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

Good morning ladies and gentlemen. Welcome to the Schroder Real Estate Investment Trust Final Results Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question received during today's meeting. However, we will review all questions submitted today and we'll publish those responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll. Sure, the company will be most grateful for your participation. I'd now like to hand over to Nick and Bradley. Good morning to you both.

Good morning to you, too, and thank you, everyone, for joining us today. I'm not sure whether it's weather related or not, we have a systems issue at this time, I'm afraid, which means that we're having to dial in by our telephones, but it's probably better because both Bradley and I have faces on radio. So you won't be seeing us I'm afraid today. But what you can see, I am told, is our presentation. And so we will conduct through. So if we just start in relation to the deck on Page 2. So firstly, it's great to have so many people on the line. And I hope we have a blend of both existing holders as well as, I hope, potential holders of the shares. We've had some fantastic engagement in Investor Meet Company -- and in fact, we've seen that come through on the register in terms of holdings on the major platforms alongside, obviously, sort of, if you like, our previous shareholder base, which was very much focused more on the wealth managers who remain key stakeholders alongside retail investors. Now we're here today to talk about the year results to March '25, but we're also here to give you a sense of where we're going. And I'm pleased to say it's both very, very positive. So just in relation to Page 2, we continue to have a portfolio that's benefiting from being overweight to the high-growth sectors of the U.K. real estate market. Over -- well, approximately 2/3 of our portfolio comprises either multi industrial or value retail warehousing. The balance of the portfolio also comprises convenience retail, but also an underweight position but a position nonetheless in offices...

Bear with us, ladies and gentlemen, we've just lost the telephone line to Nick. Bradley, if you wouldn't mind just being on standby just waiting for Nick to dial back in, but do bear with us for 2 minutes ladies and gentlemen. Thank you.

Yes. Sorry, I don't have -- I think a similar problem I'm afraid, but let's keep trying. So I think I was just saying about the allocation -- favorable allocation. The second point to note here, of course, is that, that allocation has allowed us to continue driving continued earnings growth. And if you look at our share price today, the dividend reflects a covered yield of around 7%. Probably most positively, and for those of you that have noticed in previous presentations, we're very focused on delivering that progressive dividend policy. And if you look at the dividend that we just announced and are about to pay compared with the dividend immediately prior to the most recent financial year, we're up over 7%. Now one of the key reasons why we're able to continue doing that is partly because of our top line earnings growth and more on that later, but also because we have fantastic visibility on our future interest payments. We have -- we would argue the best book of debt in the peer group with almost 3/4 of our debt book fixed at 2.5% for an average of 11 years. And the stats here then bring into that calculation our tactical revolving credit facility. So despite all of that, obviously, the broader geopolitical uncertainty, but also in some areas at least, I think it might be changing, but nonetheless, sort of weak sentiment towards commercial real estate still means that our shares trade at a 14% discount to NAV. So you're getting that implicit discount, but you're also getting that attractive yield of 7%. Final point to note is what will hopefully come through today, particularly as Bradley walks you through portfolio activity is we are now really getting traction with our strategic evolution focusing on how sustainability improvements are allowing us to drive faster leasing velocity, but also crystallizing that green premium, seeing the benefits of investing in those sustainability characteristics, which is an increasingly important requirement for occupiers. And again, I think that's also helping us in terms of reaching out to a wider group of shareholders, particularly with people like yourselves. We did a lot of work around ISA season but also, as I say, those specialist wealth managers. So moving on to Slide 3. So these -- a bit more detail on the highlights from the results. So we delivered an 11% NAV total return over the year to March. That comprised of just under a 5% increase in NAV plus the dividends paid. Again, I touched on it on the previous slide, but that performance was coming through the overweight exposure we have to those high-growth parts of the real estate market, combined with a huge amount of activity across portfolio, leasing activity, refurbished activity. Those projects really helped us drive performance and having won the best risk-adjusted total return over 10 years to the end of '23, which we announced last year amongst our MSCI peer group. We have continued that relative outperformance at portfolio level and again, more on that later. Dividends, I've touched on. That is the reason why we, and I imagine a lot of you own the company and that visibility on future earnings growth. But as I say, it's not just the increase in income, it's also the progress we're making in terms of the reduction in landlord energy and greenhouse gas intensity. And that is a critical part of our strategy and the KPIs that the Board are measuring us against alongside the financial performance, and we saw a 5% reduction there versus the previous year. Now the last thing I'll say on here is we have always tried to be best-in-class as it relates to governance and to move early when we see things that appear to be emerging in the peer group. We have begun to see, particularly amongst the infrastructure funds, a move of fees or at least portions of fees to market capitalization in order to provide even more alignment. And so we approached the Board and made a recommendation that we changed our fee arrangements so that half of Schroder's fee, which captures the whole service of operations, accounting, investment transactions, et cetera, the fee goes from being 100% linked to NAV to a fee structure where 50% is linked to NAV and 50% is linked to market capitalization. And that delivers a saving to shareholders of about GBP 150,000 a year, which takes effect from the 1st of October, which is obviously the start of the second half of the financial year. The other thing to note is, obviously, Bradley and I, a lot of you will know, have worked very closely together over the last few years on the strategy and Bradley has been critical to putting in place a strategic evolution following a change here, I now have responsibility for the wider real estate business. And so although I will remain involved chairing the investment committee with this remaining a strategically important strategy for Schroders. We will be bringing somebody in to replace my role day-to-day on SREIT to sit alongside Bradley on the same basis. So more on that in due course. I think it's probably not going to take effect until later this year. So like it or not, I'll hopefully still be here in front of you with the interims, but I will remain obviously thereafter in my new role. Now a bit more information on the next Slide 4. This gives you the color of the net NAV movement over the year. You can see there the 58.8p to the 61.6p, which reflects that discount on today's share price of about 15%. Obviously, the 4.8% uplift in the NAV that was driven largely by the underlying portfolio capital growth of about 3.4%, which compared to the benchmark of 1.4%, again, showing the benefits of our portfolio allocation and asset management. We're continuing to invest capital expenditure within the portfolio. We have undertaken both during the year and since year-end, some smaller sales with those proceeds going towards those capital expenditure projects where we expect to deliver higher returns. The only other point I'll note on here is relating to the long-term debt I mentioned at the introduction, we have a fixed rate loan from Canada Life, which because it's a fixed rate loan, we don't fair value for the purposes of the NAV. So were we to fair value that loan in a way that you would do a derivative, there would be an additional positive almost GBP 19 million to NAV. So that's not reflected in the NAV, but again, it just illustrates again the value sort of embedded within the company. Now perhaps more interesting, as I say, we, and I'm sure most of you own this primarily for income. We've shown the income statement for the same financial year compared with the previous year to March '24. Very encouragingly, you can see a growth in income within direct portfolio, but also within the 2 joint ventures that we have in the portfolio, very simple co-ownership structures alongside other Schroder clients. We've also shown an other income line. This is always slightly lumpy insofar as it relates to things that we can't predict on a recurring basis. So for example, surrender premiums coming from tenants or dilapidations payments essentially amounts in lieu of tenants carrying out repairs before they leave our assets. As it happens, 2024 was a slightly higher year versus 2025, but you can see that even with that drop in other income, which, as I say, is lumpy, rent and related income was up 4%. That fed through to the 4% uplift in EPRA earnings. There's a line you can see there, property operating expenses. Those relate to activity within the portfolio. And so actually, the uptick there was good insofar as it related to letting and legal fees, which we expense. Of course, we then have a longer income stream, but that does obviously go to impacting dividend cover. But notwithstanding that, we still had those 4% uplift in earnings, which led us to that position of a fully covered dividend having increased it by 7% on a per share basis. So moving on, just briefly, this is a recap of our debt stack. So as I've mentioned, the real -- I think it genuinely is sector-leading position is primarily because of that dark blue bar, the Canada Life loan of just under GBP 130 million. We talk about that having obviously a fixed interest cost of 2.5% and an average maturity of 11 years. And we say average maturity because 50% of that loan matures in 2032, with the remaining 50% maturing in 2039. So that staggered long-dated debt is a significant advantage for us. The bit on top of that, the orange and the green, so that's a more tactical revolving credit facility that we have with RBS. The orange bit there, the bigger piece you can see is subject to an interest rate cap, which is in the money. We also have an unhedged component in green. The reason that is unhedged is because we anticipate, as I said, repaying that through sales proceeds before then redrawing. The RCF, the revolving credit facility is with RBS. They are a key relationship lender to us. They have rolled that over once before. It matures in 2027, and we will probably look to roll that over again in order to get best terms, putting RBS in competition with other lenders. So moving on to the next Slide 7. So this shows you the dividend progression. The 7% uplift over the financial year on a per share basis. But you can also see, interestingly, if you go back to the point immediately prior to that Canada Life refinancing that we did in 2019, obviously, allowing for the COVID period where we prudently paused the dividend, our dividends per share are up almost 40% compared with the period immediately prior to the refinancing. So again, that's well ahead, I think all the peers over that same period. Next slide, just in terms of performance. So again, I know this is sometimes slightly less relevant for some of you, but our Board do assess the performance of our underlying portfolio against our institutional peers. And within this peer group, all of the externally managed investment companies, all of the REITs we genuinely have a very good underlying portfolio track record. You can see in the bottom right-hand corner over the 3 years, which is the key period that we're assessed against by the Board, 460 basis points of outperformance on an annual basis. So really strong relative performance, and it's all driven by getting the sector allocation right, being overweight to those high-growth sectors, but also within those sectors, driving the asset management business plans, particularly now through that sustainability lens and driving that green premium. Now a little bit on the market. We've all had to unfortunately become accustomed to dealing with unpredictability, uncertainty within the global economy and obviously, with geopolitics. And even since we presented these results, obviously, the very worrying events that are happening as we speak in the Middle East. So everything that we say in relation to the market obviously comes with that caveat as it does to all asset types. I guess what I would say is whilst Schroder's view, my view is that inflation will remain stickier, we are expecting a degree of support from interest rates. Obviously, the bank held this week, but there's an expectation that rates will still tick down. And what we're showing on the right-hand side is the relationship between the average yield on real estate, which is about 5% versus where we think the 10-year gilt rate might be at the end of the year into next at around 4%. So that would give you a yield spread of about 100 basis points, which you can see on the far right-hand side of that chart. Now for us, actually, we've got a 200 basis point spread because our initial yield on the portfolio is around 6% allowing for rent freeze. And as I mentioned at the start of the presentation, our reversionary potential, so the rent value, so what the value we think rental value is rather than rent we're receiving is even higher still, and Bradley will provide more color on that shortly. So the point is we are expecting a degree of support from falling interest rates. But actually, we think going through to the next cycle, it's much more about rental growth. And so if you look at the top left-hand side of this chart on Slide 11, you can see we are at an interest point in the cycle in that capital values have fallen by about 25% from that disastrous mini budget at the end of 2022. So versus previous cycles, that's significant compares, for example, to the downturn in the early '90s. What's interesting, and this contrasts with all the cycles in my career is people often talk about real estate being a good hedge against inflation. It isn't really on the capital side, but it really is on the income side. But what's different about this cycle is if you compare how rents have behaved in nominal terms compared with how rents have behaved over equivalent downturns, they're behaving completely differently. So on the right-hand side -- or on the top right-hand side, we're showing here the behavior of nominal rents for the industrial sector with the top line representing how they've behaved in the 34 months since that mini budget at the end of '22. And we're comparing it with the same period of time against those previous cycle turning points with the downturn in the late '80s and early '90s and obviously, the global financial crisis from 2007 through to 2009. And you can see it's really interesting that this time around, we had a 25% correction in values. But actually, within the industrial sector, rents were up 20% compared with, let's say, minus 5% during that GFC period. So why is that? Well, partly, it's about the fact that those sectors have had structural or secular trends that are driving them. Obviously, in the case of industrial, shift to online, but also a short -- chronic shortage, particularly of multi-let industrial space. And our view, looking at the bottom left-hand slide is we will continue to benefit within the real estate sector from cost push inflation. Building, building is getting more expensive, disruption to supply chains, tariffs, labor shortages, particularly skilled labor shortages and those labor and material shortages also in the context of the labor wanting to build more houses, infrastructure projects and also more broadly across Europe, let's hope at some point, rebuilding of Ukraine and Gaza means that we expect more cost push inflation. And interestingly, if you look at the relationship between costs and nominal rents, if you look over the last 20 years, give or take, in nominal terms, construction costs have doubled, prime rents have doubled. So we expect that relationship to continue, particularly in those parts of the market where you have those knowledge-based economies, competing demand for land and particularly where you're also looking to deliver high-quality space that delivers what occupiers are increasingly wanting in terms of sustainability performance and amenity, et cetera. Just to finish, just before I conclude on the market, we're sort of drawing out deliberately how this is supplying to the office sector. And as I say, in the last couple of years, offices to some has been a bit of a dirty word, obviously, because of obsolescence, but particularly because obviously, that's coming out of the pandemic with fewer people in offices. I'm pleased to say that's changing. But interestingly, partly as a function of post-GFC banks, investors being cautious about lending or investing in speculative office developments, there is now a real shortage of high-quality ESG compliant space, both in the office sector, but also across other parts of the market, multi industrial, for example, or retail warehousing. So to the extent that markets like Leeds, Edinburgh, Birmingham, Grade A sort of best quality office vacancy rates are down at levels of 2% or 3%. Those are historic lows. So where you are an active manager, where you've got specialist teams like we have here, that does create a real opportunity to buy grade B- buildings and turn them into A- buildings and obviously benefit from the pickup in the rents and the green premium that we are increasingly experiencing. So just to finish off, as I say, the background or geopolitical background does clearly have an impact. But we would argue that we generally as a very interesting point in the cycle for U.K. real estate, we are beginning to see more international interest, in particular, for London, where really since Brexit, whatever you thought of it, it has had an impact on how international investors have viewed London real estate, for example. But we are seeing because of that interest, because of it being structurally supportive an attractive return outlook. Now these are our forecasts. So the only certainty is going to be wrong. But if you assume that we're coming off an average yield of 5% for the market, we've got a head start at 6%, you overlay rental growth of 2% to 3% without significant support from yields, which is upside risk, you can see returns here, which we are expecting to be above the long-run average. So that does provide, again, real healthy support for our strategy. So with that, I will hand over to Bradley, who will give you a bit more color on our strategy. Bradley?

Thanks very much, Nick, and good morning, everybody. It's great to be talking to you again. We've had some really fantastic support from direct investors through platforms such as AJ Bell, Interactive Investor, et cetera. So thank you for that. And with that, I'll start on Slide 14. And as Nick has said, making improvements to the sustainability performance of our real estate assets is a core tenet of our strategy. But the reason for that, the key reason, the sole reason is because we believe doing so will enable us to deliver better long-term total returns for our shareholders. Now I'm personally delighted that we are reducing the energy consumption across our portfolio and the greenhouse gas emissions, but the focus on that is due to the better returns we think we can get from our portfolio as a result. We've got some really interesting examples of this in action as we flick through the slides. And the first I'd like to draw out is the proof of concept of the strategy, which is Stanley Green Trading Estate in Manchester. So on this estate, we had 15 existing units and then we developed 11 new units. And the 11 new units are EPC A+ and they are BREEAM Excellent. And what we've seen is that rents are 39% higher for the green units compared to similar sized units on the existing estate where the EPCs are B, C or D. And not only are we getting a higher rent, but also the independent valuer is applying a keener yield, so keener valuation yield to the green units of 5.2%, and that compares to 6.25% to 6.5% for the browner units. So you get more valuation for every unit of rent for the new units. So you get this double positive benefit to the valuation, higher rent and a keener yield. And only do you get that, you're also benefiting from better tenants and stronger leases for the green units. So for example, at Stanley Green, we have Siemens, we have Innomotics, and they manufacture components for their engines on site, manufacture and assemble. And looking forward, we think there's still some more return to come out of the asset by improving the existing estate. So we've actually completed the refurbishment of 5 of the older units, bringing the EPCs up to a B. We've added insulated roofing PVs, EV chargers. We've got rid of fossil fuels from the units, so no more gas boilers, and it's now fully electric. So the question is then, okay, you've spent this money. So we bought the asset for GBP 17 million in December 2020. Today, it's valued at GBP 43 million. We spent GBP 9 million in CapEx on the new unit. So the question is, was that a good thing to do? Was it profitable? Well, we think the total returns achieved at the asset speak for themselves. Since acquisition, we've achieved 16.7% per annum for this asset, and that compares to 8.2% per annum for the MSCI -- all Industrial. So really strong performance and a really good case study of our strategy in action. Now moving on to Slide 15. We've got 2 more examples of asset management initiatives that we have completed recently. On the left-hand side, we show 2 of our -- 2 largest retail exposure actually. So you've got St. John's Retail Park, which is based in Bedford, is the first image and Headingley Central in Leeds is the second image. St. John's is our largest retail exposure. It's a really successful retail warehouse scheme. You might remember that we brought Starbucks to St. John's recently. So we built a new unit in the car park. The rent from that unit is now GBP 155,000 per annum, and the cost of that unit was GBP 850,000. So really, really strong income return on cost there. And what we've done is a similar scheme where for the whole of the Schroders U.K. real estate portfolio, all of the retail assets, we took the tender for EV chargers. And we did that because we wanted to drive best value across all of our assets. And what we've achieved is a really strong deal with Be.EV, who are part of Octopus Energy. And what they're doing is they're installing 11 EV chargers at both St. John's and Headingley, and that's bringing in GBP 146,000 of additional rent, whereas previously, the car park was not directly earning rent for us. So this is new rent in a similar way to the Starbucks was new rent. So we're adding income to the scheme. Now not only is it a really attractive rent, but the leases are 20 years with no breaks, and there are inflation-linked rent reviews through that lease. So a really good outcome. In addition, there is 0 CapEx for us because Be.EV are taking on all of the costs. So they're installing substations, cabling, the actual chargers themselves, they're going through any planning requirements. So really attractive deal for us. On the right-hand side, we show 19 Hollin Lane, which is a unit on our industrial estate, Stacey Bushes, we call Stacey Bushes and that's in Milton Keynes. Now just taking a step back, Stacey Bushes is our largest asset by value, and it's been another really strong performance since acquisition. So we bought the asset in 2014. We've earned 16.2% per annum total return over that sort of 10-, 11-year period, and that compares to 10.8% for the MSCI all Industrial. So really strong performance of this asset. Now 19 Hollin Lane used to have an old 5,000 square foot unit on it. And we felt it was falling behind in terms of sustainability performance. It was a very low site cover. So we demolished that unit and built a 17,000 square foot EPC A+ BREEAM Excellent unit, and you can see the images in the top right-hand side. Now the idea was to very much roll out the Stanley Green sort of strategy successfully here, and we believe we have done so. So we just completed a lease with BYD, who are the world's largest EV manufacturer. And interestingly, the rent is 40% higher than the state average ERV. So clearly, an attractive outcome. And interestingly, it's a very similar uplift to what we achieved at Stanley Green for the green units. Not only are we getting higher rent, but again, the value is applied a keen on valuation yield. And the lease is through a very strong covenant in BYD. It's for 10 years. There's a break at year 7, and there's a CPI-linked rent review at year 5. So a really good outcome. Now incidentally, BYD are using this unit to store bus batteries because they recently won a contract in the south of the country to supply buses with batteries. And they are currently bidding on similar contracts in the north of the country. They might need space in Manchester, and we haven't had one unit free at Stanley Green. So we're trying to bring them into Stanley Green as well, which would be an excellent outcome. Moving on to the next slide, Slide 16. Here, we focus on an initiative that we're looking to do right now. So it's a future-looking initiative. It started. Now this is Millshaw Park Industrial Estate and just taking a step back again, this has been another strong performance since acquisition for the fund. We acquired the asset in 2015. It's achieved a total return of 12.3% per annum, and that compares to 9.8% per annum for the MSCI all Industrial over the same time period. This asset has 460,000 square feet of space to left. That's across 28 acres, and the site is strategically located just South of Leeds off of Elland Road, very close to the M62 Motorway. This is one of the largest single-owned estates in Leeds. What's interesting about the Leeds industrial market as well is that the vacancy rate is less than 3%. The national average industrial vacancy rate is just over 5%. So supply is very tight in Leeds. And so what we've been able to achieve in Leeds over the last few years is very quickly reletting or agreeing lease renewals for any space as it becomes available at higher rents without spending much in the way of CapEx at all really. So what that means now is there's an opportunity to undertake a similar strategy as we have done at Hollin Lane and Stanley Green, which I briefly touched on before. And we got Unit 22 back last week. It's around 50,000 square feet. So it's more than 10% of the floor area of the estate. We're undertaking a substantial refurbishment to bring the asset to an EPC A. So a very strong improvement from a sustainability perspective. And as a result, we're going to be quoting a rent of GBP 9 per square foot, which is an 86% increase on the rent we were achieving just last week. So really, really strong uplift. And again, the question is, is it worthwhile from a returns perspective? Well, our analysis shows that the net valuation uplift after all costs is GBP 1.1 million to GBP 1.5 million. So really strong uplift in value. And as well as that, we're increasing the rental tone at the estate, which should wash over to the other units as we have rent reviews and lease renewals in the near term. So I look forward to reporting on progress in this in the next year or so. Final asset example for me is on Slide 17. Our largest office exposure is the University of Law campus, and it is used as a university campus rather than as an office. This is located on Store Street, which is in Bloomsbury. It's very close to the Tottenham Court Road Elizabeth Line Station. And many of you will have experienced the Elizabeth line really has transformed the geography of London since it's opened. In addition to that excellent infrastructure, there's improvements being made by Camden as part of their local plan. For example, they have built a new pocket park on Alfred Place, which is literally around the corner from the University of Law. And as a result of all of this infrastructure improvement, there's been some really interesting activity on the real estate side. So some interest in leases being agreed, assets being bought and sold and major redevelopments underway, and we've shown 12 examples on the slide. But the key point from our perspective is the University of Law are currently paying us GBP 55 per square feet. Now that is -- there are rents in the area being achieved at 3x that level. So much, much higher. And what that means is there's a really interesting opportunity to redevelop the University of Law campus and is becoming profitable and feasible as a result of these much higher rents being achieved in the local area. So if we look at Slide 18, we show a CGI of what the University of Law could look like post redevelopment. And on the right-hand side, we show what it looks like now. And what you can see from the blue shading and yellow shading is that the site cover is very low, so you can see internal courtyards. There's an opportunity to fill those in and add net lettable area and also an opportunity to increase the number of floors that there are. And that all comes together with the higher rent achievable to make a redevelopment look very attractive. And we're currently in planning discussions with tandem at the moment. And the final point I'll make on this is this is actually a freehold site, which is very rare in this area. So again, making it really attractive for a development. Now moving on to the portfolio on Slide 20. I'll just touch on a few points. So on the left-hand side, we show that we've got 38 assets and more than 300 tenants. That's very granular, and we think that spreads risk and makes the portfolio more resilient. I also highlight the very attractive income profile of the portfolio, which Nick spoke to earlier. So our net initial yield today is 5.6%. But as soon as the rent free of the University of Law ends in October, that will jump back up to 6.1% which is a full 100 basis points ahead of the benchmark and is very attractive in a higher interest rate environment and is very attractive against a 4.6% 10-year gilt yield. The reversion yield is 8.4%, which is very high. It's well ahead of the benchmark. And to put that into context, we'll touch on a slide shortly where I show what that means in pound note terms for the fund. And then the point to take away from the right-hand side is 63% of our portfolio is in industrial or retail warehouse. Our industrial is almost entirely most of the industrial estates. And as Nick described earlier, we see really favorable supply-demand dynamics in most of the industrial estates. And retail warehouses are really benefiting from structural trends such as consumers seeing their time as a really precious commodity and they really appreciate the efficiency and speed with which you can pop in and out of a retail park. And for example, you can typically park there as well, which is much more difficult to do in a town center. Our retail warehouses are convenience-led with operators such as little pan-green schemes. Moving on to Slide 21. We look at our void. And we see our void space as an opportunity because when we normalize our void rate, that will be a sort of one-off jump in the rent. As of the financial year-end, the void rate was 12.3%. But since then, we've got 4.2% either let or under offer. So around 1/3 of that space is let or under offer. Looking at the bottom of the slide and moving up, we've got Sterling Court in Swindon. We've recently refurbished this multi-let industrial estate. We bought 2 of the 3 units up to an EPC B. There's one unit that is currently vacant. And actually, that is under offer to a U.S. listed company called Xylem, and we expect that to complete imminently, and that is ahead of ERV. The next one up, we've got The Lakes Northampton. That was recently refurbished, again, improving that sustainability performance. That's under offer. And again, the lease will complete imminently. So there's 1.1% of the void there. Looking towards the top, we show Stacey Bushes in Milton Keynes. As I said, we have now let 19 Hollin Lane of BYD, and we've also made other lettings at the estate. So that's another 1.5% of the void now let. And at City Tower in Manchester, Podium B is under offer. That's around 50,000 square feet of office space. That's under offer to an education provider, and that is currently in the planning system for a change of use, and we're really pushing hard to get that agreed, which would be fantastic for the asset and the fund. So really good progress against that void, and that is a sort of one-off uplift in our rent in our view because the long-run average of our void is typically around 8%, and that's what we're aiming for here. Final slide for me is on portfolio reversion as promised. Now our cash passing rent at the year-end was GBP 28.9 million. Our independent valuer believes our market rate of rent is GBP 40.3 million. So that's an uplift of GBP 11.4 million. And to put that GBP 11.4 million into context, our annualized dividend today is GBP 17.5 million. So we only need to capture some of that reversion to have a material impact on the level of dividend being paid. Now how are we going to capture that reversion? Well, since the year-end, we've already had GBP 800,000 of fixed uplifts in our existing leases. That's mainly the end of rent freeze. And before the end of the current financial year, so March '26, there's another GBP 3.3 million of fixed uplift to come and GBP 2.36 million of that relates to the University of Law, as I mentioned earlier, knowing the rent freeze that expires in October. As of the year-end, we had GBP 900,000 worth of agreements for leases exchanged. And the completion of those is typically subject to the completion of landlord works or getting planning typically for change of use. So for example, the LCA lease at City Tower in Manchester. There's also units and space in offices where the current passing rent is below the market level. And as we get rent reviews and lease renewals and new lettings, we hope to capture that. And finally, there's GBP 5 million of vacant space. And as I discussed on the previous slide, we're making good progress there to capitalize on that opportunity. So I hope that puts some of the income profile of the fund into perspective and helps you understand what we mean by reversionary rent and how that is very material in the context of our dividend payment. I'll pause there and welcome any questions you have. We always give us some good questions. So look forward to those and hand back to Nick Mont.

Great. Well, thanks, Bradley. They're all very clear. So if we just move to Page 24, I won't spend too long on this because it would be great to have questions. But hopefully, what comes across is notwithstanding wider geopolitical uncertainty, actually, we do believe the U.K. real estate market is structurally supportive and that we will, through having an overweight position to high-growth sectors, be able to continue driving rents, earnings and hopefully, dividends. The new strategy is paying dividends insofar as we are crystallizing green premium. And as Bradley has, I think, clearly articulated, we do have a really interesting pipeline of activity, which is very relevant to that strategy. So I'll end there, thanking everybody for being here. Apologizing for the technical issues at this end. I hand back for any questions.

That's great. Nick, Bradley, thank you very much indeed for updating investors. [Operator Instructions] And just to remind you that a recording of this presentation, along with a copy of the slides will be available via the platform a little later on today. Well, Nick, Bradley, thank you very much indeed. You've had a number of questions from investors. So thank you to everybody for your engagement. I'll take the first one, Nick, maybe for you. It's from David, who was a little late in joining. He says, could you just recap on your new role?

Yes, sure. So alongside running the trust with Bradley, I was also responsible for running the U.K. Real Estate business. So I now run the wider real estate business, including the U.K., which is primarily a European, but some small outpost of Asia. So in my new role, I will remain involved with SREIT insofar as I will chair the Investment Committee, having been a member of the Investment Committee. And I think committee is responsible for approving the strategy that's recommended to the Board. And I will, therefore, also continue to work closely with Bradley alongside the new person who will be joining us to sort of take on my day-to-day responsibilities in due course.

Great. Thank you. I hope that addresses that question. I'll turn to a question from Roger, if I may, who asks what -- if government backtracks on its ESG requirements, do you think that will hold back rental growth?

If I maybe start and then Bradley can take it on. So I think it's highly unlikely I think the government will backtrack. I think we are expecting an evolution in certain parts of relevant legislation. I think one of the reasons why I say that is the built environment globally, but the U.K. is no exception, contributes about 40% towards greenhouse gas emissions. And in order for the U.K. government to meet its legally binding Paris commitments, it has to address the built environment. If it doesn't, it will not hit that objective. Now built environment obviously means residential as well as commercial. In some respects, the residential sector is an even harder look to crack, but it does mean the legislation, I think, will remain focused as it is on the commercial sector. The reason I say evolution, though, is it is an evolving area where -- I mean, we are currently involving ourselves in consultation with the government. So for example, the EPC or MEES regulations minimum energy efficiency standard regulations. Those currently essentially adopt hypothetical assumptions about how buildings perform. And I think in order for -- in order to hit net zero carbon targets, the government are now looking at having assessments of buildings in use, which is something that we advocate. So I think we expect the government to remain focused on ensuring that commercial real estate sector does its bit in that decarbonization journey, but it will be an evolving picture. As it relates then to the second part of the question, impact on rental growth, the rental growth that we're expecting in the market is partly about a shortage of sustainable space, but it's also a shortage of space generally. So were the government to roll back, for example, legislation for 5 years or so, which I know they'll do, those same supply and demand dynamics would exist. And whether we like the legislation or not, and I think it's required, it occupiers are increasingly demanding of it, whatever the government does because occupiers recognize they need more energy-efficient space very often in order to support their own net zero carbon objectives. And that's -- Bradley has given a couple of examples in our portfolio where the likes of BYD or Siemens, they come to our properties specifically because we delivered buildings that are to the highest current standards.

Great. Question around here around technology, I guess. And are you leveraging any proptech or data analytics that maybe could enhance asset management or even sustainability performance?

Yes, short answer lots. Again, let me start and Bradley can add. I mean we have an AI team sitting as part of our wider tech team within Schroders. So we're using geospatial AI-driven analytics looking at when we're buying assets, for example, or when we're trying to demonstrate to occupiers the benefits of locating in our industrial estate retail park versus others. We are also using AI and the latest technologies in how, for example, we are using building management systems to optimize those scarce resources that we've been talking about. I guess we're looking longer term, we're also considering whether we should be having AI investment committee members. So yes, we're using it extensively. And I think parts of the real estate industry, particularly property management is absolutely right for disruption.

Next...

I don't know if Bradley wants to add to that. Bradley, do you want to add to that?

Yes. And I think for our sort of direct real estate portfolio, we have added a new platform called Deepki, and that's really helping us to collect utility data, so energy data, water, waste, et cetera, into one place across our whole portfolio. And that -- I mean the whole of our U.K. real estate portfolio. And that helps us to -- if you can't measure it, you can't manage it. And so that helps us to keep a close eye on individual asset energy use. It helps you identify outliers and there have been some interesting insight result of getting all this data into one place. So for example, we've got an asset called the time in Edinburgh, a good performer from an ESG perspective. What we saw is just using lows and lows of energy. But what we realized is the BBC used the recording studios and media studios there 24 hours a day. So it's basically 3x longer than the normal office will be used for. So -- and we also identified things like water leak that where water usage was too high in certain assets compared to others. So being able to get hold of the data in a central repository timely then helps inform future investment decisions as well as well as helping us work closely with our tenants because most of the energy use is actually in the tenants' demise. So it's really important that we supply tenants with efficient space to use, but also work with them to help them use it efficiently.

Bradley. Stephen, thank you for your question. He refers to Page 26 of the annual report. Stephen, what we'll do is I'll present this question post the meeting just because I suspect the guys might need just to relate to that, and we'll publish that so everybody can see the question and the response. Just a question coming from John who asks, one of your peers has used the strategy of all share acquisitions for family portfolio companies as a way of growing the REIT while trading at a significant discount. Is that something you've considered?

Yes. We have. So this question refers to custodian REIT. One of our peers who have issued shares to acquire a small family-owned propco. I guess a few comments. One of the benefits of the REIT structure amongst others is that you can extinguish capital gains where you're buying U.K. corporates. So where you have a U.K. Propco, family-owned, there's an advantage to them if they've got latent capital gains because they can be acquired with those capital gains washed out immediately. And we've actually done that within our portfolio about 4 or 5 years ago where we bought an asset owning entity where we took advantage of that. I don't know a huge amount about this individual deal. I guess there must have been that benefit to the family because why would they otherwise have taken paper at a discount to NAV. But I'm not aware that custodians provided that level of information. I guess what I would say is quite often, these small family-owned public companies are sort of smaller secondary assets. And I think in this case, the average lot size was very small. Now that complements, I think, custodian's approach. It wouldn't complement ours. I think we would look at that only where there are bigger assets where we can drive more value. But as a concept, absolutely, and we are open-minded to it.

Great. Simon, your question about refinancing debt at these levels, we'll come back to you on that one as well. We've got a question here from James. Thank you, James. What level of earnings growth do you think is necessary to support further dividend increases? And really, are you confident in the fact that the dividend coverage is there given potential, I guess, market volatility?

Yes. Bradley, do you want to kick that one off?

Yes, sure. So for the past 2 financial years, our dividend has been exactly 100% covered by earnings. So it shows that where we are able to increase earnings and we have been, so earnings are up 4% this year, for example, year-on-year. We look to pass on that benefit to shareholders with a higher dividend. So any increase in earnings, we would look to translate to a higher dividend. We think that the growth we've achieved over the last couple of years is what we're aiming for looking forward as well. And in terms of earnings covering the dividend, that's something we're absolutely focused on. There may be the odd quarter where we're not fully covered for whatever reason, but our model, our fund model shows us to be covered looking forward in the longer term. And we only look to increase the dividend where we have an increase in recurring earnings.

Yes. I'd just add to that, I think that's clear, Bradley. I think we always have to be a little bit careful on the questions like this because we're straying into sort of dividend forecast, which we're obviously not allowed to do. I think I agree with what Bradley said. I guess the best way to illustrate this is to look at it really simply and say what's the potential reversionary income in the portfolio, and that's the GBP 40 million of rental value less your GBP 29 million, so let's say, roughly GBP 11 million. Now you never get the full reversion because you're obviously leasing space up as other leases are expiring, but that reversionary potential is much bigger than our peers. We've also got the potential to drive further earnings by selling low-yielding assets, repaying debt and then obviously investing into more accretive new opportunities, capital expenditure or possibly acquisitions. So to put it in context, let's say we only got half the reversion did nothing else, right? That GBP 5 million compares to today's annualized dividend of about GBP 17.5 million. So we've got lots of levers still to pull, which hopefully will allow us to continue, as Bradley says, delivering on that earnings growth, and then we will pass it on when it's sustainable.

Well, Nick, Bradley, timing is perfect, 55 minutes. That takes care of all of the questions, save the 2 that Simon and Steve will come back to you on. Thank you, guys, for your time this afternoon. I'm going to redirect investors to give you their feedback, Nick. But maybe before doing so, if I may just ask you for a couple of closing comments, and then I'll send everybody to give you their thoughts.

Yes. Look, thank you. And look, apologies, everybody, for the technical issues at this end, but hopefully, it wasn't too disruptive. I guess I'd just start by saying thank you again for joining. We've had some fantastic engagement via this platform. The questions are always great. And most importantly, we are seeing it have an impact on the register. What we've tried to do since we started presenting is be as sort of clear as we can be about how we see the market, where we see the potential of the portfolio. And for those of you that have been with us for a while, hopefully, you can see that we are delivering kind of what it says on the tin. So we're very positive about the outlook, notwithstanding, as I say, some of the broader macro issues, and we will aim to continue giving you the news flow for you to keep abreast of all the developments. So thank you very much. Thank you for joining us on a sunny Friday, and I hope you all have a very good weekend.

That's great. Nick, Bradley, thank you once again for updating investors. Could I please ask investors not to close this session as we'll now automatically redirect you for the opportunity to provide your feedback in order that the team can better understand your views and expectations. And it will take a couple of moments, and I'm sure it will be greatly valued by the company. That's it from us. Wish you all a very good afternoon. Thank you.