REG - Schroder Real Estate - NAV and Dividend for Quarter to 31 December 2023

Schroder Real Estate Investment TrustAnnouncement

27/02/2024 07:00

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RNS Number : 5204E  Schroder Real Estate Inv Trst Ld  27 February 2024

For release 27 February 2024

 

Schroder Real Estate Investment Trust Limited

('SREIT' or the 'Company')

NAV AND DIVIDEND ANNOUNCEMENT FOR THE QUARTER TO 31 DECEMBER 2023

Schroder Real Estate Investment Trust Limited ('SREIT' or the 'Company'), the
actively managed REIT focused on improving the sustainability performance of
buildings to generate higher income, announces its net asset value ('NAV') and
dividend for the quarter to 31 December 2023 and provides an update on
portfolio activity.

Highlights:

·    NAV decline to £287.0 million or 58.7 pence per share ('pps') (30
September 2023: £296.0 million or 60.5 pps), driven by a 1.6% decline in
capital growth, which compared to a 2.3% decline in capital growth for the
MSCI UK Balanced Portfolios Quarterly Property Index

·    NAV total return of -1.6%

·    Announcement of an interim dividend of 0.836 pps for the period 1
October 2023 to 31 December 2023, and paid on 28 March 2024

·    Net loan to value of 36.6%, with an average interest cost on debt
drawn of 3.5%, an average loan duration of 10.0 years and no debt maturities
until June 2027

·    Continued leasing momentum since 1 October 2023 with 32 new lettings,
renewals and rent reviews completed across 378,159 sq ft. This includes:

o  Two new lettings totalling 24,683 sq ft at the Company's net zero
warehouse on Stanley Green Trading Estate, 31% ahead of underwrite,
demonstrating the rental premium for buildings with the highest sustainability
credentials

o  85,814 sq ft lease renewal with the University of Law at Bloomsbury, 39%
above the previous passing rent by December 2028

·    Disposed of an office asset, Coverdale House, in Leeds, for £3.8
million, at a 16% premium to the independent valuation as at 30 September 2023

·    Sustained outperformance versus the MSCI UK Balanced Portfolios
Quarterly Property Index (the 'Benchmark') over three months, twelve months,
three years and since inception in 2004

·    Strong shareholder support 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

Alastair Hughes, Chair of the Board, commented: "Despite continuing market
uncertainty the Company remains well placed with an above average rental
income profile and the longest duration, fixed-rate debt in the peer group.
These factors enable us to continue paying an attractive dividend, with good
visibility on future earnings growth. I am also delighted shareholders
provided strong support to the evolution of our strategy which places
sustainability at the centre of our investment proposition, and we will
provide a detailed update on progress implementing this strategy in our
forthcoming year end results."

Nick Montgomery, Fund Manager, added: "This has been an encouraging period of
leasing activity, with a high volume of deals closed and under offer. We are
also working up a pipeline of new asset management initiatives to further grow
earnings, with a focus on delivering projects to a high sustainability
specification such as our Stanley Green operational net zero warehouse
development."

NAV

The unaudited NAV as at 31 December 2023 was £287.0 million, or 58.7 pps, a
decrease of -3.0% compared with the NAV as at 30 September 2023 (£296.0
million, or 60.5 pps).

Including the quarterly dividend of 0.836 pps paid in December 2023, the NAV
total return for the quarter was -1.6%. A breakdown is set out below:

                                                                                £m     PPS    Comments
 NAV as at 30 September 2023                                                    296.0  60.5   Calculation based on 489,110,576 shares
 Unrealised net decrease in the valuations of the direct real estate portfolio  (5.0)  (1.0)  The underlying portfolio saw a decline in capital growth over the quarter of
 and Joint Ventures                                                                           -1.6% which compared to -2.3% for the MSCI UK Balanced Portfolios Quarterly
                                                                                              Property Index
 Capital expenditure (direct portfolio and share of Joint Ventures)             (3.0)  (0.6)  Principally relating to the operational net zero carbon warehouse development
                                                                                              at Stacey Bushes Industrial Estate in Milton Keynes and two refurbishments at
                                                                                              Stirling Court, a multi-let industrial estate in Swindon
 Realised gain on disposal                                                      0.5    0.1    Coverdale House, an office in Leeds, sold for a headline price of £3.8
                                                                                              million, compared with a value of £3.275 million at the start of the quarter,
                                                                                              with £50,000 disposal costs incurred
 EPRA earnings                                                                  3.6    0.7    Impact of fees associated with obtaining shareholder approval to the recent
                                                                                              strategy evolution
 Dividend paid                                                                  (4.1)  (0.8)  Dividend for the quarter ended 30 September 2023 paid in December 2023 of
                                                                                              0.836 pps
 Unrealised loss related to interest rate hedging instruments                   (0.8)  (0.2)  Relating to hedging linked to the Company's revolving credit facility with
                                                                                              Royal Bank of Scotland International ('RBSI')
 Others                                                                         (0.2)  (0.0)  All other items including lease incentives and rounding
 NAV as at 31 December 2023                                                     287.0  58.7   Calculation based on 489,110,576 shares

 

 

Dividend payment

The Company announces an interim dividend of 0.836 pps for the period 1
October 2023 to 31 December 2023. The dividend payment will be made on 28
March 2024 to shareholders on the register at the record date of 8 March 2024.
The ex-dividend date will be 7 March 2024.

The dividend of 0.836 pps will be wholly designated as an interim property
income distribution ('PID').

Property portfolio

As at 31 December 2023, the underlying portfolio comprised 39 properties
valued at £457.8 million. It generated an annual rent of £29.2 million,
reflecting a net initial yield of 6.0%. The portfolio's estimated rental value
('ERV') is £38.5 million per annum, reflecting a reversionary yield of 8.4%.

The void rate was 12.0% calculated as a percentage of ERV, and since the
quarter end 2.9% of this has let or is under offer, and a further 0.7%
undergoing refurbishment. The weighted average unexpired lease term, assuming
all tenants vacate at the earliest opportunity, is 5.3 years.

The tables below summarise the portfolio information as at 31 December 2023:

Sector weighting

                               Sector as a % of total value
                               SREIT            Benchmark
 Industrial                    49.8             32.8
 Office                        25.2             22.6
 Retail warehouse              11.4             9.9
 Retail                        7.7              9.9
 Retail ancillary to main use  4.9
 Retail single use             2.8
 Other                         5.9              19.0
 Shopping centres              -                2.0
 Unattributable                -                3.8

 

Region weighting

                                      Region as a % of total value
                                      SREIT            Benchmark
 Central London                       8.4              19.5
 South East excluding Central London  17.3             32.9
 Rest of South                        10.8             15.9
 Midlands and Wales                   21.1             13.1
 North                                40.2             14.2
 Scotland                             2.2              4.2
 Northern Ireland                     -                0.2

 

Portfolio activity

Transactional activity

Coverdale House, a 32,355 sq ft multi-let office asset in Leeds, was sold in
December for £3.8 million reflecting a 16% premium to the 30 September 2023
independent valuation. It 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.

Asset management

Continued leasing momentum since 1 October 2023 with 32 new lettings, renewals
and rent reviews completed across 378,159 sq ft. Key highlights include:

Industrial portfolio:

Stanley Green Trading Estate, Cheadle, Greater Manchester

Continued progress is being made leasing the Company's recently constructed
80,274 sq ft operational net zero warehouse development at Stanley Green
Trading Estate ('STGE'), with the development now 56% let.

·    A 10-year lease completed with Siemens plc ('Siemens') for a 13,881
sq ft unit generating £212,295 per annum and equating to £15.29 per sq ft,
in line with the September ERV, and is 33% above the original underwrite.
Following this letting Siemens remains the Company's second largest tenant by
income across STGE and Langley Industrial Park in Chippenham (4.9% of total
rent). Siemens will have six-months of rent free and a break at year five.

 

·    A 10-year lease completed with Licata Building Systems Limited
('Licata') for a 10,802 sq ft unit, generating £164,155 per annum and
equating to £15.20 per sq ft, in line with the September ERV of £15.25 per
sq ft, and is 29% above the original underwrite. Licata will have five-months
of rent free and a break at year five.

 

·    A further 19,340 sq ft is either under offer or in advanced
negotiations which, assuming these proceed to completion, would generate a
further £340,000 per annum of rent and result in the scheme being
approximately 80% let.

Jaguar Land Rover Limited ('JLR') unit, 55/56 Heathcote Industrial Estate,
Warwick

·    JLR, who occupy a 50,139 sq ft warehouse unit used as a training
academy, have completed a five-year lease renewal generating £412,500 per
annum, equating to £8.23 per sq ft. This reflects an increase of 25% compared
with the previous rent. JLR will have six-months of rent free and a
contribution towards improvement works supporting electric vehicles, capped at
£110,000.

Office portfolio:

University of Law, Store Street, Bloomsbury, London (numbers below reflect
SREITs 50% share)

·    The Company owns a 50% interest in the University of Law ('UoL')
building on Store Steet in Bloomsbury, an improving location benefiting from
the Elizabeth Line station at Tottenham Court Road and "knowledge-based"
occupier demand. In December, the Company completed a new 85,814 sq ft lease
with UoL on the following terms:

o  Lease expiry extended from December 2026 to December 2029.

o  Rent review dated December 2024 pre-agreed at £2,359,885 per annum
equating to £55.00 per sq ft, 28% above the current rent.

o  Fixed rental increase in December 2026 to £2,430,682 per annum equating
to £56.65 per sq ft.

o  Annual fixed uplifts of 3% per annum from December 2026, leading to rent
of £2,578,710 per annum or £60.10 per sq ft from December 2028, 39% above
the previous rent.

o 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.

Retail warehouse portfolio:

St John's Retail Park, Bedford

·    A 15-year lease without breaks completed with Starbucks Coffee
Company UK Limited ('Starbucks') for a new 1,800 sq ft drive-thru unit they
constructed on the site. The rent is £155,000 per annum which equates to
£86.11 per sq ft, and the lease benefits from inflation-linked increases.
Starbucks will receive a contribution towards construction costs of £850,000
and 12-months of rent free.

103 Watling Street, Bletchley, Milton Keynes

·    A 15-year lease completed with Starbucks Coffee Company UK Limited
('Starbucks') for a new 1,800 sq ft drive-thru unit they constructed on the
site. The rent is £105,000 per annum which equates to £58.33 per sq ft, and
the lease benefits from inflation-linked increases. Starbucks will receive a
contribution towards construction costs of £850,000 and 12-months of rent
free.

Balance sheet and debt

The average interest rate for total debt drawn at the quarter end was 3.5%,
with an average maturity of 10.0 years, and 91% either fixed or hedged against
movements in interest rates.

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 £175.6 million total borrowings at the quarter end,
has an average loan maturity of 12.3 years, with a fixed average interest rate
of 2.5%. At the quarter end, the incremental positive fair value benefit of
this fixed-rate loan was £17.1 million, which is not reflected in the
Company's NAV.

The balance of borrowings at the quarter end, totalling £46.0 million,
comprised a revolving credit facility ('RCF') from RBSI. This facility totals
£75.0 million and can be drawn and repaid at any time up to maturity on 6
June 2027. The RCF is a 'Green Loan', with criteria linked to reduced energy
consumption, future improvements in the GRESB rating and certification linked
to building improvements.

£30.5 million of the £46.0 million drawn on the RCF benefits from an
interest rate collar, which protects the Company from interest rates above
4.25%, whilst also allowing the Company to benefit from future falls in
interest rates down to a 3.25% floor. The collar matches the loan duration and
had a fair value of nil at the quarter end.

As at 31 December 2023, the Company had cash of £8.2 million and a net loan
to value ratio of 36.6%, slightly above the long-term strategic target range
of 25% to 35%. The Company has significant headroom against all loan
covenants, and steps are being taken to reduce the net loan to value ratio
back in line with the target range.

-ENDS-

 

For further information:

 Schroder Real Estate Investment Management Limited:

 Nick Montgomery / Bradley Biggins / Matthew Riley    020 7658 6000
 FTI Consulting:

 Dido Laurimore / Richard Gotla / Ollie Parsons       020 3727 1000

 

About Schroder Real Estate Investment Trust Limited

Schroder Real Estate Investment Trust Limited aims to provide shareholders
with an attractive level of income together with the potential for income and
capital growth as a result of its investments in, and active management of, a
diversified portfolio of UK commercial real estate, weighted towards higher
growth sectors.

The Company employs 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 Company leverages Schroders' specialist multi-strategy capabilities and
139-strong UK real estate team (as at 31 December 2023), incorporating a
hospitality-driven approach to improve the operational performance of its
assets.

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