Given the increase in the RCF and the maturity in July 2023, consideration is being given to refinancing options which may include an increase in the RCF capacity.

Outlook

Good progress has been achieved over the period in delivering the strategy against the backdrop of improving market conditions, with the outcome being healthy NAV growth, sustained outperformance of the underlying portfolio and further increases in the level of dividend.

Whilst the focus is on growing net income and dividends, we are also investing in existing assets to maximise returns and ensure the portfolio remains resilient in response to structural changes and evolving occupier trends.  A key part of this is evolving our approach to delivering operational excellence for occupiers as well as demonstrating continued improvements in sustainability performance.     

Whilst we are alert to the risks of an increase in Covid-19 case rates over the winter, and the possibility of more persistent inflation leading to higher interest rates, the momentum in the broader economy and high yield offered by the real estate sector means we are positive about the outlook for the Company. 

Nick Montgomery

Fund Manager

22 November 2021

Responsibility Statement of the Directors in respect of the Interim Report

We confirm that to the best of our knowledge:

• the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting; and

• the interim management report (comprising the Chairman's and the Investment Manager's report) includes a fair review of the information required by:

(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

We are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website, and for the preparation and dissemination of financial statements. Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

By order of the Board

Lorraine Baldry

Chairman

22 November 2021

Independent Review Report to Schroder Real Estate Investment Trust Limited

Conclusion

We have been engaged by Schroder Real Estate Investment Trust Limited (the "Company") and its subsidiaries (together the "Group") to review the Condensed Consolidated Financial Statements in the Interim Report and Consolidated Financial Statements for the six months ended 30 September 2021 which comprises the Unaudited Condensed Consolidated Statement of Comprehensive Income, Unaudited Condensed Consolidated Statement of Financial Position, Condensed Consolidated Statement of Changes in Equity, Condensed Consolidated Statement of Cash Flows, and the related Notes 1 to 16. We have read the other information contained in the Interim Report and Consolidated Financial Statements and considered whether it contains any apparent misstatements or material inconsistencies with the information in the Condensed Consolidated Financial Statements.

Based on our review, nothing has come to our attention that causes us to believe that the Condensed Consolidated Financial Statements for the six months ended 30 September 2021 are not prepared, in all material respects, in accordance International Accounting Standard 34 "Interim Financial Reporting" and the Disclosure Guidance and Transparency Rule of the United Kingdom's Financial Conduct Authority.

Basis for Conclusion

We conducted our review in accordance with International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board ("ISRE 2410"). A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

As disclosed in Note 1, the Annual Report and Consolidated Financial Statements of the Group are prepared in accordance with International Financial Reporting Standards. The Condensed Consolidated Financial Statements have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting".

Responsibilities of the Directors

The Directors are responsible for preparing the Interim Report and Condensed Consolidated Financial Statements in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Auditor's Responsibilities for the review of the financial information

In reviewing the Interim Report and Condensed Consolidated Financial Statements, we are responsible for expressing to the Company a conclusion on the Condensed Consolidated Financial Statements. Our conclusion, is based on procedures that are less extensive than audit procedures, as described in the Basis for Conclusion paragraph of this report.

Use of our report

This report is made solely to the Company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board ("ISRE 2410"). To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.

Ernst & Young LLP

Guernsey, Channel Islands

22 November 2021

The maintenance and integrity of the Company's website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Condensed Consolidated Statement of Comprehensive Income

All items in the above statement are derived from continuing operations. The accompanying notes 1 to 16 form an integral part of the condensed interim financial statements.

Condensed Consolidated Statement of Financial Position

The financial statements on pages 25-38 of the 2021 Interim Report and Condensed Consolidated Financial Statements were approved at a meeting of the Board of Directors held on 22 November 2021 and signed on its behalf by:

Lorraine Baldry

Chairman                                                              

The accompanying notes 1 to 16 form an integral part of the condensed interim financial statements.

 

Condensed Consolidated Statement of Changes in Equity

For the period from 1 April 2020 to 30 September 2020 (unaudited)

The accompanying notes 1 to 16 form an integral part of the condensed interim financial statements.

Condensed Consolidated Statement of Cash Flows

The accompanying notes 1 to 16 form an integral part of the condensed interim financial statements.

Notes to the Interim Report

1. Significant accounting policies

Schroder Real Estate Investment Trust Limited ("the Company") is a closed-ended investment company incorporated in Guernsey. The condensed interim financial statements of the Company for the period ended 30 September 2021 comprise the Company, its subsidiaries and its interests in joint ventures (together referred to as the "Group").

Statement of compliance            

The condensed interim financial statements have been prepared in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom Financial Conduct Authority and IAS 34 Interim Financial Reporting. They do not include all the information required for the full annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group as at and for the year ended 31 March 2021. The condensed interim financial statements have been prepared on the basis of the accounting policies set out in the Group's annual financial statements for the year ended 31 March 2021. The financial statements for the year ended 31 March 2021 have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board. The Group's annual financial statements refer to new Standards and Interpretations.

Going concern

The Directors have examined significant areas of possible financial risk, including the non-collection of rent and service charges as a result of the Covid-19 pandemic and the potential impact on property valuations; have reviewed cash flow forecasts; and have analysed forward-looking compliance with third party debt covenants, in particular the Loan to Value covenant and interest cover ratios.

Overall, after utilising available cash, excluding the cash undrawn against the RBS facility, and uncharged properties and units in Joint Ventures, and based on the reporting period to 30 September 2021, property valuations would have to fall by 45% before the relevant Canada Life Loan to Value covenants were breached, and actual net rental income would need to fall by 76% before the interest cover covenants were breached.

Furthermore, the properties charged to RBSI could fall in value by 72% prior to the 65% LTV covenant being reached and, based on actual net rents for the quarter to September 2021, a 78% fall in net income could be sustained prior to the RBSI loan covenant of 250% being breached.

The Board and Investment Manager continue to closely monitor the potential impact that the Covid-19 pandemic may have on the Company's rental collection and the requirement to distribute dividends in accordance with the REIT regulations. All future dividends will be kept under constant review to ensure the Company's liquid resources will be sufficient to cover any working capital requirements.

The Directors have not identified any matters which would cast significant doubt on the Group's ability to continue as a going concern for the period to 22 November 2022. In addition to the matters described above, in arriving at their conclusion the Directors have also considered:

·      The current cash balance at 22 November 2021 of £12.98 million;

·      The nature and timing of the Company's income and expenses; and

·      That the Investment Manager and Administrator have successfully invoked their business continuity plans to help ensure the safety and well-being of their staff thereby retaining the ability to maintain the Company's business operations.

The Directors have satisfied themselves that the Group has adequate resources to continue in operational existence for at least the next twelve months from the date of approval of the financial statements. After due consideration, the Board believes it is appropriate to adopt the going concern basis in preparing the condensed interim financial statements.

Use of estimates and judgments

The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. There have been no changes in the judgements and estimates used by management as disclosed in the last annual report and financial statements for the year ended 31 March 2021.

Segmental reporting   

The Directors are of the opinion that the Group is engaged in a single segment of business, being property investment, and in one geographical area, the United Kingdom. There is no one tenant that represents more than 10% of the Group's revenue. The chief operating decision-maker is considered to be the Board of Directors who are provided with consolidated IFRS information on a quarterly basis.

2. Material agreements

Schroder Real Estate Investment Management Limited is the Investment Manager to the Company.

Between the period of 1 April 2021 to 30 June 2021 the Investment Manager was entitled to a fee of 1.1% payable monthly and calculated with regard to the NAV of the Group.

With effect from 1 July 2021 a new fee agreement was agreed and implemented between the Board and the Investment Manager which includes a blended (not cliff edge), tiered fee structure as follows:

The fee covers all of the appointed services of the Investment Manager and there are standard provisions for the reimbursement of expenses. Additional fees can be agreed for out of scope services on an ad hoc basis.

The total charge to profit during the period was £1,397,000 (year to 31 March 2021: £2,906,000; six months to 30 September 2020: £1,449,000). At the period end no amount was outstanding (31 March 2021: £20,000; 30 September 2020: £646,000).

Northern Trust International Fund Administration Services (Guernsey) Limited was the Administrator to the Company during the period. The Administrator was entitled to an annual fee equal to £120,000 of which no sum (31 March 2021: £30,000; 30 September 2020: £30,000) was outstanding at the period end.

With effect from 1 October 2021, Langham Hall (Guernsey) Limited and Langham Hall UK Depositary LLP replaced Northern Trust and will provide Administration, Designated Manager and Depositary services to the Group respectively going forward.

3. Basic and Diluted Earnings per share

The basic and diluted earnings per share for the Group is based on the profit for the period of £33,197,000 (31 March 2021: profit of £4,542,000; 30 September 2020: loss of £8,776,000) and the weighted average number of ordinary shares in issue during the period of 491,086,039 (31 March 2021: 508,699,880 and 30 September 2020: 518,056,505).

4. Taxation

SREIT has elected to be treated as a UK real estate investment trust ("REIT"). The UK REIT rules exempt the profits of SREIT and its subsidiaries' (the "Group") UK property rental business from corporation tax. Gains on UK properties are also exempt from tax, provided they are not held for trading or sold in the three years after completion of development. The Group is otherwise subject to corporation tax.

As a REIT, SREIT is required to pay Property Income Distributions equal to at least 90% of the Group's exempted net income. To retain UK REIT status there are a number of conditions to be met in respect of the principal company of the Group, the Group's qualifying activity and its balance of business. The Group continues to meet these conditions.

5. Dividends paid

A dividend for the quarter ended 30 September 2021 of 0.726 pence per share (totalling £3.56 million) was approved on 22 November 2021 and will be paid on 17 December 2021.

6. Investment property

For the period 1 April 2020 to 30 September 2020 (unaudited)

6. Investment property (continued)

For the year 1 April 2020 to 31 March 2021 (audited)

For the period 1 April 2021 to 30 September 2021 (unaudited)

The fair value of investment property, as determined by the valuer, totals £384,375,000 (31 March 2021: £359,300,000; 30 September 2020: £320,050,000). None of this sum was in relation to an unconditional exchange of contracts (March 2021: £nil; September 2020: £nil).

As at 30 September 2021, £9,062,304 (31 March 2021: £9,512,762; 30 September 2020: £9,739,000) in connection with lease incentives is included within trade and other receivables. Furthermore, included in non-current liabilities is a sum of £1,987,395 (31 March 2021: £1,988,000; September 2020: £2,412,000) relating to the fair value of the leasehold element of The Galaxy, Luton.

The fair value of investment property has been determined by Knight Frank LLP, a firm of independent chartered surveyors, who are registered independent appraisers.  The valuation has been undertaken in accordance with the current editions of RICS Valuation - Global Standards, which incorporate the International Valuation Standards, and the RICS UK National Supplement issued by the Royal Institution of Chartered Surveyors (the "Red Book").

The properties have been valued on the basis of "Fair Value" in accordance with the RICS Valuation - Professional Standards VPS4(7.1) Fair Value and VPGA1 Valuations for Inclusion in Financial Statements which adopt the definition of Fair Value used by the International Accounting Standards Board.

The valuation has been undertaken using appropriate valuation methodology and the Valuer's professional judgement. The Valuer's opinion of Fair Value was primarily derived using recent comparable market transactions on arm's length terms, where available, and appropriate valuation techniques (The Investment Method).

The properties have been valued individually and not as part of a portfolio.

6. Investment property (continued)

All investment properties are categorised as Level 3 fair values as they use significant unobservable inputs. There have not been any transfers between Levels during the year. Investment properties have been classed according to their real estate sector. Information on these significant unobservable inputs per class of investment property is disclosed below:

Quantitative information about fair value measurement using unobservable inputs (Level 3) as at 30 September 2021 (unaudited)

Notes: ⁽¹⁾ Yields based on rents receivable after deduction of head rents, but gross of non-recoverables.

Quantitative information about fair value measurement using unobservable inputs (Level 3) as at 31 March 2021 (audited)

Notes: ⁽¹⁾ Yields based on rents receivable after deduction of head rents, but gross of non-recoverables.

6. Investment property (continued)

Sensitivity of measurement to variations in the significant unobservable inputs

The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy of the Group's property portfolio, together with the impact of significant movements in these inputs on the fair value measurement, are shown below:

There are interrelationships between the yields and rental values as they are partially determined by market rate conditions. The sensitivity of the valuation to changes in the most significant inputs per class of investment property are shown below:

7. Investment in joint ventures

For the period 1 April 2020 to 30 September 2020 (unaudited)

For the year 1 April 2020 to 31 March 2021 (audited)

For the period 1 April 2021 to 30 September 2021 (unaudited)

8. Trade and other receivables

£5.03 million (gross) was owed by tenants as at period end and a net bad debt provision of £0.8m was made with regard to expected credit losses (31 March 2021 £1.1m; 30 September 2020: £1.04m) .

When determining an appropriate bad debt provision the following key factors were considered: the tenants' rent deposits held; the tenants' covenants; financial strength and rent and service charge-paying histories; and the current trading situation of the tenants.

Sundry debtors and prepayments includes £9,063,000 (31 March 2021: £9,512,000; 30 September 2020: £9,369,000) in respect of lease incentives, which are spread over the term of the lease.

9.Cash and cash equivalents

As at 30 September 2021 the group had £10.6 million in cash (31 March 2021: £12.2 million; 30 September 2020: £78.7 million) and none of this sum was held with Canada Life (31 March 2021: Nil; 30 September 2020: £18.3 million).

10. Interest-bearing loans and borrowings

The Group has in place a £129.6 million loan facility with Canada Life and the loan is split in to two equal tranches of £64.8m as follows:

-       Facility A matures in October 2032 and attracts an interest rate of 2.36%; and

-       Facility B matures in October 2039 and attracts an interest rate of 2.62%.

The Canada Life facility has a first charge security over all the property assets in the ring-fenced Security Pool which at 30 September 2021 contained properties valued at £290.8 million. Various restraints apply during the term of the loan although the facility has been designed to provide significant operational flexibility.

The Company also has in place a revolving credit facility ('RCF') with Royal Bank of Scotland International, which expires in July 2023, and the current RCF limit stands at £52.5 million. As at 30 September 2021, there was a balance of £24.5m drawn (March 2021: £24.5m; September 2020: £52.5m).

The RBS facility has a first charge security over all the assets held in SREIT No.2 Limited which at 30 September 2021 contained properties valued at £133.8 million.

The interest rate as at the period end was based on the Loan to Value ratio as set out below:

-       LIBOR + 1.60% if the Loan to Value is less than or equal to 60%--; and

-       LIBOR + 1.85% if the Loan to Value is greater than 60%.

During both the current and prior periods, the Loan to Value has remained at less than 60%. Since this loan has variable interest, an interest rate cap for £32.5m of the loan was entered into and this comes in to effect if GBP 3 month LIBOR reaches 1.5%. As at the reporting date, GBP 3 month LIBOR has not reached 1.5%.

Post the period end the RBS facility has transitioned from LIBOR to SONIA for interest payments due post October 2021.

As at 30 September 2021, the Group has total loan balances drawn of £154.09 million and £0.6 million of unamortised arrangement fees (31 March 2021: £154.99 million and £0.7 million of unamortised arrangement fees; September 2020: £182.09 million and £0.7 of unamortised arrangement fees).

The fair value of the fixed-interest Canada Life debt is based on the present value of future cash flows discounted at a market rate of interest. As at 30 September 2021, the fair value of the Group's £129.59 million loan with Canada Life was £129.4 million (31 March 2021: £131.1 million, 30 September 2020: £150.6 million).

11. Trade and other payables
 

12. NAV per ordinary share and share buyback

Between the 1 April 2021 to 12 April 2021 the Company purchased a further sum of 338,340 shares for a sum of £0.14m at an average price of 40 pence per share.

As a consequence of the buyback, the number of ordinary shares in issue fell from 491,418,641 to 491,080,301 during the reporting period.

The NAV per ordinary share is based on the net assets of £323,368,806 (31 March 2021: £296,844,000; 30 September 2020: £296,774,000) and 491,080,301 ordinary shares in issue at the Statement of Financial Position reporting date (31 March 2021: 491,418,641 and 30 September 2020: 511,364,955).

13. Financial risk factors

The Directors are of the opinion that there have been no significant changes to the financial risk profile of the Group since the end of the last annual financial reporting period ended 31 March 2021. The main risks arising from the Group's financial instruments and properties are market price risk, credit risk, liquidity risk and interest rate risk. The Group is only directly exposed to sterling and hence is not exposed to currency risk. The Board regularly reviews and agrees policies for managing each of these risks.

14. Related party transactions

Material agreements are disclosed in note 2. The Directors' remuneration for the six month period for services to the Group was £75,000 (31 March 2021: £150,000, 30 September 2020: £75,000) of which £nil was outstanding at period end (31 March 2021: £nil; 30 September 2020: £nil). Transactions with joint ventures are disclosed in note 7.

15. Capital commitments
 

At 30 September 2021 the Group had capital commitments for capital expenditure of £4.1 million (31 March 2021: £3.2 million; 30 September 2020: £3.1 million).

16. Post balance sheet events
 

On 17 November 2021 the Group exchanged with regard to four industrial acquisitions in Haydock, Sandbach and Birkenhead.

The asset in Haydock completed on 19 November 2021 for a net purchase price of £4.86m.

Two assets in Sandbach also completed on 19 November 2021 for a net purchase price of £3.59m.

The asset in Birkenhead will complete in December 2021 for a net price of £11.40m.

On 18 November 2021 the Group drew down a further £9.0m on its RBS revolving credit facility which has since increased the total balance drawn from £24.5m to £33.5m as at the signing date. A further £12.2m is intended to be drawn down ahead of the Birkenhead completion.

EPRA Performance Measures (unaudited) 

As recommended by the European Public Real Estate Association ('EPRA'), key performance measures are disclosed in the section below.

a. EPRA earnings and EPRA earnings per share

Represents total IFRS comprehensive income excluding realised and unrealised gains/losses on investment property and the share of net valuation profit/loss in joint ventures, divided by the weighted average number of shares.

b. EPRA Net Reinstatement Value

c. EPRA Net Tangible Assets

EPRA Performance Measures (unaudited) 

d. EPRA Net Disposal Value

Glossary

Alternative Performance Measures (unaudited)

The Company uses the following Alternative Performance Measures ("APMs") in its Interim Report and Consolidated Financial Statements. The Board believes that each of the APMs provides additional useful information to the shareholders in order to assess the Company's performance.

Dividend Cover - the ratio of EPRA Earnings (note 3) to dividends paid (note 5) in the period. Earnings excludes capital items such as revaluation movements on investments and gains or losses on the disposal of investment properties.

Dividend Yield - the dividends paid, expressed as a percentage, relative to the share price. To note that for six monthly interim periods this is annualised.

EPRA Earnings - earnings excluding all capital components not relevant to the underlying net income performance of the Company, such as the unrealised fair value gains or losses on investment properties and any gains or losses from the sales of properties. See note 3 for a reconciliation of this figure.

EPRA Net Tangible Assets - the IFRS equity attributable to shareholders adjusted to reflect a Company's tangible assets and assumes that no selling of assets takes place.

EPRA Net Disposal Value - the IFRS equity attributable to shareholders adjusted to reflect the NAV under an orderly sale of business, where any deferred tax, financial instruments and certain other adjustments are calculated to the full extent of their liability.

EPRA Net Reinstatement Value - IFRS equity attributable to shareholders adjusted to represent the value required to rebuild the entity and assumes that no selling of assets takes place.

Gross LTV - the value of the external loans unadjusted for unamortised arrangement costs (note 10) expressed as a percentage of the market value of property investments as at the Balance Sheet date. The market value of property investments includes joint venture investments and are as per external valuations and have not been adjusted for IFRS lease incentive balances or the fair value of the head lease at Luton.

LTV Net of Cash - the value of the external loans unadjusted for unamortised arrangement costs (note 10) less cash held (note 9) expressed as a percentage of the market value of the property investments as at the Balance Sheet date. The market value of property investments includes joint venture investments and are as per external valuations and have not been adjusted for IFRS lease incentive balances or the fair value of the head lease at Luton.

Ongoing Charges (including fund only expenses) - all fund costs expected to be regularly incurred and that are payable by the Company expressed as a percentage of the average quarterly NAVs of the Company for the financial period. Any capital costs, including capital expenditure or acquisition/disposal fees, are excluded.

Ongoing Charges (including fund and property expenses) - all operating costs expected to be regularly incurred and that are payable by the Company expressed as a percentage of the average quarterly NAVs of the Company for the financial period. Any capital costs, including capital expenditure and acquisition/disposal fees, are excluded.

Share Discount/Premium - the share price of the Company is derived from buyers and sellers trading their shares on the stock market. This price is not identical to the NAV per share of the underlying assets less liabilities of the Company. If the share price is lower than the NAV per share, the shares are trading at a discount. Shares trading above the NAV per share are said to be at a premium. The discount/premium is calculated as the variance between the share price as at the Balance Sheet date and the NAV per share (page 25 of the 2021 Interim Report and Condensed Consolidated Financial Statements ) expressed as a percentage.

NAV total return - the return to shareholders calculated on a per share basis by adding dividends paid (note 5) in the period on a time-weighted basis to the increase or decrease in the NAV per share (page 25 of the 2021 Interim Report and Condensed Consolidated Financial Statements).

Corporate information

Endnotes: