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

Good morning, ladies and gentlemen, and welcome to the Schroder Real Estate Investment Trust Annual Results Presentation. My name is James Lowe, I work in the Schroder's Capital client team, and I'm very pleased to be joined here in our London Studio by the 2 fund managers of the trust, that's Nick Montgomery and Bradley Biggins. Just before we get into the presentation, a couple of pieces of housekeeping admin. If you'd like to ask us questions, as you go along, please do so by the Q&A tab that should be up on your screen now. You can also now download a copy of the presentation. If you'd like to follow in a bit more detail through with us as we go through the slides, and you can also download a copy of the annual results. You'll also have noticed this morning, there were a couple of further announcements. Nick and Bradley are going to touch on these as we go along. But with that very short introduction, I'll hand over to the team. Over to you guys.

Fantastic. Thanks, James, and thanks, everybody, for joining us on another sweltering July Friday. Now we've had a busy few months and what we're going to do today, obviously, is focused principally on the year-end results till March. We will give, obviously, the usual flavor of activity post March, particularly as it relates to the underlying portfolio and become, and we will obviously touch also on the announcement James referred to just an in relation to the up-to-date 2.4 announcement that was released this morning. . We are obviously restricted to the extent that we can comment on that to what has been contained in those announcements. We will endeavor to answer questions relating to that, and it may be that we need to plead the fifth on certain questions, but we will review all of the questions with a view to providing a response thereafter. And I'd also say, in a normal way, Brad and I obviously will be delighted to attend separate meetings with you to the extent that is helpful. So just therefore, jumping into the, I guess, the key points. So this is partly a reiteration of previous messages. So we do, notwithstanding a few headwinds continue to believe that we are very well positioned. We have a high income return. We have a strong reversion, and importantly, in an environment where we expect interest rates to remain higher for longer, we have a low fixed debt cost, which we believe does provide that platform importantly for growth. Now in terms of the key points, sorry, screen. In terms of the key points, we have a 7.8% dividend yield today, and that's obviously based on the share price re-rating, which we will come on to, and I expect we'll get some questions on that. And obviously, we have our commitment to maintaining that progressive dividend policy. It's worth noting, I think, importantly, so obviously, we're reporting today a 4% increase in the dividends paid over the year compared with the previous year. But also, we are on a journey and I guess it's just worth reflecting on the fact that actually since 2019, when we put the refinancing in place, we've actually increased our quarterly dividend level by almost 40%. So obviously, the 4% uptick year-on-year, I think also should be seen in that context. What Bradley will talk to later on is obviously the very significant reversionary potential we continue to have within the portfolio that GBP 8 million number comparing with the current dividend rate annualized of about GBP 17.6 million. We'll give you a sense of how much of that we will crystallize. I think really, again, importantly, and certainly compared with some of our peers, that's our main focus. We don't have to worry as some of our peers do about what a refinancing might look like in a year or 2 or 3 time with 75% of that debt locked in at 2.5% for another 10 years. Now obviously, we are going through a process of uncertainty, both domestically, politically, but also globally, with Middle East conflicts, unfortunately, rumbling on, that is obviously in part coincided with the financial period, initially it's also coincided with the process in relation to the consortium proposal for Picton. So we have seen, I think over the financial year, our share price got to a sort of high single-digit discount to NAV. We've obviously seen that sell off with the wider sector towards sort of 25% discount to the -- any of you are announcing today. Now clearly, there is uncertainty there for the market, but we would argue still that this is an attractive entry point for new shareholders, existing shareholders, given those underlying market fundamentals remaining relatively resilient and the earnings growth potential within our portfolio. And I guess, in respect to that, lots of activity -- most of that say, offensive in terms of crystallizing higher rents. Some of it defensive where we are still defending value and void in particular in the office portfolio, but nonetheless, encouraging overall, we're obviously a key focus on how sustainability investments are improving that performance. Now the final point here, as I'm sure a lot of the questions we will be addressing, obviously, we have been in a process in relation to consortium offer for Picton, we have real conviction that it will be earnings accretive, obviously, for Picton, but also our own shareholders. further strengthening our balance sheet and critically delivering increased scale, significant increase in a number of tenants, assets, ability to ride through bumps a bit more easily, where obviously in a smaller portfolio that is more challenging. But so -- we're delighted obviously to have made the announcement today and that follows an extensive consultation exercise that has allowed the Picton board to reaffirm its commitment for the proposal. But as I say, we believe, deliver those benefits sort of set out in that 2.4 announcement. We're also announcing today, it's a busy day day yesterday in particular. We're also announcing today a Board succession. So we've been very fortunate, obviously, have Alistair as Chair, particularly for his period where he's given us great support alongside the other non-exec directors. Alistair is coming up to his 9 years, so in line with best practice, he will be stepping down at the AGM in September. Equally delighted to say that [indiscernible] are said currently is stepping up to become share. and we've set that out in the announcement in great experience and also provided us with great support during this process. And the final point to note, therefore, is that we have announced today that Richard Dakin will be joining as a non-exec director, which we're absolutely thrilled about. Richard is an experience on a director, spent 9 years on the Board of Derwent currently sits on the board of Barclay, and prior to that, as an executive, long-standing [indiscernible] at Lloyds Banking Group, a highly respected and more recently lately CBRE Group. So we're very pleased to announce those changes today. So in terms of the activity, so Bradley will touch on shortly, a huge amount of activity across the portfolio and more on that in due course. An absolute focus for us over the course of this year has been to drive the vacancy rate lower, and I'm pleased to say that reflecting where we were at the end of the financial year. And with those agreements for lease that we've exchanged and more on that later, our void rate has dipped below 10%, which actually is a 3-year low compared with 12%, as you can see, a percent at the beginning of the period. Obviously, a lot of that activity that has driven that void et low has been across our industrial estate. So standing green now fully let, having completed the project there, some really great lettings for example, in Leeds, which we'll touch on later on. Equally, although that is 2/3 of our portfolio where we are seeing good performance both in absolute and relative terms, we are obviously equally focused, if not more focused on managing the risk within the office portfolio. I'd say that falls very much into 2 categories: assets like Store Street, which you'll hear about, which is we think is a really, really interesting opportunity, particularly as we're seeing improving sentiment towards London and a really dynamic occupational market, particularly in that part of Bloomsbury with others investing there. Equally, other assets, cities are managed to being a key focus, that was impacting significantly over the year, both in terms of value and expenses. But again, we managed a total focus on delivering the business plan there. And actually, there was some progress post year-end in terms of a restructuring with the hotel operator. and likewise, a new lease with NTP. So more on that, perhaps later. All of that activity, the sector allocation, the asset management across the portfolio means that we maintain our very strong long-term performance track record, 300 basis points of outperformance a year against our MSCI benchmark, led in last November, sort of '25 for the second year running, we were awarded the highest 10-year performance track record for the U.K. and Europe. To be balanced, we -- over the last 12 months, because of some of those factors I've mentioned, we were broadly in line with the benchmark fractionally below. I'd say, partly because we have assets in mid business plan. But really importantly, and what's driven the performance over the longer run is we continued over the 12 months of a material income return premium, which we've always had. Final point here. Obviously, the governance aspects. We do aim to invest in class. Obviously, there was a fee reduction that shareholders have benefited from the part of the financial year we're reporting on today. We've announced, obviously, the director changes, and we include detail in the report in the chair statement in relation to my succession which is progressing, obviously, in parallel with some of the other activity that's ongoing and the Board [indiscernible] made a commitment to find what we describe as effectively a market-facing CEO to work alongside Bradley and whether people like it or not, I'll remain involved chairing investment committee and other things. So all the results -- so because of primarily those market-driven factors, particularly over the second half of the year with the Middle East, we saw a small decline in our underlying portfolio value of about 0.1%. Some of the expenses impacts and other factors led to the annual NAV decline of about 1.1%. But obviously, with the dividends that we paid, 3.6p over the financial year, we reported another positive NAV total return of just under 5%. Just to give an indication of that slowdown, we reported 11% return for the 12-month period ending March '25. What we have also done today and partly reflecting the fact it is slightly later than we would normally communicate our year-end results, reasons I have clear is we've been able to provide information on our quarterly unaudited valuation movement to June. We thought that would be helpful given obviously the sort of market -- general market uncertainty. So over the quarter to June, the underlying portfolio value went up a little bit. But when you allow for both capital expenditure, we've been investing more later, but also a small adjoining acquisition that we made and the cost associated with that. The net like-for-like movement over the quarter was down about 0.3%. Now that's -- we think that's probably better than where the benchmark will end up based on where we can see in terms of the MSCI data, but we thought it would be helpful just to give that data point, particularly given the other activity that we're announcing today. But all of that activity, in a sense, and you can see it clearly set up here, resulting in us reporting the NAV at -- the period at year-end rather than 61.9p. And we would be aiming to release the June unaudited NAV, obviously, with that valuation now over the course of the next few weeks. Now moving to the income statement. I guess the first and most important point is the void reduction over the back end of the financial year, but also post year-end is expected to obviously to reduce expenses, but also and will support future earnings. But I think that's a key point. understandably people are going to focus on. So moving down the line, the direct portfolio, you can see there increased in terms of rental income by 3%. Interestingly, that was also reflecting the fact that we sold assets. So we have the held assets. Our rents have been going up healthily. The joint venture assets, so worth noting that the City Tower impact in terms of the expenses. That was the biggest impact in terms of that reduction in JV income. Interestingly, there was also a little bit of leakage in relation to the Store Street assets, but that was primarily relating to the work we've been doing with the council candid in relation to the preplanning applications. So that's more of a one-off rather than recurring. And we think that work is very valuable in terms of proving what we think can be a really interesting development there. And again, Brad will touch on that in due course. Activity over the year, the void rates trending down meant that our property operating expenses were elevated. You can see that number there of GBP 4.3 million over the year. That was partly property expenses. There was also about an GBP 800,000 charge related to writing off arrears connected with the prior year. So those arrears that we thought we might receive this financial year, we've written those off, and that was about -- the majority of that GBP 800,000 of that was quite material. That was obviously not something that related to arrears this year. And in fact, when you look at the rent collection stats, we're up at about and trending very positively in that respect. So I think that can be deemed almost as a one-off. So all those factors combined did result obviously in a small reduction in EPRA earnings notwithstanding confidence in relation to the portfolio income meant that obviously, we were able to pay dividends that reflected a 4% uptick. Now again, and we've made this point before, it is worth repeating another reason why we and the Board have the confidence of driving the dividend further is because we have less to worry about in terms of the interest side. And you can see here particularly in relation to the Canada Life Loan, GBP 130 million, so roughly 75% of our debt book, fantastically fixed at about 2.5% with an average maturity remaining of about 10 years. As we've noted before, and I guess it's pertinent now, particularly in relation to the corporate activity. That is not in our NAV. So that if you were to mark that to market as you would an interest rate that would have a value today of about GBP 19 million. Performance. So I've touched on this. So if I just ask you to look to the bottom right-hand corner, you can see there, as I noted, very long-term outperformance -- very significant long-term performance, small margin of underperformance over the 12 months, 5.4% at the underlying portfolio level compared with our benchmark of 5.7%, different members of our peer group have slightly different benchmarks, ours is slightly at the higher end of the 47%, but again a marginal underperformance. Importantly, top left-hand corner, you can see that the income return that we delivered over the year, 5.5% compared to the benchmark of 4.8%, and that's obviously reflecting all expenses on a like-for-like basis at a property level with the benchmark which gives us a head start in terms of returns. And as I noted earlier on, over the quarter to June, we do expect when the final benchmark numbers are released that we will scrub up favorably against those numbers. Now market context, you could probably look at what we said at the interims and what we said some months ago and see a little difference in the sense that the proverbial can continues to be kicked down the road. And as a consequence, investment market -- investment transactional volumes, both in the U.K. but across Europe as well are at relatively low levels still. I think what is interesting is, obviously, the contrast between investment markets and where there is more caution. Business is navigating high labor costs, elevated financing costs. Notwithstanding that, actually, GDP in the U.K. has remained a little bit more resilient, perhaps than the headlines might suggest. And actually, when we look into it across our portfolio, the occupational markets continue to be relatively healthy in terms of underlying activity levels. Companies still need space and whether it's increasing numbers of people coming back to London, or a chronic shortage of multi-let industrial estates across the U.K. We feel that it is a protracted recovery. But nonetheless, we think we will see a recovery particularly as we go into next year. And again, that's predicated obviously on hopefully seeing some form of resolution and stability in the Gulf. And obviously, we hope for that for many reasons. So I won't spend much longer. I might take questions in relation to the market. But I think unfortunately, it is a slight ground-up. And with that, I will hand over to Bradley.

Thanks, Nick, and good morning, everyone. Thank you for joining. Hope you're keeping cool. I think it's fair to say we've been very busy. So we've got some interesting portfolio updates to talk through. But first, I'd just like to touch on our strategy. And the key point to make, first of all, is we are obviously focused on the usual real estate fundamentals that Nick has been speaking to. But we also have a focus on sustainability and that is purely because we think that will help us deliver better long-term total returns for our shareholders. We've got some case studies to speak through. And the first one of those is Stanley Green on the right-hand side. At Stanley Green, we've been achieving rents that are 39% higher on the green units compared to older brown units. And the value also applies a keener yield to those units, so you get more value per unit of rent. We think this is a very compelling case study for the green premium. And how does that actually play out in terms of returns? Well, over the 5 years since we've owned the asset, we've delivered an unlevered total return of 14.6% per annum on this asset compared to 7.9% for the MSCI all industrial. So we think that's a fantastic case study. Looking at the activity through the year. We've done more than 70 lease transactions through the year, aggregate value of GBP 6.3 million, really encouragingly, that's ahead of the ERV at the beginning of the financial year, and that gives us confidence in the reversion in the portfolio. So Nick spoke to that 8.3% reversion yield, we have been achieving that throughout the year. Also, our lease renewals and rent reviews have been 24% ahead of the previous passing level, which gives us confidence in our assets, and it speaks to those higher-growth sectors that were allocated to where with 66% multi industrial estates and retail warehouse. Since the beginning of the financial year, we have been progressing sales of our smaller assets. We have completed 6 hours for an aggregate book value -- and an aggregate disposal proceeds of GBP 13.7 million. This is in line with our strategy to reduce that net LTV but also to leave us with a portfolio that's focused on larger assets that have inherent value-add opportunities for us to apply our strategy to, and we've got extensive resources across the team to achieve that. Of those 6 hours, 4 were ahead of book value, 2 were below book value. And again, that gives us confidence in the book values and our NAV. Finally, in terms of costs, we have kept good control of our fund level expenses, which were 1.31% ongoing charges for the financial year. And as Nick touched on, we have amended the management fee to further enhance alignment between the manager and shareholders through that 50% linked to market cap. But also there's a cost saving there for shareholders. And during the financial year ended March '26, there was only 6 months benefit of that cost saving, whereas shareholders benefit from a full year impact of that for the year ended March '27. This is the second case study I'd like to briefly touch on, and this focus is on Millshaw Park Industrial Estate, which is a very large industrial estate located just south of Leeds City Center close to the 162 motorway, it's around 0.5 million square feet. This again has been a very strong performer for us over the period of time that we've owned it, which was since 2015. We've achieved a 12.1% total return per annum, and that's unlevered, and that compares to 9.5% for the MSCI all industrial benchmark. It's probably worth noting that the Leeds industrial market has very low vacancy, so it's around 3.6%, and that compares to the national average of 5.7%. So we see this asset as a really good opportunity to apply the same strategy that we did at Stanley Green to continue generating strong performance looking forward. So working down the slide on the right-hand side, we've got 3 points I'd just like to make. So after the financial year-end, we acquired 3 adjoining units, the highlighted yellow on the plan. We paid GBP 2 million for that. That's a net initial yield of 6.4%, which compares very favorably to the net initial yield of the overall estate, which is 4.9%, and we've already seen an uptick in value on those units to June as a result. And there is further activity we can undertake here and we can see the opportunity to create a yield on cost of 8% to 10%, which is, again, very attractive. Looking at the middle panel there, this shows you an image before and after of [indiscernible] which is 50,000 square feet of industrial space. During the financial year, we undertook a major refurbishment of this unit. We brought the EPC up to an A, and following that, we've exchanged an agreement for lease with Slazenger paddle clubs, long-term lease, 15 years, no breaks. And the rent on that lease is 86% higher than the previous passing level. So again, it shows the accretion available to us by applying our strategy to our assets. And then the final point I'd like to make on this case study is the opportunity we see coming next, which is a 35,000 square foot unit. We're going to get back in September. We're going to be undertaking a refurbishment of that unit to bring EPC up to an A. We think that will cost around GBP 1.1 million. But we're confident we can get an increase in rent of at least 50% or more, and that will reflect again a double-digit income return on cost. Moving on to the third and final case study. I'd just like to touch on. So this slide shows a Store Street, which is located in Bloomsbury, Central London. It's very close to Crossrail. So the top and call Road Crossrail station, we think is a fantastic location. It's in the knowledge quarter. Now this asset is valued at GBP 37.8 million. That reflects a net initial yield of 5.8%. And in this lease, we have fixed uplift. So there's 9% of fixed uplift to come through, and once that happens by December '28, the running yield based on today's valuation will be 6.4%. So again, very confident in that valuation. This is our full largest asset by value. Millshaw is our second largest asset by value, which I touched on before. Stanley Green is our largest asset by value. So this shows you the power of the strategy of having those larger assets and applying our value-add approach with the resources we have available to us. Now we own 2 buildings here. They are freehold, which is pretty unusual for the location. It's a 0.8 acre site. And as Nick touched on, we have been undertaking a planned process through the year to really enhance the liquidity and the value of the asset if we were to sell it to a developer. Now the reason for going through that planning process was to establish the prospects of delivering a largely new build scheme. So you can see an illustrative CGI in the bottom hand corner there. And the reason for that approach is because that will enable a developer to address some building constraints that are currently there. So for example, the floor to ceiling height could be improved. The core could be moved to a more efficient location. We can improve natural light and all those good things. We also -- we're looking to improve the masking of the building, so we can add floors to the top and we can also fill in courtyards that increases the net lettable area and therefore, increases the value of any final product a developer creates. And finally, we've looked to lift the -- any use restrictions on the asset. So that means that we or a developer could target the highest value use for the asset. Now just a bit -- a bit more detail now. You can go away and look at this, but the key point here that we'd like to draw out is, a, the activity in the area, but b, the rents that are being achieved -- so our current passing rent at Store Street is GBP 60 per square foot. That is very low in the context of the rents being achieved here, which are often exceeding GBP 150 per square feet. Now we actually manage some of the buildings in this location, including Burners and Wells, where we've achieved a rent of GBP 135 per square foot. So we know this is achievable. And the final point I'd make is the value per square foot of our asset is only GBP 880 per square foot, which again is very, very much in line with transactions or even favorable transactions we've seen occur in the local area. So again, a really interesting opportunity for us there. Final slide for me is just to illustrate how we might achieve the ERV looking forwards. So just taking a step back, our cash passing rent is GBP 31.2 million. Our ERV or reversionary rent, which is provided to us by the independent valuer is GBP 39.3 million. That's an uplift of GBP 8.1 million and that's very favorable when you compare it to the annualized dividend today of GBP 17.6 million. So you can see we only need to achieve some of that reversion to hopefully have a good impact on that dividend. Now how are we going to achieve that growth in rent where we set out some illustrative steps here, and this is cash. So we've got fixed uplift over the next 12 months of GBP 1.8 million. As at the year-end, we had 5 AFLs exchanged and they represent an annualized rent of GBP 0.9 million. Now those AFLs will complete soon, certainly within the current financial year. They're typically subject to either planning or completing landlord works. Now interestingly, the majority of the costs and the majority of the work has already been done. So when we do complete these leases, we'll just benefit from the upside in the rents and that will be accretive to our P&L looking forward. In terms of the next block, we've got GBP 1.6 million of rent where the market level is ahead of our current passing rent. Now we're confident we can achieve that, particularly based on the stats I showed you earlier where we're achieving renewals and rent reviews at the 24% of current pacing level. And finally, we do still have some void, although it is at the lowest level since 2022. That represents GBP 3.8 million of rent. We have GBP 0.4 million on a roofer and GBP 0.8 million under refurb. And we do see scope to bring that void rate down from 9.8% over the coming 12 months. So I'll pause there. It'd be great to have any questions, and I'll hand over to Nick.

Great. Thanks, Bradley. So just before we go to questions, just to reiterate, I guess, the key message is, the higher income return, the low cost of debt, hopefully, a sense of the activity that you'll have from the -- even just those 3 case studies demonstrates the case for there being an accelerated growth in earnings. I think it is worth starting by acknowledging that there is, nonetheless, fairly meaningful market uncertainty, obviously, linked in Middle East conflict. But equally, at the same time, we do see a protracted recovery ahead for U.K. real estate. -- supported by those points we've made earlier, highly restricted new development, rising construction costs, obviously linked to the inflationary pressures building partly as a result of that conflict. . And therefore, the scope, particularly in those more structurally supported parts of the market, continued rental growth. On that structure supported point, we do still believe that multi-let industrials still offer attractive risk return characteristics driven by the rental growth that we're seeing. I think we do have a very efficient cost base. We are running that as efficiently as we can do. And obviously, the fee reduction partway through the year will benefit for the full year as Bradley has noted. And likewise, our sector-leading debt profile, yes, we have a revolving credit facility, which we're very confident we can renew from '27. But fundamentally, 75% of our debt book fixed 5% for another 10 years really gives us great visibility in terms of the interest payments and therefore, what we need to do in terms of earnings growth. So I guess just to summarize, implementation of a strategy over the course of the last 5 years, I mentioned at the start, the 38% increase in dividends over that period has created an opportunity for growth and hence, the announcement that we've made today -- but really importantly, the Board are very clear. We are very clear that, that growth must deliver really critically material near-term earnings and dividend growth for our shareholders. And we believe what we set out today and best based on the information we can disclose provides out. So thank you, everybody, for your time, and we will pause and hand back to James.

Thanks, Nick. Thanks, Brady, and thank you to everyone who's sending their questions so far. -- please do keep sending them through, and I will ask the guys as we go through the Q&A session. So the question so far, I would split into 2 very distinct categories. There's clearly lots of questions about what we announced this morning regarding the proposed offer, and then there's a number of questions relating to the annual results sort of specific REIT, so I'll try and bring them into specific categories, as I said. Please do bring further questions into the discussion as we go guys who are listening. So maybe we'll just start on SREIT on annual results, and then we'll go on to the broader conversation around the offer. So just a couple of questions here around dividends. And I guess, this is partially an overlap question relating to the offers as well. But just specifically, one question was asking about the slight dip in dividend cover that you've seen this year, it's been 100% now down into the -- can you just -- you're obviously showing the chart badly around the potential to increase earnings going forward and the reversion in potential, but how would you get back to that 100%? And how should shareholders think about that dip below 100%?

Yes. Maybe I'll just start. And I mean, I think -- if we look at the company on a stand-alone basis, obviously, there are obviously several levers that we can pull. Firstly, most importantly, driving the reversionary potential from the portfolio, that top line earnings growth because, as I say, we have less to worry about in terms of the interest cost. So it's focused on that top line earnings growth. . Bradley has touched on for example, the GBP 900,000 of annualized income we will be getting from those agreements that we -- that are unconditional and we'll be signing them competing [indiscernible] that just on their own would plug the gap. The gap is about GBP 600,000 isn't it just in terms of the shortfall. Alongside that activity, clearly, as Bradley noted, we have further assets under refurbishments. We have further assets under offer. And we are also looking at still selling some of our smaller noncore assets and particularly focusing on sales, where we're selling vacant assets, and therefore, we're selling where we have nonrecovery of expenses. So that's the really key focus, continue to deliver at the asset management, a big slugger which is contracted, but also things that we know we need to do over the course of this financial year. And I've touched on the importance of City Tower in that context. The second thing is obviously close control of expenses. And Brad has touched on the fact that, obviously, we had a reduction in the fees that benefited over the second half. That will feed through over this current financial year. And obviously, the fees are lower, partly as a consequence also of where the share price discount to net asset value is. And the final point, we announced today a very small adjoining acquisition, which is accretive to the underlying assets. I think were we to exist in a stand-alone format at the moment, there are certain assets that we might look to sell in order to rotate into higher yield. We have a view on that, but obviously, those views are currently sort of also in light of the 2.4 we've announced today, because clearly, strategically, we're looking at, obviously, what we can control ourselves today, but also looking forward in terms of what we can hopefully deliver in terms of the proposed offer for Picton.

Great. And maybe just following up with a question just relating to one of the comments Bradley made around some of the sales that you made over the period. You mentioned there's been 4 above book value, a couple below book value. questions coming through here around sort of what's really driving the above book value versus the below book value. Can you just expand on maybe both sides of the equation?

Yes, happy to. So I think we have been selling smaller assets. And I think sometimes they can be more difficult to value there can be a large variance, and I think, again, just speaks to the difficulty of that and how it is an estimate by an independent valuer. I think I mean, really, it was one asset that was below book value, the other was like marginally below book value. So we took the decision that we felt the risks in that asset were just not outweighed for any potential upside, and we thought it was better to sell it and focus on where we think we can add value and can drive those rents. So really, it was just a kind of one-off asset in a pretty sort of low transaction volume location, just making it difficult for the valuers to always align to exactly where you might get out.

Yes. So on the other side then the 4 that you've sold above book value, what -- you've obviously mentioned some of the rental growth we've been able to drive through sustainability improvement. Is that really what's driving those above book value sale? Or is it something else? .

Well, the book value will reflect that upside over time. So I think really, it speaks to just the conservative approach we take to our valuations. We're not here to pump the valuations. And I think it's possible to sometimes for other companies to do that. And -- but what you can't hide behind is the earnings and dividend growth because that is less judgmental is more -- and the cash flow generation that you pay the dividend from. So I think really just speaks to the conservative approach to our valuation. .

Yes. Look, I think that's right. But on the point in relation to where we sold the premiums, I think what we try to do -- and we are going to continue selling our smaller assets to be clear. And I think particularly if obviously the consortium proposal goes complete, then there are also smaller assets on that side because we would look to recycle. Where possible, we're obviously selling off the back of asset management. So the Chelmsford High Street unit, we extended a lease to the Coop Bank. And that meant that we could sell it into a private investor market where there was more demand for that longer dated income. . The Liverpool sale was an exception in terms of the discount, but that was really because we having looked at it. We didn't believe that Lloyd's are going to renew a banking tenant. There was some vacancy in the uppers. We had a local bid and we elected to take it. To the valuation point, I mean one of the reasons specifically today, we look at Store Street is just an example really to show where the valuations are. So for that asset, for example, failing value by about 2% over the full financial year. And therefore, we stand back and that's now as Bradley said, GBP 88 a foot, north of 6% in short order when we get the fixed uplift coming through. So we're trying to make the case actually that is a fair valuation. I think going forward, I would hope we're selling at or above book. I think Liverpool, hopefully is a bit of an exception. We have one small asset we're looking to sell at the moment of vacant asset, which we're selling in line with book. And so we will continue to do that.

Just picking up on Store Street, we've had a specific question around some of the rents that you mentioned that others are paying in the area. Is it realistic that a university would pay top market rents in that way? .

I think that's a good question. And the point there was more that if a developer was to buy the building, which is who we think might be the most likely buyer then in their appraisal, there will be underwriting a top level rent off the back of their sort of top level development. So that was the point there.

Yes, that's right. I mean the strategy there, we specifically -- when we put in place a new lease, the lease is what's called contracted out to the 1954 Act, which means a tenant doesn't have automatic rights to renew, and that was deliberate because as Bradley has said, it won't be university going forward. As it happens, the fact it has been university is helpful because it's got extremely good floor loadings of order books. And so it means that from a Camden point of view, the repositioning project, adding space works very, very well, but somebody looking to buy that certainly our appraisal with a good refurbishment, the rent get easy double. .

Yes, makes sense. Right. So we've covered a number of the sort of the background to the results questions. And if you do have any other questions on the specifics of the annual results, please do send them in. We can go back to that at the end. But maybe now just coming on to some of the questions specifically regarding Picton and the potential offer. There's a question here, a really good question. Just asking for a bit more detail on the level of earnings accretion shareholders could expect from the proposed Picton transaction. And particularly, I think it's important, any comments around how the assets acquired fit within the current SREIT or combined strategy given the lower net initial yield? .

Yes. Maybe we start with that because I think that's sort of a broader context. And then maybe we can attempt to respond to the first point. So firstly, I guess, we have strong conviction that the portfolio is complementary to ours. In our conversations with shareholders recently, and we're very open to having further conversations in due course, what we did with the second [indiscernible] was try to give more clarity, particularly around how the assets are being allocated. There was a little bit of a vacuum following the initial announcement as to exactly how the portfolio is going to be split. . And really important to note that, firstly, the consortium partners are working very well together. And that's important as we are, we've obviously the Picton team but also to make the point that assets weren't cherry picked. So the way that the assets have been split, again, this is set out in the announcement is by loan pool. And so London Metric are getting on loan pool, which holds the biggest assets within Picton, which is an asset, the biggest state multi-industrial state, which will be too big for us. So that sort of fitted quite neatly. And we are acquiring the other loan pool where the main loan there is with AVEVA below market rates and not as cheap as our debt, but nonetheless below market rates. And the portfolio make weightings and we've shown the announcement before and after are complementary. So our multicontent rating goes up a little bit further because of assets like Halo that is the biggest asset that's coming in at the multi-let obviously, in FX. But -- and then alongside that, there are some offices. And again, actually, to a certain extent, reflecting in our portfolio, so there's an office in Farringdon, for example, which is the biggest office. And then there are some other offices in places like Bristol but broadly in line with our weightings. And then finally, there are some really interesting retail warehouse assets which again complement where we want to go. So from a portfolio allocation perspective, there are some assets, particularly smaller assets in the tail, which we will look to recycle as we are doing with our existing portfolio. but we're happy with that. And I think importantly, from a portfolio perspective, there's a size benefit here, both in terms of relevance. We get to the sort of the edge of the GBP 250 million. But I think also in terms of diversification we go from having 320 old tenants having 550 or what of some other number. And we go, obviously, from adding 32 assets to adding another 24. So we get more diversification, more granularity of income, the ability to sort of smooth some of the bumps a little bit, which obviously you get where you have a smaller portfolio where you might have a vacancy putting up here or there. So I think really important, we're very happy and there's a lot of work going on in terms of due diligence on the assets from an income perspective to that point. So the EPRA initial yield is lower, and actually, the EPRA yield about GBP 4.7 million is broadly the same in relation to the assets that we are acquiring against the that London metric requiring. And that's principally due to high vacancy. So the vacancy rate on the assets we're acquiring are broadly about 16%, 17%, which again is similar on the other side of the L&P fence. And that's on our side, it's spread across assets, but there's one more significant void, which is an asset of big share up in [indiscernible] which is good assets, and we would hope and between now and closing, the team will be working hard to get that leased up. and that's an important one in terms of driving earnings from that side of the fence. I think the other thing, of course, that we bring to this is the economies of scale at multiple levels. So our ability to manage the portfolio using our teams here to drive earnings growth at the asset level, savings in relation to fund level expenses, which as Bradley's noted on our side are already very efficient. But also as an external manager, we can give a significant savings through our fees, and that is meaningful. So the proposal for those who haven't seen it is that we already have tiering within our fee mechanism that obviously goes down as basis points as the company grows. We are reducing those by 10 basis points. So actually, the sort of the blended investment management fee on the combined is about 70 basis points. But we are also providing a 12-month fee holiday on the Picton side of the NAV, which will be spread over 2 years. So that, again, will have a positive impact on earnings over the early period. So more information, but not a huge amount more is set out within the 2.4 announcements. And obviously, more information assuming we get to that point, will be concluded in the 2.7 announcement on completion of our due diligence. What we're including today in the 2.4 is an updated analysis of the earnings accretion and the dividend accretion on the Picton side, and we're reconfirming from an SREIT perspective, that it is also earnings accretive over the forthcoming periods. So I think from our point of view, we're really excited to find the opportunity. We think it's a really great opportunity for our shareholders. I think there will be significant benefits that come through scale. And we will obviously knew as well, we will be obviously marketing the hell out of it when the deal finally closes, to make sure that we do what we can to address the discount, which obviously has moved with the market during the period, we've been looking at it.

New technical term for me there, marketing the hell -- will you be using that one going forward. That's really helpful. I just -- you've covered it there, and I'm not sure how much you're not going to be able to give forecast here or talk about it in too much more detail than we already have. But just a couple of shareholders from the SREIT side just wanting some clarity over what that -- we've talked about earnings accretion. What does that actually mean for income cash-in-hand dividends going forward as an ongoing SREIT investor. You can't give exact numbers, I get it. But what's the ambition here?

Accretive continued progressive dividend policy. I think -- and again, we can maybe have some discussions offline or in responding writing to questions so that we ensure that we're not breaching any panel restrictions. But I think the Board and we -- but I think the Board and in Alistair's Chair statement, he sets out very clearly what he expects to see from an M&A activity. And as we said on the final slide, one of the key things that we've been clear has to be delivered through this transaction is earnings accretion, near-term earnings accretion. And although we're not able to give specifics, hopefully, some of the points on that raised in terms of the scale benefits, diversification benefits, the asset management pipeline that we'll have across both portfolios we'll provide that. .