REG - Schroder Real Estate - NAV and Dividend for the Quarter to 30 June 2023

Schroder Real Estate Investment TrustAnnouncement

27/07/2023 07:15

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RNS Number : 3336H  Schroder Real Estate Inv Trst Ld  27 July 2023

For release 27 July
2023

 

Schroder Real Estate Investment Trust Limited

 

('SREIT' or the 'Company')

 

NAV AND DIVIDEND ANNOUNCEMENT FOR THE QUARTER TO 30 JUNE 2023

 

Schroder Real Estate Investment Trust Limited ('SREIT' or the 'Company'), the
actively managed UK-focused REIT, announces its net asset value ('NAV') and
dividend for the quarter to 30 June 2023 and provides an update on portfolio
activity.

 

Key points

 

·       NAV increased to £301.1 million or 61.6 pence per share
('pps') (31 March 2023: £300.7 million or 61.5 pps), which, together with
dividends paid, resulted in a NAV total return for the quarter of 1.5%

·       Dividend paid during the quarter of 0.836 pps, 103% covered by
EPRA earnings, representing an annualised yield of 7.6% on the 26 July closing
share price of 43.8 pps

·       Net loan to value of 35.7%, with an average interest cost of
3.4%, an average loan duration of 10.5 years and no debt maturities until 2027

·       Strong leasing activity since 1 April 2023 with 25 new
lettings, renewals and rent reviews completed across 131,599 sq ft totalling
£1.5 million per annum, reflecting an uplift of 4% compared to the estimated
rental value ('ERV') at the beginning of the quarter

·       Good progress with ongoing letting activity which could
generate a further £1 million per annum of rent

·       Disposed of an office asset, Morgan Sindall House, in Rugby,
for £4.0 million, in line with the independent valuation as at 31 March 2023

·       Sustained outperformance vs. MSCI UK Balanced Portfolios
Quarterly Property Index (the 'Benchmark') over three months, 12 months, three
years and since inception in 2004 (based on latest available Benchmark data to
31 March 2023)

 

 

Alastair Hughes, Chair of the Board, commented: "Despite continuing real
estate market uncertainty due to elevated interest rates, the Company remains
well placed with an above average rental income profile and the longest
duration, fixed-rate debt in the peer group. These factors enable us to
continue paying an attractive dividend with good visibility on future
earnings."

 

Nick Montgomery, Fund Manager, commented: "Notwithstanding market volatility,
leasing activity remains encouraging across all sectors, with a high volume of
deals done and under offer above the prevailing valuation rental value
assumptions. We are working up a number of new asset management initiatives to
further grow earnings, with a focus on delivering development and
refurbishment projects to a high sustainability specification."

 

NAV

On a like-for-like basis the underlying portfolio value declined by -0.1% over
the quarter, which compared to -0.4% for the MSCI UK Monthly Property Index (a
proxy for the Company's formal Benchmark that will be released shortly).

 

This resulted in an unaudited NAV as at 30 June 2023 of £301.1 million, or
61.6 pps, an increase of 0.2% compared with the NAV as at 31 March 2023
(£300.7 million, or 61.5 pps).

 

Including the quarterly dividend of 0.836 pps paid in June 2023, the NAV total
return for the quarter was 1.5%. A breakdown is set out below:

 

                                                                                £m     pps    Comments
 NAV as at 31 March 2023(1)                                                     300.7  61.5   Calculation based on 489,110,576 shares
 Unrealised net increase in the valuations of the direct real estate portfolio  2.6    0.5    Portfolio like-for-like valuation movement, net of capital expenditure, of
 and Joint Ventures                                                                           -0.1% over the quarter to 30 June 2023
 Capital expenditure (direct portfolio and share of Joint Ventures)             (3.3)  (0.7)  Principally relating to the operational net zero carbon warehouse development
                                                                                              at Stanley Green Trading Estate, Manchester and a similar, smaller,
                                                                                              development at Stacey Bushes Industrial Estate, Milton Keynes
 EPRA earnings                                                                  4.2    0.9    -
 Dividend paid                                                                  (4.1)  (0.8)  Dividend for the quarter ended 31 March 2023 paid in June 2023 of 0.836 pps
 Gain related to interest rate hedging instruments                              0.8    0.2    A realised gain of £189,119 on the disposal of the interest rate cap that was
                                                                                              due to expire on 3 July 2023, and an unrealised fair value gain of £567,888
                                                                                              on the collar acquired and effective from 1 June 2023
 Other                                                                          0.2    0.0    All other items including lease incentives and rounding
 Unaudited NAV as at 30 June 2023                                               301.1  61.6   Calculation based on 489,110,576 shares

 

(1)Morgan Sindall House, Rugby, unconditionally exchanged on 6 March 2023 for
a sale price of £4.0m and was thereby treated as sold in the quarter ended 31
March 2023. Completion was 22 June 2023.

 

 

Dividend payment

The Company announces an interim dividend of 0.836 pps for the period 1 April
2023 to 30 June 2023, reflecting an 8% increase versus the 0.772 pps paid
immediately prior to the Covid-19 pandemic in December 2019. Future dividends
will be reviewed by the Board targeting a sustainable and progressive dividend
policy.

 

The dividend payment will be made on 25 August 2023 to shareholders on the
register at the record date of 4 August 2023. The ex-dividend date will be 3
August 2023.

 

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

 

Property portfolio

As at 30 June 2023, the underlying portfolio comprised 40 properties valued at
£469.0 million. It produced an annual rent of £28.5 million reflecting a net
initial yield of 5.7%. The portfolio's ERV is £37.6 million per annum,
reflecting a reversionary yield of 8.0%.

 

The void rate was 11.5% calculated as a percentage of ERV, and since the
quarter end 1.1% of this is now under offer, and 1.7% undergoing
refurbishment. The weighted average unexpired lease term, assuming all tenants
vacate at the earliest opportunity, is 5.2 years.

 

The tables below summarise the portfolio information as at 30 June 2023:

 

 Sector                         Weighting (%)
                                SREIT    Benchmark*
 Industrial                     48.2     31.2
 Offices                        26.4     25.2
 Retail warehouse               11.9     9.8
 Retail                         7.5      9.7

 Retail ancillary to main use   4.7

 Retail single use              2.8
 Other                          6.0      18.1
 Shopping centres               -        2.1
 Unattributable                 -        3.8

 

 Region                               Weighting (%)
                                      SREIT    Benchmark*
 Central London                       8.0      17.1
 South East excluding Central London  17.4     34.5
 Rest of South                        10.5     16.2
 Midlands and Wales                   21.2     13.2
 North                                40.8     14.4
 Scotland                             2.1      4.4
 Northern Ireland                     -        0.2

 

* Benchmark data as at 31 March 2023, the latest available, and may not sum
due to rounding.

 

Portfolio activity

Transaction

Morgan Sindall House, a 34,334 sq ft single let office asset in Rugby, was
sold on 22 June 2023 for £4.0 million, equal to the 31 March 2023 independent
valuation.  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.

 

Further disposals of lower value, non-core properties are under consideration
and being progressed.

 

Asset management

There has been strong leasing activity since the year end to 31 March 2023,
with 25 new lettings, renewals and rent reviews completed across 131,599 sq ft
totalling £1.5 million per annum, reflecting an uplift of 4% compared to the
ERV at the beginning of the quarter.

 

£370,397 of the total annualised new rent relates to five lettings at the
recently completed operationally net zero carbon warehouse development at
Stanley Green Trading Estate ('SGTE') in Cheadle, Greater Manchester. There is
good interest in the remaining units at SGTE, with the potential to generate
an additional £1.0 million of annualised rent. The objective is to fully let
the scheme this calendar year.

 

Balance sheet and debt

The average interest rate for total debt drawn as at 30 June 2023 was 3.4%,
with an average maturity of 10.5 years, and 91% fixed or hedged against
movements in interest rates.

 

The debt refinancing completed 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, or 74% of the £175.6 million total
borrowings at the quarter end, had an average maturity of 12.8 years with a
fixed average interest rate of 2.5%. At the quarter end, the incremental
positive fair value benefit of this fixed-rate loan was £20.2 million, which
is not reflected in the Company's NAV.

 

The balance of borrowings at the quarter end, totalling £46.0 million,
comprised a revolving credit facility ('RCF') from RBSI. The total facility is
£75.0 million and matures on 6 June 2027. Drawn amounts are subject to an
interest rate of SONIA plus a 1.65% margin.

 

£30.5 million of the RCF benefitted from an interest rate cap at 1.5%, which
was due to expire in July 2023. On 1 June 2023, this cap was replaced with a
hedging instrument termed an interest rate 'collar' which also has a nominal
value of £30.5 million. The collar, which runs to the end of the RCF term on
6 June 2027, protects the Company from rate increases above 4.25% and allows
the Company to benefit from future falls in interest rates down to a 3.25%
floor. This results in a maximum interest rate for the capped element of the
RCF, including the margin of 1.65%, of 5.90%.

 

The gross cost including fees of the new collar was £766,229 and as at 30
June 2023 the fair value was £1,334,117, therefore an unrealised gain of
£567,888 was recognised during the quarter. The previous interest rate cap
was sold for £189,119 and this amount was recognised as a realised gain on
disposal during the quarter. As a result the gain from interest rate hedging
instruments during the quarter was £0.8 million.

 

During the quarter the RCF was 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.

 

As at 30 June 2023, the Company had cash of £8.0 million, including its share
of joint venture cash balances, and a loan to value ratio, net of cash, of
35.7%. The Company has significant headroom against all loan covenants.

 

Sustainability

As announced in our annual results, the Company is evolving its strategy to
focus on sustainability and Environmental, Social and Governance ('ESG')
considerations more generally, throughout the real estate life cycle. This
leverages the strengths of Schroders and should 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.

 

-ENDS-

 

For further information:

 Schroder Real Estate Investment Management Limited:

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

 Dido Laurimore / Richard Gotla / Ollie Parsons                     020 3727 1000

 

About Schroder Real Estate Investment Trust Limited

 

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

 

The investment policy of the Company is to own a diversified portfolio of UK
real estate underpinned by good fundamental characteristics. The Group invests
principally in the industrial, office and retail warehouse sectors and will
also consider other sectors including mixed-use, residential, hotels,
healthcare and leisure.

 

The Company leverages Schroders' specialist capabilities across strategies,
with a strong team of 134 in the UK as at 30 June 2023. SREIT employs a
hospitality-driven approach to improve the operational performance of its
assets, underpinned by a fully integrated ESG strategy, in order to deliver
superior shareholder returns.

 

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