Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 ## SCHRODER REAL ## ESTATE INVESTMENT ## TRUST LIMITED ## Annual Report ## and Consolidated ## Financial Statements ### For the year ended 31 March 2022 OVERVIEW # Highlights As at 31 March 2022 Net asset value ('NAV') £372.2m (2021: £296.8m) NAV total return 30.9% (2021: 3.9%) Property portfolio value £523.5m (2021: £438.8m) Property portfolio total return 23.5% (2021: 4.6%) Net initial yield 5.4% Benchmark: 3.9% Reversionary yield 6.4% Benchmark: 4.6% Stacey Bushes Industrial Estate, Milton Keynes Front cover image shows Millshaw Industrial Estate in Leeds ## Dividend trend Dividend declared for the quarter ![img-0.jpeg](img-0.jpeg) ## Dividend yield 5.5%¹ Dividend yield – FTSE All-Share Index²: 3.1% Dividend yield – FTSE All-Share REIT Index³: 2.8% ## Further resources available £40m⁴ ## Capex pipeline £17m⁵ ## Overview 1 Highlights 2 Performance Summary ## Strategic Report 4 Chairman's Statement 6 Investment Manager's Review 14 Sustainability and Responsible Investment 17 UK Commercial Real Estate Market Review 22 Business Model 24 Our Stakeholders 26 Risk and Uncertainties ## Governance 30 Board of Directors 32 Report of the Directors 34 Corporate Governance 36 Audit Committee Report 38 Management Engagement Committee Report 39 Nomination Committee Report 40 Directors' Remuneration Report 41 Statement of Directors' Responsibilities 42 Sustainability Report 45 Net Zero Carbon 46 Task Force on Climate-Related Financial Disclosures ('TCFD') ## Financial Statements 48 Independent Auditor's report 53 Consolidated Statement of Comprehensive Income 54 Consolidated Statement of Financial Position 55 Consolidated Statement of Changes in Equity 56 Consolidated Statement of Cash Flows 57 Notes to the Financial Statements ## Other Information 70 EPRA Performance Measures (unaudited) 73 Alternative Performance Measures (unaudited) 74 AIFMD Disclosures (unaudited) 75 Sustainability Performance Measures (unaudited) 87 Streamlined Energy and Carbon Reporting 89 Asset List 90 Report of the Depository to the Shareholders 91 Glossary 92 Resolutions at 2022 Annual General Meeting 94 Notice of Annual General Meeting 96 Corporate Information 1 Based on share price at 31 March 2022 of 57.8p and an annualised dividend of 3.18pps. 2 As at 31 March 2022. 3 As at 31 March 2022. 4 As at the year end the Company had £12.5 million of cash, including Joint Venture cash, and £19.8 million of undrawn debt facilities. Taking account of the past year end increase of the revolving credit facility by £22.5 million and the acquisition of St. Ann's House which required £14.7 million of cash means there is £40.1 million of further resources available. 5 Capex pipeline for the next 12 months. OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 1 OVERVIEW # Performance Summary ## Property performance | | 31 March 2022 | 31 March 2021 | | --- | --- | --- | | Value of property assets and joint venture assets^{1} | £523.5m | £438.8m | | Annualised rental income^{2} | £30.1m | £28.3m | | Estimated open market rental value^{3} | £33.8m | £31.2m | | Underlying portfolio total return | 23.5% | 4.6% | | MSCI Benchmark total return^{4} | 19.9% | 1.8% | | Underlying portfolio income return | 6.3% | 6.5% | | MSCI Benchmark income return | 3.9% | 4.4% | ## Financial summary | | 31 March 2022 | 31 March 2021 | | --- | --- | --- | | Net Asset Value ('NAV') | £372.2m | £296.8m | | NAV per Ordinary Share | 75.8p | 60.4p | | EPRA Net Tangible Assets^{5} | £372.2m | £296.8m | | EPRA Net Reinstatement Value^{5} | £407.3m | £326.3m | | EPRA Net Disposal Value^{5} | £375.9m | £297.8m | | IFRS profit for the year | £89.4m | £4.5m | | EPRA earnings^{6} | £15.7m | £11.6m | | Dividend cover^{7} | 113% | 145% | ## Capital values | | 31 March 2022 | 31 March 2021 | | --- | --- | --- | | Share price | 57.8p | 39.9p | | Share price discount to NAV | (23.7%) | (33.9%) | | NAV total return^{8} | 30.9% | 3.9% | | FTSE All-Share Index | 4,187.78 | 3,831.05 | ## Earnings and dividends | | 31 March 2022 | 31 March 2021 | | --- | --- | --- | | EPRA earnings^{9} (pps) | 3.2 | 2.3 | | Dividends paid (pps) | 2.83 | 1.59 | | Annualised dividend yield on the 31 March share price | 4.9% | 4.0% | ## Bank borrowings | | 31 March 2022 | 31 March 2021 | | --- | --- | --- | | On-balance sheet borrowings^{10} | £162.3m | £154.1m | | Loan to Value ratio ('LTV'), net of all cash^{11} | 28.6% | 32.3% | ## Ongoing charges | | 31 March 2022 | 31 March 2021 | | --- | --- | --- | | Ongoing charges (including fund and property expenses)^{12} | 2.21% | 2.53% | | Ongoing charges (including fund only expenses)^{13} | 1.26% | 1.36% | 1 Reconciles to the valuation reports from Knight Frank for the direct portfolio and BNP for the Joint Ventures. Does not include any IFRS adjustments for lease incentives nor the fair value of the leasehold adjustment for The Galaxy, Luton. 2 Represents the annualised rental income as at 31 March 2022 of the portfolio, including rents from joint venture assets. 3 Represents the ERV of the portfolio as estimated by the valuers, including the share of rents for the joint venture assets. 4 Source: MSCI Quarterly Version of Balanced Monthly Index Funds including the share of rents for the joint venture assets on a like-for-like basis as at 31 March 2022. 5 This is an Alternative Performance Measure ('APM'). EPRA calculations are included in the EPRA Performance Measures section on page 70. 6 This is an APM. EPRA calculations are included in the EPRA Performance Measures section on page 70. 7 This is an APM. Details are included in the APM section on page 73. 8 This is an APM. Details are included in the APM section on page 73. 9 This is an APM. EPRA calculations are included in the EPRA Performance Measures section on page 70. 10 On-balance sheet borrowings reflect the loan facilities with Canada Life and RBS without the deduction of unamortised finance costs of £0.5m. 11 This is an APM. Details are included in the APM section on page 73. 12 This is an APM and calculated in accordance with the AIC recommended methodology. Details are included in the APM section on page 73. 13 This is an APM and calculated in accordance with the AIC methodology. Details are included in the APM section on page 73. 2 Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 From Subject Received Size Categories     City Tower, Manchester STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONOVERVIEW Schroder Real Estate Investment Trust Limited 3 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 STRATEGIC REPORT ## Chairman’s ## The Company has delivered a ## Statement ##  ##  ##  ##  ##  ##  ##  A continuing focus on sustainability will be a  progress was made over the year implementing   Review. There is now a growing consensus that there is a meaningful rental and value premium  the Company has integrated sustainability considerations at all stages of the investment process and asset life cycle. Following the strong post-pandemic recovery in real estate markets, supported by loose  have fallen markedly in recent months due to  Lorraine Baldry in Ukraine and continued lockdowns in China and Chairman other emerging markets.  Overview has been a shock to markets, and increased For the year ended 31 March 2022, Schroder   to lead to slowing capital values, but do not      an attractive income return and investment  characteristics that have historically acted as a   compared with 60.4 pps as at 31 March 2021. Strategy Supported by positive momentum in the The strategy over the year has focused on real estate market, the results were driven delivering sustainable income growth and by favourable sector allocation and active improving the quality of the underlying portfolio management of our underlying portfolio, which through active management and capital continues to outperform the MSCI Benchmark investment, with a focus on delivering operational   and is now ranked on the 11th percentile since the  Transactional activity undertaken over recent years means the portfolio is well positioned with The dividend was reinstated to the pre-pandemic an above-average weighting to multi-let industrial level, having increased every quarter since June   growth cities. This contributed to a total return totalled £13.9 million, or 2.83 pps. This, together  with the capital growth in the portfolio, resulted the Benchmark of 19.9%. Encouragingly, the  higher total return was accompanied by a higher of 30.9%. income return of 6.3% (Benchmark: 4.1%) and stronger rental value growth of 6.8% (Benchmark: | We have today announced a further 3% | 3.2%). The two industrial acquisitions made | | --- | --- | |  | at the end of 2020 in Chippenham and | | in June, and there is scope for further dividend | Cheadle, Manchester, contributed strongly | | increases given the reversionary potential of the | to this performance, generating total returns | | portfolio and a growing pipeline of development | of 47.7% and 42.8% respectively over the | | opportunities, refurbishment projects and other |  | | income-generating activity. | all UK industrial average of 40.5%. | Schroder Real Estate Investment Trust Limited 4 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022  In 2019, the built environment was responsible  the main UK real estate sectors is narrowing,  with RBSI by £22.5 million to £75.0 million and with industrial capital growth slowing, and more (source: IPCC), and therefore decarbonising the  resilient parts of the retail sector enjoying a strong real estate sector is a key contributor to reducing has provided the Company with additional    less certain, but there are clear trends emerging, developments will play a key part in the transition The two loan facilities continue to provide a low  to a Net Zero Carbon future, the majority of the all-in average cost of debt of 2.5%. | that support talent retention and attraction, and | current UK building stock will still be in use by | | | --- | --- | --- | | have a lower carbon footprint. Whilst hybrid | 2050. The embodied carbon within this building | Board succession | |  | stock creates a need, and also an opportunity, |  | | reduction in overall demand, a combination of |  | with best practice I will retire as Chair of the | | restrained development, stabilising vacancy | buildings to improve sustainability performance. | Board in July 2022. As previously announced, | | rates and strong growth in sectors such as | | following a comprehensive succession planning | | legal services, tech and life sciences, means | The Company is well placed to deliver a strategy | process led by my fellow independent Non- | |  |  |  | | which is concentrated in higher growth cities | performance. Progress has already been made in |  | STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONOVERVIEW | such as London, Manchester and Edinburgh. | this area, with a 52% reduction in carbon intensity | | Independent Director of the Company, will | | --- | --- | --- | --- | | |  | |  | | The convergence of returns between the | 2020, and key ongoing projects across the | |  | | main sectors should enable the Company to | portfolio such as our operational Net Zero Carbon | |  | |  | industrial development in Cheadle, Manchester, | |  | |  |  | | well placed to lead the Company into the future. | | across all sectors. In addition, with a slowdown | progress has been recognised by a year-on-year | | | | in the rate of capital growth, and income | improvement in our performance in the Global | | We are also today announcing the appointment of | | representing a greater proportion of the return, |  | |  | |  | | |  | |  | Incorporating sustainability as a fundamental part | | 8 June 2022. Priscilla has a strong track record | |  | of our strategy means we are today announcing | | in roles across asset management, alternative | | |  | | investments, private equity, infrastructure and | | The strong growth in capital values means the | includes the following commitments: | | real estate. Priscilla is currently Chair of UBS | |  | –  | | Asset Management (UK) Limited, with other | | a loan to value at the year end, net of cash, of | | aligned to a 1.5°C pathway by 2030. |  | | 28.6%. The rising interest rate environment | – Embodied emissions for all new developments | | Investments, a global sustainable energy provider, | |  | | and major renovations to be net zero by 2030. | and Embark Group, a digital retirement solutions | |  | –  | |  | | undertaken in 2019, with a low blended interest | | emissions to be net zero by 2030. | that Priscilla will be a strong addition to the Board. | |  | –  | | | | average loan term of 14.1 years. Since the year | | (scope 1, 2 and 3 – landlord and tenant) | From a personal perspective, I retire from the | |  | | emissions to be net zero by 2040. | Board at a time of great opportunity for the | | revolving credit facility to provide capacity | | | Company, both in terms of portfolio activity as | | to capitalise on acquisition opportunities | These are ambitious targets, as our strategy to | | well as the potential to evolve the strategy to | | and fund our pipeline of development and |  | | deliver more sustainable returns – both from an | |  | a proportion of the portfolio will be undergoing | |  | a transition whilst sustainability performance is | Dividend and earnings | improved. This approach is an environmental | Outlook | | --- | --- | --- | | The strong NAV growth was accompanied by | necessity and, importantly, should also support | The strong, post-pandemic recovery in real estate | | a recovery in EPRA earnings that totalled £15.7 | the delivery of enhanced returns through | values is likely to slow, given concerns regarding | |  | acquiring and actively managing potentially |  | | 35.3% on the previous year. This was driven by | mispriced assets. | term, whilst there is a risk of more persistent | | higher yielding industrial acquisitions, active | |  | | management supporting strong rental growth |  |  | | and rent collection recovering to the pre- | Financial Conduct Authority provided further |  | |  | details of its plans to develop a sustainability |  | |  |  | mitigate the negative impact of rising rates on the | |  |  | real estate sector, albeit with very low yielding | | 1 July 2021. Earnings per share has also been | Sustainable Finance Disclosure Regulations | assets potentially at risk of capital value declines | | enhanced by the £9.5 million of share buybacks |  | due to rising borrowing costs. | |  | closely and will align with labelling that clearly | | |  | demonstrates sustainability as being a fully |  | | end NAV of 41%, with a small number of shares | integrated part of our investment strategy. | for these risks, with an above-average income | |  | | yield, a pipeline of asset management initiatives | | | Debt | that should support returns and long-term, | | Based on total dividends paid of £13.9 |  |  | | million, dividend cover was 113%. Portfolio | had two loan facilities, a £129.6 million term loan | strategy enables the Investment Manager to act | | activity since the year end, including the | with Canada Life and a £52.5 million revolving |  | |  |  | more attractive returns. Finally, as sustainability | | in Manchester city centre, has supported a |  | and ESG considerations become even more | | further 3% increase in the dividend, which | drawn. These facilities provided a low all-in | important for investors and occupiers, the | | is higher than the pre-pandemic level. | average cost of debt of 2.5% and a blend of | Company is well placed to evolve its strategy to | | | maturities in 2023, 2032 and 2039, resulting in | deliver more sustainable, long-term returns. | | Sustainability | the longest weighted debt term in the recognised | | | The Board and Manager believe that focusing | peer group. At the year end, the Company had | Lorraine Baldry | | on sustainability and Environmental, Social | cash and undrawn debt of £32.3 million, a loan to | Chairman | |  | value ratio, net of cash, of 28.6%, which is within | Schroder Real Estate Investment Trust Limited | | generally, throughout the real estate life cycle, | the long-term strategic range of 25% to 35%, and | | 6 June 2022 will deliver enhanced long-term returns for  shareholders as well as have a positive impact on  the environment and the communities where the loan facility disclosed on page 65). Company is investing. Schroder Real Estate Investment Trust Limited 5 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 STRATEGIC REPORT ## Investment Manager's Review ![img-1.jpeg](img-1.jpeg) These strong results are the outcome of disciplined investment decisions and active management of the portfolio. Conviction in our strategy has resulted in a good quality, diversified portfolio that is weighted towards higher growth parts of the UK real estate market with opportunities to add value through asset repositioning and development. We are focused on applying our competitive advantage in sustainability to the portfolio to deliver outcomes stakeholders increasingly demand and to capitalise on the green premium for shareholders. **Nick Montgomery** Fund Manager Schroder Real Estate Investment Trust Limited's ('SREIT', or the 'Company') Net Asset Value ('NAV') as at 31 March 2022 was £372.2 million or 75.8 pence per share ('pps'), which reflected an increase over the financial year of 15.4 pps or 25.5%. During the year, dividends totalling £13.9 million were paid which resulted in a NAV total return of 30.9%. A detailed analysis of the NAV is set out in the table below: | | £m | PPS | | --- | --- | --- | | **NAV as at 31 March 2021^{1}** | **296.8** | **60.4** | | Unrealised change in the valuations of the direct real estate portfolio and joint ventures^{1} | 74.6 | 15.2 | | Capital expenditure | (3.7) | (0.8) | | Acquisition costs | (1.3) | (0.3) | | Realised gain on disposal | 3.2 | 0.7 | | EPRA earnings^{2} | 15.7 | 3.2 | | Dividends paid | (13.9) | (2.8) | | Others | 0.9 | 0.2 | | **NAV as at 31 March 2022 (excluding the share buyback)** | **372.3** | **75.8** | | Share buyback | (0.1) | 0.0 | | **NAV as at 31 March 2022^{4}** | **372.2** | **75.8** | 1 Prior to all capital expenditure, acquisition costs and movement in IFRS 16 lease incentives. 2 EPRA earnings as per the reconciliation on page 70. 3 The calculation of pps is based on shares in issue as at 31 March 2021 of 491,418,641. 4 The calculation of pps is based on shares in issue as at 31 March 2022 of 491,080,301. The underlying portfolio, including joint ventures, increased in value by 22.0% on a like-for-like basis over the financial year to 31 March 2022. £3.7 million of capital expenditure was invested in asset management and redevelopment projects that should drive capital growth and future rental increases over the medium to longer term. Acquisition costs totalling £1.3 million were incurred in December 2021 in connection with the £19.9 million acquisition of a high yielding portfolio of four industrial assets in the North West of England. This portfolio was revalued at the year end to £21.6 million. Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 |  | Strategy | | – Continued investment to deliver operational | | --- | --- | --- | --- | | Nottingham, was sold for £13.0 million, realising | The Company aims to provide shareholders with | |  | |  | an attractive level of income with the potential | | returns, with progress on key initiatives such | | disposal costs of £0.2m and a 12.4% per annum | for income and capital growth. The strategy to | |  | | total return since acquisition in August 2018. | deliver this includes: | | City Tower in Manchester, and construction | | | – Applying a research-led approach to | | underway for an operational Net Zero Carbon | | Net revenue for the period totalled £15.7 million, | | determine attractive sectors and locations in | warehouse scheme at Stanley Green Trading | | or 3.2 pps, an increase of £4.1 million on the prior | | which to invest in commercial real estate; | Estate in Cheadle, Manchester; | |  | – Actively managing the Company and its | | – Enhanced ESG performance across the | | been driven by improved rental collection rates, | |  | portfolio including an improvement in the | | active asset management driving rental value | |  | 2021 Global Real Estate Sustainability | | growth and a positive contribution from the | |  |  | | industrial acquisitions in December 2020 and | | management approach that is focused on | reductions in energy consumption, | | December 2021. | |  | sustainability-led building improvements and | | | –  | | occupier satisfaction initiatives; | | The total return from the underlying portfolio, | | with strong fundamentals and inherent | –  | STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONOVERVIEW | including rental income, was 23.5% for the | | opportunities for active management and | Net Zero Carbon with these results; | | | --- | --- | --- | --- | --- | |  | | development; | – Consolidated net loan to value of 28.6% | | |  | – Applying our integrated sustainability and | | | at the year end. Average interest rate of | | of 19.9%. The portfolio performance comprised | |  | | 2.5% with a weighted loan term of 10.4 | | a 6.3% income return and a 16.2% net increase | | approach at all stages of the investment | |  | | in capital values, with both components | | process and asset life cycle; and | |  | | outperforming the Benchmark at 4.1% and 15.3% | –  | | | and unrealised valuation movements on | | respectively. The portfolio is ranked on the 11th | | controlling costs and maintaining a strong | |  | |  | | balance sheet with a loan to value, net of cash, | | taken as a percentage of rental and other | | launch in 2004. | | within the long-term target range of 25% | | income including joint ventures, of 73% | | | |  | | which is competitive within the recognised | |  | | | | peer group; and | | were repurchased at an average price of 40.3 pps. | The following progress has been made delivering | | – Further progress delivering the strategy since | | | | on the strategy: | | the year end with the acquisition of a high | | | | – The portfolio is allocated to higher growth | |  | | | | | sectors, with recent multi-let industrial | Manchester city centre, completion of major | | | | | transactions contributing strongly to portfolio | lease agreements at Langley Park Industrial | | | | | performance. The industrial sector now | Estate in Chippenham and conditional | | | | | represents 47.6% of the portfolio, largely |  | | | | |  | Starbucks drive-through restaurants at retail | | | | | (Benchmark 34.4%), with the remaining | parks in Bedford and Milton Keynes. | | portfolio comprising retail warehousing of | 11.6% (Benchmark 9.3%) and good quality | Rent collection | | --- | --- | |  | The diverse and granular underlying rental | | Cities such as in London, Manchester and | income, and a high level of occupier engagement, | | Edinburgh of 27.5% (Benchmark 24.9%); | has supported improving rent collection rates | | – Portfolio outperformance driven by active | with 96% of the contracted rents collected for | | asset management with 72 new lettings, rent | the quarter to 31 March 2022. The breakdown | | reviews and renewals completed since the |  | |  | 98% of industrial rent collected and 91% of retail, | | in annualised rental income, generating £1.6 | leisure and other rent collected. | million per annum of additional rent above the previous level; The Company remains in active dialogue with its – Rent collection rates at pre-pandemic levels, tenants for historical arrears which totalled £3.8 proving the resilience of the portfolio. Good  progress has been made collecting historical which £0.9 million has been categorised as a bad arrears through constructive engagement debt provision. This compares to £4.6 million and with tenants; £1.1 million respectively as at the end of the prior  Portfolio performance As noted above, the underlying portfolio continues to outperform the MSCI Benchmark, driven by portfolio sector allocations, active management and a high income return. The table below shows performance to 31 March 2022: City Tower Manchester SREIT total return MSCI Benchmark total return Relative | |  | Three | Since |  | Three | Since |  | Three | Since | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | year | years |  | year | years |  | year | years |  | | Period to 31 March 2022 | (%) | (% p.a.) | (% p.a.) | (%) | (% p.a.) | (% p.a.) | (%) | (% p.a.) | (% p.a.) | Retail                       Industrial                    All sectors          Schroder Real Estate Investment Trust Limited 7 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 STRATEGIC REPORT Real estate portfolio  ## Investment As at 31 March 2022, the portfolio comprised 42 portfolio, calculated as a percentage of rent,   ## Manager’s   | | share of joint venture properties at City Tower |  | | --- | --- | --- | | Review | in Manchester and the University of Law in |  | | | Bloomsbury, London. | leases can also be reviewed to open market value, | | Continued | |  | | | As at 31 March 2022, the portfolio generated |  | | | rental income of £30.1 million per annum, | linked leases should increase with ongoing asset | | |  | management activity, summarised below. | compares with the Benchmark of 3.9%. The |  | The tables below summarise the portfolio | | --- | --- | | annualised rental income uplifts of £1.1 million |  | |  | post year-end activity. The property values and | |  | weightings presented represent the year-end | | of the portfolio is £33.8 million per annum, | valuations as determined by the independent | |  | valuers as at 31 March 2022: | which compares favourably with the Benchmark at 4.6%. The portfolio void rate is 7.0%, calculated as a percentage of estimated rental value. This compares with the Benchmark void rate of 7.8%. The portfolio weighted average lease length, calculated to the earlier of lease  Value % of Top ten properties by value Sector (£m) 1 portfolio value Milton Keynes, Stacey Bushes Industrial Estate Industrial   Leeds, Millshaw Park Industrial Estate Industrial   London, Bloomsbury, The University of Law Campus (50% share)    Manchester, City Tower (25% share)     Retail warehouse   Chippenham, Langley Park Industrial Estate Industrial    Norwich, Union Park Industrial Estate Industrial   Cheadle, Stanley Green Trading Estate Industrial           Total as at 31 March 2022    Weighting (% of portfolio value) Sector weightings by value SREIT Benchmark South East   Rest of UK   Industrial     City   Mid-town and West End    Rest South East    Rest of UK          Retail warehouse   South East    Rest of UK   Standard retail    Standard retail by ancillary/single use – Retail ancillary to main use  – – Retail single use   – Other   Shopping centres   Unattributed indirects –  1 As per third-party valuation reports unadjusted for IFRS lease incentive amounts. Schroder Real Estate Investment Trust Limited 8 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 | Regional weightings by value | Weighting (% of portfolio value) | | | --- | --- | --- | | | SREIT | Benchmark | | Central London | 8.1% | 15.9% | | South East excluding Central London | 20.4% | 36.1% | | Rest of South | 10.9% | 15.8% | | Midlands and Wales | 21.5% | 13.4% | | North | 36.9% | 14.4% | | Scotland | 2.2% | 4.2% | | Northern Ireland | 0.0% | 0.2% | The Company's income is diverse and as at 31 March 2022 comprised 315 tenants, including the tenants of properties held by joint ventures. The largest and top ten tenants represent 6.6% and 26.3% respectively of the portfolio, calculated as a percentage of annual rent: | Tenant | Rent p.a. £ million | % of total rent^{1} | | --- | --- | --- | | University of Law Limited | 2.00 | 6.64% | | Buckinghamshire New University | 1.15 | 3.82% | | Siemens Mobility Limited | 0.97 | 3.22% | | The Secretary of State | 0.88 | 2.92% | | Matalan Retail Limited | 0.57 | 1.89% | | Express Bi Folding Doors Limited | 0.54 | 1.79% | | TJX UK t/a HomeSense | 0.51 | 1.69% | | Jupiter Hotels Limited | 0.46 | 1.53% | | Premier Inn Hotels Limited | 0.42 | 1.40% | | Lidl Great Britain Limited | 0.42 | 1.40% | | **Top ten** | **7.92** | **26.31%** | 1 Column will not sum due to rounding. #### Transactions The table below provides the performance achieved on the Company's last three acquisitions and the disposal undertaken in the financial year, this includes the impact of transaction costs: | Acquisition | Date of acquisition | Acquisition price/ 31 March 2022 valuation | Total return for 12 months to 31 March 2022 or hold period if shorter/MSCI All Industrial for the same period (% p.a.) | | --- | --- | --- | --- | | Langley Park, Chippenham (Industrial) | 18 December 2020 | £19.3 million/£27.5 million | 47.7/40.5 | | Stanley Green, Cheadle, Manchester (Industrial) | 17 December 2020 | £17.3 million/£24.7 million | 42.8/40.5 | | North West portfolio (Industrial) | 17 December 2021 | £19.9 million/£21.6 million | 5.2^{1}/8.4^{1} | | Disposal | Date of acquisition and disposal | Acquisition price/disposal price | Total return during hold period/MSCI All Offices for same period (% p.a.) | | The Arc, Nottingham (Office) | Acquisition: 10 August 2018 Disposal: 28 February 2022 | £10.3 million/£13.0 million | 12.4^{1}/3.5^{1} | 1 Total return for the hold period which, for the North West portfolio, includes the dilutive impact of acquisition costs during the financial year. OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 9 STRATEGIC REPORT ## Investment ## TRANSACTIONS ## Manager’s ## Review ##  ## Continued ##  ##  ##  ### 1 ## Manchester, ## St. Ann’s House ###    post year end on 27 May 2022 for £14.7 million,    | yield of 9.1% and a low average capital value of | the subject asset. During the pandemic, rents | | --- | --- | |  | were rebased by the previous landlord and there | | asset generates £1.22 million per annum of | are currently no arrears. The tenants include | | headline rent compared with an ERV of £1.33 | Watches of Switzerland, Russell & Bromley and | | million. | Space NK. A vacant unit representing 5% of the |  The freehold, 51,885 sq ft building, is 96%   jewellery.   Following completion of the aforementioned basement space. It is prominently located on St.   term is 3.4 years to earliest termination and 6.0          at an average rent of £18.65 per sq ft, with the potential to increase rental levels through refurbishment and improving sustainability performance. There is also the opportunity to  space. Schroder Real Estate Investment Trust Limited Schroder Real Estate Investment Trust Limited 10 10 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 ## North West industrial portfolio acquisition ## (Industrial) ##  ##  ##  ## reversionary yield of 8.2%, and a low capital value of £53 per sq ft. As at 31 March 2022, ##  ## of 7.2%. Since acquisition the portfolio has delivered a total return of 5.2%, including the ## dilutive impact of acquisition costs. Further details of the assets are set out below: STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONOVERVIEW ### 32 4 ## Birkenhead, Haydock, Cheshire, ## Valley Road Coral Products, Sandbach, ## Industrial Estate Haydock Industrial Estate  | Asset strategy | | Asset strategy | | Asset strategy | | --- | --- | --- | --- | --- | | Valley Road Industrial Estate in Birkenhead | |  | |  | |  | |  | |  | | a net initial yield of 6.8%, a reversionary | | of 6.6% and a low average capital value of | | established in 1965, were acquired for a | | yield of 7.8% and a low average capital | | £49 per sq ft. The strategy is to engage with | |  | | value of £60 per sq ft. The strategy is to | | the occupier on sustainability initiatives. | |  | | lease the void units at or above ERV. | | | | value of £42 per sq ft. The strategy since | | | | Asset overview and performance | | acquisition is to engage with the occupier | | Asset overview and performance | | 98,551 sq ft manufacturing and recycling | |  | | The ten-acre estate comprises 190,000 sq | | facility let to Coral Product (Mouldings) Limited | | | |  | |  | | Asset overview and performance | |  | | a subsidiary of the Canada-based IPL Plastics | | Both assets are in an established industrial area | |  | |  | |  | | secure access, low site cover and good | | in January 2031, with a tenant break in 2026, | | miles from Junction 17 of the M6. The lease is | | circulation. As at 31 March 2022, the valuation | | at a rent of £340,000 per annum or £3.45 per | | conterminous across the two assets with 13.4 | |  | | sq ft. This compares with an ERV as at 31 March | | years remaining at a combined rent of £283,500 | |  | | 2022 of £394,000 per annum or £4.00 per sq | | per annum, or £3.30 per sq ft which compares | | | | ft. The asset is well located with direct access to | | with the 31 March 2022 ERV of £305,000 per | | Key activity since acquisition | | the A580 (East Lancashire Road) and, in turn, the | |  | | –  | | M6. As at 31 March 2022, the valuation is £4.8 | |  | | | Limited for a 1,605 sq ft unit at £13,700 per |  | | to the RPI, subject to a collar and cap of 1% per | | | annum, or £8.54 per sq ft. This letting is in line | reversionary yield of 7.8%. | | annum and 4% per annum respectively. As at | | | with 31 March 2022 ERV. | | | 31 March 2022, the combined valuation was | | –  | | Key activity since acquisition | |  | | | 2,473 sq ft unit at £24,750 per annum, or | –  | | and a reversionary yield of 8.1%. | | | £10.00 per sq ft. This letting will be in line | | adjoining ownerships which may support | | | |  | | long-term redevelopment. | | | –  | | –  | | | | | 6,275 sq ft unit at £44,000 per annum, or | | developed for the asset and Net Zero Carbon | | | |  | |  | | | | uplift on the 31 March 2022 ERV. | |  | | Schroder Real Estate Investment Trust Limited Schroder Real Estate Investment Trust Limited 11 11 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 STRATEGIC REPORT ## Investment ## ACTIVE ASSET ## Manager’s ## Review ## MANAGEMENT ## Continued ##  ## active management initiatives that should ## support continued outperformance of the ##  ## and sustainability perspective. ### 1 ## Manchester, Cheadle, ## Stanley Green Trading Estate ### (Industrial) | Asset strategy | Key activity | | | --- | --- | --- | | Stanley Green Trading Estate in Cheadle, | –  | | | Manchester was acquired in December 2020 | | planning committee unanimously resolved | | for £17.3 million. The strategy over the year was | | to grant planning permission for 80,000 | | to crystallise higher rents on the trading estate | | sq ft of operational NZC accommodation | | and secure planning consent for an 80,000 sq ft, | | on the development site on 30 September | |  | | 2021. The Company is now progressing | | the adjoining 3.4 acre site. | | the development of 11 warehouse and trade |  | Asset overview and performance | which is scheduled to complete in early 2023. | | --- | --- | | Stanley Green Trading Estate comprises 150,000 | The target rental income is £1.1 million per | | sq ft of trade counter, self-storage and warehouse | annum or £13.40 per sq ft, with pre-lets to be | | accommodation with an adjoining development | targeted during the construction phase. | | 3.4 acre site. As at 31 March 2022, the valuation | –  | |  | renewal completed with Factory Kitchens | | 3.3% and a reversionary yield of 4.1% (4.5% and | for a 2,859 sq ft unit at a rent of £40,026 per | |  | annum, or £14.00 per sq ft. This compares | |  | with the previous rent of £8.75 per sq ft and | | return of 42.8% which compared with MSCI All | represents an uplift of £15,010 per annum, or | | Industrial over the same period of 40.5%. | 60.0%. This compares with the average rent | across the trading estate of £6.32 per sq ft. – Negotiations are progressing with a number of occupiers to re-gear their leases across the trading estate which should support continued income growth. Schroder Real Estate Investment Trust Limited Schroder Real Estate Investment Trust Limited 12 12 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 ### 2 3 4 ## Chippenham, Langley Bedford, Manchester, ## Park Industrial Estate St. John’s Retail Park City Tower ### (Industrial) (Retail Warehouse)  ###  STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONOVERVIEW | Asset strategy | Asset strategy | | --- | --- | | Langley Park Industrial Estate in Chippenham | The strategy over the year was to let vacant | | was acquired in December 2020 for £19.3 |  | | million. The strategy over the year was to drive | negotiating new longer-term leases. | net income growth through a key lease renewal with Littelfuse and a rent review with Siemens to Asset overview and performance increase the rental income, WAULT and quality of  accommodation across the estate. retail warehouse scheme underpinned by income  | Asset overview and performance | |  | | | | | --- | --- | --- | --- | --- | --- | | Langley Park Industrial Estate is a multi-let | |  | | | | | industrial estate comprising 400,000 sq ft of | |  | | | | |  | |  | | | | | on a large site of 28 acres located close to | | 31 March 2022, the asset was valued at £33.3 | | | | | Chippenham town centre. As at 31 March 2022, | |  | | | | |  | |  | | | | | yield of 5.7% and a reversionary yield of 6.9%. | |  | | | | |  | | 32.1% which compared with the MSCI All Retail | | Asset strategy | | | return of 47.7% which compared with the MSCI | | Warehousing over the same period of 30.6%. | | The strategy over the year was to lease | | | All Industrial over the same period of 40.5%. | | | |  | | | | | Key activity | |  | | | Key activity | | – A conditional agreement for lease has been | |  | | | –  | | |  | the retail, leisure and hotel element was to | | | | review from June 2021 has been agreed and | |  |  | | | | is being documented at £1,226,241 per annum | | restaurant redevelopment on the former |  | | | |  | | Maplin unit. The terms include a 15-year lease | refurbishment strategy ongoing to ensure | | | | in contracted rental income. Following | | without breaks at £145,000 per annum, or | the building captures occupier demand and | | | | completion of the rent review Siemens will | | £80.55 per sq ft, with rent reviews every |  | | | |  | |  | | | | | (including the tenants of properties held by | | per annum and a cap of 3% per annum. | Asset overview and performance | | | | joint ventures). | | Due to their economies of scale, Starbucks |  | | | – A new ten-year lease renewal without breaks | | |  | retail, leisure and hotel accommodation | | | | has been agreed with IXYS UK Westcode | | contribution from the Company of £850,000, | located on a three-acre island site in a core | | | |  | |  | location. As at 31 March 2022, the valuation | | | | Littelfuse, a global manufacture of semi- | |  |  | | | | conductors. The rent agreed is £465,000 | |  | of 5.4% and a reversionary yield of 7.0%. | | | |  | | by the end of 2022. |  | | | | 31% increase over the current contracted rent | – Starbucks are required to deliver the | | a total return of 8.0% which compared with | | | | of £365,000 per annum. IXYS will receive | | restaurant to a minimum BREEAM rating |  | | | |  | |  | of 7. 2% . | | | | repair works up to the value of £250,000. | | charging points for customer usage. | | | | | The lease will include a rent review at year | –  | | Key activity | | | |  | |  | –  | | | | with a collar of 1% per annum and a cap of | | Both retailers have traded throughout the | |  | | |  | | pandemic and driven high volumes of footfall, | | increased rent of £44,192 per annum, or | | | complete shortly. | | supporting the attraction of new occupiers | |  | | – Given the positive discussions with occupiers | | |  | | on the previous passing rent. | | |  | | occupiers. | –  | | | | accommodation, a master plan has been | – Following the completion of these lettings and | | |  | | | prepared for up to 130,000 sq ft of additional | | the resultant boost in footfall, a vacant 9,919 | | rent of £5,170 per annum, or £18.00 per | | | warehouse accommodation at the site. A | | sq ft unit was let to Bensons for Beds for a | |  | | | pre-planning application has been submitted | |  | | previous passing rent. | | | in relation to this proposal and was positively | | at £130,000 per annum, or £13.00 per sq ft. | | | | | received by the local authority. | |  | | | Schroder Real Estate Investment Trust Limited Schroder Real Estate Investment Trust Limited 13 13 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 ## w STRATEGIC REPORT ## Investment Sustainability and Responsible Investment ## Manager’s  below is a summary of performance against these objectives and the strategy to continue delivering ## Review against these key performance indicators: ## Continued 1. Governance and oversight: Sustainability and responsible investment are integral to Schroders   deliver enhanced long-term returns for shareholders as well as deliver a positive impact to the environment and the communities where the Company is investing. The Company achieved a GRESB Public Disclosure A Rating and the EPRA Best Practice Sustainability Reporting Gold Award for the fourth consecutive year. 2. Net Zero Carbon (‘NZC’): A central focus of our real estate investment strategy is the response to the climate crisis both in terms of risk and resilience to climate impacts, and also working to reduce   reduction targets for assets where landlord operational control is retained and have contributed towards strong performance against these targets which came to an end in March 2021. As part of the commitment to achieving NZC, aligned with a 1.5°C decarbonisation trajectory, work has been   achieving NZC by 2040 or sooner. This work has included developing Impact and Sustainability   Statement. Encouraging progress is being made with a 2% reduction in landlord-procured energy  UK national energy grid continues to decarbonise, this reduction in energy consumption is also     GRESB sustainability survey and a 6% score improvement. Stanley Green Cheadle 4. Climate Risk and Task Force for Climate-Related Financial Disclosures (‘TCFD’): In 2021, we continued to review our policies and practices against TCFD criteria and developed a roadmap towards increased alignment. Building on our established consideration of sustainability within the investment process, we believe it will be important to further integrate the assessment of climate-  part of our NZC commitments, forward looking NZC pathways have been modelled during 2021 and  basis for our new asset and portfolio level operational energy and carbon targets. NZC pathways have been developed to present the decarbonisation requirements needed to achieve NZC by 2040   database which assesses vulnerability to associated hazards, and those climate-based indicators are     5. Operational Excellence:  for occupiers as well as demonstrating continued improvements in sustainability performance. The development of ISAPs for all managed assets has supported improvements for occupiers including  of 24 managed assets with a programme for installation). The Company has a programme to increase  sustainability credentials. We are also improving EPC ratings across the portfolio, with a programme  an occupier satisfaction survey in 2021 and the Property Managers have action plans to improve  Schroder Real Estate Investment Trust Limited 14 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 ## w Finance In addition to the properties secured against the Canada Life and RBSI loan  facilities, the Company has unsecured properties with a value of £64.1 million 1 million term loan with Canada Life and a £52.5 million revolving credit facility and cash of £12.5 million . This resulted in a loan to value ratio, net of cash,  of 28.6% at an average interest cost of 2.5%, and a long weighted maturity was drawn. Properties with combined values of £322.9 million and £136.5  million are secured against the Canada Life and RBSI loan facilities respectively.  STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONOVERVIEW £129.6 million term loan with Canada Life   Projected | | | | Total | | | | | | LTV ratio | | | | | | ICR | | Projected | | | | ICR | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Loan | interest rate | | Asset value | | LTV ratio | | | covenant | | | ICR | | covenant | | | | ICR | | covenant | | | | Lender | (£m) Maturity | | (%) | | (£m) Cash | | (%) | 2 | | (%) | 2 | (%) | 3 | | (%) | 3 | | (%) | 4 | | (%) | 4 | 5 | Canada Life | 129.6 50%: | | | 2.5 | 322.9 0.0 40.1 | | | 65 650 185 487 185 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Term Loan | |  | | | | (40.1 net of cash | | | | | | | 50%: | | | | in facility) | |  –  covenant being breached. – The ICR is 650% based on actual net rents for the quarter to 31 March 2022. A 72% fall in net income could be sustained prior to the loan covenant of 185% being breached. – After utilising available cash and uncharged properties, the valuation and actual net rents could fall by 53% and 75% respectively prior to either the LTV or interest cover ratio covenants being breached. £52.5 million RCF with RBSI  Projected | | | | | | Total | | | | | | LTV ratio | | | | | | ICR | | Projected | | | | ICR | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | |  | | | interest rate | | | Asset value | | LTV ratio | | covenant | | | ICR | | covenant | | | | ICR | | covenant | | | | Lender | (£m) Maturity | | | | (%) | | | (£m) | | (%) 6 | | (%) | 6 | (%) | 7 | | (%) | 7 | | (%) | 8 | | (%) | 8 | | | | 9 | | | | 10 | | | | | | | 11 | | | | | | | | | | | | | RBSI RCF  | | |  2.5 | | | | | 136.5 24.0 60 | | | | | | 556 185 538 250 | | | | | | | | | | | –  covenant being breached. – The interest cover ratio is 556% based on actual net rents for the quarter to 31 March 2022. A 67% fall in net income could be sustained prior to the loan covenant of 185% being breached. – After utilising available cash and uncharged properties, the valuation and actual net rents could fall by 83% and 81% respectively prior to either the LTV or interest cover ratio covenants being breached.    maturity from 2023 to 2027. Projected | | | | | | Total | | | | | | LTV ratio | | | | | | ICR | | Projected | | | | ICR | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | |  | | | interest rate | | | Asset value | | LTV ratio | | covenant | | | ICR | | covenant | | | | ICR | | covenant | | | | Lender | (£m) Maturity | | | | (%) | | | (£m) | | (%) 12 | | (%) | 11 | (%) | 13 | | (%) | 13 | | (%) | 14 | | (%) | 14 | | | | 15 | | | | 16 | | | | | | | 17 | | | | | | | | | | | | | RBSI RCF  | | |  2.5 | | | | | 136.5 33.9 65 | | | | | | 556 185 374 250 | | | | | | | | | | | 1 Cash held at the balance sheet date includes £0.9 million of cash that is held within the joint ventures. 2 Loan balance divided by the property values as at 31 March 2022.     based on the average of the past four quarters.   6 Loan balance divided by the property values as at 31 March 2022.     based on the average of the past four quarters. 9 Facility drawn as at 31 March 2022 from a total available facility of £52.5 million.       pool as at 31 March 2022.     based on the average of the past four quarters.        Schroder Real Estate Investment Trust Limited 15 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 STRATEGIC REPORT ## Investment Sustainability and Responsible Investment ## Manager’s Continued ## Review ## Continued Outlook  strong NAV growth, sustained outperformance of the underlying portfolio and further increases in the level of dividend.   evolving occupier trends. A key part of this is demonstrating continued improvements in sustainability     the Company. Finally, on behalf of Schroders Capital Real Estate, I would like to thank Lorraine Baldry for her enormous contribution to the Company for more than eight years. I am personally hugely grateful for her guidance and sound judgement, particularly through the challenging pandemic period. I wish her every success for the future. Nick Montgomery Fund Manager 6 June 2022 Langley Park Chippenham Schroder Real Estate Investment Trust Limited 16 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 ## UK Commercial Real Estate Market Review Macro environment    up demand and supply disruptions due to Covid-19. The drop in real incomes As a result, whilst there may be pressure on the value of the lowest yielding means consumer spending will be weak in 2022, leading to a fall in GDP  growth. Whilst this could lead to a technical recession, this risk is mitigated  by higher government spending and an increase in investment, as businesses take advantage of temporary capital allowances. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONOVERVIEW All property initial yields vs ten-year bonds 8 8 Forecast | 7 7 | | --- | | 6 6 | | 5 5 | | 4 4 | | 3 3 | | 2 2 | | 1 1 | | 0 0 | | -1 -1 | 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Yield gap All property initial yield Ten-year bond yield Source: Datastream, MSCI, Schroders. April 2022. Yield % Schroder Real Estate Investment Trust Limited 17 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 STRATEGIC REPORT ## UK Commercial Real Estate Market Review ## Continued Industrial   likely to slow as the growth in online sales moderates and because of a big mainly by growth in online retail. Amazon alone accounted for 25% of take- increase in construction of distribution warehouses. Two-thirds of this new  space is pre-let, but it could lead to an increase in vacancy as occupiers parcel deliveries and returns has boosted demand for smaller warehouses leave older units. The revaluation of business rates in 2023, which will shift from couriers. In addition, the disruption of supply chains during the  pandemic has prompted manufacturers and retailers to dial down on just-in-  time deliveries and hold more stock.  to these risks and where there is greater scope to add value through active  Industrial development 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Q1* Multi-let Distribution warehouses Source: PMA, Schroders. April 2022. Rolling annual starts, million square feet Schroder Real Estate Investment Trust Limited 18 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 Retail By contrast, supermarket and bulky goods retail park rents will probably The outlook for town centre retail remains challenging and the Company increase by 1-2% per annum. Both are relatively insulated from online has a very low weighting to stand-alone retail of 7.2% by portfolio value. competition, and rents and service charges are lower than in shopping The number of empty shops and shopping centre units has started to fall centres. The big grocery chains have ambitious plans to open more small as redundant space is removed through conversions and demolitions. supermarkets and there is steady demand for retail park units from discount  retailers, including food retailers, gyms and drive-through restaurants. The   STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONOVERVIEW  portfolio by value invested in retail warehouses. independent retailers often fail within a few years and demand from banks, bookmakers and major fashion brands continues to shrink as they close  street shop and shopping centre rents will fall by a further 5-10% through  Retail footfall 110 90 80 70 60 50 40 30 20 10 0 | Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec | Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec | Jan | Feb | Mar | Apr | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 20 | 20 | 20 | 20 | 20 | 20 | 20 | 20 | 20 | 20 | 20 | 20 | 21 | 21 | 21 | 21 | 21 | 21 | 21 | 21 | 21 | 21 | 21 | 21 | 22 | 22 | 22 | 22 | | | High street Retail park | | | | | | | | Shopping centre | | | | | | | | | | | | | | | | | | | Source: Springboard, Schroders. April 2022. February 2020 = 100 100 Schroder Real Estate Investment Trust Limited 19 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 STRATEGIC REPORT ## UK Commercial Real Estate Market Review ## Continued     emerging. First, there are few signs of companies dispersing to the suburbs foster a shared culture.    in professional services, tech and media where employment is growing  are either maintaining, or adding to their footprint. Vacancy rates in central  London and major regional cities have stabilised at 10% and 8%, respectively.       City centre % of UK take-up 90 80 70 60 50 40 30 20 10 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Q1* Grade A % London Other grade % London City centre % UK (right-hand axis) Source: Colliers, PMA, Schroders, April 2022.  20 Lettings by Quality and City Centre vs Out-of-Town 18 Forecast Grade % of London take-up 16  14 100 Change in rents % 12 10 8 6 4 2 0 -2 -4 -6 -8 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 City – prime City – average West End – prime West End – average -10  Schroder Real Estate Investment Trust Limited 20 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 Sustainability While the sector range in returns is likely to narrow, the gap between buildings with strong and weak sustainability features is likely to widen.    of units with poor energy ratings. The recent increase in construction costs STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONOVERVIEW  stranded assets, because it is no longer viable to upgrade them. UK EPC ratings 90 80  60 50 40   10 0 Distribution Retail Supermarket City Industrial  West End Birmingham South East Industrial < Shopping Warehouse Park  50–100,000     50,000 sq ft  sq ft A B C D E F G A+B    100 Schroder Real Estate Investment Trust Limited 21 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 STRATEGIC REPORT ## Business Model Company’s business The Board Schroder Real Estate Investment Trust Limited is a real estate investment The Board of Directors is responsible for the overall stewardship of the  Company, including investment and dividend policies, corporate strategy, Authority and whose shares are traded on the premium segment of the Main gearing, corporate governance and risk management.     Operations continues to be declared as an authorised closed-ended investment scheme The Board has delegated investment management and accounting services by the Guernsey Financial Services Commission under section 8 of the  Protection of Investors (Bailiwick of Guernsey) Law 2020, as amended and the  Authorised Closed-ended Investment Schemes Rules and Guidance, 2021.   Investment objective Review. The Company aims to provide shareholders with an attractive level of income and the potential for income and capital growth as a result of its investments     income, the optimal strategy for the Group is to invest in a portfolio of assets  The portfolio is principally invested in the three main UK commercial real vacancy rates and creditworthy tenants. The value of any individual asset      10%. From time to time the Board may also impose limits on sector, location  and tenant types together with other activity such as development. duration of the property market cycle, the portfolio aims to generate an    The Board has established a gearing guideline for the Investment Manager,   policies and restrictions. between 25% to 35%. This relatively low level of gearing is used to enhance income and total returns for shareholders with the level dependent on the Borrowings property cycle and the outlook for future returns. The Board has established a gearing guideline for the Investment Manager, which seeks to limit on-balance-sheet debt, net of cash, to 35% of on- The dividend policy adopted by the Board is to pay a sustainable level of  quarterly dividends to shareholders. The Board keeps the dividend policy  under active review with a view to ensuring the Company can deliver a  sustainable level of cover whilst having due regard to current and anticipated time of borrowing. The Board keeps this guideline under review and the    with the objective of bringing borrowings within the appropriate limit while taking due account of the interests of shareholders. Accordingly, corrective Incorporating sustainability as a fundamental part of our strategy means we measures may not have to be taken immediately if this would be detrimental  to shareholder interests. following: –  Interest rate exposure by 2030;  – Embodied emissions for all new developments and major renovations to  be net zero by 2030;  –  for hedging purposes. –  and tenant) emissions to be net zero by 2040. Investment restrictions As the Company is a closed-ended investment fund for the purposes of the Investment strategy Listing Rules, the Group will adhere to the Listing Rules applicable to closed-  ended investment funds. The Company and, where relevant, its subsidiaries 1  . will observe the following restrictions applicable to closed-ended investment  funds in compliance with the current Listing Rules: from structural changes such as urbanisation, rapid changes and growth of – Neither the Company nor any subsidiary will conduct a trading activity technology, changing demographics and social as well as positive impact   will not invest in other listed investment companies; occupational demand and favourable supply and demand characteristics. – Where amendments are made to the Listing Rules, the restrictions    Rules. with the potential for income and capital growth due to good stock selection and asset management. We aim to grow income and enhance shareholder In addition, the Board will ensure compliance with the UK REIT regime  requirements.    Schroder Real Estate Investment Trust Limited 22 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 # Performance The Board uses principal financial key performance indicators ('KPIs') to monitor and assess the performance of the Company, being the net asset value ('NAV') total return, the performance of the Company's underlying property portfolio relative to its MSCI Benchmark Index and the share price: # 1. NAV total return For the year to 31 March 2022 the Company delivered a NAV total return of 30.9% (3.9% for the year to 31 March 2021). # 2. Underlying property portfolio performance relative to peer group Benchmark The performance of the Company's property portfolio is measured against a specific Benchmark defined as the MSCI (formerly Investment Property Databank) UK Balanced Portfolios Quarterly Property Index (the 'Benchmark'). As at 31 March 2022, the Benchmark comprised 168 member funds. Underlying property portfolio performance | Total return for 12 months to 31 March 2022 | | Total return for 12 months to 31 March 2021 | | | --- | --- | --- | --- | | SREIT (%) | MSCI Benchmark (%) | SREIT (%) | MSCI Benchmark (%) | | 23.5% | 19.9% | 4.6% | 1.8% | # Schroders UK headquarters 1 London Wall Place, London The analysis above has been prepared by MSCI and takes account of all direct property-related transaction costs. # 3. Share price performance The Board monitors the level of the share price compared to the NAV. As at 31 March 2022, the share price of 57.8 pence was at a 23.7% discount to the NAV of 75.8 pence per share. Where appropriate on investment grounds, the Company may from time to time repurchase its own shares, but the Board recognises that movements in the share price premium or discount are driven by numerous factors, including investment performance, gearing and market sentiment. Accordingly, we focus our efforts principally on addressing the sources of risk and return as the most effective way of producing long-term value for shareholders. # Schroders Manchester office Two St Peter's Square, Manchester ![img-2.jpeg](img-2.jpeg) ![img-3.jpeg](img-3.jpeg) Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 23 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION STRATEGIC REPORT ## Our Stakeholders Section 172 statement Headingley Central Although the Company is registered in Guernsey, in accordance with the Leeds guidance set out in the AIC code a Section 172 statement is required. Section 172 of the Companies Act 2006 requires a Director of a company to act in the way he or she considers, in good faith, would be most likely to promote  doing this, Section 172 requires a Director to have regard, among other matters, to: the likely consequences of any decision in the long term; the  business relationships with suppliers, customers and others; the impact  desirability of the company maintaining a reputation for high standards of business conduct; and the need to act fairly with members of the company. The Directors give careful consideration to the factors set out above in discharging their duties under Section 172. The Board is focused on ensuring that the Company delivers on its strategic objectives, while taking into account the impact on its stakeholders as a  central to delivering long-term, sustainable returns. The Board is focused on  Shareholders The Board is committed to maintaining high standards of corporate governance in order to protect shareholder interests. The Investment Manager undertakes an active investor relations schedule in London and the regions throughout the year, which includes one-on-one and group meetings with shareholders, site visits to key assets, as well regular presentations to the sell-side analyst community. Shareholder feedback is encouraged either through the broker or directly to the Investment Manager or Board. Occupiers The Company has a diverse range of tenants occupying space across the portfolio. This includes a wide range of businesses who operate out of our  our retail and leisure properties. Active and constant engagement with these groups, either directly or through property managers or agents, is required to gather intelligence as to what is important to them. Understanding changing needs, both at an individual company level, as well as on a sectoral and broader economic level, is a key tenet informing both our individual asset management investment decisions as well as the longer-term strategic direction of the Company. Communities  buildings and their occupiers are part of the fabric of local communities. The Company works hard to ensure that it is engaging with local communities, councils and individuals and that our asset strategies are sensitive to the unique heritage of each location. Schroder Real Estate Investment Trust Limited 24 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 Environment In 2019, the built environment was responsible for 31% of global carbon emissions, which places great responsibility on those companies that are  and is committed to continually improving and protecting the environment by using resources such as energy, water and materials in a sustainable manner for the prevention of greenhouse gas emissions and climate change STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONOVERVIEW    reviews its approach to sustainable investing and believes that this is integral in delivering better long-term returns for our investors and for safeguarding the future of the environment that we live and work in. Service providers  on a range of service providers who have a direct working or contractual relationship or share a mutual interest with the Company. This includes, but is not limited to, Schroders as Investment Manager and Company  advisers, solicitors, property valuers and banks. The Board has appointed the Management Engagement Committee to regularly review these relationships as part of its commitment to transparency and corporate best practice. Lenders  consistent with the strategy and generate enhanced returns in at a low cost.  Decision making The Board makes decisions on, among other things, the principal matters set  Schroder Real Estate Investment Trust Limited 25 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 STRATEGIC REPORT ## Risk and Uncertainties  Although the Board believes that it has a robust A summary of the principal risks and uncertainties system of risk management and internal control framework of internal controls in place this   can provide only reasonable, and not absolute, of the removal of Covid-19 as a principal risk, have | carried out a robust assessment of the principal |  | remained unchanged throughout the year ended | | --- | --- | --- | | risks and emerging risks facing the Company | or loss and is designed to manage, not eliminate, | 31 March 2022 and to the date of signature of | | including those that would threaten its business | risk. | this Annual Report, and actions taken by the | | model, future performance, solvency or liquidity. | | Board to manage and mitigate these risks and | | A framework of internal controls has been | | uncertainties, are set out below: | designed and established to monitor and manage those risks. This internal control framework provides a system to enable the Directors to mitigate these risks as far as possible, which   achieving its strategic objectives. Key risks Mitigation of risk Investment policy and strategy The Board seeks to mitigate these risks by: An inappropriate investment strategy, or –  failure to implement the strategy, could monitored and reported on by the Investment Manager. lead to underperformance and the share – Determining a borrowing policy and the Investment Manager operates within borrowing restrictions price being at a larger discount, or smaller and guidelines. premium, to NAV than the property market – Receiving from the Investment Manager timely and accurate management information including generally. This underperformance could be  caused by incorrect sector and geographic – Monitoring the implementation and results of the investment process with the Investment Manager weightings or a loss of income through with a separate meeting devoted to strategy each year. tenant failure, both of which could lead to a fall in the value of the underlying portfolio.   Investment management   investment performance and risk against investment objectives and strategy; relative performance; the strategy, if inappropriate, may result in the  Company underperforming the market substantial changes in markets, including any potential disruption to capital markets.  the Company and its objectives becoming unattractive to investors. Economic and property market risk The Board considers economic conditions and the uncertainty around political events when making The performance of the Company could be   strategy on a regular basis and discussions are held to ensure the strategy is still appropriate or if it risk. In the wider economy this could needs updating.  recessions, movements in interest rates,   performance of the underlying property  structural or cyclical factors impacting particular sectors or regions of the property market. Gearing and leverage Gearing is monitored and strict restrictions on borrowings have been imposed. The Company utilises credit facilities. These arrangements increase the funds available for investment through borrowing. While this has the potential to enhance investment returns in rising markets, in falling markets the impact could be detrimental to performance. Schroder Real Estate Investment Trust Limited 26 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 Key risks Mitigation of risk Accounting, legal and regulatory The Investment Manager has robust processes in place to ensure that accurate accounting records are   statements could be incorrect when Auditors. The Investment Manager operates established property accounting systems and has released to the market. procedures in place to ensure that the quarterly NAV and gross asset value are calculated accurately. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONOVERVIEW   The quarterly and annual NAV has numerous levels of reviews including by the Board. Additional  An internal controls review is performed by Ernst & Young in accordance with ISAE 3402 annually to   of Directors. The Administrator monitors legal requirements to ensure that adequate procedures and reminders are in    Processes are in place to ensure that the Company complies with the conditions applicable to property investment companies set out in the Listing Rules. The Administrator attends all Board meetings to be    place to ensure continued compliance with the regulatory requirements of the FCA and the Guernsey Financial Services Commission. Valuation risk  Property valuations are inherently subjective and uncertain. This uncertainty  is heightened due to the Covid-19 and their quality control processes. pandemic. Tax risk          The Group has internal monitoring procedures in place to ensure that the appropriate REIT rules and regulatory environment. legislation are complied with. To date, all REIT regulations have been complied with, including projected tests.  penalties, or loss of its REIT status, by failing to comply with the REIT legislation. Service providers Service providers are appointed subject to regular reviews and with clearly documented contractual The Company has no employees and has  delegated certain functions to a number of service providers. Failure of controls and Regular reporting is provided by key service providers and monitoring of the quality of services poor performance of any service provider provided. could lead to disruption, reputational damage or loss.  continuity and cyber security arrangements. Schroder Real Estate Investment Trust Limited 27 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 STRATEGIC REPORT ## Risk and Uncertainties ## Continued Risk assessment and internal controls  Risk assessment includes consideration of the scope and quality of the  systems of internal control operating within key service providers, and  ensures regular communication of the results of monitoring by such providers it has undertaken a detailed review of the risks facing the Company.    they have resulted in unforeseen outcomes or contingencies that may have a   Stacey Bushes Industrial Estate Milton Keynes Schroder Real Estate Investment Trust Limited 28 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 ### Viability statement The Board is required to give a statement on the Company's viability which considers the Company's current position and principal risks and uncertainties together with an assessment of future prospects. The Board conducted this review over a five-year time horizon commencing from the date of this report which is selected to match the period over which the Board monitors and reviews its financial performance and forecasting. The Investment Manager prepares five-year total return forecasts for the commercial real estate market. The Investment Manager uses these forecasts as part of analysing acquisition opportunities as well as for its annual asset level business planning process. The Board receives an overview of the asset level business plans which the Investment Manager uses to assess the performance of the underlying portfolio and therefore make investment decisions such as disposals and investing capital expenditure. The Company's principal borrowings with Canada Life are for a weighted duration of 14.1 years and the average unexpired lease term, assuming all tenants vacate at the earliest opportunity, is 5.0 years. The Board's assessment of viability considers the principal risks and uncertainties faced by the Company, as detailed in the Strategic Report on pages 4 to 29, which could negatively impact its ability to deliver the investment objective, strategy, liquidity and solvency. This includes consideration of scenario stress testing and a cash flow model prepared by the Investment Manager that analyses the sustainability of the Company's cash flows (taking into account any continued impact of Covid-19 on rent collection), dividend cover, compliance with bank covenants, general liquidity requirements and potential legal and regulatory changes for a five-year period. These metrics are subject to a sensitivity analysis which involves flexing a number of the main assumptions including macroeconomic scenarios, delivery of specific asset management initiatives, rental growth and void/re-letting assumptions. The Board also reviews assumptions regarding capital recycling and the Company's ability to refinance or extend financing facilities. Steps which are taken to mitigate these risks as set out in the Strategic Report on pages 4 to 29 are also taken into account. Based on the assessment, and having considered in detail base and downside scenarios modelling the potential ongoing impact of Covid-19, the Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the five-year period of their assessment. ### 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; have considered potential resulting falls in 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 balance undrawn against the RBS facility, and uncharged properties and units in joint ventures, and based on the reporting period to 31 March 2022, property valuations would have to fall by 38% before the relevant Canada Life Loan to Value covenants were breached, and actual net rental income would need to fall by 72% before the interest cover covenants were breached. Furthermore, the properties charged to RBSI could fall in value by 60% prior to the 60% Loan to Value covenant being reached and, based on actual net rents for the quarter to March 2022, a 54% fall in net income could be sustained prior to the RBSI loan covenant of 185% being breached. Due to strong valuation growth in the industrial sector in particular, the Company's office sector weighting fell just below its minimum requirement of 20% as at the financial year end. The Company has received a waiver from Canada Life on this until June 2023. As at the financial year end, the undrawn capacity of the RBS facility was £19.8 million. This facility is an efficient and flexible source of funding due to its ability to be repaid and redrawn as often as required. Furthermore, this facility was refinanced in June 2022 with a new five-year term to 2027 and with an increase in the amount that can be drawn from £52.5m to £75m. The Board and Investment Manager continue to closely monitor the ongoing 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 30 June 2023. In addition to the matters described above, in arriving at their conclusion the Directors have also considered: - The current cash balance at 6 June 2022 of £10.3 million. - The nature and timing of the Company's income and expenses. - That the Investment Manager and Administrator continue to successfully invoke their business continuity plans to help ensure the safety and wellbeing 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 the period to 30 June 2023. After due consideration, the Board believes it is appropriate to adopt the going concern basis in preparing the financial statements. By order of the Board **Lorraine Baldry** Chairman 6 June 2022 COVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 29 G OVERNANCE ## Board of Directors ## Lorraine Baldry Graham Basham ## Chairman Status:  Status:  Engagement Committee) Date of appointment: 13 January 2014 Date of appointment: 11 September 2015   Aged 64, Graham is a Director of a number of Investment and Fiduciary of Angel Trains Group Limited and associated companies. She was Chief    positions at Prudential Corporation, Morgan Stanley and Regus. She is also      succession policy, and best practice, Lorraine will retire as Chair of the Board Institute of Banks and is a member of both the Society of Trust and Estate in July 2022, to be replaced by the current Senior Independent Director, Practitioners and the Institute of Directors.  Current remuneration: £35,000 per annum Current remuneration: £50,000 per annum   business: None business: None Key skills and contributions to the Board: Key skills and contributions to the Board:     board member of fund administrators and registrars, which assists with the  Schroder Real Estate Investment Trust Limited 30 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONOVERVIEW ## Stephen Bligh Alastair Hughes ## Chairman of the Audit Committee Senior Independent Director Status:  Status:  Date of appointment: 28 April 2015 Date of appointment: 26 April 2017 Aged 65, Stephen was previously with KPMG for 34 years, specialising    fellow of the Institute of Chartered Accountants in England & Wales and was    Innovation & Skills.   Current remuneration: £35,000 per annum Alastair will become Chair of the Company from July 2022.  Current remuneration: £35,000 per annum business: None  Key skills and contributions to the Board: business: None   Key skills and contributions to the Board:  of both real estate management, strategic leadership, and governance from    independent valuer. No Director has any entitlement to pensions and the Company has not  awarded any share options or long-term performance incentives to any of   in roles across asset management, alternative investments, private equity,  infrastructure and real estate. Priscilla is currently Chair of UBS Asset   Sustainable Investments, a global sustainable energy provider, and Embark  Group, a digital retirement solutions provider. letters of appointment, which set out the terms of their appointments, are  normal business hours and will be available for inspection at the Annual General Meeting. Schroder Real Estate Investment Trust Limited 31 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 GOVERNANCE # Report of the Directors The Directors of the Company and its subsidiaries, together the 'Group', present the Annual Report and audited consolidated financial statements of the Group for the year ended 31 March 2022 (the 'Annual Report and Consolidated Financial Statements'). ## Results and dividends The results for the year under review are set out in the attached financial statements. During the year, the Company has declared and or paid the following interim dividends to its shareholders in accordance with the solvency test (contained in the Companies Law): | Dividend for quarter ended | Date paid | Rate | | --- | --- | --- | | 31 March 2021 | 25 June 2021 | 0.656 pence per share | | 30 June 2021 | 13 August 2021 | 0.675 pence per share | | 30 September 2021 | 17 December 2021 | 0.726 pence per share | | 31 December 2021 | 25 March 2022 | 0.772 pence per share | With the solvency test provided for in the Companies Law having being fully satisfied, all dividends were declared and paid as interim dividends. The Directors recommend a final dividend for the year ended 31 March 2022 of 0.795 pence per share to be paid on 30 June 2022. All dividends paid during the year were allocated and paid as Property Income Distributions ('PIDs'). ## Share capital As at 31 March 2022, the Company had 565,664,749 (2021: 565,664,749) Ordinary Shares in issue of which 74,584,448 Ordinary Shares (representing 13.2% of the Company's total issued share capital) were held in treasury (2021: 74,246,108). The total number of voting rights of the Company was 491,080,301 at the year end (2021: 491,418,641) and this figure may be used by shareholders as the denominator for the calculations by which they will determine if they were required to notify their interest in, or a change in their interest of, the Company, under the Disclosure Guidance and Transparency Rules as at the year end. ## Key services providers The Board has adopted an outsourced business model and has appointed the following key service providers: ### Investment Manager The Board reviews the Investment Manager's performance at its quarterly Board meetings. In addition, the Board conducted its annual strategic review with the Investment Manager in May 2022 to consider the portfolio strategy and the Investment Manager's capabilities in more depth. Subsequently, the Directors formally discussed the performance of the Investment Manager at a meeting of the Management Engagement Committee. On the basis of this review, the Board remains satisfied that the Investment Manager has the appropriate capabilities required to support the Company and believes that the continuing appointment of the Investment Manager under the terms of the current investment management agreement, the details of which are set out below, is in the interest of shareholders. For the period of 1 April 2021 to 30 June 2021 the Investment Manager received a fee of 1.1% of the Company's NAV, which was subsequently reduced to 0.9% for the period of 1 July 2021 to 31 March 2022 post an updating of the Investment Management Agreement, for providing investment management and accounting services during the financial year. The new investment management and fund accounting fee is now structured as follows: 0.9% on NAV up to £500 million; 0.8% on NAV between £500 million to £1 billion; and 0.7% on NAV over £1 billion. The fee is payable monthly in arrears. There is no performance fee. The Investment Management Agreement can be terminated by either party on not less than 12 months' written notice or on immediate notice in the event of certain breaches of its terms or the insolvency of either party. The Company has appointed the Investment Manager as its AIFM under the AIFM Directive. There is no additional fee paid to the Investment Manager for this service. ## Administration Northern Trust International Fund Administration Services (Guernsey) Limited served as the administrator to the Group for a fee of £120,000 per annum until 30 September 2021, and its sister company, Northern Trust (Guernsey) Limited, provided depositary services, as required under the AIFM Directive, to the Group until 30 September 2021 for a fee of £40,000 per annum. On 1 October 2021, following a tender process initiated by the Board, Langham Hall (Guernsey) Limited was appointed as the Company Secretary to the Group's subsidiaries, and as Designated Manager, for a fee of £57,000 per annum and Langham Hall UK Depositary LLP was appointed as the Company's depositary for a fee of £39,000 per annum. On the same date, Schroder Investment Management Limited, an affiliate of the AIFM, was appointed as Company Secretary to the Company for a fee of £50,000 per annum. ## Anti-bribery policy The Company continues to be committed to carrying out its business fairly, honestly and openly. Appropriate policies are considered to be in place to ensure compliance with the Bribery Act. ## Directors The Directors of the Company, together with their beneficial interests in the Company's ordinary share capital as at the date of this report, are given below: | Director | Number of ordinary shares | Percentage (%) | | --- | --- | --- | | Lorraine Baldry | 100,597 | Less than 0.1 | | Graham Basham | 25,000 | Less than 0.1 | | Stephen Bligh | 100,000 | Less than 0.1 | | Alastair Hughes | 101,518 | Less than 0.1 | 32 Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 Substantial shareholdings Key information document As at 31 March 2022, the Directors were aware that the following  shareholders each owned 3% or more of the issued ordinary shares of the least an annual basis, in accordance with the Packaged Retail and Insurance- Company. The position as at 6 June 2022 is unchanged, save for the holding  of Schroders plc, including Cazenove Capital and other Group entities,  reducing on 27 May 2022 to 73,507,581 ordinary shares. contained in the KID are prescribed by PRIIPs and have neither been set nor endorsed by the Board. In fact, the Board is of the opinion that PRIIPs STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONOVERVIEW Number of has been inconsistently applied by market participants and hence creates ordinary shares Percentage (%) confusion amongst investors. Investec Wealth & Investment (UK)   AIFMD remuneration disclosures for Schroder Real Estate Investment Schroders plc   Management Limited (‘SREIM’) for the year to 31 December 2021 Witan Investment Trust (UK)   Quantitative remuneration disclosures to be made in this Annual Report in Embark Investment Services (UK)         Premier Miton Investors (UK)   are published on the following website: BlackRock Inc    Connor Broadley Ltd     Asset Management (UK)   Independent Auditors Resolutions to reappoint Ernst & Young LLP, and to give the Directors    Committee Report on pages 36 to 37. Disclosure of information to Auditors    Director has taken all the steps that they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish  Status for taxation      the Company of an annual fee of £1,200.        remains in full compliance with the REIT requirements. Shareholders who are in any doubt concerning the taxation implications of a REIT should consult their own tax advisers. Schroder Real Estate Investment Trust Limited 33 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 G OVERNANCE ## Corporate Governance The Directors are committed to maintaining high standards of corporate Board decisions governance. Insofar as the Directors believe it to be appropriate and relevant The Board makes decisions on, among other things, the principal matters set to the Company, it is their intention that the Company should comply with  best practice standards for the business carried on by the Company.  the Board to be non-strategic in nature and are delegated either to the  Investment Manager or the Administrator, unless the Board considers   which report against the UK Corporate Governance Code or the Association importance to the Company and should be reserved to the Board. Generally of Investment Companies Code of Corporate Governance are deemed to  meet the Code, and need take no further action. –  –  The Board has considered the principles and recommendations of the income; and Association of Investment Companies Code of Corporate Governance –  published in February 2019 ( the ‘AIC Code‘), which applies to accounting periods beginning on or after 1 January 2019. The AIC Code, addresses Evaluation of the Board and Audit Committee all the principles set out in the UK Corporate Governance Code, as well as In January 2020, the Board appointed Stogdale St James Limited to setting out additional principles and recommendations on issues that are    www.theaic.co.uk. presented and discussed with the Board. The composition of the Board, its dynamics, its oversight of strategy and the management of the Board  meetings were all highly regarded.  and recommendations of the AIC Code, which has been endorsed by the In 2021, the Board carried out an internal evaluation of the Board and its   Directors, representatives of the Investment Manager and the Company Statement of compliance Secretary. It was concluded that the Board and its Chairman both operate The Company has complied with the recommendations of the AIC Code and   towards succession planning, relationships with key shareholders and the out below. format and length of Board papers. The UK Corporate Governance Code includes provisions relating to:  –  has deferred its annual Board and sub-committee evaluations until 2023. –  – Internal audit function. Non-Executive Directors, rotation of Directors and Directors’ tenure The UK Corporate Governance Code recommends that Directors should The Board considers that these provisions are not relevant to the Company,       terminated at any time without penalty. The Board has approved a policy that Directors, employees or internal operations. The provision in relation to the all Directors will stand for re-election annually and it is the intention that no internal audit function is referred to in the Audit Committee Report. The Director will serve for more than nine years. Company has therefore not reported further in respect of these provisions. The appointment and replacement of Directors is governed by the Role of the Board  The Board has determined that its role is to consider and determine the Listing Rules. The Articles may only be amended by a special resolution following principal matters which it considers are of strategic importance to of the shareholders. When a vacancy arises the Board selects the best the Company:  – The overall objectives of the Company, as described under the paragraph taking into consideration Board diversity as part of a good corporate    market conditions prevailing from time to time; – The capital structure of the Company, including consideration of an appropriate policy for the use of borrowings both for the Company and in any joint ventures in which the Company may invest from time to time; – The appointment of the Investment Manager, Administrator and other  through regular reports and meetings; and –  and the payment of dividends. Schroder Real Estate Investment Trust Limited 34 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 Board composition and diversity   All Directors receive, in a timely manner, relevant management, regulatory   biography of each of these Directors is set out on pages 30 to 31 of the  report. The Board considers each of the Directors to be independent. internal controls. The Board receives and considers reports regularly from the Investment Manager and other key advisers and ad hoc reports and The independence of each Director is considered on a continuing basis. information are supplied to the Board as required. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONOVERVIEW The Board has determined that all the Directors are independent of the  Data protection and security  The Board has reviewed its systems and controls in light of the of both the Company and the wider investment company sector, to enable implementation of the General Data Protection Regulation (EU Regulation   no individual or group of individuals is, or has been, in a position to dominate  decision making. Accordingly, the Board approves the nomination for re- requirements of the GDPR. As part of that process, the Board took steps election of each of the Directors at the forthcoming Annual General Meeting. to update its contracts and policies accordingly and is comfortable that it meets its obligations as a controller of personal data. The Board also requires As at 31 March 2022, the Board comprised three men and one woman. its Investment Manager and Administrator to have a robust information The Board has adopted a diversity and inclusion policy. Appointments and security and data protection environment in place. This is reviewed with succession plans will always be based on merit and objective criteria and,    and ethnic backgrounds, cognitive and personal strengths. The Board will   that meet the objective criteria agreed for each appointment. Candidates   During the year, the Company has maintained insurance cover for its  Directors under a liability insurance policy.  Relations with shareholders Board Committees The Board believes that the maintenance of good relations with both The Board has delegated certain of its responsibilities to its Audit, institutional and retail shareholders is important for the long-term prospects Nomination, and Management Engagement Committees. Each of these of the Company. The Board receives feedback on the views of shareholders Committees has formal terms of reference established by the Board from its corporate broker, the Investment Manager and from the Chairman.  Through this process the Board seeks to monitor the views of shareholders Committees have an appropriate composition and blend of backgrounds,   of these Committees are available in their respective reports. The Board believes that the Annual General Meeting provides an appropriate forum for investors to communicate with the Board and it encourages   necessary to have a Remuneration Committee. 94 sets out the business of the Annual General Meeting to be held on 21 September 2022. Board meetings and attendance The Board meets at least four times each year. Additional meetings are also arranged as required and regular contact between Directors, the Investment Manager and the Administrator is maintained throughout the year. Representatives of the Investment Manager and Company Secretary attend each Board meeting and other advisers also attend when requested to do so by the Board. At least once a year the Board carries out a site visit to properties owned by the Company. Attendance records for the four quarterly Board meetings and committee meetings during the year under review are set out in the table below: Management Audit Nomination Engagement Board Committee Committee Committee Lorraine Baldry (Chairman)          Graham Basham     Stephen Bligh     Number of meetings during the year 4 2 2 1 In addition to its regular quarterly meetings, the Board met on 16 other occasions during the year, attended by all or the majority of Directors. Schroder Real Estate Investment Trust Limited 35 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 G OVERNANCE ## Audit Committee Report Composition Work of the Audit Committee The Audit Committee is chaired by Stephen Bligh with Graham Basham The Audit Committee meets no less than twice a year. If required, meetings  are also attended by the Investment Manager, the Administrator and the  Auditor. During the year under review, the Audit Committee met on two Committee, and his continuing professional commitments provide him with occasions to consider:  –   consider whether, taken as a whole, they were fair, balanced and webpages. understandable and provided the information necessary for shareholders  Responsibilities –  The Audit Committee ensures that the Company maintains the highest –     – The management representation letters to the Auditors; before their submission to the Board. In addition, the Audit Committee is –   –  alia, on the terms and scope of the appointment of the Auditors, including – The risk assessment of the Company; and their remuneration, independence, objectivity and reviewing with the – Compliance with the UK REIT regime.  As noted in the Corporate Governance report, an evaluation of the Audit Committee was completed by the Directors in March 2021 in which it was  discharge the matters for which it is responsible under its terms of reference.  Matter Action Property valuation Property valuation is central to the business The Audit Committee reviewed the outcomes of the valuation process throughout the year and discussed  the detail of each quarterly valuation with the Investment Manager at the Board meetings. is inherently subjective, although the valuations are performed by independent  Paribas Real Estate UK for the two joint ventures. Errors in valuation could have a material Members of the Audit Committee met with Knight Frank LLP and BNP Paribas Real Estate UK to      Market volatility The performance of the Company could be As disclosed in the Going Concern and Viability Statements on page 29, the Audit Committee has   risk. In the wider economy this could [-]year  period of its assessment. economic recessions, movements in   performance of the underlying property  structural or cyclical factors impacting particular sectors or regions of the  Schroder Real Estate Investment Trust Limited 36 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 Internal control Non-audit services The UK Corporate Governance Code requires the Board to conduct, In order to help safeguard the independence and objectivity of the Auditor,   internal control and to report to shareholders that it has done so. The Audit  Committee, on behalf of the Board, also regularly reviews a detailed ‘Risk    and service provider-related risks and ensures that risk management and of the Company, it will often be in the best position to perform non-audit STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONOVERVIEW   services is subject to pre-clearance by the Audit Committee. Clearance     internal audit processes due to the relationships in place. is prohibited. Prior to undertaking any non-audit service, EY also completes  Although the Board believes that it has a robust framework of internal  controls in place, this can provide only reasonable and not absolute  During the year, the non-audit services fees paid to EY were £20,000 in  relation to the interim review. internal controls review. Stephen Bligh Internal audit Director The Audit Committee considered the need for an internal audit function and 6 June 2022 concluded that this function is not required, as it is provided by the Schroders  Investment Manager, Schroder Real Estate Investment Management Limited.  Internal Controls Report which includes the Company within the scope    report and the review by EY.  Annually, the Audit Committee considers the remuneration and   review the ratio of audit to non-audit fees to ensure that the independence    recommendation on its reappointment at the forthcoming Annual General Meeting. As part of the evaluation, the Audit Committee considered feedback from the Investment Manager on the audit process and the  compliance with regulatory requirements, on safeguards that have been established and their own internal quality control procedures. The Audit Committee had discussions with the audit partner on audit planning,  with and without representatives of the Investment Manager present. The Chairman of the Audit Committee also had informal discussions with the   Schroder Real Estate Investment Trust Limited 37 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 G OVERNANCE ## Management Engagement ##    fees. All Directors are members of the Management Engagement Committee. Graham Basham is the Chair of the Management Engagement Committee, and  Approach Oversight of the Investment Manager Oversight of other service providers The Management Engagement Committee: The Management Engagement Committee reviews the performance and –   – Considers the reporting it has received from the Investment basis, including the Investment Manager, the Corporate Broker, the Valuers Manager throughout the year, and the reporting from the  Investment Manager to shareholders; – Assesses management fees on an absolute and relative basis, The Management Engagement Committee receives feedback from the Audit  Committee on its review of the Auditors.  –  contract, including terms such as notice period; and – Assesses whether the Company receives appropriate administrative, accounting, company secretarial and marketing support from the Investment Manager. Application during the year Oversight of the Investment Manager Oversight of other service providers The Management Engagement Committee undertook a detailed   Secretary and Administrator took place. has the appropriate capabilities required to allow the Company to meet its investment objective. The Management Engagement Committee  also reviewed the terms of the Investment Management Agreement    Engagement Committee reviewed the other services provided by together with Schroder Investment Management Limited. These arrangements  delivered a modest reduction in fees paid by the Company. The annual review of each of the other service providers was satisfactory. The Management Engagement Committee noted that the Audit Committee had undertaken a detailed evaluation of the Investment Manager, Depositary and  Recommendations made to, and approved by, the Board: – That the ongoing appointment of the Investment Manager on the terms of the Investment Management Agreement, including the fee, was in the best interests of shareholders as a whole. –  Schroder Real Estate Investment Trust Limited 38 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 ## Nomination Committee Report The Nomination Committee is responsible for: (i) the recruitment, selection and induction of Directors; (ii) their assessment during their tenure; and (iii) the   Approach STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONOVERVIEW Selection and induction Board evaluation Succession – The Nomination Committee prepares – The Nomination Committee assess each –   Director annually. tenure will be for no longer than nine years,  – Evaluation focuses on whether each  For the Chairman and the Chairs of Director continues to demonstrate each Director will be subject to annual re- Committees, the Committee considers commitment to their role and provides election at the AGM. current Board members too. a valuable contribution to the Board – The Nomination Committee reviews the –  during the year, taking into account time  professional skills, personal qualities and    training needs. the Nomination Committee will initiate the – Potential candidates assessed against the – Following the evaluation, the Nomination selection process.  Committee provides a recommendation – The Nomination Committee will oversee the – The Nomination Committee discusses the to shareholders with respect to the annual handover process for retiring Directors. long list, invites a number of candidates for re-election of Directors at the AGM. interview and makes a recommendation to – All Directors retire at the AGM and their re- the Board. election is subject to shareholder approval. – The Nomination Committee reviews the induction and training of new Directors. Application during the year Selection and induction Board evaluation Succession | – Lorraine Baldry announced that she would | – The annual Board evaluation was | – During the year, the Nomination Committee | | --- | --- | --- | | resign as Chairman of the Company in | undertaken in 2021. | considered the need for orderly succession | | July 2022. A sub-committee comprised | – The Nomination Committee reviewed | planning and a suitable plan was agreed. | | of Stephen Bligh and Graham Basham |  | | | considered a number of candidates for | independence by reviewing a complete list | | | the role of Chairman with input from | of appointments, including pro bono not | | | independent recruitment partners. |  | | |  |  | | | the current Senior Independent |  | | |  |  | | |  | were considered to be independent in | | | –  | character and judgement. | | | suitable candidates for the role of Senior | – The Nomination Committee considered | | | Independent Director, with support from |  | | |  |  | | | Reynolds. Following this process, Priscilla |  | | | Davies was recommended to be appointed | Directors, each Director had valuable | | | as a Director of the Company and, in due |  | | | course, Senior Independent Director. | biographies on pages 30 and 31. | | – Based on its assessment, the Nomination Committee provided individual  re-election. Recommendations made to, and approved by, the Board: –  –  – That all Directors continue to demonstrate commitment to their roles, provide a valuable contribution to the deliberations of the Board and remain free  Schroder Real Estate Investment Trust Limited 39 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 G OVERNANCE ## Directors’ Remuneration Report Introduction Directors’ Remuneration Report The below remuneration policy is in force and is subject to an advisory vote  every three years. implemented during the year ended 31 March 2022.  Fees paid to Directors advisory vote. An ordinary resolution to approve this report will be put to The following amounts were paid by the Company for services as Non- | shareholders at the forthcoming AGM. |  | | | | | | --- | --- | --- | --- | --- | --- | | | | 31 March 2022 | | 31 March 2021 | | | At the AGM held on 9 September 2021, 99.77 % of the votes cast (including | Director | | (£) | | (£) |  Lorraine Baldry (Chairman)   Report on Remuneration for the year ended 31 March 2021 were in favour, while 0.23% were against. No votes were withheld. 2 Stephen Bligh   3, 4 Graham Basham   The Board believes that the principles of Section D of the UK Corporate Governance Code relating to remuneration do not apply to the Company, 1     Total   Directors’ Remuneration Policy 1 Senior Independent Director.  2 Chair of the Audit Committee. Board of Directors to a total of £250,000 per annum. Subject to this overall 3 Chair of the Management Engagement Committee.  4 Graham Basham is a Director of the subsidiary companies for which he receives no  additional remuneration, either directly or indirectly.   Performance The performance of the Company is described on page 22 in the Business Directors receive a base fee of £30,000 per annum, and the Chair receives Model. £50,000 per annum. The Chair of the Audit Committee, the Chair of the Management Engagement Committee and the Senior Independent Lorraine Baldry Director each receive an additional fee of £5,000 respectively. The fees Chairman   6 June 2022  fee for the Chair of the Management Engagement Committee which took  No Director, past or present, has any entitlement to pensions and the Company has not awarded any share options or long-term performance  performance-related. The Board did not seek the views of shareholders in setting this remuneration policy. Any comments on the policy received from shareholders would be considered on a case-by-case basis.  from third parties on the fee levels of Directors of peer group companies, as  of the Directors. New Directors are subject to the provisions set out in this remuneration policy.   letters of appointment, which set out the terms of their appointment, are  normal business hours and will be available for inspection at the AGM. All Directors are appointed for an initial term covering the period from the  required to stand for re-election in accordance with the Articles. When recommending whether an individual Director should seek re-election, the Board will take into account the provisions of the UK Corporate Governance Code, including the merits of refreshing the Board and its Committees. The Board has approved a policy that all Directors will stand for  Schroder Real Estate Investment Trust Limited 40 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 ## Statement of Directors’ Responsibilities The Directors are responsible for preparing the Annual Report and Responsibility Statement of the Directors in respect of the Annual Report Consolidated Financial Statements in accordance with applicable law and  regulations. – The Consolidated Financial Statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of The Companies Law requires the Directors to prepare the Annual Report   undertakings included in the consolidation taken as a whole and comply Companies Law the Directors have elected to prepare the Annual Report and with the Companies Law; and STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONOVERVIEW Consolidated Financial Statements in accordance with International Financial – The Strategic Report on pages 4 to 29 and Governance Report on pages Reporting Standards and applicable law. 34 to 35 include a fair review of the development and performance of the business and the position of the Group and the undertakings included The Annual Report and Consolidated Financial Statements are required by in the consolidation taken as a whole, together with a description of the  principal risks and uncertainties it faces. The Directors consider that the  Annual Report and Consolidated Financial Statements, taken as a whole, are fair, balanced and understandable and provides the information In preparing the Annual Report and Consolidated Financial Statements, the  Directors are required to: performance, business model and strategy. – Select suitable accounting policies and then apply them consistently; – Make judgements and estimates that are reasonable and prudent; By order of the Board – State whether applicable accounting standards have been followed,  Lorraine Baldry statements; Chairman –  6 June 2022 as applicable matters relating to going concern; and – Use the going concern basis of preparation unless they intend to either liquidate the Company or cease operations or have no realistic alternative to do so. The Directors are responsible for keeping proper accounting records which  Group and enable them to ensure that the Annual Report and Consolidated Financial Statements comply with the Companies Law. They also have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud, error and non-compliance with law and regulations. As part of the preparation of the Annual Report and Consolidated Financial Statements, the Directors have received reports and information from  have considered, reviewed and commented upon the Annual Report and Consolidated Financial Statements throughout the drafting process in order to satisfy themselves in respect of the content. The Directors are responsible for the maintenance and integrity of the  for the preparation and dissemination of the Annual Report and Consolidated Financial Statements. Legislation in Guernsey governing the preparation and dissemination   Schroder Real Estate Investment Trust Limited 41 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 G OVERNANCE ## Sustainability Report The Board and Manager believe that consideration of Environmental, Social ## Environmental Management System  Company and that a successful sustainable investment programme should The Investment Manager operates an Environmental Management System deliver enhanced returns to investors, improved business performance to  tenants and tangible positive impacts to local communities, the environment management of direct real estate investments in the UK and across Europe. and wider society. The EMS provides the framework for how sustainability principles  (Environmental and Social) are managed throughout all stages of its  investment process including acquisition due diligence, asset management, As a landlord, we have the opportunity to help reduce running costs for our property management provided by third parties, refurbishments and occupiers, increase employee productivity and wellbeing, and contribute to developments. the prosperity of a location through building design and public realm. The Investment Manager reviews its Sustainability Policy annually and which Ignoring these issues when considering asset management and investments is approved by the Investment Committee. Key aspects of the policy and its would risk the erosion of income and value as well as missing opportunities to objectives, and progress during 2021, as well as objectives and targets for enhance investment returns. the year ahead, are set out below.  consumption of depleting resources, combined with the political imperative ##  to tackle issues such as climate change, means the property sector will remain a prime target for policy action. This presents new challenges and Active management of sustainability performance is a key component opportunities for the real estate industry with profound implications for both of responsible asset and building management. Reducing consumption, owners and occupiers.    tenant retention and attraction, in addition to mitigating environmental proactively take action to improve social and environment outcomes, focuses impacts and helping to future-proof the portfolio against future legislation. on the pillars of People, Planet and Place which are referenced to three core  In support of improving the Environmental and Social characteristics of the growth; (11) Sustainable cities and communities; and (13) Climate action. portfolio, the Investment Manager has continued to work with sustainability  identify and deliver sustainability enhancements. The programme involves reviewing all managed assets held by the Company using the Investment  implement improvement initiatives, where viable. Where the landlord retains operational control responsibilities, the To minimise risk and ensure resilience a good investment strategy must  incorporate ESG factors alongside traditional economic considerations. The on a quarterly basis. Please note, changes in occupancy and building Board and Manager believe a complete approach should be rewarded by operations during the Covid-19 period have had an impact on like-for-like improved investment decisions and performance. performance and so the reporting year is not directly comparable with the previous reporting year.  is the response to the climate crisis both in terms of risk and resilience to For detailed sustainability performance data covering the reporting period  and the prior year, please see the EPRA Sustainability Reporting Performance  Measures on page 70.  aligned with a 1.5°C decarbonisation trajectory, work has been undertaken Energy and GHG emissions  The Investment Manager can report for the year to 31 December 2021, for  the managed assets held within the Company, there was a 2% reduction in milestones at 2025 and 2030. Further details can be found in the ‘Net Zero landlord-procured energy consumption on a like-for-like basis. This translates   basis.  Real Estate with Impact approach and its Sustainability Policy: Real Estate Energy performance improvement initiatives continued to be considered with Impact can be found here: across the portfolio. Initiatives undertaken during the reporting year include     monitoring, as well as continued upgrades to lighting systems including installation of LEDs and passive infrared controls. The Investment Manager also has an objective to procure 100% renewable electricity for landlord-controlled supplies by 2025. At 31 December 2021,    during 2021 new energy and carbon targets have been developed in a    Schroder Real Estate Investment Trust Limited 42 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 Water Occupier and community engagement  The Investment Manager seeks active engagement with occupiers to ensure and Society, and reductions in consumption can deliver operational cost   the Investment Manager undertook an occupier satisfaction survey with the landlord has supply responsibilities and encourages active management support from a third-party customer satisfaction specialist. Results from this of asset-level consumption. Where the Company had such responsibilities, survey were used to develop and action plans which the Asset and Property a 17% reduction in like-for-like water consumption is reported for the year to Managers are continuing to implement. As the day-to-day relationship is with STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONOVERVIEW 31 December 2021 compared to the previous year. the Property Manager, the Property Manager Sustainability Requirements include a key performance indicator on occupier engagement. Waste    Tower, Manchester and in response to feedback obtained through the end, waste should be minimised and disposal should be as sustainable as  possible. The Investment Manager, therefore, has set an objective to send Manager has worked alongside the principal property manager for the   to 31 December 2021, the Company achieved a 1% reduction in total landlord   the Company. The programme will see the introduction of this platform recycled and 44% was incinerated with energy recovery. throughout 2022. Improvements and refurbishments The Investment Manager believes in the importance of understanding The Investment Manager seeks to deliver developments and refurbishments  to sustainable standards and deliver good performance against building wellbeing of society. Positively impacting on local communities helps create  successful places that foster community relationships, contribute to local BREEAM (the Building Research Establishment Environmental Assessment prosperity, attract building users and, ultimately, lead to better, more resilient Methodology: an environmental assessment method and rating system for investments. The Investment Manager looks to understand and develop the  community relationship to ensure investments provide sustainable social  solutions for the long term.  ##  Sustainability in action (case studies)   Manchester, Cheadle, Stanley Green Trading Estate (Industrial)   assess operational performance against nine sustainability categories. The sq ft trading estate across 14 warehouse units on a nine acre site, and a 3.4 framework supports the overall sustainability programme for the Company acre development site. with improvement actions integrated into the responsibilities of the Investment Manager and property managers. When acquired in December 2020, the development site had an historic planning consent for 48,000 sq ft of trade counter and warehouse space During the 2021 reporting year, the Investment Manager commissioned two allocated for industrial development in the local development plan. In BREEAM In-Use assessment for the Company.   Health and wellbeing The real estate industry has a good appreciation of the importance of  the built environment on human health and wellbeing. There has been  considerable development in understanding on what building aspects matter      recycled materials, insulated cladding to mitigate heat loss and installation Property Manager Sustainability Requirements of LED lighting. Electric vehicle charging and cycle storage facilities will Property managers play an integral role in supporting the sustainability  programme. The Investment Manager has established a set of Sustainability Sustainable Refurbishment and Redevelopment guide, the contractor is Requirements for property managers to adhere to in the course of delivering encouraged to use local suppliers to boost local employment, including their property management services. This includes a set of key performance    The development cost of £8.5 million is estimated to generate rental income and annual basis. of £1.1 million per annum. Pre-lets of the scheme will be targeted during the  The Investment Manager is pleased to report that the principal property with lettings at new headline rents of £14 per sq ft and lease regears under   monthly and annual indicators. estate will be over roofed and reclad to mitigate heat loss and improve EPC ratings across the estate. The Investment Manager continues to develop a  portfolio and development opportunities. Schroder Real Estate Investment Trust Limited 43 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 G OVERNANCE ## Sustainability Report ## Continued Industry participation ## Compliance with legislation Schroders supports, and collaborates with, several industry groups, organisations and initiatives including the United Nations Global Compact The Investment Manager continues to monitor requirements and guidance in and Net Zero Asset Managers Initiative (of which it is a founding member). relation to managing and reporting environmental matters and developments  in legislation at all stages of the investment life cycle – from acquisition,  through ownership, to disposal. This process is supported by a legal register . within the EMS, as well as through appropriate devolution of responsibility to key personnel involved in the day-to-day operation of buildings, including The Investment Manager is a member of several industry bodies including      Regulations the UK Green Building Council in 2007 and in 2017 became a member of the EPCs for the portfolio are regularly reviewed for alignment with the 2015 Better Buildings Partnership and a Fund Manager Member of GRESB.  Investment Manager is actively managing the potential risk of this legislation  ## Employee Policies and Corporate new leases and renewals for non-domestic buildings from 1 April 2018; this ##  Responsibility the portfolio is set out within the EPRA Sustainability Reporting Measures section on page 75. Employees  Streamlined Energy and Carbon Reporting (‘SECR’)  An Energy and Carbon Report for the Company, aligned with the UK which has responsibility for the employees that support the Company. Streamlined Energy and Carbon Reporting regulations, is included on Schroders believes diversity of thought and an inclusive workplace are key to   real estate team have sustainability within their annual objectives. Energy Savings Opportunity Scheme (‘ESOS’) The Company did not qualify for participation in the 2015 Phase 1 of the   diversity and inclusion, gender pay gap, values, employee satisfaction Phase 3 requirements. survey, wellbeing and retention can be found on the dedicated Schroders  . ## Industry Initiatives Corporate responsibility EPRA Sustainability Reporting Measures  The Company report includes environmental performance indicator data commitment to act responsibly, support clients, deliver value to shareholders for the portfolio. The disclosures are aligned with EPRA Best Practices and make a wider contribution to society is embedded across its business in Recommendations on Sustainability Reporting 2017, assured to Assurance all that it does.  Performance Measures report. The Company was awarded an EPRA Gold  Award for Sustainability Reporting in 2021, for the fourth consecutive year. including its economic contribution, environmental impacts and community involvement, can be found here: Global Real Estate Sustainability Benchmark (‘GRESB’) . The Company has participated in GRESB, the leading global standard for assessing ESG performance for real estate funds and companies, for the   The Company is not required to produce a statement on slavery and human improved its score to 75 (out of 100), came second in its peer group (out of  8) and maintained its Green Star rating. The Investment Manager intends to the relevant triggers under that Act that required such a statement. participate in the survey on behalf of the Company in 2022. The Investment Manager to the Company, is part of Schroders plc and United Nations Principles of Responsible Investment (‘UN PRI’)  Schroders plc has been a signatory to UN PRI since 2007 and intends to  remain an active and engaged member for the PRI and to meet its ongoing  membership commitments. Schroders achieved the highest possible   . ESG approach from the Principles for Responsible Investment. Schroders has completed the Direct Property Segment for four years achieving an   . Please note there has been a delay to the 2021 UN PRI reporting cycle. The PRI have suggested we will receive our updated score for 2021 in the summer of 2022. Schroder Real Estate Investment Trust Limited 44 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 ## Net Zero Carbon The Board and Manager recognise that the Company has a responsibility to The pathway will evolve over time as the Investment Manager, and the wider 1  and that an active approach to industry, develop their understanding of how to address the carbon impact of understanding and managing climate risks and opportunities is fundamental real estate activities, physical risks to locations and assets, and as regulatory to delivering resilient investment returns and supporting the transition to a  low carbon society. (such as those on FRI leases) of our operational Net Zero Carbon pathway, as well as account for additional operational Scope 3 emissions (such as those   STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONOVERVIEW  manage and reduce our embodied carbon associated with developments Paris Agreement aim to limit warming to 1.5°C. The net zero commitment and refurbishments. Although this activity in the portfolio has historically addresses carbon emissions from all stages of a buildings life cycle including been limited, the Board and Manager recognise that works will be needed to  improve building energy and carbon performance in order to reduce the risk well as embodied carbon associated with refurbishment and development. of stranded assets. In 2021, the Investment Manager has been working to establish an operational Net Zero Carbon baseline and to develop new operational energy and carbon targets for the Company. Due to the Covid-19 pandemic, the 2020 year is generally not considered representative of building performance and so a baseline year of 2019 has been used.  building operational energy and carbon performance at assets where there is an internal energy supply procured by the Company. For buildings that are in scope, whole building energy has been taken into account. This means that for assets where the landlord procures only part of the building energy, the remaining footprint of the building (tenant procured energy) is also in scope despite limitations on our ability to reduce their energy use and carbon performance and so here occupier engagement will be critical to the success  2  2 e . Forward-looking asset level Net Zero Carbon pathways have been modelled  have formed the basis for our new asset and portfolio level operational energy and carbon targets. Net Zero Carbon pathways – aligned with a ‘Paris  1.5°C – have been developed to present the decarbonisation requirements needed to achieve Net Zero Carbon by 2050 or sooner and include interim milestones at 2025 and 2030. New interim operational energy and carbon portfolio targets for the Company established for 2025 and 2030 using a 2019 baseline and set in a Net Zero Carbon context % Annualised Target Reduction reduction 2025 carbon intensity   2030 carbon intensity    2025 energy intensity    2030 energy intensity      associated with the development, ownership and servicing of a building are zero or negative.    Net Zero Carbon pathways. Assets in scope of the baseline analysis represent 26% of   as at 31 March 2022. Schroder Real Estate Investment Trust Limited 45 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 G OVERNANCE ## Task Force on Climate-Related Financial ## Disclosures (‘TCFD’) The TCFD aims to mainstream reporting on climate-related risks and Additional principles within TCFD include the importance of forward-  looking assessment of climate-related risks and opportunities, and TCFD recommendations have so far been a voluntary framework, however,  it became mandatory in the UK across a range of market participants on a the potential implications of a range of plausible future states under phased timeline beginning in 2021.  for climate-related issues is a relatively new concept and that practices will The TCFD recommendations are structured around four themes:  Governance, Strategy, Risk Management, and Metrics and Targets.  In 2021, the Investment Manager continued to review its policies and –  practices against TCFD criteria and developed a roadmap towards increased  alignment. Building on our established consideration of sustainability within –  the investment process, Schroders believes it will be important to further  integrate the assessment of climate-related risks and opportunities into changing climate. decision-making and reporting processes. The outcome of our review and progress towards further alignment is set out below. TCFD recommendation Approach Governance   oversight of climate-related  risks and opportunities. which includes but is not limited to: (i) fund level sustainability performance measured by both the Investment Manager and    Climate change is an established component of our sustainability programme. Responsibility for assessment and in assessing and managing management of climate-related risk and opportunity is delegated to key members of the Investment Management team, climate-related risks and  opportunities.  the Investment Committee. The Investment Manager incorporates climate-related considerations into key stages of the investment process, including acquisition proposals, annual Asset Business Plans and annual Fund Strategy Statements. Each of these steps of the investment process require approval by the Investment Committee. The Investment Manager    Strategy Describe the climate-related  risks and opportunities the   these factors over time, as well as how government policies may enable mitigation of and adaptation to climate change. the short, medium, and long term. In the short term, energy and carbon emissions performance of our assets is a critical climate-related strategic issue. We  and generate new income streams (e.g. on-site energy) and which all support asset values. These actions also support     climates, weather events and availability of water. Describe the impact of  climate-related risks issues, and will include forward-looking assessment of asset alignment to Paris aligned energy and carbon performance and opportunities on the     planning. Engaging tenants to collaborate to reduce building energy and carbon emissions is an increasingly important element of our sustainability and business strategy. We have green lease provisions within our standard lease agreement and have  Schroder Real Estate Investment Trust Limited 46 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 TCFD recommendation Approach Describe the resilience of the     Net Zero Carbon commitments (detailed on page 45 above), during 2021, forward looking Net Zero Carbon pathways have climate-related scenarios,  STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONOVERVIEW including a 2°C or lower new asset and portfolio level operational energy and carbon targets. Net Zero Carbon pathways have been developed to scenario. present the decarbonisation requirements needed to achieve Net Zero Carbon by 2050 or sooner; aligned with a ‘Paris   assesses vulnerability to physical risk hazards, and those climate-based indicators are based on RCP8.5. The strategy will be to use this database to screen acquisitions, assess standing investment portfolios and identify required risk mitigation (i.e. enhanced defences, divestment), adaptation, or transfer (i.e. revised insurance policies) strategies. Risk management   processes for identifying and  assessing climate-related  risks. emissions.   processes for managing  climate-related risks.  initiatives relating to climate opportunities (e.g. on site renewables and electric vehicle charging provision). Applying an assessment of Paris alignment using the CRREM tool as part of our Net Zero Carbon pathway enables consideration of  Describe how processes for During 2021, the Investment Manager added ESG criteria, including climate-related risks, to its formal quarterly investment identifying, assessing, and  managing climate-related Company Board as part of the quarterly Board materials and discussed as necessary. risks are integrated into  management. Metrics and targets Disclose the metrics used  by the Company to assess  climate-related risks and  opportunities in line with its strategy and risk management process. Disclose Scope 1, Scope 2, Scope 1 and Scope 2 emissions for the reporting year are disclosed in the ‘EPRA Sustainability Reporting Performance    related risks.  baseline. Due to the Covid pandemic, the 2020 year is generally not considered representative of building performance and so a baseline year of 2019 has been used. Describe the targets Net Zero Carbon pathways have been developed, using the CRREM tool, to present the decarbonisation requirements used by the Company to  manage climate-related  risks and opportunities and performance against targets. Schroder Real Estate Investment Trust Limited 47 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 FINANCIAL STATEMENTS ## Independent Auditor’s report to the members of ## Schroder Real Estate Investment Trust Limited Opinion   Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows and the related    –  – have been properly prepared in accordance with IFRS; and – have been properly prepared in accordance with the requirements of The Companies (Guernsey) Law, 2008. Basis for opinion    Independence   accordance with these requirements.   Conclusions relating to going concern   included: –  process they followed in supporting the going concern assessment prepared by the Directors; –   fall due; – challenging the stress testing performed and validating the static data assumptions used by the Investment Manager by agreement to supporting documentation; –  – holding discussions with the Audit Committee and the Investment Manager to determine whether, in their opinion, there is any material uncertainty  the liquidity assessment; –  included in the Annual Report and Accounts; and – assessing the disclosures in the Annual Report and Financial Statements relating to going concern to ensure they were fair, balanced and understandable and in compliance with IAS 1.   for issue.   accounting.   Overview of our audit approach Audit scope –  Key audit matters – Risk of misstatement in the fair value of directly or indirectly held investment property portfolio. – Risk of incomplete or inaccurate rental revenue recognition and related year-end receivables. Materiality –  Schroder Real Estate Investment Trust Limited 48 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 An overview of the scope of our audit Tailoring the scope   controls and changes in the business environment when assessing the level of work to be performed. All audit work was performed directly by the Group audit team. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONOVERVIEW Changes from the prior year  Climate change    or our knowledge obtained in the course of the audit, or otherwise appear to be materially misstated. Key audit matters     these matters. Key observations Our response communicated Risk to the risk to the Audit Committee Risk of misstatement in the fair We have performed the following procedures: Based on the work  –  performed we have no investment property portfolio surrounding property valuation by performing our walkthrough procedures and matters to report to the  Audit Committee. Refer to the Audit Committee Report – assessed the independence and competence of the independent valuers as  required by auditing standards; –   the appropriateness and suitability of the reported values and the changes in  value from the previous accounting period; – engaged our EY property valuation specialists to perform a review of a Note 10 of the Financial Statements judgementally selected sample of property valuations to assess whether the (pages 62 to 64). reported value fell within a range of reasonable outcomes, which included: – validating the assumptions used by the independent valuers in undertaking  their valuation and assessment of the valuation methodologies adopted; portfolio consists of UK properties held – challenging the key inputs and assumptions relating to equivalent yield directly and through joint ventures, with and rental rates with reference to published market data and comparable a combined fair value of £523.5 million transaction evidence through market activity; (2021: £438.8 million). – assessing the appropriateness of market-related inputs and reasonableness of valuation methods, by comparing against our own market data and There is a risk of incorrect valuation understanding of the property market; of the property portfolio which could – performed analytical review procedures across the portfolio of investments, result in the Consolidated Statement of  Financial Position and the Consolidated – on a sample basis, with respect to key objective inputs to the valuation, Statement of Comprehensive Income comprising rental income and length of lease, agreed the inputs to lease being materially misstated. agreements or rent review schedules; –   – assessed the adequacy of the additional disclosures of estimates and valuation assumptions as disclosed in the notes were made in accordance with IFRS 13 – Fair Value Measurement. Schroder Real Estate Investment Trust Limited 49 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 FINANCIAL STATEMENTS # Independent Auditor’s report to the members of Schroder Real Estate Investment Trust Limited ## Continued | Risk | Our response to the risk | Key observations communicated to the Audit Committee | | --- | --- | --- | | **Risk of incomplete or inaccurate rental revenue recognition and related year-end receivables** Revenue is earned in the form of rental income from the investment properties and is recognised on an accrual basis. During the year, the Group recognised £23.9 million of rental income (2021: £21.5 million) and rent receivable of £4.5 million (2021: £4.1 million). There is a risk of incomplete or inaccurate rental revenue recognition and related year-end receivables through failure to recognise proper income entitlements or to apply the appropriate accounting treatment. The recoverability of year-end receivable is based on a number of judgements and estimates. | **We have performed the following procedures** – obtained an understanding of the process and controls for each revenue stream by performing our walkthrough procedures and evaluating the implementation and design effectiveness of controls; – performed substantive analytical review procedures over rental revenue for each property. We formed an expectation of the rental income for each property, and compared this expectation to the actual revenue recognised during the year; – agreed a sample of rental rates to tenancy agreements and recalculated rental revenue earned by the property for the period; – recalculated a sample of lease incentives based on the terms within the lease agreement to assess the appropriateness of the amount recorded; this included, on a sample basis, verifying lease modifications through agreement of the updated terms to amended and restated lease agreements, and performing an independent assessment as to whether they have been appropriately treated in accordance with IFRS 16 – Leases (IFRS 16); – reviewed the report prepared by the Investment Managers assessing the recoverability of the overdue rent receivables, and challenged the judgements involved. For a sample of tenants, we have inspected the cash receipt subsequent to the year-end date; and – to test the risk of management override of controls, we tested a sample of rental revenue journals to identify unauthorised or inappropriate journals. We enquired as to the nature of each transaction sampled and reviewed corroborating evidence to conclude on whether the journals were reasonable and in line with our expectations. We selected journals by applying criteria and thresholds based on our professional judgement. | Based on the work performed, we have no material matters to report to the Audit Committee. | ### Prior year comparison There have been no changes to our assessment of key audit matters. ### Our application of materiality We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in forming our audit opinion. ### Materiality *The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures.* We determined materiality for the Group to be £3.7 million (2021: £3.0 million), which is 1% (2021: 1%) of equity. We believe that equity provides us with a materiality aligned to the key measurement of the Group’s performance. During the course of our audit, we reassessed initial materiality based on equity as at 31 March 2022 and adjusted our audit procedures accordingly. ### Performance materiality *The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.* On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement was that performance materiality was 75% (2021: 75%) of our planning materiality, namely £2.8 million (2021: £2.2 million). ### Reporting threshold *An amount below which identified misstatements are considered as being clearly trivial.* We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of £0.19 million (2021: £0.15 million), which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant qualitative considerations in forming our opinion. ### Other information The other information comprises the information included in the Annual Report set out on pages 1 to 47 and pages 70 to 96, other than the financial statements and our Auditor’s report thereon. The Directors are responsible for the other information contained within the Annual Report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon. 60 Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2022  statements or our knowledge obtained in the course of the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies   We have nothing to report in this regard. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONOVERVIEW Matters on which we are required to report by exception We have nothing to report in respect of the following matters in relation to which The Companies (Guernsey) Law, 2008 requires us to report to you if, in our opinion: – proper accounting records have not been kept by the Company; or –  –  Corporate Governance Statement   Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement is  –  on page 29; –   –   –  –  –  – The section describing the work of the Audit Committee set out on pages 36 to 37. Responsibilities of Directors     matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.       Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect irregularities, including fraud. The risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one   detection of fraud rests with both those charged with governance of the Group and management. –  Companies (Guernsey) Law, 2008, the UK Corporate Governance Code, The 2019 AIC Code of Corporate Governance, REIT requirements set out in part  – We understood how the Group is complying with those frameworks by making enquiries of the Investment Manager, the Administrators and those charged with governance regarding: –  –  –   – how the Group monitors those programmes and controls. –  –  –   –   otherwise help to prevent, deter and detect fraud; Schroder Real Estate Investment Trust Limited 51 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022 FINANCIAL STATEMENTS ## Independent Auditor’s report to the members of ## Schroder Real Estate Investment Trust Limited ## Continued – making inquiries of the Investment Manager and those charged with governance regarding how they identify related parties including circumstances  – making inquiries of the Investment Manager, the Company Secretary, Administrator and those charged with governance regarding their knowledge of  –  – through discussion, gaining an understanding of how those charged with governance, the Company Secretary, Administrator and the Investment Manager identify instances of non-compliance by the Group with relevant laws and regulations; – inspecting the relevant policies, processes and procedures to further our understanding; – Reviewing Board minutes and internal compliance reporting; –   form of Property Income Distributions; – inspecting correspondence with regulators; and – obtaining relevant written representations from the Board of Directors.  at  Other matters we are required to address –   –  initial appointment to 31 March 2022. – The audit opinion is consistent with the additional report to the Audit Committee. Use of our report    a body, for our audit work, for this report, or for the opinions we have formed.  for and on behalf of Ernst & Young LLP Guernsey, Channel Islands 6 June 2022 Schroder Real Estate Investment Trust Limited 52 Annual Report and Consolidated Financial Statements for the year ended 31 March 2022