Schroder European Real Estate (Sereit), the JSE-listed western European-focused property fund, should reach its first investment target by the end of 2017.
South African investors have been buying Sereit shares to gain exposure in Europe’s large economies of Germany, France and Spain.
Sereit has about €30m worth of investment capacity that it plans to deploy by the end of 2017 and the group has chosen Spain as the most likely area to invest these funds.
Asset manager Schroders set up Sereit to be a Europe-focused fund and then raised about €240m, of which nearly €210m had already been spent on property acquisitions.
Once this phase has been completed, a strategy will be put in place for the next phase.
"We now own nine institutional-grade assets in growth cities, with a total value of €208.9m. We want to scale up in Spain. It’s a very strong market right now. The Spanish have recovered well out of the global financial crisis. It’s likely we will spend the final €30m or most of it in this market and then will have completed part one of our life as a fund," Sereit fund
manager Tony Smedley said.
Sereit listed in December 2015. It is targeting a 5.5% dividend yield once fully invested. Its share price has struggled since it joined the JSE, falling from R21.70 at listing to R18.25 on Monday, down nearly 16%.
Sereit acts as a rand hedge for South African investors. It promises consistent income payouts, as opposed to seeking market-beating capital growth.
Smedley said it would only invest in western Europe as the region looked set to provide consistent returns.
"Our view is that western Europe has a more sustainable growth story. Eastern Europe may be offering strong returns, but we don’t see it panning out for that long and hence Schroder’s European fund is focused on western Europe,"
After Spain, Sereit would consider investing in other European cities such as
Stockholm, Copenhagen, Brussels and Amsterdam, according to Smedley.
Chris Segar of Ivy Asset Management said that Sereit remained 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."
EASTERN EUROPE MAY BE OFFERING STRONG RETURNS, BUT WE DON’T SEE IT PANNING OUT FOR THAT LONG