Good morning, ladies and gentlemen, and welcome to the Schroder Real Estate Investment Trust annual results presentation. My name's James Lowe, I work in the Schroders Capital client team, and I'm very pleased to be joined here in our London studio by the two fund managers of the trust, that's Nick Montgomery and Bradley Biggins.

Just before we get into the presentation, couple of pieces of housekeeping and admin. If you'd like to ask us questions as you go along, please do so via 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. 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 we've had a busy few months, and what we're going to do today obviously is focus principally on the year-end results to to March. We will give obviously the usual flavor of activity post-March, particularly as it relates to the underlying portfolio and income, and we will obviously touch also on the announcement James referred to just then in relation to the update 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 cer- certain questions, but we will review all of the questions with a view to providing a response thereafter.

I I'd also say in a normal way, Bradley and I obviously would be delighted to attend separate meetings with with with you to the extent that that that is helpful. Just therefore jumping in in into the I guess the key points.

This is partly a reiteration of of previous messages. We 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 a 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, on my screen, in terms of the key points, we have a 7.8% dividend yield today, and that's obviously based on at the share price rerating, which we we will will come on to, and I expect we will get some questions on that.

Obviously, we have our commitment to maintaining that progressive dividend policy. It's worth noting, I think, importantly, 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%.

Obviously the 4% uptick year on year I I think also should be seen in in that context. What what Bradley will talk to later on is is obviously the very significant reversionary potential we continue to have within the portfolio with that £8 million number comparing with the current dividend rate annualized of about £17.6 million, and will 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 two or three's time, with with 75% of that debt locked in at 2.5% for for another 10 years.

Now obviously we are going through a process of uncertainty, both you know domestically, politically, but also globally, with with Middle East conflict unfortunately rumbling on. That has obviously in in part coincided with the financial period.

Interestingly, it's also coincided with the process in relation to the consortium proposal for Picton, and so we have seen, I think, over the over the financial year, our share price got to sort of high single-digit discount to NAV. We've obviously seen that sell off with the wider sector to to a sort of 25% discount to the NAV we're announcing today.

Now clearly there is uncertainty there for the market, but but we would argue still that this is an attractive entry point for for new shareholders, existing shareholders, given those underlying market fundamentals remaining relatively resilient, and and the earnings growth potential within our portfolio. I guess in in respect to that, lots of activity, most of it I'd say offensive in terms of crystallizing high rents, some of it defensive, where where we are still defending value and and and void, particularly in the office portfolio, but but nonetheless encouraging overall, with with obviously a key focus on on how sustainability investments are improving that performance.

Now the final point here, as as I'm sure a lot of the questions we'll be addressing, obviously we have been in a process in relation to a consortium offer for for Picton. We have real conviction that that it will be earnings accretive obviously for Picton, but also our own shareholders, further strengthening our balance sheet, and and and critically delivering increased scale, significant increase in the number of tenants, assets, ability to ride through bumps a bit more easily where where where obviously in a smaller portfolio that that is more that is more challenging.

We're delighted obviously to have made the the announcement today, and and that follows an an extensive consultation exercise that has allowed the Picton board to reaffirm its its commitment for the proposal that, as I say, we believe delivers those benefits that are set out in that 2.4 announcement. We're also announcing today, it's a busy day, busy day yesterday in particular, we're also announcing today board succession.

We've been very fortunate obviously to have Alastair as chair, particularly through this period where he's given us great support alongside the other non-exec directors. Alastair is coming up to his 9 years, in line with best practice, he he will be stepping down at the AGM in September.

Equally delighted to say that Priscilla Davies, our SID currently, is stepping up to become chair, and we've set that out in the announcement. Great experience and also provided us with great support during this process.

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 we're absolutely thrilled about. Richard is an experienced non-exec director, spent 9 years on the board of Derwent, currently sits on the board of of Barclays, and prior to that as an executive, long-standing career at Lloyds Banking Group, highly respected, and more more recently, latterly, at CBRE Group.

We're we're very pleased to announce those changes today. In terms of the the activity, Bradley will touch on shortly, huge amount of activity across the portfolio, and and more on that in 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 of the financial year, with those agreements for lease that we've exchanged, and more on that later, our void rate has dipped below 10%, which actually is is the is a is a 3-year low compared with 12, as you can see, percent percent at the beginning of the period. Obviously, a lot of our activity that has driven that void rate lower has been across our industrial estates.

Stanley Green now fully let, having completed the project there, some really great lettings, for example, in in in Leeds, which we'll touch on later on. Equally, although that is two-thirds of our portfolio where we are seeing good performance both in absolute and relative terms, we are obviously equally focused, if not more so focused, on managing the risk within the office portfolio.

I'd say that falls very much into two two two categories. Assets like Store Street, which you'll hear about, which is a we think is a really, really interesting opportunity, particularly as we're seeing improving sentiment towards London and and and a really dynamic occupational market, particularly in that part of of Bloomsbury with others investing there.

Equally, other assets, City Tower Manchester being a key focus, that was impacted significantly over the year both in terms of value and and expenses, but again, we have a team in Manchester, total focus on on on delivering the business plan there, and actually there was some progress post year end in terms of a restructuring with a hotel operator and and and likewise a new lease with with NCP, so more on that perhaps later. All of that activity, the 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.

That led in last November, November '25, for the second year running, we were awarded the MSCI highest 10-year performance track record for for the UK and and Europe. To 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 to have a material income return premium which which which we've we've always had. Final point here, obviously the governance aspects, we do aim to be best in class.

Obviously, there was a fee reduction that that shareholders have benefited from for part of the financial year we're reporting on today. We've announced obviously the director changes, and and we include detail in the report in the chair's statement in relation to my succession, which is progressing obviously in parallel with some of the other activity that's ongoing.

The board and and Schroders has made a commitment to find a, what we describe as effectively a market-facing CEO to work alongside Bradley. Whether people like it or not, I'll be remain involved, chairing Investment Committee and and other and other things.

On the results, because of primarily those market-driven factors, particularly over the second half of the year with the with the Middle East, we saw a small decline in our underlying portfolio value of that of that 0.1%. Some of the expenses impacts and and other factors led to the the the annual NAV decline of about 1.1%.

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 an 11% return for the for the 12-month period ending ending March '25.

What we've also done today, and and and partly reflecting the fact this is slightly later than we would normally communicate our year-end results, the reasons for that are clear, is is we've been able to provide information on our quarterly unaudited valuation movements to June. We thought that would be helpful given given obviously, the sort of market general market uncertainty.

Over the quarter to June, the underlying portfolio value went up a little bit, but when you allow for both capital expenditure that we've been investing, more later, but also a small adjoining acquisition that we made and the costs associated with that, the net like-for-like movement over the quarter was down about 0.3%. Now that's that's we think that's probably better than where the benchmark will end up based on what we can see in terms of the MSCI data, but we thought it'd be helpful just to give that data point, particularly given the other activity that that that we're announcing today.

All of that activity has resulted, and you can see it clearly set out here, resulted in us reporting the NAV at the period at year end rather at 61.9p, and we will 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 will support future earnings.

I think that's a key point understandably people are going to focus on. Move down the line, the 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, we have the the held assets, rents have been going up helpfully. The joint venture assets, worth noting there, 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 Camden in relation to the pre-planning application, 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, Bradley 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 £4.3 million over the year. That was partly property expenses.

There was also about an £800,000 charge that related to writing off arrears connected with the prior year. Those were arrears that we we thought we might receive this financial year.

We've written those off, and that's that that was about eight of the majority of that £800,000, so 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 were up at about 98% and and trending very positively in that respect.

I think that can be deemed almost as as as a one-off. All those factors combined did result obviously in a small reduction in EPRA earnings, but 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, but it is worth repeating, another reason why we and the board have the confidence of driving the dividends further is because we have less to worry about in terms of the the interest side, and and you can see here particularly in relation to Canada Life loan, £130 million, roughly 75% of our debt book fantastically fixed at that 2.5% with a with an average maturity remaining of about of about 10 years. As we've noted before, and I guess it's pertinent now, particularly in relation to to the corporate activity, that is not in our NAV.

That if you were to mark that to market as you would an interest rate swap, that would have a value today of about of about £19 million. Performance, I I've touched on this, if I just ask you to to look to the bottom right-hand corner, you can see there, as I noted, very long-term long-term outperformance, very significant long-term outperformance, 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 at 5.7%, but again, a marginal underperformance.

Importantly, top left-hand corner, you can see there the income return that we delivered over the year, 5.5% compared with the benchmark of 4.8%, and that's obviously reflecting all expenses on a like-for-like basis at property level with the benchmark, which gives us a head start in terms of in terms of returns. As I noted earlier on, over the quarter to June, we we do expect, when the final benchmark numbers are released, that we will scrub up favorably against against those numbers.

Now market context, you could probably look at what we said at the interims and what we said 12 months ago and and and and see 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 UK, but across Europe as well, are are at, relatively lower levels still. I think what what what is interesting is obviously the contrast between investment markets and and and where there is more caution, businesses navigating high labor costs, elevated financing costs.

Notwithstanding that, actually GDP in the UK has remained a little bit more resilient perhaps than the headlines might suggest, and actually when we look under the bonnet across our portfolio, the occupational markets continue to be relatively healthy in terms of underlying activity activity levels. Companies still need space, and and whether it's increasing numbers of people coming back to London or or a chronic shortage of multi-let industrial estates across the UK, we we feel that, it is a protracted recovery, but but nonetheless we think we will see a recovery, particularly as as as we go into in into next year.

Again, that's predicated obviously on hopefully seeing some form of resolution and stability in in in the Gulf, and and obviously we hope for that for for many reasons. I won't spend much longer.

I might take questions in relation to the market, but I think unfortunately it is it is a slight Groundhog Day. 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, we've got some interesting portfolio updates to talk through.

First, I'd just like to touch on our strategy. 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.

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 valuer also applies a keener yield to those units, you get more value per unit of rent.

We think this is a very compelling case study for the green premium. How does that actually play out in terms of returns?

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, 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 £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. Nick spoke to that 8.3% reversionary 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 we're allocated to, where with 66% multi-let industrial estates and retail warehouse.

Since the beginning of the financial year, we have been progressing sales of our smaller assets. We've completed six sales for an aggregate book value and an aggregate disposal proceeds of £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 six sales, four were ahead of book value, two 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. As Nick touched on, we have amended the management fee to further enhance alignment between the manager and shareholders through that 50% link to market cap, but also there's a cost saving there for shareholders.

During the financial year ended March '26, there was only 6 months benefit of that cost saving, whereas shareholders will 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 focuses on Millshaw Park Industrial Estate, which is a very large industrial estate located just south of Leeds city centre close to the M62 motorway.

It's around half a 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, it's around 3.6%, and that compares to the national average of 5.7%.

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 forwards. Working down the slide on the right-hand side, we've got three points I'd just like to make.

After the financial year-end, we acquired three adjoining units, the highlighted yellow on the plan. We paid £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 opportunities 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 unit 22, 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 a agreement for lease with Slazenger Padel Clubs, long-term lease, 15 years, no breaks, and the rent on that lease is 86% higher than the previous passing level, again, it shows the accretion available to us by applying our strategy to our assets.

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 £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, this slide shows Store Street, which is located in Bloomsbury, Central London.

It's very close to Crossrail, the Tottenham Court Road Crossrail station. We think it's a fantastic location.

It's in the Knowledge Quarter. Now this asset is valued at £37.8 million, that reflects a net initial yield of 5.8%, and in this lease we have fixed uplifts, there's 9% of fixed uplifts to come through, and once that happens, by December '28, the running yield based on today's valuation will be 6.4%, again, very confident in that valuation.

This is our fourth largest asset by value. Millshaw is our second largest asset by value, which I touched on before, Stanley Green is our first largest asset by value, 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 two 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 planning 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 newbuild scheme, you can see an illustrative CGI in the bottom left-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.

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 were looking to improve the massing of the building, 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. Finally, we've looked to lift 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 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 have been achieved.

Our current passing rent at Store Street is £60 per square foot. That is very low in the context of the rents being achieved here, which are often exceeding £150 per square foot.

Now we actually manage some of the buildings in this location, including Berners & Wells, where we've achieved a rent of £135 per square foot, we know this is achievable. The final point I'd make is the value per square foot of our asset is only £880 per square foot, which again is very very much in line with transactions or even favorable to transactions we're seeing occur in the local area.

Again, a really interesting opportunity for us there. Final slide for me is just to illustrate how we might achieve the ERV looking forwards.

Just taking a step back, our cash passing rent is £31.2 million. Our ERV, or reversionary rent, which is provided to us by the independent valuer, is £39.3 million.

That's an uplift of £8.1 million, and that's very favorable when you compare it to the annualized dividend today of £17.6 million. 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? We set out some illustrative steps here, and this is cash.

We've got fixed uplifts over the next 12 months of £1.8 million. As at the year-end, we had five AFLs exchanged, and they represent an annualized rent of £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, 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 forwards. In terms of the next block, we've got £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 that are 24% of current passing level. Finally, we do still have some void, although it is at the lowest level since 2022.

That represents £3.8 million of rent. We have £0.4 million of that under offer and £0.8 million under refurb, and we do see scope to bring that void rate down from 9.8% over the coming 12 months.

I'll pause there. Be great to have any questions, and I'll hand over to Nick.

Great. Thanks, Bradley.

Just before we go to questions, just to reiterate, I guess, the key messages: the higher income return, the low cost of debt. Hopefully, a sense of the activity that you'll have from even just those three case studies demonstrates the case for that being an accelerated growth in earnings.

I think it is worth starting by acknowledging that there is nonetheless, fairly meaningful market uncertainty, obviously linked to the Middle East conflict, but equally at the same time, we do see a protracted recovery ahead for UK real estate, supported by those points we made earlier, highly restricted new developments, 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 structurally supported points, 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.

Likewise, that 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 at 2.5% 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.

I guess just to summarize, implementation of a strategy over the course of the last 5 years, I mentioned at the start that the 38% increase in dividends over that period has created an opportunity for growth, and hence the announcement that we've made today. 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.

We believe what we've set out today, and based on the information we can disclose, provides that. Thank you, everybody, for your time, and we will pause and hand back to James.

Brilliant. Thanks, Nick.

Thanks, Bradley. Thank you to everyone who's sent in their questions so far.

Please do keep sending them through, and I will ask the guys as we go through the Q&A session. Guys, the questions so far I would split into two 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 and sort of specific SREIT. I'll try and bring them in two specific categories, as I say.

Please do bring further questions into the discussion as we go, guys who are listening. Maybe we'll just start on SREIT annual results, and then we'll go onto the broader conversation around the offer.

Just a couple of questions here around dividends,

and

I guess this is partially an overlap question relating to the offer 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%, we're now down into the 90s. You've obviously shown the chart, Bradley, around sort of the potential to increase earnings going forwards and the reversionary potential, but how'd you get back to that 100%, and how should shareholders think about that dip below 100%?

Maybe I'll just start, and 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.

It's focus on that top-line earning growth. Bradley's touched on, for example, the £900,000 of annualized income we will be getting from those agreements that are unconditional, and we'll be signing and completing imminently.

That just on their own would plug the gap, and the gap is about £600,000, isn't it, just in terms of the shortfall. Alongside that activity, clearly, as Bradley's 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 non-core assets, and particularly focusing on sales where we're selling vacant assets, never we're selling where we have non-recoverable expenses.

That's the really key focus: continue to deliver at the asset management, a big slug of 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 Bradley's 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 consequence also of where the share price discount to net asset value is. 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.

Brilliant. Maybe just following up with a question just relating to one of the comments Bradley made around some of the sales that you've made over the period.

You mentioned there's been four 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?

Happy to. 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.

I think it again just speaks to the difficulty of that and how it is an estimate by an independent valuer. Really it was one asset that was below book value, the other was marginally below book value.

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 just better to sell it and focus on where we think we can add value and can drive those rents. 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.

Yeah.

On the other side then, the four that you've sold above book value, you've obviously mentioned some of the rental growth you've been able to drive through sustainability improvements, is that really what's driving those above book value sales, or is it something else?

The book value will reflect that upside over time. 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 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, and the cash flow generation that you pay the dividend from. I think really it just speaks to the conservative approach to our valuation.

Look, I think that's right. On the point in relation to where we've sold at 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 completes, then there are also smaller assets on that side which we would look to recycle.

Where possible, we're obviously selling off the back of asset management. The Chelmsford High Street unit, we extended a lease to the Co-op 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, having looked at it, we didn't believe that Lloyds were going to renew, who were banking tenant. There was some vacancy in the uppers.

We had a local bid, and we elected to take it. To the valuation point, one of the reasons specifically today we looked at Store Street is just an example really to show where the valuations are.

That asset, for example, fell in value by about 2% over the full financial year. Therefore we stand back, and that's now, as Bradley said, £880 a foot, north of 6% in short order when we get the fixed uplifts coming through.

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, a vacant asset, which we're selling in line with book.

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. 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, they would be underwriting a top-level rent off the back of their sort of top-level development.

That was the point there.

Yeah. That's right.

The strategy there, when we put in place the new lease, the lease is what's called contracted out of the 1954 Act, which means the 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, in fact, it has been university's helpful, because it's got extremely good floor loadings for all the books, and so it means that from a Camden point of view, the repositioning project, adding space, works very, very well.

Somebody looking to buy that, and certainly in our appraisal, with a good refurbishment, the rent could easily double.

Makes sense. Right, we've covered a number of the sort of the background to the results questions, thank you for that.

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.

Maybe now just coming onto some of the questions specifically regarding Picton and the potential offer. There's a question here, 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 this is important, any comments around how the assets acquired fit within the current SREIT or combined strategy, given the lower net initial yield.

Yeah. Maybe we start with that, because I think that's sort of broader context.

Then maybe we can attempt to respond to the first point. Firstly, I guess, is 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 2.4 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 was going to be split.

Really important to note that, firstly, the consortium partners are working very well together, and that's important, as we are with obviously the Picton team, but also to make the point that assets weren't cherry-picked. The way that the assets have been split, and again, this is set out in the announcements, is by loan pool.

LondonMetric are getting one loan pool, which holds the biggest assets within Picton, which is an asset, a big estate, multi-let industrial estate, which would be too big for us. That sort of fitted quite neatly.

We are acquiring the other loan pool, where the main loan there is with Aviva, below-market rates, not as cheap as our debt, but nonetheless below-market rates. The portfolio weightings, and we've shown in the announcement before and after, are complementary.

Our multi-let industrial weighting goes up a little bit further because of assets like Harlow, that is the biggest asset that's coming in, a multi-let estate obviously in Essex. Then alongside that, there are some offices.

Again, actually to a certain extent reflecting our portfolio, 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. Then finally, there are some really interesting retail warehouse assets, which again complement where we want to go.

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. I think, importantly, from a portfolio perspective, there's a size benefit here, both in terms of relevance, we know we get to the sort of the edge of the 250, but I think also in terms of diversification.

We go from having 320-odd tenants to having 550, or whatever some other number, and we go obviously from having 32 assets to adding another 24. 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 popping up here or there.

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, the EPRA initial yield is lower, and actually the EPRA yield about 4.7 is broadly the same in relation to the assets that we are acquiring against the assets that LondonMetric are acquiring, and that's principally due to high vacancy.

The vacancy rate on the assets we're acquiring are broadly about 16%, 17%, which again is similar on the other side of the LMP fence. That's on our side, it's spread across assets, but there's one more significant void, which is an asset, a big shed up in Rushden, which is a good asset, and we would hope that between now and closing, the Picton team will be working hard to get that least 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. Our ability to manage a portfolio using our teams here to drive earnings growth at asset level, savings in relation to fund-level expenses, which as Bradley has 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.

The proposal, for those that haven't seen it, is that we already have tiering within our fee mechanism that obviously goes down as in basis points as the company grows. We are reducing those by 10 basis points, so that 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.

That again will have a positive impact on earnings over the early period. More information, but not huge amount more is set out within the 2.4 announcement, and obviously more information, assuming we get to that point, will be included within the 2.7 announcements 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. I think from our point of view, we're really excited by 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 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.

Yeah. New technical term for me there, marketing the hell.

I'll be using that one going forward. That's really helpful.

Thank you. You've covered it there, and I'm not sure how much you're not going to be able to give forecasts 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: we've talked about earnings accretion, what does that actually mean for income, cash-in-hand dividends going forwards 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 respond in writing to questions so that we ensure that we're not sort of breaching any panel restrictions.

In Alastair's chair statement, he sets out very clearly what he expects to see from M&A activity. 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.

Although we're not able to give specifics, hopefully some of the points I've raised in terms of the scale benefits, diversification benefits, the asset management pipeline that we'll have across both portfolios will provide that.

Makes sense. Thanks for clarifying that point.

We've obviously spoken at the start around market context and the discount widening over the period. Could you give a bit more color around any other considerations around how you might look to narrow that discount?

We've obviously spoken about it being quite market led, we've seen trust discounts widen in general, but are there any discussions about buybacks? We previously have had a buyback program for SREIT.

Any more considerations, or anything we can share?

I guess Bradley might want to come in on this. Obviously we have the ability to do buybacks.

I think at the moment the discount is where it is for principally market-related factors, and you can see that in the way that the shares have moved for us and across the peer group. All be interestingly, we're clearly also seeing interesting activity, more broadly in terms of M&A activity, the Segro-related announcements, great example of that.

I also think that the sort of slight vacuum around the original 2.4 announcement, the nature of a consortium bid, I think it's taken a bit of time for people to understand exactly how the transaction is going to proceed, and I hope today's announcement gives people further clarity on that. The feedback we've had from our shareholders has been positive, and we'll make a real effort after this presentation to ensure that we communicate, as we have been doing, with retail holders through platforms like Interactive Investor.

What we've seen obviously over the course of the last couple of years as we've made a real concerted effort to diversify the register has been a lot more buying from those retail platform holders, and we're up about 30%, aren't we, with those three main platforms. I think in terms of what we're going to do to address the discount, I think closing the transaction, giving real clarity around what it means in terms of earnings, alongside that, the marketing the hell piece, I think we will give that a huge push both in relation to those retail platforms, and you'll be part of that, but also I think by virtue of going from where we are now to being almost twice the size and on the cusp of the 250, we're already finding that there are discussions with some of the smaller wealth managers who maybe we've fallen off the radar, and we will be back on the radar as a means of trying to, as I say, have that optimal mix of wealth manager, retail, and potentially sort of institutional holders.

I was going to say I can speak from experience, having spoken to many of those shareholders, that scale of market cap and liquidity is super important. Sorry, Bradley.

Nick used the term journey earlier, and I think we have been on a journey over the last 5 years, and we can only focus on what we can control and the levers we can pull. If you look 5 years ago, James, you mentioned the buybacks, they were sort of 40% plus discount, it's very accretive, but over all the work we've done over the last 5 years brought the discount into around 9% before the whole conflict situation started.

In terms of what levers have we pulled? There's the debt refinancing Nick mentioned back in 2019, there's been very strong investment performance, there's been a reorientating of the portfolio towards multi-let industrial and retail warehouse, there's been a management fee cut, there's been a management fee adjustment to be aligned to market cap, there's been the sustainability focus strategy which is bearing results, and there has been that focus on finding the marginal shareholder both in terms of bringing new wealth managers and the institutions onto the register, but also in terms of growing that retail investor base, which has been a very sort of successful pivot for us.

We will continue to keep doing all the things that we can control in order to deliver strong shareholder returns, whether that's by growing income or by closing that discount.

Exactly.

You mentioned alignment there, Bradley. One of the questions here, and I appreciate you may not want to give us exact numbers, just a question around the management team's alignment to the trust, is that something you could share?

Yes.

We are,

is

a first point, and I think this transaction allows us to increase that, and we are looking at ways that we can do that. Obviously, the succession discussion comes into that as well.

Brilliant. We've only got 5 minutes left, if you do have a final question, please do send it in, and we'll try and fit it in.

There's a couple more which we'll try and get through. More specific question just around there's clearly been some "some fine-tuning" to the deal since the last sort of iteration of the announcement.

What's been the major driver of that?

The sole driver of that was the March NAV, there was a small adjustment to reflect the small adjustment in our March NAV.

Brilliant. That's very clear.

Thank you. Then, given we've only got a couple of minutes left, maybe just finishing with a bit of a broader question.

We've got through, I think we hopefully have managed to get through most of the questions relating to both the results now and the proposed offer for Picton. If we did miss any of your questions, by the way, please do let us know, and we'll get in touch and we'll respond, or we'll come and speak to you separately.

Maybe just finishing with a broader question. Nick, you've spent quite a lot of time in Manchester in your time.

We potentially have a change in prime minister coming related to Manchester. Question here's really, how would you anticipate Burnham coming in having an impact on the real estate market, particularly here around proposed increase in business rates on industrials, and how that might change your approach to investment?

Blimey.

We do have 5 minutes.

All right. That's good.

I don't want to fall foul of Schroders' political commentary policy.

No political views. Yes.

I think, firstly, to the Manchester point, our team there, so as we have 11 people up there, and they've had a fair few dealings with Andy Burnham over the years and been impressed by him, more than one. I think he has had great real success up there.

I think that he was, if you like, standing on the shoulders of giants, where people like Sir Howard Bernstein, Richard Leese, had built sort of the foundations of Manchester's recovery after the bomb in '97, and obviously being able to attract more and more sort of infrastructure investment to the city, partly because of the stability they had as a council at the time. Andy Burnham has continued with that, and you only have to go there to see that it has delivered results.

The city centre population of Manchester has grown enormously and much more than the other big regional cities. The partnerships with the university, attracting big corporates to the city in a way that others have not.

I think that's encouraging. One of the big challenges he has clearly is to try and deliver more growth in the regions as well as London.

I think the comments he's making about greater devolution, about focusing on housing and infrastructure as a key way of delivering regional growth, I think he's right. Successive governments have failed in that respect.

I think those things have to be addressed and have to be addressed urgently, but equally at the same time ensuring that London continues to be the key driver of growth, right? I think that's I think positive.

I think what's less clear, as you say, is the approach to the fiscal position, which is obviously very difficult, and particularly if he is not calling an election, he's operating within the current manifesto. I think we all would think that the current stamp duty system doesn't work in terms of it restricts people's ability to move, and that does increase regional inequality and it restricts housing supply.

Previous land tax proposals haven't really gone anywhere. The council tax system definitely needs to be improved.

1992 values is obviously clearly ridiculous. It is obviously a big piece of work.

If past experience is anything to go by, it will be tinkering. Based on the current headlines, where they're talking about imposing higher business rates on big boxes, obviously we have no exposure to that currently.

We will be getting potentially one asset that could fall into that category, but equally, comments made around preserving the discounts on leisure and uses, we might benefit from that because we've got a couple of leisure assets. I guess big picture, I think it should be net positive.

Manchester has been very good at getting stuff done. Bradley and I, one of our common frustrations is just how long planning takes.

It's just so frustrating. Any work he can do to continue what the current government have been trying to do in terms of expediting planning, I think would be well received.

I'll pause.

No, fantastic, and no political views in there, brilliant. Thank you very much.

That was really interesting. We've actually come up to time now.

That leads me to say thank you to Nick, thank you to Bradley for the presentation, and thank you to all our listeners for all your questions. Really appreciate the engagement.

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If you have any further questions, please do get in contact with us directly, very happy to come and speak to all shareholders about everything we've discussed today. That's all we have time for, thank you for listening, and goodbye.