NAV and Dividend

4 November 2015

Schroder Real Estate Investment Trust Limited
(the 'Company' / 'Group')


The Schroder Real Estate Investment Trust Limited today announced its unaudited net asset value and dividend for the three months to 30 September 2015.

Net Asset Value

The Company delivered an unaudited net asset value ('NAV') of £315.8 million or 60.9 pence per share ('pps') as at 30 September 2015.  This reflects an increase of 3% per share compared with the NAV as at 30 June 2015, or a NAV total return, including the dividend of 0.62 pps, of 4.1%.  A breakdown of the NAV movement over the quarter is set out below:

£m pps Comments
NAV as at 30 June 2015 306.5 59.1
Unrealised change in valuation of direct property portfolio 7.6 1.5 Quarterly uplift of 2.4% before capital expenditure and acquisition costs.  Note that this 2.4% includes the underlying valuation movement City Tower in Manchester and Store Street in London, shown in joint ventures below
Acquisition costs (1.4) (0.2) Acquisition costs relating to purchase of Millshaw Industrial Estate in Leeds
Capital expenditure (0.6) (0.1) Principally relating to the refurbishment works at Church Street in Liverpool
Unrealised gain on joint ventures* 2.8 0.4 Included in the quarterly uplift of 2.4% above.
Realised gain on sold properties 0.4 0.1 Unconditional sale of New Malden
Net revenue 3.7 0.7 Reflects quarterly dividend cover of 116%
Dividends paid (3.2) (0.6) Reflects an annualised dividend of £12.8 million or 2.48 pps
NAV as at 30 September 2015 315.8 60.9

*City Tower in Manchester and University of Law in London

Dividend payment

The Company announces an interim dividend of 0.62 pps for the period 1 July 2015 to 30 September 2015.  The dividend payment will be made on 30 November 2015 to shareholders on the register as at 13 November 2015.  The ex-dividend date will be 12 November 2015.

The dividend of 0.62 pps will be designated 0.35 pps as an interim property income distribution (‘PID’) and 0.27 pps as an interim ordinary dividend.

Quarterly dividend cover of 116% increased due to the investment of placing proceeds and including some one-off revenue gains such as dilapidations receipts.

Market overview

The latest Investment Property Databank (‘IPD’) Monthly Index confirmed an average total return for the three months to 30 September 2015 of 3.4%, comprising an income return of 1.3% and capital growth of 2.1%.  The retail sector produced the weakest total return of 2.2% with the industrial and office sectors producing total returns of 4.6% and 4.3% respectively. 

Performance versus IPD Index

The latest available performance data for the quarter to 30 June 2015 showed that the Company’s portfolio produced a total return of 3.7%, outperforming the IPD peer group Quarterly Version of Balanced Monthly Index Funds (the ‘IPD Index’) on a like-for-like basis, which delivered a return of 3.4%.  This resulted in a total return for the 12 months to 30 June 2015 of 19.4% compared with the IPD Index of 15.7%.

Property portfolio

As at 30 September 2015, the underlying portfolio comprised 54 properties independently valued at £453.7 million.  This includes the share of the joint venture properties, City Tower in Manchester and University of Law Campus in London.  At the same date, the portfolio produced a rent of £28.5 million per annum which, based on the independent valuation, reflected a net initial yield of 5.9%.  The portfolio’s rental value is £34.2 million per annum, resulting in a reversionary yield of 7.1%.  The portfolio benefits from additional fixed rental uplifts of £2.1 million per annum due by September 2017.

As a result of positive letting activity over the quarter the portfolio void rate fell from 9.2% as at 30 June 2015 to 8.1% as at 30 September 2015, calculated as a percentage of the portfolio rental value.  The void rate should fall by a further 1.2% on completion of the Premier Inn letting at Arndale House in Leeds, outlined in more detail below.  The average unexpired lease term, assuming all tenants vacate at the earliest opportunity, is 6.8 years.  The tables below summarise the key portfolio information as at 30 June 2015:

Sector weightings Weighting %
Retail 34.3 38.1
Offices 39.5 33.4
Industrial 21.7 19.9
Other 4.5 8.6

* Latest available IPD Index data as at 30 June 2015

Regional weightings Weighting %
Central London 7.9 16.2
South East excluding Central London 28.9 37.2
Rest of South 9.6 14.0
Midlands and Wales 26.4 13.7
North and Scotland 27.2 18.9

* Latest available IPD Index data as at 30 June 2015

Top ten properties Value (£m) (%)
1 Manchester, City Tower* 41.2 9.1
2 London, University of Law* 35.6 7.9
3 Bedford, St. John’s Retail Park 35.0 7.7
4 Brighton, Victory House 30.7 6.8
5 Leeds, Millshaw Industrial Estate 23.0 5.1
6 Leeds, The Arndale Centre 20.0 4.4
7 Uxbridge, 106 Oxford Road 18.7 4.1
8 Milton Keynes, Stacey Bushes Industrial Estate 17.4 3.8
9 Salisbury, Churchill Way West 15.9 3.5
10 Norwich, Union Park Industrial Estate 13.2 2.9
Total as at 30 September 2015 250.7 55.3

* Group share of joint venture properties

Top ten tenants Rent p.a. (£’000) % of portfolio
1 University of Law Limited* 1,583 5.6
2 Wickes Building Supplies Limited 1,092 3.8
3 Norwich Union Life and Pensions Ltd 1,039 3.6
4 The Buckinghamshire New University 1,018 3.6
5 BUPA Insurance Services Limited 961 3.4
6 Secretary of State 916 3.2
7 Mott MacDonald Ltd 790 2.8
8 Recticel SA 731 2.6
9 Matalan Retail Limited 676 2.4
10 Sports Retail Limited 657 2.3
Total as at 30 September 2015 9,463 33.3

* Group share of joint venture properties


Leeds, Millshaw Industrial Estate

On 17 July 2015 Millshaw Industrial Estate in Leeds was acquired for £22.7 million, reflecting an average capital value of £49 per sq ft and a net initial yield of 7.25%. Millshaw Industrial Estate comprises a freehold, 463,400 sq ft multi-let industrial estate constructed in the 1990's on a 28.3 acre site with 27 units ranging in size from 2,683 sq ft to 56,440 sq ft.  On acquisition the property was let to 20 tenants producing a rental income of £1.73 million per annum, reflecting a low average rent of £3.77 per sq ft.  The estate is strategically located within three miles of junction 27 of the M62 motorway and has frontage to Leeds’ inner ring road.  Millshaw Industrial Estate is also close to alternative uses properties such as the White Rose Office Park, the White Rose Shopping Centre, car showrooms and residential. 

The Company’s business plan for the property is to take advantage of restricted supply of new industrial and warehouse development in Leeds and re-position the estate by refurbishing units as leases expire in order to achieve higher rents.  The rental value of the estate at acquisition was assumed to be £2.2 million per annum or £4.80 per sq ft, resulting in a reversionary yield of 8.4%.  Early progress is being made on the business plan with good interest in the vacant units that represent approximately 4% of the rental value.

The acquisition was funded via a four year, £20.5 million, revolving credit facility (‘RCF’) from Royal Bank of Scotland, set out in more detail below.

Asset management

Leeds, Arndale Centre

The Arndale Centre in Leeds, a multi-let retail and office centre, was acquired in January 2014 for £16.2 million reflecting a net initial income yield of 9.2%.  The business plan for the property was to generate income growth from asset management and explore the change of use of Arndale House, a substantially vacant office building comprising 32,000 sq ft.

During the period an Agreement for Lease has been exchanged with Premier Inn Hotels Limited (‘Premier Inn’) for a letting of a new 96 bedroom hotel. The agreement is conditional on securing planning consent and converting Arndale House to hotel use, at a cost of approximately £6.7 million.  Subject to these conditions being satisfied, Premier Inn will enter into a new 30 year lease, with a tenant only break option after 20 years, at a rent of £412,800 per annum.  The lease will benefit from five yearly upwards only rent reviews linked to the Consumer Price Index ('CPI'), subject to a cap of 4% per annum compound.  The lease will be guaranteed by Premier Inn's parent company, Whitbread Group PLC.  A planning application has been made and the target date for completion of the lease is December 2016.  The transaction is expected to generate a yield on cost of approximately 6.5%.

In parallel with the pre-letting to Premier Inn, good progress has been made with the strategy to increase the existing retail rents from an average rent of £45 per sq ft.  Recent retail lettings at rentals have achieved rents at over £65 per sq ft.  The evidence created by these lettings has increased the rental value from £1.65 million upon acquisition to £1.90 million as at 30 September 2015 and creates further scope to increase income and value. 


As noted above, on 15 May 2015 a four year, £20.5 million, revolving credit facility (‘RCF’) was agreed with Royal Bank of Scotland (‘RBS’) to fund the acquisition of Millshaw Industrial Estate.  The RCF is an efficient and flexible source of funding due to the low margin of 1.6% and the ability to be repaid and redrawn as often as required.  £10.25 million of the RCF has been hedged with an interest rate cap of 1.5% at a cost of £209,500. 

Drawing down the RCF results in total debt of £150.1 million, an average total cost of 4.4% and a weighted duration of 10.5 years.  Details of the loans and compliance with the principal covenants as at 30 September 2015 are set out below:

Lender Loan (£m) Maturity Interest rate (%) Security / Loan to Value (‘LTV’) ratio (%) LTV ratio covenant (%)* Interest cover ratio (%)** ICR ratio covenant (%)** Forward looking ICR ratio (%)*** Forward looking ICR ratio covenant (%)***
Canada Life 25.9 16/04/2023 4.77 339.2 / 38.2 65 320 185 309 185
103.7 16/04/2028
RBS 20.5 15/05/2019 2.18 37.7 / 54.5 65 393 185 521 250

*              Loan balance divided by property value as at 30 September 2015

**             For the quarter preceding the Interest Payment Date (‘IPD’), ((rental income received – void rates, void service charge and void insurance) / interest paid)

***            For the quarter following the IPD, ((rental income received – void rates, void service charge and void insurance) / interest paid)

****          Fixed total interest rate for the loan term

*****         Total interest rate as at 30 September 2015 comprising 3 months LIBOR of 0.58% and the margin of 1.6%

In addition to the property portfolio secured against the Canada Life facility, the Company has unsecured properties with a value of £76.8 million and cash as at 30 September 2015 of approximately £12 million.   This results in a loan to value ratio, net of cash, of approximately 30%.   


For further information:

Schroder Real Estate Investment Management Limited:
Duncan Owen / Nick Montgomery
020 7658 6000
Northern Trust:
David Sauvarin
01481 745529
FTI Consulting:
Dido Laurimore / Ellie Sweeney
020 3727 1000
UK 100

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