Schroder European Real Estate (SERE), a £78m REIT struggling on a 40% discount, is to wind down, over the next two-to-three years saying its assets can be sold for more than the share price implies.
“Despite strong property performance and effective corporate management, we have advised the board that a managed wind-down is the most effective strategy for maximising shareholder value,” Schroders fund manager Jeff O’Dwyer said.
SERE said that equity markets continued to disadvantage smaller listed funds below £100m and that despite paying over £80m of dividends since launch in 2015, shares in the company had suffered low levels of liquidity and a wide discount to net asset value for “a prolonged period of time”. Including dividends, before today they had returned a total of just 2.5% over 10 years. This morning they rose 4.5% to 62.5p.
Following discussions with major shareholders, the board and Schroders concluded that share buybacks or a new thematic or sector-specific investment strategy would not be sufficient to offset the current global uncertainty and investor preference for large real estate investment trusts.
Chair Phil Redding said: “On behalf of the board, I would like to thank Schroders for its diligent management of the portfolio. The board will continue to work closely with Schroders to efficiently implement the wind-down process and remain focused on delivering the maximum value for the company’s shareholders.”
The announcement came alongside half-year results showing the net asset value of its 14 properties in France, Germany and the Netherlands slipped €2.9m to €151.3m with NAV per share off 2.2 cents to 115.1 cents in the six months to 31 March. Including 2.96 cents of dividends SERE made a total return of 0.7%. The 8.6%-yielder’s pay-out was 93% covered by earnings before exceptional items.
SERE’s departure could mark the end of the AIC Europe Property sector in investment trusts as the two other constituents, Abrdn European Logistics Income (ASLI) and Phoenix Spree Deutschland (PSDL) are also in an advanced stage of wind-down or realisation of assets.
Our view
Matthew Read, senior analyst at QuotedData, said: “While disappointing, SERE’s proposed managed wind-down is not a surprise. The trust has done much of what shareholders could reasonably have asked of it: maintaining a diversified continental European portfolio, keeping the balance sheet under control and delivering steady dividends. However, it was too small and illiquid, and continued to trade on a persistent, material discount. A managed wind-down gives shareholders a route to crystallise value and is preferable to risking a third party forcing a faster sales process. The proposed two-to-three-year timetable looks sensible, allowing time to avoid forced sales, complete asset management initiatives and resolve the French tax litigation.”
