Schroder REIT increased its dividend by 14% last year on the back of strong operational performance.
Estimated rental growth (ERV) on the diversified portfolio (which is skewed towards industrial assets) was up 9.2% in its financial year to 31 March 2023, while EPRA earnings was up to 3.3p per share.
This fully covered the dividend of 3.22p. The company has declared a dividend of 0.836p for first quarter of its 2024 financial year, which is up a further 2%.
Higher interest rates saw the group’s portfolio equivalent yield move outwards by 152 basis points (1.52%) to 7.8%, which resulted in a 10.1% fall in the value of its portfolio to £470.4m.
This contributed to an 18.9% drop in NAV to 61.5p per share.
The group has a loan to value (LTV) ratio of 36.0%, with a long debt maturity profile of 10.6 years and a low average interest cost of 2.9%, with 90% either fixed or hedged against movements in interest rates.
Operational highlights
- 65 new lettings, rent reviews and renewals across 973,000 sq ft completed since the start of the financial year, totalling £6.7m in annualised rental income and generating £2.3m per annum of additional rent, including:
- Rent reviews and lease renewals at Langley Park Industrial Estate in Chippenham with Siemens Mobility and IXYS which increased the headline annual rent by £0.4m or 21%
- 40,000 sq ft lease regear completed with Buckinghamshire New University in Uxbridge, extending the lease contract by five years at 13% higher rent
- Post year end completion of Stanley Green Trading Estate 80,000 sq ft operational net zero development in Manchester, with approximately 40% of the £1.3m ERV let or in legals
- 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%, a reversionary yield of 9.1% and a low average capital value of £283 per sq ft, and, post year end, a small adjoining ownership in Chelmsford, for £800,000, reflecting a net initial yield of 11.1%
- Three disposals totalling £12.6m at a 13% average premium to the valuation at the start of the financial year
Improvement on portfolio sustainability performance
- Further improvement in the Global Real Estate Sustainability Benchmark (GRESB) score, placing first among a group comprising seven diversified REITs
- 58% of the portfolio rated EPC A-C (31 March 2022: 41%), the company’s first ‘A+’ ratings were achieved at the new development at Stanley Green Trading Estate post year end
- Announced ‘Pathway to Net Zero Carbon’, includes operational whole buildings emissions to be aligned to a 1.5°C pathway by 2030
Alastair Hughes, chairman, commented:
“There are signs that real estate values are stabilising, and approaching fair value. The attractive portfolio income and pipeline of asset management activity should contribute to continued earnings and dividend growth, further improve the defensive qualities of the portfolio, and enhance returns as the market recovers.
“Whilst a relaxation in monetary policy is expected in 2024, interest rates will remain elevated compared with the recent past. The prudent balance sheet management implemented by the Company, resulting in the lowest cost, longest duration debt in the peer group, largely removes this risk to earnings, and provides a solid foundation to deliver future dividend growth.”
Nick Montgomery, fund manager, added:
“Whilst the Company’s asset values were impacted by macro-economic headwinds, our diversified portfolio delivered a further increase in the fully covered dividend level, driven by asset management-led rental growth. Importantly, the strength of our balance sheet, underpinned by low cost, long-term, fixed rate debt, is a key competitive advantage and provides significant protection from the impact of higher interest rates. These factors, combined with an increasing emphasis on sustainability-led initiatives, will further and more clearly differentiate the Company’s strategy, helping to drive more sustainable, long-term returns for shareholders.”
SREI : Schroder REIT ups dividend as portfolio performs strongly