Schroder European Real Estate Investment Trust (Sereit), the company investing in European growth cities, has acquired a shopping centre in Seville, Spain, in a joint venture, worth about €52.5m (R771m).
Schroder, a rand hedge for South African investors, focuses on European cities, and promises consistent income payouts, as opposed to seeking market-beating capital growth. It has managed to complete its first deal in Spain, one of Europe’s strongly recovering economies.
Spain’s economy grew 3.2% in 2016 and 3.2% in 2015.
Schroder’s portion of the Spanish city was worth €26.3m, reflecting a net initial yield of 6.2%. It represents the first addition to the portfolio outside the core markets of France and Germany.
Sereit fund manager Tony Smedley said Seville was an attractive market, given its status as a tourist destination.
Seville is the capital of Andalucía and Spain’s fourth-largest city and is an important tourist destination. The city is expected to outperform national averages in terms of both economic growth and consumer spending over the next five years, according to Smedley.
"We have been tracking this opportunity for some time and are pleased to complete the purchase. The property has a strong occupational track record, is located in one of the region’s fastest growing conurbations and fits with the wider portfolio strategy to acquire accretive assets that offer an attractive income profile with additional asset management potential," said Smedley.
"We are excited to be delivering on our stated initial public offering strategy, building a considerable portfolio of diverse assets that are set to be beneficiaries of the improving economies and the long-term urbanisation theme being witnessed across the European cities in which the company is invested," he said.
Chris Segar of Ivy Asset Management said Sereit was a "compelling investment for retail investors".
"Schroder has a solid track record in property asset management, they have dedicated property people on the ground across many regions of continental Europe, with teams based in London, Paris, Frankfurt, Zurich, Luxembourg and Stockholm. So they have good property expertise and broad coverage, which enables them to actively seek out opportunities, such as properties with decent rental or vacancy reversions, and to take advantage of the large gap between property investment yields and government yields," he said.
The company’s portfolio’s initial yield was 6.3%. With a loan-to-value of 22% and a blended cost of debt of 1.19%, cash-on-cash returns were projected to be between 7% and 9%.
"The fund debuted in December 2015, and in April 2017, management stated that they had a potential property portfolio of €230m, with an existing portfolio value of €180m. So it appears that management have been hard at work on implementing their acquisition strategy, having identified property assets with uplift potential," Segar said.