Schroder Real Regulatory News (SREI)

For release 22 May 2018

Schroder Real Estate Investment Trust Limited

("SREIT"/ the "Company" / "Group")

FULL YEAR RESULTS FOR THE YEAR ENDED 31 MARCH 2018

PROFIT FOR THE YEAR INCREASED 48% TO £33.8 MILLION. WINNING CITIES FOCUS AND ASSET MANAGEMENT DRIVING OUTPERFORMANCE

Schroder Real Estate Investment Trust, the actively managed UK focussed REIT, today announces its audited full year results for the 12 months ended 31 March 2018.

Financial highlights for the 12 months ended 31 March 2018

· Net Asset Value ('NAV') total return of 10.5% (31 March 2017: 7.2%).

· 6.4% increase in NAV per share for the year to 68.2 pence per share (pps).

· EPRA earnings, adjusted for abortive transaction costs, of £14.1 million (31 March 2017: £13.8 million) which reflects a dividend cover of 109%.

· Profit for the year increased 48% to £33.8 million (31 March 2017: £22.8 million).

· Low Debt with Loan to value ('LTV') of 25.3% on a long-term debt (31 March 2017: 26.0%).

Operational highlights

· Sustained outperformance of real estate portfolio with a total return of 11.8% versus the MSCI/IPD Benchmark Index of 10.7% resulting in annualised outperformance of 1.0% over the past 12 months, 2.3% over 3 years and 1.4% since IPO in July 2004.

· Portfolio supported by strong fundamentals with 93% of the portfolio located in Winning Cities.

· Positive weighting to office and industrial sectors of 64%, and no City of London or Shopping Centres.

· Reversionary income yield of 7.0%, compared with the MSCI Benchmark of 5.7%, should lead to stronger income growth over the next 12-24 months.

· Identified programme of asset management initiatives of approximately £10 million of capital expenditure initiatives over the next 12 months to generate attractive income returns.

· Over the course of the financial year sales were completed at a premium to their valuations, and the Company is seeking opportunities to reinvest.

Commenting, Lorraine Baldry, Chairman of the Board, said:

"The Winning Cities strategy executed over the past few years has increased the Company's exposure to higher growth sectors and regions where we expect more sustainable occupational demand. This reflects our long term focus on generating outperformance of the underlying real estate portfolio. In a more uncertain environment we expect the Company to benefit from the quality and diversification of the underlying portfolio, balance sheet strength and dividend coverage. Looking forward, we will continue to consider opportunities to enhance shareholder returns through disciplined growth. The delivery of the above will enable a sustainable dividend increase in the near term."

Duncan Owen, Global Head of Schroder Real Estate, added:

"The Company has consistently focused on fundamentals and its total return by growing net income. In the current environment this will be important. The underlying real estate portfolio has now outperformed its Benchmark over the long term by 1.4% per annum since its IPO in 2004. Identifying new acquisitions, reducing the cost of our debt and reviewing the potential to grow the Company if it enhances shareholder returns are key next steps."

-Ends-

For further information:

A presentation for analysts and investors will be held at 8.30am today at the offices of Schroders plc, 31 Gresham Street, London EC2V 7QA. If you would like to attend, please contact Alex King at FTI on +44 (0)20 3727 1015 or alex.king@fticonsulting.com

Contents

Schroder Real Estate Investment Trust Limited aims to provide shareholders with an attractive level of income together with the potential for income and capital growth through investing in UKcommercial property.

Company Summary

Schroder Real Estate Investment Trust Limited (the 'Company' and together with its subsidiaries the 'Group') is a real estate investment company with a premium listing on the Official List of the UK Listing Authority and whose shares are traded on the Main Market of the London Stock Exchange (ticker: SREI).

The Company is a real estate investment trust ('REIT') and benefits from the various tax advantages offered by the UK REIT regime. The Company continues to be declared as an authorised closed-ended investment scheme by the Guernsey Financial Services Commission under section 8 of the Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended and the Authorised Closed-ended Collective Investment Schemes Rules 2008.

Objective

The Company aims to provide shareholders with an attractive level of income and the potential for income and capital growth as a result of its investments in, and active management of, a diversified portfolio of UK commercial real estate. 

The Company's dividend policy is to pay a sustainable level of quarterly dividends to shareholders. It is intended that successful execution of the Company's strategy will enable a progressive dividend policy to be adopted. 

The portfolio is principally invested in the three main UK commercial real estate sectors of office, industrial and retail, and may also invest in other sectors including, but not limited to, residential, leisure, healthcare and student accommodation. Over the property market cycle the portfolio aims to generate an above average income return with a diverse spread of lease expiries.

Relatively low level gearing is used to enhance income and total returns for shareholders with the level dependent on the property cycle and the outlook for future returns. 

Investment strategy

The current investment strategy is to grow income and enhance shareholder returns through selective acquisitions, pro-active asset management and selling smaller, lower yielding properties on completion of asset business plans. The issuance of new shares will also be considered if it is consistent with the strategy.

Our objective is to own a portfolio of larger properties in Winning Cities and Regions with high growth diversified local economies, sustainable occupational demand and favourable supply and demand characteristics. These properties should offer good long-term fundamentals in terms of location and specification and be let at affordable rents with the potential for income and capital growth from good stock selection and asset management.

Key Points

· Sustained real estate outperformance of 1.0% over the MSCI/IPD Benchmark over the past 12 months, 2.3% p.a. over 3 years and 1.4% p.a. since IPO in July 20041

· NAV total return of 10.5% for the year to March 2018

· Increased dividend cover of 109% for the year to March 20182

· 93% of the Company's portfolio located in Winning Cities3

· Positive weighting to office and industrial sectors of 64%

· No City of London or shopping centre exposure

· Low loan-to-value of 25.3% on long-term debt

Supporting information:

· Portfolio by value located in higher growth regions 93%3 (2017: 93%)3 

· Net asset value ('NAV') total return 10.5% (2017: 7.2%)

· Underlying Property portfolio total return of 11.8% (2017: 8.5%)

· Dividend cover 109%2 (2017: 107%)

· Portfolio total return1

o 1 year : 11.8% SREIT vs 10.7% MSCI/IPD Benchmark

o 3 years: 11.0% per annum SREIT vs 8.4% per annum MSCI/IPD Benchmark

· Portfolio income return1

o 1 year: 6.2% SREIT vs 4.8% MSCI/IPD Benchmark

o 3 years: 6.3% per annum SREIT vs 4.9% per annum MSCI/IPD Benchmark

· Value of property assets and joint ventures £477.5 million (2017: £467.7 million)

· Net asset value of £353.6 million (2017: £332.6 million)

· Underlying earnings of £14.1 million4 (2017: £13.8 million)

· Loan to value, net of all cash of 25.3% (2017: 26%)

1. Source: MSCI property level returns gross of fees on a like-for-like basis including direct and indirect property investments. Past performance is not a guide to future performance and may not be repeated.

2. Dividend cover excluding abortive transaction costs. When included, the dividend cover to March 2018 was 97%.

3. Winning Cities defined as higher growth locations; Source: Oxford Economics/Schroders.

4. Adjusted EPRA earnings.

Portfolio Overview - At a glance

The investment policy of the Company is to own a diversified portfolio of UK real estate with good fundamental characteristics. The Group invests principally in the UK commercial real estate sectors including office, retail and industrial and will also invest in other sectors including mixed use, residential, hotels, healthcare and leisure.

Sector weightings

Offices - The Company is overweight in offices compared with the MSCI/IPD Benchmark. The focus is on buildings with good fundamentals in Winning Cities and Regions that attract a diverse occupier base. The Company has no exposure to the City of London which is expected to be most affected by the UK's departure from the European Union.

Industrial - The Company owns a range of industrial assets, the most significant being multi-let estates including Milton Keynes and Leeds which are positively impacted by structural trends and where there are significant asset management opportunities to capture rental growth.

Retail - The retail assets in the portfolio are predominantly well-managed retail warehouses and convenience retail let at sustainable rents and which benefit from trends including 'click and collect'. The Company does not own any Shopping Centres.

Other - Other sectors includes mixed use, residential, hotels, healthcare and leisure properties. At present, hotels at City Tower, Manchester and Arndale Centre, Leeds and a leisure scheme in Luton represent the other weighting in the Company's portfolio.

Top ten properties

The top ten properties set out below comprise 59% of the portfolio value:

44 properties - valued at £477.5 million

This includes the share of joint venture properties at City Tower in Manchester and Store Street inBloomsbury, London.

93% of the portfolio by value located in higher growth locations

1Source: Oxford Economics, Schroders April 2018.

Investment Philosophy

A disciplined approach to investment

Schroder Real Estate Investment Trust aims to provide shareholders with an attractive level of income with potential for income and capital growth from owning a diversified portfolio focused on higher growth assets benefiting from structural change. The portfolio is managed in accordance with an investment philosophy centred on consistent principles which are to invest in strong asset fundamentals and to activelymanage assets.

Mega themes

Long term performance of real estate assets will be driven by structural changes or 'mega themes' arising from demographic, technological, environmental and other factors that are outside of the normal real estatemarket cycle.

High quality research

Research is focussed on cyclical and structural trends in order to determine market strategy and exploit mis-pricing. In addition, to better understand real estate fundamentals, our research focuses on occupational demand at a town and city level and other factors such as construction starts, infrastructure investment and pricing relative to other assets.

Business plan led approach

Every asset is managed as a business with a detailed plan that is the key focal point for identifying and implementing active management strategies that will maximise returns.

Responsible investment

Sustainability and Environmental Social Governance ('ESG') considerations are integral to good investment management and should generate better long term returns, contribute to our tenant's business performance and create tangible benefits to the communities where we are invested. The Company's work in this area was recognised by an EPRA Gold award for Best Practice Reporting in the 2017 year end accounts.

Winning Cities

Demand is increasingly concentrated in 'Winning Cities' offering a competitive advantage in terms of higher levels of GDP, employment and population growth; differentiated local economies with higher value industries; well developed infrastructure; and places where people want to live and work. Winning Cities will change over time and investments will be made in other locations where we see higher rates of future growth that could lead to mis-pricing opportunities.

Our Strategic Objectives

Exposure to Winning Cities experiencing higher levels of GDP, employment andpopulation growth

93% of the Company's assets are located in higher growth regions and the strategy will continue to focus on Winning Cities and Regions which offer a competitive advantage in terms of higher levels of GDP, employment and population growth; differentiated local economies with higher value industries; well developed infrastructure; and places where people want to live and work.

Increasing net income through transactions and asset management

Disciplined acquisition strategy focused on investing primarily in industrial and regional office assets in Winning Cities and Regions, combined with relentless execution of asset management initiatives to drive net income growth and dividend cover and improve the portfolio's defensive qualities. The intention is to pursue a progressive dividend policy.

Increasing exposure to assets and sectors with strong fundamentals

Focus on fundamentals is essential at this stage in the cycle. Post completion of asset business plans, the Company will seek to dispose of assets that are expected to underperform to reinvest in assets with stronger fundamentals.

Managing portfolio risk in order to enhance the portfolio's defensive qualities

The Company has a diversified tenancy base of 300 occupiers and average weighted lease term of 6.6 years. Priority is given to continue efforts to reduce the vacancy, improve covenants and increase the average lease length through new lettings and lease regears, alongside prudent management of our balance sheet within the target leverage ratio of 25% to 35%.

Delivery of our strategy is intended to increase net income in the near term. The key strategic steps are:

1. Identify new acquisitions with the objective to increase sustainable income and exposure to growth sectors;

2. Reduce the cost of our debt in order to improve net income;

3. Review the potential to grow the Company in a way which will enhance shareholder returns; and

4. Increase the level of communication about the strategy.

Performance Summary

Property performance

* Includes transactions which unconditionally exchanged, but did not complete prior to year end.

** Source: MSCI Quarterly Version of Balanced Monthly Index Funds including joint venture investments on a like-for-like basis as at 31 March 2018.

Financial summary

1EPRA calculations are included in the EPRA Performance measures section on page 74.

*This excludes exceptional abortive costs. When included dividend cover to March 2018 was 97%.

Capital values

1Net Asset Value total return calculated by Schroder Real Estate Investment Management Limited.

Earnings and dividends

Bank borrowings

2On balance sheet borrowings reflects the loan facility with Canada Life and RBS, without deduction of finance costs.

3Cash excludes rent deposits and floats held with managing agents.

Ongoing charges

4Ongoing charges calculated in accordance with AIC recommended methodology, as a percentage of average NAV during the year.

5Fund only expenses excludes all property operating expenses, valuers' and professional fees in relation to properties.

Chairman's Statement

Overview

I am pleased to report another year of good performance with an increase in the Company's net asset value of 6.4% which, combined with dividends paid, resulted in a net asset value total return of 10.5%. This performance was driven by a high level of asset management which has meant the Company's property portfolio has again outperformed its MSCI peer group Benchmark and has now done so at a rate of 1.4% per annum since its IPO in 2004. This activity has improved the portfolio's defensive qualities and contributed to income growth above the Benchmark. 

Average UK real estate values have remained robust despite continued political and economic uncertainty, largely supported by an attractive yield premium compared with other asset classes. Whilst capital growth is likely to slow in response to a cyclical slowdown and rising interest rates, structural changes are arguably having a greater impact and will lead to increased polarisation of returns across the real estate market. 

The Company's portfolio has been positioned to capitalise on these structural changes as well as being highly diversified by tenant exposure, sector and geography.

Strategy

The Company has a clear and disciplined investment strategy focused on growing net income, reducing risk and increasing exposure to Winning Cities and Regions that are expected to generate higher levels of economic growth.

Asset management activity and close control of expenses resulted in dividend cover for the year, ignoring the exceptional abortive transaction costs, of 109%. The net income will increase further as available cash is deployed into new investments and capital expenditure initiatives. These initiatives will improve the defensive qualities of our assets by creating longer term lease contracts secured against good quality tenants and are being funded by the proceeds of selling vacant and non-core assets at strong prices. Examples of this activity include the new 20 year lease to Premier Inn Hotels at the Arndale Centre in Leeds.

The strategy implemented over the past few years has increased exposure to locations and sectors benefiting from structural changes in demand. 93% of the portfolio by value is now in locations expected to benefit from above average GDP growth and we expect to invest further into our larger assets in stronger regional centres such as City Tower in Manchester. At a sector level, the Company's industrial assets contributed strongly to performance over the year, best illustrated by Stacey Bushes Industrial Estate in Milton Keynes which generated a total return of 35.5%. In contrast, the Company's retail assets diluted returns but a focus on convenience retail in good quality locations should limit the potential risk from weakening sentiment and rising vacancy.

Debt

At the year end the Company had two loan facilities totalling £150.1 million with an average duration of eight years and an average interest cost of 4.4%, hedged against any movement in interest rates. The loan to value ratio, net of cash, is 25%, which is at the bottom end of the long term target range of 25% to 35%. The Company is in discussions with lenders to improve its debt profile and will provide an update on this in due course.

Outlook

The Winning Cities strategy executed over the past few years has increased the Company's exposure to higher growth sectors and regions where we expect more sustainable occupational demand. This reflects our long term focus on generating outperformance of the underlying real estate portfolio. In a more uncertain environment we expect the Company to benefit from the quality and diversification of the underlying portfolio, balance sheet strength and dividend coverage. Looking forward, we will continue to consider opportunities to enhance shareholder returns through disciplined growth. The delivery of the above will enable a sustainable dividend increase in the near term.

Finally, I would like to thank the Schroders team and my fellow directors for their support during the year with special thanks to Keith Goulborn, who has retired after fourteen years, for his wise counsel and significant contribution to our Board.

Lorraine BaldryChairmanSchroder Real Estate Investment Trust Limited21 May 2018

Investment Manager's review

Investment Manager's report

The Company's Net Asset Value ('NAV') as at 31 March 2018 was £353.6 million or 68.2 pence per share ('pps') compared with £332.6 million or 64.1 pps as at 31 March 2017. This reflected an increase of 4.1 pps or 6.4%, with the underlying movement in NAV per share set out in the table below:

*Includes abortive transaction costs.

Performance was driven by a 4.7% increase in the value of the underlying portfolio which, adjusted for capital expenditure, contributed 4.0 pps to the NAV. Net earnings for the year totalled 2.7 pps which reflects a dividend cover of 109%. If exceptional abortive costs are deducted, the dividend cover for the period reduces to 97%. The NAV total return for the year to March 2018 was 10.5%.

Market overview

The UK economy is expected to deliver modest growth through to 2019. The low rate of unemployment and the possibility of wage inflation are likely to lead to tighter monetary policy. All asset classes are exposed to rising rates, but the large gap between real estate yields and gilts mean that we believe they are unlikely to rise in parallel. Structural trends such as rapid urbanisation, technological innovation and demographics are likely to drive the continued divergence of real estate returns with some locations capturing strong growth and some disproportionately suffering economic weakness.

Retailers' profits are being reduced by a combination of higher import prices, the increase in the national minimum wage and intense competition from online sales. A number of retailers, as well as food and beverage operators, fell into administration in the first quarter of 2018. We also saw some businesses deliberately enter into voluntary administrations (Company Voluntary Arrangements) in order to reduce their cost of rent and the numbers of stores from which they trade. Secondary retail locations continue to be most exposed to this type of activity, while prime and those properties which offer a mix of retail and leisure experiences and convenience stores are remaining more resilient.

Industrial assets are the beneficiaries of these key structural themes as the changes increase demand for warehousing. Large logistics warehousing is experiencing strong rental growth and vacancy is low. While developers have begun to build more, the high cost of bank debt for speculative development means that 75% of schemes are pre-let before construction begins. This compares with only 40% of logistics schemes previously being pre-let in 2007. We remain attracted to the sector, particularly smaller warehousing/multi-let industrial estates which cater for 'last mile delivery'. Rents are growing strongly in this sector and the returns are currently the highest across the UK real estate market.

The office sector is similarly polarised with differing returns from alternative part of the markets. City of London offices have seen a bigger decline in prime office rents over the last two years than the West End of London. However prime offices in some micro locations such as King's Cross, Shoreditch, Bloomsbury and the South Bank still have good interest from occupiers, which is underpinning rental levels. We expect that the City, where the Company has no exposure, will continue to be the weakest sub-market over the next couple of years due to the growing amount of vacant space and the potentially negative impact of Brexit on financial services. The West End should be more resilient due to a wider range of occupiers and limited supply with very few new office buildings. Locations such as Bloomsbury, Farringdon and Stratford will gain from the start of Crossrail services in December 2018.

We expect the regional office markets will generally remain stable through 2018-2020. This reflects the bigger role played by government occupiers, less reliance on international finance, modest levels of supply/development and the recent conversion of older offices to residential.

Strategy

The strategy over the period has focused on the following key objectives:

- Increasing exposure to Winning Cities experiencing higher levels of GDP, employment andpopulation growth;

- Increasing net income through transactions and asset management;

- Increasing exposure to assets and sectors with strong fundamentals; and

- Managing portfolio risk in order to enhance the portfolio's defensive qualities.

Progress has been made executing the strategy and activity over the period has delivered the following:

- Dividend cover has increased to 109%1 compared with 107% over the financial year to March 2017;

- A portfolio level income return of 6.2% over the period compared with 4.8% for the MSCI/IPD Benchmark

- The reversionary income yield of 7.0%[1] compared with 5.7% for the Benchmark reflects a higher rental value across the portfolio compared with the current rental income being generated. This should lead to stronger income growth over the next 12-24 months;

- Portfolio void rate of 7.2% which is below average since IPO;

- Average unexpired lease term of 6.6 years, assuming all tenant breaks are exercised at the earliest opportunity; and

- 93% of the portfolio being located in higher growth cities and towns[2].

Our focus will continue to be on driving income and total returns from the existing portfolio, managing risks and continuing to seek new investments to accelerate income growth. Delivery of our strategy is intended to increase net income in the near term. The specific next steps therefore include:

1. A disciplined approach to acquisitions with the objective of re-investing cash proceeds as soon as possible;

2. A refinancing of part of the Company's current debt to reduce the cost and thereby grow net income ;

3. Review the potential to grow the Company in a way which will drive earnings once value enhancing opportunities are identified; and

4. Increase the level of communication about the strategy to a wider potential shareholder universe.

Real estate portfolio

The Company's real estate portfolio has outperformed the MSCI/IPD Benchmark by 1.0% in the year to March 2018. The annualised property portfolio outperformance against the MSCI/IPD Benchmark over the past three years and since IPO in 2004 is 2.3% p.a. and 1.4% p.a. respectively.

As at 31 March 2018 the real estate portfolio comprised 44 properties valued at £477.5 million. This includes the share of joint venture properties at City Tower in Manchester and Store Street in Bloomsbury, London.

The portfolio produces a rental income of £27.1 million per annum, reflecting a net initial income yield of 5.3%. The portfolio also benefits from fixed contractual annual rental uplifts of £2.7 million by March 2020, and Other Income from items such as lease surrenders which totalled £1.5 million in the year to 31 March 2018. The independent valuers' estimate that the current rental value of the portfolio is £33.6 million per annum, reflecting a reversionary income yield of 7.0%, which compares favourably with the MSCI/IPD Benchmark at 5.7%.

Over the course of the financial year, the Company has sold properties including Riverside West, Sheffield at significant premiums to the valuation. A priority for the next financial year will be to invest in properties with strong fundamentals in Winning Cities and Regions to support further net income growth. The Company has cash for investment and whilst being selective it is proactively seeking value-added opportunities.

The data below summarises the portfolio information as at 31 March 2018:

*Note Central London is defined by MSCI as City, Mid-Town, West End and Inner London.

The top ten properties set out below comprise 59% of the portfolio value:

The table below sets out the top ten tenants that generally comprise large businesses and represent 32% of the portfolio:

Portfolio performance

A high level of asset management has led to continued outperformance of the underlying property portfolio compared with the MSCI/IPD Benchmark. The table below shows the performance to 31 March 2018 with the portfolio ranked on the 9th percentile of the Benchmark since inception:

* Inception was July 2004.

Asset management

Milton Keynes, Stacey Bushes Industrial Estate 

Asset strategy

The strategy over the year was to refurbish units as leases expire in order to achieve higher rents.

Asset overview and performance

317,000 sq ft multi-let industrial estate comprising 42 units in a good location west of Milton Keynes. As at 31 March 2018 the asset was valued at £29.5 million reflecting a net initial income yield of 5.25% and a reversionary income yield of 6.3%. During the year to 31 March 2018, the property delivered 35.5% total return, driven by a capital growth contribution of 27.7% due to both rental growth and yield compression.

Key activity

- 13 lettings and lease renewals totalling £407,968 per annum reflecting an 11% increase over the rental value as at 31 March 2017

- Acquired unit from owner occupier at £330,000 on a sale and leaseback at a rent of £35,000 per annum, reflecting a yield of 11%

- Only one vacant unit, with four units in total undergoing refurbishment with a total rental value of £96,960 per annum

- Tendering works for new development of 16,000 sq ft in six units. Estimated cost £2 million with a rental value of £160,000 per annum.

Leeds, Millshaw Industrial Estate

Asset strategy

The strategy is to refurbish units to drive rents and explore higher value uses for the units fronting the Leeds ring road.

Asset overview and performance

463,400 sq ft multi-let industrial estate comprising 27 units strategically located south of Leeds city centre close to the M62 and M621 motorways. As at 31 March 2018 the asset was valued at £29.9 million reflecting a net initial income yield of 4.5% and a reversionary income yield of 6.9%. The average rent is £4.15 per sq ft with an average rental value of £4.93 per sq ft. During the year to 31 March 2018, the property delivered 18.8% total return, driven by a capital growth contribution of 11.7% on top of a 6.4% income return.

Key activity

- Six lettings and lease renewals totalling £175,000 per annum reflecting a 4% increase over the rental value as at 31 March 2017

- Agreement for lease exchanged with JD Sports and planning secured to convert a warehouse to a gym at a rent of £204,000 per annum compared with the rental value as at 31 March 2017 of £147,000 per annum

- 7 units currently undergoing refurbishment with a total rental value from vacant units of £518,500per annum

- Exploring longer term redevelopment options

Manchester, City Tower (25% interest reflected in value and rents below)

Asset strategy

The strategy is to improve the office accommodation to take advantage of healthy levels of occupational demand and reposition the retail and leisure offer.

Asset overview and performance

City Tower is a landmark 615,429 sq ft office, retail, leisure and hotel investment on a three acre island site in Manchester city centre. As at 31 March 2018 the Company's 25% share of the asset was valued at £41.6 million reflecting a net initial income yield of 4.6% and a reversionary income yield of 7.2%. The average office rent is £20.38 per sq ft with an average rental value of £22.86 per sq ft. During the year to 31 March 2018, the property delivered a 4.6% total return, with the 5.3% income return diluted by capital. This is predominantly due to the vacancy in the building which is being addressed with the refurbishment currently underway.

Key activity

- Phased refurbishment currently underway with £2.5 million to be invested in refurbishing vacant space and £2 million to enhance tenant facilities

- Six office lettings and three retail lettings completed generating new income of £187,000

- 13 rent reviews completed generating a combined rental uplift of £52,000 or 36%

- Repositioning retail with a new letting exchanged with Lidl at £81,000 on a long lease withinflation-linked uplifts.

Responsible Investment

Our approach to responsible investment has been continually upgraded over the last few years and we are increasingly seeking to assess and improve the positive impact of our investments. This involves incorporation of environmental, social and governance issues as well as importantly the impact of our investments on the built environment and climate change risks and opportunities. The Company's work in this area was recognised by an EPRA Gold award for Best Practice Reporting in the 2017 year end accounts. As manager, Schroders Real Estate is aware of the importance of the impact its activities have in local environments and the performance of this area is being continually measured. It was a founding member of the UK Green Building Council in 2007 and in 2017 became a member of the Better Buildings Partnership and a Fund Manager Member of GRESB. More detail on this matter can be found in our Sustainability section on page 21-24 of this report.

Finance

The Company has an overall net loan to value of 25.3% with details of the two loans and compliance with principal covenants set out below:

* Loan balance divided by property value as at 31 March 2018.

** For the quarter preceding the Interest Payment Date ('IPD'), ((rental income received - void rates, void service charge and void insurance)/interest paid).

*** For the quarter following the IPD, ((rental income received - void rates, void service charge and void insurance)/interest paid).

$ Fixed total interest rate for the loan term.

α  Total interest rate as at 31 March 2018 comprising 3 months LIBOR of 0.55% and the margin of 1.6% at an LTV below 60% and a margin of 1.85% above 60% LTV.

The fixed rate on the Canada Life facility of 4.77% provides long term certainty of interest rate cost but this cost is above rates currently available. The facility allows voluntary prepayments but fixed rate break costs are payable on any prepayment. In addition to the secured properties, the joint venture properties City Tower in Manchester and Store Street in London are uncharged with a combined value of £77.8 million.

The Company is comfortably within its loan covenants. On a consolidated basis, the Company could withstand a 48% decline in property values before reaching 65% gross loan to value.

The Company proactively manages its debt position. The revolving credit facility expires in July 2019 and the Company is in advanced negotiations to secure a refinancing for an extended maturity and with additional capacity to provide flexibility for acquisitions or capital expenditure. Alongside this the Company has engaged with Canada Life to make amendments to its loan agreement which would complement the current strategy of the Company.

Outlook

Ongoing political, economic and structural change means UK real estate investment requires a disciplined approach at this point in the cycle. There will, however, be opportunities to grow net income and improve the defensive characteristics of the portfolio.

The Company has consistently focused on fundamentals and its total return by growing net income. In the current environment this will be important. The underlying real estate portfolio has now outperformed its Benchmark over the long term by 1.4% per annum since its IPO in 2004.

Over the next twelve months we have budgeted for approximately £10 million of capital expenditure on our existing portfolio in areas which will generate attractive income returns. Similar returns cannot easily be identified in a competitive investment market. In addition, we have identified a number of significant opportunities which have the ability to increase net income and improve the defensive characteristics of the Company. These actions will be prioritised.

Delivery of our strategy is intended to increase net income in the near term. The key strategic steps are:

1. Identify new acquisitions with the objective to increase sustainable income and exposure to growth sectors;

2. Reduce the cost of our debt in order to improve net income;

3. Review the potential to grow the Company in a way which will enhance shareholder returns; and

4. Increase the level of communication about the strategy.

Duncan OwenSchroder Real Estate Investment Management Limited21 May 2018

Sustainability Report

The Board and the Investment Manager believe that corporate social responsibility is key to long term future business success.

The Investment Manager states in its Responsible Real Estate Investment Report:

'The changes in markets as a consequence of environmental and social issues are simply investment risks that Schroder Real Estate must understand to protect our clients' assets from depreciation. 

Offering occupiers resource-efficient and flexible space is critical to ensure our investments are fit for purpose and sustain their value over the long term. As a landlord, we have the opportunity to help reduce running costs for our occupiers, increase employee productivity and well-being, and contribute to the prosperity of a location through building design and management. Ignoring these issues when considering asset management and investments would risk the erosion of income and value as well as missing opportunities to enhance investment returns. 

Through its construction, use and demolition, the built environment accounts for more than one-third of global energy use and is the single largest source of greenhouse gas emissions in many countries. 

The industry's potential to cost-efficiently reduce emissions and the consumption of depleting resources, combined with the political imperative to tackle issues such as climate change, means the property sector will remain a prime target for policy action. This presents new challenges and opportunities for the real estate industry with profound implications for both owners and occupiers. 

A good investment strategy must incorporate environmental, social and governance issues alongside traditional economic considerations. At Schroders we believe a complete approach should be rewarded by improved investment decisions and performance.'

Environmental Management System

Schroder Real Estate operates an Environmental Management System ("EMS") that is aligned with the internationally recognised standard ISO 14001. The EMS provides the framework for how sustainability principles (environmental and social) are managed throughout all stages of its investment process including acquisition due diligence, asset management, property management provided by third parties, refurbishments and developments. Schroder Real Estate reviews its Sustainability Policy annually which is approved by the Investment Committee. Key aspects of the Policy and its objectives are set out below.

Property Manager Sustainability Requirements

Property managers play an integral role in supporting the sustainability program. Schroder Real Estate has established a set of Sustainability Requirements for Property Managers to adhere to in the course of delivering their property management services. This includes a set of key performance indicators to help improve the property managers sustainability related services to the Company and which are assessed on a six-monthly and annual basis. Schroder Real Estate is pleased to report that MJ Mapp, its principal property manager, met the targets set for the six month reporting in 2017. It fell a little below target on the annual indicators, however these were ambitious and the outcomes achieved were good.

Energy

Energy is an important element of landlord's responsibilities for buildings where the landlord has operational control. Schroder Real Estate has continued to develop the monitoring of the Company's energy usage and efficiency as well as water and waste with analysis and reporting on a quarterly and annual basis.

In the first quarter of 2016 Schroder Real Estate introduced an energy reduction target of 6% across its UK managed assets over a two year period to March 2018 from a baseline of 2015/16 reporting years. Throughout the reporting period Schroder Real Estate has continued to work with Evora Global and MJ Mapp to achieve reductions on a cost effective basis. The programme has involved reviewing all managed assets within the Company and identifying and implementing sustainability objectives. Improving energy efficiency and reducing energy consumption will benefit tenants' occupational costs and should help tenant retention and attracting new tenants. Schroder Real Estate can report for the 2017 calendar year that the managed assets within the Company saw an energy reduction for landlord procured energy of -2.8% on a like for like basis. The final outcome against this target to the end of March 2018 (the expiry of the two year period) will be reported later in the year.

Energy Performance Certificates ("EPC") for the portfolio are regularly reviewed in light of the 2015 Minimum Energy Efficiency Standards (England and Wales) legislation. Schroder Real Estate is actively managing the potential risk of this legislation to the portfolio. This legislation brought in a minimum EPC standard of "E" for new leases and renewals for non domestic buildings from 1 April 2018; this minimum standard applies to all leases from 1 April 2023. 

The EPC profile for the portfolio is set out within the EPRA Sustainability Reporting Performance Measures.

Refurbishments and green building certifications

Schroder Real Estate seeks to deliver developments and refurbishments to sustainable standards and deliver good performance against building certifications, including EPCs and BREEAM (the Building Research Establishment Environmental Assessment Methodology, an environmental assessment method and rating system for buildings). 

Water

Schroder Real Estate monitors water consumption where the landlord has supply responsibilities, and encourages asset-level improvements. Where the Company had supply responsibilities a 25% reduction in like for like water consumption was achieved between the calendar years 2016 and 2017. This was largely due to a number of water leaks being reported in 2016.

Waste

Waste management and disposal activities are responsible for considerable negative environmental and societal impact. As a result, waste should be minimised and disposal should be as sustainable as possible. To this end, Schroder Real Estate has set an objective to send zero waste to landfill and to achieve optimal recycling. During 2017 the Company had a near 100% diversion from landfill.

EPRA Sustainability Reporting Performance Measures

This year the Company Report includes a Sustainability Report setting out environmental performance indicator data for the portfolio. The report is aligned with EPRA Best Practices Recommendations on Sustainability Reporting 2017. The report is included in the Company EPRA Performance Measures report.

Global Real Estate Sustainability Benchmark

The Company participated in the annual Global Real Estate Sustainability Benchmark ("GRESB") survey for the second time in 2017. GRESB is the dominant global standard for assessing Environmental Social and Governance performance for real estate funds and companies. 

Schroder Real Estate intends to participate in the survey for the Company in 2018 with the objective of achieving a Green Star rating: this rating is achieved where scores for the two dimensions of Management and Policy and Implementation and Measurement are at least 50 out of 100 points.

Carbon Reduction Commitment

The Company's portfolio did not require registration for Phase II of the CRC Scheme and the purchase of allowances. It was announced in the March 2016 Budget that the CRC Scheme will not continue beyondPhase II.

Energy Savings Opportunity Scheme

The Company did not qualify for participation in the Energy Savings Opportunity Scheme.

Greenhouse Gas Emissions

The Company is not incorporated in the UK and therefore does not fall within the requirements for mandatory reporting of greenhouse gas emissions for UK quoted companies which came into effect from 1 October 2013. However greenhouse gas emissions are reviewed annually and the Company includes a report on a voluntary basis (as recommended by DEFRA guidance) within this financial year report. The Company's report on greenhouse gas emissions can be found in the EPRA Sustainability Reporting Performance Measures report. Greenhouse gas emissions reporting is a requirement for EPRA Best Practices Recommendations on Sustainability Reporting 2017. 

The Board and its advisors will continue to monitor requirements and guidance in relation to managing and reporting environmental matters and developments in legislation. 

Health, wellbeing and productivity

The real estate industry is beginning to gain a new perspective on the importance of the built environment on human health, wellbeing and productivity. A number of schemes have emerged which seek to identify the impacts of spaces and places on people and provide new ways of certifying buildings. Case studies demonstrate the benefit of reflecting wellbeing in good design. Schroder Real Estate is working to embed this aspect into its investment process. 

Stakeholder Engagement and Community

Schroder Real Estate seeks active engagement with tenants to ensure a good occupational experience to help retain and attract tenants. As the day to day relationship is with the property manager, the Property Manager Sustainability Requirements include a key performance indicator on tenant engagement.

Schroder Real Estate believes in the importance of understanding a building's relationship with the community and its contribution to the well-being of society. Positively impacting on local communities helps create successful places that foster community relationships, contribute to local prosperity, attract building users and ultimately, lead to better, more resilient investments. Schroder Real Estate looks to understand and develop the community relationship to ensure investments provide sustainable social solutions for the long term.

Industry participation

Schroder Real Estate is a member of a number of industry bodies including the European Public Real Estate Association (EPRA), INREV (European Association for Investors in Non-Listed Real Estate Vehicles), British Council for Offices and the British Property Federation. It was a founding member of the UK Green Building Council in 2007 and in 2017 became a member of the Better Buildings Partnership and a Fund Manager Member of GRESB.

Employees

The Company is an externally managed real estate investment trust and has no direct employees. Schroder Real Estate is part of Schroders plc which has responsibility for the employees that support the Company. Schroders believes diversity of thought and an inclusive workplace are key to creating a positive environment for their people. Schroder Real Estate's real estate team have a sustainability objective within their annual objectives. 

Further information on Schroders' principles in relation to people including diversity, gender pay gap, values, employee satisfaction survey, wellbeing and retention can be found at:

http://www.schroders.com/en/sysglobalassets/global-assets/global/annual-report/documents/schroders-ar17-peoplesociety.pdf

http://www.schroders.com/en/people/diversity-and-inclusion/gender-equality-at-schroders/

Corporate Responsibility

Schroders' commitment to corporate responsibility is to ensure that its commitment to act responsibly, support clients, deliver value to shareholders and make a wider contribution to society is embedded across its business in all that it does.

Full information on Schroders Corporate Responsibility approach including its economic contribution, environmental impacts and community involvement, can be found at:

http://www.schroders.com/en/about-us/corporate-responsibility/

Slavery and Human Trafficking statement

The Company is not required to produce a statement on slavery and human trafficking pursuant to the Modern Slavery Act 2015 as it does not satisfy all the relevant triggers under that Act that required such a statement.

Schroder Real Estate the Investment Manager to the Company is part of Schroders plc and whose statement on Slavery and Human Trafficking has been published in accordance with the Modern Slavery Act 2015 (the 'Act'). It sets out the steps that Schroders plc and other relevant group companies ('Schroders' or the 'Group') have taken during 2017 and will be taking in 2018 to prevent slavery and human trafficking from taking place in its supply chains or any part of its business. Schroder Real Estate is part of the Schroders Group.

Schroders' statement can be found at:

http://www.schroders.com/en/about-us/corporate-responsibility/slavery-and-human-trafficking-statement/

Business Model

Company's business

The Company is a real estate investment company with a premium listing on the Official List of the UK Listing Authority and is traded on the London Stock Exchange's main market for listed securities. On 1 May 2015, the Company converted to a Real Estate Investment Trust ('REIT') which means that it is able to benefit from exemptions from UK tax on profits and gains in respect of certain qualifying property rental business activities. The Company continues to be an authorised closed-ended investment scheme registered in Guernsey.

The Board

The Board of Directors is responsible for the overall stewardship of the Company, including investment and dividend policies, corporate strategy, gearing, corporate governance and risk management.

The Company has no executive Directors or employees.

Investment objective

The investment objective of the Company is to provide shareholders with an attractive level of income together with the potential for income and capital growth from owning and actively managing a diversified portfolio of real estate.

The portfolio is principally invested in the three main UK commercial real estate sectors of office, industrial and retail, and may also invest in other sectors including, but not limited to, residential, leisure, healthcare and student accommodation. Over the real estate market cycle the portfolio aims to generate an above average income return with a diverse spread of lease expiries.

Relatively low levels of debt are used to enhance returns for shareholders with the level of debt dependent on the real estate cycle and the outlook for future returns.

Investment strategy

The current investment strategy is to grow income and enhance shareholder returns through selective acquisitions, pro-active asset management and selling smaller, lower yielding properties on completion of the asset business plan. The issuance of new shares will also be considered if this is consistent with the strategy.

Our objective is to own a portfolio of larger properties in Winning Cities and Regions with high growth diversified local economies, sustainable occupational demand and favourable supply and demand characteristics. These properties should offer good long-term fundamentals in terms of location and specification and be let at affordable rents with the potential for income and capital growth from good stock selection and asset management.

The Board has delegated investment management and accounting services to the Investment Manager with the aim of helping the Company to achieve its investment objective and strategy. Details of the Investment Manager's investment approach, along with other factors that have affected performance during the year, are set out in the Investment Manager's Report.

Diversification and asset allocation

The Board believes that in order to maximise the stability of the Group's income, the optimal strategy for the Group is to invest in a portfolio of assets diversified by location, sector, asset size and tenant exposure with low vacancy rates and creditworthy tenants. The value of any individual asset at the date of its acquisition may not exceed 15% of gross assets and the proportion of rental income deriving from a single tenant may not exceed 10%. From time to time the Board may also impose limits on sector, location and tenant types together with other activity such as development.

The Company's portfolio will be invested and managed in accordance with the Listing Rules of the Financial Conduct Authority ('Listing Rules' and 'FCA' respectively) taking into account the Company's investment objectives, policies and restrictions.

Borrowings

The Board has established a gearing guideline for the Investment Manager, which seeks to limit on-balance-sheet debt, net of cash, to 35% of on-balance-sheet assets while recognising that this may be exceeded in the short term from time to time. It should be noted that the Company's Articles limit borrowings to 65% of the Group's gross assets, calculated as at the time of borrowing. The Board keeps this guideline under review and the Directors may require the Investment Manager to manage the Group's assets with the objective of bringing borrowings within the appropriate limit while taking due account of the interests of shareholders. Accordingly, corrective measures may not have to be taken immediately if this would be detrimental to shareholder interests.

Interest rate exposure

It is the Board's policy to minimise interest rate risk, either by ensuring that borrowings are on a fixed rate basis, or through the use of interest rate swaps/derivatives used solely for hedging purposes.

Investment restrictions

As the Company is a closed-ended investment fund for the purposes of the Listing Rules, the Group will adhere to the Listing Rules applicable to closed-ended investment funds. The Company and, where relevant, its subsidiaries will observe the following restrictions applicable to closed-ended investment funds in compliance with the current Listing Rules:

- Neither the Company nor any subsidiary will conduct a trading activity which is significant in the context of the Group as a whole and the Group will not invest in other listed investment companies; and

- Where amendments are made to the Listing Rules, the restrictions applying to the Company will be amended so as to reflect the new Listing Rules

In addition, the Company will ensure compliance with the UK REIT regime requirements.

Performance

The Board uses principal financial Key Performance Indicators ('KPIs') to monitor and assess the performance of the Company being the net asset value ('NAV') total return, the performance of the Company's underlying property portfolio relative to its MSCI/IPD Benchmark Index and the share price:

1. NAV total return

For the year to 31 March 2018 the Company produced a NAV total return of 10.5% (7.2% for the year to 31 March 2017).

2. Underlying property portfolio performance relative to peer group Benchmark

The performance of the Company's property portfolio is measured against a specific Benchmark defined as the MSCI (formerly Investment Property Databank) Quarterly Version of Balanced Monthly Index Funds (the 'Benchmark'). As at 31 March 2018 the Benchmark Index comprised 46 member funds.

Property portfolio performance

The analysis above prepared by MSCI and takes account of all direct property related transaction costs.

3. Share price performance

The Board monitors the level of the share price compared to the NAV. As at 31 March 2018, the share price was at a 13.8% discount to NAV of 68.2 pps. Where appropriate on investment grounds, the Company may from time to time repurchase its own shares, but the Board recognises that movements in the share price premium or discount are driven by numerous factors, including investment performance, gearing and market sentiment. Accordingly we focus our efforts principally on addressing sources of risk and return as the most effective way of producing long term value for shareholders.

Risk and Uncertainties

The Board is responsible for the Company's system of risk management and internal control and for reviewing its effectiveness. The Board has carried out a robust assessment of the principal risks facing the Company including those that would threaten its business model, future performance, solvency or liquidity. A framework of internal controls has been designed and established to monitor and manage those risks. This internal control framework provides a system to enable the Directors to mitigate these risks as far as possible, which assists in determining the nature and extent of the significant risks the Board is willing to take in achieving its strategic objectives.

Although the Board believes that it has a robust framework of internal controls in place this can provide only reasonable, and not absolute, assurance against material financial misstatement or loss and is designed to manage, not eliminate, risk.

A summary of the principal risks and uncertainties faced by the Company, which have remained unchanged throughout the year ended 31 March 2018, and actions taken by the Board to manage and mitigate these risks and uncertainties, are set out below.

Board of Directors

Lorraine Baldry (Chairman)Status: Independent Non Executive DirectorDate of appointment: 13 January 2014

Aged 68, is Chair of Sellafield Ltd, London & Continental Railways and Inventa Partners Ltd. Lorraine is also a Governor at The University of the Arts London and a Director of Thames Water Utilities Limited. She was Chief Executive of Chesterton International plc and prior to that held various senior positions at Prudential Corporation, Morgan Stanley and Regus. She is also an Honorary Member of the Royal Institution of Chartered Surveyors and a Past President of the British Property Federation.

Current remuneration: £50,000 per annum

Material interests in any contract which is significant to the Company's business: None

Graham BashamStatus: Independent Non Executive DirectorDate of appointment: 11 September 2015

Aged 60, is a director of U.S. Bancorp Fund Services (Guernsey), Limited and a number of Fiduciary companies in Guernsey. He sits on the majority of the boards of the SREIT subsidiaries, a position he has held for the last 9 years. He has 40 years' experience in fiduciary and fund work, 33 of these spent in several offshore locations. He is currently Group partner and Head of Guernsey for the Active Group Ltd, holds a Trustee Diploma as an Associate of Chartered Institute of Banks and is a member of the Society of Trust & Estate Practitioners and Institute of Directors.

Current remuneration: £30,000 per annum

Material interests in any contract which is significant to the Company's business: None

Stephen Bligh (Chairman of the Audit Committee)Status: Independent Non Executive DirectorDate of appointment: 28 April 2015

Aged 61, Stephen was previously with KPMG for 34 years, specialising in the audit of FTSE 350 companies in property and construction. He is a fellow of the Institute of Chartered Accountants in England & Wales and was previously a non-executive Board Member of the Department of Business, Innovation & Skills.

Current remuneration: £35,000 per annum

Material interests in any contract which is significant to the Company's business: None

Alastair Hughes (Senior Independent Director)Status: Independent Non Executive DirectorDate of appointment: 26 April 2017

Aged 52, Alastair Hughes has over 25 years of experience in real estate markets, is a non-executive director of British Land PLC. He was previously the Managing Director of Jones Lang LaSalle (JLL) in the UK before becoming the CEO for Europe, Middle East and Africa and then most recently becoming the CEO for Asia Pacific. Alastair is a Chartered Surveyor and sat on the Global Executive Board of JLL.

Current remuneration: £35,000 per annum

Material interests in any contract which is significant to the Company's business: None

No Director has any entitlement to pensions and the company has not awarded any share options or long-term performance incentives to any of them. No element of Directors' remuneration is performance-related. There were no payments to Directors for loss of office.

No Director has a service contract with the Company; however, each of the Directors has a letter of appointment with the Company. The Directors' letter of appointment, which set out the terms of their appointment, are available for inspection at the Company's registered office address during normal business hours and will be available for inspection at the AGM.

Report of the Directors

The Directors of the Company and its subsidiaries (together, the 'Group') present their report and the audited financial statements of the Group for the year ended 31 March 2018. The Company is incorporated in Guernsey, Channel Islands under The Companies (Guernsey) Law, 2008 ('Companies Law').

Results and dividends

The results for the year under review are set out in the attached financial statements.

During the year the Company has declared and paid the following interim dividends to its ordinary shareholders in accordance with the solvency test (contained in the Companies Law):

Subject to the solvency test provided for in the Companies Law being satisfied, all dividends are declared and paid as interim dividends. The Directors do not therefore recommend a final dividend. A dividend for the quarter ended 31 March 2018 of 0.62 pence per share ('pps') was declared on 2 May 2018 and will be paid on31 May 2018.

The split of dividend between Property Income Distribution (PID) and Ordinary dividend for the year ending 31 March 2018 is 1.4 pps and 1.08 pps respectively. 

Share capital

As at 31 March 2018 and the date of this Report, the Company has 565,664,749 (2017: 565,664,749) Ordinary Shares in issue of which 47,151,340 Ordinary Shares (representing 8.3% of the Company's total issued share capital) are held in treasury (2017: 47,151,340). The total number of voting rights of the Company is 518,513,409 (2017: 518,513,409) and this figure may be used by shareholders as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change in their interest in the Company, under the Disclosure Guidance and Transparency Rules.

Key services providers

The Board has adopted an outsourced business model and has appointed the following key service providers:

Investment Manager

The Board reviews the Investment Manager's performance at its quarterly Board meetings. In addition, the Board made its annual visit to the Investment Manager in May 2018 to review portfolio strategy and the Investment Manager's capabilities in more depth. Subsequently, the Directors formally discussed the performance of the Investment Manager at a private session.

On the basis of this review, and the extensive selection process undertaken prior to appointing the Investment Manager, the Board remains satisfied that the Investment Manager has the appropriate capabilities required to support the Company, and believes that the continuing appointment of the Investment Manager under the terms of the current investment management agreement, further details are set out below, is in the interest of shareholders.

The Investment Manager receives a fee of 1.1% per annum of the Company's NAV for providing investment management and accounting services. The fee is payable monthly in arrears. There is no performance fee. The investment management agreement can be terminated by either party on not less than nine months' written notice or on immediate notice in the event of certain breaches of its terms or the insolvency ofeither party.

The Company has appointed the Investment Manager as the AIFM under the AIFMD. There is no additional fee paid to the Investment Manager for this service.

Administration

The Board appointed Northern Trust International Fund Administration Services (Guernsey) Limited as the administrator to the Company (the 'Administrator'). The Administrator is entitled to an annual fee equalto £120,000.

Northern Trust (Guernsey) Limited has been appointed by the Board to provide depositary services, as required under the AIFMD at an annual fee of £40,000.

Going concern and viability

Going concern

The Directors have examined significant areas of possible financial risk and have reviewed cash flow forecasts and compliance with the debt covenants, in particular the loan to value covenant and interest cover ratio. They have not identified any material uncertainties which would cast significant doubt on the Group's ability to continue as a going concern for a period of not less than twelve months from the date of the approval of the financial statements. The Directors have satisfied themselves that the Group has adequate resources to continue in operational existence for the foreseeable future. 

After due consideration, the Board believes it is appropriate to adopt the going concern basis in preparing the financial statements.

Viability statement

The 2016 UK Corporate Governance Code requires the Board to make a Viability Statement which considersthe Company's current position and principal risks and uncertainties together with an assessment offuture prospects.

The Board conducted this review over a five year time horizon which is selected to match the period over which the Board monitors and reviews its financial performance and forecasting. The Manager prepares five year total return forecasts for the UK commercial real estate market. The Manager uses these forecasts as part of analysing acquisition opportunities as well as for its annual asset level business planning process. At the annual Manager Visit the Board receives an overview of the asset level business plans which the Manager uses to assess the performance of the underlying portfolio and therefore make investment decisions such as disposals and investing capital expenditure. The Company's principal borrowings are for a weighted duration of nine years and the average unexpired lease term, assuming all tenants vacate at the earliest opportunity, is seven years.

The Board's assessment of viability considers the principal risks and uncertainties faced by the Company, as detailed on pages 28 to 30 of the Strategic Report, which could negatively impact its ability to deliver the investment objective, strategy, liquidity and solvency of the Company. This includes considering a cash flow model prepared by the Manager that analyses the sustainability of the Company's cash flows, dividend cover, compliance with bank covenants, REIT compliance and general liquidity requirements for a five year period. These metrics are subject to a sensitivity analysis which involves flexing a number of the main assumptions including macro economic scenarios, delivery of specific asset management initiatives, rental growth and void/reletting assumptions. The Board also review assumptions regarding capital recycling and the Company's ability to refinance or extend financing facilities.

Based on the assessment, the Board has a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the five year period of its assessment.

Anti-bribery policy

The Board notes the implementation of the Bribery Act 2010 ('Bribery Act') in the United Kingdom. The Company continues to be committed to carrying out its business fairly, honestly and openly. To this end, it has undertaken a risk assessment of its internal procedures and the policies of the Company's main service providers which aim to prevent bribery being committed by Directors and persons associated with the Company on the Company's behalf and to ensure compliance with the Bribery Act.

Directors

The Directors of the Company together with their beneficial interest in the Company's ordinary share capital as at the date of this report are given below:

Substantial shareholdings

As at 31 March 2018 the Directors were aware that the following shareholders each owned 3% or more of the issued Ordinary Shares of the Company.

Independent auditors

KPMG Channel Islands Limited ('KPMG') have expressed their willingness to continue as auditors to the Company (the 'Auditors') and resolutions proposing their reappointment and authorising the Directors to determine their remuneration for the coming year will be put to shareholders at the annual general meeting ('AGM') of the Company.

The Audit Committee's evaluation of the Auditors is described in the Report of the Audit Committee on page 45.

Disclosure of information to auditors

The Directors who held office at the date of approval of this Directors' Report confirm that, so far as they are each aware, there is no relevant audit information of which the Company's Auditors are unaware and each Director has taken all the steps that he/she ought to have taken as a Director to make himself/herself aware of any relevant audit information and to establish that the Company's Auditors are aware of that information.

Status for taxation

The Director of Income Tax in Guernsey has granted the Company exemption from Guernsey income tax under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 and the income of the Company may be distributed or accumulated without deduction of Guernsey Income Tax. Exemption under the above mentioned Ordinance entails the payment by the Company of an annual fee of £1,200.

During the year, the Company's properties have been held in various subsidiaries, the majority of which are subject to UK Income Tax. In each instance any tax due is computed after deduction of debt financing costs and other allowances as appropriate.

Shareholders who are in any doubt concerning the taxation implications of a REIT should consult their own tax advisers.

Key information document

A Key Information Document ("KID") for the Company was published in January 2018, in accordance with the Packaged Retail and Insurance-Based Investment Products Regulations ("PRIIPS"). The calculation of figures and performance scenarios contained in the KID are prescribed by PRIIPS and have neither been set nor endorsed by the Board. In fact, the Board is of the opinion that PRIIPS is inconsistently applied by market participants and hence creates confusion amongst investors.

AIFMD remuneration disclosures for Schroder Real Estate Investment Management Limited ('SREIM') for the year to 31 December 2017.

Quantitative remuneration disclosures to be made in this Annual Report in accordance with FCA Handbook rule FUND3.3.5 is published on the website http://www.schroders.com/en/investor-relations/shareholders-and-governance/disclosures/remuneration-disclosures/

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Directors' Report and the financial statements in accordance with applicable law and regulations. 

Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with International Financial Reporting Standards as issued by the IASB and applicable law. 

The financial statements are required by law to give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. 

In preparing these financial statements, the Directors are required to:

- Select suitable accounting policies and then apply them consistently;

- Make judgements and estimates that are reasonable and prudent;

- State whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements;

- Assess the Company's ability to continue as a going concern, disclosing as applicable matters relating to going concern; and

- Use the going concern basis of preparation unless they intend to either liquidate the Company or cease operations or have no realistic alternative to do so.

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Law. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

Responsibility Statement of the Directors in respect of the Annual Report

We confirm to the best of our knowledge:

- The financial statements, prepared in accordance with International Financial Reporting Standards as issued by the IASB, give a true and fair view of the assets, liabilities, financial position and profit of the Group and the undertakings included in the consolidation taken as a whole and comply with the Companies Law;

- The Strategic Report on pages 11 to 30 and Governance Report on pages 31 to 51 include a fair review of the development and performance of the business and the position of the Group and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties it faces: and

- The Annual Report and Consolidated Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy

Responsibility for electronic publication

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website, and for the preparation and dissemination of financial statements. Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Resolutions at 2018 Annual General Meeting

THIS SECTION IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION.

If you are in any doubt about the contents of this section of the document or the action you should take, you are recommended to seek immediately your own personal financial advice from an appropriately qualified independent adviser authorised pursuant to the Financial Services and Markets Act 2000.

If you have sold or otherwise transferred all your shares in the Company, please send this document (including the Notice of AGM) and the accompanying documents at once to the purchaser, transferee, or to the stockbroker, bank or other person through whom the sale or transfer was effected for onward transmission to the purchaser or transferee. However, such documents should not be distributed, forwarded or transmitted in or into the United States, Canada, Australia or Japan or into any other jurisdiction if to do so would constitute a violation of applicable laws and regulations in such other jurisdiction.

The Notice of the Annual General Meeting of Shareholders is set out on pages 88 to 90. The following paragraphs explain the resolutions to be put to the AGM.

Ordinary resolutions 1-9

Ordinary Resolutions 1-9 are being proposed to approve the ordinary business of the Company to: (i) consider and approve the consolidated Annual Report and the remuneration report of the Company for the year ended 31 March 2018; (ii) re-elect the Directors; and (iii) re-appoint the Auditors and to authorise the Directors to determine the Auditor's remuneration.

Ordinary Resolution 10 Approval of the company's dividend policy

The Company's dividend policy is to pay a sustainable level of quarterly dividends to shareholders (in arrears). It is intended that successful execution of the Company's strategy will enable a progressive dividend policy.

The Company's objective and strategy, outlined in the Chairman's Statement and Investment Manager's Report, is to deliver sustainable net income growth in due course through active management of the underlying portfolio. Any future decision to increase the dividend will be determined by factors including whether it is sustainable over the long term, current and anticipated future market conditions, rental values and the potential impact of any future debt refinancing.

As the Company is a REIT, the Board must also ensure that dividends are paid in accordance with the requirements of the UK REIT regime (pursuant to part 12 of the UK Corporation Tax Act 2010) in order to maintain the Company's REIT status. Shareholders should note that the dividend policy is not a profit forecast and dividends will only be paid to the extent permitted in accordance with the Companies Law and the UKREIT regime.

The Board acknowledges that the dividend policy is fundamental to shareholders' income requirements as well as the Company's investment and financial planning. Therefore, in accordance with the principles of good corporate governance and best practice relating to the payment of interim dividends without the approval of a final dividend by a company's shareholders, a resolution to approve the Company's dividend policy will be proposed annually for approval.

Special Resolution 1 Authority to repurchase shares

The Company did not buy back any ordinary shares during the year ended 31 March 2018. The Directors currently have authority to repurchase up to 14.99% of the Company's ordinary shares and will seek annual renewal of this authority from shareholders at the AGM. The Board monitors the level of the ordinary share price compared to the NAV per ordinary share. Where appropriate on investment grounds, the Company may from time to time repurchase its ordinary shares, but the Board recognises that movements in the ordinary share price, premium or discount, are driven by numerous factors, including investment performance, gearing and market sentiment. Accordingly, it focuses its efforts principally on addressing sources of risk and return as the most effective way of producing long term value for Shareholders. Any repurchase of ordinary shares will be made subject to Guernsey law and within any guidelines established from time to time by the Board. The making and timing of any repurchases will be at the absolute discretion of the Board, although the Board will have regard to the effects of any such repurchase on long-term shareholders in exercising its discretion.

Purchases of ordinary shares will only be made through the market for cash at prices below the prevailing NAV of the ordinary shares (as last calculated) where the Directors believe such purchases will enhance shareholder value. Such purchases will also only be made in accordance with the Listing Rules and the Disclosure Guidance and Transparency Rules which provide that the maximum price to be paid for each ordinary share must not be more than the higher of: (i) 5 per cent above the average mid-market value of the ordinary shares for the five business days before the purchase is made; and (ii) that stipulated by the regulatory technical standards adopted by the European Union pursuant to the Market Abuse Regulation from time to time. Any ordinary shares purchased under this authority may be cancelled or held in treasury.

This authority will expire at the conclusion of the annual general meeting of the Company to be held in 2019 unless varied, revoked or renewed prior to such date by ordinary resolution of the Company.

Special Resolution 2 Authority to disapply pre-emption rights

The Directors require specific authority from shareholders before allotting new ordinary shares for cash (or selling shares out of treasury for cash) without first offering them to existing shareholders in proportion to their holdings. Special Resolution 2 empowers the Directors to allot new ordinary shares for cash or to sell ordinary shares held by the Company in treasury for cash, otherwise than to existing shareholders on a pro-rata basis, up to such number of ordinary shares as is equal to 10% of the ordinary shares in issue (including treasury shares) on the date the resolution is passed. No ordinary shares will be issued without pre-emption rights for cash (or sold out of treasury for cash) at a price less than the prevailing net asset value per ordinary share at the time of issue or sale from treasury.

The Directors do not intend to allot or sell ordinary shares other than to take advantage of opportunities in the market as they arise and will only do so if they believe it to be advantageous to the Company's existing shareholders and when it would not result in any dilution of the net asset value per ordinary share (owing to the fact that no ordinary shares will be issued or sold out of treasury for a price less than the prevailing net asset value per ordinary share).

This authority will expire on the earlier of the conclusion of the annual general meeting of the Company to be held in 2019 or on the expiry of 15 months from the passing of this Special Resolution 2.

The Board considers that the resolutions to be proposed at the AGM are in the best interests of the Company's shareholders as a whole. The Board therefore recommends unanimously to shareholders that they vote in favour of each of the resolutions, as they intend to do in respect of their own beneficial holdings.

Lorraine Baldry, Chairman21 May 2018

Stephen Bligh, Director21 May 2018

Corporate Governance

The Directors are committed to maintaining high standards of corporate governance. Insofar as the Directors believe it to be appropriate and relevant to the Company, it is their intention that the Company should comply with best practice standards for the business carried on by the Company.

The Guernsey Financial Services Commission (the 'GFSC') states in the Finance Sector Code of Corporate Governance (the 'Code') that companies which report against the UK Corporate Governance Code or the Association of Investment Companies Code of Corporate Governance (the 'AIC Code') are deemed to meet the Code, and need take no further action.

The Board has considered the principles and recommendations of the AIC Code by reference to the AIC Corporate Governance Guide for investment companies (the 'AIC Guide'). The AIC Code, as explained by the AIC Guide, addresses all the principles set out in the UK Corporate Governance Code, as well as setting out additional principles and recommendations on issues that are of specific relevance.

The Board considers that reporting against the principles and recommendations of the AIC Code, and by reference to the AIC Guide (which incorporates the UK Corporate Governance Code), will provide better information to shareholders. Copies of the AIC Code and the AIC Guide can be found at www.theaic.co.uk

It is the Board's intention to continue to comply with the AIC Code.

Statement of compliance

The Company has complied with the recommendations of the AIC Code and the relevant provisions of the UK Corporate Governance Code, except as set out below.

The UK Corporate Governance Code includes provisions relating to:

- The role of the chief executive;

- Executive directors' remuneration; and

- Internal audit function.

For the reasons set out above the Board considers that these provisions are not relevant to the Company, being an externally managed investment company. The provision in relation to the internal audit function is referred to in the Audit Committee report. The Company has therefore not reported further in respect ofthese provisions.

Role of the Board

The Board has determined that its role is to consider and determine the following principal matters which it considers are of strategic importance to the Company:

- The overall objectives of the Company, as described under the paragraph above headed 'Investment Policy and Strategy' and the strategy for fulfilling those objectives within an appropriate risk framework in light of market conditions prevailing from time to time.

- The capital structure of the Company, including consideration of an appropriate policy for the use of borrowings both for the Company and in any joint ventures in which the Company may invest from time to time.

- The appointment of the Investment Manager, Administrator and other appropriately skilled service providers and to monitor their effectiveness through regular reports and meetings; and

- The key elements of the Company's performance including NAV growth and the payment of dividends.

Board decisions

The Board makes decisions on, among other things, the principal matters set out under the paragraph above headed 'Role of the Board'. Issues associated with implementing the Company's strategy are generally considered by the Board to be non-strategic in nature and are delegated either to the Investment Manager or the Administrator, unless the Board considers there will be implementation matters significant enough to be of strategic importance to the Company and should be reserved to the Board. Generally these are defined as:

- Large property decisions affecting 10% or more of the Company's assets;

- Large property decisions affecting 5% or more of the Company's rental income; and

- Decisions affecting the Company's financial borrowings.

Board performance evaluation

As in prior years, the Board has undertaken a review of its performance. The review concluded that the Board was operating effectively and that the Directors had the breadth of skills required to fulfil their roles.

Non-Executive Directors, rotation of Directors and Directors' tenure

The UK Corporate Governance Code recommends that Directors should be appointed for a specified period. The Board has resolved in this instance that Directors' appointments need not comply with this requirement as all Directors are non-executive and their respective appointments can be terminated at any time without penalty. The Board has approved a policy that all Directors will stand for re-election annually.

The Board considers that independence is not compromised by length of tenure and that it has the appropriate balance of skills, experience and length of service. Independent non-executive Directors who have served for nine years will only be asked to stand for re-election if the Board remains satisfied both with the Director's performance and that nine years' continuous service does not compromise the Director's continuing independence.

The Board has determined that all the Directors are independent of the Investment Manager. Alastair Hughes is the Senior Independent Director.

The appointment and replacement of Directors is governed by the Company's Articles, the Companies Law, related legislations and the Listing Rules. The Articles may only be amended by a special resolution ofthe shareholders.

Board composition, changes and diversity

The Board currently consists of four non-executive Directors. The Chairman is Lorraine Baldry. The biography of each of these Directors is set out on page 31 of the report. The Board considers each of the Directors to be independent. Keith Goulborn retired from the Board on 31 March 2018 after serving fourteen years.

The independence of each Director is considered on a continuing basis. The Board is satisfied that it is of sufficient size with an appropriate balance of skills and experience, independence and knowledge of both the Company and the wider investment company sector, to enable it to discharge its respective duties and responsibilities effectively and that no individual or group of individuals is, or has been, in a position to dominate decision making. When a vacancy arises the board selects the best candidate taking into account the skills and experience required, while taking into consideration board diversity as part of a good corporate governance culture.

Board committees

The Board has delegated certain of its responsibilities to its Audit and Nomination Committees. Each of these committees has formal terms of reference established by the Board, which are available on theCompany's website.

Audit committee

Details of the Audit Committee are set out in the Report of the Audit Committee.

Nomination committee

The role of the Nomination Committee, chaired by Keith Goulborn until his resignation on 31 March 2018 and thereafter by Alastair Hughes, is to consider and make recommendations to the Board on its composition and makes recommendations to the Board with regards any adjustment that may be appropriate, including in connection with the renewable and re-election of the Board, so as to maintain an appropriate balance of skills, experience and diversity, including gender, and to ensure progressive refreshing of the Board. On individual appointments, the Nomination Committee leads the process and makes recommendations to the Board.

Before the appointment of a new director, the Nomination Committee prepares a description of the role and capabilities required for a particular appointment. While the Nomination Committee is dedicated to selecting the best person for the role, it aims to promote diversification and the Board recognises the importance of diversity. The Board agrees that its members should possess a range of experience, knowledge, professional skills and personal qualities as well as the independence necessary to provide effective oversight of the affairs of the Company.

Remuneration committee

As all the Directors are non-executives, the Board has resolved that it is not necessary to have a Remuneration Committee.

Board meetings and attendance

The Board meets at least four times each year. Additional meetings are also arranged as required and regular contact between Directors, the Investment Manager and the Administrator is maintained throughout the year. Representatives of the Investment Manager and Company Secretary attend each Board meeting and other advisers also attend when requested to do so by the Board. At least once a year the Board carries out a site visit to properties owned by the Company.

Attendance records for the four quarterly Board meetings and two six-monthly Audit Committee meetings during the year under review are set out in the table below.

*Keith Goulbourn retired on 31 March 2018.

In addition to its regular quarterly meetings, the Board met on six other occasions during the year, attended by all or the majority of Directors.

Information flows

All Directors receive, in a timely manner, relevant management, regulatory and financial information and are provided, on a regular basis, with key information on the Company's policies, regulatory requirements and internal controls. The Board receives and considers reports regularly from the Investment Manager and other key advisers and ad hoc reports and information are supplied to the Board as required.

Data protection and security

The Board has reviewed its systems and controls in light of the implementation of the General Data Protection Regulation (EU Regulation 2016/679) (the "GDPR") on 25 May 2018 to ensure that the Company will be compliant with the requirements of the GDPR. As part of this process the Board has taken steps to update its contracts and policies accordingly and is comfortable that it will meet its obligations as a controller of personal data from 25 May 2018. The Board also requires its Investment Manager and Administrator to have robust information security and data protection environment in place. This is reviewed with the Investment Manager at the annual Manager visit day. All Board communication of a confidential nature is managed via a secure Board application. The Company's privacy notice is available on its webpage.

Directors' and Officers' Liability Insurance

During the year, the Company has maintained insurance cover for its Directors under a liability insurance policy.

Relations with shareholders

The Board believes that the maintenance of good relations with both institutional and retail shareholders is important for the long-term prospects of the Company. The Board receives feedback on the views of shareholders from its corporate broker, the Investment Manager and from the Chairman. Through this process the Board seeks to monitor the views of shareholders and to ensure an effective communication programme.

The Board believes that the Annual General Meeting provides an appropriate forum for investors to communicate with the Board, and encourages participation. The Notice of Annual General Meeting on page 88 sets out the business of the Annual General Meeting to be held on 7 September 2018.

Remuneration Report

The Company's Articles currently limit the aggregate fees payable to the Board of Directors to a total of £250,000 per annum. Subject to this overall limit, it is the Board's policy to determine the level of Directors' fees having regard to the fees payable to non-executive directors in the industry generally, the role that individual Directors fulfil in respect of Board and Committee responsibilities, and time committed to the Company's affairs.

Directors receive a base fee of £30,000 per annum, and the Chairman receives £50,000 per annum. The Chairman of the Audit Committee and the Senior Independent Director receive an additional fee of £5,000 respectively. The fees were reviewed by an external consultant during 2015, which led to the recommendation adopted and current level of fees taking effect from 1 October 2015.

No Director past or present has any entitlement to pensions, and the Company has not awarded any share options or long-term performance incentives to any of them. No element of Directors' remuneration is performance-related. There were no payments to former directors for loss of office.

The Board believes that the principles of Section D of the UK Corporate Governance Code relating to remuneration do not apply to the Company, except as outlined above, as the Company has no executive Directors.

No Director has a service contract with the Company, however, each of the Directors has a letter of appointment with the Company. The Directors' letters of appointment, which set out the terms of their appointment, are available for inspection at the Company's registered office address during normal business hours and will be available for inspection at the AGM.

All Directors are appointed for an initial term covering the period from the date of their appointment until the first AGM thereafter, at which they are required to stand for re-election in accordance with the Articles. When recommending whether an individual Director should seek re-election, the Board will take into account the provisions of the UK Corporate Governance Code, including the merits of refreshing the Board and its Committees.

The Board has approved a policy that all Directors will stand for re-election annually.

Performance

The performance of the Company is described on page 26 in the Business Model Report.

The following amounts were paid by the Company for services as non-executive Directors:

* John Frederiksen retired on 25 April 2017. Keith Goulborn retired on 31 March 2018. Alastair Hughes was appointed on26 April 2017.

α Senior Independent Director

# Chairman of the Audit Committee.

## Graham Basham was a director on a majority of the subsidiary companies, for which an additional £21,000 was paid to his employer, Active Group, during the year for his service. Mr Basham owns 15% of Active Group.

Lorraine Baldry, Chairman21 May 2018

Stephen Bligh, Director21 May 2018

Report of the Audit Committee

Composition

The Audit Committee is chaired by Stephen Bligh with Lorraine Baldry, Graham Basham and Alastair Hughes as members. The Board considers that Stephen Bligh's professional experience makes him suitably qualified to chair the Audit Committee.

Responsibilities

The Audit Committee ensures that the Company maintains the highest standards of integrity in financial reporting and internal control. This includes responsibility for reviewing the half-year and annual financial statements before their submission to the Board. In addition, the Audit Committee is specifically charged under its terms of reference to advise the Board, inter alia, on the terms and scope of the appointment of the Auditors, including their remuneration, independence, objectivity and reviewing with the Auditors the results and effectiveness of the audit and the interim review.

Work of the Audit Committee

The Audit Committee meets no less than twice a year and, if required, meetings are also attended by the Investment Manager, the Administrator and the Auditor. During the year under review, the Audit Committee met on two occasions to consider:

- The contents of the interim and annual financial statements and to consider whether, taken as a whole, they were fair, balanced and understandable and provided the information necessary for shareholders to assess the Company's performance, business model and strategy;

- The effectiveness of the Company's system of internal control;

- The external Auditor's terms of appointment, audit plan, half year review findings and year-end report;

- The management representation letter to the Auditors;

- The effectiveness of the audit process;

- The independence, effectiveness and objectivity of the external Auditor;

- The risk assessment of the Company; and

- Compliance with the UK REIT regime.

Significant matters considered by the Audit Committee in relation to the financial statements

Internal control

The UK Corporate Governance Code requires the Board to conduct, at least annually, a review of the adequacy of the Company's systems of internal control, and to report to shareholders that it has done so. The Audit Committee, on behalf of the Board, also regularly reviews a detailed 'Risk Map' identifying significant strategic, investment-related, operational and service provider related risks and ensures that risk management and all aspects of internal control are reviewed at least annually.

The Company's system of internal controls is substantially reliant on the Investment Manager's and the Administrator's own internal controls and internal audit processes due to the relationships in place.

Although the Board believes that it has a robust framework of internal controls in place, this can provide only reasonable and not absolute assurance against material financial misstatement or loss and is designed to manage, not eliminate, risk. No significant issues were identified from the internal controls review.

Internal audit

The Audit Committee considered the need for an internal audit function and concluded that this function is provided by Schroder's Group Internal Audit reviews, which cover the functions provided by the Investment Manager, Schroder Real Estate Investment Management Limited.

In addition, the Investment Manager prepares an ISAE 3402/AAF 01/06 Internal Controls Report which includes the Company within the scope of the review. This report is reviewed by PricewaterhouseCoopers LLP (PWC) which issued an unqualified opinion for the year ended December 2017. The Audit Committee has considered both the Investment Manager's internal controls report and the review by PWC.

External Auditor remuneration, independence and effectiveness

Annually, the Audit Committee considers the remuneration and independence of the external auditor. The Committee recommends the remuneration of the external auditor to the Board and keeps under review the ratio of audit to non-audit fees to ensure that the independence and objectivity of the external auditor are safeguarded.

Effectiveness of the independent audit process

The Audit Committee evaluated the effectiveness of the independent audit firm and process prior to making a recommendation on its re-appointment at the forthcoming Annual General Meeting. As part of the evaluation, the Committee considered feedback from the Investment Manager on the audit process and the half year and year end report from the Auditor, which details the auditor's compliance with regulatory requirements, on safeguards that have been established and their own internal quality control procedures. The Audit Committee had discussions with the audit partner, who was performing his first audit of the Company, on audit planning, accounting policies and audit findings, and met the audit partner both with and without representatives of the Investment Manager present. The Chairman of the Audit Committee also had informal discussions with the audit partner during the course of the year. The Committee is satisfied with the effectiveness of the audit.

Review of auditor appointment

KPMG has been the Group's Auditor since inception in 2004. In order to benchmark KPMG's service quality, effectiveness and value for money, together with adopting the UK Corporate Governance code on audit tendering and rotation, the Audit Committee conducted a formal tender process during May/June 2014. Three firms, including KPMG, were asked to participate in this process. Following this, a recommendation was made to the Audit Committee to retain KPMG as the Group's auditor.

The Audit Committee's current intention is for the next audit tender to take place within four years, at the end of the current audit partner's tenure, when the audit firm will be changed.

Non-audit services

In order to help safeguard the independence and objectivity of the auditor, the Audit Committee maintains a policy on the engagement of the external auditor to provide non-audit services. The Audit Committee's policy for the use of the external auditor for non-audit services recognises that there are certain circumstances where, due to KPMG's expertise and knowledge of the Company, it will often be in the best position to perform non audit services. Under the policy, the use of the external auditor for non-audit services is subject to pre-clearance by the Audit Committee. Clearance will not be granted if it is believed it would impair the external auditor's independence or where provision of such services by the Company's auditor is prohibited. Prior to undertaking any non-audit service, KPMG also completes its own independence confirmation processes which are approved by the Audit Partner.

During the year, the non-audit services fees paid to KPMG was £13,000. (2017: £13,000) in relation to the interim review.

Stephen Bligh, Director21 May 2018

Independent Auditor's report

Our opinion is unmodified

We have audited the consolidated financial statements (the "Financial Statements") of Schroder Real Estate Investment Trust Limited (the "Company"), its subsidiaries and its interests in joint ventures (together, the "Group"), which comprise the consolidated statement of financial position as at 31 March 2018, the consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising significant accounting policies and other explanatory information.

In our opinion, the accompanying Financial Statements:

- Give a true and fair view of the financial position of the Group as at 31 March 2018, and of the Group's financial performance and the Group's cash flows for the year then ended;

- are prepared in accordance with International Financial Reporting Standards (IFRS); and

- comply with the Companies (Guernsey) Law, 2008.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities are described below. We have fulfilled our ethical responsibilities under, and are independent of the Company and Group in accordance with, UK ethical requirements including FRC Ethical Standards as applied to listed entities. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion.

Key audit matters: our assessment of the risks of material misstatement

Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the Financial Statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the Financial Statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In arriving at our audit opinion above, the key audit matter was as follows (unchanged from 2017):

Our application of materiality and an overview of the scope of our audit

Materiality for the Financial Statements as a whole was set at £3.7 million, determined with reference to a benchmark of Group total assets of £510.4 million, of which it represents 0.7% (2017: 0.8%).

We reported to the Audit Committee any corrected or uncorrected identified misstatements exceeding £185,000, in addition to other identified misstatements that warranted reporting on qualitative grounds.

Our audit of the Group was undertaken to the materiality level specified above, which has informed our identification of significant risks of material misstatement and the associated audit procedures performed in those areas as detailed above.

The Group team performed the audit of the Group as if it was a single aggregated set of financial information. The audit was performed using the materiality level set out above and covered 100% of total Group revenue, total Group profit before taxation, and total Group assets and liabilities.

We have nothing to report on going concern

We are required to report to you if we have anything material to add or draw attention to in relation to the directors' statement in note 1 to the Financial Statements on the use of the going concern basis of accounting with no material uncertainties that may cast significant doubt over the Group's use of that basis for a period of at least twelve months from the date of approval of the Financial Statements. We have nothing to report in this respect. 

We have nothing to report on the other information in the Annual Report

The directors are responsible for the other information presented in the Annual Report together with the Financial Statements. Our opinion on the Financial Statements does not cover the other information and we do not express an audit opinion or any form of assurance conclusion thereon.

Our responsibility is to read the other information and, in doing so, consider whether, based on our Financial Statements audit work, the information therein is materially misstated or inconsistent with the Financial Statements or our audit knowledge. Based solely on that work we have not identified material misstatements in the other information.

Disclosures of principal risks and longer-term viability

Based on the knowledge we acquired during our financial statements audit, we have nothing material to add or draw attention to in relation to:

- The directors' confirmation within the Viability Statement on page 34 that they have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity;

- The Principal Risks and Uncertainties disclosures describing these risks and explaining how they are being managed or mitigated;

- The directors' explanation in the Viability Statement on page 34 as to how they have assessed the prospects of the Group, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.

Corporate governance disclosures

We are required to report to you if:

- We have identified material inconsistencies between the knowledge we acquired during our financial statements audit and the directors' statement that they consider that the Annual Report and Financial Statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position and performance, business model and strategy; or

- The section of the Annual Report describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee.

We are required to report to you if the Corporate Governance Statement does not properly disclose a departure from the eleven provisions of the 2016 UK Corporate Governance Code specified by the Listing Rules for our review.

We have nothing to report to you in these respects.

We have nothing to report on other matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies (Guernsey) Law, 2008 requires us to report to you if, in our opinion:

- The Company has not kept proper accounting records; or

- The Financial Statements are not in agreement with the accounting records; or

- We have not received all the information and explanations, which to the best of our knowledge and belief are necessary for the purpose of our audit.

Respective responsibilities

Directors' responsibilities

As explained more fully in their statement set out on page 37, the Directors are responsible for: the preparation of the Financial Statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. 

Auditor's responsibilities

Our objectives are to obtain reasonable assurance about whether the Financial Statements as a whole are free from material misstatement, whether due to fraud or error, and to issue our opinion in an auditor's report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Statements.

A fuller description of our responsibilities is provided on the FRC's website at www.frc.org.uk/auditorsresponsibilities

The purpose of this report and restrictions on its use by persons other than the Company's members as a body

This report is made solely to the Company's members, as a body, in accordance with section 262 of the Companies (Guernsey) Law, 2008. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members, as a body, for our audit work, for this report, or for the opinions we have formed

Lee ClarkFor and on behalf of KPMG Channel Islands Limited

Chartered Accountants and Recognised AuditorsGlategny CourtGlategny EsplanadeSt Peter PortGuernseyGY1 1WR 

21 May 2018

Consolidated Statement of Comprehensive Income

All items in the above statement are derived from continuing operations. The accompanying notes 1 to 24 form an integral part of the financial statements.

Consolidated Statement of Financial Position

The financial statements on pages 52 to 73 were approved at a meeting of the Board of Directors held on 21 May 2018 and signed on its behalf by:

Lorraine Baldry, Chairman 

Stephen Bligh, Director 

The accompanying notes 1 to 24 form an integral part of the financial statements.

Consolidated Statement of Changes in Equity

The accompanying notes 1 to 24 form an integral part of the financial statements.

Consolidated Statement of Cash Flows

The accompanying notes 1 to 24 form an integral part of the financial statements.

Notes to the Financial Statements

1. Significant accounting policies

Schroder Real Estate Investment Trust Limited ("the Company") is a closed-ended investment company registered in Guernsey. The consolidated financial statements of the Company for the year ended 31 March 2018 comprise the Company, its subsidiaries and its interests in joint ventures (together referred to asthe "Group").

Statement of compliance

The financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") issued by the International Accounting Standards Board (the "IASB"), and interpretations issued by the International Financial Reporting Interpretations Committee.

The financial statements give a true and fair view and are in compliance with The Companies (Guernsey) Law, 2008, applicable legal and regulatory requirements and the Listing Rules of the UK Listing Authority.

Basis of preparation

The financial statements are presented in sterling, which is the Company's functional currency, rounded to the nearest thousand. They are prepared on the historical cost basis except that investment property and derivative financial instruments are stated at their fair value.

The accounting policies have been consistently applied to the results, assets, liabilities and cash flows of the entities included in the consolidated financial statements and are consistent with those of the previous year.

Going concern

The Directors have examined significant areas of possible financial risk including cash and cash requirements and the debt covenants, in particular the loan to value covenants and interest cover ratios on the loans with Canada Life and Royal Bank of Scotland. 80% of the Canada Life loan matures on 15 April 2028 and 20% matures on 15 April 2023. The Royal Bank of Scotland loan matures on 17 July 2019. The Directors have not identified any material uncertainties which would cast significant doubt on the Group's ability to continue as a going concern for a period of not less than twelve months from the date of the approval of the financial statements. The Directors have satisfied themselves that the Group has adequate resources to continue in operational existence for the foreseeable future.

After due consideration, the Board believes it is appropriate to adopt the going concern basis in preparing the consolidated financial statements.

Use of estimates and judgements

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. These estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

The most significant estimates made in preparing these financial statements relate to the carrying value of investment properties, including those within joint ventures, which are stated at fair value. The Group uses external professional valuers to determine the relevant amounts. Judgements made by management in the application of IFRS that have a significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are disclosed in note 19.

Basis of consolidation

Subsidiaries

The consolidated financial statements comprise the financial statements of the Company and all of its subsidiaries drawn up to 31 March each year. Subsidiaries are those entities, including special purpose entities, controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Where properties are acquired by the Group through corporate acquisitions but the acquisition does not meet the definition of a business combination, the acquisition has been treated as an asset acquisition.

Joint ventures

Joint ventures are those entities over whose activities the Group has joint control, established by contractual agreement. The consolidated financial statements include the Group's share of profit or loss of jointly controlled entities on an equity accounted basis. When the Group's share of losses exceeds its interest in an entity, the Group's carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or is making payments on behalf of an entity.

Transactions eliminated on consolidation

Intra-group balances and any gains and losses arising from intra-group transactions are eliminated in preparing the consolidated financial statements. Gains arising from transactions with joint ventures are eliminated to the extent of the Group's interest in the entity. Losses are eliminated in the same way as gains but only to the extent that there is no evidence of impairment.

Investment Property

Investment property is land and buildings held to earn rental income together with the potential for capital growth.

Acquisitions and disposals are recognised on unconditional exchange of contracts. Acquisitions are initially recognised at cost, being the fair value of the consideration given, including transaction costs associated with the investment property.

After initial recognition, investment properties are measured at fair value, with unrealised gains and losses recognised in profit and loss. Realised gains and losses on the disposal of properties are recognised in profit and loss in relation to carrying value. Fair value is based on the market valuations of the properties as provided by a firm of independent chartered surveyors, at the reporting date. Market valuations are carried out on a quarterly basis.

As disclosed in note 20, the Group leases out all owned properties on operating leases. A property held under an operating lease is classified and accounted for as an investment property where the Group holds it to earn rentals, capital appreciation, or both. Any such property leased under an operating lease is classified as an investment property and carried at fair value.

Financial instruments

Non-derivative financial instruments

Financial Assets

Non-derivative financial instruments comprise trade and other receivables and cash and cash equivalents. These are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition they are measured at amortised cost using the effective interest rate method less any impairment losses.

Cash and cash equivalents

Cash at bank and short-term deposits that are held to maturity are carried at cost. Cash and cash equivalents are defined as cash in hand, demand deposits and short-term, highly liquid investments readily convertible to known amounts of cash and subject to insignificant risk of changes in value. For the purposes of the Consolidated Statement of Cash Flows, cash and cash equivalents consist of cash in hand and short-term deposits at banks with a term of no more than three months.

Financial Liabilities

Non-derivative financial instruments comprise loans and borrowings and trade and other payables.

Loans and borrowings

Borrowings are recognised initially at fair value of the consideration received, less attributable transaction costs. Subsequent to initial recognition, interest bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the profit and loss over the period of the borrowings on an effective interest basis.

Trade and other payables

Trade and other payables are stated at amortised cost.

Share capital

Ordinary shares including treasury shares are classified as equity.

Dividends

Dividends are recognised in the period in which they are payable.

Impairment

Financial assets

A financial asset, other than those at fair value through profit and loss, is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate.

Significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognised in the profit and loss.

An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost, the reversal is recognised in the profit and loss.

Non-financial assets

The carrying amounts of the Group's non-financial assets, other than investment property but including joint ventures, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to that asset.

For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the "cash-generating unit").

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognised in the profit and loss.

Provisions

A provision is recognised in the Consolidated Statement of Financial Position when the Group has a legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation.

Rental income

Rental income from investment properties is recognised on a straight-line basis over the term of ongoing leases and is shown gross of any UK income tax. Lease incentives are spread evenly over the lease term.

Surrender premiums and dilapidations are recognised in line with individual lease agreements when cash inflows are certain. 

Finance costs

Finance expenses comprise interest expense on borrowings that are recognised in profit and loss. Attributable transaction costs incurred in establishing the Group's credit facilities are deducted from the fair value of borrowings on initial recognition and are amortised over the lifetime of the facilities through profit and loss. Finance expenses are accounted for on an effective interest basis.

Expenses

All expenses are accounted for on an accruals basis. The costs recharged to occupiers of the properties are presented net of the service charge income as management consider that the property agent acts as principal in this respect.

Taxation

The Group elected to be treated as a UK REIT with effect from 1 May 2015. The UK REIT rules exempt the profits of the Group's UK property rental business from UK corporation and income tax. Gains on UK properties are also exempt from tax, provided they are not held for trading. The Group is otherwise subject to UKcorporation tax.

As a REIT, the Company is required to pay Property Income Distributions equal to at least 90% of the Group's exempted net income. To remain a UK REIT there are a number of conditions to be met in respect of the principal company of the Group, the Group's qualifying activity and its balance of business. The Group continues to meet these conditions.

Segmental reporting

The Directors are of the opinion that the Group is engaged in a single segment of business, being property investment and in one geographical area, the United Kingdom. There is no one tenant that represents more than 10% of group revenues. SREIM acts as advisor to the board, who then make management decisions following their recommendations. As such the Board of Directors are considered to be the chief operating decision maker. A set of consolidated IFRS information is provided on a quarterly basis.

2. New standards and interpretations

Standards, interpretations and amendments to published standards that are effective for the first time

The following new standards, interpretations or amendments, which are relevant to the Company's operations, became effective during the year:

- Amendment to IAS 7 - Cash Flow Statements (effective for accounting periods beginning on or after 1 January 2017)

This amendment to the standard did not have a material impact on the financial statements.

Standards, interpretations and amendments to published standards that are not yet effective.

The following new standards, interpretations and amendments have been published and are mandatory for the Company's accounting periods beginning on or after 1 April 2018 or later periods and have not been early adopted by the Company:

- IFRS 16 - Leases (effective for accounting periods beginning on or after 1 January 2019)

- IFRS 15 Revenue from Contracts with Customers (effective for accounting periods beginning on or after 1 January 2018)

- IFRS 9 Financial Instruments (effective for accounting periods beginning on or after 1 January 2018)

IFRS 15, 'Revenue from contracts with customers' is a converged standard from the IASB on revenue recognition. The standard will improve the financial reporting of revenue and improve comparability of the top line in financial statements globally. It is more prescriptive in terms of what should be included within revenue than IAS 18 'Revenue'. The Directors do not expect the application of IFRS 15 will have a significant impact on the Company's financial statements.

In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments that replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. Overall, the Directors expect no significant impact from IFRS 9 on the financial statements.

IFRS 16 specifies how an IFRS reporter will recognise, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16's approach to lessor accounting substantially unchanged from its predecessor, IAS 17. IFRS 16 was issued in January 2016 and applies to annual reporting periods beginning on or after 1 January 2019. The Directors do not believe the impact will be material.

3. Material agreements

Schroder Real Estate Investment Management Limited is the Investment Manager to the Company. The Investment Manager is entitled to a fee together with reasonable expenses incurred in the performance of its duties. The fee is payable monthly in arrears and shall be an amount equal to one twelfth of the aggregate of 1.1% of the NAV of the Company. The Investment Management Agreement can be terminated by either party on not less than nine months written notice or on immediate notice in the event of certain breaches of its terms or the insolvency of either party. The total charge to profit and loss during the year was £3,531,000 (2017: £3,391,000). At the year end £556,000 (2017: £216,000) was outstanding.

Northern Trust International Fund Administration Services (Guernsey) Limited is the Administrator to the Company. The Administrator is entitled to an annual fee equal to £120,000 (2017: £120,000) of which £30,000 (2017: £30,000) was outstanding at the year end. In addition to this £40,000 (2017: £40,000) was paid for depository fees of which £3,334 (2017: £3,334) was outstanding at year end.

4. Other income

5. Property operating expenses

*Includes rates refund totalling £587,000.

6. Auditor's remuneration

The total expected audit fees for the year are £115,000 (2017: £114,000) and £13,000 (2017: £13,000) for the half year review of the financial statements. There were no additional fees paid to the auditors during the year.

7. Other expenses

Directors' fees

Directors are the only officers of the Company and there are no other key personnel.

The Directors' annual remuneration for services to the Group was £180,000 (2017: £180,000), as set out in the Remuneration Report on page 43.

Abortive transaction costs

One-off abortive transaction costs of £1,507,000 relating to the attempted acquisition of a major portfolio were incurred during the year.

8. Taxation

The Company and its Guernsey registered subsidiaries have obtained exempt Company status in Guernsey under the terms of the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 so that they are exempt from Guernsey taxation on income arising outside Guernsey and on bank interest receivable in Guernsey. Each Company is, therefore, only liable for a fixed fee of £1,200 per annum. The Directors intend to conduct the Group's affairs such that they continue to remain eligible for exemption.

The Company is a real estate investment trust ('REIT') and benefits from the various tax advantages offered by the UK REIT regime. 

9. Basic and diluted earnings per share

Earnings per share

The basic and diluted earnings per share for the Group is based on the net profit for the year of £33,836,000 (2017: £22,844,000) and the weighted average number of Ordinary Shares in issue during the year of 518,513,409 (2017: 518,513,409).

10. Dividends paid

A dividend for the quarter ended 31 March 2018 of 0.62 pence (£3.2 million) was declared on 3 May 2018 and will be paid on 31 May 2018.

11. Investment property

Fair value of investment properties as determined by the valuer totals £399,725,000 (2017: £390,745,000). Of this amount £nil is in relation to the unconditional exchange of contracts (2017: £14,200,000 sales of Bristol and Watford). In addition to this, £10,749,000 (2017: £10,318,000) relating to lease incentives is included within trade and other receivables.

The unrealised net valuation gain on investment property consists of unrealised gains of £24,924,000 (2017: £12,418,000) net of unrealised losses of £4,729,000 (2017: £5,431,000).

The fair value of investment property has been determined by Knight Frank LLP, a firm of independent chartered surveyors, who are registered independent appraisers. The valuation has been undertaken in accordance with the RICS Valuation - Professional Standards global January 2014 (revised April 2015), issued by the Royal Institution of Chartered Surveyors (the "Red Book") including the International Valuation Standards.

The properties have been valued on the basis of "Fair Value" in accordance with the RICS Valuation - Professional Standards VPS4(1.5) Fair Value and VPGA1 Valuations for Inclusion in Financial Statements which adopt the definition of Fair Value used by the International Accounting Standards Board.

The valuation has been undertaken using appropriate valuation methodology and the Valuer's professional judgement. Consistent with prior year, the Valuer's opinion of Fair Value was primarily derived using recent comparable market transactions on arm's length terms, where available, and appropriate valuation techniques(The Investment Method).

The properties have been valued individually and not as part of a portfolio.

All investment properties are categorised as Level 3 fair values as they use significant unobservable inputs. There have not been any transfers between Levels during the year. Investment properties have been classed according to their real estate sector. Information on these significant unobservable inputs per class of investment property is disclosed below:

Quantitative information about fair value measurement using unobservable inputs (Level 3) as at31 March 2018

Notes:

(1) Yields based on rents receivable after deduction of head rents, but gross of non-recoverables.

(2) Previously development land was categorised as other which is now industrial.

Quantitative information about fair value measurement using unobservable inputs (Level 3) as at31 March 2017

Notes:

(1) Yields based on rents receivable after deduction of head rents, but gross of non-recoverables.

Sensitivity of measurement to variations in the significant unobservable inputs

The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy of the Group's property portfolio, together with the impact of significant movements in these inputs on the fair value measurement, are shown below:

There are interrelationships between the yields and rental values as they are partially determined by market rate conditions.

The sensitivity of the valuation to changes in the most significant inputs per class of investment property are shown below:

12. Investment in joint ventures

1Liabilities that are non-recourse to the Group.

13. Trade and other receivables

Other debtors and prepayments includes £10,749,000 (2017: £10,318,000) in respect of lease incentives. In 2017, a further £12,629,000 was included relating to Bristol and Watford, that had both unconditionally exchanged but had not completed prior to the year end.

14. Cash and cash equivalents

As at 31 March 2018, the Group had £29.2 million (2017: £20.1 million) in cash. £1.0 million (2017: £1.0 million) is held in respect of rental deposits (see note 17).

15. Issued capital and reserves

Share capital

The share capital of the Company is represented by an unlimited number of Ordinary Shares of no par value. As at the date of this Report, the Company has 565,664,749 ordinary shares in issue (2017: 565,664,749) of which 47,151,340 ordinary shares are held in treasury (2017: 47,151,340). The total number of voting rights of the Company is 518,513,409 (2017: 518,513,409).

Treasury capital

47,151,340 Ordinary Shares which represent 8.3% of the Company's total issued share capital are heldin treasury.

Revenue reserve

This reserve represents an accumulated amount of the Group's prior earnings, net of dividends.

16. Interest-bearing loans and borrowings

This note provides information about the contractual terms of the Group's interest-bearing loans and borrowings. For more information about the Group's exposure to interest rate risk, see note 19.

The Group entered into a £129.6 million loan facility with Canada Life on 16 April 2013 that has 20% of the loan maturing on 15 April 2023 and with the balance of 80% maturing on 15 April 2028, with a fixed interest rateof 4.77%.

On 17 July 2015 the Company entered into a four year, £20.5 million revolving credit facility with the Royal Bank of Scotland ("RBS") for the purpose of acquiring, Millshaw Park Industrial Estate. The interest rate is based on the loan to value ratio as below:

- LIBOR + 1.60% if loan to value is less than or equal to 60% of the property value

- LIBOR + 1.85% if loan to value is greater than 60% or the property value

During both the current and prior year the loan to value has remained less than 60%. Since this loan has variable interest, an interest rate cap for 100% of the loan was entered into, which comes into effect if GBP 3 month LIBOR reaches 1.5%. As at the reporting date GBP 3 month LIBOR has not reached 1.5%.

As at 31 March 2018 the Group has a loan balance of £150.1 million and £1.6 million of unamortised arrangement fees. (31 March 2017: £150.1 million and £1.8 million of unamortised arrangement fees).

The Canada Life facility has a first charge security over all the property assets in the ring fenced Security Pool (the 'Security Pool') which at 31 March 2018 contained properties valued at £356.5 million. Various restraints apply during the term of the loan although the facility has been designed to provide significant operational flexibility. The RBS facility has a first charge security over all the property assets held in SREIT No.2 Limited, which at 31 March 2018 contained properties valued at £43.3 million (2017: £41.0 million).

The principal covenants for Canada Life and RBS are that the loan should not comprise more than 65% of the value of the assets in the Security Pool nor should estimated rental and other income arising from assets in the Security Pool, calculated on any interest payment date and one year projected from any interest payment date, comprise less than 185% of the interest payments. For the RBS facility, the forward looking interest cover covenant is 250%.

As at the Interest Payment Date, the Canada Life interest cover calculated in accordance with the ICR covenant was 352% (2017: 311%) and the forward looking interest cover was 329% (2017: 300%), with the Loan to value ratio of 36.4% (28.2% net of all cash) (2017: 38.6%, 33.2% net of all cash). The RBS interest cover calculated in accordance with the ICR covenant was 513% (2017: 463%) with the Loan to value ratio of 47.4% (2017: 50.1%).

17. Trade and other payables

18. NAV per Ordinary Share

The NAV per Ordinary Share is based on the net assets of £353,570,000 (2017: £332,590,000) and 518,513,409 (2017: 518,513,409) Ordinary Shares in issue at the reporting date.

19. Financial instruments, properties and associated risks

Financial risk factors

The Group holds cash and liquid resources as well as having debtors and creditors that arise directly from its operations. The Group uses interest rate contracts when required to limit exposure to interest rate risks, but does not have any other derivative instruments.

The main risks arising from the Group's financial instruments and properties are market price risk, credit risk, liquidity risk and interest rate risk. The Group is only directly exposed to sterling and hence is not exposed to currency risks. The Board regularly reviews and agrees policies for managing each of these risks and these are summarised below:

Market price risk

Rental income and the market value for properties are generally affected by overall conditions in the economy, such as changes in gross domestic product, employment trends, inflation and changes in interest rates. Changes in gross domestic product may also impact employment levels, which in turn may impact the demand for premises. Furthermore, movements in interest rates may also affect the cost of financing for real estate companies. Both rental income and property values may also be affected by other factors specific to the real estate market, such as competition from other property owners, the perceptions of prospective tenants of the attractiveness, convenience and safety of properties, the inability to collect rents because of bankruptcy or the insolvency of tenants, the periodic need to renovate, repair and release space and the costs thereof, the costs of maintenance and insurance, and increased operating costs.

The Directors monitor the market value of investment properties by having independent valuations carried out quarterly by a firm of independent chartered surveyors. Note 11 sets out the sensitivity analysis on the market price risk. Concentration risk based on industry and geography, is set out in the tables on page 5. Included in market price risk is interest rate risk which is discussed further below.

Credit risk

Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Group. In the event of default by an occupational tenant, the Group will suffer a rental income shortfall and incur additional costs, including legal expenses, in maintaining, insuring and re-letting the property. The Investment Manager reviews reports prepared by Dun & Bradstreet, or other sources to assess the credit quality of the Group's tenants and aims to ensure there is no excessive concentration of risk and that the impact of any default by a tenant is minimised.

In respect of credit risk arising from other financial assets, which comprise cash and cash equivalents, exposure to credit risk arises from default of the counterparty with a maximum exposure equal to the carrying amounts of these instruments. In order to mitigate such risks, cash is maintained with major international financial institutions with high quality credit ratings. During the year and at the reporting date the Group maintained relationships with branches and subsidiaries of HSBC. HSBC Credit Rating is AA negative (provided by Standard and Poor).

The maximum exposure to credit risk for rent receivables at the reporting date by type of sector was:

Rent receivables which are past their due date, but which were not impaired at the reporting date were:

*Net of bad debt provisions of £489k (2017: £nil).

Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulties in meeting obligations associated with its financial obligations.

The Group's investments comprise UK commercial property. Property and property related assets are inherently difficult to value due to the individual nature of each property. As a result, valuations are subject to substantial uncertainty. There is no assurance that the estimates resulting from the valuation process will reflect the actual sales price even where such sales occur shortly after the valuation date. Investments in property are relatively illiquid; however the Group has tried to mitigate this risk by investing in properties that it considers to be good quality.

In certain circumstances, the terms of the Group's debt facilities entitle the lender to require early repayment and in such circumstances the Group's ability to maintain dividend levels and the net asset value could be adversely affected. The Investment Manager prepares cash flows on a rolling basis to ensure the Group can meet future liabilities as and when they fall due.

The following table indicates the maturity analysis of the financial liabilities.

Interest rate risk

Exposure to market risk for changes in interest rates relates primarily to the Group's long-term debt obligations and to interest earned on cash balances. As interest on the Group's long-term debt obligations is payable on a fixed-rate basis the Group is not exposed to interest rate risk, but is exposed to changes in fair value of long-term debt obligations driven by interest rate movements. As at 31 March 2018 the fair value of the Group's £129.6 million loan with Canada Life was £120.2 million (2017: £121.4 million). The RBS revolving credit facility is a low margin flexible source of funding with a margin of 1.6% above 3 month LIBOR and it is considered by management that the carrying value is equal to fair value.

A 1% increase or decrease in short-term interest rates would increase or decrease the annual income and equity by £292,200 based on the cash balance as at 31 March 2018.

Fair values

The fair values of financial assets and liabilities are not materially different from their carrying values, unless disclosed below, in the financial statements.

The fair value hierarchy levels are as follows:

- Level 1 - quoted prices (unadjusted) in active markets for identical assets and liabilities

- Level 2 - inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

- Level 3 - inputs for the assets or liability that are not based on observable market data(unobservable inputs).

There have been no transfers between Levels 1, 2 and 3 during the year (2017: none).

The following summarises the main methods and assumptions used in estimating the fair values of financial instruments and investment property.

Investment property - level 3

Fair value is based on valuations provided by an independent firm of chartered surveyors and registered appraisers. These values were determined after having taken into consideration recent market transactions for similar properties in similar locations to the investment properties held by the Group. The fair value hierarchy of investment property is level 3. See Note 11 for further details.

Interest bearing loans and borrowings - level 2

Fair values are based on the present value of future cash flows discounted at a market rate of interest. Issue costs are amortised over the period of the borrowings. As at 31 March 2018 the fair value of the Group's £129.6 million loan with Canada Life was £120.2 million (2017: £121.4 million).

Trade and other receivables/payables - level 2

All receivables and payables are deemed to be due within one year and as such the notional amount is considered to reflect the fair value.

Capital management

The Board's policy is to maintain a strong capital base to maintain investor, creditor and market confidence and to sustain future development of the business. The objective is to ensure that it will continue as a going concern and to maximise return to its equity shareholders through appropriate level of gearing. The Company's capital management process ensures it meets its financial covenants in its borrowing arrangements. Breaches in meeting the financial covenants could permit the lenders to immediately accelerate the repayment of loans and borrowings. The Company monitors as part of its quarterly board meetings that it will adhere to specific leverage, interest cover and rental cover ratios. There have been no breaches in the financial covenants of any loans and borrowings during the financial year.

The Company's debt and capital structure comprises the following:

There were no changes in the Group's approach to capital management during the year.

20. Operating leases

The Group leases out its investment property under operating leases. At 31 March 2018 the future minimum lease receipts under non-cancellable leases are as follows:

The total above comprises the total contracted rent receivable as at 31 March 2018.

The Group has entered into leases on its property portfolio. The commercial property leases typically have lease terms between 5 and 15 years and include clauses to enable periodic upward revision of the rental charge according to prevailing market conditions. Some leases contain options to break before the end of the lease term.

21. List of Subsidiary and Joint Venture Undertakings

The companies listed below are those which were part of the Group at 31 March 2018 and 31 March 2017:

The companies listed below became part of the Group or were liquidated during the year ended31 March 2018:

*Companies incorporated during the year ended 31 March 2018.

**Companies liquidated during the year ended 31 March 2018.

22. Related party transactions

Material agreements are disclosed in note 3. Transactions with Directors and the Investment Manager are disclosed in note 7. Transactions with joint ventures are disclosed in note 12.

23. Capital commitments

As at 31 March 2018 the Group had capital commitments of £1.2 million (2017: £4.9 million).

24. Post balance sheet events

Since the year end, there have been no significant events.

EPRA Performance Measures (unaudited)

As recommended by EPRA (European Public Real Estate Association), EPRA performance measures are disclosed in the section below.

EPRA performance measures: summary table

a. EPRA earnings and EPS

Total comprehensive income excluding realised and unrealised gains/ losses on investment property, share of profit on joint venture investments and changes in fair value of financial instruments, divided by the weighted average number of shares.

b. EPRA NAV per share

The Net Asset Value adjusted to exclude assets or liabilities not expected to crystallise in a long-term investment property model, divided by the number of shares in issue.

c. EPRA NNNAV per share

The EPRA NAV adjusted to include the fair value of debt, divided by the number of shares in issue.

d. EPRA Net Initial Yield

Annualised rental income based on the cash rents passing at the balance sheet date, less non-recoverable property operating expenses, divided by the grossed up market value of the complete property portfolio. The EPRA "topped up" NIY is the EPRA NIY adjusted for unexpired lease incentives.

(1) The period over which rent free periods expire is 2 years (2017: 2 years).

e. EPRA cost ratios

Administrative and operating costs as a percentage of gross rental income calculated including and excluding direct vacancy costs.

EPRA Sustainability Reporting Performance Measures (unaudited)

The Company reports environmental data in accordance with EPRA Best Practice Recommendations on Sustainability Reporting (sBPR) 2017, 3rd Edition for the 2017 calendar year presented with comparison against 2016.

The reporting boundary has been scoped to where the Company has operational control: managed properties where the Company is responsible for payment of utility invoices and/or arrangement of waste disposal contracts. 'Operational control' has been selected as the reporting boundary (as opposed to 'financial control' or 'equity share') as this reflects the portion of the portfolio where the Company can influence operational procedures and, ultimately, sustainability performance. The operational control approach is the most commonly applied within the industry.

In the calendar year to 2017, 22 of SREIT's assets were within the operational control reporting boundary of the Company (i.e. 'managed') (this included one asset sold partway through 2017). In 2016, there were 23 managed assets within the portfolio (this included one asset which was sold in 2016 and one asset where operational responsibility was transferred to the tenant during the 2016 period). Energy and water consumption data is reported according to automatic meter reads, manual meter reads or invoice estimates. Where required, missing consumption data has been estimated by pro-rating data from other periods. The proportion of data that is estimated is presented in the footnotes to the data tables. Historic consumption data have been restated where more complete and or accurate records have become available.

The Company does not contain any managed assets that consume energy from district heating or cooling sources. Therefore, the EPRA sBPR DH&C-Abs and DH&C-LfL indicators are not applicable and not presented in this report. Furthermore, the Company does not have any direct employees; it is served by the employees of the Investment Manager (Schroder Real Estate Investment Management Limited). Accordingly, the EPRA Overarching Recommendation for companies to report on the environmental impact of their own offices is not relevant/material and not presented in this report.

Total Energy Consumption (Elec-Abs; Fuels-Abs)

The table below sets out total landlord obtained energy consumption from the Company's managed portfolio by sector.

- Consumption data relates to the managed portfolio only:

- Retail Warehouses and Retail; Industrial Distribution Warehouses; Leisure: common parts, outdoor areas and/or tenant voids

- Offices and Mixed use: Whole building

- Estimation: 1% of Electricity and 1% of Gas data have been estimated through pro-rating.

- Coverage relates to number of managed assets for which data is reported

- All energy was procured from a third-party supplier. No 'self-generated' renewable energy was consumed during the reporting period and therefore is not presented here

Like for like energy consumption (Elec-LfL; Fuels-LfL; Energy-Int)

The table below sets out the like for like landlord obtained energy consumption from the Company's managed portfolio by sector.

- Like for like excludes assets that were purchased, sold or under refurbishment during the twoyears reported

- Consumption data relates to the managed portfolio only:

- Retail Warehouse & Retail; Industrial Distribution Warehouses; Leisure: common parts outdoor areas and/or tenant voids

- Mixed use: Whole building

- Office: Whole building, common parts and tenant voids

- 1% of Electricity and 1% of Gas data have been estimated through pro-rating

- Intensity: An intensity measure is reported for assets within the like for like portfolio. Normalisation uses the Real Estate Environmental Benchmark (REEB) 2017 methodology, which also aligns with EPRAsBPR 2017:

- Office, Mixed Use - Whole building energy consumption divided by net lettable area (NLA m2)

- Retail Warehouse - External areas energy consumption divided by number of car park spaces

- Leisure/Retail- Common parts energy consumption divided by common parts area (m2). As common parts area is not typically measured and therefore known, we have taken the known net lettable area and applied an internal benchmark: 25% common part area for unenclosed centres and 35% for enclosed centres

- Industrials - External areas energy consumption divided by external area (m2). As external areas are not typically measured and therefore known we have taken the known net lettable area and applied an internal benchmark: 58% external area

- Coverage relates to number of managed assets for which data is reported

Greenhouse gas emission (GHG-Dir-Abs; GHG-Indir-Abs; GHG-Int)

The table below sets out the Company's green house gas emissions by sector.