Schroder European Real Estate (SERE) has announced its final results for the year ended 30 September 2018. SERE’s Chairman, Sir Julian Berney Bt., has described it as “another strong year that has seen SEREIT delivering growth in both net asset value and income”. He says that this was chiefly underpinned by the profitable disposal of lower yielding assets alongside new investment into higher growth industrial assets, as well as the active asset management of the existing portfolio and its tenants. Sir julian says that this activity has enabled the Company to grow the dividend and achieve its 5.5% IPO target dividend. The report includes the following key highlights:
- Continued benefits of growth in the premier European markets
- Acquired five properties in high growth sectors and cities, deploying €52 million at an average net income yield of 8.0%, and disposed of two retail properties totalling €44.8 million at an average net income yield of 5.0%
- Achieved IPO dividend target of 5.5% yield on Euro IPO issue price
- Active asset management has driven 57% growth in EPRA earnings
- Strong diversification from UK market
Financial highlights
SERE’s announcement includes the following financial highlights:
- Profit increased by 28% to €13.2 million (30 September 2017: €10.3 million)
- NAV total return of 7.5% (30 September 2017: 6.0%)
- Net Asset Value (‘NAV’) of €182.1 million or 136.2 cps, reflecting an increase over the period of 2.2%
- Total dividends declared relating to the year of 7.4 cps, reflecting a 42% increase on the Full Year 2017 dividend
- Dividend for the quarter ended 30 September 2018 of 1.85 cps
- Underlying EPRA earnings of €10.8 million (30 September 2017: €6.9 million)
- Loan to value (‘LTV’) of 26% (30 September 2017: 25%) at a weighted average total interest rate of 1.4%. Debt is either fixed cost or capped and has a long duration of 6.0 years on average
Operational highlights
SERE’s announcement includes the following operational highlights:
- 100% of the portfolio’s 12 institutional grade properties located in the fastest growing cities and regions of Continental Europe, which are expected to benefit from positive economic growth
- Portfolio valued at €222.0 million, reflecting an uplift of approximately 8.1% on purchase price;
- Disposal of two French retail properties for €44.8 million, reflecting a €4.9 million premium to the purchase price;
- Diversified the portfolio into the high growth logistics / industrial sector with the acquisition of three warehouses in the Netherlands for €21.3 million and a warehouse in France for €9.3 million, increasing the portfolio’s industrial weighting to 13%
- Acquisition of a long leased Data Centre in the Netherlands for an all in cost of €21 million, generating a net initial yield of approximately 10%;
- Execution of asset management initiatives across the portfolio, benefiting from the Investment Manager having local on the ground real estate teams:
- Conclusion of 17 new leases and re-gears, across approximately 8,600 sqm, resulting in an increase in income of c. 3% relative to previous rent and a weighted average lease term of c. 8 years
- Negotiation of a lease surrender in Hamburg, including a surrender premium to the Company of €3.9 million. In advanced discussions on securing new leases over c. 40% of the surrendered space;
- Maintained high portfolio occupancy levels of 97% (31 March 2018: 97%), with average portfolio unexpired lease term of 6.6 years (5.0 years to break).
Strategic focus
Sir Julian, the company’s chairman, says that “Going forward, the Company’s strategic focus on Winning Cities and regions across Europe means the portfolio we have constructed benefits from strong fundamentals, with a diverse occupier base and a number of clear opportunities to realise further rental growth. The quality of the real estate portfolio combined with the robust balance sheet and strong income profile also provide defensive characteristics in periods of uncertainty.”