Asset Strategies

Schroder Real Estate Investment Trust

Manchester, Cheadle, Stanley Green Trading Estate (Industrial)

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%.
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.

Chippenham, Langley Park Industrial Estate (Industrial)

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 reflected a net initial yield of 6.5% and a reversionary yield of 8.4%. Over the financial year the asset delivered a total return of -3.4%, which compared with the MSCI All Industrial Benchmark over the same period of -21.0%.
The strategy over the period was to drive net income growth, the average unexpired lease term, and quality of accommodation across the estate.

Key activity

  • Siemens Mobility Limited (’Siemens’) rent review completed in June 2022 at £1.2 million per annum or £4.64 per sq ft, reflecting a 26% increase in contracted rental income. Following completion of the rent review, which was backdated to June 2021, Siemens became the Company’s second largest tenant.
  • A new ten year lease renewal without breaks completed in May 2022 with IXYS UK Westcode Limited (‘IXYS’), the UK subsidiary of Littelfuse, a global manufacturer which has provided a parent company guarantee. The rent is £465,000 per annum, or £5.50 per sq ft, reflecting a 31% increase over the previous contracted rent of £355,000 per annum. IXYS receive 12 months’ rent free which ends in December 2023, and will receive a contribution to repair works up to the value of £250,000 if undertaken within two years of lease completion. The lease includes a rent review at year five to the higher of open market value or RPI, with a collar of 1% per annum and a cap of 5% per annum.
  • The next phase of the business plan at Langley Park is to consider longer term development plans which could involve the creation of new space for existing tenants. Any development of new warehouse units would be to an operational net zero carbon (“NZC”) standard and a pre-planning application to develop 130,000 sq ft of space has been submitted to Wiltshire County Council.

Bedford, St. John’s Retail Park (Retail Warehouse)

St. John’s Retail Park comprises a 120,000 sq ft retail warehouse scheme underpinned by income from tenants including Lidl, Home Bargains, Bensons for Beds, TK Maxx and Costa, with an average lease term, to the earlier of lease expiry of break, of 6.5 years. The asset benefits from an affluent catchment and has good parking. As at 31 March 2023, the asset was valued at £31.0 million reflecting a net initial income yield of 6.2% and a reversionary yield of 6.1%. Over the financial year the asset delivered a total return of -1.4% which compared with the MSCI All Retail Warehousing over the same period of -7.0%.

The strategy over the year was to let vacant units, improve retailer mix and retain tenants by negotiating new longer term leases.

Key activity

  • Resolution to grant planning consent has been received from Bedford Borough Council for a new ‘drive thru’ at St. John’s Retail Park. As previously reported, a 15-year pre-let has completed with Starbucks Coffee Company UK Limited (‘Starbucks’) who are now constructing a new unit on the site and will receive a contribution towards construction costs capped at £850,000. The rent is £145,000 per annum, increasing by 10% of any construction cost in excess of £750,000, capped at an additional £10,000 of rent per annum. The yield on cost assuming the maximum construction cost, including the current site value of £1.3 million, is therefore 7.2%.
  • Starbucks are required to deliver the restaurant to a minimum BREEAM rating of ‘Very Good’ and install electric vehicle charging points for customer usage.

What are the risks?

Investments in real estate are relatively illiquid and more difficult to realise than equities or bonds.

Yields may vary and are not guaranteed.

The use of gearing is likely to lead to volatility in the Net Asset Value ("NAV") meaning that a relatively small movement either down or up in the value of the Company's total assets will result in a magnified movement in the same direction of that NAV.

There is no guarantee that the market price of shares in a UK Real Estate Investment Trust such as SREIT will fully reflect their underlying NAV.

The value of real estate is a matter of a valuer's opinion rather than fact.

This UK Real Estate Investment Trust should be considered only as part of a balanced portfolio, of which it should not form a disproportionate part.