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 Investor presentation. [Operator Instructions] The company may not be in a position to answer every question it receives during the meeting itself. Over the company can review all questions later today and will publish responses where it's appropriate to do so on the Investor Meet Company platform. And before we begin, as usual, we would just like to submit the following poll. And if you'd give out your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to the team from Schroder Real Estate Investment Trust. Nick, good afternoon, sir.

Good afternoon, Jake, and thank you, everybody, for joining. Sorry about that slight pregnant pause, but we're all presently correct. So again, great to have you all on the line. Thank you for your time. So Bradley and I who manage the Schroder Real Estate Investment Trust, are going to give you an update on the quarter, the most recently reported NAV as at 31 December '24. But hopefully, more interestingly, just to give you a perspective of all the great stuff that's going on across the portfolio and give you a sense of where we see markets and why we think it is an interesting time to be looking at buying shares in a company such as ours. So I will begin just by giving you the headlines. Some of you who are already shareholders will know about these key points. But for those that perhaps don't know us quite so wel,l, SREIT owns a diversified portfolio of U.K. real estate, but very much focused on high-growth sectors with a high yield. I wouldn't describe our strategy as worst house on the best Street, but we are about buying good quality assets in good locations but where those assets have characteristics that we can improve through our active management approach -- excuse me, and drive higher levels of income. And then in turn, pass that income on to shareholders through an attractive level of dividend. Our most recently announced dividend for the quarter reflects a yield on yesterday's closing share price of about 6.8%. And as I say, disciplined approach to dividends, and that reflected dividend cover of 104% over the quarter to the end of December last year. And the other reason we've been able to continue delivering on that progressive dividend, and I'll demonstrate that in a bit more information in a lbit more detail later, is because we have great visibility of our interest cost. We have, we believe, the best debt structure within the peer group. Our average interest cost at around 3.5%. But really critically, almost 3/4 of that is actually fixed for 11 years at 2.5%. Share price today for various different reasons. Obviously, sentiments towards U.K. real estate remains on the cautious side in many areas, but that does mean that the current share price reflects a 14% discount to the December net asset value. And I guess just worth noting that, that's an independent valuation done at the end of December by CBRE, who are the biggest valuation firm in the market, which we do think is an attractive entry point. And actually, very positively, we are seeing an evolving shareholder register. For us, that means having a higher proportion of investors coming to retail platforms such as yourselves, and that's very positive in terms of buying support alongside, if you like, the traditional investor base historically of smaller wealth managers. But the final point to note is, a year or 2 ago, we'll announce a strategic evolution where we came out and basically we articulated our very active approach to be clear how sustainability forms a really important part of how we are managing our assets with the real focus on driving higher earnings growth. As we've said before, an increasing number of tenants are prepared to pay what we would call a green premium, a rental premium for occupying more energy-efficient, sustainable space. And we are also increasingly seeing investors being prepared to pay a premium for assets that have those characteristics. So just briefly in terms of the portfolio characteristics. So I've noted, we have a direct portfolio of U.K. real estate concentrated in what we see as being the high-growth parts of the market. So we're very diversified, and Bradley will give you more color on this later in the presentation, but we have 38 assets, around 317 tenants, a very nice granular income. The portfolio value at the end of December, GBP 474 million. And once you allow for our debt, which I'll come on to in a bit more detail, that reflects a net asset value of a stage under GBP 300 million and the net loan to value of just under 37%. Significant focus alongside financial performance, as I say, on improving the sustainability characteristics. We participate in the leading real estate sustainability benchmark called GRESB, a global real estate sustainability benchmark, and we're seeing continued improvements in our stores there and more importantly, continued level -- high levels of activity actually at portfolio level in terms of implementing initiatives that are driving that green premium. The strategy itself, I wouldn't say sector agnostic, but we have a lot of flexibility within the strategy to asset allocate to where we see the higher growth coming through. And I think that is a competitive advantage when you compare us to other companies who are more constrained because they are single sector focus. And so what we've been doing over the last few years is increasing our allocation to multi-let industrial estate, which represents just over half of our portfolio value now. The remaining 50% of the portfolio, as I say, concentrated in good locations but focused very much on offices in the best locations where we can drive value, convenience retail and related ancillary uses, and I'll give you more examples of that shortly. Alongside, obviously, share price return, net us at value total return, we're also able to assess the performance at an underlying asset level. And we recently, some of you will recall, won the award for the best 10-year return on a portfolio level to the end of 2023 compared with all underlying portfolios for U.K. and Europe within the MSCI Index, which is the biggest sample of institutional real estate. And you can see here the most recent data we have to the end of December, over 1 year, a total return from the portfolio of over 8%, so 300 basis points ahead of the benchmark and the spread actually over the longer term, even wider than that. So we're very proud of our performance. And that's testament both to having the right asset allocation. But equally, it's the fact that Bradley and I have a team of over 100 people within the U.K. business at Schroders who are specialists, investors, asset managers, but also subject matter especially in sustainability and all the other supporting functions you'd expect from a business like Schroder's, which help us really drive the performance at portfolio level. And as I say, make the right decisions in relation to asset allocation, but also financing that's helped drive the net asset value total return. So just to give you a flavor of the portfolio, if you like, what's under the bullet. We're showing you 6 assets here, which represent pretty much half the portfolio value, not quite, but almost. As I mentioned, half portfolio now sits within multi-net industrial estates. We think is a great sector still to be in. Structural tailwinds clearly supporting continued occupational demand, obviously, from logistics as retailers change their supply chains, but also last mile delivery with multi-let states, all the other myriad of occupiers that you have serving the local economy. We've been very clear in terms of buying these assets in densely populated urban areas. So the 2 assets you can see here, a very big state, just off the A5 Milton Keynes, likewise, are probably one of the biggest contiguous industrial ownership just on the outskirts of leads, just off the interim road and some really positive activity here. One most recently that Bradley will touch on a lidl Keynes, where we have developed a small infill development, which is something that we're doing as we're gradually improving these estates through refurbishments and capturing that rental growth. Within the office sector, these are our 2 biggest office exposures. These are our 2 assets where we have co-ownership holdings amongst other Schroder managed funds, simply because the assets were -- were too big for us to buy on our own. The middle top one, really interesting location. Bloomsbury sits, as some of you all know, just at north of Top Court Road, so clearly benefiting from the Elizabeth line, but also lots of mixed uses around UCL and then going up towards a medical corridor and all the cluster of knowledge-based tenants up at Kings Cross. So very interesting location in terms of spread and occupier profile. We have a building here let off of very low rents compared with comparable new build property where we hope long term, there's the potential to explore significant reconfiguration, possibly even secure planning consent for a bigger scheme, which we might look then to sell on. Our second biggest office exposure is City Tower in Manchester. So this is a big lump right in the middle of Manchester next to Piccadilly Gardens. Spread of uses, so hotel, office tower, educational use and then retail and leisure at lower levels with fantastic footfall, which you'd expect in that sort of location, a huge amount of asset management going on, which Bradley, again, we'll touch on later on in terms of less leasing up refurbished space. And finally, what we call value and convenience retail. So essentially, that means from a retail part perspective, limited fashion, very much focused on food retail such as Lidl. All the discounters like Home Bargains and again, associated uses. And by buying these retail parks, typically a sustainable rents of somewhere sort of low teens, we can deliver a lot of asset management. Recent examples at Bedford includes putting a Starbucks poll on the car park, generating about GBP 150,000 of new rents. Increasingly, we're also looking at putting EV charging points on our sites and both, in fact, at Bradford and Headingley, we've done deals with a subsidiary of Octopus Energy, where the rents are very attractive for virtually no capital expenditure. So Value Retail, which is where, as I say, we see continued growth opportunities. Debt. So I think this is a real differentiator. So as I noted earlier on, this is the -- if you like, the bottom on the left-hand side, that dark blue bar, the GBP 130 million, that's approximately 75% of our dual debt, all-in cost of 2.5%, fixed. So that's 2.5% fixed for 11 years, which gives us a fantastic bedrock of debt where we know we very -- well, no refinancing risk, which allows us to focus on that top line earnings growth. Alongside that, we have a tactical revolving credit facility with RBS, which runs until 2027, part of which you've capped at 4.25%. So in the money, we have an element of unhedged, which is at GBP 21 million you can see there in green. And we are steadily undertaking a small number of small sales where those proceeds will partly go towards further capital expenditure projects, but also we hope pay down that floating exposure and in doing so as well, bring that loan to value from where it is at the minute at 36.5% down within our long-term strategic range, the 25% to 35%. Now we think part of that will happen naturally with values going up, but we have that range, again, expressed as a long-term range because we think that's the optimal loan-to-value looking through the cycle. It's worth noting, although we're above our range of 35%, that's very much internal guidance. We have tons of cover against our actual banking covenants, both from a loan-to-value, but also interest cover perspective. But we hope in time, you'll see that drift down slightly. I guess, as a related point to that and one of the reasons why we did see the LTV tick down naturally is because we are seeing a recovery in U.K. property values. In fact, the net asset value per share increased over the quarter to December at 2.5% or 4% NAV total return with the dividends was actually our strongest quarterly performance from June '22 when we saw obviously the value correction partly because of a general increase in rates, but obviously accelerated by the disastrous mini budget. We saw an increase in EPRA earnings, which again, as I say earlier -- as I said earlier, reflects a 104% dividend cover. And we've also noted here the small sale that we did with a further small sale actually completed since quarter end with more in progress. I guess one point to note, it's a technical point, but it is probably worth noting is because our loan, I mentioned the Canada Life loan is a fixed rate loan, we don't reflect the fair value of that as we would -- were at a swap derivative. If you do fair value that loan at 2.5% for 11 years, the value of that today is about GBP 18 million. So in a sense, that's GBP 18 million of value, which is not coming through the NAV in a way that it would do where it's a derivative. Now dividends. This is why certainly why we own the shares, and I imagine it's a key reason why some of you own shares. And you can see here the progression in the quarterly dividend as we have been implementing the strategy, particularly as we came out, obviously, of the pandemic. And I guess the key point here is, as we implement strategy where we believe it is sustainable to do so, we will recommend to the Board that they continue increasing the dividend. That was reflected in the 2% uplift over the quarter to be paid around now, but also reflecting over the 7% plus increase over the most recent financial year, you can see there ticking up. So one of the things hopefully you'll take from Bradley's presentation is if we are able to crystallize the reversionary potential in the portfolio, so the fact that our market rents and through leasing up vacant space will increase the rents we're receiving, then we have confidence that you have confidence that we continue driving that earnings growth. Now a final session for me before handing over to Bradley. Just a bit of color around where we see the actual U.K. real estate market more broadly. What we're showing here are data points from the MSCI index. So this is the index I mentioned earlier. This is the biggest sample of a representation of how the wider U.K. real estate market is performing. And this is principally commercial assets. So obviously, is industrial, retail, all of the above. And what you can see here, most notably you can obviously have the left-hand side, see the very sharp correction we saw in values in the GFC period with property values at that point in nominal terms falling 44%. What you can also see if you scroll forward is that period of '22 to '23, where after that many budget, we saw values fall approaching 25%. So not on the scale of the GFC period, but actually from a historical perspective, a pretty significant correction. Now our view, and these are our forecasts, so the uncertainty is that they are wrong. But our view is that we are at an interesting inflection point for the market. Although interest rates have not fallen by as much as some commentators were expecting and probably are unlikely to move this week. The consensus is that looking forward over the next 2 to 3 years, interest rates will be supportive of real assets because although interest inflation is likely to remain stickier, we are expecting and certainly market consensus is that we will gradually begin to see interest rates drift downwards. The sector in contrast with the period immediately before the GFC, for example, already offers a premium over the risk-free rate. So if you take the 10-year yield today, whatever it is 4.7%, average real estate yields are, give or take, 5% to 5.5%, in our case, somewhat higher. And so you do already have that spread over the risk-free rate. But I think what's interesting and what differentiates this cycle from previous cycles is the fact we are still seeing healthy levels of rental growth and actually saw healthy levels of growth through the most recent correction. So going forward, you can see here on the right-hand side, a combination of that initial income return of around 5.5%. Rental growth broadly tracking inflation and some lift coming from a steadily-- steady interest rates means that we think the underlying property market will deliver returns of somewhere between 8% or 9%, taking a 4- to 5-year view, which is broadly speaking above the average and also why we're beginning to see more interest in the sector at the moment, in particular, private equity interest, a lot of the U.S. money, for example, we see the U.K. market as an interesting opportunity. I guess just to provide a bit more color behind some of those points. Moving from the top left, you can see here that the moving capital value is down. So we have had that 25% reduction in values post June '22 in nominal terms. Interestingly, you can see there the industrial sector, the light blue line. It was first to correct because the yields are lowest. But actually, you are now beginning to see that tick up as sentiment improved as I said earlier on, because we see continued rental growth in that sector and a lot of institutions remain underallocated. So we are seeing continued demand for the types of industrial assets that we own. The rental point, this is really stark. This is showing you over the 32 months from the June '22 correction, how rents are behaving in normal terms and we're comparing that to how those nominal rents behaved in previous downturns. And what's really striking is how over the most recent cycle, rents are up about 18% on average compared with that GFC period coming in out of the '07 period of rents falling 5%. So that's a really big delta in the way that the rents are behaving. So why is that? Well, firstly, I guess, most simply, and this is sort of real estate 101, it is a good hedge. Now often real estate is described as a good hedge from a total return perspective. It's much less so in relation to the capital side, but it's definitely the case on the income side. So what we're seeing here is how rents are a hedge against the higher inflation levels that we've seen. I think what's also important, and this is sort of more of a causal link is that the impact that inflation has had, but obviously other factors, particularly in the pandemic in terms of supply shortages in terms of the impact of construction costs. Labor shortages in the U.K. as well, I guess, is a factor here and more broadly across Europe and the awful things we're seeing in Ukraine and the Middle East actually, assuming those conflicts are resolved, we are likely to see significant boom in construction elsewhere in Europe, which will add to this construction pressure. So what does that mean? It means actually rents are likely to remain, I guess, attractive in terms of growth because of that supply shortage because construction costs are likely to continue increasing, perhaps at a slower rate than likely increasing. And that will reduce supply. And I guess it's important to note that's a reduced supply from an already constrained supply side. And what we're showing here is data points focused because it's the most acute part of the market in some respects for the core office markets across the U.K. So for example, here, we're showing you the total vacancy rate of grade A, so the best quality space in orange and then the total vacancy rate of all building types of offices in the blue bars. So just in a straight one given time, if you move to the right outside to Edinburgh, Edinburgh's grade A vacancy rate is sub-2%. That's essentially no vacant space. And likewise, the overall vacancy rate that you can see there of 8% or just below 8% is significantly below the longer average. So again, it's a simple point to say we are expecting the occupational market to remain resilient. We are expecting increasing competition for the best quality space where there is a shortage, which will, we believe, lead to continue growth in rents, supporting returns even though, as I said earlier, we're not expecting rates to fall dramatically in terms of interest rates, but we don't need to, to return. We can deliver an attractive return simply from the income return plus the impact we get from further rental growth. So with that, I will pass over to Bradley before I come back and wrap up shortly.

Thanks very much, Nick, and good afternoon, everyone. It's good to talk to you for our latest quarterly update. It's a really nice sunny day here in London, and there's certainly some green shoots in the real estate market, as Nick was just explaining. Now looking at Slide 12, we set out our strategy. So our strategy for creating total returns in this improved U.K. real estate environment. Well, we've got a really clear strategy as to how we can deliver enhanced total returns to our shareholders. So we believe that by making meaningful improvements to the sustainability performance of our assets, we can increase the rents materially, and we can do it in a profitable way. So we believe we can profitably generate the green premium. And we've been operating this strategy for a while now. It formally came into force on the 1st of April 2024, having got shareholder approval in December 2023, but we were implementing this strategy before then. So what that means is we now have a growing number of examples where we have achieved higher rents from improving the sustainability performance of our assets. And we've got -- we've actually got 5 examples in this presentation that I'll touch on as we go through. Now the first of those 5 examples is Stanley Green Trading Estate, which we've summarized briefly on the right-hand side of the current slide. Here, we developed 11 EPC A+ units. They're also BREEAM Excellent, and they were net zero -- operationally net zero in design. Now those 11 units are on an existing estate. And what we've seen as we let up those units is the rents that we've achieved are materially higher than the rents of the old brown units on the existing estate. In fact, they're 39% higher for similar units, similar size. Now not all of that is going to be green premium because the units are newer, but we believe a material element of that 39% higher rent is green premium. Now not only do you get higher rent for these higher spec and sustainable units, but our independent valuer is applying a keener yield, so a lower yield, so you get more value for every unit of rent. So the new units that are left are being valued at a 5.2% yield, whereas the old units that are being valued at 6.25% yield. So the green premium encompasses a higher rent and a keener yield, which together creates a higher valuation. This is really strong proof of the concept of the strategy, we believe. And we've only been able to implement this strategy because we've got a really strong team of real estate-specific sustainability experts. And each of our sustainability teams are a subject matter expert in their field, and we can work with them to spec these units in the best possible way from an environmental perspective, but also work with our asset managers and ensure that they are exactly the sort of space that the tenants we want to attract are looking for. And we think that this depth of expertise really differentiates us from many of our peers in the investment trust market. Now moving on to Slide 13. Our 2 further examples. And across the next 4 examples I'm going to talk about, we're looking to increase rent from the December passing level by GBP 1.9 million, which is material in the context of an annual rent roll of GBP 28.5 million at the end of December. Now on the left-hand side, we've got one of our retail warehouse assets. This is Churchill Way West in Salisbury. We recently took back 2 units for redevelopment. And in the top left-hand picture, you can see it's the 2 units on the left-hand side. So they were a Smyths Toys and Homesense. We took them back, so they're now vacant, and we're in planning. And the reason for that is because we've agreed a lease with Lidl to bring them to the scheme. So we're bringing in a really strong tenant covenant. They're on a 25-year lease with a break at year 20 at a really great rent. So the rent Lidl will be paying is GBP 440,000 per annum. And on a per square foot basis, that's 67% higher than what HomeSense and Smyths Toys are paying. Now how are we able to agree such an increase in rent? Well, we're spending GBP 1.5 million to bring those units up to a much higher sustainability specification. So we're targeting an EPC A. In addition, Lidl are going to put PV on the roof and we're also going to have EV chargers in the car park. We have fully electric HVAC systems, so we can benefit from the greening of the grid as well as the PVs. So a really good example there of using our expertise in sustainability to bring Lidl to the site. On the right-hand side, we're showing one of our multi-let industrial estates. And as Nick says, it's a really interesting time for multi-let industrial estates with favorable supply-demand dynamics and lots of different occupiers looking for space on these schemes. So at Swindon, Sterling Court, we undertook an extensive refurbishment of 2 of the units, so 2 out of 3 of the units. We moved the EPC from a C and a D to a B. We've let 1 unit so far, so 1 of the 2 refurbished units. And the rent we've achieved at that new unit is 32% ahead of the previous passing level. So it justifies that capital expenditure we've made. In addition, the second unit is actually under offer at 41% ahead of the previous passing level. So again, we're showing how we can profitably generate that green premium, create a more resilient liquid portfolio. And just to look at some of the returns. So the income yield on cost at Salisbury was 12%, which is really attractive given what you have to pay for a retail warehouse with Lidl was the occupier and such a long lease with inflation-linked uplifts. I would like to talk about a couple more examples. And on Slide 14 now. We've got Hollin Lane on the left, and then Hollin Lane is on Stacey Bushes, which is actually the fund's largest asset. Stacey Bushes is a multi-let industrial estate in Milton Keynes, fantastic asset. And what we are focused on here is a site we call Hollin Lane. So we had an old unit on this site. So it was only around 5,000 square feet. It was a very low site cover. We saw an opportunity to replace that, and we have done. We've developed a 17,000 square foot industrial unit on the site. So we've increased that site cover so we can increase the per square foot and the rent. And what we've done here is, again, similar to Stanley Green, we designed an operational net zero carbon unit. It's achieved EPCA+ and BREEAM Excellent. And it's currently under offer to an international EV manufacturer at a rent of GBP 1,479 per square foot. Now to put that into context, that's 42% higher than the ERV across the estate of GBP 10.41. So similar to Stanley Green, we're seeing this sort of 40% rental premium for the really sustainable units. And not only are you getting that rental premium, there's also the key yield. And in addition to that, we're able to attract these really strong tenants. So for example, Stanley Green, we've got Siemens and this tenant who I can't name at the moment, but international EV manufacturer, really strong covenant. On the right-hand side, we've got an office example. So this is St Ann's House in Manchester. Now we're undertaking a really extensive refurbishment at St An, and we're looking to push on the sustainability performance similarly to how we have the other assets I've described. We're extensively refurbing the ground floor and the basement floor in the common areas to improve the amenity and to improve the utilities in order to attract better tenants at higher rents. Now to put that into context, we are currently refurbing the fifth floor as well. So we're going to do a cafe refurbishment. And given the improvements we've made on the ground and in the basement, we're able to quote a rent of GBP 28 per square foot. And to put that into context, it's 74% higher than the rent that was previously passing from the tenant who recently vacated. So it shows if you do the right work to your assets, you can achieve these much higher rents. And by the way, GBP 28 per square foot is a fairly conservative target, and I hope the team can exceed that. Now is this profitable? Well, we've got a GBP 2.4 million CapEx budget here. We spent GBP 400,000 already. There's GBP 2 million to go. And we think the valuation uplift could be in the region of GBP 7 million. So yes, we do see this as being profitable. Moving on to Slide 15, and we look at sort of portfolio level analysis, and this also shows a reflection of how we are implementing the strategy. So for example, we've got a very diversified portfolio. We've got 38 properties, more than 300 tenants. We think that spreads risks and improves the resilience of the portfolio. In addition, we've got a really attractive income profile. So our net initial yield is 5.6%. And in fact, once the University of Law rent-free ends in October, it will be 6.1%, all else being equal. But as Nick mentioned, we've got this really high reversionary yield of 8.4% -- and to put that into context, because I can understand these yields are a bit abstract sometimes. Well the net usual yield reflects an annual rent of GBP 28.5 million, the reversion yield represents an annual rent of GBP 39.6 million. So it's around GBP 10 million higher. So if we're able to capture some of that reversion of GBP 10 million, we can potentially move that dividend on quite materially as well because the annualized dividend at the moment is just over GBP 17 million. So clearly, GBP 10 million is very material in the context of an annual dividend of GBP 17 million. In addition, with regards to the strategy, we do employ a research-led approach to sector selection. We've got a fantastic research team. And as Nick says, and as I've reiterated, we like most industrial estate. Half the portfolio is in multi-let industrial estates, and we're very much overweight industrial. In addition, we like retail warehouses. It really plays on the theme of changing consumer preferences. And we are overweight retail warehouses as well. And in fact, taking our industrial and retail warehouse allocations together, that's 63% of the fund. Now moving on to Slide 16, a brief look at our tenants. So these top 15 tenants represent almost 1/3 of our passing rent. So if you can get comfortable with these tenants, and we are very comfortable ourselves, then you can get really -- you can get some good comfort around the quality of our rent and the quality of our income. A few points to draw out. There's only 2 tenants that represent more than 3% of the passing rent. So it speaks to that diversification and granularity again and the resiliency of the portfolio. And when you look down this list, you'll see really good strong household names. And as I said, we think this is a good strong tenant lineup. Moving on to Slide 17, and we can see here the sort of bridge to get us from that annual rent of GBP 28.5 million to that reversion rent of GBP 39.4 million that I described earlier. So what this looks at is the cash passing rent. So the annual rent is the cash passing as at 31st of December. And since then, we've already had fixed uplifts. So these are usually the end of rent-free period. So we've already had GBP 800,000 of additional rent come online since the end of last year. And then before the end of 2026, we've got another GBP 4.7 million of fixed uplift coming through. So again, that's mainly the end of rent-free periods. There are some fixed uplifts in our existing leases as well. Now half of that GBP 4.7 million relates to one tenant who I mentioned earlier, that's the University of Law, who occupy our asset in Bloomsbury that Nick spoke to, so a really interesting area. So half of GBP 4.7 million is coming in, in October this year. At Stanley Green, I mentioned we developed those 11 new units. 9 of them are currently -- or 8 of them currently left, 2 more are under offer. And in fact, one of those is let as well. And then there's only one more unit to let. So of that GBP 400,000, GBP 190,000 is let, and we're working hard to get the other sort of GBP 200,000 of rent into Stanley Green as quickly as possible. And then there are some units in our portfolio where the passing rent is below the market level of rent and the market level of rent there is determined by our independent valuer. So as rent reviews come around, as lease renewals come around, we can hopefully push those rents on to get up to the market level. And then finally, we've got GBP 4.2 million of vacant space. So taking with Stanley Green, it's GBP 4.6 million of vacant space, and we're working hard to let that. And in fact, since -- well, as at the year-end, so the end of 2024, of the 11.6% of void space, we've actually got 3.6% less or under offer. And this is shown on Slide 18. And actually, if you look at void, our void has been above 11% for over a year, even 18 months. And it's a result of these new developments and refurbishments being underway and coming online, and it takes some time to let those to the sorts of tenants and the returns that we want. So actually, the 10-year range is 5% to 13%, and we probably target around 8.5% on an ongoing basis. We always need some void in this strategy because we want to work the assets. We want to do the CapEx refurbishments and therefore, you have some void space. So what we see is a real opportunity as we bring this void down from 11.6% to 8.5%. And if we can then maintain that 8.5%, you kind of get this boost, this one-off boost in income. And on this slide, we set out some of the activity we have underway where we are bringing that void down. And we're hoping to release a trading update in the coming weeks to sort of crystallize some of that letting activity to the market. So as I said, we think the current void is actually an opportunity. And as Nick showed you in the previous slides on our dividend, despite our void being above 11% in the last 12 months, we've increased our dividend by 7.3%. So we have been able to grow earnings and push that dividend on whilst we're undertaking these works. I'll pause there and hand back to Nick, and it will be fantastic to have some questions from you.

Excellent. Thanks, Bradley. Thanks, everybody, for joining again. So I won't spend too long here, but I think hopefully, what comes across clearly in the presentation is that we are well positioned. We have an attractive yield profile from the portfolio, which is supported by a sector-leading low cost of debt. Looking forward, although there is still clearly uncertainty, particularly around geopolitics, we do think the U.K. real estate market has moved and repriced to an attractive level. that we are at a turning point. And we think actually our portfolio is positioned in a way that we can benefit particularly with the overweight position to Monster Industrial and in particular, the active management opportunities that are coming from that. And the final point to note is I think we are now seeing real evidence that our strategic pivot and the investment we've made as a business into that sustainability resource is really now bearing fruit in terms of proper illustrations of how we are driving that green premium and how that is such an increasingly important part of what occupiers and investors are expecting from the commercial real estate sector. So again, thank you to those people who have bought shares. We will be looking to increase communication through channels like this, but also we're expecting to make a trading update with progress on some of the activity Bradley touched on over the course of the next week or 2 in anticipation then obviously, of our year-end results to 31 March, which we will be releasing to the market at some point in June. So with that, Jake, I will pass back to you.

[Operator Instructions] Guys, you can see that we have received a number of questions throughout your presentation this afternoon. and thank you to all those on the call for taking the time to submit questions. But guys, at this point, if I may, just hand back to you just to read out those questions and give your responses where it's appropriate to do so. And if I pick up from you at the end, that would be great. .

Fantastic. Thanks, Jake. So good questions, which we'll address. So first question talks to the leverage point. So with a low cost of debt, is there room for you to increase leverage for acquisitions? Or is a conservative debt profile a key priority? I think we're leaning more towards the latter. I think we -- the guidance that we have agreed with the Board of 25% to 35%, I think, is a very good discipline. When we increased above 35%, it was done consciously because we were using the RCF to fund some of the income and value-enhancing activity that Bradley touched on, notably the Stanley Green development. Having done that, although as I said, we are seeing values tick up, we are taking positive action now through those smaller sales and as you have seen, hopefully, some of those are quite meaningful premiums to use that cash to repay that more expensive part of the unhedged debt and obviously hold some back for CapEx. As to the question of acquisitions, I think if we have more firepower, we would now be buying. I think we do see this as an interesting point to be buying assets, particularly where as we do, you've got the capability to drive the asset management strategies. Unfortunately, at the moment, we don't have that firepower. And so Brad and I have been spending time looking at the portfolio with the Board, exploring whether there are some perhaps bigger assets that we can sell where we have done the active management at those low yields and then recycle that into high yields. So I think I would hope that during the course of the next 12 to 18 months, we will have executed some of those lower-yielding sales that does give us more firepower to go back into the market. The next question, what actions are you taking to maintain the dividend coverage and ensure long-term sustainability of dividends? And I think this is partly the active management. Bradley, I don't know if you want to just talk to some of the other things we're doing to optimize earnings.

Yes, absolutely. And probably just because you just described the leverage. One of the things that are actually very helpful is because such a large element of our debt is either fixed or hedged. We know the interest costs looking forward. So when we are looking to increase the dividend, it helps with that forecasting because for a long period of time, we know almost exactly what we're going to be paying interest costs. And then in terms of the top line rental growth, it's absolutely about our active asset management, always looking to do what occupiers want so that we can push rents on. And as I said, we've got a clear strategy focused on sustainability to do that, and we've got increasing number of examples where we have done that and the rents are moving on. Very controlled on our cost side. So our ongoing costs are 1.2% of net asset value for the half year to September, which we think is a very competitive level. And -- yes, just it really is about that active management, pushing rents on, reducing voids, selling assets where we completed business plans and potentially recycling into high-yielding assets where we can sort of increase the rent with that yield arbitrage.

Yes, absolutely. Thank you. The next question, so what specific strategies do you anticipate will continue driving growth in net asset value, particularly in the face of changing market conditions? Yes, great question. So I guess as we touched on, our strategic evolution that we announced years ago was partly because we could see that there was an increasing emphasis from both occupiers and investors on buildings offering high sustainability performance. And I think that is working. I also think by being diversified and having the flexibility to tack and change between sectors, I think that is also an advantage and allows us to respond to those changing market conditions. we're always looking at where the ball is going, if you like, rather than the rear-view mirror. And I think as we look forward, Bradley and I feel that perhaps parts of the living sector could be interesting. We like operating assets. So in other parts of our business, we are owning and operating, for example, self-storage. We're owning and operating hotels. And therefore, we're able to draw on that specialist expertise, where, for example, we've got a hotel component of one of our existing mixed-use assets. I guess what I would say, though, just to finish off is from the macro perspective, it does appear that inflation is going to be stickier. It does appear that rates may be higher than perhaps the market was expecting 6, 12 months ago. And therefore, for us, where we have a high-yielding portfolio where we've got the asset management expertise to really capitalize on the property risk and not be reliant upon simply yields falling to demonstrate or to deliver that return, I think it puts us in a really good position. So I don't think you should expect us to do anything fundamentally different in the way that we're managing or asset allocating. But what you can see over time is we can use our research and that bottom-up asset management capability to pivot strategy to optimize that return. The last question, which I'll just pass to Bradley, just partly in relation to I touched on acquisitions, but are there any transactions anticipated either acquisitions or disposals, I guess the latter probably something you might want to comment on briefly.

Yes, absolutely. We are looking to sell some of our assets. We are focusing on those assets where that's smaller with completed business plans and there's probably higher ESG risk in them. And in terms of acquisitions, once those assets are sold, we would be looking to acquire high-yielding assets in the strategies Nick has outlined. But also we still like most industrial estates. We still like retail warehouses, particularly in the regions where you can get a higher yield and you can undertake rolling improvements similar to the Hollin Lane and the Stanley Green that we've done before. So that's how we're looking at the moment. And there is potential to sell some of our lower-yielding assets potentially. We've got 1 or 2 low-yielding assets where you can recycle them into a higher-yielding asset and make a sort of immediate sort of generating immediate increase in rent as well as given us some asset management opportunities to go after.

Very good. We know we got one question, which is -- I said 2 more. That's great. So first question -- interesting. So when I look at the Hargreaves Lansdown factory, it says you're NAV per share in end December was 64.5p, but are RNS says 64.9p. Can you shed some light on why HHL are showing here? . Is it one of a definition. So we'll check that firstly, and we will come back through the platform and confirm it. I can tell you of certainty that our NAV is 64.9p. That's only I can say. What I would say, this might be -- Bradley you might have a view on this as well, it could be the point I mentioned earlier in relation to the fair value of our debt.

Yes.

So as I mentioned, the fair value of our debt is GBP 18 million. Under accounting rules, we're not able to include that within our accounting NAV that we disclosed to the market. Sometimes the platforms add it back as an NTA number. When it comes to working out the discounts, the real number is 60.9p, If you are however, like we do, if you're prepared to look at what the real value is in terms of the fair value of debt, then you can argue that it's not the higher number, but we always encourage people just to ignore that because it changes, obviously, with variation in rates. But we will just double check that with Hargreaves Lansdown and we'll confirm back the exact reason through the platform. The final point, would you consider taking a proactive approach in the ongoing sector consolidation? Yes. I guess what we are most focused on is this is as usual driving earnings and increasing the dividend. That's fundamentally what we believe is in shareholders' best interest at the moment. We have previously with the Board been asked to make proposals on other companies that were in a formal process. And I can say that now, that's not currently still going, where we were asked, as I say, to make a proposal. But as I say, our priority is to focus on the business as usual, whilst also obviously looking at potential opportunities where they are in shareholders' interest. So I guess that's probably the simplest way to answer that question, noting that clearly, there's a lot of activity in the market at the moment, including you may have seen last week, for example, you sure where there's a bit of paying an NAV. So Jake, I think you'll come to the end of the questions. Thank you, as always. So back to you.

Absolutely, Nick, Bradley, that's -- thank you very much indeed for addressing all of those questions that came in this afternoon. Of course, if there are any further questions that do come through, we'll make these available to you after the presentation. But Nick, perhaps before really just looking to redirect those on the call to provide you 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 just to wrap up with, that would be great.

Thanks, Jake. Well, look, I always say sort of ingest the bottom of the market for me was middle of last year when I was asked to attend the panel called the Undatables. And the real estate sector has had a difficult few years on the capital side. But interestingly, as we've hopefully demonstrated today on the income side, it is a different picture. We do think we are at an inflection point. We are cautious about the speed of recovery for the reasons I noted, but we do think we are at an inflection point for U.K. real estate. And therefore, we believe that the current share price ratings, the discount, the yield on share price, but importantly, the future growth. That means that we are an interesting proposition, and we'd like you to continue to engage with us through this platform. So I guess I'll just finish from a Schroder's perspective, saying thank you, everybody, for your time, and we look forward seeing you again soon.

Perfect, Nick. Bradley, that's great. Thank you once again for updating investors this afternoon. 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 really better understand your views and expectations. This will then take a few moments to complete, but I'm sure it'll 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.