TIDMSREI
RNS Number : 9130N
Schroder Real Estate Inv Trst Ld
07 June 2022
For release 7 June 2022
Schroder Real Estate Investment Trust Limited
('SREIT' / the 'Company' / 'Group')
FULL YEAR RESULTS FOR THE YEARED 31 March 2022
INCOME PROFILE AND SUSTAINABILITY-LED ASSET MANAGEMENT
INITIATIVES TO DRIVE CONTINUED OUTPERFORMANCE IN A MORE VOLATILE
MACRO ENVIRONMENT
Schroder Real Estate Investment Trust Limited, the actively
managed UK focussed REIT, today announces its audited full year
results for the 12 months ended 31 March 2022.
Key financial highlights
-- Net Asset Value ('NAV') increased 25.4% to GBP372.2 million
or 75.8 pps (31 March 2021: GBP296.8 million or 60.4 pps).
-- NAV total return for the year to 31 March 2022 of 30.9% (31 March 2021: 3.9%).
-- EPRA earnings of GBP15.7 million, an increase of 35.3% (31 March 2021: GBP11.6 million).
-- IFRS profit of GBP89.4 million (31 March 2021: GBP4.5 million).
-- Continued outperformance of the underlying portfolio with a
total return of 23.5% compared to 19.9% for the MSCI Benchmark
Index.
-- Loan to value, net of all cash, of 28.6% , within the
long-term strategic range of 25% to 35%.
-- GBP12.5 million of cash, including share of joint ventures,
and GBP42.3 million of undrawn debt facilities, including the post
year end increase of the revolving credit facility, providing
operational and financial flexibility.
-- Dividends reinstated to the pre-pandemic level, having been
increased every quarter since June 2020. Dividends totalling
GBP13.9 million, or 2.83 pps, paid during the financial year,
reflecting dividend cover of 113% based on EPRA earnings.
-- Further 3% increase in the quarterly dividend to 0.795 pps,
to be paid in the quarter ending 30 June 2022.
Key operational highlights
-- Company announces its own 'Pathway to Net Zero Carbon' commitments and an evolution in its sustainability strategy and approach.
-- Rent collection stabilised at pre-pandemic level: 96%
collected for the quarter ending 31 March 2022, and recovery of
certain amounts previously provided for as bad debt.
-- Disposal of Nottingham office asset for GBP13.0 million,
realising a GBP3.2 million gain in the financial year and a 12.4%
per annum total return since acquisition in August 2018.
-- Acquisition of four industrial assets in the north-west of
England for GBP19.9 million, reflecting a net initial yield of
6.9%, a reversionary yield of 8.2%, and a low capital value of
GBP53 per sq ft.
-- Commenced development of 11 net zero carbon warehouse and
trade units in Cheadle, Greater Manchester, totalling 80,000 sq ft
at a cost of approximately GBP8.5 million.
-- Post year end 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.
-- 72 new lettings, renewals and reviews completed (as at 6 June
2022), totalling GBP3.9 million per annum of rental income and
reflecting an annualised increase of GBP1.6 million on the previous
contracted rent.
-- Achieved a year-on-year performance improvement in the Global
Real Estate Sustainability Benchmark ('GRESB').
Lorraine Baldry, Chairman of the Board, commented:
"Capital values increased strongly in the financial year and the
Company benefitted from an above-average weighting to multi-let
industrial estates, retail warehousing and offices in higher growth
cities. The speed and force of the upturn in inflation has been a
shock to markets, and increased levels of volatility are expected.
We expect this to lead to slowing capital values, but do not
currently expect a significant correction due to the sector
offering an attractive income return and investment characteristics
that have historically acted as a partial hedge against periods of
high inflation. The Company's portfolio is well positioned for a
rising interest rate environment, with an above-average income
yield, a pipeline of asset management initiatives that should
support returns, and long-term, fixed-rate debt.
"The built environment has a profound impact on climate change
and owners of real estate have an important role to play in
decarbonisation. There is an opportunity to evolve the Company's
strategy to adapt existing buildings to improve sustainability
performance and the Investment Manager is well placed to lead in
this area."
Nick Montgomery, Fund Manager, added:
"These strong results are the outcome of disciplined investment
decisions and active management of the portfolio. Conviction in our
strategy has resulted in a good quality, diversified portfolio that
is weighted towards higher growth parts of the UK real estate
market with opportunities to add value through asset repositioning
and development.
"Focusing on sustainability 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. Growing consensus is
that there is a meaningful rental and value premium for buildings
with green certifications, and the Company has integrated
sustainability considerations at all stages of the investment
process and asset life cycle."
A webcast presentation for analysts and investors will be hosted
today at 09.00am. In order to register, please visit:
https://registration.duuzra.com/form/feedback/SREIannualresults
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 / Ollie
Parsons 020 3727 1000
--------------
Schroder Real Estate Investment Trust Limited
Annual Report and Consolidated Financial Statements
for the year ended 31 March 2022
Contents
Overview 3
Performance Summary 5
Strategic Report 7
Chairman's Statement 7
Investment Manager's review 11
UK Commercial Real Estate Market Review 24
Business Model 29
Our stakeholders 32
Risk and Uncertainties 34
Governance Report 39
Board of Directors 39
Report of the Directors 41
Corporate Governance 44
Audit Committee Report 48
Management Engagement Committee Report 51
Nomination Committee Report 52
Directors' Remuneration Report 54
Statement of Directors' Responsibilities 56
Sustainability Report 58
Independent Auditor's report to the members of
Schroder Real Estate Investment Trust Limited 69
Financial Statements 79
Consolidated Statement of Comprehensive Income 79
Consolidated Statement of Financial Position 80
Consolidated Statement of Changes in Equity 81
Consolidated Statement of Cash Flows 82
Notes to the Financial Statements 83
Other information (unaudited) 102
EPRA Performance Measures (unaudited) 102
Asset list 130
Report of the Depositary to the Shareholders 131
Glossary 132
Notice of Annual General Meeting 136
Corporate Information 139
Performance Summary
Property performance
31 March 2022 31 March 2021
------------------------------------------------------- -------------- --------------
Value of Property Assets and Joint Venture Assets [1] GBP523.5m GBP438.8m
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Annualised rental income [2] GBP30.1m GBP28.3m
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Estimated open market rental value [3] GBP33.8m GBP31.2m
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Underlying portfolio total return 23.5% 4.6%
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MSCI Benchmark total return [4] 19.9% 1.8%
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Underlying portfolio income return 6.3% 6.5%
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MSCI Benchmark income return 3.9% 4.4%
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Financial summary
31 March 2022 31 March 2021
--------------------------------- -------------- --------------
Net Asset Value ('NAV') GBP372.2m GBP296.8m
--------------------------------- -------------- --------------
NAV per Ordinary Share 75.8 p 60.4p
--------------------------------- -------------- --------------
EPRA Net Tangible Assets [5] GBP372.2m GBP296.8m
--------------------------------- -------------- --------------
EPRA Net Reinstatement Value(9) GBP407.3m GBP326.3m
--------------------------------- -------------- --------------
EPRA Net Disposal Value(9) GBP375.9m GBP297.8m
--------------------------------- -------------- --------------
IFRS profit for the year GBP89.4m GBP4.5m
--------------------------------- -------------- --------------
EPRA earnings [6] GBP15.7m GBP11.6m
--------------------------------- -------------- --------------
Dividend cover [7] 113% 145%
--------------------------------- -------------- --------------
Capital values
31 March 2022 31 March 2021
----------------------------- -------------- --------------
Share price 57.8 p 39.9p
----------------------------- -------------- --------------
Share price discount to NAV (23.7%) (33.9%)
----------------------------- -------------- --------------
NAV total return [8] 30.9% 3.9%
----------------------------- -------------- --------------
FTSE All-Share Index 4,187.78 3,831.05
----------------------------- -------------- --------------
Earnings and dividends
31 March 2022 31 March 2021
------------------------------------------------------- -------------- --------------
EPRA earnings [9] (pps) 3.2 2.3
------------------------------------------------------- -------------- --------------
Dividends paid (pps) 2.83 1.59
------------------------------------------------------- -------------- --------------
Annualised dividend yield on the 31 March share price 4.9% 4.0%
------------------------------------------------------- -------------- --------------
Bank borrowings
31 March 2022 31 March 2021
--------------------------------------------------- -------------- --------------
On-balance sheet borrowings [10] GBP162.25m GBP154.1m
--------------------------------------------------- -------------- --------------
Loan to Value ratio ('LTV'), net of all cash [11] 28.6% 32.3%
--------------------------------------------------- -------------- --------------
Ongoing charges
31 March 2022 31 March 2021
------------------------------------------------------------- -------------- --------------
Ongoing charges (including fund and property expenses) [12] 2.21% 2.53%
------------------------------------------------------------- -------------- --------------
Ongoing charges (including fund only expenses) [13] 1.26% 1.36%
------------------------------------------------------------- -------------- --------------
Strategic Report
Chairman's Statement
Overview
For the year ended 31 March 2022, Schroder Real Estate
Investment Trust Limited ('SREIT', or 'the Company'), has delivered
a strong set of financial results driven by the performance of the
underlying portfolio. Net asset value ('NAV') at the end of the
financial year was GBP372.2 million or 75.8 pence per share
('pps'), an increase of 25.5% compared with 60.4 pps as at 31 March
2021.
Supported by positive momentum in the real estate market, the
results were driven by favourable sector allocation and active
management of our underlying portfolio, which continues to
outperform the MSCI Benchmark Index (the 'Benchmark') over all time
periods, and is now ranked on the 11(th) percentile since the
Company's launch in 2004.
The dividend was reinstated to the pre-pandemic level, having
increased every quarter since June 2020. Dividends paid during the
financial year totalled GBP13.9 million, or 2.83 pps. This,
together with the capital growth in the portfolio, resulted in a
strong NAV total return for the financial year of 30.9%.
We have today announced a further 3% increase in the next
quarterly dividend payable in June, and there is scope for further
dividend increases given the reversionary potential of the
portfolio and a growing pipeline of development opportunities,
refurbishment projects and other income-generating activity.
A continuing focus on sustainability will be a defining
characteristic of our future strategy and progress was made over
the year implementing the commitments made in last year's Annual
Report, set out in the Investment Manager's review. There is now a
growing consensus that there is a meaningful rental and value
premium for buildings with green certifications, and the Company
has integrated sustainability considerations at all stages of the
investment process and asset lifecycle.
Following the strong post-pandemic recovery in real estate
markets, supported by loose monetary and fiscal policy, growth
forecasts have fallen markedly in recent months due to rapidly
increasing inflation, the devastating war in Ukraine and continued
lockdowns in China and other emerging markets.
The speed and force of the upturn in inflation has been a shock
to markets, and increased levels of volatility are expected. We
expect this to lead to slowing capital values, but do not currently
expect a significant correction in real estate capital values, due
to the sector offering an attractive income return and investment
characteristics that have historically acted as a partial hedge
against periods of high inflation.
Strategy
The strategy over the year has focused on delivering sustainable
income growth and improving the quality of the underlying portfolio
through active management and capital investment, with a focus on
delivering operational excellence and sustainability
improvements.
Transactional activity undertaken over recent years means the
portfolio is well positioned with an above-average weighting to
multi-let industrial estates, retail warehousing and offices in
higher growth cities. This contributed to a total return of 23.5%
for the financial year compared with the Benchmark of 19.9%.
Encouragingly, the higher total return was accompanied by a higher
income return of 6.3% (Benchmark: 4.1%) and stronger rental value
growth of 6.8% (Benchmark: 3.2%). The two industrial acquisitions
made at the end of 2020 in Chippenham and Cheadle, Manchester,
contributed strongly to this performance, generating total returns
of 47.7% and 42.8% respectively over the financial year, which
compared with an All UK Industrial average of 40.5%.
As expected, polarisation in returns between the main UK real
estate sectors is narrowing, with industrial capital growth
slowing, and more resilient parts of the retail sector enjoying a
strong recovery. The outlook for the office sector is less certain,
but there are clear trends emerging, with occupiers favouring
higher quality offices that support talent retention and
attraction, and have a lower carbon footprint. Whilst hybrid
working is expected to lead to a structural reduction in overall
demand, a combination of restrained development, stabilising
vacancy rates and strong growth in sectors such as legal services,
tech and life sciences, means we remain positive about our office
portfolio, which is concentrated in higher growth cities such as
London, Manchester and Edinburgh.
The convergence of returns between the main sectors should
enable the Company to demonstrate the benefits of owning a
diversified portfolio, with the ability and expertise to invest
across all sectors. In addition, with a slowdown in the rate of
capital growth, and income representing a greater proportion of the
return, shareholders should benefit from the Investment Manager's
specialist sector teams and approach to delivering operational
excellence.
The strong growth in capital values means the Company's balance
sheet remains robust with a loan to value at the year end, net of
cash, of 28.6%. The rising interest rate environment means the
Company is benefiting from the refinancing of its long term loan
facility undertaken in 2019, with a low blended interest rate of
2.5% at the financial year end, and an average loan term of 14.1
years. Since the year end we have refinanced and increased our
revolving credit facility to provide capacity to capitalise on
acquisition opportunities and fund our pipeline of development and
refurbishment initiatives.
Dividend and earnings
The strong NAV growth was accompanied by a recovery in EPRA
earnings that totalled GBP15.7 million over the financial year, an
increase of 35.3% on the previous year. This was driven by higher
yielding industrial acquisitions, active management supporting
strong rental growth, rent collection recovering to the
pre-pandemic level. Earnings benefited from the close management of
expenses, including the reduced Investment Management fee rate
effective since 1 July 2021. Earnings per share has also been
enhanced by the GBP9.5 million of share buybacks undertaken in the
prior financial year at an average discount to the previous
financial year end NAV of 41%, with a small number of shares
acquired during this financial year.
Based on total dividends paid of GBP13.9 million, dividend cover
was 113%. Portfolio activity since the year end, including the
acquisition of a high yielding, mixed-use asset in Manchester city
centre, has supported a further 3% increase in the dividend, which
is higher than the pre-pandemic level.
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.
In 2019, the built environment was responsible for 31% of global
carbon dioxide emissions (source: IPCC), and therefore
decarbonising the real estate sector is a key contributor to
reducing global warming. Whilst energy efficient new developments
will play a key part in the transition to a net zero carbon future,
the majority of the current UK building stock will still be in use
by 2050. The embodied carbon within this building stock creates a
need and also an opportunity for decarbonisation strategies that
adapt existing buildings to improve sustainability performance.
The Company is well placed to deliver a strategy focussed on
strong sustainability and financial performance. Progress has
already been made in this area, with a 52% reduction in carbon
intensity across our portfolio over the five years to March 2020,
and key ongoing projects across the portfolio such as our
operational Net Zero Carbon industrial development in Cheadle,
Manchester, the first of its type in the North West. This progress
has been recognised by a year-on-year improvement in our
performance in the Global Real Estate Sustainability Benchmark
('GRESB').
Incorporating sustainability as a fundamental part of our
strategy means we are today announcing our own 'Pathway to Net Zero
Carbon' which includes the following commitments:
-- Operational whole buildings emissions to be aligned to a 1.5 deg C 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.
These are ambitious targets, as our strategy to acquire and
upgrade existing buildings means a proportion of the portfolio will
be undergoing a transition whilst sustainability performance is
improved. This approach is an environmental necessity and,
importantly, should also support the delivery of enhanced returns
through acquiring and actively managing potentially mispriced
assets.
Finally, during the course of the financial year the FCA
provided further details of its plans to develop a sustainability
disclosure requirements ('SDR') regime which provides the UK's
equivalent to the EU's Sustainable Finance Disclosure Regulations
('SFDR'). We are monitoring these developments closely and will
align with labelling that clearly demonstrates sustainability as
being a fully integrated part of our investment strategy.
Debt
At the end of the financial year the Company had two loan
facilities, a GBP129.6 million term loan with Canada Life and a
GBP52.5 million revolving credit facility ('RCF') with Royal Bank
of Scotland International ('RBSI') of which GBP32.7 million was
drawn. These facilities provided a low all-in average cost of debt
of 2.5% and a blend of maturities in 2023, 2032 and 2039, resulting
in the longest weighted debt term in the recognised peer group. At
the year end the Company had cash and undrawn debt of GBP32.3
million, a loan to value ratio, net of cash, of 28.6%, which is
within the long-term strategic range of 25% to 35%, and significant
headroom on all debt covenants (bar the office weighting covenant
on the Canada Life loan facility disclosed on page 83).
On 6 June the Company increased the RCF with RBSI by GBP22.5
million to GBP75.0 million and extended the maturity from 2023 to
2027. This has provided the Company with additional investment
capital and reduced refinancing risk. The two loan facilities
continue to provide a low all-in average cost of debt of 2.5%.
Board succession
Having joined the Board in January 2014, in line with best
practice I will retire as Chair of the Board in July 2022. As
previously announced, following a comprehensive succession planning
process led by my fellow independent non-executive directors,
Stephen Bligh and Graham Basham, Alastair Hughes, the current
Senior Independent Director of the Company, will become Chair with
effect from 31 July 2022. Alastair brings extensive listed real
estate experience with non-executive director roles at British Land
Plc and Tritax Big Box plc, and is very well placed to lead the
Company into the future.
We are also today announcing the appointment of Priscilla Davies
as the new non-executive, Senior Independent Director of the
Company, effective 8 June 2022. Priscilla has a strong track record
in roles across asset management, alternative investments, private
equity, infrastructure and real estate. Priscilla is currently
Chair of UBS Asset Management (UK) Limited, with other
non-executive roles at Cubico Sustainable Investments, a global
sustainable energy provider, and Embark Group, a digital retirement
solutions provider. My fellow directors and I are confident that
Priscilla will be a strong addition to the Board.
From a personal perspective, I retire from the Board at a time
of great opportunity for the Company, both in terms of portfolio
activity as well as the potential to evolve the strategy to deliver
more sustainable returns - both from an environmental and financial
perspective.
Outlook
The strong, post-pandemic recovery in real estate values is
likely to slow, given concerns regarding rising inflation and
interest rates. In the short term, whilst there is a risk of more
persistent inflation, unlike the period prior to the Global
Financial Crisis in the early 2000s, average real estate yields
continue to offer a healthy premium above fixed income investments.
This should mitigate the negative impact of rising rates on the
real estate sector, albeit with very low yielding assets
potentially at risk of capital value declines due to rising
borrowing costs.
The Company's portfolio is well positioned for these risks, with
an above-average income yield, a pipeline of asset management
initiatives that should support returns and long-term, fixed-rate
debt. The diversified nature of the strategy enables the Investment
Manager to act opportunistically and reinvest in sectors offering
more attractive returns. Finally, as sustainability and ESG
considerations become even more important for investors and
occupiers, the Company is well placed to evolve its strategy to
deliver more sustainable, long-term returns.
Lorraine Baldry
Chairman
Schroder Real Estate Investment Trust Limited
6 June 2022
Investment Manager's review
Overview
"These strong results are the outcome of disciplined investment
decisions and active management of the portfolio. Conviction in our
strategy has resulted in a good quality, diversified portfolio that
is weighted towards higher growth parts of the UK real estate
market with opportunities to add value through asset repositioning
and development. We are focused on applying our competitive
advantage in sustainability to the portfolio to deliver outcomes
stakeholders increasingly demand and to capitalise on the green
premium for its shareholders."
Schroder Real Estate Investment Trust Limited's ('SREIT', or
'the Company') Net Asset Value ('NAV') as at 31 March 2022 was
GBP372.2 million or 75.8 pence per share ('pps'), which reflected
an increase over the financial year of 15.4 pps or 25.5%. During
the year, dividends totalling GBP13.9 million were paid which
resulted in a NAV total return of 30.9%. A detailed analysis of the
NAV is set out in the table below:
GBPm PPS
------------------------------------------------------- ------- ------
NAV as at 31 March 2021(3) 296.8 60.4
------------------------------------------------------- ------- ------
Unrealised change in the valuations of the direct
real estate portfolio and joint ventures(1) 74.6 15.2
------------------------------------------------------- ------- ------
Capital expenditure (3.7) (0.8)
------------------------------------------------------- ------- ------
Acquisition costs (1.3) (0.3)
------------------------------------------------------- ------- ------
Realised gain on disposal 3.2 0.7
------------------------------------------------------- ------- ------
EPRA earnings(2) 15.7 3.2
------------------------------------------------------- ------- ------
Dividends paid (13.9) (2.8)
------------------------------------------------------- ------- ------
Others 0.9 0.2
------------------------------------------------------- ------- ------
NAV as at 31 March 2022 (excluding the share buyback) 372.3 75.8
------------------------------------------------------- ------- ------
Share buyback (0.1) 0.0
------------------------------------------------------- ------- ------
NAV as at 31 March 2022(4) 372.2 75.8
------------------------------------------------------- ------- ------
1. Prior to all capital expenditure, acquisition costs and
movement in IFRS 16 lease incentives.
2. EPRA earnings as per the reconciliation on page 102.
3. The calculation of pence per share is based on shares in
issue as at 31 March 2021 of 491,418,641.
4. The calculation of pence per share is based on shares in
issue as at 31 March 2022 of 491,080,301.
The underlying portfolio, including joint ventures, increased in
value by 22.0% on a like-for-like basis over the financial year to
31 March 2022.
GBP 3.7 million of capital expenditure was invested in asset
management and redevelopment projects that should drive capital
growth and future rental increases over the medium to longer term.
Acquisition costs totalling GBP1.3 million were incurred in
December 2021 in connection with the GBP19.9 million acquisition of
a high yielding portfolio of four industrial assets in the
north-west of England. This portfolio was revalued at the year end
to GBP21.6 million.
In February 2022, The Arc, an office in Nottingham, was sold for
GBP13.0 million, realising a GBP3.2 million gain in the financial
year after disposal costs of GBP0.2m and a 12.4% per annum total
return since acquisition in August 2018.
Net revenue for the period totalled GBP15.7 million, or 3.2 pps,
an increase of GBP4.1 million on the prior financial year of
GBP11.6 million. This increase has been driven by improved rental
collection rates, active asset management driving rental value
growth and a positive contribution from the industrial acquisitions
in December 2020 and December 2021.
The total return from the underlying portfolio, including rental
income, was 23.5% for the financial year to 31 March 2022, compared
with the MSCI Benchmark Index (the 'Benchmark') of 19.9%. The
portfolio performance comprised a 6.3% income return and a 16.2%
net increase in capital values, with both components outperforming
the Benchmark at 4.1% and 15.3% respectively. The portfolio is
ranked on the 11th percentile of the Benchmark since the Company's
launch in 2004.
At the start of the financial year 338,340 shares were
repurchased at an average price of 40.3 pps.
Strategy
The Company aims to provide shareholders with an attractive
level of income with the potential for income and capital growth.
The strategy to deliver this includes:
- Applying a research-led approach to determine attractive
sectors and locations in which to invest in commercial real
estate;
- Actively managing the Company and its assets, drawing on the
expertise of our sector specialists to maximise shareholder returns
and evolve the Company's active asset management approach that is
focussed on operational excellence;
- Increasing exposure to larger assets with strong fundamentals
and inherent opportunities for active management and
development;
- Applying our integrated sustainability and ESG approach at all
stages of the investment process and asset lifecycle; and
- Managing the Company efficiently by controlling costs and
maintaining a strong balance sheet with a loan to value, net of
cash, within the long term target range of 25% to 35%.
The following progress has been made delivering on the
strategy:
- The portfolio is allocated to higher growth sectors, with
recent multi-let industrial transactions contributing strongly to
portfolio performance. The industrial sector now represents 47.6%
of the portfolio, largely through exposure to multi-let estates
(Benchmark 34.4 %), with the remaining portfolio comprising retail
warehousing of 11.6% (Benchmark 9.3 %) and good quality offices
located in higher growth Winning Cities such as in London,
Manchester and Edinburgh of 27.5% (Benchmark 24.9 %);
- Portfolio outperformance driven by active asset management
with 72 new lettings, rent reviews and renewals completed since the
start of the financial year totalling GBP3.9 million in annualised
rental income, generating GBP1.6 million per annum of additional
rent above the previous level;
- Rent collection rates at pre-pandemic levels, proving the
resilience of the portfolio. Good progress has been made collecting
historical arrears through constructive engagement with
tenants;
- Continued investment to deliver operational excellence in
larger assets offering higher returns, with progress on key
initiatives such as the "Elevate" flexible office concept at City
Tower in Manchester, and construction underway for an operational
Net Zero Carbon warehouse scheme at Stanley Green Trading Estate in
Cheadle, Manchester;
- Enhanced ESG performance across the portfolio including an
improvement in the 2021 GRESB score, further reductions in energy
consumption, sustainability-led building improvements and occupier
satisfaction initiatives;
- Announcement of the Company's pathway to Net Zero Carbon with these results;
- Consolidated net Loan to Value of 28.6% at the year end.
Average interest rate of 2.5% with a weighted loan term of 10.4
years. Efficient cost control leading to a profit before tax
margin, excluding realised and unrealised valuation movements on
investment property and finance costs and taken as a percentage of
rental and other income including joint ventures, of 73% which is
competitive within the recognised peer group; and
- Further progress delivering the strategy since the year end
with the acquisition of a high yielding, mixed-use office and
retail asset in Manchester City Centre, completion of major lease
agreements at Langley Park Industrial Estate in Chippenham and
conditional lease agreements exchanged for two new Starbucks
drive-thru restaurants at retail parks in Bedford and Milton
Keynes.
Rent collection
The diverse and granular underlying rental income, and a high
level of occupier engagement, has supported improving rent
collection rates with 96% of the contracted rents collected for the
quarter to 31 March 2022. The breakdown between sectors is 98% of
office rent collected, 98% of industrial rent collected and 91% of
retail, leisure and other rent collected.
The Company remains in active dialogue with its tenants for
historical arrears which totalled GBP3.8 million, net of VAT at the
financial year end, of which GBP0.9 million has been categorised as
a bad debt provision. This compares to GBP4.6 million and GBP1.1
million respectively as at the end of the prior financial year.
Portfolio performance
As noted above, the underlying portfolio continues to outperform
the MSCI Benchmark, driven by portfolio sector allocations, active
management and a high income return. The table below shows
performance to 31 March 2022:
SREIT Total Return MSCI Benchmark Total Relative
Return
Period One Three Since One year Three Since One year Three Since
to 31 year years IPO (% (%) years IPO (% (%) years IPO (%
March (%) (% p.a.) p.a.) (% p.a.) p.a.) (% p.a.) p.a.)
2022
------ ---------- -------- --------- ---------- -------- --------- ---------- --------
Retail 17.9 1.1 4.5 16.0 -0.3 3.8 1.7 1.5 0.7
------ ---------- -------- --------- ---------- -------- --------- ---------- --------
Office 10.6 5.8 8.0 7.2 3.1 7.1 3.1 2.7 0.8
------ ---------- -------- --------- ---------- -------- --------- ---------- --------
Industrial 38.0 20.0 11.3 40.5 19.2 10.6 -1.8 0.7 0.6
------ ---------- -------- --------- ---------- -------- --------- ---------- --------
Other 34.4 4.0 3.6 10.7 4.3 7.4 21.4 -0.3 -3.5
------ ---------- -------- --------- ---------- -------- --------- ---------- --------
All sectors 23.5 9.6 8.1 19.9 6.9 6.8 2.9 2.5 1.2
------ ---------- -------- --------- ---------- -------- --------- ---------- --------
Real estate portfolio
As at 31 March 2022, the portfolio comprised 42 properties
valued at GBP523.5 million, excluding lease incentives. This
includes the Company's share of joint venture properties at City
Tower in Manchester and the University of Law in Bloomsbury,
London.
As at 31 March 2022, the portfolio generated rental income of
GBP30.1 million per annum, reflecting a net initial yield of 5.4%,
which compares with the MSCI Benchmark (the 'Benchmark') of 3.9 %.
The portfolio also benefits from fixed contractual annualised
rental income uplifts of GBP1.1 million over the next 24 months.
The independent valuers' estimate that the current rental value of
the portfolio is GBP 33.8 million per annum, reflecting a
reversionary income yield of 6.4%, which compares favourably with
the Benchmark at 4.6 %. The portfolio void rate is 7.0%, calculated
as a percentage of estimated rental value. This compares with the
Benchmark void rate of 7.8%. The portfolio weighted average lease
length, calculated to the earlier of lease expiry or break, is 5.4
years.
As at 31 March 2022, approximately 10% of the portfolio,
calculated as a percentage of rent, include rents that are linked
to inflation, 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. The proportion of the portfolio with inflation-linked
leases should increase with ongoing asset management activity,
summarised below.
The tables below summarise the portfolio information as at 31
March 2022, excluding post year end activity. The property values
and weightings presented represent the year end valuations as
determined by the independent valuers as at 31 March 2022:
Top ten properties by value Sector Value % of
(GBPm) portfolio
[14] value
------------------------------ ----------------- -------- -----------
Milton
Keynes,
Stacey
Bushes
Industrial
1 Estate Industrial 62.8 12.0
------ ---------------------- ----------------- -------- -----------
Leeds,
Millshaw
Park
Industrial
2 Estate Industrial 54.9 10.5
------ ---------------------- ----------------- -------- -----------
London,
Bloomsbury,
The
University
of
Law
Campus
(50%
3 share) Office 42.5 8.1
------ ---------------------- ----------------- -------- -----------
Manchester,
City
Tower
(25%
4 share) Office/mixed-use 40.9 7.8
------ ---------------------- ----------------- -------- -----------
Bedford,
St.
John's
Retail
5 Park Retail Warehouse 33.3 6.4
------ ---------------------- ----------------- -------- -----------
Chippenham,
Langley
Park
Industrial
6 Estate Industrial 27.5 5.3
------ ---------------------- ----------------- -------- -----------
Norwich,
Union
Park
Industrial
7 Estate Industrial 25.0 4.8
------ ---------------------- ----------------- -------- -----------
Cheadle,
Stanley
Green
Trading
8 Estate Industrial 24.7 4.7
------ ---------------------- ----------------- -------- -----------
Leeds,
Headingley
9 Central Retail/mixed-use 24.0 4.6
------ ---------------------- ----------------- -------- -----------
Uxbridge,
106
Oxford
10 Road Office 14.9 2.8
------ ---------------------- ----------------- -------- -----------
Total
as
at
31
March
2022 350.5 67.0
------ ---------------------- ----------------- -------- -----------
Weighting (% of portfolio
value)
Sector weightings by value SREIT Benchmark
========== ================
South East 12.9% 21.9%
========== ================
Rest of UK 34.6% 12.5%
========== ================
Industrial 47.5% 34.4%
========== ================
City 0.0% 3.4%
========== ================
Mid-town and West End 8.1% 6.7%
========== ================
Rest South East 4.9% 7.6%
========== ================
Rest of UK 14.4% 7.1%
========== ================
Offices 27.4% 24.8%
========== ================
Retail warehouse 11.6% 9.3%
========== ================
South East 0.7% 6.4%
===================================== ========== ================
Rest of UK 6.5% 3.4%
========== ================
Standard retail 7.2% 9.8%
===================================== ========== ================
Standard retail by ancillary/single
use
========== ================
- Retail ancillary to main use 4.2% -
===================================== ========== ================
- Retail single use 3.0% -
========== ================
Other 6.3% 16.2%
===================================== ========== ================
Shopping centres 0.0% 1.8%
========== ================
Unattributed indirects - 3.7%
===================================== ========== ================
Weighting (% of portfolio value)
Regional weightings by SREIT Benchmark
value
=============
Central London 8.1% 15.9%
============= ====================
South East excluding Central
London 20.4% 36.1%
============= ====================
Rest of South 10.9% 15.8%
============= ====================
Midlands and Wales 21.5% 13.4%
============================== ============= ====================
North 36.9% 14.4%
============================== ====================
Scotland 2.2% 4.2%
============= ====================
Northern Ireland 0.0% 0.2%
============= ====================
The Company's income is diverse and as at 31 March 2022
comprised 315 tenants, including the tenants of properties held by
joint ventures. The largest and top ten tenants represent 6.6% and
26.3% respectively of the portfolio, calculated as a percentage of
annual rent:
Tenant Rent p.a. % of total rent*
GBP million
University of Law Limited 2.00 6.64%
=============================== ============== =================
Buckinghamshire New University 1.15 3.82%
============== =================
Siemens Mobility Limited 0.97 3.22%
============== =================
The Secretary of State 0.88 2.92%
============== =================
Matalan Retail Limited 0.57 1.89%
============== =================
Express Bi Folding Doors
Limited 0.54 1.79%
============== =================
TJX UK t/a HomeSense 0.51 1.69%
============== =================
Jupiter Hotels Limited 0.46 1.53%
============== =================
Premier Inn Hotels Limited 0.42 1.40%
============== =================
Lidl Great Britain Limited 0.42 1.40%
=============================== ============== =================
Top 10 7.92 26.31%
=============================== =================
* Column will not sum due to rounding.
Transactions
The table below provides the performance achieved on the
Company's last three acquisitions and the disposal undertaken in
the financial year, this includes the impact of transaction
costs:
Acquisition Date of acquisition Acquisition Total return
price / 31 March for 12 months
2022 valuation to 31 March 2022
or hold period
if shorter /
MSCI All Industrial
for the same
period (% p.a.)
Langley Park, Chippenham 18 December 2020 GBP19.3 million 47.7 / 40.5
(Industrial) / GBP27.5 million
----------------------- ------------------- ---------------------
Stanley Green, Cheadle, 17 December 2020 GBP17.3 million 42.8 / 40.5
Manchester (Industrial) / GBP24.7 million
----------------------- ------------------- ---------------------
North West portfolio 17 December 2021 GBP19.9 million 5.2* / 8.4 *
(Industrial) / GBP21.6 million
----------------------- ------------------- ---------------------
Disposal Date of acquisition Acquisition Total return
and disposal price/disposal during hold period
price / MSCI All Offices
for same period
(% p.a.)
----------------------- ------------------- ---------------------
The Arc, Nottingham Acquisition: 10 GBP10.3 million 12.4* / 3.5*
(Office) August 2018 / GBP13.0 million
Disposal: 28 February
2022
----------------------- ------------------- ---------------------
* Total return for the hold period which, for the North West
portfolio, includes the dilutive impact of acquisition costs during
the financial year.
Below are summaries of the acquisition and disposal undertaken
in the financial year as well as one acquisition completed post
year end.
North west industrial portfolio acquisition (Industrial)
Off-market acquisition in December 2021 of a portfolio of four
industrial assets in the north-west of England. The purchase price
of GBP19.85 million reflected a net initial yield of 6.9%, a
reversionary yield of 8.2%, and a low capital value of GBP53 per sq
ft. As at 31 March 2022, the valuation was GBP21.6 million,
reflecting a net initial yield of 5.5% and a reversionary yield of
7.2%. Since acquisition the portfolio has delivered a total return
of 5.2%, including the dilutive impact of acquisition costs.
Further details of the four assets are set out below:
Birkenhead, Valley Road Industrial Estate
Asset strategy
Valley Road Industrial Estate in Birkenhead was acquired for
GBP11.4 million, which reflected a net initial yield of 6.8%, a
reversionary yield of 7.8% and a low average capital value of GBP60
per sq ft. The strategy is to lease the void units at or above
ERV.
Asset overview and performance
The 10 acre estate comprises 190,000 sq ft of warehouse space
and ancillary offices across 15 units. The estate is located close
to Junction 1 of the M53 and features a manned secure access, low
site cover and good circulation. As at 31 March 2022 the valuation
is GBP13.1 million reflecting a net initial yield of 4.5% and a
reversionary yield of 6.1%.
Key activity since acquisition
- A new five year lease with S M Service Centre Limited for a
1,605 sq ft unit at GBP13,700 per annum, or GBP8.54 per sq ft. This
letting is in line with 31 March 2022 ERV.
- A new five year lease is under offer for a 2,473 sq ft unit at
GBP24,750 per annum, or GBP10.00 per sq ft. This letting will be in
line with 31 March 2022 ERV.
- A new five year lease is under offer for a 6,275 sq ft unit at
GBP44,000 per annum, or GBP7.01 per sq ft. This letting will
reflect a 7% uplift on the 31 March 2022 ERV.
Haydock, Coral Products, Haydock Industrial Estate
Asset strategy
Haydock Industrial Estate was acquired for GBP4.9 million, which
reflected a net initial yield of 6.6% and a low average capital
value of GBP49 per sq ft. The strategy is to engage with the
occupier on sustainability initiatives.
Asset overview and performance
98,551 sq. ft manufacturing and recycling facility let to Coral
Product (Mouldings) Limited ('Coral'). Coral, who were recently
acquired by a subsidiary of the Canada-based IPL Plastics Group,
occupy the entire site on a lease expiring in January 2031, with a
tenant break in 2026, at a rent of GBP340,000 per annum or GBP3.45
per sq ft. This compares with an ERV as at 31 March 2022 of
GBP394,000 per annum or GBP4.00 per sq ft. The asset is well
located with direct access to the A580 (East Lancashire Road) and,
in turn, the M6 motorway. As at 31 March 2022 the valuation is
GBP4.8 million reflecting a net initial yield of 6.7% and a
reversionary yield of 7.8%.
Key activity since acquisition
- Exploring the potential acquisitions of adjoining ownerships
which may support long-term redevelopment.
- Impact and Sustainability Action Plan ('ISAP') developed for
the asset and Net Zero Carbon ('NZC') analysis in progress, to feed
into the Fund's aggregate NZC Pathway.
Cheshire, Sandbach, Newfield Fabrications
Asset strategy
Two assets let to Newfield Fabrications ('Newfield'), a steel
fabricating business established in 1965, were acquired for a
combined GBP3.6 million, which reflected a net initial yield of
7.4% and a low capital value of GBP42 per sq ft. The strategy since
acquisition is to engage with the occupier on sustainability
initiatives.
Asset overview and performance
Both assets are in an established industrial area in Sandbach,
Cheshire, approximately three miles from junction 17 of the M6. The
lease is conterminous across the two assets with 13.4 years
remaining at a combined rent of GBP283,500 per annum, or GBP3.30
per sq ft which compares with the 31 March 2022 ERV of GBP305,000
per annum, or GBP3.55 per sq ft. The leases benefit from five
yearly, upwards only reviews linked to the Retail Price Index
('RPI'), subject to a collar and cap of 1% per annum and 4% per
annum respectively. As at 31 March 2022 the combined valuation was
GBP3.8 million, reflecting a net initial yield of 7.1% and a
reversionary yield of 8.1%.
Manchester, St. Ann's House (Mixed-Use Office and Retail)
St. Ann's House in Manchester was acquired post year end on 27
May 2022 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. 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, 51,885 sq ft building, is 96% occupied 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 GBP18.65 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 around the subject asset. During the pandemic rents were
rebased by the previous landlord and there are currently no
arrears. The tenants include Watches of Switzerland, Russell &
Bromley and Space NK. A vacant unit representing 5% of the property
by ERV is under offer to an established, north-west based retailer
of luxury watches and jewellery.
Following completion of the aforementioned above, the weighted
average unexpired lease term is 3.4 years to earliest termination
and 6.0 years to lease expiries. 58% of the property by floor area
currently has an EPC rating of 'B' with the remainder rated
'C'.
Active asset management
Set out below are examples of ongoing active 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 strategy
Stanley Green Trading Estate in Cheadle, Manchester was acquired
in December 2020 for GBP17.3 million. The strategy over the year
was to crystallise higher rents on the trading estate and secure
planning consent for an 80,000 sq ft, operational Net Zero Carbon
('NZC') scheme, on the adjoining 3.4 acre site.
Asset overview and performance
Stanley Green Trading Estate comprises 150,000 sq ft of trade
counter, self-storage and warehouse accommodation with an adjoining
development 3.4 acre site. As at 31 March 2022 the valuation was
GBP24.7 million reflecting a net initial yield of 3.3% and a
reversionary yield of 4.1% (4.5% and 5.6% respectively excluding
development land). Over the financial year the asset delivered a
total return of 42.8% which compared with MSCI All Industrial over
the same period of 40.5%.
Key activity
- Stockport Metropolitan Borough Council's planning committee
unanimously resolved to grant planning permission for 80,000 sq ft
of operational NZC accommodation on the development site on 30
September 2021. The Company is now progressing the development of
11 warehouse and trade units at a cost of approximately GBP8.5
million which is scheduled to complete in early 2023. The target
rental income is GBP1.1 million per annum or GBP13.40 per sq ft,
with pre-lets to be targeted during the construction phase.
- At the existing trading estate, a five year lease renewal
completed with Factory Kitchens for a 2,859 sq ft unit at a rent of
GBP40,026 per annum, or GBP14.00 per sq ft. This compares with the
previous rent of GBP8.75 per sq ft and represents an uplift of
GBP15,010 per annum, or 60.0%. This compares with the average rent
across the trading estate of GBP6.32 per sq ft.
- Negotiations are progressing with a number of occupiers to
re-gear their leases across the trading estate which should support
continued income growth.
Chippenham, Langley Park Industrial Estate (Industrial)
Asset strategy
Langley Park Trading Estate in Chippenham was acquired in
December 2020 for GBP19.3 million. The strategy over the year was
to drive net income growth through a key lease renewal with
Littelfuse and a rent review with Siemens to increase the rental
income, WAULT and quality of accommodation across the estate.
Asset overview and performance
Langley Park Industrial Estate is 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 2022, the valuation of
GBP27.5 million reflected a net initial yield of 5.7% and a
reversionary yield of 6.9%. Over the financial year the asset
delivered a total return of 47.7% which compared with the MSCI All
Industrial over the same period of 40.5%.
Key activity
- Siemens Mobility Limited ('Siemens') rent review from June
2021 has been agreed and is being documented at GBP1,226,241 per
annum or GBP4.66 per sq ft, reflecting a 27% increase in contracted
rental income. Following completion of the rent review Siemens will
become the Company's second largest tenant (including the tenants
of properties held by joint ventures).
- A new ten year lease renewal without breaks has been agreed
with IXYS UK Westcode Limited ('IXYS'), the UK subsidiary of
Littelfuse, a global manufacture of semi-conductors. The rent
agreed is GBP465,000 per annum, or GBP5.50 per sq ft, reflecting a
31% increase over the current contracted rent of GBP365,000 per
annum. IXYS will receive 12 months' rent free and a contribution to
repair works up to the value of GBP250,000. The lease will include
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
new lease is expected to complete shortly.
- Given the positive discussions with occupiers who have
expressed an interest in additional accommodation, a masterplan has
been prepared for up to 130,000 sq ft of additional warehouse
accommodation at the site. A pre-planning application has been
submitted in relation to this proposal and was positively received
by the Local Authority .
Bedford, St. John's Retail Park (Retail Warehouse)
Asset strategy
The strategy over the year was to let vacant units, improve
retailer mix and retain tenants by negotiating new longer term
leases.
Asset overview and performance
St. John's Retail Park comprises a 130,000 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 7.6 years.
The asset benefits from an affluent catchment and has good parking.
As at 31 March 2022, the asset was valued at GBP33.3 million
reflecting a net initial income yield of 5.1% and a reversionary
yield of 5.3%. Over the financial year the asset delivered a total
return of 32.1% which compared with the MSCI All Retail Warehousing
over the same period of 30.6%.
Key activity
- Conditional agreement for lease agreed with Starbucks Coffee
Company UK Limited ('Starbucks') for a drive-thru restaurant
redevelopment on the former Maplin unit. The terms include a 15
year lease without breaks at GBP145,000 per annum, or GBP80.55 per
sq ft, with rent reviews every fifth year linked to RPI, with a
collar of 1% per annum and a cap of 3% per annum. Due to their
economies of scale, Starbucks will construct the unit with a
maximum contribution from the Company of GBP850,000, and will
receive 12 months' rent free. The agreement should exchange shortly
and is subject to planning, with a decision expected by the end of
2022.
- Starbucks are required to deliver the restaurant to a minimum
BREEAM rating of 'Very Good' and install Electric Vehicle charging
points for customer usage.
- Lidl and Home Bargains have reported strong trading figures
since opening in late 2020. Both retailers have traded throughout
the pandemic and driven high volumes of footfall, supporting the
attraction of new occupiers such as Starbucks and the retention of
existing occupiers.
- Following the completion of these lettings and the resultant
boost in footfall, a vacant 9,919 sq ft unit was let to Bensons for
Beds for a ten year term with a tenant break in year five at
GBP130,000 per annum, or GBP13.00 per sq ft. The tenant received 15
months' rent free.
Manchester, City Tower (Mixed-Use office, statistics below
reflect SREIT's 25% share)
Asset strategy
The strategy over the year was to lease vacant office space
through conventional lettings as well as through the "Elevate"
flexible working concept. The strategy for the retail, leisure and
hotel element was to improve tenant mix and explore mutually
beneficial re-gears. There is also a rolling refurbishment strategy
ongoing to ensure the building captures occupier demand and
delivers improved sustainability performance.
Asset overview and performance
City Tower comprises 610,000 sq ft of office, retail, leisure
and hotel accommodation located on a three acre island site in a
core location. As at 31 March 2022 the valuation was GBP40.9
million reflecting a net initial yield of 5.4% and a reversionary
yield of 7.0%. Over the financial year the asset delivered a total
return of 8.0% which compared with the MSCI All Offices over the
same period of 7.2%.
Key activity
- 12 month lease extension completed on the 18th floor with
Access Systems at an increased rent of GBP44,192 per annum, or
GBP27.00 per sq ft, reflecting a 12% increase on the previous
passing rent.
- Three year lease extension completed on the 22nd floor with
Amey at an increased rent of GBP5,170 per annum, or GBP18.00 per sq
ft, reflecting a 26% increase on the previous passing rent.
Sustainability and Responsible Investment
In the previous financial year, updated sustainability
objectives were agreed for the Company. Set out below is a summary
of performance against these objectives and the strategy to
continue delivering against these key performance indicators:
1. Governance and oversight: Sustainability and responsible
investment are integral to Schroders Capital Real Estate's
investment process. We believe that by understanding, managing and
measuring the impact of Environmental, Social and Governance
('ESG') considerations, we will deliver enhanced long-term returns
for shareholders as well as deliver a positive impact to the
environment and the communities where the Company is investing. The
Company achieved a GRESB Public Disclosure A Rating and the EPRA
Best Practice Sustainability Reporting Gold Award for the fourth
consecutive year.
2. Net Zero Carbon ('NZC'): A central focus of our real estate
investment strategy is the response to the climate crisis both in
terms of risk and resilience to climate impacts, and also working
to reduce the Company's Greenhouse Gas ('GHG') emissions associated
with our activities. Since 2016, the Company's assets have been
included in Schroders UK energy consumption and carbon emission
reduction targets for assets where landlord operational control is
retained and have contributed towards strong performance against
these targets which came to an end in March 2021. As part of the
commitment to achieving Net Zero Carbon, aligned with a 1.5degC
decarbonisation trajectory, work has been undertaken during 2021
and 2022 to baseline the Company's carbon performance and establish
new energy and carbon targets in a net zero context which include
interim milestones at 2025 and 2030 achieving Net Zero Carbon by
2040 or sooner. This work has included developing Impact and
Sustainability Action Plans ('ISAPs') for all managed assets to
determine required energy related improvements to support the
Company's energy and carbon reduction commitments set out in the
Chairman's Statement. Encouraging progress is being made a 2%
reduction in landlord-procured energy consumption within the
Company's portfolio on a like-for-like basis during calendar 2021.
As the UK national energy grid continues to decarbonise, this
reduction in energy consumption is also accompanied by a 9%
reduction in Scope 1 and Scope 2 greenhouse gas (GHG) emissions on
a like-for-like basis. Further details can be found in the 'Net
Zero Carbon' section on pages 64 to 65 .
3. Third Party Verification: During the financial year the
Company achieved a Three Star rating in the GRESB sustainability
survey and a 6% score improvement. The Company also achieved a
GRESB Public Disclosure A Rating and the EPRA Best Practice
Sustainability Reporting Gold Award for the fourth consecutive
year.
4. Climate Risk and TCFD ('Task Force for Climate-Related
Financial Disclosures'): In 2021 we continued to review our
policies and practices against TCFD criteria and developed a
roadmap towards increased alignment. Building on our established
consideration of sustainability within the investment process, we
believe it will be important to further integrate the assessment of
climate-related risks and opportunities into decision-making and
reporting processes. On transition risk, as part of our Net Zero
Carbon commitments, forward looking Net Zero Carbon pathways have
been modelled during 2021 and 2022 using the industry accepted
Carbon Risk Real Estate Monitor ('CRREM') and have formed the basis
for our new asset and portfolio level operational energy and carbon
targets. Net Zero Carbon pathways have been developed to present
the decarbonisation requirements needed to achieve Net Zero Carbon
by 2040 or sooner; aligned with a 'Paris Proof' decarbonisation
trajectory to pursue efforts to limit global warming to 1.5degC. On
physical climate risk, we have licenced a proprietary physical
climate risk database which assesses vulnerability to associated
hazards, and those climate-based indicators are based on
Representative Concentration Pathway (RCP) 8.5 which is used to
model the impact that a high emissions scenario may have in
influencing climate change. We use this 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.
5. Operational Excellence: A key part of our sustainability
strategy is delivering operational excellence for occupiers as well
as demonstrating continued improvements in sustainability
performance. The development of Impact and Sustainability Action
Plans ('ISAPs') for all managed assets has supported improvements
for occupiers including provision of bicycle infrastructure (15 out
of 24 managed assets) and electric vehicle charging (6 out of 24
managed assets with a programme for installation). The Company has
a programme to increase green building certifications across the
portfolio in line with refurbishment programmes to improve
sustainability credentials. We are also improving EPC ratings
across the portfolio, with a programme to achieve full EPC coverage
alongside tenant expiries and active negotiations. Finally, we
completed an occupier satisfaction survey in 2021 and the Property
Managers have action plans to improve occupier experience at our
assets, which are reviewed quarterly.
Finance
At the end of the financial year the Company had two loan
facilities, a GBP129.6 million term loan with Canada Life and a
GBP52.5 million revolving credit facility ('RCF') with Royal Bank
of Scotland International ('RBSI'), of which GBP32.7 million was
drawn. Properties with combined values of GBP 322.9 million and
GBP136.5 million are secured against the Canada Life and RBSI loan
facilities respectively.
In addition to the properties secured against the Canada Life
and RBSI loan facilities, the Company has unsecured properties with
a value of GBP64.1 million and cash of GBP12.5 million. This
resulted in a loan to value ratio, net of cash, of 28.6% at an
average interest cost of 2.5%, and a long weighted maturity profile
of 10.4 years. The RBSI loan has an interest rate cap for GBP32.5
million that comes into effect if GBP 3 month SONIA reaches
1.5%.
GBP129.6 million term loan with Canada Life
The Company has significant headroom with both loan to value
('LTV') and interest cover ratio ('ICR') covenants as summarised
below.
Lender Loan Maturity Total Asset Cash LTV LTV ICR ICR Projected Projected
(GBPm) interest value ratio ratio (%)(3) ratio ICR ICR ratio
rate (GBPm) (%)(2) covenant covenant (%)(4) covenant
(%) (%)(2) (%)(3) (%)(4)
Canada
Life
Term 50%: 15/10/2032
Loan 129.6 and 2.5(5) 322.9 0.0 40.1 65 650 185 487 185
50%: 15/10/2039 (40.1
net of
cash
in
facility)
======= ================= ========= ======= ===== =========== ========= ======= ========= ========== ==========
- Net LTV on the secured assets against this loan is 40.1%. On
this basis the properties charged to Canada Life could fall in
value by 38% prior to the 65% LTV covenant being breached;
- The interest cover ratio is 650% based on actual net rents for
the quarter to 31 March 2022. A 72% 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 53% and 75%
respectively prior to either the LTV or interest cover ratio
covenants being breached.
GBP52.5 million revolving credit facility ('RCF') with RBSI
The Company has significant headroom with both LTV and ICR
covenants as summarised below:
Lender Loan/ Maturity Total Asset LTV LTV ICR ICR Projected Projected
amount interest value ratio ratio (%)(7) ratio ICR ICR ratio
drawn rate (GBPm) (%)(6) covenant covenant (%)(8) covenant
(GBPm) (%) (%)(6) (%)(7) (%)(8)
RBSI 52.5/
RCF 32.7(9) 03/07/2023 2.5(10) 136.5 24.0 60(11) 556 185 538 250
========= ============ ========= ======= ======= ========= ======== ========= ========== ==========
- Net LTV on the secured assets against this loan is 24.0%. On
this basis the properties charged to RBSI could fall in value by
60% prior to the 60% LTV covenant being breached;
- The interest cover ratio is 556% based on actual net rents for
the quarter to 31 March 2022. A 67% 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 83% and 81%
respectively prior to either the LTV or interest cover ratio
covenants being breached.
Post financial year changes to the RCF with RBSI
On 25 April 2022 the Company drew down a further GBP13.6 million
on the RCF to fund the post financial year end acquisition of St.
Ann's House in Manchester, increasing the total amount drawn to
GBP46.3 million. On 6 June the Company increased the RCF with RBSI
by GBP22.5 million to GBP75.0 million and extended the maturity
from 2023 to 2027.
Lender Loan/ Maturity Total Asset LTV LTV ICR ICR Projected Projected
amount interest value ratio ratio (%)(13) ratio ICR ICR ratio
drawn rate (GBPm) (%)(12) covenant covenant (%)(14) covenant
(GBPm) (%) (%)(12) (%)(13) (%)(14)
75.0
RBSI /
RCF 46.3(15) 06/06/2027 2.5(16) 136.5 33.9 65(17) 556 185 374 250
========== ============ ========= ======= ======== ========= ======== ========= ========== ==========
1. Cash held at the balance sheet date includes GBP0.9 million
of cash that is held within the joint ventures.
2. Loan balance divided by the property values as at 31 March 2022.
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 2022.
7. For the quarter preceding the Interest Payment Date ('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 2022 from a total available facility of GBP52.5 million.
10. Total interest rate as at 31 March 2022 comprising a 3-month
SONIA rate of 0.86 % and the margin of 1.60% at a LTV below 60% and
a margin of 1.90% above 60% LTV.
11. LTV ratio covenant of 65% for years 1-3, then 60% covenant
for years 4-5.
12. Loan balance, including post financial year end draw down of
GBP13.6 million to fund in part the acquisition of St. Ann's House,
divided by the property values of the assets within the RBSI
security pool as at 31 March 2022.
13. For the quarter preceding the Interest Payment Date ('IPD'),
(rental income received - void rates, void service charge and void
insurance)/interest paid.
14. 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.
15. Facility drawn as at 31 March 2022 including a post
financial year end drawdown of GBP13.6 million to fund in part the
acquisition of St. Ann's House from a total available facility of
GBP75.0 million following the refinancing on 6 June 2022.
16. Total interest rate as at 31 March 2022 comprising the
3-month SONIA rate of 0.86 % and the margin of 1.65% at a LTV below
65% and a margin of 1.95% above 65% LTV.
17. LTV ratio covenant of 65% for years 1-3, then 60% covenant
for years 4-5.
Outlook
Good progress has been achieved over the financial year
delivering the strategy, with the outcome being strong NAV growth,
sustained outperformance of the underlying portfolio and further
increases in the level of dividend.
Whilst the focus is on growing net income and dividends, we are
also investing in existing assets to maximise returns and ensure
the portfolio remains resilient in response to structural changes
and evolving occupier trends. A key part of this is demonstrating
continued improvements in sustainability performance and evolving
our approach to delivering operational excellence for
occupiers.
We are alert to the risks of more persistent inflation leading
to higher interest rates, market volatility and lower levels of
economic growth. However, the combination of a clear strategy, a
strong balance sheet, a diversified portfolio and an attractive
income return means we remain positive about the outlook for the
Company.
Finally, on behalf of Schroders Capital Real Estate, I would
like to thank Lorraine Baldry for her enormous contribution to the
Company for more than eight years. I am personally hugely grateful
for her guidance and sound judgement, particularly through the
challenging pandemic period. I wish her every success for the
future.
Nick Montgomery
Fund Manager
6 June 2022
UK Commercial Real Estate Market Review
Macro environment
The war in Ukraine has added to inflation caused by the
combination of pent-up demand and supply disruptions due to
Covid-19. The drop in real incomes means consumer spending will be
weak in 2022, leading to a fall in GDP growth. Whilst this could
lead to a technical recession, this risk is mitigated by higher
government spending and an increase in investment, as businesses
take advantage of temporary capital allowances.
We expect the spread between real estate yields and 10-year bond
yields to narrow, but not to the extent experienced prior to the
Global Financial Crisis. As a result, whilst there may be pressure
on the value of the lowest yielding assets, we do not currently
expect a broad correction in the value of UK real estate.
Industrial
Industrial rents have risen by 5% per annum over the last five
years, fuelled mainly by growth in online retail. Amazon alone
accounted for 25% of take-up in distribution warehouses between
2016-2021, and the virtual doubling in parcel deliveries and
returns has boosted demand for smaller warehouses from couriers. In
addition, the disruption of supply chains during the pandemic has
prompted manufacturers and retailers to dial down on just-in-time
deliveries and hold more stock.
Looking ahead over the next 2-3 years, industrial rental growth
is likely to slow as the growth in online sales moderates and
partly because of a big increase in construction of distribution
warehouses. Two-thirds of this new space is pre-let, but it could
lead to an increase in vacancy as occupiers leave older units. T he
revaluation of business rates in 2023, which will shift more of the
burden on to warehouses and add to tenants' costs, could also have
a restraining effect on rents. The Company has a 47% weighting to
industrial, concentrated in multi-let industrial sites which are
less exposed to these risks and where there is greater scope to add
value through active management approach.
Retail
The outlook for town centre retail remains challenging and the
Company has a very low weighting to stand-alone retail of 7.2% by
portfolio value. The number of empty shop and shopping centre units
has started to fall as redundant space is removed through
conversions and demolitions. As a result retail vacancy declined to
14.1% in the first quarter of 2022 from a peak of 14.5% in 2020.
High streets are becoming more varied as local independents take
some of the units vacated by multiples. However, independent
retailers often fail within a few years and demand from banks,
bookmakers and major fashion brands continues to shrink as they
close stores and shift more of their business online. As a result,
we expect that high street shop and shopping centre rents will fall
by a further 5- 10% through 2022-2023.
By contrast, supermarket and bulky goods retail park rents will
probably increase by 1-2% per annum. Both are relatively insulated
from online competition and rents and service charges are lower
than in shopping centres. The big grocery chains have ambitious
plans to open more small supermarkets and there is steady demand
for retail park units from discount retailers, including food
retailers, gyms and drive-thru restaurants. The Company has
benefited from this occupational recovery with 11.6% of the
portfolio by value invested in retail warehouses.
Office
Although the office market is adapting to hybrid working, some
patterns are emerging. First, there are few signs of companies
dispersing to the suburbs because of Covid-19. Occupiers continue
to be drawn to city centres. Second, whereas some companies are
cutting their office space, occupiers in professional services,
tech and media where employment is growing are either maintaining,
or adding to their footprint. Vacancy rates in central London and
major regional cities have stabilised at 10% and 8%, respectively.
Third, occupiers have a strong preference for high quality offices
with good broadband, energy efficiency and ventilation and which
provide plenty of collaboration space. In contrast, demand for
secondary offices is weak. While this flight to quality could be
temporary, we think it will persist, as companies look to cut
carbon emissions and attract staff back to the office to foster a
shared culture.
Given the polarisation in demand and limited new development, we
expect prime office rents in London, Manchester and Edinburgh,
which are locations where the Company owns offices, to continue to
rise through 2022-23. Rents on secondary offices, particularly
where they are located in weaker out of town locations, are likely
to decline, or at best be flat.
Sustainability
While the sector range in returns is likely to narrow, the gap
between buildings with strong and weak sustainability features is
likely to widen. Occupiers and investors are increasingly prepared
to pay more for "green" buildings and we expect this premium to
grow following the spike in energy prices and as the government
raises carbon taxes and bans the occupation of units with poor
energy ratings. The recent increase in construction costs means
that some buildings with poor energy efficiency could become
stranded assets, because it is no longer viable to upgrade
them.
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 strategy is to own and actively manage a
diversified portfolio of properties located in the UK's Winning
Cities and Regions. ([15]) 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.
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,
being 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 2022 the Company delivered a NAV total
return of 30.9% (3.9% for the year to 31 March 2021).
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 2022 the Benchmark
comprised 168 member funds.
Underlying property portfolio performance
Total return for 12 months to 31 March 2022 Total return for 12 months to 31 March 2021
---------------------------------------------- ----------------------------------------------
SREIT (%) MSCI Benchmark (%) SREIT (%) MSCI Benchmark (%)
---------------- ---------------------------- ---------------- ----------------------------
23.5% 19.9% 4.6% 1.8%
---------------- ---------------------------- ---------------- ----------------------------
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 2022, the share price of 57.8p was at a 23.7%
discount to the NAV of 75.8 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, site visits to key
assets as well 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
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 advisers, 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 44.
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.
A summary of the principal risks and uncertainties faced by the
Company, which, with the exception of the removal of COVID-19 as a
principal risk, have remained unchanged throughout the year ended
31 March 2022 and to the date of signature of this annual report,
and actions taken by the Board to manage and mitigate these risks
and uncertainties, are set out below:
Key risks Mitigation of risk
-------------------------------------------------------- ------------------------------------------------------------
Investment policy 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 and the share price being at a larger investment restrictions and guidelines which are
discount, or smaller premium, to NAV monitored and reported on by the Investment Manager.
than the property market generally. This under
performance could be caused by incorrect sector
and geographic weightings or a loss of income through * Determining a borrowing policy and the Investment
tenant failure, both of which could Manager operates within borrowing restrictions and
lead to a fall in the value of the underlying guidelines.
portfolio. This fall in values would be amplified
by the Company's external borrowings.
* Receiving from the Investment Manager timely and
accurate management information including 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.
-------------------------------------------------------- ------------------------------------------------------------
Investment management
The Investment Manager's investment strategy, if The Board reviews the Investment Manager's compliance with
inappropriate, may result in the Company the agreed investment restrictions,
underperforming the market and/or peer group companies, investment performance and risk against investment
leading to the Company and its objectives objectives and strategy; relative performance;
becoming unattractive to investors. the portfolio's risk profile; and appropriate strategies
employed to mitigate any negative
impact of substantial changes in markets, including any
potential disruption to capital markets.
-------------------------------------------------------- ------------------------------------------------------------
Economic and property market risk
The performance of the Company could be affected by The Board considers economic conditions and the uncertainty
economic and property market risk. In around political events when making
the wider economy this could include inflation or investment decisions. The Board mitigates property market
deflation, economic recessions, movements risk through the review of the Group's
in interest rates, Brexit impact, consequences of the strategy on a regular basis and discussions are held to
war in Ukraine, or other external shocks. ensure the strategy is still appropriate
The performance of the underlying property portfolio or if it needs updating.
could also be affected by structural
or cyclical factors impacting particular sectors or
regions of the property market.
-------------------------------------------------------- ------------------------------------------------------------
Gearing and leverage
The Company utilises credit facilities. These Gearing is monitored and strict restrictions on borrowings
arrangements increase the funds available for have been imposed.
investment through borrowing. While this has the
potential to enhance investment returns in
rising markets, in falling markets the impact could be
detrimental to performance.
-------------------------------------------------------- ------------------------------------------------------------
Accounting, legal and regulatory
The risk that the NAV and financial statements could be The Investment Manager has robust processes in place to
incorrect when released to the market. ensure that accurate accounting records
are maintained and that evidence to support the financial
statements is available to the Board
and the auditors. The Investment Manager operates
established property accounting systems
and has procedures in place to ensure that the quarterly
NAV and Gross Asset Value are calculated
accurately.
The Board has appointed the Investment Manager as
Alternative Investment Fund Manager (AIFM)
in accordance with the Alternative Investment Fund Managers
Directive (AIFMD).
The quarterly and annual NAV has numerous levels of reviews
including by the Board. Additional
support is produced by the Fund Accountants to ensure
financial data is complete and accurate.
An internal controls review is performed by Ernst & Young
in accordance with ISAE 3402 annually
to provide assurance on Schroders' service organisations'
control procedures and an external
audit is completed to provide an opinion on the financial
statements which have been reviewed
by the board of directors.
The Administrator 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.
Processes are in place to ensure that the Company complies
with the conditions applicable
to property investment companies set out in the Listing
Rules. The Administrator attends all
Board meetings to be aware of all announcements that need
to be made and the Company's advisors
are aware of their obligations to advise the Administrator
and, where relevant, the Board
of any notifiable events. Finally, 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 FCA and the Guernsey Financial Services
Commission.
-------------------------------------------------------- ------------------------------------------------------------
Valuation risk
Property valuations are inherently subjective and External valuers provide independent valuation of all
uncertain. This uncertainty is heightened assets.
due to the Covid-19 pandemic. Members of the Audit Committee meet with the external
valuers to discuss the basis of their
valuations and their quality control processes.
-------------------------------------------------------- ------------------------------------------------------------
Tax risk
The Group is exposed to changes in the tax regime Proposed and actual changes in tax legislation are
affecting the cost of corporate tax, VAT, monitored with the help of Deloitte, and
Stamp Duty and Stamp Duty Land Tax. through direct liaison with HMRC, to understand and, if
possible, mitigate their impact.
The UK's exit from the EU creates uncertainty over the HMRC has designated the Group as having a low-risk tax
future UK tax and regulatory environment. status. Detailed planning ahead of
any future regulatory and tax changes, using Deloitte as
the Company's tax advisors, is carried
The Group is exposed to potential tax penalties, or out.
loss of its REIT status, by failing to
comply with the REIT legislation. The Group has internal monitoring procedures in place to
ensure that the appropriate REIT
rules and legislation are complied with. To date, all REIT
regulations have been complied
with, including projected tests.
-------------------------------------------------------- ------------------------------------------------------------
Service providers
The Company has no employees and has delegated certain Service providers are appointed subject to regular reviews
functions to a number of service providers. and with clearly documented contractual
Failure of controls and poor performance of any service arrangements detailing service expectations.
provider could lead to disruption, Regular reporting is provided by key service providers and
reputational damage or loss. monitoring of the quality of services
provided.
Review of internal controls reports from key service
providers, including confirmation of
business continuity and cyber security arrangements.
-------------------------------------------------------- ------------------------------------------------------------
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 96 to 100.
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 14.1 years and the average unexpired lease
term, assuming all tenants vacate at the earliest opportunity, is
5.0 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 34 to 36, 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 (taking into account any continued impact of Covid-19 on rent
collection), 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 34 to 36 are also taken into account.
Based on the assessment, and having considered in detail base and
downside scenarios modelling the potential ongoing impact of
Covid-19, 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 the non-collection of rent and service
charges as a result of the Covid-19 pandemic; have considered
potential resulting falls in property valuations; have reviewed
cash flow forecasts; and have analysed forward-looking compliance
with third party debt covenants, in particular the Loan to Value
covenant and interest cover ratios.
Overall, after utilising available cash, excluding the cash
balance undrawn against the RBS facility, and uncharged properties
and units in Joint Ventures, and based on the reporting period to
31 March 2022, property valuations would have to fall by 38% before
the relevant Canada Life Loan to Value covenants were breached, and
actual net rental income would need to fall by 72% before the
interest cover covenants were breached. Furthermore, the properties
charged to RBSI could fall in value by 60% prior to the 60% LTV
covenant being reached and, based on actual net rents for the
quarter to March 2022, a 54% fall in net income could be sustained
prior to the RBSI loan covenant of 185% being breached. Due to
strong valuation growth in the industrial sector in particular, the
Company's office sector weighting fell just below its minimum
requirement of 20% as at the financial year end. The Company has
received a waiver from Canada Life on this until June 2023.
As at the financial year end the undrawn capacity of the RBS
facility was GBP19.8 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
GBP75m.
The Board and Investment Manager continue to closely monitor the
ongoing impact that the Covid-19 pandemic may have on the Company's
rental collection and the requirement to distribute dividends in
accordance with the REIT regulations. All future dividends will be
kept under constant review to ensure the Company's liquid resources
will be sufficient to cover any working capital requirements.
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 2023. In addition to the matters
described above, in arriving at their conclusion the Directors have
also considered:
-- The current cash balance at 6 June 2022 of GBP10.3 million;
-- The nature and timing of the Company's income and expenses; and
-- That the Investment Manager and Administrator continue to
successfully invoke their business continuity plans to help ensure
the safety and well-being of their staff thereby retaining the
ability to maintain the Company's business operations.
The Directors have satisfied themselves that the Group has
adequate resources to continue in operational existence for the
period to 30 June 2023. 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
Lorraine Baldry
Chairman
6 June 2022
Governance Report
Board of Directors
Lorraine Baldry (Chairman)
Status: Independent Non-Executive Director
Date of appointment: 13 January 2014
Aged 73, Lorraine is Chair of Hydroxyl Technologies Limited,
Inventa Partners Limited, CCm Technologies Limited and a NED of
Angel Trains Group Limited and associated companies. She was Chief
Executive of Chesterton International plc and prior to that held
various senior positions at Prudential Corporation, Morgan Stanley
and Regus. She is also an Honorary Member of the Royal Institution
of Chartered Surveyors and a past President of the British Property
Federation. In line with the Board's succession policy, and best
practice, Lorraine will retire as Chair of the Board in July 2022,
to be replaced by the current Senior Independent Director, Alastair
Hughes.
Current remuneration : GBP50,000 per annum
Material interests in any contract which is significant to the
Company's business : None
Key skills and contributions to the Board: Lorraine has
extensive experience both in real estate and as a board chair. She
also has extensive knowledge of the Company's corporate
history.
Graham Basham
Status: Independent Non-Executive Director (Chairman of the
Management Engagement Committee)
Date of appointment: 11 September 2015
Aged 64, Graham is a director of a number of Investment and
Fiduciary regulated companies in Guernsey. He also sits on the
boards of the SREIT subsidiaries. He has more than 40 years'
experience in fiduciary and fund work, most of these spent in
several offshore locations. He was Group partner and Head of
Guernsey for Aspida Group Limited, prior to retiring in May 2021.
He holds a Trustee Diploma as an Associate of Chartered Institute
of Banks and is a member of both the Society of Trust and Estate
Practitioners and the Institute of Directors.
Current remuneration : GBP35,000 per annum
Material interests in any contract which is significant to the
Company's business : None
Key skills and contributions to the Board: Graham has extensive
experience of the Guernsey regulatory environment, extensive
knowledge of the operations of the Company's subsidiaries, and
experience as a former board member of fund administrators and
registrars, which assists with the board's oversight of key service
providers.
Stephen Bligh (Chairman of the Audit Committee)
Status: Independent Non-Executive Director
Date of appointment: 28 April 2015
Aged 65, 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 : GBP35,000 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.
Alastair Hughes (Senior Independent Director)
Status: Independent Non-Executive Director
Date of appointment: 26 April 2017
Aged 56, 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. Alastair
will become Chair of the Company from July 2022.
Current remuneration : GBP35,000 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.
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.
On 8 June 2022, Priscila Davis will join the Board of the
Company as an independent non-executive Director. Priscilla has a
strong track record in roles across asset management, alternative
investments, private equity, infrastructure and real estate.
Priscilla is currently Chair of UBS Asset Management (UK) Limited,
with other non-executive roles at Cubico Sustainable Investments, a
global sustainable energy provider, and Embark Group, a digital
retirement solutions provider.
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 2022
(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 2021 25 June 2021 0.656 pence per share
--------------------------- ----------------- ----------------------
30 June 2021 13 August 2021 0.675 pence per share
--------------------------- ----------------- ----------------------
30 September 2021 17 December 2021 0.726 pence per share
--------------------------- ----------------- ----------------------
31 December 2021 25 March 2022 0.772 pence per share
--------------------------- ----------------- ----------------------
With the solvency test provided for in the Companies Law having
being fully satisfied, all dividends were declared and paid as
interim dividends. The Directors recommend a final dividend for the
year ended 31 March 2022 of 0.795 pence per share to be paid on 30
June 2022.
All dividends paid during the year were allocated and paid as
Property Income Distributions (PIDs).
Share capital
As at 31 March 2022 the Company had 565,664,749 (2021:
565,664,749) Ordinary Shares in issue of which 74,584,448 Ordinary
Shares (representing 13.2% of the Company's total issued share
capital) were held in treasury (2021: 74,246,108 ). The total
number of voting rights of the Company was 491,080,301 at the year
end (2021: 491,418,641) 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 2022 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.
For the period of 1 April 2021 to 30 June 2021 the Investment
Manager received a fee of 1.1% of the Company's NAV, which was
subsequently reduced to 0.9% for the period of 1 July 2021 to 31
March 2022 post an updating of the Investment Management Agreement,
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
months' 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
Northern Trust International Fund Administration Services
(Guernsey) Limited served as the administrator to the Group for a
fee of GBP120,000 per annum until 30 September 2021, and its sister
company, Northern Trust (Guernsey) Limited, provided depositary
services, as required under the AIFM Directive, to the Group until
30 September 2021 for a fee of GBP40,000 per annum.
On 1 October 2021, following a tender process initiated by the
Board, 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
was appointed as the Company's depositary for a fee of GBP39,000
per annum. On the same date, Schroder Investment Management
Limited, an affiliate of the AIFM, was appointed as Company
Secretary to the Company for a fee of GBP50,000 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 (%)
---------------- ----------------------------------------------------- ---------------
Lorraine Baldry 100,597 Less than 0.1
---------------- ----------------------------------------------------- ---------------
Graham Basham 25,000 Less than 0.1
---------------- ----------------------------------------------------- ---------------
Stephen Bligh 100,000 Less than 0.1
---------------- ----------------------------------------------------- ---------------
Alastair Hughes 101,518 Less than 0.1
---------------- ----------------------------------------------------- ---------------
Substantial shareholdings
As at 31 March 2022, the Directors were aware that the following
shareholders each owned 3% or more of the issued Ordinary Shares of
the Company. The position as at 6 June 2022 is unchanged, save for
the holding of Schroders plc, including Cazenove Capital and other
group entities, reducing on 27 May 2022 to 73,507,581 Ordinary
Shares.
Number of ordinary shares Percentage (%)
------------------------------------------- ----------------------------------------- ----------------------
Investec Wealth & Investment (UK) 78,375,224 16.0
------------------------------------------- ----------------------------------------- ----------------------
Schroders PLC 74,705,826 15.2
------------------------------------------- ----------------------------------------- ----------------------
Witan Investment Trust (UK) 38,750,000 7.9
------------------------------------------- ----------------------------------------- ----------------------
Embark Investment Services (UK) 34,207,624 7
------------------------------------------- ----------------------------------------- ----------------------
Premier Miton Investors (UK) 25,889,263 5.3
------------------------------------------- ----------------------------------------- ----------------------
BlackRock Inc 22,042,890 4.5
------------------------------------------- ----------------------------------------- ----------------------
Connor Broadley Ltd 20,149,986 4.1
------------------------------------------- ----------------------------------------- ----------------------
Hargreaves Lansdown Asset Management (UK) 15,640,577 3.2
------------------------------------------- ----------------------------------------- ----------------------
Independent auditors
Resolutions to reappoint Ernst & Young LLP, and to give the
Directors authority to determine the Auditor's 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 pages 48 to 50.
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 Income Tax 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
2021.
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-2021/
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 (the '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 ( the '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 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 report
findings were presented and discussed with the Board. The
composition of the Board, its dynamics, its oversight of strategy
and the management of the Board meetings were all highly
regarded.
In 2021 the Board carried out an internal evaluation of the
Board and its Chairman, which involved questionnaires being
completed by Non-Executive Directors, representatives of the
Investment Manager and the Company Secretary. It was concluded that
the Board and its Chairman 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 view of the expected changes to the Board composition in
2022, the Board has deferred its annual Board and sub-committee
evaluations until 2023.
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 Chairman is Lorraine Baldry. Alastair Hughes is the Senior
Independent Director. The biography of each of these Directors is
set out on pages 39 to 40 of the report. The Board considers each
of the Directors to be independent.
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.
As at 31 March 2022, the Board comprised three men and one
woman. The Board has adopted a diversity and inclusion policy.
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 and ethnic backgrounds,
cognitive and personal strengths. The Board will encourage any
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.
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.
Board Audit Committee Nomination Committee Management Engagement Committee
----------------------------------- ------ ---------------- --------------------- --------------------------------
Lorraine Baldry (Chairman) 4/4 2/2 2/2 1/1
----------------------------------- ------ ---------------- --------------------- --------------------------------
Alastair Hughes 4/4 2/2 2/2 1/1
----------------------------------- ------ ---------------- --------------------- --------------------------------
Graham Basham 4/4 2/2 2/2 1/1
----------------------------------- ------ ---------------- --------------------- --------------------------------
Stephen Bligh 4/4 2/2 2/2 1/1
----------------------------------- ------ ---------------- --------------------- --------------------------------
Number of meetings during the year 4 2 2 1
----------------------------------- ------ ---------------- --------------------- --------------------------------
In addition to its regular quarterly meetings, the Board met on
sixteen 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 and Administrator 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 Chairman. 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 provides an
appropriate forum for investors to communicate with the Board and
it encourages participation. The Notice of the next Annual General
Meeting on page 136 sets out the business of the Annual General
Meeting to be held on 21 September 2022.
Audit Committee Report
Composition
The Audit Committee is chaired by Stephen Bligh with Graham
Basham and Alastair Hughes 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. The Company's Chairman is invited to attend all
meetings. 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 two 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, half
year review findings 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 March 2021 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 and BNP Paribas Real Estate UK for the meetings.
two joint ventures.
Errors in valuation could have a material impact on the
Company's net asset value.
Members of the Audit Committee met with Knight Frank LLP
and BNP Paribas Real Estate UK to
discuss the process, assumptions, independence and
communication with the Investment Manager.
Their approach to the 31 March 2022 valuations was
discussed in light of the impact of the
pandemic and subsequent economic volatility, and the
Committee was satisfied that both firms
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 37 and 38, 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, Brexit impact, the war in is confident that the Company will be able to continue
Ukraine, or other external shocks. in operation and meet its liabilities
The performance of the underlying property portfolio as they fall due over the five year period of its
could also be affected by structural assessment.
or cyclical factors 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 adequacy 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 year
ended December 2021. The Audit Committee has considered both the
Investment Manager's internal controls report and the review by
EY.
External Auditor 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 Ernst &
Young 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 the half year 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
Chairman 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 Ernst & Young'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, Ernst &
Young also completes its own independence confirmation processes
which are approved by the audit partner.
During the year, the non-audit services fees paid to Ernst &
Young were GBP20,000 in relation to the interim review.
Stephen Bligh
Director
6 June 2022
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. Graham Basham
is the Chairman of the Management Engagement Committee, and Stephen
Bligh, Lorraine Baldry and Alastair Hughes are members. 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;- Considers of the Company's service providers
the reporting it has received from on at least an annual basis, including
the Investment Manager throughout the Investment Manager, the Corporate
the year, and the reporting from Broker, the Valuers and the Registrars.
the Investment Manager to shareholders; The Management Engagement Committee
-Assesses management fees on an receives feedback from the Audit
absolute and relative basis, receiving Committee on its review of the Auditors.
input from the Company's corporate
broker, including peer group and
industry figures, as well as the
structure of the fees;
-Reviews the appropriateness of
the Investment Manager's contract,
including terms such as notice period;
- 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 In Summer 2021, a tender process
undertook a detailed review of the for the appointment of the Company's
Investment Manager's performance secretary and administrator took
and agreed that it has the appropriate place.
capabilities required to allow the A number of potentially suitable
Company to meet its investment objective. firms were identified. Following
The Management Engagement Committee this review, meetings were held
also reviewed the terms of the Investment with a shortlist of suitable firms.
Management Agreement and agreed Langham Hall (Guernsey) Limited
they remained fit for purpose. The and Langham Hall UK Depositary LLP
Management Engagement Committee were selected by the Board, together
reviewed the other services provided with Schroder Investment Management
by the Investment Manager and agreed Limited. These arrangements delivered
they were satisfactory. a modest reduction in fees paid
by the Company.
The annual review of each of the
other service providers was satisfactory.
The Management Engagement Committee
noted that the Audit Committee had
undertaken a detailed evaluation
of the Investment Manager, Depositary
and Registrar's internal controls.
-------------------------------------------
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.
- 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 Lorraine Baldry,
Graham Basham and Stephen Bligh are members. Its terms of reference
are available on the Company's webpages.
Approach
Selection and induction Board evaluation Succession
----------------------------- -------------------------------
- The Nomination Committee - The Nomination Committee - The Board's succession
prepares a job specification assess each director policy is that Directors'
for each role, and an annually. tenure will be for no
independent recruitment - Evaluation focuses longer than nine years,
firm is appointed. For on whether each director except in exceptional
the Chairman and the chairs continues to demonstrate circumstances, and that
of committees, the Committee commitment to their each director will be
considers current Board role and provides a subject to annual re-election
members too. valuable contribution at the AGM.
- Job specification outlines to the Board during - The Nomination Committee
the knowledge, professional the year, taking into reviews the Board's
skills, personal qualities account time commitment, current and future needs
and experience requirements. independence, conflicts at least annually. Should
- Potential candidates and training needs. any need be identified
assessed against the Company's - Following the evaluation, the Nomination Committee
diversity policy. the Nomination Committee will initiate the selection
- The Nomination Committee provides a recommendation process.
discusses the long list, to shareholders with - The Nomination Committee
invites a number of candidates respect to the annual will oversee the handover
for interview and makes re-election of directors process for retiring
a recommendation to the at the AGM. Directors
Board. - All directors retire
- The Nomination Committee at the AGM and their
reviews the induction re-election is subject
and training of new directors to shareholder approval.
----------------------------- -------------------------------
Application during the year
Selection and induction Board evaluation Succession
------------------------------------- -------------------------
- Lorraine Baldry announced - The annual board evaluation - During the year, the
that she would resign was undertaken in 2021. Nomination Committee
as Chairman of the Company - The Nomination Committee considered the need
in July 2022. A sub-committee reviewed each Director's for orderly succession
comprised of Stephen time commitment and independence planning and a suitable
Bligh and Graham Basham by reviewing a complete plan was agreed.
considered a number of list of appointments,
candidates for the role including pro bono not
of Chairman with input for profit roles, to
from independent recruitment ensure that each Director
partners. Following this remained free from conflict
process, Alastair Hughes, and had sufficient time
the current Senior Independent available to discharge
Director, was identified each of their duties
as the most suitable effectively. All Directors
candidate. were considered to be
- The Nomination Committee independent in character
identified suitable candidates and judgement.
for the role of Senior - The Nomination Committee
Independent Director, considered each Director's
with support from independent contributions, and noted
executive search firm that in addition to extensive
Russell Reynolds. Following experience as professionals
this process, Priscilla and non-executive Directors,
Davies was recommended each Director had valuable
to be appointed as a skills and experience,
director of the Company as detailed in their
and, in due course, Senior biographies on pages
Independent Director. 39 and 40.
- Based on its assessment,
the Nomination Committee
provided individual recommendations
for each Director's re-election.
------------------------------------- -------------------------
Recommendations made to, and approved by, the Board:
- That Alastair Hughes be appointed as Chairman of the Company with
effect from 31 July 2022.
- That Priscilla Davies be appointed as a non-executive Director with
effect from 8 June 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.
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 9 September 2021, 99.77 % of the votes cast
(including votes cast at the Chairman's discretion) in respect of
approval of the Annual Report on Remuneration for the year ended 31
March 2021 were in favour, while 0.23% were against. No 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 GBP30,000 per annum, and the
Chairman receives GBP50,000 per annum. The Chairman of the Audit
Committee, the Chairman of the Management Engagement Committee and
the Senior Independent Director each receive an additional fee of
GBP5,000 respectively. The fees were reviewed by an external
consultant during 2015, which led to the recommendation adopted and
the current level of fees taking effect from 1 October 2015, save
for the introduction of an additional GBP5,000 per annum fee for
the Chairman of the Management Engagement Committee which took
effect from 12 November 2020.
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 2022.
Fees paid to Directors
The following amounts were paid by the Company for services as
non-executive Directors:
Director 31 March 2022 (GBP) 31 March 2021 (GBP)
---------------------------- -------------------- --------------------
Lorraine Baldry (Chairman) 50,000 50,000
---------------------------- -------------------- --------------------
Stephen Bligh(2) 35,000 35,000
---------------------------- -------------------- --------------------
Graham Basham(3, 4) 36,927 30,000
---------------------------- -------------------- --------------------
Alastair Hughes (1) 35,000 35,000
---------------------------- -------------------- --------------------
Total 156,927 150,000
---------------------------- -------------------- --------------------
1 Senior Independent Director.
2 Chairman of the Audit Committee.
3 Chairman of the Management Engagement Committee.
4 Graham Basham is a director of the subsidiary companies for
which he receives no additional remuneration, either directly or
indirectly.
Performance
The performance of the Company is described on page 30 in the
Business Model Report.
Lorraine Baldry
Chairman
6 June 2022
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 7 to 38 and Governance Report on
pages 39 to 78 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
Lorraine Baldry, Chairman
6 June 2022
Sustainability Report
The Board and Manager believe that consideration of
Environmental, Social and Governance ('ESG') characteristics is key
to the long-term success of the Company and that a successful
sustainable investment programme should deliver enhanced returns to
investors, improved business performance to tenants and tangible
positive impacts to local communities, the environment and wider
society.
Offering occupiers resource-efficient and flexible space is
critical to ensure our investments are fit for purpose and sustain
their value over the long term. As a landlord, we have the
opportunity to help reduce running costs for our occupiers,
increase employee productivity and wellbeing, and contribute to the
prosperity of a location through building design and public
realm.
Ignoring these issues when considering asset management and
investments would risk the erosion of income and value as well as
missing opportunities to enhance investment returns.
The industry's potential to cost-efficiently reduce emissions
and the consumption of depleting resources, combined with the
political imperative to tackle issues such as climate change, means
the property sector will remain a prime target for policy action.
This presents new challenges and opportunities for the real estate
industry with profound implications for both owners and
occupiers.
The Investment 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; (11) Sustainable
cities and communities and; (13) Climate action.
To minimise risk and ensure resilience a good investment
strategy must incorporate environmental, social and governance
factors alongside traditional economic considerations. The Board
and Manager believe a complete approach should be rewarded by
improved investment decisions and performance.
A central focus of the Investment Manager's real estate
investment strategy is the response to the climate crisis both in
terms of risk and resilience to climate impacts and also working to
reduce the Company's Greenhouse Gas (GHG) emissions associated with
its activities. As part of the Investment Manager's commitment to
achieving Net Zero Carbon by 2050 or sooner, aligned with a 1.5degC
decarbonisation trajectory, work has been undertaken during 2021 to
baseline the Company's carbon performance and establish new energy
and carbon targets in a net zero context which include interim
milestones at 2025 and 2030. Further details can be found in the
'Net Zero Carbon' section on page 64.
Further information on the Investment 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/
Environmental Management System
The Investment 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.
The EMS provides the framework for how sustainability principles
(environmental and social) are managed throughout all stages of its
investment process including acquisition due diligence, asset
management, property management provided by third parties,
refurbishments and developments.
The Investment Manager reviews its Sustainability Policy
annually and which is approved by the Investment Committee. Key
aspects of the Policy and its objectives, and progress during 2021,
as well as objectives and targets for the year ahead, are set out
below .
Objectives and Targets
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.
In support of improving the environmental and social
characteristics of the portfolio, the Investment Manager has
continued to work with sustainability consultants EVORA Global and
property managers MAPP and Hornbeam to identify and deliver
sustainability enhancements. The programme involves reviewing all
managed assets held by the Company using the Investment Manager's
proprietary Impact and Sustainability Actions Plans identify and
implement improvement initiatives, where viable.
Where the landlord retains operational control responsibilities,
the Investment Manager monitors the Company's environmental
performance on a quarterly basis. Please note, changes in occupancy
and building operations during the Covid-19 period have had an
impact on like-for-like performance and so the reporting year is
not directly comparable with the previous reporting year.
For detailed sustainability performance data covering the
reporting period and the prior year, please see the EPRA
Sustainability Reporting Performance Measures on page 110.
Energy and Greenhouse Gas Emissions
The Investment Manager can report for the year to 31 December
2021, for the managed assets held within the Company, there was a
2% reduction in landlord-procured energy consumption on a
like-for-like basis. This translates to a 9% reduction in Scope 1
and Scope 2 GHG emissions on a like-for-like basis.
Energy performance improvement initiatives continued to be
considered across the portfolio. Initiatives undertaken during the
reporting year include 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.
The Investment Manager also has an objective to procure 100%
renewable electricity for landlord-controlled supplies by 2025. At
31 December 2021, 92% of the Company's landlord procured
electricity was on a renewable tariff.
As part of the Board and Manager's Net Zero Carbon commitments,
during 2021 new energy and carbon targets have been developed in a
net zero context and pursuance of this objective forms a central
part of the Company's sustainability strategy. Further details can
be found in the 'Net Zero Carbon' section on page 64.
Water
Fresh water is a finite resource of increasing importance for
the environment and society and reductions in consumption can
deliver operational cost efficiencies. The Investment Manager
monitors water consumption where the landlord has supply
responsibilities and encourages active management of asset-level
consumption. Where the Company had such responsibilities, a 17%
reduction in like-for-like water consumption is reported for the
year to 31 December 2021 compared to the previous year .
Waste
Effective waste management decreases pollution and resource
consumption, as well as improving operational efficiency and
associated costs. To this end, waste should be minimised and
disposal should be as sustainable as possible. The Investment
Manager therefore has set an objective to send zero waste directly
to landfill and to achieve optimal recycling. For the year to 31
December 2021 the Company achieved a 1% reduction in total landlord
waste generation, sent zero waste directly to landfill, 56% of
waste was recycled and 44% was incinerated with energy recovery
.
Improvements and Refurbishments
The Investment Manager seeks to deliver developments and
refurbishments to sustainable standards and deliver good
performance against building certifications, including EPCs and
BREEAM (the Building Research Establishment Environmental
Assessment Methodology: an environmental assessment method and
rating system for buildings). Standards required are set for each
project in context for the asset and the Investment Manager's
guiding principles .
Green Building Certifications
Third-party green building certification helps us to better
understand the sustainability performance of out portfolio's
underlying assets. One such certification scheme is BREEAM In-Use:
a performance-based assessment method for the certification of
existing buildings. BREEAM In-Use helps assess operational
performance against nine sustainability categories. The framework
supports the overall sustainability programme for the Company with
improvement actions integrated into the responsibilities of the
Investment Manager and property managers.
During the 2021 reporting year, the Investment Manager
commissioned two BREEAM In-Use assessment for the Company .
Health and Wellbeing
The real estate industry has a good appreciation of the
importance of the built environment on human health and wellbeing.
There has been considerable development in understanding on what
building aspects matter as well as how certification schemes,
including the Well Building and Fitwel Certifications, can support
landlords and tenants to address these .
Property Manager Sustainability Requirements
Property managers play an integral role in supporting the
sustainability programme. The Investment Manager has established a
set of Sustainability Requirements for property managers to adhere
to in the course of delivering their property management services.
This includes a set of key performance indicators ('KPIs') to help
improve the property manager's sustainability-related services to
the Company and which are assessed on a six-monthly and annual
basis.
The Investment Manager is pleased to report that the principal
property manager, MAPP, performed well against the targets set for
both the six-monthly and annual indicators .
Occupier and Community Engagement
The Investment Manager seeks active engagement with occupiers to
ensure a good occupational experience to help retain and attract
tenants. In 2021 the Investment Manager undertook an occupier
satisfaction survey with support from a third-party customer
satisfaction specialist. Results from this survey were used to
develop and action plans which the Asset and Property Managers are
continuing to implement. As the day-to-day relationship is with the
Property Manager, the Property Manager Sustainability Requirements
include a key performance indicator on occupier engagement.
Following the success of the 'Locale' digital engagement
platform at City Tower, Manchester and in response to feedback
obtained through the Investment Manager's customer satisfaction
survey in 2021, the Investment Manager has worked alongside the
principal property manager for the Company to develop an action
plan to roll-out a version of the 'Locale' platform - 'Locale Lite'
- across a number of multi-let assets held by the Company. The
programme will see the introduction of this platform throughout
2022.
The Investment Manager believes in the importance of
understanding a building's relationship with the community and its
contribution to the wellbeing of society. Positively impacting on
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. The Investment Manager looks to understand and develop
the community relationship to ensure investments provide
sustainable social solutions for the long term .
Sustainability in Action (Case Studies)
Manchester, Cheadle, Stanley Green Trading Estate
(Industrial)
Stanley Green Trading Estate comprises two elements: an existing
150,000 sq ft trading estate across 14 warehouse units on a nine
acre site, and a 3.4 acre development site.
When acquired in December 2020, the development site had an
historic planning consent for 48,000 sq ft of trade counter and
warehouse space allocated for industrial development in the local
development plan. In October 2021, planning was secured for 80,000
sq ft of operationally Net Zero Carbon ('NZC') industrial, storage
and distribution space across 11 unit s.
In line with the Company's commitment to incorporating high
sustainability standards and building certifications across all new
development activity, the scheme will be delivered to BREEAM
Excellent, EPC A rating and operational NZC specification, expected
to be the first to achieve this status in the North West.
Operational NZC will be driven by the use of photovoltaics plus
recycled materials, insulated cladding to mitigate heat loss and
installation of LED lighting. Electric vehicle charging and cycle
storage facilities will be installed to promote active travel. As
part of the Investment Manager's Sustainable Refurbishment and
Redevelopment guide, the contractor is encouraged to use local
suppliers to boost local employment, including engaging with local
colleges to offer apprenticeship schemes.
The development cost of GBP8.5 million is estimated to generate
rental income of GBP1.1 million per annum. Pre-lets of the scheme
will be targeted during the construction phase, supported by
positive activity on the existing estate with lettings at new
headline rents of GBP14 per sq ft and lease regears under
negotiation. As part of these negotiations, the main terrace of the
existing estate will be over roofed and reclad to mitigate heat
loss and improve EPC ratings across the estate. The Investment
Manager continues to develop a framework for targeting leading
sustainability credentials across the existing portfolio and
development opportunities .
Compliance with Legislation
The Investment Manager continues to monitor requirements and
guidance in relation to managing and reporting environmental
matters and developments in legislation at all stages of the
investment life cycle - from acquisition, through ownership, to
disposal. This process is supported by a legal register within the
EMS, as well as through appropriate devolution of responsibility to
key personnel involved in the day-to-day operation of buildings,
including asset, property and facilities' managers .
Minimum Energy Efficiency Standards (MEES) (England and Wales)
Regulations
Energy Performance Certificates ('EPCs') for the portfolio are
regularly reviewed for alignment with the 2015 Minimum Energy
Efficiency Standards (England and Wales) legislation. The
Investment Manager is actively managing the potential risk of this
legislation to the portfolio. This legislation brought in a minimum
EPC standard of 'E' for new leases and renewals for non-domestic
buildings from 1 April 2018; this minimum standard applies to all
leases from 1 April 2023. The EPC profile for the portfolio is set
out within the EPRA Sustainability Reporting Measures section on
page 110.
Streamlined Energy and Carbon Reporting (SECR)
An Energy and Carbon Report for the Company, aligned with the UK
Streamlined Energy and Carbon Reporting regulations, is included on
page 126.
Energy Savings Opportunity Scheme (ESOS)
The Company did not qualify for participation in the 2015 Phase
1 of the Energy Savings Opportunity Scheme and did not fall within
scope of the Scheme's 2019 Phase 2 or 2023 Phase 3 requirements
.
Industry Initiatives
EPRA Sustainability Reporting Measures
The Company Report includes environmental performance indicator
data for the portfolio. The disclosures are aligned with EPRA Best
Practices Recommendations on Sustainability Reporting 2017, assured
to Assurance Standard AA1000 by Evora Global, and are included in
the Company EPRA Performance Measures report. The Company was
awarded an EPRA Gold Award for Sustainability Reporting in 2021,
for the fourth consecutive year.
Global Real Estate Sustainability Benchmark (GRESB)
The Company has participated in GRESB, the leading global
standard for assessing ESG performance for real estate funds and
companies, for the past six years. In 2021 the Company achieved a
3-star status (out of 5 stars), improved its score to 75 (out of
100), came 2nd in its peer group (out of 8) and maintained its
Green Star rating. The Investment Manager intends to participate in
the survey on behalf of the Company in 2022.
United Nations Principles of Responsible Investment (UN PRI)
Schroders plc has been a signatory to UN PRI since 2007 and
intends to remain an active and engaged member for the PRI and to
meet its ongoing membership commitments. Schroders achieved the
highest possible ESG score of A+ in 2020, for the sixth year
running, for its overarching ESG approach from the Principles for
Responsible Investment. Schroders has completed the Direct Property
Segment for four years achieving an A rating in all four years.
Schroders' public UNPRI Transparency Report is available here :
https://www.unpri.org/signatory-directory/schroders/1746.article
Please note there has been a delay to the 2021 UN PRI reporting
cycle. The PRI have suggested we will receive our updated score for
2021 in the summer of 2022 .
Industry Participation
Schroders supports, and collaborates with, several industry
groups, organisations and initiatives including the United Nations
Global Compact and Net Zero Asset Managers Initiative (of which it
is a founding member). Further details of Schroders' industry
involvement are listed at pages 42 - 45 of Schroders 2021 Annual
Sustainable Investment Report :
https://publications.schroders.com/view/757464817/ .
The Investment 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 GRESB .
Employee Policies and Corporate Responsibility
Employees
The Company is an externally managed real estate investment
trust and has no direct employees. The Investment Manager is part
of Schroders plc, which has responsibility for the employees that
support the Company. Schroders believes diversity of thought and an
inclusive workplace are key to creating a positive environment for
their people. The Investment Manager's real estate team have
sustainability within their annual objectives.
Further information on Schroders' principles in relation to
people including diversity and inclusion, gender pay gap, values,
employee satisfaction survey, wellbeing and retention can be found
on the dedicated Schroders webpage here :
https://www.schroders.com/en/working-here/our-people/ .
Corporate Responsibility
Schroders' commitment to corporate responsibility is to ensure
that its commitment to act responsibly, support clients, deliver
value to shareholders and make a wider contribution to society is
embedded across its business in all that it does.
Full information about Schroder's corporate responsibility
approach including its economic contribution, environmental impacts
and community involvement, can be found here : (
https://www.schroders.com/en/sustainability/corporate-responsibility/
).
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 Investment 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/ .
Net Zero Carbon
The Board and Manager recognise that the Company has a
responsibility to embark on a journey to 'Net Zero Carbon' ([16])
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 Investment Manager signed the Better Building
Partnership's (BBP) Climate Commitment and we have a net zero
ambition aligned to the Paris Agreement aim to limit warming to
1.5degC. The net zero commitment addresses carbon emissions from
all stages of a buildings lifecycle including operation and
maintenance (both landlord and tenant energy/emissions) as well as
embodied carbon associated with refurbishment and development.
In 2021 the Investment Manager has been working to establish an
operational Net Zero Carbon baseline and to develop new operational
energy and carbon targets for the Company. Due to the Covid-19
pandemic, the 2020 year is generally not considered representative
of building performance and so a baseline year of 2019 has been
used.
Through this first phase of analysis we have sought to determine
whole building operational energy and carbon performance at assets
where there is an internal energy supply procured by the Company.
For buildings that are in scope, whole building energy has been
taken into account. This means that for assets where the landlord
procures only part of the building energy, the remaining footprint
of the building (tenant procured energy) is also in scope despite
limitations on our ability to reduce their energy use and carbon
performance and so here occupier engagement will be critical to the
success of our Net Zero Carbon ambitions. Assets in scope of the
Company's 2019 baseline analysis year were responsible for an
estimated 4,724 tCO(2) e ([17]) .
Forward looking asset level Net Zero Carbon pathways have been
modelled using the industry leading Carbon Risk Real Estate Monitor
(CRREM) and have formed the basis for our new asset and portfolio
level operational energy and carbon targets. Net Zero Carbon
pathways - aligned with a 'Paris Proof' decarbonisation trajectory
to pursue efforts to limit global warming to 1.5degC - have been
developed to present the decarbonisation requirements needed to
achieve Net Zero Carbon by 2050 or sooner and include interim
milestones at 2025 and 2030 .
New interim operational energy and carbon portfolio targets for
the Company established for 2025 and 2030 using a 2019 baseline
and set in a Net Zero Carbon context
Target % Reduction Annualised Reduction
2025 Carbon Intensity -13% -2.4%
2030 Carbon Intensity -35% -3.8%
2025 Energy Intensity -8% -1.4%
2030 Energy Intensity -25% -2.6%
The pathway will evolve over time as the Investment 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 in order to reduce the risk of stranded assets
.
Task Force on Climate-Related Financial Disclosures ('TCFD')
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 2021, the Investment 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, Schroders 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 board's The Board formally reviews the Investment Manager's
oversight of climate-related performance, including ESG related activity,
risks and opportunities. at quarterly Board meetings. A more detailed
review of the Investment Manager's 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 Investment Manager and third parties
such as the Global Real Estate Sustainability
Benchmark ('GRESB'); (ii) asset level analysis;
(iii) a review of the Investment Manager's ESG
policies and procedures; and (iv) presentations
from sustainability specialists.
-----------------------------------------------------------
Describe management's Climate change is an established component of
role in assessing our sustainability programme. Responsibility
and managing climate-related for assessment and management of climate-related
risks and opportunities. risk and opportunity is delegated to key members
of the Investment Management team, supported
by regular reporting to the Investment Committee.
Schroder's Head of Sustainability and Impact
Investing recommends the Investment Manager's
annual Sustainability Policy and Objectives,
which are reviewed and approved by the Investment
Committee. The Investment 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 Investment Manager
also prepares annual report and financial accounts
for the Company, which include climate-related
metrics and supports the Investment Manager
and Board's monitoring of performance and progress
towards climate-related goals and targets.
-----------------------------------------------------------
Strategy
Describe the climate-related Our investment philosophy and process is underpinned
risks and opportunities by fundamental research and an analytical approach
the Company has identified that considers economic, demographic and structural
over the short, medium, influences on the market. We are considering
and long term. how climate change may impact on these factors
over time, as well as how government policies
may enable mitigation of and adaption to climate
change.
In the short term, energy and carbon emissions
performance of our assets is a critical climate-related
strategic issue. 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. In
the short, medium and longer term, the physical
effects of changing climate also present potential
material financial impacts to the Company, for
example in relation to heating or cooling buildings
in changing climates, weather events and availability
of water.
-----------------------------------------------------------
Describe the impact The Investment Manager's acquisition and asset
of climate-related business planning processes include consideration
risks and opportunities of climate-related issues, and will include
on the Company's businesses, forward-looking assessment of asset alignment
strategy, and financial to Paris Aligned energy and carbon performance
planning. benchmarks, where information permits. We are
also reviewing our existing processes for screening
acquisitions and standing investments for climate-related
physical risks (e.g. flooding).
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.
-----------------------------------------------------------
Describe the resilience Since 2016, assets of the Company have been
of the Company's strategy, included in the Investment Manager's UK energy
taking into consideration consumption and carbon emission reduction targets
different climate-related for assets where landlord operational control
scenarios, including is retained. As part of the Investment Manager's
a 2degC or lower scenario. Net Zero Carbon commitments (detailed on page
64 above), during 2021, forward looking Net
Zero Carbon pathways have been modelled using
the industry accepted Carbon Risk Real Estate
Monitor (CRREM) and have formed the basis for
our new asset and portfolio level operational
energy and carbon targets. Net Zero Carbon pathways
have been developed 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.
On physical risk, Schroders has licenced a proprietary
physical risk database through a third-party
provider. The tool assesses vulnerability to
physical risk hazards, and those climate-based
indicators are based on RCP8.5. The strategy
will be to use this 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.
-----------------------------------------------------------
Risk Management
Describe the Company's Schroders environmental management system (EMS)
processes for identifying is certified to ISO 14001 and applies to the
and assessing climate-related asset management of the Company's real estate
risks. assets. Key components of the EMS include a
detailed materiality assessment of risks and
opportunities, and a register to monitor existing
and emerging regulatory requirements related
to energy and carbon emissions.
-----------------------------------------------------------
Describe the Company's Climate-related risks are tracked and managed
processes for managing through ongoing monitoring (e.g. energy and
climate-related risks. greenhouse emissions trends), action plans (e.g.
energy efficiency improvement measures), certification
programmes (e.g. Energy Performance 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.
-----------------------------------------------------------
Describe how processes During 2021 the Investment Manager added ESG
for identifying, assessing, criteria, including climate-related risks, to
and managing climate-related its formal quarterly investment risk monitoring,
risks are integrated which is overseen by Schroders Group Investment
into the Company's Risk function, the results of which are presented
overall risk management. to the Company Board as part of the quarterly
Board materials and discussed as necessary.
-----------------------------------------------------------
Metrics and Targets
Disclose the metrics In the 'EPRA Sustainability Reporting Performance
used by the Company Measures (unaudited)' and the 'Streamlined Energy
to assess climate-related and Carbon Reporting' sections of this report
risks and opportunities we report detailed performance trend data, intensity
in line with its strategy ratios and assessment methodologies covering
and risk management energy consumption, GHG emissions, water consumption
process. and waste generation.
-----------------------------------------------------------
Disclose Scope 1, Scope 1 and Scope 2 emissions for the reporting
Scope 2, and, if appropriate, year are disclosed in the 'EPRA Sustainability
Scope 3 greenhouse Reporting Performance Measures (unaudited)'
gas (GHG) emissions, and the 'Streamlined Energy and Carbon Reporting'
and the related risks. sections of this report.
Scope 3 emissions, where available, have been
included within the Investment Manager's operational
Net Zero Carbon baseline. Due to the Covid pandemic,
the 2020 year is generally not considered representative
of building performance and so a baseline year
of 2019 has been used.
-----------------------------------------------------------
Describe the targets Net Zero Carbon pathways have been developed,
used by the Company using the Carbon Risk Real Estate Methodology
to manage climate-related (CRREM) tool, to present the decarbonisation
risks and opportunities requirements needed to achieve Net Zero Carbon
and performance against by 2050 or sooner; aligned with a 'Paris Proof'
targets. decarbonisation trajectory to pursue efforts
to limit global warming to 1.5degC and include
interim milestones at 2025 and 2030.
-----------------------------------------------------------
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 2022 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 ('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 2022 and of its profit for the year then ended;
have been properly prepared in accordance with International
Financial Reporting Standards; 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 cash flow forecasts which support the
Directors' assessment of going concern and have challenged the
sensitivities and assumptions used in the forecasts and evaluating
the impact of these forecasts on the Group's ability to continue to
meet financial covenants and financial commitments as they fall
due;
-- challenging the stress testing performed and validating the
static data assumptions used by the Investment Manager by agreement
to supporting documentation;
-- recalculating the debt covenants on external loans to
validate compliance within the accounting period;
-- 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 IAS 1.
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 2023 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 2022.
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 GBP3.7m which represents
1% of equity.
------------ ------------------------------------------------------------------
An overview of the scope of our audit
T ailoring 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, including
controls and changes in the business environment when assessing the
level of work to be performed.
All audit work was performed directly by the Group audit
team.
Changes from the prior year
There have been no significant changes in scope from the prior
year audit.
Climate change
The Group has explained climate-related risks in the 'Climate
Risk and TCFD' section of the Investment Manager's Report and 'Task
Force on Climate-Related Financial Disclosures' section of the
Strategic Report and these form part of the "Other information",
rather than the audited financial statements. Our procedures on
these disclosures therefore consisted solely of considering whether
these disclosures are materially inconsistent with the financial
statements, or our knowledge obtained in the course of the audit,
or otherwise appear to be materially misstated.
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 Key observations
risk communicated to the
Audit Committee
Based
Risk We on
of have the
misstatement performed work
in the performed
the following we
fair procedures: have
value no
of updated matters
directly and to
or confirmed report
indirectly our to
held understanding the
investment of Audit
property the Committee.
portfolio process
Refer and
to controls
the surrounding
Report property
of valuation
the by
Audit performing
Committee our
(page walkthrough
48); procedures
Significant and
accounting evaluating
policies the
(page implementation
83); and
and design
Note effectiveness
10 of
of controls;
the
Financial
Statements assessed
(pages the
90 independence
to and
93) competence
The of
Group's the
investment independent
property valuers
portfolio as
consists required
of by
UK auditing
properties standards;
held
directly
and read
through the
joint valuation
ventures, report
with provided
a by
combined the
fair Group's
value independent
of valuers
GBP523.5m to
(2021: agree
GBP438.8m). the
There appropriateness
is and
a suitability
risk of
of the
incorrect reported
valuation values
of and
the the
property changes
portfolio in
which value
could from
result the
in previous
the accounting
Consolidated period;
Statement
of
Financial engaged
Position our
and EY
the property
Consolidated valuation
Statement specialists
of to
Comprehensive perform
Income a
being review
materially of
misstated. a
judgmentally
selected
sample
of
property
valuations
to
assess
whether
the
reported
value
fell
within
a
range
of
reasonable
outcomes,
which
included:
validating
the
assumptions
used
by
the
independent
valuers
in
undertaking
their
valuation
and
assessment
of
the
valuation
methodologies
adopted;
challenging
the
key
inputs
and
assumptions
relating
to
equivalent
yield
and
rental
rates
with
reference
to
published
market
data
and
comparable
transaction
evidence
through
market
activity;
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;
verified
that
the
fair
values
derived
by
the
Group's
independent
valuers
for
the
entire
portfolio
were
correctly
included
in
the
financial
statements;
and
assessed
the
adequacy
of
the
additional
disclosures
of
estimates
and
valuation
assumptions
as
disclosed
in
the
notes
were
made
in
accordance
with
IFRS
13
-
Fair
Value
Measurement.
---------------------------- ---------------------
Based
Risk We on
of have the
incomplete performed work
or the performed,
inaccurate following we
rental procedures have
revenue no
recognition obtained material
and an matters
related understanding to
year-end of report
receivables the to
process the
Revenue and Audit
is controls Committee.
earned for
in each
the revenue
form stream
of by
rental performing
income our
from walkthrough
the procedures
investment and
properties evaluating
and the
is implementation
recognised and
on design
an effectiveness
accrual of
basis. controls;
During
the performed
year, substantive
the analytical
Group review
recognised procedures
GBP23.9m over
of rental
rental revenue
income for
(2021: each
GBP21.5m) property.
and We
rent formed
receivable an
of expectation
GBP4.5m of
(2021: the
GBP4.1m). rental
income
There for
is each
a property,
risk and
of compared
incomplete this
or expectation
inaccurate to
rental the
revenue actual
recognition revenue
and recognised
related during
year-end the
receivables year;
through
failure agreed
to a
recognise sample
proper of
income rental
entitlements rates
or to
to tenancy
apply agreements
the and
appropriate recalculated
accounting rental
treatment. revenue
The earned
recoverability by
of the
year-end property
receivable for
is the
based period;
on
a recalculated
number a
of sample
judgments of
and lease
estimates. incentives
based
on
the
terms
within
the
lease
agreement
to
assess
the
appropriateness
of
the
amount
recorded;
this
included,
on
a
sample
basis,
verifying
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
the
Investment
Managers
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
to
test
the
risk
of
management
override
of
controls,
we
tested
a
sample
of
rental
revenue
journals
to
identify
unauthorised
or
inappropriate
journals.
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 GBP3.7m (2021:
GBP3.0m), which is 1% (2021: 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 2022 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% (2021: 75%) of
our planning materiality, namely GBP2.8m (2021: 2.2m).
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 GBP0.19m (2021:
GBP0.15m), 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 68 and pages 102 to 139, 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 37;
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 37;
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 37;
Directors' statement on fair, balanced and understandable set
out on page 56;
Board's confirmation that it has carried out a robust assessment
of the emerging and principal risks set out on page 34;
The section of the annual report that describes the review of
effectiveness of risk management and internal control systems set
out on page 49; and;
The section describing the work of the audit committee set out
on pages 48 to 50.
Responsibilities of Directors
As explained more fully in the Statement of Directors'
Responsibilities set out on page 57, 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 Administrators
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 2022.
-- 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
6 June 2022
Financial Statements
C onsolidated Statement of Comprehensive Income
31/03/2022 31/03/2021
Notes GBP000 GBP000
Rental income 23,859 21,458
Other income 3 558 205
Property operating expenses 4 (1,919) (3,038)
Net rental and related income, excluding
joint ventures 22,498 18,625
-------------------------------------------------- ------ ----------- -----------
Share of net rental income in joint ventures 2,740 2,452
Net rental and related income, including
joint ventures 25,238 21,077
-------------------------------------------------- ------ ----------- -----------
Profit on the disposal of investment property 10 3,165 121
Net unrealised valuation gains/(losses)
on investment property 10 66,536 (8,286)
Expenses
Investment management fee 2 (2,994) (2,906)
Valuers' and other professional fees (1,547) (1,698)
Administrators' fees 2 (82) (120)
Auditor's remuneration 5 (190) (150)
Directors' fees 6 (157) (150)
Other expenses 6 (422) (278)
Total expenses (5,392) (5,302)
-------------------------------------------------- ------ ----------- -----------
Net operating profit before net finance
costs 86,807 5,158
Finance costs (4,139) (4,203)
Net finance costs (4,139) (4,203)
Share of net rental income in joint ventures 11 2,740 2,452
Share of valuation gains in joint ventures 11 3,960 1,135
Profit before taxation 89,368 4,542
Taxation 7 - -
-------------------------------------------------- ------ ----------- -----------
Profit and total comprehensive income
for the year attributable to the equity
holders of the parent 89,368 4,542
-------------------------------------------------- ------ ----------- -----------
Basic and diluted earnings per share 8 18.2p 0.9p
-------------------------------------------------- ------ ----------- -----------
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
31/03/2022 31/03/2021
Notes GBP000 GBP000
--------------------------------------- ------ ----------- -----------
Investment property 10 433,486 351,776
Investment in joint ventures 11 83,700 79,120
Non-current assets 517,186 430,896
--------------------------------------- ------ ----------- -----------
Trade and other receivables 12 16,169 17,028
Cash and cash equivalents 13 11,601 12,175
--------------------------------------- ------ ----------- -----------
Current assets 27,770 29,203
--------------------------------------- ------ ----------- -----------
Total assets 544,956 460,099
======================================= ====== =========== ===========
Issued capital and reserves 14 408,286 332,811
Treasury shares 14 (36,103) (35,967)
--------------------------------------- ------ ----------- -----------
Equity 372,183 296,844
--------------------------------------- ------ ----------- -----------
Interest-bearing loans and borrowings 15 161,791 153,370
Lease liability 11 1,987 1,988
--------------------------------------- ------ ----------- -----------
Non-current liabilities 163,778 155,358
--------------------------------------- ------ ----------- -----------
Trade and other payables 16 8,995 7,897
Current liabilities 8,995 7,897
--------------------------------------- ------ ----------- -----------
Total liabilities 173,670 163,255
--------------------------------------- ------ ----------- -----------
Total equity and liabilities 544,956 460,099
======================================= ====== =========== ===========
Net Asset Value per Ordinary Share 17 75.8p 60.4p
--------------------------------------- ------ ----------- -----------
The financial statements on pages 79 to 82 were approved at a
meeting of the Board of Directors held on 6 June 2022 and signed on
its behalf by:
Lorraine Baldry, Chairman 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 2020 219,090 (26,452) 117,168 309,806
--------------------- ------ -------------- --------------- --------- ---------
Share buyback - (9,515) - (9,515)
Profit for the year - - 4,542 4,542
Dividends paid - - (7,989) (7,989)
--------------------- ------ -------------- --------------- --------- ---------
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
--------------------- ------ -------------- --------------- --------- ---------
The accompanying notes 1 to 23 form an integral part of the
financial statements.
Consolidated Statement of Cash Flows
31/03/2022 31/03/2021
GBP000 GBP000
-------------------------------------------- ----- ----------- -----------
Operating activities
Profit for the year 89,368 4,542
Adjustments for:
Profit on disposal of investment property (3,165) (121)
Net valuation (gain)/loss on investment
property (66,536) 8,286
Share of profit on joint ventures (6,700) (3,587)
Net finance cost 4,139 4,202
-------------------------------------------- ----- ----------- -----------
Operating cash generated before changes
in working capital 17,106 13,322
Decrease/(increase) in trade and other
receivables 859 (1,923)
Increase in trade and other payables 1,098 1,254
-------------------------------------------- ----- ----------- -----------
Cash generated from operations 19,063 12,653
Finance costs paid (3,847) (3,990)
Cash flows from operating activities 15,216 8,663
Investing activities
Proceeds from the sale of investment
property 12,835 6,409
Acquisition of investment property (19,850) (36,500)
Additions to investment property (4,924) (8,896)
Addition to joint ventures (620) -
Net income distributed from joint ventures 2,598 2,452
-------------------------------------------- ----- ----------- -----------
Cash flows from investing activities (9,961) (36,535)
-------------------------------------------- ----- ----------- -----------
Financing activities
Repayment of debt (13,000) -
Additions to debt 21,200 24,500
Dividends paid 9 (13,893) (7,989)
Share buyback (136) (9,515)
Cash flows used in financing activities (5,829) 6,996
-------------------------------------------- ----- ----------- -----------
Net decrease in cash and cash equivalents
for the year (574) (20,876)
Opening cash and cash equivalents 12,175 33,051
-------------------------------------------- ----- ----------- -----------
Closing cash and cash equivalents 13 11,601 12,175
-------------------------------------------- ----- ----------- -----------
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 2022 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 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 the non-collection of rent and service
charges as a result of the Covid-19 pandemic; have considered
potential resulting falls in property valuations; have reviewed
cash flow forecasts; and have analysed forward-looking compliance
with third party debt covenants, in particular the Loan to Value
covenant and interest cover ratios.
Overall, after utilising available cash, excluding the cash
undrawn against the RBS facility, and uncharged properties and
units in Joint Ventures, and based on the reporting period to 31
March 2022, property valuations would have to fall by 38% before
the relevant Canada Life Loan to Value covenants were breached, and
actual net rental income would need to fall by 72% before the
interest cover covenants were breached. Furthermore, the properties
charged to RBSI could fall in value by 60% prior to the 60% LTV
covenant being reached and, based on actual net rents for the
quarter to March 2022, a 54% fall in net income could be sustained
prior to the RBSI loan covenant of 185% being breached. Due to
strong valuation growth in the industrial sector in particular, the
Company's office sector weighting fell just below its minimum
requirement of 20% as at the financial year end. The Company has
received a waiver from Canada Life on this until June 2023.
As at the financial year end the undrawn capacity of the RBS
facility was GBP19.8 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
GBP75m.
The Board and Investment Manager are closely monitoring the
potential impact that the continued Covid-19 pandemic may have on
the Company's rental collection and the requirement to distribute
dividends in accordance with the REIT regulations. All future
dividends will be kept under constant review to ensure the
Company's liquid resources will be sufficient to cover any working
capital requirements.
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 2023 . In addition to the matters
described above, in arriving at their conclusion the Directors have
also considered:
-- The current cash balance at 6 June 2022 of GBP10.3 million;
-- The nature and timing of the Company's income and expenses; and
-- That the Investment Manager and Administrator continue to
successfully invoke their business continuity plans to help ensure
the safety and well-being of their staff thereby retaining the
ability to maintain the Company's business operations.
The Directors have satisfied themselves that the Group has
adequate resources to continue in operational existence for the
period to 30 June 2023. 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 note18.
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. 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. As at 31 March
2022 total bad debt provisions of GBP0.9m had been recognised
against rental debtors of c.GBP3.8m net of VAT. In addition to bad
debt provisions recognised relating to rent recognised during the
period, an additional judgement has been made relating to rent
demanded at the end of March relating to the subsequent quarter
from April and to June.
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.
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 a
term of no more than three months.
Financial liabilities
Non-derivative financial instruments 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.
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 due to Covid 19 and the Company has
undertaken a detailed analysis over the recoverability of expected
rents. Rents received in advance have been closely monitored and
any rents deemed irrecoverable discussed by management. Note 19
provides further details on the measurement of the loss allowance
and amount recognised at 31 March 2022.
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 expense 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. 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 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
information is provided on a quarterly basis.
2. Material agreements
Schroder Real Estate Investment Management Limited 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 fee is payable monthly in
arrears at one twelfth of the aggregate of 0.9% of the NAV of the
Company. 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.
With effect from 1 July 2021 a new fee agreement was agreed and
implemented between the Board and the Investment Manager which
includes a blended (not cliff edge), tiered fee structure 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 GBP2,994,000 (2021: GBP2,906,000 ). At
the year end GBPNil (2021: GBP20,000 ) was outstanding. As noted in
the Report of the Directors, the terms of the Investment Management
Agreement have been revised with effect from 1 July 2021.
Northern Trust International Fund Administration Services
(Guernsey) Limited was the Administrator to the Company during the
period to 30 September 2021. The Administrator was entitled to an
annual fee equal to GBP120,000 of which no sum (31 March 2021:
GBP30,000) was outstanding at the year end.
With effect from 1 October 2021, Langham Hall (Guernsey) Limited
and Langham Hall UK Depositary LLP replaced Northern Trust and have
provided Administration, Designated Manager and Depositary services
to the Group respectively. Administration fees for the period 1
October 2021 to 31 March 2022 were GBP37,000.
With effect from 1 October 2021, Schroder Investment Management
Limited was appointed to provide company secretarial services to
the Company with an annual fee equal to GBP50,000. Company
secretarial fees for the period 1 October 2021 to 31 March 2022
were GBP25,000.
3. Other income
31/03/2022 31/03/2021
GBP000 GBP000
--------------------------------- ----------- -----------
Dilapidations and miscellaneous
income 558 205
558 205
--------------------------------- ----------- -----------
4. Property operating expenses
31/03/2022 31/03/2021
GBP000 GBP000
----------------------------------------- ----------- -----------
Agents' fees 124 122
Repairs and maintenance 180 92
Advertising 78 33
Rates - vacant 323 400
Service charge, insurance and utilities
on vacant units 1,269 1,445
Ground rent 95 109
Bad debt provisions and (write-backs)/
write offs (150) 837
1,919 3,038
----------------------------------------- ----------- -----------
5. Auditor's remuneration
The total expected audit fees are GBP190,000 for the financial
year ended 31 March 2022 (2021: GBP150,000) which include GBP20,000
(2021: GBP17,500) for a half year interim review of the financial
statements.
6. Other expenses
31/03/2022 31/03/2021
GBP000 GBP000
------------------- ----------- -----------
Professional fees 356 248
Other expenses 66 30
422 278
------------------- ----------- -----------
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 GBP156,927 (2021: GBP150,000), as set out
in the Remuneration Report on pages 54 and 55 .
7. Taxation
31/03/2022 31/03/2021
GBP000 GBP000
Tax expense in the year - -
------------------------------------------- ----------- -----------
Reconciliation of effective tax rate
Profit before tax 89,368 4,542
-------------------------------------------- ----------- -----------
Effect of:
Tax using the UK corporation tax rate
of 19% 16,980 863
Revaluation (gain)/loss not taxable (12,642) 1,574
Share of profit of associates and joint
ventures not taxable (1,273) (682)
Profit on disposal of investment property
not taxable (601) (23)
UK REIT exemption (2,464) (1,732)
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 profit for the year of GBP89,368,000 (2021: profit of
GBP4,542,000) and the weighted average number of Ordinary Shares in
issue during the year of 491,085,850 (2021: 508,699,880).
9. Dividends paid
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
---------------------------------- --------------------- ------------ ------------
In respect of Ordinary Rate 31/03/2021
shares (pence) GBP000
---------------------------------- -------------------------- -------- -----------
Q/e 30 June 2020 (dividend paid
18 August 2020) 518.51 million 0.386 2,002
Q/e 30 September 2020 (dividend paid
11 December 2020) 503.30 million 0.575 2,894
Q/e 31 December 2020 (dividend paid 12
March 2021) 495.00 million 0.625 3,093
1.586 7,989
---------------------------------- -------------------------- -------- -----------
A dividend for the quarter ended 31 March 2022 of 0.795 pence
per share was approved and will be paid on the 30 June 2022.
10. Investment property
Leasehold Freehold Total
--------------------------------------
GBP000 GBP000 GBP000
-------------------------------------- ---------- --------- --------
Fair value as at 31 March 2020 36,818 284,564 321,382
-------------------------------------- ---------- --------- --------
Additions 8,856 40 8,896
Acquisitions - 36,500 36,500
Disposal of asset held at fair value (4,051) (2,237) (6,288)
Fair value leasehold movement (428) - (428)
Net unrealised valuation loss on
investment property (4,819) (3,467) (8,286)
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
-------------------------------------- ---------- --------- --------
The balance above includes :
Leasehold Freehold Total
---------------------------------------
GBP000 GBP000 GBP000
--------------------------------------- --------- ---------- ---------
Investment property 34,388 315,400 349,788
Fair value leasehold adjustment 1,988 - 1,988
Fair value as at 31 March 2021 36,376 315,400 351,776
--------------------------------------- --------- ---------- ---------
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
--------------------------------- ---------- --------- --------
The fair value of investment properties, as determined by the
valuers, totals GBP440,100,000 (March 2021: GBP359,375,000). In
addition to this, GBP8,602,000 (2021: GBP9,512,000 ) relating to
lease incentives is included within trade and other
receivables.
The fair value of investment property has been determined by
Knight Frank LLP, 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").
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.
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 2022
31 March 2022 Industrial Retail Office Other Total
(1) (incl.
retail
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 - GBP1.00 GBP0 - GBP14.00
rent per sq Weighted GBP14.00 GBP32.85 GBP29.10 -GBP13.00 GBP4.93
ft per annum average GBP4.93 GBP12.77 GBP16.49
------------------ ----------------- ------------- ------------ ------------------ ------------ ----------------
Gross ERV per Range GBP2.50 GBP7.40 GBP10.00-GBP27.50 GBP2.10 GBP2.10
sq ft per annum Weighted - GBP14.00 - GBP29.83 GBP17.80 -GBP13.00 - GBP29.83
average 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 7.25% 4.34% 6.12% 7.56% 7.25% 4.34%
average
------------------ ----------------- ------------- ------------ ------------------ ------------ ----------------
Equivalent Range 4.20%-7.76% 4.99%-9.97% 5.79%-9.36% 4.75%-9.21% 4.20%-7.76%
yield Weighted 5.17% 6.37% 7.50% 5.17%
average
------------------ ----------------- ------------- ------------ ------------------ ------------ ----------------
Notes:
(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 2021
31 March 2021 Industrial Retail Office Other Total
(1) (incl.
retail
warehouse)
-------------------- ----------- ------------- ------------- ------------------ --------------- ----------------
Fair value (GBP000) 170,400 87,050 83,350 16,500 357,300
--------------------------------- ------------- ------------- ------------------ --------------- ----------------
Area ('000 sq
ft) 1,963 506 414 177 3,060
--------------------------------- ------------- ------------- ------------------ --------------- ----------------
Net passing Range GBP4.20 GBP0 - GBP0 - GBP0 -GBP13.00 GBP0 - GBP32.85
rent per sq Weighted - GBP8.36 GBP32.85 GBP29.10 GBP6.95 GBP7.55
ft per annum average GBP5.16 GBP11.46 GBP16.46
-------------------- ----------- ------------- ------------- ------------------ --------------- ----------------
Gross ERV per Range GBP3.50 GBP7.40 GBP12.00-GBP24.00 GBP2.10 GBP2.10
sq ft per annum Weighted - GBP13.00 - GBP32.85 GBP17.59 -GBP13.00 - GBP32.85
average GBP5.70 GBP13.40 GBP7.98 GBP8.40
-------------------- ----------- ------------- ------------- ------------------ --------------- ----------------
Net initial Range 4.40% - 2.72% -9.45% 5.77%-11.00% 4.75%-9.27% 2.72% -
yield (1) Weighted 7.02% 5.57% 6.24% 7.47% 11.00% 6.25%
average
-------------------- ----------- ------------- ------------- ------------------ --------------- ----------------
Equivalent yield Range 5.10% - 5.80%-10.04% 5.72%-9.25% 4.75% -8.96% 4.75%-10.04%
7.41% 6.16% 7.38% 7.74% 6.65%
Weighted 7.25%
average
-------------------------------- ------------- ------------- ------------------ --------------- ----------------
Notes: (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:
Unobservable Impact Impact
input on on
fair fair
value value
measurement measurement
of of
significant significant
increase decrease
in in
input 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 2022 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- ----------- --------- --------- --------- ------------
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
--------------------------------- ----------- --------- --------- --------- ------------
Estimated movement in fair Industrial Retail Office Other All sectors
value of investment properties GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
at 31 March 2021
--------------------------------- ----------- --------- --------- --------- ------------
Increase in ERV by 5% 8,119 2,536 3,822 706 15,183
--------------------------------- ----------- --------- --------- --------- ------------
Decrease in ERV by 5% (7,955) (3,497) (3,809) (501) (15,762)
--------------------------------- ----------- --------- --------- --------- ------------
Increase in net initial yield
by 0.25% (7,320) (3,355) (2,763) (569) (14,007)
--------------------------------- ----------- --------- --------- --------- ------------
Decrease in net initial yield
by 0.25% 8,008 3,635 2,954 611 15,208
--------------------------------- ----------- --------- --------- --------- ------------
11. Investment in joint ventures
GBP000
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
---------------------------------------------------- -------
Summarised joint venture financial
information not adjusted for the Group's 31/03/2022 31/03/2021
share - City Tower Unit Trust GBP000 GBP000
------------------------------------------- ----------- -----------
Investment properties 163,450 160,700
Other assets 4,489 1,494
Total liabilities(1) (3,120) (3,240)
Revenues for the year 9,369 8,271
Total comprehensive rental income 4,219 4,769
Net asset value attributable to the
Group 41,204 39,739
Total comprehensive income attributable
to the Group 1,083 1,266
-------------------------------------------- ----------- -----------
(1) Liabilities are non-recourse to the Group.
Summarised joint venture financial
information not adjusted for the Group's 31/03/2022 31/03/2021
share - Store Street Unit Trust GBP000 GBP000
-------------------------------------------- ----------- -----------
Investment properties 85,000 78,725
Other assets 691 241
Total liabilities(1) (699) (203)
Revenues for the year 3,728 2,922
Total comprehensive rental income 3,291 2,395
Net asset value attributable to Group 42,496 39,381
Total comprehensive income attributable
to the Group 1,657 1,186
--------------------------------------------- ----------- -----------
(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
31/03/2022 31/03/2021
GBP000 GBP000
------------------------------- ----------- -----------
Rent receivable 3,608 4,094
Other debtors and prepayments 12,561 12,934
16,169 17,028
------------------------------- ----------- -----------
Other debtors and prepayments includes GBP8,602,000 (2021:
GBP9,512,000) in respect of lease incentives.
13. Cash and cash equivalents
As at 31 March 2022 the Group held GBP11.6 million (2021:
GBP12.2 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 (2021:
565,664,749) of which 74,584,448 Ordinary shares are held in
treasury (2021: 74,246,108). The total number of voting rights of
the Company was 491,080,301 (2021: 491,418,641) as at the financial
year end.
Treasury capital
74,584,448 (2021: 74,246,108) Ordinary Shares, which represent
13.2% (2021: 13.1%) 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.
31/03/2022 31/03/2021
GBP000 GBP000
------------------------- ----------- -----------
Non-current liabilities
Loan facility 162,252 154,085
Unamortised arrangement
fees (461) (715)
---------------------------
161,791 153,370
------------------------- ----------- -----------
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 in to 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 2022 Interest Payment Date, the Canada Life
interest cover ratio was 650% (2021: 562%) against
a covenant of 185%; the forecast interest cover ratio was 487%
(2021: 423%) against a covenant of 185%; and
the Loan to Value ratio was 40.1% (2021: 47.4%) 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 2022 contained properties valued at GBP322.9 million (2021:
GBP273.6 million). Various restraints apply during the term of the
loan although the facility has been designed to provide significant
operational flexibility.
At the financial year end the Group also had in place a GBP52.5m
revolving credit facility ('RCF') with the Royal Bank of Scotland
with GBP32.7m drawn down (2021: GBP24.5 million). The facility
carries an interest rate of a 1.60% margin plus three-month SONIA
rate with a 0.64% non-utilisation fee. An interest rate cap for
GBP32.5 million of the loan has been entered into and this comes in
to effect if the three-month SONIA rate reaches 1.5%. As at the
reporting date, three-month SONIA rates have not reached 1.5%.
As at the April 2022 Interest Payment Date, the RBS interest
cover ratio was 556% (2021: 1,151%) against a covenant of 185%; the
forecast interest cover ratio was 538% (2021: 864%) against a
covenant of 250%; and the Loan to Value ratio was 24.0% (2021:
19.5%) against a covenant of 60%.
The RBS facility has a first charge security over certain
property assets which at 31 March 2022 contained properties valued
at GBP136.5 million (2021: GBP125.9 million).
On 6 June 2022 the Group successfully completed a refinancing of
its facility with RBS 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.
A reconciliation of financing movements for the year is
presented below split in to cash and non-cash items:
31/03/2022
GBP000
------------------------------ -----------
Loan balance brought forward 153,370
Drawdown on RBS RCF (cash) 21,200
Repayment of RBC RCF (cash) (13,000)
Amortised cost adjustment 221
------------------------------- -----------
Loan balance carried forward 161,791
------------------------------- -----------
16. Trade and other payables
31/03/2022 31/03/2021
GBP000 GBP000
----------------------------------- ----------- -----------
Deferred income 4,123 3,701*
Rental deposits 1,744 1,448
Interest payable 840 780
Other trade payables and accruals 2,288 1,968
------------------------------------ ----------- -----------
8,995 7,897
----------------------------------- ----------- -----------
* This balance includes a bad debt adjustment relating to rent
demanded at the end of March for the April to June quarter of
GBP354k.
17. NAV per Ordinary Share and share buyback
Between the 1 April 2021 to 12 April 2021 the Company purchased
a further sum of 338,340 shares for a sum of GBP0.14m at an average
price of 40 pence per share.
As a consequence of the buyback, the number of ordinary shares
in issue fell from 491,418,641 to 491,080,301 during the reporting
period.
The NAV per Ordinary Share is based on the net assets of
GBP372,183,000 (2021: GBP296,844,000) and 491,080,301 (2021:
491,418,641) Ordinary Shares in issue 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, 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 14 to 15.
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:
31/03/2022 31/03/2021
Carrying amount Carrying amount
GBP000 GBP000
--------------------------- ----------------- -----------------
Office 445 545
Industrial 2,080 1,916
Retail, leisure and other 1,980 3,100
--------------------------- ----------------- -----------------
4,505* 5,561*
--------------------------- ----------------- -----------------
* Rental debtors gross of VAT and excluding bad debt
provisions.
Rent receivables which are past their due date were:
31/03/2022 31/03/2021
Carrying amount Carrying amount
GBP000 GBP000
-------------- ----------------- -----------------
0-30 days 2,274 2,952
31-60 days 118 77
61-90 days 193 201
91 days plus 1,920 2,331
-------------- ----------------- -----------------
4,505 * 5,561*
-------------- ----------------- -----------------
* Rental debtors gross of VAT as per note 12. The comparative
figure of GBP5.561m includes a bad debt provision of GBP1.113m and
a deferred income adjustment of GBP354k.
Management has considered rental debtors on a quarterly basis
and made provisions where it has been deemed that these amounts are
unrecoverable. As at 31 March 2022 total provisions of 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 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 2022 Carrying Expected 6 mths 6 mths 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
----------------------------- --------- ------------ --------- --------- -------- ---------
As at 31 March 2021 Carrying Expected 6 mths 6 mths 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 153,370 204,800 1,813 5,438 35,377* 162,173
Leasehold liability 1,988 10,717 46 139 278 10,254
Trade and other payables 3,416 3,416 1,968 - - 1,448
Total financial liabilities 158,774 218,933 3,827 5,577 35,655 173,875
----------------------------- --------- ------------ --------- --------- -------- ---------
* Assumes that the GBP32.7 million facility is repaid in
2023.
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 2022 the fair value of the
Group's GBP129.6 million loan with Canada Life was GBP125.8 million
(2021: GBP128.4 million).
The RBS revolving credit facility is a low margin flexible
source of funding with a margin of 1.6% 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 GBP37.2m 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 GBP541,254
based on the cash balance as at 31 March 2022.
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 (2021: 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 2022, the fair
value of the Group's GBP129.6 million loan with Canada Life was
GBP125.8 million (2021: GBP128.4 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:
31/03/2022 31/03/2021
GBP000 GBP000
----------------------------- ----------- -----------
Debt
Fixed-rate loan facility 129,585 129,585
Floating rate loan facility
* 32,667 24,500
162,252 154,085
Equity
Called-up share capital 1 82,987 183,123
Reserves 1 89,196 113,721
------------------------------ ----------- -----------
3 72,183 296,844
----------------------------- ----------- -----------
Total debt and equity 534,435 450,929
------------------------------ ----------- -----------
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 2022 was GBP52.5m (2021: GBP52.5m).
19. Operating leases
The Group leases out its investment property under operating
leases. At 31 March 2022 the future minimum lease receipts under
non-cancellable leases are as follows:
31/03/2022 31/03/2021
GBP000 GBP000
---------------------------- ----------- -----------
Less than one year 22,435 24,623
Between one and five years 51,513 69,917
More than five years 39,531 58,123
---------------------------- ----------- -----------
113,479 152,663
---------------------------- ----------- -----------
The total above comprises the total contracted rent receivable
as at 31 March 2022.
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 at 31 March 2022:
Undertaking Category Country of incorporation Ultimate ownership
------------------------------- --------------- -------------------------- -------------------
SREIT No.2 Limited Subsidiary Guernsey 100%
------------------------------- --------------- -------------------------- -------------------
SREIT Holding (No.2) Limited Subsidiary Guernsey 100%
------------------------------- --------------- -------------------------- -------------------
SREIT Holding Company Limited Subsidiary Guernsey 100%
------------------------------- --------------- -------------------------- -------------------
SREIT Property Limited Subsidiary Guernsey 100%
------------------------------- --------------- -------------------------- -------------------
SREIT (Portergate) Limited Subsidiary Guernsey 100%
------------------------------- --------------- -------------------------- -------------------
SREIT (Uxbridge) Limited Subsidiary Guernsey 100%
------------------------------- --------------- -------------------------- -------------------
SREIT (City Tower) Limited Subsidiary Guernsey 100%
------------------------------- --------------- -------------------------- -------------------
SREIT (Store) Limited Subsidiary Guernsey 100%
------------------------------- --------------- -------------------------- -------------------
SREIT (Bedford) Limited Subsidiary Guernsey 100%
------------------------------- --------------- -------------------------- -------------------
City Tower Unit Trust Joint Venture Jersey 25%
------------------------------- --------------- -------------------------- -------------------
Store Unit Trust Joint Venture Jersey 50%
------------------------------- --------------- -------------------------- -------------------
The registered address for all wholly-owned entities is the same
as that of the parent company and can be found on page 139.
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 2022 the Group had capital commitments of GBP12.3
million (2021: GBP3.2 million).
23. Post balance sheet events
On 25 April 2022 a further GBP13.6m was drawn down on the
Group's revolving credit facility with RBS to support the
acquisition of St. Ann's, Manchester. The total RBS loan balance
drawn as at 6 June 2022 stood at GBP46.3m.
On 27 May 2022 the Group completed the acquisition of St. Ann's
House, Manchester for a headline purchase price of GBP14.675m.
On 6 June 2022 the Group completed a refinancing of its
revolving credit facility with RBS 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.
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
31/03/2022 31/03/2021
------------------------------------- ------------------ ------------------
EPRA earnings GBP 15,707,000 GBP 11,572
,000
EPRA earnings per share 3.2 pps 2.3 pps
------------------------------------- ------------------ ------------------
EPRA Net Reinstatement Value GBP407,317,000 GBP326,278,000
EPRA Net Reinstatement Value per
share 82.9p 66.4p
-------------------------------------- ------------------ ------------------
EPRA Net Tangible Assets GBP 372,183,000 GBP 296,844,000
EPRA Net Tangible Assets per share 75.8 p 60.4 p
-------------------------------------- ------------------ ------------------
EPRA Net Disposal Value GBP 375,933,000 GBP 297,806,000
EPRA Net Disposal Value per share 76.6p 60.6 p
-------------------------------------- ------------------ ------------------
EPRA Net Initial Yield 5.0% 5.4%
EPRA "topped-up" Net Initial Yield 5.1% 5.7%
-------------------------------------- ------------------ ------------------
EPRA vacancy rate 7.0% 4.9%
-------------------------------------- ------------------ ------------------
EPRA cost ratios - including direct
vacancy costs 30.5% 37.4%
EPRA cost ratios - excluding direct
vacancy costs 24.7% 30.0%
-------------------------------------- ------------------ ------------------
a. EPRA earnings and EPS
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.
31/03/2022 31/03/2021
GBP000 GBP000
-------------------------------- ------ ------------------------------------- ------------
Earnings per IFRS income
statement 89,368 4,542
Adjustments to calculate EPRA Earnings:
Profit on disposal of investment
property (3,165) (121)
Net valuation (gain)/loss on investment
property (66,536) 8,286
Share of valuation (gain)/loss in associates
and joint ventures (3,960) (1,135)
EPRA earnings 15,707 11,572
------------------------------------ ------------------ --------------------- ------------
Weighted average number
of Ordinary Shares 491,085,850 508,699,880
------------------------------------ ----------------------- ---------------- ------------
IFRS earnings per share
(pence) 18.2 0.9
------------------------------------ ----------------------- ---------------- ------------
EPRA earnings per share
(pence) 3.2 2.3
-------------------------------------------------------- --- ---------------- ------------
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.
31/03/2022 31/03/2021
GBP000 GBP000
---------------------------------------------------- ----------- -----------
IFRS equity attributable to shareholders 372,183 296,844
Adjustment in respect of real estate transfer taxes
and costs 35,134 29,434
---------------------------------------------------- ----------- -----------
EPRA Net Reinstatement Value 407,317 326,278
---------------------------------------------------- ----------- -----------
Shares in issue at the end of the period 491,080,301 491,418,641
---------------------------------------------------- ----------- -----------
EPRA NRV per share (pence per share) 82.9p 66.4p
---------------------------------------------------- ----------- -----------
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.
31/03/2022 31/03/2021
GBP000 GBP000
------------------------------- ------------ ------------
IFRS equity attributable to
shareholders 372,183 296,844
EPRA Net Tangible Assets 372,183 296,844
Shares in issue at the end of
the year 491,080,301 491,418,641
-------------------------------- ------------ ------------
IFRS NAV per share (pence) 75.8p 59.7p
-------------------------------- ------------ ------------
EPRA Net Tangible Assets per
share (pence) 75.8p 59.7p
-------------------------------- ------------ ------------
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.
31/03/2022 31/03/2021
GBP000 GBP000
-------------------------------------------- ------------ ------------
IFRS equity attributable to shareholders 372,183 296,844
Adjustments to calculate EPRA Net Disposal
Value:
The fair value of fixed-interest rate debt 3,750 962
EPRA Net Disposal Value 375,933 297,806
--------------------------------------------- ------------ ------------
Shares in issue at the end of the year 491,080,301 491,418,641
--------------------------------------------- ------------ ------------
EPRA Net Disposal Value per share (pence) 76.6p 60.6p
--------------------------------------------- ------------ ------------
e. EPRA Net Initial Yield
Annualised rental income based on the cash rents passing at the
Balance Sheet date, less non-recoverable property operating
expenses, divided by the grossed-up market value of the complete
property portfolio. The EPRA "topped up" NIY is the EPRA NIY
adjusted for unexpired lease incentives.
31/03/2022 31/03/2021
GBP000 GBP000
--------------------------------------- ----------- -----------
Investment property - wholly-owned 440,100 359,300
Investment property - share of joint
ventures and funds 83,363 79,538
---------------------------------------- ----------- -----------
Complete property portfolio 523,463 438,838
Allowance for estimated purchasers'
costs 35,134 25,453
---------------------------------------- ----------- -----------
Gross up completed property portfolio
valuation 558,597 464,291
Annualised cash passing rental income 30,085 28,327
Property outgoings (1,919) (3,038)
---------------------------------------- ----------- -----------
Annualised net rents 28,166 25,289
Notional rent expiration of rent free
periods(1) 340 1,165
---------------------------------------- ----------- -----------
Topped-up net annualised rent 28,506 26,451
---------------------------------------- ----------- -----------
EPRA NIY 5.0% 5.4%
---------------------------------------- ----------- -----------
EPRA "topped-up" NIY 5.1% 5.7%
---------------------------------------- ----------- -----------
(1) The period over which rent free periods expire is one year
for 2022 (2021: 2 years).
f. EPRA cost ratios
Administrative and operating costs (including and excluding
costs of direct vacancy) divided by gross rental income.
31/03/2022 31/03/2021
GBP000 GBP000
-------------------------------------------------- ----------- -----------
Administrative/operating expense line per IFRS
income statement 7,311 8,340
Share of Joint Venture expenses 1,236 1,077
Less: Ground rent costs (95) (109)
--------------------------------------------------- ----------- -----------
Costs (including direct vacancy costs) 8,452 9,308
Direct vacancy costs (1,592) (1,845)
--------------------------------------------------- ----------- -----------
Costs (excluding direct vacancy costs) 6,860 7,463
--------------------------------------------------- ----------- -----------
Gross rental income less ground rent costs
- per IFRS 23,764 21,349
Add share of Joint Ventures (Gross Rental Income
less ground rent costs) 3,976 3,529
--------------------------------------------------- ----------- -----------
Gross rental income 27,740 24,878
--------------------------------------------------- ----------- -----------
EPRA cost ratio (including direct vacancy costs) 30.5% 37.4%
--------------------------------------------------- ----------- -----------
EPRA cost ratio (excluding direct vacancy costs) 24.7% 30.0%
--------------------------------------------------- ----------- -----------
g. EPRA vacancy rate
Estimated market rental value (ERV) of vacant space divided by
the ERV of the whole portfolio.
31/03/2022 31/03/2021
GBP000 GBP000
----------------------------------------------- ----------- -----------
Estimated rental value of vacant space 2,356 1,526
Estimated rental value of the whole portfolio 33,800 31,200
------------------------------------------------ ----------- -----------
EPRA vacancy rate 7.0% 4.9%
------------------------------------------------ ----------- -----------
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 103) 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 103 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 80) 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 80).
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
2021
Remuneration disclosures
These disclosures form part of the non-audited section of this
Annual Report and Consolidated Financial Statements and should be
read in conjunction with the Schroders plc Remuneration Report on
pages 77 to 99 of the 2021 Annual Report & Accounts (available
on the Group's website -
https://www.schroders.com/en/investor-relations/results-and-reports/annual-report-and-accounts-2021/),
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, for reviewing its general principles at
least annually, for overseeing its implementation and for ensuring
compliance with relevant local legislation and regulation. During
2021 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 a range of more
minor recommendations, principally improvements to process and
policy documentation.
The total spend on remuneration is determined by reference to a
total compensation ratio, measuring total remuneration expense
against net income. This ensures that the interests of employees
are aligned 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 2021.
-- 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.
-- 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 74 AIF MRTs of SREIM in respect of
the financial year ended 31 December 2021 is GBP69.07 million, of
which GBP47.92 million was paid to senior management, GBP17.16
million was paid to MRTs deemed to be taking risk on behalf of
SREIM or the AIF funds that it manages and GBP3.99 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 2021 as shown below (the Company calculates and
externally reports its leverage one quarter in arrears):
Maximum limit set Actual as at 31.12.2021
Gross leverage 195 150
------------------ ------------------------
Commitment leverage 220 153
------------------ ------------------------
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.
Sustainability Performance Measures (Environmental)
(unaudited)
The Company reports sustainability information in accordance
with EPRA Best Practice Recommendations on Sustainability Reporting
(sBPR) 2017, 3rd Edition for the 12 months 1st January 2021 - 31st
December 2021, presented with comparison against 2020. 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 2021, 46 assets were held by the Company during the reporting
year (including one sale), of which four assets were purchased
towards the end of the reporting period and so have not been
captured in the reported data. In total, 25 assets were within the
operational control reporting boundary of the Company during the
reporting year (i.e. 'managed'). In 2020, there were also 25 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.
SREIT 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 -
Schroders to update). 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 ending 31 December
2021. The full Assurance Statement is available upon request.
Total energy consumption (Elec-Abs; DH&C-Abs; Fuels-Abs)
The table below sets out total landlord obtained energy
consumption from the Company's managed portfolio by sector:
Total electricity Total fuel Total district Absolute Energy
consumption consumption heating / cooling Intensities
(kWh) (kWh) consumption (kWh/m2)
(kWh)
Sector 2020 2021 2020 2021 2020 2021 2020 2021 % Change
---------- ---------- ---------- ---------- ---------- --------- -------- -------- ---------
Industrial:
Distribution
Warehouse 307,035 376,607 227,658 567,887 - - 0.6 0.6 -5%
---------- ---------- ---------- ---------- ---------- --------- -------- -------- ---------
Coverage 100% 100% 100% 100% 100% - 100% 100%
---------- ---------- ---------- ---------- ---------- --------- -------- -------- ---------
Office:
Corporate:
Low-Rise
Office 1,702,170 1,506,711 1,453,191 1,111,308 - - 127.68 112.36 -12%
---------- ---------- ---------- ---------- ---------- --------- -------- -------- ---------
Coverage 100% 100% 100% 100% - - 100% 100%
---------- ---------- ---------- ---------- ---------- --------- -------- -------- ---------
Mixed
use:
Office/Retail 279,179 287,802 - - - - 98 101 3%
---------- ---------- ---------- ---------- ---------- --------- -------- -------- ---------
Coverage 100% 100% - - - - - -
---------- ---------- ---------- ---------- ---------- --------- -------- -------- ---------
Office:
Corporate:
Mid-Rise
Office 279,792 277,019 374,656 496,144 - - 136 160 18%
---------- ---------- ---------- ---------- ---------- --------- -------- -------- ---------
Coverage 100% 100% 100% 100% - - 100% 100%
---------- ---------- ---------- ---------- ---------- --------- -------- -------- ---------
Retail:
High Street 21,551 26,707 - - - - 11 14 24%
---------- ---------- ---------- ---------- ---------- --------- -------- -------- ---------
Coverage 100% 100% - - - - - -
---------- ---------- ---------- ---------- ---------- --------- -------- -------- ---------
Retail:
Retail
Centers:
Warehouse 63,987 55,661 23,955 72,932 - - 3 2 -27%
---------- ---------- ---------- ---------- ---------- --------- -------- -------- ---------
Coverage 100% 100% 100% 100% - - 100% 100%
---------- ---------- ---------- ---------- ---------- --------- -------- -------- ---------
Lodging,
Leisure
& Recreation:
Other 218,056 239,163 - - - - 81 69 -14%
---------- ---------- ---------- ---------- ---------- --------- -------- -------- ---------
Coverage 100% 100% - - - - - -
---------- ---------- ---------- ---------- ---------- --------- -------- -------- ---------
Mixed
use: Other 1,839,705 1,845,874 - - - - 97 99 1%
---------- ---------- ---------- ---------- ---------- --------- -------- -------- ---------
Coverage 100% 100% - - - - - -
---------- ---------- ---------- ---------- ---------- --------- -------- -------- ---------
Total 4,711,477 4,615,543 2,079,460 2,248,271 - - -
---------- ---------- ---------- ---------- ---------- --------- -------- -------- ---------
Coverage 100% 100% 100% 100% - -
---------- ---------- ---------- ---------- ---------- --------- -------- -------- ---------
Total
electricity,
fuels
and district
heating 6,790,937 6,863,815
---------- ----------
Coverage 100% 100%
---------- ----------
Renewable
electricity
% 93% 92%
---------- ----------
- Consumption data relates to the managed portfolio only:
o Industrial park: 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.
- Energy procured directly by tenants is not reported.
- Percentage of data estimated pro-rata across 2020 and 2021: 0%.
- Renewable electricity (%) is calculated according to the
attributes of energy supply contracts as at 31 December 2021 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 -
Common areas energy consumption (kWh) divided by common parts area
(CPA m2)
o Retail Centres: Warehouse and Industrial: Distribution
Warehouse - Divided by the External Area.
o All other sectors - Common areas, shared service and/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; DH&C-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.
Like-for-like Like-for-like Like-for-like Like-for-like
electricity consumption fuel consumption district heating energy intensity
( kWh) (kWh) consumption (kWh /m2)
(kWh)
% % %
Sector 2020 2021 Change 2020 2021 Change 2020 2021 Change 2020 2021 % Change
---------- ---------- -------- ---------- ---------- -------- ----- ----- -------- ----- ----- ---------
Industrial:
Distribution
Warehouse 69,989 66,564 -5% - - - - - 0.6 0.6 -5%
---------- ---------- -------- ---------- ---------- -------- ----- ----- -------- ----- ----- ---------
Coverage 100% 100% - - - - - -
---------- ---------- -------- ---------- ---------- -------- ----- ----- -------- ----- ----- ---------
Office:
Corporate:
Low-Rise
Office 1,666,252 1,497,045 -10% 1,215,180 1,105,816 -9% - - - 128 112 -12%
---------- ---------- -------- ---------- ---------- -------- ----- ----- -------- ----- ----- ---------
Coverage 100% 100% 100% 100% - - - -
---------- ---------- -------- ---------- ---------- -------- ----- ----- -------- ----- ----- ---------
Mixed use:
Office/Retail 279,179 287,802 3% - - - - - - 98 101 3%
---------- ---------- -------- ---------- ---------- -------- ----- ----- -------- ----- ----- ---------
Coverage 100% 100% - - - - 100% 100%
---------- ---------- -------- ---------- ---------- -------- ----- ----- -------- ----- ----- ---------
Office:
Corporate:
Mid-Rise
Office 279,792 277,019 -1% 374,656 496,144 32% - - - 136 160 18%
---------- ---------- -------- ---------- ---------- -------- ----- ----- -------- ----- ----- ---------
Coverage 100% 100% 100% 100% - - 100% 100%
---------- ---------- -------- ---------- ---------- -------- ----- ----- -------- ----- ----- ---------
Retail: High
Street 21,551 26,707 24% - - - - - - 11 14 24%
---------- ---------- -------- ---------- ---------- -------- ----- ----- -------- ----- ----- ---------
Coverage 100% 100% - - - - 100% 100%
---------- ---------- -------- ---------- ---------- -------- ----- ----- -------- ----- ----- ---------
Retail: Retail
Centers:
Warehouse 62,920 55,661 -12% - - - - - - 3 2 -27%
---------- ---------- -------- ---------- ---------- -------- ----- ----- -------- ----- ----- ---------
Coverage 100% 100% - - - - 100% 100%
---------- ---------- -------- ---------- ---------- -------- ----- ----- -------- ----- ----- ---------
Lodging,
Leisure &
Recreation:
Other 218,056 239,163 10% - - - - - - 81 69 -14%
---------- ---------- -------- ---------- ---------- -------- ----- ----- -------- ----- ----- ---------
Coverage 100% 100% - - - - 100% 100%
---------- ---------- -------- ---------- ---------- -------- ----- ----- -------- ----- ----- ---------
Mixed use:
Other 1,838,375 1,838,158 0% - - - - - - 97 99 1%
---------- ---------- -------- ---------- ---------- -------- ----- ----- -------- ----- ----- ---------
Coverage 100% 100% - - - - - -
---------- ---------- -------- ---------- ---------- -------- ----- ----- -------- ----- ----- ---------
Total 4,436,115 4,288,118 -3% 1,589,836 1,601,960 1% - - 0%
---------- ---------- -------- ---------- ---------- -------- ----- ----- -------- ----- ----- ---------
Coverage 100% 100% 100% 100% - -
---------- ---------- -------- ---------- ---------- -------- ----- ----- -------- ----- ----- ---------
Total
electricity,
fuels and
district
heating 6,025,951 5,890,078 -2%
---------- ---------- --------
Coverage 100% 100%
---------- ----------
Renewable
electricity
% 98% 99%
---------- ----------
Coverage 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.
- Industrial park: whole building; outdoor areas; tenant space, where procured by the landlord.
- Lodging, leisure & recreation: common parts; outdoor
areas; tenant space, where procured by the landlord.
- Mixed-use office/retail: whole building
- Mixed-use other: whole building; common parts; tenant space, where procured by the landlord.
- Office low-rise: whole building; common parts; shared
services; outdoor areas; tenant space, where procured by the
landlord.
- Office mid-rise: shared services, tenant space, where procured by the landlord.
- Retail high street: common parts, tenant space, where procured by the landlord.
- Retail warehouse: outdoor areas; tenant space, where
Percentage of data estimated pro-rata across 2020 and 2021: 0%.
- Renewable electricity (%) is calculated according to the
attributes of energy supply contracts as at 31 December 2021 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
: Common areas energy consumption (kWh) divided by common parts
area (CPA m2)
o Retail: Retail Centers: Warehouse and Industrial: Distribution
Warehouse: Divided by the External Area.
o All other sectors: Common areas, shared service and/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:
Energy variances throughout the reporting period can be
attributed to a multitude of factors including equipment upgrades
and varying degrees of occupancy related to Covid-19.
The like-for-like variances for Retail: High Street shows an
increase of electricity which can be explained by the asset
Ilkeston (the only asset within this sector) having a newly
refurbished area and a cardboard baling machine.
The like-for-like variances for Office: Corporate: Mid-Rise
Office shows an increase in gas usage which has been attributed to
an increase in footfall following a relaxation of Covid-19
restriction measures compared to the previous reporting years.
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:
Absolute Absolute intensities Like for like Like for Like
emissions emissions (tCO(2) Intensity (kg CO(2)
(tCO(2) e) e /m(2) )
e)
Sector 2020 2021 2020 2021 % Change 2020 2021 % Change 2020 2021 % Change
------ ----- ------ ------ --------- ----- ----- --------- ------ ------ ---------
Industrial: Distribution Warehouse
Scope 1 42 104 0.2 0.1 -13% - - - 0.2 0.1 -13%
Scope 2 72 80 16 14 -13%
Scopes
1 & 2 114 184 16 14 -13%
Coverage 100% 100% 100% 100% 100% 100% 100% 100%
------
Office: Corporate: Low-Rise Office
Scope 1 267 203 28 34 22% 224 202 -9% 28 34 22%
Scope 2 397 320 388 318 -18%
Scopes
1 & 2 664 523 612 520 -15%
Coverage 100% 100% 100% 100% 100% 100% 100% 100%
------
Mixed use: Office/Retail
Scope 1 - - 23 22 -6% - - - 23 22 -6%
Scope 2 65 61 65 61 -6%
Scopes
1 & 2 65 61 65 61 -6%
Coverage 100% 100% 100% 100% 100% 100% 100% 100%
------
Office: Corporate: Mid-Rise Office
Scope 1 69 91 28 31 12% 69 91 32% 28 31 12%
Scope 2 65 59 65 59 -10%
Scopes
1 & 2 134 150 134 150 12%
Coverage 100% 100% 100% 100% 100% 100% 100% 100%
------
Retail: High Street
Scope 1 - - 3 3 13% - - - 3 3 13%
Scope 2 5 6 5 6 13%
Scopes
1 & 2 5 6 5 6 13%
Coverage 100% 100% 100% 100% 100% 100% 100% 100%
------
Retail: Retail Centers: Warehouse
Scope 1 4 13 1 0 -34% - - - 0.7 0.5 -34%
Scope 2 15 12 15 12 -19%
Scopes
1 & 2 19 25 15 12 -19%
Coverage 100% 100% 100% 100% 100% 100% 100% 100%
------
Lodging, Leisure & Recreation: Other
Scope 1 - - 19 15 -22% - - - 19 15 -22%
Scope 2 51 51 51 51 0%
Scopes
1 & 2 51 51 51 51 0%
Coverage 100% 100% 100% 100% 100% 100% 100% 100%
------
Mixed use: Other
Scope 1 - - 23 21 -8% - - - 23 21 -8%
Scope 2 429 392 429 390 -9%
Scopes
1 & 2 429 392 429 390 -9%
Coverage 100% 100% 100% 100% 100% 100% 100% 100%
------
Total
Scope 1 383 411 293 293 0%
Total
Scope 2 1,098 980 1,034 910 -12%
Total
Scope
1 & 2 1,481 1,391 1,327 1,203 -9%
Coverage 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 taken from UK
government's Greenhouse Gas Reporting Factors for Company Reporting
(2020 and 2021).
- Emissions data relates to the managed portfolio only:
o Industrial park: 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 2020 and 2021: 0% for electricity and gas.
- Intensity: Numerators / denominators are aligned at the sector level as follows:
o Lodging, Leisure & Recreation: Other, Retail: High Street
: Common areas energy consumption (kWh) divided by common parts
area (CPA m(2) )
o Retail: Retail centers: Warehouse and Industrial: Distribution
Warehouse: Divided by the External Area.
o All other sectors: Common areas, shared service and/or whole
building energy consumption (kWh) divided by gross internal
area(GIA m(2) )
- 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:
Changes in Scope 1 and 2 GHG emissions over the reporting period
can be in part explained by those factors contributing to reduced
energy consumption detailed above.
Furthermore, it could be concluded that, the 9% reduction in
Scope 1 and 2 GHG emissions compared to 2% reduction in energy
consumption is most likely due to decarbonisation of UK national
energy grid.
Water (Water-Abs; Water-LfL; Water-Int)
The table below sets out water consumption from the Company's
managed portfolio by sector.
Absolute Absolute intensities Like for Like Like for Like
Water consumption (m3) Water consumption Intensity (m(3)/m(2))
( m3) ( m3)
%
Sector 2020 2021 2020 2021 % Change 2020 2021 Change 2020 2021 % Change
--------- ------
Industrial:
Distribution
Warehouse - 4 1.24 0.00 - - - - - -
--------- ------
Coverage - 100% - - - - - -
--------- ------
Office:
Corporate:
Low-Rise
Office 8,996 7,657 0.25 0.26 3% 7,882 7,657 -3% 0.25 0.26 3%
--------- ------
Coverage 100% 100% 100% 100% 100% 100% 100% 100%
--------- ------
Mixed use:
Office/Retail - - 0.00 - - - - - - - -
--------- ------
Coverage - - - - - - - -
--------- ------
Office:
Corporate:
Mid-Rise
Office 141 42 0.00 0.00 - 141 42 -71% - - -
--------- ------
Coverage 100% 100% 100% 100% 100% 100% 100% 100%
--------- ------
Retail:
High Street 2,098 2,511 1.10 0.95 -14% 2,098 1,808 -14% 1.10 0.95 -14%
--------- ------
Coverage 100% 100% 100% 100% 100% 100% 100% 100%
--------- ------
Retail:
Retail Centers:
Warehouse 466 301 0.00 0.00 - - 301 - - - -
--------- ------
Coverage 100% 100% 100% 100% - 100% - -
--------- ------
Lodging,
Leisure
& Recreation:
Other 129 130 0.05 0.05 1% - - - 0.05 0.05 1%
--------- ------
Coverage 100% 100% 100% 100% 100% 100% 100% 100%
--------- ------
Mixed use:
Other 4,281 2,202 0.25 0.13 -48% 4,266 2,200 -48% 0.25 0.13 -48%
--------- ------
Coverage 100% 100% 100% 100% 100% 50% 100% 50%
--------- ------
Total 16,111 12,847 14,387 12,008 -17%
---------
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 managed portfolio only:
- Industrial park: tenant space, where procured by the landlord.
- Lodging, leisure & recreation: common parts.
- Mixed use other: whole building; common parts.
- Office low-rise: whole building; common parts; tenant space, where procured by the landlord.
- Office mid-rise: tenant space, where procured by the landlord.
- Retail high street: common parts; tenant space, where procured by the landlord.
- Retail warehouse: tenant space, where procured by the landlord.
- 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 2020 and 2021: 0%.
- Intensity: Numerators/denominators are aligned as follows:
o Office Corporate: Low-Rise Office and Mixed use: Other - Whole
building water consumption (m(3) ) divided by gross internal area
(GIA m(2) ).
o Retail: High Street and Lodging, Leisure & Recreation,
Other - Common Areas water consumption (m(3) ) divided by Common
Parts Area (CPA m(2) )
- 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:
Discussions with stakeholders have identified a multitude of
potential reasons for the observed changes in water consumption
over the reporting period. For example, occupancy rates continuing
to be impacted by the Covid-19 pandemic, and changes to the tenant
profile such as an anchor tenant moving out of an office asset.
Waste (Waste-Abs; Waste-LfL)
The table below sets out waste from the Company's managed
portfolio by disposal route and sector.
Absolute tonnes Like for like tonnes
2020 2021 2020 2021
Tonnes % Tonnes % Tonnes % Tonnes % % Change
Industrial:
Distribution
Warehouse Recycled 0 - 0 - 0 - 0 - -
Incineration
with energy
recovery 0 - 0 - 0 - 0 - -
Unknown 0 - 0 - 0 - 0 - -
Landfill 0 - 0 - 0 - 0 - -
Total 0 0 0 0 -
Coverage - - - -
Office:
Corporate:
Low-Rise
Office Recycled 52 63% 50 68% 51 64% 50 68% -2%
Incineration
with energy
recovery 31 37% 24 32% 29 36% 24 32% -17%
Unknown 0 0% 0 0% 0 0% 0 0% -
Landfill 0 0% 0 0% 0 0% 0 0% -
Total 83 74 80 74 -7%
Coverage 100% 100% 100% 100%
Mixed use:
Office/Retail Recycled 6 44% 2 39% 6 44% 2 39% -61%
Incineration
with energy
recovery 7 56% 4 61% 7 56% 4 61% -50%
Unknown 0 0% 0 0% 0 0% 0 0% -
Landfill 0 0% 0 0% 0 0% 0 0% -
Total 13 6 13 6 -55%
Coverage 100% 100% 100% 100%
Office:
Corporate:
Mid-Rise
Office Recycled 21 69% 16 70% 21 69% 16 70% -23%
Incineration
with energy
recovery 9 31% 7 30% 9 31% 7 30% -24%
Unknown 0 0% 0 0% 0 0% 0 0% -
Landfill 0 0% 0 0% 0 0% 0 0% -
Total 30 23 30 23 -24%
Coverage 100% 100% 100% 100%
Retail:
High Street Recycled 27 57% 8 45% 27 57% 8 45% -70%
Incineration
with energy
recovery 21 43% 10 55% 21 43% 10 55% -51%
Unknown 0 0% 0 0% 0 0% 0 0% -
Landfill 0 0% 0 0% 0 0% 0 0% -
Total 48 19 48 19 -62%
Coverage 100% 100% 100% 100%
Retail:
Retail Centers:
Warehouse Recycled 0 - 0 - 0 - 0 - -
Incineration
with energy
recovery 0 - 0 - 0 - 0 - -
Unknown 0 - 0 - 0 - 0 - -
Landfill 0 - 0 - 0 - 0 - -
Total 0 0 0 0 -
Coverage - - - -
Lodging,
Leisure
& Recreation:
Other Recycled 59 45% 121 53% 59 45% 121 53% 104%
Incineration
with energy
recovery 72 55% 106 47% 72 55% 106 47% 48%
Unknown 0 0% 0 0% 0 0% 0 0% -
Landfill 0 0% 0 0% 0 0% 0 0% -
Total 131 227 131 227 73%
Coverage 100% 100% 100% 100%
Mixed use:
Other Recycled 160 56% 128 55% 160 56% 128 55% -20%
Incineration
with energy
recovery 125 44% 105 45% 125 44% 105 45% -16%
Unknown 0 0% 0 0% 0 0% 0 0% -
Landfill 0 0% 0 0% 0 0% 0 0% -
Total 285 233 285 233 -18%
Coverage 100% 100% 100% 100%
Total Recycled 325 55% 326 56% 324 55% 326 56% 1%
Incineration
with energy
recovery 265 45% 255 44% 262 45% 255 44% -3%
Unknown 0 0% 0 0% 0 0% 0 0% -
Landfill 0 0% 0 0% 0 0% 0 0% -
Total 590 581 587 581 -1%
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 tonnage) relates to the proportion
of assets for which landlord obtained data has been reported
- Where appropriate (for relevant assets), tonnage data and
asset NLA/GIA has been adjusted to reflect the Company's share of
ownership.
Variance Commentary:
Due to Covid-19, the occupancy levels have fluctuated throughout
the year. In some circumstances, larger tenants have left the
building, resulting in decreases. However, occupancy has also
increased as lockdown restrictions has eased, therefore increasing
waste.
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:
Rating Portfolio by Floor Area
Office: Corporate: Low-Rise Office
(BREEAM In-Use: Good) 3.4%
Office: Corporate: Low-Rise Office
(BREEAM In-Use: Very Good) 1.0%
Mixed-use: Other (BREEAM In-Use:
Good) 2.4%
Mixed-use: Other (BREEAM In-Use:
Very good) 0.3%
Office: Corporate: Low-Rise Office
(BREEAM In-Use: Acceptable) 1.3%
Office: Corporate: Mid-Rise Office
(BREEAM In-Use: Good) 1.3%
Coverage 9.7%
- Green building certificate records for the Company are
provided as at 31 March 2022 by portfolio 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.
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.
Rating Portfolio by Floor Area
A+ 0%
A 1%
B 4%
C 36%
D 19%
E 8%
F 3%
G 1%
Exempt 0%
No EPC 28%
Total 100%
Coverage 100%
- Energy Performance Certificate (EPC) records for the Company
are provided for the portfolio as at 31 March 2022 by portfolio
floor area.
- Data provided includes the whole portfolio i.e. managed and non-managed assets.
- Where appropriate (for relevant assets), consumption data and
asset NLA/GIA has been adjusted to reflect the Company's share of
ownership.
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
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 12 months
to 31 December 2021 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 2021 Annual Report and Accounts
-- https://www.schroders.com/en/working-here/inclusion-and-diversity/
-- https://www.schroders.com/en/working-here/inclusion-and-diversity/gender-pay-gap-report-2020/
Employee gender diversity (Diversity-Emp)
As at 31 March 2022 the Company Board comprised four members: 1
(25% female); 3 (75% male).
For further information on Schroders PLC employee gender
diversity, covering more employee categories, please refer to
Schroders 2021 Annual Report and Accounts (page 43):
-- Schroders 2021 Annual Report and Accounts
Gender pay ratio (Diversity-Pay)
The remuneration of the Company Board is set out on pages 39 and
40 of this Report and Accounts document.
Schroders PLC female representation and gender pay report can be
found in Schroders 2021 Annual Report and Accounts (page 43) and
Schroders PLC Gender Pay Gap Report:
-- Schroders 2021 Annual Report and Accounts
--
https://www.schroders.com/en/sysglobalassets/digital/global/meet-our-people/gpg-report/2020_gpg_report.pdf
Information on Diversity and Inclusion at Schroders can be found
at:
-- https://www.schroders.com/en/working-here/inclusion-and-diversity/
--
https://www.schroders.com/en/working-here/inclusion-and-diversity/gender-pay-gap-report-2020/
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 2021.
The following are reported for Schroders PLC:
Employee turnover and retention (Emp-Turnover)
For Schroders PLC turnover and retention rates please refer to
Schroders Annual Report and Accounts (page 25):
-- Schroders 2021 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 December
2021:
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 (%)
2020 2021
All sectors 100% 81%
At assets where no assessment was completed, assessments were
instructed and completed in early 2022.
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
2020 2021
All Sectors 0 1
In 2021, there was a problem with the landlord's electrical
supply at 1 asset within the portfolio. This issue is set to be
addressed as part of the redevelopment of the site.
Community engagement, impact assessments and development
programmes (Comty-Eng)
The table below sets out the proportion of the Company's total
portfolio completed local community engagement, impact assessments
and/or development programs.
Portfolio by number assets (%)
2020 2021
Industrial, Distribution
Warehouse 7.5% 7%
Mixed Use, Other 2.5% 2%
Office, Low-rise 12.5% 9%
Office, Mid-rise 2.5% 0%
All other sectors 0% 10%
Total 25% 28%
Sustainability Performance Measures (Governance)
Composition of the highest governance body (Gov-Board)
The Board of the Company comprised 4 non-executive independent
directors (0 executive board members) for the 12 months to 31 March
2022.
- The average tenure of the four directors to 31 March 2022 is six years and ten months
- 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 Alastair 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
The Board and 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 2022. The statement has
however been prepared for the calendar year, the 12 months to 31
December 2021, 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. For the 12
months to 31 December 2021, there were 25 properties within the
portfolio where the Company retained 'operational control'. An
additional four properties were purchased towards the end of the
period and so have not been captured in the reported data. For
purposes of comparison, during the previous 12 months there were
also 25 properties in the portfolio where the Company retained
'operational control', which have been included in reporting. 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 counterparty to the energy contract.
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 2021, 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 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
-- 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 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/m(2) /yr.
-- GHG: kilograms carbon dioxide equivalent per metre square
(net lettable area or common parts area) per year, or, kgCO(2)
e/m(2) /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)
2020 2021 2020 2021 % Change
Gas 2,079,460 2,248,272 1,589,836 1,601,960 1%
Electricity 4,711,477 4,615,543 4,436,115 4,288,118 -3%
Total 6,790,937 6,863,815 6,025,951 5,890,078 -2%
The table below sets out the Company's greenhouse gas
emissions.
Absolute emissions Like-for-like emissions
(tCO (2) e) (tCO (2) e)
2020 2021 2020 2021 Change
Scope 1 (Direct emissions
from gas consumption) 383 411 293 293 0%
Scope 2 (Indirect emissions
from electricity) 1,098 980 1,034 910 -12%
Total 1,481 1,391 1,327 1,203 -9%
The like-for-like energy consumption for the 2021 calendar year
for the managed assets held within the Company has decreased by 2%,
the greenhouse gas emissions have decreased by 9%. 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, installation of renewables,
window replacements/upgrades, LED lighting upgrades and
installation of lighting and ventilation occupancy sensors.
Automatic Meter Readers are also 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 m(2) ) (tCO(2) e per m(2)
)
2020 2021 2020 2021
Industrial Distribution
Warehouses 0.6 0.6 0.2 0.1
Leisure 81 69 18.9 14.8
Mixed Use, Office/Retail 98.3 101.4 22.9 21.5
Mixed Use, Other 97.55 98.6 22.7 20.9
Office, Low Rise 127.7 112.4 28.2 34.5
Office, Mid Rise 135.6 160.2 27.8 31.0
Retail High Street 11.3 14 2.6 3.0
Retail Warehouse 3.2 2.3 0.7 0.5
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.
-- In line with best practice EPRA reporting guidelines the
methodology for calculating energy and emissions intensities has
been updated this year to better reflect how energy is consumed at
an asset level and ensure consistency between the reporting of
asset level consumption data within sectors. As such intensity
values have been restated where more complete and / or accurate
records have become available.
-- The sustainability content located on pages 110 to 129 of the
SREIT annual report for the year ended 31 March 2022 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.
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 0.2331 kgCO2e UK Government's GHG Conversion
* Electricity 2020 Factors for Company Reporting
(2020)
- Electricity 0.2123 kgCO2e UK Government's GHG Conversion
2021 Factors for Company Reporting
(2021)
- Gas 0.183 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
Since 2016 assets of the Company have been included in the
Investment Manager's UK energy and carbon targets for assets where
landlord operational control is retained. Initially due to finish
at 31 March 2021 but closed one year early due to the impact of
Covid-19, against a 2015/2016 baseline at 31 March 2020 in-scope UK
assets demonstrated an energy reduction of -25% (vs. -18% target)
and a carbon reduction of -52% (vs. -32% target).
A central focus of the Investment Manager's real estate
investment strategy is the response to the climate crisis both in
terms of risk and resilience to climate impacts and also working to
reduce the Company's Greenhouse Gas (GHG) emissions associated with
its activities. As part of the Investment Manager's commitment to
achieving Net Zero Carbon by 2050 or sooner, aligned with a 1.5degC
decarbonisation trajectory, work has been undertaken during 2021 to
baseline the Company's carbon performance and establish new energy
and carbon targets in a net zero context which include interim
milestones at 2025 and 2030. Further details can be found in the
'Net Zero Carbon' section on page 64.
The Investment Manager together with sustainability consultants
Evora Global and property managers MAPP and Hornbeam looks to
identify and deliver energy and greenhouse gas emissions 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 boiler
replacements/upgrades, wall and roof insulation upgrades, upgrades
to Automatic Meter Readers for improved energy monitoring, LED
upgrades, installation of renewables, window upgrades/replacement
and installation of lighting and ventilation occupancy sensors.
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 2021 92% 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 2022, excluding post year end activity. The property values
presented represent the year end valuations as determined by the
independent valuers as at 31 March 2022:
Property Sector Region Value range
(GBPm) [18]
Telford, Hortonwood 7 Industrial West Midlands 10-20
Birkenhead, Valley Park
Industrial Estate Industrial North West 10-20
Edinburgh, The Tun Office Scotland 10-20
Salisbury, Churchill Way Retail Warehouses South West 10-20
Luton, The Galaxy Other Eastern 0-10
Cheltenham, The Promenade Office South West 0-10
Milton Keynes, Matalan Retail Warehouses South East 0-10
21/27 Stirling Court, Swindon Industrial South West 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
Portsmouth, Walton Road Industrial South East 0-10
Warwick, 55/56 Heathcote
Industrial Estate Industrial West Midlands 0-10
Fareham, Delme Place, Cams
Estate Office South East 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
Rugby, Morgan Sindall House Office West 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
Chelmsford, 24-25 High
St Retail South East 0-10
Fleet, Ancells Park Office South East 0-10
Bedford, Howard House Office Eastern 0-10
Fareham, Orange & Stable
Cams Estate Office South East 0-10
Truro, 15/16 King Street Retail South West 0-10
Chelmsford, 67 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 Investment
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$102 billion and
we deploy our services to over 100 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 shareholdings of special purpose vehicles
beneath the Company.
We test whether on an ongoing basis the Company is being
operated by the Investment Manager in line with the Company's
prospectus, and the internal control environment of the Investment
Manager. This includes a review of the Company's and its
subsidiaries' decision papers and minutes.
We work with the Investment Manager in discharging our duties,
holding formal meetings with senior staff on a quarterly basis and
submit quarterly reports to the Investment 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.
From the period in which our Depositary responsibilities became
live on 1 October 2021, to the year ending 31 March 2022, our work
included the review of four investment property acquisitions, one
disposal and two 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 UK
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 107 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
39 and 40 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.
Resolutions at 2022 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 136 to 137. The following paragraphs explain the
resolutions to be put to the AGM.
Resolutions 1-9
Ordinary 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 2022; (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
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 Chairman'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 2023 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 2022 the Company repurchased
243,787 shares (all were repurchased prior to the date of the prior
AGM on 9 September 2021).
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 2023 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.
Lorraine Baldry, Chairman
6 June 2022
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 21
September 2022 at 12.30 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 2022.
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 2022.
Resolution 4 (Ordinary
Resolution) * To elect Priscilla Davies as a Director of the
Company.
Resolution 5 (Ordinary
Resolution) * To re-elect Mr Stephen Bligh as a Director of the
Company.
Resolution 6 (Ordinary
Resolution) * To re-elect Mr Alastair Hughes as a Director of the
Company.
Resolution 7 (Ordinary
Resolution) * To re-elect Mr Graham Basham 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 29 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 2023 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 2023 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.
Close of Meeting.
By Order of the Board
For and on behalf of
Schroder Investment Management Limited
Company Secretary
6 June 2022
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 19 September 2022.
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 19 September 2022. 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
Lorraine Baldry (Chairman) Knight Frank LLP
Graham Basham 55 Baker Street
Stephen Bligh London
Alastair Hughes W1U 8AN
Investment Manager and Accounting
Agent Sponsor and Brokers
Schroder Real Estate Investment J.P. Morgan Securities plc
Management Limited 25 Bank Street
1 London Wall Place Canary Wharf
London London E14 5JP
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 The Company's privacy notice is
the Company as to Guernsey available on its webpage.
as to English Law: Law:
Stephenson Harwood Mourant Ozannes
LLP (Guernsey) LLP
1 Finsbury Circus Royal Chambers
London EC2M 7SH St Julian's Avenue
St. Peter Port
Guernsey GY1 4HP
FATCA GIIN
5BM7YG.99999.SL.831
2022 Financial Information
The figures and financial information for 2022 are extracted
from the Annual Report and Consolidated Financial Statements for
the year ended 31 March 2022 and do not constitute the statutory
accounts for the year. The 2022 Annual Report and Consolidated
Financial Statements 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 Knight Frank for
the direct portfolio and BNP for the Joint Ventures. Does not
include any IFRS adjustments for lease incentives nor the fair
value of the leasehold adjustment for The Galaxy, Luton.
[2] Represents the annualised rental income as at 31 March 2022
of the portfolio, including 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 2022.
[5] This is an Alternative Performance Measure ("APM"). EPRA
calculations are included in the EPRA Performance measures section
on page 102.
[6] This is an APM. EPRA calculations are included in the EPRA
Performance measures section on page 102.
[7] This is an APM. Details are included in the APM section on
page 107.
[8] This is an APM. Details are included in the APM section on
page 107.
[9] This is an APM. EPRA calculations are included in the EPRA
Performance measures section on page 102.
[10] On-balance sheet borrowings reflect the loan facilities
with Canada Life and RBS without the deduction of unamortised
finance costs of GBP0.5m.
[11] This is an APM. Details are included in the APM section on
page 107.
[12] This is an APM and calculated in accordance with the AIC
recommended methodology. Details are included in the APM section on
page 107.
[13] This is an APM and calculated in accordance with the AIC
methodology. Details are included in the APM section on page
107.
[14] As per third party valuation reports unadjusted for IFRS
lease incentive amounts
[15] Winning Cities defined as higher growth locations - Source:
Oxford Economics/Schroders.
[16] 'Net Zero Carbon' is when the net carbon emissions emitted
as a result of all activities associated with the development,
ownership and servicing of a building are zero or negative.
[17] The baseline reported here differs from the 2019 emissions
we reported in previous annual reports due to difference in scope
and additional estimation required to support Net Zero Carbon
pathways. Assets in scope of the baseline analysis represent 26% of
the Company's AuM. Note: The Arc, Nottingham, although included in
the portfolio level pathway, was subsequently sold in Q1 2022 and
so its value is not reflected in AuM figures as at 31 March
2022.
[18] As per third party valuation reports unadjusted for IFRS
lease incentive amounts.
This information is provided by RNS, the news service of the
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END
FR FFMTTMTJMTJT
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June 07, 2022 02:00 ET (06:00 GMT)
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