Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 ## SCHRODER REAL ESTATE INVESTMENT ## TRUST LIMITED ### Annual Report and Consolidated ### Financial Statements For the year ended 31 March 2023 Overview ## Strategy to drive income and value ## growththrough active management, ## operational excellence and an ## integratedsustainability approach. ### Future returns supported by an allocation to higher growth sectors, ### anexperienced management team, and a peer group leading debt profile. | Net Asset Value (“NAV”) | | Assets | | | --- | --- | --- | --- | | We seek to deliver strong long-term NAV growth, | | We actively manage assets to achieve optimal value, | | | measured against our financial Key Performance | | continuing to drive income and increase exposure | | | Indicators. | | tohigher growth sectors. | | | NAV | NAV per ordinary share | Portfolio value | Number of tenants | | £300.7m | 61.5p | £470.4m | 312 | Read more | Page 10 Read more | Page 16 ## Why invest in Schroder Real Estate Investment Trust Limited (“SREIT”) | 1 | 2 | | | | --- | --- | --- | --- | | | | 1 | 2 | | Good quality, diversified, higher yielding portfolio | 7.5% | dividend yield fully covered by earnings at 101% | | ### 3 4 Robust balance sheet provides dividend protection: 3.4% Share price at a 28% discount to NAV offers a compelling 3 current average interest cost of which 90% isfixed rate or value capped with 10.6 years average maturity Past performance is not a guide to future performance and may not be ### 5 repeated. The value of the investments and the income from them may go down as well as up and investors may not get back the amount originally invested. Thematic focus on sustainability – manufacture green premium, address embodied carbon 1 Based on share price of 44.35p as at close 6 June 2023 and an annualised latest quarterly dividend of 3.344pps. 2 Based on EPRA earnings and dividends paid for the year ended 31March2023. 3 Based on share price of 44.35p as at close 6 June 2023 and audited NetAsset Value (“NAV”) of 61.5pps as at 31 March 2023. Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 Overview Strategic Report Governance Financial Statements Other information (unaudited) ## Dividends Sustainability We seek to deliver a growing, fully covered dividend, Sustainability is embedded in our investment process, with our policy under active review from the Board. focusing on our three core pillars of People, Planet and Place. Dividends paid during Dividends paid Reduction in whole First in GRESB peer group financial year per share building operational GHGintensity ## £15.8m 3.22pps ## (2022: £13.9m) (2022: 2.83pps) -19% Read more | Page 6 Read more | Page 22 ## Contents Overview 51 Nomination Committee 68 Notes to the Financial 111 Sustainability Report Statements Performance Measures 02 Performance Summary (Social) 52 Directors’ Remuneration Other information Strategic Report Report 113 Sustainability (unaudited) Performance Measures 53 Statement of Directors’ 06 Chair’s Statement 88 EPRA Performance (Governance) Responsibilities 10 Investment Manager’s Measures (unaudited) 114 Streamlined Energy and 54 Independent Auditor’s Report 92 Alternative Performance Carbon Reporting Report to the members of 22 Sustainability Report Measures (unaudited) Schroder Real Estate 117 Asset list 32 Business Model Investment Trust Limited 93 AIFMD Disclosures 118 Report of the Depositary 34 Our Stakeholders (unaudited) to the Shareholders Financial Statements 35 Risks and Uncertainties 95 Task Force on Climate- 119 Glossary | | 64 Consolidated Statement | | related Financial | | | --- | --- | --- | --- | --- | | Governance Report | | | | 120 Resolutions at 2023 | | | | of Comprehensive Income | Disclosures (“TCFD”) | | Annual General Meeting 40 Board of Directors 65 Consolidated Statement 98 Sustainability 122 Notice of Annual General 42 Report of the Directors of Financial Position Performance Measures Meeting (Environmental) 44 Corporate Governance 66 Consolidated Statement 124 Corporate Information (unaudited) of Changes in Equity 48 Audit Committee Report 67 Consolidated Statement 50 Management Engagement of Cash Flows Committee Report ### 01 Overview ## Performance Summary High income return and Long term outperformance Strong progress improving asector leading debt against the MSCI Benchmark, sustainability performance profileunderpinning strong rental value growth asfuture strategy evolves furtherdividendincrease andan improvement in – Further improvement in the defensive qualities | – Net asset value (“NAV”) | | Company’s Global Real Estate | | --- | --- | --- | | decreased to £300.7 million | – Total return of 6.0% per annum | Sustainability Benchmark | | or61.5pps (31 March 2022: | on a rolling three year basis | (“GRESB”) score, placing first | | £372.2 million, or 75.8pps), | (MSCI Benchmark Index: 1.9% | amongst a group comprising | | withequivalent yield expansion | per annum) | seven diversified REITs | of 152 bps to 7.8%, partially – 65 new lettings, rent reviews and – 58% of the portfolio A-C rated offset by ERV growth of 9.2% renewals across 973,000 sq ft, (31 March 2022: 41%), with first (MSCI Benchmark: 3.4%) | | totalling £6.7 million in | “A+” ratings achieved at Stanley | | --- | --- | --- | | – 14% increase in dividends paid | annualised rental income and | Green Trading Estate | | during the financial year to £15.8 | generating £2.3 million per | | – Announced “Pathway to Net million, or 3.22pps, (31 March annum of additional rent Zero Carbon”, includes 2022: £13.9 million, or 2.83pps), – Acquisition of mixed-use office operational whole buildings fully covered by EPRA earnings | | and retail asset in Manchester | emissions to bealigned to a | | --- | --- | --- | | – NAV total return -15.1% (31 March | City Centre for £14.7 million, | 1.5°Cpathway by2030 | | 2022: 30.9%) | reflecting a net initial yield of | | 7.8% and a reversionary yield of – Long debt maturity profile of 9.1% 10.6 years and a low average interest cost of 2.9%, with 90% – Three disposals totalling £12.6 either fixed or hedged million at 13% average premium to book valuation ### – Loan to value, net of all cash, of The attractive portfolio 36.0% (31 March 2022: 28.6%) ### income and pipeline of – 12 month total return from the ### assetmanagement activity underlying portfolio of -7.9% ### (MSCI Benchmark -13.5%) should contribute to ### – Further 2% increase in the continued earnings and quarterly dividend to 0.836pps ### dividend growth, further for the quarter ended 31 March ### improve thedefensive 2023 ### qualities of theportfolio, ### andenhance returns as ### themarket recovers” Alastair Hughes Chair of the Board Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 ### 02 ### Property performance | | 31 March 2023 | 31 March 2022 | | --- | --- | --- | | Value of Property Assets and Joint Venture Assets^{1} | £470.4m | £523.5m | | Annualised rental income^{2} | £29.3m | £30.1m | | Estimated open market rental value^{3} | £37.8m | £33.8m | | Underlying portfolio total return | (7.9%) | 23.5% | | MSCI Benchmark total return^{4} | (13.5%) | 19.9% | | Underlying portfolio income return | 6.0% | 6.3% | | MSCI Benchmark income return | 4.1% | 3.9% | ### Financial summary | | 31 March 2023 | 31 March 2022 | | --- | --- | --- | | Net Asset Value ("NAV") | £300.7m | £372.2m | | NAV per Ordinary Share | 61.5p | 75.8p | | EPRA Net Tangible Assets^{5} | £300.7m | £372.2m | | EPRA Net Reinstatement Value^{5} | £332.2m | £407.5m | | EPRA Net Disposal Value^{5} | £317.4m | £375.9m | | IFRS (loss)/profit for the year | (£54.7m) | £89.4m | | EPRA earnings^{6} | £16.0m | £15.7m | | Dividend cover^{6} | 101% | 113% | ### Capital values | | 31 March 2023 | 31 March 2022 | | --- | --- | --- | | Share price | 43.6p | 57.8p | | Share price discount to NAV | (29.1%) | (23.7%) | | NAV total return^{7} | (15.1%) | 30.9% | ### Earnings and dividends | | 31 March 2023 | 31 March 2022 | | --- | --- | --- | | EPRA earnings^{8} (pps) | 3.3 | 3.2 | | Dividends paid (pps) | 3.22 | 2.83 | | Annualised dividend yield on the 31 March share price | 7.4% | 4.9% | ### Bank borrowings | | 31 March 2023 | 31 March 2022 | | --- | --- | --- | | On-balance sheet borrowings^{9} | £177.90m | £162.25m | | Loan to Value ratio ("LTV"), net of all cash^{9} | 36.0% | 28.6% | ### Ongoing charges | | 31 March 2023 | 31 March 2022 | | --- | --- | --- | | Ongoing charges (including fund and property expenses)^{10} | 2.28% | 2.21% | | Ongoing charges (including fund only expenses)^{11} | 1.32% | 1.26% | 1 Reconciles to the valuation reports from CBRE for the direct portfolio and BNP for the two Joint Ventures. Does not include any IFRS adjustments for lease incentives, nor the fair value of the leasehold adjustment for The Galaxy, Luton. Includes £4.0 million relating to the unconditional exchange of contracts before the year and to dispose of the Group's Rugby asset as per notes 12 and 23. 2 Represents the annualised rental income as at 31 March 2023 of the portfolio, including the share of 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 2023. 5 This is an Alternative Performance Measure ("APM"). EPRA calculations are included in the EPRA Performance measures section on page 92. 6 This is an APM with further details on page 92. 7 This is an APM with further details on page 92. 8 On-balance sheet borrowings reflect the loan facilities with Canada Life and RBSI without the deduction of unamortised finance costs of £1.0 million. 9 This is an APM. Details are included in the APM section on page 92. 10 This is an APM and calculated in accordance with the AIC recommended methodology. Details are included in the APM section on page 92. 11 This is an APM and calculated in accordance with the AIC methodology. Details are included in the APM section on page 92. Overview Strategic Report Governance Financial Statements Other information (unaudited) 03 Strategic Report ## Strategic ## Report Contents 06 Chair’s Statement 10 Investment Manager’s Report 22 Sustainability Report 32 Business Model 34 Our Stakeholders 35 Risks and Uncertainties Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 ### 04 Overview Strategic Report Governance Financial Statements Other information (unaudited) ### 05 Strategic Report ## Chair’s Statement Overview Schroder Real Estate Investment Trust Limited (the “Company”) today announces its audited results for the financial year to 31 March 2023, achallenging period that has seen financial market volatility, and a significant correction in UK real estate values. | As expected, the rising interest rate | Whilst the decline in NAV over | | --- | --- | | environment has led to a re-rating in | thefinancial year is, of course, | | real estate yields, contributing to a | unwelcome, it is encouraging that | | -13.1% valuation decline in our | the underlying portfolio continues | | underlying portfolio over the year. | todeliver long term relative | | Whilst this compared favourably | outperformance compared with the | Alastair Hughes with the MSCI peer group Benchmark, with an annualised total Chair | Benchmark (the “Benchmark”) at | return of 6.0% per annum over the | | --- | --- | | -16.9% over the same period, the | past three years, compared with | | valuation movement resulted in a net | theBenchmark at 1.9% per annum, | | asset value (“NAV”) as at 31 March | placing the portfolio on the fifth | | 2023 of £300.7 million, or 61.5 | percentile of its peer group. | pence per share (“pps”), a decline Market context of-18.9%. My statement in the interim report More positively, a high level of highlighted the risk of average UK portfolio activity contributed to an commercial real estate values falling above average income return of 15% to 20% from the half year point, 6.0% over the year, comparing resulting in an overall decline from favourably with the Benchmark at mid 2022 of approximately 20% to 4.1%. Earnings growth, underpinned 25%. Average values have now fallen by low cost, long-term, fixed rate -17.7% between 1 July 2022 and debt, boosted the dividend to £15.8 31 March 2023, with the Company’s million, a 14% increase compared portfolio value falling by -14.1% over with the prior financial year, and we the same period. are the only member of our peer group where the dividend is above The principal cause of this correction Performance Summary the pre-pandemic level. Importantly, is more persistent core inflation, for FY2023 | | the dividend was fully covered by | driven by high energy and food | | --- | --- | --- | | | recurring earnings and, combined | prices, leading to increasing interest | | Value of Property Assets and | with the movement in the NAV, | rates, with the Bank of England base | | Joint Venture Assets | resulted in a NAV total return for | rate currently 4.5%, the highest | | | thefinancial year of -15.1%. | level since October 2008. Tighter | | £470.4m | | fiscal and monetary conditions, | As a result of income focused asset combined with a withdrawal of management activity, the Company Net Asset Value (“NAV”) pandemic related business support has today separately announced a programmes, have led to a rise further 2% increase in its quarterly ## £300.7m in business insolvencies and a dividend to 0.836pps, to be paid slowdown in consumer spending. inJune 2023. This reflects an Share price Inreal estate markets, higher interest attractive yield of 7.5% based on the rates have impeded debt-backed share price of 44.35pps as at close ## 43.6p buyers and increased refinance risk on 6 June 2023. for many borrowers, with a related EPRA earnings fall in equity and bond prices leaving some institutions over-allocated ## 3.3pps to real estate. This environment has led to weaker sentiment and a Consolidated net sharp fall in transaction volumes. loan to value ## 36.0% Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 ### 06 Overview Strategic Report Governance Financial Statements Other information (unaudited) | The resultant decline in values has | in 2024. In this seemingly benign | | --- | --- | | increased average real estate net | scenario, interest rates should fall, | | initial yields from 3.8% in June 2022 | but probably to a higher equilibrium | | to 4.7% today, the highest level since | rate of around 3%, above the | | June 2020, with our portfolio now | ultra-low levels of the recent past. | ### We believe there is an | yielding 5.8%. As expected, lower | Agap of approximately 2% between | | | --- | --- | --- | | yielding, higher growth real estate | property yields and 10 year gilts is | opportunity to differentiate | | sectors such as South East and | approaching the long term average | | ### our strategy by placing London industrial have been most for fair value, which, combined with ### evengreater emphasis on adversely impacted by this rerating, a more a stable political backdrop ### resulting in a reversal in the and currency, should attract how sustainability-led asset unprecedented polarisation of domestic and international capital ### improvements will deliver returns over recent years. Higher flows back to the sector. ### enhanced returns for yielding sectors – such as retail Looking forward, long term ### warehousing, and offices in stronger shareholders” structural trends such as regional centres – have been less urbanisation, technological change, adversely impacted, leading to a demographics and sustainability convergence in returns across the should continue to drive returns, with these enhanced returns and the main sectors. Against this backdrop, multi-let industrial estates, retail wider real estate industry reach its our well diversified portfolio has warehousing, certain London office net zero carbon targets. outperformed the Benchmark due to sub-markets and some alternative the active management of the higher The relative outperformance of the sectors expected to outperform. yielding, regional industrial estates, underlying portfolio during the These sectors should also benefit as well as higher-yielding retail market correction has demonstrated from limited new development. This warehousing and offices in stronger the benefits of owning a diversified contrasts with secondary office and regional centres. portfolio, with expertise to invest weaker retail assets, where across all sectors. The portfolio Occupational markets have, so obsolescence, higher vacancy and remains diversified, but with a higher far, remained more resilient, with lower levels of occupational demand weighting to sectors and assets average nominal rental value growth will negatively impact returns. expected to deliver higher total for UK real estate of 2.5% per returns and income growth. Strategy annum since June 2022. Although Approximately half the portfolio by below current inflation levels, there Our strategy is focused on delivering value comprises multi-let industrial remains a strong positive long- sustainable dividend growth and estates, and exposure to retail term correlation between rental improving the quality of the warehousing increased slightly to growth rates and inflation, with underlying portfolio through a 11.6% during the year. The exposure sectors benefiting from structural disciplined, research-led approach to offices was unchanged at 27.5% demand drivers and lower vacancy to transactions, capital investment and, although the occupational rates delivering rental growth well and active management. This activity market remains more challenging, above the long-term average of will be complemented by progress has been made reducing approximately 0.9%. For example, maintaining a robust balance sheet risk through lease extensions to in contrast with the sharp decline and continuing to manage costs retain existing tenants, targeted in capital values, average industrial efficiently. Furthermore, with a refurbishment programmes to rental values have increased growing consensus that there is a improve letting prospects, including by 5.9% since June 2022. meaningful rental premium for by improving environmental and buildings with a green certification, There are initial signs that the social credentials, and to support which we are seeing across our own investment market is now stabilising, potential disposals. portfolio, we believe there is an with a capital value decline from our During the year, we acquired a opportunity to differentiate our underlying portfolio of -0.5% over higher yielding mixed-use office and strategy by placing even greater the quarter to March 2023 retail building in Manchester and, emphasis on how sustainability-led (Benchmark: -1.3%), contrasting with post year end, a small adjoining asset improvements will deliver -11.9% over the quarter to December ownership in Chelmsford. Three enhanced returns for shareholders. (Benchmark: -13.2%). The extent of disposals completed or contracted This reflects our strong conviction any subsequent recovery will totalling £12.6 million at a 13% that only by transforming less depend on falling inflation, with the average premium to the valuation sustainable buildings into modern, Bank of England currently atthe start of the financial year, with fitfor purpose assets, will we deliver forecasting a return to its target rate ### 07 Strategic Report ## Chair’s Statement continued Balance sheet | one office asset having exchanged | The market correction and weak | The average interest rate for total | | --- | --- | --- | | contracts at the year end, due to | investor sentiment means virtually | debt drawn at the year end was | | complete in June. The primary focus | alllisted real estate owners are | 2.9%, with an average maturity of | | has been on optimising earnings | now trading at material discounts | 10.6 years, and 90% either fixed | | across the existing portfolio through | to asset value. Although our share | orhedged against movements in | | an extensive asset management | price rating improved over the | interest rates. | | andtargeted capital expenditure | year, driven by a high, fully covered | | The debt refinancing with Canada programme, targeting growth areas dividend, and a sector leading debt Life in 2019 is now providing a and sustainability improvements. profile, theBoard and Manager significant benefit in a higher interest The ongoing development at Stanley are highly focused on delivering rate environment. This long term Green Trading Estate in Manchester, a further improvement by clearly loan, that represented £129.6 million the first operational net zero scheme articulating the opportunities of the £177.9 million total borrowings in the North West, completed post within the portfolio and attracting at the year end, has an average loan year end, has contributed strongly to a more diverse shareholder base. maturity of 13.1 years, with a fixed performance with approximately average interest rate of 2.5%. At the Sustainability 40% already let or in legals. Other year end, incremental positive fair examples include pre-lettings to Our strategic focus on improving value benefit of this fixed rate loan Starbucks for “drive-thrus” at two sustainability performance, where was £16.8 million, which is not retail warehouse assets which are the Manager has a strong track reflected in the Company’s NAV. currently under construction. record, has delivered positive results The balance of borrowings at the at both an asset and portfolio level. Successful implementation of year end totalling £48.3 million The Company achieved a further thestrategy means we are well comprised a revolving credit facility improvement in its Global Real positioned in terms of income “RCF”) from RBSI. This is used as a Estate Sustainability Benchmark characteristics. As noted in the tactical facility that can be drawn (“GRESB”) score, placing it first overview, the portfolio generates and repaid at any time. To provide amongst a group comprising seven amaterially higher income return additional capacity to invest into diversified REITs. The EPC profile of compared with the Benchmark, with theportfolio and pursue market the portfolio has improved markedly the high reversionary yield of 8.0% opportunities, during the year the and the Company‘s first “A+” ratings also comparing favourably with the total amount that can be drawn was were achieved at the development Benchmark at 5.7%. Furthermore, increased to £75.0 million, with the atStanley Green Trading Estate. the portfolio is highly diversified, loan maturity extended by 4.2 years with 312 tenants across 41 assets. We are also making progress to June 2027. £30.5 million of the withour pathway to net zero The Manager’s active approach, RCF benefitted from an interest rate commitments, with a 10% and 19% leveraging the wider Schroders cap at 1.5%, which was due to expire reduction in the Company’s energy Capital Real Estate platform of in July 2023 and, together with the intensity and greenhouse gas 42sector and regional specialists, RCF margin of 1.65%, resulted in an intensity targets over the most resulted in 65 lettings exchanging average interest rate on the drawn recent reporting period. The orcompleting since the start of the RCF of 4.1% at the year end. Company also retained its Gold financial year, totalling £6.7 million of Since the year end, this cap has been levelcompliance with the EPRA annualised rental income. Improving replaced with a hedging instrument Sustainability Best Practice the portfolio’s defensive qualities has termed an interest rate “collar” which Recommendations for the fifth been a key focus, with major lease applies to £30.5 million of the £48.3 successive year. agreements completed during the million now drawn. The collar, which year with large corporate occupiers runs to the end of the RCF term in and educational providers such as June 2027, allows the Company to Siemens, IXYS Westcode, and benefit from future falls in interest Buckinghamshire New University. rates down to a 3.25% floor, whilst This active approach has supported atthe same time protecting the high rental collection rates, with 99% Company from rate increases above collected over the financial year and 4.25%. After netting off the value of a reduction in the portfolio void rate the interest rate cap, the net cost of on a like-for-like basis. the collar was £567,000. Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 ### 08 Overview Strategic Report Governance Financial Statements Other information (unaudited) Independent valuers | Since the year end, the RCF has also | It is expected that the Standards | Whilst a relaxation in monetary | | --- | --- | --- | | been converted into a “Sustainability | andRegulation Board of the Royal | policy is expected in 2024, interest | | Linked Loan”, with criteria linked to | Institution of Chartered Surveyors | rates will remain elevated compared | | reduced energy consumption, future | (the “RICS”) will adopt the | with recent past. The prudent | | improvements in the GRESB rating | recommendations relating to | balance sheet management | | and building certification linked to | governance and valuer rotation | implemented by the Company, | | building improvements. | outlined in the independent review | resulting in the lowest cost, longest | | | of January 2022, although final | duration debt in the peer group, | At the year end, the Company had details are still to be confirmed largely removes this risk to earnings, anet loan to value (“LTV”) ratio of bythe RICS. and provides a solid foundation to 36.0%, which is slightly above the deliver future dividend growth. | long-term strategic target range | In preparation for these changes, | | | --- | --- | --- | | of25% to 35%. The Company has | and following a comprehensive | Finally, as sustainability | | significant headroom against all loan | tender process, CBRE Limited | considerations become even | | covenants, but steps are being taken | (“CBRE”) have replaced Knight | moreimportant for investors and | | to bring the net LTV back in line | FrankLLP, the Company’s principal | occupiers, we are making good | | withthe target range, including | independent valuer since 2004. | progress evolving our strategy, | | contracted and further planned | CBRE prepared the valuation used | which we believe should clearly | | disposals, which are set out in the | within these accounts and have | differentiate the Company and | | Manager’s Report. | entered into a three year contract at | helpto drive more sustainable, | | | a material fee saving. CBRE will also | long-term returns. We anticipate | Board succession | | replace BNP Paribas as valuer of | providing further details on this later | | --- | --- | --- | | Since Lorraine Baldry’s retirement as | theCompany’s two joint venture | in theyear. | | Chair in July 2022, I have continued | investments with effect from | | | our comprehensive succession | 30 June 2023. On behalf of my | | Alastair Hughes planning process. Following fellow directors and the Manager, Chair | Graham Basham’s subsequent | Iwould like to thank Knight Frank | | | --- | --- | --- | | retirement in November 2022, | fortheir service to the Company. | Schroder Real Estate Investment | | theCompany appointed Alexandra | | Trust Limited | Outlook Innes as an Independent Non- 7 June 2023 Executive Director. Alexandra The UK economy continues to has a strong track record across faceheadwinds this year as higher investment banking and investment inflation and interest rates cause management, with relevant non- consumers to retrench, reducing executive roles at the Bank of disposable incomes and hitting England, Securities Trust of Scotland household demand for goods PLC and Knight Frank LLP. As andservices. Although inflation part of the succession process, pressures are expected to ease, and the Board asked the appointed recent surveys indicate improved specialist search firm to review business confidence, an imbalanced Board remuneration levels, which UK labour market means wage were last reviewed and increased in growth remains a significant burden. 2015. This resulted in an aggregate On a more positive note, there increase of £20,000, or 13%. On aresigns that real estate values are behalf of my fellow directors and stabilising, and approaching long the Manager, we would like to term fair value. The attractive thank Lorraine and Graham again portfolio yield profile and pipeline for their service to theCompany. ofasset management activity should contribute to continued earnings and dividend growth, further improve the defensive qualities of the portfolio, and enhance returns asthe market recovers. ### 09 Strategic Report ## Investment Manager’s Report The underlying portfolio, including joint ventures and net of capital expenditure, decreased in value by -13.1% on a like-for-like basis over the financial year to 31 March 2023. £10.2 million of capital expenditure was invested in asset management and redevelopment projects, including joint ventures, that should drive capital growth and future rental increases over the medium to longer term. £7.5 million of this related to the operational net zero warehouse development at Stanley Green Trading Estate in Cheadle, Greater Manchester. Nick Montgomery Acquisition costs totalling £900,000 were incurred Fund Manager relating to the acquisition of St. Ann’s House, a mixed-use office and retail asset in Manchester for £14.7 million in May 2022. Acquisition costs Financial results totalling £58,792 were incurred relating to the Schroder Real Estate Investment Trust Limited’s (“SREIT”, acquisition of 68 High Street, Chelmsford, for or “theCompany”) net asset value (“NAV”) as at 31 March £800,000, which adjoins an existing asset, where 2023 was£300.7million or 61.5 pence per share (“pps”), the rationale is to create a more liquid investment. compared with £372.2million, or75.8pps, asat During the financial year two sales were completed for 31 March 2022. This reflected a decrease over the a combined price of £8.6 million, which was a 28.4% financial year of -14.3pps or -18.9%. During the period, increase on the 31 March 2022 combined independent dividends totalling £15.8 million were paid, which valuation of £6.7 million. After transaction costs of resulted in aNAV total return of-15.1%. A detailed £200,000, the aggregate realised gain on disposal was analysis of the NAV movement isset out in the table £1.7 million. During the year unconditional contracts below: were exchanged to sell an office for £4.0 million which £m pps compared with a valuation at the start of the financial 1 NAV as at 31 March 2022 372.2 75.8 year of £4.5 million and £4.0 million at the year end. Unrealised change in the valuations of EPRA earnings for the period totalled £16.0 million, the direct real estate portfolio and | | 2 | | | or 3.3pps, an increase of £300,000 or 1.9%, on the | | --- | --- | --- | --- | --- | | joint ventures | | | (61.1) (12.4) | | | | | 3 | | prior financial year of £15.7 million. This increase was | | Capital expenditure | | | (10.2) (2.1) | | driven by asset management-led rental value growth, Acquisition costs (1.0) (0.2) a positive contribution from the off-market, higher Realised gain on disposals, net of 1.2 0.2 yielding industrial portfolio acquired in December disposal costs 2021, and the St. Ann’s House acquisition. 4 EPRA earnings 16.0 3.3 Between 28 July 2022 and 15 September 2022 Dividends paid (15.8) (3.2) the Company acquired 1,969,725 shares under Others 0.4 0.0 its share buyback programme for £1.0 million, NAV as at 31 March 2023 which reflected an average cost of 50.6pps and (excluding the share buyback) 301.7 61.4 a discount to the 31 March 2022 NAV of 33%. Share buyback (1.0) 0.1 5 NAV as at 31 March 2023 300.7 61.5 1 The calculation of pence per share is based on shares in issue as at 31 March 2022 of 491,080,301. 2 Prior to all capital expenditure, acquisition costs and movement in IFRS16 lease incentives. 3 Comprises capital expenditure of £10.1 million on the directly held portfolio and £0.1 million invested for the joint ventures. 4 EPRA earnings as per the reconciliation on page 88. 5 The calculation of pence per share is based on shares in issue as at 31 March 2023 of 489,110,576. Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 ### 10 Overview Strategic Report Governance Financial Statements Other information (unaudited) ## Our strategy Investment objective The Company aims to provide shareholders with an attractive level of income with the potential for long term, sustainable income and capital growth. Investment strategy The strategy to deliver this, and progress made during the year and since year end, is set out below: ### 1 2 3 Apply a research-led Increase exposure to Sell smaller, secondary approach to determine larger assets with strong assets with higher attractive sectors and fundamentals and sustainability locations in which to inherent opportunities performance risk invest in commercial for active management realestate and development Sold three small assets (two completed, one unconditionally exchanged) at a 12.5% premium Increased allocation to higher Acquired St. Ann’s House in to the value at thestart of the growth sectors, with industrial, Manchester, made significant year, with further small disposals predominately multi-let estates, investment into Stanley Green expected and retail warehousing now Trading Estate also in Manchester. comprising 58.6% by value Our top 15 assets now represent 78.5% of value ### 4 5 6 | Drive income and value | Apply our integrated | Control costs and | | --- | --- | --- | | growth through a | sustainability and ESG | maintain a strong | | hospitality approach in | approach at all stages of | balance sheet with | | tenant management | the investment process | along-term strategic | | (optimising tenant | and asset life cycle, | target loan to value, | | services and lease | targeting improvement | netof cash, within the | | terms) and operational | in the sustainability | range of 25% to 35% | | excellence in all sectors | performance of assets | | | (optimising operations in | to manufacture the | The Company has a peer group | leading debt profile, with a clear the assets, minimising green premium for strategy to reduce the net LTV use of scarce resources shareholders back to within the strategic and waste) range from 36.0% at the year Further improvement in the end. Operationally net zero carbon Global Real Estate Sustainability Ongoing charges (including fund developments at two industrial Benchmark (“GRESB”) score to and property expenses) of estates, collaborating with 77 out of 100 in2022 (2021: 75), 2.28% broadly in line with 2.21% Starbucks to develop “drive- achieving the maximum possible for the prior financial year and thru” restaurants at two retail result for the management below the five year average of parks, negotiating regears with aspects of the assessment and 2.30% | major tenants Buckinghamshire | placing SREIT first amongst a | | --- | --- | | New University and University of | group comprising seven | | Law in return for sustainability | diversified REITs (2021: second | | related asset improvements | of eight) | ### 11 Strategic Report ## Investment Manager’s Report continued Portfolio performance | The underlying portfolio continues to | Targeted capital expenditure in larger | completed this May. A smaller | | --- | --- | --- | | deliver strong relative | assets to improve sustainability | proportionate increase in yields | | outperformance, with a total return | performance and benefit from | resulted in a lower fall in capital | | for the financial year of -7.9% | structural trends led to significantly | values of -13.1% for the portfolio | | compared to -13.5% for the MSCI | stronger rental value growth for the | compared to -16.9% for the | | Benchmark (the “Benchmark”). This | portfolio at 9.2% compared to 3.4% | Benchmark, which was mainly driven | | relative outperformance was partly | for the Benchmark. A key example of | by the higher yielding regional | | due to a stronger income return from | this strategy is the operationally net | industrial portfolio. | | the portfolio at 6.0% compared to | zero carbon development at Stanley | | The table below shows performance 4.1% for the Benchmark. Green Trading Estate in Cheadle, to 31 March 2023. Greater Manchester, which SREIT Total Return MSCI Benchmark* Total Return Relative Period to 31 March One year Three years Since IPO** One year Three years Since IPO** One year Three years Since IPO** 2023 (%) (% p.a.) (% p.a.) (%) (% p.a.) (% p.a.) (%) (% p.a.) (% p.a.) Retail -6.9 1.4 3.9 -8.1 -0.1 3.1 1.4 1.5 0.7 Office -8.9 1.4 7.0 -12.7 -2.5 5.9 4.4 4.0 1.0 Industrial -8.0 13.4 10.1 -21.0 8.3 8.6 16.4 4.7 1.4 Other 0.3 6.0 3.4 -6.4 1.0 6.5 7.2 4.9 -2.9 All sectors -7.9 6.0 7.1 -13.5 1.9 5.6 6.4 4.0 1.5 * MSCI Benchmark is formally “MSCI UK Balanced Portfolios Quarterly Property Index (unfrozen). ** IPO in July 2004. Real estate portfolio | As at 31 March 2023, the portfolio | for more rental growth relative to the | value. Excluding therecently | | --- | --- | --- | | comprised 41 properties valued at | Benchmark which positions it well | completed Stanley Green Trading | | £470.4 million. This includes the | for a higher interest rate environment | Estate developed units, the portfolio | | share of joint venture properties at | and where capital growth is muted in | void rate reduced on a like for like | | City Tower in Manchester and the | the short term. | basis from 8.6% to 7.9%, in the | | University of Law in Bloomsbury, | | middle of the ten year range of | The portfolio is overweight multi let London. The portfolio generated 5-13% and compares with the industrial estates where we consider 1 rental income of £29.3 million per Benchmark void rate of 8.0%. The supply and demand dynamics to be annum, reflecting a net initial yield of portfolio weighted average lease favourable given there has been 5.8%, which compared with the length, calculated to the earlier of relatively limited development. This Benchmark 4.8%. The portfolio also lease expiry or break, is 5.0 years. is evidenced by the rent reviews and benefits from fixed contractual lease renewals that we have Approximately 11% of the portfolio annualised rental income uplifts of completed since the beginning of by contracted rent is inflation linked, £2.0 million perannum over the next the financial year, where rents were typically structured as five yearly 24 months. The independent valuers’ agreed 24% higher than the previous reviews to either the Retail Price estimated rental value (“ERV”) of the level. In addition, there is an Index (“RPI”) or the Consumer Price portfolio is £37.8million per annum, overweight position in retail Index (“CPI”). In some cases these reflecting a reversionary income warehouses, where we have inflation-linked leases can also be yield of 8.0%, which compares sustainable levels ofrent and limited reviewed to open market value, if favourably with the Benchmark exposure to fashion. This is the only higher, or include fixed guaranteed at5.7%. | | part of the market which has seen a | increases. A further 12% of rent | | --- | --- | --- | | The portfolio is diverse and granular | meaningful fall in vacancy since the | benefits from fixed uplifts without an | | should support more resilient | pandemic and we expect continued | inflation link. The proportion of the | | portfolio income in a weaker | rental growth. | portfolio with inflation-linked leases | | economic environment and a more | | should increase with ongoing asset | At the period end the portfolio void challenging period for consumers management activity. rate was 11.1%, calculated as a and businesses. The portfolio is also percentage of estimated rental both higher yielding with potential Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 1 Represents the annualised rental income as at 31 March 2023 of the portfolio, including share of rents for the joint venture assets. ### 12 Overview Strategic Report Governance Financial Statements Other information (unaudited) Stacey Bushes Industrial Estate, Milton Keynes The tables below summarise the portfolio information as at 31 March 2023. The property values and weightings represent the year end valuations as determined by the independent valuers as at 31 March 2023: | | | SREIT | | SREIT | | --- | --- | --- | --- | --- | | | 31 March 2023 | | 31 March 2022 | | | | (MSCI 31 March | | (MSCI 31 March | | | Portfolio metric | | 2023) | | 2022) | Portfolio value (£m) 470.4 523.5 Number of properties 41 42 Number of tenants 312 315 Average lot size (£m) 11.5 12.5 Net initial yield (%) 5.8 (4.8) 5.4 (3.9) Reversionary yield (%) 8.0 (5.7) 6.4 (4.6) Annual rent (£m) 29.3 30.1 Estimated rental value (£m) 37.8 33.8 Annual rent with inflation linked uplifts (%) 11 15 Annual rent with fixed uplifts (%) 12 5 WAULT (years to earliest of break or expiry) 5.0 (11.2) 5.4 (11.4) Void rate (%) 11.1 (8.0) 7.0 ( 7.8) | Top 15 properties by value Sector Value (£m) | | | 1 % of portfolio value | 2 | | --- | --- | --- | --- | --- | | 1 Milton Keynes, Stacey Bushes Industrial Estate Industrial | | 50.5 10.7 | | | | 2 Leeds, Millshaw Park Industrial Estate Industrial | | 45.5 9.7 | | | | 3 London, Store Street, The University of Law Campus | Office/university | 37.8 8.0 | | | (50% share) 4 Cheadle, Stanley Green Trading Estate Industrial 35.5 7.5 5 Manchester, City Tower (25% share) Office/hotel/retail/leisure/ 34.0 7.2 carpark | 6 Bedford, St. John’s Retail Park Retail warehouse | | 31.0 6.6 | | --- | --- | --- | | 7 Chippenham, Langley Park Industrial Estate Industrial | | 24.7 5.3 | | 8 Norwich, Union Park Industrial Estate Industrial | | 21.6 4.6 | | 9 Leeds, Headingley Central Retail/hotel/leisure | | 20.8 4.4 | | 10 Manchester, St. Ann’s House Office/retail | | 12.6 2.7 | | 11 Uxbridge, 106 Oxford Road Office/university | | 12.5 2.7 | | 12 Telford, Horton Park Industrial Park Industrial | | 12.1 2.6 | | 13 Birkenhead, Valley Park Industrial Estate Industrial | | 12.0 2.6 | | 14 Edinburgh, The Tun Office | | 9.4 2.0 | | 15 Milton Keynes, Matalan Retail warehouse | | 9.4 2.0 | | | Total as at 31 March 2023 | 369.4 78.5 | 1 As per third-party valuation reports unadjusted for IFRS lease incentive amounts. 2 Column does not sum due to rounding. ### 13 Strategic Report ## Investment Manager’s Report continued | Sector weighting by value as at | | | | Like-for-like net of capex capital growth for | | | --- | --- | --- | --- | --- | --- | | | 31 March 2023 | | | the 12 month period ended 31 March 2023 | | | | SREIT | 1 | Benchmark | 1 | SREIT Benchmark | South East 10.7% 19.6% Rest of UK 36.1% 11.7% Industrial 46.8% 31.2% -12.6% -23.8% City 0.0% 3.6% Mid-town and West End 8.0% 6.9% Rest of South East 4.5% 7.3% Rest of UK 15.0% 7.3% Offices 27.5% 25.2% -14.7% -15.8% Retail warehouse 11.8% 9.8% -9.1% -12.0% South East 0.9% 6.7% Rest of UK 6.7% 3.0% Standard retail 7.7% 9.7% -17.7% -14.1% Standard retail by ancillary/single use – Retail ancillary to main use 4.9% – – Retail single use 2.8% – Other 6.2% 18.1% -9.5% -10.3% Shopping centres – 2.1% Unattributed indirects – 3.8% 1 Note: columns do not sum due to rounding. Regional weighting by value as at 31 March 2023 SREIT Benchmark Central London 8.0% 17.1% South East excluding Central London 18.2% 34.5% Rest of South 10.5% 16.2% Midlands and Wales 21.0% 13.2% North 40.3% 14.4% Scotland 2.0% 4.4% Northern Ireland 0.0% 0.2% Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 ### 14 Overview Strategic Report Governance Financial Statements Other information (unaudited) Rental income is diverse and as at 31 March 2023 comprised 312 tenants, including the tenants of properties heldby joint ventures. The largest and top 15 tenants represent 7.06% and 33.04% of the portfolio respectively, calculated as a percentage of annual rent, and there are only two tenants that represent more than 3% of annualrent. Annual rent % of total Top 15 tenants by annual rent (£ million) annual rent University of Law Limited 2.07 7.06% Siemens Mobility Limited 1.22 4.16% Express Bi Folding Doors Limited 0.65 2.22% The Secretary of State 0.59 2.01% Buckinghamshire New University 0.58 1.98% Matalan Retail Limited 0.57 1.95% Cineworld Cinema Properties Limited 0.52 1.77% TJX UK t/a HomeSense 0.51 1.74% IXYS UK Westcode Limited 0.47 1.60% Jupiter Hotels Limited 0.46 1.57% Premier Inn Hotels Limited 0.42 1.43% Lidl Great Britain Limited 0.42 1.43% Ingeus (UK) Limited 0.41 1.40% Wickes Building Supplies Limited 0.40 1.37% Balfour Beatty Group Limited 0.39 1.33% Total as at 31 March 2023 9.68 33.04% Note: column does not sum due to rounding. Rent collection | The diversification and granularity | The breakdown between sectors is | The Company has made good | | --- | --- | --- | | ofthe underlying rental income, and | 100% of office rent collected, 100% | progress collecting historical arrears | | ahigh level of occupier engagement, | of industrial rent collected and 97% | during the year which totalled £3.3 | | has supported improving rent | ofretail, leisure and other rent | million, net ofVAT, at the year end, of | | collection rates with 99% of the | collected. | which £360,000 is provided against | | contracted rents collected for the | | as a bad debt. This compares to £3.8 | | quarter to 31 March 2023. | | million and £900,000 respectively as | at 31 March 2022. ### 15 Strategic Report ## Investment Manager’s Report continued ## Transactions MIXED-USE OFFICE AND RETAIL Generates ## £1.22m Freehold rentable area ## 51,885 sq ft ### Manchester, St. Ann’s House St. Ann’s House in Manchester was acquired on The appeal of St. Ann’s Square to high quality luxury 27 May2022 for a gross headline price of £14.7 million, retailers is reflected in the current tenant mix with reflecting a net initial yield of 7.8%, a reversionary yield of complementary retailers located in close proximity. 9.1% and a low average capital value of £283 per sqft. During thepandemic rents were rebased by the The mixed-use office and retail asset generates £1.22 previouslandlord and there are currently no arrears. million per annum of headline rent compared with an ERV Atacquisition, the tenants were Watches of Switzerland, of £1.33 million. Russell & Bromley and Space NK. Since acquisition, wehave let a unit to David M Robinson Limited, a The freehold, 51,754 sq ft building, is97% occupied by north-west based retailer of luxury watches and ERV and comprises 40,277 sq ft of office space over five jewellery, for £70,000 per annum, or £76.75 per sq ft. upper floors with five retail units at the ground floor level and ancillary basement space. It is prominently located The weighted average unexpired lease term is 2.2 years on St. Ann’s Square, near to the prime retail core. to earliest termination and 4.8 years to lease expiries. St.Ann’s Square features a listed church, the Royal 58% of the property by floor area currently has an EPC Exchange theatre, a mix of office occupiers and rating of “B” with the remainder rated“C”. high-quality luxury retail as well as leisure operators. The strategy is to undertake a rebranding of the building, Thebuilding benefits from its close proximity introduce additional amenities for the offices such as bike totwotramstations. and shower facilities and refurbish the property as floors The office space is fully let to four office tenants at become available with a focus on improving sustainability anaverage rent of £18.48 per sq ft, with the potential performance. This will increase the rental tone of the toincrease rental levels through refurbishment and offices. We will aim to leverage the close proximity of improving sustainability performance. There is also luxury jewellers and watch retailers to attract similar theopportunity to enhance income by offering occupiers to the subject asset at higher rents. fittedoutoffice space. Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 Find out more on our website | www.schroders.com/schroder-real-estate-investment-trust ### 16 ![img-0.jpeg](img-0.jpeg) ### Portsmouth, Southlink #### INDUSTRIAL In June 2022 Southlink, a 26,975 sq ft single let industrial asset in Portsmouth, was sold for £6.5 million. The price compares with the 31 March 2022 independent valuation of £4.9 million and reflects a net initial yield of 3.2%. Situated within the Walton Road Industrial area, Southlink was acquired in July 2004. The asset produced a net rent of £225,000 per annum with a lease term of 2.4 years. Based on the disposal price, the asset has generated an ungeared total return of 13.2% per annum since acquisition, compared with the All Property MSCI Benchmark for the same period of 6.8% per annum, and MSCI All Industrial for the same period of 10.6% per annum. ![img-1.jpeg](img-1.jpeg) ### Beech House, Fleet #### OFFICE Beech House, a 13,174 sq ft office asset in Fleet, was sold on 24 November 2022 for £2.1 million, 17% ahead of the 30 September 2022 independent valuation of £1.8 million and reflecting a net initial yield of 7.8%. The asset was acquired in 2004 as part of a bigger interest that has been broken up, and hence there is no asset level performance data. Further disposals of lower value, non-core properties are under consideration and being progressed. ![img-2.jpeg](img-2.jpeg) ### Rugby, Morgan Sindall House #### OFFICE In March 2023, contracts were exchanged to sell Morgan Sindall House, a 34,334 sq ft single let office asset in Rugby for £4.0 million. The price is in line with the year end independent valuation. The asset produces a net rent of £375,378 per annum with a lease term of 5.9 years. Based on the disposal price, the asset has generated an ungeared total return of 7.2% per annum since acquisition, compared with the All Property MSCI Benchmark for the same period of 6.2% per annum, and MSCI All Office for the same period of 5.7% per annum. ![img-3.jpeg](img-3.jpeg) ### Chelmsford, 68 High Street #### RETAIL In March 2023, 68 High Street in Chelmsford was acquired for £800,000, reflecting a net initial yield of 11.1%. This is an adjoining ownership to 67 High Street, with both units let to Esquire Retail on a lease expiring in September 2023. Simultaneously, an agreement for lease was reached with Co-operative Bank plc for them to take a new ten year lease without breaks with effect from September at a new rent of £175,000. There will be 12 months rent free and we will make a capital contribution of £110,000. The acquisition and letting are expected to facilitate a profitable disposal of the combined units. Overview Strategic Report Governance Financial Statements Other Information (unpublished) 17 Strategic Report Investment Manager's Report continued ## Active asset management In aggregate, 65 new lettings, rent reviews and renewals completed since the start of the period totalling £6.7 million in annualised rental income and generating £2.3 million per annum of additional rent above the previous level. Set out below are examples of ongoing active asset management initiatives that should support continued outperformance of the underlying portfolio from both a financial and sustainability perspective. ![img-4.jpeg](img-4.jpeg) ### Manchester, Cheadle, Stanley Green Trading Estate #### INDUSTRIAL ##### Asset overview and performance Stanley Green Trading Estate in Cheadle, Manchester was acquired in December 2020 for £17.3 million. Following completion of a new warehouse development this May, the asset comprises 233,730 sq ft of trade counter, self-storage and warehouse accommodation across 25 units on a nine acre site. As at 31 March 2023 the valuation was £35.5 million, reflecting a net initial yield of 2.6% and a reversionary yield of 6.9%. Over the financial year the asset delivered a total return of 14.1% which compared with MSCI All Industrial over the same period of -21.0%. ##### Asset strategy The strategy over the financial year was to crystallise higher rents, develop the 80,000 sq ft, operational net zero carbon ("NZC") scheme on the 3.4 acre site and begin marketing to pre-let the new accommodation. ##### Key activity - The speculative development of 11 warehouse and trade units has completed with £8.1 million of capital expenditure incurred on the project from inception to the year end. The target rental income is £1.3 million per annum, or £16.41 per sq ft. - The new units have achieved an "A+" EPC rating and we are targeting a BREEAM Excellent accreditation. - Approximately 40% of the new estate is already let or in legals. The objective is for the entire scheme to be let this calendar year. - Negotiations are progressing with a number of occupiers to re-gear their leases across the original trading estate which should support continued income growth. Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 18 Overview Strategic Report Governance Financial Statements Other information (unaudited) ### Chippenham, Langley Park Ind. Estate INDUSTRIAL Asset overview and performance Langley Park Trading Estate in Chippenham was acquired in December 2020 for £19.3 million and comprises a multi-let industrial estate comprising 400,000 sq ft of warehouse and ancillary office accommodation on a large site of 28 acres located close to Chippenham town centre. As at 31 March 2023, the valuation of £24.7 million ### Bedford, St. John’s Retail Park reflected a net initial yield of 6.5% and a reversionary yield RETAIL WAREHOUSE of 8.4%. Over the financial year the asset delivered a total return of -3.4%, which compared with the MSCI All Asset overview and performance Industrial Benchmark over the same period of -21.0%. St. John’s Retail Park comprises a 120,000 sq ft retail Asset strategy warehouse scheme underpinned by income from tenants including Lidl, Home Bargains, Bensons for Beds, The strategy over the period was to drive net income TKMaxx and Costa, with an average lease term, to the growth, the average unexpired lease term, and quality earlier of lease expiry of break, of 6.5 years. The asset ofaccommodation across the estate. benefits from an affluent catchment and has good parking. As at 31 March 2023, the asset was valued at Key activity £31.0 million reflecting a net initial income yield of 6.2% and a reversionary yield of 6.1%. Over the financial year – Siemens Mobility Limited (“Siemens”) rent review the asset delivered a total return of -1.4% which completed in June 2022 at £1.2 million per annum compared with the MSCI All Retail Warehousing over or£4.64 per sq ft, reflecting a 26% increase in thesame period of -7.0%. contracted rental income. Following completion ofthe rent review, which was backdated to June Asset strategy 2021, Siemens became the Company’s second The strategy over the year was to let vacant units, largest tenant. improve retailer mix and retain tenants by negotiating – A new ten year lease renewal without breaks new longer term leases. completed in May 2022 with IXYS UK Westcode Limited (“IXYS”), the UK subsidiary of Littelfuse, a Key activity global manufacturer which has provided a parent | company guarantee. The rent is £465,000 per | – Resolution to grant planning consent has been | | --- | --- | | annum, or £5.50 per sq ft, reflecting a 31% | received from Bedford Borough Council for a | | increase over the previous contracted rent of | new “drive-thru” at St. John’s Retail Park. As | | £355,000 per annum. IXYS receive 12 months’ | previously reported, a 15-year pre-let has | | rent free which ends in December 2023, and will | completed with Starbucks Coffee Company UK | | receive a contribution to repair works up to the | Limited (“Starbucks”) who are now constructing a | | value of £250,000 if undertaken within two years | new unit on the site and will receive a | | of lease completion. Thelease includes a rent | contribution towards construction costs capped | | review at year five to the higher of open market | at £850,000. The rent is £145,000 per annum, | | value or RPI, with a collar of 1%per annum and a | increasing by 10% of any construction cost in | | cap of 5% per annum. | excess of £750,000, capped at an additional | £10,000 of rent per annum. The yield on cost – The next phase of the business plan at Langley assuming the maximum construction cost, Park isto consider longer term development plans including the current site value of £1.3 million, which could involve the creation of new space istherefore 7.2%. forexisting tenants. Any development of new warehouse units would be to an operational net – Starbucks are required to deliver the restaurant zero carbon (“NZC”) standard and a pre-planning to a minimum BREEAM rating of “Very Good” application to develop 130,000 sq ft of space has andinstall electric vehicle charging points for been submitted to Wiltshire County Council. customer usage. ### 19 Strategic Report ## Investment Manager’s Report continued Balance sheet | At the year end, the average interest | average interest rate of 2.5%. At the | long-term strategic target range of | | --- | --- | --- | | rate for drawn debt was 2.9%, with | year end, the incremental positive | 25% to 35%. The Company has | | an average loan term of 10.6 years, | fair value benefit of this fixed rate | significant headroom against all loan | | and 90% of total drawn debt was | loan was £16.8 million, which is not | covenants, but steps are being taken | | either fixed or hedged against | reflected in the Company’s NAV. | to bring the net LTV back in line with | | movements in interest rates. | | the target range, including | The balance of drawn debt at the contracted and further planned The debt refinancing with Canada year end totalling £48.3 million disposals. | Life in 2019 is now providing a | comprised a revolving credit facility | | | --- | --- | --- | | significant benefit in a higher interest | (“RCF”) from Royal Bank of Scotland | Details of the loans are set out | | rate environment. This long term | International (“RBSI”). | below, together with cover against | | loan, that represented £129.6 million | | covenants. | At the year end, the Company had a of the £177.9 million total borrowings net loan to value (“LTV”) ratio of at the year end, has an average loan 36.0%, which is slightly above the maturity of 13.1 years, with a fixed £129.6 million term loan with Canada Life | | | Total | | | | | | | | | | | | | | | Projected | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | interest | Asset | | | | LTV ratio | | | | | ICR | | Projected | | | | ICR | | | | Loan | rate | value | Cash | LTV ratio | | covenant | | | ICR | covenant | | | | ICR | | covenant | | | | Lender | (£m) Maturity | (%) | (£m) | (£m) | | (%) 3 | | (%) | 3 | (%) | 4 | (%) | 4 | | (%) | 1 | | (%) | 1 | | Facility A | 64.8 15/10/2032 2.4 | | | | | | | | | | | | | | | | | | | 271.8 2.0 46.9 65 480 185 449 185 Facility B 64.8 15/10/2039 2.6 129.6 2.5 2 Canada Life Term Loan | – Net LTV on the secured assets | sustained prior to the loan | – After utilising available cash and | | --- | --- | --- | | against this loan is 46.9%. On this | covenant of 185% being | uncharged properties, the | | basis the properties charged to | breached; | valuation and actual net rents | | Canada Life could fall in value by | | could fall by 40% and 66% | – The projected interest cover ratio 28% prior to the 65% LTV respectively prior to either the is 449% based on projected net covenant being breached; LTV or interest cover ratio rents for the year to 31 March covenants being breached. | – The interest cover ratio is 480% | 2023. A 59% fall in net income | | --- | --- | | based on actual net rents for the | could be sustained prior to the | | quarter to 31 March 2023. A 61% | loan covenant of 185% being | | fall in net income could be | breached; and | £75.0 million revolving credit facility (“RCF”) with RBSI The Company has headroom with both LTV and ICR covenants as summarised below: | | | Loan/ | | Total | | | | | | | | | | | Projected | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | amount | | interest | | Asset | | | | LTV ratio | | | Projected | | | ICR | | | | drawn | | rate | | value | LTV ratio | | | covenant | | | | ICR | covenant | | | Lender | | (£m) Maturity | | (%) | | (£m) | | (%) | 3 | | (%) | 3 | | (%) 5 | | (%) 5 | | | 75.0/48.3 | | 6 06/06/2027 5.8 | | 7 | 160.8 30.0 60 | | | | | | 8 | | 351 250 | | | RBSI RCF 1 The projected ICR covenant for the contracted four quarters following the IPD deducting assumed non-recoverable costs (void rates, void service charge and void insurance)/interest paid, based on the average of the past four quarters. 2 Fixed total interest rate for the loan term. 3 Loan balance divided by the property values as at 31 March 2023. 4 For the quarter preceding the IPD, (rental income received – void rates, void service charge and void insurance)/interest paid. 5 The projected ICR covenant of the contracted four quarters following the IPD deducting assumed non-recoverable costs (void rates, void service charge and void insurance)/interest paid) based on the average of the past four quarters. 6 Facility drawn as at 31 March 2023 from a total available facility of £48.3 million. 7 Total interest rate as at 31 March 2023 comprising the SONIA rate of 4.18% and the margin of 1.65% at a LTV below 60%. Should the LTV be above 60%, themargin increases to 1.95%. 8 LTV ratio covenant of 65% for years one to three, then 60% for years four and five. Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 ### 20 Overview Strategic Report Governance Financial Statements Other information (unaudited) Outlook | – Net LTV on the secured assets | Since the year end, the RCF has also | The financial year was characterised | | --- | --- | --- | | against this loan is 30.0%. On this | been converted into a “Sustainability | by persistent inflation, rising interest | | basis the properties charged to | Linked Loan”, with performance | rates, market volatility and lower | | RBSI could fall in value by 54% | measured against KPIs, with each | levels of economic growth. This led | | prior to the 65% LTV covenant | KPI having the potential to either | to the sharpest correction in real | | being breached; | reduce the margin by 1.65 basis | estate values since the global | | | points, increase it by 1.65 basis | financial crisis. Whilst our asset values | – The projected interest cover ratio points or have no impact: were impacted, a diversified portfolio is 351% based on actual net rents combined with good progress over for the quarter to 31 March 2023. – Change in landlord energy the period delivering on the strategy A 39% fall in net income could be consumption (year on year) resulted in sustained relative sustained prior to the loan - A reduction by 5% or more: outperformance of the underlying covenant of 250% being reduce the margin portfolio and a further increase in the breached; - No change or a reduction fully covered dividend level. – After utilising available cash and below 5%: no change uncharged properties, the The strength of the balance sheet, - An increase: increase the valuation and actual net rents with long term, mainly fixed rate, margin could fall by 69% and 51% debt is a key competitive advantage – GRESB rating | respectively prior to either the | | and there will be limited impact on | | --- | --- | --- | | LTV or projected interest cover | - 4 stars or above: reduce the | the Company from higher interest | | ratio covenants being breached; | margin | rates. | - 3 stars: no change – At the year end, £30.5 million of Looking forward, our programme of - 2 stars or below: increase the the RCF benefited from an sustainability-led value add margin interest rate cap with a strike rate investments into the existing of 1.5%, which was due to expire – Development or refurbishment portfolio, and an active approach to on 3 July 2023 and, together with projects that improve EPC or asset management is leading to the RCF margin of 1.65%, resulted BREEAM rating to a minimum of further income growth, with a in an interest rate of 3.15% on the EPC B or BREEAM Very Good pipeline of new opportunities under capped element of the RCF; | | - If all new developments or | active consideration. We have a | | --- | --- | --- | | – At the year end, the uncapped | major renovations of the | robust and diverse tenant base that | | element of the RCF was subject | properties meet the | we expect to be resilient in a weaker | | to the SONIA rate of 4.18% which, | requirement: reduce the | economic environment. | | together with the RCF margin of | margin | | Against this backdrop, our 1.65%, resulted in an interest rate - If no property has been combination of a clear strategy with of 5.83% on the uncapped refurbished or developed: increased emphasis on sustainability, element of the RCF; and nochange a diversified portfolio and a strong – This resulted in an average - If one or more new balance sheet should enable us to interest rate on the drawn RCF developments or major maintain relative outperformance of4.1%. renovations of the properties compared with our peers and carried out during the term of continue delivering attractive Since the year end, the cap, which the facility does not meet the income and total returns for was due to expire on 3 July 2023, has requirement: increase the shareholders. been replaced with a hedging margin instrument termed an interest rate “collar” which applies to £30.5 million Nick Montgomery of the £48.3 million now drawn. The Fund Manager collar, which runs tothe end of the RCF term in June 2027, allows the 7 June 2023 Company to benefit from future falls in interest rates down to a 3.25% floor, whilst at the same time protecting the Company from rate increases above 4.25%. After netting off the value of the interest rate cap, the net cost of the collar was £567,000. ### 21 Strategic Report ## Sustainability Report ## Our approach to sustainability ## Our sustainability strategy is delivering operational ## excellence for occupiers as well as demonstrating ## continued improvements in sustainability performance. ## Key achievements Progress towards net Improved GRESB EPRA sBPR Awards for zero Carbon by 2040 score of Sustainability Reporting | -19% | 3-star rating; | GOLD | | --- | --- | --- | | reduction in whole building | | For fifth year running | | operational GHG intensity | 77 score | | (between 2019/20 and 2021/22) (up from 75 in 2021); First in peer group Number of specialist sustainability audits ## 10 The Board and Manager believe The Manager’s real estate willbenefit tenants’ occupational thatfocusing on sustainability, investment strategy, which aims to costs and may support tenant andEnvironmental, Social and proactively take action to improve retention and attraction, in addition Governance (“ESG”) considerations social and environment outcomes, to mitigating environmental impacts more generally, throughout the real focuses on the pillars of “People, and helping to future-proof the estate life cycle, will deliver Planet and Place” which are portfolio against future legislation. enhanced long-term returns for referenced to three core UN This report seeks to present shareholders as well as have a Sustainable Development Goals ourapproach to managing ESG positive impact on the environment (“SDGs”): (8) Decent Work and considerations and performance and the communities where the Economic Growth; (13) Climate against our sustainability objectives. Company is investing. A key part Action and (11) Sustainable Cities Case studies highlighting ESG in ofour sustainability strategy is andCommunities. practice are used throughout and delivering operational excellence for Active management of sustainability detailed performance data are occupiers as well as demonstrating performance is a key component of presented with the EPRA sBPR continued improvements in responsible asset and building aligned Sustainability Performance sustainability performance. management. Reducing Measures sections from page 98. consumption, improving operational efficiency and delivering higher quality, more sustainable spaces, Further information on the Manager’s Sustainable Investment Real Estate with Impact approach, and its Sustainability Policy: Real Estate with Impact, Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 can be found here | https://www.schroderscapital.com/en/global/professional/sustainability-and-impact/our-approach/ ### 22 Improved EPC performance Increasing number of assets with Completed specialist on-site renewables/total kWp sustainability audits Governance Financial Statements Other information (unaudited)Strategic ReportOverview ## 100% ## MEES Compliance 2 assets with solar PV* +3 BREEAM In-Use * Additional solar PV installed as part of Stanley Green development ## +2 WiredScore ## 97% due to PC May 2023. (Nine assets total) EPC coverage (Total number of assets with sustainabilitycertifications) Sustainability Linked Loan tied ## 58% to RCF agreed with RBSI EPCs above “c” rating ## Environment Social Governance ### Protecting our Supporting people Responsible ### planet. and places. business. CASE STUDY CASE STUDY CASE STUDY ### Decarbonising the Creating social Sustainability ### Industrial Sector value Audits Read more on Environment and Read more on Social and Read more on Governance and the case study | Page 24 the case study | Page 28 the case study | Page 30 ### 23 Strategic Report ## Sustainability Report continued ## Environmental Protecting our planet In the real estate sector climate change mitigation actions, such as reducing energy demand and implementingrenewable energy systems, can collectively contribute to reducing the sector’s impact ontheclimate crises but also have the potential to achieve wellbeing gains from improved indoor air qualityandthermal comfort, reduced financial burden and increased productivity. A central focus of ourrealestateinvestment strategy is the response to this both interms of resilience to physical impacts andworking to ensure resilience as society transitions to a low-carbon economy. Performance against objectives Goal FY23 Outcome Net Zero Carbon (Scopes 1, 2 and 3) -19% reduction in whole building GHG intensity (between baseline year and 2021/2022) by2040 Annual reduction in landlord energy – Energy = <2% increase* consumption and associated scope 1 and – GHG emissions = -5% reduction 2 greenhouse gas (“GHG”) emissionson a * Annual like-for-like performance negatively impacted by impact of Covid-19 on occupancy in like-for-like basis previous reporting period 2021. Increase use of on-site renewable energy – 2 assets with solar PV and to source 100% of landlord electricity – 74% of the Company’s landlord procured electricity was on arenewable tariff. through renewable tariffs by2025 * Additional solar PV installed as part of the Stanley Green development due to PC in May 2023. Annual reduction in landlord like-for-like 27% increase water consumption * Annual like-for-like performance negatively impacted by impact of Covid-19 on occupancy in previous reporting period 2021. | Send zero waste to landfill and prioritise | – Zero waste directly to landfill | | --- | --- | | waste recycling | – 54% of waste was recycled and 46% was incinerated with energy recovery. | | Maintain 100% MEES compliance and | – EPC coverage = 97%* | | improve proportion of assets with EPC | – EPCs above C rating = 58% | | ratings B or above (floor area) | – EPCs above B rating = 18% | * Remaining footprint without EPCs relates to assets where improved works have been scheduled. Please note that the Company remains compliant with MEES regulations. Assess physical climate risk profiles for all Physical climate risk profile determined for all assets using third-party database. assets and develop resilience strategies for allrisks identified | Improve biodiversity opportunities across | 13 assets where biodiversity opportunities have been completed (including bird boxes, | | | --- | --- | --- | | the portfolio | beehives or bug hotels). | | | As part of our commitment to net | these measures are key contributors | reverse negative impacts on nature | | zero carbon (“NZC”) by 2040 | to the energy performance | including mandatory biodiversity | | (see“Pathway to Net Zero Carbon” | certificate (“EPC”) improvements | netgain (“BNG”) in the UK from | | on page 26) throughout the portfolio | realised. Such measures also support | November 2023 and the expected | | we have continued to undertake | the resilience of the strategy with | adoption of the Taskforce on | | improvement initiatives including | respect to transition and physical | Nature-related Financial Disclosures | | replacement and upgrades to | climate risks which are detailed | (“TNFD”). The Company has | | heating, ventilation and air | within our Taskforce on Climate- | progressed with nature positive | | conditioning (“HVAC”) systems, | related Financial Disclosures | initiatives including the installation of | | continued utility smart meter roll-out | (“TCFD”) response on page 95. | bird boxes, beehives and bug hotels, | | for improved energy monitoring, | | as well as the protection of mature | Intrinsically linked to the climate aswell as continued upgrades to trees and planting of wildflowers crisis, the nature crisis also presents lighting systems, including during the reporting year across significant risks and opportunities to installation of LEDs and passive theportfolio. the real estate sector. As such, policy infrared controls. Alongside the is rapidly evolving to mitigate and electrification of heating supplies, Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 ### 24 Overview Strategic Report Governance Financial Statements Other information (unaudited) Progress | Forward-looking NZC pathways | 34% of assets (by Gross Property | The current trajectory indicates the | | --- | --- | --- | | have been developed, using the | value (“GPV”), assets in-scope of | Company may strand – the point | | industry accepted Carbon Risk | theportfolio’s fund level targets | atwhich the GHG intensity of the | | RealEstate Monitor (“CRREM”), | currently represent 29% by GPV. | portfolio is above the CRREM | | topresent the decarbonisation | | derived target – in 2033. This may | Between 2019/2020 and requirements aligned with a be delayed by one year (2034) 2021/2022 the Company, through “ParisProof” decarbonisation through identified improvement continued improvement initiatives trajectory to pursue efforts to limit actions indicating further works including heating, ventilation and air global warming to 1.5°C. During the required to meet the Company’s conditioning (“HVAC”) upgrades and reporting year the Manager has been 2040 net zero commitment. Figure LED lighting improvements, has assessing progress against the A and the table below present made good progress towards its operational NZC baseline for the further details of the outcome of energy and greenhouse gas (“GHG”) Company which was determined in thisassessment. intensity targets achieving 2021 (using 2019/2020 data). Please reductions of 10% and 19% note that whilst decarbonisation respectively. pathways have been developed for Current performance and reduction requirements to 2030 for both GHG and energy intensity | | | | | % Change required | | | | Portfolio | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Current | % Progress against | 2030 | | | toreach | average year | | | performance | | baseline period | target | | 2030 target | | of stranding | | 2 Energy Intensity (kWh/m ) 188.3 -10% 154.0 -18% 2033 2 GHG Intensity (kgCO e/m ) 41.3 -19% 32.5 -21% 2 50 2 40 BAU – Stranding Point 30 20 -21% Reduction needed to 2030 New Stranding Point Intensity target from 2021 10 0 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050 Business as usual (grid corrected) 2019 Baseline Science Based Target Performance pathway with planned initiatives Figure A: Decarbonisation trajectory for the Company derived using the Carbon Risk Real Estate Monitor (“CRREM”) which demonstrates the GHG intensity reduction required to align with CRREM at 2030 (-21%). 60 2 ) /m Carbon Intensity (KgCO ### 25 Strategic Report ## Sustainability Report continued ## Environmental continued Pathway to net zero carbon Next steps According to the World Green Building Council The pathway will evolve over time as the Manager, and (“WGBC”) buildings are responsible for 39% of global the wider industry, develop their understanding of how 1 energy related carbon emissions . In April 2022 the toaddress the carbon impact of real estate activities, Intergovernmental Panel on Climate Change (“IPCC”) physical risks to locations and assets, and as regulatory identified that global carbon emissions must peak by initiatives develop. Over time we will seek to bring more 2025 at the very latest to effectively limit global assets into scope (such as those on FRI leases) of our temperature rise to 1.5°C, in line with the Paris operational net zero carbon pathway, as well as account 2 Agreement . for additional operational scope 3 emissions (such as those associated with water and waste). A key next step The Board and Manager recognise that the Company has will be to also assess, manage and reduce our embodied a responsibility to embark on a journey to net zero carbon carbon associated with developments and 3 (“NZC”) and that an active approach to understanding refurbishments. Although this activity in the portfolio and managing climate risks and opportunities is hashistorically been limited, the Board and Manager fundamental to delivering resilient investment returns and recognise that works will be needed to improve building supporting the transition to alow carbon society. energy and carbon performance to reduce the risk of In 2019 the Manager signed the Better Building stranded assets. 4 Partnership’s (“BBP”) Climate Commitment and wehave a net zero ambition aligned to the Paris Agreement aim to limit warming to 1.5°C. The Manager’s commitment was further underlined bytheCompany who last year announced their “Pathwayto Net Zero Carbon” committing to: – Operational whole buildings emissions to be aligned to a 1.5°C pathway by 2030. – Embodied emissions for all new developments andmajor renovations to be net zero by 2030. – Operational Scope 1 and 2 (landlord) emissions to be net zero by 2030. – Operational and embodied whole building (Scope 1, 2 and 3 – landlord and tenant) emissions to be net zero by 2040. 1 World Green Building Council: Bringing Embodied Carbon Upfront. https://worldgbc.org/article/bringing-embodied-carbon-upfront/ 2 Intergovernmental Panel on Climate Change (IPCC): Sixth Assessment Report. https://www.ipcc.ch/assessment-report/ar6/ 3 “Net Zero Carbon” is when the carbon emissions emitted as a result of allactivities associated with the development, ownership and servicing of abuilding are zero or negative. Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 4 Better Buildings Partnership Climate Commitment available here: https://www.betterbuildingspartnership.co.uk/member-climate-commitment ### 26 Overview Strategic Report Governance Financial Statements Other information (unaudited) ## Decarbonising the ## Industrial Sector In October 2021, planning was secured for 80,000sqft of operationally Net Zero Carbon (“NZC”) industrial, storage and distribution space across eleven units at the Stanley Green Trading Estate, Cheadle. In line with the Company’s commitment to incorporating high sustainability standards and building certifications across all new development activity, the scheme has been delivered to BREEAM Excellent, EPC A+ rating – afirst for the Company – and operational NZC specification – another first for the Company and one of the first in the North West. Operational NZC as built has been achieved through utilising solar photovoltaics, insulated cladding to mitigate heat loss and installation of LED lighting. Electric vehicle charging and cycle storage facilities have been installed to promote active, low carbon travel. Through construction local suppliers have been used to boost local employment and partnership with local colleges have supported students in the area. Read more | Page 18 ### 27 Strategic Report ## Sustainability Report continued ## Social Supporting people and places In recent years, there has been a growing recognition of the importance of considering social factors in real estateinvestment, as investors seek to create sustainable and socially responsible portfolios. Social factors, suchas occupier and community wellbeing, can have a significant impact on the value and success of real estateinvestments. Performance against objectives Goal FY23 Outcome Ensure the health, safety and wellbeing of 100% of managed assets where health and safety assessments were completed. building occupiers and users Improve proportion of assets where occupier 32 Company assets. engagement activities are implemented Improve proportion of assets where community 29% of Company assets. engagement activities are implemented Improve availability of low carbon transport Support provision of bicycle infrastructure for 15 assets. (active transport facilities; electric vehicle Support provision of electric vehicle charging for six assets. charging etc.) facilities | It is widely reported that many now | Furthermore, the Board and | The UK government has | | --- | --- | --- | | spend around 90% of their time | Manager recognise that a building is | implemented a number of policies | | indoors and so the spaces we create | not located in isolation but rather | and initiatives aimed at promoting | | and manage have a significant | stands as part of its local community. | sustainable transport and the Board | | influence over our physical and | Improving opportunities for | and Manager understand that real | | mental wellbeing. Additionally, a lack | interacting with local communities | estate has a significant role to play in | | of access to amenities is often cited | helps create successful places that | supporting this. The Company | | as a deterrent in the return to the | foster community relationships, | iscommitted to improving the | | workplace post-Covid. As such, the | contribute to local prosperity, attract | availability and quality of active | | Board and Manager are committed | building users and, ultimately, lead to | transport facilities such as cycle | | to offering working environments | better, more resilient investments. | storage and changing facilities, as | | which provide solutions to such | For example, offering rent-free | well as the installation of electric | | issues. For example, the provision of | space for local community groups | vehicle charging points. | | outdoor breakout spaces and | such as food banks as was provided | | | improved ventilation to optimise | at our Norwich asset. | | indoor environmental quality. We believe by doing so can help to attract and retain occupiers. Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 ### 28 Overview Strategic Report Governance Financial Statements Other information (unaudited) ## Creating social value Located in the centre of the local community, Headingley Central seeks to add to and enrich the wider amenity offer in the local area for residents, business and visitors alike. Through the Manager’s active asset management approach, in collaboration with third-party property manager, MAPP, the team have worked to strengthen this mixed-use asset’s sustainability credentials with aparticular focus on social considerations over the reporting year including: – Engaged with the local community via Headingley Development Trust – excellent feedback to lights in trees, general site improvements (cleaning and painting benchesand paving); – Formed a “Town Team” for Headingley to work together to make Headingley a better place to visit and encourage spending into local businesses; and – Worked with Leeds Art School students to dress vacant units and decorate concrete benches which was well received by the community. ### 29 Strategic Report ## Sustainability Report continued Sustainability Report continued ## Governance Responsible Investment The Manager operates an environmental management system (“EMS”) externally certified in accordance with ISO14001 for the asset management of direct real estate investments in the UK and across Europe. This provides the framework for how sustainability principles (environmental and social) are managed throughout all stages of itsinvestment process and the Manager has provided a suite of tools to support the delivery of sustainability considerations at both asset and portfolio level including an ESG scorecard for acquisitions, Impact and sustainability action plan for standing investments, sustainable development brief for all projects and property manager sustainability requirements for use inall contractual property manager agreements. The Manager continues to work towards enhancing itsunderstanding of portfolio asset sustainability credentials, commissioning an increasing number of sustainability audits and certifications over the course ofthe reporting year which contribute towards improving performance in industry benchmarking platforms such asthe Global Real Estate Sustainability Benchmark (“GRESB”) and meeting the Company’s commitments, forexample our Sustainability Linked Loan agreement. Performance against objectives Goal FY23 Outcome Improve GRESB rating – 1st in peer group – 3-star status – Improved score to 77 Increase coverage of sustainability audits 10 third-party audits commissioned across portfolio Improve coverage and quality of sustainability Nine assets with sustainability certifications* certifications (+5 in reporting year: 3x BREEAM In-Use; 2x WiredScore) (e.g. BREEAM) across portfolio * Does not include BREEAM Excellent secured for Stanley Green development due to PC May2023. Maintain EPRA Gold Award for Sustainability Gold Award for fifth year running Reporting Sustainability Linked Loan tied to RCF agreed Agreed in FY23 with RBSI Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 ### 30 Overview Strategic Report Governance Financial Statements Other information (unaudited) Industry Engagement Slavery and Human Trafficking Statement | Schroders supports, and | The Manager is a member of several | | | --- | --- | --- | | collaborates with, several industry | industry bodies including | The Company is not required to | | groups, organisations and initiatives | theEuropean Public Real Estate | produce a statement on slavery and | | including the UnitedNations Global | Association (“EPRA”), INREV | human trafficking pursuant to the | | Compact, United Nations Principles | (“European Association for Investors | Modern Slavery Act 2015 as it does | | of Responsible Investment (“UN | inNon-Listed Real Estate Vehicles”), | not satisfy all the relevant triggers | | PRI”) and Net Zero AssetManagers | British Council for Offices and the | under that Act that required such | | Initiative (of which it is a founding | British Property Federation. It was a | astatement. | | member). Further details of | founding member of the UK Green | | The Manager to the Company, is Schroders’ industry involvement and Building Council in 2007 and in 2017 part of Schroders plc and whose compliance with UN PRI are listed at became amember of the Better statement on Slavery and Human pages 51–56 of Schroders 2022 Buildings Partnership and a Fund Trafficking has been published in Annual Sustainable Investment Manager Member of Global Real accordance with the Modern Slavery Report here: https://publications. Estate Sustainability Benchmark Act 2015. Schroders’ Slavery and schroders.com/view/119863317/. (“GRESB”) ofwhich the Company Human Trafficking Statement can be has participated in the annual real found here: https://www.schroders. estate survey for the past seven com/en/sustainability/corporate- years. responsibility/slavery-and-human- trafficking-statement/. ## Sustainability Audits | External auditors recently carried | Eachaudit comprised adesktop | 2. Phasing out fossil fuels: | | --- | --- | --- | | out a comprehensive audit of ten | analysis and site inspection, which | Replace inefficient and energy | | key assets within theCompany’s | identified the current condition of | intensive heating systems fuelled | | portfolio against the Investment | the assets and identifiable | by fossil fuels with new more | | Manager’s proprietary ESG | improvement opportunity themes | efficient electric led systems. | | scorecard to help understand | across the portfolio. | | 3. Installing on-site renewables: thecurrent ESG performance of This recent audit programme Utilise roof space where solar PV selectedassets in the portfolio. helped to identify actions which panels can be installed togenerate The review covered the range would help to improve the electricity on site, reduce oftopics from thescorecard understanding of buildings to drive emissions andenergy bills. (e.g.building fabric, services change across the portfolio, as The ESG scorecard will be used to andutilities, energy and carbon, well as common asset-level manage, measure and monitor the climate risk and resilience, improvement opportunities which ESG performance and progress of wateruse and efficiency, waste include the following. assets in the portfolio against the management, biodiversity and 1. Improving the building fabric: Company’s sustainability green infrastructure, transport Improve building fabric through objectives. This will alsoallow mobility, health and wellbeing, the provision of better insulation theCompany to focus on realistic community and social integration) and/or roof and cladding and achievable targets, and witheach asset scored. repairment toreduce theneed for demonstrate the achievement space heating whilst addressing ofsubstantial positive impacts overheating/overcooling overtime. concerns. ### 31 Strategic Report ## Business Model Company’s business | Schroder Real Estate Investment | loan to value of between 25% to | as well as positive impact themes. | | --- | --- | --- | | Trust Limited is a real estate | 35%. This relatively low level of | These locations have diversified | | investment company with a premium | gearing is used to enhance income | local economies, sustainable | | listing on theOfficial List of the | and total returns for shareholders | occupational demand and favourable | | Financial Conduct Authority and | with the level dependent on the | supply and demand characteristics. | | whose shares are traded on the | property cycle and the outlook for | These properties offer good | | premium segment of theMain | future returns. | long-term fundamentals in terms | | Market of the London Stock | | oflocation, specification and | The dividend policy adopted by the Exchange (ticker:SREI). sustainability performance, and Board is to pay a sustainable level of arelet at affordable rents, with the The Company is a Real Estate quarterly dividends to shareholders. potential for income and capital Investment Trust (“REIT”) and The Board keeps the dividend policy growth due to good stock selection benefits from the various tax under active review with a view to and asset management. Weaim to advantages offered by the UK REIT ensuring the Company can deliver grow income and enhance regime. The Company continues asustainable level of cover whilst shareholder returns through active tobe declared as an authorised having due regard to current and management and operational closed-ended investment scheme anticipated future market conditions. excellence. As discussed in the bythe Guernsey Financial Services It is intended that the successful Chair’s statement on page 6, and Commission under section 8 of the execution of the Company’s strategy theManager’s review on page 10, Protection of Investors (Bailiwick of will enable a progressive dividend the Board is looking todifferentiate Guernsey) Law 2020, as amended policy. the Company’s strategy by placing and the Authorised Closed-ended Incorporating sustainability as a evengreater emphasis on how Investment Schemes Rules and fundamental part of ourstrategy sustainability-led asset improvements Guidance, 2021. means we are committing to our will deliver enhanced returns for Investment objective own “Pathway to Net Zero Carbon” shareholders. which includes the following: The Company aims to provide The Board shareholders with an attractive level – Operational whole buildings of income and the potential for The Board of Directors is responsible emissions to be aligned to a 1.5°C income and capital growth as a for the overall stewardship of the pathway by 2030; result of its investments in, and Company, including investment and – Embodied emissions for all new active management of, a diversified dividend policies, corporate strategy, developments and major portfolio of UK commercial real gearing, corporate governance and renovations to be net zero by estate. risk management. 2030; The portfolio is principally invested The Company has no executive – Operational Scope 1 and 2 in the three main UK commercial real directors or employees. (landlord) emissions to be net estate sectors of industrial, office zero by 2030; and Operations and retail, and may also invest in – Operational and embodied other sectors including mixed-use, The Board has delegated investment whole building (scope 1, 2 and 3 residential, hotels, healthcare and management and accounting – landlord and tenant) emissions leisure. The Company believes that a services to the Investment Manager to be net zero by 2040. | diversified portfolio by location, | | | with the aim of delivering the | | --- | --- | --- | --- | | sector, size and tenant will | Investment strategy | | Company’s investment objective and | | outperform specialist strategies over | The Company’s current strategy | | strategy. Details of the Investment | | the long term. Over the duration of | istoown and actively manage a | | Manager’s investment approach, | | the property market cycle, the | diversified portfolio of properties | | along with other factors that have | | portfolio aims to generate an | located in the UK’s Winning Cities | | affected performance during the | | above-average income return with a | | 1 | year, are set out in the Investment | | | and Regions | . These locations are | | | diverse spread of lease expiries. | benefitting from higher economic | | Manager’s Report. | growth resulting from structural The Board has established a gearing changes such as urbanisation, rapid guideline for the Investment changes and growth of technology, Manager, which seeks to target debt, changing demographics and social net of cash, at a level reflecting a Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 1 Winning Cities defined as higher growth locations – Source: Oxford Economics/Schroders. ### 32 Overview Strategic Report Governance Financial Statements Other information (unaudited) Diversification and asset Interest rate exposure allocation It is the Board’s policy to minimise return, the performance of the The Board believes that in order to interest rate risk, to the extent Company’s underlying property maximise the stability of the Group’s commercially appropriate, either by portfolio relative to its MSCI income, the optimal strategy for the ensuring that borrowings are on a Benchmark Index and the Group is to invest in a portfolio of fixed-rate basis, or through the use shareprice: assets diversified by location, sector, of interest rate swaps/derivatives 1. NAV total return asset size and tenant exposure with used solely for hedging purposes. For the year to 31 March 2023 low vacancy rates and creditworthy Investment restrictions the Company delivered aNAV tenants. The value of any individual total return of -15.1% (30.9% for asset at the date of its acquisition As the Company is a closed-ended theyear to 31 March 2022). | may not exceed 15% of gross assets | investment fund for the purposes | | | | --- | --- | --- | --- | | and the proportion of rental income | ofthe Listing Rules, the Group | 2. Underlying property portfolio | | | deriving from a single tenant may not | | | performance relative to peer | willadhere to the Listing Rules group Benchmark exceed 10%. From time to time the applicable to closed-ended The performance of the Board may also impose limits on investment funds. The Company Company’s property portfolio sector, location and tenant types and, where relevant, itssubsidiaries ismeasured against a specific together with other activity such will observe the following Benchmark defined as the MSCI asdevelopment. restrictions applicable to closed- (formerly Investment Property ended investment funds in The Company’s portfolio will be Databank) UK Balanced compliance with the current invested and managed inaccordance Portfolios Quarterly Property ListingRules: with the Listing Rules of the Financial Index (the “Benchmark”). As at Conduct Authority (“Listing Rules” – Neither the Company nor any 31 March 2023 the Benchmark and “FCA” respectively), taking into subsidiary will conduct a trading comprised 168 member funds. account the Company’s investment activity which is significant in the objectives, policies and restrictions. 3. Share price performance context of the Group as a whole The Board monitors the level of and the Group will not invest in Borrowings the share price compared to the other listed investment NAV. As at 31 March 2023, the The Board has established a gearing companies; and share price of 46.2p was at a guideline for the Investment – Where amendments are made to 24.9% discount to the NAV of Manager, which seeks to limit the Listing Rules, the restrictions 61.5pps. Where appropriate on-balance-sheet debt, net of cash, applying to the Company will be oninvestment grounds, the to 35% of on-balance-sheet assets amended so as to reflect the new Company may from time to time while recognising that this may be Listing Rules repurchase its own shares, but exceeded in theshort term from In addition, the Board will ensure the Board recognises that time to time. It should be noted that compliance with the UKREIT regime movements in the share price the Company’s Articles limit requirements. premium or discount are driven borrowings to 65% of the Group’s by numerous factors, including gross assets, calculated as at the Performance investment performance, gearing time of borrowing. The Board keeps and market sentiment. this guideline under review and the The Board uses principal financial Accordingly, we focus our efforts Directors may require the Investment Key Performance Indicators principally on addressing the Manager to manage the Group’s (“KPIs”)to monitor and assess the sources of risk and return as the assets with the objective of bringing performance of the Company. These most effective way of producing borrowings within the appropriate are the net asset value (“NAV”) total long-term value for shareholders. limit while taking due account of theinterests of shareholders. Underlying property portfolio performance Accordingly, corrective measures may not have to be taken Total return for 12 months to 31 March 2023 Total return for 12months to 31 March 2022 immediately if this would be SREIT MSCI Benchmark SREIT MSCI Benchmark detrimental to shareholder interests. (%) (%) (%) (%) -7.9% -13.5% 23.5% 19.9% The analysis above has been prepared by MSCI and takes account of all direct property-related transaction costs. ### 33 Strategic Report ## Our Stakeholders Section 172 statement | Although the Company is registered | isencouraged either through the | are integrated into the Company’s | | --- | --- | --- | | in Guernsey, in accordance with the | broker or directly to the Investment | investment processes and each | | guidance set out in the AIC code | Manager or Board. | individual asset benefits from | | aSection 172 statement is required. | | specific ESG-related objectives. | Occupiers Section 172 of the Companies Act TheBoard constantly reviews its The Company has a diverse range of 2006 requires a Director of a approach to sustainable investing tenants occupying space across the company to act in the way he or she and believes that this is integral in portfolio. This includes a wide range considers, in good faith, would be delivering better long-term returns ofbusinesses who operate out of our most likely to promote the success for our investors and for office or industrial space and the of the company forthe benefit of its safeguarding the future of the retailers and shoppers who work at members as a whole. In doing this, environment that we live and workin. or visit our retail and leisure section 172 requires a Director to Service providers properties. Active and constant have regard, among other matters, engagement with these groups, As an externally managed real estate to: the likely consequences of any either directly through site visits or investment trust, the Board is reliant decision in the long term; the through property managers or on a range of service providers interests of the company’s agents, is required to gather whohave a direct working or employees; the need to foster the intelligence as to what is important contractual relationship or sharea company’s business relationships tothem. Understanding changing mutual interest with the Company. with suppliers, customers and needs, both at an individual company This includes, but isnot limited to, others; the impact of the company’s level, as well as on a sectoral and Schroders as Investment Manager operations on the community and broader economic level, is a key and Company Secretary, Property the environment; the desirability of tenet informing both ourindividual Managers, the Administrator, the company maintaining a asset management investment Depositary, Auditor, Tax advisors, reputation for high standards of decisions aswell as the longer-term Solicitors, Property Valuers and business conduct; and the need to strategic direction of the Company. Banks. The Board has appointed act fairly with members of the theManagement Engagement company. The Directors give careful Communities Committee toregularly review consideration to thefactors set out Our assets are located across the UK theserelationships as part of its above in discharging their duties in a range of urban environments. commitment to transparency and undersection 172. The buildings and their occupiers corporate best practice. The Board is focused on ensuring arepart of the fabric of local that the Company delivers on its Lenders communities. The Company works strategic objectives, while taking hard to ensure that it is engaging Borrowing allows the Company’s intoaccount the impact on its with local communities, councils shareholders to increase exposure to stakeholders as a whole. It isour andindividuals and that our asset assets consistent with the strategy firmbelief that prioritising positive strategies are sensitive to the unique and generate enhanced returns in at stakeholder relationships is central heritage of each location. a low cost. These lenders have a todelivering long-term, sustainable financial interest in the success of Environment | returns. The Board is focused on | | the Company. | | --- | --- | --- | | ensuring that it understands its | In 2019, the built environment was | | | | responsible for 31%ofglobal carbon | Decision making | stakeholders’ needs. emissions, which places great The Board makes decisions on, Shareholders responsibility on those companies among other things, theprincipal The Board is committed to that are direct or indirect matters set out under the paragraph maintaining high standards contributors. The Board is sensitive aboveheaded “Role of the Board” ofcorporate governance in order to to the Company’s role and is onpage 44. | | protect shareholder interests. The | committed to continually improving | | --- | --- | --- | | | Investment Manager undertakes an | and protecting the environment by | | | active investor relations schedule in | using resources such as energy, | | | London and the regions throughout | water and materials in a sustainable | | | the year, which includes one-on-one | manner for the prevention of | | | and group meetings with | greenhouse gas emissions and | | | shareholders as well as regular | climate change mitigation. | | | presentations to the sell-side analyst | Environmental, Social and | | | community. Shareholder feedback | Governance (“ESG”) considerations | | Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 | | | ### 34 Overview Strategic Report Governance Financial Statements Other information (unaudited) ## Risks and Uncertainties | The Board is responsible for | which assists indetermining the | credentials of the portfolio as its | | --- | --- | --- | | theCompany’s system of risk | nature and extent of the significant | sustainability becomes a greater | | management and internal control | risks the Board is willing to take in | focus for the Company. The Board | | andfor reviewing its effectiveness. | achieving its strategic objectives. | no longer considers Covid-19 to be a | | The Board has carried out a robust | | principal risk as the property markets | Although the Board believes that it assessment of the principal risks and have adapted to the threats posed. has a robust framework of internal emerging risks facing the Company The previously identified principal controls in place this can provide including those that would threaten risks Accounting, Legal and only reasonable, and not absolute, its business model, future regulatory and Tax have now been assurance against material financial performance, solvency or liquidity. consolidated into a single Principal misstatement or loss and is designed Aframework of internal controls has Risk, “Regulatory Compliance”. to manage, noteliminate, risk. been designed and established to A summary of the principal risks and monitor and manage those risks. This During the year, the Board has uncertainties faced by the Company, internal control framework provides redefined certain of its principal and actions taken by the Board to asystem to enable the Directors to risks, especially the emerging risk manage and mitigate these risks and mitigate these risks as far as possible, relating to the sustainability and ESG uncertainties, are set out below: Key risks Mitigation of risk Investment and strategy An inappropriate investment strategy, or The Board seeks to mitigate these risks by: failure to implement the strategy, could lead – Diversification of its property portfolio through its investment restrictions and to underperformance in the property guidelines which are monitored and reported on by the Investment Manager. portfolio compared to the property market – Receiving from the Investment Manager timely and accurate management generally by incorrect sector or geographic information including performance data, attribution analysis, property-level weightings or a loss of income through tenant business plans and financial projections. failure, both of which could lead to a fall in the – Monitoring the implementation and results of the investment process withthe value of the underlying portfolio. Investment Manager with a separate meeting devoted to strategy each year. – Determining a borrowing policy and the Investment Manager operates within borrowing restrictions and guidelines. Economic and property market The performance of the Company could be The Board considers economic conditions and the uncertainty around political affected by economic and property market events when making investment decisions. The Board mitigates property market risk. In the wider economy this could include risk through the review of the Group’s strategy on a regular basis and discussions inflation, stagflation or deflation, economic are held to ensure the strategy is still appropriate or if it needs updating. The recessions, movements in interest rates, Board and Investment Manager reviews the progress of implementing the Brexit impact, the war in Ukraine, or other strategy on a regular basis and provides the market with clear communications. external shocks. The performance of the underlying property portfolio could also be affected by structural or cyclical factors impacting particular sectors or regions of the property market. Sustainability Sustainability considerations, including The Manager’s Investment Committee has a continued focus on sustainability to transition risks and physical risks (as defined help ensure appropriate approvals are made. by the Task Force on Climate-related Impact and Sustainability Action Plans identify asset improvement requirements Financial Disclosures (“TCFD”), explained in context of the investment strategy. further on page 95 of these accounts), are not The Board regularly reviews the objectives and progress of the Sustainability fully considered or properly understood in the programme. acquisition and asset-planning processes leading to future issues (negative effect on Evora has been appointed as a supplier to the Fund to help collate and provide key price, valuation or saleability of assets, future Sustainability data which is then reported to the Manager, Board and investors. costs to remediate, meeting the requirements Furthermore, the Board is provided with an assurance letter from Standard and of initiatives such as Net Zero Carbon/ Poor’s with regard to the underlying work that it has conducted on behalf of the Climate Risk/BREEAM/EPC profile/GRESB. Company. Valuation/liquidity Property valuations are inherently subjective External reputable valuers provide an independent quarterly valuation of all the and uncertain. This uncertainty is heightened property assets, including those held in joint ventures, which are reviewed at by geo-political and macroeconomic factors thequarterly Board meetings. such as high inflation and increasing interest The valuation process is reviewed by the Audit Committee every year and rates. members of the Audit Committee directly meet with the valuers. ### 35 Strategic Report ## Risks and Uncertainties continued Key risks Mitigation of risk Valuation/liquidity continued External valuers are provided with copies of all transactions and lease events by SREIT’s lawyers and with a quarterly updates by Asset Managers to ensure that information used to value the portfolio is complete, accurate and up-to-date. Gearing/leverage The Company utilises credit facilities to Gearing and compliance with covenants is monitored; at each Board meeting increase the funds available for investment. against strict restrictions set internally and by lenders, and is regularly announced While this has the potential to enhance to the market. investment returns in rising markets, in falling markets the impact may be detrimental to performance, and may also result in potential non-compliance with loan covenants. Service provider The Company has no employees and has Service providers subject to regular reviews by both the Investment Manager delegated its operations to a number of service andthe Management Engagement Committee against clearly documented providers. Failure of controls and/or the poor contractual arrangements detailing service expectations, including confirmation performance of any service provider could of business continuity and cyber security arrangements. lead to disruption, reputational damage, or loss. Regulatory compliance The Company has to comply with a wide The Board has appointed the Investment Manager as its Alternative Investment range of legislation and regulations, covering Fund Manager (“AIFM”) in accordance with the Alternative Investment Fund planning, health and safety, Company law, Managers Directive (“AIFMD”). accounting, reporting, tax and Listing Rules. The Company Secretary monitors legal requirements to ensure that adequate procedures and reminders are in place to meet the Company’s legal requirements and obligations. The Investment Manager undertakes full legal due diligence with advisors when transacting and managing the Company’s assets. All contracts entered into by the Company are reviewed by the Company’s legal and other advisors. The Board is satisfied that the Investment Manager and Administrator have adequate procedures in place to ensure continued compliance with the regulatory requirements of the Financial Conduct Authority and the Guernsey Financial Services Commission, the Listing Rules of the London Stock Exchange, and the UK REIT regulations to maintain the Company’s REIT status. Risk assessment and internal controls Risk assessment includes detailed review of the risks facing return forecasts for the commercial consideration of the scope and theCompany. real estate market. The Investment quality of the systems of internal Manager uses these forecasts as part A full analysis of the financial risks control operating within keyservice of analysing acquisition opportunities facing the Company and its providers, and ensures regular as well as for its annual asset level subsidiaries is set out in note 18 on communication of the results of business planning process. The Board pages 81 to 84. monitoring by such providers to the receives an overview of the asset Audit Committee, including the Viability statement level business plans which the incidence of significant control Investment Manager uses to assess The Board is required to give a failings or weaknesses that have been the performance of the underlying statement on the Company’s viability identified at any time and the extent portfolio and therefore make which considers the Company’s to which they have resulted in investment decisions such as current position and principal risks unforeseen outcomes or disposals and investing capital and uncertainties together with an contingencies that may have a expenditure. assessment of future prospects. material impact on the Company’s The Company’s principal borrowings performance or condition. The Board conducted this review with Canada Life are for a weighted over a five-year time horizon No significant control failings or duration of 13.1 years and the average commencing from the date of this weaknesses were identified from unexpired lease term, assuming all report which is selected to match the theAudit Committee’s ongoing risk tenants vacate at the earliest period over which the Board monitors assessment which has been in place opportunity, is 4.7 years. and reviews its financial performance throughout the financial year and up and forecasting. The Investment The Board’s assessment of viability to the date of this report. The Board Manager prepares five-year total considers the principal risks and Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 issatisfied that it has undertaken a ### 36 Overview Strategic Report Governance Financial Statements Other information (unaudited) | uncertainties faced by the Company, | Overall, after utilising available cash, | Theinvestment properties continue | | --- | --- | --- | | as detailed in the Strategic Review on | excluding the cash undrawn against | tobemonitored by the Investment | | pages 35 to 37, which could negatively | the RBSI facility and uncharged | Manager and key considerations | | impact its ability to deliver the | properties and units in Joint Ventures, | include EPC ratings and their impact | | investment objective, strategy, liquidity | and based on the reporting period to | on the properties’ forecast | | and solvency. This includes | 31 March 2023, property valuations | compliance with forthcoming | | consideration of scenario stress testing | would have to fall by 28% before the | minimum energy efficiency standards. | | and a cash flow model prepared by the | relevant Canada Life Loan to Value | Having assessed the impact of climate | | Investment Manager that analyses the | covenants were breached, and actual | change on the Group, the Directors | | sustainability of the Company’s cash | net rental income would need to fall | concluded that it is not expected to | | flows, dividend cover, compliance with | by 61% before the interest cover | have a significant impact on the | | bank covenants, general liquidity | covenants were breached. | Group’s going concern or viability | | requirements and potential legal and | | assessment. | Furthermore, the properties charged regulatory changes for a five-year to RBSI could fall in value by 54%, The Directors have not identified any period. | | prior to the 65% LTV covenant being | matters which would cast significant | | --- | --- | --- | | These metrics are subject to a | breached, and based on projected | doubt on the Group’s ability to | | sensitivity analysis which involves | net rents for the quarter to March | continue as agoing concern for the | | flexing a number of the main | 2023, a 31% fall in net income could | period to 30 June 2024. In addition | | assumptions including | be sustained prior to the RBSI | to the matters described above, in | | macroeconomic scenarios, delivery | projected interest loan cover | arriving at their conclusion the | | of specific asset management | covenant of 250% being breached. | Directors have also considered: | initiatives, rental growth and void/ As at the financial year end the – The cash balance at 2 June 2023 reletting assumptions. The Board also undrawn capacity of the RBSI facility of £6.5 million; and reviews assumptions regarding was £26.7 million. This facility is an – The nature and timing of the capital recycling and the Company’s efficient and flexible source of Company’s income and expenses. ability to refinance or extend funding due to its ability to be repaid financing facilities. The Directors have satisfied and redrawn as often as required. themselves that the Group has Steps which are taken to mitigate Furthermore, this facility was adequate resources to continue in these risks as set out in the Strategic refinanced in June 2022 with a new operational existence for the period Review on pages 35 to 37 are also five-year term to 2027 and with an to 30 June 2024. After due taken into account. Based on the increase in the amount that can be consideration, the Board believes it assessment, the Directors have drawn from £52.5million to isappropriate to adopt the going concluded that there is a reasonable £75.0million. concern basis in preparing the expectation that the Company will be Regarding the Canada Life loan of financial statements. able to continue in operation and meet £129.6million, 50% matures in 2032 its liabilities as they fall due over the By order of the Board and 50% matures in 2039 five-year period of their assessment. respectively. Going concern The Board and Investment Manager Alastair Hughes also continue to closely monitor Chair The Directors have examined structural changes from Covid-19, significant areas of possible financial 7 June 2023 together withthe ongoing changing risk including liquidity (with a view to macroeconomic and geopolitical both cash heldand undrawn debt environments, on the Group. facilities); the rates of both rent and service charge collections from The Board and Investment Manager tenants; have considered potential have considered the impact of climate falls in property valuations; have change risk as an emerging risk as set reviewed cash flow forecasts; have out on page 35. In line with IFRS, analysed forward-looking compliance investment properties are valued at with third party debt covenants and in fair value based on open market particular the Loan to Value covenant valuations as described in note 10. and interest cover ratios; and have Theassessment of the open market considered the Group’s ongoing tax valuation includes consideration of compliance with the REIT regime. environmental matters and the condition of each property. ### 37 Governance ## Corporate ## Governance Contents 40 Board of Directors 42 Report of the Directors 44 Corporate Governance 48 Audit Committee Report 50 Management Engagement CommitteeReport 51 Nomination Committee Report 52 Directors’ Remuneration Report 53 Statement of Directors’ Responsibilities 54 Independent Auditor’s Report to the members of Schroder Real Estate Investment Trust Limited Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 ### 38 Strategic Report Financial Statements Other information (unaudited)Overview Governance ### 39 Governance ## Board of Directors No Director has any entitlement to pensions and the Company has not awarded any share options or long-term performance incentives to any of them. No element of Directors’ remuneration is performance-related. There were no payments to Directors for loss of office. No Director has a service contract with the Company. Alastair Hughes Stephen Bligh Priscilla Davies Alexandra (“Ali”) Innes However, each of the Directors Chair Chair of the Audit Committee Senior Independent Director Chair of the Management Engagement has a letter of appointment with Committee the Company. The Directors’ letters of appointment, which Status set out the terms of their Independent Non-Executive Chair Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director appointments, are available for inspection at the Company’s Date of appointment registered office address during normal business hours and will 26 April 2017 28 April 2015 7 June 2022 16 November 2022 be available for inspection at Biography theAGM. Alastair has over 30 years of Stephen was previously with KPMG Priscilla has over 25 years of financial Alexandra’s executive career has spanned Current remuneration Lorraine Baldry served as Chair experience in real estate markets and for 34 years, specialising in the audit services experience across a range of investment banking, global capital £40,000 per annum of the Company during the year | | currently holds directorships with | of FTSE 350 companies inproperty | sectors including asset management | markets, and investment management, | | | --- | --- | --- | --- | --- | --- | | until 26 July 2022, and Graham | | | | | Material interests in any | | | British Land PLC, Tritax Big Box and | and construction. He is a fellow of | andalternative investments covering | most latterly as Managing Director, | | | Basham served as an | | | | | contractwhich is significant | | | Quad Real Property Group. He was | the Institute of Chartered | realestate, private equity, infrastructure | Barclays plc, andprior to that as Director | | | Independent Non-Executive | | | | | totheCompany’s business | | | previously the Managing Director of | Accountants in England & Wales and | and renewables. She is currently a | of Global Capital Markets at Bank of | | | Director of the Company during | | | | | None | | | Jones Lang LaSalle (JLL) in the UK | was previously a non-executive | Non-Executive Director and Chair at | America Merrill Lynch. | | the year, until 15 November 2022. Key skills and contributions to | before becoming the CEO for | Board Member of the Department of | UBSAsset Management UK Ltd, | | | | --- | --- | --- | --- | --- | | | | | Alexandra is a member of the Group | theBoard | | Europe, Middle East and Africa and | Business, Innovation &Skills. | Non-Executive Director and Chair of | | | | | | | Executive Board at Knight Frank LLP, | Alexandra brings experience as an | | then latterly becoming the CEO for | | Audit and Risk at Cubico Sustainable | | | | | Current remuneration | | aNon-executive Committee Member at | economist, and in capital markets to the | | Asia Pacific. Alastair is a Chartered | | Investments, and Non-Executive | | | | | £40,000 per annum | | theBank of England, and a Non-executive | Board, alongside sustainability expertise. | | Surveyor and sat on the Global | | Directorat Embark Group Limited and | | | Director of Dowlais Group plc, Securities Executive Board ofJLL. Material interests in any itsregulated subsidiaries. Trust of Scotland plc, and Waverton contractwhich is significant Current remuneration Priscilla previously held various senior Investment Management Limited. totheCompany’s business £55,000 per annum positions at JanusHenderson, most Alexandra is also Senior Independent None latterly as Managing Director ofthe Director of Facilities by ADF plc, and is Material interests in any Key skills and contributions to Private Equity business. She is also a aNon-executive Director of the UCI contractwhich is significant theBoard totheCompany’s business Chartered Accountant andamember Cycling World Championships Ltd. Stephen’s experience as a property None ofthe Chartered Accountants Australia and construction audit partner enables Alexandra previously served on the and NewZealand. | Key skills and contributions to | him to effectively oversee the | | boardof the All England Lawn Tennis | | --- | --- | --- | --- | | theBoard | performance of the Investment | Current remuneration | Club (Championships) Ltd and the AELT | | Alastair has extensive experience of | Manager’s fund accounting function, | £40,000 per annum | Ground plc. | | both real estate management, | and the Company’s Auditor. The | | | | | | Material interests in any | Alexandra holds an M.A. Hons | | strategic leadership, and governance | Board considers Stephen to have | | | contractwhich is significant Economics from Cambridge University, fromhis previous senior executive recent and relevant financial expertise totheCompany’s business and is a Fellow of Chapter Zero. She roles. His experience as a chartered to chair the Audit Committee. None isaGreen and Sustainable Finance surveyor assists with scrutiny of asset Key skills and contributions to Professional, Chartered Banking Institute purchases and oversight of the theBoard (CCBI GSFP), a Member of theChartered Company’s independent valuer. Priscilla brings extensive experience Institute for Securities &Investments asasenior executive working for asset (Chartered MCSI), and holds the CFA management businesses. She also has Institute Certificate in ESG investing. relevant and recent financial experience. Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 ### 40 Overview Strategic Report Governance Financial Statements Other information (unaudited) Alastair Hughes Stephen Bligh Priscilla Davies Alexandra (“Ali”) Innes Chair Chair of the Audit Committee Senior Independent Director Chair of the Management Engagement Committee Status Independent Non-Executive Chair Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Date of appointment 26 April 2017 28 April 2015 7 June 2022 16 November 2022 Biography | Alastair has over 30 years of | Stephen was previously with KPMG | Priscilla has over 25 years of financial | Alexandra’s executive career has spanned | Current remuneration | | --- | --- | --- | --- | --- | | experience in real estate markets and | for 34 years, specialising in the audit | services experience across a range of | investment banking, global capital | £40,000 per annum | | currently holds directorships with | of FTSE 350 companies inproperty | sectors including asset management | markets, and investment management, | | Material interests in any British Land PLC, Tritax Big Box and and construction. He is a fellow of andalternative investments covering most latterly as Managing Director, contractwhich is significant Quad Real Property Group. He was the Institute of Chartered realestate, private equity, infrastructure Barclays plc, andprior to that as Director totheCompany’s business previously the Managing Director of Accountants in England & Wales and and renewables. She is currently a of Global Capital Markets at Bank of None Jones Lang LaSalle (JLL) in the UK was previously a non-executive Non-Executive Director and Chair at America Merrill Lynch. Key skills and contributions to | before becoming the CEO for | Board Member of the Department of | UBSAsset Management UK Ltd, | | | | --- | --- | --- | --- | --- | | | | | Alexandra is a member of the Group | theBoard | | Europe, Middle East and Africa and | Business, Innovation &Skills. | Non-Executive Director and Chair of | | | | | | | Executive Board at Knight Frank LLP, | Alexandra brings experience as an | | then latterly becoming the CEO for | | Audit and Risk at Cubico Sustainable | | | | | Current remuneration | | aNon-executive Committee Member at | economist, and in capital markets to the | | Asia Pacific. Alastair is a Chartered | | Investments, and Non-Executive | | | | | £40,000 per annum | | theBank of England, and a Non-executive | Board, alongside sustainability expertise. | | Surveyor and sat on the Global | | Directorat Embark Group Limited and | | | Director of Dowlais Group plc, Securities Executive Board ofJLL. Material interests in any itsregulated subsidiaries. Trust of Scotland plc, and Waverton contractwhich is significant Current remuneration Priscilla previously held various senior Investment Management Limited. totheCompany’s business £55,000 per annum positions at JanusHenderson, most Alexandra is also Senior Independent None latterly as Managing Director ofthe Director of Facilities by ADF plc, and is Material interests in any Key skills and contributions to Private Equity business. She is also a aNon-executive Director of the UCI contractwhich is significant theBoard totheCompany’s business Chartered Accountant andamember Cycling World Championships Ltd. Stephen’s experience as a property None ofthe Chartered Accountants Australia and construction audit partner enables Alexandra previously served on the and NewZealand. | Key skills and contributions to | him to effectively oversee the | | boardof the All England Lawn Tennis | | --- | --- | --- | --- | | theBoard | performance of the Investment | Current remuneration | Club (Championships) Ltd and the AELT | | Alastair has extensive experience of | Manager’s fund accounting function, | £40,000 per annum | Ground plc. | | both real estate management, | and the Company’s Auditor. The | | | | | | Material interests in any | Alexandra holds an M.A. Hons | | strategic leadership, and governance | Board considers Stephen to have | | | contractwhich is significant Economics from Cambridge University, fromhis previous senior executive recent and relevant financial expertise totheCompany’s business and is a Fellow of Chapter Zero. She roles. His experience as a chartered to chair the Audit Committee. None isaGreen and Sustainable Finance surveyor assists with scrutiny of asset Key skills and contributions to Professional, Chartered Banking Institute purchases and oversight of the theBoard (CCBI GSFP), a Member of theChartered Company’s independent valuer. Priscilla brings extensive experience Institute for Securities &Investments asasenior executive working for asset (Chartered MCSI), and holds the CFA management businesses. She also has Institute Certificate in ESG investing. relevant and recent financial experience. ### 41 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 2023 (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 2022 | 30 June 2022 | 0.795 pence per share | | 30 June 2022 | 19 August 2022 | 0.803 pence per share | | 30 September 2022 | 9 December 2022 | 0.803 pence per share | | 31 December 2022 | 7 March 2023 | 0.819 pence per share | With the solvency test provided for in the Companies Law having been fully satisfied, all dividends were declared and paid as interim dividends. The Directors recommend a final dividend for the year ended 31 March 2023 of 0.836 pence per share to be paid on 30 June 2023. All dividends paid during the year were allocated and paid as Property Income Distributions ("PIDs"). # Share capital As at 31 March 2023 the Company had 565,664,749 (2022: 565,664,749) ordinary shares in issue of which 76,554,173 ordinary shares (representing 13.5% of the Company's total issued share capital) were held in treasury (2022: 74,584,448). The total number of voting rights of the Company was 489,110,576 at the year end (2022: 491,080,301) 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 2023 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. The Investment Manager received a fee of 0.9% of the Company's NAV 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 Schroder Investment Management Limited, an affiliate of the AIFM, is Company Secretary to the Company for which it is paid a fee of £50,000 per annum. 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 is the Company's depositary for a fee of £39,000 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. Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 42 # 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 (%) | | --- | --- | --- | | Alastair Hughes | 190,579 | Less than 0.1 | | Stephen Bligh | 165,000 | Less than 0.1 | | Priscilla Davies | 0 | Nil | | Ali Imran | 0 | Nil | # Substantial shareholdings The Company has received notifications in accordance with the Financial Conduct Authority's ("FCA") Disclosure Guidance and Transparency Rule 5.1.2R of the below interests in 5% or more of the voting rights attaching to the Company's issued share capital. The Company is reliant on investors to comply with these regulations, and certain investors may be exempted from providing these. As such, this should not be relied on as an exhaustive list of shareholders holding above 5% of the Company's voting rights. | | Number of ordinary shares | Percentage (%) | | --- | --- | --- | | Investor, Wealth & Investment (UK) | 78,375,224 | 16.0 | | Schroders PLC | 67,842,383 | 13.8 | | Premier Fund Managers Limited | 41,680,575 | 8.0 | | Embank Investment Services (UK) | 34,207,624 | 7.0 | | Witan Investment Trust plc | 32,250,000 | 6.2 | # Independent Auditors Resolutions to reappoint Ernst & Young LLP, and to give the Directors authority to determine the Auditors' remuneration for the coming year, will be put to shareholders at the Annual General Meeting ("AGM") of the Company. The Audit Committee's evaluation of the Auditors is described in the Report of the Audit Committee on page 48. # Disclosure of information to Auditors The Directors who held office at the date of approval of this Directors' Report confirm that, as far as they are each aware, there is no relevant audit information of which the Company's Auditors are unaware and each 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 that the Company's Auditors are aware of that information. # Status for taxation The Director of the Revenue Service in Guernsey has granted the Company exemption from Guernsey income tax under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 and the income of the Company may be distributed or accumulated without deduction of Guernsey Income Tax. Exemption under the above-mentioned Ordinance entails the payment by the Company of an annual fee of £1,200. The Group continues to pay no corporation or income tax because it has tax exempt status in the UK as a UK Real Estate Investment Trust ("REIT"). The Group has been a UK REIT since 2015 and the Group's property income and gains are exempt from UK corporate taxes provided a number of conditions in relation to the Group's activities are met including, but not limited to, distributing at least 90% of the Group's UK tax exempt profit as property income distributions ("PIDs"). As far as the Directors are aware, the Group 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 advisors. # Key information document A Key Information Document ("KID") for the Company is published on at least an annual basis, in accordance with the Packaged Retail and Insurance-Based Investment Products Regulation ("PRIIPs"), and made available on the Company's website. The calculation of figures and performance scenarios 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 has been inconsistently applied by market participants and hence creates confusion amongst investors. # AIFMD remuneration disclosures for Schroder Real Estate Investment Management Limited ("SREIM") for the year to 31 December 2022 Quantitative remuneration disclosures to be made in this Annual Report in accordance with FCA Handbook rule FUND 3.3.5 are published on the following website: https://www.schroders.com/en/investor-relations/results-and-reports/annual-report-and-accounts-2022/ Overview Strategic Report Governance Financial Statements Other information (unaudited) 43 Governance ## Corporate Governance The Directors are committed to maintaining high Role of the Board standards of corporate governance. Insofar as the The Board has determined that its role is to consider and Directors believe it to be appropriate and relevant to the determine the following principal matters which it Company, it is their intention that the Company should considers are of strategic importance to the Company: comply with best practice standards for the business carried on by the Company. – The overall objectives of the Company, as described under the paragraph above headed “Investment The Guernsey Financial Services Commission (“GFSC”) Policy and Strategy” and the strategy for fulfilling states in the Finance Sector Code of Corporate those objectives within an appropriate risk Governance (the “Code”) that companies which report framework, in light of market conditions prevailing against the UK Corporate Governance Code or the from time to time; Association of Investment Companies Code of – The capital structure of the Company, including Corporate Governance are deemed to meet the Code, consideration of an appropriate policy for the use of and need take no further action. borrowings both for the Company and in any joint The Board has considered the principles and ventures in which the Company may invest from time recommendations of the Association of Investment to time; Companies Code of Corporate Governance published in – The appointment of the Investment Manager, February 2019 (“AIC Code”), which applies to accounting Administrator and other appropriately skilled service periods beginning on or after 1 January 2019. The AIC providers and to monitor their effectiveness through Code addresses all the principles set out in the UK regular reports and meetings; and Corporate Governance Code, as well as setting out – The key elements of the Company’s performance additional principles and recommendations on issues that including NAV growth and the payment of dividends. are of specific relevance. A copy of the AIC Code can be found at www.theaic.co.uk. Board decisions It is the Board’s intention to continue to comply with the The Board makes decisions on, among other things, AIC Code and we will continue to report the Company’s theprincipal matters set out under the paragraph above compliance with the principles and recommendations of headed “Role of the Board”. Issues associated with the AIC Code, which has been endorsed by the Financial implementing the Company’s strategy are generally Reporting Council (“FRC”). considered by the Board to be non-strategic in nature and are delegated either to the Investment Manager or Statement of compliance the Administrator, unless the Board considers there will The Company has complied with the recommendations be implementation matters significant enough to be of of the AIC Code and the relevant provisions of the UK strategic importance to the Company and should be Corporate Governance Code, except as set out below. reserved to the Board. Generally these are defined as: The UK Corporate Governance Code includes provisions – Large property decisions affecting 10% or more of relating to: the Company’s assets; | – The role of the chief executive; | – Large property decisions affecting 5% or more of | | --- | --- | | – Executive directors’ remuneration; and | theCompany’s rental income; and | | – Internal audit function. | – Decisions affecting the Company’s financial | borrowings. The Board considers that these provisions are not relevant to the Company, being an externally managed Evaluation of the Board and Audit Committee investment company. In particular, all of the Company’s In 2023 the Board carried out an internal evaluation of day-to-day management and administrative functions are the Board and its Chair, which involved questionnaires outsourced to third parties. As a result, the Company has being completed by Non-Executive Directors. It was no executive directors, employees or internal operations. concluded that the Board and its Chair both operate The provision in relation to the internal audit function is effectively and constructively. Ongoing consideration referred to in the Audit Committee report. The Company continues to be given towards succession planning, has therefore not reported further in respect of these relationships with key shareholders and the format and provisions. length of board papers. Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 ### 44 Overview Strategic Report Governance Financial Statements Other information (unaudited) In January 2020 the Board appointed Stogdale The below tables set out the gender and ethnic diversity St.JamesLimited to independently oversee an external composition of the Board as at 31 March 2023 and at the performance evaluation of the Board; there were no date of this report. conflicts of interest identified. The composition of the Number of Board, its dynamics, its oversight of strategy and the Percentage of senior positions management of the Board meetings were all highly Number of the Board on the Board Board members (%) (Chair) regarded. White British orother White Non-Executive Directors, rotation of Directors (including and Directors’ tenure minority-white groups) 4 100 100 The UK Corporate Governance Code recommends that Directors should be appointed for a specified period. Mixed/ Multiple Ethnic TheBoard has resolved in this instance that Directors’ Groups – – – appointments need not comply with this requirement Asian/Asian asall Directors are non-executive and their respective British – – – appointments can be terminated at any time without Black/African/ penalty. The Board has approved a policy that all Caribbean/ Directors will stand for re-election annually and it is Black British – – – theintention that no Director will serve for more than Other ethnic nine years. group, The appointment and replacement of Directors is including Arab – – – governed by the Company’s Articles, the Companies Not specified/ Law, related legislations and the Listing Rules. The prefer not to say – – – Articles may only be amended by a special resolution ofthe shareholders. When a vacancy arises the Board Number of Percentage of senior positions selects the best candidate taking into account the skills Number of the Board on the Board and experience required, while taking into consideration Board members (%) (Chair) board diversity as part of a good corporate governance Men 2 50 1 culture. Women 2 50 1 Board composition and diversity Not specified/ prefer not to The Board currently consists of four Non-Executive say – – – Directors. The biography of each of these Directors is setout on pages 40 and 41 of the report. The Board Given that the Company is a real estate investment trust considers each of the Directors to be independent. As at with no executive board members, the columns and 31 March 2023, 50% of the individuals on the Board of references regarding executive management have not Directors were women, exceeding the 40% target as set been included. The approach to collecting this data was out in the Listing Rules, and at least one of the senior consistent for the purposes of reporting under Listing positions on the Board of Directors was held by a woman. Rule LR 9.8.6(9) and (10), and was consistent across all There were no Board members from a minority ethnic four individuals in relation to whom data is being background. This is due to the relatively small size of reported, which was that all Directors confirmed that theBoard. theabove disclosures were correct. The Company believes in the benefits of diversity and places importance on broad diversity of the Board as part of its succession planning. The Company’s diversity and inclusion policy, outlined below, was applied throughout the recruitment process for the two recent Board appointments. ### 45 Governance ## Corporate Governance continued Board meetings and attendance The Board has adopted a diversity and inclusion policy, The Board meets at least four times each year. Additional which applies to both the Board and its Audit and meetings are also arranged as required and regular Nomination committees. Appointments and succession contact between Directors, the Investment Manager plans will always be based on merit and objective criteria andthe Administrator is maintained throughout the year. and, within this context, the Board seeks to promote Representatives of the Investment Manager and diversity of gender, social, ethnic, professional and Company Secretary attend each Board meeting and educational backgrounds, sexual orientation, cognitive other advisors also attend when requested to do so by and personal strengths. The Board will encourage any the Board. At least once a year the Board carries out a independent recruitment agencies it engages to find a site visit to properties owned by the Company. range of candidates that meet the objective criteria Attendance records for the four quarterly Board agreed for each appointment. Candidates for Board meetings and committee meetings during the year vacancies are selected based on their skills and underreview are set out in the table below. experience, which are matched against the balance of Management skills and experience of the overall Board taking into Audit Nomination Engagement account the criteria for the role being offered. | | Director Board | | Committee | Committee | Committee | | --- | --- | --- | --- | --- | --- | | The independence of each Director is considered on a | Alastair Hughes 4/4 3/3 2/2 1/1 | | | | | | continuing basis. The Board has determined that all the | Stephen Bligh 4/4 3/3 2/2 1/1 | | | | | | Directors are independent of the Investment Manager. | | 1 | | | | | | Priscilla Davies | 3/3 1/2 0/0 0/0 | | | | The Board is satisfied that it is of sufficient size with 2 Alexandra Innes 1/1 0/1 0/0 0/0 anappropriate balance of skills and experience, 3 Lorraine Baldry 2/2 0/1 1/1 1/1 independence and knowledge of both the Company and 4 | the wider investment company sector, to enable it to | Graham Basham | 2/2 1/1 1/1 1/1 | | --- | --- | --- | | discharge its respective duties and responsibilities | Number of | | | effectively and that no individual or group of individuals | meetings during | | the year 4 3 2 1 is, or has been, in a position to dominate decision making. Accordingly the Board approves the nomination for 1 Priscilla Davies was appointed as a Director on 7 June 2022, and re-election of each of the Directors at the forthcoming therefore did not attend any meetings during the year held prior to her appointment. Annual General Meeting. 2 Alexandra Innes was appointed as a Director on 16 November 2022, and therefore, did not attend any meetings during the year held prior to her The Board also considers the diversity and inclusion appointment. policies of its key service providers. 3 Lorraine Baldry was Chair of the Company until she retired as a Director on 26 July 2022. 4 Graham Basham retired as a Director on 15 November 2022. Board committees In addition to its regular quarterly meetings, the Board The Board has delegated certain of its responsibilities met on three other occasions during the year, attended toits Audit, Nomination, and Management Engagement by all or the majority of Directors. Committees. Each of these committees has formal terms of reference established by the Board which are available Information flows on the Company’s website. The Board believes that its committees have an appropriate composition and blend All Directors receive, in a timely manner, relevant of backgrounds, skills and experience to discharge their management, regulatory and financial information and duties effectively. Details of the work of these are provided, on a regular basis, with key information on committees are available in their respective reports. the Company’s policies, regulatory requirements and internal controls. The Board receives and considers As all the Directors are non-executives, the Board has reports regularly from the Investment Manager and resolved that it is not necessary to have a Remuneration otherkey advisors and ad hoc reports and information Committee. are supplied to the Board as required. Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 ### 46 Overview Strategic Report Governance Financial Statements Other information (unaudited) Data protection and security The Board has reviewed its systems and controls in light of the implementation of the General Data Protection Regulation (EU Regulation 2016/679) and the Data Protection (Bailiwick of Guernsey) Law, 2017 (the“GDPR”) in 2018 to ensure that the Company is compliant with the requirements of the GDPR. As part of that process the Board took steps 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 its Investment Manager to have a robust information security and data protection environment in place. This is reviewed with the Investment Manager at the annual Manager‘s visit day. All Board communication of a confidential nature is managed via a secure Board application. The Company’s privacy notice is available onits webpage. Directors’ and officers’ liability insurance During the year, the Company has maintained insurance cover for its Directors under a liability insurance policy. Relations with shareholders The Board believes that the maintenance of good relations with both institutional and retail shareholders is important for the long-term prospects of the Company. The Board receives feedback on the views of shareholders from its corporate broker, the Investment Manager and from the Chair. Through this process the Board seeks to monitor the views of shareholders and to ensure an effective communication programme. The Board believes that the Annual General Meeting, due to be held at 1.30 p.m. on 27 September 2023, provides an appropriate forum for investors to communicate with the Board and it encourages participation. The Notice of the next Annual General Meeting can be found on page122 of this document. ### 47 Governance ## Audit Committee Report Composition The Audit Committee is chaired by Stephen Bligh with – The contents of the interim and annual financial Alastair Hughes, Priscilla Davies, and Alexandra Innes as statements and to consider whether, taken as a members. The Board considers that Stephen Bligh’s whole, they were fair, balanced and understandable professional experience makes him suitably qualified and provided the information necessary for tochair the Audit Committee, and his continuing shareholders to assess the Company’s performance, professional commitments provide him with recent business model andstrategy; relevant financial experience. Its terms of reference – The effectiveness of the Company’s system of areavailable on the Company’s webpages. internal control; – The external Auditor’s terms of appointment, audit Responsibilities plan, and year end report; The Audit Committee ensures that the Company – The management representation letters to the maintains the highest standards of integrity in financial Auditors; reporting and internal control. This includes responsibility – The effectiveness of the audit process; for reviewing the half-year and annual financial statements before their submission to the Board. In – The independence, effectiveness and objectivity addition, the Audit Committee is specifically charged ofthe external Auditor; under its terms of reference to advise the Board, inter – The risk assessment of the Company; and alia, on the terms and scope of the appointment of the – Compliance with the UK REIT regime. Auditors, including their remuneration, independence, objectivity and reviewing with the Auditors the results As noted in the Corporate Governance report, an and effectiveness of the audit and the interim review. evaluation of the Audit Committee was completed by the Directors in May 2023 in which it was concluded that the Work of the Audit Committee Audit Committee continued to function effectively and to discharge the matters for which it is responsible under The Audit Committee meets no less than twice a year. If its terms of reference. required, meetings are also attended by the Investment Manager, the Administrator and the Auditor. During the year under review, the Audit Committee met on three occasions to consider: Significant matters considered by the Audit Committee in relation to the financial statements Matter Action Property valuation Property valuation is central to the business The Audit Committee reviewed the outcomes of the valuation process throughout andis asignificant area of judgement which is the year and discussed the detail of each quarterly valuation with the Investment inherently subjective, although the valuations Manager at the Board meetings. areperformed by independent firms of valuers: Knight Frank LLP (replaced by CBRE on 31 March 2023) for the Company’s wholly- owned portfolio of properties, and BNP Paribas Real Estate UK for the two joint ventures. Errors in valuation could have a material impact Members of the Audit Committee meet with CBRE to discuss the process, on the Company’s net asset value. assumptions, independence and communication with the Investment Manager. Their approach to the 31 March 2023 valuations was discussed with CBRE in light of the impact of the pandemic and subsequent economic volatility, and the Committee was satisfied that the firm had taken a considered approach. Market volatility The performance of the Company could be As disclosed in the Going Concern and Viability Statements on pages 36 to 37, the affected byeconomic and property market Audit Committee has considered various stress tests and sensitivities to the normal risk. In the wider economy this could include cash flow forecasts, and is confident that the Company will be able to continue in inflation, stagflation or deflation, economic operation and meet its liabilities as they fall due over the five year period of its recessions, movements in interest rates, the assessment. warin Ukraine, or other external shocks. Theperformance of the underlying property portfolio could also be affected by structural orcyclical factors impacting particular sectors or regions of the property market. Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 ### 48 Overview Strategic Report Governance Financial Statements Other information (unaudited) Internal control Effectiveness of the independent audit process The UK Corporate Governance Code requires the The Audit Committee evaluated the effectiveness of EY Boardto conduct, at least annually, a review of the prior to making a recommendation on its reappointment effectiveness of the Company’s systems of internal at the forthcoming Annual General Meeting. As part of control and to report to shareholders that it has done so. the evaluation, the Audit Committee considered The Audit Committee, on behalf of the Board, also feedback from the Investment Manager on the audit regularly reviews a detailed “Risk Matrix” identifying process and year end report from the Auditor, which significant strategic, investment-related, operational details the auditor’s compliance with regulatory andservice provider-related risks and ensures that risk requirements, on safeguards that have been established management and all aspects of internal control are and their own internal quality control procedures. The reviewed at least annually. Audit Committee had discussions with the audit partner on audit planning, accounting policies and audit findings, The Company’s system of internal controls is and met the audit partner both with and without substantially reliant on the Investment Manager’s and representatives of the Investment Manager present. theAdministrator’s own internal controls and internal TheChair of the Audit Committee also had informal audit processes due to the relationships in place. discussions with the audit partner during the course of Although the Board believes that it has a robust the year. The Audit Committee is satisfied with the framework of internal controls in place, this can provide effectiveness of the auditors. only reasonable and not absolute assurance against Non-audit services material financial misstatement or loss and is designed tomanage, not eliminate, risk. No significant issues were In order to help safeguard the independence and identified from the internal controls review. objectivity of the auditor, the Audit Committee maintains a policy on the engagement of the external auditor to Internal audit provide non-audit services. The Audit Committee’s The Audit Committee considered the need for an internal policy for the use of the external auditor for non-audit audit function and concluded that this function is not services recognises that there are certain circumstances required, as it is provided by the Schroders Group’s where, due to EY’s expertise and knowledge of the Internal Audit reviews, which cover the functions Company, it will often be in the best position to perform provided by the Investment Manager, Schroder Real non-audit services. Under the policy, the use of the Estate Investment Management Limited. external auditor for non-audit services is subject to pre-clearance by the Audit Committee. Clearance will In addition, the Investment Manager prepares an ISAE not be granted if it is believed it would impair the external 3402/AAF 01/06 Internal Controls Report which auditor’s independence or where provision of such includes the Company within the scope of the review. services by the Company’s auditor is prohibited. Prior to This report is reviewed by Ernst & Young LLP (“EY”) undertaking any non-audit service, EY also completes its which issued an unqualified opinion for the period ended own independence confirmation processes which are September 2022. The Audit Committee has considered approved by the audit partner. both the Investment Manager’s internal controls report and the review by EY. During the year, there were no non-audit services fees paid to EY. External Auditors’ remuneration, independence and effectiveness Stephen Bligh Annually, the Audit Committee considers the Director remuneration and independence of the external auditor. The Audit Committee recommends the remuneration of 7 June 2023 the external auditor to the Board and keeps under review the ratio of audit to non-audit fees to ensure that the independence and objectivity of the external auditor are safeguarded. ### 49 Governance ## Management Engagement Committee Report The Management Engagement Committee is responsible for: (1) the monitoring and oversight of the Investment Manager’s performance and fees, and confirming the Investment Manager’s ongoing suitability; and (2) reviewing andassessing the Company’s other service providers, including reviewing their fees. All Directors are members of theManagement Engagement Committee. Alexandra Innes is the Chair of the Management Engagement Committee. Its terms of reference are available on the Company’s webpages. Approach Oversight of the Investment Manager Oversight of other service providers The Management Engagement Committee: The Management Engagement Committee reviews the – Reviews the Investment Manager’s performance and suitability; performance and competitiveness of the Company’s service – Considers the reporting it has received from the Investment Manager providers on at least an annual basis including the Property throughout the year, and the reporting from the Investment Manager Managers, the Depositary, the Administrator in Guernsey, to shareholders; the Tax Advisor, the Corporate Broker, the Valuer, the – Assesses management fees on an absolute and relative basis, Solicitors and the Registrar. receiving input from the Company’s corporate broker, including peer The Management Engagement Committee receives group and industry figures, as well as the structure of the fees; feedback from the Audit Committee on its review of – Reviews the appropriateness of the Investment Manager’s contract, theAuditors. 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 review The annual review of service providers was satisfactory. of the Investment Manager’s performance and agreed that it has the TheManagement Engagement Committee noted that the appropriate capabilities required to allow the Company to meet its Audit Committee had undertaken a detailed evaluation of investment objective. The Management Engagement Committee also the Investment Manager, Depositary and Registrar’s reviewed the terms of the Investment Management Agreement and internalcontrols agreed they remained fit for purpose. The Management Engagement Committee reviewed the other services provided by the Investment Manager and agreed they were satisfactory. 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; and – That the Company’s service providers’ performance remained satisfactory. Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 ### 50 Overview Strategic Report Governance Financial Statements Other information (unaudited) ## Nomination Committee Report The Nomination Committee is responsible for: (1) the recruitment, selection and induction of Directors; (2) their assessment during their tenure; and (3) the Board’s succession. The Committee is chaired by Alastair Hughes, and Stephen Bligh, Alexandra Innes, and Priscilla Davies are members. Its terms of reference are available on the Company’s webpages. Approach Selection and induction Board evaluation Succession – The Nomination Committee prepares – The Nomination Committee assesses – The Board’s succession policy is that ajobspecification for each role, and each Director annually. Directors’ tenure will be for no longer anindependent recruitment firm is – Evaluation focuses on whether each than nine years, except in exceptional appointed. For the Chair and the chairs Director continues to demonstrate circumstances, and that each director ofcommittees, the Committee considers commitment to their role and provides will be subject to annual re-election current Board members too. avaluable contribution to the Board atthe AGM. – Job specification outlines the knowledge, during the year, taking into account time – The Nomination Committee reviews professional skills, personal qualities and commitment, independence, conflicts the Board’s current and future needs experience requirements. and training needs. at least annually. Should any need be – Potential candidates assessed against the – Following the evaluation, the Nomination identified the Nomination Committee Company’s diversity policy. Committee provides a recommendation will initiate the selection process. – The Nomination Committee discusses the to shareholders with respect to the – The Nomination Committee will long list, invites a number of candidates annual re-election of directors at the oversee the handover process for forinterview and makes a recommendation AGM. retiring Directors. to the Board. – All Directors retire at the AGM and their – The Nomination Committee reviews the re-election is subject to shareholder induction and training of new directors. approval. 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 | | --- | --- | --- | | resign as Chair of the Company in July | undertaken in 2023. | Committee considered the need for | | 2022. A sub-committee comprised of | – The Nomination Committee reviewed | orderly succession planning and a | | Stephen Bligh and Graham Basham | each Director’s time commitment and | suitable plan was agreed. | | considered a number of candidates for the | independence by reviewing a complete | | | role of Chair with input from independent | list of appointments, including pro bono | | | recruitment partners. Following this | not-for-profit roles, to ensure that each | | | process, Alastair Hughes, the Senior | Director remained free from conflict and | | | Independent Director, was identified as | had sufficient time available to discharge | | | themost suitable candidate. | each of their duties effectively. All | | | – The Nomination Committee identified | Directors were considered to be | | | suitable candidates for the role of Senior | independent in character and judgement. | | | Independent Director, with support from | – The Nomination Committee considered | | | independent executive search firm Russell | each Director’s contributions, and noted | | | Reynolds. Following this process, Priscilla | that in addition to extensive experience | | | Davies was recommended to be appointed | as professionals and Non-Executive | | | as a Director of the Company and Senior | Directors, each Director had valuable | | | Independent Director. | skills and experience, as detailed in their | | | – The Nomination Committee identified | biographies on pages 40 and 41. | | | suitable candidates for the role of | – Based on its assessment, the Nomination | | | independent Director, with support from | Committee provided individual | | | independent executive search firm Russell | recommendations for each Director’s | | | Reynolds. Following this process, | re-election. | | Alexandra Innes was recommended to be appointed as a director of the Company. Recommendations made to, and approved by, the Board: – That Priscilla Davies be appointed as a Non-Executive Director with effect from 7 June 2022. – That Alastair Hughes be appointed as Chair of the Company with effect from 26 July 2022. – That Alexandra Innes be appointed as a Non-Executive of the Company with effect from 16 November 2022. – That all Directors continue to demonstrate commitment to their roles, provide a valuable contribution to the deliberations of the Board, and remain free from conflicts with the Company and its Directors, so should all be recommended for re-election by shareholders at the AGM. ### 51 Governance ## Directors’ Remuneration Report Introduction The below remuneration policy is in force and is subject No Director has a service contract with the Company. to an advisory vote every three years. At the AGM held However, each of the Directors has a letter of appointment on 21 September 2022, the remuneration policy was with the Company. The Directors’ letters ofappointment, approved by shareholders, with 99.71% of votes for, which set out the terms of their appointment, are available 0.29% of votes against, and 80,570 withheld. for inspection at the Company’s registered office address during normal business hours and will be available for The below Directors’ Annual Report on Remuneration is inspection at theAGM. subject to an annual advisory vote. An ordinary resolution to approve this report will be put to shareholders at the All Directors are appointed for an initial term covering the forthcoming AGM. period from the date of their appointment until the first AGM thereafter, at which they are required to stand for At the AGM held on 21 September 2022, 99.72% of the re-election in accordance with the Articles. When votes cast (including votes cast at the Chair’s discretion) in recommending whether an individual Director should seek respect of approval of the Annual Report on Remuneration re-election, the Board will take into account the provisions of for the year ended 31 March 2022 were infavour, while the UK Corporate Governance Code, including the merits of 0.28% were against. 213,823 votes werewithheld. refreshing the Board and its Committees. The Board believes that the principles of Section D oftheUK The Board has approved a policy that all Directors will Corporate Governance Code relating to remuneration do stand for re-election annually. not apply to the Company, except asoutlined above, as the Company has no executive directors. Directors’ Remuneration Report Directors’ Remuneration Policy This Report sets out how the Directors’ remuneration policy was implemented during the year ended The Company’s Articles currently limit the aggregate fees 31 March2023. payable to the Board of Directors to a total of £250,000 per annum. Subject to this overall limit, it is theBoard’s Fees paid to Directors policy to determine the level of Directors’ fees having The following amounts were paid by the Company for regard to the fees payable to non-executive directors in services as Non-Executive Directors: the industry generally, the role that individual Directors fulfil in respect of Board and Committee responsibilities, 31 March 2023 31 March 2022 Director (£) (£) and time committed to the Company’s affairs. Alastair Hughes (Chair) 47,300 35,000 Directors receive a base fee of £35,000 per annum, 1 Stephen Bligh 37,100 35,000 andthe Chair receives £55,000 per annum. The Chair 2 Priscilla Davies 30,100 – ofthe Audit Committee, the Chair of the Management 3 | Engagement Committee and the Senior Independent | Alexandra Innes | 14,400 – | | | --- | --- | --- | --- | | Director each receive an additional fee of £5,000 | | 4 | | | | Lorraine Baldry | | 16,700 50,000 | | respectively. The fees were reviewed during the year | | 5, 3 | | | | Graham Basham | | 26,300 36,927 | toensure that they were competitive against peers with Total 171,900 156,927 advice from Russell Reynolds as part of the Board Succession process. 1 Chair of the Audit Committee. 2 Senior Independent Director. No Director past or present has any entitlement to 3 Chair of the Management Engagement Committee. pensions and the Company has not awarded any share 4 Lorraine Baldry was Chair of the Company until she retired as a director on 26 July 2022. options or long-term performance incentives to any 5 Graham Basham retired as a director on 15 November 2022. He was ofthem. No element of Directors’ remuneration is adirector of the subsidiary companies listed in note 20 for which he received no additional remuneration, either directly or indirectly. performance related. The Board did not seek the views of shareholders in Performance setting this remuneration policy. Any comments on the The performance of the Company is described on policy received from shareholders would be considered page32 in the Business Model Report. on a case-by-case basis. Directors’ fees are reviewed periodically and take into Alastair Hughes account research from third parties on the fee levels of Chair Directors of peer group companies, as well as industry norms and factors affecting the time commitment 7 June 2023 expected of the Directors. New Directors are subject Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 tothe provisions set out in this remuneration policy. ### 52 Overview Strategic Report Governance Financial Statements Other information (unaudited) ## Statement of Directors’ Responsibilities The Directors are responsible for preparing the Annual The Directors are responsible for the maintenance Report and Consolidated Financial Statements in andintegrity of the corporate and financial information accordance with applicable law and regulations. included on the Company’s website and for the preparation and dissemination of the Annual Report The Companies Law requires the Directors to prepare andConsolidated Financial Statements. the Annual Report and Consolidated Financial Statements for each financial year. Under the Companies Legislation in Guernsey governing the preparation and Law the Directors have elected to prepare the Annual dissemination of the Consolidated Financial Statements Report and Consolidated Financial Statements in may differ from legislation in other jurisdictions. accordance with International Financial Reporting Responsibility Statement of the Directors in Standards and applicable law. respect of the Annual Report The Annual Report and Consolidated Financial We confirm to the best of our knowledge: Statements are required by law to give a true and fair view of the state of affairs of the Group and of the profit – The Consolidated Financial Statements, prepared in or loss of the Group for the relevant period. accordance with International Financial Reporting Standards, give a true and fair view of the assets, In preparing the Annual Report and Consolidated liabilities, financial position and profit of the Group Financial Statements, the Directors are required to: and the undertakings included in the consolidation – Select suitable accounting policies and then apply taken as a whole and comply with the Companies them consistently; Law; and – Make judgements and estimates that are reasonable – The Strategic Report on pages 4 to 37 and and prudent; Governance Report on pages 38 to 53 include a fair – State whether applicable accounting standards have review of the development and performance of the been followed, subject to any material departures business and the position of the Group and the disclosed and explained in the financial statements; undertakings included in the consolidation taken as awhole, together with a description of the principal – Assess the Company’s ability to continue as a going risks and uncertainties it faces. The Directors concern, disclosing as applicable matters relating to consider that the Annual Report and Consolidated going concern; and Financial Statements, taken as a whole, are fair, – Use the going concern basis of preparation unless balanced and understandable and provides the they intend to either liquidate the Company or cease information necessary for shareholders to assess operations or have no realistic alternative to do so. theCompany’s position and performance, business The Directors are responsible for keeping proper model and strategy. accounting records which disclose with reasonable By order of the Board accuracy at any time the financial position of the Group and enable them to ensure that the Annual Report and Consolidated Financial Statements comply with the Alastair Hughes Companies Law. They also have general responsibility Chair fortaking such steps as are reasonably open to them to 7 June 2023 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 the Company’s Administrator and Investment Manager. The Directors 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. ### 53 Governance ## Independent Auditor’s Report to the members of ## Schroder Real Estate Investment Trust Limited Opinion We have audited the consolidated financial statements (the “Financial Statements”) of Schroder Real Estate Investment Trust Limited (the “Company”) and its subsidiaries (together the “Group”) for the year ended 31 March 2023 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows and the related notes 1 to 23, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”). In our opinion, the financial statements: – give a true and fair view of the state of the Group’s affairs as at 31 March 2023 and of its loss for the year then ended; – have been properly prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board; and – have been properly prepared in accordance with the requirements of The Companies (Guernsey) Law, 2008. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements, including the UK FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group and we remain independent of the Group in conducting the audit. Conclusions relating to going concern In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the Directors’ assessment ofthe Group’s ability to continue to adopt the going concern basis of accounting included: – obtaining an understanding of the Director’s going concern assessment process including engaging with the Investment Manager to understand the process they followed in supporting the going concern assessment prepared by the Directors; – reviewing the factors and assumptions, including the cost of delivering the Group’s sustainability strategy and the impact of external market factors, as applied to the revenue and expenses forecast which support the Directors’ assessment of going concern. We have challenged the sensitivities and assumptions used in the forecasts and determined, through testing, that the methods, inputs and assumptions utilised were appropriate to be able to make an assessment for the Group; – challenging the stress testing performed and validating the static data assumptions used by the Investment Manager by agreement to supporting documentation; – in relation to the Group’s borrowing arrangements, inspecting the Directors’ assessment of the risk of breaching the debt covenants. We recalculated the debt covenants based on the stress scenarios assessed by the Directors and reperformed reverse stress testing in order to identify what factors would lead to the Group breaching the financial covenants; – holding discussions with the Audit Committee and the Investment Manager to determine whether, in their opinion, there is any material uncertainty regarding the Group’s ability to pay liabilities and commitments as they fall due and challenging this assessment through our audit procedures in relation to the liquidity assessment; – confirmed whether any subsequent events identified are adjusting or non-adjusting post balance sheet events and ensured the requisite disclosures are 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 IFRS. Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 ### 54 Overview Strategic Report Governance Financial Statements Other information (unaudited) Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group’s ability to continue as a going concern for the period to 30 June 2024 from when the financial statements are authorised for issue. In relation to the Group’s reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the Directors’ statement in the financial statements about whether the Directors considered it appropriate to adopt the going concern basis of accounting. Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s ability to continue as a going concern. Overview of our audit approach Audit scope – We have audited the financial statements of the Group for the year ended 31 March 2023. 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 – Overall Group materiality of £3.0m which represents 1% of equity. An overview of the scope of our audit Tailoring the scope Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for the Group. This enables us to form an opinion on the financial statements. We take into account size, risk profile, the organisation of the Group and effectiveness of controls, changes in the business environment and the potential impact of climate change when assessing the level of work to be performed. All audit work was performed directly by the Group audit team which includes our real estate valuation specialists. Changes from the prior year There have been no significant changes in scope from the prior year audit. Climate change Stakeholders are increasingly interested in how climate change will impact the Group. The Group has determined thatthemost significant future impacts from climate change are explained on page 95 in the Task Force for Climate related Financial Disclosures and on page 35 in the principal risks and uncertainties. They have also explained their climate commitments on page 24. All of these disclosures form part of the “Other information (unaudited)”, rather thanthe audited financial statements. Our procedures on these unaudited disclosures therefore consisted solely ofconsidering whether they are materially inconsistent with the financial statements, or our knowledge obtained inthecourse of the audit, or otherwise appear to be materially misstated, in line with our responsibilities on “Other information (unaudited)”. In planning and performing our audit we assessed the potential impacts of climate change on the Group’s business andany consequential material impact on its Financial Statements. The Group has explained in note 1 and 10 how they have reflected the impact of climate change in the financial statements. Our audit effort in considering the impact of climate change on the financial statements was focused on the adequacy of the disclosures in the Financial Statements and the conclusion that there was no further impact of climate change to be taken into account as the investment properties are valued at fair value based on open market valuations as described in note 10. The open market valuation assessment includes consideration of environmental matters and the condition of each property with detail on the fair value of properties provided within the notes to the financial statements. As part of this evaluation, we performed our own risk assessment to determine the risks of material misstatement in the financial statements from climate change which needed to be considered in our audit. We also challenged the Directors’ considerations of climate change risks in their assessment of going concern and viability and associated disclosures. Where considerations of climate change were relevant to our assessment of goingconcern, these are described above. ### 55 Governance ## Independent Auditor’s Report to the members of ## Schroder Real Estate Investment Trust Limited continued Based on our work we have considered the impact of climate change on the financial statements to be a key audit matter or to impact certain key audit matters. Details of our procedures and findings are included in our explanation ofkey audit matters below. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters. Key observations communicated to | Risk Our response to the risk | | | theAudit Committee | | --- | --- | --- | --- | | Risk of misstatement in the fair | We have performed the following procedures: | | Based on the work | | value of directly or indirectly held | – obtained an understanding of the process and controls | | performed we have | | investment property portfolio | | surrounding property valuation by performing our walkthrough | no matters to report | | Refer to the Report of the Audit | | procedures and evaluating the implementation and design | to the Audit | | Committee (page 48); | | effectiveness of controls. | Committee. | | Significant accounting policies | – assessed the independence and competence of the Group’s | | | | (page68); and | | independent valuers as required by auditing standards. | | | Note 10 of the Financial Statements | – read the valuation reports provided by the Group’s independent | | | | (pages 75 to 77) | | valuers to agree the appropriateness and suitability of the | | | The Group’s investment property | | reported values and the changes in value from the previous | | | portfolio consists of UK properties | | accounting period. | | | held directly and through joint | – performed enquiries of the Group’s independent valuers to | | | | ventures, with a combined fair | | obtain an understanding of their valuation process methods and | | | valueof £458.5m (2022:£515.2m). | | assumptions used in their analysis, including challenging them | | | The Group’s accounting policy is for | | as to the extent to which market transactions and expected | | | the fair value of the investment | | rental values take into account the impact of climate change; | | | properties to be determined by | – engaged our EY property valuation specialists to perform a | | | | independent real estate valuation | | review of a sample of property valuations (81% of the total value | | | experts, CBRE Limited (‘CBRE’) and | | (2022: 80%)) to assess whether the reported value fell within a | | | BNP Paribas Real Estate (‘BNP’) using | | range of reasonable outcomes, which included: | | recognised valuation techniques. The – validating the assumptions used by the Group’s independent fair values are based on recent real valuers in undertaking their valuation and assessment of the estate transactions with similar valuation methodologies adopted; characteristics and locations to those – challenging the key inputs and assumptions relating to of the Group’s assets. The Group’s equivalent yield and rental rates with reference to published accounting policy is for the valuation market data and comparable transaction evidence through of investment properties to be market activity; and reduced by the total of the – assessing the appropriateness of market related inputs and unamortised lease incentive reasonableness of valuation methods, by comparing against balances. our own market data and understanding of the property There is a risk of incorrect valuation market. ofthe property portfolio which could – performed analytical review procedures across the portfolio of result in the Consolidated Statement investments, focusing on correlations with market data and any of Financial Position and the significant movements; Consolidated Statement of – on a sample basis, with respect to key objective inputs to the Comprehensive Income being valuation, comprising rental income and length of lease, agreed materially misstatement. the inputs to lease agreements or rent review schedules on a sample basis; – verified that the fair values derived by the Group’s independent valuers for the entire portfolio were correctly included in the consolidated financial statements; and – assessed the adequacy of the additional disclosures of estimates and valuation assumptions disclosed in the notes were made in accordance with IFRS 13 – Fair Value Measurement. Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 ### 56 Overview Strategic Report Governance Financial Statements Other information (unaudited) Key observations communicated to | Risk Our response to the risk | | | theAudit Committee | | --- | --- | --- | --- | | Risk of incomplete or inaccurate | We have performed the following procedures | | Based on the work | | rental revenue recognition and | – obtained an understanding of the process and controls for each | | performed, we have | | related year-end receivables | | revenue stream by performing our walkthrough procedures and | no matters to report | | Revenue is earned in the form of | | evaluating the implementation and design effectiveness of | to the Audit | | rental income from the investment | | controls; | Committee. | | properties and is recognised on an | – performed substantive analytical review procedures over rental | | | | accrual basis. During the year, the | | revenue for each property. We formed an expectation of the | | | Group recognised £25.2m of rental | | rental income for each property, and compared this | | | income (2022: £23.9m) and rent | | expectation to the actual revenue recognised during the year; | | | receivable of £3.9m (2022:£4.5m). | – agreed a sample of rental rates to tenancy agreements and | | | recalculated rental revenue earned by the property for the There is a risk of incomplete or period; inaccurate rental revenue recognition – recalculated a sample of lease incentives based on the terms and related year-end receivables within the lease agreement to assess the appropriateness of the through failure to recognise proper amount recorded; including, on a sample basis, verifying lease income entitlements or to apply the modifications through agreement of the updated terms to appropriate accounting treatment. amended and restated lease agreements and performing an The recoverability of year-end independent assessment as to whether they have been receivable is based on a number of appropriately treated in accordance with IFRS 16 – Leases judgments and estimates. (‘IFRS 16’); – reviewed the report prepared by Schroder Real Estate Investment Management Limited (the “Asset Manager”) assessing the recoverability of the overdue rent receivables, and challenged the judgments involved. For a sample of tenants, we have inspected the cash receipt subsequent to theyear-end date; and – tested a sample of rental revenue journals to identify unauthorised or inappropriate journals to address the risk of management override. 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 judgment. 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 £3.0m (2022: £3.7m), which is 1% (2022: 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 2023 and adjusted ouraudit procedures accordingly. ### 57 Governance ## Independent Auditor’s Report to the members of ## Schroder Real Estate Investment Trust Limited continued 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% (2022: 75%) of our planning materiality, namely £2.3m (2022:£2.8m). 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 £0.15m (2022: £0.19m), 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 4 to 53 and pages 88 to 124, 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. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, weare required to report that fact. We have nothing to report in this regard. 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 – the financial statements are not in agreement with the Company’s accounting records and returns; or – we have not received all the information and explanations we require for our audit. Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 ### 58 Overview Strategic Report Governance Financial Statements Other information (unaudited) Corporate Governance Statement We have reviewed the Directors’ statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement relating to the Group’s compliance with the provisions of the UK Corporate Governance Code specified for our review by the Listing Rules. 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 materially consistent with the financial statements or our knowledge obtained during the audit: – Directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material uncertainties identified set out on page 37; – Directors’ explanation as to its assessment of the Group’s prospects, the period this assessment covers and why the period is appropriate set out on page 36; – Director’s statement on whether it has a reasonable expectation that the Group will be able to continue in operation and meets its liabilities set out on page 36; – Directors’ statement on fair, balanced and understandable set out on page 53; – Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page35; – The section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on page 35; and – The section describing the work of the audit committee set out on page 48. Responsibilities of Directors As explained more fully in the Statement of Directors’ Responsibilities set out on page 53, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the Group’s ability to continue as agoing concern, disclosing, as applicable, 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. ### 59 Governance ## Independent Auditor’s Report to the members of ## Schroder Real Estate Investment Trust Limited continued Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. 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 resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. The extent towhich our procedures are capable of detecting irregularities, including fraud is detailed below. However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the Group and Management. – We obtained an understanding of the legal and regulatory frameworks that are applicable to the Group and determined that the most significant are the Companies (Guernsey) Law, 2008, the UK Corporate Governance Code, The 2019 AIC Code of Corporate Governance, REIT requirements set out in part 12 of the Corporation TaxAct (CTA) 2010 (‘REIT rules’) and the Listing Rules of the UK Listing Authority; – We understood how the Group is complying with those frameworks by making enquiries of the Investment Manager, the Administrator and those charged with governance regarding: - their knowledge of any non-compliance or potential non-compliance with laws and regulations that could affect the financial statements; - the Group’s methods of enforcing and monitoring non-compliance with such policies - the Investment Manager’s process for identifying and responding to fraud risks, including programs and controls the Group has established to address risks identified by the Group, or that otherwise prevent, deter and detect fraud; and - how the Group monitors those programs and controls. – We assessed the susceptibility of the Group’s financial statements to material misstatement, including how fraud might occur by: - obtaining an understanding of entity-level controls and considering the influence of the control environment; - obtaining the Group’s assessment of fraud risks including an understanding of the nature, extent and frequency of such assessment documented in the Group’s Risk Matrix; - making inquiries with those charged with governance, the Investment Manager, the Company Secretary and Administrator as to how they exercise oversight of identifying and responding to fraud risks and the controls established to mitigate specifically those risks the entity has identified, or that otherwise help to prevent, deterand detect fraud; - making inquiries of the Investment Manager and those charged with governance regarding how they identify related parties including circumstances related to the existence of a related party with dominant influence; and - making inquiries of the Investment Manager, the Company Secretary, Administrator and those charged with governance regarding their knowledge of any actual or suspected fraud or allegations of fraudulent financial reporting affecting the Group. Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 ### 60 Overview Strategic Report Governance Financial Statements Other information (unaudited) – Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations. Our procedures involved: - Through discussion, gaining an understanding of how those charged with governance the Company Secretary and 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; - Inspected management’s specialist’s assessment of the Group’s compliance with the REIT rules. We have tested through recalculating and corroborating, to supporting information, the Group’s compliance with each of the REIT rules, including the proportion of dividend distributed in the form of property income distributions; - Inspecting correspondence with regulators; and - Obtaining relevant written representations from the Board of Directors. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Other matters we are required to address Following the recommendation from the audit committee, we were appointed by the Company on 5 November 2019 to audit the financial statements for the year ending 31 March 2020 and subsequent financial periods. The period of total uninterrupted engagement including previous renewals and reappointments is 3 years and 5months, covering the period from initial appointment to 31 March 2023. The audit opinion is consistent with the additional report to the audit committee. Use of our report This report is made solely to the Company’s members, as a body, in accordance with Section 262 of The Companies (Guernsey) Law, 2008. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Richard Geoffrey Le Tissier for and on behalf of Ernst & Young LLP Guernsey, Channel Islands 7 June 2023 ### 61 Financial Statements ## Financial ## Statements Contents 64 Consolidated Statement of Comprehensive Income 65 Consolidated Statement of Financial Position 66 Consolidated Statement of Changes inEquity 67 Consolidated Statement of Cash Flows 68 Notes to the Financial Statements Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 ### 62 Overview Strategic Report Governance Other information (unaudited)Financial Statements ### 63 Financial Statements # Consolidated Statement of Comprehensive Income | | Notes | 31/08/2023 £000 | 31/08/2022 £000 | | --- | --- | --- | --- | | Rental income | | 25,171 | 23,859 | | Other income | 3 | 58 | 558 | | Property operating expenses | 4 | (2,258) | (1,918) | | **Net rental and related income, excluding joint ventures** | | **22,971** | **22,498** | | Share of net comprehensive rental income in joint ventures | | 3,555 | 2,740 | | Net rental and related income, including joint ventures | | 26,488 | 25,238 | | **Profit on the disposal of investment property** | 10 | **1,184** | **3,165** | | **Net unrealised valuation (loss)/gain on investment property** | 10 | **(60,107)** | **66,536** | | **Expenses** | | | | | Investment management fee | 2 | (2,755) | (2,594) | | Valuers' and other professional fees | | (1,875) | (1,547) | | Administrators' fees | 2 | (71) | (82) | | Auditor's remuneration | 5 | (185) | (190) | | Directors' fees | 6 | (172) | (157) | | Other expenses | 6 | (346) | (422) | | **Total expenses** | | **(5,404)** | **(5,392)** | | **Net operating (loss)/profit before net finance costs** | | **(41,356)** | **86,807** | | Refinancing costs | 15 | (287) | - | | Finance costs | | (5,114) | (4,139) | | **Net finance costs** | | **(5,361)** | **(4,139)** | | Share of net comprehensive rental income in joint ventures | 11 | 3,555 | 2,740 | | Share of valuation (loss)/gain in joint ventures | 11 | (11,513) | 3,960 | | **(Loss)/profit before taxation** | | **(54,715)** | **89,368** | | Taxation | 7 | - | - | | **Profit and total comprehensive (loss)/income for the year attributable to the equity holders of the parent** | | **(54,715)** | **89,368** | | **Basic and diluted (loss)/earnings per share** | 8 | **(11.2p)** | **18.2p** | All items in the above statement are derived from continuing operations. The accompanying notes 1 to 23 form an integral part of the financial statements. Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 64 ## Consolidated Statement of Financial Position | | Notes | 31/05/2023 £000 | 31/05/2022 £000 | | --- | --- | --- | --- | | Investment property | 10 | 388,030 | 433,486 | | Investment in joint ventures | 11 | 72,187 | 83,700 | | **Non-current assets** | | **460,217** | **517,386** | | Trade and other receivables | 12 | 21,626 | 16,169 | | Cash and cash equivalents | 13 | 8,419 | 11,601 | | **Current assets** | | **30,045** | **27,770** | | **Total assets** | | **490,262** | **544,956** | | Issued capital and reserves | 14 | 337,790 | 408,286 | | Treasury share reserve | 14 | (37,501) | (36,103) | | **Equity** | | **300,689** | **372,183** | | Interest-bearing loans and borrowings | 15 | 176,933 | 167,791 | | Lease liability | 10 | 1,668 | 1,987 | | **Non-current liabilities** | | **178,601** | **163,778** | | Trade and other payables | 16 | 10,972 | 8,995 | | **Current liabilities** | | **10,972** | **8,995** | | **Total liabilities** | | **189,573** | **173,670** | | **Total equity and liabilities** | | **490,262** | **544,956** | | Net asset value per ordinary share | 17 | 61.8p | 75.8p | The financial statements on pages 64 to 67 were approved at a meeting of the Board of Directors held on 7 June 2023 and signed on its behalf by: **Alastair Hughes** Chair **Stephen Bligh** Director The accompanying notes 1 to 23 form an integral part of the financial statements. Overview Strategic Report Governance Financial Statements Other information (unaudited) 65 Financial Statements ## Consolidated Statement of Changes in Equity | | | Share | Treasury share | | Revenue | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | premium | | | reserve | reserve | | Total | | Notes | | £000 | | £000 | | £000 | £000 | Balance as at 31 March 2021 219, 090 (35,967) 113,721 296,844 Share buyback 17 – (136) – (136) Profit for the year – – 89, 36 8 8 9,3 68 Dividends paid 9 – – (13,893) (13,893) Balance as at 31 March 2022 219, 090 (3 6 ,1 0 3) 1 8 9,1 9 6 3 7 2 ,1 8 3 Share buyback 17 – (9 9 8) – (99 8) Loss for the year – – (54 ,7 1 5) (5 4 ,7 1 5) Dividends paid 9 – – (15,781) (15,781) Balance as at 31 March 2023 219 ,090 (3 7,1 0 1) 1 18 ,70 0 3 00,6 89 The accompanying notes 1 to 23 form an integral part of the financial statements. Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 ### 66 ## Consolidated Statement of Cash Flows | | 31/08/2023 £000 | 31/08/2022 £000 | | --- | --- | --- | | **Operating activities** | | | | (Loss)/profit for the year | (54,715) | 89,368 | | Adjustments for: | | | | Profit on the disposal of investment property | (1,184) | (3,165) | | Net valuation loss/(gain) on investment property | 60,107 | (66,536) | | Share of loss/(profit) on joint ventures | 7,998 | (6,700) | | Net finance cost | 5,361 | 4,139 | | **Operating cash generated before changes in working capital** | **17,567** | **17,106** | | (Increase)/decrease in trade and other receivables | (1,861) | 859 | | Increase in trade and other payables | 1,978 | 1,098 | | **Cash generated from operations** | **17,684** | **19,063** | | **Investing activities** | | | | Proceeds from the sale of investment property | 8,303 | 12,835 | | Acquisition of investment property | (16,058) | (19,850) | | Additions to investment property | (10,133) | (4,924) | | Additions to joint ventures | – | (820) | | Net income distributed from joint ventures | 3,638 | 2,598 | | **Cash flows used in investing activities** | **(14,250)** | **(9,961)** | | **Financing activities** | | | | Repayment of debt | – | (13,000) | | Additions to debt | 15,600 | 21,200 | | Finance costs paid | (4,479) | (3,847) | | Refinancing costs paid | (958) | – | | Dividends paid | 9 (15,781) | (13,893) | | Share buyback | (998) | (136) | | **Cash flows used in financing activities** | **(6,616)** | **(9,676)** | | **Net decrease in cash and cash equivalents for the year** | **(3,182)** | **(574)** | | **Opening cash and cash equivalents** | **11,601** | **12,175** | | **Closing cash and cash equivalents** | **13 8,419** | **11,601** | The accompanying notes 1 to 23 form an integral part of the financial statements. Overview Strategic Report Governance Financial Statements Other information (unaudited) 67 Financial Statements # Notes to the Financial Statements ## 1. Significant accounting policies Schroder Real Estate Investment Trust Limited (the "Company") is a closed-ended investment company registered in Guernsey. The consolidated financial statements of the Company for the year ended 31 March 2023 comprise the Company and its subsidiaries (together referred to as the "Group"). ### New standard and interpretations The Company is satisfied that there are no standards that are published and not yet effective that will have a material effect on the accounts. ### Statement of compliance The financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") issued by the International Accounting Standards Board (the "IASB"), and interpretations issued by the International Financial Reporting Interpretations Committee. The financial statements give a true and fair view and are in compliance with The Companies (Guernsey) Law, 2008, applicable legal and regulatory requirements and the Listing Rules of the UK Listing Authority. ### Basis of preparation The financial statements are presented in pound sterling, which is the Company's functional currency, rounded to the nearest thousand. They are prepared on the historical cost basis except that investment properties are stated at their fair value. The accounting policies have been consistently applied to the results, assets, liabilities and cash flows of the entities included in the consolidated financial statements and are consistent with those of the previous year. ### Going concern The Directors have examined significant areas of possible financial risk including liquidity (with a view to both cash held and undrawn debt facilities); the rates of both rent and service charge collections from tenants; have considered potential falls in property valuations; have reviewed cash flow forecasts; have analysed forward-looking compliance with third party debt covenants and in particular the Loan to Value covenant and interest cover ratios; and have considered the Group's ongoing tax compliance with the REIT regime. Overall, after utilising available cash, excluding the cash undrawn against the RBSI facility and uncharged properties and units in Joint Ventures, and based on the reporting period to 31 March 2023, property valuations would have to fall by 28% before the relevant Canada Life Loan to Value covenants were breached, and actual net rental income would need to fall by 61% before the interest cover covenants were breached. Furthermore, the properties charged to RBSI could fall in value by 54%, prior to the 65% LTV covenant being breached, and based on projected net rents for the quarter to March 2023, a 31% fall in net income could be sustained prior to the RBS projected interest loan cover covenant of 250% being breached. As at the financial year end the undrawn capacity of the RBSI facility was £26.7 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 £52.5 million to £75.0 million. Regarding the Canada Life loan of £129.6 million, 50% matures in 2032 and 50% matures in 2039 respectively. The Board and Investment Manager also continue to closely monitor structural changes from Covid-19, together with the ongoing changing macroeconomic and geopolitical environments, on the Group. Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 68 Overview Strategic Report Governance Financial Statements Other information (unaudited) ### 69 The Board and Investment Manager have considered the impact of climate change risk as an emerging risk as set out on page 35. In line with IFRS, investment properties are valued at fair value based on open market valuations as described in note 10. The assessment of the open market valuation includes consideration of environmental matters and the condition of each property. The investment properties continue to be monitored by the Investment Manager and key considerations include EPC ratings and their impact on the properties’ forecast compliance with forthcoming minimum energy efficiency standards. Having assessed the impact of climate change on the Group, the Directors concluded that it is not expected to have a significant impact on the Group’s going concern or viability assessment as described on pages 36 and 37. 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 2024. In addition to the matters described above, in arriving at their conclusion the Directors have also considered: – The cash balance at 2 June 2023 of £6.5 million; and – The nature and timing of the Company’s income and expenses. The Directors have satisfied themselves that the Group has adequate resources to continue in operational existence for the period to 30 June 2024. After due consideration, the Board believes it is appropriate to adopt the going concern basis in preparing the financial statements. Use of estimates and judgements The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. These estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. The most significant estimates made in preparing these financial statements relate to the carrying value of investment properties, including those within joint ventures, which are stated at fair value. The Group uses external professional valuers to determine the relevant amounts. Judgements made by management in the application of IFRS that have a significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are disclosed in note 18. Another significant estimate is the amount of expected credit losses as per IFRS 9 from rent demanded during the period which has not yet been collected. On initial recognition the Group calculates the expected credit loss for debtors based on the lifetime expected credit losses under the IFRS 9 simplified approach. Management consider aged debtors’ analyses, the strength of tenant covenants, macroeconomic factors and any rental deposits. Management has considered rental debtors on a quarterly basis and made provisions and write offs where it has been deemed that these amounts are irrecoverable. Basis of consolidation Subsidiaries The consolidated financial statements comprise the financial statements of the Company and all of its subsidiaries drawn up to 31 March each year. Subsidiaries are those entities controlled by the Company. Control exists where the investor has the following: – power over the investee; – exposure, or rights, to variable returns from its involvement with the investee; and – the ability to use its power over the entity to affect the amount of the investor’s returns. Financial Statements ## Notes to the Financial Statements continued 1. Significant accounting policies continued Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 ### 70 The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Where properties are acquired by the Group through corporate acquisitions, but the acquisition does not meet the definition of a business combination, the acquisition has been treated as an asset acquisition. Joint ventures Joint ventures are those entities over whose activities the Group has joint control, established by contractual agreement. The consolidated financial statements include the Group’s share of profit or loss of jointly controlled entities on an equity accounted basis. When the Group’s share of losses exceeds its interest in an entity, the Group’s carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or is making payments on behalf of an entity. Transactions eliminated on consolidation Intra-group balances, and any gains and losses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Gains arising from transactions with joint ventures are eliminated to the extent of the Group’s interest in the entity. Losses are eliminated in the same way as gains but only to the extent that there is no evidence of impairment. Investment property Investment property is land and buildings held to earn rental income together with the potential for capital growth. Acquisitions and disposals are recognised on the unconditional exchange of contracts. Acquisitions are initially recognised at cost, being the fair value of the consideration given, including transaction costs associated with the investment property. After initial recognition, investment properties are measured at fair value, with unrealised gains and losses recognised in the Statement of Comprehensive Income. Realised gains and losses on the disposal of properties are recognised in the Statement of Comprehensive Income in relation to carrying value. Fair value is based on the market valuations of the properties as provided by a firm of independent chartered surveyors at the reporting date. Market valuations are carried out on a quarterly basis. As disclosed in note 19, the Group leases out all owned properties on operating leases. A property held under an operating lease is classified and accounted for as an investment property where the Group holds it to earn rentals, capital appreciation, or both. Any such property leased under an operating lease is classified as an investment property and carried at fair value. Leases For any material leases for which the Group is a lessee, the leasehold interest is measured at fair value and included in investment properties with the corresponding liability being shown as a non-current liability. The fair value is calculated as the present value of the future lease payments. Financial instruments Non-derivative financial instruments Financial assets Non-derivative financial instruments comprise trade and other receivables and cash and cash equivalents. These are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition they are measured at amortised cost using the effective interest rate method less any impairment losses. The SPPI and Business model test have been met. Cash and cash equivalents Cash at bank and short-term deposits that are held to maturity are carried at cost. Cash and cash equivalents are defined as cash in hand, demand deposits and short-term, highly liquid investments readily convertible to known amounts of cash and subject to insignificant risk of changes in value. For the purposes of the Consolidated Statement of Cash Flows, cash and cash equivalents consist of cash in hand and short-term deposits at banks with an initial term of no more than three months. Overview Strategic Report Governance Financial Statements Other information (unaudited) ### 71 Financial liabilities Non-derivative financial liabilities comprise loans and borrowings and trade and other payables. Loans and borrowings Borrowings are recognised initially at fair value of the consideration received, less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the Statement of Comprehensive Income over the period of the borrowings on an effective interest basis. Trade and other payables Trade and other payables are stated at amortised cost. Share capital Ordinary shares, including treasury shares, are classified as equity. Share buyback Shares purchased are recognised on the trade date and debited to the existing treasury reserve in the Statement of Changes in Equity. Any broker’s fees relating to the share buyback are debited to other expenses. Dividends Dividends are recognised in the period in which they are paid. A final dividend will be paid following the period end. Rental income Rental income from investment properties is recognised on a straight-line basis over the term of ongoing leases and is shown gross of any UK income tax. Lease incentives are spread evenly over the lease term. Surrender premiums and dilapidations are recognised in line with individual lease agreements when cash inflows are certain. Impairment Financial assets Financial assets at amortised cost are subject to impairment. The Group’s significant financial assets that are subject to IFRS 9’s expected credit loss model are trade receivables from the leasing of investment properties. The credit risk associated with unpaid rent has increased in recent years due to macroeconomic factors and the Company has undertaken a detailed analysis over the recoverability of expected rents. Deferred income has been closely monitored and any rents deemed irrecoverable discussed by management. Non-financial assets The carrying amounts of the Group’s non-financial assets, being the investment in joint ventures, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to that asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”). An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognised in the statement of comprehensive income. Financial Statements ## Notes to the Financial Statements continued 1. Significant accounting policies continued Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 ### 72 Provisions A provision is recognised in the Consolidated Statement of Financial Position when the Group has a legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation. Finance costs Finance costs comprise interest expenses on borrowings that are recognised in the Statement of Comprehensive Income. Attributable transaction costs incurred in establishing the Group’s credit facilities are deducted from the fair value of borrowings on initial recognition and are amortised over the lifetime of the facilities through the Statement of Comprehensive Income. Finance costs are accounted for on an effective interest basis. Expenses All expenses are accounted for on an accruals basis and the Company does not capitalise overheads and operating expenses. The costs recharged to occupiers of the properties are presented net of the service charge income as management consider that the property agent acts as principal in this respect. Taxation SREIT elected to be treated as a UK real estate investment trust (“REIT”). The UK REIT rules exempt the profits of SREIT and its subsidiaries’ (the “Group”) UK property rental business from corporation tax. Gains on UK properties are also exempt from tax, provided they are not held for trading or sold in the three years after completion of development. The Group is otherwise subject to corporation tax. As a REIT, SREIT is required to pay Property Income Distributions equal to at least 90% of the Group’s exempted net income. To retain UK REIT status there are a number of conditions to be met in respect of the principal company of the Group, the Group’s qualifying activity and its balance of business. The Group continues to meet these conditions. Segmental reporting The Directors are of the opinion that the Group is engaged in a single segment of business, being property investment, and in one geographical area, the United Kingdom. There is no one tenant that represents more than 10% of group revenues. SREIM acts as advisor to the Board, who then may make management decisions following their recommendations. As such the Board of Directors are considered to be the chief operating decision maker. A set of consolidated IFRS financial information is provided to the Board on a quarterly basis. ## 2. Material agreements SREIM is the Investment Manager to the Company. The Investment Manager is entitled to a fee, together with reasonable expenses incurred in the performance of its duties. The current fee is payable monthly in arrears at one twelfth of the aggregate of 0.9% of the NAV of the Company (where NAV is less than £500 million). The Investment Management Agreement can be terminated by either party on not less than twelve months written notice or on immediate notice in the event of certain breaches of its terms or the insolvency of either party. The tiered fee structure is as follows: | NAV | Management fee percentage per annum of NAV | | --- | --- | | <£500 million | 0.9% | | £500 million–£1 billion | 0.8% | | £1 billion+ | 0.7% | The fee covers all of the appointed services of the Investment Manager and there are standard provisions for the reimbursement of expenses. Additional fees can be agreed for out-of-scope services on an ad hoc basis. The total charge to the Consolidated Statement of Comprehensive Income during the year was £2,755,000 (2022: £2,994,000). At the year end ENil (2022: ENil) was outstanding. Langham Hall (Guernsey) Limited and Langham Hall UK Depositary LLP provide Administration, Designated Manager and Depositary services to the Group respectively. Administration fees during the year were £96,000 (2022: £167,000). Schroder Investment Management Limited provides company secretarial services to the Company with an annual fee equal to £50,000. Company secretarial fees for the period 1 April 2022 to 31 March 2023 were £50,000 (2022: £50,000). ## 3. Other income | | 31/03/2023 £000 | 31/03/2022 £000 | | --- | --- | --- | | Dilapidations, surrender premiums and all other miscellaneous income | 58 | 558 | | | **58** | **558** | ## 4. Property operating expenses | | 31/03/2023 £000 | 31/03/2022 £000 | | --- | --- | --- | | Agents' fees | 133 | 124 | | Repairs and maintenance | 51 | 180 | | Advertising | 70 | 78 | | Rates | 369 | 323 | | Service charge, insurance and utilities on vacant units | 1,657 | 1,269 | | Ground rent | 68 | 95 | | Bad debt write-offs, provisions and write-backs | (90) | (100) | | | **2,258** | **1,919** | ## 5. Auditor's remuneration The total expected audit fees are £185,000 for the financial year ended 31 March 2023 (2022: £170,000). Non-audit fees of ENil (2022: £20,000). The prior year non-audit fee related to the interim review conducted for the period ended 30 September 2021. There was no interim review conducted for the period ended 30 September 2022. Overview Strategic Report Governance Financial Statements Other information (unaudited) 73 Financial Statements Notes to the Financial Statements continued 6. Other expenses | | 31/08/2022 £000 | 31/08/2022 £000 | | --- | --- | --- | | Professional fees | 285 | 356 | | Other expenses | 61 | 66 | | | **346** | **422** | Directors' fees Directors are the only officers of the Company and there are no other key personnel. The Directors' annual remuneration for services to the Group was £171,900 (2022: £157,000), as set out in the Directors' Remuneration Report on page 52. 7. Taxation | | 31/08/2022 £000 | 31/08/2022 £000 | | --- | --- | --- | | Tax expense in the year | - | - | | **Reconciliation of effective tax rate** | | | | (Loss)/profit before tax | (54,715) | 89,368 | | Effect of: | | | | Tax using the UK corporation tax rate of 19% | (10,396) | 16,980 | | Revaluation loss/(gain) not taxable | 11,420 | (12,642) | | Share of capital loss/(profit) of associates and joint ventures not taxable | 2,187 | (1,273) | | Profit on the disposal of investment property not taxable | (225) | (601) | | Loss on refinancing costs | 47 | - | | UK REIT exemption | (3,033) | (2,464) | | **Current tax expense in the year** | **-** | **-** | SREIT elected to be treated as a UK real estate investment trust ("REIT"). The UK REIT rules exempt the profits of SREIT and its subsidiaries' (the "Group") UK property rental business from corporation tax. Gains on UK properties are also exempt from tax, provided they are not held for trading or sold in the three years after completion of development. The Group is otherwise subject to corporation tax. As a REIT, SREIT is required to pay Property Income Distributions equal to at least 90% of the Group's exempted net income. To retain UK REIT status there are a number of conditions to be met in respect of the principal company of the Group, the Group's qualifying activity and its balance of business. The Group continues to meet these conditions. 8. Basic and diluted earnings per share The basic and diluted earnings per share for the Group are based on the loss for the year of £54,715,000 (2022: profit of £89,368,000) and the weighted average number of ordinary shares in issue during the year of 489,951,223 (2022: 491,085,850). Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 74 ## 9. Dividends paid | In respect of: | Ordinary shares | Rate (pence) | 31/03/2023 £000 | | --- | --- | --- | --- | | Q/e 31 March 2022 (dividend paid 30 June 2022) | 491.08 million | 0.795 | 3,904 | | Q/e 30 June 2022 (dividend paid 19 August 2022) | 491.02 million | 0.803 | 3,943 | | Q/e 30 Sept 2022 (dividend paid 9 December 2022) | 489.11 million | 0.803 | 3,928 | | Q/e 31 Dec 2022 (dividend paid 7 March 2023) | 489.11 million | 0.819 | 4,006 | | | | **3.220** | **15,781** | | In respect of: | Ordinary shares | Rate (pence) | 31/03/2023 £000 | | --- | --- | --- | --- | | Q/e 31 March 2021 (dividend paid 25 June 2021) | 491.08 million | 0.655 | 3,222 | | Q/e 30 June 2021 (dividend paid 13 August 2021) | 491.08 million | 0.675 | 3,315 | | Q/e 30 Sept 2021 (dividend paid 17 December 2021) | 491.08 million | 0.725 | 3,565 | | Q/e 30 Dec 2021 (dividend paid 25 March 2022) | 491.08 million | 0.772 | 3,791 | | | | **2.829** | **13,893** | A dividend for the quarter ended 31 March 2023 of 0.836 pence per share was approved and will be paid on the 30 June 2023. ## 10. Investment property | | Leasehold £000 | Freehold £000 | Total £000 | | --- | --- | --- | --- | | **Fair value as at 31 March 2021** | **36,376** | **315,400** | **351,776** | | Additions | 118 | 3,659 | 3,787 | | Acquisition costs | – | 1,138 | 1,138 | | Acquisitions | – | 19,850 | 19,850 | | Disposal of asset held at fair value | – | (9,600) | (9,600) | | Fair value leasehold movement | (1) | – | (1) | | Net unrealised valuation gain on investment property | 3,300 | 63,236 | 66,536 | | **Fair value as at 31 March 2022** | **39,793** | **393,693** | **433,486** | | Additions | 32 | 10,101 | 10,133 | | Acquisitions | – | 16,058 | 16,058 | | Disposal of assets held at fair value | – | (12,405) | (12,405) | | Gain on the sale of assets | – | 1,184 | 1,184 | | Fair value leasehold movement | (319) | – | (319) | | Net unrealised valuation loss on investment property | (4,093) | (56,014) | (60,107) | | **Fair value as at 31 March 2023** | **35,413** | **352,617** | **388,030** | The balance above includes: | | Leasehold £000 | Freehold £000 | Total £000 | | --- | --- | --- | --- | | Investment property | 37,806 | 393,693 | 431,499 | | Fair value leasehold adjustment | 1,987 | – | 1,987 | | **Fair value as at 31 March 2022** | **39,793** | **393,693** | **433,486** | | | | | | | | Leasehold £000 | Freehold £000 | Total £000 | | Investment property | 33,745 | 352,617 | 386,362 | | Fair value leasehold adjustment | 1,668 | – | 1,668 | | **Fair value as at 31 March 2023** | **35,413** | **352,617** | **388,030** | Overview Strategic Report Governance Financial Statements Other information (unaudited) 75 Financial Statements # Notes to the Financial Statements continued # 10. Investment property continued The fair value of investment properties, as determined by the valuer as at 31 March 2023, totals £398,560,000 (March 2022: £440,100,000). Of this total valuation, £4,000,000 relates to an unconditional exchange of contracts for Morgan Sindall House, Rugby which is included within trade and other receivables and which is due to complete to be sold in June 2023. In addition to this, £8,198,000 (2022: £8,602,000) relating to lease incentives is included within trade and other receivables. The fair value of investment property has been determined by CBRE, a firm of independent chartered surveyors, who are registered independent appraisers (note 18). The valuation has been undertaken in accordance with the current RICS Valuation – Global Standards, which incorporate the International Valuation Standards, issued by the Royal Institution of Chartered Surveyors (the “Red Book”). CBRE replaced previous valuers Knight Frank with effect from March 2023 (see page 9 for further detail). The properties have been valued on the basis of “Fair Value” in accordance with the RICS Valuation – Professional Standards VPS4(71) Fair Value and VPGA1 Valuations for Inclusion in Financial Statements which adopt the definition of Fair Value used by the International Accounting Standards Board. The valuation has been undertaken using appropriate valuation methodology and the Valuer’s professional judgement. The Valuer’s opinion of Fair Value was primarily derived using recent comparable market transactions on arm’s length terms, where available, and appropriate valuation techniques (The Investment Method). The properties have been valued individually and not as part of a portfolio. As highlighted within the Group’s investment management strategy on page 11, developments and refurbishments form a key element of the Groups commitment to sustainability. During the year the Group has spent £10.1 million on capital expenditure. This sum included both capital works which enhanced the environmental performance of the assets amongst other key strategies. The primary focus has been on optimising earnings across the existing portfolio through an extensive asset management and targeted capital expenditure programme, targeting growth areas and sustainability improvements. All investment properties are categorised as Level 3 fair values as they use significant unobservable inputs. There have not been any transfers between Levels during the year. Investment properties have been classed according to their real estate sector. Information on these significant unobservable inputs per class of investment property is disclosed below: # Quantitative information about fair value measurement using unobservable inputs (Level 3) as at 31 March 2023 | 31 March 2023 | | Industrial^{1} | Retail (incl. retail warehouses) | Office | Other | Total | | --- | --- | --- | --- | --- | --- | --- | | Fair value (£000) | | 220,110 | 85,850 | 72,950 | 19,650 | 398,560 | | Area (1000 sq ft) | | 2,396 | 448 | 424 | 198 | 3,466 | | Net passing rent per sq ft per annum | Range | £2.36–£14.00 | £2.99–£70.39 | £10.50–£26.14 | £1.05–£26.70 | £0–£32.85 | | | Weighted average | £4.84 | £14.06 | £12.87 | £8.96 | £7.22 | | Gross ERV per sq ft per annum | Range | £2.50–£17.50 | £4.00–£80.56 | £8.47–£27.00 | £2.10–£13.00 | £3.50–£32.85 | | | Weighted average | £6.88 | £15.35 | £18.57 | £7.98 | £9.51 | | Net initial yield^{1} | Range | 3.00%–13.12% | 3.68%–21.60% | 4.90%–13.35% | 6.00%–10.82% | 3.00%–21.6% | | | Weighted average | 4.87% | 6.71% | 6.6% | 8.06% | 5.70% | | Equivalent yield | Range | 5.35%–10% | 5.50%–14.00% | 7.25%–13.00% | 6.04%–11.35% | 5.35%–14.00% | | | Weighted average | 6.53% | 7.33% | 9.38% | 8.82% | 7.51% | Notes: $^{1}$ Yields based on rents receivable after deduction of fixed rents but gross of non-recoverables. Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 76 # **Quantitative information about fair value measurement using unobservable inputs (Level 3) as at 31 March 2022** | 31 March 2022 | Industrial | Retail (incl. retail warehouse) | Office | Other | Total | | --- | --- | --- | --- | --- | --- | | Fair value (£'000) | 248,950 | 97,450 | 75,450 | 18,250 | 440,100 | | Area (1000 sq ft) | 2,338 | 499 | 369 | 177 | 3,383 | | Net passing rent per sq ft per annum | | | | | | | Range | £0–£14.00 | £0–£32.85 | £0–£29.10 | £1.00–£13.00 | £0–£14.00 | | Weighted average | £4.93 | £12.77 | £16.49 | | £4.93 | | Gross ERV per sq ft per annum | | | | | | | Range | £2.50–£14.00 | £7.40–£29.83 | £10–£27.50 | £2.10–£13.00 | £2.10–£29.83 | | Weighted average | £5.93 | £13.86 | £17.80 | £7.91 | £8.50 | | Net initial yield^{1} | | | | | | | Range | 3.29%–7.25% | 0%–9.26% | 4.33%–12.80% | 4.75%–8.55% | 3.29%–7.25% | | Weighted average | 4.34% | 6.12% | 7.56% | | 4.34% | | Equivalent yield | | | | | | | Range | 4.20%–7.76% | 4.99%–9.97% | 5.79%–9.36% | 4.75%–9.21% | 4.20%–7.76% | | Weighted average | 5.17% | 6.37% | 7.50% | | 5.17% | Notes: 1. Yields based on rents receivable after deduction of head rents but gross of non-recoverables # **Sensitivity of measurement to variations in the significant unobservable inputs** The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy of the Group's property portfolio, together with the impact of significant movements in these inputs on the fair value measurement, are shown below: | Unobservable input | Impact on fair value measurement of significant increase in input | Impact on fair value measurement of significant decrease in input | | --- | --- | --- | | Passing rent | Increase | Decrease | | Gross ERV | Increase | Decrease | | Net initial yield | Decrease | Increase | | Equivalent yield | Decrease | Increase | There are interrelationships between the yields and rental values as they are partially determined by market rate conditions. The sensitivity of the valuation to changes in the most significant inputs per class of investment property are shown below: | Estimated movement in fair value of investment properties at 31 March 2022 | Industrial £000 | Retail £000 | Office £000 | Other £000 | All sectors £000 | | --- | --- | --- | --- | --- | --- | | Increase in ERV by 5% | 9,852 | 3,280 | 3,039 | 161 | 16,332 | | Decrease in ERV by 5% | (9,764) | (3,018) | (3,195) | (161) | (18,138) | | Increase in net initial yield by 0.25% | (8,774) | (3,119) | (2,263) | (827) | (14,783) | | Decrease in net initial yield by 0.25% | 9,678 | 3,374 | 2,717 | 673 | 16,442 | | Estimated movement in fair value of investment properties at 31 March 2022 | Industrial £000 | Retail £000 | Office £000 | Other £000 | All sectors £000 | | --- | --- | --- | --- | --- | --- | | Increase in ERV by 5% | 11,260 | 3,307 | 3,378 | 605 | 18,530 | | Decrease in ERV by 5% | (11,372) | (3,462) | (3,609) | (416) | (18,859) | | Increase in net initial yield by 0.25% | (13,574) | (3,825) | (2,416) | (645) | (20,460) | | Decrease in net initial yield by 0.25% | 16,236 | 4,152 | 2,582 | 694 | 22,664 | Overview Strategic Report Governance Financial Statements Other information (unaudited) 77 Financial Statements # Notes to the Financial Statements continued # **11. Investment in joint ventures** | | 2020 | | --- | --- | | **Closing balance as at 31 March 2021** | **79,120** | | Purchase of further units in City Tower Unit Trust | 620 | | Valuation gain on joint venture | 3,960 | | **Closing balance as at 31 March 2022** | **83,700** | | Purchase of further units in City Tower Unit Trust | - | | Valuation loss on joint venture | (11,513) | | **Closing balance as at 31 March 2023** | **72,187** | | | 31/03/2022 £000 | 31/03/2022 £000 | | --- | --- | --- | | **Summarised joint venture financial information not adjusted for the Group's share – City Tower Unit Trust** | | | | Investment properties | 130,100 | 103,450 | | Other assets | 3,779 | 4,489 | | Total liabilities^{1} | (2,070) | (3,120) | | Revenues for the year | 9,025 | 9,369 | | Total comprehensive rental income | 7,570 | 4,219 | | Net asset value attributable to the Group | 34,452 | 41,204 | | **Total comprehensive income attributable to the Group** | **1,893** | **1,083** | | | 31/03/2022 £000 | 31/03/2022 £000 | | --- | --- | --- | | **Summarised joint venture financial information not adjusted for the Group's share – Store Street Unit Trust** | | | | Investment properties | 75,550 | 85,000 | | Other assets | 446 | 691 | | Total liabilities^{1} | (527) | (699) | | Revenues for the year | 3,700 | 3,728 | | Total comprehensive rental income | 3,242 | 3,291 | | Net asset value attributable to Group | 37,735 | 42,496 | | **Total comprehensive income attributable to the Group** | **1,621** | **1,657** | $^{1}$ Liabilities are non-recourse to the Group. The Company owns 25% of City Tower Unit Trust and 50% of Store Unit Trust. The remaining units in the City Tower and Store Unit Trusts are owned by other Schroders' funds. The fair value of investment property owned by the two Joint Ventures has been determined by BNP Paribas Real Estate, who are registered independent appraisers. The two valuations were undertaken on the same basis as that described under note 10, Investment Property. # **12. Trade and other receivables** | | 31/03/2022 £000 | 31/03/2022 £000 | | --- | --- | --- | | Rent receivable | 3,578 | 3,608 | | Other debtors and prepayments | 14,048 | 12,561 | | Other capital debtors | 4,000 | - | | | **21,626** | **16,169** | Other debtors and prepayments includes £8,198,000 (2022: £8,602,000) in respect of lease incentives. Other capital debtors relates to the sale proceeds receivable of £4,000,000 for the post period completion of Rugby, Morgan Sindall House which unconditionally exchanged for sale in March 2023 and is due to complete on 23 June 2023. As at 31 March 2023 total bad debt provisions of £0.4 million (2022: £0.9 million) had been recognised against rental debtors of £3.3 million (2022: £3.8 million) net of VAT. Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 78 ### 13. Cash and cash equivalents As at 31 March 2023 the Group held £8.4 million (2022: £11.6 million) in cash. ### 14. Issued capital and reserves #### Stated capital The share capital of the Company is represented by an unlimited number of ordinary shares of no par value. As at the date of this Report, the Company has 565,664,749 ordinary shares in issue (2022: 565,664,749) of which 76,554,173 Ordinary shares are held in treasury (2022: 74,584,448). The total number of voting rights of the Company was 489,110,576 (2022: 491,080,301) as at the financial year end. #### Treasury capital 76,554,173 (2022: 74,584,448) ordinary shares, which represent 13.5% (2022: 13.2%) of the Company's total issued share capital, were held in treasury as at the financial year end. #### Revenue reserve This reserve represents an accumulated amount of the Group's prior earnings net of dividends. ### 15. Interest-bearing loans and borrowings This note provides information about the contractual terms of the Group's interest-bearing loans and borrowings. For more information about the Group's exposure to interest rate risk, see note 18. | | 31/03/2023 £000 | 31/03/2022 £000 | | --- | --- | --- | | **Non-current liabilities** | | | | Loan facilities | 177,885 | 162,252 | | Unamortised arrangement fees | (962) | (461) | | | **176,933** | **161,791** | The Group has in place a £129.6 million loan facility with Canada Life. This has been in place since 16 April 2013 and has been refinanced several times, most recently in October 2019. The loan is split into two equal tranches of £64.8 million as follows: - Facility A matures in October 2032 and attracts an interest rate of 2.36%; and - Facility B matures in October 2039 and attracts an interest rate of 2.62%. As at the April 2023 Interest Payment Date, the Canada Life interest cover ratio was 480% (2022: 650%) against a covenant of 185%; the forecast interest cover ratio was 449% (2022: 487%) against a covenant of 185%; and the Loan to Value ratio was 46.9% (2022: 40.1%) against a covenant of 65%. The Canada Life facility has a first charge of security over all the property assets in the ring-fenced security pool which at 31 March 2023 contained properties valued at £271.80 million (2022: £322.90 million). Various restraints apply during the term of the loan although the facility has been designed to provide significant operational flexibility. On 6 June 2022 the Group successfully completed a refinancing of its facility with RBSI which had been due to expire in July 2023. The new five-year term will run to June 2027 and the maximum amount able to be drawn down has subsequently increased from £52.5 million to £75.0 million. The facility carries an interest rate of a 1.65% margin plus three-month SONIA rate with a 0.64% non-utilisation fee. An interest rate cap for £30.5 million of the loan has been entered into and this comes into effect if the three-month SONIA rate reaches 1.5% and expires in July 2023. As part of this refinancing process an amount of £247,000 previously unamortised loan fees were written off. As at the April 2023 Interest Payment Date, the RBSI projected interest cover ratio was 411% (2022: 538%) against a covenant of 250% and the Loan to Value ratio was 30% (2022: 24.0%) against a covenant of 65%. The RBSI facility has a first charge security over certain property assets which at 31 March 2023 contained properties valued at £160.8 million (2022: £136.5 million). Overview Strategic Report Governance Financial Statements Other information (unaudited) 79 Financial Statements # Notes to the Financial Statements continued # **15. Interest-bearing loans and borrowings continued** A reconciliation of financing movements for the year is presented below split in to cash and non-cash items: | | 31/05/2022 £000 | | --- | --- | | **Loan balance brought forward** | **161,791** | | Drawdown on RSSI RCF (cash) | 15,600 | | Amortised cost adjustment | (458) | | **Loan balance carried forward** | **176,933** | | | **31/05/2022 £000** | | **Loan balance brought forward** | **153,370** | | Drawdown on RSSI RCF (cash) | 21,200 | | Repayment of RSSI RCF (cash) | (13,000) | | Amortised cost adjustment | 221 | | **Loan balance carried forward** | **161,791** | # **16. Trade and other payables** | | 31/05/2022 £000 | 31/05/2022 £000 | | --- | --- | --- | | Deferred income | 5,131 | 4,123 | | Rental deposits | 1,850 | 1,744 | | Interest payable | 1,101 | 840 | | Other trade payables and accruals | 2,890 | 2,288 | | | **10,972** | **8,995** | # **17. NAV per Ordinary Share and share buyback** Between the 29 July 2022 to 15 September 2022 the Company purchased a further sum of 1,969,725 shares for a sum of £1.0 million at an average price of 50.6 pence per share. As a consequence of the buyback, the number of ordinary shares in issue fell from 491,080,301 to 489,110,576 during the reporting period. The NAV per Ordinary Share is based on the net assets of £300,689,000 (2022: £372,183,000) and 489,110,576 (2022: 491,080,301) ordinary shares in issue as at the reporting date. Schweizer Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 80 Overview Strategic Report Governance Financial Statements Other information (unaudited) ### 81 18. Financial instruments, properties and associated risks Financial risk factors The Group holds cash and liquid resources as well as having debtors and creditors that arise directly from its operations. The Group uses interest rate contracts when required to limit exposure to interest rate risks, but does not have any other derivative instruments. The main risks arising from the Group’s financial instruments and properties are market price risk, credit risk, liquidity risk and interest rate risk. The Group has no exposure to foreign currency exchange risk. The Board regularly reviews and agrees policies for managing each of these risks and these are summarised below: Market price risk Rental income and the market value for properties are generally affected by overall conditions in the economy, such as changes in gross domestic product, employment trends, inflation and changes in interest rates. Changes in gross domestic product may also impact employment levels, which in turn may impact the demand for premises. Furthermore, movements in interest rates may also affect the cost of financing for real estate companies. Both rental income and property values may also be affected by other factors specific to the real estate market such as competition from other property owners; the perceptions of prospective tenants of the attractiveness, convenience and safety of properties; the inability to collect rents because of bankruptcy or the insolvency of tenants; the periodic need to renovate, repair and re-lease space and the costs thereof; and the costs of maintenance and insurance, and increased operating costs. The Directors monitor the market value of investment properties by having independent valuations carried out quarterly by a firm of independent chartered surveyors. Note 10 sets out the sensitivity analysis on the market price risk. Concentration risk, based on industry and geography, is set out in the tables on pages 13 to 15. Included in market price risk is interest rate risk which is discussed further below. Credit risk Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Group. In the event of default by an occupational tenant, the Group will suffer a rental income shortfall and incur additional costs, including legal expenses, in maintaining, insuring and re-letting the property. The Investment Manager reviews reports prepared by Dun & Bradstreet, or other sources, to assess the credit quality of the Group’s tenants and aims to ensure there is no excessive concentration of risk and that the impact of any default by a tenant is minimised. In respect of credit risk arising from other financial assets, which comprise cash and cash equivalents, exposure to credit risk arises from default of the counterparty with a maximum exposure equal to the carrying amounts of these instruments. In order to mitigate such risks, cash is maintained with major international financial institutions with high quality credit ratings. During the year, and at the reporting date, the Group maintained a relationship with branches and subsidiaries of HSBC. HSBC has a credit rating of A- (provided by Standard and Poor). Financial Statements # Notes to the Financial Statements continued # **18. Financial instruments, properties and associated risks continued** The maximum exposure to credit risk for rent receivables at the reporting date by type of sector was: | | 31/05/2023 Carrying amount £000 | 31/05/2022 Carrying amount £000 | | --- | --- | --- | | Office | 568 | 445 | | Industrial | 2,496 | 2,080 | | Retail, leisure and other | 874 | 1,980 | | | **3,938*** | **4,505*** | Rent receivables which are past their due date were: | | 31/05/2023 Carrying amount £000 | 31/05/2022 Carrying amount £000 | | --- | --- | --- | | 0–30 days | 2,940 | 2,274 | | 31–60 days | 62 | 118 | | 61–90 days | 4 | 193 | | 91 days plus | 932 | 1,920 | | | **3,938*** | **4,505*** | \* Rental debtors gross of VAT and excluding bad debt provisions. Management has considered rental debtors on a quarterly basis and made provisions where it has been deemed that these amounts may be unrecoverable. As at 31 March 2023 total provisions of £0.36 million (2022: £0.9 million) were recognised and rental debtors are shown net of this provision in the Balance Sheet. On initial recognition the Group calculates the expected credit loss for debtors based on the lifetime expected credit losses under the IFRS 9 simplified approach. Management consider aged debtors' analyses, the strength of tenant covenants, macroeconomic factors and any rental deposits held when considering this. # **Liquidity risk** Liquidity risk is the risk that the Group will encounter difficulties in meeting obligations associated with its financial obligations. The Group's investments comprise UK commercial property. Property and property-related assets are inherently difficult to value due to the individual nature of each property. As a result, valuations are subject to substantial uncertainty. There is no assurance that the estimates resulting from the valuation process will reflect the actual sale price even where such sales occur shortly after the valuation date. Investments in property are relatively illiquid. However, the Group has tried to mitigate this risk by investing in properties that it considers to be of good quality. In certain circumstances, the terms of the Group's debt facilities entitle the lender to require early repayment and in such circumstances the Group's ability to maintain dividend levels and the net asset value could be adversely affected. The Investment Manager prepares cash flows on a rolling basis to ensure the Group can meet future liabilities as and when they fall due. The following table indicates the maturity analysis of the financial liabilities. | As at 31 March 2023 | Carrying amount £000 | Expected cash flows £000 | 6 months or less £000 | 6 months–2 years £000 | 2–5 years £000 | More than 5 years £000 | | --- | --- | --- | --- | --- | --- | --- | | **Financial liabilities** | | | | | | | | Interest-bearing loans and borrowings and interest* | 176,933 | 232,303 | 3,044 | 9,131 | 64,417 | 155,711 | | Leasehold liability | 1,668 | 11,961 | 52 | 157 | 313 | 11,439 | | Trade and other payables | 5,841 | 5,841 | 3,990 | – | – | 1,851 | | **Total financial liabilities** | **184,442** | **250,105** | **7,086** | **9,288** | **64,730** | **169,001** | Schweizer Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 82 | As at 31 March 2023 | Carrying amount £000 | Expected cash flows £000 | 6 months or less £000 | 6 months - 2 years £000 | 2-5 years £000 | More than 5 years £000 | | --- | --- | --- | --- | --- | --- | --- | | **Financial liabilities** | | | | | | | | Interest-bearing loans and borrowings and interest | 161,791 | 208,490 | 1,880 | 5,106 | 42,558 | 168,946 | | Leasehold liability | 1,987 | 11,401 | 50 | 149 | 298 | 10,904 | | Trade and other payables | 5,769 | 5,769 | 4,025 | - | - | 1,744 | | **Total financial liabilities** | **169,547** | **225,660** | **5,955** | **5,254** | **42,856** | **171,594** | * Assumes that the £48.3 million facility is repaid in 2027. #### Interest rate risk Exposure to market risk for changes in interest rates relates primarily to the Group's long-term debt obligations and to interest earned on cash balances. As interest on the Group's long-term debt obligations is payable on a fixed-rate basis, the Group is not exposed to near-term interest rate risk in relation to its Canada Life loan facility. As at 31 March 2023 the fair value of the Group's £129.6 million loan with Canada Life was £112.8 million (2022: £125.8 million). The RBSI revolving credit facility is a low margin flexible source of funding with a margin of 1.65% plus 3-month SONIA and it is considered by management that the carrying value of the loan is equal to its fair value (sum of £48.3 million drawn as at year end). A 1% increase or decrease in short-term interest rates would increase or decrease the annual income and equity by £84,000 based on the cash balance as at 31 March 2023. #### Fair values The fair values of financial assets and liabilities are not materially different from their carrying values, unless disclosed below, in the financial statements. The fair value hierarchy levels are as follows: - Level 1 – quoted prices (unadjusted) in active markets for identical assets and liabilities; - Level 2 – inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and - Level 3 – inputs for the assets or liability that are not based on observable market data (unobservable inputs). There have been no transfers between Levels 1, 2 and 3 during the year (2022: none). #### The following summarises the main methods and assumptions used in estimating the fair values of financial instruments and investment property: ##### Investment property – level 3 Fair value is based on valuations provided by an independent firm of chartered surveyors and registered appraisers. These values were determined after having taken into consideration recent market transactions for similar properties in similar locations to the investment properties held by the Group. The fair value hierarchy of investment property is level 3. See note 10 for further details. ##### Interest-bearing loans and borrowings – level 2 Fair values are based on the present value of future cash flows discounted at a market rate of interest. Issue costs are amortised over the period of the borrowings. As at 31 March 2023, the fair value of the Group's £129.6 million loan with Canada Life was £112.8 million (2022: £125.8 million). Overview Strategic Report Governance Financial Statements Other information (unaudited) 83 Financial Statements # Notes to the Financial Statements continued # 18. Financial instruments, properties and associated risks continued # Capital management The Board's policy is to maintain a strong capital base to maintain investor, creditor and market confidence and to sustain future development of the business. The objective is to ensure that it will continue as a going concern and to maximise the return to its equity shareholders through an appropriate level of gearing. The Company's capital management process ensures it meets its financial covenants in its borrowing arrangements. Breaches in meeting the financial covenants could permit the lenders to immediately accelerate the repayment of loans and borrowings. The Company monitors as part of its quarterly board meetings that it will adhere to specific leverage, interest cover and rental cover ratios. There have been no breaches in the financial covenants of any loans and borrowings during the financial year. # The Company's debt and capital structure comprises the following: | | 31/03/2023 £000 | 31/03/2022 £000 | | --- | --- | --- | | **Debt** | | | | Fixed-rate loan facility | 129,585 | 129,585 | | Floating rate loan facility* | 48,300 | 32,667 | | | 177,885 | 162,252 | | **Equity** | | | | Called-up share capital | 181,989 | 182,987 | | Reserves | 118,700 | 189,196 | | | 300,689 | 372,163 | | **Total debt and equity** | **478,574** | **534,435** | * This amount refers to the amount drawn. The total facility as at 31 March 2023 was £75.0 million (2022: £62.6 million). There were no changes in the Group's approach to capital management during the year. # 19. Operating leases The Group leases out its investment property under operating leases. At 31 March 2023 the future minimum lease receipts under non-cancellable leases are as follows: | | 31/03/2023 £000 | 31/03/2022 £000 | | --- | --- | --- | | Less than one year | 22,850 | 22,435 | | Between one and five years | 66,194 | 51,513 | | More than five years | 58,829 | 39,531 | | | **147,873** | **113,479** | The total above comprises the total contracted rent receivable as at 31 March 2023. The Group has entered into leases on its property portfolio. The commercial property leases typically have lease terms between 5 and 15 years and include clauses to enable periodic upward revision of the rental charge according to prevailing market conditions. Some leases contain options to break before the end of the lease term. Schweizer Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 84 ## 20. List of subsidiary and joint venture undertakings The companies listed below are those which were part of the Group as at 31 March 2023: | Undertaking | Category | Country of incorporation | Principal Activities | Ultimate ownership | | --- | --- | --- | --- | --- | | SREIT No.2 Limited | Subsidiary | Guernsey | Property ownership with external finance | 100% | | SREIT Holding (No.2) Limited | Subsidiary | Guernsey | Holding Company | 100% | | SREIT Holding Company Limited | Subsidiary | Guernsey | Holding Company with external finance | 100% | | SREIT Property Limited | Subsidiary | Guernsey | Property ownership | 100% | | SREIT (Portergate) Limited | Subsidiary | Guernsey | Property ownership | 100% | | SREIT (Uxbridge) Limited | Subsidiary | Guernsey | Property ownership | 100% | | SREIT (City Tower) Limited | Subsidiary | Guernsey | Joint ownership of underlying property unit trust | 100% | | SREIT (Store) Limited | Subsidiary | Guernsey | Joint ownership of underlying property unit trust | 100% | | SREIT (Bedford) Limited | Subsidiary | Guernsey | Property ownership | 100% | | City Tower Unit Trust | Joint Venture | Jersey | Property ownership | 25% | | Store Unit Trust | Joint Venture | Jersey | Property ownership | 50% | The registered addresses for all wholly-owned entities are the same as that of the parent company and can be found on page 124. The registered address for both Joint Venture entities is 47 Esplanade, St. Helier, Jersey, JE1 0BD, Channel Islands. ## 21. Related party transactions Material agreements and transactions with the Investment Manager are disclosed in note 2. Transactions with regard to joint ventures are disclosed in note 10. Transactions with the directors are shown in the directors' remuneration report. ## 22. Capital commitments As at 31 March 2023 the Group had capital commitments of £7.7 million (2022: £12.3 million). ## 23. Post balance sheet events On 6 March 2023 the Group unconditionally exchanged contracts to dispose of Morgan Sindall House, Rugby for a gross sale price of £4.0 million. Completion of the transaction will take place on 23 June 2023. On 1 June 2023 the Group completed on the acquisition of an interest rate collar for a net price payable of £0.57 million. This was to replace existing interest rate caps totalling £30.5 million with RBSI, which mature in July 2023, and which come in to effect when the three-month SONIA rate exceeds 1.5%. The new interest rate collar is also for £30.5 million of the loan and has a cap of 4.25% and a floor of 3.25% and will expire on 6 June 2027. On 1 June 2023 the RBSI RCF was converted in to a "Sustainability Linked Loan" with performance measured against KPIs, with each KPI having the potential to either reduce the margin by 1.65 basis points, increase it by 1.65 basis points or have no impact. Please see page 21 for further detail. Overview Strategic Report Governance Financial Statements Other information (unaudited) 85 Other information (unaudited) ## Other information ## (unaudited) Contents 88 EPRA Performance Measures (unaudited) 92 Alternative Performance Measures (unaudited) 93 AIFMD Disclosures (unaudited) 95 Task Force on Climate-related Financial Disclosures (“TCFD”) 98 Sustainability Performance Measures (Environmental) (unaudited) 111 Sustainability Performance Measures (Social) 113 Sustainability Performance Measures (Governance) 114 Streamlined Energy and Carbon Reporting 117 Asset list 118 Report of the Depositary to the Shareholders 119 Glossary 120 Resolutions at 2023 Annual General Meeting 122 Notice of Annual General Meeting 124 Corporate Information Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 ### 86 Overview Strategic Report Governance Financial Statements Other information (unaudited) ### 87 Other information (unaudited) ## EPRA Performance Measures (unaudited) As recommended by the European Public Real Estate Association, EPRA performance measures are disclosed in the section below. ### EPRA performance measures: summary table | | 31/03/2023 | 31/03/2022 | | --- | --- | --- | | EPRA earnings | £15,968,000 | £15,707,000 | | EPRA earnings per share | 3.3ppp | 3.2ppp | | EPRA Net Reinstatement Value | £332,178,000 | £407,317,000 | | EPRA Net Reinstatement Value per share | 67.9p | 82.9p | | EPRA Net Tangible Assets | £300,689,000 | £372,183,000 | | EPRA Net Tangible Assets per share | 61.5p | 75.8p | | EPRA Net Disposal Value | £317,448,000 | £375,933,000 | | EPRA Net Disposal Value per share | 64.9p | 76.6p | | EPRA Net Initial Yield | 5.4% | 5.0% | | EPRA 'topped-up' Net Initial Yield | 5.8% | 5.1% | | EPRA vacancy rate | 11.1% | 7.0% | | EPRA cost ratios – including direct vacancy costs | 28.0% | 30.5% | | EPRA cost ratios – excluding direct vacancy costs | 21.1% | 24.7% | | EPRA LTV | 36.0% | 28.6% | #### a. EPRA earnings and earnings per share Earnings excluding all capital components not relevant to the underlying net income performance of the Company, such as the unrealised fair value gains or losses on investment properties and any gains or losses from the sales of properties. | | 31/03/2023 £000 | 31/03/2022 £000 | | --- | --- | --- | | (Loss)/profit per IFRS income statement | (54,715) | 89,368 | | **Adjustments to calculate EPRA Earnings:** | | | | Profit on disposal of investment property | (1,184) | (3,165) | | Net valuation loss/(gain) on investment property | 60,107 | (66,536) | | Share of valuation loss/(gain) in associates and joint ventures | 11,513 | (3,960) | | Refinancing costs | 247 | – | | **EPRA earnings** | **15,968** | **15,707** | | Weighted average number of ordinary shares | 489,101,224 | 491,085,850 | | **IFRS earnings per share (pence)** | **(11.2)** | **18.2** | | **EPRA earnings per share (pence)** | **3.3** | **3.2** | #### b. EPRA Net Reinstatement Value IFRS equity attributable to shareholders adjusted to represent the value required to rebuild the entity and assumes that no selling of assets takes place. | | 31/03/2023 £000 | 31/03/2022 £000 | | --- | --- | --- | | IFRS equity attributable to shareholders | 300,689 | 372,183 | | Adjustment in respect of real estate transfer taxes and costs | 31,489 | 35,134 | | **EPRA Net Reinstatement Value** | **332,178** | **407,317** | | Shares in issue at the end of the period | 489,110,576 | 491,080,301 | | **EPRA NRV per share (pence per share)** | **67.9p** | **82.9p** | Schweizer Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 88 Overview Strategic Report Governance Financial Statements Other information (unaudited) c. EPRA Net Tangible Assets per share The IFRS equity attributable to shareholders adjusted to reflect a Company’s tangible assets and assumes that no selling of assets takes place. 31/03/2023 31/03/2022 £000 £000 IFRS equity attributable to shareholders 300,689 372,183 EPRA Net Tangible Assets 300,689 372,183 Shares in issue at the end of the year 489,110,576 491,080,301 IFRS NAV per share (pence) 61.5p 75.8p EPRA Net Tangible Assets per share (pence) 61.5p 75.8p d. EPRA Net Disposal Value per share The IFRS equity attributable to shareholders adjusted to reflect the NAV under an orderly sale of business, where any deferred tax, financial instruments and certain other adjustments are calculated to the full extent of their liability. 31/03/2023 31/03/2022 £000 £000 IFRS equity attributable to shareholders 300,689 372,183 Adjustments to calculate EPRA Net Disposal Value: The fair value of fixed-interest rate debt 16,759 3,750 EPRA Net Disposal Value 317,448 375,933 Shares in issue at the end of the year 489,110,576 491,080,301 EPRA Net Disposal Value per share (pence) 64.9p 76.6p e. EPRA Net Initial Yield Annualised rental income based on the cash rents passing at the Balance Sheet date (but adjusted as set out below), less non-recoverable property operating expenses, divided by the gross market value of the property. The EPRA “topped up” NIY is the EPRA NIY in respect of the expiration of rent free periods. 31/03/2023 31/03/2022 £000 £000 Investment property – wholly-owned 398,560 440,100 Investment property – share of joint ventures and funds 71,800 83,363 Complete property portfolio 470,360 523,463 Allowance for estimated purchasers’ costs 31,489 35,134 Gross up completed property portfolio valuation 501,849 558,597 Annualised cash passing rental income 29,292 30,085 Property outgoings (2,258) (1,919) Annualised net rents 27,034 28,166 1 Notional rent expiration of rent-free periods 2,177 340 Topped-up net annualised rent 29,211 28,506 EPRA NIY 5.4% 5.0% EPRA “topped-up” NIY 5.8% 5.1% 1 The period over which rent free periods expire is one year for 2023 (2022: 1 year). ### 89 Other information (unaudited) # EPRA Performance Measures (unaudited) continued # **f. EPRA cost ratios** Administrative and operating costs (including and excluding costs of direct vacancy) divided by gross rental income. | | 31/05/2023 £000 | 31/05/2022 £000 | | --- | --- | --- | | Administrative/operating expense line per IFRS income statement | 7,662 | 7,311 | | Share of Joint Venture expenses | 591 | 1,236 | | Less: Ground rent costs | (68) | (95) | | **Costs (including direct vacancy costs)** | **8,185** | **8,452** | | Direct vacancy costs | (2,026) | (1,592) | | **Costs (excluding direct vacancy costs)** | **6,159** | **6,860** | | Gross rental income less ground rent costs – per IFRS | 25,103 | 23,764 | | Add share of Joint Ventures (Gross Rental Income less ground rent costs) | 4,106 | 3,976 | | **Gross rental income** | **29,209** | **27,740** | | EPRA cost ratio (including direct vacancy costs) | 28.0% | 30.5% | | EPRA cost ratio (excluding direct vacancy costs) | 21.1% | 24.7% | There were no directly attributable overhead and operating costs capitalised during the year (2022: Nil). The Company does not have a policy to capitalise such expenses (as per note 1). # **g. EPRA vacancy rate** Estimated market rental value (ERV) of vacant space divided by the ERV of the whole portfolio. | | 31/05/2023 £000 | 31/05/2022 £000 | | --- | --- | --- | | Estimated rental value of vacant space | 4,192 | 2,356 | | Estimated rental value of the whole portfolio | 37,843 | 33,800 | | **EPRA vacancy rate** | **11.1%** | **7.0%** | There were no significant or distorting factors in the above. # **h. EPRA LTV** The gearing of the shareholder equity within the Company. | | 31/05/2023 £000 | 31/05/2022 £000 | | --- | --- | --- | | Borrowings from financial institutions | 177,885 | 162,252 | | Cash and cash equivalents | (8,419) | (11,601) | | Cash and cash equivalents – share of joint ventures | (302) | (889) | | **Net Debt** | **169,164** | **149,792** | | Investment properties at fair value – direct portfolio | 398,560 | 440,100 | | Investment properties at fair value – share of joint ventures | 71,800 | 83,363 | | **Total Property Value** | **470,360** | **523,463** | | **LTV** | **36.0%** | **28.6%** | Schweizer Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 90 Overview # **i. EPRA capital expenditure** In accordance with EPRA's core recommendations, the Group's capital expenditure invested in the year can be broken down as follows: | | Group (excluding Joint Ventures) £m | Joint Ventures (proportionate share) £m | Total Group £m | | --- | --- | --- | --- | | Acquisitions (including transaction costs) | 16.1 | – | 16.1 | | Developments | 9.6 | – | 9.6 | | Investment properties | | | | | – Tenant incentives | 0.3 | – | 0.3 | | – Other material non-allocated types of expenditure | 0.2 | 0.1 | 0.3 | | **Total Capital Expenditure** | **26.2** | **0.1** | **26.3** | Strategic Report Governance Financial Statements Other information (unaudited) 91 ![img-5.jpeg](img-5.jpeg) Other information (unaudited) ## Alternative Performance Measures (unaudited) The Company uses the following Alternative Performance Measures (“APMs”) in its Annual Report and Consolidated Financial Statements. The Board believes that each of the APMs provides additional useful information to the shareholders in order to assess the Company’s performance. Dividend Cover – the ratio of EPRA Earnings (page 88) to dividends paid (note 9) in the period. Dividend Yield – the dividends paid, expressed as a percentage relative to the Company’s share price. EPRA Earnings – earnings excluding all capital components not relevant to the underlying net income performance of the Company, such as the unrealised fair value gains or losses on investment properties and any gains or losses from the sales of properties. See page 90 for a reconciliation of this figure. EPRA Net Tangible Assets – the IFRS equity attributable to shareholders adjusted to reflect a Company’s tangible assets and assumes that no selling of assets takes place. EPRA Net Disposal Value – the IFRS equity attributable to shareholders adjusted to reflect the NAV under an orderly sale of business, where any deferred tax, financial instruments and certain other adjustments are calculated to the full extent of their liability. EPRA Net Reinstatement Value – the IFRS equity attributable to shareholders adjusted to represent the value required to rebuild the entity and assumes that no selling of assets takes place. Gross LT V – the value of the external loans unadjusted for unamortised arrangement costs (note 15) expressed as a percentage of the market value of property investments as at the Balance Sheet date. The market value of property investments includes joint venture investments and are as per external valuations and have not been adjusted for IFRSlease incentive debtors nor the fair value of the head lease at Luton. LTV net of cash – the value of the external loans unadjusted for unamortised arrangement costs (note 15) less cash held (note 13) expressed as a percentage of the market value of the property investments as at the Balance Sheet date. The market value of property investments includes joint venture investments and are as per external valuations and have not been adjusted for IFRS lease incentive debtors or the fair value of the head lease at Luton. Ongoing charges (including Fund expenses) – all operating costs expected to be regularly incurred and that are payable by the Company expressed as a percentage of the average quarterly NAVs of the Company for the financial period. No capital costs, including capital expenditure or acquisition/disposal fees, are included as costs. Ongoing charges (including Fund and property expenses) – all operating costs expected to be regularly incurred and that are payable by the Company expressed as a percentage of the average quarterly NAVs of the Company for the financial period. Any capital costs, including capital expenditure and acquisition/disposal fees, are excluded as costs, as well as interest costs and any other costs considered to be non-recurring. In the current period the material non-recurring costs include non-cash bad debt expenses of £0.4million. Share discount/premium – the share price of an Investment Trust is derived from buyers and sellers trading their shares on the stock market. This price is not identical to the NAV per share of the underlying assets less liabilities of the Company. If the share price is lower than the NAV per share, the shares are trading at a discount. Shares trading above the NAV per share are said to be at a premium. The discount/premium is calculated as the variance between the share price as at the Balance Sheet date and the NAV per share (page 65) expressed as a percentage. NAV total return – the return to shareholders calculated on a per share basis by adding dividends paid (note 9) in the period on a time-weighted basis to the increase or decrease in the NAV per share (page 6). Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 ### 92 Overview Strategic Report Governance Financial Statements Other information (unaudited) ## AIFMD Disclosures (unaudited) The Alternative Investment Fund Managers Directive (“AIFMD”) remuneration and leverage disclosures forSchroder Real Estate Investment Management Limited (“SREIM”) for the year to 31 December 2022 Remuneration disclosures These disclosures form part of the non-audited section of this annual report and accounts and should be read in conjunction with the Schroders plc Remuneration Report on pages 76 to 107 of the 2022 Annual Report & Accounts (available on the Group’s website – https://www.schroders.com/en/investor-relations/results-and-reports/annual- report-and-accounts-2022/), which provides more information on the activities of our Remuneration Committee and our remuneration principles and policies. The AIF Material Risk Takers (“AIF MRTs”) of SREIM are individuals whose roles within the Schroders Group can materially affect the risk of SREIM or any AIF fund that it manages. These roles are identified in line with the requirements of the AIFM Directive and guidance issued by the European Securities and Markets Authority. The Remuneration Committee of Schroders plc has established a remuneration policy to ensure the requirements ofthe AIFM Directive are met for all AIF MRTs. The Remuneration Committee and the Board of Schroders plc review remuneration strategy at least annually. The directors of SREIM are responsible for the adoption of the remuneration policy and periodically reviewing its implementation in relation to SREIM. During 2022 the Remuneration Policy was reviewed to ensure compliance with the UCITS/AIFMD remuneration requirements and no significant changes weremade. The implementation of the remuneration policy is, at least annually, subject to independent internal review for compliance with the policies and procedures for remuneration adopted by the Board of SREIM and the Remuneration Committee. The most recent review found no fundamental issues but resulted in minor recommendations relating to process documentation. The ratio of total costs to net income through the market cycle guides the total spend on remuneration each year. This is recommended by the Remuneration Committee to the Board of Schroders plc. This approach aligns remuneration with Schroders financial performance. In determining the remuneration spend each year, the underlying strength and sustainability of the business is taken into account, along with reports on risk, legal, compliance and internal audit matters from the heads of those areas. The remuneration data that follows reflects amounts paid in respect of performance during 2022. – The total amount of remuneration paid by SREIM to its staff is nil as SREIM has no employees. Employees of SREIM or other Schroders Group entities who serve as Directors of SREIM receive no additional fees in respect oftheir role on the Board of SREIM; and – The following disclosures relate to AIF MRTs of SREIM. Those AIF MRTs were employed by and provided services to other Schroders group companies and clients. In the interests of transparency, the aggregate remuneration figures that follow reflect the full remuneration for each SREIM AIF MRT. The aggregate total remuneration paid to the 73 AIF MRTs of SREIM in respect of the financial year ended 31 December 2022 is £53.67 million, of which £33.91 million was paid to senior management, £16.68 million was paid to MRTs deemed to be taking risk on behalf of SREIM or the AIF funds that it manages and £3.08 million was paid to control function MRTs. For additional qualitative information on remuneration policies and practices see www.schroders.com/rem-disclosures. ### 93 Other information (unaudited) ## AIFMD Disclosures (unaudited) continued Leverage disclosure In accordance with AIFMD the Company is required to make available to investors information in relation to leverage. Under AIFMD, leverage is any method by which the exposure of the Company is increased through the borrowing of cash or securities, leverage embedded in derivative positions or by another means. It is expressed as a ratio between the total exposure of the Company and its net asset value and is calculated in accordance with the “Gross method” and the “Commitment method” as described in the AIFMD. The Gross method represents the aggregate of all the Company’s exposures other than cash balances held in the base currency, while the Commitment method, which is calculated on a similar basis, may also take into account cash and cash equivalents, netting and hedging arrangements, as applicable. The Investment Manager has set the expected maximum leverage percentages for the Company and calculated the actual leverages as at 31 December 2022 as shown below (the Company calculates and externally reports its leverage one quarter in arrears): Actual as at Maximum limit set 31.12.2022 Gross leverage 195 158 Commitment leverage 220 161 There have been no changes to the maximum levels of leverage employed by the Company during the financial year nor any breaches of the maximum levels during the financial reporting period. Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 ### 94 Overview Strategic Report Governance Financial Statements Other information (unaudited) ## Task Force on Climate-related Financial Disclosures (“TCFD”) Task Force on Climate-related Financial Disclosures (“TCFD”) The Company reports sustainability information in accordance with EPRA Best Practice Recommendations on Sustainability Reporting (“sBPR”) 2017, Third Edition for the 12 months 1 January 2022–31 December 2022, presented with comparison against 2021. As permitted by the EPRA Sustainability Reporting Guidelines, environmental data has been developed and presented in line with the Global Real Estate Sustainability Benchmark (“GRESB”). The Task Force on Climate-related Financial Disclosure (“TCFD”) aims to mainstream reporting on climate-related risks and opportunities in organisations’ annual financial filings. Launched in 2017, the TCFD recommendations have so far been a voluntary framework. However, it became mandatory in the UK across a range of market participants ona phased timeline beginning in 2021. The TCFD recommendations are structured around four themes: Governance, Strategy, Risk Management, and Metrics and Targets. Key concepts within the framework include: – “transition” risks: arising from society’s transition to a low carbon economy (changing regulation and market expectations, new technologies etc) and; – “physical” risks: relating to the acute (storms, floods and wildfires etc) and chronic (rising sea levels, increasing heatstress etc) physical effects of a changing climate. Additional principles within TCFD include the importance of forward-looking assessment of climate-related risks andopportunities, and “scenario analysis”. Scenario analysis is a process of identifying and assessing the potential implications of a range of plausible future states under conditions of uncertainty. The recommendations note that scenario analysis for climate-related issues is a relatively new concept and that practices will evolve over time. ### 95 Other information (unaudited) ## Task Force on Climate-related Financial Disclosures (“TCFD”) ## continued In 2022, the 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, Schroder’s believes it will be important to further integrate the assessment of climate-related risks and opportunities into decision-making and reporting processes. The outcome of our review and progress towards further alignment is set out below. TCFD Recommendation Approach Governance Describe the board’s oversight The Board formally reviews the Manager’s performance, including ESG-related activity, at quarterly Board meetings. ofclimate-related risks and A more detailed review of the Manager’s approach to ESG is carried out at the annual strategy review which opportunities. includes but is not limited to (i) Fund level sustainability performance measured by both the Manager and third parties such as the Global Real Estate Sustainability Benchmark (“GRESB”); (ii) asset level analysis; (iii) a review of the Manager’s ESG policies and procedures and (iv) presentations from sustainability specialists. The Manager reviews a materiality assessment annually to identify and assess material impacts, sustainability risks and opportunities arising from our sustainability aspects alongside severity, likelihood, and ability to influence. Impacts, risks and opportunities are also identified as originating from normal, abnormal or emergency conditions. Describe management’s role 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 climate-related risks and team, supported by regular reporting to the Investment Committee. Schroders Head of Sustainability and Impact opportunities. Investing recommends the Manager’s annual Sustainability Policy and Objectives, which are reviewed and approved by the Investment Committee. The 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 Manager also prepares annual report and financial accounts for the Company, which include climate-related metricsand supports the Manager and Board’s monitoring of performance and progress towards climate-related goals and targets. During the financial year ended 31 March 2023, the Manager’s sustainability team was bolstered with the recruitment of an Energy and Carbon Lead, alongside a Climate Lead who maintains oversight of the Manager’s climate resilience programme. Engagement is a critical component of the Manager’s climate resilience programme with regular touchpoints with the Schroders Capital Sustainability & Impact working groups ensuring alignment of frameworks and approaches across the business and benefitting from this extensive pool of resource. The Manager includes ESG criteria, including climate-related risks, as part of its formal quarterly investment risk monitoring, which is overseen by Schroders Group Investment Risk function, the results of which are presented to the Company Board as part of the quarterly Board materials and discussed as necessary. Strategy Describe the climate-related risks Our investment philosophy and process is underpinned by fundamental research and an analytical approach that and opportunities the Company has considers economic, demographic and structural influences on the market. We are considering how climate change identified over the short, medium, may impact on these factors over time, as well as how government policies may enable mitigation of and adaption to and long term. climate change. Energy and carbon emissions performance of our assets is a critical climate-related strategic issue. As part of net zero carbon analysis utilising the industry standard Carbon Risk Real Estate Monitor (“CRREM”) the Manager has identified those assets which may be exposed to potential stranding risk (including Carbon Value at Risk (“cVaR”)) in the short, medium and longer term. The company continues to review asset ratings with respect to Energy Performance Certificates (“EPC”) and sustainability certifications (e.g. BREEAM) in recognition of the legislative, policy and investor landscape continuing to strengthen over time in this regard. In the short, medium and longer term, the physical effects of changing climate also present potential material financial impacts to the Company. Using a third-party physical risk database the Manager has identified the highest risks as follows: Drought, Extra-tropical cyclone, Heating degree days, Heat stress, water pollution and water stress. Describe the impact of climate- The Manager’s acquisition and asset business planning processes include consideration of climate-related issues, related risks and opportunities on and will include forward-looking assessment of asset alignment to Paris Aligned energy and carbon performance theCompany’s businesses, strategy, benchmarks, where information permits. We are also reviewing our existing processes for screening acquisitions and financial planning. and standing investments for climate-related physical risks (e.g. flooding). As part of the Net Zero Carbon project on standing investments actions identified in the asset business plans have been fed through, via the asset Impact and Sustainability Action Plans, into the forward looking decarbonisation pathways to present the impact of known interventions. Conversely this also identifies where more action is required to achieve decarbonisation goals. We recognise the need and opportunity presented by climate change to improve operational efficiency, maintenance costs and generate new income streams (e.g. onsite energy) and which all support asset values. These actions also support the Company with increasing investor expectations in relation to climate action and preparing portfolio assets for new and emerging energy efficiency regulations, increases in energy costs, carbon taxes, changing occupier preferences and valuation considerations. With respect to physical risk adaptations considerations will likely include water recycling, overheating and solar gain reduction, cooling load capacity and plant sizing, and suitable surface flooding mitigations should be reviewed moving forward. Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 ### 96 | TCPD Recommendation | Approach | | --- | --- | | Describe the resilience of the Company's strategy, taking into consideration all future climate-related scenarios, including a 2°C or lower scenario. | Since 2016, assets of the Company have been included in the Manager's UK energy consumption and carbon emission reduction targets for assets where landlord operational control is retained. As part of the Manager and Company's Net Zero Carbon commitment, during 2020, the Manager reviewed the Company's progress against the baseline even be conducted in 2021. Net Zero Carbon pathways have been developed using CRREM to present the decarbonisation requirements needed to achieve Net Zero Carbon by 2030 or sooner, aligned with a 'Paris Proof' decarbonisation trajectory to pursue efforts to limit global warming to 15°C. Further details on the Company's approach to Net Zero Carbon are presented on page 36. On physical risk, Schroders has licensed a physical risk database through a third-party provider: sheet stress, water stress, flood hazard, heating degree days and cooling degree days are presented as both current and future risk scenarios allowing for interpretation of increasing or decreasing exposure of the portfolio. These are aligned either with WDR4.5 or WDR5.5 scenarios, and range in timeframes from 2020, 2060 and 2050. Natural hazard vulnerability risks are present day assessments. Engaging tenants to collaborate to reduce building energy and carbon emissions is an increasingly important element of our sustainability and business strategy. We have given these provisions within our standard lease agreement and have developed both a Schroders Sustainable Occupier Guide and Fit Out Guides for Tenants. The Manager continues to engage with the wider sector to determine and develop best practices with regards to climate resilience. One such example being the sponsorship of the ULTC-Changa project. This aims to determine sector-level definitions and best practices in accounting for transitional risk cost implications for asset valuations, and inclusion of costs within business plan discounted cash flows. | | **Risk Management** | | | Describe the Company's processes for identifying and assessing climate-related risks. | Schroders Environmental Management System (SEMS) is certified to ISO 9001 and applies to the asset management of the Company's real estate assets. Key components of the EMS include a detailed materiality assessment of risks and opportunities, and a register to monitor existing and emerging regulatory requirements related to energy and carbon emissions. The EMS includes subscription to a third-party sustainability legal review partner which supports ongoing compliance and future resilience. The Company's processes for climate related (including transition and physical risks) risk management are as defined in the 'Strategy' section above. | | Describe the Company's processes for managing climate-related risks. | Climate-related risks are tracked and managed through ongoing monitoring (e.g. energy and greenhouse emissions trends), action plans (e.g. energy efficiency improvement measures), certification programmes (e.g. Energy Performance Certificates) and technical energy audits, impact and Sustainability Action Plans also provide and track 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 Pathway enables consideration of 'standing risk' which will also feed into our asset action plans for managed standing investments. On physical risk, the strategy is to third-party physical risk database to screen acquisitions, assess standing investment portfolios and identify required risk mitigation (i.e. enhanced defences, investment), adaptation, or transfer (i.e. revised insurance policies) strategies. During the reporting year the Manager developed an ESG Economist to help quantify the sustainability performance of its real estate assets and manage opportunities for improvement. The Company has adopted this as part of its sustainability audits programme detailed on page 31 and will seek to roll this out universally starting with mandatory adoption for all new acquisitions. | | Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the Company's overall risk management. | The Manager includes ESG criteria, including climate-related risks, as part of its formal quarterly investment risk monitoring, which is overseen by Schroders Group Investment Risk function, the results of which are presented to the Company Board as part of the quarterly Board materials and discussed as necessary. | | **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. | In the 'GPRA Sustainability Reporting Performance Measures (unaudited)' section of this report we report detailed performance trend data, intensity ratios and assessment methodologies covering energy consumption, GMS emissions, water consumption, waste generation, Energy Performance Certificate ('EPC') profiles and other sustainability certifications (e.g. BRBEAIM). The Manager's subscription to a third-party physical risk database enables the Company to quantify its exposure to physical risks at the asset and portfolio level including weighted averages based on Gross Asset Value. | | Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks. | Scope 1 and Scope 2 emissions for operational energy usage for the reporting year are disclosed in the 'GPRA Sustainability Reporting Performance Measures (unaudited)'. Scope 3 emissions are not currently presented in the 'GPRA Sustainability Reporting Performance Measures (unaudited)' interview, where available, those associated with recent energy data have been included within the Manager's operational Net Zero Carbon baseline. | | Describe the targets used by the Company to manage climate-related risks and opportunities and performance against targets. | Net Zero Carbon pathways have been developed, using the Carbon Risk-Real Estate Methodology ('CRREM') tool, to present the decarbonisation requirements needed to achieve Net Zero Carbon by 2030 or sooner, aligned with a 'Paris Proof' decarbonisation trajectory to pursue efforts to limit global warming to 15°C and include interim milestones at 2030. At portfolio level this assumes to a 2% reduction in GHG emissions to be achieved by 2030. The Company adopts the Managers target as part of Schroders PLC's BB100 commitment to source 100% of landlord electricity using renewable sources by 2020. As at 31 Dec 2022 the Company can report 76% of landlord electricity as being procured through renewable tariffs. The Company continues to measure its exposure to physical climate risks using a third-party data provider. | Overview Strategic Report Governance Financial Statements Other information (unaudited) 97 Other information (unaudited) ## Sustainability Performance Measures (Environmental) (unaudited) The Company reports sustainability information in accordance with EPRA Best Practice Recommendations on Sustainability Reporting (“sBPR”) 2017, Third Edition for the 12 months 1 January 2022–31 December 2022, presented with comparison against 2021. As permitted by the EPRA Sustainability Reporting Guidelines, environmental data has been developed and presented in line with the Global Real Estate Sustainability Benchmark (“GRESB”). The reporting boundary has been scoped to where the Company has operational control: managed properties where the Company is responsible for payment of utility invoices and/or arrangement of waste disposal contracts. “Operational control” has been selected as the reporting boundary (as opposed to “financial control” or “equity share”) as this reflects the portion of the portfolio where the Company can influence operational procedures and, ultimately, sustainability performance. The operational control approach is the most commonly applied within the industry. In 2022, 45 assets were held by the Company during the reporting year (including two sales). In total, 23 assets were within the operational control reporting boundary of the Company during the reporting year (i.e. “managed”). In 2021, there were 24 such managed assets within the portfolio. Where data coverage is less than 100%, a supporting explanation is provided within the data notes immediately below the relevant table. Energy and water consumption data is reported according to automatic meter reads, manual meter reads or invoice estimates. Where required, missing consumption data has been estimated by prorating data from other periods using recognised techniques. The proportion of data that is estimated is presented in the footnotes to the data tables. Historic consumption data has been restated where more complete and/or accurate records have become available. The Company does not contain any managed assets that consume energy from district heating or cooling sources. Therefore, the EPRA sBPR DH&C-Abs and DH&C-LfL indicators are not applicable and not presented in this report. Furthermore, the Company does not have any direct employees; it is served by the employees of the Investment Manager (Schroder Real Estate Investment Management Limited). Accordingly, the EPRA Overarching Recommendation for companies to report on the environmental impact of their own offices is not relevant/material and not presented in this report. This report has been prepared by energy and sustainability consultants, EVORA Global. The Sustainability Performance Measures have been assured in accordance with AA1000 to provide a Type 2 Moderate Assurance unqualified audit of the sustainability content within the SREIT annual report for the year ended 31 March 2023. Thefull Assurance Statement is available upon request. Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 ### 98 Overview Strategic Report Governance Financial Statements Other information (unaudited) Total energy consumption (Elec-Abs; Fuels-Abs) The table below sets out total landlord obtained energy consumption from the Company’s managed portfolio by sector. Total electricity consumption Total fuel consumption Absolute energy intensity (kWh) (kWh) (kWh/m 2 ) Sector 2021 2022 2021 2022 2021 2022 % Change | Office: Corporate: Low-Rise Office | 1,501,076 800,234 1,082,777 637,572 98 26 -74% | | | --- | --- | --- | | Coverage | | 100% 100% 100% 100% 100% 100% | | Retail: High Street | 26,707 16,992 – – 14 9 -36% | | | Coverage | | 100% 100% – – 100% 100% | (landlord-procured consumption) | Retail: Retail Centres: Warehouse | | 38,531 34,960 – – 2 2 -10% | | --- | --- | --- | | Coverage | | 100% 100% – – 100% 100% | | Mixed use: Other | 1,886,725 1,911,974 – – 101 103 2% | | | Coverage | | 100% 100% – – 100% 100% | (landlord-procured consumption) Mixed use: Office/Retail 287,802 407, 973 – 131,601 101 96 -5% Coverage 100% 100% – 100% 100% 100% (landlord-procured consumption) | Industrial: Distribution Warehouse | 1,412,447 1,401,413 1,002,455 1,075,277 0.6 0.6 3% | | | --- | --- | --- | | Coverage (landlord-procured consumption) | | 100% 100% 100% 100% 100% 100% | | Lodging, Leisure & Recreation: Other | 239,163 311,299 – – 69 75 9% | | | Coverage | | 100% 100% – – 100% 100% | (landlord-procured consumption) Office: Corporate: Mid-Rise Office 277,019 268,733 496,144 448,859 192 178 -7% Coverage 100% 100% 100% 100% 100% 100% (landlord-procured consumption) Total 5,669,470 5,153,578 2,581,376 2,293,309 Coverage 100% 100% 100% 100% (landlord-procured consumption) Total electricity, fuels and district heating 8,250,846 7,446,887 Coverage 100% 100% (landlord-procured consumption) Renewable electricity % 76% 74% Coverage 100% 100% (landlord-procured consumption) – Consumption data relates to the managed portfolio only: - Industrial: Distribution warehouse: whole building; outdoor areas; tenant space, where procured by the landlord. - Lodging, leisure & recreation: common parts; outdoor areas; tenant space, where procured by the landlord. - Mixed use office/retail: whole building - Mixed use other: whole building; common parts; tenant space, where procured by the landlord. - Office low-rise: whole building; common parts; shared services; outdoor areas; tenant space, where procured by the landlord. - Office mid-rise: shared services, tenant space, where procured by the landlord. - Retail high street: common parts, tenant space, where procured by the landlord. - Retail warehouse: outdoor areas; tenant space, where procured by the landlord. - Energy procured directly by tenants is not reported. ### 99 Other information (unaudited) ## Sustainability Performance Measures (Environmental) (unaudited) ## continued – Percentage of data estimated pro-rata across 2021 and 2022: 0.3%. – Renewable electricity (%) is calculated according to the attributes of energy supply contracts as at 31 December 2022 and only reflects renewable electricity procured under a 100% “green tariff” (i.e. where generation is from a100% renewable source). The renewables percentage of standard (non “green tariff”) energy supplies are not currently known and therefore has not been included within this number. – Intensity: Numerators/denominators are aligned at the sector level as follows: - Lodging, Leisure, & Recreation: Other, Retail: High Street & Retail: Retail Centres: Warehouse – Common areas 2 energy consumption (kWh) divided by common parts area (CPA m ) 2 - Industrial: Distribution Warehouse – External areas energy consumption (kWh) divided by the external area (m ) - All other sectors – Common areas and shared service or whole building energy consumption (kWh) divided by 2 gross internal area (GIAm ) – All energy was procured from a third-party supplier. No “self-generated” renewable energy was consumed during the reporting period and therefore is not presented here. – Coverage (landlord-procured consumption) relates to the proportion of assets for which landlord obtained data has been reported. – Where appropriate (for relevant assets), consumption data and asset NLA/GIA has been adjusted to reflect the Company’s share of ownership. Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 ### 100 ### Like for like energy consumption (Elec-LfL; Fuels-LfL; Energy-Int) The table below sets out the like-for-like landlord obtained energy consumption from the Company's managed portfolio by sector. | Sector | Total electricity consumption (kWh) | | | Total fuel consumption (kWh) | | | Like-for-like/Energy Intensity (kWh/er^{1}) | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 2021 | 2022 | % Change | 2021 | 2022 | % Change | 2021 | 2022 | % Change | | **Office: Corporate: Low-Rise Office** | 680,420 | 629,791 | -7% | 738,697 | 637,572 | -14% | 17 | 12 | -33% | | Coverage (landlord-procured consumption) | 100% | 100% | | 100% | 100% | | 100% | 100% | | | **Retail: High Street** | 18,048 | 16,992 | -6% | - | - | - | 9 | 9 | -6% | | Coverage (landlord-procured consumption) | 100% | 100% | | - | - | | 100% | 100% | | | **Retail: Retail Centres: Warehouse** | 38,531 | 34,960 | -9% | - | - | - | 2 | 2 | -10% | | Coverage (landlord-procured consumption) | 100% | 100% | | - | - | | 100% | 100% | | | **Mixed use: Other** | 1,684,664 | 1,511,976 | 13% | - | - | - | 77 | 88 | 15% | | Coverage (landlord-procured consumption) | 100% | 100% | | - | - | | 100% | 100% | | | **Mixed use: Office/Retail** | 287,802 | 273,793 | -5% | - | - | - | 101 | 96 | -3% | | Coverage (landlord-procured consumption) | 100% | 100% | | - | - | | 100% | 100% | | | **Industrial: Distribution Warehouse** | 1,410,363 | 1,394,075 | -1% | 1,002,488 | 1,074,398 | 7% | 0.4 | 0.5 | 3% | | Coverage (landlord-procured consumption) | 100% | 100% | | 100% | 100% | | 100% | 100% | | | **Lodging, Leisure & Recreation: Other** | 239,163 | 311,599 | 30% | - | - | - | 11 | 12 | 9% | | Coverage (landlord-procured consumption) | 100% | 100% | | - | - | | 100% | 100% | | | **Office: Corporate: Mid-Rise Office** | 277,019 | 268,733 | -3% | 496,144 | 448,809 | -10% | 192 | 178 | -7% | | Coverage (landlord-procured consumption) | 100% | 100% | | 100% | 100% | | 100% | 100% | | | **Total** | 4,636,009 | 4,842,117 | 4% | 2,237,297 | 2,160,790 | -3% | | | | | Coverage (landlord-procured consumption) | 100% | 100% | | 100% | 100% | | | | | | **Total electricity, fuels and district heating** | 6,873,306 | 7,002,906 | 1.9% | | | | | | | | Coverage (landlord-procured consumption) | 100% | 100% | | | | | | | | | **Renewable electricity %** | 71% | 79% | | | | | | | | - Like-for-like excludes assets that were purchased, sold, under refurbishment or subject to a significant change in the scope of reported data during the two years reported. - Consumption data relates to the manage portfolio only: - Industrial: Distribution warehouse: whole building; outdoor areas; tenant space, where procured by the landlord. - Lodging, leisure & recreation: common parts; outdoor areas; tenant space, where procured by the landlord. - Mixed use office/retail: whole building. - Mixed use other: whole building; common parts; tenant space, where procured by the landlord. - Office low-rise: whole building; common parts; shared services; outdoor areas; tenant space, where procured by the landlord. - Office mid-rise: shared services, tenant space, where procured by the landlord. - Retail high street: common parts, tenant space, where procured by the landlord. - Percentage of data estimated pro-rata across 2021 and 2022: 0.3%. Overview Strategic Report Governance Financial Statements Other information (unaudited) 101 Other information (unaudited) ## Sustainability Performance Measures (Environmental) (unaudited) ## continued – Renewable electricity (%) is calculated according to the attributes of energy supply contracts as at 31 December 2022 and only reflects renewable electricity procured under a 100% “green tariff” (i.e. where generation is from 100% renewable source). The renewables percentage of standard (non “green tariff”) energy supplies are not currently known and therefore has not been included within this number. – Intensity: Numerators/denominators are aligned at the sector level as follows: - Lodging, Leisure, & Recreation: Other, Retail: High Street & Retail: Retail Centres: Warehouse – Common areas 2 energy consumption (kWh) divided by common parts area (CPA m ) 2 - Industrial: Distribution Warehouse – External areas energy consumption (kWh) divided by the external area (m ). - All other sectors – Common areas and shared service or whole building energy consumption (kWh) divided by 2 gross internal area (GIA m ) – All energy was procured from a third-party supplier. No “self-generated” renewable energy was consumed during the reporting period and therefore is not presented here. – Coverage (landlord-procured consumption) relates to the proportion of assets for which landlord obtained data has been reported. – Where appropriate (for relevant assets), consumption data and asset NLA/GIA has been adjusted to reflect the Company’s share of ownership. – Variance Commentary: - The like-for-like variance for the Mixed use: Other shows an increase in electricity. The increase here can be explained by the single asset which comprises this sector (Manchester City Tower) having higher consumption in 2022 due to an increase in occupancy. - The like-for-like variance for Lodging, Leisure & Recreation: Other shows an increase in electricity. The increase here can be explained by the single asset which comprises this sector (Luton The Galaxy) having higher consumption in 2022 due to an increase in occupancy. Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 ### 102 Overview Strategic Report Governance Financial Statements Other information (unaudited) Greenhouse gas emissions (GHG-Dir-Abs; GHG-Indir-Abs; GHG-Int) The table below sets out the Company’s managed portfolio greenhouse gas emissions by sector. | | Absolute emissions | | | Like-for-like emissions | | | | | Like-for-like Intensity | | | | | Absolute Intensity | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | (tCO | e) | | (tCO | e) | | | | (kg tCO | e/m | 2 ) | | (kg tCO | e/m | 2 ) | | | | | | 2 | | | 2 | | | | | 2 | | | | 2 | | | | | | | | | | | | % | | | | | % | | | | % | | Sector 2021 2022 2021 2022 | | | | | | | Change 2021 2022 | | | | | Change 2021 2022 | | | | Change | | Office: Corporate: Low-Rise Office Scope 1 198 116 135 116 -14% 3.6 | Scope 2 | 319 155 144 122 -16% | 2.2 -38% 20.1 5.0 | | | --- | --- | --- | --- | | Scopes 1 & 2 | 517 271 280 238 -15% | | -75% | | Coverage | 100% 100% 100% 100% 100% 100% 100% 100% | | | (landlord-procured consumption) Retail: High Street Scope 1 – – – – – 2.0 | Scope 2 | | 6 3 4 3 -14% | 1.7 | | 3.0 1.7 | | | --- | --- | --- | --- | --- | --- | --- | | Scopes 1 & 2 | | 6 3 4 3 -14% | | -14% | | -42% | | Coverage | 100% 100% 100% 100% 100% 100% 100% 100% | | | | | | (landlord-procured consumption) Retail: Retail Centres: Warehouse | Scope 1 | | – – – – – | | | | | | --- | --- | --- | --- | --- | --- | --- | | Scope 2 | | 8 7 8 7 -17% | 0.5 0.4 | | 0.5 0.4 | | | Scopes 1 & 2 | | 8 7 8 7 -17% | | -18% | | -18% | | Coverage | 100% 100% 100% 100% 100% 100% 100% 100% | | | | | | (landlord-procured consumption) Mixed use: Other | Scope 1 | | – – – – – | | | | --- | --- | --- | --- | --- | | Scope 2 | 401 370 358 370 3% | | 16.3 1 7.1 5% 21.4 19.9 | | | Scopes 1 & 2 | 401 370 358 370 3% | | | -7% | | Coverage | 100% 100% 100% 100% 100% 100% 100% 100% | | | | (landlord-procured consumption) Mixed use: Office/Retail | Scope 1 | | – 24 – – – | | | | | | --- | --- | --- | --- | --- | --- | --- | | Scope 2 | | 61 79 61 53 -13% | 21.5 18.7 | | 21.5 18.7 | | | Scopes 1 & 2 | | 61 103 61 53 -13% | | -13% | | -13% | | Coverage | 100% 50% 100% 100% 100% 100% 100% 100% | | | | | | (landlord-procured consumption) Industrial: Distribution Warehouse | Scope 1 | 184 196 184 196 7% | | | | --- | --- | --- | --- | | Scope 2 | 300 271 299 270 -10% | 0.1 0.1 -6% 0.1 0.1 | | | Scopes 1 & 2 | 484 467 483 466 -4% | | -6% | | Coverage | 100% 100% 100% 100% 100% 100% 100% 100% | | | (landlord-procured consumption) ### 103 Other information (unaudited) ## Sustainability Performance Measures (Environmental) (unaudited) ## continued | | Absolute emissions | | | Like-for-like emissions | | | | | Like-for-like Intensity | | | | | Absolute Intensity | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | (tCO | e) | | (tCO | e) | | | | (kg tCO | e/m | 2 ) | | (kg tCO | e/m | 2 ) | | | | | | 2 | | | 2 | | | | | 2 | | | | 2 | | | | | | | | | | | | % | | | | | % | | | | % | | Sector 2021 2022 2021 2022 | | | | | | | Change 2021 2022 | | | | | Change 2021 2022 | | | | Change | | Lodging, Leisure & Recreation: Other | Scope 1 | | – – – – – 2.3 2.2 | | | | | --- | --- | --- | --- | --- | --- | | Scope 2 | | 51 60 51 60 19% | | 14.8 14.6 | | | Scopes 1 & 2 | | 51 60 51 60 19% | -1% | | -1% | | Coverage | 100% 100% 100% 100% 100% 100% 100% 100% | | | | | (landlord-procured consumption) Office: Corporate: Mid-Rise Office | Scope 1 | 91 82 91 82 -10% | | | | | | --- | --- | --- | --- | --- | --- | | Scope 2 | 59 52 59 52 -12% | 37. 2 33.3 | | 37. 2 33.3 | | | Scopes 1 & 2 | 150 134 150 134 -11% | | -11% | | -11% | | Coverage | 100% 100% 100% 100% 100% 100% 100% 100% | | | | | (landlord-procured consumption) | Total Scope 1 | 473 419 410 394 -4% | | --- | --- | | Total Scope 2 | 1,204 997 984 936 -5% | | Total Scope 1 & 2 | 1,677 1,415 1,394 1,331 -5% | | Coverage | 100% 100% 100% 100% | (landlord-procured consumption) – Like-for-like excludes assets that were purchased, sold, under refurbishment or subject to a significant change in the scope of reported data during the two years reported. – The Fund’s greenhouse gas (GHG) inventory has been developed as follows: - Scope 1 GHG emissions relate to the use of onsite natural gas. - Scope 2 GHG emissions relate to the use of electricity. – GHG emissions from electricity (Scope 2) are reported according to the “location-based” approach. – GHG emissions are presented as tonnes of carbon dioxide equivalent (tCO e) and GHG intensity is presented as 2 kilograms of carbon dioxide equivalent (kg CO e), where available greenhouse gas emissions conversion factors 2 allow. – Fuels/electricity GHG emissions factors have been taken from the UK government’s Greenhouse Gas Reporting Factors for Company Reporting (2021 and 2022). – Emissions data relates to the managed portfolio only: - Industrial: Distribution warehouse: whole building; outdoor areas; tenant space, where procured by the landlord. - Lodging, leisure & recreation: common parts; outdoor areas; tenant space, where procured by the landlord. - Mixed use office/retail: whole building. - Mixed use other: whole building; common parts; tenant space, where procured by the landlord. - Office low-rise: whole building; common parts; shared services; outdoor areas; tenant space, where procured by the landlord. - Office mid-rise: shared services. - Retail high street: common parts. - Retail warehouse: outdoor areas; tenant space, where procured by the landlord. - Emissions associated with energy procured directly by tenants is not reported. Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 ### 104 Overview Strategic Report Governance Financial Statements Other information (unaudited) – Percentage of data estimated pro-rata across 2021 and 2022: 0.3% for electricity and gas. – Intensity: Numerators/denominators are aligned at the sector level as follows: - Lodging, Leisure & Recreation: Other, Retail: High Street & Retail: Retail Centres: Warehouse – Common areas 2 GHG emissions divided by common parts area (CPA m ). - Industrial: Distribution Warehouse & Retail: Retail Centres: Warehouse – External areas GHG emissions divided by the External Area. - All other sectors: Common areas, shared service and/or whole building GHG emissions divided by gross internal 2 area (GIA m ). – Coverage (landlord-procured consumption) relates to the proportion of assets for which landlord obtained data has been reported. – Where appropriate (for relevant assets), consumption data and asset NLA/GIA has been adjusted to reflect the Company’s share of ownership – Variance Commentary: - There was a significant drop in the absolute intensity for the sector Office: Corporate: Low-Rise Office due to efficiency measures which include: a boiler replacement at lighting upgrades at Cheltenham, The Promenade but this reduction is mainly due to the asset “The Arc Nottingham” being sold at the beginning of 2022 and therefore is excluded from the 2022 analysis. - The decrease in absolute intensity for the sector Retail: High Street can be explained by a single electricity meter becoming inactive at the of 2021 and therefore consumption previously attributed to this meter is not factored into the analysis for 2022. - There was a significant 18% decrease in the like-for-like emissions for the sector Retail: Retail Centres: Warehouse. The decrease here can be explained by the fact that the electricity & fuel for the single asset which comprises this sector (St. John’s Retail Park) was lower in 2022 partly due to LED lighting upgrades. - Carbon emissions factors for electricity have reduced in 2022 in the UK which has contributed to reductions in GHG intensity. ### 105 Other information (unaudited) ## Sustainability Performance Measures (Environmental) (unaudited) ## continued Water (Water-Abs; Water-LfL; Water-Int) The table below sets out water consumption from the Company’s managed portfolio by sector. | | | Absolute | | | Like-for-like | | | | | Like-for-like | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Waterconsumption | | | Waterconsumption | | | | | | Intensity | | | | | | | (m 3 ) | | | (m | 3 ) | | | (m³/m²) | | | | | | | | | | | | | % | | | % | | Sector 2021 2022 2021 2022 | | | | | | | | Change 2021 2022 | | | Change | | | Office: Corporate: Low-Rise Office | | 7,6 52 5,793 3,448 4,029 17% 0.08 0.13 | | | | | | | | | | | 54% Coverage (landlord-procured consumption) 100% 100% 100% 100% 100% 100% Retail: High Street 2,941 2,882 2,941 2,882 -2% 0.22 0.20 -11% Coverage (landlord-procured consumption) 100% 100% 100% 100% 100% 100% Retail: Retail Centres: Warehouse 325 331 325 331 2% 0 0 0% Coverage (landlord-procured consumption) 100% 100% 100% 100% – – Mixed use: Other 1,990 3,861 1,990 3,861 94% 0.11 0.22 94% Coverage (landlord-procured consumption) 100% 100% 100% 100% 100% 100% Mixed use: Office/Retail – 2,531 – – – 0 0 – Coverage (landlord-procured consumption) – 100% – 0% – – Industrial: Distribution Warehouse – – – – – 0 0 0% | Coverage (landlord-procured consumption) | | – – – – – – | | | --- | --- | --- | --- | | Lodging, Leisure & Recreation: Other | 130 149 130 149 15% 0.01 0.01 | | 15% | | Coverage (landlord-procured consumption) | 100% 100% 100% 100% 100% 100% | | | | Office: Corporate: Mid-Rise Office | | 42 114 – – – 0 0 | 0% | | Coverage (landlord-procured consumption) | 100% 100% – 0% – – | | | | Total | 13,080 15,662 8,835 11,252 27% | | | | Coverage (landlord-procured consumption) | 100% 100% 100% 100% | | | – Like-for-like excludes assets that were purchased, sold, under refurbishment or subject to a significant change in the scope of reported data during the two years reported. – Consumption data relates to the manage portfolio only: - Industrial: Distribution warehouse: tenant space, where procured by the landlord. - Lodging, leisure & recreation: common parts. - Mixed use other: whole building; common parts. - Office low-rise: whole building; common parts; tenant space, where procured by the landlord. - Office mid-rise: tenant space, where procured by the landlord. - Retail high street: common parts; tenant space, where procured by the landlord. - Retail warehouse: tenant space, where procured by the landlord. - Water procured directly by tenants is not reported – All water was procured from a municipal supply. As far as we are aware, no surface, ground, rainwater or wastewater from another organisation was consumed during the reporting period and therefore is not presented here. – Percentage of data estimated pro-rata across both 2021 and 2022: 0.3%. – Intensity: Numerators/denominators are aligned as follows: - Office Corporate: Low-Rise Office, Mixed use: Other, Mixed use: Office/Retail & Lodging, Leisure & Recreation: | | 3 | | 2 | | | --- | --- | --- | --- | --- | | Other – Whole building water consumption (m | ) divided by gross internal area (GIA m | | ). | | | | | 3 | | 2 | | - Retail: High Street – Common Areas water consumption (m | | ) divided by Common Parts Area (CPA m | | ). | - For sectors Mixed use: Office/Retail, Industrial: Distribution Warehouse & Office: Corporate: Mid-Rise Office there was no water data available. - The sector Retail: Retail Centres: Warehouse sector is showing as 0 consumption due to insufficient data. – Coverage (landlord-procured consumption) relates to the proportion of assets for which landlord obtained data has been reported. – Where appropriate (for relevant assets), consumption data and asset NLA/GIA has been adjusted to reflect the Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 Company’s share of ownership. ### 106 Overview Strategic Report Governance Financial Statements Other information (unaudited) – Variance Commentary: - The notable increase in like-for-like water intensity for the Office: Corporate: Low-Rise Office sector can largely be attributed to the asset Northampton, Century & Peterbridge. This is due to a catch up read received from the supplier for 2022 which was not based on estimates and showed higher consumption than 2021. As consumption at this meter is minimal, year on year variances can have an outsized impact. - The notable increase in like-for-like water intensity for the Mixed use: Other sector is attributed to the asset Manchester City Tower having increased occupancy in 2022 compared to 2021. Waste (Waste-Abs; Waste-LfL) The table below sets out waste from the Company’s managed portfolio by disposal route and sector: Absolute tonnes Like-for-like tonnes 2021 2022 2021 2022 % | | Tonnes % Tonnes % Tonnes % Tonnes % | Change | | --- | --- | --- | | Recycled | 47.90 66.5% 50.50 64.6% 47.90 66.5% 50.50 64.6% 5.4% | | | Incineration | 24.12 33.5% 27.72 35.4% 24.12 33.5% 27.72 35.4% 14.9% | | with energy recovery Unknown 0 0% 0 0% 0 0% 0 0% – Office: | Corporate: Low-Rise Office | Landfill | | 0 0% 0 0% 0 0% 0 0% – | | | --- | --- | --- | --- | --- | | | Total | 72.01 78.22 72.01 78.22 8.6% | | | | | Coverage | | | 100% 100% 100% 100% | (landlord- procured consumption) Recycled 8.38 34.3% 14.04 40.8% 8.38 34.3% 14.04 40.8% 6 7.6% Incineration 16.03 65.7% 20.35 59.2% 16.03 65.7% 20.35 59.2% 27.0% with energy recovery Unknown 0 0% 0 0% 0 0% 0 0% – Retail: | High Street | Landfill | | 0 0% 0 0% 0 0% 0 0% – | | | --- | --- | --- | --- | --- | | | Total | 24.40 34.38 24.40 34.38 40.9% | | | | | Coverage | | | 100% 100% 100% 100% | (landlord- procured consumption) Recycled 0 – 0 0% 0 – 0 – – Incineration 0 – 1.82 100% 0 – 0 – – with energy recovery Unknown 0 – 0 0% 0 – 0 – – Retail: Retail Centres: | Warehouse | Landfill | 0 – 0 0% 0 – 0 – – | | | --- | --- | --- | --- | | | Total | 0 1.82 0 0 – | | | | Coverage | | – 100% – – | (landlord- procured consumption) ### 107 Other information (unaudited) ## Sustainability Performance Measures (Environmental) (unaudited) ## continued Absolute tonnes Like-for-like tonnes 2021 2022 2021 2022 % | | Tonnes % Tonnes % Tonnes % Tonnes % | Change | | --- | --- | --- | | Recycled | 169.90 55.6% 168.95 55.6% 169.90 55.6% 168.95 55.6% -0.6% | | | Incineration | 135.82 44.4% 135.06 44.4% 135.82 44.4% 135.06 44.4% -0.6% | | with energy recovery Unknown 0 0% 0 0% 0 0% 0 0% – Mixed use: | Other | Landfill | | 0 0% 0 0% 0 0% 0 0% – | | | --- | --- | --- | --- | --- | | | Total | 305.72 304.01 305.72 304.01 -0.6% | | | | | Coverage | | | 100% 100% 100% 100% | (landlord- procured consumption) Recycled 4.60 41.4% 10.40 36.0% 4.60 41.4% 2.40 22.0% -47.8% Incineration 6.50 58.6% 18.50 64.0% 6.50 58.6% 8.50 78.0% 30.8% with energy recovery Unknown 0 0% 0 0% 0 0% 0 0% – Mixed use: | Office/Retail | Landfill | | 0 0% 0 0% 0 0% 0 0% – | | | --- | --- | --- | --- | --- | | | Total | 11.10 28.90 11.10 10.90 -1.8% | | | | | Coverage | | | 100% 100% 100% 100% | (landlord- procured consumption) Recycled 0 – 0 – 0 – 0 – – Incineration 0 – 0 – 0 – 0 – – with energy recovery Unknown 0 – 0 – 0 – 0 – – Industrial: | Distribution Warehouse | Landfill | 0 – 0 – 0 – 0 – – | | | --- | --- | --- | --- | | | Total | 0 0 0 0 – | | | | Coverage | | 0 0 0 0 | (landlord- procured consumption) Recycled 128.19 52.4% 250.28 53.5% 128.19 52.4% 250.28 53.5% 95.2% Incineration 116.35 47.6% 217.84 46.5% 116.35 47.6% 217.84 46.5% 87. 2% with energy recovery Unknown 0 0% 0 0% 0 0% 0 0% – Lodging, Leisure & Recreation: | Other | Landfill | | 0 0% 0 0% 0 0% 0 0% – | | | --- | --- | --- | --- | --- | | | Total | 244.54 468.12 244.54 468.12 91.4% | | | | | Coverage | | | 100% 100% 100% 100% | (landlord- procured consumption) Recycled 20.93 69.7% 12.76 61.5% 20.93 69.7% 12.76 61.5% -39.0% Incineration 9.09 30.3% 7.97 38.5% 9.09 30.3% 7.97 38.5% -12.3% with energy recovery Unknown 0 0% 0 0% 0 0% 0 0% – Office: Corporate: | Mid-Rise Office | Landfill | | 0 0% 0 0% 0 0% 0 0% – | | | --- | --- | --- | --- | --- | | | Total | 30.02 20.73 30.02 20.73 -31.0% | | | | | Coverage | | | 100% 100% 100% 100% | (landlord- procured consumption) Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 ### 108 Overview Strategic Report Governance Financial Statements Other information (unaudited) Absolute tonnes Like-for-like tonnes 2021 2022 2021 2022 % | | Tonnes % Tonnes % Tonnes % Tonnes % | Change | | --- | --- | --- | | Recycled | 379.89 55.23% 506.92 54.1% 379.89 55.2% 498.62 54.4% 31.3% | | | Incineration | 307.90 44.77% 429.96 45.9% 307.90 44.8% 417.44 45.6% 35.6% | | with energy recovery Unknown 0 0% 0 0% 0 0% 0 0% – Total 0 0% 0 0% 0 0% 0 0% – Landfill Total 688 936 688 916 33.2% Coverage 100% 100% 100% 100% (landlord- procured consumption) – Whilst zero waste is sent direct to landfill, a residual component of the “recycled” and “incineration with energy recovery” waste streams may end up in landfill. – Like-for-like excludes assets that were purchased, sold, under refurbishment or subject to a significant change in the scope of reported data during the two years reported. – Waste data relates to the managed portfolio only. – Waste management procured directly by tenants is not reported. – Reported data relates to non-hazardous waste only, robust tonnage data on the small quantities of hazardous waste produced is not available. – Coverage (landlord-procured consumption) relates to the proportion of assets for which landlord obtained data has been reported – Where appropriate (for relevant assets), consumption data and asset NLA/GIA has been adjusted to reflect the Company’s share of ownership. – Variance Commentary: - Due to Covid-19 closures in early 2021, occupancy levels across the Fund were down but this generally increased across the Fund towards the latter half of 2021 and in many cases throughout 2022. Some assets have recorded modest decreases in waste. However, overall, there has been a 33.2% increase in like-for-like waste tonnage which can mainly be attributed due to higher occupancy levels across a number of assets. ### 109 Other information (unaudited) ## Sustainability Performance Measures (Environmental) (unaudited) ## continued Sustainability certification: Green building certificates (Cert-Tot) The table below sets out the proportion of the Company’s total portfolio with a Green Building Certificate by floor area. Rating Portfolio by Floor Area BREEAM/Refurbishment and Fit-out | Very Good 11.7% BREEAM/Refurbishment and Fit-out Coverage 11.7% BREEAM In Use | Very Good 1.1% BREEAM In Use | Good 3.7% BREEAM In Use | Acceptable 1.5% BREEAM In Use | Pass 0.1% BREEAM/In Use Coverage 6.4% WiredScore | Platinum 15.1% WiredScore | Silver 0.8% WiredScore | Certified 0.8% WiredScore Coverage 16.7% Total Portfolio Coverage 23% – Green building certificate records for the Company are provided as at 31 March 2023 by portfolio net lettable floor area. – Data provided includes managed and non-managed assets (i.e. the whole portfolio). – Where appropriate (for relevant assets), asset NLA/GIA has been adjusted to reflect the Company’s share of ownership. – To avoid double counting, the Total Portfolio Coverage excludes the floor area for the certificate “BREEAM/ Refurbishment and Fit-out” as this relates to an asset which is already factored into the “BREEAM In Us” portion ofthe analysis. Sustainability certification: Energy Performance Certificates (Cert-Tot) The table below sets out the proportion of the Company’s total portfolio with an Energy Performance Certificate by floor area. Rating Portfolio by Floor Area | A | 2% | | --- | --- | | B | 15% | | C | 40% | | D | 28% | | E | 11% | | F | 0% | | G | 0% | | Exempt | 0% | | No EPC | 3% | | Coverage | 97% | – Energy Performance Certificate (“EPC”) records for the Company are provided for the portfolio as at 31 March 2023 by portfolio floor area. – Data provided includes the whole portfolio i.e. managed and non-managed assets. – Where appropriate (for relevant assets) asset NLA/GIA has been adjusted to reflect the Company’s share of ownership. – EPCs are known for 97% of the portfolio by floor area. In general terms, since the introduction of the EPC Regulations in 2008, EPCs are required for the letting of units or buildings or the sale of buildings. In addition, theUK Minimum Energy Efficiency Standards regulations (“MEES”) came into force for commercial buildings on 1 April 2018 and require a minimum EPC rating of E for new lettings; the rules apply to all leases from 1 April 2023. The EPCs for the portfolio are managed to ensure compliance with the MEES regulations. Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 ### 110 Overview Strategic Report Governance Financial Statements Other information (unaudited) ## Sustainability Performance Measures (Social) EPRA’s Sustainability Best Practices Recommendations Guidelines 2017 (“EPRA’s Guidelines”) include Social and Governance reporting measures to be disclosed for the entity i.e. the Company. The Company is an externally managed real estate investment trust and has no direct employees. A number of these Social Performance measures relate to entity employees and therefore these measures are not relevant for reporting at the entity level. The Investment Manager to the Company, Schroder Real Estate Investment Management Limited, is part of Schroders PLC which has responsibility for the employees that support the Company. The Company aims to comply with EPRA’sGuidelines and therefore has included Social and Governance Performance Measure disclosures in this report. However, these are presented as appropriate for the activities and responsibilities of the Schroder Real Estate Investment Trust Limited (the “Company”), Schroders PLC or the Investment Manager, Schroder Real Estate Investment Management Limited. The Schroders PLC Annual Report and Accounts for the 12 months to 31 March 2023 supports the performance measures in relation to the Investment Manager as set out below. Schroders PLC’s principles in relation to people including diversity, gender pay gap, values, employee satisfaction survey, wellbeing and retention can be found at: – Schroders 2022 Annual Report and Accounts – https://www.schroders.com/en/working-here/inclusion-and-diversity/ – https://prod.schroders.com/en/sysglobalassets/annual-report/2021/documents/schroders-workforce-diversity-- gpg-report-2021.pdf Employee gender diversity (Diversity-Emp) As at 31 December 2022 the Company Board comprised four members: 2 (50% female); 2 (50% male). For further information on Schroders PLC employee gender diversity, covering more employee categories, please refer to Schroders 2022 Annual Report and Accounts (page 110): – Schroders 2022 Annual Report and Accounts Gender pay ratio (Diversity-Pay) The remuneration of the Company Board is set out on page 52 of this Report and Accounts document. Schroders PLC female representation and gender pay report can be found in the Schroders 2022 Annual Report and Accounts (page 110) and Schroders PLC Gender Pay Gap Report: – Schroders 2022 Annual Report and Accounts – https://prod.schroders.com/en/sysglobalassets/annual-report/2021/documents/schroders-workforce-diversity-- gpg-report-2021.pdf Information on Diversity and Inclusion at Schroders can be found at: – https://www.schroders.com/en/working-here/inclusion-and-diversity/ – https://prod.schroders.com/en/sysglobalassets/annual-report/2021/documents/schroders-workforce-diversity-- gpg-report-2021.pdf The following are reported for Schroders in relation to the Investment Management of the Company: Training and development (Emp-Training) Schroders requires employees to complete mandatory internal training. Schroders encourages all staff with professional qualifications to maintain the training requirements of their respective professional body. Employee performance appraisals (Emp-Dev) Schroders performance management process requires annual performance objective setting and annual performance reviews for all staff. The Investment Manager confirms that performance appraisals were completed for 100% of investment staff relevant to the Company in 2022. ### 111 Other information (unaudited) ## Sustainability Performance Measures (Social) continued ### The following are reported for Schroders PLC: For Schroders PLC turnover and retention rates please refer to Schroders Annual Report and Accounts (page 30): - Schroders 2022 Annual Report and Accounts ### Employee health and safety (H&S-Emp) Schroders PLC does not include employee health and safety performance measures in its Annual Report and Accounts. ### The following are reported in relation to the assets held in the Company's portfolio over the reporting period to 31 March 2023: #### Asset health and safety assessments (H&S-Asset) The table below sets out the proportion of the Company's total portfolio where health and safety impacts were assessed or reviewed for compliance or improvement. | | Portfolio by floor area (%) | | | --- | --- | --- | | | 2021 | 2022 | | All sectors | 8% | 100% | #### Asset health and safety compliance (H&S-Comp) The table below sets out the number of incidents of non-compliance with regulations/and or voluntary codes identified. | | Number of incidents | | | --- | --- | --- | | | 2021 | 2022 | | All Sectors | 1 | 1 | In 2022, there was an issue with a fire panel at one asset within the portfolio. The issue was rectified by replacing the panel. #### Community engagement, impact assessments and development programmes (Comty-Eng) The table below sets out the proportion of the Company's total portfolio which completed local community engagement, impact assessments and/or development programmes. | | Portfolio by number assets (%) | | | --- | --- | --- | | | 2021 | 2022 | | Industrial, Distribution Warehouse | 7% | 2% | | Mixed-use, Other | 2% | 4% | | Office, Low-Rise | 9% | 11% | | Office, Mid-Rise | 0% | 2% | | All other sectors | 10% | 8% | | **Total** | **28%** | **29%** | Community engagement initiatives are conducted on an asset-by-asset basis in collaboration with the relevant site team: - All sectors have created employment opportunities for the local community. Industrial, Distribution Warehouse, Office, Low-Rise & Office, Mid-Rise: a number of assets within these sectors have also provided support for local charities such as the KidsOut campaign at The Tun, Edinburgh to The Island Charity at York Clifton Park, Shipton Rd and through support for the local food bank at Norwich, Fifers Lane. Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 112 Overview Strategic Report Governance Financial Statements Other information (unaudited) ## Sustainability Performance Measures (Governance) ### Composition of the highest governance body (Gov-Board) The Board of the Company comprised four non-executive independent directors (no executive board members) as at 31 March 2023. – The average tenure of the four directors to 31 March 2023 is three years and nine months; and – The number of directors with competencies relating to environmental and social topics is two and their experience can be seen in their biographies. Nominating and selecting the highest governance body (Gov-Select) The role of the Nomination Committee, chaired by Alastair Hughes, is to consider and make recommendations to the Board on its composition so as to maintain an appropriate balance of skills, experience and diversity, including gender, and to ensure progressive refreshing of the Board. On individual appointments, the Nomination Committee leads the process and makes recommendations to the Board. Before the appointment of a new director, the Nomination Committee prepares a description of the role and capabilities required for a particular appointment. While the Nomination Committee is dedicated to selecting the best person for the role, it aims to promote diversification and the Board recognises the importance of diversity. The Board agrees that its members should possess a range of experience, knowledge, professional skills and personal qualities, as well as the independence necessary to provide effective oversight of the affairs of the Company. Process for managing conflicts of interest (Gov-Col) The Company’s Conflicts of Interest Policy sets out the policy and procedures of the Board and the Company Secretary for the management of conflicts of interest. ### 113 Other information (unaudited) ## Streamlined Energy and Carbon Reporting Schroder Real Estate Investment Trust Limited (the “Company”) is a real estate investment company with a premium listing on the Official List of the UK Listing Authority and whose shares are traded on the Main Market of the London Stock Exchange (ticker: SREI). The Company is a real estate investment trust (“REIT”) and benefits from the various tax advantages offered by the UK REIT regime. The Company continues to be declared as an authorised closed-ended investment scheme 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 Collective Investment Schemes Rules and Guidance, 2021. The Board and Investment Manager, in recognition of the importance it places on sustainability, has voluntarily included a report for the Company aligned with the UK Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018, (the Regulations) on its UK energy use, associated Scope1 and 2 greenhouse gas (“GHG”) emissions, an intensity metric and, where applicable, global energy use. Thisreporting is also referred to as Streamlined Energy and Carbon Reporting (“SECR”). This Energy and Carbon Report applies for the Company’s annual report for the 12 months to 31 March 2023. The statement has, however, been prepared for the calendar year, the 12 months to 31 December 2022, to report annual figures for emissions and energy use the available period for which such information is available. In addition, the regulations advise providing a narrative on energy efficiency actions taken in the previous financial year. As a property company, energy consumption and emissions result from the operation of buildings. The reporting boundary has been scoped to those held properties where the Company retained operational control: where the Company is responsible for operating the entire building, shared services (e.g. common parts lighting, heating and air conditioning), external lighting and/or void spaces. “Operational control” has been selected as the reporting boundary (as opposed to “financial control” or “equity share”) as this reflects the portion of the portfolio where the Company can influence operational procedures and, ultimately, sustainability performance. This incorporates consumption in tenant areas, where the landlord procures energy for the whole building. In 2022, within the portfolio, there were 23 properties within the operational control reporting boundary and in 2021 there were 24 such properties. All Company assets are located in the UK. The Company is not directly responsible for any GHG emissions/energy usage at single-let/FRI assets, nor at multi-let assets where the tenant is responsible for procuring their own energy. These emissions form part of the wider value chain (i.e. “Scope 3”) emissions, which are not monitored at present. As a real estate company with no direct employees or company-owned vehicles as at 31 December 2022, there is no energy consumption or emissions associated with travel or occupation of corporate offices to report. Fugitive emissions associated with refrigerant losses from air conditioning equipment are widely understood by the industry to be less material than other sources of emissions and data is often not collected. The Company received fugitive emissions data in previous reporting years and this confirmed that they were de minimis and consequently have not been captured in the current reporting. In addition to reporting absolute energy consumption and GHG emissions, the Company has reported separately on performance within the “like-for-like” portfolio, as well as providing intensity ratios, where appropriate. The like-for-like portfolio includes buildings where each of the following conditions is met: – Owned for the full 24-month period (sales/acquisitions are excluded); – No major renovation or refurbishment has taken place; and – At least 24 months data is available. For the intensity ratios, the denominator determined to be relevant to the business is square metres of net lettable area for most sectors, including Industrial Distribution Warehouses, Leisure, Mixed-Use, Offices and Retail Warehouses. For Retail High Street, the most relevant denominator is the common parts area. The intensity ratio is expressed as: 2 – Energy: kilowatt hours per metre square (net lettable area or common parts area) per year or kWh/m /yr. – GHG: kilograms carbon dioxide equivalent per metre square (net lettable area or common parts area) per year, or 2 kgCO e/m /yr. 2 Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 ### 114 ## Energy Consumption and Greenhouse Gas Emissions The table below sets out the Company's energy consumption: | | Absolute Energy (kWh) | | Like-for-like Energy (kWh) | | | | --- | --- | --- | --- | --- | --- | | | 2021 | 2022 | 2021 | 2022 | % Change | | Gas | 2,581,376 | 2,293,309 | 2,237,297 | 2,160,790 | -3% | | Electricity | 5,669,470 | 5,153,578 | 4,636,009 | 4,842,117 | 4% | | Total | 8,250,846 | 7,446,887 | 6,873,306 | 7,002,906 | 1.9% | The table below sets out the Company's greenhouse gas emissions: | | Absolute Emissions (tCO₂e) | | Like-for-like Emissions (tCO₂e) | | | | --- | --- | --- | --- | --- | --- | | | 2021 | 2022 | 2021 | 2022 | % Change | | Scope 1 (Direct emissions from gas consumption) | 473 | 419 | 410 | 394 | -4% | | Scope 2 (Indirect emissions from electricity) | 1,204 | 997 | 984 | 936 | -5% | | Total | 1,677 | 1,415 | 1,394 | 1,331 | -5% | The like-for-like energy consumption for the 2022 calendar year for the managed assets held within the Company has slightly increased by 1.9% (due to occupancy changes following Covid-19 related closures), the greenhouse gas emissions have decreased by 5%. Energy performance improvement opportunities continued to be considered across the portfolio. Initiatives undertaken during the reporting year include boiler and hot water system replacements/upgrades, wall and roof insulation upgrades, window replacements/upgrades, LED lighting upgrades and installation of lighting and ventilation occupancy sensors. Automatic Meter Readers are consistently being rolled out to all landlord electricity supplies for improved energy monitoring. The table below sets out the Company's energy and greenhouse gas emissions intensities by sector: | | Energy Intensities (kWh per m²) | | Emissions Intensities (tCO₂e per m²) | | | --- | --- | --- | --- | --- | | | 2021 | 2022 | 2021 | 2022 | | Industrial Distribution Warehouses | 0.6 | 0.6 | 0.1 | 0.1 | | Leisure | 69.5 | 75.5 | 14.8 | 14.6 | | Mixed Use, Office/Retail | 101.4 | 96.4 | 21.5 | 18.7 | | Mixed Use, Other | 101.0 | 103.0 | 21.4 | 19.9 | | Office, Low-rise | 98.3 | 25.9 | 20.1 | 5.0 | | Office, Mid-rise | 192.2 | 178.4 | 37.2 | 33.3 | | Retail High Street | 14.0 | 8.9 | 3.0 | 1.7 | | Retail Warehouse | 2.3 | 2.1 | 0.5 | 0.4 | ## Methodology - All energy consumption and GHG emissions reported occurred at the Company assets all of which are located in the UK. - Energy consumption data is reported according to automatic meter reads, manual meter reads or invoice estimates. Historic energy and consumption data have been restated where more complete and or accurate records have become available. Where required, missing consumption data has been estimated through pro rata extrapolation. Data has been adjusted to reflect the Company's share of asset ownership, where relevant. - The sustainability content located in the Sustainability Performance Measures section of the SREIT annual report for the year ending 31 March 2023 has been assured in accordance with AA1000. The same data set has been used to compile this data report. The full Assurance Statement is available upon request. - The Company's GHG emissions are calculated according to the principles of the Greenhouse Gas ("GHG") Protocol Corporate Standard. - The Company's Greenhouse Gas Emissions are reported as tonnes of carbon dioxide equivalent (tCO₂e), which includes the following emissions covered by the GHG Protocol (where relevant and available greenhouse gas Overview Strategic Report Governance Financial Statements Other information (unaudited) 115 Other information (unaudited) ## Streamlined Energy and Carbon Reporting continued | emissions factors allow): carbon dioxide (CO | ), methane (CH | | ), hydrofluorocarbons (HFCs), nitrous oxide (N | | 0), | | --- | --- | --- | --- | --- | --- | | | 2 | | 4 | | 2 | | perfluorocarbons (PFCs), sulphur hexafluoride (SF | | ) and nitrogen trifluoride (NF | | ); | | | | | 6 | | 3 | | - GHG emissions from electricity (Scope 2) are reported according to the “location-based” approach; and - The following greenhouse gas emissions conversion factors and sources have been applied: Country Emissions Source GHG Emissions Factor Emissions Factor Data Source Electricity 2021 0.2123kg CO e UK Government’s GHG Conversion Factors for 2 Company Reporting (2021) United Kingdom Electricity 2022 0.1934 kg CO e UK Government’s GHG Conversion Factors for 2 Gas 0.1825kg CO e Company Reporting (2022) 2 Energy Efficiency Actions Environmental data management system and quarterly reporting Environmental data for the Company is collated by sustainability consultants Evora Global supported by their proprietary environmental data management system SIERA. Energy, water, waste and greenhouse gas emission data are collected and validated for all assets where the portfolio has operational control on a quarterly basis. Energy target, improvement programme and net zero carbon In 2019 the Manager signed the Better Building Partnership’s (“BBP”) Climate Commitment and we have a net-zero ambition aligned to the Paris Agreement aim to limit warming to 1.5°C. The Manager’s commitment was further underlined by the Company who last year announced their “Pathway to Net Zero Carbon” committing to: – Operational whole buildings emissions to be aligned to a 1.5°C pathway by 2030; – Embodied emissions for all new developments and major renovations to be net zero by 2030; – Operational Scope 1 and 2 (landlord) emissions to be net zero by 2030; and Operational and embodied whole building (scope 1, 2 and 3 – landlord and tenant) emissions to be net zero by 2040. The Investment Manager, together with sustainability consultants Evora Global and property managers looks to identify and deliver energy and greenhouse gas emission reductions on a cost-effective basis. The programme involves reviewing all managed assets within the Company and identifying and implementing improvement initiatives, where viable. The process is of continual review and improvement. Energy performance improvement initiatives undertaken at several assets during the reporting period include HVAC/ lighting upgrades, wall and roof insulation upgrades, upgrades to Automatic Meter Readers for improved energy monitoring, LED upgrades and window upgrades/replacements. Renewable electricity tariffs and carbon offsets The Investment Manager has an objective to procure 100% renewable electricity for all landlord-controlled supplies for which it has responsibility, which includes the asset of the Company, by 2025. As at 31 December 2022 74% of the Company’s landlord-controlled electricity was on renewable tariffs. No carbon offsets were purchased during the reporting period. Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 1 Better Buildings Partnership Climate Commitment available here: https://www.betterbuildingspartnership.co.uk/member-climate-commitment ### 116 Overview Strategic Report Governance Financial Statements Other information (unaudited) ## Asset list The table below summarises the portfolio information as at 31 March 2023, excluding post year end activity. Theproperty values presented represent the year end valuations as determined by the independent valuers as at 31 March 2023: Value range Property Sector Region (£m) 1 Milton Keynes, Stacey Bushes Industrial Estate Industrial South East 50-60 Leeds, Millshaw Park Industrial Estate Industrial Yorkshire & Humberside 40-50 London, Store Street, The University of Law Office/university London 30-40 Campus (50% share)’ Cheadle, Stanley Green Trading Estate Industrial North West 30-40 Manchester, City Tower (25% share) Office/hotel/retail/ North West 30-40 leisure/car park St.John’s Retail Park, Bedford Retail Warehouse Eastern 30-40 Chippenham, Langley Park Industrial Estate Industrial South West 20-30 Leeds, Headingley Central Retail/mixed-use Yorkshire & Humberside 20-30 Norwich, Union Park Industrial Estate Industrial Eastern 20-30 Telford, Hortonwood 7 Industrial West Midlands 10-20 Uxbridge, 106 Oxford Road Office South East 10-20 Birkenhead, Valley Park Industrial Estate Industrial North West 10-20 Manchester, St. Ann’s House Other North West 10-20 Salisbury, Churchill Way Retail Warehouses South West 0-10 Edinburgh, The Tun Office Scotland 0-10 Luton, The Galaxy Other Eastern 0-10 Cheltenham, The Promenade Office South West 0-10 Milton Keynes, Matalan Retail Warehouses South East 0-10 Chester, Sealand Road Retail Warehouses North West 0-10 Northampton, Century & Peterbridge Office East Midlands 0-10 Liverpool, 88-94 Church Street Retail North West 0-10 Cardiff, Haywood House Office Wales 0-10 Sheffield, Pinstone St Retail Yorkshire & Humberside 0-10 Warwick, 55/56 Heathcote Industrial Estate Industrial West Midlands 0-10 York, Clifton Park Office Yorkshire & Humberside 0-10 Haydock Industrial Estate Industrial North West 0-10 Leeds, Coverdale House Office Yorkshire & Humberside 0-10 Ilkeston, Albion Shopping Centre Retail East Midlands 0-10 Sandbach, Hall Lane Industrial North West 0-10 Warwick, Seton House Office West Midlands 0-10 Marlow, Pacific House Office South East 0-10 Swindon, 21/27 Stirling Court Industrial South West 0-10 Chelmsford, 24-25 High St Retail South East 0-10 Bedford, Howard House Office Eastern 0-10 Fareham, Delme Place, Cams Estate Office South East 0-10 Truro, 15/16 King Street Retail South West 0-10 Chelmsford, 67 & 68 High Street Retail South East 0-10 Leicester, East Gates Retail East Midlands 0-10 Sandbach, Moston Road Industrial North West 0-10 1 As per third party valuation reports unadjusted for IFRS lease incentive amounts. ### 117 Other information (unaudited) ## Report of the Depositary to the Shareholders Established in 2013, Langham Hall UK Depositary LLP is an FCA regulated firm that works in conjunction with the Manager and the Company to act as depositary. Consisting exclusively of qualified and trainee accountants and alternative specialists, the entity represents net assets of US$110 billion and we deploy our services to over 120+ alternative investment funds across various jurisdictions worldwide. Our role as depositary primarily involves oversightof the control environment of the Company, in line with the requirements of the Alternative Investment Fund Managers Directive (AIFMD). Our cash monitoring activity provides oversight of all the Company held bank accounts with specific testing of banktransactions triggered by share issues, property income distributions via dividend payments, acquisitions, and third-party financing. We review whether cash transactions are appropriately authorised and timely. The objective ofour asset verification process is to perform a review of the legal title of all properties held by the Company, and shareholding of special purpose vehicles beneath the Company. We test whether on an ongoing basis the Company is being operated by the Manager in line with the Company’s prospectus, and the internal control environment of the Manager. This includes a review of the Company’s and its subsidiaries’ decision papers and minutes. We work with the Manager in discharging our duties, holding formal meetings with senior staff on a quarterly basis and submit quarterly reports to the Manager and the Company, which are then presented to the Board of Directors, setting out our work performed and the corresponding findings for the period. For the financial year ending 31 March 2023, our work included the review of two investment property acquisitions, two investment property disposals, one third party borrowing and four interim dividends. Based on the work performed during this period, we confirm that no issues came to our attention to indicate that controls are not operating appropriately. Joe Hime Head of Depositary For and on behalf of Langham Hall UK Depositary LLP, London, UK Langham Hall UK Depositary LLP is a limited liability partnership registered in England and Wales (with registered number OC388007). Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 ### 118 Overview Strategic Report Governance Financial Statements Other information (unaudited) ## Glossary Alternative performance measure please see page 92 for full details of the key APMs used by the Company. (“APM”) Annualised dividend yield being the dividend paid during the period annualised and expressed as a percentage of the period end share price. Articles means the Company’s articles of incorporation, as amended from time to time. Companies Law means The Companies (Guernsey) Law, 2008. Company is Schroder Real Estate Investment Trust Limited. Directors means the directors of the Company as at the date of this document whose names are set out on pages 40 and 41 of this document and “Director” means any one of them. Disclosure Guidance and means the disclosure guidance and transparency rules contained within the FCA’s Handbook of Transparency Rules Rules and Guidance. Earnings per share (“EPS”) is the profit after taxation divided by the weighted average number of shares in issue during the period. Diluted and adjusted EPS per share are derived as set out under NAV. Estimated rental value (“ERV”) Is the Group’s external valuers’ reasonable opinion as to the open market rent which, on the date of the valuation, could reasonably be expected to be obtained on a new letting or rent review of a property. EPRA is the European Public Real Estate Association. EPRA Net Tangible Assets is the IFRS equity attributable to shareholders adjusted for items including deferred tax, the fair value of financial instruments and intangible assets. EPRA Net Disposal Value is the IFRS equity attributable to shareholders adjusted for items including goodwill as a result of deferred tax and the fair value of interest rate debt FCA is the UK Financial Conduct Authority. Gearing is the Group’s net debt as a percentage of adjusted net assets. Group is the Company and its subsidiaries. GFSC is the Guernsey Financial Services Commission. Initial yield is the annualised net rents generated by the portfolio expressed as a percentage of the portfolio valuation. Interest cover is the number of times Group net interest payable is covered by Group net rental income. Listing Rules means the listing rules made by the FCA under Part VII of the UK Financial Services and Markets Act 2000, as amended. Market Abuse Regulation means regulation (EU) No.596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse. MSCI (formerly Investment Property Databank or “IPD”) is a Company that produces an independent benchmark of property returns. Net asset value and NAV per share is shareholders’ funds divided by the number of shares in issue at the year end. NAV total return is calculated taking into account both capital returns and income returns in the form of dividends paid to shareholders. Net rental income is the rental income receivable in the period after payment of ground rents and net property outgoings. REIT is a Real Estate Investment Trust. Reversionary yield is the anticipated yield which the initial yield will rise to once the rent reaches the estimated rental value. Weighted average unexpired lease Weighted average unexpired lease term assuming earlier of lease break or lease expiry. term (“WAULT”) ### 119 Other information (unaudited) ## Resolutions at 2023 Annual General Meeting ### THIS SECTION IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt about the contents of this section of the document or the action you should take, you arerecommended to seek immediately your own personal financial advice from an appropriately qualified independent advisor authorised pursuant to the Financial Services and Markets Act 2000 (as amended). If you have sold or otherwise transferred all your shares in the Company, please send this document (including the Notice of AGM) and the accompanying documents at once to the purchaser, transferee, or to the stockbroker, bank or other person through whom the sale or transfer was effected for onward transmission to the purchaser or transferee. However, such documents should not be distributed, forwarded or transmitted in or into the United States, Canada, Australia or Japan or into any other jurisdiction if to do so would constitute a violation of applicable laws and regulations in such other jurisdiction. The Notice of the Annual General Meeting of Shareholders is set out on pages 122 to 123. The following paragraphs explain the resolutions to be put to the AGM. Resolutions 1–9 (ordinary resolutions) Resolutions 1-9 are being proposed to approve the ordinary business of the Company to: (i) consider and approve theconsolidated Annual Report of the Company for the year ended 31 March 2023; (ii) consider and approve the Directors’ remuneration policy and the remuneration report, (iii) elect or re-elect the Directors; and (iv) appoint the Auditors and authorise the Directors to determine the Auditor’s remuneration. Resolution 10: Approval of the Company’s dividend policy (ordinary resolution) The Company’s dividend policy is to pay a sustainable level of quarterly dividends to shareholders (in arrears). Itisintended that successful execution of the Company’s strategy will enable a progressive dividend policy. The Company’s objective and strategy, outlined in the Chair’s Statement and Investment Manager’s Report, is to deliver sustainable net income growth in due course through active management of the underlying portfolio. Any future decision to increase the dividend will be determined by factors including whether it is sustainable over the longterm, current and anticipated future market conditions, rental values and the potential impact of any future debtrefinancing. As the Company is a REIT, the Board must also ensure that dividends are paid in accordance with the requirements ofthe UK REIT regime (pursuant to part 12 of the UK Corporation Tax Act 2010) in order to maintain the Company’s REIT status. Shareholders should note that the dividend policy is not a profit forecast and dividends will only be paid to the extent permitted in accordance with the Companies Law and the UK REIT regime. The Board acknowledges that the dividend policy is fundamental to shareholders’ income requirements as well as theCompany’s investment and financial planning. Therefore, in accordance with the principles of good corporate governance and best practice relating to the payment of interim dividends without the approval of a final dividend bya company’s shareholders, a resolution to approve the Company’s dividend policy will be proposed annually forapproval. Resolution 11: Authority to disapply pre-emption rights (special resolution) The Directors require specific authority from shareholders before allotting new ordinary shares for cash (or selling shares out of treasury for cash) without first offering them to existing shareholders in proportion to their holdings. Resolution 11 empowers the Directors to allot new ordinary shares for cash or to sell ordinary shares held by the Company in treasury for cash, otherwise than to existing shareholders on a pro rata basis, up to such number of ordinary shares as is equal to 10% of the ordinary shares in issue (including treasury shares) on the date the resolution is passed. No ordinary shares will be issued without pre-emption rights for cash (or sold out of treasury for cash) at aprice less than the prevailing net asset value per ordinary share at the time of issue or sale from treasury. Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 ### 120 Overview Strategic Report Governance Financial Statements Other information (unaudited) The Directors do not intend to allot or sell ordinary shares other than to take advantage of opportunities in the market as they arise and will only do so if they believe it to be advantageous to the Company’s existing shareholders and when it would not result in any dilution of the net asset value per ordinary share (owing to the fact that no ordinary shares will be issued or sold out of treasury for a price less than the prevailing net asset value per ordinary share). This authority will expire on the earlier of the conclusion of the annual general meeting of the Company to be held in 2024 or on the expiry of 15 months from the passing of this Resolution 11. Resolution 12: Authority to repurchase shares (special resolution) The Board recognises that movements in the ordinary share price, premium or discount, are driven by numerous factors, including investment performance, gearing and market sentiment. Accordingly, it focuses its efforts principally on addressing sources of risk and return as the most effective way of producing long-term value for Shareholders. However, the Directors may consider repurchasing ordinary shares if they believe it to be in Shareholders’ interests as a whole and as a means of correcting any imbalance between supply and demand for the ordinary shares. The making and timing of any repurchase of ordinary shares will be at the absolute discretion of the Board, although the Board will have regard to the effects of any such repurchase on long-term shareholders in exercising its discretion. Any repurchase of ordinary shares will be subject to compliance with the Companies Law and within any guidelines established from time to time by the Board. During the year ended 31 March 2023 the Company repurchased 1,969,725 shares. Annually the Company passes a resolution granting the Directors general authority to purchase in the market up to 14.99% of the number of shares in issue. The Directors intend to seek a renewal of this authority from the Shareholders at the AGM. In the event that the Board decides to repurchase ordinary shares, purchases will only be made through the market for cash at prices not exceeding the prevailing NAV of the ordinary shares (as last calculated) where the Directors believe such purchases will enhance shareholder value. Such purchases will also only be made in accordance with the Listing Rules and the Disclosure Guidance and Transparency Rules which provide that the maximum price to be paid for each ordinary share must not be more than the higher of: (i) 5% above the average mid-market value of the ordinary shares for the five business days before the purchase is made; and (ii) an amount equal to the higher of (a) the price of the last independent trade; and (b) the highest current independent bid for an ordinary share on the trading venues where the market purchases by the Company pursuant to the authority conferred by that resolution will be carried out. The Companies Law also provides, among other things, that any such purchase is subject to the Company passing the solvency test contained in the Companies Law at the relevant time. Any ordinary shares purchased under this authority may be cancelled or held in treasury. This authority will expire at the conclusion of the annual general meeting of the Company to be held in 2024 unless varied, revoked or renewed prior to such date by ordinary resolution of the Company. The Board considers that the resolutions to be proposed at the AGM are in the best interests of the Company’s shareholders as a whole. The Board therefore recommends unanimously to shareholders that they vote in favour of each of the resolutions, as they intend to do in respect of their own beneficial holdings. Alastair Hughes Chair 7 June 2023 ### 121 Other information (unaudited) # Notice of Annual General Meeting Notice is hereby given that the Annual General Meeting of the Company will be held at 1 London Wall Place, EC2Y 5AU on 27 September 2023 at 1.30 p.m. | Resolution | To consider and, if thought fit pass the following Resolutions | | --- | --- | | Resolution 1 (Ordinary Resolution) | – To receive, consider and approve the Consolidated Annual Report and Financial Statements of the Company for the year ended 31 March 2023. | | Resolution 2 (Ordinary Resolution) | – To approve the Directors' Remuneration Policy. | | Resolution 3 (Ordinary Resolution) | – To approve the Remuneration Report for the year ended 31 March 2023. | | Resolution 4 (Ordinary Resolution) | – To elect Alexandra ('Ali') Innes as a Director of the Company. | | Resolution 5 (Ordinary Resolution) | – To re-elect Alastair Hughes as a Director of the Company. | | Resolution 6 (Ordinary Resolution) | – To re-elect Stephen Bligh as a Director of the Company. | | Resolution 7 (Ordinary Resolution) | – To re-elect Priscilla Davies as a Director of the Company. | | Resolution 8 (Ordinary Resolution) | – To appoint Ernst and Young LLP as Auditor of the Company until the conclusion of the next Annual General Meeting. | | Resolution 9 (Ordinary Resolution) | – To authorise the Board of Directors to determine the Auditor's remuneration. | | Resolution 10 (Ordinary Resolution) | – To receive and approve the Company's Dividend Policy which appears on page 32 of the Annual Report. | | Resolution 11 (Special Resolution) | That the Directors of the Company be and are hereby empowered to allot ordinary shares of the Company for cash as if the pre-emptive provisions contained under Article 13 of the Articles of Incorporation did not apply to any such allotments and to sell ordinary shares which are held by the Company in treasury for cash on a non-pre-emptive basis provided that this power shall be limited to the allotment and sales of ordinary shares: a. up to such number of ordinary shares as is equal to 10% of the ordinary shares in issue (including treasury shares) on the date on which this resolution is passed; b. at a price of not less than the net asset value per share as close as practicable to the allotment or sale; provided that such power shall expire on the earlier of the conclusion of the annual general meeting of the Company to be held in 2024 or on the expiry of 15 months from the passing of this Special Resolution, except that the Company may before such expiry make offers or agreements which would or might require ordinary shares to be allotted or sold after such expiry and notwithstanding such expiry the Directors may allot or sell ordinary shares in pursuance of such offers or agreements as if the power conferred hereby had not expired. | | Resolution 12 (Special Resolution) | That the Company be authorised, in accordance with section 315 of The Companies (Guernsey) Law, 2008, as amended (the 'Companies Law'), to make market acquisitions (within the meaning of section 316 of the Companies Law) of ordinary shares in the capital of the Company ('Ordinary Shares') either for retention as treasury shares, insofar as permitted by the Companies Law or cancellation, provided that: a. the maximum number of ordinary shares hereby authorised to be purchased shall be 14.99% of the issued ordinary shares on the date on which this resolution is passed; b. the minimum price which may be paid for an ordinary share shall be £0.01; c. the maximum price (exclusive of expenses) which may be paid for an ordinary share shall be an amount equal to the higher of (i) 5% above the average of the mid-market value of the ordinary shares (as derived from the regulated market on which the repurchase is carried out) for the five business days immediately preceding the date of the purchase; and (ii) the higher of (a) the price of the last independent trade; and (b) the highest current independent bid at the time of purchase, in each case on the regulated market where the purchase is carried out; d. such authority shall expire at the conclusion of the annual general meeting of the Company to be held in 2024 unless such authority is varied, revoked or renewed prior to such date of the general meeting; and e. the Company may make a contract to purchase ordinary shares under such authority prior to its expiry which will or may be executed wholly or partly after its expiration and the Company may make a purchase of ordinary shares pursuant to any such contract. | By Order of the Board For and on behalf of **Schroder Investment Management Limited** Company Secretary 7 June 2023 Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 122 Overview Strategic Report Governance Financial Statements Other information (unaudited) Notes 1 To be passed, an ordinary resolution requires a simple majority of the votes cast by those shareholders voting in person or by proxy at the AGM (excluding any votes which are withheld) to be voted in favour of the resolution. 2 To be passed, a special resolution requires a majority of at least 75% of the votes cast by those shareholders voting in person or by proxy at the AGM (excluding any votes which are withheld) to be voted in favour of the resolution. 3 A member who is entitled to attend and vote at the meeting is entitled to appoint one or more proxies to exercise all or any of their rights to attend, speak and vote instead of him or her. A proxy need not be a member of the Company. More than one proxy may be appointed provided that each proxy is appointed to exercise the rights attached to different shares held by the member. 4 If returned without an indication as to how the proxy shall vote on any particular matter, the proxy will exercise discretion as to whether, and if so how, to vote. 5 A form of proxy is enclosed for use at the meeting and any adjournment thereof. The form of proxy should be completed and sent, together with the power of attorney or other authority (if any) under which it is signed, or a notarially certified copy of such power or authority, so as to reach the Company’s Registrars, Computershare Investor Services (Guernsey) Limited, at The Pavilions, Bridgwater Road, Bristol, BS99 6ZY at least 48 hours before the time of the AGM (excluding any part of a day that is not a working day). 6 Completing and returning a form of proxy will not prevent a member from attending in person at the meeting and voting should he or she so wish. 7 To have the right to attend and vote at the meeting or any adjournment thereof (and also for the purpose of calculating how many votes a member may cast on a poll) a member must have his or her name entered on the register of members not later than at close of business of 25 September 2023. 8 Pursuant to Article 41 of the Uncertificated Securities (Guernsey) Regulations 2009, entitlement to attend and vote at the meeting and the number of votes which may be cast thereat will be determined by reference to the register of members of the Company at close of business on 25 September 2023. Changes to entries in the register of members of the Company after that time shall be disregarded in determining the rights of any member to attend and vote at such meeting. 9 If all the shares have been sold or transferred by the addressee, the Notice of Annual General Meeting and any other relevant documents should be passed to the person through whom the sale or transfer was effected for transmission to the purchaser or transferee. ### 123 Other information (unaudited) ## Corporate Information | Registered Address | Company Secretary | | --- | --- | | North Suite 2 | Schroder Investment Management Limited | | Town Mills | 1 London Wall Place | | Rue du Pre | London EC2Y 5AU | St. Peter Port Depositary Guernsey GY1 1LT Langham Hall UK Depositary LLP Directors (all Non-executive) 8th Floor Alastair Hughes (Chair) 1 Fleet Place Lorraine Baldry (resigned 26 July 2022) London EC4M 7RA Graham Basham (resigned 15 November 2022) Tax Advisors Stephen Bligh Deloitte LLP Priscilla Davies (appointed 7 June 2022) 2 New Street Square Alexandra Innes (appointed 16 November 2022) London EC4A 3BZ Investment Manager and Accounting Agent Receiving Agent and UK Transfer/Paying Agent Schroder Real Estate Investment Management Limited Computershare Investor Services (Guernsey) Limited 1 London Wall Place 13 Castle Street London EC2Y 5AU St. Helier Independent Auditor Jersey JE1 1ES Ernst & Young LLP Solicitors to the Company PO Box 9 as to English Law: Royal Chambers Stephenson Harwood LLP St. Julian’s Avenue 1 Finsbury Circus St. Peter Port London EC2M 7SH Guernsey GY1 4AF as to Guernsey Law: Property Valuer Mourant Ozannes (Guernsey) LLP CBRE Limited Royal Chambers Henrietta House St. Julian’s Avenue Henrietta Place St. Peter Port London W1G 0NB Guernsey GY1 4HP Sponsor and Brokers FATCA GIIN J.P. Morgan Securities plc 5BM7YG.99999.SL.826 25 Bank Street Canary Wharf London E14 5JP The Company’s privacy notice is available on its webpages. Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 ### 124 Printed by a Carbon Neutral Operation (certified: CarbonQuota) under thePAS2060 standard. ™ Printed on material from well-managed, FSC certified forests and other ™ controlled sources. This publication was printed by an FSC certified printer that holds an ISO 14001 certification. 100% of the inks used are HP Indigo ElectroInk which complies with RoHS legislation and meets the chemical requirements of the Nordic Ecolabel (Nordic Swan) for printing companies, 95% of press chemicals are recycled for further use and, on average 99% of any waste associated with this production will be recycled and the remaining 1% used to generate energy. The paper is Carbon Balanced with World Land Trust, an international conservation charity, who offset carbon emissions through the purchase and preservation of high conservation value land. Through protecting standing forests, under threat of clearance, carbon is locked-in, that would otherwise be released. Schroder Real Estate Investment Trust Limited Annual Report and Consolidated Financial Statements for the year ended 31 March 2023 Schroder Real Estate Investment Management Limited 1 London Wall Place London EC2Y 5AU United Kingdom Tel: +44 (0)20 7658 6000