TIDMSREI
RNS Number : 8013O
Schroder Real Estate Inv Trst Ld
03 February 2023
Schroder Real Estate Investment Trust Limited
('SREIT' or the 'Company')
NAV AND DIVID ANNOUNCEMENT FOR THE QUARTER TO 31 DECEMBER
2022
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 GBP303.3 million or 62.0 pence per share
('pps') (30 September 2022: GBP366.0 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 GBP2.1
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 GBP2.6 million per annum, reflecting an uplift of GBP0.6
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."
NAV
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
GBP303.3 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:
GBPm pps Comments
================================== ======= ======= ==============================
Unaudited NAV as at 30 September Calculation based on
2022 366.0 74.8 489,110,576 shares
================================== ======= ======= ==============================
Portfolio like-for-like
Unrealised net decrease valuation movement, net
in the valuations of the of capital expenditure,
direct real estate portfolio of -11.8% over the quarter
and Joint Ventures (59.9) (12.2) to 31 December 2022
Principally relating
to the operational net
Capital expenditure (direct zero carbon warehouse
portfolio and share of Joint development at Cheadle,
Ventures) (3.4) (0.7) Manchester
================================== ======= ======= ==============================
Beech House, an office
in Fleet, sold for a
headline price of GBP2.1
million, compared with
a value of GBP1.8 million
at the start of the quarter,
GBP100,000 disposal costs
Realised gain on disposal 0.2 0.0 incurred
EPRA earnings 4.1 0.8
================================== ======= ======= ==============================
Dividend for the quarter
ended 30 September 2022
paid in December 2022
Dividend paid (3.9) (0.8) of 0.803 pps
All other items including
lease incentives and
Other 0.2 0.1 rounding
================================== ======= ======= ==============================
Unaudited NAV as at 31 Calculation based on
December 2022 303.3 62.0 489,110,576 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 GBP470.3 million. It produced a rent of
GBP29.1 million per annum reflecting a net initial yield of 5.8%.
The portfolio's estimated rental value is GBP35.6 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:
Sector Weighting (%) Like-for-like
capital growth
======================= =================== ================
SREIT Benchmark* SREIT**
======================= ====== =========== ================
Industrial 45.9 33.5 -13.2%
Offices 28.3 25.2 -9.6%
======================= ====== =========== ================
Retail warehouse 11.5 9.7 -14.0%
Retail 8.1 11.4 -10.6%
Retail ancillary
to main use 5.2
Retail single use 2.9
======================= ====== =========== ================
Other 6.1 16.8 -9.1%
Unattributable - 3.4 -
======================= ====== =========== ================
Region Weighting (%)
SREIT Benchmark*
Central London 8.0 19.1
South East excluding Central
London 18.3 34.1
Rest of South 10.6 15.5
Midlands and Wales 21.1 13.1
North 40.0 14.0
Scotland 2.1 4.1
Northern Ireland - 0.2
============================== ====== ===========
* Benchmark data as at 30 September 2022, the latest available.
** SREIT data is provisional from MSCI.
Portfolio activity
Transaction
Beech House, a 13,174 sq ft office asset in Fleet, was sold on
24 November 2022 for GBP2.1 million, 17% ahead of the 30 September
2022 independent valuation of GBP1.8 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 GBP2.6
million in annualised rent including GBP0.6 million per annum of
additional rent above the previous amounts received.
Industrial portfolio:
-- Completed two lettings totalling 11,908 sq ft and generating GBP86,980 of annual rent.
-- Completed four regears and three rent reviews across 114,117
sq ft, representing GBP546,887 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 GBP237,000, or GBP13.00 per sq
ft. This compares to the average rent across the estate of GBP9.00
per sq ft. The budget for construction costs and professional fees
is GBP2.8 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 GBP475,000, is approximately 7.0%.
Office portfolio:
-- Following completion of the refurbishment at Delme Place,
Fareham, three new lettings for a total annual rent of GBP248,840
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 GBP191,583 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 GBP800,000
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 GBP850,000. The rent is
GBP145,000 per annum, increasing by 10% of any construction cost in
excess of GBP750,000, capped at an additional GBP10,000 of rent per
annum. The target yield on cost assuming the maximum construction
cost, including the current site value of GBP1.3 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 GBP850,000 and a 12-month rent free period. The rent will
be GBP100,000 per annum, increasing by 10% of any construction cost
in excess of GBP800,000, capped at an additional GBP5,000 of rent
per annum. The target yield on cost assuming the maximum
construction cost, including the current site value of GBP511,000,
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 GBP170,000 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 GBP485,037 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 GBP129.6 million term
loan with Canada Life and a GBP75.0 million revolving credit
facility ('RCF') with Royal Bank of Scotland International
('RBSI'). As at 31 December 2022, GBP46.3 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 GBP30.5 million of
the GBP46.3 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 GBP9.3 million,
including its share of joint venture cash balances, and a loan to
value ratio, net of cash, of 35.4%.
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.
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.
-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 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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