Schroder Real Estate Investment Trust Limited (SREI) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the Schroder Real Estate Investment Trust Limited Full Year Results Investor Presentation. [Operator Instructions] Before we begin, I would like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And I'd now like to hand over to Nick Montgomery, Head of U.K. Investment. Good afternoon, sir.

Good afternoon. Many thanks for the introduction, and welcome to everybody for what, for us, is the first Investor Meet company presentation that we have given. So I'm Nick Montgomery. I look after the U.K. real estate business, and I am the Fund Manager for Schroder Real Estate Investment Trust and jointly responsible for the fund with me is Bradley Biggins, who is with me here today. So just turning to the first slide. As I say, this is the first time that we have carried out the presentation on this platform. And I guess, therefore, just by way of a high-level overview. So Schroder Real Estate Investment Trust is what it says on the thing. It is a REIT. It's main market London listed. Our strategy is to own a diversified portfolio of higher-growth assets across the U.K., which is there to deliver an attractive income return with the potential for long term, both income and capital growth. So just, again, a bit of background. So Bradley and I obviously work at Schroder Real Estate. We're part of the broader private assets team within Schroders. The U.K. business within Schroders is large. So we run about GBP 14 billion of direct U.K. real estate assets within the team. We have access to 100 professionals, over 30 of which are front-office investors and asset managers who are themselves specialists in different parts of the U.K. real estate market. And as we hopefully go through the presentation, you'll get a sense of the activity that is going on across the portfolio. Before we dive into that, and in particular, highlight some of the detail from our year-end results to 31 March 2022, we thought we just give a little bit of color just in terms of the high-level numbers for the portfolio. So I guess the first point to note is we have just announced a net asset value of GBP 372 million as at 31 March. That reflects a NAV per share of 75.8 pence per share, which versus our share price at the close of the 8th of June reflects a discount to NAV of about 26%, which is broadly in line with the peer group average. And actually, based on the dividend, and I'll come back to earnings and dividends in a moment, that reflects a dividend yield of about 5.7%, which we think is obviously very attractive when you hear about the quality of the portfolio and the opportunities within it. From a portfolio perspective, as I said at the introduction, we're there to own a diverse portfolio but very much focused on the higher growth parts of the U.K. real estate market. And we think at this stage in the cycle, the ability to tack and change between sectors is a real benefit. And more on that later. But in terms of the key numbers, we own 42 assets with a portfolio value of just under GBP 525 million. If you look to our company at any point really since its inception in 2004, we always tend to have higher average income return than our peers. So the average income return for the portfolio is you're taking the rent as -- divided into our portfolio value is about 5.4%, which compares to the benchmark today. And when I said a benchmark, and we'll refer to that term throughout the presentation, we're talking about an MSCI property level benchmark of our peers. That compares to the peers at about 3.9%. So we have a very significant premium in terms of additional yield from our portfolio. In the same way, when we talk about reversionary yields, which looks at the potential rent from the portfolio, that is also much higher at 6.4% versus a benchmark of 4.6%. I guess the other point to note in very high-level terms is whilst we're a very active manager, we manage our assets very aggressively, and particularly now with the focus on ESG, we have a very secure and stable balance sheet. And so our net loan to value based on that 31 March valuation I mentioned is today about 28.6%. And importantly, and more detail later, we have the longest duration, lowest cost debt across our peer group. Just finally on this slide, you can see on the right-hand side here, we've got the high level portfolio weightings. Again, we have the ability to tack and change between sectors. We have, over the course of the last 3 or 4 years, increased our industrial weighting. So our exposure to multi-let industrial estate is now almost half of the portfolio value, and we've typically had a broad spread across the U.K. in terms of geography, but as I said, very focused on those higher-growth winning cities. So we are, therefore, heavily invested in places like Manchester, Leeds, Edinburgh. And in fact, one of our largest assets is in a particular submarket of London called Bloomsbury, which we think is really interesting. And again, more on that later. So just moving on through the slides. We thought we'd just give, before we go into more detail, just a high-level overview of some of our assets, just to give an illustration of the quality of the properties that we own. And moving from the left to right, our industrial portfolios always exclusively comprise good quality, multi-let regional industrial estates. You can see here, our largest assets on the top left-hand corner is an estate that we own in Milton Keynes, where we've had very strong levels of performance. Likewise, in the bottom left-hand side there is one of the best -- in fact, one of the largest contiguous industrial estates in a single ownership in Leeds located right on the ring road. In many cases, our industrial estates are located in areas where we are in the lowest value land use despite having had the very strong levels of performance within the industrial market, and that's very deliberate because although, obviously, no one is really building multi-let industrial estates anymore, and therefore, there is an attractive demand and supply imbalance. It also means that long term, there are alternative uses that we can bring into the sites. So for example, at Leeds quite recently, we introduced a new gym use at a high rent compared to what existing use rents were at a time. Moving to the middle. As I mentioned, the phrase winning cities. So we are invested within the office sector but very targeted at the higher-growth regional cities in London submarkets. Image you can see in the top middle there is a large asset that we own, a 25% share of -- in Manchester -- right in Manchester City Center, where we have a multi-let office building, but also some educational use as well as a hotel with some retail leisure on ground floor that has very high levels of footfall. The asset you see at the bottom there is our assets in Bloomsbury. So as I mentioned earlier on, it's one of our preferred submarkets, obviously benefiting from the Crossrail effect, but also increasingly attracting an alternative and a wide range of occupiers, educational, life science, tech, media, et cetera, and we think we're well placed as a result of that. And on the right-hand side, the retail sector. So our retail exposure is now almost exclusively either retail warehousing. So the asset you can see on the top right-hand side there is an asset we own in Bedford, but we recently did a deal to put a Lidl in, and that really has driven footfall, and in fact, very recently led us to exchange a new lease agreement with Starbucks. But we also own what we call convenience retail. So the image on the bottom right-hand corner there is an asset we own up in Headingley, just outside of Leeds, where, for example, we've got a Sainsbury supermarket but what was a vacant office building above, which we turned into a premiere in on a new long lease. So a good quality portfolio. In fact the majority of our asset value is comprising just in those 6 assets that the broader diversification comes from a portfolio of 42 assets in totality. So moving just into the next stage -- or next section of the presentation and draw a little bit of information now in relation to our results. So our year-end is 31 March. So we have, therefore, just released our results to the market. The net asset value total return for the 12 months to March was 31%. So one of, if not the strongest 12-month period that we have actually ever had. Over the quarter to March, just to illustrate the fact that momentum had continued within the real estate market, we announced a net asset value total return just under 9%, of which the net asset value went up by about 7.7%. So very strong levels of performance. In contrast, as I mentioned at the start, I guess, as a general comment for the last few years, diversified REITs such as ours have not been in favor, and investors in many cases have preferred to invest in specialty strategies. So focused on, as one analyst puts it, beds, sheds and meds. But actually, we think that certainly, we've probably got more interest now following these results than we've ever had. I think as investors are looking at relative value for diversified companies versus some of our specialist peers. I guess why we own this? Why we think people should own this, first and foremost, is income. And so what we also reported over the most recent financial year is a 78% increase in the dividends paid. And that was partly obviously due to dividends being for 1 quarter postponed in relation, obviously, to COVID and some prudency there. But it's very encouraging that we have -- and more later -- seen a steady increase in our dividend. And we are, in fact, the only company in our peer group where following a further dividend increase, we are ahead of that prepandemic level, which we think is very positive. And importantly, that dividend is fully covered. So 113% covered on net per earnings over the financial year and sufficiently covered for us to continue paying, as I say, an increasing level of dividend where we believe that is sustainable. The balance sheet I've touched on. Very strong balance sheet, very low cost of debt, and we'll provide a bit more color on that later. And the last point to note, I guess, is we have had, as I say, a recovery in the share price. So a shareholder total return of about 53% over the 12-month period, albeit clearly with broader market volatility to sell up in markets. We have seen the shares trade off a little bit, and which is why, as at today, share price yield represents about 5.7% with a discount of -- in the region of 25%, which, I guess, just underlines our point that we think the shares do look very good value. From a portfolio performance perspective, as I said at the start, we do compare the performance of our portfolio against the MSCI Benchmark. We have at property level a very strong long-term track record of outperformance against that MSCI Benchmark on the 11th percentile since inception in 2004. But importantly, as well as delivering a higher total return, we have consistently delivered an above-average income return, which is really is key to the strategy. And that is all to do with identifying higher-growth assets, but then, of equal importance, having a very clear asset management strategy for those assets and delivering that growth in net income. We've also been active from a transactional perspective. So we are very disciplined. When we believe we've extracted maximum value from assets, we will sell them. And one of the sales we did over the course of the last 12 months or so is an office in Nottingham, where we sold that at a 39% premium to book value, having delivered the business plan. And at least part of those proceeds were reinvested in some industrial transactions, most notably over the financial year in a portfolio, which we'll touch on briefly later, high-yielding industrial portfolio. And then actually more recently post period year-end, and this partly reflects our views about the market, we made an acquisition in Manchester and a mixed-use office and retail assets with a very attractive yield of 8%. The next call along talks a little bit more about income. I've covered some of these points in the introduction. We do have a really attractive income profile from the portfolio, very strong tenant base, which we will talk to in a bit more detail later. That granularity and strength of the tenant base is reflected in the fact that our rent collections, that's now are back up to prepandemic levels of 96-plus percent of rent collected for the most recent quarter. And that all our activity transactions allowed us to recommend to the Board and the Board agreed to increase the dividend by another 3%, as I say, ahead of that prepandemic level, which we paid to shareholders in June. I guess the last couple of points we will build on later, but just a bit about the broader strategy. So we are very active managers. And I think obviously, a key part of actively managing buildings at the moment is focusing on both operational excellence, so the service that we're delivering to occupiers, but also critically how ESG forms part of that. So we're not a fund that is focusing on social value, but what we are focused on is delivering best-in-class ESG performance through the active management. And we think there's a really interesting opportunity for us to evolve our strategy in a way that differentiates on ESG allows us, therefore, to deliver more sustainable long-term returns as well as, I think, particularly from a retail investor perspective, differentiate ourselves from what is otherwise a fairly crowded peer group of balanced competitors. And the last point to note on the strategy in the bottom right-hand corner there is we have a very good and strong Board of independent knowledgeable directors. Our Chair, Lorraine Baldry, who's been with us for 9 years, is stepping down in accordance with best practice, and we have a Chair-elect who is a current Senior Independent Director, Alastair Hughes, who were delighted to say stepping up from July as Chair. Alastair's other roles currently include as non-Exec Director of British Land and actually also Tritax Big Box. So he brings in very relevant, but interestingly, contrasting experience with those companies. And we also announced last week a step-up to replace Alastair as SID a new role as Director called Priscilla Davies, who amongst other things, is currently the Chair of UBS Asset Management in the U.K. So very strong Board, but absolutely keeps Bradley on our toes, but definitely adds a lot of value to the process, particularly around strategy. So I'll move on. I'll draw out a couple of points. So again, some of this might be a little bit too much detail. But as this is the first time we presented, we thought we'd provide a bit of background on how we report. So we have the portfolio independently valued every quarter, and our principal value is Knight Frank. Obviously, we have the year-end results to March, the interim to September. We do also put out an audited net asset values in the intervening courses. Obviously, for this most recent financial year, we did see a strong growth in NAV at just under 26%. And with dividends paid, that gave us a net total return of 31%. We obviously, as I mentioned, undertook some acquisitions and incurred some sale costs. The other line here, which I will point to, is during the most recent financial year, we did a very small number of share buybacks, but we were one of very few in the peer group to undertake more significant buybacks in the prior financial year. And that was -- we just saw the shares represented very interesting value, and we bought in at a very big discount over the period -- over that 12-month period. We bought back about GBP 10 million of shares, and that really did serve to concentrate the dividend, and share buybacks is something that we review regularly with the Board in normal course of business. Moving on in terms of earnings on the next slide. So you can see here the headlines really over the year to March '22, we saw a 35% year-on-year increase in EPRA earnings. The key reason for that, you can see in the gray bar where we saw the 12% uplift in rental and related income. It's probably just worth noting, but the GBP 27 million number there of IFRS or accounting income for the financial year actually compares with cash rent. So that's a rent that we are effectively billing, as of 31 March, of over GBP 31 million. And that's because, obviously, the rents increased over the course of the year through active management and through the acquisitions post year-end. On the expense side, you can see there that we saw -- it's funded over expenses increased slightly, the 2% increase there. We do manage expenses very carefully. Part of the reason for that increase, in fact, was the fact that we've done quite a lot of leasing activity. And so we, therefore, saw letting the legal fees coming through. But obviously, we also saw the income benefit coming through. We also, in fact, agreed a reduction in our fee with the Board during the course of the financial year just to bring it back in line with peers. Really, just -- we did that entirely voluntarily, but really just to make sure that we had pulled all the levers possible to demonstrate to shareholders that we were delivering on the strategy to drive net income, and so shareholders benefited from that over the year as well. And that really spits out the margin, you can see there, improvement over the year. The dividends paid and the dividend cover 113%, noting very importantly that obviously, we have agreed -- we have announced a further dividend increase, which we paid in June. Turning the page in terms of property performance. So this is something that compares our underlying portfolio performance against the MSCI peer group average. And all of our diversified specialist peers. [Indiscernible] are part of this peer group. I guess the key point to note about order to overburden your numbers is in the bottom right-hand corner of the slide where you can see the relative outperformance of the underlying assets overall, time periods of 1 year, 3 years and since IPO in 2004. And you can see there really sustained long-term outperformance that comes from acquiring those higher-growth assets and really actively managing them hard to drive net income and capital values. So I'll move on to the next slide. And I think this is obviously a compliance slide that we do need to include, but I think there's one particular point that we want to highlight here. So this shows the discrete annual performance both in terms of share price, NAV total return, but also the returns to the underlying portfolio that I've just touched on. What we are highlighting in the dotted red box there is the return for the 12 months of March 2020, and you'll see that there's quite a big negative there. Now the reason for that and the reason we're highlighting it is because in October 2019, we undertook a major refinancing of a long-term loan that we have with Canada Life. That loan was previously at an interest rate of 4.4% for some sort of historical reasons. And what we did was make a decision to refinance that loan, extend the loan and take it down to market rents of 2.5%. Now that incurred a break cost. It wasn't an easy decision at the time. We paid the bank GBP 27 million to break that loan, but the decision was taken really on the basis that we believe, from a shareholder total return perspective, looking forward and with the emphasis on income, that was the right thing that we should be doing. Now with the benefit of hindsight, with the outlook for interest rates and inflation, I think that, to us, feels absolutely the right decision to have made at the time, but that's the reason we're highlighting it. We know a lot of investors will look at this peer group and screen on 3 years net asset value total return. And obviously, if somebody is looking at us over 3 years, we still have the impact of about GBP 27 million coming through numbers. Obviously, following this April -- sorry, this October, I should say, that would have fallen out. But that is the reason why we're now highlighting it. Now moving to the next slide in terms of where performance has come from. I mentioned at the start that our industrial weightings were up at about 50%. I think our view is, and I'll come on to the market, that the industrial values in parts of the market are getting at least, if not to the top, but certainly close to the top. And so we just wanted to draw out the fact that we have done some very, very good transactions over the course of the last few years, most notably in multi-industrial estate in Chippenham, but also a multi-let estate in Stanley Green in Manchester, where there's an interesting opportunity to develop some new units. Now the Chippenham asset, unbelievably, did the total return for the 12 months to March at 48%. And on the one hand, we're surprised by that. But on the other hand, actually, as part of that 48%, we were still betting from an income return of about 8%. And so I guess the point to make there is although we have seen strong performance for our industrial assets, because we typically bought multi-let estates in the regions, we still are enjoying an above-average income return. And it is adding to return has allowed us to deliver the dividend progression you can see on the next slide. Again, I've touched on these numbers. I think the key points to note here are you can see the dividend that was postponed immediately after the onset of the pandemic. I think that was the right decision. It was a prudent decision. But you can equally see how when we have visibility on the outlook, and in particular, rent collection and earnings, we were able to steadily increase the dividend to where we are today. You can see there with the dividend paid in June of 0.795 pence for the quarter, which takes us back up above the prepandemic level. On the next slide, I guess, just draws out some of these points even more clearly by comparing ourselves to the peer group. So we're showing here how we measure against 3 key metrics. So from the top, we're showing ourselves against what people would generally consider, an analyst would generally compare us with as our established peer group. So you can see there with the exception of AW REIT, our dividend yield compares very favorably against the peer group. We would argue that particularly given the nature of our portfolio and the income potential looking forward, that is a very attractive yield. I guess I've made the point several times very deliberately, but the next line just confirms that we are the only company in the peer group that has now delivered a dividend uplift that takes us above that prepandemic average. And I guess also particularly importantly now, I guess also when we're looking at the potential for inflation and interest rates to rise further, we do have the lowest cost of debt in the peer group. So we have a 2.5% total fixed cost of debt that's locked in for a long duration, which compares, as you can see, with the peer group increasing up to almost 4%. And I would also say across that peer group, in some cases, you have companies that have relatively near-term refinancing events. And what we're seeing from a market perspective is, obviously, banks are looking to pass this on now, whether it's fixed rates, interest rate swaps and margins increasing. So last few slides for me. Just in terms of the market overview, we haven't got too much to walk you through on the market, but I think this sort of talks to the point I was making about the contrasting fortunes of diversified versus specialist investment companies. And this is a chart we've used many times. So just briefly explaining what we're showing here. So the dark blue bars showed a monthly capital value movements on the MSCI index for average real estate. So moving from left, you can see there the immediate impact following the referendum with capital values falling, but then actually how the market very quickly adjusted. And we saw for many, many months, years a steady increase in capital values. That reflected in the cumulative blue line you can see running across the page there. You can then see how our average values have picked up quite strongly, moving to the right hand side. But I think the key point to note here is up until, certainly, very recently, averages have been really misleading. And what the orange dumbbells are showing you either side of those dark blue bars, it's a spread between the best performing sector in the U.K. market and the worst performing sector in the U.K. market. And no surprises, due to the structural changes we've seen with the incredible tailwinds within the logistics and industrial market, but equally, the challenging outlook for retail in the runup to and during the pandemic, that has led to that polarization with industrial values in the Southeast, in fact, doubling since the start of '18 with retail values and particularly shopping center values over that period sometimes halving. So we've seen a very contrasting outlook. And we've been saying for a little while now that we would expect to see some level of convergence. And so we are beginning to see that convergence. The rates of industrial growth are slowing, and we indeed have benefited, for example, what our biggest retail asset is our retail park in Bedford. We've begun to see good performance coming through there off the back of proper occupational demand, the likes of the Lidl and Starbucks that I mentioned earlier on. So looking forward, our view, and again, just turning the pages, is that we are going to see greater convergence between the sectors, and moving to the left of this slide here, increased benefits of being able to tack and change between the sectors. And really, that's what the Schroder Real Estate Investment Trust offers. Our strategy does allow us to invest across all sectors of the U.K. And most importantly, we have the boots on the ground. We have people based up in London and Manchester who are specialists across all U.K. real estate markets that allows us to position, so we may choose to at the moment, and we have some live discussions ongoing, we may choose to sell some industrial to take profits, but we have the capability to say, actually, we're going to move those proceeds and go into our high-yielding sector. For example, the mixed-use office retail asset we bought in Manchester that Bradley will elaborate on shortly in the deck. Operational excellence. So we talk a lot about how we need to be, as I say, delivering best value, best service for tenants. And again, we believe we're very well placed to do that. And in fact, one of our assets in Manchester now, we are offering our own service office concept called Elevate , where we're offering most flexible -- much more flexible terms, capturing post-pandemic demand where tenants are requiring a degree of more flexibility, but also therefore charging a premium rent. We are, as I mentioned just a moment ago, adopting a very disciplined but also active approach to transactions. So we are looking, as I say, to potentially sell some of our very, very low-yielding industrial assets, but we will only sell those if we get a very strong price and we have conviction that we can redeploy those proceeds and deliver an enhanced level of income. Balance sheet, I'll leave Bradley to touch on later. And finally, on ESG, I will leave this to Bradley, but I think this is a key area where we believe we can differentiate both as a broader business across Schroders, where we're making a huge investment in ensuring that we can deliver best-in-class ESG to our clients and stakeholders and the portfolios that we're managing. And that's really reflected in the fact that all of our funds now participate in the GRESB, Global Real Estate Sustainability Benchmark service and lots of other activity that frankly, we can talk about for hours, and I won't, you'd be pleased to hear. But we are looking to evolve the strategy, as I say, to deliver best-in-class. I guess the final slide from me just is to hammer home the point about the benefits of a multi-sector approach at this stage in the cycle. The chart on the left shows you that you can see there, the massive spread between the performance of the main sectors, obviously, with industrial leading the way, you can see at the top there, but equally, how we see that converging down. On the chart on the right is our outlook or the forecast for how we see the market from 2023 onwards. Now of course, what happens with inflation, what happens with interest rates and gilt rates probably will have the biggest single impact on the performance of real estate, and frankly, all asset classes, but we are expecting convergence. I think it's also worth noting, and particularly in the context of our discount, we are not expecting a crash in real estate values. Where we are today, it's a very different environment to where we were in the run-up to the GFC. Prior to the GFC, we had a negative yield gap. So the real estate yield was below the reference 10-year gilt, whereas today, even with gilt yields approaching 2.5% for 10 years. We still have average real estate yields of 4, and our portfolio, which you'll hear more in a moment from Bradley, yielding 5.5%. So we have a cushion. And I think it's also worth noting, again, compared with the time pre GFC, there isn't anything like the same level of leverage sloshing around in the real estate market. And equally, although some regional cities now, you can see a number of cranes on the horizon, actually, in many cases, that is residential that's being built. And within the office sector, we don't have a supply issue of good quality space, particularly space that can deliver ESG standards and tenants now acquire. I guess the only note I'll make there is -- and again, anybody if it spends any time on motorways at the moment will see that there is a supply response now in response to the logistics demand. Now although the occupational demand is there at the moment, we do have concerns about that part of the market. If we do see that supply continue, not least because, obviously, a large part of our occupier base is ultimately retail-facing and obviously could well, therefore, see a reduction in demand if we see consumer impacted by the broader macro issues that we and other Western economies are dealing with. So we may have some questions in the market later, but I think we feel very comfortable with the way that we're positioned particularly with almost all of our industrial exposure being focused on the multi-let market across the U.K. where you have a much more diverse spread of occupiers across, if you like, across the U.K. plc. So I will pause for breath here and will be pleased to hear it, and I will pass over to Bradley to give you a bit more color on the portfolio.

Thanks, Nick. So on this slide, and it made a point that we're overweight in the higher-growth sectors and in higher-growth locations. And you can see that in the chart on the left-hand side, we've highlighted we're overweight in industrial at the moment, and we're overweight in retail warehouse where there's been very strong growth over the past year. And that's really driven our strong performance during the year. We're also overweight offices. But as Nick said, our offices are in strong locations such as Central London, Edinburgh and Manchester. On the right-hand side, you can see we've broken the U.K. down into GDP growth quartiles. And you'll see the majority of our portfolio are in the highest growing -- or the fastest-growing quartiles being 1 and 2. So that's 90% of the portfolio in these higher-growth locations. So then moving on. What we've highlighted here for you to provide more color on our portfolio, we've got the 15 largest assets in the portfolio by value. These represent 79% of the portfolio. We've got good quality assets with good fundamentals in higher-growth locations. We set out 3 examples on the next few slides. Firstly, you can see Stacey Bushes, which is a multi-let industrial estate in Milton Keynes on Slide 20. This is our largest asset by value and has excellent fundamentals. Over the year, we've seen a new rental tone achieved of GBP 14 per square foot. So for context, just a couple of years ago, the rents there were GBP 5 to GBP 7 per square foot. So in order for us to achieve this higher-rental tone, we constructed 16,000 square feet of new terrace up on the site. So this is a brand-new terrace that we then let at higher rates at or close to the GBP 14. And we've also been operating a rolling refurb program across the site. So when we get a unit back, we refurb it and then let it at a higher rent. What's encouraging as well is that when we have been letting the older units, the rents have been much higher than the GBP 5 to GBP 7 and closer to the GBP 14. We've still got an active business plan at the site, so there's still more we can do to drive value. So for example, we are in planning to develop a further 18,000 square feet of new units. And we're also looking at acquiring and adjoining ownership, i.e. one of our neighbors. So this asset, as you can see in the blue circle on the top left-hand side, delivered a total return of 40.9% during the financial year. Moving on. We can see one of our office assets. So this is on Store Street in Bloomsbury. This is near to Tottenham Court Road and the new Crossrail Station. This area is experiencing really strong demand from life sciences and education, in particular. This asset is occupied by the University of Law. The rent is very low at GBP 43 per square foot, and that means there's potential for us to more than double this with the right development. We currently bid in on an adjoining ownership, i.e. the building next door. And if we were to acquire that, it would open up really interesting development opportunities for the combined site. And if we don't -- if we think the value goes too high, then that's good for us because it raises the value of our asset. And then on to the next slide, we can see St. John's Retail Park, which is in Bedford. We think this is the best retail park in the area, and it's performed very strongly over the past year. Anchor tenants such as Lidl drive footfall, and we're also collaborating with Starbucks in developing a brand-new drive-thru on the site. We're doing this as part of a double scheme. So one of our other retail parks is also going to have Starbucks developed on it. That's assuming we get planning permission. St. John's delivered a total return of 32.1% during the year. Then moving on. On the left-hand side table there, you can see our 15 largest assets -- 15 largest tenants by annualized rent as at the year-end. As you look down the list, you'll see the well-known quality household names and we think is the result of the quality of our portfolio and our approach to operational excellence. So this is where we work with our tenants closely to provide them with what they want. This, in our opinion, leads to resilient income. And as Nick mentioned, it's really pleasing to see our rent collection is back up at 96%, which is in line with the prepandemic level. And we've highlighted Siemens there in the table. We've agreed terms with them to increase their rent from the 0.97 you see there to GBP 1.22 million per annum. This will mean they become our second largest tenant. Siemens occupy a large amount of space at Langley Park, which is another multiple industrial estate in Chippenham, just near just near [ bar ], right by the station. They've got 800 people on the site. Their lease currently expires in 2026, so in 4 years' time, but we're already in early discussions with them to increase our occupation at the site. This is fantastic because what we're also looking to do at this site is expand it. So we're looking to build brand-new units on the site. And if we can do that in collaboration with Siemens, that would be really fantastic for the asset. Moving on to the next slide. So this is illustrative, and there are lots of moving parts on this slide, but what we're setting out here for you is where we see the potential for future rental growth. So on the left-hand bar, the blue bar there, GBP 30.1 million, that's our annualized rental income as at 31st of March. The next bar, the blue bar of GBP 33.8 million is our annualized market estimate rent that we could achieve where we go to market those units now. And that number is provided to us by an independent valuer, Knight Frank. And in order to bridge the gap, we've got fixed rental uplifts in contracts coming through in the next 2 months of GBP 1.1 million. We've got a development pipeline to GBP 0.2 million, that refers to the Starbucks sites. And we've got vacant space that equates to GBP 2.4 million of rent, and we're working hard to let that space to increase our rent. And then going beyond the GBP 33.8 million, we have acquired St. Ann's ends, which is a mixed-use asset we're going to talk about briefly, in Manchester. That's going to bring in GBP 1.2 million of rental income. We've got a CapEx pipeline where we're spending GBP 20 million. That will bring in GBP 1.4 million. And most of that GBP 1.4 million relates to another of our multi-let industrial estates in Stanley Green, where we're building brand-new net 0 carbon operational units. That will bring in GBP 1 million of rent, and that's achieved within that GBP 1.4 million, and we think it's a conservative assumption. And then finally, we've got some capital to deploy, GBP 20 million, and that should bring in around GBP 1.1 million of rent. So you can see we have plenty of activity in order to increase our rent over time. Then moving on. So on this slide, we set out just some points around our most -- an acquisition we made in December 2021. So this acquisition is an excellent example of the benefits of having a very large real estate team in terms of sourcing acquisition opportunities. We acquired this portfolio of 4 industrial assets, the largest of which is a multi-industrial state in Birkenhead, just south of Liverpool. We acquired this in December for GBP 19.9 million, which reflected a very attractive net initial yield of 6.9%. So this goes to a point about our portfolio being higher income. So this cost us GBP 53 per square foot to buy, and we estimate it can cost GBP 90 to GBP 100 per square foot to build an equivalent asset. This deal was off market. So it wasn't a competitive auction, which is usually the case in real estate. So this valuation has increased by some 9% in the quarter. And since we've owned the asset, we've made really good progress in letting out the void we inherited. We're in talks with Balfour Beatty, who are the largest tenant of the Birkenhead site, who uses location to service nuclear contracts in the Northwest, and we're in talks to them about increasing their occupation at the site. Moving on to the next slide. This is our most recent acquisition. So this is St. Ann's House in Manchester. This was another high-yielding acquisition. We completed this in May, so just last month. So therefore, after the financial year-end. We paid GBP 14.7 million for this mixed-use office and retail asset. It generates GBP 1.2 million per annum of headline rent, and this rent level reflects a net initial yield of 7.8% and a reversionary yield of 9.1%. This was acquired at a low average capital value of GBP 283 per square foot. This asset is prominently located in the City Center near to the prime retail core. So it really is a prime location. And our view is that compared to other major cities, Manchester has the lowest office vacancy rate, and we expect relatively higher growth in office rents over the next 5 years. So not only does this asset of excellent fundamentals. There's also an opportunity to improve the sustainability credentials of the asset, and we've included more than GBP 4 million of CapEx in our business plan to achieve this. And despite this high CapEx budget, our business plan shows a very attractive IRR for this acquisition. Moving on to the next slide. So this is to Nick's point around the strength of our balance sheet. So we've got 2 debt facilities. We've got a term loan from Canada Life and a revolving credit facility from RBS. On the left-hand side, you can see the key points on the term loan from Canada Life. It's GBP 129.6 million. It's at an attractive average fixed interest rate of 2.5%, and it's locked in for a long duration of 14 years. Clearly, in a rising interest rate environment, this is a very attractive facility. On the right-hand side, you can see the key points on our revolving credit facility from RBS. We completed a refinancing on this last week. We increased the RCF to GBP 75 million. It was previously GBP 52.5 million. So that gives us an extra GBP 22.5 million of firepower. And we extended the term to 5 years from 1 year, reducing refinancing risk, again, in this potentially rising interest rate environment. Moving on to the next slide. As Nick said, we have made significant progress in developing our sustainability strategy over the year, delivering on the commitments we made in our annual report last year. Our strategy is shaped by the issues that matter most to our stakeholders and targets areas where a meaningful contribution can be made. We defined 3 pillars of impact: people, planet and place, and these are aligned with the United Nations sustainable development goals. Our targets apply to our business, our funds and the assets we manage. And we communicate on our intent and the measure and report on the outcomes. And there are some examples shown on the slide there. So moving on. I'll hand over to Nick for some closing comments.

Thanks very much, Bradley. It's great. I can see we've got a number of questions come through. So I think just to wrap up before the questions, 3 really important points to note are that we have a really good quality portfolio, that we are happy, has a diverse exposure to the higher-growth parts of the U.K. That's allowed us to deliver really good performance, both over the most recent financial reporting period, but actually also over the long term, particularly when looking at the performance of the underlying portfolio. As I say, we think we are well positioned. We think we are moving into a market where we will see more convergence between sectors and clearly are headwinds, but we think with the performance of our portfolio coming from the active management, coming from the ability to tack and change between the sectors means that notwithstanding those headwinds, and particularly given the current discount to NAV and the dividend yield that offers, therefore, that we're well placed. And a final point to note is we are very clear about our strategy to evolve what we do within the portfolio with that emphasis on ESG. First of all, to differentiate, but also because we have real conviction that delivering assets that have the best-in-class ESG performance will allow us to deliver more sustainable long-term income growth coming from occupational demand. So I will pause there. I can see that we have some questions.

Nick, Bradley, that's correct. [Operator Instructions] I would like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A, can be accessed via your investor dashboard. Bradley, Nick, as you can see, we have received a number of questions throughout today's presentation. If I could please just hand back to you to run through that Q&A tab and where appropriate to do so. If you could please just read out the questions and give your response, and then I'll pick up from you at the end, that would be great.

Brilliant. Thank you very much. So the first question is, will we seek to capitalize and crystallize on industrial profits? I think selectively, yes. I mentioned that we have almost half of our value is within multi-let industrial estates. We are very happy with those assets. They are delivering still an attractive income return and still with reversionary potential. And as you heard Bradley say, particularly in Milton Keynes, we've got opportunity to potentially create new space with live planning applications and also looking at joining ownerships. But yes, we will look at capitalizing and crystallizing profits. We have a couple of assets that are in the market. And if we get the right price and if we think that's paying us for that potential upside down the line, then we will seek to realize those and recycle those into high-yielding activity. The next question is, who do you see as your peer group that you compare yourselves to? So I guess most closely, we consider ourselves in a peer group of those that we included in the presentation, which are the diversified REITs, so companies like AW and other companies that are both externally managed and, in fact, one that is also internally managed. We think we scrub up very well against those peers, particularly given the steps that we've taken recently in terms of increased allocation to the industrial sector, but also really importantly the refinancing we've done means that we've got the lowest and longest duration debt in the peer group. So most closely, we compare ourselves to those peers. I guess it is worth saying that I'm pretty sure that most of the industrial specialists, and there are some, obviously, within our wider peer group, would be absolutely delighted to own our multi-let industrials. And so when we have been buying in the market, I know occasionally when we have been bidding on market, the likes of warehouse REITs and others are there as well. So I think whilst people will view us through the lens of part of that diverse peer group, I think a key strength that we have is that we have the specialist expertise within the team, the depth within team to stand tall to also with those specialist companies. And I think that's a key point really to take away as we see more convergence between those main sectors. So the next question, how do you -- what strategy do you adopt when selling assets? And how are you finding value to redeploy capital? So how do we do it? Well, every asset we treat as a business. And so every asset, ultimately, we're responsible for -- but we have specialist asset managers on the ground who are delivering, in many cases, those business plans. And those are people within the Schroders business rather than people who are paying externally. So with that business plan, that's reviewed annually. And the annual business plan will set out key initiatives that we hope to deliver. And a key output of that is what do we think the future returns look like and when, therefore, we can compare those future returns, first of all, against our use for the market, but also, obviously, versus what we think we could potentially realize by selling -- essentially selling at a premium and then going back into the market. In terms of owning value when we redeploy, we have access to really great research here. So we have our own proprietorial forecasts that are prepared within the real estate business. And that's taking data from, obviously, the wider Schroders research capability sort of at a macro level but then marrying that with what we can see on the ground. So we have great access to market information. I guess the other point to note is the fact that we've got a lot of front-office people who are specialists. And particularly over the course of the last 18 months or so, having opened the Manchester office, we got proper boots on the ground, which means that we see very, very strong deal flow. As I mentioned at the start of the presentation, we're running over GBP 13 million of direct U.K. real estate across the business. And what that means is we are buying and selling all the time. And so it does allow us to have that visibility, the market relationships, the occupier relationships to make sure that we are able to efficiently redeploy proceeds into deals that we have conviction about. And I think hopefully, what's come through the presentation is that we have done some very good deals across multiple sectors. So just moving on. There's a question relating to our development at Stanley Green. I'll give a brief note on that. So that's an asset that we bought at the back end of 2020. But actually, it's a really good illustration of how we'll look to evolve our ESG strategy because this was a multi-let industrial estate, which had a piece of land where that land had a historic planning consent for about 50,000 square feet of new warehouse space. It's a fantastic location for anybody that knows that. It's basically on a link road from the sort of stock broker belt of South Manchester through to the airport. And there's a real chronic shortage of industrial and particularly trade warehouse space in that part of Manchester. So our strategy for the asset was to drive the rents on within the existing estate, and we're looking to incorporate energy efficiency improvements by way of refurbishment, possibly looking at PVs, photovoltaics on the roof. But also the real opportunity at Stanley Green was to deliver an improved planning consent. And so we've got planning consent for about 80,000 square feet of warehouse space. So a significant uplift just by designing the scheme a bit better, but also importantly, a commitment to deliver that scheme to an operational net 0 standards. And so we are now on site. We are building that speculatively, albeit we do expect to lease up part of our space during the development. And once fully leased up, we think we can deliver additional rent about GBP 1 million on a capital cost to us of about GBP 8.5 million. So when we look at our CapEx pipeline, as Bradley mentioned, of that GBP 20 million, about GBP 8.5 million actually is just Stanley Green. We're going to end up with a really good quality industrial estate and I guess, most importantly, a return on the capital we're investing that is materially above what we'd otherwise have achieved by just going out and buying another ready industrial estates in the market. If I just keep going through. So there's a question about the Slide 24, which gave the illustrative view of how we deliver the portfolio reversion. And the question here is how much rental income is at risk and breaks or expiries. So we don't -- we typically don't provide that level of granular information, and we just show the top line rental numbers. The main reason for that is our portfolio is really granular. So we have 315 tenants, which gives us a really good spread of lease expiry events over time. Our average earnings by lease term, you'd have seen in the pack, is today about 5 years. So a simple read across is to say, well, actually about 20% of our income every year effectively comes up for renewal. And over the long run, that is about right, particularly given we've been buying multi-let estates where, obviously, lease terms are anywhere between 3 and 5 years. I guess what I would say is, and if you go and track back looking at the assumptions we've made about income historically, we never see all of those events come through. Tenants roll over. More often than not, we're having negotiations with tenants well ahead of time, which allows us to avoid those lease events. A really good example is the Chippenham asset where we had a lease that was coming up at the end of this year when the business got a little fuse or a major silicon chip manufacturer supporting the rail industry and that they occupy just to [ export the ] chip to Siemens at Chippenham. That could have been an expiry. They pay us about GBP 350,000 a year. What we have done, in fact, is work very closely with them. We've agreed to carry out some -- or they've agreed funded by us to carry out some improvements to the units, and they've given us a new 10-year lease at a material rental uplift with inflation reviews. So again, as people hope to begin to get to know little bit better, you'll see that we genuinely are very active managers, and therefore, we have the ability to mitigate those break through breaks or expiry risks over the long term. So I think that's all...

If I may just jump back in there. [Operator Instructions] Nick, perhaps we're redirecting those on the call to provide you with their feedback, which I know is particularly important to yourself and the company. If I could please just ask you for a few closing comments to wrap up with, that would be great.

Thank you. Well, I guess, first and most importantly, thank you very much to everybody for joining us. It is the first time, as I said at the introduction, that we have -- we've held an Investor Meet company presentation, and we intend to continue with these meetings and also provide a platform with regular updates of our activity. The reason we've done this, frankly, is because we think we are genuinely very well placed. About 10% of our register currently is retail. We know that there are others across the peer group who have higher retail weightings, and in fact, have, as a result, delivered better ratings. So we are keen to make sure that we've got a really diverse shareholder base, that we are giving shareholders access to really quality information. And again, going back to what I said a moment ago, there's 3 key points. We've delivered very strong performance, and we think we've got a really good pipeline of activity coming through. We think we're very well positioned in the way that we have exposure to multi-let industry in the U.K., but also to retail warehousing and high-growth parts of the office market. And finally, both within the real estate team, the broader team at Schroders, we think we're very well placed to evolve the strategy, in particular, deliver a very high standard of ESG performance and operational excellence. So with that, I'll hand back to you.

That's great. Nick, Bradley, thank you very much indeed for updating investors today. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can better understand your views and expectations. It's going to take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of Schroder Real Estate Investment Trust Limited, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all.