in the Group's Risk Matrix;
► making inquiries with those charged with governance, the Investment
Manager, the Company Secretary and Administrator as to how they exercise
oversight of identifying and responding to fraud risks and the controls
established to mitigate specifically those risks the entity has identified, or
that otherwise help to prevent, deter and detect fraud;
► making inquiries of the Investment Manager and those charged with
governance regarding how they identify related parties including circumstances
related to the existence of a related party with dominant influence; and
► making inquiries of the Investment Manager, the Company Secretary,
Administrator and those charged with governance regarding their knowledge of
any actual or suspected fraud or allegations of fraudulent financial reporting
affecting the Group.
► Based on this understanding we designed our audit procedures to
identify non-compliance with such laws and regulations. Our procedures
involved:
► Through discussion, gaining an understanding of how the Board, the
Company Secretary and Administrator and the Investment Manager identify
instances of non-compliance by the Group with relevant laws and regulations;
► Inspecting the relevant policies, processes and procedures to
further our understanding;
► Reviewing Board minutes and internal compliance reporting;
► Inspected management's specialist's assessment of the Group's
compliance with the REIT rules. We have tested through recalculating and
corroborating, to supporting information, the Group's compliance with each of
the REIT rules, including the proportion of dividend distributed in the form
of property income distributions;
► Inspecting correspondence with regulators; and
► Obtaining relevant written representations from the Board
► We obtained data from the general ledger and performed journal entry
testing.
A further description of our responsibilities for the audit of the financial
statements is located on the Financial Reporting Council's website at
https://www.frc.org.uk/auditorsresponsibilities. This description forms part
of our auditor's report.
Other matters we are required to address
► Following the recommendation from the audit committee, we were
appointed by the company on 5 November 2019 to audit the financial statements
for the year ending 31 March 2020 and subsequent financial periods.
► The period of total uninterrupted engagement including previous
renewals and reappointments is 4 years and 6 months, covering the years ending
31 March 2020 to 31 March 2024.
► The audit opinion is consistent with the additional report to
the audit committee.
Use of our report
This report is made solely to the company's members, as a body, in accordance
with Section 262 of the Companies (Guernsey) Law, 2008. Our audit work has
been undertaken so that we might state to the company's members those matters
we are required to state to them in an auditor's report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company's members as a
body, for our audit work, for this report, or for the opinions we have formed.
Richard Geoffrey Le Tissier
for and on behalf of Ernst & Young LLP
Guernsey, Channel Islands
5 June 2024
Financial Statements
Consolidated Statement of Comprehensive Income
31/03/2024 31/03/2023
Notes £000 £000
Rental income 25,638 25,171
Other income 3 1,504 58
Property operating expenses 4 (2,154) (2,258)
Net rental and related income, excluding joint ventures 24,988 22,971
Share of net comprehensive rental income in joint ventures 3,057 3,515
Net rental and related income, including joint ventures 28,045 26,486
Profit on the disposal of investment property 10 199 1,184
Net unrealised valuation loss on investment property 10 (8,044) (60,107)
Gain on disposal of financial instruments 20 189 -
Net change in fair value of financial instrument at fair value 20 (547) -
Expenses
Investment management fee 2 (2,350) (2,755)
Valuers' and other professional fees (2,347) (1,875)
Administrators' fees 2 (64) (71)
Auditor's remuneration 5 (197) (185)
Directors' fees 6 (184) (172)
Other expenses 6 (276) (346)
Total expenses (5,418) (5,404)
Net operating profit/(loss) before net finance costs 11,367 (41,356)
Refinancing costs 15 - (247)
Finance costs (6,349) (5,114)
Net finance costs (6,349) (5,361)
Share of net comprehensive rental income in joint ventures 11 3,057 3,515
Share of valuation loss in joint ventures 11 (5,058) (11,513)
Profit/(loss) before taxation 3,017 (54,715)
Taxation 7 - -
Profit/(loss) and total comprehensive income/(loss) for the year attributable
to the equity holders of the parent
3,017 (54,715)
Basic and diluted earnings/(loss) per share 8 0.6p (11.2p)
All items in the above statement are derived from continuing operations. The
accompanying notes 1 to 24 form an integral part of the financial statements.
Consolidated Statement of Financial Position
31/03/2024 31/03/2023
Notes £000 £000
Investment property 10 384,606 388,030
Investment in joint ventures 11 67,366 72,187
Interest rate derivative contracts 20 219 -
Non-current assets 452,191 460,217
Trade and other receivables 12 19,837 21,626
Cash and cash equivalents 13 6,005 8,419
Current assets 25,842 30,045
Total assets 478,033 490,262
Issued capital and reserves 14 324,451 337,790
Treasury share reserve 14 (37,101) (37,101)
Equity 287,350 300,689
Interest-bearing loans and borrowings 15 175,866 176,933
Lease liability 10 1,562 1,668
Non-current liabilities 177,428 178,601
Trade and other payables 16 13,255 10,972
Current liabilities 13,255 10,972
Total liabilities 190,683 189,573
Total equity and liabilities 478,033 490,262
58.8p 61.5p
Net asset value per ordinary share 17
The financial statements on pages 79 to 103 were approved at a meeting of the
Board of Directors held on 5 June 2024 and signed on its behalf by:
Alastair Hughes,
Chair
Stephen Bligh, Director
The accompanying notes 1 to 24 form an integral part of the financial
statements.
Consolidated Statement of Changes in Equity
Notes Share premium Treasury share reserve Revenue reserve Total
£000 £000 £000 £000
Balance as at 31 March 2022 219,090 (36,103) 189,196 372,183
Share buyback - (998) - (998)
Loss for the year - - (54,715) (54,715)
Dividends paid 9 - - (15,781) (15,781)
Balance as at 31 March 2023 219,090 (37,101) 118,700 300,689
Profit for the year - - 3,017 3,017
Dividends paid 9 - - (16,356) (16,356)
Balance as at 31 March 2024 219,090 (37,101) 105,361 287,350
The accompanying notes 1 to 24 form an integral part of the financial
statements.
Consolidated Statement of Cash Flows
31/03/2024 31/03/2023
Notes £000 £000
Operating activities
Profit/(loss) for the year 3,017 (54,715)
Adjustments for:
Profit on the disposal of investment property (199) (1,184)
Net valuation loss on investment property 8,044 60,107
Profit on disposal of financial instruments 20 (189) -
Net change in fair value of financial instrument at fair value 20 547 -
Share of loss on joint ventures 2,001 7,998
Net finance cost 6,349 5,361
Operating cash generated before changes in working capital 19,570 17,567
Decrease/(increase) in trade and other receivables 2,022 (1,861)
Increase in trade and other payables 2,283 1,978
Cash generated from operations 23,875 17,684
Investing activities
Proceeds from the sale of investment property 3,763 8,303
Acquisition of investment property - (16,058)
Additions to investment property 10 (8,290) (10,133)
Additions to joint ventures 11 (237) -
Net income distributed from joint ventures 2,761 3,638
Cash flows used in investing activities (2,003) (14,250)
Financing activities
Repayment of debt 15 (2,300) -
Additions to debt 15 1,000 15,600
Disposal of financial instrument 20 189 -
Purchase of financial instrument 20 (766) -
Finance costs paid (6,053) (4,479)
Refinancing costs paid - (958)
Dividends paid 9 (16,356) (15,781)
Share buyback - (998)
Cash flows used in financing activities (24,286) (6,616)
Net decrease in cash and cash equivalents for the year (2,414) (3,182)
Opening cash and cash equivalents 8,419 11,601
Closing cash and cash equivalents 13 6,005 8,419
The accompanying notes 1 to 24 form an integral part of the financial
statements.
Notes to the Financial Statements
1. Material accounting policy information
Schroder Real Estate Investment Trust Limited (the 'Company') is a
closed-ended investment company registered in Guernsey. The consolidated
financial statements of the Company for the year ended 31 March 2024 comprise
the Company and its subsidiaries (together referred to as the 'Group').
New standard and interpretations
The Company is satisfied that there are no standards that are published, and
not yet effective, that will have a material effect on the accounts.
Statement of compliance
The financial statements have been prepared in accordance with International
Financial Reporting Standards ('IFRS") issued by the International Accounting
Standards Board (the 'IASB'), and interpretations issued by the International
Financial Reporting Interpretations Committee.
The financial statements give a true and fair view and are in compliance with
The Companies (Guernsey) Law, 2008, applicable legal and regulatory
requirements and the Listing Rules of the UK Listing Authority.
Basis of preparation
The financial statements are presented in pound sterling, which is the
Company's functional currency, rounded to the nearest thousand. They are
prepared on the historical cost basis except that investment properties and
derivative financial instruments are stated at their fair value.
The accounting policies have been consistently applied to the results, assets,
liabilities and cash flows of the entities included in the consolidated
financial statements and are consistent with those of the previous year.
Going concern
The Directors have examined significant areas of possible financial risk
including liquidity (with a view to both cash held and undrawn debt
facilities); the rates of both rent and service charge collections from
tenants; have considered potential falls in property valuations; have reviewed
cash flow forecasts; have analysed forward-looking compliance with third party
debt covenants and in particular the Loan to Value covenant and interest cover
ratios; and have considered the Group's ongoing tax compliance with the REIT
regime.
Overall, after utilising available cash, excluding the cash undrawn against
the RBSI facility and uncharged properties and units in Joint Ventures, and
based on the reporting period to 31 March 2024, property valuations would have
to fall by 25% before the relevant Canada Life Loan to Value covenants were
breached, and actual net rental income would need to fall by 63% before
the interest cover covenants were breached.
Furthermore, the properties charged to RBSI could fall in value by 54%, prior
to the 65% LTV covenant being breached, and based on projected net rents for
the quarter to March 2024, a 13% fall in net income could be sustained prior
to the RBS projected interest loan cover covenant of 200% being breached.
As at the financial year end, the undrawn capacity of the £75.0m RBSI
facility was £28.0 million. This facility is an efficient and flexible source
of funding due to its ability to be repaid and redrawn as often as required
and matures in June 2027.
Regarding the Canada Life loan of £129.6m, fifty per cent matures in 2032 and
fifty per cent matures in 2039 respectively.
The Board and Investment Manager also continue to closely monitor ongoing
changing macroeconomic and geopolitical environments on the Group.
The Board and Investment Manager have considered the impact of sustainability
risk as a principal risk as set out on page 43. In line with IFRS, investment
properties are valued at fair value based on open market valuations as
described in Note 10. The assessment of the open market valuation includes
consideration of environmental matters and the condition of each property. The
investment properties continue to be monitored by the Investment Manager and
key considerations include EPC ratings and their impact on the properties'
forecast compliance with minimum energy efficiency standard regulations.
Having assessed the impact of climate change on the Group, the Directors
concluded that it is not expected to have a significant impact on the Group's
going concern or viability assessment as described on pages 44 to 46.
The Directors have not identified any matters which would cast significant
doubt on the Group's ability to continue as a going concern for the period to
30 June 2025 and have satisfied themselves that the Group has adequate
resources to continue in operational existence for this period to 30 June
2025.
After due consideration, the Board believes that it is appropriate to adopt
the going concern basis in preparing the financial statements.
Use of estimates and judgements
The preparation of financial statements in conformity with IFRS requires
management to make judgements, estimates and assumptions that affect the
application of policies and the reported amounts of assets and liabilities,
income and expenses. These estimates, and associated assumptions, are based on
historical experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis of
making judgements about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates. The estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the period in which
the estimates are revised and in any future periods affected.
The most significant estimates made in preparing these financial statements
relate to the carrying value of investment properties, including those within
joint ventures, which are stated at fair value. The Group uses external
professional valuers to determine the relevant amounts. Judgements made by
management in the application of IFRS that have a significant effect on the
financial statements and estimates with a significant risk of material
adjustment in the next year are disclosed in note 18.
Another significant estimate is the amount of expected credit losses as per
IFRS 9 from rent demanded during the period which has not yet been collected.
On initial recognition the Group calculates the expected credit loss for
debtors based on the lifetime expected credit losses under the IFRS 9
simplified approach. Management considers aged debtors' analyses, the strength
of tenant covenants, macroeconomic factors and any rental deposits held.
Management has considered rental debtors on a quarterly basis and made
provisions and write offs where it has been deemed that these amounts are
potentially irrecoverable.
Basis of consolidation
Subsidiaries
The consolidated financial statements comprise the financial statements of the
Company and all of its subsidiaries drawn up to 31 March each year.
Subsidiaries are those entities controlled by the Company. Control exists
where the investor has the following;
- power over the investee;
- exposure, or rights, to variable returns from its involvement with the
investee; and
- the ability to use its power over the entity to affect the amount of the
investor's returns.
The financial statements of subsidiaries are included in the consolidated
financial statements from the date that control commences until the date that
control ceases. Where properties are acquired by the Group through corporate
acquisitions, but the acquisition does not meet the definition of a business
combination, the acquisition has been treated as an asset acquisition.
Joint ventures
Joint ventures are those entities over whose activities the Group has joint
control, established by contractual agreement. The consolidated financial
statements include the Group's share of profit or loss of jointly controlled
entities on an equity accounted basis. When the Group's share of losses
exceeds its interest in an entity, the Group's carrying amount is reduced to
nil and recognition of further losses is discontinued except to the extent
that the Group has incurred legal or constructive obligations or is making
payments on behalf of an entity.
Transactions eliminated on consolidation
Intra-group balances, and any gains and losses arising from intra-group
transactions, are eliminated in preparing the consolidated financial
statements. Gains arising from transactions with joint ventures are eliminated
to the extent of the Group's interest in the entity. Losses are eliminated in
the same way as gains but only to the extent that there is no evidence of
impairment.
Investment property
Investment property is land and buildings held to earn rental income together
with the potential for capital growth.
Acquisitions and disposals are recognised on the unconditional exchange of
contracts. Acquisitions are initially recognised at cost, being the fair value
of the consideration given, including transaction costs associated with the
investment property.
After initial recognition, investment properties are measured at fair value,
with unrealised gains and losses recognised in the Statement of Comprehensive
Income. Realised gains and losses on the disposal of properties are recognised
in the Statement of Comprehensive Income in relation to their sale price, sale
costs and the carrying value brought forward from the prior financial year.
Fair value is based on the market valuations of the properties as provided by
a firm of independent chartered surveyors at the reporting date. Market
valuations are carried out on a quarterly basis.
As disclosed in note 19, the Group leases out all owned properties on
operating leases. A property held under an operating lease is classified and
accounted for as an investment property where the Group holds it to earn
rentals, capital appreciation, or both. Any such property leased under an
operating lease is classified as an investment property and carried at fair
value.
Leases
For any material leases for which the Group is a lessee, the leasehold
interest is measured at fair value and included in investment properties with
the corresponding liability being shown as a non-current liability. The fair
value is calculated as the present value of the future lease payments.
Financial instruments
Derivative financial instruments
This comprises the interest rate collar which is recognised at a fair value
assessed by an independent third party.
Non-derivative financial instruments
Financial assets
Non-derivative financial instruments comprise trade and other receivables and
cash and cash equivalents. These are recognised initially at fair value plus
any directly attributable transaction costs. Subsequent to initial recognition
they are measured at amortised cost using the effective interest rate method
less any impairment losses.
Cash and cash equivalents
Cash at bank, and short-term deposits that are held to maturity, are carried
at cost. Cash and cash equivalents are defined as cash in hand, demand
deposits and short-term, highly liquid investments readily convertible to
known amounts of cash and subject to insignificant risk of changes in value.
For the purposes of the Consolidated Statement of Cash Flows, cash and cash
equivalents consist of cash in hand and short-term deposits at banks with an
initial term of no more than three months.
Financial liabilities
Non-derivative financial liabilities comprise loans and borrowings and trade
and other payables.
Loans and borrowings
Borrowings are recognised initially at fair value of the consideration
received, less attributable transaction costs. Subsequent to initial
recognition, interest-bearing borrowings are stated at amortised cost with any
difference between cost and redemption value being recognised in the Statement
of Comprehensive Income over the period of the borrowings on an effective
interest basis.
Trade and other payables
Trade and other payables are stated at amortised cost.
Share capital
Ordinary shares, including treasury shares, are classified as equity.
Share buyback
Shares purchased are recognised on the trade date and debited to the existing
treasury reserve in the Statement of Changes in Equity. Any broker's fees
relating to the share buyback are debited to other expenses.
Dividends
Dividends are recognised in the period in which they are paid. A final
dividend will be paid following the period end.
Rental income
Rental income from investment properties is recognised on a straight-line
basis over the term of ongoing leases and is shown gross of any UK income tax.
Lease incentives are spread evenly over the lease term.
Surrender premiums and dilapidations are recognised in line with individual
lease agreements when cash inflows are certain.
Impairment
Financial assets
Financial assets at amortised cost are subject to impairment.
The Group's significant financial assets that are subject to IFRS 9's expected
credit loss model are trade receivables from the leasing of investment
properties. The credit risk associated with unpaid rent has increased in
recent years due to macroeconomic factors and the Company has undertaken a
detailed analysis over the recoverability of expected rents. Deferred income
has been closely monitored and any rents deemed irrecoverable discussed by
management.
Non-financial assets
The carrying amounts of the Group's non-financial assets, being the investment
in joint ventures, are reviewed at each reporting date to determine whether
there is any indication of impairment. If any such indication exists, then the
asset's recoverable amount is estimated.
The recoverable amount of an asset or cash-generating unit is the greater of
its value in use and its fair value less costs to sell. In assessing value in
use, the estimated future cash flows are discounted to their present value
using a pre-tax discount rate that reflects current market assessments of the
time value of money and the risks specific to that asset.
For the purpose of impairment testing, assets are grouped together into the
smallest group of assets that generates cash inflows from continuing use that
are largely independent of the cash inflows of other assets or groups of
assets (the 'cash-generating unit').
An impairment loss is recognised if the carrying amount of an asset or its
cash-generating unit exceeds its estimated recoverable amount. Impairment
losses are recognised in the statement of comprehensive income.
Provisions
A provision is recognised in the Consolidated Statement of Financial Position
when the Group has a legal or constructive obligation as a result of a past
event and it is probable that an outflow of economic benefits will be required
to settle the obligation.
Finance costs
Finance costs comprise interest expenses on borrowings that are recognised in
the Statement of Comprehensive Income. Attributable transaction costs incurred
in establishing the Group's credit facilities are deducted from the fair value
of borrowings on initial recognition and are amortised over the lifetime of
the facilities through the Statement of Comprehensive Income. Finance costs
are accounted for on an effective interest basis.
Expenses
All expenses are accounted for on an accruals basis and the Company does not
capitalise overheads and operating expenses. The costs recharged to occupiers
of the properties are presented net of the service charge income as management
consider that the property agent acts as principal in this respect.
Taxation
SREIT elected to be treated as a UK real estate investment trust ('REIT'). The
UK REIT rules exempt the profits of SREIT and its subsidiaries' (the 'Group')
UK property rental business from corporation tax. Gains on UK properties are
also exempt from tax, provided they are not held for trading or sold in the
three years after completion of development. The Group is otherwise subject to
corporation tax.
As a REIT, SREIT is required to pay Property Income Distributions equal to at
least 90% of the Group's exempted net income. To retain UK REIT status there
are a number of conditions to be met in respect of the principal company of
the Group, the Group's qualifying activity and its balance of business. The
Group continues to meet these conditions.
Segmental reporting
The Directors are of the opinion that the Group is engaged in a single segment
of business, being property investment, and in one geographical area, the
United Kingdom. There is no one tenant that represents more than 10% of group
revenues. SREIM acts as advisor to the Board, who then may make management
decisions following their recommendations. As such the Board of Directors are
considered to be the chief operating decision maker. A set of consolidated
IFRS financial information is provided to the Board on a quarterly basis.
2. Material agreements
SREIM is the Investment Manager to the Company. The Investment Manager is
entitled to a fee, together with reasonable expenses incurred in the
performance of its duties. The current fee is payable monthly in arrears at
one twelfth of the aggregate of 0.9% of the NAV of the Company (where NAV is
less than £500 million).
The Investment Management Agreement can be terminated by either party on not
less than twelve months written notice (such notice not to expire prior to the
second anniversary of the effective date per the most recent agreement being
21 November 2023) or on immediate notice in the event of certain breaches of
its terms or the insolvency of either party.
The tiered fee structure is as follows:
NAV Management fee percentage per annum of NAV
<£500 million 0.9%
£500 million - £1 billion 0.8%
£1 billion+ 0.7%
The fee covers all of the appointed services of the Investment Manager and
there are standard provisions for the reimbursement of expenses. Additional
fees can be agreed for out-of-scope services on an ad hoc basis.
With effect from the financial year ending 31 March 2025, the Company shall
pay to the Investment Manager an additional management fee equal to 0.05 per
cent of Net Asset Value per annum if:
a) the Manager has delivered the sustainability-related key performance
indicators contained within the Investment Policy, as may amended from time to
time, to the satisfaction of the Board (acting reasonably); and
b) the 12-month income return from the underlying Property Portfolio, to
be calculated by MSCI, is ahead of the MSCI Benchmark.
The total charge to the Consolidated Statement of Comprehensive Income during
the year was £2,350,000 (2023: £2,755,000). At the year end £500,000 (2023:
£nil) was outstanding.
Langham Hall (Guernsey) Limited and Langham Hall UK Depositary LLP provide
Administration, Designated Manager and Depositary services to the Group
respectively. Administration fees during the year were £116,000 (2023:
£96,000).
Schroder Investment Management Limited provides company secretarial services
to the Company with an annual fee equal to £50,000. Company secretarial fees
for the period 1 April 2023 to 31 March 2024 were £50,000 (2023: £50,000).
3. Other income
31/03/2024 31/03/2023
£000 £000
Dilapidations, surrender premiums and all other miscellaneous income 1,504 58
1,504 58
4. Property operating expenses
31/03/2024 31/03/2023
£000 £000
Agents' fees 147 133
Repairs and maintenance 67 51
Advertising 38 70
Rates 290 369
Service charge, insurance and utilities on vacant units 1,492 1,657
Ground rent 113 68
Bad debt write offs, provisions and write backs 7 (90)
2,154 2,258
5. Auditor's remuneration
The total expected audit fees are £197,000 for the financial year ended 31
March 2024 (2023: £185,000).
6. Other expenses
31/03/2024 31/03/2023
£000 £000
Professional fees 204 285
Other expenses 72 61
276 346
Directors' fees
Directors are the only officers of the Company and there are no other key
personnel. The Directors' annual remuneration for services to the Group was
£183,750 (2023: £171,900), as set out in the Directors' Remuneration Report
on pages 64 to 65.
7. Taxation
31/03/2024 31/03/2023
£000 £000
Tax expense in the year - -
Reconciliation of effective tax rate
Profit/(loss) before tax 3,017 (54,715)
Effect of:
Tax using the UK corporation tax rate of 25% (2023: 19%) 754 (10,396)
Revaluation loss on investment property not deductible 2,011 11,420
Revaluation loss on financial instrument not deductible 137 -
Share of capital loss of associates and joint ventures not deductible 1,265 2,187
Profit on the disposal of investment property not deductible (50) (225)
Profit on disposal of financial instrument not deductible (47) -
Loss on refinancing costs - 47
UK REIT exemption (4,070) (3,033)
Current tax expense in the year - -
SREIT elected to be treated as a UK real estate investment trust ('REIT'). The
UK REIT rules exempt the profits of SREIT and its subsidiaries' (the 'Group')
UK property rental business from corporation tax. Gains on UK properties are
also exempt from tax, provided they are not held for trading or sold in the
three years after completion of development. The Group is otherwise subject to
corporation tax.
As a REIT, SREIT is required to pay Property Income Distributions equal to at
least 90% of the Group's exempted net income. To retain UK REIT status there
are a number of conditions to be met in respect of the principal company of
the Group, the Group's qualifying activity and its balance of business. The
Group continues to meet these conditions.
8. Basic and diluted earnings per share
The basic and diluted earnings per share for the Group are based on the profit
for the year of £3,017,000 (2023: loss of £54,715,000) and the weighted
average number of ordinary shares in issue during the year of 489,110,576
shares (2023: 489,951,223).
9. Dividends paid
In respect of: Ordinary Rate 31/03/2024
shares (pence) £000
Q/e 31 March 2023 (dividend paid 30 June 2023) 489.11 million 0.836 4,089
Q/e 30 June 2023 (dividend paid 25 August 2023) 489.11 million 0.836 4,089
Q/e 30 Sept 2023 (dividend paid 22 December 2023) 489.11 million 0.836 4,089
Q/e 31 Dec 2023 (dividend paid 28 March 2024) 489.11 million 0.836 4,089
3.344 16,356
In respect of: Ordinary Rate 31/03/2023
shares (pence) £000
Q/e 31 March 2022 (dividend paid 30 June 2022) 491.08 million 0.795 3,904
Q/e 30 June 2022 (dividend paid 19 August 2022) 491.02 million 0.803 3,943
Q/e 30 Sept 2022 (dividend paid 9 December 2022) 489.11 million 0.803 3,928
Q/e 31 Dec 2022 (dividend paid 7 March 2023) 489.11 million 0.819 4,006
3.220 15,781
A dividend for the quarter ended 31 March 2024, of 0.853 pence per share, was
approved and will be paid on the 28 June 2024.
10. Investment property
Leasehold Freehold Total
£000 £000 £000
Fair value as at 31 March 2022 39,793 393,693 433,486
Additions 32 10,101 10,133
Acquisitions - 16,058 16,058
Disposal of assets held at fair value - (12,405) (12,405)
Gain on the sale of assets - 1,184 1,184
Fair value leasehold movement (319) - (319)
Net unrealised valuation loss on investment property (4,093) (56,014) (60,107)
Fair value as at 31 March 2023 35,413 352,617 388,030
Additions 720 7,570 8,290
Acquisitions - - -
Disposal of assets held at fair value - (3,763) (3,763)
Gain on the sale of assets - 199 199
Fair value leasehold movement (106) - (106)
Net unrealised valuation loss on investment property (2,949) (5,095) (8,044)
Fair value as at 31 March 2024 33,078 351,528 384,606
The balance above includes:
Leasehold Freehold Total
£000 £000 £000
Investment property 33,745 352,617 386,362
Fair value leasehold adjustment 1,668 - 1,668
Fair value as at 31 March 2023 35,413 352,617 388,030
Leasehold Freehold Total
£000 £000 £000
Investment property 31,516 351,528 383,044
Fair value leasehold adjustment 1,562 - 1,562
Fair value as at 31 March 2024 33,078 351,528 384,606
The fair value of investment properties, as determined by the valuer as at 31
March 2024, totals £391,475,000 (March 2023: £398,560,000), of which a sum
of £8,431,000 (2023: £8,198,000) relating to lease incentives is included
within trade and other receivables.
The fair value of investment property has been determined by CBRE, a firm of
independent chartered surveyors, who are registered independent appraisers
(note 18). The valuation has been undertaken in accordance with the current
RICS Valuation - Global Standards, which incorporates the International
Valuation Standards, issued by the Royal Institution of Chartered Surveyors
(the 'Red Book').
The properties have been valued on the basis of "Fair Value" in accordance
with the RICS Valuation-- Professional Standards VPS4(7.1) Fair Value and
VPGA1 Valuations for Inclusion in Financial Statements which adopt the
definition of Fair Value used by the International Accounting Standards Board.
The valuation has been undertaken using appropriate valuation methodology and
the Valuer's professional judgement. The Valuer's opinion of Fair Value was
primarily derived using recent comparable market transactions on arm's length
terms, where available, and appropriate valuation techniques (The Investment
Method).
The properties have been valued individually and not as part of a portfolio.
As highlighted within the Group's investment management strategy on page 37,
developments and refurbishments form a key element of the Group's commitment
to sustainability. During the year the Group has spent £8.3m on capital
expenditure. This sum included both capital works which, in some cases,
enhanced the environmental performance of the assets amongst other key
strategies. The primary focus has been on optimising earnings across the
existing portfolio through an extensive asset management and targeted capital
expenditure programme, targeting growth areas and sustainability improvements.
All investment properties are categorised as Level 3 fair values as they use
significant unobservable inputs. There have not been any transfers between
Levels during the year. Investment properties have been classed according to
their real estate sector. Information on these significant unobservable inputs
per class of investment property is disclosed below:
Quantitative information about fair value measurement using unobservable
inputs (Level 3) as at
31 March 2024
31 March 2024 Industrial (1) Retail (incl. retail warehouse) Office Other Total
Fair value (£'000) 229,750 83,775 59,225 18,725 391,475
Area ('000 sq ft) 2,400 446 358 198 3,402
Net passing rent psf per annum Range £2.36 - £19.46 £5.22 £2.99 - £76.75 £13.86 £6.99- £32.93 £15.37 £1.05 -£26.70 £1.05 - £76.75 £7.58
Weighted average £7.95
Gross ERV psf per annum Range £2.50 - £19.25 £4.00 - £80.50 £15.66 £8.47-£34.00 £2.00 -£25.00 £2.00 - £80.50 £9.83
Weighted average £7.25 £20.58 £8.51
Net initial yield (1) Range 0.00% -8.18% 4.99% 0.00% -11.87% 6.73% 0.00%-13.19% 7.71% 6.55%-9.45% 0.00% - 13.19% 5.93%
Weighted average 7.68%
Equivalent yield Range 5.98% - 9.35% 6.93% 6.43%-12.24% 7.73% 8.03%-14.00% 10.19% 6.80%-9.94% 5.95%-14.00% 7.75%
Weighted average 8.78%
Notes:
(1) Yields based on rents receivable after deduction of head rents but
gross of non-recoverables.
Quantitative information about fair value measurement using unobservable
inputs (Level 3) as at
31 March 2023
31 March 2023 Industrial (1) Retail (incl. retail warehouse) Office Other Total
Fair value (£000) 220,110 85,850 72,950 19,650 398,560
Area ('000 sq. ft) 2,396 448 424 198 3,466
Net passing rent per sq. ft per annum Range £2.36 - £14.00 £4.84 £2.99 - £70.39 £14.06 £10.50- £26.14 £12.87 £1.05 -£26.70 £0 - £32.85 £7.22
Weighted average £8.96
Gross ERV per sq. ft per annum Range £2.50 - £17.50 £4.00 - £80.56 £15.35 £8.47-£27.00 £2.10 -£13.00 £3.50 - £32.85 £9.51
Weighted average £6.88 £18.57 £7.98
Net initial yield ((1)) Range 3.00% -13.12% 4.87% 3.68% -21.60% 6.71% 4.90%-13.35% 6.6% 6.00%-10.82% 3.00% - 21.6% 5.70%
Weighted average 8.06%
Equivalent yield Range 5.35% - 10% 6.53% 5.50%-14.00% 7.33% 7.25%-13.00% 9.38% 6.04%-11.35% 5.35%-14.00% 7.51%
Weighted average 8.82%
Notes: (1) Yields based on rents receivable after deduction of head rents
but gross of non-recoverables.
Sensitivity of measurement to variations in the significant unobservable
inputs
The significant unobservable inputs used in the fair value measurement
categorised within Level 3 of the fair value hierarchy of the Group's property
portfolio, together with the impact of significant movements in these inputs
on the fair value measurement, are shown below:
Impact on fair value measurement of significant increase in input Impact on fair value measurement of significant decrease in input
Unobservable input
Passing rent Increase Decrease
Gross ERV Increase Decrease
Net initial yield Decrease Increase
Equivalent yield Decrease Increase
There are interrelationships between the yields and rental values as they are
partially determined by market rate conditions.
The sensitivity of the valuation to changes in the most significant inputs per
class of investment property are shown below:
Estimated movement in fair value of investment properties at 31 March 2024 Industrial Retail Office Other All sectors
£000 £000 £000 £000 £000
Increase in ERV by 5% 10,122 2,788 2,726 183 15,819
Decrease in ERV by 5% (10,101) (2,603) (2,720) (189) (15,613)
Increase in net initial yield by 0.25% (8,886) (2,950) (1,828) (604) (14,268)
Decrease in net initial yield by 0.25% 9,773 3,209 2,367 645 15,994
Estimated movement in fair value of investment properties at 31 March 2023 Industrial Retail Office Other All sectors
£000 £000 £000 £000 £000
Increase in ERV by 5% 9,852 3,280 3,039 161 16,332
Decrease in ERV by 5% (9,764) (3,018) (5,195) (161) (18,138)
Increase in net initial yield by 0.25% (8,774) (3,119) (2,263) (627) (14,783)
Decrease in net initial yield by 0.25% 9,678 3,374 2,717 673 16,442
11. Investment in joint ventures
Closing balance as at 31 March 2022 83,700
Valuation loss on joint venture (11,513)
Closing balance as at 31 March 2023 72,187
Purchase of further units in City Tower Unit Trust 187
Purchase of further units in Store Unit Trust 50
Valuation loss on joint venture (5,058)
Closing balance as at 31 March 2024 67,366
( )
Summarised joint venture financial information not adjusted for the Group's 31/03/2024 31/03/2023
share - City Tower Unit Trust
£000
£000
Investment property 117,600 136,100
Other assets 1,069 3,779
Total liabilities(1) (2,524) (2,070)
Revenues for the year 10,182 9,025
Total comprehensive rental income 5,814 7,570
Net asset value attributable to the Group 29,036 34,452
Total comprehensive income attributable to the Group 1,454 1,893
31/03/2024 31/03/2023
£000
£000
Summarised joint venture financial information not adjusted for the Group's
share - Store Street Unit Trust
Investment properties 76,750 75,550
Other assets 404 446
Total liabilities(1) (494) (527)
Revenues for the year 3,870 3,700
Total comprehensive rental income 3,206 3,242
Net asset value attributable to the Group 38,330 37,735
Total comprehensive income attributable to the Group 1,603 1,621
( )
(1) Liabilities are non-recourse to the Group.
The Company owns 25% of City Tower Unit Trust and 50% of Store Unit
Trust. The remaining units in the City Tower and Store Unit Trusts are owned
by other Schroders' funds.
The fair value of investment property owned by the two Joint Ventures has
been determined by CBRE, who are registered independent appraisers. The two
valuations were undertaken on the same basis as that described under Note 10:
Investment Property.
12. Trade and other receivables
31/03/2024 31/03/2023
£000
£000
Rent receivable 3,172 3,578
Other debtors and prepayments 16,665 14,048
Other capital debtors - 4,000
19,837 21,626
Other debtors and prepayments include £8,431,000 (2023: £8,198,000) in
respect of lease incentives.
As at 31 March 2024 total bad debt provisions of £0.4m (2023: £0.4m) had
been recognised against rental debtors of £2.3m (2023: £3.3m) net of VAT.
13. Cash and cash equivalents
As at 31 March 2024 the Group held £6.0 million (2023: £8.4 million) in
cash.
14. Issued capital and reserves
Stated capital
The share capital of the Company is represented by an unlimited number of
ordinary shares of no par value. As at the date of this Report, the Company
has 565,664,749 ordinary shares in issue (2023: 565,664,749) of which
76,554,173 Ordinary shares are held in treasury (2023: 76,554,173). The total
number of voting rights of the Company was 489,110,576 (2023: 489,110,576) as
at the financial year end.
Treasury capital
76,554,173 (2023: 76,554,173) ordinary shares, which represent 13.5% (2023:
13.5%) of the Company's total issued share capital, were held in treasury as
at the financial year end.
Revenue reserve
This reserve represents an accumulated amount of the Group's prior earnings
net of dividends.
15. Interest-bearing loans and borrowings
This note provides information about the contractual terms of the Group's
interest-bearing loans and borrowings. For more information about the Group's
exposure to interest rate risk, see note 18.
31/03/2024 31/03/2023
£000 £000
Non-current liabilities
Loan facilities 176,585 177,885
Unamortised arrangement fees (719) (952)
175,866 176,933
The Group has in place a £129.6 million loan facility with Canada Life. This
has been in place since 16 April 2013 and has been refinanced several times,
most recently in October 2019.
The loan is split into two equal tranches of £64.8 million as follows:
- Facility A matures in October 2032 and attracts an interest rate of
2.36%; and
- Facility B matures in October 2039 and attracts an interest rate of
2.62%.
As at the April 2024 Interest Payment Date, the Canada Life interest cover
ratio was 497% (2023: 480%) against
a covenant of 185%; the forecast interest cover ratio was 482% (2023: 449%)
against a covenant of 185%; and
the Loan to Value ratio was 49.4% (2023: 46.9%) against a covenant of 65%.
The Canada Life facility has a first charge of security over all the property
assets in the ring-fenced security pool which at 31 March 2024 contained
properties valued at £262.24 million (2023: £271.80 million). Various
restraints apply during the term of the loan although the facility has been
designed to provide significant operational flexibility.
The Group also has a revolving credit facility with RBSI, most recently
refinanced in June 2022, with a five-year term which runs to June 2027, and
the maximum amount able to be drawn is £75.0m. The facility carries an
interest rate of a 1.65% margin, plus three-month SONIA rate, with a 0.64%
non-utilisation fee. As at 31 March 2024, a sum of £47.0m was drawn down.
In June 2023 the Group also completed on the acquisition of an interest rate
collar from RBSI, which has a floor of 3.25% and a cap of 4.25%; which will
expire on 6 June 2027; and which is attributable to £30.5 million of the loan
drawn sum of the RBSI revolving credit facility. Further details are disclosed
in note 20.
As at the April 2024 Interest Payment Date, the RBSI projected interest cover
ratio was 231% (2023: 411%) against a covenant of 200% and the Loan to Value
ratio was 29.8% (2023: 30.0%) against a covenant of 65%.
The RBSI facility has a first charge security over certain property assets
which at 31 March 2024 contained properties valued at £157.6 million (2023:
£160.8 million).
A reconciliation of financing movements for the year is presented below split
in to cash and non-cash items:
31/03/2024
£000
Loan balance brought forward 176,933
Drawdown on RBSI RCF (cash) 1,000
Repayment of RBSI RCF (cash) (2,300)
Non-cash amortisation of arrangement fees 233
Loan balance carried forward 175,866
31/03/2023
£000
Loan balance brought forward 161,791
Drawdown on RBSI RCF (cash) 15,600
Non-cash amortisation of arrangement fees (458)
Loan balance carried forward 176,933
16. Trade and other payables
31/03/2024 31/03/2023
£000
£000
Deferred income 4,952 5,131
Rental deposits 2,442 1,850
Interest payable 1,328 1,101
Other trade payables and accruals 4,533 2,890
13,255 10,972
17. NAV per Ordinary Share
The number of ordinary shares in issue was 489,110,576 as at 31 March 2024
(2023: 489,110,576).
The NAV per Ordinary Share is based on the net assets of £287,350,000 (2023:
£300,689,000) and 489,110,576 (2023: 489,110,576) ordinary shares in issue as
at the reporting date.
18. Financial instruments, properties and associated risks
Financial risk factors
The Group holds cash and liquid resources as well as having debtors and
creditors that arise directly from its operations. The Group uses interest
rate derivative contracts, the details of which are in note 20, when required
to limit exposure to interest rate risks, but does not have any other
derivative instruments.
The main risks arising from the Group's financial instruments and properties
are market price risk, credit risk, liquidity risk and interest rate risk. The
Group has no exposure to foreign currency exchange risk. The Board regularly
reviews and agrees policies for managing each of these risks and these are
summarised below:
Market price risk
Rental income, and the market value for properties, are generally affected by
overall conditions in the economy, such as changes in gross domestic product,
employment trends, inflation and changes in interest rates. Changes in gross
domestic product may also impact employment levels, which in turn may impact
the demand for premises. Furthermore, movements in interest rates may also
affect the cost of financing for real estate companies. Both rental income and
property values may also be affected by other factors specific to the real
estate market such as competition from other property owners; the perceptions
of prospective tenants of the attractiveness, convenience and safety of
properties; the inability to collect rents because of bankruptcy or the
insolvency of tenants; the periodic need to renovate, repair and re-lease
space and the costs thereof; and the costs of maintenance and insurance, and
increased operating costs.
The Directors monitor the market value of investment properties by having
independent valuations carried out quarterly by a firm of independent
chartered surveyors. Note 10 sets out the sensitivity analysis on the market
price risk. Concentration risk, based on industry and geography, is set out in
the tables on pages 12 to 15. Included in market price risk is interest rate
risk which is discussed further below.
Credit risk
Credit risk is the risk that an issuer or counterparty will be unable or
unwilling to meet a commitment that it has entered into with the Group. In the
event of default by an occupational tenant, the Group will suffer a rental
income shortfall and incur additional costs, including legal expenses, in
maintaining, insuring and re-letting the property. The Investment Manager
reviews reports prepared by Dun & Bradstreet, or other sources, to assess
the credit quality of the Group's tenants and aims to ensure there is no
excessive concentration of risk and that the impact of any default by a tenant
is minimised.
In respect of credit risk arising from other financial assets, which comprise
cash and cash equivalents, exposure to credit risk arises from default of the
counterparty with a maximum exposure equal to the carrying amounts of these
instruments. In order to mitigate such risks, cash is maintained with major
international financial institutions with high quality credit ratings. During
the year, and at the reporting date, the Group maintained a relationship with
branches and subsidiaries of HSBC. HSBC has a credit rating of A- (provided by
Standard and Poor).
The maximum exposure to credit risk for rent receivables at the reporting date
by type of sector was:
31/03/2024 31/03/2023
Carrying amount
Carrying amount
£000
£000
Office 279 568
Industrial 2,190 2,496
Retail, leisure and other 779 874
3,248* 3,938*
* Rental debtors gross of VAT and excluding bad debt provisions.
Rent receivables which are past their due date were:
31/03/2024 31/03/2023
Carrying amount
Carrying amount
£000
£000
0-30 days 1,916 2,940
31-60 days 143 62
61-90 days 122 4
91 days plus 1,067 932
3,248* 3,938*
Management has considered rental debtors on a quarterly basis and made
provisions where it has been deemed that these amounts may be unrecoverable.
As at 31 March 2024 total provisions of £0.36m (2023: £0.36m) were
recognised and rental debtors are shown net of this provision in the Balance
Sheet.
On initial recognition the Group calculates the expected credit loss for
debtors based on the lifetime expected credit losses under the IFRS 9
simplified approach. Management considers aged debtors' analyses, the strength
of tenant covenants, macroeconomic factors and any rental deposits held.
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulties in
meeting obligations associated with its financial obligations.
The Group's investments comprise UK commercial property. Property and
property-related assets are inherently difficult to value due to the
individual nature of each property. As a result, valuations are subject to
substantial uncertainty. There is no assurance that the estimates resulting
from the valuation process will reflect the actual sale price even where such
sales occur shortly after the valuation date. Investments in property are
relatively illiquid. However, the Group has tried to mitigate this risk by
investing in properties that it considers to be of good quality.
In certain circumstances, the terms of the Group's debt facilities entitle the
lender to require early repayment and in such circumstances the Group's
ability to maintain dividend levels and the net asset value could be adversely
affected. The Investment Manager prepares cash flows on a rolling basis to
ensure the Group can meet future liabilities as and when they fall due.
The following table indicates the maturity analysis of the financial
liabilities.
As at 31 March 2024
Expected 6 months -
cash flows
2 years
Carrying
£000 6 months
£000 2-5 years More
amount
or less
£000
than 5 years
£000
£000
£000
Financial liabilities
Interest-bearing loans and borrowings and interest (1) 175,866 226,102 3,226 9,679 60,713 152,484
Leasehold liability 1,562 11,533 51 154 307 11,021
Trade and other payables 7,729 7,729 5,594 - - 2,135
Total financial liabilities 185,157 245,364 8,871 9,833 61,020 165,640
As at 31 March 2023 Expected 6 months -
cash flows
2 years
Carrying
£000 6 months
£000 2-5 years More
amount
or less
£000
than 5 years
£000
£000
£000
Financial liabilities
Interest-bearing loans and borrowings and interest (1) 176,933 232,303 3,044 9,131 64,417 155,711
Leasehold liability 1,668 11,961 52 157 313 11,439
Trade and other payables 5,841 5,841 3,990 - - 1,851
Total financial liabilities 184,442 250,105 7,086 9,288 64,730 169,001
(1) Assumes that the £47.0 million RBS revolving credit facility is repaid in
2027.
Interest rate risk
Exposure to market risk for changes in interest rates relates primarily to the
Group's long-term debt obligations and to interest earned on cash balances. As
interest on the Group's long-term debt obligations is payable on a fixed-rate
basis, the Group is not exposed to near-term interest rate risk in relation to
its Canada Life loan facility. As at 31 March 2024 the fair value of the
Group's £129.6 million loan with Canada Life was £111.1 million (2023:
£112.8 million).
The RBSI revolving credit facility is a low-margin and flexible source of
funding with a margin of 1.65%, plus 3-month SONIA rate, and it is considered
by management that the carrying value of the loan is equal to its fair value
(sum of £47.0m (2023: £48.3 million) drawn as at the year end). In order to
assist with mitigating interest rate risk on the RBSI facility, in June 2023
the Group acquired an interest rate collar from RBSI, which has a floor of
3.25% and a cap of 4.25%; which will expire on 6 June 2027; and which is
attributable to £30.5 million of the loan drawn sum.
A 1% increase or decrease in short-term interest rates would increase or
decrease the annual bank interest income, and equity, by £60,000 based on the
cash balance as at 31 March 2024.
The Canada Life loan is fixed-rate, as above, and thus a 1% increase or
decrease in interest rates would not impact the loan interest payable by the
Fund.
The RBS revolving credit facility had a drawn balance of £47.0m as at the
year end and an interest rate collar in place for £30.5m of the drawn sum. A
1% increase in interest rates would thereby increase the finance costs payable
by £165,000 (assuming that the loan principal drawn remained the same).
Fair values
The fair values of financial assets and liabilities are not materially
different from their carrying values, unless disclosed below, in the financial
statements.
The fair value hierarchy levels are as follows:
- Level 1 - quoted prices (unadjusted) in active markets for identical
assets and liabilities;
- Level 2 - inputs other than quoted prices included within level 1
that are observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices); and
- Level 3 - inputs for the assets or liability that are not based on
observable market data
(unobservable inputs).
There have been no transfers between Levels 1, 2 and 3 during the year (2023:
none).
The following summarises the main methods and assumptions used in estimating
the fair values of financial instruments and investment property:
Investment property - level 3
Fair value is based on valuations provided by an independent firm of chartered
surveyors and registered appraisers. These values were determined after having
taken into consideration recent market transactions for similar properties in
similar locations to the investment properties held by the Group. The fair
value hierarchy of investment property is level 3. See Note 10 for further
details.
Interest-bearing loans and borrowings - level 2
Fair values are based on the present value of future cash flows discounted at
a market rate of interest. Issue costs are amortised over the period of the
borrowings. As at 31 March 2024, the fair value of the Group's £129.6 million
loan with Canada Life was £111.1 million (2023: £112.8 million).
Financial Instruments
The Group's interest rate collar is recognised at its fair value via
valuations provided by an independent firm, Chatham Financial.
Capital management
The Board's policy is to maintain a strong capital base to maintain investor,
creditor and market confidence and to sustain future development of the
business. The objective is to ensure that it will continue as a going concern
and to maximise the return to its equity shareholders through an appropriate
level of gearing. The Company's capital management process ensures it meets
its financial covenants in its borrowing arrangements. Breaches in meeting the
financial covenants could permit the lenders to immediately accelerate the
repayment of loans and borrowings. The Company monitors as part of its
quarterly board meetings that it will adhere to specific leverage, interest
cover and rental cover ratios. There have been no breaches in the financial
covenants of any loans and borrowings during the financial year.
The Company's debt and capital structure comprises the following:
31/03/2024 31/03/2023
£000
£000
Debt
Fixed-rate loan facility 129,585 129,585
Floating rate loan facility * 47,000 48,300
176,585 177,885
Equity
Called-up share capital 181,989 181,989
Reserves 105,361 118,700
287,350 300,689
Total debt and equity 463,935 478,574
There were no changes in the Group's approach to capital management during the
year.
* This amount refers to the amount drawn. The total facility as at 31 March
2024 was £75.0m (2023: £75.0m).
19. Operating leases
The Group leases out its investment property under operating leases. At 31
March 2024 the future minimum lease receipts under non-cancellable leases are
as follows:
31/03/2024 31/03/2023
£000
£000
Less than one year 23,400 22,850
Between one and five years 68,798 66,194
More than five years 54,918 58,829
147,116 147,873
The total above comprises the total contracted rent receivable as at 31 March
2024.
The Group has entered into leases on its property portfolio. The commercial
property leases typically have lease terms between 5 and 15 years and include
clauses to enable periodic upward revision of the rental charge according to
prevailing market conditions. Some leases contain options to break before the
end of the lease term.
20. Interest rate derivative contracts
In June 2023 the Group disposed of its interest cap, which had been due to
expire in July 2023, and which was attributable to £30.5 million of the drawn
loan sum of the RBSI revolving credit facility, for a sum of £0.19 million.
This had previously been carried at a nil fair value and thus there was a gain
on disposal of £0.19 million recognised in the financial year.
In June 2023 the Group also completed on the acquisition of an interest rate
collar from RBSI, which has a floor of 3.25% and a cap of 4.25%; which will
expire on 6 June 2027; and which is attributable to £30.5 million of the
drawn loan sum of the RBSI revolving credit facility. The cost to acquire this
financial instrument was £0.77 million, including fees, and as at the 31
March 2024 it had a deemed fair value of £0.22 million with an unrealised
loss of £0.55m being recognised in the financial year.
21. List of subsidiary and joint venture undertakings
The companies listed below are those which were part of the Group as at 31
March 2024:
Undertaking Category Country of incorporation Principal Activities Ultimate ownership
SREIT No.2 Limited Subsidiary Guernsey Property ownership with external finance 100%
SREIT Holding (No.2) Limited Subsidiary Guernsey Holding Company 100%
SREIT Holding Company Limited Subsidiary Guernsey Holding Company with external finance 100%
SREIT Property Limited Subsidiary Guernsey Property ownership 100%
SREIT (Portergate) Limited Subsidiary Guernsey Property ownership 100%
SREIT (Uxbridge) Limited Subsidiary Guernsey Property ownership 100%
SREIT (City Tower) Limited Subsidiary Guernsey Joint ownership of an underlying property unit trust 100%
SREIT (Store) Limited Subsidiary Guernsey Joint ownership of an underlying property unit trust 100%
SREIT (Bedford) Limited Subsidiary Guernsey Property ownership 100%
City Tower Unit Trust Joint Venture Jersey Property ownership 25%
Store Unit Trust Joint Venture Jersey Property ownership 50%
The registered addresses for all wholly-owned entities are the same as that of
the parent company and can be found on page 144.
The registered address for both Joint Venture entities is 47 Esplanade, St
Helier, Jersey, JE1 0BD, Channel Islands.
22. Related party transactions
Material agreements and transactions with the Investment Manager are disclosed
in note 2. Transactions with regard to joint ventures are disclosed in note
10. Transactions with the directors are shown in the directors' remuneration
report.
23. Capital commitments
As at 31 March 2024 the Group had capital commitments of £8.4 million (2023:
£7.7 million).
24. Post balance sheet events
There are no post balance sheet events to report.
Other information (unaudited)
EPRA Performance Measures (unaudited)
As recommended by the European Public Real Estate Association, EPRA
performance measures are disclosed in the section below.
EPRA performance measures: summary table
31/03/2024 31/03/2023
EPRA earnings £16,278,000 £15,968,000
EPRA earnings per share 3.3pps 3.3pps
EPRA Net Reinstatement Value £318,360,000 £332,178,000
EPRA Net Reinstatement Value per share 65.1p 67.9p
EPRA Net Tangible Assets £287,131,000 £300,689,000
EPRA Net Tangible Assets per share 58.7p 61.5p
EPRA Net Disposal Value £305,808,000 £317,448,000
EPRA Net Disposal Value per share 62.5p 64.9p
EPRA Net Initial Yield 5.6% 5.4%
EPRA "topped-up" Net Initial Yield 6.1% 5.8%
EPRA vacancy rate 10.9% 11.1%
EPRA cost ratios-- including direct vacancy costs 29.6% 28.0%
EPRA cost ratios-- excluding direct vacancy costs 23.7% 21.1%
EPRA LTV 37.1% 36.0%
a. EPRA earnings and earnings per share
Earnings excluding all capital components not relevant to the underlying net
income performance of the Company, such as the unrealised fair value gains or
losses on investment properties and any gains or losses from the sales of
properties.
31/03/2024 31/03/2023
£000 £000
Profit/(loss) per IFRS income statement 3,017 (54,715)
Adjustments to calculate EPRA Earnings:
Profit on the disposal of investment property (199) (1,184)
Net unrealised valuation loss on investment property 8,044 60,107
Net change in the fair value of financial instruments 547 -
Gain on the disposal of financial instruments (189) -
Share of the valuation loss in associates and joint ventures 5,058 11,513
Refinancing costs - 247
EPRA earnings 16,278 15,968
Weighted average number of ordinary shares 489,110,576 489,951,224
IFRS earnings per share (pence) 0.6 (11.2)
EPRA earnings per share (pence) 3.3 3.3
b. EPRA Net Reinstatement Value
IFRS equity attributable to shareholders adjusted to represent the value
required to rebuild the entity and assumes that no selling of assets takes
place.
31/03/2024 31/03/2023
£000 £000
IFRS equity attributable to shareholders 287,350 300,689
Adjustment in respect of real estate transfer taxes and costs 31,229 31,489
Adjustment in respect of the fair value of financial instruments (219) -
EPRA Net Reinstatement Value 318,360 332,178
Shares in issue at the end of the period 489,110,576 489,110,576
EPRA NRV per share (pence per share) 65.1p 67.9p
c. EPRA Net Tangible Assets per share
The IFRS equity attributable to shareholders adjusted to reflect a Company's
tangible assets and assumes that no selling of assets takes place.
31/03/2024 31/03/2023
£000 £000
IFRS equity attributable to shareholders 287,350 300,689
Fair value of financial instruments (219) -
EPRA Net Tangible Assets 287,131 300,689
Shares in issue at the end of the year 489,110,576 489,110,576
IFRS NAV per share (pence) 58.8p 61.5p
EPRA Net Tangible Assets per share (pence) 58.7p 61.5p
d. EPRA Net Disposal Value per share
The IFRS equity attributable to shareholders adjusted to reflect the NAV under
an orderly sale of business, where any deferred tax, financial instruments and
certain other adjustments are calculated to the full extent of their
liability.
31/03/2024 31/03/2023
£000 £000
IFRS equity attributable to shareholders 287,350 300,689
Adjustments to calculate EPRA Net Disposal Value:
The fair value of fixed-interest rate debt 18,458 16,759
EPRA Net Disposal Value 305,808 317,448
Shares in issue at the end of the year 489,110,576 489,110,576
EPRA Net Disposal Value per share (pence) 62.5p 64.9p
e. EPRA Net Initial Yield
Annualised rental income based on the cash rents passing at the Balance Sheet
date (but adjusted as set out below), less non-recoverable property operating
expenses, divided by the gross market value of the property.
The EPRA "topped up" NIY is the EPRA NIY in respect of the expiration of rent
free periods.
31/03/2024 31/03/2023
£000 £000
Investment property - wholly-owned 391,475 398,560
Investment property - share of joint ventures and funds 67,775 71,800
Complete property portfolio 459,250 470,360
Allowance for estimated purchasers' costs 31,229 31,489
Gross up completed property portfolio valuation 490,479 501,849
Annualised cash passing rental income 29,796 29,292
Property outgoings (2,154) (2,258)
Annualised net rents 27,642 27,034
Notional rent expiration of rent-free periods ((1)) 2,462 2,177
Topped-up net annualised rent 30,104 29,211
EPRA NIY 5.6% 5.4%
EPRA "topped-up" NIY 6.1% 5.8%
(1) The period over which rent free periods expire is one year for 2023
(2022: 1 year).
f. EPRA cost ratios
Administrative and operating costs (including and excluding costs of direct
vacancy) divided by gross rental income.
31/03/2024 31/03/2023
£000 £000
Administrative/operating expense line per IFRS income statement 7,572 7,662
Share of Joint Venture expenses 1,423 591
Less: Ground rent costs (113) (68)
Costs (including direct vacancy costs) 8,882 8,185
Direct vacancy costs (1,782) (2,026)
Costs (excluding direct vacancy costs) 7,100 6,159
Gross rental income less ground rent costs - per IFRS 25,525 25,103
Add share of Joint Ventures (Gross Rental Income less ground rent costs) 4,480 4,106
Gross rental income 30,005 29,209
EPRA cost ratio (including direct vacancy costs) 29.6% 28.0%
EPRA cost ratio (excluding direct vacancy costs) 23.7% 21.1%
There were no directly attributable overhead and operating costs capitalised
during the year (2023: nil). The Company does not have a policy to capitalise
such expenses (as per note 1).
g. EPRA vacancy rate
Estimated market rental value (ERV) of vacant space divided by the ERV of the
whole portfolio.
31/03/2024 31/03/2023
£000 £000
Estimated rental value of vacant space 4,242 4,192
Estimated rental value of the whole portfolio 38,770 37,843
EPRA vacancy rate 10.9% 11.1%
There were no significant or distorting factors in the above.
h. EPRA LTV
The gearing of the shareholder equity within the Company.
31/03/2024 31/03/2023
£000 £000
Borrowings from Financial Institutions 176,585 177,885
Cash and cash equivalents (6,005) (8,419)
Cash and cash equivalents - share of joint ventures (229) (302)
Net Debt 170,351 169,164
Investment properties at fair value - direct portfolio 391,475 398,560
Investment properties at fair value - share of joint ventures 67,775 71,800
Total Property Value 459,250 470,360
LTV 37.1% 36.0%
i. EPRA capital expenditure
In accordance with EPRA's core recommendations, the Group's capital
expenditure invested in the year can be broken down as follows:
Group (excluding Joint Ventures) £m Joint Ventures (proportionate share) £m
Total Group £m
Acquisitions (including transaction costs) - - -
Developments and accretive works 8.3 0.8 9.1
Investment properties
- Tenant incentives - - -
- Other material non-allocated types of expenditure - - -
Total Capital Expenditure 8.3 0.8 9.1
As per note 10, the Fund made no new acquisitions, and thus also incurred no
additional transaction costs, during the financial year.
The capital expenditure invested in the year amounted to £8.3m on the
directly held portfolio (also as per note 10).
The three largest capital expenditure investments made in the financial year
were as follows: a) £2.8m at Stacey Bushes, Milton Keynes b) £1.5m at
Stirling Court, Swindon (see page 18 for further details) and c) £1.4m at The
Tun, Edinburgh (see page 18 for further details).
The £0.8m invested across joint ventures related solely to the Group's 25%
share of underlying capital expenditure works undertaken at City Tower.
Alternative Performance Measures (unaudited)
The Company uses the following Alternative Performance Measures ('APMs') in
its Annual Report and Consolidated Financial Statements. The Board believes
that each of the APMs provides additional useful information to the
shareholders in order to assess the Company's performance.
Dividend Cover - the ratio of EPRA Earnings (page 105) to dividends paid (note
9) in the period.
Dividend Yield - the dividends paid, expressed as a percentage relative to
the Company's share price.
EPRA Earnings - earnings excluding all capital components not relevant to the
underlying net income performance of the Company, such as the unrealised fair
value gains or losses on investment properties and any gains or losses from
the sales of properties. See page 105 for a reconciliation of this figure.
EPRA Net Tangible Assets - the IFRS equity attributable to shareholders
adjusted to reflect a Company's tangible assets and assumes that no selling of
assets takes place.
EPRA Net Disposal Value - the IFRS equity attributable to shareholders
adjusted to reflect the NAV under an orderly sale of business, where any
deferred tax, financial instruments and certain other adjustments are
calculated to the full extent of their liability.
EPRA Net Reinstatement Value - the IFRS equity attributable to shareholders
adjusted to represent the value required to rebuild the entity and assumes
that no selling of assets takes place.
Gross LTV - the value of the external loans unadjusted for unamortised
arrangement costs (note 15) expressed as a percentage of the market value of
property investments as at the Balance Sheet date. The market value of
property investments includes joint venture investments and are as per
external valuations and have not been adjusted for IFRS lease incentive
debtors nor the fair value of the head lease at Luton.
LTV net of cash - the value of the external loans unadjusted for unamortised
arrangement costs (note 15) less cash held (note 13) expressed as a percentage
of the market value of the property investments as at the Balance Sheet date.
The market value of property investments includes joint venture investments
and are as per external valuations and have not been adjusted for IFRS lease
incentive debtors or the fair value of the head lease at Luton.
Ongoing charges (including Fund expenses) - all operating costs expected to be
regularly incurred and that are payable by the Company expressed as a
percentage of the average quarterly NAVs of the Company for the financial
period. No capital costs, including capital expenditure or
acquisition/disposal fees, are included as costs.
Ongoing charges (including Fund and property expenses) - all operating costs
expected to be regularly incurred and that are payable by the Company
expressed as a percentage of the average quarterly NAVs of the Company for the
financial period. Any capital costs, including capital expenditure and
acquisition/disposal fees, are excluded as costs, as well as interest costs
and any other costs considered to be non-recurring. In the current period the
material non-recurring costs include non-cash bad debt expenses of £7k.
Share price discount/premium - the share price of an Investment Trust is
derived from buyers and sellers trading their shares on the stock market. This
price is not identical to the NAV per share of the underlying assets less
liabilities of the Company. If the share price is lower than the NAV per
share, the shares are trading at a discount. Shares trading above the NAV per
share are said to be at a premium. The discount/premium is calculated as the
variance between the share price as at the Balance Sheet date and the NAV per
share (page 80) expressed as a percentage.
NAV total return - the return to shareholders calculated on a per share basis
by adding dividends paid (note 9) in the period on a time-weighted basis to
the increase or decrease in the NAV per share (page 80).
AIFMD Disclosures (unaudited)
The Alternative Investment Fund Managers Directive ('AIFMD') remuneration
disclosures for Schroder Real Estate Investment Management Limited ('SREIM')
for the year to 31 December 2023
Remuneration disclosures
These disclosures form part of the non-audited section of this annual report
and accounts and should be read in conjunction with the Schroders plc
Remuneration Report on pages 74 to 93 of the 2023 Annual Report & Accounts
(available on the Group's website - www.schroders.com/ir) which provides more
information on the activities of our Remuneration Committee and our
remuneration principles and policies.
The AIF Material Risk Takers ('AIF MRTs') of SREIM are individuals whose roles
within the Schroders Group can materially affect the risk of SREIM or any AIF
fund that it manages. These roles are identified in line with the requirements
of the AIFM Directive and guidance issued by the European Securities and
Markets Authority.
The Remuneration Committee of Schroders plc has established a remuneration
policy to ensure the requirements of the AIFM Directive are met for all AIF
MRTs. The Remuneration Committee and the Board of Schroders plc review
remuneration strategy at least annually. The directors of SREIM are
responsible for the adoption of the remuneration policy and periodically
reviewing its implementation in relation to SREIM. During 2023 the
Remuneration Policy was reviewed to ensure compliance with the UCITS/AIFMD
remuneration requirements and no significant changes were made.
The implementation of the remuneration policy is, at least annually, subject
to independent internal review for compliance with the policies and procedures
for remuneration adopted by the Board of SREIM and the Remuneration Committee.
The most recent review found no fundamental issues but resulted in minor
recommendations relating to process documentation.
Our ratio of operating compensation costs to net operating income guides the
total spend on remuneration each year. This is recommended by the Remuneration
Committee to the Board of Schroders plc. This approach aligns remuneration
with Schroders financial performance. In determining the remuneration spend
each year, the underlying strength and sustainability of the business is taken
into account, along with reports on risk and compliance, legal and internal
audit matters from the heads of those areas.
The remuneration data that follows reflects amounts paid in respect of
performance during 2023.
· The total amount of remuneration paid by SREIM to its staff is
nil as SREIM has no employees. Employees of SREIM or other Schroders Group
entities who serve as Directors of SREIM receive no additional fees in respect
of their role on the Board of SREIM; and
· The following disclosures relate to AIF MRTs of SREIM. Those AIF
MRTs were employed by and provided services to other Schroders group companies
and clients. In the interests of transparency, the aggregate remuneration
figures that follow reflect the full remuneration for each SREIM AIF MRT. The
aggregate total remuneration paid to the 77 AIF MRTs of SREIM in respect of
the financial year ended 31 December 2023 is £51.85 million, of which £45.43
million was paid to senior management, £4.35 million was paid to MRTs deemed
to be taking risk on behalf of SREIM or the AIF funds that it manages and
£2.07 million was paid to control function MRTs.
For additional qualitative information on remuneration policies and practices
see www.schroders.com/rem-disclosures.
Leverage disclosure
In accordance with AIFMD the Company is required to make available to
investors information in relation to leverage. Under AIFMD, leverage is any
method by which the exposure of the Company is increased through the borrowing
of cash or securities, leverage embedded in derivative positions or by another
means. It is expressed as a ratio between the total exposure of the Company
and its net asset value and is calculated in accordance with the "Gross
method" and the "Commitment method" as described in the AIFMD. The Gross
method represents the aggregate of all the Company's exposures other than cash
balances held in the base currency, while the Commitment method, which is
calculated on a similar basis, may also take into account cash and cash
equivalents, netting and hedging arrangements, as applicable.
The Investment Manager has set the expected maximum leverage percentages for
the Company and calculated the actual leverages as at 31 December 2023 as
shown below (the Company calculates and externally reports its leverage one
quarter in arrears):
Maximum limit set Actual as at 31.12.2023
Gross leverage 195 163
Commitment leverage 220 161
There have been no changes to the maximum levels of leverage employed by the
Company during the financial year nor any breaches of the maximum levels
during the financial reporting period.
Sustainability Performance Measures (Environmental) (unaudited)
The Company reports sustainability information in accordance with EPRA Best
Practice Recommendations on Sustainability Reporting (sBPR) 2017, 3(rd)
Edition for the 12 months 1(st) January 2023 - 31(st) December 2023, presented
with comparison against 2022. As permitted by the EPRA Sustainability
Reporting Guidelines, environmental data has been developed and presented in
line with the Global Real Estate Sustainability Benchmark (GRESB).
The reporting boundary has been scoped to where the Company has operational
control being managed properties where the Company is responsible for the
payment of utility invoices and/or the arrangement of waste disposal
contracts. 'Operational control' has been selected as the reporting boundary
(as opposed to 'financial control' or 'equity share') as this reflects the
portion of the portfolio where the Company can influence operational
procedures and, ultimately, sustainability performance. The operational
control approach is the most commonly applied within the industry.
In 2023, 42 assets were held by the Company during the reporting year
(including two sales). In total, 23 assets were within the operational control
reporting boundary of the Company during the reporting year (i.e. 'managed'),
following the sale of Leeds, Coverdale House. In 2022, there were 24 such
managed assets within the portfolio.
Where data coverage is less than 100%, a supporting explanation is provided
within the data notes immediately below the relevant table. Energy and water
consumption data is reported according to automatic meter reads, manual meter
reads or invoice estimates. Where required, missing consumption data has been
estimated by prorating data from other periods using recognised techniques.
The proportion of data that is estimated is presented in the footnotes to the
data tables. Historic consumption data has been restated where more complete
and/or accurate records have become available.
The Company does not hold any managed assets that consume energy from district
heating or cooling sources. Therefore, the EPRA sBPR DH&C-Abs and
DH&C-LfL indicators are not applicable and not presented in this report.
Furthermore, the Company does not have any direct employees; it is served by
the employees of the Investment Manager (Schroder Real Estate Investment
Management Limited). Accordingly, the EPRA Overarching Recommendation for
companies to report on the environmental impact of their own offices is not
relevant/material and not presented in this report.
This report has been prepared by the Investment Manager to the Company,
supported by energy and sustainability consultants, Deepki. The Sustainability
Performance Measures have been assured in accordance with AA1000 to provide a
Type 2 Moderate Assurance unqualified audit of the sustainability content
within the SREIT annual report for the year ended 31 March 2024. The full
Assurance Statement is available on request.
Total energy consumption (Elec-Abs; Fuels-Abs)
The table below sets out total landlord obtained energy consumption from the
Company's managed portfolio by sector:
Total electricity consumption (kWh) Total fuel consumption (kWh) Absolute energy intensity (kWh/m2)
Sector 2022 2023 2022 2023 2022 2023 % Change
Office: Corporate: Low-Rise Office 796,667 577,132 690,821 516,211 33 24 -26%
Coverage 88% 82% 85% 82% 87% 82%
Retail: High Street 16,992 12,441 - - 2 1 -27%
Coverage (landlord-procured consumption) 100% 100% - - 100% 100%
Retail: Retail Centres: Warehouse 34,960 23,492 27,969 - 5 2 -63%
Coverage 100% 100% - - 100% 100%
Mixed use: Other 1,911,974 1,943,117 - - 23 23 2%
Coverage (landlord-procured consumption) 100% 100% - - 100% 100%
Mixed use: Office/Retail 407,973 478,168 131,624 90,622 62 66 5%
Coverage (landlord-procured consumption) 100% 100% - 100% 100% 100%
Industrial: Distribution Warehouse: Non-Refrigerated Warehouse 1,380,606 1,519,872 392,249 436,386 16 17 10%
Coverage (landlord-procured consumption) 100% 100% 100% 100% 100% 100%
Industrial: Distribution Warehouse: Refrigerated Warehouse 3,914 2,334 - - 7 4 -40%
Coverage (landlord-procured consumption) 100% 100% 100% 100% 100% 100%
Lodging, Leisure & Recreation: Other 205,193 207,994 - - 59 60 1%
Coverage (landlord-procured consumption) 100% 100% - - 100% 100%
Office: Corporate: Mid-Rise Office 268,733 277,276 448,859 396,963 149 140 -6%
Coverage (landlord-procured consumption) 100% 100% 100% 100% 100% 100%
Total 5,027,012 5,041,826 1,691,522 1,440,182
Coverage (landlord-procured consumption) 98% 97% 92% 88%
Total electricity, fuels and district heating 6,718,533 6,482,008
Coverage (landlord-procured consumption) 96% 95%
Renewable electricity % 83% 80%
- Consumption data relates to the managed portfolio only:
o Industrial: Distribution warehouse: Refrigerated Warehouse: whole
building; outdoor areas; tenant space, where procured by the landlord;
o Industrial: Distribution warehouse: Non- Refrigerated Warehouse: whole
building; outdoor areas; tenant space, where procured by the landlord;
o Lodging, leisure and recreation: common parts; outdoor areas; tenant
space, where procured by the landlord;
o Mixed-use office/retail: shared services, common parts, tenant space,
where procured by the landlord;
o Mixed-use: Other: whole building; common parts; tenant space, where
procured by the landlord;
o Office low-rise: whole building; common parts; shared services; outdoor
areas; tenant space, where procured by the landlord;
o Office mid-rise: whole building; common parts; shared services; outdoor
areas; tenant space, where procured by the landlord;
o Retail high street: shared services, common parts, tenant space, where
procured by the landlord;
o Retail warehouse: whole building; outdoor areas; tenant space, where
procured by the landlord;
o Energy procured directly by tenants is not reported;
- Percentage of data estimated pro rata across 2022 and 2023: 0.3%;
- Renewable electricity (%) is calculated according to the attributes
of energy supply contracts as at 31 December 2023 and only reflects renewable
electricity procured under a 100% 'green tariff' (i.e. where generation is
from a 100% renewable source). The renewables percentage of standard
(non-'green tariff') energy supplies are not currently known and therefore has
not been included within this number;
- Intensity: Numerators/denominators are aligned at the sector level
as follows:
o Lodging, Leisure, & Recreation: Other, Retail: High Street &
Retail: Retail Centres: Warehouse - Common areas energy consumption (kWh)
divided by common parts area (CPA m2);
o Industrial: Distribution Warehouse: Refrigerated Warehouse, Industrial:
Distribution Warehouse: Non- Refrigerated Warehouse - External areas energy
consumption (kWh) divided by the external area (m2) or common parts area (m2)
where known
o All other sectors - Common areas and shared service or whole building
energy consumption (kWh) divided by gross internal area (GIA m2)
- All energy was procured from a third-party supplier. No
'self-generated' renewable energy was consumed during the reporting period and
therefore is not presented here;
- Coverage (landlord-procured consumption) relates to the proportion
of assets for which landlord obtained data has been reported:
o An asset in the 'Office: Corporate: Low-Rise Office' sector has been
removed due to data quality issues which are under investigation with the
supplier.
- Where appropriate (for relevant assets), consumption data and asset
NLA/GIA has been adjusted to reflect the Company's share of ownership.
Like-for-like energy consumption (Elec-LfL; Fuels-LfL; Energy-Int)
The table below sets out the like-for-like landlord-obtained energy
consumption from the Company's managed portfolio by sector.
Like-for-like electricity consumption (kWh) Like-for-like fuel consumption (kWh) Like-for-like Energy Intensity (kWh /m2)
Sector 2022 2023 % Change 2022 2023 % Change 2022 2023 % Change
Office: Corporate: Low-Rise Office 442,582 494,630 12% 370,050 297,325 -20% 26 25 -3%
Coverage (landlord-procured consumption) 82% 82% 78% 78% 80% 80%
Retail: High Street 16,992 12,441 -27% - - - 2 1 -27%
Coverage (landlord-procured consumption) 100% 100% - - 100% 100%
Retail: Retail Centres: Warehouse 34,960 23,492 -33% 27,969 - -100% 5 2 -63%
Coverage (landlord-procured consumption) 100% 100% - - 100% 100%
Mixed use: Other 1,911,974 1,973,117 2% - - - 23 23 2%
Coverage (landlord-procured consumption) 100% 100% - - 100% 100%
Mixed use: Office/Retail 273,793 252,858 -8% 23 - -100% 96 89 -8%
Coverage (landlord-procured consumption) 100% 100% - - 100% 100%
Industrial: Distribution Warehouse: Non-Refrigerated Warehouse 1,380,606 1,519,872 10% 392,249 436,386 11% 16 17 10%
Coverage (landlord-procured consumption) 100% 100% 100% 100% 100% 100%
Industrial: Distribution Warehouse: Refrigerated Warehouse 3,914 2,334 -40% - - - - -
Coverage (landlord-procured consumption) 100% 100% 100% 100% 100% 100%
Lodging, Leisure & Recreation: Other 205,193 207,994 1% - - - 59 60 1%
Coverage (landlord-procured consumption) 100% 100% 100% 100% 100% 100%
Office: Corporate: Mid-Rise Office 268,733 277,276 3% 448,859 396,963 -12% 149 140 -6%
Coverage (landlord-procured consumption) 100% 100% 100% 100% 100% 100%
Total 4,333,554 4,556,020 5% 1,239,150 1,130,674 -9%
Coverage (landlord-procured consumption) 97% 88% 97% 88%
Total electricity, fuels and district heating 5,777,896 5,864,688 1.5%
Coverage (landlord-procured consumption) 95% 95%
Renewable electricity % 81% 79%
- Like-for-like excludes assets that were purchased, sold, under major
refurbishment or subject to a significant change in the scope of reported data
during the two years reported.
- Consumption data relates to the managed portfolio only:
o Industrial: Distribution warehouse: Refrigerated Warehouse: whole
building; outdoor areas; tenant space, where procured by the landlord.
o Industrial: Distribution warehouse: Non- Refrigerated Warehouse: whole
building; outdoor areas; tenant space, where procured by the landlord.
o Lodging, leisure & recreation: common parts; outdoor areas; tenant
space, where procured by the landlord.
o Mixed use office/retail: whole building; shared services, common parts,
tenant space, where procured by the landlord.
o Mixed use: Other: whole building; common parts; tenant space, where
procured by the landlord.
o Office low-rise: whole building; common parts; shared services; outdoor
areas; tenant space, where procured by the landlord.
o Office mid-rise: whole building; common parts; shared services; outdoor
areas; tenant space, where procured by the landlord.
o Retail high street: shared services, common parts, tenant space, where
procured by the landlord.
o Retail warehouse: whole building; outdoor areas; tenant space, where
procured by the landlord.
- Percentage of data estimated pro-rata across 2022 and 2023: 0.4%
- Renewable electricity (%) is calculated according to the attributes
of energy supply contracts as at 31 December 2023 and only reflects renewable
electricity procured under a 100% 'green tariff' (i.e. where generation is
from a 100% renewable source). The renewables percentage of standard
(non-'green tariff') energy supplies are not currently known and therefore has
not been included within this number.
o Lodging, Leisure and Recreation: Other, Retail: High Street & Retail:
Retail Centres: Warehouse - Common areas energy consumption (kWh) divided by
common parts area (CPA m2)
o Industrial: Distribution Warehouse: Refrigerated Warehouse, Industrial:
Distribution Warehouse: Non- Refrigerated Warehouse - External areas energy
consumption (kWh) divided by the external area (m2) or common parts area (m2)
where known
o All other sectors - Common areas and shared service or whole building
energy consumption (kWh) divided by gross internal area (GIA m2)
- All energy was procured from a third-party supplier. No
'self-generated' renewable energy was consumed during the reporting period and
therefore is not presented here.
- Coverage (landlord-procured consumption) relates to the proportion
of assets for which landlord obtained data has been reported.
o An asset in the 'Office: Corporate: Low-Rise Office' sector has been
removed due to data quality issues which are under investigation with the
supplier.
- Where appropriate (for relevant assets), consumption data and asset
NLA/GIA has been adjusted to reflect the Company's share of ownership.
- Variance Commentary:
o The like-for-like reduction in fuel consumption for the Retail: Retail
Centres: Warehouse sector can be explained by the single asset (St John's
Retail Park) having lower consumption in 2023 due to the removal of the
landlord gas supply;
o The like-for-like reduction in electricity consumption for the Retail:
High Street sector can be explained by lighting system upgrades at The Albion
Centre, Ilkeston;
o The like-for-like reduction in electricity consumption for the Mixed-Use:
Other sector can be in part explained by lighting system upgrades at
Headingley Central;
o The like-for-like reduction in fuel consumption for the Office: Corporate:
Mid-Rise Office sector can be explained by optimisation works at The Tun,
Edinburgh where all temperature settings were reduced via the BMS throughout
the building; and
o The like-for-like reduction in fuel consumption for the Office: Corporate:
Low-Rise Office sector can be in part explained by occupancy changes at
Clifton Park, York.
Greenhouse gas emissions (GHG-Dir-Abs; GHG-Indir-Abs; GHG-Int)
The table below sets out the Company's managed portfolio greenhouse gas
emissions by sector.
Absolute emissions (tCO(²)e) Like for like emissions (tCO(²)e) Like for Like Intensity (kg CO(²)e /m2) Absolute Intensity (kg CO(²)e /m2)
Sector 2022 2023 2022 2023 % Change 2022 2023 % Change 2022 2023 % Change
Office: Corporate: Low-Rise Office
Scope 1 -19% 4.85 4.97 2% 6.16 4.70 -24%
126.1 67.5 54.4
94.4
Scope 2 20%
154.1 85.6 102.4
119.5
Scopes 1 & 2 2%
280.2 153.1 156.8
213.9
Coverage (landlord-procured consumption) 88% 82% 80% 80% 88% 82% 80% 80%
Retail: High Street
Scope 1 0.39 0.31 -22% 0.39 0.31 -22%
- - -
- -
Scope 2 -22%
3.29 3.3 2.6
2.58
Scopes 1 & 2 -22%
3.3 3.3 2.6
2.6
Coverage (landlord-procured consumption) 100% 100% 100% 100% 100% 100% 100% 100%
Retail: Retail Centers: Warehouse
Scope 1 5.1 - 5.1 - -100% 0.94 0.39 -59% 0.94 0.39 -59%
Scope 2 6.8 4.9 6.8 4.9 -28%
Scopes 1 & 2 11.9 4.9 11.9 4.9 -59%
Coverage (landlord-procured consumption) 100% 100% 100% 100% 100% 100% 100% 100%
Mixed-use: Other
Scope 1 - 4.44 4.83 9% 4.44 4.83 9%
- - -
-
Scope 2 9%
369.74 369.7 402.4
402.37
Scopes 1 & 2 369.7 9%
369.7 402.4
402.4
Coverage (landlord-procured consumption) 100% 100% 100% 100% 100% 100% 100% 100%
Mixed-use: Office/Retail
Scope 1 0.0 -100% 18.65 18.44 -1% 11.86 13.31 12%
24.0 -
16.6
Scope 2 -1%
78.89 52.9 52.4
99.02
Scopes 1 & 2 115.6 -1%
102.9 53.0 52.4
Coverage (landlord-procured consumption) 100% 100% 100% 100% 100% 100% 100% 100%
Industrial: Distribution Warehouse: Non-Refrigerated
Scope 1 71.6 79.8 71.6 79.8 11% 2.97 3.46 17% 2.97 3.46 17%
Scope 2 267.0 314.7 267.0 314.7 18%
Scopes 1 & 2 338.6 394.6 338.6 394.6 17%
Coverage (landlord-procured consumption) 100% 100% 100% 100% 100% 100% 100% 100%
Industrial: Distribution Warehouse: Refrigerated
Scope 1 - - - - - 1.38 0.88 -36% 1.38 0.88 -36%
Scope 2 0.8 0.5 0.8 0.5 -36%
Scopes 1 & 2 0.8 0.5 0.8 0.5 -36%
Coverage (landlord-procured consumption) 100% 100% 100% 100% 100% 100% 100% 100%
Lodging, Leisure & Recreation: Other
Scope 1 - 11.46 12.44 9% 11.46 12.44 9%
- - -
-
Scope 2 9%
39.7 39.7 43.1
43.1
Scopes 1 & 2 39.7 9%
39.7 43.1
43.1
Coverage (landlord-procured consumption) 100% 100% 100% 100% 100% 100% 100% 100%
Office: Corporate: Mid-Rise Office
Scope 1 -11% 27.75 26.94 -3% 27.75 26.94 -3%
81.9 81.9 72.6
72.6
Scope 2 10%
52.0 52.0 57.4
57.42
Scopes 1 & 2 -3%
133.9 133.9 130.0
130.0
Coverage (landlord-procured consumption) 100% 100% 100% 100% 100% 100% 100% 100%
Total Scope 1 308.8 263.5 226.2 206.8 -9%
Total Scope 2 972.1 1044.0 877.7 980.3 12%
Total Scope 1 & 2 1280.9 1307.5 1103.9 1187.6 8%
Coverage (landlord-procured consumption) 98% 97% 97% 97%
- Like-for-like excludes assets that were purchased, sold, under major
refurbishment or subject to a significant change in the scope of reported data
during the two years reported.
- The Fund's greenhouse gas (GHG) inventory has been developed as
follows:
o Scope 1 GHG emissions relate to the use of onsite natural gas; and
o Scope 2 GHG emissions relate to the use of electricity.
- GHG emissions from electricity (Scope 2) are reported according to
the 'location-based' approach.
- GHG emissions are presented as tonnes of carbon dioxide equivalent
(tCO(2)e) and GHG intensity is presented as kilograms of carbon dioxide
equivalent (kgCO(2)e), where available greenhouse gas emissions conversion
factors allow.
- Fuels/electricity GHG emissions factors have been taken from the UK
government's Greenhouse Gas Reporting Factors for Company Reporting (2022 and
2023).
- Emissions data relates to the managed portfolio only:
o Industrial: Distribution warehouse: Refrigerated Warehouse: whole
building; outdoor areas; tenant space, where procured by the landlord;
o Industrial: Distribution warehouse: Non- Refrigerated Warehouse: whole
building; outdoor areas; tenant space, where procured by the landlord;
o Lodging, leisure & recreation: common parts; outdoor areas; tenant
space, where procured by the landlord;
o Mixed-use office/retail: whole building; shared services, common parts,
tenant space, where procured by the landlord;
o Mixed-use: Other: whole building; common parts; tenant space, where
procured by the landlord;
o Office low-rise: whole building; common parts; shared services; outdoor
areas; tenant space, where procured by the landlord;
o Office mid-rise: whole building; common parts; shared services; outdoor
areas; tenant space, where procured by the landlord;
o Retail high street: shared services, common parts, tenant space, where
procured by the landlord;
o Retail warehouse: whole building; outdoor areas; tenant space, where
procured by the landlord; and
o Emissions associated with energy procured directly by tenants is not
reported.
- Percentage of data estimated pro-rata across 2022 and 2023: 0.3% for
electricity and gas.
- Intensity: Numerators/denominators are aligned at the sector level
as follows:
o Lodging, Leisure, & Recreation: Other, Retail: High Street &
Retail: Retail Centres: Warehouse - Common areas energy consumption (kWh)
divided by common parts area (CPA m2);
o Industrial: Distribution Warehouse: Refrigerated Warehouse, Industrial:
Distribution Warehouse: Non- Refrigerated Warehouse - External areas energy
consumption (kWh) divided by the external area (m2) or common parts area (m2)
where known;
o All other sectors - Common areas and shared service or whole building
energy consumption (kWh) divided by gross internal area (GIA m2)
- Coverage (landlord-procured consumption) relates to the proportion
of assets for which landlord-obtained data has been reported.
o An asset in the 'Office: Corporate: Low-Rise Office' sector has been
removed due to data quality issues which are under investigation with the
supplier.
- Where appropriate (for relevant assets), consumption data and asset
NLA/GIA has been adjusted to reflect the Company's share of ownership.
- Variance Commentary:
o GHG emissions differences between 2022 and 2023 must be discussed in the
context of marginally higher UK emissions factors for both electricity and
natural gas between in 2023 compared to 2022;
o The like-for-like reduction in Scope 1 emissions for the Retail: Retail
Centres: Warehouse sector can be explained by the single asset (St John's
Retail Park) having lower consumption in 2023 due to the removal of the
landlord gas supply;
o The like-for-like reduction in Scope 2 emissions for the Retail: High
Street sector can be explained by lighting system upgrades at The Albion
Centre, Ilkeston;
o The like-for-like reduction in Scope 2 emissions for the Mixed-Use: Other
sector can be in part explained by lighting system upgrades at Headingley
Central;
o The like-for-like reduction in Scope 1 emissions for the Office:
Corporate: Mid-Rise Office sector can be explained by optimisation works at
The Tun, Edinburgh where all temperature settings were reduced via the BMS
throughout the building; and
o The like-for-like reduction in Scope 1 emissions for the Office:
Corporate: Low-Rise Office sector can be in part explained by occupancy
changes at Clifton Park, York.
Water (Water-Abs; Water-LfL; Water-Int)
The table below sets out water consumption from the Company's managed
portfolio by sector.
Absolute Water consumption (m³) Like-for-like Water consumption (m³) Like-for-like Intensity (m³/m²)
Sector 2022 2023 2022 2023 % Change 2022 2023 % Change
Office: Corporate: Low-Rise Office 6,303 6,289 3,888 5,757 48% 0.1 0.2 48%
Coverage (landlord-procured consumption) 100% 100% 100% 100% 100% 100%
Retail: High Street 2,862 2,936 2,862 2,936 3% 0.3 0.4 3%
Coverage (landlord-procured consumption) 100% 100% 100% 100% 100% 100%
Retail: Retail Centers: Warehouse 299 301 299 301 0% 0.02 0.02 0%
Coverage (landlord-procured consumption) 100% 100% 100% 100% 100% 100%
Mixed-use: Other 3,732 2,988 3,732 2,988 -20% 0.0 0.0 -20%
Coverage (landlord-procured consumption) 100% 100% 100% 100% 100% 100%
Mixed-use: Office/Retail 3,003 5,909 440 1,381 214% 0.2 0.5 214%
Coverage (landlord-procured consumption) 100% 100% 100% 100% 100% 100%
Lodging, Leisure & Recreation: Other 149 143 149 143 -4% 0.04 0.04 -4%
Coverage (landlord-procured consumption) 100% 100% 100% 100% - 100% 100%
Office: Corporate: Mid-Rise Office - - - - - - - -
Coverage (landlord-procured consumption) 0% 0% 0% 0% 0% 0%
Total 16,349 18,566 11,371 13,506 19%
Coverage (landlord-procured consumption) 97% 96% 96% 96%
- Like-for-like excludes assets that were purchased, sold, under major
refurbishment or subject to a significant change in the scope of reported data
during the two years reported.
- Consumption data relates to the manage portfolio only:
o Lodging, leisure & recreation: common parts;
o Mixed-use: other: whole building; common parts;
o Mixed-use: office/retail: whole building; common parts;
o Office low-rise: whole building; common parts; tenant space, where
procured by the landlord;
o Office mid-rise: whole building; common parts; tenant space, where
procured by the landlord;
o Retail: high street: common parts; tenant space, where procured by the
landlord;
o Retail warehouse: tenant space, where procured by the landlord; and
o Water procured directly by tenants is not reported.
- All water was procured from a municipal supply. As far as we are
aware, no surface, ground, rainwater or wastewater from another organisation
was consumed during the reporting period and therefore is not presented here.
- Percentage of data estimated pro-rata across both 2022 and 2023: 0%.
- Intensity: Numerators/denominators are aligned as follows:
o Lodging, Leisure and Recreation: Other, Retail: High Street & Retail:
Retail Centres: Warehouse - Common areas energy consumption (kWh) divided by
common parts area (CPA m2);
o Industrial: Distribution Warehouse: Refrigerated Warehouse, Industrial:
Distribution Warehouse: Non- Refrigerated Warehouse - External areas energy
consumption (kWh) divided by the external area (m2) or common parts area (m2)
where known; and
o All other sectors - Common areas and shared service or whole building
energy consumption (kWh) divided by gross internal area (GIA m2).
- Coverage (landlord-procured consumption) relates to the proportion
of assets for which landlord-obtained data has been reported.
o An asset in the 'Office: Corporate: Mid-Rise Office' sector has been
removed due to data quality issues which are under investigation with the
supplier.
- Where appropriate (for relevant assets), consumption data and asset
NLA/GIA has been adjusted to reflect the Company's share of ownership.
- Variance commentary:
o The notable increase in like-for-like water consumption for the Office:
Corporate: Low-Rise Office sector can largely be attributed to the asset
Northampton, Century & Peterbridge. This is due to increased occupancy in
2023 and several small water leaks that have since been fixed; and
o The notable increase in like-for-like water intensity for the Mixed-Use:
Office/ Retail is because of water leaks at Liverpool, 88 - 94 Church Street.
Waste (Waste-Abs; Waste-LfL)
The table below sets out waste from the Company's managed portfolio by
disposal route and sector.
Absolute tonnes Like-for-like tonnes
2022 2023 2022 2023
Tonnes % Tonnes % Tonnes % Tonnes % % Change
Office: Corporate: Low-Rise Office Recycled 30.4 60.3% 23.0 42.6% 30.4 60.3% 23.0 42.6% -24.3%
Incineration with energy recovery 20.0 39.7% 31.0 20.0 39.7% 31.0
57.4% 57.4% 55%
Unknown - - - - - - -
Landfill - - - - - - -
Total 50.4 54.0 7.1% 50.4 54.0 7.1%
Coverage (landlord-procured consumption) 100% 100% 100% 100%
Retail: High Street Recycled 14.0 24.8 14.0 24.8
40.7% 55.0% 40.7% 55.0% 77.1%
Incineration with energy recovery 20.3 20.3 20.3 20.3
59.0% 45.0% 59.0% 45.0% 0%
Unknown - - - - - -
Landfill - - - - - -
Total 34.4 45.1 31.1 34.4 45.1 31.1
Coverage (landlord-procured consumption) 100% 100% 100% 100%
Retail: Retail Centers: Warehouse Recycled - - - - -
Incineration with energy recovery 0.8 100% 2.8 0.8 100% 2.8 100% 250%
100%
Unknown - - - - -
Landfill - - - - -
Total 0.8 2.8 250% 0.8 2.8 250%
Coverage (landlord-procured consumption) 100% 100% 100% 100%
Mixed-use: Other Recycled 45.3 52.1% 45.8 48.8% 45.3 52.1% 45.8 48.8% 1.1%
Incineration with energy recovery 41.7 47.9% 48 51.2% 41.7 47.9% 48.0 51.2% 15.1%
Unknown - - - - -
Landfill - - - - -
Total 87.0 93.8 7.8% 87.0 93.8 7.8%
Coverage (landlord-procured consumption) 100% 100% 100% 100%
Mixed-use: Office/Retail Recycled 10.4 34.2% 3.0 30.6% 10.4 34.2% 3.0 30.6% -71.2%
Incineration with energy recovery 20.0 65.8% 6.8 69.4% 20 65.8% 6.8 69.4% -66%
Unknown - - - - -
Landfill - - - - -
Total 30.4 - 9.8 -67.8% 30.4 9.8 -67.8%
Coverage (landlord-procured consumption) 100% 100% 100% 100%
Lodging, Leisure & Recreation: Other Recycled 274.7 58.7% 255.3 60.0% 274.7 58.7% 255.3 60.0% -7.1%
Incineration with energy recovery 193.4 41.3% 170.4 40.0% 193.4 41 170.4 40.0% -11.9%
3%
Unknown - - - - - - -
Landfill - - - - - - -
Total 468.1 - 425.7 - 468.1 - 425.7 - -9.1%
Coverage (landlord-procured consumption) 100% 100% 100% 100%
Office: Corporate: Mid-Rise Office Recycled 14.9 13.8 14.9 13.8
72.0% 76.2% 72.0% 76.2% -7.4%
Incineration with energy recovery 5.8 4.3 5.8 4.3
28.0% 23.8% 28.0% 23.8% -25.9%
Unknown - - - - - - -
Landfill - - - - - - -
Total 20.7 - 18.1 20.7 18.1 -12.6%
Coverage (landlord-procured consumption) 100% 100% 100% 100%
Total Recycled 389.7 - 365.7 - 381.7 - 365.7 - -4.2%
Incineration with energy recovery 302.1 - 23.6 - 292.1 - 283.6 - --2.9%
Unknown 0.00 - 0.00 - 0.00 - 0.00 - 0%
Landfill 0.00 - 0.00 - 0.00 - 0.00 - 0%
Total 691.8 649.3 673.8 649.3 -3.6%
100% 100% 100% 100%
- Whilst zero waste is sent directly to landfill, a residual component
of the 'recycled' and 'incineration with energy recovery' waste streams may
end up in landfill;
- Like-for-like excludes assets that were purchased, sold, under major
refurbishment or subject to a significant change in the scope of reported data
during the two years reported;
- Waste data relates to the managed portfolio only;
- Waste management procured directly by tenants is not reported;
- Reported data relates to non-hazardous waste only, robust tonnage
data on the small quantities of hazardous waste produced is not available;
- Coverage (landlord-procured consumption) relates to the proportion
of assets for which landlord obtained data has been reported;
- Where appropriate (for relevant assets), consumption data and asset
NLA/GIA has been adjusted to reflect the Company's share of ownership; and
- Variance Commentary:
o The increase in like-for-like tonnage for the Retail: High Street is
attributed to Ilkeston Albion Centre where two additional waste streams were
added in 2023.
Sustainability certification: Green building certificates (Cert-Tot)
The table below sets out the proportion of the Company's total portfolio with
a Green Building Certificate by floor area:
Rating Portfolio by floor area (%)
BREEAM/New Construction | Excellent 2.5%
BREEAM/ Refurbishment and Fit-out Coverage 2.5%
BREEAM/Refurbishment and Fit-out | Very Good 0.2%
BREEAM/ Refurbishment and Fit-out Coverage 0.2%
BREEM In Use | Very Good 2.0%
BREEM In Use | Good 3.2%
BREEM In Use | Acceptable 0.8%
BREEAM/ In Use Coverage 6.0%
WiredScore | Gold 2.3%
WiredScore | Silver 0.8%
WiredScore/ Coverage 3.1%
Total Portfolio Coverage (excluding duplicates) 9.7%
- Green building certificate records for the Company are provided as
at 31 December 2023 by portfolio net lettable floor area;
- Data provided includes managed and non-managed assets (i.e. the
whole portfolio);
- Where appropriate (for relevant assets), asset GIA has been adjusted
to reflect the Company's share of ownership;
- To avoid double counting, the Total Portfolio Coverage excludes the
floor area for the BREEAM/Refurbishment and Fit-out at City Tower as there are
additional certificates already included in the count; and
- In Q1 2024 the WiredScore for City Tower, Manchester was upgraded
from a 'Gold' to a 'Platinum' rating.
Sustainability certification: Energy Performance Certificates (Cert-Tot)
The table below sets out the proportion of the Company's total portfolio with
an Energy Performance Certificate by floor area:
Rating Portfolio by Floor Area
A+ 2.7%
A 2.8%
B 15.1%
C 39.3%
D 27.0%
E 11.9%
F 0.0%
G 0.0%
N/A 0.0%
No EPC 1.1%
Coverage 100%
- Energy Performance Certificate (EPC) records for the Company are
provided for the portfolio as at 31 December 2023 by portfolio floor area;
- Data provided includes the whole portfolio i.e. managed and
non-managed assets;
- Where appropriate (for relevant assets) asset GIA has been adjusted
to reflect the Company's share of ownership;
- EPCs are known for 99% of the portfolio by floor area. In general
terms, since the introduction of the EPC Regulations in 2008, EPCs are
required for the letting of units or buildings or the sale of buildings. In
addition, the UK Minimum Energy Efficiency Standards regulations ('MEES') came
into force for commercial buildings on 1 April 2018 and require a minimum EPC
rating of 'E' for new lettings; the rules apply to all leases from 1 April
2023. The EPCs for the portfolio are managed to ensure compliance with the
MEES regulations.
Sustainability Performance Measures (Social)
EPRA's Sustainability Best Practices Recommendations Guidelines 2017 ('EPRA's
Guidelines') include Social and Governance reporting measures to be disclosed
for the entity i.e. the Company. The Company is an externally managed real
estate investment trust and has no direct employees. A number of these Social
Performance measures relate to entity employees and therefore these measures
are not relevant for reporting at the entity level. The Investment Manager to
the Company, Schroder Real Estate Investment Management Limited, is part of
Schroders PLC which has responsibility for the employees that support the
Company. The Company aims to comply with EPRA's Guidelines and therefore has
included Social and Governance Performance Measure disclosures in this report.
However, these are presented as appropriate for the activities and
responsibilities of the Schroder real Estate Investment Trust Limited (the
'Company'), Schroders plc or the Investment Manager, Schroder Real Estate
Investment Management Limited.
The Schroders PLC Annual Report and Accounts for the 12 months to 31 December
2023 supports the performance measures in relation to the Investment Manager
as set out below. Schroders PLC's principles in relation to people including
diversity, gender pay gap, values, employee satisfaction survey, wellbeing and
retention can be found at:
· Schroders 2023 Annual Report and Accounts; and
· Inclusion at Schroders Report 2023
Employee gender diversity (Diversity-Emp)
As at 31 March 2024 the Company's Board comprised five members: 2 (40%)
female; 3 (60%) male.
For further information on Schroders plc's employee gender and diversity,
covering more employee categories, please refer to Inclusion at Schroders
Report 2023:
Inclusion at Schroders Report 2023
Gender pay ratio (Diversity-Pay)
The remuneration of the Company's Board is set out on pages 64 to 65 of this
Report and Accounts document.
The Schroders plc female representation and gender pay report can be found in
the Schroders 2023 Annual Report and Accounts (page 43) and Inclusion at
Schroders Report 2023:
· Schroders 2023 Annual Report and Accounts; and
· Inclusion at Schroders Report 2023
Information on Diversity and Inclusion at Schroders can be found at:
· Inclusion at Schroders Report 2023
The following are reported for Schroders in relation to the Investment
Management of the Company:
Training and development (Emp-Training)
Schroders requires employees to complete mandatory internal training.
Schroders encourages all staff with professional qualifications to maintain
the training requirements of their respective professional body.
Employee performance appraisals (Emp-Dev)
Schroders performance management process requires annual performance objective
setting and annual performance reviews for all staff. The Investment Manager
confirms that performance appraisals were completed for 100% of investment
staff relevant to the Company in 2023.
The following are reported for Schroders PLC:
For commentary on Schroders PLC's turnover and retention rates please refer to
the Schroders Annual Report and Accounts (page 18):
· Schroders 2023 Annual Report and Accounts
Employee health and safety (H&S-Emp)
Schroders PLC does not include employee health and safety performance measures
in its Annual Report and Accounts.
The following are reported in relation to the assets held in the Company's
portfolio over the reporting period to 31 Dec 2023:
Asset health and safety assessments (H&S-Asset)
The table below sets out the proportion of the Company's portfolio where
operational control is retained, and where health and safety impacts were
assessed or reviewed for compliance or improvement:
Portfolio by floor area (%)
2022 2023
All sectors 100% 100%
Asset health and safety compliance (H&S-Comp)
The table below sets out the number of incidents of non-compliance with
regulations/and or voluntary codes identified:
Number of incidents
2022 2023
All Sectors 1 0
In 2022, there was an issue with a fire panel at one asset within the
portfolio. The issue was rectified by replacing the panel.
Community engagement, impact assessments and development programmes
(Comty-Eng)
The table below sets out the proportion of the Company's total portfolio which
completed local community engagement, impact assessments and/or development
programs:
Portfolio by number assets (%)
2022 2023
Total 29% 43%
Community engagement initiatives are carried out where deemed relevant to
individual assets, in collaboration with the relevant site team.
All site teams are encouraged to engage with local communities where this is
appropriate to the asset. Examples of community initiatives undertaken in the
year ended 31 December 2023 include permitting the local model railway society
to use part vacant space and supporting local and national charities such as
'KidsOut' children's Christmas appeal, and 'Let's Can Hunger's' foodbank
appeal. At Headingley Central, a monthly makers market is held, providing a
platform for local craftspeople and businesses.
Sustainability Performance Measures (Governance)
Composition of the highest governance body (Gov-Board)
The Board of the Company comprised 5 non-executive independent directors (0
executive board members) as at 31 March 2024 and:
· The average tenure of the five directors to 31 March 2024 is 3
years and 10 months; and
· The number of directors with competencies relating to
environmental and social topics is two, Alexandra Innes and Priscilla Davies,
and their experience can be seen in their biographies.
Nominating and selecting the highest governance body (Gov-Select)
The role of the Nomination Committee, chaired by Alistair Hughes, is to
consider and make recommendations to the Board on its composition so as to
maintain an appropriate balance of skills, experience and diversity, including
gender, and to ensure a progressive refreshing of the Board. On individual
appointments, the Nomination Committee leads the process and makes
recommendations to the Board.
Before the appointment of a new director, the Nomination Committee prepares a
description of the role and capabilities required for a particular
appointment. While the Nomination Committee is dedicated to selecting the best
person for the role, it aims to promote diversification, and the Board
recognises the importance of diversity. The Board agrees that its members
should possess a range of experience, knowledge, professional skills and
personal qualities as well as the independence necessary to provide effective
oversight of the affairs of the Company.
Process for managing conflicts of interest (Gov-Col)
The Company's Conflicts of Interest Policy sets out the policy and procedures
of the Board and the Company Secretary for the management of conflicts of
interest.
Streamlined Energy and Carbon Reporting
Schroder Real Estate Investment Trust Limited (the 'Company') is a real estate
investment company with a premium listing on the Official List of the UK
Listing Authority and whose shares are traded on the Main Market of the London
Stock Exchange (ticker: SREI).
The Company is a real estate investment trust ('REIT') and benefits from the
various tax advantages offered by the UK REIT regime. The Company continues to
be declared as an authorised closed-ended investment scheme by the Guernsey
Financial Services Commission under section 8 of the Protection of Investors
(Bailiwick of Guernsey) Law, 2020 and Authorised Closed-Ended Investment
Schemes Rules and Guidance, 2021.
The Board and Investment Manager in recognition of the importance it places on
sustainability has included a report for the Company aligned with the UK
Companies (Directors' Report) and Limited Liability Partnerships (Energy and
Carbon Report) Regulations 2018, (the Regulations) on its UK energy use,
associated Scope 1 and 2 greenhouse gas ('GHG') emissions, an intensity metric
and, where applicable, global energy use. This reporting is also referred to
as Streamlined Energy and Carbon Reporting ('SECR').
This Energy and Carbon Report applies for the Company's annual report for the
12 months to 31 March 2024. The statement has however been prepared for the
calendar year, the 12 months to 31 December 2023, to report annual figures for
emissions and energy use the available period for which such information is
available. In addition, the Regulations advise providing a narrative on energy
efficiency actions taken in the previous financial year.
As a property company, energy consumption and emissions result from the
operation of buildings. The reporting boundary has been scoped to those held
properties where the Company retained operational control: where the Company
is responsible for operating the entire building, shared services (e.g. common
parts lighting, heating, and air conditioning), external lighting and/or void
spaces. 'Operational control' has been selected as the reporting boundary (as
opposed to 'financial control' or 'equity share') as this reflects the portion
of the portfolio where the Company can influence operational procedures and,
ultimately, sustainability performance. This incorporates consumption in
tenant areas, where the landlord procures energy for the whole building and
where recharges are not made directly (i.e. based on sub-metered kWh
consumption). In 2023, within the portfolio, there were 23 properties within
the operational control reporting boundary and in 2022 there were 24 such
properties. All Company assets are located in the UK.
The Company is not directly responsible for any GHG emissions/energy usage at
single let/FRI assets nor at multi-let assets where the tenant is responsible
for procuring their own energy. These emissions form part of the wider value
chain (i.e. 'Scope 3') emissions, which are not monitored at present. As a
real estate company with no direct employees or company owned vehicles as at
31 December 2023, there is no energy consumption or emissions associated with
travel or occupation of corporate offices to report. Fugitive emissions
associated with refrigerant losses from air conditioning equipment are widely
understood by the industry to be less material than other sources of emissions
and data is often not collected. The Company received fugitive emissions data
in previous reporting years, and this confirmed that they were de minimis and
consequently have not been captured in current reporting.
In addition to reporting absolute energy consumption and GHG emissions, the
Company has reported separately on performance within the 'like-for-like'
portfolio, as well as providing intensity ratios, where appropriate. The
like-for-like portfolio includes buildings where each of the following
conditions is met:
• Owned for the full 24-month period (sales /
acquisitions are excluded)
• No major renovation or refurbishment has taken place
• At least 24 months data is available
For the intensity ratios, the denominator determined to be relevant to the
business is square metres of net lettable area for most sectors, including
Industrial Distribution Warehouses (Refrigerated and Non- Refrigerated),
Leisure, Mixed-Use, Offices and Retail Warehouses. For Retail: High Street,
the most relevant denominator is common parts area. The intensity ratio is
expressed as:
• Energy: kilowatt hours per metre square (net lettable
area or common parts area) per year, or, kWh/m2/yr.
• GHG: kilograms carbon dioxide equivalent per metre
square (net lettable area or common parts area) per year, or, kgCO(2)e/m2/yr.
Energy Consumption and Greenhouse Gas Emissions
The table below sets out the Company's energy consumption.
Absolute Energy (kWh) Like-for-like Energy (kWh)
2022 2023 2022 2023 % Change
Gas 1,691,522 1,440,182 1,239,150 1,130,675 -9%
Electricity 5,027,011 5,041,826 4,538,747 4,734,014 4%
Total 6,718,533 6,482,008 5,777,897 5,864,689 1.5%
The table below sets out the Company's greenhouse gas emissions.
Absolute Emissions (tCO(2)e) Like-for-like Emissions (tCO(2)e)
2022 2023 2022 2023 % Change
Scope 1 (Direct emissions from gas consumption) 308.8 263.5 226.2 206.8 -9%
Scope 2 (Indirect emissions from electricity) 972.1 1,044 877.7 980.3 12%
Total 1,280.9 1,307.5 1,103.9 1,187.1 8%
The like-for-like energy consumption for the 2023 calendar year for the
managed assets held within the Company has slightly increased by 1.5%
primarily due to occupancy changes. The greenhouse gas emissions have
increased by 8% partly due to changes to the DEFRA GHG emissions factors for
both natural gas and electricity between 2022 and 2023. Energy performance
improvement opportunities continued to be considered across the portfolio.
Initiatives undertaken during the reporting year include Heating, Ventilation,
and Air-Conditioning (HVAC) replacements/upgrades, roof insulation upgrades,
window replacements, LED lighting upgrades and installation of lighting and
ventilation occupancy sensors. Automatic Meter Reading (AMR) devices continue
to be rolled out across all landlord electricity supplies for improved energy
monitoring.
The table below sets out the Company's energy and greenhouse gas emissions
intensities by sector on a like-for-like basis:
Energy Intensities (kWh per m2) GHG Emission Intensities (kgCO2e per m2)
2022 2023 2022 2023
Industrial Distribution Warehouses (Refrigerated) 7 4 1.4 0.9
Industrial Distribution Warehouses (Non-Refrigerated) 16 17 3.0 3.5
Leisure 59 60 11.5 12.4
Mixed-Use, Office/Retail 96 89 18.7 18.4
Mixed-Use, Other 23 23 4.4 4.8
Office, Low Rise 26 25 4.9 5.0
Office, Mid Rise 149 140 27.7 26.9
Retail High Street 2 1 0.4 0.3
Retail Warehouse 5 2 0.9 0.4
Methodology
· All energy consumption and GHG emissions reported occurred at the
Company assets all of which are located in the UK.
· Energy consumption data is reported according to automatic meter
reads, manual meter reads or invoice estimates. Historic energy and
consumption data have been restated where more complete and or accurate
records have become available. Where required, missing consumption data has
been estimated through pro-rata extrapolation. Data has been adjusted to
reflect the Company's share of asset ownership, where relevant.
· The sustainability content located on pages 113 to 134 of the
SREIT annual report for the year ending 31 March 2024 has been assured in
accordance with AA1000. The same data set has been used to compile this data
report. The full Assurance Statement is available on request.
· The Company's GHG emissions are calculated according to the
principles of the Greenhouse Gas (GHG) Protocol Corporate Standard.
o The Company's Greenhouse Gas Emissions are reported as tonnes of carbon
dioxide equivalent (tCO2e), which includes the following emissions covered by
the GHG Protocol (where relevant and available greenhouse gas emissions
factors allow): carbon dioxide (CO(2)), methane (CH(4)), hydrofluorocarbons
(HFCs), nitrous oxide (N(2)0), perfluorocarbons (PFCs), sulphur hexafluoride
(SF(6)) and nitrogen trifluoride (NF(3)).
o GHG emissions from electricity (Scope 2) are reported according to the
'location-based' approach.
o The following greenhouse gas emissions conversion factors and sources have
been applied:
Country Emissions Source GHG Emissions Factor Emissions Factor Data Source
United Kingdom Electricity 2022 0.1934 kgCO2e UK Government’s GHG Conversion Factors for Company Reporting (2022)
Gas 2022 0.1825kgCO2e
Electricity 2023 0.2071 kgCO2e UK Government’s GHG Conversion Factors for Company Reporting (2023)
Gas 2023 0.1829kgCO2e
Energy Efficiency Actions
Environmental data management system and quarterly reporting
Environmental data for the Company is collated by third-party Property
Managers and sustainability consultants Deepki, supported by their proprietary
commercial real estate ESG data intelligence platform, Deepki Ready. Energy,
water, waste, and greenhouse gas emission data are collected and validated for
all assets where the portfolio has operational control on at least a quarterly
basis.
Energy target, improvement programme and net zero carbon
In 2019 the Manager signed the Better Building Partnership's ('BBP') Climate
Commitment(( 37 (#_ftn37) )) which includes a net zero ambition aligned to
the Paris Agreement aim to limit warming to 1.5°C. The Manager's commitment
was further underlined by the Company who in 2022 announced its 'Pathway to
Net Zero Carbon' committing to:
- Operational whole buildings emissions to be aligned to a 1.5°C
pathway by 2030.
- Embodied emissions for all new developments and major renovations to
be net zero by 2030.
- Operational Scope 1 and 2 (landlord) emissions to be net zero by
2030.
- Operational and embodied whole building (scope 1, 2 and 3 - landlord
and tenant) emissions to be net zero by 2040.
The Investment Manager together with third-party property managers look to
identify and deliver energy and greenhouse gas emissions reductions on a
cost-effective basis. The programme involves reviewing all managed assets
within the Company and identifying and implementing improvement initiatives,
where viable. The process is of continual review and improvement.
Energy performance improvement initiatives undertaken at several assets during
the reporting period include HVAC upgrades, roof insulation and glazing
upgrades, upgrades to AMR devices for improved energy monitoring, and lighting
upgrades.
Renewable electricity tariffs and carbon offsets
The Investment Manager has an objective to procure 100% renewable electricity
for all landlord-controlled supplies for which it has responsibility, which
includes the assets of the Company, by 2025. As at 31 December 2023, 80% of
the Company's landlord-controlled electricity was on renewable tariffs. No
carbon offsets were purchased during the reporting period.
Asset list
The table below summarises the portfolio information as at 31 March 2024,
excluding post year end activity. The property values presented represent the
year end valuations as determined by the independent valuer as at 31 March
2024:
Property Sector Region Value range (£m) 38 (#_ftn38)
Stacey Bushes Industrial Estate, MILTON KEYNES Industrial South East 50-60
Millshaw Park Industrial Estate, LEEDS Industrial Yorkshire & Humberside 40-50
Stanley Green Trading Estate, STOCKPORT Industrial North West 40-50
St John's Retail Park, BEDFORD Retail Warehouse Eastern 20-30
Langley Park Way, CHIPPENHAM Industrial South West 20-30
Union Park Industrial Estate, NORWICH Industrial Eastern 20-30
Headingley Central, HEADINGLEY Mixed Use Yorkshire & Humberside 20-30
Valley Park Industrial Estate, BIRKENHEAD Industrial North West 10-20
Horton Park Industrial Park, TELFORD Industrial West Midlands 10-20
St Ann's House, MANCHESTER Mixed Use North West 10-20
The Tun, EDINBURGH Offices Scotland 10-20
106 Oxford Road, UXBRIDGE Offices South East 10-20
Matalan, BLETCHLEY Retail Warehouse South East 0-10
The Galaxy Centre, LUTON Leisure Eastern 0-10
Churchill Way West, Salisbury, SALISBURY Retail Warehouse South West 0-10
21/27 Stirling Court, SWINDON Industrial South West 0-10
Royscot House, CHELTENHAM Offices South West 0-10
Wickes, CHESTER Retail Warehouse North West 0-10
Delme Place, FAREHAM Offices South East 0-10
Heathcote Industrial Estate, WARWICK Industrial West Midlands 0-10
88/94 Church Street, LIVERPOOL Retail North West 0-10
Haydock Industrial Estate, HAYDOCK Industrial North West 0-10
Haywood House, CARDIFF Offices Wales 0-10
The Lakes, NORTHAMPTON Offices East Midlands 0-10
Imperial House, SHEFFIELD Retail Yorkshire & Humberside 0-10
Hall Lane, SANDBACH Industrial North West 0-10
Clifton Park, YORK Offices Yorkshire & Humberside 0-10
The Albion Centre, ILKESTON Other East Midlands 0-10
Seton House, WARWICK Offices West Midlands 0-10
24/25 High Street, CHELMSFORD Retail South East 0-10
67/68 High Street, CHELMSFORD Retail South East 0-10
Pacific House, MARLOW Offices South East 0-10
The Orangery, Old & New Stables, FAREHAM Offices South East 0-10
12/14 East Gates, LEICESTER Retail East Midlands 0-10
Howard House, BEDFORD Offices Eastern 0-10
15/16 King Street, TRURO Retail South West 0-10
Moston Road, SANDBACH Industrial North West 0-10
Report of the Depositary to the Shareholders
Established in 2013, Langham Hall UK Depositary LLP is an FCA regulated firm
that works in conjunction with the Manager and the Company to act as
depositary. Consisting exclusively of qualified and trainee accountants and
alternative specialists, the entity represents net assets of US$140 billion
and we deploy our services to over 120+ alternative investment funds across
various jurisdictions worldwide. Our role as depositary primarily involves
oversight of the control environment of the Company, in line with the
requirements of the Alternative Investment Fund Managers Directive (AIFMD).
Our cash monitoring activity provides oversight of all the Company held bank
accounts with specific testing of bank transactions triggered by share issues,
property income distributions via dividend payments, acquisitions, and
third-party financing. We review whether cash transactions are appropriately
authorised and timely. The objective of our asset verification process is to
perform a review of the legal title of all properties held by the Company, and
shareholding of special purpose vehicles beneath the Company.
We test whether on an ongoing basis the Company is being operated by the
Manager in line with the Company's prospectus, and the internal control
environment of the Manager. This includes a review of the Company's and its
subsidiaries' decision papers and minutes.
We work with the Manager in discharging our duties, holding formal meetings
with senior staff on a quarterly basis and submit quarterly reports to the
Manager and the Company, which are then presented to the Board of Directors,
setting out our work performed and the corresponding findings for the period.
For the financial year ended 31 March 2024, our work included the review of
two investment property disposals and four interim dividends. Based on the
work performed during this period, we confirm that no issues came to our
attention to indicate that controls are not operating appropriately.
Joe Hime
Head of Depositary
For and on behalf of:
Langham Hall UK Depositary LLP, London, UK
Langham Hall UK Depositary LLP is a limited liability partnership registered
in England and Wales
(with registered number OC388007).
Glossary
Alternative performance measure ('APM') please see page 104 for full details of the key APMs used by the Company.
Annualised dividend yield being the dividend paid during the period annualised and expressed as a
percentage of the period end share price.
Articles means the Company's articles of incorporation, as amended from time to time.
Companies Law means The Companies (Guernsey) Law, 2008.
Company is Schroder Real Estate Investment Trust Limited.
Directors means the directors of the Company as at the date of this document whose names
are set out on pages 47 to 48 of this document and "Director" means any one of
them.
Disclosure Guidance and Transparency Rules means the disclosure guidance and transparency rules contained within the
FCA's Handbook of Rules and Guidance.
Earnings per share ('EPS') is the profit after taxation divided by the weighted average number of shares
in issue during the period. Diluted and adjusted EPS per share are derived as
set out under NAV.
Estimated rental value ('ERV') Is the Group's external valuers' reasonable opinion as to the open market rent
which, on the date of the valuation, could reasonably be expected to be
obtained on a new letting or rent review of a property.
EPRA is the European Public Real Estate Association.
EPRA Net Tangible Assets is the IFRS equity attributable to shareholders adjusted for items including
deferred tax, the fair value of financial instruments and intangible assets.
EPRA Net Disposal Value is the IFRS equity attributable to shareholders adjusted for items including
goodwill as a result of deferred tax and the fair value of interest rate debt
FCA is the UK Financial Conduct Authority.
Gearing is the Group's net debt as a percentage of adjusted net assets.
Group is the Company and its subsidiaries.
GFSC is the Guernsey Financial Services Commission.
Initial yield is the annualised net rents generated by the portfolio expressed as a
percentage of the portfolio valuation.
Interest cover is the number of times Group net interest payable is covered by Group net
rental income.
Listing Rules means the listing rules made by the FCA under Part VII of the UK Financial
Services and Markets Act 2000, as amended.
Market Abuse Regulation means regulation (EU) No.596/2014 of the European Parliament and of the
Council of 16 April 2014 on market abuse.
MSCI (formerly Investment Property Databank or 'IPD') is a Company that produces an
independent benchmark of property returns.
Manager/Investment Manager means Schroder Real Estate Investment Management Limited
Net asset value and NAV per share is shareholders' funds divided by the number of shares in issue at the
financial year end.
NAV total return is calculated taking into account both capital returns and income returns in
the form of dividends paid to shareholders.
Net rental income is the rental income receivable in the period after payment of ground rents
and net property outgoings.
REIT is a Real Estate Investment Trust.
Reversionary yield is the anticipated yield which the initial yield will rise to once the rent
reaches the estimated rental value.
SONIA Sterling Overnight Indexed Average - an overnight rate, set in arrears, and
based on actual transactions in overnight indexed swaps for unsecured
transactions in the Sterling market.
Weighted average unexpired lease term ('WAULT') Weighted average unexpired lease term assuming earlier of lease break or lease
expiry.
Resolutions at 2024 Annual General Meeting
THIS SECTION IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION.
If you are in any doubt about the contents of this section of the document or
the action you should take, you are recommended to seek immediately your own
personal financial advice from an appropriately qualified independent advisor
authorised pursuant to the Financial Services and Markets Act 2000 (as
amended).
If you have sold or otherwise transferred all your shares in the Company,
please send this document (including the Notice of AGM) and the accompanying
documents at once to the purchaser, transferee, or to the stockbroker, bank or
other person through whom the sale or transfer was effected for onward
transmission to the purchaser or transferee. However, such documents should
not be distributed, forwarded or transmitted in or into the United States,
Canada, Australia or Japan or into any other jurisdiction if to do so would
constitute a violation of applicable laws and regulations in such other
jurisdiction.
The Notice of the Annual General Meeting of Shareholders is set out on pages
141 to 142. The following paragraphs explain the resolutions to be put to the
AGM.
Resolutions 1-9 (ordinary resolutions)
Resolutions 1-9 are being proposed to approve the ordinary business of the
Company to: (i) consider and approve the consolidated Annual Report of the
Company for the year ended 31 March 2024; (ii) consider and approve the
Directors' remuneration policy and the remuneration report, (iii) elect or
re-elect the Directors; and (iv) appoint the Auditors and authorise the
Directors to determine the Auditor's remuneration.
Resolution 10: Approval of the Company's dividend policy (ordinary resolution)
The Company's dividend policy is to pay a sustainable level of quarterly
dividends to shareholders (in arrears). It is intended that successful
execution of the Company's strategy will enable a progressive dividend policy.
The Company's objective and strategy, outlined in the Chair's Statement and
Investment Manager's Report, is to deliver sustainable net income growth in
due course through active management of the underlying portfolio. Any future
decision to increase the dividend will be determined by factors including
whether it is sustainable over the long term, current and anticipated future
market conditions, rental values and the potential impact of any future debt
refinancing.
As the Company is a REIT, the Board must also ensure that dividends are paid
in accordance with the requirements of the UK REIT regime (pursuant to part 12
of the UK Corporation Tax Act 2010) in order to maintain the Company's REIT
status. Shareholders should note that the dividend policy is not a profit
forecast and dividends will only be paid to the extent permitted in accordance
with the Companies Law and the UK REIT regime.
The Board acknowledges that the dividend policy is fundamental to
shareholders' income requirements as well as the Company's investment and
financial planning. Therefore, in accordance with the principles of good
corporate governance and best practice relating to the payment of interim
dividends without the approval of a final dividend by a company's
shareholders, a resolution to approve the Company's dividend policy will be
proposed annually for approval.
Resolution 11: Authority to disapply pre-emption rights (special resolution)
The Directors require specific authority from shareholders before allotting
new ordinary shares for cash (or selling shares out of treasury for cash)
without first offering them to existing shareholders in proportion to their
holdings. Resolution 11 empowers the Directors to allot new ordinary shares
for cash or to sell ordinary shares held by the Company in treasury for cash,
otherwise than to existing shareholders on a pro rata basis, up to such number
of ordinary shares as is equal to 10% of the ordinary shares in issue
(including treasury shares) on the date the resolution is passed. No ordinary
shares will be issued without pre-emption rights for cash (or sold out of
treasury for cash) at a price less than the prevailing net asset value per
ordinary share at the time of issue or sale from treasury.
The Directors do not intend to allot or sell ordinary shares other than to
take advantage of opportunities in the market as they arise and will only do
so if they believe it to be advantageous to the Company
s existing shareholders and when it would not result in any dilution of the
net asset value per ordinary share (owing to the fact that no ordinary shares
will be issued or sold out of treasury for a price less than the prevailing
net asset value per ordinary share).
This authority will expire on the earlier of the conclusion of the annual
general meeting of the Company to be held in 2025 or on the expiry of 15
months from the passing of this Resolution 11.
Resolution 12: Authority to repurchase shares (special resolution)
The Board recognises that movements in the ordinary share price, premium or
discount, are driven by numerous factors, including investment performance,
gearing and market sentiment. Accordingly, it focuses its efforts principally
on addressing sources of risk and return as the most effective way of
producing long-term value for Shareholders.
However, the Directors may consider repurchasing ordinary shares if they
believe it to be in Shareholders' interests as a whole and as a means of
correcting any imbalance between supply and demand for the ordinary shares.
The making and timing of any repurchase of ordinary shares will be at the
absolute discretion of the Board, although the Board will have regard to the
effects of any such repurchase on long-term shareholders in exercising its
discretion. Any repurchase of ordinary shares will be subject to compliance
with the Companies Law and within any guidelines established from time to time
by the Board.
Annually the Company passes a resolution granting the Directors general
authority to purchase in the market up to 14.99% of the number of shares in
issue. The Directors intend to seek a renewal of this authority from the
Shareholders at the AGM. No shares were repurchased under this authority.
In the event that the Board decides to repurchase ordinary shares, purchases
will only be made through the market for cash at prices not exceeding the
prevailing NAV of the ordinary shares (as last calculated) where the Directors
believe such purchases will enhance shareholder value. Such purchases will
also only be made in accordance with the Listing Rules and the Disclosure
Guidance and Transparency Rules which provide that the maximum price to be
paid for each ordinary share must not be more than the higher of: (i) 5 per
cent above the average mid-market value of the ordinary shares for the five
business days before the purchase is made; and (ii) an amount equal to the
higher of (a) the price of the last independent trade; and (b) the highest
current independent bid for an ordinary share on the trading venues where the
market purchases by the Company pursuant to the authority conferred by that
resolution will be carried out. The Companies Law also provides, among other
things, that any such purchase is subject to the Company passing the solvency
test contained in the Companies Law at the relevant time. Any ordinary shares
purchased under this authority may be cancelled or held in treasury.
This authority will expire at the conclusion of the annual general meeting of
the Company to be held in 2025 unless varied, revoked or renewed prior to such
date by ordinary resolution of the Company.
The Board considers that the resolutions to be proposed at the AGM are in the
best interests of the Company's shareholders as a whole. The Board therefore
recommends unanimously to shareholders that they vote in favour of each of the
resolutions, as they intend to do in respect of their own beneficial holdings.
Alastair Hughes, Chair
5 June 2024
Notice of Annual General Meeting
Notice is hereby given that the Annual General Meeting of the Company will be
held at 1 London Wall Place, EC2Y 5AU on 16 September 2024 at 10.30 am
Resolution
To consider and, if thought fit, pass the following Ordinary
Resolutions:
Resolution 1 (Ordinary Resolution) · To receive, consider and approve the Consolidated Annual Report and
Financial Statements of the Company for the year ended 31 March 2024.
Resolution 2 (Ordinary Resolution) · To approve the Directors' Remuneration Policy.
Resolution 3 (Ordinary Resolution) · To approve the Remuneration Report for the year ended 31 March 2024.
Resolution 4 (Ordinary Resolution) · To re-elect Priscilla Davies as a director of the Company.
Resolution 5 (Ordinary Resolution) · To re-elect Alastair Hughes as a director of the Company.
Resolution 6 (Ordinary Resolution) · To re-elect Alexandra Innes as a director of the Company.
Resolution 7 (Ordinary Resolution) · To elect Sanjay Patel as a director of the Company.
Resolution 8 (Ordinary Resolution) · To appoint Ernst and Young LLP as Auditor of the Company until the
conclusion of the next Annual General Meeting.
Resolution 9 (Ordinary Resolution) · To authorise the Board of directors to determine the Auditor's
remuneration.
Resolution 10 (Ordinary Resolution) · To receive and approve the Company's Dividend Policy which appears on page
139 of the Annual Report.
To consider and, if thought fit, pass the following Special Resolutions:
Resolution 11(Special Resolution) That the directors of the Company be and are hereby empowered
to allot ordinary shares of the Company for cash as if the pre-emption
provisions contained under Article 13 of the Articles of Incorporation did not
apply to any such allotments and to sell ordinary shares which are held by the
Company in treasury for cash on a non-pre-emptive basis provided that this
power shall be limited to the allotment and sales of ordinary shares:
a. up to such number of ordinary shares as is equal to 10% of the
ordinary shares in issue (including treasury shares) on the date on which this
resolution is passed;
b at a price of not less than the net asset value per share as close as
practicable to the allotment or sale;
provided that such power shall expire on the earlier of the conclusion of the
annual general meeting of the Company to be held in 2025 or on the expiry of
15 months from the passing of this Special Resolution, except that the Company
may before such expiry make offers or agreements which would or might require
ordinary shares to be allotted or sold after such expiry and notwithstanding
such expiry the Directors may allot or sell ordinary shares in pursuance of
such offers or agreements as if the power conferred hereby had not expired.
Resolution 12 (Special Resolution) That the Company be authorised, in accordance with section 315 of The
Companies (Guernsey) Law, 2008, as amended (the 'Companies Law'), to make
market acquisitions (within the meaning of section 316 of the Companies Law)
of ordinary shares in the capital of the Company either for retention as
treasury shares, insofar as permitted by the Companies Law or cancellation,
provided that:
a. the maximum number of ordinary shares hereby authorised
to be purchased shall be 14.99% of the issued ordinary shares on the date on
which this resolution is passed;
b. the minimum price which may be paid for an ordinary share
shall be £0.01;
c. the maximum price (exclusive of expenses) which may be
paid for an ordinary share shall be an amount equal to the higher of (i) 5%
above the average of the mid-market value of the ordinary shares (as derived
from the regulated market on which the repurchase is carried out) for the five
business days immediately preceding the date of the purchase; and (ii) the
higher of (a) the price of the last independent trade; and (b) the highest
current independent bid at the time of purchase, in each case on the regulated
market where the purchase is carried out;
d. such authority shall expire at the conclusion of the annual
general meeting of the Company to be held in 2025 unless such authority is
varied, revoked or renewed prior to such date of the general meeting; and
e. the Company may make a contract to purchase ordinary
shares under such authority prior to its expiry which will or may be executed
wholly or partly after its expiration and the Company may make a purchase of
ordinary shares pursuant to any such contract.
By Order of the Board
For and on behalf of
Schroder Investment Management Limited
Company Secretary
5 June 2024
Notes
1. To be passed, an ordinary resolution requires a simple majority of
the votes cast by those shareholders voting in person or by proxy at the AGM
(excluding any votes which are withheld) to be voted in favour of the
resolution.
2. To be passed, a special resolution requires a majority of at least
75% of the votes cast by those shareholders voting in person or by proxy at
the AGM (excluding any votes which are withheld) to be voted in favour of the
resolution.
3. A member who is entitled to attend and vote at the meeting is
entitled to appoint one or more proxies to exercise all or any of their rights
to attend, speak and vote instead of him or her. A proxy need not be a member
of the Company. More than one proxy may be appointed provided that each proxy
is appointed to exercise the rights attached to different shares held by the
member.
4. If returned without an indication as to how the proxy shall vote on
any particular matter, the proxy will exercise discretion as to whether, and
if so how, to vote.
5. A form of proxy is enclosed for use at the meeting and any
adjournment thereof. The form of proxy should be completed and sent, together
with the power of attorney or other authority (if any) under which it is
signed, or a notarial certified copy of such power or authority, so as to
reach the Company's Registrars, Computershare Investor Services (Guernsey)
Limited, c/o The Pavilions, Bridgwater Road, Bristol, BS99 6ZY at least 48
hours before the time of the AGM (excluding any part of a day that is not a
working day).
6. Completing and returning a form of proxy will not prevent a member
from attending in person at the meeting and voting should he or she so wish.
7. To have the right to attend and vote at the meeting or any
adjournment thereof (and also for the purpose of calculating how many votes a
member may cast on a poll) a member must have his or her name entered on the
register of members not later than at close of business of 14 September 2024.
8. Pursuant to Regulation 41 of the Uncertificated Securities
(Guernsey) Regulations 2009, entitlement to attend and vote at the meeting and
the number of votes which may be cast thereat will be determined by reference
to the register of members of the Company at close of business on 14 September
2024. Changes to entries in the register of members of the Company after
that time shall be disregarded in determining the rights of any member to
attend and vote at such meeting.
9. If all the shares have been sold or transferred by the addressee,
the Notice of Annual General Meeting and any other relevant documents should
be passed to the person through whom the sale or transfer was effected for
transmission to the purchaser or transferee.
Corporate Information
Registered Address Independent Auditor
Town Mills Ernst & Young LLP
North Suite 2 PO Box 9
Rue Du Pré Royal Chambers
St Peter Port St. Julian's Avenue
Guernsey St. Peter Port
GY1 1LT Guernsey GY1 4AF
Directors (all non-executive) Property Valuer
Alastair Hughes (Chair) CBRE Limited
Stephen Bligh Henrietta House
Henrietta Place
Priscilla Davies London
Alexandra Innes W1G 0NB
Sanjay Patel (appointed 1 January 2024)
Investment Manager and Accounting Agent Sponsor and Brokers
Schroder Real Estate Investment Management Limited J.P. Morgan Securities plc
1 London Wall Place 25 Bank Street
London Canary Wharf
EC2Y 5AU London E14 5JP
Company Secretary Tax Advisors
Schroder Investment Management Limited Deloitte LLP
1 London Wall Place 2 New Street Square
London London EC4A 3BZ
EC2Y 5AU
Receiving Agent and UK Transfer/Paying Agent
Depositary Computershare Investor Services (Guernsey) Limited
Langham Hall UK Depositary LLP 13 Castle Street
8th Floor St Helier
1 Fleet Place Jersey
London JE1 1ES
EC4M 7RA
Solicitors to the Company The Company's privacy notice is available on its webpage.
as to English Law: as to Guernsey Law:
Stephenson Harwood LLP Mourant Ozannes (Guernsey) LLP
1 Finsbury Circus Royal Chambers
London EC2M 7SH St Julian's Avenue
St. Peter Port
Guernsey GY1 4HP
FATCA GIIN
5BM7YG.99999.SL.826
All references to page numbers in this document refer to the Company's Annual
Report and Consolidated Financial Statements for the year ended 31 March 2024.
1 (#_ftnref1) Reconciles to the valuation reports from CBRE for both the
direct portfolio and the two Joint Ventures. Does not include any IFRS
adjustments for lease incentives, nor the fair value of the leasehold
adjustment for The Galaxy, Luton.
2 (#_ftnref2) Represents the annualised rental income of the portfolio as at
31 March 2024, including the share of rents from joint venture assets.
3 (#_ftnref3) Represents the ERV of the portfolio as estimated by the
valuers, including the share of rents for the joint venture assets.
4 (#_ftnref4) Source: MSCI Quarterly Version of Balanced Monthly Index Funds
including the share of rents for the joint venture assets on a like-for-like
basis as at 31 March 2024.
5 (#_ftnref5) This is an Alternative Performance Measure ('APM'). EPRA
calculations are included in the EPRA Performance measures section on page
104.
6 (#_ftnref6) This is an APM with further details on page 110.
7 (#_ftnref7) This is an APM with further details on page 110.
8 (#_ftnref8) On-balance sheet borrowings reflect the loan facilities with
Canada Life and RBSI without the deduction of unamortised finance costs of
£0.7m.
9 (#_ftnref9) This is an APM. Details are included in the APM section on
page 110.
10 (#_ftnref10) This is an APM and calculated in accordance with the AIC
recommended methodology. Details are included in the APM section on page 110.
11 (#_ftnref11) This is an APM and calculated in accordance with the AIC
methodology. Details are included in the APM section on page 110.
12 (#_ftnref12) Represents the annualised rental income as at 31 March 2024
of the portfolio, including share of rents for the joint venture assets.
13 (#_ftnref13) As per third party valuation reports unadjusted for IFRS
lease incentive amounts. Column does not sum due to rounding.
14 (#_ftnref14) World Green Building Council: Bringing Embodied Carbon
Upfront. https://worldgbc.org/article/bringing-embodied-carbon-upfront/
(https://worldgbc.org/article/bringing-embodied-carbon-upfront/)
15 (#_ftnref15) Intergovernmental Panel on Climate Change (IPCC): Sixth
Assessment Report. https://www.ipcc.ch/assessment-report/ar6/
(https://www.ipcc.ch/assessment-report/ar6/)
16 (#_ftnref16) 'Net Zero Carbon' is when the carbon emissions emitted as a
result of all activities associated with the development, ownership and
servicing of a building are zero or negative.
17 (#_ftnref17) Better Buildings Partnership Climate Commitment available
here: https://www.betterbuildingspartnership.co.uk/member-limate-commitment
(https://www.betterbuildingspartnership.co.uk/member-limate-commitment)
18 (#_ftnref18) Industrial assets are often characterised by large floor
area but with relatively low sector specific CRREM targets, and so their
inclusion in portfolio targets for the first time has brought about lower
overall portfolio energy and carbon targets comparted to the previous
analysis.
19 (#_ftnref19) Operational Carbon is the term used to describe the
emissions of carbon dioxide and other greenhouse gases during the in-use
operation of a building, most materially from energy use and refrigerants.
Embodied Carbon refers to the carbon emissions emitted producing a building's
materials, their transport and installation on site as well as their disposal
at end of life.
20 (#_ftnref20) The Carbon Risk Real Estate Monitor (CRREM) is the leading
global initiative for establishing targets for operational ("in use") carbon
emissions for standing real estate investments consistent with the ambitions
of the Paris agreement. he developed software (so called "CRREM-Tool" or
Carbon Risk Assessment Tool) derives carbon emission intensities as well as
energy consumption intensities and demonstrates the 1.5-degree-readiness of
each analysed property. Further information available here: Risk Assessment
Tool - CRREM Project (https://www.crrem.eu/tool/)
21 (#_ftnref21) GRESB 2023 Standing Investments Benchmark Report for the
Company 1st out of 6 Peer Comparison for United Kingdom of Great Britain and
Northern Ireland - Diversified - Listed -Tenant Controlled.
22 (#_ftnref22) The EPRA Sustainability Best Practices Recommendations
(sBPR) are intended to raise the standards and consistency of sustainability
reporting for listed real estate companies across Europe. As with the EPRA
financial BPR Awards, each year EPRA recognises companies which have issued
the best-in-class annual sustainability performance report. Based on adherence
to the EPRA sBPR in their public disclosure, companies are identified for
Gold, Silver or Bronze Awards.
23 (#_ftnref23) Sustainability audits in line with Schroders Capital's
scope, inclusive of third-party validated proprietary ESG Scorecard.
24 (#_ftnref24) The Energy Efficiency (Private Rented Property) (England and
Wales) Regulations 2015 establish a minimum level of energy efficiency for
rented property in England and Wales.
25 (#_ftnref25) Indoor Air Quality POST September 2023; Translating
research into practice
(https://marketing.wellcertified.com/global-research-agenda) International
WELL Building Institute, 2024.
26 (#_ftnref26) Act Local: Empowering London's neighbourhoods
(https://centreforlondon.org/reader/act-local/introduction/#the-case-for-neighbourhoods)
Joe Wills, Centre for London, September 2019.
27 (#_ftnref27) Act Local: Empowering London's neighbourhoods
(https://centreforlondon.org/reader/act-local/introduction/#the-case-for-neighbourhoods)
Joe Wills, Centre for London, September 2019
28 (#_ftnref28) Schroders Climate (TCFD) Report 2023
(https://mybrand.schroders.com/m/6f9278f6e769cbb2/original/Schroders-Climate-Report-TCFD-2023.pdf)
29 (#_ftnref29) Chair of the Audit Committee.
30 (#_ftnref30) Senior Independent Director.
31 (#_ftnref31) Chair of the Management Engagement Committee.
32 (#_ftnref32) Sanjay Patel was appointed as a director effective on 1
January 2024.
33 (#_ftnref33) Chair of the Audit Committee, retiring on 30 June 2024.
34 (#_ftnref34) Senior Independent Director.
35 (#_ftnref35) Chair of the Management Engagement Committee.
36 (#_ftnref36) Sanjay Patel was appointed as a director effective on 1
January 2024.
37 (#_ftnref37) Better Buildings Partnership Climate Commitment available
here: https://www.betterbuildingspartnership.co.uk/member-climate-commitment
(https://www.betterbuildingspartnership.co.uk/member-climate-commitment)
38 (#_ftnref38) As per third party valuation reports unadjusted for IFRS
lease incentive amounts.
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