NAV and Dividend for the quarter to 30 Dec 2022

RNS Number : 8013O
Schroder Real Estate Inv Trst Ld
03 February 2023

Schroder Real Estate Investment Trust Limited


('SREIT' or the 'Company')




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 31 December 2022 and provides an update on portfolio activity.


Key points

· NAV decreased to £303.3 million or 62.0 pence per share ('pps') (30 September 2022: £366.0 million or 74.8 pps), which, together with dividends paid, resulted in a NAV total return of -16.1%

· Dividends paid during the quarter of 0.803 pps, 105% covered by recurring earnings

· Execution of asset management initiatives underpinning a further 2% increase in the dividend to 0.819 pps for the quarter to 31 December 2022, payable on 31 March 2023

· On an annualised basis, the new level of dividend represents a yield of 6.9% on the 2 February closing share price of 47.65p

· Net loan to value of 35.4%, with an average interest cost of 2.8%, an average loan duration of 11.0 years and no debt maturities until 2027

· Like-for-like portfolio valuation movement of -11.8% over the quarter caused by upward yield movement across all sectors (MSCI UK Monthly Property Index capital growth -15.6%)

· Portfolio net initial yield of 5.8% and reversionary yield of 7.6% as at 31 December 2022

· Disposed of an office asset, Beech House, in Fleet for £2.1 million, a 17% premium to the independent valuation as at 30 September 2022

· Continued leasing momentum since 1 October 2022 with 22 new lettings, renewals and rent reviews completed across 222,989 sq ft totalling £2.6 million per annum, reflecting an uplift of £0.6 million compared to the previous rent

· Continued 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 30 September 2022)


Alastair Hughes, Chairman of SREIT, commented: "The correction in real estate valuations through the quarter was in line with our guidance in the interim report. The relative outperformance of the portfolio through this period, and a further increase in the fully covered dividend, is testament to the progress made with asset management across the portfolio and the Company's long term, fixed rate debt."


Nick Montgomery, Fund Manager of SREIT, commented: "Sustainability led, value add investments into the existing portfolio have partly offset the negative impact on valuations caused by rising yields. We have a robust and diverse tenant base that we expect to be resilient through a recessionary period and the strength of the underlying portfolio should enable us to continue delivering an attractive and growing income return."



On a like-for-like basis the underlying portfolio declined by -11.8% over the quarter, which compared with the MSCI UK Monthly Property Index (a proxy for the Company's formal Benchmark that will be released shortly) over the same period of -15.6%.


This resulted in an unaudited NAV as at 31 December 2022 of £303.3 million, or 62.0 pps, a decrease of -17.1% compared with the NAV as at 30 September 2022.


Including the quarterly dividend of 0.803 pps paid in December 2022, the NAV total return for the quarter was -16.1%. A breakdown is set out below:






Unaudited NAV as at 30 September 2022



Calculation based on 489,110,576 shares

Unrealised net decrease in the valuations of the direct real estate portfolio and Joint Ventures



Portfolio like-for-like valuation movement, net of capital expenditure, of -11.8% over the quarter to 31 December 2022

Capital expenditure (direct portfolio and share of Joint Ventures)



Principally relating to the operational net zero carbon warehouse development at Cheadle, Manchester

Realised gain on disposal



Beech House, an office in Fleet, sold for a headline price of £2.1 million, compared with a value of £1.8 million at the start of the quarter, £100,000 disposal costs incurred

EPRA earnings



Dividend paid



Dividend for the quarter ended 30 September 2022 paid in December 2022 of 0.803 pps




All other items including lease incentives and rounding

Unaudited NAV as at 31 December 2022



Calculation based on 489,110,576 shares


Dividend payment

The Company announces an interim dividend of 0.819 pps for the period 1 October 2022 to 31 December 2022, reflecting a 2% increase on the prior quarter dividend and a 6% 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 7 March 2023 to shareholders on the register at the record date of 17 February 2023. The ex-dividend date will be 16 February 2023.


The dividend of 0.819 pps will be wholly designated as an interim property income distribution ('PID').


Property portfolio

As at 31 December 2022, the underlying portfolio comprised 41 properties valued at £470.3 million. It produced a rent of £29.1 million per annum reflecting a net initial yield of 5.8%. The portfolio's estimated rental value is £35.6 million per annum, reflecting a reversionary yield of 7.6%. The void rate was 8.6% calculated as a percentage of estimated rental value and since the quarter end 0.6% of this is now let, 1.9% is under offer and 1.2% is undergoing refurbishment.


The weighted average unexpired lease term, assuming all tenants vacate at the earliest opportunity, is 5.1 years. The tables below summarise the portfolio information as at 31 December 2022, including the underlying quarterly like-for-like net capital value movement by sector:



Weighting (%)

Like-for-like capital growth












Retail warehouse





Retail ancillary to main use

Retail single use
















Weighting (%)



Central London



South East excluding Central London



Rest of South



Midlands and Wales









Northern Ireland




* Benchmark data as at 30 September 2022, the latest available. ** SREIT data is provisional from MSCI.


Portfolio activity


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


Asset management

There has been further positive leasing activity across the portfolio. 22 new lettings, renewals and rent reviews completed since 1 October 2022 totalling 222,989 sq ft, generating £2.6 million in annualised rent including £0.6 million per annum of additional rent above the previous amounts received.


Industrial portfolio:

· Completed two lettings totalling 11,908 sq ft and generating £86,980 of annual rent.


· Completed four regears and three rent reviews across 114,117 sq ft, representing £546,887 in total rent, which is a 33% uplift above the previous passing rent.


· Signed a letter of intent with a contractor for the speculative development of a single 18,203 sq ft industrial unit at 19 Hollin Lane, which is part of Stacey Bushes Industrial Estate in Milton Keynes. This will replace an older 4,931 sq ft unit with a low site cover, and target a rent of £237,000, or £13.00 per sq ft. This compares to the average rent across the estate of £9.00 per sq ft. The budget for construction costs and professional fees is £2.8 million, and the unit will be delivered to an institutional specification including BREEAM Excellent certification, an EPC rating of 'A+' and an operationally net zero carbon standard. The target yield on cost, including the current site value of £475,000, is approximately 7.0%.


Office portfolio:

· Following completion of the refurbishment at Delme Place, Fareham, three new lettings for a total annual rent of £248,840 covering 8,358 sq ft have completed. This reduces the void from 56% as a percentage of estimated rental value as at 30 September 2022 to 19%, of which 14% is now under offer.


· At City Tower, Manchester, a new seven-year lease without breaks has been exchanged with the University of Law for 9,123 sq ft, at a rent of £191,583 per annum (of which the Company receives 25% in line with its ownership percentage of the asset). The University of Law has committed to spend more than £800,000 to refurbish the space. The tenant will receive a total incentive package equating to 16 months of rent free.


Retail warehouse portfolio:

· 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 will construct the 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 target yield on cost assuming the maximum construction cost, including the current site value of £1.3 million, is 7.4%.


· Indications are that the Company should receive planning consent for a second drive thru at Watling Street in Bletchley, Milton Keynes. As previously reported, a 15-year pre-let has completed with Starbucks who, subject to the Company securing a satisfactory planning consent, will construct the new unit on the site and will receive a contribution towards construction costs capped at £850,000 and a 12-month rent free period. The rent will be £100,000 per annum, increasing by 10% of any construction cost in excess of £800,000, capped at an additional £5,000 of rent per annum. The target yield on cost assuming the maximum construction cost, including the current site value of £511,000, is 7.7%.


Retail portfolio:

· At Headingley Central in Leeds, good progress is being made with the strategy to combine retail units to attract better quality leisure tenants. Two new lettings and a lease renewal have completed covering 8,570 sq ft and totalling £170,000 of annual rent which is 4% above the 30 September 2022 estimated rental value.


· Also at Headingley Central, from 20 December the rent paid by Premier Inn Hotels Ltd increased by 15% to £485,037 per annum. This is the result of a five yearly rent review linked to CPI.


Balance sheet and debt

The Company has two loan facilities, a £129.6 million term loan with Canada Life and a £75.0 million revolving credit facility ('RCF') with Royal Bank of Scotland International ('RBSI'). As at 31 December 2022, £46.3 million of the RCF was drawn.


50% of the Canada Life facility matures in October 2032 with the balance in October 2039, at an average fixed interest rate of 2.5%.


The RBSI facility matures on 6 June 2027 and £30.5 million of the £46.3 million drawn has an interest rate cap that results in a maximum interest rate, including the margin of 1.65%, of 3.15%. The cap expires in July 2023.


This results in an average maturity of drawn debt of 11.0 years, with a low average total drawn debt cost of 2.8%.


As at 31 December 2022, the Company had cash of £9.3 million, including its share of joint venture cash balances, and a loan to value ratio, net of cash, of 35.4%.



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.


Change in valuer

As noted in the interim results, and following a tender process, the Company has appointed CBRE Limited ('CBRE') as independent valuer. CBRE will undertake the valuation as at 31 March 2023 and the Company will benefit from a fee saving. The Board would like to thank Knight Frank LLP for their service over a long period of time. The appointment follows a recent report prepared for the Standards and Regulation Board of the Royal Institution of Chartered Surveyors ('RICS') which is expected to lead to mandatory rotation of valuers after a period of between five to eight years.




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 123 in the UK. 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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