Schroder Real Estate Investment Trust Limited (SREIL.XC) Q1 FY2026 Earnings Call Transcript & Summary

Good afternoon, and welcome to the Schroder Real Estate Investment Trust Limited Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question received in the meeting itself. However, the company can review all the questions today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand over to Nick Montgomery. Good afternoon to you, sir.

Good afternoon, and good afternoon, everybody that's joining us, and we appreciate your time particularly in August. And I know a lot of you will presumably have been or maybe are on holiday now, but welcome, everybody, and thanks for joining. So my name is Nick Montgomery. So for those who have been on the line before, I'm the fund manager alongside Bradley of Schroder Real Estate Investment Trust. For those that perhaps don't know us so well, so we're getting some great traction presenting through this platform. We are, as will become clear as we go through the deck, an investment company or real estate investment trust that owns a portfolio of direct U.K. real estate allocated towards what we see as a high-growth part of the market. We are active managers. And Bradley and I work very closely with the team of over 100 people we have working across Schroder Real Estate both based in London and also in Manchester. And we have a really good website, which means that those of you who don't know so well, please feel free to go to the website and reach out if you have any questions. It's worth just saying this is a quarterly update. Again, for those who don't know so well, we produce quarterly net asset values, obviously, 30th of June being a relevant quarter here. That's based on the independent portfolio valuation that's carried out by our independent valuer every quarter. So this quarterly update will be shorter than, for example, for the year-end results or the interims, which is just bringing up to speed on the numbers, the activity which will hopefully take sort of 25 minutes. And I can see already we've got some great questions, so we'll endeavor to answer those in the remaining 15 minutes that will take us to no later than 1:45. So just moving through the deck. If I just -- I'll begin with an overview, and then I'll hand over to Bradley in 10 minutes' time just to walk through a bit more detail on the strategy. But I think the key -- the really key point to get across here is we feel that we continue to be very well positioned with a high-income return generated from the underlying portfolio, but importantly, also a sector-leading low debt cost. I mentioned in the introduction that we have a diversified portfolio that we are overweight to what we see as a high-growth parts of the market, multi-let industrial, as you'll see shortly being a key area of focus, but we also have that high income profile. And in fact, one of the questions asked about the differential between the initial yield and the reversion yield or the rent that we're currently receiving and the rent that the valuers believe we could achieve were every property vacant today. And it really is that gap that presents the opportunity to hopefully continue to drive earnings and in due course dividends with that reversionary yield today at portfolio level representing 8.3% of the value, and that compares to a like-for-like yield for our MSCI portfolio benchmark of about 6.2%. So those numbers are at portfolio level. Obviously, what we're doing is paying a dividend at company level, and the dividend that we've just announced and paid for the most recent quarter represents a yield on today's share price of around 7%. So an attractive level of dividend. And importantly, the dividend continues to be fully covered by recurring earnings. I mentioned the low cost of debt. I will come on with a bit more detail on that, but it is genuinely sector-leading and more of that in due course. It's also worth noting that although actually the shares have had a pretty good 12 months or so, and we have outperformed our peers because sentiment towards U.K. real estate in parts of the market remains relatively weak. The share price today represents still a discount of around 17% to that NAV as at June. Now that obviously is attractive in terms of embedded value, if you like, because as I say, the portfolio is revalued every quarter. But we are also seeing increased demand for the shares. So we have seen a relative improvement against peers. And the main reason for that is partly because of things like that. We've been engaging much more with platforms. We've seen a share of ownership from platform retail investors increase markedly, and we see that continuing to support the share price going forward. The final point is we are continuing to deliver on our sustainability strategy. Again, we've had some really good questions on this from people on the platform and elsewhere. Our sustainability focus is entirely focused on driving higher earnings growth by delivering what we can increasingly see as a green premium in so far as tenants being prepared to pay more for more sustainable properties. And at the same time, we are also seeing what we call a brown discount. So assets that don't have that level of sustainability performance being discounted by valuers and buyers in the market. And we would argue that our team here, the specialist asset managers we have 100 people, I mentioned we are well placed to use those specialist asset management capabilities to extract value by buying assets at discounts and then delivering on that green premium from our underlying portfolio and more and more examples of that in due course. So latest update on the portfolio. Not a huge change from the year-end here. We have completed some small sales, which are consistent with strategy, more on that in due course. But I'm pleased to say that we remain significantly overweight to multi-let industrial compared to our peers and our index. We are still seeing very healthy levels of occupational demand, particularly for smaller multi-let industrial. I think the market has slowed more for the more highly rented, particularly the bigger boxes because we've seen a slow down in demand there. But overall, we remain optimistic about our industrial exposure and the types of industrial assets we own. It is also worth noting though we've been saying for the last 18 months or so that we don't expect the same degree of polarization between the returns from the underlying sectors. Obviously, we saw a very significant polarization in the run-up to September '22 with particular logistics values growing very strongly because of those tailwinds, particularly coming through and out of the pandemic. Actually, going forward, we are expecting more alignment in the performance of the underlying sectors. The office market, as you'll hear shortly, remains very undersupplied for the better quality space. And we are seeing an uptick in retail warehousing demand, including interestingly also for shopping centers, we're beginning to see some activity in the market, particularly among some of the bigger REITs. So we expect less polarization, but we remain of a view that our portfolio allocation, firstly, is the right mix. But secondly, it shows the benefit of having a strategy where you can invest between the sectors. You can tack and change as market conditions change, whereas some peers in this peer group who are sector specific don't have that ability to tack and change depending upon market conditions. So a couple of slides just giving you the details of the most recent quarterly NAV announcement. So having announced, just for context, an 11% NAV total return for the financial year ending March '25. We've seen continued momentum, continued uptick in values and obviously continued dividends, which has allowed us to announce for the quarter to June a net asset value total return of 1.6%, again above the peer group average. The main driver of that, of course, was an uptick in the value of the underlying portfolio. But we also saw some completion of some sales at a small premium. And as we go to the next slide, you can see that we also delivered an uptick in EPRA earnings positively, and it was that, that allowed us to have the confidence to recommend that we pay the dividend that we did. And looking ahead, our strategy is focused on delivering on the asset management that we'll walk you through shortly in order that we can continue delivering the progressive dividend policy. I touched on debt. So whilst, again, those of you who would have been here before, you'll know we have a pretty relentless focus on delivering value from the active management. We also benefit enormously from having very good visibility on our interest payments and the reason for that is set out very clearly here on Slide 6. The key reason, as you can see here is of our GBP 184 million of debt drawn, GBP 130 million is fixed for another 11 years at an average interest cost of 2.5%. Now that is industry peer group leading. And once you overlay what we use as a tactical revolving credit facility from Royal Bank of Scotland, that results in that sector leading average interest cost of 3.5% and an average maturity of our drawn debt of over 8 years. So whilst we, of course, look at how we can optimize our balance sheet. So for example, the revolving credit facility comes up in 2027. So we're starting to think about how we approach that refinancing. Unlike many property companies, although we are in an environment where interest rates, certainly the shorter end are coming down slightly. Many real estate companies, even in that context, are looking at refinancing to increase our interest costs. We are not. We don't have that worry. For us, it's all about how we can drive the higher earnings growth from the active management. And just to do that, point to this, this is the way that the dividend has moved from -- well, going all the way back to Q4 '19, and you can see from end of '19 to where we are today, dividends per share up about 30% and a commitment from the Board, obviously, with the recommendation of Schroders that as soon as we've got visibility that we can maintain a high dividend, and on a sustainable basis, we will pass it on to shareholders, and that's our current focus. Perhaps less relevant to some of you on the line, but certainly of relevance to us and also to our Board is how the performance of our underlying portfolio. So not at corporate level, but how the underlying portfolio compares against our institutional peers. And for this, read all of the externally managed REITs, some of you may own but also many of the main market REITs and other institutional owners submit their underlying portfolio data to MSCI and that allows us to compare our relative performance. So I won't -- I'm not going to dwell on all of this. I would just direct you to the bottom right-hand corner, where you can see a combination of that favorable asset allocation, but also real focus on active management means that over all time periods now, we are outperforming particularly over 3 years, very significantly compared with that MSCI benchmark. Now moving to some market context. So clearly, we're all reading about what may or may not be forthcoming from the budget later in the year and the next statement from Rachel Reeves. And we're obviously looking at the longer end of the gilt market, and we are seeing interest rates at that end, particularly remaining elevated. But those that have been here before, you'll have heard us say actually that we, as a firm, have been more cautious about the pathway for interest rates. So our view has been and remains that inflation has and will remain stickier than market consensus. And so what we're showing here is what the market consensus is on interest rate probabilities. This is based on pricing from, I think, actually the end of last week. And you can see now that the market is expecting that the base rate will trend down to around 3.5%, that's the red color, the dark red color by the end of 2026. Now our view is that possible. But if we do see interest rates remain stickier, then we may not see quite such a reduction. But I think the key point here and one that we've made previously is actually for real estate to deliver returns at or above its long run average. We actually don't need a significant fall in interest rates. And the reasons for that are shown hopefully clearly on the next Slide 11. So just starting from the top left, as I say, the market has had a significant correction partly because of that steep rise in [ interest ] rates at the end of 2022. But you can see on the top left, most parts of the real estate market in the U.K. at a property level have fallen somewhere between 20% and 25%. So that is a significant correction from a historical perspective. It's in line with what we saw in the early '90s, obviously, not as severe as what we saw [indiscernible] because that was much more of a balance sheet issue compounded by a big -- much bigger supply pipeline than the market currently does. What's also interesting, and this is sort of the history doesn't repeat, but it echoes point, is contrasting with previous cycles, yes, we had a significant value correction, but interestingly, rents in nominal terms have kept going up. And you've heard us make this point a lot over the last 18 months, but it is very relevant because actually, it is the rental side, the inflation hedge in characteristics that really why people own real estate. It's not the best hedge on the capital side against inflation, but it is historically a good hedge on the income side. Why we feel positive about the market going forward is because the inflation impact, the sort of embedded inflation we're talking about is meaning it's increasingly expensive to deliver new real estate of any flavor. And that's compounded by the costs now to deliver space that meet most occupiers increasing requirement for more sustainable accommodation. And so alongside what we see as growth in the economy, we also expect cost push inflation, driving rents forward as those higher build costs lead to more constrained supply, which leads owners of real estate, developers of real estate, the ability to push rents on in the context of that -- the lower supply. And that's, I guess, most interestingly, illustrated by what you can see in the office market because obviously, offices, at least in some quarters have been a dirty word for the last couple of years, particularly coming out of the pandemic. But what you can see and you can see in the headlines, HSBC in city in London, take over space post pandemic, realize it's not enough, take an extra 1/3 of space that they've taken in the city back at Canary Wharf. You'll have read over the weekend, JPMorgan, acknowledging that the former Lehman building they occupy really needs work. And actually, they own a site at Canary, should they look at building new to deliver the type of space they want. Now those are extreme examples, but we are seeing that activity in many of the bigger, more dynamic towns and cities across the U.K. And that's what's illustrated on the bottom right hand corner here, you can see prime vacancy rate shown in orange is well below historic averages. And in some cases, like Leeds, Edinburgh is down at levels that we -- you only really see once every 10 years or so. So although reading the headlines, geopolitical uncertainty, risk of interest rates remaining high for longer, yes, that's true. But actually, we do believe that those underlying dynamics in the real estate market, reduced supply, rental growth, combined with the material correction in values that we've already had means that we are at a really interesting point in the cycle. So finally, before I hand over to Bradley, this is the latest on our forecast. So the only certainty here is that they are wrong. But you can see that because of the above-average income return that the sector is delivering, the rental growth that we believe is coming through. We think the real estate sector could deliver a return at a property level of 8% to 10% per annum over the next 4 or 5 years, which is compared to the long run average of 6% or 7%. So as a consequence, we are beginning to see more allocations to real estate, both domestically and internationally, which should provide support to the market. And again, set that in the context of already a 17% discount to NAV that our shares are currently trading at. So before I come back and summarize and lead on the Q&A, I'll now hand over to Bradley.

Great. Thank you very much, Nick, and good afternoon, everyone. It's good to be giving you an update on our June NAV. And I'm going to be talking through strategy to start with. So looking at Slide 14. And just to reiterate, sustainability is a core tenet of our strategy. But to be clear, we do consider this alongside the real estate fundamentals Nick just outlined. And the reason we do this is that we believe, based on our research and based on evidence to date, and we'll look at some examples as we go through the presentation, but we believe that our focus on sustainability will help us deliver better long-term total returns for our shareholders. Now first, a quick update on Stanley Green, and I know that we regularly update you on the asset, but it continues to deliver excellent returns and is a really good example of the strategy in action. So as a reminder, we've got 2 parts of Stanley Green Trading Estate. There's existing estate, which is 14 older units that are typically EPC B or C or even D. And then we've got 11 new units. So they're EPC A+ and BREEAM Excellent, so that means they've got really strong sustainability credentials and performance. And what we've been able to do is achieve rents at a 39% higher for the green unit, so those EPC A+ units than for similar sized, less sustainable units on the existing estate. So it's a 39% premium. Now all of that will be green premium, but we believe a significant portion of that 39% is green premium. Now not only are we benefiting from higher income from those units. But in addition, the independent valuer applies a equivalent yield to the EPC A+ units of around 5.2%. And that compares to 6.25% to 6.75% for the less sustainable units. So the question is, was it worthwhile spending the extra money to develop those units to EPC A+ and get that higher rent and keener yield. Well, we think emphatically, yes. And the proof to us is a really strong return that we generated from this asset since we acquired it in December 2020. So as you can see in the table, we've achieved an annualized total return of 15.9% and that compares to the MSCI All Industrial over the same period of 7.9%. Looking forward at the asset, we are undertaking refurbishments of those existing units that I mentioned, and we're moving the EPCs on to a B minimum, sometimes an A. And that's already paying dividends because what we've been able to do is achieve new leases and regears on the existing estate at rents that are significantly ahead of the previous passing level. So for example, we did a regear with Screwfix who are on the estate. They trade really well there, and we've increased their rent by 54%. So that just gives you an idea of what a sort of smart sustainability-focused refurbishment can help us to achieve. Moving on to Slide 15. Here, we're looking -- it's more of a looking forward slide, although we do reflect on the deals we've done since we announced our annual results on the 11th of June. So it's really a H2 focused slide. And what we want to do is give you an idea of the work we're doing to try to grow rent, which in turn will help us to grow earnings. Now I think it's clear from the stats on the slide on the left-hand side that we have maintained strong leasing momentum since the annual results. And for me, the really important point here is the quantum of rent uplift that we've achieved in the previous passing levels. So for example, of our lease renewals, the rents are 11% ahead of the previous passing level and for our rent review, the rent was 22% ahead of the previous passing level. And in addition, we're often asked, we have a really attractive income profile which we'll look at shortly. And we've got a really attractive reversionary yield of 8.3%. And the question we often get asked is, is that reversion achievable? It just seems a bit too good to be true. But again, as you can see from these statistics, and it was a similar case for the year-end statistics, we are regularly exceeding the ERV. So our new lettings were 1% ahead of the June ERV. And our renewals were 5% ahead of the June ERV. So that's really -- it's really comforting and really pleasing for us as you look to continue to capture reversion for the remainder of the year. And just a brief update on our disposal strategy. So as we said, we are looking to dispose of our smaller assets where we completed business plans with a view to initially pay down the RCF, the uncapped RCF, which has -- it is a lot more expensive than our extremely attractive 2.5% fixed rate debt. In addition, paying that down will help us reduce our net LTVs within our strategic range of 25% to 35%. We're currently at around 36%. And we have made 3 sales. So we completed the sale of King Street in Truro, that's 14% ahead of book value. We completed the sale of a shop in Leicester, 11% ahead of the book value at the time we agreed the deal. And we rebased the June valuation in line with the agreed sale price. And we've also sold an office -- a vacant office in Marlow, 11% ahead of the book value. And again, we've rebased that June valuation in line with the agreed sale price. So we have reflected some of the performance in the June quarter data. But again, this is really comforting with regard to our NAV because it kind of proves our property valuations. These sales have been able to exceed the book value. We do have further disposals in progress, and we will update you at the interims on those. In terms of how we're looking to grow rent through the remainder of the year, I've got 4 examples I'll briefly touch on. So the first image you can see in the top left-hand corner is St. Ann's House. This is a mixed-use office and retail building in Manchester city center. It's prominently located on St. Ann's Square which is the prime retail core of the city. And what we're doing at this asset, and we did show some investors and analysts the asset on an asset tour in June. We're undertaking an extensive refurbishment of the ground floor and the basement floor and the common areas. And this is a really pretty major refurbishment. We're installing a new reception, really modern reception. We're adding wellness rooms, meeting rooms, a podcasting room, end of journey facilities. And all of that will enable us to achieve much higher rents in the office spaces in the floors above. So we've got 5 floors of offices above the ground floor. So for example, we're also undertaking a cafe refurbishment of the fifth floor which is the top floor, and we are conservatively targeting a rent of GBP 28 per square foot on that top floor. And that rent reflects the improvements to the common areas that we're undertaking. And that rent is 74% higher than the previous passing rent on the floor. Now, again, the question is, is it worthwhile spending all of that capital to improve the common areas, ground, the basement? Well, we think the higher rents do justify it. And for example, in the next 4 years, we are targeting to double the total rent of the asset to GBP 1.5 million. It's currently GBP 750,000. And when we undertook the analysis, we were forecasting a 5-year IRR of 13% per annum. So we think that is an attractive outcome. The next asset. So if you look at the top right-hand corner, that's Millshaw Park Industrial Estate. This is our second largest asset by valuation. It's been a really successful acquisition for us. So taking a step back, we acquired the asset in 2015 and since then, we've achieved an annual total return of around 12% compared to around 10% for the MSCI All Industrial benchmark. The asset has 460,000 square feet of gross internal area. So in industrial, that's your lettable area. And the asset is on 28 acres, and it's just south of Leeds city center and is close to the M62 motorway. The site cover is very low at 37%, so there's opportunity to increase that over time. And just a reflection on the Leeds industrial market. So the vacancy is around 3%, which is much better than the national average, which is just above 5%. And that's how we've been able to achieve some really significant rental uplifts and rental growth at the asset over the last few years, which has in turn driven that really strong performance I just quoted. In June, we did take back a very large unit, Unit 22, it's around 50,000 square feet, which is around 10% of that asset lettable area. And we are just about to start renovating to create an EPC A unit, and that's going to be an extensive refurbishment with lots of sustainability focused initiatives such as PVs, EV chargers, new insulated roof, new roller shutter doors, new glazing, upgrading the ancillary office space within the warehouse. So it's going to be a real transformation for this unit. It's going to cost us GBP 1.9 million. And again, the question arises, is it worthwhile spending the money to achieve an EPC A? Well, we think absolutely yes. Because we are going to be quoting GBP 9 per square foot, which is 86% higher than the rent we were receiving in June. And the profit based on our analysis from this scheme will be around GBP 1 million, GBP 1.5 million. Looking at the bottom left photo, that's Headingley Central, Leeds. This is a mixed-use asset, so it's got hotel, retail and leisure on the scheme. It's around 100,000 square feet, prominently located in the town center, and there's lots of young professionals and students in the area, and we get really good footfall here. Now we got back a Wilkinson's unit, so they went bust a year or so, a couple of years ago. And we have agreed a lease on half of the Wilkinson's unit to McDonald's. So we've got McDonald's coming to the scheme on a 25-year lease with a break at year 15, and they're going to be paying a rent of GBP 75,000 per annum which is 28% higher on a per square foot basis than Wilko's were paying. We're currently undertaking landlord works, and we hope to complete that lease in the coming month or 2. We also have the other half of the Wilkinson's store under offer to a national grocery operator. So hopefully, at the interims, we can give you a firm update on that. And then finally, in the bottom right-hand corner, we are referring to Churchill Way West, which is one of our retail warehouse schemes. It's based in Salisbury. And I'm delighted to say that we've got planning from Wiltshire Council to enable us to reconfigure 2 of the units that will help -- that will mean we can bring Lidl to the scheme. So Lidl is going to take one of the units plus around half of a second unit, and that will be around 22,000 square feet. Lidl has taken a 25-year lease. There's a break at year 20, and the rent is GBP 440,000 per annum which is GBP 19.81 per square foot. And again, a really significant uplift on the previous passing level per square foot, 67% higher. So really shown uplift, great tenant. And this is a really good example of us creating long income with inflation-linked rental uplifts. Now sustainability was central to us on this deal, and it was also very important for Lidl and have agreed to install PVs on the roof as part of the tenant works, and that will help us to achieve an EPC A on the unit. So I hope that gives you a really good sense of the work that we're up to. We're working really hard to keep pushing that rent forward, keep getting us closer and closer to achieving the reversionary events, which has the deals show, we are achieving, and that is what will enable us to push the dividend on in the future. So looking at Slide 17. This is a portfolio overview slide, and we've highlighted some key metrics of the portfolio. So firstly, we've got 37 properties as of June and more than 300 tenants. So it's a really granular portfolio. We think that spreads risk and as well as benefiting from the diversification across sectors, we're also benefiting from the granularity of the portfolio. I've also highlighted the income profile of the portfolio, which we think is really attractive. So we've got a net initial yield of 5.6% as of June. But actually, that's 6.1% if you adjust for the rent-free that our largest tenant are currently on until October and 6.1% is 100 basis points ahead of benchmark. And I mentioned previously, a really attractive reversionary yield at 8.3%. That's more than 2% higher than the benchmark, and I'll come shortly on to a slide just to help us to contextualize what that reversionary yield means in pound note terms and what that could mean for our shareholders. On the right-hand side, we show the structure of the portfolio in terms of the sector allocations. And really the key point for us is our 64% weighting to industrial or retail warehouse, which I think I outlined towards the beginning of the presentation, we see these to be really attractive sectors at the moment, benefiting from structural tailwinds that have enabled us to push rents on and continue to push rents on in examples I've just outlined. Now final slide for me. Again, as I said, I want to contextualize the reversionary profile of the portfolio for you. So our cash passing rent at the end of June was GBP 29 million. That's an annualized rental figure. And our reversionary rent according to our independent valuer at the end of June was GBP 40.2 million. That's a difference of GBP 11.2 million, which is very significant if you think that our annualized dividend is currently GBP 17.5 million. So clearly, you can see that if we're able to capture even some of that reversionary potential, it should enable us to move the dividend on in a way that is really attractive for our shareholders. Now I'll set out for simple steps to show what the work we're doing to achieve that reversion. Now first of all, in our existing lease book as at 30th of June, we have what we call fixed uplifts. And they're mainly rent free where we're currently not receiving any cash from the tenant because they're in a rent-free period and incentive period at the beginning of the lease, which could last anywhere from 3 to 9 to 12 months. And in the coming 12 months, so to the end of June '26, we have GBP 4.3 million of fixed uplifts to come through. So that's cash increases in the rent we're going to receive. And GBP 2.36 million that relates to the University of Law, who, as I mentioned earlier, are in a current rent-free period to October. So essentially, we don't have to do anything, and our cash rent would increase by GBP 4.3 million from fixed uplifts. In addition, as at the end of June, we had AfLs exchanged. And as we undertake landlord works or get planning permission, we expect to complete those leases, which will increase our rental income. In addition, there are some units and assets where the current level of rent or the passing rent that we're receiving today is below the market level, and that market level was determined by our independent valuer. So as rent reviews come around, as we execute renewals and regears or new leases, we would expect to achieve higher rents. And then finally, we have vacant space, and we're working really hard to bring our vacancy down, and that's a real attractive opportunity for us to bring the void rate down and to increase our passing rent. So hopefully, that gives you some context into that 39% increase from our current cash passing rent to the reversionary rental potential in the portfolio. With that, I'll hand back to Nick, and I look forward to addressing any questions that you may have.

Excellent. Thanks, Bradley. So again, I want to leave 10 minutes for questions. So I guess just to reiterate the key message, we think we are well positioned with the higher income we're already receiving but even more so the potential reversionary income that Bradley has just walked you through, combined with our long-term low debt cost. We've been saying, I think, pretty consistently that real estate values are bottoming out. I think we've got the timing of that just about right. And we are expecting now to see a recovery driven partly, as I say, by an expectation of some interest rate cuts, but more importantly, from the rental growth that we can see, particularly across the industrial sector but other parts of the market. I guess, just to conclude, the sustainability-driven strategy we announced a couple of years ago now really is, in our view, delivering tangible benefits. When you look at the performance of our underlying portfolio, the higher rent growth but also traction we're getting with forms like this, where we are seeing increased demand, particularly from retail shareholders who are clearly buying into the strategy. So thank you, again, all of you for your time today, it's appreciated. And I will now hand back briefly to [ Ali ] before we go to questions.

[Operator Instructions] And I'd like remind you that recording of this presentation, along with a copy of the slides and the published Q&A can be accessed via investor dashboard. As you can see, we have received a number of questions, both pre-submitted and throughout today's live presentation. And Nick, if I may, I'll hand back to you to run through those and I'll pick up from you at the end.

Lovely. Thank you very much. Well, firstly, great to have so many questions. And if we don't have time for all of them, we do make concerted efforts to ensure that we provide written responses after the meeting. The first question we have, there's an element of this, which we will provide a response to because it's looking for detail in relation to the difference between our day 1 rent and our reversionary rent, and if that rent is on an upward or downward trajectory. And noting that the reversionary rent is great, but the difference between actual and reversion seems to be consistently high. Are you receiving increased rents on existing properties? How much of this reversionary yield are you actually capturing? So I guess just a picture. One of the reasons why we have been able to deliver those progressive dividend increases is because we are capturing those reversions. What we will do is to bring that to life. We will post this meeting just provide a bit more color on that. So you can see where it's coming from and also contrast the pound rent uplifts that we're seeing with what we're also seeing in terms of rental value growth because of the difference. So I won't get bogged down with that now because it will confuse, but I think we will provide a clear explanation with some numbers and illustrate the points after the meeting. This question goes on to note, comforting that we are selling ahead of value and querying, are they making a difference to the LTV? Well, yes, they will. We report a net LTV. So when we sell an asset for cash, the cash gets netted against the debt, so that does bring the net LTV down. We will also -- where we're selling assets that sit within the pool of assets charged to RBS with revolving credit facility, we will use the cash to repay the revolving credit facility. So we're saving actual interest because then that facility is very flexible, we can redraw it when we need it. So we aim, as we say, to bring that net loan to value down in line with the long-run target of 25% to 35%. The question also notes that there must be some good opportunities in the market, yes, there are. We are, as we've explained, unfortunately, very capital constrained in so far as the cash that we have is allocated to our projects within the portfolio. Now as I say, we do see value in the market. I think if we have the ability to go raise $100 million, we would do today because I think we could deploy that at attractive yields, which would be accretive to earnings and dividends. But we are equally happy that the cash we have got, we will deliver an attractive return from investing in our assets, delivering a green premium and Bradley has obviously given some examples of that. Going through the questions. We had one about Lidl. Hopefully, Bradley has answered that now. We've got planning. So we'll be now proceeding with those works. Interesting question on the governments, as described here, policy of banning upward-only rent reviews. How will it affect us? And do we see around it like higher starting rent? I guess just some context here, perhaps for those who haven't seen this. So there is something, it's a bit of a mouthful, so the English Devolution and Community Engagement Bill (sic) [ English Devolution and Community Empowerment Bill ]. So this is not legislation yet, but it is a bill that the government have introduced as part of the bill, and it's quite wide ranging. But part of it is to ban upward-only rent reviews. So again, most of you all know, but one of the characteristics of the U.K. real estate market has been historically tenants have signed, 10, 15, 20-year leases. Those leases have what's called upward-only rent reviews. So rents can go up, but they can't go down compared to the original rent. Now the government's announcement is justified in their mind by the benefit it will bring to high street because as they see it, there are lots of retailers who are locked into unaffordable leases and that by introducing this change, it will stimulate growth on the high street. The industry completely disagrees with that view. If you look at the facts and the industry will be communicating this clearly to governments, the trend over the last 20 years, but particularly during and post pandemic is occupiers got more flexibility. And actually, the average rent now in the U.K. is about -- the average lease length, I should say, is about 7 years. So if you see the 5-year rent review pattern, that would only actually capture one of those rent reviews. So this will be challenged. I think our view is even if it is introduced, it could have a fairly limited impact. If you look at 40 -- the last sort of 40 periods of annual rent for the whole of the market, in only 5 of those 40 consecutive periods has the average rent gone down over that 5-year period. Where it potentially could impact is on, for example, big pre-let developments, my developers would normally get pre-lets, long leases, and therefore, if there's a risk of the rent going down over that long period, it could impact the ability to fund new development. So it wouldn't impact us. Ironically, in that case, it probably would mean even less supply and lead to higher rents for existing buildings. I guess, ultimately, if it does come in also, we might see the market shift more towards the European model of more frequent inflation-linked rent reviews. And again, in that situation, and that may actually also be positive, particularly for a company like ours where we're already very active managers, particularly of shorter leases across our industrial assets. So I think there's a long way to go. What I would say, just to finish off on that point, is the government proposals are not retrospective. So if introduced, this would only impact leases that are put in place, assuming the legislation is ultimately passed. Next slide -- next question rather, which I might just pass to Bradley, on Slide 12, Bradley, the reason for the forecast return decreasing over the next 4 years.

Slide 12. Okay. Yes. So I think -- so these forecasts, we're coming off the back of a average 25% decline in commercial real estate value. So that was from sort of June '22, across around 18 months after that. But interestingly, at the same time, rents have continued to grow for that period. So you get a really attractive income return in the forecast. So it's around 5.5% per annum. So that's the bulk of your return over the next 4 years. And then where does the capital growth come from? So the light sort of green bar. Well, there are 2 ways you can get that capital growth. First is the rental growth. So as rents grow, if your yields stay same, you benefit from capital growth as well. And second is from some yield compression. And when these forecasts were produced, we felt that rental growth in '25 would be pretty strong, continue to be strong, but also that we benefit from yield compression resulting from reductions in interest rates. And then that kind of benefit would decline through the year, so you'd get less yield compression through the years. I think what's probably going to happen more likely now is in 2025, there will be less yield compression because of the very high gilt yield. So 30-year gilt, highest it's ever been or highest it's been since 1998. And actually, you're probably going to see a stronger 2026 compared to 2025. So I think the shape will slightly change, but the general sort of theme that there's a really good chance of some attractive years for real estate coming up is it remains the same. So I guess in short, you've got your income return, strong income return from the lower capital value and the continued rental growth. You get some rental growth, which contributes to capital value, and then there will be some modest yield compression resulting from the lower interest rates and hopefully, a decline in the 10-year gilt yield, which is often used as a yardstick for real estate.

Perfect. Very good. Thank you. So just if we just pick through the other questions. So is it the case that there will be a new person managing the trust in the near future and also a new Chairman? If so, does this increase the potential for some form of corporate activity? So it is the case that I will be stepping back, and we set this out in the most recent year-end results, which coincides with my role changing to run the whole real estate business. I will -- whether Bradley likes it or not, I remain involved as chairing our investment committee, which will, in effect, approve the strategy for it is recommended to the Board alongside key transactions. Importantly, obviously, Bradley remains and he's been instrumental in how we have set particularly the most recent strategic evolution. And we will be -- the process is ongoing, bringing in someone to sit alongside Bradley. So we have the same arrangement, co-managers, which is what we would always have as a part of orderly succession, but it's a bit different because obviously, I'm not leaving the building. We also have the Chair stepping back, but not until next year, probably coinciding with the AGM in September, which again is compliance with best practice governance. Alastair will have done his 9 years. He has been an excellent Chair. We've made recent other improvements to the Board as part of normal rotation, and we will, again, go through that same process with Alastair. So there is that change, but well managed. And again, we continue to benefit from the whole platform of Schroders rather than having 2 blokes. Started office in the West End, Bradley and me, currently, we do benefit from having that broader resource within Schroders. So I don't think it does increase the potential for some form of corporate activity. I will remain as a shareholder, very supportive of the company in my new role, and I would hope that we will, if anything, continue improving our offer to shareholders, working obviously very closely with the new Chair and the Board. [ Keep going, probably another ] question, but what is the difference in portfolio value and NAV? In simple terms, the gap is the debt. So the GBP 184 million of debt. If you add that in the NAV, broadly speaking, you get to the portfolio value. The next question, are you exempt from all tax on capital gains, which listed unit trust and investment trust, enjoy. What would you do if the U.K. government abolished the exemption? Great questions, particularly in the context of the English Devolution Bill. I guess first thing to note is, and this is set out in the accounts, Bradley and I are not tax experts, but we are a real estate investment trust. The REIT rules were introduced by the government as a preferred structure to own real estate in the U.K. and obviously, they can be both public and private. So we're not expecting any changes to those REIT rules. If anything, what we see are the government wanting to encourage more restructures as a means of encouraging capital into the U.K. for the growth of the economy. So in sort of reading from the accounts, the U.K. REIT rules exempt the profits of SREIT from corporation tax. Gains are also exempt from tax provided and there are caveats that are not held for trading purposes and ours are not, they're held for investment purposes. What REITs are required to do though, which we are fully compliant with is distribute at least 90% of the group's net income. And that was the key factor in the government introducing the legislation, and that's what we do with lots of cover. So those are the rules. The accounts on the website do provide a bit more color, if needed. Obviously, we're not providing tax advice, but it's well-trodden territory, and we're not expecting any change. The next question, Bradley, I hope you can -- I'm not [indiscernible] but there's a question just in relation to the discount. Can you see that and answer that next one?

I can't actually see the Q&A, but I -- in terms of the discount, we're seeing really good improvement over the last couple of years. And I think that's in part because of the strategy paying off and investors knowing the strategy. I think we've had excellent support from investors through direct-to-consumer platforms such as Hargreaves, AJ Bell, Interactive Investor. And also, I think we delivered good performance in dividend growth, which in turn has had people buy the shares. So we are continuing to push hard. We would like to continue to close the discount, not least because it will enable us to raise capital in a really attractive market. But also because that will be very positive for our shareholders because it will translate into shareholder total return.

Yes, exactly. And I think -- thank you, Bradley. And the -- I know you've got a technical problem there. The second point in that context is regarding would it not be more accretive to undertake buybacks. I think on that point, it's worth noting we obviously have been buybacks in the past, ahead of peers actually and did it with a very clear strategy of concentrating earnings rather than expecting any significant improvement in the discount by virtue of just doing the buybacks because they tend not to have a long-term impact in terms of closing the discount. It's very much about enhancing earnings. It is something we have the ability to do. Currently, going back to my point about cash. We don't have the surplus cash in order to deploy into buybacks. The other consequence of buybacks, of course, is you are increasing your net loan to value. And so that would be inconsistent with what we're doing in terms of trying to get back within that strategic range, which we are doing with the small sales that we're contemplating so -- or completing and contemplating. So that's the reason why at the moment, we're not being buybacks. But as I say, we have done in the past. There's a question about joint ownership. So 2 of our assets, City Tower, Manchester and Store Street in London are held in very simple co-ownership structures, and they're held alongside other discretionary Schroder managed funds. So there's alignment on strategy and the funds sit within, obviously, the business I'm responsible for. So those managers are aligned in terms of strategy. And again, I'm just conscious of everyone's time. The final 3 questions relate to vacancy. Noting that it has increased -- it has upticked a little bit quarter-on-quarter. But as Bradley touched upon briefly, actually, we have a meaningful proportion of the vacant space in legals, so therefore terms agreed in the process of being legally contracted. That will reduce the vacancy below obviously where it was when we last reported at the year-end. The reason for the delay candidly is just partly summer because things go quiet, company directors [indiscernible]. So we are happy with the activity that is ongoing. And what we will do, again, we've said in relation to one other question, we'll just -- in the Q&A responses, just set up a little bit more color on why we feel that is a direction of travel. So given time, I will just thank you very much again for attending today. And again, if you have any more feedback, we'd love to hear it, please reach out and we will do our best to respond. Back to you, Ali.

That's great, Nick, Bradley. Thank you very much for updating investors today. Could I please ask investors not to close the session as you now be automatically redirected to provide your feedback in order the management team can better understand your views and expectations. On behalf of the management team of Schroder Real State Investment Trust, we'd like to thank you for attending today's presentation, and good afternoon to you all.