TIDMSREI
RNS Number : 0223C
Schroder Real Estate Inv Trst Ld
08 June 2023
For release 8 June 2023
Schroder Real Estate Investment Trust Limited
('SREIT' / the 'Company' / 'Group')
RESULTS FOR THE YEARED 31 MARCH 2023
LOW COST, LONG TERM DEBT PROFILE AND INCOME-LED OUTPERFORMANCE
DELIVERS FURTHER INCREASE IN FULLY COVERED DIVID
Schroder Real Estate Investment Trust Limited, the actively
managed UK focused REIT, today announces its final results for the
year ended 31 March 2023. These are also available on the Company's
website, https://www.srei.co.uk .
High income return and a sector leading debt profile
underpinning earnings and a further dividend increase
-- Net asset value ('NAV') decreased to GBP300.7 million or 61.5
pps (31 March 2022: GBP372.2 million, or 75.8 pps), with equivalent
yield expansion of 152 bps to 7.8% (MSCI Benchmark: 123 bps to
6.2%) as a result of the higher interest rate environment,
partially offset by ERV growth of 9.2% (MSCI Benchmark: 3.4%)
-- 14% increase in dividends paid during the financial year to
GBP15.8 million, or 3.22 pps (31 March 2022: GBP13.9 million, or
2.83 pps) , fully covered by EPRA earnings
-- NAV total return -15.1% (31 March 2022: 30.9%)
-- Long debt maturity profile of 10.6 years and a low average
interest cost of 2.9%, with 90% either fixed or hedged against
movements in interest rates
-- Loan to value, net of all cash, of 36.0% (31 March 2022: 28.6%)
-- Change of independent valuer at the financial year end
-- 12 month total return from the underlying portfolio of -7.9%
compared with the MSCI Benchmark at -13.5%
-- Further 2% increase in the quarterly dividend to 0.836 pps
for the quarter ended 31 March 2023, to be paid in June
Asset management and transactional activity leading to long term
outperformance against the MSCI Benchmark, strong rental value
growth and an improvement in defensive qualities
-- Sustained, long term outperformance of the underlying
portfolio with a total return of 6.0% per annum on a rolling three
year basis (MSCI Benchmark Index: 1.9% per annum)
-- 65 new lettings, rent reviews and renewals across 973,000 sq
ft completed since the start of the financial year, totalling
GBP6.7 million in annualised rental income and generating GBP2.3
million per annum of additional rent, including:
-- Rent reviews and lease renewals at Langley Park Industrial
Estate in Chippenham with Siemens Mobility and IXYS which increased
the headline annual rent by GBP0.4 million or 21%
-- 40,000 sq ft lease regear completed with Buckinghamshire New
University in Uxbridge, extending the lease contract by five years
at 13% higher rent
-- Post year end completion of Stanley Green Trading Estate
80,000 sq ft operational net zero development in Manchester, with
approximately 40% of the GBP1.3 million ERV let or in legals
-- Acquisition of St. Ann's House, a mixed-use office and retail
asset in Manchester City Centre, for GBP14.7 million, reflecting a
net initial yield of 7.8%, a reversionary yield of 9.1% and a low
average capital value of GBP283 per sq ft, and, post year end, a
small adjoining ownership in Chelmsford, for GBP800,000, reflecting
a net initial yield of 11.1%
-- Three disposals totalling GBP12.6 million at a 13% average
premium to the valuation at the start of the financial year
Strong progress improving sustainability performance as future
strategy evolves
-- Further improvement in the Company's Global Real Estate
Sustainability Benchmark ('GRESB') score, placing first amongst a
group comprising seven diversified REITs
-- 58% of the portfolio A-C rated (31 March 2022: 41%), the
Company's first 'A+' ratings were achieved at the new development
at Stanley Green Trading Estate post year end
-- Announced 'Pathway to Net Zero Carbon', includes operational
whole buildings emissions to be aligned to a 1.5degC pathway by
2030
Alastair Hughes, Chair of the Board, commented:
" There are signs that real estate values are stabilising, and
approaching fair value. The attractive portfolio income and
pipeline of asset management activity should contribute to
continued earnings and dividend growth, further improve the
defensive qualities of the portfolio, and enhance returns as the
market recovers.
"Whilst a relaxation in monetary policy is expected in 2024,
interest rates will remain elevated compared with the recent past.
The prudent balance sheet management implemented by the Company,
resulting in the lowest cost, longest duration debt in the peer
group, largely removes this risk to earnings, and provides a solid
foundation to deliver future dividend growth."
Nick Montgomery, Fund Manager, added:
"Whilst the Company's asset values were impacted by
macro-economic headwinds, our diversified portfolio delivered a
further increase in the fully covered dividend level, driven by
asset management-led rental growth. Importantly, the strength of
our balance sheet, underpinned by low cost, long-term, fixed rate
debt, is a key competitive advantage and provides significant
protection from the impact of higher interest rates. These factors,
combined with an increasing emphasis on sustainability-led
initiatives, will further and more clearly differentiate the
Company's strategy, helping to drive more sustainable, long-term
returns for shareholders."
A webcast presentation for analysts and investors will be hosted
today at 10.00am. In order to register, please visit:
https://registration.duuzra.com/form/feedback/SREIAnnualResultsJun23
For further information:
Schroder Real Estate Investment Management
Limited
Nick Montgomery / Bradley Biggins 020 7658 6000
Schroder Investment Management Limited
(Company Secretary)
Matthew Riley 020 7658 6000
--------------
FTI Consulting
Dido Laurimore / Richard Gotla / Oliver
Parsons 020 3727 1000
--------------
Contents
Overview 1
Performance Summary 4
Strategic Report 6
Chair's Statement 6
Investment Manager's Report 11
Sustainability Report 26
Business Model 33
Our stakeholders 36
Risk and Uncertainties 38
Governance Report 43
Board of Directors 43
Report of the Directors 45
Corporate Governance 48
Audit Committee Report 53
Management Engagement Committee Report 56
Nomination Committee Report 57
Directors' Remuneration Report 59
Statement of Directors' Responsibilities 61
Independent Auditor's Report to the members of Schroder Real
Estate Investment Trust Limited 63
Financial Statements 74
Consolidated Statement of Comprehensive Income 74
Consolidated Statement of Financial Position 75
Consolidated Statement of Changes in Equity 76
Consolidated Statement of Cash Flows 77
Notes to the Financial Statements 78
Other information (unaudited) 98
EPRA Performance Measures (unaudited) 98
Alternative Performance Measures (unaudited) 104
AIFMD Disclosures (unaudited) 105
Task Force on Climate-related Financial Disclosures ('TCFD') 107
Sustainability Performance Measures (Environmental) (unaudited) 112
Streamlined Energy and Carbon Reporting 128
Asset list 132
Report of the Depositary to the Shareholders 133
Glossary 134
Notice of Annual General Meeting 138
Corporate Information 141
Performance Summary
Property performance
31 March 2023
------------------------------------------------------- -------------- ----------
Value of Property Assets and Joint Venture Assets [1] GBP470.4m GBP523.5m
------------------------------------------------------- -------------- ----------
Annualised rental income [2] GBP29.3m GBP30.1m
------------------------------------------------------- -------------- ----------
Estimated open market rental value [3] GBP37.8m GBP33.8m
------------------------------------------------------- -------------- ----------
Underlying portfolio total return (7.9%) 23.5%
------------------------------------------------------- -------------- ----------
MSCI Benchmark total return [4] (13.5%) 19.9%
------------------------------------------------------- -------------- ----------
Underlying portfolio income return 6.0% 6.3%
------------------------------------------------------- -------------- ----------
MSCI Benchmark income return 4.1% 3.9%
------------------------------------------------------- -------------- ----------
Financial summary
31 March 2023
---------------------------------- -------------- ----------
Net Asset Value ('NAV') GBP300.7m GBP372.2m
---------------------------------- -------------- ----------
NAV per Ordinary Share 61.5p 75.8 p
---------------------------------- -------------- ----------
EPRA Net Tangible Assets [5] GBP300.7m GBP372.2m
---------------------------------- -------------- ----------
EPRA Net Reinstatement Value (5) GBP332.2m GBP407.3m
---------------------------------- -------------- ----------
EPRA Net Disposal Value (5) GBP317.4m GBP375.9m
---------------------------------- -------------- ----------
IFRS (loss)/profit for the year (GBP54.7m) GBP89.4m
---------------------------------- -------------- ----------
EPRA earnings (5) GBP16.0m GBP15.7m
---------------------------------- -------------- ----------
Dividend cover [6] 101% 113%
---------------------------------- -------------- ----------
Capital values
31 March 2023 31 March 2022
----------------------------- -------------- --------------
Share price 43.6p 57.8 p
----------------------------- -------------- --------------
Share price discount to NAV (29.1%) (23.7 %)
----------------------------- -------------- --------------
NAV total return [7] (15.1%) 30.9%
----------------------------- -------------- --------------
Earnings and dividends
31 March 2023 31 March 2022
------------------------------------------------------- -------------- --------------
EPRA earnings (5) (pps) 3.3 3.2
------------------------------------------------------- -------------- --------------
Dividends paid (pps) 3 .22 2.83
------------------------------------------------------- -------------- --------------
Annualised dividend yield on the 31 March share price 7.4% 4.9%
------------------------------------------------------- -------------- --------------
Bank borrowings
31 March 2023 31 March 2022
------------------------------------------------------ -------------- --------------
On-balance sheet borrowings [8] GBP177.90m GBP162.25m
------------------------------------------------------ -------------- --------------
Loan to Value ratio ( ' LTV ' ), net of all cash [9] 36.0% 28.6%
------------------------------------------------------ -------------- --------------
Ongoing charges
31 March 2023 31 March 2022
------------------------------------------------------------- -------------- --------------
Ongoing charges (including fund and property expenses) [10] 2.28% 2.21%
------------------------------------------------------------- -------------- --------------
Ongoing charges (including fund only expenses) [11] 1.32% 1.26%
------------------------------------------------------------- -------------- --------------
Strategic Report
Chair's Statement
Overview
Schroder Real Estate Investment Trust Limited (the 'Company')
today announces its audited results for the financial year to 31
March 2023, a challenging period that has seen financial market
volatility, and a significant correction in UK real estate values.
As expected, the rising interest rate environment has led to a
re-rating in real estate yields, contributing to a -13.1% valuation
decline in our underlying portfolio over the year. Whilst this
compared favourably with the MSCI peer group Benchmark (the
'Benchmark') at -16.9% over the same period, the valuation movement
resulted in a net asset value ('NAV') as at 31 March 2023 of
GBP300.7 million, or 61.5 pence per share ('pps'), a decline of
-18.9%.
More positively, a high level of portfolio activity contributed
to an above average income return of 6.0% over the year, comparing
favourably with the Benchmark at 4.1%. Earnings growth, underpinned
by low cost, long-term, fixed rate debt, boosted the dividend to
GBP15.8 million, a 14% increase compared with the prior financial
year, and we are the only member of our peer group where the
dividend is above the pre-pandemic level. Importantly, the dividend
was fully covered by recurring earnings and, combined with the
movement in the NAV, resulted in a NAV total return for the
financial year of -15.1%.
As a result of income focused asset management activity, the
Company has today separately announced a further 2% increase in its
quarterly dividend to 0.836 pps, to be paid in June 2023. This
reflects an attractive yield of 7.5% based on the share price of
44.35 pps as at close on 6 June 2023.
Whilst the decline in NAV over the financial year is, of course,
unwelcome, it is encouraging that the underlying portfolio
continues to deliver long term relative outperformance compared
with the Benchmark, with an annualised total return of 6.0% per
annum over the past three years, compared with the Benchmark at
1.9% per annum, placing the portfolio on the fifth percentile of
its peer group.
Market context
My statement in the interim report highlighted the risk of
average UK commercial real estate values falling 15% to 20% from
the half year point, resulting in an overall decline from mid 2022
of approximately 20% to 25%. Average values have now fallen -17.7%
between 1 July 2022 and 31 March 2023, with the Company's portfolio
value falling by -14.1% over the same period.
The principal cause of this correction is more persistent core
inflation, driven by high energy and food prices, leading to
increasing interest rates, with the Bank of England base rate
currently 4.5%, the highest level since October 2008. Tighter
fiscal and monetary conditions, combined with a withdrawal of
pandemic related business support programmes, have led to a rise in
business insolvencies and a slowdown in consumer spending. In real
estate markets, higher interest rates have impeded debt-backed
buyers and increased refinance risk for many borrowers, with a
related fall in equity and bond prices leaving some institutions
over-allocated to real estate. This environment has led to weaker
sentiment and a sharp fall in transaction volumes.
The resultant decline in values has increased average real
estate net initial yields from 3.8% in June 2022 to 4.7% today, the
highest level since June 2020, with our portfolio now yielding
5.8%. As expected, lower yielding, higher growth real estate
sectors such as South East and London industrial have been most
adversely impacted by this rerating, resulting in a reversal in the
unprecedented polarisation of returns over recent years. Higher
yielding sectors - such as retail warehousing, and offices in
stronger regional centres - have been less adversely impacted,
leading to a convergence in returns across the main sectors.
Against this backdrop, our well diversified portfolio has
outperformed the Benchmark due to the active management of the
higher yielding, regional industrial estates, as well as
higher-yielding retail warehousing and offices in stronger regional
centres.
Occupational markets have, so far, remained more resilient, with
average nominal rental value growth for UK real estate of 2.5% per
annum since June 2022. Although below current inflation levels,
there remains a strong positive long-term correlation between
rental growth rates and inflation, with sectors benefiting from
structural demand drivers and lower vacancy rates delivering rental
growth well above the long-term average of approximately 0.9%. For
example, in contrast with the sharp decline in capital values,
average industrial rental values have increased by 5.9% since June
2022.
There are initial signs that the investment market is now
stabilising, with a capital value decline from our underlying
portfolio of -0.5% over the quarter to March 2023 (Benchmark:
-1.3%), contrasting with -11.9% over the quarter to December
(Benchmark: -13.2%). The extent of any subsequent recovery will
depend on falling inflation, with the Bank of England currently
forecasting a return to its target rate in 2024. In this seemingly
benign scenario, interest rates should fall, but probably to a
higher equilibrium rate of around 3%, above the ultra-low levels of
the recent past. A gap of approximately 2% between property yields
and 10 year gilts is approaching the long term average for fair
value, which, combined with a more a stable political backdrop and
currency, should attract domestic and international capital flows
back to the sector.
Looking forward, long term structural trends such as
urbanisation, technological change, demographics and sustainability
should continue to drive returns, with multi-let industrial
estates, retail warehousing, certain London office sub-markets and
some alternative sectors expected to outperform. These sectors
should also benefit from limited new development. This contrasts
with secondary office and weaker retail assets, where obsolescence,
higher vacancy and lower levels of occupational demand will
negatively impact returns.
Strategy
Our strategy is focused on delivering sustainable dividend
growth and improving the quality of the underlying portfolio
through a disciplined, research-led approach to transactions,
capital investment and active management. This activity will be
complemented by maintaining a robust balance sheet and continuing
to manage costs efficiently. Furthermore, with a growing consensus
that there is a meaningful rental premium for buildings with a
green certification, which we are seeing across our own portfolio,
we believe there is an opportunity to differentiate our strategy by
placing even greater emphasis on how sustainability-led asset
improvements will deliver enhanced returns for shareholders. This
reflects our strong conviction that only by transforming less
sustainable buildings into modern, fit for purpose assets, will we
deliver these enhanced returns and the wider real estate industry
reach its net zero carbon targets.
The relative outperformance of the underlying portfolio during
the market correction has demonstrated the benefits of owning a
diversified portfolio, with expertise to invest across all sectors.
The portfolio remains diversified, but with a higher weighting to
sectors and assets expected to deliver higher total returns and
income growth. Approximately half the portfolio by value comprises
multi-let industrial estates, and exposure to retail warehousing
increased slightly to 11.6% during the year. The exposure to
offices was unchanged at 27.5% and, although the occupational
market remains more challenging, progress has been made reducing
risk through lease extensions to retain existing tenants, targeted
refurbishment programmes to improve letting prospects, including by
improving environmental and social credentials, and to support
potential disposals.
During the year, we acquired a higher yielding mixed-use office
and retail building in Manchester and, post year end, a small
adjoining ownership in Chelmsford. Three disposals completed or
contracted totalling GBP12.6 million at a 13% average premium to
the valuation at the start of the financial year, with one office
asset having exchanged contracts at the year end, due to complete
in June. The primary focus has been on optimising earnings across
the existing portfolio through an extensive asset management and
targeted capital expenditure programme, targeting growth areas and
sustainability improvements. The ongoing development at Stanley
Green Trading Estate in Manchester, the first operational net zero
scheme in the North West, completed post year end, has contributed
strongly to performance with approximately 40% already let or in
legals. Other examples include pre-lettings to Starbucks for
'drive-thru's' at two retail warehouse assets which are currently
under construction.
Successful implementation of the strategy means we are well
positioned in terms of income characteristics. As noted in the
overview, the portfolio generates a materially higher income return
compared with the Benchmark, with the high reversionary yield of
8.0% also comparing favourably with the Benchmark at 5.7%.
Furthermore, the portfolio is highly diversified, with 312 tenants
across 41 assets.
The Manager's active approach, leveraging the wider Schroders
Capital Real Estate platform of 42 sector and regional specialists,
resulted in 65 lettings exchanging or completing since the start of
the financial year, totalling GBP6.7 million of annualised rental
income. Improving the portfolio's defensive qualities has been a
key focus, with major lease agreements completed during the year
with large corporate occupiers and educational providers such as
Siemens, IXYS Westcode, and Buckinghamshire New University. This
active approach has supported high rental collection rates, with
99% collected over the financial year and a reduction in the
portfolio void rate on a like-for-like basis.
The market correction and weak investor sentiment means
virtually all listed real estate owners are now trading at material
discounts to asset value. Although our share price rating improved
over the year, driven by a high, fully covered dividend, and a
sector leading debt profile, the Board and Manager are highly
focused on delivering a further improvement by clearly articulating
the opportunities within the portfolio and attracting a more
diverse shareholder base.
Sustainability
Our strategic focus on improving sustainability performance,
where the Manager has a strong track record, has delivered positive
results at both an asset and portfolio level. The Company achieved
a further improvement in its Global Real Estate Sustainability
Benchmark ('GRESB') score, placing it first amongst a group
comprising seven diversified REITs. The EPC profile of the
portfolio has improved markedly and the Company's first 'A+'
ratings were achieved at the development at Stanley Green Trading
Estate.
We are also making progress with our pathway to net zero
commitments, with a 10% and 19% reduction in the Company's energy
intensity and greenhouse gas intensity targets over the most recent
reporting period. The Company also retained its Gold level
compliance with the EPRA Sustainability Best Practice
Recommendations for the fifth successive year.
Balance sheet
The average interest rate for total debt drawn at the year end
was 2.9%, with an average maturity of 10.6 years, and 90% either
fixed or hedged against movements in interest rates.
The debt refinancing 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 of the GBP177.9
million total borrowings at the year end, has an average loan
maturity of 13.1 years, with a fixed average interest rate of 2.5%.
At the year end, incremental positive fair value benefit of this
fixed rate loan was GBP16.8 million, which is not reflected in the
Company's NAV.
The balance of borrowings at the year end totalling GBP48.3
million comprised a revolving credit facility ('RCF') from RBSI.
This is used as a tactical facility that can be drawn and repaid at
any time. To provide additional capacity to invest into the
portfolio and pursue market opportunities, during the year the
total amount that can be drawn was increased to GBP75.0 million,
with the loan maturity extended by 4.2 years to June 2027. GBP30.5
million of the RCF benefitted from an interest rate cap at 1.5%,
which was due to expire in July 2023 and, together with the RCF
margin of 1.65%, resulted in an average interest rate on the drawn
RCF of 4.1% at the year end.
Since the year end, this cap has been replaced with a hedging
instrument termed an interest rate 'collar' which applies to
GBP30.5 million of the GBP48.3 million now drawn. The collar, which
runs to the end of the RCF term in June 2027, allows the Company to
benefit from future falls in interest rates down to a 3.25% floor,
whilst at the same time protecting the Company from rate increases
above 4.25%. After netting off the value of the interest rate cap,
the net cost of the collar was GBP567,000.
Since the year end, the RCF has also been 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.
At the year end, the Company had a net loan to value ('LTV')
ratio of 36.0%, which is slightly above the long-term strategic
target range of 25% to 35%. The Company has significant headroom
against all loan covenants, but steps are being taken to bring the
net LTV back in line with the target range, including contracted
and further planned disposals, which are set out in the Manager's
Report.
Board succession
Since Lorraine Baldry's retirement as Chair in July 2022, I have
continued our comprehensive succession planning process. Following
Graham Basham's subsequent retirement in November 2022, the Company
appointed Alexandra Innes as an Independent Non-Executive Director.
Alexandra has a strong track record across investment banking and
investment management, with relevant non-executive roles at the
Bank of England, Securities Trust of Scotland PLC and Knight Frank
LLP. As part of the succession process, the Board asked the
appointed specialist search firm to review Board remuneration
levels, which were last reviewed and increased in 2015. This
resulted in an aggregate increase of GBP20,000, or 13%. On behalf
of my fellow directors and the Manager, we would like to thank
Lorraine and Graham again for their service to the Company.
Independent valuers
It is expected that the Standards and Regulation Board of the
Royal Institution of Chartered Surveyors (the 'RICS') will adopt
the recommendations relating to governance and valuer rotation
outlined in the independent review of January 2022, although final
details are still to be confirmed by the RICS.
In preparation for these changes, and following a comprehensive
tender process, CBRE Limited ('CBRE') have replaced Knight Frank
LLP, the Company's principal independent valuer since 2004. CBRE
prepared the valuation used within these accounts and have entered
into a three year contract at a material fee saving. CBRE will also
replace BNP Paribas as valuer of the Company's two joint venture
investments with effect from 30 June 2023. On behalf of my fellow
directors and the Manager, I would like to thank Knight Frank for
their service to the Company.
Outlook
The UK economy continues to face headwinds this year as higher
inflation and interest rates cause consumers to retrench, reducing
disposable incomes and hitting household demand for goods and
services. Although inflation pressures are expected to ease, and
recent surveys indicate improved business confidence, an imbalanced
UK labour market means wage growth remains a significant
burden.
On a more positive note, there are signs that real estate values
are stabilising, and approaching long term fair value. The
attractive portfolio yield profile and pipeline of asset management
activity should contribute to continued earnings and dividend
growth, further improve the defensive qualities of the portfolio,
and enhance returns as the market recovers.
Whilst a relaxation in monetary policy is expected in 2024,
interest rates will remain elevated compared with recent past. The
prudent balance sheet management implemented by the Company,
resulting in the lowest cost, longest duration debt in the peer
group, largely removes this risk to earnings, and provides a solid
foundation to deliver future dividend growth.
Finally, as sustainability considerations become even more
important for investors and occupiers, we are making good progress
evolving our strategy, which we believe should clearly
differentiate the Company and help to drive more sustainable,
long-term returns. We anticipate providing further details on this
later in the year.
Alastair Hughes
Chair
Schroder Real Estate Investment Trust Limited
7 June 2023
Investment Manager's Report
Financial results
Schroder Real Estate Investment Trust Limited's ('SREIT', or
'the Company') net asset value ('NAV') as at 31 March 2023 was
GBP300.7 million or 61.5 pence per share ('pps'), compared with
GBP372.2 million, or 75.8 pps, as at 31 March 2022. This reflected
a decrease over the financial year of -14.3 pps or -18.9%. During
the period, dividends totalling GBP15.8 million were paid, which
resulted in a NAV total return of -15.1%. A detailed analysis of
the NAV movement is set out in the table below:
GBPm PPS
------------------------------------------------------- ------- -------
NAV as at 31 March 2022(1) 372.2 75.8
------------------------------------------------------- ------- -------
Unrealised change in the valuations of the direct
real estate portfolio and joint ventures(2) (61.1) (12.4)
------------------------------------------------------- ------- -------
Capital expenditure(3) (10.2) (2.1)
------------------------------------------------------- ------- -------
Acquisition costs (1.0) (0.2)
------------------------------------------------------- ------- -------
Realised gain on disposals, net of disposal costs 1.2 0.2
------------------------------------------------------- ------- -------
EPRA earnings(4) 16.0 3.3
------------------------------------------------------- ------- -------
Dividends paid (15.8) (3.2)
------------------------------------------------------- ------- -------
Others 0.4 0.0
------------------------------------------------------- ------- -------
NAV as at 31 March 2023 (excluding the share buyback) 301.7 61.4
------------------------------------------------------- ------- -------
Share buyback (1.0) 0.1
------------------------------------------------------- ------- -------
NAV as at 31 March 2023(5) 300.7 61.5
------------------------------------------------------- ------- -------
1. The calculation of pence per share is based on shares in
issue as at 31 March 2022 of 491,080,301.
2. Prior to all capital expenditure, acquisition costs and
movement in IFRS 16 lease incentives.
3. Comprises capital expenditure of GBP10.1 million on the
directly held portfolio and GBP0.1 million invested for the joint
ventures.
4. EPRA earnings as per the reconciliation on page 98.
5. The calculation of pence per share is based on shares in
issue as at 31 March 2023 of 489,110,576.
The underlying portfolio, including joint ventures and net of
capital expenditure, decreased in value by -13.1% on a
like-for-like basis over the financial year to 31 March 2023.
GBP 10.2 million of capital expenditure was invested in asset
management and redevelopment projects, including joint ventures,
that should drive capital growth and future rental increases over
the medium to longer term. GBP7.5 million of this related to the
operational net zero warehouse development at Stanley Green Trading
Estate in Cheadle, Greater Manchester.
Acquisition costs totalling GBP900,000 were incurred relating to
the acquisition of St. Ann's House, a mixed-use office and retail
asset in Manchester for GBP14.7 million in May 2022. Acquisition
costs totalling GBP58,792 were incurred relating to the acquisition
of 68 High Street, Chelmsford, for GBP800,000, which adjoins an
existing asset, where the rationale is to create a more liquid
investment.
During the financial year two sales were completed for a
combined price of GBP8.6 million, which was a 28.4% increase on the
31 March 2022 combined independent valuation of GBP6.7 million.
After transaction costs of GBP200,000, the aggregate realised gain
on disposal was GBP1.7 million. During the year unconditional
contracts were exchanged to sell an office for GBP4.0 million which
compared with a valuation at the start of the financial year of
GBP4.5 million and GBP4.0 million at the year end.
EPRA earnings for the period totalled GBP16.0 million, or 3.3
pps, an increase of GBP300,000 or 1.9%, on the prior financial year
of GBP15.7 million. This increase was driven by asset
management-led rental value growth, a positive contribution from
the off-market, higher yielding industrial portfolio acquired in
December 2021, and the St. Ann's House acquisition.
Between 28 July 2022 and 15 September 2022 the Company acquired
1,969,725 shares under its share buyback programme for GBP1.0
million, which reflected an average cost of 50.6 pps and a discount
to the 31 March 2022 NAV of 33%.
Our strategy
Investment objective
The Company aims to provide shareholders with an attractive
level of income with the potential for long term, sustainable
income and capital growth.
Investment strategy
The strategy to deliver this, and progress made during the year
and since year end, is set out below:
- Apply a research-led approach to determine attractive sectors
and locations in which to invest in commercial real estate
o Increased allocation to higher growth sectors, with
industrial, predominately multi-let estates, and retail warehousing
now comprising 58.6% by value
- Increase exposure to larger assets with strong fundamentals
and inherent opportunities for active management and
development
o Acquired St. Ann's House in Manchester, made significant
investment into Stanley Green Trading Estate also in Manchester.
Our top 15 assets now represent 78.5% of value.
- Sell smaller, secondary assets with higher sustainability performance risk
o Sold three small assets (two completed, one unconditionally
exchanged) at a 12.5% premium to the value at the start of the
year, with further small disposals expected
- Drive income and value growth through a hospitality approach
in tenant management (optimising tenant services and lease terms)
and operational excellence in all sectors (optimising operations in
the assets, minimising use of scarce resources and waste)
o Operationally net zero carbon developments at two industrial
estates, collaborating with Starbucks to develop 'drive-thru'
restaurants at two retail parks, negotiating regears with major
tenants Buckinghamshire New University and University of Law in
return for sustainability related asset improvements
- Apply our integrated sustainability and ESG approach at all
stages of the investment process and asset life cycle, targeting
improvement in the sustainability performance of assets to
manufacture the green premium for shareholders
o Further improvement in the Global Real Estate Sustainability
Benchmark ('GRESB') score to 77 out of 100 in 2022 (2021: 75),
achieving the maximum possible result for the management aspects of
the assessment and placing SREIT first amongst a group comprising
seven diversified REITs (2021: second of eight)
- Control costs
o Ongoing charges (including fund and property expenses) of
2.28% broadly in line with 2.21% for the prior financial year and
below the five year average of 2.30%
- Maintain a strong balance sheet with a long-term strategic
target loan to value, net of cash, within the range of 25% to
35%
o The Company has a peer group leading debt profile, with a
clear strategy to reduce the net LTV back to within the strategic
range from 36.0% at the year end.
Portfolio performance
The underlying portfolio continues to deliver strong relative
outperformance, with a total return for the financial year of -7.9%
compared to -13.5% for the MSCI Benchmark (the 'Benchmark'). This
relative outperformance was partly due to a stronger income return
from the portfolio at 6.0% compared to 4.1% for the Benchmark.
Targeted capital expenditure in larger assets to improve
sustainability performance and benefit from structural trends led
to significantly stronger rental value growth for the portfolio at
9.2% compared to 3.4% for the Benchmark. A key example of this
strategy is the operationally net zero carbon development at
Stanley Green Trading Estate in Cheadle, Greater Manchester, which
completed this May. A smaller proportionate increase in yields
resulted in a lower fall in capital values of -13.1% for the
portfolio compared to -16.9% for the Benchmark, which was mainly
driven by the higher yielding regional industrial portfolio.
The table below shows performance to 31 March 2023.
SREIT Total Return MSCI Benchmark* Relative
Total Return
Period One Three Since One Three Since One Three Since
to 31 March year years IPO** year years IPO** year years IPO**
2023 (%) (% p.a.) (% p.a.) (%) (% p.a.) (% p.a.) (%) (% p.a.) (% p.a.)
------ ---------- ---------- ------ ---------- ---------- ------ ---------- ----------
Retail -6.9 1.4 3.9 -8.1 -0.1 3.1 1.4 1.5 0.7
------ ---------- ---------- ------ ---------- ---------- ------ ---------- ----------
Office -8.9 1.4 7.0 -12.7 -2.5 5.9 4.4 4.0 1.0
------ ---------- ---------- ------ ---------- ---------- ------ ---------- ----------
Industrial -8.0 13.4 10.1 -21.0 8.3 8.6 16.4 4.7 1.4
------ ---------- ---------- ------ ---------- ---------- ------ ---------- ----------
Other 0.3 6.0 3.4 -6.4 1.0 6.5 7.2 4.9 -2.9
------ ---------- ---------- ------ ---------- ---------- ------ ---------- ----------
All sectors -7.9 6.0 7.1 -13.5 1.9 5.6 6.4 4.0 1.5
------ ---------- ---------- ------ ---------- ---------- ------ ---------- ----------
*MSCI Benchmark is formally 'MSCI UK Balanced Portfolios
Quarterly Property Index (unfrozen);
**IPO in July 2004
Real estate portfolio
As at 31 March 2023, the portfolio comprised 41 properties
valued at GBP470.4 million. This includes the share of joint
venture properties at City Tower in Manchester and the University
of Law in Bloomsbury, London. The portfolio generated rental income
of GBP29.3 [12] million per annum, reflecting a net initial yield
of 5.8%, which compared with the Benchmark 4.8%. The portfolio also
benefits from fixed contractual annualised rental income uplifts of
GBP2.0 million per annum over the next 24 months. The independent
valuers' estimated rental value ('ERV') of the portfolio is GBP37.8
million per annum, reflecting a reversionary income yield of 8.0%,
which compares favourably with the Benchmark at 5.7%.
The portfolio is diverse and granular should support more
resilient portfolio income in a weaker economic environment and a
more challenging period for consumers and businesses. The portfolio
is also both higher yielding with potential for more rental growth
relative to the Benchmark which positions it well for a higher
interest rate environment and where capital growth is muted in the
short term.
The portfolio is overweight multi let industrial estates where
we consider supply and demand dynamics to be favourable given there
has been relatively limited development. This is evidenced by the
rent reviews and lease renewals that we have completed since the
beginning of the financial year, where rents were agreed 24% higher
than the previous level. In addition, there is an overweight
position in retail warehouses, where we have sustainable levels of
rent and limited exposure to fashion. This is the only part of the
market which has seen a meaningful fall in vacancy since the
pandemic and we expect continued rental growth.
At the period end the portfolio void rate was 11.1%, calculated
as a percentage of estimated rental value. Excluding the recently
completed Stanley Green Trading Estate developed units, the
portfolio void rate reduced on a like for like basis from 8.6% to
7.9%, in the middle of the ten year range of 5-13% and compares
with the Benchmark void rate of 8.0%. The portfolio weighted
average lease length, calculated to the earlier of lease expiry or
break, is 5.0 years.
Approximately 11% of the portfolio by contracted rent is
inflation linked, typically structured as five yearly reviews to
either the Retail Price Index ('RPI') or the Consumer Price Index
('CPI'). In some cases these inflation-linked leases can also be
reviewed to open market value, if higher, or include fixed
guaranteed increases. A further 12% of rent benefits from fixed
uplifts without an inflation link. The proportion of the portfolio
with inflation-linked leases should increase with ongoing asset
management activity.
The tables below summarise the portfolio information as at 31
March 2023. The property values and weightings represent the year
end valuations as determined by the independent valuers as at 31
March 2023:
Portfolio metric SREIT 31 March 2023 SREIT 31 March 2022
(MSCI 31 March 2023) (MSCI 31 March 2022)
Portfolio value (GBPm) 470.4 523.5
----------------------------------------------- ----------------------- -----------------------
Number of properties 41 42
----------------------------------------------- ----------------------- -----------------------
Number of tenants 312 315
----------------------------------------------- ----------------------- -----------------------
Average lot size (GBPm) 11.5 12.5
----------------------------------------------- ----------------------- -----------------------
Net initial yield (%) 5.8 (4.8) 5.4 (3.9)
----------------------------------------------- ----------------------- -----------------------
Reversionary yield (%) 8.0 (5.7) 6.4 (4.6)
----------------------------------------------- ----------------------- -----------------------
Annual rent (GBPm) 29.3 30.1
----------------------------------------------- ----------------------- -----------------------
Estimated rental value (GBPm) 37.8 33.8
----------------------------------------------- ----------------------- -----------------------
Annual rent with inflation linked uplifts (%) 11 15
----------------------------------------------- ----------------------- -----------------------
Annual rent with fixed uplifts (%) 12 5
----------------------------------------------- ----------------------- -----------------------
WAULT (years to earliest of break or expiry) 5.0 (11.2) 5.4 (11.4)
----------------------------------------------- ----------------------- -----------------------
Void rate (%) 11.1 (8.0) 7.0 (7.8)
----------------------------------------------- ----------------------- -----------------------
Top 15 properties by value Sector Value (GBPm) % of portfolio
[13] value [14]
------------------------------------ --------------------- ------------- ---------------
Milton Keynes, Stacey
1 Bushes Industrial Estate Industrial 50.5 10.7
--- ------------------------------- --------------------- ------------- ---------------
Leeds, Millshaw Park
2 Industrial Estate Industrial 45.5 9.7
--- ------------------------------- --------------------- ------------- ---------------
London, Store Street,
The University of Law
3 Campus (50% share) Office/university 37.8 8.0
--- ------------------------------- --------------------- ------------- ---------------
Cheadle, Stanley Green
4 Trading Estate Industrial 35.5 7.5
--- ------------------------------- --------------------- ------------- ---------------
Manchester, City Tower Office/hotel/retail/
5 (25% share) leisure/car park 34.0 7.2
--- ------------------------------- --------------------- ------------- ---------------
Bedford, St. John's Retail
6 Park Retail warehouse 31.0 6.6
--- ------------------------------- --------------------- ------------- ---------------
Chippenham, Langley Park
7 Industrial Estate Industrial 24.7 5.3
--- ------------------------------- --------------------- ------------- ---------------
Norwich, Union Park Industrial
8 Estate Industrial 21.6 4.6
--- ------------------------------- --------------------- ------------- ---------------
9 Leeds, Headingley Central Retail/hotel/leisure 20.8 4.4
--- ------------------------------- --------------------- ------------- ---------------
Manchester, St. Ann's
10 House Office/retail 12.6 2.7
--- ------------------------------- --------------------- ------------- ---------------
Uxbridge, 106 Oxford
11 Road Office/university 12.5 2.7
--- ------------------------------- --------------------- ------------- ---------------
Telford, Horton Park
12 Industrial Park Industrial 12.1 2.6
--- ------------------------------- --------------------- ------------- ---------------
Birkenhead, Valley Park
13 Industrial Estate Industrial 12.0 2.6
--- ------------------------------- --------------------- ------------- ---------------
14 Edinburgh, The Tun Office 9.4 2.0
--- ------------------------------- --------------------- ------------- ---------------
15 Milton Keynes, Matalan Retail warehouse 9.4 2.0
--- ------------------------------- --------------------- ------------- ---------------
Total as at 31 March
2023 369.4 78.5
--- ------------------------------- --------------------- ------------- ---------------
Sector weighting by Like-for-like net of
value as at 31 March capex capital growth
2023 for the 12 month period
ended 31 March 2023
SREIT(1) Benchmark(1) SREIT Benchmark
========================================= ========= ============= =========== ==============
South East 10.7% 19.6%
========================================= ============= =========== ==============
Rest of UK 36.1% 11.7%
========================================= ========= ============= =========== ==============
Industrial 46.8% 31.2% -12.6% -23.8%
========================================= ============= =========== ==============
City 0.0% 3.6%
========================================= ========= ============= =========== ==============
Mid-town and West End 8.0% 6.9%
========================================= ============= =========== ==============
Rest of South East 4.5% 7.3%
========================================= ========= ============= =========== ==============
Rest of UK 15.0% 7.3%
========================================= ============= =========== ==============
Offices 27.5% 25.2% -14.7% -15.8%
========================================= ========= ============= =========== ==============
Retail warehouse 11.8% 9.8% -9.1% -12.0%
========================================= ============= =========== ==============
South East 0.9% 6.7%
========================================= ========= ============= =========== ==============
Rest of UK 6.7% 3.0%
========================================= ============= =========== ==============
Standard retail 7.7% 9.7% -17.7% -14.1%
========================================= ========= ============= =========== ==============
Standard retail by ancillary/single use
========================================= ============= =========== ==============
- Retail ancillary to main use 4.9% -
========================================= ========= ============= =========== ==============
- Retail single use 2.8% -
========================================= ============= =========== ==============
Other 6.2% 18.1% -9.5% -10.3%
========================================= ========= ============= =========== ==============
Shopping centres - 2.1%
========================================= ============= =========== ==============
Unattributed indirects - 3.8%
========================================= ========= ============= =========== ==============
(1) Note: columns do not sum due to rounding.
Regional weighting by value as at 31 March
2023
SREIT Benchmark
============================== ================= ==========================
Central London 8.0% 17.1%
============================== ==========================
South East excluding Central
London 18.2% 34.5%
============================== ================= ==========================
Rest of South 10.5% 16.2%
============================== ==========================
Midlands and Wales 21.0% 13.2%
============================== ================= ==========================
North 40.3% 14.4%
============================== ==========================
Scotland 2.0% 4.4%
============================== ================= ==========================
Northern Ireland 0.0% 0.2%
============================== ==========================
Rental income is diverse and as at 31 March 2023 comprised 312
tenants, including the tenants of properties held by joint
ventures. The largest and top 15 tenants represent 7.06% and 33.04%
of the portfolio respectively, calculated as a percentage of annual
rent, and there are only two tenants that represent more than 3% of
annual rent.
Top 15 tenants by annual rent Annual rent (GBP % of total
million) annual rent
University of Law Limited 2.07 7.06%
===================================== ================= =============
Siemens Mobility Limited 1.22 4.16%
===================================== =============
Express Bi Folding Doors Limited 0.65 2.22%
===================================== ================= =============
The Secretary of State 0.59 2.01%
===================================== =============
Buckinghamshire New University 0.58 1.98%
===================================== ================= =============
Matalan Retail Limited 0.57 1.95%
===================================== =============
Cineworld Cinema Properties Limited 0.52 1.77%
===================================== ================= =============
TJX UK t/a HomeSense 0.51 1.74%
===================================== =============
IXYS UK Westcode Limited 0.47 1.60%
===================================== ================= =============
Jupiter Hotels Limited 0.46 1.57%
===================================== =============
Premier Inn Hotels Limited 0.42 1.43%
===================================== ================= =============
Lidl Great Britain Limited 0.42 1.43%
===================================== =============
Ingeus (UK) Limited 0.41 1.40%
===================================== ================= =============
Wickes Building Supplies Limited 0.40 1.37%
===================================== =============
Balfour Beatty Group Limited 0.39 1.33%
===================================== ================= =============
Total as at 31 March 2023 9.68 33.04%
===================================== =============
(1) Note: column does not sum due to rounding.
Rent collection
The diversification and granularity of the underlying rental
income, and a high level of occupier engagement, has supported
improving rent collection rates with 99% of the contracted rents
collected for the quarter to 31 March 2023. The breakdown between
sectors is 100% of office rent collected, 100% of industrial rent
collected and 97% of retail, leisure and other rent collected.
The Company has made good progress collecting historical arrears
during the year which totalled GBP3.3 million, net of VAT, at the
year end, of which GBP360,000 is provided against as a bad debt.
This compares to GBP3.8 million and GBP900,000 respectively as at
31 March 2022.
Transactions
Manchester, St. Ann's House (Mixed-use office and retail)
St. Ann's House in Manchester was acquired on 27 May 2022 for a
gross headline price of GBP14.7 million, reflecting a net initial
yield of 7.8%, a reversionary yield of 9.1% and a low average
capital value of GBP283 per sq ft. The mixed-use office and retail
asset generates GBP1.22 million per annum of headline rent compared
with an ERV of GBP1.33 million.
The freehold, 51,754 sq ft building, is 97% occupied by ERV and
comprises 40,277 sq ft of office space over five upper floors with
five retail units at the ground floor level and ancillary basement
space. It is prominently located on St. Ann's Square, near to the
prime retail core. St. Ann's Square features a listed church, the
Royal Exchange theatre, a mix of office occupiers and high-quality
luxury retail as well as leisure operators. The building benefits
from its close proximity to two tram stations.
The office space is fully let to four office tenants at an
average rent of GBP18.48 per sq ft, with the potential to increase
rental levels through refurbishment and improving sustainability
performance. There is also the opportunity to enhance income by
offering fitted out office space.
The appeal of St. Ann's Square to high quality luxury retailers
is reflected in the current tenant mix with complementary retailers
located in close proximity. During the pandemic rents were rebased
by the previous landlord and there are currently no arrears. At
acquisition, the tenants were Watches of Switzerland, Russell &
Bromley and Space NK. Since acquisition, we have let a unit to
David M Robinson Limited, a north-west based retailer of luxury
watches and jewellery, for GBP70,000 per annum, or GBP76.75 per sq
ft.
The weighted average unexpired lease term is 2.2 years to
earliest termination and 4.8 years to lease expiries. 58% of the
property by floor area currently has an EPC rating of 'B' with the
remainder rated 'C'.
The strategy is to undertake a rebranding of the building,
introduce additional amenities for the offices such as bike and
shower facilities and refurbish the property as floors become
available with a focus on improving sustainability performance.
This will increase the rental tone of the offices. We will aim to
leverage the close proximity of luxury jewellers and watch
retailers to attract similar occupiers to the subject asset at
higher rents.
Chelmsford, 68 High Street (Retail)
In March 2023, 68 High Street in Chelmsford was acquired for
GBP800,000, reflecting a net initial yield of 11.1%. This is an
adjoining ownership to 67 High Street, with both units let to
Esquire Retail on a lease expiring in September 2023.
Simultaneously, an agreement for lease was reached with
Co-operative Bank plc for them to take a new 10 year lease without
breaks with effect from September at a new rent of GBP175,000.
There will be 12 months rent free and we will make a capital
contribution of GBP110,000. The acquisition and letting are
expected to facilitate a profitable disposal of the combined
units.
Portsmouth, Southlink (Industrial)
In June 2022 Southlink, a 26,975 sq ft single let industrial
asset in Portsmouth, was sold for GBP6.5 million. The price
compares with the 31 March 2022 independent valuation of GBP4.9
million and reflects a net initial yield of 3.2%.
Situated within the Walton Road Industrial area, Southlink was
acquired in July 2004. The asset produced a net rent of GBP225,000
per annum with a lease term of 2.4 years. Based on the disposal
price, the asset has generated an ungeared total return of 13.2%
per annum since acquisition, compared with the All Property MSCI
Benchmark for the same period of 6.8% per annum, and MSCI All
Industrial for the same period of 10.6% per annum.
Rugby, Morgan Sindall House (Office)
In March 2023, contracts were exchanged to sell Morgan Sindall
House, a 34,334 sq ft single let office asset in Rugby for GBP4.0
million. The price is in line with the year end independent
valuation.
The asset produces a net rent of GBP375,378 per annum with a
lease term of 5.9 years. 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.
Beech House, Fleet (Office)
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%. The asset was acquired in 2004 as part of a
bigger interest that has been broken up, and hence there is no
asset level performance data.
Further disposals of lower value, non-core properties are under
consideration and being progressed.
Active asset management
In aggregate, 65 new lettings, rent reviews and renewals
completed since the start of the period totalling GBP6.7 million in
annualised rental income and generating GBP2.3 million per annum of
additional rent above the previous level.
Set out below are examples of ongoing active asset management
initiatives that should support continued outperformance of the
underlying portfolio from both a financial and sustainability
perspective.
Manchester, Cheadle, Stanley Green Trading Estate
(Industrial)
Asset overview and performance
Stanley Green Trading Estate in Cheadle, Manchester was acquired
in December 2020 for GBP17.3 million. Following completion of a new
warehouse development this May, the asset comprises 233,730 sq ft
of trade counter, self-storage and warehouse accommodation across
25 units on a nine acre site.
As at 31 March 2023 the valuation was GBP35.5 million,
reflecting a net initial yield of 2.6% and a reversionary yield of
6.9%. Over the financial year the asset delivered a total return of
14.1% which compared with MSCI All Industrial over the same period
of -21.0%.
Asset strategy
The strategy over the financial year was to crystallise higher
rents, develop the 80,000 sq ft, operational net zero carbon
('NZC') scheme on the 3.4 acre site and begin marketing to pre-let
the new accommodation.
Key activity
- The speculative development of 11 warehouse and trade units
has completed with GBP8.1 million of capital expenditure incurred
on the project from inception to the year end. The target rental
income is GBP1.3 million per annum, or GBP16.41 per sq ft.
- The new units have achieved an 'A+' EPC rating and we are
targeting a BREEAM Excellent accreditation.
- Approximately 40% of the new estate is already let or in
legals. The objective is for the entire scheme to be let this
calendar year.
- Negotiations are progressing with a number of occupiers to
re-gear their leases across the original trading estate which
should support continued income growth.
Chippenham, Langley Park Industrial Estate (Industrial)
Asset overview and performance
Langley Park Trading Estate in Chippenham was acquired in
December 2020 for GBP19.3 million and comprises a multi-let
industrial estate comprising 400,000 sq ft of warehouse and
ancillary office accommodation on a large site of 28 acres located
close to Chippenham town centre. As at 31 March 2023, the valuation
of GBP24.7 million reflected a net initial yield of 6.5% and a
reversionary yield of 8.4%. Over the financial year the asset
delivered a total return of -3.4%, which compared with the MSCI All
Industrial Benchmark over the same period of -21.0%.
Asset strategy
The strategy over the period was to drive net income growth, the
average unexpired lease term, and quality of accommodation across
the estate.
Key activity
- Siemens Mobility Limited ('Siemens') rent review completed in
June 2022 at GBP1.2 million per annum or GBP4.64 per sq ft,
reflecting a 26% increase in contracted rental income. Following
completion of the rent review, which was backdated to June 2021,
Siemens became the Company's second largest tenant.
- A new ten year lease renewal without breaks completed in May
2022 with IXYS UK Westcode Limited ('IXYS'), the UK subsidiary of
Littelfuse, a global manufacturer which has provided a parent
company guarantee. The rent is GBP465,000 per annum, or GBP5.50 per
sq ft, reflecting a 31% increase over the previous contracted rent
of GBP355,000 per annum. IXYS receive 12 months' rent free which
ends in December 2023, and will receive a contribution to repair
works up to the value of GBP250,000 if undertaken within two years
of lease completion. The lease includes a rent review at year five
to the higher of open market value or RPI, with a collar of 1% per
annum and a cap of 5% per annum.
- The next phase of the business plan at Langley Park is to
consider longer term development plans which could involve the
creation of new space for existing tenants. Any development of new
warehouse units would be to an operational net zero carbon ("NZC")
standard and a pre-planning application to develop 130,000 sq ft of
space has been submitted to Wiltshire County Council.
Bedford, St. John's Retail Park (Retail warehouse)
Asset overview and performance
St. John's Retail Park comprises a 120,000 sq ft retail
warehouse scheme underpinned by income from tenants including Lidl,
Home Bargains, Bensons for Beds, TK Maxx and Costa, with an average
lease term, to the earlier of lease expiry of break, of 6.5 years.
The asset benefits from an affluent catchment and has good parking.
As at 31 March 2023, the asset was valued at GBP31.0 million
reflecting a net initial income yield of 6.2% and a reversionary
yield of 6.1%. Over the financial year the asset delivered a total
return of -1.4% which compared with the MSCI All Retail Warehousing
over the same period of -7.0%.
Asset strategy
The strategy over the year was to let vacant units, improve
retailer mix and retain tenants by negotiating new longer term
leases.
Key activity
- 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 are now
constructing a 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 yield on cost assuming the maximum construction cost,
including the current site value of GBP1.3 million, is therefore
7.2%.
- Starbucks are required to deliver the restaurant to a minimum
BREEAM rating of 'Very Good' and install electric vehicle charging
points for customer usage.
Balance sheet
At the year end, the average interest rate for drawn debt was
2.9%, with an average loan term of 10.6 years, and 90% of total
drawn debt was either fixed or hedged against movements in interest
rates.
The debt refinancing 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 of the GBP177.9
million total borrowings at the year end, has an average loan
maturity of 13.1 years, with a fixed average interest rate of 2.5%.
At the year end, the incremental positive fair value benefit of
this fixed rate loan was GBP16.8 million, which is not reflected in
the Company's NAV.
The balance of drawn debt at the year end totalling GBP48.3
million comprised a revolving credit facility ('RCF') from Royal
Bank of Scotland International ('RBSI').
At the year end, the Company had a net loan to value ('LTV')
ratio of 36.0%, which is slightly above the long-term strategic
target range of 25% to 35%. The Company has significant headroom
against all loan covenants, but steps are being taken to bring the
net LTV back in line with the target range, including contracted
and further planned disposals.
Details of the loans are set out below, together with cover
against covenants.
GBP129.6 million term loan with Canada Life
Lender Loan Maturity Total Asset Cash LTV LTV ICR ICR Projected Projected
(GBPm) interest value (GBPm) ratio ratio (%)(7) covenant ICR ICR
rate (GBPm) (%)(6) covenant (%)(7) (%)(4) covenant
(%) (%)(6) (%)(4)
Facility
A 64.8 15/10/2032 2.4 271.8 2.0 46.9 65 480 185 449 185
------- ----------- --------- ------- ------- ------- --------- ------- --------- ---------- ----------
Facility
B 64.8 15/10/2039 2.6
------- ----------- --------- ------- ------- ------- --------- ------- --------- ---------- ----------
Canada
Life
Term
Loan 129.6 2.5(5)
------- ----------- --------- ------- ------- ------- --------- ------- --------- ---------- ----------
- Net LTV on the secured assets against this loan is 46.9%. On
this basis the properties charged to Canada Life could fall in
value by 28% prior to the 65% LTV covenant being breached;
- The interest cover ratio is 480% based on actual net rents for
the quarter to 31 March 2023. A 61% fall in net income could be
sustained prior to the loan covenant of 185% being breached;
- The projected interest cover ratio is 449% based on projected
net rents for the year to 31 March 2023. A 59% fall in net income
could be sustained prior to the loan covenant of 185% being
breached; and
- After utilising available cash and uncharged properties, the
valuation and actual net rents could fall by 40% and 66%
respectively prior to either the LTV or interest cover ratio
covenants being breached.
GBP75.0 million revolving credit facility ('RCF') with RBSI
The Company has headroom with both LTV and ICR covenants as
summarised below:
Lender Loan/ Maturity Total Asset LTV LTV Projected Projected
amount interest value ratio ratio ICR (%)(8) ICR covenant
drawn (GBPm) rate (GBPm) (%)(6) covenant (%)(8)
(%) (%)(6)
RBSI
RCF 75.0/ 48.3(9) 06/06/2027 5.8(10) 160.8 30.0 60(11) 351 250
-------- --------------- ------------ ---------- -------- -------- ---------- ------------ --------------
- Net LTV on the secured assets against this loan is 30.0%. On
this basis the properties charged to RBSI could fall in value by
54% prior to the 65% LTV covenant being breached;
- The projected interest cover ratio is 351% based on actual net
rents for the quarter to 31 March 2023. A 39% fall in net income
could be sustained prior to the loan covenant of 250% being
breached;
- After utilising available cash and uncharged properties, the
valuation and actual net rents could fall by 69% and 51%
respectively prior to either the LTV or projected interest cover
ratio covenants being breached;
- At the year end, GBP30.5 million of the RCF benefited from an
interest rate cap with a strike rate of 1.5%, which was due to
expire on 3 July 2023 and, together with the RCF margin of 1.65%,
resulted in an interest rate of 3.15% on the capped element of the
RCF;
- At the year end, the uncapped element of the RCF was subject
to the SONIA rate of 4.18% which, together with the RCF margin of
1.65%, resulted in an interest rate of 5.83% on the uncapped
element of the RCF; and
- This resulted in an average interest rate on the drawn RCF of 4.1%.
Since the year end, the cap, which was due to expire on 3 July
2023, has been replaced with a hedging instrument termed an
interest rate 'collar' which applies to GBP30.5 million of the
GBP48.3 million now drawn. The collar, which runs to the end of the
RCF term in June 2027, allows the Company to benefit from future
falls in interest rates down to a 3.25% floor, whilst at the same
time protecting the Company from rate increases above 4.25%. After
netting off the value of the interest rate cap, the net cost of the
collar was GBP567,000.
Since the year end, the RCF has also been converted into a
'Sustainability Linked Loan', with performance measured against
KPIs, with each KPI having the potential to either reduce the
margin by 1.65 basis points, increase it by 1.65 basis points or
have no impact;
- Change in landlord energy consumption (year on year)
o A reduction by 5% or more: reduce the margin
o No change or a reduction below 5%: no change
o An increase: increase the margin
- GRESB rating
o 4 stars or above: reduce the margin
o 3 stars: no change
o 2 stars or below: increase the margin
- Development or refurbishment projects that improve EPC or
BREEAM rating to a minimum of EPC B or BREEAM Very Good
o If all new developments or major renovations of the properties
meet the requirement: reduce the margin
o If no property has been refurbished or developed: no
change
o If one or more new developments or major renovations of the
properties carried out during the term of the facility does not
meet the requirement: increase the margin
1. Cash held at the balance sheet date includes GBP300,000 of
cash that is held within the joint ventures.
2. Loan balance divided by the property values as at 31 March 2023.
3. For the quarter preceding the Interest Payment Date ( ' IPD '
), (rental income received - void rates, void service charge and
void insurance)/interest paid.
4. The projected ICR covenant for the contracted four quarters
following the IPD deducting assumed non-recoverable costs (void
rates, void service charge and void insurance)/interest paid, based
on the average of the past four quarters.
5. Fixed total interest rate for the loan term.
6. Loan balance divided by the property values as at 31 March 2023.
7. For the quarter preceding the IPD, (rental income received -
void rates, void service charge and void insurance)/interest
paid.
8. The projected ICR covenant of the contracted four quarters
following the IPD deducting assumed non-recoverable costs (void
rates, void service charge and void insurance)/interest paid) based
on the average of the past four quarters.
9. Facility drawn as at 31 March 2023 from a total available facility of GBP48.3 million.
10. Total interest rate as at 31 March 2023 comprising the SONIA
rate of 4.18% and the margin of 1.65% at a LTV below 60%. Should
the LTV be above 60%, the margin increases to 1.95%.
11. LTV ratio covenant of 65% for years one to three, then 60% for years four and five.
Outlook
The financial year was characterised by persistent inflation,
rising interest rates, market volatility and lower levels of
economic growth. This led to the sharpest correction in real estate
values since the global financial crisis. Whilst our asset values
were impacted, a diversified portfolio combined with good progress
over the period delivering on the strategy resulted in sustained
relative outperformance of the underlying portfolio and a further
increase in the fully covered dividend level.
The strength of the balance sheet, with long term, mainly fixed
rate, debt is a key competitive advantage and there will be limited
impact on the Company from higher interest rates.
Looking forward, our programme of sustainability-led value add
investments into the existing portfolio, and an active approach to
asset management is leading to further income growth, with a
pipeline of new opportunities under active consideration. We have a
robust and diverse tenant base that we expect to be resilient in a
weaker economic environment.
Against this backdrop, our combination of a clear strategy with
increased emphasis on sustainability, a diversified portfolio and a
strong balance sheet should enable us to maintain relative
outperformance compared with our peers and continue delivering
attractive income and total returns for shareholders.
Nick Montgomery
Fund Manager
7 June 2023
Sustainability Report
Key achievements
Progress towards net zero carbon by -19% reduction in whole building
2040 operational GHG intensity (between
2019/20 and 2021/22)
Improved GRESB score 3-star rating; 77 score (up from
75 in 2021); First in peer group
--------------------------------------
EPRA sBPR Awards for Sustainability Gold Award for fifth year running
Reporting
--------------------------------------
No. specialist sustainability audits 10
--------------------------------------
Increasing number of sustainability +3 BREEAM In-Use and +2 WiredScore
certifications completed in reporting (Nine assets total)
year
(Total no. assets with sustainability
certifications)
--------------------------------------
Increasing no. assets with on-site Two assets with solar PV*
renewables *Additional solar PV installed
as part of Stanley Green development
due to PC May 2023.
--------------------------------------
Improved EPC performance
* 100% MEES compliance
* EPC coverage = 97%
* EPCs above C rating = 58%
--------------------------------------
Sustainability Linked Loan tied to RCF agreed with RBSI
Our approach to sustainability
The Board and Manager believe that focusing on sustainability,
and Environmental, Social and Governance ('ESG') considerations
more generally, throughout the real estate life cycle, will 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. A key part of our sustainability strategy is
delivering operational excellence for occupiers as well as
demonstrating continued improvements in sustainability
performance.
The Manager's real estate investment strategy, which aims to
proactively take action to improve social and environment outcomes,
focuses on the pillars of 'People, Planet and Place' which are
referenced to three core UN Sustainable Development Goals ('SDGs'):
(8) Decent Work and Economic Growth; (13) Climate Action and (11)
Sustainable Cities and Communities.
Active management of sustainability performance is a key
component of responsible asset and building management. Reducing
consumption, improving operational efficiency and delivering higher
quality, more sustainable spaces, will benefit tenants'
occupational costs and may support tenant retention and attraction,
in addition to mitigating environmental impacts and helping to
future-proof the portfolio against future legislation.
Further information on the Manager's Sustainable Investment Real
Estate with Impact approach, and its Sustainability Policy: Real
Estate with Impact, can be found here:
https://www.schroders.com/en/uk/realestate/products--services/sustainability/
This report seeks to present our approach to managing ESG
considerations and performance against our sustainability
objectives. Case studies highlighting ESG in practice are used
throughout and detailed performance data are presented with the
EPRA sBPR aligned Sustainability Performance Measures sections from
page 112.
Protecting our planet (environmental)
In the real estate sector climate change mitigation actions,
such as reducing energy demand and implementing renewable energy
systems, can collectively contribute to reducing the sector's
impact on the climate crises but also have the potential to achieve
wellbeing gains from improved indoor air quality and thermal
comfort, reduced financial burden and increased productivity. A
central focus of our real estate investment strategy is the
response to this both in terms of resilience to physical impacts
and working to ensure resilience as society transitions to a
low-carbon economy.
As part of our commitment to net zero carbon ('NZC') by 2040
(see 'Pathway to Net Zero Carbon' on page 28) throughout the
portfolio we have continued to undertake improvement initiatives
including replacement and upgrades to heating, ventilation and air
conditioning ('HVAC') systems, continued utility smart meter
roll-out for improved energy monitoring, as well as continued
upgrades to lighting systems, including installation of LEDs and
passive infrared controls. Alongside the electrification of heating
supplies, these measures are key contributors to the energy
performance certificate ('EPC') improvements realised. Such
measures also support the resilience of the strategy with respect
to transition and physical climate risks which are detailed within
our Taskforce on Climate-related Financial Disclosures ('TCFD')
response on page 107.
Intrinsically linked to the climate crisis, the nature crisis
also presents significant risks and opportunities to the real
estate sector. As such, policy is rapidly evolving to mitigate and
reverse negative impacts on nature including mandatory biodiversity
net gain ('BNG') in the UK from November 2023 and the expected
adoption of the Taskforce on Nature-related Financial Disclosures
('TNFD'). The Company has progressed with nature positive
initiatives including the installation of bird boxes, beehives and
bug hotels, as well as the protection of mature trees and planting
of wildflowers during the reporting year across the portfolio.
Performance against objectives
Environmental Net Zero Carbon (Scopes -19% reduction in whole building
1, 2 and 3) by 2040 GHG intensity (between baseline
year and 2021/2022)
--------------
Annual reduction in
landlord energy consumption * Energy =
and associated scope
1 and 2 greenhouse gas
(GHG) emissions on a * GHG emissions = -5% reduction
like-for-like basis
*annual like-for-like performance
negatively impacted by impact
of Covid-19 on occupancy in
previous reporting period 2021.
--------------
Increase use of on-site
renewable energy and * 2 assets with solar PV
to source 100% of landlord
electricity through
renewable tariffs by *Additional solar PV installed
2025 as part of the Stanley Green
development due to PC in May
2023.
* 74% of the Company's landlord procured electricity
was on a renewable tariff.
Annual reduction in 27% increase
landlord like-for-like *annual like-for-like performance
water consumption negatively impacted by impact
of Covid-19 on occupancy in
previous reporting period 2021.
Send zero waste to landfill
and prioritise waste * Zero waste directly to landfill
recycling
* 54% of waste was recycled and 46% was incinerated
with energy recovery.
Maintain 100% MEES compliance
and improve proportion * EPC coverage = 97%*
of assets with EPC ratings
B or above (floor area)
* EPCs above C rating = 58%
* EPCs above B rating = 18%
* Remaining footprint without
EPCs relates to assets where
improved works have been scheduled.
Please note that the Company
remains compliant with MEES
regulations.
Assess physical climate Physical climate risk profile
risk profiles for all determined for all assets using
assets and develop resilience third-party database.
strategies for all risks
identified
Improve biodiversity 13 assets where biodiversity
opportunities across opportunities have been completed
the portfolio (including bird boxes, beehives
or bug hotels).
-------------- ------------------------------- ---------------------------------------------------------------
Case study: Decarbonising the industrial sector
In October 2021, planning was secured for 80,000 sq ft of
operationally Net Zero Carbon ('NZC') industrial, storage and
distribution space across eleven unit s at the Stanley Green
Trading Estate, Cheadle.
In line with the Company's commitment to incorporating high
sustainability standards and building certifications across all new
development activity, the scheme has been delivered to BREEAM
Excellent, EPC A+ rating - a first for the Company - and
operational NZC specification - another first for the Company and
one of the first in the North West. Operational NZC as built has
been achieved through utilising solar photovoltaics, insulated
cladding to mitigate heat loss and installation of LED lighting.
Electric vehicle charging and cycle storage facilities have been
installed to promote active, low carbon travel. Through
construction local suppliers have been used to boost local
employment and partnership with local colleges have supported
students in the area.
Pathway to net zero carbon
According to the World Green Building Council ('WGBC') buildings
are responsible for 39% of global energy related carbon emissions
([15]) . In April 2022 the Intergovernmental Panel on Climate
Change ('IPCC') identified that global carbon emissions must peak
by 2025 at the very latest to effectively limit global temperature
rise to 1.5(o) C, in line with the Paris Agreement ([16]) .
The Board and Manager recognise that the Company has a
responsibility to embark on a journey to net zero carbon ('NZC')
([17]) and that an active approach to understanding and managing
climate risks and opportunities is fundamental to delivering
resilient investment returns and supporting the transition to a low
carbon society.
In 2019 the Manager signed the Better Building Partnership's
('BBP') Climate Commitment ([18]) and we have a net zero ambition
aligned to the Paris Agreement aim to limit warming to 1.5degC. The
Manager's commitment was further underlined by the Company who last
year announced their 'Pathway to Net Zero Carbon' committing
to:
- Operational whole buildings emissions to be aligned to a 1.5degC pathway by 2030.
- Embodied emissions for all new developments and major renovations to be net zero by 2030.
- Operational Scope 1 and 2 (landlord) emissions to be net zero by 2030.
- Operational and embodied whole building (Scope 1, 2 and 3 -
landlord and tenant) emissions to be net zero by 2040.
Progress
Forward-looking NZC pathways have been developed, using the
industry accepted Carbon Risk Real Estate Monitor ('CRREM'), to
present the decarbonisation requirements aligned with a 'Paris
Proof' decarbonisation trajectory to pursue efforts to limit global
warming to 1.5degC. During the reporting year the Manager has been
assessing progress against the operational NZC baseline for the
Company which was determined in 2021 (using 2019/2020 data). Please
note that whilst decarbonisation pathways have been developed for
34% of assets (by Gross Property value ('GPV'), assets in-scope of
the portfolio's fund level targets currently represent 29% by
GPV.
Between 2019/2020 and 2021/2022 the Company, through continued
improvement initiatives including heating, ventilation and air
conditioning ('HVAC') upgrades and LED lighting improvements, has
made good progress towards its energy and greenhouse gas ('GHG')
intensity targets achieving reductions of 10% and 19% respectively.
The current trajectory indicates the Company may strand - the point
at which the GHG intensity of the portfolio is above the CRREM
derived target - in 2033. This may be delayed by one year (2034)
through identified improvement actions indicating further works
required to meet the Company's 2040 net zero commitment. Figure A
and the table below present further details of the outcome of this
assessment.
Table: Current performance and reduction requirements to 2030
for both GHG and energy intensity.
Energy Intensity
(kWh/m(2) ) 188.3 -10% 154.0 -18% 2033
-----
GHG Intensity
(kgCO(2) e/m(2)
) 41.3 -19% 32.5 -21%
------------------ ------ ----- ------ ----- -----
Next steps
The pathway will evolve over time as the Manager, and the wider
industry, develop their understanding of how to address the carbon
impact of real estate activities, physical risks to locations and
assets, and as regulatory initiatives develop. Over time we will
seek to bring more assets into scope (such as those on FRI leases)
of our operational net zero carbon pathway, as well as account for
additional operational scope 3 emissions (such as those associated
with water and waste). A key next step will be to also assess,
manage and reduce our embodied carbon associated with developments
and refurbishments. Although this activity in the portfolio has
historically been limited, the Board and Manager recognise that
works will be needed to improve building energy and carbon
performance to reduce the risk of stranded assets.
Supporting people and places (Social)
In recent years, there has been a growing recognition of the
importance of considering social factors in real estate investment,
as investors seek to create sustainable and socially responsible
portfolios. Social factors, such as occupier and community
wellbeing, can have a significant impact on the value and success
of real estate investments.
It is widely reported that many now spend around 90% of their
time indoors and so the spaces we create and manage have a
significant influence over our physical and mental wellbeing.
Additionally, a lack of access to amenities is often cited as a
deterrent in the return to the workplace post-Covid. As such, the
Board and Manager are committed to offering working environments
which provide solutions to such issues. For example, the provision
of outdoor breakout spaces and improved ventilation to optimise
indoor environmental quality. We believe by doing so can help to
attract and retain occupiers.
Furthermore, the Board and Manager recognise that a building is
not located in isolation but rather stands as part of its local
community. Improving opportunities for interacting with local
communities helps create successful places that foster community
relationships, contribute to local prosperity, attract building
users and, ultimately, lead to better, more resilient investments.
For example, offering rent-free space for local community groups
such as food banks as was provided at our Norwich asset.
The UK government has implemented a number of policies and
initiatives aimed at promoting sustainable transport and the Board
and Manager understand that real estate has a significant role to
play in supporting this. The Company is committed to improving the
availability and quality of active transport facilities such as
cycle storage and changing facilities, as well as the installation
of electric vehicle charging points.
Performance against objectives
Ensure the health, safety and 100% of managed assets where
wellbeing of building occupiers health and safety assessments
and users were completed.
Social Improve proportion of assets where 32 Company assets.
occupier engagement activities
are implemented
-------
Improve proportion of assets where 29% of Company assets.
community engagement activities
are implemented
-------
Improve availability of low carbon Support provision of bicycle
transport (active transport facilities; infrastructure for 15 assets.
electric vehicle charging etc.) Support provision of electric
facilities vehicle charging for six
assets.
------- ----------------------------------------- -------------------------------
Case study: Creating social value
Located in the centre of the local community, Headingley Central
seeks to add to and enrich the wider amenity offer in the local
area for residents, business and visitors alike. Through the
Manager's active asset management approach, in collaboration with
third-party property manager, MAPP, the team have worked to
strengthen this mixed-use asset's sustainability credentials with a
particular focus on social considerations over the reporting year
including:
- Engaged with the local community via Headingley Development
Trust - excellent feedback to lights in trees, general site
improvements (cleaning and painting benches and paving);
- Formed a 'Town Team' for Headingley to work together to make
Headingley a better place to visit and encourage spending into
local businesses; and
- Worked with Leeds Art School students to dress vacant units
and decorate concrete benches which was well received by the
community.
Responsible business (Governance)
The Manager operates an environmental management system ('EMS')
externally certified in accordance with ISO 14001 for the asset
management of direct real estate investments in the UK and across
Europe. This provides the framework for how sustainability
principles (environmental and social) are managed throughout all
stages of its investment process and the Manager has provided a
suite of tools to support the delivery of sustainability
considerations at both asset and portfolio level including an ESG
scorecard for acquisitions, Impact and sustainability action plan
for standing investments, sustainable development brief for all
projects and property manager sustainability requirements for use
in all contractual property manager agreements.
The Manager continues to work towards enhancing its
understanding of portfolio asset sustainability credentials,
commissioning an increasing number of sustainability audits and
certifications over the course of the reporting year which
contribute towards improving performance in industry benchmarking
platforms such as the Global Real Estate Sustainability Benchmark
('GRESB') and meeting the Company's commitments, for example our
Sustainability Linked Loan agreement.
Performance against objectives
Governance Improve GRESB rating
* 1(st) in peer group
* 3-star status
* Improved score to 77
-----------
Increase coverage of sustainability 10 third-party audits commissioned
audits across portfolio
-----------
Improve coverage and quality 9 assets with sustainability
of sustainability certifications certifications*
(e.g. BREEAM) across portfolio (+5 in reporting year: 3x BREEAM
In-Use; 2x WiredScore)
* Does not include BREEAM Excellent
secured for Stanley Green development
due to PC May '23.
Maintain EPRA Gold Award for Gold Award for fifth year running
Sustainability Reporting
Sustainability Linked Loan tied Agreed in FY23
to RCF agreed with RBSI
----------- ------------------------------------ ---------------------------------------
Industry Engagement
Schroders supports, and collaborates with, several industry
groups, organisations and initiatives including the United Nations
Global Compact, United Nations Principles of Responsible Investment
('UN PRI') and Net Zero Asset Managers Initiative (of which it is a
founding member). Further details of Schroders' industry
involvement and compliance with UN PRI are listed at pages 51 - 56
of Schroders 2022 Annual Sustainable Investment Report here:
https://publications.schroders.com/view/119863317/ .
The Manager Is a member of several industry bodies including the
European Public Real Estate Association ('EPRA'), INREV ('European
Association for Investors in Non-Listed Real Estate Vehicles'),
British Council for Offices and the British Property Federation. It
was a founding member of the UK Green Building Council in 2007 and
in 2017 became a member of the Better Buildings Partnership and a
Fund Manager Member of Global Real Estate Sustainability Benchmark
('GRESB') of which the Company has participated in the annual real
estate survey for the past seven years.
Slavery and Human Trafficking Statement
The Company is not required to produce a statement on slavery
and human trafficking pursuant to the Modern Slavery Act 2015 as it
does not satisfy all the relevant triggers under that Act that
required such a statement.
The Manager to the Company, is part of Schroders plc and whose
statement on Slavery and Human Trafficking has been published in
accordance with the Modern Slavery Act 2015. Schroders' Slavery and
Human Trafficking Statement can be found here:
https://www.schroders.com/en/sustainability/ corporate
-responsibility/slavery-and-human-trafficking-statement/ .
Case Study: Sustainability Audits
External auditors recently carried out a comprehensive audit of
ten key assets within the Company's portfolio against the
Investment Manager's proprietary ESG scorecard to help understand
the current ESG performance of selected assets in the
portfolio.
The review covered the range of topics from the scorecard (e.g.
building fabric, services and utilities, energy and carbon, climate
risk and resilience, water use and efficiency, waste management,
biodiversity and green infrastructure, transport mobility, health
and wellbeing, community and social integration) with each asset
scored. Each audit comprised a desktop analysis and site
inspection, which identified the current condition of the assets
and identifiable improvement opportunity themes across the
portfolio.
This recent audit programme helped to identify actions which
would help to improve the understanding of buildings to drive
change across the portfolio, as well as common asset-level
improvement opportunities which include the following.
1. Improving the building fabric: Improve building fabric
through the provision of better insulation and/or roof and cladding
repairment to reduce the need for space heating whilst addressing
overheating / overcooling concerns.
2. Phasing out fossil fuels: Replace inefficient and energy
intensive heating systems fuelled by fossil fuels with new more
efficient electric led systems.
3. Installing on-site renewables: Utilise roof space where solar
PV panels can be installed to generate electricity on site, reduce
emissions and energy bills.
The ESG scorecard will be used to manage, measure and monitor
the ESG performance and progress of assets in the portfolio against
the Company's sustainability objectives. This will also allow the
Company to focus on realistic and achievable targets, and
demonstrate the achievement of substantial positive impacts over
time.
Business Model
Company's business
Schroder Real Estate Investment Trust Limited is a real estate
investment company with a premium listing on the Official List of
the Financial Conduct Authority and whose shares are traded on the
premium segment of the Main Market of the London Stock Exchange
(ticker: SREI).
The Company is a Real Estate Investment Trust ('REIT') and
benefits from the various tax advantages offered by the UK REIT
regime. The Company continues to be declared as an authorised
closed-ended investment scheme by the Guernsey Financial Services
Commission under section 8 of the Protection of Investors
(Bailiwick of Guernsey) Law 2020, as amended and the Authorised
Closed-ended Investment Schemes Rules and Guidance, 2021.
Investment objective
The Company aims to provide shareholders with an attractive
level of income and 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 portfolio is principally invested in the three main UK
commercial real estate sectors of industrial, office and retail,
and may also invest in other sectors including mixed-use,
residential, hotels, healthcare and leisure. The Company believes
that a diversified portfolio by location, sector, size and tenant
will outperform specialist strategies over the long term. Over the
duration of the property market cycle, the portfolio aims to
generate an above-average income return with a diverse spread of
lease expiries.
The Board has established a gearing guideline for the Investment
Manager, which seeks to target debt, net of cash, at a level
reflecting a loan to value of between 25% to 35%. This relatively
low level of gearing is used to enhance income and total returns
for shareholders with the level dependent on the property cycle and
the outlook for future returns.
The dividend policy adopted by the Board is to pay a sustainable
level of quarterly dividends to shareholders. The Board keeps the
dividend policy under active review with a view to ensuring the
Company can deliver a sustainable level of cover whilst having due
regard to current and anticipated future market conditions. It is
intended that the successful execution of the Company's strategy
will enable a progressive dividend policy.
Incorporating sustainability as a fundamental part of our
strategy means we are committing to our own 'Pathway to Net Zero
Carbon' which includes the following:
-- Operational whole buildings emissions to be aligned to a 1.5degC pathway by 2030;
-- Embodied emissions for all new developments and major renovations to be net zero by 2030;
-- Operational Scope 1 and 2 (landlord) emissions to be net zero by 2030; and
-- Operational and embodied whole building (scope 1, 2 and 3 -
landlord and tenant) emissions to be net zero by 2040.
Investment strategy
The Company's current strategy is to own and actively manage a
diversified portfolio of properties located in the UK's Winning
Cities and Regions. ([19]) These locations are benefitting from
higher economic growth resulting from structural changes such as
urbanisation, rapid changes and growth of technology, changing
demographics and social as well as positive impact themes. These
locations have diversified local economies, sustainable
occupational demand and favourable supply and demand
characteristics. These properties offer good long-term fundamentals
in terms of location, specification and sustainability performance,
and are let at affordable rents, with the potential for income and
capital growth due to good stock selection and asset management. We
aim to grow income and enhance shareholder returns through active
management and operational excellence. As discussed in the Chair's
statement on page 8, and the Manager's review on page 12, the Board
is looking to differentiate the Company's strategy by placing even
greater emphasis on how sustainability-led asset improvements will
deliver enhanced returns for shareholders.
The Board
The Board of Directors is responsible for the overall
stewardship of the Company, including investment and dividend
policies, corporate strategy, gearing, corporate governance and
risk management.
The Company has no executive d irectors or employees.
Operations
The Board has delegated investment management and accounting
services to the Investment Manager with the aim of delivering the
Company's investment objective and strategy. Details of the
Investment Manager's investment approach, along with other factors
that have affected performance during the year, are set out in the
Investment Manager's Report.
Diversification and asset allocation
The Board believes that in order to maximise the stability of
the Group's income, the optimal strategy for the Group is to invest
in a portfolio of assets diversified by location, sector, asset
size and tenant exposure with low vacancy rates and creditworthy
tenants. The value of any individual asset at the date of its
acquisition may not exceed 15% of gross assets and the proportion
of rental income deriving from a single tenant may not exceed 10%.
From time to time the Board may also impose limits on sector,
location and tenant types together with other activity such as
development.
The Company's portfolio will be invested and managed in
accordance with the Listing Rules of the Financial Conduct
Authority ('Listing Rules' and 'FCA' respectively), taking into
account the Company's investment objectives, policies and
restrictions.
Borrowings
The Board has established a gearing guideline for the Investment
Manager, which seeks to limit on-balance-sheet debt, net of cash,
to 35% of on-balance-sheet assets while recognising that this may
be exceeded in the short term from time to time. It should be noted
that the Company's Articles limit borrowings to 65% of the Group's
gross assets, calculated as at the time of borrowing. The Board
keeps this guideline under review and the Directors may require the
Investment Manager to manage the Group's assets with the objective
of bringing borrowings within the appropriate limit while taking
due account of the interests of shareholders. Accordingly,
corrective measures may not have to be taken immediately if this
would be detrimental to shareholder interests.
Interest rate exposure
It is the Board's policy to minimise interest rate risk, to the
extent commercially appropriate, either by ensuring that borrowings
are on a fixed-rate basis, or through the use of interest rate
swaps/derivatives used solely for hedging purposes.
Investment restrictions
As the Company is a closed-ended investment fund for the
purposes of the Listing Rules, the Group will adhere to the Listing
Rules applicable to closed-ended investment funds. The Company and,
where relevant, its subsidiaries will observe the following
restrictions applicable to closed-ended investment funds in
compliance with the current Listing Rules:
- Neither the Company nor any subsidiary will conduct a trading
activity which is significant in the context of the Group as a
whole and the Group will not invest in other listed investment
companies; and
- Where amendments are made to the Listing Rules, the
restrictions applying to the Company will be amended so as to
reflect the new Listing Rules
In addition, the Board will ensure compliance with the UK REIT
regime requirements.
Performance
The Board uses principal financial Key Performance Indicators
('KPIs') to monitor and assess the performance of the Company.
These are the net asset value ('NAV') total return, the performance
of the Company's underlying property portfolio relative to its MSCI
Benchmark Index and the share price:
1. NAV total return
For the year to 31 March 2023 the Company delivered a NAV total
return of -15.1% (30.9% for the year to 31 March 2022).
2. Underlying property portfolio performance relative to peer group Benchmark
The performance of the Company's property portfolio is measured
against a specific Benchmark defined as the MSCI (formerly
Investment Property Databank) UK Balanced Portfolios Quarterly
Property Index (the 'Benchmark'). As at 31 March 2023 the Benchmark
comprised 168 member funds.
Underlying property portfolio performance
Total return for 12 months to 31 March 2023 Total return for 12 months to 31 March 2022
---------------------------------------------- ----------------------------------------------
SREIT (%) MSCI Benchmark (%) SREIT (%) MSCI Benchmark (%)
---------------- ---------------------------- ---------------- ----------------------------
-7.9% -13.5% 23.5% 19.9%
---------------- ---------------------------- ---------------- ----------------------------
The analysis above has been prepared by MSCI and takes account
of all direct property-related transaction costs.
3. Share price performance
The Board monitors the level of the share price compared to the
NAV. As at 31 March 2023, the share price of 46.2p was at a 24.9%
discount to the NAV of 61.5 pps. Where appropriate on investment
grounds, the Company may from time to time repurchase its own
shares, but the Board recognises that movements in the share price
premium or discount are driven by numerous factors, including
investment performance, gearing and market sentiment. Accordingly,
we focus our efforts principally on addressing the sources of risk
and return as the most effective way of producing long-term value
for shareholders.
Our stakeholders
Section 172 statement
Although the Company is registered in Guernsey, in accordance
with the guidance set out in the AIC code a Section 172 statement
is required. Section 172 of the Companies Act 2006 requires a
Director of a company to act in the way he or she considers, in
good faith, would be most likely to promote the success of the
company for the benefit of its members as a whole. In doing this,
section 172 requires a Director to have regard, among other
matters, to: the likely consequences of any decision in the long
term; the interests of the company's employees; the need to foster
the company's business relationships with suppliers, customers and
others; the impact of the company's operations on the community and
the environment; the desirability of the company maintaining a
reputation for high standards of business conduct; and the need to
act fairly with members of the company. The Directors give careful
consideration to the factors set out above in discharging their
duties under section 172.
The Board is focused on ensuring that the Company delivers on
its strategic objectives, while taking into account the impact on
its stakeholders as a whole. It is our firm belief that
prioritising positive stakeholder relationships is central to
delivering long-term, sustainable returns. The Board is focused on
ensuring that it understands its stakeholders' needs.
Shareholders
The Board is committed to maintaining high standards of
corporate governance in order to protect shareholder interests. The
Investment Manager undertakes an active investor relations schedule
in London and the regions throughout the year, which includes
one-on-one and group meetings with shareholders as well as regular
presentations to the sell-side analyst community. Shareholder
feedback is encouraged either through the broker or directly to the
Investment Manager or Board.
Occupiers
The Company has a diverse range of tenants occupying space
across the portfolio. This includes a wide range of businesses who
operate out of our office or industrial space and the retailers and
shoppers who work at or visit our retail and leisure properties.
Active and constant engagement with these groups, either directly
through site visits or through property managers or agents, is
required to gather intelligence as to what is important to them.
Understanding changing needs, both at an individual company level,
as well as on a sectoral and broader economic level, is a key tenet
informing both our individual asset management investment decisions
as well as the longer-term strategic direction of the Company.
Communities
Our assets are located across the UK in a range of urban
environments. The buildings and their occupiers are part of the
fabric of local communities. The Company works hard to ensure that
it is engaging with local communities, councils and individuals and
that our asset strategies are sensitive to the unique heritage of
each location.
Environment
In 2019, the built environment was responsible for 31% of global
carbon emissions, which places great responsibility on those
companies that are direct or indirect contributors. The Board is
sensitive to the Company's role and is committed to continually
improving and protecting the environment by using resources such as
energy, water and materials in a sustainable manner for the
prevention of greenhouse gas emissions and climate change
mitigation. Environmental, Social and Governance ('ESG')
considerations are integrated into the Company's investment
processes and each individual asset benefits from specific
ESG-related objectives. The Board constantly reviews its approach
to sustainable investing and believes that this is integral in
delivering better long-term returns for our investors and for
safeguarding the future of the environment that we live and work
in.
Service providers
As an externally managed real estate investment trust, the Board
is reliant on a range of service providers who have a direct
working or contractual relationship or share a mutual interest with
the Company. This includes, but is not limited to, Schroders as
Investment Manager and Company Secretary, Property Managers, the
Administrator, Depositary, Auditor, Tax advisors, Solicitors,
Property Valuers and Banks . The Board has appointed the Management
Engagement Committee to regularly review these relationships as
part of its commitment to transparency and corporate best
practice.
Lenders
Borrowing allows the Company's shareholders to increase exposure
to assets consistent with the strategy and generate enhanced
returns in at a low cost. These lenders have a financial interest
in the success of the Company .
Decision making
The Board makes decisions on, among other things, the principal
matters set out under the paragraph above headed 'Role of the
Board' on page 48.
Risk and Uncertainties
The Board is responsible for the Company's system of risk
management and internal control and for reviewing its
effectiveness. The Board has carried out a robust assessment of the
principal risks and emerging risks facing the Company including
those that would threaten its business model, future performance,
solvency or liquidity. A framework of internal controls has been
designed and established to monitor and manage those risks. This
internal control framework provides a system to enable the
Directors to mitigate these risks as far as possible, which assists
in determining the nature and extent of the significant risks the
Board is willing to take in achieving its strategic objectives.
Although the Board believes that it has a robust framework of
internal controls in place this can provide only reasonable, and
not absolute, assurance against material financial misstatement or
loss and is designed to manage, not eliminate, risk.
During the year, the Board has redefined certain of its
principal risks, especially the emerging risk relating to the
sustainability and ESG credentials of the portfolio as its
sustainability becomes a greater focus for the Company. The Board
no longer considers Covid-19 to be a principal risk as the property
markets have adapted to the threats posed. The previously
identified principal risks Accounting, Legal and regulatory and Tax
have now been consolidated into a single Principal Risk,
'Regulatory Compliance'.
A summary of the principal risks and uncertainties faced by the
Company, and actions taken by the Board to manage and mitigate
these risks and uncertainties, are set out below:
Investment and strategy
An inappropriate investment strategy, or failure to The Board seeks to mitigate these risks by:
implement the strategy, could lead to - Diversification of its property portfolio through its
underperformance in the property portfolio compared to investment restrictions and guidelines
the property market generally by incorrect which are monitored and reported on by the Investment
sector or geographic weightings or a loss of income Manager.
through tenant failure, both of which - Receiving from the Investment Manager timely and
could lead to a fall in the value of the underlying accurate management information including
portfolio. performance data, attribution analysis, property-level
business plans and financial projections.
- Monitoring the implementation and results of the
investment process with the Investment
Manager with a separate meeting devoted to strategy each
year.
- Determining a borrowing policy and the Investment
Manager operates within borrowing restrictions
and guidelines.
Economic and property market
The performance of the Company could be affected by The Board considers economic conditions and the
economic and property market risk. In uncertainty around political events when making
the wider economy this could include inflation, investment decisions. The Board mitigates property market
stagflation or deflation, economic recessions, risk through the review of the Group's
movements in interest rates, Brexit impact, the war in strategy on a regular basis and discussions are held to
Ukraine, or other external shocks. ensure the strategy is still appropriate
The performance of the underlying property portfolio or if it needs updating. The Board and Investment Manager
could also be affected by structural reviews the progress of implementing
or cyclical factors impacting particular sectors or the strategy on a regular basis and provides the market
regions of the property market. with clear communications.
Sustainability
Sustainability considerations, including transition risks The Manager's Investment Committee has a continued focus
and physical risks (as defined by on sustainability to help ensure
the Task Force on Climate-related Financial Disclosures appropriate approvals are made.
('TCFD'), explained further on page Impact and Sustainability Action Plans identify asset
107 of these accounts), are not fully considered or improvement requirements in context
properly understood in the acquisition of the investment strategy.
and asset-planning processes leading to future issues The Board regularly reviews the objectives and progress
(negative effect on price, valuation of the Sustainability programme.
or saleability of assets, future costs to remediate, Evora has been appointed as a supplier to the Fund to
meeting the requirements of initiatives help collate and provide key Sustainability
such as Net Zero Carbon/Climate Risk/ BREEAM /EPC data which is then reported to the Manager, Board and
profile/GRESB). investors. Furthermore, the Board is
provided with an assurance letter from Standard and
Poor's with regard to the underlying work
that it has conducted on behalf of the Company.
Valuation/liquidity
Property valuations are inherently subjective and External reputable valuers provide an independent
uncertain. This uncertainty is heightened quarterly valuation of all the property
by geo-political and macroeconomic factors such as high assets, including those held in joint ventures, which are
inflation and increasing interest reviewed at the quarterly Board
rates. meetings.
The valuation process is reviewed by the Audit Committee
every year and members of the Audit
Committee directly meet with the valuers.
External valuers are provided with copies of all
transactions and lease events by SREIT's
lawyers and with a quarterly updates by Asset Managers to
ensure that information used to
value the portfolio is complete, accurate and up-to-date.
Gearing/leverage
The Company utilises credit facilities to increase the Gearing and compliance with covenants is monitored; at
funds available for investment. While each Board meeting against strict restrictions
this has the potential to enhance investment returns in set internally and by lenders, and is regularly announced
rising markets, in falling markets to the market.
the impact may be detrimental to performance, and may
also result in potential non-compliance
with loan covenants.
Service provider
The Company has no employees and has delegated its Service providers subject to regular reviews by both the
operations to a number of service providers. Investment Manager and the Management
Failure of controls and/or the poor performance of any Engagement Committee against clearly documented
service provider could lead to disruption, contractual arrangements detailing service
reputational damage, or loss. expectations, including confirmation of business
continuity and cyber security arrangements.
Regulatory compliance
The Company has to comply with a wide range of The Board has appointed the Investment Manager as its
legislation and regulations, covering planning, Alternative Investment Fund Manager
health and safety, Company law, accounting, reporting, ('AIFM') in accordance with the Alternative Investment
tax and Listing Rules. Fund Managers Directive ('AIFMD').
The Company Secretary monitors legal requirements to
ensure that adequate procedures and reminders
are in place to meet the Company's legal requirements and
obligations. The Investment Manager
undertakes full legal due diligence with advisors when
transacting and managing the Company's
assets. All contracts entered into by the Company are
reviewed by the Company's legal and
other advisors.
The Board is satisfied that the Investment Manager and
Administrator have adequate procedures
in place to ensure continued compliance with the
regulatory requirements of the Financial
Conduct Authority and the Guernsey Financial Services
Commission, the Listing Rules of the
London Stock Exchange, and the UK REIT regulations to
maintain the Company's REIT status.
---------------------------------------------------------- ----------------------------------------------------------
Risk assessment and internal controls
Risk assessment includes consideration of the scope and quality
of the systems of internal control operating within key service
providers, and ensures regular communication of the results of
monitoring by such providers to the Audit Committee, including the
incidence of significant control failings or weaknesses that have
been identified at any time and the extent to which they have
resulted in unforeseen outcomes or contingencies that may have a
material impact on the Company's performance or condition.
No significant control failings or weaknesses were identified
from the Audit Committee's ongoing risk assessment which has been
in place throughout the financial year and up to the date of this
report. The Board is satisfied that it has undertaken a detailed
review of the risks facing the Company.
A full analysis of the financial risks facing the Company and
its subsidiaries is set out in note 18 on pages 92 to 96.
Viability statement
The Board is required to give a statement on the Company's
viability which considers the Company's current position and
principal risks and uncertainties together with an assessment of
future prospects.
The Board conducted this review over a five-year time horizon
commencing from the date of this report which is selected to match
the period over which the Board monitors and reviews its financial
performance and forecasting. The Investment Manager prepares
five-year total return forecasts for the commercial real estate
market. The Investment Manager uses these forecasts as part of
analysing acquisition opportunities as well as for its annual asset
level business planning process. The Board receives an overview of
the asset level business plans which the Investment Manager uses to
assess the performance of the underlying portfolio and therefore
make investment decisions such as disposals and investing capital
expenditure.
The Company's principal borrowings with Canada Life are for a
weighted duration of 13.1 years and the average unexpired lease
term, assuming all tenants vacate at the earliest opportunity, is
4.7 years.
The Board's assessment of viability considers the principal
risks and uncertainties faced by the Company, as detailed in the
Strategic Review on pages 38 to 40, which could negatively impact
its ability to deliver the investment objective, strategy,
liquidity and solvency. This includes consideration of scenario
stress testing and a cash flow model prepared by the Investment
Manager that analyses the sustainability of the Company's cash
flows, dividend cover, compliance with bank covenants, general
liquidity requirements and potential legal and regulatory changes
for a five-year period.
These metrics are subject to a sensitivity analysis which
involves flexing a number of the main assumptions including
macroeconomic scenarios, delivery of specific asset management
initiatives, rental growth and void/reletting assumptions. The
Board also reviews assumptions regarding capital recycling and the
Company's ability to refinance or extend financing facilities.
Steps which are taken to mitigate these risks as set out in the
Strategic Review on pages 38 to 40 are also taken into account.
Based on the assessment, the Directors have concluded that there is
a reasonable expectation that the Company will be able to continue
in operation and meet its liabilities as they fall due over the
five-year period of their assessment.
Going concern
The Directors have examined significant areas of possible
financial risk including liquidity (with a view to both cash held
and undrawn debt facilities); the rates of both rent and service
charge collections from tenants; have considered potential falls in
property valuations; have reviewed cash flow forecasts; have
analysed forward-looking compliance with third party debt covenants
and in particular the Loan to Value covenant and interest cover
ratios; and have considered the Group's ongoing tax compliance with
the REIT regime.
Overall, after utilising available cash, excluding the cash
undrawn against the RBSI facility and uncharged properties and
units in Joint Ventures, and based on the reporting period to 31
March 2023, property valuations would have to fall by 28% before
the relevant Canada Life Loan to Value covenants were breached, and
actual net rental income would need to fall by 61% before the
interest cover covenants were breached.
Furthermore, the properties charged to RBSI could fall in value
by 54%, prior to the 65% LTV covenant being breached, and based on
projected net rents for the quarter to March 2023, a 31% fall in
net income could be sustained prior to the RBSI projected interest
loan cover covenant of 250% being breached.
As at the financial year end the undrawn capacity of the RBSI
facility was GBP26.7 million. This facility is an efficient and
flexible source of funding due to its ability to be repaid and
redrawn as often as required. Furthermore, this facility was
refinanced in June 2022 with a new five-year term to 2027 and with
an increase in the amount that can be drawn from GBP52.5m to
GBP75.0m.
Regarding the Canada Life loan of GBP129.6m, fifty per cent
matures in 2032 and fifty per cent matures in 2039
respectively.
The Board and Investment Manager also continue to closely
monitor structural changes from Covid-19, together with the ongoing
changing macroeconomic and geopolitical environments, on the
Group.
The Board and Investment Manager have considered the impact of
climate change risk as an emerging risk as set out on page 39. In
line with IFRS, investment properties are valued at fair value
based on open market valuations as described in Note 10. The
assessment of the open market valuation includes consideration of
environmental matters and the condition of each property. The
investment properties continue to be monitored by the Investment
Manager and key considerations include EPC ratings and their impact
on the properties' forecast compliance with forthcoming minimum
energy efficiency standards. Having assessed the impact of climate
change on the Group, the Directors concluded that it is not
expected to have a significant impact on the Group's going concern
or viability assessment.
The Directors have not identified any matters which would cast
significant doubt on the Group's ability to continue as a going
concern for the period to 30 June 2024 . In addition to the matters
described above, in arriving at their conclusion the Directors have
also considered:
-- The cash balance at 2 June 2023 of GBP6.5 million; and
-- The nature and timing of the Company's income and expenses.
The Directors have satisfied themselves that the Group has
adequate resources to continue in operational existence for the
period to 30 June 2024. After due consideration, the Board believes
it is appropriate to adopt the going concern basis in preparing the
financial statements.
By order of the Board
Alastair Hughes
Chair
7 June 2023
Governance Report
Board of Directors
Alastair Hughes (Chair)
Status: Independent Non-Executive Chair
Date of appointment: 26 April 2017
Alastair has over 30 years of experience in real estate markets
and currently holds directorships with British Land PLC, Tritax Big
Box and Quad Real Property Group. He was previously the Managing
Director of Jones Lang LaSalle (JLL) in the UK before becoming the
CEO for Europe, Middle East and Africa and then latterly becoming
the CEO for Asia Pacific. Alastair is a Chartered Surveyor and sat
on the Global Executive Board of JLL.
Current remuneration : GBP55,000 per annum
Material interests in any contract which is significant to the
Company's business : None
Key skills and contributions to the Board: Alastair has
extensive experience of both real estate management, strategic
leadership, and governance from his previous senior executive
roles. His experience as a chartered surveyor assists with scrutiny
of asset purchases and oversight of the Company's independent
valuer.
Stephen Bligh (Chair of the Audit Committee)
Status: Independent Non-Executive Director
Date of appointment: 28 April 2015
Stephen was previously with KPMG for 34 years, specialising in
the audit of FTSE 350 companies in property and construction. He is
a fellow of the Institute of Chartered Accountants in England &
Wales and was previously a non-executive Board Member of the
Department of Business, Innovation & Skills.
Current remuneration : GBP40,000 per annum
Material interests in any contract which is significant to the
Company's business : None
Key skills and contributions to the Board: Stephen's experience
as a property and construction audit partner enables him to
effectively oversee the performance of the Investment Manager's
fund accounting function, and the Company's Auditor. The Board
considers Stephen to have recent and relevant financial expertise
to chair the Audit Committee.
Priscilla Davies (Senior Independent Director)
Date of appointment: 7 June 2022
Priscilla has over 25 years of financial services experience
across a range of sectors including asset management and
alternative investments covering real estate, private equity,
infrastructure and renewables. She is currently a Non-Executive
Director and Chair at UBS Asset Management UK Ltd, Non-Executive
Director and Chair of Audit and Risk at Cubico Sustainable
Investments, and Non-Executive Director at Embark Group Limited and
its regulated subsidiaries.
Priscilla previously held various senior positions at Janus
Henderson, most latterly as Managing Director of the Private Equity
business. She is also a Chartered Accountant and a member of the
Chartered Accountants Australia and New Zealand.
Current remuneration : GBP40,000 per annum
Material interests in any contract which is significant to the
Company's business : None
Key skills and contributions to the Board: Priscilla brings
extensive experience as a senior executive working for asset
management businesses. She also has relevant and recent financial
experience.
Alexandra ('Ali') Innes (Chair of the Management Engagement
Committee)
Date of appointment: 16 November 2022
Alexandra's executive career has spanned investment banking,
global capital markets, and investment management, most latterly as
Managing Director, Barclays plc, and prior to that as Director of
Global Capital Markets at Bank of America Merrill Lynch.
Alexandra is a member of the Group Executive Board at Knight
Frank LLP, a Non-executive Committee Member at the Bank of England,
and a Non-executive Director of Dowlais Group plc, Securities Trust
of Scotland plc, and Waverton Investment Management Limited.
Alexandra is also Senior Independent Director of Facilities by ADF
plc, and is a Non-executive Director of the UCI Cycling World
Championships Ltd. Alexandra previously served on the board of the
All England Lawn Tennis Club (Championships) Ltd and the AELT
Ground plc.
Alexandra holds an M.A. Hons Economics from Cambridge
University, and is a Fellow of Chapter Zero. She is a Green and
Sustainable Finance Professional, Chartered Banking Institute (CCBI
GSFP), a Member of the Chartered Institute for Securities &
Investments (Chartered MCSI), and holds the CFA Institute
Certificate in ESG investing.
Current remuneration : GBP40,000 per annum
Material interests in any contract which is significant to the
Company's business : None
Key skills and contributions to the Board: Ali brings experience
as an economist, and in capital markets to the Board, alongside
sustainability expertise.
No Director has any entitlement to pensions and the Company has
not awarded any share options or long-term performance incentives
to any of them. No element of Directors' remuneration is
performance-related. There were no payments to Directors for loss
of office.
No Director has a service contract with the Company. However,
each of the Directors has a letter of appointment with the Company.
The Directors' letters of appointment, which set out the terms of
their appointments, are available for inspection at the Company's
registered office address during normal business hours and will be
available for inspection at the AGM.
Lorraine Baldry served as Chair of the Company during the year
until 26 July 2022, and Graham Basham served as an Independent
Non-Executive Director of the Company during the year, until 15
November 2022.
Report of the Directors
The Directors of the Company and its subsidiaries, together the
'Group', present the annual report and audited consolidated
financial statements of the Group for the year ended 31 March 2023
(the 'Annual Report and Consolidated Financial Statements').
Results and dividends
The results for the year under review are set out in the
attached financial statements.
During the year the Company has declared and or paid the
following interim dividends to its shareholders in accordance with
the solvency test (contained in the Companies Law):
Dividend for quarter ended Date Paid Rate
--------------------------- ---------------- ----------------------
31 March 2022 30 June 2022 0.795 pence per share
--------------------------- ---------------- ----------------------
30 June 2022 19 August 2022 0.803 pence per share
--------------------------- ---------------- ----------------------
30 September 2022 9 December 2022 0.803 pence per share
--------------------------- ---------------- ----------------------
31 December 2022 7 March 2023 0.819 pence per share
--------------------------- ---------------- ----------------------
With the solvency test provided for in the Companies Law having
been fully satisfied, all dividends were declared and paid as
interim dividends. The Directors recommend a final dividend for the
year ended 31 March 2023 of 0.836 pence per share to be paid on 30
June 2023.
All dividends paid during the year were allocated and paid as
Property Income Distributions (PIDs).
Share capital
As at 31 March 2023 the Company had 565,664,749 (2022:
565,664,749) ordinary shares in issue of which 76,554,173 ordinary
shares (representing 13.5% of the Company's total issued share
capital) were held in treasury (2022: 74,584,448 ). The total
number of voting rights of the Company was 489,110,576 at the year
end (2022: 491, 080,301 ) and this figure may be used by
shareholders as the denominator for the calculations by which they
will determine if they were required to notify their interest in,
or a change in their interest of, the Company, under the Disclosure
Guidance and Transparency Rules as at the year end.
Key services providers
The Board has adopted an outsourced business model and has
appointed the following key service providers:
Investment Manager
The Board reviews the Investment Manager's performance at its
quarterly Board meetings. In addition, the Board conducted its
annual strategic review with the Investment Manager in May 2023 to
consider the portfolio strategy and the Investment Manager's
capabilities in more depth. Subsequently, the Directors formally
discussed the performance of the Investment Manager at a meeting of
the Management Engagement Committee.
On the basis of this review, the Board remains satisfied that
the Investment Manager has the appropriate capabilities required to
support the Company and believes that the continuing appointment of
the Investment Manager under the terms of the current investment
management agreement, the details of which are set out below, is in
the interest of shareholders.
The Investment Manager received a fee of 0.9% of the Company's
NAV for providing investment management and accounting services
during the financial year. The new investment management and fund
accounting fee is now structured as follows: 0.9% on NAV up to
GBP500 million; 0.8% on NAV between GBP500 million to GBP1 billion;
and 0.7% on NAV over GBP1 billion. The fee is payable monthly in
arrears. There is no performance fee. The I nvestment M anagement A
greement can be terminated by either party on not less than 12
month" written notice or on immediate notice in the event of
certain breaches of its terms or the insolvency of either
party.
The Company has appointed the Investment Manager as its AIFM
under the AIFM Directive. There is no additional fee paid to the
Investment Manager for this service.
Administration
Schroder Investment Management Limited, an affiliate of the
AIFM, is Company Secretary to the Company for which it is paid a
fee of GBP50,000 per annum. Langham Hall (Guernsey) Limited was
appointed as the Company Secretary to the Group's subsidiaries, and
as Designated Manager, for a fee of GBP57,000 per annum and Langham
Hall UK Depositary LLP is the Company's depositary for a fee of
GBP39,000 per annum.
Anti-bribery policy
The Company continues to be committed to carrying out its
business fairly, honestly and openly. Appropriate policies are
considered to be in place to ensure compliance with the Bribery
Act.
Directors
The Directors of the Company, together with their beneficial
interests in the Company's ordinary share capital as at the date of
this report, are given below:
Director Number of ordinary shares Percentage (%)
----------------- ----------------------------------------------------- ---------------
Alastair Hughes 190,579 Less than 0.1
----------------- ----------------------------------------------------- ---------------
Stephen Bligh 165,000 Less than 0.1
----------------- ----------------------------------------------------- ---------------
Priscilla Davies 0 Nil
----------------- ----------------------------------------------------- ---------------
Ali Innes 0 Nil
----------------- ----------------------------------------------------- ---------------
Substantial shareholdings
The Company has received notifications in accordance with the
Financial Conduct Authority's ('FCA') Disclosure Guidance and
Transparency Rule 5.1.2R of the below interests in 5% or more of
the voting rights attaching to the Company's issued share capital.
The Company is reliant on investors to comply with these
regulations, and certain investors may be exempted from providing
these. As such, this should not be relied on as an exhaustive list
of shareholders holding above 5% of the Company's voting
rights.
Number of ordinary shares Percentage (%)
----------------------------------- ----------------------------------------- ---------------
Investec Wealth & Investment (UK) 78,375,224 16.0
----------------------------------- ----------------------------------------- ---------------
Schroders PLC 67,842,383 13.8
----------------------------------- ----------------------------------------- ---------------
Premier Fund Managers Limited 41,680,575 8.0
----------------------------------- ----------------------------------------- ---------------
Embark Investment Services (UK) 34,207,624 7.0
----------------------------------- ----------------------------------------- ---------------
Witan Investment Trust plc 32,250,000 6.2
----------------------------------- ----------------------------------------- ---------------
Independent Auditors
Resolutions to reappoint Ernst & Young LLP, and to give the
Directors authority to determine the Auditors' remuneration for the
coming year, will be put to shareholders at the Annual General
Meeting ('AGM') of the Company.
The Audit Committee's evaluation of the Auditors is described in
the Report of the Audit Committee on page 55.
Disclosure of information to Auditors
The Directors who held office at the date of approval of this
Directors' Report confirm that, as far as they are each aware,
there is no relevant audit information of which the Company's
Auditors are unaware and each Director has taken all the steps that
they ought to have taken as a Director to make themselves aware of
any relevant audit information and to establish that the Company's
Auditors are aware of that information.
Status for taxation
The Director of the Revenue Service in Guernsey has granted the
Company exemption from Guernsey income tax under the Income Tax
(Exempt Bodies) (Guernsey) Ordinance, 1989 and the income of the
Company may be distributed or accumulated without deduction of
Guernsey Income Tax. Exemption under the above-mentioned Ordinance
entails the payment by the Company of an annual fee of
GBP1,200.
The Group continues to pay no corporation or income tax because
it has tax exempt status in the UK as a UK Real Estate Investment
Trust ('REIT'). The Group has been a UK REIT since 2015 and the
Group's property income and gains are exempt from UK corporate
taxes provided a number of conditions in relation to the Group's
activities are met including, but not limited to, distributing at
least 90% of the Group's UK tax exempt profit as property income
distributions ('PIDs'). As far as the Directors are aware, the
Group remains in full compliance with the REIT requirements.
Shareholders who are in any doubt concerning the taxation
implications of a REIT should consult their own tax advisors.
Key information document
A Key Information Document ('KID') for the Company is published
on at least an annual basis, in accordance with the Packaged Retail
and Insurance-Based Investment Products Regulation ('PRIIPs'), and
made available on the Company's website. The calculation of figures
and performance scenarios contained in the KID are prescribed by
PRIIPS and have neither been set nor endorsed by the Board. In
fact, the Board is of the opinion that PRIIPS has been
inconsistently applied by market participants and hence creates
confusion amongst investors.
AIFMD remuneration disclosures for Schroder Real Estate
Investment Management Limited ('SREIM') for the year to 31 December
2022
Quantitative remuneration disclosures to be made in this Annual
Report in accordance with FCA Handbook rule FUND 3.3.5 are
published on the following website:
https://www.schroders.com/en/investor-relations/results-and-reports/annual-report-and-accounts-2022/
Corporate Governance
The Directors are committed to maintaining high standards of
corporate governance. Insofar as the Directors believe it to be
appropriate and relevant to the Company, it is their intention that
the Company should comply with best practice standards for the
business carried on by the Company.
The Guernsey Financial Services Commission ('GFSC') states in
the Finance Sector Code of Corporate Governance (the 'Code') that
companies which report against the UK Corporate Governance Code or
the Association of Investment Companies Code of Corporate
Governance are deemed to meet the Code, and need take no further
action.
The Board has considered the principles and recommendations of
the Association of Investment Companies Code of Corporate
Governance published in February 2019 ('AIC Code'), which applies
to accounting periods beginning on or after 1 January 2019. The AIC
Code addresses all the principles set out in the UK Corporate
Governance Code, as well as setting out additional principles and
recommendations on issues that are of specific relevance. A copy of
the AIC Code can be found at www.theaic.co.uk.
It is the Board ' s intention to continue to comply with the AIC
Code and we will continue to report the Company's compliance with
the principles and recommendations of the AIC Code, which has been
endorsed by the Financial Reporting Council ('FRC').
Statement of compliance
The Company has complied with the recommendations of the AIC
Code and the relevant provisions of the UK Corporate Governance
Code, except as set out below.
The UK Corporate Governance Code includes provisions relating
to:
- The role of the chief executive;
- Executive directors' remuneration; and
- Internal audit function.
The Board considers that these provisions are not relevant to
the Company, being an externally managed investment company. In
particular, all of the Company's day-to-day management and
administrative functions are outsourced to third parties. As a
result, the Company has no executive directors, employees or
internal operations. The provision in relation to the internal
audit function is referred to in the Audit Committee report. The
Company has therefore not reported further in respect of these
provisions.
Role of the Board
The Board has determined that its role is to consider and
determine the following principal matters which it considers are of
strategic importance to the Company:
- The overall objectives of the Company, as described under the
paragraph above headed 'Investment Policy and Strategy' and the
strategy for fulfilling those objectives within an appropriate risk
framework , in light of market conditions prevailing from time to
time;
- The capital structure of the Company, including consideration
of an appropriate policy for the use of borrowings both for the
Company and in any joint ventures in which the Company may invest
from time to time;
- The appointment of the Investment Manager, Administrator and
other appropriately skilled service providers and to monitor their
effectiveness through regular reports and meetings; and
- The key elements of the Company's performance including NAV
growth and the payment of dividends.
Board decisions
The Board makes decisions on, among other things, the principal
matters set out under the paragraph above headed 'Role of the
Board'. Issues associated with implementing the Company's strategy
are generally considered by the Board to be non-strategic in nature
and are delegated either to the Investment Manager or the
Administrator, unless the Board considers there will be
implementation matters significant enough to be of strategic
importance to the Company and should be reserved to the Board.
Generally these are defined as:
- Large property decisions affecting 10% or more of the Company's assets;
- Large property decisions affecting 5% or more of the Company's rental income; and
- Decisions affecting the Company's financial borrowings.
Evaluation of the Board and Audit Committee
In 2023 the Board carried out an internal evaluation of the
Board and its Chair, which involved questionnaires being completed
by Non-Executive Directors. It was concluded that the Board and its
Chair both operate effectively and constructively. Ongoing
consideration continues to be given towards succession planning,
relationships with key shareholders and the format and length of
board papers.
In January 2020 the Board appointed Stogdale St James Limited to
independently oversee an external performance evaluation of the
Board; there were no conflicts of interest identified. The
composition of the Board, its dynamics, its oversight of strategy
and the management of the Board meetings were all highly
regarded.
Non-Executive Directors, rotation of Directors and Directors'
tenure
The UK Corporate Governance Code recommends that Directors
should be appointed for a specified period. The Board has resolved
in this instance that Directors' appointments need not comply with
this requirement as all Directors are non-executive and their
respective appointments can be terminated at any time without
penalty. The Board has approved a policy that all Directors will
stand for re-election annually and it is the intention that no
Director will serve for more than nine years.
The appointment and replacement of Directors is governed by the
Company ' s Articles, the Companies Law, related legislations and
the Listing Rules. The Articles may only be amended by a special
resolution of the shareholders. When a vacancy arises the Board
selects the best candidate taking into account the skills and
experience required, while taking into consideration board
diversity as part of a good corporate governance culture.
Board composition and diversity
The Board currently consists of four Non-Executive Directors.
The biography of each of these Directors is set out on pages 43 and
44 of the report. The Board considers each of the Directors to be
independent. As at 31 March 2023, 50% of the individuals on the
Board of Directors were women, exceeding the 40% target as set out
in the Listing Rules, and at least one of the senior positions on
the Board of Directors was held by a woman. There were no Board
members from a minority ethnic background. This is due to the
relatively small size of the Board.
The Company believes in the benefits of diversity and places
importance on broad diversity of the Board as part of its
succession planning. The Company's diversity and inclusion policy,
outlined below, was applied throughout the recruitment process for
the two recent Board appointments.
The below tables set out the gender and ethnic diversity
composition of the Board as at 31 March 2023 and at the date of
this report.
White British or other White (including minority-white groups) 4 100 100
---------------------------------------------------------------- ---------------- ------------ --------------
Mixed/Multiple Ethnic Groups - - -
--------------------------------------------------------------------- ----------- ------------ --------------
Asian/Asian British - - -
--------------------------------------------------------------------- ----------- ------------ --------------
Black/African/Caribbean/Black British - - -
--------------------------------------------------------------------- ----------- ------------ --------------
Other ethnic group, including Arab - - -
--------------------------------------------------------------------- ----------- ------------ --------------
Not specified/prefer not to say - - -
--------------------------------------------------------------------- ----------- ------------ --------------
Men 2 50 1
--------------------------------- ---
Women 2 50 1
--------------------------------- ---
Not specified/prefer not to say - - -
--------------------------------- ---
Given that the Company is a real estate investment trust with no
executive board members, the columns and references regarding
executive management have not been included. The approach to
collecting this data was consistent for the purposes of reporting
under Listing Rule LR 9.8.6(9) and (10), and was consistent across
all four individuals in relation to whom data is being reported,
which was that all Directors confirmed that the above disclosures
were correct.
The Board has adopted a diversity and inclusion policy, which
applies to both the Board and its Audit and Nomination committees.
Appointments and succession plans will always be based on merit and
objective criteria and, within this context, the Board seeks to
promote diversity of gender, social, ethnic, professional and
educational backgrounds, sexual orientation, cognitive and personal
strengths. The Board will encourage any independent recruitment
agencies it engages to find a range of candidates that meet the
objective criteria agreed for each appointment. Candidates for
Board vacancies are selected based on their skills and experience,
which are matched against the balance of skills and experience of
the overall Board taking into account the criteria for the role
being offered.
The independence of each Director is considered on a continuing
basis. The Board has determined that all the Directors are
independent of the Investment Manager. The Board is satisfied that
it is of sufficient size with an appropriate balance of skills and
experience, independence and knowledge of both the Company and the
wider investment company sector, to enable it to discharge its
respective duties and responsibilities effectively and that no
individual or group of individuals is, or has been, in a position
to dominate decision making. Accordingly the Board approves the
nomination for re-election of each of the Directors at the
forthcoming Annual General Meeting.
The Board also considers the diversity and inclusion policies of
its key service providers.
Board committees
The Board has delegated certain of its responsibilities to its
Audit, Nomination, and Management Engagement Committees. Each of
these committees has formal terms of reference established by the
Board which are available on the Company's website. The Board
believes that its committees have an appropriate composition and
blend of backgrounds, skills and experience to discharge their
duties effectively. Details of the work of these committees are
available in their respective reports.
As all the Directors are non-executives, the Board has resolved
that it is not necessary to have a Remuneration Committee.
Board meetings and attendance
The Board meets at least four times each year. Additional
meetings are also arranged as required and regular contact between
Directors, the Investment Manager and the Administrator is
maintained throughout the year. Representatives of the Investment
Manager and Company Secretary attend each Board meeting and other
advisors also attend when requested to do so by the Board. At least
once a year the Board carries out a site visit to properties owned
by the Company.
Attendance records for the four quarterly Board meetings and
committee meetings during the year under review are set out in the
table below.
Director Board Audit Committee Nomination Committee Management Engagement
Committee
--------------------------------- ------ ------------------ ----------------------- ------------------------------
Alastair Hughes 4/4 3/3 2/2 1/1
--------------------------------- ------ ------------------ ----------------------- ------------------------------
Stephen Bligh 4/4 3/3 2/2 1/1
--------------------------------- ------ ------------------ ----------------------- ------------------------------
Priscilla Davies [20] 3/31/2 0/0 0/0
--------------------------------- ----------- --------------------- ---------------------------- -----------------
Alexandra Innes [21] 1/1 0/1 0/0 0/0
--------------------------------- ------ ------------------ ----------------------- ------------------------------
Lorraine Baldry [22] 2/2 0/1 1/1 1/1
--------------------------------- ------ ------------------ ----------------------- ------------------------------
Graham Basham [23] 2/2 1/1 1/1 1/1
--------------------------------- ------ ------------------ ----------------------- ------------------------------
Number of meetings during the
year 4 3 2 1
--------------------------------- ------ ------------------ ----------------------- ------------------------------
In addition to its regular quarterly meetings, the Board met on
three other occasions during the year, attended by all or the
majority of Directors.
Information flows
All Directors receive, in a timely manner, relevant management,
regulatory and financial information and are provided, on a regular
basis, with key information on the Company's policies, regulatory
requirements and internal controls. The Board receives and
considers reports regularly from the Investment Manager and other
key advisors and ad hoc reports and information are supplied to the
Board as required.
Data protection and security
The Board has reviewed its systems and controls in light of the
implementation of the General Data Protection Regulation (EU
Regulation 2016/679) and the Data Protection (Bailiwick of
Guernsey) Law, 2017 (the 'GDPR') in 2018 to ensure that the Company
is compliant with the requirements of the GDPR. As part of that
process the Board took steps to update its contracts and policies
accordingly and is comfortable that it meets its obligations as a
controller of personal data. The Board also requires its Investment
Manager to have a robust information security and data protection
environment in place. This is reviewed with the Investment Manager
at the annual Manager's visit day. All Board communication of a
confidential nature is managed via a secure Board application. The
Company's privacy notice is available on its webpage.
Directors' and officers' liability insurance
During the year, the Company has maintained insurance cover for
its Directors under a liability insurance policy.
Relations with shareholders
The Board believes that the maintenance of good relations with
both institutional and retail shareholders is important for the
long-term prospects of the Company. The Board receives feedback on
the views of shareholders from its corporate broker, the Investment
Manager and from the Chair. Through this process the Board seeks to
monitor the views of shareholders and to ensure an effective
communication programme.
The Board believes that the Annual General Meeting, due to be
held at 1.30 p.m. on 27 September 2023, provides an appropriate
forum for investors to communicate with the Board and it encourages
participation. The Notice of the next Annual General Meeting can be
found on page 137 of this document.
Audit Committee Report
Composition
The Audit Committee is chaired by Stephen Bligh with Alastair
Hughes, Priscilla Davies, and Alexandra Innes as members. The Board
considers that Stephen Bligh's professional experience makes him
suitably qualified to chair the Audit Committee, and his continuing
professional commitments provide him with recent relevant financial
experience. Its terms of reference are available on the Company's
webpages.
Responsibilities
The Audit Committee ensures that the Company maintains the
highest standards of integrity in financial reporting and internal
control. This includes responsibility for reviewing the half-year
and annual financial statements before their submission to the
Board. In addition, the Audit Committee is specifically charged
under its terms of reference to advise the Board, inter alia, on
the terms and scope of the appointment of the Auditors, including
their remuneration, independence, objectivity and reviewing with
the Auditors the results and effectiveness of the audit and the
interim review.
Work of the Audit Committee
The Audit Committee meets no less than twice a year. If
required, meetings are also attended by the Investment Manager, the
Administrator and the Auditor. During the year under review, the
Audit Committee met on three occasions to consider:
- The contents of the interim and annual financial statements
and to consider whether, taken as a whole, they were fair, balanced
and understandable and provided the information necessary for
shareholders to assess the Company's performance, business model
and strategy;
- The effectiveness of the Company's system of internal control;
- The external Auditor's terms of appointment, audit plan, and year end report;
- The management representation letters to the Auditors;
- The effectiveness of the audit process;
- The independence, effectiveness and objectivity of the external Auditor;
- The risk assessment of the Company; and
- Compliance with the UK REIT regime.
As noted in the Corporate Governance report, an evaluation of
the Audit Committee was completed by the Directors in May 2023 in
which it was concluded that the Audit Committee continued to
function effectively and to discharge the matters for which it is
responsible under its terms of reference.
Significant matters considered by the Audit Committee in
relation to the financial statements
Matter Action
---------------------------------------------------------- ----------------------------------------------------------
Property valuation
Property valuation is central to the business and is a The Audit Committee reviewed the outcomes of the
significant area of judgement which valuation process throughout the year and
is inherently subjective, although the valuations are discussed the detail of each quarterly valuation with
performed by independent firms of valuers: the Investment Manager at the Board
Knight Frank LLP (replaced by CBRE on 31 March 2023) for meetings.
the Company's wholly-owned portfolio
of properties, and BNP Paribas Real Estate UK for the two
joint ventures.
Errors in valuation could have a material impact on the
Company's net asset value.
Members of the Audit Committee meet with CBRE to discuss
the process, assumptions, independence
and communication with the Investment Manager. Their
approach to the 31 March 2023 valuations
was discussed with CBRE in light of the impact of the
pandemic and subsequent economic volatility,
and the Committee was satisfied that the firm had taken
a considered approach.
---------------------------------------------------------- ----------------------------------------------------------
Market volatility
The performance of the Company could be affected by As disclosed in the Going Concern and Viability
economic and property market risk. In Statements on pages 40 to 42, the Audit Committee
the wider economy this could include inflation, has considered various stress tests and sensitivities to
stagflation or deflation, economic recessions, the normal cash flow forecasts, and
movements in interest rates, the war in Ukraine, or other is confident that the Company will be able to continue
external shocks. The performance in operation and meet its liabilities
of the underlying property portfolio could also be as they fall due over the five year period of its
affected by structural or cyclical factors assessment
impacting particular sectors or regions of the property
market.
---------------------------------------------------------- ----------------------------------------------------------
Internal control
The UK Corporate Governance Code requires the Board to conduct,
at least annually, a review of the effectiveness of the Company's
systems of internal control and to report to shareholders that it
has done so. The Audit Committee, on behalf of the Board, also
regularly reviews a detailed 'Risk Matrix' identifying significant
strategic, investment-related, operational and service
provider-related risks and ensures that risk management and all
aspects of internal control are reviewed at least annually.
The Company's system of internal controls is substantially
reliant on the Investment Manager's and the Administrator's own
internal controls and internal audit processes due to the
relationships in place.
Although the Board believes that it has a robust framework of
internal controls in place, this can provide only reasonable and
not absolute assurance against material financial misstatement or
loss and is designed to manage, not eliminate, risk. No significant
issues were identified from the internal controls review.
Internal audit
The Audit Committee considered the need for an internal audit
function and concluded that this function is not required, as it is
provided by the Schroders Group's Internal Audit reviews, which
cover the functions provided by the Investment Manager, Schroder
Real Estate Investment Management Limited.
In addition, the Investment Manager prepares an ISAE 3402/AAF
01/06 Internal Controls Report which includes the Company within
the scope of the review. This report is reviewed by Ernst &
Young LLP ('EY') which issued an unqualified opinion for the period
ended September 2022. The Audit Committee has considered both the
Investment Manager's internal controls report and the review by
EY.
External Auditors' remuneration, independence and
effectiveness
Annually, the Audit Committee considers the remuneration and
independence of the external auditor. The Audit Committee
recommends the remuneration of the external auditor to the Board
and keeps under review the ratio of audit to non-audit fees to
ensure that the independence and objectivity of the external
auditor are safeguarded.
Effectiveness of the independent audit process
The Audit Committee evaluated the effectiveness of EY prior to
making a recommendation on its reappointment at the forthcoming
Annual General Meeting. As part of the evaluation, the Audit
Committee considered feedback from the Investment Manager on the
audit process and year end report from the Auditor, which details
the auditor's compliance with regulatory requirements, on
safeguards that have been established and their own internal
quality control procedures. The Audit Committee had discussions
with the audit partner on audit planning, accounting policies and
audit findings, and met the audit partner both with and without
representatives of the Investment Manager present. The Chair of the
Audit Committee also had informal discussions with the audit
partner during the course of the year. The Audit Committee is
satisfied with the effectiveness of the auditors.
Non-audit services
In order to help safeguard the independence and objectivity of
the auditor, the Audit Committee maintains a policy on the
engagement of the external auditor to provide non-audit services.
The Audit Committee's policy for the use of the external auditor
for non-audit services recognises that there are certain
circumstances where, due to EY's expertise and knowledge of the
Company, it will often be in the best position to perform non-audit
services. Under the policy, the use of the external auditor for
non-audit services is subject to pre-clearance by the Audit
Committee. Clearance will not be granted if it is believed it would
impair the external auditor's independence or where provision of
such services by the Company's auditor is prohibited. Prior to
undertaking any non-audit service, EY also completes its own
independence confirmation processes which are approved by the audit
partner.
During the year, there were no non-audit services fees paid to
EY.
Stephen Bligh
Director
7 June 2023
Management Engagement Committee Report
The Management Engagement Committee is responsible for: (1) the
monitoring and oversight of the Investment Manager's performance
and fees, and confirming the Investment Manager's ongoing
suitability; and (2) reviewing and assessing the Company's other
service providers, including reviewing their fees. All directors
are members of the Management Engagement Committee. Alexandra Innes
is the Chair of the Management Engagement Committee. Its terms of
reference are available on the Company's webpages.
Approach
Oversight of the Investment Manager Oversight of other service providers
---------------------------------------------
The Management Engagement Committee: The Management Engagement Committee
-Reviews the Investment Manager's reviews the performance and competitiveness
performance and suitability; of the Company's service providers
- Considers the reporting it has on at least an annual basis including
received from the Investment Manager the Property Managers, the Depositary,
throughout the year, and the reporting the Administrator in Guernsey, the
from the Investment Manager to shareholders; Tax Advisor, the Corporate Broker,
-Assesses management fees on an the Valuer, the Solicitors and the
absolute and relative basis, receiving Registrar.
input from the Company's corporate The Management Engagement Committee
broker, including peer group and receives feedback from the Audit
industry figures, as well as the Committee on its review of the Auditors.
structure of the fees;
-Reviews the appropriateness of
the Investment Manager's contract,
including terms such as notice period;
and
- Assesses whether the Company receives
appropriate administrative, accounting,
company secretarial and marketing
support from the Investment Manager.
---------------------------------------------
Application during the year
Oversight of the Investment Manager Oversight of other service providers
-----------------------------------------
The Management Engagement Committee The annual review of service providers
undertook a detailed review of the was satisfactory. The Management
Investment Manager's performance Engagement Committee noted that
and agreed that it has the appropriate the Audit Committee had undertaken
capabilities required to allow the a detailed evaluation of the Investment
Company to meet its investment objective. Manager, Depositary and Registrar's
The Management Engagement Committee internal controls.
also reviewed the terms of the Investment
Management Agreement and agreed
they remained fit for purpose. The
Management Engagement Committee
reviewed the other services provided
by the Investment Manager and agreed
they were satisfactory.
-----------------------------------------
Recommendations made to, and approved by, the Board:
- That the ongoing appointment of the Investment Manager on the terms
of the Investment Management Agreement, including the fee, was in
the best interests of shareholders as a whole; and
- That the Company's service providers' performance remained satisfactory.
Nomination Committee Report
The Nomination Committee is responsible for: (1) the
recruitment, selection and induction of Directors; (2) their
assessment during their tenure; and (3) the Board's succession. The
Committee is chaired by Alastair Hughes, and Stephen Bligh,
Alexandra Innes, and Priscilla Davies are members. Its terms of
reference are available on the Company's webpages.
Approach
Selection and induction Board evaluation Succession
------------------------------------------------------------ -----------------------------------------------------------
* The Nomination Committee prepares a job specification * The Nomination Committee assesses each director * The Board's succession policy is that Directors'
for each role, and an independent recruitment firm is annually. tenure will be for no longer than nine years, except
appointed. For the Chair and the chairs of committees in exceptional circumstances, and that each director
, will be subject to annual re-election at the AGM.
the Committee considers current Board members too. * Evaluation focuses on whether each director continues
to demonstrate commitment to their role and provides
a valuable contribution to the Board during the year, * The Nomination Committee reviews the Board's current
* Job specification outlines the knowledge, taking into account time commitment, independence, and future needs at least annually. Should any need
professional skills, personal qualities and conflicts and training needs. be identified the Nomination Committee will initiate
experience requirements. the selection process.
* Following the evaluation, the Nomination Committee
* Potential candidates assessed against the Company's provides a recommendation to shareholders with * The Nomination Committee will oversee the handover
diversity policy. respect to the annual re-election of directors at the process for retiring Directors.
AGM.
* The Nomination Committee discusses the long list,
invites a number of candidates for interview and * All directors retire at the AGM and their re-election
makes a recommendation to the Board. is subject to shareholder approval.
* The Nomination Committee reviews the induction and
training of new directors.
------------------------------------------------------------ -----------------------------------------------------------
Application during the year
Selection and induction Board evaluation Succession
---------------------------------------------------------- -----------------------------------------------------
* Lorraine Baldry announced that she would resign as * The annual Board evaluation was undertaken in 2023. * During the year, the Nomination Committee cons
Chair of the Company in July 2022. A sub-committee idered
comprised of Stephen Bligh and Graham Basham the need for orderly succession planning and a
considered a number of candidates for the role of * The Nomination Committee reviewed each Director's suitable plan was agreed.
Chair with input from independent recruitment time commitment and independence by reviewing a
partners. Following this process, Alastair Hughes, complete list of appointments, including pro bono
the Senior Independent Director, was identified as not-for-profit roles, to ensure that each Director
the most suitable candidate. remained free from conflict and had sufficient time
available to discharge each of their duties
effectively. All Directors were considered to be
* The Nomination Committee identified suitable independent in character and judgement.
candidates for the role of Senior Independent
Director, with support from independent executive
search firm Russell Reynolds. Following this process, * The Nomination Committee considered each Director's
Priscilla Davies was recommended to be appointed as a contributions, and noted that in addition to
Director of the Company and Senior Independent extensive experience as professionals and
Director. Non-Executive Directors, each Director had valuable
skills and experience, as detailed in their
biographies on pages 43 and 44 .
* The Nomination Committee identified suitable
candidates for the role of independent Director, with
support from independent executive search firm * Based on its assessment, the Nomination Committee
Russell Reynolds. Following this process, Alexandra provided individual recommendations for each
Innes was recommended to be appointed as a director Director's re-election.
of the Company.
---------------------------------------------------------- -----------------------------------------------------
Recommendations made to, and approved by, the Board:
- That Priscilla Davies be appointed as a Non-Executive Director with
effect from 7 June 2022.
- That Alastair Hughes be appointed as Chair of the Company with effect
from 26 July 2022.
- That Alexandra Innes be appointed as a Non-Executive of the Company
with effect from 16 November 2022.
- That all Directors continue to demonstrate commitment to their roles,
provide a valuable contribution to the deliberations of the Board,
and remain free from conflicts with the Company and its Directors,
so should all be recommended for re-election by shareholders at the
AGM.
Directors' Remuneration Report
Introduction
The below remuneration policy is in force and is subject to an
advisory vote every three years. At the AGM held on 21 September
2022, the remuneration policy was approved by shareholders, with
99.71% of votes for, 0.29% of votes against, and 80,570
withheld.
The below Directors' Annual Report on Remuneration is subject to
an annual advisory vote. An ordinary resolution to approve this
report will be put to shareholders at the forthcoming AGM.
At the AGM held on 21 September 2022, 99.72% of the votes cast
(including votes cast at the Chair's discretion) in respect of
approval of the Annual Report on Remuneration for the year ended 31
March 2022 were in favour, while 0.28% were against. 213,823 votes
were withheld.
The Board believes that the principles of Section D of the UK
Corporate Governance Code relating to remuneration do not apply to
the Company, except as outlined above, as the Company has no
executive directors.
Directors' Remuneration Policy
The Company's Articles currently limit the aggregate fees
payable to the Board of Directors to a total of GBP250,000 per
annum. Subject to this overall limit, it is the Board's policy to
determine the level of Directors' fees having regard to the fees
payable to non-executive directors in the industry generally, the
role that individual Directors fulfil in respect of Board and
Committee responsibilities, and time committed to the Company's
affairs.
Directors receive a base fee of GBP35,000 per annum, and the
Chair receives GBP55,000 per annum. The Chair of the Audit
Committee, the Chair of the Management Engagement Committee and the
Senior Independent Director each receive an additional fee of
GBP5,000 respectively. The fees were reviewed during the year to
ensure that they were competitive against peers with advice from
Russell Reynolds as part of the Board Succession process.
No Director past or present has any entitlement to pensions and
the Company has not awarded any share options or long-term
performance incentives to any of them. No element of Directors'
remuneration is performance related.
The Board did not seek the views of shareholders in setting this
remuneration policy. Any comments on the policy received from
shareholders would be considered on a case-by-case basis.
Directors' fees are reviewed periodically and take into account
research from third parties on the fee levels of Directors of peer
group companies, as well as industry norms and factors affecting
the time commitment expected of the Directors. New Directors are
subject to the provisions set out in this remuneration policy.
No Director has a service contract with the Company. However,
each of the Directors has a letter of appointment with the Company.
The Directors' letters of appointment, which set out the terms of
their appointment, are available for inspection at the Company's
registered office address during normal business hours and will be
available for inspection at the AGM.
All Directors are appointed for an initial term covering the
period from the date of their appointment until the first AGM
thereafter, at which they are required to stand for re-election in
accordance with the Articles. When recommending whether an
individual Director should seek re-election, the Board will take
into account the provisions of the UK Corporate Governance Code,
including the merits of refreshing the Board and its
Committees.
The Board has approved a policy that all Directors will stand
for re-election annually.
Directors' Remuneration Report
This Report sets out how the Directors' remuneration policy was
implemented during the year ended 31 March 2023.
Fees paid to Directors
The following amounts were paid by the Company for services as
Non-Executive Directors:
Director 31 March 2023 (GBP) 31 March 2022 (GBP)
----------------------------- -------------------- --------------------
Alastair Hughes (Chair) 47,300 35,000
----------------------------- -------------------- --------------------
Stephen Bligh [24] 37,100 35,000
----------------------------- -------------------- --------------------
Priscilla Davies [25] 30,100 -
----------------------------- -------------------- --------------------
Alexandra Innes [26] 14,400 -
----------------------------- -------------------- --------------------
Lorraine Baldry [27] 16,700 50,000
----------------------------- -------------------- --------------------
Graham Basham [28] (,) (26) 26,300 36,927
----------------------------- -------------------- --------------------
Total 171,900 156,927
----------------------------- -------------------- --------------------
Performance
The performance of the Company is described on page 35 in the
Business Model Report.
Alastair Hughes
Chair
7 June 2023
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report
and Consolidated Financial Statements in accordance with applicable
law and regulations.
The Companies Law requires the Directors to prepare the Annual
Report and Consolidated Financial Statements for each financial
year. Under the Companies Law the Directors have elected to prepare
the Annual Report and Consolidated Financial Statements in
accordance with International Financial Reporting Standards and
applicable law.
The Annual Report and Consolidated Financial Statements are
required by law to give a true and fair view of the state of
affairs of the Group and of the profit or loss of the Group for the
relevant period.
In preparing the Annual Report and Consolidated Financial
Statements, the Directors are required to:
- Select suitable accounting policies and then apply them consistently;
- Make judgements and estimates that are reasonable and prudent;
- State whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements;
- Assess the Company's ability to continue as a going concern,
disclosing as applicable matters relating to going concern; and
- Use the going concern basis of preparation unless they intend
to either liquidate the Company or cease operations or have no
realistic alternative to do so.
The Directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time the
financial position of the Group and enable them to ensure that the
Annual Report and Consolidated Financial Statements comply with the
Companies Law. They also have general responsibility for taking
such steps as are reasonably open to them to safeguard the assets
of the Company and to prevent and detect fraud, error and
non-compliance with law and regulations.
As part of the preparation of the Annual Report and Consolidated
Financial Statements, the Directors have received reports and
information from the Company's Administrator and Investment
Manager. The Directors have considered, reviewed and commented upon
the Annual Report and Consolidated Financial Statements throughout
the drafting process in order to satisfy themselves in respect of
the content.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website and for the preparation and dissemination of the
Annual Report and Consolidated Financial Statements.
Legislation in Guernsey governing the preparation and
dissemination of the Consolidated Financial Statements may differ
from legislation in other jurisdictions.
Responsibility Statement of the Directors in respect of the
Annual Report
We confirm to the best of our knowledge:
- The Consolidated Financial Statements, prepared in accordance
with International Financial Reporting Standards, give a true and
fair view of the assets, liabilities, financial position and profit
of the Group and the undertakings included in the consolidation
taken as a whole and comply with the Companies Law; and
- The Strategic Report on pages 6 to 10 and Governance Report on
pages 43 to 52 include a fair review of the development and
performance of the business and the position of the Group and the
undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and
uncertainties it faces. The Directors consider that the Annual
Report and Consolidated Financial Statements, taken as a whole, are
fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company's position and
performance, business model and strategy.
By order of the Board
Alastair Hughes, Chair
7 June 2023
Independent Auditor's Report to the members of Schroder Real
Estate Investment Trust Limited
Opinion
We have audited the consolidated financial statements (the
"Financial Statements") of Schroder Real Estate Investment Trust
Limited (the "Company") and its subsidiaries (together the "Group")
for the year ended 31 March 2023 which comprise the Consolidated
Statement of Comprehensive Income, the Consolidated Statement of
Financial Position, the Consolidated Statement of Changes in
Equity, the Consolidated Statement of Cash Flows and the related
notes 1 to 23, including a summary of significant accounting
policies. The financial reporting framework that has been applied
in their preparation is applicable law and International Financial
Reporting Standards as issued by the International Accounting
Standards Board ('IFRS') .
In our opinion, the financial statements:
give a true and fair view of the state of the Group's affairs as
at 31 March 2023 and of its loss for the year then ended;
have been properly prepared in accordance with International
Financial Reporting Standards as issued by the International
Accounting Standards Board; and
have been properly prepared in accordance with the requirements
of The Companies (Guernsey) Law, 2008.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor's responsibilities for the audit of the financial
statements section of our report. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion.
Independence
We are independent of the Group in accordance with the ethical
requirements that are relevant to our audit of the financial
statements, including the UK FRC's Ethical Standard as applied to
listed public interest entities, and we have fulfilled our other
ethical responsibilities in accordance with these requirements.
The non-audit services prohibited by the FRC's Ethical Standard
were not provided to the Group and we remain independent of the
Group in conducting the audit.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the
Directors' use of the going concern basis of accounting in the
preparation of the financial statements is appropriate. Our
evaluation of the Directors' assessment of the Group's ability to
continue to adopt the going concern basis of accounting
included:
-- obtaining an understanding of the Director's going concern
assessment process including engaging with the Investment Manager
to understand the process they followed in supporting the going
concern assessment prepared by the Directors;
-- reviewing the factors and assumptions, including the cost of
delivering the Group's sustainability strategy and the impact of
external market factors, as applied to the revenue and expenses
forecast which support the Directors' assessment of going concern.
We have challenged the sensitivities and assumptions used in the
forecasts and determined, through testing, that the methods, inputs
and assumptions utilised were appropriate to be able to make an
assessment for the Group;
-- challenging the stress testing performed and validating the
static data assumptions used by the Investment Manager by agreement
to supporting documentation;
-- in relation to the Group's borrowing arrangements, inspecting
the Directors' assessment of the risk of breaching the debt
covenants. We recalculated the debt covenants based on the stress
scenarios assessed by the Directors and reperformed reverse stress
testing in order to identify what factors would lead to the Group
breaching the financial covenants;
-- holding discussions with the Audit Committee and the
Investment Manager to determine whether, in their opinion, there is
any material uncertainty regarding the Group's ability to pay
liabilities and commitments as they fall due and challenging this
assessment through our audit procedures in relation to the
liquidity assessment;
-- confirmed whether any subsequent events identified are
adjusting or non-adjusting post balance sheet events and ensured
the requisite disclosures are included in the Annual Report and
Accounts; and
-- assessing the disclosures in the Annual Report and Financial
Statements relating to going concern to ensure they were fair,
balanced and understandable and in compliance with IFRS.
Based on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
Group's ability to continue as a going concern for the period to 30
June 2024 from when the financial statements are authorised for
issue.
In relation to the Group's reporting on how they have applied
the UK Corporate Governance Code, we have nothing material to add
or draw attention to in relation to the Directors' statement in the
financial statements about whether the Directors considered it
appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the Directors
with respect to going concern are described in the relevant
sections of this report. However, because not all future events or
conditions can be predicted, this statement is not a guarantee as
to the Group's ability to continue as a going concern.
Overview of our audit approach
Audit scope
* We have audited the financial statements of the Group
for the year ended 31 March 2023.
Key audit matters
* Risk of misstatement in the fair value of directly or
indirectly held investment property portfolio
* Risk of incomplete or inaccurate rental revenue
recognition and related year-end receivables
------------------ ------------------------------------------------------------------
Materiality
* Overall Group materiality of GBP3.0m which represents
1% of equity.
------------------ ------------------------------------------------------------------
An overview of the scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and
our allocation of performance materiality determine our audit scope
for the Group. This enables us to form an opinion on the financial
statements. We take into account size, risk profile, the
organisation of the Group and effectiveness of controls, changes in
the business environment and the potential impact of climate change
when assessing the level of work to be performed.
All audit work was performed directly by the Group audit team
which includes our real estate valuation specialists.
Changes from the prior year
There have been no significant changes in scope from the prior
year audit.
Climate change
Stakeholders are increasingly interested in how climate change
will impact the Group. The Group has determined that the most
significant future impacts from climate change are explained on
page 108 in the Task Force for Climate related Financial
Disclosures and on page 39 in the principal risks and
uncertainties. They have also explained their climate commitments
on page 27. All of these disclosures form part of the "Other
information," rather than the audited financial statements. Our
procedures on these unaudited disclosures therefore consisted
solely of considering whether they are materially inconsistent with
the financial statements, or our knowledge obtained in the course
of the audit, or otherwise appear to be materially misstated, in
line with our responsibilities on "Other information".
In planning and performing our audit we assessed the potential
impacts of climate change on the Group's business and any
consequential material impact on its Financial Statements.
The Group has explained in note 1 and 10 how they have reflected
the impact of climate change in the financial statements. Our audit
effort in considering the impact of climate change on the financial
statements was focused on the adequacy of the disclosures in the
Financial Statements and the conclusion that there was no further
impact of climate change to be taken into account as the investment
properties are valued at fair value based on open market valuations
as described in Note 10.
The open market valuation assessment includes consideration of
environmental matters and the condition of each property with
detail on the fair value of properties provided within the notes to
the financial statements. As part of this evaluation, we performed
our own risk assessment to determine the risks of material
misstatement in the financial statements from climate change which
needed to be considered in our audit.
We also challenged the Directors' considerations of climate
change risks in their assessment of going concern and viability and
associated disclosures. Where considerations of climate change were
relevant to our assessment of going concern, these are described
above.
Based on our work we have considered the impact of climate
change on the financial statements to be a key audit matter or to
impact certain key audit matters. Details of our procedures and
findings are included in our explanation of key audit matters
below.
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had
the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the
engagement team. These matters were addressed in the context of our
audit of the financial statements as a whole, and in our opinion
thereon, and we do not provide a separate opinion on these
matters.
Risk Our response to the risk Key observations
communicated
to the Audit
Committee
Risk of misstatement We have performed the Based on the
in the fair value following procedures: work performed
of directly or indirectly obtained an understanding we have no matters
held investment property of the process and controls to report to
portfolio surrounding property valuation the Audit Committee.
Refer to the Report by performing our walkthrough
of the Audit Committee procedures and evaluating
(page 53); the implementation and
Significant accounting design effectiveness of
policies (pag e 78); controls.
and assessed the independence
Note 10 of the Financial and competence of the Group's
Statements ( pages independent valuers as
85 to 88 ) required by auditing standards.
The Group's investment read the valuation reports
property portfolio provided by the Group's
consists of UK properties independent valuers to
held directly and agree the appropriateness
through joint ventures, and suitability of the
with a combined fair reported values and the
value of GBP458.5m changes in value from the
(2022: GBP515.2m). previous accounting period.
The Group's accounting performed enquiries of
policy is for the the Group's independent
fair value of the valuers to obtain an understanding
investment properties of their valuation process
to be determined by methods and assumptions
independent real estate used in their analysis
valuation experts, , including challenging
CBRE Limited ('CBRE') them as to the extent to
and BNP Paribas Real which market transactions
Estate ('BNP') using and expected rental values
recognised valuation take into account the impact
techniques. The fair of climate change;
values are based on engaged our EY property
recent real estate valuation specialists to
transactions with perform a review of a sample
similar characteristics of property valuations
and locations to those (81% of the total value
of the Group's assets. (2022: 80%)) to assess
The Group's accounting whether the reported value
policy is for the fell within a range of
valuation of investment reasonable outcomes, which
properties to be reduced included:
by the total of the validating the assumptions
unamortised lease used by the Group's independent
incentive balances. valuers in undertaking
their valuation and assessment
There is a risk of of the valuation methodologies
incorrect valuation adopted;
of the property portfolio challenging the key inputs
which could result and assumptions relating
in the Consolidated to equivalent yield and
Statement of Financial rental rates with reference
Position and the Consolidated to published market data
Statement of Comprehensive and comparable transaction
Income being materially evidence through market
misstatement. activity; and
assessing the appropriateness
of market related inputs
and reasonableness of valuation
methods, by comparing against
our own market data and
understanding of the property
market.
performed analytical review
procedures across the portfolio
of investments, focusing
on correlations with market
data and any significant
movements;
on a sample basis, with
respect to key objective
inputs to the valuation,
comprising rental income
and length of lease, agreed
the inputs to lease agreements
or rent review schedules
on a sample basis;
verified that the fair
values derived by the Group's
independent valuers for
the entire portfolio were
correctly included in the
consolidated financial
statements; and
assessed the adequacy
of the additional disclosures
of estimates and valuation
assumptions disclosed in
the notes were made in
accordance with IFRS 13
- Fair Value Measurement.
----------------------------------------------- ----------------------
Risk of incomplete We have performed the Based on the
or inaccurate rental following procedures work performed,
revenue recognition obtained an understanding we have no matters
and related year-end of the process and controls to report to
receivables for each revenue stream the Audit Committee.
by performing our walkthrough
Revenue is earned procedures and evaluating
in the form of rental the implementation and
income from the investment design effectiveness of
properties and is controls;
recognised on an accrual performed substantive
basis. During the analytical review procedures
year, the Group recognised over rental revenue for
GBP25.2m of rental each property. We formed
income (2022: GBP23.9m) an expectation of the rental
and rent receivable income for each property,
of GBP3.9m (2022: and compared this expectation
GBP4.5m). to the actual revenue recognised
during the year;
There is a risk of agreed a sample of rental
incomplete or inaccurate rates to tenancy agreements
rental revenue recognition and recalculated rental
and related year-end revenue earned by the property
receivables through for the period;
failure to recognise recalculated a sample
proper income entitlements of lease incentives based
or to apply the appropriate on the terms within the
accounting treatment. lease agreement to assess
The recoverability the appropriateness of
of year-end receivable the amount recorded; including,
is based on a number on a sample basis, verifying
of judgments and estimates. lease modifications through
agreement of the updated
terms to amended and restated
lease agreements and performing
an independent assessment
as to whether they have
been appropriately treated
in accordance with IFRS
16 - Leases ('IFRS 16');
reviewed the report prepared
by Schroder Real Estate
Investment Management Limited
(the "Asset Manager") assessing
the recoverability of the
overdue rent receivables,
and challenged the judgments
involved. For a sample
of tenants, we have inspected
the cash receipt subsequent
to the year-end date; and
tested a sample of rental
revenue journals to identify
unauthorised or inappropriate
journals to address the
risk of management override.
We enquired as to the nature
of each transaction sampled
and reviewed corroborating
evidence to conclude on
whether the journals were
reasonable and in line
with our expectations.
We selected journals by
applying criteria and thresholds
based on our professional
judgment.
----------------------------------------------- ----------------------
Prior year comparison
There have been no changes to our assessment of key audit
matters.
Our application of materiality
We apply the concept of materiality in planning and performing
the audit, in evaluating the effect of identified misstatements on
the audit and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually
or in the aggregate, could reasonably be expected to influence the
economic decisions of the users of the financial statements.
Materiality provides a basis for determining the nature and extent
of our audit procedures.
We determined materiality for the Group to be GBP3.0m (2022:
GBP3.7m), which is 1% (2022: 1%) of equity. We believe that equity
provides us with a materiality aligned to the key measurement of
the Group's performance.
During the course of our audit, we reassessed initial
materiality based on equity as at 31 March 2023 and adjusted our
audit procedures accordingly.
Performance materiality
The application of materiality at the individual account or
balance level. It is set at an amount to reduce to an appropriately
low level the probability that the aggregate of uncorrected and
undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our
assessment of the Group's overall control environment, our
judgement was that performance materiality was 75% (2022: 75%) of
our planning materiality, namely GBP2.3m (2022: GBP2.8m).
Reporting threshold
An amount below which identified misstatements are considered as
being clearly trivial.
We agreed with the Audit Committee that we would report to them
all uncorrected audit differences in excess of GBP0.15m (2022:
GBP0.19m), which is set at 5% of planning materiality, as well as
differences below that threshold that, in our view, warranted
reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the
quantitative measures of materiality discussed above and in light
of other relevant qualitative considerations in forming our
opinion.
Other information
The other information comprises the information included in the
annual report set out on pages 3 to 62 and pages 98 to 141, other
than the financial statements and our auditor's report thereon. The
Directors are responsible for the other information contained
within the annual report.
Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated
in this report, we do not express any form of assurance conclusion
thereon.
Our responsibility is to read the other information and, in
doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge
obtained in the course of the audit or otherwise appears to be
materially misstated. If we identify such material inconsistencies
or apparent material misstatements, we are required to determine
whether this gives rise to a material misstatement in the financial
statements themselves. If, based on the work we have performed, we
conclude that there is a material misstatement of the other
information, we are required to report that fact.
We have nothing to report in this regard.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in
relation to which The Companies (Guernsey) Law, 2008 requires us to
report to you if, in our opinion:
proper accounting records have not been kept by the Company;
or
the financial statements are not in agreement with the Company's
accounting records and returns; or
we have not received all the information and explanations we
require for our audit.
Corporate Governance Statement
We have reviewed the Directors' statement in relation to going
concern, longer-term viability and that part of the Corporate
Governance Statement relating to the Group's compliance with the
provisions of the UK Corporate Governance Code specified for our
review by the Listing Rules.
Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial
statements or our knowledge obtained during the audit:
Directors' statement with regards to the appropriateness of
adopting the going concern basis of accounting and any material
uncertainties identified set out on page 41;
Directors' explanation as to its assessment of the Group's
prospects, the period this assessment covers and why the period is
appropriate set out on page 40;
Director's statement on whether it has a reasonable expectation
that the Group will be able to continue in operation and meets its
liabilities set out on page 40;
Directors' statement on fair, balanced and understandable set
out on page 61;
Board's confirmation that it has carried out a robust assessment
of the emerging and principal risks set out on page 38;
The section of the annual report that describes the review of
effectiveness of risk management and internal control systems set
out on page 38; and
The section describing the work of the audit committee set out
on page 53.
Responsibilities of Directors
As explained more fully in the Statement of Directors'
Responsibilities set out on page 61, the Directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view, and for such
internal control as the Directors determine is necessary to enable
the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are
responsible for assessing the Group's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
Explanation as to what extent the audit was considered capable
of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect irregularities,
including fraud. The risk of not detecting a material misstatement
due to fraud is higher than the risk of not detecting one resulting
from error, as fraud may involve deliberate concealment by, for
example, forgery or intentional misrepresentations, or through
collusion. The extent to which our procedures are capable of
detecting irregularities, including fraud is detailed below.
However, the primary responsibility for the prevention and
detection of fraud rests with both those charged with governance of
the Group and Management .
We obtained an understanding of the legal and regulatory
frameworks that are applicable to the Group and determined that the
most significant are the Companies (Guernsey) Law, 2008, the UK
Corporate Governance Code, The 2019 AIC Code of Corporate
Governance, REIT requirements set out in part 12 of the Corporation
Tax Act (CTA) 2010 ('REIT rules') and the Listing Rules of the UK
Listing Authority;
We understood how the Group is complying with those frameworks
by making enquiries of the Investment Manager, the Administrator
and those charged with governance regarding:
their knowledge of any non-compliance or potential
non-compliance with laws and regulations that could affect the
financial statements;
the Group's methods of enforcing and monitoring non-compliance
with such policies
the Investment Manager's process for identifying and responding
to fraud risks, including programs and controls the Group has
established to address risks identified by the Group, or that
otherwise prevent, deter and detect fraud ; and
how the Group monitors those programs and controls.
We assessed the susceptibility of the Group's financial
statements to material misstatement, including how fraud might
occur by :
obtaining an understanding of entity-level controls and
considering the influence of the control environment;
obtaining the Group's assessment of fraud risks including an
understanding of the nature, extent and frequency of such
assessment documented in the Group's Risk Matrix;
making inquiries with those charged with governance, the
Investment Manager, the Company Secretary and Administrator as to
how they exercise oversight of identifying and responding to fraud
risks and the controls established to mitigate specifically those
risks the entity has identified, or that otherwise help to prevent,
deter and detect fraud;
making inquiries of the Investment Manager and those charged
with governance regarding how they identify related parties
including circumstances related to the existence of a related party
with dominant influence; and
making inquiries of the Investment Manager, the Company
Secretary, Administrator and those charged with governance
regarding their knowledge of any actual or suspected fraud or
allegations of fraudulent financial reporting affecting the
Group.
Based on this understanding we designed our audit procedures to
identify non-compliance with such laws and regulations. Our
procedures involved :
Through discussion, gaining an understanding of how those
charged with governance the Company Secretary and Administrator and
the Investment Manager identify instances of non-compliance by the
Group with relevant laws and regulations ;
Inspecting the relevant policies, processes and procedures to
further our understanding;
Reviewing Board minutes and internal compliance reporting;
Inspected management's specialist's assessment of the Group's
compliance with the REIT rules. We have tested through
recalculating and corroborating, to supporting information, the
Group's compliance with each of the REIT rules, including the
proportion of dividend distributed in the form of property income
distributions;
Inspecting correspondence with regulators; and
Obtaining relevant written representations from the Board of
Directors.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council's website at https://www
.frc.org.uk/auditorsresponsibilities. This description forms part
of our auditor's report.
Other matters we are required to address
Following the recommendation from the audit committee, we were
appointed by the Company on 5 November 2019 to audit the financial
statements for the year ending 31 March 2020 and subsequent
financial periods.
The period of total uninterrupted engagement including previous
renewals and reappointments is 3 years and 5 months, covering the
period from initial appointment to 31 March 2023.
The audit opinion is consistent with the additional report to
the audit committee.
Use of our report
This report is made solely to the Company's members, as a body,
in accordance with Section 262 of The Companies (Guernsey) Law,
2008. Our audit work has been undertaken so that we might state to
the Company's members those matters we are required to state to
them in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's
members as a body, for our audit work, for this report, or for the
opinions we have formed.
Richard Geoffrey Le Tissier
for and on behalf of Ernst & Young LLP
Guernsey, Channel Islands
7 June 2023
Financial Statements
C onsolidated Statement of Comprehensive Income
31/03/2023 31/03/2022
Notes GBP000 GBP000
Rental income 25,171 23,859
Other income 3 58 558
Property operating expenses 4 (2,258) (1,919)
Net rental and related income, excluding
joint ventures 22,971 22,498
-------------------------------------------------- ------ ----------- -----------
Share of net comprehensive rental income
in joint ventures 3,515 2,740
Net rental and related income, including
joint ventures 26,486 25,238
-------------------------------------------------- ------ ----------- -----------
Profit on the disposal of investment property 10 1,184 3,165
Net unrealised valuation (loss)/gain on
investment property 10 (60,107) 66,536
Expenses
Investment management fee 2 (2,755) (2,994)
Valuers' and other professional fees (1,875) (1,547)
Administrators' fees 2 (71) (82)
Auditor's remuneration 5 (185) (190)
Directors' fees 6 (172) (157)
Other expenses 6 (346) (422)
Total expenses (5,404) (5,392)
-------------------------------------------------- ------ ----------- -----------
Net operating (loss)/profit before net
finance costs (41,356) 86,807
Refinancing costs 15 (247) -
Finance costs (5,114) (4,139)
Net finance costs (5,361) (4,139)
Share of net comprehensive rental income
in joint ventures 11 3,515 2,740
Share of valuation (loss)/gain in joint
ventures 11 (11,513) 3,960
(Loss)/profit before taxation (54,715) 89,368
Taxation 7 - -
-------------------------------------------------- ------ ----------- -----------
Profit and total comprehensive (loss)/income
for the year attributable to the equity
holders of the parent (54,715) 89,368
-------------------------------------------------- ------ ----------- -----------
Basic and diluted (loss)/earnings per
share 8 (11.2p) 18.2p
-------------------------------------------------- ------ ----------- -----------
All items in the above statement are derived from continuing
operations. The accompanying notes 1 to 23 form an integral part of
the financial statements.
Consolidated Statement of Financial Position
31/03/2023 31/03/2022
Notes GBP000 GBP000
--------------------------------------- ------ ----------- -----------
Investment property 10 388,030 433,486
Investment in joint ventures 11 72,187 83,700
Non-current assets 460,217 517,186
--------------------------------------- ------ ----------- -----------
Trade and other receivables 12 21,626 16,169
Cash and cash equivalents 13 8,419 11,601
--------------------------------------- ------ ----------- -----------
Current assets 30,045 27,770
--------------------------------------- ------ ----------- -----------
Total assets 490,262 544,956
======================================= ====== =========== ===========
Issued capital and reserves 14 337,790 408,286
Treasury share reserve 14 (37,101) (36,103)
--------------------------------------- ------ ----------- -----------
Equity 300,689 372,183
--------------------------------------- ------ ----------- -----------
Interest-bearing loans and borrowings 15 176,933 161,791
Lease liability 10 1,668 1,987
--------------------------------------- ------ ----------- -----------
Non-current liabilities 178,601 163,778
--------------------------------------- ------ ----------- -----------
Trade and other payables 16 10,972 8,995
Current liabilities 10,972 8,995
--------------------------------------- ------ ----------- -----------
Total liabilities 189,573 173,670
--------------------------------------- ------ ----------- -----------
Total equity and liabilities 490,262 544,956
======================================= ====== =========== ===========
Net asset value per ordinary share 17 61.5p 75.8p
--------------------------------------- ------ ----------- -----------
The financial statements on pages 74 to 77 were approved at a
meeting of the Board of Directors held on 7 June 2023 and signed on
its behalf by:
Alastair Hughes, Chair Stephen Bligh, Director
The accompanying notes 1 to 23 form an integral part of the
financial statements.
Consolidated Statement of Changes in Equity
Notes Share premium Treasury Revenue Total
share reserve reserve
GBP000 GBP000 GBP000 GBP000
--------------------- ------ -------------- --------------- --------- ---------
Balance as at 31
March 2021 219,090 (35,967) 113,721 296,844
--------------------- ------ -------------- --------------- --------- ---------
Share buyback 17 - (136) - (136)
Profit for the year - - 89,368 89,368
Dividends paid 9 - - (13,893) (13,893)
--------------------- ------ -------------- --------------- --------- ---------
Balance as at 31
March 2022 219,090 (36,103) 189,196 372,183
--------------------- ------ -------------- --------------- --------- ---------
Share buyback 17 - (998) - (998)
Loss for the year - - (54,715) (54,715)
Dividends paid 9 - - (15,781) (15,781)
--------------------- ------ -------------- --------------- --------- ---------
Balance as at 31
March 2023 219,090 (37,101) 118,700 300,689
--------------------- ------ -------------- --------------- --------- ---------
The accompanying notes 1 to 23 form an integral part of the
financial statements.
Consolidated Statement of Cash Flows
31/03/2023 31/03/2022
GBP000 GBP000
-------------------------------------------- ----- ----------- -----------
Operating activities
(Loss)/profit for the year (54,715) 89,368
Adjustments for:
Profit on the disposal of investment
property (1,184) (3,165)
Net valuation loss/(gain) on investment
property 60,107 (66,536)
Share of loss/(profit) on joint ventures 7,998 (6,700)
Net finance cost 5,361 4,139
-------------------------------------------- ----- ----------- -----------
Operating cash generated before changes
in working capital 17,567 17,106
(Increase)/decrease in trade and other
receivables (1,861) 859
Increase in trade and other payables 1,978 1,098
Cash generated from operations 17,684 19,063
-------------------------------------------- ----- ----------- -----------
Investing activities
Proceeds from the sale of investment
property 8,303 12,835
Acquisition of investment property (16,058) (19,850)
Additions to investment property (10,133) (4,924)
Additions to joint ventures - (620)
Net income distributed from joint ventures 3,638 2,598
-------------------------------------------- ----- ----------- -----------
Cash flows used in investing activities (14,250) (9,961)
-------------------------------------------- ----- ----------- -----------
Financing activities
Repayment of debt - (13,000)
Additions to debt 15,600 21,200
Finance costs paid (4,479) (3,847)
Refinancing costs paid (958) -
Dividends paid 9 (15,781) (13,893)
Share buyback (998) (136)
Cash flows used in financing activities (6,616) (9,676)
-------------------------------------------- ----- ----------- -----------
Net decrease in cash and cash equivalents
for the year (3,182) (574)
Opening cash and cash equivalents 11,601 12,175
-------------------------------------------- ----- ----------- -----------
Closing cash and cash equivalents 13 8,419 11,601
-------------------------------------------- ----- ----------- -----------
The accompanying notes 1 to 23 form an integral part of the
financial statements.
Notes to the Financial Statements
1. Significant accounting policies
Schroder Real Estate Investment Trust Limited (the 'Company') is
a closed-ended investment company registered in Guernsey. The
consolidated financial statements of the Company for the year ended
31 March 2023 comprise the Company and its subsidiaries (together
referred to as the 'Group').
New standard and interpretations
The Company is satisfied that there are no standards that are
published and not yet effective that will have a material effect on
the accounts.
Statement of compliance
The financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS") issued by the
International Accounting Standards Board (the "IASB"), and
interpretations issued by the International Financial Reporting
Interpretations Committee.
The financial statements give a true and fair view and are in
compliance with The Companies (Guernsey) Law, 2008, applicable
legal and regulatory requirements and the Listing Rules of the UK
Listing Authority.
Basis of preparation
The financial statements are presented in pound sterling, which
is the Company's functional currency, rounded to the nearest
thousand. They are prepared on the historical cost basis except
that investment properties are stated at their fair value.
The accounting policies have been consistently applied to the
results, assets, liabilities and cash flows of the entities
included in the consolidated financial statements and are
consistent with those of the previous year.
Going concern
The Directors have examined significant areas of possible
financial risk including liquidity (with a view to both cash held
and undrawn debt facilities); the rates of both rent and service
charge collections from tenants; have considered potential falls in
property valuations; have reviewed cash flow forecasts; have
analysed forward-looking compliance with third party debt covenants
and in particular the Loan to Value covenant and interest cover
ratios; and have considered the Group's ongoing tax compliance with
the REIT regime.
Overall, after utilising available cash, excluding the cash
undrawn against the RBSI facility and uncharged properties and
units in Joint Ventures, and based on the reporting period to 31
March 2023, property valuations would have to fall by 28% before
the relevant Canada Life Loan to Value covenants were breached, and
actual net rental income would need to fall by 61% before the
interest cover covenants were breached.
Furthermore, the properties charged to RBSI could fall in value
by 54%, prior to the 65% LTV covenant being breached, and based on
projected net rents for the quarter to March 2023, a 31% fall in
net income could be sustained prior to the RBS projected interest
loan cover covenant of 250% being breached.
As at the financial year end the undrawn capacity of the RBSI
facility was GBP26.7 million. This facility is an efficient and
flexible source of funding due to its ability to be repaid and
redrawn as often as required. Furthermore, this facility was
refinanced in June 2022 with a new five-year term to 2027 and with
an increase in the amount that can be drawn from GBP52.5m to
GBP75.0m.
Regarding the Canada Life loan of GBP129.6m, fifty per cent
matures in 2032 and fifty per cent matures in 2039
respectively.
The Board and Investment Manager also continue to closely
monitor structural changes from Covid-19, together with the ongoing
changing macroeconomic and geopolitical environments, on the
Group.
The Board and Investment Manager have considered the impact of
climate change risk as an emerging risk as set out on page 39. In
line with IFRS, investment properties are valued at fair value
based on open market valuations as described in Note 10. The
assessment of the open market valuation includes consideration of
environmental matters and the condition of each property. The
investment properties continue to be monitored by the Investment
Manager and key considerations include EPC ratings and their impact
on the properties' forecast compliance with forthcoming minimum
energy efficiency standards. Having assessed the impact of climate
change on the Group, the Directors concluded that it is not
expected to have a significant impact on the Group's going concern
or viability assessment as described on pages 41 and 42.
The Directors have not identified any matters which would cast
significant doubt on the Group's ability to continue as a going
concern for the period to 30 June 2024 . In addition to the matters
described above, in arriving at their conclusion the Directors have
also considered:
-- The cash balance at 2 June 2023 of GBP6.5 million; and
-- The nature and timing of the Company's income and expenses.
The Directors have satisfied themselves that the Group has
adequate resources to continue in operational existence for the
period to 30 June 2024. After due consideration, the Board believes
it is appropriate to adopt the going concern basis in preparing the
financial statements.
Use of estimates and judgements
The preparation of financial statements in conformity with IFRS
requires management to make judgements, estimates and assumptions
that affect the application of policies and the reported amounts of
assets and liabilities, income and expenses. These estimates and
associated assumptions are based on historical experience and
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making
judgements about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may
differ from these estimates. The estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the period in which the
estimates are revised and in any future periods affected.
The most significant estimates made in preparing these financial
statements relate to the carrying value of investment properties,
including those within joint ventures, which are stated at fair
value. The Group uses external professional valuers to determine
the relevant amounts. Judgements made by management in the
application of IFRS that have a significant effect on the financial
statements and estimates with a significant risk of material
adjustment in the next year are disclosed in note 18.
Another significant estimate is the amount of expected credit
losses as per IFRS 9 from rent demanded during the period which has
not yet been collected. On initial recognition the Group calculates
the expected credit loss for debtors based on the lifetime expected
credit losses under the IFRS 9 simplified approach. Management
consider aged debtors' analyses, the strength of tenant covenants,
macroeconomic factors and any rental deposits. Management has
considered rental debtors on a quarterly basis and made provisions
and write offs where it has been deemed that these amounts are
irrecoverable.
Basis of consolidation
Subsidiaries
The consolidated financial statements comprise the financial
statements of the Company and all of its subsidiaries drawn up to
31 March each year. Subsidiaries are those entities controlled by
the Company. Control exists where the investor has the
following;
- power over the investee;
- exposure, or rights, to variable returns from its involvement
with the investee; and
- the ability to use its power over the entity to affect the
amount of the investor's returns.
The financial statements of subsidiaries are included in the
consolidated financial statements from the date that control
commences until the date that control ceases. Where properties are
acquired by the Group through corporate acquisitions, but the
acquisition does not meet the definition of a business combination,
the acquisition has been treated as an asset acquisition.
Joint ventures
Joint ventures are those entities over whose activities the
Group has joint control, established by contractual agreement. The
consolidated financial statements include the Group's share of
profit or loss of jointly controlled entities on an equity
accounted basis. When the Group's share of losses exceeds its
interest in an entity, the Group's carrying amount is reduced to
nil and recognition of further losses is discontinued except to the
extent that the Group has incurred legal or constructive
obligations or is making payments on behalf of an entity.
Transactions eliminated on consolidation
Intra-group balances, and any gains and losses arising from
intra-group transactions, are eliminated in preparing the
consolidated financial statements. Gains arising from transactions
with joint ventures are eliminated to the extent of the Group's
interest in the entity. Losses are eliminated in the same way as
gains but only to the extent that there is no evidence of
impairment.
Investment property
Investment property is land and buildings held to earn rental
income together with the potential for capital growth.
Acquisitions and disposals are recognised on the unconditional
exchange of contracts. Acquisitions are initially recognised at
cost, being the fair value of the consideration given, including
transaction costs associated with the investment property.
After initial recognition, investment properties are measured at
fair value, with unrealised gains and losses recognised in the
Statement of Comprehensive Income. Realised gains and losses on the
disposal of properties are recognised in the Statement of
Comprehensive Income in relation to carrying value. Fair value is
based on the market valuations of the properties as provided by a
firm of independent chartered surveyors at the reporting date.
Market valuations are carried out on a quarterly basis.
As disclosed in note 19, the Group leases out all owned
properties on operating leases. A property held under an operating
lease is classified and accounted for as an investment property
where the Group holds it to earn rentals, capital appreciation, or
both. Any such property leased under an operating lease is
classified as an investment property and carried at fair value.
Leases
For any material leases for which the Group is a lessee, the
leasehold interest is measured at fair value and included in
investment properties with the corresponding liability being shown
as a non-current liability. The fair value is calculated as the
present value of the future lease payments.
Financial instruments
Non-derivative financial instruments
Financial assets
Non-derivative financial instruments comprise trade and other
receivables and cash and cash equivalents. These are recognised
initially at fair value plus any directly attributable transaction
costs. Subsequent to initial recognition they are measured at
amortised cost using the effective interest rate method less any
impairment losses. The SPPI and Business model test have been
met.
Cash and cash equivalents
Cash at bank and short-term deposits that are held to maturity
are carried at cost. Cash and cash equivalents are defined as cash
in hand, demand deposits and short-term, highly liquid investments
readily convertible to known amounts of cash and subject to
insignificant risk of changes in value. For the purposes of the
Consolidated Statement of Cash Flows, cash and cash equivalents
consist of cash in hand and short-term deposits at banks with an
initial term of no more than three months.
Financial liabilities
Non-derivative financial liabilities comprise loans and
borrowings and trade and other payables.
Loans and borrowings
Borrowings are recognised initially at fair value of the
consideration received, less attributable transaction costs.
Subsequent to initial recognition, interest-bearing borrowings are
stated at amortised cost with any difference between cost and
redemption value being recognised in the Statement of Comprehensive
Income over the period of the borrowings on an effective interest
basis.
Trade and other payables
Trade and other payables are stated at amortised cost.
Share capital
Ordinary shares, including treasury shares, are classified as
equity.
Share buyback
Shares purchased are recognised on the trade date and debited to
the existing treasury reserve in the Statement of Changes in
Equity. Any broker's fees relating to the share buyback are debited
to other expenses.
Dividends
Dividends are recognised in the period in which they are paid. A
final dividend will be paid following the period end.
Rental income
Rental income from investment properties is recognised on a
straight-line basis over the term of ongoing leases and is shown
gross of any UK income tax. Lease incentives are spread evenly over
the lease term.
Surrender premiums and dilapidations are recognised in line with
individual lease agreements when cash inflows are certain.
Impairment
Financial assets
Financial assets at amortised cost are subject to
impairment.
The Group's significant financial assets that are subject to
IFRS 9's expected credit loss model are trade receivables from the
leasing of investment properties. The credit risk associated with
unpaid rent has increased in recent years due to macroeconomic
factors and the Company has undertaken a detailed analysis over the
recoverability of expected rents. Deferred income has been closely
monitored and any rents deemed irrecoverable discussed by
management.
Non-financial assets
The carrying amounts of the Group's non-financial assets, being
the investment in joint ventures, are reviewed at each reporting
date to determine whether there is any indication of impairment. If
any such indication exists, then the asset's recoverable amount is
estimated.
The recoverable amount of an asset or cash-generating unit is
the greater of its value in use and its fair value less costs to
sell. In assessing value in use, the estimated future cash flows
are discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money
and the risks specific to that asset.
For the purpose of impairment testing, assets are grouped
together into the smallest group of assets that generates cash
inflows from continuing use that are largely independent of the
cash inflows of other assets or groups of assets (the
"cash-generating unit").
An impairment loss is recognised if the carrying amount of an
asset or its cash-generating unit exceeds its estimated recoverable
amount. Impairment losses are recognised in the statement of
comprehensive income.
Provisions
A provision is recognised in the Consolidated Statement of
Financial Position when the Group has a legal or constructive
obligation as a result of a past event and it is probable that an
outflow of economic benefits will be required to settle the
obligation.
Finance costs
Finance costs comprise interest expenses on borrowings that are
recognised in the Statement of Comprehensive Income. Attributable
transaction costs incurred in establishing the Group's credit
facilities are deducted from the fair value of borrowings on
initial recognition and are amortised over the lifetime of the
facilities through the Statement of Comprehensive Income. Finance
costs are accounted for on an effective interest basis.
Expenses
All expenses are accounted for on an accruals basis and the
Company does not capitalise overheads and operating expenses. The
costs recharged to occupiers of the properties are presented net of
the service charge income as management consider that the property
agent acts as principal in this respect.
Taxation
SREIT elected to be treated as a UK real estate investment trust
("REIT"). The UK REIT rules exempt the profits of SREIT and its
subsidiaries' (the "Group") UK property rental business from
corporation tax. Gains on UK properties are also exempt from tax,
provided they are not held for trading or sold in the three years
after completion of development. The Group is otherwise subject to
corporation tax.
As a REIT, SREIT is required to pay Property Income
Distributions equal to at least 90% of the Group's exempted net
income. To retain UK REIT status there are a number of conditions
to be met in respect of the principal company of the Group, the
Group's qualifying activity and its balance of business. The Group
continues to meet these conditions.
Segmental reporting
The Directors are of the opinion that the Group is engaged in a
single segment of business, being property investment, and in one
geographical area, the United Kingdom. There is no one tenant that
represents more than 10% of group revenues. SREIM acts as advisor
to the Board, who then may make management decisions following
their recommendations. As such the Board of Directors are
considered to be the chief operating decision maker. A set of
consolidated IFRS financial information is provided to the Board on
a quarterly basis.
2. Material agreements
SREIM is the Investment Manager to the Company. The Investment
Manager is entitled to a fee, together with reasonable expenses
incurred in the performance of its duties. The current fee is
payable monthly in arrears at one twelfth of the aggregate of 0.9%
of the NAV of the Company (where NAV is less than GBP500 million).
The Investment Management Agreement can be terminated by either
party on not less than twelve months written notice or on immediate
notice in the event of certain breaches of its terms or the
insolvency of either party.
The tiered fee structure is as follows:
NAV Management fee percentage per annum
of NAV
<GBP500 million 0.9%
------------------------------------
GBP500 million - GBP1 billion 0.8%
------------------------------------
GBP1 billion+ 0.7%
------------------------------------
The fee covers all of the appointed services of the Investment
Manager and there are standard provisions for the reimbursement of
expenses. Additional fees can be agreed for out-of-scope services
on an ad hoc basis .
The total charge to the Consolidated Statement of Comprehensive
Income during the year was GBP2,755,000 (2022: GBP2,994,000). At
the year end GBPNil (2022: GBPNil) was outstanding.
Langham Hall (Guernsey) Limited and Langham Hall UK Depositary
LLP provide Administration, Designated Manager and Depositary
services to the Group respectively. Administration fees during the
year were GBP96,000 (2022: GBP157,000).
Schroder Investment Management Limited provides company
secretarial services to the Company with an annual fee equal to
GBP50,000. Company secretarial fees for the period 1 April 2022 to
31 March 2023 were GBP50,000 (2022: GBP50,000).
3. Other income
31/03/2023 31/03/2022
GBP000 GBP000
------------------------------------- ----------- -----------
Dilapidations, surrender premiums
and all other miscellaneous income 58 558
58 558
------------------------------------- ----------- -----------
4. Property operating expenses
31/03/2023 31/03/2022
GBP000 GBP000
----------------------------------------- ----------- -----------
Agents' fees 133 124
Repairs and maintenance 51 180
Advertising 70 78
Rates 369 323
Service charge, insurance and utilities
on vacant units 1,657 1,269
Ground rent 68 95
Bad debt write offs, provisions and
write backs (90) (150)
2,258 1,919
----------------------------------------- ----------- -----------
5. Auditor's remuneration
The total expected audit fees are GBP185,000 for the financial
year ended 31 March 2023 (2022: GBP170,000). Non-audit fees of
GBPNil (2022: GBP20,000). The prior year non-audit fee related to
the interim review conducted for the period ended 30 September
2021. There was no interim review conducted for the period ended 30
September 2022.
6. Other expenses
31/03/2023 31/03/2022
GBP000 GBP000
------------------- ----------- -----------
Professional fees 285 356
Other expenses 61 66
346 422
------------------- ----------- -----------
Directors' fees
Directors are the only officers of the Company and there are no
other key personnel. The Directors' annual remuneration for
services to the Group was GBP171,900 (2022: GBP157,000), as set out
in the Directors' Remuneration Report on pages 59 and 60 .
7. Taxation
31/03/2023 31/03/2022
GBP000 GBP000
Tax expense in the year - -
-------------------------------------- ----------- -----------
Reconciliation of effective tax
rate
(Loss)/profit before tax (54,715) 89,368
--------------------------------------- ----------- -----------
Effect of:
Tax using the UK corporation tax
rate of 19% (10,396) 16,980
Revaluation loss/(gain) not taxable 11,420 (12,642)
Share of capital loss/(profit) of
associates and joint ventures not
taxable 2,187 (1,273)
Profit on the disposal of investment
property not taxable (225) (601)
Loss on refinancing costs 47 -
UK REIT exemption (3,033) (2,464)
Current tax expense in the year - -
--------------------------------------- ----------- -----------
SREIT elected to be treated as a UK real estate investment trust
("REIT"). The UK REIT rules exempt the profits of SREIT and its
subsidiaries' (the "Group") UK property rental business from
corporation tax. Gains on UK properties are also exempt from tax,
provided they are not held for trading or sold in the three years
after completion of development. The Group is otherwise subject to
corporation tax.
As a REIT, SREIT is required to pay Property Income
Distributions equal to at least 90% of the Group's exempted net
income. To retain UK REIT status there are a number of conditions
to be met in respect of the principal company of the Group, the
Group's qualifying activity and its balance of business. The Group
continues to meet these conditions.
8. Basic and diluted earnings per share
The basic and diluted earnings per share for the Group are based
on the loss for the year of GBP54,715,000 (2022: profit of
GBP89,368,000) and the weighted average number of ordinary shares
in issue during the year of 489,951,223 (2022: 491,085,850)
9. Dividends paid
In respect of: Ordinary Rate 31/03/2023
shares (pence) GBP000
---------------------------------- --------------- -------- -----------
Q/e 31 March 2022 (dividend paid
30 June 2022) 491.08 million 0.795 3,904
Q/e 30 June 2022 (dividend paid
19 August 2022) 491.02 million 0.803 3,943
Q/e 30 Sept 2022 (dividend paid
9 December 2022) 489.11 million 0.803 3,928
Q/e 31 Dec 2022 (dividend paid
7 March 2023) 489.11 million 0.819 4,006
---------------------------------- --------------- -------- -----------
3.220 15,781
---------------------------------- --------------- -------- -----------
In respect of: Ordinary Rate 31/03/2022
shares (pence) GBP000
---------------------------------- --------------- -------- -----------
Q/e 31 March 2021 (dividend paid
25 June 2021) 491.08 million 0.656 3,222
Q/e 30 June 2021 (dividend paid
13 August 2021) 491.08 million 0.675 3,315
Q/e 30 Sept 2021 (dividend paid
17 December 2021) 491.08 million 0.726 3,565
Q/e 30 Dec 2021 (dividend paid
25 March 2022) 491.08 million 0.772 3,791
---------------------------------- --------------- -------- -----------
2.829 13,893
---------------------------------- --------------- -------- -----------
A dividend for the quarter ended 31 March 2023 of 0.836 pence
per share was approved and will be paid on the 30 June 2023.
10. Investment property
Leasehold Freehold Total
GBP000 GBP000 GBP000
---------- --------- ---------
Fair value as at 31 March 2021 36,376 315,400 351,776
--------------------------------------------- ---------- --------- ---------
Additions 118 3,669 3,787
Acquisition costs - 1,138 1,138
Acquisitions 19,850 19,850
Disposal of asset held at fair value - (9,600) (9,600)
Fair value leasehold movement (1) - (1)
Net unrealised valuation gain on investment
property 3,300 63,236 66,536
Fair value as at 31 March 2022 39,793 393,693 433,486
--------------------------------------------- ---------- --------- ---------
Additions 32 10,101 10,133
Acquisitions - 16,058 16,058
Disposal of assets held at fair value - (12,405) (12,405)
Gain on the sale of assets - 1,184 1,184
Fair value leasehold movement (319) - (319)
Net unrealised valuation loss on investment
property (4,093) (56,014) (60,107)
Fair value as at 31 March 2023 35,413 352,617 388,030
--------------------------------------------- ---------- --------- ---------
The balance above includes :
Leasehold Freehold Total
---------------------------------------
GBP000 GBP000 GBP000
--------------------------------------- ---------- --------- ---------
Investment property 37,806 393,693 431,499
Fair value leasehold adjustment 1,987 - 1,987
Fair value as at 31 March 2022 39,793 393,693 433,486
--------------------------------------- ---------- --------- ---------
Leasehold Freehold Total
---------------------------------
GBP000 GBP000 GBP000
--------------------------------- ---------- --------- --------
Investment property 33,745 352,617 386,362
Fair value leasehold adjustment 1,668 - 1,668
Fair value as at 31 March 2023 35,413 352,617 388,030
--------------------------------- ---------- --------- --------
The fair value of investment properties, as determined by the
valuer as at 31 March 2023, totals GBP398,560,000 (March 2022:
GBP440,100,000). Of this total valuation, GBP4,000,000 relates to
an unconditional exchange of contracts for Morgan Sindall House,
Rugby which is included within trade and other receivables and
which is due to complete to be sold in June 2023. In addition to
this, GBP8,198,000 (2022: GBP8,602,000) relating to lease
incentives is included within trade and other receivables.
The fair value of investment property has been determined by
CBRE, a firm of independent chartered surveyors, who are registered
independent appraisers (Note 18). The valuation has been undertaken
in accordance with the current RICS Valuation - Global Standards,
which incorporate the International Valuation Standards, issued by
the Royal Institution of Chartered Surveyors (the "Red Book"). CBRE
replaced previous valuers Knight Frank with effect from March 2023
(see page 9 for further detail).
The properties have been valued on the basis of "Fair Value" in
accordance with the RICS Valuation-- Professional Standards
VPS4(7.1) Fair Value and VPGA1 Valuations for Inclusion in
Financial Statements which adopt the definition of Fair Value used
by the International Accounting Standards Board.
The valuation has been undertaken using appropriate valuation
methodology and the Valuer's professional judgement. The Valuer's
opinion of Fair Value was primarily derived using recent comparable
market transactions on arm's length terms, where available, and
appropriate valuation techniques (The Investment Method).
The properties have been valued individually and not as part of
a portfolio.
As highlighted within the Group's investment management strategy
on page 8, developments and refurbishments form a key element of
the Groups commitment to sustainability. During the year the Group
has spent GBP10.1m on capital expenditure. This sum included both
capital works which enhanced the environmental performance of the
assets amongst other key strategies. The primary focus has been on
optimising earnings across the existing portfolio through an
extensive asset management and targeted capital expenditure
programme, targeting growth areas and sustainability
improvements.
All investment properties are categorised as Level 3 fair values
as they use significant unobservable inputs. There have not been
any transfers between Levels during the year. Investment properties
have been classed according to their real estate sector.
Information on these significant unobservable inputs per class of
investment property is disclosed below:
Quantitative information about fair value measurement using
unobservable inputs (Level 3) as at
31 March 2023
31 March Industrial Retail Office Other Total
2023 (1) (incl.
retail
warehouse)
------------- ------------------- -------------- -------------- ----------------- ------------- ----------------
Fair value
(GBP000) 220,110 85,850 72,950 19,650 398,560
---------------------------------- -------------- -------------- ----------------- ------------- ----------------
Area ('000
sq. ft) 2,396 448 424 198 3,466
---------------------------------- -------------- -------------- ----------------- ------------- ----------------
Net Range GBP2.36 GBP2.99 GBP10.50- GBP1.05 GBP0 -
passing Weighted - - GBP26.14 -GBP26.70 GBP32.85
rent average GBP14.00 GBP70.39 GBP12.87 GBP8.96 GBP7.22
per GBP4.84 GBP14.06
sq.
ft
per
annum
------------- ------------------- -------------- -------------- ----------------- ----------------- ------------
Gross Range GBP2.50 GBP4.00 GBP8.47-GBP27.00 GBP2.10 GBP3.50
ERV Weighted - - -GBP13.00 - GBP32.85
per average GBP17.50 GBP80.56 GBP18.57 GBP7.98 GBP9.51
sq. GBP6.88 GBP15.35
ft
per
annum
------------- ------------------- -------------- -------------- ----------------- ----------------- ------------
Net initial Range 3.00% -13.12% 3.68% -21.60% 4.90%-13.35% 6.00%-10.82% 3.00% - 21.6%
yield (1) 4.87% 6.71% 6.6% 5.70%
Weighted average 8.06%
--------------------------------- -------------- -------------- ----------------- ------------- ----------------
Equivalent Range 5.35% - 5.50%-14.00% 7.25%-13.00% 6.04%-11.35% 5.35%-14.00%
yield 10% 6.53% 7.33% 9.38% 7.51%
Weighted average 8.82%
--------------------------------- -------------- -------------- ----------------- ------------- ----------------
Note s:
(1) Yields based on rents receivable after deduction of head
rents but gross of non-recoverables.
Quantitative information about fair value measurement using
unobservable inputs (Level 3) as at
31 March 2022
Industrial Retail Office Total
31 (1) (incl. Other
March retail
2022 warehouse)
--------------- --------------------- ------------ ------------ ------------------ ------------ ----------------
Fair value
(GBP000) 248,950 97,450 75,450 18,250 440,100
-------------------------------------- ------------ ------------ ------------------ ------------ ----------------
Area ('000
sq. ft) 2,338 499 369 177 3,383
-------------------------------------- ------------ ------------ ------------------ ------------ ----------------
Net passing Range GBP0 - GBP0 - GBP0 - GBP29.10 GBP1.00 GBP0 - GBP14.00
rent per sq. Weighted GBP14.00 GBP32.85 GBP16.49 -GBP13.00 GBP4.93
ft per annum average GBP4.93 GBP12.77
--------------- ----------------- ---------------- ------------ ------------------ ------------ ----------------
Gross ERV Range GBP2.50 GBP7.40 GBP10.00-GBP27.50 GBP2.10 GBP2.10
per sq. ft Weighted average - GBP14.00 - GBP29.83 GBP17.80 -GBP13.00 - GBP29.83
per annum GBP5.93 GBP13.86 GBP7.91 GBP8.50
--------------- --------------------- ------------ ------------ ------------------ ------------ ----------------
Net initial Range 3.29% 0% -9.26% 4.33%-12.80% 4.75%-8.55% 3.29% -
yield (1) Weighted average - 7.25% 6.12% 7.56% 7.25% 4.34%
4.34%
--------------- --------------------- ------------ ------------ ------------------ ------------ ----------------
Equivalent Range 4.20%-7.76% 4.99%-9.97% 5.79%-9.36% 4.75%-9.21% 4.20%-7.76%
yield Weighted average 5.17% 6.37% 7.50% 5.17%
--------------- --------------------- ------------ ------------ ------------------ ------------ ----------------
Note s: (1) Yields based on rents receivable after deduction of
head rents but gross of non-recoverables
Sensitivity of measurement to variations in the significant
unobservable inputs
The significant unobservable inputs used in the fair value
measurement categorised within Level 3 of the fair value hierarchy
of the Group's property portfolio, together with the impact of
significant movements in these inputs on the fair value
measurement, are shown below:
Impact on fair value measurement Impact on fair value measurement
Unobservable of significant increase in of significant decrease
input input in input
------------------ --------------------------------- ---------------------------------
Passing rent Increase Decrease
------------------ --------------------------------- ---------------------------------
Gross ERV Increase Decrease
------------------ --------------------------------- ---------------------------------
Net initial yield Decrease Increase
------------------ --------------------------------- ---------------------------------
Equivalent yield Decrease Increase
------------------ --------------------------------- ---------------------------------
There are interrelationships between the yields and rental
values as they are partially determined by market rate
conditions.
The sensitivity of the valuation to changes in the most
significant inputs per class of investment property are shown
below:
Estimated movement in fair
value of investment properties Industrial Retail Office Other All sectors
at 31 March 2023 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------------- ----------- -------- -------- -------- ------------
Increase in ERV by 5% 9,852 3,280 3,039 161 16,332
--------------------------------- ----------- -------- -------- -------- ------------
Decrease in ERV by 5% (9,764) (3,018) (5,195) (161) (18,138)
--------------------------------- ----------- -------- -------- -------- ------------
Increase in net initial yield
by 0.25% (8,774) (3,119) (2,263) (627) (14,783)
--------------------------------- ----------- -------- -------- -------- ------------
Decrease in net initial yield
by 0.25% 9,678 3,374 2,717 673 16,442
--------------------------------- ----------- -------- -------- -------- ------------
Estimated movement in fair
value of investment properties Industrial Retail Office Other All sectors
at 31 March 2022 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------------- ----------- -------- -------- -------- ------------
Increase in ERV by 5% 11,240 3,307 3,378 605 18,530
--------------------------------- ----------- -------- -------- -------- ------------
Decrease in ERV by 5% (11,372) (3,462) (3,609) (416) (18,859)
--------------------------------- ----------- -------- -------- -------- ------------
Increase in net initial yield
by 0.25% (13,574) (3,825) (2,416) (645) (20,460)
--------------------------------- ----------- -------- -------- -------- ------------
Decrease in net initial yield
by 0.25% 15,236 4,152 2,582 694 22,664
--------------------------------- ----------- -------- -------- -------- ------------
11. Investment in joint ventures
Closing balance as at 31 March 2021 79,120
---------------------------------------------------- ---------
Purchase of further units in City Tower Unit Trust 620
Valuation gain on joint venture 3,960
---------------------------------------------------- ---------
Closing balance as at 31 March 2022 83,700
---------------------------------------------------- ---------
Purchase of further units in City Tower Unit Trust -
Valuation loss on joint venture (11,513)
Closing balance as at 31 March 2023 72,187
---------------------------------------------------- ---------
Summarised joint venture financial
information not adjusted for the Group's 31/03/2023 31/03/2022
share - City Tower Unit Trust GBP000 GBP000
------------------------------------------- ----------- -----------
Investment properties 136,100 163,450
Other assets 3,779 4,489
Total liabilities(1) (2,070) (3,120)
Revenues for the year 9,025 9,369
Total comprehensive rental income 7,570 4,219
-------------------------------------------- ----------- -----------
Net asset value attributable to the
Group 34,452 41,204
Total comprehensive income attributable
to the Group 1,893 1,083
-------------------------------------------- ----------- -----------
Summarised joint venture financial
information not adjusted for the Group's 31/03/2023 31/03/2022
share - Store Street Unit Trust GBP000 GBP000
-------------------------------------------- ----------- -----------
Investment properties 75,550 85,000
Other assets 446 691
Total liabilities(1) (527) (699)
Revenues for the year 3,700 3,728
Total comprehensive rental income 3,242 3,291
--------------------------------------------- ----------- -----------
Net asset value attributable to Group 37,735 42,496
Total comprehensive income attributable
to the Group 1,621 1,657
--------------------------------------------- ----------- -----------
(1) Liabilities are non-recourse to the Group.
The Company owns 25% of City Tower Unit Trust and 50% of Store
Unit Trust. The remaining units in the City Tower and Store Unit
Trusts are owned by other Schroders' funds.
The fair value of investment property owned by the two Joint
Ventures has been determined by BNP Paribas Real Estate, who are
registered independent appraisers. The two valuations were
undertaken on the same basis as that described under Note 10,
Investment Property.
12. Trade and other receivables
31/03/2023 31/03/2022
GBP000 GBP000
------------------------------- ----------- -----------
Rent receivable 3,578 3,608
Other debtors and prepayments 14,048 12,561
Other capital debtors 4,000 -
21,626 16,169
------------------------------- ----------- -----------
Other debtors and prepayments includes GBP8,198,000 (2022:
GBP8,602,000) in respect of lease incentives.
Other capital debtors relates to the sale proceeds receivable of
GBP 4,000,000 for the post period completion of Rugby, Morgan
Sindall House which unconditionally exchanged for sale in March
2023 and is due to complete on 23 June 2023.
As at 31 March 2023 total bad debt provisions of GBP0.4m (2022:
GBP0.9m) had been recognised against rental debtors of GBP3.3m
(2022: GBP3.8m) net of VAT.
13. Cash and cash equivalents
As at 31 March 2023 the Group held GBP8.4 million (2022: GBP11.6
million) in cash.
14. Issued capital and reserves
Stated capital
The share capital of the Company is represented by an unlimited
number of ordinary shares of no par value. As at the date of this
Report, the Company has 565,664,749 ordinary shares in issue (2022:
565,664,749) of which 76,554,173 Ordinary shares are held in
treasury (2022: 74,584,448). The total number of voting rights of
the Company was 489,110,576 (2022: 491,080,301) as at the financial
year end.
Treasury capital
76,554,173 (2022: 74,584,448) ordinary shares, which represent
13.5% (2022: 13.2%) of the Company's total issued share capital,
were held in treasury as at the financial year end.
Revenue reserve
This reserve represents an accumulated amount of the Group's
prior earnings net of dividends.
15. Interest-bearing loans and borrowings
This note provides information about the contractual terms of
the Group's interest-bearing loans and borrowings. For more
information about the Group's exposure to interest rate risk, see
note 18.
31/03/2023 31/03/2022
GBP000 GBP000
------------------------- ----------- -----------
Non-current liabilities
Loan facilities 177,885 162,252
Unamortised arrangement
fees (952) (461)
---------------------------
176,933 161,791
------------------------- ----------- -----------
The Group has in place a GBP129.6 million loan facility with
Canada Life. This has been in place since 16 April 2013 and has
been refinanced several times, most recently in October 2019.
The loan is split into two equal tranches of GBP64.8 million as
follows:
- Facility A matures in October 2032 and attracts an interest rate of 2.36%; and
- Facility B matures in October 2039 and attracts an interest rate of 2.62%.
As at the April 2023 Interest Payment Date, the Canada Life
interest cover ratio was 480% (2022: 650%) against
a covenant of 185%; the forecast interest cover ratio was 449%
(2022: 487%) against a covenant of 185%; and
the Loan to Value ratio was 46.9% (2022: 40.1%) against a
covenant of 65%.
The Canada Life facility has a first charge of security over all
the property assets in the ring-fenced security pool which at 31
March 2023 contained properties valued at GBP271.80 million (2022:
GBP322.90 million). Various restraints apply during the term of the
loan although the facility has been designed to provide significant
operational flexibility.
On 6 June 2022 the Group successfully completed a refinancing of
its facility with RBSI which had been due to expire in July 2023.
The new five-year term will run to June 2027 and the maximum amount
able to be drawn down has subsequently increased from GBP52.5m to
GBP75.0m. The facility carries an interest rate of a 1.65% margin
plus three-month SONIA rate with a 0.64% non-utilisation fee. An
interest rate cap for GBP30.5 million of the loan has been entered
into and this comes into effect if the three-month SONIA rate
reaches 1.5% and expires in July 2023.
As part of this refinancing process an amount of GBP247,000
previously unamortised loan fees were written off.
As at the April 2023 Interest Payment Date, the RBSI projected
interest cover ratio was 411% (2022: 538%) against a covenant of
250% and the Loan to Value ratio was 30.0% (2022: 24.0%) against a
covenant of 65%.
The RBSI facility has a first charge security over certain
property assets which at 31 March 2023 contained properties valued
at GBP160.8 million (2022: GBP136.5 million).
A reconciliation of financing movements for the year is
presented below split in to cash and non-cash items:
31/03/2023
GBP000
------------------------------ -------------
Loan balance brought forward 161,791
Drawdown on RBSI RCF (cash) 15,600
Amortised cost adjustment (458)
------------------------------- -------------
Loan balance carried forward 176,933
------------------------------- -------------
31/03/2022
GBP000
------------------------------ -----------
Loan balance brought forward 153,370
Drawdown on RBSI RCF (cash) 21,200
Repayment of RBSI RCF (cash) (13,000)
Amortised cost adjustment 221
------------------------------- -----------
Loan balance carried forward 161,791
------------------------------- -----------
16. Trade and other payables
31/03/2023 31/03/2022
GBP000 GBP000
----------------------------------- ----------- -----------
Deferred income 5,131 4,123
Rental deposits 1,850 1,744
Interest payable 1,101 840
Other trade payables and accruals 2,890 2,288
------------------------------------ ----------- -----------
10,972 8,995
----------------------------------- ----------- -----------
17. NAV per Ordinary Share and share buyback
Between the 28 July 2022 to 15 September 2022 the Company
purchased a further sum of 1,969,725 shares for a sum of GBP1.0m at
an average price of 50.6 pence per share.
As a consequence of the buyback, the number of ordinary shares
in issue fell from 491,080,301 to 489,110,576 during the reporting
period.
The NAV per Ordinary Share is based on the net assets of
GBP300,689,000 (2022: GBP372,183,000) and 489,110,576 (2022:
491,080,301) ordinary shares in issue as at the reporting date.
18. Financial instruments, properties and associated risks
Financial risk factors
The Group holds cash and liquid resources as well as having
debtors and creditors that arise directly from its operations. The
Group uses interest rate contracts when required to limit exposure
to interest rate risks, but does not have any other derivative
instruments.
The main risks arising from the Group's financial instruments
and properties are market price risk, credit risk, liquidity risk
and interest rate risk. The Group has no exposure to foreign
currency exchange risk. The Board regularly reviews and agrees
policies for managing each of these risks and these are summarised
below:
Market price risk
Rental income and the market value for properties are generally
affected by overall conditions in the economy, such as changes in
gross domestic product, employment trends, inflation and changes in
interest rates. Changes in gross domestic product may also impact
employment levels, which in turn may impact the demand for
premises. Furthermore, movements in interest rates may also affect
the cost of financing for real estate companies. Both rental income
and property values may also be affected by other factors specific
to the real estate market such as competition from other property
owners; the perceptions of prospective tenants of the
attractiveness, convenience and safety of properties; the inability
to collect rents because of bankruptcy or the insolvency of
tenants; the periodic need to renovate, repair and re-lease space
and the costs thereof; and the costs of maintenance and insurance,
and increased operating costs.
The Directors monitor the market value of investment properties
by having independent valuations carried out quarterly by a firm of
independent chartered surveyors. Note 10 sets out the sensitivity
analysis on the market price risk. Concentration risk, based on
industry and geography, is set out in the tables on pages 16 to 17.
Included in market price risk is interest rate risk which is
discussed further below.
Credit risk
Credit risk is the risk that an issuer or counterparty will be
unable or unwilling to meet a commitment that it has entered into
with the Group. In the event of default by an occupational tenant,
the Group will suffer a rental income shortfall and incur
additional costs, including legal expenses, in maintaining,
insuring and re-letting the property. The Investment Manager
reviews reports prepared by Dun & Bradstreet, or other sources,
to assess the credit quality of the Group's tenants and aims to
ensure there is no excessive concentration of risk and that the
impact of any default by a tenant is minimised.
In respect of credit risk arising from other financial assets,
which comprise cash and cash equivalents, exposure to credit risk
arises from default of the counterparty with a maximum exposure
equal to the carrying amounts of these instruments. In order to
mitigate such risks, cash is maintained with major international
financial institutions with high quality credit ratings. During the
year, and at the reporting date, the Group maintained a
relationship with branches and subsidiaries of HSBC. HSBC has a
credit rating of A- (provided by Standard and Poor).
The maximum exposure to credit risk for rent receivables at the
reporting date by type of sector was:
31/03/2023 31/03/2022
Carrying amount Carrying amount
GBP000 GBP000
--------------------------- ----------------- -----------------
Office 568 445
Industrial 2,496 2,080
Retail, leisure and other 874 1,980
--------------------------- ----------------- -----------------
3,938* 4,505*
--------------------------- ----------------- -----------------
* Rental debtors gross of VAT and excluding bad debt
provisions.
Rent receivables which are past their due date were:
31/03/2023 31/03/2022
Carrying amount Carrying amount
GBP000 GBP000
-------------- ----------------- -----------------
0-30 days 2,940 2,274
31-60 days 62 118
61-90 days 4 193
91 days plus 932 1,920
-------------- ----------------- -----------------
3,938 * 4,505 *
-------------- ----------------- -----------------
Management has considered rental debtors on a quarterly basis
and made provisions where it has been deemed that these amounts may
be unrecoverable. As at 31 March 2023 total
provisions of GBP0.36m (2022: GBP0.9m) were recognised and
rental debtors are shown net of this provision in the Balance
Sheet.
On initial recognition the Group calculates the expected credit
loss for debtors based on the lifetime expected credit losses under
the IFRS 9 simplified approach. Management consider aged debtors'
analyses, the strength of tenant covenants, macroeconomic factors
and any rental deposits held when considering this.
Liquidity risk
Liquidity risk is the risk that the Group will encounter
difficulties in meeting obligations associated with its financial
obligations.
The Group's investments comprise UK commercial property.
Property and property-related assets are inherently difficult to
value due to the individual nature of each property. As a result,
valuations are subject to substantial uncertainty. There is no
assurance that the estimates resulting from the valuation process
will reflect the actual sale price even where such sales occur
shortly after the valuation date. Investments in property are
relatively illiquid. However, the Group has tried to mitigate this
risk by investing in properties that it considers to be of good
quality.
In certain circumstances, the terms of the Group's debt
facilities entitle the lender to require early repayment and in
such circumstances the Group's ability to maintain dividend levels
and the net asset value could be adversely affected. The Investment
Manager prepares cash flows on a rolling basis to ensure the Group
can meet future liabilities as and when they fall due.
The following table indicates the maturity analysis of the
financial liabilities.
As at 31 March 2023 Carrying Expected 6 months 6 months 2-5 More
amount cash flows or less - years than 5
GBP000 GBP000 GBP000 2 years GBP000 years
GBP000 GBP000
----------------------------- ----------- ------------- ----------- ----------- --------- ---------
Financial liabilities
Interest-bearing
loans and borrowings
and interest* 176,933 232,303 3,044 9,131 64,417 155,711
Leasehold liability 1,668 11,961 52 157 313 11,439
Trade and other payables 5,841 5,841 3,990 - - 1,851
------------- ----------- ----------- --------- ---------
Total financial
liabilities 184,442 250,105 7,086 9,288 64,730 169,001
----------------------------- ----------- ------------- ----------- ----------- --------- ---------
As at 31 March 2022 Carrying Expected 6 months 6 months 2-5 More
amount cash flows or less - years than 5
GBP000 GBP000 GBP000 2 years GBP000 years
GBP000 GBP000
----------------------------- ----------- ------------- ----------- ----------- --------- ---------
Financial liabilities
Interest-bearing
loans and borrowings
and interest 161,791 208,490 1,880 5,105 42,558 158,946
Leasehold liability 1,987 11,401 50 149 298 10,904
Trade and other payables 5,769 5,769 4,025 - - 1,744
------------- ----------- ----------- --------- ---------
Total financial liabilities 169,547 225,660 5,955 5,254 42,856 171,594
----------------------------- ----------- ------------- ----------- ----------- --------- ---------
* Assumes that the GBP48.3 million facility is repaid in
2027
Interest rate risk
Exposure to market risk for changes in interest rates relates
primarily to the Group's long-term debt obligations and to interest
earned on cash balances. As interest on the Group's long-term debt
obligations is payable on a fixed-rate basis, the Group is not
exposed to near-term interest rate risk in relation to its Canada
Life loan facility. As at 31 March 2023 the fair value of the
Group's GBP129.6 million loan with Canada Life was GBP112.8 million
(2022: GBP125.8 million).
The RBSI revolving credit facility is a low margin flexible
source of funding with a margin of 1.65% plus 3-month SONIA and it
is considered by management that the carrying value of the loan is
equal to its fair value (sum of GBP48.3m drawn as at year end).
A 1% increase or decrease in short-term interest rates would
increase or decrease the annual income and equity by GBP84,000
based on the cash balance as at 31 March 2023.
Fair values
The fair values of financial assets and liabilities are not
materially different from their carrying values, unless disclosed
below, in the financial statements.
The fair value hierarchy levels are as follows:
- Level 1 - quoted prices (unadjusted) in active markets for identical assets and liabilities;
- Level 2 - inputs other than quoted prices included within
level 1 that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from prices);
and
- Level 3 - inputs for the assets or liability that are not based on observable market data
(unobservable inputs).
There have been no transfers between Levels 1, 2 and 3 during
the year (2022: none).
The following summarises the main methods and assumptions used
in estimating the fair values of financial instruments and
investment property:
Investment property - level 3
Fair value is based on valuations provided by an independent
firm of chartered surveyors and registered appraisers. These values
were determined after having taken into consideration recent market
transactions for similar properties in similar locations to the
investment properties held by the Group. The fair value hierarchy
of investment property is level 3. See Note 10 for further
details.
Interest-bearing loans and borrowings - level 2
Fair values are based on the present value of future cash flows
discounted at a market rate of interest. Issue costs are amortised
over the period of the borrowings. As at 31 March 2023, the fair
value of the Group's GBP129.6 million loan with Canada Life was
GBP112.8 million (2022: GBP125.8 million).
Capital management
The Board's policy is to maintain a strong capital base to
maintain investor, creditor and market confidence and to sustain
future development of the business. The objective is to ensure that
it will continue as a going concern and to maximise the return to
its equity shareholders through an appropriate level of gearing.
The Company's capital management process ensures it meets its
financial covenants in its borrowing arrangements. Breaches in
meeting the financial covenants could permit the lenders to
immediately accelerate the repayment of loans and borrowings. The
Company monitors as part of its quarterly board meetings that it
will adhere to specific leverage, interest cover and rental cover
ratios. There have been no breaches in the financial covenants of
any loans and borrowings during the financial year.
The Company's debt and capital structure comprises the
following:
31/03/2023 31/03/2022
GBP000 GBP000
----------------------------- ----------- -----------
Debt
Fixed-rate loan facility 129,585 129,585
Floating rate loan facility
* 48,300 32,667
177,885 162,252
Equity
Called-up share capital 181,989 1 82,987
Reserves 118,700 1 89,196
------------------------------ ----------- -----------
300,689 3 72,183
----------------------------- ----------- -----------
Total debt and equity 478,574 534,435
------------------------------ ----------- -----------
There were no changes in the Group's approach to capital
management during the year.
* This amount refers to the amount drawn. The total facility as
at 31 March 2023 was GBP75.0m (2022: GBP52.5m).
19. Operating leases
The Group leases out its investment property under operating
leases. At 31 March 2023 the future minimum lease receipts under
non-cancellable leases are as follows:
31/03/2023 31/03/2022
GBP000 GBP000
---------------------------- ----------- -----------
Less than one year 22,850 22,435
Between one and five years 66,194 51,513
More than five years 58,829 39,531
---------------------------- ----------- -----------
147,873 113,479
---------------------------- ----------- -----------
The total above comprises the total contracted rent receivable
as at 31 March 2023.
The Group has entered into leases on its property portfolio. The
commercial property leases typically have lease terms between 5 and
15 years and include clauses to enable periodic upward revision of
the rental charge according to prevailing market conditions. Some
leases contain options to break before the end of the lease
term.
20. List of subsidiary and joint venture undertakings
The companies listed below are those which were part of the
Group as at 31 March 2023:
Undertaking Category Country of Principal Activities Ultimate
incorporation ownership
----------------------- --------------- ---------------- ------------------------ -----------
Property ownership
SREIT No.2 Limited Subsidiary Guernsey with external finance 100%
----------------------- --------------- ---------------- ------------------------ -----------
SREIT Holding (No.2)
Limited Subsidiary Guernsey Holding Company 100%
----------------------- --------------- ---------------- ------------------------ -----------
SREIT Holding Company Holding Company with
Limited Subsidiary Guernsey external finance 100%
----------------------- --------------- ---------------- ------------------------ -----------
SREIT Property
Limited Subsidiary Guernsey Property ownership 100%
----------------------- --------------- ---------------- ------------------------ -----------
SREIT (Portergate)
Limited Subsidiary Guernsey Property ownership 100%
----------------------- --------------- ---------------- ------------------------ -----------
SREIT (Uxbridge)
Limited Subsidiary Guernsey Property ownership 100%
----------------------- --------------- ---------------- ------------------------ -----------
Joint ownership of
SREIT (City Tower) underlying property
Limited Subsidiary Guernsey unit trust 100%
----------------------- --------------- ---------------- ------------------------ -----------
Joint ownership of
underlying property
SREIT (Store) Limited Subsidiary Guernsey unit trust 100%
----------------------- --------------- ---------------- ------------------------ -----------
SREIT (Bedford)
Limited Subsidiary Guernsey Property ownership 100%
----------------------- --------------- ---------------- ------------------------ -----------
City Tower Unit
Trust Joint Venture Jersey Property ownership 25%
----------------------- --------------- ---------------- ------------------------ -----------
Store Unit Trust Joint Venture Jersey Property ownership 50%
----------------------- --------------- ---------------- ------------------------ -----------
The registered addresses for all wholly-owned entities are the
same as that of the parent company and can be found on page
141.
The registered address for both Joint Venture entities is 47
Esplanade, St Helier, Jersey, JE1 0BD, Channel Islands.
21. Related party transactions
Material agreements and transactions with the Investment Manager
are disclosed in note 2. Transactions with regard to joint ventures
are disclosed in note 10. Transactions with the directors are shown
in the directors' remuneration report.
22. Capital commitments
As at 31 March 2023 the Group had capital commitments of GBP7.7
million (2022: GBP12.3 million).
23. Post balance sheet events
On 6 March 2023 the Group unconditionally exchanged contracts to
dispose of Morgan Sindall House, Rugby for a gross sale price of
GBP4.0m. Completion of the transaction will take place on 23 June
2023.
On 1 June 2023 the Group completed on the acquisition of an
interest rate collar for a net price payable of GBP0.57m. This was
to replace existing interest rate caps totalling GBP30.5m with
RBSI, which mature in July 2023, and which come in to effect when
the three-month SONIA rate exceeds 1.5%. The new interest rate
collar is also for GBP30.5m of the loan and has a cap of 4.25% and
a floor of 3.25% and will expire on 6 June 2027.
On 1 June 2023 the RBSI RCF was converted in to a
'Sustainability Linked Loan' with performance measured against
KPIs, with each KPI having the potential to either reduce the
margin by 1.65 basis points, increase it by 1.65 basis points or
have no impact. Please see page 23 for further detail.
Other information (unaudited)
EPRA Performance Measures (unaudited)
As recommended by the European Public Real Estate Association,
EPRA performance measures are disclosed in the section below.
EPRA performance measures: summary table
31/03/2023 31/03/2022
------------------------------------- ----------------- -----------------
EPRA earnings GBP 15,968,000 GBP 15,707,000
EPRA earnings per share 3.3 pps 3.2 pps
EPRA Net Reinstatement Value GBP332,178,000 GBP407,317,000
EPRA Net Reinstatement Value per
share 67 .9p 82.9p
EPRA Net Tangible Assets GBP300,689,000 GBP372,183,000
EPRA Net Tangible Assets per share 61.5 p 75.8 p
EPRA Net Disposal Value GBP 317,448,000 GBP 375,933,000
EPRA Net Disposal Value per share 64.9p 76.6p
EPRA Net Initial Yield 5.4% 5.0%
EPRA "topped-up" Net Initial Yield 5.8% 5.1%
EPRA vacancy rate 11.1% 7.0%
EPRA cost ratios - including direct
vacancy costs 28.0% 30.5%
EPRA cost ratios - excluding direct
vacancy costs 21.1% 24.7%
EPRA LTV 36.0% 28.6%
a. EPRA earnings and earnings per share
Earnings excluding all capital components not relevant to the
underlying net income performance of the Company, such as the
unrealised fair value gains or losses on investment properties and
any gains or losses from the sales of properties.
31/03/2023 31/03/2022
GBP000 GBP000
------------------------------------------ ----------------------------- ------------
(Loss)/profit per IFRS
income statement (54,715) 89,368
Adjustments to calculate EPRA Earnings:
Profit on disposal of investment
property (1,184) (3,165)
Net valuation loss/(gain) on investment
property 60,107 (66,536)
Share of valuation loss/(gain) in associates
and joint ventures 11,513 (3,960)
Refinancing costs 247 -
EPRA earnings 15,968 15,707
------------------------------------------------------- -------------------- ------------
Weighted average number
of ordinary shares 489,951,224 491,085,850
------------------------------------------------------- ------ ------------ ------------
IFRS earnings per share
(pence) (11.2) 18.2
------------------------------------------------------- ------ ------------ ------------
EPRA earnings per share
(pence) 3.3 3.2
------------------------------------------------------- ------ ------------ ------------
b. EPRA Net Reinstatement Value
IFRS equity attributable to shareholders adjusted to represent
the value required to rebuild the entity and assumes that no
selling of assets takes place.
31/03/2023 31/03/2022
---------------------------------------------------- ----------- -----------
GBP000 GBP000
---------------------------------------------------- ----------- -----------
IFRS equity attributable to shareholders 300,689 372,183
Adjustment in respect of real estate transfer taxes
and costs 31,489 35,134
---------------------------------------------------- ----------- -----------
EPRA Net Reinstatement Value 332,178 407,317
---------------------------------------------------- ----------- -----------
Shares in issue at the end of the period 489,110,576 491,080,301
---------------------------------------------------- ----------- -----------
EPRA NRV per share (pence per share) 67.9p 82.9p
---------------------------------------------------- ----------- -----------
c. EPRA Net Tangible Assets per share
The IFRS equity attributable to shareholders adjusted to reflect
a Company's tangible assets and assumes that no selling of assets
takes place.
31/03/2023 31/03/2022
GBP000 GBP000
------------------------------- ------------ ------------
IFRS equity attributable to
shareholders 300,689 372,183
EPRA Net Tangible Assets 300,689 372,183
Shares in issue at the end of
the year 489,110,576 491,080,301
-------------------------------- ------------ ------------
IFRS NAV per share (pence) 61.5p 75.8p
-------------------------------- ------------ ------------
EPRA Net Tangible Assets per
share (pence) 61.5p 75.8p
-------------------------------- ------------ ------------
d. EPRA Net Disposal Value per share
The IFRS equity attributable to shareholders adjusted to reflect
the NAV under an orderly sale of business, where any deferred tax,
financial instruments and certain other adjustments are calculated
to the full extent of their liability.
31/03/2023 31/03/2022
GBP000 GBP000
-------------------------------------------- ------------ ------------
IFRS equity attributable to shareholders 300,689 372,183
Adjustments to calculate EPRA Net Disposal
Value:
The fair value of fixed-interest rate debt 16,759 3,750
EPRA Net Disposal Value 317,448 375,933
--------------------------------------------- ------------ ------------
Shares in issue at the end of the year 489,110,576 491,080,301
--------------------------------------------- ------------ ------------
EPRA Net Disposal Value per share (pence) 64.9p 76.6p
--------------------------------------------- ------------ ------------
e. EPRA Net Initial Yield
Annualised rental income based on the cash rents passing at the
Balance Sheet date (but adjusted as set out below), less
non-recoverable property operating expenses, divided by the gross
market value of the property.
The EPRA "topped up" NIY is the EPRA NIY in respect of the
expiration of rent free periods.
31/03/2023 31/03/2022
GBP000 GBP000
--------------------------------------- ----------- -----------
Investment property - wholly-owned 398,560 440,100
Investment property - share of joint
ventures and funds 71,800 83,363
---------------------------------------- ----------- -----------
Complete property portfolio 470,360 523,463
Allowance for estimated purchasers'
costs 31,489 35,134
---------------------------------------- ----------- -----------
Gross up completed property portfolio
valuation 501,849 558,597
Annualised cash passing rental income 29,292 30,085
Property outgoings (2,258) (1,919)
---------------------------------------- ----------- -----------
Annualised net rents 27,034 28,166
Notional rent expiration of rent-free
periods (1) 2,177 340
---------------------------------------- ----------- -----------
Topped-up net annualised rent 29,211 28,506
---------------------------------------- ----------- -----------
EPRA NIY 5.4% 5.0%
EPRA "topped-up" NIY 5.8% 5.1%
(1) The period over which rent free periods expire is one year for 2023 (2022: 1year).
f. EPRA cost ratios
Administrative and operating costs (including and excluding
costs of direct vacancy) divided by gross rental income.
31/03/2023 31/03/2022
GBP000 GBP000
-----------
Administrative/operating expense line per IFRS
income statement 7,662 7,311
Share of Joint Venture expenses 591 1,236
Less: Ground rent costs (68) (95)
Costs (including direct vacancy costs) 8,185 8,452
Direct vacancy costs (2,026) (1,592)
Costs (excluding direct vacancy costs) 6,159 6,860
Gross rental income less ground rent costs
- per IFRS 25,103 23,764
Add share of Joint Ventures (Gross Rental Income
less ground rent costs) 4,106 3,976
Gross rental income 29,209 27,740
EPRA cost ratio (including direct vacancy costs) 28.0% 30.5%
EPRA cost ratio (excluding direct vacancy costs) 21.1% 24.7%
There were no directly attributable overhead and operating costs
capitalised during the year (2022: Nil). The Company does not have
a policy to capitalise such expenses (as per note 1).
g. EPRA vacancy rate
Estimated market rental value (ERV) of vacant space divided by
the ERV of the whole portfolio.
31/03/2023 31/03/2022
GBP000 GBP000
-----------
Estimated rental value of vacant space 4,192 2,356
Estimated rental value of the whole portfolio 37,843 33,800
EPRA vacancy rate 11.1% 7.0%
There were no significant or distorting factors in the
above.
h. EPRA LTV
The gearing of the shareholder equity within the Company.
31/03/2023 31/03/2022
GBP000 GBP000
-----------
Borrowings from financial institutions 177,885 162,252
Cash and cash equivalents (8,419) (11,601)
Cash and cash equivalents - share of joint
ventures (302) (859)
Net Debt 169,164 149,792
Investment properties at fair value - direct
portfolio 398,560 440,100
Investment properties at fair value - share
of joint ventures 71,800 83,363
Total Property Value 470,360 523,463
LTV 36.0% 28.6%
i. EPRA capital expenditure
In accordance with EPRA's core recommendations, the Group's
capital expenditure invested in the year can be broken down as
follows:
Group (excluding Joint Ventures Total Group
Joint Ventures) (proportionate GBPm
GBPm share) GBPm
Acquisitions (including transaction
costs) 16.1 - 16.1
Developments 9.6 - 9.6
Investment properties
-Tenant incentives 0.3 - 0.3
-Other material non - allocated
types of expenditure 0.2 0.1 0.3
Total Capital Expenditure 26.2 0.1 26.3
Alternative Performance Measures (unaudited)
The Company uses the following Alternative Performance Measures
("APMs") in its Annual Report and Consolidated Financial
Statements. The Board believes that each of the APMs provides
additional useful information to the shareholders in order to
assess the Company's performance.
Dividend Cover - the ratio of EPRA Earnings (page 98) to
dividends paid (note 9) in the period.
Dividend Yield-- the dividends paid, expressed as a percentage
relative to the Company's share price.
EPRA Earnings - earnings excluding all capital components not
relevant to the underlying net income performance of the Company,
such as the unrealised fair value gains or losses on investment
properties and any gains or losses from the sales of properties.
See page 98 for a reconciliation of this figure.
EPRA Net Tangible Assets - the IFRS equity attributable to
shareholders adjusted to reflect a Company's tangible assets and
assumes that no selling of assets takes place.
EPRA Net Disposal Value - the IFRS equity attributable to
shareholders adjusted to reflect the NAV under an orderly sale of
business, where any deferred tax, financial instruments and certain
other adjustments are calculated to the full extent of their
liability.
EPRA Net Reinstatement Value - the IFRS equity attributable to
shareholders adjusted to represent the value required to rebuild
the entity and assumes that no selling of assets takes place.
Gross LTV-- the value of the external loans unadjusted for
unamortised arrangement costs (note 15 ) expressed as a percentage
of the market value of property investments as at the Balance Sheet
date. The market value of property investments includes joint
venture investments and are as per external valuations and have not
been adjusted for IFRS lease incentive debtors nor the fair value
of the head lease at Luton.
LTV net of cash - the value of the external loans unadjusted for
unamortised arrangement costs (note 15 ) less cash held (note 13)
expressed as a percentage of the market value of the property
investments as at the Balance Sheet date. The market value of
property investments includes joint venture investments and are as
per external valuations and have not been adjusted for IFRS lease
incentive debtors or the fair value of the head lease at Luton.
Ongoing charges (including Fund expenses) - all operating costs
expected to be regularly incurred and that are payable by the
Company expressed as a percentage of the average quarterly NAVs of
the Company for the financial period. No capital costs, including
capital expenditure or acquisition/disposal fees, are included as
costs.
Ongoing charges (including Fund and property expenses) -- all
operating costs expected to be regularly incurred and that are
payable by the Company expressed as a percentage of the average
quarterly NAVs of the Company for the financial period. Any capital
costs, including capital expenditure and acquisition/disposal fees,
are excluded as costs, as well as interest costs and any other
costs considered to be non-recurring. In the current period the
material non-recurring costs include non-cash bad debt expenses of
GBP0.9m.
Share discount/premium - the share price of an Investment Trust
is derived from buyers and sellers trading their shares on the
stock market. This price is not identical to the NAV per share of
the underlying assets less liabilities of the Company. If the share
price is lower than the NAV per share, the shares are trading at a
discount. Shares trading above the NAV per share are said to be at
a premium. The discount/premium is calculated as the variance
between the share price as at the Balance Sheet date and the NAV
per share (page 75 ) expressed as a percentage.
NAV total return - the return to shareholders calculated on a
per share basis by adding dividends paid (note 9) in the period on
a time-weighted basis to the increase or decrease in the NAV per
share (page 75 ).
AIFMD Disclosures (unaudited)
The Alternative Investment Fund Managers Directive ('AIFMD')
remuneration and leverage disclosures for Schroder Real Estate
Investment Management Limited ('SREIM') for the year to 31 December
2022
Remuneration disclosures
These disclosures form part of the non-audited section of this
annual report and accounts and should be read in conjunction with
the Schroders plc Remuneration Report on pages 76 to 107 of the
2022 Annual Report & Accounts (available on the Group's website
-
https://www.schroders.com/en/investor-relations/results-and-reports/annual-report-and-accounts-2022/),
which provides more information on the activities of our
Remuneration Committee and our remuneration principles and
policies.
The AIF Material Risk Takers ('AIF MRTs') of SREIM are
individuals whose roles within the Schroders Group can materially
affect the risk of SREIM or any AIF fund that it manages. These
roles are identified in line with the requirements of the AIFM
Directive and guidance issued by the European Securities and
Markets Authority.
The Remuneration Committee of Schroders plc has established a
remuneration policy to ensure the requirements of the AIFM
Directive are met for all AIF MRTs. The Remuneration Committee and
the Board of Schroders plc review remuneration strategy at least
annually. The directors of SREIM are responsible for the adoption
of the remuneration policy and periodically reviewing its
implementation in relation to SREIM. During 2022 the Remuneration
Policy was reviewed to ensure compliance with the UCITS/AIFMD
remuneration requirements and no significant changes were made.
The implementation of the remuneration policy is, at least
annually, subject to independent internal review for compliance
with the policies and procedures for remuneration adopted by the
Board of SREIM and the Remuneration Committee. The most recent
review found no fundamental issues but resulted in minor
recommendations relating to process documentation.
The ratio of total costs to net income through the market cycle
guides the total spend on remuneration each year. This is
recommended by the Remuneration Committee to the Board of Schroders
plc. This approach aligns remuneration with Schroders financial
performance. In determining the remuneration spend each year, the
underlying strength and sustainability of the business is taken
into account, along with reports on risk, legal, compliance and
internal audit matters from the heads of those areas.
The remuneration data that follows reflects amounts paid in
respect of performance during 2022.
-- The total amount of remuneration paid by SREIM to its staff
is nil as SREIM has no employees. Employees of SREIM or other
Schroders Group entities who serve as Directors of SREIM receive no
additional fees in respect of their role on the Board of SREIM;
and
-- The following disclosures relate to AIF MRTs of SREIM. Those
AIF MRTs were employed by and provided services to other Schroders
group companies and clients. In the interests of transparency, the
aggregate remuneration figures that follow reflect the full
remuneration for each SREIM AIF MRT. The aggregate total
remuneration paid to the 73 AIF MRTs of SREIM in respect of the
financial year ended 31 December 2022 is GBP53.67 million, of which
GBP33.91 million was paid to senior management, GBP16.68 million
was paid to MRTs deemed to be taking risk on behalf of SREIM or the
AIF funds that it manages and GBP3.08 million was paid to control
function MRTs.
For additional qualitative information on remuneration policies
and practices see www.schroders.com/rem-disclosures .
Leverage disclosure
In accordance with AIFMD the Company is required to make
available to investors information in relation to leverage. Under
AIFMD, leverage is any method by which the exposure of the Company
is increased through the borrowing of cash or securities, leverage
embedded in derivative positions or by another means. It is
expressed as a ratio between the total exposure of the Company and
its net asset value and is calculated in accordance with the "Gross
method" and the "Commitment method" as described in the AIFMD. The
Gross method represents the aggregate of all the Company's
exposures other than cash balances held in the base currency, while
the Commitment method, which is calculated on a similar basis, may
also take into account cash and cash equivalents, netting and
hedging arrangements, as applicable.
The Investment Manager has set the expected maximum leverage
percentages for the Company and calculated the actual leverages as
at 31 December 2022 as shown below (the Company calculates and
externally reports its leverage one quarter in arrears):
Maximum limit set Actual as at 31.12.2022
Gross leverage 195 158
Commitment leverage 220 161
There have been no changes to the maximum levels of leverage
employed by the Company during the financial year nor any breaches
of the maximum levels during the financial reporting period.
Task Force on Climate-related Financial Disclosures ( ' TCFD '
)
The Company reports sustainability information in accordance
with EPRA Best Practice Recommendations on Sustainability Reporting
('sBPR') 2017, Third Edition for the 12 months 1 January 2022 - 31
December 2022, presented with comparison against 2021. As permitted
by the EPRA Sustainability Reporting Guidelines, environmental data
has been developed and presented in line with the Global Real
Estate Sustainability Benchmark ('GRESB').
The Task Force on Climate-related Financial Disclosure ('TCFD')
aims to mainstream reporting on climate-related risks and
opportunities in organisations' annual financial filings. Launched
in 2017, the TCFD recommendations have so far been a voluntary
framework. However, it became mandatory in the UK across a range of
market participants on a phased timeline beginning in 2021.
The TCFD recommendations are structured around four themes:
Governance, Strategy, Risk Management, and Metrics and Targets. Key
concepts within the framework include:
- 'transition' risks: arising from society's transition to a low
carbon economy (changing regulation and market expectations, new
technologies etc) and;
- 'physical' risks: relating to the acute (storms, floods and
wildfires etc) and chronic (rising sea levels, increasing heat
stress etc) physical effects of a changing climate.
Additional principles within TCFD include the importance of
forward-looking assessment of climate-related risks and
opportunities, and 'scenario analysis'. Scenario analysis is a
process of identifying and assessing the potential implications of
a range of plausible future states under conditions of uncertainty.
The recommendations note that scenario analysis for climate-related
issues is a relatively new concept and that practices will evolve
over time.
In 2022, the Manager continued to review its policies and
practices against TCFD criteria and developed a roadmap towards
increased alignment. Building on our established consideration of
sustainability within the investment process, Schroder's believes
it will be important to further integrate the assessment of
climate-related risks and opportunities into decision-making and
reporting processes. The outcome of our review and progress towards
further alignment is set out below.
TCFD Recommendation Approach
Governance
Describe the The Board formally reviews the Manager's performance,
board's oversight including ESG-related activity, at quarterly Board
of climate-related meetings. A more detailed review of the Manager's
risks and opportunities. approach to ESG is carried out at the annual strategy
review which includes but is not limited to (i) Fund
level sustainability performance measured by both
the Manager and third parties such as the Global Real
Estate Sustainability Benchmark ('GRESB'); (ii) asset
level analysis; (iii) a review of the Manager's ESG
policies and procedures and (iv) presentations from
sustainability specialists.
The Manager reviews a materiality assessment annually
to identify and assess material impacts, sustainability
risks and opportunities arising from our sustainability
aspects alongside severity, likelihood, and ability
to influence. Impacts, risks and opportunities are
also identified as originating from normal, abnormal
or emergency conditions.
Describe management's Climate change is an established component of our
role in assessing sustainability programme. Responsibility for assessment
and managing and management of climate-related risk and opportunity
climate-related is delegated to key members of the Investment Management
risks and opportunities. team, supported by regular reporting to the Investment
Committee. Schroders Head of Sustainability and Impact
Investing recommends the Manager's annual Sustainability
Policy and Objectives, which are reviewed and approved
by the Investment Committee. The Manager incorporates
climate-related considerations into key stages of
the investment process, including acquisition proposals,
annual Asset Business Plans and annual Fund Strategy
Statements. Each of these steps of the investment
process require approval by the Investment Committee.
The Manager also prepares annual report and financial
accounts for the Company, which include climate-related
metrics and supports the Manager and Board's monitoring
of performance and progress towards climate-related
goals and targets.
During the financial year ended 31 March 2023, the
Manager's sustainability team was bolstered with the
recruitment of an Energy and Carbon Lead, alongside
a Climate Lead who maintains oversight of the Manager's
climate resilience programme.
Engagement is a critical component of the Manager's
climate resilience programme with regular touchpoints
with the Schroders Capital Sustainability & Impact
working groups ensuring alignment of frameworks and
approaches across the business and benefitting from
this extensive pool of resource.
The Manager includes ESG criteria, including climate-related
risks, as part of its formal quarterly investment
risk monitoring, which is overseen by Schroders Group
Investment Risk function, the results of which are
presented to the Company Board as part of the quarterly
Board materials and discussed as necessary.
Strategy
Describe the Our investment philosophy and process is underpinned
climate-related by fundamental research and an analytical approach
risks and opportunities that considers economic, demographic and structural
the Company influences on the market. We are considering how climate
has identified change may impact on these factors over time, as well
over the short, as how government policies may enable mitigation of
medium, and and adaption to climate change.
long term. Energy and carbon emissions performance of our assets
is a critical climate-related strategic issue. As
part of net zero carbon analysis utilising the industry
standard Carbon Risk Real Estate Monitor ('CRREM')
the Manager has identified those assets which may
be exposed to potential stranding risk (including
Carbon Value at Risk ('cVaR')) in the short, medium
and longer term.
The company continues to review asset ratings with
respect to Energy Performance Certificates ('EPC')
and sustainability certifications (e.g. BREEAM) in
recognition of the legislative, policy and investor
landscape continuing to strengthen over time in this
regard.
In the short, medium and longer term, the physical
effects of changing climate also present potential
material financial impacts to the Company. Using a
third-party physical risk database the Manager has
identified the highest risks as follows: Drought,
Extra-tropical cyclone, Heating degree days, Heat
stress, water pollution and water stress.
Describe the The Manager's acquisition and asset business planning
impact of climate-related processes include consideration of climate-related
risks and opportunities issues, and will include forward-looking assessment
on the Company's of asset alignment to Paris Aligned energy and carbon
businesses, performance benchmarks, where information permits.
strategy, and We are also reviewing our existing processes for screening
financial planning. acquisitions and standing investments for climate-related
physical risks (e.g. flooding).
As part of the Net Zero Carbon project on standing
investments actions identified in the asset business
plans have been fed through, via the asset Impact
and Sustainability Action Plans, into the forward
looking decarbonisation pathways to present the impact
of known interventions. Conversely this also identifies
where more action is required to achieve decarbonisation
goals.
We recognise the need and opportunity presented by
climate change to improve operational efficiency,
maintenance costs and generate new income streams
(e.g. onsite energy) and which all support asset values.
These actions also support the Company with increasing
investor expectations in relation to climate action
and preparing portfolio assets for new and emerging
energy efficiency regulations, increases in energy
costs, carbon taxes, changing occupier preferences
and valuation considerations.
With respect to physical risk adaptations considerations
will likely include water recycling, overheating and
solar gain reduction, cooling load capacity and plant
sizing, and suitable surface flooding mitigations
should be reviewed moving forward.
Describe the Since 2016, assets of the Company have been included
resilience of in the Manager's UK energy consumption and carbon
the Company's emission reduction targets for assets where landlord
strategy, taking operational control is retained. As part of the Manager
into consideration and Company's Net Zero Carbon commitments, during
different climate-related 2022, the Manager reviewed the Company's progress
scenarios, including against the baseline exercise conducted in 2021. Net
a 2degC or lower Zero Carbon pathways have been developed using CRREM
scenario. to present the decarbonisation requirements needed
to achieve Net Zero Carbon by 2050 or sooner; aligned
with a 'Paris Proof' decarbonisation trajectory to
pursue efforts to limit global warming to 1.5degC.
Further details on the Company's approach to Net Zero
Carbon are presented on page 28 above.
On physical risk, Schroders has licenced a physical
risk database through a third-party provider. Heat
stress, water stress, flood hazard, heating degree
days and cooling degree days are presented as both
current and future risk scenarios allowing for interpretation
of increasing or decreasing exposure of the portfolio.
These are aligned either with RCP4.5 or RCP8.5 scenarios,
and range in timeframes from 2030, 2060 and 2100.
Natural hazard vulnerability risks are present day
assessments.
Engaging tenants to collaborate to reduce building
energy and carbon emissions is an increasingly important
element of our sustainability and business strategy.
We have green lease provisions within our standard
lease agreement and have developed both a Schroders
Sustainable Occupier Guide and Fit Out Guides for
Tenants.
The Manager continues to engage with the wider sector
to determine and develop best practice with regards
to climate resilience. One such example being the
sponsorship of the ULI C-Change project. This aims
to determine sector-level definitions and best practices
in accounting for transitional risk cost implications
for asset valuations, and inclusion of costs within
business plan discounted cash flows.
Risk Management
Describe the Schroders Environmental Management System ('EMS')
Company's processes is certified to ISO 14001 and applies to the asset
for identifying management of the Company's real estate assets. Key
and assessing components of the EMS include a detailed materiality
climate-related assessment of risks and opportunities, and a register
risks. to monitor existing and emerging regulatory requirements
related to energy and carbon emissions. The EMS includes
subscription to a third-party sustainability legal
review partner which supports ongoing compliance and
future resilience.
The Company's processes for climate-related (including
transition and physical risks) risk management are
as defined in the 'Strategy' section above.
Describe the Climate-related risks are tracked and managed through
Company's processes ongoing monitoring (e.g. energy and greenhouse emissions
for managing trends), action plans (e.g. energy efficiency improvement
climate-related measures), certification programmes (e.g. Energy Performance
risks. Certificates) and technical energy audits. Impact
and Sustainability Action Plans also promote and track
initiatives relating to climate opportunities (e.g.
on site renewables and electric vehicle charging provision).
Applying an assessment of Paris Alignment using the
CRREM tool as part of our Net Zero Pathway enables
consideration of 'stranding risk' which will also
feed into our asset action plans for managed standing
investments.
On physical risk, the strategy is to third-party physical
risk database to screen acquisitions, assess standing
investment portfolios and identify required risk mitigation
(i.e. enhanced defences, divestment), adaptation,
or transfer (i.e. revised insurance policies) strategies.
During the reporting year the Manager developed an
ESG Scorecard to help quantify the sustainability
performance of its real estate assets and manage opportunities
for improvement. The Company has adopted this as part
of its sustainability audits programme detailed on
page 30 above and will seek to roll this out universally
starting with mandatory adoption for all new acquisitions.
Describe how The Manager includes ESG criteria, including climate-related
processes for risks, as part of its formal quarterly investment
identifying, risk monitoring, which is overseen by Schroders Group
assessing, and Investment Risk function, the results of which are
managing climate-related presented to the Company Board as part of the quarterly
risks are integrated Board materials and discussed as necessary.
into the Company's
overall risk
management.
Metrics and Targets
Disclose the In the 'EPRA Sustainability Reporting Performance
metrics used Measures (unaudited)' section of this report we report
by the Company detailed performance trend data, intensity ratios
to assess climate-related and assessment methodologies covering energy consumption,
risks and opportunities GHG emissions, water consumption, waste generation,
in line with Energy Performance Certificate ('EPC') profiles and
its strategy other sustainability certifications (e.g. BREEAM).
and risk management The Manager's subscription to a third-party physical
process. risk database enables the Company to quantify its
exposure to physical risks at the asset and portfolio
level including weighted averages based on Gross Asset
Value.
Disclose Scope Scope 1 and Scope 2 emissions for operational energy
1, Scope 2, usage for the reporting year are disclosed in the
and, if appropriate, 'EPRA Sustainability Reporting Performance Measures
Scope 3 greenhouse (unaudited)'.
gas (GHG) emissions, Scope 3 emissions are not currently presented in the
and the related 'EPRA Sustainability Reporting Performance Measures
risks. (unaudited)'. However, where available, those associated
with tenant energy data have been included within
the Manager's operational Net Zero Carbon baseline.
Describe the Net Zero Carbon pathways have been developed, using
targets used the Carbon Risk Real Estate Methodology ('CRREM')
by the Company tool, to present the decarbonisation requirements
to manage climate-related needed to achieve Net Zero Carbon by 2050 or sooner;
risks and opportunities aligned with a 'Paris Proof' decarbonisation trajectory
and performance to pursue efforts to limit global warming to 1.5degC
against targets. and include interim milestones at 2030. At portfolio
level this equates to a 21% reduction in GHG emissions
to be achieved by 2030.
The Company adopts the Managers target as part of
Schroders PLC's RE100 commitment to source 100% of
landlord electricity using renewable sources by 2025.
As at 31 Dec 2022 the Company can report 74% of landlord
electricity as being procured through renewable tariffs.
The Company continues to measure its exposure to physical
climate risks using a third-party data provider.
Sustainability Performance Measures (Environmental)
(unaudited)
The Company reports sustainability information in accordance
with EPRA Best Practice Recommendations on Sustainability Reporting
('sBPR') 2017, Third Edition for the 12 months 1 January 2022 - 31
December 2022, presented with comparison against 2021. As permitted
by the EPRA Sustainability Reporting Guidelines, environmental data
has been developed and presented in line with the Global Real
Estate Sustainability Benchmark ('GRESB').
The reporting boundary has been scoped to where the Company has
operational control: managed properties where the Company is
responsible for payment of utility invoices and/or arrangement of
waste disposal contracts. 'Operational control' has been selected
as the reporting boundary (as opposed to 'financial control' or
'equity share') as this reflects the portion of the portfolio where
the Company can influence operational procedures and, ultimately,
sustainability performance. The operational control approach is the
most commonly applied within the industry.
In 2022, 45 assets were held by the Company during the reporting
year (including two sales). In total, 23 assets were within the
operational control reporting boundary of the Company during the
reporting year (i.e. 'managed'). In 2021, there were 24 such
managed assets within the portfolio.
Where data coverage is less than 100%, a supporting explanation
is provided within the data notes immediately below the relevant
table. Energy and water consumption data is reported according to
automatic meter reads, manual meter reads or invoice estimates.
Where required, missing consumption data has been estimated by
prorating data from other periods using recognised techniques. The
proportion of data that is estimated is presented in the footnotes
to the data tables. Historic consumption data has been restated
where more complete and/or accurate records have become
available.
The Company does not contain any managed assets that consume
energy from district heating or cooling sources. Therefore, the
EPRA sBPR DH&C-Abs and DH&C-LfL indicators are not
applicable and not presented in this report. Furthermore, the
Company does not have any direct employees; it is served by the
employees of the Investment Manager (Schroder Real Estate
Investment Management Limited). Accordingly, the EPRA Overarching
Recommendation for companies to report on the environmental impact
of their own offices is not relevant/material and not presented in
this report.
This report has been prepared by energy and sustainability
consultants, EVORA Global. The Sustainability Performance Measures
have been assured in accordance with AA1000 to provide a Type 2
Moderate Assurance unqualified audit of the sustainability content
within the SREIT annual report for the year ended 31 March 2023.
The full Assurance Statement is available upon request.
Total energy consumption (Elec-Abs; Fuels-Abs)
The table below sets out total landlord obtained energy
consumption from the Company's managed portfolio by sector.
Office: Corporate:
Low-Rise Office 1,501,076 800,234 1,082,777 637,572 98 26 -74%
Coverage 100% 100% 100% 100% 100% 100%
Retail: High
Street 26,707 16,992 - - 14 9 -36%
Coverage
(landlord-procured
consumption) 100% 100% - - 100% 100%
Retail: Retail
Centers: Warehouse 38,531 34,960 - - 2 2 -10%
Coverage 100% 100% - - 100% 100%
Mixed use: Other 1,886,725 1,911,974 - - 101 103 2%
Coverage
(landlord-procured
consumption) 100% 100% - - 100% 100%
Mixed use:
Office/Retail 287,802 407,973 - 131,601 101 96 -5%
Coverage
(landlord-procured
consumption) 100% 100% - 100% 100% 100%
Industrial:
Distribution
Warehouse 1,412,447 1,401,413 1,002,455 1,075,277 0.6 0.6 3%
Coverage
(landlord-procured
consumption) 100% 100% 100% 100% 100% 100%
Lodging, Leisure
& Recreation:
Other 239,163 311,299 - - 69 75 9%
Coverage
(landlord-procured
consumption) 100% 100% - - 100% 100%
Office: Corporate:
Mid-Rise Office 277,019 268,733 496,144 448,859 192 178 -7%
Coverage
(landlord-procured
consumption) 100% 100% 100% 100% 100% 100%
Coverage
(landlord-procured
consumption) 100% 100% 100% 100%
Coverage
(landlord-procured
consumption) 100% 100%
Coverage
(landlord-procured
consumption) 100% 100%
- Consumption data relates to the managed portfolio only:
o Industrial: Distribution warehouse : whole building; outdoor
areas; tenant space, where procured by the landlord.
o Lodging, leisure & recreation: common parts; outdoor
areas; tenant space, where procured by the landlord.
o Mixed use office/retail: whole building
o Mixed use other: whole building; common parts; tenant space,
where procured by the landlord.
o Office low-rise: whole building; common parts; shared
services; outdoor areas; tenant space, where procured by the
landlord.
o Office mid-rise: shared services, tenant space, where procured
by the landlord.
o Retail high street: common parts, tenant space, where procured
by the landlord.
o Retail warehouse: outdoor areas; tenant space, where procured
by the landlord.
o Energy procured directly by tenants is not reported.
- Percentage of data estimated pro-rata across 2021 and 2022: 0.3%.
- Renewable electricity (%) is calculated according to the
attributes of energy supply contracts as at 31 December 2022 and
only reflects renewable electricity procured under a 100%"green
tariff" (i.e. where generation is from a 100% renewable source).
The renewables percentage of standard (non 'green tariff') energy
supplies are not currently known and therefore has not been
included within this number.
- Intensity: Numerators / denominators are aligned at the sector level as follows:
o Lodging, Leisure, & Recreation: Other, Retail: High Street
& Retail: Retail Centres: Warehouse - Common areas energy
consumption (kWh) divided by common parts area (CPA m2)
o Industrial: Distribution Warehouse - External areas energy
consumption (kWh) divided by the external area (m2)
o All other sectors-- Common areas and shared service or whole
building energy consumption (kWh) divided by gross internal area
(GIA m2)
- All energy was procured from a third-party supplier. No
'self-generated' renewable energy was consumed during the reporting
period and therefore is not presented here.
- Coverage (landlord-procured consumption) relates to the
proportion of assets for which landlord obtained data has been
reported.
- Where appropriate (for relevant assets), consumption data and
asset NLA/GIA has been adjusted to reflect the Company's share of
ownership.
Like for like energy consumption (Elec-LfL; Fuels-LfL;
Energy-Int)
The table below sets out the like for like landlord obtained
energy consumption from the Company's managed portfolio by
sector.
Office:
Corporate:
Low-Rise
Office 680,420 629,791 -7% 738,697 637,572 -14% 17 12 -33%
Coverage
(landlord-procured
consumption) 100% 100% 100% 100% 100% 100%
Retail:
High Street 18,048 16,992 -6% - - - 9 9 -6%
Coverage
(landlord-procured
consumption) 100% 100% - - 100% 100%
Retail:
Retail
Centers:
Warehouse 38,531 34,960 -9% - - - 2 2 -10%
Coverage
(landlord-procured
consumption) 100% 100% - - 100% 100%
Mixed
use: Other 1,684,664 1,911,974 13% - - - 77 88 15%
Coverage
(landlord-procured
consumption) 100% 100% - - 100% 100%
Mixed
use: Office/Retail 287,802 273,793 -5% - - - 101 96 -5%
Coverage
(landlord-procured
consumption) 100% 100% - - 100% 100%
Industrial:
Distribution
Warehouse 1,410,363 1,394,575 -1% 1,002,455 1,074,358 7% 0.4 0.5 3%
Coverage
(landlord-procured
consumption) 100% 100% 100% 100% 100% 100%
Lodging,
Leisure
& Recreation:
Other 239,163 311,299 30% - - - 11 12 9%
Coverage
(landlord-procured
consumption) 100% 100% - - 100% 100%
Office:
Corporate:
Mid-Rise
Office 277,019 268,733 -3% 496,144 448,859 -10% 192 178 -7%
Coverage
(landlord-procured
consumption) 100% 100% 100% 100% 100% 100%
Coverage
(landlord-procured
consumption) 100% 100% 100% 100%
Coverage
(landlord-procured
consumption) 100% 100%
- Like for like excludes assets that were purchased, sold, under
refurbishment or subject to a significant change in the scope of
reported data during the two years reported.
- Consumption data relates to the manage portfolio only:
o Industrial: Distribution warehouse: whole building; outdoor
areas; tenant space, where procured by the landlord.
o Lodging, leisure & recreation: common parts; outdoor
areas; tenant space, where procured by the landlord.
o Mixed use office/retail: whole building.
o Mixed use other: whole building; common parts; tenant space,
where procured by the landlord.
o Office low-rise: whole building; common parts; shared
services; outdoor areas; tenant space, where procured by the
landlord.
o Office mid-rise: shared services, tenant space, where procured
by the landlord.
o Retail high street: common parts, tenant space, where procured
by the landlord.
- Percentage of data estimated pro-rata across 2021 and 2022: 0.3%.
- Renewable electricity (%) is calculated according to the
attributes of energy supply contracts as at 31 December 2022 and
only reflects renewable electricity procured under a 100%"green
tariff" (i.e. where generation is from 100% renewable source). The
renewables percentage of standard (non 'green tariff') energy
supplies are not currently known and therefore has not been
included within this number.
- Intensity: Numerators / denominators are aligned at the sector level as follows:
o Lodging, Leisure, & Recreation: Other, Retail: High Street
& Retail: Retail Centres: Warehouse - Common areas energy
consumption (kWh) divided by common parts area (CPA m2)
o Industrial: Distribution Warehouse - External areas energy
consumption (kWh) divided by the external area (m2).
o All other sectors-- Common areas and shared service or whole
building energy consumption (kWh) divided by gross internal area
(GIA m2)
- All energy was procured from a third-party supplier. No
'self-generated' renewable energy was consumed during the reporting
period and therefore is not presented here.
- Coverage (landlord-procured consumption) relates to the
proportion of assets for which landlord obtained data has been
reported.
- Where appropriate (for relevant assets), consumption data and
asset NLA/GIA has been adjusted to reflect the Company's share of
ownership.
- Variance Commentary:
o The like-for-like variance for the Mixed use: Other shows an
increase in electricity. The increase here can be explained by the
single asset which comprises this sector (Manchester City Tower)
having higher consumption in 2022 due to an increase in
occupancy.
o The like-for-like variance for Lodging, Leisure &
Recreation: Other shows an increase in electricity. The increase
here can be explained by the single asset which comprises this
sector (Luton The Galaxy) having higher consumption in 2022 due to
an increase in occupancy.
Greenhouse gas emissions (GHG-Dir-Abs; GHG-Indir-Abs;
GHG-Int)
The table below sets out the Company's managed portfolio
greenhouse gas emissions by sector.
Office:
Corporate:
Low-Rise
Office
Scope 1 198 116 135 116 -14% 3.6 2.2 -38% 20.1 5.0 -75%
Scope 2 319 155 144 122 -16%
Scopes 1 517 271 280 238 -15%
& 2
Coverage
(landlord-procured
consumption) 100% 100% 100% 100% 100% 100% 100% 100%
Retail:
High Street
Scope 1 - - - - - 2.0 1.7 -14% 3.0 1.7 -42%
Scope 2 6 3 4 3 -14%
Scopes 1 6 3 4 3 -14%
& 2
Coverage
(landlord-procured
consumption) 100% 100% 100% 100% 100% 100% 100% 100%
Retail:
Retail Centers:
Warehouse
Scope 1 - - - - - 0.5 0.4 -18% 0.5 0.4 -18%
Scope 2 8 7 8 7 -17%
Scopes 1 8 7 8 7 -17%
& 2
Coverage
(landlord-procured
consumption) 100% 100% 100% 100% 100% 100% 100% 100%
Mixed use:
Other
Scope 1 - - - - - 16.3 17.1 5% 21.4 19.9 -7%
Scope 2 401 370 358 370 3%
Scopes 1 401 370 358 370 3%
& 2
Coverage
(landlord-procured
consumption) 100% 100% 100% 100% 100% 100% 100% 100%
Mixed use:
Office/Retail
Scope 1 - 24 - - - 21.5 18.7 -13% 21.5 18.7 -13%
Scope 2 61 79 61 53 -13%
Scopes 1 61 103 61 53 -13%
& 2
Coverage
(landlord-procured
consumption) 100% 50% 100% 100% 100% 100% 100% 100%
Industrial:
Distribution
Warehouse
Scope 1 184 196 184 196 7% 0.1 0.1 -6% 0.1 0.1 -6%
Scope 2 300 271 299 270 -10%
Scopes 1 484 467 483 466 -4%
& 2
Coverage
(landlord-procured
consumption) 100% 100% 100% 100% 100% 100% 100% 100%
Lodging,
Leisure
& Recreation:
Other
Scope 1 - - - - - 2.3 2.2 -1% 14.8 14.6 -1%
Scope 2 51 60 51 60 19%
Scopes 1 51 60 51 60 19%
& 2
Coverage
(landlord-procured
consumption) 100% 100% 100% 100% 100% 100% 100% 100%
Office:
Corporate:
Mid-Rise
Office
Scope 1 91 82 91 82 -10% 37.2 33.3 -11% 37.2 33.3 -11%
Scope 2 59 52 59 52 -12%
Scopes 1 150 134 150 134 -11%
& 2
Coverage
(landlord-procured
consumption) 100% 100% 100% 100% 100% 100% 100% 100%
Coverage
(landlord-procured
consumption) 100% 100% 100% 100%
- Like for like excludes assets that were purchased, sold, under
refurbishment or subject to a significant change in the scope of
reported data during the two years reported.
- The Fund's greenhouse gas (GHG) inventory has been developed as follows:
o Scope 1 GHG emissions relate to the use of onsite natural
gas.
o Scope 2 GHG emissions relate to the use of electricity.
- GHG emissions from electricity (Scope 2) are reported
according to the 'location-based' approach.
- GHG emissions are presented as tonnes of carbon dioxide
equivalent (tCO(2) e) and GHG intensity is presented as kilograms
of carbon dioxide equivalent (kgCO(2) e), where available
greenhouse gas emissions conversion factors allow.
- Fuels/electricity GHG emissions factors have been taken from
the UK government's Greenhouse Gas Reporting Factors for Company
Reporting (2021 and 2022).
- Emissions data relates to the managed portfolio only:
o Industrial: Distribution warehouse: whole building; outdoor
areas; tenant space, where procured by the landlord.
o Lodging, leisure & recreation: common parts; outdoor
areas; tenant space, where procured by the landlord.
o Mixed use office/retail: whole building.
o Mixed use other: whole building; common parts; tenant space,
where procured by the landlord.
o Office low-rise: whole building; common parts; shared
services; outdoor areas; tenant space, where procured by the
landlord.
o Office mid-rise: shared services.
o Retail high street: common parts.
o Retail warehouse: outdoor areas; tenant space, where procured
by the landlord.
o Emissions associated with energy procured directly by tenants
is not reported.
- Percentage of data estimated pro-rata across 2021 and 2022: 0.3% for electricity and gas.
- Intensity: Numerators / denominators are aligned at the sector level as follows:
o Lodging, Leisure & Recreation: Other, Retail: High Street
& Retail: Retail Centers: Warehouse-- Common areas GHG
emissions divided by common parts area (CPA m2).
o Industrial: Distribution Warehouse & Retail: Retail
Centers: Warehouse-- External areas GHG emissions divided by the
External Area.
o All other sectors: Common areas, shared service and/or whole
building GHG emissions divided by gross internal area (GIA m2).
- Coverage (landlord-procured consumption) relates to the
proportion of assets for which landlord obtained data has been
reported.
- Where appropriate (for relevant assets), consumption data and
asset NLA/GIA has been adjusted to reflect the Company's share of
ownership
- Variance Commentary:
o There was a significant drop in the absolute intensity for the
sector Office: Corporate: Low-Rise Office due to efficiency
measures which include: a boiler replacement at lighting upgrades
at Cheltenham, The Promenade but this reduction is mainly due to
the asset 'The Arc Nottingham' being sold at the beginning of 2022
and therefore is excluded from the 2022 analysis.
o The decrease in absolute intensity for the sector Retail: High
Street can be explained by a single electricity meter becoming
inactive at the of 2021 and therefore consumption previously
attributed to this meter is not factored into the analysis for
2022.
o There was a significant 18% decrease in the like-for-like
emissions for the sector Retail: Retail Centers: Warehouse. The
decrease here can be explained by the fact that the electricity
& fuel for the single asset which comprises this sector (St
John's Retail Park) was lower in 2022 partly due to LED lighting
upgrades.
o Carbon emissions factors for electricity have reduced in 2022
in the UK which has contributed to reductions in GHG intensity.
Water (Water-Abs; Water-LfL; Water-Int)
The table below sets out water consumption from the Company's
managed portfolio by sector.
Office: Corporate:
Low-Rise Office 7,652 5,793 3,448 4,029 17% 0.08 0.13 54%
Coverage
(landlord-procured
consumption) 100% 100% 100% 100% 100% 100%
Retail: High 2,941 2,882 2,941 2,882 -2% 0.22 0.20 -11%
Street
Coverage
(landlord-procured
consumption) 100% 100% 100% 100% 100% 100%
Retail: Retail 325 331 325 331 2% 0.00 0.00 0%
Centers: Warehouse
Coverage
(landlord-procured
consumption) 100% 100% 100% 100% - -
Mixed use: Other 1,990 3,861 1,990 3,861 94% 0.11 0.22 94%
Coverage
(landlord-procured
consumption) 100% 100% 100% 100% 100% 100%
Mixed use: - 2,531 - - - 0.00 0.00 -
Office/Retail
Coverage
(landlord-procured
consumption) - 100% - 0% - -
Industrial:
Distribution
Warehouse - - - - - 0.00 0.00 0%
Coverage - - - - - -
(landlord-procured
consumption)
Lodging, Leisure 130 149 130 149 15% 0.01 0.01 15%
& Recreation:
Other
Coverage
(landlord-procured
consumption) 100% 100% 100% 100% 100% 100%
Office: Corporate: 42 114 - - - 0.00 0.00 0%
Mid-Rise Office
Coverage
(landlord-procured
consumption) 100% 100% - 0% - -
Coverage
(landlord-procured
consumption) 100% 100% 100% 100%
- Like for like excludes assets that were purchased, sold, under
refurbishment or subject to a significant change in the scope of
reported data during the two years reported.
- Consumption data relates to the manage portfolio only:
o Industrial: Distribution warehouse: tenant space, where
procured by the landlord.
o Lodging, leisure & recreation: common parts.
o Mixed use other: whole building; common parts.
o Office low-rise: whole building; common parts; tenant space,
where procured by the landlord.
o Office mid-rise: tenant space, where procured by the
landlord.
o Retail high street: common parts; tenant space, where procured
by the landlord.
o Retail warehouse: tenant space, where procured by the
landlord.
o Water procured directly by tenants is not reported
- All water was procured from a municipal supply. As far as we
are aware, no surface, ground, rainwater or wastewater from another
organisation was consumed during the reporting period and therefore
is not presented here.
- Percentage of data estimated pro-rata across both 2021 and 2022: 0.3%.
- Intensity: Numerators / denominators are aligned as follows:
o Office Corporate: Low-Rise Office, Mixed use: Other, Mixed
use: Office/Retail & Lodging, Leisure & Recreation: Other--
Whole building water consumption (m3) divided by gross internal
area (GIA m2).
o Retail: High Street-- Common Areas water consumption (m3)
divided by Common Parts Area (CPA m2).
o For sectors Mixed use: Office/Retail, Industrial: Distribution
Warehouse & Office: Corporate: Mid-Rise Office there was no
water data available.
o The sector Retail: Retail Centers: Warehouse sector is showing
as 0 consumption due to insufficient data.
- Coverage (landlord-procured consumption) relates to the
proportion of assets for which landlord obtained data has been
reported.
- Where appropriate (for relevant assets), consumption data and
asset NLA/GIA has been adjusted to reflect the Company's share of
ownership.
- Variance Commentary:
o The notable increase in like for like water intensity for the
Office: Corporate: Low-Rise Office sector can largely be attributed
to the asset Northampton, Century & Peterbridge. This is due to
a catch up read received from the supplier for 2022 which was not
based on estimates and showed higher consumption than 2021. As
consumption at this meter is minimal, year on year variances can
have an outsized impact.
o The notable increase in like for like water intensity for the
Mixed use: Other sector is attributed to the asset Manchester City
Tower having increased occupancy in 2022 compared to 2021.
Waste (Waste-Abs; Waste-LfL)
The table below sets out waste from the Company's managed
portfolio by disposal route and sector:
Office: Corporate:
Low-Rise Office Recycled 47.90 66.5% 50.50 64.6% 47.90 66.5% 50.50 64.6% 5.4%
Incineration with energy recovery 24.12 33.5% 27.72 35.4% 24.12 33.5% 27.72 35.4% 14.9%
Unknown 0.00 0.0% 0.00 0.0% 0.00 0.0% 0.00 0.0% -
Landfill 0.00 0.0% 0.00 0.0% 0.00 0.0% 0.00 0.0% -
Retail: High Street Recycled 8.38 34.3% 14.04 40.8% 8.38 34.3% 14.04 40.8% 67.6%
Incineration with energy recovery 16.03 65.7% 20.35 59.2% 16.03 65.7% 20.35 59.2% 27.0%
Unknown 0.00 0.0% 0.00 0.0% 0.00 0.0% 0.00 0.0% -
Landfill 0.00 0.0% 0.00 0.0% 0.00 0.0% 0.00 0.0% -
Retail: Retail Centers:
Warehouse Recycled 0.00 - 0.00 0.0% 0.00 - 0.00 - -
Incineration with energy recovery 0.00 - 1.82 100.0% 0.00 - 0.00 - -
Unknown 0.00 - 0.00 0.0% 0.00 - 0.00 - -
Landfill 0.00 - 0.00 0.0% 0.00 - 0.00 - -
Mixed use: Other Recycled 169.90 55.6% 168.95 55.6% 169.90 55.6% 168.95 55.6% -0.6%
Incineration with energy recovery 135.82 44.4% 135.06 44.4% 135.82 44.4% 135.06 44.4% -0.6%
Unknown 0.00 0.0% 0.00 0.0% 0.00 0.0% 0.00 0.0% -
Landfill 0.00 0.0% 0.00 0.0% 0.00 0.0% 0.00 0.0% -
Mixed use: Office/Retail Recycled 4.60 41.4% 10.40 36.0% 4.60 41.4% 2.40 22.0% -47.8%
Incineration with energy recovery 6.50 58.6% 18.50 64.0% 6.50 58.6% 8.50 78.0% 30.8%
Unknown 0.00 0.0% 0.00 0.0% 0.00 0.0% 0.00 0.0% -
Landfill 0.00 0.0% 0.00 0.0% 0.00 0.0% 0.00 0.0% -
Industrial: Distribution
Warehouse Recycled 0.00 - 0.00 - 0.00 - 0.00 - -
Incineration with energy recovery 0.00 - 0.00 - 0.00 - 0.00 - -
Unknown 0.00 - 0.00 - 0.00 - 0.00 - -
Landfill 0.00 - 0.00 - 0.00 - 0.00 - -
Lodging, Leisure &
Recreation: Other Recycled 128.19 52.4% 250.28 53.5% 128.19 52.4% 250.28 53.5% 95.2%
Incineration with energy recovery 116.35 47.6% 217.84 46.5% 116.35 47.6% 217.84 46.5% 87.2%
Unknown 0.00 0.0% 0.00 0.0% 0.00 0.0% 0.00 0.0% -
Landfill 0.00 0.0% 0.00 0.0% 0.00 0.0% 0.00 0.0% -
Office: Corporate:
Mid-Rise Office Recycled 20.93 69.7% 12.76 61.5% 20.93 69.7% 12.76 61.5% -39.0%
Incineration with energy recovery 9.09 30.3% 7.97 38.5% 9.09 30.3% 7.97 38.5% -12.3%
Unknown 0.00 0.0% 0.00 0.0% 0.00 0.0% 0.00 0.0% -
Landfill 0.00 0.0% 0.00 0.0% 0.00 0.0% 0.00 0.0% -
Coverage (landlord-procured consumption) 100% 100% 100% 100%
- Whilst zero waste is sent direct to landfill, a residual
component of the 'recycled' and 'incineration with energy recovery'
waste streams may end up in landfill.
- Like-for-like excludes assets that were purchased, sold, under
refurbishment or subject to a significant change in the scope of
reported data during the two years reported.
- Waste data relates to the managed portfolio only.
- Waste management procured directly by tenants is not reported.
- Reported data relates to non-hazardous waste only, robust
tonnage data on the small quantities of hazardous waste produced is
not available.
- Coverage (landlord-procured consumption) relates to the
proportion of assets for which landlord obtained data has been
reported
- Where appropriate (for relevant assets), consumption data and
asset NLA/GIA has been adjusted to reflect the Company's share of
ownership.
- Variance Commentary:
o Due to Covid-19 closures in early 2021, occupancy levels
across the Fund were down but this generally increased across the
Fund towards the latter half of 2021 and in many cases throughout
2022. Some assets have recorded modest decreases in waste. However,
overall, there has been a 33.2% increase in like for like waste
tonnage which can mainly be attributed due to higher occupancy
levels across a number of assets.
Sustainability certification: Green building certificates
(Cert-Tot)
The table below sets out the proportion of the Company's total
portfolio with a Green Building Certificate by floor area.
BREEAM/Refurbishment and Fit-out | Very
Good 11.7%
BREEAM/ Refurbishment and Fit-out Coverage 11.7%
BREEAM In Use | Very Good 1.1%
BREEAM In Use | Good 3.7%
BREEAM In Use | Acceptable 1.5%
BREEAM In Use | Pass 0.1%
BREEAM/ In Use Coverage 6.4%
WiredScore | Platinum 15.1%
WiredScore | Silver 0.8%
WiredScore | Certified 0.8%
WiredScore Coverage 16.7%
- Green building certificate records for the Company are
provided as at 3 (1s) t March 2023 by portfolio net lettable floor
area.
- Data provided includes managed and non-managed assets (i.e. the whole portfolio).
- Where appropriate (for relevant assets), asset NLA/GIA has
been adjusted to reflect the Company's share of ownership.
- To avoid double counting, the Total Portfolio Coverage
excludes the floor area for the certificate 'BREEAM/Refurbishment
and Fit-out' as this relates to an asset which is already factored
into the 'BREEAM In Us' portion of the analysis.
Sustainability certification: Energy Performance Certificates
(Cert-Tot)
The table below sets out the proportion of the Company's total
portfolio with an Energy Performance Certificate by floor area.
A 2%
B 15%
C 40%
D 28%
E 11%
F 0%
G 0%
Exempt 0%
No EPC 3%
- Energy Performance Certificate (EPC) records for the Company
are provided for the portfolio as at 31 March 2023 by portfolio
floor area.
- Data provided includes the whole portfolio i.e. managed and non-managed assets.
- Where appropriate (for relevant assets) asset NLA/GIA has been
adjusted to reflect the Company's share of ownership.
- EPCs are known for 97% of the portfolio by floor area. In
general terms, since the introduction of the EPC Regulations in
2008, EPCs are required for the letting of units or buildings or
the sale of buildings. In addition, the UK Minimum Energy
Efficiency Standards regulations ('MEES') came into force for
commercial buildings on 1 April 2018 and require a minimum EPC
rating of E for new lettings; the rules apply to all leases from 1
April 2023. The EPCs for the portfolio are managed to ensure
compliance with the MEES regulations.
Sustainability Performance Measures (Social)
EPRA's Sustainability Best Practices Recommendations Guidelines
2017 ("EPRA's Guidelines") include Social and Governance reporting
measures to be disclosed for the entity i.e. the Company. The
Company is an externally managed real estate investment trust and
has no direct employees. A number of these Social Performance
measures relate to entity employees and therefore these measures
are not relevant for reporting at the entity level. The Investment
Manager to the Company, Schroder Real Estate Investment Management
Limited, is part of Schroders PLC which has responsibility for the
employees that support the Company. The Company aims to comply with
EPRA's Guidelines and therefore has included Social and Governance
Performance Measure disclosures in this report. However, these are
presented as appropriate for the activities and responsibilities of
the Schroder Real Estate Investment Trust Limited (the "Company"),
Schroders PLC or the Investment Manager, Schroder Real Estate
Investment Management Limited.
The Schroders PLC Annual Report and Accounts for the twelve
months to 31 March 2023 supports the performance measures in
relation to the Investment Manager as set out below. Schroders
PLC's principles in relation to people including diversity, gender
pay gap, values, employee satisfaction survey, wellbeing and
retention can be found at:
-- Schroders 2022 Annual Report and Accounts
-- https://www.schroders.com/en/working-here/inclusion-and-diversity/
--
https://prod.schroders.com/en/sysglobalassets/annual-report/2021/documents/schroders-workforce-diversity--gpg-report-2021.pdf
Employee gender diversity (Diversity-Emp)
As at 31 December 2022 the Company Board comprised four members:
2 (50% female); 2 (50% male).
For further information on Schroders PLC employee gender
diversity, covering more employee categories, please refer to
Schroders 2022 Annual Report and Accounts (page 112):
-- Schroders 2022 Annual Report and Accounts
Gender pay ratio (Diversity-Pay)
The remuneration of the Company Board is set out on page 44 of
this Report and Accounts document.
Schroders PLC female representation and gender pay report can be
found in the Schroders 2022 Annual Report and Accounts (page 43)
and Schroders PLC Gender Pay Gap Report:
-- Schroders 2022 Annual Report and Accounts
--
https://prod.schroders.com/en/sysglobalassets/annual-report/2021/documents/schroders-workforce-diversity--gpg-report-2021.pdf
Information on Diversity and Inclusion at Schroders can be found
at:
- https://www.schroders.com/en/working-here/inclusion-and-diversity/
-
https://prod.schroders.com/en/sysglobalassets/annual-report/2021/documents/schroders-workforce-diversity--gpg-report-2021.pdf
The following are reported for Schroders in relation to the
Investment Management of the Company:
Training and development (Emp-Training)
Schroders requires employees to complete mandatory internal
training. Schroders encourages all staff with professional
qualifications to maintain the training requirements of their
respective professional body.
Employee performance appraisals (Emp-Dev)
Schroders performance management process requires annual
performance objective setting and annual performance reviews for
all staff. The Investment Manager confirms that performance
appraisals were completed for 100% of investment staff relevant to
the Company in 2022.
The following are reported for Schroders PLC:
For Schroders PLC turnover and retention rates please refer to
Schroders Annual Report and Accounts (page 32):
-- Schroders 2022 Annual Report and Accounts
Employee health and safety (H&S-Emp)
Schroders PLC does not include employee health and safety
performance measures in its Annual Report and Accounts.
The following are reported in relation to the assets held in the
Company's portfolio over the reporting period to 31 March 2023:
Asset health and safety assessments (H&S-Asset)
The table below sets out the proportion of the Company's total
portfolio where health and safety impacts were assessed or reviewed
for compliance or improvement.
Portfolio by floor area (%)
2021 2022
All sectors 81% 100%
Asset health and safety compliance (H&S-Comp)
The table below sets out the number of incidents of
non-compliance with regulations/and or voluntary codes
identified.
Number of incidents
2021 2022
All Sectors 1 1
In 2022, there was an issue with a fire panel at 1 asset within
the portfolio. The issue was rectified by replacing the panel.
Community engagement, impact assessments and development
programmes (Comty-Eng)
The table below sets out the proportion of the Company's total
portfolio which completed local community engagement, impact
assessments and/or development programs:
Portfolio by number assets (%)
2021 2022
Industrial, Distribution
Warehouse 7% 2%
Mixed-use, Other 2% 4%
Office, Low-Rise 9% 11%
Office, Mid-Rise 0% 2%
All other sectors 10% 8%
Total 28% 29%
Community engagement initiatives are conducted on an
asset-by-asset basis in collaboration with the relevant site
team:
- All sectors have created employment opportunities for the
local community. Industrial, Distribution Warehouse, Office,
Low-Rise & Office, Mid-Rise: a number of assets within these
sectors have also provided support for local charities such as the
KidsOut campaign at The Tun, Edinburgh to The Island Charity at
York Clifton Park, Shipton Rd and through support for the local
food bank at Norwich, Fifers Lane.
Sustainability Performance Measures (Governance)
Composition of the highest governance body (Gov-Board)
The Board of the Company comprised four non-executive
independent directors (no executive board members) as at 31 March
2023.
-- The average tenure of the four directors to 31 March 2023 is 3 years and 9 months; and
-- The number of directors with competencies relating to
environmental and social topics is two and their experience can be
seen in their biographies.
Nominating and selecting the highest governance body
(Gov-Select)
The role of the Nomination Committee, chaired by Alistair
Hughes, is to consider and make recommendations to the Board on its
composition so as to maintain an appropriate balance of skills,
experience and diversity, including gender, and to ensure
progressive refreshing of the Board. On individual appointments,
the Nomination Committee leads the process and makes
recommendations to the Board.
Before the appointment of a new director, the Nomination
Committee prepares a description of the role and capabilities
required for a particular appointment. While the Nomination
Committee is dedicated to selecting the best person for the role,
it aims to promote diversification and the Board recognises the
importance of diversity. The Board agrees that its members should
possess a range of experience, knowledge, professional skills and
personal qualities, as well as the independence necessary to
provide effective oversight of the affairs of the Company.
Process for managing conflicts of interest (Gov-Col)
The Company's Conflicts of Interest Policy sets out the policy
and procedures of the Board and the Company Secretary for the
management of conflicts of interest.
Streamlined Energy and Carbon Reporting
Schroder Real Estate Investment Trust Limited (the "Company") is
a real estate investment company with a premium listing on the
Official List of the UK Listing Authority and whose shares are
traded on the Main Market of the London Stock Exchange (ticker:
SREI).
The Company is a real estate investment trust ('REIT') and
benefits from the various tax advantages offered by the UK REIT
regime. The Company continues to be declared as an authorised
closed-ended investment scheme by the Guernsey Financial Services
Commission under section 8 of the Protection of Investors
(Bailiwick of Guernsey) Law, 2020, as amended and the Authorised
Closed-ended Collective Investment Schemes Rules and Guidance,
2021.
The Board and Investment Manager, in recognition of the
importance it places on sustainability, has voluntarily included a
report for the Company aligned with the UK Companies (Directors'
Report) and Limited Liability Partnerships (Energy and Carbon
Report) Regulations 2018, (the Regulations) on its UK energy use,
associated Scope 1 and 2 greenhouse gas ('GHG') emissions, an
intensity metric and, where applicable, global energy use. This
reporting is also referred to as Streamlined Energy and Carbon
Reporting ('SECR').
This Energy and Carbon Report applies for the Company's annual
report for the 12 months to 31 March 2023. The statement has,
however, been prepared for the calendar year, the 12 months to 31
December 2022, to report annual figures for emissions and energy
use the available period for which such information is available.
In addition, the regulations advise providing a narrative on energy
efficiency actions taken in the previous financial year.
As a property company, energy consumption and emissions result
from the operation of buildings. The reporting boundary has been
scoped to those held properties where the Company retained
operational control: where the Company is responsible for operating
the entire building, shared services (e.g. common parts lighting,
heating and air conditioning), external lighting and/or void
spaces. 'Operational control' has been selected as the reporting
boundary (as opposed to 'financial control' or 'equity share') as
this reflects the portion of the portfolio where the Company can
influence operational procedures and, ultimately, sustainability
performance. This incorporates consumption in tenant areas, where
the landlord procures energy for the whole building. In 2022,
within the portfolio, there were 23 properties within the
operational control reporting boundary and in 2021 there were 24
such properties. All Company assets are located in the UK.
The Company is not directly responsible for any GHG
emissions/energy usage at single-let/FRI assets, nor at multi-let
assets where the tenant is responsible for procuring their own
energy. These emissions form part of the wider value chain (i.e.
'Scope 3') emissions, which are not monitored at present. As a real
estate company with no direct employees or company-owned vehicles
as at 31 December 2022, there is no energy consumption or emissions
associated with travel or occupation of corporate offices to
report. Fugitive emissions associated with refrigerant losses from
air conditioning equipment are widely understood by the industry to
be less material than other sources of emissions and data is often
not collected. The Company received fugitive emissions data in
previous reporting years and this confirmed that they were de
minimis and consequently have not been captured in the current
reporting.
In addition to reporting absolute energy consumption and GHG
emissions, the Company has reported separately on performance
within the 'like-for-like' portfolio, as well as providing
intensity ratios, where appropriate. The like-for-like portfolio
includes buildings where each of the following conditions is
met:
-- Owned for the full 24-month period (sales/acquisitions are excluded);
-- No major renovation or refurbishment has taken place; and
-- At least 24 months data is available.
For the intensity ratios, the denominator determined to be
relevant to the business is square metres of net lettable area for
most sectors, including Industrial Distribution Warehouses,
Leisure, Mixed-Use, Offices and Retail Warehouses. For Retail High
Street, the most relevant denominator is the common parts area. The
intensity ratio is expressed as:
-- Energy: kilowatt hours per metre square (net lettable area or
common parts area) per year or kWh/m2/yr.
-- GHG: kilograms carbon dioxide equivalent per metre square
(net lettable area or common parts area) per year, or kgCO(2)
e/m2/yr.
Energy Consumption and Greenhouse Gas Emissions
The table below sets out the Company's energy consumption:
Absolute Energy (kWh) Like-for-Like Energy (kWh)
2021 2022 2021 2022 % Change
Gas 2,581,376 2,293,309 2,237,297 2,160,790 -3%
Electricity 5,669,470 5,153,578 4,636,009 4,842,117 4%
Total 8,250,846 7,446,887 6,873,306 7,002,906 1.9%
The table below sets out the Company's greenhouse gas
emissions:
Absolute Emissions Like-=for-Like Emissions
(tCO (2) e) (tCO (2) e)
2021 2022 2021 2022 % Change
Scope 1 (Direct emissions
from gas consumption) 473 419 410 394 -4%
Scope 2 (Indirect emissions
from electricity) 1,204 997 984 936 -5%
Total 1,677 1,415 1,394 1,331 -5%
The like-for-like energy consumption for the 2022 calendar year
for the managed assets held within the Company has slightly
increased by 1.9% (due to occupancy changes following Covid-19
related closures), the greenhouse gas emissions have decreased by
5%. Energy performance improvement opportunities continued to be
considered across the portfolio. Initiatives undertaken during the
reporting year include boiler and hot water system
replacements/upgrades, wall and roof insulation upgrades, window
replacements/upgrades, LED lighting upgrades and installation of
lighting and ventilation occupancy sensors. Automatic Meter Readers
are consistently being rolled out to all landlord electricity
supplies for improved energy monitoring.
The table below sets out the Company's energy and greenhouse gas
emissions intensities by sector:
Energy Intensities Emissions Intensities
(kWh per ft2) (tCO(2) e per ft(2)
)
2021 2022 2021 2022
Industrial Distribution
Warehouses 0.6 0.6 0.1 0.1
Leisure 69.5 75.5 14.8 14.6
Mixed Use, Office/Retail 101.4 96.4 21.5 18.7
Mixed Use, Other 101.0 103.0 21.4 19.9
Office, Low-rise 98.3 25.9 20.1 5.0
Office, Mid-rise 192.2 178.4 37.2 33.3
Retail High Street 14.0 8.9 3.0 1.7
Retail Warehouse 2.3 2.1 0.5 0.4
Methodology
-- All energy consumption and GHG emissions reported occurred at
the Company assets all of which are located in the UK.
-- Energy consumption data is reported according to automatic
meter reads, manual meter reads or invoice estimates. Historic
energy and consumption data have been restated where more complete
and or accurate records have become available. Where required,
missing consumption data has been estimated through pro rata
extrapolation. Data has been adjusted to reflect the Company's
share of asset ownership, where relevant.
-- The sustainability content located in the Sustainability
Performance Measures section of the SREIT annual report for the
year ending 31 March 2023 has been assured in accordance with
AA1000. The same data set has been used to compile this data
report. The full Assurance Statement is available upon request.
-- The Company's GHG emissions are calculated according to the
principles of the Greenhouse Gas (GHG) Protocol Corporate
Standard.
o The Company's Greenhouse Gas Emissions are reported as tonnes
of carbon dioxide equivalent (tCO2e), which includes the following
emissions covered by the GHG Protocol (where relevant and available
greenhouse gas emissions factors allow): carbon dioxide (CO(2) ),
methane (CH(4) ), hydrofluorocarbons (HFCs), nitrous oxide (N(2)
0), perfluorocarbons (PFCs), sulphur hexafluoride (SF(6) ) and
nitrogen trifluoride (NF(3) );
o GHG emissions from electricity (Scope 2) are reported
according to the 'location-based' approach; and
o The following greenhouse gas emissions conversion factors and
sources have been applied:
Country Emissions GHG Emissions Emissions Factor Data Source
Source Factor
United Kingdom 0.2123 kgCO2e UK Government's GHG Conversion
* Electricity 2021 Factors for Company Reporting
(2021)
0.1934 kgCO2e UK Government's GHG Conversion
* Electricity 2022 Factors for Company Reporting
(2022)
Gas 0.1825 kgCO2e
Energy Efficiency Actions
Environmental data management system and quarterly reporting
Environmental data for the Company is collated by sustainability
consultants Evora Global supported by their proprietary
environmental data management system SIERA. Energy, water, waste
and greenhouse gas emission data are collected and validated for
all assets where the portfolio has operational control on a
quarterly basis.
Energy target, improvement programme and net zero carbon
In 2019 the Manager signed the Better Building Partnership's
('BBP') Climate Commitment [29] and we have a net-zero ambition
aligned to the Paris Agreement aim to limit warming to 1.5degC. The
Manager's commitment was further underlined by the Company who last
year announced their 'Pathway to Net Zero Carbon' committing
to:
- Operational whole buildings emissions to be aligned to a 1.5degC pathway by 2030 ;
- Embodied emissions for all new developments and major renovations to be net zero by 2030 ;
- Operational Scope 1 and 2 (landlord) emissions to be net zero by 2030 ; and
Operational and embodied whole building (scope 1, 2 and 3 -
landlord and tenant) emissions to be net zero by 2040. The
Investment Manager, together with sustainability consultants Evora
Global and property managers looks to identify and deliver energy
and greenhouse gas emission reductions on a cost-effective basis.
The programme involves reviewing all managed assets within the
Company and identifying and implementing improvement initiatives,
where viable. The process is of continual review and
improvement.
Energy performance improvement initiatives undertaken at several
assets during the reporting period include HVAC/lighting upgrades,
wall and roof insulation upgrades, upgrades to Automatic Meter
Readers for improved energy monitoring, LED upgrades and window
upgrades/replacements.
Renewable electricity tariffs and carbon offsets
The Investment Manager has an objective to procure 100%
renewable electricity for all landlord-controlled supplies for
which it has responsibility, which includes the asset of the
Company, by 2025. As at 31 December 2022 74% of the Company's
landlord-controlled electricity was on renewable tariffs . No
carbon offsets were purchased during the reporting period.
Asset list
The table below summarises the portfolio information as at 31
March 2023, excluding post year end activity. The property values
presented represent the year end valuations as determined by the
independent valuers as at 31 March 2023:
Milton Keynes, Stacey Bushes
Industrial Estate Industrial South East 50-60
Leeds, Millshaw Park Industrial
Estate Industrial Yorkshire & Humberside 40-50
Cheadle, Stanley Green Trading
Estate Industrial North West 30-40
St John's Retail Park, Bedford Retail Warehouse Eastern 30-40
Chippenham, Langley Park
Industrial Estate Industrial South West 20-30
Leeds, Headingley Central Retail/mixed-use Yorkshire & Humberside 20-30
Norwich, Union Park Industrial
Estate Industrial Eastern 20-30
Telford, Hortonwood 7 Industrial West Midlands 10-20
Uxbridge, 106 Oxford Road Office South East 10-20
Birkenhead, Valley Park
Industrial Estate Industrial North West 10-20
Manchester, St. Ann's House Other North West 10-20
Salisbury, Churchill Way Retail Warehouses South West 0-10
Edinburgh, The Tun Office Scotland 0-10
Luton, The Galaxy Other Eastern 0-10
Cheltenham, The Promenade Office South West 0-10
Milton Keynes, Matalan Retail Warehouses South East 0-10
Chester, Sealand Road Retail Warehouses North West 0-10
Northampton, Century & Peterbridge Office East Midlands 0-10
Liverpool, 88-94 Church
Street Retail North West 0-10
Cardiff, Haywood House Office Wales 0-10
Sheffield, Pinstone St Retail Yorkshire & Humberside 0-10
Warwick, 55/56 Heathcote
Industrial Estate Industrial West Midlands 0-10
York, Clifton Park Office Yorkshire & Humberside 0-10
Haydock Industrial Estate Industrial North West 0-10
Leeds, Coverdale House Office Yorkshire & Humberside 0-10
Ilkeston, Albion Shopping
Centre Retail East Midlands 0-10
Sandbach, Hall Lane Industrial North West 0-10
Warwick, Seton House Office West Midlands 0-10
Marlow, Pacific House Office South East 0-10
Swindon, 21/27 Stirling
Court Industrial South West 0-10
Chelmsford, 24-25 High St Retail South East 0-10
Bedford, Howard House Office Eastern 0-10
Fareham, Delme Place, Cams
Estate Office South East 0-10
Truro, 15/16 King Street Retail South West 0-10
Chelmsford, 67 & 68 High
Street Retail South East 0-10
Leicester, East Gates Retail East Midlands 0-10
Sandbach, Moston Road Industrial North West 0-10
Report of the Depositary to the Shareholders
Established in 2013, Langham Hall UK Depositary LLP is an FCA
regulated firm that works in conjunction with the Manager and the
Company to act as depositary. Consisting exclusively of qualified
and trainee accountants and alternative specialists, the entity
represents net assets of US$110 billion and we deploy our services
to over 120+ alternative investment funds across various
jurisdictions worldwide. Our role as depositary primarily involves
oversight of the control environment of the Company, in line with
the requirements of the Alternative Investment Fund Managers
Directive (AIFMD).
Our cash monitoring activity provides oversight of all the
Company held bank accounts with specific testing of bank
transactions triggered by share issues, property income
distributions via dividend payments, acquisitions, and third-party
financing. We review whether cash transactions are appropriately
authorised and timely. The objective of our asset verification
process is to perform a review of the legal title of all properties
held by the Company, and shareholding of special purpose vehicles
beneath the Company.
We test whether on an ongoing basis the Company is being
operated by the Manager in line with the Company's prospectus, and
the internal control environment of the Manager. This includes a
review of the Company's and its subsidiaries' decision papers and
minutes.
We work with the Manager in discharging our duties, holding
formal meetings with senior staff on a quarterly basis and submit
quarterly reports to the Manager and the Company, which are then
presented to the Board of Directors, setting out our work performed
and the corresponding findings for the period.
For the financial year ending 31 March 2023, our work included
the review of two investment property acquisitions, two investment
property disposals, one third party borrowing and four interim
dividends. Based on the work performed during this period, we
confirm that no issues came to our attention to indicate that
controls are not operating appropriately.
Joe Hime
Head of Depositary
For and on behalf of
Langham Hall UK Depositary LLP, London, UK
Langham Hall UK Depositary LLP is a limited liability
partnership registered in England and Wales
(with registered number OC388007).
Glossary
Alternative performance please see page 104 for full details of the key
measure ('APM') APMs used by the Company.
Annualised dividend being the dividend paid during the period annualised
yield and expressed as a percentage of the period end
share price.
Articles means the Company's articles of incorporation,
as amended from time to time.
Companies Law means The Companies (Guernsey) Law, 2008.
Company is Schroder Real Estate Investment Trust Limited.
Directors means the directors of the Company as at the date
of this document whose names are set out on pages
43 and 44 of this document and "Director" means
any one of them.
Disclosure Guidance means the disclosure guidance and transparency
and Transparency rules contained within the FCA's Handbook of Rules
Rules and Guidance.
Earnings per share is the profit after taxation divided by the weighted
('EPS') average number of shares in issue during the period.
Diluted and adjusted EPS per share are derived
as set out under NAV.
Estimated rental Is the Group's external valuers' reasonable opinion
value ('ERV') as to the open market rent which, on the date
of the valuation, could reasonably be expected
to be obtained on a new letting or rent review
of a property.
EPRA is the European Public Real Estate Association.
EPRA Net Tangible is the IFRS equity attributable to shareholders
Assets adjusted for items including deferred tax, the
fair value of financial instruments and intangible
assets.
EPRA Net Disposal is the IFRS equity attributable to shareholders
Value adjusted for items including goodwill as a result
of deferred tax and the fair value of interest
rate debt
FCA is the UK Financial Conduct Authority.
Gearing is the Group's net debt as a percentage of adjusted
net assets.
Group is the Company and its subsidiaries.
GFSC is the Guernsey Financial Services Commission.
Initial yield is the annualised net rents generated by the portfolio
expressed as a percentage of the portfolio valuation.
Interest cover is the number of times Group net interest payable
is covered by Group net rental income.
Listing Rules means the listing rules made by the FCA under
Part VII of the UK Financial Services and Markets
Act 2000, as amended.
Market Abuse Regulation means regulation (EU) No.596/2014 of the European
Parliament and of the Council of 16 April 2014
on market abuse.
MSCI (formerly Investment Property Databank or 'IPD')
is a Company that produces an independent benchmark
of property returns.
Net asset value is shareholders' funds divided by the number of
and NAV per share shares in issue at the year end.
NAV total return is calculated taking into account both capital
returns and income returns in the form of dividends
paid to shareholders.
Net rental income is the rental income receivable in the period
after payment of ground rents and net property
outgoings.
REIT is a Real Estate Investment Trust.
Reversionary yield is the anticipated yield which the initial yield
will rise to once the rent reaches the estimated
rental value.
Weighted average Weighted average unexpired lease term assuming
unexpired lease term earlier of lease break or lease expiry.
('WAULT')
Resolutions at 2023 Annual General Meeting
THIS SECTION IS IMPORTANT AND REQUIRES YOUR IMMEDIATE
ATTENTION.
If you are in any doubt about the contents of this section of
the document or the action you should take, you are recommended to
seek immediately your own personal financial advice from an
appropriately qualified independent advisor authorised pursuant to
the Financial Services and Markets Act 2000 (as amended).
If you have sold or otherwise transferred all your shares in the
Company, please send this document (including the Notice of AGM)
and the accompanying documents at once to the purchaser,
transferee, or to the stockbroker, bank or other person through
whom the sale or transfer was effected for onward transmission to
the purchaser or transferee. However, such documents should not be
distributed, forwarded or transmitted in or into the United States,
Canada, Australia or Japan or into any other jurisdiction if to do
so would constitute a violation of applicable laws and regulations
in such other jurisdiction.
The Notice of the Annual General Meeting of Shareholders is set
out on pages 138 to 139. The following paragraphs explain the
resolutions to be put to the AGM.
Resolutions 1-9 (ordinary resolutions)
Resolutions 1-9 are being proposed to approve the ordinary
business of the Company to: (i) consider and approve the
consolidated Annual Report of the Company for the year ended 31
March 2023; (ii) consider and approve the Directors' remuneration
policy and the remuneration report, (iii) elect or re-elect the
Directors; and (iv) appoint the Auditors and authorise the
Directors to determine the Auditor's remuneration.
Resolution 10: Approval of the Company's dividend policy
(ordinary resolution)
The Company's dividend policy is to pay a sustainable level of
quarterly dividends to shareholders (in arrears). It is intended
that successful execution of the Company's strategy will enable a
progressive dividend policy.
The Company's objective and strategy, outlined in the Chair's
Statement and Investment Manager's Report, is to deliver
sustainable net income growth in due course through active
management of the underlying portfolio. Any future decision to
increase the dividend will be determined by factors including
whether it is sustainable over the long term, current and
anticipated future market conditions, rental values and the
potential impact of any future debt refinancing.
As the Company is a REIT, the Board must also ensure that
dividends are paid in accordance with the requirements of the UK
REIT regime (pursuant to part 12 of the UK Corporation Tax Act
2010) in order to maintain the Company's REIT status. Shareholders
should note that the dividend policy is not a profit forecast and
dividends will only be paid to the extent permitted in accordance
with the Companies Law and the UK REIT regime.
The Board acknowledges that the dividend policy is fundamental
to shareholders' income requirements as well as the Company's
investment and financial planning. Therefore, in accordance with
the principles of good corporate governance and best practice
relating to the payment of interim dividends without the approval
of a final dividend by a company's shareholders, a resolution to
approve the Company's dividend policy will be proposed annually for
approval.
Resolution 11: Authority to disapply pre-emption rights (special
resolution)
The Directors require specific authority from shareholders
before allotting new ordinary shares for cash (or selling shares
out of treasury for cash) without first offering them to existing
shareholders in proportion to their holdings. Resolution 11
empowers the Directors to allot new ordinary shares for cash or to
sell ordinary shares held by the Company in treasury for cash,
otherwise than to existing shareholders on a pro rata basis, up to
such number of ordinary shares as is equal to 10% of the ordinary
shares in issue (including treasury shares) on the date the
resolution is passed. No ordinary shares will be issued without
pre-emption rights for cash (or sold out of treasury for cash) at a
price less than the prevailing net asset value per ordinary share
at the time of issue or sale from treasury.
The Directors do not intend to allot or sell ordinary shares
other than to take advantage of opportunities in the market as they
arise and will only do so if they believe it to be advantageous to
the Company's existing shareholders and when it would not result in
any dilution of the net asset value per ordinary share (owing to
the fact that no ordinary shares will be issued or sold out of
treasury for a price less than the prevailing net asset value per
ordinary share).
This authority will expire on the earlier of the conclusion of
the annual general meeting of the Company to be held in 2024 or on
the expiry of 15 months from the passing of this Resolution 11.
Resolution 12: Authority to repurchase shares (special
resolution)
The Board recognises that movements in the ordinary share price,
premium or discount, are driven by numerous factors, including
investment performance, gearing and market sentiment. Accordingly,
it focuses its efforts principally on addressing sources of risk
and return as the most effective way of producing long-term value
for Shareholders.
However, the Directors may consider repurchasing ordinary shares
if they believe it to be in Shareholders' interests as a whole and
as a means of correcting any imbalance between supply and demand
for the ordinary shares. The making and timing of any repurchase of
ordinary shares will be at the absolute discretion of the Board,
although the Board will have regard to the effects of any such
repurchase on long-term shareholders in exercising its discretion.
Any repurchase of ordinary shares will be subject to compliance
with the Companies Law and within any guidelines established from
time to time by the Board.
During the year ended 31 March 2023 the Company repurchased
1,969,725 shares.
Annually the Company passes a resolution granting the Directors
general authority to purchase in the market up to 14.99% of the
number of shares in issue. The Directors intend to seek a renewal
of this authority from the Shareholders at the AGM.
In the event that the Board decides to repurchase ordinary
shares, purchases will only be made through the market for cash at
prices not exceeding the prevailing NAV of the ordinary shares (as
last calculated) where the Directors believe such purchases will
enhance shareholder value. Such purchases will also only be made in
accordance with the Listing Rules and the Disclosure Guidance and
Transparency Rules which provide that the maximum price to be paid
for each ordinary share must not be more than the higher of: (i) 5
per cent above the average mid-market value of the ordinary shares
for the five business days before the purchase is made; and (ii) an
amount equal to the higher of (a) the price of the last independent
trade; and (b) the highest current independent bid for an ordinary
share on the trading venues where the market purchases by the
Company pursuant to the authority conferred by that resolution will
be carried out. The Companies Law also provides, among other
things, that any such purchase is subject to the Company passing
the solvency test contained in the Companies Law at the relevant
time. Any ordinary shares purchased under this authority may be
cancelled or held in treasury.
This authority will expire at the conclusion of the annual
general meeting of the Company to be held in 2024 unless varied,
revoked or renewed prior to such date by ordinary resolution of the
Company.
The Board considers that the resolutions to be proposed at the
AGM are in the best interests of the Company's shareholders as a
whole. The Board therefore recommends unanimously to shareholders
that they vote in favour of each of the resolutions, as they intend
to do in respect of their own beneficial holdings.
Alastair Hughes, Chair
7 June 2023
Notice of Annual General Meeting
Notice is hereby given that the Annual General Meeting of the
Company will be held at 1 London Wall Place, EC2Y 5AU on 27
September 2023 at 1.30 p.m.
Resolution
To consider and, if thought fit, pass the following
Ordinary Resolutions:
Resolution 1 (Ordinary
Resolution) * To receive, consider and approve the Consolidated
Annual Report and Financial Statements of the Company
for the year ended 31 March 2023.
Resolution 2 (Ordinary * To approve the Directors' Remuneration Policy.
Resolution)
Resolution 3 (Ordinary
Resolution) * To approve the Remuneration Report for the year ended
31 March 2023.
Resolution 4 (Ordinary
Resolution) * To elect Alexandra ('Ali') Innes as a Director of the
Company.
Resolution 5 (Ordinary
Resolution) * To re-elect Alastair Hughes as a Director of the
Company.
Resolution 6 (Ordinary
Resolution) * To re-elect Stephen Bligh as a Director of the
Company.
Resolution 7 (Ordinary
Resolution) * To re-elect Priscilla Davies as a Director of the
Company.
Resolution 8 (Ordinary
Resolution) * To appoint Ernst and Young LLP as Auditor of the
Company until the conclusion of the next Annual
General Meeting.
Resolution 9 (Ordinary
Resolution) * To authorise the Board of Directors to determine the
Auditor's remuneration.
Resolution 10
(Ordinary Resolution) * To receive and approve the Company's Dividend Policy
which appears on page 33 of the Annual Report.
To consider and, if thought fit, pass the following
Special Resolutions:
Resolution 11(Special That the Directors of the Company be and are hereby
Resolution) empowered to allot ordinary shares of the Company
for cash as if the pre-emption provisions contained
under Article 13 of the Articles of Incorporation
did not apply to any such allotments and to sell
ordinary shares which are held by the Company in
treasury for cash on a non-pre-emptive basis provided
that this power shall be limited to the allotment
and sales of ordinary shares:
a. up to such number of ordinary shares as is equal
to 10% of the ordinary shares in issue (including
treasury shares) on the date on which this resolution
is passed;
b at a price of not less than the net asset value
per share as close as practicable to the allotment
or sale;
provided that such power shall expire on the earlier
of the conclusion of the annual general meeting
of the Company to be held in 2024 or on the expiry
of 15 months from the passing of this Special Resolution,
except that the Company may before such expiry make
offers or agreements which would or might require
ordinary shares to be allotted or sold after such
expiry and notwithstanding such expiry the Directors
may allot or sell ordinary shares in pursuance of
such offers or agreements as if the power conferred
hereby had not expired.
Resolution 12 That the Company be authorised, in accordance with
(Special Resolution) section 315 of The Companies (Guernsey) Law, 2008,
as amended (the "Companies Law"), to make market
acquisitions (within the meaning of section 316
of the Companies Law) of ordinary shares in the
capital of the Company ("Ordinary Shares") either
for retention as treasury shares, insofar as permitted
by the Companies Law or cancellation, provided that:
a. the maximum number of ordinary shares hereby
authorised to be purchased shall be 14.99% of the
issued ordinary shares on the date on which this
resolution is passed;
b. the minimum price which may be paid for an ordinary
share shall be GBP0.01;
c. the maximum price (exclusive of expenses) which
may be paid for an ordinary share shall be an amount
equal to the higher of (i) 5% above the average
of the mid-market value of the ordinary shares (as
derived from the regulated market on which the repurchase
is carried out) for the five business days immediately
preceding the date of the purchase; and (ii) the
higher of (a) the price of the last independent
trade; and (b) the highest current independent bid
at the time of purchase, in each case on the regulated
market where the purchase is carried out;
d. such authority shall expire at the conclusion
of the annual general meeting of the Company to
be held in 2024 unless such authority is varied,
revoked or renewed prior to such date of the general
meeting; and
e. the Company may make a contract to purchase ordinary
shares under such authority prior to its expiry
which will or may be executed wholly or partly after
its expiration and the Company may make a purchase
of ordinary shares pursuant to any such contract.
By Order of the Board
For and on behalf of
Schroder Investment Management Limited
Company Secretary
7 June 2023
Notes
1. To be passed, an ordinary resolution requires a simple
majority of the votes cast by those shareholders voting in person
or by proxy at the AGM (excluding any votes which are withheld) to
be voted in favour of the resolution.
2. To be passed, a special resolution requires a majority of at
least 75% of the votes cast by those shareholders voting in person
or by proxy at the AGM (excluding any votes which are withheld) to
be voted in favour of the resolution.
3. A member who is entitled to attend and vote at the meeting is
entitled to appoint one or more proxies to exercise all or any of
their rights to attend, speak and vote instead of him or her. A
proxy need not be a member of the Company. More than one proxy may
be appointed provided that each proxy is appointed to exercise the
rights attached to different shares held by the member.
4. If returned without an indication as to how the proxy shall
vote on any particular matter, the proxy will exercise discretion
as to whether, and if so how, to vote.
5. A form of proxy is enclosed for use at the meeting and any
adjournment thereof. The form of proxy should be completed and
sent, together with the power of attorney or other authority (if
any) under which it is signed, or a notarially certified copy of
such power or authority, so as to reach the Company's Registrars,
Computershare Investor Services (Guernsey) Limited, at The
Pavilions, Bridgwater Road, Bristol, BS99 6ZY at least 48 hours
before the time of the AGM (excluding any part of a day that is not
a working day).
6. Completing and returning a form of proxy will not prevent a
member from attending in person at the meeting and voting should he
or she so wish.
7. To have the right to attend and vote at the meeting or any
adjournment thereof (and also for the purpose of calculating how
many votes a member may cast on a poll) a member must have his or
her name entered on the register of members not later than at close
of business of 25 September 2023.
8. Pursuant to Article 41 of the Uncertificated Securities
(Guernsey) Regulations 2009, entitlement to attend and vote at the
meeting and the number of votes which may be cast thereat will be
determined by reference to the register of members of the Company
at close of business on 25 September 2023. Changes to entries in
the register of members of the Company after that time shall be
disregarded in determining the rights of any member to attend and
vote at such meeting.
9. If all the shares have been sold or transferred by the
addressee, the Notice of Annual General Meeting and any other
relevant documents should be passed to the person through whom the
sale or transfer was effected for transmission to the purchaser or
transferee.
Corporate Information
Registered Address Independent Auditor
Town Mills Ernst & Young LLP
North Suite 2 PO Box 9
Rue Du Pré Royal Chambers
St Peter Port St. Julian's Avenue
Guernsey St. Peter Port
GY1 1LT Guernsey GY1 4AF
Directors (all Non-executive) Property Valuer
Alastair Hughes (Chair) CBRE Limited
Lorraine Baldry (resigned 26 July Henrietta House
2022) Henrietta Place
Graham Basham (resigned 15 November London
2022) W1G 0NB
Stephen Bligh
Priscilla Davies (appointed 7 June
2022) Sponsor and Brokers
Alexandra Innes (appointed 16 November J.P. Morgan Securities plc
2022) 25 Bank Street
Canary Wharf
Investment Manager and Accounting London E14 5JP
Agent
Schroder Real Estate Investment
Management Limited
1 London Wall Place
London
EC2Y 5AU
Company Secretary Tax Advisors
Schroder Investment Management Deloitte LLP
Limited 2 New Street Square
1 London Wall Place London EC4A 3BZ
London
EC2Y 5AU Receiving Agent and UK Transfer/Paying
Agent
Depositary Computershare Investor Services
Langham Hall UK Depositary LLP (Guernsey) Limited
8th Floor 13 Castle Street
1 Fleet Place St Helier
London Jersey
EC4M 7RA JE1 1ES
Solicitors to as to Guernsey The Company's privacy notice is
the Company Law: available on its webpage
as to English Law: Mourant Ozannes
Stephenson Harwood (Guernsey) LLP
LLP Royal Chambers
1 Finsbury Circus St Julian's Avenue
London EC2M 7SH St. Peter Port
Guernsey GY1 4HP
FATCA GIIN
5BM7YG.99999.SL.826
Status of announcement
2023 Financial Information
The figures and financial information for 2023 are extracted
from the Annual Report and Accounts for the year ended 31 March
2023 and do not constitute the statutory accounts for the year. The
2023 Annual Report and Accounts include the Report of the
Independent Auditors which is unqualified.
Neither the contents of the Company's webpages nor the contents
of any website accessible from hyperlinks on the Company's webpages
(or any other website) is incorporated into, or forms part of, this
announcement.
[1] Reconciles to the valuation reports from CBRE for the direct
portfolio and BNP for the two Joint Ventures. Does not include any
IFRS adjustments for lease incentives, nor the fair value of the
leasehold adjustment for The Galaxy, Luton. Includes GBP4.0 million
relating to the unconditional exchange of contracts before the year
end to dispose of the Group's Rugby asset as per notes 12 and
23.
[2] Represents the annualised rental income as at 31 March 2023
of the portfolio, including the share of rents from joint venture
assets.
[3] Represents the ERV of the portfolio as estimated by the
valuers, including the share of rents for the joint venture
assets.
[4] Source: MSCI Quarterly Version of Balanced Monthly Index
Funds including the share of rents for the joint venture assets on
a like-for-like basis as at 31 March 2023.
[5] This is an Alternative Performance Measure ('APM'). EPRA
calculations are included in the EPRA Performance measures section
on page 98.
[6] This is an APM with further details on page 104.
[7] This is an APM with further details on page 104.
[8] On-balance sheet borrowings reflect the loan facilities with
Canada Life and RBSI without the deduction of unamortised finance
costs of GBP1.0m.
[9] This is an APM. Details are included in the APM section on
page 104.
[10] This is an APM and calculated in accordance with the AIC
recommended methodology. Details are included in the APM section on
page 104.
[11] This is an APM and calculated in accordance with the AIC
methodology. Details are included in the APM section on page
104.
[12] Represents the annualised rental income as at 31 March 2023
of the portfolio, including share of rents for the joint venture
assets.
[13] As per third party valuation reports unadjusted for IFRS
lease incentive amounts.
[14] Column does not sum due to rounding.
[15] World Green Building Council: Bringing Embodied Carbon
Upfront.
https://worldgbc.org/article/bringing-embodied-carbon-upfront/
[16] Intergovernmental Panel on Climate Change (IPCC): Sixth
Assessment Report. https://www.ipcc.ch/assessment-report/ar6/
[17] 'Net Zero Carbon' is when the carbon emissions emitted as a
result of all activities associated with the development, ownership
and servicing of a building are zero or negative.
[18] Better Buildings Partnership Climate Commitment available
here:
https://www.betterbuildingspartnership.co.uk/member-climate-commitment
[19] Winning Cities defined as higher growth locations - Source:
Oxford Economics/Schroders.
[20] Priscilla Davies was appointed as a Director on 7 June
2022, and therefore did not attend any meetings during the year
held prior to her appointment.
[21] Alexandra Innes was appointed as a Director on 16 November
2022, and therefore, did not attend any meetings during the year
held prior to her appointment.
[22] Lorraine Baldry was Chair of the Company until she retired
as a Director on 26 July 2022.
[23] Graham Basham retired as a Director on 15 November
2022.
[24] Chair of the Audit Committee.
[25] Senior Independent Director.
[26] Chair of the Management Engagement Committee.
[27] Lorraine Baldry was Chair of the Company until she retired
as a director on 26 July 2022.
[28] Graham Basham retired as a director on 15 November 2022. He
was a director of the subsidiary companies listed in note 20 for
which he received no additional remuneration, either directly or
indirectly.
[29] Better Buildings Partnership Climate Commitment available
here:
https://www.betterbuildingspartnership.co.uk/member-climate-commitment
[30] As per third party valuation reports unadjusted for IFRS
lease incentive amounts.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
FR FRMMTMTMMTAJ
(END) Dow Jones Newswires
June 08, 2023 02:00 ET (06:00 GMT)
Schroder Real Estate Inv... (LSE:SREI)
Historical Stock Chart
From Mar 2024 to Apr 2024
Schroder Real Estate Inv... (LSE:SREI)
Historical Stock Chart
From Apr 2023 to Apr 2024
