Schroder European REIT has released its business update, announcing its unaudited net asset value (NAV) as at the 31st of December 2020, together with its first interim dividend for the year ending on the 30th of September 2020.
- The company’s rental collection during the quarter and subsequent period remained stable at c.89% of contracted rent (as at the 1st of March 2021).
- The unaudited NAVE as at the 31st of December 2020 of €201.6 million or 150.7 cents per share, a 0.1% reduction compared to the 30th of September 2020.
- The NAV total return was 0.8% over the quarter and 14.3% for the twelve months to the 31st of December 2020.
- A first interim dividend of €1.57 cents per share will be paid for the year ending on the 30th of September 2021.
- Portfolio valuation has increased to €276.1 million, reflecting an increase of 1%, net of capital expenditure, over the quarter.
- The 31st of December 2020 NAV includes a further impairment to Schroder’s 50% interest in the Seville asset – the company’s only shopping centre. This impairment, which reflects increased uncertainty as a result of the recently announced vacancy, reduces the net asset value of the 50% interest from c.3.6% to c.2.9% of NAV.
The company’s key asset management activities during the period included the finalisation of the forward sale agreement of Boulogne-Billancourt, the company’s Paris office, and receipt of 50% of the sales prices of the purchaser. Refurbishment has commenced and scheduled to be complete in the second quarter of 2022.
In Hamburg, Schroder has secured two new tenants on five-year lease terms at a 20% premium to target rent for an additional 10% of the space, taking the building to 90% let.
Schroder’s interim dividend
The first interim dividend of €1.57 per share for the year ending on the 30th of September 2021 represents an annualised rate of 6.3% based on the current share price of 88 pence per share. As announced, while the refurbishment of Paris Boulogne-Billancourt is underway, the cover from net income reduces to c.70%. The board has made the decision to allocate some of the profits out of the net sale proceeds from the forward-funding disposal of the assets towards covering the shortfall in income while it is being refurbished and pending reinvestment of the remainder of sale proceeds.
The board intends to progressively increase the dividend back to €1.85 per quarter as the impact of Covid-19 on the company’s income abates and proceeds from Boulogne-Billancourt are re-deployed into earnings, enhancing initiatives and investments.
Approximately 89% of the rent due for the quarter ending on the 31st of December 2020 has been collected, ahead of the amount collected in the previous quarters of 87% with the rent collected for January and February 2021 in line with 2020’s fourth quarter.
As at the 31st of December 2020, Schroder’s portfolio was independently valued at €276.1 million, an increase of 2.8% or €7.5 million, on the 30th of September 2020 valuation of €268.6 million.
Net of capital expenditure, the valuation increase was approximately €2.6 million, reflecting a property capital return of 1.0% of which the main drivers were:
- The Hamburg office investment saw its value increase (+€1.0 million or 6.6% net of cap ex and incentives) due to concluding two new leases.
- Yield compression and ERV growth across the industrial asset portfolio resulting in a net valuation increase of €1.4 million or 3.0%.
- The value of the office refurbishment in Paris Boulogne-Billancourt increased by over €4 million driven by capital spending over the quarter. Net of capital spending, the return was €0.4 million or 0.6%.
- The value of Schroder’s 50% interest in the Seville shopping centre declined by €50 000. This asset is the only asset in the company’s portfolio where the valuers continue to adopt a material uncertainty clause and it does not reflect the lease terminations announced in February 2021. These terminations are expected to have a negative impact on the value of the asset and the 31st of December 2020 NAV has been further impaired to reflect increased risk for this investment and the expectation of further value decline.
Schroder’s portfolio generated a net property rental income of €3.4 million, representing an ungeared quarterly property income return of 1.2% (equating to 4.9% on an annualised basis).
Asset Management update
Key asset management initiatives during the most recent quarter were as follows:
- The company signed and commenced the construction contract for the refurbishment of the Boulogne-Billancourt, Paris office. Remaining costs are forecast to be c. €24 million, with completion forecast for June 2022. Approximately 50% of the sale proceeds have already been received as part of the forward funding agreement with the purchaser. The remainder will be received as refurbishment milestones are met through to completion.
- At its Hamburg office investment, the company has secured two new tenants for an additional 650m2 of office space on the seventh floor and 60m2 of retail space on the ground floor. The new leases have both been agreed on a five-year term and represent 10% of the Hamburg lettable area. The rents achieved are at a c. 20% premium to the business target. The building is now 90% let and discussions are ongoing with potential tenants for the remaining floor.
- The company’s retail exposure in Berlin (DIY) and Frankfurt (Grocery) represents 14% of the portfolio value and continues to perform strongly, achieving c. 100% rent collection in 2020 and valuation uplifts. SERE continues to work with retailers to optimise occupancy in the Seville shopping centre including reviewing alternate use options for vacant space.
Balance sheet and debt
As at 31 December 2020, Schroder has investable cash of approximately €25 million and a net loan to value ratio of approximately 25%. This capital is available for new earnings enhancing initiatives including new investments.
The company has seven loans secured by individual assets or groups of assets, with no cross-collateralisation between loans and recourse back to the company. The average weighted total interest rate of the loans is 1.4% per annum and the earliest scheduled loan maturity is in 2023. All loans are currently in compliance with their default covenants, though there is a cash trap in operation for the Seville loan.
Schroder continues to look at ways to improve on its recently awarded three green star global sustainability benchmark ‘GRESB’. These initiatives include BREEAM in use certification, utilisation of renewable energy, LED lighting and smart metering.
Participation in the GRESB survey is part of the Company’s broader ESG and positive impact strategy which is integral in the investment process.