Schroder Real Estate Investment Trust Ltd

LSE:SREI

Earnings Call Analysis

Earnings Call Transcript 2025-Q1

[Operator]

Good morning, ladies and gentlemen, and welcome to the Schroder Real Estate Investment Trust Limited Investor Presentation, and apologies for rescheduling today's presentation. Throughout this recorded presentation investors will be in a listen only mode. [Operator Instructions] The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and we'll publish our responses on the Investor Meet Company platform.

Before we begin, we would just like to submit the following poll. And as usual, if you could give that your kind attention. I'm sure the company would be most grateful.

And I would now like to hand you over to the team from Schroder Real Estate Investment Trust, Nick, Bradley.

[Nick Montgomery, executive]

Good morning. Thank you very much for an introduction, and thank you, everybody, for bearing with us and dialing in for the second time this week. That is very much appreciated. This is an update, obviously, on Schroder Real Estate Investment Trust. See, your usual presenters, myself, Montgomery and Bradley, who -- and we jointly manage the company. For those who don't know us, but I expect most of you hopefully do. What it says here on the first line in terms of our overarching strategy, we have a thematic focus on sustainability with active management to enhance returns. And I'm delighted to say that we have conviction that what we're doing really is having a positive impact on the underlying portfolio and will allow us to continue driving high levels of net income growth. So we'll do our usual tag team.

As I move to the next slide, it's worth noting we're announcing, obviously, we're providing you with information on our June net asset value that we've obviously just announced. This is the NAV that sits between obviously, having announced our final to March and the forthcoming interim to September. It is, nonetheless, although an audited, it is based on independent portfolio valuation. And so as we go through, we'll give you, obviously, more color on what's driven the performance in absolute terms but also relative to our benchmark.

So I guess just to reinforce some of the key messages, and I guess this would also be helpful to people that don't know us quite so well. So as it says on the tin, the thematic focus but really very focused on active management. This is not about is other strategy that's driving social value, specifically, it's about how by focusing on decarbonization, active management, extracting the green premium, we should be able to drive higher income and total returns and obviously continue growing the dividend. We're listed on the main market on the LSE. For those who don't know us, our ticker is SREI. From when we last presented the portfolio in terms of properties and tenants has remained broadly unchanged. We reported positively. And I think when I come on to talk about the market, we do think we have reached, as we've been guiding an inflection point in the U.K. real estate market as we saw the portfolio value tick up for the second quarter Interestingly, when we look at the benchmark data, which includes all of the commercial real estate that sits within our benchmark and it's many billions, very good representation of the U.K. real estate market, capital values on the wider benchmark have actually ticked up on a quarterly basis for the first time since the middle of 2022. So what we've been saying in terms of expectations of the market recovery. Obviously, we've already been benefiting, but it does appear that the wider market is also moving in that direction, and I'll cover that in a bit more detail later.

So we've announced the net asset value there of GBP 289 million. That represented a 0.5% uplift over the quarter. And once you also take account of dividends that we paid over that period, we delivered a net asset value total of return of 2%. So relatively low numbers, but importantly, positive numbers, that actually also when you compare us to the wider peer group because of the activity because of a high covered growing dividend, we're scoping it better than or most. The positive valuation movement also had the impact of taking our net LTV down slightly, so our net LTV moved from just the 37% to just under 37%, and Bradley will provide more color on that in due course. Continued improvement in our GRESB score. We've submitted the most recent annual GRESB. This is those well-regarded global benchmark looking at sustainability performance of principally commercial real estate portfolios, but actually increasingly a much wider part of the real estate market, and we remain topping our peer group there.

Why have we had this outperformance? Well, there are some particular asset examples we'll come on to. But really, it's still about asset allocation we continue to benefit and actually with our forecast, I'll come on to, we think this will continue to help our related performance. The fact that we have 90 -- just over 50%, I should say, of portfolio allocated to industrial. And importantly, almost all of our industrial allocation is in multi-let industrial estates. And for those of you that have heard us before, that's our preferred part of the industrial sector very granular tenants when you've got lots of tenants on these multi-let industrial estates, and our estates are typically located on the edge of densely populated urban areas, [indiscernible], Leeds, et cetera, South Manchester. And really that allows us to drive higher architectural demand and therefore, that translates into higher rents and performance. And performance, again, more -- a little bit more on this later, but we're showing you here from reference really how our underlying portfolio has performed against our institutional peers. We know for some people, this is not such a relevant metric. Clearly, you're more interested as we are as shareholders in what the share price is doing or what the NAV is doing, obviously, this is looking at how our underlying assets are performing when we compare those with our institutional peers. And this is independently calculated. And what you can see very clearly is over all time periods, we are continuing to deliver that relative outperformance.

Now as I said at the start, these are relatively low numbers. But from a relative perspective, hopefully it gives investors reassurance that actually we are delivering against our institutional peers and the strategy on that basis is working.

Now again, the 5 key points, why do we think SREI is particularly interesting today. Well, as you've heard me say, over half of the portfolio now is allocated to industrial sector. another, give or take, 15% is allocated to value retail warehousing. So a lot of people are talking about boxes, big boxes, almost 2/3 of our portfolio is allocated to boxes and so far it's industrials and retail warehousing.

Now again, we have the benefit of being a diversified strategy, and so the offices that we own, we think are going to deliver good returns. The majority of our office exposure is actually university accommodation. But looking forward and particularly looking forward through the lens of our browns and green strategy. We think there is mispricing emerging in the office sector and having the ability to tack and change between all the sectors, traditional and increasing the alternative sectors will allow us to continue driving the high levels of income that we need in order to continue paying what is a very attractive dividend yield. And I guess that's the key point on the next line, too. Our dividend yield today, give or take, is trending between 7.2% and 7.5%. Clearly, we've had a bit of volatility in the share price. Share price today at about 45.6% -- 45.6p, I should say, which reflects a dividend yield of just over 7.2%. Really importantly, we're very disciplined about this. That is fully covered by earnings. We were 103% covered by recurring earnings over the most recent quarter. And as you'll hear later, a very positive pipeline of leasing activity coming through, which we hope and believe, assuming we execute will allow us to continue with the support of the Board moving that dividend on.

The other thing, of course, as I've touched on briefly, that allows us to have that confidence about growing earnings and dividends is we have a very secure balance sheet. 75% of our debt as a lot of you will know is fixed for another 10 years or so at 2.5%. So very low cost of debt Clearly, we are seeing interest rates come down, but they're not going to get down to that level anytime soon in our opinion. So there's a real value there. And in fact, were we to fair value the loan in a way that you would -- an interest rate swap that would be around GBP 18 million. We produce that number every 6 months as of March. That number was about GBP 18 million, which is not reflected in the NAV.

I mentioned the share price at 45.6p, or at least it was when I looked about an hour ago, that compares with the NAV, and I'll come on to the NAV breakdown of 59.1, and that's obviously a discount of 22%. So we have seen and that encouragingly, we've seen an improvement in our rating against peers, partly because I think of presentations like this, where we're getting more traction with the platforms. But clearly, we think that there is room for that discount to narrow as there's a broader acknowledgment of what's happening in the underlying real estate market transaction volumes starting to pick up from a very low base, admittedly, but nonetheless, an expectation, we will see the market moving to a recovery phase.

And the final point to note, we are very focused on ensuring that our strategy is differentiated. This is not a social value-driven strategy. We are focused on sustainability because, frankly, we think it will help us make more money by manufacturing that green premium, addressing the decarbonization challenge at the U.K. and wider real estate markets have, but in doing so, drive higher levels of earnings growth.

Now I'm not going to spend too long on this, but we include it because hopefully, it gives people who are more interested in the detail, a clear view about how the numbers are moving. So this is obviously an out movement over the quarter that ended June, and you can see there the 58.8p, moving upwards to the 59.1p. Clearly, the big driver obviously was the underlying positive movement in the capital value of the portfolio of 0.4%. As I mentioned earlier on, that compares to the benchmark, which is essentially flat, but that was the first time the benchmark had produced something other than a negative number for 2 years. So again, that's why we think that's a signal to that recovery. We paid a dividend of 0.85p. As you all know, those of you that were this last time last quarter, we announced a 2% increase in the dividend. We haven't done so this quarter, but we're obviously looking forward with activity in the expectation that if we are successful delivering that activity, we will continue to move that forward. So really those were the 2 key movers with the point there, of course, with EPRA earnings, we were 103% covered when others in our peer group are uncovered.

On the income statement, again, I won't spend too long on here. But obviously, the key driver, you can see there was a 3% increase in the rental income that's the that's rental income received rather than rental value growth, and I'll come back to that in a moment. But all the numbers moving in the right direction. I think since we started on this platform, which has been a really great way for us to get to a different group of shareholders, hopefully, those of you that have been us from the start, we'll see that we are continuing to deliver what we have said we will do and we hope and expect that will continue.

I guess just to bring that out really clearly in terms of the dividend, you can see here the progression and we have -- and with the support of the Board when we meet quarterly when we have conviction that we will be able to continue paying at a certain level clearly with the expectation that we will not have to go backwards, we will pass that on. And our intention is, over time, that we will continue delivering a sustainable and progressive dividend policy. Versus peers, we -- there's been a lot of movement in the peer group. Those of you that follow it closely. I will have known -- I guess we'll know what's been happening, for example, with some of our peers like API, going for a failed merger process with custodian with the API Board then being in a situation where they've had to announce a wind up. And it will be interesting to see how that plays out. We've seen other companies obviously announced strategic reviews. I think in our case, we obviously issued the circle at the back end of last year where we have real conviction that this is the right strategy. And we are business as usual for us is to continue driving net income growth, but also spend a lot of time in meetings like this, where we are pushing the company to new groups of shareholders, smaller wealth managers, really just to drive that marginal demand to move the share price on.

And this really summarizes why we think we're well placed. Just starting from the top, we have the highest fully covered dividend yield in the peer group. There are high yields available, the likes of AW, for example, but they are not covered I guess, the share price discount to NAV, this is probably where there has been most movement because obviously, ratings have moved depending upon investors' views, for example, and whether there might be nearer-term realization.

But the last point to note which, again, in an environment where rates we think will remain elevated certainly compared with the most recent sort of 5- or 10-year period. That long-term fixed rate cost of debt just gives us a fantastic platform on which to continue growing top line rental and therefore, earnings growth.

Performance. Again, I've touched on this, and I won't go into more detail because this, again, is comparing us to the institutional peer groups. What I would just note in the bottom right-hand corner is now, if you look at us over any period of time, at an underlying portfolio level, we have delivered relative outperformance against our peers. And that's down, we would say, to obviously, we're having the right sector allocations in the industrial sector, clearly having driven returns over the last 10 years versus other sectors. But also, Brad and I having access to a very large team of specialist asset managers, specialist sustainability subject matter experts, whether it's climate decarbonization. And a combination of all of those things, meaning that we can drive more value through the active management as you will hear examples of shortly.

Now just on the market, no surprises here. I guess, as far as clearly, we've all seen the first rate cuts, which we're showing on the left-hand side there. We were obviously -- and I think we commented last time, we were beginning to see, obviously, market expectations change in a more dovish direction I've mentioned before on these calls that the real estate market, when it's thinking about interest rates, the most relevant metric is either the 10-year gilt yield or the 5-year interest rate swap because a lot of leverage property buyers would typically look to fix their cost of debt for 5 years. And that 5-year number has moved down quite significantly now, so the 5-year swap rate is down at about 3.8%. So you want to overlay sort of a typical margin the average cost of debt therefore might be somewhere in the region of 5.5%. So still relatively high compared to the recent past, but I think it is moving in a more positive direction. And if that is beginning to stimulate more activity in the transaction market. And you can see a bit more information here on that relationship between interest rates and real estate yields. We've mentioned before that the long-run spread that you would expect between that 10-year gilt yield and average real estate yields cash yield that is the initial yield, as we would call it, is somewhere between 150 and 200 basis points. And if you think about the fact that the 10-year gilt yield is now at about 3.8% and then you look at the fact that average real estate yields depending upon the index are somewhere around 5.5%. We're moving towards that long run spread, which would indicate that the sector is approaching fair value.

As we've said before, I want to apologize for repeating this again because I think it is a really important point. What we have seen a very significant correction really compared to the most recent 10 years, clearly, the GFC period of 44% decline the early '90s is much more similar to the 25% peak to trough we've seen over the most recent cycle, which we're illustrating here left-hand aside. As I said, we are beginning to see -- and you can see this coming through in everything except the orange line, we are beginning to see values bottom out and show some recovery. For example, we're beginning to see more transactions within the industrial sector. Investment transactions, I should say, we're beginning to see more investing transactions in the retail warehouse sector. The office sector from an investment perspective, remains very challenging. They're just a lack of capital there, even though occupational markets actually better than that would imply. And we're also interestingly seeing some bigger portfolio transactions. And notably, for those portfolio deals, we're beginning to see more private equity stepping to the market. And including U.S. private equity, the big boys, the likes of Blackstone and others are making more positive statements about how they now view the U.K. real estate market, and that's positive. We do need to see the transaction market pick up, not least because on the other side of that, we do have continued selling out of open-ended real estate funds. And so although it's nothing like as significant as of flows that we're seeing out of those funds immediately after the mini budget and the gilt crisis that we do still see those drip coming out of those open-ended funds and therefore, we now feel a bit more confident that there is the buy-side demand coming through from those private equity buyers.

Well, I think, again, I've said this before, but what differentiates this cycle from previous cycles is what's happening in the occasional markets and a combination of factors, a relatively low levels of new build, and that's really legacy of a GFC, banks and institutions putting far less capital into particularly speculative developments. But also, frankly, inflation and the U.K. economy showing some signs of resilience or certainly compared to how some forecasts we were viewing it over 12 months ago means that we are seeing companies growing taking space, particularly in those high-growth locations, knowledge-based economies as I mentioned, also parts of the multi-let industrial sector, retail warehouse market. And this is showing you the impact of that. So you can see there on the left-hand side of the chart, this is showing rental growth from the most recent market correction, so obviously mid-'22. And you can see there the average rents for all U.K. property or principally commercial property are up about 7% over that 2-year period or roughly 3.5% per annum.

Interestingly, just to give you some comparison, our portfolio did about twice that in terms of rental value growth, and that's the growth that we were hoping crystallize in terms of in terms of rents -- actual rents paid as we go forward. Clearly, the biggest driver in the market was the industrial sector, and you can see here average industrial rents going up by about 14% or 7% per annum over the last couple of years at a time when obviously, values are falling. And just again, to give you that context, our industrial portfolio did almost double that. So that's reflecting or reflected, I should say, in the high reversion yield that we have, which Bradley will give you more of a breakdown of very shortly.

So what does that mean in terms of our forecast? Well the only certainty here is that these are wrong, but hopefully less wrong with others. But what you can see as you look out over the next 5 years is we are expecting average rent for growth of about 3%, give or take, combined with that higher income return of around 5.5%, and this is an average market deliver total returns at property level of between 8% and 9%. Now there will be clearly polarization between the sectors parts of the market, particularly the secondary out of tower market, we think it presents still a significant risk. We don't own that those sectors equally, we think parts of the multi-let industrial sector, parts of the retail warehouse market, parts of the Central London office market even will perform better than the average. So this is the key reason why I think we're now beginning to see more capital at least looking at the sector because of the correction because we finally got the decision on interest rates, and therefore, we do expect more capital to be allocated, not just by domestic investors, but actually, as I mentioned, private equity, private institutional capital that we'll see a buying opportunity that we've really not seen in the U.K. market for the last 10 years.

So I will pause there. We'll be pleased to hear it, and I will pass over to Bradley.

[Bradley Biggins, executive]

Thanks, Nick. Thanks very much. So whilst there's clearly been volatility across many equity markets over the past week or so, we've got some positive points and updates we'd like to make with regard to SREI, both the portfolio and the company itself. So with that, I'll get started.

So on slide on the screen at the moment, you can see images of 6 of our assets. These are 6 of our largest assets, and they represent GBP 215 million of portfolio value, which is 47% of the portfolio value. So just these 6 assets alone will give you a really good insight into the portfolio. So if we look at the first column, briefly, we show our 2 largest multi-let industrial assets. And as Nick said, multi-let industrial represents around 50% of our portfolio, and we see really favorable supply-demand dynamics in that sector.

In the central column, we show our 2 largest office exposures. As Nick says, our offices are in higher-growth locations, such as Greater London, the big 6 cities, including Manchester and Edinburgh. The image you can see at the top is our largest office exposure. And this is actually let to the University of Law and its use for education purposes. So 10% of our office allocation is actually used for education rather than sort of general corporate office use. And that office that I mentioned is in Bloomsbury near Top Court Road 2 stations, so really well located in that knowledge quarter. And we've seen some really interesting deals in that location, taking rent to in excess of GBP 100 almost GBP 130 per square foot. So it's been a really positive location.

In the final column on the right-hand side, we show our 2 largest retail exposures. And the first point to note is the majority of our retail exposure is retail warehouse where we again see favorable supply-demand dynamics. And in the top photo, you can see some John's retail park, which is in Bedford. It's a catchment dominance scheme. It's our largest retail exposure. And the remainder of our retail is mainly part of mix new schemes. So in the second image you can see there, you see an image of Heading Central in Leeds. So we have some retail there, which is adjoining Premarin Hotel, a large gym and lots of food and beverage outlets.

Moving on to the next slide, we show some important portfolio level metrics and characteristics. We show this slide all the time. We do think it's quite important that you understand the overall portfolio. And as you usually have highlighted a couple of rows. So first, we highlight the number of properties and tenants. As Nick says, this has been fairly static over the quarter and does speak to the granularity of the portfolio, which we may think has made the portfolio more resilient as it spreads the risk across more assets and tenants.

And the second set of as highlights speaks to the higher-yielding nature of the portfolio. So our net initial yield is 6.1%, and that's 100 basis points in excess of the benchmark and our reversal yield is 8.5%, which is more than 2% ahead of the benchmark. And to put those percentages into kind of real numbers and pound notes, so the net initial yield refers to our annual rent today or as at 30th of June of just around GBP 30 million. Our reversion yield makes reference to our estimated rental value of GBP 39 million. So there's a GBP 9 million delta there. So that's GBP 9 million of reversion we are trying to capture. And then again to around GBP 9 million in the context, our annualized dividend is around GBP 16.5 million. So clearly, if we're able to start capturing that reversion as we have been doing, then there will be the potential to push that dividend on even further than we already have done since the pandemic.

On the right-hand side, we show the structure of our portfolio by sectors. The key point to take away here are our overall weighting to industrial and our overweighted to retail warehouse. So around 63% roughly of our portfolio is warehouses in some shape or form.

Moving on to the next slide. So as Nick says, we are a very active manager. It's how we have combined with good sector weightings. It's how we aim to outperform the benchmark, particularly with regard to income. And to give you a flavor of some of the initiatives we've been doing, we set out 3 examples on the slide here, and I'll briefly talk to each one. We're showing a retail example, an office example and an industrial example to be fairly representative of the portfolio. And as in the first polymers I've touched on before, change in John's Retail Park in Bedford. As I said, it's a catchment dominant scheme. And Recently, we've completed a new driver development on the scheme. We've got a new Starbucks now operational on the scheme. It cost us GBP 850,000 to build that Starbucks. The rent is GBP 155,000. So a really, really attractive yield and cost there, double-digit yield on cost. And interestingly, the rent that the Starbucks are paying is just over -- well it's around GBP 85 per square foot. The average across the other units on the scheme is around GBP 20 per square foot. So you can see just how lucrative these drive-thrus can be. They're very popular around the country. And we didn't stop there. So on the state on the scheme as well as the Starbucks drive-thru, we already had a cost of drive-thru in a different location on the scheme. So because we're able to agree that rent with Starbucks of GBP 86 per square foot, we use that as evidence when we had the [indiscernible] with Costa to do 2 things. So first, we increased the rent that Costa were paying by 73%. And secondly, we increased their lease term from 4 years to 9 years. So really derisked that second drive-thru, and that's a really good example of how we drive an income in the portfolio and driving the longer lease terms as well.

In the center, we show a time in Edinburgh, we've recently refurbed part of the lettable area, plus many of the common areas. We've also been working on adding end of journey facilities to improve the attractiveness of the asset to tenants and to encourage sustainable form of transport. Where we've refurbed lettable areas already, the EBC, we've been able to move on from a D to an A, really, we're really focused on improving the environmental performance, to drive those higher rents that Nick was talking about as being key to our strategy.

And then what we've just given an update on here is we've got planning permission to undertake the refurbishment required to bring SLR consulting into the asset, that SLR are interestingly a sustainability consultant. And they're going to pay us a rent of GBP 425,000 per annum for around 10,000 square feet. Now that represents a rent per square foot of 4 to GBP 1, which is significantly higher than what was previously passing. But it's worth noting that an element of that rent are around the GBP 13 of that rent relates to an enhanced refurbishment we're doing for the company. But even taking account of that, it is a significant step up in passing rent and is sort of testament to the strategy of providing high-quality performing space from a sustainability perspective to drive higher rents from better tenants.

On the right-hand side, we show our industrial example. We've recently completed a deal with the largest tenant at this multi-let industrial estate. So that tenant actually takes 49% of the floor area. And with that tenant, we've increased the rent by 50%. And we've increased the term from 1.5 years to 9 years. So a really, really good deal there. And it's really reflective of the fact that we're only in the right asset in the right sector, in the right location, and we have the best brilliant tenant. So it's about getting big decisions right as well as being an active manager afterwards.

Moving on to the next slide. Here, we show a breakdown of that reversion I spoke to, which can be quite abstract. So here, we try to put some numbers to it. So on the left-hand side, we show our current passing rent as at 30th of June. That's at GBP 30 million I spoke to earlier. And on the right-hand side, the final blue bar is our reversionary rent. So that's the rent that our independent value of things is the market rate for every of our units in aggregate, if we were to let them all to the market today. And sometimes it takes some time to realize this reversion because of lease terms can be from for many years or there might be a number of years before the next rate review.

Now the steps that we are sort of breaking down that journey are firstly fixed uplift that have already happened since 30th of June. So we've done GBP 300,000 of those. There are a further GBP 1.8 million of fixed uplift to come in the next 24 months from 30th of June. So technically, if we do nothing in the portfolio, we're going to realize these increases. In the third column, we show Stanley Green. So we've got GBP 600,000 of space to let us Stanley Green in relation to the new development, and we have really good interest there. And we hope to give you a really positive update of our interims with regards to Stanley Green. And then the next red bar represents units where the ERV as determined by the value remains ahead of the passing rent we're currently collecting. So as I said, as we get run those rent reviews and those lease expires and new leases, we'll be aiming to push the rents on. And then finally, we've got another GBP 3.8 million of rent in relation to vacant space, which we're working hard to get let.

Now the final slide for me is I wanted to touch on our balance sheet. As Nick said, we've got a really strong balance sheet. It's a competitive advantage. We've got 2 facilities. We have a term loan with Canada Life, which you can see on the left-hand side, that's GBP 129.6 million in total, of which it's fully drawn. And we have an RCF facility which is GBP 75 million in total, of which we have GBP 47 million currently drawn. Now the shift of the balance sheet is really underlined by the Canada Life loan. It's got an average interest cost of 2.5% and an average maturity of around 12 years. So that underpins the strength of our balance sheet, and it's very, very attractive. But overall, the average interest cost included in the drawn element of the asses with 3.5%. And we have a strategy in place to dispose of some of our smaller assets to pay down that unhedged GBP 16.5 million, where we're currently incurring the cost of around 6.5%. So as we pay that down, our average interest costs will come down disproportionately.

With that pause, for any final comments from Nick, and then we'll be really happy to take any questions that you have.

[Nick Montgomery, executive]

That's great. Thanks very much, Bradley, very clear. So I won't spend too long on this slide, but I think these are the 4 really key points. none of which, I guess, should come as a surprise to anyone that's been with us over the last 12 months because it's broadly consistent with what we've been saying. So the market is moving from stabilization now to, we believe, recovery supported by those characteristics I mentioned very limited development. Most importantly, positive rental value growth -- and as we're noting here, likelihood of there being further interest rate cuts as we move through back end of '24 and into '25. Our portfolio really continues to benefit from higher allocation to those high-growth sectors, particularly multi-let industrial estates, but also partly because of this, the active management potential will come through having lots of tenants being able to improve assets on a phased basis, clearly, with a real focus now on how sustainability improvements form part of that. Ultimately, all of this is about driving higher earnings growth. And as Bradley has said very clearly, we benefit from not having the risk that others do in terms of refinancing because as I said earlier on, I think although rates are falling, they're going to remain elevated compared with where they were. So some companies that are looking at refinancing in the next couple of years, clearly going to end up paying more interest.

So I will -- I'll pause there, Jake, because I think we've covered all those points given time and then back to you.

[Operator]

Perfect, Nick. Bradley, that's great. Thank you very much indeed for your presentation. [Operator Instructions] I would just like to remind you that a recording of this presentation along with a copy of the slides and the published Q&A can all be accessed via your investor dashboard.

I think, Nick, as you can see, we have received a number of questions throughout your presentation this morning. And thank you to all of those on the call for taking the time to submit their questions. But Nick, Bradley, at this point, if I may just hand back to you just to read out those questions and give your responses where it's appropriate to do so. I'll pick up from you at the end.

[Nick Montgomery, executive]

Great. Thanks, Jake. So thank you for the question. First of all, everybody. I think on the first -- there's a first question about what specific asset management has contributed to the performance and resilience. I think Bradley has touched on 3 particular examples over the most recent quarter and in particular, the multi-let estates in Telford, where that fairly significant new lease drove returns there. As a more general comment, we continue to benefit from having the high allocation to the industrial so that there is like a sector why we're outperforming. But actually, that's being enhanced to the asset management point by activity within the industrial portfolio because the higher growth means that we have more tenant demand which means that we can really work with our improved units, drive that green premium. So that's really what is driving it.

I think there was a question about the outlook. I think this might have come in before we gave the overview of where we see returns. I think we've seen a 25% decline from June '22 to today. And this is obviously in it from perspective of the benchmark rather than ourselves, we performed better on a relative basis. That compares, as I said, were 44% during GFC, 25% or thereabouts during the late '80s, early '90s recession. So that correction a more supportive interest rate environment and expectation of elevation -- inflation rather remaining slightly higher, that passing through to rents means, as I say, we are expecting returns in the region of 8% or 9% per annum property level, which we think will lead more capital to come back to the sector.

In terms of the reasons for the discount, and this is linked actually into a question somewhat asked specifically in relation to 1 of our peers because there are -- if you look at our NAV returns, particularly over the last 3 years since we undertook that refencing because the previous high debt cost really was going to anchor dragging our total returns. From a NAV perspective, we scrub up well from an underlying property performance we scrub it very well. But clearly, there are also companies in the peer group that are performing better and worse at them points.

And there's 1 in particular [indiscernible] I won't mention what it is, but I'll give an answer. There are always going to be, as I say, differently, but there's 1 particular company in our peer group that is somewhat smaller, that has a very concentrated asset base has a very high yield, and that high yield has led to very healthy levels of return. We would say that although we have before, quite as well, we are more diversified and we would have more confidence kind of looking through the cycle.

The other point to note and with that company in particular, is because they have a very high proportion of retail investors coming through platforms. such as a number of you will be coming through ABL, hybrid [indiscernible] down Interactive. And actually, what we've begun to see with our share price and rating is an improvement as we've done more engagement such as this through the platforms. And so that's 1 of the reasons I think why that particular company has seen somewhat stronger share price performance [indiscernible] the whole peer group because of those retail investors.

Bradley, there's a question here just on void. I wondered if you want to just give some color about where we perhaps see that going given activity looking forward [indiscernible]?

[Bradley Biggins, executive]

Yes, sure. So what we've -- some of the initiatives we've completed recently have been major refurbishments or major development. So examples are Stanley Green, where we have 600,000 of rent to capture. We also have a Net Zero carbon in operation unit base [indiscernible], we've recently completed, and we've got that out in the market at the moment, and there's a good level of interest there. We refurb -- did a major refurb of 2 industrial units in [indiscernible]. They represent around GBP 0.5 million of rent just alone between 2 of them. So they are out in the market at the moment, and we again have interest there. So we've got some rents coming through with regard to those. We've completed some refurbishments at some of our small losses that we are now looking to let. And they are now in the market. So I'd say that they are the major moving parts that we have at the moment. And because these units have been developed and have now been refurbished, we would expect to let them sooner rather than later. We're not having to wait for that refurbishment in.

[Nick Montgomery, executive]

Yes. Very clear. The related question actually Bradley, which I'll touch on initial where -- what are our strategies managing lease expiries and renewals in the current environment. Yes. And that's a really good question. I think 1 point to note, I guess, is we provide average earnings by the lease term information for the portfolio, and we assume the worst case in terms of all tenants break at the earliest opportunity at our average any lease term on that basis actually has increased slightly because of the activity in the portfolio. So it's now around 5.5 years. So I guess, in clearly, 20% of our portfolio comes up a year. As it happens, it's less evenly spread than that.

From an industrial sector perspective, the average lease term on our industrial days is 3 to 5 years. And the market momentum and the rental growth means actually that's a good thing. Those leases come up, and we continue to crystallize higher rents as we get that space back, we refurbish relet, and that's what you can see coming through in the rental growth. I guess where we've got bigger lease expiries, so for example, 1 of our university leases had a break, which they could otherwise have exercised last year. By having the big asset management team, we can get ahead of that. And so what we try to do is engage well ahead of time. So for example, in the situation I mentioned, which was 1 of our university tenants, we ended up agreeing a deal ahead of our break, gave them an incentive to not break out, move a rent on with a fixed uplift which, although we had to take a short period of no income actually was very much value accretive. Another really good example actually of how we address that sort of risk is something Bradley touched on actually last quarter, where it's our retail [indiscernible], we had a couple of leases expiring on to [indiscernible] to home another 1 to Smiths toys, but we knew through our specialist retail warehouse team here that Lidl had a requirement alongside others like Aldi and some other retailers. And so what we're able to do, again, ahead of those leases expiring is line up 1 of those retailers on a long lease subject to planning at a materially higher rent. So in some cases, we want that spent back, and we're happy to let it run. But we judge it based on the certain [indiscernible]. And so if there's a bigger risk there, we will generally want to get ahead of it. And actually, you can see in the numbers, albeit not a huge increase over the last quarter, we have seen that average unit by the lease term tick up because of our activity.

So I think we've covered all the questions actually, Jake and also I'm just conscious of time for an interim update. So I'm happy now to hand back to you.

[Operator]

Absolutely, Nick, Bradley, that's great. Thank you very much indeed for addressing all of those questions that came in from investors this morning. And of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended, just for you to review, to then add any additional responses, of course, where it's appropriate do so. I will publish those responses out on the platform. But Nick, perhaps before really just looking to redirect those on the cord to provide you their feedback, which I know is particularly important to yourself and the company. If I could please just ask you for a few closing comments to wrap up with, that would be great.

[Nick Montgomery, executive]

No, lovely, thanks, Jake. And again, just to reiterate, thank you, everyone, again for dialing in or back in. We appreciate your time. Look, I think I'll just be very brief. Hopefully, those of you that have heard us over the course of 12 months or so we'll know that we've been pretty clear about our strategy, about our views on the market. And I think most importantly, we are delivering what we set out to deliver. We are delivering on the active management. We're delivering on the rental growth. We've got a huge amount of work going on in relation to our strategic evolution, we will give a much more thorough update on that when we come to announce our interims in September. But I guess, most importantly, when you're looking at the share price today, the discount that's there, we have conviction that we are going to see a recovery in the U.K. real estate market that will go to sentiment, and we think it will drive more demand for the shares. So therefore, buying today at a 23% discount that are covered dividend yields of between 7% and 7.5%, we think remains a really compelling investment proposition. So again, I really appreciate everyone's time, and we will hopefully be back here probably in November when we will be announcing our interim results to the end of September.

[Operator]

That's great. Nick, Bradley, thank you once again for updating investors this morning. Could I please ask investors not to close the session as you'll now be automatically redirected for the opportunity to provide your feedback in order for the management team can really better understand your views and expectations. This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of Schroder Real Estate Investment Trust Limited. We would like to thank you for attending today's presentation. That now concludes today's session. So good morning to you all.