Schroder European Real Estate Investment Trust expects boom
The company forecasts its share price will climb as it deploys capital to enhance its portfolio
Schroder European Real Estate Investment Trust (Sereit) says that a vaccination-led economic recovery brewing in Europe as the continent enters its summer holidays is likely to improve confidence and spending by its tenants, ultimately improving its income generation.
Sereit operates as a rand hedge for SA investors as it pays dividends in euro.
It gives SA investors exposure to West European capital cities. It had a portfolio valued at €259.9m (R4.41bn) at end-March with assets in cities including Paris, Hamburg, Stuttgart, Berlin, Frankfurt and Seville.
“We have noticed increasing confidence across Europe, as economies open up. The UK’s prime minister, Boris Johnson, indicated that he planned to open the economy there completely and we can see that following through across Europe where vaccination rollouts have been swift,” said Jeff O’Dwyer, fund manager at Schroder Real Estate Investment Management.
He said in an interview with Business Day after the release of the company’s financial results for the six months to end-March that Sereit will deploy millions of euro in capital over the next year to attract investors and strengthen its share price.
“While uncertainty relating to the pandemic will continue, we are starting to see some positive signs of growth over 2021 as lockdowns ease and consumer and investor confidence returns. Off of this we intend to expand our business through different asset management strategies and through new acquisitions,” he said.
“We have noticed that Europe is opening up and gatherings are returning at sports and live music events,” he said.
Dividends worth €4.6m, or 3.42c per share, were declared for the reporting period, with a reinstatement of the group’s pre-Covid dividend of 1.85c per share due to an improving outlook, strong rent collection, cash position and valuation resilience.
The company aims to declare two more dividends with a target of about €4.75 per share each, through a special dividend over the next 12 months.
O’Dwyer said this will let shareholders benefit from the proceeds of the sale of Sereit’s Boulogne-Billancourt office asset in Paris. The office is set to be sold for €104m.
The proceeds from the sale of Boulogne-Billancourt will substantially strengthen the company’s balance sheet and provide significant operational and financial flexibility.
“We are focused on identifying attractive income-generating opportunities in future-proof assets that meet our strict investment criteria. These will provide further diversification benefits to the portfolio and assist in maintaining an attractive dividend covered from sustainable rental income, as we seek to maximise shareholder returns,” said O’Dwyer.
Chair Julian Berney said it is frustrating that Sereit’s share price has not reflected the robust performance of the business during the pandemic or that its current discount to net asset value properly reflects its future prospects.
“Given the healthy cash position, the board will continue to review the discount and use its discretion to execute measures that it believes should support income and total returns, including new acquisitions,” it said.
O’Dwyer said asset management strategies will hopefully attract more SA investors, fuelling share price growth.
Sereit’s share price gained 3.34% to close at R20.45 giving it a market capitalisation of R2.6bn.
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