Schroder European Real Estate has confirmed completion of the purchase of a convenience retail property located in Rodelheim (Frankfurt) at a purchase price of EUR11.05 million reflecting a net initial yield of 5.6%. The investment is well located in a growing inner urban area of Frankfurt am Main and is anchored by a 1,600 sqm Lidl supermarket with an initial lease term exceeding 10 years. The Company now owns a portfolio of five investments in its key target markets of France and Germany and continues to pursue negotiations on a number of other potential transactions.
At the same time Schroder Real Estate has published its first set of accounts since listing in December 2015 – interims covering the period to the end of March 2016. On 9 December 2015 it raised GBP107.5 million through a primary listing on the London Stock Exchange and a secondary listing on the Johannesburg Stock Exchange. Further equity placements on 14 December 2015 and 12 February 2016 raised an additional GBP14.3 million, resulting in total equity raised to date of GBP121.7 million.
The five investments in Germany and France, their two initial core markets, total EUR109 million equivalent to approximately 70% of the Company’s equity available for investment and around 50% of its total investment capacity (including debt financing).
Once fully invested, the Company’s objective is to target a dividend yield of 5.5% based on the euro equivalent of the issue price at launch. The Company’s strategy is to use debt financing with an overall cap of 35% loan-to-value (“LTV”). Given the historically low level of borrowing costs, the disciplined use of leverage is expected to be accretive to income returns.
The Company’s net asset value at 31 March 2016 was EUR159.4 million or 131.5 cents per share (GBP126.3 million or 104.2 pence per share).
Total capital deployed across the five asset portfolio is approximately EUR109 million (including transaction costs). Four retail and office assets have completed for a total purchase price of EUR90.6 million. They are located in the major cities of Paris, Berlin, Hamburg and Stuttgart. Post period end, contracts have been exchanged on one further retail property in Frankfurt for a purchase price of EUR11.1 million. The net initial income yield on the portfolio of five assets is 5.9%.
The initial investments have been acquired using equity, with debt financing expected to be drawn as the investment pipeline progresses and the portfolio composition becomes clearer. The Company’s strategy is to use modest leverage to improve shareholder returns, whilst maintaining a robust balance sheet. The spread between borrowing costs and property net initial yields in Continental Europe enhances the distribution yield achievable from an asset, with total interest rates of sub 2% p.a. for financing at sub 50% LTV in many markets. The use of debt will be assessed on a deal-by-deal basis and will be secured by individual assets or groups of assets, with overall leverage capped at 35% LTV across the entire portfolio at the time of drawing. The Company is currently engaged in discussions to finance the initial assets in Germany at an LTV of up to 50%, to take advantage of the particularly competitive financing market there.
Once fully invested, the Company will target an annualised euro dividend yield of 5.5% based on the euro equivalent of the issue price as at admission. In the absence of unforeseen circumstances, the Board continues to target a euro dividend yield during the first operating year of the Company to 30 September 2016 in the region of 1.5% – 2% based on the euro equivalent of the issue price as at admission. The Company intends to declare its first dividend in July 2016 in respect of the period to 30 June 2016 which it expects to be paid in August 2016.
SERE : Schroder European Real Estate completes fifth investment