REG - Schroder Real Estate - Full Year Results for the year ended 31 March 2023
08/06/2023 07:00
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RNS Number : 0223C Schroder Real Estate Inv Trst Ld 08 June 2023
For release 8 June 2023
Schroder Real Estate Investment Trust Limited
('SREIT' / the 'Company' / 'Group')
RESULTS FOR THE YEAR ENDED 31 MARCH 2023
LOW COST, LONG TERM DEBT PROFILE AND INCOME-LED OUTPERFORMANCE DELIVERS
FURTHER INCREASE IN FULLY COVERED DIVIDEND
Schroder Real Estate Investment Trust Limited, the actively managed UK focused
REIT, today announces its final results for the year ended 31 March 2023.
These are also available on the Company's website, https://www.srei.co.uk
(https://www.srei.co.uk) .
High income return and a sector leading debt profile underpinning earnings and
a further dividend increase
· Net asset value ('NAV') decreased to £300.7 million or 61.5 pps (31
March 2022: £372.2 million, or 75.8 pps), with equivalent yield expansion of
152 bps to 7.8% (MSCI Benchmark: 123 bps to 6.2%) as a result of the higher
interest rate environment, partially offset by ERV growth of 9.2% (MSCI
Benchmark: 3.4%)
· 14% increase in dividends paid during the financial year to £15.8
million, or 3.22 pps (31 March 2022: £13.9 million, or 2.83 pps), fully
covered by EPRA earnings
· NAV total return -15.1% (31 March 2022: 30.9%)
· Long debt maturity profile of 10.6 years and a low average interest
cost of 2.9%, with 90% either fixed or hedged against movements in interest
rates
· Loan to value, net of all cash, of 36.0% (31 March 2022: 28.6%)
· Change of independent valuer at the financial year end
· 12 month total return from the underlying portfolio of -7.9% compared
with the MSCI Benchmark at -13.5%
· Further 2% increase in the quarterly dividend to 0.836 pps for the
quarter ended 31 March 2023, to be paid in June
Asset management and transactional activity leading to long term
outperformance against the MSCI Benchmark, strong rental value growth and an
improvement in defensive qualities
· Sustained, long term outperformance of the underlying portfolio with
a total return of 6.0% per annum on a rolling three year basis (MSCI Benchmark
Index: 1.9% per annum)
· 65 new lettings, rent reviews and renewals across 973,000 sq ft
completed since the start of the financial year, totalling £6.7 million in
annualised rental income and generating £2.3 million per annum of additional
rent, including:
§ Rent reviews and lease renewals at Langley Park Industrial Estate in
Chippenham with Siemens Mobility and IXYS which increased the headline annual
rent by £0.4 million or 21%
§ 40,000 sq ft lease regear completed with Buckinghamshire New University in
Uxbridge, extending the lease contract by five years at 13% higher rent
§ Post year end completion of Stanley Green Trading Estate 80,000 sq ft
operational net zero development in Manchester, with approximately 40% of the
£1.3 million ERV let or in legals
· Acquisition of St. Ann's House, a mixed-use office and retail asset
in Manchester City Centre, for £14.7 million, reflecting a net initial yield
of 7.8%, a reversionary yield of 9.1% and a low average capital value of £283
per sq ft, and, post year end, a small adjoining ownership in Chelmsford, for
£800,000, reflecting a net initial yield of 11.1%
· Three disposals totalling £12.6 million at a 13% average premium to
the valuation at the start of the financial year
Strong progress improving sustainability performance as future strategy
evolves
· Further improvement in the Company's Global Real Estate
Sustainability Benchmark ('GRESB') score, placing first amongst a group
comprising seven diversified REITs
· 58% of the portfolio A-C rated (31 March 2022: 41%), the Company's
first 'A+' ratings were achieved at the new development at Stanley Green
Trading Estate post year end
· Announced 'Pathway to Net Zero Carbon', includes operational whole
buildings emissions to be aligned to a 1.5°C pathway by 2030
Alastair Hughes, Chair of the Board, commented:
"There are signs that real estate values are stabilising, and approaching fair
value. The attractive portfolio income and pipeline of asset management
activity should contribute to continued earnings and dividend growth, further
improve the defensive qualities of the portfolio, and enhance returns as the
market recovers.
"Whilst a relaxation in monetary policy is expected in 2024, interest rates
will remain elevated compared with the recent past. The prudent balance sheet
management implemented by the Company, resulting in the lowest cost, longest
duration debt in the peer group, largely removes this risk to earnings, and
provides a solid foundation to deliver future dividend growth."
Nick Montgomery, Fund Manager, added:
"Whilst the Company's asset values were impacted by macro-economic headwinds,
our diversified portfolio delivered a further increase in the fully covered
dividend level, driven by asset management-led rental growth. Importantly, the
strength of our balance sheet, underpinned by low cost, long-term, fixed rate
debt, is a key competitive advantage and provides significant protection from
the impact of higher interest rates. These factors, combined with an
increasing emphasis on sustainability-led initiatives, will further and more
clearly differentiate the Company's strategy, helping to drive more
sustainable, long-term returns for shareholders."
A webcast presentation for analysts and investors will be hosted today at
10.00am. In order to register, please visit:
https://registration.duuzra.com/form/feedback/SREIAnnualResultsJun23
(https://registration.duuzra.com/form/feedback/SREIAnnualResultsJun23)
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
Contents
Overview 1
Performance Summary 4
Strategic Report 6
Chair's Statement 6
Investment Manager's Report 11
Sustainability Report 26
Business Model 33
Our stakeholders 36
Risk and Uncertainties 38
Governance Report 43
Board of Directors 43
Report of the Directors 45
Corporate Governance 48
Audit Committee Report 53
Management Engagement Committee Report 56
Nomination Committee Report 57
Directors' Remuneration Report 59
Statement of Directors' Responsibilities 61
Independent Auditor's Report to the members of Schroder Real Estate Investment 63
Trust Limited
Financial Statements 74
Consolidated Statement of Comprehensive Income 74
Consolidated Statement of Financial Position 75
Consolidated Statement of Changes in Equity 76
Consolidated Statement of Cash Flows 77
Notes to the Financial Statements 78
Other information (unaudited) 98
EPRA Performance Measures (unaudited) 98
Alternative Performance Measures (unaudited) 104
AIFMD Disclosures (unaudited) 105
Task Force on Climate-related Financial Disclosures ('TCFD') 107
Sustainability Performance Measures (Environmental) (unaudited) 112
Streamlined Energy and Carbon Reporting 128
Asset list 132
Report of the Depositary to the Shareholders 133
Glossary 134
Notice of Annual General Meeting 138
Corporate Information 141
Performance Summary
Property performance
31 March 2023
Value of Property Assets and Joint Venture Assets 1 (#_ftn1) £470.4m £523.5m
Annualised rental income 2 (#_ftn2) £29.3m £30.1m
Estimated open market rental value 3 (#_ftn3) £37.8m £33.8m
Underlying portfolio total return (7.9%) 23.5%
MSCI Benchmark total return 4 (#_ftn4) (13.5%) 19.9%
Underlying portfolio income return 6.0% 6.3%
MSCI Benchmark income return 4.1% 3.9%
Financial summary
31 March 2023
Net Asset Value ('NAV') £300.7m £372.2m
NAV per Ordinary Share 61.5p 75.8p
EPRA Net Tangible Assets 5 (#_ftn5) £300.7m £372.2m
EPRA Net Reinstatement Value (5) £332.2m £407.3m
EPRA Net Disposal Value (5) £317.4m £375.9m
IFRS (loss)/profit for the year (£54.7m) £89.4m
EPRA earnings (5) £16.0m £15.7m
Dividend cover 6 (#_ftn6) 101% 113%
Capital values
31 March 2023 31 March 2022
Share price 43.6p 57.8p
Share price discount to NAV (29.1%) (23.7%)
NAV total return 7 (#_ftn7) (15.1%) 30.9%
Earnings and dividends
31 March 2023 31 March 2022
EPRA earnings (5) (pps) 3.3 3.2
Dividends paid (pps) 3.22 2.83
Annualised dividend yield on the 31 March share price 7.4% 4.9%
Bank borrowings
31 March 2023 31 March 2022
On-balance sheet borrowings 8 (#_ftn8) £177.90m £162.25m
Loan to Value ratio ('LTV'), net of all cash 9 (#_ftn9) 36.0% 28.6%
Ongoing charges
31 March 2023 31 March 2022
Ongoing charges (including fund and property expenses) 10 (#_ftn10) 2.28% 2.21%
Ongoing charges (including fund only expenses) 11 (#_ftn11) 1.32% 1.26%
Strategic Report
Chair's Statement
Overview
Schroder Real Estate Investment Trust Limited (the 'Company') today announces
its audited results for the financial year to 31 March 2023, a challenging
period that has seen financial market volatility, and a significant correction
in UK real estate values. As expected, the rising interest rate environment
has led to a re-rating in real estate yields, contributing to a -13.1%
valuation decline in our underlying portfolio over the year. Whilst this
compared favourably with the MSCI peer group Benchmark (the 'Benchmark') at
-16.9% over the same period, the valuation movement resulted in a net asset
value ('NAV') as at 31 March 2023 of £300.7 million, or 61.5 pence per share
('pps'), a decline of -18.9%.
More positively, a high level of portfolio activity contributed to an above
average income return of 6.0% over the year, comparing favourably with the
Benchmark at 4.1%. Earnings growth, underpinned by low cost, long-term, fixed
rate debt, boosted the dividend to £15.8 million, a 14% increase compared
with the prior financial year, and we are the only member of our peer group
where the dividend is above the pre-pandemic level. Importantly, the dividend
was fully covered by recurring earnings and, combined with the movement in the
NAV, resulted in a NAV total return for the financial year of -15.1%.
As a result of income focused asset management activity, the Company has today
separately announced a further 2% increase in its quarterly dividend to 0.836
pps, to be paid in June 2023. This reflects an attractive yield of 7.5% based
on the share price of 44.35 pps as at close on 6 June 2023.
Whilst the decline in NAV over the financial year is, of course, unwelcome, it
is encouraging that the underlying portfolio continues to deliver long term
relative outperformance compared with the Benchmark, with an annualised total
return of 6.0% per annum over the past three years, compared with the
Benchmark at 1.9% per annum, placing the portfolio on the fifth percentile of
its peer group.
Market context
My statement in the interim report highlighted the risk of average UK
commercial real estate values falling 15% to 20% from the half year point,
resulting in an overall decline from mid 2022 of approximately 20% to 25%.
Average values have now fallen -17.7% between 1 July 2022 and 31 March 2023,
with the Company's portfolio value falling by -14.1% over the same period.
The principal cause of this correction is more persistent core inflation,
driven by high energy and food prices, leading to increasing interest rates,
with the Bank of England base rate currently 4.5%, the highest level since
October 2008. Tighter fiscal and monetary conditions, combined with a
withdrawal of pandemic related business support programmes, have led to a rise
in business insolvencies and a slowdown in consumer spending. In real estate
markets, higher interest rates have impeded debt-backed buyers and increased
refinance risk for many borrowers, with a related fall in equity and bond
prices leaving some institutions over-allocated to real estate. This
environment has led to weaker sentiment and a sharp fall in transaction
volumes.
The resultant decline in values has increased average real estate net initial
yields from 3.8% in June 2022 to 4.7% today, the highest level since June
2020, with our portfolio now yielding 5.8%. As expected, lower yielding,
higher growth real estate sectors such as South East and London industrial
have been most adversely impacted by this rerating, resulting in a reversal in
the unprecedented polarisation of returns over recent years. Higher yielding
sectors - such as retail warehousing, and offices in stronger regional centres
- have been less adversely impacted, leading to a convergence in returns
across the main sectors. Against this backdrop, our well diversified portfolio
has outperformed the Benchmark due to the active management of the higher
yielding, regional industrial estates, as well as higher-yielding retail
warehousing and offices in stronger regional centres.
Occupational markets have, so far, remained more resilient, with average
nominal rental value growth for UK real estate of 2.5% per annum since June
2022. Although below current inflation levels, there remains a strong positive
long-term correlation between rental growth rates and inflation, with sectors
benefiting from structural demand drivers and lower vacancy rates delivering
rental growth well above the long-term average of approximately 0.9%. For
example, in contrast with the sharp decline in capital values, average
industrial rental values have increased by 5.9% since June 2022.
There are initial signs that the investment market is now stabilising, with a
capital value decline from our underlying portfolio of -0.5% over the quarter
to March 2023 (Benchmark: -1.3%), contrasting with -11.9% over the quarter to
December (Benchmark: -13.2%). The extent of any subsequent recovery will
depend on falling inflation, with the Bank of England currently forecasting a
return to its target rate in 2024. In this seemingly benign scenario, interest
rates should fall, but probably to a higher equilibrium rate of around 3%,
above the ultra-low levels of the recent past. A gap of approximately 2%
between property yields and 10 year gilts is approaching the long term average
for fair value, which, combined with a more a stable political backdrop and
currency, should attract domestic and international capital flows back to the
sector.
Looking forward, long term structural trends such as urbanisation,
technological change, demographics and sustainability should continue to drive
returns, with multi-let industrial estates, retail warehousing, certain London
office sub-markets and some alternative sectors expected to outperform. These
sectors should also benefit from limited new development. This contrasts with
secondary office and weaker retail assets, where obsolescence, higher vacancy
and lower levels of occupational demand will negatively impact returns.
Strategy
Our strategy is focused on delivering sustainable dividend growth and
improving the quality of the underlying portfolio through a disciplined,
research-led approach to transactions, capital investment and active
management. This activity will be complemented by maintaining a robust balance
sheet and continuing to manage costs efficiently. Furthermore, with a growing
consensus that there is a meaningful rental premium for buildings with a green
certification, which we are seeing across our own portfolio, we believe there
is an opportunity to differentiate our strategy by placing even greater
emphasis on how sustainability-led asset improvements will deliver enhanced
returns for shareholders. This reflects our strong conviction that only by
transforming less sustainable buildings into modern, fit for purpose assets,
will we deliver these enhanced returns and the wider real estate industry
reach its net zero carbon targets.
The relative outperformance of the underlying portfolio during the market
correction has demonstrated the benefits of owning a diversified portfolio,
with expertise to invest across all sectors. The portfolio remains
diversified, but with a higher weighting to sectors and assets expected to
deliver higher total returns and income growth. Approximately half the
portfolio by value comprises multi-let industrial estates, and exposure to
retail warehousing increased slightly to 11.6% during the year. The exposure
to offices was unchanged at 27.5% and, although the occupational market
remains more challenging, progress has been made reducing risk through lease
extensions to retain existing tenants, targeted refurbishment programmes to
improve letting prospects, including by improving environmental and social
credentials, and to support potential disposals.
During the year, we acquired a higher yielding mixed-use office and retail
building in Manchester and, post year end, a small adjoining ownership in
Chelmsford. Three disposals completed or contracted totalling £12.6 million
at a 13% average premium to the valuation at the start of the financial year,
with one office asset having exchanged contracts at the year end, due to
complete in June. 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.
The ongoing development at Stanley Green Trading Estate in Manchester, the
first operational net zero scheme in the North West, completed post year end,
has contributed strongly to performance with approximately 40% already let or
in legals. Other examples include pre-lettings to Starbucks for 'drive-thru's'
at two retail warehouse assets which are currently under construction.
Successful implementation of the strategy means we are well positioned in
terms of income characteristics. As noted in the overview, the portfolio
generates a materially higher income return compared with the Benchmark, with
the high reversionary yield of 8.0% also comparing favourably with the
Benchmark at 5.7%. Furthermore, the portfolio is highly diversified, with 312
tenants across 41 assets.
The Manager's active approach, leveraging the wider Schroders Capital Real
Estate platform of 42 sector and regional specialists, resulted in 65 lettings
exchanging or completing since the start of the financial year, totalling
£6.7 million of annualised rental income. Improving the portfolio's defensive
qualities has been a key focus, with major lease agreements completed during
the year with large corporate occupiers and educational providers such as
Siemens, IXYS Westcode, and Buckinghamshire New University. This active
approach has supported high rental collection rates, with 99% collected over
the financial year and a reduction in the portfolio void rate on a
like-for-like basis.
The market correction and weak investor sentiment means virtually all listed
real estate owners are now trading at material discounts to asset value.
Although our share price rating improved over the year, driven by a high,
fully covered dividend, and a sector leading debt profile, the Board and
Manager are highly focused on delivering a further improvement by clearly
articulating the opportunities within the portfolio and attracting a more
diverse shareholder base.
Sustainability
Our strategic focus on improving sustainability performance, where the Manager
has a strong track record, has delivered positive results at both an asset and
portfolio level. The Company achieved a further improvement in its Global Real
Estate Sustainability Benchmark ('GRESB') score, placing it first amongst a
group comprising seven diversified REITs. The EPC profile of the portfolio has
improved markedly and the Company's first 'A+' ratings were achieved at the
development at Stanley Green Trading Estate.
We are also making progress with our pathway to net zero commitments, with a
10% and 19% reduction in the Company's energy intensity and greenhouse gas
intensity targets over the most recent reporting period. The Company also
retained its Gold level compliance with the EPRA Sustainability Best Practice
Recommendations for the fifth successive year.
Balance sheet
The average interest rate for total debt drawn at the year end was 2.9%, with
an average maturity of 10.6 years, and 90% either fixed or hedged against
movements in interest rates.
The debt refinancing with Canada Life in 2019 is now providing a significant
benefit in a higher interest rate environment. This long term loan, that
represented £129.6 million of the £177.9 million total borrowings at the
year end, has an average loan maturity of 13.1 years, with a fixed average
interest rate of 2.5%. At the year end, incremental positive fair value
benefit of this fixed rate loan was £16.8 million, which is not reflected in
the Company's NAV.
The balance of borrowings at the year end totalling £48.3 million comprised a
revolving credit facility ('RCF') from RBSI. This is used as a tactical
facility that can be drawn and repaid at any time. To provide additional
capacity to invest into the portfolio and pursue market opportunities, during
the year the total amount that can be drawn was increased to £75.0 million,
with the loan maturity extended by 4.2 years to June 2027. £30.5 million of
the RCF benefitted from an interest rate cap at 1.5%, which was due to expire
in July 2023 and, together with the RCF margin of 1.65%, resulted in an
average interest rate on the drawn RCF of 4.1% at the year end.
Since the year end, this cap has been replaced with a hedging instrument
termed an interest rate 'collar' which applies to £30.5 million of the £48.3
million now drawn. The collar, which runs to the end of the RCF term in June
2027, 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%. After netting off the value of the interest rate cap,
the net cost of the collar was £567,000.
Since the year end, the RCF has also been converted into a 'Sustainability
Linked Loan', with criteria linked to reduced energy consumption, future
improvements in the GRESB rating and building certification linked to building
improvements.
At the year end, the Company had a net loan to value ('LTV') ratio of 36.0%,
which is slightly above the long-term strategic target range of 25% to 35%.
The Company has significant headroom against all loan covenants, but steps are
being taken to bring the net LTV back in line with the target range, including
contracted and further planned disposals, which are set out in the Manager's
Report.
Board succession
Since Lorraine Baldry's retirement as Chair in July 2022, I have continued our
comprehensive succession planning process. Following Graham Basham's
subsequent retirement in November 2022, the Company appointed Alexandra Innes
as an Independent Non-Executive Director. Alexandra has a strong track record
across investment banking and investment management, with relevant
non-executive roles at the Bank of England, Securities Trust of Scotland PLC
and Knight Frank LLP. As part of the succession process, the Board asked the
appointed specialist search firm to review Board remuneration levels, which
were last reviewed and increased in 2015. This resulted in an aggregate
increase of £20,000, or 13%. On behalf of my fellow directors and the
Manager, we would like to thank Lorraine and Graham again for their service to
the Company.
Independent valuers
It is expected that the Standards and Regulation Board of the Royal
Institution of Chartered Surveyors (the 'RICS') will adopt the recommendations
relating to governance and valuer rotation outlined in the independent review
of January 2022, although final details are still to be confirmed by the RICS.
In preparation for these changes, and following a comprehensive tender
process, CBRE Limited ('CBRE') have replaced Knight Frank LLP, the Company's
principal independent valuer since 2004. CBRE prepared the valuation used
within these accounts and have entered into a three year contract at a
material fee saving. CBRE will also replace BNP Paribas as valuer of the
Company's two joint venture investments with effect from 30 June 2023. On
behalf of my fellow directors and the Manager, I would like to thank Knight
Frank for their service to the Company.
Outlook
The UK economy continues to face headwinds this year as higher inflation and
interest rates cause consumers to retrench, reducing disposable incomes and
hitting household demand for goods and services. Although inflation pressures
are expected to ease, and recent surveys indicate improved business
confidence, an imbalanced UK labour market means wage growth remains a
significant burden.
On a more positive note, there are signs that real estate values are
stabilising, and approaching long term fair value. The attractive portfolio
yield profile and pipeline of asset management activity should contribute to
continued earnings and dividend growth, further improve the defensive
qualities of the portfolio, and enhance returns as the market recovers.
Whilst a relaxation in monetary policy is expected in 2024, interest rates
will remain elevated compared with recent past. The prudent balance sheet
management implemented by the Company, resulting in the lowest cost, longest
duration debt in the peer group, largely removes this risk to earnings, and
provides a solid foundation to deliver future dividend growth.
Finally, as sustainability considerations become even more important for
investors and occupiers, we are making good progress evolving our strategy,
which we believe should clearly differentiate the Company and help to drive
more sustainable, long-term returns. We anticipate providing further details
on this later in the year.
Alastair Hughes
Chair
Schroder Real Estate Investment Trust Limited
7 June 2023
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 2023 was £300.7 million or 61.5 pence
per share ('pps'), compared with £372.2 million, or 75.8 pps, as at 31 March
2022. This reflected a decrease over the financial year of -14.3 pps or
-18.9%. During the period, dividends totalling £15.8 million were paid, which
resulted in a NAV total return of -15.1%. A detailed analysis of the NAV
movement is set out in the table below:
£m PPS
NAV as at 31 March 2022(1) 372.2 75.8
Unrealised change in the valuations of the direct real estate portfolio and (61.1) (12.4)
joint ventures(2)
Capital expenditure(3) (10.2) (2.1)
Acquisition costs (1.0) (0.2)
Realised gain on disposals, net of disposal costs 1.2 0.2
EPRA earnings(4) 16.0 3.3
Dividends paid (15.8) (3.2)
Others 0.4 0.0
NAV as at 31 March 2023 (excluding the share buyback) 301.7 61.4
Share buyback (1.0) 0.1
NAV as at 31 March 2023(5) 300.7 61.5
1. The calculation of pence per share is based on shares in issue as
at 31 March 2022 of 491,080,301.
2. Prior to all capital expenditure, acquisition costs and movement in
IFRS 16 lease incentives.
3. Comprises capital expenditure of £10.1 million on the directly
held portfolio and £0.1 million invested for the joint ventures.
4. EPRA earnings as per the reconciliation on page 98.
5. The calculation of pence per share is based on shares in issue as
at 31 March 2023 of 489,110,576.
The underlying portfolio, including joint ventures and net of capital
expenditure, decreased in value by -13.1% on a like-for-like basis over the
financial year to 31 March 2023.
£10.2 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. £7.5
million of this related to the operational net zero warehouse development at
Stanley Green Trading Estate in Cheadle, Greater Manchester.
Acquisition costs totalling £900,000 were incurred relating to the
acquisition of St. Ann's House, a mixed-use office and retail asset in
Manchester for £14.7 million in May 2022. Acquisition costs totalling
£58,792 were incurred relating to the acquisition of 68 High Street,
Chelmsford, for £800,000, which adjoins an existing asset, where the
rationale is to create a more liquid investment.
During the financial year two sales were completed for a combined price of
£8.6 million, which was a 28.4% increase on the 31 March 2022 combined
independent valuation of £6.7 million. After transaction costs of £200,000,
the aggregate realised gain on disposal was £1.7 million. During the year
unconditional contracts were exchanged to sell an office for £4.0 million
which compared with a valuation at the start of the financial year of £4.5
million and £4.0 million at the year end.
EPRA earnings for the period totalled £16.0 million, or 3.3 pps, an increase
of £300,000 or 1.9%, on the prior financial year of £15.7 million. This
increase was driven by asset management-led rental value growth, a positive
contribution from the off-market, higher yielding industrial portfolio
acquired in December 2021, and the St. Ann's House acquisition.
Between 28 July 2022 and 15 September 2022 the Company acquired 1,969,725
shares under its share buyback programme for £1.0 million, which reflected an
average cost of 50.6 pps and a discount to the 31 March 2022 NAV of 33%.
Our strategy
Investment objective
The Company aims to provide shareholders with an attractive level of income
with the potential for long term, sustainable income and capital growth.
Investment strategy
The strategy to deliver this, 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 58.6%
by value
- Increase exposure to larger assets with strong fundamentals and
inherent opportunities for active management and development
o Acquired St. Ann's House in Manchester, made significant investment into
Stanley Green Trading Estate also in Manchester. Our top 15 assets now
represent 78.5% of value.
- Sell smaller, secondary assets with higher sustainability
performance risk
o Sold three small assets (two completed, one unconditionally exchanged) at
a 12.5% premium to the value at the start of the year, with further small
disposals expected
- 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 use
of scarce resources and waste)
o Operationally net zero carbon developments at two industrial estates,
collaborating with Starbucks to develop 'drive-thru' restaurants at two retail
parks, negotiating regears with major tenants Buckinghamshire New University
and University of Law in return for sustainability related asset improvements
- 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 Global Real Estate Sustainability Benchmark
('GRESB') score to 77 out of 100 in 2022 (2021: 75), achieving the maximum
possible result for the management aspects of the assessment and placing SREIT
first amongst a group comprising seven diversified REITs (2021: second of
eight)
- Control costs
o Ongoing charges (including fund and property expenses) of 2.28% broadly in
line with 2.21% for the prior financial year and below the five year average
of 2.30%
- 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 36.0% at the
year end.
Portfolio performance
The underlying portfolio continues to deliver strong relative outperformance,
with a total return for the financial year of -7.9% compared to -13.5% for the
MSCI Benchmark (the 'Benchmark'). This relative outperformance was partly due
to a stronger income return from the portfolio at 6.0% compared to 4.1% for
the Benchmark.
Targeted capital expenditure in larger assets to improve sustainability
performance and benefit from structural trends led to significantly stronger
rental value growth for the portfolio at 9.2% compared to 3.4% for the
Benchmark. A key example of this strategy is the operationally net zero carbon
development at Stanley Green Trading Estate in Cheadle, Greater Manchester,
which completed this May. A smaller proportionate increase in yields resulted
in a lower fall in capital values of -13.1% for the portfolio compared to
-16.9% for the Benchmark, which was mainly driven by the higher yielding
regional industrial portfolio.
The table below shows performance to 31 March 2023.
SREIT Total Return MSCI Benchmark* Total Return Relative
Period to 31 March 2023 One year (%) Three years (% p.a.) Since IPO** (% p.a.) One year (%) Three years (% p.a.) Since IPO** (% p.a.) One year (%) Three years (% p.a.) Since IPO** (% p.a.)
Retail -6.9 1.4 3.9 -8.1 -0.1 3.1 1.4 1.5 0.7
Office -8.9 1.4 7.0 -12.7 -2.5 5.9 4.4 4.0 1.0
Industrial -8.0 13.4 10.1 -21.0 8.3 8.6 16.4 4.7 1.4
Other 0.3 6.0 3.4 -6.4 1.0 6.5 7.2 4.9 -2.9
All sectors -7.9 6.0 7.1 -13.5 1.9 5.6 6.4 4.0 1.5
*MSCI Benchmark is formally 'MSCI UK Balanced Portfolios Quarterly Property
Index (unfrozen);
**IPO in July 2004
Real estate portfolio
As at 31 March 2023, the portfolio comprised 41 properties valued at £470.4
million. This includes the share of joint venture properties at City Tower in
Manchester and the University of Law in Bloomsbury, London. The portfolio
generated rental income of £29.3 12 (#_ftn12) million per annum, reflecting
a net initial yield of 5.8%, which compared with the Benchmark 4.8%. The
portfolio also benefits from fixed contractual annualised rental income
uplifts of £2.0 million per annum over the next 24 months. The independent
valuers' estimated rental value ('ERV') of the portfolio is £37.8 million per
annum, reflecting a reversionary income yield of 8.0%, which compares
favourably with the Benchmark at 5.7%.
The portfolio is diverse and granular should support more resilient portfolio
income in a weaker economic environment and a more challenging period for
consumers and businesses. The portfolio is also both higher yielding with
potential for more rental growth relative to the Benchmark which positions it
well for a higher interest rate environment and where capital growth is muted
in the short term.
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
that we have completed since the beginning of the financial year, where rents
were agreed 24% higher than the previous level. 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 market
which has seen a meaningful fall in vacancy since the pandemic and we expect
continued rental growth.
At the period end the portfolio void rate was 11.1%, calculated as a
percentage of estimated rental value. Excluding the recently completed Stanley
Green Trading Estate developed units, the portfolio void rate reduced on a
like for like basis from 8.6% to 7.9%, in the middle of the ten year range of
5-13% and compares with the Benchmark void rate of 8.0%. The portfolio
weighted average lease length, calculated to the earlier of lease expiry or
break, is 5.0 years.
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 12% 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 2023. The
property values and weightings represent the year end valuations as determined
by the independent valuers as at 31 March 2023:
Portfolio metric SREIT 31 March 2023 SREIT 31 March 2022
(MSCI 31 March 2023) (MSCI 31 March 2022)
Portfolio value (£m) 470.4 523.5
Number of properties 41 42
Number of tenants 312 315
Average lot size (£m) 11.5 12.5
Net initial yield (%) 5.8 (4.8) 5.4 (3.9)
Reversionary yield (%) 8.0 (5.7) 6.4 (4.6)
Annual rent (£m) 29.3 30.1
Estimated rental value (£m) 37.8 33.8
Annual rent with inflation linked uplifts (%) 11 15
Annual rent with fixed uplifts (%) 12 5
WAULT (years to earliest of break or expiry) 5.0 (11.2) 5.4 (11.4)
Void rate (%) 11.1 (8.0) 7.0 (7.8)
Top 15 properties by value Sector Value (£m) 13 (#_ftn13) % of portfolio value 14 (#_ftn14)
1 Milton Keynes, Stacey Bushes Industrial Estate Industrial 50.5 10.7
2 Leeds, Millshaw Park Industrial Estate Industrial 45.5 9.7
3 London, Store Street, The University of Law Campus (50% share) Office/university 37.8 8.0
4 Cheadle, Stanley Green Trading Estate Industrial 35.5 7.5
5 Manchester, City Tower (25% share) Office/hotel/retail/ 34.0 7.2
leisure/car park
6 Bedford, St. John's Retail Park Retail warehouse 31.0 6.6
7 Chippenham, Langley Park Industrial Estate Industrial 24.7 5.3
8 Norwich, Union Park Industrial Estate Industrial 21.6 4.6
9 Leeds, Headingley Central Retail/hotel/leisure 20.8 4.4
10 Manchester, St. Ann's House Office/retail 12.6 2.7
11 Uxbridge, 106 Oxford Road Office/university 12.5 2.7
12 Telford, Horton Park Industrial Park Industrial 12.1 2.6
13 Birkenhead, Valley Park Industrial Estate Industrial 12.0 2.6
14 Edinburgh, The Tun Office 9.4 2.0
15 Milton Keynes, Matalan Retail warehouse 9.4 2.0
Total as at 31 March 2023 369.4 78.5
Sector weighting by value as at 31 March 2023 Like-for-like net of capex capital growth for the 12 month period ended 31
March 2023
SREIT(1) Benchmark(1) SREIT Benchmark
South East 10.7% 19.6%
Rest of UK 36.1% 11.7%
Industrial 46.8% 31.2% -12.6% -23.8%
City 0.0% 3.6%
Mid-town and West End 8.0% 6.9%
Rest of South East 4.5% 7.3%
Rest of UK 15.0% 7.3%
Offices 27.5% 25.2% -14.7% -15.8%
Retail warehouse 11.8% 9.8% -9.1% -12.0%
South East 0.9% 6.7%
Rest of UK 6.7% 3.0%
Standard retail 7.7% 9.7% -17.7% -14.1%
Standard retail by ancillary/single use
- Retail ancillary to main use 4.9% -
- Retail single use 2.8% -
Other 6.2% 18.1% -9.5% -10.3%
Shopping centres - 2.1%
Unattributed indirects - 3.8%
(1)Note: columns do not sum due to rounding.
Regional weighting by value as at 31 March 2023
SREIT Benchmark
Central London 8.0% 17.1%
South East excluding Central London 18.2% 34.5%
Rest of South 10.5% 16.2%
Midlands and Wales 21.0% 13.2%
North 40.3% 14.4%
Scotland 2.0% 4.4%
Northern Ireland 0.0% 0.2%
Rental income is diverse and as at 31 March 2023 comprised 312 tenants,
including the tenants of properties held by joint ventures. The largest and
top 15 tenants represent 7.06% and 33.04% of the portfolio respectively,
calculated as a percentage of annual rent, and there are only two tenants that
represent more than 3% of annual rent.
Top 15 tenants by annual rent Annual rent (£ million) % of total annual rent
University of Law Limited 2.07 7.06%
Siemens Mobility Limited 1.22 4.16%
Express Bi Folding Doors Limited 0.65 2.22%
The Secretary of State 0.59 2.01%
Buckinghamshire New University 0.58 1.98%
Matalan Retail Limited 0.57 1.95%
Cineworld Cinema Properties Limited 0.52 1.77%
TJX UK t/a HomeSense 0.51 1.74%
IXYS UK Westcode Limited 0.47 1.60%
Jupiter Hotels Limited 0.46 1.57%
Premier Inn Hotels Limited 0.42 1.43%
Lidl Great Britain Limited 0.42 1.43%
Ingeus (UK) Limited 0.41 1.40%
Wickes Building Supplies Limited 0.40 1.37%
Balfour Beatty Group Limited 0.39 1.33%
Total as at 31 March 2023 9.68 33.04%
(1)Note: column does not sum due to rounding.
Rent collection
The diversification and granularity of the underlying rental income, and a
high level of occupier engagement, has supported improving rent collection
rates with 99% of the contracted rents collected for the quarter to 31 March
2023. The breakdown between sectors is 100% of office rent collected, 100% of
industrial rent collected and 97% of retail, leisure and other rent collected.
The Company has made good progress collecting historical arrears during the
year which totalled £3.3 million, net of VAT, at the year end, of which
£360,000 is provided against as a bad debt. This compares to £3.8 million
and £900,000 respectively as at 31 March 2022.
Transactions
Manchester, St. Ann's House (Mixed-use office and retail)
St. Ann's House in Manchester was acquired on 27 May 2022 for a gross headline
price of £14.7 million, reflecting a net initial yield of 7.8%, a
reversionary yield of 9.1% and a low average capital value of £283 per sq ft.
The mixed-use office and retail asset generates £1.22 million per annum of
headline rent compared with an ERV of £1.33 million.
The freehold, 51,754 sq ft building, is 97% occupied by ERV and comprises
40,277 sq ft of office space over five upper floors with five retail units at
the ground floor level and ancillary basement space. It is prominently located
on St. Ann's Square, near to the prime retail core. St. Ann's Square features
a listed church, the Royal Exchange theatre, a mix of office occupiers and
high-quality luxury retail as well as leisure operators. The building benefits
from its close proximity to two tram stations.
The office space is fully let to four office tenants at an average rent of
£18.48 per sq ft, with the potential to increase rental levels through
refurbishment and improving sustainability performance. There is also the
opportunity to enhance income by offering fitted out office space.
The appeal of St. Ann's Square to high quality luxury retailers is reflected
in the current tenant mix with complementary retailers located in close
proximity. During the pandemic rents were rebased by the previous landlord and
there are currently no arrears. At acquisition, the tenants were Watches of
Switzerland, Russell & Bromley and Space NK. Since acquisition, we have
let a unit to David M Robinson Limited, a north-west based retailer of luxury
watches and jewellery, for £70,000 per annum, or £76.75 per sq ft.
The weighted average unexpired lease term is 2.2 years to earliest termination
and 4.8 years to lease expiries. 58% of the property by floor area currently
has an EPC rating of 'B' with the remainder rated 'C'.
The strategy is to undertake a rebranding of the building, introduce
additional amenities for the offices such as bike and shower facilities and
refurbish the property as floors become available with a focus on improving
sustainability performance. This will increase the rental tone of the offices.
We will aim to leverage the close proximity of luxury jewellers and watch
retailers to attract similar occupiers to the subject asset at higher rents.
Chelmsford, 68 High Street (Retail)
In March 2023, 68 High Street in Chelmsford was acquired for £800,000,
reflecting a net initial yield of 11.1%. This is an adjoining ownership to 67
High Street, with both units let to Esquire Retail on a lease expiring in
September 2023. Simultaneously, an agreement for lease was reached with
Co-operative Bank plc for them to take a new 10 year lease without breaks with
effect from September at a new rent of £175,000. There will be 12 months rent
free and we will make a capital contribution of £110,000. The acquisition and
letting are expected to facilitate a profitable disposal of the combined
units.
Portsmouth, Southlink (Industrial)
In June 2022 Southlink, a 26,975 sq ft single let industrial asset in
Portsmouth, was sold for £6.5 million. The price compares with the 31 March
2022 independent valuation of £4.9 million and reflects a net initial yield
of 3.2%.
Situated within the Walton Road Industrial area, Southlink was acquired in
July 2004. The asset produced a net rent of £225,000 per annum with a lease
term of 2.4 years. Based on the disposal price, the asset has generated an
ungeared total return of 13.2% per annum since acquisition, compared with the
All Property MSCI Benchmark for the same period of 6.8% per annum, and MSCI
All Industrial for the same period of 10.6% per annum.
Rugby, Morgan Sindall House (Office)
In March 2023, contracts were exchanged to sell Morgan Sindall House, a 34,334
sq ft single let office asset in Rugby for £4.0 million. The price is in line
with the year end independent valuation.
The asset produces a net rent of £375,378 per annum with a lease term of 5.9
years. Based on the disposal price, the asset has generated an ungeared total
return of 7.2% per annum since acquisition, compared with the All Property
MSCI Benchmark for the same period of 6.2% per annum, and MSCI All Office for
the same period of 5.7% per annum.
Beech House, Fleet (Office)
Beech House, a 13,174 sq ft office asset in Fleet, was sold on 24 November
2022 for £2.1 million, 17% ahead of the 30 September 2022 independent
valuation of £1.8 million and reflecting a net initial yield of 7.8%. The
asset was acquired in 2004 as part of a bigger interest that has been broken
up, and hence there is no asset level performance data.
Further disposals of lower value, non-core properties are under consideration
and being progressed.
Active asset management
In aggregate, 65 new lettings, rent reviews and renewals completed since the
start of the period totalling £6.7 million in annualised rental income and
generating £2.3 million per annum of additional rent above the previous
level.
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. Following completion of a new warehouse development
this May, the asset comprises 233,730 sq ft of trade counter, self-storage and
warehouse accommodation across 25 units on a nine acre site.
As at 31 March 2023 the valuation was £35.5 million, reflecting a net initial
yield of 2.6% and a reversionary yield of 6.9%. Over the financial year the
asset delivered a total return of 14.1% which compared with MSCI All
Industrial over the same period of -21.0%.
Asset strategy
The strategy over the financial year was to crystallise higher rents, develop
the 80,000 sq ft, operational net zero carbon ('NZC') scheme on the 3.4 acre
site and begin marketing to pre-let the new accommodation.
Key activity
- The speculative development of 11 warehouse and trade units has
completed with £8.1 million of capital expenditure incurred on the project
from inception to the year end. The target rental income is £1.3 million per
annum, or £16.41 per sq ft.
- The new units have achieved an 'A+' EPC rating and we are
targeting a BREEAM Excellent accreditation.
- Approximately 40% of the new estate is already let or in legals.
The objective is for the entire scheme to be let this calendar year.
- Negotiations are progressing with a number of occupiers to re-gear
their leases across the original trading estate which should support continued
income growth.
Chippenham, Langley Park Industrial Estate (Industrial)
Asset overview and performance
Langley Park Trading Estate in Chippenham was acquired in December 2020 for
£19.3 million and comprises a multi-let industrial estate comprising 400,000
sq ft of warehouse and ancillary office accommodation on a large site of 28
acres located close to Chippenham town centre. As at 31 March 2023, the
valuation of £24.7 million reflected a net initial yield of 6.5% and a
reversionary yield of 8.4%. Over the financial year the asset delivered a
total return of -3.4%, which compared with the MSCI All Industrial Benchmark
over the same period of -21.0%.
Asset strategy
The strategy over the period was to drive net income growth, the average
unexpired lease term, and quality of accommodation across the estate.
Key activity
- Siemens Mobility Limited ('Siemens') rent review completed in June
2022 at £1.2 million per annum or £4.64 per sq ft, reflecting a 26% increase
in contracted rental income. Following completion of the rent review, which
was backdated to June 2021, Siemens became the Company's second largest
tenant.
- A new ten year lease renewal without breaks completed in May 2022
with IXYS UK Westcode Limited ('IXYS'), the UK subsidiary of Littelfuse, a
global manufacturer which has provided a parent company guarantee. The rent is
£465,000 per annum, or £5.50 per sq ft, reflecting a 31% increase over the
previous contracted rent of £355,000 per annum. IXYS receive 12 months' rent
free which ends in December 2023, and will receive a contribution to repair
works up to the value of £250,000 if undertaken within two years of lease
completion. The lease includes a rent review at year five to the higher of
open market value or RPI, with a collar of 1% per annum and a cap of 5% per
annum.
- The next phase of the business plan at Langley Park is to consider
longer term development plans which could involve the creation of new space
for existing tenants. Any development of new warehouse units would be to an
operational net zero carbon ("NZC") standard and a pre-planning application to
develop 130,000 sq ft of space has been submitted to Wiltshire County Council.
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 and Costa, with an average lease term, to the earlier of lease
expiry of break, of 6.5 years. The asset benefits from an affluent catchment
and has good parking. As at 31 March 2023, the asset was valued at £31.0
million reflecting a net initial income yield of 6.2% and a reversionary yield
of 6.1%. Over the financial year the asset delivered a total return of -1.4%
which compared with the MSCI All Retail Warehousing over the same period of
-7.0%.
Asset strategy
The strategy over the year was to let vacant units, improve retailer mix and
retain tenants by negotiating new longer term leases.
Key activity
- Resolution to grant planning consent has been received from
Bedford Borough Council for a new 'drive thru' at St. John's Retail Park. As
previously reported, a 15-year pre-let has completed with Starbucks Coffee
Company UK Limited ('Starbucks') who are now constructing a new unit on the
site and will receive a contribution towards construction costs capped at
£850,000. The rent is £145,000 per annum, increasing by 10% of any
construction cost in excess of £750,000, capped at an additional £10,000 of
rent per annum. The yield on cost assuming the maximum construction cost,
including the current site value of £1.3 million, is therefore 7.2%.
- Starbucks are required to deliver the restaurant to a minimum
BREEAM rating of 'Very Good' and install electric vehicle charging points for
customer usage.
Balance sheet
At the year end, the average interest rate for drawn debt was 2.9%, with an
average loan term of 10.6 years, and 90% of total drawn debt was either fixed
or hedged against movements in interest rates.
The debt refinancing with Canada Life in 2019 is now providing a significant
benefit in a higher interest rate environment. This long term loan, that
represented £129.6 million of the £177.9 million total borrowings at the
year end, has an average loan maturity of 13.1 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 £16.8 million, which is not reflected in
the Company's NAV.
The balance of drawn debt at the year end totalling £48.3 million comprised a
revolving credit facility ('RCF') from Royal Bank of Scotland International
('RBSI').
At the year end, the Company had a net loan to value ('LTV') ratio of 36.0%,
which is slightly above the long-term strategic target range of 25% to 35%.
The Company has significant headroom against all loan covenants, but steps are
being taken to bring the net LTV back in line with the target range, including
contracted and further planned disposals.
Details of the loans are set out below, together with cover against covenants.
£129.6 million term loan with Canada Life
Lender Loan (£m) Maturity Total interest rate (%) Asset value (£m) Cash LTV ratio (%)(6) LTV ratio covenant (%)(6) ICR (%)(7) ICR covenant (%)(7) Projected ICR (%)(4) Projected ICR covenant (%)(4)
(£m)
Facility A 64.8 15/10/2032 2.4 271.8 2.0 46.9 65 480 185 449 185
Facility B 64.8 15/10/2039 2.6
Canada Life Term Loan 129.6 2.5(5)
- Net LTV on the secured assets against this loan is 46.9%. On
this basis the properties charged to Canada Life could fall in value by 28%
prior to the 65% LTV covenant being breached;
- The interest cover ratio is 480% based on actual net rents for
the quarter to 31 March 2023. A 61% fall in net income could be sustained
prior to the loan covenant of 185% being breached;
- The projected interest cover ratio is 449% based on projected
net rents for the year to 31 March 2023. A 59% 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 40% and 66% respectively prior to
either the LTV or interest cover ratio covenants being breached.
£75.0 million revolving credit facility ('RCF') with RBSI
The Company has headroom with both LTV and ICR covenants as summarised below:
Lender Loan/ amount drawn (£m) Maturity Total interest rate (%) Asset value (£m) LTV ratio (%)(6) LTV ratio covenant (%)(6) Projected ICR (%)(8) Projected ICR covenant (%)(8)
RBSI RCF 75.0/ 48.3(9) 06/06/2027 5.8(10) 160.8 30.0 60(11) 351 250
- Net LTV on the secured assets against this loan is 30.0%. 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 351% based on actual net
rents for the quarter to 31 March 2023. A 39% fall in net income could be
sustained prior to the loan covenant of 250% being breached;
- After utilising available cash and uncharged properties, the
valuation and actual net rents could fall by 69% and 51% respectively prior to
either the LTV or projected interest cover ratio covenants being breached;
- At the year end, £30.5 million of the RCF benefited from an
interest rate cap with a strike rate of 1.5%, which was due to expire on 3
July 2023 and, together with the RCF margin of 1.65%, resulted in an interest
rate of 3.15% on the capped element of the RCF;
- At the year end, the uncapped element of the RCF was subject to
the SONIA rate of 4.18% which, together with the RCF margin of 1.65%, resulted
in an interest rate of 5.83% on the uncapped element of the RCF; and
- This resulted in an average interest rate on the drawn RCF of
4.1%.
Since the year end, the cap, which was due to expire on 3 July 2023, has been
replaced with a hedging instrument termed an interest rate 'collar' which
applies to £30.5 million of the £48.3 million now drawn. The collar, which
runs to the end of the RCF term in June 2027, 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%. After netting off
the value of the interest rate cap, the net cost of the collar was £567,000.
Since the year end, the RCF has also been 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;
- 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. Cash held at the balance sheet date includes £300,000 of cash that
is held within the joint ventures.
2. Loan balance divided by the property values as at 31 March 2023.
3. For the quarter preceding the Interest Payment Date ('IPD'),
(rental income received - void rates, void service charge and void
insurance)/interest paid.
4. The projected ICR covenant for the contracted four quarters
following the IPD deducting assumed non-recoverable costs (void rates, void
service charge and void insurance)/interest paid, based on the average of the
past four quarters.
5. Fixed total interest rate for the loan term.
6. Loan balance divided by the property values as at 31 March 2023.
7. For the quarter preceding the IPD, (rental income received - void
rates, void service charge and void insurance)/interest paid.
8. The projected ICR covenant of the contracted four quarters
following the IPD deducting assumed non-recoverable costs (void rates, void
service charge and void insurance)/interest paid) based on the average of the
past four quarters.
9. Facility drawn as at 31 March 2023 from a total available facility
of £48.3 million.
10. Total interest rate as at 31 March 2023 comprising the SONIA rate of
4.18% and the margin of 1.65% at a LTV below 60%. Should the LTV be above 60%,
the margin increases to 1.95%.
11. LTV ratio covenant of 65% for years one to three, then 60% for years
four and five.
Outlook
The financial year was characterised by persistent inflation, rising interest
rates, market volatility and lower levels of economic growth. This led to the
sharpest correction in real estate values since the global financial crisis.
Whilst our asset values were impacted, a diversified portfolio combined with
good progress over the period delivering on the strategy resulted in sustained
relative outperformance of the underlying portfolio and a further increase in
the fully covered dividend level.
The strength of the balance sheet, with long term, mainly fixed rate, debt is
a key competitive advantage and there will be limited impact on the Company
from higher interest rates.
Looking forward, our programme of sustainability-led value add investments
into the existing portfolio, and an active approach to asset management is
leading to further income growth, with a pipeline of new opportunities under
active consideration. We have a robust and diverse tenant base that we expect
to be resilient in a weaker economic environment.
Against this backdrop, our combination of a clear strategy with increased
emphasis on sustainability, a diversified portfolio and a strong balance sheet
should enable us to maintain relative outperformance compared with our peers
and continue delivering attractive income and total returns for shareholders.
Nick Montgomery
Fund Manager
7 June 2023
Sustainability Report
Key achievements
Progress towards net zero carbon by 2040 -19% reduction in whole building operational GHG intensity (between 2019/20
and 2021/22)
Improved GRESB score 3-star rating; 77 score (up from 75 in 2021); First in peer group
EPRA sBPR Awards for Sustainability Reporting Gold Award for fifth year running
No. specialist sustainability audits 10
Increasing number of sustainability certifications completed in reporting year +3 BREEAM In-Use and +2 WiredScore
(Total no. assets with sustainability certifications) (Nine assets total)
Increasing no. assets with on-site renewables Two assets with solar PV*
*Additional solar PV installed as part of Stanley Green development due to PC
May 2023.
Improved EPC performance - 100% MEES compliance
- EPC coverage = 97%
- EPCs above C rating = 58%
Sustainability Linked Loan tied to RCF agreed with RBSI
Our 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 Real Estate with
Impact approach, and its Sustainability Policy: Real Estate with Impact, can
be found here:
https://www.schroders.com/en/uk/realestate/products--services/sustainability/
(https://www.schroders.com/en/uk/realestate/products--services/sustainability/)
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 performance data are
presented with the EPRA sBPR aligned Sustainability Performance Measures
sections from page 112.
Protecting our planet (environmental)
In the real estate sector climate change mitigation actions, such as reducing
energy demand and implementing renewable energy systems, can collectively
contribute to reducing the sector's impact on the climate crises but also have
the potential to achieve wellbeing gains from improved indoor air quality and
thermal comfort, reduced financial burden and increased productivity. A
central focus of our real estate investment strategy is the response to this
both in terms of resilience to physical impacts and working to ensure
resilience as society transitions to a low-carbon economy.
As part of our commitment to net zero carbon ('NZC') by 2040 (see 'Pathway to
Net Zero Carbon' on page 28) throughout the portfolio we have continued to
undertake improvement initiatives including replacement and upgrades to
heating, ventilation and air conditioning ('HVAC') systems, continued utility
smart meter roll-out for improved energy monitoring, as well as continued
upgrades to lighting systems, including installation of LEDs and passive
infrared controls. Alongside the electrification of heating supplies, these
measures are key contributors to the energy performance certificate ('EPC')
improvements realised. Such measures also support the resilience of the
strategy with respect to transition and physical climate risks which are
detailed within our Taskforce on Climate-related Financial Disclosures
('TCFD') response on page 107.
Intrinsically linked to the climate crisis, the nature crisis also presents
significant risks and opportunities to the real estate sector. As such, policy
is rapidly evolving to mitigate and reverse negative impacts on nature
including mandatory biodiversity net gain ('BNG') in the UK from November 2023
and the expected adoption of the Taskforce on Nature-related Financial
Disclosures ('TNFD'). The Company has progressed with nature positive
initiatives including the installation of bird boxes, beehives and bug hotels,
as well as the protection of mature trees and planting of wildflowers during
the reporting year across the portfolio.
Performance against objectives
Environmental Net Zero Carbon (Scopes 1, 2 and 3) by 2040 -19% reduction in whole building GHG intensity (between baseline year and
2021/2022)
Annual reduction in landlord energy consumption and associated scope 1 and 2 - Energy = <2% increase*
greenhouse gas (GHG) emissions on a like-for-like basis
- GHG emissions = -5% reduction
*annual like-for-like performance negatively impacted by impact of Covid-19 on
occupancy in previous reporting period 2021.
Increase use of on-site renewable energy and to source 100% of landlord - 2 assets with solar PV
electricity through renewable tariffs by 2025
*Additional solar PV installed as part of the Stanley Green development due to
PC in May 2023.
- 74% of the Company's landlord procured electricity was on a
renewable tariff.
Annual reduction in landlord like-for-like water consumption 27% increase
*annual like-for-like performance negatively impacted by impact of Covid-19 on
occupancy in previous reporting period 2021.
Send zero waste to landfill and prioritise waste recycling - Zero waste directly to landfill
- 54% of waste was recycled and 46% was incinerated with energy
recovery.
Maintain 100% MEES compliance and improve proportion of assets with EPC - EPC coverage = 97%*
ratings B or above (floor area)
- EPCs above C rating = 58%
- EPCs above B rating = 18%
* Remaining footprint without EPCs relates to assets where improved works have
been scheduled. Please note that the Company remains compliant with MEES
regulations.
Assess physical climate risk profiles for all assets and develop resilience Physical climate risk profile determined for all assets using third-party
strategies for all risks identified database.
Improve biodiversity opportunities across the portfolio 13 assets where biodiversity opportunities have been completed (including bird
boxes, beehives or bug hotels).
Case study: Decarbonising the industrial sector
In October 2021, planning was secured for 80,000 sq ft of operationally Net
Zero Carbon ('NZC') industrial, storage and distribution space across eleven
units at the Stanley Green Trading Estate, Cheadle.
In line with the Company's commitment to incorporating high sustainability
standards and building certifications across all new development activity, the
scheme has been delivered to BREEAM Excellent, EPC A+ rating - a first for the
Company - and operational NZC specification - another first for the Company
and one of the first in the North West. Operational NZC as built has been
achieved through utilising solar photovoltaics, insulated cladding to mitigate
heat loss and installation of LED lighting. Electric vehicle charging and
cycle storage facilities have been installed to promote active, low carbon
travel. Through construction local suppliers have been used to boost local
employment and partnership with local colleges have supported students in the
area.
Pathway to net zero carbon
According to the World Green Building Council ('WGBC') buildings are
responsible for 39% of global energy related carbon emissions(( 15 (#_ftn15)
)). 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(( 16 (#_ftn16) )).
The Board and Manager recognise that the Company has a responsibility to
embark on a journey to net zero carbon ('NZC')(( 17 (#_ftn17) )) 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(( 18 (#_ftn18) )) and we have 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 last year announced their '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.
Progress
Forward-looking NZC pathways have been developed, using the industry accepted
Carbon Risk Real Estate Monitor ('CRREM'), to present the 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 assessing progress against the operational NZC baseline for
the Company which was determined in 2021 (using 2019/2020 data). Please note
that whilst decarbonisation pathways have been developed for 34% of assets (by
Gross Property value ('GPV'), assets in-scope of the portfolio's fund level
targets currently represent 29% by GPV.
Between 2019/2020 and 2021/2022 the Company, through continued improvement
initiatives including heating, ventilation and air conditioning ('HVAC')
upgrades and LED lighting improvements, has made good progress towards its
energy and greenhouse gas ('GHG') intensity targets achieving reductions of
10% and 19% respectively. The current trajectory indicates the Company may
strand - the point at which the GHG intensity of the portfolio is above the
CRREM derived target - in 2033. This may be delayed by one year (2034) through
identified improvement actions indicating further works required to meet the
Company's 2040 net zero commitment. Figure A and the table below present
further details of the outcome of this assessment.
Table: Current performance and reduction requirements to 2030 for both GHG and
energy intensity.
Energy Intensity 188.3 -10% 154.0 -18% 2033
(kWh/m(2))
GHG Intensity 41.3 -19% 32.5 -21%
(kgCO(2)e/m(2))
Next steps
The pathway will evolve over time as the Manager, and the wider industry,
develop their understanding of how to address the carbon impact of real estate
activities, physical risks to locations and assets, and as regulatory
initiatives develop. Over time we will seek to bring more assets into scope
(such as those on FRI leases) of our operational net zero carbon pathway, as
well as account for additional operational scope 3 emissions (such as those
associated with water and waste). A key next step will be to also assess,
manage and reduce our embodied carbon associated with developments and
refurbishments. Although this activity in the portfolio has historically been
limited, the Board and Manager recognise that works will be needed to improve
building energy and carbon performance to reduce the risk of stranded assets.
Supporting people and places (Social)
In recent years, there has been a growing recognition of the importance of
considering social factors in real estate investment, as investors seek to
create sustainable and socially responsible portfolios. Social factors, such
as occupier and community wellbeing, can have a significant impact on the
value and success of real estate investments.
It is widely reported that many now spend around 90% of their time indoors and
so the spaces we create and manage have a significant influence over our
physical and mental wellbeing. Additionally, a lack of access to amenities is
often cited as a deterrent in the return to the workplace post-Covid. As such,
the Board and Manager are committed to offering working environments which
provide solutions to such issues. For example, the provision of outdoor
breakout spaces and improved ventilation to optimise indoor environmental
quality. We believe by doing so can help to attract and retain occupiers.
Furthermore, the Board and Manager recognise that a building is not located in
isolation but rather stands as part of its local community. Improving
opportunities for interacting with local communities helps create successful
places that foster community relationships, contribute to local prosperity,
attract building users and, ultimately, lead to better, more resilient
investments. For example, offering rent-free space for local community groups
such as food banks as was provided at our Norwich asset.
The UK government has implemented a number of policies and initiatives aimed
at promoting sustainable transport and the Board and Manager understand that
real estate has a significant role to play in supporting this. The Company is
committed to improving the availability and quality of active transport
facilities such as cycle storage and changing facilities, as well as the
installation of electric vehicle charging points.
Performance against objectives
Ensure the health, safety and wellbeing of building occupiers and users 100% of managed assets where health and safety assessments were completed.
Social Improve proportion of assets where occupier engagement activities are 32 Company assets.
implemented
Improve proportion of assets where community engagement activities are 29% of Company assets.
implemented
Improve availability of low carbon transport (active transport facilities; Support provision of bicycle infrastructure for 15 assets.
electric vehicle charging etc.) facilities
Support provision of electric vehicle charging for six assets.
Case study: Creating social value
Located in the centre of the local community, Headingley Central seeks to add
to and enrich the wider amenity offer in the local area for residents,
business and visitors alike. Through the Manager's active asset management
approach, in collaboration with third-party property manager, MAPP, the team
have worked to strengthen this mixed-use asset's sustainability credentials
with a particular focus on social considerations over the reporting year
including:
- Engaged with the local community via Headingley Development Trust -
excellent feedback to lights in trees, general site improvements (cleaning and
painting benches and paving);
- Formed a 'Town Team' for Headingley to work together to make
Headingley a better place to visit and encourage spending into local
businesses; and
- Worked with Leeds Art School students to dress vacant units and
decorate concrete benches which was well received by the community.
Responsible business (Governance)
The Manager operates an environmental management system ('EMS') externally
certified in accordance with 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 (environmental and social) are
managed throughout all stages of its investment process and the Manager has
provided a suite of tools to support the delivery of sustainability
considerations at both asset and portfolio level including an ESG scorecard
for acquisitions, Impact and sustainability action plan for standing
investments, sustainable development brief for all projects and property
manager sustainability requirements for use in all contractual property
manager agreements.
The Manager continues to work towards enhancing its understanding of portfolio
asset sustainability credentials, commissioning an increasing number of
sustainability audits and certifications over the course of the reporting year
which contribute towards improving performance in industry benchmarking
platforms such as the Global Real Estate Sustainability Benchmark ('GRESB')
and meeting the Company's commitments, for example our Sustainability Linked
Loan agreement.
Performance against objectives
Governance Improve GRESB rating - 1(st) in peer group
- 3-star status
- Improved score to 77
Increase coverage of sustainability audits across portfolio 10 third-party audits commissioned
Improve coverage and quality of sustainability certifications (e.g. BREEAM) 9 assets with sustainability certifications*
across portfolio
(+5 in reporting year: 3x BREEAM In-Use; 2x WiredScore)
* Does not include BREEAM Excellent secured for Stanley Green development due
to PC May '23.
Maintain EPRA Gold Award for Sustainability Reporting Gold Award for fifth year running
Sustainability Linked Loan tied to RCF agreed with RBSI Agreed in FY23
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 and compliance with UN PRI are listed at
pages 51 - 56 of Schroders 2022 Annual Sustainable Investment Report here:
https://publications.schroders.com/view/119863317/
(https://publications.schroders.com/view/119863317/) .
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'), British Council for Offices
and the British Property Federation. It was a founding member of the UK Green
Building Council in 2007 and in 2017 became a member of the Better Buildings
Partnership and a Fund Manager Member of Global Real Estate Sustainability
Benchmark ('GRESB') of which the Company has participated in the annual real
estate survey for the past seven 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/
(https://www.schroders.com/en/sustainability/corporate-responsibility/slavery-and-human-trafficking-statement/)
corporate
(https://www.schroders.com/en/sustainability/corporate-responsibility/slavery-and-human-trafficking-statement/)
-responsibility/slavery-and-human-trafficking-statement/
(https://www.schroders.com/en/sustainability/corporate-responsibility/slavery-and-human-trafficking-statement/)
.
Case Study: Sustainability Audits
External auditors recently carried out a comprehensive audit of ten key assets
within the Company's portfolio against the Investment Manager's proprietary
ESG scorecard to help understand the current ESG performance of selected
assets in the portfolio.
The review covered the range of topics from the scorecard (e.g. building
fabric, services and utilities, energy and carbon, climate risk and
resilience, water use and efficiency, waste management, biodiversity and green
infrastructure, transport mobility, health and wellbeing, community and social
integration) with each asset scored. Each audit comprised a desktop analysis
and site inspection, which identified the current condition of the assets and
identifiable improvement opportunity themes across the portfolio.
This recent audit programme helped to identify actions which would help to
improve the understanding of buildings to drive change across the portfolio,
as well as common asset-level improvement opportunities which include the
following.
1. Improving the building fabric: Improve building fabric through the
provision of better insulation and/or roof and cladding repairment to reduce
the need for space heating whilst addressing overheating / overcooling
concerns.
2. Phasing out fossil fuels: Replace inefficient and energy intensive
heating systems fuelled by fossil fuels with new more efficient electric led
systems.
3. Installing on-site renewables: Utilise roof space where solar PV
panels can be installed to generate electricity on site, reduce emissions and
energy bills.
The ESG scorecard will be used to manage, measure and monitor the ESG
performance and progress of assets in the portfolio against the Company's
sustainability objectives. This will also allow the Company to focus on
realistic and achievable targets, and demonstrate the achievement of
substantial positive impacts over time.
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 Company aims to provide shareholders with an attractive level of income
and 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.
The portfolio is principally invested in the three main UK commercial real
estate sectors of industrial, office and retail, and may also invest in other
sectors including mixed-use, residential, hotels, healthcare and leisure. The
Company believes that a diversified portfolio by location, sector, size and
tenant will outperform specialist strategies over the long term. Over the
duration of the property market cycle, the portfolio aims to generate an
above-average income return with a diverse spread of lease expiries.
The Board has established a gearing guideline for the Investment Manager,
which seeks to target debt, net of cash, at a level reflecting a loan to value
of between 25% to 35%. This relatively low level of gearing is used to enhance
income and total returns for shareholders with the level dependent on the
property cycle and the outlook for future returns.
The dividend policy adopted by the Board is to pay a sustainable level of
quarterly dividends to shareholders. The Board keeps the dividend policy under
active review with a view to ensuring the Company can deliver a sustainable
level of cover whilst having due regard to current and anticipated future
market conditions. It is intended that the successful execution of the
Company's strategy will enable a progressive dividend policy.
Incorporating sustainability as a fundamental part of our strategy means we
are committing to our own 'Pathway to Net Zero Carbon' which includes the
following:
· 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.
Investment strategy
The Company's current strategy is to own and actively manage a diversified
portfolio of properties located in the UK's Winning Cities and Regions.(( 19
(#_ftn19) )) These locations are benefitting from higher economic growth
resulting from structural changes such as urbanisation, rapid changes and
growth of technology, changing demographics and social as well as positive
impact themes. These locations have diversified local economies, sustainable
occupational demand and favourable supply and demand characteristics. These
properties offer good long-term fundamentals in terms of location,
specification and sustainability performance, and are let at affordable rents,
with the potential for income and capital growth due to good stock selection
and asset management. We aim to grow income and enhance shareholder returns
through active management and operational excellence. As discussed in the
Chair's statement on page 8, and the Manager's review on page 12, the Board is
looking to differentiate the Company's strategy by placing even greater
emphasis on how sustainability-led asset improvements will deliver enhanced
returns for shareholders.
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%.
From time to time the Board may also impose limits on sector, location and
tenant types together with other activity such as development.
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 Board has established a gearing guideline for the Investment Manager,
which seeks to limit on-balance-sheet debt, net of cash, to 35% of
on-balance-sheet assets while recognising that this may be exceeded in the
short term from time to time. It should be noted that the Company's Articles
limit borrowings to 65% of the Group's gross assets, calculated as at the time
of borrowing. The Board keeps this guideline under review and the Directors
may require the Investment Manager to manage the Group's assets with the
objective of bringing borrowings within the appropriate limit while taking due
account of the interests of shareholders. Accordingly, corrective measures may
not have to be taken immediately if this would be detrimental to 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 and 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 2023 the Company delivered a NAV total return of
-15.1% (30.9% for the year to 31 March 2022).
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 2023 the Benchmark comprised 168 member funds.
Underlying property portfolio performance
Total return for 12 months to 31 March 2023 Total return for 12 months to 31 March 2022
SREIT (%) MSCI Benchmark (%) SREIT (%) MSCI Benchmark (%)
-7.9% -13.5% 23.5% 19.9%
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 2023, the share price of 46.2p was at a 24.9% discount to the NAV of
61.5 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 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
In 2019, the built environment was responsible for 31% of global carbon
emissions, which places great responsibility on those companies that are
direct or indirect contributors. 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 constantly reviews its
approach to sustainable investing 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 in 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 48.
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.
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.
During the year, the Board has redefined certain of its principal risks,
especially the emerging risk relating to the sustainability and ESG
credentials of the portfolio as its sustainability becomes a greater focus for
the Company. The Board no longer considers Covid-19 to be a principal risk
as the property markets have adapted to the threats posed. The previously
identified principal risks Accounting, Legal and regulatory and Tax have now
been consolidated into a single Principal Risk, 'Regulatory Compliance'.
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:
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 events when making investment decisions. The Board mitigates property market
deflation, economic recessions, movements in interest rates, Brexit impact, risk through the review of the Group's strategy on a regular basis and
the war in Ukraine, or other external shocks. The performance of the discussions are held to ensure the strategy is still appropriate or if it
underlying property portfolio could also be affected by structural or cyclical needs updating. The Board and Investment Manager reviews the progress of
factors impacting particular sectors or regions of the property market. implementing the strategy on a regular basis and provides the 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'), explained further on page 107 of these accounts), are not fully
considered or properly understood in the acquisition and asset-planning Impact and Sustainability Action Plans identify asset improvement requirements
processes leading to future issues (negative effect on price, valuation or in context of the investment strategy.
saleability of assets, future costs to remediate, meeting 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.
Evora has been appointed as a supplier to the Fund to help collate and provide
key Sustainability data which is then reported to the Manager, Board and
investors. Furthermore, the Board is provided with an assurance letter from
Standard and Poor's 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 External reputable valuers provide an independent quarterly valuation of all
is heightened by geo-political and macroeconomic factors such as high the property assets, including those held in joint ventures, which are
inflation 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.
External valuers are provided with copies of all transactions and lease events
by SREIT's lawyers and with a quarterly updates by Asset Managers to ensure
that information used to value the portfolio is complete, accurate and
up-to-date.
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 strict restrictions set internally and by lenders, and is regularly
rising markets, in falling markets the impact may be detrimental to announced 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 a number of Service providers subject to regular reviews by both the Investment Manager
service providers. Failure of controls and/or the poor performance of any and the Management Engagement Committee against clearly documented contractual
service provider could lead to disruption, reputational damage, or loss. arrangements detailing service expectations, including confirmation of
business continuity and cyber security arrangements.
Regulatory compliance
The Company has to 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, Company law, accounting, reporting, tax Fund Manager ('AIFM') in accordance with the Alternative Investment Fund
and Listing Rules. Managers Directive ('AIFMD').
The Company Secretary monitors legal 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 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.
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 92 to 96.
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 13.1 years and the average unexpired lease term, assuming all
tenants vacate at the earliest opportunity, is 4.7 years.
The Board's assessment of viability considers the principal risks and
uncertainties faced by the Company, as detailed in the Strategic Review on
pages 38 to 40, 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 38 to 40 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 2023, property valuations would have
to fall by 28% before the relevant Canada Life Loan to Value covenants were
breached, and actual net rental income would need to fall by 61% 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 2023, a 31% fall in net income could be sustained prior
to the RBSI projected interest loan cover covenant of 250% being breached.
As at the financial year end the undrawn capacity of the RBSI facility was
£26.7 million. This facility is an efficient and flexible source of funding
due to its ability to be repaid and redrawn as often as required. Furthermore,
this facility was refinanced in June 2022 with a new five-year term to 2027
and with an increase in the amount that can be drawn from £52.5m to £75.0m.
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 structural
changes from Covid-19, together with the ongoing changing macroeconomic and
geopolitical environments, on the Group.
The Board and Investment Manager have considered the impact of climate change
risk as an emerging risk as set out on page 39. 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 forthcoming minimum energy efficiency standards.
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.
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 2024. In addition to the matters described above, in arriving at their
conclusion the Directors have also considered:
· The cash balance at 2 June 2023 of £6.5 million; and
· The nature and timing of the Company's income and expenses.
The Directors have satisfied themselves that the Group has adequate resources
to continue in operational existence for the period to 30 June 2024. 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
7 June 2023
Governance Report
Board of Directors
Alastair Hughes (Chair)
Status: Independent Non-Executive Chair
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: £55,000 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
of both 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.
Current remuneration: £40,000 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 at Cubico Sustainable Investments, and
Non-Executive Director at Embark Group Limited and its regulated subsidiaries.
Priscilla previously held various senior positions at Janus Henderson, most
latterly as Managing Director of the Private Equity business. She is also a
Chartered Accountant and a member of the Chartered Accountants Australia and
New Zealand.
Current remuneration: £40,000 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 ('Ali') Innes (Chair of the Management Engagement Committee)
Date of appointment: 16 November 2022
Alexandra's executive career has 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 is a member of the Group Executive Board at Knight Frank LLP, a
Non-executive Committee Member at the Bank of England, and a Non-executive
Director of Dowlais Group plc, Securities Trust of Scotland plc, and Waverton
Investment Management Limited. Alexandra is also Senior Independent Director
of Facilities by ADF plc, and is a Non-executive Director of the UCI Cycling
World Championships Ltd. Alexandra previously served on the board of the
All England Lawn Tennis Club (Championships) Ltd and the AELT Ground plc.
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 Member of the Chartered Institute
for Securities & Investments (Chartered MCSI), and holds the CFA Institute
Certificate in ESG investing.
Current remuneration: £40,000 per annum
Material interests in any contract which is significant to the Company's
business: None
Key skills and contributions to the Board: Ali brings experience as an
economist, and in capital markets to the Board, alongside sustainability
expertise.
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.
Lorraine Baldry served as Chair of the Company during the year until 26 July
2022, and Graham Basham served as an Independent Non-Executive Director of the
Company during the year, until 15 November 2022.
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 2023 (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 2022 30 June 2022 0.795 pence per share
30 June 2022 19 August 2022 0.803 pence per share
30 September 2022 9 December 2022 0.803 pence per share
31 December 2022 7 March 2023 0.819 pence per share
With the solvency test provided for in the Companies Law having been fully
satisfied, all dividends were declared and paid as interim dividends. The
Directors recommend a final dividend for the year ended 31 March 2023 of 0.836
pence per share to be paid on 30 June 2023.
All dividends paid during the year were allocated and paid as Property Income
Distributions (PIDs).
Share capital
As at 31 March 2023 the Company had 565,664,749 (2022: 565,664,749) ordinary
shares in issue of which 76,554,173 ordinary shares (representing 13.5% of the
Company's total issued share capital) were held in treasury (2022:
74,584,448). The total number of voting rights of the Company was
489,110,576 at the year end (2022: 491,080,301) 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
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 May 2023 to consider the portfolio strategy and the
Investment Manager's capabilities in more depth. Subsequently, the Directors
formally discussed the performance of the Investment Manager at a 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 for
providing investment management and accounting services during the financial
year. The new investment management and fund accounting fee is now structured
as follows: 0.9% on NAV up to £500 million; 0.8% on NAV between £500 million
to £1 billion; and 0.7% on NAV over £1 billion. The fee is payable monthly
in arrears. There is no performance fee. The Investment Management Agreement
can be terminated by either party on not less than 12 month'' written notice
or on immediate notice in the event of certain breaches of its terms or the
insolvency of either party.
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 £57,000 per
annum and Langham Hall UK Depositary LLP is the Company's depositary for a fee
of £39,000 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 Bribery Act.
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 0 Nil
Ali Innes 0 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. 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.
Number of ordinary shares Percentage (%)
Investec Wealth & Investment (UK) 78,375,224 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 Report of
the Audit Committee on page 55.
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 £1,200.
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 2022
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/investor-relations/results-and-reports/annual-report-and-accounts-2022/
(https://www.schroders.com/en/investor-relations/results-and-reports/annual-report-and-accounts-2022/%0d)
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 (http://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; and
- Internal audit function.
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. The Company has
therefore not reported further in respect of these provisions.
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.
Evaluation of the Board and Audit Committee
In 2023 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 and its Chair both operate
effectively and constructively. Ongoing consideration continues to be given
towards succession planning, relationships with key shareholders and the
format and length of board papers.
In January 2020 the Board appointed Stogdale St James Limited to independently
oversee an external performance evaluation of the Board; there were no
conflicts of interest identified. The composition of the Board, its dynamics,
its oversight of strategy and the management of the Board meetings were all
highly regarded.
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.
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 four Non-Executive Directors. The biography of
each of these Directors is set out on pages 43 and 44 of the report. The Board
considers each of the Directors to be independent. As at 31 March 2023, 50% of
the individuals on the Board of Directors were women, exceeding the 40% target
as set out in the Listing Rules, and at least one of the senior positions on
the Board of Directors was held by a woman. There were no Board members from a
minority ethnic background. This is due to the relatively small size of the
Board.
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 2023 and at the date of this report.
White British or other White (including minority-white groups) 4 100 100
Mixed/Multiple Ethnic Groups - - -
Asian/Asian British - - -
Black/African/Caribbean/Black British - - -
Other ethnic group, including Arab - - -
Not specified/prefer not to say - - -
Men 2 50 1
Women 2 50 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 four 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 Audit and Nomination committees. Appointments and succession
plans will always be based on merit and objective criteria and, within this
context, the Board seeks to promote diversity of gender, social, ethnic,
professional and educational backgrounds, sexual orientation, cognitive and
personal strengths. 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-executives, 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. At least once a year the Board carries out a site visit to properties
owned by the Company.
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 20 (#_ftn20) 3/31/2 0/0 0/0
Alexandra Innes 21 (#_ftn21) 1/1 0/1 0/0 0/0
Lorraine Baldry 22 (#_ftn22) 2/2 0/1 1/1 1/1
Graham Basham 23 (#_ftn23) 2/2 1/1 1/1 1/1
Number of meetings during the year 4 3 2 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 Board
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 1.30
p.m. on 27 September 2023, 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 137 of this document.
Audit Committee Report
Composition
The Audit Committee is chaired by Stephen Bligh with Alastair Hughes,
Priscilla Davies, and Alexandra Innes 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. Its 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 and the interim review.
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, the Administrator 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 external Auditor's terms of appointment, audit plan, and year
end report;
- The management representation letters to the Auditors;
- The effectiveness of the audit process;
- The independence, effectiveness and objectivity of the external
Auditor;
- The risk assessment of the Company; and
- Compliance with the UK REIT regime.
As noted in the Corporate Governance report, an evaluation of the Audit
Committee was completed by the Directors in May 2023 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 independent firms of valuers: Knight Frank LLP (replaced by CBRE Investment Manager at the Board meetings.
on 31 March 2023) for the Company's wholly-owned portfolio of properties, and
BNP Paribas Real Estate UK for the two joint ventures.
Errors in valuation could have a material impact on the Company's net asset
value.
Members of the Audit Committee meet with CBRE to discuss the process,
assumptions, independence and communication with the Investment Manager.
Their approach to the 31 March 2023 valuations was discussed with CBRE in
light of the impact of the pandemic and subsequent economic volatility, and
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 40 to 42,
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
particular sectors or regions of the property market.
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.
Internal audit
The Audit Committee considered the need for an internal audit function and
concluded that this function is not required, as it is provided by the
Schroders Group's Internal Audit reviews, which cover the functions provided
by the Investment Manager, Schroder Real Estate Investment Management Limited.
In addition, the Investment Manager prepares an ISAE 3402/AAF 01/06 Internal
Controls Report which includes the Company within the scope of the review.
This report is reviewed by Ernst & Young LLP ('EY') which issued an
unqualified opinion for the period ended September 2022. The Audit Committee
has considered both the Investment Manager's internal controls report and the
review by EY.
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.
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.
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.
Stephen Bligh
Director
7 June 2023
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 Management Engagement Committee. Alexandra Innes
is the Chair of the Management Engagement 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 and suitability; including the Property Managers, the Depositary, the Administrator in
Guernsey, the Tax Advisor, the Corporate Broker, the Valuer, the Solicitors
- Considers the reporting it has received from the Investment Manager and the Registrar.
throughout the year, and the reporting from the Investment Manager to
shareholders; The Management Engagement Committee receives feedback from the Audit Committee
on its review of the Auditors.
-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. The Committee is chaired by Alastair Hughes, and
Stephen Bligh, Alexandra Innes, and Priscilla Davies are members. 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
- Lorraine Baldry announced that she would resign as Chair of the Company in - The annual Board evaluation was undertaken in 2023. - During the year, the Nomination Committee considered the need for orderly
July 2022. A sub-committee comprised of Stephen Bligh and Graham Basham
succession planning and a suitable plan was agreed.
considered a number of candidates for the role of Chair with input from - The Nomination Committee reviewed each Director's time commitment and
independent recruitment partners. Following this process, Alastair Hughes, the independence by reviewing a complete list of appointments, including pro bono
Senior Independent Director, was identified as the most suitable candidate. not-for-profit roles, to ensure that each Director remained free from conflict
and had sufficient time available to discharge each of their duties
- The Nomination Committee identified suitable candidates for the role of effectively. All Directors were considered to be independent in character and
Senior Independent Director, with support from independent executive search judgement.
firm Russell Reynolds. Following this process, Priscilla Davies was
recommended to be appointed as a Director of the Company and Senior - The Nomination Committee considered each Director's contributions, and noted
Independent Director. that in addition to extensive experience as professionals and Non-Executive
Directors, each Director had valuable skills and experience, as detailed in
- The Nomination Committee identified suitable candidates for the role of their biographies on pages 43 and 44.
independent Director, with support from independent executive search firm
Russell Reynolds. Following this process, Alexandra Innes was recommended to - Based on its assessment, the Nomination Committee provided individual
be appointed as a director of the Company. recommendations for each Director's re-election.
Recommendations made to, and approved by, the Board:
- That Priscilla Davies be appointed as a Non-Executive Director with effect
from 7 June 2022.
- That Alastair Hughes be appointed as Chair of the Company with effect from
26 July 2022.
- That Alexandra Innes be appointed as a Non-Executive of the Company with
effect from 16 November 2022.
- 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.
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 21 September 2022, the remuneration
policy was approved by shareholders, with 99.71% of votes for, 0.29% of votes
against, and 80,570 withheld.
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 21 September 2022, 99.72% 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 2022 were in favour, while
0.28% were against. 213,823 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 role that individual Directors fulfil in respect of Board and
Committee responsibilities, and time committed to the Company's affairs.
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. The fees were reviewed
during the year to ensure that they were competitive against peers with advice
from Russell Reynolds as part of the Board Succession process.
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 2023.
Fees paid to Directors
The following amounts were paid by the Company for services as Non-Executive
Directors:
Director 31 March 2023 (£) 31 March 2022 (£)
Alastair Hughes (Chair) 47,300 35,000
Stephen Bligh 24 (#_ftn24) 37,100 35,000
Priscilla Davies 25 (#_ftn25) 30,100 -
Alexandra Innes 26 (#_ftn26) 14,400 -
Lorraine Baldry 27 (#_ftn27) 16,700 50,000
Graham Basham 28 (#_ftn28) (,) (26) 26,300 36,927
Total 171,900 156,927
Performance
The performance of the Company is described on page 35 in the Business Model
Report.
Alastair Hughes
Chair
7 June 2023
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 6 to 10 and Governance Report on pages
43 to 52 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
7 June 2023
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 2023
which comprise the 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 23, including a summary of significant accounting policies. The
financial reporting framework that has been applied in their preparation is
applicable law and International Financial Reporting Standards as issued by
the International Accounting Standards Board ('IFRS').
In our opinion, the financial statements:
► give a true and fair view of the state of the Group's affairs as at
31 March 2023 and of its loss for the year then ended;
► have been properly prepared in accordance with International
Financial Reporting Standards as issued by the International Accounting
Standards Board; 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 Group 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 Group and we remain independent of the Group 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 Group'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 Group's ability to continue as
a going concern for the period to 30 June 2024 from when the financial
statements are authorised for issue.
In relation to the Group'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 Group's ability to continue as a going concern.
Overview of our audit approach
Audit scope · We have audited the financial statements of the Group for the
year ended 31 March 2023.
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 Group materiality of £3.0m 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 Group. This
enables us to form an opinion on the financial statements. We take into
account size, risk profile, the organisation of the Group 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 Group audit 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 are explained on page 108 in the Task Force for Climate related
Financial Disclosures and on page 39 in the principal risks and uncertainties.
They have also explained their climate commitments on page 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 the 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 statements. 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 53); property valuation by performing our walkthrough procedures and evaluating the
implementation and design effectiveness of controls.
Significant accounting policies (page 78); and
► assessed the independence and competence of the Group's independent
Note 10 of the Financial Statements (pages 85 to 88) 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 £458.5m to agree the appropriateness and suitability of the reported values and the
(2022: £515.2m). 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, CBRE understanding of their valuation process methods and assumptions used in their
Limited ('CBRE') and BNP Paribas Real Estate ('BNP') using recognised analysis, including challenging them as to the extent to which market
valuation techniques. The fair values are based on recent real estate transactions and expected rental values take into account the impact of
transactions with similar characteristics and locations to those of the climate change;
Group's assets. The Group's accounting policy is for the valuation of
investment properties to be reduced by the total of the unamortised lease ► engaged our EY property valuation specialists to perform a review of a
incentive balances. sample of property valuations (81% of the total value (2022: 80%)) to assess
whether the reported value fell within a range of reasonable outcomes, which
included:
There is a risk of incorrect valuation of the property portfolio which could ► validating the assumptions used by the Group's independent valuers in
result in the Consolidated Statement of Financial Position and the undertaking their valuation and assessment of the valuation methodologies
Consolidated Statement of Comprehensive Income being materially misstatement. 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 on a sample basis;
► verified that the fair values derived by the Group's independent
valuers for the entire portfolio were correctly included in the consolidated
financial statements; and
► 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
£25.2m of rental income (2022: £23.9m) and rent receivable of £3.9m (2022: for each property. We formed an expectation of the rental income for each
£4.5m). property, and compared this expectation to the actual revenue recognised
during the year;
► agreed a sample of rental rates to tenancy agreements and recalculated
There is a risk of incomplete or inaccurate rental revenue recognition and rental revenue earned by the property for the period;
related year-end receivables through failure to recognise proper income
entitlements or to apply the appropriate accounting treatment. The ► recalculated a sample of lease incentives based on the terms within
recoverability of year-end receivable is based on a number of judgments and the lease agreement to assess the appropriateness of the amount recorded;
estimates. 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 Schroder Real Estate Investment
Management Limited (the "Asset Manager") assessing the recoverability of the
overdue rent receivables, and challenged the judgments involved. 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.
Prior year comparison
There have been no changes to our assessment of key audit matters.
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 Group to be £3.0m (2022: £3.7m), which is
1% (2022: 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 based on
equity as at 31 March 2023 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
Group's overall control environment, our judgement was that performance
materiality was 75% (2022: 75%) of our planning materiality, namely £2.3m
(2022: £2.8m).
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 £0.15m (2022: £0.19m), 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 3 to 62 and pages 98 to 141, 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
► 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 Group'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 41;
► Directors' explanation as to its assessment of the Group's
prospects, the period this assessment covers and why the period is appropriate
set out on page 40;
► Director's statement on whether it has a reasonable expectation that
the Group will be able to continue in operation and meets its liabilities set
out on page 40;
► Directors' statement on fair, balanced and understandable set out on
page 61;
► Board's confirmation that it has carried out a robust assessment of
the emerging and principal risks set out on page 38;
► The section of the annual report that describes the review of
effectiveness of risk management and internal control systems set out on page
38; and
► The section describing the work of the audit committee set out on
page 53.
Responsibilities of Directors
As explained more fully in the Statement of Directors' Responsibilities set
out on page 61, 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 Group'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 Group 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 Group and Management.
► We obtained an understanding of the legal and regulatory frameworks
that are applicable to the Group 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 those charged
with governance 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 of
Directors.
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 (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 3 years and 5 months, covering the period from initial
appointment to 31 March 2023.
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
7 June 2023
Financial Statements
Consolidated Statement of Comprehensive Income
31/03/2023 31/03/2022
Notes £000 £000
Rental income 25,171 23,859
Other income 3 58 558
Property operating expenses 4 (2,258) (1,919)
Net rental and related income, excluding joint ventures 22,971 22,498
Share of net comprehensive rental income in joint ventures 3,515 2,740
Net rental and related income, including joint ventures 26,486 25,238
Profit on the disposal of investment property 10 1,184 3,165
Net unrealised valuation (loss)/gain on investment property 10 (60,107) 66,536
Expenses
Investment management fee 2 (2,755) (2,994)
Valuers' and other professional fees (1,875) (1,547)
Administrators' fees 2 (71) (82)
Auditor's remuneration 5 (185) (190)
Directors' fees 6 (172) (157)
Other expenses 6 (346) (422)
Total expenses (5,404) (5,392)
Net operating (loss)/profit before net finance costs (41,356) 86,807
Refinancing costs 15 (247) -
Finance costs (5,114) (4,139)
Net finance costs (5,361) (4,139)
Share of net comprehensive rental income in joint ventures 11 3,515 2,740
Share of valuation (loss)/gain in joint ventures 11 (11,513) 3,960
(Loss)/profit before taxation (54,715) 89,368
Taxation 7 - -
Profit and total comprehensive (loss)/income for the year attributable to the
equity holders of the parent
(54,715) 89,368
Basic and diluted (loss)/earnings per share 8 (11.2p) 18.2p
All items in the above statement are derived from continuing operations. The
accompanying notes 1 to 23 form an integral part of the financial statements.
Consolidated Statement of Financial Position
31/03/2023 31/03/2022
Notes £000 £000
Investment property 10 388,030 433,486
Investment in joint ventures 11 72,187 83,700
Non-current assets 460,217 517,186
Trade and other receivables 12 21,626 16,169
Cash and cash equivalents 13 8,419 11,601
Current assets 30,045 27,770
Total assets 490,262 544,956
Issued capital and reserves 14 337,790 408,286
Treasury share reserve 14 (37,101) (36,103)
Equity 300,689 372,183
Interest-bearing loans and borrowings 15 176,933 161,791
Lease liability 10 1,668 1,987
Non-current liabilities 178,601 163,778
Trade and other payables 16 10,972 8,995
Current liabilities 10,972 8,995
Total liabilities 189,573 173,670
Total equity and liabilities 490,262 544,956
61.5p 75.8p
Net asset value per ordinary share 17
The financial statements on pages 74 to 77 were approved at a meeting of the
Board of Directors held on 7 June 2023 and signed on its behalf by:
Alastair Hughes,
Chair
Stephen Bligh, Director
The accompanying notes 1 to 23 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 2021 219,090 (35,967) 113,721 296,844
Share buyback 17 - (136) - (136)
Profit for the year - - 89,368 89,368
Dividends paid 9 - - (13,893) (13,893)
Balance as at 31 March 2022 219,090 (36,103) 189,196 372,183
Share buyback 17 - (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
The accompanying notes 1 to 23 form an integral part of the financial
statements.
Consolidated Statement of Cash Flows
31/03/2023 31/03/2022
£000 £000
Operating activities
(Loss)/profit for the year (54,715) 89,368
Adjustments for:
Profit on the disposal of investment property (1,184) (3,165)
Net valuation loss/(gain) on investment property 60,107 (66,536)
Share of loss/(profit) on joint ventures 7,998 (6,700)
Net finance cost 5,361 4,139
Operating cash generated before changes in working capital 17,567 17,106
(Increase)/decrease in trade and other receivables (1,861) 859
Increase in trade and other payables 1,978 1,098
Cash generated from operations 17,684 19,063
Investing activities
Proceeds from the sale of investment property 8,303 12,835
Acquisition of investment property (16,058) (19,850)
Additions to investment property (10,133) (4,924)
Additions to joint ventures - (620)
Net income distributed from joint ventures 3,638 2,598
Cash flows used in investing activities (14,250) (9,961)
Financing activities
Repayment of debt - (13,000)
Additions to debt 15,600 21,200
Finance costs paid (4,479) (3,847)
Refinancing costs paid (958) -
Dividends paid 9 (15,781) (13,893)
Share buyback (998) (136)
Cash flows used in financing activities (6,616) (9,676)
Net decrease in cash and cash equivalents for the year (3,182) (574)
Opening cash and cash equivalents 11,601 12,175
Closing cash and cash equivalents 13 8,419 11,601
The accompanying notes 1 to 23 form an integral part of the financial
statements.
Notes to the Financial Statements
1. Significant accounting policies
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 2023 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 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 2023, property valuations would have
to fall by 28% before the relevant Canada Life Loan to Value covenants were
breached, and actual net rental income would need to fall by 61% 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 2023, a 31% fall in net income could be sustained prior
to the RBS projected interest loan cover covenant of 250% being breached.
As at the financial year end the undrawn capacity of the RBSI facility was
£26.7 million. This facility is an efficient and flexible source of funding
due to its ability to be repaid and redrawn as often as required. Furthermore,
this facility was refinanced in June 2022 with a new five-year term to 2027
and with an increase in the amount that can be drawn from £52.5m to £75.0m.
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 structural
changes from Covid-19, together with the ongoing changing macroeconomic and
geopolitical environments, on the Group.
The Board and Investment Manager have considered the impact of climate change
risk as an emerging risk as set out on page 39. 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 forthcoming minimum energy efficiency standards.
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 41 and 42.
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 2024. In addition to the matters described above, in arriving at their
conclusion the Directors have also considered:
· The cash balance at 2 June 2023 of £6.5 million; and
· The nature and timing of the Company's income and expenses.
The Directors have satisfied themselves that the Group has adequate resources
to continue in operational existence for the period to 30 June 2024. After due
consideration, the Board believes 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 consider aged debtors' analyses, the strength
of tenant covenants, macroeconomic factors and any rental deposits. Management
has considered rental debtors on a quarterly basis and made provisions and
write offs where it has been deemed that these amounts are 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 carrying value. 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
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. The SPPI and Business model test have been met.
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 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.
The total charge to the Consolidated Statement of Comprehensive Income during
the year was £2,755,000 (2022: £2,994,000). At the year end £Nil (2022:
£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 £96,000 (2022:
£157,000).
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 2022 to 31 March 2023 were £50,000 (2022: £50,000).
3. Other income
31/03/2023 31/03/2022
£000 £000
Dilapidations, surrender premiums and all other miscellaneous income 58 558
58 558
4. Property operating expenses
31/03/2023 31/03/2022
£000 £000
Agents' fees 133 124
Repairs and maintenance 51 180
Advertising 70 78
Rates 369 323
Service charge, insurance and utilities on vacant units 1,657 1,269
Ground rent 68 95
Bad debt write offs, provisions and write backs (90) (150)
2,258 1,919
5. Auditor's remuneration
The total expected audit fees are £185,000 for the financial year ended 31
March 2023 (2022: £170,000). Non-audit fees of £Nil (2022: £20,000). The
prior year non-audit fee related to the interim review conducted for the
period ended 30 September 2021. There was no interim review conducted for the
period ended 30 September 2022.
6. Other expenses
31/03/2023 31/03/2022
£000 £000
Professional fees 285 356
Other expenses 61 66
346 422
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
£171,900 (2022: £157,000), as set out in the Directors' Remuneration Report
on pages 59 and 60.
7. Taxation
31/03/2023 31/03/2022
£000 £000
Tax expense in the year - -
Reconciliation of effective tax rate
(Loss)/profit before tax (54,715) 89,368
Effect of:
Tax using the UK corporation tax rate of 19% (10,396) 16,980
Revaluation loss/(gain) not taxable 11,420 (12,642)
Share of capital loss/(profit) of associates and joint ventures not taxable 2,187 (1,273)
Profit on the disposal of investment property not taxable (225) (601)
Loss on refinancing costs 47 -
UK REIT exemption (3,033) (2,464)
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 loss
for the year of £54,715,000 (2022: profit of £89,368,000) and the weighted
average number of ordinary shares in issue during the year of 489,951,223
(2022: 491,085,850)
9. Dividends paid
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
In respect of: Ordinary Rate 31/03/2022
shares (pence) £000
Q/e 31 March 2021 (dividend paid 25 June 2021) 491.08 million 0.656 3,222
Q/e 30 June 2021 (dividend paid 13 August 2021) 491.08 million 0.675 3,315
Q/e 30 Sept 2021 (dividend paid 17 December 2021) 491.08 million 0.726 3,565
Q/e 30 Dec 2021 (dividend paid 25 March 2022) 491.08 million 0.772 3,791
2.829 13,893
A dividend for the quarter ended 31 March 2023 of 0.836 pence per share was
approved and will be paid on the 30 June 2023.
10. Investment property
Leasehold Freehold Total
£000 £000 £000
Fair value as at 31 March 2021 36,376 315,400 351,776
Additions 118 3,669 3,787
Acquisition costs - 1,138 1,138
Acquisitions 19,850 19,850
Disposal of asset held at fair value - (9,600) (9,600)
Fair value leasehold movement (1) - (1)
Net unrealised valuation gain on investment property 3,300 63,236 66,536
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
The balance above includes:
Leasehold Freehold Total
£000 £000 £000
Investment property 37,806 393,693 431,499
Fair value leasehold adjustment 1,987 - 1,987
Fair value as at 31 March 2022 39,793 393,693 433,486
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
The fair value of investment properties, as determined by the valuer as at 31
March 2023, totals £398,560,000 (March 2022: £440,100,000). Of this total
valuation, £4,000,000 relates to an unconditional exchange of contracts for
Morgan Sindall House, Rugby which is included within trade and other
receivables and which is due to complete to be sold in June 2023. In addition
to this, £8,198,000 (2022: £8,602,000) 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 incorporate the International
Valuation Standards, issued by the Royal Institution of Chartered Surveyors
(the "Red Book"). CBRE replaced previous valuers Knight Frank with effect from
March 2023 (see page 9 for further detail).
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 8,
developments and refurbishments form a key element of the Groups commitment to
sustainability. During the year the Group has spent £10.1m on capital
expenditure. This sum included both capital works which 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 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%
Note s:
(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 2022
31 March 2022 Industrial (1) Retail (incl. retail warehouse) Office Other Total
Fair value (£000) 248,950 97,450 75,450 18,250 440,100
Area ('000 sq. ft) 2,338 499 369 177 3,383
Net passing rent per sq. ft per annum Range £0 - £14.00 £4.93 £0 - £32.85 £12.77 £0 - £29.10 £16.49 £1.00 -£13.00 £0 - £14.00
Weighted average £4.93
Gross ERV per sq. ft per annum Range £2.50 - £14.00 £7.40 - £29.83 £13.86 £10.00-£27.50 £2.10 -£13.00 £2.10 - £29.83 £8.50
Weighted average £5.93 £17.80 £7.91
Net initial yield ((1)) Range 3.29% - 7.25% 4.34% 0% -9.26% 6.12% 4.33%-12.80% 7.56% 4.75%-8.55% 3.29% - 7.25% 4.34%
Weighted average
Equivalent yield Range 4.20%-7.76% 5.17% 4.99%-9.97% 6.37% 5.79%-9.36% 7.50% 4.75%-9.21% 4.20%-7.76% 5.17%
Weighted average
Note s: (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 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
Estimated movement in fair value of investment properties at 31 March 2022 Industrial Retail Office Other All sectors
£000 £000 £000 £000 £000
Increase in ERV by 5% 11,240 3,307 3,378 605 18,530
Decrease in ERV by 5% (11,372) (3,462) (3,609) (416) (18,859)
Increase in net initial yield by 0.25% (13,574) (3,825) (2,416) (645) (20,460)
Decrease in net initial yield by 0.25% 15,236 4,152 2,582 694 22,664
11. Investment in joint ventures
Closing balance as at 31 March 2021 79,120
Purchase of further units in City Tower Unit Trust 620
Valuation gain on joint venture 3,960
Closing balance as at 31 March 2022 83,700
Purchase of further units in City Tower Unit Trust -
Valuation loss on joint venture (11,513)
Closing balance as at 31 March 2023 72,187
( )
( )
Summarised joint venture financial information not adjusted for the Group's 31/03/2023 31/03/2022
share - City Tower Unit Trust
£000
£000
Investment properties 136,100 163,450
Other assets 3,779 4,489
Total liabilities(1) (2,070) (3,120)
Revenues for the year 9,025 9,369
Total comprehensive rental income 7,570 4,219
Net asset value attributable to the Group 34,452 41,204
Total comprehensive income attributable to the Group 1,893 1,083
31/03/2023 31/03/2022
£000
£000
Summarised joint venture financial information not adjusted for the Group's
share - Store Street Unit Trust
Investment properties 75,550 85,000
Other assets 446 691
Total liabilities(1) (527) (699)
Revenues for the year 3,700 3,728
Total comprehensive rental income 3,242 3,291
Net asset value attributable to Group 37,735 42,496
Total comprehensive income attributable to the Group 1,621 1,657
(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 BNP Paribas Real Estate, 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
31/03/2023 31/03/2022
£000
£000
Rent receivable 3,578 3,608
Other debtors and prepayments 14,048 12,561
Other capital debtors 4,000 -
21,626 16,169
Other debtors and prepayments includes £8,198,000 (2022: £8,602,000) in
respect of lease incentives.
Other capital debtors relates to the sale proceeds receivable of £4,000,000
for the post period completion of Rugby, Morgan Sindall House which
unconditionally exchanged for sale in March 2023 and is due to complete on 23
June 2023.
As at 31 March 2023 total bad debt provisions of £0.4m (2022: £0.9m) had
been recognised against rental debtors of £3.3m (2022: £3.8m) net of VAT.
13. Cash and cash equivalents
As at 31 March 2023 the Group held £8.4 million (2022: £11.6 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 (2022: 565,664,749) of which
76,554,173 Ordinary shares are held in treasury (2022: 74,584,448). The total
number of voting rights of the Company was 489,110,576 (2022: 491,080,301) as
at the financial year end.
Treasury capital
76,554,173 (2022: 74,584,448) ordinary shares, which represent 13.5% (2022:
13.2%) 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.
31/03/2023 31/03/2022
£000 £000
Non-current liabilities
Loan facilities 177,885 162,252
Unamortised arrangement fees (952) (461)
176,933 161,791
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 2023 Interest Payment Date, the Canada Life interest cover
ratio was 480% (2022: 650%) against
a covenant of 185%; the forecast interest cover ratio was 449% (2022: 487%)
against a covenant of 185%; and
the Loan to Value ratio was 46.9% (2022: 40.1%) 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 2023 contained
properties valued at £271.80 million (2022: £322.90 million). Various
restraints apply during the term of the loan although the facility has been
designed to provide significant operational flexibility.
On 6 June 2022 the Group successfully completed a refinancing of its facility
with RBSI which had been due to expire in July 2023. The new five-year term
will run to June 2027 and the maximum amount able to be drawn down has
subsequently increased from £52.5m to £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. An interest rate cap for £30.5 million of the loan has
been entered into and this comes into effect if the three-month SONIA rate
reaches 1.5% and expires in July 2023.
As part of this refinancing process an amount of £247,000 previously
unamortised loan fees were written off.
As at the April 2023 Interest Payment Date, the RBSI projected interest cover
ratio was 411% (2022: 538%) against a covenant of 250% and the Loan to Value
ratio was 30.0% (2022: 24.0%) against a covenant of 65%.
The RBSI facility has a first charge security over certain property assets
which at 31 March 2023 contained properties valued at £160.8 million (2022:
£136.5 million).
A reconciliation of financing movements for the year is presented below split
in to cash and non-cash items:
31/03/2023
£000
Loan balance brought forward 161,791
Drawdown on RBSI RCF (cash) 15,600
Amortised cost adjustment (458)
Loan balance carried forward 176,933
31/03/2022
£000
Loan balance brought forward 153,370
Drawdown on RBSI RCF (cash) 21,200
Repayment of RBSI RCF (cash) (13,000)
Amortised cost adjustment 221
Loan balance carried forward 161,791
16. Trade and other payables
31/03/2023 31/03/2022
£000
£000
Deferred income 5,131 4,123
Rental deposits 1,850 1,744
Interest payable 1,101 840
Other trade payables and accruals 2,890 2,288
10,972 8,995
17. NAV per Ordinary Share and share buyback
Between the 28 July 2022 to 15 September 2022 the Company purchased a further
sum of 1,969,725 shares for a sum of £1.0m at an average price of 50.6 pence
per share.
As a consequence of the buyback, the number of ordinary shares in issue fell
from 491,080,301 to 489,110,576 during the reporting period.
The NAV per Ordinary Share is based on the net assets of £300,689,000 (2022:
£372,183,000) and 489,110,576 (2022: 491,080,301) 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 contracts 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 16 to 17. 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:
31/03/2023 31/03/2022
Carrying amount
Carrying amount
£000
£000
Office 568 445
Industrial 2,496 2,080
Retail, leisure and other 874 1,980
3,938* 4,505*
* Rental debtors gross of VAT and excluding bad debt provisions.
Rent receivables which are past their due date were:
31/03/2023 31/03/2022
Carrying amount
Carrying amount
£000
£000
0-30 days 2,940 2,274
31-60 days 62 118
61-90 days 4 193
91 days plus 932 1,920
3,938* 4,505*
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 2023 total
provisions of £0.36m (2022: £0.9m) 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 consider aged debtors' analyses, the strength
of tenant covenants, macroeconomic factors and any rental deposits held when
considering this.
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 2023 Carrying Expected 6 months 6 months - 2-5 years More
amount
cash flows
or less
2 years
£000
than 5 years
£000
£000
£000
£000
£000
Financial liabilities
Interest-bearing loans and borrowings and interest* 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
As at 31 March 2022 Carrying Expected 6 months 6 months - 2-5 years More
amount
cash flows
or less
2 years
£000
than 5 years
£000
£000
£000
£000
£000
Financial liabilities
Interest-bearing loans and borrowings and interest 161,791 208,490 1,880 5,105 42,558 158,946
Leasehold liability 1,987 11,401 50 149 298 10,904
Trade and other payables 5,769 5,769 4,025 - - 1,744
Total financial liabilities 169,547 225,660 5,955 5,254 42,856 171,594
* Assumes that the £48.3 million 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 2023 the fair value of the
Group's £129.6 million loan with Canada Life was £112.8 million (2022:
£125.8 million).
The RBSI revolving credit facility is a low margin flexible source of funding
with a margin of 1.65% plus 3-month SONIA and it is considered by management
that the carrying value of the loan is equal to its fair value (sum of £48.3m
drawn as at year end).
A 1% increase or decrease in short-term interest rates would increase or
decrease the annual income and equity by £84,000 based on the cash balance as
at 31 March 2023.
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 (2022:
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 2023, the fair value of the Group's £129.6 million
loan with Canada Life was £112.8 million (2022: £125.8 million).
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:
31/03/2023 31/03/2022
£000
£000
Debt
Fixed-rate loan facility 129,585 129,585
Floating rate loan facility * 48,300 32,667
177,885 162,252
Equity
Called-up share capital 181,989 182,987
Reserves 118,700 189,196
300,689 372,183
Total debt and equity 478,574 534,435
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
2023 was £75.0m (2022: £52.5m).
19. Operating leases
The Group leases out its investment property under operating leases. At 31
March 2023 the future minimum lease receipts under non-cancellable leases are
as follows:
31/03/2023 31/03/2022
£000
£000
Less than one year 22,850 22,435
Between one and five years 66,194 51,513
More than five years 58,829 39,531
147,873 113,479
The total above comprises the total contracted rent receivable as at 31 March
2023.
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. List of subsidiary and joint venture undertakings
The companies listed below are those which were part of the Group as at 31
March 2023:
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 underlying property unit trust 100%
SREIT (Store) Limited Subsidiary Guernsey Joint ownership of 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 141.
The registered address for both Joint Venture entities is 47 Esplanade, St
Helier, Jersey, JE1 0BD, Channel Islands.
21. 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.
22. Capital commitments
As at 31 March 2023 the Group had capital commitments of £7.7 million (2022:
£12.3 million).
23. Post balance sheet events
On 6 March 2023 the Group unconditionally exchanged contracts to dispose of
Morgan Sindall House, Rugby for a gross sale price of £4.0m. Completion of
the transaction will take place on 23 June 2023.
On 1 June 2023 the Group completed on the acquisition of an interest rate
collar for a net price payable of £0.57m. This was to replace existing
interest rate caps totalling £30.5m with RBSI, which mature in July 2023, and
which come in to effect when the three-month SONIA rate exceeds 1.5%. The new
interest rate collar is also for £30.5m of the loan and has a cap of 4.25%
and a floor of 3.25% and will expire on 6 June 2027.
On 1 June 2023 the RBSI RCF was converted in to 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. Please see page 23 for further detail.
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
31/03/2023 31/03/2022
EPRA earnings £15,968,000 £15,707,000
EPRA earnings per share 3.3pps 3.2pps
EPRA Net Reinstatement Value £332,178,000 £407,317,000
EPRA Net Reinstatement Value per share 67.9p 82.9p
EPRA Net Tangible Assets £300,689,000 £372,183,000
EPRA Net Tangible Assets per share 61.5p 75.8p
EPRA Net Disposal Value £317,448,000 £375,933,000
EPRA Net Disposal Value per share 64.9p 76.6p
EPRA Net Initial Yield 5.4% 5.0%
EPRA "topped-up" Net Initial Yield 5.8% 5.1%
EPRA vacancy rate 11.1% 7.0%
EPRA cost ratios - including direct vacancy costs 28.0% 30.5%
EPRA cost ratios - excluding direct vacancy costs 21.1% 24.7%
EPRA LTV 36.0% 28.6%
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.
31/03/2023 31/03/2022
£000 £000
(Loss)/profit per IFRS income statement (54,715) 89,368
Adjustments to calculate EPRA Earnings:
Profit on disposal of investment property (1,184) (3,165)
Net valuation loss/(gain) on investment property 60,107 (66,536)
Share of valuation loss/(gain) in associates and joint ventures 11,513 (3,960)
Refinancing costs 247 -
EPRA earnings 15,968 15,707
Weighted average number of ordinary shares 489,951,224 491,085,850
IFRS earnings per share (pence) (11.2) 18.2
EPRA earnings per share (pence) 3.3 3.2
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.
31/03/2023 31/03/2022
£000 £000
IFRS equity attributable to shareholders 300,689 372,183
Adjustment in respect of real estate transfer taxes and costs 31,489 35,134
EPRA Net Reinstatement Value 332,178 407,317
Shares in issue at the end of the period 489,110,576 491,080,301
EPRA NRV per share (pence per share) 67.9p 82.9p
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.
31/03/2023 31/03/2022
£000 £000
IFRS equity attributable to shareholders 300,689 372,183
EPRA Net Tangible Assets 300,689 372,183
Shares in issue at the end of the year 489,110,576 491,080,301
IFRS NAV per share (pence) 61.5p 75.8p
EPRA Net Tangible Assets per share (pence) 61.5p 75.8p
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.
31/03/2023 31/03/2022
£000 £000
IFRS equity attributable to shareholders 300,689 372,183
Adjustments to calculate EPRA Net Disposal Value:
The fair value of fixed-interest rate debt 16,759 3,750
EPRA Net Disposal Value 317,448 375,933
Shares in issue at the end of the year 489,110,576 491,080,301
EPRA Net Disposal Value per share (pence) 64.9p 76.6p
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.
31/03/2023 31/03/2022
£000 £000
Investment property - wholly-owned 398,560 440,100
Investment property - share of joint ventures and funds 71,800 83,363
Complete property portfolio 470,360 523,463
Allowance for estimated purchasers' costs 31,489 35,134
Gross up completed property portfolio valuation 501,849 558,597
Annualised cash passing rental income 29,292 30,085
Property outgoings (2,258) (1,919)
Annualised net rents 27,034 28,166
Notional rent expiration of rent-free periods ((1)) 2,177 340
Topped-up net annualised rent 29,211 28,506
EPRA NIY 5.4% 5.0%
EPRA "topped-up" NIY 5.8% 5.1%
(1) The period over which rent free periods expire is one year for 2023
(2022: 1year).
f. EPRA cost ratios
Administrative and operating costs (including and excluding costs of direct
vacancy) divided by gross rental income.
31/03/2023 31/03/2022
£000 £000
Administrative/operating expense line per IFRS income statement 7,662 7,311
Share of Joint Venture expenses 591 1,236
Less: Ground rent costs (68) (95)
Costs (including direct vacancy costs) 8,185 8,452
Direct vacancy costs (2,026) (1,592)
Costs (excluding direct vacancy costs) 6,159 6,860
Gross rental income less ground rent costs - per IFRS 25,103 23,764
Add share of Joint Ventures (Gross Rental Income less ground rent costs) 4,106 3,976
Gross rental income 29,209 27,740
EPRA cost ratio (including direct vacancy costs) 28.0% 30.5%
EPRA cost ratio (excluding direct vacancy costs) 21.1% 24.7%
There were no directly attributable overhead and operating costs capitalised
during the year (2022: 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.
31/03/2023 31/03/2022
£000 £000
Estimated rental value of vacant space 4,192 2,356
Estimated rental value of the whole portfolio 37,843 33,800
EPRA vacancy rate 11.1% 7.0%
There were no significant or distorting factors in the above.
h. EPRA LTV
The gearing of the shareholder equity within the Company.
31/03/2023 31/03/2022
£000 £000
Borrowings from financial institutions 177,885 162,252
Cash and cash equivalents (8,419) (11,601)
Cash and cash equivalents - share of joint ventures (302) (859)
Net Debt 169,164 149,792
Investment properties at fair value - direct portfolio 398,560 440,100
Investment properties at fair value - share of joint ventures 71,800 83,363
Total Property Value 470,360 523,463
LTV 36.0% 28.6%
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) 16.1 - 16.1
Developments 9.6 - 9.6
Investment properties
-Tenant incentives 0.3 - 0.3
-Other material non - allocated types of expenditure 0.2 0.1 0.3
Total Capital Expenditure 26.2 0.1 26.3
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 98) 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 98 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 £0.9m.
Share 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 75) 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 75).
AIFMD Disclosures (unaudited)
The Alternative Investment Fund Managers Directive ('AIFMD') remuneration and
leverage disclosures for Schroder Real Estate Investment Management Limited
('SREIM') for the year to 31 December 2022
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 76 to 107 of the 2022 Annual Report &
Accounts (available on the Group's website -
https://www.schroders.com/en/investor-relations/results-and-reports/annual-report-and-accounts-2022/
(https://www.schroders.com/en/investor-relations/results-and-reports/annual-report-and-accounts-2022/)
), 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 2022 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.
The ratio of total costs to net income through the market cycle 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, legal, compliance and internal audit
matters from the heads of those areas.
The remuneration data that follows reflects amounts paid in respect of
performance during 2022.
· 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 73 AIF MRTs of SREIM in respect of
the financial year ended 31 December 2022 is £53.67 million, of which £33.91
million was paid to senior management, £16.68 million was paid to MRTs deemed
to be taking risk on behalf of SREIM or the AIF funds that it manages and
£3.08 million was paid to control function MRTs.
For additional qualitative information on remuneration policies and practices
see www.schroders.com/rem-disclosures
(http://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 2022 as
shown below (the Company calculates and externally reports its leverage one
quarter in arrears):
Maximum limit set Actual as at 31.12.2022
Gross leverage 195 158
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.
Task Force on Climate-related Financial Disclosures ('TCFD')
The Company reports sustainability information in accordance with EPRA Best
Practice Recommendations on Sustainability Reporting ('sBPR') 2017, Third
Edition for the 12 months 1 January 2022 - 31 December 2022, presented with
comparison against 2021. 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 Task Force on Climate-related Financial Disclosure ('TCFD') aims to
mainstream reporting on climate-related risks and opportunities in
organisations' annual financial filings. Launched in 2017, the TCFD
recommendations have so far been a voluntary framework. However, it became
mandatory in the UK across a range of market participants on a phased timeline
beginning in 2021.
The TCFD recommendations are structured around four themes: Governance,
Strategy, Risk Management, and Metrics and Targets. Key concepts within the
framework include:
- 'transition' risks: arising from society's transition to a low
carbon economy (changing regulation and market expectations, new technologies
etc) and;
- 'physical' risks: relating to the acute (storms, floods and
wildfires etc) and chronic (rising sea levels, increasing heat stress etc)
physical effects of a changing climate.
Additional principles within TCFD include the importance of forward-looking
assessment of climate-related risks and opportunities, and 'scenario
analysis'. Scenario analysis is a process of identifying and assessing the
potential implications of a range of plausible future states under conditions
of uncertainty. The recommendations note that scenario analysis for
climate-related issues is a relatively new concept and that practices will
evolve over time.
In 2022, the Manager continued to review its policies and practices against
TCFD criteria and developed a roadmap towards increased alignment. Building on
our established consideration of sustainability within the investment process,
Schroder's believes it will be important to further integrate the assessment
of climate-related risks and opportunities into decision-making and reporting
processes. The outcome of our review and progress towards further alignment is
set out below.
TCFD Recommendation Approach
Governance
Describe the board's oversight of climate-related risks and opportunities. The Board formally reviews the Manager's performance, including ESG-related
activity, at quarterly Board meetings. A more detailed review of the Manager's
approach to ESG is carried out at the annual strategy review which includes
but is not limited to (i) Fund level sustainability performance measured by
both the Manager and third parties such as the Global Real Estate
Sustainability Benchmark ('GRESB'); (ii) asset level analysis; (iii) a review
of the Manager's ESG policies and procedures and (iv) presentations from
sustainability specialists.
The Manager reviews a materiality assessment annually to identify and assess
material impacts, sustainability risks and opportunities arising from our
sustainability aspects alongside severity, likelihood, and ability to
influence. Impacts, risks and opportunities are also identified as originating
from normal, abnormal or emergency conditions.
Describe management's role in assessing and managing climate-related risks and Climate change is an established component of our sustainability programme.
opportunities. Responsibility for assessment and management of climate-related risk and
opportunity is delegated to key members of the Investment Management team,
supported by regular reporting to the Investment Committee. Schroders Head of
Sustainability and Impact Investing recommends the Manager's annual
Sustainability Policy and Objectives, which are reviewed and approved by the
Investment Committee. The Manager incorporates climate-related considerations
into key stages of the investment process, including acquisition proposals,
annual Asset Business Plans and annual Fund Strategy Statements. Each of these
steps of the investment process require approval by the Investment Committee.
The Manager also prepares annual report and financial accounts for the
Company, which include climate-related metrics and supports the Manager and
Board's monitoring of performance and progress towards climate-related goals
and targets.
During the financial year ended 31 March 2023, the Manager's sustainability
team was bolstered with the recruitment of an Energy and Carbon Lead,
alongside a Climate Lead who maintains oversight of the Manager's climate
resilience programme.
Engagement is a critical component of the Manager's climate resilience
programme with regular touchpoints with the Schroders Capital Sustainability
& Impact working groups ensuring alignment of frameworks and approaches
across the business and benefitting from this extensive pool of resource.
The Manager includes ESG criteria, including climate-related risks, as part of
its formal quarterly investment risk monitoring, which is overseen by
Schroders Group Investment Risk function, the results of which are presented
to the Company Board as part of the quarterly Board materials and discussed as
necessary.
Strategy
Describe the climate-related risks and opportunities the Company has Our investment philosophy and process is underpinned by fundamental research
identified over the short, medium, and long term. and an analytical approach that considers economic, demographic and structural
influences on the market. We are considering how climate change may impact on
these factors over time, as well as how government policies may enable
mitigation of and adaption to climate change.
Energy and carbon emissions performance of our assets is a critical
climate-related strategic issue. As part of net zero carbon analysis utilising
the industry standard Carbon Risk Real Estate Monitor ('CRREM') the Manager
has identified those assets which may be exposed to potential stranding risk
(including Carbon Value at Risk ('cVaR')) in the short, medium and longer
term.
The company continues to review asset ratings with respect to Energy
Performance Certificates ('EPC') and sustainability certifications (e.g.
BREEAM) in recognition of the legislative, policy and investor landscape
continuing to strengthen over time in this regard.
In the short, medium and longer term, the physical effects of changing climate
also present potential material financial impacts to the Company. Using a
third-party physical risk database the Manager has identified the highest
risks as follows: Drought, Extra-tropical cyclone, Heating degree days, Heat
stress, water pollution and water stress.
Describe the impact of climate-related risks and opportunities on the The Manager's acquisition and asset business planning processes include
Company's businesses, strategy, and financial planning. consideration of climate-related issues, and will include forward-looking
assessment of asset alignment to Paris Aligned energy and carbon performance
benchmarks, where information permits. We are also reviewing our existing
processes for screening acquisitions and standing investments for
climate-related physical risks (e.g. flooding).
As part of the Net Zero Carbon project on standing investments actions
identified in the asset business plans have been fed through, via the asset
Impact and Sustainability Action Plans, into the forward looking
decarbonisation pathways to present the impact of known interventions.
Conversely this also identifies where more action is required to achieve
decarbonisation goals.
We recognise the need and opportunity presented by climate change to improve
operational efficiency, maintenance costs and generate new income streams
(e.g. onsite energy) and which all support asset values. These actions also
support the Company with increasing investor expectations in relation to
climate action and preparing portfolio assets for new and emerging energy
efficiency regulations, increases in energy costs, carbon taxes, changing
occupier preferences and valuation considerations.
With respect to physical risk adaptations considerations will likely include
water recycling, overheating and solar gain reduction, cooling load capacity
and plant sizing, and suitable surface flooding mitigations should be reviewed
moving forward.
Describe the resilience of the Company's strategy, taking into consideration Since 2016, assets of the Company have been included in the Manager's UK
different climate-related scenarios, including a 2°C or lower scenario. energy consumption and carbon emission reduction targets for assets where
landlord operational control is retained. As part of the Manager and Company's
Net Zero Carbon commitments, during 2022, the Manager reviewed the Company's
progress against the baseline exercise conducted in 2021. Net Zero Carbon
pathways have been developed using CRREM to present the decarbonisation
requirements needed to achieve Net Zero Carbon by 2050 or sooner; aligned with
a 'Paris Proof' decarbonisation trajectory to pursue efforts to limit global
warming to 1.5°C. Further details on the Company's approach to Net Zero
Carbon are presented on page 28 above.
On physical risk, Schroders has licenced a physical risk database through a
third-party provider. Heat stress, water stress, flood hazard, heating degree
days and cooling degree days are presented as both current and future risk
scenarios allowing for interpretation of increasing or decreasing exposure of
the portfolio. These are aligned either with RCP4.5 or RCP8.5 scenarios, and
range in timeframes from 2030, 2060 and 2100. Natural hazard vulnerability
risks are present day assessments.
Engaging tenants to collaborate to reduce building energy and carbon emissions
is an increasingly important element of our sustainability and business
strategy. We have green lease provisions within our standard lease agreement
and have developed both a Schroders Sustainable Occupier Guide and Fit Out
Guides for Tenants.
The Manager continues to engage with the wider sector to determine and develop
best practice with regards to climate resilience. One such example being the
sponsorship of the ULI C-Change project. This aims to determine sector-level
definitions and best practices in accounting for transitional risk cost
implications for asset valuations, and inclusion of costs within business plan
discounted cash flows.
Risk Management
Describe the Company's processes for identifying and assessing climate-related Schroders Environmental Management System ('EMS') is certified to ISO 14001
risks. and applies to the asset management of the Company's real estate assets. Key
components of the EMS include a detailed materiality assessment of risks and
opportunities, and a register to monitor existing and emerging regulatory
requirements related to energy and carbon emissions. The EMS includes
subscription to a third-party sustainability legal review partner which
supports ongoing compliance and future resilience.
The Company's processes for climate-related (including transition and physical
risks) risk management are as defined in the 'Strategy' section above.
Describe the Company's processes for managing climate-related risks. Climate-related risks are tracked and managed through ongoing monitoring (e.g.
energy and greenhouse emissions trends), action plans (e.g. energy efficiency
improvement measures), certification programmes (e.g. Energy Performance
Certificates) and technical energy audits. Impact and Sustainability Action
Plans also promote and track initiatives relating to climate opportunities
(e.g. on site renewables and electric vehicle charging provision). Applying an
assessment of Paris Alignment using the CRREM tool as part of our Net Zero
Pathway enables consideration of 'stranding risk' which will also feed into
our asset action plans for managed standing investments.
On physical risk, the strategy is to third-party physical risk database to
screen acquisitions, assess standing investment portfolios and identify
required risk mitigation (i.e. enhanced defences, divestment), adaptation, or
transfer (i.e. revised insurance policies) strategies.
During the reporting year the Manager developed an ESG Scorecard to help
quantify the sustainability performance of its real estate assets and manage
opportunities for improvement. The Company has adopted this as part of its
sustainability audits programme detailed on page 30 above and will seek to
roll this out universally starting with mandatory adoption for all new
acquisitions.
Describe how processes for identifying, assessing, and managing The Manager includes ESG criteria, including climate-related risks, as part of
climate-related risks are integrated into the Company's overall risk its formal quarterly investment risk monitoring, which is overseen by
management. Schroders Group Investment Risk function, the results of which are presented
to the Company Board as part of the quarterly Board materials and discussed as
necessary.
Metrics and Targets
Disclose the metrics used by the Company to assess climate-related risks and In the 'EPRA Sustainability Reporting Performance Measures (unaudited)'
opportunities in line with its strategy and risk management process. section of this report we report detailed performance trend data, intensity
ratios and assessment methodologies covering energy consumption, GHG
emissions, water consumption, waste generation, Energy Performance Certificate
('EPC') profiles and other sustainability certifications (e.g. BREEAM).
The Manager's subscription to a third-party physical risk database enables the
Company to quantify its exposure to physical risks at the asset and portfolio
level including weighted averages based on Gross Asset Value.
Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) Scope 1 and Scope 2 emissions for operational energy usage for the reporting
emissions, and the related risks. year are disclosed in the 'EPRA Sustainability Reporting Performance Measures
(unaudited)'.
Scope 3 emissions are not currently presented in the 'EPRA Sustainability
Reporting Performance Measures (unaudited)'. However, where available, those
associated with tenant energy data have been included within the Manager's
operational Net Zero Carbon baseline.
Describe the targets used by the Company to manage climate-related risks and Net Zero Carbon pathways have been developed, using the Carbon Risk Real
opportunities and performance against targets. Estate Methodology ('CRREM') tool, to present the decarbonisation requirements
needed to achieve Net Zero Carbon by 2050 or sooner; aligned with a 'Paris
Proof' decarbonisation trajectory to pursue efforts to limit global warming to
1.5°C and include interim milestones at 2030. At portfolio level this equates
to a 21% reduction in GHG emissions to be achieved by 2030.
The Company adopts the Managers target as part of Schroders PLC's RE100
commitment to source 100% of landlord electricity using renewable sources by
2025. As at 31 Dec 2022 the Company can report 74% of landlord electricity as
being procured through renewable tariffs.
The Company continues to measure its exposure to physical climate risks using
a third-party data provider.
Sustainability Performance Measures (Environmental) (unaudited)
The Company reports sustainability information in accordance with EPRA Best
Practice Recommendations on Sustainability Reporting ('sBPR') 2017, Third
Edition for the 12 months 1 January 2022 - 31 December 2022, presented with
comparison against 2021. 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: managed properties where the Company is responsible for payment of
utility invoices and/or 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 2022, 45 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').
In 2021, 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 contain 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 energy and sustainability consultants, EVORA
Global. 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 2023. The full Assurance Statement is available upon
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.
Office: Corporate: Low-Rise Office 1,501,076 800,234 1,082,777 637,572 98 26 -74%
Coverage 100% 100% 100% 100% 100% 100%
Retail: High Street 26,707 16,992 14 9 -36%
- -
Coverage (landlord-procured consumption) 100% 100% - - 100% 100%
Retail: Retail Centers: Warehouse 38,531 34,960 2 2 -10%
- -
Coverage 100% 100% - - 100% 100%
Mixed use: Other 1,886,725 1,911,974 101 103 2%
- -
Coverage (landlord-procured consumption) 100% 100% - - 100% 100%
Mixed use: Office/Retail 287,802 407,973 131,601 101 96 -5%
-
Coverage (landlord-procured consumption) 100% 100% - 100% 100% 100%
Industrial: Distribution Warehouse 1,412,447 1,401,413 1,002,455 1,075,277 0.6 0.6 3%
Coverage (landlord-procured consumption) 100% 100% 100% 100% 100% 100%
Lodging, Leisure & Recreation: Other 239,163 311,299 69 75 9%
- -
Coverage (landlord-procured consumption) 100% 100% - - 100% 100%
Office: Corporate: Mid-Rise Office 277,019 268,733 496,144 448,859 192 178 -7%
Coverage (landlord-procured consumption) 100% 100% 100% 100% 100% 100%
Coverage (landlord-procured consumption) 100% 100% 100% 100%
Coverage (landlord-procured consumption) 100% 100%
Coverage (landlord-procured consumption) 100% 100%
- Consumption data relates to the managed portfolio only:
o Industrial: Distribution 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
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: shared services, tenant space, where procured by the
landlord.
o Retail high street: common parts, tenant space, where procured by the
landlord.
o Retail warehouse: 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 2021 and 2022: 0.3%.
- Renewable electricity (%) is calculated according to the attributes
of energy supply contracts as at 31 December 2022 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 - External areas energy consumption
(kWh) divided by the external area (m2)
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.
- 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.
Office: Corporate: Low-Rise Office 680,420 629,791 -7% 738,697 637,572 -14% 17 12 -33%
Coverage (landlord-procured consumption) 100% 100% 100% 100% 100% 100%
Retail: High Street 18,048 16,992 -6% - - - 9 9 -6%
Coverage (landlord-procured consumption) 100% 100% - - 100% 100%
Retail: Retail Centers: Warehouse 38,531 34,960 -9% - - - 2 2 -10%
Coverage (landlord-procured consumption) 100% 100% - - 100% 100%
Mixed use: Other 1,684,664 1,911,974 13% - - - 77 88 15%
Coverage (landlord-procured consumption) 100% 100% - - 100% 100%
Mixed use: Office/Retail 287,802 273,793 -5% - - - 101 96 -5%
Coverage (landlord-procured consumption) 100% 100% - - 100% 100%
Industrial: Distribution Warehouse 1,410,363 1,394,575 -1% 1,002,455 1,074,358 7% 0.4 0.5 3%
Coverage (landlord-procured consumption) 100% 100% 100% 100% 100% 100%
Lodging, Leisure & Recreation: Other 239,163 311,299 30% - - - 11 12 9%
Coverage (landlord-procured consumption) 100% 100% - - 100% 100%
Office: Corporate: Mid-Rise Office 277,019 268,733 -3% 496,144 448,859 -10% 192 178 -7%
Coverage (landlord-procured consumption) 100% 100% 100% 100% 100% 100%
Coverage (landlord-procured consumption) 100% 100% 100% 100%
Coverage (landlord-procured consumption) 100% 100%
- Like for like excludes assets that were purchased, sold, under
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 Industrial: Distribution 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.
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: shared services, tenant space, where procured by the
landlord.
o Retail high street: common parts, tenant space, where procured by the
landlord.
- Percentage of data estimated pro-rata across 2021 and 2022: 0.3%.
- Renewable electricity (%) is calculated according to the attributes
of energy supply contracts as at 31 December 2022 and only reflects renewable
electricity procured under a 100%''green tariff'' (i.e. where generation is
from 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 - External areas energy consumption
(kWh) divided by the external area (m2).
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.
- 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 variance for the Mixed use: Other shows an increase in
electricity. The increase here can be explained by the single asset which
comprises this sector (Manchester City Tower) having higher consumption in
2022 due to an increase in occupancy.
o The like-for-like variance for Lodging, Leisure & Recreation: Other
shows an increase in electricity. The increase here can be explained by the
single asset which comprises this sector (Luton The Galaxy) having higher
consumption in 2022 due to an increase in occupancy.
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.
Office: Corporate: Low-Rise Office
Scope 1 -14% 3.6 2.2 -38% 20.1 5.0 -75%
198 116 135 116
Scope 2 -16%
319 155 144 122
Scopes 1 & 2 -15%
517 271 280 238
Coverage (landlord-procured consumption) 100% 100% 100% 100% 100% 100% 100% 100%
Retail: High Street
Scope 1 - 2.0 1.7 -14% 3.0 1.7 -42%
- - - -
Scope 2 -14%
6 3 4 3
Scopes 1 & 2 -14%
6 3 4 3
Coverage (landlord-procured consumption) 100% 100% 100% 100% 100% 100% 100% 100%
Retail: Retail Centers: Warehouse
Scope 1 - 0.5 0.4 -18% 0.5 0.4 -18%
- - - -
Scope 2 -17%
8 7 8 7
Scopes 1 & 2 -17%
8 7 8 7
Coverage (landlord-procured consumption) 100% 100% 100% 100% 100% 100% 100% 100%
Mixed use: Other
Scope 1 - 16.3 17.1 5% 21.4 19.9 -7%
- - - -
Scope 2 3%
401 370 358 370
Scopes 1 & 2 3%
401 370 358 370
Coverage (landlord-procured consumption) 100% 100% 100% 100% 100% 100% 100% 100%
Mixed use: Office/Retail
Scope 1 - 21.5 18.7 -13% 21.5 18.7 -13%
- 24 - -
Scope 2 -13%
61 79 61 53
Scopes 1 & 2 -13%
61 103 61 53
Coverage (landlord-procured consumption) 100% 50% 100% 100% 100% 100% 100% 100%
Industrial: Distribution Warehouse
Scope 1 7% 0.1 0.1 -6% 0.1 0.1 -6%
184 196 184 196
Scope 2 -10%
300 271 299 270
Scopes 1 & 2 -4%
484 467 483 466
Coverage (landlord-procured consumption) 100% 100% 100% 100% 100% 100% 100% 100%
Lodging, Leisure & Recreation: Other
Scope 1 - 2.3 2.2 -1% 14.8 14.6 -1%
- - - -
Scope 2 19%
51 60 51 60
Scopes 1 & 2 19%
51 60 51 60
Coverage (landlord-procured consumption) 100% 100% 100% 100% 100% 100% 100% 100%
Office: Corporate: Mid-Rise Office
Scope 1 -10% 37.2 33.3 -11% 37.2 33.3 -11%
91 82 91 82
Scope 2 -12%
59 52 59 52
Scopes 1 & 2 -11%
150 134 150 134
Coverage (landlord-procured consumption) 100% 100% 100% 100% 100% 100% 100% 100%
Coverage (landlord-procured consumption) 100% 100% 100% 100%
- Like for like excludes assets that were purchased, sold, under
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.
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 (2021 and
2022).
- Emissions data relates to the managed portfolio only:
o Industrial: Distribution 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.
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: shared services.
o Retail high street: common parts.
o Retail warehouse: outdoor areas; tenant space, where procured by the
landlord.
o Emissions associated with energy procured directly by tenants is not
reported.
- Percentage of data estimated pro-rata across 2021 and 2022: 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 Centers: Warehouse-- Common areas GHG emissions divided by
common parts area (CPA m2).
o Industrial: Distribution Warehouse & Retail: Retail Centers:
Warehouse-- External areas GHG emissions divided by the External Area.
o All other sectors: Common areas, shared service and/or whole building GHG
emissions 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.
- 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 There was a significant drop in the absolute intensity for the sector
Office: Corporate: Low-Rise Office due to efficiency measures which include: a
boiler replacement at lighting upgrades at Cheltenham, The Promenade but this
reduction is mainly due to the asset 'The Arc Nottingham' being sold at the
beginning of 2022 and therefore is excluded from the 2022 analysis.
o The decrease in absolute intensity for the sector Retail: High Street can
be explained by a single electricity meter becoming inactive at the of 2021
and therefore consumption previously attributed to this meter is not factored
into the analysis for 2022.
o There was a significant 18% decrease in the like-for-like emissions for
the sector Retail: Retail Centers: Warehouse. The decrease here can be
explained by the fact that the electricity & fuel for the single asset
which comprises this sector (St John's Retail Park) was lower in 2022 partly
due to LED lighting upgrades.
o Carbon emissions factors for electricity have reduced in 2022 in the UK
which has contributed to reductions in GHG intensity.
Water (Water-Abs; Water-LfL; Water-Int)
The table below sets out water consumption from the Company's managed
portfolio by sector.
Office: Corporate: Low-Rise Office 17% 0.08 0.13 54%
7,652 5,793 3,448 4,029
Coverage (landlord-procured consumption) 100% 100% 100% 100% 100% 100%
Retail: High Street -2% 0.22 0.20 -11%
2,941 2,882 2,941 2,882
Coverage (landlord-procured consumption) 100% 100% 100% 100% 100% 100%
Retail: Retail Centers: Warehouse 2% 0.00 0.00 0%
325 331 325 331
Coverage (landlord-procured consumption) 100% 100% 100% 100% - -
Mixed use: Other 94% 0.11 0.22 94%
1,990 3,861 1,990 3,861
Coverage (landlord-procured consumption) 100% 100% 100% 100% 100% 100%
Mixed use: Office/Retail - 0.00 0.00 -
- 2,531 - -
Coverage (landlord-procured consumption) - 100% - 0% - -
Industrial: Distribution Warehouse - 0.00 0.00 0%
- - - -
Coverage (landlord-procured consumption) - - - - - -
Lodging, Leisure & Recreation: Other 15% 0.01 0.01 15%
130 149 130 149
Coverage (landlord-procured consumption) 100% 100% 100% 100% 100% 100%
Office: Corporate: Mid-Rise Office - 0.00 0.00 0%
42 114 - -
Coverage (landlord-procured consumption) 100% 100% - 0% - -
Coverage (landlord-procured consumption) 100% 100% 100% 100%
- Like for like excludes assets that were purchased, sold, under
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 Industrial: Distribution warehouse: tenant space, where procured by the
landlord.
o Lodging, leisure & recreation: common parts.
o Mixed use other: whole building; common parts.
o Office low-rise: whole building; common parts; tenant space, where
procured by the landlord.
o Office mid-rise: 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.
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 2021 and 2022:
0.3%.
- Intensity: Numerators / denominators are aligned as follows:
o Office Corporate: Low-Rise Office, Mixed use: Other, Mixed use:
Office/Retail & Lodging, Leisure & Recreation: Other-- Whole building
water consumption (m3) divided by gross internal area (GIA m2).
o Retail: High Street-- Common Areas water consumption (m3) divided by
Common Parts Area (CPA m2).
o For sectors Mixed use: Office/Retail, Industrial: Distribution Warehouse
& Office: Corporate: Mid-Rise Office there was no water data available.
o The sector Retail: Retail Centers: Warehouse sector is showing as 0
consumption due to insufficient data.
- 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.
- Variance Commentary:
o The notable increase in like for like water intensity for the Office:
Corporate: Low-Rise Office sector can largely be attributed to the asset
Northampton, Century & Peterbridge. This is due to a catch up read
received from the supplier for 2022 which was not based on estimates and
showed higher consumption than 2021. As consumption at this meter is minimal,
year on year variances can have an outsized impact.
o The notable increase in like for like water intensity for the Mixed use:
Other sector is attributed to the asset Manchester City Tower having increased
occupancy in 2022 compared to 2021.
Waste (Waste-Abs; Waste-LfL)
The table below sets out waste from the Company's managed portfolio by
disposal route and sector:
Office: Corporate: Low-Rise Office Recycled 47.90 66.5% 50.50 64.6% 47.90 66.5% 50.50 64.6% 5.4%
Incineration with energy recovery 24.12 33.5% 27.72 35.4% 24.12 33.5% 27.72 35.4% 14.9%
Unknown 0.00 0.0% 0.00 0.0% 0.00 0.0% 0.00 0.0% -
Landfill 0.00 0.0% 0.00 0.0% 0.00 0.0% 0.00 0.0% -
Retail: High Street Recycled 8.38 34.3% 14.04 40.8% 8.38 34.3% 14.04 40.8% 67.6%
Incineration with energy recovery 16.03 65.7% 20.35 59.2% 16.03 65.7% 20.35 59.2% 27.0%
Unknown 0.00 0.0% 0.00 0.0% 0.00 0.0% 0.00 0.0% -
Landfill 0.00 0.0% 0.00 0.0% 0.00 0.0% 0.00 0.0% -
Retail: Retail Centers: Warehouse Recycled 0.00 - 0.00 0.0% 0.00 - 0.00 - -
Incineration with energy recovery 0.00 - 1.82 100.0% 0.00 - 0.00 - -
Unknown 0.00 - 0.00 0.0% 0.00 - 0.00 - -
Landfill 0.00 - 0.00 0.0% 0.00 - 0.00 - -
Mixed use: Other Recycled 169.90 55.6% 168.95 55.6% 169.90 55.6% 168.95 55.6% -0.6%
Incineration with energy recovery 135.82 44.4% 135.06 44.4% 135.82 44.4% 135.06 44.4% -0.6%
Unknown 0.00 0.0% 0.00 0.0% 0.00 0.0% 0.00 0.0% -
Landfill 0.00 0.0% 0.00 0.0% 0.00 0.0% 0.00 0.0% -
Mixed use: Office/Retail Recycled 4.60 41.4% 10.40 36.0% 4.60 41.4% 2.40 22.0% -47.8%
Incineration with energy recovery 6.50 58.6% 18.50 64.0% 6.50 58.6% 8.50 78.0% 30.8%
Unknown 0.00 0.0% 0.00 0.0% 0.00 0.0% 0.00 0.0% -
Landfill 0.00 0.0% 0.00 0.0% 0.00 0.0% 0.00 0.0% -
Industrial: Distribution Warehouse Recycled 0.00 - 0.00 - 0.00 - 0.00 - -
Incineration with energy recovery 0.00 - 0.00 - 0.00 - 0.00 - -
Unknown 0.00 - 0.00 - 0.00 - 0.00 - -
Landfill 0.00 - 0.00 - 0.00 - 0.00 - -
Lodging, Leisure & Recreation: Other Recycled 128.19 52.4% 250.28 53.5% 128.19 52.4% 250.28 53.5% 95.2%
Incineration with energy recovery 116.35 47.6% 217.84 46.5% 116.35 47.6% 217.84 46.5% 87.2%
Unknown 0.00 0.0% 0.00 0.0% 0.00 0.0% 0.00 0.0% -
Landfill 0.00 0.0% 0.00 0.0% 0.00 0.0% 0.00 0.0% -
Office: Corporate: Mid-Rise Office Recycled 20.93 69.7% 12.76 61.5% 20.93 69.7% 12.76 61.5% -39.0%
Incineration with energy recovery 9.09 30.3% 7.97 38.5% 9.09 30.3% 7.97 38.5% -12.3%
Unknown 0.00 0.0% 0.00 0.0% 0.00 0.0% 0.00 0.0% -
Landfill 0.00 0.0% 0.00 0.0% 0.00 0.0% 0.00 0.0% -
Coverage (landlord-procured consumption) 100% 100% 100% 100%
- Whilst zero waste is sent direct 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
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.
- Variance Commentary:
o Due to Covid-19 closures in early 2021, occupancy levels across the Fund
were down but this generally increased across the Fund towards the latter half
of 2021 and in many cases throughout 2022. Some assets have recorded modest
decreases in waste. However, overall, there has been a 33.2% increase in like
for like waste tonnage which can mainly be attributed due to higher occupancy
levels across a number of assets.
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.
BREEAM/Refurbishment and Fit-out | Very Good 11.7%
BREEAM/ Refurbishment and Fit-out Coverage 11.7%
BREEAM In Use | Very Good 1.1%
BREEAM In Use | Good 3.7%
BREEAM In Use | Acceptable 1.5%
BREEAM In Use | Pass 0.1%
BREEAM/ In Use Coverage 6.4%
WiredScore | Platinum 15.1%
WiredScore | Silver 0.8%
WiredScore | Certified 0.8%
WiredScore Coverage 16.7%
- Green building certificate records for the Company are provided as
at 3(1s)t March 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 NLA/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 certificate 'BREEAM/Refurbishment and Fit-out' as this
relates to an asset which is already factored into the 'BREEAM In Us' portion
of the analysis.
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.
A 2%
B 15%
C 40%
D 28%
E 11%
F 0%
G 0%
Exempt 0%
No EPC 3%
- Energy Performance Certificate (EPC) records for the Company are
provided for the portfolio as at 31 March 2023 by portfolio floor area.
- Data provided includes the whole portfolio i.e. managed and
non-managed assets.
- Where appropriate (for relevant assets) asset NLA/GIA has been
adjusted to reflect the Company's share of ownership.
- EPCs are known for 97% 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 twelve months to 31 March
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 2022 Annual Report and Accounts
(https://mybrand.schroders.com/m/1b80ae7c77f220c9/original/Schroders_Annual-Report-and-Accounts_2022.pdf)
·
https://www.schroders.com/en/working-here/inclusion-and-diversity/
(https://www.schroders.com/en/working-here/inclusion-and-diversity/)
·
https://prod.schroders.com/en/sysglobalassets/annual-report/2021/documents/schroders-workforce-diversity--gpg-report-2021.pdf
(https://prod.schroders.com/en/sysglobalassets/annual-report/2021/documents/schroders-workforce-diversity--gpg-report-2021.pdf)
Employee gender diversity (Diversity-Emp)
As at 31 December 2022 the Company Board comprised four members: 2 (50%
female); 2 (50% male).
For further information on Schroders PLC employee gender diversity, covering
more employee categories, please refer to Schroders 2022 Annual Report and
Accounts (page 112):
· Schroders 2022 Annual Report and Accounts
(https://mybrand.schroders.com/m/1b80ae7c77f220c9/original/Schroders_Annual-Report-and-Accounts_2022.pdf)
Gender pay ratio (Diversity-Pay)
The remuneration of the Company Board is set out on page 44 of this Report and
Accounts document.
Schroders PLC female representation and gender pay report can be found in the
Schroders 2022 Annual Report and Accounts (page 43) and Schroders PLC Gender
Pay Gap Report:
· Schroders 2022 Annual Report and Accounts
(https://mybrand.schroders.com/m/1b80ae7c77f220c9/original/Schroders_Annual-Report-and-Accounts_2022.pdf)
·
https://prod.schroders.com/en/sysglobalassets/annual-report/2021/documents/schroders-workforce-diversity--gpg-report-2021.pdf
(https://prod.schroders.com/en/sysglobalassets/annual-report/2021/documents/schroders-workforce-diversity--gpg-report-2021.pdf)
Information on Diversity and Inclusion at Schroders can be found at:
- https://www.schroders.com/en/working-here/inclusion-and-diversity/
(https://www.schroders.com/en/working-here/inclusion-and-diversity/)
-
https://prod.schroders.com/en/sysglobalassets/annual-report/2021/documents/schroders-workforce-diversity--gpg-report-2021.pdf
(https://prod.schroders.com/en/sysglobalassets/annual-report/2021/documents/schroders-workforce-diversity--gpg-report-2021.pdf)
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 2022.
The following are reported for Schroders PLC:
For Schroders PLC turnover and retention rates please refer to Schroders
Annual Report and Accounts (page 32):
· Schroders 2022 Annual Report and Accounts
(https://mybrand.schroders.com/m/1b80ae7c77f220c9/original/Schroders_Annual-Report-and-Accounts_2022.pdf)
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 March 2023:
Asset health and safety assessments (H&S-Asset)
The table below sets out the proportion of the Company's total portfolio where
health and safety impacts were assessed or reviewed for compliance or
improvement.
Portfolio by floor area (%)
2021 2022
All sectors 81% 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
2021 2022
All Sectors 1 1
In 2022, there was an issue with a fire panel at 1 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 (%)
2021 2022
Industrial, Distribution Warehouse 7% 2%
Mixed-use, Other 2% 4%
Office, Low-Rise 9% 11%
Office, Mid-Rise 0% 2%
All other sectors 10% 8%
Total 28% 29%
Community engagement initiatives are conducted on an asset-by-asset basis in
collaboration with the relevant site team:
- All sectors have created employment opportunities for the local
community. Industrial, Distribution Warehouse, Office, Low-Rise & Office,
Mid-Rise: a number of assets within these sectors have also provided support
for local charities such as the KidsOut campaign at The Tun, Edinburgh to The
Island Charity at York Clifton Park, Shipton Rd and through support for the
local food bank at Norwich, Fifers Lane.
Sustainability Performance Measures (Governance)
Composition of the highest governance body (Gov-Board)
The Board of the Company comprised four non-executive independent directors
(no executive board members) as at 31 March 2023.
· The average tenure of the four directors to 31 March 2023 is 3
years and 9 months; and
· The number of directors with competencies relating to
environmental and social topics is two 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 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, as amended and the Authorised Closed-ended
Collective Investment Schemes Rules and Guidance, 2021.
The Board and Investment Manager, in recognition of the importance it places
on sustainability, has voluntarily 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 2023. The statement has, however, been prepared for the
calendar year, the 12 months to 31 December 2022, 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. In
2022, within the portfolio, there were 23 properties within the operational
control reporting boundary and in 2021 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 2022, 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 the 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;
and
• 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, Leisure, Mixed-Use, Offices and Retail
Warehouses. For Retail High Street, the most relevant denominator is the
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)
2021 2022 2021 2022 % Change
Gas 2,581,376 2,293,309 2,237,297 2,160,790 -3%
Electricity 5,669,470 5,153,578 4,636,009 4,842,117 4%
Total 8,250,846 7,446,887 6,873,306 7,002,906 1.9%
The table below sets out the Company's greenhouse gas emissions:
Absolute Emissions (tCO(2)e) Like-=for-Like Emissions (tCO(2)e)
2021 2022 2021 2022 % Change
Scope 1 (Direct emissions from gas consumption) 473 419 410 394 -4%
Scope 2 (Indirect emissions from electricity) 1,204 997 984 936 -5%
Total 1,677 1,415 1,394 1,331 -5%
The like-for-like energy consumption for the 2022 calendar year for the
managed assets held within the Company has slightly increased by 1.9% (due to
occupancy changes following Covid-19 related closures), the greenhouse gas
emissions have decreased by 5%. Energy performance improvement
opportunities continued to be considered across the portfolio. Initiatives
undertaken during the reporting year include boiler and hot water system
replacements/upgrades, wall and roof insulation upgrades, window
replacements/upgrades, LED lighting upgrades and installation of lighting and
ventilation occupancy sensors. Automatic Meter Readers are consistently being
rolled out to all landlord electricity supplies for improved energy
monitoring.
The table below sets out the Company's energy and greenhouse gas emissions
intensities by sector:
Energy Intensities (kWh per ft2) Emissions Intensities (tCO(2)e per ft(2))
2021 2022 2021 2022
Industrial Distribution Warehouses 0.6 0.6 0.1 0.1
Leisure 69.5 75.5 14.8 14.6
Mixed Use, Office/Retail 101.4 96.4 21.5 18.7
Mixed Use, Other 101.0 103.0 21.4 19.9
Office, Low-rise 98.3 25.9 20.1 5.0
Office, Mid-rise 192.2 178.4 37.2 33.3
Retail High Street 14.0 8.9 3.0 1.7
Retail Warehouse 2.3 2.1 0.5 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 in the Sustainability
Performance Measures section of the SREIT annual report for the year ending 31
March 2023 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 upon 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; and
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 2021 0.2123kgCO2e UK Government's GHG Conversion Factors for Company Reporting (2021)
- Electricity 2022 0.1934 kgCO2e UK Government's GHG Conversion Factors for Company Reporting (2022)
Gas 0.1825kgCO2e
Energy Efficiency Actions
Environmental data management system and quarterly reporting
Environmental data for the Company is collated by sustainability consultants
Evora Global supported by their proprietary environmental data management
system SIERA. Energy, water, waste and greenhouse gas emission data are
collected and validated for all assets where the portfolio has operational
control on a quarterly basis.
Energy target, improvement programme and net zero carbon
In 2019 the Manager signed the Better Building Partnership's ('BBP') Climate
Commitment 29 (#_ftn29) and we have 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 last year announced their '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. The Investment Manager, together
with sustainability consultants Evora Global and property managers looks to
identify and deliver energy and greenhouse gas emission 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/lighting upgrades, wall and roof insulation
upgrades, upgrades to Automatic Meter Readers for improved energy monitoring,
LED upgrades and window upgrades/replacements.
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 asset of the Company, by 2025. As at 31 December 2022 74% 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 2023,
excluding post year end activity. The property values presented represent the
year end valuations as determined by the independent valuers as at 31 March
2023:
Milton Keynes, Stacey Bushes Industrial Estate Industrial South East 50-60
Leeds, Millshaw Park Industrial Estate Industrial Yorkshire & Humberside 40-50
Cheadle, Stanley Green Trading Estate Industrial North West 30-40
St John's Retail Park, Bedford Retail Warehouse Eastern 30-40
Chippenham, Langley Park Industrial Estate Industrial South West 20-30
Leeds, Headingley Central Retail/mixed-use Yorkshire & Humberside 20-30
Norwich, Union Park Industrial Estate Industrial Eastern 20-30
Telford, Hortonwood 7 Industrial West Midlands 10-20
Uxbridge, 106 Oxford Road Office South East 10-20
Birkenhead, Valley Park Industrial Estate Industrial North West 10-20
Manchester, St. Ann's House Other North West 10-20
Salisbury, Churchill Way Retail Warehouses South West 0-10
Edinburgh, The Tun Office Scotland 0-10
Luton, The Galaxy Other Eastern 0-10
Cheltenham, The Promenade Office South West 0-10
Milton Keynes, Matalan Retail Warehouses South East 0-10
Chester, Sealand Road Retail Warehouses North West 0-10
Northampton, Century & Peterbridge Office East Midlands 0-10
Liverpool, 88-94 Church Street Retail North West 0-10
Cardiff, Haywood House Office Wales 0-10
Sheffield, Pinstone St Retail Yorkshire & Humberside 0-10
Warwick, 55/56 Heathcote Industrial Estate Industrial West Midlands 0-10
York, Clifton Park Office Yorkshire & Humberside 0-10
Haydock Industrial Estate Industrial North West 0-10
Leeds, Coverdale House Office Yorkshire & Humberside 0-10
Ilkeston, Albion Shopping Centre Retail East Midlands 0-10
Sandbach, Hall Lane Industrial North West 0-10
Warwick, Seton House Office West Midlands 0-10
Marlow, Pacific House Office South East 0-10
Swindon, 21/27 Stirling Court Industrial South West 0-10
Chelmsford, 24-25 High St Retail South East 0-10
Bedford, Howard House Office Eastern 0-10
Fareham, Delme Place, Cams Estate Office South East 0-10
Truro, 15/16 King Street Retail South West 0-10
Chelmsford, 67 & 68 High Street Retail South East 0-10
Leicester, East Gates Retail East Midlands 0-10
Sandbach, Moston Road 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$110 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 ending 31 March 2023, our work included the review of
two investment property acquisitions, two investment property disposals, one
third party borrowing 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 43 and 44 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.
Net asset value and NAV per share is shareholders' funds divided by the number of shares in issue at the 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.
Weighted average unexpired lease term ('WAULT') Weighted average unexpired lease term assuming earlier of lease break or lease
expiry.
Resolutions at 2023 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
138 to 139. 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 2023; (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 2024 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.
During the year ended 31 March 2023 the Company repurchased 1,969,725 shares.
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.
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 2024 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
7 June 2023
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 27 September 2023 at 1.30 p.m.
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 2023.
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 2023.
Resolution 4 (Ordinary Resolution) · To elect Alexandra ('Ali') Innes 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 Stephen Bligh as a Director of the Company.
Resolution 7 (Ordinary Resolution) · To re-elect Priscilla Davies 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
33 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 2024 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 ("Ordinary
Shares") 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 2024 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
7 June 2023
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 notarially certified copy of such power or authority, so as to
reach the Company's Registrars, Computershare Investor Services (Guernsey)
Limited, at 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 25 September 2023.
8. Pursuant to Article 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 25 September
2023. 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
Lorraine Baldry (resigned 26 July 2022) Henrietta House
Henrietta Place
Graham Basham (resigned 15 November 2022) London
Stephen Bligh W1G 0NB
Priscilla Davies (appointed 7 June 2022)
Alexandra Innes (appointed 16 November 2022)
Sponsor and Brokers
Investment Manager and Accounting Agent J.P. Morgan Securities plc
Schroder Real Estate Investment Management Limited 25 Bank Street
1 London Wall Place Canary Wharf
London London E14 5JP
EC2Y 5AU
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 as to Guernsey Law: The Company's privacy notice is available on its webpage
as to English Law: Mourant Ozannes (Guernsey) LLP
Stephenson Harwood LLP Royal Chambers
1 Finsbury Circus St Julian's Avenue
London EC2M 7SH St. Peter Port
Guernsey GY1 4HP
FATCA GIIN
5BM7YG.99999.SL.826
Status of announcement
2023 Financial Information
The figures and financial information for 2023 are extracted from the Annual
Report and Accounts for the year ended 31 March 2023 and do not constitute the
statutory accounts for the year. The 2023 Annual Report and Accounts include
the Report of the Independent Auditors which is unqualified.
Neither the contents of the Company's webpages nor the contents of any website
accessible from hyperlinks on the Company's webpages (or any other website) is
incorporated into, or forms part of, this announcement.
1 (#_ftnref1) Reconciles to the valuation reports from CBRE for the direct
portfolio and BNP for 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. Includes £4.0 million relating to the
unconditional exchange of contracts before the year end to dispose of the
Group's Rugby asset as per notes 12 and 23.
2 (#_ftnref2) Represents the annualised rental income as at 31 March 2023 of
the portfolio, 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 2023.
5 (#_ftnref5) This is an Alternative Performance Measure ('APM'). EPRA
calculations are included in the EPRA Performance measures section on page 98.
6 (#_ftnref6) This is an APM with further details on page 104.
7 (#_ftnref7) This is an APM with further details on page 104.
8 (#_ftnref8) On-balance sheet borrowings reflect the loan facilities with
Canada Life and RBSI without the deduction of unamortised finance costs of
£1.0m.
9 (#_ftnref9) This is an APM. Details are included in the APM section on
page 104.
10 (#_ftnref10) This is an APM and calculated in accordance with the AIC
recommended methodology. Details are included in the APM section on page 104.
11 (#_ftnref11) This is an APM and calculated in accordance with the AIC
methodology. Details are included in the APM section on page 104.
12 (#_ftnref12) Represents the annualised rental income as at 31 March 2023
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.
14 (#_ftnref14) Column does not sum due to rounding.
15 (#_ftnref15) World Green Building Council: Bringing Embodied Carbon
Upfront. https://worldgbc.org/article/bringing-embodied-carbon-upfront/
(https://worldgbc.org/article/bringing-embodied-carbon-upfront/)
16 (#_ftnref16) Intergovernmental Panel on Climate Change (IPCC): Sixth
Assessment Report. https://www.ipcc.ch/assessment-report/ar6/
(https://www.ipcc.ch/assessment-report/ar6/)
17 (#_ftnref17) '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.
18 (#_ftnref18) Better Buildings Partnership Climate Commitment available
here: https://www.betterbuildingspartnership.co.uk/member-climate-commitment
(https://www.betterbuildingspartnership.co.uk/member-climate-commitment)
19 (#_ftnref19) Winning Cities defined as higher growth locations - Source:
Oxford Economics/Schroders.
20 (#_ftnref20) Priscilla Davies was appointed as a Director on 7 June 2022,
and therefore did not attend any meetings during the year held prior to her
appointment.
21 (#_ftnref21) Alexandra Innes was appointed as a Director on 16 November
2022, and therefore, did not attend any meetings during the year held prior
to her appointment.
22 (#_ftnref22) Lorraine Baldry was Chair of the Company until she retired
as a Director on 26 July 2022.
23 (#_ftnref23) Graham Basham retired as a Director on 15 November 2022.
24 (#_ftnref24) Chair of the Audit Committee.
25 (#_ftnref25) Senior Independent Director.
26 (#_ftnref26) Chair of the Management Engagement Committee.
27 (#_ftnref27) Lorraine Baldry was Chair of the Company until she retired
as a director on 26 July 2022.
28 (#_ftnref28) Graham Basham retired as a director on 15 November 2022. He
was a director of the subsidiary companies listed in note 20 for which he
received no additional remuneration, either directly or indirectly.
29 (#_ftnref29) Better Buildings Partnership Climate Commitment available
here: https://www.betterbuildingspartnership.co.uk/member-climate-commitment
(https://www.betterbuildingspartnership.co.uk/member-climate-commitment)
30 (#_ftnref30) As per third party valuation reports unadjusted for IFRS
lease incentive amounts.
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