SREI Schroder Real Estate Investment Trust Limited

For release 6th April 2020

Schroder Real Estate Investment Trust Limited
("SREIT"/ the "Company" / "Group")

COMPANY AND DIVIDEND UPDATE

LARGE CASH RESERVE, LOW LEVERAGE AND LOW RETAIL EXPOSURE

Schroder Real Estate Investment Trust, the actively managed UK-focused REIT, provides an update due to the market uncertainty relating to COVID-19. The Company is in a robust position with a large cash reserve, low leverage and low retail exposure.

Introduction

The Company’s diversified portfolio consists of 39 assets with 304 tenants with a focus on regional offices in Winning Cities and multi-let industrial warehousing. 74% of the tenants are rated by Dun & Bradstreet as having low or negligible risk. The Company’s income is diverse and its largest tenant represents 6.2% of the contracted rental income. The Company’s current focus is to protect shareholders’ long term interests. A core part of protecting the long-term value of our portfolio involves working closely with and supporting our customers, tenants, suppliers and our team.

Portfolio

The Company’s portfolio is balanced with the majority weighted in office and industrial warehousing. The retail and leisure exposure (where retail is the sole use rather than ancillary to the dominant use) comprises 22% of portfolio value. The Company owns no shopping centres.

Cash and Undrawn facilities

Following the significant sales programme and refinance in 2019 the Company has significant operational flexibility and liquidity. As at 31 March 2020 the Company has approximately £35 million of free cash and an undrawn £52.5 million Revolving Credit Facility. The cash and undrawn debt facilities provide capacity of approximately £87.5 million for attractive investment opportunities and income enhancing capital expenditure initiatives.

Balance Sheet and Debt

The Company has one drawn debt facility with Canada Life comprising a £129.6 million long term fixed rate loan. The Company’s consolidated net Loan to Value ratio is 21%. This was intentionally positioned at the end of 2019 following the sales of £95 million of assets. The Company has significant headroom on all loan covenants which are summarised below:

• £129.6 million fixed loan with a remaining term of 16.2 years at a total interest rate of 2.5%.
• Net Loan to Value on the secured assets against this loan is 40% as at 31 December 2019. On this basis the properties charged to Canada Life could fall in value by 38% prior to the 65% LTV covenant being reached.
• The interest cover ratio as at 31 December 2019 is 450% based on actual net rents. A 59% fall in net income could be sustained prior to the loan covenant of 185%.
• The Company has additional flexibility to add cash and assets to the Canada Life facility to further improve cover against loan covenants. If required and used, the unencumbered cash and assets could support the security in the existing bank facility and would enable, all other things being equal, the Company to further increase the headroom in a worst case scenario to withstand:

• A valuation fall of 67% from the 31 December 2019 valuation, prior to the 65% LTV covenant being reached; and
• A 70% fall in net income prior to the interest cover ratio covenant of 185% being reached.

Lettings

Since 1 January 2020, 27 new lettings, renewals and rent reviews have completed, generating additional income of approximately £645,000 per annum. Three lettings in Leeds, Milton Keynes and Sheffield have completed since the start of March 2020 generating a rental income of £228,000 per annum which on average is an uplift of 44% compared with the previous rent being paid.

Rent collection

As at close of business on 3 April 2020, the Company had received payments reflecting 63% of contracted rents relating to the first quarter of the financial year ending 31 March 2021. The payment rate is continuing to rise. At the equivalent stage over the past four quarters, 87% of the rent had been paid. This more than covers the running costs of the Company. The analysis between sectors for rent collection is 82% of office collected, 61% of warehousing collected, 33% of retail and leisure collected, and 78% of other collected.

As a responsible landlord we will continue to work constructively with occupiers who have genuine challenges and have yet to pay rent. In this process we will agree a repayment plan for any rent deferrals and are also considering other solutions such as extensions of leases. Some rents are also being paid monthly rather than quarterly to help tenants’ cash flow.

Dividend

The Company is well capitalised and can meet the prevailing dividend. However, in light of the ongoing market uncertainty the Board intends to postpone the dividend payment to be paid in June 2020. Whilst the Company recognises the importance of dividends to shareholders, in the current circumstances, it feels that it is not appropriate to continue with this payment at this time. This will be reviewed as clarity improves around the economic backdrop in light of ongoing developments regarding COVID-19. The Company’s intention would be to pay the postponed dividend in part or whole at a later stage and a further announcement will be made in due course once market uncertainty is removed and there is greater clarity.

Year end results

Due to the impact of COVID-19 and guidance from the Company’s auditors and the FCA, the announcement of the Company’s full year results to 31 March 2020 is now expected to be made during June 2020. Further details will be provided in due course.

-ENDS-

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