Schroder’s asset management & transactions deliver uplift in profits & NAV

Schroder European REIT's Boulogne-Billancourt office asset in Paris.
Boulogne-Billancourt in Paris.

Schroder European Real Estate Investment Trust has announced its full year results for the year ended on the 30th of September 2020.

Despite the challenges presented by Covid-19, significant progress has been made during the reporting period in delivering on the stated strategy” commented Jeff O’Dwyer, Fund Manager for Schroder Real Estate Investment Management Limited.

Key to this was the successful evaluation of our Paris Boulogne-Billancourt initiative, a transformational transaction that is highly accretive for shareholders and underpinned this extremely strong set of results. While we continue to deal with small pockets of underperformance in the portfolio, the REIT is extremely well placed as we move into 2021 to deliver further income and capital growth on behalf of shareholders.”

The company’s diversified portfolio and execution of asset management initiatives in Paris and Hamburg underpinned exceptional financial performance and further dividend increase, despite the pandemic backdrop.

Rent collection remained strong at approximately 87% during this period. Exchanged conditional contracts for a forward funding sale of the Boulogne-Billancourt office asset in Paris for approximately €104 million is expected to deliver a pre-tax profit of c.€28 million. This transaction followed a new ten-year pre-let contract agreement with existing tenant Alten in June, reflecting a 39% rental uplift on the previous rent paid.

The company also completed two new lease agreements for two floors at the Hamburg office investments with a further floor exchanged post period end. Reflecting the profitable conditional forward funding sale of Boulogne-Billancourt and continued a stable level of rent collection with the quarterly dividend up by 13% to 1.57 Euro cents per share, an increase on the last interim dividend of 1.9 Euro cents per share declared this past September. The dividend will continue to be reviewed particularly as Paris BB net proceeds are reinvested.

Schroder’s portfolio was valued at €268.6 million, reflecting a 10.7% uplift during the period (30th of September 2019: €242.7 million); the like-for-like valuation movements during the period by sector were offices (+24.9%), DIY/grocery (+1.4%), industrial (+0.5%), ‘other’ (-4.8%) and shopping centres (-9.4%).

Net Asset Value (NAV) of €201.8 million or 150.9 cps reflected an increase of 10.8% during the period (30 September 2019: €182.1 million or 136.2 cps). NAV total returns of 16.2% (30th of September 2019: 4.1%) and profit increased to €28.4 million (30th September 2019: €7.4 million) was driven primarily by the portfolio valuation uplift.

The underlying EPRA earnings of €8.6 million (30th September 2019: €10.5 million) with the 2019 earnings having included receipt of a one-off surrender premium of €1.5 million. Loan-to-value (LTV) decreased to 24% net of cash (30th of September 2019: 26% net of cash) at a weighted average total interest rate of 1.4%. Total dividends of 5.7 cps were declared (30th of September 2019: 7.4 cps with a dividend cover of 112% (30th of September 2019: 107%).

The company’s operational highlights reflect an underlying property portfolio’s total return of 15.7%. This increased portfolio occupancy to 96% (30th of September 2019: 94%) with a 5.5-year average lease term to expiry (30th of September 2019: 6.4 years).

The successful execution of asset management initiatives across the portfolio includes concluding ten leases (excluding Alten) and re-gears at a rent like previous rent of those leases at a weighted lease term of five years.

Reflecting its increasing focus on ESG considerations, Schroder increased its GRESB green star rating to three in recognition of the portfolio’s sustainability performance while improving the sustainability rating at the company’s Hamburg office asset with the certification of BREEAM in use.

The group continues to support its tenants, service providers and consumers in understanding the impact of the pandemic is having on their respective positions.

The board will continue to review the dividend in 2021, particularly with regards to the reinvestment of the Paris Boulogne-Billancourt sale proceeds, market conditions and the longer term sustainable rental income collected from the portfolio.

While the refurbishment of Paris Boulogne-Billancourt is being undertaken, it is expected dividend cover from net income will reduce. The board expects to allocate some of the net sale proceeds from the forward-funding disposal of this asset, towards covering the shortfall in income from Paris Boulogne-Billancourt while it is being refurbished and pending reinvestment of the remainder of sales proceeds.

Our operationally strong portfolio, focused on the Winning Cities of Continental Europe, provided a solid foundation coming into the pandemic, which has been borne out through our robust rent collection figures. Through active asset management the conditional forward sale of Paris Boulogne-Billancourt, we have further strengthened the Company’s balance sheet and prospects over the period. We are looking forward to next year with cautious optimism, with a focus on investing the sales proceeds into new acquisition opportunities in high-growth sectors and cities to continue growing net income and the dividend and favourably positioning the portfolio to drive the next phase of the Company’s growth” commented Sir Julian Berney Bt., Chairman.