Schroder Real Estate Inv Trst Ld NAV and Dividend for the Quarter to 30 June 2023 (3336H)

TIDMSREI

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 DIVID 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 GBP301.1 million or 61.6 pence per share ('pps') (31 March 2023: GBP300.7 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 GBP1.5 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 GBP1 million per annum of rent

-- Disposed of an office asset, Morgan Sindall House, in Rugby, for GBP4.0 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 GBP301.1 million, or 61.6 pps, an increase of 0.2% compared with the NAV as at 31 March 2023 (GBP300.7 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:

 
                                  GBPm     pps    Comments 
===============================  ======  ======  ================================= 
                                                  Calculation based on 489,110,576 
 NAV as at 31 March 2023(1)       300.7   61.5     shares 
===============================  ======  ======  ================================= 
                                                  Portfolio like-for-like 
 Unrealised net increase                           valuation movement, net 
  in the valuations of                             of capital expenditure, 
  the direct real estate                           of -0.1% over the quarter 
  portfolio and Joint Ventures     2.6     0.5     to 30 June 2023 
                                                  Principally relating to 
                                                   the operational net zero 
                                                   carbon warehouse development 
                                                   at Stanley Green Trading 
                                                   Estate, Manchester and a 
 Capital expenditure (direct                       similar, smaller, development 
  portfolio and share of                           at Stacey Bushes Industrial 
  Joint Ventures)                 (3.3)   (0.7)    Estate, Milton Keynes 
===============================  ======  ======  ================================= 
 EPRA earnings                     4.2     0.9    - 
                                                  Dividend for the quarter 
                                                   ended 31 March 2023 paid 
 Dividend paid                    (4.1)   (0.8)    in June 2023 of 0.836 pps 
===============================  ======  ======  ================================= 
                                                  A realised gain of GBP189,119 
                                                   on the disposal of the interest 
                                                   rate cap that was due to 
                                                   expire on 3 July 2023, and 
                                                   an unrealised fair value 
                                                   gain of GBP567,888 on the 
 Gain related to interest                          collar acquired and effective 
  rate hedging instruments         0.8     0.2     from 1 June 2023 
                                                  All other items including 
 Other                             0.2     0.0     lease incentives and rounding 
===============================  ======  ======  ================================= 
 Unaudited NAV as at                              Calculation based on 489,110,576 
  30 June 2023                    301.1   61.6     shares 
===============================  ======  ======  ================================= 
 

(1) Morgan Sindall House, Rugby, unconditionally exchanged on 6 March 2023 for a sale price of GBP4.0m 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 GBP469.0 million. It produced an annual rent of GBP28.5 million reflecting a net initial yield of 5.7%. The portfolio's ERV is GBP37.6 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 GBP4.0 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 GBP1.5 million per annum, reflecting an uplift of 4% compared to the ERV at the beginning of the quarter.

GBP370,397 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 GBP1.0 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 GBP129.6 million, or 74% of the GBP175.6 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 GBP20.2 million, which is not reflected in the Company's NAV.

The balance of borrowings at the quarter end, totalling GBP46.0 million, comprised a revolving credit facility ('RCF') from RBSI. The total facility is GBP75.0 million and matures on 6 June 2027. Drawn amounts are subject to an interest rate of SONIA plus a 1.65% margin.

GBP30.5 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 GBP30.5 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 GBP766,229 and as at 30 June 2023 the fair value was GBP1,334,117, therefore an unrealised gain of GBP567,888 was recognised during the quarter. The previous interest rate cap was sold for GBP189,119 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 GBP0.8 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 GBP8.0 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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July 27, 2023 02:00 ET (06:00 GMT)