Schroder Real Estate Invest H2 2025 Earnings Report

Schroder Real Estate Invest EPS Results

• Actual EPS: GBX 6.30
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Schroder Real Estate Invest Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Schroder Real Estate Invest Announcement Details

• Quarter: H2 2025
• Date: 6/11/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, June 11, 2025
• Conference Call Time: 4:00AM ET

The investment objective of Schroder Real Estate Invest (LON:SREI)ment Trust ('the Company') is to provide shareholders with an attractive level of income together with the potential for income and capital growth as a result of its investments in, and active management of, a diversified portfolio of UK commercial real estate.

Schroder Real Estate Invest H2 2025 Earnings Call Transcript

Key Takeaways

• The trust delivered a 11% NAV total return for the year to March 31, driving a 25% share price gain, a 7.3% dividend increase and 100% dividend cover with sector-leading low debt costs.
• Its integrated brown-to-green strategy produced 39–40% rental premiums on EPC A+ units and 16.7% total returns at Stanley Green versus 8.2% for the industrial benchmark.
• Active asset management, including EV charging point leases and a Starbucks drive-thru, has generated £400k of new rent, while planned sales of smaller fully leased assets will fund higher-return projects and reduce expensive debt.
• A 12.3% void rate at year-end is being cut (4.2% already under offer) and £11.4m of reversionary rent upsides against a £17.5m annual dividend underline scope for future dividend growth.
• From October, half of the management fee will switch from NAV-linked to market-cap-linked, enhancing alignment with shareholders, and formal succession plans are in place for the chair and fund management team.

Presentation

[James Lowe, Investment Trust Business Development Manager at Schroders]

Well, good morning, ladies and gentlemen, and welcome to the Schroeder Real Estate Investment Trust annual results presentation. My name is James Lowe. I work in the Schroeder's Capital Business Development team. Very pleased to be joined in the studio here this morning by our two portfolio managers. That's Bradley Biggins and Nick Montgomery.

[James Lowe, Investment Trust Business Development Manager at Schroders]

Just a couple of things before we get into the presentation. If you do wanna ask us a question, please do do so via the q and a tab on your screen. That'll come through to me on the iPad, and I will ask the guys at the end of the presentation. You also can now download a copy of the annual results presentation and also the report. So if you want to follow along in a bit more detail, please do download that as well.

[James Lowe, Investment Trust Business Development Manager at Schroders]

With that, I'll hand you over to Nick to start the presentation. Nick?

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

Fantastic. Thanks, James. And as James said, welcome everyone to the year end results for Schrodinger Real Estate Investment Trust. I'm very pleased to say that it is a robust set of results. We are pleased with the progress that we are making both over the year to thirty one March, but obviously post as well, and we'll give you some color on that as we go through the presentation.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

As it says on the top, we think we are well positioned from a portfolio allocation perspective, and that's complemented by an above average income return and really importantly a low debt cost, would argue sector leading low debt cost. One of the things you'll have seen in the notes already is that we continue to be 100% covered and that's having increased our dividend by about 7.3% if you look at the dividend per share in the quarter immediately prior to the financial year. And again, we would argue that that is differentiated versus our peers. That's about top line earnings growth, but again, it's also about having that great visibility on our interest cost with that sector leading both duration and low interest rates. We have seen through, I think, a combination of efforts and improvements in our share price rating.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

I think that's partly because of what seems to be an improvement in sentiment towards the sector, and we'll come on to that later on. But I also think that the more that we're doing in the portfolio demonstrates the value of our strategic evolution in terms of how sustainability is fully integrated in what we're doing, but is allowing us to drive that higher earnings growth, extracting that green premium, I think, is a key driver to returns. What it's also allowing us to do is get in front of an increasingly diverse group of shareholders, so both in terms of some new wealth managers, who it's fantastic to have those on the register, but also we've noted in the report the continued uptick in retail platform investors. We're now up to about 32% of those three main platforms. And we've done a lot of work with the team around the ISA season, and we will continue that momentum through platforms like InvestoMe Company.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

So although, as it notes here, we remain at that sort of 13%, 14% discount to NAV, we have seen a continued uptick in the share price. The share price itself is up around 25% compared with where we were at the end of last financial year. So a little bit more on the results. Again, we're very pleased to announce the 11% net asset value total return. Just to give an illustration of how the market has moved, the comparable number from twelve months ago was around 1.1%, so a meaningful shift.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

That's largely down to our asset allocation, continued good returns coming out of our multi industrial estates, but actually less polarization going forward we think between the sectors. And we think that having not just the industrial exposure, but also value retail warehousing, convenience retail and interestingly, and Bradley will talk later to activity around Bloomsbury, we think we are well positioned to see continued growth in NAV and earnings through that allocations, but also through the active management. So we think we remain, we believe, well positioned. In terms of performance of the underlying portfolio, which obviously drove that NAV total return of 11%, Having won the award that we announced last year for the best return on a risk adjusted basis over ten years for all Europe, we have continued that relative outperformance against the benchmark. So the latest data points, so for the twelve months to March, our portfolio returned of 9.1% versus the index of about 6.2%.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

Over three years, about four sixty basis points of relative outperformance. The numbers obviously lower because of the correction that we saw. But interestingly, if you look over a three year period, we were out of 132 funds in the index from a total return perspective and from an income return perspective. So doing exactly what we should be doing both on short term and also on a longer term basis. As I've touched on, very pleased with the continued uptick in the dividends and we'll give you some sense as we go through the presentation about where we see that earnings growth continuing.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

And as we've always said, we want to really be adopting a progressive policy over time. Lots of work, as I say, going on in relation to the strategic evolution, really importantly, work on the ground, asset level improvements. But alongside that, huge amount of data capture. We are on track to deliver the KPIs that we've set ourselves or the Board have set us, including most recently a 5% reduction over the year in terms of energy and carbon intensity. Final point, we've always tried to be a step ahead when it comes to governance and looking at what's happening in the peer group and the wider investment company universe in terms of governance and fees obviously.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

And so we raised that with the Board. We could see that in some areas companies were moving to a market capitalization linked fee. And we have agreed with the Board, as I say, was something we raised to convert half of our current NAV linked fee to a market capitalization linked fee, which will provide further alignment with shareholders just to demonstrate really demonstrate our commitment to that alignment and we'll deliver a saving when that takes effect from the October 1 at the effectively the half year point. So that's been put in place. The other thing to note from a governance perspective is relation to succession.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

So firstly, our Chair, Alastair Hughes, will come to the end of his nine years next year. So measures have been put in place to seek a replacement. And we thank Alas for his efforts and the efforts still to come. Also, I think a lot of you are aware that I now have an expanded role as Head of the wider real estate business. And having discussed the matter with the Board and the team, we will be looking for a replacement for me to work alongside Bradley as a fund manager.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

Obviously, we've, I think, made a great team, and I'm sure we will find somebody that will allow us to continue in that vein. I think it's good from Bradley's perspective, but I will remain involved. I chaired the investment committee, and so that committee is the entity entity that will be making the strategic recommendations to the Board, obviously, with Bradley and his new colleagues, a recommendation to the committee. So I will remain involved, but we wanted just to highlight that today given the strategic importance of the company to our real estate business. Now on the numbers, I won't go through these in great detail.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

I've touched on the fact that we have delivered outperformance at portfolio level. So net capital value change of 3.4% versus the index at 1.4%. That obviously was a key driver behind the 4.8% uplift in the NAV. That together with the dividends that we paid was resulting in that net asset value total return of 11%. If we go down here, you can see we're continuing to invest capital expenditure in our assets.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

That's likely to pick up over the coming year or two as we implement the sustainability driven improvements, and there are a couple of really good examples in the deck later on. As I noted at the intro, fully covered. So EPRA earnings of GBP 17,000,000 matching the dividends paid. And again, I've noted already, but really importantly, hopefully, you'll get a sense of the further earnings growth that we hope we can deliver by implementing our strategy. The last point to note, and this goes to the real value of our fixed rate loan, is if you were to fair value that Canada Life facility at the end of the financial year, the fair value would come out at about GBP 18,500,000.0, which obviously is not in the NAV, which we are unable to do under IFRS.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

Now on the income statement, so again, I think very positive movements here. So if you look firstly at the top part of the table, you can see there across the direct portfolio, very healthy uptick in rents as we implement our strategy, both in relation to the direct portfolio, but also what we have to call the joint ventures, the two assets we have a part share in, but very healthy uptick in rents. We did see a reduction in other income. This is always quite a volatile number. It relates to things like dilapidations receipts, surrender premiums.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

It does tend to move up and down. But even with that reduction, just because of fewer receipts over the year, you can see there that four percent uplift in rent and related income. Likewise, property expense is up. That's for good reasons because obviously we put leasing fees, legal fees through those property expenses line and that's what's driving the higher earnings. And we will have more of that coming through this quarter as we continue to lease up the vacant space, which we will talk to you later.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

But all those efforts combined, you can see there resulted in that $04 uplift in EPRA earnings. And we have a continued strong focus on keeping costs under control. The ongoing charges number calculated in line with the AIC methodology, you can see there at about 1.25% over the as at today. So those are the numbers on the income statement. Again, I've touched on this, but we're giving you the up to date position on our debt.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

You can see there the Canada Life facility, the blended eleven years, fantastic low cost of debt. Alongside that, you can see the 50,000,000 or so that we have drawn on our revolving credit facility. That is obviously more expensive, particularly because of the unhedged components. We are slowly, but we are continuing to sell a number of our smaller assets. And as we sell those, we will either be reinvesting those proceeds into activity in the portfolio or we will aim over the course of the next few months, particularly if we sell a couple of slightly larger assets, use those proceeds to repay debt pending redeployment.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

Now again, I've touched on this, but I think it is very helpful because I think it does differentiate us from our peers to show the progression in that quarterly dividend over the last five years or so. Now we do go back to Q4 twenty nineteen because that's the quarter when we implemented the refinancing with Canada Life, some of you will remember. And you can see there, obviously, the 7% uplift in the quarterly dividend versus the end of last financial year, but really interesting 40% uplift in the quarterly dividend if you go all the way back to that refinancing in 2019. So doing exactly what we said we would do. Now I've touched on performance.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

I won't go through all these numbers. What I'd just ask you to do is if you look at the bottom right hand corner of this slide, showing you the relative outperformance against the index over three months, one year, three years and five years. So you can see the four sixty basis points outperformance versus the benchmark over three years. So we're very proud of the performance. I think what's also interesting to note, particularly as we move into a market where we see less polarization between sectors, is outperformance in all the main food groups, industrial, office, retail.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

Other is a very small component of our portfolio and the underperformance there relates to a leisure asset where we have an asset management strategy in play. But really showing the value, I think, of specialty sector expertise that we have within the business alongside, obviously, the sustainability resources that are supporting Bradley and me as we implement strategy. So just a bit in relation to market context. So obviously, geopolitics, highly unpredictable, continued uncertainty obviously regarding what happens or doesn't happen in relation to the fiscal stimulus in The U. And the impact that might have on rates.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

I think interestingly, the sort of the EU fiscal decision that was determined in the Oval Office and the Germans removing the debt break, I think actually is positive for the Continental European economy. But obviously, The UK economy, a little bit slower and as a small open economy is obviously being buffeted by these global events. Having said all of that, energy prices coming down a bit does mean that we are, for other reasons, beginning to see inflationary expectations come off. And therefore, we are expecting to see rates trend down. I think we have been probably more cautious than most about where that will go directionally just because of our views about sort of inflation, again taking a slightly longer term view, not least, you know, the sort of the need to decarbonize the economy.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

But I do think falling rates will provide some support to the real estate market whether or not they cut in later this month or in August, we will see. But I think directionally, think that should provide some support. Obviously, we've got the budget review today. I think it will be interesting to see announcements around infrastructure, particularly in relation to how the impact that might have on regional real estate markets, particularly around housing, which I think should be viewed positively for a portfolio like ours where we do have that regional allocation. So what does that mean for real estate markets?

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

Well, on the right hand side here, we're showing you our typical chart that shows a spread between the risk free rate, if you like, the ten year gilt rate, which today is at about four sixty basis points and where the average, which and this is the slightly higher orange line, where we think the average is for UK real estate. And you can see today the MSCI index is at around 5.2. Our forecasts and the only certainty is that they're wrong, but our forecasts are that we will see that ten year rate trend down. So let's say that gets to around 4% perhaps at the end of the year. The spread between that risk free rate and average real estate initial yields were around 100 basis points.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

So that is below the long run average. We are, I think, hedged against that a little bit because obviously we're starting at a much higher income return post a rent free of one of our bigger tenants. Our initial yield is about 6.1. So we've already got 100 basis points head start or 200 basis points premium. But actually, think for reasons that we've highlighted in previous meetings, the outlook for real estate returns is driven less by, if you like, where rates go as much as what's happening on the rental side.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

And obviously, a company like ours, which is earnings focused, that's obviously really key. So just giving you a brief point on each of these. Top left hand corner, you can see that The UK has corrected certainly ahead of other continental European markets. We also had less of an upswing compared with some of those markets like Germany, not least because of factors such as Brexit. And I think there's a sense now that The UK real estate market has turned a corner.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

And also, I think because perhaps at least on a relative basis, less political uncertainty, we're beginning to see more international investment interest looking at real estate in The UK. The right hand side top right hand side, you can see the behavior of rents. And so here, we're focusing on industrial rental growth in nominal terms. And you can see, despite having a meaningful correction, 25% over the sort of the two or three years up to middle of last year, we have seen and this is very different to past cycles, rents to continue to tick up. And actually, our portfolio continues to deliver more than what we're selling here, which is industrial rents growing by about 19% over the last few years, which compared with industrial rents actually falling in the equivalent period post financial crisis.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

Now bottom left hand side, important point here. One of the reasons we are optimistic about further rental growth is cost push inflation. In most parts of The UK market, particularly the sort of the bigger cities and the industrial and retail around those cities, there is a significant shortage of space. Our research team initially just showed me some data. If you look at the correlation between construction costs and prime rents, very high correlation.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

If you look at across Europe over the last twenty five years, construction costs doubled, prime rents doubled. And particularly against a backdrop of skills shortage, material shortage, potential I mean, also let's say, rebuilding in Ukraine, Gaza, we can only see those cost push inflation factors increasing. And when you overlay that on the right hand side, bottom right hand side, if you look even just at the office market, there is already a shortage of high quality sustainability compliance space. And therefore, firstly, that in itself should lead to rental growth, but it also creates opportunity for our strategy to use our specialist expertise to create better quality sustainable buildings, that brown to green strategy that is behind everything that we're doing. So I guess just in summary, I think it is an interesting point for investors to look at The UK real estate sector, and we've obviously seen that to an extent in the way that our rating has changed.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

But I think more broadly, the sector is structurally supported by that supply shortage. The rate environment, I think, should provide some support, but actually you don't need a huge amount of rate support because we do believe a combination of that attractive income return and that rental growth will deliver returns above the long run average. So with that, I'll hand over to Bradley.

[Bradley Biggins, Portfolio Manager at Schroder Real Estate Investment Trust]

Great. Thanks, Nick, and good morning, everyone. I've got some interesting portfolio activity to talk to as we run through the presentation as well as touching on initiatives where we think we can generate total returns looking forwards. Now sustainability is a core tenet of our strategy, but that is considered alongside other real estate fundamentals, as Nick has just outlined. And the reason for this focus on sustainability is clear.

[Bradley Biggins, Portfolio Manager at Schroder Real Estate Investment Trust]

It's because we think it will enhance long term total returns for our shareholders. So whilst it's fantastic that we're reducing carbon emissions and creating better assets, it really is a focus on total return as to the underlying reason for this strategic imperative. And in terms of that total return, a proof of concept on the right hand side is Standing Green Trading Estate. We've got 11 EPCA plus Brem Excellent units on this estate. They sit alongside 14 older units.

[Bradley Biggins, Portfolio Manager at Schroder Real Estate Investment Trust]

And what we've seen is the rents for the 11 EPC A plus units are 39% higher than for those of a similar size on the, older existing estate. Not only do you get that rental premium, there's also a keen yield applied by the independent valuer to those 11 new units and that's around 5.2% for an occupied unit, which compares to 6.25% to 6.75% for the older estate units. So that's a really sort of clear compelling example of that green premium in action. And the question is, has it been profitable to develop those units? Well, we think absolutely yes.

[Bradley Biggins, Portfolio Manager at Schroder Real Estate Investment Trust]

And that's clear in the total returns achieved since acquisition. So 16.7% for our asset and that compares to 8.2% per annum for the MSCI All Industrial. So really strong outperformance as a result of that investment. In terms of next steps of Sandy Green, we're undertaking rolling refurbishments and renovations of the existing estate. We've recently done what we call Block 4.

[Bradley Biggins, Portfolio Manager at Schroder Real Estate Investment Trust]

So there's a number of units we've refurbished. And the idea is to close the gap between the rents, so that 40% gap on the old units compared to the new units. And is it working well? We've just completed a deal with Screwfix who trade really well at the scheme. Their rents increasing by 54% on their previous passing level.

[Bradley Biggins, Portfolio Manager at Schroder Real Estate Investment Trust]

And that is a result of those works we're undertaking and just generally making the estate better, so you get this washover effect. In addition, we're currently in negotiations with Holdens who are also on the scheme. We're also refurbishing their unit and we hope to achieve a strong uplift there as well. So further examples of that brown to green strategy in action. A couple of initiatives that we've undertaken in the last year or so, and these two initiatives alone have added GBP 400,000 of new rent and that is new rent, so it wasn't in our passing rent at the end of the financial year.

[Bradley Biggins, Portfolio Manager at Schroder Real Estate Investment Trust]

So on the left hand side, we show St. John's Retail Park in Bedford and Headingley Central in Leeds. These are our two largest retail assets by value. And what we've done here is we've partnered with BEV who are part of Octopus Energy and they're going to install 11 EV charges at both schemes. And the combined rent for that is £146,000 per annum.

[Bradley Biggins, Portfolio Manager at Schroder Real Estate Investment Trust]

And that rent is linked to CPI in terms of future rent reviews, and the lease term is also twenty years straight, so there's no breaks. So this is income we're creating effectively out of nothing, whilst at the same time enhancing the sustainability credentials of the assets, but also creating more a more attractive sort of scheme for our underlying customers. You might remember we recently developed a new Starbucks drive thru at St. John's Retail Park and that's bringing in rent of GBP 155,000 per annum. So again, that's just showing our ability to actively manage our assets to create new rental income streams.

[Bradley Biggins, Portfolio Manager at Schroder Real Estate Investment Trust]

The way we were able to get such strong turns for the EV charging points across the ESRI assets is we undertook a tender across the whole of the Schroders UK portfolio and that enabled us to drive best terms with BEV because they obviously benefited from Scow implementing this across a number of assets rather than just the two Esri assets. On the right hand side, a really powerful brown to green example in 19 Hodding Lane, which is on Stacey Bush's industrial estate, a large multi industrial estate in Milton Keynes. It's actually our largest asset by value. Just taking a step back, looking at Stacey Bush's, this has been a strong performance, so another strong performance since acquisition, just like Sandy Green. We generated a total return since 2014 of 16% per annum and that compares to the MSCI Industrial of 10.8% per annum.

[Bradley Biggins, Portfolio Manager at Schroder Real Estate Investment Trust]

So really strong performing asset, good real estate fundamentals and has really benefited from the lack of development there's been in mostly industrial estates over the last few years as compared to say big boxes, which you see up and down the motorways. Now Knight In Holly name was developed on the site of an older sort of small unit. It had very low site cover. It was around 5,000 square feet, whereas 19 Hodding Lane is now around 17,000 square feet. It's EPCA plus rated.

[Bradley Biggins, Portfolio Manager at Schroder Real Estate Investment Trust]

It's BRIAM excellent, so very similar to the Stanley Green units. So we were really able to apply that strategy here. And again, the question comes, was it worthwhile spending that money? It costs GBP 3,000,000 to develop. Well, since the year end, we've completed the lease with BYD, who are the world's largest EV manufacturer.

[Bradley Biggins, Portfolio Manager at Schroder Real Estate Investment Trust]

They're using this unit to store bus batteries. So they recently won a contract in the south of the country to supply batteries for some bus fleets. And the rents that we've achieved here are 40% ahead of the estate average ERV. And in addition to that, they're 40% ahead of the passing rent for similar sized units on the scheme. So it's really interesting.

[Bradley Biggins, Portfolio Manager at Schroder Real Estate Investment Trust]

We've achieved a pretty similar rental uplift in terms of sort of a green premium and a new premium as at Stanley Green. And you also get that similar benefit of the Keene yield in terms of the valuation. So another powerful example of our brown to green strategy in action. Now looking at Milkshire Park Industrial Estate in Leeds, this is really to talk about, I guess, a future opportunity. So again, just taking a quick step back on Milkshire, and a brief background of the asset, This has been another strong performance since acquisition.

[Bradley Biggins, Portfolio Manager at Schroder Real Estate Investment Trust]

So since 2015, it's generated a total return of 12.3% per annum that compares to 9.8% per annum for the MSCI All Industrial over the same time period. This is a 460,000 square foot estate across 28 acres. It's just South of Leeds City Center and is right by the M62 Motorway, so really strategically located next to an urban center. And it's one of the largest single owned industrial estates in Leeds. The site cover is low around 37% and it has the valuations underpinned by alternative uses as well.

[Bradley Biggins, Portfolio Manager at Schroder Real Estate Investment Trust]

Now what's interesting about the Leeds industrial market is it has a vacancy rate of around 3%, which compares to just over 5% for the national average. So really tight supply in Leeds and we've seen that in our rent reviews we've been agreeing over the last year, which are at significant uplifts to the previous passing level. Now in terms of the opportunity looking forward, we see more Holland Lane type refurbishments to create better quality units and push those rents on. So for example, Unit 22, we got this unit back yesterday. It's 50,000 square feet, which is around 10% of the asset GIA.

[Bradley Biggins, Portfolio Manager at Schroder Real Estate Investment Trust]

And what we're doing here is we signed off a Browns Green refurbishment to generate a unit, a CPCA. It will cost us GBP 1,900,000.0 including fees. Now the question is, is that going to be profitable? Is it worthwhile spending that money? Well, we think absolutely yes.

[Bradley Biggins, Portfolio Manager at Schroder Real Estate Investment Trust]

We going be quoting a rent of GBP 9 per square foot and that is GBP 465,000 per annum. That's an 86% increase on the rent that was passing as of yesterday. Now the net valuation uplift after all costs and rent freeze is around GBP 1,100,000.0 to 1,500,000.0. And not only do you get that sort of hit in terms of valuation uplift to this unit, but you again get that wash over effect to the rest of the estate as the rental tone moves on, the quality of the estate improves. So watch this space at Millshore Park.

[Bradley Biggins, Portfolio Manager at Schroder Real Estate Investment Trust]

Final example from me in terms of active asset management, University of Law is on Store Street in Bloomsbury, a really interesting location. This is a freehold site. It's 0.8 acres. It's in Camden, so it's very rare to have a freehold site in this area. The assets got really low site density and there's scope to increase the massing and increase the height.

[Bradley Biggins, Portfolio Manager at Schroder Real Estate Investment Trust]

Currently, it's on a lease, the University of Law, which expires at the end of twenty twenty nine and there are fixed uplifts throughout that lease to the end of twenty twenty nine. And what's interesting at the moment is just the location. So this West End location, there's so much happening. So for example, University of Law is less than 500 meters from Tottenham Court Road, Elizabeth Line Station. The area is benefiting from infrastructure improvements.

[Bradley Biggins, Portfolio Manager at Schroder Real Estate Investment Trust]

So not just Elizabeth Line, but also the West End project, which Camden is undertaking. And there's a diverse range of knowledge based occupational demand. So you see the University of London is around the corner, the British Museum is just around the corner. Now as a result of all this activity, there's understandably been quite a lot of activity on the real estate front. And we've outlined lots of that on the slide.

[Bradley Biggins, Portfolio Manager at Schroder Real Estate Investment Trust]

There's lots of stats to look through. But I think the key takeaway for us is just the rental growth and the rents achieved assets right next to ours. So our passing rent at the moment is GBP 55 per square foot subject to the rent free expiring in October. But we're seeing rents agreed more than three times that level. Now we're not going to achieve that at the asset today as it stands, but what we're doing is working with Cowden on a pre application in terms of planning to potentially redevelop the site to increase that massing, increase sustainability performance of the asset and achieve those higher rents.

[Bradley Biggins, Portfolio Manager at Schroder Real Estate Investment Trust]

And those higher rents are making the development look really attractive. So just to finish, the left hand side is a CGI of what a development asset could look like. And on the right hand side, it shows the current structure. And you can see the blue and yellow buildings are our two buildings. And I think it's clear from the courtyards and the low height that there is an opportunity to increase the massing here.

[Bradley Biggins, Portfolio Manager at Schroder Real Estate Investment Trust]

So again, this is an initiative currently in progress and we'll update you in the future. Looking at portfolio now, some key metrics we've shown on the slide. We've got a really granular portfolio, 38 assets, more than 300 tenants, which we think spread risk. And we've got a really attractive income profile, which Nick spoke to earlier. So the net issue yield 5.6%, well ahead of the benchmark, and that will increase to 6.1% in October once the University of Law rent free has expired.

[Bradley Biggins, Portfolio Manager at Schroder Real Estate Investment Trust]

The reversion yield is also extremely high, 8.4%, well ahead of the benchmark of 6.2%. And we've got a slide on that shortly, where we can sort of look at what that looks like in terms of pound notes for our shareholders. Key point on the right hand side are our overweight weightings to industrial and retail warehouse. So playing on the multi industrial theme that we really like and the convenience theme in terms of retail warehouse and the fact that time is becoming a precious commodity for everyone. So those two sectors account for 63% of our portfolio value.

[Bradley Biggins, Portfolio Manager at Schroder Real Estate Investment Trust]

Now on the void, and, we are asked about this a lot and rightly so, and we see it as an opportunity. So whilst the void was 12.3% at the financial year end, that is a result of all the work we've been doing in terms of refurbishments and developments. And I've outlined some examples already of where those leases are completed or exchanged post year end. We do have of that 12.3%, 4.2% has already either is already under offer or completed. So the BYD lease is a great example of that.

[Bradley Biggins, Portfolio Manager at Schroder Real Estate Investment Trust]

Also at Stirling Court in Swindon, we have all the void under offer at a rent that is in excess of ERV. At The Lakes in Northampton, we have all the void under offer at ERV. And that is the case as you look up and down that list. In terms of the reversion, so in pound notes, our reversionary rent is £11,400,000 higher than our passing cash rent at the financial year end. That compares with our current annualized dividend of $17,500,000 So that reversion is really material in the context of our dividend.

[Bradley Biggins, Portfolio Manager at Schroder Real Estate Investment Trust]

So if we're able to capture that rent, it should put us in a good position to potentially increase the dividend looking forward. In terms of how we're going to get there, well, the year end, we've already had GBP 800,000 of fixed uplifts, so that's where rent freeze have expired. By the March year, there will be a further GBP 3,300,000.0 of fixed uplifts, which is again almost entirely rent freeze expiring and GBP 2,400,000.0 of that relates to the University of Law, which we discussed. At the year end, we had exchanged a number of AFLs totaling GBP 900,000 in rent. So that isn't reflected in our full year results or in our passing rent at the year end.

[Bradley Biggins, Portfolio Manager at Schroder Real Estate Investment Trust]

That will be upside looking forward when we complete those leases. And then there are units where the market rent has moved in excess of our current passing rent. So as we get around to rent reviews and renewals, we will be moving those rents on. And we touched on vacant space in the previous slide, which we see has a huge opportunity and we're working hard to bring that down and bring that rent in. So with that, I'll hand back to Nick and we'd welcome any questions that you have.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

Great. Thanks, Bradley. So what hopefully comes across clearly is there's been a huge amount of activity over the year and since. And obviously, there's a lot that we want to close out that is in pretty advanced stages, particularly on the leasing side to get that void rate down, which is a real strategic priority. Our strategic evolution is paying dividends.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

I think it has helped us drive higher earnings growth, that discipline around how we are incorporating those sustainability improvements to extract that green premium. And we have been and will continue to push really hard in terms of attracting new shareholder interest both in relation to specialist wealth managers, new wealth managers, but also that core retail base, which I think has been one of the reasons we have seen that uptick in the rating, particularly against some of our peers over particularly the last few months or so. So I won't talk for all of these, but just in headlines, I think we are cautiously optimistic about the outlook for the real estate markets over the course of the next eighteen to twenty four months, particularly because of that supply side shortage and the potential for that cost push inflation to come through. As it relates to our portfolio, hopefully, what's come across really clearly is that we continue to extract a really interesting pipeline of asset management opportunity through the portfolio, and we will look to fund some of those bigger projects through sales, which again as I said earlier on, we have in train. So I'll just end by saying thank you very much everybody for attending.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

For those shareholders on the call, thank you for your support. And we I think have some time now to take questions.

[James Lowe, Investment Trust Business Development Manager at Schroders]

We do indeed. And thank you everyone for sending in your questions. We have a number of them. If you do have questions as we go through this, send them in. I'll ask the guys as we go through.

[James Lowe, Investment Trust Business Development Manager at Schroders]

I'm gonna start we've got we've got sort of high level questions and then some more granular questions and then some more corporate level questions, let's say. So I'm gonna start at the high level. We then dive into the more specifics, and then we'll end probably with the corporate questions. Just a just a question, a more high level market point, Nick, for you. Just about one of the questions is about the open ended property funds that are closing.

[James Lowe, Investment Trust Business Development Manager at Schroders]

And therefore, are you finding any attractive opportunities to buy assets at discounts?

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

Yes.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

So I guess we are somewhat capital constrained at the moment insofar as capital that we do have available that we are recycling is going into portfolio activity where we are happy that we can drive attractive returns. If we did have more capital available than as we are on behalf of other funds that we manage, we would be very selectively, but we would be buying because we do think the market is bottoming out. Others think that too. And you mentioned open ended funds. Those redemptions, I mean, the sector, they have slowed, but there are still redemptions.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

And where you have had bigger portfolios deals done is USPE. But interestingly, in London, we touched obviously about Store Street. Even for some of the bigger assets in London now where there's been very little liquidity, you are now beginning to see more activity. So a couple of big insurance companies buying two really quite sizable assets in London. So going to the question PE institutions, privates, we are seeing more interest but being realistic off a fairly low base because the geopolitical uncertainty has meant that the kind of the recovery in volumes that we were expecting has been somewhat delayed, but we do see that coming through in terms of sentiment.

[James Lowe, Investment Trust Business Development Manager at Schroders]

Great. That's that's super useful background. Maybe just staying at a high level here. There's a question that's come through, and I think this this relates to some of the data that we saw in the market backdrop slides around particularly, I was I was surprised to see that retail was actually the most resilient since 2022 on your, you know, high level capital value decrease slides. We also saw that offices had declined quite dramatically, but I think it's a really good question sort of to take a step back here and just ask, you given the changes in working practices.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

Yeah.

[James Lowe, Investment Trust Business Development Manager at Schroders]

We're hearing a lot about AI at the moment. You know?

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

Yeah.

[James Lowe, Investment Trust Business Development Manager at Schroders]

How are you seeing that disrupt the market? You know? We've seen yeah. There's the chart there on on the left. How are you thinking about that in terms of managing the portfolio?

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

Yes. I sort of touched on it, but I think what's interesting, and I made the point about we're expecting less polarization. If you look at the three years from 2018, so if you look at the run up effectively to that data point, average industrial values doubled, average retail values halved. So what you're seeing in the data here where we're showing the correction is retail had gone through an extremely challenging period. The many shopping centers falling off the map, turning into something else.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

So on retail, I think partly because of the such a significant valuation correction, but as you say, change in consumer behavior. I think I think we are expecting online share to increase, but the rate of increase is slowing. There's an acknowledgment now that particularly value retail warehousing is a really important part of retailers' multichannel retailing strategy. They sell out the front, distribute out the back. We are seeing healthy levels of both investor, but really importantly, occupational demands.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

We've not touched on it here, but we've obviously got the pre let we've done over in Salisbury to Liddell and the other examples like that across the portfolio. So I think our views going forward are we are expecting less polarization between the sectors. We still think the old multiethnic industrial on a risk adjusted basis probably will outperform the other sectors. But equally, we think value is a warehousing. We think very selectively within the office sector, we think the big six regional cities, selective London submarkets now are looking really interesting.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

And we're not the only one saying that now. You are beginning to see more positive sentiment. So that I guess, that's sort of responding to the points about why retail has behaved as it has done. But also, I think for us, with a diversified strategy where we can tack and change between the sectors, I think it's our market. I think it's a great opportunity.

[James Lowe, Investment Trust Business Development Manager at Schroders]

And that has that takes us really nicely to another question as a segue around the office market that's come in, just around the overweighting two offices in the portfolio.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

Yeah.

[James Lowe, Investment Trust Business Development Manager at Schroders]

Are you therefore looking to pivot around that given your view your your views at sector level?

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

So we're not overweight. Well, mean, against it depends on what you're measuring against. If you look if you compare our SCSI index, we're actually underweight. But I but I I do understand in in from from some quarters, the MSCI index is less relevant, but we have deliberately versus peers gone overweight industrial, underweight offices. Our office exposure is selective.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

So Manchester City Centre, Edinburgh, one of the reasons we highlighted Bloomsbury, that's our biggest office exposure. It's in a really interesting part of London where we're seeing infrastructure, mixed use, GP buying a building around the corner, Alfred Place, those that know it, got sort of a scheme at the top of Alfred Place, which one of our funds has actually got planning consent for as a scheme at the bottom where we think we'll see a redevelopment. So we see that location improving significantly, which is why we're doing the work with Camden. So going to offices, I think we see it we're not going to sell our industrial and buy offices, right, to be clear. We may trim around the edges.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

We may selectively acquire office around the edges. But we compared to where we were a year, two, three years ago, we think it's much more interesting.

[James Lowe, Investment Trust Business Development Manager at Schroders]

Great. And then maybe just picking up on the selling of assets, and you mentioned we're selling some of our smaller assets. So it's just a question here that's come in around what's the strategy on what you'd describe as maybe noncore assets within that definition? And are you actually seeing strong market demand to sell those into?

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

So dealing with those in order, smaller noncore holdings is what we're principally focused on where we've delivered on the asset management. So the small shop insurer, we've leased it up over the period, and we've sold it at 20% premium to book. We've got an asset in auction today, a small asset at auction today. And we've got a number of smaller high street assets where we've done lease restructurings where we're selling tiny GBP 1,000,000, $23,000,000. In other areas, we are looking at possibly selling assets where they are a bit bigger where we've delivered our business plan.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

So we have one industrial asset fully leased up, where if we can get the right price, we'll sell that. I think from a strategic perspective, if we're selling industrial assets in sort of five percent to 6%, if we use those proceeds to repay our revolving credit facility, it's accretive. We get the loans value back down within our target guidance. And then obviously, that supports in terms of earnings. And then we can redraw that when we've got activity to fund within the portfolio. So that's the plan.

[James Lowe, Investment Trust Business Development Manager at Schroders]

Perfect. We've sort of run through the higher level questions that I'm going to focus now more in on the portfolio. So there's question that should be relatively quick one just about who owns can you disclose who owns the other half of the Bloomsbury assets that we discussed in the the case study? Is it Schroders owned?

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

Schroders managed fund.

[James Lowe, Investment Trust Business Development Manager at Schroders]

Yep.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

Yes.

[James Lowe, Investment Trust Business Development Manager at Schroders]

Okay. I told you it would be a quick one. The the question that's a bit more detailed is around Stacey Bush in in Milton Keynes. Bradley mentioned the rent 40% ahead of the estate average ERV for EPC a plus unit. Could you just explain a bit more about what the the average EPC rating for the rest of the estate is just for comparison?

[Bradley Biggins, Portfolio Manager at Schroder Real Estate Investment Trust]

Yes. So sort of B to D. So there's a real range as 160 units. So yes, very similar to Stani Green and very similar result in terms of the rental premium.

[James Lowe, Investment Trust Business Development Manager at Schroders]

Good stuff. Yes. Also, a question here, and this should be a quick one as well, but I'm keen we cover off all the questions. Question is just about you mentioned Breem Excellent a couple of times, just for one of the investors probably many other, myself included. Can you just explain what BRIAM excellent means?

[Bradley Biggins, Portfolio Manager at Schroder Real Estate Investment Trust]

So this is a what we call a green building certificate. And, you know, I think a good way of looking at it is it's just a more comprehensive EPC. It's more advanced. It's more modern. And I think most occupiers, particularly institutional occupiers, will be looking for a BRIAM label on a high quality sort of piece of real estate they're looking to invest in for for, you know, for their business and for their staff.

[James Lowe, Investment Trust Business Development Manager at Schroders]

And and maybe just as I've taken you on to the sustainability context, there is there was a question here around maybe challenging slightly you know, we've shown shown lots of really good examples of where sustainability change has driven value increases or rental uplifts. Are there any examples in the portfolio where it just doesn't make sense, quite frankly, to do that?

[Bradley Biggins, Portfolio Manager at Schroder Real Estate Investment Trust]

Yes. Frankly, yes. And that's where we'd be looking to sell ahead of any sort of risk events. And I think our really detailed look at the portfolio in terms of looking at it through the sustainability lens helps us to identify those risks. So the answer is yes.

[James Lowe, Investment Trust Business Development Manager at Schroders]

Yep. And maybe just again, I'm moving around a bit here because we're getting lots of questions coming through. There is a question here about you you mentioned the the EV charging points you're putting in in the in a couple of sites. Clearly, that comes with CPI linked longer lease type income. I'm trying to well, the question here is sort of analyzing the difference between sustainability strategy where you're doing that now because you're thinking about sustainability versus is that something you would have done anyway?

[James Lowe, Investment Trust Business Development Manager at Schroders]

You know, how I think this is unpicking you. How much of this is consequential and normal business now in a real estate strategy versus, you know, we're going above and beyond to drive value here through sustainability development?

[Bradley Biggins, Portfolio Manager at Schroder Real Estate Investment Trust]

Yeah. Look. I think that we are we would have, of course, done that.

[James Lowe, Investment Trust Business Development Manager at Schroders]

Yeah.

[Bradley Biggins, Portfolio Manager at Schroder Real Estate Investment Trust]

I I do think that having the investment objective and the KPIs and the investment policy really focus the mind.

[Bradley Biggins, Portfolio Manager at Schroder Real Estate Investment Trust]

I think our teams, our sector specialist teams are really clear on what we're looking for in terms of transactions. So they're bringing us these opportunities in line with our very clear investment objective and policy. So, yeah, we would have done these deals in the past, but I think we're seeing more opportunity and flow, and I think we get a better at executing. So for example, the BEV deal, yeah, would have been something we would have done, but, you know, to bring together the whole UK platform in one big tender, I think took a lot of sort of organizational focus. And if the house didn't have the sustainability at the front of mind, it probably would have been more difficult to achieve.

[Bradley Biggins, Portfolio Manager at Schroder Real Estate Investment Trust]

So I think a proactive approach to sustainability just helps you get these really strong results.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

Definitely. I think it's a fact that it is fully integrated. So as Bradley said, across our asset management teams, it's a it's an interest and integral part of all the asset management activity that that we are now doing, and we get the platform benefits by putting in place these arrangements across multiple funds.

[James Lowe, Investment Trust Business Development Manager at Schroders]

Yep. Makes a lot of sense. Questions specifically on City Tower, the larger office assets. What is the share of CapEx planned for the next twelve months on that asset? Is that something we can share?

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

We can give yeah. We can give some guidance on that, can't we? Do you want to just touch on that over the next twelve months with the leasing? Also, do an update on where we are with the the leasing.

[Bradley Biggins, Portfolio Manager at Schroder Real Estate Investment Trust]

Yeah. So at City Tower so I think City Tower is a mixed use asset. You've got, the hotel, which is on a long lease to 2060, inflation in top list without caps, so pretty attractive. You've got the retail element on the Ground Floor, fully let. There's a car park let to NCP, again, for a long period of time into the twenty forties.

[Bradley Biggins, Portfolio Manager at Schroder Real Estate Investment Trust]

And then we have what we call podiums, so that kind of big office sections. One of them is fully let to the government. The other one is under offer to an education provider, subject to planning. And then you have a kind of smaller building, almost stand alone, let to the University of Law, again on a longer lease. And then you've got the tower, which is the office tower.

[Bradley Biggins, Portfolio Manager at Schroder Real Estate Investment Trust]

So the elements aside from the office tower are pretty much sort of fixed in terms of tenancies. There will be some CapEx required for the education providers taken on the podium space, But that will obviously be accretive in terms of the lease, which we've agreed a fifteen year straight lease for. And in terms of the CapEx, it pretty much relates to the office tower. And what we're looking at is improving the space to get that tower as let as possible. So that you would have seen in the void slide, that's quite a large element of the void.

[Bradley Biggins, Portfolio Manager at Schroder Real Estate Investment Trust]

Future CapEx costs around £1,000,000 to refurb a floor. So if we get a floor let, we'll spend £1,000,000 on the refurb. But again, that comes with a lease. I think other things we're looking to do, improving the amenity space. So we've got the Sky Lounge on the 20 Eighth Floor, the Top Floor, which has really popular.

[Bradley Biggins, Portfolio Manager at Schroder Real Estate Investment Trust]

We're adding another lounge in on the Sixteenth Floor. And we're looking at improving things like the lifts and potentially other elements of the building as we look forward. In terms of the spend over the next year for Esri, I think looking

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

A couple of million. Yes. And I think it's important to note that part of that relates to what we hope will be the completed pre letting subject to planning of the podium So I understand why someone has asked the question because it is an asset. It's a highly intensive asset management strategy. Bradley did a very good summary of what it comprises.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

What I would say is we are having an asset tour next week in Manchester and Leeds. Obviously, City Tower is a key part of that. Our colleagues in Manchester will be making a full presentation. We will be producing a deck to accompany the asset tour, and and there will be a lot of detail on City Tower, including a more granular breakdown of the capital expenditure we're expecting, because that's a key question. The answer is a couple of million, but we can provide that breakdown and what that activity relates to.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

For those who can't attend the tour in the normal course, we'll stick it on the website. So that I I think that's probably something that I don't know who asked the question, but but for those that are interested, I I I if you're not on the tour, then we'll make that available next week.

[James Lowe, Investment Trust Business Development Manager at Schroders]

Sounds good. And I imagine that will go on to the the website. So look out for that.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

Yeah.

[James Lowe, Investment Trust Business Development Manager at Schroders]

Just onto the corporate side now then, as we've got about five minutes left. A question here just about fees. Obviously, the move to $50.50 NAV market cap.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

Yep.

[James Lowe, Investment Trust Business Development Manager at Schroders]

You know, important alignment tool for the business Yep. Alongside shareholders. Just a question here that others have gone obviously a step further and taken that to a 100% market cap fee. Could you just give a bit of feel for how the board and the conversation went there?

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

Yes. Look, I I mean, it was it was something that I mean, look, it it was a very constructive discussion with the board. We prompted the discussion. It was probably in their minds from seeing what was happening in the wider landscape. I should also note, in the same vein, about four years ago, we did also prompt a discussion that reduced our fee from 110 bps down to 90 bps of NAV, again, to ensure that we were bang in line with the peer group.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

I think from a manager perspective, we commit huge resource to this. We are hopefully, as you can hear and seen, we're applying a lot of resource not just to this piece, but the active management sustainability, which is in house. So from our perspective, it was striking that balance between giving us as a manager enough visibility on where our earnings were, whilst at the same time demonstrating further alignment with that linked to the market cap. So ultimately, we arrived at that as being the right balance. And I think that there is a cost to running a vehicle like this, the attention it deserves, the activity it deserves, which meant that we felt that, that was the right level.

[James Lowe, Investment Trust Business Development Manager at Schroders]

Makes a lot of sense. Thanks, Nick. Sticking on the corporate side, and it's always tough to comment on these types of questions, I understand. Just any comments on ongoing M and A activity? We're obviously seeing some in the Industrial Logistics space.

[James Lowe, Investment Trust Business Development Manager at Schroders]

So is there any opportunity here for Esfreet to scale in that way?

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

Look, I hope we can. I think ultimately, matters related to M and A are for the Board, obviously, with our advice, but they're not here to comment. I think what the Board and we have said is we have a very clear strategy that is focused on driving higher earnings growth with the sustainability alignment and it's working, right? And we're seeing an improvement in rating and we are seeing interestingly an evolution in our shareholder base. And no surprises that we're targeting shareholders where that M and A is happening because we think some of those retail investors will have capital to reallocate.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

So all of that is around delivering maximum returns to shareholders, improving the rating, which should, in time, in a rational world, improve the rating to a point where we start to have those options. M and A, as we've seen, and we've obviously we've spoken before about being asked to participate in processes, it can be a huge distraction, It can be hugely expensive. When our focus and the Board's focus for us is on delivering business as usual, what I would say to conclude is, as you've heard today, we are typically getting more bang from our buck by owning asset managing, repositioning bigger assets. And so I think if we can get to a point where we're nearer to NAV, we have already been thinking about how would we do it, where would we deploy. We just got to keep cranking the handle and hope we get to that point.

[James Lowe, Investment Trust Business Development Manager at Schroders]

Yes. Sure, we will. Maybe just time for a final question, a bit more specific but on a similar in a similar vein to the last question, just pointing out that custodian REITs just in a, you know, property transaction swapping shares in the company for privately held property. Is this again, you know, are we exploring other Yeah. You know, ways of of raising capital in

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

I mean we have considered it. I think the REIT structure has the benefit of washing out capital gains within UK entities. So there is an advantage there. I don't know, we've done it actually in the past with an asset acquisition via a corporate.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

I don't know very much about those numbers. I don't quite I don't know, for example, how the seller sort of rationalized getting paper at a discount and what that meant for the pricing of the underlying assets. Certainly, in that case, the assets will be too small and granular for us, but I don't know much more about those than just sort of headlines we've all read. But again, getting behind the numbers of that deal, I think we will do to try and understand how they did get that to work. But as a principle, absolutely.

[James Lowe, Investment Trust Business Development Manager at Schroders]

Yes. Makes sense. And then just finally, I realized I missed one of the last questions, and we do have four minutes left, so I will ask it. Question here just about you showed on one of the slides the increased construction costs. Have you looked at how that how does it look, SREIT's portfolio, in terms of fair value in comparison to its replacement or rebuild costs?

[James Lowe, Investment Trust Business Development Manager at Schroders]

Has the construction cost increase made a big difference to that?

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

Yes. I mean, various of our offices are valued at a material discount to replacement cost. Even our industrials, I don't know if you want to comment.

[Bradley Biggins, Portfolio Manager at Schroder Real Estate Investment Trust]

Yes.

[Bradley Biggins, Portfolio Manager at Schroder Real Estate Investment Trust]

So it costs to build Stanley Green just for the construction costs around £110 per square foot, and that was a few years ago. Many of our multi industrial states are valued at less than £100 per square foot. So clearly, really supportive in terms of our valuations. In addition, if anyone does decide to build multi industrials near us, the rents to justify that would be far in excess of what we're charging. So actually, would be quite helpful.

[James Lowe, Investment Trust Business Development Manager at Schroders]

Makes a lot of sense, and that's a good story to finish with. So thank you, everyone, for sending in your questions this morning, and thank you very much for joining us for the ESRI annual results. You can hopefully now see a feedback form appearing on your screen. Please do, give us feedback. We read it, and we massively appreciate it. That's all we have time for.

[James Lowe, Investment Trust Business Development Manager at Schroders]

Thanks for joining again, and speak to you all again soon. Goodbye.

[Nick Montgomery, Head of UK Real Estate Investment at Schroder Real Estate Investment Trust]

Thank you.

Participants

Executives

• Nick Montgomery, Head of UK Real Estate Investment
• Bradley Biggins, Portfolio Manager

Analysts

• James Lowe, Investment Trust Business Development Manager at Schroders