Schroder European Real Estate Investment Trust - ISIN - Gb00By7R8K77
Written on 10/08/2018

Launched in December 2015, the Schroder European Real Estate Investment Trust targets growth regions in Continental Europe and aims to provide a regular and attractive level of income together with the potential for long term income and capital growth.

With a certain degree of uncertainty surrounding the UK commercial property market (slowing economic growth, BREXIT) increasing number of investors are looking to continental Europe for their real estate exposure, and the SERE would seem to tick many boxes. 
Ideal for an investor seeking above average income, with predominant exposure to European economies, and exhibiting low correlation with several other asset classes

Following recent Interim figures published on June 12th-Hot from Press!
Results released on Tuesday 12th June, show Net Asset Value increasing 6.1% over the last six months to March 31st,2018 to Euro 1.39(£1.22), and dividend pay-out moving towards the company target of 5.5% on issue price. The current LTV ratio is 28%, and the company’s weighted interest cost is around 1.3% with a duration of over 6 years. The fund is fully invested in a portfolio with a value more than Euros 237 million and is currently 97% occupied. At current price of 113.5p, the stock trades on a discount to NAV of approximately 7% with a prospective annual yield of 5.4% payable in Euros or Sterling.

  • Eurozone economic data continues to remain positive, growing faster than the UK over recent quarters and this relative outperformance is expected to continue. Private business surveys point to further growth and property and investment activity remains robust. A recent sample of German companies, for instance, showed rents rising between 4% and 6% over the last twelve months.
  • SERE invests in cities/regions characterised by large liquid real estate markets such as Amsterdam, Berlin, Hamburg, Munich and Paris where local GDP are outperforming the national averages.
  • The Trust is managed by Jeff O Dwyer, an experienced real estate investment manager, who is supported by nearly 100 property specialists located in key European hubs. The team see over Euro 2 billion of introductions each month, with the near-term pipeline comprising over Euros 115 million yielding between 5.8% and 7.5%.
  • The process/risk control involves holding the bulk of the portfolio in stable income producing developments (approx. 70%) while adding a greater capital return component to the other 30% via refurbishments, change of use, lease extensions etc. A large portion of the rents are index linked.
  • The purchase of a data/mixed user investment in Apeldoorn in February this year, on a very attractive 10% income yield leaves the fund fully invested.
  • Geographical weighting is currently Germany (22.7%), France (50%), Holland and Spain (27%) by value. Approximately 45% of the property portfolio is represented by offices and 40.3% by retail, the latter predominantly in logistics centres, smaller supermarkets and convenience stores. These figures were effective on March 31, 2018.
  • The top five properties were in Paris, Seville, Berlin and Biarritz. 
  • Portfolio is almost 100% occupied with a 6.8 years average lease time and net property income yield of 6%

SERE targets a fully covered Euro yield of 5.5%(7.5 Eurocents on a Euro equivalent issue price of Euro1.37). Dividends are declared in Euros, and paid quarterly, with UK shareholders being given the option of sterling or Euro pay-outs. Lease structures vary across Europe, but most typically have some form of inflation linkage, providing support for the target dividend. 
Current discount to NAV (Euros 1.347-December 31st, 2017) represents a good level to be obtaining exposure to mainstream European property.

  • The portfolio seeks to enhance property returns with a relatively modest level of gearing currently 28% LTV, (35% target LTV). The blended all in debt cost is 1.3% with an average maturity of around 6.5 years.
  • Closed end fund structure with daily liquidity via a listing on the main market of the London Stock Exchange.

Sources (LSE,company management and Numis Securities)

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