Schroder Real Estate
Investment Trust Limited
('SREIT' / the 'Company' /
'Group')
RESULTS FOR THE YEAR ENDED
31 MARCH 2024
STRATEGIC EVOLUTION, ACTIVE
ASSET MANAGEMENT AND LOW COST, LONG TERM DEBT PROFILE DRIVING
EARNINGS AND DIVIDEND GROWTH
Schroder Real Estate Investment
Trust Limited, the actively managed UK REIT focused on improving
the sustainability performance of buildings, today announces its
results for the year ended 31 March 2024. These are also
available on the Company's website, www.srei.co.uk
and can be viewed
at https://schro.link/sreitfy24results.
Earnings growth underpins fully covered dividend; increased
exposure to high growth sectors underpins portfolio valuation
resilience; sector-leading low cost, long term debt
profile
- Audited
net asset value ('NAV') declined by 4.4% to £287.4 million, or 58.8
pence per share ('pps') (31 March 2023: £300.7 million, or 61.5
pps), largely driven by an underlying portfolio value decline of
2.8% (MSCI Benchmark: -5.7%), which remained unchanged over the
most recent quarter to 31 March 2024 (MSCI Benchmark:
-0.6%)
- 4%
increase in dividends paid during the financial year to £16.4
million, or 3.34 pps (31 March 2023: £15.8 million, or 3.22 pps),
fully covered by EPRA earnings
- Positive
NAV total return of 1.1% (31 March 2023: -15.1%)
- Long
debt maturity profile of 9.7 years and a low average interest cost
of 3.5%, with 91% either fixed or hedged against movements in
interest rates
- Loan to
value, net of all cash, of 37.1% (31 March 2023: 36.0%), with
programme of non-core disposals underway to reduce to within 25-35%
target range
- Further
2% increase in the quarterly dividend to 0.853 pps for the quarter
ended 31 March 2024, to be paid in June, reflecting a yield of 7.9%
based on the share price of 43.4 pps at close on 5 June
2024
Operational expertise and sustainability-led active asset
management delivers strong rental growth and continued long-term
outperformance against the MSCI Benchmark
-
Attractive underlying portfolio yield profile, with a net initial
yield of 6.1% (MSCI Benchmark: 5.1%) and a reversionary yield
of 8.4% (MSCI Benchmark: 6.1%)
-
Like-for-like rental growth of 4.8% (MSCI Benchmark:
3.3%)
- 108 new
lettings, rent reviews and renewals across 1.0 million sq ft
completed since 1 April 2023, totalling £10.4 million in annualised
rental income, on average 7% ahead of 31 March 2023 estimated
rental values
- 99% of
rent due collected
-
Portfolio total return for the financial year of 3.2% (MSCI
Benchmark: -1.3%), supported by a high income return of 6.2% (MSCI
Benchmark: 4.7%)
-
Continued long-term outperformance of the underlying portfolio with
a total return of 5.5% per annum on a rolling three-year basis
(MSCI Benchmark Index: 0.8% per annum), with all main sectors
outperforming over one and three years
-
Increased allocation to higher growth industrial sector, with
multi-let estates and value retail warehousing now comprising 61.5%
of the portfolio by value (31 March 2023: 58.6%)
- Two
disposals totalling £7.8 million at a 3.3% premium to book
value
Strategic evolution progressing to place sustainability at
the centre of Company's investment proposition
- Further
improvement in the Company's Global Real Estate Sustainability
Benchmark ('GRESB') score to 79 out of 100 (2022: 77), achieving a
maximum score for management aspects, placing first amongst its
GRESB peer group
- In
December 2023, strong shareholder support received to change the
investment objective and policy to formally include sustainability
at the centre of the Company's investment proposition, with a
sustainability improvement and decarbonisation strategy focused on
adapting existing buildings into those that are both modern and fit
for purpose:
o 75% (79%) of assets by value in the portfolio assessed to
date using proprietary ESG Scorecard which measures sustainability
performance against a broad range of pre-defined real estate
sustainability metrics
Alastair Hughes, Chair of the Board,
commented:
"Despite the challenging
macroenvironment for UK real estate, with higher for longer
interest rates, the occupational markets remain relatively
resilient. During the year, asset management-led rental growth
delivered a further increase in the fully covered dividend,
supported by the Company's leading low-cost, long-term debt profile
and increased allocation to higher growth sectors.
"As occupiers and investors
increasingly value the benefits of sustainability, integrating
these considerations into the core of investment decision-making
will clearly differentiate the Company and its strategy from peers,
improving the defensive qualities of the portfolio and driving
risk-adjusted returns for shareholders."
Nick Montgomery, Fund Manager, added:
"The Company's balance sheet
strength has provided a robust foundation to deliver further
dividend growth, underpinned by our asset management expertise and
ability to capture reversion. We have identified a pipeline of
sustainability-led initiatives across our portfolio, which benefits
from a diverse mix of occupiers making it more resilient through
the cycle, providing further protection to earnings, meaning the
Company is well positioned to continue providing a progressive
dividend."
A webcast presentation for
analysts and investors will be hosted today at 8.30 am BST. In
order to register, please visit:
https://www.schroders.events/SREI24
For further information:
Schroder Real Estate Investment
Management Limited
Nick Montgomery / Bradley
Biggins
|
020 7658 6000
|
Schroder Investment Management
Limited (Company Secretary)
Matthew Riley
|
020 7658 6000
|
FTI Consulting
Dido Laurimore / Richard Gotla /
Oliver Parsons
|
020 3727 1000
|
Schroder Real
Estate Investment Trust Limited
Annual Report
and Consolidated Financial Statements
for the year
ended 31 March 2024
Overview
Positive NAV
total return and continued dividend growth driven by portfolio
resilience and sector-leading debt profile
·
Audited net asset value ('NAV') decreased to
£287.4 million, or 58.8 pence per share ('pps') (31 March 2023:
£300.7 million, or 61.5 pps)
·
NAV movement driven by an underlying portfolio
decline of 2.8% (MSCI Benchmark: -5.7%), with the underlying
portfolio value unchanged over the most recent quarter to 31 March
2024 (MSCI Benchmark: -0.6%)
·
4% increase in dividends paid during the
financial year to £16.4 million, or 3.34 pps (31 March 2023: £15.8 million, or 3.22
pps), fully covered by EPRA
earnings
·
Positive NAV total return of 1.1% (31 March 2023:
-15.1%)
·
Long average debt maturity profile of 9.7 years and a low current average
interest cost of 3.5%, with 91% fixed or hedged against movements
in interest rates
·
Loan to value, net of all cash, of 37.1% (31 March 2023:
36.0%)
·
Further 2% increase in
the quarterly dividend to 0.853 pps for the quarter ended 31 March
2024, to be paid in June, reflecting a yield of 7.9% based on the
share price of 43.4 pps at the close on 5 June 2024
High income
return, beneficial sector allocations, and portfolio activity
leading to long-term outperformance against the MSCI Benchmark and
an improvement in defensive qualities
·
Attractive underlying portfolio yield profile,
with a net initial yield of 6.1% (MSCI Benchmark: 5.1%) and a
reversionary yield of 8.4% (MSCI Benchmark: 6.1%)
·
Portfolio total return for the financial year of
3.2% (MSCI Benchmark: -1.3%), supported by a high income return of
6.2% (MSCI Benchmark: 4.7%) and rental growth of 4.6% (MSCI
Benchmark: 3.3%)
·
Continued long-term outperformance of the
underlying portfolio with a total return of 5.5% per annum on a
rolling three-year basis (MSCI Benchmark Index: 0.8% per annum),
with all main sectors outperforming over one and three
years
·
Increased allocation to higher growth sectors,
with industrial, predominately multi-let estates, and value retail
warehousing now comprising 61.5% by value (31 March 2023:
58.6%)
·
108 leasing transactions across 1.0 million sq ft
completed since the start of the financial year, delivering strong
rental growth, an increased average unexpired lease term, and lower
void rate
Strategic evolution to place sustainability at the centre of
the investment proposition
·
Strategic evolution, with a sustainability
improvement and decarbonisation strategy, focused on adapting
existing buildings into those that are both modern and
fit-for-purpose
·
The new strategy should enable the Company to
proactively respond to the UK's Net Zero Carbon objectives, whilst
optimising portfolio performance to seek enhanced total returns for
shareholders
·
Further improvement in the 2023 GRESB score to 79
out of 100 (2022: 77), achieving a maximum score for management
aspects, placing SREIT first amongst its GRESB peer
group
·
Range of projects ongoing to deliver improved
sustainability performance in order to capture the 'Green Premium',
most notably at Stanley Green Trading Estate in Manchester that
made a significant contribution to portfolio
outperformance
Contents
Overview
1
Performance
Summary 3
Strategic Report
5
Chair's Statement
5
Investment Manager's
Report
7
Sustainability
Report
25
Business
Model 36
Our stakeholders
40
Risk and
Uncertainties
42
Governance
Report
47
Board of
Directors
47
Report of the
Directors 49
Corporate
Governance
52
Audit Committee
Report 57
Management Engagement Committee
Report 61
Nomination Committee
Report
62
Directors' Remuneration
Report
64
Statement of Directors'
Responsibilities
67
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)
104
EPRA Performance Measures
(unaudited)
104
Alternative Performance Measures
(unaudited)
110
AIFMD Disclosures
(unaudited)
111
Sustainability Performance
Measures (Environmental)
(unaudited)
113
Sustainability Performance
Measures (Social) 128
Streamlined Energy and Carbon
Reporting 131
Asset list 135
Report of the Depositary to the
Shareholders 136
Glossary 137
Notice of Annual General
Meeting 141
Corporate
Information
144
Performance Summary
Property performance
|
31 March
2024
|
31 March
2023
|
Value of Property Assets and Joint Venture
Assets [1]
|
£459.3m
|
£470.4m
|
Annualised rental income [2]
|
£29.8m
|
£29.3m
|
Estimated open market rental value [3]
|
£38.8m
|
£37.8m
|
Underlying portfolio total return
|
3.2%
|
(7.9%)
|
MSCI Benchmark total return [4]
|
(1.3%)
|
(13.5%)
|
Underlying portfolio income return
|
6.2%
|
6.0%
|
MSCI Benchmark income return
|
4.7%
|
4.1%
|
Financial summary
|
31 March
2024
|
31 March
2023
|
Net Asset Value ('NAV')
|
£287.4m
|
£300.7m
|
NAV per Ordinary Share
|
58.8p
|
61.5p
|
EPRA Net Tangible Assets [5]
|
£287.1m
|
£300.7m
|
EPRA Net Reinstatement Value
5
|
£318.4m
|
£332.2m
|
EPRA Net Disposal Value 5
|
£305.8m
|
£317.4m
|
IFRS profit/(loss) for the year
|
£3.0m
|
(£54.7m)
|
EPRA earnings 5
|
£16.3m
|
£16.0m
|
Dividend cover [6]
|
100%
|
101%
|
Capital values
|
31 March
2024
|
31 March
2023
|
Share price
|
41.9p
|
43.6p
|
Share price discount to NAV
|
(28.7%)
|
(29.1%)
|
NAV total return [7]
|
1.1%
|
(15.1%)
|
Earnings and dividends
|
31 March
2024
|
31 March
2023
|
EPRA earnings 5 (pps)
|
3.3
|
3.3
|
Dividends paid (pps)
|
3.34
|
3.22
|
Annualised dividend yield on the 31 March
share price
|
8.0%
|
7.4%
|
Bank borrowings
|
31 March
2024
|
31 March
2023
|
On-balance sheet borrowings [8]
|
£176.59m
|
£177.90m
|
Loan to Value ratio
('LTV'), net of
all cash [9]
|
37.1%
|
36.0%
|
Ongoing charges
|
31 March
2024
|
31 March
2023
|
Ongoing charges (including fund and property
expenses) [10]
|
2.53%
|
2.28%
|
Ongoing charges (including fund only expenses)
[11]
|
1.19%
|
1.32%
|
Chair's Statement
We are today announcing our audited financial
results for the year ended 31 March 2024.
It has again been a challenging environment in the
UK real estate market with weak economic growth, elevated interest
rates and geopolitical uncertainty. More encouragingly, the UK
economy appears to have avoided a more prolonged downturn, and
occupational markets remain relatively resilient, with sustained
levels of tenant demand and low levels of new development driving
positive rental growth.
The uncertain macroenvironment contributed to a
decline in the valuation of our underlying portfolio of 2.8% during
the year. This was, however, better than our peer group MSCI
Benchmark (the 'Benchmark') which showed a decline of 5.7%. The
negative valuation movement resulted in a net asset value ('NAV')
of £287.4 million, or 58.8 pence per share ('pps'), a decline of
2.7 pps or 4.4% over the year.
This resulted in a small increase in the Company's
net loan-to-value ('LTV') from 36.0% to 37.1%, and further
disposals are planned to bring the net LTV in line with our
long-term target range of 25% to 35%.
We were pleased that a combination of a diverse
tenant base and strong asset management enabled us to collect 99%
of rents due during the year and this, together with a reduced void
rate and 4.6% rental growth, drove an income return from the
underlying portfolio of 6.2% compared to our Benchmark of 4.7%.
This resulted in a positive total return of 3.2% compared with the
Benchmark at -1.3%.
Higher income, tight management of costs and a
sector-leading debt profile also enabled the Company to pay
dividends of £16.4 million, or 3.34 pps, an increase of 4% over the
prior year. Dividends were fully covered by earnings over the year
and 105% covered by earnings over the most recent quarter. Combined
with the movement in the NAV, this resulted in a positive NAV total
return for the year of 1.1%.
This momentum continues and, because of more
positive leasing activity since the year end, the Company has
announced a further 2% increase in the quarterly dividend to 0.853
pps, to be paid in June 2024. This is 31% above the 2019 quarterly
run-rate and reflects an annualised yield of 7.9% based on the
share price of 43.4 pps at the close on 5 June 2024.
Despite the attractive level of dividend, and the
potential for a real estate market recovery in 2025, the Company's
shares, in common with other listed real estate funds, continue to
trade at a discount to NAV. Over recent years the Company has taken
proactive steps to address this discount, including a major
refinancing in 2019, increased exposure to higher growth sectors,
share buybacks, and continued best-in-class governance.
This activity has contributed to sustained
outperformance compared with our peer group, with a three-year
underlying portfolio total return of 5.5% per annum (Benchmark 0.8%
per annum), a three-year net NAV total return of 4% per annum, and
a three-year share price total return of 8.5% per annum. This
has been accompanied by a high level of shareholder engagement and
wider marketing of the Company.
The Company is focused on demonstrating
best-in-class governance, for example rotating its independent
valuer ahead of mandatory new rules from the Royal Institution of
Chartered Surveyors (the 'RICS'), and the Manager advocating for
changes to regulatory cost disclosure that creates a more level
playing field which could attract new shareholders to the
Company.
Looking forward, we should continue to benefit from
a good quality portfolio overweight to sectors expected to deliver
higher growth, a diverse and strong tenant mix, strong asset
management skills and a market-leading debt profile. However, for
the Company to remain compelling, the strategy needs to evolve in
these changing times.
Last year we therefore decided to place
sustainability at the centre of our investment decision-making.
This was done to fully benefit from the Manager's commitments and
capabilities in this area, with the aim of enhancing long-term
returns for shareholders, further differentiating the Company and
its strategy from peers, and to attract a wider shareholder base.
We received strong support to this strategic evolution at the
Extraordinary General Meeting in December, and the Manager makes
more detailed comment on progress towards execution of this
strategy below.
Finally, I would like to welcome Sanjay Patel as a
new Non-executive Director and intended Chair of the Audit
Committee, replacing Stephen Bligh. On behalf of my fellow
Directors and the Manager, I would like to thank Stephen for his
commitment and service over the past nine years.
Alastair Hughes
Chair
Schroder Real Estate Investment Trust Limited
5 June 2024
Investment Manager's Report
Financial results
Schroder Real Estate Investment Trust
Limited's ('SREIT', or 'the Company') net asset value ('NAV') as at
31 March 2024 was £287.4 million or 58.8 pence per share ('pps'),
compared with £300.7 million, or 61.5 pps, as at 31 March 2023.
This reflected a decrease over the financial year of 2.7 pps or
4.4%. Dividends totalling £16.4 million were paid during the year,
which resulted in a positive NAV total return of 1.1%. A detailed
analysis of the NAV movement is set out in the table
below:
|
£m
|
PPS
|
NAV as at 31 March 20231
|
300.7
|
61.5
|
Unrealised net decrease in the
valuations of the direct real estate portfolio and joint
ventures2
|
(3.6)
|
(0.7)
|
Capital
expenditure3
|
(9.1)
|
(1.8)
|
Realised gain on disposal, net of
disposal costs
|
0.2
|
0.0
|
EPRA
earnings4
|
16.3
|
3.3
|
Dividends paid
|
(16.4)
|
(3.3)
|
Interest rate
derivatives
|
(0.3)
|
(0.1)
|
Others
|
(0.4)
|
(0.1)
|
NAV as at 31 March 20245
|
287.4
|
58.8
|
1. The
calculation of pence per share is based on shares in issue as at 31
March 2023 of 489,110,576.
2. Prior
to all capital expenditure, and movement in IFRS 16 lease
incentives.
3.
Comprises capital expenditure of £8.3 million on the directly held
portfolio and £0.8 million invested across the two joint
ventures.
4. EPRA
earnings as per the reconciliation on page 104.
5. The
calculation of pence per share is based on shares in issue as at 31
March 2024 of 489,110,576.
The underlying portfolio, including joint
ventures and net of capital expenditure, decreased in value by 2.8%
on a like-for-like basis over the financial year ended 31 March
2024.
£9.1 million of capital expenditure was
invested in asset management and redevelopment projects, including
joint ventures, that should drive capital growth and future rental
increases over the medium to longer term.
Whilst two disposals completed during the
financial year, one was recognised in the prior period as
unconditional contracts had been exchanged. The disposal of
Coverdale House in Leeds completed on 8 December 2023 for £3.8
million and reflected a 7.0% increase on the 31 March 2023
independent valuation of £3.6 million. After transaction costs of
£52,000, the realised gain on disposal was £200,000.
EPRA earnings for the financial year totalled
£16.3 million, or 3.3 pps, an increase of £300,000 or 1.9%, on the
prior financial year of £16.0 million. Active asset management led
to an increase in rent and other income compared to the prior
financial year, partly offset by higher finance costs on the
Company's revolving credit facility.
There was a 3.8% increase in the dividend paid
in the financial year to £16.4 million from £15.8 million in the
previous year.
UK Market
Context
Since the recent UK real estate market cycle
high of June 2022, average UK real estate values have fallen 25%,
with the Company's underlying portfolio value falling by 18% over
the same period. This is a significant correction and compares with
a 44% average market decline during the 2007 to 2009 global
financial crisis ('GFC'), and a 27% decline during the recession of
the early 1990s.
Falling values and weak sentiment translated
into a dearth of investment activity, with transactions in the
final quarter of calendar year 2023 the lowest since the GFC.
Furthermore, although debt levels in the real estate sector are low
compared with the GFC period, lending for new acquisitions is the
lowest since 2007 (Source: Bayes Business School). Low
lending volumes also reflect the high cost of debt, with elevated
interest rate swaps (five-year Sonia swap rate 4.1% as at 5 June)
plus margin resulting in a total cost of approximately 6% for a
good quality asset at a 40% loan to value ratio.
Given lower debt levels compared with past
cycles, institutional investors are arguably more focused on the
spread real estate offers over the risk-free rate, or the ten-year
gilt. The MSCI Benchmark average net initial yield is now 5.2%,
which compares with the net initial yield on the Company's
underlying portfolio of 6.1%. This is the highest MSCI Benchmark
net initial yield since 2014 and represents a premium of 1.0% over
the prevailing 10-year gilt rate of 4.2%.
This is below the long-term premium of
approximately 1.5% to 2%, indicating a further increase in real
estate yields, or a fall in gilt yields, might be required for the
sector to represent 'fair value'. However, this ignores the
positive impact of rental growth on total returns, and in this
respect the market is better placed now than in recent cyclical
recoveries. For example, average nominal rents are now 6.6% higher
than in June 2022, which compares with 3.4% lower over the
equivalent 21-month period post-GFC. More materially, average
industrial rents are now 12.9% higher than in June 2022, which
compares with 0.1% post GFC. This performance illustrates both the
structural factors that are driving demand for real estate in a
market with relatively low levels of new supply, as well as the
inflation-hedging quality of rental income.
Against this backdrop, market expectations
that interest rates are peaking will be key to a recovery in
sentiment towards real estate, together with increased availability
of bank debt and reduced selling out of open-ended property
funds.
The most significant and positive feature of
the market is the above-average level of nominal rental growth,
particularly for more structurally supported sectors such as
industrial, retail warehousing, prime offices, and operational
assets such as residential, self-storage and hotels. This rental
growth, together with the potential for a future yield rerating,
should going forward deliver total returns above the long run
average, and lead to capital flows back to the sector. Our
portfolio allocation and ongoing activity means we should be better
placed to benefit from a recovery in sentiment.
Our
strategy
Strategic evolution and changes to
the investment objective and policy
The real estate industry accounts for
approximately 40% of global energy related carbon emissions, and
owners therefore have a responsibility to take a lead on tackling
contributions to climate change. As most of today's stock will
likely still be required and in use in 2050, it is only by
transforming less sustainable buildings into modern, fit for
purpose assets that the sector will reach Net Zero Carbon, and
asset obsolescence resulting from enhanced regulations can be
mitigated.
This strategic imperative, the Company's
active approach, and Schroders specialist resources relating to
sustainability and positive impact investing more generally,
created an opportunity to formally place sustainability at the
centre of the Company's investment proposition. This should enable
the Company to proactively respond to the UK's Net Zero Carbon
objectives and enhance long term total returns by focusing on
decarbonisation strategies that adapt existing buildings to achieve
the 'Green Premium', which generally has two components:
-
Evolving regulations and obligations mean tenants
are demanding buildings that benefit from sustainable attributes
including being more energy efficient, having enhanced natural
resource management, promoting the health and well-being of
occupants, offer access to
high-quality green space and community facilities,
as well as being capable of withstanding extreme weather events. As
we are witnessing across the Company's portfolio, commercial
occupiers will pay a higher rent for these more sustainable
buildings because it helps them to meet their own sustainability
targets, attract and retain staff, and cut their energy
bills.
-
Investors are prepared to pay higher prices for
buildings that demonstrate some or all of these sustainable
attributes because they tend to let more quickly at higher rents,
suffer lower vacancy rates, require less capital expenditure in the
long term and are less at risk of obsolesce due to more stringent
future environmental regulation.
Following a shareholder consultation, the
Company issued a Circular containing details of the strategic
evolution, the rationale, and benefits of the new investment
objective and policy, with this Circular available in the following
link: https://schro.link/sreitb2gcircular. At the subsequent
Extraordinary General Meeting held on 15 December 2023, the Company
received strong support to the strategic evolution and the
following revised investment objective:
'The investment objective of the Company
is to provide shareholders with an attractive level of income and
the potential for income and capital growth from owning and
actively managing a diversified portfolio of UK commercial real
estate, while achieving meaningful and measurable improvements in
the sustainability profile of the majority of the portfolio's
assets (considered against a range of objective environmental,
social and governance metrics).'
The new investment policy includes specific
sustainability key performance indicators linked to the proportion
of the portfolio where relevant activity is ongoing, asset level
improvement targets based on Schroders proprietary scorecard based
approach, as well as progress delivering the Company's existing
'pathway to net zero' commitments. Further details on these are
included within the Sustainability section of this Strategic
Report.
Progress delivering the investment
strategy
The strategy to deliver the new investment
objective and policy, and progress made during the year and since
year end, is set out below:
- Apply a research-led approach to determine attractive sectors
and locations in which to invest in commercial real
estate
o Increased allocation to higher growth sectors, with
industrial, predominately multi-let estates, and retail warehousing
now comprising 61.5% by value (2023: 58.6%) because of capital
expenditure in these assets and the disposal of two small
offices.
- Increase exposure to larger, higher value, assets with strong
fundamentals and inherent opportunities for active management and
development
o £9.1 million of capital expenditure invested during the year
including £2.7 million relating to the development of 19 Hollin
Lane, a single 18,203 sq ft operationally net zero carbon
industrial unit at Stacey Bushes Industrial Estate in Milton
Keynes, £1.5 million refurbishing the multi-let industrial estate
Stirling Court in Swindon, and £1.0 million at Stanley Green
Trading Estate in Manchester. Our top 15 assets now represent 80.5%
of total portfolio value (2023: 78.5%).
- Sell
smaller, secondary assets with higher sustainability performance
risk
o Completed the sale of two small office assets at a 3.3%
premium to the aggregate value at the start of the year, with
further disposals planned.
- Drive income and value growth through a hospitality approach
in tenant management (optimising tenant services and lease terms)
and operational excellence in all sectors (optimising operations in
the assets, minimising the use of scarce resources and
waste)
o Asset management delivered rental growth through the year
ahead of the MSCI Benchmark and there are ongoing regear
negotiations with major tenants in return for sustainability
related asset improvements.
o Increase in the average unexpired lease term from 5.0 to 5.3
years, with ongoing activity to make a further positive
contribution.
- Apply our integrated sustainability and ESG approach at all
stages of the investment process and asset life cycle, targeting
improvement in the sustainability performance of assets to
manufacture the green premium for shareholders
o Further improvement in the 2023 Global Real Estate
Sustainability Benchmark ('GRESB') score to 79 out of 100 (2022:
77), achieving the maximum possible result for the management
aspects of the assessment and placing SREIT first amongst a GRESB
defined peer group comprising six diversified REITs (2022: first of
seven).
o 15 assets now have an ESG scorecard completed by an external
consultant along with a sustainability audit or net zero carbon
audit, these scores provide a baseline against which the relevant
sustainability KPI in the investment policy can be measured and
will inform future works to improve sustainability performance with
the aim to increase the score for each asset.
- Control costs
o Ongoing charges (including fund only expenses) of 1.19% are
lower than 1.32% for the prior financial year.
- Maintain a strong balance sheet with a long-term strategic
target loan to value, net of cash, within the range of 25% to
35%
o The Company has a peer group leading debt profile, with a
clear strategy to reduce the net LTV back to within the strategic
range from 37.1% at the year end.
Portfolio
performance
The underlying portfolio continues to deliver
strong relative outperformance, with a positive total return for
the financial year of 3.2% compared to -1.3% for the MSCI Benchmark
(the 'Benchmark'). This relative outperformance was partly due to a
stronger income return from the portfolio of 6.2% compared to 4.7%
for the Benchmark.
Favourable sector weightings compared to the
Benchmark contributed positively to relative performance. In
particular, the Company's overweight position to the
industrial sector, which is almost entirely multi-let industrial
estates, was a key driver of outperformance. In contrast, the
office sector continued to face headwinds and underperformed the
overall Benchmark, therefore this allocation detracted from
performance.
Active asset management generated most of the
outperformance relative to Benchmark and was positive for all
sectors. Capital expenditure in the previous and
current financial year to develop the operationally net zero carbon
development at Stanley Green Trading Estate in Cheadle, Greater
Manchester, which completed in May 2023, contributed strongly as
the new space was let. A regear that completed in December 2023
with the Company's largest tenant, the University of Law, who
operate a campus in Bloomsbury, London, was also a key
contributor.
The table below shows performance to 31 March
2024.
|
SREIT Total Return
|
MSCI Benchmark* Total
Return
|
Relative
|
Period to 31
March 2024
|
One year
(%)
|
Three years (%
p.a.)
|
Five years (%
p.a.)
|
One year
(%)
|
Three years (%
p.a.)
|
Five years (%
p.a.)
|
One year
(%)
|
Three years (%
p.a.)
|
Five years (%
p.a.)
|
Retail
|
4.2
|
4.6
|
0.1
|
-0.1
|
2.0
|
-1.8
|
4.3
|
2.5
|
1.9
|
Office
|
-3.3
|
-0.9
|
0.9
|
-10.2
|
-5.7
|
-3.0
|
7.7
|
5.1
|
4.0
|
Industrial
|
7.0
|
10.7
|
11.2
|
4.3
|
5.0
|
6.9
|
2.5
|
5.5
|
4.0
|
Other
|
3.6
|
11.8
|
3.2
|
-0.2
|
1.1
|
1.2
|
3.8
|
10.6
|
2.0
|
All
sectors
|
3.2
|
5.5
|
4.6
|
-1.3
|
0.8
|
0.9
|
4.5
|
4.7
|
3.6
|
*MSCI Benchmark is formally 'MSCI UK Balanced
Portfolios Quarterly Property Index (unfrozen)'
Real estate portfolio
As at 31 March 2024, the portfolio
comprised 39 properties valued at £459.3 million. This includes the
share of joint venture properties City Tower in Manchester (25%
interest) and the University of Law in Bloomsbury, London (50%
interest). The portfolio generated rental income of
£29.8[12] million per annum, reflecting
a net initial yield of 6.1%, which compared with the
Benchmark's 5.2%. The portfolio benefits from fixed contractual
annualised rental income uplifts of £2.9 million per
annum over the next 24 months. The independent
valuer's estimated rental value ('ERV') of the portfolio is £38.8
million per annum, reflecting a reversionary income yield of 8.4%,
which compares favourably with the Benchmark at
6.1%.
The portfolio is overweight multi-let
industrial estates where we consider supply and demand dynamics to
be favourable given there has been relatively limited development.
This is evidenced by the rent reviews and lease renewals completed
since the beginning of the financial year, where rents were agreed
29% higher than the previous level, and we expect continued rental
growth from our industrial portfolio. In addition, there is an
overweight position in retail warehouses, where we have sustainable
levels of rent and limited exposure to fashion. This is the only
part of the retail sector which has seen a meaningful fall in
vacancy since the pandemic and is also a sector in which we expect
continued rental growth.
At the year end the portfolio void rate was
10.9%, calculated to the earlier of lease expiry or tenant break as
a percentage of estimated rental value, which is within the
ten-year range of 5% to 13% and compares with the Benchmark void
rate of 8.1%. The portfolio weighted average lease length,
calculated to the earlier of lease expiry or break, is 5.3 years,
an increase from 5.0 years at the start of the financial
year.
Approximately 11% of the portfolio
by contracted rent is inflation linked, typically structured as
five yearly reviews to either the Retail Price Index ('RPI') or the
Consumer Price Index ('CPI'). In some cases, these inflation-linked
leases can also be reviewed to open market value, if higher, or
include fixed guaranteed increases. A further 14% of rent benefits
from fixed uplifts without an inflation link. The proportion of the
portfolio with inflation-linked leases should increase with ongoing
asset management activity.
The tables below summarise the
portfolio information as at 31 March 2024. The property values and
weightings represent the year end valuations as determined by the
independent valuers as at 31 March 2024:
Portfolio metric
|
SREIT 31 March
2024
(MSCI Benchmark 31 March
2024)
|
SREIT 31 March
2023
(MSCI Benchmark 31
March 2023)
|
Portfolio value (£m)
|
459.3
|
470.4
|
Number of properties
|
39
|
41
|
Number of tenants
|
314
|
312
|
Average lot size (£m)
|
11.8
|
11.5
|
Net initial yield (%)
|
6.1
(5.2)
|
5.8 (4.8)
|
Reversionary yield (%)
|
8.4
(6.1)
|
8.0 (5.7)
|
Annual rent (£m)
|
29.8
|
29.3
|
Estimated rental value (£m)
|
38.8
|
37.8
|
Annual rent with inflation linked uplifts
(%)
|
11
|
11
|
Annual rent with fixed uplifts (%)
|
14
|
12
|
WAULT (years to earliest of break or
expiry)
|
5.3 (11.1)
|
5.0
(11.2)
|
Void rate (%)
|
10.9
(8.1)
|
11.1
(8.0)
|
Top 15 properties by value
|
Sector
|
Value (£m)[13]
|
% of portfolio
value
|
1
|
Milton Keynes, Stacey Bushes Industrial
Estate
|
Industrial
|
51.0
|
11.1
|
2
|
Leeds, Millshaw Park Industrial
Estate
|
Industrial
|
45.1
|
9.8
|
3
|
Cheadle, Stanley Green Trading
Estate
|
Industrial
|
40.0
|
8.7
|
4
|
London, Store Street, The University of Law
Campus (50% share)
|
Office/university
|
38.4
|
8.4
|
5
|
Bedford, St. John's Retail Park
|
Retail warehouse
|
29.5
|
6.4
|
6
|
Manchester, City Tower (25% share)
|
Office/hotel/retail
|
29.4
|
6.4
|
7
|
Chippenham, Langley Park Industrial
Estate
|
Industrial
|
25.2
|
5.5
|
8
|
Norwich, Union Park Industrial
Estate
|
Industrial
|
22.6
|
4.9
|
9
|
Leeds, Headingley Central
|
Hotel/retail
|
20.9
|
4.6
|
10
|
Birkenhead, Valley Park Industrial
Estate
|
Industrial
|
12.7
|
2.8
|
11
|
Telford, Horton Park Industrial
Park
|
Industrial
|
12.6
|
2.7
|
12
|
Manchester, St Ann's House
|
Office/retail
|
11.8
|
2.6
|
13
|
Edinburgh, The Tun
|
Office
|
10.7
|
2.3
|
14
|
Uxbridge, 106 Oxford Road
|
Office/university
|
10.7
|
2.3
|
15
|
Milton Keynes, Watling Street
|
Retail warehouse
|
9.1
|
2.0
|
|
Total as at 31 March 2024
|
|
369.7
|
80.5
|
|
Sector weighting by value as at 31 March
2024
|
Like-for-like net of capex capital
growth for the 12-month period
ended 31 March 2024
|
|
SREIT
|
MSCI
Benchmark1
|
SREIT
|
MSCI Benchmark
|
South East
|
11.1%
|
20.4%
|
|
|
Rest of UK
|
38.9%
|
12.4%
|
|
|
Industrial
|
50.0%
|
32.8%
|
1.7%
|
0.0%
|
City
|
0.0%
|
3.2%
|
|
|
Mid-town and West End
|
8.4%
|
6.7%
|
|
|
Rest of South East
|
4.0%
|
6.1%
|
|
|
Rest of UK
|
12.6%
|
6.5%
|
|
|
Offices
|
25.0%
|
22.5%
|
-9.7%
|
-13.8%
|
Retail
warehouse
|
11.4%
|
9.3%
|
-5.5%
|
-4.2%
|
South East
|
0.0%
|
6.9%
|
|
|
Rest of UK
|
7.7%
|
2.9%
|
|
|
Standard
retail
|
7.7%
|
9.8%
|
1.3%
|
-7.3%
|
Standard retail by ancillary/single
use
|
|
|
|
|
-
Retail ancillary to main use
|
4.9%
|
-
|
|
|
-
Retail single use
|
2.8%
|
-
|
|
|
Other
|
5.9%
|
19.7%
|
-5.6%
|
-4.9%
|
Shopping
centres
|
-
|
1.9%
|
|
|
Unattributed
indirects
|
-
|
4.1%
|
|
|
1Note: column does not
sum due to rounding.
|
Regional weighting by value as at 31
March 2024
|
|
SREIT
|
MSCI
Benchmark1
|
Central London
|
8.4%
|
16.7%
|
South East excluding Central London
|
17.1%
|
34.4%
|
Rest of South
|
10.8%
|
6.6%
|
Midlands and Wales
|
21.3%
|
23.4%
|
North
|
40.1%
|
14.4%
|
Scotland
|
2.3%
|
4.4%
|
Northern Ireland
|
0.0%
|
0.2%
|
1Note: column does not
sum due to rounding.
Rental income is diverse and comprised 314
tenants as at 31 March 2024, including the tenants of properties
held by joint ventures. The largest and top 15 tenants represent
6.78% and 35.40% of the portfolio respectively, calculated as a
percentage of annual rent, and there are only three tenants that
represent more than 3% of annual rent.
Top 15
tenants by annual rent
|
Annual rent (£
million)
|
% of total annual rent
|
The University of Law Limited
|
2.02
|
6.78
|
Buckinghamshire New University
|
1.30
|
4.36
|
Siemens Mobility Limited
|
1.23
|
4.13
|
Public
Sector
|
0.66
|
2.21
|
Express Bi Folding Doors Limited
|
0.65
|
2.18
|
Jupiter Hotels Limited
|
0.65
|
2.18
|
Matalan Retail Limited
|
0.57
|
1.91
|
TJX UK T/A Homesense
|
0.51
|
1.71
|
Premier Inn Hotels Limited
|
0.47
|
1.58
|
IXYS UK Westcode Limited
|
0.47
|
1.58
|
Lidl Great Britain Limited
|
0.42
|
1.41
|
Ingeus UK Limited
|
0.41
|
1.38
|
Wickes Building Supplies Limited
|
0.40
|
1.34
|
Sports Direct
|
0.40
|
1.34
|
Balfour Beatty Group Limited
|
0.39
|
1.31
|
Total as at
31 March 2024
|
10.55
|
35.40
|
Rent
collection
The diversification and granularity of the
underlying rental income, and a high level of occupier engagement,
has supported rent collection rates with 99% of the contracted
rents collected for the year ended 31 March 2024. The breakdown
between sectors is 100% of office rent collected, 100% of other
rent collected, 99% of retail and leisure rent collected and 98% of
industrial rent collected.
Rent receivable totalled £2.3
million, net of VAT, at the year end, of which £360,000 is provided
against as a bad debt. This reflects further progress collecting
historical arrears during the financial year and compares to £3.3
million and £360,000 respectively as at 31 March 2023.
Transactions
Rugby, Morgan
Sindall House (Office)
In March 2023, contracts were unconditionally
exchanged to sell Morgan Sindall House, a 34,334 sq ft single let
office asset in Rugby, for £4.0 million with the asset therefore
treated as sold at the 31 March 2023 financial year end in line
with the Group's accounting policy. The disposal completed on 22
June 2023 and the price was in line with the 31 March 2023 year-end
independent valuation.
Leeds,
Coverdale House (Office)
Coverdale House, a 32,355 sq ft multi-let
office asset in Leeds, was sold on 8 December 2023 for £3.8 million
reflecting a 7% premium to the 31 March 2023 independent valuation.
At the time of sale, the asset generated a net rent of £157,860 per
annum with a weighted average unexpired lease term of two
years.
Further small disposals are being progressed
on completion of asset management initiatives.
Active asset management
108 new lettings, rent reviews and renewals,
across 1.0 million sq ft, have completed since 1 April 2023
totalling £10.4 million in annualised rental income, 7% ahead of 31
March 2023 ERV.
Set out below are examples of ongoing active
asset management initiatives that should support continued
outperformance of the underlying portfolio from both a financial
and sustainability perspective.
Manchester,
Cheadle, Stanley Green Trading Estate
(Industrial)
Asset
overview and performance
Stanley Green Trading Estate in Cheadle,
Manchester was acquired in December 2020 for £17.3 million. At
acquisition the asset comprised 150,000 sq ft of trade counter,
self-storage and warehouse accommodation across 14 units on a
nine-acre site, together with an adjoining 3.4-acre development
site. SREIT subsequently completed a new, 11-unit, warehouse
scheme on the development site at a cost of £9.0 million. The
asset now comprises 241,366 sq ft of trade counter, self-storage
and warehouse accommodation across 25 units.
As at 31 March 2024 the valuation was £40.0
million, reflecting a reversionary yield, assuming the new
development is fully let, of 6.4%. The asset has been a strong
performer since acquisition, generating a total return of 18.6% per
annum to 31 March 2024 compared to the MSCI All Industrial over the
same period of 6.7%. Over the 12-month period to 31 March 2024, the
asset delivered a total return of 12.1% which compared with the
MSCI All Industrial over the same period of 4.7%.
Key activity
- The
speculative development of 11 warehouse and trade units completed
in May 2023. The new units achieved an 'A+' EPC rating and BREEAM
New Construction Excellent accreditation. The specification
includes a photovoltaic system that we expect to generate more than
250 MWh of energy per annum, 24 electric vehicle charging points
and an 800kVA substation to support the on-site renewables in
powering the fully electric site.
- Seven units, or 56% of the development by estimated rental
value, are now let at an aggregate 23% above the underwritten
assumptions. A 4,000 sq ft unit on the existing estate with EPC 'C'
was recently let at £14.00 per sq ft, whereas the comparable
operationally Net Zero Carbon units with EPC 'A+' and have been let
at around £19.50 per sq ft, reflecting a 39% premium. In addition,
the Company's independent valuer has applied a 5.35% yield to the
occupied operationally Net Zero Carbon units compared to 6.5% to
7.0% for the pre-existing asset. We believe these outcomes are
largely driven by the superior sustainability credentials of the
new units which serve as a proof of concept of the enhanced
strategy adopted by the Company.
Strategy
looking forward
- The
objective is for the new development to be fully let during 2024,
which would increase the net income from Stanley Green Trading
Estate by approximately £600,000 per annum compared with 31 March
2024. One unit is under offer and in legals at £150,000 per annum,
with encouraging interest in the remainder.
- The
strategy for the pre-existing 150,000 sq ft of trade counter,
self-storage and warehouse accommodation is to begin phased
refurbishments to enhance the aesthetic and sustainability
credentials of the units, with the aim of enabling us to attract
and retain high quality tenants and increase the rental tone to
more closely align with the rents achieved on the new
estate.
Swindon,
Stirling Court (Industrial)
Asset
overview and performance
Stirling Court is comprised of three
industrial units on an established industrial estate in Swindon.
One of the units is let at £7.26 per sq ft until March 2033, with a
break in March 2028, and the other two units have recently been
refurbished at a total cost of £1.5 million.
As at 31 March 2024, the asset was valued at
£7.9 million, reflecting a reversionary yield, assuming the two
refurbished units are let, of 8.7%. Over the 12-month period to 31
March 2024, the asset delivered a total return of 0.8% which
compared with the MSCI All Industrial over the same period of
4.7%.
Key
activity
- The
comprehensive, sustainability improvement -led refurbishment of two
units reached practical completion on 8 December 2023. The units
now benefit from LED lighting throughout, rooftop photovoltaic
panels and EV charging points. The EPC rating for both units
improved to a 'B' from a 'D' and a 'C' respectively.
Strategy
looking forward
- Let
the refurbished units targeting a rent of £8.00 per sq ft or total
rent of £480,000 per annum, reflecting the enhanced specification.
This would reflect a 28% increase on the previous average passing
rent for the two units of £6.26 per sq ft.
Edinburgh,
The Tun (Office)
Asset
overview and performance
The Tun is a multi-let office building in
Edinburgh city centre, located close to the Royal Mile and Scottish
Parliament.
As at 31 March 2024, the asset was valued at
£10.7 million, reflecting a net initial yield of 5.0% and a
reversionary yield of 8.9%. Over the 12-month period to 31 March
2024, the asset delivered a total return of 3.4% which compared
with the MSCI All Offices over the same period of -9.3%.
Key
activity
- Completed an extensive refurbishment program of common areas,
the roof and three vacant units at a cost of £2.1 million as at the
year end. The works include end of journey facilities which will
improve the sustainability credentials of the asset and help to
attract high quality tenants. This led to the completion of three
smaller lettings over the year.
- Works included a full Cat A refurbishment of the 7,343 sq ft
part third floor including new, more efficient, M&E, new LED
lighting, and improvements to natural light and fresh air. The unit
achieved an EPC rating of 'A' having previously been a
'D'.
- An
agreement for lease has exchanged with SLR Consulting Limited for
the refurbished part third floor and 2,876 sq ft part fourth floor,
which was surrendered by the European Parliament in return for a
premium paid to the Company of £240,000. SLR Consulting Limited
will pay a base rent of £290,293 per annum on a 10-year term. The
tenant will benefit from four months of rent free and has a break
option in year five. The Company will now carry out a Cat A
refurbishment of the part fourth floor and a Cat B fit out on all
space at a total cost of £1.0 million, with lease completion
expected in October 2024. In addition to the base rent, the tenant
will pay an additional £135,095 per annum for the first five years
of the term to reflect the Company carrying out the Cat B
fit-out.
- Existing tenant, Vattenfall Wind Power Limited, completed a
new five-year lease extension on 2,783 sq ft of space in return for
sustainability improvements costing £150,000. The lease renewal
commenced in May 2024 and the rent increases by 21% to £88,137 per
annum or £31.67 per sq ft, 17% ahead of the estimated rental value
as at 30 September 2023. The tenant will receive three months of
rent free.
- Following the works and activity outlined above, the total
contracted rent at The Tun will be £1.1 million per annum, compared
with £616,190 per annum at the start of the financial
year.
Strategy looking forward
- We
are discussing regears with further tenants, where we will look to
implement measures to improve the sustainability credentials of the
asset whilst increasing rent to and beyond the new headline rents
of £32 to £34 per sq ft.
London,
University of Law Campus, Store Street, Bloomsbury (Office /
University, 50% share)
Asset
overview and performance (unless specified 100% ownership
statistics shown below)
Freehold office and university campus located
less than 500 metres from Tottenham Court Road in an area
benefiting from infrastructure improvements such as the Elizabeth
Live and Camden local authority 'West End Project', and a diverse
range of 'knowledge-based' occupational demand including media,
technology, life science, consumer brands and finance. The
asset is let to the University of Law ('UoL') and currently has a
low site density with 85,814 of lettable space on a site of 0.8
acres.
As at 31 March 2024, the Company's 50%
interest in the asset was valued at £38.375 million, reflecting a
net initial yield of 4.5%, a reversionary yield of 5.8%, and
capital value equating to £894 per sq ft. Over the 12-month period
to 31 March 2024, the asset delivered a positive total return of
6.5% which compared with the MSCI All Offices over the same period
of -9.3%.
Key
activity
-
In December, the Company completed a new 85,814
sq ft lease with UoL that extended the lease from December 2026 to
December 2029. As part of the lease extension the rent review
dated December 2024 was pre-agreed at £2.36 million per annum,
equating to £55.00 per sq ft, 28% above the prior rent. The new
lease also benefits from a fixed rental increase in December 2026
to £2.43 million per annum equating to £56.65 per sq ft, and annual
fixed uplifts of 3% per annum from December 2026, leading to rent
of £2.58 million per annum or £60.10 per sq ft from December 2028,
39% above the rent prior to the new lease.
Strategy
looking forward
-
The next phase at Store Street is to progress
plans for the longer-term potential re-development post 2029, with
the objective to align with Camden's local plan, promoting
sustainable characteristics and contributing positively to
Bloomsbury's character and amenity. Consideration will also be
given to the specific demands of occupiers in the life sciences,
technology, and higher education sectors.
Bedford, St
John's Retail Park (Retail Warehouse)
Asset
overview and performance
St. John's Retail Park comprises a 120,000 sq
ft retail warehouse scheme underpinned by income from tenants
including Lidl, Home Bargains, Bensons for Beds, TK Maxx, Costa and
now Starbucks, with an average lease term, to the earlier of lease
expiry or break, of 7.0 years. The asset benefits from an affluent
catchment and has good parking.
As at 31 March 2024, the asset was valued at
£29.5 million reflecting a net initial yield of 6.7% and a
reversionary yield of 6.5%. Over the 12-month period to 31 March
2024, the asset delivered a total return of 1.7%, in line with the
MSCI All Retail Warehousing over the same period.
Key
activity
- A
15-year lease without breaks completed with Starbucks Coffee
Company UK Limited ('Starbucks') for a new 1,800 sq ft drive-thru
unit, that they constructed on the site to extract economies of
scale. The rent is £155,000 per annum which equates to £86.11 per
sq ft, and the lease benefits from inflation-linked increases with
a collar of 1% per annum and a cap of 3% per annum. Starbucks will
receive a contribution towards construction costs of £850,000 and
12-months of rent free, which are assumed in the valuation at the
year end. Starbucks are required to deliver the restaurant to a
minimum BREEAM rating of 'Very Good' and install rooftop
photovoltaic panels and electric vehicle charging points for
customer usage. The drive-thru café has now opened for
trade.
- Tenant break options were removed from several leases,
Hobbycraft, Halfords and Bensons for Beds had break options removed
in February 2025, May 2025 and October 2026 respectively in return
for five months of rent free. In addition, a new 10-year lease
without breaks was completed with Tapi Carpets. This activity has
secured longer term income from the asset.
Strategy
looking forward
- With
large roof space and a large car park there is an opportunity to
install further photovoltaic panels and electric vehicle charging
points at the site to improve the sustainability credentials of the
asset, and feasibility assessments are underway.
- There are several rent reviews due over the next 18-months,
including with Costa dating from October 2023, who are currently
paying £40.52 per sq ft. The recently achieved Starbucks rent of
£86.11 per sq ft, being 113% higher, provides strong evidence for a
material increase to the rent payable by Costa.
Salisbury,
Churchill Way West (Retail Warehouse)
Asset
overview and performance
50,000 sq ft, three-unit, retail warehouse
terrace in a prominent location on Salisbury's northern ring
road. The property adjoins a strongly performing Waitrose
food and home store. The property is currently let to Smyths
Toys (unit 1), Homesense (unit 2), and Sports Direct (unit 3) on a
short-term basis paying £697,000 per annum, or an average rent of
£13.90 per sq ft.
As at 31 March 2024, the asset was valued at
£8.4 million, reflecting a net initial yield of 7.8% and a
reversionary yield of 8.3%. Over the 12-month period to 31 March
2024, the asset delivered a total return of 1.9% which compared
with the MSCI All Retail Warehousing over the same period of
1.7%.
Key
activity
- Agreement exchanged with international discount retailer to
occupy unit 1 and part of unit 2, totalling 22,206 sq ft, on a new
25-year lease (break at year 20) at £440,000 per annum or £19.81
per sq ft. The tenant will receive nine months' rent free and
the lease will be subject to five yearly, inflation linked reviews
with a collar of 1% per annum and a cap of 3% per annum. Lease
completion is subject to planning and the Company delivering a unit
split and refurbishment at a cost of £1.2 million. The tenant is
required to install photovoltaic panels to the roof in order that
the overall project can achieve an EPC 'A'.
- A
planning application for the unit split is being prepared and will
be submitted shortly, with a view to works commencing in February
2025, when Smyths Toys and Homesense vacate.
Strategy
looking forward
- Terms have been agreed for a new five lease to Sports Direct
at £290,000 per annum or £14.50 per sq ft in return for the
tenant receiving 12 months' rent free. This is in the process
of being documented.
- The
remaining vacant unit comprising the balance of unit 2, totalling
7,500 sq ft, will be marketed at a rent of £135,000 per annum or
£18 per sq ft.
-
Assuming the activity proceeds as planned, the
combined new rent at Salisbury will be £865,000 per annum or £17.30
per sq ft, a 24% increase on the current level.
Leeds,
Headingley Central (Hotel, Retail, Office)
Asset
overview and performance
Mixed-use 129,000 sq ft prominently located
town centre scheme anchored by core convenience retail and leisure
operators including Premier Inn Hotels, Sainsbury's and The Gym
Group.
As at 31 March 2024, the asset was valued at
£20.9 million, reflecting a net initial yield of 6.7% and a
reversionary yield of 7.8%. Over the 12-month period to 31 March
2024, the asset delivered a total return of 6.4% which compared
with the MSCI All Retail over the same period of 0.0%.
Key
activity
- Following success in the previous year bringing Rudy's Pizza
and Burger King to the scheme, we have continued to drive rental
growth by combining small units to create suitable space for
national covenants. A 10-year lease without breaks completed with
Greggs plc who expanded into the adjoining unit to create a 1,094
sq ft restaurant. The rent is £70,000 per annum, or £63.99 per sq
ft which is 14% above their previous rent level. There is an
upwards only rent review on the fifth anniversary and the tenant
benefits from 12-months of free rent.
- A
five-year lease without breaks completed with Superdrug Stores plc
on their 7,345 sq ft store. The rent is £75,000 per annum, or
£10.21 per sq ft and the tenant will benefit from three-months of
rent free.
Strategy
looking forward
- Following the success in previous years of converting office
space at the scheme to a Premier Inn and space for The Gym, there
is an opportunity to relet the final 12,524 sq ft of former office
space for alternative, complementary use to the overall
scheme.
- Implement sustainability initiatives including installing
photovoltaic panels, adding further electric vehicle charging
points, enhancement of green space, and water recycling to improve
the sustainability performance of the asset.
Balance sheet
As at 31 March 2024, the average interest rate
for drawn debt was 3.5%, with an average loan term of 9.7 years,
and 91% of total drawn debt was either fixed or hedged against
movements in interest rates. As at 31 March 2024, the
Company had cash, including cash held in
joint ventures, of £6.2 million and a net loan to
value ('LTV') ratio of 37.1%, which is slightly above the long-term
strategic target range of 25% to 35%. Details of the
loans are set out below, together with cover against
covenants.
Canada Life term
loan
The debt refinancing with Canada Life in 2019
provides a significant benefit in a higher interest rate
environment. This long-term loan, which represented £129.6 million
of the £176.6 million total borrowings at the year end, has an
average loan maturity of 12.0 years, with a fixed average interest
rate of 2.5%. At the year end, the incremental positive fair
value benefit of this fixed rate loan was £18.5 million, which is
not reflected in the Company's NAV.
Lender
|
Loan (£m)
|
Maturity
|
Total interest rate (%)
|
Asset value (£m)
|
Cash
(£m)
|
LTV ratio (%)2
|
LTV ratio covenant (%)2
|
ICR (%)3
|
ICR covenant (%)3
|
Projected ICR (%)4
|
Projected ICR covenant (%)4
|
Facility A
|
64.8
|
15/10/2032
|
2.41
|
262.2
|
1.3
|
48.9
|
65
|
497
|
185
|
482
|
185
|
Facility B
|
64.8
|
15/10/2039
|
2.61
|
Canada Life Term Loan
|
129.6
|
Average loan maturity of 12.0
years
|
2.51
|
- Net LTV on the secured assets against this loan is 48.9%. On
this basis the properties charged to Canada Life could fall in
value by 25% prior to the 65% LTV covenant being
breached;
- The interest cover ratio is 497% based on actual net rents
for the quarter to 31 March 2024. A 63% fall in net income could be
sustained prior to the loan covenant of 185% being
breached;
- The projected interest cover ratio is 482% based on projected
net rents for the year ending 31 March 2025. A 62% 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 37% and 65%
respectively prior to either the LTV or interest cover ratio
covenants being breached.
RBSI revolving credit facility
('RCF')
The balance of borrowings at the year-end
totalling £47.0 million comprised a revolving credit facility
('RCF') from RBSI. This facility totals £75 million and can be
drawn and repaid at any time up to maturity in June
2027.
Lender
|
Loan/ amount drawn (£m)
|
Maturity
|
Total interest rate (%)
|
Asset value (£m)
|
LTV ratio (%)2
|
LTV ratio covenant (%)2
|
Projected ICR (%)4
|
Projected ICR covenant (%)4
|
RBSI
RCF
|
75.0/47.05
|
06/06/2027
|
4.16
|
157.6
|
29.8
|
657
|
231
|
200
|
- The RCF benefits from an interest rate 'collar' which
applies to £30.5 million of the £47.0 million now drawn. The collar
runs to the end of the RCF term and allows the Company to benefit
from future falls in interest rates down to a 3.25% floor, whilst
at the same time protecting the Company from rate increases above
4.25%.
- Net LTV on the secured assets against this loan is 29.8%. On
this basis the properties charged to RBSI could fall in value by
54% prior to the 65% LTV covenant being breached;
- The projected interest cover ratio is 231% based on projected
net rents for the year ending 31 March 2025. A 13% fall in net
income could be sustained prior to the loan covenant of 200% being
breached;
-
After utilising available cash and uncharged
properties, the valuation and actual net rents could fall by 68%
and 26% respectively prior to either the LTV or projected interest
cover ratio covenants being breached;
During the financial year the RCF was
converted into a 'Sustainability Linked Loan' ,
with performance measured against KPIs, with each KPI having the
potential to either reduce the margin by 1.65 basis points,
increase it by 1.65 basis points or have no impact. The KPIs
are:
- Change in landlord energy consumption (year on
year)
o A
reduction by 5% or more: reduce the margin
o No change or a reduction below 5%: no change
o An increase: increase the margin
- GRESB rating
o 4
stars or above: reduce the margin
o 3
stars: no change
o 2
stars or below: increase the margin
- Development or refurbishment projects that improve EPC or
BREEAM rating to a minimum of EPC 'B' or BREEAM Very
Good
o If all new developments or major renovations of the
properties meet the requirement: reduce the margin
o If no property has been refurbished or developed: no
change
o If one or more new developments or major renovations of the
properties carried out during the term of the facility does not
meet the requirement: increase the margin
1.
Fixed total interest rate for the loan
term.
2.
Loan balance less the amounts standing to the
credit of the Sales Proceed Account and Remedy Account divided by
the property values as at 31 March 2024.
3.
This covenant is calculated by dividing the rental
income received for the quarter preceding the Interest Payment Date
('IPD'), less void rates, void service charge and void insurance,
by the interest paid in the same quarter.
4.
This covenant is calculated by dividing the
forecast contracted rent for the four quarters following the period
end, less forecast void rates, void service charge and void
insurance, by forecast interest paid.
5.
Facility drawn as at 31 March 2024 from a total
available facility of £75.0 million.
6.
Total interest rate as at 31 March 2024
comprising applicable SONIA rate of 5.19% and the margin of 1.65%
at a LTV below 60%. Should the LTV be above 60%, the margin
increases to 1.95%.
7.
LTV ratio covenant of 65% for years one to three,
from post commencement on 6 June 2022, then 60% for years four and
five.
Outlook
Having experienced a significant correction in
values, and whilst uncertainty persists regarding the inflation
outlook and the timing of interest rate cuts, the real estate
sector should benefit from looser monetary policy going into 2025.
A nascent recovery is arguably reflected in the portfolio value
remaining unchanged over the quarter to March 2024.
More positively, much of the real estate
sector is now delivering an income return and nominal rental growth
above the long run average due to the inflationary environment, a
resilient occupational market and limited development. Alongside
recovering industrial values, well located, fit-for-purpose offices
and retail assets are benefiting from a gradual shift back to the
office and more consumers switching back to in-store shopping. At
the same time, there is increased demand for operational real
estate assets such as hotels, self-storage, and data
centres.
The Company is well placed to benefit in this
environment due to our exposure to higher growth sectors, low-cost
long-term debt, and significant potential to drive earnings growth
from active management and a higher reversionary income profile
compared with peers.
Finally, alongside these nearer-term factors,
our strategy continues to reflect the impact of longer-term
structural trends such as urbanisation, technological change,
demographics and, arguably most critical for the real estate
sector, sustainability. We therefore have conviction that our
strategic evolution to place sustainability at the centre of our
investment proposition should enhance our long-term total
returns.
Nick Montgomery
Fund Manager
5 June 2024
Sustainability Report
Strategic evolution and changes to
the investment objective and policy
At the EGM on 15 December 2023, shareholders
voted to formally include sustainability at the centre
of the Company's investment proposition, with a sustainability
improvement and decarbonisation strategy focused on adapting
existing buildings into those that are both modern and fit for
purpose, thereby taking a proactive position in response to the
UK's Net Zero Carbon objectives whilst optimising portfolio
performance to seek enhanced total returns for
Shareholders.
The Investment Manager has developed a
proprietary "ESG Scorecard" which will be used to manage, measure,
and monitor the ESG performance and progress of assets in the
portfolio against the Company's sustainability investment
objectives. In addition, the Company has made Net Zero Carbon
commitments which apply to the whole portfolio and complement the
asset level monitoring. The Investment Manager has also invested in
new software to increase the efficiency of collecting
sustainability data which will support the ESG Scorecard and
enhance the Investment Manager's ability to analyse and report on
assets and their ESG performance, as well as achieve the Net Zero
Carbon commitments.
Progress against the new objective will be
demonstrated annually by utilising the ESG Scorecard and Net Zero
Carbon performance KPIs.
Sustainability KPI 1
ESG Scorecard (asset level)
|
Sustainability KPI 2
Net Zero Carbon commitments (portfolio
level)
|
The Company's assets will be
managed with a view to ensuring that at any given time during the
Company's ownership, at least 75% of the portfolio assets by value
are being managed with a realistic and achievable plan to reach a
score of at least 3 (out of a possible total score of 5), as
measured on the ESG scorecard.
For those 75% of the Company's
assets (by value), in each case where leases permit prompt
commencement of works to improve their sustainability profile, the
aim will be to take the asset to an improved score of at least 3
(out of a possible total score of 5) within five years from: (i) 1
April 2024 or, if later: (ii) the date it was acquired by the
Company.
|
Further, the Company's assets will
also continue to be managed in line with the Company's existing
'pathway to net zero' commitments, which in summary include seeking
to attain the following:
· operational whole buildings emissions to be aligned to a
1.5°C global warming 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 (as defined in
the Greenhouse Gas Protocol) 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.
|
ESG Scorecard
Over 75% (79%) of assets by value in the
portfolio have been assessed using the ESG Scorecard which measures
sustainability performance against a broad range of pre-defined
real estate sustainability metrics. These fall within the following
four pillars:
1. Environmental;
2. Social;
3. Certification and Ratings; and
4. Tenant Profile.
Within each of these pillars, there are
sub-topics against which each asset will be assessed. For each of
these sub-topics, the Investment Manager assigns a rating from 1
(low - significant improvements needed) to 5 (high - best in class
or best industry practice). Many of the sub-topics are assessed on
a quantitative basis, with some assessed on a qualitative basis.
The justification provided against each rating will also indicate
the timeline for expected improvements, and the determination of a
target score. Each sub-topic is weighted to enable a weighted
average asset level current and target score - between
1 and 5 - to be calculated.
The 15 assets scored to date all present the
potential for their scores to be improved beyond the minimum 3 out
of 5 set in the investment objective. Improvement plans will be set
in the context of each asset's business plans, common themes and
actions were identified as follows:
1. Improving metering of
utility supplies: Roll out automated / smart metering and
sub-metering of landlord and tenant supplies across the
portfolio.
2. Phasing out fossil fuels:
Replace inefficient and energy intensive heating systems fuelled by
fossil fuels with modern, efficient electric based
systems.
3. Improving building
fabric: Improve building fabric through the provision of better
insulation and/or roof and cladding repairs to reduce the need for
space heating whilst addressing overheating and overcooling
concerns.
4. Installing on-site
renewable: Utilise roof space where solar PV panels can be
installed to generate electricity on site, reduce emissions and
energy bills.
The Investment Manager believes that measuring
assets against its own proprietary scorecard in this manner will
support consistent standardised portfolio-wide monitoring and
enable it to define ambitious yet achievable asset-specific
targets, ultimately helping to demonstrate the Company's ability to
deliver the targeted positive change over time.
Table 1: Asset-level ESG Scorecard performance at 1 April
2024 and potential target score (scores out of 5) for 15 Company
assets representing 79% of the property portfolio by Gross Property
Value
|
Asset
|
ESG scorecard score at 1
April 2024
|
Target ESG scorecard
score
|
Stacey Bushes Industrial
Estate
|
2.2
|
4.0
|
Millshaw Park Industrial
Estate
|
2.6
|
4.1
|
Stanley Green Trading
Estate
|
2.5
|
4.1
|
The University of Law
(50%)
|
2.8
|
4.5
|
St John's Retail Park
|
2.7
|
4.2
|
City Tower (25%)
|
2.9
|
4.0
|
Langley Park Way
|
2.8
|
4.2
|
Union Park Industrial
Estate
|
2.6
|
4.1
|
Headingley Central
|
2.6
|
4.3
|
Horton Park Industrial
Park
|
2.3
|
3.9
|
St Ann's House
|
2.3
|
3.2
|
The Tun
|
2.8
|
4.2
|
The Galaxy
|
2.5
|
4.2
|
Churchill Way West,
Salisbury
|
2.4
|
3.6
|
Royscot House
|
2.9
|
4.1
|
Clifton Park
|
2.5
|
3.9
|
Total portfolio
|
79% of portfolio assessed by Gross Property
Value
|
Pathway to Net Zero Carbon
According to the World Green Building Council
('WGBC') buildings are responsible for 39% of global energy related
carbon emissions[14]. In April 2022 the
Intergovernmental Panel on Climate Change ('IPCC') identified that
global carbon emissions must peak by 2025 at the very latest to
effectively limit global temperature rise to 1.5oC, in
line with the Paris Agreement[15].
The Board and Manager recognise that the
Company has a responsibility to embark on a journey to Net Zero
Carbon ('NZC')[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 Manager signed the Better Building
Partnership's ('BBP') Climate Commitment[17]
and has a net zero ambition aligned to the Paris Agreement aim to
limit warming to 1.5°C. The Manager's commitment was further
underlined by the Company who in 2022 announced its 'Pathway to Net
Zero Carbon' committing to:
-
Operational whole buildings emissions to be aligned to a
1.5°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; and
-
Operational and embodied whole building (scope 1, 2 and 3 -
landlord and tenant) emissions to be net zero by 2040.
Other commitments associated with the
manager's overall NZC commitments are:
-
Procure 100% renewable electricity for landlord-controlled
supplies by 2025; and
-
Minimise amount of operational waste sent to
landfill.
Performance against
objectives from the start of the financial
year
In H1 2024, forward-looking NZC
pathways were developed, using the industry adopted Carbon Risk
Real Estate Monitor ('CRREM'), to present the operational energy
associated decarbonisation requirements aligned with a 'Paris
Proof' decarbonisation trajectory to pursue efforts to limit global
warming to 1.5°C. During the reporting year, the Manager has been
reviewing its NZC methodology to align with most recent
developments in the CRREM tool, including the release of CRREM
version 2 in 2023, and best practice accounting at the whole
building level. This has led to the creation of a new baseline for
SREIT's assets utilising calendar year 2023 data (replacing the
original baseline of 2019 data). Decarbonisation pathways have been
developed for all of assets in the fund, which have been aggregated
to Fund level to create the portfolio's targets.
Important note:
Previous NZC analysis included only the
portfolio's landlord-controlled assets. This year's reported
analysis includes all assets within the portfolio. This means full
repairing and insuring ('FRI') leased assets, including industrial
assets[18], have been accounted for and
which have had an impact on the overall performance and associated
energy and GHG intensity targets of the portfolio.
The 2024 NZC analysis indicates
the Company will need to implement continued improvement
initiatives to progress towards its energy and greenhouse gas
('GHG') intensity targets, requiring reductions of 44% and 52% to
be achieved respectively by 2030 (interim target) over the 2023
baseline year. Table 2 below presents details of the Company's
operational energy and carbon intensity.
The Company is working through
modelling of energy conservation measures to identify the most
relevant improvement actions required to meet the Company's 2040
net zero commitment. These measures have been determined through
sustainability and NZC audits procured from external consultants.
Dedicated NZC audits are necessary to build robust pathways and a
database of energy conservation measures to inform more accurate
decarbonisation pathways in terms of energy and carbon performance,
and cost. The audits scope includes assessment of fugitive,
operational and embodied carbon[19], water and
waste emissions and suggestions of how these can be managed for the
audited assets.
Table 2: The Company's baseline performance and
reduction requirements to 2030 for GHG and Energy Use
Intensity.
|
Baseline (2023) reflecting
whole building level performance for whole year at full
operation
|
2030
Target*
|
% Change required to reach
2030 target
|
2040
target
|
% Change required to reach
2040 target
|
Energy Intensity
(kWh/m2)
|
161
|
90
|
-44%
|
63
|
-61%
|
GHG
Intensity**
(kgCO2e/m2)
|
29
|
14
|
-52%
|
3
|
-90%
|
* The NZC interim targets are dynamic and depend
on the year-on-year assets' performance and updates of CRREM
pathways. The NZC analysis process is continual with annual
reassessment of progress against targets, with audits providing
more informed inputs to support target setting, and the actual
effect of interventions being captured.
**GHG intensity includes both fugitive emissions
(i.e. emissions associated with refrigerant gases used across
assets) and carbon emissions occurring from energy consumption
within the asset (covering both landlord and tenant
areas).
|
Key Achievements over the financial
year
Alongside the work developing and implementing
the strategic evolution, good progress has been made delivering on
the pre-existing sustainability ambitions, with key achievements
during the financial year summarised below:
Progress towards Net Zero Carbon
by 2040
|
New analysis undertaken to
re-baseline portfolio against CRREM[20]
v2 and include 100% of Company assets.
5 detailed asset-level Net Zero
Carbon audits commissioned.
|
Improved GRESB score
|
3-Star rating; 79 score (up from
77 in 2022); 1st in peer group[21].
Maintained 'A' rating in GRESB
Public Disclosure.
|
EPRA sBPR Awards for
Sustainability Reporting
|
Gold Award for the sixth year
running[22].
|
No. of sustainability
audits[23]
|
14
|
Increasing no. sustainability
certifications completed in reporting year
(Total no. assets with
sustainability certifications)
|
+2 BREEAM New Construction
'Excellent' ratings.
(10 assets total)
|
Increasing no. assets with on-site
renewables
|
6 assets with solar PV (2022: 3
assets)
|
Improved EPC rating and coverage
performance (% by floor area)
|
-
100% MEES compliance (2022: 100%)
-
EPC coverage = 99% (2022: 97%)
-
EPCs above C rating = 60% (2022: 58%)
-
12 industrial units developed to EPC 'A+'
standard
(At 31 December 2023)
|
Investment strategy formally
amended with focus on sustainability improvement, and which is
effective from 1 April 2024.
|
Note: All data is reported at 31
March 2024 unless otherwise stated.
|
The Company's wider approach to
sustainability
The Board and Manager believe that
focusing on sustainability, and Environmental, Social and
Governance ('ESG') considerations more generally, throughout the
real estate life cycle, will deliver enhanced long-term returns for
shareholders as well as have a positive impact on the environment
and the communities where the Company is investing. A key part of
our sustainability strategy is delivering operational excellence
for occupiers as well as demonstrating continued improvements in
sustainability performance.
The Manager's real estate
investment strategy, which aims to proactively take action to
improve social and environment outcomes, focuses on the pillars of
'People, Planet and Place' which are referenced to three core UN
Sustainable Development Goals ('SDGs'): (8) Decent Work and
Economic Growth; (13) Climate Action and (11) Sustainable Cities
and Communities.
Active management of
sustainability performance is a key component of responsible asset
and building management. Reducing consumption, improving
operational efficiency, and delivering higher quality, more
sustainable spaces, will benefit tenants' occupational costs and
may support tenant retention and attraction, in addition to
mitigating environmental impacts and helping to future-proof the
portfolio against future legislation.
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Further information on the
Manager's Sustainable Investment approach, and sustainable
investment policy can be found here.
This report seeks to present our
approach to managing ESG considerations and performance against our
sustainability objectives. Case studies highlighting ESG in
practice are used throughout and detailed ESG performance data are
presented with the EPRA sBPR aligned Sustainability Performance
Measures sections from page 113.
Protecting our planet
(environmental)
The Board and Manager considers the
relationship between its real estate investments and the
environment to be of strategic importance to the Company. By
addressing risks related to the transition to a low-carbon economy
such as compliance with current and future legislation and meeting
market demands, and by embracing sustainable practices, such as
energy-efficient building design, renewable energy integration, and
climate resilience measures, we believe there is an opportunity to
enhance property value, attract tenants, and reduce operational
expenses.
As part of our commitment to achieving Net
Zero Carbon (NZC) by 2040, over the reporting year we have
implemented improvements such as replacing and upgrading Heating,
Ventilation, and Air-Conditioning (HVAC) systems, upgrading
lighting systems with low energy fittings and enhanced controls,
and completed thermally efficient industrial units, which generate
clean energy through on-site roof mounted solar photovoltaic (PV)
systems. These measures have not only led to improvements in our
Energy Performance Certificates (EPCs), contributing to the
delivery of EPC 'A+' schemes at Stanley Green and 19 Hollin Lane,
Stacey Bushes, but also the resilience of our strategy in the face
of climate-related risks.
Risks and opportunities are also present in
the interface between the built environment and nature. Nature
provides essential ecosystem services, such as clean air, water,
and climate regulation, which are fundamental to the well-being of
communities and the functionality of built environments. Activity
during the reporting year includes the commissioning of specialist
ecological surveys, such as at Clifton Park, York, allowing the
Manager to build out its understanding of the Company's
relationship with nature, identifying how it may support local
nature at an asset level including through the protection and
provision of habitats which support nature such as wildflower
planting for pollinators, and log piles for insects.
Performance against
objectives from the start of the
financial year
|
Goal
|
FY24 outcome
|
Environmental
|
Net Zero Carbon (Scopes 1, 2 and 3)
by 2040
|
New analysis undertaken to
re-baseline portfolio against CRREM v2 and now including 100% of
Company assets.
5 detailed asset-level Net Zero
Carbon audits commissioned.
|
Annual reduction in landlord energy
consumption and associated scope 1 and 2 greenhouse gas (GHG)
emissions on a like-for-like basis
|
-
Energy = 1.5% increase*
-
GHG emissions = 8% increase
(Calendar Year 23 vs. Calendar
Year 22)
|
Increase use of on-site renewable
energy and source 100% of landlord electricity through renewable
tariffs by 2025
|
-
6 assets with solar PV (2022: 3
assets)
-
80% of the Company's landlord procured
electricity was on a renewable tariff (2022: 74%)
|
Annual reduction in landlord
like-for-like water consumption
|
19% increase
(Calendar Year 23 vs. Calendar Year
22)
|
Send zero landlord waste to
landfill and prioritise waste recycling
|
-
Zero waste directly to landfill.
-
56% of waste was recycled and 44% was incinerated
with energy recovery.
|
Maintain 100% MEES[24] compliance and improve proportion of assets with
EPC ratings 'B' or above (floor area)
|
-
EPC coverage = 99%* (2022: 97%)
-
EPCs above C rating = 58% (2022: 58%)
-
EPCs above B rating = 21% (2022: 18%)
-
12 industrial units developed to EPC 'A+'
standard.
*
Remaining footprint without EPCs relates to assets
where improvement works have been scheduled
and EPCs will
be procured on completion of these works. Please note that the
Company remains compliant with MEES regulations.
(At 31 December 2023)
|
Assess physical climate risk
profiles for all assets and develop resilience strategies where
material risks identified
|
Physical climate risk profile
maintained for all assets using third-party database. The Manager
will begin to develop climate resilience strategies for higher risk
assets during the course of the next reporting
year.
|
Improve biodiversity opportunities
across the portfolio
|
16 assets where biodiversity
opportunities have been completed (including installation of bird
boxes, bee hives or bug hotels)
Ecological Survey completed for one
asset by qualified ecologist.
|
Note: All data is reported at 31 March 2024 unless otherwise
stated.
|
Supporting people and places (Social)
The importance of understanding real estate
investment's positive and negative social impacts has increased
over the last decade. There is a growing expectation from
investors, building occupiers, governments, regulators, and the
general public that built assets should not only mitigate
disruption and negative externalities but also proactively maximise
their positive impacts on people and places alike. Particularly in
the UK, there is a variety of regulatory drivers, such as Social
Value Assessments which are now required by many local authorities
thus making social value a formal consideration in planning
applications.
We now spend up to 90% of our time
indoors[25], so the spaces we create and
manage significantly influence our physical and mental well-being.
Additionally, our immediate locale and the interactions within it
affect the jobs we can access, the goods and services we make use
of, our health and well-being, and our social capital and
connections[26]
We recognise that most buildings are not
isolated but stand as part of their local communities. Improving
opportunities for interacting with local communities helps create
successful places that foster community relationships, contribute
to local prosperity, and attract building users[27]. Understanding and responding to the needs of
building occupiers and local communities where possible aids us in
creating vibrant and inclusive places which ultimately helps
deliver making better, more resilient investments in the long
run.
All site teams are encouraged to engage with
local communities where this is appropriate to the asset. Examples
of community initiatives undertaken in the reporting period include
permitting the local model railway society to use part vacant space
and supporting local and national charities such as 'KidsOut'
children's Christmas appeal, and 'Let's Can Hunger' foodbank
appeal. At Headingley Central, a monthly makers market is held,
providing a platform for local craftspeople and
businesses.
Performance against objectives from the start of the
financial year
|
Goal
|
FY24 outcome
|
|
Ensure the health, safety and
wellbeing of building occupiers and users
|
100% of managed assets where Health
and safety assessments were completed
(At 31 December 2023)
|
Social
|
Improve proportion of assets where
occupier engagement activities are implemented
|
100% of Company assets. Initiatives
including an occupier sustainability newsletter.
(At 31 December 2023)
|
Improve proportion of assets where
community engagement activities are implemented
|
43% of Company assets. Initiatives
including support for local charity groups and a
"makers market" for local
craftspeople.
(At 31 December 2023)
|
Improve availability of low carbon
transport (active transport facilities; EV charging etc.)
facilities
|
Active transport infrastructure in
place for 21 assets.
Support provision of electric
vehicle charging for 14 assets.
|
Note: All data is reported at 31 March 2024 unless otherwise
stated.
|
Responsible business (Governance)
The Manager operates an
Environmental Management System ('EMS',) aligned to ISO 14001, for
the asset management of direct real estate investments in the
UK and across Europe. This provides the framework for how
sustainability principles are managed throughout all stages of its
investment process and the Manager has developed a collection of
proprietary tools to support the delivery at both asset and
portfolio level including an ESG Scorecard for consistent
assessment of asset sustainability performance, Impact and
Sustainability Action Plans for continually improving standing
investments, a Sustainable Development Brief for projects, and
Property Manager Sustainability Requirements for use in contractual
Property Manager Agreements.
The Manager continues to work
towards enhancing its understanding of portfolio and asset
sustainability credentials, having completed ESG Scorecards for 79%
of the portfolio by Gross Property Value. Performance against the
ESG Scorecard is a formal commitment of the Company's investment
objective with effect from 1 April 2024 alongside its commitment to
Net Zero Carbon.
Performance against
objectives from the start of the financial
year
|
Goal
|
FY24 outcome
|
Governance
|
Improve Global Real Estate
Sustainability Benchmark ('GRESB') rating
|
-
1st in peer group
-
3-star status
-
Improved score to 79 (2022: 77)
Maintained 'A' rating in GRESB
Public Disclosure
|
Increase coverage of sustainability
audits across portfolio
|
ESG Scorecards completed for 79%
of the portfolio by Gross Property Value
15 asset level ESG Scorecards
completed (14 third-party audits; 1 internally completed) (2022: 10
audits)
|
Improve coverage and quality of
sustainability certifications (e.g. BREEAM) across
portfolio
|
10 assets with sustainability
certifications*
(+2 BREEAM New Construction
certificates for new industrial units at Stanley Green and Stacey
Bushes (both rated 'Excellent'))
(At 31 December 2023)
|
Maintain EPRA Gold Award for
Sustainability Reporting
|
Gold Award for the sixth year
running
|
Sustainability Linked Loan tied to
RCF agreed with RBS
|
Agreed in 2023
|
Note: All data is reported at 31 March 2024 unless otherwise
stated.
|
Sustainability-linked loan
performance
Underlying its commitment to the
sustainability performance of the Company, the Manager and Board
have established a Sustainability-linked Loan ('SLL') tied to its
revolving credit facility ('RCF'). A key element to the updated
agreement with RBSI is the selection of three key performance
indicators which will be used to assess the Company's performance
and determine the margin rate applied to the loan. The KPIs
are:
-
KPI 1 refers to the like-for-like annual energy performance
under landlord control;
-
KPI 2 refers to the EPC and green building certificate
standards at which new construction and major renovations are
completed; and
-
KPI 3 refers to the annual GRESB rating for the
Company.
Task Force on Climate-Related
Financial Disclosures
The Manager has previously
provided a statement of alignment with the principles of the Task
Force on Climate-Related Financial disclosures ('TCFD') in annual
reports. However, in compliance with the requirements set out in
chapter 2 of the Environmental, Social and Governance sourcebook
('ESG Sourcebook') of the FCA Handbook, this year the Manager will
publish a mandatory product-level disclosure consistent with TCFD
by 30th June 2024. This disclosure will be available on
the Schroders Plc website. This will be in addition to the
Schroders Real Estate Investment Management ('SREIM') entity-level
TCFD disclosure published by 30th June 2024, and the
Schroders plc Climate report 2023[28].
These reports provide details on the approach to the consideration
of climate-related risks and opportunities across Governance,
Strategy, Risk management and Targets across Schroders Group and
Schroders Capital real estate.
Industry engagement
Schroders supports, and collaborates with,
several industry groups, organisations and initiatives including
the United Nations Global Compact, United Nations Principles of
Responsible Investment ('UN PRI') and Net Zero Asset Managers
Initiative (of which it is a founding member). Further details of
Schroders' industry involvement is available here:
https://www.schroders.com/en/global/individual/about-us/what-we-do/sustainable-investing/our-sustainable-investment-policies-disclosures-voting-reports/industry-involvement/
and compliance with UN PRI available here:
https://www.schroders.com/en-gb/uk/institutional/what-we-do/sustainable-investing/our-sustainable-investment-policies-disclosures-voting-reports/disclosures-and-statements/the-un-principles-for-responsible-investment/.
The Manager is a member of several industry
bodies including the European Public Real Estate Association
('EPRA'), INREV ('European Association for Investors in Non-Listed
Real Estate Vehicles'), Urban Land Institute, British Council for
Offices and the British Property Federation. It has been a member
of the Better Buildings Partnership since 2017. It is a member of
the Global Real Estate Sustainability Benchmark ('GRESB') of which
the Company has participated in the annual real estate survey for
the past eight years.
Slavery and Human Trafficking
Statement
The Company is not required to produce a
statement on slavery and human trafficking pursuant to the Modern
Slavery Act 2015 as it does not satisfy all the relevant triggers
under that Act that required such a statement.
The Manager to the Company, is part of
Schroders plc and whose statement on Slavery and Human Trafficking
has been published in accordance with the Modern Slavery Act 2015.
Schroders' Slavery and Human Trafficking Statement can be found
here: https://www.schroders.com/en/sustainability/corporate-responsibility/slavery-and-human-trafficking-statement/.
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 investment objective of the
Company is to provide shareholders with an attractive level of
income and the potential for income and capital growth from owning
and actively managing a diversified portfolio of UK commercial real
estate, while achieving meaningful and measurable improvements in
the sustainability profile of the majority of the portfolio's
assets (considered against a range of objective environmental,
social and governance metric).
Investment
policy
The investment policy of the
Company is to own a diversified portfolio of UK commercial real
estate assets which are underpinned by good fundamental
characteristics, and whose sustainability profiles can be improved
while they are owned by the Company. The Company may invest across
the full range of commercial real estate sectors.
In order to spread investment
risk, the Company will seek to invest in a portfolio that is
diversified by location, sector, asset size, tenant exposure and
lease expiry, and will focus on assets where making sustainability
improvements will enhance total return.
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%.
More specifically in relation to
sustainability-related activity:
· The
Company will focus on sustainability improvement in the selection
and active management of real estate assets. Real estate assets
will be selected and actively managed with a view to achieving a
meaningful improvement in their sustainability profile, as measured
against the Investment Manager's scorecard of environmental,
social, and governance ('ESG') metrics.
· Across the portfolio, the Company will focus on opportunities
to improve the sustainability performance of buildings which may
include improving their fabric, phasing out fossil fuel-based
heating systems, improving operational energy efficiency, and
installing means of on-site renewable energy generation such as
photovoltaic panels.
· In
addition to these energy and carbon efficiency-related
opportunities, wider ESG considerations will also be taken into
account when looking for ways to achieve meaningful improvement in
the sustainability profile of real estate assets, and when
demonstrating that such improvement is being achieved, including
exposure to physical climate risks, access to green space and
community facilities, building certifications, and tenant
profile.
· The
ESG scorecard used by the Company will therefore use objective
metrics to capture the performance of assets (and the improvements
in performance during ownership by the Company) in respect of a
broad range of ESG factors.
Sustainability KPIs
· The
Company's assets will be managed with a view to ensuring that at
any given time during the Company's ownership, at least 75% of the
portfolio assets by value are being managed with a realistic and
achievable plan to reach a score of at least 3 (out of a possible
total score of 5), as measured on the ESG scorecard.
· For
those 75% of the Company's assets (by value), in each case where
leases permit prompt commencement of works to improve their
sustainability profile, the aim will be to take the asset to an
improved score of at least 3 (out of a possible total score of 5)
within five years from: (i) 1 April 2024, or, if later: (ii) the
date it was acquired by the Company.
· Further, the Company's assets will also continue to be
managed in line with the Company's existing 'pathway to net zero'
commitments, which in summary include seeking to attain the
following:
o operational whole buildings emissions to be aligned to a
1.5°C global warming pathway by 2030;
o embodied emissions for all new developments and major
renovations to be net zero by 2030;
o operational scope 1 and 2 (landlord) emissions (as defined in
the Greenhouse Gas Protocol) to be net zero by 2030; and
o 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 focused
on delivering sustainable dividend growth by improving the quality
of its underlying portfolio through a disciplined, research-led
approach to transactions and active asset management, focused on
delivering sustainability improvements and operational excellence.
This activity is complemented by maintaining a robust balance sheet
and efficient management of costs.
The Company aims to own a
diversified portfolio of properties delivering an above average
income return and benefitting from structural changes driving
income and capital growth such as urbanisation, innovation in
technology and changing demographics. These properties may benefit
from favourable supply and demand characteristics and by improving
their environmental performance, the Company can capture the rental
and valuation premium that buildings with genuine green credentials
can command, sometimes called the 'Green Premium'.
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
directors 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%.
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 Company's Articles limit
borrowings to 65% of the Group's gross assets, calculated as at the
time of borrowing.
The Board has established a
gearing guideline for the Investment Manager, which seeks to limit
Group on-balance-sheet debt, net of cash, of between 25% and 35% of
Group portfolio value while recognising that this gearing may be
exceeded in the short term from time to time. For these
purposes, 'Group' refers to the Company along with its subsidiaries
at any given time. The term 'Group portfolio value' signifies the
fair market value of the Group's property portfolio as appraised by
the Company's independent valuer. It's important to note that this
valuation excludes the worth of other on-balance-sheet assets owned
by the Group.
The Board actively monitors this
guideline and possesses the authority to instruct the Investment
Manager to adjust the management of the Group's assets. The
objective here is to ensure that borrowings are maintained within a
defined acceptable range. However, this directive takes into
consideration the best interests of the shareholders. As a result,
immediate action to correct deviations from this guideline may not
be mandatory if such actions could negatively impact 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;
-
the Group will not invest in other listed
investment companies; and
-
where amendments are made to the Listing Rules,
the restrictions applying to the Company will be amended so as to
reflect the new Listing Rules
In addition, the Board will ensure
compliance with the UK REIT regime requirements.
Performance
The Board uses principal financial
Key Performance Indicators ('KPIs') to monitor and assess the
performance of the Company. These are the net asset value ('NAV')
total return, the performance of the Company's underlying property
portfolio relative to its MSCI Benchmark Index and the share
price:
1. NAV total
return
For the year to 31 March 2024 the
Company delivered a NAV total return of 1.1% (-15.1% for the year
to 31 March 2023).
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 2024 the Benchmark comprised 152 member funds.
Underlying property portfolio
performance
Total return for 12 months to 31 March 2024
|
Total return for 12 months to 31 March 2023
|
SREIT
(%)
|
MSCI
Benchmark (%)
|
SREIT
(%)
|
MSCI
Benchmark (%)
|
3.2%
|
-1.3%
|
-7.9%
|
-13.5%
|
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 2024, the share
price of 41.9p was at a 28.7% discount to the NAV of 58.8 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 UK
Companies Act 2006 requires a director of a company to act in the
way he or she considers, in good faith, would be most likely to
promote the success of the company for the benefit of its members
as a whole. In doing this, section 172 requires a director to have
regard, among other matters, to: the likely consequences of any
decision in the long term; the interests of the company's
employees; the need to foster the company's business relationships
with suppliers, customers and others; the impact of the company's
operations on the community and the environment; the desirability
of the company maintaining a reputation for high standards of
business conduct; and the need to act fairly with members of the
company. The Directors give careful consideration to the factors
set out above in discharging their duties under section
172.
The Board is focused on ensuring
that the Company delivers on its strategic objectives, while taking
into account the impact on its stakeholders as a whole. It is our
firm belief that prioritising positive stakeholder relationships is
central to delivering long-term, sustainable returns. The Board is
focused on ensuring that it understands its stakeholders'
needs.
Shareholders
The Board
is committed to maintaining high standards of corporate governance
in order to protect shareholder interests. The Investment Manager
undertakes an active investor relations schedule in London and the
regions throughout the year, which includes one-on-one and group
meetings with shareholders as well as regular presentations to the
sell-side analyst community. Shareholder feedback is encouraged
either through the broker or directly to the Investment Manager or
Board.
Occupiers
The Company has a diverse range of
tenants occupying space across the portfolio. This includes a wide
range of businesses who operate out of our office or industrial
space and the retailers and shoppers who work at or visit our
retail and leisure properties. Active and constant engagement with
these groups, either directly through site visits or through
property managers or agents, is required to gather intelligence as
to what is important to them. Understanding changing needs, both at
an individual company level, as well as on a sectoral and broader
economic level, is a key tenet informing both our individual asset
management investment decisions as well as the longer-term
strategic direction of the Company.
Communities
Our assets are located across the
UK in a range of urban environments. The buildings and their
occupiers are part of the fabric of local communities. The Company
works hard to ensure that it is engaging with local communities,
councils and individuals and that our asset strategies are
sensitive to the unique heritage of each location.
Environment
The real estate industry accounts
for approximately 40% of global energy related carbon emissions,
which places a responsibility on those companies that are direct or
indirect contributors, to act in a way which would seek to reduce
carbon emissions. 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 reviews its approach to
managing ESG considerations and believes that this is integral in
delivering better long-term returns for our investors and for
safeguarding the future of the environment that we live and
work in.
Service
providers
As an externally managed real
estate investment trust, the Board is reliant on a range of service
providers who have a direct working or
contractual relationship or share a mutual interest with the
Company. This includes, but is not limited to, Schroders as
Investment Manager and Company Secretary, Property Managers, the
Administrator, Depositary, Auditor, Tax advisors, Solicitors,
Property Valuers and Banks. The Board has
appointed the Management Engagement Committee to regularly review
these relationships as part of its commitment to transparency and
corporate best practice.
Lenders
Borrowing allows the Company's
shareholders to increase exposure to assets consistent with the
strategy and generate enhanced returns 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
52.
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. Emerging risks are monitored as part of this
assessment. The Board notes that it has a robust framework of
internal controls in place this can provide only reasonable, and
not absolute, assurance against material financial misstatement or
loss and is designed to manage, not eliminate, risk.
During the year, there were no
changes to the principal risks identified by the Board, or the
likelihood or impact of such risks occurring.
A summary of the principal risks
and uncertainties faced by the Company, and actions taken by the
Board to manage and mitigate these risks and uncertainties, are set
out below:
Key risks
|
Mitigation of risk
|
Investment and strategy
|
|
An inappropriate investment
strategy, or failure to implement the strategy, could lead to
underperformance in the property portfolio compared to the property
market generally by incorrect sector or geographic weightings or a
loss of income through tenant failure, both of which could lead to
a fall in the value of the underlying portfolio.
|
The Board seeks to mitigate these risks by:
- Diversification of its
property portfolio through its investment restrictions and
guidelines which are monitored and reported on by the Investment
Manager.
- 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.
- Determining a borrowing
policy and the Investment Manager operates within borrowing
restrictions and guidelines.
|
Economic and property market
|
|
The performance of the Company
could be affected by economic and property market risk. In the
wider economy this could include inflation, stagflation or
deflation, economic recessions, movements in interest rates,
political changes, the war in Ukraine and the Middle East, or other
external shocks, such as a wider conflagration or pandemic. The
performance of the underlying property portfolio could also be
affected by structural or cyclical factors impacting particular
sectors or regions of the property market.
|
The Board considers economic
conditions and the uncertainty around political (including
geopolitical) events when making investment decisions. The Board
mitigates property market risk through the review of the Group's
strategy on a regular basis and discussions are held to ensure the
strategy is still appropriate or if it needs updating. The Board
and Investment Manager review the progress of implementing the
strategy on a regular basis and provides the market with clear
communications.
|
Sustainability
|
|
Sustainability considerations,
including transition risks and physical risks (as defined by the
Task Force on Climate-related Financial Disclosures ('TCFD')), are
not fully considered or properly understood in the acquisition and
asset-planning processes leading to future issues (negative effect
on price, valuation or saleability of assets, future costs to
remediate, meeting the requirements of initiatives such as Net Zero
Carbon/Climate Risk/ BREEAM /EPC profile/GRESB).
|
The Manager's Investment Committee
has a continued focus on sustainability to help ensure appropriate
approvals are made.
Impact and Sustainability Action
Plans identify asset improvement requirements in context of the
investment strategy.
The Board regularly reviews the
objectives and progress of the Sustainability programme.
The Investment Manager to the
Company works alongside third-party Property Managers, and
commercial real estate ESG data intelligence platform providers,
Deepki, to provide, collate and report key sustainability data
which is then reported to the Manager, Board and investors.
Furthermore, the Board is provided with an assurance letter on an
annual basis from S&P Global with regard to the underlying work
that it has conducted on behalf of the Company.
|
Valuation/liquidity
|
|
Property valuations are inherently
subjective and uncertain. This uncertainty is heightened by
geopolitical and macroeconomic factors such as high inflation and
increasing interest rates.
|
An external reputable valuer
provides an independent quarterly valuation of all the property
assets, including those held in joint ventures, which are reviewed
at the quarterly Board meetings.
The valuation process is reviewed
by the Audit Committee every year and members of the Audit
Committee directly meet with the valuers on at least an annual
basis.
The Company's external valuer is
provided with copies of all transactions and lease events by the
Company's lawyers and quarterly updates by Asset Managers to ensure
that information used to value the portfolio is complete, accurate
and up-to-date. The Company follows RICS best practice regarding
valuer rotation.
|
Gearing/leverage
|
|
The Company utilises credit
facilities to increase the funds available for investment. While
this has the potential to enhance investment returns in rising
markets, in falling markets the impact may be detrimental to
performance, and may also result in potential non-compliance with
loan covenants.
|
Gearing, and compliance with
covenants, is monitored at each Board meeting against restrictions
set internally and by lenders and is regularly announced to the
market.
|
Service provider
|
|
The Company has no employees and
has delegated its operations to third party service providers.
Failure of controls and/or the poor performance of any service
provider could lead to disruption, reputational damage, or
loss.
|
Service providers are subject to
regular reviews by both the Investment Manager and the Management
Engagement Committee against clearly documented contractual
arrangements detailing service expectations, including confirmation
of business continuity and cyber security arrangements.
|
Regulatory compliance
|
|
The Company must comply with a wide
range of legislation and regulations, covering planning, health and
safety, environmental regulations, company law, accounting,
reporting, tax and listing rules.
|
The Board has appointed the
Investment Manager as its Alternative Investment Fund Manager
('AIFM') in accordance with the Alternative Investment Fund
Managers Directive ('AIFMD').
The Company Secretary monitors
legal and other regulatory requirements to ensure that adequate
procedures and reminders are in place to meet the Company's legal
requirements and obligations. The Investment Manager undertakes
full legal due diligence with advisors when transacting and
managing the Company's assets. All contracts entered into by the
Company are reviewed by the Company's legal and other
advisors.
The Board is satisfied that the
Investment Manager and local Administrator have adequate procedures
in place to ensure continued compliance with the regulatory
requirements of the Financial Conduct Authority and the Guernsey
Financial Services Commission, the Listing Rules of the London
Stock Exchange, and the UK REIT regulations to maintain the
Company's REIT status for tax purposes.
|
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 97 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 12.0 years and the average
unexpired lease term, assuming all tenants vacate at the earliest
opportunity, is 4.9 years. The Company's revolving credit facility
with RBSI expires in June 2027.
The Board's assessment of
viability considers the principal risks and uncertainties faced by
the Company, as detailed in the Strategic Review on pages 42
to 44, which could negatively impact its ability to deliver the
investment objective, strategy, liquidity and solvency. This
includes consideration of scenario stress testing and a cash flow
model prepared by the Investment Manager that analyses the
sustainability of the Company's cash flows, dividend cover,
compliance with bank covenants, general liquidity requirements and
potential legal and regulatory changes for a five-year
period.
These metrics are subject to a
sensitivity analysis which involves flexing a number of the main
assumptions including macroeconomic scenarios, delivery of specific
asset management initiatives, rental growth and void/reletting
assumptions. The Board also reviews assumptions regarding capital
recycling and the Company's ability to refinance or extend
financing facilities.
Steps which are taken to mitigate
these risks as set out in the Strategic Review on pages 42 to 44
are also taken into account. Based on the assessment, the directors
have concluded that there is a reasonable expectation that the
Company will be able to continue in operation and meet its
liabilities as they fall due over the five-year period of their
assessment.
Going
concern
The Directors have examined
significant areas of possible financial risk including liquidity
(with a view to both cash held and undrawn debt facilities); the
rates of both rent and service charge collections from tenants;
have considered potential falls in property valuations; have
reviewed cash flow forecasts; have analysed forward-looking
compliance with third party debt covenants and in particular the
Loan to Value covenant and interest cover ratios; and have
considered the Group's ongoing tax compliance
with the REIT regime.
Overall, after utilising available cash,
excluding the cash undrawn against the RBSI facility and uncharged
properties and units in Joint Ventures, and based on the reporting
period to 31 March 2024, property valuations would have to fall
by 25% before the relevant Canada Life Loan to Value
covenants were breached, and actual
net rental income would need to fall by 63% before
the interest cover covenants were breached.
Furthermore, the properties charged to RBSI
could fall in value by 54%, prior to the 65% LTV covenant being
breached, and based on projected net rents for the quarter to March
2024, a 13% fall in net income could be sustained prior to the RBSI
projected interest loan cover covenant of 200% being
breached.
As at the financial year end, the undrawn
capacity of the £75.0m RBSI facility was £28.0 million. This
facility is an efficient and flexible source of funding due to its
ability to be repaid and redrawn as often as required and matures
in June 2027.
Regarding the Canada Life loan of £129.6m,
fifty per cent matures in 2032 and fifty per cent matures in 2039
respectively.
The Board and Investment Manager
also continue to closely monitor the ongoing changing macroeconomic
and geopolitical environments on the Group.
The Board and Investment Manager
have considered the impact of sustainability risk as a
principal risk as set out on page 43. In line with IFRS, investment
properties are valued at fair value based on open market valuations
as described in Note 10. The assessment of
the open market valuation includes consideration of environmental
matters and the condition of each property. The
investment properties continue to be monitored by the Investment
Manager and key considerations include EPC ratings and their impact
on the properties' forecast compliance with the Minimum Energy
Efficiency Standard regulations. Having assessed the impact of
climate change on the Group, the directors concluded that it is not
expected to have a significant impact on the Group's going concern
or viability assessment as described on pages 44 to
46.
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
2025 and have satisfied themselves that the Group has adequate
resources to continue in operational existence for the period to 30
June 2025.
After due consideration, the Board
believes it is appropriate to adopt the going concern basis in
preparing the financial statements.
By order of the Board
Alastair
Hughes
Chair
5 June 2024
Board of Directors
Alastair Hughes (Chair)
Status:
Independent non-executive chair and chair of the Nomination
Committee
Date of
appointment: 26 April 2017
Alastair has over 30 years of
experience in real estate markets and currently holds directorships
with British Land PLC, Tritax Big Box, and Quad Real Property
Group. He was previously the Managing Director of Jones Lang
LaSalle (JLL) in the UK before becoming the CEO for Europe, Middle
East and Africa, and then latterly becoming the CEO for Asia
Pacific. Alastair is a Chartered Surveyor and sat on the Global
Executive Board of JLL.
Current remuneration: £58,500
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 in real estate
management, strategic leadership, and governance from his previous
senior executive roles. His experience as a chartered surveyor
assists with scrutiny of asset purchases and oversight of the
Company's independent valuer.
Stephen Bligh (Chair of the Audit
Committee)
Status:
Independent non-executive director
Date of
appointment: 28 April 2015
Stephen was previously with KPMG
for 34 years, specialising in the audit of FTSE 350 companies in
property and construction. He is a fellow of the Institute of
Chartered Accountants in England & Wales and was previously a
non-executive Board Member of the Department of Business,
Innovation & Skills. After nine years in his role as the Audit
Committee chair, Stephen will retire from the Board of directors,
effective on 30 June 2024.
Current remuneration: £42,500
per annum
Material interests in any contract which is significant to
the Company's business:
None
Key skills and contributions to the Board:
Stephen's experience as a property and
construction audit partner enables him to effectively oversee the
performance of the Investment Manager's fund accounting function,
and the Company's Auditor. The Board considers Stephen to have
recent and relevant financial expertise to chair the Audit
Committee.
Priscilla Davies (Senior Independent
Director)
Date of appointment: 7 June 2022
Priscilla has over 25 years of
financial services experience across a range of sectors including
asset management and alternative investments covering real estate,
private equity, infrastructure, and renewables. She is currently a
non-executive director and chair at UBS Asset Management UK Ltd,
non-executive director and chair of Audit and Risk Committee at
Cubico Sustainable Investments, and non-executive director at Bank
of New York Mellon (International) Limited. Priscilla previously
held various senior positions at Janus Henderson, most latterly as
Managing Director of the Private Equity business and was a
non-executive director at Embark Group Limited and its regulated
subsidiaries. She is also a Chartered Accountant and a member of
the Chartered Accountants Australia and New Zealand.
Current remuneration: £42,500
per annum
Material interests in any contract which is significant to
the Company's business:
None
Key skills and contributions to the Board:
Priscilla brings extensive experience as a senior
executive working for asset management businesses. She also has
relevant and recent financial experience.
Alexandra
Innes (Chair of the Management Engagement
Committee)
Date of
appointment: 16 November 2022
Alexandra's executive career
spanned investment banking, global capital markets, and investment
management, most latterly as Managing Director, Barclays plc, and
prior to that as Director of Global Capital Markets at Bank of
America Merrill Lynch.
Alexandra holds non-executive roles
across finance, real estate and sport, including as a non-executive
committee member at the Bank of England, and a non-executive
director at Waverton Investment Management Group Ltd and STS Global
Income and Growth Trust plc. Prior board roles include Knight
Frank LLP, Dowlais Group plc, and the All England Lawn Tennis Club
(Championships) Ltd.
Alexandra holds an M.A. Hons
Economics from Cambridge University, and is a Fellow of Chapter
Zero. She is a Green and Sustainable Finance Professional,
Chartered Banking Institute (CCBI GSFP), a Chartered member of the
CISI (MCSI), and holds the CFA Institute Certificate in ESG
investing.
Current remuneration: £42,500
per annum
Material interests in any contract which is significant to
the Company's business:
None
Key skills and contributions to the Board:
Alexandra brings experience
as an economist, and in capital markets to the Board, alongside
sustainability expertise.
Sanjay
Patel
Date of
appointment: 1 January 2024
Sanjay is a Chartered Accountant and is
currently Chief Financial Officer and a Board member of Cadogan
Group Limited, a large private real estate investment company.
Prior to this role, Sanjay served as Group Finance Director on the
Board of Strutt & Parker LLP. Sanjay is also a Member of the
Audit and Risk Committee at London & Quadrant Housing
Association.
Current
remuneration: £37,000 per
annum
Material
interests in any contract which is significant to the Company's
business: None
Key skills and
contributions to the Board: Sanjay brings
substantial experience in finance, accounting, and real estate,
which enabled him to oversee and scrutinise the Manager's fund
accounting function and the performance of the Company's Auditor.
Sanjay also has recent and relevant financial expertise to succeed
Stephen as Chair of the Audit Committee.
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.
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 2024 (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 2023
|
30 June 2023
|
0.836 pence per share
|
30 June 2023
|
25 August 2023
|
0.836 pence per share
|
30 September 2023
|
22 December 2023
|
0.836 pence per share
|
31 December 2023
|
28 March 2024
|
0.836 pence per share
|
The Directors recommend a dividend
for the quarter ended 31 March 2024 of 0.853 pence
per share to be paid on 28 June 2024.
The dividend of 0.853 pps will be wholly
designated as an interim property income distribution
('PID').
All dividends paid during the year
were allocated and paid as full Property Income Distributions
(PIDs).
Share capital
As at 31 March 2024 the Company
had 565,664,749 (2023: 565,664,749) ordinary shares in issue of
which 76,554,173 ordinary shares (representing 13.2% of the Company's total
issued share capital) were held in treasury (2023:
76,554,173). The total
number of voting rights of the Company was 489,110,576
at the year end (2023:
489,110,576) 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
Schroder Real Estate Investment
Management Limited is the Investment Manager of the Company. 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 February 2024 to
consider the portfolio strategy and the Investment Manager's
capabilities in more depth. Subsequently, the Directors formally
discussed the performance and ongoing suitability of the Investment
Manager at an annual meeting of the Management Engagement
Committee.
On the basis of this review, the
Board remains satisfied that the Investment Manager has the
appropriate capabilities required to support the Company and
believes that the continuing appointment of the Investment Manager
under the terms of the current investment management agreement, the
details of which are set out below, is in the interest of
shareholders.
The Investment Manager received a
fee of 0.9% of the Company's NAV up to but not including £500
million; 0.8% on the Company's NAV between £500 million up to and
including £1 billion; and 0.7% on the Company's NAV over £1
billion. The fee is payable monthly in arrears. Whilst there is no
performance fee, with effect from the financial year ending 31
March 2025, there is a potential increase/decrease of management
fees payable to the Investment Manager equal to five basis points
of Net Asset Value per annum dependent on both (i) delivering the
sustainability KPI targets in the revised investment policy to the
Board's satisfaction, and (ii) the delivery of an income return
ahead of the MSCI Benchmark, because the new strategy is designed
to deliver more sustainable long-term income.
In recognition of the work
undertaken by the Investment manager in the design and
implementation of the formalisation of the sustainability
objectives within the amended investment objective, policy, and
strategy, the Company or the Investment manager may terminate the
agreement on not less than twelve months' notice, such notice not
to expire prior to the second anniversary of the passing of the
resolution to adopt the new investment objective and policy of the
Company at the Extraordinary General Meeting on 15 December 2023.
The Company has appointed the
Investment Manager as its AIFM under the AIFM Directive. There is
no additional fee paid to the Investment Manager for this
service.
Administration
Schroder Investment Management
Limited, an affiliate of the AIFM, is Company Secretary to the
Company for which it is paid a fee of £50,000 per annum. Langham
Hall (Guernsey) Limited was appointed as the Company Secretary to
the Group's subsidiaries, and as Designated Manager, for a fee of
£64,000 per annum and Langham Hall UK Depositary LLP is the
Company's depositary for a fee of £52,000 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 UK Bribery Act 2010.
Directors
The Directors of the Company,
together with their beneficial interests in the Company's ordinary
share capital as at the date of this report, are given
below:
Director
|
Number of ordinary shares
|
Percentage (%)
|
Alastair Hughes
|
190,579
|
Less than 0.1
|
Stephen Bligh
|
165,000
|
Less than 0.1
|
Priscilla Davies
|
Nil
|
Nil
|
Alexandra Innes
|
Nil
|
Nil
|
Sanjay Patel
|
Nil
|
Nil
|
Substantial shareholdings
The Company has received
notifications in accordance with the Financial Conduct Authority's
('FCA') Disclosure Guidance and Transparency Rule 5.1.2R of the
below interests in 5% or more of the voting rights attaching to the
Company's issued share capital as at 31 March 2024. The Company is
reliant on investors to comply with these regulations, and certain
investors may be exempted from providing these. As such, this
should not be relied on as an exhaustive list of shareholders
holding above 5% of the Company's voting rights.
Notifier
|
Number of ordinary shares
|
Percentage (%)
|
Rathbones Investment Management
Ltd
|
78,184,021
|
16.0
|
Schroders PLC
|
67,842,383
|
13.8
|
Premier Fund Managers
Limited
|
41,680,575
|
8.0
|
Embark Investment Services
(UK)
|
34,207,624
|
7.0
|
Witan Investment Trust
plc
|
32,250,000
|
6.2
|
Independent Auditors
Resolutions to reappoint Ernst
& Young LLP, and to give the Directors authority to determine
the Auditors' remuneration for the coming year, will be put to
shareholders at the Annual General Meeting ('AGM') of the
Company.
The Audit Committee's evaluation
of the Auditors is described in the Audit Committee Report on page
59.
Disclosure of information to
Auditors
The directors who held office at
the date of approval of this directors' Report confirm that, as far
as they are each aware, there is no relevant audit information of
which the Company's Auditors are unaware and each Director has
taken all the steps that they ought to have taken as a Director to
make themselves aware of any relevant audit information and to
establish that the Company's Auditors are aware of that
information.
Status for taxation
The Director of the Revenue
Service in Guernsey has granted the Company exemption from Guernsey
income tax under the Income Tax (Exempt Bodies) (Guernsey)
Ordinance, 1989 and the income of the Company may be distributed or
accumulated without deduction of Guernsey Income Tax. Exemption
under the above-mentioned Ordinance entails the payment by the
Company of an annual fee of £1,600.
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 2023
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/global/individual/corporate-transparency/disclosures/
Corporate Governance
The Directors are committed to
maintaining high standards of corporate governance. Insofar as the
Directors believe it to be appropriate and relevant to the Company,
it is their intention that the Company should comply with best
practice standards for the business carried on by the
Company.
The Guernsey Financial Services
Commission ('GFSC') states in the Finance Sector Code of Corporate
Governance (the 'Code') that companies which report against the UK
Corporate Governance Code or the Association of Investment
Companies Code of Corporate Governance are deemed to meet the Code,
and need take no further action.
The Board has considered the
principles and recommendations of the Association of Investment
Companies Code of Corporate Governance published in February 2019
('AIC Code'), which applies to accounting periods beginning on or
after 1 January 2019. The AIC Code addresses all the principles set
out in the UK Corporate Governance Code, as well as setting out
additional principles and recommendations on issues that are of
specific relevance. A copy of the AIC Code can be found at
www.theaic.co.uk.
It is the Board's intention to continue to comply
with the AIC Code and we will continue to report the Company's
compliance with the principles and recommendations of the AIC Code,
which has been endorsed by the Financial Reporting Council
('FRC').
Statement of compliance
The Company has complied with the
recommendations of the AIC Code and the relevant provisions of the
UK Corporate Governance Code, except as set out below.
The UK Corporate Governance Code
includes provisions relating to:
-
The role of the chief executive;
-
Executive directors' remuneration;
-
Internal audit function; and
-
the Chair's membership of the Audit and Risk
Committee.
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.
In line
with common practice for investment companies, and considering
the composition of the Audit Committee in terms its combination of skills, experience, and
knowledge, it is considered appropriate for the Chair to be a
member of the Audit Committee.
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.
Board evaluation
Within the financial year ended 31
March 2024, the Board carried out an internal evaluation of the
Board and its Chair, which involved questionnaires being completed
by non-executive directors. It was concluded that the Board
performs well and has the relevant knowledge and experience as a
whole.
The Chair is noted for his strong
leadership, effective communication, and good stakeholder
management.
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. As noted previously, Stephen Bligh, who was appointed in
2015, will retire from the Board of directors, effective on 30 June
2024.
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
five non-executive directors. The biography of each of these
Directors is set out on pages 47 to 48 of
the report. The Board considers each of the directors to be
independent. As at 31 March 2024, 40% of the
individuals on the Board of Directors were women, at least one
individual on the Board of directors was from a minority ethnic
background, and at least one of the senior positions on the Board
of directors was held by a woman. The Company has therefore met all
of the relevant targets in relation to Board diversity as set out
in the Listing Rules.
The Company believes in the
benefits of diversity and places importance on broad diversity of
the Board as part of its succession planning. The Company's
diversity and inclusion policy, outlined below, was applied
throughout the recruitment process for the two recent Board
appointments.
The below tables set out the
gender and ethnic diversity composition of the Board as at 31 March
2024 and at the date of this report.
|
Number of Board
members
|
Percentage of the Board
(%)
|
Number of senior positions
on the Board (Chair)
|
White British or other White (including minority-white
groups)
|
4
|
80%
|
2
|
Mixed/Multiple Ethnic Groups
|
-
|
-
|
-
|
Asian/Asian British
|
1
|
20%
|
0
|
Black/African/Caribbean/Black British
|
-
|
-
|
-
|
Other ethnic group, including Arab
|
-
|
-
|
-
|
Not specified/prefer not to say
|
-
|
-
|
-
|
|
|
|
|
|
|
Number of Board
members
|
Percentage of the Board
(%)
|
Number of senior positions
on the Board (Chair)
|
Men
|
3
|
60
|
1
|
Women
|
2
|
40
|
1
|
Not specified/prefer not to say
|
-
|
-
|
-
|
Given that the Company is a real
estate investment trust with no executive board members, the
columns and references regarding executive management have not been
included. The approach to collecting this data was consistent for
the purposes of reporting under Listing Rule LR 9.8.6(9) and (10),
and was consistent across all five individuals in relation to whom
data is being reported, which was that all directors confirmed that
the above disclosures were correct.
The Board has adopted a diversity
and inclusion policy, which applies to both the Board and its
committees. Appointments and succession plans will always be based
on merit and objective criteria and, within this context, the Board
seeks to promote diversity (including of gender, social, ethnic,
professional and educational backgrounds, sexual orientation,
cognitive and personal strengths), inclusion and equal opportunity.
The Board will encourage any independent recruitment agencies it
engages to find a range of candidates that meet the objective
criteria agreed for each appointment. Candidates for Board
vacancies are selected based on their skills and experience, which
are matched against the balance of skills and experience of the
overall Board taking into account the criteria for the role being
offered.
The independence of each director
is considered on a continuing basis. The Board has determined that
all the directors are independent of the Investment Manager. The
Board is satisfied that it is of sufficient size with an
appropriate balance of skills and experience, independence and
knowledge of both the Company and the wider investment company
sector, to enable it to discharge its respective duties and
responsibilities effectively and that no individual or group of
individuals is, or has been, in a position to dominate decision
making. Accordingly the Board approves the nomination for
re-election of each of the directors at the forthcoming Annual
General Meeting.
The Board also considers the
diversity and inclusion policies of its key service
providers.
Board committees
The Board has delegated certain of
its responsibilities to its Audit, Nomination, and Management
Engagement committees. Each of these committees has formal terms of
reference established by the Board which are available on the
Company's website. The Board believes that its committees have an
appropriate composition and blend of backgrounds, skills and
experience to discharge their duties effectively. Details of the
work of these committees are available in their respective
reports.
As all the directors are
non-executive, 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.
Attendance records for the four
quarterly Board meetings and committee meetings during the year
under review are set out in the table below.
Director
|
Board
|
Audit Committee
|
Nomination Committee
|
Management Engagement Committee
|
Alastair Hughes
|
4/4
|
3/3
|
2/2
|
1/1
|
Stephen Bligh
|
4/4
|
3/3
|
2/2
|
1/1
|
Priscilla Davies
|
4/4
|
3/3
|
2/2
|
1/1
|
Alexandra Innes
|
4/4
|
3/3
|
2/2
|
1/1
|
Sanjay
Patel20
|
1/1
|
1/1
|
0/0
|
0/0
|
Number of meetings during the
year
|
4
|
3
|
1
|
1
|
In addition to its regular
quarterly meetings, the Board met on three other occasions during
the year, attended by all or the majority of directors.
Information flows
All directors receive, in a timely
manner, relevant management, regulatory and financial information
and are provided, on a regular basis, with key information on the
Company's policies, regulatory requirements and internal controls.
The Board receives and considers reports regularly from the
Investment Manager and other key advisors and ad hoc reports and
information are supplied to the Board as required.
Data protection and
security
The Board has reviewed its systems
and controls in light of the implementation of the General Data
Protection Regulation (EU Regulation 2016/679) and the Data
Protection (Bailiwick of Guernsey) Law, 2017 (the 'GDPR') in 2018
to ensure that the Company is compliant with the requirements of
the GDPR. As part of that process the Board took steps to update
its contracts and policies accordingly and is comfortable that it
meets its obligations as a controller of personal data. The Board
also requires its Investment Manager to have a robust information
security and data protection environment in place. This is reviewed
with the Investment Manager at the annual Manager's visit day. All
Board communication of a confidential nature is managed via a
secure application. The Company's privacy notice is available on
its webpage.
Directors' and officers' liability
insurance
During the year, the Company has
maintained insurance cover for its directors under a liability
insurance policy.
Relations with
shareholders
The Board believes that the
maintenance of good relations with both institutional and retail
shareholders is important for the long-term prospects of the
Company. The Board receives feedback on the views of shareholders
from its corporate broker, the Investment Manager and from the
Chair. Through this process the Board seeks to monitor the views of
shareholders and to ensure an effective communication
programme.
The Board believes that the Annual
General Meeting, due to be held at 10.30 am. On 16 September 2024,
provides an appropriate forum for investors to communicate with the
Board and it encourages participation. The Notice of the next
Annual General Meeting can be found on page 141 of this
document.
Audit Committee Report
Composition
The Audit Committee is chaired by
Stephen Bligh with Alastair Hughes, Priscilla Davies, Alexandra
Innes and Sanjay Patel 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 Audit Committee's 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.
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 and the Auditor. During the year under review,
the Audit Committee met on three occasions to consider:
-
The contents of the interim and annual financial
statements and to consider whether, taken as a whole, they were
fair, balanced and understandable and provided the information
necessary for shareholders to assess the Company's performance,
business model and strategy;
-
The effectiveness of the Company's system of
internal control;
-
The management representation letters to the
Auditors;
-
The external Auditor's terms of engagement, audit
plan, and year-end report;
-
The independence, effectiveness and objectivity
of the external Auditor;
-
The independence of the Company's
Valuers;
-
The risk assessment of the Company;
and
-
Compliance with the UK REIT regime.
In the coming financial year the
Audit Committee's work will also include a review of the reporting
methodology being developed by the Investment Manager on progress
with the brown-to-green strategy and a consideration of the level
of audit review to verify the numbers to be reported.
As noted in the Corporate
Governance report, an evaluation of the committees was completed by
the Directors in March 2024 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 significant area of judgement which is
inherently subjective, although the valuations are performed by an
independent firm of valuers, CBRE.
Errors in valuation could have a
material impact on the Company's net asset value.
|
The Audit Committee reviewed the
outcomes of the valuation process throughout the year and
discussed the detail of each quarterly valuation with the
Investment Manager at the Board meetings.
The Audit Committee met with CBRE
to discuss the process, assumptions, independence and communication
with the Investment Manager. The Committee was satisfied that the
firm had taken a considered approach.
|
Market volatility
The performance of the Company
could be affected by economic and property market risk. In the
wider economy this could include inflation, stagflation or
deflation, economic recessions, movements in interest rates, the
war in Ukraine, or other external shocks. The performance of the
underlying property portfolio could also be affected by structural
or cyclical factors impacting particular sectors or regions of the
property market.
|
As disclosed in the Going Concern
and Viability Statements on pages 44 to 46, the Audit Committee has
considered various stress tests and sensitivities to the normal
cash flow forecasts, and is confident that the Company will be able
to continue in operation and meet its liabilities as they fall due
over the five year period of its assessment. The Audit Committee considers that the Company is a going
concern.
|
Internal control
The UK Corporate Governance Code
requires the Board to conduct, at least annually, a review of the
effectiveness of the Company's systems of internal control and to
report to shareholders that it has done so. The Audit Committee, on
behalf of the Board, also regularly reviews a detailed 'Risk
Matrix' identifying significant strategic, investment-related,
operational and service provider-related risks and ensures that
risk management and all aspects of internal control are reviewed at
least annually.
The Company's system of internal
controls is substantially reliant on the Investment Manager's and
the Administrator's own internal controls and internal audit
processes due to the relationships in place.
Although the Board believes that
it has a robust framework of internal controls in place, this can
provide only reasonable and not absolute assurance against material
financial misstatement or loss and is designed to manage, not
eliminate, risk. No significant issues were identified from the
internal controls review.
Property Accounting outsourcing to
CBRE
The Investment Manager is
responsible for maintaining the Company's accounting records.
Effective 11 March 2024, the Investment Manager entered an
outsourcing agreement with CBRE Global Investment Administration
(UK) Limited, a subsidiary of CBRE, whereby CBRE Global Investment
Administration (UK) Limited will maintain the Company's accounting
records and produce both the Company's management accounts and
statutory financial statements, although the responsibility for
these will remain with the Investment Manager, who is also
responsible for monitoring the services provided by CBRE Global
Investment Administration (UK) Limited. Many of the accounting
staff who maintained the Company's accounting records and prepared
its financial statements transferred to CBRE Global Investment
Administration (UK) Limited on that date and continued in similar
roles. The Audit Committee is satisfied that the transition has
been well managed.
CBRE Limited, a separate
subsidiary of CBRE, is the Company's independent valuer. The fees
which will be paid to CBRE Global Investment Administration (UK)
Limited for the provision of these accounting services will be
considerably higher than the fees paid to CBRE Limited for valuing
the Group's properties. The Audit Committee has considered
whether the independent valuer's independence has been threatened
by the appointment of another CBRE subsidiary to provide accounting
services to the Company. The Audit Committee has discussed these
arrangements with the Investment Manager, CBRE, the Company's
Auditors and has taken independent advice. The Audit Committee has
accepted that such arrangements are not uncommon; appropriate
information barriers will be maintained between the two relevant
CBRE subsidiaries; and that CBRE's independence as valuer has not
been compromised.
Internal audit
The Audit Committee considered the
need for an internal audit function and concluded that this
function is not required, as the Company has no direct employees,
and it outsources all day-to-day management and administrative
functions. The Investment Manager has its own internal auditors. In
the absence of an internal audit function, assurance was achieved
by a review by the Committee of the Investment Manager's group ISAE
3402/AAF 01/06 Internal Controls Report, which had been reviewed by
Ernst and Young LLP ('EY'). This report covered the activities of
the Investment Manager, Schroder Real Estate Investment Management
Limited, and included the Company within its scope. The Audit
Committee has also considered similar Internal Controls Reports
received from the Company's main property agent, MAPP, and the
Company's Depositary, Langham Hall LLP.
External Auditors' remuneration,
independence and effectiveness
Annually, the Audit Committee
considers the remuneration and independence of the external
auditor. The Audit Committee recommends the remuneration of the
external auditor to the Board and keeps under review the ratio of
audit to non-audit fees to ensure that the independence and
objectivity of the external auditor are safeguarded.
This is the fifth and final year
for EY's current audit engagement partner before he has to rotate
off the engagement under the FRC's audit partner rotation rules.
The Audit Committee has considered the succession plan proposed by
EY and is satisfied that the audit partner whom EY has proposed
will be responsible for the 2025 audit has appropriate sector
knowledge and experience.
Effectiveness of the independent
audit process
The Audit Committee evaluated the
effectiveness of EY prior to making a recommendation on its
reappointment at the forthcoming Annual General Meeting. As part of
the evaluation, the Audit Committee considered feedback from the
Investment Manager on the audit process and year end report from
the Auditor, which details the auditor's compliance with regulatory
requirements, on safeguards that have been established and their
own internal quality control procedures. The Audit Committee had
discussions with the audit partner on audit planning, accounting
policies and audit findings, and met the audit partner both with
and without representatives of the Investment Manager present. The
Chair of the Audit Committee also had informal discussions with the
audit partner during the course of the year. The Audit Committee is
satisfied with the effectiveness of the auditors.
During the past year, the
Financial Reporting Council's Audit Quality Review (AQR) team
reviewed EY's audit of the Company's Financial Statements for the
year ended 31 March 2023. The AQR report did not identify any Key
or Other Findings and assessed the EY audit as 'Good', being the
highest of four possible grades.
Non-audit services
In order to help safeguard the
independence and objectivity of the auditor, the Audit Committee
maintains a policy on the engagement of the external auditor to
provide non-audit services. The Audit Committee's policy for the
use of the external auditor for non-audit services recognises that
there are certain circumstances where, due to EY's expertise and
knowledge of the Company, it will often be in the best position to
perform non-audit services. Under the policy, the use of the
external auditor for non-audit services is subject to pre-clearance
by the Audit Committee. Clearance will not be granted if it is
believed it would impair the external auditor's independence or
where provision of such services by the Company's auditor is
prohibited. Prior to undertaking any non-audit service, EY also
completes its own independence confirmation processes which are
approved by the audit partner.
During the year, there were no
non-audit services fees paid to EY.
Succession
I will be retiring as a
Non-Executive Director and Chair of the Audit Committee at the end
of June 2024, as I have now served on the Board for nine years.
Sanjay Patel is expected to replace me as Audit Committee chair;
the Board considers that Sanjay has the necessary current and
relevant financial expertise to become Chair of the Audit
Committee. I wish Sanjay well in his new role.
Stephen
Bligh
Chair of the Audit Committee
5 June 2024
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 committee.
Alexandra Innes is the chair of the committee. Its terms of
reference are available on the Company's webpages.
Approach
|
Oversight of the Investment Manager
|
Oversight of other service providers
|
The Management Engagement
Committee:
-Reviews the Investment Manager's
performance (including in relation to sustainability KPIs) and
suitability;
- Considers the reporting it has
received from the Investment Manager throughout the year, and the
reporting from the Investment Manager to shareholders;
-Assesses management fees on an
absolute and relative basis, receiving 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; and
- Assesses whether the Company
receives appropriate administrative, accounting, company
secretarial and marketing support from the Investment
Manager.
|
The Management Engagement Committee
reviews the performance and competitiveness of the Company's
service providers on at least an annual basis including the
Property Managers, the Depositary, the Administrator, the Tax
Advisor, the Corporate Broker, the Valuer, the Solicitors and the
Registrar.
The Management Engagement Committee
receives feedback from the Audit Committee on its review of
the Auditors.
|
Application during the
year
|
Oversight of the Investment Manager
|
Oversight of other service providers
|
The Management Engagement Committee undertook a detailed review
of the Investment Manager's performance and agreed that it has the
appropriate capabilities required to allow the Company to meet its
investment objective. The Management Engagement Committee also
reviewed the terms of the Investment Management Agreement and
agreed they remained fit for purpose. The Management Engagement
Committee reviewed the other services provided by the Investment
Manager and agreed they were satisfactory.
|
The annual review of 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; and
- That the Company's service
providers' performance remained satisfactory.
|
Nomination Committee Report
The Nomination Committee is
responsible for: (1) the recruitment, selection and induction of
Directors; (2) their assessment during their tenure; and (3) the
Board's succession. All directors are members of the committee.
Alastair Hughes is the chair of the committee. Its terms of
reference are available on the Company's webpages.
Approach
|
Selection and induction
|
Board evaluation
|
Succession
|
- The Nomination Committee
prepares a job specification for each role, and an independent
recruitment firm is appointed. For the Chair and the chairs of
committees, the Committee considers current Board members
too.
- Job specification outlines the
knowledge, professional skills, personal qualities and experience
requirements.
- Potential candidates assessed
against the Company's diversity policy.
- The Nomination Committee
discusses the long list, invites a number of candidates for
interview and makes a recommendation to the Board.
- The Nomination Committee reviews
the induction and training of new directors.
|
- The Nomination Committee
assesses each director annually.
- Evaluation focuses on whether
each director continues to demonstrate commitment to their role and
provides a valuable contribution to the Board during the year,
taking into account time commitment, independence, conflicts and
training needs.
- Following the evaluation, the
Nomination Committee provides a recommendation to shareholders with
respect to the annual re-election of directors at the
AGM.
- All directors retire at the AGM
and their re-election is subject to shareholder
approval.
|
- The Board's succession policy
is that directors' tenure will be for no longer than nine
years, except in exceptional circumstances, and that each director
will be subject to annual re-election at the AGM.
- The Nomination Committee reviews
the Board's current and future needs at least annually. Should any
need be identified the Nomination Committee will initiate the
selection process.
- The Nomination Committee will
oversee the handover process for retiring directors.
|
Application during the
year
|
Selection and induction
|
Board evaluation
|
Succession
|
- Having served as a director on
the Board for nine years, Stephen Bligh is expected to retire in
2024. The Board considered a number of candidates for the role of
Audit Committee chair to succeed Stephen Bligh upon his retirement,
with input from Russell Reynolds, an independent executive search
firm. Other than for advice on Board positions, Russell Reynolds
does not have any other relationship with the Company or individual
directors.
- Sanjay Patel was identified by
the Nomination Committee as the most suitable candidate for the
role. This appointment was approved by the Board and he was
appointed on 1 January 2024. Following his appointment, a full
induction was arranged.
|
- The annual Board evaluation was
undertaken in March 2024.
- The Nomination Committee
reviewed each Director's time commitment and independence by
reviewing a complete list of appointments, including pro bono
not-for-profit roles, to ensure that each Director remained free
from conflict and had sufficient time available to discharge each
of their duties effectively. All Directors were considered to be
independent in character and judgement.
- The Nomination Committee
considered each Director's contributions, and noted that in
addition to extensive experience as professionals and Non-executive
Directors, each Director had valuable skills and experience, as
detailed in their biographies on pages 47
to 48.
- Based on its assessment, the
Nomination Committee provided individual recommendations for each
Director's re-election.
|
- During the year, the Nomination
Committee considered the need for orderly succession planning and a
suitable plan was agreed.
|
Recommendations made to, and approved by, the
Board:
- That Sanjay Patel be appointed as
a non-executive director with effect from 1 January
2024.
- 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, apart from
Stephen Bligh who will retire prior to the AGM, having served on
the Board for nine years.
|
Directors' Remuneration Report
Introduction
The below remuneration policy is
in force and is subject to an advisory vote every three years. At
the AGM held on 27 September 2023, the remuneration policy was
approved by shareholders, with 99.69% of votes for, 0.31% of votes
against, and 405,315 withheld. This policy, as amended, will be put
to a vote at the forthcoming AGM.
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 27 September
2023, 99.79% of the votes cast (including votes cast at the Chair's
discretion) in respect of approval of the Annual Report on
Remuneration for the year ended 31 March 2023 were in favour, while
0.21% were against. 417,315 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 £250,000 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 impact of inflation, the role that
individual Directors fulfil in respect of Board and Committee
responsibilities, and time committed to the Company's affairs.
Generally, the Board seeks to increase fees in line with the rate
of inflation measured by the UK consumer price index ('CPI'), with
the level of directors' remuneration reviewed annually to ensure
competitiveness within the peer group and attractiveness to
potential candidates for director appointments.
For the financial year ended 31
March 2024, directors receive a base fee of £35,000 per annum, and
the Chair receives £55,000 per annum. The Chair of the Audit
Committee, the Chair of the Management Engagement Committee and the
Senior Independent Director each receive an additional fee of
£5,000 respectively.
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 2024.
Fees paid to Directors
The following amounts were paid by
the Company for services as non-executive directors:
Director
|
31 March 2024
(£)
|
31 March 2023
(£)
|
Alastair Hughes (Chair)
|
55,000
|
47,300
|
Stephen Bligh[29]
|
40,000
|
37,100
|
Priscilla Davies[30]
|
40,000
|
30,100
|
Alexandra Innes[31]
|
40,000
|
14,400
|
Sanjay Patel[32]
|
8,750
|
-
|
Lorraine Baldry (retired 26 July
2022)
|
-
|
16,700
|
Graham Basham (retired 15 November
2022)
|
-
|
26,300
|
Total
|
183,750
|
171,900
|
The Board carried out a review of
directors' annual fees following the year end, taking into account
the fees payable to non-executive directors in the industry and
peer group, the rate of inflation, and the commitment required of
directors of the Company to adequately discharge their roles and
responsibilities. The review supported an increase of 5.8% across
fees payable to directors, in line with the CPI rate of inflation
between December 2022 and March 2024, this increase is effective 1
April 2024.
Following this review,
directors receive a base fee of £37,000 per
annum, and the Chair receives £58,500 per annum. The Chair of the
Audit Committee, the Chair of the Management Engagement Committee
and the Senior Independent Director each receive an additional fee
of £5,500 respectively. The fees payable to directors from 1 April
2024 are set out below:
Director
|
From 1 April 2024
(£)
|
Alastair Hughes (Chair)
|
58,500
|
Stephen Bligh[33]
|
42,500
|
Priscilla Davies[34]
|
42,500
|
Alexandra Innes[35]
|
42,500
|
Sanjay Patel[36]
|
37,000
|
Total
|
223,000
|
Performance
The performance of the Company is
described on page 36 under 'Business Model' in the Strategic
Report.
Alastair
Hughes
Chair
5 June 2024
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 5 to 46
and Governance Report on pages 47 to 68 include a
fair review of the development and performance of the business and
the position of the Group and the undertakings included in the
consolidation taken as a whole, together with a description of the
principal risks and uncertainties it faces. The directors consider
that the Annual Report and Consolidated Financial Statements, taken
as a whole, are fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company's
position and performance, business model and strategy.
By order of the Board
Alastair
Hughes, Chair
5 June 2024
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
2024 which comprise 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 24, including material accounting
policy information. The financial reporting framework that has been
applied in their preparation is applicable law and International
Financial Reporting Standards.
In our opinion, the financial
statements:
►
give a true and fair view of the state of the
Company's affairs as at 31 March 2024 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 company
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 company and
we remain independent of the company 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 company's ability to continue to adopt the going
concern basis of accounting included:
· obtaining an understanding of the Director's going concern
assessment process including engaging with the Investment Manager
to understand the process they followed in supporting the going
concern assessment prepared by the Directors;
· reviewing the factors and assumptions, including the cost of
delivering the Group's sustainability strategy and the impact of
external market factors, as applied to the revenue and expenses
forecast which support the Directors' assessment of going
concern. We have challenged the sensitivities and assumptions
used in the forecasts and determined, through testing, that the
methods, inputs and assumptions utilised were appropriate to be
able to make an assessment for the Group;
· challenging the stress testing performed and validating the
static data assumptions used by the Investment Manager by agreement
to supporting documentation;
· in
relation to the Group's borrowing arrangements, inspecting the
Directors' assessment of the risk of breaching the debt covenants.
We recalculated the debt covenants based on the stress scenarios
assessed by the Directors and reperformed reverse stress testing in
order to identify what factors would lead to the Group breaching
the financial covenants;
· holding discussions with the Audit Committee and the
Investment Manager to determine whether, in their opinion, there is
any material uncertainty regarding the Group's ability to pay
liabilities and commitments as they fall due and challenging this
assessment through our audit procedures in relation to the
liquidity assessment;
· confirmed whether any subsequent events identified are
adjusting or non-adjusting post balance sheet events and ensured
the requisite disclosures are included in the Annual Report and
Accounts; and
· assessing the disclosures in the Annual Report and Financial
Statements relating to going concern to ensure they were fair,
balanced and understandable and in compliance with IFRS.
Based on the work we have
performed, we have not identified any material uncertainties
relating to events or conditions that, individually or
collectively, may cast significant doubt on the company's ability
to continue as a going concern for a period to 30 June 2025 from
when the financial statements are authorised for issue.
In relation to the company'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 company's ability to
continue as a going concern.
Overview of
our audit approach
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 materiality of £2.9m which represents 1%
of equity.
|
An overview
of the scope of our audit
Tailoring the
scope
Our assessment of audit risk, our
evaluation of materiality and our allocation of performance
materiality determine our audit scope for the
company. This enables us to form an opinion on the financial
statements. We take into account size, risk profile, the
organisation of the company and effectiveness of controls, changes
in the business environment and the potential impact of climate
change when assessing the level of work to be
performed. All
audit work was performed directly by the audit engagement team
which includes our real estate valuation specialists.
Changes from
the prior year
There have been no significant
changes in scope from the prior year audit.
Climate change
Stakeholders are increasingly interested in how
climate change will impact the Group. The Group has determined that
the most significant future impacts from climate change on their
operations are explained on page 46 in the principal risks and
uncertainties. They have also explained their climate commitments
on pages 27. All of these disclosures form part of the "Other
information," rather than the audited financial statements. Our
procedures on these unaudited disclosures therefore consisted
solely of considering whether they are materially inconsistent with
the financial statements or our knowledge obtained in the course of
the audit or otherwise appear to be materially misstated, in line
with our responsibilities on "Other information".
In planning and performing our audit we assessed
the potential impacts of climate change on the Group's business and
any consequential material impact on its financial
statements.
The Group has explained in note 1 and 10 how
they have reflected the impact of climate change in their financial
statements.
Our audit effort in considering the impact of
climate change on the financial statements was focused on the
adequacy of the disclosures in the Financial Statements and the
conclusion that there was no further impact of climate change to be
taken into account as the investment properties are valued at fair
value based on open market valuations as described in Note
10.
The open market valuation assessment includes
consideration of environmental matters and the condition of each
property with detail on the fair value of properties provided
within the notes to the financial statement. As part of this
evaluation, we performed our own risk assessment to determine the
risks of material misstatement in the financial statements from
climate change which needed to be considered in our
audit.
We also challenged the Directors' considerations
of climate change risks in their assessment of going concern and
viability and associated disclosures. Where considerations of
climate change were relevant to our assessment of going concern,
these are described above.
Based on our work we have considered the impact
of climate change on the financial statements to be a key audit
matter or to impact certain key audit matters. Details of our
procedures and findings are included in our explanation of key
audit matters below.
Key audit
matters
Key audit matters are those matters
that, in our professional judgement, were of most significance in
our audit of the financial statements of the current period and
include the most significant assessed risks of material
misstatement (whether or not due to fraud) that we identified.
These matters included those which had the greatest effect on: the
overall audit strategy, the allocation of resources in the
audit; and directing the efforts of the
engagement team. These matters were addressed in the context of our
audit of the financial statements as a whole, and in our opinion
thereon, and we do not provide a separate opinion on these
matters.
Risk
|
Our response to the risk
|
Key observations communicated to
the Audit Committee
|
Risk of misstatement in the fair
value of directly or indirectly held investment property
portfolio
Refer to the Report of the Audit
Committee (page 57);
Significant accounting policies
(page 85); and
Note 10 of the Financial
Statements (pages 91 to 94)
The Group's investment property
portfolio consists of UK properties held directly and through joint
ventures, with a combined fair value of £459.3m (2023:
£466.4m).
The Group's accounting policy is
for the fair value of the investment properties to be determined by
independent real estate valuation experts using recognised
valuation techniques. The fair values are based on recent real
estate transactions with similar characteristics and locations to
those of the Group's assets. The Group's accounting policy is for
the valuation of investment properties to be reduced by the total
of the unamortised lease incentive balances.
There is a risk of incorrect
valuation of the property portfolio which could result in the
Consolidated Statement of Financial Position and the Consolidated
Statement of Comprehensive Income to be materially
misstated.
|
We have performed the following
procedures:
► obtained an understanding of the process and controls
surrounding property valuation by performing our walkthrough
procedures and evaluating the implementation and design
effectiveness of controls.
► assessed the independence and competence of the Group's
independent valuers as required by auditing standards.
► read the valuation reports provided by the Group's
independent valuers to agree the appropriateness and suitability of
the reported values and the changes in value from the previous
accounting period.
► performed enquiries of the Group's independent valuers to
obtain an understanding of their valuation process methods and
assumptions used in their analysis, including challenging them as
to the extent to which market transactions and expected rental
values take into account the impact of climate change;
► engaged our EY property valuation specialists to perform a
review of a sample of property valuations (58% of the total value,
16 properties (2023: 81% of the total value, 20 properties)) to
assess whether the reported value falls within a range of
reasonable outcomes, which included:
► validating the assumptions used by the independent valuers
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; and
► assessing the appropriateness of market related inputs and
reasonableness of valuation methods, by comparing against our own
market data and understanding of the property market.
► performed analytical review procedures across the portfolio
of investments, focusing on correlations with market data and any
significant movements;
► on a sample basis, with respect to key objective inputs to
the valuation, comprising rental income and length of lease, agreed
the inputs to lease agreements or rent review schedules;
► verified that the fair values derived by the Group's
independent valuers for the entire portfolio were correctly
included in the consolidated financial statements.
► assessed the adequacy of the additional disclosures of
estimates and valuation assumptions disclosed in the notes were
made in accordance with IFRS 13 - Fair Value
Measurement.
|
Based on the work performed we
have no matters to report to the Audit Committee.
|
Risk of incomplete or inaccurate
rental revenue recognition and related year-end
receivables
Revenue is earned in the form of
rental income from the investment properties and is recognised on
an accrual basis. During the year, the Group recognised £25.6m of
rental income (2023: £25.2m) and rent receivable of £3.2m (2023:
£3.9m).
There is a risk of incomplete or
inaccurate rental revenue recognition and related year-end
receivables through failure to recognise proper income entitlements
or to apply the appropriate accounting treatment. The
recoverability of year-end receivable is based on a number of
judgments and estimates
|
We have performed the following
procedures
► obtained an understanding of the process and controls for
each revenue stream by performing our walkthrough procedures and
evaluating the implementation and design effectiveness of
controls;
► performed substantive analytical review procedures over
rental revenue for each property. We formed an expectation of the
rental income for each property, and compared this expectation to
the actual revenue recognised during the year;
► agreed a sample of rental rates to tenancy agreements and
recalculated rental revenue earned by the property for the
period;
► recalculated a sample of lease incentives based on the terms
within the lease agreement to assess the appropriateness of the
amount recorded; including, 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 Schroder Real Estate
Investment Management Limited (the "Asset Manager") assessing the
recoverability of the overdue rent receivables, and challenged the
judgments involved including expected credit loss on the rent
receivable balance as a whole. For a sample of tenants, we have
inspected the cash receipt subsequent to the year-end date;
and
► tested a sample of rental revenue journals to identify
unauthorised or inappropriate journals to address the risk of
management override. We enquired as to the nature of each
transaction sampled and reviewed corroborating evidence to conclude
on whether the journals were reasonable and in line with our
expectations. We selected journals by applying criteria and
thresholds based on our professional judgment.
|
Based on the work performed, we
have no matters to report to the Audit Committee.
|
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
company to be £2.9 million (2023: £3.0 million), which is 1% (2023:
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 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 company's overall
control environment, our judgement was that performance materiality
was 75% (2023: 75%) of our planning materiality, namely £2.2m
(2023: £2.3m). We have set performance materiality at this
percentage due to this being a recurring audit with a low incidence
of historical errors.
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 £0.14m (2023: £0.15m), 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 1 to 68
and pages 104 to 144 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 proper returns adequate for our audit have not been
received from branches not visited by us; 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
company'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
46;
►
Directors' explanation as to its assessment of
the company's prospects, the period this assessment covers and why
the period is appropriate set out on page 44;
►
Director's statement on whether it has a
reasonable expectation that the company will be able to continue in
operation and meets its liabilities set out on page 58;
►
Directors' statement on fair, balanced and
understandable set out on page 67;
►
Board's confirmation that it has carried out a
robust assessment of the emerging and principal risks set out on
page 42;
►
The section of the annual report that describes
the review of effectiveness of risk management and internal control
systems set out on page 42; and;
►
The section describing the work of the audit
committee set out on page 57.
Responsibilities of
Directors
As explained more fully in the Statement of
Directors' Responsibilities set out on page 67, 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 company'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
company 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 company and management.
►
We obtained an understanding of the legal and
regulatory frameworks that are applicable to the company and
determined that the most significant are the Companies (Guernsey)
Law, 2008, the UK Corporate Governance Code, The 2019 AIC Code of
Corporate Governance, REIT requirements set out in part 12 of the
Corporation Tax Act (CTA) 2010 ('REIT rules') and the Listing Rules
of the UK Listing Authority;
►
We understood how the
Group is complying with those frameworks
by making enquiries of the Investment
Manager, the Administrator and those
charged with governance regarding:
►
their knowledge of any non-compliance or
potential non-compliance
with laws and regulations that could affect the financial statements;
►
the Group's methods of enforcing and monitoring
non-compliance with such policies
►
the Investment Manager's process for identifying
and responding to
fraud risks, including
programs and controls the Group has established to address risks
identified by the Group, or that otherwise prevent, deter and
detect fraud; and
►
how the Group monitors those programs
and controls.
►
We assessed the susceptibility of the
Group's
financial statements to material misstatement,
including how fraud might occur by:
►
obtaining an understanding of entity-level
controls and considering the influence of the control
environment;
►
obtaining the Group's assessment of fraud risks
including an understanding of the nature, extent and frequency of
such assessment documented in the Group's Risk Matrix;
►
making inquiries with those charged with
governance, the Investment Manager, the Company Secretary and
Administrator as to how they exercise oversight of identifying
and responding to fraud risks and the controls established to mitigate
specifically those risks the entity has identified, or that
otherwise help to prevent, deter and detect fraud;
►
making inquiries of the Investment Manager and
those charged with governance regarding how they identify related
parties including circumstances related to the existence of a
related party with dominant influence; and
►
making inquiries of the Investment Manager, the
Company Secretary, Administrator and those charged with governance
regarding their knowledge of any actual or suspected fraud or
allegations of fraudulent financial reporting affecting the
Group.
►
Based on this understanding we designed our audit
procedures to identify non-compliance with such laws and
regulations. Our procedures involved:
►
Through discussion, gaining an understanding of
how the Board, 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
►
We obtained data from the general ledger and
performed journal entry testing.
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 4 years and 6 months, covering the
years ending 31 March 2020 to 31 March 2024.
► 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
5 June 2024
Consolidated Statement of Comprehensive
Income
|
|
31/03/2024
|
31/03/2023
|
|
Notes
|
£000
|
£000
|
|
|
|
|
Rental income
|
|
25,638
|
25,171
|
Other income
|
3
|
1,504
|
58
|
Property operating
expenses
|
4
|
(2,154)
|
(2,258)
|
Net rental and related income, excluding joint
ventures
|
|
24,988
|
22,971
|
Share of net comprehensive rental income in joint
ventures
Net rental and related income, including joint
ventures
|
|
3,057
28,045
|
3,515
26,486
|
|
|
|
|
Profit on the disposal of investment
property
|
10
|
199
|
1,184
|
Net unrealised valuation loss on investment
property
|
10
|
(8,044)
|
(60,107)
|
Gain on disposal of financial instruments
|
20
|
189
|
-
|
Net change in fair value of financial instrument at fair
value
|
20
|
(547)
|
-
|
|
|
|
|
Expenses
|
|
|
|
Investment management
fee
|
2
|
(2,350)
|
(2,755)
|
Valuers' and other professional
fees
|
|
(2,347)
|
(1,875)
|
Administrators' fees
|
2
|
(64)
|
(71)
|
Auditor's remuneration
|
5
|
(197)
|
(185)
|
Directors' fees
|
6
|
(184)
|
(172)
|
Other expenses
|
6
|
(276)
|
(346)
|
Total expenses
|
|
(5,418)
|
(5,404)
|
|
|
|
|
Net operating profit/(loss) before net finance
costs
|
|
11,367
|
(41,356)
|
|
|
|
|
Refinancing costs
|
15
|
-
|
(247)
|
Finance costs
|
|
(6,349)
|
(5,114)
|
Net finance costs
|
|
(6,349)
|
(5,361)
|
Share of net comprehensive rental
income in joint ventures
|
11
|
3,057
|
3,515
|
Share of valuation loss in joint
ventures
|
11
|
(5,058)
|
(11,513)
|
Profit/(loss) before taxation
|
|
3,017
|
(54,715)
|
Taxation
|
7
|
-
|
-
|
Profit/(loss) and total comprehensive income/(loss) for the
year attributable to the equity holders of the
parent
|
|
3,017
|
(54,715)
|
Basic and diluted earnings/(loss) per share
|
8
|
0.6p
|
(11.2p)
|
|
|
|
|
|
All items in the above statement are derived from continuing
operations. The accompanying notes 1 to 24 form an integral part of
the financial statements.
Consolidated Statement of Financial
Position
|
|
31/03/2024
|
31/03/2023
|
|
Notes
|
£000
|
£000
|
Investment property
|
10
|
384,606
|
388,030
|
Investment in joint
ventures
|
11
|
67,366
|
72,187
|
Interest rate derivative
contracts
|
20
|
219
|
-
|
Non-current assets
|
|
452,191
|
460,217
|
|
|
|
|
Trade and other
receivables
|
12
|
19,837
|
21,626
|
Cash and cash
equivalents
|
13
|
6,005
|
8,419
|
Current assets
|
|
25,842
|
30,045
|
Total assets
|
|
478,033
|
490,262
|
|
|
|
|
Issued capital and
reserves
|
14
|
324,451
|
337,790
|
Treasury share reserve
|
14
|
(37,101)
|
(37,101)
|
Equity
|
|
287,350
|
300,689
|
|
|
|
|
Interest-bearing loans and
borrowings
Lease liability
|
15
10
|
175,866
1,562
|
176,933
1,668
|
Non-current liabilities
|
|
177,428
|
178,601
|
|
|
|
|
Trade and other payables
|
16
|
13,255
|
10,972
|
Current liabilities
|
|
13,255
|
10,972
|
|
|
|
|
Total liabilities
|
|
190,683
|
189,573
|
|
|
|
|
Total equity and liabilities
|
|
478,033
|
490,262
|
Net asset value per ordinary
share
|
17
|
58.8p
|
61.5p
|
The financial
statements on pages 79 to 103 were approved at a meeting of the
Board of Directors held on 5 June 2024 and signed on its behalf
by:
Alastair Hughes,
Chair
Stephen Bligh, Director
The accompanying notes 1 to 24 form
an integral part of the financial statements.
Consolidated Statement of Changes in
Equity
|
Notes
|
Share
premium
|
Treasury share
reserve
|
Revenue
reserve
|
Total
|
|
|
£000
|
£000
|
£000
|
£000
|
Balance as at 31 March 2022
|
|
219,090
|
(36,103)
|
189,196
|
372,183
|
Share buyback
|
|
-
|
(998)
|
-
|
(998)
|
Loss for the year
|
|
-
|
-
|
(54,715)
|
(54,715)
|
Dividends paid
|
9
|
-
|
-
|
(15,781)
|
(15,781)
|
Balance as at 31 March 2023
|
|
219,090
|
(37,101)
|
118,700
|
300,689
|
Profit for the year
|
|
-
|
-
|
3,017
|
3,017
|
Dividends paid
|
9
|
-
|
-
|
(16,356)
|
(16,356)
|
Balance as at 31 March 2024
|
|
219,090
|
(37,101)
|
105,361
|
287,350
|
The accompanying notes 1 to 24 form
an integral part of the financial
statements.
Consolidated Statement of Cash Flows
|
|
31/03/2024
|
31/03/2023
|
|
Notes
|
£000
|
£000
|
Operating activities
|
|
|
|
Profit/(loss) for the
year
|
|
3,017
|
(54,715)
|
Adjustments for:
|
|
|
|
Profit on the disposal of
investment property
|
|
(199)
|
(1,184)
|
Net valuation loss on investment
property
|
|
8,044
|
60,107
|
Profit on disposal of financial
instruments
|
20
|
(189)
|
-
|
Net change in fair value of
financial instrument at fair value
|
20
|
547
|
-
|
Share of loss on joint
ventures
|
|
2,001
|
7,998
|
Net finance cost
|
|
6,349
|
5,361
|
Operating cash generated before changes in working
capital
|
19,570
|
17,567
|
Decrease/(increase) in trade and
other receivables
|
|
2,022
|
(1,861)
|
Increase in trade and other
payables
|
|
2,283
|
1,978
|
Cash generated from operations
|
|
23,875
|
17,684
|
Investing activities
|
|
|
|
Proceeds from the sale of
investment property
|
|
3,763
|
8,303
|
Acquisition of investment
property
|
|
-
|
(16,058)
|
Additions to investment
property
|
10
|
(8,290)
|
(10,133)
|
Additions to joint ventures
|
11
|
(237)
|
-
|
Net income distributed from joint
ventures
|
|
2,761
|
3,638
|
Cash flows used in investing activities
|
|
(2,003)
|
(14,250)
|
Financing activities
|
|
|
|
Repayment of debt
|
15
|
(2,300)
|
-
|
Additions to debt
|
15
|
1,000
|
15,600
|
Disposal of financial
instrument
|
20
|
189
|
-
|
Purchase of financial
instrument
|
20
|
(766)
|
-
|
Finance costs paid
|
|
(6,053)
|
(4,479)
|
Refinancing costs paid
|
|
-
|
(958)
|
Dividends paid
|
9
|
(16,356)
|
(15,781)
|
Share buyback
|
|
-
|
(998)
|
Cash flows used in financing activities
|
|
(24,286)
|
(6,616)
|
Net decrease in cash and cash equivalents for the
year
|
|
(2,414)
|
(3,182)
|
Opening cash and cash
equivalents
|
|
8,419
|
11,601
|
Closing cash and cash equivalents
|
13
|
6,005
|
8,419
|
The accompanying notes
1 to 24 form an integral part of the financial
statements.
Notes to the Financial Statements
1. Material accounting policy
information
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 2024 comprise the Company and its
subsidiaries (together referred to as the 'Group').
New standard and interpretations
The Company is satisfied that there are no
standards that are published, and not yet effective, that will have
a material effect on the accounts.
Statement of compliance
The financial statements have been prepared in
accordance with International Financial Reporting Standards
('IFRS") issued by the International Accounting Standards Board
(the 'IASB'), and interpretations issued by the International
Financial Reporting Interpretations Committee.
The financial statements give a true and fair
view and are in compliance with The Companies (Guernsey) Law, 2008,
applicable legal and regulatory requirements and the Listing Rules
of the UK Listing Authority.
Basis of preparation
The financial statements are presented in
pound sterling, which is the Company's functional currency, rounded
to the nearest thousand. They are prepared on the historical cost
basis except that investment properties and derivative financial
instruments are stated at their fair value.
The accounting policies have been consistently
applied to the results, assets, liabilities and cash flows of the
entities included in the consolidated financial statements and are
consistent with those of the previous year.
Going concern
The Directors have examined significant areas
of possible financial risk including liquidity (with a view to both
cash held and undrawn debt facilities); the rates of both rent and
service charge collections from tenants; have considered potential
falls in property valuations; have reviewed cash flow forecasts;
have analysed forward-looking compliance with third party debt
covenants and in particular the Loan to Value covenant and interest
cover ratios; and have considered the Group's ongoing tax
compliance with the REIT regime.
Overall, after utilising available cash,
excluding the cash undrawn against the RBSI facility and uncharged
properties and units in Joint Ventures, and based on the reporting
period to 31 March 2024, property valuations would have to fall
by 25% before the relevant Canada Life Loan to Value
covenants were breached, and actual
net rental income would need to fall by 63% before
the interest cover covenants were breached.
Furthermore, the properties charged to RBSI
could fall in value by 54%, prior to the 65% LTV covenant being
breached, and based on projected net rents for the quarter to March
2024, a 13% fall in net income could be sustained prior to the RBS
projected interest loan cover covenant of 200% being
breached.
As at the financial year end, the undrawn
capacity of the £75.0m RBSI facility was £28.0 million. This
facility is an efficient and flexible source of funding due to its
ability to be repaid and redrawn as often as required and matures
in June 2027.
Regarding the Canada Life loan of £129.6m,
fifty per cent matures in 2032 and fifty per cent matures in 2039
respectively.
The Board and Investment Manager also continue
to closely monitor ongoing changing macroeconomic and geopolitical
environments on the Group.
The Board and Investment Manager
have considered the impact of sustainability risk as a
principal risk as set out on page 43. In line with IFRS, investment
properties are valued at fair value based on open market valuations
as described in Note 10. The assessment of the open market
valuation includes consideration of environmental matters and the
condition of each property. The investment properties continue to
be monitored by the Investment Manager and key considerations
include EPC ratings and their impact on the properties' forecast
compliance with minimum energy efficiency standard regulations.
Having assessed the impact of climate change on the Group, the
Directors concluded that it is not expected to have a significant
impact on the Group's going concern or viability assessment as
described on pages 44 to 46.
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 2025 and have
satisfied themselves that the Group has adequate resources to
continue in operational existence for this period to 30 June
2025.
After due consideration, the Board believes
that it is appropriate to adopt the going concern basis in
preparing the financial statements.
Use of estimates and judgements
The preparation of financial statements in
conformity with IFRS requires management to make judgements,
estimates and assumptions that affect the application of policies
and the reported amounts of assets and liabilities, income and
expenses. These estimates, and associated assumptions, are based on
historical experience and various other factors that are believed
to be reasonable under the circumstances, the results of which form
the basis of making judgements about the carrying values of assets
and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates. The estimates and
underlying assumptions are reviewed on an ongoing basis. Revisions
to accounting estimates are recognised in the period in which the
estimates are revised and in any future periods
affected.
The most significant estimates made in
preparing these financial statements relate to the carrying value
of investment properties, including those within joint ventures,
which are stated at fair value. The Group uses external
professional valuers to determine the relevant amounts. Judgements
made by management in the application of IFRS that have a
significant effect on the financial statements and estimates with a
significant risk of material adjustment in the next year are
disclosed in note 18.
Another significant estimate is the amount of
expected credit losses as per IFRS 9 from rent demanded during the
period which has not yet been collected. On initial recognition the Group calculates the expected
credit loss for debtors based on the lifetime expected credit
losses under the IFRS 9 simplified approach. Management considers
aged debtors' analyses, the strength of tenant covenants,
macroeconomic factors and any rental deposits held.
Management has considered rental debtors on a quarterly basis
and made provisions and write offs where it has been deemed that
these amounts are potentially irrecoverable.
Basis of consolidation
Subsidiaries
The consolidated financial statements comprise
the financial statements of the Company and all of its subsidiaries
drawn up to 31 March each year. Subsidiaries are those entities
controlled by the Company. Control exists where the investor has
the following;
- power over the investee;
- exposure, or rights, to variable returns
from its involvement with the investee; and
- the ability to use its power over the entity
to affect the amount of the investor's returns.
The financial statements of subsidiaries are
included in the consolidated financial statements from the date
that control commences until the date that control ceases. Where
properties are acquired by the Group through corporate
acquisitions, but the acquisition does not meet the definition of a
business combination, the acquisition has been treated as an asset
acquisition.
Joint ventures
Joint ventures are those entities over whose
activities the Group has joint control, established by contractual
agreement. The consolidated financial statements include the
Group's share of profit or loss of jointly controlled entities on
an equity accounted basis. When the Group's share of losses exceeds
its interest in an entity, the Group's carrying amount is reduced
to nil and recognition of further losses is discontinued except to
the extent that the Group has incurred legal or constructive
obligations or is making payments on behalf of an
entity.
Transactions eliminated on
consolidation
Intra-group balances, and any gains and losses
arising from intra-group transactions, are eliminated in preparing
the consolidated financial statements. Gains arising from
transactions with joint ventures are eliminated to the extent of
the Group's interest in the entity. Losses are eliminated in the
same way as gains but only to the extent that there is no evidence
of impairment.
Investment property
Investment property is land and buildings held
to earn rental income together with the potential for capital
growth.
Acquisitions and disposals are recognised on
the unconditional exchange of contracts. Acquisitions are initially
recognised at cost, being the fair value of the consideration
given, including transaction costs associated with the investment
property.
After initial recognition, investment
properties are measured at fair value, with unrealised gains and
losses recognised in the Statement of Comprehensive Income.
Realised gains and losses on the disposal of properties are
recognised in the Statement of Comprehensive Income in relation to
their sale price, sale costs and the carrying value brought forward
from the prior financial year. 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
Derivative financial instruments
This comprises the interest rate collar which
is recognised at a fair value assessed by an independent third
party.
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 an initial term of no more than three months.
Financial
liabilities
Non-derivative financial liabilities comprise
loans and borrowings and trade and other payables.
Loans and
borrowings
Borrowings are recognised initially at fair
value of the consideration received, less attributable transaction
costs. Subsequent to initial recognition, interest-bearing
borrowings are stated at amortised cost with any difference between
cost and redemption value being recognised in the Statement of
Comprehensive Income over the period of the borrowings on an
effective interest basis.
Trade and
other payables
Trade and other payables are stated at
amortised cost.
Share capital
Ordinary shares, including treasury shares, are
classified as equity.
Share buyback
Shares purchased are recognised on the trade
date and debited to the existing treasury reserve in the Statement
of Changes in Equity. Any broker's fees relating to the share
buyback are debited to other expenses.
Dividends
Dividends are recognised in the period in which
they are paid. A final dividend will be paid following the period
end.
Rental
income
Rental income from investment properties is
recognised on a straight-line basis over the term of ongoing leases
and is shown gross of any UK income tax. Lease incentives are
spread evenly over the lease term.
Surrender premiums and dilapidations are
recognised in line with individual lease agreements when cash
inflows are certain.
Impairment
Financial
assets
Financial assets at amortised cost are subject
to impairment.
The Group's significant financial assets that
are subject to IFRS 9's expected credit loss model are trade
receivables from the leasing of investment properties. The credit
risk associated with unpaid rent has increased in recent years due
to macroeconomic factors and the Company has undertaken a detailed
analysis over the recoverability of expected rents. Deferred income
has been closely monitored and any rents deemed irrecoverable
discussed by management.
Non-financial
assets
The carrying amounts of the Group's
non-financial assets, being the investment in joint ventures, are
reviewed at each reporting date to determine whether there is any
indication of impairment. If any such indication exists, then the
asset's recoverable amount is estimated.
The recoverable amount of an asset or
cash-generating unit is the greater of its value in use and its
fair value less costs to sell. In assessing value in use, the
estimated future cash flows are discounted to their present value
using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to
that asset.
For the purpose of impairment testing, assets
are grouped together into the smallest group of assets that
generates cash inflows from continuing use that are largely
independent of the cash inflows of other assets or groups of assets
(the 'cash-generating unit').
An impairment loss is recognised if the
carrying amount of an asset or its cash-generating unit exceeds its
estimated recoverable amount. Impairment losses are recognised in
the statement of comprehensive income.
Provisions
A provision is recognised in the Consolidated
Statement of Financial Position when the Group has a legal or
constructive obligation as a result of a past event and it is
probable that an outflow of economic benefits will be required to
settle the obligation.
Finance
costs
Finance costs comprise interest expenses on
borrowings that are recognised in the Statement of Comprehensive
Income. Attributable transaction costs incurred in establishing the
Group's credit facilities are deducted from the fair value of
borrowings on initial recognition and are amortised over the
lifetime of the facilities through the Statement of Comprehensive
Income. Finance costs are accounted for on an effective interest
basis.
Expenses
All expenses are accounted for on an accruals
basis and the Company does not capitalise overheads and operating
expenses. The costs recharged to occupiers of the properties are
presented net of the service charge income as management consider
that the property agent acts as principal in this
respect.
Taxation
SREIT elected to be treated as a UK real
estate investment trust ('REIT'). The UK REIT rules exempt the
profits of SREIT and its subsidiaries' (the 'Group') UK property
rental business from corporation tax. Gains on UK properties are
also exempt from tax, provided they are not held for trading or
sold in the three years after completion of development. The Group
is otherwise subject to corporation tax.
As a REIT, SREIT is required to pay Property
Income Distributions equal to at least 90% of the Group's exempted
net income. To retain UK REIT status there are a number of
conditions to be met in respect of the principal company of the
Group, the Group's qualifying activity and its balance of business.
The Group continues to meet these conditions.
Segmental
reporting
The Directors are of the opinion that the
Group is engaged in a single segment of business, being property
investment, and in one geographical area, the United Kingdom. There
is no one tenant that represents more than 10% of group revenues.
SREIM acts as advisor to the Board, who then may make management
decisions following their recommendations. As such the Board of
Directors are considered to be the chief operating decision maker.
A set of consolidated IFRS financial information is provided to the
Board on a quarterly basis.
2. Material agreements
SREIM is the Investment Manager to the
Company. The Investment Manager is entitled to a fee, together with
reasonable expenses incurred in the performance of its duties. The
current fee is payable monthly in arrears at one twelfth of the
aggregate of 0.9% of the NAV of the Company (where NAV is less than
£500 million).
The Investment Management Agreement can be
terminated by either party on not less than twelve months written
notice (such notice not to expire prior to the second anniversary
of the effective date per the most recent agreement being 21
November 2023) or on immediate notice in the event of certain
breaches of its terms or the insolvency of either party.
The tiered fee structure is as
follows:
NAV
|
Management fee
percentage per annum of NAV
|
<£500 million
|
0.9%
|
£500 million - £1 billion
|
0.8%
|
£1 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.
With effect from the financial year ending 31
March 2025, the Company shall pay to the Investment Manager an
additional management fee equal to 0.05 per cent of Net Asset Value
per annum if:
a) the Manager has
delivered the sustainability-related key performance indicators
contained within the Investment Policy, as may amended from time to
time, to the satisfaction of the Board (acting reasonably);
and
b) the 12-month income return from the underlying Property
Portfolio, to be calculated by MSCI, is ahead of the MSCI
Benchmark.
The total charge to the Consolidated Statement
of Comprehensive Income during the year was £2,350,000 (2023:
£2,755,000). At the year end £500,000 (2023: £nil) was
outstanding.
Langham Hall (Guernsey) Limited and Langham
Hall UK Depositary LLP provide Administration, Designated Manager
and Depositary services to the Group respectively. Administration
fees during the year were £116,000 (2023: £96,000).
Schroder Investment Management Limited provides
company secretarial services to the Company with an annual fee
equal to £50,000. Company secretarial fees for the period 1 April
2023 to 31 March 2024 were £50,000 (2023: £50,000).
3. Other income
|
|
31/03/2024
|
31/03/2023
|
|
|
£000
|
£000
|
Dilapidations, surrender premiums and all other
miscellaneous income
|
|
1,504
|
58
|
|
|
1,504
|
58
|
4. Property operating expenses
|
|
31/03/2024
|
31/03/2023
|
|
|
£000
|
£000
|
Agents' fees
|
|
147
|
133
|
Repairs and maintenance
|
|
67
|
51
|
Advertising
|
|
38
|
70
|
Rates
|
|
290
|
369
|
Service charge, insurance and utilities on
vacant units
|
|
1,492
|
1,657
|
Ground rent
|
|
113
|
68
|
Bad debt write offs, provisions and write
backs
|
|
7
|
(90)
|
|
|
2,154
|
2,258
|
5. Auditor's remuneration
The total expected audit fees are £197,000 for
the financial year ended 31 March 2024 (2023: £185,000).
6. Other expenses
|
|
31/03/2024
|
31/03/2023
|
|
|
£000
|
£000
|
Professional fees
|
|
204
|
285
|
Other expenses
|
|
72
|
61
|
|
|
276
|
346
|
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 £183,750 (2023:
£171,900), as set out in the Directors' Remuneration Report on
pages 64 to
65.
7. Taxation
|
|
31/03/2024
|
31/03/2023
|
|
|
£000
|
£000
|
Tax expense in the year
|
|
-
|
-
|
Reconciliation of effective tax
rate
|
|
|
|
Profit/(loss) before tax
|
|
3,017
|
(54,715)
|
Effect of:
|
|
|
|
Tax using the UK corporation tax rate of 25%
(2023: 19%)
|
|
754
|
(10,396)
|
Revaluation loss on investment property not
deductible
|
|
2,011
|
11,420
|
Revaluation loss on financial instrument not
deductible
|
|
137
|
-
|
Share of capital loss of associates and joint
ventures not deductible
|
|
1,265
|
2,187
|
Profit on the disposal of investment property
not deductible
|
|
(50)
|
(225)
|
Profit on disposal of financial instrument not
deductible
|
|
(47)
|
-
|
Loss on refinancing costs
|
|
-
|
47
|
UK REIT exemption
|
|
(4,070)
|
(3,033)
|
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 £3,017,000 (2023:
loss of £54,715,000) and the weighted average number of ordinary
shares in issue during the year of 489,110,576 shares (2023:
489,951,223).
9. Dividends paid
In respect
of:
|
Ordinary
|
Rate
|
31/03/2024
|
|
shares
|
(pence)
|
£000
|
Q/e 31 March 2023 (dividend paid 30 June
2023)
|
489.11
million
|
0.836
|
4,089
|
Q/e 30 June 2023 (dividend paid 25 August
2023)
|
489.11
million
|
0.836
|
4,089
|
Q/e 30 Sept 2023 (dividend paid 22 December
2023)
|
489.11
million
|
0.836
|
4,089
|
Q/e 31 Dec 2023 (dividend paid 28 March
2024)
|
489.11
million
|
0.836
|
4,089
|
|
|
3.344
|
16,356
|
In respect
of:
|
Ordinary
|
Rate
|
31/03/2023
|
|
shares
|
(pence)
|
£000
|
Q/e 31 March 2022 (dividend paid 30 June
2022)
|
491.08
million
|
0.795
|
3,904
|
Q/e 30 June 2022 (dividend paid 19 August
2022)
|
491.02
million
|
0.803
|
3,943
|
Q/e 30 Sept 2022 (dividend paid 9 December
2022)
|
489.11
million
|
0.803
|
3,928
|
Q/e 31 Dec 2022 (dividend paid 7 March
2023)
|
489.11
million
|
0.819
|
4,006
|
|
|
3.220
|
15,781
|
A dividend for the quarter ended 31 March
2024, of 0.853 pence per share, was approved and
will be paid on the 28 June 2024.
10.
Investment property
|
Leasehold
|
Freehold
|
Total
|
£000
|
£000
|
£000
|
Fair value as
at 31 March 2022
|
39,793
|
393,693
|
433,486
|
Additions
|
32
|
10,101
|
10,133
|
Acquisitions
|
-
|
16,058
|
16,058
|
Disposal of assets held at fair
value
|
-
|
(12,405)
|
(12,405)
|
Gain on the sale of
assets
|
-
|
1,184
|
1,184
|
Fair value leasehold movement
|
(319)
|
-
|
(319)
|
Net unrealised valuation loss on investment
property
|
(4,093)
|
(56,014)
|
(60,107)
|
Fair value as
at 31 March 2023
|
35,413
|
352,617
|
388,030
|
Additions
|
720
|
7,570
|
8,290
|
Acquisitions
|
-
|
-
|
-
|
Disposal of assets held at fair
value
|
-
|
(3,763)
|
(3,763)
|
Gain on the sale of assets
|
-
|
199
|
199
|
Fair value leasehold movement
|
(106)
|
-
|
(106)
|
Net unrealised valuation loss on investment
property
|
(2,949)
|
(5,095)
|
(8,044)
|
Fair value as
at 31 March 2024
|
33,078
|
351,528
|
384,606
|
The balance above includes:
|
Leasehold
|
Freehold
|
Total
|
£000
|
£000
|
£000
|
Investment property
|
33,745
|
352,617
|
386,362
|
Fair value leasehold adjustment
|
1,668
|
-
|
1,668
|
Fair value as
at 31 March 2023
|
35,413
|
352,617
|
388,030
|
|
|
|
|
|
|
Leasehold
|
Freehold
|
Total
|
£000
|
£000
|
£000
|
Investment property
|
31,516
|
351,528
|
383,044
|
Fair value leasehold adjustment
|
1,562
|
-
|
1,562
|
Fair value as
at 31 March 2024
|
33,078
|
351,528
|
384,606
|
The fair value of investment
properties, as determined by the valuer as at 31 March 2024, totals
£391,475,000 (March 2023: £398,560,000), of which a sum of
£8,431,000 (2023: £8,198,000) relating to lease incentives is
included within trade and other receivables.
The fair value of investment property has been
determined by CBRE, a firm of independent chartered surveyors, who
are registered independent appraisers (note 18). The valuation has been undertaken in accordance
with the current RICS Valuation - Global Standards, which
incorporates 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.
As highlighted within the Group's investment
management strategy on page 37,
developments and refurbishments form a key element of the Group's
commitment to sustainability. During the year the Group has spent
£8.3m on capital expenditure. This sum included both capital works
which, in some cases, enhanced the environmental performance of the
assets amongst other key strategies. The primary focus has been on
optimising earnings across the existing portfolio through an
extensive asset management and targeted capital expenditure
programme, targeting growth areas and sustainability
improvements.
All investment properties are categorised as
Level 3 fair values as they use significant unobservable inputs.
There have not been any transfers between Levels during the year.
Investment properties have been classed according to their real
estate sector. Information on these significant unobservable inputs
per class of investment property is disclosed below:
Quantitative information about fair value
measurement using unobservable inputs (Level 3) as at
31 March 2024
31
March 2024
|
|
Industrial
(1)
|
Retail (incl. retail
warehouse)
|
Office
|
Other
|
Total
|
Fair
value (£'000)
|
|
229,750
|
83,775
|
59,225
|
18,725
|
391,475
|
Area
('000 sq ft)
|
|
2,400
|
446
|
358
|
198
|
3,402
|
Net
passing rent psf per annum
|
Range
Weighted average
|
£2.36 -
£19.46 £5.22
|
£2.99 -
£76.75 £13.86
|
£6.99-
£32.93 £15.37
|
£1.05
-£26.70
£7.95
|
£1.05 -
£76.75 £7.58
|
Gross
ERV psf per annum
|
Range
Weighted average
|
£2.50 -
£19.25
£7.25
|
£4.00 -
£80.50 £15.66
|
£8.47-£34.00
£20.58
|
£2.00
-£25.00
£8.51
|
£2.00 -
£80.50 £9.83
|
Net
initial yield (1)
|
Range
Weighted average
|
0.00%
-8.18% 4.99%
|
0.00%
-11.87% 6.73%
|
0.00%-13.19% 7.71%
|
6.55%-9.45%
7.68%
|
0.00% -
13.19% 5.93%
|
Equivalent yield
|
Range
Weighted average
|
5.98% -
9.35% 6.93%
|
6.43%-12.24% 7.73%
|
8.03%-14.00% 10.19%
|
6.80%-9.94%
8.78%
|
5.95%-14.00% 7.75%
|
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 2023
31 March
2023
|
|
Industrial
(1)
|
Retail (incl. retail
warehouse)
|
Office
|
Other
|
Total
|
Fair
value (£000)
|
|
220,110
|
85,850
|
72,950
|
19,650
|
398,560
|
Area
('000 sq. ft)
|
|
2,396
|
448
|
424
|
198
|
3,466
|
Net
passing rent per sq. ft per annum
|
Range
Weighted
average
|
£2.36 -
£14.00 £4.84
|
£2.99 -
£70.39 £14.06
|
£10.50-
£26.14 £12.87
|
£1.05
-£26.70
£8.96
|
£0 -
£32.85 £7.22
|
Gross
ERV per sq. ft per annum
|
Range
Weighted
average
|
£2.50 -
£17.50
£6.88
|
£4.00 -
£80.56 £15.35
|
£8.47-£27.00
£18.57
|
£2.10
-£13.00
£7.98
|
£3.50 -
£32.85 £9.51
|
Net
initial yield (1)
|
Range
Weighted
average
|
3.00%
-13.12% 4.87%
|
3.68%
-21.60% 6.71%
|
4.90%-13.35% 6.6%
|
6.00%-10.82%
8.06%
|
3.00% -
21.6% 5.70%
|
Equivalent yield
|
Range
Weighted
average
|
5.35% -
10% 6.53%
|
5.50%-14.00% 7.33%
|
7.25%-13.00% 9.38%
|
6.04%-11.35%
8.82%
|
5.35%-14.00% 7.51%
|
|
|
|
|
|
|
|
|
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 input
|
Impact on fair value measurement of significant increase in
input
|
Impact on fair value measurement of significant decrease in
input
|
Passing rent
|
Increase
|
Decrease
|
Gross ERV
|
Increase
|
Decrease
|
Net initial yield
|
Decrease
|
Increase
|
Equivalent yield
|
Decrease
|
Increase
|
There are interrelationships between the yields and rental values
as they are partially determined by market rate
conditions.
The sensitivity of the valuation to changes in
the most significant inputs per class of investment property are
shown below:
Estimated movement in fair value of investment properties at
31 March 2024
|
Industrial
£000
|
Retail
£000
|
Office
£000
|
Other
£000
|
All
sectors
£000
|
Increase in ERV by 5%
|
10,122
|
2,788
|
2,726
|
183
|
15,819
|
Decrease in ERV by 5%
|
(10,101)
|
(2,603)
|
(2,720)
|
(189)
|
(15,613)
|
Increase in net initial yield by
0.25%
|
(8,886)
|
(2,950)
|
(1,828)
|
(604)
|
(14,268)
|
Decrease in net initial yield by
0.25%
|
9,773
|
3,209
|
2,367
|
645
|
15,994
|
|
|
|
|
|
|
|
Estimated movement in fair value of investment properties at
31 March 2023
|
Industrial
£000
|
Retail
£000
|
Office
£000
|
Other
£000
|
All
sectors
£000
|
Increase in ERV by 5%
|
9,852
|
3,280
|
3,039
|
161
|
16,332
|
Decrease in ERV by 5%
|
(9,764)
|
(3,018)
|
(5,195)
|
(161)
|
(18,138)
|
Increase in net initial yield by
0.25%
|
(8,774)
|
(3,119)
|
(2,263)
|
(627)
|
(14,783)
|
Decrease in net initial yield by
0.25%
|
9,678
|
3,374
|
2,717
|
673
|
16,442
|
11.
Investment in joint ventures
Closing
balance as at 31 March 2022
|
83,700
|
Valuation loss on joint venture
|
(11,513)
|
Closing
balance as at 31 March 2023
|
72,187
|
Purchase of further units in City Tower Unit
Trust
|
187
|
Purchase of further units in Store Unit
Trust
|
50
|
Valuation loss on joint venture
|
(5,058)
|
Closing
balance as at 31 March 2024
|
67,366
|
Summarised joint venture financial information not adjusted
for the Group's share - City Tower Unit Trust
|
|
31/03/2024
£000
|
31/03/2023
£000
|
|
|
|
|
|
|
Investment property
|
|
117,600
|
136,100
|
|
Other assets
|
|
1,069
|
3,779
|
|
Total liabilities1
|
|
(2,524)
|
(2,070)
|
|
Revenues for the year
|
|
10,182
|
9,025
|
|
Total comprehensive rental income
|
|
5,814
|
7,570
|
|
Net asset value attributable to the
Group
|
|
29,036
|
34,452
|
|
Total comprehensive income attributable to the
Group
|
|
1,454
|
1,893
|
|
Summarised joint venture financial information not adjusted
for the Group's share - Store Street Unit Trust
|
|
31/03/2024
£000
|
31/03/2023
£000
|
|
|
|
|
Investment properties
|
|
76,750
|
75,550
|
Other assets
|
|
404
|
446
|
Total liabilities1
|
|
(494)
|
(527)
|
Revenues for the year
|
|
3,870
|
3,700
|
Total comprehensive rental income
|
|
3,206
|
3,242
|
Net asset value attributable to the
Group
|
|
38,330
|
37,735
|
Total comprehensive income attributable to the
Group
|
|
1,603
|
1,621
|
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 CBRE, 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
|
|
31/03/2024
£000
|
31/03/2023
£000
|
Rent receivable
|
|
3,172
|
3,578
|
Other debtors and prepayments
|
|
16,665
|
14,048
|
Other capital debtors
|
|
-
|
4,000
|
|
|
19,837
|
21,626
|
Other debtors and prepayments include
£8,431,000 (2023: £8,198,000) in respect of
lease incentives.
As at 31 March 2024 total bad debt provisions
of £0.4m (2023: £0.4m) had been recognised against rental debtors
of £2.3m (2023: £3.3m) net of VAT.
13. Cash
and cash equivalents
As at 31 March 2024 the Group held £6.0
million (2023: £8.4 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 (2023: 565,664,749) of which 76,554,173
Ordinary shares are held in treasury (2023: 76,554,173). The total
number of voting rights of the Company was 489,110,576 (2023:
489,110,576) as at the financial year end.
Treasury capital
76,554,173 (2023: 76,554,173) ordinary shares,
which represent 13.5% (2023: 13.5%) 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.
|
|
31/03/2024
|
31/03/2023
|
|
|
|
£000
|
|
£000
|
Non-current
liabilities
|
|
|
|
|
|
Loan facilities
|
|
|
176,585
|
|
177,885
|
Unamortised arrangement fees
|
|
|
(719)
|
|
(952)
|
|
|
|
175,866
|
|
176,933
|
The Group has in place a £129.6 million loan
facility with Canada Life. This has been in place since 16 April
2013 and has been refinanced several times, most recently in
October 2019.
The loan is split into two equal tranches of
£64.8 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 2024 Interest Payment Date,
the Canada Life interest cover ratio was 497% (2023: 480%)
against
a covenant of 185%; the forecast interest
cover ratio was 482% (2023: 449%) against a covenant of 185%;
and
the Loan to Value ratio was 49.4% (2023:
46.9%) 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 2024 contained properties valued at £262.24
million (2023: £271.80 million). Various restraints apply during
the term of the loan although the facility has been designed to
provide significant operational flexibility.
The Group also has a revolving credit facility
with RBSI, most recently refinanced in June 2022, with a five-year
term which runs to June 2027, and the maximum amount able to be
drawn is £75.0m. The facility carries an interest rate of a 1.65%
margin, plus three-month SONIA rate, with a 0.64% non-utilisation
fee. As at 31 March 2024, a sum of £47.0m was drawn
down.
In June 2023 the Group also completed on the
acquisition of an interest rate collar from RBSI, which has a floor
of 3.25% and a cap of 4.25%; which will expire on 6 June 2027; and
which is attributable to £30.5 million of the loan drawn sum of the
RBSI revolving credit facility. Further details are disclosed in
note 20.
As at the April 2024 Interest Payment Date,
the RBSI projected interest cover ratio was 231% (2023: 411%)
against a covenant of 200% and the Loan to Value ratio was 29.8%
(2023: 30.0%) against a covenant of 65%.
The RBSI facility has a first charge security
over certain property assets which at 31 March 2024 contained
properties valued at £157.6 million (2023: £160.8
million).
A reconciliation of financing movements for the
year is presented below split in to cash and non-cash
items:
|
|
31/03/2024
£000
|
Loan balance
brought forward
|
|
176,933
|
Drawdown on RBSI RCF (cash)
|
|
1,000
|
Repayment of RBSI RCF (cash)
|
|
(2,300)
|
Non-cash amortisation of arrangement
fees
|
|
233
|
Loan balance carried forward
|
|
175,866
|
|
|
31/03/2023
£000
|
Loan balance
brought forward
|
|
161,791
|
Drawdown on RBSI RCF (cash)
|
|
15,600
|
Non-cash amortisation of arrangement
fees
|
|
(458)
|
Loan balance carried forward
|
|
176,933
|
16. Trade
and other payables
|
|
31/03/2024
£000
|
31/03/2023
£000
|
Deferred income
|
|
4,952
|
5,131
|
Rental deposits
|
|
2,442
|
1,850
|
Interest payable
|
|
1,328
|
1,101
|
Other trade payables and accruals
|
|
4,533
|
2,890
|
|
|
13,255
|
10,972
|
17. NAV per
Ordinary Share
The number of ordinary shares in issue was
489,110,576 as at 31 March 2024 (2023: 489,110,576).
The NAV per Ordinary Share is based on the net
assets of £287,350,000 (2023: £300,689,000) and 489,110,576 (2023:
489,110,576) ordinary shares in issue as at the reporting
date.
18.
Financial instruments, properties and associated risks
Financial risk factors
The Group holds cash and liquid resources as
well as having debtors and creditors that arise directly from its
operations. The Group uses interest rate derivative contracts, the
details of which are in note 20, when required to limit exposure to
interest rate risks, but does not have any other derivative
instruments.
The main risks arising from the Group's
financial instruments and properties are market price risk, credit
risk, liquidity risk and interest rate risk. The Group has no
exposure to foreign currency exchange risk. The Board regularly
reviews and agrees policies for managing each of these risks and
these are summarised below:
Market price risk
Rental income, and the market value for
properties, are generally affected by overall conditions in the
economy, such as changes in gross domestic product, employment
trends, inflation and changes in interest rates. Changes in gross
domestic product may also impact employment levels, which in turn
may impact the demand for premises. Furthermore, movements in
interest rates may also affect the cost of financing for real
estate companies. Both rental income and property values may also
be affected by other factors specific to the real estate market
such as competition from other property owners; the perceptions of
prospective tenants of the attractiveness, convenience and safety
of properties; the inability to collect rents because of bankruptcy
or the insolvency of tenants; the periodic need to renovate, repair
and re-lease space and the costs thereof; and the costs of
maintenance and insurance, and increased operating
costs.
The Directors monitor the market value of
investment properties by having independent valuations carried out
quarterly by a firm of independent chartered surveyors. Note 10
sets out the sensitivity analysis on the market price risk.
Concentration risk, based on industry and geography, is set out in
the tables on pages 12 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:
|
31/03/2024
Carrying amount
£000
|
31/03/2023
Carrying amount
£000
|
Office
|
279
|
568
|
Industrial
|
2,190
|
2,496
|
Retail, leisure and other
|
779
|
874
|
|
3,248*
|
3,938*
|
* Rental debtors gross of VAT and excluding
bad debt provisions.
Rent receivables which are past their due date
were:
|
31/03/2024
Carrying amount
£000
|
31/03/2023
Carrying amount
£000
|
0-30 days
|
1,916
|
2,940
|
31-60 days
|
143
|
62
|
61-90 days
|
122
|
4
|
91 days plus
|
1,067
|
932
|
|
3,248*
|
3,938*
|
Management has considered rental debtors on a
quarterly basis and made provisions where it has been deemed that
these amounts may be unrecoverable. As at 31 March 2024 total
provisions of £0.36m (2023: £0.36m) 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
considers aged debtors' analyses, the strength of tenant covenants,
macroeconomic factors and any rental deposits held.
Liquidity risk
Liquidity risk is the risk that the Group will
encounter difficulties in meeting obligations associated with its
financial obligations.
The Group's investments comprise UK commercial
property. Property and property-related assets are inherently
difficult to value due to the individual nature of each property.
As a result, valuations are subject to substantial uncertainty.
There is no assurance that the estimates resulting from the
valuation process will reflect the actual sale price even where
such sales occur shortly after the valuation date. Investments in
property are relatively illiquid. However, the Group has tried to
mitigate this risk by investing in properties that it considers to
be of good quality.
In certain circumstances, the terms of the
Group's debt facilities entitle the lender to require early
repayment and in such circumstances the Group's ability to maintain
dividend levels and the net asset value could be adversely
affected. The Investment Manager prepares cash flows on a rolling
basis to ensure the Group can meet future liabilities as and when
they fall due.
The following table indicates the maturity
analysis of the financial liabilities.
As at 31 March 2024
|
Carrying
amount
£000
|
Expected
cash flows
£000
|
6 months
or less
£000
|
6 months -
2 years
£000
|
2-5 years
£000
|
More
than 5 years
£000
|
Financial
liabilities
|
|
|
|
|
|
|
Interest-bearing loans and borrowings and
interest 1
|
175,866
|
226,102
|
3,226
|
9,679
|
60,713
|
152,484
|
Leasehold liability
|
1,562
|
11,533
|
51
|
154
|
307
|
11,021
|
Trade and other payables
|
7,729
|
7,729
|
5,594
|
-
|
-
|
2,135
|
Total
financial liabilities
|
185,157
|
245,364
|
8,871
|
9,833
|
61,020
|
165,640
|
As at 31 March 2023
|
Carrying
amount
£000
|
Expected
cash flows
£000
|
6 months
or less
£000
|
6 months -
2 years
£000
|
2-5 years
£000
|
More
than 5 years
£000
|
Financial
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing loans and borrowings and
interest 1
|
176,933
|
232,303
|
3,044
|
9,131
|
64,417
|
155,711
|
Leasehold liability
|
1,668
|
11,961
|
52
|
157
|
313
|
11,439
|
Trade and other payables
|
5,841
|
5,841
|
3,990
|
-
|
-
|
1,851
|
Total financial liabilities
|
184,442
|
250,105
|
7,086
|
9,288
|
64,730
|
169,001
|
1 Assumes that the £47.0 million RBS revolving credit facility
is repaid in 2027.
Interest rate risk
Exposure to market risk for changes in
interest rates relates primarily to the Group's long-term debt
obligations and to interest earned on cash balances. As interest on
the Group's long-term debt obligations is payable on a fixed-rate
basis, the Group is not exposed to near-term interest rate risk in
relation to its Canada Life loan facility. As at 31 March 2024 the
fair value of the Group's £129.6 million loan with Canada Life was
£111.1 million (2023: £112.8 million).
The RBSI revolving credit facility is a
low-margin and flexible source of funding with a margin of 1.65%,
plus 3-month SONIA rate, and it is considered by management that
the carrying value of the loan is equal to its fair value (sum of
£47.0m (2023: £48.3 million) drawn as at the year end). In order to
assist with mitigating interest rate risk on the RBSI facility, in
June 2023 the Group acquired an interest rate collar from RBSI,
which has a floor of 3.25% and a cap of 4.25%; which will expire on
6 June 2027; and which is attributable to £30.5 million of the loan
drawn sum.
A 1% increase or decrease in short-term
interest rates would increase or decrease the annual bank interest
income, and equity, by £60,000 based on the cash balance as at 31
March 2024.
The Canada Life loan is fixed-rate, as above,
and thus a 1% increase or decrease in interest rates would not
impact the loan interest payable by the Fund.
The RBS revolving credit facility had a drawn
balance of £47.0m as at the year end and an interest rate collar in
place for £30.5m of the drawn sum. A 1% increase in interest rates
would thereby increase the finance costs payable by £165,000
(assuming that the loan principal drawn remained the
same).
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 (2023: 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 2024, the fair value of the Group's £129.6 million loan with
Canada Life was £111.1 million (2023: £112.8 million).
Financial Instruments
The Group's interest rate collar is recognised
at its fair value via valuations provided by an independent firm,
Chatham Financial.
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:
|
|
31/03/2024
£000
|
31/03/2023
£000
|
Debt
|
|
|
|
Fixed-rate loan facility
|
|
129,585
|
129,585
|
Floating rate loan facility *
|
|
47,000
|
48,300
|
|
|
176,585
|
177,885
|
Equity
|
|
|
|
Called-up share capital
|
|
181,989
|
181,989
|
Reserves
|
|
105,361
|
118,700
|
|
|
287,350
|
300,689
|
Total debt
and equity
|
|
463,935
|
478,574
|
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 2024 was £75.0m (2023:
£75.0m).
19.
Operating leases
The Group leases out its investment property
under operating leases. At 31 March 2024 the future minimum lease
receipts under non-cancellable leases are as follows:
|
31/03/2024
£000
|
31/03/2023
£000
|
Less than one year
|
23,400
|
22,850
|
Between one and five years
|
68,798
|
66,194
|
More than five years
|
54,918
|
58,829
|
|
147,116
|
147,873
|
The total above comprises the total contracted rent receivable as
at 31 March 2024.
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. Interest
rate derivative contracts
In June 2023 the Group disposed of its interest
cap, which had been due to expire in July 2023, and which was
attributable to £30.5 million of the drawn loan sum of the RBSI
revolving credit facility, for a sum of £0.19 million. This had
previously been carried at a nil fair value and thus there was a
gain on disposal of £0.19 million recognised in the financial
year.
In June 2023 the Group also completed on the
acquisition of an interest rate collar from RBSI, which has a floor
of 3.25% and a cap of 4.25%; which will expire on 6 June 2027; and
which is attributable to £30.5 million of the drawn loan sum of the
RBSI revolving credit facility. The cost to acquire this financial
instrument was £0.77 million, including fees, and as at the 31
March 2024 it had a deemed fair value of £0.22 million with an
unrealised loss of £0.55m being recognised in the financial
year.
21. List of
subsidiary and joint venture undertakings
The companies listed below are those which
were part of the Group as at 31 March 2024:
Undertaking
|
Category
|
Country of incorporation
|
Principal Activities
|
Ultimate ownership
|
SREIT No.2 Limited
|
Subsidiary
|
Guernsey
|
Property ownership with external
finance
|
100%
|
SREIT Holding (No.2)
Limited
|
Subsidiary
|
Guernsey
|
Holding Company
|
100%
|
SREIT Holding Company
Limited
|
Subsidiary
|
Guernsey
|
Holding Company with external
finance
|
100%
|
SREIT Property Limited
|
Subsidiary
|
Guernsey
|
Property ownership
|
100%
|
SREIT (Portergate)
Limited
|
Subsidiary
|
Guernsey
|
Property ownership
|
100%
|
SREIT (Uxbridge)
Limited
|
Subsidiary
|
Guernsey
|
Property ownership
|
100%
|
SREIT (City Tower)
Limited
|
Subsidiary
|
Guernsey
|
Joint ownership of an underlying
property unit trust
|
100%
|
SREIT (Store) Limited
|
Subsidiary
|
Guernsey
|
Joint ownership of an underlying
property unit trust
|
100%
|
SREIT (Bedford) Limited
|
Subsidiary
|
Guernsey
|
Property ownership
|
100%
|
City Tower Unit Trust
|
Joint Venture
|
Jersey
|
Property ownership
|
25%
|
Store Unit Trust
|
Joint Venture
|
Jersey
|
Property ownership
|
50%
|
The registered addresses for all wholly-owned
entities are the same as that of the parent company and can be
found on page 144.
The registered address for both Joint Venture
entities is 47 Esplanade, St Helier, Jersey, JE1 0BD, Channel
Islands.
22. 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.
23. Capital
commitments
As at 31 March 2024 the Group had capital
commitments of £8.4 million (2023: £7.7 million).
24. Post
balance sheet events
There are no post balance sheet events to
report.
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
|
|
31/03/2024
|
31/03/2023
|
EPRA earnings
|
|
£16,278,000
|
£15,968,000
|
EPRA earnings per share
|
|
3.3pps
|
3.3pps
|
|
|
|
|
EPRA Net Reinstatement Value
|
|
£318,360,000
|
£332,178,000
|
EPRA Net Reinstatement Value per
share
|
|
65.1p
|
67.9p
|
|
|
|
|
EPRA Net Tangible Assets
|
|
£287,131,000
|
£300,689,000
|
EPRA Net Tangible Assets per
share
|
|
58.7p
|
61.5p
|
|
|
|
|
EPRA Net Disposal Value
|
|
£305,808,000
|
£317,448,000
|
EPRA Net Disposal Value per share
|
|
62.5p
|
64.9p
|
|
|
|
|
EPRA Net Initial Yield
|
|
5.6%
|
5.4%
|
EPRA "topped-up" Net Initial Yield
|
|
6.1%
|
5.8%
|
|
|
|
|
EPRA vacancy rate
|
|
10.9%
|
11.1%
|
|
|
|
|
EPRA cost ratios-- including direct vacancy
costs
|
|
29.6%
|
28.0%
|
EPRA cost ratios-- excluding direct vacancy
costs
|
|
23.7%
|
21.1%
|
|
|
|
|
EPRA LTV
|
|
37.1%
|
36.0%
|
a. EPRA earnings and
earnings per share
Earnings excluding all capital components not
relevant to the underlying net income performance of the Company,
such as the unrealised fair value gains or losses on investment
properties and any gains or losses from the sales of
properties.
|
|
31/03/2024
|
31/03/2023
|
|
|
£000
|
£000
|
Profit/(loss) per IFRS income
statement
|
|
3,017
|
(54,715)
|
Adjustments to calculate EPRA
Earnings:
|
|
|
|
Profit on the disposal of investment
property
|
|
(199)
|
(1,184)
|
Net unrealised valuation loss on investment
property
|
|
8,044
|
60,107
|
Net change in the fair value of financial
instruments
|
|
547
|
-
|
Gain on the disposal of financial
instruments
|
|
(189)
|
-
|
Share of the valuation loss in associates and
joint ventures
|
|
5,058
|
11,513
|
Refinancing costs
|
|
-
|
247
|
EPRA
earnings
|
|
16,278
|
15,968
|
|
|
|
|
Weighted average number of ordinary
shares
|
|
489,110,576
|
489,951,224
|
IFRS earnings
per share (pence)
|
|
0.6
|
(11.2)
|
EPRA earnings
per share (pence)
|
|
3.3
|
3.3
|
|
|
|
|
|
|
|
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.
|
31/03/2024
|
31/03/2023
|
|
£000
|
£000
|
IFRS equity attributable to
shareholders
|
287,350
|
300,689
|
Adjustment in respect of real
estate transfer taxes and costs
|
31,229
|
31,489
|
Adjustment in respect of the fair
value of financial instruments
|
(219)
|
-
|
EPRA Net Reinstatement
Value
|
318,360
|
332,178
|
Shares in issue at the end of the
period
|
489,110,576
|
489,110,576
|
EPRA NRV per share (pence per
share)
|
65.1p
|
67.9p
|
c. EPRA Net Tangible Assets
per share
The IFRS equity attributable to shareholders
adjusted to reflect a Company's tangible assets and assumes that no
selling of assets takes place.
|
|
31/03/2024
|
31/03/2023
|
|
|
£000
|
£000
|
IFRS equity attributable to
shareholders
|
|
287,350
|
300,689
|
Fair value of financial instruments
|
|
(219)
|
-
|
EPRA Net Tangible Assets
|
|
287,131
|
300,689
|
|
|
|
|
Shares in issue at the end of the
year
|
|
489,110,576
|
489,110,576
|
IFRS NAV per
share (pence)
|
|
58.8p
|
61.5p
|
EPRA Net
Tangible Assets per share (pence)
|
|
58.7p
|
61.5p
|
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.
|
|
31/03/2024
|
31/03/2023
|
|
|
£000
|
£000
|
IFRS equity attributable to
shareholders
|
|
287,350
|
300,689
|
Adjustments to calculate EPRA Net
Disposal Value:
|
|
|
|
The fair value of fixed-interest rate
debt
|
|
18,458
|
16,759
|
EPRA Net
Disposal Value
|
|
305,808
|
317,448
|
|
|
|
|
Shares in issue at the end of the
year
|
|
489,110,576
|
489,110,576
|
EPRA Net
Disposal Value per share (pence)
|
|
62.5p
|
64.9p
|
e. EPRA Net
Initial Yield
Annualised rental income based on the cash
rents passing at the Balance Sheet date (but adjusted as set out
below), less non-recoverable property operating expenses, divided
by the gross market value of the property.
The EPRA "topped up" NIY is the EPRA NIY in
respect of the expiration of rent free periods.
|
|
31/03/2024
|
31/03/2023
|
|
|
£000
|
£000
|
Investment property - wholly-owned
|
|
391,475
|
398,560
|
Investment property - share of joint ventures
and funds
|
|
67,775
|
71,800
|
Complete
property portfolio
|
|
459,250
|
470,360
|
Allowance for estimated purchasers'
costs
|
|
31,229
|
31,489
|
Gross up
completed property portfolio valuation
|
|
490,479
|
501,849
|
|
|
|
|
Annualised cash passing rental
income
|
|
29,796
|
29,292
|
Property outgoings
|
|
(2,154)
|
(2,258)
|
Annualised
net rents
|
|
27,642
|
27,034
|
Notional rent expiration of rent-free periods
(1)
|
|
2,462
|
2,177
|
Topped-up net
annualised rent
|
|
30,104
|
29,211
|
|
|
|
|
EPRA
NIY
|
|
5.6%
|
5.4%
|
EPRA
"topped-up" NIY
|
|
6.1%
|
5.8%
|
(1) The period over which
rent free periods expire is one year for 2023 (2022: 1
year).
f. EPRA
cost ratios
Administrative and operating costs (including
and excluding costs of direct vacancy) divided by gross rental
income.
|
|
31/03/2024
|
31/03/2023
|
|
|
£000
|
£000
|
Administrative/operating expense line per IFRS
income statement
|
|
7,572
|
7,662
|
Share of Joint Venture expenses
|
|
1,423
|
591
|
Less: Ground rent costs
|
|
(113)
|
(68)
|
Costs
(including direct vacancy costs)
|
|
8,882
|
8,185
|
|
|
|
|
Direct vacancy costs
|
|
(1,782)
|
(2,026)
|
Costs
(excluding direct vacancy costs)
|
|
7,100
|
6,159
|
|
|
|
|
Gross rental income less ground rent costs -
per IFRS
|
|
25,525
|
25,103
|
Add share of Joint Ventures (Gross Rental
Income less ground rent costs)
|
|
4,480
|
4,106
|
Gross rental
income
|
|
30,005
|
29,209
|
EPRA cost ratio (including direct vacancy
costs)
|
|
29.6%
|
28.0%
|
EPRA cost ratio (excluding direct vacancy
costs)
|
|
23.7%
|
21.1%
|
There were no directly attributable overhead
and operating costs capitalised during the year (2023: nil). The
Company does not have a policy to capitalise such expenses (as per
note 1).
g.
EPRA vacancy rate
Estimated market rental value (ERV) of vacant
space divided by the ERV of the whole portfolio.
|
|
31/03/2024
|
31/03/2023
|
|
|
£000
|
£000
|
Estimated rental value of vacant
space
|
|
4,242
|
4,192
|
Estimated rental value of the whole
portfolio
|
|
38,770
|
37,843
|
EPRA vacancy
rate
|
|
10.9%
|
11.1%
|
There were no significant or distorting
factors in the above.
h.
EPRA LTV
The gearing of the shareholder equity within
the Company.
|
|
31/03/2024
|
31/03/2023
|
|
|
£000
|
£000
|
Borrowings from Financial
Institutions
Cash and cash equivalents
Cash and cash equivalents - share of joint
ventures
|
|
176,585
(6,005)
(229)
|
177,885
(8,419)
(302)
|
Net
Debt
|
|
170,351
|
169,164
|
|
|
|
|
Investment properties at fair value - direct
portfolio
|
|
391,475
|
398,560
|
Investment properties at fair value - share of
joint ventures
|
|
67,775
|
71,800
|
Total
Property Value
|
|
459,250
|
470,360
|
|
|
|
|
LTV
|
|
37.1%
|
36.0%
|
i. EPRA
capital expenditure
In accordance with EPRA's core
recommendations, the Group's capital expenditure invested in the
year can be broken down as follows:
|
Group (excluding Joint Ventures)
£m
|
Joint Ventures (proportionate share)
£m
|
Total Group £m
|
Acquisitions (including transaction
costs)
|
-
|
-
|
-
|
Developments and accretive works
|
8.3
|
0.8
|
9.1
|
Investment properties
|
|
|
|
- Tenant incentives
|
-
|
-
|
-
|
- Other material non-allocated types of
expenditure
|
-
|
-
|
-
|
Total Capital
Expenditure
|
8.3
|
0.8
|
9.1
|
As per note 10, the Fund made no new
acquisitions, and thus also incurred no additional transaction
costs, during the financial year.
The capital expenditure invested in the year
amounted to £8.3m on the directly held portfolio (also as per note
10).
The three largest capital expenditure
investments made in the financial year were as follows: a) £2.8m at
Stacey Bushes, Milton Keynes b) £1.5m at Stirling Court, Swindon
(see page 18 for further details) and c) £1.4m at The Tun,
Edinburgh (see page 18 for further details).
The £0.8m invested across joint ventures
related solely to the Group's 25% share of underlying capital
expenditure works undertaken at City Tower.
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 105) 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 105 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 £7k.
Share price 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 disclosures for Schroder Real Estate Investment
Management Limited ('SREIM') for the year to 31 December
2023
Remuneration
disclosures
These disclosures form part of the non-audited
section of this annual report and accounts and should be read in
conjunction with the Schroders plc Remuneration Report on pages 74
to 93 of the 2023 Annual Report & Accounts (available on the
Group's website - www.schroders.com/ir) which provides more
information on the activities of our Remuneration Committee and our
remuneration principles and policies.
The AIF Material Risk Takers ('AIF MRTs') of
SREIM are individuals whose roles within the Schroders Group can
materially affect the risk of SREIM or any AIF fund that it
manages. These roles are identified in line with the requirements
of the AIFM Directive and guidance issued by the European
Securities and Markets Authority.
The Remuneration Committee of Schroders plc
has established a remuneration policy to ensure the requirements of
the AIFM Directive are met for all AIF MRTs. The Remuneration
Committee and the Board of Schroders plc review remuneration
strategy at least annually. The directors of SREIM are responsible
for the adoption of the remuneration policy and periodically
reviewing its implementation in relation to SREIM. During 2023 the
Remuneration Policy was reviewed to ensure compliance with the
UCITS/AIFMD remuneration requirements and no significant changes
were made.
The implementation of the remuneration policy
is, at least annually, subject to independent internal review for
compliance with the policies and procedures for remuneration
adopted by the Board of SREIM and the Remuneration Committee. The
most recent review found no fundamental issues but resulted in
minor recommendations relating to process documentation.
Our ratio of operating compensation costs to
net operating income guides the total spend on remuneration each
year. This is recommended by the Remuneration Committee to the
Board of Schroders plc. This approach aligns remuneration with
Schroders financial performance. In determining the remuneration
spend each year, the underlying strength and sustainability of the
business is taken into account, along with reports on risk and
compliance, legal and internal audit matters from the heads of
those areas.
The remuneration data that follows reflects
amounts paid in respect of performance during 2023.
· The total amount
of remuneration paid by SREIM to its staff is nil as SREIM has no
employees. Employees of SREIM or other Schroders Group entities who
serve as Directors of SREIM receive no additional fees in respect
of their role on the Board of SREIM; and
· The following
disclosures relate to AIF MRTs of SREIM. Those AIF MRTs were
employed by and provided services to other Schroders group
companies and clients. In the interests of transparency, the
aggregate remuneration figures that follow reflect the full
remuneration for each SREIM AIF MRT. The aggregate total
remuneration paid to the 77 AIF MRTs of SREIM in respect of the
financial year ended 31 December 2023 is £51.85 million, of which
£45.43 million was paid to senior management, £4.35 million was
paid to MRTs deemed to be taking risk on behalf of SREIM or the AIF
funds that it manages and £2.07 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 2023 as shown below (the Company
calculates and externally reports its leverage one quarter in
arrears):
|
Maximum limit set
|
Actual as at
31.12.2023
|
Gross leverage
|
195
|
163
|
Commitment leverage
|
220
|
161
|
There have been no changes to the maximum
levels of leverage employed by the Company during the financial
year nor any breaches of the maximum levels during the financial
reporting period.
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 2023 -
31st December 2023, presented
with comparison against 2022. 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 being managed properties
where the Company is responsible for the payment of utility
invoices and/or the 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 2023, 42 assets were held by the Company
during the reporting year (including two sales). In total, 23
assets were within the operational control reporting boundary of
the Company during the reporting year (i.e.
'managed'), following the sale of Leeds, Coverdale
House. In 2022, there were 24 such managed assets within the
portfolio.
Where data coverage is less than 100%, a
supporting explanation is provided within the data notes
immediately below the relevant table. Energy and water consumption
data is reported according to automatic meter reads, manual meter
reads or invoice estimates. Where required, missing consumption
data has been estimated by prorating data from other periods using
recognised techniques. The proportion of data that is estimated is
presented in the footnotes to the data tables. Historic consumption
data has been restated where more complete and/or accurate records
have become available.
The Company does not hold any managed assets
that consume energy from district heating or cooling sources.
Therefore, the EPRA sBPR DH&C-Abs and DH&C-LfL indicators
are not applicable and not presented in this report. Furthermore,
the Company does not have any direct employees; it is served by the
employees of the Investment Manager (Schroder Real Estate
Investment Management Limited). Accordingly, the EPRA Overarching
Recommendation for companies to report on the environmental impact
of their own offices is not relevant/material and not presented in
this report.
This report has been prepared by
the Investment Manager to the Company, supported by energy
and sustainability consultants, Deepki. The Sustainability
Performance Measures have been assured in accordance with AA1000 to
provide a Type 2 Moderate Assurance unqualified audit of the
sustainability content within the SREIT annual report for the year
ended 31 March 2024. The full Assurance Statement is available on
request.
Total energy
consumption (Elec-Abs; Fuels-Abs)
The table below sets out total landlord obtained
energy consumption from the Company's managed portfolio by
sector:
|
Total
electricity consumption (kWh)
|
Total
fuel consumption (kWh)
|
Absolute
energy intensity (kWh/m2)
|
Sector
|
2022
|
2023
|
2022
|
2023
|
2022
|
2023
|
%
Change
|
Office: Corporate: Low-Rise
Office
|
796,667
|
577,132
|
690,821
|
516,211
|
33
|
24
|
-26%
|
Coverage
|
88%
|
82%
|
85%
|
82%
|
87%
|
82%
|
|
Retail: High Street
|
16,992
|
12,441
|
-
|
-
|
2
|
1
|
-27%
|
Coverage (landlord-procured
consumption)
|
100%
|
100%
|
-
|
-
|
100%
|
100%
|
|
Retail: Retail Centres:
Warehouse
|
34,960
|
23,492
|
27,969
|
-
|
5
|
2
|
-63%
|
Coverage
|
100%
|
100%
|
-
|
-
|
100%
|
100%
|
|
Mixed use: Other
|
1,911,974
|
1,943,117
|
-
|
-
|
23
|
23
|
2%
|
Coverage (landlord-procured
consumption)
|
100%
|
100%
|
-
|
-
|
100%
|
100%
|
|
Mixed use: Office/Retail
|
407,973
|
478,168
|
131,624
|
90,622
|
62
|
66
|
5%
|
Coverage (landlord-procured
consumption)
|
100%
|
100%
|
-
|
100%
|
100%
|
100%
|
|
Industrial: Distribution Warehouse:
Non-Refrigerated Warehouse
|
1,380,606
|
1,519,872
|
392,249
|
436,386
|
16
|
17
|
10%
|
Coverage (landlord-procured
consumption)
|
100%
|
100%
|
100%
|
100%
|
100%
|
100%
|
|
Industrial: Distribution Warehouse:
Refrigerated Warehouse
|
3,914
|
2,334
|
-
|
-
|
7
|
4
|
-40%
|
Coverage (landlord-procured
consumption)
|
100%
|
100%
|
100%
|
100%
|
100%
|
100%
|
|
Lodging, Leisure & Recreation:
Other
|
205,193
|
207,994
|
-
|
-
|
59
|
60
|
1%
|
Coverage (landlord-procured
consumption)
|
100%
|
100%
|
-
|
-
|
100%
|
100%
|
|
Office: Corporate: Mid-Rise
Office
|
268,733
|
277,276
|
448,859
|
396,963
|
149
|
140
|
-6%
|
Coverage (landlord-procured
consumption)
|
100%
|
100%
|
100%
|
100%
|
100%
|
100%
|
|
Total
|
5,027,012
|
5,041,826
|
1,691,522
|
1,440,182
|
|
|
|
Coverage (landlord-procured
consumption)
|
98%
|
97%
|
92%
|
88%
|
|
|
|
Total electricity, fuels and
district heating
|
6,718,533
|
6,482,008
|
|
|
|
Coverage (landlord-procured
consumption)
|
96%
|
95%
|
|
|
|
Renewable electricity %
|
83%
|
80%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Consumption data relates to the managed portfolio
only:
o Industrial: Distribution warehouse: Refrigerated Warehouse:
whole building; outdoor areas; tenant space, where procured by the
landlord;
o Industrial: Distribution warehouse: Non- Refrigerated
Warehouse: whole building; outdoor areas; tenant space, where
procured by the landlord;
o Lodging, leisure and recreation: common parts; outdoor areas;
tenant space, where procured by the landlord;
o Mixed-use office/retail: shared services, common parts, tenant
space, where procured by the landlord;
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: whole building; common parts; shared
services; outdoor areas; tenant space, where procured by the
landlord;
o Retail high street: shared services, common parts, tenant
space, where procured by the landlord;
o Retail warehouse: whole building; outdoor areas; tenant space,
where procured by the landlord;
o Energy procured directly by tenants is not
reported;
-
Percentage of data estimated pro rata across 2022
and 2023: 0.3%;
-
Renewable electricity (%) is calculated according
to the attributes of energy supply contracts as at 31 December 2023
and only reflects renewable electricity procured under a 100%
'green tariff' (i.e. where generation is from a 100% renewable
source). The renewables percentage of standard (non-'green tariff')
energy supplies are not currently known and therefore has not been
included within this number;
-
Intensity: Numerators/denominators are aligned at
the sector level as follows:
o Lodging, Leisure, & Recreation: Other, Retail: High Street
& Retail: Retail Centres: Warehouse - Common areas energy
consumption (kWh) divided by common parts area (CPA m2);
o Industrial: Distribution Warehouse: Refrigerated Warehouse,
Industrial: Distribution Warehouse: Non- Refrigerated Warehouse -
External areas energy consumption (kWh) divided by the external
area (m2) or common parts area (m2) where known
o All
other sectors - Common areas and shared service or whole building
energy consumption (kWh) divided by gross internal area (GIA
m2)
-
All energy was procured from a third-party
supplier. No 'self-generated' renewable energy was consumed during
the reporting period and therefore is not presented
here;
-
Coverage (landlord-procured consumption) relates
to the proportion of assets for which landlord obtained data has
been reported:
o An
asset in the 'Office: Corporate: Low-Rise Office' sector has been
removed due to data quality issues which are under investigation
with the supplier.
-
Where appropriate (for relevant assets),
consumption data and asset NLA/GIA has been adjusted to reflect the
Company's share of ownership.
Like-for-like
energy consumption (Elec-LfL; Fuels-LfL;
Energy-Int)
The table below sets out the like-for-like
landlord-obtained energy consumption from the Company's managed
portfolio by sector.
|
Like-for-like electricity consumption (kWh)
|
Like-for-like fuel consumption (kWh)
|
Like-for-like Energy Intensity (kWh /m2)
|
Sector
|
2022
|
2023
|
%
Change
|
2022
|
2023
|
%
Change
|
2022
|
2023
|
%
Change
|
Office: Corporate: Low-Rise
Office
|
442,582
|
494,630
|
12%
|
370,050
|
297,325
|
-20%
|
26
|
25
|
-3%
|
Coverage (landlord-procured
consumption)
|
82%
|
82%
|
|
78%
|
78%
|
|
80%
|
80%
|
|
Retail: High Street
|
16,992
|
12,441
|
-27%
|
-
|
-
|
-
|
2
|
1
|
-27%
|
Coverage (landlord-procured
consumption)
|
100%
|
100%
|
|
-
|
-
|
|
100%
|
100%
|
|
Retail: Retail Centres:
Warehouse
|
34,960
|
23,492
|
-33%
|
27,969
|
-
|
-100%
|
5
|
2
|
-63%
|
Coverage (landlord-procured
consumption)
|
100%
|
100%
|
|
-
|
-
|
|
100%
|
100%
|
|
Mixed use: Other
|
1,911,974
|
1,973,117
|
2%
|
-
|
-
|
-
|
23
|
23
|
2%
|
Coverage (landlord-procured
consumption)
|
100%
|
100%
|
|
-
|
-
|
|
100%
|
100%
|
|
Mixed use: Office/Retail
|
273,793
|
252,858
|
-8%
|
23
|
-
|
-100%
|
96
|
89
|
-8%
|
Coverage (landlord-procured
consumption)
|
100%
|
100%
|
|
-
|
-
|
|
100%
|
100%
|
|
Industrial: Distribution Warehouse:
Non-Refrigerated Warehouse
|
1,380,606
|
1,519,872
|
10%
|
392,249
|
436,386
|
11%
|
16
|
17
|
10%
|
Coverage (landlord-procured
consumption)
|
100%
|
100%
|
|
100%
|
100%
|
|
100%
|
100%
|
|
Industrial: Distribution Warehouse:
Refrigerated Warehouse
|
3,914
|
2,334
|
-40%
|
-
|
-
|
|
-
|
-
|
-
|
Coverage (landlord-procured
consumption)
|
100%
|
100%
|
|
100%
|
100%
|
|
100%
|
100%
|
|
Lodging, Leisure & Recreation:
Other
|
205,193
|
207,994
|
1%
|
-
|
-
|
-
|
59
|
60
|
1%
|
Coverage (landlord-procured
consumption)
|
100%
|
100%
|
|
100%
|
100%
|
|
100%
|
100%
|
|
Office: Corporate: Mid-Rise
Office
|
268,733
|
277,276
|
3%
|
448,859
|
396,963
|
-12%
|
149
|
140
|
-6%
|
Coverage (landlord-procured
consumption)
|
100%
|
100%
|
|
100%
|
100%
|
|
100%
|
100%
|
|
Total
|
4,333,554
|
4,556,020
|
5%
|
1,239,150
|
1,130,674
|
-9%
|
|
|
|
Coverage (landlord-procured
consumption)
|
97%
|
88%
|
|
97%
|
88%
|
|
|
|
|
Total
electricity, fuels and district heating
|
5,777,896
|
5,864,688
|
1.5%
|
|
|
|
|
|
|
Coverage (landlord-procured
consumption)
|
95%
|
95%
|
|
|
|
|
|
|
|
Renewable electricity %
|
81%
|
79%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Like-for-like excludes assets that were purchased,
sold, under major 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:
o Industrial: Distribution warehouse: Refrigerated Warehouse:
whole building; outdoor areas; tenant space, where procured by the
landlord.
o Industrial: Distribution warehouse: Non- Refrigerated
Warehouse: whole building; outdoor areas; tenant space, where
procured by the landlord.
o Lodging, leisure & recreation: common parts; outdoor
areas; tenant space, where procured by the landlord.
o Mixed use office/retail: whole building; shared services,
common parts, tenant space, where procured by the
landlord.
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: whole building; common parts; shared
services; outdoor areas; tenant space, where procured by the
landlord.
o Retail high street: shared services, common parts, tenant
space, where procured by the landlord.
o Retail warehouse: whole building; outdoor areas; tenant space,
where procured by the landlord.
-
Percentage of data estimated pro-rata across 2022
and 2023: 0.4%
-
Renewable electricity (%) is calculated according
to the attributes of energy supply contracts as at 31 December 2023
and only reflects renewable electricity procured under a 100%
'green tariff' (i.e. where generation is from a 100% renewable
source). The renewables percentage of standard (non-'green tariff')
energy supplies are not currently known and therefore has not been
included within this number.
o Lodging, Leisure and Recreation: Other, Retail: High Street
& Retail: Retail Centres: Warehouse - Common areas energy
consumption (kWh) divided by common parts area (CPA m2)
o Industrial: Distribution Warehouse: Refrigerated Warehouse,
Industrial: Distribution Warehouse: Non- Refrigerated Warehouse -
External areas energy consumption (kWh) divided by the external
area (m2) or common parts area (m2) where known
o All
other sectors - Common areas and shared service or whole building
energy consumption (kWh) divided by gross internal area (GIA
m2)
-
All energy was procured from a third-party
supplier. No 'self-generated' renewable energy was consumed during
the reporting period and therefore is not presented
here.
-
Coverage (landlord-procured consumption) relates
to the proportion of assets for which landlord obtained data has
been reported.
o An
asset in the 'Office: Corporate: Low-Rise Office' sector has been
removed due to data quality issues which are under investigation
with the supplier.
-
Where appropriate (for relevant assets),
consumption data and asset NLA/GIA has been adjusted to reflect the
Company's share of ownership.
-
Variance
Commentary:
o The
like-for-like reduction in fuel consumption for the Retail: Retail
Centres: Warehouse sector can be explained by the single asset (St
John's Retail Park) having lower consumption in 2023 due to the
removal of the landlord gas supply;
o The
like-for-like reduction in electricity consumption for the Retail:
High Street sector can be explained by lighting system upgrades at
The Albion Centre, Ilkeston;
o The
like-for-like reduction in electricity consumption for the
Mixed-Use: Other sector can be in part explained by lighting system
upgrades at Headingley Central;
o The
like-for-like reduction in fuel consumption for the Office:
Corporate: Mid-Rise Office sector can be explained by optimisation
works at The Tun, Edinburgh where all temperature settings were
reduced via the BMS throughout the building; and
o The
like-for-like reduction in fuel consumption for the Office:
Corporate: Low-Rise Office sector can be in part explained by
occupancy changes at Clifton Park, York.
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 emissions
(tCO²e)
|
Like for like emissions
(tCO²e)
|
Like for Like Intensity (kg
CO²e /m2)
|
Absolute Intensity (kg
CO²e /m2)
|
|
|
Sector
|
2022
|
2023
|
2022
|
2023
|
%
Change
|
2022
|
2023
|
%
Change
|
2022
|
2023
|
%
Change
|
|
Office: Corporate: Low-Rise Office
|
|
Scope 1
|
126.1
|
94.4
|
67.5
|
54.4
|
-19%
|
4.85
|
4.97
|
2%
|
6.16
|
4.70
|
-24%
|
|
Scope 2
|
154.1
|
119.5
|
85.6
|
102.4
|
20%
|
|
Scopes 1 & 2
|
280.2
|
213.9
|
153.1
|
156.8
|
2%
|
|
Coverage (landlord-procured
consumption)
|
88%
|
82%
|
80%
|
80%
|
|
88%
|
82%
|
80%
|
80%
|
|
Retail: High Street
|
|
Scope 1
|
-
|
-
|
-
|
-
|
-
|
0.39
|
0.31
|
-22%
|
0.39
|
0.31
|
-22%
|
|
Scope 2
|
3.29
|
2.58
|
3.3
|
2.6
|
-22%
|
|
Scopes 1 & 2
|
3.3
|
2.6
|
3.3
|
2.6
|
-22%
|
|
Coverage (landlord-procured
consumption)
|
100%
|
100%
|
100%
|
100%
|
|
100%
|
100%
|
100%
|
100%
|
|
Retail: Retail Centers: Warehouse
|
|
Scope 1
|
5.1
|
-
|
5.1
|
-
|
-100%
|
0.94
|
0.39
|
-59%
|
0.94
|
0.39
|
-59%
|
|
Scope 2
|
6.8
|
4.9
|
6.8
|
4.9
|
-28%
|
|
Scopes 1 & 2
|
11.9
|
4.9
|
11.9
|
4.9
|
-59%
|
|
Coverage (landlord-procured
consumption)
|
100%
|
100%
|
100%
|
100%
|
|
100%
|
100%
|
100%
|
100%
|
|
Mixed-use: Other
|
|
Scope 1
|
-
|
-
|
-
|
-
|
-
|
4.44
|
4.83
|
9%
|
4.44
|
4.83
|
9%
|
|
Scope 2
|
369.74
|
402.37
|
369.7
|
402.4
|
9%
|
|
Scopes 1 & 2
|
369.7
|
402.4
|
369.7
|
402.4
|
9%
|
|
Coverage (landlord-procured
consumption)
|
100%
|
100%
|
100%
|
100%
|
|
100%
|
100%
|
100%
|
100%
|
|
Mixed-use: Office/Retail
|
|
Scope 1
|
24.0
|
16.6
|
0.0
|
-
|
-100%
|
18.65
|
18.44
|
-1%
|
11.86
|
13.31
|
12%
|
|
Scope 2
|
78.89
|
99.02
|
52.9
|
52.4
|
-1%
|
|
Scopes 1 & 2
|
102.9
|
115.6
|
53.0
|
52.4
|
-1%
|
|
Coverage (landlord-procured
consumption)
|
100%
|
100%
|
100%
|
100%
|
|
100%
|
100%
|
100%
|
100%
|
|
Industrial: Distribution Warehouse:
Non-Refrigerated
|
|
Scope 1
|
71.6
|
79.8
|
71.6
|
79.8
|
11%
|
2.97
|
3.46
|
17%
|
2.97
|
3.46
|
17%
|
|
Scope 2
|
267.0
|
314.7
|
267.0
|
314.7
|
18%
|
|
Scopes 1 & 2
|
338.6
|
394.6
|
338.6
|
394.6
|
17%
|
|
Coverage (landlord-procured
consumption)
|
100%
|
100%
|
100%
|
100%
|
|
100%
|
100%
|
100%
|
100%
|
|
Industrial: Distribution Warehouse:
Refrigerated
|
|
Scope 1
|
-
|
-
|
-
|
-
|
-
|
1.38
|
0.88
|
-36%
|
1.38
|
0.88
|
-36%
|
|
Scope 2
|
0.8
|
0.5
|
0.8
|
0.5
|
-36%
|
|
Scopes 1 & 2
|
0.8
|
0.5
|
0.8
|
0.5
|
-36%
|
|
Coverage (landlord-procured
consumption)
|
100%
|
100%
|
100%
|
100%
|
|
100%
|
100%
|
100%
|
100%
|
|
Lodging, Leisure & Recreation: Other
|
|
Scope 1
|
-
|
-
|
-
|
-
|
-
|
11.46
|
12.44
|
9%
|
11.46
|
12.44
|
9%
|
|
Scope 2
|
39.7
|
43.1
|
39.7
|
43.1
|
9%
|
|
Scopes 1 & 2
|
39.7
|
43.1
|
39.7
|
43.1
|
9%
|
|
Coverage (landlord-procured
consumption)
|
100%
|
100%
|
100%
|
100%
|
|
100%
|
100%
|
100%
|
100%
|
|
Office: Corporate: Mid-Rise Office
|
|
Scope 1
|
81.9
|
72.6
|
81.9
|
72.6
|
-11%
|
27.75
|
26.94
|
-3%
|
27.75
|
26.94
|
-3%
|
|
Scope 2
|
52.0
|
57.42
|
52.0
|
57.4
|
10%
|
|
Scopes 1 & 2
|
133.9
|
130.0
|
133.9
|
130.0
|
-3%
|
|
Coverage (landlord-procured
consumption)
|
100%
|
100%
|
100%
|
100%
|
|
100%
|
100%
|
100%
|
100%
|
|
Total
Scope 1
|
308.8
|
263.5
|
226.2
|
206.8
|
-9%
|
|
|
|
|
|
|
|
Total
Scope 2
|
972.1
|
1044.0
|
877.7
|
980.3
|
12%
|
|
|
|
|
|
|
|
Total
Scope 1 & 2
|
1280.9
|
1307.5
|
1103.9
|
1187.6
|
8%
|
|
|
|
|
|
|
|
Coverage
(landlord-procured consumption)
|
98%
|
97%
|
97%
|
97%
|
|
|
|
|
|
|
|
|
-
Like-for-like excludes assets that were purchased,
sold, under major 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;
and
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 (tCO2e) and GHG intensity is
presented as kilograms of carbon dioxide equivalent
(kgCO2e), where available greenhouse gas emissions
conversion factors allow.
-
Fuels/electricity GHG emissions factors have been
taken from the UK government's Greenhouse Gas Reporting Factors for
Company Reporting (2022 and 2023).
-
Emissions data relates to the managed portfolio
only:
o Industrial: Distribution warehouse: Refrigerated Warehouse:
whole building; outdoor areas; tenant space, where procured by the
landlord;
o Industrial: Distribution warehouse: Non- Refrigerated
Warehouse: whole building; outdoor areas; tenant space, where
procured by the landlord;
o Lodging, leisure & recreation: common parts; outdoor
areas; tenant space, where procured by the landlord;
o Mixed-use office/retail: whole building; shared services,
common parts, tenant space, where procured by the
landlord;
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: whole building; common parts; shared
services; outdoor areas; tenant space, where procured by the
landlord;
o Retail high street: shared services, common parts, tenant
space, where procured by the landlord;
o Retail warehouse: whole building; outdoor areas; tenant space,
where procured by the landlord; and
o Emissions associated with energy procured directly by tenants
is not reported.
-
Percentage of data estimated pro-rata across 2022
and 2023: 0.3% for electricity and gas.
-
Intensity: Numerators/denominators are aligned at
the sector level as follows:
o Lodging, Leisure, & Recreation: Other, Retail: High Street
& Retail: Retail Centres: Warehouse - Common areas energy
consumption (kWh) divided by common parts area (CPA m2);
o Industrial: Distribution Warehouse: Refrigerated Warehouse,
Industrial: Distribution Warehouse: Non- Refrigerated Warehouse -
External areas energy consumption (kWh) divided by the external
area (m2) or common parts area (m2) where known;
o All
other sectors - Common areas and shared service or whole building
energy consumption (kWh) divided by gross internal area (GIA
m2)
-
Coverage (landlord-procured consumption) relates
to the proportion of assets for which landlord-obtained data has
been reported.
o An
asset in the 'Office: Corporate: Low-Rise Office' sector has been
removed due to data quality issues which are under investigation
with the supplier.
-
Where appropriate (for relevant assets),
consumption data and asset NLA/GIA has been adjusted to reflect the
Company's share of ownership.
-
Variance
Commentary:
o GHG
emissions differences between 2022 and 2023 must be discussed in
the context of marginally higher UK emissions factors for both
electricity and natural gas between in 2023 compared to
2022;
o The
like-for-like reduction in Scope 1 emissions for the Retail: Retail
Centres: Warehouse sector can be explained by the single asset (St
John's Retail Park) having lower consumption in 2023 due to the
removal of the landlord gas supply;
o The
like-for-like reduction in Scope 2 emissions for the Retail: High
Street sector can be explained by lighting system upgrades at The
Albion Centre, Ilkeston;
o The
like-for-like reduction in Scope 2 emissions for the Mixed-Use:
Other sector can be in part explained by lighting system upgrades
at Headingley Central;
o The
like-for-like reduction in Scope 1 emissions for the Office:
Corporate: Mid-Rise Office sector can be explained by optimisation
works at The Tun, Edinburgh where all temperature settings were
reduced via the BMS throughout the building; and
o The
like-for-like reduction in Scope 1 emissions for the Office:
Corporate: Low-Rise Office sector can be in part explained by
occupancy changes at Clifton Park, York.
Water
(Water-Abs; Water-LfL; Water-Int)
The table below sets out water consumption from
the Company's managed portfolio by sector.
|
Absolute Water consumption (m³)
|
Like-for-like Water consumption (m³)
|
Like-for-like Intensity (m³/m²)
|
|
|
|
|
Sector
|
2022
|
2023
|
2022
|
2023
|
%
Change
|
2022
|
2023
|
%
Change
|
|
|
Office: Corporate: Low-Rise
Office
|
6,303
|
6,289
|
3,888
|
5,757
|
48%
|
0.1
|
0.2
|
48%
|
|
|
Coverage (landlord-procured
consumption)
|
100%
|
100%
|
100%
|
100%
|
|
100%
|
100%
|
|
|
Retail: High Street
|
2,862
|
2,936
|
2,862
|
2,936
|
3%
|
0.3
|
0.4
|
3%
|
|
|
Coverage (landlord-procured
consumption)
|
100%
|
100%
|
100%
|
100%
|
|
100%
|
100%
|
|
|
Retail: Retail Centers:
Warehouse
|
299
|
301
|
299
|
301
|
0%
|
0.02
|
0.02
|
0%
|
|
|
Coverage (landlord-procured
consumption)
|
100%
|
100%
|
100%
|
100%
|
|
100%
|
100%
|
|
|
Mixed-use: Other
|
3,732
|
2,988
|
3,732
|
2,988
|
-20%
|
0.0
|
0.0
|
-20%
|
|
|
Coverage (landlord-procured
consumption)
|
100%
|
100%
|
100%
|
100%
|
|
100%
|
100%
|
|
|
Mixed-use:
Office/Retail
|
3,003
|
5,909
|
440
|
1,381
|
214%
|
0.2
|
0.5
|
214%
|
|
|
Coverage (landlord-procured
consumption)
|
100%
|
100%
|
100%
|
100%
|
|
100%
|
100%
|
|
|
Lodging, Leisure & Recreation:
Other
|
149
|
143
|
149
|
143
|
-4%
|
0.04
|
0.04
|
-4%
|
|
|
Coverage (landlord-procured
consumption)
|
100%
|
100%
|
100%
|
100%
|
-
|
100%
|
100%
|
|
|
Office: Corporate: Mid-Rise
Office
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
Coverage (landlord-procured
consumption)
|
0%
|
0%
|
0%
|
0%
|
|
0%
|
0%
|
|
|
Total
|
16,349
|
18,566
|
11,371
|
13,506
|
19%
|
|
|
|
Coverage (landlord-procured consumption)
|
97%
|
96%
|
96%
|
96%
|
|
|
|
-
Like-for-like excludes assets that were
purchased, sold, under major refurbishment
or subject to a significant change in the scope of reported data
during the two years reported.
-
Consumption data relates to the manage portfolio
only:
o Lodging, leisure & recreation: common parts;
o Mixed-use: other: whole building; common parts;
o Mixed-use: office/retail: whole building; common
parts;
o Office low-rise: whole building; common parts; tenant space,
where procured by the landlord;
o Office mid-rise: whole building; common parts; tenant space,
where procured by the landlord;
o Retail: high street: common parts; tenant space, where
procured by the landlord;
o Retail warehouse: tenant space, where procured by the
landlord; and
o Water procured directly by tenants is not reported.
-
All water was procured from a municipal supply. As
far as we are aware, no surface, ground, rainwater or wastewater
from another organisation was consumed during the reporting period
and therefore is not presented here.
-
Percentage of data estimated pro-rata across both
2022 and 2023: 0%.
-
Intensity: Numerators/denominators are aligned as
follows:
o Lodging, Leisure and Recreation: Other, Retail: High Street
& Retail: Retail Centres: Warehouse - Common areas energy
consumption (kWh) divided by common parts area (CPA m2);
o Industrial: Distribution Warehouse: Refrigerated Warehouse,
Industrial: Distribution Warehouse: Non- Refrigerated Warehouse -
External areas energy consumption (kWh) divided by the external
area (m2) or common parts area (m2) where known; and
o All
other sectors - Common areas and shared service or whole building
energy consumption (kWh) divided by gross internal area (GIA
m2).
-
Coverage (landlord-procured consumption) relates
to the proportion of assets for which landlord-obtained data has
been reported.
o An
asset in the 'Office: Corporate: Mid-Rise Office' sector has been
removed due to data quality issues which are under investigation
with the supplier.
-
Where appropriate (for relevant assets),
consumption data and asset NLA/GIA has been adjusted to reflect the
Company's share of ownership.
-
Variance commentary:
o The
notable increase in like-for-like water consumption for the Office:
Corporate: Low-Rise Office sector can largely be attributed to the
asset Northampton, Century & Peterbridge. This is due to
increased occupancy in 2023 and several small water leaks that have
since been fixed; and
o The
notable increase in like-for-like water intensity for the
Mixed-Use: Office/ Retail is because of water leaks at Liverpool,
88 - 94 Church Street.
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
|
2022
|
2023
|
2022
|
2023
|
|
Tonnes
|
%
|
Tonnes
|
%
|
Tonnes
|
%
|
Tonnes
|
%
|
%
Change
|
Office:
Corporate: Low-Rise Office
|
Recycled
|
30.4
|
60.3%
|
23.0
|
42.6%
|
30.4
|
60.3%
|
23.0
|
42.6%
|
-24.3%
|
Incineration with energy recovery
|
20.0
|
39.7%
|
31.0
|
57.4%
|
20.0
|
39.7%
|
31.0
|
57.4%
|
55%
|
Unknown
|
-
|
-
|
-
|
-
|
|
-
|
|
-
|
-
|
Landfill
|
-
|
-
|
-
|
-
|
|
-
|
|
-
|
-
|
|
Total
|
50.4
|
|
54.0
|
7.1%
|
50.4
|
|
54.0
|
|
7.1%
|
|
Coverage (landlord-procured consumption)
|
100%
|
100%
|
100%
|
100%
|
Retail:
High Street
|
Recycled
|
14.0
|
40.7%
|
24.8
|
55.0%
|
14.0
|
40.7%
|
24.8
|
55.0%
|
77.1%
|
Incineration with energy recovery
|
20.3
|
59.0%
|
20.3
|
45.0%
|
20.3
|
59.0%
|
20.3
|
45.0%
|
0%
|
Unknown
|
-
|
-
|
|
-
|
|
-
|
|
-
|
-
|
Landfill
|
-
|
-
|
|
-
|
|
-
|
|
-
|
-
|
|
Total
|
34.4
|
|
45.1
|
31.1
|
34.4
|
|
45.1
|
|
31.1
|
|
Coverage (landlord-procured consumption)
|
100%
|
100%
|
100%
|
100%
|
Retail:
Retail Centers: Warehouse
|
Recycled
|
|
-
|
|
-
|
|
-
|
|
-
|
-
|
Incineration with energy recovery
|
0.8
|
100%
|
2.8
|
100%
|
0.8
|
100%
|
2.8
|
100%
|
250%
|
Unknown
|
|
-
|
|
-
|
|
-
|
|
-
|
-
|
Landfill
|
|
-
|
|
-
|
|
-
|
|
-
|
-
|
|
Total
|
0.8
|
|
2.8
|
250%
|
0.8
|
|
2.8
|
|
250%
|
|
Coverage (landlord-procured consumption)
|
100%
|
100%
|
100%
|
100%
|
Mixed-use: Other
|
Recycled
|
45.3
|
52.1%
|
45.8
|
48.8%
|
45.3
|
52.1%
|
45.8
|
48.8%
|
1.1%
|
Incineration with energy recovery
|
41.7
|
47.9%
|
48
|
51.2%
|
41.7
|
47.9%
|
48.0
|
51.2%
|
15.1%
|
Unknown
|
|
-
|
|
-
|
|
-
|
|
-
|
-
|
Landfill
|
|
-
|
|
-
|
|
-
|
|
-
|
-
|
|
Total
|
87.0
|
|
93.8
|
7.8%
|
87.0
|
|
93.8
|
|
7.8%
|
|
Coverage (landlord-procured consumption)
|
100%
|
100%
|
100%
|
100%
|
Mixed-use: Office/Retail
|
Recycled
|
10.4
|
34.2%
|
3.0
|
30.6%
|
10.4
|
34.2%
|
3.0
|
30.6%
|
-71.2%
|
Incineration with energy recovery
|
20.0
|
65.8%
|
6.8
|
69.4%
|
20
|
65.8%
|
6.8
|
69.4%
|
-66%
|
Unknown
|
|
-
|
|
-
|
|
-
|
|
-
|
-
|
Landfill
|
|
-
|
|
-
|
|
-
|
|
-
|
-
|
|
Total
|
30.4
|
-
|
9.8
|
-67.8%
|
30.4
|
|
9.8
|
|
-67.8%
|
|
Coverage (landlord-procured consumption)
|
100%
|
100%
|
100%
|
100%
|
Lodging, Leisure & Recreation: Other
|
Recycled
|
274.7
|
58.7%
|
255.3
|
60.0%
|
274.7
|
58.7%
|
255.3
|
60.0%
|
-7.1%
|
Incineration with energy recovery
|
193.4
|
41.3%
|
170.4
|
40.0%
|
193.4
|
41
3%
|
170.4
|
40.0%
|
-11.9%
|
Unknown
|
-
|
-
|
-
|
-
|
|
-
|
|
-
|
-
|
Landfill
|
-
|
-
|
-
|
-
|
|
-
|
|
-
|
-
|
|
Total
|
468.1
|
-
|
425.7
|
-
|
468.1
|
-
|
425.7
|
-
|
-9.1%
|
|
Coverage (landlord-procured consumption)
|
100%
|
100%
|
100%
|
100%
|
Office:
Corporate: Mid-Rise Office
|
Recycled
|
14.9
|
72.0%
|
13.8
|
76.2%
|
14.9
|
72.0%
|
13.8
|
76.2%
|
-7.4%
|
Incineration with energy recovery
|
5.8
|
28.0%
|
4.3
|
23.8%
|
5.8
|
28.0%
|
4.3
|
23.8%
|
-25.9%
|
Unknown
|
-
|
-
|
-
|
-
|
|
-
|
|
-
|
-
|
Landfill
|
-
|
-
|
-
|
-
|
|
-
|
|
-
|
-
|
|
Total
|
20.7
|
-
|
18.1
|
|
20.7
|
|
18.1
|
|
-12.6%
|
|
Coverage (landlord-procured consumption)
|
100%
|
100%
|
100%
|
100%
|
|
Total
|
Recycled
|
389.7
|
-
|
365.7
|
-
|
381.7
|
-
|
365.7
|
-
|
-4.2%
|
Incineration with energy recovery
|
302.1
|
-
|
23.6
|
-
|
292.1
|
-
|
283.6
|
-
|
--2.9%
|
Unknown
|
0.00
|
-
|
0.00
|
-
|
0.00
|
-
|
0.00
|
-
|
0%
|
Landfill
|
0.00
|
-
|
0.00
|
-
|
0.00
|
-
|
0.00
|
-
|
0%
|
Total
|
691.8
|
649.3
|
673.8
|
649.3
|
-3.6%
|
|
|
100%
|
100%
|
100%
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Whilst zero waste is sent directly 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 major refurbishment or subject
to a significant change in the scope of reported data during the
two years reported;
-
Waste data relates to the managed portfolio
only;
-
Waste management procured directly by tenants is
not reported;
-
Reported data relates to non-hazardous waste
only, robust tonnage data on the small quantities of hazardous
waste produced is not available;
-
Coverage (landlord-procured consumption) relates
to the proportion of assets for which landlord obtained data has
been reported;
-
Where appropriate (for relevant assets),
consumption data and asset NLA/GIA has been adjusted to reflect the
Company's share of ownership; and
-
Variance Commentary:
o The
increase in like-for-like tonnage for the Retail: High Street is
attributed to Ilkeston Albion Centre where two additional waste
streams were added in 2023.
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
(%)
|
BREEAM/New Construction |
Excellent
|
2.5%
|
BREEAM/ Refurbishment and Fit-out Coverage
|
2.5%
|
BREEAM/Refurbishment and Fit-out |
Very Good
|
0.2%
|
BREEAM/ Refurbishment and Fit-out Coverage
|
0.2%
|
BREEM In Use | Very Good
|
2.0%
|
BREEM In Use | Good
|
3.2%
|
BREEM In Use | Acceptable
|
0.8%
|
BREEAM/ In Use Coverage
|
6.0%
|
WiredScore | Gold
|
2.3%
|
WiredScore | Silver
|
0.8%
|
WiredScore/ Coverage
|
3.1%
|
Total Portfolio Coverage (excluding
duplicates)
|
9.7%
|
|
|
|
-
Green building certificate records for the Company
are provided as at 31 December 2023 by portfolio net lettable floor
area;
-
Data provided includes managed and non-managed
assets (i.e. the whole portfolio);
-
Where appropriate (for relevant assets), asset GIA
has been adjusted to reflect the Company's share of
ownership;
-
To avoid double counting, the Total Portfolio
Coverage excludes the floor area for the BREEAM/Refurbishment and
Fit-out at City Tower as there are additional certificates already
included in the count; and
-
In Q1 2024 the WiredScore for City Tower,
Manchester was upgraded from a 'Gold' to a 'Platinum'
rating.
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+
|
2.7%
|
|
A
|
2.8%
|
|
B
|
15.1%
|
|
C
|
39.3%
|
|
D
|
27.0%
|
|
E
|
11.9%
|
|
F
|
0.0%
|
|
G
|
0.0%
|
|
N/A
|
0.0%
|
|
No EPC
|
1.1%
|
|
Coverage
|
100%
|
|
-
Energy Performance Certificate (EPC) records for
the Company are provided for the portfolio as at 31 December 2023
by portfolio floor area;
-
Data provided includes the whole portfolio i.e.
managed and non-managed assets;
-
Where appropriate (for relevant assets) asset GIA
has been adjusted to reflect the Company's share of
ownership;
-
EPCs are known for 99% of
the portfolio by floor area. In general terms, since the
introduction of the EPC Regulations in 2008, EPCs are required for
the letting of units or buildings or the sale of buildings. In
addition, the UK Minimum Energy Efficiency Standards regulations
('MEES') came into force for commercial buildings on 1 April 2018
and require a minimum EPC rating of 'E' for new lettings; the rules
apply to all leases from 1 April 2023. The EPCs for the portfolio
are managed to ensure compliance with the MEES
regulations.
Sustainability Performance Measures
(Social)
EPRA's Sustainability Best Practices
Recommendations Guidelines 2017 ('EPRA's Guidelines') include
Social and Governance reporting measures to be disclosed for the
entity i.e. the Company. The Company is an externally managed real
estate investment trust and has no direct employees. A number of
these Social Performance measures relate to entity employees and
therefore these measures are not relevant for reporting at the
entity level. The Investment Manager to the Company, Schroder Real
Estate Investment Management Limited, is part of Schroders PLC
which has responsibility for the employees that support the
Company. The Company aims to comply with EPRA's Guidelines and
therefore has included Social and Governance Performance Measure
disclosures in this report. However, these are presented as
appropriate for the activities and responsibilities of the Schroder
real Estate Investment Trust Limited (the 'Company'), Schroders plc
or the Investment Manager, Schroder Real Estate Investment
Management Limited.
The Schroders PLC Annual Report and Accounts
for the 12 months to 31 December 2023 supports the performance
measures in relation to the Investment Manager as set out below.
Schroders PLC's principles in relation to people including
diversity, gender pay gap, values, employee satisfaction survey,
wellbeing and retention can be found at:
· Schroders 2023 Annual Report and Accounts; and
· Inclusion at Schroders Report 2023
Employee gender
diversity (Diversity-Emp)
As at 31 March 2024 the Company's Board
comprised five members: 2 (40%) female; 3 (60%) male.
For further information on Schroders plc's
employee gender and diversity, covering more employee categories,
please refer to Inclusion at Schroders Report
2023:
Inclusion at Schroders Report 2023
Gender pay
ratio (Diversity-Pay)
The remuneration of the Company's Board is set
out on pages 64 to 65 of this Report and Accounts
document.
The Schroders plc female representation and
gender pay report can be found in the Schroders 2023 Annual Report
and Accounts (page 43) and Inclusion at Schroders Report
2023:
· Schroders 2023 Annual Report and Accounts; and
·
Inclusion at Schroders Report 2023
Information on Diversity and Inclusion at
Schroders can be found at:
· Inclusion at Schroders Report 2023
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 2023.
The following are reported for
Schroders PLC:
For commentary on Schroders PLC's turnover and
retention rates please refer to the Schroders Annual Report and
Accounts (page 18):
· Schroders 2023 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 Dec 2023:
Asset health
and safety assessments (H&S-Asset)
The table below sets out the proportion of the
Company's portfolio where operational control is retained, and
where health and safety impacts were assessed or reviewed for
compliance or improvement:
|
Portfolio by floor area
(%)
|
2022
|
2023
|
All sectors
|
100%
|
100%
|
Asset health
and safety compliance
(H&S-Comp)
The table below sets out the number of
incidents of non-compliance with regulations/and or voluntary codes
identified:
|
Number of incidents
|
2022
|
2023
|
All Sectors
|
1
|
0
|
In 2022, there was an issue with a fire panel
at one asset within the portfolio. The issue was rectified by
replacing the panel.
Community
engagement, impact assessments and development programmes
(Comty-Eng)
The table below sets out the proportion of the
Company's total portfolio which completed local community
engagement, impact assessments and/or development
programs:
|
Portfolio by number assets
(%)
|
|
2022
|
2023
|
Total
|
29%
|
43%
|
Community engagement initiatives are carried
out where deemed relevant to individual assets, in collaboration
with the relevant site team.
All site teams are encouraged to engage with
local communities where this is appropriate to the asset. Examples
of community initiatives undertaken in the year ended 31 December
2023 include permitting the local model railway society to use part
vacant space and supporting local and national charities such as
'KidsOut' children's Christmas appeal, and 'Let's Can Hunger's'
foodbank appeal. At Headingley Central, a monthly makers market is
held, providing a platform for local craftspeople and
businesses.
Sustainability Performance Measures
(Governance)
Composition of
the highest governance body (Gov-Board)
The Board of the Company comprised 5
non-executive independent directors (0 executive board members) as
at 31 March 2024 and:
· The
average tenure of the five directors to 31 March 2024 is 3 years
and 10 months; and
· The
number of directors with competencies relating to environmental and
social topics is two, Alexandra Innes and Priscilla Davies, and
their experience can be seen in their biographies.
Nominating and
selecting the highest governance body
(Gov-Select)
The role of the Nomination Committee, chaired
by Alistair Hughes, is to consider and make recommendations to the
Board on its composition so as to maintain an appropriate balance
of skills, experience and diversity, including gender, and to
ensure a progressive refreshing of the Board. On individual
appointments, the Nomination Committee leads the process and makes
recommendations to the Board.
Before the appointment of a new director, the
Nomination Committee prepares a description of the role and
capabilities required for a particular appointment. While the
Nomination Committee is dedicated to selecting the best person for
the role, it aims to promote diversification, and the Board
recognises the importance of diversity. The Board agrees that its
members should possess a range of experience, knowledge,
professional skills and personal qualities as well as the
independence necessary to provide effective oversight of the
affairs of the Company.
Process for
managing conflicts of interest (Gov-Col)
The Company's Conflicts of Interest Policy
sets out the policy and procedures of the Board and the Company
Secretary for the management of conflicts of interest.
Streamlined Energy and Carbon
Reporting
Schroder Real Estate Investment
Trust Limited (the 'Company') is a real estate investment company
with a premium listing on the Official List of the UK Listing
Authority and whose shares are traded on the Main Market of the
London Stock Exchange (ticker: SREI).
The Company is a real estate
investment trust ('REIT') and benefits from the various tax
advantages offered by the UK REIT regime. The Company continues to
be declared as an authorised closed-ended investment scheme by the
Guernsey Financial Services Commission under section 8 of the
Protection of Investors (Bailiwick of Guernsey) Law, 2020 and
Authorised Closed-Ended Investment Schemes Rules and Guidance,
2021.
The Board and Investment Manager
in recognition of the importance it places on sustainability has
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 2024. The statement has however been prepared for the
calendar year, the 12 months to 31 December 2023, 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 and where recharges are not made directly (i.e.
based on sub-metered kWh consumption). In
2023, within the portfolio, there were 23 properties within the
operational control reporting boundary and in 2022 there were 24
such properties. All Company assets are
located in the UK.
The Company is not directly
responsible for any GHG emissions/energy usage at single let/FRI
assets nor at multi-let assets where the tenant is responsible for
procuring their own energy. These emissions form part of the wider
value chain (i.e. 'Scope 3') emissions, which are not monitored at
present. As a real estate company with no direct employees or
company owned vehicles as at 31 December 2023, 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 (Refrigerated and Non- Refrigerated),
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/m2/yr.
•
GHG: kilograms carbon dioxide equivalent per
metre square (net lettable area or common parts area) per year, or,
kgCO2e/m2/yr.
Energy Consumption and Greenhouse Gas
Emissions
The table below sets out the
Company's energy consumption.
|
Absolute
Energy (kWh)
|
Like-for-like Energy (kWh)
|
|
2022
|
2023
|
2022
|
2023
|
%
Change
|
Gas
|
1,691,522
|
1,440,182
|
1,239,150
|
1,130,675
|
-9%
|
Electricity
|
5,027,011
|
5,041,826
|
4,538,747
|
4,734,014
|
4%
|
Total
|
6,718,533
|
6,482,008
|
5,777,897
|
5,864,689
|
1.5%
|
The table below sets out the
Company's greenhouse gas emissions.
|
Absolute
Emissions (tCO2e)
|
Like-for-like Emissions (tCO2e)
|
|
2022
|
2023
|
2022
|
2023
|
%
Change
|
Scope 1 (Direct emissions from gas
consumption)
|
308.8
|
263.5
|
226.2
|
206.8
|
-9%
|
Scope 2 (Indirect emissions from
electricity)
|
972.1
|
1,044
|
877.7
|
980.3
|
12%
|
Total
|
1,280.9
|
1,307.5
|
1,103.9
|
1,187.1
|
8%
|
The like-for-like energy
consumption for the 2023 calendar year for the managed assets held
within the Company has slightly increased by 1.5% primarily due to
occupancy changes. The greenhouse gas emissions have increased by
8% partly due to changes to the DEFRA GHG emissions factors for
both natural gas and electricity between 2022 and 2023. Energy
performance improvement opportunities continued to be considered
across the portfolio. Initiatives undertaken during the reporting
year include Heating, Ventilation, and Air-Conditioning (HVAC)
replacements/upgrades, roof insulation upgrades, window
replacements, LED lighting upgrades and installation of lighting
and ventilation occupancy sensors. Automatic Meter Reading (AMR)
devices continue to be rolled out across all landlord electricity
supplies for improved energy monitoring.
The table below sets out the
Company's energy and greenhouse gas emissions intensities by sector
on a like-for-like basis:
|
Energy
Intensities (kWh per m2)
|
GHG
Emission Intensities (kgCO2e per m2)
|
|
2022
|
2023
|
2022
|
2023
|
Industrial Distribution Warehouses
(Refrigerated)
|
7
|
4
|
1.4
|
0.9
|
Industrial Distribution Warehouses
(Non-Refrigerated)
|
16
|
17
|
3.0
|
3.5
|
Leisure
|
59
|
60
|
11.5
|
12.4
|
Mixed-Use, Office/Retail
|
96
|
89
|
18.7
|
18.4
|
Mixed-Use, Other
|
23
|
23
|
4.4
|
4.8
|
Office, Low Rise
|
26
|
25
|
4.9
|
5.0
|
Office, Mid Rise
|
149
|
140
|
27.7
|
26.9
|
Retail High Street
|
2
|
1
|
0.4
|
0.3
|
Retail Warehouse
|
5
|
2
|
0.9
|
0.4
|
Methodology
· All
energy consumption and GHG emissions reported occurred at the
Company assets all of which are located in the UK.
· Energy
consumption data is reported according to automatic meter reads,
manual meter reads or invoice estimates. Historic energy and
consumption data have been restated where more complete and or
accurate records have become available. Where required, missing
consumption data has been estimated through pro-rata extrapolation.
Data has been adjusted to reflect the Company's share of asset
ownership, where relevant.
· The
sustainability content located on pages 113 to
134 of the SREIT annual report for the year ending 31 March
2024 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 on 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
(CO2), methane (CH4), hydrofluorocarbons
(HFCs), nitrous oxide (N20), perfluorocarbons (PFCs),
sulphur hexafluoride (SF6) and nitrogen trifluoride
(NF3).
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
Source
|
GHG Emissions
Factor
|
Emissions Factor Data
Source
|
United Kingdom
|
Electricity 2022
|
0.1934 kgCO2e
|
UK Government’s GHG Conversion
Factors for Company Reporting (2022)
|
Gas 2022
|
0.1825kgCO2e
|
Electricity 2023
|
0.2071 kgCO2e
|
UK Government’s GHG Conversion
Factors for Company Reporting (2023)
|
Gas 2023
|
0.1829kgCO2e
|
Energy Efficiency Actions
Environmental data management system and quarterly
reporting
Environmental data for the Company
is collated by third-party Property Managers and sustainability
consultants Deepki, supported by their proprietary commercial real
estate ESG data intelligence platform, Deepki Ready. Energy, water,
waste, and greenhouse gas emission data are collected and validated
for all assets where the portfolio has operational control
on at least a quarterly basis.
Energy target, improvement programme and net zero
carbon
In 2019 the Manager signed the Better Building
Partnership's ('BBP') Climate
Commitment[37] which includes a net
zero ambition aligned to the Paris Agreement aim to limit warming
to 1.5°C. The Manager's commitment was further underlined by the
Company who in 2022 announced its 'Pathway to Net Zero Carbon'
committing to:
-
Operational whole buildings emissions to be aligned to a
1.5°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.
The Investment Manager together
with third-party property managers look 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 HVAC upgrades, roof insulation and glazing upgrades,
upgrades to AMR devices for improved energy monitoring, and
lighting upgrades.
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 assets of the Company, by 2025. As at 31 December
2023, 80% 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 2024, excluding post year end
activity. The property values presented represent the year end
valuations as determined by the independent valuer as at 31 March
2024:
Property
|
Sector
|
Region
|
Value range (£m)[38]
|
Stacey Bushes Industrial Estate,
MILTON KEYNES
|
Industrial
|
South East
|
50-60
|
Millshaw Park Industrial Estate,
LEEDS
|
Industrial
|
Yorkshire &
Humberside
|
40-50
|
Stanley Green Trading Estate,
STOCKPORT
|
Industrial
|
North West
|
40-50
|
St John's Retail Park,
BEDFORD
|
Retail Warehouse
|
Eastern
|
20-30
|
Langley Park Way,
CHIPPENHAM
|
Industrial
|
South West
|
20-30
|
Union Park Industrial Estate,
NORWICH
|
Industrial
|
Eastern
|
20-30
|
Headingley Central,
HEADINGLEY
|
Mixed Use
|
Yorkshire &
Humberside
|
20-30
|
Valley Park Industrial Estate,
BIRKENHEAD
|
Industrial
|
North West
|
10-20
|
Horton Park Industrial Park,
TELFORD
|
Industrial
|
West Midlands
|
10-20
|
St Ann's House,
MANCHESTER
|
Mixed Use
|
North West
|
10-20
|
The Tun, EDINBURGH
|
Offices
|
Scotland
|
10-20
|
106 Oxford Road, UXBRIDGE
|
Offices
|
South East
|
10-20
|
Matalan, BLETCHLEY
|
Retail Warehouse
|
South East
|
0-10
|
The Galaxy Centre, LUTON
|
Leisure
|
Eastern
|
0-10
|
Churchill Way West, Salisbury,
SALISBURY
|
Retail Warehouse
|
South West
|
0-10
|
21/27 Stirling Court,
SWINDON
|
Industrial
|
South West
|
0-10
|
Royscot House, CHELTENHAM
|
Offices
|
South West
|
0-10
|
Wickes, CHESTER
|
Retail Warehouse
|
North West
|
0-10
|
Delme Place, FAREHAM
|
Offices
|
South East
|
0-10
|
Heathcote Industrial Estate,
WARWICK
|
Industrial
|
West Midlands
|
0-10
|
88/94 Church Street,
LIVERPOOL
|
Retail
|
North West
|
0-10
|
Haydock Industrial Estate,
HAYDOCK
|
Industrial
|
North West
|
0-10
|
Haywood House, CARDIFF
|
Offices
|
Wales
|
0-10
|
The Lakes, NORTHAMPTON
|
Offices
|
East Midlands
|
0-10
|
Imperial House, SHEFFIELD
|
Retail
|
Yorkshire &
Humberside
|
0-10
|
Hall Lane, SANDBACH
|
Industrial
|
North West
|
0-10
|
Clifton Park, YORK
|
Offices
|
Yorkshire &
Humberside
|
0-10
|
The Albion Centre,
ILKESTON
|
Other
|
East Midlands
|
0-10
|
Seton House, WARWICK
|
Offices
|
West Midlands
|
0-10
|
24/25 High Street,
CHELMSFORD
|
Retail
|
South East
|
0-10
|
67/68 High Street,
CHELMSFORD
|
Retail
|
South East
|
0-10
|
Pacific House, MARLOW
|
Offices
|
South East
|
0-10
|
The Orangery, Old & New Stables,
FAREHAM
|
Offices
|
South East
|
0-10
|
12/14 East Gates,
LEICESTER
|
Retail
|
East Midlands
|
0-10
|
Howard House, BEDFORD
|
Offices
|
Eastern
|
0-10
|
15/16 King Street, TRURO
|
Retail
|
South West
|
0-10
|
Moston Road, SANDBACH
|
Industrial
|
North West
|
0-10
|
|
|
|
|
Report of the Depositary to the
Shareholders
Established in 2013, Langham Hall
UK Depositary LLP is an FCA regulated firm that works in
conjunction with the Manager and the Company to act as depositary.
Consisting exclusively of qualified and trainee accountants and
alternative specialists, the entity represents net assets of US$140
billion and we deploy our services to over 120+ alternative
investment funds across various jurisdictions worldwide. Our role
as depositary primarily involves oversight of the control
environment of the Company, in line with the requirements of the
Alternative Investment Fund Managers Directive (AIFMD).
Our cash monitoring activity
provides oversight of all the Company held bank accounts with
specific testing of bank transactions triggered by share issues,
property income distributions via dividend payments, acquisitions,
and third-party financing. We review whether cash transactions are
appropriately authorised and timely. The objective of our asset
verification process is to perform a review of the legal title of
all properties held by the Company, and shareholding of special
purpose vehicles beneath the Company.
We test whether on an ongoing
basis the Company is being operated by the Manager in line with the
Company's prospectus, and the internal control environment of the
Manager. This includes a review of the Company's and its
subsidiaries' decision papers and minutes.
We work with the Manager in
discharging our duties, holding formal meetings with senior staff
on a quarterly basis and submit quarterly reports to the Manager
and the Company, which are then presented to the Board of
Directors, setting out our work performed and the corresponding
findings for the period.
For the financial year ended 31
March 2024, our work included the review of two investment property
disposals and four interim dividends. Based on the work performed
during this period, we confirm that no issues came to our attention
to indicate that controls are not operating
appropriately.
Joe Hime
Head of Depositary
For and on behalf of:
Langham Hall UK Depositary LLP,
London, UK
Langham Hall UK Depositary LLP is a
limited liability partnership registered in England and
Wales
(with registered number
OC388007).
Glossary
Alternative performance measure ('APM')
|
please see page 104 for full details of the key APMs
used by the Company.
|
Annualised dividend yield
|
being the dividend paid during the
period annualised 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 47 to 48 of this document and "Director" means any one
of them.
|
Disclosure
Guidance and Transparency Rules
|
means the disclosure guidance and transparency
rules contained within the FCA's Handbook of Rules and
Guidance.
|
Earnings per
share ('EPS')
|
is the profit after taxation divided by the
weighted average number of shares in issue during the period.
Diluted and adjusted EPS per share are derived as set out under
NAV.
|
Estimated
rental value ('ERV')
|
Is the Group's external valuers' reasonable
opinion 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 Assets
|
is the IFRS equity attributable to
shareholders adjusted for items including deferred tax, the fair
value of financial instruments and intangible assets.
|
EPRA Net
Disposal Value
|
is the IFRS equity attributable to
shareholders 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.
|
Manager/Investment
Manager
|
means Schroder Real Estate Investment
Management Limited
|
Net asset
value and NAV per share
|
is shareholders' funds divided by the number
of shares in issue at the financial 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.
|
SONIA
|
Sterling Overnight Indexed Average - an
overnight rate, set in arrears, and based on actual transactions in
overnight indexed swaps for unsecured transactions in the Sterling
market.
|
Weighted
average unexpired lease term ('WAULT')
|
Weighted average unexpired lease term assuming
earlier of lease break or lease expiry.
|
Resolutions at 2024 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 141 to 142. The following paragraphs
explain the resolutions to be put to the AGM.
Resolutions 1-9 (ordinary
resolutions)
Resolutions 1-9 are being proposed
to approve the ordinary business of the Company to: (i) consider
and approve the consolidated Annual Report of the Company for the
year ended 31 March 2024; (ii) consider and approve the Directors'
remuneration policy and the remuneration report, (iii) elect or
re-elect the Directors; and (iv) appoint the Auditors and authorise
the Directors to determine the Auditor's remuneration.
Resolution 10: Approval of the
Company's dividend policy (ordinary resolution)
The Company's dividend policy is
to pay a sustainable level of quarterly dividends to shareholders
(in arrears). It is intended that successful execution of the
Company's strategy will enable a progressive dividend
policy.
The Company's objective and
strategy, outlined in the Chair's Statement and Investment
Manager's Report, is to deliver sustainable net income growth in
due course through active management of the underlying portfolio.
Any future decision to increase the dividend will be determined by
factors including whether it is sustainable over the long term,
current and anticipated future market conditions, rental values and
the potential impact of any future debt refinancing.
As the Company is a REIT, the
Board must also ensure that dividends are paid in accordance with
the requirements of the UK REIT regime (pursuant to part 12 of the
UK Corporation Tax Act 2010) in order to maintain the Company's
REIT status. Shareholders should note that the dividend policy is
not a profit forecast and dividends will only be paid to the extent
permitted in accordance with the Companies Law and the UK REIT
regime.
The Board acknowledges that the
dividend policy is fundamental to shareholders' income requirements
as well as the Company's investment and financial planning.
Therefore, in accordance with the principles of good corporate
governance and best practice relating to the payment of interim
dividends without the approval of a final dividend by a company's
shareholders, a resolution to approve the Company's dividend policy
will be proposed annually for approval.
Resolution 11: Authority to
disapply pre-emption rights (special resolution)
The Directors require specific
authority from shareholders before allotting new ordinary shares
for cash (or selling shares out of treasury for cash) without first
offering them to existing shareholders in proportion to their
holdings. Resolution 11 empowers the Directors to allot new
ordinary shares for cash or to sell ordinary shares held by the
Company in treasury for cash, otherwise than to existing
shareholders on a pro rata basis, up to such number of ordinary
shares as is equal to 10% of the ordinary shares in issue
(including treasury shares) on the date the resolution is passed.
No ordinary shares will be issued without pre-emption rights for
cash (or sold out of treasury for cash) at a price less than the
prevailing net asset value per ordinary share at the time of issue
or sale from treasury.
The Directors do not intend to
allot or sell ordinary shares other than to take advantage of
opportunities in the market as they arise and will only do so if
they believe it to be advantageous to the Company
s existing shareholders and when
it would not result in any dilution of the net asset value per
ordinary share (owing to the fact that no ordinary shares will be
issued or sold out of treasury for a price less than the prevailing
net asset value per ordinary share).
This authority will expire on the
earlier of the conclusion of the annual general meeting of the
Company to be held in 2025 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.
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. No shares were repurchased under this
authority.
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 2025 unless varied, revoked or renewed prior to such date by
ordinary resolution of the Company.
The Board considers that the
resolutions to be proposed at the AGM are in the best interests of
the Company's shareholders as a whole. The Board therefore
recommends unanimously to shareholders that they vote in favour of
each of the resolutions, as they intend to do in respect of their
own beneficial holdings.
Alastair
Hughes, Chair
5 June 2024
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 16 September 2024 at 10.30 am
|
|
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
2024.
|
Resolution 2 (Ordinary
Resolution)
|
· To
approve the Directors' Remuneration Policy.
|
Resolution 3 (Ordinary
Resolution)
|
· To
approve the Remuneration Report for the year ended 31 March
2024.
|
Resolution 4 (Ordinary
Resolution)
|
· To
re-elect Priscilla Davies as a director of the Company.
|
Resolution 5 (Ordinary
Resolution)
|
· To
re-elect Alastair Hughes as a director of the Company.
|
Resolution 6 (Ordinary
Resolution)
|
· To
re-elect Alexandra Innes as a director of the Company.
|
Resolution 7 (Ordinary
Resolution)
|
· To elect
Sanjay Patel 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 139 of the Annual Report.
|
|
To consider and, if thought
fit, pass the following Special Resolutions:
|
|
|
Resolution 11(Special
Resolution)
|
That the directors
of the Company be and are hereby 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 2025 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 (Special
Resolution)
|
That the Company be authorised, in
accordance with 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 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 £0.01;
|
|
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 2025 unless such authority is varied, revoked
or renewed prior to such date of the general meeting;
and
|
|
e.
the Company may
make a contract to purchase ordinary shares under such authority
prior to its expiry which will or may be executed wholly or partly
after its expiration and the Company may make a purchase of
ordinary shares pursuant to any such contract.
|
|
|
By Order of the Board
For and on behalf of
Schroder Investment Management
Limited
Company Secretary
5 June 2024
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 notarial certified copy of such power or
authority, so as to reach the Company's Registrars, Computershare
Investor Services (Guernsey) Limited, c/o 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 14 September 2024.
8.
Pursuant to Regulation 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 14 September 2024. 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.
Registered
Address
Town Mills
North Suite 2
Rue Du Pré
St Peter Port
Guernsey
GY1 1LT
Directors (all
non-executive)
Alastair Hughes (Chair)
Stephen Bligh
Priscilla Davies
Alexandra Innes
Sanjay Patel (appointed 1 January
2024)
Investment Manager and
Accounting Agent
Schroder Real Estate Investment Management
Limited
1 London Wall Place
London
EC2Y 5AU
|
Independent
Auditor
Ernst & Young LLP
PO Box 9
Royal Chambers
St. Julian's Avenue
St. Peter Port
Guernsey GY1 4AF
Property
Valuer
CBRE Limited
Henrietta
House Henrietta
Place London
W1G 0NB
Sponsor and
Brokers
J.P. Morgan Securities plc
25 Bank Street
Canary Wharf
London E14 5JP
|
Company
Secretary
Schroder Investment Management Limited
1 London Wall Place
London
EC2Y 5AU
Depositary
Langham Hall UK Depositary LLP
8th Floor
1 Fleet Place
London
EC4M 7RA
|
Tax
Advisors
Deloitte LLP
2 New Street Square
London EC4A 3BZ
Receiving Agent and UK
Transfer/Paying Agent
Computershare Investor Services (Guernsey)
Limited
13 Castle Street
St Helier
Jersey
JE1 1ES
|
Solicitors to the
Company
as to English Law:
Stephenson Harwood LLP
1 Finsbury Circus
London EC2M 7SH
FATCA GIIN
5BM7YG.99999.SL.826
|
as to Guernsey Law:
Mourant Ozannes (Guernsey) LLP
Royal Chambers
St Julian's Avenue
St. Peter Port
Guernsey GY1 4HP
|
The Company's privacy notice is available on
its webpage.
|
|
|
|
All references to page numbers in this document
refer to the Company's Annual Report and Consolidated Financial
Statements for the year ended 31 March 2024.
[1] Reconciles to the valuation
reports from CBRE for both the direct portfolio and the two Joint
Ventures. Does not include any IFRS adjustments for lease
incentives, nor the fair value of the leasehold adjustment for The
Galaxy, Luton.
[2] Represents the annualised
rental income of the portfolio as at 31 March 2024, including the
share of rents from joint venture assets.
[3] Represents the ERV of the
portfolio as estimated by the valuers, including the share of rents
for the joint venture assets.
[4] Source: MSCI Quarterly
Version of Balanced Monthly Index Funds including the share of
rents for the joint venture assets on a like-for-like basis as at
31 March 2024.
[5] This is an Alternative
Performance Measure ('APM'). EPRA calculations are included in the
EPRA Performance measures section on page 104.
[6] This is an APM with further details
on page 110.
[7] This is an
APM with further details on page 110.
[8] On-balance sheet
borrowings reflect the loan facilities with Canada Life and RBSI
without the deduction of unamortised finance costs of
£0.7m.
[9] This is an APM.
Details are included in the APM section on page 110.
[10] This is an
APM and calculated in accordance with the AIC recommended
methodology. Details are included in the APM section on page
110.
[11] This is an
APM and calculated in accordance with the AIC methodology. Details
are included in the APM section on page 110.
[12] Represents
the annualised rental income as at 31 March 2024 of the portfolio,
including share of rents for the joint venture assets.
[13] As per third party
valuation reports unadjusted for IFRS lease incentive amounts.
Column does not sum due to rounding.
[16]'Net Zero Carbon' is
when the carbon emissions emitted as a result of all activities
associated with the development, ownership and servicing of a
building are zero or negative.
[18] Industrial assets are
often characterised by large floor area but with relatively low
sector specific CRREM targets, and so their inclusion in portfolio
targets for the first time has brought about lower overall
portfolio energy and carbon targets comparted to the previous
analysis.
[19] Operational Carbon is
the term used to describe the emissions of carbon dioxide and other
greenhouse gases during the in-use operation of a building, most
materially from energy use and refrigerants. Embodied Carbon refers
to the carbon emissions emitted producing a building's materials,
their transport and installation on site as well as their disposal
at end of life.
[20] The Carbon Risk Real
Estate Monitor (CRREM) is the leading global initiative for
establishing targets for operational ("in use") carbon emissions
for standing real estate investments consistent with the ambitions
of the Paris agreement. he developed software (so called
"CRREM-Tool" or Carbon Risk Assessment Tool) derives carbon
emission intensities as well as energy consumption intensities and
demonstrates the 1.5-degree-readiness of each analysed property.
Further information available here: Risk Assessment Tool - CRREM
Project
[21] GRESB 2023 Standing
Investments Benchmark Report for the Company 1st out of 6 Peer
Comparison for United Kingdom of Great Britain and Northern Ireland
- Diversified - Listed -Tenant Controlled.
[22] The EPRA
Sustainability Best Practices Recommendations (sBPR) are intended
to raise the standards and consistency of sustainability reporting
for listed real estate companies across Europe. As with the EPRA
financial BPR Awards, each year EPRA recognises companies which
have issued the best-in-class annual sustainability performance
report. Based on adherence to the EPRA sBPR in their public
disclosure, companies are identified for Gold, Silver or Bronze
Awards.
[23]Sustainability audits
in line with Schroders Capital's scope, inclusive of third-party
validated proprietary ESG Scorecard.
[24] The Energy Efficiency
(Private Rented Property) (England and Wales) Regulations 2015
establish a minimum level of energy efficiency for rented property
in England and Wales.
[29] Chair of
the Audit Committee.
[30] Senior
Independent Director.
[31] Chair of
the Management Engagement Committee.
[32] Sanjay Patel was
appointed as a director effective on 1 January 2024.
[33] Chair of
the Audit Committee, retiring on 30 June 2024.
[34] Senior
Independent Director.
[35] Chair of
the Management Engagement Committee.
[36] Sanjay Patel was
appointed as a director effective on 1 January 2024.
[38] As per third party
valuation reports unadjusted for IFRS lease incentive
amounts.