Schroder REIT saw its net asset value (NAV) soar by 25.4% in the year to 31 March 2022, as property capital values rebounded strongly.
The group expects capital value growth to slow this year as the rapid rise in inflation creates volatility. However, it added that it does not expect a significant correction in values, due to the sector offering “an attractive income return and investment characteristics that have historically acted as a partial hedge against periods of high inflation”.
Financial highlights
- NAV increased 25.4% to £372.2m or 75.8p per share (March 2021: £296.8m or 60.4p).
- NAV total return for the year of 30.9% (March 2021: 3.9%).
- EPRA earnings of £15.7m, an increase of 35.3%.
- IFRS profit of £89.4m (March 2021: £4.5m).
- Portfolio outperformed the MSCI Benchmark Index with a total return of 23.5% compared to 19.9%.
- Loan to value (LTV), net of all cash, of 28.6%.
- Dividends reinstated to the pre-pandemic level. Dividends of 2.83p per share paid during the financial year, reflecting dividend cover of 113% based on EPRA earnings. Further 3% increase in the quarterly dividend to 0.795p to be paid in the quarter ending 30 June 2022.
Operational highlights
- Rent collection stabilised at pre-pandemic level of 96%.
- Disposal of Nottingham office asset for £13.0m, realising a £3.2m gain in the financial year and a 12.4% per annum total return since acquisition in August 2018.
- Acquisition of four industrial assets in the north-west of England for £19.9m, reflecting a net initial yield of 6.9% and a reversionary yield of 8.2%.
- Commenced development of 11 net zero carbon warehouse and trade units in Cheadle, Greater Manchester, totalling 80,000 sq ft at a cost of £8.5m.
- Post year end acquisition of St. Ann’s House, a mixed-use office and retail asset in Manchester City Centre, for £14.7m, reflecting a net initial yield of 7.8% and a reversionary yield of 9.1%.
- 72 new lettings, renewals and reviews completed (as at 6 June 2022), totalling £3.9m per annum of rental income and reflecting an annualised increase of £1.6m on the previous contracted rent.
Lorraine Baldry, chairman, commented:
“Capital values increased strongly in the financial year and the Company benefitted from an above-average weighting to multi-let industrial estates, retail warehousing and offices in higher growth cities. The speed and force of the upturn in inflation has been a shock to markets, and increased levels of volatility are expected. We expect this to lead to slowing capital values, but do not currently expect a significant correction due to the sector offering an attractive income return and investment characteristics that have historically acted as a partial hedge against periods of high inflation. The Company’s portfolio is well positioned for a rising interest rate environment, with an above-average income yield, a pipeline of asset management initiatives that should support returns, and long-term, fixed-rate debt.
“The built environment has a profound impact on climate change and owners of real estate have an important role to play in decarbonisation. There is an opportunity to evolve the Company’s strategy to adapt existing buildings to improve sustainability performance and the Investment Manager is well placed to lead in this area.”
SREI : Schroder REIT reports sharp rise in NAV