SREI Schroder Real Estate Investment Trust Limited

For release 27 February 2024

Schroder Real Estate Investment Trust Limited

('SREIT' or the 'Company')

NAV AND DIVIDEND ANNOUNCEMENT FOR THE QUARTER TO 31 DECEMBER 2023

Schroder Real Estate Investment Trust Limited ('SREIT' or the 'Company'), the actively managed REIT focused on improving the sustainability performance of buildings to generate higher income, announces its net asset value ('NAV') and dividend for the quarter to 31 December 2023 and provides an update on portfolio activity.

Highlights:

·    NAV decline to £287.0 million or 58.7 pence per share ('pps') (30 September 2023: £296.0 million or 60.5 pps), driven by a 1.6% decline in capital growth, which compared to a 2.3% decline in capital growth for the MSCI UK Balanced Portfolios Quarterly Property Index

·    NAV total return of -1.6%

·    Announcement of an interim dividend of 0.836 pps for the period 1 October 2023 to 31 December 2023, and paid on 28 March 2024

·    Net loan to value of 36.6%, with an average interest cost on debt drawn of 3.5%, an average loan duration of 10.0 years and no debt maturities until June 2027

·    Continued leasing momentum since 1 October 2023 with 32 new lettings, renewals and rent reviews completed across 378,159 sq ft. This includes:

o  Two new lettings totalling 24,683 sq ft at the Company's net zero warehouse on Stanley Green Trading Estate, 31% ahead of underwrite, demonstrating the rental premium for buildings with the highest sustainability credentials

o  85,814 sq ft lease renewal with the University of Law at Bloomsbury, 39% above the previous passing rent by December 2028

·    Disposed of an office asset, Coverdale House, in Leeds, for £3.8 million, at a 16% premium to the independent valuation as at 30 September 2023

·    Sustained outperformance versus the MSCI UK Balanced Portfolios Quarterly Property Index (the 'Benchmark') over three months, twelve months, three years and since inception in 2004

·    Strong shareholder support to change the investment objective and policy to formally include sustainability at the centre of the Company's investment proposition, with a sustainability improvement and decarbonisation strategy focused on adapting existing buildings into those that are both modern and fit for purpose

Alastair Hughes, Chair of the Board, commented: "Despite continuing market uncertainty the Company remains well placed with an above average rental income profile and the longest duration, fixed-rate debt in the peer group. These factors enable us to continue paying an attractive dividend, with good visibility on future earnings growth. I am also delighted shareholders provided strong support to the evolution of our strategy which places sustainability at the centre of our investment proposition, and we will provide a detailed update on progress implementing this strategy in our forthcoming year end results."

Nick Montgomery, Fund Manager, added: "This has been an encouraging period of leasing activity, with a high volume of deals closed and under offer. We are also working up a pipeline of new asset management initiatives to further grow earnings, with a focus on delivering projects to a high sustainability specification such as our Stanley Green operational net zero warehouse development."

NAV

The unaudited NAV as at 31 December 2023 was £287.0 million, or 58.7 pps, a decrease of -3.0% compared with the NAV as at 30 September 2023 (£296.0 million, or 60.5 pps).

Including the quarterly dividend of 0.836 pps paid in December 2023, the NAV total return for the quarter was -1.6%. A breakdown is set out below:

Dividend payment

The Company announces an interim dividend of 0.836 pps for the period 1 October 2023 to 31 December 2023. The dividend payment will be made on 28 March 2024 to shareholders on the register at the record date of 8 March 2024. The ex-dividend date will be 7 March 2024.

The dividend of 0.836 pps will be wholly designated as an interim property income distribution ('PID').

Property portfolio

As at 31 December 2023, the underlying portfolio comprised 39 properties valued at £457.8 million. It generated an annual rent of £29.2 million, reflecting a net initial yield of 6.0%. The portfolio's estimated rental value ('ERV') is £38.5 million per annum, reflecting a reversionary yield of 8.4%.

The void rate was 12.0% calculated as a percentage of ERV, and since the quarter end 2.9% of this has let or is under offer, and a further 0.7% undergoing refurbishment. The weighted average unexpired lease term, assuming all tenants vacate at the earliest opportunity, is 5.3 years.

The tables below summarise the portfolio information as at 31 December 2023:

Sector weighting

Region weighting

Portfolio activity

Transactional activity

Coverdale House, a 32,355 sq ft multi-let office asset in Leeds, was sold in December for £3.8 million reflecting a 16% premium to the 30 September 2023 independent valuation. It 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.

Asset management

Continued leasing momentum since 1 October 2023 with 32 new lettings, renewals and rent reviews completed across 378,159 sq ft. Key highlights include:

Industrial portfolio:

Stanley Green Trading Estate, Cheadle, Greater Manchester

Continued progress is being made leasing the Company's recently constructed 80,274 sq ft operational net zero warehouse development at Stanley Green Trading Estate ('STGE'), with the development now 56% let.

·    A 10-year lease completed with Siemens plc ('Siemens') for a 13,881 sq ft unit generating £212,295 per annum and equating to £15.29 per sq ft, in line with the September ERV, and is 33% above the original underwrite. Following this letting Siemens remains the Company's second largest tenant by income across STGE and Langley Industrial Park in Chippenham (4.9% of total rent). Siemens will have six-months of rent free and a break at year five.

·    A 10-year lease completed with Licata Building Systems Limited ('Licata') for a 10,802 sq ft unit, generating £164,155 per annum and equating to £15.20 per sq ft, in line with the September ERV of £15.25 per sq ft, and is 29% above the original underwrite. Licata will have five-months of rent free and a break at year five.

·    A further 19,340 sq ft is either under offer or in advanced negotiations which, assuming these proceed to completion, would generate a further £340,000 per annum of rent and result in the scheme being approximately 80% let.

Jaguar Land Rover Limited ('JLR') unit, 55/56 Heathcote Industrial Estate, Warwick

·    JLR, who occupy a 50,139 sq ft warehouse unit used as a training academy, have completed a five-year lease renewal generating £412,500 per annum, equating to £8.23 per sq ft. This reflects an increase of 25% compared with the previous rent. JLR will have six-months of rent free and a contribution towards improvement works supporting electric vehicles, capped at £110,000.

Office portfolio:

University of Law, Store Street, Bloomsbury, London (numbers below reflect SREITs 50% share)

·    The Company owns a 50% interest in the University of Law ('UoL') building on Store Steet in Bloomsbury, an improving location benefiting from the Elizabeth Line station at Tottenham Court Road and "knowledge-based" occupier demand. In December, the Company completed a new 85,814 sq ft lease with UoL on the following terms:

o  Lease expiry extended from December 2026 to December 2029.

o  Rent review dated December 2024 pre-agreed at £2,359,885 per annum equating to £55.00 per sq ft, 28% above the current rent.

o  Fixed rental increase in December 2026 to £2,430,682 per annum equating to £56.65 per sq ft.

o  Annual fixed uplifts of 3% per annum from December 2026, leading to rent of £2,578,710 per annum or £60.10 per sq ft from December 2028, 39% above the previous rent.

o 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.

Retail warehouse portfolio:

St John's Retail Park, Bedford

·    A 15-year lease without breaks completed with Starbucks Coffee Company UK Limited ('Starbucks') for a new 1,800 sq ft drive-thru unit they constructed on the site. The rent is £155,000 per annum which equates to £86.11 per sq ft, and the lease benefits from inflation-linked increases. Starbucks will receive a contribution towards construction costs of £850,000 and 12-months of rent free.

103 Watling Street, Bletchley, Milton Keynes

·    A 15-year lease completed with Starbucks Coffee Company UK Limited ('Starbucks') for a new 1,800 sq ft drive-thru unit they constructed on the site. The rent is £105,000 per annum which equates to £58.33 per sq ft, and the lease benefits from inflation-linked increases. Starbucks will receive a contribution towards construction costs of £850,000 and 12-months of rent free.

Balance sheet and debt

The average interest rate for total debt drawn at the quarter end was 3.5%, with an average maturity of 10.0 years, and 91% either fixed or hedged against movements in interest rates.

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 £175.6 million total borrowings at the quarter end, has an average loan maturity of 12.3 years, with a fixed average interest rate of 2.5%. At the quarter end, the incremental positive fair value benefit of this fixed-rate loan was £17.1 million, which is not reflected in the Company's NAV.

The balance of borrowings at the quarter end, totalling £46.0 million, comprised a revolving credit facility ('RCF') from RBSI. This facility totals £75.0 million and can be drawn and repaid at any time up to maturity on 6 June 2027. The RCF is a 'Green Loan', with criteria linked to reduced energy consumption, future improvements in the GRESB rating and certification linked to building improvements.

£30.5 million of the £46.0 million drawn on the RCF benefits from an interest rate collar, which protects the Company from interest rates above 4.25%, whilst also allowing the Company to benefit from future falls in interest rates down to a 3.25% floor. The collar matches the loan duration and had a fair value of nil at the quarter end.

As at 31 December 2023, the Company had cash of £8.2 million and a net loan to value ratio of 36.6%, slightly above the long-term strategic target range of 25% to 35%. The Company has significant headroom against all loan covenants, and steps are being taken to reduce the net loan to value ratio back in line with the target range.

-ENDS-

For further information:

About Schroder Real Estate Investment Trust Limited

Schroder Real Estate Investment Trust Limited aims 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, weighted towards higher growth sectors.

The Company employs 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 Company leverages Schroders' specialist multi-strategy capabilities and 139-strong UK real estate team (as at 31 December 2023), incorporating a hospitality-driven approach to improve the operational performance of its assets.