Well, good morning, ladies and gentlemen, and thank you very much indeed for joining us for the Schroder Real Estate Investment Trust Annual Results Webinar. My name is James Lowe. I look after sales for the Schroder Investment Trust business. I'm very pleased to be joined in the studio in London this morning by the 2 co-portfolio managers of the Trust, Nick Montgomery and Bradley Biggins. Welcome to both of you.
So just before we get into the session this morning, a couple of bits of background from me. If you'd like to ask the team a question, as we go along, please do so in the Q&A box. They'll come through to me on my iPad, and I can ask the team at the end of the session after the presentation. And then finally, if you would like to follow along with the presentation in your own time, you can download that now from the downloads tab. And also, we have obviously published our annual results this morning. So please do also feel free to download a copy of that, where you'll find a lot more detail on the Trust.
With that, it's all from me and I will pass you over to the team to start the presentation.
Fantastic. Thank you very much, James. Good morning, everybody, and thank you very much for joining us. So I'll give you a brief overview of the results for the year to 31 March, and give you a bit of color on how we see the market and then hand over to Bradley to provide a bit more color on our strategic evolution and also how that relates to activity across the portfolio.
I guess just by way of introduction, against a backdrop clearly of uncertainty over the year, we think this is a very solid set of results. And there are signs in different areas of there being a recovery in sentiments with values appearing to have bottomed out in large parts of the market.
And I think we do believe, and we've been consistent in saying that we think we are well positioned for that recovery with obviously a high-income return and the lowest cost, longest duration debt in the peer group and more on that later on. And we're just sort of drawing out the 5 key points here that we think would be relevant to someone who doesn't know us quite so well.
I think first of all, because of investing in our portfolio, our multi-let estates or retail warehousing represents now over 60% of assets, with our reversionary yield now as high as it's pretty much ever been, I think, 8.4%, over 200 basis points ahead of our MSCI Benchmark.
Because of that confidence on the earnings side, we have today, you will have seen, announced a further 2% increase in our dividend. That represents a dividend yield on yesterday's closing share price of about 7.9%. And the key reason we're able to do that is because over the final quarter of the financial year, we're 105% covered in terms of recurring earnings.
I've touched on the balance sheet, the robust balance sheet, and of course, with shares in the sector, and we're no exception trading at a discount to NAV. That 7.9% is based on a 20% discount to the NAV we're announcing today. Finally, importantly, very clear focus on transitioning the strategy to brown-to-green, if you like, the working title, where we can hopefully manufacture that green premium, address the climate emergency, carbon challenges and drive earnings growth.
Now some highlights. I mentioned the turning point, and it's really stark actually if you look at these numbers. So you can see there the asset value, net asset value, total return, a positive there of 1.1%. And that compares to a 15% fall over the year to March '23. 4% increase in dividends paid during the year. And as I say, a further 2% increase in the dividend for the most recent quarter, which will be paid later this month. A large reason for the relative outperformance, of course, is what's happening in the underlying portfolio, total return over the 12 months of 3.2%, which compared with a negative total return of minus 1.3% for our benchmark. And really importantly, that's driven by that higher income return to our income over the year at 6.2% versus a benchmark of 4.7%. And because of our overweight exposure, particularly to those multi-let industrial estates, about 4.6% rental growth against a benchmark of 3.3%.
Also worth noting, because we don't have detailed MSCI stats over all time periods here, that actually our relative outperformance over 3 years and 5 years versus benchmark is actually at 4.5% to 4.7% relative. So continued very healthy levels of outperformance. Now, clearly, lots of activity, 108 new lettings since the start of the financial year, and Bradley will provide a bit more color on what that means in relation to our portfolio. That also resulted in a small reduction in our void rate, but also encouragingly, again, because we've been investing in our assets, projects like Stanley Green, we've got about GBP 600,000 of annualized income in legals, which we're pushing through, and we hope will come through shortly.
Final point to note, lots of shareholder engagement over this period, not least as part of a consultation resulting in the strong support for the brown-to-green strategy -- excuse me, terrible cold. But the -- I guess what we've also been trying to do is ensure our shareholder base is as diverse as possible. And we've been spending a lot of time out meeting new shareholders, existing shareholders, articulating why we feel so strongly about the strategy. And actually, we've also seen an increase in retail platform investors, Hargreaves, for example, up by about 3x over the course of the last few years. So we do a lot of work to try and drive demand for those shares.
Now to move into a bit more detail. So we have a decrease over the year of 4.4%. But of course, with the dividends that we've paid, we have a positive NAV total return of 1.1%. Clearly, as I've said, the valuations were still falling over the year, a 2.8% decline over the year to March compared to the benchmark, just under minus 6%. Interestingly, I don't know a lot of you are interested in what's happening over the more recent quarter, actually, our values were flat over the most recent quarter compared to the benchmark, down about 60 basis points. We're also asked about what the equivalent yield is doing. Worth noting that reflects an increase in our equivalent yield over the year of about 50 basis points, which is broadly in line with the benchmark.
One sale over the period. So we sold our building up in Leeds, an office building at a premium to the value at the start of the period. We do have a few more sales planned and in progress. Obviously, with the expectation, the proceeds will be used to repay the floating part of our revolving credit facility and more on that later. A little bit of noise as well in relation to hedging. Obviously, we did a lot of refinancing, but we put in place new hedging on our revolving credit facility, which represents about 25% of our debt stack. That actually realized a crystallization of a small premium because we did it ahead of time, but we also had an unrealized loss on a recently required rate collar of about GBP 0.6 million. Probably what is more relevant, I think, to this, which really, I guess, underlines the value of our fixed rate debt is what this NAV does not reflect is that positive fair value of the loan, which at the year-end was about GBP 18.5 million.
Now moving on to the income statement. Obviously, this is an area of key focus. A few moving parts here. If we, first of all, just focus on the movement over the full year. So just moving down, you can see rental and related income increasing from GBP 28.8 million up to the GBP 30.2 million, the 5%, less by way of increase in EPRA earnings because, of course, we did see an increase in [indiscernible] over the year, which impacted our interest cost. We also incurred about GBP 150,000 of cost associated with the brown-to-green strategy that we booked in the third quarter of the financial year. I think probably what's more interesting is if you look at the most recent quarter, because obviously, that reflects a lot of the activity that we have done, and it's clean insofar as those brown-to-green costs are concerned. Actually, if you annualize the most recent quarter, the rental-related income is about GBP 31.2 million. So that's an extra GBP 1 million on top of what we reported over the full financial year.
On the cost and expenses side, we're tracking slightly below where we were over the full year, and that's the principal reason why, as I say, we had the cover over the quarter, the 105%. And that gave us the Board the conviction that we were able to, again, move that dividend on. Costs are a key focus, both in terms of reducing the interest cost, but obviously also in terms of our running in the portfolio. But actually, interestingly, our ongoing charges number reduced over the year from 1.32% for the year to March '23 down to 1.19% now. And of course, we're doing work as a business trying to ensure that the FCA do make changes to how we report costs in terms of ongoing charges on a more fair basis. In terms of dividends, you can see here the dividend we've announced, so that's 0.853p, that will be paid later this month.
On an annualized basis, that's 3.41p, which is at 7.9% dividend yield. That's 10% above the pre-pandemic level. Interestingly, it feels a long time ago now, but actually, that's 30% ahead of the dividend that we were paying before the refinancing. So you can really now see the benefits of that refinancing coming through in terms of the additional earnings that it's supporting. Now we slow this slide now just to illustrate why we think we offer value amongst our peer group. This data is worth noting is as at 31 March based on dividends paid up to that point. And that's because not just us, but a couple of others in the peer group have announced dividend increases.
Obviously, I think we are still ahead of everyone in terms of where we were versus the start of, if you like, pandemic period. But on any metric, we think we look good relative value. Obviously, the highest fully covered dividend yield in the peer group. Our discount has improved encouragingly, and there's obviously been a lot of noise over the year, not least with different sorts of corporate activity. But finally, I guess, probably most importantly, in terms of our confidence about driving continued earnings growth is that long-term fixed rate debt that we have. Now I'm not going to spend too long on this because it's more for information. But as I said at the front, we do have good long-term performance at an underlying portfolio level. Lots of activity in the portfolio data on the left-hand side of the chart related to that. I think probably more importantly on the right-hand side, I think 2 key messages really.
Our outperformance both on a short-term and a long-term basis is coming from a higher income return there you can see. But actually, interestingly, when you boil down the capital growth, our investment in the multi-let industrial estates has driven continued outperformance in terms of rental growth. So 6.8% per annum rental growth over the 3 years annualized double that from the MSCI Benchmark. And again, it's all about that portfolio weights. But interestingly and importantly, we genuinely believe that with the strategic evolution, we could drive that even further through that much more sort of disciplined focus on sustainability.
Now a few slides on the market. I guess the summary here really is, although inflation remains persistent in areas, not least wages and service inflation, directionally, inflation clearly is trending down, likely to be that 2% target, of course, but that increase later in the year, we think because of those underlying pressures. I think that's the key reason why we are continuing to see, obviously, volatility in interest rates that the 10-year gilt today or yesterday closing, 4.2%. It has not moved dramatically over the course of the last 3 months as a result of that. That does mean, therefore, that if you are a buyer of real estate and you are borrowing to buy real estate, the total cost is still around 6%. Now the market is not anywhere near as levered as it was, as you know, in previous cycles. But that is a factor behind why -- alongside other factors, not least political uncertainty, why investment volumes remain at very, very low levels.
So 2023, GBP 40 billion of transactions in the U.K. compared with GBP 80 billion in 2015. Q4 last year being the lowest quarterly investment volume, in fact, since Lidl. So volume is very low. But I think importantly, I think as we move towards a position where inflation remains more under control and not least postelection, I think we are beginning to see momentum coming back into the U.K. market. And obviously, some interesting company announcements over the course of the last few weeks. And I think that's because there is a sense now that we are reaching the bottom. The left-hand chart here shows that 25% decline in capital values, obviously compared with 44% of the GFC. And there are different moving parts here, of course, yields obviously triggering the DB driven outflows out of the open-ended funds, which is a dynamic in the market.
But at the same time, we are beginning to see more international interest, both actually in direct real estate transactions, but also in some of the open-ended funds that we look after. So a sense I think that things are beginning to stabilize. I think one metric we would look at, of course, is that relationship between the initial yield and the 10-year gilt. It is still below that long run average of 150 basis points to 200 basis points, but there is a reason for that, I think. And that is, although clearly, we have seen that decline in capital values, rents are going up. And so on the right-hand side of the chart here, we're showing the rental growth across the whole of the U.K. market basically 21 months since the turning point in June '22, and you can see here, average rent is up 6%. And if you compare that to the equivalent 21-month period coming out of GFC, rent in fact had fallen slightly.
And of course, if you look at the industrial sector and that data is contained in the appendix. Average rent is actually in the industrial sector are up around 113% and across our portfolio even higher than that. So rents are behaving very differently to capital values. Now that partly demonstrates the inflation hedging properties and benefits of real estate income rather than value, but it's also reflective of generally a relatively low supply across most of the market. We just haven't had the new supply coming through. And again, Bradley will touch on it. From a brown-to-green perspective, we think there's a real opportunity to capitalize on that, invest in assets and exploit mispricing.
So just prior to hand over to Bradley, these are our forecasts. So the only certainty is that they will be wrong. But I do think it's important to note that we do appear to be at a turning point. I think to underwrite returns in the U.K. at property level of 7% to 8% from here, you don't have to assume a very significant reduction in yields. It's back to fundamentals, rental growth, a lack of supply in large parts of the market and an expectation that we will begin to see more capital flow back into the sector.
So I will pause there and hand over to Bradley.
Thanks, Nick. Well, good morning, everyone. It's great to be here to talk about the activity in our portfolio and how we're applying our new strategy to that. And in honor of the recent prime ministerial debate, I'm going to try to keep each slide to 45 seconds.
With that, let's make a start. So in December, we received strong shareholder support for the change in our strategy. We now have a sustainability improved relevant to our investment objective. And in our investment policy, we have 2 sustainability KPIs to enable us to measure the delivery of that objective. A key tool we're going to be using is our proprietary ESG scorecard, and we'll come on to that shortly. And a key point we'd like you to take away is why are we doing this? Well, as Nick says, we believe that looking at our investments through this lens will enable us to deliver enhanced long-term total returns for our shareholders. Now how do we do that? How does this strategy work? Why do we think we can deliver enhanced long-term total returns for shareholders?
Well, the new laws and regulations that government have introduced to achieve net zero by 2050 have impacted the way investors and tenants approach real estate. And this, in turn, has impacted the valuations of real estate and the level of rents that have been agreed. Now this has given rise to the green premium, which is now well understood, particularly in the office sector. But what we're seeing across our whole U.K. portfolio is that this is now very evident in multi-let industrial estates, retail warehouses, which are actually the sectors, where SREI is mainly invested. And rather than talk about this in an abstract sense, we have some case studies coming up that we hope will provide really compelling proofing concepts for this strategy.
This slide sets out a time line of the implementation of the new strategy, and the gray box in the center represents the EGM that was held in December, where the strategy was approved by shareholders. But what I want to focus on briefly now is the work we've done since then and will continue to do from today. We've now set baseline scores using our ESG scorecard for the majority of our portfolio assets by value, and we've also rebased our net zero carbon pathway. And the work we're going through now is deciding which asset management opportunities that have been uncovered by that analysis will be most accretive for our portfolio and for our shareholders. And as I said, we've got some case studies to show where we've already begun to execute some of those initiatives. At the interims, we'll come back to you with an update on our progress. And we think over time, what we'll build is a body of work that really provides compelling examples of the strategy in action.
Moving on to the next slide. We've mentioned this ESG scorecard a few times through the presentation, and what we've shown here is a visual representation of that scorecard. And what we'd like you to take away is that it's very detailed. There are 44 topics, some of them quantitative, some qualitative, and there are hundreds of lines in the underlying spreadsheet, and each underlying report is some 60 pages long. Each topic is weighted, has a score out of 5 and is weighted and then we take the weighted average of each topic score to reduce an overall score for the asset. We have determined the weightings with our real estate sustainability team based on our view of the materiality of each topic to the importance of the performance of an asset from a sustainability perspective.
The scorecard has been externally validated, and the goal of the scorecard is to provide an overall objective assessment of the ESG risks and opportunities for each asset. I'm not going to go into any more detail than that, but we will be more than happy to have any further follow-on sessions to talk through in detail, should you wish to do so. I mentioned we've been undertaking a lot of work over the last few months since December. And on the left-hand side, what we're showing is a summary of the ESG scorecard score of 15 assets where we've completed that analysis. Now each of these scores and each of the analysis were completed by an external consultant. And we've also shown the potential score achievable for each asset, should we undertake all the works that we've identified alongside external advice for the asset.
Now as I mentioned, we'd only be selecting the most accretive projects to execute. And we'll be looking for projects where there's clear rental growth following the works and also the potential for yield compression. So this is where we're looking to achieve that green premium, but we're also keeping a really strong focus on underlying real estate fundamentals as well. So let's move on to some case studies. The asset here on the screen is Churchill Way, which is a retail park in Salisbury. And if you look at the image, we own the 3 units on the left-hand side, which is currently Sports Direct, Homesense and Smyths Toys. We've undertaken a scorecard analysis here, and you can see the score there was 2.4. And we've also undertaken a net zero carbon order.
We've identified a number of initiatives that would improve both of those factors for the asset. And we've listed them there and some examples include rooftop-mounted PVs, the transition to being fully electric, better M&E, and we think you can get to an EPCA by implementing those initiatives. Now what we've been able to do with that is negotiate a really interesting deal with an international discount supermarket on far superior terms to what we have currently with the toy shop and with the furniture store. So we've agreed a long lease at a rent that's 1/3 higher than the current ERV. There will be inflation-linked uplifts. And what we're going to do is combine the 2 units on the left-hand side, the majority of them to create really good space for the supermarket.
Now of course, we have to spend money to achieve that, and that's going to cost us GBP 1.2 million. And we're going to implement many of these initiatives we've listed. But it's by doing that, that we've been able to secure that long lease on attractive rent with a really strong tenant. And so our analysis shows that even though we're spending a higher amount of money than we might have in the past, that actually is very profitable. So the profit on cost is 17% and the income return on cost is 12%. Now this deal, whilst we've exchanged an agreement for lease, it is subject to planning, but we are already working on that at the moment, and we'd hope that this is completed by the end of '25. And again, we can provide updates as we see you over the next sort of few quarters and interims.
This example is Stanley Green, which is a multi-let industrial estate south of Manchester. We spoke about it quite a few times before. But interestingly, it was still a very strong driver of our relative outperformance during the current financial year. So we thought we'd briefly touch on it. And here, we made a conscious decision to spend around 20% more on the CapEx because we felt that we could achieve higher rents and get stronger tenants in. And that really has been the case. So -- and it's really proven by the returns that we've achieved since we've owned the asset, which is shown in the bottom table. So over the roughly 3 years that we've owned the asset, we've made around 19% per annum total return on the asset.
The next stage for the asset is to improve the existing estate. So the picture at the top shows the new development, which is on a free acre site that came with the existing asset. And then the below photo shows a CGI of how we would like the existing estate to look and at the same time as improving the aesthetics and the feel of the asset, we're going to be really focusing on sustainability improvements. Because what's really interesting here, and this is -- goes back to my point earlier about the green premium multi-let industrial estates is we've agreed a lease on a 4,000 square foot unit in the new estate and a similar sized unit in the existing estate around the same time, and the rental premium is 39%.
Now some of that is because the asset is newer, it looks nicer, et cetera, but our view is a large element of that is the green premium. So the opportunity here is to bring the existing estate rental tone up towards that of the newer estate. And then once we completed that scheme, we might think about selling the asset and recycling the capital. Here's another example of -- this is our largest office exposure. It's University of Law in Bloomsbury, which is very close to Tottenham Court Crossrail Station. It's in the Knowledge Quarter. It's a really interesting asset, and is actually occupied by our largest tenant by passing rent, the University of Law. What we were able to achieve during the year is a regear with the tenant. We extended their term certain by 3 years, so from December '26 to December '29. And we've also secured a stepped rent through to 2028.
And the key takeaway for us here is the passing rent today is going to increase by 29% to the passing rent in '28. So really good outcome there to drive income growth in the West End market, which has actually been a really positive point for offices in contrast to a lot of the negativity. Now I said this is an interesting asset and it really is, because it's a 0.8-acre freehold site in the middle of the West End, and there's a really good opportunity to increase the massing, and we can do that in line with the Camden Plan and the London Plan. We can ensure that we are really careful with embodied carbon. And there's a CGI there, what the asset could look like at the end, and there's a really compelling opportunity to drive value by progressing this plan.
Now briefly on the portfolio. I think most of you are very familiar with this now. On the left-hand side, we're just putting out some key characteristics. So we've got a really granular and diverse portfolio, which I think makes it very, very resilient. Nick spoke to the high-yielding nature of the portfolio, and that's borne out by the stats in the second set of green rows there, the higher net initial yield and reversionary yield.
And on the right-hand side, again, the key points are the overweight position in industrial, which is almost entirely multi-let industrial estate, but also retail warehouse. So some 61% of the portfolio is now industrial and retail warehouse. The void has come down for the year. So it's at 10.9% now. It is within the 10-year range of 5% to 13%. And we do have ongoing activity to bring that down further.
And the reason we feel quite confident that this will come down is much of the space that's void has been recently developed or recently refurbished.
So it's ready to go and we're just holding out for the best terms and the best tenants. And we'll get to this on the next slide, but that's a key part of our reversion. So what we're setting out here are steps on how we're going to achieve that GBP 9 million of reversion that Nick mentioned earlier. And to put that in context, so that GBP 9 million of reversion compares to a dividend of just over GBP 16 million per annum.
So it's really material to potential earnings and dividend growth should we be able to achieve this reversion. Now we set out some steps as to how we might get there. So we have fixed uplifts in our existing leases. So theoretically, we could do nothing and our rent would increase by GBP 2.9 million over the next 24 months, and actually GBP 0.2 million of that has already happened. We've got Stanley Green development, which is in the market, of which some is under offer.
And then we have units, where the ERV is well in excess of the current passing rent. So when we get to rent reviews and lease expiries, we can move the rents on to achieve the reversion. And finally, we had the vacant space where, as I mentioned, much of it is ready to go and is under offer.
Final slide for me is the balance sheet. And again, I think many of you are familiar with this, but it's really underpinned by the fact that around 3/4 of our drawn debt is a long-term fixed rate loan. And that fixed rate loan is at an average of 2.5% and it has a maturity of 12 years. So it's a really strong foundation for the fund and the company. We have got an element of undrawn -- of drawn RCF that's uncapped. And as Nick mentioned, we have some disposals in progress where the proceeds will initially be used to bring that amount down, which will have a pretty material impact on our average drawn cost of debt, which is already quite low at 3.5%.
With that, I'll hand back to Nick for a summary, and we welcome any questions.
Great. Thanks, Bradley. Well, I guess just a few brief points. I think the refinancing Bradley has mentioned is clearly one of a number of steps that we've taken over the course of the last few years. Obviously, including also increasing our allocation to the high-growth parts of the U.K. market, huge focus on active management that has allowed us to deliver what I think is a solid set of results today and particularly against a backdrop, obviously, of the U.K. market now appearing to have stabilized and more interest, we think, over this year and next in this sector more generally.
The next step of that strategic evolution probably is the most significant because we think it can genuinely differentiate ourselves. It plays to the skill set, the capabilities that we have on the team. Most importantly, we think that emphasis on brown-to-green will allow us to do what we've always done and some by allowing us to drive more sustainable long-term income and hopefully, dividend growth by applying that rigorous approach to asset management with that key focus on how sustainability is a fully integrated part of that.
So thank you very much for your time, everybody, and I'll pass it back to James.
Thank you, Nick. Thank you, Bradley. And thank you, everyone, for sending in your questions so far. If you do have some more questions as we go through this, please do send them in, and I will ask the team. So Nick, maybe just starting with you, we've had a couple of questions come through on the more sort of macro backdrop of the real estate market. So let's start with that. I mean, we see it on the slide here, U.K. real estate market stabilizing, you've made some comments, and we've seen some data on the slides. Just sort of bundling 2 of these questions together, I mean, one thing you spoke about was the fact that we think that we might be bottoming out on values. I guess one question that's come up is what is the time line on the catalyst to seeing that go in the other direction? And the second question was, we saw the slide on rental growth. That was a really interesting slide that you showed. What is -- what's driving that and what sectors?
Yes. Yes. So good question. I think when we say the results, I think the catalyst to market needs is conviction that inflation, therefore rates are bottoming out effectively. So we will -- so as in we will hopefully see inflation begin to slow to a level that allows interest rates to hopefully trend down. But as I said earlier on, they don't need to move anywhere near where they have been in order for the sector to offer value. So I think the market is looking for that, and we are beginning to see more private equity interest in the sector, and that's a key factor as well for those investors because many of those investors are fairly levered. So they need those banking markets to open up. And again, there are -- excuse me, there are signs of those banking markets, also banking and non-banking markets beginning to open up.
The rental growth side is really, really interesting. And as I say, people historically talk about real estate as being a good hedge for inflation. It generally hasn't been so much on the capital side, but it obviously is on the income side. Companies make more profits that they can pass on in terms of higher rents because there should be more demand for space. And that is what we are seeing. And your question, James, is where are we seeing that most strongly?
Interestingly, if you look across the peer group, over the last 12 months, industrial rental growth was about 6% over 12 months. Actually, interestingly, our 3 yearly annualized rental growth for our portfolio is 12% compared with the benchmark of 9%. Retail interestingly, we are beginning to see a recovery in parts of the retail market, particularly retail warehousing, which is where we deliberately increased our allocation. Retail rents over the last 12 months have gone up by 1.5%. Probably what's most surprising actually is over the last summer, the office rents have gone up by 5%. So -- and I think that's another potential catalyst for the market is -- and I think that's partly why we're seeing more private equity interest is, I think there's an acknowledgment now that the office challenges that the U.S. is experiencing are not the same here. And not least also though because in the U.K., and this applies to all sectors, but particularly office sector.
Total office stock in the last 5 years has actually fallen. And when you look at future stock pipeline, there's nowhere near enough, particularly of a quality to deliver the space that we think occupies one, particularly now looking through that sustainability lens. So that's why I think we feel it is really that rental growth, we think will be the key driver of returns going forward.
Great. Thanks, Nick. We've had lots more questions coming through. So please keep sending them in. I will ask the team. Nick, just maybe picking up on one of the points you made there around the sector. You mentioned that we're seeing some PE money coming in. I guess one of the questions that I think is very fair to ask off the back of that is can we comment on like firstly, the size of the company that we're managing, I guess, the strategy to try and, I guess, growth company ideally, but how do we think about the company in the current market with the developments that are going on?
Yes. Look, I think, first and foremost, we have to focus on what we can most easily control. And what we got back from shareholders when we ran the consultation at the end of last year is that they were very pleased with what we're doing and that they could see that evolving the strategy in a way that we have done, ought to allow us to build on what we've really achieved over the last 3 years, which is very good relative performance. 7.9% yield today fully covered. We're -- I think, even on recent announcements, we are the only company to have delivered anything like the same level of dividend growth since prepandemic period. Obviously, partly because we've got probably the best debt in the peer group. So our shareholders, as a general comment, are very, very happy. And the prospects of somebody coming in over the hill on a paper deal is probably only likely to dilute that income return, not that, that's something we're obviously dealing with at the moment.
So I think for us, our focus is on delivering on our strategy, delivering that attractive income return. Now obviously, from a Board perspective and shareholders' perspective, there clearly is activity going on around us. If there are opportunities that allow us to accelerate and enhance our strategy, then, of course, we will look at that. But I think what we've seen alongside deals that have done are lots of examples of deals that haven't happened and have been a huge distraction and have cost shareholders' money. So I think that's why I think at the moment, our focus is on route one, but all whilst at the same time, looking at those potential opportunities, if we've got real conviction that it will be additive to our strategy.
Thanks, Nick. That makes a lot of sense. And now Bradley, maybe turning to some of the detail around the debt. I think again, this is sort of -- this is a really good question as it sort of brings in the sustainability angle as well. Question here is around, are you aiming to reduce the drawn RCF debt to nil in the medium term? That's the first question. And then the second follow-up question to that is, would you consider drawing back on the RCF at the relatively, I guess, high unhedged cost at the moment to draw it down to do CapEx, the green strategy given some of the higher returns that you're able to hit with the sustainability context?
Yes. So a fair question. And I mean, our strategy at the moment is to reduce the drawn RCF to within the capped amount. And as Nick said, we've got disposals in the market at the moment that we're progressing. And we sold -- we completed the sale of 2 assets during the year at an aggregate premium to book value. And yes, we are seeing interesting opportunities in the market. So where we see those opportunities, we can either recycle capital from larger sales or if it is really accretive, we can draw back on the RCF. But each opportunity will have its own appraisal and will be taken on a case-by-case basis. Anything to add?
Great. Thanks, Bradley. And maybe just sticking on the ESG angle because we've had a couple more questions come in on that. Again, a really good question around the target ESG scorecard. I think the comment here is that that's a really useful mechanism to assess the assets. But one thing we didn't touch on was time line. Is that something that's built into the process? Can you give us maybe an example of something you're looking at the moment in terms of what we're looking to the time line to do these sort of changes to the assets?
Yes. So I mean the Salisbury example, the time line is that first step is to the end of 2025, and that demonstrates that these initiatives can take time because there are existing tenants with leases sometimes protected, sometimes not. In addition, the time is important in terms of it being accretive. We only want to invest in the portfolio where it is accretive. And looking through this lens can also help us identify assets where we think actually that we're taking this as far as you can. It should be sold now, recycled into a better opportunity. So our investment policy says that we'll aim to turn our assets around in a 5-year period where leases allow, but some of our leases are 20 years. So clearly, there's a really long time horizon for some of the assets.
Great. Thanks, Bradley. Just final one on sustainability because there are some other questions not on sustainability, but we've been asked lots of them. So clearly, it's resonating with the audience. Just more broadly, Bradley, is potentially one for our sustainability team that we can follow up in much more detail, but just some general observations on the regulatory environment around sustainability in the U.K. real estate market. Obviously, we're coming up to election. What would you like to see from a U.K. government on regulation in real estate? Maybe Nick, you could start at a high level.
Yes, I mean, I think we've already been participating in the consultation about the BEES or minimum energy efficiency standards, which obviously the EPC forms part of. And I think we and industry feel that there should be much more focus on buildings actually in use rather than a hypothetical rating. So that's an area of focus. Obviously, the possibility down the line of there being a carbon tax. And so when we are modeling our business plans, not just for this strategy, but as a general comment, we are modeling assumed carbon tax now, which forces the focus on therefore, what you need to do in order to mitigate consumption. So I think you would expect assuming we do have a change of government that there will be more focus on this area. I also think, interestingly, from a broader sort of social value perspective, although they weren't used term leveling up, there will probably be more focus perhaps than there has been so far on addressing the issues of regional inequality.
And hopefully, that would be well focused on infrastructure, but importantly, I think on making our bigger cities in the regions bigger, and of course, that's where we have a lot of our investments, places like Manchester, Leeds. So I think one of the real benefits of being at Schroder is that having access to our sustainability colleagues and of course, the wider renewables business, for example, is that we are really very much on top of those regulations, and we will clearly reflect those as the strategy evolves.
Great. Thanks, Nick. Bradley, I actually might -- I said we were going to move away from sustainability. We had one more question. I will ask it before we move on. So thanks, Nick, for the macro. This one is a bit more detail on the portfolio. Again, I promise we will move away from the sustainability angle in 2 seconds. This question just asking, and I think it's again a really good one around how much the portfolio can't be transformed at the correct returns? Is that analysis that you've done? I guess, what do you do with those? Is there a strategy around those assets?
So as I said, we are going through the process of analyzing the opportunities for each asset where we've done the detailed analysis now. And the first step is identifying where we would like to do the work and undertaking that to drive returns now in the near term and long-term. And yes, there will be some assets identified where we kind of think actually undertaking this work. We're not going to get our bang for our buck spend. And the opportunity there is to recycle and invest back into our portfolio with those proceeds or acquire assets where we see they've been mispriced because it's very difficult to cost these works and to understand what the rent might get to and what the yield might get to. And that's where we really draw on the expertise across our huge real estate business with multisector specialists and sustainability experts and contacts that we have across the industry.
Do those -- I mean, do the scorecards therefore have an investment implication here for the exit environment that you're seeing might be different to that of peers who aren't doing this work? So even on the assets where we may not be able to move them forward ourselves, we can potentially assess the value that those should be sold at more appropriately?
Absolutely. And I think this is about driving income growth, but it's also about understanding risk better. And so every asset has an impact and sustainability action plan. Bradley spoken about the work we're doing with Wilko with net zero audits across the whole of the portfolio. The phase we're working through now is looking at much more detail at those Wilko reports and the costs of delivering those improvements, and whether, as Bradley says, we get the benefit both in terms of the energy efficiency, the other improvements, but importantly, income. And what will hopefully make this interesting for people is we've got 2 live projects, for example, Phase 2 Stanley Green. In a sense, we've done the easy bit. We've built the new units, EPC A+, operational net zero.
In a sense, we're moving to the more difficult bit now, which is we've got an [ 96 Estate ]. It performs very well for the occupiers commercially, but it leaks heat, and therefore, what could we do economically with an existing estate with tenants in situ that allows us to drive those improvements. In the same way, we have an asset in Manchester, St. Ann's House, where we're going for exactly the same exercise at the moment, working with our occupiers, floor-by-floor refurbishments, PVs on the roof in Central Manchester, which some people might find surprising, given the weather up there, but it does work. But -- so the idea is -- and we're flagging in the time line. The interim results will allow us to come back obviously to the Board importantly, but of course shareholders to give that update. And the way that we've structured in a circular that people have seen, we have our own KPIs that are linked to delivering initiatives, both in relation to sustainability, but also income, because the 2 things have to work in tandem.
Yes. And I think that reporting angle is going to be really important for some of the investors who were listening to us today. So we look forward to seeing some of that more enhanced reporting on the sustainability side. So I said we move away from sustainability. We will now. There's a question here, Nick, maybe for you. You made the comparison with U.S. offices. Are there any other parallels around developed real estate markets that you could draw on as well? I mean, France, Germany, as mentioned here, what we're seeing across Europe?
Yes. Look, I think the Europe doesn't have the same issue that the U.S. office market does, first and foremost. I think there are differences across countries. So obviously, Germany has a very long-established open-ended retail fund market and those funds, in many cases, are experiencing outflows. So that's a feature that they're having to deal with. I guess, one of the reasons why we think this company and the U.K. is interesting and why I think we're seeing more international demand is, we -- for political reasons, partly because of Brexit, we didn't have recovery values at the U.K. market -- sorry, the European markets did, because of our valuation system, we have also corrected, I think, ahead of many of those markets. So there are the same structural challenges in the occupational markets in Europe that there are in the office market in the U.S., but I think the valuation backdrop here is arguably more favorable because we have simply corrected because of what happened obviously at the end of 2022.
Great. Thanks a lot, Nick. So moving on to -- I'm sorry, actually, I'm coming back to you on another comment you made. You've been picked up here on a lot of the comments you made, which is great as everyone's listening very, very diligently. Question around pension plans. You mentioned the DB market, some of the selling activity that has come out of that and some of the dynamics there. Do you see an attractive pipeline of assets potentially coming out of the pension market over the next 12 months to 24 months?
Yes, I do. Again, I think it's a bit like the U.S. office market comparison. What tends to happen is quite often the press will conflate what happens in daily price retail funds with what happens in open-ended institutional funds. And of course, in the latter case, they're not bound by daily liquidity, and therefore, they can manage liquidity in a more efficient way. Having said that, of course, there are fairly sizable redemptions across the open-ended fund market, and that's led to some consolidation. It's led to some sales. But at the moment, we have not really seen any fire sales because the investors are institutional, and therefore, they understand, if you like, what's driving the market. So I think we will see sales out of those funds. But nothing that would be comparable to what we saw coming out of the daily price funds during the GFC would be my assessment.
I think what I would say also is we're one of these, those same funds and managers are looking in most cases now how they can broaden their investor base to attract DC capital. And obviously, that's something that you're particularly close to as are we. And I think that potentially will also be a way of those funds retaining capital. But of course, there is this mix match between DB going to the door and obviously, DC coming in. So -- and the last point I'll note, and it's quite interesting is one of our open-ended funds, I touched on international interest. We've had probably one of the biggest secondary transactions in shares. So that's not listed, but it's a secondary transaction from an international investor, who's obviously looking at the discount they can access the unlisted secondary market as big an opportunity. So those redemptions, they might be satisfied by sales, but equally, there is also quite an active secondary market where you may see some of those sellers matched off.
That's very interesting. Thanks, Nick. We've got one question here, Bradley, maybe coming to you, a bit more sort of detailed looking at some of the numbers that we've spoken about today, maybe a clarification. If we can't sort of answer this now, we'll come back to you. But the question here is around that other income line that you had that in the presentation, that's GBP 1.5 million, which they're interested in understanding what's actually in other income, which I think is a very fair question.
Yes. So it's called other income. It's not recurring in the same way rents are, but actually, it is a common part of a real estate portfolio to derive this other income. And it's mainly either dilapidations payments that tenants pay to us when they vacate their premises in order for us to then bring it back up to standard. So it's great because it kind of funds the CapEx we then undertake. And also sometimes we get surrender premiums, which we actually recently exchanged a really interesting deal at the time in Edinburgh, which is a multi-let office in Edinburgh, close to the Royal Mile, close to the parliament, where we were able to negotiate an exit with an existing tenant to create more space for an incoming tenant at a much higher rent. And that has been able -- that has enabled or has funded to an extent, the CapEx we're undertaking at the asset to improve the sustainability performance. And again, like I said, the rents moved on there very strongly and is, in fact, the rent agreed is ahead of ERV. So in summary, the 2 key elements in other income are surrender premiums and dilapidations income.
Yes. Just to add to that, because one of the reasons we added the quarter is because I think as we said, there's been a lot of activity during the year, which obviously with rent lease expiring, leases completed partway through is now beginning to come through. And so actually, if you look at the annualized quarter for other income, it's broadly on track with what we experienced in the full year is because we are very actively running the portfolio. So we are, therefore, getting more of that sort of coming back to us. When we model our dividend outlook, we take a pretty cautious assumption about that.
We kind of believe it doesn't really happen, but it normally does. And therefore, I think what's probably more relevant is actually, when you look at the -- if you look at the quarterly income number, so we're at sort of 31 place, 32. So even allowing for that other income, we're beginning to see the benefit of those lettings coming through. But as we said earlier on, there's about 600,000 of lettings that are illegals, which we're obviously trying to get over the line as fast as we can, plus the balance of that GBP 10 million reversion. So we're not reliant upon that other income, give us confidence that we continue driving earnings growth.
Yes, it makes sense, but it's a very high large percentage to...
Yes. Yes, it is. Yes. Yes, I mean '23 actually was more of the exception as it happens. But it is a fair point.
Exactly. I think we've got -- we're sort of coming up -- we just come past 50 minutes. Maybe time for one final question. Apologies if I don't have time to ask all your questions, and we'll follow up if we haven't got through your question. We spent a lot of time talking about tenants around COVID. It's obviously a really important part of the business and still remains a really important part of the business. Could you -- just a couple of comments, question here around the -- how your tenants are feeling on the ground?
Well, firstly, this is a cold or COVID.
No, not anymore.
But tenants, so tenants, yes, I mean, we gave a stat here. In fact, if people can still see Slide 5, I think it's Slide 5, on Slide 5, yes, 99% collected. And what the rental growth number tell you is that the occupational markets are relatively healthy. I guess what the other point I'll note is we don't have any near-term risk that we can see in terms of tenants trading deteriorating. But also that's partly because we got much better visibility because -- and because of the pandemic, we are so much closer to those tenants on the ground. And I think our new strategy is interesting actually. We're going through the process of collecting consumption data for the GRESB survey at the moment. And we're seeing, again, a very encouraging pickup in engagement from occupiers giving us that data. That's always a big challenge, and it's a key part of us delivering those data improvements. So overall, I'd say relationship is strong, rent collection, very encouraging against a backdrop of a healthy occupational market.
And that, I think, is a fantastic summary to finish on. So that leads me just to thank you all for listening. Thanks for dialing in this morning. Hopefully, it was a useful session. If you would like more information on the Trust, as I said at the start, you can download the presentation. We have lots of extra detail in the annual report. But thanks again to Nick, thanks to Bradley, and thanks again for watching. I speak to you all again very soon, I'm sure. Goodbye.
Thank you.
