Schroder European Real Estate Investments Trust : Half Year Report

SCHRODER EUROPEAN REAL ESTATE INVESTMENT TRUST PLC

Interim Report and Condensed

Consolidated Financial Statements

For the period 1 October 2023 to 31 March 2024

Overview

About us

Unique and compelling opportunity to invest in a diversified portfolio of commercial Continental European real estate.

Future returns supported by an allocation to higher-growth sectors, an experienced local management team, and a UK peer group leading debt profile.

Venray, Netherlands

Net asset value ('NAV')

We seek to deliver strong long-term NAV growth.

NAV	NAV per
	ordinary share
€165.3m	123.6c

  Read more | Page 8

Assets

We actively manage assets to achieve optimal value, continuing to drive income and increase exposure to higher-growth cities and sectors.

Portfolio value Number of tenants

€234.5m1 48

  Read more | Page 11

Balance sheet strength

PrudentretentionofcashandlowLTVproviding flexibility to commit capital to improve

the existing portfolio, and take advantage of attractive buying opportunities.

Available cash	Loan to value
	('LTV')
€26.4m2	24%
	net of cash

  Read more | Page 15

Why invest

1

6

Sustainable quarterly dividend fully covered by EPRA earnings

2

A track record of successfully executing on asset management initiatives to generate strong shareholder returns

7

Attractive dividend yield of c.8.0% on current share price3

3

Local investment and asset management teams with specialist sector and country knowledge

8

Strong balance sheet with modest levels of gearing (24% net LTV) and significant investable firepower with available cash of €26.4m

4

Hospitality-led approach to asset management and tenant relationships enhancing returns

9

Income considered to be a strong inflation hedge with all leases subject to indexation and c.80% annually indexed

Opportunity to improve portfolio sustainability credentials and leverage Schroders' market leading expertise

5	10
95% of the portfolio by value located in higher-growth regions	Focus on stable western European markets

Past performance is not a guide to future performance and may not be 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.

• Reflects the value of directly held property assets of €208.1m and available cash of €26.4m.

2 Available cash of €26.4m is internally calculated by deducting net assets and liabilities as well as yet to be paid dividends from the cash balance.

3 Reflects the annualised latest announced quarterly dividend of 1.48cps/1.27pps based on a share price of 63.0pps as at 31 May 2024.

Dividends		IFRS result
We seek to deliver a growing, fully	Strong EPRA earnings partly
covered dividend. Dividend cover	compensate portfolio value decline.
currently stands at 109%.1
Dividends declared	Dividends declared	IFRS result	NAV total return
during the interim	per share	-€2.2m	-1.3%
period
€4.0m	2.96cps
(H2 2023: €4.0m)	(H2 2023: 2.96cps)
Read more | Page 33	Read more | Page 8

Alkmaar, Netherlands

Sustainability

Sustainability is integrated in our investment process, focusing on our three pillars of People, Planet and Place.

Number of assets	GRESB 4-star
with sustainability	rating2
and net zero carbon
audits in progress

12

Overview

Interim Management Report

Financial Statements

Contents

Overview

02 Performance Summary

Interim Management Report

04 Chairman's Statement

1. Investment Manager's Report

1. Responsibility Statement of the
   Directors in respect of the Interim Report
2. Independent Review Report

Financial Statements	Other Information (unaudited)
20	Condensed Consolidated	36	EPRA and Headline Performance
	Interim Statement of		Measures (Unaudited)
	Comprehensive Income	38	Glossary
21	Condensed Consolidated Interim	39	Alternative Performance
	Statement of Financial Position		Measures
22	Condensed Consolidated Interim	40	Corporate Information
	Statement of Changes in Equity

1. Condensed Consolidated Interim
   Statement of Cash Flows
2. Notes to the Financial Statements

Other Information

• Dividend cover stands at 109% for both the three and six months periods ended 31 March 2024.
  2 Please refer to the glossary for further information on GRESB.

01

Trust plc	Statements for the period 1 October 2023 to 31 March 2024
Estate Investment	Consolidated Financial
Schroder European Real	Interim Report and Condensed

Overview

Performance Summary

Property performance

	31 March 2024	31 March 2023	30 September 2023
	(six months period)	(six months period)	(12 months period)
Value of property assets1	€208.1m	€220.2m	€214.1m
Annualised rental income1	€16.7m	€16.5m	€16.8m
Estimated market rental value1	€16.1m	€15.8m	€16.0m
Underlying portfolio total return in the reporting period2	0.3%	(2.3%)	(2.1%)
Underlying portfolio income return in the reporting period2	3.4%	3.0%	6.3%

Financial summary

	31 March 2024	31 March 2023	30 September 2023
NAV	€165.3m	€177.1m	€171.4m
NAV per ordinary share (euro)	123.6c	132.4c	128.2c
NAV total return (euro)	(1.3%)	(4.7%)	(5.0%)
IFRS loss after tax	(€2.2m)	(€8.7m)	(€9.4m)
EPRA earnings2	€4.3m	€3.8m	€8.0m3
Dividend cover	109%	76%	89%

Capital values4

	31 March 2024	31 March 2023	30 September 2023
Share price	62.0 pps/ZAR 15.5	82 pps/ZAR 18.8	69.0 pps/ZAR 16.1
IFRS NAV per share	105.6 pps/ZAR 25.2	116.2 pps/ZAR 25.6	111.0 pps/ZAR 25.6

Earnings and dividends5

	31 March 2024	31 March 2023	30 September 2023
IFRS earnings	(1.6cps)	(6.5 cps)	(7.0cps)
EPRA earnings2	3.2cps	2.8 cps	6.0cps
Headline earnings2	3.2cps	2.8 cps	6.0cps
Ordinary dividends declared	3.0cps	3.7 cps	6.7cps

Bank borrowings

	31 March 2024	31 March 2023	30 September 2023
External bank debt (excluding costs)	€82.5m	€84.7m	€85.5m
Loan to value ratio based on GAV net of cash/gross of cash	24%/33%	23%/32%	24%/33%

Ongoing charges6

	31 March 2024	31 March 2023	30 September 2023
Ongoing charges (fund operating expenses only)	2.57%	2.34%	2.46%
Ongoing charges (fund and property operating expenses)	3.60%	3.45%	3.60%

• Excludes the Seville property for which the NAV exposure is nil.

• These are Alternative Performance Measures ('APMs'). EPRA and Headline earnings are reconciled to IFRS earnings on pages 36 and 37.

• EPRA earnings were €3.8m for the first six months of the financial year 2023 and €4.2m for the latter six months of the financial year 2023 (totalling €8.0m for the full 12 months).

1. Pps refers to pence per share. ZAR refers to South African Rand per share.
2. Cps refers to euro cents per share.

• Ongoing charges are Alternative Performance Measures ('APMs') calculated in accordance with the AIC recommended methodology as a percentage of the average NAV over a given period. For a definition of this Alternative Performance Measure refer to page 39.

02

Interim Management Report

Interim Management Report

Contents

04 Chairman's Statement

08 Investment Manager's Report

1. Responsibility Statement of the Directors in respect of the Interim Report
2. Independent Review Report

Overview

Interim Management Report

Financial Statements

Other Information

Cannes, France

03

Trust plc	Statements for the period 1 October 2023 to 31 March 2024
Estate Investment	Consolidated Financial
Schroder European Real	Interim Report and Condensed

Interim Management Report

Chairman's Statement

Sir Julian Berney Bt.

Chairman

Performance Summary: Interim to March 2024

Value of directly held property assets and available cash

€234.5m

Net asset value ('NAV')

€165.3m

Share price as at 31 May 24

63.0pps

EPRA earnings

3.2cps

Loan to value (net of cash)

24%

IFRS loss

€2.2m

Overview

We are pleased to announce our unaudited interim results for the six- month period ended 31 March 2024. Despite ongoing economic and geopolitical uncertainty, the Company has achieved another robust set of financial results:

• Strong and growing underlying EPRA earnings: Underlying EPRA earnings increased to €4.3 million (H2 2023 €4.2 million). This was driven by strong occupancy, high rent collection, and the portfolio's indexation characteristics, which underpinned rental growth. These collectively have helped offset the impact of higher interest costs.
• Fully covered dividends: Quarterly dividends of 1.48 euro cents per share were paid, reflecting an attractive dividend yield of approximately 8% per annum based on the share price of 63.0 pence sterling as at 31 May 2024. The dividend is 109% covered by EPRA earnings, providing further comfort around dividend stability.
• Emphasis on asset management: While the impact of the macroeconomic volatility on listed vehicles is outside of our control, we have successfully concluded 11 new leases and re-gears across the portfolio1, totalling ca 6,340 sqm and generating €1.2 million in annual rent, at a weighted lease term of eight years. When combined with the focus on operational excellence, this has helped to maximise shareholder returns, ensuring that our assets remain relevant to their marketplace. Our local investment and asset management teams, with specialist sector and country knowledge, will continue to be key in driving performance.
• Strong balance sheet: Successfully completed all near-term refinancings on attractive terms, placing the Company in a strong financial position. The Company has significant cash reserves of approximately €26 million, modest gearing of 24% net of cash, and no further debt expiries until June 20262. A resilient balance sheet provides us with significant flexibility and the option to review select sustainability-led capex initiatives in the portfolio, which should optimise earnings growth and asset liquidity.
• Portfolio values: The like-for-like portfolio value (net of capex) declined €6.6 million, or -3.1%, to €208.1 million, largely driven by continued outward yield movement. Combined with EPRA earnings, this resulted in an IFRS loss of €2.2 million and a NAV total return of -1.3%. Investment volumes, and evidence for valuers, are increasing across Europe, particularly for smaller lot sizes in winning cities, which provides reassurance about underlying carrying values.
• Valuation yields: Valuation yields across the portfolio declined between 0 and 70 basis points (bps) over the period, primarily driven by the availability and cost of debt, as well as the appeal of other asset classes such as fixed income. We believe we have found a floor for select retail and industrial assets, and the recovery in the portfolio's office values will be driven by affordability, accessibility, and sustainability attributes.
• Focus on sustainability: Advanced our sustainability audits by leveraging the Schroders Capital platform and third-party consultants to undertake net zero carbon and Schroders real estate ESG Scorecard analysis, with the aim of investing in, and improving, the quality of our existing portfolio. We intend to target higher sustainability credentials which are consistent with our aim to achieve an Article 8 classification under the Sustainability Finance Disclosure Regulation ('SFDR) and the 'Sustainability Improver' label under the Sustainability Disclosure Regulations ('SDR).

1 Including lettings in Seville.

• Excluding Seville for which a standstill agreement has been agreed.

04

Despite these strong fundamentals, our shares, like those of many other UK-listed real estate funds, continue to trade at a deep discount to NAV. We believe there is an opportunity to further differentiate our strategy by placing greater emphasis on sustainability objectives and reporting on the progress made in achieving them. This will complement the existing key attributes underpinning the strategy, including winning cities, diversification, strong occupancy, indexation upside, strength of balance sheet, and high dividend yield with excess cover.

Overall, the Board is pleased with the resilience of the portfolio and the efforts of our Investment Manager in delivering on our asset management programme.

Strategy

Our differentiated strategy remains focused on delivering shareholders an attractive level of income, as well as the potential for income and capital growth, through investments in commercial real estate in Continental Europe. We have made the strategic decision to be prudent and retain capital and continue to strengthen our balance sheet, ensuring that we have the necessary resources to invest in sustainability initiatives, which should help drive earnings growth and improve asset quality and liquidity.

We have a high conviction in the transformation of less sustainable buildings into modern, fit-for-purpose assets with green certifications. This approach should not only deliver enhanced returns but also support the wider real estate industry in achieving its net zero carbon targets. It should benefit our tenants, local communities, and overall portfolio performance.

We are in the advanced stages of finalising our sustainability and net zero audits, which will play a crucial role in our goal of applying for the 'Sustainability Improver' label under the Sustainability Disclosure Regulations ('SDR') set by the FCA. Additionally, we aim to become an Article 8 vehicle under the Sustainability Finance Disclosure Regulation ('SFDR'). We plan to apply for FCA approval later this year and seek the required approvals.

The portfolio remains diversified, managed by local sector specialist teams known for their operational excellence and hospitality mindset. Approximately 33% of the portfolio by value consists of offices, all of which are situated in supply-constrained locations and leased at affordable rents. Office occupancy in Continental Europe has seen a much stronger recovery following the pandemic relative to the UK and USA, driven by factors including, amongst others, accessibility by public transport and overall commute times. This has helped to keep occupancy levels high, particularly for quality space.

Our industrial exposure, comprising distribution warehouses and light industrial, accounts for 30% of the portfolio and is concentrated in growth cities in France and the Netherlands. Of the retail exposure, 17% is in DIY and grocery investments in densely populated urban areas, which are performing strongly. Alternatives make up 9% of the portfolio, including a mixed-use data centre and a car showroom, with the remaining 11% in cash. Throughout the period, our portfolio maintained a strong occupancy level of 96%, with all assets fully leased except for the Saint-Cloud office investment, which averaged approximately 85% occupancy over the period.

The strength of our balance sheet, cash position and dividend stand out relative to UK peers"

We continue to provide a unique offering compared to the wider UK- listed real estate peer group, delivering sustainable income and capital growth for our shareholders, while actively managing risk and ensuring the relevance of our assets in their respective markets.

Financial results

The NAV total return for the interim period was -1.3%, primarily driven by market-wide outward yield movements as a result of the higher interest rate environment. We witnessed outward yield movement across all our assets except Frankfurt, due to higher discount rates, influenced by changes in the availability and cost of financing. Independent valuers have reduced capitalisation rates by an average of approximately 25 basis points (bps), with value declines partially offset by rental indexation and, at certain assets such as Rumilly, Rennes, Nantes and Venray industrial investments, and the Hamburg office, by ERV growth. Underlying EPRA earnings for the period increased to €4.3 million, compared to €4.2 million in the second half of 2023. The Company's NAV as of 31 March 2024 decreased by €6.1 million, or 3.6%, to €165.3 million, or 123.6 euro cents per share, over the period.

Overview

Interim Management Report

Financial Statements

Other Information

05

Interim Management Report

Chairman's Statement continued

Trust plc	Statements for the period 1 October 2023 to 31 March 2024
Estate Investment	Consolidated Financial
Schroder European Real	Interim Report and Condensed

Balance sheet and debt

Given the disparate and volatile credit markets, we continue to manage our balance sheet conservatively. At the end of the period, third-party debt totalled €82.5 million, representing a loan-to-value ('LTV') ratio net of cash of 24% against the overall gross asset value of the Company, which is significantly below the net LTV cap of 35%. The Company has six loans secured against individual assets

or groups of assets, with no cross- collateralisation between loans. The average weighted total interest rate of the loans is 3.2% per annum, and the weighted average duration is 3.2 years.

During the period, we completed two French refinancings on highly competitive terms. In December 2023, we refinanced the Paris office investment early, reducing the loan principal from €17 million to €14 million, and securing a margin of

1.9% for four years. Furthermore, in March 2024, we refinanced an €8.6 million loan secured against our Rennes property with the existing lender for five years at a margin of 1.6%. The Seville loan remains in a cash trap and is being managed under a standstill agreement to facilitate a sale. A disposal of the Seville property would reduce portfolio gearing

by approximately 3%, and we are actively pursuing this strategy. Further details on individual loans can be found in the Investment Manager's Report. The Company currently holds approximately €26 million in available cash and has further debt capacity, providing significant flexibility.

Dividends

During the current period, the Board has decided to continue with the quarterly dividend of 1.48 euro cents per share. The total dividends declared for the six months of the current financial year amount to 2.96 euro cents per share, which is fully covered at 109%. When annualised, the dividend provides a highly attractive dividend yield of c.8.0% based on the share price of 63.0 pence per share as of the close on 31 May 2024.

The Board will continue to monitor the dividend in consideration of factors such as tenant occupation, rent collection, interest expense, cash position, and dividend cover. The current level of dividend cover provides confidence in the sustainability of the dividend, despite increasing interest expense costs.

Board succession

As part of our comprehensive succession planning process, we appointed Mark Beddy as an independent Non-Executive Director, effective from 1 January 2024. Mark brings extensive finance and accounting experience, having served as a senior audit partner in Deloitte LLP, with a focus on real estate investment, development, and construction. He is a Chartered Accountant and holds various trustee and committee roles in organisations such as the British Council, London Symphony Orchestra, a private real estate portfolio, and a real estate income fund. Mark currently serves as the chair of the Audit, Valuation, and Risk committee, and is a member of the Nomination and Remuneration Committee and Management Engagement Committee. He replaced Jonathan Thompson, who retired at the recent AGM in March 2024.

The Board intends to review the composition of the Board in September 2024 with the view of reducing its size from four to three members.

Outlook

Despite geopolitical risks, economic sentiment is slowly improving

and inflation is moderating across Continental Europe. As such, with the ECB reducing rates by 25 basis points in early June 2024, we anticipate the potential for a further rate cut towards the end of 2024. This should provide more certainty to capital markets, attracting investors back to real estate and investment trusts, given their attractive income and value characteristics. Our management team has successfully managed the

near-term refinancing challenges and given the strength of our balance sheet, cash position, and dividend, the Company provides a compelling investment proposition compared to our UK-listed peers.

Moving forward, we will continue to focus on the elements within our control including operational understanding, tenant relationships and sustainability enhancements, which will collectively improve our income and thereby earnings, enhance liquidity, and drive asset value. We anticipate that the investor pool

will grow as we potentially seek to pivot towards becoming an Article 8 vehicle, and we expect the attractive discount currently available to narrow. Regardless, investors can have confidence in a viable company with diversified real estate exposure across key growth European cities, managed by local market specialists.

Sir Julian Berney Bt.

Chairman

18 June 2024

06

Overview

Interim Management Report

Financial Statements

Other Information

Berlin, Germany

07

Interim Management Report

Investment Manager's Report

Trust plc	Statements for the period 1 October 2023 to 31 March 2024
Estate Investment	Consolidated Financial
Schroder European Real	Interim Report and Condensed

Jeff O'Dwyer

Fund Manager

Financial results

The net asset value ('NAV') as at 31 March 2024 stood at €165.3 million (£141.3 million), or 123.6 euro cents per share (105.7 pence per share), compared with €171.4 million, or 128.2 cps, as at 30 September 2023.

During the period, dividends totalling €4.0 million were paid, which resulted in a NAV total return of -1.3%.

The table below provides an analysis of the movement in NAV during the reporting period as well as a corresponding reconciliation in the movement in the NAV euro cents per share.

	€m1	cps2
NAV as at 1 October 2023	171.4	128.2
Unrealised loss in the valuation of the
real estate portfolio3	(6.1)	(4.6)
Capital expenditure3	(0.5)	(0.3)
Transaction costs3	0.0	0.0
Paris, Boulogne-Billancourtpost-tax
development profit	0.0	0.0
Movement on the Seville JV investment	0.0	0.0
EPRA earnings4	4.3	3.2
Non-cash/capital items	0.2	0.1
Dividends paid5	(4.0)	(3.0)
NAV as at 31 March 2024	165.3	123.6

• Management reviews the performance of the Company principally on
  a proportionally consolidated basis. As a result, figures quoted in this table include the Company's share of the Seville joint venture on a line-by-line basis.

• Based on 133,734,686 shares.

• The unrealised loss in the valuation of the real estate of the portfolio (€6.1m), net of capital expenditure (€0.5m), reconciles to the 'net gain/(loss) from fair value adjustment on investment property' of (€6.6m) on page 26 of the financial statements.

• EPRA earnings as reconciled on page 36 of the financial statements.

• Dividends of 2.96 cps were paid during the financial period. A dividend for the quarter ended 31 March 2024 of 1.48 Euro cents per share was approved and will be paid in August 2024. Total dividends declared relating to the
  six months' ended 31 March 2024 were 2.96 Euro cents per share. For more information, please refer to page 33.

We continue to have conviction that better quality, certified investments will outperform and that poorer quality assets will become increasingly obsolete and illiquid."

The direct portfolio, net of capital expenditure, decreased in value by €6.6 million, mainly as a result of a yield re-rating of the underlying real estate.

Having previously crystallised the majority of the profit from the Paris BB sale, no further additional profit was released into the NAV this financial period. There remains approximately €1.0m of potential post-tax profit still to be recognised in the NAV. Further information is disclosed in note 4 on pages 28 to 29.

Non-cash items of €0.2 million mainly result from reduced deferred taxes due to lower real estate portfolio values.

EPRA earnings for the period totalled €4.3 million and this is an increase of 3% on the prior six months' EPRA earnings of €4.2 million. The positive contribution from higher rental income and lower vehicle costs during the most recent six month period is largely offset by a higher cost of debt as a result of the refinancings.

08