Trust Commentary

June 2024

Outlook - June 2024

Having experienced a significant correction in values, and whilst uncertainty persists regarding the inflation outlook and the timing of interest rate cuts, the real estate sector should benefit from looser monetary policy going into 2025. A nascent recovery is arguably reflected in the portfolio value remaining unchanged over the quarter to March 2024.

More positively, much of the real estate sector is now delivering an income return and nominal rental growth above the long run average due to the inflationary environment, a resilient occupational market and limited development. Alongside recovering industrial values, well located, fit-for-purpose offices and retail assets are benefiting from a gradual shift back to the office and more consumers switching back to in-store shopping. At the same time, there is increased demand for operational real estate assets such as hotels, self-storage, and data centres.

The Company is well placed to benefit in this environment due to our exposure to higher growth sectors, low-cost long-term debt, and significant potential to drive earnings growth from active management and a higher reversionary income profile compared with peers.

Finally, alongside these nearer-term factors, our strategy continues to reflect the impact of longer-term structural trends such as urbanisation, technological change, demographics and, arguably most critical for the real estate sector, sustainability. We therefore have conviction that our strategic evolution to place sustainability at the centre of our investment proposition should enhance our long-term total returns.

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Nick Montgomery

Head of UK Real Estate Investment

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Fund Risk Considerations

Schroder Real Estate Investment Trust Limited

Credit risk

A decline in the financial health of an issuer could cause the value of its bonds, loans or other debt instruments to fall or become worthless.

Currency risk

The fund may lose value as a result of movements in foreign exchange rates.

Interest rate risk

The fund may lose value as a direct result of interest rate changes.

Liquidity risk

The fund is investing in illiquid instruments. Illiquidity increases the risks that the fund will be unable to sell its holdings in a timely manner in order to meet his financial obligations at a given point in time. It may also mean that there could be delays in investing committed capital into the asset class.

Market risk

The value of investments can go up and down and an investor may not get back the amount initially invested.

Operational risk

Operational processes, including those related to the safekeeping of assets, may fail. This may result in losses to the fund.

Performance Risk

Investment objectives express an intended result but there is no guarantee that such a result will be achieved. Depending on market conditions and the macro economic environment, investment objectives may become more difficult to achieve.

Property development risk

The Fund may invest in property development which may be subject to risks including, risks relating to planning and other regulatory approvals, the cost and timely completion of construction, general market and letting risk, and the availability of both construction and permanent financing on favourable terms.

Real estate and property risk

Real estate investments are subject to a variety of risk conditions such as economic conditions, changes in laws (e.g. environmental and zoning) and other influences on the market.

Concentration risk

The company may be concentrated in a limited number of geographical regions, industry sectors, markets and/or individual positions. This may result in large changes in the value of the company, both up or down, which may adversely impact the performance of the company.

Gearing risk

The company may borrow money to make further investments, this is known as gearing. Gearing will increase returns if the value of the investments purchased increase by more than the cost of borrowing, or reduce returns if they fail to do so. In falling markets, the whole of the value in that investment could be lost, which would result in losses to the fund.