Asset Strategies

Stanley Green Trading Estate in Cheadle, Manchester was acquired in December 2020 for £17.3 million. At acquisition the asset comprised 150,000 sq ft of trade counter, self-storage and warehouse accommodation across 14 units on a nine-acre site, together with an adjoining 3.4-acre development site. SREIT subsequently completed a new, 11-unit, warehouse scheme on the development site at a cost of £9.0 million. The asset now comprises 241,366 sq ft of trade counter, self-storage and warehouse accommodation across 25 units.

As at 31 March 2024 the valuation was £40.0 million, reflecting a reversionary yield, assuming the new development is fully let, of 6.4%. The asset has been a strong performer since acquisition, generating a total return of 18.6% per annum to 31 March 2024 compared to the MSCI All Industrial over the same period of 6.7%. Over the 12-month period to 31 March 2024, the asset delivered a total return of 12.1% which compared with the MSCI All Industrial over the same period of 4.7%.

Key activity

• The speculative development of 11 warehouse and trade units completed in May 2023. The new units achieved an ‘A+’ EPC rating and BREEAM New Construction Excellent accreditation. The specification includes a photovoltaic system that we expect to generate more than 250 MWh of energy per annum, 24 electric vehicle charging points and an 800kVA substation to support the on-site renewables in powering the fully electric site.
• Seven units, or 56% of the development by estimated rental value, are now let at an aggregate 23% above the underwritten assumptions. A 4,000 sq ft unit on the existing estate with EPC ‘C’ was recently let at £14.00 per sq ft, whereas the comparable operationally Net Zero Carbon units with EPC ‘A+‘ and have been let at around £19.50 per sq ft, reflecting a 39% premium. In addition, the Company’s independent valuer has applied a 5.35% yield to the occupied operationally Net Zero Carbon units compared to 6.5% to 7.0% for the pre-existing asset. We believe these outcomes are largely driven by the superior sustainability credentials of the new units which serve as a proof of concept of the enhanced strategy adopted by the Company.

Strategy looking forward

• The objective is for the new development to be fully let during 2024, which would increase the net income from Stanley Green Trading Estate by approximately £600,000 per annum compared with 31 March 2024. One unit is under offer and in legals at £150,000 per annum, with encouraging interest in the remainder.
• The strategy for the pre-existing 150,000 sq ft of trade counter, self-storage and warehouse accommodation is to begin phased refurbishments to enhance the aesthetic and sustainability credentials of the units, with the aim of enabling us to attract and retain high quality tenants and increase the rental tone to more closely align with the rents achieved on the new estate.

The Tun is a multi-let office building in Edinburgh city centre, located close to the Royal Mile and Scottish Parliament.

As at 31 March 2024, the asset was valued at £10.7 million, reflecting a net initial yield of 5.0% and a reversionary yield of 8.9%. Over the 12-month period to 31 March 2024, the asset delivered a total return of 3.4% which compared with the MSCI All Offices over the same period of -9.3%.

Key activity

• Completed an extensive refurbishment program of common areas, the roof and three vacant units at a cost of £2.1 million as at the year end. The works include end of journey facilities which will improve the sustainability credentials of the asset and help to attract high quality tenants. This led to the completion of three smaller lettings over the year.
• Works included a full Cat A refurbishment of the 7,343 sq ft part third floor including new, more efficient, M&E, new LED lighting, and improvements to natural light and fresh air. The unit achieved an EPC rating of ‘A’ having previously been a ‘D’.
• An agreement for lease has exchanged with SLR Consulting Limited for the refurbished part third floor and 2,876 sq ft part fourth floor, which was surrendered by the European Parliament in return for a premium paid to the Company of £240,000. SLR Consulting Limited will pay a base rent of £290,293 per annum on a 10-year term. The tenant will benefit from four months of rent free and has a break option in year five. The Company will now carry out a Cat A refurbishment of the part fourth floor and a Cat B fit out on all space at a total cost of £1.0 million, with lease completion expected in October 2024. In Schroder Real Estate Investment Trust Limited – Annual Report and Consolidated Financial Statements for the year ended 31 March 2024 19 addition to the base rent, the tenant will pay an additional £135,095 per annum for the first five years of the term to reflect the Company carrying out the Cat B fit-out.
• Existing tenant, Vattenfall Wind Power Limited, completed a new five-year lease extension on 2,783 sq ft of space in return for sustainability improvements costing £150,000. The lease renewal commenced in May 2024 and the rent increases by 21% to £88,137 per annum or £31.67 per sq ft, 17% ahead of the estimated rental value as at 30 September 2023. The tenant will receive three months of rent free.
• Following the works and activity outlined above, the total contracted rent at The Tun will be £1.1 million per annum, compared with £616,190 per annum at the start of the financial year.

Strategy looking forward

• We are discussing regears with further tenants, where we will look to implement measures to improve the sustainability credentials of the asset whilst increasing rent to and beyond the new headline rents of £32 to £34 per sq ft.

Freehold office and university campus located less than 500 metres from Tottenham Court Road in an area benefiting from infrastructure improvements such as the Elizabeth Live and Camden local authority ‘West End Project’, and a diverse range of ‘knowledge-based’ occupational demand including media, technology, life science, consumer brands and finance. The asset is let to the University of Law (‘UoL’) and currently has a low site density with 85,814 of lettable space on a site of 0.8 acres.

As at 31 March 2024, the Company’s 50% interest in the asset was valued at £38.375 million, reflecting a net initial yield of 4.5%, a reversionary yield of 5.8%, and capital value equating to £894 per sq ft. Over the 12-month period to 31 March 2024, the asset delivered a positive total return of 6.5% which compared with the MSCI All Offices over the same period of -9.3%.

Key activity

• In December, the Company completed a new 85,814 sq ft lease with UoL that extended the lease from December 2026 to December 2029. As part of the lease extension the rent review dated December 2024 was pre-agreed at £2.36 million per annum, equating to £55.00 per sq ft, 28% above the prior rent. The new lease also benefits from a fixed rental increase in December 2026 to £2.43 million per annum equating to £56.65 per sq ft, and annual fixed uplifts of 3% per annum from December 2026, leading to rent of £2.58 million per annum or £60.10 per sq ft from December 2028, 39% above the rent prior to the new lease.

Strategy looking forward

• The next phase at Store Street is to progress plans for the longer-term potential re-development post 2029, with the objective to align with Camden’s local plan, promoting sustainable characteristics and contributing positively to Bloomsbury’s character and amenity. Consideration will also be given to the specific demands of occupiers in the life sciences, technology, and higher education sectors.

50,000 sq ft, three-unit, retail warehouse terrace in a prominent location on Salisbury’s northern ring road. The property adjoins a strongly performing Waitrose food and home store. The property is currently let to Smyths Toys (unit 1), Homesense (unit 2), and Sports Direct (unit 3) on a short-term basis paying £697,000 per annum, or an average rent of £13.90 per sq ft.

As at 31 March 2024, the asset was valued at £8.4 million, reflecting a net initial yield of 7.8% and a reversionary yield of 8.3%. Over the 12-month period to 31 March 2024, the asset delivered a total return of 1.9% which compared with the MSCI All Retail Warehousing over the same period of 1.7%.

 Key activity

• Agreement exchanged with international discount retailer to occupy unit 1 and part of unit 2, totalling 22,206 sq ft, on a new 25-year lease (break at year 20) at £440,000 per annum or £19.81 per sq ft. The Schroder Real Estate Investment Trust Limited – Annual Report and Consolidated Financial Statements for the year ended 31 March 2024 21 tenant will receive nine months’ rent free and the lease will be subject to five yearly, inflation linked reviews with a collar of 1% per annum and a cap of 3% per annum. Lease completion is subject to planning and the Company delivering a unit split and refurbishment at a cost of £1.2 million. The tenant is required to install photovoltaic panels to the roof in order that the overall project can achieve an EPC ‘A’.
• A planning application for the unit split is being prepared and will be submitted shortly, with a view to works commencing in February 2025, when Smyths Toys and Homesense vacate.

Strategy looking forward

• Terms have been agreed for a new five lease to Sports Direct at £290,000 per annum or £14.50 per sq ft in return for the tenant receiving 12 months’ rent free. This is in the process of being documented.
• The remaining vacant unit comprising the balance of unit 2, totalling 7,500 sq ft, will be marketed at a rent of £135,000 per annum or £18 per sq ft.
• Assuming the activity proceeds as planned, the combined new rent at Salisbury will be £865,000 per annum or £17.30 per sq ft, a 24% increase on the current level.