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 1.5^oC, 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.

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 30^th 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 30^th 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.